AMERICAN EXPRESS CO 10-K

axp-20211231 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 , 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-7657 American Express Co mpany (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 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 Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ 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, a 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 þ Accelerated filer o Non-accelerated filer o 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ As of June 30, 2021, the aggregate market value of the registrant’s voting shares held by non-affiliates of the registrant was approximately $ 131.1 billion based on the closing sale price as reported on the New York Stock Exchange. As of February 3, 2022, there were 759,354,994 common shares of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III: Portions of Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on May 3, 2022. Table of Contents TABLE OF CONTENTS Form 10-K Item Number Page PART I 1. Business 1 Competition 9 Supervision and Regulation 11 Additional Information 21 1A. Risk Factors 22 1B. Unresolved Staff Comments 37 2. Properties 37 3. Legal Proceedings 37 4. Mine Safety Disclosures 37 PART II 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 38 6. [ R eserved ] 39 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 40 Executive Overview 40 Consolidated Results of Operations 43 Business Segment Results of Operations 51 Consolidated Capital Resources and Liquidity 60 Risk Management 69 Critical Accounting Estimates 78 Other Matters 82 7A. Quantitative and Qualitative Disclosures about Market Risk 87 8. Financial Statements and Supplementary Data 87 Management’s Report on Internal Control Over Financial Reporting 87 Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 88 Index to Consolidated Financial Statements 91 Consolidated Financial Statements 92 Notes to Consolidated Financial Statements 97 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 154 9A. Controls and Procedures 154 9B. Other Information 154 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 154 PART III 10. Directors, Executive Officers and Corporate Governance 155 11. Executive Compensation 155 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 155 13. Certain Relationships and Related Transactions, and Director Independence 155 14. Principal Account ant Fees and Services 156 PART IV 15. Exhibit and Financial Statement Schedules 157 16. Form 10-K Summary 163 Signatures 164 Statistical Disclosure by Bank Holding Companies A- 1 Table of Contents This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You can identify forward-looking statements by words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue” or other similar expressions. We discuss certain factors that affect our business and operations and that may cause our actual results to differ materially from these forward-looking statements under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” You 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 publicly or revise any forward-looking statements. This report includes trademarks, such as American Express ® , which are protected under applicable intellectual property laws and are the property of American Express Company or its subsidiaries. This report also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. Throughout this report the terms “American Express,” “we,” “our” or “us,” refer to American Express Company and its subsidiaries on a consolidated basis, unless stated or the context implies otherwise. The use of the term “partner” or “partnering” in this report does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of American Express’ relationship with any third parties. Refer to the “MD&A ― Glossary of Selected Terminology” for the definitions of other key terms used in this report. Table of Contents PART I ITEM 1. BUSINESS Overview American Express is a globally integrated payments company that provides our customers with access to products, insights and experiences that enrich lives and build business success. We are a leader in providing credit and charge cards to consumers, small businesses, mid-sized companies and large corporations around the world. American Express ® cards issued by us, as well as by third-party banks and other institutions on the American Express network, can be used by Card Members to charge purchases at the millions of merchants around the world that accept cards bearing our logo. Our various products and services are sold globally to diverse customer groups through various channels, including mobile and online applications, affiliate marketing, customer referral programs, third-party service providers and business partners, direct mail, telephone, in-house sales teams and direct response advertising. We were founded in 1850 as a joint stock association and were incorporated in 1965 as a New York corporation. American Express Company and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies under the Bank Holding Company Act of 1956, as amended (the BHC Act), subject to supervision and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve). We principally engage in businesses comprising three reportable operating segments: Global Consumer Services Group (GCSG), Global Commercial Services (GCS) and Global Merchant and Network Services (GMNS). Corporate functions and certain other businesses are included in Corporate & Other. Our businesses are global in scope and function together to form our end-to-end integrated payments platform, which we believe is a differentiator that underpins our business model. While our business was significantly impacted by the COVID-19 pandemic in 2020, we believe our growth momentum through 2021 strengthens our focus on our strategic imperatives and the resilience of our differentiated business model. For further information about our reportable operating segments, please see “Business Segment Results of Operations” under “MD&A.” 1 Table of Contents Our Integrated Payments Platform Through our general-purpose card-issuing, merchant-acquiring and card network businesses, we are able to connect participants and provide differentiated value across the commerce path. We maintain direct relationships with both our Card Members (as a card issuer) and merchants (as an acquirer), and we handle all key aspects of those relationships. These relationships create a “closed loop” in that we have direct access to information at both ends of the card transaction, which distinguishes our integrated payments platform from the bankcard networks. Our integrated payments platform allows us to analyze information on Card Member spending and build algorithms and other analytical tools that we use to underwrite risk, reduce fraud and provide targeted marketing and other information services for merchants and special offers and services to Card Members, all while respecting Card Member preferences and protecting Card Member and merchant data in compliance with applicable policies and legal requirements. Through contractual relationships, we also obtain information from third-party card issuers, merchant acquirers, aggregators and processors with whom we do business. Card Issuing Businesses Our global proprietary card-issuing businesses are conducted through our GCSG and GCS reportable operating segments. We offer a broad set of card products, rewards and services to a diverse consumer and commercial customer base, in the United States and internationally. We acquire and retain high-spending, engaged and creditworthy Card Members by: • Designing innovative products and features that appeal to our target customer base and meet their spending and borrowing needs • Using incentives to drive spending on our various card products and engender loyal Card Members, including our Membership Rewards ® program, cash-back reward features and participation in loyalty programs sponsored by our cobrand and other partners • Providing digital and mobile services and an array of benefits and experiences across card products, such as airport lounge access, dining experiences and other travel and lifestyle benefits, which we believe are difficult for others to replicate and help increase Card Member engagement • Creating world-class service experiences by delivering exceptional customer care • Developing a wide range of partner relationships, including with other corporations and institutions that sponsor certain of our cards under cobrand arrangements and provide benefits and services to our Card Members Over the last several years, we have focused on broadening the appeal of our products to attract new customers, particularly Millennial and Gen Z customers, as well as expanding our position with small and mid-sized enterprise (SME) customers by providing more ways to help them manage and grow their businesses. During 2020, we enhanced our value propositions on many of our products, including adjusting our rewards programs and adding limited time offers and statement credits in categories that were relevant to how customer spending behaviors were changing, such as wireless telephone services, streaming services, business essentials and food delivery. We also enhanced and expanded our financial relief programs to assist our customers who faced financial hardships. As the pandemic continued, we made the decision to increase investments to drive customer acquisition, engagement and retention. These initiatives have driven retention and satisfaction metrics higher than pre-pandemic levels. During 2021, we relaunched our consumer Platinum Card and Business Platinum Card in the United States and introduced our first business checking account product and new digital capabilities, in part resulting from the Kabbage technology platform we acquired in 2020. For the year ended December 31, 2021, worldwide billed business (spending on American Express cards issued by us) was $1.1 trillion and at December 31, 2021, we had 71.4 million proprietary cards-in-force worldwide. Merchant Acquiring Business Our GMNS reportable operating segment builds and manages relationships with millions of merchants around the world that choose to accept American Express cards. This includes signing new merchants to accept our cards, agreeing on the discount rate (a fee charged to the merchant for accepting our cards) and handling servicing for merchants. We also build and maintain relationships with merchant acquirers, aggregators and processors to manage aspects of our merchant services business. For example, through our OptBlue ® merchant-acquiring program, third-party acquirers contract directly with small merchants for card acceptance on our network and determine merchant pricing. We continue to grow merchant acceptance of American Express cards around the world and work with merchant partners so that our Card Members are warmly welcomed and encouraged to spend in the millions of places where their American Express cards are accepted. 2 Table of Contents GMNS also provides fraud-prevention tools, marketing solutions, data analytics and other programs and services to merchants and other partners that leverage the capabilities of our integrated payments platform. During the pandemic, we increased our investments in our Shop Small campaigns to support small businesses around the world, created a Stand for Small coalition and supported minority-owned small businesses in the United States. We launched debit capabilities on the American Express network and in 2021 introduced our first-ever proprietary debit card in connection with the business checking account product mentioned above. Card Network Business We operate a payments network through which we establish and maintain relationships with third-party banks and other institutions in approximately 103 countries and territories, licensing the American Express brand and extending the reach of our global network. These network partners are licensed to issue local currency American Express-branded cards in their countries and/or serve as the merchant acquirer for local merchants on our network. During 2021, we continued to grow our business in China through our joint venture with Lianlian DigiTech Co., Ltd, a Chinese fintech services company. For the year ended December 31, 2021, worldwide network services processed volume (spending on American Express cards issued by third parties) was $194.4 billion and at December 31, 2021, we had 50.3 million cards-in-force issued by third parties worldwide. Diverse Customer Base and Global Footprint Our broad and diverse customer base spans consumers, small businesses, mid-sized companies and large corporations around the world. The following charts provide a summary of our diverse set of customers and broad geographic footprint based on worldwide network volumes: 3 Table of Contents Partners and Relationships Our integrated payments platform allows us to work with a range of business partners, and our partners in return help drive the scale and relevance of the platform. There are many examples of how we connect partners with our integrated payments platform, including: issuing cards under cobrand arrangements with other corporations and institutions (e.g., Delta Air Lines, Marriott International, Hilton Worldwide Holdings and British Airways); offering innovative ways for our Card Members to earn and use points with our merchants (e.g., Pay with Points at Amazon.com); expanding merchant acceptance with third-party acquirers (e.g., OptBlue partners); developing new capabilities and features with our digital partners (e.g., PayPal); integrating into the supplier payment processes of our business customers (e.g., Bill.com, SAP Ariba and Coupa); and extending the platform into travel services with American Express leisure and business travel (e.g., Fine Hotels and Resorts). Delta Air Lines is our largest strategic partner. Our relationships with, and revenues and expenses related to, Delta are significant and represent an important source of value for our Card Members. We issue cards under cobrand arrangements with Delta and the Delta cobrand portfolio represented approximately 9 percent of worldwide network volumes and approximately 21 percent of worldwide Card Member loans as of December 31, 2021. The Delta cobrand portfolio generates fee revenue and interest income from Card Members and discount revenue from Delta and other merchants for spending on Delta cobrand cards. The current Delta cobrand agreement runs through the end of 2029 and we expect to continue to make significant investments in this partnership. Among other things, Delta is also a key participant in our Membership Rewards program, provides travel-related benefits and services, including airport lounge access for certain American Express Card Members, accepts American Express cards as a merchant and is a corporate payments customer. Working with all of our partners, we seek to provide value, choice and unique experiences across our customer base. Our Spend-Centric Model and Revenue Mix Our “spend-centric” business model focuses on generating revenues primarily by driving spending on our cards and secondarily through finance charges and fees. Spending on our cards, which is higher on average on a per-card basis versus our competitors, offers superior value to merchants in the form of loyal customers and larger transactions. Because of the revenues generated from having high-spending Card Members and the annual card fees we charge on many of our products, we are able to invest in attractive rewards and other benefits for Card Members, as well as targeted marketing and other programs and investments for merchants. This creates incentives for Card Members to spend more on their cards and positively differentiates American Express cards. We believe our spend-centric model gives us the ability to provide differentiated value to Card Members, merchants and business partners. The American Express Brand and Service Excellence Our brand and its attributes—trust, security and service—are key assets. We invest heavily in managing, marketing, promoting and protecting our brand, including through the delivery of our products and services in a manner consistent with our brand promise. The American Express brand is ranked among the most valuable brands in the world. We place significant importance on trademarks, service marks and patents, and seek to secure our intellectual property rights around the world. We aim to provide the world’s best customer experience every day and our reputation for world-class service has been recognized by numerous awards over the years. Our customer care professionals, travel consultants and partners treat servicing interactions as an opportunity to bring the brand to life for our customers, add meaningful value and deepen relationships. 4 Table of Contents Our Business Strategies During 2021, we focused on investing to rebuild growth momentum by firing up our core business, scaling next-horizon opportunities and continuing to retain financial flexibility. Over the longer term, we seek to grow our business by focusing on four strategic imperatives: First, we aim to expand our leadership in the premium consumer space by continuing to deliver membership benefits that span our customers’ everyday spending, borrowing, travel and lifestyle needs, expanding our roster of business partners around the globe and developing a range of experiences that attract high-spending customers. Second, we seek to build on our strong position in commercial payments by evolving our card value propositions, further differentiating our corporate card and accounts payable expense management solutions and designing innovative products and features, including financing, banking and payment solutions for our business customers. Third, we are focused on strengthening our global network to provide unique value by continuing to help merchants navigate the convergence of online and offline commerce with fraud protection services, marketing insights and digital connections to higher-spending Card Members and continuing to work with our network partners to offer expanded products and services. Finally, we want to continue to make American Express an essential part of our customers’ digital lives by developing more digital features, solutions and services, expanding our digital partnerships and making targeted acquisitions. We also have an Environmental, Social and Governance (ESG) strategy that focuses on three pillars. The Promoting Diversity, Equity and Inclusion (DE&I) pillar supports a diverse, equitable and inclusive workforce, marketplace and society. The Building Financial Confidence pillar seeks to provide responsible, secure and transparent products and services to help people and businesses build financial resilience. Finally, the Advancing Climate Solutions pillar focuses on enhancing our operations and capabilities to meet customer and community needs in the transition to a low-carbon future. 5 Table of Contents Our Colleagues We are committed to delivering a great colleague experience every day. We work to foster an inclusive and diverse culture and help our colleagues grow in their careers and thrive both professionally and personally. As a result, we believe our colleagues are more engaged, committed, creative and effective in driving results. At the heart of our culture is what we call our Blue Box Values – a set of guiding principles that reflect who we are and what we stand for: We Back Our Customers We Embrace Diversity We Make It Great We Stand for Inclusion We Do What's Right We Win as A Team We Respect People We Support Our Communities As of December 31, 2021, we employed approximately 64,000 people, whom we refer to as colleagues, with approximately 22,000 colleagues in the United States and approximately 42,000 colleagues outside the United States. To attract and retain the best talent, we continuously invest in programs, benefits and resources to foster the personal and professional growth of our colleagues. We provide learning opportunities in many forms, including tools and guidance for maximizing learning on the job; cross-border and cross-business unit assignments; career coaching, mentoring, and professional networking; rotation opportunities; virtual learning sessions; and formal classroom instruction. We take a holistic approach to well-being, providing resources that address the physical, financial and emotional health of our colleagues. Throughout the pandemic, one of our top priorities has been to ensure our colleagues have the flexibility and resources they need to stay safe, healthy and productive. We conduct an annual Colleague Experience Survey to better understand our colleagues’ needs and overall experience at American Express and in 2021, 90 percent of colleagues who participated in the survey said they would recommend American Express as a great place to work. Our 2021 annual company scorecard included talent retention and diversity representation goals to increase minority and women representation and retain our key talent. While we experienced an increase in colleague attrition in 2021, our high potential and multi-year high performer retention rates met or exceeded our goals. As of December 31, 2021, women represented 52.9 percent of our global workforce and Asian, Black/African American and Hispanic/Latinx people represented 19.5 percent, 13.3 percent and 13.8 percent, respectively, of our U.S. workforce based on preliminary data for our 2021 U.S. EEO-1 submission. We regularly review our compensation practices to ensure colleagues in the same job, level and location are compensated fairly regardless of gender globally, and race and ethnicity in the United States. These reviews consider several factors known to affect compensation, including role, level, tenure, performance and geography. In the instances where a review has found inconsistencies, we have made adjustments. After making these adjustments, we believe we maintained 100 percent pay equity in 2021 for colleagues across genders globally and across races and ethnicities in the United States. 6 Table of Contents Information About Our Executive Officers Set forth below, in alphabetical order, is a list of our executive officers as of February 11, 2022, including each executive officer’s principal occupation and employment during the past five years and reflecting recent organizational changes. None of our executive officers has any family relationship with any other executive officer, and none of our executive officers became an officer pursuant to any arrangement or understanding with any other person. Each executive officer has been elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer’s age is indicated by the number in parentheses next to his or her name. DOUGLAS E. BUCKMINSTER — Vice Chairman and Group President, Global Consumer Services Group Mr. Buckminster (61) has been Vice Chairman since April 2021 and Group President, Global Consumer Services Group since February 2018. Prior thereto, he had been President, Global Consumer Services Group since October 2015. JEFFREY C. CAMPBELL — Vice Chairman and Chief Financial Officer Mr. Campbell (61) has been Vice Chairman since April 2021 and Chief Financial Officer since August 2013. MONIQUE HERENA — Chief Colleague Experience Officer Ms. Herena (50) has been Chief Colleague Experience Officer since April 2019. Ms. Herena joined American Express from BNY Mellon, where she served as the Chief Human Resources Officer and Senior Executive Vice President, Human Resources, Marketing and Communications since 2014. RAYMOND JOABAR — Group President, Global Merchant and Network Services Mr. Joabar (56) has been Group President, Global Merchant and Network Services since April 2021. Prior thereto, he had been President, Global Risk and Compliance and Chief Risk Officer since September 2019. He also served as President of International Consumer Services and Global Travel and Lifestyle Services from February 2018 to September 2019 and as Executive Vice President, Global Servicing Network from February 2016 to February 2018. ANNA MARRS — Group President, Global Commercial Services and Credit & Fraud Risk Ms. Marrs (48) has been Group President, Global Commercial Services and Credit & Fraud Risk since April 2021. Prior thereto, she had been President, Global Commercial Services since September 2018. Ms. Marrs joined American Express from Standard Chartered Bank, where she served as Regional CEO, ASEAN and South Asia since November 2016. DAVID NIGRO — Chief Risk Officer Mr. Nigro (60) has been Chief Risk Officer since April 2021. Prior thereto, he had been Executive Vice President and Chief Credit Officer, Global Consumer Services and Credit and Fraud Risk Capability since April 2018 and Executive Vice President and Chief Credit Officer, U.S. Consumer Card Services since December 2013. DENISE PICKETT — President, Global Services Group Ms. Pickett (56) has been President, Global Services Group since September 2019. Prior thereto, she had been Chief Risk Officer and President, Global Risk, Banking & Compliance since February 2018 and President, U.S. Consumer Services from October 2015 to February 2018. RAVI RADHAKRISHNAN — Chief Information Officer Mr. Radhakrishnan (50) has been Chief Information Officer since January 2022. Mr. Radhakrishnan joined American Express from Wells Fargo & Company, where he served as Chief Information Officer for the Commercial Banking and Corporate & Investment Banking businesses since May 2020. Prior thereto, he had been Chief Information Officer, Wholesale, Wealth & Investment Management and Innovation from May 2019 to May 2020. He also served as Enterprise Chief Information Officer from March 2017 to May 2019 and as Chief Information Officer, Wholesale Banking from October 2015 to March 2017. ELIZABETH RUTLEDGE — Chief Marketing Officer Ms. Rutledge (60) has been Chief Marketing Officer since February 2018. Prior thereto, she had been Executive Vice President, Global Advertising & Media since February 2016. LAUREEN E. SEEGER — Chief Legal Officer Ms. Seeger (60) has been Chief Legal Officer since July 2014. 7 Table of Contents JENNIFER SKYLER — Corporate Affairs Officer Ms. Skyler (45) has been Corporate Affairs Officer since October 2019. Ms. Skyler joined American Express from WeWork, where she served as Chief Communications Officer from January 2018 to September 2019. Prior thereto, she had been Global Head of Public Affairs from January 2016 to January 2018. STEPHEN J. SQUERI — Chairman and Chief Executive Officer Mr. Squeri (62) has been Chairman and Chief Executive Officer since February 2018. Prior thereto, he had been Vice Chairman since July 2015. ANRÉ WILLIAMS — Group President, Enterprise Services Mr. Williams (56) has been Group President, Enterprise Services since April 2021. Prior thereto, he had been Group President, Global Merchant and Network Services since February 2018 and President of Global Merchant Services and Loyalty since October 2015. Mr. Williams also serves as the Chief Executive Officer of American Express National Bank. 8 Table of Contents COMPETITION 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, or ACH), as well as evolving and growing alternative mechanisms, systems and products that leverage new technologies, business models and customer relationships to create payment or financing solutions. The payments industry continues to undergo dynamic changes in response to evolving technologies, consumer habits and merchant needs, some of which have accelerated as a result of the pandemic, such as an increased shift to e-commerce and demand for contactless payments. As a card issuer, we compete with financial institutions that issue general-purpose credit and debit cards. We also encounter competition from businesses that issue private label cards, operate mobile wallets or extend credit. We face intense competition in the premium space and for cobrand relationships, as both card issuer and network competitors have targeted high-spending customers and key business partners with attractive value propositions. We also face competition for partners and other differentiated offerings, such as lounge space in U.S. and global hub airports. Our global card network competes in the global payments industry with other card networks, including, among others, China UnionPay, Visa, Mastercard, JCB, Discover and Diners Club International (which is owned by Discover). We are the fourth largest general-purpose card network globally based on purchase volume, behind China UnionPay, Visa and Mastercard. In addition to such networks, a range of companies globally, including merchant acquirers, processors and web- and mobile-based payment platforms (e.g., Alipay, PayPal and Venmo), as well as regional payment networks (such as the National Payments Corporation of India), carry out some activities similar to those performed by our GMNS business. The principal competitive factors that affect the card-issuing, merchant and network businesses include: • The features, value and quality of the products and services, including customer care, rewards programs, partnerships, travel and lifestyle-related benefits, and digital and mobile services, as well as the costs associated with providing such features and services • Reputation and brand recognition • The number, spending characteristics and credit performance of customers • The quantity, diversity and quality of the establishments where the cards can be used • The attractiveness of the value proposition to card issuers, merchant acquirers, cardholders, corporate clients and merchants (including the relative cost of using or accepting the products and services, and capabilities such as fraud prevention and data analytics) • The number and quality of other cards and other forms of payment and financing available to customers • The success of marketing and promotional campaigns • The speed of innovation and investment in systems, technologies, and product and service offerings • The nature and quality of expense management tools, electronic payment methods and data capture and reporting capabilities, particularly for business customers • The security of cardholder, merchant and network partner information Another aspect of competition is the dynamic and rapid growth of alternative payment and financing mechanisms, systems and products, which include payment aggregators, digital payment and electronic wallet platforms, point-of-sale lenders and buy now, pay later products, real-time settlement and processing systems, financial technology companies, digital currencies developed by both central banks and the private sector, blockchain and similar distributed ledger technologies, prepaid systems and gift cards, and systems linked to customer accounts or that provide payment solutions. Various competitors are integrating more financial services into their product offerings and competitors are seeking to attain the benefits of closed-loop, loyalty and rewards functionalities, such as ours. 9 Table of Contents In addition to the discussion in this section, see “ Our operating results may materially suffer because of substantial and increasingly intense competition worldwide in the payments industry ” in “Risk Factors” for further discussion of the potential impact of competition on our business, and “ Our business is subject to comprehensive government regulation and supervision, which could materially adversely affect our results of operations and financial condition” and “ Legal proceedings regarding provisions in our merchant contracts, including non-discrimination and honor-all-cards provisions, could have a material adverse effect on our business and result in additional litigation and/or arbitrations, changes to our merchant agreements and/or business practices, substantial monetary damages and damage to our reputation and brand ” in “Risk Factors” for a discussion of the potential impact on our ability to compete effectively due to government regulations or if ongoing legal proceedings limit our ability to prevent merchants from engaging in various actions to discriminate against our card products. 10 Table of Contents SUPERVISION AND REGULATION Overview We are subject to extensive government regulation and supervision in jurisdictions around the world, and the costs of compliance are substantial. The financial services industry is subject to rigorous scrutiny, high regulatory expectations, a 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 by us and governmental authorities to assess compliance with laws and regulations, as well as our own internal reviews to assess compliance with internal policies, including errors or misconduct by colleagues or third parties or control failures, 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. External publicity concerning investigations can increase the scope and scale of those investigations and lead to further regulatory inquiries. In addition, legislators and regulators in various countries in which we operate have focused on the offering of consumer financial products and the operation of payment networks, resulting in changes to certain practices or pricing of card issuers, merchant acquirers and payment networks, and, in some cases, the establishment of broad and ongoing regulatory oversight regimes. See “Risk Factors—Legal, Regulatory and Compliance Risks” for a discussion of the potential impact legislative and regulatory changes may have on our results of operations and financial condition. Banking Regulation Federal and state banking laws, regulations and policies extensively regulate the Company (which, for purposes of this section, refers to American Express Company as a bank holding company), TRS and our U.S. bank subsidiary, American Express National Bank (AENB). Both the Company and TRS are subject to comprehensive consolidated supervision, regulation and examination by the Federal Reserve and AENB is supervised, regulated and examined by the Office of the Comptroller of the Currency (OCC). The Company and its subsidiaries are also subject to the rulemaking, enforcement and examination authority of the Consumer Financial Protection Bureau (CFPB). Banking regulators have broad examination and enforcement power, including the power to impose substantial fines, limit dividends and other capital distributions, restrict operations and acquisitions and require divestitures, any of which could compromise our competitive position. Many aspects of our business also are subject to rigorous regulation by other U.S. federal and state regulatory agencies and by non-U.S. government agencies and regulatory bodies. Activities The BHC Act generally limits bank holding companies to activities that are considered to be banking activities and certain closely related activities. As noted above, each of the Company and TRS is a bank holding company and each has elected to become a financial holding company, which is authorized to engage in a broader range of financial and related activities. In order to remain eligible for financial holding company status, we must meet certain eligibility requirements. Those requirements include that each of the Company and AENB must be “well capitalized” and “well managed,” and AENB must have received at least a “satisfactory” rating on its most recent assessment under the Community Reinvestment Act of 1977 (the CRA). The Company and TRS engage in various activities permissible only for financial holding companies, including, in particular, providing travel agency services, acting as a finder and engaging in certain insurance underwriting and agency services. If the Company fails to meet eligibility requirements for financial holding company status, it and its subsidiaries are likely to be barred from engaging in new types of financial activities or making certain types of acquisitions or investments in reliance on its status as a financial holding company, and ultimately could be required to either discontinue the broader range of activities permitted to financial holding companies or divest AENB. In addition, the Company and its subsidiaries are prohibited by law from engaging in practices that the relevant regulatory authority deems unsafe or unsound (which such authorities generally interpret broadly). 11 Table of Contents Acquisitions and Investments Applicable federal and state laws place limitations on the ability of persons to invest in or acquire control of us without providing notice to or obtaining the approval of one or more of our regulators. In addition, we are subject to banking laws and regulations that limit our investments and acquisitions and, in some cases, subject them to the prior review and approval of our regulators, including the Federal Reserve and the OCC. Federal banking regulators have broad discretion in evaluating proposed acquisitions and investments that are subject to their prior review or approval. Financial Regulatory Reform The Company is subject to the U.S. federal bank regulatory agencies' rules that tailor the application of enhanced prudential standards to bank holding companies and depository institutions with $100 billion or more in total consolidated assets. Under these rules, each bank holding company, as well as its bank subsidiaries, is assigned to one of four categories based on its status as a U.S. global systemically important banking organization and five other risk-based indicators: (i) total assets, (ii) cross-jurisdictional activity, (iii) non-bank assets, (iv) off-balance sheet exposure, and (v) weighted short-term wholesale funding. Under these rules, the Company (and its depository institution subsidiary, AENB) is subject to Category IV standards. Because a firm’s categorization is determined by, and can change over time dependent upon, how the firm measures against the risk-based indicator thresholds, we are required to monitor and periodically report these risk-based indicators and there can be no assurance that the Company will continue to be a Category IV firm in the future. Capital and Liquidity Regulation Capital Rules The Company and AENB are required to comply with the applicable capital adequacy rules established by federal banking regulators. These rules are intended to ensure that bank holding companies and depository institutions (collectively, banking organizations) have adequate capital given their level of assets and off-balance sheet obligations. The federal banking regulators’ current capital rules (the Capital Rules) implement the Basel Committee on Banking Supervision’s (the Basel Committee) framework for strengthening international capital regulation, known as Basel III. For additional information regarding our capital ratios, see “Consolidated Capital Resources and Liquidity” under “MD&A.” Under the Capital Rules, banking organizations are required to maintain minimum ratios for Common Equity Tier 1 (CET1 capital), Tier 1 capital (that is, CET1 capital plus additional Tier 1 capital) and Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets. We report our capital adequacy ratios using risk-weighted assets calculated under the standardized approach. As a Category IV firm, we are not subject to the advanced approaches capital requirements. In December 2017, the Basel Committee published standards that, among other things, revise the standardized approach for credit risk (including by recalibrating risk weights and introducing additional capital requirements for certain “unconditionally cancellable commitments” such as unused credit card lines of credit) and provide a new standardized calculation for operational risk capital requirements. If adopted in the United States as issued by the Basel Committee and applicable to us, the new standards are likely to result in higher capital requirements for us. 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 Current Expected Credit Loss (CECL) methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, which became effective January 1, 2020. In August 2020, federal banking regulators issued a final rule that provides an option to delay the estimated impact of the adoption of the CECL methodology on regulatory capital for up to two years, followed by the three-year phase-in period. We elected to adopt the two-year delay followed by the three-year phase-in period. Therefore, the Company began phasing in the cumulative amount that is not recognized in regulatory capital at 25 percent per year beginning January 1, 2022. See “Critical Accounting Estimates” under “MD&A” for additional information on CECL. 12 Table of Contents The Company and AENB must each maintain CET1 capital, Tier 1 capital and Total capital ratios of at least 4.5 percent, 6.0 percent and 8.0 percent, respectively. On top of these minimum capital ratios, the Company is subject to a dynamic stress capital buffer (SCB) composed entirely of CET1 capital with a floor of 2.5 percent and AENB is subject to a static 2.5 percent capital conservation buffer (CCB). The SCB equals (i) the difference between a bank holding company’s starting and minimum projected CET1 capital ratios under the supervisory severely adverse scenario under the Federal Reserve's stress tests described below, plus (ii) one year of planned common stock dividends as a percentage of risk-weighted assets. On June 24, 2021, the Federal Reserve confirmed the SCB for the Company of 2.5 percent, which remained unchanged from the level announced in August 2020. As a result, the effective minimum ratios for the Company (taking into account the SCB requirement) and AENB (taking into account the CCB requirement) are 7.0 percent, 8.5 percent and 10.5 percent for the CET1 capital, Tier 1 capital and Total capital ratios, respectively. Banking organizations whose ratios of CET1 capital, Tier 1 capital or Total capital to risk-weighted assets are below these effective minimum ratios face constraints on discretionary distributions such as dividends, repurchases and redemptions of capital securities, and executive compensation. A bank holding company’s SCB requirement is generally effective on October 1 of each year and will remain in effect through September 30 of the following year unless it is reset in connection with resubmission of a capital plan, as discussed below. We are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its average total consolidated assets (as defined for regulatory purposes). All banking organizations are required to maintain a leverage ratio of at least 4.0 percent. Liquidity Regulation The Federal Reserve’s enhanced prudential standards rule includes heightened liquidity and overall risk management requirements. The rule requires the maintenance of a liquidity buffer, consisting of highly liquid assets, that is sufficient to meet projected net outflows for 30 days over a range of liquidity stress scenarios, and a minimum liquidity coverage ratio (LCR) that measures a firm’s high-quality liquid assets to its projected net outflows. Category IV firms with less than $50 billion in weighted short-term wholesale funding, such as the Company, are not subject to a specific LCR requirement. A second standard provided for in the Basel III liquidity framework, referred to as the net stable funding ratio (NSFR), requires a minimum amount of longer-term funding based on the assets and activities of banking entities. Under the NSFR rule, Category IV firms with less than $50 billion in weighted short-term wholesale funding, such as the Company, are not subject to a specific NSFR requirement. Stress Testing and Capital Planning Under the Federal Reserve’s regulations, the Company is subject to supervisory stress testing requirements that are designed to evaluate whether a bank holding company has sufficient capital on a total consolidated basis to absorb losses and support operations under adverse economic conditions. As part of the Comprehensive Capital Analysis and Review (CCAR), the Federal Reserve uses pro-forma capital positions and ratios under such stress scenarios to determine the size of the SCB for each CCAR participating firm. As a Category IV firm, the Company is required to participate in the supervisory stress tests every other year and is subject to the Federal Reserve’s supervisory stress tests in 2022. The Company is required to develop and submit to the Federal Reserve an annual capital plan on or before April 5 of each year. For Category IV firms, such as the Company, the portion of the SCB based on the Federal Reserve's supervisory stress tests is calculated every other year. During a year in which a Category IV firm does not undergo a supervisory stress test, the firm receives an updated SCB that reflects the firm's updated planned common stock dividends. A Category IV firm can elect to participate in the supervisory stress test in an “ off year” and consequently receive an updated SCB. 13 Table of Contents Due to the economic uncertainty related to the pandemic, the Federal Reserve prohibited share repurchases in the third and fourth quarters of 2020 for all bank holding companies participating in CCAR, but a llowed them to pay common stock dividends provided (a) they did not increase the amount of the dividend and (b) the dividends did not exceed the average of a firm’s net income for the four preceding calendar quarters. During the first and second quarters of 2021, the Federal Reserve allowed bank holding companies participating in CCAR to repurchase common stock and pay common stock dividends provided (a) the repurchases and dividends, in the aggregate, did not exceed the average of a firm’s net income for the four preceding calendar quarters and (b) the firm did not increase the amount of its common stock dividends beyond the level paid in the second quarter of 2020. The Federal Reserve also permitted stock repurchases equal to the amount of share issuances related to expensed employee compensation. These capital distribution restrictions ceased to apply on July 1, 2021. For additional information regarding our capital distributions, see “Consolidated Capital Resources and Liquidity” under “MD&A.” We may be required to revise and resubmit our capital plan following certain events or developments, such as a significant acquisition or an event that could result in a material change in our risk profile or financial condition. If we are required to resubmit our capital plan, we must receive prior approval from the Federal Reserve for any capital distributions (including common stock dividend payments and share repurchases), other than a capital distribution on a newly issued capital instrument. Dividends and Other Capital Distributions The Company and TRS, as well as AENB and the Company’s insurance and other regulated subsidiaries, are limited in their ability to pay dividends by statutes, regulations and supervisory policy. Common stock dividend payments and share repurchases by the Company are subject to the oversight of the Federal Reserve, as described above. The Company will be subject to limitations and restrictions on capital distributions if, among other things, (i) the Company's regulatory capital ratios do not satisfy applicable minimum requirements and buffers or (ii) the Company is required to resubmit its capital plan. In general, federal laws and regulations prohibit, without first obtaining the OCC’s approval, AENB from making dividend distributions to TRS, if such distributions are not paid out of available recent earnings or would cause AENB to fail to meet capital adequacy standards. In addition to specific limitations on the dividends AENB can pay to TRS, federal banking regulators have authority to prohibit or limit the payment of a dividend if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the institution. Prompt Corrective Action The Federal Deposit Insurance Act (FDIA) requires, among other things, that federal banking regulators take prompt corrective action in respect of depository institutions insured by the FDIC (such as AENB) that do not meet minimum capital requirements. The FDIA establishes five capital categories for FDIC-insured banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The FDIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the capital category in which an institution is classified. In order to be considered “well capitalized,” AENB must maintain CET1 capital, Tier 1 capital, Total capital and Tier 1 leverage ratios of 6.5 percent, 8.0 percent, 10.0 percent and 5.0 percent, respectively. Under the FDIA, AENB could be prohibited from accepting brokered deposits (i.e., deposits raised through third-party brokerage networks) or offering interest rates on any deposits significantly higher than the prevailing rate in its normal market area or nationally (depending upon where the deposits are solicited), unless (1) it is well capitalized or (2) it is adequately capitalized and receives a waiver from the FDIC. A portion of our outstanding U.S. retail deposits are considered brokered deposits for bank regulatory purposes. If a federal regulator determines that we are in an unsafe or unsound condition or that we are engaging in unsafe or unsound banking practices, the regulator may reclassify our capital category or otherwise place restrictions on our ability to accept or solicit brokered deposits. In December 2020, the FDIC issued a final rule intended to update and modernize the FDIC’s brokered deposit regulations. Effective April 1, 2021, the final rule, among other things, expanded the definition of “deposit broker” and updated the interest rate restrictions for less than well capitalized banks. 14 Table of Contents Resolution Planning Certain bank holding companies are required to submit resolution plans to the Federal Reserve and FDIC providing for the company’s strategy for rapid and orderly resolution in the event of its material financial distress or failure. However, Category IV firms, such as the Company, are not required to submit a holding company resolution plan. AENB continues to be required to prepare and provide a separate resolution plan to the FDIC that would enable the FDIC, as receiver, to effectively resolve AENB under the FDIA in the event of failure. The FDIC issued an Advance Notice of Proposed Rulemaking on potential revisions to this separate resolution plan requirement for insured depository institutions in April 2019 and temporarily suspended resolution planning requirements for insured depository institutions. In January 2021, the FDIC lifted the moratorium on resolution plan submissions for insured depository institutions with $100 billion or more in assets, including AENB. On June 25, 2021, the FDIC released a statement outlining a modified approach to implementing the FDIC’s rule requiring insured depository institutions with $100 billion or more in total assets to submit resolution plans. Among other things, the modified approach (i) extends the resolution plan’s submission frequency to a three-year cycle; (ii) lays out new details regarding the FDIC’s emphasis on engagement with firms; and (iii) exempts filers from other content requirements that the FDIC has determined have been less useful or are obtainable through other supervisory channels. Orderly Liquidation Authority The Company could become subject to the Orderly Liquidation Authority (OLA), a resolution regime under which the Treasury Secretary may appoint the FDIC as receiver to liquidate a systemically important financial institution, if the Company is in danger of default and is determined to present a systemic risk to U.S. financial stability. As under the FDIC resolution model, under the OLA, the FDIC has broad power as receiver. Substantial differences exist, however, between the OLA and the FDIC resolution model for depository institutions, including the right of the FDIC under the OLA to disregard the strict priority of creditor claims in limited circumstances, the use of an administrative claims procedure to determine creditor claims (as opposed to the judicial procedure used in bankruptcy proceedings), and the right of the FDIC to transfer claims to a “bridge” entity. The FDIC has developed a strategy under OLA, referred to as the “single point of entry” or “SPOE” strategy, under which the FDIC would resolve a failed financial holding company by transferring its assets (including shares of its operating subsidiaries) and, potentially, very limited liabilities to a “bridge” holding company; utilize the resources of the failed financial holding company to recapitalize the operating subsidiaries; and satisfy the claims of unsecured creditors of the failed financial holding company and other claimants in the receivership by delivering securities of one or more new financial companies that would emerge from the bridge holding company. Under this strategy, management of the failed financial holding company would be replaced and its shareholders and creditors would bear the losses resulting from the failure. FDIC Powers upon Insolvency of AENB If the FDIC is appointed the conservator or receiver of AENB, the FDIC has the power: (1) to transfer any of AENB’s assets and liabilities to a new obligor without the approval of AENB’s creditors; (2) to enforce the terms of AENB’s contracts pursuant to their terms; or (3) to repudiate or disaffirm any contract or lease to which AENB is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmation or repudiation of which is determined by the FDIC to promote the orderly administration of AENB. In addition, the claims of holders of U.S. deposit liabilities and certain claims for administrative expenses of the FDIC against AENB would be afforded priority over other general unsecured claims against AENB, including claims of debt holders and depositors in non-U.S. offices, in the liquidation or other resolution of AENB. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of AENB, the debt holders and depositors in non-U.S. offices would be treated differently from, and could receive substantially less, if anything, than the depositors in the U.S. offices of AENB. 15 Table of Contents Other Banking Regulations Source of Strength The Company is required to act as a source of financial and managerial strength to its U.S. bank subsidiary, AENB, and may be required to commit capital and financial resources to support AENB. Such support may be required at times when, absent this requirement, the Company otherwise might determine not to provide it. Capital loans by the Company to AENB are subordinate in right of payment to deposits and to certain other indebtedness of AENB. In the event of the Company’s bankruptcy, any commitment by the Company to a federal banking regulator to maintain the capital of AENB will be assumed by the bankruptcy trustee and entitled to a priority of payment. Transactions Between AENB and its Affiliates Certain transactions (including loans and credit extensions from AENB) between AENB and its affiliates (including the Company, TRS and their other subsidiaries) are subject to quantitative and qualitative limitations, collateral requirements and other restrictions imposed by statute and regulation. Transactions subject to these restrictions are generally required to be made on an arm’s-length basis. FDIC Deposit Insurance and Insurance Assessments AENB accepts deposits that are insured by the FDIC up to the applicable limits. Under the FDIA, the FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices; is in an unsafe or unsound condition to continue operations; or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that would lead to termination of deposit insurance at AENB. The FDIC’s deposit insurance fund is funded by assessments on insured depository institutions, including AENB, which are subject to adjustment by the FDIC. Community Reinvestment Act AENB is subject to the 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 OCC 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 for national banks and federal savings associations. Effective January 1, 2022, that final rule was rescinded and replaced with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended. This action was intended to promote consistency for all insured depository institutions while the agencies continue their ongoing work to modernize the CRA framework on an interagency basis. Climate Risk Management The U.S. banking agencies steadily increased their focus on climate risk-related supervision during 2021 and are expected to expand and formalize that focus in 2022. For example, on October 21, 2021, the Financial Stability Oversight Council (FSOC) issued its Report on Climate-Related Financial Risk, which contains 35 recommendations for FSOC’s member agencies and serves as a framework for next steps. In addition, on December 16, 2021, the OCC issued for public comment a set of proposed “Principles for Climate-Related Financial Risk Management for Large Banks.” The principles would apply to OCC-regulated institutions with more than $100 billion in total consolidated assets, like AENB, and are broadly designed to provide a high-level framework for the safe and sound management of exposures to climate-related financial risks consistent with existing OCC rules and guidance. The principles outline six key aspects of climate-related financial risk management: governance; policies, procedures and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. In addition, the principles offer risk assessment guidance for incorporating climate-related financial risks in various traditional risk categories. It is too early to determine what regulations and policies may be adopted or apply to the Company and AENB and the effect of any such regulations or policies on the Company and AENB. 16 Table of Contents 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. The CFPB has the authority to write regulations under federal consumer financial protection laws, to enforce those laws and to examine for compliance. It is also authorized to collect fines and require consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. 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. On November 30, 2021, the CFPB’s final rule that sets forth additional requirements for third-party debt collection agencies, which we use in the ordinary course of business, became effective. See “ We are exposed to credit risk and trends that affect Card Member spending and the ability of customers and partners to pay us, which could have a material adverse effect on our results of operations and financial condition ” under “Risk Factors” for potential impacts related to legal and regulatory changes on our ability to collect amounts owed to us. We are also regulated in the United States under the “money transmitter” or “sale of check” laws in effect in most states. In addition, we are required by the laws of many states to comply with unclaimed and abandoned property laws, under which we must pay to states the face amount of any Travelers Cheque or prepaid card that is uncashed or unredeemed after a period of time depending on the type of product. Additionally, we are regulated under insurance laws in the United States and other countries where we offer insurance services. In countries outside the United States, regulators continue to focus on a number of key areas impacting our card-issuing businesses, particularly consumer protection (such as in the European Union (EU), the United Kingdom and Canada) and responsible lending (such as in Australia, Mexico, New Zealand and Singapore), with increasing importance on and attention to customers and outcomes rather than just ensuring compliance with local rules and regulations. Regulators’ expectations of firms in relation to their compliance, risk and control frameworks continue to increase and regulators are placing significant emphasis on a firm’s systems and controls relating to the identification and resolution of issues. Payments Regulation Legislators and regulators in various countries in which we operate have focused on the operation of card networks, including through enforcement 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. The EU, Australia, Canada 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, and we have exited our network businesses in the EU and Australia as a result of regulation in those jurisdictions, for example. There is uncertainty as to when or how interchange fee caps and other provisions of the EU and UK payments legislation might apply when we work with cobrand partners and agents in the EU and the UK. 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 or the UK. 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 overturned and certain states have passed or are considering laws to permit surcharging by merchants. Surcharging is an adverse customer experience and could have a material adverse effect on us, particularly where it only or disproportionately impacts credit card usage or card usage generally, our Card Members or our business. In addition, other steering or differential acceptance practices that are permitted by regulation in some jurisdictions could also have a material adverse effect on us. See “ Surcharging or steering by merchants could materially adversely affect our business and results of operations ” under “Risk Factors.” 17 Table of Contents In some countries, governments have established regulatory regimes that require international card networks to be locally licensed and/or to localize aspects of their operations. For example, the Reserve Bank of India, which has broad power under the Payment and Settlement Systems Act, 2007 to regulate the membership and operations of card networks, has issued a mandate requiring payment systems operators in India to store certain payments data locally. On April 23, 2021, the Reserve Bank of India imposed restrictions on the ability of American Express Banking Corp. to engage in certain card issuing activities in India from May 1, 2021 until it complies with a regulation requiring storage of payment transaction data exclusively in India. This order does not impact existing customers. We are working towards complying with the regulation. Governments in some countries also provide resources or protection to select domestic payment card networks. The development and enforcement of these and other similar laws, regulations and policies may adversely affect our ability to compete effectively and maintain and extend our global network. Privacy, Data Protection, Data Governance, Information and Cyber Security Regulatory and legislative activity in the areas of privacy, data protection, data governance 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 privacy, data protection, data governance and information and cyber security laws and requirements, meet evolving customer and industry expectations and support and enable business innovation and growth. Our regulators are increasingly focused on ensuring that our privacy, data protection, data governance and information and cyber security-related policies and practices are adequate to inform customers of our data collection, use, sharing and/or security practices, to provide them with choices, if required, about how we use and share their information, and to appropriately safeguard their personal information and account access. Regulators are also focused on data management, data governance and our third-party risk management policies and practices. In the United States, certain of our businesses are subject to the privacy, disclosure and safeguarding provisions of the Gramm-Leach-Bliley Act (GLBA) and its implementing regulations and guidance. Among other things, GLBA imposes certain limitations on our ability to share consumers’ nonpublic personal information with nonaffiliated third parties and requires us to develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate to the size and complexity of our business, the nature and scope of our activities and the sensitivity of customer information that we process. More recently, we have expanded privacy rights to California residents who are not covered by GLBA, pursuant to the California Consumer Privacy Act and the California Privacy Rights Act. Various regulators, U.S. states and territories are considering similar requirements or have adopted laws, rules and regulations pertaining to privacy and/or information and cyber security that may be more stringent and/or expansive than federal requirements. We are also subject to certain privacy, data protection, data governance and information and cyber security laws in other countries in which we operate (including countries in the EU, Australia, Canada, China, Japan, Hong Kong, India, Mexico, Singapore and the United Kingdom), some of which are more stringent and/or expansive than those in the United States and some of which may conflict with each other. Some countries and the EU have instituted or are considering instituting requirements that make it onerous to transfer personal data to other jurisdictions. Other countries may require in-country data processing and/or in-country storage of data. Compliance with such laws results in higher technology, administrative and other costs for us, could limit our ability to optimize the use of our closed-loop data, and could require use of local technology services. Some of these laws also require us to provide foreign governments and other third parties broader access to our data and intellectual property. Data breach and operational outage notification laws or regulatory activities to encourage such notifications and regulatory activity and laws around resiliency, business continuity and third-party risk management are also becoming more prevalent in jurisdictions outside the United States in which we operate. In Europe, the EU General Data Protection Regulation (GDPR) imposes legal and compliance obligations on companies that process personal data of individuals in the EU, irrespective of the geographical location of the company, with the potential for significant fines for non-compliance (up to 4 percent of total annual worldwide revenue). The GDPR includes, among other things, a requirement for prompt notice of data breaches, in certain circumstances, to affected individuals and supervisory authorities. The UK GDPR, which became effective in January 2021, mirrors the compliance requirements and fine structure of the GDPR. 18 Table of Contents Anti-Money Laundering, Sanctions and Anti-Corruption Compliance We are subject to significant supervision and regulation, and an increasingly stringent enforcement environment, with respect to compliance with anti-money laundering (AML), sanctions and anti-corruption laws and regulations in the United States and in other jurisdictions in which we operate. Failure to maintain and implement adequate programs and policies and procedures for AML, sanctions and anti-corruption compliance could have material financial, legal and reputational consequences. Anti-Money Laundering We are subject to a significant number of AML laws and regulations as a result of being a financial company headquartered in the United States, as well as having a global presence. In the United States, the majority of AML requirements are derived from the Currency and Foreign Transactions Reporting Act and the accompanying regulations issued by the U.S. Department of the Treasury (collectively referred to as the Bank Secrecy Act), as amended by the USA PATRIOT Act of 2001 (the Patriot Act). The Anti-Money Laundering Act of 2020 (the AMLA), enacted in January 2021, amended the Bank Secrecy Act and is intended to comprehensively reform and modernize U.S. AML laws. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, the effects of which are not known at this time. In Europe, AML requirements are largely the result of countries transposing the 5th and 6th EU Anti-Money Laundering Directives (and preceding EU Anti-Money Laundering Directives) into local laws and regulations. Numerous other countries, such as Argentina, Australia, Canada, India, Mexico, New Zealand and Russia, have also enacted or proposed new or enhanced AML legislation and regulations applicable to American Express. Among other things, these laws and regulations require us to establish AML programs that meet certain standards, including, in some instances, expanded reporting, particularly in the area of suspicious transactions, and enhanced information gathering and recordkeeping requirements. Our AML programs have become the subject of heightened scrutiny in some countries, including certain Member States in the EU. Any errors, failures or delays in complying with AML and counter-terrorist financing laws, perceived deficiencies in our AML programs or association of our business with money laundering, terrorist financing, tax fraud or other illicit activity can give rise to significant supervisory, criminal and civil proceedings and lawsuits, which could result in significant penalties and forfeiture of assets, loss of licenses or restrictions on business activities, or other enforcement actions. Office of Foreign Assets Control Regulation The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. The United States prohibits U.S. persons from engaging with individuals and entities identified as “Specially Designated Nationals,” such as terrorists and narcotics traffickers. These prohibitions are administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and are typically known as the OFAC rules. The OFAC rules prohibit U.S. persons from engaging in financial transactions with or relating to the prohibited individual, entity or country, require the blocking of assets in which the individual, entity or country has an interest, and prohibit transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons) to such individual, entity or country. Blocked assets (e.g., property or bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. We maintain a global sanctions program designed to ensure compliance with OFAC requirements. Failure to comply with such requirements could subject us to serious legal and reputational consequences, including criminal penalties. 19 Table of Contents Anti-Corruption We are subject to complex international and U.S. anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act (the FCPA), the UK Bribery Act and other laws that prohibit the making or offering of improper payments. The FCPA makes it illegal to corruptly offer or provide anything of value to foreign government officials, political parties or political party officials for the purpose of obtaining or retaining business or an improper advantage. The FCPA also requires us to strictly comply with certain accounting and internal controls standards. The UK Bribery Act also prohibits commercial bribery and the receipt of a bribe, and makes it a corporate offense to fail to prevent bribery by an associated person, in addition to prohibiting improper payments to foreign government officials. Failure of the Company, our subsidiaries, colleagues, contractors or agents to comply with the FCPA, the UK Bribery Act and other similar laws can expose us and/or individual colleagues to investigation, prosecution and potentially severe criminal and civil penalties. Compensation Practices Our compensation practices are subject to oversight by the Federal Reserve and the OCC. The federal banking regulators’ guidance on sound incentive compensation practices sets forth three key principles for incentive compensation arrangements that are designed to help ensure that incentive compensation plans do not encourage imprudent risk-taking and are consistent with the safety and soundness of banking organizations. The three principles provide that a banking organization’s incentive compensation arrangements should (1) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risks, (2) be compatible with effective internal controls and risk management, and (3) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in our compensation practices that are identified by the banking regulators in connection with their review of our compensation practices may be incorporated into our supervisory ratings, which can affect our ability to make acquisitions or perform other actions. Enforcement actions may be taken against us if our incentive compensation arrangements or related risk-management control or governance processes are determined to pose a risk to our safety and soundness, and we have not taken prompt and effective measures to correct the deficiencies. In May 2016, the federal banking regulators, the Securities and Exchange Commission (SEC), the Federal Housing Finance Agency and the National Credit Union Administration re-proposed a rule, originally proposed in 2011, on incentive-based compensation practices. The re-proposed rule would apply deferral, downward adjustment and forfeiture, and clawback requirements to incentive-based compensation arrangements granted to senior executive officers and significant risk-takers of covered institutions, with specific requirements varying based on the asset size of the covered institution and the category of employee. If these or other regulations are adopted in a form similar to what has been proposed, they will impose limitations on the manner in which we may structure compensation for our colleagues, which could adversely affect our ability to hire, retain and motivate key colleagues. 20 Table of Contents ADDITIONAL INFORMATION We maintain an Investor Relations website at http://ir.americanexpress.com. We make available free of charge, on or through this website, our annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. In addition, we routinely post financial and other information, some of which could be material to investors, on our Investor Relations website. Information regarding our corporate responsibility and sustainability initiatives, including our Environmental, Social and Governance reports, are available on our Corporate Responsibility website at http://about.americanexpress.com/corporate-responsibility. The content of any of our websites referred to in this report is not incorporated by reference into this report or any other report filed with or furnished to the SEC. We have included such website addresses only as inactive textual references and do not intend them to be active links. You can find certain statistical disclosures required of bank holding companies starting on page A-1, which are incorporated herein by reference. Our business as a whole has not experienced significant seasonal fluctuations, although network volumes tend to be moderately higher in the fourth quarter than in other quarters. As a result, the amount of Card Member loans and receivables outstanding tend to be moderately higher during that quarter. The average discount rate also tends to be slightly lower during the fourth quarter due to a higher level of retail-related billed business. 21 Table of Contents ITEM 1A. RISK FACTORS This section highlights certain risks that could affect us and our businesses, broadly categorized as “Strategic, Business and Competitive Risks,” “Legal, Regulatory and Compliance Risks” and “Credit, Liquidity and Market Risks.” You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K, including the “Risk Management” section under “MD&A,” which describes our approach to identifying, monitoring and managing the risks we assume in conducting our businesses and provides certain quantitative and qualitative disclosures about market risks. The risks and uncertainties we face are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Strategic, Business and Competitive Risks Business and economic conditions are a major driver of our results of operations and difficult conditions in the business and economic environment, including as a result of the COVID-19 pandemic, have had a material adverse effect on our business. We offer a broad array of products and services to consumers, small businesses and commercial clients and thus are very dependent upon the level of consumer and business activity and the demand for payment and financing products. Slow economic growth, economic contraction or shifts in broader consumer and business trends significantly impact customer behaviors, including spending on our cards, the ability and willingness of Card Members to borrow and pay amounts owed to us, and demand for fee-based products and services. Factors such as consumer spending and confidence, household income and housing prices, unemployment rates, business investment and inventory levels, bankruptcies, geopolitical instability, public policy decisions, government spending, international trade relationships, interest rates, taxes, energy costs, availability of capital and credit, inflation and deflation all affect the economic environment and, ultimately, our profitability. Such factors may also cause our earnings, billings, loan balances, credit metrics and margins to fluctuate and diverge from expectations of analysts and investors, who may have differing assumptions regarding their impact on our business, adversely affecting, and/or increasing the volatility of, the trading price of our common shares. The consequences of negative circumstances impacting us or the economic environment generally can be sudden and severe and can impact customer types and geographies in which we operate in very different ways. The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and consumer and business spending. The pandemic and resulting containment measures adversely impacted a significant portion of our network volumes (including, but not limited to, travel and entertainment (T&E) spending) and spending in certain categories have still not recovered to pre-pandemic levels. For example, airline-related billed business was down 62 percent in 2021 relative to 2019 and spending by large and global corporate customers was down 45 percent relative to 2019. The global macroeconomic outlook continues to remain uncertain due to a variety of factors, including the Omicron variant, labor shortages, supply chain disruptions and inflation, and the impacts of the COVID-19 pandemic may continue even after the outbreak has subsided and containment measures are lifted, all of which may continue to exacerbate many of the other risks described in this “Risk Factors” section. The extent to which our business and results of operations could be adversely affected by the continuing impacts of the pandemic will depend on numerous evolving factors and future developments that we are not able to predict, including the continued spread and severity of the virus and new variants; the imposition or concern of the possible imposition of further containment measures; the availability, distribution and use of effective treatments and vaccines; the extent to which vaccines are effective over the long term and against new, emerging variants; the extent and duration of the effect on the economy, inflation, consumer confidence and consumer and business spending; the impact on consumers and businesses as forbearance and government support programs end; the continued stress on businesses due to shutdowns, operational changes and staffing issues; and how quickly and to what extent normal operating conditions and customer behaviors resume, such as with respect to travel, dining and in-person events. Our business is subject to the effects of geopolitical conditions, weather, natural disasters and other catastrophic events. Geopolitical conditions, terrorist attacks, natural disasters, severe weather, widespread health emergencies or pandemics, information or cyber security incidents (including intrusion into or degradation of systems or technology by cyberattacks) and other catastrophic events can have a material adverse effect on our business. Political and social conditions, fiscal and monetary policies, trade wars and tariffs, labor shortages, prolonged or recurring government shutdowns, regional or domestic hostilities, economic sanctions and the prospect or occurrence of more widespread conflicts could also negatively affect our business, operations and partners, consumer and business spending, including travel patterns and business investment, and demand for credit. As noted above, the COVID-19 pandemic has had, and may continue to have, a material adverse impact on our business and results of operations. Because of our proximity to the World Trade Center site, our headquarters were damaged as a result of the terrorist attacks of September 11, 2001. Recent hurricanes and other natural disasters have impacted spending and credit performance in the areas affected. Other disasters or catastrophic events in the future, and the impact of such events on certain industries or the overall economy, could have a negative effect on our business, results of operations and infrastructure, 22 Table of Contents including our technology and systems. Climate change may exacerbate certain of these threats, including the frequency and severity of weather-related events. Card Members in California, New York, Florida, Texas and Georgia account for a significant portion of U.S. Consumer billed business and Card Members loans, and our results of operations could be impacted by events or conditions that disproportionately or specifically affect one or more of those states. Because we derive a portion of our revenues from travel-related spending, our business is sensitive to safety concerns related to travel and tourism, limitations on travel and mobility, and health-related risks, including travel restrictions and bans as a result of the COVID-19 pandemic, concerns that additional containment measures may be imposed on short notice and changes in customer behaviors that may continue even after the outbreak has subsided and containment measures are lifted, such as decisions to delay or forgo business or personal travel. In addition, disruptions in air travel and other forms of travel can result in the payment of claims under travel interruption insurance policies we offer. Our operating results may materially suffer because of substantial and increasingly intense competition worldwide in the payments industry. The payments industry is highly competitive, and we compete with card networks, issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers and ACH), as well as evolving and growing alternative payment and financing providers. If we are not able to differentiate ourselves from our competitors, develop compelling value propositions for our customers and/or effectively grow in areas such as mobile and online payments and emerging technologies, we may not be able to compete effectively. We believe Visa and Mastercard are larger than we are in most countries based on purchase volume. As a result, card issuers and acquirers on the Visa and Mastercard networks may be able to benefit from the dominant position, scale, resources, marketing and pricing of those networks. Our business may also be negatively affected if we are unable to continue increasing merchant acceptance (including by merchants that accept cards on the Visa and Mastercard networks) and perceptions of coverage, or if our Card Members do not experience welcome acceptance of our cards. Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have and may offer richer value propositions or a wider range of programs and services than we offer or may use more effective strategies to acquire and retain more customers, capture a greater share of spending and borrowings, develop more attractive cobrand card and other partner programs and maintain greater merchant acceptance than we have. We may not be able to compete effectively against these threats or respond or adapt to changes in consumer spending and borrowing habits as effectively as our competitors. Costs such as Card Member rewards and Card Member services expenses could continue to increase as we evolve our value propositions, including in response to increased competition. Spending on our cards could continue to be impacted by increasing consumer usage of credit and debit cards issued on other networks, as well as adoption of alternative payment mechanisms, systems and products. The fragmentation of customer spending to take advantage of different merchant or card incentives or for convenience with technological solutions may continue to increase. Revolving credit balances on our cards could also be impacted by alternative financing providers, such as point-of-sale lenders and buy now, pay later products. To the extent other payment and financing mechanisms, systems and products continue to successfully expand, our discount revenues earned from Card Member spending and our net interest income earned from Card Member borrowing could be negatively impacted. In addition, companies that control access to consumer and merchant payment method choices at the point of sale or through digital wallets, commerce-related experiences, mobile applications or other technologies could choose not to accept, suppress use of, or degrade the experience of using our products or could restrict our access to our customers and transaction data. Such companies could also require payments from us to participate in such digital wallets, experiences or applications or negotiate incentives or pricing concessions, impacting our profitability on transactions. The competitive value of our closed-loop data may also be diminished as traditional and non-traditional competitors use other, new data sources and technologies to derive similar insights. Certain regulations, such as open banking initiatives, could also diminish the value of our closed-loop data or the demand for our products and services by disintermediating existing financial services providers. To the extent we expand into new business areas and new geographic regions, such as mainland China, we will face competitors with more experience and more established relationships with relevant customers, regulators and industry participants, which could adversely affect our ability to compete. Laws and business practices that favor local competitors, require card transactions to be routed over domestic networks or prohibit or limit foreign ownership of certain businesses could limit our growth in international regions. We may face additional compliance and regulatory risks to the extent that we expand into new business areas, and we may need to dedicate more expense, time and resources to comply with regulatory requirements than our competitors, particularly those that are not regulated financial institutions. Many of our competitors are subject to different, and in some cases, less stringent, legislative and regulatory regimes, and some may have lower cost structures and more agile business models and systems. More restrictive laws and regulations that do not apply to all of our competitors can put us at a disadvantage, including prohibiting us from engaging in certain transactions, regulating our business practices or adversely affecting our cost structure. 23 Table of Contents We face intense competition for partner relationships, which could result in a loss or renegotiation of these arrangements that could have a material adverse impact on our business and results of operations. In the ordinary course of our business we enter into different types of contractual arrangements with business partners in a variety of industries. For example, we have partnered with Delta, Marriott, Hilton and British Airways, as well as many others globally, to offer cobranded cards for consumers and small businesses, and through our Membership Rewards program we have partnered with businesses in many industries, including Delta and others in the airline industry, to offer benefits to Card Member participants. See “Partners and Relationships” under “Business” for additional information on our business partnerships, including with Delta. Competition for relationships with key business partners is very intense and there can be no assurance we will be able to grow or maintain these partner relationships or that they will remain as profitable or valued by our customers. Establishing and retaining attractive cobrand card partnerships is particularly competitive among card issuers and networks as these partnerships typically appeal to high-spending loyal customers. All of our cobrand portfolios in the aggregate accounted for approximately 19 percent of our worldwide network volumes for the year ended December 31, 2021. Card Member loans related to our cobrand portfolios accounted for approximately 40 percent of our worldwide Card Member loans as of December 31, 2021. Cobrand arrangements are entered into for a fixed period, generally ranging from five to ten years, and will terminate in accordance with their terms, including at the end of the fixed period unless extended or renewed at the option of the parties, or upon early termination as a result of an event of default or otherwise. We face the risk that we could lose partner relationships, even after we have invested significant resources in the relationships. We may also choose to not renew certain cobrand relationships. Network volumes could decline and Card Member attrition could increase, in each case, significantly as a result of the termination of one or more cobrand partnership relationships. In addition, some of our cobrand arrangements provide that, upon expiration or termination, the cobrand partner may purchase or designate a third party to purchase the loans generated with respect to its program, which could result in the loss of the card accounts and a significant decline in our Card Member loans outstanding. We regularly seek to extend or renew cobrand arrangements in advance of the end of the contract term and face the risk that existing relationships will be renegotiated with less favorable terms for us or that we may be unable to renegotiate on terms that are acceptable to us, as competition for such relationships continues to increase. 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 amount we pay to our cobrand partners has increased, particularly in the United States, and may continue to increase as arrangements are renegotiated due to increasingly intense competition for cobrand partners among card issuers and networks. The loss of exclusivity arrangements with business partners, the loss of the partner relationship altogether (whether by non-renewal at the end of the contract period, such as the end of our relationship with Costco in the United States in 2016, or as the result of a merger, legal or regulatory action or otherwise, such as the withdrawal of American Airlines in 2014 from our Airport Club Access program for Centurion ® and Platinum Card ® Members) or the renegotiation of existing partnerships with terms that are significantly worse for us could have a material adverse impact on our business and results of operations. See “ Our business is subject to comprehensive government regulation and supervision, which could materially adversely affect our results of operations and financial condition” for information on the uncertainty regarding our cobrand and agent relationships in the EU and the UK. In addition, any publicity associated with the loss of any of our key business partners could harm our reputation, making it more difficult to attract and retain Card Members and merchants, and could weaken our negotiating position with our remaining and prospective business partners. Arrangements with our business partners represent a significant portion of our business. We are exposed to risks associated with our business partners, including reputational issues, business slowdowns, bankruptcies, liquidations, restructurings and consolidations, and the possible obligation to make payments to our partners. Our success is, in many ways, dependent on the success of our partners. From customer acquisition to cobranding arrangements, from participation in our rewards programs to facilitating B2B supplier payments for our corporate clients, we rely on our business partners across many aspects of our company and our arrangements with business partners represent a significant portion of our business. Some of our partners manage certain aspects of our customer relationships, such as our OptBlue partners. To the extent any of our partners fail to effectively promote and support our products, experience a slowdown in their business, operational disruptions, reputational issues or loss of consumer confidence, or are otherwise unable to meet our expectations or those of their other stakeholders, our business may be materially negatively impacted. We face the risk that existing relationships will be renegotiated with less favorable terms for us or that we may be unable to renegotiate on terms that are acceptable to us. In addition, we may be obligated to make or accelerate payments to certain business partners such as cobrand partners upon the occurrence of certain triggering events such as a shortfall in certain performance and revenue levels. If we are not able to effectively manage these triggering events, we could unexpectedly have to make payments to these partners, which could have a negative effect on our financial condition and results of operations. See Note 12 to our “Consolidated Financial Statements” for additional information on financial commitments related to agreements with certain cobrand partners. 24 Table of Contents Similarly, we are exposed to risk from bankruptcies, liquidations, insolvencies, financial distress, restructurings, consolidations, operational outages, cyber security incidents and other similar events that may occur in any industry representing a significant portion of our network volumes, which could negatively impact particular card products and services (and volumes generally) and our financial condition and results of operations. During 2020, we pre-purchased a significant amount of loyalty points from certain of our travel cobrand partners, which we have used and intend to continue to use for promotions, rewards and incentive programs for our customers. To the extent such partners cease operations or the loyalty points are no longer desired by our customers, the value of any pre-purchased points we still have at that time may be diminished and may result in an impairment charge. We could also be materially impacted if we were obligated or elected to reimburse Card Members for products and services purchased from merchants that have ceased operations or stopped accepting our cards. For example, we are exposed to credit risk in the airline industry to the extent we protect Card Members against non-delivery of purchases, such as where we have remitted payment to an airline for a Card Member purchase of tickets that have not yet been used or “flown.” If we are unable to collect the amount from the airline, we may bear the loss for the amount credited to the Card Member. At December 31, 2021, our best estimate of the maximum amount of billed business for purchases that had yet to be delivered by, or could be charged back to, merchants was $24.5 billion. This amount assumes all such merchants worldwide cease operations and thus are no longer available to deliver such purchases or to accept such chargebacks, and that all such billed business results in claims-in-full by Card Members. Such a maximum amount has not been indicative of our actual loss exposure in the past and we have not experienced significant losses related to these exposures to date; however, our historical experience may not be representative in the current environment given the economic and financial disruptions, particularly to travel, caused by the COVID-19 pandemic and resulting containment measures and staff shortages. See Note 12 to the “Consolidated Financial Statements” for additional information regarding this exposure. For additional information relating to the general risks related to the airline industry, see “Risk Management—Institutional Credit Risk—Exposure to the Airline and Travel Industry” under “MD&A.” We face continued intense competitive pressure that may materially impact the prices we charge for accepting our cards for payment, as well as the risk of losing merchant relationships, which could have a material adverse impact on our business and results of operations. We face pressure from competitors that primarily rely on sources of revenue other than discount revenue or have lower costs that can make their pricing for card acceptance more attractive. Merchants, business partners and third-party merchant acquirers and aggregators are also able to negotiate incentives, pricing concessions and other favorable contractual provisions from us as a condition to accepting our cards, being cobrand partners, offering benefits to our Card Members or signing merchants on our behalf. As merchants become even larger (such as the largest tech companies), we may have to increase the amount of incentives and/or concessions we provide to them. We also face the risk of losing a merchant relationship that could materially adversely affect our network volumes, ability to retain current Card Members and attract new Card Members and therefore, our business and results of operations. Our average merchant discount rate has been impacted by regulatory changes affecting competitor pricing in certain international countries and may in the future be impacted by pricing regulation. We have also experienced erosion of our average merchant discount rate as we increase merchant acceptance. We may not be successful in significantly expanding merchant acceptance or offsetting rate erosion with volumes at new merchants. In addition, the regulatory environment and differentiated payment models and technologies from non-traditional players in the alternative payments space could pose challenges to our traditional payment model and adversely impact our average merchant discount rate. Some merchants continue to invest in their own payment solutions, such as proprietary-branded mobile wallets, using both traditional and new technology platforms. If merchants are able to drive broad consumer adoption and usage, it could adversely impact our average merchant discount rate and network volumes. A continuing priority of ours is to drive greater and differentiated value to our merchants that, if not successful, could negatively impact our discount revenue and financial results. We may not succeed in maintaining merchant discount rates or offsetting the impact of declining merchant discount rates, for the reasons discussed above and others, which could materially and adversely affect our revenues and profitability, and therefore our ability to invest in innovation and in value-added services for merchants and Card Members. Surcharging or steering by merchants could materially adversely affect our business and results of operations. In certain countries, such as Australia and certain Member States in the EU, and in certain states in the U.S., merchants are expressly permitted by law to surcharge certain card purchases. In jurisdictions allowing surcharging, we have seen merchant surcharging on American Express cards in certain merchant categories, and in some cases, either the surcharge is greater than that applied to Visa and Mastercard cards or Visa and Mastercard cards are not surcharged at all (practices that are known as differential surcharging), even though there are many cards issued on competing networks that have an equal or greater cost of acceptance for the merchant. We also encounter merchants that accept our cards, but tell their customers that they prefer to accept another type of payment or otherwise seek to suppress use of our cards or certain of our cards, which could become more prevalent with the introduction of debit cards on the American Express network. Our Card Members value the ability to use their cards where and when they want to, and we, therefore, take steps to meet our Card Members’ expectations and to protect the American Express brand by 25 Table of Contents prohibiting discrimination through provisions in our merchant contracts, including non-discrimination and honor-all-cards provisions, subject to local legal requirements. When we work with merchant acquirers, aggregators and processors to manage certain aspects of the merchant relationship, we are dependent on them to promote and support the acceptance and usage of our cards, but such third parties may have business interests, strategies or goals that are inconsistent with ours. New products, such as debit cards on the American Express network, could fail to gain market acceptance and American Express cards could become less desirable to consumers and businesses generally due to surcharging, steering or other forms of discrimination, which could result in a decrease in cards-in-force and transaction volumes. The impact could vary depending on such factors as: the industry or manner in which a surcharge is levied; how Card Members are surcharged or steered to other card products or payment forms at the point of sale; the ease and speed of implementation for merchants, including as a result of new or emerging technologies; the size and recurrence of the underlying charges; and whether and to what extent these actions are applied to other forms of payment, including whether it varies depending on the type of card (e.g., credit or debit), product, network, acquirer or issuer. Discrimination against American Express cards could have a material adverse effect on our business, financial condition and results of operations, particularly where it only or disproportionately impacts credit card usage or card usage generally, our Card Members or our business. We may not be successful in our efforts to promote card usage through marketing and promotion, merchant acceptance and Card Member rewards and services, or to effectively control the costs of such investments, both of which may materially impact our profitability. Revenue growth is dependent on increasing consumer and business spending on our cards, growing loan balances and increasing fee revenue. We have been investing in a number of growth initiatives, including to attract new Card Members, retain existing Card Members and capture a greater share of customers’ total spending and borrowings. There can be no assurance that our investments will continue to be effective, particularly with changing consumer and business behaviors as a result of the COVID-19 pandemic. In addition, if we develop new products or offers that attract customers looking for short-term incentives rather than incentivize long-term loyalty, Card Member attrition and costs could increase. Increasing spending on our cards also depends on our continued expansion of merchant acceptance of our cards. If we are unable to continue growing merchant acceptance and perceptions of coverage or merchants decide to no longer accept American Express cards, our business could suffer. Expanding our service offerings, adding customer acquisition channels and forming new partnerships or renewing current partnerships could have higher costs than our current arrangements, fail to resonate with customers, adversely impact our average discount rate or dilute our brand. Another way we invest in customer value is through our Membership Rewards program, as well as other Card Member benefits. Any significant change in, or failure by management to reasonably estimate, actual redemptions of Membership Rewards points and associated redemption costs could adversely affect our profitability. We rely on third parties for certain redemption options and may not be able to continue to offer such redemption options in the future, which could diminish the value of the program for our Card Members. Our two largest redemption partners are Amazon and Delta. In addition, many credit card issuers have instituted rewards and cobrand programs and may introduce programs and services that are similar to or more attractive than ours. Our inability to differentiate our products and services could materially adversely affect us. We may not be able to cost-effectively manage and expand Card Member benefits, including containing the growth of marketing, promotion, rewards and Card Member services expenses in the future. If such expenses increase beyond our expectations, we will need to find ways to offset the financial impact by increasing other areas of revenues such as fee-based revenues, decreasing operating expenses or other investments in our business, or both. We may not succeed in doing so, particularly in the current competitive and regulatory environment. In addition, increased costs as a result of inflation, colleague retention and recruitment, supply chain issues and shortages of materials such as chips for our cards, and readiness efforts for returning to our offices may require that we reduce investments in other areas. Our brand and reputation are key assets of our Company, and our business may be materially affected by how we are perceived in the marketplace. Our brand and its attributes are key assets, and we believe our continued success depends on our ability to preserve, grow and realize the benefits of the value of our brand. Our ability to attract and retain consumer and small business Card Members and corporate clients is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, privacy and data protection, management, workplace culture, merchant acceptance, financial condition, response to political and social issues or catastrophic events (including our response to the COVID-19 pandemic and natural disasters) and other subjective qualities. Negative perceptions or publicity regarding these matters — even if related to seemingly isolated incidents and whether or not factually correct—could erode trust and confidence and damage our reputation among existing and potential Card Members, corporate clients, merchants and partners, which could make it difficult for us to attract new customers and maintain existing ones. Negative public opinion could result from actual or alleged conduct in any number of activities or circumstances, including card practices, regulatory compliance, the use and protection of customer information, conduct by our colleagues and policy engagement, including activities of the American Express Company Political Action Committee, and from actions taken by regulators or others in response thereto. Discussion about such matters in social media channels can also cause rapid, widespread reputational harm to our brand. 26 Table of Contents Our brand and reputation may also be harmed by actions taken by third parties that are outside our control. For example, any shortcoming of or controversy related to a third-party service provider, business partner, merchant acquirer or network partner may be attributed by Card Members and merchants to us, thus damaging our reputation and brand value. Acceptance of American Express cards by merchants in certain industries can also affect perceptions of us. The lack of acceptance, suppression of card usage or surcharging by merchants can also negatively impact perceptions of our brand and our products, lower overall transaction volume and increase the attractiveness of other payment products or systems. Adverse developments with respect to our industry may also, by association, negatively impact our reputation, or result in greater regulatory or legislative scrutiny or litigation against us. Furthermore, as a corporation with headquarters and operations located in the United States, a negative perception of the United States arising from its political or other positions could harm the perception of our company and our brand. Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could materially and adversely affect our business volumes, revenues and profitability. We publicly share certain information about our ESG initiatives. We may face increased scrutiny related to these activities, and our failure to achieve progress in these areas on a timely basis, if at all, could impact our reputation, colleague retention and public perceptions of our business. A major information or cyber security incident or an increase in fraudulent activity could lead to reputational damage to our brand and material legal, regulatory and financial exposure, and could reduce the use and acceptance of our cards. We and third parties collect, process, transfer, host, store, analyze, retain, provide access to and dispose of account information, payment transaction information, and certain types of personally identifiable and other information pertaining to our customers and colleagues in connection with our cards and other products and in the normal course of our business. Global financial institutions like us, as well as our customers, colleagues, regulators, service providers 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 cyberattacks, 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, exploitation of vulnerabilities and other attacks and similar disruptions from the misconfiguration or unauthorized use of or access to computer systems. These threats can arise from external parties, as well as insiders who knowingly or unknowingly engage in or enable malicious cyber activities. There are a number of motivations for cyber threat actors, including criminal activities such as fraud, identity theft and ransom, corporate or nation-state espionage, political agendas, public embarrassment with the intent to cause financial or reputational harm, intent to disrupt information technology systems and supply chains, and to expose and exploit potential security and privacy vulnerabilities in corporate systems and websites. Our networks and systems are subject to constant attempts to disrupt our business operations and capture, destroy, manipulate or expose various types of information relating to corporate trade secrets, customer information, including Card Member, travel and loyalty program data, colleague information and other sensitive business information, including acquisition activity, non-public financial results and intellectual property. For example, we and other U.S. financial services providers have been the target of distributed denial-of-service attacks from sophisticated third parties. We develop and maintain systems and processes aimed at detecting and preventing information and cyber security incidents and fraudulent activity, which require significant investment, maintenance and ongoing monitoring and updating as technologies and regulatory requirements change, new vulnerabilities and exploits are discovered and as efforts to overcome security measures become more sophisticated. In addition, we maintain cyber crisis response procedures and regularly test our procedures to remain prepared and reduce the risk of harm to our business operations, customers and third parties in the event of an information or cyber security incident. Despite our efforts and the efforts of third parties that process, transmit or store our data and data of our customers and colleagues or support our operations, such as service providers, merchants and regulators, the possibility of information, operational and cyber security incidents, malicious social engineering, corporate espionage, fraudulent or other malicious activities and human error or malfeasance cannot be eliminated entirely and will evolve as new and emerging technology is deployed, including the increasing use of personal mobile and computing devices that are outside of our network and control environments. In addition, new products and services, such as checking accounts and non-card lending, may increase our exposure to fraud and other malfeasance. Risks associated with such incidents and activities include theft of funds and other monetary loss, disruption of our operations and the unauthorized disclosure, release, gathering, monitoring, misuse, modification, loss or destruction of confidential, proprietary, trade secret or other information (including account data information). An incident may not be detected until well after it occurs and the severity and potential impact may not be fully known for a substantial period of time after it has been discovered. Our ability to address incidents may also depend on the timing and nature of assistance that may be provided from relevant governmental or law enforcement agencies. Information, operational or cyber security incidents, fraudulent activity and other actual or perceived failures to maintain confidentiality, integrity, availability of services, privacy and/or security has led to increased regulatory scrutiny and may lead to regulatory investigations and intervention (such as mandatory card reissuance), consent decrees, increased litigation (including class action litigation), response costs (including notification and remediation costs), fines, negative assessments of 27 Table of Contents us and our subsidiaries by banking regulators and rating agencies, reputational and financial damage to our brand, and reduced usage of our products and services, all of which could have a material adverse impact on our business. The disclosure of sensitive company information could also undermine our competitive advantage and divert management attention and resources. Successful cyberattacks, data breaches, disruptions or other incidents related to the actual or perceived failures to maintain confidentiality, integrity, privacy and/or security at other large financial institutions, large retailers, travel and hospitality companies, government agencies or other market participants, whether or not we are impacted, could lead to a general loss of customer confidence that could negatively affect us, including harming the market perception of the effectiveness of our security measures or harming the reputation of the financial system in general, which could result in reduced use of our products and services. Such events could also result in legislation and additional regulatory requirements. Although we maintain cyber insurance, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate. The uninterrupted operation of our information systems is critical to our success and a significant disruption could have a material adverse effect on our business and results of operations. Our information technology systems, including our transaction authorization, clearing and settlement systems, and data centers, may experience service disruptions or degradation because of technology malfunction, sudden increases in customer or automated transaction volume, natural disasters, accidents, power outages, internet outages, telecommunications failures, fraud, denial-of-service and other cyberattacks, terrorism, computer viruses, vulnerabilities in hardware or software, physical or electronic break-ins, or similar events. An increase in remote working as a result of the pandemic may increase the risk of such events occurring and the impact of such events on our business and operations. Service disruptions or degradations could prevent access to our online services and account information, compromise or limit access to company or customer data, impede or prevent transaction processing and financial reporting, and lead to regulatory investigations and fines, increased regulatory oversight and litigation (including class action litigation). Any such service disruption or degradation could adversely affect the perception of the reliability of our products and services and materially adversely affect our overall business, reputation and results of operations. We rely on third-party providers for acquiring and servicing customers, technology, platforms and other services integral to the operations of our businesses. These third parties may act in ways that could materially harm our business. We rely on third-party service providers, cobrand partners, merchants, affiliate marketing firms, processors, aggregators, network partners and other third parties for services that are integral to our operations and are subject to the risk that activities of such third parties may adversely affect our business. As outsourcing, specialization of functions, third-party digital services and technology innovation within the payments industry increase (including with respect to mobile technologies, tokenization, big data, artificial intelligence and cloud storage solutions), more third parties are involved in processing card transactions, handling our data and supporting our operations. For example, we rely on third parties for the timely transmission of accurate information across our global network, card acquisition and provision of services to our customers. If a service provider or other third party fails to fulfill its obligations to us, it could interrupt or compromise the quality of our services to customers or impact our business. A disruption or other event at a third party affecting one of our service providers or partners could also impede their ability to provide to us services or data on which we rely to operate our business. Service providers or other third parties could also cease providing data to us or use our data in a way that diminishes the value of our closed loop. The confidentiality, integrity, privacy, availability and/or security of data communicated over third-party networks or platforms or held by, or accessible to, third parties, including merchants that accept our cards, payment processors, payment intermediaries and our third-party service providers and business partners, could become compromised, which could lead to operational disruptions, unauthorized use of our data or fraudulent transactions on our cards, as well as costs associated with responding to such an incident, including notification and remediation costs, regulatory investigations and fines, increased regulatory oversight and litigation. The management and oversight of multiple service providers increases our operational complexity and governance challenges and decreases our control. A failure to exercise adequate oversight over service providers, including compliance with service level agreements or regulatory or legal requirements, could result in regulatory actions, fines, litigation, sanctions or economic and reputational harm to us. In addition, we may not be able to effectively monitor or mitigate operational risks relating to our third-party providers' service providers. We are also exposed to the risk that a service disruption at a service provider common to our third-party providers could impede their ability to provide services to us. Notwithstanding any attempts to diversify our reliance on third parties, we may not be able to effectively mitigate operational risks relating to the service providers of our third-party providers. If we are not able to invest successfully in, and compete at the leading edge of, technological developments across all our businesses, our revenue and profitability could be materially adversely affected. Our industry is subject to rapid and significant technological changes. In order to compete in our industry, we need to continue to invest in technology across all areas of our business, including in transaction processing, data management and analytics, machine learning and artificial intelligence, customer interactions and communications, open banking and alternative payment and financing mechanisms, authentication technologies and digital identification, tokenization, real-time settlement, and risk 28 Table of Contents management and compliance systems. Incorporating new technologies into our products and services, including developing the appropriate governance and controls consistent with regulatory expectations, requires substantial expenditures and takes considerable time, and ultimately may not be successful. We expect that new technologies in the payments industry will continue to emerge, and these new technologies may be superior to, or render obsolete, our existing technology. The process of developing new products and services, enhancing existing products and services and adapting to technological changes and evolving industry standards is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly impede our ability to compete effectively. Consumer and merchant adoption is a key competitive factor and our competitors may develop products, platforms or technologies that become more widely adopted than ours. In addition, we may underestimate the resources needed and our ability to develop new products and services, particularly beyond our traditional card products and travel-related services. Our use of artificial intelligence and machine learning is subject to risks related to flaws in our algorithms and datasets that may be insufficient or contain biased information. These deficiencies could undermine the decisions, predictions or analysis such technologies produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. Our ability to develop, acquire or access competitive technologies or business processes on acceptable terms may also be limited by intellectual property rights that third parties, including those that current and potential competitors, may assert. In addition, our ability to adopt new technologies may be inhibited by the emergence of industry-wide standards, a changing legislative and regulatory environment, an inability to develop appropriate governance and controls, a lack of internal product and engineering expertise, resistance to change from Card Members or merchants, lack of appropriate change management processes or the complexity of our systems. We may not be successful in realizing the benefits associated with our acquisitions, strategic alliances, joint ventures and investment activity, and our business and reputation could be materially adversely affected. We have acquired a number of businesses, including Kabbage, and have made a number of strategic investments, and continue to evaluate potential transactions. There is no assurance that we will be able to successfully identify suitable candidates, value potential investment or acquisition opportunities accurately, negotiate acceptable terms for those opportunities, or complete proposed acquisitions and investments. The process of integrating an acquired company, business or technology could create unforeseen operating difficulties and expenditures, result in unanticipated liabilities, including legal claims, violations of laws, commercial disputes and information security vulnerabilities or breaches (including from not integrating the acquired company, business or technology quickly or appropriately, from activities that occurred prior to the acquisition, and from exposure to third party relationships of the acquired company or business or new laws and regulations), and harm our business generally. It may take us longer than expected to fully realize the anticipated benefits of these transactions, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could materially adversely affect our business and operating results, including as a result of write-downs of goodwill and other intangible assets. Joint ventures, including our joint venture in China, and minority investments in companies such as American Express Global Business Travel (GBT) inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks associated with the joint venture or minority investment, including as a result of being subject to different laws or regulations. In addition, we may be dependent on joint venture partners, controlling shareholders or management who may have business interests, strategies or goals that are inconsistent with ours. GBT has entered into a business combination agreement with a third party, the consummation of which will result in GBT becoming a public company. GBT currently plans to continue to conduct its day-to-day business under its existing name and brand pursuant to a license from us even after it becomes a public company. Business decisions or other actions or omissions of a joint venture partner, other shareholders or management of our joint ventures and companies in which we have minority investments may adversely affect the value of our investment, result in litigation or regulatory action against us and otherwise damage our reputation and brand. In addition, trade secrets and other proprietary information we may provide to a joint venture may become available to third parties beyond our control. The ability to enforce intellectual property and contractual rights to prevent disclosure of our trade secrets and other proprietary information may be limited in certain jurisdictions. We may also face risks with other types of strategic transactions, such as the sale to InComm of the operations relating to our prepaid reloadable and gift card business. The reloadable operations have experienced disruptions in the past, impacting the ability of our prepaid customers to load and use their cards. If such operations are interrupted, suspended or terminated in the future, it could further negatively impact our customers’ experience, result in additional costs, litigation and regulatory action, and harm our business and reputation. Our success is dependent on maintaining a culture of integrity and respect, the resilience of our colleagues through the pandemic, and upon our executive officers and other key personnel, and misconduct by or loss of personnel could materially adversely affect our business. We rely upon our personnel not only for business success, but also to act with integrity and promote a culture of respect. To the extent our colleagues behave in a manner that does not comport with our company’s values, the consequences to our brand and reputation could be severe and could negatively affect our financial condition and results of operations. Our colleagues have had to adapt to rapidly changing conditions during the pandemic, and if we are unable to continue addressing the safety, health and productivity of our colleagues, our business could suffer. The pandemic may also have long-term effects on the nature of 29 Table of Contents the office environment and remote working, which may result in increased costs and present operational and workplace culture challenges that may also adversely affect our business. The market for qualified individuals with diverse perspectives and reflecting the diversity of our communities is highly competitive, and we may not be able to attract and retain such individuals. We have and may continue to experience increased costs related to compensation and other benefits necessary to attract and retain qualified personnel. Changes in immigration and work permit laws and regulations or the administration or enforcement of such laws or regulations or other changes in the legal or regulatory environment, including as a result of the exit of the United Kingdom from the EU (commonly referred to as Brexit), can also impair our ability to attract and retain qualified personnel, or to employ colleagues in the location(s) of our choice. Our compensation practices are subject to review and oversight by the Federal Reserve and the compensation practices of AENB are subject to review and oversight by the OCC. This regulatory review and oversight could further affect our ability to attract and retain our executive officers and other key personnel. Our inability to attract and retain highly skilled, motivated and diverse personnel could materially adversely affect our business and our culture. Our operations, business, customers and partners could be materially adversely affected by climate change. There are increasing and rapidly evolving concerns over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters. Such events and disasters could disrupt our operations or the operations of customers or third parties on which we rely and could result in market volatility or negatively impact our customers’ spending behaviors or ability to pay outstanding loans. Additionally, we may face risks related to the transition to a low-carbon economy. Changes in consumer preferences, travel patterns and legal requirements could increase expenses or otherwise adversely impact our business, our customers and partners. We could also experience increased expenses resulting from strategic planning, litigation and changes to our technology, operations, products and services, as well as reputational harm as a result of negative public sentiment, regulatory scrutiny and reduced stakeholder confidence, due to our response to climate change and our efforts relating to the Advancing Climate Solutions pillar of our ESG strategy. Legal, Regulatory and Compliance Risks Our business is subject to comprehensive government regulation and supervision, which could materially adversely affect our results of operations and financial condition. We are subject to comprehensive government regulation and supervision in jurisdictions around the world, which significantly affects our business and requires continual enhancement of our compliance efforts. Supervision efforts and the enforcement of existing laws and regulations impact the scope and profitability of our existing business activities, limit our ability to pursue certain business opportunities and adopt new technologies, compromise our competitive position, and affect our relationships with Card Members, partners, merchants, service providers and other third parties. New laws or regulations could similarly affect our business, increase our costs of doing business, impact what we are able to charge for, or offer in connection with, our products and services, and require us to change certain of our business practices and invest significant management attention and resources, all of which could adversely affect our results of operations and financial condition. Legislators and regulators around the world are aware of each other’s approaches to the regulation of the financial services industry. Consequently, a development in one country, state or region may influence regulatory approaches in another. In preparation for the completion of Brexit, numerous EU laws and regulations were separately adopted into UK domestic legislation in order to ensure continuity. However, the UK plans to evaluate the extent to which these EU-legacy laws and regulations should change going forward and has already indicated some areas where it may take a different approach from the EU. To the extent that different regulatory systems impose overlapping or inconsistent requirements on the conduct of our business, we face complexity and additional costs in our compliance efforts, as well as potential regulatory enforcement actions and penalties. If we fail to satisfy regulatory requirements or maintain our financial holding company status, our financial condition and results of operations could be adversely affected, and we may be restricted in our ability to take certain capital actions (such as declaring dividends or repurchasing outstanding shares) or engage in certain business activities or acquisitions, which could compromise our competitive position. Additionally, our banking regulators have wide discretion in the examination and the enforcement of applicable banking statutes and regulations and may restrict our ability to engage in certain business activities or acquisitions or require us to maintain more capital. Legislators and regulators continue to focus on the operation of card networks, including interchange fees paid to card issuers in payment networks such as Visa and Mastercard and the fees merchants are charged to accept cards. Even where we are not directly regulated, regulation of bankcard fees significantly negatively impacts the discount revenue derived from our business, 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, or may extend, to certain aspects of our business, such as network and cobrand arrangements, new products or services we may offer, or the terms of card acceptance for merchants, including terms relating to non-discrimination and honor-all-cards. For example, we have exited our network businesses in the EU and Australia as a result of regulation in those jurisdictions. In addition, there is uncertainty as to when or how interchange fee caps and other provisions of payments legislation might apply when we work with cobrand partners and agents in the EU and the UK. In a 30 Table of Contents ruling issued on February 7, 2018, the EU Court of Justice confirmed the validity of the application of the fee caps and other provisions in circumstances where three-party networks issue cards with a cobrand partner or through an agent, although the ruling provided only limited guidance as to when or how the provisions might apply in such circumstances and remains subject to differing interpretations by regulators and participants in cobrand arrangements. As a result, 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 or the UK. We are subject to certain provisions of the Bank Secrecy Act, as amended by the Patriot Act and the AMLA, with regard to maintaining effective AML programs. Similar AML requirements apply under the laws of most jurisdictions where we operate. As regulators increase their focus in this area, new technologies such as digital currencies develop and we introduce new products like checking accounts, we face increased costs related to oversight, supervision and potential fines. Our AML programs have become the subject of heightened scrutiny in some countries, including certain Member States in the EU. Any errors, failures or delays in complying with AML and counter-terrorist financing laws, perceived deficiencies in our AML programs or association of our business with money laundering, terrorist financing, tax fraud or other illicit activities can give rise to significant supervisory, criminal and civil proceedings and lawsuits, which could result in significant penalties and forfeiture of assets, loss of licenses or restrictions on business activities, or other enforcement actions, and our reputation may suffer due to our customers’ association with certain countries, persons or entities or the existence of any such transactions. Various regulatory agencies and legislatures are also considering regulations and legislation covering identity theft, account management guidelines, credit bureau reporting, disclosure rules, security and marketing that would impact us directly, in part due to increased scrutiny of our underwriting and account management standards. Any new requirements may restrict our ability to issue cards or partner with other financial institutions, which could adversely affect our revenue growth. See “Supervision and Regulation” for more information about certain laws and regulations to which we are subject and their impact on us. Litigation and regulatory actions could subject us to significant fines, penalties, judgments and/or requirements resulting in significantly increased expenses, damage to our reputation and/or a material adverse effect on our business. At any given time, we are involved in a number of legal proceedings, including class action lawsuits. Many of these actions have included claims for substantial compensatory or punitive damages. While we have historically relied on our arbitration clause in agreements with customers to limit our exposure to class action litigation, there can be no assurance that we will continue to be successful in enforcing our arbitration clause in the future, including as a result of regulation that would require that our consumer arbitration clause not apply to cases filed in court as class actions, and claims of the type we previously arbitrated could be subject to the complexities, risks and costs associated with class action cases. The continued focus of merchants on issues relating to the acceptance of various forms of payment may lead to additional litigation and other legal actions. Given the inherent uncertainties involved in litigation, and the very large or indeterminate damages sought in some matters asserted against us, there is significant uncertainty as to the ultimate liability we may incur from litigation. We are also involved at any given time with governmental and regulatory inquiries, investigations and proceedings. Regulatory action could subject us to significant fines, penalties or other requirements resulting in Card Member reimbursements, increased expenses, limitations or conditions on our business activities, and damage to our reputation and our brand, all of which could adversely affect our results of operations and financial condition. We expect that financial institutions, such as us, will continue to face significant regulatory scrutiny, with regulators taking formal enforcement actions against financial institutions in addition to addressing supervisory concerns through non-public supervisory actions or findings, which could involve restrictions on our activities, among other limitations, that could adversely affect our business. In addition, a violation of law or regulation by another financial institution could give rise to an investigation by regulators and other governmental agencies of the same or similar practices by us. Further, a single event may give rise to numerous and overlapping investigations and proceedings. External publicity concerning investigations can increase the scope and scale of investigations and lead to further regulatory inquiries. For example, as previously disclosed, beginning in May 2020, we began responding to a regulatory review led by the OCC and the Department of Justice Civil Division regarding historical sales practices relating to certain small business card sales. We also conducted an internal review of certain sales from 2015 and 2016 and have taken appropriate disciplinary and remedial actions, including voluntarily providing remediation to certain current and former customers. Information regarding our investigation has been provided to our other regulators, including the Federal Reserve. In January 2021, we received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York regarding the sales practices for small business cards and a Civil Investigative Demand from the CFPB seeking information on sales practices related to consumers. We are cooperating with all of these inquiries into our sales practices and related compliance practices and continue to review and enhance our processes and controls related to our sales practices and business conduct generally. We do not believe this matter will have a material adverse impact on our business or results of operations. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions, such as a renewed focus on fair lending laws, and actions governmental authorities take in response to those conditions, including participation in the paycheck protection program. 31 Table of Contents Legal proceedings regarding provisions in our merchant contracts, including non-discrimination and honor-all-cards provisions, could have a material adverse effect on our business and result in additional litigation and/or arbitrations, changes to our merchant agreements and/or business practices, substantial monetary damages and damage to our reputation and brand. We are, and have been in the past, a defendant in a number of actions, including legal proceedings and proposed class actions, challenging certain provisions of our card acceptance agreements. See Note 12 to the “Consolidated Financial Statements” for a description of certain outstanding legal proceedings. An adverse outcome in these proceedings could have a material adverse effect on our business and results of operations, require us to change our merchant agreements in a way that could expose our cards to increased merchant steering and other forms of discrimination that could impair the Card Member experience, result in additional litigation and/or arbitrations, impose substantial monetary damages and damage our reputation and brand. Even if we were not required to change our merchant agreements, changes in Visa’s and Mastercard’s policies or practices as a result of legal proceedings, lawsuit settlements or regulatory actions pending against them could result in changes to our business practices and materially and adversely impact our profitability. We are subject to capital adequacy and liquidity rules, and if we fail to meet these rules, our business would be materially adversely affected. Failure to meet current or future capital or liquidity requirements could compromise our competitive position and could result in restrictions imposed by the Federal Reserve, including limiting our ability to pay dividends, repurchase our capital stock, invest in our business, expand our business or engage in acquisitions. Some elements of the capital and liquidity regimes are not yet final and certain developments could significantly impact the requirements applicable to financial institutions. For example, if the 2017 Basel Committee revisions to the standardized approach for credit risk and operational risk capital requirements are adopted in the United States, we could be required to hold significantly more capital. In addition, it may be necessary for us to hold additional capital because of an increase in the SCB requirement based on results from a supervisory stress test. Compliance with capital adequacy and liquidity rules requires a material investment of resources. An inability to meet regulatory expectations regarding our compliance with applicable capital adequacy and liquidity rules may also negatively impact the assessment of us and our U.S. bank subsidiary by federal banking regulators. For more information on capital adequacy requirements, see “Capital and Liquidity Regulation” under “Supervision and Regulation.” We are subject to restrictions that limit our ability to pay dividends and repurchase our capital stock. Our subsidiaries are also subject to restrictions that limit their ability to pay dividends to us, which may adversely affect our liquidity. We are limited in our ability to pay dividends and repurchase capital stock by our regulators, who have broad authority to prohibit any action that would be considered an unsafe or unsound banking practice. We are subject to a requirement to submit capital plans to the Federal Reserve for review that include, among other things, projected dividend payments and repurchases of capital stock. As part of the capital planning and stress testing process, our proposed capital actions are assessed against our ability to satisfy applicable capital requirements in the event of a stressed market environment. If we fail to satisfy applicable capital requirements, including the stress capital buffer, our ability to undertake capital actions may be restricted. Our ability to declare or pay dividends on, or to purchase, redeem or otherwise acquire, shares of our common stock will be prohibited, subject to certain exceptions, in the event that we do not declare and pay in full dividends for the last preceding dividend period of our preferred stock. American Express Company relies on dividends from its subsidiaries for liquidity, and such dividends may be limited by law, regulation or supervisory policy. For example, our U.S. bank subsidiary, AENB, is subject to various statutory and regulatory limitations on its declaration and payment of dividends. These limitations may hinder our ability to access funds we may need to make payments on our obligations, make dividend payments on outstanding American Express Company capital stock or otherwise achieve strategic objectives. Any future reduction or elimination of our common stock dividend or share repurchase program could adversely affect the market price of our common stock and market perceptions of American Express. For more information on bank holding company and depository institution dividend restrictions, see “Stress Testing and Capital Planning” and “Dividends and Other Capital Distributions” under “Supervision and Regulation,” as well as “Consolidated Capital Resources and Liquidity—Dividends and Share Repurchases” under “MD&A” and Note 22 to our “Consolidated Financial Statements.” Regulation in the areas of privacy, data protection, data governance, account access and information and cyber security could increase our costs and affect or limit our business opportunities and how we collect and/or use personal information. Legislators and regulators in the United States and other countries in which we operate are increasingly adopting or revising privacy, data protection, data governance, account access and information and cyber security laws, including data localization, authentication and notification laws. As such laws are interpreted and applied (in some cases, with significant differences or conflicting requirements across jurisdictions), compliance and technology costs will continue to increase, particularly in the 32 Table of Contents context of ensuring that adequate data governance, data protection, incident management, resiliency, third party management, data transfer, security controls and account access mechanisms are in place. Compliance with current or future privacy, data protection, data governance, resiliency, data transfer, account access and information and cyber security laws could significantly impact our collection, use, sharing, retention and safeguarding of consumer and/or colleague information and could restrict our ability to fully maximize our closed-loop capability or provide certain products and services or work with certain service providers, which could materially and adversely affect our profitability. Our failure to comply with such laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, decreases in the use or acceptance of our cards and damage to our reputation and our brand. In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information and cyber security in the United States, the EU and various other countries in which we operate. For more information on regulatory and legislative activity in this area, see “Privacy, Data Protection, Data Governance, Information and Cyber Security” under “Supervision and Regulation.” We may not be able to effectively manage the operational and compliance risks to which we are exposed. We consider operational risk to be the risk of loss due to, among other things, inadequate or failed processes, people or information systems, or impacts from the external environment (e.g., natural disasters). Operational risk includes, among others, the risk that error or misconduct could result in a material financial misstatement, a failure to monitor a third party’s compliance with regulatory or legal requirements, or a failure to adequately monitor and control access to, or use of, data in our systems we grant to third parties . As processes or organizations are changed, or new products and services are introduced, such as new lending features, debit products and checking accounts, we may not fully appreciate or identify new operational risks that may arise from such changes. Through human error, fraud or malfeasance, conduct risk can result in harm to customers, legal liability, fines, sanctions, customer remediation and brand damage. Compliance risk arises from violations of, or failure to conform or comply with, laws, rules, regulations, internal policies and procedures, and ethical standards. We need to continually update and enhance our control environment to address operational and compliance risks. Operational and compliance failures, deficiencies in our control environment or an inability to maintain an ethical workplace and high standards of business conduct can expose us to reputational and legal risks as well as fines, civil money penalties or payment of damages and can lead to diminished business opportunities and diminished ability to expand key operations. If we are not able to protect our intellectual property, or successfully defend against any infringement or misappropriation assertions brought against us, our revenue and profitability could be negatively affected. We rely on a variety of measures to protect our intellectual property and control access to, and distribution of, our trade secrets and other proprietary information. These measures may not prevent infringement of our intellectual property rights or misappropriation of our proprietary information and a resulting loss of competitive advantage. The ability to enforce intellectual property rights to prevent disclosure of our trade secrets and other proprietary information may be limited in certain jurisdictions. In addition, competitors or other third parties may allege that our products, systems, processes or technologies infringe on their intellectual property rights. Given the complex, rapidly changing and competitive technological and business environments in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, a future assertion of an infringement or misappropriation claim against us could cause us to lose significant revenues, incur significant defense, license, royalty or technology development expenses, and/or pay significant monetary damages. Tax legislative initiatives or assessments could adversely affect our results of operations and financial condition. We are subject to income and other taxes in the United States and in various foreign jurisdictions. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations. Although management believes our positions are reasonable, we are subject to audit by the Internal Revenue Service in the United States and by tax authorities in all the jurisdictions in which we conduct business operations. We are being challenged in a number of countries regarding our application of value-added taxes (VAT) to certain transactions. While we believe we comply with all applicable VAT and other tax laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes or apply existing laws and regulations more broadly, which could result in a significant increase in liabilities for taxes and interest in excess of accrued liabilities. New tax legislative initiatives, including increases in the corporate tax rate, are currently being considered and may be enacted. In addition, new guidelines issued by the Organization for Economic Cooperation and Development (OECD) could have an impact on how multinational enterprises are taxed on their global profits. These potential changes could adversely impact our effective tax rate, our tax positions and tax liabilities. In addition, actions by tax authorities, including an increase in tax audit activity, could have an adverse impact on our tax liabilities. 33 Table of Contents Credit, Liquidity and Market Risks Our risk management policies and procedures may not be effective. Our risk management framework seeks to identify and mitigate risk and appropriately balance risk and return. Although we have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future, these policies and procedures, as well as our risk management techniques, such as our hedging strategies, may not be fully effective. There may also be risks that exist, or develop in the future, that we have not appropriately identified or mitigated. As regulations, technology and competition continue to evolve, our risk management framework may not always keep sufficient pace with those changes. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. Although we have a governance framework for model development and independent model validation, the modeling methodology or key assumptions could be erroneous or the models could be misused. In addition, issues with the quality or effectiveness of our data aggregation and validation procedures, as well as the quality and integrity of data inputs, could result in ineffective or inaccurate model outputs and reports. For example, models based on historical data sets might not be accurate predictors of future outcomes and their ability to appropriately predict future outcomes may degrade over time. The CECL methodology requires measurement of expected credit losses for the estimated life of certain financial instruments, not only based on historical experience and current conditions, but also by including forecasts incorporating forward-looking information. Our ability to accurately forecast future losses under that methodology may be impaired by the significant uncertainty surrounding the pandemic and the lack of comparable precedent. If our business decisions or estimates for credit losses are based on incorrect or misused models and assumptions or we fail to manage data inputs effectively and to aggregate or analyze data in an accurate and timely manner, our results of operations and financial condition may be materially adversely affected. We are exposed to credit risk and trends that affect Card Member spending and the ability of customers and partners to pay us, which could have a material adverse effect on our results of operations and financial condition. We are exposed to both individual credit risk, principally from consumer and small business Card Member loans and receivables, and institutional credit risk, principally from corporate Card Member loans and receivables, merchants, network partners, loyalty coalition partners and treasury and investment counterparties. Third parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. General economic factors, such as gross domestic product, unemployment, inflation and interest rates, may result in greater delinquencies that lead to greater credit losses. A customer’s ability and willingness to repay us can be negatively impacted not only by economic, market, political and social conditions but also by a customer’s other payment obligations, and increasing leverage can result in a higher risk that customers will default or become delinquent in their obligations to us. Further, our credit performance may be negatively impacted as forbearance and government support programs broadly available during the pandemic come to an end, to the extent customers relied on such programs and stimulus funds to stay current on their obligations to us. We rely principally on the customer’s creditworthiness for repayment of loans or receivables and therefore often have no other recourse for collection. Our ability to assess creditworthiness may be impaired if the criteria or models we use to manage our credit risk prove inaccurate in predicting future losses, which could have a negative impact on our results of operations. This may be exacerbated to the extent information we have historically relied upon to make credit decisions does not accurately portray a customer's creditworthiness as a result of forbearance programs or the reported consumer deleveraging that occurred during the pandemic. Further, our pricing strategies, particularly for new lending features and non-card lending products, may not offset the negative impact on profitability caused by increases in delinquencies and losses; thus any material increases in delinquencies and losses beyond our current estimates could have a material adverse impact on us. Although we make estimates to provide for credit losses in our outstanding portfolio of loans and receivables, these estimates may not be accurate. In addition, the information we use in managing our credit risk may be inaccurate or incomplete. Rising delinquencies and rising rates of bankruptcy are often precursors of future write-offs and may require us to increase our reserve for credit losses. Higher write-off rates and the resulting increase in our reserves for credit losses adversely affect our profitability and the performance of our securitizations, and may increase our cost of funds. Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. In addition, our ability to manage credit risk or collect amounts owed to us may be adversely affected by legal or regulatory changes (such as restrictions on collections or changes in bankruptcy laws, minimum payment regulations and re-age guidance). Increased credit risk, whether resulting from underestimating the credit losses inherent in our portfolio of loans and receivables, deteriorating economic conditions (particularly in the United States where, for example, Card Members were responsible for approximately 87 percent of our total Card Member loans outstanding as of December 31, 2021), increases in the level of loan balances, changes in our mix of business or otherwise, could require us to increase our provisions for losses and could have a material adverse effect on our results of operations and financial condition. 34 Table of Contents Interest rate changes could materially adversely affect our earnings. Our interest expense was approximately $1.3 billion for the year ended December 31, 2021. If the rate of interest we pay on our borrowings increases more or decreases less than the rate of interest we earn on our loans, our net interest yield, and consequently our net interest income, could decrease. As of December 31, 2021, a hypothetical immediate 100 basis point increase in market interest rates would have a detrimental impact on our annual net interest income of up to $206 million. A hypothetical immediate 100 basis point decrease in market interest rates would have a smaller but still detrimental impact on our annual net interest income. We expect the rates we pay on our deposits will change if benchmark interest rates change. In addition, interest rate changes may affect customer behavior, such as impacting the loan balances Card Members carry on their credit cards or their ability to make payments as higher interest rates lead to higher payment requirements, further impacting our results of operations. For a further discussion of our interest rate risk, see “Risk Management ― Market Risk Management Process” under “MD&A.” The discontinuance of LIBOR may negatively impact our access to funding and the value of our financial instruments and commercial agreements. Certain of our financial instruments and commercial agreements will need to be amended or otherwise modified to replace references to the London interbank offered rate (LIBOR) with an alternative reference rate, as the LIBOR tenors referenced are expected to be quoted only through June 2023. Alternative reference rates, such as the secured overnight financing rate, are calculated using components different from those used in the calculation of LIBOR and may fluctuate differently than, and not be representative of, LIBOR. In order to compensate for these differences, certain of our financial instruments and commercial agreements allow for a benchmark replacement adjustment. However, there is no assurance that any benchmark replacement adjustment will be sufficient to produce the economic equivalent of LIBOR, either at the benchmark replacement date or over the life of such instruments and agreements. Uncertainty as to the replacement of LIBOR with alternative reference rates and the discontinuance of LIBOR generally may negatively impact market liquidity, our access to funding and the trading market for our financial instruments. Furthermore, the timing of implementation and use of alternative reference rates and corresponding adjustments or other reforms could be subject to disputes, could cause the interest payable on our outstanding financial instruments and commercial agreements to be materially different than expected and may impact the value of such instruments and agreements. Adverse market conditions may significantly affect our access to, and cost of, capital and ability to meet liquidity needs. Our ability to obtain financing in the debt capital markets for unsecured term debt and asset securitizations is dependent on financial market conditions. Disruptions, uncertainty or volatility across the financial markets, as well as adverse developments affecting our competitors and the financial industry generally, could negatively impact market liquidity and limit our access to funding required to operate our business. Such market conditions may also limit our ability to replace, in a timely manner, maturing liabilities, satisfy regulatory capital requirements and access the funding necessary to grow our business. In some circumstances, we may incur an unattractive cost to raise capital, which could decrease profitability and significantly reduce financial flexibility. Additional factors affecting the extent to which we may securitize loans and receivables in the future include the overall credit quality of our loans and receivables, the costs of securitizing our loans and receivables, the demand for credit card asset-backed securities and the legal, regulatory, accounting or tax rules affecting securitization transactions and asset-backed securities, generally. Our liquidity and cost of funds would also be adversely affected by the occurrence of events that could result in the early amortization of our existing securitization transactions. For a further discussion of our liquidity and funding needs, see “Consolidated Capital Resources and Liquidity” under “MD&A.” Any reduction in our credit ratings could increase the cost of our funding from, and restrict our access to, the capital markets and have a material adverse effect on our results of operations and financial condition. Ratings of our long-term and short-term debt and deposits are based on a number of factors, including financial strength, as well as factors not within our control, including conditions affecting the financial services industry, and the macroeconomic environment. Our ratings could be downgraded at any time and without any notice by any of the rating agencies, which could, among other things, adversely limit our access to the capital markets and adversely affect the cost and other terms upon which we are able to obtain funding. Our ability to raise funding through the securitization market also depends, in part, on the credit ratings of the securities we issue from our securitization trusts. If we are not able to satisfy rating agency requirements to confirm the ratings of our asset-backed securities, it could limit our ability to access the securitization markets. Adverse currency fluctuations and foreign exchange controls could decrease earnings we receive from our international operations and impact our capital. During 2021, approximately 22 percent of our total revenues net of interest expense were generated from activities outside the United States. We are exposed to foreign exchange risk from our international operations, and accordingly the revenue we generate outside the United States is subject to unpredictable fluctuations if the values of other currencies change relative to the U.S. dollar, which could have a material adverse effect on our results of operations. Foreign exchange regulations or capital controls might restrict or prohibit the conversion of other currencies into U.S. dollars or our ability to transfer them. Political and economic conditions in other countries could also impact the availability of foreign 35 Table of Contents exchange for the payment to us by the local card issuer for obligations arising out of local Card Members’ spending outside such country and for the payment by Card Members who are billed in a currency other than their local currency. Substantial and sudden devaluation of local Card Members’ currency can also affect their ability to make payments to the local issuer of the card in connection with spending outside the local country. The occurrence of any of these circumstances could further impact our results of operations. An inability to accept or maintain deposits due to market demand or regulatory constraints could materially adversely affect our liquidity position and our ability to fund our business. Our U.S. bank subsidiary, AENB, accepts deposits and uses the proceeds as a source of funding, with our direct retail deposits becoming a larger proportion of our funding over time. We continue to face strong competition with regard to deposits, and pricing and product changes may adversely affect our ability to attract and retain cost-effective deposit balances. To the extent we offer higher interest rates to attract or maintain deposits, our funding costs will be adversely impacted. Our ability to obtain deposit funding and offer competitive interest rates on deposits is also dependent on AENB’s capital levels. The FDIA’s brokered deposit provisions and related FDIC rules in certain circumstances prohibit banks from accepting or renewing brokered deposits and apply other restrictions, such as a cap on interest rates that can be paid. Additionally, our regulators can adjust applicable capital requirements at any time and have authority to place limitations on our deposit businesses. An inability to attract or maintain deposits in the future could materially adversely affect our ability to fund our business. The value of our investments may be adversely impacted by economic, political or market conditions. Market risk includes the loss in value of portfolios and financial instruments due to adverse changes in market variables, which could negatively impact our financial condition. We held approximately $3 billion of investment securities as of December 31, 2021. In the event that actual default rates of these investment securities were to significantly change from historical patterns due to economic conditions or otherwise, it could have a material adverse impact on the value of our investment portfolio, potentially resulting in impairment charges. Defaults or economic disruptions, even in countries or territories in which we do not have material investment exposure, conduct business or have operations, could adversely affect us. 36 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. PROPERTIES Our principal executive offices are in a 2.2 million square foot building located in lower Manhattan on land leased from the Battery Park City Authority for a term expiring in 2069. We have an approximately 49 percent ownership interest in the building and an affiliate of Brookfield Financial Properties owns the remaining approximately 51 percent interest in the building. We also lease space in the building from Brookfield’s affiliate. Other owned or leased principal locations include American Express offices in Phoenix, Arizona, Sunrise, Florida, Gurgaon, India, Brighton, England, Manila, Philippines, Tokyo, Japan, Kuala Lumpur, Malaysia and Sydney, Australia; the American Express data centers in Phoenix, Arizona and Greensboro, North Carolina; the headquarters for AENB in Sandy, Utah; the headquarters for American Express Services Europe Limited in London, England; the headquarters for American Express Europe, S.A. in Madrid, Spain; the headquarters for Amex Bank of Canada and Amex Canada Inc. in Toronto, Ontario, Canada; and the headquarters for American Express Bank (Mexico) S.A. Institucion de Banca Multiple and American Express Company (Mexico) S.A. de C.V. in Mexico City, Mexico. We also lease and operate multiple travel lounges as a benefit for our Card Members in major U.S. and global hub airports. ITEM 3. LEGAL PROCEEDINGS Refer to Note 12 to our “Consolidated Financial Statements,” which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 37 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Our common stock trades principally on The New York Stock Exchange under the trading symbol AXP. As of December 31, 2021, we had 18,626 common shareholders of record. You can find dividend information concerning our common stock in our Consolidated Statements of Shareholders' Equity in our “Consolidated Financial Statements.” For information on dividend restrictions, see “Dividends and Other Capital Distributions” under “Supervision and Regulation” and Note 22 to our “Consolidated Financial Statements.” You can find information on securities authorized for issuance under our equity compensation plans under the caption “Executive Compensation — Equity Compensation Plans” to be contained in our definitive 2022 proxy statement for our Annual Meeting of Shareholders, which is scheduled to be held on May 3, 2022. The information to be found under such caption is incorporated herein by reference. Our definitive 2022 proxy statement for our Annual Meeting of Shareholders is expected to be filed with the SEC in March 2022 (and, in any event, not later than 120 days after the close of our most recently completed fiscal year). Stock Performance Graph The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. The following graph compares the cumulative total shareholder return on our common shares with the total return on the S&P 500 Index and the S&P Financial Index for the last five years. It shows the growth of a $100 investment on December 31, 2016, including the reinvestment of all dividends. Year-end Data 2016 2017 2018 2019 2020 2021 American Express $ 100.00 $ 136.20 $ 132.62 $ 175.75 $ 173.73 $ 237.81 S&P 500 Index $ 100.00 $ 121.82 $ 116.47 $ 153.13 $ 181.29 $ 233.28 S&P Financial Index $ 100.00 $ 122.14 $ 106.21 $ 140.30 $ 137.83 $ 185.90 38 Table of Contents (b) Not applicable. (c) Issuer Purchases of Securities The table below sets forth the information with respect to purchases of our common stock made by or on behalf of us during the quarter ended December 31, 2021. 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 October 1-31, 2021 Repurchase program (a) 10,756,494 $ 178.35 10,756,494 62,662,993 Employee transactions (b) 40 $ 171.95 N/A N/A November 1-30, 2021 Repurchase program (a) 1,908,965 $ 170.90 1,908,965 60,754,028 Employee transactions (b) 24,224 $ 173.78 N/A N/A December 1-31, 2021 Repurchase program (a) 4,520,163 $ 162.30 4,520,163 56,233,865 Employee transactions (b) — $ — N/A N/A Total Repurchase program (a) 17,185,622 $ 171.77 17,185,622 56,233,865 Employee transactions (b) 24,264 $ 173.78 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, 10b5-1 plans, privately negotiated transactions (including employee benefit plans) or other purchases, including block trades, accelerated share repurchase programs or any combination of such methods as market conditions warrant and at prices we deem appropriate. ITEM 6. [RESERVED] 39 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) EXECUTIVE OVERVIEW BUSINESS INTRODUCTION We are a globally integrated payments company with three reportable operating segments: Global Consumer Services Group (GCSG), Global Commercial Services (GCS) and Global Merchant and Network Services (GMNS). Corporate functions and certain other businesses and operations are included in Corporate & Other. Our range of products and services includes: • Credit card, charge card, banking 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 service providers and business partners, direct mail, telephone, in-house sales teams, and direct response advertising. We have a significant ownership position in, and extensive commercial arrangements with, American Express Global Business Travel (GBT). The commercial arrangements with GBT include, among other things, a long-term trademark license agreement pursuant to which GBT uses the American Express brand, GBT’s support of certain of our partnerships, joint negotiation with travel suppliers and a strategic relationship between GBT and our GCS business. During the fourth quarter of 2021, our economic interest in GBT was reduced to approximately 41 percent from 50 percent as a result of GBT’s acquisition of Egencia; our voting rights remain at 50 percent. Also during the fourth quarter of 2021, GBT entered into a business combination agreement with Apollo Strategic Growth Capital (APSG). Upon consummation of the business combination, which is subject to the satisfaction of customary closing conditions, including approval by APSG’s shareholders and certain regulatory approvals, the terms of certain of our commercial arrangements with GBT will be amended and GBT will become a public company. 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. The amount of fees charged for accepting our cards as payment, or merchant discount, varies with, among other factors, the industry in which the merchant does business, the merchant’s overall American Express-related transaction volume, the method of payment, the settlement terms with the merchant, the method of submission of transactions and, in certain instances, the geographic scope for the related card acceptance agreement between the merchant and us (e.g., domestic or global) and the transaction amount. In some instances, an additional flat transaction fee is assessed as part of the merchant discount, and additional fees may be charged such as a variable fee for “non-swiped” card transactions or for transactions using cards issued outside the United States at merchants located in the United States; • Interest income, principally represents interest earned on outstanding loan 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 our GNS partners (including commissions and signing fees less issuer rate payments), cross-border Card Member spending, ancillary merchant-related fees, earnings (losses) from equity method investments (including GBT), insurance premiums, and prepaid card and Travelers Cheque-related revenue. 40 Table of Contents Effective for the first quarter of 2021, we changed the way we describe our volume metrics, replacing billed business, proprietary billed business and GNS billed business with network volumes, billed business and processed volumes, respectively. Within processed volumes we now include transactions associated with certain alternative payment solutions that were not previously reported in our volume metrics. Prior period amounts have been recast to conform with current period presentation. Refer to the “Glossary of Selected Terminology” for definitions of each updated term. NON-GAAP MEASURES 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 report constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies. BUSINESS ENVIRONMENT Our results for the year reflect the strong growth momentum we have seen in our business throughout 2021, and our strategy of investing in our customers, brand and talent is helping in our effort to drive share, scale and relevance. Spending on our network reached record levels and credit metrics remained around historic lows. Net income more than doubled versus the prior year to $8.1 billion and exceeded 2019 levels; contributing to this increase in Net income in the current year was a $2.5 billion credit reserve release and sizeable net gains on equity investments. Year-over-year comparisons reflect the adverse impacts on our business in 2020 due to the COVID-19 pandemic. As certain of the pandemic-related restrictions were lifted and macroeconomic conditions improved, and through the successful execution of our investment strategy, we saw a steady recovery in our business, with certain key areas growing beyond pre-pandemic (2019) levels in 2021. Worldwide network volumes for the year increased 24 percent compared to the prior year and reached 2019 levels. Billed business, which represented 85 percent of our total network volumes and drives most of our financial results, increased 25 percent and continued to show different paces of recovery for G&S and T&E spend. G&S spend, which accounts for the majority of our billed business, grew by 19 percent on a year-over-year basis, and was 18 percent above 2019 levels. This growth was primarily driven by ongoing strong performance in online and card-not-present spending even as offline spending fully recovered and resumed growth compared to 2019 levels. Global T&E spend grew 59 percent versus the prior year, reflecting a steady recovery throughout the year, which resulted in fourth quarter T&E volumes reaching 82 percent of 2019 levels. The year-over-year growth in billed business was led by the U.S., where spend increased 26 percent versus the prior year and exceeded 2019 levels by 6 percent, primarily driven by U.S. consumers and small and mid-sized enterprises. Total revenues net of interest expense increased 17 percent year-over-year, reflecting double digit growth in all our non-interest revenue lines. Discount revenue, our largest revenue line, increased 26 percent year-over-year, driven primarily by growth in Card Member spending. Other fees and commissions and Other revenues increased year-over-year, primarily driven by higher travel-related revenues. Net card fees grew consistently throughout 2021 and were up 11 percent year over year, as new card acquisitions increased, and Card Member retention remained high, demonstrating the impact of investments we have made in our premium value propositions. Net interest income declined 3 percent versus the prior year, primarily due to a decrease in net interest yields driven by higher paydown rates on revolving loan balances. Card Member loans increased 21 percent, which was lower than the growth in billed business due to higher paydown rates driven in part by the continued liquidity and financial strength of our customer base. Provisions for credit losses decreased and resulted in a net benefit, primarily due to a $2.5 billion reserve release in the current year versus a reserve build in the prior year and lower net write-offs in the current year. The reserve release in the current year was driven by improved portfolio quality and macroeconomic outlook, partially offset by an increase in the outstanding balance of loans and receivables. We do not expect to see reserve releases of this magnitude in 2022. Card Member rewards, Card Member services and business development expenses are generally correlated to volumes or are variable based on usage, and increased year-over-year due to growth in spend and higher usage of travel-related benefits. Additionally, our higher rewards expense versus last year was partially driven by an increase to our Membership Rewards liability to reflect a higher mix of redemptions in travel-related categories. During the year we increased marketing investments to build growth momentum and accelerate new card acquisitions. Our ongoing investments in differentiated value propositions and expansion of our digital capabilities are helping to drive increased Card Member engagement and strong retention rates. Our operating expenses for 2021 were in line with 2020; however, the current year included sizeable net gains associated with the Amex Ventures equity investments that we do not expect to occur with the same magnitude in 2022. We expect to continue to invest strategically in marketing, value propositions on our products, technology and our colleagues. 41 Table of Contents During the year, we returned $9 billion of capital to our shareholders through common share repurchases and divided payments, which resulted in us ending the year with our Common Equity Tier 1 (CET1) capital ratio back within our target range of 10 to 11 percent. We plan to continue to manage our CET1 capital ratio within our target range. We also expect to increase our dividend payment by approximately 20 percent in the first quarter of 2022, subject to approval by our Board of Directors. The growth momentum we generated throughout this year has strengthened our resolve to continue to focus on our strategic imperatives – expand our leadership in the premium consumer space, build on our strong position in commercial payments, strengthen our global merchant network, and make American Express an essential part of our customers’ digital lives. We believe that continuing our strategy of investing at high levels in our customers, brand and talent will position us well as we seek to deliver sustainable and profitable long-term growth. See “Supervision and Regulation” in “Business” for information on legislative and regulatory changes that could have a material adverse effect on our results of operations and financial condition and “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for information on additional impacts of the COVID-19 pandemic and the potential impacts of economic, geopolitical and competitive conditions and certain litigation and regulatory matters on our business. 42 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms used in this section. The discussions in the “Financial Highlights”, “Consolidated Results of Operations” and “Business Segment Results of Operations” provide commentary on the variances for the year ended December 31, 2021 compared to the year ended December 31, 2020, 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. For a discussion of the financial condition and results of operations for 2020 compared to 2019, please refer to Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021. TABLE 1: SUMMARY OF FINANCIAL PERFORMANCE Years Ended December 31, Change Change (Millions, except percentages and per share amounts) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Total revenues net of interest expense $ 42,380 $ 36,087 $ 43,556 $ 6,293 17 % $ (7,469) (17) % Provisions for credit losses (a) (1,419) 4,730 3,573 (6,149) # 1,157 32 Expenses 33,110 27,061 31,554 6,049 22 (4,493) (14) Pretax income 10,689 4,296 8,429 6,393 # (4,133) (49) Income tax provision 2,629 1,161 1,670 1,468 # (509) (30) Net income 8,060 3,135 6,759 4,925 # (3,624) (54) Earnings per common share — diluted (b) $ 10.02 $ 3.77 $ 7.99 $ 6.25 # $ (4.22) (53) % Return on average equity (c) 33.7 % 14.2 % 29.6 % Effective tax rate 24.6 % 27.0 % 19.8 % # Denotes a variance of 100 percent or more. (a) Results for reporting periods beginning on and after January 1, 2020 are presented using the Current Expected Credit Loss (CECL) methodology, while information as of and for the year ended December 31, 2019 continues to be reported in accordance with the incurred loss methodology then in effect. Refer to Note 1 and Note 3 to the “Consolidated Financial Statements” for further information. (b) Represents net income, less (i) earnings allocated to participating share awards of $56 million, $20 million and $47 million for the years ended December 31, 2021, 2020 and 2019, respectively, (ii) dividends on preferred shares of $71 million, $79 million and $81 million for the years ended December 31, 2021, 2020 and 2019, respectively, and (iii) equity-related adjustments of $16 million related to the redemption of preferred shares for the year ended December 31, 2021. Refer to Note 16 and Note 21 to the “Consolidated Financial Statements” for further details on preferred shares and earnings per common share (EPS), respectively. (c) Return on average equity (ROE) is calculated for the relevant periods by dividing the (i) preceding twelve months of net income ($8.1 billion, $3.1 billion and $6.8 billion for 2021, 2020 and 2019, respectively) by (ii) one-year monthly average of total shareholders’ equity ($23.9 billion, $22.0 billion and $22.8 billion for 2021, 2020 and 2019, respectively). 43 Table of Contents TABLE 2: TOTAL REVENUES NET OF INTEREST EXPENSE SUMMARY Years Ended December 31, Change Change (Millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Discount revenue $ 25,727 $ 20,401 $ 26,167 $ 5,326 26 % $ (5,766) (22) % Net card fees (a) 5,195 4,664 4,042 531 11 622 15 Other fees and commissions 2,392 2,163 3,297 229 11 (1,134) (34) Other 1,316 874 1,430 442 51 (556) (39) Total non-interest revenues 34,630 28,102 34,936 6,528 23 (6,834) (20) Total interest income 9,033 10,083 12,084 (1,050) (10) (2,001) (17) Total interest expense 1,283 2,098 3,464 (815) (39) (1,366) (39) Net interest income 7,750 7,985 8,620 (235) (3) (635) (7) Total revenues net of interest expense $ 42,380 $ 36,087 $ 43,556 $ 6,293 17 % $ (7,469) (17) % (a) Effective April 1, 2021, we prospectively changed the recognition of certain costs paid to a third party previously recognized in Net card fees. Refer to Note 1 to the “Consolidated Financial Statements” for further details. TOTAL REVENUES NET OF INTEREST EXPENSE Discount revenue increased, primarily driven by an increase in worldwide network volumes of 24 percent, reflecting, in part, the recovery from the adverse impacts of the COVID-19 pandemic in the prior year. U.S. network volumes increased 27 percent and non-U.S. network volumes increased 17 percent. See Tables 5 and 6 for more details on volume performance. The increase in discount revenue was also driven by an increase in the average discount rate, primarily due to a change in the mix of spending driven by increased levels of T&E-related volumes, as compared to the prior year. The average discount rate was 2.30 percent and 2.28 percent for 2021 and 2020, respectively. Net card fees increased, primarily driven by growth in our premium card portfolios. Other fees and commissions increased, primarily due to higher travel commissions and fees from our consumer travel business and higher foreign exchange conversion revenue related to cross-border Card Member spending, both of which reflect the partial recovery of travel-related revenues in the current year. Other revenues increased, primarily driven by a non-cash gain related to an increase in GBT's total equity book value arising from GBT's acquisition of Egencia and a lower net loss in the current year from GBT as compared to the prior year. Interest income decreased, primarily due to a decline in the interest yield on average Card Member loans driven by higher paydown rates on revolving loan balances. Interest expense decreased, primarily driven by lower interest rates paid on deposits and a reduction in average debt. 44 Table of Contents TABLE 3: PROVISIONS FOR CREDIT LOSSES SUMMARY Years Ended December 31, Change Change (Millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Card Member receivables Net write-offs $ 129 $ 881 $ 900 $ (752) (85) % $ (19) (2) % Reserve (release) build (a) (202) 134 63 (336) # 71 # Total (73) 1,015 963 (1,088) # 52 5 Card Member loans Net write-offs 879 2,170 2,235 (1,291) (59) (65) (3) Reserve (release) build (a) (2,034) 1,283 227 (3,317) # 1,056 # Total (1,155) 3,453 2,462 (4,608) # 991 40 Other Net write-offs — Other loans (b) 21 111 98 (90) (81) 13 13 Net write-offs — Other receivables (c) 33 27 20 6 22 7 35 Reserve (release) build — Other loans (a)(b) (185) 66 28 (251) # 38 # Reserve (release) build — Other receivables (a)(c) (60) 58 2 (118) # 56 # Total (191) 262 148 (453) # 114 77 Total provisions for credit losses (d) $ (1,419) $ 4,730 $ 3,573 $ (6,149) # $ 1,157 32 % # Denotes a variance of 100 percent or more (a) Refer to the “Glossary of Selected Terminology” for a definition of reserve (release) build. (b) Relates to Other loans of $2.9 billion, $2.9 billion and $4.8 billion less reserves of $52 million, $238 million and $152 million, as of December 31, 2021, 2020 and 2019, respectively. (c) Relates to Other receivables included in Other assets on the Consolidated Balance Sheets of $2.7 billion, $3.0 billion and $3.1 billion, less reserves of $25 million, $85 million and $27 million as of December 31, 2021, 2020 and 2019, respectively. (d) Results for reporting periods beginning on and after January 1, 2020 are presented using the CECL methodology, while information as of and for the year ended December 31, 2019 continues to be reported in accordance with the incurred loss methodology then in effect. Refer to Note 1 and Note 3 to the “Consolidated Financial Statements” for further information. PROVISIONS FOR CREDIT LOSSES Card Member receivables and loans provisions for credit losses decreased and resulted in a net benefit, primarily driven by reserve releases in the current year versus reserve builds in the prior year and lower net write-offs in the current year. The reserve releases in the current year were due to improved portfolio quality and macroeconomic outlook, in large part driven by improvement in unemployment rate projections, partially offset by increases in the outstanding balances of receivables and loans. The reserve builds in the prior year were due to the deterioration of the global macroeconomic outlook as a result of the COVID-19 pandemic, partially offset by declines in the outstanding balances of receivables and loans and lower delinquencies. Other provision for credit losses decreased and resulted in a net benefit, primarily due to a reserve release in the current year versus a reserve build in the prior year and lower net write-offs in the current year. The reserve release in the current year was due to improved portfolio quality and macroeconomic outlook. The reserve build in the prior year was due to deteriorating portfolio quality and the previously mentioned deterioration of the global macroeconomic outlook, partially offset by a decline in the outstanding balance of other loans. Refer to Note 3 to the “Consolidated Financial Statements” for the range of key variables in the macroeconomic scenarios utilized for the computation of our reserves for credit losses. 45 Table of Contents TABLE 4: EXPENSES SUMMARY Years Ended December 31, Change Change (Millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Marketing and business development $ 9,053 $ 6,747 $ 7,125 $ 2,306 34 % $ (378) (5) % Card Member rewards 11,007 8,041 10,439 2,966 37 (2,398) (23) Card Member services 1,993 1,230 2,223 763 62 (993) (45) Total marketing, business development, and Card Member rewards and services 22,053 16,018 19,787 6,035 38 (3,769) (19) Salaries and employee benefits 6,240 5,718 5,911 522 9 (193) (3) Other, net 4,817 5,325 5,856 (508) (10) (531) (9) Total expenses $ 33,110 $ 27,061 $ 31,554 $ 6,049 22 % $ (4,493) (14) % EXPENSES Marketing and business development expense increased, primarily due to increases in marketing investments to continue building growth momentum and higher partner payments driven by higher spending volumes. Card Member rewards expense increased, primarily driven by increases in Membership Rewards and cash back rewards expenses of $2.2 billion and cobrand rewards expense of $769 million, both of which were primarily driven by higher billed business. The increase in Membership Rewards expense was also driven by a larger proportion of spend in categories that earn incremental rewards and a higher mix of redemptions in travel-related categories, as compared to the prior year. The Membership Rewards Ultimate Redemption Rate (URR) for current program participants was 96 percent (rounded down) at December 31, 2021 and 96 percent (rounded up) at December 31, 2020. Card Member services expense increased, primarily due to higher usage of travel-related benefits in the current year, as compared to the prior year during which travel was more negatively impacted by the COVID-19 pandemic. Salaries and employee benefits expense increased, primarily driven by higher compensation. Other expenses decreased, primarily driven by higher net gains in the current year on Amex Ventures equity investments, the impact of the implementation of the Proportional Amortization Method (PAM) related to investments in qualified affordable housing projects and a net reserve release in the current year versus a reserve build in the prior year associated with merchant exposure for Card Member purchases, all of which were partially offset by an increase in professional services expense. Refer to Note 1 to the “Consolidated Financial Statements” for further information on PAM. 46 Table of Contents INCOME TAXES The effective tax rate was 24.6 percent and 27.0 percent for 2021 and 2020, respectively. The reduction in the effective tax rate primarily reflected discrete tax charges in the prior year related to the realizability of certain foreign deferred tax assets. The tax rates in both years reflected the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business. The current year's effective tax rate also reflected the implementation of PAM related to investments in qualified affordable housing projects. Refer to Note 1 to the “Consolidated Financial Statements” for further information on PAM. TABLE 5: SELECTED CARD-RELATED STATISTICAL INFORMATION Change Change Years Ended December 31, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Network volumes: (billions) U.S. $ 897.0 $ 708.1 $ 840.7 27 % (16) % Outside the U.S. 387.2 329.7 425.0 17 (22) Total $ 1,284.2 $ 1,037.8 $ 1,265.7 24 (18) Billed business $ 1,089.8 $ 870.7 $ 1,070.5 25 (19) Processed volumes 194.4 167.1 195.2 16 (14) Total $ 1,284.2 $ 1,037.8 $ 1,265.7 24 (18) Cards-in-force: (millions) U.S. 56.4 53.8 54.7 5 (2) Outside the U.S. 65.3 58.2 59.7 12 (3) Total 121.7 112.0 114.4 9 (2) Proprietary 71.4 68.9 70.3 4 (2) GNS 50.3 43.1 44.1 17 (2) Total 121.7 112.0 114.4 9 (2) Basic cards-in-force: (millions) U.S. 44.3 42.2 43.0 5 (2) Outside the U.S. 56.4 49.1 50.0 15 (2) Total 100.7 91.3 93.0 10 (2) Average proprietary basic Card Member spending: (dollars) U.S. $ 22,477 $ 18,085 $ 21,515 24 (16) Outside the U.S. $ 15,251 $ 12,264 $ 16,351 24 (25) Worldwide Average $ 20,392 $ 16,352 $ 19,972 25 (18) Average discount rate 2.30 % 2.28 % 2.37 % Average fee per card (dollars) (a) $ 74 $ 67 $ 58 10 % 16 % (a) Average fee per card is computed on an annualized basis based on proprietary Net card fees divided by average proprietary total cards-in-force. 47 Table of Contents TABLE 6: NETWORK VOLUMES-RELATED STATISTICAL INFORMATION 2021 2020 Year over Year Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in FX Rates (a) Year over Year Percentage Increase (Decrease) Percentage Increase (Decrease) Assuming No Changes in FX Rates (a) Worldwide Network volumes 24 % 23 % (18) % (19) % Total billed business 25 24 (19) (19) Consumer billed business 29 28 (17) (18) Commercial billed business 21 20 (21) (21) Processed volumes 16 14 (14) (15) U.S. Network volumes 27 (16) Total billed business 26 (16) Consumer billed business 32 (15) Commercial billed business 21 (18) Outside the U.S. Network volumes 17 14 (22) (24) Total billed business 21 17 (26) (28) Consumer billed business 23 19 (21) (24) Commercial billed business 18 14 (32) (34) Asia Pacific, Australia & New Zealand network volumes 12 9 (15) (18) Latin America, Canada & Caribbean network volumes 23 22 (32) (27) Europe, the Middle East & Africa network volumes 25 19 (29) (33) Merchant Industry Metrics Worldwide billed business G&S-related (81% and 86% of worldwide billed business for 2021 and 2020, respectively) 19 18 (1) (1) T&E-related (19% and 14% of worldwide billed business for 2021 and 2020, respectively) 59 58 (60) (60) Airline-related (3% and 3% of worldwide billed business for 2021 and 2020, respectively) 63 61 % (76) (76) % U.S. billed business G&S-related (82% and 87% of U.S. billed business for 2021 and 2020, respectively) 19 (1) T&E-related (18% and 13% of U.S. billed business for 2021 and 2020, respectively) 70 (58) Airline-related (3% and 2% of U.S. billed business for 2021 and 2020, respectively) 80 % (75) % (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 year apply to the corresponding prior-year period against which such results are being compared). 48 Table of Contents TABLE 7: SELECTED CREDIT-RELATED STATISTICAL INFORMATION As of or for the Years Ended December 31, Change Change (Millions, except percentages and where indicated) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Worldwide Card Member loans Card Member loans: (billions) U.S. $ 76.9 $ 64.2 $ 76.0 20 % (16) % Outside the U.S. 11.7 9.2 11.4 27 (19) Total $ 88.6 $ 73.4 $ 87.4 21 (16) Credit loss reserves: Beginning balance (a) $ 5,344 $ 4,027 $ 2,134 33 89 Provisions — principal, interest and fees (1,155) 3,453 2,462 # 40 Net write-offs — principal less recoveries (672) (1,795) (1,860) (63) (3) Net write-offs — interest and fees less recoveries (207) (375) (375) (45) — Other (b) (5) 34 22 # 55 Ending balance $ 3,305 $ 5,344 $ 2,383 (38) # % of loans 3.7 % 7.3 % 2.7 % % of past due 555 % 727 % 177 % Average loans (billions) $ 76.1 $ 74.6 $ 82.8 2 (10) Net write-off rate — principal only (c) 0.9 % 2.4 % 2.2 % Net write-off rate — principal, interest and fees (c) 1.2 % 2.9 % 2.7 % 30+ days past due as a % of total 0.7 % 1.0 % 1.5 % Worldwide Card Member receivables Card Member receivables: (billions) U.S. $ 38.4 $ 30.5 $ 39.0 26 (22) Outside the U.S. 15.2 13.2 18.4 15 (28) Total $ 53.6 $ 43.7 $ 57.4 23 (24) Credit loss reserves: Beginning balance (a) $ 267 $ 126 $ 573 # (78) Provisions — principal and fees (73) 1,015 963 # 5 Net write-offs — principal and fees less recoveries (d) (129) (881) (900) (85) (2) Other (b) (1) 7 (17) # # Ending balance $ 64 $ 267 $ 619 (76) % (57) % % of receivables 0.1 % 0.6 % 1.1 % Net write-off rate — principal and fees (c)(d)(e) 0.3 % 2.0 % 1.6 % # Denotes a variance of 100 percent or more (a) Includes an increase of $1,643 million and decrease of $493 million to the beginning reserve balances for Card Member loans and receivables, respectively, 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. (b) Other includes foreign currency translation adjustments. (c) We present a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, as our practice is to include uncollectible interest and/or fees as part of our total provision for credit losses, a net write-off rate including principal, interest and/or fees is also presented. (d) The net write-off rate for the year ended December 31, 2021 includes a $37 million partial recovery in Card Member receivables related to a corporate client bankruptcy, which had resulted in a $53 million write-off in the year ended December 31, 2020 in the GCS segment. (e) Refer to Tables 10 and 13 for Net write-off rate — principal only and 30+ days past due metrics for 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. 49 Table of Contents TABLE 8: NET INTEREST YIELD ON AVERAGE CARD MEMBER LOANS Years Ended December 31, (Millions, except percentages and where indicated) 2021 2020 2019 Net interest income $ 7,750 $ 7,985 $ 8,620 Exclude: Interest expense not attributable to our Card Member loan portfolio (a) 738 1,295 1,833 Interest income not attributable to our Card Member loan portfolio (b) (379) (668) (1,227) Adjusted net interest income (c) $ 8,109 $ 8,612 $ 9,226 Average Card Member loans (billions) $ 76.0 $ 74.6 $ 82.8 Net interest income divided by average Card Member loans (c) 10.2 % 10.7 % 10.4 % Net interest yield on average Card Member loans (c) 10.7 % 11.5 % 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. 50 Table of Contents BUSINESS SEGMENT RESULTS OF OPERATIONS We consider a combination of factors when evaluating the composition of our reportable operating segments, including the results reviewed by the chief operating decision maker, economic characteristics, products and services offered, classes of customers, product distribution channels, geographic considerations (primarily United States versus outside the United States) and regulatory considerations. Refer to Note 24 to the “Consolidated Financial Statements” and Part I, Item 1. “Business” for additional discussion of products and services that comprise each segment. As a result of organizational changes announced during the second quarter of 2021, our loyalty coalition businesses results, which were previously reported within the GMNS segment, are now reported within the GCSG segment. Prior period segment results have been revised to conform with current period presentation. Results of the reportable operating segments generally treat each segment as a stand-alone business. The management reporting process that derives these results allocates revenue and expense using various methodologies as described below. TOTAL REVENUES NET OF INTEREST EXPENSE We allocate discount revenue and certain other revenues among segments using a transfer pricing methodology. Within the GCSG and GCS segments, discount revenue generally reflects the issuer component of the overall discount revenue generated by each segment’s Card Members; within the GMNS segment, discount revenue generally reflects the network and acquirer component of the overall discount revenue. Net card fees and Other fees and commissions are directly attributable to the segment in which they are reported. Interest and fees on loans and certain investment income is directly attributable to the segment in which it is reported. Interest expense represents an allocated funding cost based on a combination of segment funding requirements and internal funding rates. PROVISIONS FOR CREDIT LOSSES The provisions for credit losses are directly attributable to the segment in which they are reported. EXPENSES Marketing and business development expense is included in each segment based on the actual expenses incurred. Global brand advertising is primarily allocated to the segments based on the relative levels of revenue. Rewards and Card Member services expenses are included in each segment based on the actual expenses incurred. Salaries and employee benefits and other operating expenses reflect both costs incurred directly within each segment, as well as allocated expenses. The allocated expenses include service costs allocated based on activities directly attributable to the segment, and overhead expenses allocated based on the relative levels of revenue and Card Member loans and receivables. 51 Table of Contents GLOBAL CONSUMER SERVICES GROUP TABLE 9: GCSG SELECTED INCOME STATEMENT DATA Years Ended December 31, Change Change (Millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues Non-interest revenues $ 18,157 $ 14,632 $ 17,178 $ 3,525 24 % $ (2,546) (15) % Interest income 7,391 8,199 9,414 (808) (10) (1,215) (13) Interest expense 717 1,054 1,731 (337) (32) (677) (39) Net interest income 6,674 7,145 7,683 (471) (7) (538) (7) Total revenues net of interest expense 24,831 21,777 24,861 3,054 14 (3,084) (12) Provisions for credit losses (a) (945) 3,150 2,636 (4,095) # 514 19 Total revenues net of interest expense after provisions for credit losses 25,776 18,627 22,225 7,149 38 (3,598) (16) Expenses Marketing, business development, and Card Member rewards and services 13,898 9,841 12,201 4,057 41 (2,360) (19) Salaries and employee benefits and other operating expenses 5,052 5,099 5,179 (47) (1) (80) (2) Total expenses 18,950 14,940 17,380 4,010 27 (2,440) (14) Pretax segment income $ 6,826 $ 3,687 $ 4,845 $ 3,139 85 % $ (1,158) (24) % # Denotes a variance of 100 percent or more (a) Results for reporting periods beginning on and after January 1, 2020 are presented using the CECL methodology, while information as of and for the year ended December 31, 2019 continues to be reported in accordance with the incurred loss methodology then in effect. Refer to Note 1 and Note 3 to the “Consolidated Financial Statements” for further information. 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, our partnership agreements in China and our loyalty coalition businesses operated in certain countries. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased, primarily driven by higher Discount revenue, Net card fees and Other fees and commissions. Discount revenue increased 31 percent, primarily driven by an increase in consumer billed business of 29 percent reflecting, in part, recovery from the adverse impacts of the COVID-19 pandemic in the prior year. See Tables 5, 6 and 10 for more details on volume performance. Net card fees increased 12 percent, primarily driven by growth in our premium card portfolios. Other fees and commissions increased 11 percent, primarily due to higher travel commissions and fees from our consumer travel business and higher foreign exchange conversion revenue related to increased cross-border Card Member spending, both of which reflect the partial recovery of travel-related revenues in the current year. Net interest income decreased, primarily due to a decline in interest income driven by lower revolving Card Member loan balances, partially offset by lower cost of funds. PROVISIONS FOR CREDIT LOSSES Provisions for credit losses decreased and resulted in a net benefit, primarily driven by reserve releases in the current year versus reserve builds in the prior year and lower net write-offs in the current year. The reserve releases in the current year were due to improved portfolio quality and macroeconomic outlook, in large part driven by improvement in unemployment rate projections, partially offset by increases in the outstanding balances of receivables and loans. The reserve builds in the prior year were due to the deterioration of the global macroeconomic outlook as a result of the COVID-19 pandemic, partially offset by decreases in the outstanding balances of receivables and loans. 52 Table of Contents EXPENSES Marketing, business development, and Card Member rewards and services expenses increased across all expense categories. The increase in Card Member rewards expense was primarily driven by higher billed business as well as a larger proportion of spend in categories that earn incremental rewards and a higher mix of redemptions in travel-related categories, as compared to the prior year. The increase in Marketing and business development expense was primarily due to increases in marketing investments to continue building growth momentum as well as higher spending volumes. The increase in Card Member services expense was primarily due to higher usage of travel-related benefits in the current year, as compared to the prior year during which travel was more negatively impacted by the COVID-19 pandemic. 53 Table of Contents TABLE 10: GCSG SELECTED STATISTICAL INFORMATION As of or for the Years Ended December 31, Change Change (Millions, except percentages and where indicated) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Billed business: (billions) U.S. $ 444.2 $ 337.6 $ 398.8 32 % (15) % Outside the U.S. 148.9 121.1 154.0 23 (21) Total $ 593.1 $ 458.7 $ 552.8 29 (17) Proprietary cards-in-force: U.S. 39.0 37.7 37.9 3 (1) Outside the U.S. 17.0 16.7 17.5 2 (5) Total 56.0 54.4 55.4 3 (2) Proprietary basic cards-in-force: U.S. 27.3 26.6 26.9 3 (1) Outside the U.S. 11.9 11.6 12.1 3 (4) Total 39.2 38.2 39.0 3 (2) Average proprietary basic Card Member spending: (dollars) U.S. $ 16,498 $ 12,641 $ 14,801 31 (15) Outside the U.S. $ 12,759 $ 10,175 $ 12,884 25 (21) Average $ 15,368 $ 11,881 $ 14,212 29 (16) Total segment assets (billions) $ 102.1 $ 87.4 $ 107.0 17 (18) Card Member loans: Total loans (billions) U.S. $ 59.8 $ 51.4 $ 62.4 16 (18) Outside the U.S. 10.7 8.7 10.9 23 (20) Total $ 70.5 $ 60.1 $ 73.3 17 (18) Average loans (billions) U.S. $ 52.0 $ 53.0 $ 59.4 (2) (11) Outside the U.S. 9.0 8.6 10.0 5 (14) Total $ 61.0 $ 61.6 $ 69.4 (1) % (11) % U.S. Net write-off rate — principal only (a) 0.8 % 2.4 % 2.3 % Net write-off rate — principal, interest and fees (a) 1.1 % 2.9 % 2.8 % 30+ days past due as a % of total 0.7 % 1.0 % 1.6 % Outside the U.S. Net write-off rate — principal only (a) 1.7 % 3.0 % 2.4 % Net write-off rate — principal, interest and fees (a) 2.2 % 3.7 % 2.9 % 30+ days past due as a % of total 0.8 % 1.7 % 1.8 % Total Net write-off rate — principal only (a) 0.9 % 2.5 % 2.3 % Net write-off rate — principal, interest and fees (a) 1.3 % 3.0 % 2.8 % 30+ days past due as a % of total 0.7 % 1.1 % 1.6 % 54 Table of Contents Change Change (Millions, except percentages and where indicated) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Card Member receivables: (billions) U.S. $ 14.7 $ 11.9 $ 14.2 24 % (16) % Outside the U.S. 7.7 6.8 8.6 13 (21) Total $ 22.4 $ 18.7 $ 22.8 20 % (18) % U.S. Net write-off rate — principal only (a) — % 1.3 % 1.4 % Net write-off rate — principal and fees (a) 0.1 % 1.4 % 1.6 % 30+ days past due as a % of total 0.4 % 0.4 % 1.2 % Outside the U.S. Net write-off rate — principal only (a) 0.8 % 2.5 % 2.2 % Net write-off rate — principal and fees (a) 0.9 % 2.7 % 2.4 % 30+ days past due as a % of total 0.7 % 1.0 % 1.3 % Total Net write-off rate — principal only (a) 0.3 % 1.7 % 1.7 % Net write-off rate — principal and fees (a) 0.4 % 1.9 % 1.9 % 30+ days past due as a % of total 0.5 % 0.6 % 1.2 % (a) Refer to Table 7 footnote (c). 55 Table of Contents TABLE 11: GCSG NET INTEREST YIELD ON AVERAGE CARD MEMBER LOANS As of or for the Years Ended December 31, (Millions, except percentages and where indicated) 2021 2020 2019 U.S. Net interest income $ 5,933 $ 6,222 $ 6,660 Exclude: Interest expense not attributable to our Card Member loan portfolio (a) 158 288 276 Interest income not attributable to our Card Member loan portfolio (b) (110) (189) (220) Adjusted net interest income (c) $ 5,981 $ 6,321 $ 6,716 Average Card Member loans (billions) $ 52.0 $ 53.0 $ 59.4 Net interest income divided by average Card Member loans (c) 11.4 % 11.7 % 11.2 % Net interest yield on average Card Member loans (c) 11.5 % 11.9 % 11.3 % Outside the U.S. Net interest income $ 741 $ 923 $ 1,024 Exclude: Interest expense not attributable to our Card Member loan portfolio (a) 108 105 85 Interest income not attributable to our Card Member loan portfolio (b) (8) (12) (15) Adjusted net interest income (c) $ 841 $ 1,016 $ 1,094 Average Card Member loans (billions) $ 9.0 $ 8.6 $ 10.0 Net interest income divided by average Card Member loans (c) 8.2 % 10.7 % 10.2 % Net interest yield on average Card Member loans (c) 9.4 % 11.9 % 10.9 % Total Net interest income $ 6,674 $ 7,145 $ 7,683 Exclude: Interest expense not attributable to our Card Member loan portfolio (a) 266 393 361 Interest income not attributable to our Card Member loan portfolio (b) (118) (201) (234) Adjusted net interest income (c) $ 6,822 $ 7,337 $ 7,810 Average Card Member loans (billions) $ 61.0 $ 61.6 $ 69.4 Net interest income divided by average Card Member loans (c) 10.9 % 11.6 % 11.1 % Net interest yield on average Card Member loans (c) 11.2 % 11.9 % 11.3 % (a) Refer to Table 8 footnote (a). (b) Refer to Table 8 footnote (b). (c) Refer to Table 8 footnote (c). 56 Table of Contents GLOBAL COMMERCIAL SERVICES TABLE 12: GCS SELECTED INCOME STATEMENT DATA Years Ended December 31, Change Change (Millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues Non-interest revenues $ 11,489 $ 9,652 $ 12,242 $ 1,837 19 % $ (2,590) (21) % Interest income 1,460 1,586 1,900 (126) (8) (314) (17) Interest expense 449 619 1,034 (170) (27) (415) (40) Net interest income 1,011 967 866 44 5 101 12 Total revenues net of interest expense 12,500 10,619 13,108 1,881 18 (2,489) (19) Provisions for credit losses (a) (438) 1,493 918 (1,931) # 575 63 Total revenues net of interest expense after provisions for credit losses 12,938 9,126 12,190 3,812 42 (3,064) (25) Expenses Marketing, business development, and Card Member rewards and services 6,592 4,991 6,237 1,601 32 (1,246) (20) Salaries and employee benefits and other operating expenses 3,418 3,199 3,261 219 7 (62) (2) Total expenses 10,010 8,190 9,498 1,820 22 (1,308) (14) Pretax segment income $ 2,928 $ 936 $ 2,692 $ 1,992 # $ (1,756) (65) % # Denotes a variance of 100 percent or more (a) Results for reporting periods beginning on and after January 1, 2020 are presented using the CECL methodology, while information as of and for the year ended December 31, 2019 continues to be reported in accordance with the incurred loss methodology then in effect. Refer to Note 1 and Note 3 to the “Consolidated Financial Statements” for further information. GCS primarily issues a wide range of proprietary corporate and small business cards globally. GCS also provides payment, expense management and financing solutions to businesses. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased, primarily driven by higher Discount revenue and Net card fees. Discount revenue increased 21 percent, primarily driven by an increase in commercial billed business of 21 percent reflecting, in part, the recovery from the adverse impacts of the COVID-19 pandemic in the prior year. See Tables 5, 6 and 13 for more details on volume performance. Net card fees increased 9 percent, primarily driven by growth in our premium card portfolios. Net interest income increased, primarily due to lower cost of funds, partially offset by lower average revolving Card Member loan balances. PROVISIONS FOR CREDIT LOSSES Provisions for credit losses decreased and resulted in a net benefit, primarily driven by reserve releases in the current year versus reserve builds in the prior year and lower net write-offs in the current year. The reserve releases in the current year were due to improved portfolio quality and macroeconomic outlook, in large part driven by improvement in unemployment rate projections. For Card Member receivables and loans provisions for credit losses, the reserve releases were partially offset by increases in the outstanding balances of receivables and loans. The reserve builds in the prior year were due to the deterioration of the global macroeconomic outlook as a result of the COVID-19 pandemic, partially offset by decreases in the outstanding balances of receivables and loans. EXPENSES Marketing, business development, and Card Member rewards and services expenses increased across all expense categories. The increase in Card Member rewards expense was primarily driven by higher billed business as well as a larger proportion of spend in categories that earn incremental rewards and a higher mix of redemptions in travel-related categories, as compared to the prior year. The increase in Marketing and business development expense was primarily due to increases in marketing investments to continue building growth momentum. Salaries and employee benefits and other operating expenses increased, primarily due to higher compensation and the Company's partial repayment of a prior year insurance claim associated with insured losses from a corporate client bankruptcy that were partially recovered during the current year. 57 Table of Contents TABLE 13: GCS SELECTED STATISTICAL INFORMATION As of or for the Years Ended December 31, Change Change (Millions, except percentages and where indicated) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Billed business (billions) $ 490.9 $ 406.5 $ 513.3 21 % (21) % Proprietary cards-in-force 15.4 14.5 14.9 6 (3) Average Card Member spending (dollars) $ 33,055 $ 27,769 $ 34,905 19 (20) Total segment assets (billions) $ 52.9 $ 42.1 $ 52.8 26 (20) GSBS Card Member loans: Total loans (billions) $ 18.0 $ 13.2 $ 14.1 36 (6) Average loans (billions) $ 15.0 $ 12.9 $ 13.3 16 (3) Net write-off rate — principal only (a) 0.6 % 2.1 % 1.9 % Net write-off rate — principal, interest and fees (a) 0.8 % 2.4 % 2.2 % 30+ days past due as a % of total 0.5 % 0.7 % 1.3 % Calculation of Net Interest Yield on Average Card Member Loans: Net interest income $ 1,011 $ 967 $ 866 Exclude: Interest expense not attributable to our Card Member loan portfolio (b) 354 478 772 Interest income not attributable to our Card Member loan portfolio (c) (78) (170) (222) Adjusted net interest income (d) $ 1,287 $ 1,275 $ 1,416 Average Card Member loans (billions) $ 15.0 $ 13.0 $ 13.4 Net interest income divided by average Card Member loans (d) 6.7 % 7.4 % 6.5 % Net interest yield on average Card Member loans (d) 8.6 % 9.8 % 10.6 % Card Member receivables: Total receivables (billions) $ 31.3 $ 25.0 $ 34.6 25 (28) Net write-off rate — principal and fees (e)(f) 0.2 % 2.1 % 1.4 % GCP Card Member receivables: Total receivables (billions) $ 13.3 $ 10.9 $ 17.2 22 (37) 90+ days past billing as a % of total (e) 0.3 % 0.6 % 0.8 % Net write-off rate — principal and fees (e)(f) — % 1.9 % 0.8 % GSBS Card Member receivables: Total receivables (billions) $ 18.0 $ 14.1 $ 17.4 28 % (19) % Net write-off rate — principal only (a) 0.3 % 2.1 % 1.9 % Net write-off rate — principal and fees (a) 0.4 % 2.3 % 2.1 % 30+ days past due as a % of total 0.7 % 0.7 % 1.7 % (a) Refer to Table 7 footnote (c). (b) Refer to Table 8 footnote (a). (c) Refer to Table 8 footnote (b). (d) Refer to Table 8 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. 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. (f) The net write-off rate for the year ended December 31, 2021 includes a $37 million partial recovery in Card Member receivables related to a corporate client bankruptcy, which had resulted in a $53 million write-off in the year ended December 31, 2020. 58 Table of Contents GLOBAL MERCHANT AND NETWORK SERVICES TABLE 14: GMNS SELECTED INCOME STATEMENT AND OTHER DATA Years Ended December 31, Change Change (Millions, except percentages and where indicated) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues Non-interest revenues $ 4,964 $ 4,143 $ 5,428 $ 821 20 % $ (1,285) (24) % Interest income 16 18 27 (2) (11) (9) (33) Interest expense (92) (82) (303) (10) 12 221 (73) Net interest income 108 100 330 8 8 (230) (70) Total revenues net of interest expense 5,072 4,243 5,758 829 20 (1,515) (26) Provisions for credit losses (a) (37) 87 19 (124) # 68 # Total revenues net of interest expense after provisions for credit losses 5,109 4,156 5,739 953 23 (1,583) (28) Expenses Marketing, business development, and Card Member rewards and services 1,478 1,130 1,263 348 31 (133) (11) Salaries and employee benefits and other operating expenses 1,682 1,711 1,791 (29) (2) (80) (4) Total expenses 3,160 2,841 3,054 319 11 (213) (7) Pretax segment income 1,949 1,315 2,685 634 48 (1,370) (51) Total segment assets (billions) $ 15.2 $ 14.0 $ 17.2 $ 1.2 9 % $ (3) (19) % # Denotes a variance of 100 percent or more (a) Results for reporting periods beginning on and after January 1, 2020 are presented using the CECL methodology, while information as of and for the year ended December 31, 2019 continues to be reported in accordance with the incurred loss methodology then in effect. Refer to Note 1 and Note 3 to the “Consolidated Financial Statements” for further information. 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. TOTAL REVENUES NET OF INTEREST EXPENSE Non-interest revenues increased, primarily driven by higher Discount revenue due to increases in worldwide network volumes reflecting, in part, the recovery from the adverse impacts of the COVID-19 pandemic in the prior year. The average discount rate increased, primarily due to a change in the mix of spending driven by increased levels of T&E volumes, as compared to the prior year. See Tables 5 and 6 for more details on volume performance. GMNS receives an interest expense credit relating to internal transfer pricing due to its merchant payables. Net interest income increased, primarily due to a higher interest expense credit, primarily driven by an increase in average merchant payables related to year-over-year network volume growth. EXPENSES Marketing, business development, and Card Member rewards and services expenses increased, primarily driven by higher Marketing and business development expense, as a result of increased spend on initiatives to support merchant engagement and increased network issuer expense, reflecting higher processed volumes from certain GNS partners. Salaries and employee benefits and other operating expenses decreased, primarily driven by a net reserve release in the current year versus a net reserve build in the prior year associated with merchant exposure for Card Member purchases, partially offset by higher compensation. 59 Table of Contents CORPORATE & OTHER Corporate functions and certain other businesses are included in Corporate & Other. Corporate & Other pretax loss was $1.0 billion and $1.6 billion in 2021 and 2020, respectively. The decrease in the pretax loss was primarily driven by higher net gains in the current year on Amex Ventures equity investments, a non-cash gain related to an increase in GBT's total equity book value arising from GBT's acquisition of Egencia and a lower net loss in the current year from GBT as compared to the prior year, partially offset by higher compensation. 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 regular funding programs during a substantial weakening in economic conditions. The global macroeconomic outlook continues to remain uncertain due to a variety of factors, including the Omicron variant, labor shortages, supply chain disruptions and inflation. We monitor the changing macroeconomic environment and manage our balance sheet to reflect evolving circumstances. CAPITAL STRATEGY We believe capital allocated to growing businesses with a return on risk-adjusted equity in excess of our costs will generate shareholder value. Our objective is to retain sufficient levels of capital generated through net income and other sources, such as the exercise of stock options by employees, to maintain a strong balance sheet, provide flexibility to support future business growth, and distribute excess capital to shareholders through dividends and share repurchases. See “Dividends and Share Repurchases” below. The level and composition of our consolidated capital position are determined through our Internal Capital Adequacy Assessment Process, which takes into account our business activities, as well as marketplace conditions and requirements or expectations of credit rating agencies, regulators and shareholders, among others. As a bank holding company, we are subject to regulatory requirements administered by the U.S. federal banking agencies. The Federal Reserve has established specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items. Failure to maintain minimum regulatory capital levels at American Express or our U.S. bank subsidiary, American Express National Bank (AENB), could affect our status as a financial holding company and cause the banking regulators with oversight of American Express or AENB to take actions that could limit our business operations. We seek to maintain capital levels and ratios in excess of the minimum regulatory requirements, specifically within a 10 to 11 percent target range for American Express' Common Equity Tier 1 (CET1) risk-based capital ratio. 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 our capital and liquidity positions at the American Express parent company level. We report our capital ratios using the Basel III capital definitions and the Basel III standardized approach for calculating risk-weighted assets. 60 Table of Contents The following table presents our regulatory risk-based capital and leverage ratios and those of AENB, as of December 31, 2021. TABLE 15: REGULATORY RISK-BASED CAPITAL AND LEVERAGE RATIOS Effective Minimum (a) Ratios as of December 31, 2021 Risk-Based Capital Common Equity Tier 1 7.0 % American Express Company 10.5 % American Express National Bank 11.8 Tier 1 8.5 American Express Company 11.5 American Express National Bank 11.8 Total 10.5 American Express Company 12.9 American Express National Bank 13.7 Tier 1 Leverage 4.0 % American Express Company 10.5 American Express National Bank 10.5 % (a) Represents Basel III minimum requirements and applicable regulatory buffers as defined by the federal banking regulators, which includes the stress capital buffer (SCB) for American Express Company and the capital conservation buffer for AENB. Refer to “Capital and Liquidity Regulation” under “Supervision and Regulation” and Note 22 to our “Consolidated Financial Statements” for additional information. The following table presents American Express Company's regulatory risk-based capital and risk-weighted assets as of December 31, 2021: TABLE 16: REGULATORY RISK-BASED CAPITAL COMPONENTS AND RISK-WEIGHTED ASSETS American Express Company ($ in Billions) December 31, 2021 Risk-Based Capital Common Equity Tier 1 $ 17.6 Tier 1 Capital 19.2 Tier 2 Capital 2.3 Total Capital 21.5 Risk-Weighted Assets 166.5 Average Total Assets to calculate the Tier 1 Leverage Ratio $ 183.5 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 CET1 capital, divided by risk-weighted assets. CET1 capital is common shareholders’ equity, adjusted for ineligible goodwill and intangible assets and certain deferred tax assets. CET1 capital is also adjusted for the CECL final rules, as described 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 capital, preferred shares 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 issue preferred shares to help address a portion of the Tier 1 capital requirements in excess of common equity requirements. See “Preferred Shares” below for further information. 61 Table of Contents 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 reserve for loan and receivable credit losses adjusted for the CECL final rules (limited to 1.25 percent of risk-weighted assets), and $240 million of eligible subordinated notes, adjusted for capital held by insurance subsidiaries. The $240 million of eligible subordinated notes reflect a 60 percent, or $360 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. We elected to delay the impact of the adoption of the CECL methodology on regulatory capital for two years followed by a three-year phase-in period pursuant to rules issued by federal banking regulators (the CECL final rules). As of December 31, 2021, 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 $0.9 billion decrease in reserves for credit losses from January 1, 2020 to December 31, 2021. We have begun phasing in the $0.7 billion cumulative amount that is not recognized in regulatory capital at 25 percent per year beginning January 1, 2022. Refer to “Capital and Liquidity Regulation” under Part 1, Item 1. “Business - Supervision and Regulation” for additional details. As a Category IV firm, we were not subject to the Federal Reserve's supervisory stress tests in 2021 and will be participating in the Federal Reserve's supervisory stress tests in 2022. We are required to submit to the Federal Reserve our annual capital plan, on or before April 5 of each year. On June 24, 2021, the Federal Reserve confirmed our SCB of 2.5 percent and resulting CET1 capital ratio requirement of 7 percent, which remain unchanged from the levels announced in August 2020. DIVIDENDS AND SHARE REPURCHASES 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 year ended December 31, 2021, we returned $9.0 billion to our shareholders in the form of common stock dividends of $1.4 billion and share repurchases of $7.6 billion. We repurchased 46 million common shares at an average price of $165.40 in 2021. These dividend and share repurchase amounts collectively represent approximately 109 percent of total capital generated during the year. We plan to increase the regular quarterly dividend on our common shares outstanding by approximately 20 percent, from 43 cents to 52 cents per share beginning with the first quarter of 2022, subject to approval by our Board of Directors. In addition, during the year ended December 31, 2021, we paid $71 million in dividends on non-cumulative perpetual preferred shares outstanding. Refer to Note 16 to the “Consolidated Financial Statements” for additional information on our preferred shares. During the first six months of 2021, the Federal Reserve placed restrictions on common stock dividends and common share repurchases for bank holding companies like us that participate in the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR). These capital distribution restrictions ceased to apply on July 1, 2021. Our capital distributions have since returned to being governed by the SCB framework and based on managing our CET1 risk-based capital ratio within a 10 to 11 percent target range. We may conduct share repurchases through a variety of methods, including open market purchases, 10b5-1 plans, privately negotiated transactions (including employee benefit plans) or other purchases, including block trades, accelerated share repurchase programs or any combination of such methods as market conditions warrant and at prices we deem appropriate. Our decisions on capital distributions depend on various factors, including: our capital levels and regulatory capital requirements; regulatory guidance or restrictions, 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 supervisory stress test process. PREFERRED SHARES We issue preferred shares to finance a portion of the Tier 1 capital requirements in excess of common equity requirements. On August 3, 2021, we issued $1.6 billion of 3.550% Fixed Rate Reset Noncumulative Preferred Shares, Series D. With the proceeds from that issuance, we redeemed in full the $850 million of 4.900% Fixed Rate/Floating Rate Noncumulative Preferred Shares, Series C on September 15, 2021 and the $750 million of 5.200% Fixed Rate/Floating Rate Noncumulative Preferred Shares, Series B on November 15, 2021. Refer to Note 16 to the “Consolidated Financial Statements” for additional information on our preferred shares. 62 Table of Contents FUNDING STRATEGY Our principal funding objective is to maintain broad and well-diversified funding sources to allow us to finance our global businesses and to maintain a strong liquidity profile. Our funding strategy and activities are integrated into our asset-liability management activities. We have in place a funding policy covering American Express Company and all of our subsidiaries. Our global proprietary card-issuing businesses generate significant assets in both domestic and international Card Member lending and receivable activities. Our financing needs are in large part a consequence of our proprietary card-issuing businesses, where we generally pay merchants for card transactions prior to reimbursement by Card Members and therefore fund the merchant payments during the period Card Member loans and receivables are outstanding. In addition, we maintain a liquidity position to meet regulatory requirements and support our business activities. We aim to satisfy these financing needs with a diverse set of funding sources. The diversity of funding sources by type of instrument, by tenor and by investor base, among other factors, mitigates the impact of disruptions in any one type of instrument, tenor or investor. We seek to achieve diversity and cost efficiency in our funding sources by maintaining scale and market relevance in unsecured debt, asset securitizations and deposits, and access to secured borrowing facilities and a committed bank credit facility. Our direct retail deposits have become a larger proportion of our funding over time. We expect the balance of these deposits to continue to grow. Our funding plan is primarily driven by the size and mix of business asset growth, our liquidity position, and choice of funding sources, as well as cash requirements generated by the redemptions of deposits by our customers, the maturities of debt outstanding and related interest payments. In executing our funding plan, we aim to maintain a balanced debt maturity profile with an appropriate mix of short-term and long-term refinancing requirements. FUNDING PROGRAMS AND ACTIVITIES We had the following customer deposits and consolidated debt outstanding as of December 31: TABLE 17: SUMMARY OF CUSTOMER DEPOSITS AND CONSOLIDATED DEBT (Billions) 2021 2020 Customer deposits $ 84.4 $ 86.9 Short-term borrowings 2.2 1.9 Long-term debt 38.7 43.0 Total debt and customer deposits $ 125.3 $ 131.8 We may redeem from time to time certain debt securities prior to the original contractual maturity dates in accordance with the optional redemption provisions of those debt securities. Our funding plan for the full year 2022 includes, among other sources, approximately $8.0 billion to $12.0 billion of unsecured term debt issuance and approximately $6.0 billion to $10.0 billion of secured term debt issuance. Actual funding activities can vary from our plans due to various factors, such as future business growth, the impact of global economic, political and other events on market capacity and funding needs, demand for securities offered by us, regulatory changes, ability to securitize and sell receivables, and the performance of receivables previously sold in securitization transactions. Many of these factors are beyond our control. In order to simplify our funding and reporting structure, in October 2021 we terminated the commercial paper program at American Express Credit Corporation (Credco) and Credco's committed syndicated bank credit facility, the undrawn amounts from which could serve as a backstop for the amount of commercial paper outstanding. Concurrently, we established a new commercial paper program at American Express Travel Related Services Company, Inc. (TRS) and a new credit facility with American Express Company and TRS as co-borrowers and co-obligors, as described further below. We also completed an exchange offer on November 30, 2021, in which American Express Company issued $1.7 billion of new senior notes with a 3.300% coupon and May 3, 2027 maturity in exchange for the same amount of outstanding senior notes with the same coupon and maturity issued by Credco. Following completion of the exchange offer, $339 million of Credco's 3.300% senior notes with May 3, 2027 maturity remain outstanding. Due to the limited amount of publicly issued debt outstanding, Credco deregistered from ongoing SEC reporting beginning January 1, 2022. Credco will continue to finance certain Card Member receivables and loans using intercompany borrowing as its primary funding source. 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. 63 Table of Contents TABLE 18: UNSECURED DEBT RATINGS Credit Agency American Express Entity Short-Term Ratings Long-Term Ratings Outlook Fitch American Express Credit Corporation N/A A Stable Fitch All other rated entities F1 A Stable Moody’s American Express Travel Related Services Company, Inc. Prime-1 A2 Stable Moody's American Express Credit Corporation N/A A2 Stable Moody’s American Express National Bank Prime-1 A3 Stable Moody's American Express Company N/A A2 Stable S&P American Express Travel Related Services Company, Inc. A-2 A- Stable S&P American Express Credit Corporation N/A A- Stable S&P American Express National Bank A-2 A- Stable S&P American Express Company A-2 BBB+ Stable These ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization. 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 credit facilities. 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. 64 Table of Contents DEPOSIT PROGRAMS We offer deposits within our U.S. bank subsidiary, AENB. These funds are currently insured up to an amount that is at least $250,000 per account holder through the FDIC. Our ability to obtain deposit funding and offer competitive interest rates is dependent on, among other factors, the capital level of AENB. Direct retail deposits offered by AENB is our primary deposit product channel, which makes FDIC-insured high-yield savings account and certificates of deposit (CDs) products available directly to consumers. AENB also offers checking account products and sources deposits through third-party distribution channels as needed to meet our overall funding objectives. As of December 31, 2021, we had $84.4 billion in deposits. Refer to Note 7 to the “Consolidated Financial Statements” for a further description of these deposits and scheduled maturities of certificates of deposits. SHORT-TERM FUNDING PROGRAMS Short-term borrowings, such as commercial paper, are defined as any debt with an original maturity of twelve months or less, as well as interest-bearing overdrafts with banks. Our short-term funding programs are used primarily to fund working capital needs, such as managing seasonal variations in receivables balances. The amount of short-term borrowings issued in the future will depend on our funding strategy, our needs and market conditions. As of December 31, 2021, we had nil commercial paper outstanding and an average of nil in commercial paper outstanding during 2021. Refer to Note 8 to the “Consolidated Financial Statements” for a further description of these borrowings. LONG-TERM DEBT AND ASSET SECURITIZATION PROGRAMS As of December 31, 2021, we had $38.7 billion in long-term debt outstanding, including unsecured debt and asset-backed securities. During 2021, we issued $5.8 billion of unsecured debt and asset-backed securities with maturities ranging from 2 to 5 years. Refer to Note 8 to the “Consolidated Financial Statements” for a further description of these borrowings and scheduled maturities of long-term debt obligations. We periodically securitize Card Member loans and receivables arising from our U.S. card business, as the securitization market provides us with cost-effective funding. Securitization of Card Member loans and receivables is accomplished through the transfer of those assets to a trust, which in turn issues securities collateralized by the transferred assets to third-party investors. The proceeds from issuance are distributed to us, through our wholly owned subsidiaries, as consideration for the transferred assets. Refer to Note 5 to the “Consolidated Financial Statements” for a further description of our asset securitizations. TABLE 19: DEBT ISSUANCES (Billions) 2021 American Express Company: Fixed Rate Senior Notes (weighted-average coupon rate of 1.27%) $ 1.9 Floating Rate Senior Notes (compounded SOFR (a) plus weighted-average spread of 42 basis points) 1.1 American Express Credit Account Master Trust: Fixed Rate Class A Certificates (weighted-average coupon of 0.90%) 2.8 Total $ 5.8 (a) Secured overnight financing rate (SOFR). In addition, American Express Company issued $1.7 billion of 3.300% new senior notes in exchange for the same amount of outstanding senior notes issued by Credco, as described above. 65 Table of Contents 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; and • Establishing clear objectives for liquidity risk management, including compliance with regulatory requirements. We seek to maintain access to a diverse set of on-balance sheet and off-balance sheet liquidity sources, including cash and other liquid assets, committed bank credit facilities and secured borrowing facilities. Through our U.S. bank subsidiary, AENB, we also hold collateral eligible for use at the Federal Reserve’s discount window. 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. These stress scenarios possess distinct characteristics, varying by cash flow assumptions, time horizon and qualifying liquidity sources, among other factors. Scenarios under our liquidity risk policy include market-wide, firm-specific and combined liquidity stresses. We consider other factors in determining the amount and type of liquidity we maintain, such as economic and financial market conditions, seasonality in business operations, growth in our businesses, potential acquisitions or dispositions, the cost and availability of alternative liquidity sources and credit rating agency guidelines and requirements. We believe that we currently maintain sufficient liquidity to meet all internal and regulatory liquidity requirements. As of December 31, 2021, we had a total of $24.6 billion in Cash and cash equivalents and Investment securities (which are substantially comprised of U.S. Government Treasury obligations). The decrease of $30.0 billion from $54.6 billion as of December 31, 2020 was primarily driven by the increase in the balances of our Card Member loans and receivables, debt maturities, share repurchases and a reduction in customer deposits, partially offset by the issuance of unsecured and secured debt securities. The investment income we receive on liquidity resources is less than the interest expense on the sources of funding for these balances. In 2021, the net interest costs to maintain these resources were substantial. The level of future net interest costs depends on the amount of liquidity resources we maintain and the difference between our cost of funding these amounts and their investment yields. 66 Table of Contents Securitized Borrowing Capacity As of December 31, 2021, we maintained our committed, revolving, secured borrowing facility, with a maturity date of July 15, 2024, 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). We also maintained our committed, revolving, secured borrowing facility, with a maturity date of September 16, 2024, 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 December 31, 2021, $2.0 billion was drawn on the Charge Trust facility, which was subsequently repaid on January 18, 2022. No amounts were drawn on 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 $80.8 billion as of December 31, 2021 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 of $3.5 billion as of December 31, 2021. This facility was maintained by our wholly owned subsidiary Credco through September 30, 2021 and the availability of the credit line was subject to compliance with certain covenants by Credco, principally the maintenance by Credco of a 1.25 ratio of its combined earnings, certain capital contributions and fixed charges, to fixed charges. Effective October 1, 2021, this facility was terminated, and we entered into a new committed syndicated bank credit facility for the same amount with a maturity date of October 15, 2024 with American Express Company and TRS as co-borrowers and co-obligors. The availability of the new credit facility is subject to our maintenance of a minimum CET1 risk-based capital ratio of 4.5 percent, with certain restrictions in relation to either accessing the facility or distributing capital to common shareholders in the event our CET1 risk-based capital ratio falls between 4.5 percent and 6.5 percent. As of December 31, 2021, we were in compliance with the covenants contained in the new credit facility and no amounts were drawn on the facility. We may, from time to time, use this facility in the ordinary course of business to fund working capital needs. Any undrawn portion of this facility could serve as a backstop for the amount of commercial paper outstanding. The new credit facility does not contain a material adverse change clause, which might otherwise preclude borrowing under the facility, nor is it dependent on our credit rating. Off-balance Sheet Arrangements We have certain off-balance sheet obligations that include guarantees, indemnifications and certain Card Member and partner arrangements that may have a material current or future effect on our financial condition, changes in financial condition, results of operations, or liquidity and capital resources. For more information on these obligations, refer to Note 12, Note 15 and Note 23 to the “Consolidated Financial Statements.” 67 Table of Contents CASH FLOWS The following table summarizes our cash flow activity, followed by a discussion of the major drivers impacting operating, investing and financing cash flows for the year ended December 31, 2021 compared to the year ended December 31, 2020. TABLE 20: CASH FLOWS (Billions) 2021 2020 2019 Total cash provided by (used in): Operating activities $ 14.6 $ 5.6 $ 13.6 Investing activities (10.5) 11.6 (16.7) Financing activities (14.9) (9.1) (0.5) Effect of foreign currency exchange rates on cash and cash equivalents (0.1) 0.4 0.2 Net (decrease) increase in cash and cash equivalents $ (10.9) $ 8.5 $ (3.4) 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, stock-based compensation, deferred taxes and other non-cash items 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. In 2021, the net cash provided by operating activities was primarily driven by cash generated from net income for the period and higher net operating liabilities, primarily resulting from an increase in Membership Rewards liability and higher accounts payable to merchants related to growth in billed business. In 2020, the net cash provided by operating activities was primarily driven by the cash generated from net income for the period, partially offset by lower accounts payable to merchants and purchases of loyalty program points from certain of our cobrand partners, which resulted in an increase in Other assets. 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. In 2021, the net cash used in investing activities was primarily driven by higher Card Member loan and receivable balances, resulting from higher Card Member spending, partially offset by net maturities of our investment securities. In 2020, the net cash provided by investing activities was primarily driven by a decline in Card Member loan and receivable balances, partially offset by net purchases of investment securities. The decline in Card Member loan and receivable balances was due to the ongoing pay down of outstanding balances by Card Members combined with significant declines in spending that occurred due to the COVID-19 pandemic. 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. In 2021, the net cash used in financing activities was primarily driven by share repurchases, net debt repayments, decreases in customer deposits, dividends and redemption of preferred shares, partially offset by the proceeds from the issuance of preferred shares. In 2020, the net cash used in financing activities was primarily driven by debt repayments, dividends and share repurchases, partially offset by growth in customer deposits. 68 Table of Contents RISK MANAGEMENT GOVERNANCE We use our comprehensive Enterprise-wide Risk Management (ERM) program to identify, aggregate, monitor, and manage risks. The program also defines our risk appetite, governance, culture and capabilities. The implementation and execution of the ERM program is headed by our Chief Risk Officer. Risk management is overseen by our Board of Directors through three Board committees: the Risk Committee, the Audit and Compliance Committee, and the Compensation and Benefits Committee. Each committee consists entirely of independent directors and provides regular reports to the full Board regarding matters reviewed at their committee. The committees meet regularly in private sessions with our Chief Risk Officer, the Chief Compliance & Ethics Officer, the Chief Audit Executive and other senior management with regard to our risk management processes, controls, talent and capabilities. The Board monitors the “tone at the top,” our risk culture, and oversees emerging and strategic risks. The Risk Committee of our Board of Directors provides oversight of our ERM framework, processes and methodologies. The Risk Committee approves our ERM policy. The ERM policy governs risk governance, risk oversight and risk appetite for risks, including individual credit risk, institutional credit risk, operational risk, compliance risk, reputational risk, market risk, funding and liquidity risk, model risk, strategic and business risk, country risk and environmental, social and governance risk. Risk appetite defines the authorized risk limits to control exposures within our risk capacity and risk tolerance, including stressed forward-looking scenarios. In addition, it establishes principles for risk taking in the aggregate and for each risk type, and is supported by a comprehensive system for monitoring limits, escalation triggers and assessing control programs. The Risk Committee reviews and concurs with the appointment, replacement, performance and compensation of our Chief Risk Officer and receives regular updates from the Chief Risk Officer on key risks, transactions and exposures. The Risk Committee reviews our risk profile against the tolerances specified in the Risk Appetite Framework, including significant risk exposures, risk trends in our portfolios and major risk concentrations. The Risk Committee also provides oversight of our compliance with Regulatory capital and liquidity standards, our Internal Capital Adequacy Assessment Process, including the CCAR submissions. The Audit and Compliance Committee of our Board of Directors reviews and approves compliance policies, which include our Compliance Risk Tolerance Statement. In addition, the Audit and Compliance Committee reviews the effectiveness of our Corporate-wide Compliance Risk Management Program. More broadly, this committee is responsible for assisting the Board in its oversight responsibilities relating to the integrity of our financial statements and financial reporting process, internal and external auditing, including the qualifications and independence of the independent registered public accounting firm and the performance of our internal audit services function, and the integrity of our systems of internal controls. The Audit and Compliance Committee provides oversight of our Internal Audit Group. The Audit and Compliance Committee reviews and concurs with the appointment, replacement, performance and compensation of our Chief Audit Executive, who reports to the Audit and Compliance Committee, and approves Internal Audit’s annual audit plan, charter, policies, budget and staffing levels, and overall risk assessment methodology. The Audit and Compliance Committee also receives regular updates on the audit plan’s status and results, including significant reports issued by Internal Audit and the status of our corrective actions. The Compensation and Benefits Committee of our Board of Directors works with the Chief Risk Officer to ensure our overall compensation programs, as well as those covering our risk-taking employees, appropriately balance risk with business incentives and how business performance is achieved without taking imprudent or excessive risk. Our Chief Risk Officer is actively involved in setting risk goals for the Company. Our Chief Risk Officer also reviews the current and forward-looking risk profiles of each business unit and provides input into performance evaluation. The Chief Risk Officer meets with the Compensation and Benefits Committee and attests whether performance goals and results have been achieved without taking imprudent risks. The Compensation and Benefits Committee uses a risk-balanced incentive compensation framework to decide on our bonus pools and the compensation of senior executives. 69 Table of Contents There are several internal management committees, including the Enterprise-wide Risk Management Committee (ERMC), chaired by our Chief Risk Officer. The ERMC is the highest-level management committee to oversee all firm-wide risks and is responsible for risk governance, risk oversight and risk appetite. It maintains the enterprise-wide risk appetite framework and monitors compliance with limits and escalations defined in it. The ERMC oversees implementation of risk policies company-wide. The ERMC reviews key risk exposures, trends and concentrations, significant compliance matters, and provides guidance on the steps to monitor, control and report major risks. In addition, the Asset Liability Committee, chaired by our Chief Financial Officer, is responsible for managing our capital, funding and liquidity, investment, market risk and asset/liability activities in accordance with our policies and in compliance with applicable regulatory requirements. As defined in the ERM policy, we follow the “three lines of defense” approach to risk management. The first line of defense comprises functions and management committees directly initiating risk taking. The Chief Executive Officer, business unit presidents and the Chief Financial Officer are part of the first line of defense. The second line comprises independent functions overseeing risk-taking activities of the first line. The Chief Risk Officer, the Chief Compliance & Ethics Officer, the Chief Operational Risk Officer and certain control groups, both at the enterprise level and within regulated entities, are part of the second line of defense. The global risk oversight team oversees the policies, strategies, frameworks, models, processes and capabilities deployed by the first line teams and provides challenges and independent assessments on how the first line of defense is managing risks. Our Internal Audit Group constitutes the third line of defense and provides independent assessments and effective challenge of the first and second lines of defense. CREDIT RISK MANAGEMENT PROCESS Credit risk is defined as loss due to default or changes in the credit quality of a customer, obligor or security. Our credit risks are divided into two broad categories: individual and institutional. Each has distinct risk management capabilities, strategies, and tools. Business units that create individual or institutional credit risk exposures of significant importance are supported by dedicated risk management teams, each led by a Chief Credit Officer. INDIVIDUAL CREDIT RISK Individual credit risk arises from consumer and small business charge cards, credit cards, and term loans. These portfolios consist of millions of customers across multiple geographies, industries and levels of net worth. We benefit from the high-quality profile of our customers, which is driven by our brand, premium customer servicing, product features and risk management capabilities, which span underwriting, customer management and collections. The risk in these portfolios is generally correlated to broad economic trends, such as unemployment rates and gross domestic product (GDP) growth. The business unit leaders and their Chief Credit Officers take the lead in managing the credit risk process. These Chief Credit Officers are guided by the Individual Credit Risk Committee (ICRC), which is responsible for implementation and enforcement of the Individual Credit Risk Management Policy. The ICRC ensures compliance with ERMC guidelines and procedures and escalates to the ERMC as appropriate. Credit risk management is supported by sophisticated proprietary scoring and decision-making models that use up-to-date information on prospects and customers, such as spending and payment history and data feeds from credit bureaus. We have developed data-driven economic decision logic for customer interactions to better serve our customers. INSTITUTIONAL CREDIT RISK Institutional credit risk arises principally within our GCS and GMNS businesses, as well as investment and liquidity management activities. Unlike individual credit risk, institutional credit risk is characterized by a lower loss frequency but higher severity. It is affected both by general economic conditions and by client-specific events. The absence of large losses in any given year or over several years is not necessarily representative of the level of risk of institutional portfolios, given the infrequency of loss events in such portfolios. Similar to individual credit risk, business units taking institutional credit risks are supported by Chief Credit Officers. These officers are guided by the Institutional Risk Management Committee (IRMC), which is responsible for implementation and enforcement of the Institutional Credit Risk Management Policy and for providing guidance to the credit officers of each business unit with substantial institutional credit risk exposures. The committee, along with the business unit Chief Credit Officers, makes investment decisions in core risk capabilities, ensures proper implementation of the underwriting standards and contractual rights for risk mitigation, monitors risk exposures, and determines risk mitigation actions. The IRMC formally reviews large institutional risk exposures to ensure compliance with ERMC guidelines and procedures and escalates them to the ERMC as appropriate. At the same time, the IRMC provides guidance to the business unit risk management teams to optimize risk-adjusted returns on capital. A centralized risk rating unit provides risk assessment of our institutional obligors. 70 Table of Contents Exposure to the Airline and Travel Industry We have multiple important cobrand, rewards, merchant acceptance and corporate payments arrangements with airlines. The ERM program evaluates the risks posed by our airline partners and the overall airline strategy company-wide through comprehensive business analysis of global airlines, and the travel industry more broadly, including cruise lines, travel agencies and tour operators. Our largest airline partner is Delta, and this relationship includes an exclusive cobrand credit card partnership and other arrangements including Membership Rewards redemption, merchant acceptance, travel and corporate payments. See “ We face intense competition for partner relationships, which could result in a loss or renegotiation of these arrangements that could have a material adverse impact on our business and results of operations ” and “Arrangements with our business partners represent a significant portion of our business. We are exposed to risks associated with our business partners, including reputational issues, business slowdowns, bankruptcies, liquidations, restructurings and consolidations, and the possible obligation to make payments to our partners ” under “Risk Factors” for additional information. Debt Exposure As part of our ongoing risk management process, we monitor our financial exposure to both sovereign and non-sovereign customers and counterparties, and measure and manage concentrations of risk by geographic regions, as well as by economic sectors and industries. A primary focus area for monitoring is credit deterioration due to weaknesses in economic and fiscal profiles. We evaluate countries based on the market assessment of the riskiness of their sovereign debt and our assessment of the economic and financial outlook and closely monitor those deemed high risk. As of December 31, 2021, we considered our gross credit exposures to government entities, financial institutions and corporations in those countries deemed high risk to be individually and collectively not material. OPERATIONAL RISK MANAGEMENT PROCESS We consider operational risk to be the risk of loss due to, among other things, inadequate or failed processes, people or information systems, or impacts from the external environment, including failures to comply with laws and regulations as well as impacts from relationships with third parties. Operational risk is inherent in all business activities and can impact an organization through direct or indirect financial loss, brand damage, customer dissatisfaction, or legal and regulatory penalties. To appropriately measure and manage operational risk, we have implemented a comprehensive operational risk framework that is defined in the Operational Risk Management Policy approved by the ERMC. The Operational Risk Management Committee (ORMC), chaired by the Chief Operational Risk Officer, coordinates with all control groups on effective risk assessments and controls and oversees the preventive, responsive and mitigation efforts by Operational Excellence teams in the business units and staff groups. We use the operational risk framework to identify, measure, monitor and report inherent and emerging operational risks. This framework, supervised by the ORMC, consists of (a) operational risk event capture, (b) a project office to coordinate issue management and control enhancements, (c) key risk indicators, and (d) process and entity-level risk assessments. The framework requires the assessment of operational risk events to determine root causes, impact to customers and/or us, and resolution plan accountability to correct any defect, remediate customers, and enhance controls and testing to mitigate future issues. The impact is assessed from an operational, financial, brand, regulatory compliance and legal perspective. 71 Table of Contents INFORMATION AND CYBER SECURITY We define information and cyber security risk as the risk that a security incident could impact the confidentiality, integrity or availability of American Express customer, colleague or proprietary information. Our information and cyber security program is designed to protect the confidentiality, integrity, and availability of information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction. The program is built upon a foundation of advanced security technology, a well-staffed and highly trained team of experts, and robust operations based on the National Institute of Standards and Technology Cybersecurity Framework. This consists of controls designed to identify, protect, detect, respond and recover from information and cyber security incidents. We continue to invest in enhancements to cyber security capabilities and engage in industry and government forums to promote advancements to the broader financial services cyber security ecosystem. See “A major information or cyber security incident or an increase in fraudulent activity could lead to reputational damage to our brand and material legal, regulatory and financial exposure, and could reduce the use and acceptance of our cards” under “Risk Factors” for additional information. 72 Table of Contents INFORMATION TECHNOLOGY We define information technology risk as the risk that events or circumstances could compromise the processing, stability, capacity, performance, or resilience of information technology and cause financial, reputational, and/or regulatory impacts. We manage information technology risk through our policies, procedures, governance structure, and control framework to preserve the confidentiality, integrity, and availability of systems and processes across our Company. See “The uninterrupted operation of our information systems is critical to our success and a significant disruption could have a material adverse effect on our business and results of operations” under “Risk Factors” for additional information. PRIVACY We define privacy risk as the risk of financial loss, reputational damage, or regulatory or legal action resulting from decisions related to the violation of applicable laws, rules, regulations, contractual obligations, or the non-adherence to privacy policies, disclosures, or standards that apply to the processing of personal data. The Global Privacy Policy establishes the privacy framework and defines the American Express Data Protection & Privacy Principles, which governs the way we collect, use, store, share, transmit, delete or otherwise process our customer and colleague personal data globally. Chaired by the Chief Privacy Officer, the Privacy Risk Management Committee, a sub-committee of the ORMC, provides oversight and governance for our privacy program. DATA MANAGEMENT AND GOVERNANCE We define data management and governance risk as the risk of financial, reputational, and/or regulatory impacts due to inadequate data governance and/or data management practices adversely impacting the accuracy, completeness, timeliness, comprehensiveness or usability of data throughout its lifecycle. Our Enterprise Data Governance Policy establishes the framework for defining in-scope critical data and the requirements for managing such data effectively throughout its lifecycle as a critical corporate asset. This policy is approved by the ERMC. Chaired by the Chief Data Officer, our Enterprise Data Committee, a sub-committee of the ERMC, provides governance and oversight for our enterprise-wide data governance and management activities. COMPLIANCE RISK MANAGEMENT PROCESS We define compliance risk as the risk of legal or reputational harm, fines, monetary penalties and payment of damages or other forms of sanction as a result of non-compliance with applicable laws and/or regulations, internal policies and procedures and related practices, or ethical standards. We view our ability to effectively mitigate compliance risk as an important aspect of our business model. Our Global Compliance and Ethics organization is responsible for establishing and maintaining our corporate-wide Compliance Risk Management Program. Pursuant to this program, we seek to manage and mitigate compliance risk by assessing, controlling, monitoring, measuring and reporting the legal and regulatory risks to which we are exposed. The Compliance Risk Management Committee (CRMC), chaired by the Chief Compliance and Ethics Officer, is responsible for identifying, evaluating, managing, and escalating compliance risks. The CRMC has a dual reporting relationship directly to both the ERMC and the Audit and Compliance Committee. We have a comprehensive Anti-Money Laundering program that monitors and reports suspicious activity to the appropriate government authorities. As part of that program, the Global Risk Oversight team provides independent risk assessment of the rules used by the Anti-Money Laundering team. In addition, the Internal Audit Group reviews the processes for practices consistent with regulatory guidance. 73 Table of Contents REPUTATIONAL RISK MANAGEMENT PROCESS We define reputational risk as the risk that negative stakeholder reaction to our products, services, client and partner relationships, business activities and policies, management and workplace culture, or our response to unexpected events, could cause sustained critical media coverage, a decline in revenue or investment, talent attrition, litigation, or government or regulatory scrutiny. We view protecting our reputation for excellent customer service, trust, security and high integrity as core to our vision of providing the world’s best customer experience and fundamental to our long-term success. Our business leaders are responsible for considering the reputational risk implications of business activities and strategies and ensuring the relevant subject matter experts are engaged as needed. The ERMC is responsible for ensuring reputational risk considerations are included in the scope of appropriate subordinate risk policies and committees and properly reflected in all decisions escalated to the ERMC. MARKET RISK MANAGEMENT PROCESS 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. Our risk policies establish the framework that guides and governs market risk management, including quantitative limits and escalation triggers. These policies are approved by the ERMC, Asset Liability Committee or Market Risk Management Committee. Market risk is managed by the Market Risk Management Committee. The Market Risk Oversight Officer provides an independent risk assessment and oversight over the policies and exposure management for market risk and Asset Liability Management activities, as well as overseeing compliance with associated regulatory requirements. Market risk management is also guided and governed by policies covering the use of derivative financial instruments, funding, liquidity and investments. Interest Rate Risk We analyze a variety of interest rate scenarios to inform us of the potential impacts from interest rate changes on earnings and the value of assets, liabilities and the economic value of equity. Our interest rate exposure can vary over time as a result of, among other things, the proportion of our total funding provided by variable and fixed-rate debt and deposits compared to our Card Member loans and receivables. Interest rate swaps are used from time to time to effectively convert debt issuances to variable-rate from fixed-rate, or vice versa. Refer to Note 13 to the “Consolidated Financial Statements” for further discussion of our derivative financial instruments. As of December 31, 2021, a hypothetical, immediate 100 basis point increase in market interest rates would have a detrimental impact of approximately $206 million on our annual net interest income. A hypothetical immediate 100 basis point decrease in market interest rates, which are assumed to remain at or above zero percent, would have a smaller but still detrimental impact on our annual net interest income. This measure first projects net interest income over the following twelve-month time horizon considering forecasted business growth and anticipated future market interest rates. The detrimental impact from rate changes is then measured by instantaneously increasing or decreasing the anticipated future interest rates by 100 basis points. 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. 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. 74 Table of Contents LIBOR Transition We have an enterprise-wide, cross-functional initiative to identify, assess and monitor risks associated with the London interbank offered rate (LIBOR), engage with industry participants, customers and regulators and to transition to new alternative reference rates, such as the secured overnight financing rate. As part of this initiative, we have amended and continue to amend contracts to replace references to USD LIBOR tenors that will cease to be quoted after June 2023 and have updated our operational processes, IT systems and models for a timely transition. See “ The discontinuance of LIBOR may negatively impact our access to funding and the value of our financial instruments and commercial agreements ” under “Risk Factors” for additional information. Foreign Exchange Risk Foreign exchange exposures arise in four principal ways: (1) Card Member spending in currencies that are not the billing currency, (2) cross-currency transactions and balances from our funding activities, (3) cross-currency investing activities, such as in the equity of foreign subsidiaries, and (4) revenues generated and expenses incurred in foreign currencies, which impact earnings. These foreign exchange risks are managed primarily by entering into foreign exchange spot transactions or hedged with foreign exchange forward contracts when the hedge costs are economically justified and in notional amounts designed to offset pretax impacts from currency movements in the period in which they occur. As of December 31, 2021, foreign currency derivative instruments with total notional amounts of approximately $32 billion were outstanding. With respect to Card Member spending and cross-currency transactions, including related foreign exchange forward contracts outstanding, the impact of a hypothetical 10 percent strengthening of the U.S. dollar would have been immaterial to projected earnings as of December 31, 2021. With respect to translation exposure of foreign subsidiary equity balances, including related foreign exchange forward contracts outstanding, a hypothetical 10 percent strengthening of the U.S. dollar would result in an immaterial reduction in other comprehensive income and equity as of December 31, 2021. With respect to anticipated earnings denominated in foreign currencies for the next twelve months, the adverse impact on pretax income of a hypothetical 10 percent strengthening of the U.S. dollar would be approximately $112 million as of December 31, 2021. To a much lesser extent, we are also subject to market risk arising from activities conducted by our Foreign Exchange International Payments business. We aim to minimize market risk from these activities through hedging, where appropriate, and the establishment of limits. The actual impact of interest rate and foreign exchange rate changes will depend on, among other factors, the timing of rate changes, the extent to which different rates do not move in the same direction or in the same direction to the same degree, changes in the cost, volume and mix of our hedging activities and changes in the volume and mix of our businesses. 75 Table of Contents FUNDING & LIQUIDITY RISK MANAGEMENT PROCESS Funding and liquidity risk is defined as our inability to meet our ongoing financial and business obligations at a reasonable cost as they become due. Our Board-approved Liquidity Risk Policy establishes the framework that guides and governs liquidity risk management. Funding and liquidity risk is managed by the Funding and Liquidity Committee. To manage this risk, we seek to maintain access to a diverse set of cash, readily-marketable securities and contingent sources of liquidity, such that we can continuously meet our business requirements and expected future financing obligations for at least a twelve-month period in the event we are unable to raise new funds under our regular funding programs during a substantial weakening in economic conditions. We consider the trade-offs between maintaining too much liquidity, which can be costly and limit financial flexibility, and having inadequate liquidity, which may result in financial distress during a liquidity event. Funding and liquidity risk is managed at an aggregate consolidated level as well as at certain subsidiaries in order to ensure that sufficient and accessible liquidity resources are maintained. The Funding and Liquidity Committee reviews forecasts of our aggregate and subsidiary cash positions and financing requirements, approves funding plans designed to satisfy those requirements under normal and stressed conditions, establishes guidelines to identify the amount of liquidity resources required and monitors positions and determines any actions to be taken. MODEL RISK MANAGEMENT PROCESS We define model risk as the risk of adverse consequences, such as financial loss, poor business and strategic decision making, damage to our reputation or customer harm, from decisions based on incorrect or misused model outputs and outcomes. Model risk is managed through a comprehensive risk management and governance framework, including policies and procedures for model development, independent model validation, model risk reporting and change management capabilities that seek to minimize erroneous model methodology, outputs, and misuse. We also assess model performance and model- related issues on an ongoing basis and seek to address deficiencies in a timely manner. In addition, we utilize artificial intelligence and machine learning (AI/ML) models for a variety of business use cases. We perform extensive reviews and testing to reduce the risk that these AI/ML techniques result in adverse consequences. STRATEGIC AND BUSINESS RISK MANAGEMENT PROCESS Strategic and business risk is the risk related to our inability to achieve our business objectives due to poor strategic decisions, including decisions related to mergers, acquisitions, and divestitures, poor implementation of strategic decisions or declining demand for our products and services. Strategic decisions are reviewed and approved by business leaders and various committees and must be aligned with company policies. We seek to manage strategic and business risks through risk controls embedded in these processes as well as overall risk management oversight over business goals. Existing product performance is reviewed periodically by committees and business leaders. Mergers, acquisitions and divestitures can only be approved following Executive Committee due diligence, a comprehensive risk assessment by operational, market, credit and oversight leaders provided to the Chief Risk Officer and approval by either the Chief Risk Officer or appropriate risk committees. All new products and material changes in business processes are reviewed and approved by the New Products Committee and appropriate credit or risk committees. 76 Table of Contents COUNTRY RISK MANAGEMENT PROCESS Country risk is defined as the risk that economic, social, and/or political conditions and events in a country present. They might adversely impact us, primarily as a result of greater credit losses, increased operational or market risk or the inability to repatriate capital. We manage country risk as part of the normal course of business. Policies and procedures establish country risk escalation thresholds to control and limit exposure, driven by processes that enable the monitoring of conditions in countries where we have exposure. CLIMATE-RELATED RISK We define climate-related risk as: (1) risks related to the transition to a low-carbon economy, which may include extensive changes pertaining to policy, legal, technology, market and reputational risks, and (2) risks related to the physical impacts of climate change, typically driven by acute physical risk such as increased severity of extreme weather events (e.g., cyclones, hurricanes, floods) and chronic physical risk which are longer-term shifts in climate patterns (e.g., sea level rise, chronic heat waves). Such transition and physical risk events driven by climate change can have broad impact to our customers, operations, suppliers and business. Climate-related risk is interconnected and overarching across all risk types as it may manifest as credit risk, operational risk, market risk, liquidity risk and other risk types. We continue to enhance our focus on climate-related risk within our risk governance framework. We are currently performing a risk identification process for climate-related risk to determine the meaningfulness and measurability of the risk. Furthermore, Environmental, Social and Governance (ESG) issues with an emphasis on climate-related risk are currently identified as an “emerging risk” within our risk governance framework. 77 Table of Contents CRITICAL ACCOUNTING ESTIMATES Refer to Note 1 to the “Consolidated Financial Statements” for a summary of our significant accounting policies. Certain of our accounting policies requiring significant management assumptions and judgments are as follows: RESERVES FOR CARD MEMBER CREDIT LOSSES Reserves for Card Member credit losses represent our best estimate of the expected credit losses in our outstanding portfolio of Card Member loans and receivables as of the balance sheet date. The CECL methodology, which became effective January 1, 2020, requires us to estimate lifetime expected credit losses by incorporating historical loss experience, as well as current and future economic conditions over a reasonable and supportable period (R&S Period) beyond the balance sheet date. In estimating expected credit losses, we use a combination of statistically based models and analysis of the results produced by these models to determine the quantitative and qualitative components of our total balance sheet reserves for credit losses. 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 determine the reserve rates that are applied to the outstanding loan or receivable balances to produce our reserves for expected credit losses for the R&S Period. 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 Card Member credit losses. The R&S Period, which is approximately three 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. To determine expected credit losses beyond the R&S Period, we immediately revert to long-term average loss rates. 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 no later than 180 days past due. 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 is then allocated to the remaining reporting period balance. CECL requires that the R&S Period include an assumption about current and future economic conditions. We incorporate multiple macroeconomic scenarios provided to us by an independent third party. The estimated credit losses calculated from each macroeconomic scenario are reviewed each period and weighted to reflect management's judgment about uncertainty surrounding these scenarios. These macroeconomic scenarios contain certain variables, including unemployment rates and real GDP, that are significant to our models. 78 Table of Contents Macroeconomic Sensitivity To demonstrate the sensitivity of estimated credit losses to the macroeconomic scenarios, we compared our modeled estimates under a baseline scenario to that 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 $110 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 the downside scenario at the balance sheet date, or any potential changes in other adjustments to the quantitative reserve component or the impact of management judgment for the qualitative reserve component, 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. Refer to Note 3 to the “Consolidated Financial Statements” for further information on the range of macroeconomic scenario key variables used, in conjunction with other inputs described above, to calculate reserves for Card Member credit losses. 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. 79 Table of Contents LIABILITY FOR MEMBERSHIP REWARDS The Membership Rewards program is our largest card-based rewards program. Card Members can earn points for purchases charged on their enrolled card products. A significant portion of our cards, by their terms, allow Card Members to earn bonus points for purchases at merchants in particular industry categories. Membership Rewards points are redeemable for a broad variety of rewards, including travel, shopping, gift cards, and covering eligible charges. Points typically do not expire, and there is no limit on the number of points a Card Member may earn. Membership Rewards expense is driven by charge volume on enrolled cards, customer participation in the program and contractual arrangements with redemption partners. We record a Membership Rewards liability that represents our best estimate of the cost of points earned that are expected to be redeemed by Card Members in the future. The Membership Rewards liability is impacted over time by enrollment levels, attrition, the volume of points earned and redeemed, and the associated redemption costs. We estimate the Membership Rewards liability by determining the URR and the weighted average cost (WAC) per point, which are applied to the points of current enrollees. Refer to Note 9 to the “Consolidated Financial Statements” for additional information. The URR assumption is used to estimate the number of points earned by current enrollees that will ultimately be redeemed in future periods. We use statistical and actuarial models to estimate the URR of points earned to date by current Card Members based on redemption trends, card product type, enrollment tenure, card spend levels and credit attributes. The WAC per point assumption is used to estimate future redemption costs and is primarily based on redemption choices made by Card Members, reward offerings by partners, and Membership Rewards program changes. The WAC per point assumption is derived from 12 months of redemptions and is adjusted as appropriate for certain changes in redemption costs that are not representative of future cost expectations and expected developments in redemption patterns. We periodically evaluate our liability estimation process and assumptions based on developments in redemption patterns, cost per point redeemed, partner contract changes and other factors. The process of estimating the Membership Rewards liability includes a high degree of judgment. Actual redemptions and associated redemption costs could differ significantly from our estimates, resulting in either higher or lower Membership Rewards expense. Changes in the Membership Rewards URR and WAC per point have the effect of either increasing or decreasing the liability through the current period Membership Rewards expense by an amount estimated to cover the cost of all points previously earned but not yet redeemed by current enrollees as of the end of the reporting period. As of December 31, 2021, an increase in the estimated URR of current enrollees of 25 basis points would increase the Membership Rewards liability and corresponding rewards expense by approximately $140 million. Similarly, an increase in the WAC per point of 1 basis point would increase the Membership Rewards liability and corresponding rewards expense by approximately $168 million. 80 Table of Contents GOODWILL RECOVERABILITY Goodwill represents the excess of acquisition cost of an acquired business over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at the reporting unit level annually or when events or circumstances arise, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value. Our methodology for conducting this goodwill impairment testing contains both a qualitative and quantitative assessment. We have the option to initially perform an assessment of qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other company and reporting unit-specific events. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then perform the impairment evaluation using a more detailed quantitative assessment. We could also directly perform this quantitative assessment for any reporting unit, bypassing the qualitative assessment. Our methodology for conducting the quantitative goodwill impairment testing is fundamentally based on the measurement of fair value for our reporting units, which inherently entails the use of significant management judgment. For valuation, we use a combination of the income approach (discounted cash flows) and market approach (market multiples) in estimating the fair value of our reporting units. When preparing discounted cash flow models under the income approach, we estimate future cash flows using the reporting unit’s internal multi-year forecast, and a terminal value calculated using a growth rate that we believe is appropriate in light of current and expected future economic conditions. To discount these cash flows we use our expected cost of equity, determined using a capital asset pricing model. When using the market method under the market approach, we apply comparable publicly traded companies’ multiples (e.g., earnings, revenues) to our reporting units’ actual results. The judgment in estimating forecasted cash flows, discount rates and market comparables is significant, and imprecision could materially affect the fair value of our reporting units. We could be exposed to an increased risk of goodwill impairment if future operating results or macroeconomic conditions differ significantly from management’s current assumptions. INCOME TAXES We are subject to the income tax laws of the United States, its states and municipalities and those of the foreign jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to the taxpayer’s facts is sometimes open to interpretation. In establishing a provision for income tax expense, we must make judgments about the application of inherently complex tax laws. Unrecognized Tax Benefits We establish a liability for unrecognized tax benefits, which are the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized in the financial statements. In establishing a liability for an unrecognized tax benefit, assumptions may be made in determining whether, and the extent to which, a tax position should be sustained. A tax position is recognized only when it is more likely than not to be sustained upon examination by the relevant taxing authority, based on its technical merits. The amount of tax benefit recognized is the largest benefit that we believe is more likely than not to be realized on ultimate settlement. As new information becomes available, we evaluate our tax positions and adjust our unrecognized tax benefits, as appropriate . Tax benefits ultimately realized can differ from amounts previously recognized due to uncertainties, with any such differences generally impacting the provision for income tax. Deferred Tax Asset Realization Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. Since deferred taxes measure the future tax effects of items recognized in the Consolidated Financial Statements, certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, we analyze and estimate the impact of future taxable income, reversing temporary differences and available tax planning strategies. These assessments are performed quarterly, taking into account any new information. Changes in facts or circumstances can lead to changes in the ultimate realization of deferred tax assets due to uncertainties. 81 Table of Contents OTHER MATTERS RECENTLY ADOPTED ACCOUNTING STANDARDS Refer to the Recently Adopted Accounting Standards section of Note 1 to the “Consolidated Financial Statements.” 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, which is included within T&E-related volume. 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 network volumes retained by us from spend at 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 network volumes, drive our discount revenue. Billed business — Represents transaction volumes (including cash advances) on cards and other payment products issued by American Express. Billed business is reported as inside the United States or outside the United States based on the location of the issuer. 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 Strategy section under “Consolidated Capital Resources and Liquidity” for further related definitions under Basel III. Card Member — The individual holder of an issued American Express-branded card. Card Member loans — Represents revolve-eligible transactions on our card products, as well as any interest charges and associated card-related fees. Card Member receivables — Represents transactions on our card products and card related fees that need to be paid in full on or before the Card Member's payment due date. 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. 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. Each charge card transaction is authorized based on its likely economics reflecting a Card Member’s most recent credit information and spend patterns. Charge Card Members must pay the full amount of balances billed each month, with the exception of balances that can be revolved under lending features offered on certain charge cards, such as Pay Over Time and Plan It, that allow Card Members to pay for eligible purchases with interest over time. 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, structured payment features (e.g. Plan It), 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. 82 Table of Contents Goods and Services (G&S)-related volume — Includes spend in merchant categories other than T&E-related merchant categories, which includes B2B spending by small and medium size enterprise customers in our GCS segment. 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. 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. Network volumes — Represents the total of billed business and processed volumes. Network volumes are reported as United States or outside the United States based on the location of the issuer. Operating expenses — Represents salaries and employee benefits, professional services, data processing and equipment, and other expenses. Processed volumes — Represents transaction volumes (including cash advances) on cards issued under network partnership agreements with banks and other institutions, including joint ventures, as well as alternative payment solutions facilitated by American Express. Processed volume is reported as United States or outside the United States based on the location of the issuer. 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 the preceding twelve months of net income by one-year monthly average total shareholders’ equity. T&E-related volume — Represents spend on travel and entertainment, which primarily includes airline, cruise, lodging and dining merchant categories. 83 Table of Contents 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: • our ability to grow earnings per share in the future, which will depend in part on revenue growth, credit performance and the effective tax rate remaining consistent with current expectations and our ability to continue investing in customers, brand and talent, controlling operating expenses, effectively managing risk and executing our share repurchase program; any of which could be impacted by, among other things, the factors identified in the subsequent paragraphs as well as the following: the extent and duration of the effect of the pandemic on the economy, inflation, consumer confidence, consumer and business spending, and customer behaviors, such as with respect to travel, dining, shopping and in-person events; the impact on consumers and businesses as forbearance and government support programs end; the continued stress on businesses due to containment measures, operational changes, supply chain issues and staffing shortages; issues impacting brand perceptions and our reputation; the impact of any future contingencies, including, but not limited to, restructurings, investment gains, impairments, changes in reserves, legal costs, the imposition of fines or civil money penalties and increases in Card Member reimbursements; impacts related to new or renegotiated cobrand and other partner agreements; and the impact of regulation and litigation, 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 partners, merchants and Card Members; • our ability to grow revenues net of interest expense, which could be impacted by, among other things, uncertainty regarding the continued spread of COVID-19 (including new variants) and the availability, distribution and use of effective treatments and vaccines; a deterioration in global economic and business conditions; consumer and business spending not growing in line with expectations; prolonged measures to contain the spread of COVID-19 (including travel restrictions), concern of the possible imposition of further containment measures or premature easing of such containment measures, any 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 customer behaviors, spending levels and preferences, and travel patterns and demand even after containment measures are lifted; the amount and efficacy of investments in share, scale and relevance; growth in Card Member loans and the yield on Card Member loans not remaining consistent with current expectations; the average discount rate changing by a greater or lesser amount than expected; 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; and an inability to address competitive pressures and implement our strategies and business initiatives, including within the premium consumer space, commercial payments, the global merchant network and digital environment; • future credit performance, the level of future delinquency and write-off rates and the amount and timing of future reserve builds and releases, which will depend in part on changes in consumer behavior that affect loan and receivable balances (such as paydown and revolve rates); macroeconomic factors such as unemployment rates, GDP and the volume of bankruptcies; the ability and willingness of Card Members to pay amounts owed to us, particularly as forbearance and government support programs end; the enrollment in, and effectiveness of, hardship programs and troubled debt restructurings; the performance of accounts as they graduate and exit from financial relief programs; collections capabilities and recoveries of previously written-off loans and receivables; 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 growth rate of loans outstanding being higher or lower than current expectations, which will depend on the behavior of Card Members and their actual spending, borrowing and paydown patterns; our ability to effectively manage risk and enhance Card Member value propositions; changes in benchmark interest rates; changes in capital and credit market conditions and the availability and cost of capital; credit actions, including line size and other adjustments to credit availability; and the effectiveness of our strategies to capture a greater share of existing Card Members’ spending and borrowings, and attract new, and retain existing, customers; • the actual amount we spend on marketing in the future, which will be based in part on continued changes in the macroeconomic and competitive environment and business performance; management’s identification and assessment of attractive investment opportunities and the receptivity of Card Members and prospective customers to advertising and customer acquisition initiatives; our ability to balance expense control and investments in the business; and management’s ability to realize efficiencies and optimize investment spending; 84 Table of Contents • 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 continued changes in macroeconomic conditions and Card Member behavior as it relates to their spending patterns (including the level of spend in bonus categories), the redemption of rewards and offers (including travel redemptions) and usage of travel-related benefits; the costs related to reward point redemptions; inflation; further enhancements to product benefits to make them attractive to Card Members and prospective customers, potentially in a manner that is not cost-effective; new and renegotiated contractual obligations with business partners; and the pace and cost of the expansion of our global lounge collection; • our ability to control operating expenses and the actual amount we spend on operating expenses in the future, which could be impacted by, among other things, salary and benefit expenses to attract and retain talent; costs due to new hybrid working arrangements; supply chain issues; a persistent inflationary environment; 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; our ability to innovate efficient channels of customer interactions; restructuring activity; fraud costs; information security or compliance expenses or consulting, legal and other professional services fees, including as a result of 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; and the impact of changes in foreign currency exchange rates on costs; • net card fees not performing consistent with current expectations, which could be impacted by, among other things, a deterioration in macroeconomic conditions impacting the ability and desire of Card Members to pay card fees; higher Card Member attrition rates; the pace of Card Member acquisition activity; and our inability to address competitive pressures, develop attractive value propositions and implement our strategy of refreshing card products and enhanced benefits and services; • the average discount rate not performing consistent with current expectations, including as a result of further changes in the mix of spending by location and industry (including the level of T&E spending), merchant negotiations (including merchant incentives, concessions and volume-related pricing discounts), competition, pricing regulation (including regulation of competitors’ interchange rates) and other factors; • our tax rate not remaining consistent with current levels, which could be impacted by, among other things, further changes in tax laws and regulation, our geographic mix of income, unfavorable tax audits and other unanticipated tax items; • changes in the substantial and increasing worldwide competition in the payments industry, including competitive pressure that may materially impact the prices charged to merchants that accept American Express cards, the desirability of our premium card products, 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 increasing the level of our dividend, subject to approval by our Board of Directors, which will depend on factors such as capital levels and regulatory capital ratios; changes in the stress testing and capital planning process and new guidance from 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; • our ability to expand our leadership in the premium consumer space, which will be impacted in part by competition, brand perceptions (including perceptions related to merchant coverage) and reputation, and our ability to develop and market value propositions that appeal to Card Members and new customers and offer attractive services and rewards programs, which will depend in part on ongoing investments, addressing changing customer behaviors, new product innovation and development, Card Member acquisition efforts and enrollment processes, including through digital channels, and infrastructure to support new products, services and benefits; • our ability to build on our leadership in commercial payments, which will depend in part on competition, the willingness and ability of companies to credit and charge cards for procurement and other business expenditures as well as use our other products and services for financing needs, perceived or actual difficulties and costs related to setting up card-based B2B payment platforms, our ability to offer attractive value propositions to potential customers, our ability to enhance and expand our payment and lending solutions, and continue the rollout of the Kabbage platform to our small business customers; • our ability to expand merchant coverage globally, which will depend in part on our success, as well as the success of OptBlue merchant acquirers and GNS partners in signing merchants to accept American Express, which could be impacted by our value propositions offered to merchants and merchant acquirers for card acceptance, as well as the awareness and willingness of Card Members to use American Express cards at merchants, our ability to increase coverage in priority international regions and execute on our plans in China, and technological developments, including capabilities that allow for greater digital integration; • our ability to stay on the leading edge of technology and digital payment solutions, which will depend on our success in evolving our products and processes for the digital environment, developing new features in the Amex app and enhancing our digital channels, building partnerships and executing programs with other companies, effectively utilizing artificial intelligence to address servicing and other customer needs, and supporting the use of our products as a means of payment 85 Table of Contents through online and mobile channels, all of which will be impacted by investment levels, new product innovation and development and infrastructure to support new products, services and benefits; • 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; • changes in capital and credit market conditions, which may significantly affect our ability to meet our liquidity needs and expectations regarding capital ratios; our access to capital and funding costs; the valuation of our assets; and our credit ratings or those of our subsidiaries; • our deposit rates increasing faster or slower than current expectations and changes affecting our ability to grow retail direct deposits, including due to market demand, changes in benchmark interest rates, competition or regulatory restrictions on our ability to obtain deposit funding or offer competitive interest rates, which could affect our net interest yield and ability to fund our businesses; • our funding plan being implemented in a manner inconsistent with current expectations, which will depend on various factors such as future business growth, the impact of global economic, political and other events on market capacity, demand for securities we offer, regulatory changes, ability to securitize and sell loans and receivables and the performance of loans and receivables previously sold in securitization transactions; • our ability to implement our ESG strategies and initiatives, which depend in part on the amount and efficacy of our investments in product innovations, marketing campaigns, our supply chain and operations, and philanthropic, colleague and community programs; customer behaviors; and the cost and availability of solutions for a low carbon economy; • legal and regulatory developments, which could affect the profitability of our business activities; limit our ability to pursue business opportunities or conduct business in certain jurisdictions; 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 relationships in the EU and UK; exert further pressure on the average discount rate and GNS business; 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 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 of cobrand partners and merchants that represent a significant portion of our business, such as the airline industry, or 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 continued waves of COVID-19 cases, the severity and contagiousness of new variants, severe weather conditions, natural disasters, power loss, disruptions in telecommunications, terrorism and other catastrophic events, 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 “Risk Factors” above and our other reports filed with the SEC. 86 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to “Risk Management” under “MD&A” for quantitative and qualitative disclosures about market risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP), and includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —Integrated Framework (2013). Based on management’s assessment and those criteria, we conclude that, as of December 31, 2021, our internal control over financial reporting is effective. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued an audit report appearing on the following page on the effectiveness of our internal control over financial reporting as of December 31, 2021. 87 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of American Express Company Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of American Express Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on certain financial instruments in 2020. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 88 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Reserves for Credit Losses on Card Member Loans As described in Note 3 to the consolidated financial statements, reserves for credit losses on Card Member loans represent management’s estimate of the expected credit losses in the Company’s outstanding portfolio of Card Member loans as of the balance sheet date. The reserves for credit losses on Card Member loans was $3.3 billion as of December 31, 2021. Management estimates 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. As disclosed by management, in estimating expected credit losses, management uses a combination of statistically-based models that entail a significant amount of judgment. The primary areas of judgment used in measuring the quantitative components of the Company’s 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. Management uses these models and assumptions, combined with historical loss experience, to determine the reserve rates that are applied to the outstanding loan balances to produce its reserves for expected credit losses. Within the R&S Period, the Company’s 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. Beyond the R&S Period, expected credit losses are estimated by immediately reverting to long-term average loss rates. Management also estimates the likelihood and magnitude of recovery of previously written off loans considering how long ago the loan was written off and future economic conditions. Additionally, management evaluates whether to include qualitative reserves to cover losses that are expected but may not be adequately represented in the quantitative methods or the economic assumptions. The qualitative reserves 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. The principal considerations for our determination that performing procedures relating to the reserves for credit losses on Card Member loans is a critical audit matter are (i) the estimate of the reserves for credit losses on Card Member loans involved significant judgment by management, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the models, significant inputs, qualitative reserves, and significant assumptions, including the R&S Period and the loss rates used to estimate expected credit losses beyond the R&S Period and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the reserves for credit losses on Card Member loans. These procedures also included, among others, testing management’s process for estimating the reserves for credit losses on Card Member loans through (i) evaluating the appropriateness of management’s methodology, (ii) testing the completeness and accuracy of significant inputs and (iii) evaluating the reasonableness of certain qualitative reserves and significant assumptions used to estimate the reserves. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management’s methodology and the reasonableness of certain qualitative reserves and certain significant assumptions, including the R&S Period and the loss rates used to estimate expected credit losses beyond the R&S Period. 89 Table of Contents Membership Rewards Liability As described in Note 9 to the consolidated financial statements, the Membership Rewards liability represents management’s estimate of the cost of Membership Rewards points earned that are expected to be redeemed in the future. The Membership Rewards liability was $11.4 billion as of December 31, 2021. The weighted average cost (WAC) per point and the Ultimate Redemption Rate (URR) are key assumptions used to estimate the liability. As disclosed by management, the URR assumption is used by management to estimate the number of points earned that will ultimately be redeemed in future periods. Management uses statistical and actuarial models to estimate the URR based on redemption trends, card product type, enrollment tenure, card spend levels and credit attributes. The WAC per point assumption is derived from 12 months of redemptions and is adjusted as appropriate for certain changes in redemption costs that are not representative of future cost expectations and expected developments in redemption patterns. The principal considerations for our determination that performing procedures relating to the Membership Rewards liability is a critical audit matter are (i) the estimate of the URR involved significant judgment by management, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the audit evidence relating to the models, significant inputs and assumptions used by management, (ii) the audit effort involved the use of professionals with specialized skill and knowledge and (iii) the estimate of the WAC involved significant judgment by management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence relating to the methodology. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the estimate of the Membership Rewards liability, including the URR and WAC assumptions. These procedures also included, among others, (i) testing the completeness and accuracy of significant inputs to the statistical and actuarial models used to estimate the URR assumption, including redemption trends, card product type, enrollment tenure, and card spend levels, (ii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of the URR assumption and comparing the independent estimate to management’s assumption to evaluate its reasonableness, (iii) evaluating management’s methodology for determining the WAC assumption and (iv) comparing our independently calculated Membership Rewards liability to management’s estimate. /s/ PricewaterhouseCoopers LLP New York, New York February 11, 2022 We have served as the Company’s auditor since 2005. 90 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS PAGE Consolidated Statements of Income – For the Years Ended December 31, 20 2 1 , 20 20 and 201 9 92 Consolidated Statements of Comprehensive Income – For the Years Ended December 31, 20 2 1 , 20 20 and 201 9 93 Consolidated Balance Sheets – December 31, 20 2 1 and 20 20 94 Consolidated Statements of Cash Flows – For the Years Ended December 31, 20 2 1 , 20 20 and 201 9 95 Consolidated Statements of Shareholders’ Equity – For the Years Ended December 31, 20 2 1 , 20 20 and 20 20 96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97 Note 1 – Summary of Significant Accounting Policies 97 Note 2 – Loans and Card Member Receivables 103 Note 3 – Reserves for Credit Losses 111 Note 4 – Investment Securities 114 Note 5 – Asset Securitizations 116 Note 6 – Other Assets 117 Note 7 – Customer Deposits 119 Note 8 – Debt 120 Note 9 – Other Liabilities 123 Note 1 0 – Stock Plans 124 Note 1 1 – Retirement Plans 126 Note 1 2 – Contingencies and Commitments 127 Note 1 3 – Derivatives and Hedging Activities 130 Note 1 4 – Fair Values 133 Note 1 5 – Guarantees 138 Note 1 6 – Common and Preferred Shares 138 Note 1 7 – Changes in Accumulated Other Comprehensive Income (Loss) 140 Note 18 – Other Fees and Commissions and Other Expenses 141 Note 19 – Restructuring 141 Note 2 0 – Income Taxes 142 Note 2 1 – Earnings Per Common Share (EPS) 145 Note 2 2 – Regulatory Matters and Capital Adequacy 146 Note 2 3 – Significant Credit Concentrations 148 Note 2 4 – Reportable Operating Segments and Geographic Operations 149 Note 2 5 – Parent Company 152 91 Table of Contents CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 (Millions, except per share amounts) 2021 2020 2019 Revenues Non-interest revenues Discount revenue $ 25,727 $ 20,401 $ 26,167 Net card fees 5,195 4,664 4,042 Other fees and commissions 2,392 2,163 3,297 Other 1,316 874 1,430 Total non-interest revenues 34,630 28,102 34,936 Interest income Interest on loans 8,850 9,779 11,308 Interest and dividends on investment securities 83 127 188 Deposits with banks and other 100 177 588 Total interest income 9,033 10,083 12,084 Interest expense Deposits 458 943 1,559 Long-term debt and other 825 1,155 1,905 Total interest expense 1,283 2,098 3,464 Net interest income 7,750 7,985 8,620 Total revenues net of interest expense 42,380 36,087 43,556 Provisions for credit losses Card Member receivables ( 73 ) 1,015 963 Card Member loans ( 1,155 ) 3,453 2,462 Other ( 191 ) 262 148 Total provisions for credit losses ( 1,419 ) 4,730 3,573 Total revenues net of interest expense after provisions for credit losses 43,799 31,357 39,983 Expenses Marketing and business development 9,053 6,747 7,125 Card Member rewards 11,007 8,041 10,439 Card Member services 1,993 1,230 2,223 Salaries and employee benefits 6,240 5,718 5,911 Other, net 4,817 5,325 5,856 Total expenses 33,110 27,061 31,554 Pretax income 10,689 4,296 8,429 Income tax provision 2,629 1,161 1,670 Net income $ 8,060 $ 3,135 $ 6,759 Earnings per Common Share — (Note 21) (a) Basic $ 10.04 $ 3.77 $ 8.00 Diluted $ 10.02 $ 3.77 $ 7.99 Average common shares outstanding for earnings per common share: Basic 789 805 828 Diluted 790 806 830 (a) Represents net income less (i) earnings allocated to participating share awards of $ 56 million, $ 20 million and $ 47 million for the years ended December 31, 2021, 2020 and 2019, respectively, (ii) dividends on preferred shares of $ 71 million, $ 79 million and $ 81 million for the years ended December 31, 2021, 2020 and 2019, respectively, and (iii) equity-related adjustments of $ 16 million related to the redemption of preferred shares for the year ended December 31, 2021. See Notes to Consolidated Financial Statements. 92 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31 (Millions) 2021 2020 2019 Net income $ 8,060 $ 3,135 $ 6,759 Other comprehensive (loss) income: Net unrealized debt securities gains (losses), net of tax ( 42 ) 32 41 Foreign currency translation adjustments, net of tax ( 163 ) ( 40 ) ( 56 ) Net unrealized pension and other postretirement benefits, net of tax 155 ( 150 ) ( 125 ) Other comprehensive (loss) income ( 50 ) ( 158 ) ( 140 ) Comprehensive income $ 8,010 $ 2,977 $ 6,619 See Notes to Consolidated Financial Statements. 93 Table of Contents CONSOLIDATED BALANCE SHEETS December 31 (Millions, except share data) 2021 2020 Assets Cash and cash equivalents Cash and due from banks (includes restricted cash of consolidated variable interest entities: 2021, $ 11 ; 2020, nil ) $ 1,292 $ 2,984 Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2021, $ 463 ; 2020, $ 92 ) 20,548 29,824 Short-term investment securities (includes restricted investments of consolidated variable interest entities: 2021, $ 32 ; 2020, $ 47 ) 188 157 Total cash and cash equivalents 22,028 32,965 Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2021, $ 5,175 ; 2020, $ 4,296 ), less reserves for credit losses: 2021, $ 64 ; 2020, $ 267 53,581 43,434 Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2021, $ 26,587 ; 2020, $ 25,908 ), less reserves for credit losses: 2021, $ 3,305 ; 2020, $ 5,344 85,257 68,029 Other loans, less reserves for credit losses: 2021, $ 52 ; 2020, $ 238 2,859 2,614 Investment securities 2,591 21,631 Premises and equipment, less accumulated depreciation and amortization: 2021, $ 8,602 ; 2020, $ 7,540 4,988 5,015 Other assets, less reserves for credit losses: 2021, $ 25 ; 2020, $ 85 17,244 17,679 Total assets $ 188,548 $ 191,367 Liabilities and Shareholders’ Equity Liabilities Customer deposits $ 84,382 $ 86,875 Accounts payable 10,574 9,444 Short-term borrowings 2,243 1,878 Long-term debt (includes debt issued by consolidated variable interest entities: 2021, $ 13,803 ; 2020, $ 12,760 ) 38,675 42,952 Other liabilities 30,497 27,234 Total liabilities $ 166,371 $ 168,383 Contingencies and Commitments (Note 12) Shareholders’ Equity Preferred shares, $1.66 2/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of December 31, 2021 and 2020 (Note 16) — — Common shares, $ 0.20 par value, authorized 3.6 billion shares; issued and outstanding 761 million shares as of December 31, 2021 and 805 million shares as of December 31, 2020 153 161 Additional paid-in capital 11,495 11,881 Retained earnings 13,474 13,837 Accumulated other comprehensive income (loss) Net unrealized debt securities gains, net of tax of: 2021, $ 7 ; 2020, $ 20 23 65 Foreign currency translation adjustments, net of tax of: 2021, $( 330 ); 2020, $( 381 ) ( 2,392 ) ( 2,229 ) Net unrealized pension and other postretirement benefits, net of tax of: 2021, $( 184 ); 2020, $( 236 ) ( 576 ) ( 731 ) Total accumulated other comprehensive income (loss) ( 2,945 ) ( 2,895 ) Total shareholders’ equity 22,177 22,984 Total liabilities and shareholders’ equity $ 188,548 $ 191,367 See Notes to Consolidated Financial Statements. 94 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 (Millions) 2021 2020 2019 Cash Flows from Operating Activities Net income $ 8,060 $ 3,135 $ 6,759 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for credit losses ( 1,419 ) 4,730 3,573 Depreciation and amortization 1,695 1,543 1,188 Stock-based compensation 330 249 283 Deferred taxes 294 ( 939 ) ( 151 ) Other non-cash items (a) ( 772 ) 683 577 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Other assets 1,068 ( 1,785 ) ( 368 ) Accounts payable & other liabilities 5,389 ( 2,025 ) 1,771 Net cash provided by operating activities 14,645 5,591 13,632 Cash Flows from Investing Activities Sale of investment securities 62 69 22 Maturities and redemptions of investment securities 20,032 7,159 7,329 Purchase of investments ( 1,517 ) ( 20,562 ) ( 11,166 ) Net (increase) decrease in Card Member loans and receivables, and other loans ( 27,557 ) 26,906 ( 11,047 ) Purchase of premises and equipment, net of sales: 2021, $ 88 ; 2020, $ 1 ; 2019, $ 43 ( 1,550 ) ( 1,478 ) ( 1,645 ) Acquisitions/dispositions, net of cash acquired 1 ( 597 ) ( 352 ) Other investing activities — 135 152 Net cash (used in) provided by investing activities ( 10,529 ) 11,632 ( 16,707 ) Cash Flows from Financing Activities Net (decrease) increase in customer deposits ( 2,468 ) 13,542 3,330 Net increase (decrease) in short-term borrowings 461 ( 4,627 ) 3,316 Proceeds from long-term debt 7,788 69 12,706 Payments of long-term debt ( 11,662 ) ( 15,593 ) ( 13,850 ) Issuance of American Express preferred shares 1,584 — — Redemption of American Express preferred shares ( 1,600 ) — — Issuance of American Express common shares 64 44 86 Repurchase of American Express common shares and other ( 7,652 ) ( 1,029 ) ( 4,685 ) Dividends paid ( 1,448 ) ( 1,474 ) ( 1,422 ) Net cash used in financing activities ( 14,933 ) ( 9,068 ) ( 519 ) Effect of foreign currency exchange rates on cash and cash equivalents ( 120 ) 364 232 Net (decrease) increase in cash and cash equivalents ( 10,937 ) 8,519 ( 3,362 ) Cash and cash equivalents at beginning of year 32,965 24,446 27,808 Cash and cash equivalents at end of year $ 22,028 $ 32,965 $ 24,446 Supplemental cash flow information Cash and cash equivalents reconciliation 2021 2020 2019 Cash and cash equivalents per Consolidated Balance Sheets $ 22,028 $ 32,965 $ 24,446 Restricted balances included in Cash and cash equivalents 525 606 514 Total cash and cash equivalents, excluding restricted balances $ 21,503 $ 32,359 $ 23,932 (a) Includes net gains on Amex Ventures equity investments, net gains and losses on fair value hedges and changes in equity method investments. See Notes to Consolidated Financial Statements. 95 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Millions, except per share amounts) Total Preferred Shares Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Balances as of December 31, 2018 $ 22,290 $ — $ 170 $ 12,218 $ ( 2,597 ) $ 12,499 Net income 6,759 — — — — 6,759 Other comprehensive loss ( 140 ) — — — ( 140 ) — Repurchase of common shares ( 4,585 ) — ( 8 ) ( 671 ) — ( 3,906 ) Other changes, primarily employee plans 186 — 1 227 — ( 42 ) Cash dividends declared preferred Series B, $ 52,000.00 per share ( 39 ) — — — — ( 39 ) Cash dividends declared preferred Series C, $ 49,000.00 per share ( 42 ) — — — — ( 42 ) Cash dividends declared common, $ 1.64 per share ( 1,358 ) — — — — ( 1,358 ) 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 3,135 — — — — 3,135 Other comprehensive loss ( 158 ) — — — ( 158 ) — Repurchase of common shares ( 875 ) — ( 2 ) ( 105 ) — ( 768 ) Other changes, primarily employee plans 164 — — 212 — ( 48 ) Cash dividends declared preferred Series B, $ 45,807.57 per share ( 34 ) — — — — ( 34 ) Cash dividends declared preferred Series C, $ 52,919.91 per share ( 45 ) — — — — ( 45 ) Cash dividends declared common, $ 1.72 per share ( 1,392 ) — — — — ( 1,392 ) Balances as of December 31, 2020 22,984 — 161 11,881 ( 2,895 ) 13,837 Net income 8,060 — — — — 8,060 Other comprehensive loss ( 50 ) — — — ( 50 ) — Preferred shares issued 1,584 — — 1,584 — — Redemption of preferred shares ( 1,600 ) — — ( 1,584 ) — ( 16 ) Repurchase of common shares ( 7,598 ) — ( 9 ) ( 631 ) — ( 6,958 ) Other changes, primarily employee plans 227 — 1 245 — ( 19 ) Cash dividends declared preferred Series B, $ 36,419.41 per share ( 27 ) — — — — ( 27 ) Cash dividends declared preferred Series C, $ 26,317.47 per share ( 23 ) — — — — ( 23 ) Cash dividends declared preferred Series D, $ 13,213.89 per share ( 21 ) — — — — ( 21 ) Cash dividends declared common, $ 1.72 per share ( 1,359 ) — — — — ( 1,359 ) Balances as of December 31, 2021 $ 22,177 $ — $ 153 $ 11,495 $ ( 2,945 ) $ 13,474 (a) Represents $ 1,170 million, net of tax of $ 288 million, related to the impact as of January 1, 2020 of adopting the current expected credit loss (CECL) methodology for the recognition of credit losses on certain financial instruments. See Notes to Consolidated Financial Statements. 96 Table of Contents NOTES TO CONSOLID ATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE C OMPANY We are a globally integrated payments company that provides our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are credit and charge card products, along with travel and lifestyle related services, offered to consumers and businesses around the world. Our 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 service providers and business partners, direct mail, telephone, in-house sales teams, and direct response advertising. Refer to Note 24 for additional discussion of the products and services that comprise each segment. Corporate functions and certain other businesses and operations are included in Corporate & Other. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated. We consolidate entities in which we hold a “controlling financial interest.” For voting interest entities, we are considered to hold a controlling financial interest when we are able to exercise control over the investees’ operating and financial decisions. For variable interest entities (VIEs), the determination of which is based on the amount and characteristics of the entity’s equity, we are considered to hold a controlling financial interest when we are determined to be the primary beneficiary. A primary beneficiary is the party that has both: (1) the power to direct the activities that most significantly impact that VIE’s economic performance, and (2) the obligation to absorb the losses of, or the right to receive the benefits from, the VIE that could potentially be significant to that VIE. Entities in which our voting interest in common equity does not provide it with control, but allows us to exert significant influence over operating and financial decisions, are accounted for under the equity method. We also have investments in equity securities where our voting interest is below the level of significant influence, including investments that we make in non-public companies in the ordinary course of business. Such investments are initially recorded at cost and adjusted to fair value through earnings for observable price changes in orderly transactions for identical or similar transactions of the same company or if they are determined to be impaired. See Note 4 for the accounting policy for our marketable equity securities. FOREIGN CURRENCY Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of the reporting period; non-monetary assets and liabilities are translated at the historic exchange rate at the date of the transaction; revenues and expenses are translated at the average month-end exchange rates during the year. Resulting translation adjustments, along with any related qualifying hedge and tax effects, are included in accumulated other comprehensive income (loss) (AOCI), a component of shareholders’ equity. Translation adjustments, including qualifying hedge and tax effects, are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Gains and losses related to transactions in a currency other than the functional currency are reported in Other, net expenses in the Consolidated Statements of Income. 97 Table of Contents AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on management’s assumptions concerning future events. Among the more significant assumptions are those that relate to reserves for Card Member credit losses on loans and receivables, Membership Rewards liability, goodwill and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ. INCOME STATEMENT Discount Revenue Discount revenue 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. The amount of fees charged for accepting our cards as payment for goods or services, or merchant discount, varies with, among other factors, the industry in which the merchant conducts business, the merchant’s overall American Express-related transaction volume, the method of payment, the settlement terms with the merchant, the method of submission of transactions and, in certain instances, the geographic scope of the card acceptance agreement between the merchant and us (e.g., local or global) and the transaction amount. The merchant discount is generally deducted from the payment to the merchant and recorded as discount revenue at the time the Card Member transaction occurs. The card acceptance agreements, which include the agreed-upon terms for charging the merchant discount fee, vary in duration. Our contracts with small- and medium-sized merchants generally have no fixed contractual duration, while those with large merchants are generally for fixed periods, which typically range from three to seven years in duration. Our fixed-period agreements may include auto-renewal features, which may allow the existing terms to continue beyond the stated expiration date until a new agreement is reached. We satisfy our obligations under these agreements over the contract term, often on a daily basis, including through the processing of Card Member transactions and the availability of our payment network. In cases where the merchant acquirer is a third party (which is the case, for example, under our OptBlue program, or with certain of our GNS partners), we receive a network rate fee in our settlement with the merchant acquirer, which is individually negotiated between us and that merchant acquirer and is recorded as discount revenue at the time the Card Member transaction occurs. In our role as the operator of the American Express network, we also settle with merchants on behalf of our GNS card issuing partners, who in turn receive an issuer rate that is individually negotiated between that issuer and us and is recorded as expense in Marketing and business development (see below) or as contra-revenue in Other revenue. 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) is not required to be disclosed. Non-interest revenue expected to be recognized in future periods through remaining contracts with customers is not material. Net Card Fees 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. These fees, net of acquisition costs and a reserve for projected refunds for Card Member cancellations, are deferred and recognized on a straight-line basis over the twelve-month card membership period as Net card fees in the Consolidated Statements of Income and are therefore more stable in relation to short term business or economic shifts. The unamortized net card fee balance is reported in Other liabilities on the Consolidated Balance Sheets. Effective April 1, 2021, we prospectively changed the recognition of certain costs paid to a third party previously recognized over the twelve month card membership period in Net card fees in the Consolidated Statements of Income; such costs are now recorded as incurred in Marketing and business development expense. This change is not material to the Consolidated Financial Statements. Other Fees and Commissions Other fees and commissions includes certain fees charged to Card Members, including delinquency fees and foreign currency conversion fees, which are primarily recognized in the period in which they are charged to the Card Member. Other fees and commissions also includes Membership Rewards program fees, which are deferred and recognized over the period covered by the fee, typically one year, the unamortized portion of which is included in Other liabilities on the Consolidated Balance Sheets. In addition, Other fees and commissions includes loyalty coalition-related fees, travel commissions and fees and service fees earned from merchants, that are recognized when the service is performed, which is generally in the period the fee is charged. Refer to Note 18 for additional information. 98 Table of Contents Contra-revenue Payments made pursuant to contractual arrangements with our merchants, GNS partners, and other customers are classified as contra-revenue, except where we receive goods, services or other benefits for which the fair value is determinable and measurable, in which case they are recorded as expense. Interest Income Interest on Card Member loans is assessed using the average daily balance method. 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 relate to our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so that a constant rate of return is recognized on the investment security’s outstanding balance. Amounts are recognized until securities are in default or when it becomes likely that future interest payments will not be made as scheduled. Interest on deposits with banks and other is recognized as earned, and 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. Interest Expense Interest expense includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs, and is recognized as incurred. 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 debt and short-term borrowings, as well as the realized impact of derivatives used to hedge interest rate risk on our long-term debt. Marketing and Business Development Marketing and business development expense includes costs incurred in the development and initial placement of advertising, which are expensed in the year in which the advertising first takes place. Also included in Marketing and business development expense are payments to our cobrand partners, Card Member statement credits and promotional rewards-based incentives for qualifying charges on eligible card accounts, corporate client incentive payments earned on achievement of pre-set targets, and certain payments to GNS partners. These costs are generally expensed as incurred. Card Member Rewards We issue charge and credit cards that allow Card Members to participate in various rewards programs (e.g., Membership Rewards, cash back and cobrand). Rewards expense is recognized in the period Card Members earn rewards, generally by spending on their enrolled card products. For Membership Rewards and cash back, we record a liability that represents the rewards that are expected to be redeemed, as well as, for Membership Rewards, the estimated cost of points earned. For cobrand, we record a liability based primarily on rewards earned on Card Member spending on cobrand cards, and make associated payments to our cobrand partners. The partner is liable for providing rewards to the Card Member under the cobrand partner’s own loyalty program. Card Member rewards liabilities are impacted over time by enrollment levels, attrition, the volume of points earned and redeemed, and the associated redemption costs. Changes in the Card Member rewards liabilities during the period are taken as an increase or decrease to the Card Member rewards expense in the Consolidated Statements of Income. BALANCE SHEET Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from banks, interest-bearing bank balances, including securities purchased under resale agreements, restricted cash, and other highly liquid investments with original maturities of 90 days or less. Restricted cash primarily represents amounts related to Card Member credit balances as well as upcoming debt maturities of consolidated VIEs. 99 Table of Contents Goodwill Goodwill represents the excess of the acquisition cost of an acquired business over the fair value of assets acquired and liabilities assumed. We allocate goodwill to our reporting units for the purpose of impairment testing. A reporting unit is defined as an operating segment, or a business that is one level below an operating segment, for which discrete financial information is regularly reviewed by the operating segment manager. We evaluate goodwill for impairment annually as of June 30, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of our reporting units below its carrying value. Prior to completing the assessment of goodwill for impairment, we also perform a recoverability test of certain long-lived assets. We have the option to perform a qualitative assessment of goodwill impairment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Alternatively, we can perform a more detailed quantitative assessment of goodwill impairment. This qualitative assessment entails the evaluation of factors such as economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other company and reporting unit-specific events. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then perform the impairment evaluation using the quantitative assessment. The quantitative assessment compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the reporting unit's fair value, an impairment loss is recognized for the amount over and above the reporting unit's fair value. When measuring the fair value of our reporting units in the quantitative assessment, we use widely accepted valuation techniques, applying a combination of the income approach (discounted cash flows) and market approach (market multiples). When preparing discounted cash flow models under the income approach, we use internal forecasts to estimate future cash flows expected to be generated by the reporting units. To discount these cash flows, we use the expected cost of equity, determined by using a capital asset pricing model. We believe the discount rates appropriately reflect the risks and uncertainties in the financial markets generally and specifically in our internally-developed forecasts. When using market multiples under the market approach, we apply comparable publicly traded companies’ multiples (e.g., earnings or revenues) to our reporting units’ actual results. For the years ended December 31, 2021 and 2020, we performed a qualitative assessment in connection with our annual goodwill impairment evaluation and determined that it was more likely than not that the fair values of each of our reporting units exceeded their carrying values. Premises and Equipment Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation. Costs incurred during construction are capitalized and are depreciated once an asset is placed in service. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years for equipment, furniture and building improvements, and from 40 to 50 years for premises, which are depreciated based upon their estimated useful life at the acquisition date. Certain costs associated with the acquisition or development of internal-use software are also capitalized and recorded in Premises and equipment. Once the specific software feature is ready for its intended use, these costs are amortized on a straight-line basis over the software’s estimated useful life, generally 5 years. We review these assets for impairment using the same impairment methodology used for our intangible assets. Leasehold improvements are depreciated using the straight-line method over the lesser of the remaining term of the leased facility, or the economic life of the improvement, and range from 5 to 10 years. We recognize lease restoration obligations at the fair value of the restoration liabilities when incurred and amortize the restoration assets over the lease term. Leases We have operating leases worldwide for facilities and equipment, which, for those leases with terms greater than 12 months, are recorded as lease-related assets and liabilities. We do not separate lease and non-lease components. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs and lease incentives. Lease liabilities are recognized at the present value of the contractual fixed lease payments, discounted using our incremental borrowing rate as of the lease commencement date or upon modification of the lease. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. 100 Table of Contents OTHER SIGNIFICANT ACCOUNTING POLICIES The following table identifies our other significant accounting policies, along with the related Note. Significant Accounting Policy Note Number Note Title Loans and Card Member Receivables Note 2 Loans and Card Member Receivables Reserves for Credit Losses Note 3 Reserves for Credit Losses Investment Securities