AXP filing — read by section

Item 7. Management’s Discussion and Analysis

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.
AMERICAN EXPRESS CO 10-K

Item 7. Management’s Discussion and Analysis
