Business Context and Reporting Period
This Form 8-K Current Report, filed on September 15, 2016, by American Express Company, discloses Regulation FD information regarding credit performance statistics. The report covers the months ended June 30, July 31, and August 31, 2016, focusing on Card Member loans held for investment within the U.S. Consumer Services (USCS) and U.S. Small Business segments, as well as data from the American Express Credit Account Master Trust (Lending Trust).
Key Financial Metrics
Loans Held for Investment (USCS and U.S. Small Business)
| Metric | June 30, 2016 | July 31, 2016 | August 31, 2016 |
|---|---|---|---|
| Total Loans (Billions) | $53.2 | $53.5 | $53.8 |
| 30+ Days Past Due (% of Total) | 1.1% | 1.1% | 1.1% |
| Net Write-off Rate (Principal Only) | 1.3% (USCS) / 1.2% (SMB) | 1.6% (USCS) / 1.5% (SMB) | 1.6% (USCS) / 1.6% (SMB) |
Note: Net write-off rates are based on principal only, excluding interest and fees.
Lending Trust (Securitized Loans)
| Metric | June 2016 | July 2016 | August 2016 |
|---|---|---|---|
| Ending Principal Balance (Billions) | $24.7 | $24.5 | $24.4 |
| Defaulted Amount (Billions) | $0.04 | $0.03 | $0.04 |
| Annualized Default Rate (Net of Recoveries) | 1.0% | 1.0% | 1.0% |
| Total 30+ Days Delinquent (Billions) | $0.2 | $0.2 | $0.2 |
Material Changes and Adjustments
- Loan Reclassification: The reported statistics reflect the reclassification of loans from "held for sale" to "held for investment." This adjustment totaled $245 million in June, $214 million in July, and $184 million in August 2016.
- Non-GAAP Adjustments: Excluding the reclassified loans, the adjusted 30+ days past due rate was 1.0% for both USCS and U.S. Small Business as of August 31, 2016. The adjusted net write-off rate was 1.4% for both segments as of August 31, 2016.
- Lending Trust Activity: In June 2016, the Lending Trust acquired $3.0 billion in loans and removed $3.6 billion related to the sale of the Costco portfolio.
Outlook, Risks, and Commentary
The filing notes that credit performance metrics for the Lending Trust may differ from those of loans held for investment due to differences in loan mix, vintage, aging, and calculation mechanics (e.g., end-of-period balances vs. average balances). The report does not provide forward-looking guidance, revenue projections, or management commentary on future economic conditions beyond the historical data presented.
Investor Verification Checklist
- Verify the impact of the $184 million loan reclassification in August on the reported 1.1% delinquency rate versus the 1.0% adjusted non-GAAP rate.
- Review the trend in net write-off rates, which increased from 1.3% to 1.6% for USCS and 1.2% to 1.6% for U.S. Small Business between June and August 2016.
- Confirm the stability of the Lending Trust's annualized default rate at 1.0% despite portfolio changes in June.
- Examine Exhibit 99.1 for historical context on the HFS Portfolios (Costco and JetBlue) referenced in the filing.