American Express Co. expects the completion of the pending consolidation of its two U.S. banking subsidiaries to facilitate expansion in its direct-to-consumer deposits and the perpetuation of a diversified funding mix.
Data reported by the company in regulatory filings show that while its deposits grew rapidly in 2017, the vast majority of the expansion came from brokered deposits at both American Express Centurion Bank and American Express Bank FSB.
"We are going to be growing, for the first time in a number of years, a high-yield savings program," CFO Jeffrey Campbell said during a recent investor day. He described that strategy as "an attractive thing to do in a rising rate environment," given that the company views online deposits as generally representing "the cheapest source of funding we have" against such a backdrop.
American Express disclosed data in its Form 10-K that showed total customer deposits increasing 21.5% in 2017 to $64.45 billion. Within that total, deposits associated with brokered CDs and brokered sweep accounts soared 39.9% and 62%, respectively, to $16.68 billion and $14.78 billion. Deposits held in savings accounts increased only 3% to $31.92 billion.
Information reported by the company in a filing with banking regulators showed total deposits of $67.05 billion as of year-end 2017, up 20% from the same date in 2016. Brokered deposits soared 49.5% to $31.46 billion, and their share of the deposit mix rose to at least a nine-year high of 46.9% from 37.7% as of Dec. 31, 2016. The company's deposits declined in 2016 as its balance sheet contracted to reflect the sales of portfolios associated with Costco Wholesale Corp. and JetBlue Airways Corp. co-branded credit cards.
The OCC granted conditional approval in December 2017 to American Express Centurion's application to convert to a national bank named American Express National Bank from a Utah-chartered industrial bank. The plan contemplates that the federal savings bank will merge with and into the national bank immediately after the conversion, which American Express expects to complete during the first half of the year.
Federal banking records show that the current iteration of American Express Centurion Bank traces its roots to 1989. It was named American Express Resource Corp. in 1990 and American Express Deposit Corp. in 1994 and adopted its current moniker in 1996 as it merged with an older Delaware-based institution that operated under the American Express Centurion Bank name.
American Express Bank FSB, meanwhile, was established in 2000 as American Express Personal Trust Services FSB as a provider of personal trust, custodial, agency and investment management services. It was renamed in 2004 as part of an expansion of the scope of its activities to include credit card issuance.
American Express also owned the former IDS Bank and Trust, which was renamed Ameriprise Trust Co. in connection with the mid-2000s separation of Ameriprise Financial Inc. Through its previous ownership of Shearson Lehman Brothers Inc., American Express also served as the ultimate parent of Boston Safe Deposit and Trust Co., an institution that it sold as part of a larger 1993 transaction with Mellon Bank Corp.
American Express Bank FSB offered a Personal Savings-branded high-yield savings account with an annual percentage yield of 1.45% as of March 14, in line with the rate offered by online competitor Ally Bank, but anywhere from 5 to 30 basis points lower than comparable products from units of CIT Group Inc., Synchrony Financial and Sallie Mae.
Campbell said the company is comfortable with its ability to compete for and to attract new balances. At the same time, he reiterated the company's desire to maintain access to funding through multiple channels.
High-yield savings and third-party deposits accounted for about 51% of American Express' $124.7 billion funding mix as of year-end 2017, the company said. Unsecured term debt and credit card asset-backed securities represented 31% and 15% of the mix, with short-term funding making up the remainder.
"We think it's really important to be active in all three of our main markets: the unsecured, asset-backed, and deposit growth markets," Campbell said, adding that American Express viewed that diversified mix as representing "a good long-term strategy from a safety and soundness perspective."
