American Express 2003 Annual Report Download - page 52

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The provision for losses on charge card products decreased 11 percent on strong credit quality reflected in an improved past
due percentage and loss ratio. The net loss ratio as a percentage of charge volume decreased to 0.28% in 2003 from 0.38%
in 2002. The worldwide charge card provision also decreased in 2002 due to strong credit quality. The provision for losses
on the worldwide lending portfolio decreased 7 percent in 2003 despite growth in outstanding loans and increased reserve
coverage levels due to well-controlled credit practices and improving economic trends. The worldwide lending provision
increased in 2002, reflecting portfolio growth and increased reserve coverage levels. The net write-off rate for the world-
wide lending portfolio was 5.2% in 2003 versus 5.9% in 2002.
Charge card interest expense declined 20 percent in 2003 due to a lower effective cost of funds, partially offset by a higher
average receivable balance. Charge card interest expense declined 33 percent in 2002 due to a lower effective cost of funds
and a lower average receivable balance.
Human resources expense increased 9 percent in 2003 as employee merit increases, higher employee benefit expenses and
increased management incentive costs were partially offset by the benefits from reengineering efforts. Increases in 2003
management incentive costs included higher stock-based compensation costs from both stock options and increased lev-
els of restricted stock awards. The higher stock-based compensation expense from stock options reflects the Company’s
decision to expense stock options beginning in 2003. Higher expense related to restricted stock awards reflects the Com-
pany’s decision to modify compensation practices and use restricted stock awards in place of stock options for middle man-
agement. In 2002, human resources expense decreased 12 percent as a result of a lower average number of employees,
reflecting ongoing reengineering efforts throughout 2002 and the impact of technology outsourcing agreements.
Other operating expenses increased 8 percent reflecting, in part, the impact of greater business and service volume-related
costs, including outsourcing activities. This increase was partially offset by the benefits of reengineering initiatives and other
cost containment efforts. In 2002, other operating expenses rose due to losses primarily from strategic investments versus
gains in the prior year, as well as the impact of outsourcing agreements, partially offset by reengineering initiatives and other
cost containment efforts.
(p.50_axp_ financial review)