American Express 2007 Annual Report Download - page 58

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[ 56 ]
2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
sheet increase, and the impact of the incremental required loss
reserves is recorded in provisions for losses.
As presented, in aggregate over the life of a securitization
transaction, the pretax income impact to the Company is the
same whether or not the Company had securitized cardmember
loans or funded these loans through other financing activities
(assuming the same financing costs). The income statement
classifications, however, of specific items will differ.
U.S. CARD SERVICES
SELECTED FINANCIAL INFORMATION
MANAGED BASIS PRESENTATION
Years Ended December 31,
(Millions) 2007 2006 2005
Discount revenue, net card fees
and other:
Reported for the period (GAAP) $10,435 $ 9,421 $ 8,451
Securitization adjustments(a) 310 199 210
Managed discount revenue, net
card fees and other $10,745 $ 9,620 $ 8,661
Cardmember lending finance
revenue:
Reported for the period (GAAP) $ 4,762 $ 3,434 $ 2,408
Securitization adjustments(a) 3,130 2,937 2,692
Managed finance revenue $ 7,892 $ 6,371 $ 5,100
Securitization income, net:
Reported for the period (GAAP) $ 1,507 $ 1,489 $ 1,260
Securitization adjustments(a) (1,507) (1,489) (1,260)
Managed securitization income,
net $ — $ — $ —
Cardmember lending interest
expense:
Reported for the period (GAAP) $ 1,518 $ 957 $ 616
Securitization adjustments(a) 1,136 1,057 739
Managed cardmember lending
interest expense $ 2,654 $ 2,014 $ 1,355
Provisions for losses:
Reported for the period (GAAP) $ 2,998 $ 1,625 $ 1,658
Securitization adjustments(a) 871 550 924
Managed provisions for losses $ 3,869 $ 2,175 $ 2,582
(a) The managed basis presentation assumes that there have been no off-balance
sheet securitization transactions, i.e., all securitized cardmember loans
and related income effects are reflected as if they were in the Company’s
balance sheets and income statements, respectively. For the managed basis
presentation, revenue and expenses related to securitized cardmember loans
are reflected in other commissions and fees (included above in discount
revenue, net card fees and other), cardmember lending finance revenue,
cardmember lending interest expense, and provisions for losses. On a
managed basis, there is no securitization income, net as the managed basis
presentation assumes no securitization transactions have occurred.
RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2007 – MANAGED BASIS
The following discussion of U.S. Card Services is on a managed
basis.
Discount revenue, net card fees and other in 2007 and 2006
increased $1.1 billion or 12 percent and $959 million or 11
percent to $10.7 billion and $9.6 billion, respectively, largely
due to increases in billed business volumes and higher other
commissions and fees. The increase in discount revenue, net
card fees and other in 2007 was also due to higher interest
income on the Company’s loan to Delta in 2007. Cardmember
lending finance revenue increased $1.5 billion or 24 percent
and $1.3 billion or 25 percent to $7.9 billion and $6.4 billion
in 2007 and 2006, respectively, primarily due to 21 percent and
16 percent, respectively, growth in the average managed lending
balances and a slightly higher portfolio yield. The increase in
cardmember lending finance revenue in 2006 was partially offset
by a reduction in revenue resulting from higher than anticipated
cardmember completion of consumer debt repayment programs
and certain payment waivers in 2006. Cardmember lending
interest expense in 2007 and 2006 increased $640 million or
32 percent and $659 million or 49 percent to $2.7 billion and
$2.0 billion, respectively, due to growth in average managed
lending balances and higher costs of funds. Provisions for losses
increased $1.7 billion or 78 percent to $3.9 billion for 2007,
due to increased write-off and delinquency rates, the impact
of strong loan and volume growth, and the credit-related
charge previously discussed. Provisions for losses decreased
$407 million or 16 percent to $2.2 billion for 2006, reflecting
a comparatively lower level of bankruptcy-related charge offs,
lower than expected costs for Hurricane Katrina losses that
were provided for in 2005, as well as improved collections, and
strong credit quality, partially offset by the impact of strong
volume and loan growth.
56