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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
The following tables present changes in the reserve
for losses:
(Millions) 2007 2006 2005
Cardmember lending reserves
Balance, January 1 $ 1,171 $ 996 $ 972
Additions:
Cardmember lending
provisions(a) 2,615 1,507 1,227
Cardmember lending other(b) 146 116 122
Total provision 2,761 1,623 1,349
Deductions:
Cardmember lending net
write-offs(a) (1,990) (1,359) (1,155)
Cardmember lending other(b) (111) (89) (170)
Balance, December 31 $ 1,831 $ 1,171 $ 996
(a) Represents cardmember lending balances consisting of principal (resulting
from authorized transactions), interest, and fee components. Net write-offs
for 2007, 2006, and 2005 include recoveries of $295 million, $187 million,
and $124 million, respectively.
(b) Primarily represents adjustments to cardmember lending receivables
resulting from unauthorized transactions and other items such as waived
fees.
(Millions) 2007 2006 2005
Other reserves
Balance, January 1 $ 36 $ 39 $19
Provisions 16 16 18
Net write-offs and other(a) (7) (19) 2
Balance, December 31 $ 45 $ 36 $39
(a) Net write-offs for 2007, 2006, and 2005 include recoveries of $7 million, $4
million, and $4 million, respectively.
Individually “impaired” loans are defined by GAAP as larger
balance or restructured loans for which it is probable that the
lender will be unable to collect all amounts due according to the
original contractual terms of the loan agreement. An analysis of
total impaired loans follows:
(Millions) 2007 2006
Loans requiring allowance for losses $ 41 $ 67
Loans expected to be fully recoverable —104
Total impaired loans $ 41 $ 171
Reserve for losses $ 21 $ 31
Average investment during the year $ 61 $ 252
Interest income recognized while impaired $ 3 $ 1
Loans amounting to $769 million and $498 million at
December 31, 2007 and 2006, respectively, were past due 90
days or more and still accruing interest. These amounts primarily
relate to cardmember lending for which the Company’s policy
is to cease accruing for interest receivable once a related
cardmember loan is more than 180 days past due.
NOTE 6 ASSET SECURITIZATIONS
OFF-BALANCE SHEET SECURITIZATIONS
The Company periodically securitizes cardmember loans
through the American Express Credit Account Master Trust
(the Lending Trust). The following table illustrates the activity
in the Lending Trust (including the securitized cardmember
loans and seller’s interest) for the years ended December 31:
(Millions) 2007 2006
Lending Trust assets, January 1 $34,584 $28,854
Account additions, net —5,932
Cardmember activity, net 1,610 (202)
Lending Trust assets, December 31 $36,194 $34,584
Securitized cardmember loans,
January 1 $20,170 $21,175
Impact of issuances 6,000 3,500
Impact of maturities (3,500) (4,505)
Securitized cardmember loans,
December 31 $22,670 $20,170
Seller’s interest, January 1 $14,414 $ 7,679
Impact of issuances (6,000) (3,500)
Impact of maturities 3,500 4,505
Account additions, net —5,932
Cardmember activity, net 1,610 (202)
Seller’s interest, December 31 $13,524 $14,414
The Company, through its subsidiaries, is required to
maintain an undivided interest in the transferred cardmember
loans (seller’s interest), which is equal to the balance of all
cardmember loans transferred to the Lending Trust (Lending
Trust assets) less the investors’ portion of those assets
(securitized cardmember loans). Seller’s interest is reported
as cardmember lending on the Company’s Consolidated
Balance Sheets.
The Company also retains subordinated interests in the
securitized cardmember loans. These interests may include
one or more investments in tranches of the securitization
(subordinated securities) and an interest-only strip. The
following table presents retained subordinated interests for the
years ended December 31:
(Millions) 2007 2006
Interest-only strip $223 $266
Subordinated securities 78 —
Total $301 $266
The subordinated securities are accounted for at fair value as
Available-for-Sale investment securities and are reported in
investments on the Company’s Consolidated Balance Sheets
with unrealized gains (losses) recorded in accumulated other
comprehensive (loss) income as of December 31, 2007. The
interest-only strip is accounted for at fair value and is reported
85