American Express 2008 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2008 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 125

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125

2008 financial review
american express company
cardmember loans. Management also believes that use of a
managed basis presentation presents a more accurate picture
of the key dynamics of the cardmember lending business.
Irrespective of the on- and off-balance sheet funding mix, it
is important for management and investors to see metrics for
the entire cardmember lending portfolio because they are more
representative of the economics of the aggregate cardmember
relationships and ongoing business performance and trends over
time. It is also important for investors to see the overall growth
of cardmember loans and related revenue in order to evaluate
market share. These metrics are significant in evaluating the
Company’s performance and can only be properly assessed
when all non-securitized and securitized cardmember loans are
viewed together on a managed basis. The Company does not
currently securitize international loans.
On a GAAP basis, revenue and expenses from securitized
cardmember loans are reflected in the Company’s income
statements in securitization income, net, fees and commissions,
and provisions for losses for cardmember lending. At the time
of a securitization transaction, the securitized cardmember
loans are removed from the Company’s balance sheet, and the
resulting gain on sale is reflected in securitization income, net
as well as an impact to provisions for losses (credit reserves
are no longer recorded for the cardmember loans once sold).
Over the life of a securitization transaction, the Company
recognizes servicing fees and other net revenues (referred to
as “excess spread”) related to the interests sold to investors
(i.e., the investors’ interests). These amounts, in addition to
changes in the fair value of interest-only strips, are reflected
in securitization income, net and fees and commissions. The
Company also recognizes total interest income over the life of
the securitization transaction related to the interest it retains
(i.e., the seller’s interest). At the maturity of a securitization
transaction, cardmember loans on the balance 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) 2008 2007 2006
Discount revenue, net card fees
and other:
Reported for the period (GAAP) $10,357 $10,243 $ 9,286
Securitization adjustments(a) 400 310 199
Managed discount revenue,
net card fees and other $10,757 $10,553 $ 9,485
Interest income:
Reported for the period (GAAP) $ 4,736 $ 5,125 $ 3,688
Securitization adjustments(a) 3,512 3,130 2,937
Managed interest income $ 8,248 $ 8,255 $ 6,625
Securitization income, net:
Reported for the period (GAAP) $ 1,070 $ 1,507 $ 1,489
Securitization adjustments(a) (1,070) (1,507) (1,489)
Managed securitization income, net $ — $ — $ —
Interest expense:
Reported for the period (GAAP) $ 2,166 $ 2,653 $ 1,843
Securitization adjustments(a) 830 1,136 1,057
Managed interest expense $ 2,996 $ 3,789 $ 2,900
Provisions for losses:
Reported for the period (GAAP) $ 4,389 $ 2,998 $ 1,625
Securitization adjustments(a) 2,002 871 550
Managed provisions for losses $ 6,391 $ 3,869 $ 2,175
(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), interest income, 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.
50