American Express 2009 Annual Report Download - page 55

2009 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
GAAP and managed basis as described below will no longer
be applicable beginning in 2010.
For USCS, 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 in discount revenue, net card
fees and other in the USCS Selected Financial Information),
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.
The Company presents USCS information on a managed
basis because that is the way the Company’s management
views and manages the business. Management believes that a
full picture of trends in the Company’s cardmember loans
business can only be derived by evaluating the performance of
both securitized and non-securitized cardmember loans.
Management also believes that use of a managed basis
presentation presents a more accurate picture of the key
dynamics of the cardmember loans 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 loans 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 loans.
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) 2009 2008 2007
Discount revenue, net card fees and
other:
Reported for the period (GAAP) $9,125 $10,357 $10,243
Securitization adjustments(a) 331 400 310
Managed discount revenue, net card
fees and other $9,456 $10,757 $10,553
Interest income:
Reported for the period (GAAP) $3,221 $ 4,736 $ 5,125
Securitization adjustments(a) 3,097 3,512 3,130
Managed interest income $6,318 $ 8,248 $ 8,255
Securitization income, net:
Reported for the period (GAAP) $ 400 $ 1,070 $ 1,507
Securitization adjustments(a) (400) (1,070) (1,507)
Managed securitization income, net $—$—$—
Interest expense:
Reported for the period (GAAP) $ 855 $ 2,166 $ 2,653
Securitization adjustments(a) 244 830 1,136
Managed interest expense $1,099 $ 2,996 $ 3,789
Provisions for losses:
Reported for the period (GAAP) $3,769 $ 4,389 $ 2,998
Securitization adjustments(a) 2,573 2,002 871
Managed provisions for losses $6,342 $ 6,391 $ 3,869
(a) Refer to discussion of Differences Between GAAP and Managed
Basis Presentation above.
53