American Express 2012 Annual Report Download - page 108

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23
REGULATORY MATTERS AND CAPITAL
ADEQUACY
The Company is supervised and regulated by the Federal Reserve
and is subject to the Federal Reserve’s requirements for risk-
based capital and leverage ratios. The Company’s two U.S. bank
operating subsidiaries, Centurion Bank and FSB (the Banks), are
subject to supervision and regulation, including similar
regulatory capital requirements by the FDIC and the Office of
the Comptroller of the Currency (OCC).
The Federal Reserve’s guidelines for capital adequacy define
two categories of risk-based capital: Tier 1 and Tier 2 capital (as
defined in the regulations). Under the risk-based capital
guidelines of the Federal Reserve, the Company is required to
maintain minimum ratios of Tier 1 and Total (Tier 1 plus Tier 2)
capital to risk-weighted assets, as well as a minimum leverage
ratio (Tier 1 capital to average adjusted on-balance sheet assets).
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional, discretionary actions
by regulators, that, if undertaken, could have a direct material
effect on the Company’s and the Banks’ operating activities.
As of December 31, 2012 and 2011, the Company and its
Banks met all capital requirements to which each was subject and
maintain regulatory capital ratios in excess of those required to
qualify as well capitalized.
The following table presents the regulatory capital ratios for the Company and the Banks:
(Millions, except percentages)
Tier 1
capital
Total
capital
Tier 1
capital ratio
Total
capital ratio
Tier 1
leverage ratio
December 31, 2012:
American Express Company $ 14,920 $ 17,349 11.9% 13.8% 10.2%
American Express Centurion Bank $ 5,814 $ 6,227 17.6% 18.9% 17.0%
American Express Bank, FSB $ 6,649 $ 7,556 16.5% 18.7% 17.5%(a)
December 31, 2011:
American Express Company $ 14,881 $ 17,271 12.3% 14.3% 10.2%
American Express Centurion Bank $ 6,029 $ 6,431 18.8% 20.1% 19.1%
American Express Bank, FSB $ 6,493 $ 7,363 17.4% 19.8% 18.4%(b)
Well-capitalized ratios(d) 6.0% 10.0% 5.0%(c)
Minimum capital ratios(d) 4.0% 8.0% 4.0%
(a) FSB leverage ratio is calculated using ending total assets as prescribed by OCC regulations applicable to federal savings banks.
(b) FSB leverage ratio represents Tier 1 core capital ratio (as defined by OCC regulations applicable to federal savings banks), calculated similarlytoTier1leverageratio.
(c) Represents requirements for banking subsidiaries to be considered “well-capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation
Improvement Act. There is no “well-capitalized” definition for the Tier 1 leverage ratio for a bank holding company.
(d) As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain of the Company’s subsidiaries are subject to restrictions
on the transfer of net assets under debt agreements and regulatory
requirements. These restrictions have not had any effect on the
Company’s shareholder dividend policy and management does
not anticipate any impact in the future. Procedures exist to
transfer net assets between the Company and its subsidiaries,
while ensuring compliance with the various contractual and
regulatory constraints. As of December 31, 2012, the aggregate
amount of net assets of subsidiaries that are restricted to be
transferred to the Company was approximately $9.4 billion.
BANK HOLDING COMPANY DIVIDEND
RESTRICTIONS
The Company is limited in its ability to pay dividends by the
Federal Reserve which could prohibit a dividend that would be
considered an unsafe or unsound banking practice. It is the
policy of the Federal Reserve that bank holding companies
generally should pay dividends on common stock only out of net
income available to common shareholders generated over the
past year, and only if prospective earnings retention is consistent
with the organization’s current and expected future capital
needs, asset quality and overall financial condition. Moreover,
bank holding companies are required by statue to be a source of
strength to their insured depository institution subsidiaries and
should not maintain dividend levels that undermine their ability
to do so. On an annual basis, the Company is required to
develop and maintain a capital plan, which includes planned
dividends over a two-year horizon, and to submit the capital
plan to the Federal Reserve for approval.
BANKS’ DIVIDEND RESTRICTIONS
In the years ended December 31, 2012 and 2011, Centurion Bank
paid dividends from retained earnings to its parent of $2.0
billion and $1.5 billion, respectively, and FSB paid dividends
from retained earnings to its parent of $1.5 billion and $0.6
billion, respectively.
The Banks are subject to statutory and regulatory limitations
on their ability to pay dividends. The total amount of dividends
which may be paid at any date, subject to supervisory
considerations of the Banks’ regulators, is generally limited to
the retained earnings of the respective bank. As of December 31,
2012 and 2011, the Banks’ retained earnings, in the aggregate,
available for the payment of dividends were $4.7 billion and $4.6
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