American Express 2012 Annual Report Download - page 79

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information for the years ended
December 31, 2012 and 2011, with respect to the cardmember
loans and receivables modified as TDRs that subsequently
defaulted within 12 months of modification. A cardmember will
default from a modification program after one and up to three
consecutive missed payments, depending on the terms of the
modification program. The defaulted ICS cardmember loan
modifications were not significant.
2012
(Accounts in thousands,
Dollars in millions)
Number of
Accounts
Aggregated
Outstanding
Balances
Upon Default(a)
Troubled Debt Restructurings That
Subsequently Defaulted:
U.S. Card Services —
Cardmember Loans 23 $ 182
U.S. Card Services —
Cardmember Receivables 137
Total 24 $ 219
2011
(Accounts in thousands,
Dollars in millions)
Number of
Accounts
Aggregated
Outstanding
Balances
Upon Default(a)
Troubled Debt Restructurings That
Subsequently Defaulted:
U.S. Card Services —
Cardmember Loans 46 $ 343
U.S. Card Services —
Cardmember Receivables 645
Total 52 $ 388
(a) The outstanding balance includes principal and accrued interest.
NOTE 5
RESERVES FOR LOSSES
Reserves for losses relating to cardmember loans and receivables
represent management’s best estimate of the probable inherent
losses in the Company’s outstanding portfolio of loans and
receivables, as of the balance sheet date. Management’s
evaluation process requires certain estimates and judgments.
Reserves for losses are primarily based upon statistical models
that analyze portfolio performance and reflect management’s
judgment regarding overall reserve adequacy. The models take
into account several factors, including loss migration rates and
average losses and recoveries over an appropriate historical
period. Management considers whether to adjust the models for
specific factors such as increased risk in certain portfolios,
impact of risk management initiatives on portfolio performance
and concentration of credit risk based on factors such as vintage,
industry or geographic regions. In addition, management may
increase or decrease the reserves for losses on cardmember loans
for other external environmental factors, including various
indicators related to employment, spend, sentiment, housing and
credit, as well as the legal and regulatory environment. Generally,
due to the short-term nature of cardmember receivables, the
impact of additional external factors on the probable losses
inherent within the cardmember receivables portfolio is not
significant. As part of this evaluation process, management also
considers various reserve coverage metrics, such as reserves as a
percentage of past due amounts, reserves as a percentage of
cardmember receivables or loans and net write-off coverage.
Cardmember loans and receivables balances are written off
when management considers amounts to be uncollectible, which
is generally determined by the number of days past due and is
typically no later than 180 days. Cardmember loans and
receivables in bankruptcy or owed by deceased individuals are
written off upon notification and recoveries are recognized as
they are collected.
Changes in Cardmember Receivables Reserve for
Losses
The following table presents changes in the cardmember
receivables reserve for losses for the years ended December 31:
(Millions) 2012 2011 2010
Balance, January 1 $ 438 $ 386 $ 546
Additions:
Provisions(a) 601 603 439
Other(b) 141 167 156
Total provision 742 770 595
Deductions:
Net write-offs(c) (640) (560) (598)
Other(d) (112) (158) (157)
Balance, December 31 $ 428 $ 438 $ 386
(a) Provisions for principal (resulting from authorized transactions) and fee
reserve components.
(b) Provisions for unauthorized transactions.
(c) Consists of principal (resulting from authorized transactions) and fee
components, less recoveries of $383 million, $349 million and $357 million
for 2012, 2011 and 2010, respectively.
(d) Includes net write-offs resulting from unauthorized transactions of $(141)
million, $(161) million and $(148) million for the years ended December 31,
2012, 2011 and 2010, respectively; foreign currency translation adjustments
of $2 million, $(2) million and $1 million for the years ended December 31,
2012, 2011 and 2010, respectively; cardmember bankruptcy reserves of $18
million, nil and nil for the years ended December 31, 2012, 2011 and 2010,
respectively; and other items of $9 million, $5 million and $(10) million for
the years ended December 31, 2012, 2011 and 2010, respectively.
Cardmember bankruptcy reserves were classified as other liabilities in prior
periods.
Cardmember Receivables Evaluated Individually and
Collectively for Impairment
The following table presents cardmember receivables evaluated
individually and collectively for impairment and related reserves
as of December 31:
(Millions) 2012 2011 2010
Cardmember receivables evaluated
individually for impairment(a) $ 117 $ 174 $ 114
Related reserves(a) $91$ 118 $ 63
Cardmember receivables evaluated
collectively for impairment $ 42,649 $ 40,716 $ 37,152
Related reserves $ 337 $ 320 $ 323
(a) Represents receivables modified in a TDR and related reserves. Refer to the
Impaired Loans and Receivables discussion in Note 4 for further
information.
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