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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Cardmember Loans Reserve for Losses
The following table presents changes in the cardmember loans
reserve for losses for the years ended December 31:
(Millions) 2012 2011 2010
Balance, January 1 $ 1,874 $ 3,646 $ 3,268
Reserves established for consolidation of a
variable interest entity(a) —— 2,531
Total adjusted balance, January 1 1,874 3,646 5,799
Additions:
Provisions(b) 1,031 145 1,445
Other(c) 118 108 82
Total provision 1,149 253 1,527
Deductions:
Net write-offs
Principal(d) (1,280) (1,720) (3,260)
Interest and fees(d) (157) (201) (359)
Other(e) (115) (104) (61)
Balance, December 31 $ 1,471 $ 1,874 $ 3,646
(a) Represents the establishment of cardmember reserves for losses for
cardmember loans issued by the American Express Credit Account Master
Trust (the Lending Trust) for the securitized loan portfolio that was
consolidated under accounting guidance for consolidation of VIEs effective
January 1, 2010. The establishment of the $2.5 billion reserve for losses for
the securitized loan portfolio was determined by applying the same
methodology as is used for the Company’s unsecuritized loan portfolio.
There was no incremental reserve required nor were any charge-offs
recorded in conjunction with the consolidation of the Lending Trust.
(b) Provisions for principal (resulting from authorized transactions), interest
and fee reserves components.
(c) Provisions for unauthorized transactions.
(d) Consists of principal write-offs (resulting from authorized transactions), less
recoveries of $493 million, $578 million and $568 million for the years
ended December 2012, 2011 and 2010, respectively. Recoveries of interest
and fees were de minimis.
(e) Includes net write-offs resulting from unauthorized transactions of $(116)
million, $(103) million and $(78) million for the years ended December 31,
2012, 2011 and 2010, respectively; foreign currency translation adjustments
of $7 million, $(2) million and $23 million for the years ended December 31,
2012, 2011 and 2010, respectively; cardmember bankruptcy reserves of $4
million, nil and nil for the years ended December 31, 2012, 2011 and 2010,
respectively; and other items of $(10) million, $1 million and $(6) million
for the years ended December 31, 2012, 2011 and 2010, respectively.
Cardmember bankruptcy reserves were classified as other liabilities in prior
periods.
Cardmember Loans Evaluated Individually and
Collectively for Impairment
The following table presents cardmember loans evaluated
individually and collectively for impairment and related reserves
as of December 31:
(Millions) 2012 2011 2010
Cardmember loans evaluated individually
for impairment(a) $ 633 $ 744 $ 1,087
Related reserves(a) $ 153 $ 176 $ 279
Cardmember loans evaluated collectively
for impairment(b) $ 64,596 $ 61,877 $ 59,763
Related reserves(b) $ 1,318 $ 1,698 $ 3,367
(a) Represents loans modified in a TDR and related reserves. Refer to the
Impaired Loans and Receivables discussion in Note 4 for further
information.
(b) Represents current loans and loans less than 90 days past due, loans over 90
days past due and accruing interest, and non-accrual loans and related
reserves. The reserves include the results of analytical models that are
specific to individual pools of loans and reserves for external environmental
factors that apply to loans in geographic markets that are collectively
evaluated for impairment and are not specific to any individual pool of
loans.
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