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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, American Express Centurion Bank (Centurion Bank) and
American Express Bank, FSB (FSB) (together, the Banks), are subject
to supervision and regulation, including similar regulatory capital
requirements by the Federal Deposit Insurance Corporation (FDIC)
and the Office of the Comptroller of the Currency (OCC),
respectively.
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, 2013 and 2012, the Company and its Banks
met all capital requirements to which each was subject and maintained
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, 2013:
American Express Company $ 16,174 $ 18,585 12.5% 14.4% 10.9%
American Express Centurion Bank 6,366 6,765 19.9 21.2 19.0
American Express Bank, FSB 6,744 7,662 15.6 17.7 17.5(a)
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)
Well-capitalized ratios(c) 6.0% 10.0% 5.0%(b)
Minimum capital ratios(c) 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) 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.
(c) 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, 2013, the aggregate amount of net assets of
subsidiaries that are restricted to be transferred to the Company was
approximately $9.9 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 statute
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.
100