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AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
TABLE 8: NET INTEREST YIELD ON CARD MEMBER LOANS
Years Ended December 31,
(Millions, except percentages and where
indicated) 2013 2012 2011
Net interest income $ 5,047 $ 4,628 $ 4,376
Exclude:
Interest expense not attributable to the
Company’s Card Member loan portfolio 1,181 1,366 1,445
Interest income not attributable to the
Company’s Card Member loan portfolio (361) (401) (476)
Adjusted net interest income(a) $ 5,867 $ 5,593 $ 5,345
Average loans (billions) $ 63.3 $ 61.5 $ 59.1
Exclude:
Unamortized deferred card fees, net of
direct acquisition costs of Card Member
loans, and other (billions) (0.3) (0.2) (0.1)
Adjusted average loans (billions)(a) $ 63.0 $ 61.3 $ 59.0
Net interest income divided by average loans 8.0% 7.5% 7.4%
Net interest yield on Card Member loans(a) 9.3% 9.1% 9.1%
(a) Adjusted average loans, adjusted net interest income and net interest yield on
Card Member loans are non-GAAP measures. The Company believes
adjusted net interest income and adjusted average loans are useful to
investors because they are components of net interest yield on Card Member
loans, which provides a measure of profitability of the Company’s Card
Member loan portfolio.
BUSINESS SEGMENT RESULTS OVERVIEW
The Company considers a combination of factors when evaluating the
composition of its reportable operating segments, including the results
reviewed by the chief operating decision maker, economic
characteristics, products and services offered, classes of customers,
product distribution channels, geographic considerations (primarily
U.S. versus non-U.S.) and regulatory environment considerations.
Refer to Note 25 of the Consolidated Financial Statements for
additional discussion of the products and services by segment.
Results of the business segments essentially treat each segment as a
stand-alone business. The management reporting process that derives
these results allocates revenue and expense using various
methodologies as described below.
Refer to the “Glossary of Selected Terminology” for the definitions
of certain key terms and related information appearing in this section.
TOTAL REVENUES NET OF INTEREST EXPENSE
The Company allocates discount revenue and certain other revenues
among segments using a transfer pricing methodology. Within the
USCS, ICS and GCS segments, discount revenue reflects the issuer
component of the overall discount revenue generated by each
segment’s Card Members; within the GNMS segment, discount
revenue reflects the network and acquirer component of the overall
discount revenue. Net card fees and travel commissions and fees are
directly attributable to the segment in which they are reported.
Interest and fees on loans and certain investment income is directly
attributable to the segment in which it is reported. Interest expense
reflects an allocated funding cost based on a combination of segment
funding requirements and internal funding rates.
PROVISIONS FOR LOSSES
The provisions for losses are directly attributable to the segment in
which they are reported.
EXPENSES
Marketing and promotion expenses are reflected in each segment
based on actual expenses incurred, with the exception of brand
advertising, which is primarily reflected in the GNMS and USCS
segments. Rewards and Card Member services expenses are reflected
in each segment based on actual expenses incurred within each
segment.
Salaries and employee benefits and other operating expenses reflect
expenses such as professional services, occupancy and equipment and
communications incurred directly within each segment. In addition,
expenses related to the Company’s support services, such as
technology costs, are allocated to each segment primarily based on
support service activities directly attributable to the segment. Other
overhead expenses, such as staff group support functions, are allocated
from Corporate & Other to the other segments based on a mix of each
segment’s direct consumption of services and relative level of pretax
income.
CAPITAL
Each business segment is allocated capital based on established
business model operating requirements, risk measures and regulatory
capital requirements. Business model operating requirements include
capital needed to support operations and specific balance sheet items.
The risk measures include considerations for credit, market and
operational risk.
INCOME TAXES
An income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that comprise the segment.
25