American Express 2013 Annual Report Download - page 37

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AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
CONSOLIDATED CAPITAL RESOURCES AND
LIQUIDITY
The Company’s balance sheet management objectives are to maintain:
폷A solid and flexible equity capital profile;
폷A broad, deep and diverse set of funding sources to finance its assets
and meet operating requirements; and
폷Liquidity programs that enable the Company to continuously meet
expected future financing obligations and business requirements for
at least a 12-month period, even in the event it is unable to continue
to raise new funds under its traditional funding programs during a
substantial weakening in economic conditions.
CAPITAL STRATEGY
The Company’s objective is to retain sufficient levels of capital
generated through earnings and other sources to maintain a solid
equity capital base and to provide flexibility to support future business
growth. The Company believes capital allocated to growing businesses
with a return on risk-adjusted equity in excess of its costs will generate
shareholder value.
The level and composition of the Company’s consolidated capital
position are determined through the Company’s internal capital
adequacy assessment process, which reflects its business activities, as
well as marketplace conditions and requirements or expectations of
credit rating agencies, regulators and shareholders, among others. The
Company’s consolidated capital position is also influenced by
subsidiary capital requirements. The Company, as a bank holding
company, is also subject to regulatory requirements administered by
the U.S. federal banking agencies. The Federal Reserve has established
specific capital adequacy guidelines that involve quantitative measures
of assets, liabilities and certain off-balance sheet items.
The Company currently calculates and reports its capital ratios
under the standards commonly referred to as Basel I. The Company
has adopted Basel III in certain non-U.S. jurisdictions and is currently
taking steps toward Basel III advanced approaches implementation in
the U.S. As an advanced approaches institution, the Company will
report its 2014 capital ratios using Basel III capital definitions and
Basel I risk-weighted assets. Beginning in 2015, the Company will
report its capital ratios under the Basel III standardized approach to
risk-weighted assets.
During 2014, the Company will begin reporting its capital
adequacy standards on a parallel basis to its regulators under Basel
requirements for an advanced approaches institution. The parallel
period will continue until the Company receives regulatory approval
to exit parallel reporting and subsequently begin publicly reporting its
capital ratios using both Basel III standardized and advanced
approaches.
The following table presents the regulatory risk-based capital ratios
and leverage ratios for the Company and its significant bank
subsidiaries, as well as additional ratios widely utilized in the
marketplace, as of December 31, 2013.
TABLE 17: REGULATORY RISK-BASED CAPITAL AND LEVERAGE
RATIOS
Well-
Capitalized
Ratios(a)
Ratios as of
December 31,
2013
Risk-Based Capital
Tier 1 6%
American Express Company 12.5%
American Express Centurion Bank 19.9
American Express Bank, FSB 15.6
Total 10
American Express Company 14.4
American Express Centurion Bank 21.2
American Express Bank, FSB 17.7
Tier 1 Leverage 5%
American Express Company 10.9
American Express Centurion Bank 19.0
American Express Bank, FSB 17.5
Common Equity to Risk-Weighted Assets
American Express Company 15.1
Tier 1 Common Risk-Based(b)
American Express Company 12.5
Tangible Common Equity to Risk-Weighted
Assets(b)
American Express Company 12.0%
(a) As defined by the Federal Reserve.
(b) Refer to page 36 for a reconciliation of Tier 1 common equity and tangible
common equity, both non-GAAP measures.
The following provides definitions for the Company’s regulatory risk-
based capital ratios and leverage ratio, which are calculated as per
standard regulatory guidance, if applicable:
Risk-Weighted Assets — Assets are weighted for risk according to a
formula used by the Federal Reserve to conform to capital adequacy
guidelines. On- and off-balance sheet items are weighted for risk, with
off-balance sheet items converted to balance sheet equivalents, using
risk conversion factors, before being allocated a risk-adjusted weight.
The off-balance sheet items comprise a minimal part of the overall
calculation. Risk-weighted assets under Basel I as of December 31,
2013 were $129.5 billion.
35