American Express 2015 Annual Report Download - page 105

Interest expense — Includes interest incurred primarily to fund Card Member receivables and loans, general corporate purposes
and liquidity needs, and is recognized as incurred. Interest expense is divided principally into two categories: (i) deposits, which
primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest
expense on our long-term financing and short-term borrowings, (e.g., commercial paper, federal funds purchased, bank overdrafts and
other short-term borrowings), as well as the realized impact of derivatives hedging interest rate risk on our long-term debt.
Interest income — Includes (i) interest on loans, (ii) interest and dividends on investment securities and (iii) interest income on
deposits with banks and other.
Interest on loans — Assessed using the average daily balance method for Card Member loans and loans HFS. Unless the loan is
classified as non-accrual, interest is recognized based upon the principal amount outstanding in accordance with the terms of the
applicable account agreement until the outstanding balance is paid or written off.
Interest and dividends on investment securities — Primarily relates to our performing fixed-income securities. Interest income is
recognized as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other
payments, so a constant rate of return is recognized on the outstanding balance of the related investment security throughout its term.
Amounts are recognized until securities are in default or when it is likely that future interest payments will not be made as scheduled.
Interest income on deposits with banks and other — Recognized as earned, and primarily relates to the placement of cash in excess
of near-term funding requirements in interest-bearing time deposits, overnight sweep accounts, and other interest-bearing demand
and call accounts.
Liquidity Coverage Ratio — Represents the proposed minimum standards being established by the regulatory agencies as a
measure to determine whether the regulated entity has sufficient liquidity to meet liquidity needs in periods of financial and economic
stress.
Merchant acquisition — Represents our process of entering into agreements with merchants to accept American Express-
branded cards.
Net card fees — Represents the card membership fees earned during the period. These fees are recognized as revenue over the
covered card membership period (typically one year), net of the provision for projected refunds for Card Membership cancellation and
deferred acquisition costs.
Net interest yield on Card Member loans — Net interest yield on Card Member loans is computed by dividing adjusted net interest
income by adjusted average loans, computed on an annualized basis. The calculation of net interest yield on Card Member loans
includes interest that is deemed uncollectible. Reserves and net write-offs related to uncollectible interest are recorded through
provisions for losses, which are not included in the net interest yield calculation.
Net loss ratio — Represents the ratio of GCS charge card write-offs, consisting of principal (resulting from authorized transactions)
and fee components, less recoveries, on Card Member receivables expressed as a percentage of gross amounts billed to corporate
Card Members.
Net write-off rate — principal only — Represents the amount of Card Member loans or USCS and ICS Card Member receivables
written off, consisting of principal (resulting from authorized transactions), less recoveries, as a percentage of the average loan balance
or USCS and ICS average receivables balance during the period.
Net write-off rate — principal, interest and fees — Includes, in the calculation of the net write-off rate, amounts for interest and fees
in addition to principal for Card Member loans, and fees in addition to principal for USCS and ICS Card Member receivables.
Operating expenses — Represents salaries and employee benefits, professional services, occupancy and equipment,
communications and other expenses.
Return on average equity — Calculated by dividing one-year period net income by one-year average total shareholders’ equity.
Return on average segment capital — Calculated by dividing one-year period segment income by one-year average segment
capital.
Return on average tangible segment capital — Computed in the same manner as the return on average segment capital, except the
computation of average tangible segment capital excludes from average segment capital, average goodwill and other intangibles.
Segment capital — Represents the capital allocated to a segment based upon specific business operational needs, risk measures,
and regulatory capital requirements.
Total cards-in-force — Represents the number of cards that are issued and outstanding. Non-proprietary cards-in-force includes
all cards that are issued and outstanding under network partnership agreements, except for retail cobrand Card Member accounts
which have no out-of-store spending activity during the prior 12-month period.
Travel sales — Represents the total dollar amount of travel transaction volume for airline, hotel, car rental, and other travel
arrangements made for consumers and small businesses. We earn revenue on these transactions by charging a transaction or
management fee.
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