XML 26 R12.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Reserves for Losses
6 Months Ended
Jun. 30, 2011
Reserves For Losses Cardmember Receivables And Loans Disclosure [Abstract]  
Reserve for Losses

5. Reserves for Losses

 

Reserves for losses relating to cardmember loans and receivables represent management's best estimate of the losses inherent in the Company's outstanding portfolio of loans and receivables. Management's evaluation process requires certain estimates and judgments.

 

Reserves for these losses are primarily based upon models that analyze portfolio performance and reflect management's judgment regarding overall reserve adequacy. The analytic models take into account several factors, including average losses and recoveries over an appropriate historical period. Management considers whether to adjust the analytic models for specific factors such as increased risk in certain portfolios, impact of risk management initiatives on portfolio performance and concentration of credit risk based on factors such as tenure, industry or geographic regions. In addition, management adjusts the reserves for losses on cardmember loans for other external environmental factors including leading economic and market indicators such as the unemployment rate, Gross Domestic Product (GDP), home price indices, non-farm payrolls, personal consumption expenditures index, consumer confidence index, purchasing managers index, bankruptcy filings and the legal and regulatory environment. Generally, due to the short-term nature of cardmember receivables, the impact of additional external factors on the inherent losses within the cardmember receivable portfolio is not significant. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of cardmember receivables or loans and net write-off coverage.

       

Cardmember loans and receivables balances are written off when management deems amounts to be uncollectible and is generally determined by the number of days past due, which is generally no later than 180 days past due. Cardmember loans and receivables in bankruptcy or owed by deceased individuals are written off upon notification. Recoveries are recognized on a cash basis.

 

Changes in Cardmember Receivables Reserve for Losses

The following table presents changes in the cardmember receivables reserve for losses for the six months ended June 30:

(Millions) 2011 2010
Balance, January 1 $386 $546
Additions:      
 Cardmember receivables provisions(a)  279  239
 Cardmember receivables provisions – other(b)  80  84
  Total provision  359  323
Deductions:      
 Cardmember receivables net write-offs(c)  (260)  (365)
 Cardmember receivables – other(d)  (70)  (64)
Balance, June 30 $415 $440
          

(a)       Represents loss provisions for cardmember receivables consisting of principal (resulting from authorized transactions) and fee reserve components.

(b)       Primarily represents loss provisions for cardmember receivables resulting from unauthorized transactions.

(c)       Represents write-offs consisting of principal (resulting from authorized transactions) and fee components, less recoveries of $171 million and $189 million for the six months ended June 30, 2011 and 2010, respectively.

(d)       These amounts include net write-offs of cardmember receivables resulting from unauthorized transactions and foreign currency translation adjustments.

Cardmember Receivables Evaluated Separately and Collectively for Impairment

The following table presents cardmember receivables evaluated separately and collectively for impairment and related reserves as of June 30, 2011 and December 31, 2010:

(Millions) 2011 2010
Cardmember receivables evaluated separately for impairment(a) $138 $114
Reserves on cardmember receivables evaluated separately for impairment(a) $83 $63
Cardmember receivables evaluated collectively for impairment $40,005 $37,152
Reserves on cardmember receivables evaluated collectively for impairment $332 $323

(a) Represents receivables modified in a TDR and related reserves. Refer to the Impaired Loans and Receivables discussion in Note 4 for further information.

 

Changes in Cardmember Loans Reserve for Losses

The following table presents changes in the cardmember loans reserve for losses for the six months ended June 30:

(Millions) 2011 2010
Balance, January 1 $3,646 $3,268
Reserves established for consolidation of a variable interest entity(a)    2,531
Total adjusted balance, January 1  3,646  5,799
Additions:      
 Cardmember loans provisions(b)  7  1,190
 Cardmember loans provisions – other(c)  49  38
  Total provision  56  1,228
Deductions:      
 Cardmember loans net write-offs – principal(d)  (992)  (1,902)
 Cardmember loans net write-offs – interest and fees(d)  (115)  (206)
 Cardmember loans – other(e)  (35)  (53)
Balance, June 30 $2,560 $4,866
          

(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)       Represents loss provisions for cardmember loans consisting of principal (resulting from authorized transactions), interest and fee reserves components.

(c)       Primarily represents loss provisions for cardmember loans resulting from unauthorized transactions.

(d)       Cardmember loans net write-offs – principal for the six months ended June 30, 2011 and 2010 include recoveries of $300 million and $280 million, respectively. Recoveries of interest and fees were de minimis.

(e)       These amounts include net write-offs related to unauthorized transactions and foreign currency translation adjustments.

Cardmember Loans Evaluated Separately and Collectively for Impairment

The following table presents cardmember loans evaluated separately and collectively for impairment and the related reserves as of June 30, 2011 and December 31, 2010:

(Millions) 2011 2010
Cardmember loans evaluated separately for impairment(a) $907 $1,087
Reserves on cardmember loans evaluated separately for impairment(a) $219 $279
Cardmember loans evaluated collectively for impairment(b) $57,842 $59,763
Reserves on cardmember loans evaluated collectively for impairment(b) $2,341 $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.