The following table presents changes in Reserves for Credit Losses related to loans: (Millions) 2002 2001 Balance, January 1 $ 993 $ 796 Provision for credit losses 1,526 1,415 Write-offs (1,361) (1,296) Recoveries of amounts previously written-off 68 78 Balance, December 31 $ 1,226 $ 993 The company, through TRS, securitizes U.S. cardmember loan balances and, in large part, subsequently transfers the interests in those assets’ cash flows to third party investors. These loan balances are comprised of existing balances as of the date of the initial securitization, as well as all future charges on these accounts. The company accounts for these transactions as sales under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The company continues to service the accounts and receives a fee for doing so; the fair value and carrying amounts of these future servicing fees, net of related costs, are not material. Each new sale of securitized loans results in the removal of the sold assets from the balance sheet, a reduction in a previously established reserve for credit losses and the recognition of the present value of the future net cash flows (i.e., finance charge income less interest paid to investors, credit losses and servicing fees) related to the sold assets. This present value amount represents a retained interest known as an interest-only strip. For the securitized assets whose interests are not sold, the company retains the rights to all their related cash flows. Those assets, therefore, are not taken off the balance sheet and are known as seller’s interests. In some instances, the company, through affiliates, invests in subordinated interests issued by the securitization trust; these are recorded as Investments classified as Available-for-Sale. The gain or loss recorded when loans are securitized is the difference between the proceeds of sale and the book basis of the assets sold. That book basis is determined by allocating the carrying amount of the assets, net of applicable reserve for losses, between the assets sold and the retained interests based on their relative fair values. Fair values are based on market prices at date of transfer for assets sold and on the estimated present value of future cash flows for retained interests. During 2002, 2001 and 2000, the company sold $4.6 billion, $4.3 billion and $4.0 billion, respectively, of U.S. cardmember loans, or $4.2 billion, $3.9 billion and $3.6 billion net of investments in subordinated interests. During 2002 and 2001, $2.0 bil- lion and $1.0 billion, respectively, of investor certificates that were previously issued by the securitization trust matured. The pretax gains on these securitizations were $136 million, $155 million and $142 million, respectively. Cash flows from interest- only strips as well as servicing revenue, which is 2 percent of principal, are recorded in securitization income. As of December 31, 2002, $15.4 billion of U.S. cardmember loans had been sold, net of investments in subordinated interests of $1.5 billion. The value of retained interests is primarily subject to changes in credit risk, average loan life and interest rates on the trans- ferred financial assets. Key economic assumptions used in measuring the retained interests resulting from securitizations during 2002 and 2001 were as follows (rates are per annum): Note 4 SECURITIZED LOANS AND RECEIVABLES 2002 2001 Average loan life (months) 5 – 6 6 – 8 Expected credit losses 5.05% – 6.03% 4.54% – 6.01% Cash flows from retained interests discounted at 2.0% – 12.0% 3.0% – 12.0% Returns to investors  Variable Contractual spread over Contractual spread over LIBOR ranging from .04% to 1.05% LIBOR ranging from .09% to 1.05% Fixed 5.5% – 7.4% 5.5% – 7.4% I 66 AXP I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS