American Express 2002 Annual Report Download - page 76

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I74 AXP INOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For variable rate loans that reprice within a year where there has been no significant change in counterparties’ creditworthi-
ness, fair values are based on carrying values.
The fair values of all other loans, except those with significant credit deterioration, are estimated using discounted cash flow
analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with
significant credit deterioration, fair values are based on estimates of future cash flows discounted at rates commensurate with
the risk inherent in the revised cash flow projections, or for collateral dependent loans on collateral values.
Financial Liabilities
Liabilities for which carrying values approximate fair values include customers’ deposits, Travelers Cheques outstanding,
accounts payable, short-term debt, certain other liabilities and derivative financial instruments.
Fair values of fixed annuities in deferral status are estimated as the accumulated value less applicable surrender charges and
loans. For annuities in payout status, fair value is estimated using discounted cash flows, based on current interest rates.
The fair value of these reserves excludes life insurance related elements of $1.4 billion in both 2002 and 2001.
For variable rate investment certificates that reprice within a year, fair values approximate carrying values. For other invest-
ment certificates, fair value is estimated using discounted cash flows based on current interest rates. The valuations are reduced
by the amount of applicable surrender charges and related loans.
For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt,
fair value is estimated using either quoted market prices or discounted cash flows based on the company’s current borrowing
rates for similar types of borrowing.
Fair values of separate account liabilities, after excluding life insurance related elements of $2.6 billion and $3.0 billion in 2002
and 2001, respectively, are estimated as the accumulated value less applicable surrender charges.
Note 13 SIGNIFICANT CREDIT CONCENTRATIONS
A credit concentration may exist if customers are involved in similar industries. The company’s customers operate in diverse
economic sectors. Therefore, management does not expect any material adverse consequences to the company’s financial posi-
tion to result from credit concentrations. Certain distinctions between categories require management judgment. The following
table represents the company’s maximum credit exposure by industry at December 31, 2002 and 2001:
December 31, (Dollars in millions) 2002 2001
Financial institutions(a) $ 16,635 $ 17,075
Individuals(b) 181,534 164,212
U.S. Government and agencies(c) 29,604 22,145
All other 25,733 18,018
Total $ 253,506 $ 221,450
Composition:
On-balance sheet 49% 49%
Off-balance sheet 51 51
Total 100% 100%
(a) Financial institutions primarily include banks, broker-dealers, insurance companies and savings and loan associations.
(b) Charge card products have no preset spending limit; therefore, the quantified credit amount includes only cardmember receivables recorded on the Consolidated Balance Sheets.
(c) U.S. Government and agencies represent the U.S. Government and its agencies, states and municipalities, and quasi-government agencies.