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notes to consolidated financial statements
american express company
81
The following table presents changes in the other loans reserve
for losses for the years ended December 31:
(Millions) 2008 2007 2006
Balance, January 1 $ 45 $ 40 $ 38
Provisions 32 71 24
Net write-offs and other(a) (38) (66) (22)
Balance, December 31 $ 39 $ 45 $ 40
(a) Net write-offs for 2008, 2007, and 2006 include recoveries of $8 million,
$7 million, and $6 million, respectively.
Individually “impaired” loans are defined by GAAP as larger
balance or restructured loans for which it is probable that the
lender will be unable to collect all amounts due according to the
original contractual terms of the loan agreement.
Impaired loans include loans and receivables that have
been modified for borrowers who are experiencing financial
difficulties. The Company may modify cardmember loans
and receivables and such modifications may include reducing
note 5
investment securities
The following is a summary of investment securities, all of which are classified as available-for-sale at December 31:
(Millions) 2008 2007
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
State and municipal obligations $ 6,552 $ 37 $(1,034) $ 5,555 $ 6,795 $102 $(136) $ 6,761
U.S. Government and agencies obligations(a) 5,074 92 — 5,166 5,034 76 — 5,110
Mortgage-backed securities(b) 73 2 — 75 79 1 (1) 79
Retained subordinated securities(c) 1,328 — (584) 744 78 —— 78
Equity securities(d) 200 344 — 544 ——— —
Corporate debt securities 230 1 (13) 218 285 1 (4) 282
Foreign government bonds and obligations 84 1 (4) 81 51 2 —53
Other(e) 143 — — 143 851 — —851
Total $13,684 $477 $(1,635) $12,526 $13,173 $182 $(141) $13,214
(a) U.S. Government and agency obligations include U.S. Treasury securities and senior debentures issued by Government Sponsored Enterprises (Fannie Mae
and Freddie Mac). At December 31, 2008 and 2007, these amounts included $3.2 billion and $3.1 billion, respectively, of securities issued by Fannie Mae and
Freddie Mac. At December 31, 2008, there were no securities loaned out on an overnight basis to financial institutions under the securities lending program. At
December 31, 2007 there were $970 million of securities loaned out on an overnight basis to financial institutions under the securities lending program.
(b) Represents the amount of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Including the $213 million of mortgage and other
asset-backed securities discussed in Note 2, the Company’s total exposure to mortgage and other asset-backed securities is $288 million.
(c) Consists of investments in retained subordinated securities from the Company’s securitization programs.
(d) In 2006, the Company acquired a non-controlling interest in the common stock of Industrial Commercial Bank of China (ICBC) for $200 million. The Company
is restricted from selling 50 percent of this investment until April 2009 and the remaining 50 percent until October 2009. Upon falling within 12 months of the
restriction termination dates (50 percent in April 2008 and 50 percent in October 2008), the investment was reclassified from other assets to available-for-sale
securities at fair value. Changes in the securities fair value from its cost at date of acquisition are recorded in other comprehensive income in 2008.
(e) Included in other are short-term money market and state tax exempt securities (estimated fair value totaling $127 million and $833 million at December 31, 2008
and 2007, respectively) and other securities, primarily mutual funds.
the interest rate/delinquency fees on the loans/receivables
and/or placing the cardmember on a fixed payment plan not
exceeding 60 months. If the cardmember does not comply
with the modified terms, then the loan or receivable agreement
reverts back to its original terms. Under these programs,
approximately $821 million and $175 million of cardmember
loans and receivables outstanding at December 31, 2008 and
2007, respectively, have been modified. In accordance with
the Company’s methodology for determining its reserve for
losses, the Company had provided adequate reserves for these
cardmember loans or receivables, and therefore, modifications
to these cardmember loans or receivables had no incremental
impact on the Company’s reserve for losses.
Loans amounting to $927 million and $707 million at
December 31, 2008 and 2007, respectively, were past due
90 days or more and still accruing interest. The Company’s
policy is to accrue interest through the date of charge-off (i.e.
180 days past due).