American Express 2009 Annual Report Download - page 86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
NOTE 6
INVESTMENT SECURITIES
Investment securities include debt and equity securities and
are classified as available-for-sale. The Company’s investment
securities, principally debt securities, are carried at fair value
on the Consolidated Balance Sheets with unrealized gains
(losses) recorded in accumulated other comprehensive (loss)
income, net of income tax provisions (benefits). Realized
gains and losses are recognized in results of operations upon
disposition of the securities using the specific identification
method on a trade date basis. Refer to Note 3 for a description
of the Company’s methodology for determining the fair value
of its investment securities.
The following is a summary of investment securities as of December 31:
(Millions) 2009 2008
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
State and municipal
obligations $ 6,457 $ 51 $ (258) $ 6,250 $ 6,628 $ 37 $ (1,034) $ 5,631
U.S. Government treasury
obligations 5,556 10 — 5,566 1,933 48 — 1,981
U.S. Government agency
obligations 6,699 47 (1) 6,745 3,141 44 — 3,185
Mortgage-backed securities(a) 179 3 (2) 180 73 2 — 75
Retained subordinated
securities(b) 3,088 512 (1) 3,599 1,328 — (584) 744
Equity securities(c) 100 430 — 530 200 344 — 544
Corporate debt securities(d) 1,333 14 (12) 1,335 230 1 (13) 218
Foreign government bonds
and obligations 90 2 — 92 84 1 (4) 81
Other(e) 40 — — 40 67 — — 67
Total $23,542 $ 1,069 $ (274) $ 24,337 $13,684 $ 477 $ (1,635) $ 12,526
(a) Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(b) Consists of investments in retained subordinated securities from the Company’s cardmember loan securitization program.
(c) Represents the Company’s investment in Industrial and Commercial Bank of China (ICBC).
(d) The December 31, 2009 balance includes $1.1 billion (cost basis) of corporate debt obligations issued under the Temporary Liquidity
Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).
(e) Other is primarily comprised of investments in various mutual funds.
OTHER-THAN-TEMPORARY IMPAIRMENT
Realized losses are recognized when management determines
that a decline in value is other-than-temporary. Such
determination requires judgment regarding the amount and
timing of recovery. The Company reviews and evaluates its
investments at least quarterly and more often, as market
conditions may require, to identify investments that have
indications of other-than-temporary impairments. The
determination of other-than-temporary impairment is a
subjective process, requiring the use of judgments and
assumptions. It is reasonably possible that a change in
estimate will occur in the near term relating to other-than-
temporary impairment. Accordingly, the Company considers
several factors when evaluating debt securities for an other-
than-temporary impairment including the determination of
the extent to which the decline in fair value of the security is
due to increased default risk for the specific issuer or market
interest rate risk. With respect to increased default risk, the
Company assesses the collectibility of principal and interest
payments by monitoring issuers’ credit ratings, related
changes to those ratings, specific credit events associated with
the individual issuers as well as the credit ratings of a financial
guarantor, where applicable, and the extent to which
amortized cost exceeds fair value and the duration and size of
that difference. With respect to market interest rate risk,
including benchmark interest rates and credit spreads, the
Company assesses whether it has the intent to sell the
securities, and whether it is more likely than not that the
Company will not be required to sell the securities before
recovery of any unrealized losses.
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