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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 AOCI, 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) Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
2010 2009
State and municipal obligations $ 6,140 $ 24 $ (367) $ 5,797 $ 6,457 $ 51 $ (258) $ 6,250
U.S. Government agency obligations 3,402 12 (1) 3,413 6,699 47 (1) 6,745
U.S. Government treasury obligations 2,450 6 — 2,456 5,556 10 — 5,566
Corporate debt securities
(a)
1,431 15 (1) 1,445 1,333 14 (12) 1,335
Retained subordinated securities
(b)
—— — —3,088 512 (1) 3,599
Mortgage-backed securities
(c)
272 6 (2) 276 179 3 (2) 180
Equity securities
(d)
98 377 — 475 100 430 — 530
Foreign government bonds and obligations 95 4 — 99 90 2 — 92
Other
(e)
49 — — 49 40 — — 40
Total $ 13,937 $ 444 $ (371) $ 14,010 $ 23,542 $ 1,069 $ (274) $ 24,337
(a) The December 31, 2010 and 2009 balances include, on a cost basis, $1.3 billion and $1.1 billion, respectively, of corporate debt obligations issued under the Temporary
Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).
(b) As a result of the adoption of new GAAP effective January 1, 2010, the Company no longer presents the retained subordinated securities within its Consolidated
Financial Statements in periods subsequent to December 31, 2009. The December 31, 2009, balance consists of investments in retained subordinated securities issued
by unconsolidated VIEs related to the Company’s cardmember loan securitization programs. Refer to Note 7 for further details.
(c) Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
(d) Represents the Company’s investment in Industrial and Commercial Bank of China (ICBC).
(e) Other is comprised of investments in various mutual funds.
OTHER-THAN-TEMPORARY IMPAIRMENT
Realized losses are recognized upon management’s
determination that a decline in fair value is other than
temporary. The determination of other-than-temporary
impairment is a subjective process, requiring the use of
judgments and assumptions 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. It is reasonably possible
that a change in estimate could occur in the near term
relating to other-than-temporary impairment. Accordingly,
the Company considers several factors when evaluating debt
securities for 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.
83
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS