American Express 2013 Annual Report Download - page 82

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gross unrealized losses are attributed to overall wider credit
spreads for state and municipal securities, wider credit spreads for
specific issuers, adverse changes in market benchmark interest rates,
or a combination thereof, all as compared to those prevailing when the
investment securities were acquired.
Overall, for the investment securities in gross unrealized loss
positions identified above, (i) the Company does not intend to sell the
investment securities, (ii) it is more likely than not that the Company
will not be required to sell the investment securities before recovery of
the unrealized losses, and (iii) the Company expects that the
contractual principal and interest will be received on the investment
securities. As a result, the Company recognized no other-than-
temporary impairment during the periods presented.
SUPPLEMENTAL INFORMATION
Gross realized gains and losses on the sales of investment securities,
included in other non-interest revenues, were as follows:
(Millions) 2013 2012 2011
Gains $ 136 $ 127 $ 16
Losses —(1) —
Total $ 136 $ 126 $ 16
Contractual maturities of investment securities, excluding equity
securities and other securities, as of December 31, 2013 were as
follows:
(Millions) Cost
Estimated
Fair Value
Due within 1 year $ 505 $ 505
Due after 1 year but within 5 years 489 496
Due after 5 years but within 10 years 215 224
Due after 10 years 3,647 3,619
Total $ 4,856 $ 4,844
The expected payments on state and municipal obligations and
mortgage-backed securities may not coincide with their contractual
maturities because the issuers have the right to call or prepay certain
obligations.
NOTE 7
ASSET SECURITIZATIONS
The Company periodically securitizes Card Member receivables and
loans arising from its card business through the transfer of those assets
to securitization trusts. The trusts then issue securities to third-party
investors, collateralized by the transferred assets.
Card Member receivables are transferred to the American Express
Issuance Trust II (the Charge Trust II).7Card Member loans are
7During 2013, the Company transferred Card Member receivables from
the American Express Issuance Trust (the Charge Trust) to the Charge
Trust II, collectively referred to as the Charge Trusts, and as such, the
Charge Trust was dissolved, and the Company intends to utilize the
Charge Trust II for securitization of Card Member receivables.
transferred to the American Express Credit Account Master Trust (the
Lending Trust). The Charge Trust II and the Lending Trust are
consolidated by American Express Travel Related Services Company,
Inc. (TRS), which is a consolidated subsidiary of the Company. The
trusts are considered VIEs as they have insufficient equity at risk to
finance their activities, which are to issue securities that are
collateralized by the underlying Card Member receivables and loans.
TRS, in its role as servicer of the Charge Trust II and the Lending
Trust, has the power to direct the most significant activity of the
trusts, which is the collection of the underlying Card Member
receivables and loans in the trusts. In addition, TRS, excluding its
consolidated subsidiaries, owns approximately $1.1 billion of
subordinated securities issued by the Lending Trust as of
December 31, 2013. These subordinated securities have the obligation
to absorb losses of the Lending Trust and provide the right to receive
benefits from the Lending Trust, both of which are significant to the
VIE. TRS’ role as servicer for the Charge Trust II does not provide it
with a significant obligation to absorb losses or a significant right to
receive benefits. However, TRS’ position as the parent company of the
entities that transferred the receivables to the Charge Trust II makes it
the party most closely related to the Charge Trust II. Based on these
considerations, TRS is the primary beneficiary of both the Charge
Trust II and the Lending Trust.
The debt securities issued by the Charge Trust II and the Lending
Trust are non-recourse to the Company. Securitized Card Member
receivables and loans held by the Charge Trust II and the Lending
Trust are available only for payment of the debt securities or other
obligations issued or arising in the securitization transactions. The
long-term debt of each trust is payable only out of collections on their
respective underlying securitized assets.
There was approximately $2 million and $3 million of restricted
cash held by the Charge Trusts as of December 31, 2013 and 2012,
respectively, and approximately $56 million and $73 million of
restricted cash held by the Lending Trust as of December 31, 2013 and
2012, respectively, included in other assets on the Company’s
Consolidated Balance Sheets. These amounts relate to collections of
Card Member receivables and loans to be used by the trusts to fund
future expenses and obligations, including interest payable on investor
certificates, credit losses and upcoming debt maturities.
Under the respective terms of the Charge Trust II and the Lending
Trust agreements, the occurrence of certain triggering events
associated with the performance of the assets of each trust could result
in payment of trust expenses, establishment of reserve funds, or in a
worst-case scenario, early amortization of investor certificates. During
the year ended December 31, 2013, no such triggering events
occurred.
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