American Express 2014 Annual Report Download - page 104

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15
FAIR VALUES
Fair value is defined as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the
specific asset or liability.
GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
폷Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.
폷Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the asset or liability, including:
– Quoted prices for similar assets or liabilities in active markets;
– Quoted prices for identical or similar assets or liabilities in markets that are not active;
– Inputs other than quoted prices that are observable for the asset or liability; and
– Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
폷Level 3 — Inputs that are unobservable and reflect the Company’s own estimates about the estimates market participants would use in
pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding
the timing and amount of expected cash flows). The Company did not measure any financial instruments presented on the Consolidated
Balance Sheets at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2014
and 2013, although the disclosed fair value of certain assets that are not carried at fair value, as presented later in this Note, are classified
within Level 3.
The Company monitors the market conditions and evaluates the fair value hierarchy levels at least quarterly. For any transfers in and out of
the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during
which the transfer occurred. For the year ended December 31, 2014, there were no significant transfers between levels.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT FAIR VALUE
The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis,
categorized by GAAP’s valuation hierarchy (as described in the preceding paragraphs), as of December 31:
2014 2013
(Millions) Total Level 1 Level 2 Total Level 1 Level 2
Assets:
Investment securities:(a)
Equity securities $1$1$—$124$124$ —
Debt securities and other 4,430 350 4,080 4,892 320 4,572
Derivatives(a) 991 — 991 701 — 701
Total assets 5,422 351 5,071 5,717 444 5,273
Liabilities:
Derivatives(a) 164 — 164 213 — 213
Total liabilities $164$ —$164$ 213 $ — $ 213
(a) Refer to Note 5 for the fair values of investment securities and to Note 14 for the fair values of derivative assets and liabilities, on a further disaggregated basis.
VALUATION TECHNIQUES USED IN THE FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES CARRIED AT
FAIR VALUE
For the financial assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table above) the
Company applies the following valuation techniques:
Investment Securities
When available, quoted prices of identical investment securities in active markets are used to estimate fair value. Such investment securities
are classified within Level 1 of the fair value hierarchy.
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