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Fair Values | 12 Months Ended
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Dec. 31, 2015
Disclosure Text Block Abstract |
Fair Values | NOTE 15 Fair Values Fair value is defined as the price that would be re quired 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 t he specific asset or liability. GAAP provide s for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows: Level 1 ― Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access. Level 2 ― Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantiall y 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. Level 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 d id 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, 2015 and 2014, although the disclosed fair va lue 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 disclose s the fair value measurement at the beginning of the reporting period during which the transfer occurred. For the years ended December 31, 2015 and 2014, there were no significant transfers between levels. Financial Assets and Financial Liabilities Carried at Fair V alue 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:
|  |  | 2015 |  | 2014
(Millions) |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities:(a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Equity securities |  | $ | 1 |  | $ | 1 |  | $ | ― |  | $ | ― |  | $ | 1 |  | $ | 1 |  | $ | ― |  | $ | ―
| Debt securities and other |  |  | 3,758 |  |  | 409 |  |  | 3,349 |  |  | ― |  |  | 4,430 |  |  | 350 |  |  | 4,080 |  |  | ―
Derivatives(a) |  |  | 544 |  |  | ― |  |  | 545 |  |  | ― |  |  | 991 |  |  | ― |  |  | 991 |  |  | ―
Total assets |  |  | 4,303 |  |  | 410 |  |  | 3,894 |  |  | ― |  |  | 5,422 |  |  | 351 |  |  | 5,071 |  |  | ―
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives(a) |  |  | 201 |  |  | ― |  |  | 201 |  |  | ― |  |  | 164 |  |  | ― |  |  | 164 |  |  | ―
Total liabilities |  | $ | 201 |  | $ | ― |  | $ | 201 |  | $ | ― |  | $ | 164 |  | $ | ― |  | $ | 164 |  | $ | ―
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. When quoted prices of identical investment securities in active market s are not available, the fair values for the Company’s investment securities are obtained primarily from pricing services engaged by the Company, and the Company receives one price for each security. The fair values provided by the pricing services are estimated using pricing models, where the inputs to those models are based on observable market inputs or recent trades of similar securities. Such investmen t securities are classified within Level 2 of the fair value hierarchy. The inputs to the valuation techniques applied by the pricing services vary depending on the type of security being priced but are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and broker-dealer quotes, all with reasonable levels of transparency. The pricing services did not apply any adjustments to the pricing models used. In addition, the Company did not apply any adjustments to prices received from the pricing services. The Company reaffirms its understanding of the valuation techniques used by its pricing services at least annually. In addition, the Company corroborates the prices provided by its pricing services for reason ableness by comparing the prices from the respective pricing services to valuations obtained from different pricing sources. In instances where price discrepancies are identified between different pricing sources, the Company evaluates such discrepancies t o ensure that the prices used for its valuation represent the fair value of the underlying investment securities. Refer to Note 5 for additional fair value information. Derivative Financial Instruments The fair value of the Company’s derivative financ ial instruments is estimated by third-party valuation service s that use proprietary pricing models or by internal pricing models, where the inputs to those models are readily observable from actively quoted markets. The pricing models used are consistently applied and reflect the contractual terms of the derivatives as described below. The Company reaffirms its understanding of the valuation techniques used by the third-party valuation services at least annually. The Company’s derivative instruments are cla ssified within Level 2 of the fair value hierarchy. The fair value of the Company’s interest rate swaps is determined based on a discounted cash flow method using the following significant inputs: the contractual terms of the swap such as the notional amou nt, fixed coupon rate, floating coupon rate (based on interbank rates consistent with the frequency and currency of the interest cash flows) and tenor, as well as discount rates consistent with the underlying economic factors of the currency in which the c ash flows are denominated. The fair value of foreign exchange forward contracts is determined based on a discounted cash flow method using the following significant inputs: the contractual terms of the forward contracts such as the notional amount, maturi ty dates and contract rate, as well as relevant foreign currency forward curves, and discount rates consistent with the underlying economic factors of the currency in which the cash flows are denominated. Credit valuation adjustments are necessary when the market parameters, such as a benchmark curve, used to value derivatives are not indicative of the credit quality of the Company or its counterparties. The Company considers the counterparty credit risk by applying an observable forecasted default rate to the c urrent exposure. Refer to Note 14 for additional fair value information. Financial Assets and Financial Liabilities Carried at Other Than Fair Value The following table summarizes the estimated fair values of the Company’s financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of December 31, 2015 and 2014. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2015 and 2014, and require management judgment. These figure s may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.
|  |  |  |  |  | Carrying |  |  | Corresponding Fair Value Amount |
2015 (Billions) |  |  | Value |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Financial assets for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Cash and cash equivalents |  | $ | 23 |  | $ | 23 |  | $ | 22 |  | $ | 1 | (a) | $ | ― |
|  |  | Other financial assets(b) |  |  | 47 |  |  | 47 |  |  | ― |  |  | 47 |  |  | ― |
| Financial assets carried at other than fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Card Member loans and receivables HFS(d) |  |  | 15 |  |  | 15 |  |  | ― |  |  | ― |  |  | 15 |
|  |  | Loans, net |  |  | 59 |  |  | 60 | (c) |  | ― |  |  | ― |  |  | 60 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Financial liabilities for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  |  | 67 |  |  | 67 |  |  | ― |  |  | 67 |  |  | ― |
| Financial liabilities carried at other than fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Certificates of deposit(e) |  |  | 14 |  |  | 14 |  |  | ― |  |  | 14 |  |  | ― |
|  |  | Long-term debt |  | $ | 48 |  | $ | 49 | (c) | $ | ― |  | $ | 49 |  | $ | ― |
|  |  |  |  |  | Carrying |  |  | Corresponding Fair Value Amount |
2014 (Billions) |  |  | Value |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Financial assets for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Cash and cash equivalents |  | $ | 22 |  | $ | 22 |  | $ | 21 |  | $ | 1 | (a) | $ | ― |
|  |  | Other financial assets(b) |  |  | 48 |  |  | 48 |  |  | ― |  |  | 48 |  |  | ― |
| Financial assets carried at other than fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Loans, net |  |  | 70 |  |  | 71 | (c) |  | ― |  |  | ― |  |  | 71 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Financial liabilities for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  |  | 61 |  |  | 61 |  |  | ― |  |  | 61 |  |  | ― |
| Financial liabilities carried at other than fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Certificates of deposit(e) |  |  | 8 |  |  | 8 |  |  | ― |  |  | 8 |  |  | ― |
|  |  | Long-term debt |  | $ | 58 |  | $ | 60 | (c) | $ | ― |  | $ | 60 |  | $ | ― |
Reflects time deposits. Includes accounts receivable (including fair valu es of Card Member receivables of $6.7 billion and $7.0 billion held by a consolidated VIE as of December 31, 2015 and 2014, respectively), restricted cash and other miscellaneous assets. Includes f air valu es of Card Member loans of $23.5 billion and $29.9 billion, and long-term debt of $13.6 billion and $19.5 billion held by consolidated VIEs as of December 31, 2015 and 2014, respectively. Does not include any fair value associated with the Card Member account relationships. Refer to Note 2 for additional information. Presented as a component of customer deposits on the Consolidated Balance Sheets. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of December 31, 2015, and require management judgment. These figures may not be indicative of future fair values. The fair value of the Company cannot be reliably estimated by aggregating the amounts presented. Valuation Techniques Used in the Fair Value Measurement of Financial Assets and Financial Liabilities Carried at Other Than Fair Value For the financial assets and liabilities that are not required to be carried at fair value on a recurring basis (categorized in the valuation hierarchy table) the Company applies the follow ing valuation techniques to measure fair value: Financial Assets For Which Carrying Values Equal O r Approximate Fair Value Financial assets for which carrying values equal or approximate fair value include cash and cash equivalents, Card Member receivabl es, accrued interest and certain other assets. For these assets, the carrying values approximate fair value because they are short term in duration, have no defined maturity or have a market-based interest rate. Financial Assets Carried At Other Than Fair Value Card Member loans and receivables HFS As described in Note 2, Card Member loans and receivables HFS are recorded at the lower of cost or fair value on the Consolidated Balance Sheets. As a result, the estimation of fair value included in the pre vious table does not reflect any fair value associated with the Card Member account relationships and follows the technique described under Loans, net below. Loans, net Loans are recorded at historical cost, less reserves, on the Consolidated Balance Sh eets. In estimating the fair value for the Company’s loans the Company uses a discounted cash flow model. Due to the lack of a comparable whole loan sales market for similar credit card loan s and the lack of observable pricing inputs thereof, the Company u ses various inputs derived from an equivalent securitization market to estimate fair value. Such inputs include projected income (inclusive of future interest payments and late fee revenue), estimated pay-down rates, discount rates and relevant credit cost s. The valuation does not include economic value attributable to future receivables generated by the accounts associated with the loans. Financial Liabilities For Which Carrying Values Equal Or Approximate Fair Value Financial liabilities for which carrying values equal or approximate fair value include accrued interest, customer deposits (excluding certificates of deposit, which are described further below), Trave lers Cheques and other prepaid products outstanding, accounts payable, short-term borro wings and certain other liabilities for which the carrying values approximate fair value because they are short term in duration, have no defined maturity or have a market-based interest rate. Financial Liabilities Carried At Other Than Fair Value Certi ficates of Deposit Certificates of deposit (CDs) are recorded at their historical issuance cost on th e Consolidated Balance Sheets. Fair value is estimated using a discounted cash flow methodology based on the future cash flows and the discount rate that r eflects the Company’s current rates for similar types of CDs within similar markets. Long-term Debt Long-term debt is recorded at historical issuance cost on the Consolidated Balance Sheets adjusted for the impact of fair value hedge accounting on certai n fixed-rate notes and current translation rates for foreign-denominated debt. The fair value of the Company’s long-term debt is measured using quoted offer prices when quoted market prices are available. If quoted market prices are not available, the fair value is determined by discounting the future cash flows of each instrument at rates currently observed in publicly-traded debt markets for debt of similar terms and credit risk. For long-term debt, where there are no rates currently observable in publicl y traded debt markets of similar terms and comparable credit risk, the Company uses market interest rates and adjusts those rates for necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the C ompany considers credit default swap spreads, bond yields of other long-term debt offered by the Company, and interest rates currently offered to the Company for similar debt instruments of comparable maturities. Nonrecurring Fair Value Measurements The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicabl e if determined to be impaired. During the fourth q uarter of 2015, the Company recorded a $384 million impairment charge, co nsisting of a $219 million write-down of the entire balance of goodwill in the Prepaid Services business and a $165 million write-d own of technology and other assets to fair value, which was insignificant for the year ended December 31, 2015. Refer to Note 2 for a description of the Company’s 2015 impairment charges. During the year ended December 31, 2014, the Company did not have any material assets that were measured at fair value due to impairment.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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