Citibank 2008 Annual Report Download - page 170

The following table presents information about impaired loans:
In millions of dollars at year end 2008 2007 2006
Impaired corporate loans $ 9,536 $1,735 $458
Impaired consumer loans (1) 9,011 241 360
Total impaired loans (2) $18,547 $1,976 $818
Impaired corporate loans with valuation allowances (3) $ 9,531 $1,724 $439
Impaired consumer loans with valuation allowances 8,573 ——
Impaired corporate valuation allowance (3) $ 2,698 $ 388 $122
Impaired consumer valuation allowance 2,373 ——
Total valuation allowances (3)(4) $ 5,071 $ 388 $122
During the year
Average balance of impaired corporate loans (3) $ 4,163 $1,050 $767
Average balance of impaired consumer loans 5,266 ——
Interest income recognized on
Impaired corporate loans $49$ 101 $ 63
Impaired consumer loans $ 276 ——
(1) Prior to 2008, the Company’s financial accounting systems did not separately track impaired smaller-
balance, homogeneous Consumer loans whose terms were modified due to the borrowers’ financial
difficulties and it was determined that a concession was granted to the borrower. During 2008, such
modified impaired Consumer loans amounted to $8.151 billion. However, information derived from the
Company’s risk management systems indicates that such modifications were approximately $12.3
billion, $7.0 billion and $4.7 billion at December 31, 2008, 2007 and 2006, respectively.
(2) Excludes loans purchased for investment purposes.
(3) Includes amounts related to Consumer loans not separately tracked in the Company financial
accounting systems prior to 2008.
(4) Included in the Allowance for loan losses.
In addition, included in the loan table are purchased distressed loans,
which are loans that have evidenced significant credit deterioration
subsequent to origination but prior to acquisition by Citigroup. In
conforming to the requirements of Statement of Position No. 03-3,
“Accounting for Certain Loans or Debt Securities Acquired in a Transfer”
(SOP 03-3), which became effective in 2005, these purchased loans were
reclassified from Other assets to Loans.
In accordance with SOP 03-3, the difference between the total expected
cash flows for these loans and the initial recorded investments must be
recognized in income over the life of the loans using a level yield.
Accordingly, these loans have been excluded from the impaired loan
information presented above. In addition, per SOP 03-3, subsequent
decreases to the expected cash flows for a purchased distressed loan require a
build of an allowance so the loan retains its level yield. However, increases in
the expected cash flows are first recognized as a reduction of any previously
established allowance and then recognized as income prospectively over the
remaining life of the loan by increasing the loan’s level yield. Where the
expected cash flows cannot be reliably estimated, the purchased distressed
loan is accounted for under the cost recovery method.
The carrying amount of the purchased distressed loan portfolio at
December 31, 2008 was $1,510 million gross of an allowance of $122 million.
The changes in the accretable yield, related allowance and carrying amount net of accretable yield for 2008 are as follows:
In millions of dollars
Accretable
yield
Carrying
amount of loan
receivable Allowance
Beginning balance (1) $ 219 $ 2,373 $ 76
Purchases (2) 38 407 —
Disposals/payments received — (1,457) —
Accretion (171) 171 —
Builds (reductions) to the allowance 4—46
Increase to expected cash flows —42—
FX/Other 2 (26) —
Balance, December 31, 2008 (3) $ 92 $ 1,510 $122
(1) Reclassified to conform to the current period’s presentation.
(2) The balance reported in the column “Carrying amount of loan receivable” consists of $114 million of purchased loans accounted for under the level-yield method and $293 million under the cost recovery method.
These balances represent the fair value of these loans at their acquisition date. The related total expected cash flows for the level-yield loans were $151 million at their acquisition dates.
(3) The balance reported in the column “Carrying amount of loan receivable” consists of $995 million of loans accounted for under the level-yield method and $515 million accounted for under the cost recovery method.
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