Citibank 2010 Annual Report Download - page 223

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Included in the Corporate and Consumer loan tables above are purchased
distressed loans, which are loans that have evidenced significant credit
deterioration subsequent to origination but prior to acquisition by Citigroup.
In accordance with SOP 03-3, the difference between the total expected cash
flows for these loans and the initial recorded investments is 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 Company’s purchased distressed loan
portfolio at December 31, 2010 was $392 million, net of an allowance of
$77 million as of December 31, 2010.
The changes in the accretable yield, related allowance and carrying amount net of accretable yield for 2010 are as follows:
In millions of dollars
Accretable
yield
Carrying
amount of loan
receivable Allowance
Beginning balance $ 27 $ 920 $ 95
Purchases (1) 1 130 —
Disposals/payments received (11) (594) —
Accretion (44) 44 —
Builds (reductions) to the allowance 128 — (18)
Increase to expected cash flows (2) 19 —
FX/other 17 (50) —
Balance at December 31, 2010 (2) $116 $ 469 $ 77
(1) The balance reported in the column “Carrying amount of loan receivable” consists of $130 million of purchased loans accounted for under the level-yield method and $0 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 $131 million at their acquisition dates.
(2) The balance reported in the column “Carrying amount of loan receivable” consists of $315 million of loans accounted for under the level-yield method and $154 million accounted for under the cost-recovery method.