Citibank 2011 Annual Report Download - page 282

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27. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
The table below presents the carrying value and fair value of Citigroup’s
financial instruments. The disclosure excludes leases, affiliate investments,
pension and benefit obligations and insurance policy claim reserves.
In addition, contract-holder fund amounts exclude certain insurance
contracts. Also as required, the disclosure excludes the effect of taxes, any
premium or discount that could result from offering for sale at one time
the entire holdings of a particular instrument, excess fair value associated
with deposits with no fixed maturity and other expenses that would be
incurred in a market transaction. In addition, the table excludes the values
of non-financial assets and liabilities, as well as a wide range of franchise,
relationship and intangible values (but includes mortgage servicing rights),
which are integral to a full assessment of Citigroup’s financial position and
the value of its net assets.
The fair value represents management’s best estimates based on a
range of methodologies and assumptions. The carrying value of short-term
financial instruments not accounted for at fair value, as well as receivables
and payables arising in the ordinary course of business, approximates fair
value because of the relatively short period of time between their origination
and expected realization. Quoted market prices are used when available
for investments and for both trading and end-user derivatives, as well as
for liabilities, such as long-term debt, with quoted prices. For loans not
accounted for at fair value, cash flows are discounted at quoted secondary
market rates or estimated market rates if available. Otherwise, sales of
comparable loan portfolios or current market origination rates for loans
with similar terms and risk characteristics are used. Expected credit losses
are either embedded in the estimated future cash flows or incorporated
as an adjustment to the discount rate used. The value of collateral is also
considered. For liabilities such as long-term debt not accounted for at fair
value and without quoted market prices, market borrowing rates of interest
are used to discount contractual cash flows.
December 31, 2011 $ECEMBERææ
In billions of dollars
Carrying
value
Estimated
fair value
#ARRYINGæ
VALUE
%STIMATEDæ
FAIRæVALUE
Assets
)NVESTMENTS $ 293.4 $ 292.4    
&EDERALæFUNDSæSOLDæANDæSECURITIESæ
BORROWEDæORæPURCHASEDæUNDERæ
AGREEMENTSæTOæRESELL 275.8 275.8  
4RADINGæACCOUNTæASSETS 291.7 291.7  
,OANSææ 614.6 603.9  
/THERæFINANCIALæASSETSæ 257.5 257.2  
December 31, 2011 $ECEMBERææ
In billions of dollars
Carrying
value
Estimated
fair value
#ARRYINGæ
VALUE
%STIMATEDæ
FAIRæVALUE
Liabilities
$EPOSITS $ 865.9 $ 865.8    
&EDERALæFUNDSæPURCHASEDæANDæ
SECURITIESæLOANEDæORæSOLDæUNDERæ
AGREEMENTSæTOæREPURCHASE 198.4 198.4  
4RADINGæACCOUNTæLIABILITIES 126.1 126.1  
,ONGTERMæDEBT 323.5 313.8  
/THERæFINANCIALæLIABILITIESæ 146.2 146.2  
æ 4HEæCARRYINGæVALUEæOFæLOANSæISæNETæOFæTHEæAllowance for loan lossesæOFææBILLIONæFORæ
$ECEMBERæææANDææBILLIONæFORæ$ECEMBERæææ)NæADDITIONæTHEæCARRYINGæVALUESæ
EXCLUDEææBILLIONæANDææBILLIONæOFæLEASEæFINANCEæRECEIVABLESæATæ$ECEMBERæææANDæ
$ECEMBERæææRESPECTIVELY
æ )NCLUDESæCASHæANDæDUEæFROMæBANKSæDEPOSITSæWITHæBANKSæBROKERAGEæRECEIVABLESæREINSURANCEæ
RECOVERABLEæMORTGAGEæSERVICINGæRIGHTSæSEPARATEæANDæVARIABLEæACCOUNTSæANDæOTHERæFINANCIALæINSTRUMENTSæ
INCLUDEDæINæOther assets ONæTHEæ#ONSOLIDATEDæ"ALANCEæ3HEETæFORæALLæOFæWHICHæTHEæCARRYINGæVALUEæISæAæ
REASONABLEæESTIMATEæOFæFAIRæVALUE
æ )NCLUDESæBROKERAGEæPAYABLESæSEPARATEæANDæVARIABLEæACCOUNTSæSHORTTERMæBORROWINGSæANDæOTHERæ
FINANCIALæINSTRUMENTSæINCLUDEDæINæOther liabilitiesæONæTHEæ#ONSOLIDATEDæ"ALANCEæ3HEETæFORæALLæOFæWHICHæ
THEæCARRYINGæVALUEæISæAæREASONABLEæESTIMATEæOFæFAIRæVALUE
Fair values vary from period to period based on changes in a wide range
of factors, including interest rates, credit quality, and market perceptions of
value and as existing assets and liabilities run off and new transactions are
entered into.
The estimated fair values of loans reflect changes in credit status since
the loans were made, changes in interest rates in the case of fixed-rate
loans, and premium values at origination of certain loans. The carrying
values (reduced by the Allowance for loan losses) exceeded the estimated
fair values of Citigroup’s loans, in aggregate, by $10.7 billion and by
$21.2 billion at December 31, 2011 and December 31, 2010, respectively.
At December 31, 2011, the carrying values, net of allowances, exceeded the
estimated fair values by $8.4 billion and $2.3 billion for Consumer loans and
Corporate loans, respectively.
The estimated fair values of the Company’s corporate unfunded lending
commitments at December 31, 2011 and December 31, 2010 were liabilities
of $4.7 billion and $5.6 billion, respectively. The Company does not estimate
the fair values of consumer unfunded lending commitments, which are
generally cancelable by providing notice to the borrower.