Citibank 2012 Annual Report Download - page 233

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Purchased Distressed Loans
Included in the Corporate and Consumer loan outstanding 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 (codified as ASC 310-30), the
difference between the total expected cash flows for these loans and the
initial recorded investment is recognized in income over the life of the
loans using a level yield. Accordingly, these loans have been excluded from
the impaired loan table information presented above. In addition, per
SOP 03-3, subsequent decreases in 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, 2012 was $440 million, net of an allowance of
$98 million.
The changes in the accretable yield, related allowance and carrying amount net of accretable yield for 2012 are as follows:
In millions of dollars
Accretable
yield
Carrying
amount of loan
receivable Allowance
Balance at December 31, 2011 $ 2 $ 511 $68
Purchases (1) 15 269 —
Disposals/payments received (6) (171) (6)
Accretion — — —
Builds (reductions) to the allowance 9 — 41
Increase to expected cash flows 5 1 —
FX/other (3) (72) (5)
Balance at December 31, 2012 (2) $22 $ 538 $98
(1) The balance reported in the column “Carrying amount of loan receivable” consists of $269 million of purchased loans accounted for under the level-yield method and $0 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 $285 million at their acquisition dates.
(2) The balance reported in the column “Carrying amount of loan receivable” consists of $524 million of loans accounted for under the level-yield method and $14 million accounted for under the cost-recovery method.