Citibank 2014 Annual Report Download - page 165

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In the case of a repurchase of a credit-impaired SOP 03-3 loan, the
difference between the loan’s fair value and unpaid principal balance at the
time of the repurchase is recorded as a utilization of the repurchase reserve.
Make-whole payments to the investor are also treated as utilizations and
charged directly against the reserve. The repurchase reserve is estimated
when Citi sells loans (recorded as an adjustment to the gain on sale, which is
included in Other revenue in the Consolidated Statement of Income) and is
updated quarterly. Any change in estimate is recorded in Other revenue.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value
of net tangible and intangible assets acquired. Goodwill is subject to
annual impairment testing and between annual tests if an event occurs or
circumstances change that would more-likely-than-not reduce the fair value
of a reporting unit below its carrying amount.
Under ASC 350, Intangibles—Goodwill and Other, the Company has an
option to assess qualitative factors to determine if it is necessary to perform
the goodwill impairment test. If, after assessing the totality of events or
circumstances, the Company determines that it is not more-likely-than-not
that the fair value of a reporting unit is less than its carrying amount, no
further testing is necessary. If, however, the Company determines that it
is more-likely-than not that the fair value of a reporting unit is less than
its carrying amount, then the Company must perform the first step of the
two-step goodwill impairment test.
The Company has an unconditional option to bypass the qualitative
assessment for any reporting unit in any reporting period and proceed
directly to the first step of the goodwill impairment test. Furthermore, on any
business dispositions, goodwill is allocated to the business disposed of based
on the ratio of the fair value of the business disposed of to the fair value of
the reporting unit.
The first step requires a comparison of the fair value of the individual
reporting unit to its carrying value, including goodwill. If the fair value of
the reporting unit is in excess of the carrying value, the related goodwill
is considered not to be impaired and no further analysis is necessary. If
the carrying value of the reporting unit exceeds the fair value, this is an
indication of potential impairment and a second step of testing is performed
to measure the amount of impairment, if any, for that reporting unit.
If required, the second step involves calculating the implied fair value
of goodwill for each of the affected reporting units. The implied fair value
of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of the fair value of
the reporting unit determined in step one over the fair value of the net assets
and identifiable intangibles as if the reporting unit were being acquired.
If the amount of the goodwill allocated to the reporting unit exceeds the
implied fair value of the goodwill in the pro forma purchase price allocation,
an impairment charge is recorded for the excess. A recognized impairment
charge cannot exceed the amount of goodwill allocated to a reporting unit
and cannot subsequently be reversed even if the fair value of the reporting
unit recovers.
Additional information on Citi’s goodwill impairment testing can be
found in Note 17 to the Consolidated Financial Statements.
Intangible Assets
Intangible assets, including core deposit intangibles, present value of future
profits, purchased credit card relationships, other customer relationships,
and other intangible assets, but excluding MSRs, are amortized over their
estimated useful lives. Intangible assets deemed to have indefinite useful
lives, primarily certain asset management contracts and trade names, are
not amortized and are subject to annual impairment tests. An impairment
exists if the carrying value of the indefinite-lived intangible asset exceeds its
fair value. For other intangible assets subject to amortization, an impairment
is recognized if the carrying amount is not recoverable and exceeds the fair
value of the intangible asset.
Similar to the goodwill impairment analysis, in performing the annual
impairment analysis for indefinite-lived intangible assets, Citi may and has
elected to bypass the optional qualitative assessment, choosing instead to
perform a quantitative analysis.
Other Assets and Other Liabilities
Other assets include, among other items, loans held-for-sale, deferred tax
assets, equity method investments, interest and fees receivable, premises and
equipment (including purchased and developed software), repossessed assets,
and other receivables. Other liabilities include, among other items, accrued
expenses and other payables, deferred tax liabilities, and reserves for legal
claims, taxes, unfunded lending commitments, repositioning reserves, and
other matters.
Other Real Estate Owned and Repossessed Assets
Real estate or other assets received through foreclosure or repossession are
generally reported in Other assets, net of a valuation allowance for selling
costs and subsequent declines in fair value.
Securitizations
The Company primarily securitizes credit card receivables and mortgages.
Other types of securitized assets include corporate debt instruments (in cash
and synthetic form).
There are two key accounting determinations that must be made
relating to securitizations. Citi first makes a determination as to whether the
securitization entity must be consolidated. Second, it determines whether the
transfer of financial assets to the entity is considered a sale under GAAP. If
the securitization entity is a VIE, the Company consolidates the VIE if it is the
primary beneficiary (as discussed in “Variable Interest Entities” above). For
all other securitization entities determined not to be VIEs in which Citigroup
participates, consolidation is based on which party has voting control of
the entity, giving consideration to removal and liquidation rights in certain
partnership structures. Only securitization entities controlled by Citigroup
are consolidated.
Interests in the securitized and sold assets may be retained in the form
of subordinated or senior interest-only strips, subordinated tranches, spread
accounts and servicing rights. In credit card securitizations, the Company
retains a seller’s interest in the credit card receivables transferred to the trusts,
which is not in securitized form. In the case of consolidated securitization
entities, including the credit card trusts, these retained interests are not