Citibank 2014 Annual Report Download - page 211

194
Debt Securities Held-to-Maturity
The carrying value and fair value of debt securities HTM at December 31, 2014 and 2013 were as follows:
In millions of dollars
Amortized
cost basis (1)
Net unrealized
gains (losses)
recognized in
AOCI
Carrying
value (2)
Gross
unrealized
gains
Gross
unrealized
(losses)
Fair
value
December 31, 2014
Debt securities held-to-maturity
Mortgage-backed securities (3)
U.S. government agency guaranteed $ 8,795 $ 95 $ 8,890 $ 106 $ (6) $ 8,990
Prime 60 (12) 48 6 (1) 53
Alt-A 1,125 (213) 912 537 (287) 1,162
Subprime 6 (1) 5 15 — 20
Non-U.S. residential 983 (137) 846 92 — 938
Commercial 8 — 8 1 — 9
Total mortgage-backed securities $10,977 $(268) $10,709 $ 757 $(294) $11,172
State and municipal (4) $ 8,443 $(494) $ 7,949 $ 227 $ (57) $ 8,119
Foreign government 4,725 — 4,725 77 — 4,802
Corporate — — — — — —
Asset-backed securities (3) 556 (18) 538 50 (10) 578
Total debt securities held-to-maturity (5) $24,701 $(780) $23,921 $ 1,111 $(361) $24,671
December 31, 2013
Debt securities held-to-maturity
Mortgage-backed securities (3)
Prime $ 72 $ (16) $ 56 $ 5 $ (2) $ 59
Alt-A 1,379 (287) 1,092 449 (263) 1,278
Subprime 2 — 2 1 — 3
Non-U.S. residential 1,372 (206) 1,166 60 (20) 1,206
Commercial 10 — 10 1 — 11
Total mortgage-backed securities $ 2,835 $(509) $ 2,326 $ 516 $(285) $ 2,557
State and municipal $ 1,394 $ (62) $ 1,332 $ 50 $ (70) $ 1,312
Foreign government 5,628 — 5,628 70 (10) 5,688
Corporate 818 (78) 740 111 — 851
Asset-backed securities (3) 599 (26) 573 22 (10) 585
Total debt securities held-to-maturity $11,274 $(675) $10,599 $ 769 $(375) $10,993
(1) For securities transferred to HTM from Trading account assets, amortized cost basis is defined as the fair value of the securities at the date of transfer plus any accretion income and less any impairments recognized
in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, adjusted for the cumulative accretion or amortization of any purchase discount or
premium, plus or minus any cumulative fair value hedge adjustments, net of accretion or amortization, and less any other-than-temporary impairment recognized in earnings.
(2) HTM securities are carried on the Consolidated Balance Sheet at amortized cost basis, plus or minus any unamortized unrealized gains and losses and fair value hedge adjustments recognized in AOCI prior to
reclassifying the securities from AFS to HTM. Changes in the values of these securities are not reported in the financial statements, except for the amortization of any difference between the carrying value at the
transfer date and par value of the securities, and the recognition of any non-credit fair value adjustments in AOCI in connection with the recognition of any credit impairment in earnings related to securities the
Company continues to intend to hold until maturity.
(3) The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure to loss from these VIEs is equal to the carrying amount
of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 22 to the Consolidated Financial Statements.
(4) The net unrealized losses recognized in AOCI on state and municipal debt securities are primarily attributable to the effects of fair value hedge accounting applied when these debt securities were classified as AFS.
Specifically, Citi hedged the LIBOR-benchmark interest rate component of certain fixed-rate tax-exempt state and municipal debt securities utilizing LIBOR-based interest rate swaps. During the hedge period, losses
incurred on the LIBOR-hedging swaps recorded in earnings were substantially offset by gains on the state and municipal debt securities attributable to changes in the LIBOR swap rate being hedged. However, because
the LIBOR swap rate decreased significantly during the hedge period while the overall fair value of the municipal debt securities was relatively unchanged, the effect of reclassifying fair value gains on these securities
from AOCI to earnings attributable solely to changes in the LIBOR swap rate resulted in net unrealized losses remaining in AOCI that relate to the unhedged components of these securities. Upon transfer of these debt
securities to HTM, all hedges have been de-designated and hedge accounting has ceased.
(5) During the second quarter of 2014, securities with a total fair value of approximately $11.8 billion were transferred from AFS to HTM and comprised $5.4 billion of U.S. government agency mortgage-backed securities
and $6.4 billion of obligations of U.S. states and municipalities. The transfer reflects the Company’s intent to hold these securities to maturity or to issuer call in order to reduce the impact of price volatility on AOCI
and certain capital measures under Basel III. While these securities were transferred to HTM at fair value as of the transfer date, no subsequent changes in value may be recorded, other than in connection with the
recognition of any subsequent other-than-temporary impairment and the amortization of differences between the carrying values at the transfer date and the par values of each security as an adjustment of yield over
the remaining contractual life of each security. Any net unrealized holding losses within AOCI related to the respective securities at the date of transfer, inclusive of any cumulative fair value hedge adjustments, will be
amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.