This excerpt taken from the C 10-Q filed May 4, 2007.
Certain loan products
Citigroup has elected the fair value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup's trading businesses. Significant groups of transactions include loans and unfunded loan products that will either be sold or securitized in the near term, or where the economic risks are hedged with derivative instruments. Citigroup has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex or inappropriate; to align accounting with the transaction's business purpose; and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company, including where those management objectives would not be met.
The balances for these loan products, which are classified with Trading account assets or Loans, were $15.7 billion and $1.1 billion as of March 31, 2007, respectively. The aggregate fair value exceeded the aggregate unpaid principal balance by $61 million as of March 31, 2007. $137 million of these loans were 90 days or more past due, while none were on a non-accrual basis. Upon electing the fair value option, the related portion of the Allowance for loan losses was reversed.
The change in fair value for the selected loans, which was a pretax gain of $247 million during the 2007 first quarter, was recorded in Principal transactions in the Company's Consolidated Statement of Income. $224 million related to those loans classified in Trading account assets and $23 million to those classified in Loans. $185 million of this gain was offset by fair value losses recognized with hedging derivatives, which were primarily total return swaps. Substantially all of the $224 million change in fair value related to loans in Trading account assets is considered to be related to specific credit risk as substantially all of the related loans are floating rate, while none of the $23 million change applicable to those loans classified as such related to specific credit risk.
Related interest income continues to be measured based on the contractual interest rates and reported as interest income on trading account assets or loans depending on their balance sheet classifications.