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C » Topics » Loans Reclassified to Held for Investment

These excerpts taken from the C 10-K filed Feb 27, 2009.

Loans Reclassified to Held for Investment

FASB Statement No. 65, Accounting for Certain Mortgage Banking Activities (SFAS 65), and AICPA Statement of Position 01-6, “Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others” (SOP 01-6), require that the accounting for a loan be based upon the Company’s intent and ability to hold the loan for the foreseeable future or until maturity. Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff, should be classified as held for investment (HFI) and reported in the

balance sheet at the amortized cost of the loan, adjusted by the allowance for loan losses. Loans that the Company intends to sell should be classified as held for sale (HFS) and reported at the lower of cost or fair value.

During the fourth quarter of 2008, Citigroup made a number of transfers from the HFS category to the HFI category to better reflect prevailing intentions of the Company. Reclassifications of loans were made at fair value on the date of transfer. The impact of the transfers executed during the fourth quarter of 2008 is detailed in the following table, summarized by type of loan:


 

     

Fair value
at date

of transfer

    Carrying value at
December 31, 2008		    Fair value at
December 31, 2008

Loans reclassified to held for investment

         

Highly leveraged loans

    $ 3,318    $ 3,350    $ 1,650

Commercial real estate loans

      7,150      7,049      7,110

Other loans

      5,241      5,492      5,523

Total loans

    $ 15,709    $ 15,891    $ 14,283

 

Loan balances reclassified relate to funded positions that were originated as part of a strategy to distribute. Prior to the recent dislocation in the credit markets, Citigroup managed the risk associated with these loans by seeking to sell a majority of its exposure to the market prior to, or shortly after, funding. For the reasons discussed under “Debt Securities Reclassified to Available-for-Sale and Held-to-Maturity” on page 87, the Company believes that the best value can now be obtained through a hold strategy. It is now the Company’s intention to hold these positions for the foreseeable future, which is considered to be such time as the loan period expires, or sufficient liquidity

returns to the market place, such that the loans can be sold for a value which the Company believes is representative of the implicit credit risk of the position. Due to the severity and duration of current unfavorable market conditions, the Company does not anticipate such liquidity returning in the foreseeable future, which for these loans the Company generally defines to be within the next year. The loans reclassified to HFI are assessed for intention to hold on an individual loan basis. After transfer, HFI loans are now subject to the Company’s allowance for loan loss review process.


 

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Table of Contents

Loans Reclassified to Held for Investment

FASB Statement No. 65, Accounting for Certain Mortgage Banking Activities (SFAS 65), and AICPA Statement of Position 01-6, “Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others” (SOP 01-6), require that the accounting for a loan be based upon the Company’s intent and ability to hold the loan for the foreseeable future or until maturity. Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff, should be classified as held for investment (HFI) and reported in the

balance sheet at the amortized cost of the loan, adjusted by the allowance for loan losses. Loans that the Company intends to sell should be classified as held for sale (HFS) and reported at the lower of cost or fair value.

During the fourth quarter of 2008, Citigroup made a number of transfers from the HFS category to the HFI category to better reflect prevailing intentions of the Company. Reclassifications of loans were made at fair value on the date of transfer. The impact of the transfers executed during the fourth quarter of 2008 is detailed in the following table, summarized by type of loan:


 

     

Fair value
at date

of transfer

    Carrying value at
December 31, 2008		    Fair value at
December 31, 2008

Loans reclassified to held for investment

         

Highly leveraged loans

    $ 3,318    $ 3,350    $ 1,650

Commercial real estate loans

      7,150      7,049      7,110

Other loans

      5,241      5,492      5,523

Total loans

    $ 15,709    $ 15,891    $ 14,283

 

Loan balances reclassified relate to funded positions that were originated as part of a strategy to distribute. Prior to the recent dislocation in the credit markets, Citigroup managed the risk associated with these loans by seeking to sell a majority of its exposure to the market prior to, or shortly after, funding. For the reasons discussed under “Debt Securities Reclassified to Available-for-Sale and Held-to-Maturity” on page 87, the Company believes that the best value can now be obtained through a hold strategy. It is now the Company’s intention to hold these positions for the foreseeable future, which is considered to be such time as the loan period expires, or sufficient liquidity

returns to the market place, such that the loans can be sold for a value which the Company believes is representative of the implicit credit risk of the position. Due to the severity and duration of current unfavorable market conditions, the Company does not anticipate such liquidity returning in the foreseeable future, which for these loans the Company generally defines to be within the next year. The loans reclassified to HFI are assessed for intention to hold on an individual loan basis. After transfer, HFI loans are now subject to the Company’s allowance for loan loss review process.


 

89

Table of Contents

EXCERPTS ON THIS PAGE:

10-K (2 sections)
Feb 27, 2009

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