Citigroup Inc.

Consumer loansConsumer loans represent loans and leases managed primarily by theRegional Consumer Banking and Local Consumer Lending businesses.As a general rule, interest accrual ceases for installment and real estate (bothopen- and closed-end) loans when payments are 90 days contractually pastdue. For credit cards and unsecured revolving loans, however, Citi generallyaccrues interest until payments are 180 days past due. Loans that havebeen modified to grant a short-term or long-term concession to a borrowerwho is in financial difficulty may not be accruing interest at the time ofthe modification. The policy for returning such modified loans to accrualstatus varies by product and/or region. In most cases, a minimum numberof payments (ranging from one to six) are required, while in other cases theloan is never returned to accrual status.The policy for re-aging modified U.S. consumer loans to current statusvaries by product. Generally, one of the conditions to qualify for thesemodifications is that a minimum number of payments (typically rangingfrom one to three) be made. Upon modification, the loan is re-aged tocurrent status. However, re-aging practices for certain open-ended consumerloans, such as credit cards, are governed by Federal Financial InstitutionsExamination Council (FFIEC) guidelines. For such open-ended consumerloans subject to FFIEC guidelines, one of the conditions for the loan to bere-aged to current status is that at least three consecutive minimum monthlypayments, or the equivalent amount, must be received. In addition, underFFIEC guidelines, the number of times that such a loan can be re-aged issubject to limitations (generally once in twelve months and twice in fiveyears). Furthermore, Federal Housing Administration (FHA) and Departmentof Veterans Affairs (VA) loans are modified under those respective agencies’guidelines and payments are not always required in order to re-age amodified loan to current.Citi’s charge-off policies follow the general guidelines below:• Unsecured installment loans are charged off at 120 days past due.• Unsecured revolving loans and credit card loans are charged off at180 days contractually past due.• Loans secured with non-real estate collateral are written down to theestimated value of the collateral, less costs to sell, at 120 days past due.• Real estate-secured loans are written down to the estimated value of theproperty, less costs to sell, at 180 days contractually past due.• Non-bank loans secured by real estate are written down to the estimatedvalue of the property, less costs to sell, at the earlier of the receipt of title or12 months in foreclosure (a process that must commence when paymentsare 120 days contractually past due).• Non-bank auto loans are written down to the estimated value of thecollateral, less costs to sell, at repossession or, if repossession is notpursued, no later than 180 days contractually past due.• Non-bank unsecured personal loans are charged off when the loan is180 days contractually past due if there have been no payments withinthe last six months, but in no event can these loans exceed 360 dayscontractually past due.• Unsecured loans in bankruptcy are charged off within 60 days ofnotification of filing by the bankruptcy court or within the contractualwrite-off periods, whichever occurs earlier.• Real estate-secured loans in bankruptcy are written down to the estimatedvalue of the property, less costs to sell, at the later of 60 days afternotification or 60 days contractually past due.• Non-bank unsecured personal loans in bankruptcy are charged off whenthey are 30 days contractually past due.• Commercial market loans are written down to the extent that principal isjudged to be uncollectable.Corporate loansCorporate loans represent loans and leases managed by ICG or the SpecialAsset Pool. Corporate loans are identified as impaired and placed on a cash(non-accrual) basis when it is determined, based on actual experience anda forward-looking assessment of the collectability of the loan in full, thatthe payment of interest or principal is doubtful or when interest or principalis 90 days past due, except when the loan is well-collateralized and in theprocess of collection. Any interest accrued on impaired corporate loansand leases is reversed at 90 days and charged against current earnings,and interest is thereafter included in earnings only to the extent actuallyreceived in cash. When there is doubt regarding the ultimate collectabilityof principal, all cash receipts are thereafter applied to reduce the recordedinvestment in the loan.Impaired corporate loans and leases are written down to the extentthat principal is judged to be uncollectible. Impaired collateral-dependentloans and leases, where repayment is expected to be provided solely bythe sale of the underlying collateral and there are no other available andreliable sources of repayment, are written down to the lower of cost orcollateral value. Cash-basis loans are returned to an accrual status whenall contractual principal and interest amounts are reasonably assured ofrepayment and there is a sustained period of repayment performance inaccordance with the contractual terms.Loans Held-for-SaleCorporate and Consumer loans that have been identified for sale areclassified as loans held-for-sale included in Other assets. With the exceptionof certain mortgage loans for which the fair value option has been elected,these loans are accounted for at the lower of cost or market value (LOCOM),with any write-downs or subsequent recoveries charged to Other revenue.Allowance for Loan LossesAllowance for loan losses represents management’s best estimate of probablelosses inherent in the portfolio, as well as probable losses related to largeindividually evaluated impaired loans and troubled debt restructurings.Attribution of the allowance is made for analytical purposes only, and theentire allowance is available to absorb probable loan losses inherent in theoverall portfolio. Additions to the allowance are made through the provisionfor loan losses. Loan losses are deducted from the allowance, and subsequent162