Citigroup Inc.

• the mortgage loan’s compliance with applicable federal, state andlocal laws;• whether the mortgage loan was originated in conformity with theoriginator’s underwriting guidelines; and• the detailed data concerning the mortgage loans that was included on themortgage loan schedule.In the event of a breach of its representations, Citi may be required eitherto repurchase the mortgage loans with the identified defects (generally atunpaid principal balance plus accrued interest) or indemnify the investorsfor their losses.S&B has received only a small number of claims based onbreaches of representations relating to the mortgage loans in thesesecuritization transactions.GoodwillGoodwill represents the excess of acquisition cost over the fair value ofnet tangible and intangible assets acquired. Goodwill is subject to annualimpairment tests, whereby Goodwill is allocated to the Company’s reportingunits and an impairment is deemed to exist if the carrying value of areporting unit exceeds its estimated fair value. Furthermore, on any businessdispositions, Goodwill is allocated to the business disposed of based on theratio of the fair value of the business disposed of to the fair value of thereporting unit.Intangible AssetsIntangible assets—including core deposit intangibles, present valueof future profits, purchased credit card relationships, other customerrelationships, and other intangible assets, but excluding MSRs—areamortized over their estimated useful lives. Intangible assets deemed tohave indefinite useful lives, primarily certain asset management contractsand trade names, are not amortized and are subject to annual impairmenttests. An impairment exists if the carrying value of the indefinite-livedintangible asset exceeds its fair value. For other Intangible assets subjectto amortization, an impairment is recognized if the carrying amount is notrecoverable and exceeds the fair value of the Intangible asset.Other Assets and Other LiabilitiesOther assets include, among other items, loans held-for-sale, deferred taxassets, equity-method investments, interest and fees receivable, premises andequipment, end-user derivatives in a net receivable position, repossessedassets, and other receivables.Other liabilities includes, among other items, accrued expenses andother payables, deferred tax liabilities, end-user derivatives in a net payableposition, and reserves for legal claims, taxes, restructuring reserves, unfundedlending commitments, and other matters.Repossessed AssetsUpon repossession, loans are adjusted, if necessary, to the estimated fair valueof the underlying collateral and transferred to repossessed assets. This isreported in Other assets, net of a valuation allowance for selling costs and netdeclines in value as appropriate.SecuritizationsThe Company primarily securitizes credit card receivables and mortgages.Other types of securitized assets include corporate debt instruments (in cashand synthetic form) and student loans.There are two key accounting determinations that must be made relatingto securitizations. In cases where the Company originated or owned thefinancial assets transferred to the securitization entity, it determines whetherthat transfer is considered a sale under U.S. Generally Accepted AccountingPrinciples (GAAP). If it is a sale, the transferred assets are removed fromthe Company’s Consolidated Balance Sheet with a gain or loss recognized.Alternatively, if the Company determines that the transfer is a financingrather than a sale, the assets remain on the Company’s ConsolidatedBalance Sheet with an offsetting liability recognized in the amount ofproceeds received.In addition, the Company determines whether the securitizationentity would be included in its Consolidated Financial Statements. If thesecuritization entity is a VIE, the Company consolidates the VIE if it is theprimary beneficiary.For all other securitization entities determined not to be VIEs in whichCitigroup participates, a consolidation decision is based on who has votingcontrol of the entity, giving consideration to removal and liquidation rightsin certain partnership structures. Only securitization entities controlled byCitigroup are consolidated.Effective January 1, 2010, upon adoption of SFAS 166/167, Citi firstmakes a determination as to whether the securitization entity would beconsolidated. Second, it determines whether the transfer of financial assetsis considered a sale under GAAP. Furthermore, former qualifying specialpurpose entities (QSPEs) are now considered VIEs and are no longer exemptfrom consolidation. The Company consolidates VIEs when it has both:(1) power to direct activities of the VIE that most significantly impact theentity’s economic performance and (2) an obligation to absorb losses orright to receive benefits from the entity that could potentially be significantto the VIE.Interests in the securitized and sold assets may be retained in the form ofsubordinated interest-only strips, subordinated tranches, spread accounts,and servicing rights. In credit card securitizations, the Company retains aseller’s interest in the credit card receivables transferred to the trusts, whichis not in securitized form. Prior to January 1, 2010, when the securitizationtrusts were not consolidated, the seller’s interest was carried on a historicalcost basis and classified as Consumer loans. Retained interests in securitizedmortgage loans and student loans were classified as Trading accountassets, as were a majority of the retained interests in securitized creditcard receivables.DebtShort-term borrowings and long-term debt are generally accounted for atamortized cost, except where the Company has elected to report certainstructured notes at fair value.166