Citigroup Inc.

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Bilateral or “own” credit-risk adjustments are applied to reflect theCompany’s own credit risk when valuing derivatives and liabilities measuredat fair value. Counterparty and own credit adjustments consider the expectedfuture cash flows between Citi and its counterparties under the terms ofthe instrument and the effect of credit risk on the valuation of those cashflows, rather than a point-in-time assessment of the current recognized netasset or liability. Furthermore, the credit-risk adjustments take into accountthe effect of credit-risk mitigants, such as pledged collateral and any legalright of offset (to the extent such offset exists) with a counterparty througharrangements such as netting agreements.Auction rate securitiesAuction rate securities (ARS) are long-term municipal bonds, corporatebonds, securitizations and preferred stocks with interest rates or dividendyields that are reset through periodic auctions. The coupon paid in thecurrent period is based on the rate determined by the prior auction. In theevent of an auction failure, ARS holders receive a “fail rate” coupon, which isspecified in the original issue documentation of each ARS.Where insufficient orders to purchase all of the ARS issue to be soldin an auction were received, the primary dealer or auction agent wouldtraditionally have purchased any residual unsold inventory (without acontractual obligation to do so). This residual inventory would then berepaid through subsequent auctions, typically in a short time. Due to thisauction mechanism and generally liquid market, ARS have historicallytraded and were valued as short-term instruments.Citigroup acted in the capacity of primary dealer for approximately$72 billion of ARS and continued to purchase residual unsold inventoryin support of the auction mechanism until mid-February 2008. After thisdate, liquidity in the ARS market deteriorated significantly, auctions faileddue to a lack of bids from third-party investors, and Citigroup ceased topurchase unsold inventory. Following a number of ARS refinancings, atDecember 31, 2010, Citigroup continued to act in the capacity of primarydealer for approximately $23 billion of outstanding ARS.The Company classifies its ARS as held-to-maturity, available-for-sale andtrading securities.Prior to the Company’s first auction’s failing in the first quarter of 2008,Citigroup valued ARS based on observation of auction market prices, becausethe auctions had a short maturity period (7, 28 and 35 days). This generallyresulted in valuations at par. Once the auctions failed, ARS could no longerbe valued using observation of auction market prices. Accordingly, the fairvalues of ARS are currently estimated using internally developed discountedcash flow valuation techniques specific to the nature of the assets underlyingeach ARS.For ARS with U.S. municipal securities as underlying assets, future cashflows are estimated based on the terms of the securities underlying eachindividual ARS and discounted at an estimated discount rate in order toestimate the current fair value. The key assumptions that impact the ARSvaluations are estimated prepayments and refinancings, estimated fail ratecoupons (i.e., the rate paid in the event of auction failure, which variesaccording to the current credit rating of the issuer) and the discount rateused to calculate the present value of projected cash flows. The discountrate used for each ARS is based on rates observed for straight issuances ofother municipal securities. In order to arrive at the appropriate discountrate, these observed rates were adjusted upward to factor in the specifics ofthe ARS structure being valued, such as callability, and the illiquidity in theARS market.For ARS with student loans as underlying assets, future cash flows areestimated based on the terms of the loans underlying each individual ARS,discounted at an appropriate rate in order to estimate the current fair value.The key assumptions that impact the ARS valuations are the expectedweighted average life of the structure, estimated fail rate coupons, theamount of leverage in each structure and the discount rate used to calculatethe present value of projected cash flows. The discount rate used for each ARSis based on rates observed for basic securitizations with similar maturitiesto the loans underlying each ARS being valued. In order to arrive at theappropriate discount rate, these observed rates were adjusted upward to factorin the specifics of the ARS structure being valued, such as callability, and theilliquidity in the ARS market.During the first quarter of 2008, ARS for which the auctions failed andwhere no secondary market has developed were moved to Level 3, as theassets were subject to valuation using significant unobservable inputs. Themajority of ARS continue to be classified as Level 3.Alt-A mortgage securitiesThe Company classifies its Alt-A mortgage securities as held-to-maturity,available-for-sale and trading investments. The securities classified astrading and available-for-sale are recorded at fair value with changes infair value reported in current earnings and AOCI, respectively. For thesepurposes, Citi defines Alt-A mortgage securities as non-agency residentialmortgage-backed securities (RMBS) where (1) the underlying collateral hasweighted average FICO scores between 680 and 720 or (2) for instances whereFICO scores are greater than 720, RMBS have 30% or less of the underlyingcollateral composed of full documentation loans.Similar to the valuation methodologies used for other trading securitiesand trading loans, the Company generally determines the fair values ofAlt-A mortgage securities utilizing internal valuation techniques. Fair-valueestimates from internal valuation techniques are verified, where possible,to prices obtained from independent vendors. Vendors compile prices fromvarious sources. Where available, the Company may also make use ofquoted prices for recent trading activity in securities with the same or similarcharacteristics to the security being valued.262
The internal valuation techniques used for Alt-A mortgage securities, aswith other mortgage exposures, consider estimated housing price changes,unemployment rates, interest rates and borrower attributes. They alsoconsider prepayment rates as well as other market indicators.Alt-A mortgage securities that are valued using these methods aregenerally classified as Level 2. However, Alt-A mortgage securities backed byAlt-A mortgages of lower quality or more recent vintages are mostly classifiedas Level 3 due to the reduced liquidity that exists for such positions, whichreduces the reliability of prices available from independent sources.Commercial real estate exposureCitigroup reports a number of different exposures linked to commercial realestate at fair value with changes in fair value reported in earnings, includingsecurities, loans and investments in entities that hold commercial real estateloans or commercial real estate directly. The Company also reports securitiesbacked by commercial real estate as available-for-sale investments, which arecarried at fair value with changes in fair-value reported in AOCI.Similar to the valuation methodologies used for other trading securitiesand trading loans, the Company generally determines the fair value ofsecurities and loans linked to commercial real estate utilizing internalvaluation techniques. Fair-value estimates from internal valuationtechniques are verified, where possible, to prices obtained from independentvendors. Vendors compile prices from various sources. Where available, theCompany may also make use of quoted prices for recent trading activityin securities or loans with the same or similar characteristics to that beingvalued. Securities and loans linked to commercial real estate valued usingthese methodologies are generally classified as Level 3 as a result of thecurrent reduced liquidity in the market for such exposures.The fair value of investments in entities that hold commercial realestate loans or commercial real estate directly is determined using a similarmethodology to that used for other non-public investments in real estateheld by the S&B business. The Company uses an established process fordetermining the fair value of such securities, using commonly acceptedvaluation techniques, including the use of earnings multiples based oncomparable public securities, industry-specific non-earnings-based multiplesand discounted cash flow models. In determining the fair value of suchinvestments, the Company also considers events, such as a proposed saleof the investee company, initial public offerings, equity issuances, or otherobservable transactions. Such investments are generally classified as Level 3of the fair value hierarchy.263
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UNITED STATESSECURITIES AND EXCHANG
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CITIGROUP’S 2010 ANNUAL REPORT ON
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As described above, Citigroup is ma
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Operating ExpensesCitigroup operati
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FIVE-YEAR SUMMARY OF SELECTED FINAN
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CITIGROUP REVENUESIn millions of do
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REGIONAL CONSUMER BANKINGRegional C
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2009 vs. 2008Revenues, net of inter
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SECURITIES AND BANKINGSecurities an
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TRANSACTION SERVICESTransaction Ser
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BROKERAGE AND ASSET MANAGEMENTBroke
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Japan Consumer FinanceCitigroup con
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The following table provides detail
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CORPORATE/OTHERCorporate/Other incl
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During 2010, average Consumer loans
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SEGMENT BALANCE SHEET AT DECEMBER 3
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Citigroup Regulatory Capital Ratios
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Capital Resources of Citigroup’s
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Regulatory Capital Standards Develo
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DepositsCiti continues to focus on
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Secured financing is primarily cond
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Each of the credit rating agencies
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RISK FACTORSThe ongoing implementat
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The emerging markets in which Citi
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is largely uncertain. However, any
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a short-term Liquidity Coverage Rat
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understanding or cause confusion ac
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MANAGING GLOBAL RISKRISK MANAGEMENT
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CREDIT RISKCredit risk is the poten
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(1) 2010 primarily includes an addi
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Non-Accrual Loans and AssetsThe tab
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Renegotiated LoansThe following tab
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Citi’s first mortgage portfolio i
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Consumer Mortgage FICO and LTVData
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Second Mortgages: December 31, 2010
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Interest Rate Risk Associated with
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North America Cards—FICO Informat
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CONSUMER LOAN DETAILSConsumer Loan
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Consumer Loan Modification Programs
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North America CardsNorth America ca
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Payment deferrals that do not conti
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Repurchase ReserveCiti has recorded
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Securities and Banking-Sponsored Pr
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The following table presents the co
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MARKET RISKMarket risk encompasses
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Trading PortfoliosPrice risk in tra
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INTEREST REVENUE/EXPENSE AND YIELDS
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AVERAGE BALANCES AND INTEREST RATES
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ANALYSIS OF CHANGES IN INTEREST EXP
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As required by SEC rules, the table
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The credit valuation adjustment amo
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The fair values shown are prior to
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Key Controls over Fair Value Measur
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The following table reflects the in
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The results of the July 1, 2010 tes
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As a result of the losses incurred
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MANAGEMENT’S ANNUAL REPORT ON INT
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• an “ownership change” under
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REPORT OF INDEPENDENT REGISTERED PU
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FINANCIAL STATEMENTS AND NOTES TABL
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CONSOLIDATED FINANCIAL STATEMENTSCO
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CONSOLIDATED BALANCE SHEET(Continue
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CONSOLIDATED STATEMENT OF CHANGES I
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CITIBANK CONSOLIDATED BALANCE SHEET
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NOTES TO CONSOLIDATED FINANCIAL STA
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Repurchase and Resale AgreementsSec
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ecoveries are added. Securities rec
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Consumer Mortgage Representations a
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Transfers of Financial AssetsFor a
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ACCOUNTING CHANGESChange in Account
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The following table reflects the in
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Measuring Liabilities at Fair Value
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Revisions to the Earnings-per-Share
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FUTURE APPLICATION OF ACCOUNTING ST
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3. DISCONTINUED OPERATIONSSale of T
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CitiCapitalOn July 31, 2008, Citigr
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5. INTEREST REVENUE AND EXPENSEFor
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Stock Award ProgramsCitigroup issue
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In January 2009, members of the Man
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Information with respect to stock o
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9. RETIREMENT BENEFITSThe Company h
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The following table shows the chang
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A one-percentage-point change in th
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Level 3 Roll ForwardThe reconciliat
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10. INCOME TAXESIn millions of doll
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The Company is currently under audi
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11. EARNINGS PER SHAREThe following
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13. BROKERAGE RECEIVABLES AND BROKE
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The table below shows the fair valu
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Debt Securities Held-to-MaturityThe
Page 191 and 192: Evaluating Investments for Other-Th
Page 193 and 194: The following is a 12-month roll-fo
Page 195 and 196: 16. LOANSCitigroup loans are report
Page 197 and 198: Residential Mortgage Loan to Values
Page 199 and 200: The following table presents Corpor
Page 201 and 202: Included in the Corporate and Consu
Page 203 and 204: 18. GOODWILL AND INTANGIBLE ASSETSG
Page 205 and 206: Intangible AssetsThe components of
Page 207 and 208: CGMHI has committed long-term finan
Page 209 and 210: 20. Regulatory CapitalCitigroup is
Page 211 and 212: 22. SECURITIZATIONS AND VARIABLE IN
Page 213 and 214: In millions of dollars As of Decemb
Page 215 and 216: Funding Commitments for Significant
Page 217 and 218: Credit Card SecuritizationsThe Comp
Page 219 and 220: Managed Loans—Citi HoldingsThe fo
Page 221 and 222: Key assumptions used in measuring t
Page 223 and 224: Mortgage Servicing RightsIn connect
Page 225 and 226: The Company administers one conduit
Page 227 and 228: Key Assumptions and Retained Intere
Page 229 and 230: Municipal InvestmentsMunicipal inve
Page 231 and 232: Derivative NotionalsIn millions of
Page 233 and 234: activities together with gains and
Page 235 and 236: Cash Flow HedgesHedging of benchmar
Page 237 and 238: The range of credit derivatives sol
Page 239 and 240: 24. CONCENTRATIONS OF CREDIT RISKCo
Page 241: Trading account assets and liabilit
Page 245 and 246: In millions of dollars at December
Page 247 and 248: Changes in Level 3 Fair Value Categ
Page 249 and 250: In millions of dollarsDecember 31,2
Page 251 and 252: 26. FAIR VALUE ELECTIONSThe Company
Page 253 and 254: The following table provides inform
Page 255 and 256: Certain structured liabilitiesThe C
Page 257 and 258: 28. PLEDGED SECURITIES, COLLATERAL,
Page 259 and 260: The repurchase reserve estimation p
Page 261 and 262: CollateralCash collateral available
Page 263 and 264: 29. CONTINGENCIESOverviewIn additio
Page 265 and 266: pursuant to which Citigroup agreed
Page 267 and 268: court filings under docket number 0
Page 269 and 270: 30. CITIBANK, N.A. STOCKHOLDER’S
Page 271 and 272: Condensed Consolidating Statements
Page 275 and 276: Condensed Consolidating Balance She
Page 279 and 280: 33. SELECTED QUARTERLY FINANCIAL DA
Page 281 and 282: SUPERVISION AND REGULATIONCitigroup
Page 283 and 284: Citigroup continues to evaluate its
Page 285 and 286: CORPORATE INFORMATIONCITIGROUP EXEC
Page 287 and 288: SignaturesPursuant to the requireme
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Citigroup Inc.

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