Citigroup Inc.

27. FAIR VALUE OF FINANCIAL INSTRUMENTSEstimated Fair Value of Financial InstrumentsThe table below presents the carrying value and fair value of Citigroup’sfinancial instruments. The disclosure excludes leases, affiliate investments,pension and benefit obligations and insurance policy claim reserves.In addition, contract-holder fund amounts exclude certain insurancecontracts. Also as required, the disclosure excludes the effect of taxes, anypremium or discount that could result from offering for sale at one timethe entire holdings of a particular instrument, excess fair value associatedwith deposits with no fixed maturity and other expenses that would beincurred in a market transaction. In addition, the table excludes the valuesof non-financial assets and liabilities, as well as a wide range of franchise,relationship and intangible values (but includes mortgage servicing rights),which are integral to a full assessment of Citigroup’s financial position andthe value of its net assets.The fair value represents management’s best estimates based on arange of methodologies and assumptions. The carrying value of short-termfinancial instruments not accounted for at fair value, as well as receivablesand payables arising in the ordinary course of business, approximates fairvalue because of the relatively short period of time between their originationand expected realization. Quoted market prices are used when availablefor investments and for both trading and end-user derivatives, as well asfor liabilities, such as long-term debt, with quoted prices. For loans notaccounted for at fair value, cash flows are discounted at quoted secondarymarket rates or estimated market rates if available. Otherwise, sales ofcomparable loan portfolios or current market origination rates for loanswith similar terms and risk characteristics are used. Expected credit lossesare either embedded in the estimated future cash flows or incorporatedas an adjustment to the discount rate used. The value of collateral is alsoconsidered. For liabilities such as long-term debt not accounted for at fairvalue and without quoted market prices, market borrowing rates of interestare used to discount contractual cash flows.In billions of dollars at December 31,Carryingvalue2010 2009Estimated Carrying Estimatedfair value value fair valueAssetsInvestments $318.2 $319.0 $306.1 $307.6Federal funds sold and securitiesborrowed or purchased underagreements to resell 246.7 246.7 222.0 222.0Trading account assets 317.3 317.3 342.8 342.8Loans (1) 605.5 584.3 552.5 542.8Other financial assets (2) 280.5 280.2 290.9 290.9Carryingvalue2010 2009Estimated Carrying Estimatedfair value value fair valueIn billions of dollars at December 31,LiabilitiesDeposits $845.0 $843.2 $835.9 $834.5Federal funds purchased andsecurities loaned or sold underagreements to repurchase 189.6 189.6 154.3 154.3Trading account liabilities 129.1 129.1 137.5 137.5Long-term debt 381.2 384.5 364.0 354.8Other financial liabilities (3) 171.2 171.2 175.8 175.8(1) The carrying value of loans is net of the Allowance for loan losses of $40.7 billion for 2010 and$36.0 billion for 2009. In addition, the carrying values exclude $2.6 billion and $2.9 billion of leasefinance receivables in 2010 and 2009, respectively.(2) Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurancerecoverable, mortgage servicing rights, separate and variable accounts and other financial instrumentsincluded in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is areasonable estimate of fair value.(3) Includes brokerage payables, separate and variable accounts, short-term borrowings and otherfinancial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of whichthe carrying value is a reasonable estimate of fair value.Fair values vary from period to period based on changes in a wide rangeof factors, including interest rates, credit quality, and market perceptions ofvalue and as existing assets and liabilities run off and new transactions areentered into.The estimated fair values of loans reflect changes in credit status sincethe loans were made, changes in interest rates in the case of fixed-rate loans,and premium values at origination of certain loans. The carrying values(reduced by the Allowance for loan losses) exceeded the estimated fairvalues of Citigroup’s loans, in aggregate, by $21.2 billion and by $9.7 billionin 2010 and 2009, respectively. At December 31, 2010, the carrying values, netof allowances, exceeded the estimated values by $20.0 billion and $1.2 billionfor Consumer loans and Corporate loans, respectively.The estimated fair values of the Company’s corporate unfunded lendingcommitments at December 31, 2010 and 2009 were liabilities of $5.6 billionand $5.0 billion, respectively. The Company does not estimate the fairvalues of consumer unfunded lending commitments, which are generallycancelable by providing notice to the borrower.276