Citigroup Inc.

CREDIT RISKCredit risk is the potential for financial loss resulting from the failure of aborrower or counterparty to honor its financial or contractual obligations.Credit risk arises in many of Citigroup’s business activities, including:• lending;• sales and trading;• derivatives;• securities transactions;• settlement; and• when Citigroup acts as an intermediary.Loan and Credit OverviewDuring 2010, Citigroup’s aggregate loan portfolio increased by $57.3 billionto $648.8 billion primarily due to the adoption of SFAS 166/167 onJanuary 1, 2010. Excluding the impact of SFAS 166/167, the aggregate loanportfolio decreased by $102.1 billon. Citi’s total allowance for loan lossestotaled $40.7 billion at December 31, 2010, a coverage ratio of 6.31% of totalloans, up from 6.09% at December 31, 2009.During 2010, Citi had a net release of $5.8 billion from its credit reservesand allowance for unfunded lending commitments, compared to a net buildof $8.3 billion in 2009. The release consisted of a net release of $2.5 billionfor Corporate loans (primarily in SAP) and a net release of $3.3 billion forConsumer loans (mainly a $1.5 billion release in RCB and a $1.8 billionrelease in LCL). Despite the reserve release for Consumer loans, thecoincident months of net credit loss coverage for the Consumer portfolioincreased from 13.7 months in 2009 to 15.0 months in 2010.Net credit losses of $30.9 billion during 2010 decreased $11.4 billionfrom year-ago levels (on a managed basis). The decrease consisted of a netdecrease of $7.9 billion for Consumer loans (mainly a $1.1 billion decreasein RCB and a $6.7 billion decrease in LCL) and a decrease of $3.5 billion forcorporate loans (almost all of which is related to SAP).Consumer non-accrual loans (which generally exclude credit cards withthe exception of certain international portfolios) totaled $10.8 billion atDecember 31, 2010, compared to $18.3 billion at December 31, 2009. Fortotal Consumer loans, the 90 days or more past due delinquency rate was2.99% at December 31, 2010, compared to 4.29% at December 31, 2009 (on amanaged basis). The 30 to 89 days past due Consumer loan delinquency ratewas 2.92% at December 31, 2010, compared to 3.50% at December 31, 2009(on a managed basis). During 2010, early- and later-stage delinquenciesimproved on a dollar basis across most of the Consumer loan portfolios,driven by improvement in North America mortgages, both in first andsecond mortgages, Citi-branded cards in Citicorp and retail partner cards inCiti Holdings. The improvement in first mortgages was driven by asset salesand loans moving to permanent modifications.Corporate non-accrual loans were $8.6 billion at December 31, 2010,compared to $13.5 billion at December 31, 2009. The decrease in nonaccrualloans from the prior year was mainly due to loan sales, write-offs andpaydowns, which were partially offset by increases due to the weakening ofcertain borrowers.For Citi’s loan accounting policies, see Note 1 to the ConsolidatedFinancial Statements. See Notes 16 and 17 for additional information onCitigroup’s Consumer and Corporate loan, credit and allowance data.83