FAIR VALUE MEASUREMENT

9 Months Ended

Sep. 30, 2014

ASC 820-10 Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Among other things, the standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Under ASC 820-10, the probability of default of a counterparty is factored into the valuation of derivative positions and includes the impact of Citigroup’s own credit risk on derivatives and other liabilities measured at fair value.

Fair Value Hierarchy

ASC 820-10 specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs are developed using market data and reflect market participant assumptions, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:


•	Level 1: Quoted prices for identical instruments in active markets.


•	Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required under the fair value hierarchy, the Company considers relevant and observable market inputs in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the liquidity of markets and the relevance of observed prices in those markets.

The Company’s policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the end of the reporting period.

Determination of Fair Value

For assets and liabilities carried at fair value, the Company measures such value using the procedures set out below, irrespective of whether these assets and liabilities are measured at fair value as a result of an election or whether they are required to be measured at fair value.

When available, the Company generally uses quoted market prices to determine fair value and classifies such items as Level 1. In some cases where a market price is available, the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified as Level 2.

The Company may also apply a price-based methodology, which utilizes, where available, quoted prices or other market information obtained from recent trading activity in positions with the same or similar characteristics to the position being valued. The market activity and the amount of the bid-ask spread are among the factors considered in determining the liquidity of markets and the relevance of observed prices from those markets. If relevant and observable prices are available, those valuations may be classified as Level 2. When less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the price of a similar security is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate the valuation, the “price” inputs are considered unobservable and the fair value measurements are classified as Level 3.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based parameters, such as interest rates, currency rates, option volatilities, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified as Level 3 even though there may be some significant inputs that are readily observable.

Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors and brokers’ valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models.

The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models and any significant assumptions.

Market valuation adjustments

Liquidity adjustments are applied to items in Level 2 and Level 3 of the fair value hierarchy to ensure that the fair value reflects the liquidity or illiquidity of the market. The liquidity reserve may utilize the bid-offer spread for an instrument as one of the factors.

Counterparty credit-risk adjustments are applied to derivatives, such as over-the-counter uncollateralized derivatives, where the base valuation uses market parameters based on the relevant base interest rate curves. Not all counterparties have the same credit risk as that implied by the relevant base curve, so it is necessary to consider the market view of the credit risk of a counterparty in order to estimate the fair value of such an item.

Bilateral or “own” credit-risk adjustments are applied to reflect the Company’s own credit risk when valuing derivatives and liabilities measured at fair value. Counterparty and own credit adjustments consider the expected future cash flows between Citi and its counterparties under the terms of the instrument and the effect of credit risk on the valuation of those cash flows, rather than a point-in-time assessment of the

current recognized net asset or liability. Furthermore, the credit-risk adjustments take into account the effect of credit-risk mitigants, such as pledged collateral and any legal right of offset (to the extent such offset exists) with a counterparty through arrangements such as netting agreements.

Generally, the unit of account for a financial instrument is the individual financial instrument. The Company applies market valuation adjustments that are consistent with the unit of account, which does not include adjustment due to the size of the Company’s position, except as follows. ASC 820-10 permits an exception, through an accounting policy election, to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position when certain criteria are met. Citi has elected to measure certain portfolios of financial instruments, such as derivatives, that meet those criteria on the basis of the net open risk position. The Company applies market valuation adjustments, including adjustments to account for the size of the net open risk position, consistent with market participant assumptions and in accordance with the unit of account.

Valuation Process for Fair Value Measurements

Price verification procedures and related internal control procedures are governed by the Citigroup Pricing and Price Verification Policy and Standards, which is jointly owned by Finance and Risk Management. Finance has implemented the ICG Pricing and Price Verification Standards and Procedures to facilitate compliance with this policy.

For fair value measurements of substantially all assets and liabilities held by the Company, individual business units are responsible for valuing the trading account assets and liabilities, and Product Control within Finance performs independent price verification procedures to evaluate those fair value measurements. Product Control is independent of the individual business units and reports to the Global Head of Product Control. It has authority over the valuation of financial assets and liabilities. Fair value measurements of assets and liabilities are determined using various techniques, including, but not limited to, discounted cash flows and internal models, such as option and correlation models.

Based on the observability of inputs used, Product Control classifies the inventory as Level 1, Level 2 or Level 3 of the fair value hierarchy. When a position involves one or more significant inputs that are not directly observable, price verification procedures are performed that may include reviewing relevant historical data, analyzing profit and loss, valuing each component of a structured trade individually, and benchmarking, among others.

Reports of inventory that is classified within Level 3 of the fair value hierarchy are distributed to senior management in Finance, Risk and the business. This inventory is also discussed in Risk Committees and in monthly meetings with senior trading management. As deemed necessary, reports may go to the Audit Committee of the Board of Directors or to the full Board of Directors. Whenever an adjustment is needed to bring the price of an asset or liability to its exit price, Product Control reports it to management along with other price verification results.

In addition, the pricing models used in measuring fair value are governed by an independent control framework. Although the models are developed and tested by the individual business units, they are independently validated by the Model Validation Group within Risk Management and reviewed by Finance with respect to their impact on the price verification procedures. The purpose of this independent control framework is to assess model risk arising from models’ theoretical soundness, calibration techniques where needed, and the appropriateness of the model for a specific product in a defined market. To ensure their continued applicability, models are independently reviewed annually. In addition, Risk Management approves and maintains a list of products permitted to be valued under each approved model for a given business.

Securities purchased under agreements to resell and securities sold under agreements to repurchase

No quoted prices exist for such instruments, so fair value is determined using a discounted cash-flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivative or other features. Expected cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Generally, when such instruments are held at fair value, they are classified within Level 2 of the fair value hierarchy, as the inputs used in the valuation are readily observable. However, certain long-dated positions are classified within Level 3 of the fair value hierarchy.

Trading account assets and liabilities—trading securities and trading loans

When available, the Company generally uses quoted market prices in active markets to determine the fair value of trading securities; such items are classified as Level 1 of the fair value hierarchy. Examples include some government securities and exchange-traded equity securities.

For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing valuation techniques, including discounted cash flows, price-based and internal models, such as Black-Scholes and Monte Carlo simulation. Fair value estimates from these internal valuation techniques are verified, where possible, to prices obtained from independent sources, including third-party vendors. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. A price-based methodology utilizes, where available, quoted prices or other market information obtained from recent trading activity of assets with similar characteristics to the bond or loan being valued. The yields used in discounted cash flow models are derived from the same price information. Trading securities and loans priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the

price of a similar security or loan is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate valuation, a loan or security is generally classified as Level 3. The price input used in a price-based methodology may be zero for a security, such as a subprime CDO, that is not receiving any principal or interest and is currently written down to zero.

Where the Company’s principal market for a portfolio of loans is the securitization market, the Company uses the securitization price to determine the fair value of the portfolio. The securitization price is determined from the assumed proceeds of a hypothetical securitization in the current market, adjusted for transformation costs (i.e., direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. As a result of the severe reduction in the level of activity in certain securitization markets since the second half of 2007, observable securitization prices for certain directly comparable portfolios of loans have not been readily available. Therefore, such portfolios of loans are generally classified as Level 3 of the fair value hierarchy. However, for other loan securitization markets, such as commercial real estate loans, price verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, this loan portfolio is classified as Level 2 of the fair value hierarchy.

Trading account assets and liabilities—derivatives

Exchange-traded derivatives, measured at fair value using quoted (i.e., exchange) prices in active markets, where available, are classified as Level 1 of the fair value hierarchy.

Derivatives without a quoted price in an active market and derivatives executed over the counter are valued using internal valuation techniques. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. The principal techniques used to value these instruments are discounted cash flows and internal models, including Black-Scholes and Monte Carlo simulation.

The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign-exchange rates, volatilities and correlation. The Company uses overnight indexed swap (OIS) curves as fair value measurement inputs for the valuation of certain collateralized derivatives. Citi uses the relevant benchmark curve for the currency of the derivative (e.g., the London Interbank Offered Rate for U.S. dollar derivatives) as the discount rate for uncollateralized derivatives.

During the third quarter of 2014, Citi incorporated funding valuation adjustments (FVA) into the fair value measurements of over-the-counter derivatives. In general, FVA reflects a market funding risk premium inherent in the uncollateralized portion of derivative portfolios, and in collateralized derivatives where the terms of the agreement do not permit the reuse of the collateral received. In connection with its implementation of FVA, Citigroup incurred a one-time pre-tax charge of approximately $474 million, which was reflected in Principal transactions as a change in accounting estimate.

The derivative instruments are classified as either Level 2 or Level 3 depending upon the observability of the significant inputs to the model.

Subprime-related direct exposures in CDOs

The valuation of high-grade and mezzanine asset-backed security (ABS) CDO positions utilizes prices based on the underlying assets of each high-grade and mezzanine ABS CDO.

For most of the lending and structured direct subprime exposures, fair value is determined utilizing observable transactions where available, other market data for similar assets in markets that are not active and other internal valuation techniques.

Investments

The investments category includes available-for-sale debt and marketable equity securities whose fair value is generally determined by utilizing similar procedures described for trading securities above or, in some cases, using vendor pricing as the primary source.

Also included in investments are nonpublic investments in private equity and real estate entities. Determining the fair value of nonpublic securities involves a significant degree of management resources and judgment, as no quoted prices exist and such securities are generally very thinly traded. In addition, there may be transfer restrictions on private equity securities. The Company’s process for determining the fair value of such securities utilizes commonly accepted valuation techniques, including comparables analysis. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances or other observable transactions. As discussed in Note 13 to the Consolidated Financial Statements, the Company uses net asset value to value certain of these investments.

Private equity securities are generally classified as Level 3 of the fair value hierarchy.

Short-term borrowings and long-term debt

Where fair value accounting has been elected, the fair value of non-structured liabilities is determined by utilizing internal models using the appropriate discount rate for the applicable maturity. Such instruments are generally classified as Level 2 of the fair value hierarchy when all significant inputs are readily observable.

The Company determines the fair value of hybrid financial instruments, including structured liabilities, using the appropriate derivative valuation methodology (described above in “Trading account assets and liabilities—derivatives”) given the nature of the embedded risk profile. Such instruments are classified as Level 2 or Level 3 depending on the observability of significant inputs to the model.

Alt-A mortgage securities

The Company classifies its Alt-A mortgage securities as held-to-maturity, available-for-sale or trading investments. The securities classified as trading and available-for-sale are recorded at fair value with changes in fair value reported in current earnings and AOCI, respectively. For these purposes, Citi defines Alt-A mortgage securities as non-agency residential mortgage-backed securities (RMBS) where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.

Similar to the valuation methodologies used for other trading securities and trading loans, the Company generally determines the fair values of Alt-A mortgage securities utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Consensus data providers compile prices from various sources. Where available, the Company may also make use of quoted prices for recent trading activity in securities with the same or similar characteristics to the security being valued.

The valuation techniques used for Alt-A mortgage securities, as with other mortgage exposures, are price-based and yield analysis. The primary market-derived input is yield. Cash flows are based on current collateral performance with prepayment rates and loss projections reflective of current economic conditions of housing price change, unemployment rates, interest rates, borrower attributes and other market indicators.

Alt-A mortgage securities that are valued using these methods are generally classified as Level 2. However, Alt-A mortgage securities backed by Alt-A mortgages of lower quality or subordinated tranches in the capital structure are mostly classified as Level 3 due to the reduced liquidity that exists for such positions, which reduces the reliability of prices available from independent sources.

Items Measured at Fair Value on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013. The Company’s hedging of positions that have been classified in the Level 3 category is not limited to other financial instruments (hedging instruments) that have been classified as Level 3, but also instruments classified as Level 1 or Level 2 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.

Fair Value Levels



In millions of dollars at September 30, 2014	Level 1⁽¹⁾		Level 2⁽¹⁾		Level 3		Gross inventory		Netting⁽²⁾			Net balance
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	—	$	176,675	$	3,479	$	180,154	$	(39,241	)	$	140,913
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	—	$	18,990	$	789	$	19,779	$	—		$	19,779
Residential	—		1,396		2,490		3,886		—			3,886
Commercial	—		2,408		554		2,962		—			2,962
Total trading mortgage-backed securities	$	—	$	22,794	$	3,833	$	26,627	$	—		$	26,627
U.S. Treasury and federal agency securities	$	17,413	$	4,293	$	7	$	21,713	$	—		$	21,713
State and municipal	—		2,462		251		2,713		—			2,713
Foreign government	50,150		25,598		385		76,133		—			76,133
Corporate	—		27,174		1,214		28,388		—			28,388
Equity securities	51,172		2,535		1,955		55,662		—			55,662
Asset-backed securities	—		1,302		3,351		4,653		—			4,653
Other trading assets	—		12,500		4,739		17,239		—			17,239
Total trading non-derivative assets	$	118,735	$	98,658	$	15,735	$	233,128	$	—		$	233,128
Trading derivatives
Interest rate contracts	$	18	$	545,414	$	3,535	$	548,967
Foreign exchange contracts	12		141,374		1,156		142,542
Equity contracts	2,901		20,283		2,056		25,240
Commodity contracts	305		11,225		530		12,060
Credit derivatives	—		38,082		2,749		40,831
Total trading derivatives	$	3,236	$	756,378	$	10,026	$	769,640
Cash collateral paid⁽³⁾							$	3,258
Netting agreements									$	(674,769	)
Netting of cash collateral received									(40,435		)
Total trading derivatives	$	3,236	$	756,378	$	10,026	$	772,898	$	(715,204	)	$	57,694
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	—	$	36,776	$	92	$	36,868	$	—		$	36,868
Residential	—		9,277		13		9,290		—			9,290
Commercial	—		554		10		564		—			564
Total investment mortgage-backed securities	$	—	$	46,607	$	115	$	46,722	$	—		$	46,722
U.S. Treasury and federal agency securities	$	95,333	$	16,547	$	6	$	111,886	$	—		$	111,886
State and municipal	$	—	$	10,629	$	2,284	$	12,913	$	—		$	12,913
Foreign government	39,097		55,943		620		95,660		—			95,660
Corporate	5		13,591		362		13,958		—			13,958
Equity securities	2,806		419		761		3,986		—			3,986
Asset-backed securities	—		12,259		584		12,843		—			12,843
Other debt securities	—		645		65		710		—			710
Non-marketable equity securities	—		273		3,231		3,504		—			3,504
Total investments	$	137,241	$	156,913	$	8,028	$	302,182	$	—		$	302,182



In millions of dollars at September 30, 2014	Level 1⁽¹⁾			Level 2⁽¹⁾			Level 3			Gross inventory		Netting⁽²⁾			Net balance
Loans⁽⁴⁾	$	—		$	1,463		$	2,948		$	4,411	$	—		$	4,411
Mortgage servicing rights	—			—			2,093			2,093		—			2,093
Non-trading derivatives and other financial assets measured on a recurring basis, gross	$	—		$	10,246		$	108		$	10,354
Cash collateral paid										$	197
Netting of cash collateral received												$	(2,297	)
Non-trading derivatives and other financial assets measured on a recurring basis	$	—		$	10,246		$	108		$	10,551	$	(2,297	)	$	8,254
Total assets	$	259,212		$	1,200,333		$	42,417		$	1,505,417	$	(756,742	)	$	748,675
Total as a percentage of gross assets⁽⁵⁾	17.3		%	79.9		%	2.8		%
Liabilities
Interest-bearing deposits	$	—		$	986		$	805		$	1,791	$	—		$	1,791
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	—		$	82,845		$	1,034		$	83,879	$	(39,241	)	$	44,638
Trading account liabilities
Securities sold, not yet purchased	63,791			14,402			368			78,561					78,561
Trading derivatives
Interest rate contracts	$	14		$	530,491		$	3,597		$	534,102
Foreign exchange contracts	24			141,260			379			141,663
Equity contracts	2,959			29,367			3,115			35,441
Commodity contracts	357			10,901			2,077			13,335
Credit derivatives	—			37,618			3,282			40,900
Total trading derivatives	$	3,354		$	749,637		$	12,450		$	765,441
Cash collateral received⁽⁶⁾										$	11,828
Netting agreements												$	(674,769	)
Netting of cash collateral paid												(43,789		)
Total trading derivatives	$	3,354		$	749,637		$	12,450		$	777,269	$	(718,558	)	$	58,711
Short-term borrowings	$	—		$	1,353		$	101		$	1,454	$	—		$	1,454
Long-term debt	—			18,897			7,558			26,455		—			26,455
Non-trading derivatives and other financial liabilities measured on a recurring basis, gross	$	—		$	2,426		$	7		$	2,433
Cash collateral received⁽⁷⁾										$	292
Total non-trading derivatives and other financial liabilities measured on a recurring basis	$	—		$	2,426		$	7		$	2,725				$	2,725
Total liabilities	$	67,145		$	870,546		$	22,323		$	972,134	$	(757,799	)	$	214,335
Total as a percentage of gross liabilities⁽⁵⁾	7.0		%	90.7		%	2.3		%

(1)

For the three and nine months ended September 30, 2014, the Company transferred assets of approximately $0.3 billion and $2.1 billion, respectively, from Level 1 to Level 2, primarily related to foreign government securities not traded in active markets during the respective periods and Citi refining its methodology for certain equity contracts to reflect the prevalence of off-exchange trading. During the three and nine months ended September 30, 2014, the Company transferred assets of approximately $0.7 billion and $3.7 billion, respectively, from Level 2 to Level 1, almost all related to foreign government bonds traded with sufficient frequency to constitute a liquid market. During the three months ended September 30, 2014, there were no material transfers of liabilities between Level 1 and Level 2. During the nine months ended September 30, 2014, the Company transferred liabilities of approximately $1.4 billion from Level 1 to Level 2, as Citi refined its methodology for certain equity contracts to reflect the prevalence of off-exchange trading.


(2)	Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.


(3)	Reflects the net amount of $47,047 million of gross cash collateral paid, of which $43,789 million was used to offset derivative liabilities.


(4)	There is no allowance for loan losses recorded for loans reported at fair value.


(5)	Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.


(6)	Reflects the net amount of $52,263 million of gross cash collateral received, of which $40,435 million was used to offset derivative assets.


(7)	Reflects the net amount of $2,589 million of gross cash collateral received, of which $2,297 million was used to offset derivative assets.

Fair Value Levels



In millions of dollars at December 31, 2013	Level 1⁽¹⁾		Level 2⁽¹⁾		Level 3		Gross inventory		Netting⁽²⁾			Net balance
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	—	$	172,848	$	3,566	$	176,414	$	(34,933	)	$	141,481
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	—		22,861		1,094		23,955		—			23,955
Residential	—		1,223		2,854		4,077		—			4,077
Commercial	—		2,318		256		2,574		—			2,574
Total trading mortgage-backed securities	$	—	$	26,402	$	4,204	$	30,606	$	—		$	30,606
U.S. Treasury and federal agency securities	$	12,080	$	2,757	$	—	$	14,837	$	—		$	14,837
State and municipal	—		2,985		222		3,207		—			3,207
Foreign government	49,220		25,220		416		74,856		—			74,856
Corporate	—		28,699		1,835		30,534		—			30,534
Equity securities	58,761		1,958		1,057		61,776		—			61,776
Asset-backed securities	—		1,274		4,342		5,616		—			5,616
Other trading assets	—		8,491		3,184		11,675		—			11,675
Total trading non-derivative assets	$	120,061	$	97,786	$	15,260	$	233,107	$	—		$	233,107
Trading derivatives
Interest rate contracts	$	11	$	624,902	$	3,467	$	628,380
Foreign exchange contracts	40		91,189		1,325		92,554
Equity contracts	5,793		17,611		1,473		24,877
Commodity contracts	506		7,775		801		9,082
Credit derivatives	—		37,336		3,010		40,346
Total trading derivatives	$	6,350	$	778,813	$	10,076	$	795,239
Cash collateral paid⁽³⁾							$	6,073
Netting agreements									$	(713,598	)
Netting of cash collateral received									(34,893		)
Total trading derivatives	$	6,350	$	778,813	$	10,076	$	801,312	$	(748,491	)	$	52,821
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	—	$	41,810	$	187	$	41,997	$	—		$	41,997
Residential	—		10,103		102		10,205		—			10,205
Commercial	—		453		—		453		—			453
Total investment mortgage-backed securities	$	—	$	52,366	$	289	$	52,655	$	—		$	52,655
U.S. Treasury and federal agency securities	$	69,139	$	18,449	$	8	$	87,596	$	—		$	87,596
State and municipal	$	—	$	17,297	$	1,643	$	18,940	$	—		$	18,940
Foreign government	35,179		60,948		344		96,471		—			96,471
Corporate	4		10,841		285		11,130		—			11,130
Equity securities	2,583		336		815		3,734		—			3,734
Asset-backed securities	—		13,314		1,960		15,274		—			15,274
Other debt securities	—		661		50		711		—			711
Non-marketable equity securities	—		358		4,347		4,705		—			4,705
Total investments	$	106,905	$	174,570	$	9,741	$	291,216	$	—		$	291,216



In millions of dollars at December 31, 2013	Level 1⁽¹⁾			Level 2⁽¹⁾			Level 3			Gross inventory		Netting⁽²⁾			Net balance
Loans⁽⁴⁾	$	—		$	886		$	4,143		$	5,029	$	—		$	5,029
Mortgage servicing rights	—			—			2,718			2,718		—			2,718
Non-trading derivatives and other financial assets measured on a recurring basis, gross	$	—		$	9,811		$	181		$	9,992
Cash collateral paid										$	82
Netting of cash collateral received												$	(2,951	)
Non-trading derivatives and other financial assets measured on a recurring basis	$	—		$	9,811		$	181		$	10,074	$	(2,951	)	$	7,123
Total assets	$	233,316		$	1,234,714		$	45,685		$	1,519,870	$	(786,375	)	$	733,495
Total as a percentage of gross assets⁽⁵⁾	15.4		%	81.6		%	3.0		%
Liabilities
Interest-bearing deposits	$	—		$	787		$	890		$	1,677	$	—		$	1,677
Federal funds purchased and securities loaned or sold under agreements to repurchase	—			85,576			902			86,478		(34,933		)	51,545
Trading account liabilities
Securities sold, not yet purchased	51,035			9,883			590			61,508					61,508
Trading account derivatives
Interest rate contracts	$	12		$	614,586		$	2,628		$	617,226
Foreign exchange contracts	29			87,978			630			88,637
Equity contracts	5,783			26,178			2,331			34,292
Commodity contracts	363			7,613			2,194			10,170
Credit derivatives	—			37,510			3,284			40,794
Total trading derivatives	$	6,187		$	773,865		$	11,067		$	791,119
Cash collateral received⁽⁶⁾										$	8,827
Netting agreements												$	(713,598	)
Netting of cash collateral paid												(39,094		)
Total trading derivatives	$	6,187		$	773,865		$	11,067		$	799,946	$	(752,692	)	$	47,254
Short-term borrowings	—			3,663			29			3,692		—			3,692
Long-term debt	—			19,256			7,621			26,877		—			26,877
Non-trading derivatives and other financial liabilities measured on a recurring basis, gross	$	—		$	1,719		$	10		$	1,729
Cash collateral received⁽⁷⁾										$	282
Non-trading derivatives and other financial liabilities measured on a recurring basis	$	—		$	1,719		$	10		$	2,011				$	2,011
Total liabilities	$	57,222		$	894,749		$	21,109		$	982,189	$	(787,625	)	$	194,564
Total as a percentage of gross liabilities⁽⁵⁾	5.9		%	91.9		%	2.2		%

(1)

For the three and nine months ended September 30, 2013, the Company transferred assets of $47 million and $1.0 billion, respectively, from Level 1 to Level 2. During the three and nine months ended September 30, 2013, the Company transferred assets of approximately $33 million and $49.1 billion, respectively, from Level 2 to Level 1. Almost all of the transfers during the nine months ended September 30, 2013 were related to U.S. Treasury securities held across the Company’s major investment portfolios where Citi obtained additional information from its external pricing sources to meet the criteria for Level 1 classification. There were no material liability transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2013.


(2)	Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.


(3)	Reflects the net amount of $45,167 million of gross cash collateral paid, of which $39,094 million was used to offset derivative liabilities.


(4)	There is no allowance for loan losses recorded for loans reported at fair value.


(5)	Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.


(6)	Reflects the net amount of $43,720 million of gross cash collateral received, of which $34,893 million was used to offset derivative assets.


(7)	Reflects the net amount of $3,233 million of gross cash collateral received, of which $2,951 million was used to offset derivative assets.

Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the three and nine months ended September 30, 2014 and 2013. As discussed above, the Company classifies financial instruments as Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

The Company often hedges positions with offsetting positions that are classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been classified by the Company in the Level 1 and Level 2 categories. In addition, the Company hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following tables.

Level 3 Fair Value Rollforward



				Net realized/unrealized gains (losses) incl. in					Transfers																			Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Jun. 30, 2014			Principal transactions			Other⁽¹⁾⁽²⁾		into Level 3			out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2014
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	3,363		$	116		$	—	$	—		$	—		$	—	$	—	$	—		$	—		$	3,479		$	130
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	697		$	22		$	—	$	217		$	(145	)	$	97	$	6	$	(89	)	$	(16	)	$	789		$	18
Residential	2,610			63			—		86			(77		)	197		—		(389		)	—			2,490			(4		)
Commercial	409			7			—		84			(58		)	288		—		(176		)	—			554			(4		)
Total trading mortgage-backed securities	$	3,716		$	92		$	—	$	387		$	(280	)	$	582	$	6	$	(654	)	$	(16	)	$	3,833		$	10
U.S. Treasury and federal agency securities	$	—		$	—		$	—	$	—		$	—		$	7	$	—	$	—		$	—		$	7		$	—
State and municipal	242			7			—		4			(1		)	15		—		(16		)	—			251			6
Foreign government	465			(40		)	—		31			(64		)	212		—		(241		)	22			385			(13		)
Corporate	1,262			83			—		141			(104		)	471		—		(685		)	46			1,214			(42		)
Equity securities	1,863			(2		)	—		123			(35		)	119		—		(113		)	—			1,955			34
Asset-backed securities	3,376			394			—		37			(56		)	1,219		—		(1,619		)	—			3,351			33
Other trading assets	4,016			56			—		809			(607		)	1,693		—		(917		)	(311		)	4,739			(34		)
Total trading non-derivative assets	$	14,940		$	590		$	—	$	1,532		$	(1,147	)	$	4,318	$	6	$	(4,245	)	$	(259	)	$	15,735		$	(6	)
Trading derivatives, net⁽⁴⁾
Interest rate contracts	17			76			—		(194		)	7			52		—		(52		)	32			(62		)	94
Foreign exchange contracts	847			8			—		7			(73		)	3		—		(1		)	(14		)	777			43
Equity contracts	(893		)	8			—		(171		)	143			124		—		(55		)	(215		)	(1,059		)	(235		)
Commodity contracts	(1,229		)	(388		)	—		—			(27		)	—		—		—			97			(1,547		)	(228		)
Credit derivatives	(199		)	(222		)	—		(16		)	(89		)	—		—		—			(7		)	(533		)	(264		)
Total trading derivatives, net⁽⁴⁾	$	(1,457	)	$	(518	)	$	—	$	(374	)	$	(39	)	$	179	$	—	$	(108	)	$	(107	)	$	(2,424	)	$	(590	)



			Net realized/unrealized gains (losses) incl. in						Transfers																		Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Jun. 30, 2014		Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3			out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2014
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	163	$	—		$	2		$	18		$	(83	)	$	—	$	—	$	(7	)	$	(1	)	$	92	$	—
Residential	17		—			—			1			—			—		—		(5		)	—			13		—
Commercial	7		—			—			—			(4		)	7		—		—			—			10		2
Total investment mortgage-backed securities	$	187	$	—		$	2		$	19		$	(87	)	$	7	$	—	$	(12	)	$	(1	)	$	115	$	2
U.S. Treasury and federal agency securities	$	7	$	—		$	—		$	—		$	—		$	—	$	—	$	(1	)	$	—		$	6	$	—
State and municipal	2,102		—			37			67			(69		)	271		—		(124		)	—			2,284		6
Foreign government	615		—			(8		)	—			(63		)	294		—		(198		)	(20		)	620		(9		)
Corporate	512		—			(18		)	4			(136		)	23		—		(147		)	124			362		(4		)
Equity securities	826		—			18			6			(7		)	2		—		(84		)	—			761		(23		)
Asset-backed securities	1,739		—			4			—			(2		)	—		—		—			(1,157		)	584		(39		)
Other debt securities	48		—			—			—			—			66		—		(49		)	—			65		—
Non-marketable equity securities	3,722		—			(8		)	—			—			85		—		(51		)	(517		)	3,231		42
Total investments	$	9,758	$	—		$	27		$	96		$	(364	)	$	748	$	—	$	(666	)	$	(1,571	)	$	8,028	$	(25	)
Loans	$	3,310	$	—		$	(31	)	$	8		$	—		$	287	$	19	$	(513	)	$	(132	)	$	2,948	$	2
Mortgage servicing rights	2,282		—			(18		)	—			—			—		53		(125		)	(99		)	2,093		(18		)
Other financial assets measured on a recurring basis	201		—			14			(83		)	—			—		35		(1		)	(58		)	108		(2		)
Liabilities
Interest-bearing deposits	$	909	$	—		$	184		$	—		$	(12	)	$	—	$	117	$	—		$	(25	)	$	805	$	20
Federal funds purchased and securities loaned or sold under agreements to repurchase	1,032		13			—			—			—			—		—		117			(102		)	1,034		5
Trading account liabilities
Securities sold, not yet purchased	472		(1		)	—			19			(40		)	—		—		149			(233		)	368		(11		)
Short-term borrowings	129		—			—			1			—			—		23		—			(52		)	101		(8		)
Long-term debt	7,847		520			—			476			(760		)	—		1,419		—			(904		)	7,558		215
Other financial liabilities measured on a recurring basis	6		—			(2		)	—			—			—		—		—			(1		)	7		(1		)



				Net realized/unrealized gains (losses) incl. in					Transfers																			Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2013			Principal transactions			Other⁽¹⁾⁽²⁾		into Level 3			out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2014
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	3,566		$	37		$	—	$	67		$	(8	)	$	75	$	—	$	—		$	(258	)	$	3,479		$	153
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	1,094		$	120		$	—	$	594		$	(743	)	$	358	$	13	$	(606	)	$	(41	)	$	789		$	27
Residential	2,854			380			—		239			(359		)	1,877		—		(2,501		)	—			2,490			108
Commercial	256			18			—		160			(120		)	524		—		(284		)	—			554			1
Total trading mortgage-backed securities	$	4,204		$	518		$	—	$	993		$	(1,222	)	$	2,759	$	13	$	(3,391	)	$	(41	)	$	3,833		$	136
U.S. Treasury and federal agency securities	$	—		$	3		$	—	$	—		$	—		$	7	$	—	$	(3	)	$	—		$	7		$	—
State and municipal	222			11			—		149			(105		)	33		—		(59		)	—			251			(17		)
Foreign government	416			(56		)	—		117			(166		)	571		—		(519		)	22			385			18
Corporate	1,835			1			—		394			(444		)	1,742		—		(2,353		)	39			1,214			19
Equity securities	1,057			(215		)	—		159			(95		)	1,305		—		(256		)	—			1,955			22
Asset-backed securities	4,342			1,002			—		120			(284		)	2,921		—		(4,750		)	—			3,351			246
Other trading assets	3,184			137			—		1,840			(1,786		)	4,568		—		(2,827		)	(377		)	4,739			(14		)
Total trading non-derivative assets	$	15,260		$	1,401		$	—	$	3,772		$	(4,102	)	$	13,906	$	13	$	(14,158	)	$	(357	)	$	15,735		$	410
Trading derivatives, net⁽⁴⁾
Interest rate contracts	839			(508		)	—		(42		)	(117		)	94		—		(150		)	(178		)	(62		)	(11		)
Foreign exchange contracts	695			105			—		28			(43		)	4		—		(2		)	(10		)	777			67
Equity contracts	(858		)	250			—		(762		)	473			386		—		(192		)	(356		)	(1,059		)	(402		)
Commodity contracts	(1,393		)	(140		)	—		25			(35		)	—		—		—			(4		)	(1,547		)	(9		)
Credit derivatives	(274		)	(449		)	—		(100		)	(134		)	103		—		(3		)	324			(533		)	(196		)
Total trading derivatives, net⁽⁴⁾	$	(991	)	$	(742	)	$	—	$	(851	)	$	144		$	587	$	—	$	(347	)	$	(224	)	$	(2,424	)	$	(551	)



			Net realized/unrealized gains (losses) incl. in						Transfers																			Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2013		Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3			out of Level 3			Purchases			Issuances		Sales			Settlements			Sept. 30, 2014
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	187	$	—		$	47		$	53		$	(137	)	$	17		$	—	$	(73	)	$	(2	)	$	92	$	(3	)
Residential	102		—			33			31			(1		)	17			—		(169		)	—			13		—
Commercial	—		—			—			4			(4		)	10			—		—			—			10		2
Total investment mortgage-backed securities	$	289	$	—		$	80		$	88		$	(142	)	$	44		$	—	$	(242	)	$	(2	)	$	115	$	(1	)
U.S. Treasury and federal agency securities	$	8	$	—		$	—		$	—		$	—		$	—		$	—	$	(2	)	$	—		$	6	$	—
State and municipal	1,643		—			102			784			(534		)	769			—		(480		)	—			2,284		72
Foreign government	344		—			(13		)	182			(105		)	623			—		(305		)	(106		)	620		(2		)
Corporate	285		—			(5		)	22			(137		)	289			—		(196		)	104			362		(8		)
Equity securities	815		—			30			18			(19		)	8			—		(91		)	—			761		(1		)
Asset-backed securities	1,960		—			15			—			(44		)	55			—		(97		)	(1,305		)	584		—
Other debt securities	50		—			(1		)	—			—			116			—		(50		)	(50		)	65		—
Non-marketable equity securities	4,347		—			24			67			—			704			—		(310		)	(1,601		)	3,231		66
Total investments	$	9,741	$	—		$	232		$	1,161		$	(981	)	$	2,608		$	—	$	(1,773	)	$	(2,960	)	$	8,028	$	126
Loans	$	4,143	$	—		$	(183	)	$	92		$	6		$	553		$	84	$	(630	)	$	(1,117	)	$	2,948	$	17
Mortgage servicing rights	2,718		—			(233		)	—			—			—			165		(260		)	(297		)	2,093		(216		)
Other financial assets measured on a recurring basis	181		—			39			(83		)	—			1			122		(10		)	(142		)	108		(20		)
Liabilities
Interest-bearing deposits	$	890	$	—		$	94		$	—		$	(12	)	$	—		$	117	$	—		$	(96	)	$	805	$	(31	)
Federal funds purchased and securities loaned or sold under agreements to repurchase	902		4			—			54			—			78			—		106			(102		)	1,034		(18		)
Trading account liabilities
Securities sold, not yet purchased	590		14			—			68			(91		)	—			—		443			(628		)	368		(19		)
Short-term borrowings	29		(31		)	—			81			—			8			24		—			(72		)	101		(15		)
Long-term debt	7,621		139			49			2,089			(2,998		)	—			3,365		—			(2,331		)	7,558		(205		)
Other financial liabilities measured on a recurring basis	10		—			(3		)	4			—			(1		)	1		(3		)	(7		)	7		(1		)


(1)	Changes in fair value for available-for-sale investments are recorded in Accumulated other comprehensive income (loss), unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.


(2)	Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income.


(3)	Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value of available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at September 30, 2014.


(4)	Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.



				Net realized/unrealized gains (losses) incl. in						Transfers																			Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Jun. 30, 2013			Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3			out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2013
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	4,177		$	70		$	—		$	29		$	(534	)	$	25	$	—	$	—		$	—		$	3,767		$	(5	)
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	1,704		$	43		$	—		$	295		$	(453	)	$	160	$	6	$	(320	)	$	(195	)	$	1,240		$	4
Residential	2,938			99			—			61			(132		)	1,049		—		(1,320		)	—			2,695			16
Commercial	326			24			—			109			(54		)	58		—		(84		)	—			379			(48		)
Total trading mortgage-backed securities	$	4,968		$	166		$	—		$	465		$	(639	)	$	1,267	$	6	$	(1,724	)	$	(195	)	$	4,314		$	(28	)
U.S. Treasury and federal agency securities	$	—		$	—		$	—		$	54		$	—		$	—	$	—	$	—		$	—		$	54		$	2
State and municipal	241			9			—			2			—			11		—		(8		)	—			255			4
Foreign government	240			(3		)	—			7			—			83		—		(85		)	—			242			1
Corporate	1,688			62			—			129			(240		)	408		—		(642		)	(4		)	1,401			44
Equity securities	190			(38		)	—			132			(25		)	331		—		(33		)	—			557			72
Asset-backed securities	4,259			99			—			14			(88		)	748		—		(964		)	—			4,068			100
Other trading assets	2,276			59			—			2			(84		)	721		—		(98		)	(51		)	2,825			12
Total trading non-derivative assets	$	13,862		$	354		$	—		$	805		$	(1,076	)	$	3,569	$	6	$	(3,554	)	$	(250	)	$	13,716		$	207
Trading derivatives, net⁽⁴⁾
Interest rate contracts	1,083			232			—			(47		)	(121		)	65		—		(33		)	156			1,335			530
Foreign exchange contracts	367			39			—			(1		)	(9		)	6		—		(1		)	—			401			(15		)
Equity contracts	(1,092		)	(224		)	—			(13		)	(46		)	60		—		(69		)	53			(1,331		)	(814		)
Commodity contracts	(218		)	(223		)	—			(12		)	(541		)	—		—		—			(76		)	(1,070		)	(332		)
Credit derivatives	(41		)	(108		)	—			24			(6		)	7		—		—			84			(40		)	(475		)
Total trading derivatives, net⁽⁴⁾	$	99		$	(284	)	$	—		$	(49	)	$	(723	)	$	138	$	—	$	(103	)	$	217		$	(705	)	$	(1,106	)
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	420		$	—		$	(12	)	$	80		$	(371	)	$	44	$	—	$	(37	)	$	—		$	124		$	9
Residential	—			—			—			—			—			—		—		—			—			—			—
Commercial	3			—			—			1			—			—		—		—			—			4			—
Total investment mortgage-backed securities	$	423		$	—		$	(12	)	$	81		$	(371	)	$	44	$	—	$	(37	)	$	—		$	128		$	9
U.S. Treasury and federal agency securities	$	9		$	—		$	—		$	—		$	—		$	—	$	—	$	—		$	—		$	9		$	—
State and municipal	684			—			6			5			—			54		—		(23		)	—			726			2
Foreign government	367			—			3			63			(55		)	105		—		(140		)	(17		)	326			(28		)
Corporate	404			—			17			42			—			85		—		(75		)	(1		)	472			8
Equity securities	779			—			34			—			(1		)	—		—		(13		)	—			799			33
Asset-backed securities	1,758			—			14			—			—			180		—		(14		)	(95		)	1,843			29
Other debt securities	51			—			—			—			—			—		—		(51		)	—			—			—
Non-marketable equity securities	5,363			—			111			—			—			68		—		—			(440		)	5,102			100
Total investments	$	9,838		$	—		$	173		$	191		$	(427	)	$	536	$	—	$	(353	)	$	(553	)	$	9,405		$	153



			Net realized/unrealized gains (losses) incl. in						Transfers																	Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Jun. 30, 2013		Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3		out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2013
Loans	$	4,321	$	—		$	(19	)	$	—	$	—		$	—	$	631	$	—		$	(600	)	$	4,333	$	(33	)
Mortgage servicing rights	2,524		—			(6		)	—		—			—		166		—			(104		)	2,580		(10		)
Other financial assets measured on a recurring basis	245		—			45			—		—			—		107		(31		)	(96		)	270		41
Liabilities
Interest-bearing deposits	$	831	$	—		$	(19	)	$	—	$	—		$	—	$	23	$	—		$	(5	)	$	868	$	(8	)
Federal funds purchased and securities loaned or sold under agreements to repurchase	1,007		14			—			15		—			—		—		—			(113		)	895		6
Trading account liabilities
Securities sold, not yet purchased	450		40			—			30		(10		)	—		—		182			(136		)	476		—
Short-term borrowings	335		(1		)	—			2		—			—		25		—			(200		)	163		(42		)
Long-term debt	6,811		(309		)	44			1,651		(1,016		)	—		54		—			(316		)	7,449		(349		)
Other financial liabilities measured on a recurring basis	95		—			(23		)	—		—			—		10		—			(111		)	17		(23		)



				Net realized/unrealized gains (losses) incl. in						Transfers																			Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2012			Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3			out of Level 3			Purchases		Issuances		Sales			Settlements			Sept. 30, 2013
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	5,043		$	(93	)	$	—		$	627		$	(1,852	)	$	42	$	—	$	—		$	—		$	3,767		$	476
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	1,325		$	119		$	—		$	1,032		$	(1,158	)	$	1,129	$	61	$	(1,027	)	$	(241	)	$	1,240		$	47
Residential	1,805			457			—			378			(344		)	2,947		—		(2,541		)	(7		)	2,695			107
Commercial	1,119			116			—			264			(238		)	204		—		(1,069		)	(17		)	379			7
Total trading mortgage-backed securities	$	4,249		$	692		$	—		$	1,674		$	(1,740	)	$	4,280	$	61	$	(4,637	)	$	(265	)	$	4,314		$	161
U.S. Treasury and federal agency securities	$	—		$	—		$	—		$	54		$	—		$	—	$	—	$	—		$	—		$	54		$	2
State and municipal	195			28			—			2			—			86		—		(56		)	—			255			2
Foreign government	311			(5		)	—			60			(61		)	200		—		(263		)	—			242			1
Corporate	2,030			32			—			267			(340		)	1,787		—		(1,461		)	(914		)	1,401			(375		)
Equity securities	264			(34		)	—			180			(184		)	471		—		(140		)	—			557			347
Asset-backed securities	4,453			467			—			100			(143		)	3,780		—		(4,372		)	(217		)	4,068			80
Other trading assets	2,321			165			—			510			(1,082		)	2,254		—		(1,094		)	(249		)	2,825			6
Total trading non-derivative assets	$	13,823		$	1,345		$	—		$	2,847		$	(3,550	)	$	12,858	$	61	$	(12,023	)	$	(1,645	)	$	13,716		$	224
Trading derivatives, net⁽⁴⁾
Interest rate contracts	181			544			—			702			(13		)	208		—		(115		)	(172		)	1,335			1,430
Foreign exchange contracts	—			350			—			29			(6		)	21		—		(9		)	16			401			(183		)
Equity contracts	(1,448		)	37			—			(37		)	300			176		—		(125		)	(234		)	(1,331		)	(1,652		)
Commodity contracts	(771		)	188			—			(5		)	(536		)	15		—		(25		)	64			(1,070		)	108
Credit derivatives	(342		)	(254		)	—			134			(184		)	19		—		—			587			(40		)	(444		)
Total trading derivatives, net⁽⁴⁾	$	(2,380	)	$	865		$	—		$	823		$	(439	)	$	439	$	—	$	(274	)	$	261		$	(705	)	$	(741	)
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	1,458		$	—		$	(10	)	$	1,977		$	(3,721	)	$	514	$	—	$	(37	)	$	(57	)	$	124		$	9
Residential	205			—			23			60			(265		)	117		—		(140		)	—			—			—
Commercial	—			—			—			4			(12		)	12		—		—			—			4			—
Total investment mortgage-backed securities	$	1,663		$	—		$	13		$	2,041		$	(3,998	)	$	643	$	—	$	(177	)	$	(57	)	$	128		$	9
U.S. Treasury and federal agency securities	$	12		$	—		$	—		$	—		$	—		$	—	$	—	$	(3	)	$	—		$	9		$	—
State and municipal	849			—			4			12			(117		)	261		—		(158		)	(125		)	726			(3		)
Foreign government	383			—			(1		)	168			(256		)	394		—		(291		)	(71		)	326			(36		)
Corporate	385			—			14			333			(116		)	101		—		(222		)	(23		)	472			4
Equity securities	773			—			31			17			(1		)	1		—		(22		)	—			799			30
Asset-backed securities	2,220			—			64			1,192			(1,684		)	1,105		—		(31		)	(1,023		)	1,843			4
Other debt securities	258			—			—			—			(205		)	—		—		(53		)	—			—			—
Non-marketable equity securities	5,364			—			289			—			—			621		—		(83		)	(1,089		)	5,102			271
Total investments	$	11,907		$	—		$	414		$	3,763		$	(6,377	)	$	3,126	$	—	$	(1,040	)	$	(2,388	)	$	9,405		$	279



			Net realized/unrealized gains (losses) incl. in					Transfers																		Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2012		Principal transactions		Other⁽¹⁾⁽²⁾			into Level 3		out of Level 3			Purchases			Issuances		Sales			Settlements			Sept. 30, 2013
Loans	$	4,931	$	—	$	(97	)	$	353	$	—		$	59		$	644	$	(6	)	$	(1,551	)	$	4,333	$	(99	)
Mortgage servicing rights	1,942		—		411			—		—			—			543		(1		)	(315		)	2,580		181
Other financial assets measured on a recurring basis	2,452		—		51			1		—			216			447		(2,041		)	(856		)	270		266
Liabilities
Interest-bearing deposits	$	786	$	—	$	(86	)	$	22	$	—		$	—		$	86	$	—		$	(112	)	$	868	$	(298	)
Federal funds purchased and securities loaned or sold under agreements to repurchase	841		74		—			216		(15		)	—			—		40			(113		)	895		35
Trading account liabilities
Securities sold, not yet purchased	365		51		—			54		(21		)	—			—		358			(229		)	476		132
Short-term borrowings	112		25		—			2		(4		)	—			316		—			(238		)	163		(40		)
Long-term debt	6,726		62		113			3,016		(2,030		)	—			959		(1		)	(1,046		)	7,449		(1,027		)
Other financial liabilities measured on a recurring basis	24		—		(208		)	5		(2		)	(3		)	100		—			(315		)	17		(26		)


(1)	Changes in fair value for available-for-sale investments are recorded in Accumulated other comprehensive income (loss), unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.


(2)	Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income.


(3)	Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value of available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at September 30, 2013.


(4)	Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

Level 3 Fair Value Rollforward

For the period June 30, 2014 to September 30, 2014 there were no significant Level 3 transfers.

The following were the significant Level 3 transfers for the period December 31, 2013 to September 30, 2014:


•	Transfers of Long-term debt of $2.1 billion from Level 2 to Level 3, and of $3.0 billion from Level 3 to Level 2, mainly related to structured debt, reflecting changes in the significance of unobservable inputs as well as certain underlying market inputs becoming less or more observable.


•	Transfers of Other trading assets of $1.8 billion from Level 2 to Level 3, and of $1.8 billion from Level 3 to Level 2, related to trading loans, reflecting changes in the volume of market quotations.

The following were the significant Level 3 transfers from June 30, 2013 to September 30, 2013:

•

Transfers of Long-term debt of $1.7 billion from Level 2 to Level 3 included $1.3 billion related to the transfer of a previously bifurcated hybrid debt instrument from Level 2 to Level 3 to reflect the host contract and the reclassification of Level 3 commodity contracts into Long-term debt. Prior to the third quarter of 2013, certain bifurcated embedded derivatives were reported as derivatives within Trading account assets and Trading account liabilities, while the related debt host contracts were reported at fair value within Long-term debt. Beginning in the third quarter of 2013, these hybrid instruments were reported on a combined basis within Long-term debt.


•	Additionally, during the third quarter of 2013, the Company transferred Long-term debt of $1.0 billion from Level 3 to Level 2, related mainly to structured debt driven by certain underlying market inputs becoming more observable as well as unobservable inputs used in the valuation becoming not significant.

The following were the significant Level 3 transfers from December 31, 2012 to September 30, 2013:

•

Transfers of Federal funds sold and securities borrowed or purchased under agreements to resell of $1.9 billion from Level 3 to Level 2 related to shortening of the remaining tenor of certain reverse repos. There is more transparency and observability for repo curves used in the valuation of structured reverse repos with tenors up to five years; thus, structured reverse repos maturing within five years are generally classified as Level 2.

•

Transfers of U.S. government-sponsored agency guaranteed mortgage-backed securities in Investments of $2.0 billion from Level 2 to Level 3, and of $3.7 billion from Level 3 to Level 2, due to changes in the level of price observability for the specific securities. Similarly, there were transfers of U.S. government-sponsored agency guaranteed mortgage-backed securities in Trading securities of $1.0 billion from Level 2 to Level 3, and of $1.2 billion from Level 3 to Level 2.


•	Transfers of asset-backed securities in Investments of $1.2 billion from Level 2 to Level 3, and of $1.7 billion from Level 3 to Level 2. These transfers were related to collateralized loan obligations, reflecting changes in the level of price observability.

•

Transfers of Long-term debt of $3.0 billion from Level 2 to Level 3, included $1.3 billion related to the transfer of a previously bifurcated hybrid debt instrument from Level 2 to Level 3 to reflect the host contract and the reclassification of Level 3 commodity contracts into Long-term debt. The remaining amounts of Long-term debt transferred from Level 2 to Level 3 as well as the $2.0 billion transfer from Level 3 to Level 2 were related mainly to structured debt reflecting changes in the significance of unobservable inputs as well as certain underlying market inputs becoming less or more observable.

Valuation Techniques and Inputs for Level 3 Fair Value Measurements

The Company’s Level 3 inventory consists of both cash securities and derivatives of varying complexities. The valuation methodologies applied to measure the fair value of these positions include discounted cash flow analyses, internal models and comparative analysis. A position is classified within Level 3 of the fair value hierarchy when at least one input is unobservable and is considered significant to its valuation. The specific reason an input is deemed unobservable varies. For example, at least one significant input to the pricing model is not observable in the market, at least one significant input has been adjusted to make it more representative of the position being valued, or the price quote available does not reflect sufficient trading activities.

The following tables present the valuation techniques covering the majority of Level 3 inventory and the most significant unobservable inputs used in Level 3 fair value measurements as of September 30, 2014 and December 31, 2013. Differences between this table and amounts presented in the Level 3 Fair Value Rollforward table represent individually immaterial items that have been measured using a variety of valuation techniques other than those listed.

Valuation Techniques and Inputs for Level 3 Fair Value Measurements



As of September 30, 2014	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted Average⁽⁴⁾
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	3,006	Model-based	Interest rate	1.69		%	2.18		%	2.04		%
Mortgage-backed securities	$	2,814	Price-based	Price	$	0.03		$	112.87		$	84.66
	905		Yield analysis	Yield	0.01		%	21.53		%	7.08		%
State and municipal, foreign government, corporate and other debt securities	$	7,011	Price-based	Price	$	—		$	155.70		$	90.50
	1,638		Cash flow	Credit spread	60 bps			600 bps			224 bps
Equity securities⁽⁵⁾	$	1,874	Price-based	Price ⁽⁵⁾	$	—		$	150.00		$	69.64
	755		Cash flow	Yield	4.00		%	5.00		%	4.50		%
				WAL	0.10 years			3.54 years			1.12 years
Asset-backed securities	$	3,786	Price-based	Price	$	—		$	105.50		$	70.02
Non-marketable equity	$	1,629	Price-based	Discount to price	—		%	90.00		%	8.19		%
	1,179		Comparables analysis	EBITDA multiples	5.20		x	12.50		x	9.48		x
	400		Cash flow	PE ratio	8.30		x	8.30		x	8.30		x
				Price-to-book ratio	1.00		x	1.56		x	1.15		x
				Fund NAV	$	1		$	67,511,273		$	30,871,087
Derivatives—Gross⁽⁶⁾
Interest rate contracts (gross)	$	6,989	Model-based	Interest rate (IR) lognormal volatility	14.15		%	76.70		%	24.27		%
				Mean reversion	1.00		%	20.00		%	10.44		%
Foreign exchange contracts (gross)	$	1,198	Model-based	Foreign exchange (FX) volatility	0.45		%	23.10		%	9.24		%
	291		Cash flow	Interest rate	5.00		%	12.75		%	5.83		%
				IR-FX correlation	40.00		%	60.00		%	50.00		%
				IR-IR correlation	40.00		%	40.00		%	40.00		%
Equity contracts (gross)⁽⁷⁾	$	4,258	Model-based	Equity volatility	8.22		%	80.00		%	26.79		%
	870		Price-based	Equity forward	84.19		%	121.00		%	98.80		%
				Equity-FX correlation	(84.00		)%	71.00		%	(23.66		)%
				Equity-equity correlation	(66.30		)%	99.00		%	41.41		%
				Price	$	—		$	174.94		$	53.76
Commodity contracts (gross)	$	2,605	Model-based	Commodity volatility	5.00		%	66.00		%	15.00		%



As of September 30, 2014	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted Average⁽⁴⁾
				Commodity correlation	(52.00		)%	90.00		%	27.00		%
				Forward price	54.72		%	226.83		%	96.86		%
Credit derivatives (gross)	$	4,437	Model-based	Recovery rate	12.00		%	60.00		%	38.69		%
	1,580		Price-based	Credit correlation	5.00		%	95.00		%	58.89		%
				Price	$	0.25		$	108.67		$	44.08
				Credit spread	1 bps			1,377 bps			208 bps
				Upfront points	1.01			99.90			71.85
Nontrading derivatives and other financial assets and liabilities measured on a recurring basis (gross)⁽⁶⁾	$	47	Price-based	Price	$	—		$	133.00		$	100.29
	45		Model-based	Interest Rate	7.01		%	7.03		%	7.02		%
	23		Comparables analysis	EBITDA multiples	3.60		x	12.50		x	11.52		x
				PE ratio	9.40		x	9.40		x	9.40		x
				Fund NAV	$	1		$	10,229,908		$	8,376,456
				Redemption rate	3.00		%	99.50		%	66.38		%
				Discount to price	—		%	52.00		%	19.14		%
				Price-to-book ratio	1.20		x	1.20		x	1.20		x
Loans	$	1,092	Cash flow	Yield	1.60		%	4.50		%	2.23		%
	803		Price-based	Price	$	5.00		$	105.88		$	98.95
	570		Model-based	Credit spread	35 bps			923 bps			204 bps
	442		Yield analysis
Mortgage servicing rights	$	1,998	Cash flow	Yield	6.14		%	20.75		%	12.00		%
				WAL	3.30 years			8.48 years			6.10 years
Liabilities
Interest-bearing deposits	$	805	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				Equity-IR Correlation	31.00		%	31.00		%	31.00		%
				Forward price	54.72		%	226.83		%	96.86		%
				Commodity correlation	(52.00		)%	90.00		%	27.00		%
				Commodity volatility	5.00		%	66.00		%	15.00		%
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	1,034	Model-based	Interest rate	0.77		%	2.72		%	2.34		%
Trading account liabilities
Securities sold, not yet purchased	$	333	Price-based	Credit-IR correlation	(70.49		)%	5.37		%	(41.74		)%
				Price	$	98.25		$	133.00		$	99.81
Short-term borrowings and long-term debt	$	7,531	Model-based	IR lognormal volatility	11.86		%	87.59		%	23.93		%
				Mean reversion	1.00		%	20.00		%	10.44		%
				Equity volatility	14.20		%	27.10		%	22.45		%
				Equity-equity correlation	(66.30		)%	99.00		%	40.90		%
				Equity-FX correlation	(84.00		)%	48.70		%	(26.80		)%
				Equity forward	90.00		%	121.00		%	98.40		%
				Forward price	54.72		%	226.83		%	97.33		%
				Commodity correlation	(52.00		)%	90.00		%	27.00		%
				Commodity volatility	5.00		%	66.00		%	15.00		%



As of December 31, 2013	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted Average⁽⁴⁾
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	3,299	Model-based	Interest rate	1.33		%	2.19		%	2.04		%
Mortgage-backed securities	$	2,869	Price-based	Price	$	0.10		$	117.78		77.60
	1,241		Yield analysis	Yield	0.03		%	21.80		%	8.66		%
State and municipal, foreign government, corporate and other debt securities	$	5,361	Price-based	Price	$	—		$	126.49		$	87.47
	2,014		Cash flow	Credit spread	11 bps			375 bps			213 bps
Equity securities⁽⁵⁾	$	947	Price-based	Price ⁽⁵⁾	$	0.31		$	93.66		$	86.90
	827		Cash flow	Yield	4.00		%	5.00		%	4.50		%
				WAL	0.01 years			3.55 years			1.38 years
Asset-backed securities	$	4,539	Price-based	Price	$	—		$	135.83		$	70.89
	1,300		Model-based	Credit spread	25 bps			378 bps			302 bps
Non-marketable equity	$	2,324	Price-based	Fund NAV	$	612		$336,559,340			$124,080,454
	1,470		Comparables analysis	EBITDA multiples	4.20		x	16.90		x	9.78		x
	533		Cash flow	Discount to price	—		%	75.00		%	3.47		%
				Price-to-book ratio	0.90		x	1.05		x	1.02		x
				PE ratio	9.10		x	9.10		x	9.10		x
Derivatives—Gross⁽⁶⁾
Interest rate contracts (gross)	$	5,721	Model-based	Interest rate (IR) lognormal volatility	10.60		%	87.20		%	21.16		%
Foreign exchange contracts (gross)	$	1,727	Model-based	Foreign exchange (FX) volatility	1.00		%	28.00		%	13.45		%
	189		Cash flow	Interest rate	0.11		%	13.88		%	6.02		%
				IR-FX correlation	40.00		%	60.00		%	50.00		%
				IR-IR correlation	40.00		%	68.79		%	40.52		%
				Credit spread	25 bps			419 bps			162 bps
Equity contracts (gross)⁽⁷⁾	$	3,189	Model-based	Equity volatility	10.02		%	73.48		%	29.87		%
	563		Price-based	Equity forward	79.10		%	141.00		%	100.24		%
				Equity-equity correlation	(81.30		)%	99.40		%	48.45		%
				Equity-FX correlation	(70.00		)%	55.00		%	0.60		%
				Price	$	—		$	118.75		$	88.10
Commodity contracts (gross)	$	2,988	Model-based	Commodity volatility	4.00		%	146.00		%	15.00		%
				Commodity correlation	(75.00		)%	90.00		%	32.00		%
				Forward price	23.00		%	242.00		%	105.00		%
Credit derivatives (gross)	$	4,767	Model-based	Recovery rate	20.00		%	64.00		%	38.11		%
	1,520		Price-based	Credit correlation	5.00		%	95.00		%	47.43		%
				Price	$	0.02		$	115.20		$	29.83
				Credit spread	3 bps			1,335 bps			203 bps
				Upfront points	2.31			100.00			57.69
Nontrading derivatives and other financial assets and liabilities measured on a recurring basis (gross)⁽⁶⁾	$	82	Price-based	EBITDA multiples	5.20		x	12.60		x	12.08		x
	60		Comparables analysis	PE ratio	6.90		x	6.90		x	6.90		x
	38		Model-based	Price-to-book Ratio	1.05		x	1.05		x	1.05		x
				Price	$	—		$	105.10		$	71.25
				Fund NAV	$	1.00		$	10,688,600		$	9,706,488



As of December 31, 2013	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted Average⁽⁴⁾
				Discount to price	—		%	35.00		%	16.36		%

Loans	$	2,153	Price-based	Price	$	—		$	103.75		$	91.19
	1,422		Model-based	Yield	1.60		%	4.50		%	2.10		%
	549		Yield analysis	Credit spread	49 bps			1,600 bps			302 bps
Mortgage servicing rights	$	2,625	Cash flow	Yield	3.64		%	12.00		%	7.19		%
				WAL	2.27 years			9.44 years			6.12 years
Liabilities
Interest-bearing deposits	$	890	Model-based	Equity volatility	14.79		%	42.15		%	27.74		%
				Mean reversion	1.00		%	20.00		%	10.50		%
				Equity-IR correlation	9.00		%	20.50		%	19.81		%
				Forward price	23.00		%	242.00		%	105.00		%
				Commodity correlation	(75.00		)%	90.00		%	32.00		%
				Commodity volatility	4.00		%	146.00		%	15.00		%
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	902	Model-based	Interest rate	0.47		%	3.66		%	2.71		%
Trading account liabilities
Securities sold, not yet purchased	$	289	Model-based	Credit spread	166 bps			180 bps			175 bps
	$	273	Price-based	Credit-IR correlation	(68.00		)%	5.00		%	(50.00		)%
				Price	$	—		$	124.25		$	99.75
Short-term borrowings and long-term debt	$	6,781	Model-based	IR lognormal volatility	10.60		%	87.20		%	20.97		%
	868		Price-based	Equity forward	79.10		%	141.00		%	99.51		%
				Equity volatility	10.70		%	57.20		%	19.41		%
				Equity-FX correlation	(70.00		)%	55.00		%	0.60		%
				Equity-equity correlation	(81.30		)%	99.40		%	48.30		%
				Interest rate	4.00		%	10.00		%	5.00		%
				Price	$	0.63		$	103.75		$	80.73
				Forward price	23.00		%	242.00		%	101.00		%


(1)	The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.


(2)	Some inputs are shown as zero due to rounding.


(3)	When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to one large position only.


(4)	Weighted averages are calculated based on the fair value of the instrument.


(5)	For equity securities, the price input is expressed on an absolute basis, not as a percentage of the notional amount.


(6)	Both trading and nontrading account derivatives—assets and liabilities—are presented on a gross absolute value basis.


(7)	Includes hybrid products.

Sensitivity to Unobservable Inputs and Interrelationships between Unobservable Inputs

The impact of key unobservable inputs on the Level 3 fair value measurements may not be independent of one another. In addition, the amount and direction of the impact on a fair value measurement for a given change in an unobservable input depends on the nature of the instrument as well as whether the Company holds the instrument as an asset or a liability. For certain instruments, the pricing hedging and risk management are sensitive to the correlation between various inputs rather than on the analysis and aggregation of the individual inputs.

The following section describes the sensitivities and interrelationships of the most significant unobservable inputs used by the Company in Level 3 fair value measurements.

Correlation

Correlation is a measure of the co-movement between two or more variables. A variety of correlation-related assumptions are required for a wide range of instruments, including equity and credit baskets, foreign-exchange options, CDOs backed by loans or bonds, mortgages, subprime mortgages and many other instruments. For almost all of these instruments, correlations are not observable in the market and must be estimated using historical information. Estimating correlation can be especially difficult where it may vary over time. Extracting correlation information from market data requires significant assumptions regarding the informational efficiency of the market (for example, swaption markets). Changes in correlation levels can have a major impact, favorable or unfavorable, on the value of an instrument, depending on its nature. A change in the default correlation of the fair value of the underlying bonds comprising a CDO structure would affect the fair value of the senior tranche. For example, an increase in the default correlation of the underlying bonds would reduce the fair value of the senior tranche, because highly correlated instruments produce larger losses in the event of default and a part of these losses would become attributable to the senior tranche. That same change in default correlation would have a different impact on junior tranches of the same structure.

Volatility

Volatility represents the speed and severity of market price changes and is a key factor in pricing options. Typically, instruments can become more expensive if volatility increases. For example, as an index becomes more volatile, the cost to Citi of maintaining a given level of exposure increases because more frequent rebalancing of the portfolio is required. Volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike are not observable. The general relationship between changes in the value of a portfolio to changes in volatility also depends on changes in interest rates and the level of the underlying index. Generally, long option positions (assets) benefit from increases in volatility, whereas short option positions (liabilities) will suffer losses. Some instruments are more sensitive to changes in volatility than others. For example, an at-the-money option would experience a larger percentage change in its fair value than a deep-in-the-money option. In addition, the fair value of an option with more than one underlying security (for example, an option on a basket of bonds) depends on the volatility of the individual underlying securities as well as their correlations.

Yield

Adjusted yield is generally used to discount the projected future principal and interest cash flows on instruments, such as asset-backed securities. Adjusted yield is impacted by changes in the interest rate environment and relevant credit spreads.

In some circumstances, the yield of an instrument is not observable in the market and must be estimated from historical data or from yields of similar securities. This estimated yield may need to be adjusted to capture the characteristics of the security being valued. In other situations, the estimated yield may not represent sufficient market liquidity and must be adjusted as well. Whenever the amount of the adjustment is significant to the value of the security, the fair value measurement is classified as Level 3.

Prepayment

Voluntary unscheduled payments (prepayments) change the future cash flows for the investor and thereby change the fair value of the security. The effect of prepayments is more pronounced for residential mortgage-backed securities. An increase in prepayments—in speed or magnitude—generally creates losses for the holder of these securities. Prepayment is generally negatively correlated with delinquency and interest rate. A combination of low prepayment and high delinquencies amplify each input’s negative impact on mortgage securities’ valuation. As prepayment speeds change, the weighted average life of the security changes, which impacts the valuation either positively or negatively, depending upon the nature of the security and the direction of the change in the weighted average life.

Recovery

Recovery is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many credit securities (such as asset-backed securities), there is no directly observable market input for recovery, but indications of recovery levels are available from pricing services. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. The recovery rate impacts the valuation of credit securities. Generally, an increase in the recovery rate assumption increases the fair value of the security. An increase in loss severity, the inverse of the recovery rate, reduces the amount of principal available for distribution and, as a result, decreases the fair value of the security.

Credit Spread

Credit spread is a component of the security representing its credit quality. Credit spread reflects the market perception of changes in prepayment, delinquency and recovery rates, therefore capturing the impact of other variables on the fair value. Changes in credit spread affect the fair value of

securities differently depending on the characteristics and maturity profile of the security. For example, credit spread is a more significant driver of the fair value measurement of a high yield bond as compared to an investment grade bond. Generally, the credit spread for an investment grade bond is also more observable and less volatile than its high yield counterpart.

Qualitative Discussion of the Ranges of Significant Unobservable Inputs

The following section describes the ranges of the most significant unobservable inputs used by the Company in Level 3 fair value measurements. The level of aggregation and the diversity of instruments held by the Company lead to a wide range of unobservable inputs that may not be evenly distributed across the Level 3 inventory.

Correlation

There are many different types of correlation inputs, including credit correlation, cross-asset correlation (such as equity-interest rate correlation), and same-asset correlation (such as interest rate-interest rate correlation). Correlation inputs are generally used to value hybrid and exotic instruments. Generally, same-asset correlation inputs have a narrower range than cross-asset correlation inputs. However, due to the complex and unique nature of these instruments, the ranges for correlation inputs can vary widely across portfolios.

Volatility

Similar to correlation, asset-specific volatility inputs vary widely by asset type. For example, ranges for foreign exchange volatility are generally lower and narrower than equity volatility. Equity volatilities are wider due to the nature of the equities market and the terms of certain exotic instruments. For most instruments, the interest rate volatility input is on the lower end of the range; however, for certain structured or exotic instruments (such as market-linked deposits or exotic interest rate derivatives), the range is much wider.

Yield

Ranges for the yield inputs vary significantly depending upon the type of security. For example, securities that typically have lower yields, such as municipal bonds, will fall on the lower end of the range, while more illiquid securities or securities with lower credit quality, such as certain residual tranche asset-backed securities, will have much higher yield inputs.

Credit Spread

Credit spread is relevant primarily for fixed income and credit instruments; however, the ranges for the credit spread input can vary across instruments. For example, certain fixed income instruments, such as certificates of deposit, typically have lower credit spreads, whereas certain derivative instruments with high-risk counterparties are typically subject to higher credit spreads when they are uncollateralized or have a longer tenor. Other instruments, such as credit default swaps, also have credit spreads that vary with the attributes of the underlying obligor. Stronger companies have tighter credit spreads, and weaker companies have wider credit spreads.

Price

The price input is a significant unobservable input for certain fixed income instruments. For these instruments, the price input is expressed as a percentage of the notional amount, with a price of $100 meaning that the instrument is valued at par. For most of these instruments, the price varies between zero to $100, or slightly above $100. Relatively illiquid assets that have experienced significant losses since issuance, such as certain asset-backed securities, are at the lower end of the range, whereas most investment grade corporate bonds will fall in the middle to the higher end of the range. For certain structured debt instruments with embedded derivatives, the price input may be above $100 to reflect the embedded features of the instrument (for example, a step-up coupon or a conversion option).

The price input is also a significant unobservable input for certain equity securities; however, the range of price inputs varies depending on the nature of the position, the number of shares outstanding and other factors.

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These include assets measured at cost that have been written down to fair value during the periods as a result of an impairment. In addition, these assets include loans held-for-sale and other real estate owned that are measured at the lower of cost or market.

The following table presents the carrying amounts of all assets that were still held as of September 30, 2014 and December 31, 2013, for which a nonrecurring fair value measurement was recorded:



In millions of dollars	Fair value		Level 2		Level 3
September 30, 2014
Loans held-for-sale	$	4,184	$	1,267	$	2,917
Other real estate owned	109		20		89
Loans⁽¹⁾	3,441		3,027		414
Total assets at fair value on a nonrecurring basis	$	7,734	$	4,314	$	3,420


(1)	Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate secured loans.



In millions of dollars	Fair value		Level 2		Level 3
December 31, 2013
Loans held-for-sale	$	3,483	$	2,165	$	1,318
Other real estate owned	138		15		123
Loans⁽¹⁾	4,713		3,947		766
Total assets at fair value on a nonrecurring basis	$	8,334	$	6,127	$	2,207


(1)	Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate secured loans.

The fair value of loans-held-for-sale is determined where possible using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. Fair value for the other real estate owned is based on appraisals. For loans whose carrying amount is based on the fair value of the underlying collateral, the fair values depend on the type of collateral. Fair value of the collateral is typically estimated based on quoted market prices if available, appraisals or other internal valuation techniques.

Where the fair value of the related collateral is based on an unadjusted appraised value, the loan is generally classified as Level 2. Where significant adjustments are made to the appraised value, the loan is classified as Level 3. Additionally, for corporate loans, appraisals of the collateral are often based on sales of similar assets; however, because the prices of similar assets require significant adjustments to reflect the unique features of the underlying collateral, these fair value measurements are generally classified as Level 3.

Valuation Techniques and Inputs for Level 3 Nonrecurring Fair Value Measurements

The following tables present the valuation techniques covering the majority of Level 3 nonrecurring fair value measurements and the most significant unobservable inputs used in those measurements as of September 30, 2014 and December 31, 2013:



As of September 30, 2014	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low			High			Weighted average⁽²⁾
Loans held-for-sale	$	2,585	Price-based	Price	$	91.78		$	100.00		$	99.00
Other real estate owned	$	81	Price-based	Appraised Value	$	1,128,491		$	8,518,230		$	4,953,898
				Price	$	51.81		$	100.00		$	78.37
				Discount to price	13.00		%	62.00		%	32.00		%
Loans⁽³⁾	$	353	Price-based	Discount to price⁽⁴⁾	13.00		%	39.00		%	31.00		%


(1)	The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.


(2)	Weighted averages are calculated based on the fair value of the instrument.


(3)	Represents loans held for investment whose carrying amounts are based on the fair value of the underlying collateral.


(4)	Includes estimated costs to sell.



As of December 31, 2013	Fair Value⁽¹⁾ (in millions)		Methodology	Input	Low			High			Weighted average⁽²⁾
Loans held-for-sale	$	912	Price-based	Price⁽⁵⁾	$	60.00		$	100.00		$	98.77
	393		Cash Flow	Credit Spread	45 bps			80 bps			64 bps
Other real estate owned	$	98	Price-based	Discount to price⁽⁴⁾	34.00		%	59.00		%	39.00		%
	17		Cash Flow	Price⁽⁵⁾	$	60.46		$	100.00		$	96.67
				Appraised Value	$	636,249		$	15,897,503		$	11,392,478
Loans⁽³⁾	$	581	Price-based	Discount to price⁽⁴⁾	34.00		%	39.00		%	35.00		%
	109		Model-based	Price⁽⁵⁾	$	52.40		$	68.00		$	65.32
				Appraised Value	$	6,500,000		$	86,000,000		$	43,532,719


(1)	The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.


(2)	Weighted averages are based on the fair value of the instrument.


(3)	Represents loans held for investment whose carrying amounts are based on the fair value of the underlying collateral.


(4)	Includes estimated costs to sell.


(5)	Prices are based on appraised values.

Nonrecurring Fair Value Changes

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, 2014 and September 30, 2013:



	Three months ended September 30,
In millions of dollars	2014			2013
Loans held-for-sale	$	(11	)	$	(44	)
Other real estate owned	(7		)	(1		)
Loans⁽¹⁾	(158		)	(186		)
Total nonrecurring fair value gains (losses)	$	(176	)	$	(231	)


(1)	Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate loans.



	Nine months ended September 30,
In millions of dollars	2014			2013
Loans held-for-sale	$	58		$	(44	)
Other real estate owned	(15		)	(6		)
Loans⁽¹⁾	(462		)	(444		)
Total nonrecurring fair value gains (losses)	$	(419	)	$	(494	)


(1)	Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate loans.

Estimated Fair Value of Financial Instruments Not Carried at Fair Value

The table below presents the carrying value and fair value of Citigroup’s financial instruments that are not carried at fair value. The table below therefore excludes items measured at fair value on a recurring basis presented in the tables above.

The disclosure also excludes leases, affiliate investments, pension and benefit obligations and insurance policy claim reserves. In addition, contract-holder fund amounts exclude certain insurance contracts. Also, as required, the disclosure excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value associated with deposits with no fixed maturity, and other expenses that would be incurred in a market transaction. In addition, the table excludes the values of non-financial assets and liabilities, as well as a wide range of franchise, relationship and intangible values, which are integral to a full assessment of Citigroup’s financial position and the value of its net assets.

The fair value represents management’s best estimates based on a range of methodologies and assumptions. The carrying value of short-term financial instruments not accounted for at fair value, as well as receivables and payables arising in the ordinary course of business, approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used when available for investments and for liabilities, such as long-term debt not carried at fair value. For loans not accounted for at fair value, cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. Expected credit losses are either embedded in the estimated future cash flows or incorporated as an adjustment to the discount rate used. The value of collateral is also considered. For liabilities such as long-term debt not accounted for at fair value and without quoted market prices, market borrowing rates of interest are used to discount contractual cash flows.



	September 30, 2014				Estimated fair value
	Carrying value		Estimated fair value
In billions of dollars					Level 1		Level 2		Level 3
Assets
Investments	$	30.9	$	32.2	$	5.0	$	24.8	$	2.4
Federal funds sold and securities borrowed or purchased under agreements to resell	104.5		104.5		—		94.8		9.7
Loans⁽¹⁾⁽²⁾	629.7		627.2		—		6.5		620.7
Other financial assets⁽²⁾⁽³⁾	247.1		247.1		9.0		170.0		68.1
Liabilities
Deposits	$	940.9	$	938.5	$	—	$	644.8	$	293.7
Federal funds purchased and securities loaned or sold under agreements to repurchase	131.1		131.1		—		131.0		0.1
Long-term debt⁽⁴⁾	197.4		204.4		—		170.4		34.0
Other financial liabilities⁽⁵⁾	153.9		153.9		—		43.2		110.7



	December 31, 2013				Estimated fair value
	Carrying value		Estimated fair value
In billions of dollars					Level 1		Level 2		Level 3
Assets
Investments	$	17.8	$	19.3	$	5.3	$	11.9	$	2.1
Federal funds sold and securities borrowed or purchased under agreements to resell	115.6		115.6		—		107.2		8.4
Loans⁽¹⁾⁽²⁾	637.9		635.1		—		5.6		629.5
Other financial assets⁽²⁾⁽³⁾	250.7		250.7		9.4		189.5		51.8
Liabilities
Deposits	$	966.6	$	965.6	$	—	$	776.4	$	189.2
Federal funds purchased and securities loaned or sold under agreements to repurchase	152.0		152.0		—		151.8		0.2
Long-term debt⁽⁴⁾	194.2		201.3		—		175.6		25.7
Other financial liabilities⁽⁵⁾	136.2		136.2		—		41.2		95.0


(1)	The carrying value of loans is net of the Allowance for loan losses of $16.9 billion for September 30, 2014 and $19.6 billion for December 31, 2013. In addition, the carrying values exclude $2.8 billion and $2.9 billion of lease finance receivables at September 30, 2014 and December 31, 2013, respectively.


(2)	Includes items measured at fair value on a nonrecurring basis.


(3)	Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverable and other financial instruments included in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.


(4)	The carrying value includes long-term debt balances under qualifying fair value hedges.


(5)	Includes brokerage payables, separate and variable accounts, short-term borrowings (carried at cost) and other financial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.

Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality and market perceptions of value, and as existing assets and liabilities run off and new transactions are entered into. The estimated fair values of loans reflect changes in credit status since the loans were made, changes in interest rates in the case of fixed-rate loans, and premium values at origination of certain loans.

The estimated fair values of the Company’s corporate unfunded lending commitments at September 30, 2014 and December 31, 2013 were liabilities of $4.8 billion and $5.2 billion, respectively, substantially all of which are classified as Level 3. The Company does not estimate the fair values of consumer unfunded lending commitments, which are generally cancelable by providing notice to the borrower.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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