INVESTMENTS

Overview



	June 30, 2015		December 31, 2014
In millions of dollars	June 30, 2015		December 31, 2014
Securities available-for-sale (AFS)	$	294,126	$	300,143
Debt securities held-to-maturity (HTM)⁽¹⁾	30,166		23,921
Non-marketable equity securities carried at fair value⁽²⁾	2,288		2,758
Non-marketable equity securities carried at cost⁽³⁾	5,541		6,621
Total investments	$	332,121	$	333,443


(1)	Carried at adjusted amortized cost basis, net of any credit-related impairment.


(2)	Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings.


(3)	Primarily consists of shares issued by the Federal Reserve Bank, Federal Home Loan Banks, foreign central banks and various clearing houses of which Citigroup is a member.

The following table presents interest and dividend income on investments for the three and six months ended June 30, 2015 and 2014:



	Three Months Ended June 30,				Six Months Ended June 30,
In millions of dollars	2015		2014		2015		2014
Taxable interest	$	1,598	$	1,544	$	3,191	$	3,011
Interest exempt from U.S. federal income tax	49		147		72		311
Dividend income	123		116		218		242
Total interest and dividend income	$	1,770	$	1,807	$	3,481	$	3,564

The following table presents realized gains and losses on the sale of investments for the three and six months ended June 30, 2015 and 2014. The gross realized investment losses exclude losses from other-than-temporary impairment (OTTI):



	Three Months Ended June 30,						Six Months Ended June 30,
In millions of dollars	2015			2014			2015			2014
Gross realized investment gains	$	357		$	168		$	714		$	460
Gross realized investment losses	(174		)	(84		)	(224		)	(248		)
Net realized gains on sale of investments	$	183		$	84		$	490		$	212

The Company has sold certain debt securities that were classified as HTM. These sales were in response to significant deterioration in the creditworthiness of the issuers or securities. In addition, other securities were reclassified to AFS investments in response to significant credit deterioration. Because the Company generally intends to sell the securities, Citi recorded OTTI on the securities. The following table sets forth, for the periods indicated, the carrying value of HTM securities sold and reclassified to AFS, as well as the related gain (loss) or the OTTI losses recorded on these securities.



	Three Months Ended June 30,					Six Months Ended June 30,
In millions of dollars	2015		2014			2015			2014
Carrying value of HTM securities sold	$	22	$	5		$	49		$	5
Net realized gain on sale of HTM securities	3		—			5			—
Carrying value of securities reclassified to AFS	—		14			94			66
OTTI losses on securities reclassified to AFS	—		(1		)	(5		)	(9		)

Securities Available-for-Sale

The amortized cost and fair value of AFS securities at June 30, 2015 and December 31, 2014 were as follows:



	June 30, 2015								December 31, 2014
In millions of dollars	Amortized cost		Gross unrealized gains^{(1) (2)}		Gross unrealized losses^{(1) (2)}		Fair value		Amortized cost		Gross unrealized gains⁽¹⁾		Gross unrealized losses⁽¹⁾		Fair value
Debt securities AFS
Mortgage-backed securities⁽³⁾
U.S. government-sponsored agency guaranteed	$	34,099	$	452	$	176	$	34,375	$	35,647	$	603	$	159	$	36,091
Prime	16		—		—		16		12		—		—		12
Alt-A	2		—		—		2		43		1		—		44
Non-U.S. residential	7,054		42		7		7,089		8,247		67		7		8,307
Commercial	510		5		2		513		551		6		3		554
Total mortgage-backed securities	$	41,681	$	499	$	185	$	41,995	$	44,500	$	677	$	169	$	45,008
U.S. Treasury and federal agency securities
U.S. Treasury	$	114,607	$	640	$	266	$	114,981	$	110,492	$	353	$	127	$	110,718
Agency obligations	9,645		53		9		9,689		12,925		60		13		12,972
Total U.S. Treasury and federal agency securities	$	124,252	$	693	$	275	$	124,670	$	123,417	$	413	$	140	$	123,690
State and municipal⁽⁴⁾	$	12,537	$	98	$	922	$	11,713	$	13,526	$	150	$	977	$	12,699
Foreign government	87,505		491		400		87,596		90,249		734		286		90,697
Corporate	14,670		154		92		14,732		12,033		215		91		12,157
Asset-backed securities⁽³⁾	11,621		20		33		11,608		12,534		30		58		12,506
Other debt securities	841		—		—		841		661		—		—		661
Total debt securities AFS	$	293,107	$	1,955	$	1,907	$	293,155	$	296,920	$	2,219	$	1,721	$	297,418
Marketable equity securities AFS	$	988	$	27	$	44	$	971	$	2,461	$	308	$	44	$	2,725
Total securities AFS	$	294,095	$	1,982	$	1,951	$	294,126	$	299,381	$	2,527	$	1,765	$	300,143


(1)	Gross unrealized gains and losses, as presented, do not include the impact of minority investments and the related allocations and pick-up of unrealized gains and losses of AFS securities. These amounts totaled unrealized gains of $34 million and $27 million as of June 30, 2015 and December 31, 2014, respectively.


(2)	Gross unrealized gains and losses, as presented, as of June 30, 2015 do not include the impact of unrealized gains and losses of AFS securities of OneMain Financial (North America consumer finance business), which were reclassified as HFS as of June 30, 2015. These amounts totaled unrealized gains of $69 million and unrealized losses of $8 million as of June 30, 2015.

(3)

The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 20 to the Consolidated Financial Statements.

(4)

The gross unrealized losses on state and municipal debt securities are primarily attributable to the effects of fair value hedge accounting. Specifically, Citi hedges the LIBOR-benchmark interest rate component of certain fixed-rate tax-exempt state and municipal debt securities utilizing LIBOR-based interest rate swaps. During the hedge period, losses incurred on the LIBOR-hedging swaps recorded in earnings were substantially offset by gains on the state and municipal debt securities attributable to changes in the LIBOR swap rate being hedged. However, because the LIBOR swap rate decreased significantly during the hedge period while the overall fair value of the municipal debt securities was relatively unchanged, the effect of reclassifying fair value gains on these securities from Accumulated other comprehensive income (loss) (AOCI) to earnings, attributable solely to changes in the LIBOR swap rate, resulted in net unrealized losses remaining in AOCI that relate to the unhedged components of these securities.

As discussed in more detail below, the Company conducts periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary. Any credit-related impairment related to debt securities is recorded in earnings as OTTI. Non-credit-related impairment is recognized in AOCI if the Company does not plan to sell and is not likely to be required to sell. For other debt securities with OTTI, the entire impairment is recognized in the Consolidated Statement of Income.

The table below shows the fair value of AFS securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of June 30, 2015 and December 31, 2014:



	Less than 12 months				12 months or longer				Total
In millions of dollars	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
June 30, 2015
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	9,521	$	85	$	2,332	$	91	$	11,853	$	176
Prime	11		—		3		—		14		—
Non-U.S. residential	2,236		5		298		2		2,534		7
Commercial	125		1		53		1		178		2
Total mortgage-backed securities	$	11,893	$	91	$	2,686	$	94	$	14,579	$	185
U.S. Treasury and federal agency securities
U.S. Treasury	$	36,123	$	263	$	1,012	$	3	$	37,135	$	266
Agency obligations	1,980		8		49		1		2,029		9
Total U.S. Treasury and federal agency securities	$	38,103	$	271	$	1,061	$	4	$	39,164	$	275
State and municipal	$	613	$	24	$	5,172	$	898	$	5,785	$	922
Foreign government	24,935		287		5,339		113		30,274		400
Corporate	5,731		76		923		16		6,654		92
Asset-backed securities	3,149		8		3,443		25		6,592		33
Other debt securities	180		—		—		—		180		—
Marketable equity securities AFS	20		2		300		42		320		44
Total securities AFS	$	84,624	$	759	$	18,924	$	1,192	$	103,548	$	1,951
December 31, 2014
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	4,198	$	30	$	5,547	$	129	$	9,745	$	159
Prime	5		—		2		—		7		—
Non-U.S. residential	1,276		3		199		4		1,475		7
Commercial	124		1		136		2		260		3
Total mortgage-backed securities	$	5,603	$	34	$	5,884	$	135	$	11,487	$	169
U.S. Treasury and federal agency securities
U.S. Treasury	$	36,581	$	119	$	1,013	$	8	$	37,594	$	127
Agency obligations	5,698		9		754		4		6,452		13
Total U.S. Treasury and federal agency securities	$	42,279	$	128	$	1,767	$	12	$	44,046	$	140
State and municipal	$	386	$	15	$	5,802	$	962	$	6,188	$	977
Foreign government	18,495		147		5,984		139		24,479		286
Corporate	3,511		63		1,350		28		4,861		91
Asset-backed securities	3,701		13		3,816		45		7,517		58
Other debt securities	—		—		—		—		—		—
Marketable equity securities AFS	51		4		218		40		269		44
Total securities AFS	$	74,026	$	404	$	24,821	$	1,361	$	98,847	$	1,765

The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of June 30, 2015 and December 31, 2014:



	June 30, 2015				December 31, 2014
In millions of dollars	Amortized cost		Fair value		Amortized cost		Fair value
Mortgage-backed securities⁽¹⁾
Due within 1 year	$	40	$	40	$	44	$	44
After 1 but within 5 years	940		946		931		935
After 5 but within 10 years	1,162		1,177		1,362		1,387
After 10 years⁽²⁾	39,539		39,832		42,163		42,642
Total	$	41,681	$	41,995	$	44,500	$	45,008
U.S. Treasury and federal agency securities
Due within 1 year	$	3,762	$	3,763	$	13,070	$	13,084
After 1 but within 5 years	114,168		114,654		104,982		105,131
After 5 but within 10 years	4,866		4,831		2,286		2,325
After 10 years⁽²⁾	1,456		1,422		3,079		3,150
Total	$	124,252	$	124,670	$	123,417	$	123,690
State and municipal
Due within 1 year	$	1,047	$	1,045	$	652	$	651
After 1 but within 5 years	3,965		3,966		4,387		4,381
After 5 but within 10 years	513		523		524		537
After 10 years⁽²⁾	7,012		6,179		7,963		7,130
Total	$	12,537	$	11,713	$	13,526	$	12,699
Foreign government
Due within 1 year	$	31,715	$	31,737	$	31,355	$	31,382
After 1 but within 5 years	39,770		39,771		41,913		42,467
After 5 but within 10 years	15,341		15,376		16,008		15,779
After 10 years⁽²⁾	679		712		973		1,069
Total	$	87,505	$	87,596	$	90,249	$	90,697
All other⁽³⁾
Due within 1 year	$	1,458	$	1,460	$	1,248	$	1,251
After 1 but within 5 years	12,873		12,941		10,442		10,535
After 5 but within 10 years	7,947		7,948		7,282		7,318
After 10 years⁽²⁾	4,854		4,832		6,256		6,220
Total	$	27,132	$	27,181	$	25,228	$	25,324
Total debt securities AFS	$	293,107	$	293,155	$	296,920	$	297,418


(1)	Includes mortgage-backed securities of U.S. government-sponsored agencies.


(2)	Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.


(3)	Includes corporate, asset-backed and other debt securities.

Debt Securities Held-to-Maturity

During the second quarter of 2015, securities with a total fair value of approximately $7.1 billion were transferred from AFS to HTM, composed of $7.0 billion of U.S. government agency mortgage-backed securities and $0.1 billion of obligations of U.S. states and municipalities. The transfer reflects the Company’s intent to hold these securities to maturity or to issuer call in order to reduce the impact of price volatility on AOCI and certain capital measures under Basel III. While these securities were transferred to HTM at fair value as of the transfer date, no subsequent changes in value may be recorded, other than any subsequent OTTI and the amortization of differences between the carrying values at the transfer date and the par values of each security as an adjustment of yield over the remaining contractual life of each security. Any net unrealized holding losses within AOCI related to the respective securities at the date of transfer, inclusive of any cumulative fair value hedge adjustments, will be amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.

The carrying value and fair value of debt securities HTM at June 30, 2015 and December 31, 2014 were as follows:



In millions of dollars	Amortized cost basis⁽¹⁾		Net unrealized gains (losses) recognized in AOCI			Carrying value⁽²⁾		Gross unrealized gains		Gross unrealized (losses)			Fair value
June 30, 2015
Debt securities held-to-maturity
Mortgage-backed securities⁽³⁾
U.S. government agency guaranteed	$	16,060	$	146		$	16,206	$	74	$	(98	)	$	16,182
Prime	57		(11		)	46		4		—			50
Alt-A	1,026		(182		)	844		497		(304		)	1,037
Subprime	5		—			5		14		—			19
Non-U.S. residential	619		(88		)	531		53		—			584
Commercial	8		—			8		—		—			8
Total mortgage-backed securities	$	17,775	$	(135	)	$	17,640	$	642	$	(402	)	$	17,880
State and municipal⁽⁴⁾	$	8,695	$	(435	)	$	8,260	$	117	$	(128	)	$	8,249
Foreign government	3,945		—			3,945		42		—			3,987
Asset-backed securities⁽³⁾	337		(16		)	321		47		(1		)	367
Total debt securities held-to-maturity	$	30,752	$	(586	)	$	30,166	$	848	$	(531	)	$	30,483
December 31, 2014
Debt securities held-to-maturity
Mortgage-backed securities⁽³⁾
U.S. government agency guaranteed	$	8,795	$	95		$	8,890	$	106	$	(6	)	$	8,990
Prime	60		(12		)	48		6		(1		)	53
Alt-A	1,125		(213		)	912		537		(287		)	1,162
Subprime	6		(1		)	5		15		—			20
Non-U.S. residential	983		(137		)	846		92		—			938
Commercial	8		—			8		1		—			9
Total mortgage-backed securities	$	10,977	$	(268	)	$	10,709	$	757	$	(294	)	$	11,172
State and municipal	$	8,443	$	(494	)	$	7,949	$	227	$	(57	)	$	8,119
Foreign government	4,725		—			4,725		77		—			4,802
Asset-backed securities⁽³⁾	556		(18		)	538		50		(10		)	578
Total debt securities held-to-maturity⁽⁵⁾	$	24,701	$	(780	)	$	23,921	$	1,111	$	(361	)	$	24,671

(1)

For securities transferred to HTM from Trading account assets, amortized cost basis is defined as the fair value of the securities at the date of transfer plus any accretion income and less any impairments recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, adjusted for the cumulative accretion or amortization of any purchase discount or premium, plus or minus any cumulative fair value hedge adjustments, net of accretion or amortization, and less any other-than-temporary impairment recognized in earnings.

(2)

HTM securities are carried on the Consolidated Balance Sheet at amortized cost basis, plus or minus any unamortized unrealized gains and losses and fair value hedge adjustments recognized in AOCI prior to reclassifying the securities from AFS to HTM. Changes in the values of these securities are not reported in the financial statements, except for the amortization of any difference between the carrying value at the transfer date and par value of the securities, and the recognition of any non-credit fair value adjustments in AOCI in connection with the recognition of any credit impairment in earnings related to securities the Company continues to intend to hold until maturity.

(3)

(4)

The net unrealized losses recognized in AOCI on state and municipal debt securities are primarily attributable to the effects of fair value hedge accounting applied when these debt securities were classified as AFS. Specifically, Citi hedged the LIBOR-benchmark interest rate component of certain fixed-rate tax-exempt state and municipal debt securities utilizing LIBOR-based interest rate swaps. During the hedge period, losses incurred on the LIBOR-hedging swaps recorded in earnings were substantially offset by gains on the state and municipal debt securities attributable to changes in the LIBOR swap rate being hedged. However, because the LIBOR swap rate decreased significantly during the hedge period while the overall fair value of the municipal debt securities was relatively unchanged, the effect of reclassifying fair value gains on these securities from AOCI to earnings attributable solely to changes in the LIBOR swap rate resulted in net unrealized losses remaining in AOCI that relate to the unhedged components of these securities. Upon transfer of these debt securities to HTM, all hedges have been de-designated and hedge accounting has ceased.

(5)

During the second quarter of 2014, securities with a total fair value of approximately $11.8 billion were transferred from AFS to HTM and comprised $5.4 billion of U.S. government agency mortgage-backed securities and $6.4 billion of obligations of U.S. states and municipalities. The transfer reflects the Company’s intent to hold these securities to maturity or to issuer call in order to reduce the impact of price volatility on AOCI and certain capital measures under Basel III. While these securities were transferred to HTM at fair value as of the transfer date, no subsequent changes in value may be recorded, other than in connection with the recognition of any subsequent other-than-temporary impairment and the amortization of differences between the carrying values at the transfer date and the par values of each security as an adjustment of yield over the remaining contractual life of each security. Any net unrealized holding losses within AOCI related to the respective securities at the date of transfer, inclusive of any cumulative fair value hedge adjustments, will be amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.

The Company has the positive intent and ability to hold these securities to maturity or, where applicable, the exercise of any issuer call options, absent any unforeseen significant changes in circumstances, including deterioration in credit or changes in regulatory capital requirements.

The net unrealized losses classified in AOCI primarily relate to debt securities previously classified as AFS that have been transferred to HTM, and include any cumulative fair

value hedge adjustments. The net unrealized loss amount also includes any non-credit-related changes in fair value of HTM securities that have suffered credit impairment recorded in earnings. The AOCI balance related to HTM securities is amortized over the remaining contractual life of the related securities as an adjustment of yield in a manner consistent with the accretion of any difference between the carrying value at the transfer date and par value of the same debt securities.

The table below shows the fair value of debt securities HTM that have been in an unrecognized loss position as of June 30, 2015 and December 31, 2014 for less than 12 months and for 12 months or longer:



	Less than 12 months				12 months or longer				Total
In millions of dollars	Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
June 30, 2015
Debt securities held-to-maturity
Mortgage-backed securities	$	—	$	—	$	8,638	$	402	$	8,638	$	402
State and municipal	2,905		64		1,519		64		4,424		128
Asset-backed securities	—		—		6		1		6		1
Total debt securities held-to-maturity	$	2,905	$	64	$	10,163	$	467	$	13,068	$	531
December 31, 2014
Debt securities held-to-maturity
Mortgage-backed securities	$	4	$	—	$	1,134	$	294	$	1,138	$	294
State and municipal	2,528		34		314		23		2,842		57
Asset-backed securities	9		1		174		9		183		10
Total debt securities held-to-maturity	$	2,541	$	35	$	1,622	$	326	$	4,163	$	361

Excluded from the gross unrecognized losses presented in the above table are $(586) million and $(780) million of net unrealized losses recorded in AOCI as of June 30, 2015 and December 31, 2014, respectively, primarily related to the difference between the amortized cost and carrying value of HTM securities that were reclassified from AFS. Substantially all of these net unrecognized losses relate to securities that have been in a loss position for 12 months or longer at June 30, 2015 and December 31, 2014.

The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of June 30, 2015 and December 31, 2014:



	June 30, 2015				December 31, 2014
In millions of dollars	Carrying value		Fair value		Carrying value		Fair value
Mortgage-backed securities
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years	8		8		—		—
After 5 but within 10 years	821		827		863		869
After 10 years⁽¹⁾	16,811		17,045		9,846		10,303
Total	$	17,640	$	17,880	$	10,709	$	11,172
State and municipal
Due within 1 year	$	266	$	265	$	205	$	205
After 1 but within 5 years	294		295		243		243
After 5 but within 10 years	172		176		140		144
After 10 years⁽¹⁾	7,528		7,513		7,361		7,527
Total	$	8,260	$	8,249	$	7,949	$	8,119
Foreign government
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years	3,945		3,987		4,725		4,802
After 5 but within 10 years	—		—		—		—
After 10 years⁽¹⁾	—		—		—		—
Total	$	3,945	$	3,987	$	4,725	$	4,802
All other⁽²⁾
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years	—		—		—		—
After 5 but within 10 years	—		—		—		—
After 10 years⁽¹⁾	321		367		538		578
Total	$	321	$	367	$	538	$	578
Total debt securities held-to-maturity	$	30,166	$	30,483	$	23,921	$	24,671


(1)	Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.


(2)	Includes corporate and asset-backed securities.

Evaluating Investments for Other-Than-Temporary Impairment

Overview

The Company conducts periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary.

An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI for AFS securities. Losses related to HTM securities generally are not recorded, as these investments are carried at adjusted amortized cost basis. However, for HTM securities with credit-related losses, the credit loss is recognized in earnings as OTTI and any difference between the cost basis adjusted for the OTTI and fair value is recognized in AOCI and amortized as an adjustment of yield over the remaining contractual life of the security. For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer, plus any accretion income and less any impairment recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, adjusted for the cumulative accretion or amortization of any purchase discount or premium, plus or minus any cumulative fair value hedge adjustments, net of accretion or amortization, and less any impairment recognized in earnings.

Regardless of the classification of the securities as AFS or HTM, the Company assesses each position with an unrealized loss for OTTI. Factors considered in determining whether a loss is temporary include:


•	the length of time and the extent to which fair value has been below cost;


•	the severity of the impairment;


•	the cause of the impairment and the financial condition and near-term prospects of the issuer;


•	activity in the market of the issuer that may indicate adverse credit conditions; and


•	the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

The Company’s review for impairment generally entails:


•	identification and evaluation of impaired investments;


•	analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period;


•	consideration of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment; and


•	documentation of the results of these analyses, as required under business policies.

Debt

The entire difference between amortized cost basis and fair value is recognized in earnings as OTTI for impaired debt securities that the Company has an intent to sell or for which the Company believes it will more-likely-than-not be required to sell prior to recovery of the amortized cost basis. However, for those securities that the Company does not intend to sell and is not likely to be required to sell, only the credit-related impairment is recognized in earnings and any non-credit-related impairment is recorded in AOCI.

For debt securities, credit impairment exists where management does not expect to receive contractual principal and interest cash flows sufficient to recover the entire amortized cost basis of a security.

Equity

For equity securities, management considers the various factors described above, including its intent and ability to hold the equity security for a period of time sufficient for recovery to cost or whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery of its cost basis. Where management lacks that intent or ability, the security’s decline in fair value is deemed to be other-than-temporary and is recorded in earnings. AFS equity securities deemed to be other-than-temporarily impaired are written down to fair value, with the full difference between fair value and cost recognized in earnings.

Management assesses equity method investments that have fair values that are less than their respective carrying values for OTTI. Fair value is measured as price multiplied by quantity if the investee has publicly listed securities. If the investee is not publicly listed, other methods are used (see Note 22 to the Consolidated Financial Statements).

For impaired equity method investments that Citi plans to sell prior to recovery of value or would likely be required to sell, with no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in earnings as OTTI regardless of severity and duration. The measurement of the OTTI does not include partial projected recoveries subsequent to the balance sheet date.

For impaired equity method investments that management does not plan to sell and is not likely to be required to sell prior to recovery of value, the evaluation of whether an impairment is other-than-temporary is based on (i) whether and when an equity method investment will recover in value and (ii) whether the investor has the intent and ability to hold that investment for a period of time sufficient to recover the value. The determination of whether the impairment is considered other-than-temporary considers the following indicators, regardless of the time and extent of impairment:


•	the cause of the impairment and the financial condition and near-term prospects of the issuer, including any specific events that may influence the operations of the issuer;


•	the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value; and


•	the length of time and extent to which fair value has been less than the carrying value.

The sections below describe the Company’s process for identifying credit-related impairments for security types that have the most significant unrealized losses as of June 30, 2015.

Akbank

As of December 31, 2014, Citi’s remaining 9.9% stake in Akbank T.A.S., an equity investment in Turkey (Akbank), is recorded within marketable equity securities available-for-sale. The revaluation of the Turkish lira was hedged, so the change in the value of the currency related to the Akbank investment did not have a significant impact on earnings during the year. During the first quarter of 2015, Citi sold its remaining investment in Akbank.

Mortgage-backed securities

For U.S. mortgage-backed securities (and in particular for Alt-A and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the principal and interest cash flows on the underlying mortgages using the security-specific collateral and transaction structure. The model distributes the estimated cash flows to the various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then estimates the remaining cash flows using a number of assumptions, including default rates, prepayment rates, recovery rates (on foreclosed properties) and loss severity rates (on non-agency mortgage-backed securities).

Management develops specific assumptions using market data, internal estimates and estimates published by rating agencies and other third-party sources. Default rates are projected by considering current underlying mortgage loan performance, generally assuming the default of (i) 10% of current loans, (ii) 25% of 30-59 day delinquent loans, (iii) 70% of 60-90 day delinquent loans and (iv) 100% of 91+ day delinquent loans. These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions contemplate the actual collateral attributes, including geographic concentrations, rating actions and current market prices.

Cash flow projections are developed using different stress test scenarios. Management evaluates the results of those stress tests (including the severity of any cash shortfall indicated and the likelihood of the stress scenarios actually occurring based on the underlying pool’s characteristics and performance) to assess whether management expects to recover the amortized cost basis of the security. If cash flow projections indicate that the Company does not expect to recover its amortized cost basis, the Company recognizes the estimated credit loss in earnings.

State and municipal securities

The process for identifying credit impairments in Citigroup’s AFS and HTM state and municipal bonds is primarily based on a credit analysis that incorporates third-party credit ratings. Citigroup monitors the bond issuers and any insurers providing default protection in the form of financial guarantee insurance. The average external credit rating, ignoring any insurance, is Aa3/AA-. In the event of an external rating downgrade or other indicator of credit impairment (i.e., based on instrument-specific estimates of cash flows or probability of issuer default), the subject bond is specifically reviewed for adverse changes in the amount or timing of expected contractual principal and interest payments.

For state and municipal bonds with unrealized losses that Citigroup plans to sell (for AFS only), would be more likely than not required to sell (for AFS only) or will be subject to an issuer call deemed probable of exercise prior to the expected recovery of its amortized cost basis (for AFS and HTM), the full impairment is recognized in earnings.

Recognition and Measurement of OTTI

The following table presents the total OTTI recognized in earnings for the three and six months ended June 30, 2015:



OTTI on Investments and Other Assets	Three Months Ended June 30, 2015								Six Months Ended June 30, 2015
In millions of dollars	AFS⁽¹⁾		HTM		Other Assets		Total		AFS⁽¹⁾		HTM		Other Assets		Total
Impairment losses related to securities that the Company does not intend to sell nor will likely be required to sell:
Total OTTI losses recognized during the period	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Less: portion of impairment loss recognized in AOCI (before taxes)	—		—		—		—		—		—		—		—
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Impairment losses recognized in earnings for securities that the Company intends to sell, would be more likely than not required to sell or will be subject to an issuer call deemed probable of exercise	19		19		5		43		88		22		5		115
Total impairment losses recognized in earnings	$	19	$	19	$	5	$	43	$	88	$	22	$	5	$	115


(1)	Includes OTTI on non-marketable equity securities.

The following table presents the total OTTI recognized in earnings for the three and six months ended June 30, 2014:



OTTI on Investments and Other Assets	Three Months Ended June 30, 2014								Six Months Ended June 30, 2014
In millions of dollars	AFS⁽¹⁾		HTM		Other Assets		Total		AFS⁽¹⁾		HTM		Other Assets		Total
Impairment losses related to securities that the Company does not intend to sell nor will likely be required to sell:
Total OTTI losses recognized during the period	$	2	$	—	$	—	$	2	$	2	$	—	$	—	$	2
Less: portion of impairment loss recognized in AOCI (before taxes)	—		—		—		—		—		—		—		—
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	2	$	—	$	—	$	2	$	2	$	—	$	—	$	2
Impairment losses recognized in earnings for securities that the Company intends to sell, would be more likely than not required to sell or will be subject to an issuer call deemed probable of exercise	35		—		—		35		236		—		—		236
Total impairment losses recognized in earnings	$	37	$	—	$	—	$	37	$	238	$	—	$	—	$	238


(1)	Includes OTTI on non-marketable equity securities.

The following is a three-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2015 that the Company does not intend to sell nor likely will be required to sell:



	Cumulative OTTI credit losses recognized in earnings on securities still held
In millions of dollars	Mar. 31, 2015 balance		Credit impairments recognized in earnings on securities not previously impaired		Credit impairments recognized in earnings on securities that have been previously impaired		Reductions due to credit-impaired securities sold, transferred or matured		Jun. 30, 2015 balance
AFS debt securities
Mortgage-backed securities	$	295	$	—	$	—	$	—	$	295
Foreign government securities	170		—		—		—		170
Corporate	112		—		—		—		112
All other debt securities	149		—		—		—		149
Total OTTI credit losses recognized for AFS debt securities	$	726	$	—	$	—	$	—	$	726
HTM debt securities
Mortgage-backed securities⁽¹⁾	$	668	$	—	$	—	$	—	$	668
Corporate	—		—		—		—		—
All other debt securities	133		—		—		—		133
Total OTTI credit losses recognized for HTM debt securities	$	801	$	—	$	—	$	—	$	801


(1)	Primarily consists of Alt-A securities.

The following is a three-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2014 that the Company does not intend to sell nor likely will be required to sell:



	Cumulative OTTI credit losses recognized in earnings on securities still held
In millions of dollars	Mar. 31, 2014 balance		Credit impairments recognized in earnings on securities not previously impaired		Credit impairments recognized in earnings on securities that have been previously impaired		Reductions due to credit-impaired securities sold, transferred or matured			Jun. 30, 2014 balance
AFS debt securities
Mortgage-backed securities	$	295	$	—	$	—	$	—		$	295
Foreign government securities	171		—		—		—			171
Corporate	113		—		—		(1		)	112
All other debt securities	144		2		—		—			146
Total OTTI credit losses recognized for AFS debt securities	$	723	$	2	$	—	$	(1	)	$	724
HTM debt securities
Mortgage-backed securities⁽¹⁾	$	665	$	—	$	—	$	—		$	665
Corporate	56		—		—		—			56
All other debt securities	133		—		—		—			133
Total OTTI credit losses recognized for HTM debt securities	$	854	$	—	$	—	$	—		$	854

(1) Primarily consists of Alt-A securities.

The following is a six-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2015 that the Company does not intend to sell nor likely will be required to sell:



	Cumulative OTTI credit losses recognized in earnings on securities still held
In millions of dollars	Dec. 31, 2014 balance		Credit impairments recognized in earnings on securities not previously impaired		Credit impairments recognized in earnings on securities that have been previously impaired		Reductions due to credit-impaired securities sold, transferred or matured			June 30, 2015 balance
AFS debt securities
Mortgage-backed securities	$	295	$	—	$	—	$	—		$	295
Foreign government securities	171		—		—		(1		)	170
Corporate	118		—		—		(6		)	112
All other debt securities	149		—		—		—			149
Total OTTI credit losses recognized for AFS debt securities	$	733	$	—	$	—	$	(7	)	$	726
HTM debt securities
Mortgage-backed securities⁽¹⁾	$	670	$	—	$	—	$	(2	)	$	668
Corporate	—		—		—		—			—
All other debt securities	133		—		—		—			133
Total OTTI credit losses recognized for HTM debt securities	$	803	$	—	$	—	$	(2	)	$	801


(1)	Primarily consists of Alt-A securities.

The following is a six-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2014 that the Company does not intend to sell nor likely will be required to sell:



	Cumulative OTTI credit losses recognized in earnings on securities still held
In millions of dollars	Dec. 31, 2013 balance		Credit impairments recognized in earnings on securities not previously impaired		Credit impairments recognized in earnings on securities that have been previously impaired		Reductions due to credit-impaired securities sold, transferred or matured			Jun. 30, 2014 balance
AFS debt securities
Mortgage-backed securities	$	295	$	—	$	—	$	—		$	295
Foreign government securities	171		—		—		—			171
Corporate	113		—		—		(1		)	112
All other debt securities	144		2		—		—			146
Total OTTI credit losses recognized for AFS debt securities	$	723	$	2	$	—	$	(1	)	$	724
HTM debt securities
Mortgage-backed securities⁽¹⁾	$	678	$	—	$	—	$	(13	)	$	665
Corporate	56		—		—		—			56
All other debt securities	133		—		—		—			133
Total OTTI credit losses recognized for HTM debt securities	$	867	$	—	$	—	$	(13	)	$	854

(1) Primarily consists of Alt-A securities.

Investments in Alternative Investment Funds That Calculate Net Asset Value per Share

The Company holds investments in certain alternative investment funds that calculate net asset value (NAV) per share, including hedge funds, private equity funds, funds of funds and real estate funds. The Company’s investments include co-investments in funds that are managed by the Company and investments in funds that are managed by third parties. Investments in funds are generally classified as non-marketable equity securities carried at fair value. The fair values of these investments are estimated using the NAV per share of the Company’s ownership interest in the funds, where it is not probable that the Company will sell an investment at a price other than the NAV.



	Fair value				Unfunded commitments				Redemption frequency (if currently eligible) monthly, quarterly, annually	Redemption notice period
In millions of dollars	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Hedge funds	$	4	$	8	$	—	$	—	Generally quarterly	10-95 days
Private equity funds⁽¹⁾⁽²⁾	849		891		188		205		—	—
Real estate funds ⁽²⁾⁽³⁾	144		166		20		24		—	—
Total⁽⁴⁾	$	997	$	1,065	$	208	$	229	—	—


(1)	Private equity funds include funds that invest in infrastructure, leveraged buyout transactions, emerging markets and venture capital.

(2)

With respect to the Company’s investments in private equity funds and real estate funds, distributions from each fund will be received as the underlying assets held by these funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over a period of several years as market conditions allow. Private equity and real estate funds do not allow redemption of investments by their investors. Investors are permitted to sell or transfer their investments, subject to the approval of the general partner or investment manager of these funds, which generally may not be unreasonably withheld.


(3)	Includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia.


(4)	Included in the total fair value of investments above are $1.0 billion and $0.8 billion of fund assets that are valued using NAVs provided by third-party asset managers as of June 30, 2015 and December 31, 2014, respectively.