BASIS OF PRESENTATION, UPDATED ACCOUNTING POLICIES AND ACCOUNTING CHANGES

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

BASIS OF PRESENTATION, UPDATED ACCOUNTING POLICIES AND ACCOUNTING CHANGES

BASIS OF PRESENTATION, UPDATED ACCOUNTING POLICIES AND ACCOUNTING CHANGES

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements as of March 31, 2023 and for the three-month periods ended March 31, 2023 and 2022 include the accounts of Citigroup Inc. and its consolidated subsidiaries.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation have been reflected. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included within Citigroup’s Annual Report on Form 10-K for the year ended December 31, 2022.

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), but is not required for interim reporting purposes, has been condensed or omitted.

Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures. While management uses its best judgment, actual results could differ from those estimates.

As noted above, the Notes to these Consolidated Financial Statements are unaudited.

Throughout these Notes, “Citigroup,” “Citi” and “the Company” refer to Citigroup Inc. and its consolidated subsidiaries.

Certain reclassifications and updates have been made to the prior periods’ financial statements and notes to conform to the current period’s presentation.

Cash equivalents are defined as those amounts included in Cash and due from banks and predominately all of Deposits with banks. Cash flows from risk management activities are classified in the same category as the related assets and liabilities. Amounts included in Cash and due from banks and Deposits with banks approximate fair value.

UPDATED SIGNIFICANT ACCOUNTING POLICIES

The accounting policies below have been updated from those disclosed in Citi’s 2022 Annual Report on Form 10-K (2022 Form 10-K) as a result of accounting standards adopted during the first quarter of 2023.

See Note 1 to the Consolidated Financial Statements in Citi’s 2022 Form 10-K for a summary of all of Citigroup’s significant accounting policies.

Allowances for Credit Losses (ACL)

Beginning January 1, 2023, Citi adopted Accounting Standards Update (ASU) No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures under the methodology described below. For information about Citi’s accounting for troubled debt restructurings (TDRs) prior to January 1, 2023, see Note 1 to the Consolidated Financial Statements in Citi’s 2022 Form 10-K.

ASU 2022-02 eliminates the accounting and disclosure requirements for TDRs, including the requirement to measure the ACLL for TDRs using a discounted cash flow (DCF) approach. With the elimination of TDR accounting requirements, reasonably expected TDRs are no longer considered when determining the term over which to estimate expected credit losses. The ACLL for modified loans that are collateral dependent continues to be based on the fair value of the collateral.

Consumer Loans

Upon adoption of the ASU on January 1, 2023, Citi discontinued the use of a DCF approach for consumer loans formerly considered TDRs. Beginning January 1, 2023, Citi measures the ACLL for all consumer loans under approaches that do not incorporate discounting, primarily utilizing models that consider the borrowers’ probability of default, loss given default and exposure at default. In addition, upon adoption of the ASU, Citi collectively evaluates smaller-balance homogenous loans formerly considered TDRs for expected credit losses, whereas previously those loans had been individually evaluated.

ACCOUNTING CHANGES

TDRs and Vintage Disclosures

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. Citi adopted the ASU on January 1, 2023. Citi adopted the guidance on the recognition and measurement of TDRs under the modified retrospective approach. See the “ACL” section under the “Updated Significant Accounting Policies” heading in this Note above for a description of the ASU’s amendments to the TDR recognition and measurement guidance. Adopting those amendments resulted in a decrease to the ACLL of $352 million and an increase in other assets related to held-for-sale businesses of $44 million, with a corresponding increase to retained earnings of $290 million and a decrease in deferred tax assets of $106 million on January 1, 2023. The ACL for corporate loans was unaffected because the measurement approach used for corporate loans is not in the scope of this ASU.

The ASU also requires disclosure of modifications of loans to borrowers experiencing financial difficulty if the modification involves principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension or a combination of those types of modifications. In addition, the ASU requires the disclosure of current-period gross write-offs by year of loan origination (vintage). The amendments related to disclosures are required to be applied prospectively beginning as of the date of adoption. See Note 13 for these new disclosures for periods beginning on and after January 1, 2023.

Fair Value Hedging—Portfolio Layer Method

In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, intended to better align hedge accounting with an organization’s risk management strategies. Specifically, the guidance expands the current single-layer method to allow multiple hedge layers of a single closed portfolio of qualifying assets, which include both prepayable and non-prepayable assets. Coincident with the adoption of this ASU, on January 1, 2023, Citi transferred HTM mortgage-backed securities with an amortized cost and fair value of approximately $3.3 billion and $3.4 billion, respectively, into AFS as permitted under the guidance, and hedged them under the portfolio layer method. At the time of transfer, the securities were in an unrealized gain position of $0.1 billion, which was recorded in AOCI upon transfer.

Long-Duration Insurance Contracts

In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which changes the existing recognition, measurement, presentation and disclosures for long-duration contracts issued by an insurance entity. Specifically, the guidance (i) improves the timeliness of recognizing changes in the liability for future policy benefits and prescribes the rate used to discount future cash flows for long-duration insurance contracts, (ii) simplifies and improves the accounting for certain market-based options or guarantees

associated with deposit (or account balance) contracts, (iii) simplifies the amortization of deferred acquisition costs and (iv) introduces additional quantitative and qualitative disclosures. Citi has certain insurance subsidiaries, primarily in Mexico, that issue long-duration insurance contracts such as traditional life insurance policies and life-contingent annuity contracts that are impacted by the requirements of ASU 2018-12.

The effective date of ASU 2018-12 was deferred for all insurance entities by ASU 2019-09, Financial Services—Insurance: Effective Date (issued in October 2019) and by ASU 2020-11, Financial Services—Insurance: Effective Date and Early Application (issued in November 2020). Citi adopted the targeted improvements in ASU 2018-12 on January 1, 2023, resulting in a $39 million decrease in Other liabilities and a $27 million increase in AOCI, after-tax.

Voluntary Change in Goodwill Impairment Assessment Date

During 2022, the Company voluntarily changed its annual goodwill impairment assessment date from July 1 to October 1. See Notes 1 and 16 to the Consolidated Financial Statements in Citi’s 2022 Form 10-K for additional information.

Multiple Macroeconomic Scenarios-Based ACL Approach

During the second quarter of 2022, Citi refined its ACL methodology to utilize multiple macroeconomic scenarios to estimate its allowance for credit losses. The ACL was previously estimated using a combination of a single base-case forecast scenario as part of its quantitative component and a component of its qualitative management adjustment that reflects economic uncertainty from downside macroeconomic scenarios. As a result of this change, Citi now explicitly incorporates multiple macroeconomic scenarios—base, upside, and downside—and associated probabilities in the quantitative component when estimating its ACL, while still retaining certain of its qualitative management adjustments.

This refinement represents a “change in accounting estimate” under ASC Topic 250, Accounting Changes and Error Corrections, with prospective application beginning in the period of change. This change in accounting estimate resulted in a decrease of approximately $0.3 billion in the allowance for credit losses in the second quarter of 2022, partially offsetting an increase of $0.8 billion in the allowance for credit losses due to the increased macroeconomic uncertainty and other factors in the second quarter of 2022.

FUTURE ACCOUNTING CHANGES

Accounting for Investments in Tax Credit Structures

In March 2023, the FASB issued ASU No. 2023‐02, Investments—Equity Method and Joint Ventures (Topic 3232): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The ASU expands the scope of tax equity investments eligible to apply the proportional amortization method of accounting. Under the proportional amortization method, the cost of an eligible investment is amortized in proportion to the income tax credits and other income tax benefits that are received by the investor,

with the amortization of the investment and the income tax credits being presented net in the income statement as components of income tax expense (benefit). Prior to the issuance of this ASU, use of the proportional amortization method was limited to tax equity investments in Low‐Income Housing Tax Credit (LIHTC) structures, and all other tax equity investments were typically accounted for using the equity method of accounting, which resulted in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items. The ASU will permit the Company to elect to use the proportional amortization method to account for all eligible tax equity investments, regardless of the tax credit program from which the income tax credits are received, if certain conditions are met. For public entities, the ASU is effective for fiscal years beginning after December 15, 2023, although early adoption is permitted in any interim period. However, if an entity adopts the amendments in an interim period, it shall adopt them as of the beginning of the fiscal year that includes that interim period. Adoption of the ASU must be applied on either a retrospective or a modified retrospective basis. Citi plans to adopt the ASU on January 1, 2024 and is currently evaluating the impact of the standard on tax equity investments. Citi does not expect a material impact to its results of operations as a result of adopting the standard.

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

In June 2022, the FASB issued ASU No. 2022-3, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU was issued to address diversity in practice whereby certain entities included the impact of contractual restrictions when valuing equity securities, and it clarifies that a contractual restriction on the sale of an equity security should not be considered part of the unit of account of the equity security and, therefore, should not be considered in measuring fair value. The ASU also includes requirements for entities to disclose the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions.

The ASU is to be adopted on a prospective basis and will be effective for Citi on January 1, 2024, although early adoption is permitted. Adoption of the accounting standard is not expected to have an impact on Citi’s operating results or financial position, as the Company excludes such restrictions when valuing equity securities.