Financial Review
and Form 10-Q
Second Quarter
1997
<PAGE>
TABLE OF CONTENTS PAGE
FINANCIAL SUMMARY.........................................................1
BUSINESS DISCUSSION.......................................................4
Earnings Summary.......................................................4
Global Consumer........................................................5
Citibanking.........................................................6
Cards...............................................................7
Private Bank........................................................8
Global Consumer in Emerging Markets.................................9
Global Consumer in Developed Markets................................10
Consumer Portfolio Review...........................................10
Global Corporate Banking...............................................13
Emerging Markets....................................................14
Global Relationship Banking.........................................15
Corporate Items........................................................16
MANAGING GLOBAL RISK......................................................16
Liquidity..............................................................16
Price Risk.............................................................17
Price Risk in Non-Trading Portfolios...................................17
Price Risk in Trading Portfolios.......................................19
Estimated Fair Value of Financial Instruments..........................19
Capital................................................................20
STATEMENT OF INCOME ANALYSIS..............................................23
Net Interest Revenue (Taxable Equivalent Basis)........................23
Fee and Commission Revenue.............................................24
Trading-Related Revenue................................................25
Securities Transactions................................................26
Other Revenue..........................................................26
Provision and Credit Loss Reserves.....................................27
Operating Expense......................................................28
Income Taxes...........................................................29
Effect of Credit Card Securitization Activity..........................30
CONSOLIDATED FINANCIAL STATEMENTS.........................................31
Consolidated Statement of Income.......................................31
Consolidated Balance Sheet.............................................32
Consolidated Statement of Changes in Stockholders' Equity..............33
Consolidated Statement of Cash Flows...................................34
Consolidated Balance Sheet -- CITIBANK, N.A. and Subsidiaries........35
OTHER FINANCIAL INFORMATION...............................................36
Securities.............................................................36
Trading Account Assets and Liabilities.................................36
Trading and End-User Derivative and Foreign Exchange Contracts.........37
Cash-Basis, Renegotiated, and Past Due Loans...........................39
Other Real Estate Owned (OREO) and Assets Pending Disposition..........39
Details of Credit Loss Experience......................................40
Calculation of Earnings Per Share......................................41
Cross-Border Outstandings..............................................41
Average Balances and Interest Rates (Taxable Equivalent Basis).........43
FORM 10-Q.................................................................45
FORM 10-Q CROSS-REFERENCE INDEX........................................46
SIGNATURES................................................................49
<PAGE>
<TABLE>
<CAPTION>
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FINANCIAL SUMMARY
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Second Quarter Six Months
----------------------------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net Income (In Millions of Dollars)....................... $ 1,024 $952 $2,019 $1,866
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Net Income Per Share (A)
On Common and Common Equivalent Shares.................... $ 2.10 $ 1.86 $ 4.11 $ 3.68
Assuming Full Dilution.................................... $ 2.10 $ 1.86 $ 4.11 $ 3.61
Common Stockholders' Equity Per Share..................... $ 42.58 $ 37.73 - -
Closing Stock Price at Quarter End........................ $ 120.56 $ 82.75 - -
Dividends Declared Per Common Share....................... $ 0.525 $ 0.45 $ 1.05 $ 0.90
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Financial Ratios
Return on Assets.......................................... 1.40% 1.43% 1.41% 1.40%
Return on Common Stockholders' Equity..................... 20.97% 20.76% 20.87% 20.47%
Return on Total Stockholders' Equity...................... 19.72% 19.35% 19.58% 18.99%
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June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Capital (Dollars in Billions) (see page 20) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
Tier 1......................................... $20.6 $20.3 $19.8 $19.3 $19.1
Total (Tier 1 and 2)........................... 30.1 29.3 28.9 28.5 28.2
Tier 1 Ratio................................... 8.18% 8.39% 8.39% 8.36% 8.38%
Total Ratio (Tier 1 and 2)..................... 11.96% 12.11% 12.23% 12.40% 12.35%
Leverage Ratio................................. 7.30% 7.39% 7.42% 7.47% 7.49%
Common Equity as a Percentage of Total Assets.. 6.41% 6.50% 6.63% 6.74% 6.69%
Total Equity as a Percentage of Total Assets... 7.04% 7.16% 7.37% 7.50% 7.47%
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<CAPTION>
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Earnings Analysis (In Millions of 1997 1997 1996 1996 1996 1996
Dollars)
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<S> <C> <C> <C> <C> <C> <C>
Total Revenue....................... $5,311 $5,196 $5,365 $5,010 $4,993 $4,828
Effect of Credit Card
Securitization Activity (B)....... 437 434 389 360 349 294
Net Cost To Carry (C)............... (1) (3) (7) (8) (26) (5)
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Adjusted Revenue.................... 5,747 5,627 5,747 5,362 5,316 5,117
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Total Operating Expense............. 3,173 3,169 3,281 3,078 2,978 2,860
Net OREO Benefits (D)............... 37 10 7 8 17 12
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Adjusted Operating Expense.......... 3,210 3,179 3,288 3,086 2,995 2,872
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Operating Margin.................... 2,537 2,448 2,459 2,276 2,321 2,245
Consumer Credit Costs (E)........... 922 894 844 803 762 706
Commercial Credit (Benefits) Costs (F) (36) (75) (15) (60) (27) 15
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Operating Margin Less Credit Costs.. 1,651 1,629 1,630 1,533 1,586 1,524
Additional Provision (G)............ 25 25 50 50 50 50
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Income Before Taxes................. 1,626 1,604 1,580 1,483 1,536 1,474
Income Taxes........................ 602 609 593 548 584 560
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Net Income.......................... $1,024 $ 995 $ 987 $ 935 $ 952 $ 914
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(A) Based on net income less preferred stock dividends, except when conversion
is assumed. See page 41 for details.
(B) Commencing with the 1997 first quarter, includes effect related to credit
card receivables held for sale.
(C) Principally the net cost to carry commercial cash-basis loans and other
real estate owned ("OREO").
(D) Principally gains and losses on sales, direct revenue and expense, and
writedowns of commercial OREO.
(E) Principally consumer net credit write-offs adjusted for the effect of
credit card securitization activity.
(F) Includes commercial net credit (recoveries) write-offs, net cost to carry,
and net OREO benefits.
(G) Represents amounts in excess of net write-offs. See page 27 for discussion.
</TABLE>
1
<PAGE>
Citicorp reported 1997 second quarter net income of $1,024 million or $2.10 per
fully diluted common share, up 8% and 13%, respectively, from $952 million or
$1.86 a year ago. Earnings growth was led by Global Relationship Banking,
Citibanking in the developed markets, and Global Consumer emerging markets
businesses, but was dampened by a decline in U.S. bankcards. Net income for the
1997 six months was $2,019 million or $4.11 per fully diluted common share, up
8% and 14% from $1,866 million or $3.61 in 1996. Returns on common equity of
21.0% and average assets of 1.40% in the quarter were comparable to 1996, and
the six month returns of 20.9% and 1.41% were improved over 1996.
"We continue to produce good results, although global spread compression and our
U.S. card business present challenges," said John S. Reed, Citicorp Chairman.
"Our assumption is that the highly competitive marketplace is a permanent
reality. We are responding with quality initiatives designed to deliver customer
service more effectively worldwide and speed the global rollout of innovative
products. We will also respond with cost initiatives to accelerate the
integration and globalization of our operations and technology base. As we've
said before, by the end of 1998 we expect to be fully engaged in our business
directions, which we feel represent a substantial opportunity for us."
Global Consumer earned $471 million and $958 million in the 1997 second quarter
and six months, down 3% from both year-ago periods, as revenue and operating
margin growth were more than offset by increased Cards credit costs. Earnings in
Global Corporate Banking of $665 million and $1.3 billion in the quarter and six
months rose 5% and 19% from 1996, reflecting revenue and operating margin growth
and improved net credit benefits, dampened by higher effective income tax rates.
Adjusted revenue of $5.7 billion and $11.4 billion in the 1997 second quarter
and six months was up $431 million or 8% and $941 million or 9% from the
comparable 1996 periods. Revenue in Global Consumer increased 6% in the quarter
to $3.5 billion and was up 7% to $7.0 billion in the six months, led mostly by
growth in Cards. Global Consumer in the emerging markets grew revenue by 9%,
while the developed markets grew 5%. Global Corporate Banking revenue of $2.0
billion and $3.9 billion in the second quarter and six months was up 11% and 15%
from 1996, as Emerging Markets grew 15% in the second quarter and Global
Relationship Banking was up 19% in the six months.
Adjusted net interest revenue (taxable equivalent basis) of $3.5 billion and
$6.9 billion in the quarter and six months was up $103 million or 3% and $289
million or 4% from the 1996 periods as the impact of asset growth in most
markets was partially offset by spread compression. Adjusted fee and commission
revenue of $1.4 billion and $2.7 billion was up $120 million or 9% and $172
million or 7% from 1996, led by solid growth throughout Global Consumer.
Trading-related revenue, including related net interest revenue, of $511 million
and $1.1 billion increased $84 million and $281 million from the unusually low
1996 periods. Venture capital revenue of $173 million and $266 million increased
$66 million and $121 million from 1996 levels benefiting from realized gains and
buoyant equity markets. Aggregate securities transactions and net asset gains of
$188 million and $388 million for the 1997 periods increased $19 million and $34
million from a year ago.
Adjusted operating expense for the quarter and six months of $3.2 billion and
$6.4 billion was up $215 million or 7% and $522 million or 9%. Expense growth in
the emerging markets was 13% in both the quarter and six months, while expense
growth in the developed markets businesses was 5% in the quarter and 6%
year-to-date.
Operating margin grew $216 million to $2.5 billion in the 1997 second quarter
and $419 million to $5.0 billion in the six months, increases of 9% in both
periods over 1996. The incremental revenue to expense ratio was 2.0:1 for the
quarter, 1.8:1 year-to-date, and the efficiency ratio (adjusted operating
expense as a percentage of adjusted revenue) was 56% in both periods. Excluding
the effect of foreign currency translation resulting from the strengthened U.S.
dollar, the percentage increases in revenue, expense, and operating margin would
have been approximately 2 percentage points higher in the quarter and 1 point
higher in the six months.
Total credit costs, adjusted for the effect of credit card securitization
activity, were $886 million in the second quarter, up $67 million or 8% from
$819 million in the preceding quarter and up $151 million or 21% from $735
million in the 1996 second quarter. Consumer net credit losses of $925 million
or an annualized 2.73% of average managed loans in the second quarter increased
$32 million from $893 million or 2.69% in the prior quarter and by $156 million
from $769
2
<PAGE>
million or 2.38% in the 1996 quarter. The increases in consumer credit
losses and the related loss ratios chiefly reflected a further rise in U.S.
bankcards credit losses, partially offset by improvement in Citibanking and
other Cards. The managed consumer loan delinquency ratio (90 days or more past
due) decreased to 2.43%, from 2.58% and 2.91% at the end of the prior and
year-ago quarters.
Commercial credit benefits were $36 million and $111 million in the quarter and
six months, compared to net benefits of $27 million and $12 million in 1996. The
1997 six months included a $50 million recovery from the refinancing agreement
concluded with Peru. The 1996 second quarter included a $21 million recovery
from the refinancing agreement concluded with Slovenia. Commercial cash-basis
loans and OREO of $1.4 billion at June 30, 1997 were down $120 million or 8%
from year-end, and were down $483 million or 26% from a year ago, principally
reflecting continued reductions in the commercial real estate portfolio.
At June 30, 1997, total credit loss reserves (including reserves for off-balance
sheet credit exposures) were $6.0 billion. Global Consumer continued to build
the allowance for credit losses, adding $25 million above net credit losses.
Citicorp's effective tax rate was 37.0% in the 1997 second quarter and 37.5% in
the 1997 six months, compared with 38.0% in both 1996 periods. Income taxes are
attributed to Core Businesses on the basis of local tax rates, which resulted in
effective tax rates for the Core Businesses of 23% in the 1997 quarter compared
with 21% a year ago, and 25% and 24% for the six months, reflecting changes in
the nature and geographic mix of earnings. The increase in the tax rate
attributed to Core Businesses reduced earnings growth in these businesses by $28
million in the quarter and $32 million in the six months.
Total capital (Tier 1 and Tier 2) was $30.1 billion or 11.96% of net
risk-adjusted assets, and Tier 1 capital was $20.6 billion or 8.18% at June 30,
1997. During the quarter, Citicorp generated $853 million of Tier 1 capital
(principally net income less dividends) which was used to fund the growth in
customer-driven risk-adjusted assets. For the six months, Citicorp generated
$735 million of free capital. With the repurchase of 4.7 million shares of
common stock in the quarter for $524 million, the number of shares acquired
since June 20, 1995, when the Board of Directors authorized the stock repurchase
program, totaled 70.0 million for an outlay of $5.8 billion. As expanded in
1996, the program is authorized to make total purchases for up to $8.5 billion.
3
<PAGE>
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BUSINESS DISCUSSION
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The table below and the discussions that follow analyze Citicorp's results by
global business areas including its Global Consumer and Global Corporate Banking
core business franchises.
<TABLE>
<CAPTION>
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Earnings Summary
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Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996 (A) Change 1997 1996 (A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Consumer........................... $ 471 $ 486 (3) $ 958 $ 988 (3)
Global Corporate Banking.................. 665 636 5 1,312 1,104 19
----------------------------------------------------------------
Core Businesses........................... 1,136 1,122 1 2,270 2,092 9
Corporate Items........................... (112) (170) 34 (251) (226) (11)
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Total Citicorp............................ $1,024 $ 952 8 $2,019 $1,866 8
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Global Consumer:
Citibanking............................... $201 $174 16 $384 $350 10
Cards..................................... 190 239 (21) 414 500 (17)
Private Bank.............................. 80 73 10 160 138 16
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Total..................................... $471 $486 (3) $958 $988 (3)
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Global Consumer business in:
Emerging Markets.......................... $249 $223 12 $497 $443 12
Developed Markets......................... 222 263 (16) 461 545 (15)
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Total..................................... $471 $486 (3) $958 $988 (3)
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Global Corporate Banking:
Emerging Markets.......................... $423 $425 - $ 871 $ 813 7
Global Relationship Banking............... 242 211 15 441 291 52
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Total..................................... $665 $636 5 $1,312 $1,104 19
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(A) Reclassified to conform to the latest quarter's presentation.
</TABLE>
4
<PAGE>
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Global Consumer
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The Global Consumer business -- Citibanking, Cards, and the Private Bank --
delivers financial services to consumer customers around the world.
<TABLE>
<CAPTION>
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Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996 (A) Change 1997 1996 (A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenue............................. $3,088 $2,980 4 $6,140 $5,940 3
Effect of Credit Card
Securitization Activity (B)............. 437 349 25 871 643 35
Net Cost to Carry
Cash-Basis Loans and OREO............... - (9) NM - (10) NM
----------------------------------------------------------------
Adjusted Revenue.......................... 3,525 3,320 6 7,011 6,573 7
----------------------------------------------------------------
Total Operating Expense................... 1,917 1,812 6 3,789 3,570 6
Net OREO Benefits (Costs)................. 3 (2) NM 2 (2) NM
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Adjusted Operating Expense................ 1,920 1,810 6 3,791 3,568 6
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Operating Margin.......................... 1,605 1,510 6 3,220 3,005 7
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Net Write-offs............................ 488 420 16 947 833 14
Effect of Credit Card
Securitization Activity (B).............. 437 349 25 871 643 35
Net Cost to Carry and Net OREO Costs...... (3) (7) 57 (2) (8) 75
----------------------------------------------------------------
Credit Costs.............................. 922 762 21 1,816 1,468 24
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Operating Margin Less Credit Costs........ 683 748 (9) 1,404 1,537 (9)
Additional Provision...................... 25 50 (50) 50 100 (50)
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Income Before Taxes....................... 658 698 (6) 1,354 1,437 (6)
Income Taxes.............................. 187 212 (12) 396 449 (12)
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Net Income................................ $ 471 $ 486 (3) $ 958 $ 988 (3)
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Average Assets (In Billions of Dollars)... $133 $125 6 $132 $125 6
Return on Assets.......................... 1.42% 1.56% - 1.46% 1.59% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
(B) Commencing with the 1997 first quarter, includes effect related to credit
card receivables held for sale.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
The Global Consumer business had net income of $471 million and $958 million in
the 1997 second quarter and six months, down $15 million or 3% and $30 million
or 3% from the 1996 periods, primarily due to a decline in U.S. bankcards
earnings, partially offset by improved earnings in Citibanking, other Cards
businesses, and the Private Bank. Operating margin less credit costs in the
consumer business declined by 9% in both periods. Earnings in the 1997 periods
benefited from lower additional provisions and lower effective tax rates. Return
on assets was 1.42% and 1.46% in the second quarter and six months, down from
1.56% and 1.59% in the 1996 periods.
Adjusted revenue of $3.5 billion in the second quarter and $7.0 billion in the
six months of 1997 increased 6% and 7% from the respective 1996 periods,
reflecting growth across Citibanking, Cards, and the Private Bank. Excluding the
effect of foreign currency translation resulting from the strengthened dollar,
revenue increased 8% in both periods. Net interest revenue was up 4% in the
quarter and 6% in the six months of 1997 while fee and commission revenue grew
by 12% and 10%, respectively. The increase in both net interest revenue and fee
and commission revenue reflected business volume growth, partially offset by the
impact of foreign currency translation. Additionally, net interest revenue
reflected the effect of previously implemented risk-and-relationship-based
pricing strategies in U.S. bankcards and spread compression in Asia Pacific
Citibanking.
5
<PAGE>
Adjusted operating expense of $1.9 billion in the second quarter and $3.8
billion in the six months of 1997 increased 6% -- 8% excluding the effect of
foreign currency translation -- from the respective 1996 periods, principally
reflecting continued spending on Citibanking and Cards initiatives.
Credit costs of $922 million were $28 million higher than the 1997 first quarter
and $160 million higher than the 1996 second quarter. The ratio of net credit
losses to average managed loans was 2.73% in the quarter, compared with 2.69% in
the preceding quarter and 2.38% a year-ago. The increase in credit costs and
related loss ratios principally reflected higher credit costs in U.S. bankcards.
The Global Consumer business continued to build the allowance for credit losses,
with charges in excess of net write-offs of $25 million and $50 million in the
1997 second quarter and six months, compared with $50 million and $100 million
in the year-ago periods.
Net credit losses and the related loss ratios, which are influenced by credit
performance of the portfolio (including bankruptcies), seasonal factors,
economic conditions, and other changes in portfolio levels, may increase further
from the 1997 second quarter. See "Consumer Portfolio Review" on page 10 and
"Provision and Credit Loss Reserves" on page 27 for additional discussion of
the consumer portfolio.
Income taxes are attributed to Core Businesses on the basis of local tax rates,
resulting in an effective rate for the Global Consumer business of 28% in the
second quarter and 29% in the six months of 1997, compared to 30% and 31% in the
year-ago periods, reflecting changes in the geographic mix and nature of
earnings. The difference between the local tax rates attributed to Core
Businesses and Citicorp's overall effective tax rate is included in Corporate
Items.
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Citibanking
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<TABLE>
<CAPTION>
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Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $1,514 $1,457 4 $2,979 $2,868 4
Operating Expense......................... 1,074 1,040 3 2,123 2,025 5
----------------------------------------------------------------
Operating Margin.......................... 440 417 6 856 843 2
Credit Costs.............................. 145 161 (10) 293 319 (8)
----------------------------------------------------------------
Operating Margin Less Credit Costs........ 295 256 15 563 524 7
Additional Provision...................... - 1 NM - 2 NM
----------------------------------------------------------------
Income Before Taxes....................... 295 255 16 563 522 8
Income Taxes.............................. 94 81 16 179 172 4
----------------------------------------------------------------
Net Income................................ $ 201 $ 174 16 $ 384 $ 350 10
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $85 $82 4 $84 $82 2
Return on Assets.......................... 0.95% 0.85% - 0.92% 0.86% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Citibanking activities -- which deliver products and services to customers
through branches and electronic delivery systems -- had net income of $201
million and $384 million in the 1997 second quarter and six months, up $27
million or 16% and $34 million or 10% from the 1996 periods. Return on assets
was 0.95% and 0.92% in the second quarter and six months of 1997, up from 0.85%
and 0.86% in the comparable year-ago periods.
Revenue of $1.5 billion in the quarter and $3.0 billion in the six months of
1997 increased 4% -- 7% excluding the effect of foreign currency translation --
from the 1996 periods, reflecting higher business volumes in both the emerging
and developed markets, including growth in average customer deposits of 6% in
both periods to $94 billion in the 1997 second quarter. Excluding the
translation effect, revenue increased 8% in the developed markets, and 5% in the
emerging markets in both the second quarter and six months of 1997. Emerging
markets revenue reflected double-digit growth in
6
<PAGE>
Latin America and a decline in certain countries in Asia Pacific due to
continued competitive pressures and economic conditions.
Expense of $1.1 billion in the second quarter and $2.1 billion in the six months
of 1997 increased 3% and 5% from the respective 1996 periods. Excluding the
effect of foreign currency translation, expense was up 6% in the quarter and 7%
in the six months reflecting increases of 4% and 6% in the developed markets,
and 10% in both periods in the emerging markets. The increase in expense
reflects spending to support higher business volumes, new product development,
franchise expansion and technology initiatives.
Credit costs of $145 million in the quarter were down $3 million or 2% from the
1997 first quarter and down $16 million or 10% from the 1996 second quarter,
reflecting a decline in the developed markets, including the effect of foreign
currency translation. The ratio of net credit losses to average managed loans
was 0.87% in the quarter, down from 0.91% in the preceding quarter and 0.99% in
the year-ago quarter.
<TABLE>
<CAPTION>
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Cards
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Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $1,733 $1,612 8 $3,485 $3,209 9
Adjusted Operating Expense................ 666 606 10 1,323 1,218 9
----------------------------------------------------------------
Operating Margin.......................... 1,067 1,006 6 2,162 1,991 9
Credit Costs.............................. 778 611 27 1,525 1,158 32
----------------------------------------------------------------
Operating Margin Less Credit Costs........ 289 395 (27) 637 833 (24)
Additional Provision...................... 25 49 (49) 50 98 (49)
----------------------------------------------------------------
Income Before Taxes....................... 264 346 (24) 587 735 (20)
Income Taxes.............................. 74 107 (31) 173 235 (26)
----------------------------------------------------------------
Net Income................................ $ 190 $ 239 (21) $ 414 $ 500 (17)
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $31 $27 15 $31 $27 15
Return on Assets (B)...................... 2.46% 3.56% - 2.69% 3.72% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
(B) Adjusted for the off-balance sheet effect of credit card securitization,
the return for worldwide Cards was 1.36% in the 1997 quarter and 1.84% in
the year-ago quarter. For the six months of 1997 and 1996, the return on
managed assets was 1.49% and 1.92%.
</TABLE>
Net income in Cards worldwide -- bankcards, Diners Club, and private label cards
- -- was $190 million in the 1997 second quarter, a decrease of $49 million or 21%
from a year ago, and was $414 million in the six months, down $86 million or 17%
from the comparable 1996 period. Cards worldwide return on managed assets was
1.36% and 1.49% in the second quarter and six months of 1997 compared with 1.84%
and 1.92% in the 1996 periods. Cards earnings in the developed markets declined
from the year-ago periods as U.S. bankcards continued to operate in a
challenging environment characterized by competitive pressures and a weak credit
climate. Net income for Cards in the emerging markets increased 28% in the
quarter and 23% in the six months, and represented approximately 46% and 43% of
Cards earnings, respectively.
Cards adjusted revenue of $1.7 billion in the 1997 second quarter and $3.5
billion in the six months increased 8% and 9% from 1996, including growth in the
developed markets of 6% and 7%, respectively. U.S. bankcards revenue was up 6%
and 8%, as managed receivables grew $3.0 billion or 7% to $45.8 billion.
Previously implemented risk-and-relationship-based pricing strategies resulted
in a lower yield on the portfolio as well as an increase in delinquency charge
revenue. Emerging markets Cards revenue in both the 1997 second quarter and six
months was 15% higher than the comparable year-ago periods, reflecting
double-digit growth in both Asia Pacific and Latin America.
Adjusted operating expense in worldwide Cards of $666 million in the 1997 second
quarter and $1.3 billion in the six months increased $60 million or 10% and $105
million or 9%, from the year-ago periods. Developed markets expense
7
<PAGE>
increased 8% and 7%, respectively, primarily reflecting higher costs in U.S.
bankcards associated with increased collection efforts and, in the 1997 second
quarter,higher costs associated with enhanced target marketing. Expense in
emerging markets Cards increased 15% and 13% in the second quarter and six
months, in support of higher business volumes, as well as continued investment
in the franchise.
Credit costs in U.S. bankcards continued to increase, rising in the quarter to
$683 million or 6.13% of average managed loans, compared with $656 million or
5.91% in the 1997 first quarter, and $522 million or 4.99% in the 1996 second
quarter. The 12-month-lagged net credit loss ratio was 6.51% in the 1997 second
quarter, up from 6.21% in the preceding quarter and 5.41% in the 1996 second
quarter. The percent of U.S. bankcards gross write-offs that resulted from
bankruptcies in the 1997 second quarter was 40.2%, compared with a seasonally
low 36.6% in the preceding quarter and 38.5% in the 1996 second quarter.
Citicorp continues to write off accounts upon notice of filing of bankruptcy.
Managed U.S. bankcards loans delinquent 90 days or more were $843 million or
1.86% of the portfolio at the end of the quarter, compared with $884 million or
1.98% at the end of the preceding quarter and $732 million or 1.73% a year-ago.
Credit costs in Cards portfolios other than U.S. bankcards were $95 million or
4.14% of average loans in the quarter, compared with $91 million or 4.25% in the
preceding quarter and $89 million or 4.65% in the 1996 second quarter. Loans
delinquent 90 days or more were $206 million or 2.18% of the portfolio, compared
with $214 million or 2.42% at the end of the preceding quarter and $180 million
or 2.25% a year-ago.
<TABLE>
<CAPTION>
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Private Bank
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Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $278 $251 11 $547 $496 10
Adjusted Operating Expense................ 180 164 10 345 325 6
----------------------------------------------------------------
Operating Margin.......................... 98 87 13 202 171 18
Credit Benefits........................... (1) (10) (90) (2) (9) (78)
----------------------------------------------------------------
Income Before Taxes....................... 99 97 2 204 180 13
Income Taxes.............................. 19 24 (21) 44 42 5
----------------------------------------------------------------
Net Income................................ $ 80 $ 73 10 $160 $138 16
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $17 $16 6 $17 $16 6
Return on Assets.......................... 1.89% 1.84% - 1.90% 1.73% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
</TABLE>
Private Bank net income of $80 million in the 1997 quarter and $160 million in
the 1997 six months increased $7 million or 10% and $22 million or 16% from the
1996 periods and resulted in a return on assets of 1.89% for the quarter and
1.90% for the six months, both up from a year earlier. Net income in the quarter
benefited from a reduced tax rate of 19% compared with 25% in the prior year,
and 22% and 23% for the six month periods, as a result of changes in the
geographic mix of earnings. Income before taxes of $99 million in the second
quarter and $204 million in the six months grew $2 million or 2% and $24 million
or 13% from 1996.
Adjusted revenue of $278 million and $547 million in the quarter and six months
was up $27 million or 11% and $51 million or 10%, reflecting growth in both
periods of 15% in the emerging markets and 7% in the developed markets. Revenue
was mostly composed of like amounts of net interest revenue, up 4% in both
periods on higher deposit volumes, and fees and commissions, up 11% in the
quarter and 13% year-to-date as a result of new investment products introduced
earlier this year, complemented by substantial increases in client-related
foreign exchange revenue.
Adjusted operating expense of $180 million and $345 million in the quarter and
six months increased $16 million or 10% and $20 million or 6% from 1996.
Excluding the effect of foreign currency translation, expense increased 13% in
the
8
<PAGE>
quarter and 10% in the six months, reflecting higher salary levels,
including a 6% increase in staff, as well as increased spending on technology
and marketing initiatives.
Operating margin grew $11 million or 13% to $98 million in the quarter and $31
million or 18% to $202 million in the year-to-date period. For the six months,
the incremental revenue to expense ratio was 2.6:1 and the efficiency ratio was
63%, improved from 66% in 1996.
Credit costs were net benefits of $1 million and $2 million in the quarter and
six months, compared with net benefits of $10 million and $9 million in the
year-ago periods, which included significant recoveries. Overall credit trends
continued to improve, with loans delinquent 90 days or more down to $187 million
or 1.19% of loans, from $198 million or 1.28% in the preceding quarter, and $254
million or 1.66% in the second quarter of 1996, reflecting continued active
portfolio management.
Client business volumes under management at the end of the quarter reached $100
billion, up 9% from $92 billion a year earlier. Growth in all business lines was
led by the discretionary and advisory investments areas in which individually
managed portfolios, mutual funds, and custody grew 15% and contributed $5
billion of the increase.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Global Consumer in Emerging Markets
- ---------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $988 $904 9 $1,938 $1,767 10
Adjusted Operating Expense................ 572 515 11 1,104 997 11
----------------------------------------------------------------
Operating Margin.......................... 416 389 7 834 770 8
Credit Costs.............................. 97 98 (1) 189 191 (1)
----------------------------------------------------------------
Operating Margin Less Credit Costs........ 319 291 10 645 579 11
Additional Provision...................... 7 9 (22) 10 11 (9)
----------------------------------------------------------------
Income Before Taxes....................... 312 282 11 635 568 12
Income Taxes.............................. 63 59 7 138 125 10
----------------------------------------------------------------
Net Income................................ $249 $223 12 $ 497 $ 443 12
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $43 $38 13 $42 $37 14
Return on Assets.......................... 2.32% 2.36% - 2.39% 2.41% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
</TABLE>
Global Consumer net income in the emerging markets was $249 million and $497
million in the 1997 second quarter and six months, up $26 million or 12% and $54
million or 12% from the respective 1996 periods, principally reflecting growth
across Cards and the Private Bank. Revenue growth of 9% and 10% in the quarter
and six months reflected double digit growth in the Latin America region and the
Asia Pacific Cards business, partially offset by a decline in certain countries
in the Asia Pacific Citibanking business. The 11% increase in expense in both
periods is the result of expansion efforts, including the support of higher
business volumes, and technology upgrades. Credit costs were essentially
unchanged from the year-ago quarter, but increased $5 million or 5% from the
1997 first quarter.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Global Consumer in Developed Markets
- ---------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $2,537 $2,416 5 $5,073 $4,806 6
Adjusted Operating Expense................ 1,348 1,295 4 2,687 2,571 5
----------------------------------------------------------------
Operating Margin.......................... 1,189 1,121 6 2,386 2,235 7
Credit Costs.............................. 825 664 24 1,627 1,277 27
----------------------------------------------------------------
Operating Margin Less Credit Costs........ 364 457 (20) 759 958 (21)
Additional Provision...................... 18 41 (56) 40 89 (55)
----------------------------------------------------------------
Income Before Taxes....................... 346 416 (17) 719 869 (17)
Income Taxes.............................. 124 153 (19) 258 324 (20)
----------------------------------------------------------------
Net Income................................ $ 222 $ 263 (16) $ 461 $ 545 (15)
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $90 $87 3 $90 $88 2
Return on Assets.......................... 0.99% 1.22% - 1.03% 1.25% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
</TABLE>
Global Consumer net income in the developed markets was $222 million and $461
million in the 1997 second quarter and six months, down $41 million or 16% and
$84 million or 15% from the respective year-ago periods, primarily due to the
lower earnings in U.S. bankcards, partially offset by double-digit earnings
growth in Citibanking. Excluding the effect of foreign currency translation,
revenue increased 7% in the quarter and 8% in the six months, reflecting an
increase in U.S. bankcards, as well as higher business volumes in Citibanking.
The increase in expense of 7% in both periods, excluding the effect of foreign
currency translation, was primarily the result of spending on Citibanking
initiatives in support of higher business volumes, new product development, and
technology initiatives, as well as higher costs in the U.S. bankcards business.
Credit costs in the quarter were up $161 million or 24% and up $350 million or
27% in the six months, primarily in U.S. bankcards.
- --------------------------------------------------------------------------------
Consumer Portfolio Review
- --------------------------------------------------------------------------------
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level according to loan product and
country.
The table on page 11 summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolio in terms of loans 90 days
or more past due, net credit losses, and as a percentage of related loans.
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
- -------------------------------------------------------------------------------------------------------------
Total Average
Loans 90 Days or More Past Due (A) Loans Net Credit Losses (A)
------------------------------------------------------------------------------
(In Millions of Dollars, June 30, June 30, Mar. 31, June 30, 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr.
except Loan Amounts in 1997 1997 1997 1996 1997 1997 1997 1996
Billions )
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking.................. $ 66.9 $2,094 $2,193 $2,663 $ 66.3 $145 $148 $161
Ratio........................ 3.13% 3.30% 4.05% 0.87% 0.91% 0.99%
Cards
U.S. Bankcards............... 45.3 843 884 732 44.7 683 656 522
Ratio........................ 1.86% 1.98% 1.73% 6.13% 5.91% 4.99%
Other........................ 9.5 206 214 180 9.1 95 91 89
Ratio........................ 2.18% 2.42% 2.25% 4.14% 4.25% 4.65%
Private Bank................. 15.6 187 198 254 15.4 2 (2) (3)
Ratio........................ 1.19% 1.28% 1.66% 0.04% NM NM
- -------------------------------------------------------------------------------------------------------------
Total Managed................ 137.3 3,330 3,489 3,829 135.5 925 893 769
Ratio........................ 2.43% 2.58% 2.91% 2.73% 2.69% 2.38%
- -------------------------------------------------------------------------------------------------------------
Securitized Credit
Card Receivables........... (24.2) (453) (500) (452) (24.7) (404) (402) (349)
Loans Held for Sale (B)...... (3.6) (37) (39) - (3.4) (33) (32) -
- -------------------------------------------------------------------------------------------------------------
Total Loan Portfolio......... $109.5 $2,840 $2,950 $3,377 $107.4 $488 $459 $420
Ratio........................ 2.59% 2.76% 3.20% 1.82% 1.75% 1.62%
- -------------------------------------------------------------------------------------------------------------
Managed Portfolio:
Developed Markets............ $102.4 $2,869 $3,075 $3,448 $101.4 $828 $801 $671
Ratio........................ 2.80% 3.03% 3.42% 3.26% 3.19% 2.70%
Emerging Markets............. 34.9 461 414 381 34.1 97 92 98
Ratio........................ 1.32% 1.23% 1.25% 1.15% 1.12% 1.30%
- -------------------------------------------------------------------------------------------------------------
(A) The ratios of 90 days or more past due and net credit losses are calculated
based on end-of-period and average loans, respectively, both net of unearned
income.
(B) Commencing with the 1997 first quarter, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale, which are accounted
for at the lower of cost or market value with net credit losses charged to
other revenue.
NM Not meaningful, as net recoveries result in a negative percentage.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consumer Loan Balances, Net of Unearned Income
- -------------------------------------------------------------------------------------------------------------
End of Period Average
------------------------------------------------------------------
June Mar. 31, June 2nd Qtr. 1st Qtr. 2nd Qtr.
(In Billions of Dollars) 30, 1997 1997 30, 1996 1997 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed................................. $137.3 $135.2 $131.4 $135.5 $134.6 $130.3
Securitized Credit Card Receivables..... (24.2) (25.4) (26.0) (24.7) (25.1) (26.2)
Loans Held for Sale (A)................. (3.6) (3.1) - (3.4) (3.1) -
- -------------------------------------------------------------------------------------------------------------
Loan Portfolio.......................... $109.5 $106.7 $105.4 $107.4 $106.4 $104.1
- -------------------------------------------------------------------------------------------------------------
(A) Commencing with the 1997 first quarter, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale, which are
accounted for at the lower of cost or market value with net credit losses
charged to other revenue.
</TABLE>
Total delinquencies in the managed portfolio of $3.3 billion and the related
delinquency ratio of 2.43% at June 30, 1997, were down from $3.5 billion or
2.58% at March 31, 1997 and $3.8 billion or 2.91% at June 30, 1996, primarily
due to a decline in Citibanking. Total managed net credit losses in the 1997
second quarter of $925 million and the related loss ratio of 2.73% were up from
$893 million or 2.69% in the 1997 first quarter and $769 million or 2.38% in the
year-ago quarter, principally due to an increase in U.S.
bankcards.
In Citibanking, delinquencies of $2.1 billion and the related ratio of 3.13% at
June 30, 1997 declined from $2.2 billion or 3.30% at March 31, 1997 and $2.7
billion or 4.05% at June 30, 1996, primarily reflecting improvements in U.S.
11
<PAGE>
mortgages and community banking, and the effect of foreign currency translation,
partially offset by increases in Asia Pacific. Additionally, the improvement
from a year ago reflects the 1996 third quarter U.K. mortgage portfolio sale.
Net credit losses in the 1997 second quarter of $145 million and the related
loss ratio of 0.87% declined from $148 million or 0.91% in the 1997 first
quarter and $161 million or 0.99% in the 1996 second quarter. The decrease in
losses from the 1996 second quarter primarily reflected a decline in the U.S.
mortgage business and the effect of foreign currency translation.
U.S. bankcards managed loans that were delinquent 90 days or more totaled $843
million as of June 30, 1997 or 1.86% of the portfolio, compared with $884
million or 1.98%, and $732 million or 1.73%, at March 31, 1997 and June 30,
1996, respectively. Net credit losses continued to increase, rising in the
quarter to $683 million or 6.13% of average managed loans, compared with $656
million or 5.91% in the 1997 first quarter, and $522 million or 4.99% in the
1996 second quarter. The 12-month-lagged net credit loss ratio, which adjusts
the loss ratio for portfolio growth by calculating the ratio using the current
quarter's net credit losses as a percentage of average loans in the year-ago
quarter, was 6.51% in the 1997 second quarter, up from 6.21% in the 1997 first
quarter and 5.41% in the 1996 second quarter. The bankruptcy rate in the 1997
second quarter was 40.2% of gross write-offs, compared with a seasonally low
36.6% in the preceding quarter and 38.5% in the 1996 second quarter. Citicorp
continues to write off accounts upon notice of filing of bankruptcy.
The other Cards businesses primarily include bankcards throughout the emerging
markets and in the developed markets of Europe and Japan, as well as worldwide
Diners Club. Loans delinquent 90 days or more at June 30, 1997 were $206 million
or 2.18% of the portfolio, compared with $214 million or 2.42% at March 31, 1997
and $180 million or 2.25% at June 30, 1996. The decline in the delinquency ratio
from both the preceding quarter and a year-ago primarily reflects lower ratios
in both Asia Pacific and Latin America. The increase in delinquent dollars since
June 30, 1996 primarily reflects loan growth in Asia Pacific. Net credit losses
in the 1997 second quarter were $95 million or 4.14% of average loans, compared
with $91 million or 4.25% in the 1997 first quarter and $89 million or 4.65% in
the 1996 second quarter. The decline in the net credit loss ratio from the 1996
second quarter is primarily due to lower loss ratios in Asia Pacific, Latin
America, and Diners Club.
Private Bank delinquencies declined to 1.19% of loans from 1.66% a year earlier,
consistent with the overall decrease in the level of nonperforming assets in the
business.
Total consumer loans on the balance sheet delinquent 90 days or more on which
interest continued to be accrued were $937 million at June 30, 1997, down from
$983 million at March 31, 1997 and $944 million at June 30, 1996. Included in
these amounts are U.S. government-guaranteed student loans of $215 million, $227
million, and $237 million, respectively. Other consumer loans delinquent 90 days
or more on which interest continued to be accrued (which primarily include
worldwide bankcard receivables and certain portfolios in Germany) were $722
million, $756 million, and $707 million, respectively. The majority of these
other loans are written off upon reaching a stipulated number of days past due.
See the table entitled "Cash-Basis, Renegotiated, and Past Due Loans" on page
39.
Citicorp's policy for suspending the accrual of interest on consumer loans
varies depending on the terms, security, and credit loss experience
characteristics of each product, as well as write-off criteria in place. At June
30, 1997, interest accrual had been suspended on $2.0 billion of consumer loans,
primarily consisting of Citibanking loans, down from $2.1 billion at March 31,
1997 and $2.5 billion at June 30, 1996. The decline from June 30, 1996 reflects
improvements in U.S. mortgages and the Private Bank, the impact of the U.K.
mortgage portfolio sale, and the effect of foreign currency translation,
partially offset by increases in Asia Pacific. U.S. mortgages on which the
accrual of interest had been suspended were $604 million at June 30, 1997, down
from $671 million at March 31, 1997 and $942 million at June 30, 1996, due to
stable housing markets, improved collection results, and delinquency management
initiatives.
The portion of Citicorp's allowance for credit losses allocated to the consumer
portfolio was $2.5 billion as of June 30, 1997, up from $2.4 billion at March
31, 1997 and $2.0 billion at June 30, 1996, reflecting the 1997 first quarter
transfer of a $373 million other liability reserve that had previously been
attributable to credit card securitization transactions.
12
<PAGE>
The allowance for credit losses reflected an additional provision in excess of
net write-offs of $25 million in both the 1997 first and second quarters, and
$50 million in the 1996 second quarter. The allowance as a percentage of loans
on the balance sheet was 2.24% as of June 30, 1997, compared with 2.29% at
March 31, 1997 and 1.90% at June 30, 1996. See "Provision and Credit Loss
Reserves" on page 27 for further discussion.
Consumer credit costs and the related net credit loss ratios, which are
influenced by credit performance of the portfolios (including bankruptcies),
seasonal factors, economic conditions, and other changes in portfolio levels,
may increase further from the second quarter of 1997. Additionally,
delinquencies and loans on which the accrual of interest is suspended could
remain at relatively high levels.
- --------------------------------------------------------------------------------
Global Corporate Banking
- --------------------------------------------------------------------------------
The Global Corporate Banking business serves corporations, financial
institutions, governments, investors and other participants in capital markets
throughout the world.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenue............................. $1,995 $1,812 10 $3,930 $3,432 15
Net Cost to Carry
Cash-Basis Loans and OREO............... (1) (17) 94 (4) (21) 81
----------------------------------------------------------------
Adjusted Revenue.......................... 1,994 1,795 11 3,926 3,411 15
----------------------------------------------------------------
Total Operating Expense................... 1,172 1,073 9 2,314 2,073 12
Net OREO Benefits......................... 34 19 79 45 31 45
----------------------------------------------------------------
Adjusted Operating Expense................ 1,206 1,092 10 2,359 2,104 12
----------------------------------------------------------------
Operating Margin.......................... 788 703 12 1,567 1,307 20
----------------------------------------------------------------
Net (Recoveries) Write-offs............... (1) 9 NM (62) 40 NM
Net Cost to Carry and Net OREO Benefits... (35) (36) 3 (49) (52) 6
----------------------------------------------------------------
Credit Benefits .......................... (36) (27) 33 (111) (12) NM
----------------------------------------------------------------
Income Before Taxes....................... 824 730 13 1,678 1,319 27
Income Taxes.............................. 159 94 69 366 215 70
----------------------------------------------------------------
Net Income................................ $ 665 $ 636 5 $1,312 $1,104 19
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $152 $139 9 $150 $139 8
Return on Assets.......................... 1.75% 1.84% - 1.76% 1.60% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Global Corporate Banking net income of $665 million and $1.3 billion in the 1997
second quarter and six months increased $29 million or 5% and $208 million or
19% from the comparable 1996 periods while income before taxes grew $94 million
or 13% and $359 million or 27%. Average assets grew $13 billion or 9% and $11
billion or 8% in the quarterly and six-month comparisons with substantially all
of the growth attributable to the Emerging Markets business. Return on assets
declined 9 basis points in the quarterly comparison but grew 16 basis points in
the six-month comparison. The decline in return on assets in the quarterly
comparison is attributable to higher effective income tax rates in both Global
Relationship Banking and the Emerging Markets business. The difference between
the local tax rates attributed to each business and Citicorp's overall effective
tax rate is included in Corporate Items.
The results in both 1997 periods primarily reflect higher levels of
trading-related and venture capital revenue, moderate growth in transaction
banking services revenue, net interest revenue spread compression, and improved
credit results attributable to lower gross write-offs coupled with continued
recoveries. Partially offsetting these improvements were growth in expenses in
both the Emerging Markets and Global Relationship Banking businesses, and
increases in the
13
<PAGE>
effective income tax rates to 19% and 22% in the 1997 second
quarter and six months from 13% and 16% in the 1996 periods. The increases in
the effective income tax rates are attributable to changes in the geographic mix
and nature of pretax earnings coupled with certain second quarter 1996 local tax
benefits in the Emerging Markets business and a low effective income tax rate in
Global Relationship Banking associated with a second quarter 1996 gain on the
sale of a business.
Commercial cash-basis loans at June 30, 1997 were $917 million, down $437
million or 32% from June 30, 1996. The reduction is primarily attributable to
payoffs and transfers to OREO or accrual status in the real estate portfolio.
The OREO portfolio of $482 million declined $46 million or 9% from June 30, 1996
primarily reflecting the sale of OREO properties. See the tables entitled
"Cash-Basis, Renegotiated, and Past Due Loans" and "Other Real Estate Owned and
Assets Pending Disposition" on page 39.
- --------------------------------------------------------------------------------
Emerging Markets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $984 $853 15 $1,914 $1,721 11
Adjusted Operating Expense................ 478 414 15 929 796 17
----------------------------------------------------------------
Operating Margin.......................... 506 439 15 985 925 6
Credit Costs (Benefits)................... 24 (8) NM (12) 2 NM
----------------------------------------------------------------
Income Before Taxes....................... 482 447 8 997 923 8
Income Taxes.............................. 59 22 NM 126 110 15
----------------------------------------------------------------
Net Income................................ $423 $425 - $ 871 $ 813 7
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $70 $58 21 $68 $57 19
Return on Assets.......................... 2.42% 2.95% - 2.58% 2.87% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Emerging Markets income before taxes of $482 million and $997 million in the
1997 second quarter and six months grew $35 million or 8% and $74 million or 8%
from the comparable 1996 periods. The effective income tax rates increased to
12% and 13% in the 1997 second quarter and six months from 5% and 12% in the
respective 1996 periods. As a result, net income in the 1997 second quarter
declined $2 million from the comparable 1996 period. Net income in the 1997 six
months grew $58 million or 7% from the comparable 1996 period.
Adjusted revenue grew 15% and 11% in the 1997 second quarter and six months
compared with the respective 1996 periods. Revenue growth reflected moderately
improved transaction banking services revenue and growth in corporate finance
revenue, partially offset by net interest revenue spread compression. Revenue
growth also reflects increases of $31 million and $29 million in the 1997 second
quarter and six months in earnings from an affiliate primarily attributable to
an investment dividend. Trading-related revenue in the 1997 second quarter
declined $10 million while increasing $31 million in the 1997 six months.
Revenue from the aggregate of net asset gains and securities transactions in the
1997 second quarter and six months was $134 million and $288 million, up $67
million and $112 million from the comparable 1996 periods. This revenue includes
a $58 million gain related to a 1997 second quarter asset redeployment in
Brazil, a $46 million gain related to the refinancing agreement concluded in the
1997 first quarter with Peru, and a $52 million gain from the 1996 first quarter
sale of Brazil interest bonds. In each of the 1997 and 1996 periods, about 20%
of the revenue in the Emerging Markets business was attributable to business
from multinational companies managed jointly with Global Relationship Banking,
with the revenue in the 1997 periods having grown at double digit rates from the
respective 1996 periods.
Adjusted operating expense increased 15% and 17% in the 1997 second quarter and
six months compared with the respective 1996 periods. Expense growth in both
periods primarily reflects increased investment spending to build the franchise.
14
<PAGE>
Credit costs (benefits) remained low in the 1997 second quarter and six months.
The 1997 six months includes a $50 million recovery from the refinancing
agreement concluded in the first quarter with Peru while the 1996 periods
include a $21 million recovery related to the refinancing agreement concluded in
the second quarter with Slovenia.
- --------------------------------------------------------------------------------
Global Relationship Banking
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.......................... $1,010 $942 7 $2,012 $1,690 19
Adjusted Operating Expense................ 728 678 7 1,430 1,308 9
----------------------------------------------------------------
Operating Margin.......................... 282 264 7 582 382 52
Credit Benefits .......................... (60) (19) NM (99) (14) NM
----------------------------------------------------------------
Income Before Taxes....................... 342 283 21 681 396 72
Income Taxes.............................. 100 72 39 240 105 NM
----------------------------------------------------------------
Net Income................................ $ 242 $211 15 $ 441 $ 291 52
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $82 $81 1 $82 $82 -
Return on Assets.......................... 1.18% 1.05% - 1.08% 0.71% -
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Global Relationship Banking net income in North America, Europe, and Japan of
$242 million and $441 million in the 1997 second quarter and six months
increased $31 million or 15% and $150 million or 52% from the comparable 1996
periods while income before taxes grew $59 million or 21% and $285 million or
72%. The effective income tax rates in the 1997 second quarter and six months
increased to 29% and 35% from 25% and 27% in the comparable 1996 periods.
Adjusted revenue grew 7% and 19% in the 1997 second quarter and six months
compared with the respective 1996 periods. The improved results in both 1997
periods primarily reflect higher levels of trading-related and venture capital
revenue, moderate growth in transaction banking services revenue, and net
interest revenue spread compression. Trading-related revenue in the 1997 second
quarter and six months grew $68 million and $222 million from the comparable
1996 periods, which include a 1996 second quarter $60 million charge related to
certain mortgage-backed securities activities. Venture capital revenue in the
1997 second quarter and six months improved $66 million and $127 million from
the comparable 1996 periods, benefiting from realized gains and buoyant equity
markets. Revenue includes gains of $23 million and $110 million in the 1997 and
1996 second quarters related to the disposition of an automated trading business
and a $32 million gain on the 1997 first quarter sale of an investment from the
acquisition finance portfolio.
Adjusted operating expense grew 7% and 9% in the 1997 second quarter and six
months compared with the respective 1996 periods, primarily reflecting increased
spending on technology and volume-related expense in transaction banking
services, partially offset by a reduction associated with the disposition of
non-strategic businesses. The 1997 six months also reflects higher incentive
compensation associated with revenue growth.
Credit benefits in the 1997 second quarter and six months were $60 million and
$99 million, compared with $19 million and $14 million in the respective 1996
periods. The improvements in both periods were primarily attributable to lower
write-offs coupled with continued recoveries.
15
<PAGE>
- --------------------------------------------------------------------------------
Corporate Items
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $ 228 $ 201 13 $ 437 $449 (3)
Operating Expense......................... 84 93 (10) 239 195 23
----------------------------------------------------------------
Income Before Taxes....................... 144 108 33 198 254 (22)
Income Taxes.............................. 256 278 (8) 449 480 (6)
----------------------------------------------------------------
Net Loss.................................. ($112) ($170) (34) ($251) ($226) 11
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)... $8 $4 NM $7 $4 75
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Corporate Items includes revenue derived from charging businesses for funds
employed, based upon a marginal cost of funds concept, unallocated corporate
costs, and the offset created by attributing income taxes to core business
activities on a local tax-rate basis.
Revenue in the 1997 and 1996 second quarter periods included investment
writedowns in Latin America of $29 million ($49 million year-to-date) and $50
million, respectively. Expense in the 1997 first quarter included a charge of
$72 million, and for each of the 1996 first and second quarters included charges
of $14 million associated with performance-based stock options. All of these
options were fully vested as of March 31, 1997. Average assets of $8 billion in
the 1997 second quarter increased $4 billion from a year ago, mainly due to
investment in U.S. Treasury securities as a result of asset management
strategies.
- --------------------------------------------------------------------------------
MANAGING GLOBAL RISK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liquidity
- --------------------------------------------------------------------------------
Citicorp manages liquidity through a well-defined process described in the 1996
Annual Report and Form 10-K.
A diversity of funding sources, currencies, and maturities is used to gain the
broadest practical access to the investor base. Citicorp deposits of $198.7
billion represent 65% of total funding at June 30, 1997, compared with $185.0
billion (66% of total funding) at December 31, 1996, and are broadly diversified
by geography and customer segments. Stockholders' equity, which was $21.4
billion at June 30, 1997 compared with $20.7 billion at December 31, 1996, is
also an important component of the overall funding structure. In addition,
long-term debt is issued by Citicorp (the "Parent Company") and its
subsidiaries. Total long-term debt outstanding at June 30, 1997, was $19.7
billion, compared with $18.9 billion at year-end 1996.
Securitization of assets remains an important source of liquidity. Total assets
securitized during the quarter were $0.6 billion, including $0.2 billion of U.S.
credit cards and $0.4 billion of U.S. consumer mortgages. Total assets
securitized during the 1997 six months were $3.7 billion, including $2.8 billion
of U.S. credit cards and $0.9 billion of U.S consumer mortgages. As securitized
credit card receivables transactions amortize, newly originated receivables are
recorded on Citicorp's balance sheet and become available for asset
securitization. During the three months ended June 30, 1997, the scheduled
amortization of certain securitized credit card receivables made available $1.5
billion of new receivables ($3.8 billion for the six months), and an additional
$2.1 billion are scheduled to amortize during the remainder of 1997.
The Parent Company is a legal entity separate and distinct from Citibank, N.A.
and its other subsidiaries and affiliates. As discussed in the 1996 Annual
Report and Form 10-K, there are various legal limitations on the extent to which
16
<PAGE>
Citicorp's subsidiaries may extend credit, pay dividends, or otherwise supply
funds to Citicorp. As of June 30, 1997, under their applicable dividend
limitations, Citicorp's national and state-chartered bank subsidiaries could
have declared dividends to their respective parent companies without regulatory
approval of approximately $3.1 billion. In determining whether and to what
extent to pay dividends, each bank subsidiary must also consider the effect of
dividend payments on applicable risk-based capital and leverage ratio
requirements, as well as policy statements of the federal regulatory agencies
that indicate that banking organizations should generally pay dividends out of
current operating earnings. Consistent with these considerations, Citicorp
estimates that as of June 30, 1997, its bank subsidiaries could have distributed
dividends to Citicorp, directly or through their parent holding company, of
approximately $2.7 billion of the available $3.1 billion.
- --------------------------------------------------------------------------------
Price Risk
- --------------------------------------------------------------------------------
Citicorp manages the sensitivity of earnings to changes in interest rates,
market prices, foreign exchange rates, and market volatilities through
established procedures described in the 1996 Annual Report and Form 10-K. These
procedures include limits set annually for each major category of risk; these
limits are monitored and managed by the businesses, and reviewed monthly at the
corporate level. Citicorp uses a risk management system based on market factors
that accommodates the diversity of balance sheet and derivative product
exposures and exposure management systems of its various businesses.
The market factor approach identifies the variables that cause a change in the
value of a financial instrument, including the term structure of interest rates,
foreign exchange rates, equity securities and commodities prices and their
volatilities. Price risk is then measured using various tools, including the
earnings at risk method, which is applied to interest rate risk of the
non-trading portfolios, and the potential loss amount method, which is applied
to the trading portfolios. These methods are comparable with value at risk
measurements employed throughout the industry, and are used as indicators to
monitor sensitivity of earnings to market risk rather than as a quantification
of aggregate risk amounts.
In July 1997 the Financial Accounting Standards Board ("FASB") announced its
intention to finalize a new accounting standard on derivatives and hedging, to
take effect on January 1, 1999. As currently proposed, the new standard would
significantly change the accounting treatment of end-user derivative and foreign
exchange contracts by Citicorp and its customers. Depending on the underlying
risk management strategy, these accounting changes could affect reported
earnings, assets, liabilities, and stockholders' equity. As a result, Citicorp
and the customers to which it provides derivatives and foreign exchange products
may have to reconsider their risk management strategies, since the proposed new
standard would not reflect the results of many of those strategies in the same
manner as current accounting practice. Citicorp is in the process of evaluating
the potential impact of the proposed new standard.
- --------------------------------------------------------------------------------
Price Risk in Non-Trading Portfolios
- --------------------------------------------------------------------------------
Earnings at risk measures the potential pretax earnings impact on the
non-trading activities of a specified movement in interest rates for an assumed
defeasance period, which depends upon the depth of liquidity in the market and
the instrument involved. The predominant assumed defeasance period used in
Citicorp's earnings at risk calculations is currently four weeks. The earnings
at risk is calculated separately for each currency by multiplying the repricing
gap between interest sensitive items by the specified interest rate movement,
and then taking into account the impact of options, both explicit and embedded.
The specific rate movements are statistically derived from a two standard
deviation movement, which results in a confidence level of 97.7%. As of June 30,
1997, the derived two standard deviation rate movement used in determining the
U.S. dollar earnings at risk using a four week defeasance period was 63 basis
points.
Business units manage the potential earnings effect of interest rate movements
by modifying the asset and liability mix, either directly or through the use of
derivatives. These include interest rate swaps and other derivative instruments
which are either designated and effective as hedges or designated and effective
in modifying the interest rate characteristics of
17
<PAGE>
specified assets or liabilities. The utilization of derivatives is modified from
time to time in response to changing market conditions as well as changes in the
characteristics and mix of the related assets and liabilities.
Citicorp's primary non-trading price risk exposure is to worldwide movements in
U.S. dollar interest rates. The table below illustrates that as of June 30, 1997
a two standard deviation increase in U.S. dollar interest rates had a potential
negative impact on Citicorp's pretax earnings of approximately $205 million for
the following twelve months and approximately $221 million on a discounted full
life basis.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
U.S. Dollar Earnings at Risk
- -------------------------------------------------------------------------------------------------------------
Assuming a Rate Movement of
-----------------------------
Two Standard Two Standard
Deviation Deviation
Impact on Pretax Earnings (In Millions of Dollars at June 30, 1997) Increase Decrease
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Overnight to Three Months.................................................. ($74) $ 76
Four to Six Months......................................................... (49) 63
Seven to Twelve Months..................................................... (82) 96
-----------------------------
Total Overnight to Twelve Months........................................... (205) 235
Year Two................................................................... (109) 103
Year Three................................................................. (20) 5
Year Four.................................................................. 39 (57)
Year Five and Beyond....................................................... 83 (117)
Effect of Discounting...................................................... (9) 24
-----------------------------
Total ..................................................................... ($221) $193
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes Citicorp's twelve month U.S. dollar earnings at
risk at recent quarter-ends.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Twelve Month U.S. Dollar Earnings at Risk
- -------------------------------------------------------------------------------------------------------------
Impact on Pretax Earnings June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(In Millions of Dollars) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assuming a Rate Movement of:
Two Standard Deviation Increase............ ($205) ($174) ($165) ($204) ($193)
Two Standard Deviation Decrease............ 235 204 191 206 206
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The tables above illustrate that Citicorp's pretax earnings over the next 12
months in its non-trading activities would be reduced from an increase in
interest rates and benefit from a decrease in interest rates. This primarily
reflects the utilization of receive-fixed interest rate swaps and similar
instruments to effectively modify the repricing characteristics of certain
consumer and commercial loan portfolios, funding, and long-term debt. Excluding
the effects of these instruments, Citicorp's pretax earnings over the next 12
months in its non-trading activities would have benefited $88 million from an
increase in interest rates and been reduced $65 million from a decrease in
interest rates at June 30, 1997.
During the second quarter of 1997, the U.S. dollar earnings at risk for the
following 12 months to a two standard deviation increase in rates had a
potential negative impact which ranged from approximately $140 million to $205
million in the aggregate at each month end, compared with a range from $116
million to $204 million during the full year 1996.
The first table above also illustrates that the risk profile in the two-to-three
year time horizon was directionally similar, but reverses in subsequent periods.
This reflects the fact that the majority of the derivative instruments utilized
to modify repricing characteristics as described above will mature within three
years. Additional detail regarding these derivative instruments may be found on
page 37.
18
<PAGE>
Earnings at risk in other currencies also existed at significantly lower levels
than U.S. dollar earnings at risk. The level of exposure taken is based on the
market environment and will vary from period to period based on rate and other
economic expectations.
- --------------------------------------------------------------------------------
Price Risk in Trading Portfolios
- --------------------------------------------------------------------------------
The price risk of the trading activities is measured using the potential loss
amount method, which estimates the sensitivity of the value of the trading
activities to changes in the various market factors, such as interest and
foreign exchange rates, over the period necessary to close the position
(generally one day). This measurement includes the foreign exchange risks that
arise in traditional banking businesses as well as explicit trading positions.
The method considers the probability of movements of these market factors (as
derived from a two standard deviation movement), adjusted for correlation among
them within each trading center.
During the 1997 six months, the potential loss amount in the trading portfolios
averaged $56 million pretax in the aggregate for Citicorp's major trading
centers and the monthly averages of daily exposures ranged from approximately
$42 million to $64 million, which is similar to the range in 1996. The level of
exposure taken is a function of the market environment, and expectations of
future price and market movements; and will vary from period to period. The
trading-related revenue for the 1997 second quarter was $511 million compared
with $589 million in the first quarter and $427 million in the 1996 second
quarter (see "Trading-Related Revenue" on page 25).
- --------------------------------------------------------------------------------
Estimated Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
The following table presents the estimated fair value in excess of (less than)
carrying value of Citicorp's financial instruments as defined in accordance with
applicable requirements, including financial assets and liabilities recorded on
the balance sheet as well as off-balance sheet instruments such as derivative
and foreign exchange contracts and credit card securitizations. To better
reflect Citicorp's values subject to market risk and to illustrate the
interrelationships that characterize risk management strategies, the table below
also provides estimated fair value data for the expected time period until
runoff of existing deposits with no fixed maturity.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Estimated Fair Value in Excess of (Less Than) Carrying Value
- -------------------------------------------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(In Billions of Dollars) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets and Liabilities (A)..................... $6.2 $6.2 $5.5 $5.5 $5.6
End-User Derivative and Foreign Exchange Contracts 0.1 (0.7) 0.3 (0.2) (0.3)
Credit Card Securitizations (A) (B)............ 0.1 0.3 0.4 0.5 0.5
----------------------------------------------------------
6.4 5.8 6.2 5.8 5.8
Deposits with No Fixed Maturity (C)............ 3.0 3.1 2.7 3.0 3.3
----------------------------------------------------------
Total.......................................... $9.4 $8.9 $8.9 $8.8 $9.1
- -------------------------------------------------------------------------------------------------------------
(A) Commencing March 31, 1997, amounts include the effect of restoring to the
allowance for credit losses a $373 million reserve that had previously been
attributed to securitized credit card receivables, as described on page 28.
(B) Represents the estimated excess in fair value of the underlying receivables
and investor certificates, which is derived by Citicorp in the form of
excess servicing, and principally arises from fixed rates payable to
certificate holders.
(C) Represents the estimated excess fair value related to the expected time
period until runoff of existing deposits with no fixed maturity on the
balance sheet, without assuming any regeneration of balances, based on the
estimated difference between the cost of funds on these deposits and the
cost of funds from alternative sources.
</TABLE>
19
<PAGE>
The quarterly fluctuations among financial instruments are primarily due to
changes in the interest rate environment in the U.S. and other countries.
Generally in declining interest rate environments, as experienced in the 1997
second quarter and the second half of 1996, the fair value of Citicorp's assets
and liabilities, deposits with no fixed maturity and credit card securitizations
(primarily fixed rate investor certificates) tend to decline, which are
partially offset by increases in the value of derivative contracts.
Correspondingly, in increasing interest rate environments as experienced in the
1997 first quarter, generally, the fair value of assets and liabilities,
deposits with no fixed maturity and credit card securitizations tend to
increase, which are partially offset by declines in the value of derivative
contracts. In addition, fair values may vary from period to period based on
changes in a variety of other factors including credit quality, market
perceptions of value, and the changing composition of assets and liabilities.
- --------------------------------------------------------------------------------
Capital
- --------------------------------------------------------------------------------
Citicorp is subject to risk-based capital guidelines issued by the Federal
Reserve Board ("FRB"). These guidelines are supplemented by a leverage ratio
requirement. The risk-based capital guidelines and the leverage ratio
requirement are detailed in the 1996 Annual Report and Form 10-K.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31,
Citicorp Ratios 1997 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital................................................ 8.18% 8.39% 8.39%
Total Capital (Tier 1 and Tier 2)............................. 11.96 12.11 12.23
Leverage (A) ................................................. 7.30 7.39 7.42
Common Stockholders' Equity................................... 6.41 6.50 6.63
- -------------------------------------------------------------------------------------------------------------
(A) Tier 1 capital divided by adjusted average assets.
</TABLE>
Citicorp continued to maintain a strong capital position during the 1997 second
quarter. Total capital (Tier 1 and Tier 2) amounted to $30.1 billion at June 30,
1997 representing 11.96% of net risk-adjusted assets. This compares with $29.3
billion and 12.11% at March 31, 1997 and $28.9 billion and 12.23% at December
31, 1996. Tier 1 capital of $20.6 billion at June 30, 1997 represented 8.18% of
net risk-adjusted assets, compared with $20.3 billion and 8.39% at March 31,
1997 and $19.8 billion and 8.39% at December 31, 1996. The decline in the Tier 1
and Total Capital ratios at June 30, 1997 reflected the growth in
customer-driven risk-adjusted assets, and share repurchases under the common
stock repurchase program as discussed on page 21. The Tier 1 capital ratio at
June 30, 1997 was within Citicorp's target range of 8.00% to 8.30%.
The excess of Tier 1 capital generated during a period reduced by capital
utilized for business expansion is referred to as "free capital." As shown in
the table on page 21, Citicorp generated $2.1 billion and $1.7 billion of Tier
1 capital for the six months of 1997 and 1996, respectively, of which $1.3
billion and $0.3 billion, respectively, was used to fund the growth in
customer-driven risk-adjusted assets. Citicorp generated $735 million of free
capital in the six months of 1997.
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Free Capital
- -------------------------------------------------------------------------------------------------------------
Six Months
-----------------------------
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital Generated:
Net Income.................................................................. $ 2,019 $1,866
Issuances/Other (A)......................................................... 599 333
Cash Dividends Declared..................................................... (556) (511)
-----------------------------
Total Tier 1 Capital Generated.............................................. 2,062 1,688
Capital Utilized for Growth in Net Risk-Adjusted Assets..................... (1,327) (254)
-----------------------------
Free Capital Generated...................................................... $ 735 $1,434
- -------------------------------------------------------------------------------------------------------------
(A) Includes issuance of common stock under various employee benefit plans and
the dividend reinvestment plan. 1997 also reflects issuance of guaranteed
preferred beneficial interests in subordinated debt and the redemption of
Series 14 Preferred Stock.
</TABLE>
In order to return available free capital to its shareholders, Citicorp
initiated a common stock repurchase program in June 1995. During 1996, the
program was expanded to a total authorization of $8.5 billion through December
31, 1998. During the six months of 1997 and 1996, Citicorp repurchased 10.8
million and 19.2 million shares of common stock under the repurchase program
using capital of $1.2 billion ($113.66 average cost per share) and $1.5 billion
($78.17 average cost per share), respectively. Since the program was initiated,
Citicorp has repurchased 70.0 million shares of common stock through June 30,
1997, using capital of $5.8 billion. The amount of free capital is impacted by a
number of factors including the level of income, issuances, dividends, and
changes in risk-adjusted assets.
Common stockholders' equity increased a net $629 million during the second
quarter of 1997 to $19.5 billion at June 30, 1997, representing 6.41% of assets,
compared with 6.50% at March 31, 1997 and 6.63% at December 31, 1996. The
increase in common stockholders' equity during the quarter principally reflected
net income, an increase in net unrealized gains on securities available for
sale, and the issuance of stock under various employee benefit plans, partially
offset by shares repurchased under the common stock repurchase program and
dividends declared on common and preferred stock. The decline in the common
stockholders' equity ratio at June 30, 1997 reflected the above items as well as
the growth in total assets.
During the first quarter of 1997, Citicorp redeemed the $175 million Series 14
Preferred Stock and issued an additional $450 million of guaranteed preferred
beneficial interests in Citicorp subordinated debt (commonly known as "trust
preferred securities"). The guaranteed preferred beneficial interests
outstanding at June 30 and March 31, 1997 of $750 million, including $300
million issued in 1996, qualify as Tier 1 capital and are included in long-term
debt on the balance sheet. For the six months ended June 30, 1997, interest
expense on the guaranteed preferred beneficial interests amounted to $28
million.
21
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Components of Risk-Based Capital Under Regulatory Guidelines
- -------------------------------------------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31,
(In Millions of Dollars) 1997 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital
Common Stockholders' Equity................................... $19,506 $18,877 $18,644
Perpetual Preferred Stock..................................... 1,903 1,903 2,078
Guaranteed Preferred Beneficial Interests in Subordinated Debt 750 750 300
Minority Interest............................................. 98 97 91
Less: Net Unrealized Gains-- Securities Available for Sale (A) (952) (687) (676)
Intangible Assets (B) .................................... (339) (314) (328)
50% Investment in Certain Subsidiaries (C) ............... (336) (325) (313)
-------------------------------------------
Total Tier 1 Capital.......................................... 20,630 20,301 19,796
-------------------------------------------
Tier 2 Capital
Allowance for Credit Losses (D) .............................. 3,186 3,060 2,982
Qualifying Debt (E)........................................... 6,662 6,263 6,405
Less: 50% Investment in Certain Subsidiaries (C) ............. (336) (324) (313)
-------------------------------------------
Total Tier 2 Capital.......................................... 9,512 8,999 9,074
-------------------------------------------
Total Capital (Tier 1 and Tier 2)............................. $30,142 $29,300 $28,870
- -------------------------------------------------------------------------------------------------------------
Net Risk-Adjusted Assets (F).................................. $252,065 $241,887 $236,073
- -------------------------------------------------------------------------------------------------------------
(A) Tier 1 capital excludes unrealized gains and losses on securities available
for sale in accordance with regulatory risk-based capital guidelines.
(B) Includes goodwill and certain other identifiable intangible assets.
(C) Primarily Citicorp Securities, Inc.
(D) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(E) Includes qualifying senior and subordinated debt in an amount not exceeding
50% of Tier 1 capital, and subordinated capital notes subject to certain
limitations.
(F) Includes risk-weighted credit equivalent amounts net of applicable
bilateral netting agreements of $10.3 billion for interest rate, commodity
and equity derivative contracts, and foreign exchange contracts, as of June
30, 1997, compared with $10.0 billion as of March 31, 1997 and $9.8 billion
as of December 31, 1996. Net risk-adjusted assets also includes the effect
of other off-balance sheet exposures such as unused loan commitments and
letters of credit and reflects deductions for intangible assets and any
excess allowance for credit losses.
</TABLE>
As discussed in the 1996 Annual Report and Form 10-K, Citicorp has entered into
forward purchase agreements on its common stock, to be settled on a net basis,
in order to partially offset the dilutive effects of various employee benefit
plans. At Citicorp's option, such settlements may be made in shares of
Citicorp's common stock or in cash. Both the number of shares covered and the
forward prices of these contracts are adjusted on a quarterly basis and reflect
the stock price at the time of adjustment. As of June 30, 1997, agreements were
in place covering up to $1.2 billion of Citicorp common stock, of which $900
million (8.0 million shares) had forward prices established averaging $113.14
per share. During the second quarter of 1997, settlements resulted in Citicorp
delivering approximately 0.3 million shares of its common stock. If the portion
of these agreements for which forward prices were established as of June 30,
1997 were settled based on the market price of Citicorp common stock on that
date ($120.56 per share), Citicorp would be entitled to receive approximately
0.5 million shares. The agreement relating to the remaining $300 million was
entered into on June 30, 1997, and forward prices have subsequently been
established averaging $128.84 per share.
Citicorp's subsidiary depository institutions are subject to the risk-based
capital guidelines issued by their respective primary federal bank regulatory
agencies, which are generally similar to the FRB's guidelines. At June 30, 1997
all of Citicorp's subsidiary depository institutions were "well capitalized"
under the federal bank regulatory agencies' definitions.
22
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31,
Citibank, N.A. Ratios 1997 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital................................................ 8.16% 8.29% 8.32%
Total Capital (Tier 1 and Tier 2) ............................ 12.03 12.00 12.11
Leverage...................................................... 6.48 6.61 6.63
Common Stockholder's Equity................................... 6.73 6.86 6.99
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The decline in Citibank, N.A.'s ("Citibank") Tier 1 ratio reflected the growth
in customer-driven risk-adjusted assets and dividends paid to the Parent
Company. During the second quarter of 1997, Citibank issued an additional $500
million of subordinated notes to the Parent Company that qualify for inclusion
in Citibank's Tier 2 Capital. Total subordinated notes outstanding at June 30,
1997 and included in Citibank's Tier 2 Capital amounted to $5.2 billion.
During 1996, the U.S. bank regulatory agencies issued an amendment to their
risk-based capital guidelines to incorporate a measure for market risk in
foreign exchange and commodity activities and in the trading of debt and equity
instruments. The final rules, which must be implemented by January 1, 1998, are
not expected to have a significant impact on Citicorp.
From time to time, the FRB and the Federal Financial Institutions Examination
Council propose amendments to, and issue interpretations of, risk-based capital
guidelines and reporting instructions. Such proposals or interpretations could,
if implemented in the future, affect reported capital ratios and net
risk-adjusted assets.
- --------------------------------------------------------------------------------
STATEMENT OF INCOME ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net Interest Revenue (Taxable Equivalent Basis)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net Interest Revenue Statistics 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
(Taxable Equivalent Basis) (A) (B) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Revenue: (In Millions of Dollars)
U.S. ................................................. $1,835 $1,862 $1,785 $1,714 $1,750
Outside the U.S. ..................................... 1,619 1,587 1,699 1,616 1,601
---------------------------------------------------
Total Adjusted........................................ 3,454 3,449 3,484 3,330 3,351
Effect of Credit Card Securitization Activity (C)..... (578) (630) (650) (613) (615)
---------------------------------------------------
Total................................................. $2,876 $2,819 $2,834 $2,717 $2,736
- -------------------------------------------------------------------------------------------------------------
Average Interest-Earning Assets: (In Billions of Dollars)
U.S. ................................................. $127.2 $123.2 $120.2 $118.7 $121.1
Outside the U.S. ..................................... 150.1 144.1 142.0 140.1 135.7
---------------------------------------------------
Total Adjusted........................................ 277.3 267.3 262.2 258.8 256.8
Securitized Credit Card Receivables (C)............... (24.7) (25.1) (25.9) (26.2) (26.2)
---------------------------------------------------
Total................................................. $252.6 $242.2 $236.3 $232.6 $230.6
- -------------------------------------------------------------------------------------------------------------
Adjusted Net Interest Margin:.........................
U.S. ................................................. 5.79% 6.13% 5.90% 5.75% 5.81%
Outside the U.S. ..................................... 4.33% 4.47% 4.76% 4.59% 4.75%
---------------------------------------------------
Total Adjusted........................................ 5.00% 5.23% 5.28% 5.12% 5.25%
Effect of Credit Card Securitization Activity (C)..... (.43)% (.51)% (.51)% (.47)% (.48)%
---------------------------------------------------
Total................................................. 4.57% 4.72% 4.77% 4.65% 4.77%
- -------------------------------------------------------------------------------------------------------------
(A) Includes allocations for capital and funding costs based on the location of
the asset.
(B) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(C) See page 30 for discussion of the effect of credit card securitization
activity.
</TABLE>
23
<PAGE>
Net interest revenue of $2.9 billion in the 1997 second quarter increased 5%
from the year-ago period reflecting a 10% increase in interest-earning assets,
partially offset by a 20 basis point decline in the net interest margin. Net
interest revenue and net interest margin are reduced by the effect of credit
card securitization activity. Adjusted for the effect of credit card
securitization activity, net interest revenue for the quarter of $3.5 billion
was unchanged from the 1997 first quarter and increased 3% from the 1996 second
quarter. The adjusted net interest margin decreased to 5.00% from 5.23% in the
1997 first quarter and 5.25% in the 1996 second quarter.
The adjusted net interest margin in the U.S. of 5.79% in the quarter was down
from 6.13% in the 1997 first quarter and 5.81% in the 1996 second quarter. The
decrease from the 1997 first quarter was primarily the result of a lower yield
on the U.S. bankcards portfolio due to seasonal factors and the effect of
relationship-based pricing strategies, as well as higher funding costs in the
business, an increase in the level of lower yielding interest-earning assets,
and spread compression in Global Relationship Banking ("GRB").
Net interest revenue from activities outside the U.S. represented 47% of total
adjusted net interest revenue in the 1997 second quarter. The net interest
margin outside the U.S. of 4.33% in the quarter decreased from 4.47% in the
first quarter and 4.75% in the 1996 second quarter. The decrease in the net
interest margin from the first quarter reflected spread compression in the
Emerging Markets business resulting from less favorable market conditions,
principally in Latin America, and spread compression in the Emerging Markets and
Citibanking businesses in Asia Pacific. The net interest margin decreased from
the 1996 second quarter for the reasons noted above as well as spread
compression in GRB.
The $20.5 billion or 8% increase in adjusted average interest-earning assets in
the 1997 second quarter from the year-ago period was mainly attributable to
higher levels of securities, commercial loans outside the U.S., and consumer
loans in the U.S. Outside the U.S., consumer loan growth in emerging markets was
principally offset by the effects of the U.K. mortgage portfolio sale and
foreign currency translation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fee and Commission Revenue
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Consumer:
Citibanking............................... $ 293 $ 265 11 $ 562 $ 514 9
Cards..................................... 492 434 13 964 871 11
Private Bank.............................. 116 105 10 229 204 12
----------------------------------------------------------------
901 804 12 1,755 1,589 10
Global Corporate Banking and Other........ 517 494 5 984 978 1
----------------------------------------------------------------
Total Adjusted............................ 1,418 1,298 9 2,739 2,567 7
Effect of Credit Card Securitization 23 51 (55) 54 94 (43)
Activity (B)
----------------------------------------------------------------
Total..................................... $1,441 $1,349 7 $2,793 $2,661 5
- -------------------------------------------------------------------------------------------------------------
Supplemental Information:
Consumer Business in Emerging Markets..... $300 $266 13 $ 588 $ 519 13
Consumer Business in Developed Markets.... 601 538 12 1,167 1,070 9
----------------------------------------------------------------
$901 $804 12 $1,755 $1,589 10
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to latest quarter's presentation.
(B) See page 30 for discussion of the effect of credit card securitization
activity.
</TABLE>
Total fee and commission revenue of $1.4 billion for the 1997 second quarter and
$2.8 billion for the 1997 six months increased $92 million or 7% and $132
million or 5% from the comparable 1996 periods. Fee and commission revenue was
increased in all periods by the effect of credit card securitization activity.
Adjusted for the effect of credit card securitization activity, fee and
commission revenue in the second quarter and six months of 1997 was up 9% and
7%, respectively, from the comparable year-ago periods.
24
<PAGE>
Adjusted fee and commission revenue in Global Consumer in the 1997 quarter was
up 12% and in the six months was up 10% with solid growth across all businesses.
Fee and commission revenue in the emerging markets grew by 13% in both periods.
The increases reflected higher credit card-related, trust, agency, and
custodial, and Citibanking fees, balanced between developed and emerging markets
in the quarter, with stronger growth in the emerging markets in the year-to-date
period.
Global Corporate Banking fee and commission revenue was up 5% in the quarter and
essentially unchanged year-to-date. The improvement in the quarter reflected
increases primarily in corporate finance, trust, agency, and custodial, and
transaction banking fees, partially offset by lower credit-related fees.
- --------------------------------------------------------------------------------
Trading-Related Revenue
- --------------------------------------------------------------------------------
Trading-related revenue is composed of the "Foreign Exchange" and "Trading
Account" lines in the Statement of Income and also includes other amounts,
principally reflected in Net Interest Revenue. The table below presents
trading-related revenue by business sector, by trading activity, and by income
statement line.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Trading-Related Revenue Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996(A) Change 1997 1996(A) Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
By Business Sector:
Global Corporate Banking:
Emerging Markets.......................... $182 $192 (5) $ 400 $369 8
Global Relationship Banking............... 243 175 39 562 340 65
----------------------------------------------------------------
Total Global Corporate Banking............ 425 367 16 962 709 36
Global Consumer and Other................. 86 60 43 138 110 25
----------------------------------------------------------------
Total..................................... $511 $427 20 $1,100 $819 34
- -------------------------------------------------------------------------------------------------------------
By Trading Activity:
Foreign Exchange (B)...................... $290 $225 29 $ 552 $437 26
Derivative (C)............................ 94 139 (32) 276 284 (3)
Fixed Income (D).......................... 81 (23) NM 144 (18) NM
Other..................................... 46 86 (47) 128 116 10
----------------------------------------------------------------
Total..................................... $511 $427 20 $1,100 $819 34
- -------------------------------------------------------------------------------------------------------------
By Income Statement Line:
Foreign Exchange.......................... $311 $214 45 $ 608 $419 45
Trading Account........................... 97 106 (8) 295 196 51
Other (E)................................. 103 107 (4) 197 204 (3)
--------------------------------------------------------------
Total..................................... $511 $427 20 $1,100 $819 34
- -------------------------------------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
(B) Foreign exchange activity includes foreign exchange spot, forward, and
option contracts.
(C) Derivative activity primarily includes interest rate and currency swaps,
options, financial futures, and equity and commodity contracts.
(D) Fixed income activity principally includes debt instruments including
government and corporate debt as well as mortgage assets.
(E) Primarily net interest revenue.
NM Not meaningful, as percentage equals or exceeds 100%.
</TABLE>
Trading-related revenue in the 1997 second quarter and six months increased $84
million and $281 million from the respective 1996 periods. The increases
primarily reflected improved fixed income results coupled with higher foreign
exchange activity. The second quarter improvement was partially offset by lower
derivative and loan trading results.
25
<PAGE>
Foreign exchange revenue of $290 million and $552 million in the 1997 second
quarter and six months increased $65 million and $115 million from the unusually
low 1996 periods, when directionless foreign exchange markets in the major
currencies adversely affected revenue opportunities.
Derivative revenue of $94 million in the 1997 second quarter declined $45
million from the comparable 1996 period. While customer demand for
risk-management products continued during the quarter, revenue declined
primarily due to less favorable market conditions which resulted in a change in
the mix of products, narrower spreads, and lower trading opportunities.
Derivative revenue of $276 million in the 1997 six months declined $8 million
from the comparable 1996 period.
Fixed income revenue of $81 million and $144 million in the 1997 second quarter
and six months improved $104 million and $162 million compared with the
respective 1996 periods. The unusually low results in the 1996 periods reflected
a $60 million mortgage-backed securities charge, volatile interest rates in
North America, and low emerging market debt trading results.
Other trading-related revenue of $46 million in the 1997 second quarter declined
$40 million from the 1996 second quarter primarily reflecting depressed loan
trading activities as well as lower trading-related net interest revenue in
Latin America. Other trading-related revenue of $128 million in the 1997 six
months increased $12 million from the comparable 1996 period.
Levels of trading-related revenue may fluctuate in the future as a result of
market conditions and other factors.
- --------------------------------------------------------------------------------
Securities Transactions
- --------------------------------------------------------------------------------
Net gains from the sale of securities were $124 million in the second quarter
and $232 million in the six months of 1997, compared with $39 million and $141
million in the comparable 1996 periods. The net gains in the second quarter of
1997 reflected gross realized gains of $132 million ($258 million for the six
months) and gross realized losses of $8 million ($26 million for the six
months). The 1997 second quarter included a realized gain of $58 million related
to an asset redeployment in Brazil. The six months of 1996 included a realized
gain of $52 million from the sale of Brazil interest bonds.
The fair value of securities available for sale and the related adjustment to
stockholders' equity may fluctuate over time based on market conditions and
changes in market interest rates, as well as events and trends affecting
specific securities.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Other Revenue
- ----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Second Quarter % Six Months %
----------------------- -----------------------
(In Millions of Dollars) 1997 1996 Change 1997 1996 Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit Card Securitization Activity ...... $118 $215 (45) $283 $448 (37)
Venture Capital........................... 173 107 62 266 145 83
Affiliate Earnings........................ 112 83 35 171 145 18
Net Asset Gains and Other Items........... 72 152 (53) 192 253 (24)
----------------------------------------------------------------
Total..................................... $475 $557 (15) $912 $991 (8)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in revenue related to credit card securitization activity in the
1997 second quarter principally reflected higher net credit loss rates and lower
average securitized volumes. The decrease in revenue in the 1997 six months
resulted from higher net credit loss rates and lower average securitized
volumes, partially offset by an improved net interest margin. Additionally,
commencing with the 1997 first quarter, revenue from credit card securitization
activity includes net credit losses on loans held for sale, which totaled $33
million and $65 million in the second quarter and six months, respectively. The
effect of credit card securitization activity is discussed in more detail on
page 30.
26
<PAGE>
Venture capital revenue of $173 million and $266 million in the 1997 second
quarter and six months, respectively, improved $66 million and $121 million from
the comparable 1996 periods, benefiting from realized gains and buoyant equity
markets. Investments of venture capital subsidiaries are carried at fair value
and revenue volatility can occur in the future, based on general market
conditions as well as events and trends affecting specific venture capital
investments.
Affiliate earnings improved by $29 million and $26 million compared to the
second quarter and first half of 1996, primarily due to an investment dividend.
Net asset gains and other items in the 1997 and 1996 second quarters included
gains of $23 million and $110 million, respectively, related to the disposition
of an automated trading business, partially offset by investment writedowns in
Latin America of $29 million and $50 million, respectively. Revenue in the six
months of 1997 also reflected gains related to the refinancing agreement
concluded with Peru and the sale of an investment from the acquisition finance
portfolio by Global Relationship Banking. Revenue in the six months of 1996 also
included a gain related to the disposition of a portion of Citicorp's holding in
an Asian affiliate.
- --------------------------------------------------------------------------------
Provision and Credit Loss Reserves
- --------------------------------------------------------------------------------
The provision for credit losses of $512 million and $935 million in the 1997
second quarter and six months increased $33 million or 7% from the 1996 quarter
and decreased $38 million or 4% from the 1996 six months, reflecting higher net
write-offs in the Consumer business, lower consumer additional provisions, and
improved commercial credit results.
Details of net write-offs, additional provision, and the provision for credit
losses are included in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net Write-offs, Additional Provision, and Provision for Credit Losses
- --------------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------
(In Millions of Dollars) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Write-offs (Recoveries):
Consumer (A).................................................. $ 925 $ 769 $1,818 $1,476
Commercial.................................................... (1) 9 (62) 40
-------------------------------------------
Total Adjusted Net Write-offs................................. 924 778 1,756 1,516
Effect of Credit Card Securitization Activity................. (437) (349) (871) (643)
-------------------------------------------
Total......................................................... $ 487 $ 429 $ 885 $ 873
- -------------------------------------------------------------------------------------------------------------
Additional Provision:
Consumer...................................................... $25 $50 $50 $100
-------------------------------------------
Total......................................................... $25 $50 $50 $100
- -------------------------------------------------------------------------------------------------------------
Provision for Credit Losses:
Consumer...................................................... $513 $470 $997 $933
Commercial.................................................... (1) 9 (62) 40
-------------------------------------------
Total......................................................... $512 $479 $935 $973
- -------------------------------------------------------------------------------------------------------------
(A) Adjusted for the effect of credit card securitization activity, including
the effect related to credit card receivables held for sale commencing with
the 1997 first quarter (see page 30).
</TABLE>
Consumer net write-offs, adjusted for the effect of credit card securitization
activity, in the 1997 second quarter and six months were $925 million and $1.8
billion, up from $769 million and $1.5 billion in the 1996 periods, primarily
due to higher losses in U.S. bankcards, which continues to be affected by a weak
credit climate. The consumer provision for credit losses included an additional
provision in excess of net write-offs of $25 million in the 1997 second quarter
and
27
<PAGE>
$50 million in the six months, compared with $50 million and $100 million in
the 1996 periods. Net write-offs and the total provision may increase from 1997
second quarter levels as a result of credit performance of the portfolios
(including bankruptcies), economic conditions, and other changes in portfolio
levels. See "Consumer Portfolio Review" on page 10 for an additional
discussion.
Commercial net recoveries in the 1997 second quarter were $1 million and
compared with net write-offs of $9 million in the 1996 second quarter (which
included a $21 million recovery related to the refinancing agreement concluded
with Slovenia). The decline in net write-offs reflected lower gross write-offs,
partially offset by lower recoveries. Commercial net recoveries in the 1997 six
months of $62 million (including a 1997 first quarter $50 million recovery from
the refinancing agreement concluded with Peru) improved $102 million from the
1996 six months due to both lower write-offs and higher recoveries. There were
no material credit losses related to derivative and foreign exchange contracts
or standby letters of credit and guarantees in either six month period. Citicorp
does not expect to continue to experience net recoveries in the commercial
portfolio; however, net write-offs are expected to be moderate.
All identified losses are immediately written off and the entire allowance is
available to absorb all probable credit losses inherent in the portfolio. For
analytical purposes only, Citicorp attributes the reserve to the credit
exposures as detailed in the table below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Credit Loss Reserves (A)
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31, June 30,
(Dollars In Millions) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for Credit Losses:
Consumer...................................................... $ 2,453 $ 2,079 $ 2,000
Commercial.................................................... 3,329 3,424 3,424
-------------------------------------------
Total Allowance for Credit Losses............................. 5,782 5,503 5,424
Reserves for Off-Balance Sheet Credit Exposures............... 191 473 466
-------------------------------------------
Total Credit Loss Reserves.................................... $5,973 $5,976 $5,890
- -------------------------------------------------------------------------------------------------------------
Allowance As a Percent of Total Loans:
Consumer...................................................... 2.24% 1.86% 1.90%
Commercial.................................................... 4.80% 5.46% 5.48%
Total......................................................... 3.23% 3.15% 3.23%
- -------------------------------------------------------------------------------------------------------------
(A) In the first quarter of 1997, to be consistent with industry practice,
Citicorp changed the apportionment and display of credit loss reserves to
report (1) $50 million in Other Liabilities attributable to standby letters
of credit and guarantees, and (2) $50 million deducted from Trading Account
Assets attributable to derivative and foreign exchange contracts, and (3)
to restore to the Allowance for Credit Losses $373 million that had
previously been attributed to securitization transactions where the
exposure to credit losses is contractually limited to the cash flows from
the securitized receivables. Reserves for off-balance sheet credit
exposures at June 30, 1997 consist of $50 million included in Other
Liabilities and $50 million deducted from Trading Account Assets and also
include $91 million deducted from Other Assets attributable to mortgage
loans sold with recourse. Prior period amounts have not been reclassified.
</TABLE>
The allowance for credit losses and the reserves for off-balance sheet credit
exposures totaled $6.0 billion as of June 30, 1997 and December 31, 1996, up
from $5.9 billion at June 30, 1996. The net change in the reserves primarily
reflected continued reserve building and the effect of foreign currency
translation.
Uncertainty related to the credit and economic environment, as well as higher
loan volumes in the worldwide Consumer portfolios, may result in further
increases in the allowance for credit losses attributable to the Consumer
business.
- --------------------------------------------------------------------------------
Operating Expense
- --------------------------------------------------------------------------------
Total operating expense was $3.2 billion and $6.3 billion in the 1997 second
quarter and six months, up $195 million or 7% and $504 million or 9%, from the
comparable 1996 periods. The increases were principally related to business
28
<PAGE>
activities in the emerging markets, a 13% increase in both periods, while
expense related to developed markets businesses was up 5% and 6% from the 1996
second quarter and six month periods, respectively. Excluding the effect of
foreign currency translation resulting from a strengthened U.S. dollar,
operating expense increased 9% in the quarter and 10% in the six month period.
Employee expense was $1.6 billion in the second quarter and $3.3 billion in the
six months, up $64 million or 4% and $260 million or 9% from the 1996 periods.
The increases primarily reflected salary increases, higher staff levels related
to business expansion in the emerging markets, and an increase of $44 million in
the 1997 six months associated with the vesting of the remaining
performance-based stock options. Staff levels of 91,500 at June 30, 1997
increased 3,900 (2,500 in the emerging markets) or 4% from year-ago levels.
Net premises and equipment expense was $479 million in the quarter and $969
million in the six months, up $40 million or 9% and $73 million or 8% from 1996.
Other expense was $1.1 billion and $2.1 billion in the quarter and six months,
both up 9% or $91 million and $171 million from 1996. The increases primarily
reflected investment spending and higher business volumes in the emerging
markets. In addition, enhanced marketing initiatives in U.S. bankcards and the
Private Bank, intensified U.S. bankcard collection efforts, increased spending
on technology initiatives (including year 2000 issues), and volume-related
expenses in transaction banking services all contributed to the increase.
- --------------------------------------------------------------------------------
Income Taxes
- --------------------------------------------------------------------------------
Income taxes were $602 million and $1.2 billion, in the second quarter and six
months of 1997. The effective tax rate was 37.0% in the 1997 second quarter and
37.5% in the 1997 six month period, compared with 38.0% for both 1996 periods.
The 1996 full-year effective tax rate was 38%.
29
<PAGE>
- --------------------------------------------------------------------------------
Effect of Credit Card Securitization Activity
- --------------------------------------------------------------------------------
During the six months of 1997, $2.8 billion of U.S. credit card receivables were
securitized. As of June 30, 1997, the total amount of securitized receivables,
net of amortization, was $24.2 billion compared with $25.4 billion as of March
31, 1997 and $26.0 billion as of June 30, 1996.
The securitization of credit card receivables, which is described in the 1996
Annual Report and Form 10-K, does not affect the earnings reported in a period.
However, securitization affects the manner in which revenue and the provision
for credit losses are classified in the income statement. For securitized
receivables, amounts that would otherwise be reported as net interest revenue,
as fee and commission revenue, and as net credit losses on loans are instead
reported as fee and commission revenue (for servicing fees) and as other revenue
(for the remaining cash flows to which Citicorp is entitled, net of credit
losses). In addition, commencing with the first quarter of 1997, net credit
losses on credit card receivables held for sale are reported as a reduction of
other revenue rather than included in the provision for credit losses. The table
below shows the net effect of credit card securitization activity as an increase
or (decrease) to the amounts reported in the Consolidated Statement of Income
and Average Balance Sheet, and under the captions of Return on Assets, Net
Interest Margin, and Consumer Net Credit Loss Ratio. The adoption of Statement
of Financial Accounting Standards No. 125 in the 1997 first quarter did not
result in a change in the income recognition policies for credit card
securitization activity due to immateriality.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------
(In Millions of Dollars) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Interest Revenue.......................................... ($578) ($615) ($1,208) ($1,185)
Fee and Commission Revenue.................................... 23 51 54 94
Other Revenue................................................. 118 215 283 448
Provision for Credit Losses................................... (437) (349) (871) (643)
- -------------------------------------------------------------------------------------------------------------
Net Income Impact of Securitization........................... $ - $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------
Average Assets (In Billions) ................................. ($25) ($26) ($25) ($26)
Return on Assets.............................................. .11% .13% .11% .12%
Net Interest Margin........................................... (.43)% (.48)% (.47)% (.45)%
Consumer Net Credit Loss Ratio ............................... (.91)% (.76)% (.93)% (.67)%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Consolidated Statement of Income CITICORP and Subsidiaries
- -------------------------------------------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------
(In Millions of Dollars, Except Per Share Amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Revenue
Loans, including Fees......................................... $4,717 $4,539 $9,271 $9,097
Deposits with Banks........................................... 245 207 469 403
Federal Funds Sold and Securities Purchased Under Resale
Agreements.................................................. 203 246 415 502
Securities
U.S. Treasury and Federal Agencies.................... 107 56 177 112
State and Municipal .................................. 35 20 67 41
Other, including dividends (Principally in offices
outside the U.S.)..................................... 455 362 872 666
Trading Account Assets........................................ 272 321 515 706
Loans Held for Sale (A) ...................................... 107 - 212 -
-------------------------------------------
Total Interest Revenue........................................ 6,141 5,751 11,998 11,527
-------------------------------------------
Interest Expense
Deposits...................................................... 2,421 2,168 4,650 4,354
Trading Account Liabilities................................... 76 59 149 138
Purchased Funds and Other Borrowings.......................... 427 457 865 948
Long-Term Debt................................................ 354 339 667 674
-------------------------------------------
Total Interest Expense........................................ 3,278 3,023 6,331 6,114
-------------------------------------------
Net Interest Revenue.......................................... 2,863 2,728 5,667 5,413
-------------------------------------------
Provision for Credit Losses................................... 512 479 935 973
-------------------------------------------
Net Interest Revenue after Provision for Credit Losses........ 2,351 2,249 4,732 4,440
-------------------------------------------
Fees, Commissions, and Other Revenue
Fees and Commissions.......................................... 1,441 1,349 2,793 2,661
Foreign Exchange.............................................. 311 214 608 419
Trading Account............................................... 97 106 295 196
Securities Transactions....................................... 124 39 232 141
Other Revenue................................................. 475 557 912 991
-------------------------------------------
Total Fees, Commissions, and Other Revenue.................... 2,448 2,265 4,840 4,408
-------------------------------------------
Operating Expense
Salaries...................................................... 1,286 1,212 2,550 2,344
Employee Benefits............................................. 321 331 722 668
-------------------------------------------
Total Employee Expense........................................ 1,607 1,543 3,272 3,012
Net Premises and Equipment Expense............................ 479 439 969 896
Other Expense................................................. 1,087 996 2,101 1,930
-------------------------------------------
Total Operating Expense....................................... 3,173 2,978 6,342 5,838
-------------------------------------------
Income Before Taxes........................................... 1,626 1,536 3,230 3,010
Income Taxes.................................................. 602 584 1,211 1,144
-------------------------------------------
Net Income.................................................... $1,024 $ 952 $2,019 $1,866
- -------------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock............................. $990 $914 $1,947 $1,785
-------------------------------------------
Earnings Per Share:
On Common and Common Equivalent Shares........................ $2.10 $1.86 $4.11 $3.68
Assuming Full Dilution........................................ $2.10 $1.86 $4.11 $3.61
- -------------------------------------------------------------------------------------------------------------
(A) Commencing with the first quarter 1997, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet CITICORP and Subsidiaries
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31,
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks..................................................... $ 7,638 $ 6,905
Deposits at Interest with Banks............................................. 12,802 11,648
Securities, at Fair Value
Available for Sale...................................................... 34,704 26,062
Venture Capital......................................................... 2,153 2,124
Trading Account Assets...................................................... 32,475 30,785
Loans Held for Sale (A)..................................................... 3,612 -
Federal Funds Sold and Securities Purchased Under Resale Agreements......... 13,651 11,133
Loans, Net
Consumer................................................................ 109,506 111,847
Commercial.............................................................. 69,408 62,765
----------------------------
Loans, Net of Unearned Income............................................... 178,914 174,612
Allowance for Credit Losses................................................. (5,782) (5,503)
----------------------------
Total Loans, Net............................................................ 173,132 169,109
Customers' Acceptance Liability............................................. 2,145 2,077
Premises and Equipment, Net................................................. 4,745 4,667
Interest and Fees Receivable................................................ 3,221 3,068
Other Assets................................................................ 14,015 13,440
----------------------------
Total....................................................................... $304,293 $281,018
- -------------------------------------------------------------------------------------------------------------
Liabilities
Non-Interest-Bearing Deposits in U.S. Offices............................... $ 15,904 $ 14,867
Interest-Bearing Deposits in U.S. Offices................................... 39,739 40,254
Non-Interest-Bearing Deposits in Offices Outside the U.S.................... 11,525 9,891
Interest-Bearing Deposits in Offices Outside the U.S........................ 131,522 119,943
----------------------------
Total Deposits.............................................................. 198,690 184,955
Trading Account Liabilities................................................. 23,460 22,003
Purchased Funds and Other Borrowings........................................ 24,138 18,191
Acceptances Outstanding..................................................... 2,183 2,104
Accrued Taxes and Other Expense............................................. 5,817 5,992
Other Liabilities........................................................... 8,943 8,201
Long-Term Debt.............................................................. 19,653 18,850
Stockholders' Equity
Preferred Stock (Without par value)......................................... 1,903 2,078
Common Stock ($1.00 par value).............................................. 506 506
Issued Shares: 506,298,235 in each period
Surplus..................................................................... 6,557 6,595
Retained Earnings........................................................... 15,766 14,303
Net Unrealized Gains - Securities Available for Sale........................ 952 676
Foreign Currency Translation................................................ (547) (486)
Common Stock in Treasury, at Cost........................................... (3,728) (2,950)
Shares: 48,206,545 and 43,081,217, respectively
----------------------------
Total Stockholders' Equity.................................................. 21,409 20,722
----------------------------
Total....................................................................... $304,293 $281,018
- -------------------------------------------------------------------------------------------------------------
(A) Commencing with the first quarter 1997, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale, which are
accounted for at the lower of cost or market value.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity CITICORP and Subsidiaries
- -------------------------------------------------------------------------------------------------------------
Six Months
-----------------------------
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period.............................................. $20,722 $19,581
Redemption of Perpetual Preferred Stock, Series 14.......................... (175) -
Convertible Preferred Stock, Series 12
Redemption of Series 12................................................. - (590)
Issuance of Common Stock................................................ - 590
Convertible Preferred Stock, Series 13
Redemption of Series 13................................................. - (403)
Issuance of Common Stock from Treasury Shares........................... - 1,066
Adjustment to Retained Earnings for Treasury Shares Issued.............. - (663)
Net Income.................................................................. 2,019 1,866
Cash Dividends Declared
Common.................................................................. (484) (426)
Preferred............................................................... (72) (85)
Change in Net Unrealized Gains on Securities Available for Sale............. 276 165
Foreign Currency Translation................................................ (61) (32)
Repurchased Common Shares................................................... (1,228) (1,498)
Employee Benefit Plans and Other Activity (A)............................... 412 359
-----------------------------
Balance at End of Period.................................................... $21,409 $19,930
- -------------------------------------------------------------------------------------------------------------
(A) Primarily issuance of common stock (including treasury shares) under
employee benefit plans and related amortization and tax benefits.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows CITICORP and Subsidiaries
- -------------------------------------------------------------------------------------------------------------
Six Months
-----------------------------
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income................................................................. $2,019 $1,866
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Provision for Credit Losses................................................ 935 973
Depreciation and Amortization of Premises and Equipment.................... 377 342
Amortization of Goodwill................................................... 24 24
Provision for Deferred Taxes............................................... (19) 154
Venture Capital Activity................................................... (29) 51
Net Gain on Sale of Securities............................................. (232) (141)
Changes in Accruals and Other, Net......................................... 842 (2,208)
Net Increase in Loans Held for Sale (A).................................... (2,499) -
Net (Increase) Decrease in Trading Account Assets.......................... (1,690) 2,211
Net Increase (Decrease) in Trading Account Liabilities..................... 1,457 (129)
-----------------------------
Total Adjustments.......................................................... (834) 1,277
-----------------------------
Net Cash Provided by Operating Activities.................................. 1,185 3,143
-----------------------------
Cash Flows from Investing Activities
Net Increase in Deposits at Interest with Banks............................ (1,154) (1,526)
Securities - Available for Sale
Purchases.............................................................. (27,914) (18,014)
Proceeds from Sales.................................................... 10,646 6,239
Maturities............................................................. 9,209 7,553
Net Increase in Federal Funds Sold and Securities Purchased Under Resale
Agreements............................................................... (2,518) (1,776)
Net Increase in Loans (A).................................................. (58,822) (66,490)
Proceeds from Sales of Loans and Credit Card Receivables (A)............... 51,663 63,170
Capital Expenditures on Premises and Equipment............................. (596) (646)
Proceeds from Sales of Premises and Equipment, Subsidiaries and Affiliates,
and OREO................................................................. 660 772
-----------------------------
Net Cash Used in Investing Activities...................................... (18,826) (10,718)
-----------------------------
Cash Flows from Financing Activities
Net Increase in Deposits................................................... 13,735 8,652
Net Increase in Federal Funds Purchased and Securities Sold Under Repurchase
Agreements............................................................... 3,548 1,650
Commercial Paper and Funds Borrowed with Original Maturities of Less Than One
Year
Proceeds from Issuance................................................. 386,497 338,205
Repayment.............................................................. (384,017) (338,625)
Proceeds from Issuance of Long-Term Debt................................... 3,264 2,885
Repayment of Long-Term Debt................................................ (2,816) (1,934)
Redemption of Preferred Stock.............................................. (175) -
Proceeds from Issuance of Common Stock..................................... 251 216
Treasury Stock Repurchases................................................. (1,228) (1,498)
Dividends Paid............................................................. (556) (511)
-----------------------------
Net Cash Provided by Financing Activities.................................. 18,503 9,040
-----------------------------
Effect of Exchange Rate Changes on Cash and Due from Banks................. (129) (122)
-----------------------------
Net Increase in Cash and Due from Banks.................................... 733 1,343
Cash and Due from Banks at Beginning of Period............................. 6,905 5,723
-----------------------------
Cash and Due from Banks at End of Period................................... $7,638 $7,066
- -------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest................................................................... $5,542 $5,861
Income Taxes............................................................... 1,123 1,058
Non-Cash Investing Activities
Transfer from Loans to OREO................................................ $ 185 $ 252
- -------------------------------------------------------------------------------------------------------------
(A) Commencing with the first quarter 1997, Citicorp classifies credit card and
mortgage loans intended for sale as loans held for sale.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Consolidated Balance
Sheet CITIBANK, N.A. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31,
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks.................................................... $ 7,129 $ 5,947
Deposits at Interest with Banks............................................ 14,089 12,822
Securities, at Fair Value
Available for Sale..................................................... 30,730 21,784
Venture Capital........................................................ 1,848 1,774
Trading Account Assets..................................................... 27,966 27,259
Federal Funds Sold and Securities Purchased Under Resale Agreements........ 10,072 8,181
Loans, Net of Unearned Income.............................................. 150,867 143,984
Allowance for Credit Losses................................................ (4,253) (4,382)
-----------------------------
Loans, Net................................................................. 146,614 139,602
Customers' Acceptance Liability............................................ 2,146 2,077
Premises and Equipment, Net................................................ 3,576 3,538
Interest and Fees Receivable............................................... 2,414 2,121
Other Assets............................................................... 7,913 8,134
-----------------------------
Total...................................................................... $254,497 $233,239
- -------------------------------------------------------------------------------------------------------------
Liabilities
Non-Interest-Bearing Deposits in U.S. Offices.............................. $ 12,997 $ 12,826
Interest-Bearing Deposits in U.S. Offices.................................. 24,163 23,977
Non-Interest-Bearing Deposits in Offices Outside the U.S................... 11,240 9,605
Interest-Bearing Deposits in Offices Outside the U.S....................... 130,293 118,228
-----------------------------
Total Deposits............................................................. 178,693 164,636
Trading Account Liabilities................................................ 22,259 20,795
Purchased Funds and Other Borrowings....................................... 15,457 12,334
Acceptances Outstanding.................................................... 2,183 2,104
Accrued Taxes and Other Expense............................................ 3,669 3,588
Other Liabilities.......................................................... 4,994 4,104
Long-Term Debt and Subordinated Notes...................................... 10,102 9,380
Stockholder's Equity
Capital Stock ($20.00 par value)........................................... 751 751
Outstanding Shares: 37,534,553 in each period
Surplus.................................................................... 7,340 7,120
Retained Earnings.......................................................... 8,949 8,426
Net Unrealized Gains - Securities Available for Sale....................... 743 588
Foreign Currency Translation............................................... (643) (587)
-----------------------------
Total Stockholder's Equity................................................. 17,140 16,298
-----------------------------
Total...................................................................... $254,497 $233,239
- -------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Securities
- ------------------------------------------------------------------------------------------------------------
June 30, 1997 December 31, 1996 (A)
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Amortized Fair
(In Millions of Dollars) Cost Gains Losses Value Cost Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities - Available for Sale (B)
U.S. Treasury and Federal Agency.... $ 8,917 $ 50 $ 10 $ 8,957 $ 4,048 $ 4,089
State and Municipal................. 2,591 159 55 2,695 2,327 2,405
Foreign Government.................. 16,633 1,300 145 17,788 14,056 14,938
U.S. Corporate...................... 1,612 55 66 1,601 1,586 1,588
Other Debt Securities............... 1,316 11 8 1,319 1,129 1,129
Equity Securities (C)............... 2,141 235 32 2,344 1,870 1,913
---------------------------------------------------------------------
$33,210 $1,810 $316 $34,704 $25,016 $26,062
---------------------------------------------------------------------
Venture Capital (D) ................ - - - $2,153 - $2,124
- -------------------------------------------------------------------------------------------------------------
Securities Available for Sale Include:
Mortgage-Backed Securities...... $978 $8 $5 $981 $1,064 $1,068
Government of Brazil Brady Bonds 1,369 1,018 - 2,387 1,463 2,335
Government of Venezuela Brady Bonds 563 - 40 523 563 482
- -------------------------------------------------------------------------------------------------------------
(A) At December 31, 1996, gross unrealized gains and losses on securities
available for sale totaled $1,438 million and $392 million, respectively.
(B) Securities available for sale held by equity method affiliates are not
included in the table. Citicorp's share of gross unrealized gains and
losses related to those securities at June 30, 1997 was $1 million and $3
million, respectively, and is included in the net unrealized
gains-securities available for sale component of stockholders' equity, net
of applicable taxes. At December 31, 1996, Citicorp's share of gross
unrealized gains and losses related to securities available for sale held
by equity method affiliates was $9 million and $4 million, respectively.
(C) Equity securities available for sale include certain nonmarketable equity
securities which are carried at cost. At June 30, 1997, the carrying amount
of those securities was $1,044 million (reported in both the amortized cost
and fair value columns) and the fair value was $1,088 million.
(D) For the six months ended June 30, 1997, net gains on investments held by
venture capital subsidiaries totaled $266 million, of which $138 million
and $46 million represented gross unrealized gains and losses,
respectively. For the six months ended June 30, 1996, net gains on
investments held by venture capital subsidiaries totaled $145 million, of
which $121 million and $90 million represented gross unrealized gains and
losses, respectively.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Trading Account Assets and Liabilities
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31,
(In Millions of Dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trading Account Assets
Trading Account Securities................................................. $15,539 $13,290
Derivative and Foreign Exchange Contracts (A) (B).......................... 16,936 17,495
-----------------------------
$32,475 $30,785
- -------------------------------------------------------------------------------------------------------------
Trading Account Liabilities
Securities Sold, Not Yet Purchased......................................... $4,832 $ 4,036
Derivative and Foreign Exchange Contracts (A) (B).......................... 18,628 17,967
-----------------------------
$23,460 $22,003
- -------------------------------------------------------------------------------------------------------------
(A) Net of master netting agreements. In addition, the asset balance at June
30, 1997 is reduced by $50 million of credit loss reserves. See page 28 for
additional explanation.
(B) Deferred revenue on derivative and foreign exchange contracts, which is
reported in Other Liabilities and attributable to ongoing costs such as
servicing and credit considerations, totaled $343 million and $310 million
at June 30, 1997 and December 31, 1996, respectively.
</TABLE>
36
<PAGE>
- -------------------------------------------------------------------------------
Trading and End-User Derivative and Foreign Exchange Contracts
- --------------------------------------------------------------------------------
The table below presents the aggregate notional principal amounts of Citicorp's
outstanding derivative and foreign exchange contracts at June 30, 1997 and
December 31, 1996, along with the related balance sheet credit exposure.
Additional information concerning Citicorp's derivative and foreign exchange
products and activities, including a description of accounting policies, and
credit and market risk management process is provided in the 1996 Annual Report
and Form 10-K.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Notional Balance Sheet
Principal Amounts Credit Exposure (A)
- -------------------------------------------------------------------------------------------------------------
-------------------------------------------
June 30, Dec. 31, June 30, Dec. 31,
(In Billions of Dollars) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Products........................................ $1,105.5 $1,088.5 $9.0 $ 10.7
Foreign Exchange Products..................................... 1,632.6 1,397.0 24.4 21.1
Equity Products............................................... 45.7 22.2 1.1 0.7
Commodity Products............................................ 15.4 12.5 0.6 0.5
Credit Derivative Products.................................... 2.0 1.9 - -
----------------------
35.1 33.0
Effects of Master Netting Agreements(B)....................... (18.1) (15.5)
----------------------
$17.0 $ 17.5
- -------------------------------------------------------------------------------------------------------------
(A) Amounts do not reflect credit loss reserves attributable to derivative and
foreign exchange contracts.
(B) Master netting agreements mitigate credit risk by permitting the offset of
amounts due from and to individual counterparties in the event of
counterparty default.
</TABLE>
The tables below and on page 38 provide data on the notional principal amounts
and maturities of end-user (non-trading) derivatives, along with additional data
on end-user interest rate swaps and net purchased option positions at the end of
the second quarter of 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
End-User Interest Rate and Foreign Exchange
Contracts
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Notional Principal Amounts (A) Percentage of June 30, 1997 Amount Maturing
- -------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
June 30, Dec. 31, Within 1 to 2 to 3 to 4 to After
(In Billions of Dollars) 1997 1996 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Products
Futures Contracts................ $37.8 $ 23.4 71% 22% 6% 1% -% -%
Forward Contracts................ 3.8 3.6 95 5 - - - -
Swap Agreements.................. 110.5 111.9 29 23 13 9 9 17
Option Contracts................. 38.8 71.4 83 9 5 - 1 2
Foreign Exchange Products
Futures and Forward Contracts.... 74.3 60.9 95 4 - - 1 -
Cross-Currency Swaps............. 2.8 2.9 10 11 22 16 26 15
- -------------------------------------------------------------------------------------------------------------
(A) Includes third-party and intercompany contracts.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
End-User Interest Rate Swaps and Net Purchased Options as of June 30, 1997
- -------------------------------------------------------------------------------------------------------------
Remaining Contracts Outstanding at June 30, -- Notional
Principal Amounts
- -------------------------------------------------------------------------------------------------------------
(In Billions of Dollars) 1997 1998 1999 2000 2001 2002
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps.................................. $83.1 $65.6 $47.5 $34.0 $24.2 $15.3
Weighted-Average Fixed Rate.......................... 6.5% 6.6% 6.7% 6.6% 6.8% 6.9%
Pay Fixed Swaps...................................... $13.2 $7.4 $5.7 $4.3 $3.9 $3.5
Weighted-Average Fixed Rate.......................... 6.8% 6.9% 7.1% 7.1% 7.1% 7.1%
Basis Swaps.......................................... $14.2 $5.5 $0.3 $0.3 $0.2 $0.2
Purchased Caps (Including Collars)................... $19.6 $4.4 $1.4 - - -
Weighted-Average Cap Rate Purchased.................. 6.0% 6.8% 7.3% - - -
Purchased Floors..................................... $1.5 $0.1 $0.1 $0.1 $0.1 $0.1
Weighted-Average Floor Rate Purchased................ 5.8% 5.8% 5.8% 5.8% 5.8% 5.8%
Written Floors Related to Purchased Caps (Collars)... $0.2 $0.2 $0.2 - - -
Weighted-Average Floor Rate Written.................. 8.2% 8.2% 8.2% - - -
Written Caps Related to Other Purchased Caps (A) .... $17.5 $1.8 $1.2 $1.0 $0.9 $0.4
Weighted-Average Cap Rate Written.................... 6.2% 7.6% 8.6% 8.4% 8.3% 9.8%
- -------------------------------------------------------------------------------------------------------------
Three-Month Forward LIBOR Rates (B).................. 5.8% 6.3% 6.6% 6.8% 6.9% 7.1%
- -------------------------------------------------------------------------------------------------------------
(A) Includes written options related to purchased options embedded in other
financial instruments.
(B) Represents the implied forward yield curve for three-month LIBOR as of June
30, 1997, provided for reference.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Cash-Basis, Renegotiated, and Past Due Loans (A)
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31, June 30,
(In Millions of Dollars) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Cash-Basis Loans
Collateral-Dependent (at Lower of Cost or Collateral Value) (B) $274 $263 $ 677
Other....................................................... 643 642 677
-------------------------------------------
Total....................................................... $917 $905 $1,354
- -------------------------------------------------------------------------------------------------------------
Commercial Cash-Basis Loans
In U.S. Offices............................................. $302 $292 $ 854
In Offices Outside the U.S.................................. 615 613 500
-------------------------------------------
Total....................................................... $917 $905 $1,354
- -------------------------------------------------------------------------------------------------------------
Commercial Renegotiated Loans
In U.S. Offices............................................. $243 $264 $266
In Offices Outside the U.S.................................. 52 57 69
-------------------------------------------
Total....................................................... $295 $321 $335
- -------------------------------------------------------------------------------------------------------------
Consumer Loans on which Accrual of Interest had been Suspended
In U.S. Offices (C)......................................... $ 978 $1,116 $1,340
In Offices Outside the U.S.................................. 1,058 1,071 1,205
-------------------------------------------
Total....................................................... $2,036 $2,187 $2,545
- -------------------------------------------------------------------------------------------------------------
Accruing Loans 90 or More Days Delinquent (D)
In U.S. Offices (C)......................................... $555 $ 696 $ 568
In Offices Outside the U.S.................................. 427 422 490
-------------------------------------------
Total....................................................... $982 $1,118 $1,058
- -------------------------------------------------------------------------------------------------------------
(A) For a discussion of risks in the consumer loan portfolio and of commercial
cash-basis loans, see pages 10 and 14, respectively.
(B) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the underlying collateral and there are
no other available and reliable sources of repayment, in which case the
loans are written down to the lower of cost or collateral value.
(C) Excludes $9 million of consumer loans on which accrual of interest had been
suspended and $30 million of accruing loans 90 or more days delinquent
related to loans held for sale.
(D) Includes Consumer loans of $937 million, $1.0 billion and $944 million at
June 30, 1997, December 31, 1996, and June 30, 1996, respectively, of which
$215 million, $239 million, and $237 million, respectively, are
government-guaranteed student loans.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Other Real Estate Owned (OREO) and Assets Pending Disposition (A)
- -------------------------------------------------------------------------------------------------------------
June 30, Dec. 31, June 30,
(In Millions of Dollars) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer OREO................................................. $362 $ 452 $ 497
Commercial OREO............................................... 482 614 528
-------------------------------------------
Total......................................................... $844 $1,066 $1,025
- -------------------------------------------------------------------------------------------------------------
Assets Pending Disposition (B)................................ $72 $160 $180
- -------------------------------------------------------------------------------------------------------------
(A) Carried at lower of cost or collateral value.
(B) Represents consumer residential mortgage loans that have a high probability
of foreclosure.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Details of Credit Loss Experience
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
(In Millions of Dollars) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Credit Losses at Beginning of Period $5,766 $5,503 $5,460 $5,424 $5,390
----------------------------------------------------------
Provision for Credit Losses.................... 512 423 504 449 479
----------------------------------------------------------
Gross Credit Losses
Consumer
In U.S. Offices................................ 381 344 356 328 311
In Offices Outside the U.S..................... 221 219 216 222 222
Commercial
In U.S. Offices................................ 9 3 14 15 14
In Offices Outside the U.S..................... 29 36 71 38 62
----------------------------------------------------------
640 602 657 603 609
----------------------------------------------------------
Credit Recoveries
Consumer
In U.S. Offices................................ 55 48 55 54 61
In Offices Outside the U.S..................... 59 56 62 56 52
Commercial
In U.S. Offices................................ 31 29 69 16 36
In Offices Outside the U.S..................... 8 71 17 78 31
----------------------------------------------------------
153 204 203 204 180
----------------------------------------------------------
Net Credit Losses
In U.S. Offices................................ 304 270 246 273 228
In Offices Outside the U.S..................... 183 128 208 126 201
----------------------------------------------------------
487 398 454 399 429
----------------------------------------------------------
Other (A) ..................................... (9) 238 (7) (14) (16)
----------------------------------------------------------
Allowance for Credit Losses at End of Period... $5,782 $5,766 $5,503 $5,460 $5,424
- -------------------------------------------------------------------------------------------------------------
Net Consumer Credit Losses (B)................. $488 $459 $455 $440 $420
As a Percentage of Average Consumer Loans (B).. 1.82% 1.75% 1.68% 1.64% 1.62%
Net Commercial Credit (Recoveries) Losses...... ($1) ($61) ($1) ($41) $9
As a Percentage of Average Commercial Loans.... NM NM NM NM 0.06%
- -------------------------------------------------------------------------------------------------------------
(A) Primarily includes net transfers (to) from the Reserves for Off-Balance
Sheet Credit Exposures and foreign currency translation effects. See
footnote (A) on page 28 for a discussion of the change in the apportionment
and display of credit loss reserves in the first quarter of 1997.
(B) Commencing with the 1997 first quarter, reflects the reclassification of
credit card and mortgage loans intended for sale as loans held for sale
with net credit losses charged to other revenue.
NM Not meaningful, as net recoveries result in a negative percentage.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Calculation of Earnings Per Share
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
On Common
and Common
(In Millions, except Per Share Amounts) Equivalent Shares Assuming Full
Dilution
- -------------------------------------------------------------------------------------------------------------
Second Quarter 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Applicable to Common Stock............................. $990 $914 $990 $914
- -------------------------------------------------------------------------------------------------------------
Shares
Weighted-Average Common Shares Outstanding.................... 458.5 476.9 458.5 476.9
Common Equivalent Shares (A).................................. 12.6 14.9 13.3 15.2
-------------------------------------------
Total......................................................... 471.1 491.8 471.8 492.1
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share (C)........................................ $2.10 $1.86 $2.10 $1.86
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
Six Months
- ------------------------------------------------------------------
Earnings
Income Applicable to Common Stock............................. $1,947 $1,785 $1,947 $1,785
Dividends on Convertible Preferred
Stock, Series 12 and Series 13 (B).......................... - - - 5
-------------------------------------------
Income Applicable to Common Stock, Adjusted................... $1,947 $1,785 $1,947 $1,790
- -------------------------------------------------------------------------------------------------------------
Shares
Weighted-Average Common Shares Outstanding (B)................ 460.0 470.2 460.0 470.2
Convertible Preferred Stock, Series 12 and Series 13 (B)...... - - - 10.5
Common Equivalent Shares (A).................................. 13.6 15.0 14.0 15.8
-------------------------------------------
Total......................................................... 473.6 485.2 474.0 496.5
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share (C)........................................ $4.11 $3.68 $4.11 $3.61
- -------------------------------------------------------------------------------------------------------------
(A) Includes the dilutive effect of stock options and stock purchase agreements
computed using the treasury stock method and shares issuable under deferred
stock awards.
(B) During the first quarter of 1996, the remaining Convertible Preferred
Stock, Series 12 and 13 were converted to 59.0 million shares of common
stock. The shares are included in the fully diluted computation on an
if-converted basis up to conversion dates, and from conversion dates
forward these shares are included in weighted-average common shares
outstanding.
(C) In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." The
statement establishes new standards for computing and presenting earnings
per share ("EPS"). It replaces the presentation of primary EPS with basic
EPS and the presentation of fully diluted EPS with diluted EPS. SFAS No.
128 will be effective for year-end 1997. Under the new standard, basic EPS
would have been $2.16 and $1.92 and diluted EPS would have been $2.10 and
$1.86 for the second quarters of 1997 and 1996, respectively. Basic EPS
would have been $4.23 and $3.80 and diluted EPS would have been $4.11 and
$3.61 for the 1997 and 1996 six months, respectively.
</TABLE>
- --------------------------------------------------------------------------------
Cross-Border Outstandings
- --------------------------------------------------------------------------------
Total cross-border outstandings are presented on a regulatory basis and comprise
cross-border claims on third parties as well as investments in and funding of
local Citicorp franchises.
Effective for the 1997 first quarter, the Federal Financial Institutions
Examination Council ("FFIEC") revised their cross-border reporting guidelines to
more appropriately measure total cross-border outstandings. The effect of
applying the FFIEC's revised guidelines to previously reported December 31, 1996
balances is a reduction of cross-border claims on third parties of $7.1 billion,
and a reduction of investments in and funding of local Citicorp franchises.
The reduction of cross-border claims on third parties reflects the
reclassification of certain claims as investments in and funding of local
Citicorp franchises (where they are reduced by qualifying local country
liabilities), partially offset by the inclusion of revaluation gains on foreign
exchange and derivative products.
41
<PAGE>
Cross-border claims on third parties (trade, short-term, and medium- and
long-term claims) include cross-border loans, securities, deposits at interest
with banks, investments in affiliates, and other monetary assets, as well as net
revaluation gains as discussed above. Adjustments have been made to assign
externally guaranteed outstandings to the country of the guarantor and
outstandings for which tangible, liquid collateral is held outside of the
obligor's country to the country in which the collateral is held. For securities
received as collateral, outstandings are assigned to the domicile of the issuer
of the securities.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Countries with Cross-Border Outstandings Exceeding 1% of Total Assets (A) (B)
- -------------------------------------------------------------------------------------------------------------
Cross-Border Claims on Third Investments in Total Outstandings
Parties and
---------------------------------- Funding of --------------------------
Public Private Local June 30, Dec. 31,
(In Billions of Dollars) Banks Sector Sector Total Citicorp 1997 1996 (C)(D)
(C) Franchises
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brazil.................... $0.4 $1.4 $0.8 $2.6 $1.7 $4.3 $4.9
United Kingdom............ 1.3 0.9 2.0 4.2 - 4.2 4.0
Germany................... 1.3 0.5 0.3 2.1 1.1 3.2 2.3
Mexico.................... - 2.0 0.7 2.7 0.4 3.1 2.9
- -------------------------------------------------------------------------------------------------------------
(A) Legally binding cross-border commitments (not included in the table above),
including irrevocable letters of credit and commitments to extend credit,
after adjustments to assign externally guaranteed commitments to the
country of the guarantor, amounted to $9.1 billion in the United Kingdom,
$1.8 billion in Germany, $0.1 billion in Brazil, and less than $0.1 billion
in Mexico at June 30, 1997.
(B) At June 30, 1997, total cross-border outstandings in France ($2.8 billion),
Switzerland ($2.4 billion), and Japan ($2.3 billion) were between 0.75% and
1.0% of total assets. At December 31, 1996, under the FFIEC's revised
cross-border reporting guidelines, such countries were Switzerland ($2.5
billion), Germany ($2.3 billion), and Japan ($2.1 billion).
(C) At June 30, 1997 and December 31, 1996, cross-border claims on third
parties included revaluation gains on foreign exchange and derivative
products net of the effects of master netting agreements of $1.3 billion
and $0.6 billion in Germany, $0.8 billion and $1.0 billion in the United
Kingdom, respectively, and less than $0.1 billion for each period in each
of Mexico and Brazil.
(D) Restated to conform to the FFIEC's revised cross-border reporting
guidelines.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Cross-Border Claims on Third Parties
- -------------------------------------------------------------------------------------------------------------
Public Private June 30, Dec. 31,
(In Billions of Dollars) Banks Sector Sector 1997 1996(A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Western/Eastern Europe, Japan, and Canada.... $10.8 $4.1 $9.0 $23.9 $20.6
Latin America................................ 0.8 5.0 3.9 9.7 9.7
Asia/Middle East............................. 1.8 0.1 2.9 4.8 4.9
Other........................................ 0.3 0.5 0.5 1.3 1.3
----------------------------------------------------------
Total (B).................................... $13.7 $9.7 $16.3 $39.7 $36.5
- -------------------------------------------------------------------------------------------------------------
(A) Restated to conform to the FFIEC's revised cross-border reporting
guidelines.
(B) Includes investments in affiliates of $1.4 billion at June 30, 1997 and
December 31, 1996.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balances and Interest Rates (Taxable Equivalent Basis) (A) (B)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Average Volume Interest Revenue/Expense % Average Rate
--------------------------- ------------------------- ---------------------------
2nd Qtr. 1st Qtr. 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr.
(In Millions of Dollars) 1997 1997 1996 1997 1997 1996 1997 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (Net of Unearned Income) (C)
Consumer Loans
In U.S. Offices..................... $ 55,556 $ 55,229 $52,942 $1,444 $1,407 $1,400 10.43 10.33 10.64
In Offices Outside the U.S. (D)..... 51,876 51,208 51,110 1,604 1,577 1,607 12.40 12.49 12.65
----------------------------------------------------------
Total Consumer Loans..................... 107,432 106,437 104,052 3,048 2,984 3,007 11.38 11.37 11.62
----------------------------------------------------------
Commercial Loans
In U.S. Offices
Commercial and Industrial....... 10,460 9,258 8,938 221 202 212 8.47 8.85 9.54
Mortgage and Real Estate........ 2,882 2,973 4,515 68 59 81 9.46 8.05 7.22
Loans to Financial Institutions. 616 609 456 13 14 9 8.46 9.32 7.94
Lease Financing................. 3,049 2,963 3,214 54 44 54 7.10 6.02 6.76
In Offices Outside the U.S. (D)..... 49,391 46,134 43,079 1,314 1,252 1,177 10.67 11.01 10.99
----------------------------------------------------------
Total Commercial Loans................... 66,398 61,937 60,202 1,670 1,571 1,533 10.09 10.29 10.24
----------------------------------------------------------
Total Loans.............................. 173,830 168,374 164,254 4,718 4,555 4,540 10.89 10.97 11.12
----------------------------------------------------------
Federal Funds Sold and Resale Agreements
In U.S. Offices.......................... 7,534 7,827 10,382 99 100 133 5.27 5.18 5.15
In Offices Outside the U.S. (D).......... 5,025 5,412 3,525 104 112 113 8.30 8.39 12.89
----------------------------------------------------------
Total.................................... 12,559 13,239 13,907 203 212 246 6.48 6.49 7.11
----------------------------------------------------------
Securities, At Fair Value
In U.S. Offices
Taxable............................. 11,087 8,555 7,243 141 102 88 5.10 4.84 4.89
Exempt from U.S. Income Tax......... 2,676 2,512 1,640 43 41 25 6.45 6.62 6.13
In Offices Outside the U.S. (D).......... 20,538 18,665 14,247 424 389 332 8.28 8.45 9.37
----------------------------------------------------------
Total.................................... 34,301 29,732 23,130 608 532 445 7.11 7.26 7.74
----------------------------------------------------------
Trading Account Assets (E)
In U.S. Offices.......................... 4,768 4,936 5,492 70 70 81 5.89 5.75 5.93
In Offices Outside the U.S. (D).......... 10,075 9,411 11,566 203 174 240 8.08 7.50 8.35
----------------------------------------------------------
Total.................................... 14,843 14,347 17,058 273 244 321 7.38 6.90 7.57
----------------------------------------------------------
Loans Held for Sale, In U.S. Offices..... 3,414 3,123 - 107 105 - 12.57 13.64 -
Deposits at Interest with Banks (D)...... 13,669 13,366 12,213 245 224 207 7.19 6.80 6.82
----------------------------------------------------------
Total Interest-Earning Assets............ 252,616 242,181 230,562 $6,154 $5,872 $5,759 9.77 9.83 10.05
----------------------------------------------------------
Non-Interest-Earning Assets (E).......... 40,464 42,837 37,565
-----------------------------
Total Assets............................. $293,080 $285,018 $268,127
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits
In U.S. Offices
Savings Deposits.................... $ 26,820 $ 26,801 $ 25,826 $ 197 $ 191 $ 185 2.95 2.89 2.88
Other Time Deposits................. 12,677 12,501 12,549 147 139 165 4.65 4.51 5.29
In Offices Outside the U.S. (D).......... 128,899 122,337 113,763 2,077 1,899 1,818 6.46 6.30 6.43
----------------------------------------------------------
Total.................................... 168,396 161,639 152,138 2,421 2,229 2,168 5.77 5.59 5.73
----------------------------------------------------------
Trading Account Liabilities (E)
In U.S. Offices.......................... 2,348 2,030 2,720 34 27 41 5.81 5.39 6.06
In Offices Outside the U.S. (D).......... 2,491 2,448 2,339 42 46 18 6.76 7.62 3.10
----------------------------------------------------------
Total.................................... 4,839 4,478 5,059 76 73 59 6.30 6.61 4.69
----------------------------------------------------------
Purchased Funds and Other Borrowings
In U.S. Offices.......................... 16,193 14,113 15,739 252 210 243 6.24 6.03 6.21
In Offices Outside the U.S. (D).......... 7,687 7,047 6,196 175 228 214 9.13 13.12 13.89
----------------------------------------------------------
Total.................................... 23,880 21,160 21,935 427 438 457 7.17 8.39 8.38
----------------------------------------------------------
Long-Term Debt
In U.S. Offices.......................... 14,780 14,839 14,815 226 215 230 6.13 5.88 6.24
In Offices Outside the U.S. (D).......... 4,920 4,346 4,345 128 98 109 10.44 9.15 10.09
----------------------------------------------------------
Total.................................... 19,700 19,185 19,160 354 313 339 7.21 6.62 7.12
----------------------------------------------------------
Total Interest-Bearing Liabilities....... 216,815 206,462 198,292 $3,278 $3,053 $3,023 6.06 6.00 6.13
----------------------------------------------------------
Demand Deposits in U.S. Offices.......... 10,751 10,801 12,035
Other Non-Interest-Bearing Liabilities (E) 44,678 47,008 38,009
Total Stockholders' Equity............... 20,836 20,747 19,791
-----------------------------
Total Liabilities and Stockholders' Equity $293,080 $285,018 $268,127
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AS A PERCENTAGE
OF AVERAGE INTEREST-EARNING ASSETS
In U.S. Offices (F)...................... $102,512 $ 98,047 $ 94,881 $1,257 $1,232 $1,135 4.92 5.10 4.81
In Offices Outside the U.S. (F).......... 150,104 144,134 135,681 1,619 1,587 1,601 4.33 4.47 4.75
----------------------------------------------------------
Total.................................... $252,616 $242,181 $230,562 $2,876 $2,819 $2,736 4.57 4.72 4.77
- ------------------------------------------------------------------------------------------------------------------------------------
(A) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(B) Interest rates and amounts include the effects of risk management
activities associated with the respective asset and liability categories.
(C) Includes cash-basis loans.
(D) Average rates reflect prevailing local interest rates including
inflationary effects and monetary correction in certain Latin American
countries.
(E) The fair value carrying amounts of derivative and foreign exchange
contracts are reported in non-interest-earning assets and other
non-interest-bearing liabilities.
(F) Includes allocations for capital and funding costs based on the location of
the asset.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Average Balances and Interest Rates (Taxable Equivalent Basis) (A) (B)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Average Volume Interest Rev./Exp. % Average Rate
6 Months 6 Months 6 Months 6 Months 6 Months 6 Months
(In Millions of Dollars) 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans (Net of Unearned Income) (C)
Consumer Loans
In U.S. Offices................................................... $ 55,393 $ 53,160 $ 2,851 $ 2,869 10.38 10.85
In Offices Outside the U.S. (D)................................... 51,542 50,810 3,181 3,210 12.45 12.70
---------------------------------------
Total Consumer Loans................................................... 106,935 103,970 6,032 6,079 11.38 11.76
---------------------------------------
Commercial Loans
In U.S. Offices
Commercial and Industrial..................................... 9,859 9,179 423 424 8.65 9.29
Mortgage and Real Estate...................................... 2,927 4,552 127 163 8.75 7.20
Loans to Financial Institutions............................... 613 453 27 14 8.88 6.21
Lease Financing............................................... 3,006 3,216 98 106 6.57 6.63
In Offices Outside the U.S. (D)................................... 47,762 42,240 2,566 2,313 10.83 11.01
---------------------------------------
Total Commercial Loans................................................. 64,167 59,640 3,241 3,020 10.19 10.18
---------------------------------------
Total Loans............................................................ 171,102 163,610 9,273 9,099 10.93 11.18
---------------------------------------
Federal Funds Sold and Resale Agreements
In U.S. Offices........................................................ 7,681 10,161 199 260 5.22 5.15
In Offices Outside the U.S. (D)........................................ 5,218 3,457 216 242 8.35 14.08
---------------------------------------
Total.................................................................. 12,899 13,618 415 502 6.49 7.41
---------------------------------------
Securities, At Fair Value
In U.S. Offices
Taxable........................................................... 9,821 7,076 243 166 4.99 4.72
Exempt from U.S. Income Tax....................................... 2,594 1,618 84 51 6.53 6.34
In Offices Outside the U.S. (D)........................................ 19,602 13,238 813 615 8.36 9.34
---------------------------------------
Total.................................................................. 32,017 21,932 1,140 832 7.18 7.63
---------------------------------------
Trading Account Assets (E)
In U.S. Offices........................................................ 4,852 6,180 140 176 5.82 5.73
In Offices Outside the U.S. (D)........................................ 9,743 12,351 377 531 7.80 8.65
---------------------------------------
Total.................................................................. 14,595 18,531 517 707 7.14 7.67
---------------------------------------
Loans Held for Sale, In U.S. Offices................................... 3,269 - 212 - 13.08 -
Deposits at Interest with Banks (D).................................... 13,517 11,916 469 403 7.00 6.80
---------------------------------------
Total Interest-Earning Assets.......................................... 247,399 229,607 $12,026 $11,543 9.80 10.11
--------------------------------------
Non-Interest-Earning Assets (E)........................................ 41,650 38,622
--------------------
Total Assets........................................................... $289,049 $268,229
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits
In U.S. Offices
Savings Deposits.................................................. $ 26,811 $ 25,587 $ 388 $ 376 2.92 2.96
Other Time Deposits............................................... 12,589 12,605 286 319 4.58 5.09
In Offices Outside the U.S. (D)........................................ 125,618 113,700 3,976 3,659 6.38 6.47
---------------------------------------
Total.................................................................. 165,018 151,892 4,650 4,354 5.68 5.76
---------------------------------------
Trading Account Liabilities (E)
In U.S. Offices........................................................ 2,189 2,807 61 82 5.62 5.87
In Offices Outside the U.S. (D)........................................ 2,470 2,113 88 56 7.18 5.33
---------------------------------------
Total.................................................................. 4,659 4,920 149 138 6.45 5.64
---------------------------------------
Purchased Funds and Other Borrowings
In U.S. Offices........................................................ 15,153 16,024 462 503 6.15 6.31
In Offices Outside the U.S. (D)........................................ 7,367 6,054 403 445 11.03 14.78
---------------------------------------
Total.................................................................. 22,520 22,078 865 948 7.75 8.63
---------------------------------------
Long-Term Debt
In U.S. Offices........................................................ 14,809 14,675 441 464 6.01 6.36
In Offices Outside the U.S. (D)........................................ 4,633 4,176 226 210 9.84 10.11
---------------------------------------
Total.................................................................. 19,442 18,851 667 674 6.92 7.19
---------------------------------------
Total Interest-Bearing Liabilities..................................... 211,639 197,741 $6,331 $6,114 6.03 6.22
--------------------------------------
Demand Deposits in U.S. Offices........................................ 10,776 12,249
Other Non-Interest-Bearing Liabilities (E)............................. 45,843 38,479
Total Stockholders' Equity............................................. 20,791 19,760
--------------------
Total Liabilities and Stockholders' Equity............................. $289,049 $268,229
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AS A PERCENTAGE
OF AVERAGE INTEREST-EARNING ASSETS
In U.S. Offices (F).................................................... $100,280 $ 95,659 $2,489 $2,281 5.01 4.80
In Offices Outside the U.S. (F)........................................ 147,119 133,948 3,206 3,148 4.39 4.73
---------------------------------------
Total.................................................................. $247,399 $229,607 $5,695 $5,429 4.64 4.75
- ------------------------------------------------------------------------------------------------------------------------------------
(A) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(B) Interest rates and amounts include the effects of risk management
activities associated with the respective asset and liability categories.
(C) Includes cash-basis loans.
(D) Average rates reflect prevailing local interest rates including
inflationary effects and monetary correction in certain Latin American
countries.
(E) The fair value carrying amounts of derivative and foreign exchange
contracts are reported in non-interest-earning assets and other
non-interest-bearing liabilities.
(F) Includes allocations for capital and funding costs based on the location of
the asset.
</TABLE>
44
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Commission file number 1-5738
Ended June 30, 1997
CITICORP
(Exact name of registrant as specified in its charter)
Delaware 13-2614988
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
399 Park Avenue, New York, New York 10043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 559-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Citicorp Common Stock.................. 458,091,690
($1.00 Par Value) (Shares Outstanding on June 30, 1997)
45
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q CROSS-REFERENCE INDEX
- --------------------------------------------------------------------------------
This document serves both as an analytical review for analysts, stockholders and
other interested persons and as the quarterly report filed on Form 10-Q with the
Securities and Exchange Commission.
Part I Financial Information Page
Item 1 - Consolidated Financial Statements
Consolidated Financial Statements, Schedules, and Statistics
Statement of Income for the Quarter and Six Months Ended
June 30, 1997 and 1996.............................................31
Balance Sheet as of
June 30, 1997 and December 31, 1996................................32
Statement of Cash Flows for the Six Months Ended
June 30, 1997 and 1996.............................................34
.
Calculation of Earnings Per Share..................................41
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................1-30
Part II Other Information
Item 4 - Submission of Matters to a Vote of Security Holders..........47
Item 6 - Exhibits and Reports on Form 8-K.............................47
Signatures............................................................49
In the opinion of the management of Citicorp, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for the six months ended June 30, 1997 and 1996 have been
included.
46
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of stockholders of Citicorp held on April 9, 1997 the
following matters were voted onby the stockholders:
1. The election of directors of Citicorp to hold office until the 1998
annual meeting and until the election and qualification of their
successors. Each nominee was elected to the Board of Directors of
Citicorp by votes cast as follows:
<TABLE>
<CAPTION>
- ----------------------------- ------------------- -------------------- ------------------- -------------------
Broker
Name For Withheld Non-Votes
Abstentions
- ----------------------------- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
D. Wayne Calloway 395,856,121 1,968,082 0 6,325
Paul J. Collins 395,788,198 2,036,005 0 6,325
Kenneth T. Derr 395,935,111 1,889,092 0 6,325
John M. Deutch 395,958,350 1,865,853 0 6,325
Reuben Mark 395,985,215 1,838,988 0 6,325
Richard D. Parsons 388,474,971 9,349,232 0 6,325
John S. Reed 395,877,256 1,946,947 0 6,325
William R. Rhodes 395,863,478 1,960,725 0 6,325
Rozanne L. Ridgway 395,861,225 1,962,978 0 6,325
H. Onno Ruding 395,906,264 1,917,939 0 6,325
Robert B. Shapiro 395,989,264 1,834,341 0 6,325
Frank A. Shrontz 395,908,929 1,915,274 0 6,325
Franklin A. Thomas 395,865,661 1,958,542 0 6,325
Edgar S. Woolard, 395,936,575 1,887,628 0 6,325
Jr.
- ----------------------------- ------------------- -------------------- ------------------- -------------------
</TABLE>
On July 14, 1997, the Board of Directors appointed Alain J. P. Belda,
President and Chief Operating Officer of Aluminum Company of America,
to the Board of Directors.
2. The approval of the 1997 Stock Incentive Plan which permits Citicorp
to make stock incentive awards to certain officers or other employees
of Citicorp or entities in which Citicorp has a controlling or
significant equity interest, subject to a maximum amount subject to
awards under the plan in any year. The approval of the 1997 Stock
Incentive Plan was ratified by votes of 236,961,582 for, 100,760,099
against, 58,485,626 broker non-votes, and 1,623,221 abstentions.
3. The selection of KPMG Peat Marwick as independent auditors of
Citicorp. The selection of KPMG Peat Marwick was ratified by votes of
384,526,217 for, 10,397,131 against, 2,040,402 broker non-votes, and
866,778 abstentions.
4. A stockholder proposal relating to cumulative voting for directors.
Such proposal was defeated by votes of 225,752,994 against,
108,612,826 for, 60,677,569 broker non-votes, and 2,787,139
abstentions.
5. A stockholder proposal relating to the appointment of a President and
Chief Operating Officer. Such proposal was defeated by votes of
318,293,842 against, 14,061,182 for, 60,633,413 broker non-votes, and
4,842,091 abstentions.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibit 27. Financial Data Schedule.
47
<PAGE>
b) Reports on Form 8-K:
i) Citicorp filed a Form 8-K Current Report dated April 15,
1997 (Item 5) which report included a summary of the
consolidated operations of Citicorp for the three month
period ended March 31, 1997 and (Item 7) the calculation
of the ratio of income to fixed charges (Exhibit 12(a)
thereto) and the calculation of the ratio of income to
fixed charges including preferred stock dividends (Exhibit
12(b) thereto).
ii) Citicorp filed a Form 8-K Current Report dated July 15,
1997 (Item 5) which report included a summary of the
consolidated operations of Citicorp for the six month
period ended June 30, 1997 and (Item 7) the calculation of
the ratio of income to fixed charges (Exhibit 12(a)
thereto) and the calculation of the ratio of income to
fixed charges including preferred stock dividends (Exhibit
12(b) thereto).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITICORP By: /S/ Thomas E. Jones
Registrant
-------------------------
Thomas E. Jones
Executive Vice President
Principal Financial Officer
By: /S/ George E. Seegers
-------------------------
George E. Seegers
Assistant Secretary
Date: August 13, 1997
49
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CURRENT REPORT ON FORM 10-Q FOR THE SIX MONTHS PERIOD ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND ACCOMPANYING DISCLOSURES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,638
<INT-BEARING-DEPOSITS> 12,802
<FED-FUNDS-SOLD> 13,651<F1>
<TRADING-ASSETS> 32,475
<INVESTMENTS-HELD-FOR-SALE> 34,704
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 178,914
<ALLOWANCE> 5,782
<TOTAL-ASSETS> 304,293
<DEPOSITS> 198,690
<SHORT-TERM> 24,138<F2>
<LIABILITIES-OTHER> 8,943
<LONG-TERM> 19,653
<COMMON> 506
0
1,903
<OTHER-SE> 19,000
<TOTAL-LIABILITIES-AND-EQUITY> 304,293
<INTEREST-LOAN> 9,271
<INTEREST-INVEST> 1,116
<INTEREST-OTHER> 1,611
<INTEREST-TOTAL> 11,998
<INTEREST-DEPOSIT> 4,650
<INTEREST-EXPENSE> 6,331
<INTEREST-INCOME-NET> 5,667
<LOAN-LOSSES> 935
<SECURITIES-GAINS> 232
<EXPENSE-OTHER> 2,101
<INCOME-PRETAX> 3,230
<INCOME-PRE-EXTRAORDINARY> 2,019
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,019
<EPS-PRIMARY> 4.11
<EPS-DILUTED> 4.11
<YIELD-ACTUAL> 4.64<F3>
<LOANS-NON> 2,953<F4>
<LOANS-PAST> 982<F5>
<LOANS-TROUBLED> 295
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,503
<CHARGE-OFFS> 1,242
<RECOVERIES> 357
<ALLOWANCE-CLOSE> 5,782<F6>
<ALLOWANCE-DOMESTIC> 0<F7>
<ALLOWANCE-FOREIGN> 0<F8>
<ALLOWANCE-UNALLOCATED> 0<F9>
<FN>
<F1> Includes Securities Purchased Under Resale Agreements.
<F2> Purchased Funds and Other Borrowings.
<F3> Taxable Equivalent Basis.
<F4> Includes $917MM of cash-basis commercial loans and
$2,036MM of consumer loans on which accrual of interest has
been suspended.
<F5> Accruing loans 90 or more days delinquent.
<F6> Allowance activity for the six months of 1997 includes $229MM
in other changes, primarily net transfers from the Reserves for Off-Balance
Sheet Credit Exposures and foriegn currency translation effects.
<F7> No portion of Citicorp's credit loss allowance is
specifically allocated to any individual loan or group of loans.
(see Note 11 to the 1996 Annual Report).
<F8> See Footnote F7 above.
<F9> See Footnote F7 above.
</FN>
</TABLE>
