<PAGE>
FINANCIAL REVIEW
AND FORM 10-Q
SECOND QUARTER
1998
CITICORP [LOGO](R)
<PAGE>
CITICORP [LOGO](R)
TABLE OF CONTENTS PAGE
FINANCIAL SUMMARY 1
BUSINESS DISCUSSION 4
Earnings by Global Business Area 4
Global Consumer 5
Citibanking 6
Cards 7
Private Bank 9
Global Consumer in Emerging Markets 10
Global Consumer in Developed Markets 11
Consumer Portfolio Review 11
Global Corporate Banking 14
Emerging Markets 15
Global Relationship Banking 17
Corporate Items 18
MANAGING GLOBAL RISK 18
Liquidity 18
Management of Price Risk Exposure 19
Management of Cross-Border Risk 22
Estimated Fair Value of Financial Instruments 24
Capital 25
STATEMENT OF INCOME ANALYSIS 28
Net Interest Revenue (Taxable Equivalent Basis) 28
Fee and Commission Revenue 29
Trading-Related Revenue 30
Securities Transactions 31
Other Revenue 31
Provision and Credit Loss Reserves 32
Operating Expense 33
Restructuring Expense 34
Income Taxes 35
Effect of Credit Card Securitization Activity 35
Future Impact of Recently Issued Accounting Standards 36
CONSOLIDATED FINANCIAL STATEMENTS 37
Consolidated Statement of Income 37
Consolidated Balance Sheet 38
Consolidated Statement of Changes in Stockholders' Equity 39
Consolidated Statement of Cash Flows 40
Consolidated Balance Sheet -- CITIBANK, N.A. and Subsidiaries 41
OTHER FINANCIAL INFORMATION 42
Securities 42
Trading Account Assets and Liabilities 42
Trading and End-User Derivative and Foreign Exchange Contracts 43
Cash-Basis, Renegotiated, and Past Due Loans 45
Other Real Estate Owned (OREO) and Assets Pending Disposition 45
Details of Credit Loss Experience 46
Calculation of Earnings Per Share 47
Average Balances and Interest Rates (Taxable Equivalent Basis) --
Quarterly 48
Average Balances and Interest Rates (Taxable Equivalent Basis) --
Six Months 49
FORM 10-Q 50
FORM 10-Q CROSS-REFERENCE INDEX 51
SIGNATURES 54
<PAGE>
CITICORP [LOGO](R)
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FINANCIAL SUMMARY
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<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (In Millions of Dollars)................ $ 1,097 $ 1,024 $2,162 $2,019
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE (A)
Basic.............................................. $ 2.37 $ 2.16 $ 4.65 $4.23
Diluted............................................ 2.30 2.10 4.53 4.11
COMMON STOCKHOLDERS' EQUITY PER SHARE.............. 45.23 42.58 - -
CLOSING STOCK PRICE AT QUARTER END................. 149.25 120.56 - -
DIVIDENDS DECLARED PER COMMON SHARE................ 0.575 0.525 1.15 1.05
FINANCIAL RATIOS
Return on Assets................................... 1.35% 1.40% 1.36% 1.41%
Return on Common Stockholders' Equity.............. 21.51% 20.97% 21.62% 20.87%
Return on Total Stockholders' Equity............... 20.46% 19.72% 20.51% 19.58%
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JUNE 30, Mar. 31, Dec. 31, Sept. 30, June 30,
CAPITAL (Dollars in Billions) (see page 25) 1998 1998 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------
Tier 1............................................. $ 21.9 $ 21.3 $ 21.1 $ 20.7 $20.6
Total (Tier 1 and 2)............................... 31.8 31.2 31.2 30.4 30.1
Tier 1 Ratio....................................... 8.29% 8.26% 8.34% 8.25% 8.18%
Total Ratio (Tier 1 and 2)......................... 12.05% 12.13% 12.31% 12.16% 11.96%
Leverage Ratio..................................... 6.73% 6.83% 7.01% 7.14% 7.30%
Common Equity as a Percentage of Total Assets...... 6.18% 6.01% 6.21% 6.53% 6.41%
Total Equity as a Percentage of Total Assets....... 6.57% 6.50% 6.82% 7.16% 7.04%
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2ND QTR. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
EARNINGS ANALYSIS (In Millions of Dollars) 1998 1998 1997 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------
Total Revenue...................................... $6,202 $5,605 $ 5,568 $ 5,541 $5,311 $5,196
Effect of Credit Card Securitization Activity...... 579 461 434 408 437 434
Net Cost To Carry (B).............................. 11 (1) 4 (5) (1) (3)
------------------------------------------------------------------
ADJUSTED REVENUE................................... 6,792 6,065 6,006 5,944 5,747 5,627
------------------------------------------------------------------
Total Operating Expense............................ 3,883 3,394 3,408 4,237 3,173 3,169
Net OREO Benefits (C).............................. 2 12 9 16 37 10
Restructuring Charge............................... - - - (889) - -
------------------------------------------------------------------
ADJUSTED OPERATING EXPENSE......................... 3,885 3,406 3,417 3,364 3,210 3,179
------------------------------------------------------------------
OPERATING MARGIN................................... 2,907 2,659 2,589 2,580 2,537 2,448
------------------------------------------------------------------
Global Consumer Net Write-Offs..................... 510 426 432 452 488 459
Effect of Credit Card Securitization Activity...... 579 461 434 408 437 434
Net Cost to Carry and Net
OREO (Benefits) Costs (B) (C).................... (3) (1) - (4) (3) 1
------------------------------------------------------------------
GLOBAL CONSUMER CREDIT COSTS....................... 1,086 886 866 856 922 894
------------------------------------------------------------------
Global Corporate Banking
Net Write-Offs (Recoveries)...................... 29 56 29 9 (1) (61)
Net Cost to Carry and Net
OREO Costs (Benefits) (B) (C).................... 12 (12) (5) (17) (35) (14)
------------------------------------------------------------------
GLOBAL CORPORATE BANKING
CREDIT COSTS (BENEFITS).......................... 41 44 24 (8) (36) (75)
------------------------------------------------------------------
OPERATING MARGIN LESS CREDIT COSTS................. 1,780 1,729 1,699 1,732 1,651 1,629
Additional Provision (D)........................... 25 25 25 25 25 25
Restructuring Charge............................... - - - 889 - -
------------------------------------------------------------------
INCOME BEFORE TAXES................................ 1,755 1,704 1,674 818 1,626 1,604
Income Taxes....................................... 658 639 613 307 602 609
------------------------------------------------------------------
NET INCOME......................................... $1,097 $1,065 $ 1,061 $ 511 $1,024 $ 995
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</TABLE>
(A) Based on net income less preferred stock dividends. See page 47 for
details.
(B) Includes the net cost to carry cash-basis loans and other real estate owned
("OREO").
(C) Includes gains and losses on sales, direct revenue and expense, and
writedowns of OREO.
(D) Represents amounts in excess of net write-offs. See page 32 for
discussion.
1
<PAGE>
CITICORP [LOGO](R)
Citicorp reported net income for the 1998 second quarter of $1.1 billion or
$2.30 per diluted common share, up 7% and 10% from the 1997 second quarter.
Growth in income before taxes was led by U.S. bankcards (excluding the results
of Universal Card Services ("UCS") purchased from AT&T on April 2, 1998), Global
Relationship Banking, and Citibanking in North America, along with a benefit
from Corporate investment portfolio gains, partially offset by weaker earnings
in the Consumer emerging markets businesses, largely due to conditions in Asia
Pacific. Net income for the 1998 six months was $2.2 billion or $4.53 per
diluted common share, up 7% and 10% from the 1997 six months. Return on common
equity was 21.5% in the quarter and 21.6% in the six months, compared with 21.0%
and 20.9% for the 1997 periods, and return on average assets was 1.35% and 1.36%
for the 1998 periods, compared with 1.40% and 1.41% for 1997.
Global Consumer income before taxes declined $67 million or 11% and $131 million
or 10% in the quarterly and six-month comparisons, reflecting improved results
in U.S. bankcards and the Citibanking businesses in North America, Japan, and
Europe, more than offset by UCS acquisition premium costs and lower earnings in
Asia Pacific and Latin America. Global Corporate Banking income before taxes
grew $112 million or 14% and $212 million or 13% in the quarterly and six-month
comparisons, largely attributable to Global Relationship Banking. Global
Consumer income before taxes in Asia Pacific declined $70 million and $138
million in the quarterly and six-month comparisons primarily reflecting lower
revenue and higher credit costs while Global Corporate Banking income before
taxes was up $3 million in the quarter, as increased revenue was partially
offset by higher expense and credit costs but was down $13 million in the six
months as higher expense and credit costs more than offset revenue growth.
Adjusted revenue grew $1.0 billion or 18% and $1.5 billion or 13% in the
quarterly and six-month comparisons. Global Consumer revenue was up 14% and 7%
from the 1997 quarter and six months reflecting the inclusion of UCS ($336
million), improvements in U.S. bankcards and in Citibanking in the developed
markets, partially offset by declines in Asia Pacific and in the Cards business
in Latin America. Global Corporate Banking revenue grew 21% and 20% in the
quarterly and six month comparisons reflecting improved trading-related
revenue, higher aggregate securities transactions and net asset gains, growth in
transaction banking services and corporate finance revenue, improved treasury
results and, in the six-month period, higher venture capital revenue. Foreign
currency translation reduced Citicorp revenue growth by approximately 4 and 5
percentage points in the respective 1998 periods.
Adjusted net interest revenue (taxable equivalent basis) was up $463 million or
13% and $510 million or 7% from the 1997 quarter and six months, primarily
reflecting the contribution of UCS. Adjusted fee and commission revenue was up
$157 million or 11% and $236 million or 9% in the quarterly and six-month
comparisons, led by growth in U.S. bankcards, including the addition of UCS,
partially offset by reduced revenue from Cards in Asia Pacific. Trading-related
revenue (including related net interest revenue) increased $219 million and $358
million from the 1997 quarter and six months, primarily reflecting improved
foreign exchange results in Asia Pacific. Combined net asset gains and
securities transactions grew $310 million and $382 million in the quarterly and
six-month comparisons, primarily reflecting gains on the sale of Brady bonds and
real estate-related equity interests. Venture capital revenue was essentially
unchanged in the quarterly comparison but grew $169 million in the six months.
Adjusted operating expense grew $675 million or 21% ($448 million or 14%
excluding UCS) and $902 million or 14% ($675 million or 11% excluding UCS) from
the 1997 quarter and six months, reflecting preparations for the Year 2000 and
the European Economic and Monetary Union ("EMU"), advertising and marketing
programs, electronic banking initiatives, higher incentive compensation, volume-
driven business growth, and continued franchise and product development efforts.
Expense increased 26% and 17% in the developed markets in the quarterly and six-
month comparisons and 7% in both 1998 periods in the emerging markets. Foreign
currency translation reduced expense growth by approximately 4 percentage points
in each 1998 period.
Operating margin grew $370 million or 15% and $581 million or 12% in the
quarterly and six-month comparisons. The incremental revenue to expense ratio
was 1.5 to 1 for the quarter and 1.6 to 1 for the six months, and the efficiency
ratio (adjusted operating expense as a percentage of adjusted revenue) was 57%
for both 1998 periods, up slightly from 56% for both 1997 periods.
Global Consumer credit costs were $1.1 billion ($910 million excluding UCS) in
the quarter, compared with $886 million in the 1998 first quarter and $922
million a year ago, reflecting ratios of net credit losses to average managed
loans of
2
<PAGE>
CITICORP [LOGO](R)
2.88% (2.66% excluding UCS), 2.64%, and 2.73% in the respective quarters. The
managed consumer loan delinquency ratio (90 days or more past due) was 2.19%
(2.29% excluding UCS), compared with 2.37% and 2.43% at the end of the preceding
and year-ago quarters. Commercial credit costs rose $77 million and $196 million
in the quarterly and six-month comparisons primarily due to higher write-offs in
Asia Pacific, coupled with lower gains from the sale of OREO and, in the six-
month comparison, a $50 million recovery in 1997 from the refinancing agreement
concluded with Peru. Commercial cash-basis loans and OREO of $1.6 billion at
June 30, 1998 were down $53 million or 3% from the preceding quarter and were up
$242 million or 17% from a year ago, principally reflecting increases in
Indonesia and Thailand, and improvements in real estate in Global Relationship
Banking. At June 30, 1998, total credit loss reserves were $6.3 billion,
reflecting the addition of $320 million of credit loss reserves related to the
acquisition of UCS. Global Consumer continued to build its allowance for credit
losses, adding $25 million in the quarter and $50 million in the six months
above net credit losses, primarily related to Cards in both the developed and
emerging markets.
Citicorp's effective tax rate was 37.5% in both 1998 periods and in the 1997 six
months, and was 37% in the 1997 second quarter. 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 31% and 28% in the 1998 quarter and six months,
and 23% and 25% in the 1997 periods.
Total capital (Tier 1 and Tier 2) was $31.8 billion or 12.05% of net risk-
adjusted assets, and Tier 1 capital was $21.9 billion or 8.29% at June 30, 1998.
During the quarter, Citicorp generated $616 million of Tier 1 capital, a
substantial portion of which was used to fund the growth in risk-adjusted assets
resulting from the acquisition of UCS. For the six months, Citicorp generated
$366 million of free capital. During the quarter, no shares were repurchased
due to the suspension of the stock repurchase program in connection with the
announced agreement to merge with Travelers Group. Total repurchases since the
program was inaugurated on June 20, 1995 were 82.0 million shares for an outlay
of $7.3 billion.
On April 5, 1998, Citicorp and Travelers Group Inc. agreed to combine in a
merger of equals, with the shareholders of each company owning approximately 50%
of the outstanding common stock of the combined company after the merger. On
July 22, 1998, a majority of the stockholders of Citicorp and Travelers approved
the merger. Consummation of the merger remains subject to customary closing
conditions, including the approval of the Federal Reserve Board. Citicorp and
Travelers expect to complete the merger during the 1998 third quarter.
Citicorp and Travelers Group Inc. unaudited pro forma condensed combined
financial statements as of June 30, 1998, and for the three and six months ended
June 30, 1998 and 1997 are filed as an exhibit to this Form 10-Q.
The consolidated financial statements of Travelers included in Travelers'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, as filed or
to be filed with the SEC pursuant to the Securities Exchange Act of 1934, as
amended, is incorporated as of the filing date of such report in this Financial
Review and Form 10-Q by reference. Such report and other documents filed by
Travelers may be read and copied at the public reference rooms maintained by the
SEC in New York, Chicago, and Washington, D.C. (Travelers' public filings are
also available from commercial document retrieval services and at the Internet
World Wide Web site maintained by the SEC at "http://www.sec.gov.")
3
<PAGE>
CITICORP [LOGO](R)
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BUSINESS DISCUSSION
- -------------------------------------------------------------------------------
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>
EARNINGS BY GLOBAL BUSINESS AREA
- ----------------------------------------------------------------------------------------------------------
SECOND QUARTER % SIX MONTHS %
----------------- -------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Consumer..................................... $ 377 $ 459 (18) $ 806 $ 936 (14)
Global Corporate Banking............................ 662 663 - 1,411 1,312 8
----------------- -------------------
CORE BUSINESSES..................................... 1,039 1,122 (7) 2,217 2,248 (1)
Corporate Items..................................... 58 (98) NM (55) (229) 76
----------------- -------------------
TOTAL CITICORP...................................... $1,097 $1,024 7 $2,162 $2,019 7
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
GLOBAL CONSUMER
Citibanking......................................... $ 155 $ 194 (20) $ 335 $ 371 (10)
Cards............................................... 146 186 (22) 322 406 (21)
Private Bank........................................ 76 79 (4) 149 159 (6)
----------------- -------------------
TOTAL............................................... $ 377 $ 459 (18) $ 806 $ 936 (14)
- ----------------------------------------------------------------------------------------------------------
GLOBAL CONSUMER
Emerging Markets.................................... $ 146 $ 243 (40) $ 308 $ 485 (36)
Developed Markets................................... 231 216 7 498 451 10
----------------- -------------------
TOTAL............................................... $ 377 $ 459 (18) $ 806 $ 936 (14)
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GLOBAL CORPORATE BANKING
Emerging Markets.................................... $ 403 $ 421 (4) $ 904 $ 870 4
Global Relationship Banking......................... 259 242 7 507 442 15
----------------- -------------------
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TOTAL............................................... $ 662 $ 663 - $1,411 $1,312 8
(A) Reclassified to conform to the latest quarter's presentation.
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</TABLE>
4
<PAGE>
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GLOBAL CONSUMER
- -------------------------------------------------------------------------------
The Global Consumer business meets the financial services needs of consumer
customers across the regions of the world.
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
----------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $4,044 $3,544 14 $7,551 $7,048 7
Adjusted Operating Expense.......................... 2,362 1,959 21 4,343 3,865 12
----------------- ------------------
OPERATING MARGIN.................................... 1,682 1,585 6 3,208 3,183 1
Credit Costs (B).................................... 1,086 922 18 1,972 1,816 9
----------------- ------------------
OPERATING MARGIN LESS CREDIT COSTS.................. 596 663 (10) 1,236 1,367 (10)
Additional Provision................................ 25 25 - 50 50 -
----------------- ------------------
INCOME BEFORE TAXES................................. 571 638 (11) 1,186 1,317 (10)
Income Taxes........................................ 194 179 8 380 381 -
----------------- ------------------
NET INCOME.......................................... $ 377 $ 459 (18) $ 806 $ 936 (14)
- ---------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 140 $ 132 6 $ 136 $ 131 4
Return on Assets (%)................................ 1.08 1.39 - 1.20 1.44 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
(B) Includes the effect of credit card securitization activity and the effect
related to credit card receivables held for sale.
- -------------------------------------------------------------------------------
Global Consumer income before taxes was $571 million and $1.2 billion in the
1998 second quarter and six months, compared with $638 million and $1.3 billion
in 1997, reflecting improved results in U.S. bankcards and the Citibanking
businesses in North America, Japan, and Europe, offset by UCS acquisition
premium costs and lower earnings in the emerging markets of Asia Pacific and
Latin America. Net income was $377 million and $806 million in the 1998 second
quarter and six months, compared with $459 million and $936 million for 1997.
Return on assets was 1.08% and 1.20% in the quarter and six months, compared to
1.39% and 1.44% a year ago.
Total consumer accounts reached 70 million as of June 30, 1998 in 57 countries
and territories, up from 55 million a year ago, principally reflecting an
increase of 14 million related to UCS, and increases in Latin America and Asia
Pacific.
Adjusted revenue of $4.0 billion in the quarter and $7.6 billion in the six
months was up $500 million and $503 million from 1997, primarily due to the
acquisition of UCS (which contributed $336 million of revenue growth) and
improvements in U.S. bankcards. Revenue also reflected improvements in the
Citibanking businesses in North America and Japan, and in the Private Bank, and
a decline in Asia Pacific, reflecting the effect of foreign currency translation
and spread compression that was partially offset by business volume growth,
principally in customer deposits. Net interest revenue increased 13% in the
quarter and 6% in the six months, while fee and commission revenue was up 14%
and 9%, respectively, principally due to U.S. bankcards, including UCS. Foreign
currency translation reduced revenue growth by approximately 5 percentage points
in both the 1998 second quarter and six months.
Adjusted operating expense increased $403 million or 21% in the quarter and $478
million or 12% in the six months from the 1997 periods, reflecting the
acquisition of UCS (which added $227 million), higher advertising and marketing,
and spending on technology initiatives primarily related to electronic banking,
together with business volume growth and investment in new markets. Foreign
currency translation reduced expense growth by approximately 5 percentage points
in both the 1998 second quarter and six months.
5
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CITICORP [LOGO](R)
Credit costs in the quarter were $1.1 billion ($910 million excluding UCS),
compared with $886 million in the 1998 first quarter and $922 million a year
ago, reflecting ratios of net credit losses to average managed loans of 2.88%
(2.66% excluding UCS), 2.64%, and 2.73% in the respective quarters.
The Global Consumer business continued to build the allowance for credit losses
with charges of $25 million in excess of net write-offs in both the 1998 and
1997 second quarters and $50 million in both six month periods.
Net credit losses and the related loss ratios may increase from the 1998 second
quarter as a result of economic conditions, particularly in Asia Pacific and
Latin America, the credit performance of the portfolios, including bankruptcies,
seasonal factors, and other changes in portfolio levels. See "Global Consumer
Portfolio Review" on page 11 and "Provision and Credit Loss Reserves" on page 32
for additional discussion of the consumer portfolio.
With income taxes attributed to core businesses on the basis of local tax rates,
effective tax rates were 34% and 32% in the 1998 second quarter and six months,
up from 28% and 29% 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>
SECOND QUARTER % SIX MONTHS %
------------------ -------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................. $1,620 $1,531 6 $3,150 $3,012 5
Operating Expense................................... 1,229 1,100 12 2,374 2,172 9
------------------ -------------------
OPERATING MARGIN.................................... 391 431 (9) 776 840 (8)
Credit Costs........................................ 144 145 (1) 281 293 (4)
------------------ -------------------
OPERATING MARGIN LESS CREDIT COSTS.................. 247 286 (14) 495 547 (10)
Additional Provision................................ (4) - NM (6) - NM
------------------ -------------------
INCOME BEFORE TAXES................................. 251 286 (12) 501 547 (8)
Income Taxes........................................ 96 92 4 166 176 (6)
------------------ -------------------
NET INCOME.......................................... $ 155 $ 194 (20) $ 335 $ 371 (10)
-------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 88 $ 84 5 $ 87 $ 83 5
Return on Assets (%)................................ 0.71 0.93 - 0.78 0.90 -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Income before taxes from Citibanking activities -- delivering products and
services to customers through branches and electronic delivery systems -- was
$251 million and $501 million in the 1998 second quarter and six months. The
1998 results compared with $286 million and $547 million in the same 1997
periods, reflecting improvements in North America, Japan, and Europe that were
more than offset by spending on technology initiatives primarily related to
electronic banking, and declines in Asia Pacific and Latin America. Net income
in the 1998 second quarter and six months was $155 million and $335 million,
compared with $194 million and $371 million in 1997, respectively. Return on
assets was 0.71% and 0.78% in the quarter and six months, compared with 0.93%
and 0.90% a year ago.
Revenue of $1.6 billion and $3.1 billion in the 1998 second quarter and six
months, increased 6% and 5% from 1997, as customer accounts increased 8% to 21
million and average customer deposits grew 9% (15% excluding the effect of
foreign currency translation) to $101 billion. Developed markets revenue grew
9% and 8% in the quarter and six months, principally reflecting growth in the
U.S. and Japan, and in the quarter, an increase in Europe. Emerging markets
revenue was essentially unchanged in the quarter, and declined 2% in the six
months, reflecting economic conditions in Asia Pacific (including weakened
currencies) and moderate growth in Latin America, including reduced spreads in
certain
6
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CITICORP [LOGO](R)
countries. Foreign currency translation reduced Citibanking revenue
growth by approximately 7 and 6 percentage points in the 1998 second quarter and
six months, respectively, primarily in the emerging markets.
Operating expense of $1.2 billion in the 1998 second quarter and $2.4 billion in
the six months increased 12% and 9% from 1997. Expense increased 14% and 11% in
the developed markets and 7% and 6% in the emerging markets, respectively,
reflecting account and business volume growth, increased spending on technology
initiatives primarily related to electronic banking, and advertising and
marketing. Foreign currency translation reduced Citibanking expense growth by
approximately 5 and 6 percentage points in the 1998 second quarter and six
months, respectively, primarily in the emerging markets.
Credit costs in the quarter were essentially unchanged from the year-ago
quarter, and were up $7 million from the previous quarter, reflecting
improvement in the U.S. and Europe, offset by higher net credit losses in Latin
America and Asia Pacific. The net credit loss ratio was 0.85% in the 1998
second quarter, compared with 0.83% in the 1998 first quarter and 0.87% in the
1997 second quarter. The emerging markets net credit loss ratio was 0.88% in
the 1998 second quarter, compared with 0.70% in the 1998 first quarter and 0.54%
in the 1997 second quarter. Foreign currency translation reduced reported net
credit losses by approximately $10 million in the 1998 second quarter and $24
million in the six months. The additional provision in both the 1998 second
quarter and six months, reflected increases in Asia Pacific and Latin America
that were more than offset by reserve releases in North America due to continued
credit improvement in the mortgage portfolio.
- -------------------------------------------------------------------------------
CARDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
----------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $2,121 $1,734 22 $3,816 $3,486 9
Adjusted Operating Expense.......................... 930 675 38 1,570 1,341 17
----------------- ------------------
OPERATING MARGIN.................................... 1,191 1,059 12 2,246 2,145 5
Credit Costs........................................ 945 778 21 1,702 1,525 12
----------------- ------------------
OPERATING MARGIN LESS CREDIT COSTS.................. 246 281 (12) 544 620 (12)
Additional Provision................................ 29 25 16 56 50 12
----------------- ------------------
INCOME BEFORE TAXES................................. 217 256 (15) 488 570 (14)
Income Taxes........................................ 71 70 1 166 164 1
----------------- ------------------
NET INCOME.......................................... $ 146 $ 186 (22) $ 322 $ 406 (21)
- ---------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 36 $ 31 16 $ 33 $ 31 6
Return on Assets (%)................................ 1.63 2.41 - 1.97 2.64 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
- --------------------------------------------------------------------------------
During the quarter, Citibank completed the previously announced acquisition of
UCS. The acquisition added $14.5 billion in managed customer receivables and 14
million accounts to U.S. bankcards, bringing the totals to $60.3 billion and 38
million, respectively, at June 30, 1998. In the quarter and six months, UCS
contributed $336 million to revenue, $227 million to expense, and $176 million
to credit costs, resulting in a net loss of approximately $44 million. These
amounts included $107 million (pretax) of UCS acquisition premium costs
(including funding costs associated with the acquisition purchase premium).
Card accounts worldwide totaled 49 million as of June 30, 1998, up from 36
million a year ago, principally reflecting the acquisition of UCS. U.S.
bankcards accounts (excluding UCS) declined by 3% from a year ago, reflecting
competitive pressures and continued risk management initiatives. Cards in the
emerging markets grew 11% from a year ago, primarily in Latin America.
7
<PAGE>
CITICORP [LOGO](R)
Income before taxes from Cards worldwide -- bankcards, Diners Club, and
private label cards -- was $217 million and $488 million in the 1998 second
quarter and six months, down $39 million and $82 million from the year-ago
periods, reflecting improvements in U.S. bankcards, which were offset by the UCS
acquisition premium costs and lower earnings in Asia Pacific and Latin America.
Cards worldwide return on managed assets (including securitized card
receivables) was 0.81% and 1.00% in the quarter and six months, compared with
1.33% and 1.46% in the year-ago periods. Net income for the 1998 second quarter
and six months was $146 million and $322 million, compared with $186 million and
$406 million in 1997.
Adjusted revenue of $2.1 billion and $3.8 billion in the 1998 second quarter and
six months increased $387 million or 22% and $330 million or 9% from 1997,
primarily reflecting the acquisition of UCS. Excluding UCS, U.S. bankcards
revenue was up 9% and 5% in the quarter and six months, reflecting risk-based
pricing strategies and higher interchange fee revenue, and in the six months
reduced spreads. Interchange fee revenue reflected charge volume growth of 8%
in the quarter and 6% in the six months and pricing changes. Revenue in
emerging markets Cards was down 18% and 20%, respectively, resulting from lower
revenue in Asia Pacific together with reduced earnings in Credicard, a 33%-owned
Brazilian affiliate. Foreign currency translation reduced Cards revenue growth
by approximately 3 percentage points in both the 1998 second quarter and six
months, respectively.
Adjusted operating expense in the developed markets was up $260 million and $234
million in the quarter and six months, principally due to UCS and increased
marketing costs. Emerging markets expense declined 3% and 2% as the effect of
foreign currency translation more than offset account and business volume
growth, increased collection costs, and continued investment in new markets.
Foreign currency translation reduced Cards expense growth by 5 percentage points
in both the 1998 second quarter and six months.
Credit costs of $945 million increased $188 million from the preceding quarter
and $167 million from the 1997 quarter, principally reflecting the acquisition
of UCS. Credit costs in U.S. bankcards were $842 million or 5.73% ($667 million
or 5.97% excluding UCS) of average managed loans for the quarter compared to
$668 million or 5.96% in the 1998 first quarter and $683 million or 6.13% a year
ago. The 12-month-lagged loss ratio was 5.98% (excluding UCS) in the quarter,
compared with 6.03% in the 1998 first quarter and 6.51% a year ago. The percent
of gross write-offs from bankruptcies in the quarter was 41.1% (40.3% excluding
UCS), compared with 37.0% in the prior quarter and 40.2% in the 1997 second
quarter. U.S. bankcards managed loans delinquent 90 days or more were $942
million or 1.58% ($766 million or 1.70% excluding UCS) at quarter-end, compared
with $842 million or 1.88% in the prior quarter and $843 million or 1.86% a year
ago.
Credit costs in non-U.S. bankcard portfolios were $103 million or 4.42% of
average managed loans, compared with $89 million or 3.95% in the preceding
quarter and $95 million or 4.14% in the 1997 quarter. Loans delinquent 90 days
or more were $220 million or 2.30% as of June 30, 1998, compared with $216
million or 2.30% in the prior quarter and $206 million or 2.18% a year ago.
Credit costs and loans delinquent 90 days or more primarily reflect higher
amounts in Asia Pacific, partially offset by the effect of foreign currency
translation.
Cards continued to build the allowance for credit losses with charges of $29
million and $56 million in excess of net write-offs in the 1998 second quarter
and six months.
8
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
PRIVATE BANK
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
----------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $ 303 $ 279 9 $ 585 $ 550 6
Adjusted Operating Expense.......................... 203 184 10 399 352 13
----------------- ------------------
OPERATING MARGIN.................................... 100 95 5 186 198 (6)
Credit Benefits..................................... (3) (1) NM (11) (2) NM
----------------- ------------------
INCOME BEFORE TAXES................................. 103 96 7 197 200 (2)
Income Taxes........................................ 27 17 59 48 41 17
----------------- ------------------
NET INCOME.......................................... $ 76 $ 79 (4) $ 149 $ 159 (6)
- ---------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 16 $ 17 (6) $ 16 $ 17 (6)
Return on Assets (%)................................ 1.91 1.86 - 1.88 1.89 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Private Bank -- which provides personalized wealth management services for
high net-worth clients -- income before taxes was $103 million and $197
million in the 1998 second quarter and six months, compared with $96 million and
$200 million in 1997. Both periods reflected revenue improvements and increased
operating costs. Net income was $76 million and $149 million in the 1998 second
quarter and six months, compared to $79 million and $159 million in 1997.
Client business volumes under management at the end of the quarter reached $108
billion, up $8 billion or 8% from $100 billion a year earlier, reflecting
double-digit growth in all regions, except in Asia Pacific, where due to
economic conditions in the region, managed assets declined. The increase from
1997 primarily reflected growth in custody, trust, and fiduciary balances.
Adjusted revenue of $303 million and $585 million in the 1998 second quarter and
six months increased 9% and 6% from 1997, primarily due to growth in other fee
revenue and client-related foreign exchange. Developed markets revenue grew 12%
and 7% in the quarter and six months, reflecting increases across all regions.
Emerging markets revenue was up 4% in the quarter and 5% in the six months as
growth in Latin America was partially offset by a slight decline in Asia
Pacific.
Adjusted operating expense of $203 million and $399 million in the 1998 second
quarter and six months increased 10% and 13% from 1997, primarily reflecting an
increased sales force and product management costs. Foreign currency
translation reduced expense growth by approximately 3 percentage points in both
the 1998 second quarter and six months.
Credit costs were a net benefit of $3 million in the quarter and $11 million in
the six months, as recoveries in North America and Europe were partially offset
by write-offs in Asia Pacific. Loans delinquent 90 days or more were $197
million or 1.23% of loans, compared to $186 million or 1.21% in the preceding
quarter and $187 million or 1.19% in the 1997 second quarter, reflecting
increases in Asia Pacific and improvements from a year earlier in North America.
9
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
GLOBAL CONSUMER IN EMERGING MARKETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
---------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $ 923 $ 986 (6) $1,795 $1,934 (7)
Adjusted Operating Expense.......................... 601 581 3 1,164 1,121 4
---------------- ------------------
OPERATING MARGIN.................................... 322 405 (20) 631 813 (22)
Credit Costs........................................ 133 97 37 234 189 24
---------------- ------------------
OPERATING MARGIN LESS CREDIT COSTS.................. 189 308 (39) 397 624 (36)
Additional Provision................................ 11 7 57 22 10 NM
---------------- ------------------
INCOME BEFORE TAXES................................. 178 301 (41) 375 614 (39)
Income Taxes........................................ 32 58 (45) 67 129 (48)
---------------- ------------------
NET INCOME.......................................... $ 146 $ 243 (40) $ 308 $ 485 (36)
- --------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 42 $ 43 (2) $ 42 $ 42 -
Return on Assets (%)................................ 1.39 2.27 - 1.48 2.33 -
- --------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- --------------------------------------------------------------------------------
Net income in the emerging markets was $146 million and $308 million in the 1998
second quarter and six months, down from $243 million and $485 million a year
ago, reflecting economic conditions, including weakened currencies, in Asia
Pacific, and lower earnings in Latin America. In the quarter and six months,
Cards represented 27% and 24% of emerging markets net income, compared with 36%
and 37% in 1997, respectively.
Asia Pacific (excluding Japan and the Indian subcontinent, but including
Australia and New Zealand) adjusted revenue declined 12% and 14% in the 1998
second quarter and six months from the 1997 periods, reflecting economic
conditions in the region including the effect of foreign currency translation.
Adjusted revenue in Latin America was essentially unchanged from the 1997 second
quarter and six months, reflecting a decline in Credicard and reduced spreads in
certain countries, offset by business volume growth, as well as improvements in
the Private Bank. Foreign currency translation reduced revenue growth by
approximately 13 percentage points in both the second quarter and six months.
Adjusted operating expense was up 3% in the quarter and 4% in the six months,
reflecting a decline in Asia Pacific of 4% and 5%, offset by an 8% and 9%
increase in Latin America, primarily in the Citibanking business. Foreign
currency translation reduced expense growth by approximately 14 and 13
percentage points in the quarter and six months, respectively.
Credit costs in the emerging markets increased $32 million from the 1998 first
quarter, and increased $36 million from the 1997 second quarter. The net credit
loss ratio in Asia Pacific was 1.16%, up from 0.77% in the 1998 first quarter
and 0.72% a year ago. The net credit loss ratio in Latin America was 2.51%
compared to 1.99% in the 1998 first quarter and 2.30% a year ago. Emerging
markets managed loans delinquent 90 days or more were $647 million or 1.95% at
quarter-end, compared with $620 million or 1.85% at March 31, 1998 and $461
million or 1.32% a year ago. The emerging markets businesses built the
allowance for loan losses by $11 million in the quarter and $22 million in the
six months.
10
<PAGE>
CITICORP [LOGO](R)
- --------------------------------------------------------------------------------
GLOBAL CONSUMER IN DEVELOPED MARKETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Second Quarter % SIX MONTHS %
----------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $3,121 $2,558 22 $5,756 $5,114 13
Adjusted Operating Expense.......................... 1,761 1,378 28 3,179 2,744 16
----------------- ------------------
OPERATING MARGIN.................................... 1,360 1,180 15 2,577 2,370 9
Credit Costs........................................ 953 825 16 1,738 1,627 7
----------------- ------------------
OPERATING MARGIN LESS CREDIT COSTS.................. 407 355 15 839 743 13
Additional Provision................................ 14 18 (22) 28 40 (30)
----------------- ------------------
INCOME BEFORE TAXES................................ 393 337 17 811 703 15
Income Taxes........................................ 162 121 34 313 252 24
----------------- ------------------
NET INCOME.......................................... $ 231 $ 216 7 $ 498 $ 451 10
- ---------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 98 $ 89 10 $ 94 $ 89 6
Return on Assets (%)................................ 0.95 0.97 - 1.07 1.02 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
- -------------------------------------------------------------------------------
Income before taxes in the developed markets was $393 million and $811 million
in the 1998 second quarter and six months, up $56 million and $108 million from
1997, reflecting improvements in U.S. bankcards and in Citibanking in North
America, Japan, and Europe that were partially offset by UCS acquisition premium
costs and increased spending on electronic banking initiatives. Net income for
the 1998 second quarter and six months was $231 million and $498 million,
compared with $216 million and $451 million in 1997.
Adjusted revenue was up 22% in the quarter and up 13% in the six months,
reflecting the acquisition of UCS, and other increases in U.S. bankcards and in
Citibanking businesses across all regions. Adjusted operating expense grew 28%
and 16%, reflecting UCS, spending on technology initiatives primarily related to
electronic banking, and increased advertising and marketing, together with
business volume growth.
Credit costs in the developed markets increased by $128 million from the 1997
second quarter, reflecting the addition of UCS (credit costs of $176 million),
partially offset by improvements in Citibanking, U.S. bankcards, and credit
recoveries in the Private Bank. Managed loans delinquent 90 days or more were
$2.7 billion or 2.25% ($2.5 billion or 2.39% excluding UCS) at quarter-end,
compared with $2.6 billion or 2.54% at March 31, 1998 and $2.9 billion or 2.80%
a year ago. The developed markets businesses built the allowance for loan
losses by $14 million in the quarter and $28 million in the six months.
- -------------------------------------------------------------------------------
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 12 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.
11
<PAGE>
CITICORP [LOGO](R)
<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 Billions) 1998 1998 1998 1997 1998 1998 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CITIBANKING........................ $ 68.2 $1,995 $2,014 $2,094 $ 68.0 $ 144 $ 137 $ 145
Ratio.............................. 2.93% 2.97% 3.13% 0.85% 0.83% 0.87%
CARDS
U.S. Bankcards (B)................. 59.6 942 842 843 58.9 842 668 683
Ratio.............................. 1.58% 1.88% 1.86% 5.73% 5.96% 6.13%
Other (C).......................... 9.6 220 216 206 9.3 103 89 95
Ratio.............................. 2.30% 2.30% 2.18% 4.42% 3.95% 4.14%
PRIVATE BANK....................... 16.0 197 186 187 15.6 - (7) 2
Ratio.............................. 1.23% 1.21% 1.19% NM NM 0.04%
TOTAL MANAGED...................... 153.4 3,354 3,258 3,330 151.8 1,089 887 925
RATIO.............................. 2.19% 2.37% 2.43% 2.88% 2.64% 2.73%
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIZATION ACTIVITY (D)
Securitized Credit Card Receivables (41.3) (601) (519) (453) (36.8) (542) (430) (404)
Loans Held for Sale................ (4.7) (40) (39) (37) (4.6) (37) (31) (33)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS........................ $107.4 $2,713 $2,700 $2,840 $110.4 $ 510 $ 426 $ 488
Ratio.............................. 2.53% 2.55% 2.59% 1.86% 1.64% 1.82%
- -----------------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO
DEVELOPED.......................... $120.1 $2,707 $2,638 $2,869 $118.5 $ 956 $ 790 $ 828
Ratio.............................. 2.25% 2.54% 2.80% 3.24% 3.09% 3.26%
EMERGING........................... 33.3 647 620 461 33.3 133 97 97
Ratio.............................. 1.95% 1.85% 1.32% 1.61% 1.21% 1.15%
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING PORTFOLIO (E)
ASIA PACIFIC....................... $ 22.0 $ 374 $ 375 $ 289 $ 22.1 $ 63 $ 42 $ 44
Ratio.............................. 1.70% 1.67% 1.15% 1.16% 0.77% 0.72%
LATIN AMERICA...................... 9.9 227 202 152 9.8 61 46 46
Ratio.............................. 2.28% 2.10% 1.85% 2.51% 1.99% 2.30%
CEEMEA (F)......................... 1.4 46 43 20 1.4 9 9 7
Ratio.............................. 3.40% 3.03% 1.43% 2.86% 2.78% 2.15%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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) The U.S. bankcards managed ratios of 90 days or more past due and net
credit losses were reduced by 12 basis points and 24 basis points,
respectively, in the current quarter, due to the addition of the UCS
portfolio.
(C) Includes bankcards outside of the U.S., worldwide Diners Club, and private
label cards.
(D) See page 35 for a description of the effect of credit card securitization
activity.
(E) Includes Private Bank and excludes Japan.
(F) Central and Eastern Europe, Middle East, and Africa.
NM Not meaningful.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
END OF PERIOD AVERAGE
-------------------------------------------------------------------
JUNE 30, Mar. 31, June 30, 2ND QTR. 1st Qtr. 2nd Qtr.
(In Billions of Dollars) 1998 1998 1997 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED........................................ $153.4 $137.3 $137.3 $151.8 $136.5 $135.5
Securitized Credit Card Receivables............ (41.3) (27.6) (24.2) (36.8) (27.4) (24.7)
Loans Held for Sale............................ (4.7) (3.8) (3.6) (4.6) (3.6) (3.4)
LOAN PORTFOLIO................................. $107.4 $105.9 $109.5 $110.4 $105.5 $107.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
CITICORP [LOGO](R)
Total delinquencies 90 days or more past due in the managed portfolio were $3.4
billion with a related delinquency ratio of 2.19% ($3.2 billion or 2.29%
excluding UCS) at June 30, 1998, compared with $3.3 billion or 2.37% at March
31, 1998 and $3.3 billion or 2.43% a year ago. Total managed net credit losses
in the 1998 second quarter were $1.1 billion and the related loss ratio was
2.88% ($913 million and 2.66% excluding UCS) compared with $887 million and
2.64% in the 1998 first quarter and $925 million and 2.73% in the 1997 second
quarter.
In Citibanking, managed loans delinquent 90 days or more were $2.0 billion with
a related ratio of 2.93% at June 30, 1998, compared with $2.0 billion or 2.97%
at March 31, 1998 and $2.1 billion or 3.13% at June 30, 1997. The decline in
delinquencies from a year ago reflects improvements in the U.S. mortgage
portfolio and the effect of foreign currency translation, partially offset by
increases in Asia Pacific and Latin America. Net credit losses in the 1998
second quarter were $144 million and the related loss ratio was 0.85%, compared
with $137 million and 0.83% in the 1998 first quarter and $145 million and 0.87%
in the 1997 second quarter, reflecting higher losses in Latin America and Asia
Pacific, offset by improvement in U.S. mortgages and Europe, and the effect of
foreign currency translation.
U.S. bankcards managed loans delinquent 90 days or more were $942 million or
1.58% ($766 million or 1.70% excluding UCS) at quarter-end, compared with $842
million or 1.88% at March 31, 1998 and $843 million or 1.86% a year ago. Net
credit losses were $842 million and the related loss ratio was 5.73% ($667
million and 5.97% excluding UCS) in the quarter, compared to $668 million and
5.96% in the 1998 first quarter and $683 million and 6.13% a year ago. The 12-
month-lagged loss ratio was 5.98% (excluding UCS) in the quarter, compared with
6.03% in the 1998 first quarter and 6.51% a year ago. The percent of gross
write-offs from bankruptcies in the quarter was 41.1% (40.3% excluding UCS),
compared with 37.0% in the prior quarter and 40.2% in the 1997 second quarter.
The other Cards businesses include bankcards outside the United States,
worldwide Diners Club, and private label cards. Loans delinquent 90 days or
more of $220 million at June 30, 1998 were up from $216 million at March 31,
1998 and $206 million at June 30, 1997. Net credit losses in the 1998 second
quarter of $103 million increased from $89 million in the prior quarter and $95
million a year ago. The increase in both delinquencies and net credit losses
primarily reflects higher amounts in Asia Pacific, partially offset by the
effect of foreign currency translation. Additionally, delinquencies reflect
higher amounts in Latin America.
Private Bank loans delinquent 90 days or more were $197 million or 1.23% of
loans at June 30, 1998, up from $186 million or 1.21% at March 31, 1998 and $187
million or 1.19% a year ago. The increase from both the 1998 first quarter and
a year ago primarily reflects an increase in nonaccrual loans in Asia Pacific.
As compared to a year ago, delinquencies also reflect improvements in North
America.
Total consumer loans on the balance sheet delinquent 90 days or more on which
interest continued to be accrued were $983 million at June 30, 1998, compared
with $988 million at March 31, 1998 and $937 million at June 30, 1997. Included
in these amounts are U.S. government-guaranteed student loans of $247 million,
$256 million, and $215 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
$736 million, $732 million, and $722 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 45.
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, 1998, interest accrual had been suspended on $1.9 billion of consumer
loans, primarily consisting of Citibanking loans, compared with $1.9 billion at
March 31, 1998 and $2.0 billion at June 30, 1997. The decline from June 30,
1997 reflects improvements in U.S. mortgages 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 $424 million at June 30,
1998, down from $475 million at March 31, 1998 and $604 million at June 30,
1997, reflecting continued improvement in the credit quality of the portfolio.
13
<PAGE>
CITICORP [LOGO](R)
The portion of Citicorp's aggregate allowance for credit losses attributed to
the consumer portfolio was $2.9 billion as of June 30, 1998, up from $2.5
billion as of March 31, 1998 and June 30, 1997, reflecting the addition of $320
million of credit loss reserves related to the acquisition of UCS. The
aggregate allowance for credit losses reflected an additional provision of $25
million in excess of net write-offs per quarter for each period presented. The
allowance as a percentage of loans on the balance sheet was 2.66% as of June 30,
1998, compared with 2.36% at March 31, 1998 and 2.24% at June 30, 1997. See
"Provision and Credit Loss Reserves" on page 32 for further discussion.
Net credit losses and the related loss ratios may increase from the 1998 second
quarter as a result of economic conditions, particularly in Asia Pacific and
Latin America, the credit performance of the portfolios, including bankruptcies,
seasonal factors, and other changes in portfolio levels. Additionally,
delinquencies and loans on which the accrual of interest is suspended could
remain at relatively high levels.
- -------------------------------------------------------------------------------
GLOBAL CORPORATE BANKING
- -------------------------------------------------------------------------------
Global Corporate Banking 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) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $2,409 $1,994 21 $4,721 $3,924 20
Adjusted Operating Expense.......................... 1,433 1,207 19 2,747 2,358 16
----------------- ------------------
OPERATING MARGIN.................................... 976 787 24 1,974 1,566 26
Credit Costs (Benefits)............................. 41 (36) NM 85 (111) NM
----------------- ------------------
INCOME BEFORE TAXES................................. 935 823 14 1,889 1,677 13
Income Taxes........................................ 273 160 71 478 365 31
NET INCOME.......................................... $ 662 $ 663 - $1,411 $1,312 8
-----------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 178 $ 152 17 $ 175 $ 150 17
Return on Assets (%)................................ 1.49 1.75 - 1.63 1.76 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Global Corporate Banking income before taxes in the 1998 second quarter and six
months grew $112 million or 14% and $212 million or 13% from the comparable 1997
periods, while net income was essentially unchanged from the 1997 second quarter
and was up $99 million or 8% from the 1997 six months as changes in the nature
and geographic mix of pretax earnings increased the effective income tax rates
in the quarterly and six-month comparisons. Growth in average assets of 17% in
both the quarterly and six-month comparisons outpaced net income growth and
resulted in a decline in return on average assets of 26 basis points and 13
basis points in the quarterly and six-month comparisons. The Emerging Markets
business contributed 61% and 64% of Global Corporate Banking net income in the
1998 second quarter and six months, and Global Relationship Banking contributed
39% and 36% of Global Corporate Banking net income.
Adjusted revenue grew 21% and 20% (both 25% excluding the effect of foreign
currency translation) in the quarterly and six-month comparisons. The growth in
both periods reflected improved trading-related revenue, higher aggregate
securities transactions and net asset gains, growth in transaction banking
services and corporate finance revenue, improved treasury results and, in the
six-month period, higher venture capital revenue. Growth in these areas was
partially offset by a significant second quarter 1997 dividend from an
investment of an affiliate. Adjusted operating expense increased 19% and 16%
(22% and 20% excluding the effect of foreign currency translation) in the
quarterly and six-month comparisons. Revenue growth outpaced expense growth by
ratios of 1.8 to 1 and 2.0 to 1 in the quarterly and
14
<PAGE>
CITICORP [LOGO](R)
six-month comparisons, resulting in operating margin growth of 24% and 26%
(30% and 34% excluding the effect of foreign currency translation),
respectively. Credit costs rose $77 million and $196 million in the quarterly
and six-month comparisons primarily due to higher write-offs in Asia Pacific
coupled with lower gains from the sale of OREO and, in the six-month comparison,
a $50 million recovery in 1997 from the refinancing agreement concluded with
Peru.
Cash-basis loans of $1.3 billion at June 30, 1998 declined $51 million from the
1998 first quarter, but increased $376 million from the year-ago quarter. Cash-
basis loans in Global Relationship Banking of $300 million declined $77 million
from the 1998 first quarter and $134 million from the year-ago quarter. Cash-
basis loans in the Emerging Markets of $1.0 billion increased $26 million from
the 1998 first quarter and $510 million from a year ago. The increase from the
year-ago quarter is primarily due to the economic turmoil affecting Thailand and
Indonesia. Emerging Markets cash-basis loans included $44 million and $83
million at June 30, 1998 and March 31, 1998, respectively, of balance sheet
credit exposures related to foreign currency derivative contracts with customers
for which the recognition of revaluation gains has been suspended. The amount
included a year ago was not material. Commercial OREO of $348 million improved
$2 million and $134 million from the 1998 first quarter and the year-ago
quarter. See the tables entitled "Cash-Basis, Renegotiated, and Past Due Loans"
and "Other Real Estate Owned and Assets Pending Disposition" on page 45.
Levels of trading-related and venture capital revenue and securities
transactions and net asset gains in Global Corporate Banking may fluctuate in
the future as a result of market and asset-specific factors. See pages 30 and
31 for discussions of trading-related and venture capital revenue and securities
transactions and net asset gains that supplement the comments in the Emerging
Markets and Global Relationship Banking sections that follow. Losses on
commercial lending activities can vary widely with respect to timing and amount,
particularly within any narrowly-defined business or loan type. Credit costs
and cash-basis loans may increase from the 1998 second quarter level due to
conditions in Asia or other factors. See "Provision and Credit Loss Reserves"
on page 32 for additional discussion of the Global Corporate Banking portfolio.
- --------------------------------------------------------------------------------
EMERGING MARKETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
----------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $1,127 $ 977 15 $2,241 $1,902 18
Adjusted Operating Expense.......................... 530 473 12 1,028 919 12
----------------- ------------------
OPERATING MARGIN.................................... 597 504 18 1,213 983 23
Credit Costs (Benefits)............................. 93 24 NM 156 (12) NM
----------------- ------------------
INCOME BEFORE TAXES................................. 504 480 5 1,057 995 6
Income Taxes........................................ 101 59 71 153 125 22
----------------- ---------
NET INCOME.......................................... $ 403 $ 421 (4) $ 904 $ 870 4
- ---------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 84 $ 70 20 $ 83 $ 68 22
Return on Assets (%)................................ 1.92 2.41 - 2.20 2.58 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Emerging Markets operating margin in the 1998 second quarter and six months grew
$93 million or 18% and $230 million or 23% from the comparable 1997 periods as
revenue growth outpaced expense growth by ratios of 2.6 to 1 and 3.1 to 1,
respectively. However, credit costs increased $69 million and $168 million in
the quarterly and six-month comparisons, reducing income before taxes growth to
5% and 6%, respectively. Due to changes in the nature and geographic mix of
earnings, the effective income tax rate in the 1998 second quarter climbed to
20% from 12%, raising income taxes and producing a 4% decline in net income.
Net income in the six-month comparison grew 4%.
Adjusted revenue grew $150 million or 15% (23% excluding the effect of foreign
currency translation) and $339 million or 18% (27% excluding the effect of
foreign currency translation) in the quarterly and six-month comparisons.
Trading-
15
<PAGE>
CITICORP [LOGO](R)
related revenue of $259 million and $530 million in the 1998 second quarter and
six months grew $104 million and $168 million from the comparable 1997 periods,
primarily due to strong foreign exchange results in Asia Pacific attributable to
unsettled financial markets in certain Asian countries. The aggregate of
securities transactions and net asset gains totaled $179 million and $397
million in the 1998 quarter and six months, up $45 million and $109 million from
the comparable 1997 periods, and included $174 million and $363 million in the
1998 periods and $58 million in the 1997 quarter and six months from the sale of
Brady bonds. This revenue in the 1997 six months also included $46 million
related to the refinancing agreement concluded with Peru. Transaction banking
services revenue grew at double digit rates in both the quarterly and six-month
comparisons and was complemented in both comparisons by strong treasury results.
Revenue in the 1997 second quarter and six months included a significant
dividend from an investment of an affiliate.
Adjusted revenue in Asia Pacific (comprising 13 countries and territories
excluding Japan and the Indian subcontinent, but including Australia and New
Zealand) grew 26% and 20% in the quarterly and six-month comparisons due to
improved trading-related revenue coupled with double-digit growth in transaction
banking services revenue and significantly improved treasury results. No single
country or territory in the Emerging Markets Asia Pacific business exceeded 2%
of Citicorp's adjusted revenue or average assets in the 1998 second quarter or
six months. Revenue attributed to the Embedded Bank and Emerging Local
Corporate strategies (Citicorp's plans to gain market share in selected emerging
market countries), together with new franchises, accounted for 4% of Emerging
Markets revenue in both the 1998 second quarter and six months and was up 43%
and 70% in the quarterly and six-month comparisons. About 22% and 21% of the
revenue in the Emerging Markets business in the 1998 second quarter and six
months was attributable to business from multinational companies managed jointly
with Global Relationship Banking, with that revenue having grown 17% and 23% in
the quarterly and six-month comparisons.
Adjusted operating expense increased $57 million or 12% (19% excluding the
effect of foreign currency translation) and $109 million or 12% (18% excluding
the effect of foreign currency translation) in the quarterly and six-month
comparisons. The growth reflected investment spending to build the franchise,
including costs associated with Citicorp's Embedded Bank and Emerging Local
Corporate strategies, and volume-related expense growth.
Credit costs rose $69 million and $168 million in the quarterly and six-month
comparisons, with Asia Pacific contributing $67 million and $125 million of the
increase, primarily from Indonesia and Thailand. Credit costs in the 1998 and
1997 six months included recoveries of $9 million from the refinancing agreement
concluded with the Ivory Coast and $50 million from the refinancing agreement
concluded with Peru, respectively.
Average assets in the 1998 second quarter and six months grew $14 billion or 20%
and $15 billion or 22% reflecting growth across all geographic segments, and was
concentrated in the loan portfolio and transaction banking, products, together
with treasury initiatives.
16
<PAGE>
CITICORP [LOGO](R)
- ------------------------------------------------------------------------------
GLOBAL RELATIONSHIP BANKING
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
------------------ -------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Revenue.................................... $1,282 $1,017 26 $2,480 $2,022 23
Adjusted Operating Expense.......................... 903 734 23 1,719 1,439 19
------------------ -------------------
OPERATING MARGIN.................................... 379 283 34 761 583 31
Credit Benefits..................................... (52) (60) (13) (71) (99) (28)
------------------ -------------------
INCOME BEFORE TAXES................................. 431 343 26 832 682 22
Income Taxes........................................ 172 101 70 325 240 35
------------------ -------------------
NET INCOME.......................................... $ 259 $ 242 7 $ 507 $ 442 15
- -----------------------------------------------------------------------------------------------------------
Average Assets (In Billions of Dollars)............. $ 94 $ 82 15 $ 92 $ 82 12
Return on Assets (%)................................ 1.11 1.18 - 1.11 1.09 -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
- -------------------------------------------------------------------------------
Income before taxes from the Global Relationship Banking business in North
America, Europe, and Japan in the 1998 second quarter and six months grew $88
million or 26% and $150 million or 22% from the comparable 1997 periods.
However, increases in the effective income tax rates to 40% and 39% in the 1998
second quarter and six months from 29% and 35% in the respective 1997 periods
raised income taxes, and resulted in net income improvements of $17 million or
7% and $65 million or 15% in the quarterly and six-month comparisons.
Adjusted revenue grew $265 million or 26% and $458 million or 23% in the
quarterly and six-month comparisons. Revenue growth in the quarterly comparison
reflected a $132 million gain on the disposition of two real-estate-related
equity interests obtained in connection with loan restructurings, an $87 million
improvement in trading-related revenue, double-digit growth in corporate finance
and investment management fees, moderate growth in transaction banking services
revenue, and essentially unchanged venture capital revenue, partially offset by
a $23 million gain on the sale of a business recognized in the 1997 second
quarter. Revenue growth in the six-month comparison reflected a $169 million
improvement in venture capital revenue, a $135 million improvement in trading-
related revenue, the $132 million gain on the disposition of two real-estate-
related equity interests, double-digit growth in corporate finance and
investment management fees, and moderate growth in transaction banking services
revenue, partially offset by gains of $23 million and $32 million in 1997 from
the sales of a business and an investment from the acquisition finance
portfolio.
Adjusted operating expense grew $169 million or 23% and $280 million or 19% in
the quarterly and six-month comparisons, primarily attributable to increased
spending on technology, including costs related to the Year 2000 and the
European EMU, higher incentive compensation, and volume-related expense growth.
Credit costs in the 1998 quarter and six months were net benefits of $52 million
and $71 million, down from net benefits of $60 million and $99 million in the
comparable 1997 periods. The decline in the six-month comparison is
attributable to a lower level of gains on the sale of OREO.
Average assets in the 1998 second quarter and six months grew $12 billion or 15%
and $10 billion or 12% reflecting growth primarily in trading, loan portfolio,
and transaction banking products.
17
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
CORPORATE ITEMS
- ---------------------------------------------------------------------------------------------------------
Second Quarter % SIX MONTHS %
---------------- -------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................. $ 339 $ 209 62 $ 585 $ 402 46
Operating Expense................................... 90 44 NM 201 166 21
---------------- -------------------
INCOME BEFORE TAXES................................. 249 165 51 384 236 63
Income Taxes........................................ 191 263 (27) 439 465 (6)
NET INCOME (LOSS)................................... $ 58 ($ 98) NM ($ 55) ($229) 76
---------------- -------------------
Average Assets (In Billions of Dollars)............. $ 9 $ 9 - $ 9 $ 8 13
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
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. Income taxes attributed to core
businesses on the basis of local tax rates resulted in effective tax rates for
the core businesses of 31% and 28% in the 1998 quarter and six months, and 23%
and 25% in the 1997 quarter and six months, primarily reflecting changes in the
nature and geographic mix of earnings. Citicorp's effective tax rate was 37.5%
in both 1998 periods and in the 1997 six months, and 37% in the 1997 second
quarter.
Revenue in the 1998 second quarter and six months included $90 million and $109
million of gains on sales of investments held in the Corporate portfolio, while
the corresponding 1997 periods reflected investment writedowns of $29 million
and $49 million. Expense in the 1998 second quarter and six months included a
$25 million and $50 million charge associated with performance-based stock
options granted in January 1998, and increases in certain technology expense and
other unallocated corporate costs. The 1997 six months included a $72 million
charge associated with performance-based stock options which vested in that
period.
- ------------------------------------------------------------------------------
MANAGING GLOBAL RISK
- ------------------------------------------------------------------------------
Liquidity
- ------------------------------------------------------------------------------
Citicorp manages liquidity through a well-defined process described in the 1997
Annual Report and Form 10-K.
A diversity of funding sources, currencies, and maturities is used to gain a
broad practical access to the investor base. Citicorp's deposits of $216.0
billion represented 65% of total funding at June 30, 1998, compared with $199.1
billion (64% of total funding) at December 31, 1997, and are broadly diversified
by both geography and customer segment. Stockholders' equity, which was $21.7
billion at June 30, 1998, compared with $21.2 billion at December 31, 1997,
continues to be 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, 1998, was $20.0
billion, compared with $19.8 billion at year-end 1997.
Asset securitization programs remain an important source of liquidity. Total
consumer loans securitized during the quarter were $11.5 billion, including $8.6
billion of U.S. credit cards and $2.6 billion of U.S. mortgages. Total consumer
loans securitized during the 1998 six months were $15.7 billion, including $11.1
billion of U.S. credit cards and $4.3 billion of U.S. mortgages. As credit card
securitization 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, 1998, the scheduled amortization of
certain credit card securitization transactions made available $2.5 billion of
new receivables
18
<PAGE>
CITICORP [LOGO](R)
($4.3 billion for the six months). In addition, $3.5 billion and $3.8 billion of
credit card securitization transactions are scheduled to amortize during the
remainder of 1998 and in 1999, respectively.
The Parent Company is a legal entity separate and distinct from Citibank, N.A.
and its other subsidiaries and affiliates. As discussed in the 1997 Annual
Report and Form 10-K, there are various legal limitations on the extent to which
Citicorp's subsidiaries may extend credit, pay dividends, or otherwise supply
funds to Citicorp. As of June 30, 1998, 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, 1998, 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.
- -------------------------------------------------------------------------------
MANAGEMENT OF PRICE RISK EXPOSURE
- -------------------------------------------------------------------------------
Price risk is the risk to earnings from changes in interest rates, foreign
exchange rates, commodity and equity prices, and in their implied volatilities.
This exposure arises in the normal course of business of a global financial
intermediary.
Citicorp has established procedures for managing price risk which are described
in the 1997 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.
Price risk is measured using various tools, including the Earnings-at-Risk
method, which is applied to interest rate risk of the non-trading portfolios,
and the Value-at-Risk method, which is applied to the trading portfolios.
- -------------------------------------------------------------------------------
PRICE RISK IN NON-TRADING PORTFOLIOS
- -------------------------------------------------------------------------------
Earnings-at-Risk measures the potential pretax earnings impact over a specified
time horizon of a specified parallel shift in the yield curve for the
appropriate currency. The yield curve shift is statistically derived as a two
standard deviation change in a short-term interest rate over the period required
to defease the position (usually four weeks). Earnings-at-Risk is calculated
separately for each currency, and reflects the repricing gaps in the position,
as well as option positions, both explicit and embedded.
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 specified assets or
liabilities. The utilization of derivatives is managed in response to changing
market conditions as well as to changes in the characteristics and mix of the
related assets and liabilities.
Citicorp's non-trading price risk exposure is mainly to movements in U.S. dollar
interest rates, however recent interest rate volatility in certain Asian
countries has resulted in an increased measure of non-U.S. dollar Earnings-at-
Risk. As of June 30, 1998, the rate shift over a four week defeasance period
applied to the U.S. dollar yield curve for purposes of calculating Earnings-at-
Risk was 55 basis points. As of June 30, 1998, the rate shifts applied to non-
U.S. currencies for purposes of calculating Earnings-at-Risk over a one to eight
week defeasance period ranged from 18 to 727 basis points, depending on the
currency.
19
<PAGE>
CITICORP [LOGO](R)
The table below illustrates that as of June 30, 1998, a 55 basis point increase
in the U.S. dollar yield curve would have a potential negative impact on
Citicorp's pretax earnings of approximately $173 million in the next twelve
months, and approximately $61 million for the five year period 1998-2003. A two
standard deviation increase in non-U.S. dollar interest rates would have a
potential negative impact on Citicorp's pretax earnings of approximately $81
million in the next twelve months, and approximately $171 million for the five
year period 1998-2003.
- -------------------------------------------------------------------------------
EARNINGS-AT-RISK
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assuming a U.S. Dollar Assuming a Non-U.S. Dollar Rate
Rate Move of Move of
--------------------------------------------------------------
Two Standard Deviations Two Standard Deviations (A)
IMPACT ON PRETAX EARNINGS (In Millions of Dollars at June 30, Increase Decrease Increase (B) Decrease (B)
1998)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to Three Months......................................... ($76) $ 83 ($ 18) $ 18
Four to Six Months................................................ (42) 54 (26) 26
Seven to Twelve Months............................................ (55) 69 (37) 37
--------------------------------------------------------------
TOTAL OVERNIGHT TO TWELVE MONTHS.................................. (173) 206 (81) 81
Year Two.......................................................... (44) 48 (66) 66
Year Three........................................................ 8 (10) (15) 15
Year Four......................................................... 51 (54) (10) 10
Year Five......................................................... 129 (147) (25) 25
Effect of Discounting............................................. (32) 35 26 (26)
--------------------------------------------------------------
TOTAL............................................................. ($61) $ 78 ($171) $171
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance between currencies.
(B) Primarily results from Earnings-at-Risk in Thai baht, Singapore dollar, and
Hong Kong dollar.
- --------------------------------------------------------------------------------
The table below summarizes Citicorp's twelve month Earnings-at-Risk over recent
periods.
- --------------------------------------------------------------------------------
TWELVE MONTH EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
U.S. DOLLAR NON-U.S. DOLLAR
---------------------------------------------------------------------------
JUNE 30. Dec. 31, June 30, JUNE 30, Dec. 31, June 30,
(In Millions of Dollars) 1998 1997 1997 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------------
Assuming a Two Standard Deviation Rate:
Increase................................... ($173) ($180) ($205) ($81) ($25) ($19)
Decrease................................... 206 211 235 81 25 19
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tables above illustrate that Citicorp's pretax earnings in its non-trading
activities over the subsequent 12 months would be reduced by an increase in
interest rates and would benefit from a decrease in interest rates. For the
U.S. dollar portfolio 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, deposits,
and long-term debt. Correspondingly, derivatives are not used extensively to
modify the repricing characteristics of the non-U.S. dollar portfolio.
Excluding the effects of these instruments, Citicorp's twelve month Earnings-
at-Risk over recent periods would be as shown in the table on page 21:
20
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TWELVE MONTH EARNINGS-AT-RISK (EXCLUDING EFFECTS OF DERIVATIVES)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Dollar
-------------------------------
Impact on Pretax Earnings JUNE 30, Dec. 31, June 30,
(In Millions of Dollars) 1998 1997 1997
- ---------------------------------------------------------------------------------------------------------------------
Assuming a Two Standard Deviation Rate:
Increase............................................................................ $ 18 $ 64 $ 88
Decrease............................................................................ 6 (44) (65)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Excluding the effects of derivatives, Citicorp's non-U.S. dollar Earnings-
at-Risk would have had a negative impact of $91 million and $26 million
assuming a two standard deviation increase in rates and a positive impact
of $91 million and $27 million assuming a two standard deviation decrease
in rates at June 30, 1998 and December 31, 1997 respectively.
- -------------------------------------------------------------------------------
The first table on page 20 also illustrates that the risk profile in the one-to-
two year time horizon was directionally similar, but generally tends to reverse
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 43.
During the 1998 six months, the U.S. dollar Earnings-at-Risk for the following
12 months assuming a two standard deviation increase in rates would have had a
potential negative impact ranging from approximately $65 million to $173 million
in the aggregate at each month end, compared with a range from $142 million to
$209 million during 1997. The relatively lower U.S. dollar Earnings-at-Risk
experienced during the 1998 six months was primarily due to the reduction in the
level of received-fixed swaps, offset slightly by the acquisition of UCS. A two
standard deviation increase in non-U.S. dollar interest rates for the following
twelve months would have had a potential negative impact ranging from
approximately $53 million to $85 million in the aggregate at each month-end
during the 1998 six months, compared with a range from $15 million to $33
million during 1997. The higher non-U.S. dollar Earnings-at-Risk experienced
during the 1998 six months primarily reflected the higher interest rate
volatility seen across the Asia Pacific region.
- -------------------------------------------------------------------------------
PRICE RISK IN TRADING PORTFOLIOS
- -------------------------------------------------------------------------------
The price risk of trading activities is measured using the Value-at-Risk method,
which estimates, at a 99% confidence level, the largest potential loss in pretax
market value that could occur over a one day holding period. The Value-at-Risk
method incorporates the market factors to which the market value of the trading
position is exposed (interest rates, foreign exchange rates, equity and
commodity prices, and their implied volatilities), the sensitivity of the
position to changes in those market factors, and the volatilities and
correlation of those factors. The Value-at-Risk measurement includes the
foreign exchange risks that arise in traditional banking businesses as well as
in explicit trading positions.
The aggregate pretax Value-at-Risk in the trading portfolios was $16 million at
June 30, 1998, and daily exposures averaged $19 million in the 1998 second
quarter for Citicorp's major trading centers and ranged from $14 million to $22
million. The level of exposure taken depends on the market environment and
expectations of future price and market movements, and will vary from period to
period. The trading-related revenue for the 1998 second quarter was $730
million, compared with $728 for the 1998 first quarter and $347 million for the
1997 fourth quarter.
21
<PAGE>
CITICORP [LOGO](R)
The table below summarizes Citicorp's Value-at-Risk in its trading portfolio as
of June 30, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
VALUE-AT-RISK
- -------------------------------------------------------------------------------
1998 SECOND
(In Millions of Dollars) JUNE 30, QUARTER DAILY Dec. 31,
1998 AVERAGE 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Rate............................................... $ 14 $ 17 $ 23
Foreign Exchange............................................ 6 7 8
All Other (primarily Equity and Commodity).................. 8 7 8
Covariance Adjustment....................................... (12) (12) (14)
----------------------------------------------
TOTAL....................................................... $ 16 $ 19 $ 25
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
MANAGEMENT OF CROSS-BORDER RISK
- -------------------------------------------------------------------------------
Cross-border risk is the risk that Citicorp will be unable to obtain payment
from customers on their contractual obligations as a result of actions taken by
foreign governments such as exchange controls, debt moratorium, and restrictions
on the remittance of funds. Citicorp manages cross-border risk as part of the
Windows on Risk process described in the 1997 Annual Report and Form 10-K.
The table on page 23 presents total cross-border outstandings on a regulatory
basis in accordance with Federal Financial Institutions Examination Council
("FFIEC") guidelines. Total cross-border outstandings include cross-border
claims on third parties as well as investments in and funding of local
franchises.
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 on foreign exchange and derivative products. 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.
Investments in and funding of local franchises represents the excess of local
country assets over local country liabilities, as defined by the FFIEC. Local
country assets are claims on local residents recorded by branches and majority-
owned subsidiaries of Citicorp domiciled in the country, adjusted for externally
guaranteed outstandings and certain collateral. Local country liabilities are
obligations of branches and majority-owned subsidiaries of Citicorp domiciled in
the country for which no cross-border guarantee is issued by Citicorp offices
outside the country.
22
<PAGE>
CITICORP [LOGO](R)
- ------------------------------------------------------------------------------
CROSS-BORDER OUTSTANDINGS AND COMMITMENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
--------------------------------------------------------------------------------------------------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES
-----------------------------------------------
(In Billions of INVESTMENTS IN
Dollars) TRADING AND AND FUNDING OF TOTAL TOTAL
------------------------------- SHORT-TERM LOCAL CROSS-BORDER CROSS-BORDER
BANKS PUBLIC PRIVATE TOTAL CLAIMS (A) FRANCHISES OUTSTANDINGS COMMITMENTS (B) OUTSTANDINGS COMMITMENTS
(B)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom.... $ 1.2 $0.2 $ 2.7 $ 4.1 $ 2.9 $ - $ 4.1 (C) $ 9.2 $ 4.5 (C) $ 7.8
Germany........... 1.0 1.3 0.5 2.8 2.6 1.3 4.1 (C) 1.6 4.7 (C) 1.7
Italy............. 0.5 0.1 0.4 1.0 0.5 2.6 3.6 (C) 0.5 3.4 (C) 0.5
France............ 1.9 0.5 0.8 3.2 2.7 0.3 3.5 (C) 1.0 3.1 (C) 0.6
Japan............. 2.3 0.3 0.8 3.4 2.5 - 3.4 (C) 0.7 3.2 (C) 1.1
Switzerland....... 1.7 - 1.5 3.2 2.7 - 3.2 (D) 1.2 2.7 (D) 1.1
Spain............. 0.2 - 0.3 0.5 0.4 1.8 2.3 0.2 2.3 (D) 0.4
Netherlands....... 0.6 0.2 1.1 1.9 1.5 0.2 2.1 0.8 2.2 0.8
Belgium........... 0.5 0.2 0.6 1.3 1.2 0.5 1.8 0.2 0.9 0.2
Sweden............ 0.8 0.3 0.5 1.6 1.1 0.1 1.7 0.8 1.1 0.7
Canada............ 0.9 0.1 0.4 1.4 0.8 - 1.4 1.3 1.6 1.8
Finland........... 0.3 0.1 0.4 0.8 0.5 - 0.8 0.5 0.7 0.4
Other (23 countries
in 1998)........ 1.4 0.4 2.2 4.0 2.5 0.5 4.5 1.9 4.0 1.6
- --------------------------------------------------------------------------------------------------------------------------------
EUROPE, CANADA,
AND JAPAN....... 13.3 3.7 12.2 29.2 21.9 7.3 36.5 19.9 34.4 18.7
- --------------------------------------------------------------------------------------------------------------------------------
Brazil............ 0.4 1.0 1.2 2.6 1.5 1.8 4.4 (C) 0.1 4.4 (C) 0.1
Mexico............ 0.2 1.9 0.8 2.9 1.3 0.5 3.4 (C) 0.3 3.0 (D) 0.6
Argentina......... 0.2 0.2 1.0 1.4 0.7 0.9 2.3 0.3 2.2 0.1
Chile............. - 0.2 0.4 0.6 0.2 0.4 1.0 0.4 1.0 -
Venezuela......... 0.1 0.7 0.2 1.0 0.4 - 1.0 0.1 1.0 -
Colombia.......... 0.2 0.1 0.2 0.5 0.3 0.4 0.9 0.1 0.9 0.1
Peru.............. 0.1 0.1 0.2 0.4 0.3 - 0.4 0.2 0.4 0.1
Uruguay........... - 0.3 0.1 0.4 0.1 - 0.4 - 0.3 -
Other (20 countries
in 1998)........ 0.1 0.1 1.2 1.4 1.1 0.3 1.7 0.4 1.1 0.6
- --------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA..... 1.3 4.6 5.3 11.2 5.9 4.3 15.5 1.9 14.3 1.6
- --------------------------------------------------------------------------------------------------------------------------------
South Korea....... 0.6 0.3 0.7 1.6 1.2 0.9 2.5 (D) 0.5 2.6 (D) 0.2
Saudi Arabia...... 0.6 - 0.2 0.8 0.3 - 0.8 0.5 0.8 0.3
Malaysia.......... 0.1 - 0.2 0.3 0.2 0.3 0.6 0.1 0.7 0.1
Singapore......... 0.3 - 0.3 0.6 0.4 - 0.6 0.4 0.5 0.3
Taiwan............ 0.1 - 0.3 0.4 0.3 0.1 0.5 0.6 0.4 0.5
Indonesia......... - - 0.5 0.5 0.4 - 0.5 0.1 0.6 0.2
Hong Kong......... 0.1 - 0.2 0.3 0.2 - 0.3 0.3 0.7 0.3
Kuwait............ 0.2 - - 0.2 0.2 - 0.2 - 0.2 -
India............. - - 0.2 0.2 0.1 - 0.2 0.4 0.2 0.3
China............. - - 0.1 0.1 0.1 0.1 0.2 0.4 0.6 0.4
Pakistan.......... 0.1 - - 0.1 0.1 0.1 0.2 - 0.2 -
Philippines....... - - 0.2 0.2 0.2 - 0.2 0.1 0.2 0.1
Thailand.......... - - 0.2 0.2 0.2 - 0.2 0.1 0.3 0.1
Bahrain........... 0.1 - - 0.1 0.1 - 0.1 0.1 0.3 0.1
Other (11 countries
in 1998)........ - 0.1 - 0.1 0.1 - 0.1 0.3 0.3 0.4
- --------------------------------------------------------------------------------------------------------------------------------
ASIA/MIDDLE EAST 2.2 0.4 3.1 5.7 4.1 1.5 7.2 3.9 8.6 3.3
- --------------------------------------------------------------------------------------------------------------------------------
Australia......... 0.3 - 0.4 0.7 0.5 0.9 1.6 0.1 0.7 0.4
New Zealand....... - - 0.2 0.2 0.1 0.5 0.7 - 0.7 -
All Other......... - 0.7 0.1 0.8 0.3 0.5 1.3 0.5 1.5 0.4
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER....... 0.3 0.7 0.7 1.7 0.9 1.9 3.6 0.6 2.9 0.8
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CITICORP.... $17.1 $9.4 $21.3 $47.8 $32.8 $15.0 $62.8 $26.3 $60.2 $24.4
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Included in total cross-border claims on third parties.
(B) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and loan commitments.
(C) Total cross-border outstandings were in excess of 1.0% of total assets at
the end of the respective periods.
(D) Total cross-border outstandings were between 0.75% and 1.0% of total assets
at the end of the respective periods.
- --------------------------------------------------------------------------------
23
<PAGE>
CITICORP [LOGO] (R)
Details of investments in and funding of local franchises for selected Asian
countries included in the table on page 23 at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Local Country Assets (A)
---------------------------------------------------------------------------------
GROSS
UNREALIZED
GAINS ON
DERIVATIVE AND
In Billions of FOREIGN LOCAL COUNTRY
Dollars at CONSUMER COMMERCIAL EXCHANGE ALL OTHER ASSETS
June 30, 1998 LOANS LOANS CONTRACTS ASSETS (C) ADJUSTMENTS (D)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
South Korea..... $1.0 $1.8 $0.4 $2.0 ($0.5) $4.7
Malaysia........ 1.3 0.8 0.2 1.0 (0.4) 2.9
Indonesia....... 0.1 0.4 0.1 0.7 (0.3) 1.0
Philippines..... 0.3 0.9 - 1.6 (0.5) 2.3
Thailand........ 1.0 0.9 0.2 0.7 (0.2) 2.6
- -------------------------------------------------------------------------------------------------
</TABLE>
LOCAL COUNTRY
LIABILITIES (B)
- ----------------------------
GROSS
UNREALIZED
LOSSES ON
DERIVATIVE AND INVESTMENTS IN
In Billions of FOREIGN ALL OTHER LOCAL AND FUNDING OF
Dollars at EXCHANGE COUNTRY LIABILITIES LOCAL FRANCHISES
June 30, 1998 CONTRACTS (E)
- -----------------------------------------------------------------------------
South Korea..... $0.4 $3.4 $0.9
Malaysia........ 0.1 2.5 0.3
Indonesia....... 0.1 0.9 -
Philippines..... - 2.3 -
Thailand........ 0.2 2.4 -
- -----------------------------------------------------------------------------
(A) At December 31, 1997, local country assets were $4.5 billion in South
Korea, $3.4 billion in Malaysia, $2.0 billion in Indonesia, $2.2 billion
in Philippines, and $2.7 billion in Thailand.
(B) At December 31, 1997, local country liabilities were $3.4 billion in South
Korea, $3.0 billion in Malaysia, $2.2 billion in Indonesia, $2.2 billion
in Philippines, and $3.0 billion in Thailand.
(C) Includes deposits at interest with banks, securities, customers' acceptance
liability, and other monetary assets.
(D) Adjustments include externally guaranteed outstandings, locally booked
claims on nonresidents, and certain other claims as defined by the FFIEC.
(E) Primarily deposits, purchased funds and other borrowings, and acceptances
outstanding.
On January 28, 1998, an agreement was reached between the Republic of Korea and
a group of international banks (including Citicorp) on a plan to extend the
maturities of short-term credits to the Korean banking system. On April 8,
1998, Korean banks exchanged $21.75 billion of their short-term cross-border
credits for new loans with maturities of one-, two-, or three-years, guaranteed
by the Republic of Korea, and bearing a floating rate of interest at rates of
2.25%, 2.50%, and 2.75%, respectively, over the six-month London Interbank
Offering Rate (LIBOR). Of the total, $3.76 billion was exchanged into one-year
loans, $9.79 billion into two-year loans, and $8.2 billion into three-year
loans.
Under the plan, Citicorp exchanged $398 million of short-term loans to Korean
banks for new loans with maturities of one, two, and three years.
- -------------------------------------------------------------------------------
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
The table on page 25 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 on
page 25 also provides estimated fair value data for the expected time period
until runoff of existing deposits with no fixed maturity.
24
<PAGE>
CITICORP [LOGO] (R)
<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) 1998 1998 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets and Liabilities..................................... $ 6.6 $ 6.3 $ 6.2 $ 6.2 $ 6.2
End-User Derivative and Foreign Exchange Contracts......... 0.9 0.7 0.7 0.5 0.1
Credit Card Securitizations (A)............................ (0.3) (0.3) (0.3) (0.2) 0.1
-------------------------------------------------------
7.2 6.7 6.6 6.5 6.4
Deposits with No Fixed Maturity (B)........................ 3.3 3.3 3.3 2.9 3.0
-------------------------------------------------------
TOTAL...................................................... $10.5 $10.0 $ 9.9 $ 9.4 $ 9.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reflects the estimated (shortfall) excess in fair value of the various
components of these transactions, but principally arises from fixed rates
payable to certificate holders.
(B) 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.
- --------------------------------------------------------------------------------
The quarterly fluctuations among financial instruments are typically due to
changes in the interest rate environment in the U.S. and other countries.
During the 1998 second quarter, U.S. interest rates continued to decline, as
they have done for the past year. Generally in declining interest rate
environments, 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, while the value of derivative contracts
tend to increase. However, fair values can also 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,
which in the 1998 second quarter more than offset the impact of the declining
rate environment.
- -------------------------------------------------------------------------------
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 1997 Annual Report and Form 10-K.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31,
CITICORP RATIOS 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital........................................................................ 8.29% 8.26% 8.34%
Total Capital (Tier 1 and Tier 2)..................................................... 12.05 12.13 12.31
Leverage (A).......................................................................... 6.73 6.83 7.01
Common Stockholders' Equity........................................................... 6.18 6.01 6.21
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Tier 1 capital divided by adjusted average assets.
- -------------------------------------------------------------------------------
Citicorp continued to maintain a strong capital position during the 1998 second
quarter. Total capital (Tier 1 and Tier 2) amounted to $31.8 billion at June
30, 1998, representing 12.05% of net risk-adjusted assets. This compares with
$31.2 billion and 12.13% at March 31, 1998 and $31.2 billion and 12.31% at
December 31, 1997. Tier 1 capital of $21.9 billion at June 30, 1998 represented
8.29% of net risk-adjusted assets, compared with $21.3 billion and 8.26% at
March 31, 1998 and $21.1 billion and 8.34% at December 31, 1997. The Tier 1
capital ratio at June 30, 1998 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 below, Citicorp generated $366 million of free capital during the 1998
six months,
25
<PAGE>
CITICORP [LOGO] (R)
compared with $735 million for the 1997 six months. 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.
CITICORP [LOGO] (R)
- -------------------------------------------------------------------------------
FREE CAPITAL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
------------------
(In Millions of Dollars) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital Generated:
Net Income.......................................................................................... $2,162 $ 2,019
Issuances/Other (A)................................................................................. (309) 599
Cash Dividends Declared............................................................................. (580) (556)
------------------
Total Tier 1 Capital Generated...................................................................... 1,273 2,062
Capital Utilized for Growth in Net Risk-Adjusted Assets............................................. (907) (1,327)
------------------
FREE CAPITAL GENERATED.............................................................................. $ 366 $ 735
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Includes issuance of common stock under various employee benefit plans and
the dividend reinvestment plan. During 1998, Citicorp redeemed $325
million of Noncumulative Preferred Stock, Series 16, and $303 million of
Adjustable Rate Preferred Stock, Second and Third Series, and issued an
additional $225 million of guaranteed preferred beneficial interests in
subordinated debt. 1997 reflects the issuance of $450 million of
guaranteed preferred beneficial interests in subordinated debt and the
redemption of $175 million of Series 14 Preferred Stock.
- ------------------------------------------------------------------------------
In order to return available free capital to its shareholders, Citicorp
initiated a common stock repurchase program in June 1995. Citicorp repurchased
4.0 million and 10.8 million shares of common stock under the repurchase program
in the six months of 1998 and 1997, using capital of $483 million ($122.28
average cost per share) and $1.2 billion ($113.66 average cost per share),
respectively. During the second quarter, no shares were repurchased due to the
suspension of the stock repurchase program in connection with the announced
agreement to merge with Travelers Group. Total repurchases since the program
was inaugurated on June 20, 1995 were 82.0 million shares for an outlay of $7.3
billion.
Common stockholders' equity increased a net $571 million during the second
quarter of 1998 to $20.4 billion at June 30, 1998, representing 6.18% of assets,
compared with 6.01% at March 31, 1998 and 6.21% at December 31, 1997. The
increase in common stockholders' equity during the quarter principally reflected
net income and the issuance of stock under various employee benefit plans,
partially offset by a decrease in net unrealized gains on securities available
for sale and dividends declared on common and preferred stock.
During the second quarter of 1998, Citicorp redeemed $325 million of its 8%
Noncumulative Preferred Stock, Series 16 and issued an additional $225 million
of guaranteed preferred beneficial interests (commonly known as "trust preferred
securities"). The $975 million of guaranteed preferred beneficial interests
outstanding at June 30, 1998 qualify as Tier 1 capital, and are included in
long-term debt on the balance sheet. For the six months ended June 30, 1998,
interest expense on the guaranteed preferred beneficial interests amounted to
$30 million, compared with $28 million for the 1997 six month period. During
the first quarter of 1998, Citicorp redeemed $303 million of Adjustable Rate
Preferred Stock, Second and Third Series.
In July 1998, Citicorp announced that in August 1998 it will redeem for cash all
outstanding shares of its Graduated Rate Cumulative Preferred Stock, Series 8A,
and that in September 1998 it will redeem for cash all outstanding shares of its
7.5% Noncumulative Preferred Stock, Series 17.
26
<PAGE>
CITICORP [LOGO] (R)
- -------------------------------------------------------------------------------
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, March 31, Dec. 31,
(In Millions of Dollars) 1998 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIER 1 CAPITAL
Common Stockholders' Equity........................................................... $ 20,442 $ 19,871 $ 19,293
Perpetual Preferred Stock............................................................. 1,275 1,600 1,903
Guaranteed Preferred Beneficial Interests in Subordinated Debt........................ 975 750 750
Minority Interest..................................................................... 107 104 104
Less: Net Unrealized Gains -- Securities Available for Sale (A)..................... (308) (661) (535)
Intangible Assets (B)............................................................... (507) (296) (304)
50% Investment in Certain Subsidiaries (C).......................................... (98) (98) (115)
---------------------------------
TOTAL TIER 1 CAPITAL.................................................................. 21,886 21,270 21,096
---------------------------------
TIER 2 CAPITAL
Allowance for Credit Losses (D)....................................................... 3,337 3,254 3,198
Qualifying Debt (E)................................................................... 6,669 6,802 6,977
Less: 50% Investment in Certain Subsidiaries (C)...................................... (97) (97) (115)
---------------------------------
TOTAL TIER 2 CAPITAL.................................................................. 9,909 9,959 10,060
---------------------------------
TOTAL CAPITAL (TIER 1 AND TIER 2)..................................................... $ 31,795 $ 31,229 $ 31,156
Net Risk-Adjusted Assets (F).......................................................... $263,925 $257,545 $252,999
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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. The
increase during the 1998 second quarter was primarily attributable to the
acquisition of a global trust and agency services business.
(C) Represents investment in certain overseas insurance activities.
(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 $14.1 billion for interest rate, commodity
and equity derivative contracts and foreign exchange contracts, as of June
30, 1998, compared with $13.6 billion as of March 31, 1998 and $13.7
billion as of December 31, 1997. 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.
- --------------------------------------------------------------------------------
On January 1, 1998, Citicorp adopted the U.S. bank regulatory agencies amendment
to their risk-based capital guidelines to incorporate market risk in the
measurement of net risk-adjusted assets. The adoption of the market risk
guidelines did not have a significant impact on net risk-adjusted assets.
As discussed in the 1997 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. During the 1998 second quarter,
settlements of forward purchase agreements resulted in Citicorp receiving
approximately 1.4 million shares of its common stock. In connection with the
announced agreement to merge with Travelers Group, Citicorp has terminated these
agreements in accordance with their contractual terms.
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,
1998, all of Citicorp's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
27
<PAGE>
CITICORP [LOGO] (R)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, Mar. 31, Dec. 31,
CITIBANK, N.A. RATIOS 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital........................................................................ 7.96% 8.07% 8.18%
Total Capital (Tier 1 and Tier 2)..................................................... 11.73 11.94 12.16
Leverage.............................................................................. 6.17 6.31 6.39
Common Stockholder's Equity........................................................... 6.37 6.31 6.54
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The decline in Citibank's regulatory capital ratios during the 1998 second
quarter principally reflects the acquisition of UCS on April 2, 1998.
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.
<TABLE>
<CAPTION>
STATEMENT OF INCOME ANALYSIS
- -----------------------------------------------------------------------------------------------------------------
Net Interest Revenue (Taxable Equivalent Basis) (A)
- -----------------------------------------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
(In Millions of Dollars)
Interest Revenue........................................... $6,672 $6,320 $6,302 $6,207 $6,154
Interest Expense........................................... 3,663 3,464 3,431 3,319 3,278
------------------------------------------------------
NET INTEREST REVENUE....................................... 3,009 2,856 2,871 2,888 2,876
Effect of Credit Card Securitization Activity.............. 908 640 596 565 578
------------------------------------------------------
TOTAL ADJUSTED (B)......................................... $3,917 $3,496 $3,467 $3,453 $3,454
- -----------------------------------------------------------------------------------------------------------------
AVERAGE INTEREST-EARNING ASSETS
(In Billions of Dollars)
TOTAL...................................................... $276.0 $265.2 $257.0 $255.7 $252.6
Effect of Credit Card Securitization Activity.............. 36.8 27.4 26.3 24.8 24.7
------------------------------------------------------
TOTAL ADJUSTED (B)......................................... $312.8 $292.6 $283.3 $280.5 $277.3
- -----------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN (%)
Total...................................................... 4.37% 4.37% 4.43% 4.48% 4.57%
Effect of Credit Card Securitization Activity.............. .65% .48% .42% .40% .43%
------------------------------------------------------
TOTAL ADJUSTED (B)......................................... 5.02% 4.85% 4.85% 4.88% 5.00%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(B) See page 35 for discussion of the effect of credit card securitization
activity.
- --------------------------------------------------------------------------------
Net interest revenue and net interest margin for all periods presented were
reduced by the effect of credit card securitization activity. Adjusted for the
effect of credit card securitization activity, net interest revenue of $3.917
billion increased 12% from the 1998 first quarter and 13% from the 1997 second
quarter. The adjusted net interest margin increased from the 1998 first
quarter, but remained relatively unchanged from the 1997 second quarter. These
improvements in net interest revenue and the net interest margin from both
periods reflected the addition of UCS, as well as an increase due to risk-based
pricing strategies in U.S. bankcards.
Net interest revenue of $3.009 billion in the 1998 second quarter increased 5%
from both the 1998 first quarter and 1997 second quarter, primarily reflecting
the acquisition of the UCS portfolio in the current quarter as well as an
increase in other average interest-earning assets, and was reduced by increased
levels of securitization. The change from the 1997 second quarter also
reflected a decline in the net interest margin primarily from reduced yields
earned on assets.
28
<PAGE>
CITICORP [LOGO] (R)
Excluding UCS, net interest revenue compared to both periods reflected increased
business volumes across most regions, especially in Global Corporate Banking.
The increase from the 1998 first quarter also reflected the impact of one more
day in the current quarter, partially offset by a slightly lower net interest
margin. The improvement from the year ago quarter also reflected increases in
Global Corporate Banking, including trading-related net interest revenue, offset
by lower spreads in the Global Consumer businesses in Latin America and Asia
Pacific, as well as the effect of foreign currency translation.
Interest revenue improved $352 million or 6% from the 1998 first quarter,
primarily resulting from the addition of the UCS portfolio ($187 million);
increased loan volumes in Global Corporate Banking in Latin America, Europe, and
CEEMEA; as well as the impact of one more day in the 1998 second quarter.
Interest revenue improved $518 million or 8% from the 1997 second quarter,
principally from higher loan volumes at higher rates in Emerging Markets, and
from the addition of UCS and higher loan volumes in the Global Consumer
businesses in North America and Latin America. These improvements were
partially offset by a decline in revenue resulting from increased levels of
securitization activity.
Interest expense increased $199 million or 6% from the 1998 first quarter,
primarily from the addition of the UCS portfolio ($81 million) and from
increased time deposit volumes in Global Corporate Banking in Europe. Interest
expense increased $385 million or 12% from the 1997 second quarter, primarily
resulting from increased time deposit volumes across most global markets, and
from increased rates paid in Emerging Markets and the addition of UCS, partially
offset by a decline in purchased fund volumes and other borrowings in U.S.
bankcards.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FEE AND COMMISSION REVENUE
- ----------------------------------------------------------------------------------------------------------
SECOND QUARTER % SIX MONTHS %
------------------ ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- ----------------------------------------------------------------------------------------------------------
GLOBAL CONSUMER
<S> <C> <C> <C> <C> <C> <C>
Citibanking......................................... $ 314 $ 308 2 $ 614 $ 590 4
Cards (B)........................................... 600 491 22 1,083 964 12
Private Bank........................................ 133 117 14 251 229 10
TOTAL GLOBAL CONSUMER (B)........................... 1,047 916 14 1,948 1,783 9
GLOBAL CORPORATE BANKING AND OTHER.................. 528 502 5 1,027 956 7
TOTAL ADJUSTED...................................... 1,575 1,418 11 2,975 2,739 9
Effect of Credit Card Securitization Activity....... (22) 23 NM 19 54 (65)
------------------ ------------------
TOTAL............................................... $1,553 $1,441 8 $2,994 $2,793 7
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Global Consumer Businesses in:
Emerging Markets.................................. $ 279 $ 300 (7) $ 549 $ 588 (7)
Developed Markets................................. 768 616 25 1,399 1,195 17
------------------ ------------------
TOTAL GLOBAL CONSUMER............................... $1,047 $ 916 14 $1,948 $1,783 9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to latest quarter's presentation.
(B) See page 35 for discussion of the effect of credit card securitization
activity.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Total fee and commission revenue of $1.6 billion in the 1998 second quarter and
$3.0 billion for the 1998 six months increased $112 million or 8% and $201
million or 7% from the comparable 1997 periods. The effect of credit card
securitization decreased fee and commission revenue in the 1998 second quarter,
and increased it in all other periods. Adjusted fee and commission revenue in
the second quarter of $1.6 billion and in the six months of $3.0 billion was up
$157 million or 11% and $236 million or 9% from the comparable 1997 periods.
29
<PAGE>
CITICORP [LOGO] (R)
Global Consumer fee and commission revenue was up $131 million or 14% (up $34
million or 4% excluding UCS) in the second quarter and $165 million or 9% in the
six months. Growth in fee revenue in the 1998 second quarter was led by a 9%
increase in the developed markets, excluding UCS, principally in U.S. bankcards
and the Private Bank, and was partially offset by a 7% decrease in the emerging
markets, principally Asia Pacific Cards, including the effect of foreign
currency translation. U.S. bankcard fees increased as a result of higher levels
of interchange fees, reflecting charge volume growth and pricing changes.
Private Bank fee revenue increased in the quarter and six months as a result of
higher trust, agency, and custodial fees on higher client business volumes under
management.
Global Corporate Banking and Other fee and commission revenue increased $26
million or 5% and $71 million or 7% from the comparable quarter and year-to-date
periods. The improvement primarily reflected higher transaction banking
services revenue, investment management fees, and corporate finance fees in
Global Relationship Banking. Fee and commission revenue in Emerging Markets was
essentially unchanged in the 1998 quarter and six months from the comparable
1997 periods.
- -------------------------------------------------------------------------------
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>
Second Quarter % SIX MONTHS %
---------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BY BUSINESS SECTOR
Global Corporate Banking
Emerging Markets.................................. $ 259 $155 67 $ 530 $ 362 46
Global Relationship Banking....................... 357 270 32 735 600 23
---------------- ------------------
Total Global Corporate Banking...................... 616 425 45 1,265 962 31
Global Consumer and Other........................... 114 86 33 193 138 40
---------------- ------------------
TOTAL............................................... $ 730 $511 43 $1,458 $1,100 33
- --------------------------------------------------------------------------------------------------------
BY TRADING ACTIVITY
Foreign Exchange (B)................................ $ 391 $258 52 $ 777 $ 495 57
Derivative (C)...................................... 218 129 69 454 336 35
Fixed Income (D).................................... 31 59 (47) 88 129 (32)
Other............................................... 90 65 38 139 140 (1)
---------------- ------------------
TOTAL............................................... $ 730 $511 43 $1,458 $1,100 33
- --------------------------------------------------------------------------------------------------------
BY INCOME STATEMENT LINE
Foreign Exchange.................................... $ 465 $311 50 $ 814 $ 608 34
Trading Account..................................... 98 97 1 334 295 13
Other (E)........................................... 167 103 62 310 197 57
---------------- ------------------
TOTAL............................................... $ 730 $511 43 $1,458 $1,100 33
- --------------------------------------------------------------------------------------------------------
</TABLE>
(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.
- --------------------------------------------------------------------------------
30
<PAGE>
CITICORP [LOGO] (R)
Trading-related revenue in the 1998 second quarter and six months increased $219
million and $358 million from the respective 1997 periods, primarily reflecting
higher foreign exchange and derivatives revenue driven by global currency
volatility, particularly in certain Asian currencies.
Levels of trading-related revenue may fluctuate in the future as a result of
market and asset-specific factors.
- -------------------------------------------------------------------------------
SECURITIES TRANSACTIONS
- -------------------------------------------------------------------------------
Net gains from the sale of securities were $300 million in the second quarter
and $541 million in the six months of 1998, compared with $124 million and $232
million in the comparable 1997 periods. The net gains in the second quarter of
1998 reflected gross realized gains of $328 million ($591 million for the six
months) and gross realized losses of $28 million ($50 million for the six
months). The 1998 second quarter and six months included realized gains of $174
million and $363 million, respectively, related to the sale of Brady bonds. The
1997 second quarter included a realized gain of $58 million related to the sale
of Brady bonds.
The fair value of securities may fluctuate over time based on general market
conditions as well as events and trends affecting specific securities.
- ------------------------------------------------------------------------------
OTHER REVENUE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Second Quarter % SIX MONTHS %
---------------- ------------------
(In Millions of Dollars) 1998 1997 (A) Change 1998 1997 (A) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit Card Securitization Activity................. $ 351 $118 NM $ 489 $283 73
Venture Capital..................................... 171 173 (1) 435 266 64
Affiliate Earnings.................................. 42 112 (63) 71 171 (58)
Net Asset Gains..................................... 198 64 NM 229 156 47
Other Items......................................... 29 8 NM 66 36 83
---------------- ------------------
TOTAL............................................... $ 791 $475 67 $1,290 $912 41
- --------------------------------------------------------------------------------------------------------
</TABLE>
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
The increase in revenue related to credit card securitization activity in the
1998 second quarter and six months reflected the acquisition of UCS, improved
net interest margins, and higher average securitized volumes. The effect of
credit card securitization activity is discussed in more detail on page 35.
Venture capital revenue of $171 million in the 1998 second quarter remained
essentially unchanged from the year-ago quarter. Revenue in the 1998 six months
reflected a $169 million improvement, benefiting from continued 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 in the 1998 second quarter and six months declined $70
million and $100 million from the year-ago periods, primarily due to a 1997
second quarter investment dividend together with reduced earnings in Credicard,
a 33%-owned Brazilian affiliate.
Net asset gains of $198 million and $229 million in the 1998 second quarter and
six months increased $134 million and $73 million from the year-ago periods,
reflecting a $132 million gain on the disposition of two real estate-related
equity interests obtained in connection with loan restructurings. Net asset
gains in the 1997 second quarter included a $23 million gain related to the
disposition of an automated trading business, partially offset by an investment
writedown of $29 million in Latin America. Revenue in the 1997 six months also
included gains of $46 million related to the
31
<PAGE>
CITICORP [LOGO](R)
refinancing agreement concluded with Peru, and $32 million from the sale of an
investment from the acquisition finance portfolio by Global Relationship
Banking, partially offset by an investment writedown of $20 million in Latin
America.
- -------------------------------------------------------------------------------
PROVISION AND CREDIT LOSS RESERVES
- -------------------------------------------------------------------------------
The provision for credit losses of $564 million and $1.1 billion in the 1998
second quarter and six months increased $52 million and $136 million from the
1997 periods. The increase in the quarter reflected higher net write-offs in
both Global Corporate Banking and Global Consumer, while the increase in the six
months was attributable to Global Corporate Banking.
Details of net write-offs, additional provision, and the provision for credit
losses are included in the following table:
- -------------------------------------------------------------------------------
NET WRITE-OFFS, ADDITIONAL PROVISION, AND PROVISION FOR CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER % SIX MONTHS %
----------------- -------------------
(In Millions of Dollars) 1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------
NET WRITE-OFFS (RECOVERIES)
<S> <C> <C> <C> <C> <C> <C>
Global Consumer (A)................................. $1,089 $ 925 18 $ 1,976 $1,818 9
Global Corporate Banking............................ 29 (1) NM 85 (62) NM
----------------- -------------------
TOTAL ADJUSTED NET WRITE-OFFS....................... 1,118 924 21 2,061 1,756 17
Effect of Credit Card Securitization Activity....... (579) (437) 32 (1,040) (871) 19
----------------- -------------------
TOTAL............................................... $ 539 $ 487 11 $ 1,021 $ 885 15
- ----------------------------------------------------------------------------------------------------------
ADDITIONAL PROVISION
Global Consumer..................................... $ 25 $ 25 - $ 50 $ 50 -
----------------- -------------------
TOTAL............................................... $ 25 $ 25 - $ 50 $ 50 -
- ----------------------------------------------------------------------------------------------------------
PROVISION FOR CREDIT LOSSES
Global Consumer..................................... $ 535 $ 513 4 $ 986 $ 997 (1)
Global Corporate Banking............................ 29 (1) NM 85 (62) NM
----------------- -------------------
TOTAL............................................... $ 564 $ 512 10 $ 1,071 $ 935 15
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(A) Adjusted for the effect of credit card securitization activity. See page
35 for discussion.
NM Not meaningful, as percentage equals or exceeds 100%.
- -------------------------------------------------------------------------------
Global Consumer net write-offs, adjusted for the effect of credit card
securitization activity, in the 1998 second quarter and six months were $1.1
billion and $2.0 billion, up from $925 million and $1.8 billion in the 1997
periods, primarily reflecting the acquisition of UCS and higher losses in Asia
Pacific and Latin America, partially offset by the effect of foreign currency
translation and improvements in the U.S. mortgage portfolio. The Global
Consumer provision for credit losses included an additional provision, in excess
of net write-offs, of $25 million and $50 million in the 1998 and 1997 second
quarters and six month periods. Net write-offs and the total provision may
increase from the 1998 second quarter as a result of economic conditions,
particularly in Asia Pacific and Latin America, the credit performance of the
portfolios, including bankruptcies, seasonal factors, and other changes in
portfolio levels. See "Consumer Portfolio Review" on page 11 for additional
discussion of the consumer portfolio.
Global Corporate Banking net write-offs in the 1998 second quarter were $29
million, compared with net recoveries of $1 million in the 1997 second quarter.
The increase in net write-offs is primarily attributable to higher gross write-
offs in the Emerging Markets business, partially offset by higher recoveries in
Global Relationship Banking. Global Corporate Banking net write-offs in the
1998 six months were $85 million, compared with net recoveries of $62 million in
the 1997 six months (including a 1997 first quarter $50 million recovery related
to the refinancing agreement concluded with
32
<PAGE>
CITICORP [LOGO](R)
Peru). Excluding the 1997 first quarter refinancing recovery, the increase in
net write-offs is primarily attributable to higher gross write-offs in the
Emerging Markets business. 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. Losses on commercial lending activities
can vary widely with respect to timing and amount, particularly within any
narrowly-defined business or loan type. Credit costs and cash-basis loans may
increase from the 1998 second quarter level due to conditions in Asia or other
factors.
All identified losses are immediately written off, and the credit loss reserves
described below are available to absorb all probable credit losses inherent in
the portfolio. For analytical purposes only, Citicorp attributes its credit
loss reserves as detailed in the following table:
- -------------------------------------------------------------------------------
CREDIT LOSS RESERVES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, Dec. 31, June 30,
<S> <C> <C> <C>
(In Millions of Dollars) 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE ALLOWANCE FOR CREDIT LOSSES
Global Consumer (A)................................................................... $ 2,853 $2,487 $ 2,453
Global Corporate Banking.............................................................. 3,429 3,429 3,429
--------------------------------
TOTAL AGGREGATE ALLOWANCE FOR CREDIT LOSSES (B)....................................... 6,282 5,916 5,882
Reserves for Securitization Activities (C)............................................ 61 85 91
TOTAL CREDIT LOSS RESERVES............................................................ $ 6,343 $6,001 $ 5,973
- ----------------------------------------------------------------------------------------------------------------------
ALLOWANCE AS A PERCENT OF TOTAL LOANS
Global Consumer....................................................................... 2.66% 2.30% 2.24%
Global Corporate Banking (D).......................................................... 3.92% 4.38% 4.80%
TOTAL................................................................................. 3.22% 3.16% 3.23%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The balance at June 30, 1998 includes $320 million of credit loss reserves
related to the acquisition of UCS.
(B) Includes $6.2 billion attributable to loans and loan commitments as a
deduction from Loans, $50 million attributable to standby letters of credit
and guarantees included in Other Liabilities, and $50 million attributable
to derivative and foreign exchange contracts reported as a deduction from
Trading Account Assets at June 30, 1998.
(C) Attributable to mortgage loans sold with recourse.
(D) Excludes allowance portion attributable to standby letters of credit and
guarantees, and derivative and foreign exchange contracts.
- --------------------------------------------------------------------------------
Credit loss reserves totaled $6.3 billion as of June 30, 1998, up from $6.0
billion as of December 31, 1997 and June 30, 1997, reflecting the addition of
$320 million of credit loss reserves related to the acquisition of UCS.
Uncertainty related to the economic and credit environment, particularly in Asia
Pacific and Latin America, as well as higher loan volumes, may result in further
increases in the aggregate allowance for credit losses.
- -------------------------------------------------------------------------------
OPERATING EXPENSE
- -------------------------------------------------------------------------------
Operating expense of $3.9 billion and $7.3 billion in the 1998 second quarter
and six months was up $710 million or 22% and $935 million or 15% from 1997.
The acquisition of UCS increased expense in the quarter and six months by $227
million. In addition, approximately $200 million of the change in the second
quarter was due to increased spending on preparations for the Year 2000 and the
European Economic and Monetary Union ("EMU"), as well as for advertising and
marketing programs, electronic banking initiatives, and incentive compensation.
Global Corporate Banking adjusted expense increased $226 million and $389
million in the 1998 second quarter and six months, or 19% and 16% from year ago
periods, reflecting increases of 23% and 19% in Global Relationship Banking and
12% for both periods in Emerging Markets. Expense in Global Consumer, including
UCS, increased $403 million and $478 million, or 21% and 12% for
33
<PAGE>
CITICORP [LOGO] (R)
the 1998 second quarter and six months, reflecting increases of 28% and 16%
in the developed markets and 3% and 4% in the emerging markets. Foreign currency
translation reduced expense by approximately 4% in both the quarter and six
months.
Employee expense of $1.8 billion in the 1998 quarter and $3.5 billion in the six
months was up $218 million or 14% and $267 million or 8% from the 1997 periods.
The increase primarily reflected salary increases, including incentive
compensation, and higher staff levels related to business expansion in the
emerging markets. In addition, expense in the 1998 quarter and six months
included charges of $25 million and $50 million associated with performance-
based stock options granted in January 1998. Staff levels of 99,000 at June 30,
1998 increased 7,500 (3,800 from UCS and 2,200 in the emerging markets) or 8%
from a year-ago.
Net premises and equipment expense was $528 million in the quarter and $1.0
billion in the six months, up $49 million or 10% and $58 million or 6% from
1997. Other expense was $1.5 billion and $2.7 billion in the quarter and six
months, up $443 million or 41% and $610 or 29% from 1997. Costs associated with
the Year 2000, EMU, the inclusion of UCS, and investment spending and higher
business volumes in the emerging markets all contributed to the increase.
As further described in the 1997 Annual Report and Form 10-K, Citicorp
recognizes that the arrival of the Year 2000 poses a unique worldwide challenge
to the ability of all systems to recognize the date change from December 31,
1999 to January 1, 2000. Citicorp has assessed and is repairing its computer
applications and business processes to provide for their continued
functionality. In addition, an assessment of the readiness of third parties
with which it interfaces is ongoing.
For Citicorp's computer applications, a process of inventory, scoping and
analysis, modification, testing and certification, and implementation is under
way, funded from a combination of a reprioritization of technology development
initiatives and incremental costs. Citicorp does not anticipate that the
related overall costs will be material to any single year or quarter. In total,
its costs for the remediation and testing of Citicorp's computer applications
will amount to approximately $650 million, an increase of $50 million from
previous estimates, over the three-year period from 1997 through 1999, of which
approximately $320 million has been incurred to date, including $90 million in
the 1998 second quarter.
Significant third parties with which Citicorp interfaces with regard to the Year
2000 problem include, among others, customers and business partners
(counterparties, supply chains, technology vendors and service providers, the
global financial market infrastructure (payment and clearing systems), and the
utility infrastructure (power, transportation, telecommunications) on which all
corporations rely. Unreadiness by these third parties would expose Citicorp to
the potential for loss, impairment of business processes and activities, and
disruption of financial markets. Citicorp is assessing these risks through
bilateral and multiparty efforts and participation in industry, country, and
global initiatives, and it is creating contingency plans intended to address
perceived risks. Citicorp cannot predict what effect the failure of such a third
party to address, in a timely manner, the Year 2000 problem would have on
Citicorp.
- -------------------------------------------------------------------------------
RESTRUCTURING EXPENSE
- -------------------------------------------------------------------------------
During the 1997 third quarter, Citicorp recorded an $889 million charge related
to cost-management programs and customer service initiatives to improve
operational efficiency and productivity. These programs include global
operations and technology consolidation and standardization, the reconfiguration
of front-end distribution processes, and the outsourcing of various
technological functions. The implementation of these restructuring programs,
which are expected to be substantially completed by the end of 1998, is designed
to ensure a positive effect on the quality of customer service. Overall, these
programs are estimated to achieve pay-back towards the end of 1999. Expense
savings generated by these programs are being reinvested in new products,
marketing programs, and additional cost and quality initiatives to further
increase revenue and reduce costs.
34
<PAGE>
CITICORP [LOGO](R)
The charge included $496 million for severance benefits associated with
approximately 9,000 positions. It is estimated that about 1,500 new positions
will be added as part of this program, resulting in a net program reduction of
about 7,500 jobs. The charge also included approximately $245 million related
to writedowns of equipment and premises and $148 million related to lease
termination and other exit costs. Additional program costs that do not qualify
for recognition in the charge will be expensed as incurred in the implementation
of these programs, but are not expected to be material.
Of the $889 million restructuring charge, approximately $466 million remained in
the reserve as of June 30, 1998, with the difference reflecting the $245 million
of equipment and premises write-downs recorded in 1997, as well as $164 million
of primarily severance and related costs (of which $132 million has been paid in
cash and $32 million is legally obligated), together with translation effects.
Through June 30, 1998, 1,781 staff positions have been reduced under this
program, 609 in the 1998 second quarter.
Additional information about the 1997 restructuring charge, including the
businesses and regions affected, may be found in the 1997 Annual Report and Form
10-K.
- ------------------------------------------------------------------------------
INCOME TAXES
- ------------------------------------------------------------------------------
Income taxes were $658 million and $1.3 billion in the 1998 second quarter and
six months. The effective tax rate was 37.5% in both periods, compared with 37%
and 37.5% in the 1997 periods. The 1997 full-year effective tax rate was 37%.
- -------------------------------------------------------------------------------
EFFECT OF CREDIT CARD SECURITIZATION ACTIVITY
- -------------------------------------------------------------------------------
During the six months of 1998, $11.1 billion of U.S. credit card receivables
were securitized, which included $3.5 billion securitized from the UCS
portfolio. As of June 30, 1998, the total amount of securitized receivables,
net of amortization, was $41.3 billion (including $11.0 billion related to UCS)
compared with $27.6 billion as of March 31, 1998 and $24.2 billion as of June
30, 1997.
The securitization of credit card receivables, which is described in the 1997
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). Because credit losses are a component of these cash flows, Citicorp's
revenues over the terms of these transactions may vary depending upon credit
performance of the securitized receivables. However, Citicorp's exposure to
credit losses on the securitized receivables is contractually limited to these
cash flows. The table on page 36 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 initial and ongoing effects of adopting Statement of Financial
Accounting Standards No. 125 in 1997 did not result in a change in the income
recognition policies for credit card securitization activity due to
immateriality.
35
<PAGE>
CITICORP [LOGO] (R)
- --------------------------------------------------------------------------------
EFFECT OF CREDIT CARD SECURITIZATION ACTIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
----------------------------------------
(In Millions of Dollars) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Interest Revenue.................................................... ($908) ($578) ($1,548) ($1,208)
Fee and Commission Revenue.............................................. (22) 23 19 54
Other Revenue........................................................... 351 118 489 283
Provision for Credit Losses............................................. (579) (437) (1,040) (871)
NET INCOME IMPACT OF SECURITIZATION..................................... $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------
Average Assets (In Billions)............................................ ($37) ($25) ($32) ($25)
Return on Assets........................................................ .14% .11% .12% .11%
Net Interest Margin..................................................... (.65)% (.43)% (.57)% (.47)%
Consumer Net Credit Loss Ratio.......................................... (1.06)% (.91)% (1.04)% (.93)%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The effect of credit card securitization activity on net interest revenue, fee
and commission revenue, other revenue, and the provision for credit losses in
the 1998 second quarter and six months included ($174) million, ($9) million,
$96 million, and ($87) million, respectively, related to UCS. Additionally, the
UCS acquisition increased the effect of credit card securitization activity on
the net interest margin by 8 basis points and 5 basis points in the 1998 second
quarter and six months, respectively. The remaining impact of credit card
securitization is due to the increased level of securitization.
- -------------------------------------------------------------------------------
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- -------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," which
becomes effective on January 1, 2000 for calendar year companies such as
Citicorp. This new standard will 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 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 new
standard.
36
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
CITICORP AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------
SECOND QUARTER SIX MONTHS
----------------------------------------------
(In Millions of Dollars, Except Per Share Amounts) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE
Loans, including Fees................................................... $5,096 $4,717 $ 9,939 $ 9,271
Deposits with Banks..................................................... 267 245 549 469
Federal Funds Sold and Securities Purchased Under Resale Agreements..... 187 203 429 415
Securities
U.S. Treasury and Federal Agencies.................................... 85 107 147 177
State and Municipal................................................... 35 35 68 67
Other, including dividends (Principally in offices outside the U.S.).. 526 455 1,003 872
Trading Account Assets.................................................. 325 272 580 515
Loans Held For Sale..................................................... 137 107 246 212
----------------------------------
6,658 6,141 12,961 11,998
----------------------------------
INTEREST EXPENSE
Deposits................................................................ 2,783 2,421 5,405 4,650
Trading Account Liabilities............................................. 85 76 177 149
Purchased Funds and Other Borrowings.................................... 474 427 903 865
Long-Term Debt.......................................................... 321 354 642 667
----------------------------------
3,663 3,278 7,127 6,331
----------------------------------
NET INTEREST REVENUE.................................................... 2,995 2,863 5,834 5,667
----------------------------------
PROVISION FOR CREDIT LOSSES............................................. 564 512 1,071 935
----------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES.................. 2,431 2,351 4,763 4,732
----------------------------------
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and Commissions.................................................... 1,553 1,441 2,994 2,793
Foreign Exchange........................................................ 465 311 814 608
Trading Account......................................................... 98 97 334 295
Securities Transactions................................................. 300 124 541 232
Other Revenue........................................................... 791 475 1,290 912
----------------------------------
3,207 2,448 5,973 4,840
----------------------------------
OPERATING EXPENSE
Salaries................................................................ 1,471 1,286 2,826 2,550
Employee Benefits....................................................... 354 321 713 722
----------------------------------
Total Employee Expense................................................ 1,825 1,607 3,539 3,272
Net Premises and Equipment Expense...................................... 528 479 1,027 969
Other Expense........................................................... 1,530 1,087 2,711 2,101
----------------------------------
3,883 3,173 7,277 6,342
----------------------------------
INCOME BEFORE TAXES..................................................... 1,755 1,626 3,459 3,230
Income Taxes............................................................ 658 602 1,297 1,211
----------------------------------
NET INCOME.............................................................. $1,097 $1,024 $ 2,162 $ 2,019
- ----------------------------------------------------------------------------------------------------------
INCOME APPLICABLE TO COMMON STOCK....................................... $1,070 $ 990 $ 2,103 $ 1,947
----------------------------------
EARNINGS PER SHARE
BASIC................................................................. $2.37 $2.16 $4.65 $4.23
DILUTED............................................................... $2.30 $2.10 $4.53 $4.11
- ----------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET CITICORP AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, DEC. 31,
(In Millions of Dollars) 1997 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks............................................................................. $ 9,463 $ 8,585
Deposits at Interest with Banks..................................................................... 14,013 13,049
Securities, at Fair Value
Available for Sale................................................................................ 34,160 30,762
Venture Capital................................................................................... 3,117 2,599
Trading Account Assets.............................................................................. 37,121 40,356
Loans Held for Sale................................................................................. 4,737 3,515
Federal Funds Sold and Securities Purchased Under Resale Agreements................................. 12,375 10,233
Loans, Net
Consumer.......................................................................................... 107,410 108,066
Commercial........................................................................................ 84,856 75,947
---------------------
Loans, Net of Unearned Income....................................................................... 192,266 184,013
Allowance for Credit Losses....................................................................... (6,182) (5,816)
---------------------
Total Loans, Net.................................................................................... 186,084 178,197
Customers' Acceptance Liability..................................................................... 1,643 1,726
Premises and Equipment, Net......................................................................... 4,675 4,474
Interest and Fees Receivable........................................................................ 3,275 3,288
Other Assets........................................................................................ 20,088 14,113
---------------------
TOTAL............................................................................................... $330,751 $310,897
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices....................................................... $ 17,940 $ 16,901
Interest-Bearing Deposits in U.S. Offices........................................................... 40,920 40,361
Non-Interest-Bearing Deposits in Offices Outside the U.S............................................ 10,394 9,627
Interest-Bearing Deposits in Offices Outside the U.S................................................ 146,728 132,232
---------------------
Total Deposits.................................................................................... 215,982 199,121
Trading Account Liabilities......................................................................... 29,121 30,986
Purchased Funds and Other Borrowings................................................................ 21,802 21,231
Acceptances Outstanding............................................................................. 1,774 1,826
Accrued Taxes and Other Expense..................................................................... 6,757 6,464
Other Liabilities................................................................................... 13,641 10,288
Long-Term Debt...................................................................................... 19,957 19,785
STOCKHOLDERS' EQUITY
Preferred Stock (Without par value)................................................................. 1,275 1,903
Common Stock ($1.00 par value)...................................................................... 506 506
Issued Shares: 506,298,235 in each period
Surplus............................................................................................. 6,512 6,501
Retained Earnings................................................................................... 18,371 16,789
Accumulated Other Changes in Equity from Nonowner Sources (A)....................................... (370) (91)
Common Stock in Treasury, at Cost................................................................... (4,577) (4,412)
Shares: 54,366,159 and 52,355,947, respectively
Total Stockholders' Equity.......................................................................... 21,717 21,196
---------------------
TOTAL............................................................................................... $330,751 $310,897
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Amounts at June 30, 1998 and December 31, 1997 include the after-tax
amounts for net unrealized gains on securities available for sale of $308
million and $535 million, respectively, and foreign currency translation of
($678) million and ($626) million, respectively. See note (A) on page 39
for additional information.
- --------------------------------------------------------------------------------
38
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY CITICORP AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS
------------------------
(In Millions of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period.............................................................. $21,196 $20,722
Net Income.................................................................................. 2,162 2,019
Change in Net Unrealized Gains on Securities Available for Sale............................. (227) 276
Change in Foreign Currency Translation...................................................... (52) (61)
-------------------
Total Changes in Equity from Nonowner Sources (A)......................................... 1,883 2,234
Redemption of Perpetual Preferred Stock
Second Series............................................................................. (220) -
Third Series.............................................................................. (83) -
Series 14................................................................................. - (175)
Series 16................................................................................. (325)
Cash Dividends Declared
Common.................................................................................... (522) (484)
Preferred................................................................................. (58) (72)
Repurchase of Common Shares (B)............................................................. (483) (1,228)
Employee Benefit Plans and Other Activity (C)............................................... 329 412
Balance at End of Period.................................................................... $21,717 $21,409
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(A) During the 1998 first quarter, Citicorp adopted Statement of Financial
Accounting Standards No. 130, which addresses the manner in which total
changes in equity from nonowner sources are presented in the financial
statements, including unrealized gains and losses on securities available
for sale and foreign currency translation. The adoption had no effect on
reported earnings, assets, or capital.
(B) During the 1998 second quarter, no shares were repurchased as the stock
repurchase program had been suspended in connection with the announced
agreement to merge with Travelers Group.
(C) Primarily issuance of common stock (including treasury shares) under
employee benefit plans and related amortization and tax benefits.
- -------------------------------------------------------------------------------
39
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS CITICORP AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS
-----------------------
(In Millions of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME................................................................................... $ 2,162 $ 2,019
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for Credit Losses.................................................................. 1,071 935
Depreciation and Amortization of Premises and Equipment...................................... 384 377
Amortization of Goodwill and Acquisition Premium Costs....................................... 85 24
Provision for Deferred Taxes................................................................. (175) (19)
Venture Capital Activity..................................................................... (518) (29)
Net Gain on Sale of Securities............................................................... (541) (232)
Changes in Accruals and Other, Net........................................................... (550) 842
Net Increase in Loans Held for Sale.......................................................... (1,222) (2,499)
Net Decrease (Increase) in Trading Account Assets............................................ 3,235 (1,690)
Net (Decrease) Increase in Trading Account Liabilities....................................... (1,865) 1,457
-----------------------
TOTAL ADJUSTMENTS............................................................................ (96) (834)
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... 2,066 1,185
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net Increase in Deposits at Interest with Banks.............................................. (964) (1,154)
Securities -- Available for Sale
Purchases.................................................................................. (30,152) (27,914)
Proceeds from Sales........................................................................ 10,702 10,646
Maturities................................................................................. 16,025 9,209
Net Increase in Federal Funds Sold and Securities Purchased Under Resale Agreements.......... (2,142) (2,518)
Net Increase in Loans........................................................................ (90,183) (58,822)
Proceeds from Sales of Loans................................................................. 87,841 51,663
Business Acquisitions........................................................................ (3,655) -
Capital Expenditures on Premises and Equipment............................................... (658) (596)
Proceeds from Sales of Premises and Equipment, Subsidiaries and Affiliates, and OREO......... 321 660
-----------------------
NET CASH USED IN INVESTING ACTIVITIES........................................................ (12,865) (18,826)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits..................................................................... 16,861 13,735
Net Increase in Federal Funds Purchased and Securities Sold Under Repurchase Agreements...... 231 3,548
Commercial Paper and Funds Borrowed with Original Maturities of Less Than One Year
Proceeds from Issuance..................................................................... 312,539 386,497
Repayment.................................................................................. (316,627) (384,017)
Proceeds from Issuance of Long-Term Debt..................................................... 1,991 3,264
Repayment of Long-Term Debt.................................................................. (1,653) (2,816)
Redemption of Preferred Stock................................................................ (628) (175)
Proceeds from Issuance of Common Stock....................................................... 192 251
Treasury Stock Repurchases................................................................... (483) (1,228)
Dividends Paid............................................................................... (584) (556)
-----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................................... 11,839 18,503
-----------------------
Effect of Exchange Rate Changes on Cash and Due from Banks................................... (162) (129)
-----------------------
NET INCREASE IN CASH AND DUE FROM BANKS...................................................... 878 733
Cash and Due from Banks at Beginning of Period............................................... 8,585 6,905
-----------------------
CASH AND DUE FROM BANKS AT END OF PERIOD..................................................... $ 9,463 $ 7,638
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
CASH PAID DURING THE PERIOD FOR:
Interest..................................................................................... $ 6,347 $ 5,542
Income Taxes................................................................................. 1,051 1,123
NON-CASH INVESTING ACTIVITIES
Transfer from Loans to OREO.................................................................. 121 185
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
CITICORP [LOGO] (R)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET CITIBANK, N.A. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------
JUNE 30, DEC. 31,
(In Millions of Dollars) 1997 1998
- -----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Due from Banks..................................................................... $ 8,478 $ 7,788
Deposits at Interest with Banks............................................................. 14,914 14,245
Securities, at Fair Value:
Available for Sale........................................................................ 30,156 26,749
Venture Capital........................................................................... 2,632 2,202
Trading Account Assets...................................................................... 34,699 36,106
Federal Funds Sold and Securities Purchased Under Resale Agreements......................... 10,783 9,776
Loans, Net of Unearned Income............................................................... 166,599 153,670
Allowance for Credit Losses............................................................... (4,597) (4,264)
---------------------
Loans, Net.................................................................................. 162,002 149,406
Customers' Acceptance Liability............................................................. 1,644 1,726
Premises and Equipment, Net................................................................. 3,450 3,338
Interest and Fees Receivable................................................................ 2,472 2,441
Other Assets................................................................................ 14,113 8,723
TOTAL....................................................................................... $285,343 $262,500
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices............................................... $ 14,798 $ 13,538
Interest-Bearing Deposits in U.S. Offices................................................... 25,473 24,932
Non-Interest-Bearing Deposits in Offices Outside the U.S.................................... 10,219 9,394
Interest-Bearing Deposits in Offices Outside the U.S........................................ 145,271 130,705
---------------------
Total Deposits............................................................................ 195,761 178,569
Trading Account Liabilities................................................................. 27,960 27,811
Purchased Funds and Other Borrowings........................................................ 18,447 16,334
Acceptances Outstanding..................................................................... 1,774 1,826
Accrued Taxes and Other Expense............................................................. 4,567 4,003
Other Liabilities........................................................................... 9,032 6,862
Long-Term Debt and Subordinated Notes....................................................... 9,614 9,927
STOCKHOLDER'S EQUITY
Capital Stock ($20.00 par value)............................................................ 751 751
Outstanding Shares: 37,534,553 in each period
Surplus..................................................................................... 7,674 7,453
Retained Earnings........................................................................... 10,348 9,318
Accumulated Other Changes in Equity from Nonowner Sources (A)............................... (585) (354)
Total Stockholder's Equity.................................................................. 18,188 17,168
TOTAL....................................................................................... $285,343 $262,500
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Amounts at June 30, 1998 and December 31, 1997 include the after-tax
amounts for net unrealized gains on securities available for sale of $165
million and $345 million, respectively, and foreign currency translation of
($750) million and ($699) million, respectively. See note (A) on page 39
for additional information.
- --------------------------------------------------------------------------------
41
<PAGE>
CITICORP [LOGO](R)
- --------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997 (A)
------------------------ ------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Fair
(In Millions of Dollars) COST GAINS LOSSES VALUE (B) Cost Value (B)
- ------------------------------------------------------------------------------------------------------------------
SECURITIES -- AVAILABLE FOR SALE (C)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Federal Agency............. $ 6,626 $ 70 $ 1 $ 6,695 $ 4,031 $ 4,087
State and Municipal.......................... 2,921 206 151 2,976 2,616 2,707
Foreign Government........................... 17,861 499 309 18,051 18,106 18,670
U.S. Corporate............................... 1,919 199 122 1,996 1,809 1,865
Other Debt Securities........................ 1,882 18 23 1,877 1,198 1,129
Equity Securities (D)........................ 2,430 230 95 2,565 2,131 2,304
$33,639 $1,222 $701 $34,160 $29,891 $30,762
VENTURE CAPITAL (E).......................... - - - $ 3,117 - $ 2,599
- ------------------------------------------------------------------------------------------------------------------
Securities Available for Sale Include:
Mortgage-Backed Securities................. $ 1,659 $ 16 $ 1 $ 1,674 $ 1,091 $ 1,101
Government of Brazil Brady Bonds........... 701 301 - 1,002 1,436 2,048
Government of Venezuela Brady Bonds........ 507 - 80 427 535 480
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) At December 31, 1997, gross unrealized gains and losses on securities
available for sale totaled $1,492 million and $621 million, respectively.
(B) The fair value of securities may fluctuate over time based on general
market conditions as well as events and trends affecting specific
securities.
(C) 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, 1998 was $16 million and $2
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, 1997, Citicorp's share of gross
unrealized gains and losses related to securities available for sale held
by equity method affiliates was $19 million and $8 million, respectively.
(D) Equity securities available for sale include certain nonmarketable equity
securities which are carried at cost. At June 30, 1998, the carrying
amount of those securities was $1,234 million (reported in both the
amortized cost and fair value columns) and the fair value was $1,248
million.
(E) For the six months ended June 30, 1998, net gains on investments held by
venture capital subsidiaries totaled $435 million, of which $518 million
and $148 million represented gross unrealized gains and losses,
respectively. 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUN. 30, Dec. 31,
(In Millions of Dollars) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
<S> <C> <C>
Trading Account Securities.......................................................................... $15,237 $15,891
Derivative and Foreign Exchange Contracts (A) (B)................................................... 21,884 24,465
TOTAL............................................................................................... $37,121 $40,356
- ------------------------------------------------------------------------------------------------------------------------
Trading Account Liabilities
Securities Sold, Not Yet Purchased.................................................................. $ 5,506 $ 5,769
Derivative and Foreign Exchange Contracts (A) (B)................................................... 23,615 25,217
--------------------
TOTAL............................................................................................... $29,121 $30,986
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Net of master netting agreements. In addition, the asset balances at June
30, 1998 and December 31, 1997 are reduced by $50 million of credit loss
reserves. See page 33 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 $432 million and $391 million
at June 30, 1998 and December 31, 1997, respectively.
- --------------------------------------------------------------------------------
42
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
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, 1998 and
December 31, 1997, 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 1997 Annual Report
and Form 10-K.
<TABLE>
<CAPTION>
NOTIONAL BALANCE SHEET
PRINCIPAL AMOUNTS CREDIT EXPOSURE (A)
- -----------------------------------------------------------------------------------------------------------------
JUN. 30, Dec. 31, JUN. 30, Dec. 31,
(In Billions of Dollars) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Products.................................................. $1,456.2 $1,298.3 $ 11.9 $ 10.8
Foreign Exchange Products............................................... 1,949.2 1,724.3 28.9 35.8
Equity Products......................................................... 60.1 61.6 3.5 2.0
Commodity Products...................................................... 17.6 14.7 0.7 0.8
Credit Derivative Products.............................................. 15.0 6.9 0.2 -
---------------------
45.2 49.4
Effects of Master Netting Agreements (B)................................ (21.3) (24.1)
Effects of Securitization (C)........................................... (2.0) (0.8)
---------------------
$ 21.9 $ 24.5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(C) Citibank has securitized and sold net receivables and the associated credit
risk related to certain derivative and foreign exchange contracts via
Citibank Capital Markets Assets Trust.
- -------------------------------------------------------------------------------
The tables below and on page 44 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 1998.
<TABLE>
<CAPTION>
END-USER INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------
Notional Principal Amounts (A) Percentage of June 30, 1998 Amount Maturing
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JUN. 30, Dec. 31, Within 1 to 2 to 3 to 4 to After
(In Billions of Dollars) 1998 1997 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- ------------------------------------------------------------------------------------------------------------------------
INTEREST RATE PRODUCTS
Futures Contracts......................... $ 38.6 $ 29.3 62% 32% 6% -% -% -%
Forward Contracts......................... 6.3 6.9 98 - - - 1 1
Swap Agreements........................... 103.1 106.0 37 17 11 8 8 19
Option Contracts.......................... 13.6 20.1 59 22 1 4 - 14
FOREIGN EXCHANGE PRODUCTS
Futures and Forward Contracts............. 56.6 62.4 94 4 - 1 1 -
Cross-Currency Swaps...................... 4.4 3.4 5 14 11 21 34 15
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Includes third-party and intercompany contracts.
- --------------------------------------------------------------------------------
43
<PAGE>
CITICORP [LOGO] (R)
- -------------------------------------------------------------------------------
END-USER INTEREST RATE SWAPS AND NET PURCHASED OPTIONS AS OF JUNE 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REMAINING CONTRACTS OUTSTANDING AT JUNE 30, -- NOTIONAL PRINCIPAL AMOUNTS
-------------------------------------------------------------------------------
(In Billions of Dollars) 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS................................. $70.3 $52.7 $40.6 $30.3 $23.1 $16.0
Weighted-Average Fixed Rate......................... 6.5% 6.6% 6.5% 6.6% 6.6% 6.9%
PAY FIXED SWAPS..................................... 15.1 8.8 6.5 5.5 4.6 3.8
Weighted-Average Fixed Rate......................... 6.4% 6.5% 6.5% 6.6% 6.8% 7.0%
BASIS SWAPS......................................... 17.7 3.9 0.3 0.2 0.2 0.2
PURCHASED CAPS (INCLUDING COLLARS).................. 6.6 2.7 - - - -
Weighted-Average Cap Rate Purchased................. 6.4% 6.7% - - - -
PURCHASED FLOORS.................................... 1.5 0.1 0.1 0.1 0.1 0.1
Weighted-Average Floor Rate Purchased............... 5.5% 5.8% 5.8% 5.8% 5.8% 5.8%
WRITTEN FLOORS RELATED TO PURCHASED CAPS (COLLARS).. 1.6 0.3 - - - -
Weighted-Average Floor Rate Written................. 5.6% 5.3% - - - -
WRITTEN CAPS RELATED TO OTHER PURCHASED CAPS (A).... 3.9 2.5 2.5 2.3 1.8 1.8
Weighted-Average Cap Rate Written................... 8.3% 9.8% 9.8% 9.8% 10.6% 10.6%
Three-Month Forward LIBOR Rates (B)................. 5.7% 5.7% 5.8% 5.9% 5.9% 6.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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, 1998, provided for reference.
- --------------------------------------------------------------------------------
44
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS (A)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, Dec. 31, June 30,
(In Millions of Dollars) 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL CASH-BASIS LOANS
Collateral Dependent (at Lower of Cost or Collateral Value) (B)....................... $ 193 $ 258 $ 274
Other (C)............................................................................. 1,100 806 643
------------------------------
TOTAL................................................................................. $1,293 $1,064 $ 917
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL CASH-BASIS LOANS
In U.S. Offices....................................................................... $ 216 $ 296 $ 302
In Offices Outside the U.S. (C)....................................................... 1,077 768 615
------------------------------
TOTAL................................................................................. $1,293 $1,064 $ 917
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL RENEGOTIATED LOANS
In U.S. Offices....................................................................... $ - $ 20 $ 243
In Offices Outside the U.S............................................................ 45 39 52
------------------------------
TOTAL................................................................................. $ 45 $ 59 $ 295
- --------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS ON WHICH ACCRUAL OF INTEREST HAD BEEN SUSPENDED
In U.S. Offices....................................................................... $ 688 $ 856 $ 978
In Offices Outside the U.S............................................................ 1,176 993 1,058
------------------------------
TOTAL................................................................................. $1,864 $1,849 $2,036
- --------------------------------------------------------------------------------------------------------------------
ACCRUING LOANS 90 OR MORE DAYS DELINQUENT (D)
In U.S. Offices....................................................................... $ 538 $ 606 $ 555
In Offices Outside the U.S............................................................ 470 467 427
------------------------------
TOTAL................................................................................. $1,008 $1,073 $ 982
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) For a discussion of risks in the consumer loan portfolio and of commercial
cash-basis loans, see pages 11 and 15, 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) Includes foreign currency derivative contracts with a balance sheet credit
exposure of $44 million and $59 million at June 30, 1998 and December 31,
1997, respectively, for which the recognition of revaluation gains has been
suspended.
(D) Includes Consumer loans of $983 million, $1.0 billion, and $937 million at
June 30, 1998, December 31, 1997, and June 30, 1997, of which $247 million,
$240 million, and $215 million, respectively, are government-guaranteed
student loans.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED (OREO) AND ASSETS PENDING DISPOSITION (A)
- --------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(In Millions of Dollars) 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer OREO......................................................................... $ 182 $ 263 $ 362
Commercial OREO....................................................................... 348 461 482
------------------------------
TOTAL................................................................................. $ 530 $ 724 $ 844
- --------------------------------------------------------------------------------------------------------------------
ASSETS PENDING DISPOSITION (B)........................................................ $ 104 $ 96 $ 72
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Carried at lower of cost or collateral value.
(B) Represents consumer residential mortgage loans that have a high probability
of foreclosure.
- -------------------------------------------------------------------------------
45
<PAGE>
CITICORP [LOGO](R)
- -------------------------------------------------------------------------------
DETAILS OF CREDIT LOSS EXPERIENCE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2ND QTR. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
(In Millions of Dollars) 1998 1998 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AGGREGATE ALLOWANCE FOR
CREDIT LOSSES AT BEGINNING OF PERIOD..................... $5,928 $5,916 $5,899 $5,882 $5,866
------------------------------------------------------
Provision for Credit Losses................................ 564 507 486 486 512
------------------------------------------------------
GROSS CREDIT LOSSES
CONSUMER
In U.S. Offices............................................ 379 322 345 367 381
In Offices Outside the U.S................................. 246 207 209 219 221
COMMERCIAL
In U.S. Offices............................................ 3 9 11 11 9
In Offices Outside the U.S................................. 81 76 56 42 29
------------------------------------------------------
709 614 621 639 640
------------------------------------------------------
CREDIT RECOVERIES
CONSUMER
In U.S. Offices............................................ 54 50 62 75 55
In Offices Outside the U.S................................. 61 53 60 59 59
COMMERCIAL
In U.S. Offices............................................ 51 11 27 20 31
In Offices Outside the U.S................................. 4 18 11 24 8
------------------------------------------------------
170 132 160 178 153
------------------------------------------------------
NET CREDIT LOSSES
In U.S. Offices............................................ 277 270 267 283 304
In Offices Outside the U.S................................. 262 212 194 178 183
539 482 461 461 487
------------------------------------------------------
OTHER, NET (A)............................................. 329 (13) (8) (8) (9)
------------------------------------------------------
AGGREGATE ALLOWANCE FOR
CREDIT LOSSES AT END OF PERIOD (B)....................... 6,282 5,928 5,916 5,899 5,882
Reserves for Securitization Activities..................... 61 70 85 89 91
------------------------------------------------------
TOTAL CREDIT LOSS RESERVES................................. $6,343 $5,998 $6,001 $5,988 $5,973
- -----------------------------------------------------------------------------------------------------------------
Net Consumer Credit Losses................................. $ 510 $ 426 $ 432 $ 452 $ 488
As a Percentage of Average Consumer Loans.................. 1.86% 1.64% 1.60% 1.67% 1.82%
Net Commercial Credit Losses (Recoveries).................. 29 56 29 9 (1)
As a Percentage of Average Commercial Loans................ 0.14% 0.29% 0.16% 0.05% NM
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The 1998 second quarter reflects the addition of $320 million of credit
loss reserves related to the acquisition of UCS. The remaining amounts
primarily include the effects of foreign currency translation.
(B) See footnote (B) on page 33 for a discussion of the apportionment and
display of the aggregate allowance for credit losses.
NM Not meaningful, as net recoveries result in a negative percentage.
- -------------------------------------------------------------------------------
46
<PAGE>
CITICORP [LOGO](R)
- --------------------------------------------------------------------------------
CALCULATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
----------------------------------------------
(In Millions, except Per Share Amounts) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME.............................................................. $1,097 $1,024 $2,162 $2,019
Dividends on Preferred Stock............................................ (27) (34) (59) (72)
----------------------------------
INCOME APPLICABLE TO COMMON STOCK....................................... $1,070 $ 990 $2,103 $1,947
- -----------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING.............................. 451.8 458.5 452.0 460.0
Dilutive Effect of Employee Stock Plans (A)............................. 12.6 12.8 11.8 13.5
----------------------------------
ADJUSTED FOR DILUTIVE COMPUTATION....................................... 464.4 471.3 463.8 473.5
- -----------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE................................................ $ 2.37 $ 2.16 $ 4.65 $ 4.23
DILUTIVE EARNINGS PER SHARE............................................. 2.30 2.10 4.53 4.11
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(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.
- -------------------------------------------------------------------------------
47
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) -- QUARTERLY (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) 1998 1998 1997 1998 1998 1997 1998 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME) (C)
Consumer Loans
In U.S. Offices............................ $ 59,896 $ 55,955 $ 55,556 $1,517 $1,413 $1,444 10.16 10.24 10.43
In Offices Outside the U.S. (D)............ 50,547 49,532 51,876 1,553 1,496 1,604 12.32 12.25 12.40
---------------------------------------------------------
Total Consumer Loans......................... 110,443 105,487 107,432 3,070 2,909 3,048 11.15 11.18 11.38
---------------------------------------------------------
Commercial Loans
In U.S. Offices
Commercial and Industrial............... 11,327 11,316 10,460 230 228 221 8.14 8.17 8.47
Mortgage and Real Estate................ 3,088 2,777 2,882 67 62 68 8.70 9.05 9.46
Loans to Financial Institutions......... 279 358 616 9 11 13 12.94 12.46 8.46
Lease Financing......................... 2,928 3,007 3,049 47 50 54 6.44 6.74 7.10
In Offices Outside the U.S. (D)............ 63,205 59,583 49,391 1,674 1,584 1,314 10.62 10.78 10.67
---------------------------------------------------------
Total Commercial Loans....................... 80,827 77,041 66,398 2,027 1,935 1,670 10.06 10.19 10.09
---------------------------------------------------------
Total Loans.................................. 191,270 182,528 173,830 5,097 4,844 4,718 10.69 10.76 10.89
---------------------------------------------------------
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. Offices.............................. 6,673 8,655 7,534 59 93 99 3.55 4.36 5.27
In Offices Outside the U.S. (D).............. 5,869 6,214 5,025 128 149 104 8.75 9.72 8.30
---------------------------------------------------------
Total........................................ 12,542 14,869 12,559 187 242 203 5.98 6.60 6.48
---------------------------------------------------------
SECURITIES, At Fair Value
In U.S. Offices
Taxable.................................... 10,371 8,689 11,087 106 93 141 4.10 4.34 5.10
Exempt from U.S. Income Tax................ 2,828 2,646 2,676 42 44 43 5.96 6.74 6.45
In Offices Outside the U.S. (D).............. 23,164 22,400 20,538 510 451 424 8.83 8.17 8.28
---------------------------------------------------------
Total........................................ 36,363 33,735 34,301 658 588 608 7.26 7.07 7.11
---------------------------------------------------------
TRADING ACCOUNT ASSETS (E)
In U.S. Offices.............................. 5,452 6,585 4,768 84 100 70 6.18 6.16 5.89
In Offices Outside the U.S. (D).............. 11,487 9,900 10,075 242 155 203 8.45 6.35 8.08
---------------------------------------------------------
Total........................................ 16,939 16,485 14,843 326 255 273 7.72 6.27 7.38
---------------------------------------------------------
LOANS HELD FOR SALE, In U.S. Offices......... 4,525 3,615 3,414 137 109 107 12.14 12.23 12.57
DEPOSITS AT INTEREST WITH BANKS (D).......... 14,404 13,957 13,669 267 282 245 7.43 8.19 7.19
---------------------------------------------------------
Total Interest-Earning Assets................ 276,043 265,189 252,616 $6,672 $6,320 $6,154 9.69 9.67 9.77
---------------------------------------------------------
Non-Interest-Earning Assets (E).............. 50,511 47,726 40,464
------------------------------
TOTAL ASSETS................................. $326,554 $312,915 $293,080
- -----------------------------------------------------------------------------------------------------------------------------------
DEPOSITS
In U.S. Offices
Savings Deposits........................... $ 31,094 $ 30,068 $ 26,820 $ 229 $ 224 $ 197 2.95 3.02 2.95
Other Time Deposits........................ 10,698 11,191 12,677 121 129 147 4.54 4.67 4.65
In Offices Outside the U.S. (D).............. 146,711 136,661 128,899 2,433 2,269 2,077 6.65 6.73 6.46
---------------------------------------------------------
Total........................................ 188,503 177,920 168,396 2,783 2,622 2,421 5.92 5.98 5.77
---------------------------------------------------------
TRADING ACCOUNT LIABILITIES (E)
In U.S. Offices.............................. 3,698 4,391 2,348 48 60 34 5.21 5.54 5.81
In Offices Outside the U.S. (D).............. 2,578 2,149 2,491 37 32 42 5.76 6.04 6.76
---------------------------------------------------------
Total........................................ 6,276 6,540 4,839 85 92 76 5.43 5.71 6.30
---------------------------------------------------------
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. Offices.............................. 12,708 11,971 16,193 165 150 252 5.21 5.08 6.24
In Offices Outside the U.S. (D).............. 9,056 8,253 7,687 309 279 175 13.69 13.71 9.13
---------------------------------------------------------
Total........................................ 21,764 20,224 23,880 474 429 427 8.74 8.60 7.17
---------------------------------------------------------
LONG-TERM DEBT
In U.S. Offices.............................. 17,773 15,328 14,780 245 236 226 5.53 6.24 6.13
In Offices Outside the U.S. (D).............. 3,218 3,997 4,920 76 85 128 9.47 8.62 10.44
---------------------------------------------------------
Total........................................ 20,991 19,325 19,700 321 321 354 6.13 6.74 7.21
---------------------------------------------------------
Total Interest-Bearing Liabilities........... 237,534 224,009 216,815 $3,663 $3,464 $3,278 6.19 6.27 6.06
---------------------------------------------------------
Demand Deposits in U.S. Offices.............. 10,031 11,511 10,751
Other Non-Interest-Bearing Liabilities (E)... 57,485 56,384 44,678
Total Stockholders' Equity................... 21,504 21,011 20,836
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $326,554 $312,915 $293,080
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS
In U.S. Offices (F)......................... $107,392 $103,634 $102,512 $1,281 $1,235 $1,257 4.78 4.83 4.92
In Offices Outside the U.S. (F)............. 168,651 161,555 150,104 1,728 1,621 1,619 4.11 4.07 4.33
---------------------------------------------------------
TOTAL....................................... $276,043 $265,189 $252,616 $3,009 $2,856 $2,876 4.37 4.37 4.57
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 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.
- --------------------------------------------------------------------------------
48
<PAGE>
CITICORP [LOGO](R)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) -- SIX MONTHS (A) (B)
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE VOLUME INTEREST REVENUE/EXPENSE % AVERAGE RATE
---------------------------------------------------------------------
6 MONTHS 6 Months 6 MONTHS 6 Months 6 MONTHS 6 Months
(In Millions of Dollars) 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME) (C)
Consumer Loans
In U.S. Offices........................................ $ 57,925 $ 55,393 $ 2,930 $ 2,851 10.20 10.38
In Offices Outside the U.S. (D)........................ 50,040 51,542 3,049 3,181 12.29 12.45
-------------------------------------------------
Total Consumer Loans..................................... 107,965 106,935 5,979 6,032 11.17 11.38
-------------------------------------------------
Commercial Loans
In U.S. Offices
Commercial and Industrial........................... 11,321 9,859 458 423 8.16 8.65
Mortgage and Real Estate............................ 2,933 2,927 129 127 8.87 8.75
Loans to Financial Institutions..................... 319 613 20 27 12.64 8.88
Lease Financing..................................... 2,967 3,006 97 98 6.59 6.57
In Offices Outside the U.S. (D)........................ 61,394 47,762 3,258 2,566 10.70 10.83
-------------------------------------------------
Total Commercial Loans................................... 78,934 64,167 3,962 3,241 10.12 10.19
-------------------------------------------------
Total Loans.............................................. 186,899 171,102 9,941 9,273 10.73 10.93
-------------------------------------------------
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. Offices.......................................... 7,664 7,681 152 199 4.00 5.22
In Offices Outside the U.S. (D).......................... 6,042 5,218 277 216 9.25 8.35
-------------------------------------------------
Total.................................................... 13,706 12,899 429 415 6.31 6.49
-------------------------------------------------
SECURITIES, At Fair Value
In U.S. Offices
Taxable................................................ 9,530 9,821 199 243 4.21 4.99
Exempt from U.S. Income Tax............................ 2,737 2,594 86 84 6.34 6.53
In Offices Outside the U.S. (D).......................... 22,782 19,602 961 813 8.51 8.36
-------------------------------------------------
Total.................................................... 35,049 32,017 1,246 1,140 7.17 7.18
-------------------------------------------------
TRADING ACCOUNT ASSETS (E)
In U.S. Offices.......................................... 6,019 4,852 184 140 6.16 5.82
In Offices Outside the U.S. (D).......................... 10,693 9,743 397 377 7.49 7.80
-------------------------------------------------
Total.................................................... 16,712 14,595 581 517 7.01 7.14
-------------------------------------------------
LOANS HELD FOR SALE, In U.S. Offices..................... 4,070 3,269 246 212 12.19 13.08
DEPOSITS AT INTEREST WITH BANKS (D)...................... 14,180 13,517 549 469 7.81 7.00
-------------------------------------------------
Total Interest-Earning Assets............................ 270,616 247,399 $12,992 $12,026 9.68 9.80
----------------------------------------------
Non-Interest-Earning Assets (E).......................... 49,119 41,650
-----------------------
TOTAL ASSETS............................................. $319,735 $289,049
- ------------------------------------------------------------------------------------------------------------------------------
DEPOSITS
In U.S. Offices
Savings Deposits....................................... $ 30,581 $ 26,811 $ 453 $ 388 2.99 2.92
Other Time Deposits.................................... 10,945 12,589 250 286 4.61 4.58
In Offices Outside the U.S. (D).......................... 141,686 125,618 4,702 3,976 6.69 6.38
-------------------------------------------------
Total.................................................... 183,212 165,018 5,405 4,650 5.95 5.68
-------------------------------------------------
TRADING ACCOUNT LIABILITIES (E)
In U.S. Offices.......................................... 4,044 2,189 108 61 5.39 5.62
In Offices Outside the U.S. (D).......................... 2,364 2,470 69 88 5.89 7.18
-------------------------------------------------
Total.................................................... 6,408 4,659 177 149 5.57 6.45
-------------------------------------------------
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. Offices.......................................... 12,340 15,153 315 462 5.15 6.15
In Offices Outside the U.S. (D).......................... 8,654 7,367 588 403 13.70 11.03
-------------------------------------------------
Total.................................................... 20,994 22,520 903 865 8.67 7.75
-------------------------------------------------
LONG-TERM DEBT
In U.S. Offices.......................................... 16,550 14,809 481 441 5.86 6.01
In Offices Outside the U.S. (D).......................... 3,608 4,633 161 226 9.00 9.84
-------------------------------------------------
Total.................................................... 20,158 19,442 642 667 6.42 6.92
-------------------------------------------------
Total Interest-Bearing Liabilities....................... 230,772 211,639 $ 7,127 $ 6,331 6.23 6.03
----------------------------------------------
Demand Deposits in U.S. Offices.......................... 10,771 10,776
Other Non-Interest-Bearing Liabilities (E)............... 56,934 45,843
Total Stockholders' Equity............................... 21,258 20,791
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $319,735 $289,049
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS
In U.S. Offices (F)...................................... $105,513 $100,280 $ 2,516 $ 2,489 4.81 5.01
In Offices Outside the U.S. (F).......................... 165,103 147,119 3,349 3,206 4.09 4.39
-------------------------------------------------
TOTAL.................................................... $270,616 $247,399 $ 5,865 $ 5,695 4.37 4.64
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 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.
- -------------------------------------------------------------------------------
49
<PAGE>
CITICORP [LOGO](R)
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 Ended June 30, 1998 COMMISSION FILE NUMBER 1-5738
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 451,932,076
($1.00 Par Value) (Shares Outstanding on June 30, 1998)
50
<PAGE>
CITICORP [LOGO](R)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1 - Consolidated Financial Statements
Consolidated Financial Statements, Schedules, and Statistics
Statement of Income for Second Quarter and Six Months Ended
JUNE 30, 1998 AND 1997................................................. 37
Balance Sheet as of
JUNE 30, 1998 AND DECEMBER 31, 1997.................................... 38
Statement of Cash Flows for the Six Months Ended
JUNE 30, 1998 AND 1997..................................................40
Calculation of Earnings Per Share.......................................47
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................1-36
PART II OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.....................52
Item 5 - Other Information...................................................... 52
Item 6 - Exhibits and Reports on Form 8-K....................................... 53
Signatures....................................................................... 54
</TABLE>
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 second quarter and six months ended JUNE 30, 1998 AND 1997
have been included.
51
<PAGE>
CITICORP [LOGO] (R)
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of stockholders of Citicorp held on April 21, 1998 the
following matters were voted on by the stockholders:
a) The election of directors of Citicorp to hold office until the 1999 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>
Alain J. P. Belda 389,584,481 1,007,850 0 0
D. Wayne Calloway 389,525,731 1,066,600 0 0
Paul J. Collins 389,505,196 1,087,135 0 0
Kenneth T. Derr 389,603,342 988,989 0 0
John M. Deutch 389,564,136 1,028,195 0 0
Reuben Mark 389,872,172 920,159 0 0
Richard D. Parsons 389,514,078 1,076,253 0 0
John S. Reed 389,520,938 1,071,393 0 0
William R. Rhodes 389,545,011 1,047,320 0 0
Rozanne L. Ridgway 389,301,489 1,290,642 0 0
H. Onno Ruding 389,457,061 1,135,270 0 0
Robert B. Shapiro 389,601,364 990,967 0 0
Frank A. Shrontz 389,542,228 1,050,103 0 0
Franklin A. Thomas 389,467,213 1,125,118 0 0
Edgar S. Woolard, Jr. 389,615,049 997,282 0 0
- -----------------------------------------------------------------------------
</TABLE>
b) The selection of KPMG Peat Marwick as independent auditors of Citicorp. The
selection of KPMG Peat Marwick was ratified by votes of 390,173,655 for,
1,156,414 against, 0 broker non-votes, and 705,123 abstentions.
a) A stockholder proposal relating to cumulative voting for directors. Such
proposal was defeated by votes of 210,886,595 against, 78,097,717 for,
66,789,218 broker non-votes, and 36,261,599 abstentions.
a) A stockholder proposal relating to the disclosure of certain political
contributions. Such proposal was defeated by votes of 295,406,497 against,
19,887,466 for, 76,731,278 broker non-votes, and 9,951 abstentions.
Item 5 - Other Information
------------------
At a special meeting of stockholders of Citicorp held on July 22, 1998, the
following matter was voted on by the stockholders:
a) The Agreement and Plan of Merger, dated as of April 5, 1998, between
Travelers Group Inc. and Citicorp, and the transactions contemplated
thereby, was approved by votes of 336,143,991 for, 2,204,209 against, 0
broker non-votes, and 4,242,333 abstentions.
52
<PAGE>
CITICORP [LOGO](R)
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 23. Consent of KPMG Peat Marwick LLP.
Exhibit 27.01. Financial Data Schedule.
Exhibit 99.01. Citicorp and Travelers Group Inc. unaudited pro forma
condensed combined financial statements as of June 30, 1998, and for
the three and six months ended June 30, 1998 and 1997.
Exhibit 99.02. Travelers Group Inc. unaudited consolidated financial
statements as of June 30, 1998 and for the three months and six months
ended June 30, 1998 and 1997 (incorporated herein by reference to Item
1 of the Travelers Group Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
b) Reports on Form 8-K:
i) Citicorp filed a Form 8-K Current Report dated April 5, 1998 (Item 5) which
report included the Agreement and Plan of Merger by and between Travelers
Group Inc. and Citicorp dated as of April 5, 1998.
ii) Citicorp filed a Form 8-K Current Report dated April 8, 1998 (Item 5) which
report included Citicorp and Travelers Group Inc. unaudited pro forma
condensed combined financial statements as of December 31, 1997 and for the
three years then ended.
iii) Citicorp filed a Form 8-K Current Report dated April 21, 1998 (Item 5)
which report included a summary of the consolidated operations of Citicorp
for the three month period ended March 31, 1998 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).
iv) Citicorp filed a Form 8-K Current Report dated June 18, 1998 (Item 5) which
report included a Consent of Arthur Anderson LLP to the incorporation by
reference of its report dated March 13, 1997 in various registration
statements of Citicorp and/or certain of its affiliates.
v) Citicorp filed a Form 8-K Current Report dated July 21, 1998 (Item 5) which
report included a summary of the consolidated operations of Citicorp for
the three and six month periods ended June 30, 1998 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).
53
<PAGE>
CITICORP [LOGO](R)
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:
Registrant
/S/ Roger W. Trupin
_________________________
Roger W. Trupin
Vice President and Controller
By: /S/ George E. Seegers
_________________________
George E. Seegers
Assistant Secretary
Date: August 13, 1998
54
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12a
CITICORP AND SUBSIDIARIES
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
(In Millions)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ----------------------
EXCLUDING INTEREST ON DEPOSITS: 1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 3,468 3,435 4,110 5,906 6,324 1,722 1,681
INTEREST FACTOR IN RENT EXPENSE 159 150 140 143 147 83 78
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 3,627 3,585 4,250 6,049 6,471 1,805 1,759
------ ------ ------ ------ ------ ------ ------
INCOME:
NET INCOME 3,591 3,788 3,464 3,422 (A) 1,919 (B) 2,162 2,019
INCOME TAXES 2,131 2,285 2,121 1,189 941 1,297 1,211
FIXED CHARGES 3,627 3,585 4,250 6,049 6,471 1,805 1,759
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 9,349 9,658 9,835 10,660 9,331 5,264 4,989
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 2.58 2.69 2.31 1.76 1.44 2.92 2.84
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 13,081 12,409 13,012 14,902 16,121 7,127 6,331
INTEREST FACTOR IN RENT EXPENSE 159 150 140 143 147 83 78
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 13,240 12,559 13,152 15,045 16,268 7,210 6,409
------ ------ ------ ------ ------ ------ ------
INCOME:
NET INCOME 3,591 3,788 3,464 3,422 (A) 1,919 (B) 2,162 2,019
INCOME TAXES 2,131 2,285 2,121 1,189 941 1,297 1,211
FIXED CHARGES 13,240 12,559 13,152 15,045 16,268 7,210 6,409
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 18,962 18,632 18,737 19,656 19,128 10,669 9,639
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.43 1.48 1.42 1.31 1.18 1.48 1.50
</TABLE>
(A) NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 EXCLUDES THE CUMULATIVE
EFFECT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 112,
"EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS", OF $(56) MILLION.
(B) NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 EXCLUDES THE CUMULATIVE
EFFECT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109,
"ACCOUNTING FOR INCOME TAXES", OF $300 MILLION.
<PAGE>
EXHIBIT 12b
CITICORP AND SUBSIDIARIES
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
(In Millions) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS: 1997 1996 1995 1994 1993 1998 1997
---------------------------------------------------------------------
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 3,468 3,435 4,110 5,906 6,324 1,722 1,681
INTEREST FACTOR IN RENT EXPENSE 159 150 140 143 147 83 78
DIVIDENDS--PREFERRED STOCK 223 261 553 505(A) 465 93 114
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 3,850 3,846 4,803 6,554 6,936 1,898 1,873
------ ------ ------ ------ ------ ------ ------
INCOME:
NET INCOME 3,591 3,788 3,464 3,422(B) 1,919(C) 2,162 2,019
INCOME TAXES 2,131 2,285 2,121 1,189 941 1,297 1,211
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 3,627 3,585 4,250 6,049 6,471 1,805 1,759
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 9,349 9,658 9,835 10,660 9,331 5,264 4,989
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 2.43 2.51 2.05 1.63 1.35 2.77 2.66
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 13,081 12,409 13,012 14,902 16,121 7,127 6,331
INTEREST FACTOR IN RENT EXPENSE 159 150 140 143 147 83 78
DIVIDENDS--PREFERRED STOCK 223 261 553(A) 505 465 93 114
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 13,463 12,820 13,705 15,550 16,733 7,303 6,523
------ ------ ------ ------ ------ ------ ------
INCOME:
NET INCOME 3,591 3,788 3,464 3,422(B) 1,919(C) 2,162 2,019
INCOME TAXES 2,131 2,285 2,121 1,189 941 1,297 1,211
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 13,240 12,559 13,152 15,045 16,268 7,210 6,409
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 18,962 18,632 18,737 19,656 19,128 10,669 9,639
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.41 1.45 1.37 1.26 1.14 1.46 1.48
====== ====== ====== ====== ====== ====== ======
</TABLE>
(A) CALCULATED ON A BASIS OF AN ASSUMED TAX RATE OF 29% FOR 1994.
(B) NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 EXCLUDES THE CUMULATIVE
EFFECT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 112,
"EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS", OF ($56) MILLION.
(C) NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 EXCLUDES THE CUMULATIVE
EFFECT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109,
"ACCOUNTING FOR INCOME TAXES", OF $300 MILLION.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders of Citicorp:
We consent to the incorporation by reference of our report dated January 20,
1998 relating to the consolidated balance sheets of Citicorp and subsidiaries as
of December 31, 1997 and 1996, the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, and the related consolidated balance
sheets of Citibank, N.A. and subsidiaries as of December 31, 1997 and 1996 which
report appears on page 55 of the 1997 Citicorp Annual Report and Form 10-K, in
the following Registration Statements: of Citicorp Nos. 33-33238, 33-64574, and
33-59791 on Form S-3.
/s/ KPMG Peat Marwick LLP
New York, New York
August 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
ACCOMPANYING DISCLOSURES.
</LEGEND>
<CIK> 0000020405
<NAME> CITICORP
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,463
<INT-BEARING-DEPOSITS> 14,013
<FED-FUNDS-SOLD> 12,375<F1>
<TRADING-ASSETS> 37,121
<INVESTMENTS-HELD-FOR-SALE> 34,160
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 192,266
<ALLOWANCE> 6,182
<TOTAL-ASSETS> 330,751
<DEPOSITS> 215,982
<SHORT-TERM> 21,802<F2>
<LIABILITIES-OTHER> 13,641
<LONG-TERM> 19,957
0
1,275
<COMMON> 506
<OTHER-SE> 19,936
<TOTAL-LIABILITIES-AND-EQUITY> 330,751
<INTEREST-LOAN> 9,939
<INTEREST-INVEST> 1,218
<INTEREST-OTHER> 1,804
<INTEREST-TOTAL> 12,961
<INTEREST-DEPOSIT> 5,405
<INTEREST-EXPENSE> 7,127
<INTEREST-INCOME-NET> 5,834
<LOAN-LOSSES> 1,071
<SECURITIES-GAINS> 541
<EXPENSE-OTHER> 2,711
<INCOME-PRETAX> 3,459
<INCOME-PRE-EXTRAORDINARY> 2,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,162
<EPS-PRIMARY> $4.65
<EPS-DILUTED> $4.53
<YIELD-ACTUAL> 4.37<F4>
<LOANS-NON> 3,157<F5>
<LOANS-PAST> 1,008<F6>
<LOANS-TROUBLED> 45
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,001
<CHARGE-OFFS> 1,323
<RECOVERIES> 302
<ALLOWANCE-CLOSE> 6,343<F7>
<ALLOWANCE-DOMESTIC> 0<F8>
<ALLOWANCE-FOREIGN> 0<F9>
<ALLOWANCE-UNALLOCATED> 0<F10>
<FN>
<F1>Includes Securities Purchased Under Resale Agreements.
<F2>Purchased Funds and Other Borrowings.
<F3>Primary EPS repesents Basic EPS under Financial Accounting Standards No. 128,
"Earnings per Share".
<F4>Taxable Equivalent Basis.
<F5>Includes $1,293MM of cash-basis commercial loans and $1,864MM of consumer
loans on which accrual of interest has been suspended.
<F6>Accruing loans 90 or more days delinquent.
<F7>Allowance activity for the six months of 1998 includes $316MM in other
changes, of which, $320MM reflects the addition of credit less reserves related
to the acquisition of UCS. The remaining balance is principally foreign currency
translation effects.
<F8>No portion of Citicorp's credit loss allowance is specifically
allocated to any individual loan or group of loans, however, $1,827MM
of the allowance at December 31, 1997 was attributed to operations outside
the U.S. (see Note 12 to the 1997 Annual Report).
<F9>See Footnote F8 above.
<F10>See Footnote F8 above.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
CITICORP AND TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 5, 1998, Citicorp and Travelers Group Inc. (Travelers) agreed
to merge (the "Merger"). The Merger will be effected through a merger of
Citicorp into a newly formed, wholly owned subsidiary of Travelers. Travelers
has applied to the Federal Reserve Board to become a bank holding company.
Subsequent to the Merger, Travelers will become known as Citigroup. Travelers
stockholders will retain their existing shares, which will automatically
represent shares of Citigroup. Each share of Citicorp Common Stock will be
exchanged for 2.5 shares of Citigroup Common Stock. The Merger, which is
anticipated to be completed in the third quarter of 1998, is expected to be
accounted for under the "pooling of interests" method and, accordingly,
Travelers' historical consolidated financial statements presented in future
reports will be restated to include the accounts and results of Citicorp. The
Merger and/or related transactions are subject to customary closing conditions
including regulatory approvals. The stockholders of both Citicorp and Travelers
approved the Merger on July 22, 1998.
The following unaudited pro forma condensed combined statement of
financial position combines the historical consolidated statement of financial
position of Citicorp and the historical consolidated statement of financial
position of Travelers, giving effect to the Merger as if it had been consummated
on June 30, 1998. The following unaudited pro forma condensed combined
statements of income combine the historical statements of income of Citicorp and
Travelers giving effect to the Merger as if it had occurred on January 1, 1997.
This information should be read in conjunction with the accompanying notes
hereto, the separate historical financial statements of Citicorp as of June 30,
1998 and for the three and six month periods ended June 30, 1998 and 1997, which
are contained in Citicorp's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, and the separate historical financial statements of Travelers as
of June 30, 1998 and for the three and six month periods ended June 30, 1998 and
1997, which are contained in Travelers' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
The pro forma financial data is not necessarily indicative of the
results of operations that would have occurred had the Merger been consummated
on the dates indicated or of future operations of the combined company.
<PAGE>
<TABLE>
<CAPTION>
Citicorp and Travelers Group Inc.
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of June 30, 1998
(in millions)
Citicorp Travelers Pro Forma Pro Forma
Assets Historical Historical Adjustments Combined
------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 23,476 $ 4,895 $ - $ 28,371
Investments 37,277 64,442 101,719
Federal funds sold and securities borrowed or
purchased under agreements to resell 12,375 131,318 143,693
Brokerage receivables 22,734 22,734
Trading account assets 37,121 138,766 175,887
Consumer loans 107,410 12,171 119,581
Commercial loans 84,856 84,856
Allowance for credit losses (6,182) (347) (6,529)
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net 186,084 11,824 - 197,908
Reinsurance recoverables 9,487 9,487
Separate and variable accounts 13,878 13,878
Other assets 34,418 22,732 57,150
==============================================================================================================================
Total assets $ 330,751 $ 420,076 $ - $ 750,827
==============================================================================================================================
Liabilities
-----------
Deposits $ 215,982 $ - $ - $ 215,982
Investment banking and brokerage borrowings 18,682 18,682
Short-term borrowings 10,389 4,392 14,781
Long-term debt 18,982 30,551 49,533
Federal funds purchased and securities loaned or
sold under agreements to repurchase 11,413 124,258 135,671
Brokerage payables 27,053 27,053
Trading account liabilities 29,121 95,348 124,469
Insurance policy and claims reserves 43,744 43,744
Contractholder funds and separate and variable accounts 29,418 29,418
Other liabilities 22,172 21,078 43,250
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 308,059 394,524 - 702,583
- ------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock - Series I 280 280
Trust preferred securities - parent obligated 975 1,200 (975) 1,200
Trust preferred securities - subsidiary obligated 1,645 975 2,620
Stockholders' equity
--------------------
Preferred stock 1,275 1,450 2,725
Common stock 506 12 (494) 24
Additional paid-in capital 6,512 5,988 (4,083) 8,417
Retained earnings 18,371 17,309 35,680
Treasury stock, at cost (4,577) (3,118) 4,577 (3,118)
Accumulated other changes in equity from nonowner sources (370) 1,263 893
Unearned compensation (477) (477)
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 21,717 22,427 - 44,144
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 330,751 $ 420,076 $ - $ 750,827
==============================================================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITICORP AND TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Citicorp Travelers Pro Forma
Historical Historical Combined
----------- ---------- -----------
<S> <C> <C> <C>
REVENUES:
Loan interest, including fees $ 5,096 $ 421 $ 5,517
Other interest and dividends 1,562 4,556 6,118
Insurance premiums 2,395 2,395
Commissions and fees 1,553 1,432 2,985
Principal transactions 563 315 878
Asset management and administration fees 553 553
Realized gains from sales of investments 300 44 344
Other income 791 380 1,171
- ----------------------------------------------------------------------------------------------
Total revenues 9,865 10,096 19,961
Interest expense 3,663 3,333 6,996
- ----------------------------------------------------------------------------------------------
Total revenues, net of interest expense 6,202 6,763 12,965
- ----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 2,047 2,047
Non-insurance compensation and benefits 1,825 1,609 3,434
Insurance underwriting, acquisition and operating 811 811
Provision for credit losses 564 91 655
Other operating 2,058 382 2,440
- ----------------------------------------------------------------------------------------------
Total operating expenses 4,447 4,940 9,387
- ----------------------------------------------------------------------------------------------
Income before income taxes and minority interest 1,755 1,823 3,578
Provision for income taxes 658 630 1,288
Minority interest, net of income taxes 52 52
- ----------------------------------------------------------------------------------------------
NET INCOME $ 1,097 $ 1,141 $ 2,238
==============================================================================================
BASIC EARNINGS PER SHARE:
Net income $ 2.37 $ 0.99 $ 0.97
==============================================================================================
Weighted average common shares outstanding 451.8 1,117.7 2,247.2
==============================================================================================
DILUTED EARNINGS PER SHARE:
Net income $ 2.30 $ 0.95 $ 0.94
==============================================================================================
Adjusted weighted average common shares
outstanding 464.4 1,172.1 2,333.1
==============================================================================================
SUPPLEMENTAL INFORMATION:
Net interest revenue $ 2,995 $ 1,644 $ 4,639
Net interest revenue after provision for credit losses 2,431 1,553 3,984
==============================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITICORP AND TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Citicorp Travelers Pro Forma
Historical Historical Combined
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Loan interest, including fees $ 4,717 $ 321 $ 5,038
Other interest and dividends 1,424 4,047 5,471
Insurance premiums 2,220 2,220
Commissions and fees 1,441 1,172 2,613
Principal transactions 408 709 1,117
Asset management and administration fees 399 399
Realized gains from sales of investments 124 7 131
Other income 475 309 784
- ---------------------------------------------------------------------------------------------------------------
Total revenues 8,589 9,184 17,773
Interest expense 3,278 2,792 6,070
- ---------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 5,311 6,392 11,703
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 1,906 1,906
Non-insurance compensation and benefits 1,607 1,511 3,118
Insurance underwriting, acquisition and operating 799 799
Provision for credit losses 512 73 585
Other operating 1,566 654 2,220
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 3,685 4,943 8,628
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 1,626 1,449 3,075
Provision for income taxes 602 517 1,119
Minority interest, net of income taxes 49 49
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,024 $ 883 $ 1,907
===============================================================================================================
BASIC EARNINGS PER SHARE:
Net income $ 2.16 $ 0.77 $ 0.82
===============================================================================================================
Weighted average common shares outstanding 458.5 1,101.1 2,247.4
===============================================================================================================
DILUTED EARNINGS PER SHARE:
Net income $ 2.10 $ 0.73 $ 0.78
===============================================================================================================
Adjusted weighted average common shares
outstanding 471.3 1,178.0 2,356.3
===============================================================================================================
SUPPLEMENTAL INFORMATION:
Net interest revenue $ 2,863 $ 1,576 $ 4,439
Net interest revenue after provision for credit losses 2,351 1,503 3,854
===============================================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITICORP AND TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Citicorp Travelers Pro Forma
Historical Historical Combined
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Loan interest, including fees $ 9,939 $ 828 $ 10,767
Other interest and dividends 3,022 8,977 11,999
Insurance premiums 4,735 4,735
Commissions and fees 2,994 2,866 5,860
Principal transactions 1,148 1,095 2,243
Asset management and administration fees 1,051 1,051
Realized gains from sales of investments 541 188 729
Other income 1,290 724 2,014
- ---------------------------------------------------------------------------------------------------------------
Total revenues 18,934 20,464 39,398
Interest expense 7,127 6,510 13,637
- ---------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 11,807 13,954 25,761
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 4,041 4,041
Non-insurance compensation and benefits 3,539 3,391 6,930
Insurance underwriting, acquisition and operating 1,623 1,623
Provision for credit losses 1,071 178 1,249
Other operating 3,738 1,138 4,876
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 8,348 10,371 18,719
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 3,459 3,583 7,042
Provision for income taxes 1,297 1,239 2,536
Minority interest, net of income taxes 110 110
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,162 $ 2,234 $ 4,396
===============================================================================================================
BASIC EARNINGS PER SHARE:
Net income $ 4.65 $ 1.94 $ 1.90
===============================================================================================================
Weighted average common shares outstanding 452.0 1,116.8 2,246.8
===============================================================================================================
DILUTED EARNINGS PER SHARE:
Net income $ 4.53 $ 1.87 $ 1.84
===============================================================================================================
Adjusted weighted average common shares
outstanding 463.8 1,170.5 2,330.0
===============================================================================================================
SUPPLEMENTAL INFORMATION:
Net interest revenue $ 5,834 $ 3,295 $ 9,129
Net interest revenue after provision for credit losses 4,763 3,117 7,880
===============================================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITICORP AND TRAVELERS GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Citicorp Travelers Pro Forma
Historical Historical Combined
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Loan interest, including fees $ 9,271 $ 627 $ 9,898
Other interest and dividends 2,727 7,545 10,272
Insurance premiums 4,444 4,444
Commissions and fees 2,793 2,378 5,171
Principal transactions 903 1,471 2,374
Asset management and administration fees 788 788
Realized gains from sales of investments 232 24 256
Other income 912 607 1,519
- ---------------------------------------------------------------------------------------------------------------
Total revenues 16,838 17,884 34,722
Interest expense 6,331 5,170 11,501
- ---------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 10,507 12,714 23,221
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Policyholder benefits and claims 3,811 3,811
Non-insurance compensation and benefits 3,272 3,059 6,331
Insurance underwriting, acquisition and operating 1,604 1,604
Provision for credit losses 935 145 1,080
Other operating 3,070 1,299 4,369
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 7,277 9,918 17,195
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 3,230 2,796 6,026
Provision for income taxes 1,211 1,000 2,211
Minority interest, net of income taxes 98 98
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,019 $ 1,698 $ 3,717
===============================================================================================================
BASIC EARNINGS PER SHARE:
Net income $ 4.23 $ 1.47 $ 1.59
===============================================================================================================
Weighted average common shares outstanding 460.0 1,102.5 2,252.5
===============================================================================================================
DILUTED EARNINGS PER SHARE:
Net income $ 4.11 $ 1.40 $ 1.52
===============================================================================================================
Adjusted weighted average common shares
outstanding 473.5 1,179.6 2,363.4
===============================================================================================================
SUPPLEMENTAL INFORMATION:
Net interest revenue $ 5,667 $ 3,002 $ 8,669
Net interest revenue after provision for credit losses 4,732 2,857 7,589
===============================================================================================================
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
</TABLE>
<PAGE>
CITICORP AND TRAVELERS GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
The Merger Agreement provides that each share of Citicorp Common Stock
will be exchanged for 2.5 shares of Citigroup Common Stock. The Merger, which is
anticipated to be completed in the third quarter of 1998, is expected to be
accounted for under the "pooling of interests" method and, accordingly,
Travelers' historical consolidated financial statements presented in future
reports will be restated to include the accounts and results of Citicorp. The
Merger and/or related transactions are subject to customary closing conditions
including regulatory approval. The stockholders of both Citicorp and Travelers
approved the Merger on July 22, 1998.
2. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
Citicorp and Travelers are in the process of reviewing their accounting
policies and financial statement classifications and, as a result of this
review, it may be necessary to restate either Citicorp's or Travelers' financial
statements to conform to those accounting policies and classifications that are
determined to be most appropriate.
3. INTERCOMPANY TRANSACTIONS
Transactions between Citicorp and Travelers are not material in relation
to the pro forma combined financial statements and therefore intercompany
balances have not been eliminated from the pro forma combined accounts.
4. PRO FORMA ADJUSTMENTS
The pro forma adjustments to common stock, additional paid-in capital,
and treasury stock reflect the retirement of shares of Citicorp Common Stock
held in treasury and the issuance at June 30, 1998 of 1,129.8 million shares of
Citigroup Common Stock to effect the Merger, calculated by multiplying the
number of shares of Citicorp Common Stock outstanding at June 30, 1998 (451.9
million shares) by the exchange ratio (2.5). The number of shares to be issued
at consummation of the Merger will be based on the actual number of shares of
Citicorp Common Stock outstanding at that time. Additionally, the pro forma
adjustments transfer Citicorp's trust preferred securities to subsidiary
obligated to reflect the merger of Citicorp into a newly formed, wholly owned
subsidiary of Travelers.
5. PRO FORMA CAPITAL RATIOS
The pro forma combined risk-based capital and leverage ratios at June
30, 1998 are estimated to be:
Tier 1 Capital Ratio.................. 8.5%
Total Capital Ratio................... 11.0%
Leverage Ratio........................ 5.7%
<PAGE>
6. PRO FORMA EARNINGS PER SHARE
The pro forma combined basic and diluted earnings per share for the
respective periods presented is based on the combined weighted average number of
common shares and adjusted weighted average shares of Citicorp and Travelers.
The number of weighted average common shares and adjusted weighted average
shares of Citicorp is based on an exchange ratio of 2.5 shares of Citigroup
Common Stock for each issued and outstanding share of Citicorp. The pro forma
combined basic and diluted earnings per share have been calculated as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------------------------------
(in millions, except per share amounts) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income............................................ $2,238 $1,907 $4,396 $3,717
Preferred dividends................................... (58) (70) (121) (144)
---------------------------------------------------------
Income available to common
stockholders for basic EPS.......................... 2,180 1,837 4,275 3,573
Effect of dilutive securities......................... 6 10 12 20
---------------------------------------------------------
Income available to common
stockholders for diluted EPS........................ $2,186 $1,847 $4,287 $3,593
=========================================================
Weighted average common shares
outstanding applicable to basic EPS................. 2,247.2 2,247.4 2,246.8 2,252.5
Effect of dilutive securites:
Convertible securities.......................... 13.2 26.6 13.2 26.6
Employee stock plans............................ 69.3 75.3 66.7 77.4
Warrants........................................ 3.4 7.0 3.3 6.9
---------------------------------------------------------
Adjusted weighted average common
shares outstanding applicable to diluted EPS........ 2,333.1 2,356.3 2,330.0 2,363.4
=========================================================
Basic earnings per share.............................. $0.97 $0.82 $1.90 $1.59
=========================================================
Diluted earnings per share............................ $0.94 $0.78 $1.84 $1.52
=========================================================
</TABLE>
7. RESTRUCTURING CHARGE AND FUTURE COST SAVINGS
The pro forma combined financial statements do not reflect any
restructuring costs related to the Merger. Management has not yet determined the
amount of such costs; however, a restructuring charge may be recorded after the
consummation of the Merger. Management does not anticipate that any such charge
will be material to the financial position of the combined company.
The pro forma combined financial statements do not reflect any future
cost savings that may result from the reduction of overhead expense, changes in
corporate infrastructure, and the elimination of redundant expenses. Although
management expects that cost savings will result from the Merger, there can be
no assurance that cost savings will be achieved.
