FINANCIAL REVIEW
AND FORM 10-Q
FIRST QUARTER
1998
CITICORP [LOGO]
<PAGE>
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 ......................................................... 8
Global Consumer in Emerging Markets .................................. 9
Global Consumer in Developed Markets ................................. 10
Consumer Portfolio Review ............................................ 10
Global Corporate Banking ................................................ 13
Emerging Markets ..................................................... 14
Global Relationship Banking .......................................... 15
Corporate Items ......................................................... 16
MANAGING GLOBAL RISK ....................................................... 17
Liquidity ............................................................... 17
Management of Price Risk Exposure ....................................... 17
Price Risk in Non-Trading Portfolios ................................. 18
Price Risk in Trading Portfolios ..................................... 20
Management of Cross-Border Risk ......................................... 20
Estimated Fair Value of Financial Instruments ........................... 22
Capital ................................................................. 23
STATEMENT OF INCOME ANALYSIS ............................................... 26
Net Interest Revenue (Taxable Equivalent Basis) ......................... 26
Fee and Commission Revenue .............................................. 27
Trading-Related Revenue ................................................. 29
Securities Transactions ................................................. 29
Other Revenue ........................................................... 30
Provision and Credit Loss Reserves ...................................... 30
Operating Expense ....................................................... 32
Restructuring Expense ................................................... 33
Income Taxes ............................................................ 33
Effect of Credit Card Securitization Activity ........................... 34
CONSOLIDATED FINANCIAL STATEMENTS .......................................... 35
Consolidated Statement of Income ........................................ 35
Consolidated Balance Sheet .............................................. 36
Consolidated Statement of Changes in Stockholders' Equity ............... 37
Consolidated Statement of Cash Flows .................................... 38
Consolidated Balance Sheet CITIBANK, N.A. and Subsidiaries .............. 39
OTHER FINANCIAL INFORMATION ................................................ 40
Securities .............................................................. 40
Trading Account Assets and Liabilities .................................. 40
Trading and End-User Derivative and Foreign Exchange Contracts .......... 41
Cash-Basis, Renegotiated, and Past Due Loans ............................ 43
Other Real Estate Owned (OREO) and Assets Pending Disposition ........... 43
Details of Credit Loss Experience ....................................... 44
Calculation of Earnings Per Share ....................................... 45
Average Balances and Interest Rates (Taxable Equivalent Basis) .......... 46
FORM 10-Q .................................................................. 47
FORM 10-Q CROSS-REFERENCE INDEX ......................................... 48
SIGNATURES ................................................................. 50
<PAGE>
<TABLE>
<CAPTION>
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FINANCIAL SUMMARY
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FIRST QUARTER
--------------------
1998 1997
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<S> <C> <C>
NET INCOME (In Millions of Dollars).................................................. $1,065 $995
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NET INCOME PER SHARE (A)
Basic................................................................................ $2.28 $ 2.07
Diluted.............................................................................. $2.23 $ 2.01
COMMON STOCKHOLDERS' EQUITY PER SHARE................................................ $44.01 $41.08
CLOSING STOCK PRICE AT QUARTER END................................................... $142.00 $108.25
DIVIDENDS DECLARED PER COMMON SHARE.................................................. $0.575 $0.525
=============================================================================================================
FINANCIAL RATIOS
Return on Assets..................................................................... 1.38% 1.41%
Return on Common Stockholders' Equity................................................ 21.74% 20.76%
Return on Total Stockholders' Equity................................................. 20.55% 19.44%
<CAPTION>
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MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
CAPITAL (Dollars in Billions) (see page 23) 1998 1997 1997 1997 1997
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<S> <C> <C> <C> <C> <C> <C>
Tier 1................................................ $21.3 $21.1 $20.7 $20.6 $20.3
Total (Tier 1 and 2).................................. 31.2 31.2 30.4 30.1 29.3
Tier 1 Ratio.......................................... 8.26% 8.34% 8.25% 8.18% 8.39%
Total Ratio (Tier 1 and 2)............................ 12.13% 12.31% 12.16% 11.96% 12.11%
Leverage Ratio........................................ 6.83% 7.01% 7.14% 7.30% 7.39%
Common Equity as a Percentage of Total Assets......... 6.01% 6.21% 6.53% 6.41% 6.50%
Total Equity as a Percentage of Total Assets.......... 6.50% 6.82% 7.16% 7.04% 7.16%
<CAPTION>
=============================================================================================================
1ST QTR. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
EARNINGS ANALYSIS (In Millions of Dollars) 1998 1997 1997 1997 1997
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<S> <C> <C> <C> <C> <C>
Total Revenue......................................... $5,605 $5,568 $5,541 $5,311 $5,196
Effect of Credit Card Securitization Activity......... 461 434 408 437 434
Net Cost To Carry (B)................................. (1) 4 (5) (1) (3)
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ADJUSTED REVENUE...................................... 6,065 6,006 5,944 5,747 5,627
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Total Operating Expense............................... 3,394 3,408 4,237 3,173 3,169
Net OREO Benefits (C)................................. 12 9 16 37 10
Restructuring Charge.................................. - - (889) - -
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ADJUSTED OPERATING EXPENSE............................ 3,406 3,417 3,364 3,210 3,179
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OPERATING MARGIN...................................... 2,659 2,589 2,580 2,537 2,448
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Global Consumer Net Write-Offs........................ 426 432 452 488 459
Effect of Credit Card Securitization Activity......... 461 434 408 437 434
Net Cost to Carry and Net OREO (Benefits) Costs (B) (C) (1) - (4) (3) 1
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GLOBAL CONSUMER CREDIT COSTS.......................... 886 866 856 922 894
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Global Corporate Banking Net Write-Offs (Recoveries).. 56 29 9 (1) (61)
Net Cost to Carry and Net OREO Benefits (B) (C)....... (12) (5) (17) (35) (14)
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GLOBAL CORPORATE BANKING CREDIT COSTS (BENEFITS)...... 44 24 (8) (36) (75)
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OPERATING MARGIN LESS CREDIT COSTS.................... 1,729 1,699 1,732 1,651 1,629
Additional Provision (D).............................. 25 25 25 25 25
Restructuring Charge.................................. - - 889 - -
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INCOME BEFORE TAXES................................... 1,704 1,674 818 1,626 1,604
Income Taxes.......................................... 639 613 307 602 609
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NET INCOME............................................ $1,065 $1,061 $511 $1,024 $995
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</TABLE>
(A) Based on net income less preferred stock dividends. See page 45 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 30 for
discussion.
1
<PAGE>
Citicorp net income for the 1998 first quarter was $1.065 billion or $2.23 per
diluted common share, up 7% and 11%, respectively, from the 1997 first quarter.
Earnings growth was led by the Global Corporate Banking businesses and
Citibanking in the developed markets, partially offset by weaker results in the
consumer emerging markets businesses largely as a result of conditions in Asia
Pacific. Return on common equity was 21.7% and return on average assets was
1.38% in the quarter, compared to 20.8% and 1.41% in the 1997 quarter.
Global Consumer earned $458 million in the 1998 first quarter, down $35 million
or 7% from the 1997 quarter, as strong performance in the North America, Europe,
and Japan Citibanking businesses was more than offset by the effect of foreign
currency translation in Asia Pacific. Net income in Global Corporate Banking was
$753 million, up $104 million or 16%, as margin growth, driven by higher
revenue, was partially offset by increased Emerging Markets credit costs.
The Global Consumer business income before taxes in Asia Pacific (excluding
Japan and the Indian subcontinent, but including Australia and New Zealand) was
down $67 million, as decreased revenue of $77 million and an additional credit
provision of $6 million were partially offset by $17 million of lower expense.
Income before taxes in Global Corporate Banking in Asia Pacific was down $16
million, as an operating margin increase of $42 million was offset by additional
credit costs of $58 million.
Adjusted revenue of $6.1 billion in the first quarter was up $438 million or 8%
from 1997. Revenue in Global Consumer of $3.5 billion was essentially unchanged,
as an $82 million increase in the developed markets in all businesses was offset
by a $79 million decrease in the emerging markets, principally in the Cards and
Citibanking businesses. Revenue of $2.3 billion in Global Corporate Banking was
up $384 million or 20%, reflecting 20% increases in both Emerging Markets and
Global Relationship Banking. Excluding the estimated effect of foreign currency
translation, Citicorp revenue would have grown 12%.
Adjusted net interest revenue (taxable equivalent basis) of $3.5 billion was up
$47 million from 1997, as 9% growth in adjusted average interest-earning assets,
across most markets, was partially offset by a reduced net interest margin of
4.85%, down from 5.23% a year ago, but comparable with recent quarters. Adjusted
fee and commission revenue of $1.4 billion was up $79 million or 6%, led by
growth in the developed markets, partially offset by reduced revenue from
emerging markets, particularly in Asia Pacific. Trading-related revenue,
including related net interest revenue, of $728 million increased $139 million
from 1997, primarily reflecting improved foreign exchange results in Asia
Pacific attributable to unsettled markets in certain Asian currencies. Net asset
gains and securities transactions of $272 million were $72 million higher than a
year ago. Venture capital revenue increased $171 million to $264 million from
last year's low level, benefiting from continued buoyant equity markets.
Adjusted operating expense of $3.4 billion in the quarter was up $227 million or
7% from 1997. Expense increased 8% in the emerging markets and 7% in the
developed markets in support of volume-driven business growth in most products
and geographies, continued franchise and product development efforts, and
technological enhancements and initiatives. Excluding the estimated effect of
foreign currency translation, expense would have increased 10%.
Operating margin grew $211 million, or 9%, to $2.7 billion in the first quarter.
The incremental revenue to expense ratio was 1.9 to 1 for the quarter, and the
efficiency ratio (adjusted operating expense as a percentage of adjusted
revenue) was stable at 56%.
Total credit costs were $930 million in the 1998 quarter, up $40 million or 4%
from $890 million in the preceding quarter and up $111 million or 14% from $819
million in the 1997 first quarter. Consumer net credit losses of $887 million or
an annualized 2.64% of average managed loans in the first quarter increased $21
million from $866 million or 2.50% in the prior quarter, and decreased by $6
million from $893 million or 2.69% in the 1997 first quarter. The changes in
consumer credit losses and the related loss ratios chiefly reflected Cards
credit losses and improvements in Citibanking. The managed consumer loan
delinquency ratio (90 days or more past due) was 2.37%, compared with 2.31% and
2.58% at the end of the preceding and year-ago quarters.
2
<PAGE>
Global Corporate Banking credit costs were $44 million in the quarter compared
to $24 million in the preceding quarter and a net benefit of $75 million in the
1997 first quarter. The higher level of credit costs from a year ago reflected
increases in Asia Pacific, primarily in Thailand and Indonesia, and reduced real
estate recoveries. Also included in the first quarters were recoveries from
refinancing agreements concluded with Ivory Coast for $9 million in 1998 and
Peru for $50 million in 1997. Commercial cash-basis loans and OREO of $1.7
billion at March 31, 1998 were up $169 million and $172 million, both up 11%,
from year-end and a year ago, principally reflecting increases in Indonesia and
Thailand, and improvements in real estate in Global Relationship Banking.
At March 31, 1998, total credit loss reserves were $6.0 billion, and the portion
attributable to loans represented 3.09% of total on-balance sheet loans. Global
Consumer continued to build its allowance for credit losses, adding $25 million
above net credit losses, primarily related to Cards in both the developed and
emerging markets.
Citicorp's effective tax rate was 38% in both the 1998 and 1997 first quarters.
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 25% in 1998 and
27% in 1997.
Total capital (Tier 1 and Tier 2) was $31.2 billion or 12.13% of net
risk-adjusted assets, and Tier 1 capital was $21.3 billion or 8.26% at March 31,
1998. During the quarter, Citicorp generated $280 million of free capital and
repurchased 4.0 million shares of common stock for $483 million. With these
repurchases, the number of shares acquired since June 20, 1995, when the Board
of Directors authorized the stock repurchase program, totaled 82.0 million at a
cost of $7.3 billion. The stock repurchase program has been suspended in
connection with the announced agreement to merge with Travelers Group.
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.
Travelers stockholders will retain their existing shares, which will
automatically represent shares of Citigroup, Inc., the new name of the parent
company following the merger. Each share of Citicorp common stock will be
exchanged for 2.5 shares of Citigroup common stock. The transaction will be
effected through a merger of Citicorp into a newly formed, wholly-owned
subsidiary of Travelers. The transaction 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 related
transactions are subject to customary closing conditions, including regulatory
approvals and the affirmative vote of a majority of the stockholders of each of
Citicorp and Travelers.
Travelers has filed an application and notice with the Federal Reserve Board
with respect to the approvals required under the Bank Holding Company Act. The
Federal Reserve Board is also required to solicit the views of the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the
Office of Thrift Supervision. Filings for approval have also been made with
state banking authorities in New York, Delaware, and Utah. In addition, filings
for approval with the insurance regulatory authorities in Arizona, New Jersey,
New York, and Delaware have been made. Some form of filing and/or approval from
insurance regulatory authorities may be required in certain other states.
Citicorp and Travelers have also filed a preliminary proxy statement with the
Securities and Exchange Commission (the "SEC") for review, which is not yet
publicly available. Certain other regulatory filings are being made in
jurisdictions outside the United States. The regulatory filings and/or approvals
all have various periods of time associated with the approval process. 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 March 31, 1998, and for the three months ended March
31, 1998 and 1997 are attached as an exhibit to this Form 10-Q.
The consolidated financial statements of Travelers included in Travelers' Annual
Report on Form 10-K for the year ended December 31, 1997 and its Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, each as filed or to be
filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended,
are incorporated as of the respective filing dates of those reports in this
Financial Review and Form 10-Q by reference. Those reports 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. (Further
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>
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BUSINESS DISCUSSION
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The table below and the discussions that follow analyze Citicorp's results by
global business areas including its Global Consumer and Global Corporate Banking
core business franchises.
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EARNINGS BY GLOBAL BUSINESS AREA
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FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
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Global Consumer ................................ $ 458 $ 493 (7)
Global Corporate Banking ....................... 753 649 16
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CORE BUSINESSES ................................ 1,211 1,142 6
Corporate Items ................................ (146) (147) (1)
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TOTAL CITICORP ................................. $ 1,065 $ 995 7
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SUPPLEMENTAL INFORMATION:
GLOBAL CONSUMER:
Citibanking .................................... $ 198 $ 190 4
Cards .......................................... 187 223 (16)
Private Bank ................................... 73 80 (9)
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TOTAL .......................................... $ 458 $ 493 (7)
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GLOBAL CONSUMER BUSINESSES IN:
Emerging Markets ............................... $ 164 $ 247 (34)
Developed Markets .............................. 294 246 20
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TOTAL .......................................... $ 458 $ 493 (7)
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GLOBAL CORPORATE BANKING BUSINESSES IN:
Emerging Markets ............................... $ 499 $ 449 11
Global Relationship Banking .................... 254 200 27
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TOTAL .......................................... $ 753 $ 649 16
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(A) Reclassified to conform to the latest quarter's presentation.
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4
<PAGE>
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GLOBAL CONSUMER
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The Global Consumer business meets the financial services needs of consumer
customers across the regions of the world.
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FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
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Adjusted Revenue ............................... $ 3,493 $ 3,490 -
Adjusted Operating Expense ..................... 1,915 1,866 3
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OPERATING MARGIN ............................... 1,578 1,624 (3)
Credit Costs (B) ............................... 886 894 (1)
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OPERATING MARGIN LESS CREDIT COSTS ............. 692 730 (5)
Additional Provision ........................... 25 25 -
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INCOME BEFORE TAXES ............................ 667 705 (5)
Income Taxes ................................... 209 212 (1)
---------------------------
NET INCOME ..................................... $ 458 $ 493 (7)
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Average Assets (In Billions of Dollars) ........ $ 131 $ 131 -
Return on Assets (%) ........................... 1.42 1.53 -
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(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.
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Global Consumer net income in the 1998 first quarter was $458 million, compared
with $493 million in 1997, primarily reflecting strong performance in the North
America, Europe, and Japan Citibanking businesses, which was more than offset by
the effect of foreign currency translation in Asia Pacific and lower Cards
earnings in Latin America. Return on assets was 1.42% in the quarter, compared
to 1.53% in 1997.
On April 2, 1998, Citicorp completed the previously announced acquisition of
AT&T Universal Card Services. This acquisition strengthens Citibank's position
as the leading credit card issuer, adding $15 billion in customer receivables
and 13.5 million accounts for a total of $60 billion in managed receivables and
38 million accounts in the U.S. bankcard business. In addition, Citicorp entered
into a ten-year cobranding and joint marketing agreement with AT&T.
Total consumer accounts were 56 million as of March 31, 1998 in 57 countries and
territories. The U.S. bankcards business reported a 4% decline in accounts,
reflecting continued risk management initiatives, while accounts in other
consumer businesses grew by 6% from a year ago, including 17% account growth in
Latin America and 9% in Asia Pacific.
Adjusted revenue of $3.5 billion was essentially unchanged from 1997 (up 5%
excluding the effect of foreign currency translation). Net interest revenue was
essentially unchanged in the quarter, reflecting worldwide business volume
growth offset by spread compression in Asia Pacific, U.S. bankcards, and Latin
America. Excluding the effect of foreign currency translation, fee and
commission revenue increased 9%, primarily reflecting double digit growth in the
Cards and Citibanking businesses.
Adjusted operating expense of $1.9 billion grew 3% -- 6% excluding the effect of
foreign currency translation -- in support of business volume growth, investment
product development, and increased advertising and marketing expense.
Credit costs in the quarter were $886 million, compared with $866 million in the
1997 fourth quarter and $894 million in the 1997 first quarter. The ratio of net
credit losses to average managed loans was 2.64% in the quarter, compared to
2.50% in the 1997 fourth quarter and 2.69% a year-ago.
5
<PAGE>
The Global Consumer business continued to build the allowance for credit losses
with charges in excess of net write-offs of $25 million in both the 1998 and
1997 first quarters.
Net credit losses and the related loss ratios may increase from the 1998 first
quarter as a result of economic conditions, seasonal factors, the credit
performance of the portfolios, including bankruptcies, and other changes in
portfolio levels. Also, the inclusion of net credit losses and customer
receivables related to the acquisition of AT&T Universal Card Services will
increase Global Consumer net credit losses and the related loss ratio. See
"Global Consumer Portfolio Review" on page 10 and "Provision and Credit Loss
Reserves" on page 30 for additional discussion of the consumer portfolio.
Income taxes are attributed to core businesses on the basis of local tax rates,
which resulted in an effective tax rate of 31% in the first quarter, compared to
30% in the year-ago period, 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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FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
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Revenue ........................................ $ 1,511 $ 1,469 3
Operating Expense .............................. 1,089 1,042 5
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OPERATING MARGIN ............................... 422 427 (1)
Credit Costs ................................... 137 148 (7)
----------------------------
OPERATING MARGIN LESS CREDIT COSTS ............. 285 279 2
Additional Provision ........................... (2) - NM
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INCOME BEFORE TAXES ............................ 287 279 3
Income Taxes ................................... 89 89 -
----------------------------
NET INCOME ..................................... $ 198 $ 190 4
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Average Assets (In Billions of Dollars) ........ $ 86 $ 82 5
Return on Assets (%) ........................... 0.93 0.94 -
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(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
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Net income from Citibanking activities -- delivering a wide array of products
and services to customers through a worldwide branch network and electronic
delivery systems -- was $198 million in the quarter, up $8 million or 4% from
1997, reflecting a $36 million improvement in the developed markets of North
America, Europe, and Japan, partially offset by a decline of $28 million in the
emerging markets. Return on assets was 0.93% in the quarter, compared to 0.94%
in 1997.
Revenue of $1.5 billion increased 3% in the quarter. Excluding the effect of
foreign currency translation, revenue increased 10% -- 10% in the developed
markets and 9% in the emerging markets, as customer accounts increased 6% to 20
million and average customer deposits grew 8% (15% excluding the effect of
foreign currency translation) to $99 billion. Developed markets revenue
reflected growth in all regions, including higher fee revenue and spread
improvements in the United States. Emerging markets revenue reflected business
volume and account growth in Asia Pacific and Latin America, and reduced spreads
due to higher funding costs and the maintenance of greater liquidity.
Operating expense of $1.1 billion in the quarter was up 5% from 1997. Excluding
the effect of foreign currency translation, operating expense increased 8% in
both the developed and emerging markets -- reflecting account and business
volume growth, and business initiatives, including franchise expansion and new
product development.
6
<PAGE>
Credit costs of $137 million in the quarter declined by $11 million or 7% from a
year ago, reflecting improvement in the U.S. and Europe, and the effect of
foreign currency translation, partially offset by higher net credit losses in
Asia Pacific. The ratio of net credit losses to average managed loans was 0.83%
in the first quarter of 1998, unchanged from the prior quarter and down from
0.91% in the 1997 first quarter. In the 1998 first quarter, the additional
provision 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.
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CARDS
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FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
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Adjusted Revenue ............................... $ 1,701 $ 1,752 (3)
Adjusted Operating Expense ..................... 634 659 (4)
---------------------------
OPERATING MARGIN ............................... 1,067 1,093 (2)
Credit Costs ................................... 757 747 1
---------------------------
OPERATING MARGIN LESS CREDIT COSTS ............. 310 346 (10)
Additional Provision ........................... 27 25 8
---------------------------
INCOME BEFORE TAXES ............................ 283 321 (12)
Income Taxes ................................... 96 98 (2)
---------------------------
NET INCOME ..................................... $ 187 $ 223 (16)
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Average Assets (In Billions of Dollars) ........ $ 29 $ 32 (9)
Return on Assets (%) ........................... 2.62 2.83 -
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(A) Reclassified to conform to the latest quarter's presentation.
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Net income from Cards worldwide -- bankcards, Diners Club, and private label
cards -- was $187 million in the quarter, down $36 million from a year ago,
primarily due to a decline in earnings in Credicard, a 33%-owned Brazilian
affiliate, and economic conditions in Asia Pacific, including the effect of
foreign currency translation, lower consumer spending, and more selective credit
criteria. U.S. bankcards earnings were unchanged from the 1997 first quarter.
Emerging markets earnings represented approximately 22% of Cards earnings in the
quarter compared with 41% in 1997. Cards worldwide return on managed assets
(including securitized card receivables) in the quarter was 1.35%, compared with
1.61% in the year-ago quarter.
Cards adjusted revenue of $1.7 billion in the 1998 first quarter was down 3%
from 1997. U.S. bankcards adjusted revenue was essentially unchanged; charge
volumes increased by $1.1 billion or 5% to $24.1 billion, managed receivables
were up slightly at $45.3 billion, and spreads declined as a result of
competitive pricing and changes in the portfolio mix. First quarter revenue in
emerging markets Cards was down 20% -- down 2% excluding the effect of foreign
currency translation -- reflecting higher loan volumes offset by reduced
spreads, and lower earnings in Credicard.
Adjusted operating expense of $634 million in the 1998 first quarter was down
$25 million or 4% from 1997, reflecting a $15 million reclassification of
certain collection agency fees from expense to credit costs in the U.S.
bankcards business. Excluding the effect of foreign currency translation,
expense was essentially unchanged -- up 16% in the emerging markets, offset by a
4% decline in the developed markets. The increase in emerging markets expense
reflects franchise enhancement and expansion efforts, as well as higher loan
volumes.
Credit costs of $757 million increased $21 million from the preceding quarter
and $10 million from the 1997 quarter. Credit costs in U.S. bankcards were $668
million or 5.96% of average managed loans for the quarter, up $13 million from
$655 million or 5.64% in the 1997 fourth quarter and up $12 million from $656
million or 5.91% a year ago. The 12-month-lagged loss ratio was 6.03% in the
quarter, compared with 5.86% in the 1997 fourth quarter and 6.21% a year-ago.
U.S. bankcards credit costs in the quarter included a $15 million (14 bps)
increase related to the reclassification of certain
7
<PAGE>
collection agency fees from operating expense. The percentage of gross
write-offs from bankruptcies in the quarter was 37.0%, compared with 40.8% in
the prior quarter and 36.6% in the 1997 first quarter. U.S. bankcards managed
loans delinquent 90 days or more were $842 million or 1.88% at quarter-end,
compared with $856 million or 1.80% for the prior quarter and $884 million or
1.98% a year-ago.
Credit costs in non-U.S. bankcard portfolios were $89 million or 3.95% of
managed loans, compared with $81 million or 3.52% in the preceding quarter and
$91 million or 4.25% in the 1997 quarter. Loans delinquent 90 days or more were
$216 million or 2.30%, compared with $194 million or 2.12% in the prior quarter
and $214 million or 2.42% a year-ago. Credit costs and loans delinquent 90 days
or more primarily reflect higher amounts in Asia Pacific offset by the effect of
foreign currency translation.
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PRIVATE BANK
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FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 281 $ 269 4
Adjusted Operating Expense ..................... 192 165 16
---------------------------
OPERATING MARGIN ............................... 89 104 (14)
Credit Benefits ................................ (8) (1) NM
---------------------------
INCOME BEFORE TAXES ............................ 97 105 (8)
Income Taxes ................................... 24 25 (4)
---------------------------
NET INCOME ..................................... $ 73 $ 80 (9)
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Average Assets (In Billions of Dollars) ........ $ 16 $ 17 (6)
Return on Assets (%) ........................... 1.85 1.91 -
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(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 -- reported net income of $73 million in the quarter, down $7
million or 9% from the 1997 first quarter, reflecting spread compression on
revenue and increased investment spending.
Client business volumes under management at the end of the quarter reached $105
billion, up $7 billion or 7% from $98 billion a year earlier, primarily
reflecting growth and investment performance in the U.S., partially offset by a
decrease in the value of assets managed in Asia Pacific due to the effect of
foreign currency translation. Growth in custody, discretionary investment
management, banking, and trust and fiduciary balances were partially offset by
decreases in certain non-discretionary investment management activities.
Adjusted revenue of $281 million increased $12 million or 4% in the quarter --
5% excluding the effect of foreign currency translation -- as growth in
client-related foreign exchange revenue and other fee revenue was partially
offset by lower net interest revenue as a result of reduced net interest
margins. Emerging markets revenue grew 6% in the quarter, reflecting increased
client revenue and investment performance fees in Latin America, partially
offset by reduced revenue from Asia Pacific resulting from the turmoil in that
market. More than 40% of revenue continued to be derived from the emerging
markets. Developed markets revenue was up 3%.
Adjusted operating expense increased 16% from the 1997 first quarter -- 19%
excluding the effect of foreign currency translation -- primarily reflecting
investment in additional Private Bankers and product specialists, as well as
higher technology and other expense. Expense decreased $5 million or 3% from the
1997 fourth quarter.
Credit costs for the quarter were a net benefit of $8 million, primarily as a
result of recoveries in North America. Loans delinquent 90 days or more were
$186 million or 1.21% of loans, compared to $110 million or 0.72% in the
preceding
8
<PAGE>
quarter and $198 million or 1.28% in the first quarter of 1997. The increase
from the 1997 fourth quarter primarily reflects an increase in nonaccrual loans
in Asia Pacific.
- --------------------------------------------------------------------------------
GLOBAL CONSUMER IN EMERGING MARKETS
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 869 $ 948 (8)
Adjusted Operating Expense ..................... 554 532 4
---------------------------
OPERATING MARGIN ............................... 315 416 (24)
Credit Costs ................................... 101 91 11
---------------------------
OPERATING MARGIN LESS CREDIT COSTS ............. 214 325 (34)
Additional Provision ........................... 11 4 NM
---------------------------
INCOME BEFORE TAXES ............................ 203 321 (37)
Income Taxes ................................... 39 74 (47)
---------------------------
NET INCOME ..................................... $ 164 $ 247 (34)
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 41 $ 42 (2)
Return on Assets (%) ........................... 1.62 2.39 -
- -------------------------------------------------------------------------------
(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 $164 million in the quarter, down $83
million from a year ago, and down $6 million from the 1997 fourth quarter,
reflecting the economic conditions, including weakened currencies, in Asia
Pacific, and lower earnings in Latin America Cards.
Adjusted revenue declined by 8% in the quarter. Excluding the effect of foreign
currency translation, revenue was up 5%. Business volume growth, particularly
deposits, was partially offset by reduced spreads, mainly due to higher funding
costs and the maintenance of greater liquidity. Revenue in Asia Pacific
(excluding Japan and the Indian subcontinent, but including Australia and New
Zealand) declined by 17% in the quarter, but was up 8% excluding the effect of
foreign currency translation. Adjusted operating expense grew 4% -- 11%
excluding the effect of foreign currency translation -- reflecting account and
volume growth including "flight-to-quality" deposit flows, increased credit
monitoring, and technology initiatives.
Credit costs in the emerging markets increased $13 million from the 1997 fourth
quarter, and increased $10 million from the 1997 first quarter. The net credit
loss ratio in Asia Pacific was 0.77%, up from 0.69% in the 1997 fourth quarter
and 0.73% a year ago. The net credit loss ratio in Latin America was 1.99%
compared to 1.84% in the 1997 fourth quarter and 2.33% a year ago. Emerging
markets loans delinquent 90 days or more were $620 million or 1.85% at
quarter-end, compared with $465 million or 1.43% at December 31, 1997 and $414
million or 1.23% a year-ago, primarily reflecting increases in the Private Bank.
The emerging markets businesses built the allowance for loan losses by $11
million.
9
<PAGE>
- --------------------------------------------------------------------------------
GLOBAL CONSUMER IN DEVELOPED MARKETS
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 2,624 $ 2,542 3
Adjusted Operating Expense ..................... 1,361 1,334 2
---------------------------
OPERATING MARGIN ............................... 1,263 1,208 5
Credit Costs ................................... 785 803 (2)
---------------------------
OPERATING MARGIN LESS CREDIT COSTS ............. 478 405 18
Additional Provision ........................... 14 21 (33)
---------------------------
INCOME BEFORE TAXES ........................... 464 384 21
Income Taxes ................................... 170 138 23
---------------------------
NET INCOME ..................................... $ 294 $ 246 20
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 90 $ 89 1
Return on Assets (%) ........................... 1.32 1.12 -
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
- --------------------------------------------------------------------------------
Net income in the developed markets was $294 million in the quarter, up $48
million or 20% from 1997, principally reflecting strong performance in
Citibanking in North America, Europe, and Japan.
Adjusted revenue was up 3% in the quarter -- 5% excluding the effect of foreign
currency translation, primarily in Germany -- reflecting strong growth in the
Citibanking businesses across all regions. Adjusted expense grew 2% -- 4%
excluding the effect of foreign currency translation -- in support of regional
marketing and new product development.
Credit costs in the developed markets decreased 2% compared to the 1997 first
quarter, due to improvements in Citibanking and the Private Bank. Managed loans
delinquent 90 days or more were $2.6 billion or 2.54% at quarter-end, compared
with $2.7 billion or 2.58% at December 31, 1997 and $3.1 billion or 3.03% a year
ago. The developed markets businesses built the allowance for loan losses by $14
million.
- --------------------------------------------------------------------------------
CONSUMER PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level according to loan product and
country.
The table on page 11 summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolio in terms of loans 90 days
or more past due, net credit losses, and as a percentage of related loans.
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
- -------------------------------------------------------------------------------------------------------------
TOTAL AVERAGE
LOANS 90 DAYS OR MORE PAST DUE (A) LOANS NET CREDIT LOSSES (A)
(In Millions of Dollars, -----------------------------------------------------------------------------
except Loan Amounts in MAR. 31, MAR. 31, Dec. 31, Mar. 31, 1ST QTR. 1ST QTR. 4th Qtr. 1st Qtr.
Billions) 1998 1998 1997 1997 1998 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CITIBANKING................ $67.7 $2,014 $2,038 $2,193 $66.8 $137 $139 $148
Ratio...................... 2.97% 3.07% 3.30% 0.83% 0.83% 0.91%
CARDS
U.S. Bankcards............. 44.8 842 856 884 45.5 668 655 656
Ratio...................... 1.88% 1.80% 1.98% 5.96% 5.64% 5.91%
Other (B).................. 9.4 216 194 214 9.1 89 81 91
Ratio...................... 2.30% 2.12% 2.42% 3.95% 3.52% 4.25%
PRIVATE BANK............... 15.4 186 110 198 15.1 (7) (9) (2)
Ratio...................... 1.21% 0.72% 1.28% NM NM NM
- -------------------------------------------------------------------------------------------------------------
TOTAL MANAGED.............. 137.3 3,258 3,198 3,489 136.5 887 866 893
RATIO...................... 2.37% 2.31% 2.58% 2.64% 2.50% 2.69%
- -------------------------------------------------------------------------------------------------------------
SECURITIZATION ACTIVITY (C)
Credit Card Receivables ... (27.6) (519) (481) (500) (27.4) (430) (403) (402)
Loans Held for Sale........ (3.8) (39) (35) (39) (3.6) (31) (31) (32)
- -------------------------------------------------------------------------------------------------------------
TOTAL LOANS................ $105.9 $2,700 $2,682 $2,950 $105.5 $426 $432 $459
Ratio...................... 2.55% 2.48% 2.76% 1.64% 1.60% 1.75%
- -------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO
DEVELOPED.................. $103.8 $2,638 $2,733 $3,075 $103.8 $790 $778 $801
Ratio...................... 2.54% 2.58% 3.03% 3.09% 2.96% 3.19%
EMERGING................... 33.5 620 465 414 32.7 97 88 92
Ratio...................... 1.85% 1.43% 1.23% 1.21% 1.06% 1.12%
- -------------------------------------------------------------------------------------------------------------
EMERGING PORTFOLIO (D)
ASIA PACIFIC $22.5 $386 $261 $259 $22.0 $42 $39 $43
Ratio...................... 1.72% 1.19% 1.06% 0.77% 0.69% 0.73%
LATIN AMERICA.............. 9.6 202 176 150 9.3 46 42 44
Ratio...................... 2.10% 1.89% 1.91% 1.99% 1.84% 2.33%
CEEMEA (E)................. 1.4 32 28 5 1.4 9 7 5
Ratio...................... 2.26% 2.01% 0.40% 2.78% 1.96% 1.60%
- -------------------------------------------------------------------------------------------------------------
</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) Includes bankcards outside of the U.S., worldwide Diners Club, and private
label cards.
(C) See page 34 for a description of the effect of credit card securitization
activity.
(D) Includes Private Bank and excludes Japan.
(E) Central and Eastern Europe, Middle East, and Africa.
NM Not meaningful.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD AVERAGE
--------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31, 1ST QTR. 4th Qtr. 1st Qtr.
(In Billions of Dollars) 1998 1997 1997 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED............................... $137.3 $138.4 $135.2 $136.5 $137.4 $134.6
Securitized Credit Card Receivables... (27.6) (26.8) (25.4) (27.4) (26.3) (25.1)
Loans Held for Sale .................. (3.8) (3.5) (3.1) (3.6) (3.6) (3.1)
--------------------------------------------------------------------
LOAN PORTFOLIO........................ $105.9 $108.1 $106.7 $105.5 $107.5 $106.4
- -------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Total delinquencies 90 days or more past due in the managed portfolio were $3.3
billion with a related delinquency ratio of 2.37% at March 31, 1998, compared to
$3.2 billion or 2.31% at December 31, 1997 and $3.5 billion or 2.58% a year-ago.
The increase in delinquencies from December 31, 1997 reflects an increase in the
Asia Pacific region, partially offset by improvements in U.S. Citibanking. Total
managed net credit losses in the 1998 first quarter of $887 million and the
related loss ratio of 2.64% were up from $866 million and 2.50% in the 1997
fourth quarter, but down from $893 million and 2.69% in the 1997 first quarter.
In Citibanking, managed loans delinquent 90 days or more were $2.0 billion with
a related ratio of 2.97% at March 31, 1998, compared to $2.0 billion or 3.07% at
December 31, 1997 and $2.2 billion or 3.30% at March 31, 1997, reflecting
improvements in the U.S. and the effect of foreign currency translation,
partially offset by increases in Asia Pacific and in certain countries in Latin
America. Net credit losses in the 1998 first quarter of $137 million and the
related loss ratio of 0.83% were essentially unchanged from the 1997 fourth
quarter and declined from $148 million and 0.91% a year-ago. The decrease in
losses from the 1997 first quarter primarily reflects improvement in the U.S.
and Europe, and the effect of foreign currency translation, partially offset by
higher losses in Asia Pacific.
U.S. bankcards managed loans delinquent 90 days or more were $842 million or
1.88% at quarter-end, compared with $856 million or 1.80% at December 31, 1997
and $884 million or 1.98% a year-ago. Net credit losses of $668 million and the
related loss ratio of 5.96% were up $13 million from $655 million and 5.64% in
the 1997 fourth quarter and up $12 million from $656 million and 5.91% a
year-ago. The 12-month-lagged loss ratio was 6.03% in the quarter, compared with
5.86% in the 1997 fourth quarter and 6.21% a year-ago. Net credit losses in the
quarter included a $15 million (14 bps) increase related to the reclassification
of certain collection agency fees from operating expense. Personal bankruptcies
accounted for 37.0% of gross write-offs in the quarter, compared with 40.8% in
the prior quarter and 36.6% in the 1997 first quarter.
The other Cards businesses include bankcards outside the United States,
worldwide Diners Club, and private label cards. As of the 1998 first quarter,
loans delinquent 90 days or more of $216 million and net credit losses of $89
million increased from the prior quarter by $22 million and $8 million,
respectively, primarily due to increases in Asia Pacific. Delinquencies and net
credit losses were essentially unchanged from a year-ago, reflecting increases
in Asia Pacific offset by the effect of foreign currency translation.
Private Bank loans delinquent 90 days or more were $186 million or 1.21% of
loans at March 31, 1998, compared to $110 million or 0.72% at December 31, 1997
and $198 million or 1.28% a year-ago. The increase from the 1997 fourth quarter
primarily reflects an increase in nonaccrual loans in Asia Pacific. Net
recoveries were $7 million in the 1998 first quarter, compared to $9 million in
the preceding quarter and $2 million in a year-ago.
Total consumer loans on the balance sheet delinquent 90 days or more on which
interest continued to be accrued were $988 million at March 31, 1998, compared
with $1.0 billion at December 31, 1997 and $983 million at March 31, 1997.
Included in these amounts are U.S. government-guaranteed student loans of $256
million, $240 million, and $227 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 $732 million, $762 million, and $756 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 43.
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
March 31, 1998, interest accrual had been suspended on $1,850 million of
consumer loans, primarily consisting of Citibanking loans, compared with $1,849
million at December 31, 1997 and $2,119 million at March 31, 1997. The decline
from March 31, 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 $475
million at March 31, 1998, down from $514 million at December 31, 1997 and $671
million at March 31, 1997, reflecting continued improvement in the credit
quality of the portfolio.
12
<PAGE>
The portion of Citicorp's aggregate allowance for credit losses attributed to
the consumer portfolio was $2.5 billion as of March 31, 1998 and December 31,
1997, up from $2.4 billion as of March 31, 1997. The aggregate allowance for
credit losses reflected an additional provision in excess of net write-offs of
$25 million in the 1998 and 1997 first quarters, as well as the 1997 fourth
quarter. The allowance as a percentage of loans on the balance sheet was 2.36%
as of March 31, 1998, compared with 2.30% at December 31, 1997 and 2.29% at
March 31, 1997. See "Provision and Credit Loss Reserves" on page 30 for further
discussion.
Net credit losses and the related loss ratios may increase from the 1998 first
quarter as a result of economic conditions, seasonal factors, the credit
performance of the portfolios, including bankruptcies, and other changes in
portfolio levels. Additionally, delinquencies and loans on which the accrual of
interest is suspended could remain at relatively high levels. Also, the
inclusion of net credit losses and customer receivables related to the
acquisition of AT&T Universal Card Services will increase Global Consumer net
credit losses and the related loss ratio.
- --------------------------------------------------------------------------------
GLOBAL CORPORATE BANKING
- --------------------------------------------------------------------------------
The Global Corporate Banking business serves corporations, financial
institutions, governments, investors, and other participants in capital markets
throughout the world.
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 2,310 $ 1,926 20
Adjusted Operating Expense ..................... 1,309 1,146 14
---------------------------
OPERATING MARGIN ............................... 1,001 780 28
Credit Costs (Benefits) ........................ 44 (75) NM
---------------------------
INCOME BEFORE TAXES ............................ 957 855 12
Income Taxes ................................... 204 206 (1)
---------------------------
NET INCOME ..................................... $ 753 $ 649 16
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 173 $ 149 16
Return on Assets (%) ........................... 1.77 1.77 -
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- --------------------------------------------------------------------------------
Global Corporate Banking net income was $753 million in the quarter, up $104
million or 16% from 1997. Return on average assets of 1.77% was unchanged from
the 1997 first quarter as average assets also grew 16%. Net income from the
Emerging Markets business was $499 million or 66% of total Global Corporate
Banking net income and Global Relationship Banking's net income was $254 million
or 34% of total Global Corporate Banking net income.
The results reflect improved contributions from both the Emerging Markets
business and Global Relationship Banking. Adjusted revenue in the quarter
increased $384 million or 20% (24% excluding the effect of foreign currency
translation) from the year-ago quarter, with $185 million of the increase
attributable to the Emerging Markets business (a 20% growth rate) and $199
million attributable to Global Relationship Banking (also a 20% growth rate).
Adjusted operating expense increased $163 million or 14% (18% excluding the
effect of foreign currency translation) from 1997, with $52 million of the
increase in the Emerging Markets business and $111 million in Global
Relationship Banking. Revenue growth outpaced expense growth by a 2.4 to 1
ratio, resulting in operating margin growth of $221 million or 28%. Credit costs
were $44 million, and compared with a net benefit of $75 million in 1997, which
included a $50 million recovery from the refinancing agreement concluded with
Peru. The growth in operating margin, partially offset by the growth in credit
costs, yielded a $102 million or 12% improvement in income before taxes. Net
income further benefited from a decline in
13
<PAGE>
the effective tax rate to 21% from 24%, attributable to changes in the nature
and geographic mix of pretax earnings. The Emerging Markets business reported an
11% improvement in net income and Global Relationship Banking reported a 27%
improvement in net income.
Commercial cash-basis loans at March 31, 1998 were $1.3 billion, up $280 million
and $415 million from year end and the year-ago quarter, reflecting increases in
the Emerging Markets business, primarily in Indonesia and Thailand, and
improvements in Global Relationship Banking, primarily real-estate related.
Commercial cash-basis loans in the Emerging Markets business were $967 million
at March 31, 1998, an increase of $304 million from year end and $552 million
from a year ago. Emerging Markets cash-basis loans included $83 million and $59
million at March 31, 1998 and December 31, 1997, respectively, of balance sheet
credit exposures related to foreign currency derivative contracts from several
Asian customers for which the recognition of revaluation gains has been
suspended. The amounts included a year ago were not material. Commercial OREO of
$350 million declined $111 million and $243 million from year end and the
year-ago quarter, primarily reflecting improvements in real estate in Global
Relationship Banking. See the tables entitled "Cash-Basis, Renegotiated, and
Past Due Loans" and "Other Real Estate Owned and Assets Pending Disposition" on
page 43.
Average assets of $173 billion in the 1998 first quarter increased $24 billion
or 16% from the 1997 first quarter with $17 billion of the increase in the
Emerging Markets business and $7 billion of the increase in Global Relationship
Banking. The increase primarily reflects growth in both businesses in loan
portfolio, transaction banking, and trading products together with treasury
initiatives.
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 29 and 30
for discussions of trading-related and venture capital revenue and securities
transactions and net asset gains that supplement the analyses 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 first quarter level due to
conditions in Asia or other factors. See "Provision and Credit Loss Reserves" on
page 30 for additional discussion of the Global Corporate Banking portfolio.
- --------------------------------------------------------------------------------
EMERGING MARKETS
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 1,113 $ 928 20
Adjusted Operating Expense ..................... 499 447 12
---------------------------
OPERATING MARGIN ............................... 614 481 28
Credit Costs (Benefits) ........................ 63 (36) NM
---------------------------
INCOME BEFORE TAXES ............................ 551 517 7
Income Taxes ................................... 52 68 (24)
---------------------------
NET INCOME ..................................... $ 499 $ 449 11
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 83 $ 66 26
Return on Assets (%) ........................... 2.44 2.76 -
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- --------------------------------------------------------------------------------
Emerging Markets net income of $499 million grew $50 million or 11% from 1997.
Operating margin grew $133 million or 28%, as revenue growth outpaced expense
growth by a 3.6 to 1 ratio, but credit costs increased to $63 million, resulting
in income before taxes increasing 7% from the 1997 quarter. Net income for the
quarter benefited from a decline in the effective income tax rate due to changes
in the geographic mix and nature of pretax earnings.
14
<PAGE>
Adjusted revenue in the quarter of $1.1 billion increased $185 million or 20%
(27% excluding the effect of foreign currency translation) from the year-ago
first quarter. The increase reflected a $73 million improvement in
trading-related revenue, higher securities transactions and net asset gains, and
double-digit growth in transaction banking and corporate finance revenue. The
increase in trading-related revenue reflected improved foreign exchange results
in Asia Pacific attributable to unsettled markets in certain Asian currencies.
Aggregate securities transactions and net asset gains of $218 million and $154
million in the 1998 and 1997 first quarters, respectively, included $189 million
from the sale of Brady bonds in the 1998 quarter and $46 million related to the
refinancing agreement concluded with Peru in the 1997 quarter.
Adjusted revenue in Asia Pacific (comprising 13 countries and territories
excluding Japan and the Indian subcontinent, but including Australia and New
Zealand) grew 15% from the 1997 first quarter due to improved trading-related
results. No single country or territory in the Emerging Markets Asia Pacific
business exceeded 2% of Citicorp's adjusted revenue or average assets. Revenue
attributed to the Embedded Bank and Emerging Local Corporate strategies,
together with new franchises, accounted for 8% of Emerging Markets revenue, up
49% from the 1997 quarter. About 21% of the revenue in the Emerging Markets
business was attributable to business from multinational companies managed
jointly with Global Relationship Banking, with that revenue having grown 27%
from the 1997 first quarter.
Adjusted operating expense of $499 million in the 1998 first quarter increased
$52 million or 12% (19% excluding the effect of foreign currency translation)
from the year-ago quarter. The growth reflected investment spending to build the
franchise, including costs associated with Citicorp's plan to gain market share
in selected emerging market countries, and broadly-based volume growth across
most products and geographic segments.
Credit costs totaled $63 million in the quarter, up from a net benefit of $36
million in the 1997 quarter, which included a $50 million recovery from the
refinancing agreement concluded with Peru. Credit costs in the 1998 quarter
increased $58 million in Asia Pacific, primarily in Thailand and Indonesia.
Recoveries in the 1998 quarter included $9 million from the refinancing
agreement concluded with the Ivory Coast.
Negotiations among the Republic of Korea and international creditor banks, which
were chaired by Citibank, were successful in extending the maturities of nearly
$22 billion in short-term loans to Korean banks. Pursuant to the terms, on April
8, 1998 Citibank exchanged $398 million of such loans for new loans guaranteed
by the Republic of Korea with maturities of one, two, and three years.
- --------------------------------------------------------------------------------
GLOBAL RELATIONSHIP BANKING
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Adjusted Revenue ............................... $ 1,197 $ 998 20
Adjusted Operating Expense ..................... 810 699 16
---------------------------
OPERATING MARGIN ............................... 387 299 29
Credit Benefits ................................ (19) (39) (51)
---------------------------
INCOME BEFORE TAXES ............................ 406 338 20
Income Taxes ................................... 152 138 10
---------------------------
NET INCOME ..................................... $ 254 $ 200 27
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 90 $ 83 8
Return on Assets (%) ........................... 1.14 0.98 -
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
- --------------------------------------------------------------------------------
Net income of $254 million from the Global Relationship Banking business in
North America, Europe, and Japan in the 1998 first quarter increased $54 million
or 27% from 1997. Operating margin increased $88 million or 29%, and net
15
<PAGE>
credit benefits declined $20 million to $19 million, resulting in a $68 million
or 20% improvement in income before taxes. Net income benefited from a decline
in the effective income tax rate to 37% from 41%.
Adjusted revenue of $1.2 billion increased $199 million or 20% from the 1997
first quarter reflecting a $171 million improvement in venture capital results
compared with the low year-ago level, a $39 million improvement in
trading-related revenue, and moderate growth in transaction banking services and
corporate finance revenue, partially offset by a $32 million gain recognized in
the 1997 quarter from the sale of an investment, and lower treasury results
attributable to a flatter yield curve.
Adjusted operating expense of $810 million increased $111 million or 16%
compared with the 1997 first quarter, primarily attributable to increased
spending on technology, higher incentive compensation, and volume-related
expense in transaction banking services.
Credit costs in the quarter were a net benefit of $19 million, down from a net
benefit of $39 million in the 1997 first quarter, due primarily to a lower level
of recoveries.
- --------------------------------------------------------------------------------
CORPORATE ITEMS
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Revenue ........................................ $ 262 $ 211 24
Operating Expense .............................. 182 167 9
---------------------------
INCOME BEFORE TAXES ............................ 80 44 82
Income Taxes ................................... 226 191 18
---------------------------
NET LOSS ....................................... ($ 146) ($ 147) (1)
- -------------------------------------------------------------------------------
Average Assets (In Billions of Dollars) ........ $ 9 $ 5 80
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
- --------------------------------------------------------------------------------
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. Citicorp's effective tax rate was 38% in
both the 1998 and 1997 first quarters. 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 25% in the 1998 quarter and 27% in the 1997
quarter, primarily reflecting changes in the nature and geographic mix of
earnings.
Revenue in the 1998 quarter included $19 million of gains on sales of investment
securities held in the Corporate portfolio, while the 1997 quarter reflected
investment writedowns of $20 million. Expense in the 1998 first quarter included
a $25 million charge associated with performance-based stock options granted in
January 1998, and increases in certain technology expenses and other unallocated
corporate costs. The 1997 quarter included a $72 million charge related to
performance-based stock options which vested in that quarter. Average assets in
the 1998 quarter included certain liquid assets to pre-fund the AT&T Universal
Card Services acquisition completed on April 2, 1998.
16
<PAGE>
- --------------------------------------------------------------------------------
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 $214.7
billion represented 65% of total funding at March 31, 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 $21.5
billion at March 31, 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 March 31, 1998, was $20.2
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 $4.2 billion, including $2.5
billion of U.S. credit cards and $1.7 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 March 31, 1998, the scheduled amortization of
certain credit card securitization transactions made available $1.8 billion of
new receivables. In addition, $4.8 billion and $6.1 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 March 31, 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 $2.5 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 March 31, 1998, its bank subsidiaries could have
distributed dividends to Citicorp, directly or through their parent holding
company, of approximately $2.1 billion of the available $2.5 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.
The Financial Accounting Standards Board ("FASB") is in the process of
finalizing a new accounting standard on derivatives and hedging. The new
standard is intended to be issued in final form in the 1998 second quarter and
to become effective on January 1, 2000 for calendar year companies such as
Citicorp. As currently proposed, the new standard would significantly change the
accounting treatment of end-user derivative and foreign exchange contracts by
17
<PAGE>
Citicorp and its customers. Depending on the underlying risk management
strategy, these accounting changes could affect reported earnings, assets,
liabilities, and stockholders' equity. As a result, Citicorp and the customers
to which it provides derivatives and foreign exchange products may have to
reconsider their risk management strategies, since the proposed new standard
would not reflect the results of many of those strategies in the same manner as
current accounting practice. Citicorp is in the process of evaluating the
potential impact of the proposed new standard.
- --------------------------------------------------------------------------------
PRICE RISK IN NON-TRADING PORTFOLIOS
- --------------------------------------------------------------------------------
Earnings-at-Risk measures the potential pretax earnings impact 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 March 31, 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 March 31, 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 17 to
727 basis points, depending on the currency.
The table below illustrates that as of March 31, 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 $105 million in the next twelve
months, and a positive impact of approximately $112 million for the five year
period 1998-2003, while a two standard deviation increase in non-U.S. dollar
interest rates would have had a potential negative impact on Citicorp's pretax
earnings of approximately $85 million in the next twelve months, and
approximately $203 million for the five year period 1998-2003.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
EARNINGS-AT-RISK
- -------------------------------------------------------------------------------------------------------------
ASSUMING A U.S. DOLLAR ASSUMING A NON-U.S. DOLLAR
RATE MOVE OF RATE MOVE OF
----------------------------------------------------------
IMPACT ON PRETAX EARNINGS TWO STANDARD DEVIATIONS TWO STANDARD DEVIATIONS(A)
(In Millions of Dollars at March 31, 1998) INCREASE DECREASE INCREASE DECREASE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to Three Months...................... ($59) $64 ($20) $20
Four to Six Months............................. (24) 30 (22) 22
Seven to Twelve Months......................... (22) 31 (43) 43
----------------------------------------------------------
TOTAL OVERNIGHT TO TWELVE MONTHS............... (105) 125 (85) 85
Year Two....................................... (10) 14 (77) 78
Year Three..................................... 44 (47) (36) 36
Year Four...................................... 85 (88) (8) 8
Year Five...................................... 149 (164) (33) 33
Effect of Discounting.......................... (51) 57 36 (36)
----------------------------------------------------------
TOTAL ......................................... $112 ($103) ($203) $204
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any correlation among currencies.
- --------------------------------------------------------------------------------
18
<PAGE>
The table below summarizes Citicorp's twelve month Earnings-at-Risk over recent
periods.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TWELVE MONTH EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)
- -------------------------------------------------------------------------------------------------------------
U.S. DOLLAR NON-U.S. DOLLAR
---------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31, MAR. 31, Dec. 31, Mar. 31,
(In Millions of Dollars) 1998 1997 1997 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a Two Standard Deviation Rate:
Increase........................ ($105) ($180) ($174) ($85) ($25) ($31)
Decrease........................ 125 211 204 85 25 31
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The tables on page 18 and 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 follows:
- --------------------------------------------------------------------------------
TWELVE MONTH EARNINGS-AT-RISK (EXCLUDING EFFECTS OF DERIVATIVES)
- --------------------------------------------------------------------------------
U.S. DOLLAR
-----------------------------------
IMPACT ON PRETAX EARNINGS MAR. 31, Dec. 31, Mar. 31,
(In Millions of Dollars) 1998 1997 1997
- -------------------------------------------------------------------------------
Assuming a Two Standard Deviation Rate:
Increase................................ $98 $64 $159
Decrease................................ (86) (44) (124)
- -------------------------------------------------------------------------------
(A) Excluding the effects of derivatives, Citicorp's non-U.S. dollar
Earnings-at-Risk would have had a negative impact of $85 million and $26
million assuming a two standard deviation increase in rates and a positive
impact of $85 million and $27 million assuming a two standard deviation
decrease in rates at March 31, 1998 and December 31, 1997 respectively.
- --------------------------------------------------------------------------------
The first table on page 18 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 41.
During the 1998 first quarter, 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
$137 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 first quarter was primarily due to
the reduction in the level of received fixed swaps. 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 first quarter,
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 first quarter
primarily reflected the higher interest rate volatility seen across the Asia
Pacific region.
19
<PAGE>
- --------------------------------------------------------------------------------
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
correlations 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 $21 million at
March 31, 1998 and daily exposures averaged $24 million in the 1998 first
quarter for Citicorp's major trading centers and ranged from $18 million to $31
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 first quarter was $728 million,
compared with $347 in the 1997 fourth quarter.
The table below summarizes Citicorp's Value-at-Risk in its trading portfolio as
of March 31, 1998.
- -------------------------------------------------------------------------------
VALUE-AT-RISK
- -------------------------------------------------------------------------------
1998
FIRST
MAR. 31, QUARTER Dec. 31,
(In Millions of Dollars) 1998 DAILY 1997
AVERAGE
- -------------------------------------------------------------------------------
Interest Rate.............................. $20 $21 $23
Foreign Exchange........................... 6 10 8
All Other (primarily Equity and Commodity). 9 9 8
Covariance Adjustment...................... (14) (16) (14)
----------------------------------
TOTAL ..................................... $21 $24 $25
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 21 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
20
<PAGE>
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cross-Border Outstandings and Commitments
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997
----------------------------------------------------------------------------------- ------------------------------
Cross-Border Claims on Third Parties
----------------------------------------- Investments
Trading in and
and Funding of Total Total
(In Billions of ------------------------------- Short-Term Local Cross-Border Cross-Border
Dollars) 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. $ 1.5 $ 0.8 $ 2.7 $ 5.0 $ 3.8 $ - $ 5.0 (C) $ 7.0 $ 4.5 (C) $ 7.8
France......... 2.1 0.7 0.7 3.5 3.3 0.6 4.1 (C) 0.8 3.1 (C) 0.6
Italy.......... 0.7 - 0.3 1.0 1.0 3.0 4.0 (C) 0.5 3.4 (C) 0.5
Germany........ 1.3 0.9 0.4 2.6 2.4 1.2 3.8 (C) 1.6 4.7 (C) 1.7
Japan.......... 2.2 0.2 0.9 3.3 2.9 - 3.3 (D) 0.7 3.2 (C) 1.1
Spain.......... 0.2 - 0.3 0.5 0.4 2.3 2.8 (D) 0.4 2.3 (D) 0.4
Switzerland.... 1.1 - 1.7 2.8 2.5 - 2.8 (D) 1.2 2.7 (D) 1.1
Netherlands.... 0.8 0.2 1.0 2.0 1.7 0.1 2.1 1.0 2.2 0.8
Canada......... 0.9 0.1 0.4 1.4 1.2 - 1.4 1.7 1.6 1.8
Belgium........ 0.4 0.2 0.4 1.0 1.0 0.4 1.4 0.2 0.9 0.2
Sweden......... 0.5 0.2 0.3 1.0 0.9 0.1 1.1 0.8 1.1 0.7
Finland........ 0.3 0.1 0.4 0.8 0.6 0.1 0.9 0.4 0.7 0.4
Other (22 countries
in 1998)..... 1.4 0.5 2.0 3.9 2.9 0.6 4.5 1.8 4.0 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Europe, Canada,
and Japan.... 13.4 3.9 11.5 28.8 24.6 8.4 37.2 18.1 34.4 18.7
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil......... 0.4 1.3 1.6 3.3 1.6 1.7 5.0 (C) 0.3 4.4 (C) 0.1
Mexico......... 0.1 1.8 0.6 2.5 1.0 0.5 3.0 (D) 0.5 3.0 (D) 0.6
Argentina...... - 0.3 1.1 1.4 0.8 0.8 2.2 0.1 2.2 0.1
Chile.......... - 0.3 0.4 0.7 0.2 0.3 1.0 0.1 1.0 -
Venezuela...... 0.1 0.7 0.1 0.9 0.2 0.1 1.0 0.1 1.0 -
Colombia....... 0.2 - 0.1 0.3 0.2 0.6 0.9 0.2 0.9 0.1
Peru........... 0.1 0.1 0.2 0.4 0.3 0.1 0.5 0.2 0.4 0.1
Uruguay........ - 0.2 0.1 0.3 0.1 - 0.3 - 0.3 -
Other (20 countries
in 1998)..... 0.2 0.6 0.6 1.4 1.0 0.1 1.5 0.6 1.1 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Latin America.. 1.1 5.3 4.8 11.2 5.4 4.2 15.4 2.1 14.3 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
South Korea.... 0.6 0.2 0.9 1.7 1.5 1.1 2.8 (D) 0.4 2.6 (D) 0.2
Saudi Arabia... 0.5 0.1 0.1 0.7 0.3 - 0.7 0.2 0.8 0.3
Malaysia....... 0.1 - 0.2 0.3 0.3 0.3 0.6 0.1 0.7 0.1
Indonesia...... 0.1 - 0.5 0.6 0.5 - 0.6 0.2 0.6 0.2
Singapore...... 0.1 - 0.4 0.5 0.4 - 0.5 0.6 0.5 0.3
Hong Kong...... 0.2 - 0.2 0.4 0.4 - 0.4 0.3 0.7 0.3
Taiwan......... 0.1 - 0.3 0.4 0.3 - 0.4 0.4 0.4 0.5
Bahrain........ 0.2 0.1 - 0.3 0.2 - 0.3 0.1 0.3 0.1
China.......... 0.1 - 0.1 0.2 0.1 - 0.2 0.4 0.6 0.4
Thailand....... - - 0.2 0.2 0.1 - 0.2 0.1 0.3 0.1
India.......... - - 0.2 0.2 0.1 - 0.2 0.2 0.2 0.3
Pakistan....... 0.1 - - 0.1 0.1 0.1 0.2 - 0.2 -
Kuwait......... 0.1 - - 0.1 0.1 - 0.1 - 0.2 -
Philippines.... - - 0.1 0.1 0.1 - 0.1 0.1 0.2 0.1
Other (10 countries
in 1998)..... - 0.1 0.2 0.3 0.2 - 0.3 0.4 0.3 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Asia/ Middle East 2.2 0.5 3.4 6.1 4.7 1.5 7.6 3.5 8.6 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
Australia...... 0.4 - 0.2 0.6 0.5 0.1 0.7 0.3 0.7 0.4
New Zealand.... 0.1 - - 0.1 0.1 0.5 0.6 0.1 0.7 -
All Other...... - 0.7 0.2 0.9 0.7 0.4 1.3 0.4 1.5 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other.... 0.5 0.7 0.4 1.6 1.3 1.0 2.6 0.8 2.9 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total Citicorp. $17.2 $10.4 $20.1 $47.7 $36.0 $15.1 $62.8 $24.5 $60.2 $24.4
- ------------------------------------------------------------------------------------------------------------------------------------
(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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Details of investments in and funding of local franchises for selected Asian
countries included in the table on page 21 at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Local Country Assets (A) Local Country Liabilities(B)
--------------------------------------------------------------------- -----------------------------
Gross Gross
Unrealized Unrealized
Gains on Losses on Investments
Derivative All Derivative in and
In Billions of and Foreign Other Local and Foreign All Other Funding of
Dollars at Consumer Commercial Exchange Assets Country Exchange Local Country Local
March 31, 1998 Loans Loans Contracts (C) Adjustments (D) Assets Contracts Liabilities (E) Franchises
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South Korea ... $0.8 $1.2 $1.2 $1.9 ($0.5) $4.6 $1.0 $2.5 $1.1
Malaysia ...... 1.4 0.8 0.2 1.1 (0.2) 3.3 0.1 2.9 0.3
Indonesia ..... 0.2 0.4 0.2 1.0 (0.1) 1.7 0.3 1.5 -
Thailand ...... 1.1 0.9 0.4 1.2 (0.3) 3.3 0.4 2.9 -
Philippines ... 0.3 0.9 0.1 1.4 (0.5) 2.2 - 2.2 -
- ------------------------------------------------------------------------------------------------------------------------------------
(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, $2.7 billion
in Thailand, and $2.2 billion in Philippines.
(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, $3.0 billion
in Thailand, and $2.2 billion in Philippines.
(C) Includes deposits at interest with banks, securities, customers'
acceptance liabilities, 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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 23 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 23 also provides estimated fair value data for the expected time period
until runoff of existing deposits with no fixed maturity.
22
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ESTIMATED FAIR VALUE IN EXCESS OF (LESS THAN) CARRYING VALUE
- -------------------------------------------------------------------------------------------------------------
MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
(In Billions of Dollars) 1998 1997 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets and Liabilities.......................... $6.3 $6.2 $6.2 $6.2 $6.2
End-User Derivative and Foreign Exchange Contracts 0.7 0.7 0.5 0.1 (0.7)
Credit Card Securitizations (A)................. (0.3) (0.3) (0.2) 0.1 0.3
----------------------------------------------------------
6.7 6.6 6.5 6.4 5.8
Deposits with No Fixed Maturity (B)............. 3.3 3.3 2.9 3.0 3.1
----------------------------------------------------------
TOTAL........................................... $10.0 $9.9 $9.4 $9.4 $8.9
- -------------------------------------------------------------------------------------------------------------
(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.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The quarterly fluctuations among financial instruments are primarily due to
changes in the interest rate environment in the U.S. and other countries. During
the 1998 first quarter, U.S. interest rates declined marginally, which resulted
in the estimated fair values in excess of (less than) carrying values remaining
essentially unchanged from year-end 1997. Generally in declining interest rate
environments, as experienced during the last four quarters, 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. In addition,
fair values may vary from period to period based on changes in a variety of
other factors including credit quality, market perceptions of value, and the
changing composition of assets and liabilities.
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
Citicorp is subject to risk-based capital guidelines issued by the Federal
Reserve Board ("FRB"). These guidelines are supplemented by a leverage ratio
requirement. The risk-based capital guidelines and the leverage ratio
requirement are detailed in the 1997 Annual Report and Form 10-K.
- --------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
CITICORP RATIOS 1998 1997 1997
- --------------------------------------------------------------------------------
Tier 1 Capital...................... 8.26% 8.34% 8.39%
Total Capital (Tier 1 and Tier 2)... 12.13 12.31 12.11
Leverage (A)........................ 6.83 7.01 7.39
Common Stockholders' Equity......... 6.01 6.21 6.50
- --------------------------------------------------------------------------------
(A) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp continued to maintain a strong capital position during the 1998 first
quarter. Total capital (Tier 1 and Tier 2) amounted to $31.2 billion at March
31, 1998 representing 12.13% of net risk-adjusted assets. This compares with
$31.2 billion and 12.31% at December 31, 1997 and $29.3 billion and 12.11% at
March 31, 1997. Tier 1 capital of $21.3 billion at March 31, 1998 represented
8.26% of net risk-adjusted assets, compared with $21.1 billion and 8.34% at
December 31, 1997 and $20.3 billion and 8.39% at March 31, 1997. The Tier 1
capital ratio at March 31, 1998 was within Citicorp's target range of 8.00% to
8.30%.
23
<PAGE>
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 $280 million of free capital during the 1998
first quarter compared with $726 million in the 1997 first quarter. 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.
- -------------------------------------------------------------------------------
FREE CAPITAL
- -------------------------------------------------------------------------------
FIRST QUARTER
-----------------
(In Millions of Dollars) 1998 1997
- --------------------------------------------------------------------------------
TIER 1 CAPITAL GENERATED:
Net Income ................................................. $ 1,065 $ 995
Issuances/Other (A) ........................................ (118) 495
Cash Dividends Declared .................................... (290) (281)
-----------------
TOTAL TIER 1 CAPITAL GENERATED ............................. 657 1,209
Capital Utilized for Growth in Net Risk-Adjusted Assets .... (377) (483)
-----------------
FREE CAPITAL GENERATED ..................................... $ 280 $ 726
- -------------------------------------------------------------------------------
(A) Includes issuance of common stock under various employee benefit plans and
the dividend reinvestment plan. During the 1998 first quarter, Citicorp
redeemed $303 million of Adjustable Rate Preferred Stock, Second and Third
Series. The 1997 first quarter 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 6.1 million shares of common stock under the repurchase program
using capital of $483 million ($122.28 average cost per share) and $704 million
($114.85 average cost per share) in the first quarters of 1998 and 1997,
respectively. Under the program, Citicorp repurchased 82.0 million shares of
common stock through March 31, 1998, using free capital of $7.3 billion. The
stock repurchase program has been suspended in connection with the announced
agreement to merge with Travelers Group.
Common stockholders' equity increased a net $578 million during the first
quarter of 1998 to $19.9 billion at March 31, 1998, representing 6.01% of
assets, compared with 6.21% at December 31, 1997 and 6.50% at March 31, 1997.
The increase in common stockholders' equity during the quarter principally
reflected net income, the issuance of stock under various employee benefit plans
and an increase in net unrealized gains on securities available for sale,
partially offset by shares repurchased under the common stock repurchase program
and dividends declared on common and preferred stock. The decline in the common
stockholders' equity ratio during the first quarter of 1998 reflected the above
items as well as the growth in total assets during the quarter.
During the first quarter of 1998, Citicorp redeemed $303 million of Adjustable
Rate Preferred Stock, Second and Third Series. The $750 million of guaranteed
preferred beneficial interests (commonly known as "trust preferred securities")
outstanding at March 31, 1998 qualify as Tier 1 capital and are included in
long-term debt on the balance sheet. For the three months ended March 31, 1998,
interest expense on the guaranteed preferred beneficial interests amounted to
$15 million compared to $13 million for the 1997 quarter.
In April 1998, Citicorp announced that in June 1998 it will redeem for cash all
outstanding shares of its 8.00% Noncumulative Preferred Stock, Series 16.
24
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
- -------------------------------------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(In Millions of Dollars) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIER 1 CAPITAL
Common Stockholders' Equity.................................... $19,871 $19,293 $18,877
Perpetual Preferred Stock...................................... 1,600 1,903 1,903
Guaranteed Preferred Beneficial Interests in Subordinated Debt. 750 750 750
Minority Interest.............................................. 104 104 97
Less: Net Unrealized Gains -- Securities Available for Sale (A) (661) (535) (687)
Intangible Assets (B)...................................... (296) (304) (314)
50% Investment in Certain Subsidiaries (C)................. (98) (115) (325)
-------------------------------------------
TOTAL TIER 1 CAPITAL........................................... 21,270 21,096 20,301
-------------------------------------------
TIER 2 CAPITAL
Allowance for Credit Losses (D)................................ 3,254 3,198 3,060
Qualifying Debt (E)............................................ 6,802 6,977 6,263
Less: 50% Investment in Certain Subsidiaries (C)............... (97) (115) (324)
-------------------------------------------
TOTAL TIER 2 CAPITAL........................................... 9,959 10,060 8,999
-------------------------------------------
TOTAL CAPITAL (TIER 1 AND TIER 2).............................. $31,229 $31,156 $29,300
- -------------------------------------------------------------------------------------------------------------
NET RISK-ADJUSTED ASSETS (F)................................... $257,545 $252,999 $241,887
- -------------------------------------------------------------------------------------------------------------
(A) Tier 1 capital excludes unrealized gains and losses on securities
available for sale in accordance with regulatory risk-based capital
guidelines.
(B) Includes goodwill and certain other identifiable intangible assets.
(C) For March 31, 1998 and December 31, 1997, represents investment in certain
overseas insurance activities. For March 31, 1997 primarily includes
investment in Citicorp Securities, Inc. ("CSI"). During the fourth quarter
of 1997, the FRB eliminated the capital deduction required for Section 20
subsidiaries, including CSI.
(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 $13.6 billion for interest rate, commodity
and equity derivative contracts and foreign exchange contracts, as of
March 31, 1998, compared with $13.7 billion as of December 31, 1997 and
$10.0 billion as of March 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.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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. At March 31, 1998, net risk-adjusted
assets includes $5.7 billion of market risk equivalent 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. As of March 31, 1998, agreements for
which forward prices had been established covered approximately $1.2 billion of
Citicorp common stock (9.5 million shares) with forward prices averaging $127.92
per share. During the 1998 first quarter, settlements resulted in Citicorp
receiving approximately 0.6 million shares of its common stock and delivering
0.2 million shares. If these agreements were settled based on the March 31, 1998
market price of Citicorp common stock ($142.00 per share), Citicorp would be
entitled to receive approximately 0.9 million shares of its common stock. During
the period of time prior to consummation of the merger with Travelers Group,
Citicorp intends to terminate these forward purchase agreements in accordance
with their 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 March 31,
1998, all of
25
<PAGE>
Citicorp's subsidiary depository institutions were "well capitalized" under the
federal bank regulatory agencies' definitions.
- -------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
CITIBANK, N.A. RATIOS 1998 1997 1997
- -------------------------------------------------------------------------------
Tier 1 Capital..................... 8.07% 8.18% 8.29%
Total Capital (Tier 1 and Tier 2).. 11.94 12.16 12.00
Leverage........................... 6.31 6.39 6.61
Common Stockholder's Equity........ 6.31 6.54 6.86
- -------------------------------------------------------------------------------
The decline in Citibank's ratios during the quarter reflects an increase in
total assets and net risk-adjusted assets.
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)
- -------------------------------------------------------------------------------------------------------------
1ST QTR. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1998 1997 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
(In Millions of Dollars)
Interest Revenue................................ $6,320 $6,302 $6,207 $6,154 $5,872
Interest Expense................................ 3,464 3,431 3,319 3,278 3,053
----------------------------------------------------------
NET INTEREST REVENUE............................ 2,856 2,871 2,888 2,876 2,819
Effect of Credit Card Securitization Activity... 640 596 565 578 630
----------------------------------------------------------
TOTAL ADJUSTED (B).............................. $3,496 $3,467 $3,453 $3,454 $3,449
- -------------------------------------------------------------------------------------------------------------
AVERAGE INTEREST-EARNING ASSETS
(In Billions of Dollars)
TOTAL........................................... $265.2 $257.0 $255.7 $252.6 $242.2
Effect of Credit Card Securitization Activity... 27.4 26.3 24.8 24.7 25.1
----------------------------------------------------------
TOTAL ADJUSTED (B).............................. $292.6 $283.3 $280.5 $277.3 $267.3
- -------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN (%).........................
TOTAL........................................... 4.37% 4.43% 4.48% 4.57% 4.72%
Effect of Credit Card Securitization Activity... .48% .42% .40% .43% .51%
----------------------------------------------------------
TOTAL ADJUSTED (B).............................. 4.85% 4.85% 4.88% 5.00% 5.23%
- -------------------------------------------------------------------------------------------------------------
(A) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(B) See page 34 for discussion of the effect of credit card securitization
activity.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest revenue of $2.9 billion in the 1998 first quarter was relatively
unchanged compared to the 1997 fourth quarter, and increased slightly from the
1997 first quarter. The fluctuations from both quarters resulted from an
increase in average interest-earning assets, mostly offset by a decline in the
net interest margin. This spread compression was caused by a decline in the
yields earned on assets compounded by an increase in the rates paid on
liabilities.
Core business net interest revenue compared to the 1997 fourth quarter reflected
higher rates paid on deposits in the Asia Pacific Corporate business, higher
deposit levels and related rates paid in the Corporate Banking business in Latin
America and CEEMEA, higher deposit levels in the consumer businesses in Asia
Pacific, Japan, and Latin America due to the "flight to quality" resulting from
the Asian currency crisis, and the impact of two less days in the 1998 first
quarter.
26
<PAGE>
These declines were largely offset by strong growth in average interest-earning
assets across most products in Global Corporate Banking.
Net interest revenue compared to the 1997 first quarter increased modestly in
relation to the 9% increase in business volumes, across most regions, especially
in Global Corporate Banking, primarily due to a sharp reduction in net interest
margins and the effect of foreign currency translation.
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 increased
slightly from both the fourth and first quarters of 1997. The adjusted net
interest margin was unchanged from the 1997 fourth quarter and down from the
1997 first quarter.
Interest revenue was relatively unchanged from the 1997 fourth quarter as
increased loan volumes in Global Corporate Banking and increased rates earned on
loans and investments in Asia Pacific were offset by the impact of two less days
in the quarter and the decline in on-balance sheet U.S. credit card loans
resulting from increased securitization activity.
Interest revenue improved 8% from the 1997 first quarter resulting from
increased average interest-earning assets, primarily loans, across most global
markets, especially Global Corporate Banking, as well as increased rates earned
on most products in Asia Pacific. These increases were partially offset by the
effect of foreign currency translation, a decline in rates earned on loans in
Europe and a decline in on-balance sheet U.S. credit card loans resulting from
increased securitization activity.
Interest expense was relatively unchanged from the 1997 fourth quarter as
increased rates paid on time deposits in Emerging Markets, primarily in Asia
Pacific, were offset by the impact of two less days in the quarter and decreased
borrowings resulting from increased card securitization activity.
Interest expense increased 13% from the 1997 first quarter resulting from
increased rates paid on higher levels of time deposits in Emerging Markets and
the Asia Pacific consumer business, and higher time deposit volumes in Global
Relationship Banking. These increases were offset by lower rates paid on time
deposits in the Corporate Banking business in Europe and a decline in borrowings
resulting from increased card securitization activity.
- --------------------------------------------------------------------------------
FEE AND COMMISSION REVENUE
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
GLOBAL CONSUMER:
Citibanking .................................... $ 286 $ 268 7
Cards .......................................... 483 472 2
Private Bank ................................... 117 113 4
---------------------------
TOTAL GLOBAL CONSUMER .......................... 886 853 4
GLOBAL CORPORATE BANKING AND OTHER ............. 514 468 10
---------------------------
TOTAL ADJUSTED (B) ............................. 1,400 1,321 6
Effect of Credit Card Securitization Activity .. 41 31 32
---------------------------
TOTAL .......................................... $ 1,441 $ 1,352 7
- -------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Global Consumer Businesses in:
Emerging Markets ........................... $ 266 $ 289 (8)
Developed Markets .......................... 620 564 10
---------------------------
TOTAL GLOBAL CONSUMER .......................... $ 886 $ 853 4
- -------------------------------------------------------------------------------
(A) Reclassified to conform to latest quarter's presentation.
(B) See page 34 for discussion of the effect of credit card securitization
activity.
- --------------------------------------------------------------------------------
27
<PAGE>
Total fee and commission revenue of $1.4 billion in the 1998 first quarter
increased $89 million or 7% from the 1997 first quarter. Fee and commission
revenue was increased in both periods by the effect of credit card
securitization activity which reflected increased servicing fees on a 9% higher
level of average securitized loans. Adjusted for the effect of credit card
securitization, fee and commission revenue in the 1998 quarter of $1.4 billion
was up $79 million or 6% from the 1997 quarter.
Global Consumer fee and commission revenue was up $33 million or 4% in the first
quarter from the 1997 quarter. Growth in fee revenue was led by a 10% increase
in the developed markets, and was partially offset by an 8% decrease in the
emerging markets, primarily due to the effect of foreign currency translation,
mostly in Asia Pacific. Increased assets under management led to growth in
trust, agency, and custodial fees for both Citibanking and the Private Bank.
Cards fees increased in the developed markets, were relatively flat in Latin
America, and decreased in Asia Pacific reflecting the effect of foreign currency
translation.
Global Corporate Banking and Other fee and commission revenue increased $46
million or 10% from a year ago, primarily reflecting higher business volumes in
corporate finance and credit-related activities in Global Relationship Banking.
Emerging Markets fee and commission revenue was relatively unchanged as
increases in most product lines in Latin America and CEEMEA were offset by
decreases in Asia Pacific, reflecting the effects of foreign currency
translation.
28
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
BY BUSINESS SECTOR:
Global Corporate Banking:
Emerging Markets ........................... $ 288 $ 215 34
Global Relationship Banking ................ 361 322 12
---------------------------
Total Global Corporate Banking ................. 649 537 21
Global Consumer and Other ...................... 79 52 52
---------------------------
TOTAL .......................................... $ 728 $ 589 24
- -------------------------------------------------------------------------------
BY TRADING ACTIVITY:
Foreign Exchange (B) ........................... $ 384 $ 236 63
Derivative (C) ................................. 231 198 17
Fixed Income (D) ............................... 63 80 (21)
Other .......................................... 50 75 (33)
---------------------------
TOTAL .......................................... $ 728 $ 589 24
- -------------------------------------------------------------------------------
BY INCOME STATEMENT LINE:
Foreign Exchange ............................... $ 349 $ 297 18
Trading Account ................................ 236 198 19
Other (E) ...................................... 143 94 52
---------------------------
TOTAL .......................................... $ 728 $ 589 24
- -------------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
Trading-related revenue in the 1998 first quarter increased $139 million from
the 1997 first quarter primarily reflecting strong foreign exchange revenue
driven by unsettled markets in certain Asian currencies and modest improvement
in derivatives revenue, partially offset by lower fixed income and other trading
results.
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 $241 million in the 1998 first
quarter, compared with $108 million in the comparable 1997 period. The net gains
reflected gross realized gains of $263 million and $126 million, and gross
realized losses of $22 million and $18 million, in the 1998 and 1997 first
quarters. The 1998 first quarter included realized gains of $189 million related
to the sale of Brady bonds.
29
<PAGE>
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
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 (A) Change
- --------------------------------------------------------------------------------
Credit Card Securitization Activity ............ $ 138 $ 165 (16)
Venture Capital ................................ 264 93 NM
Affiliate Earnings ............................. 29 59 (51)
Net Asset Gains ................................ 31 92 (66)
Other Items .................................... 37 28 32
---------------------------
TOTAL .......................................... $ 499 $ 437 14
- -------------------------------------------------------------------------------
(A) Reclassified to conform to the latest quarter's presentation.
NM Not meaningful, as percentage equals or exceeds 100%.
- --------------------------------------------------------------------------------
The decrease in revenue related to credit card securitization activity in the
1998 first quarter principally reflected a decline in the net interest margin,
partially offset by higher average securitized volumes. The effect of credit
card securitization activity is discussed in more detail on page 34.
Venture capital revenue of $264 million in the 1998 first quarter reflected a
$171 million improvement from the low level a year ago, 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 first quarter declined $30 million from the
year-ago quarter, primarily due to a decline in earnings in Credicard, a 33%
owned Brazilian affiliate.
Net asset gains declined by $61 million compared to the 1997 first quarter due
to gains during the 1997 period related to the refinancing agreement concluded
with Peru ($46 million) and the sale of an investment ($32 million) by Global
Relationship Banking, partially offset by investment writedowns of $20 million
in Latin America.
- --------------------------------------------------------------------------------
PROVISION AND CREDIT LOSS RESERVES
- --------------------------------------------------------------------------------
The provision for credit losses of $507 million in the 1998 first quarter
increased $84 million or 20% from the 1997 first quarter, primarily due to
increased net write-offs in Global Corporate Banking, partially offset by a
decline in net write-offs in the Global Consumer business.
30
<PAGE>
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
- --------------------------------------------------------------------------------
FIRST QUARTER %
-------------------
(In Millions of Dollars) 1998 1997 Change
- --------------------------------------------------------------------------------
NET WRITE-OFFS (RECOVERIES):
Global Consumer (A) ............................ $ 887 $ 893 (1)
Global Corporate Banking ....................... 56 (61) NM
---------------------------
TOTAL ADJUSTED NET WRITE-OFFS .................. 943 832 13
Effect of Credit Card Securitization Activity .. (461) (434) 6
---------------------------
TOTAL .......................................... $ 482 $ 398 21
- -------------------------------------------------------------------------------
ADDITIONAL PROVISION:
Global Consumer ................................ $ 25 $ 25 -
---------------------------
TOTAL .......................................... $ 25 $ 25 -
- -------------------------------------------------------------------------------
PROVISION FOR CREDIT LOSSES:
Global Consumer ................................ $ 451 $ 484 (7)
Global Corporate Banking ....................... 56 (61) NM
---------------------------
TOTAL .......................................... $ 507 $ 423 20
- -------------------------------------------------------------------------------
(A) Adjusted for the effect of credit card securitization activity. See page
34 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 first quarter were $887 million, down from
$893 million in the 1997 first quarter, reflecting the effect of foreign
currency translation and improvements in the U.S. mortgage business, partially
offset by an increase in Asia Pacific. Net write-offs in the quarter also
included a $15 million increase in U.S. bankcards related to the
reclassification of certain collection agency fees from operating expense. The
Global Consumer provision for credit losses included an additional provision in
excess of net write-offs of $25 million in both the 1998 and 1997 first
quarters. Net write-offs and the total provision may increase from the 1998
first quarter as a result of economic conditions, seasonal factors, the credit
performance of the portfolios, including bankruptcies, and other changes in
portfolio levels. Also, net write-offs and the total provision will increase as
a result of the acquisition of AT&T Universal Card Services. See "Consumer
Portfolio Review" on page 10 for additional discussion of the consumer
portfolio.
Global Corporate Banking net write-offs in the 1998 first quarter were $56
million compared with net recoveries of $61 million in the 1997 first quarter,
which included a $50 million recovery related to the refinancing agreement
concluded with 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 and lower recoveries in Global Relationship
Banking. There were no material credit losses related to derivative and foreign
exchange contracts or standby letters of credit and guarantees in either
quarter. 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 first quarter
level due to conditions in Asia or other factors.
31
<PAGE>
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
- --------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(In Millions of Dollars) 1998 1997 1997
- --------------------------------------------------------------------------------
AGGREGATE ALLOWANCE FOR CREDIT LOSSES
Global Consumer ..................................... $2,499 $2,487 $2,442
Global Corporate Banking ............................ 3,429 3,429 3,424
------------------------
TOTAL AGGREGATE ALLOWANCE FOR CREDIT LOSSES (A) .... 5,928 5,916 5,866
Reserves for Securitization Activities (B) .......... 70 85 91
------------------------
TOTAL CREDIT LOSS RESERVES .......................... $5,998 $6,001 $5,957
- -------------------------------------------------------------------------------
ALLOWANCE AS A PERCENT OF TOTAL LOANS
Global Consumer ..................................... 2.36% 2.30% 2.29%
Global Corporate Banking (C) ........................ 4.03% 4.38% 5.06%
TOTAL ............................................... 3.09% 3.16% 3.34%
- -------------------------------------------------------------------------------
(A) Includes $5.828 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.
(B) Attributable to mortgage loans sold with recourse.
(C) Excludes allowance portion attributable to standby letters of credit and
guarantees, and derivative and foreign exchange contracts.
- --------------------------------------------------------------------------------
Credit loss reserves remained strong at $6.0 billion as of March 31, 1998.
Uncertainty related to the economic and credit environment, particularly in the
Asia Pacific region, as well as higher loan volumes, may result in further
increases in the allowance for credit losses.
- --------------------------------------------------------------------------------
OPERATING EXPENSE
- --------------------------------------------------------------------------------
Operating expense of $3.4 billion in the 1998 first quarter was up $225 million
or 7% from the comparable 1997 period, 10% excluding the estimated effect of
foreign currency translation. Global Corporate Banking expense increased $163
million or 14% from the 1997 first quarter, reflecting increases of 16% in
Global Relationship Banking and 12% in Emerging Markets. Expense in Global
Consumer increased $49 million or 3%, reflecting increases in Citibanking and
the Private Bank partially offset by a decline in Cards.
Employee expense of $1.7 billion in the 1998 quarter rose $49 million or 3% from
the 1997 quarter. The increase primarily reflected salary increases and higher
staff levels related to business expansion in the emerging markets. In addition,
expense in 1998 included a $25 million charge associated with performance-based
stock options granted in 1998, and the 1997 quarter included a $72 million
charge related to performance-based stock options which vested in that quarter.
Staff levels of 94,500 at March 31, 1998 increased 4,300 (2,600 in the emerging
markets) or 5% from a year-ago.
Net premises and equipment expense of $499 million in the quarter was up $9
million or 2% from 1997. Other expense was $1.2 billion in the quarter, up $167
million or 16% from 1997. The increase primarily reflected investment spending
and higher business volumes in the emerging markets. In addition, increased
spending on technology initiatives
32
<PAGE>
(including Year 2000 costs), incentive compensation, and broadly-based volume
growth across most businesses and geographic segments, all contributed to the
increase.
As further described in the 1997 Annual Report and Form 10K, 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 and, like other companies, has assessed and is repairing its
computer applications and business processes to provide for their continued
functionality. 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. In addition an assessment of the readiness of external
entities which it interfaces with is ongoing. Citicorp does not anticipate that
the related overall costs will be material to any single year or quarter. In
total, Citicorp's global operations and technology organization estimates that
its costs for the remediation and testing of computer applications will amount
to approximately $600 million over the three-year period from 1997 through 1999,
of which approximately $230 million has been incurred to date, including $80
million in the 1998 first quarter.
Work is also under way to prepare for the coming European economic and monetary
union, costs of which are also not expected to be material.
- --------------------------------------------------------------------------------
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, which will be
implemented over the next 9 to 12 months, include global operations and
technology consolidation and standardization, the reconfiguration of front-end
distribution processes, and the outsourcing of various technological functions.
Overall, these programs are estimated to achieve pay-back within the next 18
months.
The charge included $496 million for severance benefits associated with
approximately 9,000 positions which will be reduced. 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
$393 million related to writedowns of equipment and premises, lease
terminations, 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 over the next 12 months, but are not expected to be material.
A portion of the expense savings generated by these programs will be reinvested
in new products, marketing programs, and additional cost and quality initiatives
to further increase revenue and reduce costs. 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.
Of the $889 million restructuring charge, approximately $529 million remained in
the reserve as of March 31, 1998, with the difference reflecting the $245
million of equipment and premises write-downs recorded in 1997 as well as $101
million of primarily severance and related costs (of which $71 million has been
paid in cash and $30 million is legally obligated), together with translation
effects. Through March 31, 1998, approximately 1,172 gross direct staff
positions have been reduced with 522 occurring in the 1998 first quarter. 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.
- --------------------------------------------------------------------------------
INCOME TAXES
- --------------------------------------------------------------------------------
Income taxes were $639 million and $609 million in the first quarters of 1998
and 1997, representing effective tax rates of 38% in both periods. The 1997
full-year effective tax rate was 37%.
33
<PAGE>
- --------------------------------------------------------------------------------
EFFECT OF CREDIT CARD SECURITIZATION ACTIVITY
- --------------------------------------------------------------------------------
During the first quarter of 1998, $2.5 billion of U.S. credit card receivables
were securitized. As of March 31, 1998, the total amount of securitized
receivables, net of amortization, was $27.6 billion compared with $26.8 billion
as of December 31, 1997 and $25.4 billion as of March 31, 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 below shows the net effect of credit card securitization
activity as an increase or (decrease) to the amounts reported in the
Consolidated Statement of Income and Average Balance Sheet, and under the
captions of Return on Assets, Net Interest Margin, and Consumer Net Credit Loss
Ratio. The 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.
- --------------------------------------------------------------------------------
FIRST QUARTER
-----------------------------
(In Millions of Dollars) 1998 1997
- --------------------------------------------------------------------------------
Net Interest Revenue............................ ($640) ($630)
Fee and Commission Revenue...................... 41 31
Other Revenue................................... 138 165
Provision for Credit Losses..................... (461) (434)
- --------------------------------------------------------------------------------
NET INCOME IMPACT OF SECURITIZATION............. $ - $ -
- --------------------------------------------------------------------------------
Average Assets (In Billions).................... ($27) ($25)
Return on Assets................................ .11% .11%
Net Interest Margin............................. (.48)% (.51)%
Consumer Net Credit Loss Ratio.................. (1.02)% (.94)%
- --------------------------------------------------------------------------------
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME CITICORP AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS
-----------------------------
(In Millions of Dollars, Except Per Share Amounts) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST REVENUE
Loans, including Fees....................................................... $4,843 $4,554
Deposits with Banks......................................................... 282 224
Federal Funds Sold and Securities Purchased Under Resale Agreements......... 242 212
Securities:
U.S. Treasury and Federal Agencies...................................... 62 70
State and Municipal..................................................... 33 32
Other, including dividends (Principally in offices outside the U.S.).... 477 417
Trading Account Assets...................................................... 255 243
Loans Held For Sale......................................................... 109 105
-----------------------------
6,303 5,857
-----------------------------
INTEREST EXPENSE
Deposits.................................................................... 2,622 2,229
Trading Account Liabilities................................................. 92 73
Purchased Funds and Other Borrowings........................................ 429 438
Long-Term Debt.............................................................. 321 313
-----------------------------
3,464 3,053
-----------------------------
NET INTEREST REVENUE........................................................ 2,839 2,804
-----------------------------
PROVISION FOR CREDIT LOSSES................................................. 507 423
-----------------------------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES...................... 2,332 2,381
-----------------------------
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and Commissions........................................................ 1,441 1,352
Foreign Exchange............................................................ 349 297
Trading Account............................................................. 236 198
Securities Transactions..................................................... 241 108
Other Revenue............................................................... 499 437
-----------------------------
2,766 2,392
-----------------------------
OPERATING EXPENSE
Salaries.................................................................... 1,355 1,264
Employee Benefits........................................................... 359 401
-----------------------------
Total Employee Expense...................................................... 1,714 1,665
Net Premises and Equipment Expense.......................................... 499 490
Other Expense............................................................... 1,181 1,014
-----------------------------
3,394 3,169
-----------------------------
INCOME BEFORE TAXES......................................................... 1,704 1,604
Income Taxes................................................................ 639 609
-----------------------------
NET INCOME.................................................................. $1,065 $995
- -------------------------------------------------------------------------------------------------------------
INCOME APPLICABLE TO COMMON STOCK........................................... $1,033 $957
-----------------------------
EARNINGS PER SHARE:
BASIC................................................................... $2.28 $2.07
DILUTED................................................................. $2.23 $2.01
- -------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET CITICORP AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
MAR. 31, Dec. 31,
(In Millions of Dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks...................................................... $ 8,090 $ 8,585
Deposits at Interest with Banks.............................................. 13,787 13,049
Securities, at Fair Value
Available for Sale....................................................... 33,065 30,762
Venture Capital.......................................................... 2,857 2,599
Trading Account Assets....................................................... 39,740 40,356
Loans Held for Sale.......................................................... 3,785 3,515
Federal Funds Sold and Securities Purchased Under Resale Agreements.......... 21,858 10,233
Loans, Net
Consumer................................................................. 105,945 108,066
Commercial............................................................... 82,655 75,947
-----------------------------
Loans, Net of Unearned Income................................................ 188,600 184,013
Allowance for Credit Losses.............................................. (5,828) (5,816)
-----------------------------
Total Loans, Net............................................................. 182,772 178,197
Customers' Acceptance Liability.............................................. 1,822 1,726
Premises and Equipment, Net.................................................. 4,545 4,474
Interest and Fees Receivable................................................. 3,272 3,288
Other Assets................................................................. 14,821 14,113
-----------------------------
TOTAL........................................................................ $330,414 $310,897
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices................................ $16,260 $16,901
Interest-Bearing Deposits in U.S. Offices.................................... 42,061 40,361
Non-Interest-Bearing Deposits in Offices Outside the U.S..................... 10,080 9,627
Interest-Bearing Deposits in Offices Outside the U.S......................... 146,318 132,232
-----------------------------
Total Deposits........................................................... 214,719 199,121
Trading Account Liabilities.................................................. 31,291 30,986
Purchased Funds and Other Borrowings......................................... 21,457 21,231
Acceptances Outstanding...................................................... 1,992 1,826
Accrued Taxes and Other Expense.............................................. 6,313 6,464
Other Liabilities............................................................ 13,012 10,288
Long-Term Debt............................................................... 20,159 19,785
STOCKHOLDERS' EQUITY
Preferred Stock (Without par value).......................................... 1,600 1,903
Common Stock ($1.00 par value)............................................... 506 506
Issued Shares: 506,298,235 in each period
Surplus...................................................................... 6,493 6,501
Retained Earnings............................................................ 17,564 16,789
Accumulated Other Changes in Equity from Nonowner Sources (A)................ 37 (91)
Common Stock in Treasury, at Cost............................................ (4,729) (4,412)
Shares: 54,773,606 and 52,355,947, respectively
-----------------------------
Total Stockholders' Equity................................................... 21,471 21,196
-----------------------------
TOTAL........................................................................ $330,414 $310,897
- -------------------------------------------------------------------------------------------------------------
(A) Amounts at March 31, 1998 and December 31, 1997 include net unrealized
gains on securities available for sale of $661 million and $535 million,
respectively, and foreign currency translation of ($624) million and
($626) million, respectively. See note (A) on page 37 for additional
information.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY CITICORP AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS
-----------------------------
(In Millions of Dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period............................................... $21,196 $20,722
Net Income................................................................... 1,065 995
Change in Net Unrealized Gains on Securities Available for Sale.............. 126 11
Change in Foreign Currency Translation....................................... 2 (31)
-----------------------------
Total Changes in Equity from Nonowner Sources (A)........................ 1,193 975
Redemption of Perpetual Preferred Stock
Second Series............................................................ (220) -
Third Series............................................................. (83) -
Series 14................................................................ - (175)
Cash Dividends Declared
Common................................................................... (261) (243)
Preferred................................................................ (29) (38)
Repurchase of Common Shares.................................................. (483) (704)
Employee Benefit Plans and Other Activity (B)................................ 158 243
-----------------------------
BALANCE AT END OF PERIOD..................................................... $21,471 $20,780
- -------------------------------------------------------------------------------------------------------------
(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) Primarily issuance of common stock (including treasury shares) under
employee benefit plans and related amortization and tax benefits.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS CITICORP AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS
-----------------------------
(In Millions of Dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME................................................................... $1,065 $ 995
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Provision for Credit Losses.................................................. 507 423
Depreciation and Amortization of Premises and Equipment...................... 188 187
Amortization of Goodwill..................................................... 10 11
Provision for Deferred Taxes................................................. 95 (91)
Venture Capital Activity..................................................... (258) (142)
Net Gain on Sale of Securities............................................... (241) (108)
Changes in Accruals and Other, Net........................................... 1,895 1,830
Net Increase in Loans Held for Sale.......................................... (270) (2,020)
Net Decrease (Increase) in Trading Account Assets............................ 616 (2,411)
Net Increase in Trading Account Liabilities.................................. 305 1,232
-----------------------------
TOTAL ADJUSTMENTS............................................................ 2,847 (1,089)
-----------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......................... 3,912 (94)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net Increase in Deposits at Interest with Banks.............................. (738) (945)
Securities -- Available for Sale
Purchases................................................................ (15,339) (17,735)
Proceeds from Sales...................................................... 5,812 8,308
Maturities............................................................... 7,591 4,654
Net Increase in Federal Funds Sold and Securities Purchased Under Resale
Agreements................................................................... (11,625) (711)
Net Increase in Loans........................................................ (43,734) (26,846)
Proceeds from Sales of Loans................................................. 38,613 26,755
Capital Expenditures on Premises and Equipment............................... (305) (314)
Proceeds from Sales of Premises and Equipment, Subsidiaries and Affiliates,
and OREO..................................................................... 141 228
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES........................................ (19,584) (6,606)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits..................................................... 15,598 3,893
Net (Decrease) Increase in Federal Funds Purchased
and Securities Sold Under Repurchase Agreements............................ (76) 3,418
Commercial Paper and Funds Borrowed with Original Maturities of Less Than One
Year
Proceeds from Issuance................................................... 245,573 177,181
Repayment................................................................ (245,269) (177,118)
Proceeds from Issuance of Long-Term Debt..................................... 1,185 1,689
Repayment of Long-Term Debt.................................................. (788) (1,568)
Redemption of Preferred Stock................................................ (303) (175)
Proceeds from Issuance of Common Stock....................................... 90 131
Treasury Stock Repurchases................................................... (483) (704)
Dividends Paid............................................................... (294) (281)
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................... 15,233 6,466
-----------------------------
Effect of Exchange Rate Changes on Cash and Due from Banks................... (56) (97)
-----------------------------
NET DECREASE IN CASH AND DUE FROM BANKS...................................... (495) (331)
Cash and Due from Banks at Beginning of Period............................... 8,585 6,905
-----------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD..................................... $8,090 $6,574
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
CASH PAID DURING THE PERIOD FOR
Interest..................................................................... $3,052 $2,702
Income Taxes................................................................. 310 222
NON-CASH INVESTING ACTIVITIES
Transfer from Loans to OREO.................................................. 57 93
- -------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET CITIBANK, N.A. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
MAR. 31, Dec. 31,
(In Millions of Dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks...................................................... $ 6,890 $ 7,788
Deposits at Interest with Banks.............................................. 14,848 14,245
Securities, at Fair Value
Available for Sale....................................................... 29,039 26,749
Venture Capital.......................................................... 2,425 2,202
Trading Account Assets....................................................... 36,633 36,106
Federal Funds Sold and Securities Purchased Under Resale Agreements.......... 19,345 9,776
Loans, Net of Unearned Income................................................ 159,106 153,670
Allowance for Credit Losses.............................................. (4,259) (4,264)
-----------------------------
Loans, Net................................................................... 154,847 149,406
Customers' Acceptance Liability.............................................. 1,824 1,726
Premises and Equipment, Net.................................................. 3,376 3,338
Interest and Fees Receivable................................................. 2,603 2,441
Other Assets................................................................. 9,098 8,723
-----------------------------
TOTAL........................................................................ $280,928 $262,500
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices................................ $12,884 $13,538
Interest-Bearing Deposits in U.S. Offices.................................... 25,952 24,932
Non-Interest-Bearing Deposits in Offices Outside the U.S..................... 9,816 9,394
Interest-Bearing Deposits in Offices Outside the U.S......................... 145,008 130,705
-----------------------------
Total Deposits........................................................... 193,660 178,569
Trading Account Liabilities.................................................. 29,266 27,811
Purchased Funds and Other Borrowings......................................... 16,013 16,334
Acceptances Outstanding...................................................... 1,992 1,826
Accrued Taxes and Other Expense.............................................. 4,011 4,003
Other Liabilities............................................................ 8,496 6,862
Long-Term Debt and Subordinated Notes........................................ 9,772 9,927
STOCKHOLDER'S EQUITY
Capital Stock ($20.00 par value)............................................. 751 751
Outstanding Shares: 37,534,553 in each period
Surplus...................................................................... 7,604 7,453
Retained Earnings............................................................ 9,617 9,318
Accumulated Other Changes in Equity from Nonowner Sources (A)................ (254) (354)
-----------------------------
Total Stockholder's Equity................................................... 17,718 17,168
-----------------------------
TOTAL........................................................................ $280,928 $262,500
- -------------------------------------------------------------------------------------------------------------
(A) Amounts at March 31, 1998 and December 31, 1997 include net unrealized
gains on securities available for sale of $443 million and $345 million,
respectively, and foreign currency translation of ($697) million and
($699) million, respectively. See note (A) on page 37 for additional
information.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------------------------------
SECURITIES
- -------------------------------------------------------------------------------------------------------------
MARCH 31, 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)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES -- AVAILABLE FOR SALE (C)
U.S. Treasury and Federal Agency.... $6,305 $ 55 $ 8 $6,352 $4,031 $4,087
State and Municipal................. 2,677 203 118 2,762 2,616 2,707
Foreign Government.................. 17,437 819 187 18,069 18,106 18,670
U.S. Corporate...................... 1,796 158 99 1,855 1,809 1,865
Other Debt Securities............... 1,640 14 34 1,620 1,198 1,129
Equity Securities (D)............... 2,138 315 46 2,407 2,131 2,304
---------------------------------------------------------------------
$31,993 $1,564 $492 $33,065 $29,891 $30,762
---------------------------------------------------------------------
VENTURE CAPITAL (E)................. - - - $2,857 - $2,599
- -------------------------------------------------------------------------------------------------------------
Securities Available for Sale Include
Mortgage-Backed Securities...... $1,291 $ 9 $2 $1,298 $1,091 $1,101
Government of Brazil Brady Bonds 1,244 548 - 1,792 1,436 2,048
Government of Venezuela Brady Bonds 535 - 44 491 535 480
- -------------------------------------------------------------------------------------------------------------
(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 March 31, 1998 was $18 million and
$1 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 March 31, 1998, the carrying
amount of those securities was $1,082 million (reported in both the
amortized cost and fair value columns) and the fair value was $1,113
million.
(E) For the three months ended March 31, 1998, net gains on investments held
by venture capital subsidiaries totaled $264 million, of which $300
million and $57 million represented gross unrealized gains and losses,
respectively. For the three months ended March 31, 1997, net gains on
investments held by venture capital subsidiaries totaled $93 million, of
which $72 million and $12 million represented gross unrealized gains and
losses, respectively.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
MAR. 31, Dec. 31,
(In Millions of Dollars) 1998 1997
- ------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
Trading Account Securities......................... $16,076 $15,891
Derivative and Foreign Exchange Contracts (A) (B).. 23,664 24,465
--------------------------
TOTAL.............................................. $39,740 $40,356
- ------------------------------------------------------------------------------
TRADING ACCOUNT LIABILITIES
Securities Sold, Not Yet Purchased................. $6,173 $5,769
Derivative and Foreign Exchange Contracts (A) (B).. 25,118 25,217
--------------------------
TOTAL.............................................. $31,291 $30,986
- ------------------------------------------------------------------------------
(A) Net of master netting agreements. In addition, the asset balance at March
31, 1998 is reduced by $50 million of credit loss reserves. See page 32
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 $394 million and $391 million
at March 31, 1998 and December 31, 1997, respectively.
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
TRADING AND END-USER DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS
- --------------------------------------------------------------------------------
The table below presents the aggregate notional principal amounts of Citicorp's
outstanding derivative and foreign exchange contracts at March 31, 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)
- -------------------------------------------------------------------------------------
MAR. 31, Dec. 31, MAR. 31, Dec. 31,
(In Billions of Dollars) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Products................... $1,316.8 $1,298.3 $11.2 $10.8
Foreign Exchange Products................ 1,600.2 1,724.3 32.8 35.8
Equity Products.......................... 62.1 61.6 3.1 2.0
Commodity Products....................... 15.6 14.7 0.6 0.8
Credit Derivative Products............... 11.1 6.9 0.2 -
-----------------------
47.9 49.4
Effects of Master Netting Agreements (B). (23.2) (24.1)
Effects of Securitization (C)............ (1.0) (0.8)
-----------------------
$23.7 $24.5
- -------------------------------------------------------------------------------------
(A) Amounts do not reflect credit loss reserves attributable to derivative and
foreign exchange contracts.
(B) Master netting agreements mitigate credit risk by permitting the offset of
amounts due from and to individual counterparties in the event of
counterparty default.
(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.
- -------------------------------------------------------------------------------------
</TABLE>
The tables below and on page 42 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 first quarter of 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
END-USER INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
- -------------------------------------------------------------------------------------------------------------
NOTIONAL PRINCIPAL AMOUNTS (A) PERCENTAGE OF MARCH 31, 1998 AMOUNT MATURING
- -------------------------------------------------------------------------------------------------------------
MAR. 31, 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
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE PRODUCTS
Futures Contracts................ $32.6 $29.3 52% 43% 5% -% -% -%
Forward Contracts................ 8.1 6.9 90 10 - - - -
Swap Agreements.................. 99.3 106.0 38 17 10 8 8 19
Option Contracts................. 16.4 20.1 68 19 6 3 - 4
FOREIGN EXCHANGE PRODUCTS
Futures and Forward Contracts.... 64.1 62.4 93 6 - - 1 -
Cross-Currency Swaps............. 4.2 3.4 15 14 8 2 47 14
- -------------------------------------------------------------------------------------------------------------
(A) Includes third-party and intercompany contracts.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
END-USER INTEREST RATE SWAPS AND NET PURCHASED OPTIONS AS OF MARCH 31, 1998
- -------------------------------------------------------------------------------------------------------------
REMAINING CONTRACTS OUTSTANDING AT MARCH 31, -- NOTIONAL
PRINCIPAL AMOUNTS
----------------------------------------------------------------
(In Billions of Dollars) 1998 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS.......................... $72.5 $52.8 $39.4 $29.9 $22.9 $15.1
Weighted-Average Fixed Rate.................. 6.5% 6.7% 6.5% 6.6% 6.6% 6.8%
PAY FIXED SWAPS.............................. $13.8 $7.2 $5.3 $4.5 $4.0 $3.5
Weighted-Average Fixed Rate.................. 6.8% 6.7% 6.9% 6.9% 6.9% 7.0%
BASIS SWAPS.................................. $13.0 $1.7 $0.3 $0.2 $0.2 $0.2
PURCHASED CAPS (INCLUDING COLLARS)........... $7.8 $3.6 $0.9 - - -
Weighted-Average Cap Rate Purchased.......... 6.4% 6.9% 7.2% - - -
PURCHASED FLOORS............................. $3.1 $0.1 $0.1 $0.1 $0.1 $0.1
Weighted-Average Floor Rate Purchased........ 5.4% 5.8% 5.8% 5.8% 5.8% 5.8%
WRITTEN FLOORS RELATED TO PURCHASED CAPS
(COLLARS).................................... $2.6 $0.3 $0.1 - - -
Weighted-Average Floor Rate Written.......... 5.4% 5.3% 8.4% - - -
WRITTEN CAPS RELATED TO OTHER PURCHASED CAPS
(A).......................................... $2.9 $1.2 $1.0 $1.0 $0.5 $0.5
Weighted-Average Cap Rate Written............ 7.0% 8.6% 8.4% 8.3% 9.8% 9.8%
- -------------------------------------------------------------------------------------------------------------
THREE-MONTH FORWARD LIBOR RATES (B).......... 5.7% 5.9% 6.0% 6.0% 6.1% 6.2%
- -------------------------------------------------------------------------------------------------------------
(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
March 31, 1998, provided for reference.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS (A)
- -------------------------------------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(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)........ $ 242 $ 258 $288
Other (C).............................................................. 1,102 806 641
-----------------------------------
TOTAL.................................................................. $1,344 $1,064 $929
- -------------------------------------------------------------------------------------------------------------
COMMERCIAL CASH-BASIS LOANS
In U.S. Offices........................................................ $ 261 $ 296 $316
In Offices Outside the U.S. (C)........................................ 1,083 768 613
-----------------------------------
TOTAL.................................................................. $1,344 $1,064 $929
- -------------------------------------------------------------------------------------------------------------
COMMERCIAL RENEGOTIATED LOANS
In U.S. Offices........................................................ $20 $20 $242
In Offices Outside the U.S............................................. 41 39 54
-----------------------------------
TOTAL.................................................................. $61 $59 $296
- -------------------------------------------------------------------------------------------------------------
CONSUMER LOANS ON WHICH ACCRUAL OF INTEREST HAD BEEN SUSPENDED
In U.S. Offices........................................................ $ 746 $ 856 $1,053
In Offices Outside the U.S............................................. 1,104 993 1,066
-----------------------------------
TOTAL.................................................................. $1,850 $1,849 $2,119
- -------------------------------------------------------------------------------------------------------------
ACCRUING LOANS 90 OR MORE DAYS DELINQUENT (D)
In U.S. Offices........................................................ $ 553 $ 606 $677
In Offices Outside the U.S............................................. 480 467 417
-----------------------------------
TOTAL.................................................................. $1,033 $1,073 $1,094
- -------------------------------------------------------------------------------------------------------------
(A) For a discussion of risks in the consumer loan portfolio and of commercial
cash-basis loans, see pages 10 and 14, respectively.
(B) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the underlying collateral and there are
no other available and reliable sources of repayment, in which case the
loans are written down to the lower of cost or collateral value.
(C) Includes foreign currency derivative contracts with a balance sheet credit
exposure of $83 million and $59 million at March 31, 1998 and December 31,
1997, respectively, for which the recognition of revaluation gains has
been suspended.
(D) Includes Consumer loans of $988 million, $1.0 billion, and $983 million at
March 31, 1998, December 31, 1997, and March 31, 1997, of which $256
million, $240 million, and $227 million, respectively, are
government-guaranteed student loans.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED (OREO) AND ASSETS PENDING DISPOSITION (A)
- --------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(In Millions of Dollars) 1998 1997 1997
- --------------------------------------------------------------------------------
Consumer OREO........................... $242 $263 $ 408
Commercial OREO......................... 350 461 593
-------------------------------------
TOTAL................................... $592 $724 $1,001
- --------------------------------------------------------------------------------
ASSETS PENDING DISPOSITION (B).......... $103 $96 $174
- --------------------------------------------------------------------------------
(A) Carried at lower of cost or collateral value.
(B) Represents consumer residential mortgage loans that have a high
probability of foreclosure.
- --------------------------------------------------------------------------------
43
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DETAILS OF CREDIT LOSS EXPERIENCE
- -------------------------------------------------------------------------------------------------------------
1ST QTR. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(In Millions of Dollars) 1998 1997 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AGGREGATE ALLOWANCE FOR
CREDIT LOSSES AT BEGINNING OF PERIOD.......... $5,916 $5,899 $5,882 $5,866 $5,503
----------------------------------------------------------
Provision for Credit Losses..................... 507 486 486 512 423
----------------------------------------------------------
GROSS CREDIT LOSSES
CONSUMER
In U.S. Offices................................. 322 345 367 381 344
In Offices Outside the U.S...................... 207 209 219 221 219
COMMERCIAL
In U.S. Offices................................. 9 11 11 9 3
In Offices Outside the U.S...................... 76 56 42 29 36
----------------------------------------------------------
614 621 639 640 602
----------------------------------------------------------
CREDIT RECOVERIES
CONSUMER
In U.S. Offices................................. 50 62 75 55 48
In Offices Outside the U.S...................... 53 60 59 59 56
COMMERCIAL
In U.S. Offices................................. 11 27 20 31 29
In Offices Outside the U.S...................... 18 11 24 8 71
----------------------------------------------------------
132 160 178 153 204
----------------------------------------------------------
NET CREDIT LOSSES
In U.S. Offices................................. 270 267 283 304 270
In Offices Outside the U.S...................... 212 194 178 183 128
----------------------------------------------------------
482 461 461 487 398
----------------------------------------------------------
----------------------------------------------------------
OTHER-NET (A)................................... (13) (8) (8) (9) 338
----------------------------------------------------------
AGGREGATE ALLOWANCE FOR
CREDIT LOSSES AT END OF PERIOD (B)............ 5,928 5,916 5,899 5,882 5,866
Reserves for Securitization Activities.......... 70 85 89 91 91
----------------------------------------------------------
TOTAL CREDIT LOSS RESERVES ..................... $5,998 $6,001 $5,988 $5,973 $5,957
- -------------------------------------------------------------------------------------------------------------
Net Consumer Credit Losses...................... $426 $432 $452 $488 $459
As a Percentage of Average Consumer Loans....... 1.64% 1.60% 1.67% 1.82% 1.75%
Net Commercial Credit Losses (Recoveries)....... $56 $29 $9 ($1) ($61)
As a Percentage of Average Commercial Loans..... 0.29% 0.16% 0.05% NM NM
- -------------------------------------------------------------------------------------------------------------
(A) Primarily includes net transfers (to) from the reserves for securitization
activities and foreign currency translation effects. In the 1997 first
quarter, Citicorp restored to the aggregate allowance for credit losses
$373 million that had previously been attributed to credit card
securitization transactions where the exposure to credit losses is
contractually limited to the cash flows from the securitized receivables.
(B) See footnote (A) on page 32 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.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
- -------------------------------------------------------------------------------
CALCULATION OF EARNINGS PER SHARE
- -------------------------------------------------------------------------------
FIRST QUARTER
-----------------------------
(In Millions, except Per Share Amounts) 1998 1997
- -------------------------------------------------------------------------------
NET INCOME..................................... $1,065 $995
Dividends on Preferred Stock................... (32) (38)
-----------------------------
INCOME APPLICABLE TO COMMON STOCK.............. $1,033 $957
- -------------------------------------------------------------------------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING..... 452.1 461.4
Dilutive Effect of Employee Stock Plans (A).... 11.1 14.3
-----------------------------
ADJUSTED FOR DILUTIVE COMPUTATION.............. 463.2 475.7
- -------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE ...................... $2.28 $2.07
DILUTIVE EARNINGS PER SHARE ................... $2.23 $2.01
- -------------------------------------------------------------------------------
(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.
- -------------------------------------------------------------------------------
45
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) (A) (B)
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE VOLUME INTEREST REVENUE/EXPENSE
--------------------------------------- ---------------------------------
1st Qtr. 4th Qtr. 1st Qtr. 1st Qtr. 4th Qtr. 1st Qtr.
(In Millions of Dollars) 1998 1997 1997 1998 1997 1997
- ----------------------------------------------------- ------------ ------------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME) (C)
Consumer Loans
In U.S. Offices.......................... $ 55,955 $ 57,048 $ 55,229 $1,413 $1,482 $1,407
In Offices Outside the U.S. (D).......... 49,532 50,408 51,208 1,496 1,537 1,577
------------ ------------- ------------ ---------- ----------- ----------
Total Consumer Loans........................... 105,487 107,456 106,437 2,909 3,019 2,984
------------ ------------- ------------ ---------- ----------- ----------
Commercial Loans
In U.S. Offices
Commercial and Industrial........... 11,316 11,307 9,258 228 240 202
Mortgage and Real Estate............ 2,777 2,383 2,973 62 95 59
Loans to Financial Institutions..... 358 249 609 11 11 14
Lease Financing..................... 3,007 3,094 2,963 50 54 44
In Offices Outside the U.S. (D).......... 59,583 55,572 46,134 1,584 1,465 1,252
------------ ------------- ------------ ---------- ----------- ----------
Total Commercial Loans......................... 77,041 72,605 61,937 1,935 1,865 1,571
------------ ------------- ------------ ---------- ----------- ----------
Total Loans.................................... 182,528 180,061 168,374 4,844 4,884 4,555
------------ ------------- ------------ ---------- ----------- ----------
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. Offices................................ 8,655 6,099 7,827 93 73 100
In Offices Outside the U.S. (D)................ 6,214 5,791 5,412 149 161 112
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 14,869 11,890 13,239 242 234 212
------------ ------------- ------------ ---------- ----------- ----------
SECURITIES, AT FAIR VALUE
In U.S. Offices
Taxable.................................. 8,689 7,593 8,555 93 81 102
Exempt from U.S. Income Tax.............. 2,646 2,645 2,512 44 43 41
In Offices Outside the U.S. (D)................ 22,400 22,041 18,665 451 423 389
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 33,735 32,279 29,732 588 547 532
------------ ------------- ------------ ---------- ----------- ----------
TRADING ACCOUNT ASSETS (E)
In U.S. Offices................................ 6,585 5,072 4,936 100 82 70
In Offices Outside the U.S. (D)................ 9,900 10,166 9,411 155 179 174
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 16,485 15,238 14,347 255 261 244
------------ ------------- ------------ ---------- ----------- ----------
LOANS HELD FOR SALE, IN U.S. OFFICES........... 3,615 3,597 3,123 109 108 105
DEPOSITS AT INTEREST WITH BANKS (D)............ 13,957 13,973 13,366 282 268 224
------------ ------------- ------------ ---------- ----------- ----------
Total Interest-Earning Assets.................. 265,189 257,038 242,181 $6,320 $6,302 $5,872
---------- ----------- ----------
Non-Interest-Earning Assets (E)................ 47,726 45,255 42,837
------------ ------------- ------------
TOTAL ASSETS................................... $312,915 $302,293 $285,018
- ----------------------------------------------------- ------------ ------------- ------------ ---------- ----------- ----------
DEPOSITS
In U.S. Offices
Savings Deposits......................... $ 30,068 $ 28,292 $ 26,801 $ 224 $ 220 $ 191
Other Time Deposits...................... 11,191 11,336 12,501 129 172 139
In Offices Outside the U.S. (D)................ 136,661 132,120 122,337 2,269 2,133 1,899
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 177,920 171,748 161,639 2,622 2,525 2,229
------------ ------------- ------------ ---------- ----------- ----------
TRADING ACCOUNT LIABILITIES (E)
In U.S. Offices................................ 4,391 3,160 2,030 60 43 27
In Offices Outside the U.S. (D)................ 2,149 2,515 2,448 32 40 46
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 6,540 5,675 4,478 92 83 73
------------ ------------- ------------ ---------- ----------- ----------
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. Offices................................ 11,971 11,984 14,113 150 167 210
In Offices Outside the U.S. (D)................ 8,253 9,160 7,047 279 314 228
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 20,224 21,144 21,160 429 481 438
------------ ------------- ------------ ---------- ----------- ----------
LONG-TERM DEBT
In U.S. Offices................................ 15,328 15,878 14,839 236 251 215
In Offices Outside the U.S. (D)................ 3,997 4,279 4,346 85 91 98
------------ ------------- ------------ ---------- ----------- ----------
Total.......................................... 19,325 20,157 19,185 321 342 313
------------ ------------- ------------ ---------- ----------- ----------
Total Interest-Bearing Liabilities............. 224,009 218,724 206,462 $3,464 $3,431 $3,053
---------- ----------- ----------
Demand Deposits in U.S. Offices................ 11,511 11,740 10,801
Other Non-Interest-Bearing Liabilities (E)..... 56,384 50,974 47,008
Total Stockholders' Equity..................... 21,011 20,855 20,747
------------ ------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $312,915 $302,293 $285,018
- ----------------------------------------------------- ------------ ------------- ------------ ---------- ----------- ----------
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
INTEREST-EARNING ASSETS
In U.S. Offices (F)............................ $103,634 $ 99,130 $ 98,047 $1,235 $1,254 $1,232
In Offices Outside the U.S. (F)................ 161,555 157,908 144,134 1,621 1,617 1,587
------------ ------------- ------------ ---------- ----------- ----------
TOTAL.......................................... $265,189 $257,038 $242,181 $2,856 $2,871 $2,819
- ----------------------------------------------------- ------------ ------------- ------------ ---------- ----------- ----------
<CAPTION>
% AVERAGE RATE
---------------------------
1st Qtr. 4th Qtr. 1st Qtr.
(In Millions of Dollars) 1998 1997 1997
- ----------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME) (C)
Consumer Loans
In U.S. Offices.......................... 10.24 10.31 10.33
In Offices Outside the U.S. (D).......... 12.25 12.10 12.49
Total Consumer Loans........................... 11.18 11.15 11.37
COMMERCIAL LOANS
In U.S. Offices
Commercial and Industrial........... 8.17 8.42 8.85
Mortgage and Real Estate............ 9.05 15.82 8.05
Loans to Financial Institutions..... 12.46 17.53 9.32
Lease Financing..................... 6.74 6.92 6.02
In Offices Outside the U.S. (D).......... 10.78 10.46 11.01
Total Commercial Loans......................... 10.19 10.19 10.29
Total Loans.................................... 10.76 10.76 10.97
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. Offices................................ 4.36 4.75 5.18
In Offices Outside the U.S. (D)................ 9.72 11.03 8.39
Total.......................................... 6.60 7.81 6.49
SECURITIES, AT FAIR VALUE
In U.S. Offices
Taxable.................................. 4.34 4.23 4.84
Exempt from U.S. Income Tax.............. 6.74 6.45 6.62
In Offices Outside the U.S. (D)................ 8.17 7.61 8.45
Total.......................................... 7.07 6.72 7.26
TRADING ACCOUNT ASSETS (E)
In U.S. Offices................................ 6.16 6.41 5.75
In Offices Outside the U.S. (D)................ 6.35 6.99 7.50
Total.......................................... 6.27 6.80 6.90
LOANS HELD FOR SALE, IN U.S. OFFICES........... 12.23 11.91 13.64
DEPOSITS AT INTEREST WITH BANKS (D)............ 8.19 7.61 6.80
Total Interest-Earning Assets.................. 9.67 9.73 9.83
-------- -------- ---------
Non-Interest-Earning Assets (E)................
TOTAL ASSETS...................................
- ----------------------------------------------------- -------- -------- ---------
DEPOSITS
In U.S. Offices
Savings Deposits......................... 3.02 3.09 2.89
Other Time Deposits...................... 4.67 6.02 4.51
In Offices Outside the U.S. (D)................ 6.73 6.41 6.30
Total.......................................... 5.98 5.83 5.59
TRADING ACCOUNT LIABILITIES (E)
In U.S. Offices................................ 5.54 5.40 5.39
In Offices Outside the U.S. (D)................ 6.04 6.31 7.62
Total.......................................... 5.71 5.80 6.61
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. Offices................................ 5.08 5.53 6.03
In Offices Outside the U.S. (D)................ 13.71 13.60 13.12
Total.......................................... 8.60 9.03 8.39
LONG-TERM DEBT
In U.S. Offices................................ 6.24 6.27 5.88
In Offices Outside the U.S. (D)................ 8.62 8.44 9.15
Total.......................................... 6.74 6.73 6.62
Total Interest-Bearing Liabilities............. 6.27 6.22 6.00
-------- -------- ---------
Demand Deposits in U.S. Offices................
Other Non-Interest-Bearing Liabilities (E).....
Total Stockholders' Equity.....................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.....
- ----------------------------------------------------- -------- -------- ---------
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
INTEREST-EARNING ASSETS
In U.S. Offices (F)............................ 4.83 5.02 5.10
In Offices Outside the U.S. (F)................ 4.07 4.06 4.47
TOTAL.......................................... 4.37 4.43 4.72
- --------------------------------------------------------------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly COMMISSION FILE NUMBER 1-5738
Period Ended March 31, 1998
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 451,524,629
($1.00 Par Value) Shares Outstanding on March 31, 1998)
47
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q CROSS-REFERENCE INDEX
- --------------------------------------------------------------------------------
This document serves both as an analytical review for analysts, stockholders,
and other interested persons, and as the quarterly report filed on Form 10-Q
with the Securities and Exchange Commission.
PART I FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Financial Statements, Schedules, and Statistics
Statement of Income for the Three Months Ended
MARCH 31, 1998 AND 1997.......................................35
Balance Sheet as of
MARCH 31, 1998 AND DECEMBER 31, 1997..........................36
Statement of Cash Flows for the Three Months Ended
MARCH 31, 1998 AND 1997.......................................38
Calculation of Earnings Per Share.............................45
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................1-34
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K..............................49
Signatures.............................................................50
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 three months ended MARCH 31, 1998 AND 1997 have been
included.
48
<PAGE>
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 27.02. Restated Financial Data Schedule for the
three-months ended March 31, 1997.
Exhibit 27.03. Restated Financial Data Schedule for the six-months
ended June 30, 1997.
Exhibit 27.04. Restated Financial Data Schedule for the nine-months
ended September 30, 1997.
Exhibit 99.01. Citicorp and Travelers Group Inc. unaudited pro
forma condensed combined financial statements as of March 31, 1998,
and for the three months ended March 31, 1998 and 1997.
Exhibit 99.02. Travelers Group Inc. audited consolidated financial
statements as of December 31, 1997 and for the three-year period
then ended. (incorporated herein by reference to Item 8 of the
Travelers Group Inc. Annual Report on Form 10-K for the year ended
December 31, 1997).
Exhibit 99.03. Travelers Group Inc. unaudited consolidated
financial statements as of March 31, 1998 and for the three months
ended March 31, 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 March 31, 1998).
b) Reports on Form 8-K:
i) Citicorp filed a Form 8-K Current Report dated January 20,
1998 (Item 5) which report included a summary of the
consolidated operations of Citicorp for the year ended
December 31, 1997 and (Item 7) the calculation of the ratio of
income to fixed charges (Exhibit 12(a) thereto) and the
calculation of the ratio of income to fixed charges including
preferred stock dividends (Exhibit 12(b) thereto).
ii) Citicorp filed a Form 8-K Current Report dated 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.
iii) 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.
iv) 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).
49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITICORP By: /S/ Roger W. Trupin
Registrant
-------------------------
Roger W. Trupin
Vice President and Controller
By: /S/ George E. Seegers
-------------------------
George E. Seegers
Assistant Secretary
Date: May 13, 1998
50
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Travelers Group Inc.:
We consent to the incorporation by reference in the Registration Statements of
Citicorp on:
Form S-3 Nos. 33-38589, 33-66094, 333-14917, 333-20803, 333-21143 and
333-32065; and
Form S-8 Nos. 2-47648, 2-58678, 33-21331, 33-21332, 33-41751, 33-52601,
33-53261, 333-00983, and 333-25889
and in the Registration Statements of Citicorp Mortgage Securities, Inc.,
Citibank, N.A., and other affiliates on:
Form S-3 Nos. 33-66222 and 333-43167; and
Form S-11 Nos. 33-6979, 33-6358, 33-36313, and 33-34670
of our report dated January 26, 1998, which are incorporated by reference or
included in the 1997 Annual Report on Form 10-K of Travelers Group Inc. (Form
10-K), which Form 10-K and our reports thereon are incorporated by reference in
the Form 10-Q of Citicorp dated May 13, 1998.
/s/ KPMG PEAT MARWICK LLP
New York, New York
May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CURRENT REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,090
<INT-BEARING-DEPOSITS> 13,787
<FED-FUNDS-SOLD> 21,858<F1>
<TRADING-ASSETS> 39,740
<INVESTMENTS-HELD-FOR-SALE> 33,065
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 188,600
<ALLOWANCE> 5,828
<TOTAL-ASSETS> 330,414
<DEPOSITS> 214,719
<SHORT-TERM> 21,457<F2>
<LIABILITIES-OTHER> 13,012
<LONG-TERM> 20,159
0
1,600
<COMMON> 506
<OTHER-SE> 19,365
<TOTAL-LIABILITIES-AND-EQUITY> 330,414
<INTEREST-LOAN> 4,843
<INTEREST-INVEST> 572
<INTEREST-OTHER> 888
<INTEREST-TOTAL> 6,303
<INTEREST-DEPOSIT> 2,622
<INTEREST-EXPENSE> 3,464
<INTEREST-INCOME-NET> 2,839
<LOAN-LOSSES> 507
<SECURITIES-GAINS> 241
<EXPENSE-OTHER> 1,181
<INCOME-PRETAX> 1,704
<INCOME-PRE-EXTRAORDINARY> 1,065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065
<EPS-PRIMARY> 2.28<F3>
<EPS-DILUTED> 2.23<F3>
<YIELD-ACTUAL> 4.37<F4>
<LOANS-NON> 3,194<F5>
<LOANS-PAST> 1,033<F6>
<LOANS-TROUBLED> 61
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,916
<CHARGE-OFFS> 614
<RECOVERIES> 132
<ALLOWANCE-CLOSE> 5,998<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 represents Basic EPS under Financial Accounting Standards No.
128, "Earnings per Share".
<F4> Taxable Equivalent Basis.
<F5> Includes $1,344MM of cash-basis commercial loans and $1,850MM of consumer
loans on which accrual of interest has been suspended.
<F6> Accruing loans 90 or more days delinquent.
<F7> Allowance activity for the three months of 1998 includes $(13)MM in other
changes, principally foreign currency translation effects, and reserves
for securitization activities.
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CURRENT REPORT ON FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND ACCOMPANYING DISCLOSURES.
ARTICLE 9 FINANCIAL DATA SCHEDULE IS RESTATED FOR THE FIRST QUARTER OF 1997 TO
REFLECT THE CORPORATION'S ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE".
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,574
<INT-BEARING-DEPOSITS> 12,593
<FED-FUNDS-SOLD> 11,844<F1>
<TRADING-ASSETS> 33,196
<INVESTMENTS-HELD-FOR-SALE> 30,608
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 172,471
<ALLOWANCE> 5,766
<TOTAL-ASSETS> 290,354
<DEPOSITS> 188,848
<SHORT-TERM> 21,609<F2>
<LIABILITIES-OTHER> 8,785
<LONG-TERM> 18,824
0
1,903
<COMMON> 506
<OTHER-SE> 18,371
<TOTAL-LIABILITIES-AND-EQUITY> 290,354
<INTEREST-LOAN> 4,554
<INTEREST-INVEST> 519
<INTEREST-OTHER> 784
<INTEREST-TOTAL> 5,857
<INTEREST-DEPOSIT> 2,229
<INTEREST-EXPENSE> 3,053
<INTEREST-INCOME-NET> 2,804
<LOAN-LOSSES> 423
<SECURITIES-GAINS> 108
<EXPENSE-OTHER> 1,014
<INCOME-PRETAX> 1,604
<INCOME-PRE-EXTRAORDINARY> 995
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 995
<EPS-PRIMARY> 2.07<F3>
<EPS-DILUTED> 2.01<F3>
<YIELD-ACTUAL> 4.72<F4>
<LOANS-NON> 3,048<F5>
<LOANS-PAST> 1,094<F6>
<LOANS-TROUBLED> 296
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,503
<CHARGE-OFFS> 602
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 5,766<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> Restated to reflect the Corporation's adoption of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". (SFAS No. 128).
Primary EPS represents Basic EPS under SFAS No. 128.
<F4> Taxable Equivalent Basis.
<F5> Includes $929MM of cash-basis commercial loans and
$2,119MM of consumer loans on which accrual of interest has
been suspended.
<F6> Accruing loans 90 or more days delinquent.
<F7> Allowance activity for the First Quarter of 1997 includes $238MM
in other changes, 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.
(see Note 11 to the 1996 Annual Report).
<F9> See Footnote F8 above.
<F10> See Footnote F8 above.
</FN>
</TABLE>
<TABLE> <S> <C>
<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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND ACCOMPANYING DISCLOSURES.
ARTICLE 9 FINANCIAL DATA SCHEDULE IS RESTATED FOR THE SECOND QUARTER OF 1997 TO
REFLECT THE CORPORATION'S ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE".
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,638
<INT-BEARING-DEPOSITS> 12,802
<FED-FUNDS-SOLD> 13,651<F1>
<TRADING-ASSETS> 32,475
<INVESTMENTS-HELD-FOR-SALE> 34,704
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 178,914
<ALLOWANCE> 5,782
<TOTAL-ASSETS> 304,293
<DEPOSITS> 198,690
<SHORT-TERM> 24,138<F2>
<LIABILITIES-OTHER> 8,943
<LONG-TERM> 19,653
0
1,903
<COMMON> 506
<OTHER-SE> 19,000
<TOTAL-LIABILITIES-AND-EQUITY> 304,293
<INTEREST-LOAN> 9,271
<INTEREST-INVEST> 1,116
<INTEREST-OTHER> 1,611
<INTEREST-TOTAL> 11,998
<INTEREST-DEPOSIT> 4,650
<INTEREST-EXPENSE> 6,331
<INTEREST-INCOME-NET> 5,667
<LOAN-LOSSES> 935
<SECURITIES-GAINS> 232
<EXPENSE-OTHER> 2,101
<INCOME-PRETAX> 3,230
<INCOME-PRE-EXTRAORDINARY> 2,019
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,019
<EPS-PRIMARY> 4.23<F3>
<EPS-DILUTED> 4.11<F3>
<YIELD-ACTUAL> 4.64<F4>
<LOANS-NON> 2,953<F5>
<LOANS-PAST> 982<F6>
<LOANS-TROUBLED> 295
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,503
<CHARGE-OFFS> 1,242
<RECOVERIES> 357
<ALLOWANCE-CLOSE> 5,782<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> Restated to reflect the Corporation's adoption of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". (SFAS No. 128).
Primary EPS represents Basic EPS under SFAS No. 128.
<F4> Taxable Equivalent Basis.
<F5> Includes $917MM of cash-basis commercial loans and $2,036MM 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 1997 includes $229MM in other
changes, primarily net transfers (to) from the Reserves for Off-Balance
Sheet Credit Exposures and foreign currency translation effects.
<F8> No portion of Citicorp's credit loss allowance is specifically allocated
to any individual loan or group of loans. (see Note 11 to the 1996 Annual
Report).
<F9> See Footnote F8 above.
<F10> See Footnote F8 above.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10-Q FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
ACCOMPANYING DISCLOSURES.
ARTICLE 9 FINANCIAL DATA SCHEDULE IS RESTATED FOR THE THIRD QUARTER OF 1997 TO
REFLECT THE CORPORATION'S ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE".
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,379
<INT-BEARING-DEPOSITS> 11,343
<FED-FUNDS-SOLD> 10,646<F1>
<TRADING-ASSETS> 35,431
<INVESTMENTS-HELD-FOR-SALE> 30,115
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 180,995
<ALLOWANCE> 5,799
<TOTAL-ASSETS> 300,381
<DEPOSITS> 194,098
<SHORT-TERM> 20,528<F2>
<LIABILITIES-OTHER> 9,959
<LONG-TERM> 20,293
0
1,903
<COMMON> 506
<OTHER-SE> 19,111
<TOTAL-LIABILITIES-AND-EQUITY> 300,381
<INTEREST-LOAN> 14,084
<INTEREST-INVEST> 1,661
<INTEREST-OTHER> 2,448
<INTEREST-TOTAL> 18,193
<INTEREST-DEPOSIT> 7,088
<INTEREST-EXPENSE> 9,650
<INTEREST-INCOME-NET> 8,543
<LOAN-LOSSES> 1,421
<SECURITIES-GAINS> 418
<EXPENSE-OTHER> 3,280
<INCOME-PRETAX> 4,048
<INCOME-PRE-EXTRAORDINARY> 2,530
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,530
<EPS-PRIMARY> 5.28<F3>
<EPS-DILUTED> 5.13<F3>
<YIELD-ACTUAL> 4.59<F4>
<LOANS-NON> 2,871<F5>
<LOANS-PAST> 1,005<F6>
<LOANS-TROUBLED> 70
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,503
<CHARGE-OFFS> 1,881
<RECOVERIES> 535
<ALLOWANCE-CLOSE> 5,799<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> Restated to reflect the Corporation's adoption of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". (SFAS No. 128).
Primary EPS represents Basic EPS under SFAS No. 128.
<F4> Taxable Equivalent Basis.
<F5> Includes $969MM of cash-basis commercial loans and
$1,902MM of consumer loans on which accrual of interest has
been suspended.
<F6> Accruing loans 90 or more days delinquent.
<F7> Allowance activity for the nine months of 1997 includes $221MM in
other changes, primarily net transfers from the Reserves for Off-Balance
Sheet Credit Exposures and foriegn currency translation effects.
<F8> No portion of Citicorp's credit loss allowance is specifically allocated
to any individual loan or group of loans.
(see Note 11 to the 1996 Annual Report).
<F9> See Footnote F8 above.
<F10> See Footnote F8 above.
</FN>
</TABLE>
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 related transactions are subject to
customary closing conditions, including regulatory approvals and the affirmative
vote of a majority of the stockholders of each of Citicorp and Travelers.
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 March 31, 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 March 31,
1998 and for the quarters ended March 31, 1998 and 1997, which are contained in
Citicorp's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
and the separate historical financial statements of Travelers as of March 31,
1998 and for the quarters ended March 31, 1998 and 1997, which are contained in
Travelers' Quarterly Report on Form 10-Q for the quarter ended March 31, 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 March 31, 1998
(in millions)
Citicorp Travelers Pro Forma Pro Forma
Assets Historical Historical Adjustments Combined
-------------- ------------- -----------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 21,877 $ 3,943 $ - $ 25,820
Investments 35,922 64,156 - 100,078
Federal funds sold and securities borrowed or
purchased under agreements to resell 21,858 115,936 - 137,794
Brokerage receivables - 41,303 - 41,303
Trading account assets 39,740 124,567 - 164,307
Consumer loans 105,945 11,475 - 117,420
Commercial loans 82,655 - - 82,655
Allowance for credit losses (5,828) (331) - (6,159)
- -------------------------------------------------------------------------------------------------------------------
Loans, net 182,772 11,144 - 193,916
Reinsurance recoverables - 9,622 - 9,622
Separate and variable accounts - 12,943 - 12,943
Other assets 28,245 24,861 - 53,106
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 330,414 $ 408,475 $ - $ 738,889
===================================================================================================================
Liabilities
Deposits $ 214,719 $ - $ - $ 214,719
Investment banking and brokerage borrowings - 18,195 - 18,195
Short-term borrowings 10,351 3,804 - 14,155
Long-term debt 19,409 29,288 - 48,697
Federal funds purchased and securities loaned or
sold under agreements to repurchase 11,106 118,312 - 129,418
Brokerage payables - 56,624 - 56,624
Trading account liabilities 31,291 65,177 - 96,468
Insurance policy and claims reserves - 43,766 - 43,766
Contractholder funds and separate and variable accounts - 28,120 - 28,120
Other liabilities 21,317 20,451 - 41,768
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 308,193 383,737 - 691,930
- -------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock - Series I - 280 - 280
Trust preferred securities - parent obligated 750 1,200 (750) 1,200
Trust preferred securities - subsidiary obligated - 1,645 750 2,395
Stockholders' equity
Preferred stock 1,600 1,450 - 3,050
Common stock 506 12 (495) 23
Additional paid-in capital 6,493 5,872 (4,234) 8,131
Retained earnings 17,564 16,369 - 33,933
Treasury stock, at cost (4,729) (2,630) 4,729 (2,630)
Accumulated other changes in equity from nonowner sources 37 1,115 - 1,152
Unearned compensation - (575) - (575)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 21,471 21,613 - 43,084
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 330,414 $ 408,475 $ - $ 738,889
===================================================================================================================
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 Quarter Ended March 31, 1998
(in millions, except per share amounts)
Citicorp Travelers Pro Forma
Historical Historical Combined
------------ ------------ ----------
<S> <C> <C> <C>
Revenues:
Loan interest, including fees $4,843 $ 407 $ 5,250
Other interest and dividends 1,460 4,421 5,881
Insurance premiums - 2,340 2,340
Commissions and fees 1,441 1,434 2,875
Principal transactions 585 780 1,365
Asset management and administration fees - 498 498
Realized gains from sales of investments 241 144 385
Other income 499 344 843
- ----------------------------------------------------------------------------------------------------
Total revenues 9,069 10,368 19,437
Interest expense 3,464 3,177 6,641
- ----------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 5,605 7,191 12,796
- ----------------------------------------------------------------------------------------------------
Operating expenses:
Policyholder benefits and claims - 1,994 1,994
Non-insurance compensation and benefits 1,714 1,782 3,496
Insurance underwriting, acquisition and operating - 812 812
Provision for credit losses 507 87 594
Other operating 1,680 756 2,436
- ----------------------------------------------------------------------------------------------------
Total operating expenses 3,901 5,431 9,332
- ----------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 1,704 1,760 3,464
Provision for income taxes 639 609 1,248
Minority interest, net of income taxes - 58 58
====================================================================================================
Net income $1,065 $ 1,093 $ 2,158
====================================================================================================
Basic earnings per share:
Net income $ 2.28 $ 0.95 $ 0.93
====================================================================================================
Weighted average common shares outstanding 452.1 1,116.2 2,246.5
====================================================================================================
Diluted earnings per share:
Net income $ 2.23 $ 0.91 $ 0.90
====================================================================================================
Adjusted weighted average common shares
outstanding 463.2 1,173.1 2,331.1
====================================================================================================
Supplemental information:
Net interest revenue $2,839 $ 1,651 $ 4,490
Net interest revenue after provision for credit losses 2,332 1,564 3,896
====================================================================================================
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 Quarter Ended March 31, 1997
(in millions, except per share amounts)
Citicorp Travelers Pro Forma
Historical Historical Combined
-----------------------------------
<S> <C> <C> <C>
Revenues:
Loan interest, including fees $4,554 $ 306 $ 4,860
Other interest and dividends 1,303 3,498 4,801
Insurance premiums - 2,224 2,224
Commissions and fees 1,352 1,206 2,558
Principal transactions 495 762 1,257
Asset management and administration fees - 389 389
Realized gains from sales of investments 108 17 125
Other income 437 298 735
- ----------------------------------------------------------------------------------------------------
Total revenues 8,249 8,700 16,949
Interest expense 3,053 2,378 5,431
- ----------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 5,196 6,322 11,518
- ----------------------------------------------------------------------------------------------------
Operating expenses:
Policyholder benefits and claims - 1,905 1,905
Non-insurance compensation and benefits 1,665 1,548 3,213
Insurance underwriting, acquisition and operating - 805 805
Provision for credit losses 423 72 495
Other operating 1,504 645 2,149
- ----------------------------------------------------------------------------------------------------
Total operating expenses 3,592 4,975 8,567
- ----------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 1,604 1,347 2,951
Provision for income taxes 609 483 1,092
Minority interest, net of income taxes - 49 49
- ----------------------------------------------------------------------------------------------------
Net income $ 995 $ 815 $ 1,810
====================================================================================================
Basic earnings per share:
Net income $ 2.07 $ 0.71 $ 0.77
====================================================================================================
Weighted average common shares outstanding 461.4 1,103.9 2,257.4
====================================================================================================
Diluted earnings per share:
Net income $ 2.01 $ 0.67 $ 0.74
====================================================================================================
Adjusted weighted average common shares
outstanding 475.7 1,182.0 2,371.3
====================================================================================================
Supplemental information:
Net interest revenue $2,804 $1,426 $ 4,230
Net interest revenue after provision for credit losses 2,381 1,354 3,735
====================================================================================================
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
expected 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 related transactions are subject to customary closing conditions,
including regulatory and Citicorp and Travelers stockholder approval.
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 March 31, 1998 of 1,128.8 million shares of
Citigroup Common Stock to effect the Merger. 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 into subsidiary
obligated to reflect the merger of Citicorp into a newly formed, wholly owned
subsidiary of Travelers.
5. 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:
<PAGE>
For the quarter ended March 31,
(in millions, except per share amounts) 1998 1997
--------- ---------
Net income $ 2,158 $ 1,810
Preferred dividends (63) (74)
--------- ---------
Income available to common stockholders for basic EPS 2,095 1,736
Effect of dilutive securities 6 10
--------- ---------
Income available to common stockholders for diluted EPS $ 2,101 $ 1,746
========= =========
Weighted average common shares
outstanding applicable to basic EPS 2,246.5 2,257.4
Effect of dilutive securities:
Convertible securities 13.2 26.7
Employee stock plans 65.3 80.2
Warrants 6.1 7.0
--------- ---------
Adjusted weighted average common shares
outstanding applicable to diluted EPS 2,331.1 2,371.3
========= =========
Basic earnings per share $ 0.93 $ 0.77
========= =========
Diluted earnings per share $ 0.90 $ 0.74
========= =========
6. RESTRUCTURING CHARGE AND FUTURE COST SAVINGS
The pro forma 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 required after the consummation of
the Merger.
The pro forma financial statements do not reflect any future cost savings
that may result from the reduction of overhead expenses, 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.
