<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
_______to_______
Commission file number:1-5738
CITICORP
(Exact name of Registrant as specified in its charter)
Delaware 06-1515595
(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 (Zip Code)
executive offices)
Registrant's telephone number, including area code: (800) 285-3000
Securities registered pursuant to Section 12(b) of the Act: None
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Citicorp Capital III 7.10% New York Stock Exchange
Capital Securities
(and Registrant's guarantee
obligations with respect thereto)
Securities registered pursuant to Section 12(g) of the Act: None
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 |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
Because the Registrant is a wholly owned subsidiary of Citigroup Inc., none of
its outstanding voting stock is held by nonaffiliates. As of the date hereof,
1,000 shares of the Registrant's Common Stock, $0.01 par value per share, were
issued and outstanding.
Documents Incorporated by Reference: None
REDUCED DISCLOSURE FORMAT
The Registrant meets the conditions set forth in General Instruction I (1)(a)
and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced
disclosure format.
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CITICORP
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
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TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER PAGE
- ----------- ----
PART I
1. Business..................................................................3
2. Properties................................................................7
3. Legal Proceedings.........................................................8
4. Omitted Pursuant to General Instruction I....................Not applicable
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters..............................................8
6. Omitted Pursuant to General Instruction I....................Not applicable
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................8
7A. Quantitative and Qualitative Disclosures About Market Risk...............38
8. Financial Statements and Supplementary Data..............................38
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................................38
PART III
10-13. Omitted Pursuant to General Instruction I..................Not applicable
PART IV
14. Exhibits and Reports on Form 8-K.........................................38
Exhibit Index............................................................40
Signatures...............................................................41
Index to Consolidated Financial Statements..............................F-1
2
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PART I
ITEM 1. BUSINESS
THE COMPANY
Citicorp, a diversified financial services company, conducts its activities
through Global Consumer, Global Corporate, Asset Management, and Investment
Activities. Its staff of 103,000 (including 59,800 outside the U.S.) serves
individuals, businesses, governments, and financial institutions in
approximately 3,300 locations (including branches and representative,
subsidiary, and affiliate offices) in 100 countries and territories
throughout the world. Citicorp, a U.S. bank holding company, is the sole
shareholder of Citibank, N.A. ("Citibank"), its major subsidiary. As used in
this Form 10-K, unless the context otherwise requires, "Citicorp" and the
"Company" refer to Citicorp and its consolidated subsidiaries.
On October 8, 1998, Citicorp, which was incorporated in 1967, merged with and
into a newly formed, wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Following the effectiveness of the merger, that subsidiary, which
was incorporated in 1998 under the laws of the state of Delaware, changed its
name to Citicorp, and Travelers changed its name to Citigroup Inc.
("Citigroup"). At that time, Citigroup issued approximately 1.1 billion shares
of its common stock in exchange for all of the outstanding shares of Citicorp
common stock based on an exchange ratio of 2.5 shares of its common stock for
each share of Citicorp common stock. Following the exchange, former shareholders
of Citicorp owned approximately 50% of the outstanding common stock of
Citigroup. Each outstanding share of Citicorp preferred stock was converted into
one share of a corresponding series of preferred stock of Citigroup having
identical terms. The merger was accounted for as a pooling of interests.
Additionally, as of October 8, 1998, the shares of Citicorp common stock held in
treasury were retired. The effect of these transactions was an elimination of
Citicorp common stock and Citicorp preferred stock, with an offsetting
adjustment to surplus, resulting in no change in the amount of Citicorp's total
stockholder's equity.
Citicorp is authorized to issue 10,000 shares of common stock, par value $.01
each, of which 1,000 shares are outstanding, and 1,000 shares of preferred
stock, par value $1.00 each, of which none are outstanding. Citigroup owns all
the outstanding shares of Citicorp common stock.
Citigroup, the Company's parent, is a diversified holding company whose
businesses provide a broad range of financial services to consumer and
corporate customers around the world. Citigroup's activities are conducted
through Global Consumer, Global Corporate and Investment Bank, Asset
Management, and Investment Activities. The periodic reports of Citigroup
provide additional business and financial information concerning that company
and its consolidated subsidiaries.
Citicorp is regulated under the Bank Holding Company Act of 1956 and is subject
to examination by the Federal Reserve Board (the "FRB"). Citibank is a member of
the Federal Reserve System and is subject to regulation and examination by the
Office of the Comptroller of the Currency (the "OCC").
GLOBAL CONSUMER
Global Consumer includes a global, full-service consumer franchise encompassing,
among other things, branch and electronic banking, consumer lending and credit
and charge card services, and personalized wealth management services for high
net worth clients.
Global Consumer creates products and platforms to meet the expanding needs of
the world's growing middle class. CITIBANKING NORTH AMERICA delivers banking
services to customers through the branch network and through electronic delivery
systems. Through its MORTGAGE BANKING unit, Global Consumer makes mortgage and
student loans to customers across North America.
The CARDS unit offers products such as MasterCard and VISA, Diners Club, and
private label credit cards. The April 1998 acquisition of Universal Card
Services from AT&T added approximately $15 billion in managed credit card
receivables. Global Consumer accounts for approximately 15% of the U.S. credit
card receivables market. Worldwide, Global Consumer has approximately 51 million
card member accounts.
The INTERNATIONAL unit of Global Consumer provides full-service banking and
lending, including credit and charge cards, in Europe, Middle East and Africa,
Asia Pacific (including Japan and Australia), and Latin America. Citibank's
GLOBAL
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PRIVATE BANK provides personalized wealth management services for high net worth
clients through 97 offices in 31 countries, generating fee income from
investment funds management, trust and fiduciary services, and custody services.
Its Relationship Managers use their knowledge about their clients' individual
needs and goals to bring them an array of personal banking services.
Through E-CITI, Global Consumer focuses on the development of electronic banking
initiatives, including Internet-based transactional banking products. These
initiatives help place customers' entire financial relationships at their
fingertips.
GLOBAL CORPORATE
Global Corporate serves corporations, financial institutions, governments, and
other participants in developed and emerging markets throughout the world.
Global Corporate is a major participant in foreign exchange and in the
over-the-counter ("OTC") market for derivative instruments involving a wide
range of products, including interest rate, equity and currency swaps, caps and
floors, options, warrants and other derivative products. It also creates and
sells various types of structured securities.
The Company has a long-standing presence in emerging markets, which include all
locations outside the economies of North America, Western Europe, and Japan.
EMERGING MARKETS offers a wide array of products and services that help
multinational and local companies fulfill their financial goals or needs.
Initially, the Company typically enters a country to serve global customers,
providing them with cash management, short-term loans, and foreign-exchange
services. As the market begins to develop, the Company offers trade services,
project finance, and fixed-income issuance and trading and, thereafter,
introduces securities custody, loan syndications, and derivatives services.
Finally, as services for locally headquartered companies become significant,
consumer banking services may be offered. The Company's strategy in emerging
markets also targets middle market businesses, and is designed to increase the
Company's presence in the country and to help establish it as a local "hometown"
bank, as well as a leading international bank.
The GLOBAL RELATIONSHIP BANK provides banking and financial services to
multinational companies and their subsidiaries all over the world. This business
is organized by customer rather than by region or product. A dedicated
relationship team serves each parent company and its subsidiaries everywhere
they operate. Product offerings are determined by the demands of these
sophisticated customers. Core products include cash management, foreign
exchange, securities custody, and structured products.
ASSET MANAGEMENT
Citibank Global Asset Management ("CGAM") offers a broad range of asset
management products and services from global investment centers around the
world, including mutual funds, closed-end funds, and managed accounts.
Clients include private and public retirement plans, endowments, foundations,
banks, central banks, insurance companies, other corporations, government
agencies, as well as high net worth and other individuals. Client relationships
are introduced through the cross marketing and distribution opportunities within
the Citicorp structure, or through CGAM's institutional sales force.
As of December 31, 1998, aggregate assets under management were $141 billion.
INVESTMENT ACTIVITIES
In addition to the Company's three principle business segments, its Investment
Activities segment consists primarily of the Company's venture capital
activities, certain corporate investments and the results of certain investments
in countries that refinanced debt under the 1989 Brady Plan or plans of a
similar nature.
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CORPORATE/OTHER
Corporate/Other 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.
The principal executive offices of the Company are located at 399 Park Avenue,
New York, New York 10043; telephone number (800) 285-3000.
COMPETITION
Citicorp and its subsidiaries are subject to intense competition in all aspects
of their businesses from both bank and non-bank institutions that provide
financial services and, in some of their activities, from government agencies.
REGULATION
Citicorp is a bank holding company within the meaning of the U.S. Bank Holding
Company Act of 1956 ("BHC Act") registered with, and subject to examination by,
the FRB. Its subsidiary depository institutions (the "banking subsidiaries"),
including its principal bank subsidiary, Citibank, N.A. ("Citibank"), are
subject to supervision and examination by their respective federal and state
banking authorities. Its nationally chartered subsidiary banks, including
Citibank, are supervised and examined by the OCC, its federal savings
association subsidiary is regulated by the Office of Thrift Supervision ("OTS");
and its state-chartered depository institutions are supervised by the banking
departments within their respective states (New York, Delaware and Utah), as
well as the Federal Deposit Insurance Corporation ("FDIC"). The FDIC also has
back-up enforcement authority with respect to each of the banking subsidiaries,
the deposits of which are insured by the FDIC, up to applicable limits. The
Company also controls (either directly or indirectly) overseas banks, branches,
and agencies. In general, the Company's overseas activities are regulated by the
FRB and OCC, and are also regulated by supervisory authorities of the host
countries.
The Company's banking subsidiaries are also subject to requirements and
restrictions under federal, state and foreign law, including requirements to
maintain reserves against deposits, restrictions on the types and amounts of
loans that may be made and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also affect
the operations of the Company's banking subsidiaries.
The activities of U.S. bank holding companies are generally limited to the
business of banking, managing or controlling banks and other activities that the
FRB determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
Section 20 of the Glass-Steagall Act prohibits a member bank of the Federal
Reserve System, such as Citibank, from being affiliated with a company that is
principally engaged in underwriting and dealing in securities. The FRB has
determined by regulation that underwriting and dealing in certain "eligible"
securities is an activity closely related to banking and is therefore
permissible for bank holding companies and their subsidiaries. The FRB has also
determined that a securities firm that does not generate more than 25% of its
gross revenue from underwriting and dealing in certain "ineligible" securities
is not deemed for purposes of the Glass-Steagall Act to be "principally engaged"
in securities underwriting and dealing. Citicorp believes that the ineligible
revenues of its affiliates' securities businesses are below this threshold.
The activities of U.S. bank holding companies are generally limited to managing
or controlling banks. Nonbank acquisitions in the U.S. are generally limited to
5% of voting shares unless the FRB determines that the acquisition is so closely
related to banking as to be a proper incident to banking or managing or
controlling banks. Subject to prior specific or general FRB consent, a bank
holding company may generally acquire less than 20 percent of the voting
securities of a company that does not do business in the United States, and 20
percent or more of the voting securities of any such company if the FRB finds by
regulation or order that its activities are usual in connection with banking or
finance outside the United States. In general, bank holding companies may engage
in a broader set of activities outside of the United States. Outside the United
States, for example, bank holding company subsidiaries may sponsor, distribute,
and advise open-end mutual funds without regard to the 20% revenue limit
discussed above. Bank holding companies may also underwrite and deal in debt,
and to a limited extent, equity securities, subject to local country laws. In
addition, a bank holding company and its bank subsidiaries may, subject to
certain requirements for prior FRB consent or notice,
5
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acquire banks and establish branches subject to local country laws and to United
States laws prohibiting companies from doing business in certain countries.
The Company's earnings and activities are affected by legislation, by actions of
its regulators, and by local legislative and administrative bodies and decisions
of courts in the foreign and domestic jurisdictions in which the Company and its
subsidiaries conduct business. For example, these include limitations on the
ability of subsidiaries to pay dividends to their intermediate holding companies
and on the abilities of those holding companies to pay dividends to the Company
(see Note 23 of Notes to Consolidated Financial Statements). It is the policy of
the FRB that bank holding companies should pay cash dividends on common stock
only out of income available over the past year and only if prospective earnings
retention is consistent with the organization's expected future needs and
financial condition. The policy provides that bank holding companies should not
maintain a level of cash dividends that undermines the bank holding company's
ability to serve as a source of strength to its banking subsidiaries.
Various federal and state statutory provisions limit the amount of dividends
that subsidiary banks and savings associations can pay to their holding
companies without regulatory approval. In addition to these explicit
limitations, the federal regulatory agencies are authorized to prohibit a
banking subsidiary or bank holding company from engaging in an unsafe or unsound
banking practice. Depending upon the circumstances, the agencies could take the
position that paying a dividend would constitute an unsafe or unsound banking
practice.
Numerous other federal and state laws also affect the Company's earnings and
activities including federal and state consumer protection laws. Legislation may
be enacted or regulation imposed in the U.S. or its political subdivisions, or
in any other jurisdiction in which the Company does business, to further
regulate banking and financial services or to limit finance charges or other
fees or charges earned in such activities. There can be no assurance whether any
such legislation or regulation will place additional limitations on the
Company's operations or adversely affect its earnings.
There are various legal restrictions on the extent to which a bank holding
company and certain of its nonbank subsidiaries can borrow or otherwise obtain
credit from banking subsidiaries or engage in certain other transactions with or
involving those banking subsidiaries. In general, these restrictions require
that any such transactions must be on terms that would ordinarily be offered to
unaffiliated entities and secured by designated amounts of specified collateral.
Transactions between a banking subsidiary and the holding company or any nonbank
subsidiary are limited to 10 percent of the banking subsidiary's capital stock
and surplus, and as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20 percent of the bank's capital stock and surplus.
Subject to certain limitations and restrictions, a U.S. bank holding company,
with the prior approval of the FRB, may acquire an out-of-state bank. Banks in
states that do not prohibit out-of-state mergers may merge with the approval of
the appropriate federal bank regulatory agency. A national or state bank may
establish a de novo branch out of state if such branching is expressly permitted
by the other state. A federal saving association is generally permitted to open
a de novo branch in any state.
Outside the U.S., subject to certain requirements for prior FRB consent or
notice, the Company may acquire banks and Citibank may establish branches
subject to local laws and to U.S. laws prohibiting companies from doing business
in certain countries.
The Company's right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
In the liquidation or other resolution of a failed U.S. insured depository
institution, deposits in U.S. offices and certain claims for administrative
expenses and employee compensation are afforded a priority over other general
unsecured claims, including deposits in offices outside the U.S., non-deposit
claims in all offices, and claims of a parent such as the Company. Such priority
creditors would include the FDIC, which succeeds to the position of insured
depositors.
A financial institution insured by the FDIC that is under common control with a
failed or failing FDIC-insured institution can be required to indemnify the FDIC
for losses resulting from the insolvency of the failed institution, even if this
causes the affiliated institution also to become insolvent. Any obligations or
liability owed by a subsidiary depository institution to its parent company is
subordinate to the subsidiary's cross-guarantee liability with respect to
commonly controlled insured depository institutions and to the rights of
depositors.
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Under FRB policy, a bank holding company is expected to act as a source of
financial strength to each of its banking subsidiaries and commit resources to
their support. As a result of that policy, the Company may be required to commit
resources to its subsidiary banks in certain circumstances.
The Company and its U.S. insured depository institution subsidiaries are subject
to risk-based capital and leverage guidelines issued by U.S. regulators for
banks, savings associations, and bank holding companies. The regulatory agencies
are required by law to take specific prompt actions with respect to institutions
that do not meet minimum capital standards and have defined five capital tiers,
the highest of which is "well-capitalized." As of December 31, 1998, the
Company's bank and thrift subsidiaries, including Citibank, were "well
capitalized." See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for capital analysis.
A bank is not required to repay a deposit at a branch outside the U.S. if the
branch cannot repay the deposit due to an act of war, civil strife, or action
taken by the government in the host country, unless the bank has expressly
agreed in writing to do so.
The earnings of the Company, Citibank, and their subsidiaries and affiliates are
affected by general economic conditions and the conduct of monetary and fiscal
policy by the U.S. government and by governments in other countries in which
they do business.
Various legislation, including proposals to overhaul the bank regulatory system
and expand the powers of bank holding companies, is from time to time introduced
in Congress. Such legislation may change banking statutes and the operating
environment of the Company and its banking subsidiaries in substantial and
unpredictable ways. The Company cannot determine whether such potential
legislation will ultimately be enacted, and if enacted, the ultimate effect that
any such potential legislation or implementing regulations would have upon the
financial condition or results of operations of the Company or its subsidiaries.
ITEM 2. PROPERTIES
The principal offices of Citicorp and Citibank are located at 399 Park Avenue,
New York, New York, a 39-story building of which two-thirds is owned by
Citibank. Citibank also owns one third of Citicorp Center, a 59-story building
located at 153 East 53rd Street across Lexington Avenue from 399 Park Avenue.
Citicorp occupies all of the space it owns in both buildings. Citibank also owns
Citicorp at Court Square in Long Island City, New York and 111 Wall Street in
New York City, which are totally occupied by Citicorp. In addition, Citicorp has
major U.S. real estate holdings in Albuquerque, New Mexico; Chicago, Illinois;
Hagerstown and Silver Spring, Maryland; Los Angeles and San Francisco,
California; New Castle, Delaware; Rio Piedras, Puerto Rico; Sioux Falls, South
Dakota; Tampa, Florida; San Antonio, Texas; St. Louis, Missouri; and The Lakes,
Nevada.
Outside the U.S. Citicorp owns major corporate premises in various cities
throughout the world including: Buenos Aires, Argentina; Caracas, Venezuela;
Dubai, United Arab Emirates; Dublin, Ireland; Dusseldorf and Frankfurt, Germany;
Paris, France; Milan, Italy; Hong Kong, China; Lewisham and London, United
Kingdom; Kuala Lumpur, Malaysia; Madrid, Spain; Manila, Philippines; Mexico
City, Mexico; Rio de Janeiro and Sao Paulo, Brazil; Santiago, Chile; Taipei,
Taiwan; Tokyo, Japan; and Warsaw, Poland. Approximately 47% of the space
Citicorp occupies worldwide is owned by Citicorp.
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ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, Citicorp and its subsidiaries are defendants
or co-defendants in various litigation matters. Although there can be no
assurances, the Company believes, based on information currently available, that
the ultimate resolutions of these legal proceedings would not be likely to have
a material adverse effect on its results of operations, financial condition or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to General Instruction I of Form 10-K, the information required by Item
4 is omitted.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Citigroup owns all of the outstanding common stock of Citicorp.
ITEM 6. SELECTED FINANCIAL DATA
Pursuant to General Instruction I of Form 10-K, the information required by Item
6 is omitted.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE MERGER
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers. See "The Company" on page 3 for additional details.
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BUSINESS FOCUS
The table below shows the business income (loss) for each of Citicorp's
businesses:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
GLOBAL CONSUMER
Citibanking North America $ 113 $ 71
Mortgage Banking 175 117
Cards 709 507
- -------------------------------------------------------------
Total North America 997 695
- -------------------------------------------------------------
Europe, Middle East, & Africa 155 138
Asia Pacific 410 428
Latin America 163 273
Global Private Bank 254 281
- -------------------------------------------------------------
Total International 982 1,120
- -------------------------------------------------------------
e-Citi (142) (79)
Other (86) 24
- -------------------------------------------------------------
TOTAL GLOBAL CONSUMER 1,751 1,760
- -------------------------------------------------------------
GLOBAL CORPORATE
Emerging Markets 690 909
Global Relationship Banking 220 559
- -------------------------------------------------------------
TOTAL GLOBAL CORPORATE 910 1,468
- -------------------------------------------------------------
ASSET MANAGEMENT 22 35
Corporate/Other 36 (155)
- -------------------------------------------------------------
BUSINESS INCOME 2,719 3,108
- -------------------------------------------------------------
Investment Activities 739 1,051
- -------------------------------------------------------------
CORE INCOME 3,458 4,159
- -------------------------------------------------------------
Restructuring Charges and Merger-
Related Costs 648 550
- -------------------------------------------------------------
NET INCOME $2,810 $3,609
- -------------------------------------========================
</TABLE>
EARNINGS ANALYSIS
Citicorp uses the concept of "operating margin" as an important measure of its
ability to absorb credit costs, build profitability and strengthen capital.
Operating margin is the difference between adjusted revenues and adjusted
operating expenses. This earnings analysis reconciles amounts shown in the
Consolidated Statements of Income to the basis employed by management for
assessing financial results.
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Total Revenues,
Net of Interest Expense $23,250 $21,616
Effect of Credit Card
Securitization Activity 2,177 1,713
Net Cost to Carry (1) 8 (5)
------------------------
ADJUSTED REVENUES 25,435 23,324
------------------------
Total Operating Expenses 16,400 13,958
Net OREO Benefits (2) 56 72
Restructuring Charges and
Merger-Related Costs (1,009) (880)
------------------------
ADJUSTED OPERATING EXPENSES 15,447 13,150
------------------------
OPERATING MARGIN 9,988 10,174
------------------------
Provision for Credit Losses (3) 2,381 1,907
Effect of Credit Card
Securitization Activity 2,177 1,713
Net Cost to Carry and Net
OREO Benefits (48) (77)
------------------------
ADJUSTED PROVISION FOR
CREDIT COSTS 4,510 3,543
------------------------
OPERATING MARGIN LESS
CREDIT COSTS 5,478 6,631
Restructuring Charges and
Merger-Related Costs 1,009 880
------------------------
INCOME BEFORE TAXES 4,469 5,751
Income Taxes 1,659 2,142
------------------------
NET INCOME $ 2,810 $ 3,609
- ----------------------------------===========================
</TABLE>
(1) Principally the net cost to carry commercial cash-basis loans and other
real estate owned ("OREO").
(2) Principally gains and losses on sales, direct revenue and expense, and
write-downs of commercial OREO.
(3) Includes a provision in excess of net credit losses to increase the
allowance for credit losses by $58 million and $100 million in 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Citicorp reported 1998 core income of $3.458 billion, down $701 million or 17%
from $4.159 billion in 1997, both excluding the after-tax effects of
restructuring charges (and in 1998, merger-related costs) of $648 million in
1998 and $550 million in 1997. Net income including the charges was $2.810
billion, down $799 million or 22% from $3.609 billion in 1997. Excluding the
charges, return on total equity of 15.8% for 1998 compared to 19.8% a year-ago.
Core income was sharply impacted by the global economic turmoil experienced
during the year as income decreased 38% in Global Corporate to $910 million,
reflecting events in Russia and Asia, and decreased 30% in Investment Activities
to $739 million. The decline in Global Corporate reflected decreases of 61% in
Global Relationship Banking to $220 million and 24% in Emerging Markets to $690
million. Core income was essentially unchanged in Global Consumer as the 43%
increase in the North America businesses to $997 million was partially offset by
a 12% decrease in International due to
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global economic conditions. Global Consumer core income was also reduced by
spending on global advertising, marketing, and distribution development
initiatives, and spending on the technological enhancements of e-Citi.
Adjusted revenues of $25.4 billion were up $2.1 billion or 9% from 1997, up 13%
excluding the effect of foreign currency translation, which reduced revenues by
$884 million. Revenues in Global Consumer increased $2.0 billion or 15% to $16.1
billion, led primarily by Cards, up $1.6 billion or 31%, including the $1.1
billion impact of the Universal Card Services ("UCS") acquisition. Revenues of
$6.9 billion in Global Corporate were up $247 million or 4%, as Emerging Markets
increased by $239 million or 8%, and Global Relationship Banking was essentially
unchanged. Asset Management revenues were $342 million, up $49 million or 17%
reflecting continued growth in assets under management, and Corporate/Other
revenues were $1.1 billion, up $80 million or 8% primarily reflecting treasury
activities. The decrease in Investment Activities revenues to $981 million, down
$314 million or 24%, primarily reflected lower venture capital revenues.
Adjusted net interest revenues (taxable equivalent basis), including the effect
of credit card securitization, of $15.8 billion were up $2.0 billion or 14% from
1997, reflecting the acquisitions of UCS and certain consumer businesses in
Latin America, and business volume growth in most other markets, which were
partially offset by the effect of foreign currency translation. Fee and
commission revenues of $6.3 billion were up $435 million or 7%, led by growth in
Cards, including UCS. Trading-related revenues of $2.4 billion increased $327
million or 16% from 1997, led by strong foreign exchange revenue attributable to
volatile foreign currency markets throughout 1998. Venture capital revenues of
$487 million decreased $262 million or 35% from 1997. Aggregate securities
transactions and net asset gains of $778 million for 1998 decreased $246 million
or 24% from a year ago.
Adjusted operating expenses of $15.4 billion, which excluded the restructuring
charges and merger-related costs, were up $2.3 billion or 17% from 1997, up 21%
excluding the effect of foreign currency translation, which reduced expenses by
$441 million. Expenses increased in Global Consumer by 18%, reflecting UCS,
global advertising, marketing, distribution initiatives, and electronic banking
development efforts. Global Corporate expenses were up 11%, primarily
attributable to increased spending on technology, volume-related increases, and
costs associated with implementing plans to gain market share in selected
emerging market countries.
Restructuring charges and merger-related costs of $1.009 billion in 1998
represented $1.006 billion of exit costs associated with business improvement
and integration initiatives to be implemented over a 12 to 18 month period and
$41 million of costs associated with administratively closing the merger with
Travelers, partially offset by a $38 million reduction in the 1997 restructuring
charge due to changes in estimates. The $880 million restructuring charge in
1997 related to cost-management programs and customer service initiatives. See
Note 12 of Notes to Consolidated Financial Statements for additional details.
Adjusted provision for credit costs was $4.5 billion in the year, up $1.0
billion or 27% from 1997. Global Consumer managed net credit losses of $4.1
billion in 1998 were up $546 million or 15% from 1997, and the ratio of net
credit losses to average managed loans was 2.70% compared to 2.60% for 1997. The
increase in credit costs chiefly reflected the UCS acquisition. The managed
consumer loan delinquency ratio (90 days or more past due) decreased to 2.19%
from 2.30% at the end of 1997.
Global Corporate adjusted net credit costs increased to $367 million from a net
benefit of $35 million in 1997, primarily reflecting the turmoil in Asia and
Russia. Commercial cash-basis loans and OREO of $1.6 billion at year-end were up
5% from a year earlier, primarily reflecting the economic conditions in Asia.
The provision for credit losses as shown on the Consolidated Statement of Income
was $2.381 billion in 1998, compared to $1.907 billion in 1997, reflecting the
increases described above.
Total capital (Tier 1 and Tier 2) was $33.9 billion or 12.38% of net
risk-adjusted assets, and Tier 1 capital was $23.1 billion or 8.44% at December
31, 1998.
10
<PAGE>
GLOBAL CONSUMER
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Total revenues, net of interest expense $13,957 $12,357
Effect of credit card securitization activity 2,177 1,713
Net cost to carry cash-basis loans and OREO (17) (2)
--------------------------------
ADJUSTED REVENUES 16,117 14,068
--------------------------------
Total operating expenses 9,994 8,483
Net OREO costs (1) 4 4
Restructuring charges (689) (580)
--------------------------------
Adjusted operating expenses 9,309 7,907
--------------------------------
OPERATING MARGIN 6,808 6,161
--------------------------------
Provision for credit losses (2) 1,997 1,935
Effect of credit card securitization activity 2,177 1,713
Net cost to carry and net OREO costs (21) (6)
--------------------------------
Adjusted provision for credit costs 4,153 3,642
--------------------------------
BUSINESS INCOME BEFORE TAXES 2,655 2,519
Income taxes 904 759
--------------------------------
BUSINESS INCOME 1,751 1,760
Restructuring charges, after-tax 435 351
--------------------------------
NET INCOME $1,316 $ 1,409
- ------------------------------------------------================================
Average assets (IN BILLIONS OF DOLLARS) $144 $133
Return on assets 0.91% 1.06%
- --------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 1.22% 1.32%
- ------------------------------------------------================================
</TABLE>
(1) Includes amounts related to writedowns, gains and losses on sales, and
direct revenue and expense related to OREO for certain real estate lending
activities.
(2) Includes a provision in excess of net credit losses to increase the
allowance for credit losses by $80 million and $100 million in 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
Global Consumer -- which provides banking and lending products and services,
including credit and charge cards, to customers around the world -- reported
business income of $1.751 billion in 1998, down $9 million or 1% from 1997,
reflecting strong growth in the businesses across North America, offset by
declines in the International businesses, reflecting economic conditions,
including weakened currencies, in Asia Pacific and Latin America. Business
income was also reduced by spending on global advertising, marketing, and
spending on the technological enhancements of e-Citi. Net income of $1.316
billion in 1998 and $1.409 billion in 1997 included restructuring charges of
$689 million ($435 million after-tax) and $580 million ($351 million after-tax),
respectively.
The 1998 restructuring initiatives are designed to realize synergies and
operating efficiencies including regional consolidation of call centers and
other back office functions worldwide, reduction of management layers, sales
force restructuring and integration of overlapping marketing and product
management groups. Global Consumer also expects to improve results by exiting
several non-strategic operations. The 1997 restructuring charge was for the
consolidation of data centers and operations processing and customer service
facilities, the reconfiguration of electronic and other distribution channels,
the outsourcing of various technological functions, and the rationalization of
administrative and management functions. See Note 12 of Notes to Consolidated
Financial Statements for a discussion of restructuring charges.
11
<PAGE>
NORTH AMERICA
CITIBANKING NORTH AMERICA
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,989 $1,875
Adjusted operating expenses (1) 1,698 1,611
--------------------------------
OPERATING MARGIN 291 264
Credit costs (2) 118 131
--------------------------------
BUSINESS INCOME BEFORE TAXES 173 133
Income taxes 60 62
--------------------------------
BUSINESS INCOME 113 71
Restructuring charges, after-tax 89 124
--------------------------------
NET INCOME (LOSS) $ 24 $ (53)
- -----------------------------------------------================================
Average assets (IN BILLIONS OF DOLLARS) $ 12 $ 11
Return on assets 0.20% NM
- -------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.94% 0.65%
- -----------------------------------------------================================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
NM Not Meaningful
- -------------------------------------------------------------------------------
Citibanking North America -- which delivers banking services to customers
through Citibank's branch network and electronic delivery systems -- reported
business income of $113 million in 1998, up $42 million or 59% from 1997
reflecting higher revenues, improved credit costs, and a lower effective tax
rate. Net income (loss) of $24 million in 1998 and $(53) million in 1997,
included restructuring charges of $139 million ($89 million after-tax) and $203
million ($124 million after-tax), respectively.
Revenues, net of interest expense, were $1.989 billion in 1998, up from $1.875
billion in 1997, reflecting growth in customer deposits and higher investment
product fees and commissions. Average customer deposits were $39.6 billion in
1998, up from $37.1 billion in 1997. Adjusted operating expenses in 1998 were up
$87 million or 5% from 1997 reflecting business volume growth. Credit costs
improved to $118 million in 1998 from $131 million in 1997. The net credit loss
ratio was 1.49% in 1998, down from 1.61% in 1997.
Business income in 1998 benefited from a lower effective tax rate. The effective
tax rates on business income before taxes were 35% and 47% in 1998 and 1997,
respectively. Fluctuations in the effective income tax rates result from changes
in the nature and geographic mix of pretax earnings.
MORTGAGE BANKING
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $558 $519
Adjusted operating expenses (1) 248 234
-------------------------------
OPERATING MARGIN 310 285
Credit costs (2) 20 87
-------------------------------
BUSINESS INCOME BEFORE TAXES 290 198
Income taxes 115 81
-------------------------------
BUSINESS INCOME 175 117
Restructuring charges, after-tax 6 12
-------------------------------
NET INCOME $169 $105
- ----------------------------------------------===============================
Average assets (IN BILLIONS OF DOLLARS) $ 25 $ 24
Return on assets 0.68% 0.44%
- -----------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.70% 0.49%
- ----------------------------------------------===============================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
- -----------------------------------------------------------------------------
12
<PAGE>
Mortgage Banking -- which provides mortgages and student loans to customers
across North America -- reported business income of $175 million in 1998, up $58
million or 50% from 1997, reflecting lower credit costs and higher revenues
resulting from increased business volumes. Net income of $169 million in 1998
and $105 million in 1997 included restructuring charges of $9 million ($6
million after-tax) and $20 million ($12 million after-tax), respectively.
As shown in the following table, Mortgage Banking grew accounts, loans, and
mortgage originations in 1998.
<TABLE>
<CAPTION>
IN BILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Accounts (IN MILLIONS) (1) 2.8 2.5
Average loans (1) $23.9 $22.3
Mortgage originations 16.1 8.2
- ------------------------------------------------===============================
</TABLE>
(1) Includes student loans
- --------------------------------------------------------------------------------
Revenues, net of interest expense, of $558 million in 1998 grew $39 million or
8% from 1997, reflecting increased mortgage originations, including refinancing
activity, and growth in the student loan portfolio. Adjusted operating expenses
were up $14 million or 6% in 1998, reflecting additional business volumes.
Credit costs of $20 million in 1998 declined from $87 million in 1997. The 1998
net credit loss ratio of 0.31%, was down from 0.51% in 1997, reflecting
continued improvement in the mortgage portfolio. Credit costs included a benefit
of $55 million and $28 million in 1998 and 1997, respectively, arising from a
reduction in the allowance for credit losses attributed to Mortgage Banking,
reflecting continued credit improvement in the mortgage portfolio.
CARDS
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Total revenues, net of interest expense $4,799 $3,617
Effect of credit card securitization activity 2,177 1,713
--------------------------------
ADJUSTED REVENUES 6,976 5,330
Adjusted operating expenses (1) 2,635 1,793
--------------------------------
OPERATING MARGIN 4,341 3,537
Adjusted credit costs (2) 3,223 2,772
--------------------------------
BUSINESS INCOME BEFORE TAXES 1,118 765
Income taxes 409 258
--------------------------------
BUSINESS INCOME 709 507
Restructuring charges, after-tax 39 36
--------------------------------
NET INCOME $ 670 $ 471
- ------------------------------------------------================================
Average assets (IN BILLIONS OF DOLLARS) $26 $24
Return on assets 2.58% 1.96%
- --------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets (3) 2.73% 2.11%
- ------------------------------------------------================================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses (on a managed basis).
(3) Adjusted for the effect of credit card securitization, the return on
managed assets for Cards was 1.08% in 1998 and 0.96% in 1997.
- --------------------------------------------------------------------------------
In 1998, Citibank acquired Universal Card Services from AT&T. As of December 31,
1998, UCS added $16.9 billion in managed customer receivables and 14 million
accounts to Cards. In 1998, UCS contributed $1.082 billion to revenues, $693
million to expenses, and $500 million to credit costs, resulting in a net loss
of approximately $72 million. These amounts included $320 million (pretax) of
UCS acquisition premium costs (including funding costs associated with the
acquisition purchase premium).
Cards -- U.S. bankcards, Diners Club, and private label cards -- reported
business income of $709 million, up $202 million or 40% from 1997 reflecting
significant improvements in the U.S. bankcards business. Net income of $670
million in 1998 and $471 million in 1997, included restructuring charges of $58
million ($39 million after-tax) and $59 million ($36 million after-tax),
respectively.
Adjusted revenues of $6.976 billion increased $1.646 billion or 31% from 1997,
reflecting the acquisition of UCS, and in other U.S. bankcards portfolios
increased delinquency charges due to pricing actions and higher interchange fee
revenue.
13
<PAGE>
As shown in the following table, on a managed basis, the U.S. bankcard portfolio
experienced strong growth in the year reflecting the acquisition of UCS and the
impact of enhanced target marketing efforts in 1998 and 1997.
<TABLE>
<CAPTION>
Increase from 1997
------------------------------------------
IN BILLIONS OF DOLLARS 1998 % % Ex UCS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts (IN MILLIONS) 39 56 -
Cards in force (IN MILLIONS) 68 70 8
Charge volumes $134.9 31 9
End-of-period receivables 67.6 40 5
- -------------------------------------==========================================
</TABLE>
Adjusted operating expenses of $2.635 billion were up $842 million or 47%,
reflecting the acquisition of UCS and increased target marketing efforts in U.S.
bankcards.
Adjusted credit costs in 1998 were $3.223 billion, up from $2.772 billion in
1997. Managed net credit losses in U.S. bankcards were $3.083 billion, or 5.41%
of average managed loans (excluding UCS, $2.583 billion or 5.64% of average
managed loans) compared to $2.633 billion or 5.81% in 1997. The decline in the
net credit loss ratio reflects moderating industry-wide bankruptcy trends and
the effect of previously implemented credit risk management initiatives.
Adjusted credit costs include a provision in excess of net credit losses to
increase the allowance for credit losses by $72 million and $78 million in 1998
and 1997, respectively.
INTERNATIONAL CONSUMER
EUROPE, MIDDLE EAST, & AFRICA
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,954 $1,864
Adjusted operating expenses (1) 1,349 1,323
--------------------------------
OPERATING MARGIN 605 541
Credit costs (2) 289 274
--------------------------------
BUSINESS INCOME BEFORE TAXES 316 267
Income taxes 161 129
--------------------------------
BUSINESS INCOME 155 138
Restructuring charges, after-tax 125 65
--------------------------------
NET INCOME $ 30 $ 73
- -----------------------------------------------================================
Average assets (IN BILLIONS OF DOLLARS) $21 $21
Return on assets 0.14% 0.35%
- -------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.74% 0.66%
- -----------------------------------------------================================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
- --------------------------------------------------------------------------------
Europe, Middle East, & Africa ("EMEA") -- which provides banking and lending
services, including credit and charge cards, to customers throughout the region
- - reported business income of $155 million in 1998, up $17 million or 12% from
1997. Net income of $30 million in 1998 and $73 million in 1997 included
restructuring charges of $239 million ($125 million after-tax) and $112 million
($65 million after-tax), respectively.
As shown in the following table, EMEA reported 7% account growth in 1998
primarily reflecting loan growth, including credit cards.
<TABLE>
<CAPTION>
IN BILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts (IN MILLIONS) 9.5 8.9
Average customer deposits $16.7 $16.8
Average loans 15.8 15.1
- ---------------------------------------------------=============================
</TABLE>
Revenues, net of interest expense, of $1.954 billion in 1998 grew $90 million or
5% from 1997 reflecting growth across all countries except India and Pakistan
where revenues declined as a result of economic conditions. Foreign currency
translation reduced revenue growth by approximately 3 percentage points.
14
<PAGE>
Adjusted operating expenses of $1.349 billion were up $26 million or 2% from
1997, reflecting higher business volumes and costs associated with expansion
efforts in Central and Eastern Europe and Africa, partially offset by the effect
of foreign currency translation. Foreign currency translation reduced expense
growth by approximately 4 percentage points.
Credit costs in 1998 were $289 million, up from $274 million in 1997. The net
credit loss ratio was 1.71% in 1998 compared to 1.77% in 1997. Foreign currency
translation reduced credit costs by approximately $8 million in 1998. Credit
costs include a provision in excess of net credit losses to increase the
allowance for credit losses by $19 million and $7 million in 1998 and 1997,
respectively. The increase in the additional provision reflects an increase in
loan volumes.
ASIA PACIFIC
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,773 $1,799
Adjusted operating expenses (1) 968 1,024
-----------------------------
OPERATING MARGIN 805 775
Credit costs (2) 251 201
-----------------------------
BUSINESS INCOME BEFORE TAXES 554 574
Income taxes 144 146
-----------------------------
BUSINESS INCOME 410 428
Restructuring charges, after-tax 64 60
-----------------------------
NET INCOME $ 346 $ 368
- ---------------------------------------------------=============================
Average assets (IN BILLIONS OF DOLLARS) $28 $28
Return on assets 1.24% 1.31%
- --------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 1.46% 1.53%
- ---------------------------------------------------=============================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
- --------------------------------------------------------------------------------
Asia Pacific (including Japan and Australia) -- which provides banking and
lending services, including credit and charge cards, to customers throughout the
region -- reported business income of $410 million in 1998, down from $428
million in 1997, reflecting economic conditions in the region, including
weakened currencies. Foreign currency translation reduced business income by
approximately $127 million in 1998. The effect of foreign currency translation
moderated during the second half of 1998. Net income of $346 million in 1998 and
$368 million in 1997, included restructuring charges of $83 million ($64 million
after-tax) and $97 million ($60 million after-tax), respectively.
As shown in the following table, Asia Pacific accounts grew 19% in 1998
principally reflecting growth in customer deposits due to the
"flight-to-quality" in the region, particularly in Japan. In 1998, customer
deposits grew 18% (32% excluding the effect of foreign currency translation).
<TABLE>
<CAPTION>
IN BILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Accounts (IN MILLIONS) 7.4 6.2
Average customer deposits $36.1 $30.5
Average loans 20.2 20.8
- ----------------------------------------------================================
</TABLE>
Revenues, net of interest expense, of $1.773 billion declined $26 million from
1997, reflecting the effect of foreign currency translation and spread
compression in certain countries, offset by account and business volume growth
due to the "flight-to-quality" in the region. Foreign currency translation
reduced revenue growth by approximately 22 percentage points.
Adjusted operating expenses in 1998 were down $56 million or 5% from 1997,
reflecting the effect of foreign currency translation, partially offset by costs
associated with business volume growth. Foreign currency translation reduced
expense growth by approximately 15 percentage points.
Credit costs in 1998 were $251 million, up from $201 million in 1997. The net
credit loss ratio was 1.12% in 1998, up from 0.82% in 1997, reflecting economic
conditions in the region. Foreign currency translation reduced credit costs by
approximately $70 million in 1998. Credit costs include a provision in excess of
net credit losses to increase the allowance for credit losses by $24 million and
$30 million in 1998 and 1997, respectively, reflecting higher credit losses in
the portfolio.
15
<PAGE>
LATIN AMERICA
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,562 $1,446
Adjusted operating expenses (1) 1,071 923
-----------------------------
OPERATING MARGIN 491 523
Credit costs (2) 265 192
-----------------------------
BUSINESS INCOME BEFORE TAXES 226 331
Income taxes 63 58
-----------------------------
BUSINESS INCOME 163 273
Restructuring charges, after-tax 67 20
-----------------------------
NET INCOME $ 96 $ 253
- ---------------------------------------------------=============================
Average assets (IN BILLIONS OF DOLLARS) $12 $8
Return on assets 0.80% 3.16%
- --------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 1.36% 3.41%
- ---------------------------------------------------=============================
</TABLE>
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
- --------------------------------------------------------------------------------
Latin America - which provides banking and lending services, including credit
and charge cards, to customers throughout the region -- reported business income
of $163 million in 1998 down from $273 million in 1997, primarily reflecting
lower earnings in Credicard, a Brazilian Card affiliate. Net income of $96
million in 1998 and $253 million in 1997, included restructuring charges of $88
million ($67 million after-tax) and $33 million ($20 million after-tax),
respectively.
As shown in the following table, Latin America experienced strong business
volume growth in 1998, including the effect of certain acquisitions made during
the year. Customer deposit growth also reflects a "flight-to-quality" in the
region.
<TABLE>
<CAPTION>
IN BILLIONS OF DOLLARS 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Accounts (IN MILLIONS) 6.7 4.9
Average customer deposits $10.2 $8.2
Average loans 7.8 6.6
- --------------------------------------------=================================
</TABLE>
Revenues, net of interest expense, of $1.562 billion were up $116 million or 8%
from 1997 reflecting account and business volume growth and certain acquisitions
in the region, partially offset by lower earnings in Credicard and reduced
spreads. Foreign currency translation reduced revenue growth by approximately 5
percentage points.
Adjusted operating expenses in 1998 grew $148 million or 16% from 1997
reflecting acquisitions in the region, spending on new strategic alliances, and
increased collection efforts. Foreign currency translation reduced expense
growth by approximately 8 percentage points.
Credit costs were $265 million in 1998, up from $192 million in 1997 reflecting
economic conditions and loan growth. The net credit loss ratio was 3.07% in 1998
compared to 2.66% in 1997. Credit costs include a provision in excess of net
credit losses to increase the allowance for credit losses by $26 million and $17
million in 1998 and 1997, respectively, reflecting the higher credit loss
experience in the portfolio during 1998 and portfolio growth.
Business income in 1998 was also reduced by a higher effective tax rate. The
effective tax rates on business income before taxes were 28% and 18% in 1998 and
1997, respectively. Fluctuations in the effective income tax rates result from
changes in the nature and geographic mix of pretax earnings.
16
<PAGE>
GLOBAL PRIVATE BANK
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTED REVENUES (1) $1,061 $1,018
Adjusted operating expenses (2) 725 670
------------------------------
OPERATING MARGIN 336 348
Adjusted credit benefits (3) (16) (19)
------------------------------
BUSINESS INCOME BEFORE TAXES 352 367
Income taxes 98 86
------------------------------
BUSINESS INCOME 254 281
Restructuring charges, after-tax 43 18
------------------------------
NET INCOME $ 211 $ 263
- --------------------------------------------------==============================
Average assets (IN BILLIONS OF DOLLARS) $17 $17
Return on assets 1.24% 1.55%
- --------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 1.49% 1.65%
- --------------------------------------------------==============================
</TABLE>
(1) Excludes net cost to carry cash-basis loans and OREO.
(2) Excludes restructuring charges and net OREO costs.
(3) Represents provision for credit losses, net cost to carry, and net OREO
costs.
- --------------------------------------------------------------------------------
Global Private Bank -- which provides personalized wealth management services
for high net worth clients around the world -- reported business income in 1998
of $254 million, down $27 million or 10% from 1997, primarily reflecting lower
earnings in Asia Pacific. Net income of $211 million in 1998 and $263 million in
1997, included restructuring charges of $70 million ($43 million after-tax) and
$28 million ($18 million after-tax), respectively.
Client business volumes under management were $116 billion at the end of the
year, up from $101 billion in 1997, reflecting growth in all regions except Asia
Pacific. Growth was led by the custody business, investment funds management,
banking, and trust and fiduciary relationships.
Adjusted revenues in 1998 were $1.061 billion, up $43 million or 4% from 1997,
reflecting strong growth in client-related foreign exchange and growth in other
fee revenues.
Adjusted operating expenses of $725 million in 1998 were up $55 million or 8%
from 1997, reflecting an increased sales force and higher product management
costs.
Adjusted credit benefits for 1998 were $16 million, compared with $19 million in
1997. 1998 credit benefits reflect increased income on cash basis loans and
higher recoveries in Europe and the United States, offset by higher write-offs
in Asia Pacific and Latin America.
Business income in 1998 was also reduced by a higher effective tax rate. The
effective tax rates on business income before taxes were 28% and 23% in 1998 and
1997, respectively. Fluctuations in the effective income tax rates result from
changes in the nature and geographic mix of pretax earnings.
17
<PAGE>
E-CITI
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 147 $112
Adjusted operating expenses (1) 379 239
----------------------------
OPERATING MARGIN (232) (127)
Credit costs 3 4
----------------------------
BUSINESS LOSS BEFORE TAXES (235) (131)
Income tax benefit (93) (52)
----------------------------
BUSINESS LOSS (142) (79)
Restructuring charges, after-tax 2 16
----------------------------
NET LOSS $ (144) $(95)
- ----------------------------------------------------============================
(1) Excludes restructuring charges.
- --------------------------------------------------------------------------------
</TABLE>
e-Citi -- the business that manages the Company's Internet strategy and
execution, including the creation and delivery of electronic financial services
and e-commerce initiatives, such as Direct Access and other Internet-based
transactional banking products, and provides to customers certain other
electronic banking services such as Global Debit Card Services -- reported
business losses of $142 million in 1998, compared to $79 million in 1997. Net
losses of $144 million in 1998 and $95 million in 1997, included restructuring
charges of $3 million ($2 million after-tax) and $28 million ($16 million
after-tax), respectively.
Revenues, net of interest expense, were $147 million in 1998, up from $112
million in 1997, reflecting business volume increases in certain electronic
banking services. Adjusted operating expenses of $379 million increased from
$239 million in 1997 reflecting Internet-based financial services and e-commerce
initiatives, and additional investment spending on certain other electronic
banking services.
OTHER CONSUMER
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 97 $105
Operating expenses 236 90
------------------------------
BUSINESS (LOSS) INCOME BEFORE TAXES (139) 15
Income tax benefit (53) (9)
------------------------------
NET (LOSS) INCOME $ (86) $ 24
- --------------------------------------------------==============================
</TABLE>
Other Consumer -- which includes certain treasury operations and global
marketing and other programs - reported a net loss of $86 million in 1998,
compared to net income of $24 million in 1997, primarily reflecting higher
spending on global advertising, marketing, and distribution development
initiatives.
18
<PAGE>
CONSUMER PORTFOLIO REVIEW
Managed loans of $167.7 billion as of December 31, 1998 were up from $138.8
billion as of December 31, 1997, reflecting the acquisition of UCS and worldwide
portfolio growth.
In the consumer portfolio, credit loss experience is often expressed in terms of
annual net credit losses as a percentage of average loans. Pricing and credit
policies reflect the risk and credit 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 20 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.
In North America, Mortgage Banking and Citibanking credit trends continue to
improve from 1997 levels. Mortgage Banking loans delinquent 90 days or more of
$625 million at December 31, 1998 declined from $715 million at December 31,
1997 and Citibanking North America delinquencies of $87 million declined from
$142 million, respectively. Similarly, Mortgage Banking net credit losses of $75
million in 1998 declined from $115 million in 1997 and Citibanking North America
net credit losses of $124 million declined from $135 million, respectively.
U.S. bankcards managed loans delinquent 90 days or more were $992 million or
1.48% ($803 million or 1.60% excluding UCS) at December 31, 1998, compared with
$856 million or 1.80% at December 31, 1997. Net credit losses in 1998 were $3.1
billion and the related loss ratio was 5.41% ($2.6 billion and 5.64% excluding
UCS), compared with $2.6 billion and 5.81% in 1997. The improvement in both the
delinquency and net credit loss ratios reflects moderating industry-wide
bankruptcy trends and previously implemented credit risk management initiatives.
Citicorp continues to write off bankrupt accounts upon notice of filing of
bankruptcy.
In Europe, Middle East, & Africa, credit trends have been stable to improving in
most countries. Loans delinquent 90 days or more were $937 million with a
related ratio of 5.49% at December 31, 1998, compared with $905 million or 6.00%
at December 31, 1997. Net credit losses in 1998 were $270 million and the
related loss ratio was 1.71%, compared with $267 million and 1.77% in 1997.
In Asia Pacific and Latin America, delinquencies and net credit losses have
increased from 1997 due to economic conditions in the regions. Asia Pacific
loans delinquent 90 days or more of $498 million at December 31, 1998 increased
from $259 million at December 31, 1997 and net credit losses of $227 million in
1998 increased from $171 million in 1997. Foreign currency translation reduced
net credit losses in Asia Pacific by approximately $70 million in 1998. Latin
America loans delinquent 90 days or more of $288 million at December 31, 1998
increased from $173 million at December 31, 1997 and net credit losses of $239
million in 1998 increased from $175 million in 1997. The increase in Latin
America delinquencies and net credit losses also reflects loan growth.
Global Private Bank loans delinquent 90 days or more of $193 million at December
31, 1998 increased from $110 million at December 31, 1997, reflecting an
increase in Asia Pacific and Europe, the Middle East and Africa, partially
offset by improvements in North America. Net credit losses in 1998 were $5
million, compared with net recoveries of $13 million in 1997, reflecting higher
write-offs in Asia Pacific and Latin America, partially offset by improvements
in North America.
Total consumer loans on the balance sheet delinquent 90 days or more on which
interest continued to be accrued were $1.1 billion at December 31, 1998 and $1.0
billion at December 31, 1997. Included in these amounts are U.S.
government-guaranteed student loans of $267 million at December 31, 1998, up
from $240 million at December 31, 1997, reflecting growth in the loan portfolio.
Other consumer loans delinquent 90 days or more on which interest continued to
be accrued (which primarily include worldwide bankcard receivables and certain
loans in Germany) were $790 million and $762 million, respectively. The majority
of these other loans are written off upon reaching a stipulated number of days
past due.
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
December 31, 1998, interest accrual had been suspended on $2.1 billion of
consumer loans, primarily consisting of mortgage, installment, revolving, and
Private Banking loans, up from $1.8 billion at December 31, 1997, reflecting
increases in Asia Pacific, Latin America, and the Global Private Bank, partially
offset by improvements in Mortgage Banking.
19
<PAGE>
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
<TABLE>
<CAPTION>
TOTAL 90 DAYS OR AVERAGE
(IN MILLIONS OF DOLLARS, LOANS MORE PAST DUE (1) LOANS NET CREDIT LOSSES (1)
--------------------------------------------------------------------------
EXCEPT LOAN AMOUNTS IN BILLIONS) 1998 1998 1997 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Citibanking North America $ 8.4 $ 87 $ 142 $ 8.3 $ 124 $ 135
Ratio 1.04% 1.61% 1.49% 1.61%
Mortgage Banking 25.6 625 715 24.0 75 115
Ratio 2.44% 3.13% 0.31% 0.51%
U.S. Bankcards (2) 67.1 992 856 57.0 3,083 2,633
Ratio 1.48% 1.80% 5.41% 5.81%
Other Cards 2.3 46 37 2.3 68 61
Ratio 1.96% 1.72% 2.91% 2.86%
Europe, Middle East, & Africa 17.1 937 905 15.8 270 267
Ratio 5.49% 6.00% 1.71% 1.77%
Asia Pacific 21.8 498 259 20.2 227 171
Ratio 2.28% 1.34% 1.12% 0.82%
Latin America 8.0 288 173 7.8 239 175
Ratio 3.60% 2.34% 3.07% 2.66%
Global Private Bank 17.0 193 110 15.9 5 (13)
Ratio 1.14% 0.72% 0.03% NM
e-Citi 0.4 2 1 0.3 3 4
Ratio 0.35% 0.60% 1.15% 1.93%
- ------------------------------------------------------------------------------------------------------------------
TOTAL MANAGED 167.7 3,668 3,198 151.6 4,094 3,548
RATIO 2.19% 2.30% 2.70% 2.60%
- ------------------------------------------------------------------------------------------------------------------
Securitized credit card receivables (44.1) (656) (481) (36.3) (2,043) (1,587)
Loans held for sale (4.6) (38) (35) (4.5) (134) (126)
- ------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $119.0 $2,974 $2,682 $110.8 $1,917 $1,835
RATIO 2.50% 2.47% 1.73% 1.71%
- ----------------------------------------==========================================================================
</TABLE>
(1) 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.
(2) The U.S. Bankcards managed ratios of 90 days or more past due and net
credit losses were reduced by 12 and 23 basis points, respectively, in
1998, due to the acquisition of the Universal Card portfolio.
NM Not meaningful.
- --------------------------------------------------------------------------------
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
<TABLE>
<CAPTION>
END OF PERIOD AVERAGE
------------------------- -------------------------
IN BILLIONS OF DOLLARS 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGED $167.7 $138.8 $151.6 $136.3
Securitized credit card receivables (44.1) (26.8) (36.3) (25.2)
Loans held for sale (4.6) (3.5) (4.5) (3.6)
------------------------- -------------------------
ON-BALANCE SHEET $119.0 $108.5 $110.8 $107.5
- ---------------------------------------======================================================
</TABLE>
The portion of Citicorp's allowance for credit losses attributed to the consumer
portfolio was $2.9 billion as of December 31, 1998, up from $2.5 billion as of
December 31, 1997, reflecting the addition of $320 million of credit loss
reserves related to the acquisition of the Universal Card portfolio. The
allowance as a percentage of loans on the balance sheet was 2.45% as of December
31, 1998, compared with 2.29% at December 31, 1997. The attribution of the
allowance is made for analytical purposes only and the entire allowance is
available to absorb probable credit losses inherent in the portfolio.
20
<PAGE>
GLOBAL CONSUMER OUTLOOK
During 1998, Global Consumer announced a number of business improvement and
integration initiatives that are projected to yield expense savings of
approximately $380 million pretax in 1999, and to reach a run rate of
approximately $540 million in annual pretax savings beginning in 2000. In 1999,
these actions, together with tighter management of non-customer expenses and
realized savings from earlier efficiency initiatives still in progress, are
expected to yield gross annual pretax expense savings of approximately $800
million. There can be no assurance that the projected cost savings will be
achieved.
NORTH AMERICA
CITIBANKING NORTH AMERICA. The business is poised for growth in 1999 as a result
of continued improvements in revenues along with a reduction in operating
expenses. In addition, the business should benefit from the implementation of
cross-selling initiatives with several affiliates of the Company.
Cross-selling programs and pilots currently underway include the offering
of credit cards, mortgages, investment products, and life insurance to
Citibanking customers, as well as the offering of Citibanking products
to customers of other Citigroup subsidiaries. Citibanking has launched
new training, licensing and compensation programs to enable and motivate current
bankers to sell the full range of financial services products that meet clients'
needs.
MORTGAGE BANKING. Mortgage Banking, which includes Student Loans, will continue
to develop its national franchise in 1999. Growth in existing and new
distribution channels -- including cross-selling programs -- should maintain
loan volumes. Student Loans should continue to grow through affinity programs
with major universities and capitalize on its recently regained top position in
the U.S. government-guaranteed loan program. Continued development of other
products, including home equity and installment loans, will complement the
product offerings and should enable the business to establish lifetime
relationships with new and existing customers. Mortgage refinancing activity is
expected to moderate in 1999, however, lower than expected interest rates and
competitive pricing could result in continued higher than expected levels of
prepayment activity. Management has instituted hedging programs designed to
mitigate the impairment effects of prepayment activity.
CARDS. In 1998, the business increased profitability through risk based pricing
initiatives and improved credit conditions. Additionally, the acquisition of UCS
drove the 40% growth in U.S. bankcard receivables and significantly increased
market share. As a result, the business will move into 1999 with strong
momentum. While competitive pressures will continue, the business expects to
leverage its size in meeting the needs of existing customers and gain wallet
share by continuing to grow existing profitable relationships and testing new
value propositions and channels. Furthermore, Cards plans to meet its customers'
broader financial and insurance needs through cross-selling opportunities that
should provide the fuel for continued portfolio growth. Credit costs and
delinquencies may increase from 1998 levels as a result of continued portfolio
growth.
INTERNATIONAL CONSUMER
As a result of global economic conditions, particularly in Latin America and
Asia Pacific, net credit losses and the related loss ratios in certain
International Consumer businesses are expected to increase from 1998 levels.
Additionally, delinquencies and loans on which the accrual of interest is
suspended could remain at relatively high levels.
EUROPE, MIDDLE EAST, & AFRICA. The newly unified Europe represents a large
market whose size and strong demographic characteristics rival that of the
United States. Additional growth opportunity comes from the developing markets
of Central and Eastern Europe where an emerging middle class is expected to fuel
the demand for financial services. Along with the markets, consumers are
experiencing profound changes. Not unlike the U.S., as social reforms take hold,
an increasing recognition on the part of consumers that they will need to fund
their own retirements is fueling a substantial investment product opportunity.
Although the European Economic Monetary Union ("EMU") represents great
opportunity, the challenges are substantial. A single market requires
pan-European product offerings, brings increased competition, and creates a
greater ability on the part of consumers to comparison shop across borders.
Citicorp's strengths in distribution and consistent global advertising and
marketing efforts will provide a strong platform to expand beyond the current
European presence.
ASIA PACIFIC. The macroeconomic environment across Asia Pacific was difficult
during 1998 with most economies contracting, along with significant volatility
of interest rates and foreign exchange rates. From a competitive perspective,
the economic turbulence has begun to lead to early rationalization and some
consolidation in the financial services and banking sector. During 1998,
franchise growth reflected the "flight-to-quality" in the region, particularly
in Japan. The business maintained a tight focus on loan underwriting and
increased productivity throughout the region, especially in the
21
<PAGE>
back office. Credit costs have risen since 1997 and are expected to remain at
high levels in 1999 as unemployment rises and GDP growth remains sluggish.
However, the business is well positioned in 1999 for continued franchise growth.
LATIN AMERICA. Latin America now serves nearly five million customers, with
credit and charge cards commanding a leading share position in four countries.
Substantial steps have been taken to build the franchise across the region,
including acquisitions in Mexico and Argentina, and opening sales and service
channels through non-traditional means, such as presence in retail outlets in
four countries and enhanced online banking offerings in five countries. The
region has experienced deteriorating economic conditions in many of its
countries, which has resulted in reduced GDP growth and a difficult credit
environment. This trend is expected to continue in 1999, as the impact of the
Brazilian currency devaluation is felt across the region. Latin America will
mitigate the effects of this downturn by re-focusing lending efforts toward less
risky segments of the population. Additionally, increased efforts will be made
to grow existing customer relationships and toward continued operating expense
reductions.
GLOBAL PRIVATE BANK. The market for private banking services is extremely
attractive because the "wealth" segment has been growing faster than the overall
market. Although the financial crisis in a number of emerging market countries
has had an adverse impact, several regions, particularly the United States and
Europe, remain very strong and the prospects for the overall market continue to
be positive over the longer term. While competition for this attractive and
dynamic market segment is increasing, the global market is highly fragmented
with no dominant competitors. This presents the Global Private Bank with an
extremely attractive business opportunity because it is one of the few providers
that can claim to offer a full range of private banking services on a global
basis.
GLOBAL CORPORATE
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ADJUSTED REVENUES (1) $6,930 $6,683
Adjusted operating expenses (2) 5,235 4,714
-------------------------------
OPERATING MARGIN 1,695 1,969
Adjusted credit costs (3) 367 (35)
-------------------------------
BUSINESS INCOME BEFORE TAXES 1,328 2,004
Income taxes 418 536
-------------------------------
BUSINESS INCOME 910 1,468
Restructuring charges, after-tax 137 168
-------------------------------
NET INCOME $ 773 $1,300
- ----------------------------------------------===============================
Average assets (IN BILLIONS OF DOLLARS) $ 170 $ 147
Return on assets 0.45% 0.88%
- -----------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.54% 1.00%
- ----------------------------------------------===============================
</TABLE>
(1) Excludes net cost to carry cash-basis loans and OREO.
(2) Excludes net restructuring charges and net OREO benefits.
(3) Represents provision for credit losses, net cost to carry, and net OREO
benefits.
- --------------------------------------------------------------------------------
Global Corporate business income in 1998 was $910 million, down $558 million or
38% from 1997. The results reflect volatile global capital markets which held
revenue growth to 4%, expense growth of 11% attributable to technology spending
(including year 2000 and EMU) and franchise expansion, together with higher
credit costs in the Emerging Markets business. Net income in 1998 was $773
million, down $527 million or 41% from 1997. Included in 1998 and 1997 net
income are restructuring charges of $246 million ($157 million after-tax) and
$281 million ($168 million after-tax), respectively. The 1998 restructuring
initiatives are designed to realize synergies and operating efficiencies arising
from the Citicorp and Travelers merger. The savings will come from both Emerging
Markets and Global Relationship Banking ("GRB") as the businesses rationalize
their presence in countries with multiple operations with Salomon Smith Barney
("SSB"), consolidate Citibank and SSB locations, integrate trading platforms,
and exit non-strategic businesses. The 1997 restructuring charge related to
standardization and consolidation of operations, the outsourcing of various
technological functions, the rationalization of support functions, and other
organizational realignments designed to better serve target market customers.
During 1998 Emerging Markets and GRB recorded an adjustment of $32 million ($20
million after-tax) to reduce the 1997 restructuring reserve, primarily
reflecting lower than anticipated severance costs due to higher attrition and
redeployment of personnel within the Company. See Note 12 of Notes to
Consolidated Financial Statements.
22
<PAGE>
Adjusted revenues of $6.930 billion in 1998 grew $247 million or 4% from 1997.
The improvement reflected double-digit growth in transaction banking services
revenue, higher trading-related revenues, and improved treasury results,
partially offset by lower securities transactions, net asset gains, and
corporate finance revenues.
Trading-related revenues totaled $2.050 billion and $1.792 billion in 1998 and
1997, respectively. The growth reflected higher foreign exchange revenues
attributable to volatile foreign currency markets throughout 1998. Derivative
revenues rebounded from the depressed 1997 results, which were adversely
affected by the unusual volatility stemming from the economic turmoil in certain
Asian countries. Fixed Income and Other results declined in 1998 primarily as a
result of the global turmoil precipitated by the default of Russia on its
sovereign debt.
Adjusted operating expenses were $5.235 billion and $4.714 billion in 1998 and
1997, respectively. The expense growth was primarily attributable to increased
spending on technology (including year 2000 and EMU), volume-related increases,
and costs associated with implementing Citicorp's plans to gain market share in
selected emerging market countries.
Adjusted credit costs totaled $367 million in 1998 compared with a net benefit
of $35 million in 1997. The increase in credit costs is concentrated in
Indonesia and Russia. Cash-basis loans at December 31, 1998 were $1.330 billion,
up $280 million or 27% from year-end 1997 reflecting a $413 million increase in
the Emerging Markets business, primarily in Indonesia and several other Asian
countries, partially offset by a $133 million improvement in Global Relationship
Banking, primarily real estate related. Cash-basis loans at December 31, 1998
and 1997 include approximately $14 million and $59 million, respectively, of
balance sheet credit exposure related to foreign currency derivative contracts
for which the recognition of revaluation gains has been suspended. The OREO
portfolio of $262 million at December 31, 1998 declined $199 million or 43% from
December 31, 1997, primarily due to sales of OREO properties. See the tables
entitled "Cash-Basis, Renegotiated, and Past Due Loans" and "Other Real Estate
Owned and Assets Pending Disposition" on page F-39.
Citicorp attributes income taxes to core businesses on the basis of local tax
rates, which resulted in effective income tax rates on business income of 31%
and 27% in 1998 and 1997, respectively. The difference between the local tax
rates attributed to core businesses and Citicorp's overall effective tax rate in
each year is included in Corporate/Other. Fluctuations in the effective income
tax rates resulted from changes in the nature and geographic mix of pretax
earnings.
Average assets of $170 billion in 1998 grew $23 billion or 16% from 1997.
Average assets of $81 billion in the Emerging Markets business grew $15 billion
or 23% reflecting growth across all geographic segments. The growth was
concentrated in the loan portfolio and trade finance products, together with
treasury initiatives. Average assets of $89 billion in Global Relationship
Banking grew $8 billion or 10% from 1997 primarily reflecting an increase in the
fair value of trading assets, including derivative and foreign exchange
contracts, higher lending to target market clients, and higher volumes in
transaction banking services.
Losses on commercial lending activities can vary widely with respect to timing
and amount, particularly within any narrowly-defined business or loan type.
Commercial loans are identified as impaired and placed on a nonaccrual basis
when it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well secured and in the process of collection. Impaired
commercial loans are written down to the extent that principal is judged to be
uncollectible. Citicorp's allowance for credit losses of $6.2 billion is
available to absorb all probable credit losses inherent in the portfolio. For
analytical purposes only, Citicorp attributes a portion of this reserve to its
commercial loans. Reserves attributed to commercial loans totaled $3.3 billion
at both December 31, 1998 and 1997. During 1998 asset quality improved in the
developed markets but deteriorated in a number of emerging markets. The
commercial allowance for credit losses as a percentage of commercial loans at
December 31, 1998 and 1997 was 3.8% and 4.4%, respectively. Credit costs and
cash-basis loans may increase from the 1998 levels due to global economic
developments--particularly in Latin America and Asia Pacific.
At December 31, 1998, Global Corporate had mark-to-market exposure to hedge
funds of $110 million, collateralized by $133 million of cash and government
securities, resulting in excess collateral of $23 million. Within these amounts,
certain hedge funds have collateral in excess of the mark-to-market deficit, and
others have deficits in excess of collateral held. The total exposure to hedge
funds with mark-to-market deficits in excess of collateral held is $4 million.
No single hedge fund had a mark-to-market deficit of more than $2 million in
excess of collateral held from that hedge fund. Other outstandings and
commitments to hedge funds totaled $131 million, of which $129 million was
secured and $2 million was unsecured. Mark-to-market exposure includes those
hedge funds that owe Global Corporate on foreign exchange and derivative
contracts such as swaps, swap options, and other over-the-counter options, and
only the uncollateralized portion of receivables on reverse repurchase and
repurchase agreements. This exposure can change significantly as a result of
extreme market movements. Global Corporate had no equity investment in hedge
funds.
23
<PAGE>
EMERGING MARKETS
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Total revenues, net of interest expense $3,363 $3,168
Net cost to carry cash-basis loans and OREO 59 15
-----------------------------
ADJUSTED REVENUES 3,422 3,183
Adjusted operating expenses (1) 2,017 1,893
-----------------------------
OPERATING MARGIN 1,405 1,290
Adjusted credit costs (2) 480 135
-----------------------------
BUSINESS INCOME BEFORE TAXES 925 1,155
Income taxes 235 246
-----------------------------
BUSINESS INCOME 690 909
Restructuring charges, after-tax 50 32
-----------------------------
NET INCOME $ 640 $ 877
- -----------------------------------------------=============================
Average assets (IN BILLIONS OF DOLLARS) $81 $66
Return on assets 0.79% 1.33%
- ----------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.85% 1.38%
- -----------------------------------------------=============================
</TABLE>
(1) Excludes net restructuring charges and net OREO benefits.
(2) Represents provision for credit losses, net cost to carry, and net OREO
benefits.
- --------------------------------------------------------------------------------
Emerging Markets business income totaled $690 million in 1998, down $219 million
or 24% from 1997. Net income was $640 million in 1998, down $237 million or 27%
from 1997. Included in 1998 and 1997 net income are net restructuring charges of
$73 million ($50 million after-tax) and $54 million ($32 million after-tax),
respectively.
Adjusted revenues of $3.422 billion grew $239 million or 8% (17% excluding the
effect of foreign currency translation) compared with 1997 reflecting a $245
million improvement in trading-related revenues to $1.051 billion (which
includes a $57 million loss attributable to Russia), double-digit growth in
transaction banking services and loan product revenues, and improved treasury
results. These increases were partially offset by a $248 million decline in
securities transactions (which includes a $148 million writedown of impaired
Russian available-for-sale securities in 1998) and a $59 million decline in net
asset gains.
Adjusted revenues in Asia Pacific (comprising 13 countries and territories
excluding Japan and the Indian subcontinent, but including Australia and New
Zealand) improved 14% in 1998 compared with 1997. The improvement resulted
primarily from higher trading-related revenues and improved treasury results.
Revenues attributed to the Embedded Bank and Emerging Local Corporate strategies
(Citicorp's plans to gain market share in selected emerging market countries),
together with new franchises, accounted for 7% and 5% of the Emerging Markets
business revenues in 1998 and 1997, respectively, and grew 63% from 1997. About
31% and 29% of the revenue in the Emerging Markets business in 1998 and 1997 was
attributable to business from multinational companies managed jointly with
Global Relationship Banking, with that revenue having grown 15% from 1997.
Adjusted operating expenses were $2.017 billion and $1.893 billion in 1998 and
1997, respectively. The growth in expenses was primarily attributable to
investment spending to build the franchise, including costs associated with
Citicorp's Embedded Bank, Emerging Local Corporate, and New Franchise
initiatives, together with volume growth.
Adjusted credit costs were $480 million and $135 million in 1998 and 1997,
respectively. The increase was concentrated in Indonesia and Russia, reflecting
the effects of economic turmoil experienced in those countries. Credit costs in
1998 and 1997 included $83 million and $35 million, respectively, related to
foreign currency derivative contracts. Cash-basis loans at December 31, 1998 and
1997 were $1.062 billion and $649 million. The increase was concentrated in
Indonesia and several other Asian countries. Cash-basis loans at December 31,
1998 and 1997 include approximately $14 million and $59 million, respectively,
of balance sheet credit exposure related to foreign currency derivative
contracts for which the recognition of revaluation gains has been suspended. See
the table entitled "Cash-Basis, Renegotiated, and Past Due Loans" on page F-39.
The effective income tax rates on business income before taxes in 1998 and 1997
were 25% and 21% respectively. Fluctuations in the effective income tax rates
result from changes in the nature and geographic mix of pretax earnings.
Average assets of $81 billion in 1998 rose $15 billion or 23% from 1997
reflecting growth across all geographic segments. The growth was concentrated in
the loan portfolio and trade finance products, together with treasury
initiatives.
24
<PAGE>
GLOBAL RELATIONSHIP BANKING
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Total revenues, net of interest expense $3,542 $3,518
Net cost to carry cash-basis loans and OREO (34) (18)
------------------------------
ADJUSTED REVENUES 3,508 3,500
Adjusted operating expenses (1) 3,218 2,821
------------------------------
OPERATING MARGIN 290 679
Adjusted credit benefits (2) (113) (170)
------------------------------
BUSINESS INCOME BEFORE TAXES 403 849
Income taxes 183 290
------------------------------
BUSINESS INCOME 220 559
Restructuring charges, after-tax 87 136
------------------------------
NET INCOME $ 133 $ 423
- ------------------------------------------------==============================
Average assets (IN BILLIONS OF DOLLARS) $89 $81
Return on assets 0.15% 0.52%
- ------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING CHARGES
Return on assets 0.25% 0.69%
- ------------------------------------------------==============================
</TABLE>
(1) Excludes net restructuring charges and net OREO benefits.
(2) Represents provision for credit losses, net cost to carry, and net OREO
benefits.
- --------------------------------------------------------------------------------
Business income from Global Relationship Banking in North America, Europe, and
Japan was $220 million in 1998, down $339 million or 61% from 1997. Net income
was $133 million in 1998, down $290 million or 69% from 1997. Included in 1998
and 1997 net income are net restructuring charges of $141 million ($87 million
after-tax) and $227 million ($136 million after-tax), respectively.
Adjusted revenues in 1998 of $3.508 billion were essentially unchanged from
1997. The 1998 results reflect double-digit growth in transaction banking
services revenues, a $37 million increase in securities transactions, and a $13
million increase in trading-related revenues to $999 million (which includes
losses of $168 million attributable to the volatility experienced in the global
capital markets during the second half of the year). The growth was essentially
offset by an $86 million decline in asset sales and lower corporate finance
revenues.
Adjusted operating expenses were $3.218 billion and $2.821 billion in 1998 and
1997, respectively. The growth in expenses was primarily attributable to
increased spending on technology, including costs related to the year 2000 and
the EMU, and volume-related expense growth.
Adjusted credit benefits of $113 million in 1998 declined from a benefit of $170
million in 1997, primarily reflecting the write-off of foreign currency
derivative contracts totaling $53 million attributable to the financial market
turmoil in Russia. Cash-basis loans at December 31, 1998 and 1997 were $268
million and $401 million while the OREO portfolio totaled $235 million and $440
million, respectively. The improvements in both cash-basis loans and OREO are
primarily related to the real estate portfolio. See the tables entitled
"Cash-Basis, Renegotiated, and Past Due Loans" and "Other Real Estate Owned and
Assets Pending Disposition" on page F-39.
The effective income tax rates on business income before taxes in 1998 and 1997
were 45% and 34%, respectively. Fluctuations in the effective income tax rates
result from changes in the nature and geographic mix of pretax earnings.
Average assets of $89 billion in 1998 grew $8 billion or 10% from 1997,
primarily reflecting an increase in the fair value of trading assets, including
derivative and foreign exchange contracts, higher lending to target market
clients, and higher volumes in transaction banking services.
GLOBAL CORPORATE OUTLOOK
During 1998, Global Corporate announced a number of business improvement and
integration initiatives that are projected to yield expense savings of
approximately $110 million pretax in 1999, and to reach a run rate of
approximately $175 million in annual pretax savings beginning in 2000. In 1999,
these actions, together with tighter management of non-customer expenses and
realized savings from earlier efficiency initiatives still in progress, are
expected to yield gross annual pretax expense savings of approximately $330
million. There can be no assurance that the projected cost savings will be
achieved.
25
<PAGE>
The Global Corporate business is significantly affected by the levels of
activity in the global capital markets which, in turn, are influenced by
macro-economic and political policies and developments, among other factors, in
the 99 countries in which the business operates. During the last half of 1997
and throughout 1998, the global capital markets experienced economic turmoil not
seen in at least a decade, as currency crises sparked economic turmoil that
began in Asia Pacific and spread to Eastern Europe and, in early 1999, to Latin
America. The second largest economy in the world--Japan--remains in a prolonged
recession, and many economists continue to be concerned about economic
fundamentals in certain Asian countries, which could precipitate a return of
instability to the region. And, on January 1, 1999, a common currency--the
Euro--was introduced in 11 European nations, bringing Europe closer to a single
market as big as that of North America.
Global economic turmoil like that experienced during 1997 and 1998 can have both
positive and negative effects on the revenue performance of the business and can
negatively affect credit performance. In particular, levels of trading-related
revenues, securities transactions, and net asset gains may fluctuate in the
future as a result of market and asset-specific factors.
The business has undertaken a number of initiatives to mitigate the negative
effects of the current global instability including making risk management a
priority, with the goal of deriving a higher percentage of earnings from
controllable business operations than has been the case in the past.
ASSET MANAGEMENT
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $342 $293
Adjusted operating expenses (1) 333 270
------------------------
BUSINESS INCOME BEFORE TAXES 9 23
Income taxes (13) (12)
------------------------
BUSINESS INCOME 22 35
Restructuring charge, after-tax 9 -
------------------------
NET INCOME $ 13 $ 35
- --------------------------------------------------------========================
ASSETS UNDER MANAGEMENT (2) (IN BILLIONS OF DOLLARS) $141 $109
- --------------------------------------------------------========================
</TABLE>
(1) Excludes restructuring charge.
(2) Includes $34 billion and $28 billion in 1998 and 1997, respectively, for
Global Private Bank clients.
- --------------------------------------------------------------------------------
Citibank Global Asset Management ("CGAM") offers a broad range of asset
management products and services from global investment centers around the
world, including mutual funds, closed-end funds, and managed accounts.
As of December 31, 1998, aggregate assets under management of $141 billion grew
29% over the prior year with strong growth in all asset categories. CGAM's
business income was $22 million in 1998, down $13 million or 37 % from 1997.
Revenues of $342 million were up $49 million or 17% over 1997, reflecting the
broad growth of assets under management.
Adjusted operating expenses of $333 million increased $63 million or 23% over
the prior year, primarily reflecting CGAM's continuing build-out of its
fundamental research and quantitative analysis investment teams, as well as
incremental technology costs, including costs associated with the year 2000 and
EMU.
During 1998, CGAM recorded a restructuring charge totaling $15 million ($9
million after-tax), primarily reflecting the costs of eliminating redundancies.
26
<PAGE>
CORPORATE/OTHER
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,065 $ 985
Adjusted operating expenses (1) 522 221
--------------------
BUSINESS INCOME BEFORE TAXES 543 764
Income taxes 507 919
--------------------
BUSINESS INCOME (LOSS) 36 (155)
Restructuring charges and merger-related costs, after-tax 67 31
--------------------
NET LOSS $ (31) $(186)
- ------------------------------------------------------------====================
</TABLE>
(1) Excludes restructuring charges and merger-related costs.
- --------------------------------------------------------------------------------
Corporate/Other includes revenue derived from charging businesses for funds
employed, based upon a marginal cost of funds concept, corporate staff and
similar expenses, and the offset created by attributing income taxes to core
business activities on a local tax-rate basis. The core businesses' effective
tax rates were 31%, and 26%, for 1998 and 1997, respectively, while Citicorp's
effective tax rate was 37% for both 1998 and 1997. See Note 13 of Notes to the
Consolidated Financial Statements for further discussion of income taxes.
Expenses in 1998 included a $100 million contribution of appreciated venture
capital securities to the Citigroup's Foundation, which had minimal impact on
Citicorp's earnings after related tax benefits and investment gains, as well as
increases in certain technology expenses and other unallocated corporate costs.
Additionally, expenses in 1998 and 1997 included $70 million, and $72 million,
respectively, associated with performance-based stock options.
In 1998, Corporate/Other recorded a $50 million restructuring charge ($26
million after-tax) to streamline and integrate corporate staff functions, as
well as $41 million (before and after-tax) of one-time transaction costs
associated with administratively closing the Citicorp and Travelers merger. The
1997 restructuring charge of $19 million ($11 million after-tax) principally
related to the reorganization of various corporate support functions. In
addition, $20 million of income taxes related to the offset created by
attributing income taxes to the 1997 core businesses' restructuring charges on a
local tax-rate basis was included in Corporate/Other.
INVESTMENT ACTIVITIES
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE $981 $1,295
Operating expenses 48 38
Credit benefits (10) (64)
--------------------------
INCOME BEFORE TAXES 943 1,321
Income taxes 204 270
--------------------------
NET INCOME $739 $1,051
- ---------------------------------------------------==========================
</TABLE>
Revenues of $981 million declined $314 million or 24% from 1997 primarily
reflecting a $262 million decrease in venture capital revenues to $487 million.
Net interest revenues declined $110 million from 1997 reflecting a lower level
of interest earning assets. Securities transactions of $462 million improved $38
million and net asset gains of $28 million increased $29 million. Net asset
gains in 1998 and 1997 included net gains (write-downs) of $29 million and $(39)
million, respectively, related to investments in Latin America.
Credit benefits totaled $10 million and $64 million in 1998 and 1997,
respectively. Credit benefits in 1997 included $50 million from the refinancing
agreement concluded with Peru.
The effective income tax rates in 1998 and 1997 were 22% and 20%, respectively.
Levels of venture capital revenues, securities transactions, and net asset gains
may fluctuate in the future as a result of market and asset-specific factors.
27
<PAGE>
YEAR 2000
The arrival of the year 2000 poses a unique worldwide challenge to the ability
of time sensitive computer systems to recognize the date change from December
31, 1999 to January 1, 2000. Citicorp has assessed and is modifying its computer
systems and business processes to provide for their continued functionality and
is also assessing the readiness of third parties with which it interfaces.
Citicorp is highly dependent on computer systems and system applications for
conducting its ongoing business functions. The inability of systems to recognize
properly the year 2000 could result in major systems failure or miscalculations
that would disrupt Citicorp's ability to meet its customer and other obligations
on a timely basis, and Citicorp has engaged in a process of identifying,
assessing and modifying its computer programs to address this issue. As part of
and following achievement of year 2000 compliance, systems are subjected to a
process that validates the modified programs before they can be used in
production.
The pre-tax cost associated with the required modifications and conversions is
expected to total approximately $660 million through 1999, funded from a
combination of a reprioritization of technology development initiatives and
incremental costs. This cost is being expensed as incurred. Of the total,
approximately $490 million has been incurred to date, including approximately
$350 million in 1998.
Substantially all of the required modification and internal testing work has
been completed at year-end 1998, with the remainder scheduled for completion
early in 1999, leaving the rest of the year 1999 primarily for external testing,
full integration testing and production assurance. Citicorp is addressing other
technology-related matters including business applications to be sunset (that
is, removed from use in favor of replacement applications), end-user computing
applications, networks, data center systems, and the desktop environment, and
these are similarly progressing towards timely resolution.
Citicorp is also addressing year 2000 issues that may exist outside its own
technology activities, including its facilities and business processes, external
service providers and other third parties with which it interfaces.
Substantially all of Citicorp's facilities and related systems have been
investigated, and modification is under way. Other business processes are
likewise being addressed across Citicorp.
Significant third parties with which Citicorp interfaces with regard to the year
2000 problem include customers and counterparties, external service providers,
technology vendors, the global financial market infrastructure including payment
and clearing systems, and the utility infrastructure on which all corporations
rely. Unreadiness by these third parties would expose Citicorp to the potential
for loss, impairment of business processes and activities, and disruption of
financial markets. Citicorp is addressing these risks through bilateral and
multiparty efforts and participation in industry, country, and global
initiatives. While significant third parties are generally engaged in efforts
intended to address and resolve their year 2000 issues on a timely basis, it is
possible that a series of failures by third parties could have a material
adverse effect on Citicorp's results of operations in future periods.
Citicorp is creating contingency plans intended to address perceived risks
associated with its year 2000 effort. These activities include planning to
mitigate any remaining risks associated with remediation of critical systems,
business resumption planning to address the possibility of systems failure, and
market resumption planning to address the possibility of failure of systems or
processes outside Citicorp's control. Contingency planning, and preparations for
the management of the date change, will continue worldwide through 1999.
Notwithstanding these activities, the failure of efforts to address in a timely
manner, the year 2000 problem, could have a material adverse effect on the
Company's results of operations in future periods.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Many of these statements appear under the heading "Global
Consumer Outlook" and "Global Corporate Outlook". The Company's actual results
may differ materially from those included in the forward-looking statements.
Forward-looking statements are typically identified by words or phrases such as
"believe," "expect," "anticipate," "intend," "estimate," "may increase," and
similar expressions or future or conditional verbs such as "will," "should,"
"would," and "could". These forward-looking statements involve risks and
uncertainties including, but not limited to, the following: changes in general
economic conditions, including the performance of global financial markets,
risks associated with fluctuating currency values, interest rates, and the level
of personal bankruptcies; customer responsiveness to both new products and
distribution channels; competitive, regulatory, or tax changes that affect the
cost of
28
<PAGE>
or demand for the Company's products; and the possibility that the Company will
be unable to achieve anticipated levels of operational efficiencies related to
recent mergers, as well as achieving its other cost-saving initiatives.
MANAGING GLOBAL RISK
Citicorp manages its global risk exposures using Citigroup's Windows on Risk
process. The Windows on Risk process has three major components: an
assessment of the global external environment, drawing on our own knowledge
and understanding, and often bringing in experts on identified subjects,
including contrarian views; an assessment of exposures in terms of different
risk windows, particularly looking for potentially large, material risks; and
specific decisions and follow-ups are taken which are designed to adjust the
corporate exposures to identified risks.
The review of the external environment encompasses the outlook for major country
and regional economies; significant consumer markets and global industries;
potential near-term critical economic and political events; and the implications
of potential unfavorable developments as they relate to specific businesses.
The review is intended to provide a top-down view of the environment in which
Citigroup operates and of the material risks inherent in its businesses.
Based on this review, senior management formulates recommendations and
assigns responsibility for recommended actions.
THE CREDIT RISK MANAGEMENT PROCESS
Line management conducts the day-to-day credit process in accordance with
core policies established by the Citigroup Credit Policy Committee which are
guided by the overall risk appetite and portfolio targets set by senior
management. Line management initiates and approves all extensions of credit
and is responsible for credit quality. Line managers must also establish
supplementary credit policies specific to each business, deploy the credit
talent needed, and monitor portfolio and process
29
<PAGE>
quality. The managers are required to identify problem credits or programs as
they develop, and to correct deficiencies as needed through remedial management.
Business Risk Review conducts independent periodic examinations of both
portfolio quality and the credit process at the individual business level.
Credit policies are organized around two basic approaches--Credit Programs and
Credit Transactions. Credit Programs, used primarily for the Consumer
businesses, focus on the decision to extend credit to sets of customers with
similar characteristics and/or product needs. Approvals under this approach
cover the expected level of aggregate exposure, the terms, risk acceptance
criteria, operating systems, and reporting mechanisms. This is a cost-effective
way of handling high-volume, small-dollar amount transactions. Credit Programs
are reviewed annually, with approvals tiered on the basis of projected
outstandings as well as the maturity and performance of the product.
The Credit Transactions approach focuses on the decision to extend credit to an
individual customer or customer relationship. It starts with target market
definition and risk acceptance criteria, and requires detailed customized
financial analysis. Approval requirements for each decision are tiered based on
the transaction amount, the customer's aggregate facilities, credit risk
ratings, and the banking business serving the customer.
Credit Programs and Credit Transactions are approved by three line credit
officers, with one designated as responsible to ensure that all aspects of
the credit process are properly coordinated and executed. As the size or risk
increases, the three approvals may include one or two Senior Credit or
Securities Officers. These include over 500 of Citicorp's most experienced
lenders and underwriters appointed by the Citigroup Credit Policy Committee,
with their designation reviewed annually. In addition, approvals from
underwriting, product, industry or functional specialists may be required. At
certain higher levels of risk, Citigroup Credit Policy Committee members as
well as senior management review individual credit decisions.
Citicorp manages its credit exposure on derivative and foreign exchange
instruments as part of the overall extension of credit to individual customer
relationships, subject to the same credit approvals, limits, and monitoring
procedures it uses for other activities. The extension of credit in a derivative
or foreign exchange contract is the loss that could result if the counterparty
were to default. The current replacement cost of a derivative or foreign
exchange contract is equal to the amount, if any, of Citicorp's unrealized gain
on the contract. In the aggregate, for all contracts, this represents a balance
sheet exposure of $25.6 billion at December 31, 1998, which is reflected in
Trading Account Assets. See Note 17 of Notes to Consolidated Financial
Statements for additional details on these exposures. A substantial portion of
the total balance sheet exposure is to counterparties considered by Citicorp to
be investment grade and under three years tenor. In managing the credit risk
associated with derivative and foreign exchange contracts, the amount at risk is
measured as the sum of the current replacement cost (the balance sheet credit
exposure) plus the potential increase in the replacement cost over the remaining
life of the instrument should market rates change. The potential increase in
replacement cost of a contract is estimated based on a statistical simulation of
values that would result from changing market rates.
THE MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which are
fundamental to the business of a financial intermediary. Liquidity risk, which
is discussed on pages 34 and 35 is the risk that some entity, in some location
and in some currency, may be unable to meet a financial commitment to a
customer, creditor, or investor when due. Price risk is the risk to earnings
that arises from changes in interest rates, foreign exchange rates, equity and
commodity prices, and in their implied volatilities. These exposures arise in
the normal course of business of a global financial intermediary.
Citicorp's business and corporate oversight groups have well-defined market risk
management responsibilities. Within each business, a process is in place to
control market risk exposure. The risk management process includes the
establishment of appropriate market controls, policies and procedures,
appropriate senior management risk oversight with thorough risk analysis and
reporting, and independent risk management with capabilities to evaluate and
monitor risk limits. Management of this process begins with the professionals
nearest to Citicorp's customers, products, and markets, and extends up to the
senior executives who manage these businesses and to the country level. Market
risk management is an evolutionary process that integrates changes in markets,
products, and technologies into policies and practices. Periodic reviews are
conducted by Corporate Control and Risk Assessment to ensure compliance with
institutional policies and procedures for the assessment, management, and
control of market risk.
30
<PAGE>
The Market Risk Policy Committee serves an oversight role in the management
of all market risks in Citicorp. The committee is a group of Citicorp's most
senior market risk professionals, chaired by the Citigroup Corporate
Treasurer, and establishes and oversees corporate market risk policies and
standards to serve as a check and balance in the business risk management
process. Market risk positions are controlled by limits on exposure based on
the size and nature of a business. Risk limits are approved by the Finance
and Capital Committee, which is composed of senior management including the
Citigroup Corporate Treasurer, and are overseen by the Market Risk Policy
Committee.
Price risk is measured using various tools, including Earnings-at-Risk ("EAR"),
which is applied to interest rate risk in the non-trading portfolios, and
Value-at-Risk ("VAR"), which is applied to the trading portfolios.
NON-TRADING PORTFOLIOS
Business units manage the potential earnings effect of interest rate movements
by managing the asset and liability mix, either directly or through the use of
derivative financial products. 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. Additional
information about non-trading derivatives is located in Note 17 of Notes to
Consolidated Financial Statements. Citicorp does not utilize instruments with
leverage features in connection with its risk management activities.
Earnings-at-Risk measures the discounted pre-tax earnings impact over a
specified time horizon of a specified shift in the interest rate 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. As part of
the annual planning process, limits are set for Earnings-at-Risk on a business,
country and total Citicorp basis, with exposures reviewed on a regular basis by
the Finance and Capital Committee in relation to limits and the current interest
rate environment.
Citicorp's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. As of December 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. Citicorp also has
Earnings-at-Risk in various other currencies; however, there are no significant
risk concentrations in any individual non-U.S. dollar currency. As of December
31, 1998, the rate shifts applied to these currencies for purposes of
calculating Earnings-at-Risk over a one-to four-week defeasance period ranged
from 18 to 1,098 basis points, depending on the currency.
The following table illustrates that, as of December 31, 1998, a 55 basis point
increase in the U.S. dollar yield curve would have a potential negative impact
on Citicorp's pre-tax earnings of approximately $148 million for 1999, and
approximately $20 million for the total five-year period 1999-2003. A two
standard deviation increase in non-U.S. dollar interest rates would have a
potential negative impact on Citicorp's pre-tax earnings of approximately $93
million for 1999, and approximately $107 million for the five-year period
1999-2003.
EARNINGS-AT-RISK (IMPACT ON PRE-TAX EARNINGS)
<TABLE>
<CAPTION>
ASSUMING A U.S. ASSUMING A NON-U.S.
DOLLAR RATE MOVE OF DOLLAR RATE MOVE OF (1)
--------------------------------------------------------------
IN MILLIONS OF DOLLARS AT TWO STANDARD DEVIATIONS TWO STANDARD DEVIATIONS (2)
--------------------------------------------------------------
DECEMBER 31, 1998 INCREASE DECREASE INCREASE DECREASE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to three months $ (85) $ 87 $ (23) $ 23
Four to six months (34) 38 (30) 30
Seven to twelve months (29) 31 (40) 40
--------------------------------------------------------------
TOTAL OVERNIGHT TO TWELVE MONTHS (148) 156 (93) 93
- ------------------------------------------------------------------------------------------------
Year two (28) 22 (51) 51
Year three 12 (22) 17 (16)
Year four 54 (64) 22 (21)
Year five 119 (152) 24 (23)
Effect of discounting (29) 39 (26) 26
--------------------------------------------------------------
TOTAL $ (20) $ (21) $(107) $110
- ----------------------------------==============================================================
</TABLE>
(1) Primarily results from Earnings-at-Risk in Thai baht, Singapore dollar and
Hong Kong dollar.
(2) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance between currencies.
- --------------------------------------------------------------------------------
31
<PAGE>
The following table summarizes Citicorp's worldwide Earnings-at-Risk over the
next 12 months from changes in interest rates and shows a relatively stable
trend over the three-year period.
TWELVE MONTH EARNINGS-AT-RISK (IMPACT ON PRE-TAX EARNINGS)
<TABLE>
<CAPTION>
U.S. DOLLAR NON-U.S. DOLLAR
------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
AT DECEMBER 31, 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSUMING A TWO
STANDARD DEVIATION RATE
Increase $(148) $(180) $(165) $(93) $(25) $(22)
Decrease 156 211 191 93 25 17
- -------------------------------------====================================================================================
</TABLE>
The tables above illustrate that Citicorp's pre-tax earnings in its non-trading
activities over the next 12 months would be reduced by an increase in interest
rates and would benefit from a decrease.
Receive-fixed interest rate swaps and similar instruments effectively modify the
repricing characteristics of certain consumer and commercial loan portfolios,
deposits, and long-term debt. Excluding the effects of these instruments,
Citicorp's Earnings-at-Risk over the next twelve months in its non-trading
activities would be as follows:
TWELVE MONTH EARNINGS-AT-RISK (EXCLUDING EFFECT OF DERIVATIVES)
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS U.S. DOLLAR NON-U.S. DOLLAR
------------------------------------------------------------------------------------
AT DECEMBER 31, 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSUMING A TWO
STANDARD DEVIATION RATE
Increase $10 $64 $80 $(94) $(26) $(22)
Decrease (3) (44) (70) 94 27 17
- -------------------------------------====================================================================================
</TABLE>
During 1998, Citicorp's U.S. dollar Earnings-at-Risk for the following 12 months
assuming a two standard deviation increase in rates would have had a potential
negative impact ranging from approximately $65 million to $173 million in the
aggregate at each month end, compared with a range from $142 million to $209
million during 1997 and a range from $116 million to $204 million during 1996.
The relatively lower U.S. dollar Earnings-at-Risk experienced during 1998 was
primarily due to the reduction in the level of receive fixed swaps, offset
slightly by the acquisition of UCS. A two standard deviation increase in
non-U.S. dollar interest rates for the following twelve months would have had a
potential negative impact ranging from approximately $53 million to $98 million
in the aggregate at each month end during 1998, compared with a range from $15
million to $33 million during 1997 and a range from $17 million to $28 million
during 1996. The higher non-U.S. dollar Earnings-at-Risk experienced during 1998
primarily reflected the higher interest rate volatility seen across the Asia
Pacific Region.
The table above also illustrates that Citicorp's 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 in Note 17 of Notes to Consolidated
Financial Statements.
TRADING PORTFOLIOS
The price risk of trading activities is primarily measured using the
Value-at-Risk method, which estimates, at a 99% confidence level, the largest
potential pretax loss in market value that could occur over a one day holding
period. The Value-at-Risk method incorporates the market factors to which the
market value of the trading position is exposed (interest rates, foreign
exchange rates, equity and commodity prices, and their implied volatilities),
the sensitivity of the position to changes in those market factors, and the
volatilities and correlation of those factors. The Value-at-Risk measurement
includes the foreign exchange risks that arise in traditional banking businesses
as well as in explicit trading positions. The volatility and correlation
assumptions used in the Value-at-Risk computations are based on historical
experience. The Value-at-Risk method is not a predictor of future results or
worst-case scenarios, but rather a statistical estimate of potential risk.
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. For
Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the
trading portfolios was $15 million at December 31, 1998. Daily exposures at
Citicorp averaged $18 million in 1998 and ranged from $14 million to $22
million.
32
<PAGE>
The following table summarizes Citicorp's Value-at-Risk in its trading portfolio
as of December 31, 1998 and 1997 along with the 1998 average.
<TABLE>
<CAPTION>
DEC. 31, 1998 Dec. 31,
IN MILLIONS OF DOLLARS 1998 AVERAGE 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate $13 $16 $23
Foreign exchange 7 8 8
Equity 5 7 8
All other (primarily commodity) 1 1 -
Covariance adjustment (11) (14) (14)
--------------------------------------------
TOTAL $15 $18 $25
- ------------------------------------============================================
</TABLE>
The table below provides the distribution of Value-at-Risk during 1998.
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS HIGH LOW
- ----------------------------------------------------------------------------
<S> <C> <C>
Interest rate 25 10
Foreign exchange 16 3
Equity 13 4
All other (primarily commodity) 5 1
- -------------------------------------------=================================
</TABLE>
Foreign exchange and trading account revenues consisted of the following:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign exchange (1) $1,409 $1,063 $765
Derivative (2) 658 354 485
Fixed income (3) (162) 102 12
Other (12) 208 239
-------------------------------------------
TOTAL $1,893 $1,727 $1,501
- -------------------------------------===========================================
</TABLE>
(1) Includes revenues from foreign exchange spot, forward, and option
contracts.
(2) Includes revenues from interest rate and currency swaps, options,
financial futures, and equity and commodity contracts.
(3) Includes revenues from government and corporate debt, mortgage assets, and
other debt instruments.
- --------------------------------------------------------------------------------
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 moratoria and restrictions
on the remittance of funds.
Citicorp's management oversight of cross-border risk is performed through a
formal country risk review process that includes setting of cross-border
limits, at least annually, in each country in which Citicorp has cross-border
exposure, monitoring of economic conditions globally and within individual
countries with proactive action as warranted, and the establishment of
internal risk management policies. The Country Corporate Officer is required
to prepare an annual country risk review that is subject to approval by
senior management and the Windows on Risk Committee depending on the size of
the country limit, and may also be updated periodically on an as needed
basis. Cross-border limits are also established in the aggregate for certain
products that meet risk acceptance criteria.
The table on page 34 presents total cross-border outstandings and commitments on
a regulatory basis in accordance with Federal Financial Institutions Examination
Council ("FFIEC") guidelines for countries with outstandings greater than 0.75%
of Citicorp assets at December 31, 1998, 1997 and 1996. 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.
33
<PAGE>
Investments in and funding of local franchises represents the excess of local
country assets over local country liabilities, as defined by the FFIEC. Local
country assets are claims on local residents recorded by branches and
majority-owned subsidiaries of Citicorp domiciled in the country, adjusted for
externally guaranteed outstandings and certain collateral. Local country
liabilities are obligations of branches and majority-owned subsidiaries of
Citicorp domiciled in the country for which no cross-border guarantee is issued
by Citicorp offices outside the country.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES
------------------------------------- TOTAL Total Total
TRADING INVESTMENTS CROSS- Cross- Cross-
AND IN AND BORDER Border Border
IN BILLIONS SHORT- FUNDING OUT- Out- Out-
OF DOLLARS, TERM OF LOCAL STAND COMMIT- stand- Commit- stand- Commit-
AT YEAR-END BANKS PUBLIC PRIVATE TOTAL CLAIMS(1) FRANCHISES INGS MENTS (2) ings ments (2) ings ments (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> > <C>
GERMANY $2.3 $1.4 $1.4 $5.1 $4.7 $2.3 $7.4 (3) $1.4 $4.7 (3) $1.7 $2.3 (4) $1.4
FRANCE 2.4 1.2 0.8 4.4 4.0 0.2 4.6 (3) 1.1 3.1 (3) 0.6 1.5 0.9
UNITED
KINGDOM 1.4 0.1 2.9 4.4 3.5 -- 4.4 (3) 8.9 4.5 (3) 7.8 4.0 (3) 6.7
ITALY 0.7 1.1 0.4 2.2 2.1 1.4 3.6 (3) 0.3 3.4 (3) 0.5 2.0 0.3
BRAZIL 0.4 0.7 1.5 2.6 1.3 1.0 3.6 (3) 0.1 4.4 (3) 0.1 4.9 (3) 0.2
SWITZERLAND 1.8 -- 1.6 3.4 3.2 0.1 3.5 (3) 1.6 2.7 (4) 1.1 2.5 (4) 1.2
MEXICO -- 1.6 1.2 2.8 1.3 0.6 3.4 (4) 0.2 3.0 (4) 0.6 2.9 (3) 0.1
NETHERLANDS 1.4 0.3 1.1 2.8 2.3 -- 2.8 (4) 0.8 2.2 0.8 1.3 0.5
SPAIN 0.2 -- 0.3 0.5 0.5 1.6 2.1 0.4 2.3 (4) 0.4 1.0 0.1
SOUTH KOREA 0.4 0.1 0.5 1.0 0.7 1.1 2.1 0.4 2.6 (4) 0.2 1.9 0.5
JAPAN 1.0 0.3 0.6 1.9 1.4 -- 1.9 0.1 3.2 (3) 1.1 2.1 (4) 1.0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in total cross-border claims on third parties.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and loan commitments.
(3) Total cross-border outstandings were in excess of 1.0% of Citicorp's total
assets at the end of the respective period.
(4) Total cross-border outstandings were between 0.75% and 1.0% of Citicorp's
total assets at the end of the respective period.
- --------------------------------------------------------------------------------
Trading and short-term claims (included in total cross-border claims on third
parties) include cross-border debt and equity securities in the trading account,
resale agreements, trade finance receivables, net revaluation gains on foreign
exchange and derivative contracts, and other claims with a maturity of less than
one year. Under resale agreements, the counterparty has the legal obligation for
repayment; however, for purposes of the above table, resale agreements are
reported based on the domicile of the issuer of the securities that are held as
collateral, as required by FFIEC guidelines. A substantial portion of resale
agreements are with investment grade counterparties in the G-7 countries
(Canada, France, Germany, Italy, Japan, United Kingdom, and the United States).
LIQUIDITY AND CAPITAL RESOURCES
Management of liquidity at Citicorp is the responsibility of the Corporate
Treasurer. The Country Corporate Officer and the Country Treasurer ensure that
all funding obligations in each country are met when due. The Country Treasurer
is appointed by the Market Risk Policy Committee upon the recommendation of line
management and Regional Treasurers.
The in-country forum for liquidity issues is the Asset/Liability Management
Committee ("ALCO"), which includes senior executives within each country. The
ALCO reviews the current and prospective funding requirements for all businesses
and legal entities within the country, as well as the capital position and
balance sheet. All businesses within the country are represented on the
committee with the focal point being the Country Treasurer.
Each Country Treasurer must prepare a liquidity plan at least annually that is
approved by the Country Corporate Officer, the Regional Treasurer, and the
Market Risk Policy Committee. The liquidity profile is monitored on an on-going
basis and reported monthly. Limits are established on the extent to which
businesses in a country can take liquidity risk. The size of the limit depends
on the depth of the market, experience level of local management, the stability
of the liabilities, and liquidity of the assets.
Regional Treasurers generally have responsibility for monitoring liquidity risk
across a number of countries within a defined geography. They are also available
for consultation and special approvals, especially in unusual or volatile market
conditions.
34
<PAGE>
Citicorp's assets and liabilities are diversified across many currencies,
geographic areas, and businesses. Particular attention is paid to those
businesses which for tax, sovereign risk, or regulatory reasons cannot be freely
and readily funded in the international markets.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represent 66% and
64% of total funding at December 31, 1998 and 1997, respectively, are broadly
diversified by both geography and customer segments.
Stockholder's equity, which grew $1.5 billion during the year to $22.6 billion
at year-end 1998, continues to be an important component of the overall funding
structure. In addition, long-term debt is issued by Citicorp and its
subsidiaries. Total Citicorp long-term debt outstanding at year-end 1998 was
$20.6 billion, compared with $19.8 billion at year-end 1997. Asset
securitization programs remain an important source of liquidity. Loans
securitized during 1998 included $17.5 billion of U.S. credit cards, $9.1
billion of U.S. consumer mortgages, and $0.3 billion of non-U.S. consumer loans.
As credit card securitization transactions amortize, newly originated
receivables are recorded on Citicorp's balance sheet and become available for
asset securitization. In 1998, the scheduled amortization of certain credit card
securitization transactions made available $7.8 billion of new receivables. In
addition, $3.8 billion of credit card securitization transactions are scheduled
to amortize during 1999.
See Note 23 of Notes to Consolidated Financial Statements for limitations on
dividends paid to Citicorp by its subsidiary depository institutions.
Citicorp is subject to risk-based capital guidelines issued by the Board of
Governors of the FRB. These guidelines are used to evaluate capital adequacy
based primarily on the perceived credit risk associated with balance sheet
assets, as well as certain off-balance sheet exposures such as unused loan
commitments, letters of credit, and derivative and foreign exchange contracts.
The risk-based capital guidelines are supplemented by a leverage ratio
requirement.
<TABLE>
<CAPTION>
CITICORP RATIOS
AT YEAR-END 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital 8.44% 8.27%
Total capital (Tier 1 and Tier 2) 12.38 12.25
Leverage (1) 6.68 6.95
Common stockholder's equity 6.57 6.15
- ---------------------------------------------================================
</TABLE>
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp maintained a strong capital position during 1998. Total capital (Tier 1
and Tier 2) amounted to $33.9 billion at December 31, 1998, representing 12.38%
of net risk-adjusted assets. This compares with $31.0 billion and 12.25% at
December 31, 1997. Tier 1 capital of $23.1 billion at year-end 1998 represented
8.44% of net risk-adjusted assets, compared with $20.9 billion and 8.27% at
year-end 1997. The Tier 1 capital ratio at year-end 1998 exceeded Citicorp's
target range of 8.00% to 8.30%.
35
<PAGE>
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stockholder's Equity $22,569 $19,123
Perpetual Preferred Stock - 1,903
Mandatorily Redeemable Securities of Subsidiary Trusts 975 750
Minority Interest 115 104
Net Unrealized Loss (Gain) on Securities Available for Sale (1) 43 (535)
Less: Intangible Assets (2) (611) (304)
50% Investment in Certain Subsidiaries (3) (7) (115)
--------------------------------
Total Tier 1 Capital $23,084 $20,926
- -------------------------------------------------------------------------------------------------
TIER 2 CAPITAL
Allowance for Credit Losses (4) $ 3,455 $ 3,198
Qualifying Debt (5) 7,296 6,977
Unrealized Marketable Equity Securities Gains (1) 29 -
Less: 50% Investment in Certain Subsidiaries (3) (6) (115)
--------------------------------
Total Tier 2 Capital 10,774 10,060
--------------------------------
Total Capital (Tier 1 and Tier 2) $33,858 $30,986
- -----------------------------------------------------------------================================
Net Risk-Adjusted Assets (6) $273,514 $252,999
- -----------------------------------------------------------------================================
</TABLE>
(1) Tier 1 capital excludes unrealized gains and losses on debt securities
available for sale in accordance with regulatory risk-based capital
guidelines. During 1998, the federal bank regulatory agencies amended
their risk-based capital guidelines to permit institutions to include in
Tier 2 capital up to 45% of pretax net unrealized holding gains on
available for sale equity securities with readily determinable fair
values.
(2) Includes goodwill and certain other identifiable intangible assets. The
increase during 1998 reflects the acquisition of a global trust and agency
services business and the acquisition of certain assets and liabilities of
Confia.
(3) Represents investment in certain overseas insurance activities.
(4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(5) Includes qualifying senior and subordinated debt in an amount not
exceeding 50% of Tier 1 capital, and subordinated capital notes subject to
certain limitations.
(6) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $16.5 billion for interest rate,
commodity and equity derivative contracts and foreign exchange contracts,
as of December 31, 1998, compared with $13.7 billion as of December 31,
1997. Net risk-adjusted assets also includes the effect of other
off-balance sheet exposures such as unused loan commitments and letters of
credit and reflects deductions for intangible assets and any excess
allowance for credit losses.
- --------------------------------------------------------------------------------
Common stockholder's equity increased a net $3.4 billion during the year to
$22.6 billion at December 31, 1998, representing 6.57% of assets, compared to
6.15% at year-end 1997. The net increase in common stockholder's equity during
1998 reflected net income of $2.810 billion, a capital contribution from
Citigroup (parent company) of $1.225 billion (including $577 million in cash),
surplus resulting from the conversion of Citicorp preferred stock into Citigroup
preferred stock in connection with the merger of $863 million, and the issuance
of stock under various staff benefit plans and other activity of $469 million.
The net increase in common stockholder's equity also included dividends declared
on common and preferred stock of $860 million, a decrease in net unrealized
gains on securities available for sale of $578 million, and shares repurchased
under the common stock repurchase program of $483 million. The increase in the
common stockholder's equity ratio during the year reflected the above items,
partially offset by the increase in total assets.
Citicorp's common stock repurchase program was terminated immediately prior to
the consummation of the merger. Total repurchases since the program was
inaugurated on June 20, 1995 were 82.0 million shares of Citicorp common stock
for an outlay of $7.3 billion.
During 1998, preferred stock redemptions included 7.5% Noncumulative Preferred
Stock, Series 17 for $350 million, 8% Noncumulative Preferred Stock, Series 16
for $325 million, Adjustable Rate Preferred Stock, Second and Third Series for
$303 million, and Graduated Rate Cumulative Preferred Stock, Series 8A for $62
million.
During 1998, Citicorp issued an additional $225 million of mandatorily
redeemable securities of a subsidiary trust (commonly known as "trust
securities"). The trust securities outstanding at December 31, 1998 of $975
million qualify as Tier 1 capital and are included in long-term debt on the
balance sheet. Interest expense on the trust securities amounted to $68 million
in 1998 and $58 million in 1997.
On January 1, 1998, Citicorp adopted the U.S. bank regulatory agencies'
amendment to their risk-based capital guidelines to incorporate market risk in
the measurement of net risk-adjusted assets. The adoption of the market risk
guidelines did not have a significant impact on net risk-adjusted assets.
36
<PAGE>
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 December 31,
1998 all of Citicorp's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
<TABLE>
<CAPTION>
CITIBANK, N.A. RATIOS
AT YEAR-END 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital 8.41% 8.09%
Total Capital (Tier 1 and Tier 2) 12.55 12.07
Leverage 6.32 6.33
Common Stockholder's Equity 6.56 6.48
- ----------------------------------------------============================
</TABLE>
Citibank's net income for 1998 amounted to $1.7 billion. During 1998, Citibank
received capital contributions from Citicorp (parent company) of $1.744 billion
and paid dividends of $500 million.
During 1998, Citibank issued an additional $1.0 billion of subordinated notes to
Citicorp (parent company) that qualify for inclusion in Citibank's Tier 2
Capital. Total subordinated notes outstanding at December 31, 1998 and included
in Citibank's Tier 2 Capital amounted to $6.6 billion.
From time to time, the FRB and the FFIEC 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.
37
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1 hereto. There is
also incorporated herein by reference in response to this Item the Company's
Consolidated Financial Statements and the notes thereto and the material
presented at Note 24 of such Consolidated Financial Statements under the
heading "Selected Quarterly Financial Data (Unaudited)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction I of Form 10-K, the information required by Item
10 is omitted.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction I of Form 10-K, the information required by Item
11 is omitted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction I of Form 10-K, the information required by Item
12 is omitted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction I of Form 10-K, the information required by Item
13 is omitted.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
(1) Financial Statements: See Index to Consolidated Financial
Statements on page F-1 hereof.
(2) Financial Statement Schedules. See Index to Consolidated
Financial Statements on page F-1 hereof.
(b) Exhibits:
See Exhibit Index.
(c) Reports on Form 8-K:
i) On October 8, 1998, the Company filed a Current Report on Form 8-K
dated October 8, 1998 (Item 5), which report announced the closing
of the merger of Citicorp into a wholly owned subsidiary of Travelers
Group Inc. and filed as an exhibit thereto (Item 7) a press release
with respect to such merger.
ii) On October 8, 1998, the Company filed a Current Report on Form 8-K/A
dated October 8, 1998 (Item 5), which report amended its Current Report
on Form 8-K, dated April 8, 1998 and filed on April 9, 1998, by
deleting certain unaudited pro forma condensed combined financial
statements
38
<PAGE>
and the notes thereto of Citicorp and Travelers Group Inc., which gave
effect to such merger as though it had been consummated on December 31,
1997.
iii) On October 23, 1998, the Company filed a Current Report on Form 8-K
dated October 22, 1998 (Item 5), which report included the portion of
the press release issued on October 21, 1998 by Citigroup Inc. which
summarized the consolidated operations of Citicorp for the three month
and nine month periods ended September 30, 1998 and (Item 7) the
calculation of the ratio of income to fixed charges (Exhibit 12(a)
thereto) and the calculation of the ratio of income to fixed charges
including preferred stock dividends (Exhibit 12(b) thereto).
iv) On November 2, 1998, the Company filed a Current Report on Form 8-K
dated November 1, 1998, which report announced the integration of its
corporate business and certain related executive matters (Item 5) and
amended its Schedule 14A, Joint Proxy Statement/Prospectus, dated June
16, 1998 and filed on June 17, 1998, by deleting certain unaudited pro
forma condensed financial statements of Citicorp and Travelers Group
Inc. and references to certain filings made by Travelers Group Inc.
(Item 7).
v) On January 27, 1999, the Company filed a Current Report on Form 8-K
dated January 27, 1999 (Item 5), which report summarized the
consolidated operations of Citicorp and its subsidiaries for the
three month and twelve month periods ended December 31, 1998.
39
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
2.01 Agreement and Plan of Merger, dated as of April 5, 1998,
between Travelers Group Inc. and Citicorp (incorporated herein
by reference to Exhibit 2 to Current Report on Form 8-K, dated
April 5, 1998, and filed on April 7, 1998).
3.01 Citicorp's Certification of Incorporation (incorporated herein
by reference to Exhibit 3(i) to Citicorp's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File
No. 333-211430, filed on October 8, 1998.
3.02 Citicorp's By-Laws (incorporated herein by reference to
Exhibit 3(ii) to Citicorp's Financial Review and Form 10-Q
filed on November 13, 1998).
12.01 Calculation of Ratio of Income to Fixed Charges.
12.02 Calculation of Ratio of Income to Fixed Charges Including
Preferred Stock Dividends.
21.01 Subsidiaries of the Registrant. Pursuant to General
Instruction I of Form 10-K, the list of subsidiaries of the
Company is omitted.
23. Consent of KPMG LLP.
27. Financial Data Schedule.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By: /s/ ROGER W. TRUPIN
--------------------------------
Name: Roger W. Trupin
Title: Vice President and Controller
Dated: March 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 12, 1999 by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE CAPACITY
--------- --------
/s/ JOHN S. REED Chairman of the Board and
------------------------ a Director (Principal Executive Officer)
John S. Reed
/s/ PAUL J. COLLINS Director
------------------------
Paul J. Collins
/s/ ROBERT I. LIPP Director
------------------------
Robert I. Lipp
/s/ VICTOR J. MENEZES Director
------------------------
Victor J. Menezes
/s/ WILLIAM R. RHODES Director
------------------------
William R. Rhodes
/s/ H. ONNO RUDING Director
------------------------
H. Onno Ruding
/s/ HEIDI G. MILLER Chief Financial Officer (Principal
------------------------ Financial Officer)
Heidi G. Miller
/s/ ROGER W. TRUPIN Vice President and Controller (Principal
------------------------ Accounting Officer)
Roger W. Trupin
41
<PAGE>
CITICORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996 F-3
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholder's Equity
for the years ended December 31, 1998, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 F-6
Consolidated Balance Sheets of Citbank, N.A. and Subsidiaries
as of December 31, 1998 and 1997 F-7
FINANCIAL DATA SUPPLEMENT F-36
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Citicorp
We have audited the accompanying consolidated balance sheets of Citicorp and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the years in the three-year period ended December 31, 1998, and the related
consolidated balance sheets of Citibank, N.A. and subsidiaries as of December
31, 1998 and 1997. These consolidated financial statements are the
responsibility of Citicorp's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citicorp and
subsidiaries as of December 31, 1998 and 1997, the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1998, and the financial position of Citibank, N.A. and subsidiaries
as of December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
- ----------------------
KPMG LLP
New York, New York
January 25, 1999
F-2
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME Citicorp and Subsidiaries
Year Ended December 31,
-----------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including Fees $20,826 $18,967 $18,509
Deposits with Banks 1,070 995 858
Federal Funds Sold and Securities Purchased Under
Resale Agreements 738 872 902
Securities, including Dividends 2,963 2,197 1,770
Trading Account Assets 1,059 1,012 1,310
Loans Held For Sale 533 440 -
-----------------------------------------
27,189 24,483 23,349
-----------------------------------------
INTEREST EXPENSE
Deposits 11,503 9,613 8,974
Trading Account Liabilities 269 310 313
Purchased Funds and Other Borrowings 1,918 1,814 1,775
Long-Term Debt 1,298 1,344 1,347
-----------------------------------------
14,988 13,081 12,409
-----------------------------------------
NET INTEREST REVENUE 12,201 11,402 10,940
PROVISION FOR CREDIT LOSSES 2,381 1,907 1,926
-----------------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 9,820 9,495 9,014
-----------------------------------------
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and Commissions 6,252 5,817 5,469
Foreign Exchange 1,628 1,486 864
Trading Account 265 241 637
Securities Transactions 524 668 210
Other Revenue 2,380 2,002 2,076
-----------------------------------------
11,049 10,214 9,256
-----------------------------------------
OPERATING EXPENSE
Salaries 5,884 5,286 4,880
Employee Benefits 1,364 1,311 1,344
-----------------------------------------
Total Employee Expense 7,248 6,597 6,224
Net Premises and Equipment Expense 2,173 1,961 1,843
Restructuring Charges and Merger-Related Costs 1,009 880 -
Other Expense 5,970 4,520 4,110
-----------------------------------------
16,400 13,958 12,177
-----------------------------------------
INCOME BEFORE TAXES 4,469 5,751 6,093
INCOME TAXES 1,659 2,142 2,293
-----------------------------------------
NET INCOME $ 2,810 $ 3,609 $ 3,800
- --------------------------------------------------------=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Citicorp and Subsidiaries
December 31,
--------------------------------
IN MILLIONS OF DOLLARS 1998 1997
- ---------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 8,969 $ 8,585
Deposits at Interest with Banks 15,147 13,049
Securities, at Fair Value
Available for Sale 40,404 30,762
Venture Capital 3,297 2,599
Trading Account Assets 33,667 40,356
Loans Held for Sale 4,645 3,515
Federal Funds Sold and Securities Purchased Under Resale Agreements 6,888 10,233
Loans, Net
Consumer 118,970 108,459
Commercial 88,024 75,554
--------------------------------
Loans, Net of Unearned Income 206,994 184,013
Allowance for Credit Losses (6,224) (5,816)
--------------------------------
Total Loans, Net 200,770 178,197
Customers' Acceptance Liability 1,280 1,726
Premises and Equipment, Net 5,246 4,474
Interest and Fees Receivable 3,629 3,288
Other Assets 19,678 14,113
--------------------------------
TOTAL $343,620 $310,897
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices $ 17,058 $ 16,901
Interest-Bearing Deposits in U.S. Offices 43,847 40,361
Non-Interest-Bearing Deposits in Offices Outside the U.S. 10,856 9,627
Interest-Bearing Deposits in Offices Outside the U.S. 154,052 132,232
--------------------------------
Total Deposits 225,813 199,121
Trading Account Liabilities 30,171 30,986
Purchased Funds and Other Borrowings 23,108 21,231
Acceptances Outstanding 1,381 1,826
Accrued Taxes and Other Expense 7,159 6,643
Other Liabilities 12,820 10,279
Long-Term Debt 20,599 19,785
STOCKHOLDER'S EQUITY (1)
Preferred Stock (Without par value) - 1,903
Common Stock: $ 0.01 par value in 1998 and $1.00 par value in 1997
Issued Shares: 1,000 in 1998 and 506,298,235 in 1997 - 506
Surplus 4,625 6,501
Retained Earnings 18,569 16,619
Accumulated Other Changes in Equity from Nonowner Sources (625) (91)
Common Stock in Treasury, at Cost; Shares: 52,355,947 in 1997 - (4,412)
--------------------------------
TOTAL STOCKHOLDER'S EQUITY 22,569 21,026
--------------------------------
TOTAL $343,620 $310,897
- -------------------------------------------------------------------------================================
</TABLE>
(1) See Note 2 of Notes to Financial Statements detailing the impact of the
Merger on the components of stockholder's equity.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Citicorp and Subsidiaries
Year Ended December 31,
-------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK (WITHOUT PAR VALUE)
Balance at Beginning of Year $ 1,903 $ 2,078 $ 3,071
Conversion of outstanding preferred stock into Citigroup preferred stock (863) -- --
Redemption of Perpetual Preferred Stock (1) (1,040) -- --
Redemption of Perpetual Preferred Stock, Series 14 -- (175) --
Conversions of Convertible Preferred Stock, Series 12 and Series 13 -- -- (993)
-------------------------------------
BALANCE AT END OF YEAR $ -- $ 1,903 $ 2,078
- ------------------------------------------------------------------------------------=====================================
COMMON STOCK ($0.01 PAR VALUE IN 1998 AND $1.00 PAR VALUE IN 1997 AND IN 1996)
Balance at Beginning of Year -- Shares: 506,298,235 in 1998
And 1997, and 461,319,265 in 1996 $ 506 $ 506 $ 461
Exchange of 506,298,235 shares for shares of Citigroup Common Stock (506) -- --
Issuance of 36,875,000 Shares on Conversion of Convertible Preferred Stock, -- -- 37
Series 12
Issuance of 8,096,088 Shares under Employee Benefit Plans -- -- 8
-------------------------------------
BALANCE AT END OF YEAR--SHARES: 1,000 IN 1998(2), 506,298,235 IN 1997 AND IN 1996 $ -- $ 506 $ 506
- ------------------------------------------------------------------------------------=====================================
SURPLUS
Balance at Beginning of Year $ 6,501 $ 6,595 $ 5,702
Adjustment for Retirement of Treasury Shares,
Conversion of Preferred Stock, and Exchange of Common Stock (3,128) -- --
Issuance of Stock under Dividend Reinvestment and Common Stock Purchase Plan 7 15 12
Issuance of Stock under Employee Benefit Plans and Related Tax Benefits (69) (196) 209
Amortization related to Employee Benefit Plans 103 87 119
Capital Contribution from Citigroup 1,225 -- --
Other Activity (14) -- --
Issuance of Stock on Conversion of Convertible Preferred Stock, Series 12 -- -- 553
-------------------------------------
BALANCE AT END OF YEAR $ 4,625 $ 6,501 $ 6,595
- ------------------------------------------------------------------------------------=====================================
RETAINED EARNINGS
Balance at Beginning of Year $ 16,619 $14,115 $11,990
Net Income 2,810 3,609 3,800
Cash Dividends Declared -- Common (782) (964) (850)
Cash Dividends Declared -- Preferred (78) (141) (162)
Adjustment for Treasury Shares Issued on Conversions of Convertible
Preferred Stock, Series 13 -- -- (663)
-------------------------------------
BALANCE AT END OF YEAR $ 18,569 $16,619 $14,115
- ------------------------------------------------------------------------------------=====================================
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance at Beginning of Year $ (91) $ 190 $ (305)
Net Change in Unrealized Gains and Losses on Securities Available for Sale,
Net of Tax (578) (141) 544
Foreign Currency Translations Adjustment, Net of Tax 44 (140) (49)
-------------------------------------
BALANCE AT END OF YEAR $ (625) $ (91) $ 190
- ------------------------------------------------------------------------------------=====================================
COMMON STOCK IN TREASURY, AT COST
Balance at Beginning of Year--Shares: 52,355,947 in 1998,
43,081,217 in 1997, and 34,030,205 in 1996 $ (4,412) $(2,950) $(1,538)
Retirement of 53,570,309 shares of Common Stock in Treasury 4,497 -- --
Repurchase of 3,952,019 in 1998, 18,836,904 Shares in 1997,
and 36,121,889 Shares in 1996 (483) (2,259) (3,075)
Delivery of 22,077,369 Shares on Conversions of Convertible Preferred Stock, -- -- 1,066
Series 13
Other Transactions, including issuances under Employee Benefit Plans
Shares: (2,737,657) in 1998, (9,562,174) in 1997, and (4,993,508) in 1996 398 797 597
-------------------------------------
BALANCE AT END OF YEAR--SHARES: 52,355,947 IN 1997, AND 43,081,217 IN 1996 $ -- $(4,412) $(2,950)
- ------------------------------------------------------------------------------------=====================================
TOTAL STOCKHOLDER'S EQUITY
Balance at Beginning of Year $ 21,026 $20,534 $19,381
Changes During the Year, Net 1,543 492 1,153
-------------------------------------
BALANCE AT END OF YEAR $ 22,569 $21,026 $20,534
- ------------------------------------------------------------------------------------=====================================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net Income $ 2,810 $ 3,609 $ 3,800
Other Changes in Equity from Nonowner Sources, Net of Tax (534) (281) 495
-------------------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 2,276 $ 3,328 $ 4,295
- ------------------------------------------------------------------------------------=====================================
</TABLE>
(1) Composed of redemptions of Preferred Stock, Second Series of $220 million,
Third Series of $83 million, Series 8A of $62 million, Series 16 of $325
million and Series 17 of $350 million in 1998.
(2) During 1998 Citicorp issued to Citigroup 1,000 shares of common stock,
$0.01 par value.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Citicorp and Subsidiaries
Year Ended December 31,
------------------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,810 $ 3,609 $ 3,800
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Credit Losses 2,381 1,907 1,926
Depreciation and Amortization of Premises and Equipment 796 758 706
Amortization of Goodwill and Acquisition Premium Costs 238 39 46
Provision for Deferred Taxes (105) (873) 433
Restructuring Charges and Merger-Related Costs 1,009 880 --
Venture Capital Activity (698) (475) (270)
Net Gain on Sale of Securities (524) (668) (210)
Changes in Accruals and Other, Net (5,023) 3,440 (2,624)
Net Increase in Loans Held for Sale (1,130) (2,402) --
Net Decrease (Increase) in Trading Account Assets 6,689 (9,571) 1,308
Net (Decrease) Increase in Trading Account Liabilities (815) 8,983 3,729
------------------------------------------------
Total Adjustments 2,818 2,018 5,044
------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,628 5,627 8,844
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net Increase in Deposits at Interest with Banks (2,098) (1,401) (2,620)
Securities -- Available for Sale
Purchases (58,717) (52,775) (39,743)
Proceeds from Sales 23,304 27,974 16,145
Maturities 28,977 19,339 16,662
Net Decrease (Increase) in Federal Funds Sold and
Securities Purchased Under Resale Agreements 3,345 900 (3,020)
Net Increase in Loans (160,419) (116,989) (120,950)
Proceeds from Sales of Loans 142,130 103,705 109,621
Business Acquisitions (3,890) - --
Capital Expenditures on Premises and Equipment (1,385) (1,239) (1,392)
Proceeds from Sales of Premises and Equipment,
Subsidiaries and Affiliates, and Other Real Estate Owned ("OREO") 657 1,157 1,360
------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (28,096) (19,329) (23,937)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 26,692 14,166 17,824
Net (Decrease) Increase in Federal Funds Purchased
and Securities Sold Under Repurchase Agreements (807) 1,187 2,091
Net (Decrease) Increase in Commercial Paper and Funds Borrowed (2,280) 2,770 (312)
Proceeds from Issuance of Long-Term Debt 7,388 6,821 4,627
Repayment of Long-Term Debt (6,601) (5,769) (4,241)
Redemption of Preferred Stock (1,040) (175) --
Proceeds from Issuance of Common Stock 243 434 537
Contribution from Citigroup Parent Company 577 - --
Treasury Stock Repurchases (483) (2,259) (3,069)
Dividends Paid (868) (1,105) (1,012)
------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,821 16,070 16,445
------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND DUE FROM BANKS 31 (688) (170)
------------------------------------------------
Net Increase in Cash and Due from Banks 384 1,680 1,182
Cash and Due from Banks at Beginning of Year 8,585 6,905 5,723
------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 8,969 $ 8,585 $ 6,905
- -------------------------------------------------------------------------================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $13,791 $11,578 $11,373
Income Taxes 1,825 2,358 1,888
NON-CASH INVESTING ACTIVITIES:
Transfers from Loans to OREO 265 336 632
- -------------------------------------------------------------------------================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Citibank, N.A. and Subsidiaries
December 31,
--------------------------------
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 8,052 $ 7,788
Deposits at Interest with Banks 15,782 14,245
Securities, at Fair Value
Available for Sale 34,519 26,749
Venture Capital 2,811 2,202
Trading Account Assets 31,683 36,106
Federal Funds Sold and Securities Purchased Under Resale Agreements 8,039 9,776
Loans (Net of unearned income of $837 in 1998 and $864 in 1997) 182,508 153,670
Allowance for Credit Losses (4,709) (4,264)
--------------------------------
Loans, Net 177,799 149,406
Customers' Acceptance Liability 1,281 1,726
Premises and Equipment, Net 4,022 3,338
Interest and Fees Receivable 2,893 2,441
Other Assets 14,014 8,723
--------------------------------
TOTAL $ 300,895 $ 262,500
- -----------------------------------------------------------------------------------------================================
LIABILITIES
Non-Interest-Bearing Deposits in U.S. Offices $ 13,271 $ 13,538
Interest-Bearing Deposits in U.S. Offices 27,239 24,932
Non-Interest-Bearing Deposits in Offices Outside the U.S. 10,731 9,394
Interest-Bearing Deposits in Offices Outside the U.S. 151,687 130,705
--------------------------------
Total Deposits 202,928 178,569
Trading Account Liabilities 30,753 27,811
Purchased Funds and Other Borrowings 22,096 16,334
Acceptances Outstanding 1,382 1,826
Accrued Taxes and Other Expense 4,572 4,182
Other Liabilities 8,230 6,853
Long-Term Debt and Subordinated Notes 11,202 9,927
STOCKHOLDER'S EQUITY
Capital Stock ($20.00 par value) 751 751
Outstanding Shares: 37,534,553 in each period
Surplus 9,397 7,453
Retained Earnings 10,356 9,148
Accumulated Other Changes in Equity from Nonowner Sources (1) (772) (354)
--------------------------------
TOTAL STOCKHOLDER'S EQUITY 19,732 16,998
--------------------------------
TOTAL $ 300,895 $ 262,500
- -----------------------------------------------------------------------------------------================================
</TABLE>
(1) Amounts at December 31, 1998 and 1997 include the after-tax amounts for
net unrealized gains (losses) on securities available for sale of $(113)
million and $345 million, respectively, and foreign currency translation
of $(659) million and $(699) million, respectively.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Citicorp, its
wholly owned subsidiary, Citibank, N.A., and their majority-owned subsidiaries.
Twenty percent to 50%-owned affiliates, other than investments of designated
venture capital subsidiaries, are accounted for under the equity method, and the
pro rata share of their income (loss) is included in other revenue. Income from
investments in less than 20%-owned companies is recognized when dividends are
received. Gains and losses on disposition of branches, subsidiaries, affiliates,
and other investments and charges for management's estimate of impairment in
value that is other than temporary, such that recovery of the carrying amount is
deemed unlikely, are included in other revenue.
The effects of translating operations with a functional currency other than the
U.S. dollar are included in stockholder's equity along with related hedge and
tax effects. The effects of translating operations with the U.S. dollar as the
functional currency, including those in highly inflationary environments, are
included in other revenue along with related hedge effects.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITIES AND TRADING ACCOUNT ACTIVITIES
Marketable equity securities and debt securities available for sale are carried
at fair value, with unrealized gains and losses reported in a separate component
of stockholder's equity net of applicable income taxes. Realized gains and
losses on sales of securities are included in earnings on a specific identified
cost basis.
Citicorp's venture capital subsidiaries include subsidiaries registered as Small
Business Investment Companies and those other subsidiaries that engage
exclusively in venture capital activities. Venture capital investments are
carried at fair value, with changes in fair value recognized in other revenue.
The fair values of publicly-traded securities held by these subsidiaries are
generally based upon quoted market prices. In certain situations, including
thinly-traded securities, large-block holdings, restricted shares or other
special situations, the quoted market price is adjusted to produce an estimate
of the attainable fair value for the securities. For securities that are not
publicly traded, estimates of fair value are made based upon review of the
investee's financial results, condition, and prospects.
Trading account assets include securities and money market instruments held in
anticipation of short-term market movements and for resale to customers, and are
valued at market. Gains and losses, both realized and unrealized, are included
in trading account revenue. Obligations to deliver securities sold but not yet
purchased are also valued at market and included in trading account liabilities.
Trading account activities also include derivative and foreign exchange
products. Derivative trading positions are carried at fair value, with realized
and unrealized gains and losses included in trading account revenue. Foreign
exchange trading positions are valued at prevailing market rates on a present
value basis, and the resulting gains and losses are included in foreign exchange
revenue. For other than short-term derivative and foreign exchange contracts,
Citicorp defers, at the inception of each contract, an appropriate portion of
the initial market value attributable to ongoing costs and amortizes this amount
into trading account or foreign exchange revenue over the life of the contract.
The recognition of unrealized gains on these contracts is subject to
management's assessment as to collectibility.
Revaluation gains (losses) on derivative and foreign exchange contracts are
reported gross in trading account assets (liabilities), reduced by the effects
of qualifying netting agreements with counterparties.
F-8
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPURCHASE AND RESALE AGREEMENTS
Citicorp's policy is to take possession of securities purchased under agreements
to resell. The market value of securities to be repurchased and resold is
monitored, and additional collateral is obtained where appropriate to protect
against credit exposure.
RISK MANAGEMENT ACTIVITIES
Citicorp manages its exposures to market rate movements outside of its trading
activities by modifying the asset and liability mix, either directly or through
the use of derivative financial products including interest rate swaps, futures,
forwards, and purchased option positions such as interest rate caps, floors, and
collars. These end-user derivative contracts include qualifying hedges and
qualifying positions that modify the interest rate characteristics of specified
financial instruments. Derivative instruments not qualifying as end-user
positions are treated as trading positions and carried at fair value.
To qualify as a hedge, the swap, futures, forward, or purchased option position
must be designated as a hedge and effective in reducing the market risk of an
existing asset, liability, firm commitment, or identified anticipated
transaction which is probable to occur.
To qualify as a position modifying the interest rate characteristics of an
instrument, there must be a documented and approved objective to synthetically
alter the market risk characteristics of an existing asset, liability, firm
commitment or identified anticipated transaction which is probable to occur, and
the swap, forward or purchased option position must be designated as such a
position and effective in accomplishing the underlying objective.
The foregoing criteria are applied on a decentralized basis, consistent with the
level at which market risk is managed, but are subject to various limits and
controls. The underlying assets, liability, firm commitment or anticipated
transaction may be an individual item or a portfolio of similar items.
The effectiveness of these contracts is evaluated on an initial and ongoing
basis using quantitative measures of correlation. If a contract is found to be
ineffective, it no longer qualifies as an end-user position and any excess gains
and losses attributable to such ineffectiveness as well as subsequent changes in
fair value are recognized in earnings.
End-user contracts are primarily employed in association with on-balance sheet
instruments accounted for at amortized cost, including loans, deposits, and
long-term debt, and with credit card securitizations. These qualifying end-user
contracts are accounted for consistent with the risk management strategy as
follows. Amounts payable and receivable on interest rate swaps and options are
accrued according to the contractual terms and included currently in the related
revenue and expense category as an element of the yield on the associated
instrument (including the amortization of option premiums). Amounts paid or
received over the life of futures contracts are deferred until the contract is
closed; accumulated deferred amounts on futures contracts and amounts paid or
received at settlement of forward contracts are accounted for as elements of the
carrying value of the associated instrument, affecting the resulting yield.
End-user contracts related to instruments that are carried at fair value are
also carried at fair value, with amounts payable and receivable accounted for as
an element of the yield on the associated instrument. When related to securities
available for sale, fair value adjustments are reported in stockholder's equity,
net of tax.
If an end-user derivative contract is terminated, any resulting gain or loss is
deferred and amortized over the original term of the agreement provided that the
effectiveness criteria have been met. If the underlying designated items are no
longer held, or if an anticipated transaction is no longer likely to occur, any
previously unrecognized gain or loss on the derivative contract is recognized in
earnings and the contract is accounted for at fair value with subsequent changes
recognized in earnings.
Foreign exchange contracts which qualify under applicable accounting guidelines
as hedges of foreign currency exposures, including net capital investments
outside the U.S., are revalued at the spot rate with any forward premium or
discount recognized over the life of the contract in net interest revenue. Gains
and losses on foreign exchange contracts which qualify as a hedge of a firm
commitment are deferred and recognized as part of the measurement of the related
transaction, unless deferral of a loss would lead to recognizing losses on the
transaction in later periods.
F-9
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS
The consumer loan category represents loans managed by Citicorp's Global
Consumer businesses. Consumer loans are generally written off not 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 by loan
product and by country. The policy for suspending accruals of interest on
consumer loans varies depending on the terms, security and loan loss experience
characteristics of each product, and in consideration of write-off criteria in
place.
The commercial loan category represents loans managed by Citicorp's Global
Corporate Banking businesses. Commercial loans are identified as impaired and
placed on a cash (nonaccrual) basis when it is determined that the payment of
interest or principal is doubtful of collection, or when interest or principal
is past due for 90 days or more, except when the loan is well secured and in the
process of collection. Any interest accrued is reversed and charged against
current earnings, and interest is thereafter included in earnings only to the
extent actually received in cash. When there is doubt regarding the ultimate
collectibility of principal, all cash receipts are thereafter applied to reduce
the recorded investment in the loan. Impaired commercial loans are written down
to the extent that principal is judged to be uncollectible. Impaired
collateral-dependent loans where repayment is expected to be provided solely by
the underlying collateral and there are no other available and reliable sources
of repayment are written down to the lower of cost or collateral value.
Cash-basis loans are returned to an accrual status when all contractual
principal and interest amounts are reasonably assured of repayment and there is
a sustained period of repayment performance in accordance with the contractual
terms.
Loans include Citicorp's share of aggregate rentals on lease financing
transactions and residual values net of related unearned income. Lease financing
transactions substantially represent direct financing leases and also include
leveraged leases. Unearned income is amortized under a method which
substantially results in an approximate level rate of return when related to the
unrecovered lease investment. Gains and losses from sales of residual values of
leased equipment are included in other revenue.
Citicorp classifies credit card receivables and consumer mortgage loans
originated for sale as loans held for sale, which are accounted for at the lower
of aggregate cost or fair value with net credit losses charged to other revenue.
ALLOWANCE FOR CREDIT LOSSES
Additions to the allowance are made by means of the provision for credit losses.
Credit losses are deducted from the allowance, and subsequent recoveries are
added. Securities received in exchange for loan claims in debt restructurings
are initially recorded at fair value, with any gain or loss reflected as a
recovery or charge-off to the allowance, and are subsequently accounted for as
securities available for sale.
The amount of the provision is determined based on management's assessment of
historical and expected net credit losses, business and economic conditions, the
character, quality and performance of the portfolios, and other pertinent
indicators. This evaluation encompasses all activities involving the extension
of credit and also includes an assessment of the ability of borrowers with
foreign currency obligations to obtain the foreign exchange necessary for
orderly debt servicing. Larger-balance, non-homogenous exposures representing
significant individual credit exposures are evaluated based upon the borrower's
character, overall financial condition, resources, and payment record; the
prospects for support from any financially responsible guarantors; and, if
appropriate, the realizable value of any collateral. Impairment of
larger-balance, non-homogenous loans is measured by comparing the net carrying
amount of the loan to the present value of the expected future cash flows
discounted at the loan's effective rate, the secondary market value of the loan,
or the fair value of the collateral for collateral-dependent loans. A valuation
allowance is established if necessary within the portion of the allowance
deducted from loans. The evaluation of smaller balance, homogenous loans,
including consumer mortgage, installment, revolving credit and most other
consumer loans, are collectively evaluated for impairment based upon historical
loss experience, adjusted for changes in trends and conditions including
delinquencies and nonaccruals; trends in volume and terms of loans; the effects
of any changes in lending policies and procedures; national and local economic
trends and conditions; and concentrations of credit. Based upon these analyses,
the resulting allowance is deemed adequate to absorb all probable credit losses
inherent in the portfolio.
F-10
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER REAL ESTATE OWNED
Upon repossession, loans are adjusted if necessary to the estimated fair value
of the underlying collateral and transferred to Other Real Estate Owned, which
is reported in other assets net of a valuation allowance for selling costs and
net declines in value as appropriate.
EMPLOYEE BENEFITS
Employee benefits expense includes prior and current service costs of pension
and other postretirement benefit plans, which are accrued on a current basis,
contributions and unrestricted awards under other employee plans, the
amortization of restricted stock awards, and costs of other employee benefits.
There are no charges to earnings upon the grant or exercise of fixed stock
options or the subscription for or purchase of stock under stock purchase
agreements. Compensation expense related to performance-based stock options is
recorded over the period to the estimated vesting dates.
INCOME TAXES
Deferred taxes are recorded for the future tax consequences of events that have
been recognized in the financial statements or tax returns, based upon enacted
tax laws and rates, including an appropriate provision for taxes on
undistributed income of subsidiaries and affiliates. Deferred tax assets are
recognized subject to management's judgment that realization is more likely than
not.
CASH FLOWS
Cash flows from risk management activities are classified in the same category
as the related assets and liabilities. Cash equivalents are defined as those
amounts included in cash and due from banks.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), which becomes effective on
January 1, 2000 for calendar year companies such as the Company. The new
standard will significantly change the accounting treatment of end-user
derivative and foreign exchange contracts used by the Company and its customers.
Depending on the underlying risk management strategy, these accounting changes
could affect reported earnings, assets, liabilities, and stockholder's equity.
As a result, the Company and the customers to which it provides derivatives and
foreign exchange products will have to reconsider their risk management
strategies, since the new standard will not reflect the results of many of those
strategies in the same manner as current accounting practice. The Company is in
the process of evaluating the potential impact of the new accounting standard.
2. BUSINESS COMBINATIONS
MERGER WITH TRAVELERS
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group, Inc. (Travelers) (the Merger). Following the
merger, Travelers changed its name to Citigroup Inc. (Citigroup). Under the
terms of the merger, 1.13 billion shares of Citigroup common stock were issued
in exchange for all of the outstanding shares of Citicorp common stock based on
an exchange ratio of 2.5 shares of Citigroup common stock for each share of
Citicorp common stock. Following the exchange, former shareholders of Citicorp
and Travelers each owned approximately 50% of the outstanding common stock of
Citigroup. Each outstanding share of Citicorp preferred stock was converted into
one share of a corresponding series of preferred stock of Citigroup having
identical terms. The merger was accounted for as a pooling of interests.
Additionally, as of October 8, 1998, the shares of Citicorp common stock held in
treasury were retired. The effect of these transactions was an elimination of
Citicorp's common stock and preferred stock, with an offsetting adjustment to
surplus, resulting in no change in the amount of Citicorp's total stockholder's
equity.
F-11
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions in Citicorp common stock and preferred stock occurring prior to the
merger are reflected on a historical basis in the Consolidated Financial
Statements, with the number of common shares adjusted to reflect the 2.5 share
exchange ratio.
In connection with the Merger, Citicorp adopted the immediate recognition of the
transition obligation under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pension," effective January 1, 1993, to
conform to the method used by Travelers. The effect was an increase in net
income of $9 million through September 30, 1998, and $18 million and $12 million
for the years ended December 31, 1997 and 1996, respectively. The effect on
stockholder's equity was a decrease of $161 million as of September 30, 1998 and
$170 million as of December 31, 1997.
ACQUISITION OF UNIVERSAL CARD SERVICES
On April 2, 1998, Citicorp completed its acquisition of Universal Card Services
from AT&T for $3.5 billion in cash. This purchase added $15 billion in customer
receivables and 13.5 million accounts. In addition, Citicorp entered into a
ten-year cobranding and joint marketing agreement with AT&T.
3. BUSINESS SEGMENT INFORMATION
Citicorp's businesses provide a broad range of financial services to consumer
and corporate customers around the world. Citicorp's activities are conducted
through Global Consumer, Global Corporate, Asset Management, and Investment
Activities.
The Global Consumer segment includes a global, full-service consumer franchise
encompassing, among other things, branch and electronic banking, consumer
lending and credit and charge card services, and personalized wealth management
services for high net-worth clients. The businesses included in the Global
Corporate segment serve corporations, financial institutions, governments, and
other participants in developed and emerging markets throughout the world. The
Asset Management segment offers a broad range of asset management products and
services from global investment centers around the world, including mutual
funds, closed-end funds, and managed accounts. Investment Activities include the
Company's venture capital activities, certain corporate investments and the
results of certain investments in countries that refinanced debt under the 1989
Brady Plan or plans of a similar nature. Corporate/Other includes revenues
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.
The following table presents certain information regarding these industry
segments:
<TABLE>
<CAPTION>
IN MILLIONS OF TOTAL REVENUES, IDENTIFIABLE
DOLLARS, EXCEPT NET OF INTEREST EXPENSE (1) INCOME TAXES NET INCOME (LOSS) (2) ASSETS AT YEAR-END
IDENTIFIABLE ASSETS ----------------------------------------------------------------------------------------------------------
IN BILLIONS 1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer (3) $13,957 $12,357 $12,116 $ 650 $ 530 $ 828 $1,316 $1,409 $1,943 $161 $136 $135
Global Corporate (3) 6,905 6,686 6,224 341 423 443 773 1,300 1,510 165 159 131
Asset Management 342 293 243 (19) (12) (5) 13 35 50 1 1 -
Investment
Activities 981 1,295 674 204 270 151 739 1,051 567 8 9 9
Corporate/Other 1,065 985 939 483 931 876 (31) (186) (270) 9 6 6
----------------------------------------------------------------------------------------------------------
TOTAL $23,250 $21,616 $20,196 $1,659 $2,142 $2,293 $2,810 $3,609 $3,800 $344 $311 $281
- ------------------------==========================================================================================================
</TABLE>
(1) Includes total revenues, net of interest expense in the United States of
$11.173 billion, $9.802 billion, and $9.344 billion in 1998, 1997, and
1996, respectively. Total revenues, net of interest expense attributable
to individual foreign countries are not material to the total.
(2) For the 1998 period, Global Consumer, Global Corporate, Asset Management,
and Corporate/Other results reflect after-tax restructuring charges and
merger-related costs of $435 million, $137 million, $9 million, and $67
million, respectively. For the 1997 period, Global Consumer, Global
Corporate, and Corporate/Other results reflect after-tax restructuring
charges of $351 million, $168 million, and $31 million, respectively.
(3) Includes provision for credit losses in the Global Consumer results of
$1,997 million, $1,935 million, and $1,933 million, and in the Global
Corporate results of $394 million, $36 million, and $73 million for 1998,
1997, and 1996, respectively.
- --------------------------------------------------------------------------------
F-12
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR VALUE AMORTIZED UNREALIZED UNREALIZED FAIR
IN MILLIONS OF DOLLARS AT YEAR-END COST GAINS LOSSES COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and Federal Agency $4,649 $ 56 $ 1 $ 4,704 $4,031 $ 58 $ 2 $4,087
State and Municipal 3,289 244 224 3,309 2,616 206 115 2,707
Foreign Government 24,930 330 595 24,665 18,106 826 262 18,670
U.S. Corporate 2,162 278 223 2,217 1,809 157 101 1,865
Other Debt Securities 2,680 83 34 2,729 1,198 10 79 1,129
Equity Securities (1) 2,715 203 138 2,780 2,131 235 62 2,304
---------------------------------------------------------------------------------------
$40,425 $1,194 $1,215 $40,404 $29,891 $1,492 $621 $30,762
- ----------------------------------=======================================================================================
VENTURE CAPITAL $3,297 $2,599
- -------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
Include:
Mortgage-Backed Securities $3,367 $17 $ 1 $3,383 $1,091 $12 $2 $1,101
Government of Brazil
Brady Bonds 660 26 - 686 1,436 612 - 2,048
Government of Venezuela
Brady Bonds 478 - 174 304 535 - 55 480
- ----------------------------------=======================================================================================
</TABLE>
(1) Includes non-marketable equity securities carried at cost which are
reported in both the amortized cost and fair value columns.
- --------------------------------------------------------------------------------
The accompanying table shows components of interest and dividends on securities,
realized gains and losses from sales of securities available for sale, and net
gains on investments held by venture capital subsidiaries.
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Interest $2,743 $1,966 $1,600
Interest Exempt from U.S. Federal Income Tax 145 136 87
Dividends 75 95 83
- --------------------------------------------------------------------------------
Gross Realized Securities Gains $ 792 $ 754 $ 261
Gross Realized Securities Losses 268 86 51
- --------------------------------------------------------------------------------
Net Realized and Unrealized Venture Capital Gains $ 487 $ 749 $ 450
Which Included:
Gross Unrealized Gains 709 612 416
Gross Unrealized Losses 412 82 150
- -----------------------------------------------------===========================
</TABLE>
F-13
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost, fair value, and average yield
on amortized cost of debt securities available for sale by contractual maturity
dates as of December 31, 1998:
<TABLE>
<CAPTION>
AMORTIZED FAIR
IN MILLIONS OF DOLLARS COST VALUE YIELD
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY AND FEDERAL AGENCY
Due Within 1 Year $ 988 $ 988 4.86%
After 1 but Within 5 Years 407 411 5.35
After 5 but Within 10 Years 132 142 6.71
After 10 Years (1) 3,122 3,163 6.29
-------------------------------
TOTAL $ 4,649 $ 4,704 5.91
- ----------------------------------==============================================
STATE AND MUNICIPAL
Due Within 1 Year $ 40 $ 41 5.09%
After 1 but Within 5 Years 118 102 6.19
After 5 but Within 10 Years 675 658 5.70
After 10 Years (1) 2,456 2,508 6.10
-------------------------------
TOTAL $ 3,289 $ 3,309 6.01
- ----------------------------------==============================================
ALL OTHER (2)
Due Within 1 Year $10,924 $10,889 8.46%
After 1 but Within 5 Years 9,867 9,920 6.42
After 5 but Within 10 Years 4,799 4,662 21.15
After 10 Years (1) 4,182 4,140 13.10
-------------------------------
TOTAL $29,772 $29,611 10.48
- ----------------------------------==============================================
</TABLE>
(1) Securities with no stated maturities are included as contractual
maturities of greater than 10 years. Actual maturities may differ due to
call or prepayment rights.
(2) Includes foreign government, U.S. corporate, and other debt securities.
Yields reflect the impact of local interest rates prevailing in countries
outside the United States.
- --------------------------------------------------------------------------------
5. TRADING ACCOUNT ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal Agency Securities $ 86 $ 3,898
State and Municipal Securities -- 108
Foreign Government, Corporate and Other Securities 8,010 11,885
Derivative and Foreign Exchange Contracts (1) 25,571 24,465
---------------------------
$33,667 $40,356
- -----------------------------------------------------===========================
TRADING ACCOUNT LIABILITIES
Securities Sold, Not Yet Purchased $ 2,644 $ 5,769
Derivative and Foreign Exchange Contracts (1) 27,527 25,217
---------------------------
$30,171 $30,986
- -----------------------------------------------------===========================
</TABLE>
(1) Net of master netting agreements and securitization.
- --------------------------------------------------------------------------------
The average fair value of trading account assets during 1998 was $41.3 billion,
including $26.7 billion relating to derivative and foreign exchange contracts,
compared with $35.1 billion and $20.3 billion, respectively, during 1997. The
average fair value of trading account liabilities during 1998 was $30.2 billion,
including $25.0 billion relating to derivative and foreign exchange contracts,
compared with $26.6 billion and $21.6 billion, respectively, during 1997.
Deferred revenue on derivative and foreign exchange contracts, attributable to
ongoing costs totaled $472 million and $391 million at December 31, 1998 and
1997, respectively, which is reported in Other Liabilities.
F-14
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
CONSUMER
IN U.S. OFFICES
Mortgage and Real Estate (1) (2) $ 23,177 $ 22,599
Installment, Revolving Credit, and Other 40,435 36,140
--------------------------------
63,612 58,739
--------------------------------
IN OFFICES OUTSIDE THE U.S.
Mortgage and Real Estate (1) (3) 19,456 17,685
Installment, Revolving Credit, and Other 36,048 32,179
Lease Financing 484 544
--------------------------------
55,988 50,408
--------------------------------
119,600 109,147
Unearned Income (630) (688)
--------------------------------
CONSUMER LOANS, NET OF UNEARNED INCOME $118,970 $108,459
- --------------------------------------------================================
COMMERCIAL
IN U.S. OFFICES
Commercial and Industrial (4) $ 13,779 $ 10,841
Mortgage and Real Estate (1) 2,165 2,398
Loans to Financial Institutions 173 371
Lease Financing 2,951 3,087
--------------------------------
19,068 16,697
--------------------------------
IN OFFICES OUTSIDE THE U.S.
Commercial and Industrial (4) 55,828 47,417
Mortgage and Real Estate (1) 1,792 1,651
Loans to Financial Institutions 8,008 6,480
Governments and Official Institutions 2,132 2,376
Lease Financing 1,386 1,092
--------------------------------
69,146 59,016
--------------------------------
88,214 75,713
Unearned Income (190) (159)
--------------------------------
COMMERCIAL LOANS, NET OF UNEARNED INCOME $ 88,024 $ 75,554
- --------------------------------------------================================
</TABLE>
(1) Loans secured primarily by real estate.
(2) Includes $3.3 billion in 1998 and $3.4 billion in 1997 of commercial real
estate loans related to community banking and private banking activities.
(3) Includes $2.4 billion in 1998 and $2.3 billion in 1997 of loans secured by
commercial real estate.
(4) Includes loans not otherwise separately categorized.
- --------------------------------------------------------------------------------
The following table presents information about impaired loans. Impaired loans
are those on which Citicorp believes it is not probable that it will be able to
collect all amounts due according to the contractual terms of the loan,
excluding smaller-balance homogeneous loans that are evaluated collectively for
impairment, and are carried on a cash basis:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Impaired Commercial Loans $1,284 $ 971
Other Impaired Loans (1) 218 241
----------------------------
Total Impaired Loans (2) $1,502 $1,212
- ----------------------------------------------------============================
Impaired Loans with Valuation Allowances $ 257 $ 98
Total Valuation Allowances (3) 24 16
- --------------------------------------------------------------------------------
During the Year (4):
Average Balance of Impaired Loans $1,435 $1,188
Interest Income Recognized on Impaired Loans 65 62
- ----------------------------------------------------============================
</TABLE>
(1) Primarily commercial real estate loans related to community and private
banking activities.
(2) At year-end 1998, approximately 19% of these loans were measured for
impairment using the fair value of the collateral, with the remaining 81%
measured using the present value of the expected future cash flows,
discounted at the loan's effective interest rate, compared with
approximately 39% and 61%, respectively, at year-end 1997.
(3) Included in the allowance for credit losses.
(4) For the year ended December 31, 1996, the average balance of impaired
loans was $1.7 billion and interest income recognized on impaired loans
was $116 million.
- --------------------------------------------------------------------------------
F-15
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES AT BEGINNING OF YEAR $5,816 $5,503 $5,368
ADDITIONS
Provision for Credit Losses 2,381 1,907 1,926
DEDUCTIONS
Consumer Credit Losses (1) 2,374 2,311 2,179
Consumer Credit Recoveries (1) (457) (476) (446)
------------------------------------------------
NET CONSUMER CREDIT LOSSES (1) 1,917 1,835 1,733
------------------------------------------------
Commercial Credit Losses 576 191 259
Commercial Credit Recoveries (170) (219) (266)
------------------------------------------------
NET COMMERCIAL CREDIT LOSSES (RECOVERIES) 406 (28) (7)
------------------------------------------------
Other -- Net (2) 350 213 (65)
------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR $6,224 $5,816 $5,503
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencing in 1997, reflects the classification of credit card receivables
intended for sale as Loans Held for Sale with net credit losses charged to
Other Revenue.
(2) Primarily includes net transfers from (to) the reserves for
securitization activities and foreign currency translation effects. In
1998, reflects the addition of $320 million of credit loss reserves
related to the acquisition of the Universal Card portfolio. In 1997, $373
million was restored to the allowance for credit losses 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, $50 million attributable to standby letters of
credit and guarantees was reclassified to Other Liabilities, and $50
million attributable to derivative and foreign exchange contracts was
reclassified as a deduction from Trading Account Assets.
- --------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Generally, depreciation and amortization are computed on the
straight-line basis over the estimated useful life of the asset or the lease
term. Depreciation and amortization expense was $796 million in 1998, $758
million in 1997 and $706 million in 1996.
9. PURCHASED FUNDS AND OTHER BORROWINGS (1)
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Funds Purchased and Securities Sold under Repurchase Agreements $10,375 $11,182
Commercial Paper Issued by Parent Company 132 1,941
Other Funds Borrowed 12,601 8,108
--------------------------------
TOTAL $23,108 $21,231
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Original maturities of less than one year.
- --------------------------------------------------------------------------------
F-16
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT (1)
At December 31, long-term debt was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
IN MILLIONS OF DOLLARS COUPON MATURITIES 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PARENT COMPANY
Senior Notes 5.58% 1999-2012 $ 7,118 $ 6,936
Subordinated Notes 7.18% 1999-2035 8,359 7,663
SUBSIDIARIES (2)
Senior Notes 9.98% 1999-2012 4,147 4,436
Subordinated Notes 7.78% 2027-2028 975 750
- -------------------------------------------------------------------------------------------------------------------------
Senior Notes 11,265 11,372
Subordinated Notes 9,334 8,413
--------------------------------
TOTAL $20,599 $19,785
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Original maturities of one year or more. Maturity distribution is based
upon contractual maturities or earlier dates at which debt is repayable at
the option of the holder, due to required mandatory sinking fund payments
or due to call notices issued. Weighted average interest rates reflect
contractual interest rates.
(2) Approximately 19% in 1998 and 14% in 1997 of subsidiary long-term debt was
guaranteed by Citicorp, and of the debt not guaranteed by Citicorp,
approximately 8% in 1998 and 12% in 1997 was secured by the assets of the
subsidiary.
- --------------------------------------------------------------------------------
Long-term debt is denominated in various currencies with both fixed and floating
interest rates. Certain of the agreements under which long-term debt obligations
were issued prohibit Citicorp, under certain conditions, from paying dividends
in shares of Citibank capital stock and from creating encumbrances on such
shares. Floating rates are determined periodically by formulas based on certain
money market rates or, in certain instances, by minimum rates as specified in
the governing agreements. A portion of Parent Company and subsidiary debt
represents local currency borrowings where prevailing rates may vary
significantly from rates in the United States.
Parent Company subordinated notes include $600 million and $817 million of
subordinated capital notes at December 31, 1998 and 1997, respectively, certain
of which require Citicorp to exchange the notes at maturity or at certain other
specified times for capital securities that have a market value equal to the
principal amounts of the notes or, at Citicorp's option, to pay the principal of
the notes from amounts representing designated proceeds from the sale of capital
securities. Citicorp has designated proceeds from the sales of capital
securities in an amount sufficient to satisfy all the dedication commitments of
its subordinated capital notes.
Subsidiary subordinated notes include $975 million of guaranteed preferred
beneficial interests in Citicorp subordinated debt issued by Citicorp Capital I,
II, and III, wholly owned trusts whose sole assets are $309 million of 7.93% and
$464 million of 8.015%, respectively, of Junior Subordinated Deferrable Interest
Debentures of Citicorp both due 2027, and $232 million of 7.10% of Junior
Subordinated Deferrable Interest Debentures of Citicorp due 2028. Long-term debt
at December 31, 1997 included $750 million related to Citicorp Capital I and II.
Under the terms of these arrangements, taken as a whole, Citicorp has provided a
full and unconditional guarantee on a subordinated basis of payments due.
At December 31, 1998, Citicorp had converted, through the use of derivative
contracts, $11.0 billion of its $12.7 billion of fixed rate debt into variable
rate obligations. In addition, Citicorp utilizes other derivative contracts to
manage the foreign exchange impact of certain debt issuances. At year-end 1998,
Citicorp's overall weighted average rate for long-term debt was 7.22% on a
contractual basis and 6.44% including the effects of derivative contracts.
F-17
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate annual maturities on long-term debt obligations (based on final
maturity dates) are as follows:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1999 2000 2001 2002 2003 THEREAFTER
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Parent Company $1,648 $1,873 $1,512 $1,579 $1,922 $6,943
Subsidiaries 1,196 696 451 1,088 171 1,520
- -------------------------------------------------------------------------------------------------------------------------
$2,844 $2,569 $1,963 $2,667 $2,093 $8,463
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
11. FEES AND COMMISSIONS
Trust, agency, and custodial fees included in fees and commissions were $1.4
billion in 1998, $1.3 billion in 1997 and $1.1 billion in 1996.
12. RESTRUCTURING CHARGES AND MERGER-RELATED COSTS
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Restructuring Charges $1,006 $880
Changes in 1997 Estimates (38) -
Merger-Related Costs 41 -
--------------------------------
Total $1,009 $880
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
In December 1998 Citicorp recorded a restructuring charge of $1.006 billion,
reflecting exit costs associated with business improvement and integration
initiatives to be implemented over a 12 to 18 month period. The charge included
$666 million related to employee severance, $310 million related to exiting
leasehold and other contractual obligations, and $30 million related to the
write-down to estimated salvage value of assets that are available for immediate
disposal. In addition, the implementation of these restructuring initiatives
will cause some related premises and equipment assets to become redundant. In
accordance with recent SEC guidelines, the remaining depreciable lives of these
assets have been shortened, and accelerated depreciation charges of $248 million
(in addition to normal scheduled depreciation on these assets) will be
recognized in subsequent periods. Additional implementation costs associated
with these restructuring initiatives will be expensed as incurred but are not
expected to be material.
Of the $1.006 billion charge, $695 million in the Global Consumer business
includes regional consolidation of call centers and other back office functions
worldwide, reduction of management layers, sales force restructuring and
integration of overlapping marketing and product management groups, and exiting
several non-strategic operations; $246 million in the Global Corporate business
includes rationalization of operations in countries with multiple operations,
consolidation of Citibank and Salomon Smith Barney locations, integration of
trading platforms, and exiting non-strategic businesses; $15 million in the
Asset Management business includes elimination of redundancies; and the
remaining $50 million includes streamlining and integration of Corporate and
other staff functions. Approximately $413 million of the $1.006 billion charge
relates to operations in the United States. Because the charge was recorded near
the end of the year, there was no significant utilization during 1998.
The $666 million portion of the charge related to employee severance reflects
the costs of eliminating approximately 10,700 positions, after considering
attrition and redeployment within the Company, including approximately 8,000 in
the Global Consumer business, 1,900 in the Global Corporate business, 200 in the
Asset Management business and 600 in Corporate and other staff functions (costs
associated with corporate and staff functions have been allocated to businesses
as appropriate). Approximately 3,100 of these positions relate to the United
States. The overall workforce reduction, net of anticipated rehires to fill
relocated positions, is expected to be approximately 9,200 positions worldwide.
Changes in 1997 estimates are attributable to facts and circumstances arising
subsequent to the original restructuring charge. Changes in 1997 estimates are
attributable to lower severance costs due to higher than anticipated levels of
attrition and redeployment within the Company, and other unforeseen changes
including those resulting from the merger with Travelers.
Merger-related costs include the direct and incremental costs of
administratively closing the merger, and primarily reflect legal, regulatory,
accounting and similar one-time transaction costs.
F-18
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1997, Citicorp recorded a restructuring charge of $880 million related to
cost-management programs and customer service initiatives to improve operational
efficiency and productivity. The charge included $487 million for severance
benefits (associated with approximately 9,000 positions to be reduced), $245
million related to writedowns of equipment and premises which management
committed to dispose of, and $148 million of lease termination and other exit
costs. The status of the 1997 restructuring initiatives is summarized in the
following table:
ACTIVITY IN 1997 RESTRUCTURING RESERVE
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
1997 Restructuring Charge $ 880
Utilization (641)
Changes in 1997 Estimates (38)
------------------
BALANCE AT DECEMBER 31, 1998 $ 201
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Utilization includes $245 million of equipment and premises write-downs as well
as $399 million of severance and other exit costs (of which $211 million related
to employee severance and $127 million related to leasehold and other exit costs
have been paid in cash and $61 million is legally obligated), together with
translation effects. Through December 31, 1998, approximately 4,000 gross staff
positions have been eliminated under this program.
13. INCOME TAXES
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
CURRENT:
Federal $ 561 $1,586 $ 546
Foreign 1,007 1,225 1,116
State 196 204 198
----------------- ---------------- -----------------
1,764 3,015 1,860
DEFERRED:
Federal (22) (793) 404
Foreign 45 - -
State (128) (80) 29
----------------- ---------------- -----------------
(105) (873) 433
----------------- ---------------- -----------------
PROVISION FOR INCOME TAX (1) 1,659 2,142 2,293
----------------- ---------------- -----------------
Income tax expense (benefit) reported in stockholder's equity related to:
Foreign currency translation 3 14 8
Securities available for sale (330) (45) 307
Employee stock plans (112) (222) (244)
----------------- ---------------- -----------------
TOTAL INCOME TAXES $1,220 $1,889 $2,364
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
(1) Includes the effect of securities transactions resulting in a provision of
$183 million in 1998, $234 million in 1997, and $74 million in 1996.
- --------------------------------------------------------------------------------
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate applicable to income before taxes for the years ended
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
FEDERAL STATUTORY RATE 35.0% 35.0% 35.0%
Limited taxability of investment income (0.8) (0.5) (1.4)
State income taxes (net of federal income tax benefit) 1.0 1.4 2.4
Other, net 1.9 1.3 1.6
----------------- ---------------- -----------------
EFFECTIVE INCOME TAX RATE 37.1% 37.2% 37.6%
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
F-19
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes at December 31 related to the following:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Credit loss deduction $ 2,148 $ 2,041
Unremitted foreign earnings 1,265 1,229
Employee benefits 547 327
Interest related items 407 508
Foreign and state loss carryforwards 256 316
Other deferred tax assets 329 86
--------------- ---------------
GROSS DEFERRED TAX ASSETS 4,952 4,507
Valuation allowance 294 324
--------------- ---------------
DEFERRED TAX ASSETS AFTER VALUATION ALLOWANCE 4,658 4,183
--------------- ---------------
DEFERRED TAX LIABILITIES:
Investments (643) (1,033)
Leases (870) (888)
Other deferred tax liabilities (593) (360)
--------------- ---------------
GROSS DEFERRED TAX LIABILITIES (2,106) (2,281)
--------------- ---------------
NET DEFERRED TAX ASSETS $ 2,552 $ 1,902
- ----------------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
Foreign pre-tax earnings approximated $3.2 billion in 1998, $4.3 billion in 1997
and $4.0 billion in 1996. As a U.S. corporation, Citicorp is subject to U.S.
taxation currently on all of its foreign pre-tax earnings if earned by a foreign
branch or when earnings are effectively repatriated if earned by a foreign
subsidiary or affiliate. In addition, certain of Citicorp's U.S. income is
subject to foreign income tax where the payor of such income is domiciled
outside the United States.
The 1998 net change in the valuation allowance related to deferred tax assets
was a decrease of $30 million primarily relating to an increased utilization of
certain foreign tax credits. The valuation allowance of $294 million at December
31, 1998 is primarily reserved for specific state and local, and foreign tax
carryforwards or tax law restrictions on benefit recognition in the U.S. federal
and the above jurisdictions.
Management believes that the realization of the recognized net deferred tax
asset of $2.552 billion is more likely than not based on existing carryback
ability and expectations as to future taxable income. Beginning in 1998, the
Company joins with Citigroup in filing a consolidated federal income tax return.
Under a tax sharing agreement with Citigroup, the Company is entitled to a
current benefit if it incurs losses which are utilized in Citigroup's
consolidated return. Citigroup has reported pre-tax financial statement income
from continuing operations exceeding $10 billion on average over the last three
years and has generated federal taxable income exceeding $8 billion, on average,
each year during this same period.
14. REGULATORY CAPITAL
<TABLE>
<CAPTION>
CITICORP CITIBANK, N.A.
---------------------------------------------------------------
Minimum
IN MILLIONS OF DOLLARS AT YEAR-END Required (1) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 Capital $23,084 $20,926 $19,291 $16,441
Total Capital (2) 33,858 30,986 28,783 24,524
Tier 1 Capital Ratio 4.00% 8.44% 8.27% 8.41% 8.09%
Total Capital Ratio (2) 8.00 12.38 12.25 12.55 12.07
Leverage Ratio (3) 3.00+ 6.68 6.95 6.32 6.33
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As set forth in guidelines issued by the U.S. federal bank regulators.
(2) Total capital includes Tier 1 and Tier 2.
(3) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp is subject to risk-based capital and leverage guidelines issued by the
Board of Governors of the Federal Reserve System (FRB), and its U.S. insured
depository institution subsidiaries, including Citibank, N.A., are subject to
similar guidelines issued by their respective primary regulators. These
guidelines are used to evaluate capital adequacy and include the required
minimums shown above.
F-20
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To be "well capitalized" under federal bank regulatory agency definitions, a
depository institution must have a Tier 1 ratio of at least 6%, a combined Tier
1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5% and not
be subject to a directive, order, or written agreement to meet and maintain
specific capital levels. The regulatory agencies are required by law to take
specific prompt actions with respect to institutions that do not meet minimum
capital standards. As of December 31, 1998 and 1997, all of Citicorp's U.S.
insured subsidiary depository institutions were "well capitalized."
15. CHANGES IN EQUITY FROM NONOWNER SOURCES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), which established standards for the
reporting and display of equity from nonowner sources and its components in a
full set of general purpose financial statements. Equity from nonowner sources
and its components have been reported, net of tax, in the Consolidated Statement
of Changes in Stockholder's Equity with all earlier periods restated to reflect
the adoption of SFAS No. 130.
Changes in each component of "Accumulated Other Changes in Equity from Nonowner
Sources" for the three-year period ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
ACCUMULATED
NET UNREALIZED FOREIGN OTHER CHANGES
GAINS ON CURRENCY IN EQUITY FROM
INVESTMENT TRANSLATION NONOWNER
IN MILLIONS OF DOLLARS SECURITIES ADJUSTMENT SOURCES
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 132 $(437) $(305)
Unrealized gains on investment securities,
net of tax of $381 680 680
Less: Reclassification adjustment for gains
included in net income, net of tax of $(74) (136) (136)
Foreign currency translation adjustment, net of tax of $8 (49) (49)
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
CURRENT PERIOD CHANGE 544 (49) 495
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
BALANCE, DECEMBER 31, 1996 676 (486) 190
Unrealized gains on investment securities,
net of tax of $189 293 293
Less: Reclassification adjustment for gains
included in net income, net of tax of $(234) (434) (434)
Foreign currency translation adjustment, net of tax of $14 (140) (140)
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
CURRENT PERIOD CHANGE (141) (140) (281)
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
BALANCE, DECEMBER 31, 1997 535 (626) (91)
Unrealized losses on investment securities,
net of tax of $(147) (237) (237)
Less: Reclassification adjustment for gains
included in net income, net of tax of $(183) (341) (341)
Foreign currency translation adjustment, net of tax of $3 44 44
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
CURRENT PERIOD CHANGE (578) 44 (534)
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
BALANCE, DECEMBER 31, 1998 $ (43) $(582) $(625)
- -------------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
16. EMPLOYEE BENEFITS
Prior to its merger with Travelers, Citicorp had several non-contributory
defined benefit pension plans covering substantially all U.S. employees. On
December 31, 1998, the qualified U.S. plan was merged with the Travelers
qualified U.S. plan. Following the merger of the qualified plans, plan assets
of the combined plan may be used to fund the pension benefits of any
Citigroup qualified plan participant. Citicorp also has various defined
benefit pension and termination indemnity plans covering employees outside
the United States and offers postretirement health care and life insurance
benefits to all eligible U.S. retired employees as well as to certain
employees outside the United States.
F-21
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize the components of net benefit expense recognized
in the Consolidated Statement of Income and the funded status and amounts
recognized in the Consolidated Balance Sheet for U.S. plans and significant
plans outside the United States.
NET BENEFIT EXPENSE
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION PLANS BENEFIT PLANS (1)
---------------------------------------------------------------------------------------
U.S. PLANS PLANS OUTSIDE U.S. U.S. PLANS
---------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Benefits earned during the year $ 136 $ 118 $ 123 $ 57 $ 56 $ 60 $ 11 $ 10 $ 11
Interest cost on benefit
obligation 228 204 192 79 75 76 30 30 32
Expected return on plan assets (298) (260) (231) (72) (64) (59) (13) (10) (7)
Amortization of unrecognized:
Net transition (asset)
obligation (17) (20) (20) 3 6 7 - - -
Prior service cost 17 13 12 - - 1 - (1) -
Net actuarial loss 5 3 20 3 2 3 - - 1
Curtailment loss (15) - - 2 - - - - -
---------------------------------------------------------------------------------------
NET BENEFIT EXPENSE $ 56 $ 58 $ 96 $ 72 $ 75 $ 88 $ 28 $ 29 $ 37
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For plans outside the U.S., net postretirement benefit expense totaled
$10 million in 1998, $8 million in 1997, and $6 million in 1996.
- --------------------------------------------------------------------------------
F-22
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PREPAID BENEFIT COST (BENEFIT LIABILITY)
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION PLANS BENEFIT PLANS (3)
------------------------------------------------------------------------------------
U.S. PLANS (1) PLANS OUTSIDE U.S. (2) U.S. PLANS
------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation
at beginning of year $3,128 $2,815 $1,139 $1,125 $ 440 $ 459
Benefits earned during the year 136 118 57 56 11 10
Interest cost on benefit obligation 228 204 79 75 30 30
Plan amendments 31 3 3 (10) 3 (6)
Actuarial loss 255 66 127 52 9 (25)
Benefits paid (84) (78) (65) (56) (30) (28)
Acquisitions - - 27 - - -
Curtailment (15) - (7) - - -
Foreign exchange impact - - 47 (103) - -
------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $3,679 $3,128 $1,407 $1,139 $ 463 $ 440
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Plan assets at fair value
at beginning of year $3,709 $3,118 $ 798 $ 763 $ 159 $ 119
Actual return on plan assets 611 618 97 76 27 25
Company contributions 10 51 138 45 30 43
Employee contributions - - 5 5 - -
Acquisitions - - 24 - - -
Benefits paid (84) (78) (52) (49) (30) (28)
Foreign exchange impact - - 25 (42) - -
------------------------------------------------------------------------------------
PLAN ASSETS AT FAIR VALUE
AT END OF YEAR $4,246 $3,709 $1,035 $ 798 $ 186 $ 159
- -------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF PREPAID (ACCRUED)
BENEFIT COST AND TOTAL AMOUNT
RECOGNIZED
Funded status of the plan $ 567 $ 581 $ (372) $ (341) $(277) $(281)
Unrecognized:
Net transition (asset) obligation (15) (32) 19 58 - -
Prior service cost 118 103 2 (1) (7) (11)
Net actuarial (gain) loss (288) (225) 110 69 (5) 1
------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 382 $ 427 $ (241) $ (215) $(289) $(291)
- -------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE
BALANCE SHEETS CONSIST OF
Prepaid benefit cost $ 613 $ 617 $ 69 $ 56 $ - $ -
Accrued benefit liability (271) (211) (337) (286) (289) (291)
Intangible asset 40 21 27 15 - -
------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 382 $ 427 $ (241) $ (215) $(289) $(291)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For unfunded U.S. plans, the aggregate benefit obligation was $374
million and $278 million, and the aggregate accumulated benefit obligation
was $257 million and $191 million at December 31, 1998 and 1997,
respectively.
(2) For plans outside the U.S., the aggregate benefit obligation was $1.176
billion and $992 million, and the fair value of plan assets was $732
million and $617 million at December 31, 1998 and 1997, respectively, for
plans whose benefit obligation exceeds plan assets. The aggregate
accumulated benefit obligation was $308 million and $332 million, and the
fair value of plan assets was $3 million and $87 million at December 31,
1998 and 1997, respectively, for plans whose accumulated benefit obligation
exceeds plan assets.
(3) For plans outside the U.S., the accumulated postretirement benefit
obligation was $96 million and $62 million and the postretirement benefit
liability was $33 million and $31 million at December 31, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
The expected long-term rates of return on assets used in determining pension and
postretirement expense are shown below.
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RATE OF RETURN ON ASSETS
U.S. Plans 9.0% 9.0% 9.0%
Plans Outside the U.S. (1) 4.0% TO 12.0% 4.5% to 13.0% 6.0% to 13.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excluding highly inflationary countries.
- --------------------------------------------------------------------------------
F-23
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The principal assumptions used in determining pension and postretirement benefit
obligations are shown below.
<TABLE>
<CAPTION>
AT YEAR-END 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DISCOUNT RATE
U.S. Plans 6.75% 7.25%
Plans Outside the U.S. (1) 3.0% TO 12.0% 3.5% to 12.0%
FUTURE COMPENSATION INCREASE RATE
U.S. Plans 4.5% 5.0%
Plans Outside the U.S. (1) 1.5% TO 10.0% 1.0% to 10.0%
HEALTH CARE COST INCREASE RATE -- U.S. PLANS
Following Year 7.0% 8.0%
Decreasing to the Year 2001 to 5.0% 5.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excluding highly inflationary countries.
- --------------------------------------------------------------------------------
As an indicator of sensitivity, increasing the assumed health care cost trend
rate by 1% in each year would have increased the accumulated postretirement
benefit obligation as of December 31, 1998 by $17 million and the aggregate of
the benefits earned and interest components of 1998 net postretirement benefit
expense by $2 million. Decreasing the assumed health care cost trend rate by 1%
in each year would have decreased the accumulated postretirement benefit
obligation as of December 31, 1998 by $18 million and the aggregate of the
benefits earned and interest components of 1998 net postretirement benefit
expense by $2 million.
SAVINGS INCENTIVE PLAN
Under the Savings Incentive Plan, eligible employees receive awards equal to 3%
of their covered salary. Employees have the option of receiving their award in
cash or deferring some or all of it in various investment funds. Citicorp grants
an additional award equal to the amount elected to be deferred by the employee.
Several investment options are available, including Citigroup common stock.
Shares of Citigroup common stock delivered under the Savings Incentive Plan may
be sourced from authorized but unissued shares, treasury shares, or purchased in
the open market. The expense associated with the plan amounted to $110 million
in 1998, $101 million in 1997, and $95 million in 1996.
RESTRICTED STOCK PLAN
Shares of restricted stock have been awarded to key executives contingent upon
their continued employment over periods of up to 11 years. The value of the
restricted shares at the date of grant is recorded as a reduction of surplus and
amortized to expense over the restriction period. The expense associated with
restricted stock awards was $31 million in 1998, $13 million in 1997, and $4
million in 1996.
STOCK OPTION PLANS
Citicorp participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to officers
and key employees, and prior to the merger maintained employee stock option and
stock purchase plans which have been adjusted into Citigroup shares at the 2.5
share exchange ratio. Citicorp applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for stock-based
compensation plans under which there is generally no charge to earnings for
employee stock option awards (other than performance-based options).
Options granted in 1995 and 1996 by Citicorp prior to the merger with Travelers
included five-year performance-based stock options granted to key Citicorp
employees. Performance-based options granted in 1995 and 1996 were at prices
ranging from equivalent Citigroup stock prices of $25.95 to $28.05, equal to
Citicorp market prices on the respective dates of grant, and expire in 2000 and
2001. One-half vested in 1996 when Citicorp's stock price reached an equivalent
Citigroup stock price of $40 per share, and the balance vested in 1997 when such
price reached $46 per share.
During 1998, a group of key Citicorp employees was granted 6,340,000
performance-based stock options at an equivalent Citigroup strike price of
$48.25. The performance-based options will vest when Citigroup's common stock
price reaches $80 per share, provided that the price remains at or above $80 for
ten of thirty consecutive trading days. The performance-based options expire in
January 2003.
F-24
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Vesting and expense related to performance-based options are summarized in the
following table (all options are equivalent Citigroup options).
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Vested During the Year -- 5,984,375 (1) 6,068,750(1)
Expense Recognized for All Grants (in millions) $70 $72 $113
Options Unvested at Year-End 6,050,000 (2) -- 6,059,375 (1)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Relates to 1995 and 1996 grants.
(2) Relates to 1998 grants.
- --------------------------------------------------------------------------------
The cost of performance-based options is measured as the difference between
the exercise price and market price required for vesting, and this expense is
recognized over the period to the estimated vesting dates and in full for
options that have vested, by a charge to expense with an offsetting increase
in common stockholder's equity. All of the expense related to vested grants
has been recognized.
FASB rules permit an alternative method of accounting for stock option awards
under which a compensation cost for all stock awards would be calculated and
recognized over the service period (generally equal to the vesting period). This
compensation cost would be determined in a manner prescribed by the FASB using
option pricing models, intended to estimate the fair value of the awards at the
grant date. Under both methods, an offsetting increase to stockholder's equity
is recorded equal to the amount of compensation expense charged.
The following table compares compensation expense recorded for stock option
awards and net income as reported by Citicorp with corresponding pro forma
amounts as if the alternative accounting permitted by the FASB had been used.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS AS REPORTED PRO FORMA As Reported Pro Forma As Reported Pro Forma
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Compensation expense related
to stock option plans $ 70 $ 204 $ 72 $ 147 $ 113 $ 66
Net income 2,810 2,700 3,609 3,539 3,800 3,825
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of regular options granted under option plans in
1998 after the Citigroup merger date was $11.40, and the weighted average fair
value of regular options granted under Citicorp's option plans prior to the
merger date (equivalent Citigroup options) during 1998, 1997, and 1996 was
$12.88, $12.60, and $6.59, respectively. The weighted average fair value of the
1998 performance options was $9.62 per share, and the weighted average fair
value of the 1997 stock purchase offering was $6.71 per share. The weighted
average expected life of options granted after the Citigroup merger date was
three years, and the weighted average expected life of options granted under
Citicorp's option plan prior to the merger date was six years for regular
options, five years for the 1998 performance options, and two years for the 1997
stock purchase offering. Additional valuation and related assumption information
are presented in the table on the next page.
F-25
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES FOR
OPTIONS GRANTED 1998 POST-MERGER 1998 PRE-MERGER 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VALUATION ASSUMPTIONS
Expected volatility 38.8% 25.0% 25.0% 25.0%
Risk-free interest rate 4.40% 5.82% 6.30% 5.58%
Expected annual dividend 1.38% 2.35% 2.39% 3.27%
Expected annual forfeitures 5.0% 5.0% 5.0% 5.0%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEFERRED COMPENSATION PLAN
Under the Deferred Compensation Plan, adopted in 1995, participants must defer
25% of their variable compensation awards into mandatory deferral accounts whose
return equals the return on Citigroup common stock. Beginning with the 1996
awards, select participants are allowed to defer from 10% to 85% of the
remainder of their variable compensation awards into voluntary deferral
accounts, which may be allocated among a variety of investments, including an
account whose return equals the return on Citigroup common stock. The amounts
credited to the mandatory deferral accounts generally are payable to the
participant in cash five years after they are credited. However, participants
may elect to postpone cash distribution of the amounts in the mandatory deferral
account by having such amounts credited to a voluntary deferral account.
17. DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
BALANCE SHEET
NOTIONAL PRINCIPAL AMOUNTS CREDIT EXPOSURE (1)
---------------------------------------------------------------
IN BILLIONS OF DOLLARS AT YEAR-END 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE PRODUCTS
Futures Contracts $ 150.1 $ 139.1 $ -- $ --
Forward Contracts 345.2 282.7 0.3 0.1
Swap Agreements 841.1 627.0 15.8 9.5
Purchased Options 95.8 105.7 2.0 1.2
Written Options 114.9 143.8 -- --
FOREIGN EXCHANGE PRODUCTS
Futures Contracts 1.9 0.9 -- --
Forward Contracts 1,590.9 1,317.0 25.9 28.8
Cross-Currency Swaps 78.4 58.9 3.8 3.3
Purchased Options 174.8 163.3 4.6 3.7
Written Options 192.1 184.2 -- --
EQUITY PRODUCTS 80.6 61.6 4.0 2.0
COMMODITY PRODUCTS 10.9 14.7 0.8 0.8
CREDIT DERIVATIVE PRODUCTS 25.9 6.9 0.2 --
--------------------------------
57.4 49.4
EFFECTS OF MASTER NETTING AGREEMENTS (2) (29.1) (24.1)
EFFECTS OF SECURITIZATION (3) (2.7) (0.8)
--------------------------------
$ 25.6 $ 24.5
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no balance sheet credit exposure for futures contracts because
they settle daily in cash, and none for written options because they
represent obligations (rather than assets) of Citicorp.
(2) Master netting agreements mitigate credit risk by permitting the offset of
amounts due from and to individual counterparties in the event of
counterparty default.
(3) 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.
- --------------------------------------------------------------------------------
Citicorp enters into derivative and foreign exchange futures, forwards, options,
and swaps, which enable customers to transfer, modify, or reduce their interest
rate, foreign exchange, and other market risks, and also trades these products
for its own account. In addition, Citicorp uses derivatives and other
instruments, primarily interest rate products, as an end-user in connection with
its risk management activities. Derivatives are used to manage interest rate
risk relating to specific groups of on-balance sheet assets and liabilities,
including commercial and consumer loans, deposit liabilities,
F-26
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
long-term debt, and other interest-sensitive assets and liabilities, as well as
credit card securitizations. In addition, foreign exchange contracts are used to
hedge net capital exposures and foreign exchange transactions. Through the
effective use of derivatives, Citicorp has been able to modify the volatility of
its revenue from asset and liability positions. The preceding table presents the
aggregate notional principal amounts of Citicorp's outstanding derivative and
foreign exchange contracts at December 31, 1998 and 1997, along with the related
balance sheet credit exposure. The table includes all contracts with third
parties, including both trading and end-user positions.
Futures and forward contracts are commitments to buy or sell at a future date a
financial instrument, commodity, or currency at a contracted price, and may be
settled in cash or through delivery. Swap contracts are commitments to settle in
cash at a future date or dates, based on differentials between specified
financial indices, as applied to a notional principal amount. Option contracts
give the purchaser, for a fee, the right, but not the obligation, to buy or sell
within a limited time a financial instrument or currency at a contracted price
that may also be settled in cash, based on differentials between specified
indices.
Market risk on a derivative or foreign exchange product is the exposure created
by potential fluctuations in interest rates, foreign exchange rates, and other
values, and is a function of the type of product, the volume of transactions,
the tenor and terms of the agreement, and the underlying volatility. Credit risk
is the exposure to loss in the event of nonperformance by the other party to the
transaction. The recognition in earnings of unrealized gains on these
transactions is subject to management's assessment as to collectibility.
Liquidity risk is the potential exposure that arises when the size of the
derivative position may not be able to be rapidly adjusted in times of high
volatility and financial stress at a reasonable cost.
Balance sheet credit exposure represents the current cost of replacing the
contracts and is equal to the amount of Citicorp's unrealized gain. A
substantial majority of the total balance sheet exposure was to counterparties
considered by Citicorp to be investment grade and was under three years tenor.
The balance sheet credit exposure of foreign currency derivative contracts for
which the recognition of revaluation gains had been suspended amounted to $14
million and $59 million, respectively, at December 31,1998 and 1997. For the
three years ended December 31, 1998 there were no material credit losses related
to derivative and foreign exchange contracts. During 1998 and 1997, credit
losses related to foreign currency derivative contracts totaled $154 million and
$35 million, respectively. Recoveries in 1998 were $16 million.
END-USER DERIVATIVE INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
NOTIONAL
PRINCIPAL AMOUNTS PERCENTAGE OF 1998 AMOUNT MATURING
------------------------------------------------------------------------------------
DEC. 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 $ 28.1 $ 29.3 78% 16% 3% 2% 1% --%
Forward Contracts 6.5 6.9 100 -- -- -- -- --
Swap Agreements 96.5 106.0 39 11 10 6 11 23
Option Contracts 9.7 20.1 47 21 8 5 3 16
FOREIGN EXCHANGE PRODUCTS
Futures and Forward Contracts 62.1 62.4 95 3 1 1 -- --
Cross-Currency Swaps 4.6 3.4 5 15 9 19 38 14
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-27
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
END-USER INTEREST RATE SWAPS AND NET PURCHASED OPTIONS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
REMAINING CONTRACTS OUTSTANDING
NOTIONAL PRINCIPAL AMOUNTS
---------------------------------------------------------------
IN BILLIONS OF DOLLARS AT YEAR-END 1998 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS $62.0 $49.4 $40.6 $31.9 $26.4 $16.6
Weighted-Average Fixed Rate 6.4% 6.4% 6.4% 6.4% 6.4% 6.7%
PAY FIXED SWAPS 20.0 9.4 8.0 6.8 6.3 5.2
Weighted-Average Fixed Rate 6.0% 6.3% 6.3% 6.4% 6.4% 6.4%
Basis Swaps 14.5 0.4 0.3 0.2 0.2 0.2
PURCHASED CAPS (INCLUDING COLLARS) 4.0 1.7 -- -- -- --
Weighted-Average Cap Rate Purchased 6.8% 7.0% --% --% --% --%
PURCHASED FLOORS 2.9 0.7 0.7 0.1 0.1 0.1
Weighted-Average Floor Rate Purchased 4.9% 5.1% 5.1% 5.8% 5.8% 5.8%
WRITTEN FLOORS RELATED TO PURCHASED CAPS (COLLARS) 0.3 0.3 -- -- -- --
Weighted-Average Floor Rate Written 6.5% 6.0% --% --% --% --%
WRITTEN CAPS RELATED TO OTHER PURCHASED CAPS (1) 2.5 2.4 2.4 2.2 1.7 1.4
Weighted-Average Cap Rate Written 9.8% 9.8% 9.8% 9.8% 10.6% 10.7%
- -------------------------------------------------------------------------------------------------------------------------
THREE-MONTH FORWARD LIBOR RATES (2) 5.1% 5.3% 5.3% 5.4% 5.5% 5.7%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes written options related to purchased options embedded in other
financial instruments.
(2) Represents the implied forward yield curve for three-month LIBOR as of
December 31, 1998, provided for reference.
- --------------------------------------------------------------------------------
The tables above 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 year-end 1998 with
three-month LIBOR forward rates included for reference. The tables are intended
to provide an overview of these components of the end-user portfolio, but should
be viewed only in the context of Citicorp's related assets and liabilities.
Contract maturities are related to the underlying risk management strategy.
The majority of derivative positions used in Citicorp's asset and liability
management activities are established via intercompany transactions with
independently managed Citicorp dealer units, with the dealer acting as a conduit
to the marketplace.
Citicorp's utilization of these instruments is modified from time to time in
response to changing market conditions as well as changes in the characteristics
and mix of the related assets and liabilities. In this connection, during 1998
interest rate futures, swaps and options with a notional principal amount of
$18.6 billion were closed out which resulted in a net deferred gain of
approximately $281 million. Total unamortized net deferred gains, including
those from prior year close-outs, were approximately $217 million at December
31, 1998, which will be amortized into earnings over the remaining life of the
original contracts (approximately 49% in 1999, 39% in 2000, and 12% in
subsequent years), consistent with the risk management strategy.
18. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic, industry or
geographic factors similarly affect groups of counterparties whose aggregate
credit exposure is material in relation to Citicorp's total credit exposure.
Although Citicorp's portfolio of financial instruments is broadly diversified
along industry, product, and geographic lines, material transactions are
completed with other financial institutions, particularly in the securities
trading, derivative, and foreign exchange businesses. Additionally, U.S. credit
card receivables represent an area of significant credit exposure.
F-28
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
ESTIMATED Estimated
FAIR VALUE IN Fair Value In
EXCESS OF Excess of
(LESS THAN) (Less Than)
CARRYING ESTIMATED CARRYING Carrying
IN BILLIONS OF DOLLARS AT YEAR-END VALUE FAIR VALUE VALUE Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $318.1 $325.0 $ 6.9 $ 6.2
Liabilities 311.9 312.5 (0.6) --
End-user derivative and foreign exchange contracts 0.6 2.3 1.7 0.7
Credit card securitizations -- (0.6) (0.6) (0.3)
--------------------------------
Subtotal 7.4 6.6
Deposits with no fixed maturity (1) 2.8 3.3
--------------------------------
Total $10.2 $ 9.9
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 at year-end, without assuming any regeneration of balances,
based on the estimated difference between the cost of funds on these
deposits and the cost of funds from alternative sources. The decrease
during 1998 was primarily due to lower spreads between the cost of funds on
the deposits and the cost of funds from alternative sources. Under
applicable requirements, excess fair values of these deposits are excluded
from amounts included under the Liabilities caption above and from the
following table, in which the estimated fair value is shown as being equal
to the carrying value.
- --------------------------------------------------------------------------------
Citicorp's financial instruments, as defined in accordance with applicable
requirements, include 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 above also provides estimated
fair value data for the expected time period until runoff of existing deposits
with no fixed maturity.
In the aggregate, estimated fair values exceeded the carrying values by
approximately $10.2 billion at December 31, 1998 and $9.9 billion at December
31, 1997. Fair values vary from period to period based on changes in a wide
range of factors, including interest rates, credit quality, and market
perceptions of value, and as existing assets and liabilities run off and new
items are entered into. The changes from the prior year are primarily due to a
higher value of derivative contracts and loans due to a lower interest rate
environment in the U.S. and certain markets outside the U.S., offset by a
decline in the fair value of deposits, deposits with no fixed maturity,
long-term debt and credit card securitizations as a result of the same interest
rate environment.
Additional detail is provided in the following table. In accordance with
applicable requirements, the disclosures exclude leases, affiliate investments,
and pension and benefit obligations. Also in accordance with the applicable
requirements the disclosures also exclude the effect of taxes, do not reflect
any premium or discount that could result from offering for sale at one time the
entire holdings of a particular instrument, as well as other expenses that would
be incurred in a market transaction. In addition, the table excludes the values
of nonfinancial assets and liabilities, as well as a wide range of franchise,
relationship, and intangible values, which are integral to a full assessment of
Citicorp's financial position and the value of its net assets.
The data represents management's best estimates based on a range of
methodologies and assumptions. The carrying value of short-term financial
instruments as well as receivables and payables arising in the ordinary course
of business, approximates fair value because of the relatively short period of
time between their origination and expected realization. Quoted market prices
are used for most investments, for loans where available, and for both trading
and end-user derivative and foreign exchange contracts, as well as for
liabilities, such as long-term debt, with quoted prices. For performing loans
where no quoted market prices are available, contractual cash flows are
discounted at quoted secondary market rates or estimated market rates if
available. Otherwise, sales of comparable loan portfolios or current market
origination rates for loans with similar terms and risk characteristics are
used. For loans with doubt as to collectibility, expected cash flows are
discounted using an appropriate rate considering the time of collection and a
premium for the uncertainty of the flows. The value of collateral is also
considered. For liabilities such as long-term debt without quoted market prices,
market borrowing rates of interest are used to discount contractual cash flows.
F-29
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair values of credit card securitizations reflect the various components of
these transactions but principally arise from fixed rates payable to certificate
holders. Under the applicable requirements, the estimated fair value of deposits
with no fixed maturity in the following table excludes the premium values
available in the market for such deposits, and the estimated value is shown in
the table as being equal to the carrying value.
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
IN BILLIONS OF DOLLARS AT YEAR-END VALUE VALUE Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS AND RELATED INSTRUMENTS
Securities $ 43.7 $ 43.7 $ 33.4 $ 33.4
Trading account assets 33.7 33.7 40.4 40.4
Loans (1) 196.0 203.0 173.5 179.6
Related derivatives 0.2 0.6 0.3 0.5
Other financial assets (2) 44.7 44.6 43.1 43.2
Credit card securitizations - (0.6) - (0.3)
Related derivatives 0.1 0.5 0.5 0.5
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND RELATED INSTRUMENTS
Deposits 225.8 226.0 199.1 198.9
Related derivatives (0.3) (0.6) (0.4) (0.7)
Trading account liabilities 30.2 30.2 31.0 31.0
Long-term debt 20.6 21.2 19.8 20.2
Related derivatives (0.1) (0.7) (0.2) (0.5)
Other financial liabilities (3) 35.3 35.1 30.9 30.7
Related derivatives 0.1 0.1 - 0.1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The carrying value of loans is net of the allowance for credit losses and
also excludes $4.8 billion and $4.7 billion of lease finance receivables in
1998 and 1997, respectively.
(2) Includes cash and due from banks, deposits at interest with banks, federal
funds sold and securities purchased under resale agreements, and customers'
acceptance liability, for which the carrying value is a reasonable estimate
of fair value, and the carrying value and estimated fair value of loans
held for sale, interest and fees receivable, and financial instruments
included in other assets on the balance sheet.
(3) Includes acceptances outstanding, for which the carrying value is a
reasonable estimate of fair value, and the carrying value and estimated
fair value of purchased funds and other borrowings, and financial
instruments included in accrued taxes and other expense, and other
liabilities on the balance sheet.
- --------------------------------------------------------------------------------
The estimated fair values of loans reflect changes in credit status since the
loans were made, changes in interest rates in the case of fixed-rate loans, and
premium values at origination of certain loans. The estimated fair values of
Citicorp's loans, in the aggregate, exceeded carrying values (reduced by the
allowance for credit losses) by $7.0 billion at year-end 1998 compared with $6.1
billion at year-end 1997, an improvement of $0.9 billion. Within these totals,
estimated fair values exceeded carrying values for consumer loans net of the
allowance by $4.2 billion, an improvement of $1.1 billion from year-end 1997,
and for commercial loans net of the allowance by $2.8 billion, which was a
decline of $0.2 billion from year-end 1997.
The improvement in estimated fair values in excess of carrying values of
consumer loans primarily reflects the acquisition of the UCS portfolio and lower
interest rates in the U.S. and certain countries in the Asia Pacific region,
slightly offset by a decline in the credit quality of loans in Latin America.
The estimated fair values in excess of carrying values of commercial loans
declined slightly from year-end 1997 due to a decline in the credit quality of
loans in Latin America.
The estimated fair value of credit card securitizations was $0.6 billion less
than their carrying value at December 31, 1998, which is $0.3 billion lower than
December 31, 1997, when the carrying value also exceeded the estimated fair
value by $0.3 billion. This decrease is due to the effects of a lower interest
rate environment on the fixed-rate investor certificates.
The decline in the estimated fair value of interest-bearing deposits and
long-term debt reflects lower market interest rates since the deposits were
taken or the debt was issued.
For all derivative and foreign exchange contracts in the previous tables, the
gross difference between the fair value and carrying amount as of December 31,
1998 and 1997 was $2.1 billion and $1.3 billion, respectively, for contracts
whose
F-30
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fair value exceeds carrying value, and $0.4 billion and $0.6 billion at December
31, 1998 and 1997, respectively, for contracts whose carrying value exceeds fair
value.
20. PLEDGED ASSETS AND COMMITMENTS
PLEDGED ASSETS
At December 31, 1998, certain investment securities, trading account assets, and
other assets with a carrying value of $20.6 billion were pledged as collateral
for borrowings, to secure public and trust deposits, and for other purposes.
LOAN COMMITMENTS
<TABLE>
<CAPTION>
IN BILLIONS OF DOLLARS AT YEAR-END 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unused Commercial Commitments to Make or Purchase Loans,
to Purchase Third-Party Receivables, and to Provide Note Issuance
or Revolving Underwriting Facilities $130.5 $107.0
Unused Credit Card and Other Consumer Revolving Commitments 214.4 126.8
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase during 1998 in unused credit card and other consumer revolving
commitments resulted primarily from the acquisition of UCS.
The majority of unused commitments are contingent upon customers maintaining
specific credit standards. Commercial commitments generally have floating
interest rates and fixed expiration dates and may require payment of fees. Such
fees (net of certain direct costs) are deferred and, upon exercise of the
commitment, amortized over the life of the loan or, if exercise is deemed
remote, amortized over the commitment period. The table does not include
commercial letters of credit issued on behalf of customers and collateralized by
the underlying shipment of goods which totaled $5.3 billion at December 31, 1998
and $5.8 billion at December 31, 1997.
LOANS SOLD WITH CREDIT ENHANCEMENTS
<TABLE>
<CAPTION>
AMOUNTS
--------------------------------
IN BILLIONS OF DOLLARS AT YEAR-END 1998 1997 FORM OF CREDIT ENHANCEMENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential Mortgages and Recourse obligation $2.0 in 1998
Other Loans Sold with Recourse (1) $ 4.1 $ 8.1 and $4.7 in 1997
GNMA Sales/Servicing Agreements (2) 1.0 1.0 Secondary recourse obligation
Securitized Credit Card Receivables 44.1 26.8 Net revenue over the life of the
transaction
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Residential mortgages represent 84% of amounts in 1998 and 92% in 1997.
(2) Government National Mortgage Association sales/servicing agreements
covering securitized residential mortgages.
- --------------------------------------------------------------------------------
Citicorp and its subsidiaries are obligated under various credit enhancements
related to certain sales of loans or sales of participations in pools of loans,
summarized above.
Net revenue on securitized credit card receivables is realized over the life of
each sale transaction. The net revenue is based upon the sum of finance charges
and fees received from cardholders and interchange revenue earned on cardholder
transactions, less the sum of the yield paid to investors, credit losses,
transaction costs, and a contractual servicing fee, which is also retained by
certain Citicorp subsidiaries as servicers. As specified in certain of the sale
agreements, the net revenue collected each month is deposited in an account, up
to a predetermined maximum amount, and is available over the remaining term of
that transaction to make payments of yield, fees, and transaction costs in the
event that net cash flows from the receivables are not sufficient. When the
account reaches the predetermined amount, net revenue is passed directly to the
Citicorp subsidiary that sold the receivables. The amount contained in these
accounts is included in other assets and was $30 million at December 31, 1998
and $20 million at December 31, 1997. Net revenue from securitized credit card
receivables included in Other Revenue was $1.3 billion, $559 million, and $907
million for the years ended December 31, 1998, 1997, and 1996.
F-31
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STANDBY LETTERS OF CREDIT
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
EXPIRE EXPIRE TOTAL AMOUNT Total Amount
IN BILLIONS OF DOLLARS AT YEAR-END WITHIN 1 YEAR AFTER 1 YEAR OUTSTANDING Outstanding
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL
Insurance, Surety $ 2.0 $ 4.7 $ 6.7 $ 7.4
Options, Purchased Securities, and Escrow 0.7 0.1 0.8 1.0
Clean Payment 1.9 0.4 2.3 1.5
Backstop State, County, and Municipal Securities 0.3 0.2 0.5 0.7
Other Debt Related 4.6 1.9 6.5 6.2
PERFORMANCE 5.0 1.6 6.6 5.1
---------------------------------------------------------------
TOTAL (1) $14.5 $8.9 $23.4 $21.9
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total is net of cash collateral of $2.1 billion in 1998 and $1.6 billion
in 1997. Collateral other than cash covered 20% of the total in 1998 and
21% in 1997.
- --------------------------------------------------------------------------------
Standby letters of credit, summarized above, are used in various transactions to
enhance the credit standing of Citibank customers. They represent irrevocable
assurances that Citibank will make payment in the event that the customer fails
to fulfill its obligations to third parties. Financial standby letters of credit
are obligations to pay a third-party beneficiary when a customer fails to repay
an outstanding loan or debt instrument, such as assuring payments by a foreign
reinsurer to a U.S. insurer, to act as a substitute for an escrow account, to
provide a payment mechanism for a customer's third-party obligations, and to
assure payment of specified financial obligations of a customer. Performance
standby letters of credit are obligations to pay a third-party beneficiary when
a customer fails to perform a nonfinancial contractual obligation, such as to
ensure contract performance or irrevocably assure payment by the customer under
supply, service and maintenance contracts or construction projects. Fees are
recognized ratably over the term of the standby letter of credit. The table does
not include securities lending indemnifications issued to customers, which are
fully collateralized and totaled $11.1 billion at December 31, 1998 and $9.8
billion at December 31, 1997.
LEASE COMMITMENTS
Citicorp and its subsidiaries are obligated under a number of non-cancelable
leases for premises and equipment. Minimum rental commitments on non-cancelable
leases were in the aggregate $2.6 billion, and for each of the five years
subsequent to December 31, 1998, were $418 million (1999), $351 million (2000),
$319 million (2001), $263 million (2002), and $238 million (2003). The minimum
rental commitments do not include minimum sublease rentals under non-cancelable
subleases of $74 million. Most of the leases have renewal or purchase options
and escalation clauses. Rental expense was $656 million in 1998, excluding $56
million of sublease rental income, $605 million in 1997, excluding $68 million
of sublease rental income, and $585 million in 1996, excluding $79 million of
sublease rental income.
21. CONTINGENCIES
In the ordinary course of business, Citicorp and its subsidiaries are defendants
or co-defendants in various litigation matters. Although there can be no
assurances, the Company believes, based on information currently available, that
the ultimate resolutions of these legal proceedings would not be likely to have
a material adverse effect on its results of operations, financial condition or
liquidity.
22. STOCKHOLDER'S EQUITY OF CITIBANK, N.A.
CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $16,998 $16,110 $14,766
Net Income 1,700 2,652 2,755
Dividends (500) (1,750) (2,300)
Contributions from Parent 1,744 50 57
Change in Net Unrealized Gains on Securities Available for Sale (458) (243) 533
Foreign Currency Translation 40 (112) (31)
Other 208 291 330
------------------------------------------------
BALANCE AT END OF YEAR $19,732 $16,998 $16,110
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-32
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Citibank's net income for 1998 of $1.7 billion includes an after tax
restructuring charge of $504 million ($802 million pretax) related to exit costs
associated with business improvement and integration initiatives to be
implemented over a 12 to 18 month period. 1997 net income of $2.7 billion
includes an after-tax restructuring charge of $379 million ($585 million pretax)
related to cost management programs and customer service initiatives to improve
operational efficiency and productivity. See Note 12 for further discussions.
Authorized capital stock of Citibank was 40 million shares at December 31, 1998,
1997, and 1996.
23. CITICORP (PARENT COMPANY ONLY)
The Parent Company is a legal entity separate and distinct from Citibank, N.A.
and its other subsidiaries and affiliates. There are various legal limitations
on the extent to which Citicorp's banking subsidiaries may extend credit, pay
dividends or otherwise supply funds to Citicorp. The approval of the Office of
the Comptroller of the Currency is required if total dividends declared by a
national bank in any calendar year exceed net profits (as defined) for that year
combined with its retained net profits for the preceding two years. In addition,
dividends for such a bank may not be paid in excess of the bank's undivided
profits. State-chartered bank subsidiaries are subject to dividend limitations
imposed by applicable state law. Citicorp's national and state-chartered bank
subsidiaries can declare dividends to their respective parent companies in 1999,
without regulatory approval, of approximately $3.0 billion, adjusted by the
effect of their net income (loss) for 1999 up to the date of any such dividend
declaration. 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 its bank subsidiaries can
distribute dividends to Citicorp of approximately $2.5 billion of the available
$3.0 billion, adjusted by the effect of their net income (loss) up to the date
of any such dividend declaration.
Citicorp also receives dividends from its nonbank subsidiaries. These nonbank
subsidiaries are generally not subject to regulatory restrictions on their
payment of dividends except that the approval of the Office of Thrift
Supervision (OTS) may be required if total dividends declared by a savings
association in any calendar year exceed amounts specified by that agency's
regulations.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Dividends from Subsidiary Banks and Bank Holding Companies $1,475 $2,400 $3,350
Dividends from Other Subsidiaries 320 19 149
Interest from Subsidiaries 871 784 789
Other Revenue (1) 116 92 67
------------------------------------------------
2,782 3,295 4,355
------------------------------------------------
EXPENSE
Interest on Other Borrowed Funds 108 119 101
Interest and Fees Paid to Subsidiaries 245 210 126
Interest on Long-Term Debt 901 844 890
Other Expense 52 12 22
------------------------------------------------
1,306 1,185 1,139
------------------------------------------------
INCOME BEFORE TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,476 2,110 3,216
Income Tax Benefit -- Current 69 77 88
Equity in Undistributed Income of Subsidiaries 1,265 1,422 496
------------------------------------------------
NET INCOME $2,810 $3,609 $3,800
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net securities gains of $95 million in 1998, $56 million in 1997,
and $13 million in 1996.
- --------------------------------------------------------------------------------
F-33
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Deposits with Subsidiary Banks, Principally Interest-Bearing $ 1,466 $ 2,631
Securities -- Available for Sale 857 1,319
Investments in and Advances to:
Subsidiary Banks and Bank Holding Companies 30,898 27,113
Other Subsidiaries 5,349 8,428
Other Assets 2,079 609
-----------------------------------
TOTAL $40,649 $40,100
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Purchased Funds and Other Borrowings $ 221 $ 2,091
Advance from Subsidiaries 94 81
Other Liabilities 1,283 1,530
Long-Term Debt 15,477 14,599
Junior Subordinated Debentures Held by Trusts 1,005 773
Stockholder's Equity 22,569 21,026
-----------------------------------
TOTAL $40,649 $40,100
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,810 $ 3,609 $ 3,800
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Equity in Undistributed Income of Subsidiaries (1,265) (1,422) (496)
Other, Net 146 (213) 29
------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,691 1,974 3,333
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities:
Purchases (883) (2,802) (3,216)
Sales 916 1,869 1,581
Maturities 500 1,525 1,175
Subsidiaries:
Investments and Advances (37,144) (39,841) (32,871)
Repayment of Advances 37,681 37,870 33,780
Net Increase in Loans (1,500) -- --
------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (430) (1,379) 449
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchased Funds and Other Borrowings:
Proceeds 6,670 5,820 5,483
Repayments (8,540) (4,697) (5,980)
Advances from Subsidiaries:
Proceeds 59 111 98
Repayments (52) (231) (2)
Long-Term Debt:
Proceeds 2,219 4,163 2,470
Repayments (1,443) (2,690) (2,839)
Proceeds from Issuance of Junior Subordinated
Debentures Held by Trusts 232 464 309
Preferred Stock Redemptions (1,040) (175) --
Common Stock Issuance Proceeds 243 434 537
Treasury Stock Repurchases (483) (2,259) (3,069)
Capital Contribution from Parent Company 577 -- --
Dividends Paid (868) (1,105) (1,012)
------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,426) (165) (4,005)
------------------------------------------------
Net (Decrease) Increase in Deposits with Subsidiary Banks (1,165) 430 (223)
Deposits with Subsidiary Banks at Beginning of Year 2,631 2,201 2,424
------------------------------------------------
Deposits With Subsidiary Banks at End of Year $ 1,466 $ 2,631 $ 2,201
- -------------------------------------------------------------------------------------------------------------------------
Cash Paid During the Year for:
Interest $ 951 $ 912 $ 929
Income Taxes 837 1,367 794
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
24. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
4TH 3RD 2ND 1ST 4th 3rd 2nd 1st
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Revenue $ 3,269 $ 3,098 $ 2,995 $ 2,839 $ 2,859 $ 2,876 $ 2,863 $ 2,804
Fees, Commissions, and Other
Revenue 2,680 2,396 3,207 2,766 2,709 2,665 2,448 2,392
------------------------------------------------------------------------------------
TOTAL REVENUE 5,949 5,494 6,202 5,605 5,568 5,541 5,311 5,196
Provision for Credit Losses 574 736 564 507 486 486 512 423
Operating Expense (1) 5,230 3,903 3,878 3,389 3,403 4,223 3,168 3,164
------------------------------------------------------------------------------------
INCOME BEFORE TAXES 145 855 1,760 1,709 1,679 832 1,631 1,609
Income Taxes 35 323 660 641 616 311 604 611
------------------------------------------------------------------------------------
NET INCOME $ 110 $ 532 $ 1,100 $ 1,068 $ 1,063 $ 521 $ 1,027 $ 998
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $343,620 $343,340 $330,751 $330,414 $310,897 $300,381 $304,293 $290,354
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net restructuring charges (and in 1998 merger-related costs) of
$1,009 million pretax ($648 million after-tax) and $880 million pretax
($550 million after-tax) in the 1998 fourth quarter and 1997 third quarter,
respectively. In the fourth quarter of 1998, $38 million pretax ($24
million after-tax) of the 1997 reserve was released.
- --------------------------------------------------------------------------------
F-35
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL DATA SUPPLEMENT Citicorp and Subsidiaries
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS (1) (2)
AVERAGE VOLUME INTEREST REVENUE/EXPENSE % AVERAGE RATE
---------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME)(3)
Consumer Loans
In U.S. Offices $ 59,099 $ 56,260 $ 54,409 $ 6,101 $ 5,846 $ 5,774 10.32 10.39 10.61
In Offices Outside the U.S.(4) 51,664 51,274 51,282 6,385 6,308 6,489 12.36 12.30 12.65
----------------------------------------------------------
Total Consumer Loans 110,763 107,534 105,691 12,486 12,154 12,263 11.27 11.30 11.60
----------------------------------------------------------
Commercial Loans
In U.S. Offices
Commercial and Industrial 11,340 10,171 8,697 915 876 807 8.07 8.61 9.28
Mortgage and Real Estate 2,745 2,674 4,256 231 285 330 8.42 10.66 7.75
Loans to Financial
Institutions 324 499 481 27 40 36 8.33 8.02 7.48
Lease Financing 2,958 3,048 3,219 189 205 211 6.39 6.73 6.55
In Offices Outside the U.S.(4) 64,639 50,791 43,387 6,982 5,411 4,867 10.80 10.65 11.22
----------------------------------------------------------
Total Commercial Loans 82,006 67,183 60,040 8,344 6,817 6,251 10.17 10.15 10.41
----------------------------------------------------------
Total Loans 192,769 174,717 165,731 20,830 18,971 18,514 10.81 10.86 11.17
----------------------------------------------------------
FEDERAL FUNDS SOLD AND RESALE
AGREEMENTS
In U.S. Offices 6,929 6,973 8,774 284 354 460 4.10 5.08 5.24
In Offices Outside the U.S.(4) 5,415 5,633 3,730 454 518 442 8.38 9.20 11.85
----------------------------------------------------------
Total 12,344 12,606 12,504 738 872 902 5.98 6.92 7.21
----------------------------------------------------------
SECURITIES, AT FAIR VALUE
In U.S. Offices
Taxable 9,940 8,808 7,276 390 412 351 3.92 4.68 4.82
Exempt from U.S. Income Tax 2,959 2,619 1,708 189 170 110 6.39 6.49 6.44
In Offices Outside the U.S.(4) 24,628 20,729 15,189 2,442 1,661 1,342 9.92 8.01 8.84
----------------------------------------------------------
Total 37,527 32,156 24,173 3,021 2,243 1,803 8.05 6.98 7.46
----------------------------------------------------------
TRADING ACCOUNT ASSETS (5)
In U.S. Offices 4,801 4,901 5,662 298 289 333 6.21 5.90 5.88
In Offices Outside the U.S.(4) 9,850 9,928 11,413 764 725 979 7.76 7.30 8.58
----------------------------------------------------------
Total 14,651 14,829 17,075 1,062 1,014 1,312 7.25 6.84 7.68
----------------------------------------------------------
LOANS HELD FOR SALE, IN U.S.
OFFICES 4,507 3,571 -- 533 440 -- 11.83 12.32 --
DEPOSITS AT INTEREST WITH BANKS(4) 15,067 14,003 12,559 1,070 995 858 7.10 7.11 6.83
----------------------------------------------------------
Total Interest-Earning Assets 276,865 251,882 232,042 $27,254 $24,535 $23,389 9.84 9.74 10.08
----------------------------------------------------------
Non-Interest-Earning Assets (5) 52,471 42,915 38,112
-----------------------------
TOTAL ASSETS $329,336 $294,797 $270,154
- -------------------------------------------------------------------------------------------------------------------------
DEPOSITS
In U.S. Offices
Savings Deposits (6) $ 31,160 $ 27,149 $ 25,927 $ 918 $ 811 $ 756 2.95 2.99 2.92
Other Time Deposits 10,864 12,302 12,556 491 610 782 4.52 4.96 6.23
In Offices Outside the U.S.(4) 147,340 128,546 116,565 10,094 8,192 7,436 6.85 6.37 6.38
----------------------------------------------------------
Total 189,364 167,997 155,048 11,503 9,613 8,974 6.07 5.72 5.79
----------------------------------------------------------
TRADING ACCOUNT LIABILITIES (5)
In U.S. Offices 3,129 2,457 2,463 157 135 142 5.02 5.49 5.77
In Offices Outside the U.S.(4) 2,076 2,576 2,089 112 175 171 5.39 6.79 8.19
----------------------------------------------------------
Total 5,205 5,033 4,552 269 310 313 5.17 6.16 6.88
----------------------------------------------------------
PURCHASED FUNDS AND OTHER
BORROWINGS
In U.S. Offices 12,693 14,111 14,286 636 841 888 5.01 5.96 6.22
In Offices Outside the U.S.(4) 9,507 8,030 6,271 1,282 973 887 13.48 12.12 14.14
----------------------------------------------------------
Total 22,200 22,141 20,557 1,918 1,814 1,775 8.64 8.19 8.63
----------------------------------------------------------
LONG-TERM DEBT
In U.S. Offices 16,375 15,242 14,661 958 932 921 5.85 6.11 6.28
In Offices Outside the U.S.(4) 3,433 4,448 4,356 340 412 426 9.90 9.26 9.78
----------------------------------------------------------
Total 19,808 19,690 19,017 1,298 1,344 1,347 6.55 6.83 7.08
----------------------------------------------------------
Total Interest-Bearing
Liabilities 236,577 214,861 199,174 $14,988 $13,081 $12,409 6.34 6.09 6.23
----------------------------------------------------------
Demand Deposits in U.S. Offices 10,747 11,166 12,368
Other Non-Interest-Bearing
Liabilities (5) 60,730 47,955 38,818
Total Stockholder's Equity 21,282 20,815 19,794
-----------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $329,336 $294,797 $270,154
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS
In U.S. Offices (7) $106,143 $ 99,500 $ 94,544 $ 5,211 $ 4,968 $ 4,517 4.91 4.99 4.78
In Offices Outside the U.S. (7) 170,722 152,382 137,498 7,055 6,486 6,463 4.13 4.26 4.70
----------------------------------------------------------
TOTAL $276,865 $251,882 $232,042 $12,266 $11,454 $10,980 4.43 4.55 4.73
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(2) Interest rates and amounts include the effects of risk management
activities associated with the respective asset and liability categories.
See Note 17 of Notes to Consolidated Financial Statements.
(3) Includes cash-basis loans.
(4) Average rates reflect prevailing local interest rates including
inflationary effects and monetary correction in certain countries.
(5) The fair value carrying amounts of derivative and foreign exchange
contracts are reported in non-interest earning assets and other
non-interest bearing liabilities.
(6) Savings deposits consist of Insured Money Market Rate accounts, NOW
accounts, and other savings deposits.
(7) Includes allocations for capital and funding costs based on the location
of the asset.
- --------------------------------------------------------------------------------
F-36
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST REVENUE
<TABLE>
<CAPTION>
1998 VS. 1997 1997 vs. 1996
-------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Increase (Decrease)
DUE TO CHANGE IN: Due to Change In:
----------------------------- ----------------------------
IN MILLIONS OF DOLLARS ON A AVERAGE AVERAGE NET Average Average Net
TAXABLE EQUIVALENT BASIS (1) VOLUME RATE CHANGE (2) Volume Rate Change (2)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOANS -- CONSUMER
In U.S. Offices $ 293 $ (38) $ 255 $ 194 $ (122) $ 72
In Offices Outside the U.S. (3) 48 29 77 (1) (180) (181)
-------------------------------------------------------------------------------------
TOTAL 341 (9) 332 193 (302) (109)
-------------------------------------------------------------------------------------
LOANS -- COMMERCIAL
In U.S. Offices 81 (125) (44) (22) 44 22
In Offices Outside the U.S. (3) 1,495 76 1,571 798 (254) 544
-------------------------------------------------------------------------------------
TOTAL 1,576 (49) 1,527 776 (210) 566
-------------------------------------------------------------------------------------
TOTAL LOANS 1,917 (58) 1,859 969 (512) 457
-------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD
AND RESALE AGREEMENTS
In U.S. Offices (2) (68) (70) (91) (15) (106)
In Offices Outside the U.S. (3) (20) (44) (64) 190 (114) 76
-------------------------------------------------------------------------------------
TOTAL (22) (112) (134) 99 (129) (30)
-------------------------------------------------------------------------------------
SECURITIES, AT FAIR VALUE
In U.S. Offices 70 (73) (3) 124 (3) 121
In Offices Outside the U.S. (3) 346 435 781 453 (134) 319
-------------------------------------------------------------------------------------
TOTAL 416 362 778 577 (137) 440
-------------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
In U.S. Offices (6) 15 9 (45) 1 (44)
In Offices Outside the U.S. (3) (6) 45 39 (118) (136) (254)
-------------------------------------------------------------------------------------
TOTAL (12) 60 48 (163) (135) (298)
-------------------------------------------------------------------------------------
LOANS HELD FOR SALE,
In U.S. Offices 111 (18) 93 440 -- 440
DEPOSITS AT INTEREST WITH BANKS (3) 76 (1) 75 102 35 137
-------------------------------------------------------------------------------------
TOTAL INTEREST REVENUE 2,486 233 2,719 2,024 (878) 1,146
-------------------------------------------------------------------------------------------------------------------------
DEPOSITS
In U.S. Offices 90 (102) (12) 38 (155) (117)
In Offices Outside the U.S. (3) 1,257 645 1,902 763 (7) 756
-------------------------------------------------------------------------------------
TOTAL 1,347 543 1,890 801 (162) 639
-------------------------------------------------------------------------------------
TRADING ACCOUNT LIABILITIES
In U.S. Offices 35 (13) 22 -- (7) (7)
In Offices Outside the U.S. (3) (31) (32) (63) 36 (32) 4
-------------------------------------------------------------------------------------
TOTAL 4 (45) (41) 36 (39) (3)
-------------------------------------------------------------------------------------
PURCHASED FUNDS AND
OTHER BORROWINGS
In U.S. Offices (80) (125) (205) (11) (36) (47)
In Offices Outside the U.S. (3) 192 117 309 225 (139) 86
-------------------------------------------------------------------------------------
TOTAL 112 (8) 104 214 (175) 39
-------------------------------------------------------------------------------------
LONG-TERM DEBT
In U.S. Offices 67 (41) 26 36 (25) 11
In Offices Outside the U.S. (3) (99) 27 (72) 9 (23) (14)
-------------------------------------------------------------------------------------
TOTAL (32) (14) (46) 45 (48) (3)
-------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,431 476 1,907 1,096 (424) 672
------------------------------------------------------------------------------------- -----------------------------------
NET INTEREST REVENUE $1,055 $(243) $ 812 $ 928 $(454) $ 474
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(2) Rate/volume variance is allocated based on the percentage relationship of
changes in volume and changes in rate to the total "net change."
(3) Changes in average rates reflect changes in prevailing local interest rates
including inflationary effects and monetary correction in certain
countries.
- --------------------------------------------------------------------------------
F-37
<PAGE>
LOANS OUTSTANDING
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER LOANS
In U.S. Offices
Mortgage and Real Estate $ 23,177 $ 22,599 $ 23,421 $ 22,604 $ 21,089
Installment, Revolving Credit,
and Other 40,435 36,140 36,574 32,683 29,607
Lease Financing -- -- -- -- 32
-------------------------------------------------------------------------------
63,612 58,739 59,995 55,287 50,728
-------------------------------------------------------------------------------
In Offices Outside the U.S.
Mortgage and Real Estate 19,456 17,685 18,379 18,240 16,830
Installment, Revolving Credit, and
Other 36,048 32,179 33,905 32,521 29,303
Lease Financing 484 544 754 765 732
-------------------------------------------------------------------------------
55,988 50,408 53,038 51,526 46,865
-------------------------------------------------------------------------------
119,600 109,147 113,033 106,813 97,593
Unearned Income (630) (688) (897) (916) (909)
-------------------------------------------------------------------------------
CONSUMER LOANS -- NET 118,970 108,459 112,136 105,897 96,684
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL LOANS
In U.S. Offices
Commercial and Industrial 13,779 10,841 8,458 9,255 10,152
Mortgage and Real Estate 2,165 2,398 2,977 4,681 5,616
Loans to Financial Institutions 173 371 1,035 365 297
Lease Financing 2,951 3,087 3,017 3,239 3,271
-------------------------------------------------------------------------------
19,068 16,697 15,487 17,540 19,336
-------------------------------------------------------------------------------
In Offices Outside the U.S.
Commercial and Industrial 55,828 47,417 36,901 32,966 27,120
Mortgage and Real Estate 1,792 1,651 1,815 1,901 1,995
Loans to Financial Institutions 8,008 6,480 4,837 4,229 3,263
Governments and Official Institutions 2,132 2,376 2,252 2,180 3,265
Lease Financing 1,386 1,092 1,294 1,098 934
-------------------------------------------------------------------------------
69,146 59,016 47,099 42,374 36,577
-------------------------------------------------------------------------------
88,214 75,713 62,586 59,914 55,913
Unearned Income (190) (159) (110) (169) (177)
-------------------------------------------------------------------------------
COMMERCIAL LOANS -- NET 88,024 75,554 62,476 59,745 55,736
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS -- NET OF UNEARNED INCOME 206,994 184,013 174,612 165,642 152,420
Allowance for Credit Losses (6,224) (5,816) (5,503) (5,368) (5,155)
-------------------------------------------------------------------------------
TOTAL LOANS--NET OF UNEARNED INCOME
AND ALLOWANCE FOR CREDIT LOSSES $200,770 $178,197 $169,109 $160,274 $147,265
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
MATURITIES OF THE GROSS COMMERCIAL LOAN PORTFOLIO
<TABLE>
<CAPTION>
OVER 1 BUT
DUE WITHIN 5 OVER
IN MILLIONS OF DOLLARS AT YEAR-END WITHIN 1 YEAR YEARS 5 YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In U.S. Offices
Commercial and Industrial Loans $ 5,338 $ 6,047 $2,394 $13,779
Mortgage and Real Estate 451 837 877 2,165
Loans to Financial Institutions 67 87 19 173
Lease Financing 1,300 836 815 2,951
In Offices Outside the U.S. 51,701 13,486 3,959 69,146
---------------------------------------------------------------
TOTAL $58,857 $21,293 $8,064 $88,214
- -------------------------------------------------------------------------------------------------------------------------
Sensitivity of Loans Due After One Year
to Changes in Interest Rates (1)
Loans at Predetermined Interest Rates $ 4,982 $2,709
Loans at Floating or Adjustable Interest Rates 16,311 5,355
--------------------------------
TOTAL $21,293 $8,064
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on contractual terms. Repricing characteristics may effectively be
modified from time to time using derivative contracts. See Note 17 of Notes
to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
F-38
<PAGE>
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS (1)
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL CASH-BASIS LOANS
Collateral Dependent (at Lower of Cost
or Collateral Value) (2) $ 142 $ 258 $ 263 $ 779 $1,347
Other (3) 1,201 806 642 755 770
-------------------------------------------------------------------------------
TOTAL $1,343 $1,064 $ 905 $1,534 $2,117
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL CASH-BASIS LOANS
In U.S. Offices $ 211 $ 296 $ 292 $ 925 $1,547
In Offices Outside the U.S. (3) 1,132 768 613 609 570
-------------------------------------------------------------------------------
TOTAL $1,343 $1,064 $ 905 $1,534 $2,117
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL RENEGOTIATED LOANS
In U.S. Offices $ - $ 20 $ 264 $ 309 $ 563
In Offices Outside the U.S. 45 39 57 112 155
-------------------------------------------------------------------------------
TOTAL $ 45 $ 59 $ 321 $ 421 $ 718
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS ON WHICH
ACCRUAL OF INTEREST HAD BEEN SUSPENDED
In U.S. Offices (4) $ 636 $ 856 $1,116 $1,413 $1,538
In Offices Outside the U.S. 1,458 993 1,071 1,247 1,066
-------------------------------------------------------------------------------
TOTAL $2,094 $1,849 $2,187 $2,660 $2,604
- -------------------------------------------------------------------------------------------------------------------------
ACCRUING LOANS 90 OR MORE
DAYS DELINQUENT (5)
In U.S. Offices (4) $ 562 $ 606 $ 696 $ 499 $ 415
In Offices Outside the U.S. 532 467 422 498 460
-------------------------------------------------------------------------------
TOTAL $1,094 $1,073 $1,118 $ 997 $ 875
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For a discussion of risks in the consumer loan portfolio, see page 19, and
of commercial cash-basis loans, see page 23.
(2) 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.
(3) Includes foreign currency derivative contracts with a balance sheet credit
exposure of $14 million and $59 million at December 31, 1998 and 1997,
respectively, for which the recognition of revaluation gains has been
suspended.
(4) Excludes $10 million and $11 million of consumer loans on which accrual of
interest had been suspended and $30 million and $27 million of accruing
loans 90 or more days delinquent related to loans held for sale at
December 31, 1998 and 1997, respectively.
(5) Includes consumer loans of $1.1 billion, $1.0 billion, $1.0 billion, $951
million, and $828 million at December 31, 1998, 1997, 1996, 1995, and 1994,
respectively, of which $267 million, $240 million, $239 million, $208
million, and $150 million, respectively, are government-guaranteed student
loans.
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED AND ASSETS PENDING DISPOSITION
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS AT YEAR-END 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer (1) $230 $263 $ 452 $ 529 $ 569
Commercial (1) 262 461 614 625 958
-------------------------------------------------------------------------------
TOTAL $492 $724 $1,066 $1,154 $1,527
- -------------------------------------------------------------------------------------------------------------------------
ASSETS PENDING DISPOSITION (2) $100 $ 96 $ 160 $ 205 $ 195
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents repossessed real estate, carried at lower of cost or collateral
value.
(2) Represents consumer residential mortgage loans that have a high probability
of foreclosure, carried at lower of cost or collateral value.
- --------------------------------------------------------------------------------
FOREGONE INTEREST REVENUE ON LOANS (1)
<TABLE>
<CAPTION>
IN U.S. IN NON-U.S. 1998
IN MILLIONS OF DOLLARS OFFICES OFFICES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Revenue that would have been Accrued at Original Contractual Rates (2) $100 $353 $453
Amount Recognized as Interest Revenue (2) 70 78 148
----------------------------------------
FOREGONE INTEREST REVENUE $ 30 $275 $305
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Relates to commercial cash-basis and renegotiated loans and consumer loans
on which accrual of interest had been suspended.
(2) Interest revenue in offices outside the U.S. may reflect prevailing local
interest rates, including the effects of inflation and monetary correction
in certain countries.
- --------------------------------------------------------------------------------
F-39
<PAGE>
DETAILS OF CREDIT LOSS EXPERIENCE
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF YEAR $5,816 $5,503 $5,368 $5,155 $4,379
-------------------------------------------------------------------------------
Provision for Credit Losses 2,381 1,907 1,926 1,991 1,881
GROSS CREDIT LOSSES
CONSUMER (1)
In U.S. Offices 1,365 1,443 1,303 1,145 1,120
In Offices Outside the U.S. 1,009 868 876 825 594
COMMERCIAL
Mortgage and Real Estate
In U.S. Offices 13 21 27 118 200
In Offices Outside the U.S. 58 47 32 25 48
Governments and Official
Institutions in Offices Outside the U.S. 3 -- -- 37 --
Loans to Financial
Institutions in Offices Outside the U.S. 97 7 12 11 --
Commercial and Industrial
In U.S. Offices 62 7 29 40 57
In Offices Outside the U.S. 343 109 159 137 64
-------------------------------------------------------------------------------
2,950 2,502 2,438 2,338 2,083
-------------------------------------------------------------------------------
CREDIT RECOVERIES
CONSUMER (1)
In U.S. Offices 195 242 230 233 214
In Offices Outside the U.S. 262 234 216 187 147
COMMERCIAL
Mortgage and Real Estate
In U.S. Offices 83 47 88 26 15
In Offices Outside the U.S. 10 7 8 21 8
Governments and Official
Institutions in Offices Outside the U.S. 10 36 81 52 240
Loans to Financial
Institutions in Offices Outside the U.S. 16 17 1 1 3
Commercial and Industrial
In U.S. Offices 21 58 44 80 64
In Offices Outside the U.S. 30 54 44 46 248
-------------------------------------------------------------------------------
627 695 712 646 939
-------------------------------------------------------------------------------
NET CREDIT LOSSES
In U.S. Offices 1,141 1,124 997 964 1,084
In Offices Outside the U.S. 1,182 683 729 728 60
-------------------------------------------------------------------------------
2,323 1,807 1,726 1,692 1,144
-------------------------------------------------------------------------------
Other-Net (2) 350 213 (65) (86) 39
-------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT END OF YEAR $6,224 $5,816 $5,503 $5,368 $5,155
- -------------------------------------------------------------------------------------------------------------------------
Net Consumer Credit Losses $1,917 $1,835 $1,733 $1,550 $1,353
As a Percentage of Average
Consumer Loans 1.73 1.71 1.64 1.55 1.56
- -------------------------------------------------------------------------------------------------------------------------
Net Commercial Credit Losses
(Recoveries) $406 $(28) $(7) $142 $(209)
As a Percentage of Average
Commercial Loans 0.50 NM NM 0.25 NM
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consumer credit losses and recoveries primarily relate to revolving credit
and installment loans.
(2) Primarily includes net transfers from (to) the reserves for securitization
activities and foreign currency translation effects. In 1998, reflects the
addition of $320 million of credit loss reserves related to the acquisition
of the Universal Card portfolio. In 1997, $373 million was restored to the
allowance for credit losses 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,
$50 million attributable to standby letters of credit and guarantees was
reclassified to Other Liabilities, and $50 million attributable to
derivative and foreign exchange contracts was reclassified as a deduction
from Trading Account Assets.
NM Not Meaningful
- --------------------------------------------------------------------------------
F-40
<PAGE>
AVERAGE DEPOSIT LIABILITIES IN OFFICES OUTSIDE THE U.S. (1)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE % AVERAGE Average % Average Average % Average
IN MILLIONS OF DOLLARS AT YEAR-END BALANCE INTEREST Balance Interest Balance Interest
RATE Rate Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Banks (2) $ 18,559 8.46 $ 15,326 7.33 $ 10,528 8.44
Other Demand Deposits 33,466 3.49 31,833 2.99 28,801 3.27
Other Time and Savings Deposits (2) 105,357 6.98 90,610 6.75 85,176 6.58
-------------- -------------- --------------
Total $157,382 6.41 $137,769 5.95 $124,505 5.97
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Interest rates and amounts include the effects of risk management
activities, and also reflect the impact of the local interest rates
prevailing in certain countries. See Note 17 of Notes to Consolidated
Financial Statements.
(2) Primarily consists of time certificates of deposit and other time deposits
in denominations of $100,000 or more.
- --------------------------------------------------------------------------------
TIME DEPOSITS IN U.S. OFFICES
MATURITY PROFILE
<TABLE>
<CAPTION>
UNDER OVER 3 TO OVER 6 TO OVER
IN MILLIONS OF DOLLARS ($100,000 OR MORE) AT YEAR-END 1998 3 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of Deposit $2,854 $361 $584 $255
Other Time Deposits 764 106 92 117
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
PURCHASED FUNDS AND OTHER BORROWINGS (1)
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED
AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS COMMERCIAL PAPER OTHER FUNDS BORROWED (2)
------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount Outstanding at Year-End $10,375 $11,182 $ 132 $1,941 $12,601 $8,108
Average Outstanding During
the Year 11,075 12,290 1,656 1,453 9,469 8,398
Maximum Month-End Outstanding 13,488 14,289 3,581 2,111 12,601 9,949
- -------------------------------------------------------------------------------------------------------------------------
Weighted-Average Interest Rate:
During the Year (3) 5.23% 5.60% 5.56% 5.44% 13.18% 12.47%
At Year-End (4) 6.58 6.20 5.53 5.46 12.14 9.04
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Original maturities of less than one year.
(2) Rates reflect the impact of local interest rates prevailing in countries
outside the United States.
(3) Interest rates include the effects of risk management activities. See Note
17 of Notes to Consolidated Financial Statements.
(4) Based on contractual rates at year-end.
- --------------------------------------------------------------------------------
RATIOS
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Net Income to Average Assets 0.85% 1.22% 1.41%
Return on Average Total Stockholder's Equity 13.20% 17.34% 19.20%
Total Average Equity to Average Assets 6.46% 7.06% 7.33%
- ------------------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
F-41
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.01
CITICORP AND SUBSIDIARIES
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
(In Millions)
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 3,485 3,468 3,435 4,110 5,906
INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 3,664 3,627 3,585 4,250 6,049
------- ------- ------- ------- -------
INCOME:
INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631
FIXED CHARGES 3,664 3,627 3,585 4,250 6,049
------- ------- ------- ------- -------
TOTAL INCOME 8,133 9,378 9,678 9,858 10,680
======= ======= ======= ======= =======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 2.22 2.59 2.70 2.32 1.77
======= ======= ======= ======= =======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 14,988 13,081 12,409 13,012 14,902
INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 15,167 13,240 12,559 13,152 15,045
------- ------- ------- ------- -------
INCOME:
INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631
FIXED CHARGES 15,167 13,240 12,559 13,152 15,045
------- ------- ------- ------- -------
TOTAL INCOME 19,636 18,991 18,652 18,760 19,676
======= ======= ======= ======= =======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.29 1.43 1.49 1.43 1.31
======= ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.02
CITICORP AND SUBSIDIARIES
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
(In Millions) YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 3,485 3,468 3,435 4,110 5,906
INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143
DIVIDENDS--PREFERRED STOCK 126 (A) 223 261 553 505 (B)
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 3,790 3,850 3,846 4,803 6,554
------- ------- ------- ------- -------
INCOME:
INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 3,664 3,627 3,585 4,250 6,049
------- ------- ------- ------- -------
TOTAL INCOME 8,133 9,378 9,678 9,858 10,680
======= ======= ======= ======= =======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 2.15 2.44 2.52 2.05 1.63
======= ======= ======= ======= =======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 14,988 13,081 12,409 13,012 14,902
INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143
DIVIDENDS--PREFERRED STOCK 126 (A) 223 261 553 505 (B)
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 15,293 13,463 12,820 13,705 15,550
------- ------- ------- ------- -------
INCOME:
INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 15,167 13,240 12,559 13,152 15,045
------- ------- ------- ------- -------
TOTAL INCOME 19,636 18,991 18,652 18,760 19,676
======= ======= ======= ======= =======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.28 1.41 1.45 1.37 1.27
======= ======= ======= ======= =======
</TABLE>
(A) ON OCTOBER 8, 1998, CITICORP MERGED WITH AND INTO A NEWLY FORMED, WHOLLY
OWNED SUBSIDIARY OF TRAVELERS GROUP INC. (TRV) (THE MERGER). FOLLOWING
THE MERGER, TRV CHANGED ITS NAME TO CITIGROUP INC. (CITIGROUP). UNDER THE
TERMS OF THE MERGER, CITICORP COMMON AND PREFERRED STOCK WERE EXCHANGED
FOR CITIGROUP COMMON AND PREFERRED STOCK.
(B) CALCULATED USING A TAX RATE OF 29% FOR 1994.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Citicorp
We consent to the incorporation by reference in the Registration Statements of
Citicorp on Form S-3: Nos. 33-33238, 33-59791, 33-64574, 333-14917, 333-20803,
333-21143, and 333-32065; and of Citicorp Mortgage Securities, Inc., Citibank,
N.A., and other affiliates, on Form S-3: Nos. 33-66222, 333-43167, and
333-72459, and on Form S-11: Nos. 33-6979, 33-6358, 33-36313, and 33-34670, of
our report dated January 25, 1999 relating to the consolidated balance sheets of
Citicorp and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
and the related consolidated balance sheets of Citibank, N.A. and subsidiaries
as of December 31, 1998 and 1997, which report appears in the 1998 Citicorp Form
10-K.
/s/ KPMG LLP
- ------------
KPMG LLP
New York, New York
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON CITICORP'S FORM 10-K FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND ACCOMPANYING DISCLOSURES.
</LEGEND>
<CIK> 0000020405
<NAME> CITICORP 1998
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,969
<INT-BEARING-DEPOSITS> 15,147
<FED-FUNDS-SOLD> 6,888<F1>
<TRADING-ASSETS> 33,667
<INVESTMENTS-HELD-FOR-SALE> 40,404
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 206,994
<ALLOWANCE> 6,224<F2>
<TOTAL-ASSETS> 343,620
<DEPOSITS> 225,813
<SHORT-TERM> 23,108<F3>
<LIABILITIES-OTHER> 12,820
<LONG-TERM> 20,599
0<F4>
0<F4>
<COMMON> 0<F4>
<OTHER-SE> 22,569<F4>
<TOTAL-LIABILITIES-AND-EQUITY> 343,620
<INTEREST-LOAN> 20,826
<INTEREST-INVEST> 2,963
<INTEREST-OTHER> 3,400
<INTEREST-TOTAL> 27,189
<INTEREST-DEPOSIT> 11,503
<INTEREST-EXPENSE> 14,988
<INTEREST-INCOME-NET> 12,201
<LOAN-LOSSES> 2,381
<SECURITIES-GAINS> 524
<EXPENSE-OTHER> 5,970
<INCOME-PRETAX> 4,469
<INCOME-PRE-EXTRAORDINARY> 2,810
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,810
<EPS-PRIMARY> 0<F4>
<EPS-DILUTED> 0<F4>
<YIELD-ACTUAL> 4.43<F5>
<LOANS-NON> 3,437<F6>
<LOANS-PAST> 1,094<F7>
<LOANS-TROUBLED> 45
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,816
<CHARGE-OFFS> 2,950
<RECOVERIES> 627
<ALLOWANCE-CLOSE> 6,224<F2>
<ALLOWANCE-DOMESTIC> 0<F8>
<ALLOWANCE-FOREIGN> 0<F9>
<ALLOWANCE-UNALLOCATED> 0<F10>
<FN>
<F1>Includes Securities Purchased Under Resale Agreements.
<F2>Allowance activity for the twelve months of 1998 include $350MM in
other changes, of which, $320MM reflects the addition of credit loss reserves
related to the acquisition of UCS. The remaining balance is principally foreign
currency translation effects.
<F3>Purchased Funds and Other Borrowings.
<F4>On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group Inc. (TRV) (the Merger). Following the Merger,
TRV changed its name to Citigroup Inc. (Citigroup). Under the terms of the Merger,
Citigroup common and preferred stock were exchanged for Citigroup common and
preferred stock.
<F5>Taxable Equivalent Basis.
<F6>Includes $1,343MM of cash-basis commercial loans and $2,094MM of consumer loans
on which accrual of interest has been suspended.
<F7>Accruing loans 90 or more days delinquent.
<F8>No portion of Citicorp's credit loss allowance is specifically allocated to any
individual loan or group of loans.
<F9>See Footnote F8 above.
<F10>See Footnote F8 above.
</FN>
</TABLE>
