SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 1-9924
-----------------------
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
153 East 53rd Street, New York, New York 10043
(Address of principal executive offices) (Zip Code)
(212) 559-1000
(Registrant's telephone number, including area code)
-----------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock outstanding as of April 30, 1999: 3,379,139,003
(adjusted to give effect to the three-for-two stock split
payable on May 28, 1999)
<PAGE>
Citigroup Inc.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1999 and 1998 32
Consolidated Statement of Financial Position -
March 31, 1999 (Unaudited) and December 31, 1998 33
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Three Months Ended March 31, 1999 and 1998 34
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1999 and 1998 35
Notes to Consolidated Financial Statements (Unaudited) 36
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1 - 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 27,
36 - 38,
41 - 42
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 45
Item 6. Exhibits and Reports on Form 8-K 46
Signatures 47
Exhibit Index 48
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
Business Focus
The table below shows the business income (loss) for each of Citigroup's
businesses:
First Quarter
-------------------------
In millions of dollars 1999 1998 (1)
- --------------------------------------------------------------------------------
Global Consumer
Citibanking North America $ 75 $ 25
Mortgage Banking 60 50
Cards 268 153
Consumer Finance Services 81 59
------------------------
Total Banking/Lending 484 287
------------------------
Travelers Life and Annuity 147 122
Primerica Financial Services 110 95
Personal Lines 83 82
------------------------
Total Insurance 340 299
------------------------
Total North America 824 586
------------------------
Europe, Middle East and Africa 74 51
Asia Pacific 102 83
Latin America 48 43
Global Private Bank 57 58
------------------------
Total International 281 235
------------------------
e-Citi (36) (30)
Other (20) (1)
------------------------
Total Global Consumer 1,049 790
------------------------
Global Corporate
and Investment Bank
Salomon Smith Barney 648 443
Emerging Markets 321 264
Global Relationship Banking 197 158
Commercial Lines Insurance 189 171
------------------------
Total Global Corporate
and Investment Bank 1,355 1,036
------------------------
SSB Citi Asset Management Group 80 69
Corporate/Other (162) (136)
------------------------
Business income 2,322 1,759
Investment Activities 93 402
------------------------
Core income 2,415 2,161
Restructuring-related items,
after-tax (2) 74 --
Cumulative effect
of accounting changes (3) (127) --
------------------------
Net income $ 2,362 $ 2,161
- -------------------------------------------------------========================
(1) First quarter 1998 results have been restated to reflect changes in capital
and tax allocations among the segments to conform the policies of each of
the predecessor companies.
(2) Includes reversal of the 1997 restructuring charge of $211 million pre-tax
($125 million after-tax), and restructuring-related items of $81 million
pre-tax ($51 million after-tax) in the 1999 first quarter. See Note 7 of
Notes to Consolidated Financial Statements.
(3) First quarter 1999 accounting changes include the adoption of Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" of $(135) million; SOP 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the
Costs of Start-Up Activities" of $(15) million. See Note 2 of Notes to
Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Income Analysis
The income analysis reconciles amounts shown in the Consolidated Statement of
Income to the basis employed by management for assessing financial results.
First Quarter
------------------------
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Total revenues,
net of interest expense $ 14,070 $ 12,796
Effect of credit card
securitization activity 588 462
------------------------
Adjusted revenues,
net of interest expense 14,658 13,258
------------------------
Total operating expenses 7,321 6,739
Restructuring-related items 130 --
------------------------
Adjusted operating expenses 7,451 6,739
------------------------
Provisions for benefits,
claims, and credit losses 2,777 2,589
Effect of credit card
securitization activity 588 462
------------------------
Adjusted provisions for
benefits, claims, and credit
losses 3,365 3,051
------------------------
Core income before income taxes,
minority interest and cumulative
effect of accounting changes 3,842 3,468
Taxes on core income 1,367 1,249
Minority interest, net of income
taxes 60 58
------------------------
Core income 2,415 2,161
Restructuring-related
items, after-tax 74 --
------------------------
Income before cumulative
effect of accounting changes 2,489 2,161
Cumulative effect
of accounting changes (127) --
------------------------
Net income $ 2,362 $ 2,161
- --------------------------------------------------------========================
<PAGE>
Results of Operations
Citigroup reported core income of $2.415 billion ($0.69 per diluted common
share) in the 1999 first quarter, up $254 million or 12% from $2.161 billion
($0.60 per diluted share) in the 1998 first quarter. Core income in the 1999
first quarter excluded a credit of $74 million related to after-tax
restructuring-related items and a charge of $127 million reflecting the
cumulative effect of adopting several new accounting standards as described in
Note 2 of Notes to the Consolidated Financial Statements. Net income including
these amounts was $2.362 billion ($0.68 per diluted share), up $201 million or
9% from the year-ago quarter. Excluding those amounts, core income return on
common equity was 23.6% for the quarter compared to 21.4% a year ago.
The Board of Directors on April 19, 1999 declared a three-for-two split in
Citigroup's common stock, which is payable in the form of a 50% stock dividend
on May 28, 1999 to stockholders of record on May 3, 1999. Current and prior year
earnings per share information has been restated to reflect this split. The
Board of Directors also approved an increase in the quarterly common stock
dividend from 12 to 14 cents per share on a post-split basis (from 18 to 21
cents per share on a pre-split basis), payable May 28, 1999 to stockholders of
record on May 3, 1999.
Core income growth was led by Global Corporate and Investment Bank, up $319
million or 31% to $1.355 billion, and a $259 million or 33% increase in Global
Consumer to $1.049 billion. In addition, SSB Citi Asset Management Group ("Asset
Management") grew $11 million or 16% to $80 million. Investment Activities core
income of $93 million was down $309 million or 77% from a year ago reflecting
lower realized gains from sales of investments and lower venture capital
revenues. Corporate/Other net loss increased by $26 million.
The increase in Global Corporate and Investment Bank core income reflected
record results at Salomon Smith Barney of $648 million, up $205 million or 46%,
as strong revenue increases particularly in the retail business, record fixed
income underwriting and trading revenues outpaced expense growth. Emerging
Markets was up $57 million or 22% to $321 million, reflecting growth in trading,
lending and trade finance, and Global Relationship Banking was up $39 million or
25% to $197 million, from improved trading and transaction banking results.
Commercial Lines was up $18 million or 11% to $189 million as favorable
prior-year loss development and expense control offset revenue declines. Global
Consumer core income growth resulted from strong growth in virtually all
businesses, particularly in North America where Cards business income of $268
million grew $115 million or 75%. Business income in the International
businesses grew 20% to $281 million and the Insurance businesses grew 14% to
$340 million. Global Consumer business income growth was achieved even as
spending continued on global advertising, marketing, and distribution
development initiatives, and on the technological enhancements of e-Citi.
Adjusted revenues, net of interest expense, of $14.7 billion in the 1999 first
quarter were up $1.4 billion or 11% from 1998. Revenues in Global Consumer
increased $1.2 billion or 21% to $7.1 billion led primarily by Cards, up $573
million or 40%, including the $378 million impact of the Universal Card Services
("UCS") acquisition in April 1998. Also contributing to Global Consumer growth
was the International businesses, up $280 million or 19% to $1.8 billion, the
Insurance businesses, up $214 million or 11% to $2.2 billion, and Consumer
Finance Services, up $67 million or 22% to $376 million. Consumer growth was
driven largely by volume growth in customers and accounts in virtually all
business lines, complemented by strategic acquisitions. Global Corporate and
Investment Bank revenues of $7.1 billion were up $616 million or 10%,
principally reflecting a Salomon Smith Barney rebound of $423 million or 14% to
$3.3 billion. Emerging Markets increased $177 million or 18% to $1.1 billion,
Global Relationship Banking was up $101 million or 10% to $1.1 billion, and
Commercial Lines decreased $85 million or 5% to $1.5 billion. Asset Management
segment revenues were up $49 million or 16% to $354 million reflecting continued
growth in assets under management, and Corporate/Other revenues of ($71) million
were down $18 million primarily reflecting the absence of gains on dispositions
of certain corporate assets recorded in the 1998 first quarter. The $461 million
decrease in Investment Activities revenues to $158 million was a result of lower
realized gains from sales of investments and lower venture capital revenues.
Adjusted net interest revenues, including the effect of credit card
securitization, of $5.9 billion were up $805 million or 16% from 1998,
reflecting the acquisitions of UCS and certain businesses in Latin America
consumer, and business volume growth in most other markets. Insurance premiums
of $2.5 billion were up $186 million or 8%, reflecting solid growth in Personal
Lines partially offset by a managed decline in Commercial Lines. Principal
transactions revenues of $1.8 billion were up $405 million or 30% reflecting the
broad-based rebound in trading activities. Adjusted commissions, asset
management and administration fees, and other fee revenues of $3.7 billion were
up $383 million or 11% primarily as a result of continued growth in assets under
fee-based management to $430 billion. Realized gains from sale of investments
was down $325 million to $53 million, reflecting lower levels of investment
sales. Other income, excluding credit card securitization activity, of $660
million decreased $52 million from the year-ago quarter, primarily as a result
of lower venture capital revenues.
Adjusted operating expenses of $7.5 billion, which exclude the
restructuring-related items, were up $712 million or 11% from the 1998 first
quarter. Expenses increased in Global Consumer by 19%, reflecting UCS ($219
million) and other acquisitions, global advertising, marketing, and distribution
initiatives, and electronic banking development efforts. Global Corporate and
Investment
2
<PAGE>
Bank expenses were up 5%, 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.
In 1999, the previously announced business improvement and integration
initiatives, together with tighter management of non-customer expenses, are
expected to yield gross annual pretax expense savings of approximately $2
billion. Through the end of the 1999 first quarter, the actions necessary to
realize approximately $900 million of the targeted $2 billion of annualized
pretax expense savings had been taken. There can be no assurance that the $2
billion projected cost savings will be achieved. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 24.
Restructuring-related items in the 1999 first quarter included a $211 million
($125 million after-tax) credit for the reversal of a portion of the 1997
charges and $81 million ($51 million after-tax) of accelerated depreciation
related to the 1998 restructuring actions. In addition, core income was reduced
by $127 million related to the adoption of several new accounting standards. See
Notes 2 and 7 of Notes to Consolidated Financial Statements for additional
details.
Adjusted provisions for benefits, claims, and credit losses were $3.4 billion in
the quarter, up $314 million or 10% from the 1998 quarter. Policyholder benefits
and claims increased 3% to $2.0 billion and the provision for credit losses
increased 23% to $729 million. Global Consumer adjusted provisions for benefits,
claims and credit losses of $2.4 billion in the 1999 first quarter were up $323
million or 16% from the 1998 quarter. The increase in managed net credit losses
of $197 million or 20% primarily reflected the UCS acquisition ($167 million).
The ratio of net credit losses to average managed loans was 2.61% compared to
2.65% a year ago. The managed consumer loan delinquency ratio (90 days or more
past due) decreased to 2.09% from 2.29% a year ago.
Global Corporate and Investment Bank provisions for benefits, claims, and credit
losses of $976 million decreased $27 million or 3% from the 1998 first quarter,
primarily reflecting the improvement in Commercial Lines prior-year loss
development, partially offset by the impact of continued credit losses in
Emerging Markets, mostly in Asia Pacific. Commercial cash-basis loans and other
real estate owned of $2.1 billion at quarter-end were up 11% from a year earlier
and were flat to year-end.
The total provisions for benefits, claims, and credit losses as shown on the
Consolidated Statement of Income were $2.8 billion in the 1999 first quarter,
compared to $2.6 billion in the year-ago quarter, reflecting the items described
above.
Total capital (Tier 1 and Tier 2) was $56.5 billion or 11.56% of net
risk-adjusted assets, and Tier 1 capital was $43.3 billion or 8.86% at March 31,
1999, compared to $55.0 billion or 11.43% and $41.8 billion or 8.68%,
respectively, at December 31, 1998.
GLOBAL CONSUMER
<TABLE>
<CAPTION>
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues, net of interest expense $6,529 $5,441 20
Effect of credit card securitization activity 588 462 27
------------------------
Adjusted revenues, net of interest expense 7,117 5,903 21
Adjusted operating expenses (1) 3,056 2,566 19
------------------------
Provisions for benefits, claims, and credit losses 1,794 1,597 12
Effect of credit card securitization activity 588 462 27
------------------------
Adjusted provisions for benefits, claims and credit losses 2,382 2,059 16
------------------------
Business income before taxes and minority interest 1,679 1,278 31
Income taxes 609 472 29
Minority interest, after-tax 21 16 31
------------------------
Business income 1,049 790 33
Restructuring-related items, after-tax 38 -- NM
------------------------
Net income $1,011 $ 790 28
- -------------------------------------------------------------========================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Global Consumer -- which provides banking, lending, and personal insurance
products and services, including credit and charge cards, to customers around
the world -- reported business income of $1.049 billion in the 1999 first
quarter, up $259 million or 33% from 1998, reflecting strong growth in virtually
all businesses, particularly in North America where Cards business income of
$268 million grew $115 million or 75%. Business income in the International
businesses grew 20%, reflecting increases in Europe, Middle East and Africa and
Asia Pacific, and the effect of certain acquisitions in Latin America. Global
Consumer business income growth was achieved even as spending continued on
global advertising, marketing, and distribution development initiatives, and on
the
3
<PAGE>
technological enhancements of e-Citi. Net income of $1.011 billion in the 1999
first quarter included restructuring-related items of $38 million ($61 million
pretax).
Banking/Lending
Citibanking North America
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $521 $485 7
Adjusted operating expenses (1) 363 408 (11)
Provision for credit losses 27 31 (13)
--------------------------
Business income before taxes 131 46 185
Income taxes 56 21 167
--------------------------
Business income 75 25 200
Restructuring-related items, after-tax 14 -- NM
--------------------------
Net income $ 61 $ 25 144
- -----------------------------------------------------==========================
Average assets (in billions of dollars) $ 10 $ 10 --
Return on assets 2.47% 1.01%
- -----------------------------------------------------==========================
Excluding restructuring-related items
Return on assets 3.04% 1.01%
- -----------------------------------------------------==========================
(1) Excludes restructuring-related items.
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 $75 million in the 1999 first quarter, up from $25 million in
1998, reflecting expense reduction initiatives along with revenue growth. Net
income of $61 million in the 1999 first quarter included restructuring-related
items of $14 million ($22 million pretax).
As shown in the following table, Citibanking grew accounts and customers
deposits from the 1998 quarter. The decline in loans reflects a decrease in home
equity loans due to increased industry wide mortgage refinancing activity.
First Quarter %
----------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Accounts (in millions) 6.3 5.9 5
Average customer deposits $41.6 $38.9 7
Average loans 8.1 8.4 (4)
- -------------------------------------------------------=========================
Revenues, net of interest expense, were $521 million in the 1999 first quarter,
up $36 million or 7% from 1998, due to higher investment product fees and
commissions and growth in customer deposits, partially offset by lower spreads
due to a decline in interest rates. Adjusted operating expenses declined $45
million or 11% from the 1998 first quarter reflecting expense management
initiatives.
The provision for credit losses improved to $27 million in 1999 first quarter
from $31 million in 1998. The net credit loss ratio was 1.35% in the quarter,
down from 1.51% a year ago.
4
<PAGE>
Mortgage Banking
First Quarter %
--------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $169 $154 10
Total operating expenses 59 59 --
Provision for credit losses 3 13 (77)
------------------------
Income before taxes and minority interest 107 82 30
Income taxes 42 32 31
Minority interest, after-tax 5 -- NM
------------------------
Net income $ 60 $ 50 20
- -------------------------------------------------------=========================
Average assets (in billions of dollars) $ 28 $ 25 12
Return on assets 0.87% 0.81%
- -------------------------------------------------------=========================
NM Not meaningful
Mortgage Banking -- which provides mortgages and student loans to customers
across North America -- reported net income of $60 million in the 1999 first
quarter, up $10 million or 20% from 1998, reflecting higher revenue resulting
from increased business volumes and a lower provision for credit losses.
As shown in the following table, Mortgage Banking grew accounts, loans, and
mortgage originations.
First Quarter %
----------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Accounts (in millions) (1) 2.8 2.5 12
Average loans (1) $26.6 $23.5 13
Mortgage originations 3.8 2.9 31
- --------------------------------------------------------========================
(1) Includes student loans.
- --------------------------------------------------------------------------------
Revenues, net of interest expense, of $169 million in the 1999 first quarter
grew $15 million or 10% from 1998, reflecting growth in the student loan
portfolio and increased mortgage originations.
The provision for credit losses of $3 million in the 1999 first quarter declined
from $13 million in 1998. The net credit loss ratio was 0.20% in the quarter
down from 0.42% a year ago, due to continued improvement in the mortgage
portfolio.
In the quarter, Citibank announced that it would acquire the principal operating
assets and assume certain liabilities of Source One Mortgage Services Corp. The
acquisition, which closed in the 1999 second quarter, will add approximately a
$25 billion mortgage servicing/subservicing portfolio and 160 sales offices.
Cards
<TABLE>
<CAPTION>
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues, net of interest expense $1,400 $ 953 47
Effect of credit card securitization activity 588 462 27
--------------------------
Adjusted revenues, net of interest expense 1,988 1,415 40
Total operating expenses 748 451 66
Adjusted provision for credit losses (1) 816 717 14
--------------------------
Income before taxes 424 247 72
Income taxes 156 94 66
--------------------------
Net income $ 268 $ 153 75
- ------------------------------------------------------==========================
Average assets (in billions of dollars) $ 30 $ 23 30
Return on assets (2) 3.62% 2.70%
- ------------------------------------------------------==========================
</TABLE>
(1) On a managed basis.
(2) Adjusted for the effect of credit card securitization, the return on
managed assets for Cards was 1.46% and 1.23% in the first quarters of 1999
and 1998, respectively.
- --------------------------------------------------------------------------------
Cards -- U.S. bankcards (including Travelers Bank), Diners Club, and private
label cards -- reported net income of $268 million, up $115 million or 75% from
1998, reflecting significant improvements in the U.S. bankcards business.
5
<PAGE>
The April 1998 acquisition of Universal Card Services (UCS) from AT&T added
$16.3 billion in managed customer receivables and 14 million accounts as of
March 31, 1999. In the quarter, UCS contributed $378 million to revenues, $219
million to expenses, and $167 million to provision for credit losses, resulting
in a net loss of approximately $2 million. These amounts included acquisition
premium costs (including funding costs associated with the acquisition purchase
premium).
On March 31, 1999, Citibank acquired Mellon Bank's credit card portfolio which
added approximately $1.9 billion in managed receivables and 800,000 accounts.
Adjusted revenues, net of interest expense, of $1.988 billion increased $573
million or 40% ($195 million or 14% excluding UCS) from 1998, reflecting the
acquisition of UCS, and in other U.S. bankcards portfolios increased delinquency
and other risk-based charges due to pricing actions, lower funding costs, and
higher interchange fee revenues.
As shown in the following table, on a managed basis, the U.S. bankcards
portfolio experienced strong growth in the quarter reflecting the acquisitions
of UCS and Mellon Bank's credit card portfolio and the impact of enhanced target
marketing efforts.
<TABLE>
<CAPTION>
Increase from First Quarter 1998
--------------------------------
First Quarter
In billions of dollars 1999 % % Ex UCS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts (in millions) 41 62 7
Charge volumes $36.8 45 17
End-of-period receivables $69.4 48 13
- -------------------------------------------------------====================================================
</TABLE>
Total operating expenses of $748 million were up $297 million or 66% ($78
million or 17% excluding UCS), reflecting the acquisition of UCS and increased
advertising and marketing in U.S. bankcards.
The adjusted provision for credit losses in the 1999 first quarter was $816
million, up from $717 million in 1998, reflecting the inclusion of UCS offset by
improvements in other U.S. bankcards portfolios. Managed net credit losses in
U.S. bankcards were $784 million, or 4.72% of average managed loans ($617
million or 4.91% of average managed loans excluding UCS) compared to $676
million or 5.85% in 1998. The decline in the net credit loss ratio reflects
moderating industry-wide bankruptcy trends and the effect of previously
implemented credit risk management initiatives.
Consumer Finance Services
First Quarter %
-------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $376 $309 22
Adjusted operating expenses (1) 144 122 18
Provisions for benefits, claims and credit losses 104 95 9
----------------------
Business income before taxes 128 92 39
Income taxes 47 33 42
----------------------
Business income 81 59 37
Restructuring-related items, after-tax 1 -- NM
----------------------
Net income $ 80 $ 59 36
- ----------------------------------------------------------======================
Average assets (in billions of dollars) $ 14 $ 11 27
Return on assets 2.32% 2.18%
- ----------------------------------------------------------======================
Excluding restructuring-related items
Return on assets 2.35% 2.18%
- ----------------------------------------------------------======================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Consumer Finance Services includes the consumer lending operations (including
secured and unsecured personal loans, real estate-secured loans and consumer
goods financing) of Commercial Credit Company. Also included are related credit
insurance services provided through subsidiaries. The credit card operations of
Commercial Credit Company are included in Cards.
Business income was $81 million in the first quarter of 1999 compared to $59
million in the first quarter of 1998. Receivables grew 28% from the 1998 first
quarter due to healthy business flow at Commercial Credit branches,
cross-selling of Commercial Credit products through Primerica distribution
channels and the acquisition of certain Associates First Capital branches. The
total number of Commercial Credit branches rose to 1,143 at the end of the first
quarter of 1999, up from 980 at year-end 1998. Net receivables at March 31, 1999
reached a record $12.9 billion compared to $11.9 billion at year-end 1998 and
$10.1 billion at March 31, 1998. Much of the growth in 1999 in real
estate-secured loans resulted from the continued strong performance of the
$.M.A.R.T Loan(R) and
6
<PAGE>
$.A.F.E.(R) Loan programs, which grew to $3.16 billion at March 31, 1999, a 31%
increase over March 31, 1998, as well as solid sales in the branch network.
During the first quarter of 1999, the average yield on owned receivables was
14.38%, down from 14.91% in the first quarter of 1998, reflecting the shift in
the portfolio mix toward lower-risk real estate loans which have lower margins.
At March 31, 1999, the owned portfolio consisted of 56% real estate-secured
loans, 36% personal loans and 8% sales finance and other.
Delinquencies in excess of 60 days on owned receivables were 1.78% at March 31,
1999, down from 1.90% at year-end 1998 and 1.82% at March 31, 1998. The
charge-off rate on owned receivables of 2.38% in the first quarter of 1999
compared to 2.93% in the first quarter of 1998.
Insurance
Travelers Life and Annuity
First Quarter %
--------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $771 $704 10
Policyholder claims and benefits 442 416 6
Total operating expenses 107 101 6
------------------------
Income before taxes 222 187 19
Income taxes 75 65 15
------------------------
Net income (1) $147 $122 20
- --------------------------------------------------------========================
(1) Excludes investment gains/losses included in Investment Activities segment.
- --------------------------------------------------------------------------------
Net income was $147 million in the first quarter of 1999 compared to $122
million in the first quarter of 1998. The 20% improvement in 1999 reflects
increased business volume and was offset by lower investment yields versus the
prior year period. During the first quarter of 1999 this business achieved
strong double-digit business volume growth in annuity account balances and life
and long-term care premiums reflecting the benefits of strong momentum from
significant cross-selling initiatives. The decline in yields was substantially
offset by earnings on an increased capital base created by business volume
growth.
The cross-selling initiative of Travelers Life and Annuity products through the
Primerica, Citibank, and Salomon Smith Barney Financial Consultants distribution
channels, along with improved sales through The Copeland Companies (Copeland),
and a nationwide network of independent agents and strong group sales through
various intermediaries reflect the ongoing effort to build market share by
strengthening relationships in key distribution channels.
The following table shows net written premiums and deposits by product line.
First Quarter %
------------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Deferred annuities
Fixed $ 194 $ 265 (27)
Variable 976 647 51
Payout annuities 88 81 9
GICs and other group annuities 1,792 779 130
Individual life insurance
Direct periodic premiums and deposits 85 76 11
Single premium deposits 16 24 (32)
Reinsurance (17) (15) 14
Individual long-term care insurance 53 45 18
-----------------------------
$ 3,187 $ 1,902 68
- --------------------------------------------------==============================
The majority of the annuity business and a substantial portion of the life
business written by Travelers Life and Annuity are accounted for as investment
contracts, with the result that the premium and deposits collected are not
included in revenues.
Significant deferred annuities sales, combined with favorable market returns
from variable annuities, drove account balances to $22.0 billion at March 31,
1999, up 20% from $18.3 billion at March 31, 1998. Net written premiums and
deposits for deferred annuities increased 28% in the first quarter of 1999 to
$1.17 billion from $912 million in the first quarter of 1998. The strong sales
reflect the marketing initiatives at Salomon Smith Barney, Copeland's
penetration of the small company segment of the 401(k) market, new products
introduced into the Primerica and Citibank distribution channels as well as
strong core agent production.
7
<PAGE>
Payout and group annuity account balances and benefit reserves reached $14.54
billion at March 31, 1999, up 19% from $12.23 billion at the end of 1998 first
quarter. The payout and group annuity businesses reflect momentum from rating
upgrades, variable rate guaranteed investment contracts and structured finance
transactions. Net written premiums and deposits (excluding the Company's
employee pension plan deposits) in 1999 were $1.88 billion, up 119% from $860
million in 1998.
Direct periodic premiums and deposits for individual life insurance of $85
million in 1999 were 11% ahead of the $76 million in 1998 reflecting strong
agency results. Life insurance in force was $56.6 billion at March 31, 1999, up
from $55.4 billion at year-end 1998 and $52.4 billion at March 31, 1998.
Net written premiums for the growing individual long-term care insurance line
reached $53 million in 1999 compared to $45 million in 1998.
Primerica Financial Services
First Quarter %
--------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $432 $400 8
Policyholder claims and benefits 120 121 (1)
Total operating expenses 142 132 8
------------------------
Income before taxes 170 147 16
Income taxes 60 52 15
------------------------
Net income (1) $110 $ 95 16
- -------------------------------------------------------=========================
(1) Excludes investment gains/losses included in Investment Activities segment.
- --------------------------------------------------------------------------------
Net income was $110 million in 1999 compared to $95 million in 1998. The 16%
improvement in 1999 reflects continued success at cross-selling a range of
products, growth in life insurance in force, favorable mortality experience and
disciplined expense management. Substantial increases in total production and
cross-selling initiatives were achieved during the 1999 quarter as Primerica
continued to benefit from greater application of the Financial Needs Analysis
(FNA) -- the diagnostic tool that enhances the ability of the Personal Financial
Analysts to address client needs. During the first quarter of 1999, 142,000 FNAs
were submitted compared to 140,000 in the first quarter of 1998. Earned premiums
net of reinsurance were $267 million in the first quarter of 1999 compared to
$260 million in the first quarter of 1998, including $252 million and $245
million, respectively, for Primerica individual term life policies.
Total face amount of issued term life insurance was $13.6 billion in the first
quarter of 1999 compared to $13.0 billion in the first quarter of 1998. The
number of policies issued was 51,600 in the first quarter of 1999, compared to
51,100 in the first quarter of 1998. Life insurance in force reached $386.3
billion at March 31, 1999 compared to $383.7 billion at year-end 1998 and $372.5
billion at March 31, 1998, and continued to reflect good policy persistency.
In recent years, Primerica has leveraged cross-selling through the FNA to expand
its business beyond life insurance and now offers its clients a greater array of
financial products and services, delivered personally through the company's
150,000 independent representatives. Primerica sales of Travelers variable
annuities continued to show momentum, reaching net written premiums and deposits
of $223 million in the first quarter of 1999, up 77% from $126 million in the
prior year period. This increase reflects the increased emphasis placed on
cross-selling initiatives in the latter part of 1998, with the current period
sales predominately reflecting sales of Travelers Life and Annuity variable
annuity products. Cash advanced on $.M.A.R.T. Loan(R) and $.A.F.E.(R) Loan
products underwritten by Travelers Bank & Trust, fsb and Commercial Credit,
respectively, was $419 million in the first quarter of 1999, up 32% from the
comparable period last year. Primerica sales of TRAVELERS SECURE(R) property and
casualty insurance products demonstrated strong growth, with premiums up 51% to
$57 million in the first quarter of 1999, compared to $38 million in the same
period in the year prior. Mutual fund sales reached $784 million for the 1999
first quarter, compared to $769 million in last year's first quarter. During the
first quarter of 1999, Salomon Smith Barney mutual funds accounted for 64% of
Primerica's U.S. sales and 52% of total sales.
8
<PAGE>
Personal Lines
First Quarter %
--------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $983 $868 13
Total operating expenses 246 221 11
Claims and claim adjustment expenses 594 503 18
------------------------
Income before taxes and minority interest 143 144 (1)
Income taxes 44 46 (4)
Minority interest, after-tax 16 16 --
------------------------
Net income (1) $ 83 $ 82 1
- -------------------------------------------------------=========================
(1) Excludes investment gains/losses included in Investment Activities segment.
- --------------------------------------------------------------------------------
Net income of $83 million in the first quarter of 1999 was up slightly from the
prior year quarter, as a 16% increase in earned premiums was offset by modest
medical cost increases and less favorable prior-year reserve development. Net
written premiums in the first quarter of 1999 include an adjustment associated
with the termination of a quota share reinsurance arrangement, which increased
homeowners premiums written by independent agents by $72 million. Net written
premiums, excluding this transaction, increased 13%, driven by increased
production across all lines through both independent agent and new distribution
channels.
The following table shows net written premiums by product line:
First Quarter %
-----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Personal automobile $620 $556 11
Homeowners and other 364 250 45
------------------------------
Total net written premiums $984 $806 22
- --------------------------------------------------==============================
Personal Lines net written premiums for the first quarter of 1999 were $912
million (excluding the adjustment discussed above) compared to $806 million in
the first quarter of 1998. The 1999 increase compared to 1998 primarily reflects
growth in target markets served by independent agents and growth in affinity
group marketing, joint marketing arrangements and the TRAVELERS SECURE(R)
program.
Catastrophe losses, net of taxes and reinsurance, were $8 million in the first
quarter of 1999 compared to $9 million in the first quarter of 1998. Catastrophe
losses in 1999 were due to a wind and ice storm in the Midwest and the
Northeast. Catastrophe losses in 1998 were due to ice storms in northern New
York and New England and windstorms on the East Coast.
Statutory and GAAP combined ratios (before allocation of corporate expenses) for
Personal Lines were as follows:
First Quarter
----------------
1999 1998
- --------------------------------------------------------------------------------
Statutory
Loss and LAE ratio (1) 66.6% 65.2%
Underwriting expense ratio 27.4 28.0
---------------
Combined ratio 94.0 93.2
- ----------------------------------------------------------------================
GAAP
Loss and LAE ratio (1) 66.6% 65.2%
Underwriting expense ratio 24.8 27.1
---------------
Combined ratio 91.4 92.3
- ----------------------------------------------------------------================
(1) LAE represents loss adjustment expenses.
- --------------------------------------------------------------------------------
GAAP combined ratios for Personal Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The 1999 statutory and GAAP combined ratios for Personal Lines (excluding the
adjustment associated with the termination of a quota share reinsurance
arrangement) would have been 93.2% and 93.4%, respectively. The increase in the
first quarter of 1999 statutory and GAAP Loss and LAE ratio compared to the
first quarter of 1998 was primarily due to a modest increase in medical costs
and a decrease in favorable prior-year reserve development in the automobile
bodily injury line. The decrease in the statutory and GAAP underwriting expense
ratio in the first quarter of 1999 compared to the first quarter of 1998
reflects greater efficiency through the leveraging of the expense base as
premiums grow.
9
<PAGE>
International Consumer
Europe, Middle East & Africa
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $534 $471 13
Adjusted operating expenses (1) 338 318 6
Provision for credit losses 78 70 11
--------------------------
Business income before taxes 118 83 42
Income taxes 44 32 38
--------------------------
Business income 74 51 45
Restructuring-related items, after-tax 6 -- NM
--------------------------
Net income $ 68 $ 51 33
- ------------------------------------------------------==========================
Average assets (in billions of dollars) $ 21 $ 21 --
Return on assets 1.31% 0.98%
- ------------------------------------------------------==========================
Excluding restructuring-related items
Return on assets 1.43% 0.98%
- ------------------------------------------------------==========================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
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 $74 million in the 1999 first quarter, up $23
million or 45% from a year ago, reflecting increases in Western Europe,
particularly Germany. Net income of $68 million in the 1999 first quarter
included restructuring-related items of $6 million ($10 million pretax).
As shown in the following table, EMEA reported 7% account growth from a year ago
primarily reflecting loan growth, including credit cards.
First Quarter %
-------------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Accounts (in millions) 9.6 9.0 7
Average customer deposits $16.8 $16.5 2
Average loans 16.3 15.0 9
- -----------------------------------------------------===========================
Revenues, net of interest expense, of $534 million in the 1999 first quarter
grew $63 million or 13% from a year ago, reflecting loan growth, improved
spreads, and higher investment product fees, principally in Western Europe.
Adjusted operating expenses of $338 million were up $20 million or 6% from 1998,
reflecting costs associated with franchise expansion in Central and Eastern
Europe and credit card expansion efforts in certain countries in Western Europe.
The provision for credit losses in the 1999 first quarter was $78 million, up
from $70 million in 1998. The net credit loss ratio was 1.81% in the quarter
compared with 1.78% in 1998.
10
<PAGE>
Asia Pacific
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $519 $423 23
Adjusted operating expenses (1) 267 237 13
Provision for credit losses 88 50 76
--------------------------
Business income before taxes 164 136 21
Income taxes 62 53 17
--------------------------
Business income 102 83 23
Restructuring-related items, after-tax 7 -- NM
--------------------------
Net income $ 95 $ 83 14
- ------------------------------------------------------==========================
Average assets (in billions of dollars) $ 29 $ 27 7
Return on assets 1.33% 1.25%
- ------------------------------------------------------==========================
Excluding restructuring-related items
Return on assets 1.43% 1.25%
- ------------------------------------------------------==========================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
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 $102 million in the 1999 first quarter, up
from $83 million a year ago, reflecting growth throughout the region,
particularly in Japan, as the business rebounded from a weak 1998 first quarter.
Net income of $95 million in the 1999 first quarter included
restructuring-related items of $7 million ($11 million pretax).
As shown in the following table, Asia Pacific accounts grew 25% from the 1998
first quarter, driven by double digit growth in both customer deposits and
loans, reflecting a "flight to quality" in the region.
First Quarter %
----------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Accounts (in millions) 8.0 6.4 25
Average customer deposits $40.2 $33.2 21
Average loans 22.1 19.5 13
- --------------------------------------------------------========================
Revenues, net of interest expense, of $519 million increased $96 million or 23%
from the 1998 first quarter, reflecting strong performance in Japan, account and
business volume growth across the region, and spread improvements in certain
countries. Adjusted operating expenses were up $30 million or 13% from a year
ago, reflecting business volume growth, new product launches in Japan, and
higher marketing costs.
The provision for credit losses in the 1999 first quarter was $88 million, up
from $50 million a year ago. The net credit loss ratio was 1.43% in the quarter
compared with 0.92% a year ago. The increase in both the provision and the net
credit loss ratio reflects economic conditions in the region.
11
<PAGE>
Latin America
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $466 $354 32
Adjusted operating expenses (1) 292 233 25
Provision for credit losses 101 49 106
--------------------------
Business income before taxes 73 72 1
Income taxes 25 29 (14)
--------------------------
Business income 48 43 12
Restructuring-related items, after-tax 10 -- NM
--------------------------
Net income $ 38 $ 43 (12)
- -----------------------------------------------------===========================
Average assets (in billions of dollars) $ 14 $ 9 56
Return on assets 1.10% 1.94%
- -----------------------------------------------------===========================
Excluding restructuring-related items
Return on assets 1.39% 1.94%
- -----------------------------------------------------===========================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Latin America -- which provides banking and lending services, including credit
and charge cards, to customers throughout the region -- reported business income
of $48 million in the 1999 first quarter, up from $43 million a year ago,
reflecting the effect of certain acquisitions made in 1998, an increase in
earnings from Credicard, a 33%-owned Brazilian Card affiliate, partially offset
by a higher provision for credit losses. Net income of $38 million in the 1999
first quarter included restructuring-related items of $10 million ($16 million
pretax).
During the quarter, Citibank acquired Financiero Atlas, a Chilean consumer
finance company with 65 branches and approximately $460 million in assets.
The Brazilian currency devaluation in the 1999 first quarter has exacerbated the
deteriorating economic conditions in the region. The devaluation significantly
contributed to the 1999 first quarter foreign currency translation effects that
reduced revenue and expense growth in Latin America by approximately 10% and
11%, respectively.
As shown in the following table below, Latin America experienced strong business
volume growth, including the effect of certain acquisitions made in 1998.
Customer deposit growth also reflects a "flight to quality" in the region during
1998.
First Quarter %
----------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Accounts (in millions) 6.8 5.1 33
Average customer deposits $12.7 $ 8.9 43
Average loans 7.8 7.5 4
- --------------------------------------------------------========================
Revenues, net of interest expense, of $466 million were up $112 million or 32%
from the 1998 first quarter, reflecting certain acquisitions in the region,
increased earnings in Credicard, and account and business volume growth,
partially offset by reduced spreads. Adjusted operating expenses in the 1999
first quarter grew $59 million or 25% from a year ago, reflecting acquisitions
in the region and increased collection efforts, as well as business volume
growth.
The provision for credit losses was $101 million in the 1999 first quarter, up
from $49 million a year ago, reflecting economic conditions in the region. The
net credit loss ratio was 4.74% in the 1999 first quarter, up from 2.45% a year
ago.
12
<PAGE>
Global Private Bank
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 273 $ 264 3
Total operating expenses 174 176 (1)
Provision (benefit) for credit losses 8 (7) 214
----------------------------
Income before taxes 91 95 (4)
Income taxes 34 37 (8)
----------------------------
Net income $ 57 $ 58 (2)
- ---------------------------------------------------=============================
Average assets (in billions of dollars) $ 18 $ 16 13
Return on assets 1.28% 1.47%
- ---------------------------------------------------=============================
Global Private Bank -- which provides personalized wealth management services
for high net-worth clients around the world -- reported net income in the 1999
first quarter of $57 million, down $1 million or 2% from the 1998 first quarter,
reflecting revenue growth offset by a higher provision for credit losses.
Client business volumes under management were $119 billion at March 31, 1999, up
from $116 billion at year-end and $105 billion a year ago, reflecting growth in
the U.S., Europe, and Japan.
Total revenues, net of interest expense, in the quarter were $273 million, up $9
million or 3% from 1998, reflecting growth in net interest income and fee
revenues. Strong revenue growth in the U.S. and Japan was partially offset by
weakness in Asia Pacific, excluding Japan, and Latin America.
Total operating expenses of $174 million in the quarter were down $2 million or
1% from a year ago, as reduced staffing levels were partially offset by higher
incentive compensation and operations and technology expenses.
The provision for credit losses for 1999 was $8 million compared with net
recoveries of $7 million in 1998. The increase primarily reflected reduced
credit recoveries in the U.S. along with higher write-offs in Asia Pacific.
Loans 90 days or more past due also continued to remain low at $191 million or
1.10% of loans at March 31, 1999 compared to $193 million or 1.14% at year-end
and $186 million or 1.21% a year ago.
e-Citi
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 54 $ 30 80
Total operating expenses 113 78 45
Provision for credit losses 1 1 --
---------------------------
Loss before tax benefits (60) (49) 22
Income tax benefits (24) (19) 26
---------------------------
Net loss $ (36) $ (30) 20
- -----------------------------------------------------===========================
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 net
losses of $36 million in the 1999 first quarter, compared to $30 million in the
1998 first quarter.
Revenues, net of interest expense, were $54 million in the 1999 first quarter,
up from $30 million a year ago, reflecting business volume increases in certain
electronic banking services. Total operating expenses of $113 million increased
from $78 million in the 1998 first quarter, reflecting business volume increases
and investment spending on Internet based and other electronic banking services
as well as other e-commerce initiatives.
13
<PAGE>
Other Consumer
First Quarter
------------------
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 31 $ 26
Total operating expenses 63 30
-----------------
Loss before tax benefits (32) (4)
Income tax benefits (12) (3)
-----------------
Net loss $(20) $ (1)
- --------------------------------------------------------------==================
Other Consumer -- which includes certain treasury operations and global
marketing and other programs - reported net losses of $20 million in the 1999
first quarter, compared to $1 million in the 1998 first quarter, principally
reflecting higher spending on global advertising, marketing, and distribution
development initiatives.
Consumer Portfolio Review
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 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 15 summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolios 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 a year ago. Mortgage Banking loans delinquent 90 days or more of
$610 million at March 31, 1999 declined from $688 million a year ago and
Citibanking North America delinquencies of $107 million declined from $129
million. Similarly, Mortgage Banking net credit losses of $13 million in the
1999 first quarter declined from $23 million in the 1998 first quarter and
Citibanking North America net credit losses of $28 million declined from $32
million in the 1998 first quarter.
U.S. bankcards managed loans delinquent 90 days or more were $1.0 billion or
1.46% ($820 million or 1.56% excluding UCS) at March 31, 1999, compared with
$1.0 billion or 1.45% ($812 million or 1.55% excluding UCS) at December 31, 1998
and $855 million or 1.85% at March 31, 1998. Net credit losses in the 1999 first
quarter were $784 million and the related loss ratio was 4.72% ($617 million and
4.91% excluding UCS), compared with $790 million and 4.82% ($632 million and
5.09% excluding UCS) in the 1998 fourth quarter and $676 million and 5.85% in
the 1998 first quarter. The improvement in both the delinquency and net credit
loss ratios from the prior year reflects moderating industry-wide bankruptcy
trends and previously implemented credit risk management initiatives. Citigroup
continues to write off bankrupt accounts upon notice of filing of bankruptcy.
Consumer Finance Services credit trends reflect loan growth and positive U.S.
economic conditions. Loans delinquent 90 days or more were $183 million or 1.42%
at March 31, 1999, compared with $172 million or 1.44% at December 31, 1998 and
$143 million or 1.42% a year ago. Net credit losses in the 1999 first quarter
were $71 million and the related loss ratio was 2.38%, compared with $77 million
and 2.67% in the 1998 fourth quarter and $72 million and 2.93% in the 1998 first
quarter.
In Europe, Middle East, and Africa, credit trends have been relatively stable in
most countries. Loans delinquent 90 days or more were $878 million or 5.45% at
March 31, 1999, compared with $937 million or 5.49% at December 31, 1998 and
$873 million or 5.88% at March 31, 1998. Net credit losses in the 1999 first
quarter were $73 million and the related loss ratio was 1.81%, compared with $73
million and 1.71% in the 1998 fourth quarter and $66 million and 1.78% in the
1998 first quarter.
In Asia Pacific and Latin America, delinquencies and net credit losses have
increased from 1998 levels due to economic conditions in the regions. Asia
Pacific loans delinquent 90 days or more of $513 million at March 31, 1999
increased from $498 million at December 31, 1998 and $316 million a year ago.
Net credit losses of $78 million in the 1999 first quarter increased from $68
million in the 1998 fourth quarter and $44 million in the 1998 first quarter.
Latin America loans delinquent 90 days or more of $292 million at March 31, 1999
increased from $288 million at December 31, 1998 and $183 million a year ago.
Net credit losses of $91 million in the 1999 first quarter increased from $67
million in the 1998 fourth quarter and $45 million in the 1998 first quarter.
Global Private Bank loans delinquent 90 days or more were $191 million at March
31, 1999, compared with $193 million at December 31, 1998 and $186 million at
March 31, 1998. Delinquencies reflect an increase in Asia Pacific and Europe,
Middle East and Africa, offset by improvements in North America and Latin
America. Net credit losses in the 1999 first quarter were $8 million, compared
with $11 million in the 1998 fourth quarter and net recoveries of $7 million in
the 1998 first quarter. The increase in net credit losses from the 1998 first
quarter reflects higher write-offs in Asia Pacific and lower recoveries in North
America.
14
<PAGE>
Total consumer loans on the balance sheet delinquent 90 days or more on which
interest continued to be accrued were $1.0 billion at March 31, 1999, $1.1
billion at December 31, 1998, and $1.0 billion at March 31, 1998. Included in
these amounts are U.S. government-guaranteed student loans of $302 million at
March 31, 1999, up from $267 million and $256 million at December 31, 1998 and
March 31, 1998, respectively, reflecting loan growth. 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 $741 million at March 31, 1999, $790 million at December 31, 1998, and $754
million at March 31, 1998. The majority of these other loans are written off
upon reaching a stipulated number of days past due.
Citigroup's policy for suspending the accrual of interest on consumer loans
varies depending on the terms, security, and credit loss experience
characteristics of each product, as well as write-off criteria in place. At
March 31, 1999, interest accrual had been suspended on $2.3 billion of consumer
loans, primarily consisting of mortgage, installment, revolving, and Private
Banking loans, compared with $2.3 billion at December 31, 1998 and $2.0 billion
at March 31, 1998. The increase from a year ago reflects increases in Asia
Pacific and Latin America, partially offset by improvements in Mortgage Banking.
See the table entitled "Cash-Basis, Renegotiated, and Past Due Loans" on page
43.
Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
<TABLE>
<CAPTION>
Total Average
Loans 90 Days or More Past Due (1) Loans Net Credit Losses (1)
------------------------------------------------------------------------------------
In millions of dollars, except loan amounts in Mar. 31, Mar. 31, Dec. 31, Mar. 31, 1st Qtr. 1st Qtr. 4th Qtr. 1st Qtr.
billions 1999 1999 1998 1998 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking North America $ 8.0 $ 107 $ 97 $ 129 $ 8.1 $ 28 $ 32 $ 32
Ratio 1.33% 1.18% 1.51% 1.35% 1.55% 1.51%
Mortgage Banking 26.7 610 625 688 26.6 13 17 23
Ratio 2.29% 2.44% 2.91% 0.20% 0.27% 0.42%
U.S. Bankcards (2) 69.0 1,007 1,001 855 67.4 784 790 676
Ratio 1.46% 1.45% 1.85% 4.72% 4.82% 5.85%
Other Cards 2.5 46 42 40 2.3 18 18 16
Ratio 1.86% 1.78% 1.67% 3.25% 2.96% 2.95%
Consumer Finance Services 12.9 183 172 143 12.1 71 77 72
Ratio 1.42% 1.44% 1.42% 2.38% 2.67% 2.93%
Europe, Middle East & Africa 16.1 878 937 873 16.3 73 73 66
Ratio 5.45% 5.49% 5.88% 1.81% 1.71% 1.78%
Asia Pacific 22.2 513 498 316 22.1 78 68 44
Ratio 2.31% 2.28% 1.57% 1.43% 1.24% 0.92%
Latin America 7.8 292 288 183 7.8 91 67 45
Ratio 3.75% 3.60% 2.38% 4.74% 3.39% 2.45%
Global Private Bank 17.4 191 193 186 17.2 8 11 (7)
Ratio 1.10% 1.14% 1.21% 0.18% 0.25% NM
Other 0.6 2 2 1 0.9 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total managed 183.2 3,829 3,855 3,414 180.8 1,165 1,154 968
Ratio 2.09% 2.12% 2.29% 2.61% 2.61% 2.65%
- --------------------------------------------------==================================================================================
Securitized credit card receivables (46.7) (688) (658) (519) (44.3) (556) (536) (431)
Loans held for sale (5.6) (39) (38) (39) (5.2) (32) (32) (31)
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans $130.9 $3,102 $3,159 $2,856 $131.3 $ 577 $ 586 $ 506
Ratio 2.37% 2.39% 2.44% 1.78% 1.80% 1.75%
- --------------------------------------------------==================================================================================
</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) Includes U.S. bankcards and Travelers Bank. U.S. bankcards managed ratios of
90 days or more past due and net credit losses were reduced by 10 and 19
basis points, respectively, in the 1999 first quarter, and by 10 and 27
basis points, respectively, in the 1998 fourth quarter, 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
----------------------------- ----------------------------
Mar. 31, Dec. 31, Mar.31, 1st Qtr. 4th Qtr. 1st Qtr.
In billions of dollars 1999 1998 1998 1999 1998 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total managed $183.2 $181.6 $149.2 $180.8 $175.3 $148.1
Securitized credit card receivables (46.7) (44.3) (27.8) (44.3) (41.5) (27.6)
Loans held for sale (5.6) (5.0) (3.8) (5.2) (4.9) (3.6)
---------------------------- ----------------------------
Consumer loans $130.9 $132.3 $117.6 $131.3 $128.9 $116.9
- --------------------------------------============================================================
</TABLE>
15
<PAGE>
The portion of Citigroup's allowance for credit losses attributed to the
consumer portfolio was $3.4 billion at March 31, 1999, up from $3.3 billion at
December 31, 1998 and $2.8 billion at March 31, 1998. The increase from a year
ago reflects the 1998 addition of a $320 million allowance for credit losses
related to the acquisition of the Universal Card portfolio. The allowance as a
percentage of loans on the balance sheet was 2.56% as of March 31, 1999,
compared with 2.50% at December 31, 1998 and 2.41% a year ago. The attribution
of the allowance is made for analytical purposes only and may change from time
to time.
Net credit losses and the related loss ratios may increase from the 1999 first
quarter as a result of global economic conditions, particularly in Latin America
and Asia Pacific, portfolio growth, the credit performance of the portfolios,
including bankruptcies, and seasonal factors. Additionally, delinquencies and
loans on which the accrual of interest is suspended could remain at relatively
high levels. This statement is a forward-looking statement within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 24.
During the 1999 first quarter, the Federal Financial Institutions Examination
Council (FFIEC) revised its Uniform Retail Credit Classification and Account
Management Policy. The policy provides guidance on the reporting of delinquent
consumer loans and the timing of associated credit charge-offs for Citigroup's
financial institution subsidiaries. The revised policy, which will be adopted
during 2000, is not expected to have a material effect since Citigroup maintains
adequate reserves for probable credit losses inherent in its loan portfolios.
GLOBAL CORPORATE AND INVESTMENT BANK
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $7,100 $6,484 10
Adjusted operating expenses (1) 3,999 3,825 5
Provisions for benefits, claims, and credit losses 976 1,003 (3)
------------------------
Business income before taxes and minority interest 2,125 1,656 28
Income taxes 733 585 25
Minority interest, after-tax 37 35 6
------------------------
Business income 1,355 1,036 31
Restructuring-related credit, after-tax 120 -- NM
------------------------
Net income (2) $1,475 $1,036 42
- -------------------------------------------------------=========================
(1) Excludes restructuring-related items.
(2) Excludes cumulative effect of accounting changes.
NM Not meaningful
- --------------------------------------------------------------------------------
Global Corporate and Investment Bank business income in the 1999 first quarter
was $1.355 billion, up $319 million or 31% from the 1998 first quarter. The
improvement reflects business income growth of $205 million or 46% at Salomon
Smith Barney (SSB), $57 million or 22% in the Emerging Markets business, $39
million or 25% in Global Relationship Banking (GRB), and $18 million or 11% in
Commercial Lines. SSB's results reflect strong retail business, record fixed
income underwriting and improved trading. SSB's risk profile is substantially
improved from the 1998 quarter with global arbitrage positions reduced and
Phibro's operations significantly curtailed. Results in the Emerging Markets
business reflect growth in trading, lending, and trade finance while the GRB's
results reflect improved trading and transaction banking. Commercial Lines
results primarily reflect favorable prior-year reserve development and expense
control.
Global Corporate and Investment Bank net income, excluding the effect of
accounting changes, totaled $1.475 billion, up $439 million or 42% from the 1998
first quarter. Included in 1999 first quarter net income is a release of the
1997 restructuring reserve of $125 million ($211 million pre-tax) that resulted
from SSB's reassessment of space needs due to the Citicorp merger. See further
discussion of the restructuring reserve release in SSB in Note 7 of Notes to
Consolidated Financial Statements.
The businesses of Global Corporate and Investment Bank are 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 businesses operate. Global
economic exigencies can have both positive and negative effects on the revenue
performance of the businesses and can negatively affect credit performance. In
particular, levels of principal transactions, realized gains from sales of
investments, and gains from asset sales may fluctuate in the future as a result
of market and asset-specific factors. Losses on commercial lending activities
can vary widely with respect to timing and amount, particularly within any
narrowly defined business or loan type. Net write-offs and cash-basis loans may
increase from the 1998 levels due to global economic developments, particularly
in Latin America and Asia Pacific. A variety of factors continue to affect the
property and casualty insurance market, including the competitive pressures
affecting pricing and profitability, inflation in the cost of medical care, and
litigation. Pricing in the Commercial Lines marketplace is expected to continue
to be very competitive in 1999. Changes in the general interest rate
16
<PAGE>
environment affect the returns received by Commercial Lines on newly invested
and reinvested funds. This paragraph contains statements that are forward
looking within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 24.
Salomon Smith Barney
The following data does not include the Asset Management division of Salomon
Smith Barney. The division's results are included in the SSB Citi Asset
Management Group segment.
First Quarter %
-----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $3,341 $2,918 14
Adjusted operating expenses (1) 2,338 2,207 6
----------------------------
Business income before taxes 1,003 711 41
Income taxes 355 268 32
----------------------------
Business income 648 443 46
Restructuring-related credit, after-tax 124 -- NM
----------------------------
Net income (2) $ 772 $ 443 74
- ----------------------------------------------------============================
(1) Excludes restructuring-related items.
(2) Excludes cumulative effect of accounting change.
NM Not meaningful
- --------------------------------------------------------------------------------
Salomon Smith Barney reported business income in the first quarter of 1999 of
$648 million compared to $443 million in the first quarter of 1998. Included in
1999 first quarter net income is an after-tax restructuring reserve release of
$125 million ($211 million pre-tax) representing a reduction in the
restructuring reserve related to the Seven World Trade Center lease recorded in
the fourth quarter of 1997 in connection with the Salomon merger. The reduction
in the reserve resulted from a current reassessment of space needed due to the
Citicorp merger. The reassessment indicated the need for increased occupancy and
the utilization of space previously considered excessive. See Note 7 of Notes to
Consolidated Financial Statements for discussions of the restructuring
initiatives.
Salomon Smith Barney's earnings benefited from continued strong results in the
retail business, record fixed income underwriting and improved trading revenues.
Revenues by category were as follows:
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Commissions $ 900 $ 793 13
Investment banking 655 616 6
Principal transactions 974 779 25
Asset management and administration fees (1) 377 300 26
Interest income, net (2) 370 402 (8)
Other income 65 28 132
--------------------------
Total revenues, net of interest expense (2) $3,341 $2,918 14
- -----------------------------------------------------===========================
(1) Excludes the revenues of SSB Asset Management which are reported in the
Asset Management business segment.
(2) Net of interest expense of $2.241 billion and $2.914 billion in 1999 and
1998, respectively.
- --------------------------------------------------------------------------------
Revenues, net of interest expense in the first quarter of 1999 were $3.341
billion, a 14% improvement over the $2.918 billion in the first quarter of 1998
primarily reflecting increases in all categories offset by a decline in interest
income, net.
Commissions revenue increased 13% in 1999 to $900 million, from $793 million in
1998. The increase reflects growth in sales of listed and over-the-counter (OTC)
securities.
Investment banking revenues were $655 million in the first quarter of 1999
compared to $616 million in 1998. An increase in high grade debt underwritings
was partially offset by declines in equity, high yield and unit trust
underwritings. During the first quarter of 1999 Salomon Smith Barney was ranked
#1 in the industry in municipal underwriting and mortgage and asset-backed debt
according to Securities Data Corp.
Principal transaction revenues increased 25% to $974 million in the first
quarter of 1999 compared to $779 million in the first quarter of 1998. Increases
in the institutional global fixed income, global equities and municipal trading
businesses were partially offset by declines in the global arbitrage and
commodity trading businesses.
17
<PAGE>
Asset management and administration fees increased 26% to $377 million in the
first quarter of 1999 compared to $300 million in the first quarter of 1998 as a
result of the growth in assets under fee-based management. The investment
services category includes results from assets managed by the Financial
Consultants as well as assets that are externally managed by the consulting
group. Assets under fee-based management increased significantly at March 31,
1999 compared to March 31, 1998 causing the corresponding increase in revenue.
Total assets under fee-based management at March 31, were as follows:
March 31, %
-------------
In billions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Financial Consultant managed accounts $18.6 $13.3 40
Consulting Group externally managed assets 73.1 67.1 9
-----------------------
Total assets under fee-based management (1) $91.7 $80.4 14
- ---------------------------------------------------------=======================
(1) Excludes the assets under management of SSB Asset Management, which are
reported in the Asset Management business segment.
- --------------------------------------------------------------------------------
Net interest and dividends were $370 million in the first quarter of 1999
compared to $402 million in the first quarter of 1998.
Adjusted operating expenses were $2.338 billion in the first quarter of 1999
compared to $2.207 billion in the first quarter of 1998. The 6% increase
primarily reflects an increase in production-related compensation and employee
benefits expense, reflecting increased revenues, partially offset by the benefit
of changes in employee deferred compensation plans. Salomon Smith Barney
continues to maintain its focus on controlling fixed expenses.
Emerging Markets
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $1,134 $ 957 18
Adjusted operating expenses (1) 501 475 5
Provision for credit losses 115 62 85
--------------------------
Business income before taxes and minority interest 518 420 23
Income taxes 196 156 26
Minority interest, after-tax 1 -- NM
--------------------------
Business income 321 264 22
Restructuring-related items, after-tax 1 -- NM
--------------------------
Net income $ 320 $ 264 21
- ------------------------------------------------------==========================
Average assets (in billions of dollars) $ 80 $ 74 8
Return on assets 1.62% 1.45%
- ------------------------------------------------------==========================
Excluding restructuring-related items
Return on assets 1.63% 1.45%
- ------------------------------------------------------==========================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Emerging Markets business income totaled $321 million in the 1999 first quarter,
up $57 million or 22% from the 1998 first quarter. Return on assets, excluding
restructuring-related items, was 1.63%, up from 1.45% in the 1998 quarter.
Revenues, net of interest expense, of $1.134 billion grew $177 million or 18%
compared with the 1998 period primarily driven by higher principal transactions
revenues, as well as lending and trade finance. Revenue growth was broadly based
across most countries in which the business operates. Revenues attributed to the
Embedded Bank and Emerging Local Corporate strategies (Citigroup's plans to gain
market share in selected emerging market countries), together with new
franchises, accounted for 6% and 5% of the Emerging Markets business revenues in
the first quarters of 1999 and 1998, respectively, and grew 43% from the 1998
period. About 24% of the revenue in the Emerging Markets business in the 1999
and 1998 first quarters was attributable to business from multinational
companies managed jointly with Global Relationship Banking, with that revenue
having grown 22% from 1998.
Adjusted operating expenses totaled $501 million in the 1999 first quarter, up
$26 million or 5% from the 1998 quarter. The growth in expenses primarily
reflects investment spending associated with implementing plans to gain market
share in selected emerging market countries.
The provision for credit losses totaled $115 million, up $53 million or 85% from
1998. The increase was concentrated in Asia Pacific. Cash-basis loans were
$1.095 billion, $1.062 billion, and $953 million at March 31, 1999 and December
31 and March 31, 1998, respectively. The increases were concentrated in Asia
Pacific. Cash-basis loans at March 31, 1999 and December 31 and March 31, 1998
include approximately $13 million, $14 million, and $83 million, respectively,
of balance sheet credit exposure related to
18
<PAGE>
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 43.
Average assets of $80 billion in the 1999 first quarter rose $6 billion or 8%
from the 1998 first quarter reflecting growth across all geographic regions. The
growth was concentrated in the loan portfolio and trade finance products,
together with treasury initiatives.
Global Relationship Banking
First Quarter %
-------------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,091 $ 990 10
Adjusted operating expenses (1) 784 737 6
Provision (benefit) for credit losses (4) 3 (233)
------------------------------
Business income before taxes 311 250 24
Income taxes 114 92 24
------------------------------
Business income 197 158 25
Restructuring-related items, after-tax 3 -- NM
------------------------------
Net income $ 194 $ 158 23
- -------------------------------------------------===============================
Average assets (in billions of dollars) $ 89 $ 90 (1)
Return on assets 0.88% 0.71%
- -------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 0.90% 0.71%
- -------------------------------------------------===============================
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Business income from Global Relationship Banking in North America, Europe, and
Japan was $197 million in the 1999 first quarter, up $39 million or 25% from
1998. Return on assets, excluding restructuring-related items, was 0.90%, up
from 0.71% in the 1998 quarter.
Revenues, net of interest expense, of $1.091 billion grew $101 million or 10%
compared with the 1998 period, primarily reflecting strong principal
transactions revenues coupled with double-digit growth in transaction banking
services. In late 1998, certain capital markets businesses were transferred to
SSB in connection with business integration and restructuring initiatives and
are not included in the results of GRB in the 1999 first quarter. Adjusted
operating expenses were $784 million, up $47 million or 6% from 1998. The growth
in expenses primarily reflects increased spending on technology, including costs
related to the EMU and Year 2000 coupled with higher incentive compensation.
Expenses declined $19 million or 2% from the 1998 fourth quarter as EMU and Year
2000 spending declined from its peak in the 1998 fourth quarter.
The provision (benefit) for credit losses reflected net recoveries of $4 million
in the 1999 first quarter compared with net write-offs of $3 million in the 1998
quarter. Cash-basis loans at March 31, 1999 and December 31 and March 31, 1998
were $308 million, $268 million, and $378 million, respectively, while the other
real estate owned portfolio totaled $212 million, $235 million, and $329
million, respectively. See the tables entitled "Cash-Basis, Renegotiated, and
Past Due Loans" and "Other Real Estate Owned and Assets Pending Disposition" on
page 43.
Average assets of $89 billion in the 1999 first quarter declined $1 billion or
1% from the 1998 period, primarily reflecting the transfer of certain capital
markets businesses to SSB and lower trading assets, partially offset by higher
asset levels in the cash management and loan portfolio products.
19
<PAGE>
Commercial Lines
First Quarter %
----------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $1,534 $1,619 (5)
Total operating expenses 376 406 (7)
Claims and claim adjustment expenses 865 938 (8)
--------------------------
Income before taxes and minority interest 293 275 7
Income taxes 68 69 (1)
Minority interest, after-tax 36 35 3
--------------------------
Net income (1) (2) $ 189 $ 171 11
- -----------------------------------------------------===========================
(1) Excludes cumulative effect of accounting changes.
(2) Excludes investment gains/losses included in Investment Activities segment.
NM Not meaningful
- --------------------------------------------------------------------------------
Net income, excluding the effect of accounting changes, was $189 million in the
first quarter of 1999 compared to $171 million in the first quarter of 1998. The
11% improvement in 1999 reflects favorable prior-year reserve development,
continued expense savings, and lower cumulative injury incurred losses,
partially offset by higher weather-related losses and a decrease in fee income.
Operating results reflect the long-standing insistence on maintaining discipline
in the highly competitive commercial lines marketplace and on growing business
only where market conditions warrant.
Net written premiums by market were as follows:
First Quarter %
-------------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
National accounts $ 150 $ 186 (19)
Commercial accounts 444 463 (4)
Select accounts 372 379 (2)
Specialty accounts 148 184 (19)
--------------------------------
Total net written premiums $1,114 $1,212 (8)
- -----------------------------------------------=================================
Commercial Lines net written premiums in the first quarter of 1999 totaled
$1.114 billion, down $98 million from $1.212 billion in the first quarter of
1998 reflecting the highly competitive marketplace and the continued disciplined
approach to underwriting and risk management.
Fee income was $67 million in the first quarter of 1999 compared to $82 million
in the first quarter of 1998. The decrease in fee income was primarily due to
the depopulation of involuntary pools serviced by the Company.
The decrease in National Accounts net written premiums was primarily due to a
decrease in the level of involuntary pool participation and the continued
disciplined approach to underwriting and risk management.
National Accounts new business was significantly lower and its business
retention ratio was moderately lower in the first quarter of 1999 than in the
first quarter of 1998. These decreases reflected the continued disciplined
approach to the highly competitive marketplace.
The decrease in Commercial Accounts net written premiums reflect the continued
disciplined approach to underwriting and risk management, partially offset by
the continued growth through programs designed to leverage underwriting
experience in specific industries.
Commercial Accounts new business in the first quarter of 1999 was significantly
lower than in the first quarter of 1998, reflecting the focus on obtaining new
accounts only where it can maintain its selective underwriting policy.
Commercial Accounts business retention ratio was moderately lower in the first
quarter of 1999 than in the first quarter of 1998. Commercial Accounts continues
to focus on maintaining its product pricing standards and its selective
underwriting policy in the renewal of accounts.
The decrease in Select Accounts net written premiums reflects the highly
competitive marketplace and the continued disciplined approach to underwriting
and risk management.
New premium business in Select Accounts was significantly lower in the first
quarter of 1999 compared to the first quarter of 1998, reflecting its selective
underwriting policy in the highly competitive marketplace. Select Accounts
business retention ratio remained strong in the first quarter of 1999 and was
virtually the same as that in the first quarter of 1998.
20
<PAGE>
The decrease in Specialty Accounts net written premiums primarily reflects a
highly competitive marketplace and the continued disciplined approach to
underwriting and risk management.
Statutory and GAAP combined ratios (before allocation of corporate expenses) for
Commercial Lines were as follows:
First Quarter
----------------
1999 1998
- --------------------------------------------------------------------------------
Statutory
Loss and LAE ratio 76.2% 78.2%
Underwriting expense ratio 28.5 28.6
---------------
Combined ratio before policyholder dividends 104.7 106.8
===============
Combined ratio 105.7% 108.0%
- ----------------------------------------------------------------================
GAAP
Loss and LAE ratio 75.8% 77.9%
Underwriting expense ratio 31.1 30.2
---------------
Combined ratio before policyholder dividends 106.9 108.1
===============
Combined ratio 107.9% 109.3%
- ----------------------------------------------------------------================
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The decrease in the 1999 statutory and GAAP combined ratios before policyholder
dividends compared to the 1998 statutory and GAAP combined ratios before
policyholder dividends was due to favorable prior-year reserve development and
lower cumulative injury incurred losses, partially offset by higher
weather-related losses and lower fee income.
Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves
The reserves for environmental claims are not established on a claim-by-claim
basis. An aggregate bulk reserve is carried for all of the environmental claims
that are in the dispute process, until the dispute is resolved. This bulk
reserve is established and adjusted based upon the aggregate volume of
in-process environmental claims and the experience in resolving such claims. At
March 31, 1999, approximately 18% of the net aggregate reserve (i.e.,
approximately $143 million) consists of case reserve for resolved claims. The
balance, approximately 82% of the net aggregate reserve (i.e., approximately
$655 million), is carried in a bulk reserve and includes incurred but not
reported environmental claims for which the Company has not received any
specific claims.
In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of such claims. At March 31, 1999,
approximately 22% of the net aggregate reserve (i.e., approximately $225
million) is for pending asbestos claims. The balance, approximately 78% (i.e.,
approximately $797 million) of the net aggregate reserve, represents incurred
but not reported losses for which the company has not received any specific
claims.
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
The reserves carried for environmental and asbestos claims at March 31, 1999 are
the Company's best estimate of ultimate claims and claim adjustment expenses
based upon known facts and current law. However, the conditions surrounding the
final resolution of these claims continue to change. Currently, it is not
possible to predict changes in the legal and legislative environment and their
impact on the future development of asbestos and environmental claims. Such
development will be affected by future court decisions and interpretations, as
well as changes in legislation applicable to such claims. Because of these
future unknowns, additional liabilities may arise for amounts in excess of the
current reserves. These additional amounts, or a range of these additional
amounts, cannot now be reasonably estimated, and could result in a liability
exceeding reserves by an amount that would be material to the Company's
operating results in a future period. However, the Company believes that it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See Forward-Looking Statements on page 24.
21
<PAGE>
ASSET MANAGEMENT
First Quarter %
-------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $354 $305 16
Total operating expenses 221 192 15
----------------------
Income before taxes 133 113 18
Income taxes 53 44 20
----------------------
Net income (1) $ 80 $ 69 16
- ----------------------------------------------------------======================
Assets under management (in billions of dollars) (2) $338 $281 20
- ----------------------------------------------------------======================
(1) Excludes cumulative effect of accounting change.
(2) Includes $34 billion and $29 billion in 1999 and 1998, respectively, for
Global Private Bank clients.
- --------------------------------------------------------------------------------
Asset Management is comprised of the substantial resources that are available
through its three primary asset management business platforms: Salomon Brothers
Asset Management, Smith Barney Asset Management, and Citibank Asset Management.
Asset Management offers institutional, high net worth, and retail clients a
broad range of investment disciplines from global investment centers around the
world. Products and services offered include mutual funds, closed-end funds,
separately managed accounts, unit investment trusts, and variable annuities
(through affiliated and third party insurance companies).
Asset Management net income, excluding the effect of the accounting change, of
$80 million in the 1999 first quarter was up $11 million or 16% from the 1998
first quarter, as revenue growth offset increased expenses from continued
investments in the business' infrastructure and investment research. Income
before taxes increased by $20 million or 18% over 1998.
Assets under management rose 20% from the year-ago quarter to $338 billion, as
growth continued across all product categories. Institutional managed account
assets grew to $93 billion, up 22% from the 1998 first quarter. Money fund and
long-term mutual fund assets grew by 27% and 13%, respectively. Contributing to
money fund growth was a $3.6 billion increase in institutional liquidity funds
in the first quarter resulting from increased selling efforts through Global
Relationship Banking. Capitalizing on Japan's Big Bang, Asset Management raised
$600 million in Japan through sales of its new CitiFunds mutual funds and sales
of Salomon Brothers mutual funds in non-proprietary channels. Also in the
quarter, CitiEuroland funds were introduced through the Citibank Europe Consumer
Bank.
Revenues, net of interest expense rose $49 million or 16% to $354 million in the
first quarter. This increase was predominantly in investment advisory fees and
reflects the broad growth in assets under management, plus additional
performance fees.
Operating expenses increased $29 million or 15% to $221 million in 1999,
reflecting global business growth and efforts to build Asset Management's
investment research and quantitative investment capabilities. Expenses excluding
the research/quantitative buildout and the July 1998 acquisition of JP Morgan's
Australian asset management business, increased 7%.
CORPORATE/OTHER
<TABLE>
<CAPTION>
First Quarter %
--------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues, net of interest expense $ (71) $ (53) (34)
Adjusted operating expenses (1) 161 145 11
Provision (benefit) for benefits, claims, and credit losses 7 (1) NM
-----------------------
Business loss before tax benefits (239) (197) 21
Income tax benefits (77) (61) 26
-----------------------
Business loss (162) (136) 19
Restructuring-related items, after-tax 8 -- NM
-----------------------
Net loss $(170) $(136) 25
- --------------------------------------------------------------=======================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Corporate/Other includes certain net treasury results and corporate staff and
similar expenses. Net loss of $170 million increased $34 million or 25% over the
prior year, primarily reflecting income from the disposition of a real estate
development property in 1998 and increases in certain technology expenses and
other unallocated corporate costs.
22
<PAGE>
INVESTMENT ACTIVITIES
First Quarter %
---------------
In millions of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 158 $ 619 (74)
Total operating expenses 14 11 27
Provision (benefit) for credit losses -- (10) NM
--------------------------
Income before taxes and minority interest 144 618 (77)
Income taxes 49 209 (77)
Minority interest, after-tax 2 7 (71)
--------------------------
Net income $ 93 $ 402 (77)
- -----------------------------------------------------===========================
NM Not meaningful
- --------------------------------------------------------------------------------
Investment Activities comprises venture capital activities, realized investment
gains (losses) related to certain corporate- and insurance-related investments,
and the results of certain investments in countries that refinanced debt under
the 1989 Brady Plan or plans of a similar nature.
Revenues, net of interest expense of $158 million declined $461 million or 74%
from the 1998 first quarter reflecting a $313 million decrease in realized gains
from sales of investments to $36 million coupled with a $126 million decrease in
venture capital revenues to $138 million.
Investment Activities results may fluctuate in the future due to market and
asset-specific factors.
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. Citigroup 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.
Citigroup 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 Citigroup's ability to meet its customer and other
obligations on a timely basis, and Citigroup has engaged in a worldwide 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 $900 million through 1999, funded from a
combination of a reprioritization of technology development initiatives and
incremental costs. This is being expensed as incurred. Of the total,
approximately $750 million has been incurred to date, including approximately
$90 million in the first quarter of 1999.
Substantially all of the required modification and internal testing work has
been completed and Citigroup continues to make satisfactory progress towards
successful completion of its year 2000 program. The remainder of 1999 will be
spent primarily addressing completion of the remaining external testing,
integration testing and production assurance. Citigroup 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 centers, and desktops, and these are similarly
progressing towards timely resolution.
Citigroup is also addressing year 2000 issues that may exist outside its own
global technology activities, including its facilities and business processes,
external service providers, and other third parties with which it interfaces.
Substantially all of Citigroup's facilities and related systems have been
investigated, and modification is under way. Other business processes are
likewise being addressed across the Company.
Significant third parties with which Citigroup 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 Citigroup
to the potential for loss, impairment of business processes and activities, and
disruption of financial markets. Citigroup is addressing these risks worldwide
through bilateral and multiparty efforts and participation in industry, country,
and global initiatives. While significant
23
<PAGE>
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 the Company's
results of operations in future periods.
Citigroup 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 Citigroup'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.
An additional year 2000 issue for Travelers Property Casualty Corp. is the
potential future impact of claims for insurance coverage from customers who
suffer year 2000 business losses or claim coverage for their potential liability
to third parties. TAP has taken certain initiatives to mitigate this potential
risk, including addressing year 2000 issues, where applicable, in the
underwriting of insurance policies. Losses for year 2000 insurance claims and
litigation costs related to such claims are not reasonably estimable at this
time.
The Company's expectations with respect to remediation of the year 2000 issue
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" below.
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. 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," "may fluctuate," 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 global economic conditions,
particularly in Latin America and Asia Pacific, portfolio growth, the credit
performance of the portfolios, including bankruptcies, and seasonal factors;
changes in general economic conditions, including the performance of global
financial markets, risks associated with fluctuating levels of principal
transactions, realized gains from sales of investments, gains from asset sales
and losses on commercial lending activities; interest rates; the resolution of
legal proceedings and related matters; the actual amount of liabilities
associated with certain environmental and asbestos-related insurance claims;
customer responsiveness to both new products and distribution channels; the
actual cost of year 2000-related remediation; and the possibility that the
Company will be unable to achieve anticipated levels of operational efficiencies
related to recent mergers and business acquisitions, as well as achieving its
other cost-saving initiatives.
MANAGING GLOBAL RISK
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 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.
Citigroup'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. The risk management process is described in detail in the
1998 Annual Report and Form 10-K. As Citigroup's businesses become more closely
integrated, it is expected that these management processes will also be more
closely integrated.
Across Citigroup, price risk is measured using various tools, including
Earnings-at-Risk (EAR) and sensitivity analysis, which are applied to interest
rate risk in the non-trading portfolios, and Value-at-Risk (VAR), stress and
scenario analysis, which are 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 with 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
24
<PAGE>
utilization of derivatives is managed in response to changes in market
conditions as well as to changes in the characteristics and mix of the related
assets and liabilities.
At Citicorp, 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.
Citicorp's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. As of March 31, 1999, 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 45 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 March 31,
1999, the rate shifts applied to these currencies for purposes of calculating
Earnings-at-Risk ranged from 17 to 1,991 basis points, over defeasance periods
ranging from one to fifty days, depending on the currency.
The following table illustrates that, as of March 31, 1999, a 45 basis point
increase in the U.S. dollar yield curve would have a potential negative impact
on Citicorp's pre-tax earnings of approximately $129 million in the next twelve
months, and a positive impact of approximately $12 million for the total
five-year period 2000-2004. 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 $109 million in the next twelve months, and
approximately $201 million for the five-year period 2000-2004.
Citicorp 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)
-------------------------------------------------------
Two Standard Deviations Two Standard Deviations (2)
-------------------------------------------------------
In millions of dollars at March 31, 1999 Increase Decrease Increase Decrease
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to three months $ (74) $ 77 $ (25) $ 25
Four to six months (28) 33 (27) 27
Seven to twelve months (27) 29 (57) 58
-------------------------------------------------------
Total overnight to twelve months (129) 139 (109) 110
- -------------------------------------------=======================================================
Year two (15) 6 (98) 98
Year three 24 (37) (11) 12
Year four 56 (69) 6 (5)
Year five 108 (125) 1 (1)
Effect of discounting (32) 41 10 (11)
-------------------------------------------------------
Total $ 12 $ (45) $(201) $203
- -------------------------------------------=======================================================
</TABLE>
(1) Primarily results from Earnings-at-Risk in Singapore dollar, Hong Kong
dollar, the Euro and Korea won.
(2) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance among currencies.
- --------------------------------------------------------------------------------
The following table summarizes Citicorp's worldwide Earnings-at-Risk over the
next 12 months from changes in interest rates over the past year and shows a
relatively stable level of risk.
Citicorp Twelve Month Earnings-at-Risk (impact on pre-tax earnings)
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
-------------------------------------------------------------------
Mar. 31, Dec. 31, Mar. 31, Mar. 31, Dec. 31, Mar. 31,
In millions of dollars 1999 1998 1998 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase $(129) $(148) $(105) $(109) $(93) $(85)
Decrease 139 156 125 110 93 85
- -------------------------------------------=================================================================
</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 in interest rates.
25
<PAGE>
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:
Citicorp Twelve Month Earnings-at-Risk (excluding effect of derivatives)
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
---------------------------------------------------------------
Mar. 31, Dec. 31, Mar. 31, Mar. 31, Dec. 31, Mar. 31,
In millions of dollars 1999 1998 1998 1999 1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase $(12) $10 $98 $(127) $(94) $(85)
Decrease 17 (3) (86) 127 94 85
- -----------------------------------------===============================================================
</TABLE>
During the first quarter of 1999, 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 $73
million to $129 million in the aggregate at each month end, compared with a
range from $65 million to $173 million during 1998. The relatively lower U.S.
dollar Earnings-at-Risk experienced during the first quarter of 1999 was
primarily due to the reduction in the level of received fixed swaps. A two
standard deviation increase in non-U.S. dollar interest rates for the following
twelve months would have had a potential negative impact ranging from
approximately $98 million to $109 million in the aggregate at each month end
during the first quarter of 1999, compared with a range from $53 million to $98
million during 1998. The higher non-U.S. dollar Earnings-at-Risk experienced
during the first quarter of 1999 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 is 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.
In addition, there are other financial instruments held in the non-trading
portfolio outside Citicorp such as investments, long-term debt, derivatives and
contractholder funds. The price risk associated with these instruments is
measured using sensitivity analysis as described in the 1998 Annual Report and
Form 10-K. At March 31, 1999 there is no significant change to the risk profile
as disclosed at year-end 1998.
Trading Portfolios
One tool for measuring the price risk of trading activities is Value-at-Risk,
which estimates the potential pretax loss in market value that could occur over
a one-day holding period at a 99% confidence level. 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 level of exposure taken depends on the market environment and expectations
of future 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 March 31, 1999. Daily exposures at Citicorp
averaged $18 million in the first quarter of 1999 and ranged from $14 million to
$24 million. At Salomon Smith Barney the aggregate pretax Value-at-Risk in the
trading portfolios was $54 million at March 31, 1999. Quarterly exposures at
Salomon Smith Barney averaged $61 million in the first quarter of 1999 and
ranged from $52 million to $72 million.
26
<PAGE>
The following table summarizes Citigroup's Value-at-Risk in its trading
portfolios as of March 31, 1999 and December 31, 1998 along with the first
quarter 1999 average.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
-------------------------------------------------------------
1999 1999
First First
Mar. 31, Quarter Dec. 31, Mar. 31, Quarter Dec. 31,
In millions of dollars 1999 Average 1998 1999 Average 1998 (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate $11 $13 $13 $55 $60 $60
Foreign exchange 8 11 7 6 3 2
Equity 8 6 5 4 6 5
All other (primarily commodity) 1 1 1 12 11 11
Covariance adjustment (13) (13) (11) (23) (19) (18)
-------------------------------------------------------------
Total $15 $18 $15 $54 $61 $60
- ----------------------------------=============================================================
</TABLE>
(1) In 1999, Salomon Smith Barney began using one year of historical price data
(i.e., volatilities and correlation factors) to calculate VAR, rather than
the previously used six months, primarily for consistency with the capital
guidelines issued by the Federal Reserve Board. The amounts in the table
above provide the restated VAR.
- --------------------------------------------------------------------------------
The table below provides the distribution of Value-at-Risk during the first
quarter of 1999.
Citicorp Salomon Smith Barney
----------------------------------------------
In millions of dollars High Low High Low
- --------------------------------------------------------------------------------
Interest rate 18 10 71 53
Foreign exchange 17 6 6 2
Equity 8 5 19 3
All other (primarily commodity) 3 1 12 11
- ----------------------------------==============================================
In addition to Value-at-Risk, stress and scenario analysis are also applied to
the trading portfolios.
Management of Cross-Border Risk At Citigroup
Cross-border risk is the risk that Citigroup 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. Citigroup manages cross-border risk as part of the
Windows on Risk process described in the 1998 Annual Report and Form 10-K.
The following table presents total cross-border outstandings and commitments on
a regulatory basis in accordance with FFIEC guidelines. Total cross-border
outstandings include cross-border claims on third parties as well as investments
in and funding of local franchises, as described in the 1998 Annual Report and
Form 10-K. Countries with outstandings greater than 0.75% of Citigroup assets at
March 31, 1999 and December 31, 1998 include:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Trading and Investments
Cross-Border Claims Short-Term in and
on Third Parties Claims(1) Funding of Total Total
In billions -------------------------------------------- Local Cross-Border Cross-Border
of dollars Banks Public Private Total SSB Citicorp Franchises Outstandings Commitments(2) Outstandings Commitments(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Germany $4.7 $9.8 $4.5 $19.0 $14.3 $4.4 $0.5 $19.5 (3) $1.4 $17.4 (3) $1.4
France 2.9 5.5 2.3 10.7 6.9 3.5 0.4 11.1 (3) 1.7 8.7 (3) 1.1
Italy 0.8 8.4 0.8 10.0 7.2 2.7 0.1 10.1 (3) 0.3 8.7 (3) 0.3
United
Kingdom 2.7 - 5.5 8.2 1.1 4.1 - 8.2 (3) 11.0 7.9 (3) 8.9
Japan 1.2 3.2 3.0 7.4 5.6 1.2 - 7.4 (3) 4.7 12.9 (3) 0.1
Mexico 0.1 3.7 1.7 5.5 1.9 1.7 0.6 6.1 (4) 0.4 5.9 (4) 0.2
Brazil 0.4 2.0 1.7 4.1 1.4 1.2 1.2 5.3 (4) 0.1 4.5 0.1
- ---------------=====================================================================================================================
</TABLE>
(1) Included in total cross-border claims on third parties. SSB refers to
Salomon Smith Barney.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and other commitments and
contingencies as defined by the FFIEC.
(3) Total cross-border outstandings were in excess of 1.0% of Citigroup's total
assets at the end of the respective period.
(4) Total cross-border outstandings were between 0.75% and 1.0% of Citigroup'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
27
<PAGE>
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
Citigroup services its obligations primarily with dividends and advances that it
receives from subsidiaries. The subsidiaries' dividend paying abilities are
limited by certain covenant restrictions in credit agreements and/or by
regulatory requirements. Citigroup believes it will have sufficient funds to
meet current and future commitments. Each of Citigroup's major operating
subsidiaries finances its operations on a basis consistent with its
capitalization and ratings.
Citigroup, Citicorp, Commercial Credit Company (CCC), TAP and The Travelers
Insurance Company (TIC) issue commercial paper directly to investors. Citicorp
and Citigroup, both of which are bank holding companies, maintain combined
liquidity reserves of cash, securities and unused bank lines of credit at least
equal to their combined outstanding commercial paper. CCC, TAP, and TIC each
maintains unused credit availability under their bank lines of credit at least
equal to the amount of its outstanding commercial paper.
Borrowings under bank lines of credit may be at interest rates based on LIBOR,
CD rates, the prime rate or bids submitted by the banks. Each company pays its
banks commitment fees for its lines of credit.
Citicorp and some of its nonbank subsidiaries have credit facilities with
Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these
facilities would be secured in accordance with Section 23A of the Federal
Reserve Act.
Citigroup Inc. (Citigroup)
Citigroup, CCC and TIC have an agreement with a syndicate of banks to provide
$1.0 billion of revolving credit, to be allocated to any of Citigroup, CCC or
TIC. The participation of TIC in this agreement is limited to $250 million. The
revolving credit facility consists of a five-year revolving credit facility that
expires in June 2001. At March 31, 1999, all of the facility was allocated to
Citigroup. Under this facility the Company is required to maintain a certain
level of consolidated stockholders' equity (as defined in the agreement). The
Company exceeded this requirement by approximately $27.7 billion at March 31,
1999. Citigroup and CCC also have $200 million in 364-day facilities which
expire in August 1999 and may be allocated to either of Citigroup or CCC. At
March 31, 1999, all $200 million was allocated to Citigroup. At March 31, 1999,
there were no borrowings outstanding under either of these facilities.
Citigroup is subject to risk-based capital and leverage 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.
Citigroup Ratios
Mar. 31, Dec. 31,
1999 1998
- --------------------------------------------------------------------------------
Tier 1 capital 8.86% 8.68%
Total capital (Tier 1 and Tier 2) 11.56 11.43
Leverage (1) 6.24 6.03
Common stockholders' equity 6.06 6.04
- -------------------------------------------------------------===================
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citigroup maintained a strong capital position during the first quarter of 1999.
Total capital (Tier 1 and Tier 2) amounted to $56.5 billion at March 31, 1999,
representing 11.56% of net risk-adjusted assets. This compares to $55.0 billion
and 11.43% at December 31, 1998. Tier 1 capital of $43.3 billion at March 31,
1999 represented 8.86% of net risk-adjusted assets, compared to $41.8 billion
and 8.68% at December 31, 1998. Citigroup's leverage ratio was 6.24% at March
31, 1999 compared to 6.03% at December 31, 1998.
28
<PAGE>
Components of Capital Under Regulatory Guidelines
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
In millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital
Common stockholders' equity $ 41,846 $ 40,395
Perpetual preferred stock 2,113 2,313
Mandatorily redeemable securities of subsidiary trusts 4,920 4,320
Minority interest (1) 1,580 1,602
Less: Net unrealized gains on securities available for sale (2) (1,554) (1,359)
Intangible assets:
Goodwill (3,880) (3,764)
Other intangible assets (1,584) (1,620)
50% investment in certain subsidiaries (3) (113) (110)
----------------------
Total Tier 1 capital 43,328 41,777
- ----------------------------------------------------------------------------------------
Tier 2 Capital
Allowance for credit losses (4) 6,120 6,024
Qualifying debt (5) 7,020 7,296
Unrealized marketable equity securities gains (2) 169 21
Less: 50% investment in certain subsidiaries (3) (113) (110)
----------------------
Total Tier 2 capital 13,196 13,231
----------------------
Total capital (Tier 1 and Tier 2) $ 56,524 $ 55,008
- ------------------------------------------------------------------======================
Net risk-adjusted assets (6) $ 488,897 $ 481,208
- ------------------------------------------------------------------======================
</TABLE>
(1) Primarily related to Travelers Property Casualty Corp.
(2) Tier 1 capital excludes unrealized gains and losses on debt securities
available for sale in accordance with regulatory risk-based capital
guidelines. The federal bank regulatory agencies 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.
(3) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(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 $32.8 billion for interest rate, commodity
and equity derivative contracts and foreign exchange contracts, as of March
31, 1999, compared to $37.3 billion as of December 31, 1998. Market
risk-equivalent assets included in net risk-adjusted assets amounted to
$52.2 billion at March 31, 1999 and $51.5 billion at December 31, 1998. 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 stockholders' equity increased a net $1.4 billion during the first
quarter of 1999 to $41.8 billion at March 31, 1999, representing 6.06% of
assets, compared to $40.4 billion and 6.04% at year-end 1998. The net increase
in common stockholders' equity during the quarter principally reflected net
income of $2.4 billion and issuance of shares pursuant to employee benefit plans
and other activity of $0.5 billion, partially offset by treasury stock acquired
of $1.1 billion and dividends declared on common and preferred stock of $0.4
billion. The increase in the common stockholders' equity ratio during the
quarter reflected the above items, partially offset by the increase in total
assets.
During the first quarter of 1999, Citigroup redeemed its $200 million Series J
perpetual preferred stock.
All of the mandatorily redeemable securities of subsidiary trusts (trust
securities) outstanding at March 31, 1999 qualify as Tier 1 capital. The amount
outstanding at March 31, 1999 includes $2.3 billion of parent-obligated
securities and $2.62 billion of subsidiary-obligated securities. The increase in
trust securities outstanding during the first quarter of 1999 of $600 million
represents parent-obligated securities.
Citigroup's subsidiary depository institutions are subject to the risk-based
capital guidelines issued by their respective primary federal bank regulatory
agencies, which are generally similar to the FRB's guidelines. At March 31,
1999, all of Citigroup's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
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.
Citicorp
Citicorp manages liquidity through a well-defined process described in the 1998
Annual Report and Form 10-K.
29
<PAGE>
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represent 68% and
66% of its total funding at March 31, 1999 and December 31, 1998, respectively,
are broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $283 million during the quarter to $22.9
billion at March 31, 1999, 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 quarter-end was $19.6
billion, unchanged from year-end. Asset securitization programs remain an
important source of liquidity. Loans securitized during the first quarter
included $3.0 billion of U.S. credit cards, $1.9 billion of U.S. consumer
mortgages, and $0.1 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.
During the quarter, the scheduled amortization of certain credit card
securitization transactions made available $1.5 billion of new receivables. In
addition, $2.3 billion of credit card securitization transactions are scheduled
to amortize during the rest of 1999.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. As discussed in the 1998 Annual Report and
Form 10-K, there are various legal limitations on the extent to which Citicorp's
subsidiaries may extend credit, pay dividends, or otherwise supply funds to
Citicorp. As of March 31, 1999, under their applicable dividend limitations,
Citicorp's national and state-chartered bank subsidiaries could have declared
dividends to their respective parent companies without regulatory approval of
approximately $3.4 billion. In determining whether and to what extent to pay
dividends, each bank subsidiary must also consider the effect of dividend
payments on applicable risk-based capital and leverage ratios requirements, as
well as policy statements of the federal regulatory agencies that indicate that
banking organizations should generally pay dividends out of current operating
earnings. Consistent with these considerations, Citicorp estimates that, as of
March 31, 1999, its bank subsidiaries could have distributed dividends to
Citicorp, directly or through their parent holding company, of approximately
$2.9 billion of the available $3.4 billion.
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.
Citicorp Ratios
Mar. 31, Dec. 31,
1999 1998
- --------------------------------------------------------------------------------
Tier 1 capital 8.35% 8.44%
Total capital (Tier 1 and Tier 2) 12.15 12.38
Leverage (1) 6.74 6.68
Common stockholder's equity 6.58 6.57
- --------------------------------------------------------------==================
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp maintained a strong capital position during the 1999 first quarter.
Total capital (Tier 1 and Tier 2) amounted to $33.8 billion at March 31, 1999,
representing 12.15% of net risk-adjusted assets. This compares with $33.9
billion and 12.38% at December 31, 1998. Tier 1 capital of $23.2 billion at
March 31, 1999 represented 8.35% of net risk-adjusted assets, compared with
$23.1 billion and 8.44% at December 31, 1998. Citicorp's Tier 1 capital ratio at
March 31, 1999 exceeded Citicorp's target range of 8.00% to 8.30%.
Commercial Credit Company (CCC)
At March 31, 1999, CCC, in addition to the bilateral agreements with Citigroup,
also had a committed and available revolving credit facility on a stand-alone
basis of $4.75 billion, consisting of $3.4 billion in five-year facilities which
expire in 2002 and $1.35 billion in a 364-day facility that expires in July
1999. At March 31, 1999, there were no borrowings outstanding under these
facilities.
CCC is limited by covenants in its revolving credit agreements as to the amount
of dividends and advances that may be made to Citigroup or its affiliated
companies. At March 31, 1999, CCC would have been able to remit $1.02 billion
under its most restrictive covenants.
Travelers Property Casualty Corp. (TAP)
TAP has a five-year revolving credit facility in the amount of $250 million with
a syndicate of banks that expires in December 2001. Under this facility TAP is
required to maintain a certain level of consolidated stockholders' equity (as
defined in the agreement). At
30
<PAGE>
March 31, 1999, this requirement was exceeded by approximately $4.3 billion. At
March 31, 1999, there were no borrowings outstanding under this facility.
TAP's insurance subsidiaries are subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. Dividend payments to
TAP from its insurance subsidiaries are limited to $1.0 billion in 1999 without
prior approval of the Connecticut Insurance Department. TAP has received $150
million of dividends from its insurance subsidiaries during the first three
months of 1999.
Salomon Smith Barney Holdings Inc. (Salomon Smith Barney)
Salomon Smith Barney manages liquidity and monitors and evaluates capital
adequacy through a well-defined process described in the 1998 Annual Report and
Form 10-K. Total assets were $226 billion at March 31, 1999, up from $212
billion at year-end 1998. As discussed in the 1998 Annual Report and Form 10-K,
it is not uncommon for asset levels to fluctuate from period to period.
At March 31, 1999, Salomon Smith Barney had a $1.5 billion revolving credit
agreement with a bank syndicate that extends through May 2001, and a $3.5
billion 364-day revolving credit agreement that extends through May 1999.
Salomon Smith Barney may borrow under its revolving credit facilities at various
interest rate options (LIBOR, CD or base rate) and compensates the banks for the
facilities through commitment fees. Under these facilities Salomon Smith Barney
is required to maintain a certain level of consolidated adjusted net worth (as
defined in the agreement). At March 31, 1999, this requirement was exceeded by
approximately $3.6 billion. At March 31, 1999, there were no borrowings
outstanding under either facility. Salomon Smith Barney also has substantial
borrowing arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
short-term requirements.
Unsecured term debt is a significant component of Salomon Smith Barney's
long-term capital. Long-term debt totaled $18.1 billion at March 31, 1999 and
$19.1 billion at December 31, 1998. Salomon Smith Barney utilizes interest rate
swaps to convert the majority of its fixed rate long-term debt used to fund
inventory-related working capital requirements into variable rate obligations.
Long-term debt issuances denominated in currencies other than the U.S. dollar
that are not used to finance assets in the same currency are effectively
converted to U.S. dollar obligations through the use of cross-currency swaps and
forward currency contracts.
The Travelers Insurance Company (TIC)
At March 31, 1999, TIC had $26.2 billion of life and annuity product deposit
funds and reserves. Of that total, $12.9 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $13.3 billion is for life and
annuity products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $3.4 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $5.0 billion of the life
insurance and individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 4.7%. In the payout phase,
these funds are credited at significantly reduced interest rates. The remaining
$4.9 billion of liabilities are surrenderable without charge. More than 12.9% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding policy
loans and related accrued interest prior to payout.
TIC is subject to various regulatory restrictions that limit the maximum amount
of dividends available to its parent without prior approval of the Connecticut
Insurance Department. A maximum of $504 million of statutory surplus is
available in 1999 for such dividends without Department approval of which $110
million has been paid during the first quarter of 1999.
31
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
In millions, except per share amounts 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Loan interest, including fees $ 5,888 $ 5,344
Other interest and dividends 5,414 5,787
Insurance premiums 2,526 2,340
Commissions and fees 2,780 2,875
Principal transactions 1,770 1,365
Asset management and administration fees (1) 955 498
Realized gains from sales of investments 53 378
Other income 1,135 850
--------------------
Total revenues 20,521 19,437
Interest expense 6,451 6,641
--------------------
Total revenues, net of interest expense 14,070 12,796
--------------------
Provisions for benefits, claims, and credit losses
Policyholder benefits and claims 2,048 1,994
Provision for credit losses 729 595
--------------------
Total provisions for benefits, claims, and credit losses 2,777 2,589
--------------------
Operating expenses
Non-insurance compensation and benefits 3,755 3,491
Insurance underwriting, acquisition, and operating 825 812
Restructuring-related items (130) --
Other operating 2,871 2,436
--------------------
Total operating expenses 7,321 6,739
--------------------
Income before income taxes, minority interest and cumulative effect of accounting changes 3,972 3,468
Provision for income taxes 1,423 1,249
Minority interest, net of income taxes 60 58
--------------------
Income before cumulative effect of accounting changes 2,489 2,161
Cumulative effect of accounting changes (2) (127) --
--------------------
Net income $ 2,362 $ 2,161
- --------------------------------------------------------------------------------------------====================
Basic Earnings Per Share (3)
Income before cumulative effect of accounting changes $ 0.73 $ 0.62
Cumulative effect of accounting changes (2) (0.03) --
--------------------
Net income $ 0.70 $ 0.62
====================
Weighted average common shares outstanding 3,340.2 3,365.0
- --------------------------------------------------------------------------------------------====================
Diluted Earnings Per Share (3)
Income before cumulative effect of accounting changes $ 0.71 $ 0.60
Cumulative effect of accounting changes (2) (0.03) --
--------------------
Net income $ 0.68 $ 0.60
====================
Adjusted weighted average common shares outstanding 3,440.0 3,492.9
- --------------------------------------------------------------------------------------------====================
</TABLE>
(1) The 1999 first quarter includes asset management and administration fees for
Citicorp subsidiaries, previously reflected in Commissions and fees.
(2) See Note 2 for description of accounting changes.
(3) Earnings per share have been adjusted to reflect the three-for-two split in
Citigroup's common stock, payable on May 28, 1999. See Note 1.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
32
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31,
1999 December 31,
In millions of dollars (Unaudited) 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents (including segregated cash
and other deposits) $ 11,699 $ 13,837
Deposits at interest with banks 11,574 11,643
Investments 103,639 103,672
Federal funds sold and securities borrowed or purchased
under agreements to resell 111,595 94,831
Brokerage receivables 22,048 21,413
Trading account assets 118,954 119,845
Loans, net
Consumer 130,912 132,255
Commercial 95,487 89,703
----------------------
Loans, net of unearned income 226,399 221,958
Allowance for credit losses (6,662) (6,617)
----------------------
Total loans, net 219,737 215,341
Reinsurance recoverables 9,607 9,492
Separate and variable accounts 17,023 15,820
Other assets 64,773 62,747
----------------------
Total assets $ 690,649 $ 668,641
- --------------------------------------------------------------------======================
Liabilities
Non-interest-bearing deposits in U.S. offices $ 17,084 $ 17,058
Interest-bearing deposits in U.S. offices 44,795 44,169
Non-interest-bearing deposits in offices outside the U.S. 11,079 10,856
Interest-bearing deposits in offices outside the U.S. 166,020 156,566
----------------------
Total deposits 238,978 228,649
Federal funds purchased and securities loaned or sold under
agreements to repurchase 104,322 81,025
Brokerage payables 14,460 21,055
Trading account liabilities 87,320 94,584
Contractholder funds and separate and variable accounts 34,661 33,037
Insurance policy and claims reserves 44,446 43,990
Investment banking and brokerage borrowings 13,691 14,040
Short-term borrowings 14,563 16,112
Long-term debt 49,130 48,671
Other liabilities 40,059 40,310
Citigroup or subsidiary obligated mandatorily redeemable
securities of subsidiary trusts holding solely junior
subordinated debt securities of -- Parent 2,300 1,700
-- Subsidiary 2,620 2,620
Redeemable preferred stock -- Series I 140 140
- ------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares: 30 million),
at aggregate liquidation value 2,113 2,313
Common stock ($.01 par value; authorized shares: 6.0 billion),
Issued shares - 3,603,106,368 shares in each period (1) 36 36
Additional paid-in capital (1) 9,068 8,893
Retained earnings 37,886 35,971
Treasury stock, at cost: March 31, 1999--222,797,917 shares and
December 31, 1998--216,143,199 shares (1) (5,388) (4,789)
Accumulated other changes in equity from nonowner sources 901 781
Unearned compensation (657) (497)
----------------------
Total stockholders' equity 43,959 42,708
----------------------
Total liabilities and stockholders' equity $ 690,649 $ 668,641
- --------------------------------------------------------------------======================
</TABLE>
(1) Reflects the three-for-two split in Citigroup's common stock, payable on May
28, 1999. See Note 1.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
33
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
In millions of dollars, except shares in thousands 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred stock at aggregate liquidation value
Balance, beginning of period $ 2,313 $ 3,353
Redemption or retirement of preferred stock (200) (303)
--------------------
Balance, end of period 2,113 3,050
- --------------------------------------------------------------------------------------
Common stock and additional paid-in capital
Balance, beginning of period 8,929 12,496
Employee benefit plans 194 318
Conversion of preferred stock to common stock -- 153
Exercise of common stock warrants -- 27
Other (19) (6)
--------------------
Balance, end of period 9,104 12,988
- --------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 35,971 32,002
Net income 2,362 2,161
Common dividends (1) (407) (405)
Preferred dividends (40) (60)
--------------------
Balance, end of period 37,886 33,698
- --------------------------------------------------------------------------------------
Treasury stock, at cost
Balance, beginning of period (4,789) (6,595)
Issuance of shares pursuant to employee benefit plans and other 484 141
Treasury stock acquired (1,083) (905)
--------------------
Balance, end of period (5,388) (7,359)
- --------------------------------------------------------------------------------------
Accumulated other changes in equity from nonowner sources
Balance, beginning of period 781 1,057
Net change in unrealized gains and losses on investment
securities, net of tax 195 90
Foreign currency translations adjustment, net of tax (75) 5
--------------------
Balance, end of period 901 1,152
- --------------------------------------------------------------------------------------
Unearned compensation
Balance, beginning of period (497) (462)
Issuance of restricted stock, net of amortization (160) (218)
--------------------
Balance, end of period (657) (680)
- --------------------------------------------------------------------------------------
Total common stockholders' equity (shares outstanding:
3,380,308 in 1999 and 3,421,134 in 1998)(2) 41,846 39,799
- --------------------------------------------------------------------------------------
Total stockholders' equity $ 43,959 $ 42,849
- ------------------------------------------------------------------====================
Summary of changes in equity from nonowner sources
Net income $ 2,362 $ 2,161
Other changes in equity from nonowner sources, net of tax 120 95
--------------------
Total changes in equity from nonowner sources $ 2,482 $ 2,256
- ------------------------------------------------------------------====================
</TABLE>
(1) Common dividends declared were 12 cents per share in 1999 and 8.3 cents per
share in 1998 (adjusted to reflect the three-for-two split in Citigroup's
common stock, payable on May 28, 1999. See Note 1).
(2) Shares outstanding reflect the split in Citigroup's common stock.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
34
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
In millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,362 $ 2,161
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 408 363
Additions to deferred policy acquisition costs (476) (418)
Depreciation and amortization 414 259
Provision for credit losses 729 595
Change in trading account assets 891 15,781
Change in trading account liabilities (7,264) (30,684)
Change in federal funds sold and securities borrowed or purchased under
agreements to resell (16,764) (17,827)
Change in federal funds purchased and securities loaned or sold under agreements
to repurchase 23,297 (2,685)
Change in brokerage receivables net of brokerage payables (7,230) 18,185
Change in insurance policy and claims reserves 456 (16)
Net gain on sale of securities (53) (378)
Venture capital activity 157 (258)
Restructuring-related items (130) --
Cumulative effect of accounting changes, net of tax 127 --
Other, net 1,306 1,699
--------------------
Total adjustments (4,132) (15,384)
--------------------
Net cash used in operating activities (1,770) (13,223)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Change in deposits at interest with banks 69 (738)
Change in loans (34,414) (44,747)
Proceeds from sales of loans 29,813 39,631
Purchases of investments (22,430) (22,160)
Proceeds from sales of investments 13,059 10,694
Proceeds from maturities of investments 7,774 8,438
Other investments, primarily short-term, net (971) (866)
Capital expenditures on premises and equipment (399) (397)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and other real
estate owned 139 145
Business acquisitions (1,344) --
Other, net (3) 75
--------------------
Net cash used in investing activities (8,707) (9,925)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (447) (469)
Issuance of common stock 137 90
Issuance of mandatorily redeemable securities of subsidiary trusts 600 600
Redemption of preferred stock (200) (303)
Treasury stock acquired (1,083) (905)
Stock tendered for payment of withholding taxes (222) (315)
Issuance of long-term debt 2,642 3,367
Payments and redemptions of long-term debt (1,796) (2,018)
Change in deposits 10,329 15,598
Change in short-term borrowings and investment banking and brokerage borrowings (1,826) 6,860
Contractholder fund deposits 1,977 1,213
Contractholder fund withdrawals (1,552) (879)
Other, net 28 (220)
--------------------
Net cash provided by financing activities 8,587 22,619
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (248) (56)
- -----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (2,138) (585)
Cash and cash equivalents at beginning of period 13,837 12,618
--------------------
Cash and cash equivalents at end of period $ 11,699 $ 12,033
- ---------------------------------------------------------------------------------------------====================
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 445 $ 639
Cash paid during the period for interest 6,192 6,192
Non-cash investing activities
Transfers from loans to Other Real Estate Owned $ 35 $ 57
- ---------------------------------------------------------------------------------------------====================
</TABLE>
See Notes to Consolidated Financial Statements
35
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements as of March 31, 1999 and for
the three-month periods ended March 31, 1999 and 1998 are unaudited and include
the accounts of Citigroup Inc. (Citigroup) and its subsidiaries (collectively,
the Company). In the opinion of management all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation have been reflected.
The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in the
Company's 1998 Annual Report and Form 10-K.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
but is not required for interim reporting purposes, has been condensed or
omitted.
The Board of Directors on April 19, 1999 declared a three-for-two split in
Citigroup's common stock, which is payable in the form of a 50% stock dividend
on May 28, 1999 to stockholders of record on May 3, 1999. Current and prior year
information has been restated to reflect the stock split. The Board also
approved an increase in the quarterly common stock dividend from 12 to 14 cents
per share on a post-split basis (from 18 to 21 cents per share on a pre-split
basis), payable May 28, 1999 to stockholders of record on May 3, 1999.
2. Accounting Changes
Insurance-related assessments. During the first quarter of 1999, the Company
adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments". SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when an
asset may be recognized for the recovery of such assessments through premium tax
offsets or policy surcharges. The effect of initial adoption resulted in a
cumulative catch-up adjustment recorded as a charge to earnings of $135 million
after-tax and minority interest, with no material ongoing impact.
Deposit Accounting. During the first quarter of 1999, the Company adopted
Statement of Position 98-7, "Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk". SOP 98-7 provides
guidance on how to account for insurance and reinsurance contracts that do not
transfer insurance risk and applies to all entities and all such contracts,
except for long-duration life and health insurance contracts. The method used to
account for such contracts is referred to as deposit accounting. The effect of
initially adopting SOP 98-7 resulted in a cumulative catch-up adjustment
recorded as a credit to earnings of $23 million after-tax and minority interest.
Start-up costs. During the first quarter of 1999, the Company adopted Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. The effects of initially adopting SOP 98-5 resulted in a cumulative
catch-up adjustment recorded as a charge to earnings of $15 million after-tax,
to write-off certain capitalized closed-end fund distribution costs.
36
<PAGE>
3. Business Segment Information
The following table presents certain information regarding the Company's
industry segments:
<TABLE>
<CAPTION>
Income (Loss)
Before Cumulative
Effect of
Total Revenues, Net Provision for Accounting Changes
of Interest Expense Income Taxes (1) Identifiable Assets
------------------------------------------------------------------------------------
First Quarter Mar. 31, Dec. 31,
In millions of dollars, except identifiable ---------------------------------------------------------------
assets in billions 1999 1998 (2) 1999 1998 (2) 1999 1998 (2) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer (3) $ 6,529 $ 5,441 $ 586 $ 472 $1,011 $ 790 $237 $237
Global Corporate and Investment Bank (3) 7,100 6,484 815 585 1,475 1,036 436 416
Asset Management 354 305 53 44 80 69 2 2
Investment Activities (3) 158 619 49 209 93 402 8 8
Corporate/Other (71) (53) (80) (61) (170) (136) 8 6
-----------------------------------------------------------------------------------
Total $14,070 $12,796 $1,423 $1,249 $2,489 $2,161 $691 $669
- -------------------------------------------------===================================================================================
</TABLE>
(1) For the 1999 first quarter period, Global Consumer, Global Corporate and
Investment Bank, and Corporate/Other results reflect after-tax
restructuring-related items of $38 million, $(120) million, and $8 million,
respectively.
(2) The 1998 results have been restated to reflect changes in capital and tax
allocations among the segments to conform the policies of each of the
predecessor companies.
(3) Includes provisions for benefits, claims, and credit losses in the Global
Consumer results of $1.8 billion and $1.6 billion, and in the Global
Corporate and Investment Bank results of $976 million and $1.0 billion for
the first quarter of 1999 and 1998, respectively. Investment Activities
first quarter 1998 results include provision (benefit) for credit losses of
$(10) million.
- --------------------------------------------------------------------------------
4. Investments
<TABLE>
<CAPTION>
March 31, December 31,
In millions of dollars 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities, primarily available for sale at fair value $ 90,412 $ 90,414
Equity securities, at fair value 4,713 4,203
Venture capital, at fair value (1) 3,140 3,297
Short-term and other 5,374 5,758
----------------------
$103,639 $103,672
- ---------------------------------------------------------------======================
</TABLE>
(1) For the three months ended March 31, 1999, net gains on investments held by
venture capital subsidiaries totaled $138 million, of which $96 million and
$158 million represented gross unrealized gains and losses, respectively.
For the three months ended March 31, 1998, net gains on investments held by
venture capital subsidiaries totaled $264 million, of which $300 million and
$57 million represented gross unrealized gains and losses, respectively.
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and equity
securities at March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998(1)
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Amortized Fair
In millions of dollars Cost Gains Losses Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities held to maturity,
principally mortgage-backed securities $28 $5 $ -- $33 $30 $36
------------------------------------------------------------------------------------
Fixed maturity securities available for sale
Mortgage-backed securities,
principally obligations of U.S. Federal
agencies $13,263 $ 258 $ 56 $13,465 $12,646 $12,982
U.S. Treasury and Federal agency 5,508 259 21 5,746 5,250 5,701
State and municipal 13,811 712 147 14,376 13,714 14,286
Foreign government 24,304 444 435 24,313 26,444 26,268
U.S. corporate 24,589 806 236 25,159 23,424 24,335
Other debt securities 7,218 185 78 7,325 6,642 6,812
------------------------------------------------------------------------------------
$88,693 $2,664 $973 $90,384 $88,120 $90,384
====================================================================================
Equity securities (2) $4,538 $344 $169 $4,713 $4,060 $4,203
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale
include:
Government of Brazil Brady Bonds $660 $106 $ - $766 $660 $686
Government of Venezuela Brady Bonds 478 - 143 335 478 304
- ------------------------------------------------====================================================================================
</TABLE>
(1) At December 31, 1998, gross unrealized gains and losses on fixed maturities
and equity securities totaled $3,805 million and $1,392 million,
respectively.
(2) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
- --------------------------------------------------------------------------------
37
<PAGE>
5. Trading Account Assets and Liabilities
Trading account assets and liabilities at market value consisted of the
following:
March 31, December 31,
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Trading Account Assets
U.S. Treasury and Federal agency securities $ 30,338 $ 24,729
State and municipal securities 5,115 3,165
Foreign government securities 12,897 21,240
Corporate and other debt securities 13,836 12,595
Derivative and other contractual commitments (1) 33,527 37,431
Equity securities 10,716 7,291
Mortgage loans and collateralized mortgage securities 7,295 6,082
Commodities 198 245
Other 5,032 7,067
---------------------
$118,954 $119,845
- ---------------------------------------------------------=======================
Trading Account Liabilities
Securities sold, not yet purchased $ 51,952 $ 53,228
Derivative and other contractual commitments (1) 35,368 41,356
---------------------
$ 87,320 $ 94,584
- ---------------------------------------------------------=======================
(1) Net of master netting agreements and securitization.
- --------------------------------------------------------------------------------
6. Debt
Investment banking and brokerage borrowings consisted of the following:
March 31, December 31,
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Bank borrowings $ 655 $ 556
Commercial paper 11,924 10,493
Other 1,112 2,991
-----------------------
$13,691 $14,040
- ------------------------------------------------------=======================
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
March 31, December 31,
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Commercial paper
Citigroup Inc. $ 403 $ 991
Commercial Credit Company 3,415 2,908
Citicorp 114 132
--------------------
3,932 4,031
Other short-term borrowings 10,631 12,081
--------------------
$14,563 $16,112
- ---------------------------------------------------------====================
Long-term debt, including its current portion, consisted of the following:
March 31, December 31,
In millions of dollars 1999 1998
- --------------------------------------------------------------------------------
Citigroup Inc. $ 3,921 $ 2,422
Citicorp 19,592 19,624
Salomon Smith Barney Holdings Inc. 18,089 19,092
Commercial Credit Company 6,250 6,250
Travelers Property Casualty Corp. 1,250 1,250
The Travelers Insurance Group Inc. 28 33
-------------------
$49,130 $48,671
- ----------------------------------------------------------===================
38
<PAGE>
7. Restructuring-Related Items
In December 1998 Citigroup recorded a restructuring charge of $1.122 billion
($703 million after-tax), reflecting exit costs associated with business
improvement and integration initiatives to be implemented over a 12 to 18 month
period. The charge included $760 million related to employee severance for the
elimination of approximately 11,900 positions, after considering attrition and
redeployment within the Company. The overall workforce reduction, net of
anticipated rehires to fill relocated positions, is expected to be approximately
10,400 positions worldwide. The charge also included $327 million related to
exiting leasehold and other contractual obligations, and $35 million related to
the write-down to estimated salvage value of assets that are available for
immediate disposal. Also recorded in the 1998 fourth quarter were $65 million of
merger-related costs which included the direct and incremental costs of
administratively closing the Citicorp merger.
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 (in addition to normal
scheduled depreciation on these assets) will be recognized in subsequent
periods, $81 million of which were recorded in the 1999 first quarter.
Additional implementation costs associated with these restructuring initiatives
will be expensed as incurred but are not expected to be material.
In 1997, Citigroup recorded restructuring charges of $1.718 billion, consisting
of an $880 million restructuring charge related to cost-management programs and
customer service initiatives to improve operational efficiency and productivity
in the Citicorp businesses, and an $838 million charge related to the Salomon
merger.
The status of the 1998 and 1997 restructuring initiatives is summarized in the
following table.
Restructuring Reserves Activity
1998 1997
Restructuring Restructuring
In millions of dollars Reserve Reserve Total
- -------------------------------------------------------------------------------
Restructuring Charges $ 1,122 $ 1,718 $ 2,840
Utilization (1) (265) (945) (1,210)
Changes in 1997 Estimates -- (603) (603)
------------------------------------------
Balance at March 31, 1999 $ 857 $ 170 $ 1,027
- -------------------------------------==========================================
(1) Utilization amounts include translation effects on the restructuring
reserve.
- --------------------------------------------------------------------------------
The 1998 restructuring reserve utilization includes $35 million of non-cash
charges (including $30 million of equipment and premises write-downs at Citicorp
and $5 million at SSB) as well as $205 million of severance and other exit
costs, occurring primarily in the first quarter of 1999 (of which $120 million
related to employee severance and $29 million related to leasehold and other
exit costs have been paid in cash and $56 million is legally obligated),
together with translation effects. Through March 31, 1999, approximately 2,400
gross staff positions have been eliminated under these programs, primarily in
the 1999 first quarter.
The 1997 restructuring reserve utilization includes $314 million of non-cash
charges (including $245 million of equipment and premises write-downs at
Citicorp and $69 million at SSB) as well as $625 million of severance and other
exit costs (of which $410 million related to employee severance and $156 million
related to leasehold and other exit costs have been paid in cash and $59 million
is legally obligated), together with translation effects. Utilization, including
translation effects, in the first quarter of 1999 was $133 million. Through
March 31, 1999, approximately 6,700 gross staff positions have been eliminated
under these programs, including 1,100 in the 1999 first quarter.
Changes in 1997 estimates are attributable to facts and circumstances arising
subsequent to the original restructuring charge. In the 1999 first quarter and
the second and fourth quarters of 1998, $211 million, $324 million, and $30
million, respectively, of the 1997 Salomon Smith Barney reserve was released,
primarily related to the Seven World Trade Center lease. Additionally, in the
1998 fourth quarter $38 million of the 1997 Citicorp reserve was released. The
1999 first quarter release resulted from a current reassessment of space needed
due to the Citicorp merger. The reassessment indicated the need for increased
occupancy and the utilization of space previously considered excessive. The 1998
releases resulted from negotiations on a sublease on the Seven World Trade
Center location which indicated that excess space could be disposed of on terms
more favorable than had been originally estimated. Changes in prior estimates
are also 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 Citicorp merger.
39
<PAGE>
Additional information about the 1998 and 1997 restructuring charges, including
the business segments affected, may be found in the 1998 Annual Report and Form
10-K.
8. Mandatorily redeemable securities of subsidiary trusts
In March 1999, Citigroup Capital VI, a wholly owned subsidiary trust of
Citigroup, issued 24 million 6.875% Capital Securities with a liquidation
preference of $25 per security to the public and 742,269 common securities to
Citigroup. The proceeds were invested by Citigroup Capital VI in $618 million of
6.875% Junior Subordinated Deferrable Interest Debentures (Citigroup
Debentures). The $618 million of Citigroup Debentures is the sole asset of
Citigroup Capital VI. The Citigroup Debentures mature on March 15, 2029 and are
redeemable by Citigroup in whole or in part any time on or after March 15, 2004.
Citigroup Capital VI will use the proceeds from any such redemption to redeem a
like amount of Capital Securities and common securities. Distributions on the
Capital Securities and common securities are cumulative and payable quarterly in
arrears. Citigroup's obligation under the agreements that relate to Citigroup VI
Capital Securities, the Trust and the Citigroup Debentures constitute a full and
unconditional guarantee by Citigroup of the Trust's obligations under the
Citigroup VI Capital Securities.
9. Earnings Per Share
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the quarters ended March 31, 1999 and 1998.
Shares have been adjusted to give effect to the three-for-two split in
Citigroup's common stock as discussed in Note 1.
<TABLE>
<CAPTION>
March 31, March 31,
In millions, except per share amounts 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income before cumulative effect of accounting changes $ 2,489 $ 2,161
Cumulative effect of accounting changes (127) --
Preferred dividends (40) (63)
------------------------
Income available to common stockholders' for basic EPS 2,322 2,098
Effect of dilutive securities 3 6
------------------------
Income available to common stockholders' for diluted EPS $ 2,325 $ 2,104
- ----------------------------------------------------------------------------------========================
Weighted average common shares outstanding applicable to basic EPS 3,340.2 3,365.0
Effect of dilutive securities:
Convertible securities 10.4 19.8
Options 65.7 68.0
Warrants -- 9.1
Restricted stock 23.7 31.0
------------------------
Adjusted weighted average common shares outstanding applicable to diluted EPS 3,440.0 3,492.9
- ----------------------------------------------------------------------------------========================
Basic earnings per share
Income before cumulative effect of accounting changes $ 0.73 $ 0.62
Cumulative effect of accounting changes (0.03) --
------------------------
Net income $ 0.70 $ 0.62
- ----------------------------------------------------------------------------------========================
Diluted earnings per share
Income before cumulative effect of accounting changes $ 0.71 $ 0.60
Cumulative effect of accounting changes (0.03) --
------------------------
Net income $ 0.68 $ 0.60
- ----------------------------------------------------------------------------------========================
</TABLE>
40
<PAGE>
10. Trading Securities, Commodities, Derivatives and Related Risks
Derivative and Foreign Exchange Contracts
The table below presents the aggregate notional principal amounts of Citigroup's
outstanding derivative and foreign exchange contracts at March 31, 1999 and
December 31, 1998, along with the related balance sheet credit exposure.
Additional information concerning Citigroup's derivative and foreign exchange
products and activities, including a description of accounting policies, and
credit and market risk management process is provided in the 1998 Annual Report
and Form 10-K.
<TABLE>
<CAPTION>
Notional Balance Sheet
Principal Amounts Credit Exposure (1)
------------------------------------------------
Mar. 31, Dec. 31, Mar. 31, Dec. 31,
In billions of dollars 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate products $5,432.1 $5,552.5 $ 22.5 $ 25.8
Foreign exchange products 2,002.4 2,222.1 28.3 35.0
Equity products 153.7 163.5 7.5 7.2
Commodity products 21.2 20.0 1.7 1.0
Credit derivative products 29.5 28.7 0.2 0.2
----------------------
-- -- 60.2 69.2
Effects of master netting agreements at Citicorp (2) -- -- (24.5) (29.1)
Effects of securitization (3) -- -- (2.2) (2.7)
----------------------
-- -- $ 33.5 $ 37.4
- ---------------------------------------------------------================================================
</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 Citigroup.
(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. The effect of master netting agreements at Salomon
Smith Barney is reflected in the individual line items for each of the
products in the table above.
(3) Citibank has securitized and sold net receivables, and the associated credit
risk related to certain derivative and foreign exchange contracts via
Markets Assets Trust.
- --------------------------------------------------------------------------------
The tables below provide data on the notional principal amounts and maturities
of end-user (non-trading) derivatives, along with additional data on end-user
interest rate swaps and net purchased option positions at the end of the first
quarter of 1999.
End-User Derivative Interest Rate and Foreign Exchange Contracts
<TABLE>
<CAPTION>
Notional Principal
Amounts Percentage of March 31, 1999 Amount Maturing
---------------------------------------------------------------------------
Mar. 31, Dec. 31, Within 1 to 2 to 3 to 4 to After
In billions of dollars 1999 1998 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate products
Futures contracts $32.0 $ 28.6 79% 15% 4% 1% 1% --%
Forward contracts 5.9 6.5 100 -- -- -- -- --
Swap agreements 116.8 113.7 38 11 10 10 10 21
Option contracts 17.3 9.9 75 7 8 -- 1 9
Foreign exchange products
Futures and forward contracts 67.4 68.2 95 3 1 1 -- --
Cross-currency swaps 6.4 4.8 14 11 6 30 20 19
- ----------------------------------===========================================================================
</TABLE>
41
<PAGE>
End-User Interest Rate Swaps and Net Purchased Options as of March 31, 1999
<TABLE>
<CAPTION>
Remaining Contracts Outstanding --
Notional Principal Amounts
--------------------------------------------------
In billions of dollars 1999 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps $81.3 $61.0 $51.2 $41.4 $30.7 $19.0
Weighted-average fixed rate 6.1% 6.1% 6.2% 6.2% 6.2% 6.5%
Pay fixed swaps 19.6 10.9 8.4 7.0 6.3 5.8
Weighted-average fixed rate 5.9% 6.2% 6.2% 6.3% 6.3% 6.3%
Basis swaps 15.9 0.9 0.3 0.2 0.2 0.2
Purchased caps (including collars) 7.6 1.0 -- -- -- --
Weighted-average cap rate purchased 5.9% 7.1% -% -% -% -%
Purchased floors 2.8 0.7 0.7 0.1 0.1 0.1
Weighted-average floor rate purchased 4.8% 5.1% 5.1% 5.8% 5.8% 5.8%
Written floors related to purchased caps (collars) 4.3 0.2 0.1 -- -- --
Weighted-average floor rate written 4.9% 7.5% 6.5% -% -% -%
Written caps related to other purchased caps (1) 2.6 2.4 2.3 1.7 1.7 1.5
Weighted-average cap rate written 9.8% 9.8% 9.8% 10.6% 10.6% 10.7%
- -----------------------------------------------------==================================================
Three-month forward LIBOR rates (2) 5.0% 5.4% 5.7% 5.9% 6.0% 6.2%
- -----------------------------------------------------==================================================
</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 March
31, 1999, provided for reference.
- --------------------------------------------------------------------------------
11. Contingencies
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
The reserves carried for environmental and asbestos claims at March 31, 1999 are
the Company's best estimate of ultimate claims and claim adjustment expenses
based upon known facts and current law. However, the conditions surrounding the
final resolution of these claims continue to change. Currently, it is not
possible to predict changes in the legal and legislative environment and their
impact on the future development of asbestos and environmental claims. Such
development will be affected by future court decisions and interpretations as
well as changes in legislation applicable to such claims. Because of these
future unknowns, additional liabilities may arise for amounts in excess of the
current reserves. These additional amounts, or a range of these additional
amounts, cannot now be reasonably estimated, and could result in a liability
exceeding reserves by an amount that would be material to the Company's
operating results in a future period. However, the Company believes that it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.
In the ordinary course of business Citigroup and/or its subsidiaries are also
defendants or co-defendants in various litigation matters, other than those
described above. Although there can be no assurances, the Company believes,
based on information currently available, that the ultimate resolution of these
legal proceedings would not be likely to have a material adverse effect on the
Company's results of operations, financial condition or liquidity.
42
<PAGE>
FINANCIAL DATA SUPPLEMENT
Cash-Basis, Renegotiated, and Past Due Loans (1)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31, Mar. 31,
In millions of dollars 1999 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial cash-basis loans
Collateral dependent (at lower of cost or collateral value) (2) $ 358 $ 394 $ 242
Other (3) 1,277 1,201 1,102
------------------------
Total $1,635 $1,595 $1,344
- ------------------------------------------------------------------========================
Commercial cash-basis loans
In U.S. offices $ 452 $ 463 $ 261
In offices outside the U.S. (3) 1,183 1,132 1,083
------------------------
Total $1,635 $1,595 $1,344
- ------------------------------------------------------------------========================
Commercial renegotiated loans
In U.S. offices $ -- $ -- $ 20
In offices outside the U.S. 47 45 41
------------------------
Total $ 47 $ 45 $ 61
- ------------------------------------------------------------------========================
Consumer loans on which accrual of interest had been suspended
In U.S. offices (4) $ 771 $ 825 $ 909
In offices outside the U.S. 1,481 1,458 1,104
------------------------
Total $2,252 $2,283 $2,013
- ------------------------------------------------------------------========================
Accruing loans 90 or more days delinquent (5)
In U.S. offices (4) $ 610 $ 592 $ 584
In offices outside the U.S. 477 532 480
------------------------
Total $1,087 $1,124 $1,064
- ------------------------------------------------------------------========================
</TABLE>
(1) For a discussion of risks in the consumer loan portfolio, see page 14, and
of commercial cash-basis loans, see pages 18 and 19.
(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 $13 million, $14 million and $83 million at March 31, 1999,
December 31, 1998 and March 31, 1998, respectively, for which the
recognition of revaluation gains has been suspended.
(4) Includes $12 million, $10 million and $10 million of consumer loans on which
accrual of interest had been suspended and $29 million, $30 million and $31
million of accruing loans 90 or more days delinquent related to loans held
for sale at March 31, 1999, December 31, 1998 and March 31, 1998,
respectively.
(5) Includes consumer loans on the balance sheet of $1.0 billion, $1.1 billion
and $1.0 billion at March 31, 1999, December 31, 1998 and March 31, 1998,
respectively, of which $302 million, $267 million and $256 million,
respectively, are government-guaranteed student loans.
- --------------------------------------------------------------------------------
Other Real Estate Owned and Assets Pending Disposition
Mar. 31, Dec. 31, Mar. 31,
In millions of dollars 1999 1998 1998
- --------------------------------------------------------------------------------
Consumer (1) $217 $254 $258
Commercial (1) 463 496 539
------------------------------
Total $680 $750 $797
- ------------------------------------------------==============================
Assets pending disposition (2) $ 95 $100 $103
- ------------------------------------------------==============================
(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.
- --------------------------------------------------------------------------------
43
<PAGE>
Details of Credit Loss Experience
<TABLE>
<CAPTION>
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
In millions of dollars 1999 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for credit losses
at beginning of period $6,617 $6,604 $6,529 $6,159 $6,137
-----------------------------------------------
Provision for credit losses 729 674 826 656 595
Gross credit losses
Consumer
In U.S. offices 391 421 424 470 411
In offices outside the U.S. 304 294 262 246 207
Commercial
In U.S. offices 1 10 56 1 8
In offices outside the U.S. 130 128 216 81 76
-----------------------------------------------
826 853 958 798 702
-----------------------------------------------
Credit recoveries
Consumer
In U.S. offices 55 50 60 66 59
In offices outside the U.S. 63 79 69 61 53
Commercial
In U.S. offices 2 17 26 50 11
In offices outside the U.S. 18 30 14 4 18
-----------------------------------------------
138 176 169 181 141
Net credit losses
In U.S. offices 335 364 394 355 349
In offices outside the U.S. 353 313 395 262 212
-----------------------------------------------
688 677 789 617 561
-----------------------------------------------
Other -- net (1) 4 16 38 331 (12)
-----------------------------------------------
Allowance for credit losses at end of
period $6,662 $6,617 $6,604 $6,529 $6,159
- -------------------------------------------===============================================
Net consumer credit losses $ 577 $ 586 $ 557 $ 589 $ 506
As a percentage of average consumer loans 1.78% 1.80% 1.80% 1.93% 1.75%
- -------------------------------------------===============================================
Net commercial credit losses $ 111 $ 91 $ 232 $ 28 $ 55
As a percentage of average commercial
loans 0.46% 0.39% 1.07% 0.13% 0.28%
- -------------------------------------------===============================================
</TABLE>
(1) Primarily includes foreign currency translation effects and in the second
quarter of 1998, reflects the addition of a $320 million allowance for
credit losses related to the acquisition of the Universal Card portfolio.
- --------------------------------------------------------------------------------
44
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Citigroup's Annual Meeting of Stockholders was held on April 20, 1999. At the
meeting:
(1) 17 persons were elected to serve as directors of Citigroup;
(2) the selection of KPMG LLP to serve as the independent auditors of
Citigroup for 1999 was ratified;
(3) the Citigroup 1999 Stock Incentive Plan was approved;
(4) the Citigroup 1999 Executive Performance Plan was approved;
(5) a stockholder proposal regarding less developed countries was
defeated; and
(6) a stockholder proposal regarding executive compensation was
defeated.
The number of votes cast for, against or withheld, and the number of abstentions
with respect to each such matter is set forth below, as are the number of broker
non-votes, where applicable.
<TABLE>
<CAPTION>
For Against/Withheld Abstained Broker Non-Votes
--- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
(1) Election of Directors:
Nominee
C. Michael Armstrong 1,837,342,920 9,789,629
Alain J.P. Belda 1,837,235,572 9,896,977
Kenneth J. Bialkin 1,825,027,862 22,104,687
Kenneth T. Derr 1,837,447,545 9,685,004
John M. Deutch 1,836,668,587 10,463,962
Ann Dibble Jordan 1,824,599,316 22,533,233
Reuben Mark 1,837,434,593 9,697,956
Michael T. Masin 1,836,881,227 10,251,322
Dudley C. Mecum 1,836,689,344 10,443,205
Richard D. Parsons 1,825,684,037 21,448,512
Andrall E. Pearson 1,824,992,346 22,140,203
John S. Reed 1,835,816,718 11,315,831
Robert B. Shapiro 1,825,935,441 21,197,108
Franklin A. Thomas 1,825,369,617 21,762,932
Sanford I. Weill 1,835,268,618 11,863,931
Edgar S. Woolard, Jr. 1,826,191,942 20,940,607
Arthur Zankel 1,825,557,991 21,574,558
(2) Ratification of Auditors
1,836,389,243 4,928,730 5,814,576 0
(3) Approval of Citigroup
1999 Stock Incentive Plan
1,272,118,746 564,009,890 11,003,913 0
(4) Approval of Citigroup 1999
Executive Performance Plan
1,684,696,169 148,764,514 13,671,866 0
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
For Against/Withheld Abstained Broker Non-Votes
--- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
(5) Approval of Stockholder's
Proposal Regarding
Less Developed Countries
69,063,978 1,293,551,055 124,891,022 359,626,494
(6) Approval of Stockholder's
Proposal Regarding Executive
Compensation
157,851,979 1,299,513,709 30,145,010 359,621,851
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On January 26, 1999, the Company filed a Current Report on Form 8-K, dated
January 25, 1999, reporting under Item 5 thereof the results of its operations
for the quarter and year ended December 31, 1998, and certain other selected
financial data.
On March 30, 1999, the Company filed a Current Report on Form 8-K, dated March
26, 1999, filing certain exhibits under Item 7 thereof relating to the offer and
sale of the Company's 6.20% Notes due March 15, 2009 and 5.80% Notes due March
15, 2004.
No other reports on Form 8-K were filed during the first quarter of 1999;
however, on April 20, 1999, the Company filed a Current Report on Form 8-K,
dated April 19, 1999, reporting under Item 5 thereof the results of its
operations for the quarter ended March 31, 1999, and certain other selected
financial data, and on May 10, 1999, the Company filed a Current Report on Form
8-K, dated May 6, 1999, filing an exhibit under Item 7 thereof with respect to
the offer and sale of the Company's Medium-Term Notes, Series A, due nine months
or more from date of issue.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of May, 1999.
CITIGROUP INC.
(Registrant)
By /s/ Heidi G. Miller
--------------------------------
Heidi G. Miller
Chief Financial Officer
Principal Financial Officer
By /s/ Irwin R. Ettinger By /s/ Roger W. Trupin
-------------------------------- --------------------------------
Irwin R. Ettinger Roger W. Trupin
Principal Accounting Officer Principal Accounting Officer
47
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.01.1 Restated Certificate of Incorporation of Citigroup Inc. (the
"Company"), incorporated by reference to Exhibit 4.01 to the
Company's Registration Statement on Form S-3 filed December 15, 1998
(No. 333-68949).
3.01.2 Certificate of Designation of 5.321% Cumulative Preferred Stock,
Series YY, of the Company, incorporated by reference to Exhibit 4.45
to Amendment No. 1 to the Company's Registration Statement on Form
S-3 filed January 22, 1999 (No. 333-68949).
3.02 By-Laws of the Company effective October 8, 1998, incorporated by
reference to Exhibit 3.02 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998 (File No.
1-9924).
10.01 Citigroup 1999 Stock Incentive Plan (effective as of April 30,
1999), incorporated by reference to Annex A to the Company's Proxy
Statement dated March 8, 1999 (File No. 1-9924).
10.02 Citigroup 1999 Executive Performance Plan (effective as of January
1, 1999), incorporated by reference to Annex B to the Company's
Proxy Statement dated March 8, 1999 (File No. 1-9924).
12.01 Computation of Ratio of Earnings to Fixed Charges.
12.02 Computation of Ratio of Earnings to Fixed Charges (including
preferred stock dividends).
27.01 Financial Data Schedule.
99.01 Citigroup 1997 Quarterly Segment Information - restated to reflect
changes in capital and tax allocation among the segments to conform
the policies of each of the predecessor companies.
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
48
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
(In Millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
MARCH 31,
EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532 3,555 4,019
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 79 70
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 16,243 15,212 12,644 13,763 13,834 3,634 4,089
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 3,972 3,468
OTHER -- -- 1 -- -- -- --
FIXED CHARGES 16,243 15,212 12,644 13,763 13,834 3,634 4,089
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490 7,606 7,557
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.57 1.71 1.88 1.65 1.41 2.09 1.85
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528 6,451 6,641
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 79 70
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 27,889 24,825 21,618 22,665 22,830 6,530 6,711
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 3,972 3,468
OTHER -- -- 1 -- -- -- --
FIXED CHARGES 27,889 24,825 21,618 22,665 22,830 6,530 6,711
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 37,158 35,575 32,706 31,579 28,486 10,502 10,179
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.33 1.43 1.51 1.39 1.25 1.61 1.52
====== ====== ====== ====== ====== ====== ======
</TABLE>
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
(In Millions) YEAR ENDED DECEMBER 31, THREE MONTHS
MARCH 31,
EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532 3,555 4,019
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 79 70
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704 62 93
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 16,575 15,645 13,149 14,563 14,538 3,696 4,182
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 3,972 3,468
OTHER -- -- 1 -- -- -- --
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 16,243 15,212 12,644 13,763 13,834 3,634 4,089
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490 7,606 7,557
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.54 1.66 1.80 1.56 1.34 2.06 1.81
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528 6,451 6,641
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 79 70
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704 62 93
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 28,221 25,258 22,123 23,465 23,534 6,592 6,804
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 3,972 3,468
OTHER -- -- 1 -- -- -- --
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 27,889 24,825 21,618 22,665 22,830 6,530 6,711
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 37,158 35,575 32,706 31,579 28,486 10,502 10,179
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.32 1.41 1.48 1.35 1.21 1.59 1.50
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITIGROUP'S
FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING
DISCLOSURES.
</LEGEND>
<CIK> 0000831001
<NAME> CITIGROUP 1999
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,699
<INT-BEARING-DEPOSITS> 11,574
<FED-FUNDS-SOLD> 111,595 <F1>
<TRADING-ASSETS> 118,954
<INVESTMENTS-HELD-FOR-SALE> 103,639
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 226,399
<ALLOWANCE> 6,662 <F2>
<TOTAL-ASSETS> 690,649
<DEPOSITS> 238,978
<SHORT-TERM> 14,563 <F3>
<LIABILITIES-OTHER> 40,059
<LONG-TERM> 49,130
4,920
2,113
<COMMON> 36 <F4>
<OTHER-SE> 41,810 <F4>
<TOTAL-LIABILITIES-AND-EQUITY> 690,649
<INTEREST-LOAN> 5,888
<INTEREST-INVEST> 0 <F5>
<INTEREST-OTHER> 5,414
<INTEREST-TOTAL> 11,302
<INTEREST-DEPOSIT> 0 <F5>
<INTEREST-EXPENSE> 6,451
<INTEREST-INCOME-NET> 4,851
<LOAN-LOSSES> 729
<SECURITIES-GAINS> 53
<EXPENSE-OTHER> 2,871
<INCOME-PRETAX> 3,972
<INCOME-PRE-EXTRAORDINARY> 2,489
<EXTRAORDINARY> 0
<CHANGES> (127) <F6>
<NET-INCOME> 2,362
<EPS-PRIMARY> 0.70 <F4><F7>
<EPS-DILUTED> 0.68 <F4>
<YIELD-ACTUAL> 0 <F5>
<LOANS-NON> 3,887 <F8>
<LOANS-PAST> 1,087 <F9>
<LOANS-TROUBLED> 47
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,617
<CHARGE-OFFS> 826
<RECOVERIES> 138
<ALLOWANCE-CLOSE> 6,662 <F2>
<ALLOWANCE-DOMESTIC> 0 <F10>
<ALLOWANCE-FOREIGN> 0 <F11>
<ALLOWANCE-UNALLOCATED> 0 <F11>
<FN>
<F1> Includes securities borrowed or purchased under agreements to resell.
<F2> Allowance activity for the three months of 1999 includes $4MM in other
changes, principally foreign currency translation effects.
<F3> Commercial paper and other short-term borrowings.
<F4> The Board of Directors on April 19, 1999 declared a three-for-two split in
Citigroup's common stock, which is payable in the form of a 50% stock
dividend on May 28, 1999 to stockholders of record on May 3, 1999. Current
and prior year information has been restated to reflect the stock split.
<F5> Not disclosed.
<F6> First quarter 1999 accounting changes include the adoption of Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" of $(135) million; SOP 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the
Costs of Start-Up Activities" of $(15) million.
<F7> Primary EPS represents Basic EPS under Financial Accounting Standards No.
128, "Earnings per Share".
<F8> Includes $1,635MM of cash-basis commercial loans and $2,252MM of consumer
loans on which accrual of interest has been suspended.
<F9> Accruing loans 90 or more days delinquent.
<F10> No portion of Citigroup's credit loss allowance is specifically allocated
to any individual loan or group of loans.
<F11> See Footnote F10 above.
</FN>
</TABLE>
Exhibit 99.01 Citigroup 1997 Quarterly Segment Information
GLOBAL CONSUMER - Banking/Lending [LOGO]
CITIBANKING NORTH AMERICA
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 453 $ 468 $ 490 $ 487 $ 1,898
Adjusted Operating Expenses 392 395 405 404 1,596
Provision for Credit Losses 33 35 30 33 131
------ ------ ------ ------ ---------
Core Income Before Taxes 28 38 55 50 171
Income Taxes 12 16 23 21 72
------ ------ ------ ------ ---------
Core Income $ 16 $ 22 $ 32 $ 29 $ 99
====== ====== ====== ====== =========
</TABLE>
MORTGAGE BANKING
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 146 $ 152 $ 138 $ 154 $ 590
Adjusted Operating Expenses 58 57 59 60 234
Provision for Credit Losses 32 25 16 14 87
------ ------ ------ ------ ---------
Core Income Before Taxes 56 70 63 80 269
Income Taxes 22 27 20 31 100
Minority Interest, After Tax -- -- -- -- --
------ ------ ------ ------ ---------
Core Income $ 34 $ 43 $ 43 $ 49 $ 169
====== ====== ====== ====== =========
</TABLE>
<PAGE>
CARDS
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Adjusted Revenues, Net of Interest
Expense $1,403 $1,376 $1,372 $1,413 $ 5,564
Adjusted Operating Expenses 458 459 462 458 1,837
Adjusted Provision for Credit Losses 701 732 686 689 2,808
------ ------ ------ ------ ---------
Core Income Before Taxes 244 185 224 266 919
Income Taxes 92 69 84 99 344
------ ------ ------ ------ ---------
Core Income $ 152 $ 116 $ 140 $ 167 $ 575
====== ====== ====== ====== =========
</TABLE>
CONSUMER FINANCE SERVICES
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 243 $ 235 $ 284 $ 305 $ 1,067
Total Operating Expenses 88 89 119 126 422
Provision for Benefits, Claims and Credit
Losses 87 69 80 80 316
------ ------ ------ ------ ---------
Core Income Before Taxes 68 77 85 99 329
Income Taxes 23 26 31 36 116
------ ------ ------ ------ ---------
Core Income $ 45 $ 51 $ 54 $ 63 $ 213
====== ====== ====== ====== =========
</TABLE>
<PAGE>
GLOBAL CONSUMER - Insurance
TRAVELERS LIFE & ANNUITY
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 618 $ 654 $ 657 $ 767 $ 2,696
Total Operating Expenses 83 87 92 99 361
Policyholder Claims and Benefits 379 405 398 495 1,677
------ ------ ------ ------ ---------
Core Income Before Taxes 156 162 167 173 658
Income Taxes 54 55 57 59 225
------ ------ ------ ------ ---------
Core Income $ 102 $ 107 $ 110 $ 114 $ 433
====== ====== ====== ====== =========
</TABLE>
PRIMERICA FINANCIAL SERVICES
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 372 $ 378 $ 381 $ 391 $ 1,522
Total Operating Expenses 120 127 125 130 502
Policyholder Claims and Benefits 130 123 123 121 497
------ ------ ------ ------ ---------
Core Income Before Taxes 122 128 133 140 523
Income Taxes 44 46 48 50 188
------ ------ ------ ------ ---------
Core Income $ 78 $ 82 $ 85 $ 90 $ 335
====== ====== ====== ====== =========
</TABLE>
PERSONAL LINES
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 796 $ 810 $ 831 $ 839 $ 3,276
Total Operating Expenses 217 206 229 232 884
Claims and Claim Adjustment Expenses 434 467 475 477 1,853
------ ------ ------ ------ ---------
Core Income Before Taxes 145 137 127 130 539
Income Taxes 49 46 42 40 177
Minority Interest, After Tax 17 16 14 15 62
------ ------ ------ ------ ---------
Core Income $ 79 $ 75 $ 71 $ 75 $ 300
====== ====== ====== ====== =========
</TABLE>
<PAGE>
GLOBAL CONSUMER - International
EUROPE, MIDDLE EAST AND AFRICA
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 473 $ 483 $ 485 $ 494 $ 1,935
Adjusted Operating Expenses 339 328 319 336 1,322
Provision for Credit Losses 70 69 68 67 274
------ ------ ------ ------ ---------
Core Income Before Taxes 64 86 98 91 339
Income Taxes 24 33 37 34 128
------ ------ ------ ------ ---------
Core Income $ 40 $ 53 $ 61 $ 57 $ 211
====== ====== ====== ====== =========
</TABLE>
ASIA PACIFIC
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 473 $ 495 $ 480 $ 429 $ 1,877
Adjusted Operating Expenses 243 260 267 255 1,025
Provision for Credit Losses 44 49 49 59 201
------ ------ ------ ------ ---------
Core Income Before Taxes 186 186 164 115 651
Income Taxes 70 71 67 44 252
------ ------ ------ ------ ---------
Core Income $ 116 $ 115 $ 97 $ 71 $ 399
====== ====== ====== ====== =========
</TABLE>
LATIN AMERICA
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 363 $ 378 $ 366 $ 371 $ 1,478
Adjusted Operating Expenses 213 230 232 248 923
Provision for Credit Losses 48 50 48 46 192
------ ------ ------ ------ ---------
Core Income Before Taxes 102 98 86 77 363
Income Taxes 34 32 28 25 119
------ ------ ------ ------ ---------
Core Income $ 68 $ 66 $ 58 $ 52 $ 244
====== ====== ====== ====== =========
</TABLE>
<PAGE>
GLOBAL PRIVATE BANK
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 259 $ 262 $ 280 $ 273 $ 1,074
Adjusted Operating Expenses 153 163 170 180 666
Provision for Credit Losses (2) 2 (4) (9) (13)
------ ------ ------ ------ ---------
Core Income Before Taxes 108 97 114 102 421
Income Taxes 40 37 43 38 158
------ ------ ------ ------ ---------
Core Income $ 68 $ 60 $ 71 $ 64 $ 263
====== ====== ====== ====== =========
</TABLE>
GLOBAL CONSUMER
e-CITI(1)
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 24 $ 27 $ 31 $ 32 $ 114
Adjusted Operating Expenses 43 51 67 79 240
Provision for Credit Losses 1 1 1 1 4
------ ------ ------ ------ ---------
Business Loss Before Taxes (20) (25) (37) (48) (130)
Income Tax Benefit (8) (10) (14) (18) (50)
------ ------ ------ ------ ---------
Business Loss $ (12) $ (15) $ (23) $ (30) $ (80)
====== ====== ====== ====== =========
</TABLE>
(1) Includes development of electronic banking initiatives.
OTHER(1)
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 26 $ 30 $ 27 $ 24 $ 107
Total Operating Expenses 12 20 22 36 90
------ ------ ------ ------ ---------
Business Income (Loss) Before Taxes $ 14 $ 10 $ 5 $ (12) 17
Income Tax Expense (Benefit) 7 4 1 (5) 7
------ ------ ------ ------ ---------
Business Income (Loss) $ 7 $ 6 $ 4 $ (7) $ 10
====== ====== ====== ====== =========
</TABLE>
(1) Includes unallocated marketing and staff expenses.
<PAGE>
GLOBAL CORPORATE AND INVESTMENT BANK
SALOMON SMITH BARNEY
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $2,531 $2,547 $2,828 $2,312 $ 10,218
Adjusted Operating Expenses 1,925 1,887 2,096 1,987 7,895
------ ------ ------ ------ ---------
Core Income (Loss) Before Taxes 606 660 732 325 2,323
Income Tax Expense 239 256 283 107 885
------ ------ ------ ------ ---------
Core Income $ 367 $ 404 $ 449 $ 218 $ 1,438
====== ====== ====== ====== =========
</TABLE>
EMERGING MARKETS
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 896 $ 863 $ 940 $ 780 $ 3,479
Adjusted Operating Expenses 439 461 479 510 1,889
Provision for Credit Losses 15 25 34 46 120
------ ------ ------ ------ ---------
Core Income Before Taxes 442 377 427 224 1,470
Income Taxes 166 141 161 84 552
------ ------ ------ ------ ---------
Core Income $ 276 $ 236 $ 266 $ 140 $ 918
====== ====== ====== ====== =========
</TABLE>
GLOBAL RELATIONSHIP BANKING
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 956 $ 896 $ 945 $1,019 $ 3,816
Adjusted Operating Expenses 645 650 710 745 2,750
Provision for Credit Losses (22) (23) (21) (18) (84)
------ ------ ------ ------ ---------
Core Income Before Taxes 333 269 256 292 1,150
Income Tax Expense 125 101 95 110 431
------ ------ ------ ------ ---------
Core Income $ 208 $ 168 $ 161 $ 182 $ 719
====== ====== ====== ====== =========
</TABLE>
<PAGE>
COMMERCIAL LINES
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $1,587 $1,588 $1,578 $1,550 $ 6,303
Total Operating Expenses 412 417 406 393 1,628
Claims and Claim Adjustment Expenses 939 908 888 896 3,631
------ ------ ------ ------ ---------
Core Income Before Taxes 236 263 284 261 1,044
Income Taxes 65 74 78 63 280
Minority Interest, After Tax 31 34 35 32 132
------ ------ ------ ------ ---------
Core Income $ 140 $ 155 $ 171 $ 166 $ 632
====== ====== ====== ====== =========
</TABLE>
SSB CITI ASSET MANAGEMENT
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 243 $ 259 $ 285 $ 276 $ 1,063
Total Operating Expenses 164 170 179 183 696
------ ------ ------ ------ ---------
Core Income Before Taxes 79 89 106 93 367
Income Taxes 31 35 42 37 145
------ ------ ------ ------ ---------
Core Income $ 48 $ 54 $ 64 $ 56 $ 222
====== ====== ====== ====== =========
</TABLE>
CORPORATE/OTHER
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ (80) $ (84) $ (68) $ (83) $ (315)
Adjusted Operating Expenses 149 66 132 56 403
Provision for Benefits, Claims and Credit
Losses (2) (2) (1) (1) (6)
------ ------ ------ ------ ---------
Business Loss Before Taxes (227) (148) (199) (138) (712)
Income Tax Benefit (74) (55) (70) (62) (261)
------ ------ ------ ------ ---------
Business Loss $ (153) $ (93) $ (129) $ (76) $ (451)
====== ====== ====== ====== =========
</TABLE>
<PAGE>
INVESTING ACTIVITIES
(In millions of dollars)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q Full Year
1997 1997 1997 1997 1997
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Total Revenues, Net of Interest Expense $ 170 $ 323 $ 500 $ 740 $ 1,733
Total Operating Expenses 9 9 10 12 40
Provision (Benefit) for Credit Losses (55) (4) (5) -- (64)
------ ------ ------ ------ ---------
Income Before Taxes 216 318 495 728 1,757
Income Taxes 79 116 180 262 637
Minority Interest, After Tax 1 (1) 6 12 18
------ ------ ------ ------ ---------
Net Income $ 136 $ 203 $ 309 $ 454 $ 1,102
====== ====== ====== ====== =========
</TABLE>
