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 September 30, 2000
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.)
399 Park Avenue, 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 October 31, 2000: 4,492,529,155
Available on the Web at www.citigroup.com
<PAGE>
Citigroup Inc.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Consolidated Statement of Income (Unaudited) -
Three and Nine Months Ended September 30, 2000 and 1999 36
Consolidated Statement of Financial Position -
September 30, 2000 (Unaudited) and December 31, 1999 37
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Nine Months Ended September 30, 2000 and 1999 38
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2000 and 1999 39
Notes to Consolidated Financial Statements (Unaudited) 40
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1 - 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 - 30
46 - 47
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 50
Item 6. Exhibits and Reports on Form 8-K 50 - 52
Signatures 52
Exhibit Index 53
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Business Focus
The table below shows the core income (loss) for each of Citigroup's businesses:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------------------------------------
In millions of dollars, except per share data 2000 1999 (1) 2000 1999 (1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Consumer
Citibanking North America $ 143 $ 107 $ 420 $ 283
Mortgage Banking 70 59 196 170
North America Cards 369 301 973 858
CitiFinancial 124 135 353 284
----------------------------------------------------------------------------
Total Banking/Lending 706 602 1,942 1,595
----------------------------------------------------------------------------
Travelers Life and Annuity 179 168 568 488
Primerica Financial Services 124 114 368 337
Personal Lines 68 23 225 185
----------------------------------------------------------------------------
Total Insurance 371 305 1,161 1,010
----------------------------------------------------------------------------
Western Europe 88 71 251 203
Japan 36 25 104 69
Asia 142 92 428 257
Latin America 32 52 139 140
Central & Eastern Europe, Middle East and Africa 15 27 45 36
----------------------------------------------------------------------------
Total Emerging Markets Consumer Banking 189 171 612 433
----------------------------------------------------------------------------
Total International 313 267 967 705
----------------------------------------------------------------------------
e-Consumer (43) (29) (157) (78)
Other (25) (12) (82) (53)
----------------------------------------------------------------------------
Total Global Consumer 1,322 1,133 3,831 3,179
----------------------------------------------------------------------------
Global Corporate and Investment Bank
Salomon Smith Barney 622 432 2,220 1,690
Global Relationship Banking 250 143 751 473
Emerging Markets Corporate Banking 401 303 1,163 904
Commercial Lines 315 255 822 645
----------------------------------------------------------------------------
Total Global Corporate and Investment Bank 1,588 1,133 4,956 3,712
----------------------------------------------------------------------------
Global Investment Management & Private Banking
SSB Citi Asset Management Group
and Global Retirement Services 96 84 283 250
Global Private Bank 80 70 239 196
----------------------------------------------------------------------------
Total Global Investment Management
& Private Banking 176 154 522 446
----------------------------------------------------------------------------
Investment Activities 292 194 1,160 445
----------------------------------------------------------------------------
Corporate/Other (244) (145) (693) (404)
e-Citi (23) (19) (56) (36)
----------------------------------------------------------------------------
Total Corporate/Other (267) (164) (749) (440)
----------------------------------------------------------------------------
Core income 3,111 2,450 9,720 7,342
Restructuring-related items, after-tax (2) (23) (15) (37) 30
Cumulative effect of accounting changes (3) -- -- -- (127)
----------------------------------------------------------------------------
Net income $3,088 $2,435 $9,683 $7,245
--------------------------------------------------------============================================================================
Diluted earnings per share (4)
Core income $0.67 $0.53 $2.10 $1.58
Net income 0.67 0.52 2.09 1.55
--------------------------------------------------------============================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) The 2000 third quarter and nine months include accelerated depreciation of
$8 million and $39 million, respectively, new charges of $15 million and
$29 million, respectively, and in the nine-month period, a $31 million
credit for the reversal of prior charges. The 1999 third quarter and nine
months include accelerated depreciation of $25 million and $105 million,
respectively, new charges of $31 million, and credits for the reversal of
prior charges of $41 million and $166 million, respectively. See Note 8 of
Notes to Consolidated Financial Statements.
(3) Accounting changes include the 1999 first quarter 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 3 of Notes to
Consolidated Financial Statements.
(4) Earnings per share have been adjusted to reflect the four-for-three split
in Citigroup's common stock, effective August 25, 2000. See Note 1 of
Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
1
<PAGE>
Income Analysis
The income analysis reconciles amounts shown in the Consolidated Statement of
Income on page 36 to the basis presented in the business segment discussions.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------------------------------------
In millions of dollars 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues, net of interest expense $16,337 $14,021 $49,225 $42,471
Effect of credit card securitization activity 427 552 1,415 1,710
----------------------------------------------------------------------------
Adjusted revenues, net of interest expense 16,764 14,573 50,640 44,181
----------------------------------------------------------------------------
Total operating expenses 8,479 7,261 25,047 22,106
Restructuring-related items (36) (22) (59) 61
----------------------------------------------------------------------------
Adjusted operating expenses 8,443 7,239 24,988 22,167
----------------------------------------------------------------------------
Operating margin 8,321 7,334 25,652 22,014
----------------------------------------------------------------------------
Provisions for benefits, claims, and credit losses 3,006 2,890 9,026 8,608
Effect of credit card securitization activity 427 552 1,415 1,710
----------------------------------------------------------------------------
Adjusted provisions for benefits, claims,
and credit losses 3,433 3,442 10,441 10,318
----------------------------------------------------------------------------
Core income before income taxes and minority interest 4,888 3,892 15,211 11,696
Taxes on core income 1,764 1,386 5,403 4,173
Minority interest, net of income taxes 13 56 88 181
----------------------------------------------------------------------------
Core income 3,111 2,450 9,720 7,342
Restructuring-related items, after-tax (23) (15) (37) 30
----------------------------------------------------------------------------
Income before cumulative effect of accounting changes 3,088 2,435 9,683 7,372
Cumulative effect of accounting changes -- -- -- (127)
----------------------------------------------------------------------------
Net income $ 3,088 $ 2,435 $ 9,683 $ 7,245
--------------------------------------------------------============================================================================
</TABLE>
Results of Operations
Income and Earnings Per Share
Citigroup reported core income of $3.111 billion or $0.67 per diluted common
share in the 2000 third quarter, up 27% and 26%, respectively, from $2.450
billion or $0.53 in the 1999 third quarter. Net income in the 2000 quarter was
$3.088 billion or $0.67 per diluted share, up 27% and 29% from $2.435 billion or
$0.52 in the year-ago quarter. Core income return on common equity was 24.2% and
22.1% in the third quarters of 2000 and 1999, respectively.
Core income for the 2000 nine months of $9.720 billion or $2.10 per diluted
common share was up 32% and 33% from $7.342 billion or $1.58 in the 1999 nine
months. Net income in the 2000 nine months was $9.683 billion or $2.09 per
diluted share, up 34% and 35% from $7.245 billion or $1.55 a year ago. Core
income return on common equity was 26.2% and 23.0% in the nine months of 2000
and 1999, respectively.
Core income growth in the 2000 third quarter and nine months compared to the
1999 periods was led by Global Corporate and Investment Bank, which improved
$455 million or 40% in the quarter and $1.244 billion or 34% in the nine months,
reflecting strong growth in all business segments. Salomon Smith Barney (SSB),
Emerging Markets Corporate Banking (EM Corporate), and Global Relationship
Banking (GRB) increases reflected revenue growth, particularly in commissions,
investment banking fees, principal transactions and transaction services, while
Commercial Lines benefited from the 2000 second quarter buyback of Travelers
Property Casualty Corp's minority interest.
Global Consumer core income improved $189 million or 17% and $652 million or 21%
in the 2000 third quarter and nine-month periods compared to the 1999 periods,
primarily reflecting improvements in North America Cards, Insurance, and
Citibanking North America, strong performance across Asian marketplaces, and
continued favorable global credit trends.
Global Investment Management and Private Banking core income grew $22 million or
14% and $76 million or 17% in the 2000 quarter and nine months compared to 1999,
primarily reflecting acquisitions in the Global Retirement Services business and
volume-related growth in customer revenue, partially offset by increased
business development expenses. Investment Activities core income was up $98
million in the 2000 quarter from 1999, primarily reflecting gains on the
exchange of certain Latin American bonds during the quarter, partially offset by
lower venture capital results, and was up $715 million in the 2000 nine months
compared to the 1999 nine months, primarily reflecting strong venture capital
results and higher levels of realized gains on sales of investments. The
decreases in Corporate/Other included higher treasury costs and, in the
nine-month period, a contribution made to the Citigroup Foundation.
2
<PAGE>
Adjusted Revenues, Net of Interest Expense
Adjusted revenues, net of interest expense, of $16.8 billion and $50.6 billion
in the 2000 third quarter and nine months, were up $2.2 billion and $6.5
billion, both up 15% from the 1999 periods. Global Corporate and Investment Bank
revenues of $8.1 billion in the 2000 quarter and $24.2 billion in the 2000 nine
months were up $1.7 billion or 26% and $3.6 billion or 18% from 1999. The
increases were led by SSB, up $1.1 billion or 39% in the 2000 third quarter and
$2.3 billion or 25% in the nine months, driven by growth in principal
transactions, investment banking fees, commissions, and asset management and
administration fees. EM Corporate was up $208 million or 20% and $477 million or
14% compared to the 1999 third quarter and nine months, respectively, reflecting
growth in all regions, especially in Central and Eastern Europe, Middle East,
and Africa (CEEMEA), primarily from the acquisition of Bank Handlowy, a
commercial bank in Poland, along with growth in principal transactions and
transaction services. GRB revenues were up $195 million or 19% in the 2000 third
quarter and $512 million or 16% in the 2000 nine months, primarily due to growth
in transaction services, equity derivatives, structured products, the results of
the acquisition of Copelco, an international leasing company, and were partially
offset by lower treasury and foreign exchange trading results. Commercial Lines
revenues grew $169 million or 11% and $271 million or 6% compared to the 1999
quarter and nine months, reflecting higher earned premiums from the Reliance
acquisition and an improved rate environment, as well as higher fee income.
Compared to the 1999 periods, Global Consumer revenues were up $325 million or
5% in the 2000 quarter to $7.5 billion, and were up $1.5 billion or 7% in the
2000 nine months to $22.6 billion, led by Banking/Lending, up $208 million or 7%
and $590 million or 6% in the 2000 quarter and nine months. Compared to the 1999
periods, Banking/Lending revenue increases were led by North America Cards, up
$88 million or 4% in the 2000 third quarter and $111 million or 2% in the 2000
nine months, primarily from strong sales-driven interchange revenues, partially
offset by spread compression, and by CitiFinancial, which increased $70 million
or 17% and $249 million or 21%, primarily from strong growth in receivables,
partially offset by lower spreads. Insurance growth of $90 million or 4% in the
2000 third quarter and $601 million or 9% in the 2000 nine months reflected
contributions from all sectors. International revenues were up $18 million or 1%
and $397 million or 8%, reflecting strong growth in all products and markets in
Asia Pacific, partially offset by the effect of foreign currency translation,
primarily in Europe, and reduced interest revenue related to Confia, a Mexican
bank acquired in August 1998.
Global Investment Management and Private Banking revenues of $828 million in the
2000 quarter and $2.4 billion in the 2000 nine months were up $152 million or
22% and $478 million or 24% from the 1999 periods, primarily from acquisitions
and growth in assets and client business volumes under management. Revenues in
Investment Activities increased $184 million and $1.2 billion from the 1999
third quarter and nine months, primarily reflecting gains on the exchange of
certain Latin American bonds in the 2000 quarter, partially offset by lower
venture capital results in the 2000 quarter, and for the 2000 nine months,
reflecting strong venture capital results and higher levels of realized gains on
sales of investments.
Income Statement Revenue Line Items
Net interest revenue, as calculated from the Consolidated Statement of Income,
rose $254 million or 5% from the 1999 third quarter to $5.4 billion in the 2000
third quarter and rose $927 million or 6% from the 1999 nine months to $15.9
billion in the 2000 nine months, reflecting business volume growth in most
markets, partially offset by the effects of spread compression. Net interest
revenue, adjusted for the effect of credit card securitization of $6.2 billion
and $18.6 billion in the 2000 quarter and nine months, was essentially unchanged
from the 1999 quarter and was up $459 million or 3% from the 1999 nine months.
Adjusted commissions, asset management and administration fees, and other fee
revenues of $5.3 billion in the quarter and $15.7 billion in the nine months
were up $1.1 billion or 26% and $3.6 billion or 29% from 1999, primarily as a
result of volume-related growth in customer trading activities, assets under
fee-based management, investment banking fees, and the impact of recent
acquisitions. Insurance premiums of $2.8 billion and $8.3 billion in the 2000
quarter and nine months were up $167 million and $475 million, both up 6%
compared to the 1999 quarter and nine months, reflecting strong growth in
Travelers Life and Annuity. Principal transactions revenues of $1.5 billion and
$4.7 billion for the 2000 quarter and nine months were up $593 million or 62%
and $709 million or 18% from the year-ago periods, reflecting strong results in
both SSB and GRB. Realized gains from sales of investments were up $472 million
from the 1999 third quarter to $507 million in the 2000 quarter and $342 million
from the 1999 nine months to $618 million in the 2000 nine months, primarily
reflecting gains on the exchange of certain Latin American bonds in the 2000
quarter and, in the year-to-date period, realized gains in EM Corporate,
partially offset by repositioning losses in the Insurance portfolio. Other
income as shown in the Consolidated Statement of Income of $801 million in the
2000 quarter was down $265 million from the 1999 third quarter reflecting lower
venture capital and credit card securitization activities, but was up $746
million from the 1999 nine months to $4.0 billion in the 2000 nine months,
primarily reflecting higher venture capital results.
Adjusted Operating Expenses
Adjusted operating expenses of $8.4 billion and $25.0 billion in the 2000 third
quarter and nine months, which exclude restructuring-related items, were up $1.2
billion or 17% in the quarter and $2.8 billion or 13% in the nine months
compared to 1999. Global Corporate and Investment Bank expenses were up 24% in
the 2000 quarter and 14% in the 2000 nine months, primarily attributable to
production-related compensation, increased business volumes, and newly acquired
businesses, partially offset by the
3
<PAGE>
absence of year 2000 expenses. Compared to the 1999 periods, Global Consumer
expenses increased 5% in the 2000 third quarter and 7% in the 2000 nine months,
reflecting an increase in sales-related expenses, higher business volume and
expansion initiatives, and charges related to the termination of certain
contracts and initiatives at e-Consumer, partially offset by the effect of
foreign currency translation, primarily in Europe. Global Investment Management
and Private Banking expenses increased 29% and 28% from the year-ago quarter and
nine-month periods, primarily reflecting acquisitions in the Global Retirement
Services business and higher costs associated with the continued expansion of
sales and technology investments. Corporate/Other expenses increased $17 million
in the 2000 quarter and $209 million in the 2000 nine months, which primarily
reflected a 2000 first quarter $108 million pretax expense (which had minimal
impact on Citigroup's earnings after related tax benefits and investment gains)
for the contribution of appreciated venture capital securities to the Company's
Foundation.
Adjusted Provisions for Benefits, Claims and Credit Losses
Adjusted provisions for benefits, claims, and credit losses were $3.4 billion
and $10.4 billion in the 2000 third quarter and nine months, essentially flat in
the quarter compared to 1999 and up $123 million or 1% year-to-date compared to
1999. Policyholder benefits and claims increased 5% from the 1999 quarter to
$2.4 billion, and were up 7% to $6.9 billion for the 2000 nine months, primarily
as a result of higher loss levels at Commercial Lines in the 2000 quarter, and
increased volume at Travelers Life and Annuity and higher loss levels at both
Commercial and Personal Lines in the year-to-date period. The adjusted provision
for credit losses decreased 10% from the 1999 quarter to $1.1 billion in the
2000 quarter and 9% from the 1999 nine months to $3.5 billion in the 2000 nine
months, principally reflecting lower losses in North America Cards and Latin
America Consumer. Global Consumer managed net credit losses were $1.038 billion
and the related loss ratio was 1.88% in the 2000 third quarter, down from $1.064
billion and 2.06% in the preceding quarter and $1.150 billion and 2.41% a year
ago. The managed consumer loan delinquency ratio (90 days or more past due)
decreased to 1.60% at September 30, 2000 from 1.67% at June 30, 2000 and 1.96% a
year ago.
Capital
Total capital (Tier 1 and Tier 2) was $61.6 billion or 10.63% of net
risk-adjusted assets, and Tier 1 capital was $48.4 billion or 8.35% at September
30, 2000, compared to $60.4 billion or 11.12% and $46.8 billion or 8.62% at June
30, 2000. The decreases in the capital ratios were primarily a result of an
increase in net risk-adjusted assets.
Associates Merger
Pursuant to an Agreement and Plan of Merger dated as of October 6, 2000,
Citigroup and Associates First Capital Corporation (Associates) have agreed to
merge a wholly owned subsidiary of Citigroup with and into Associates, making
Associates a subsidiary of Citigroup. The transaction has been approved by the
Boards of Directors of both Citigroup and Associates. Pursuant to the agreement,
Associates common stockholders will receive .7334 of a share of Citigroup's
common stock for each share of Associates common stock that they own. The
transaction is expected to be completed prior to the end of 2000 and is subject
to various regulatory approvals and the approval by the stockholders of
Associates. The merger is expected to be a tax-free exchange and accounted for
on a "pooling of interests" basis.
GLOBAL CONSUMER
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $7,088 $6,638 7 $21,148 $19,332 9
Effect of credit card securitization
activity 427 552 (23) 1,415 1,710 (17)
------------------------------- -------------------------------
Adjusted revenues,
net of interest expense 7,515 7,190 5 22,563 21,042 7
Adjusted operating expenses (2) 3,038 2,884 5 9,143 8,572 7
------------------------------- -------------------------------
Provisions for benefits, claims,
and credit losses 1,974 1,959 1 5,973 5,686 5
Effect of credit card securitization
activity 427 552 (23) 1,415 1,710 (17)
------------------------------- -------------------------------
Adjusted provisions for benefits,
claims, and credit losses 2,401 2,511 (4) 7,388 7,396 --
------------------------------- -------------------------------
Core income before taxes
and minority interest 2,076 1,795 16 6,032 5,074 19
Income taxes 748 653 15 2,168 1,844 18
Minority interest, after-tax 6 9 (33) 33 51 (35)
------------------------------- -------------------------------
Core income 1,322 1,133 17 3,831 3,179 21
Restructuring-related items, after-tax (19) (17) (12) (12) (73) 84
------------------------------- -------------------------------
Net income $1,303 $1,116 17 $3,819 $3,106 23
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
--------------------------------------------------------------------------------
4
<PAGE>
Global Consumer -- which provides banking, lending, investment and personal
insurance products and services, including credit and charge cards, to customers
around the world -- reported core income of $1.322 billion and $3.831 billion in
the 2000 third quarter and nine months, up $189 million or 17% and $652 million
or 21% from the 1999 periods. Banking/Lending core income increased $104 million
or 17% in the 2000 quarter and $347 million or 22% in the 2000 nine months
reflecting strong performance across most businesses. In the International
businesses, core income grew $46 million or 17% in the 2000 quarter and $262
million or 37% in the 2000 nine months, marked by strong performance in Asia,
Western Europe, and Japan. In Latin America, core income was down $20 million or
38% in the 2000 quarter and $1 million or 1% in the 2000 nine months reflecting
reduced interest revenue related to Confia, a Mexican bank acquired in August
1998. In the Insurance segment, core income grew $66 million or 22% and $151
million or 15% from the 1999 periods reflecting improvements across all
businesses, including the effect of a 1999 third quarter charge of $28 million
(after-tax) related to curtailing the sale of TRAVELERS SECURE (R) auto and
homeowners products. Net income was $1.303 billion and $3.819 billion in the
2000 third quarter and nine-month periods, compared with $1.116 billion and
$3.106 billion in the comparable 1999 periods.
Banking/Lending
Citibanking North America
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $572 $526 9 $1,716 $1,548 11
Adjusted operating expenses (2) 325 330 (2) 988 1,011 (2)
Provision for credit losses 7 11 (36) 23 49 (53)
------------------------------- -------------------------------
Core income before taxes 240 185 30 705 488 44
Income taxes 97 78 24 285 205 39
------------------------------- -------------------------------
Core income 143 107 34 420 283 48
Restructuring-related items, after-tax -- 3 (100) 8 (16) NM
------------------------------- -------------------------------
Net income $143 $110 30 $ 428 $ 267 60
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $9 $9 -- $9 $9 --
Return on assets 6.32% 4.85% 6.35% 3.97%
------------------------------------------==========================================================================================
Excluding restructuring-related items
Return on assets 6.32% 4.72% 6.23% 4.20%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Citibanking North America -- which delivers banking, lending, and investment
services to customers through Citibank's branches and electronic delivery
systems -- reported core income of $143 million and $420 million in the 2000
third quarter and nine months, up $36 million or 34% and $137 million or 48%
from the 1999 periods, primarily driven by revenue growth. Net income was $143
million and $428 million in the 2000 third quarter and nine months compared with
$110 million and $267 million in the 1999 periods.
As shown in the following table, Citibanking grew accounts and customer deposits
from 1999, while loans declined from a year ago.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, % September 30, %
------------------------------- -------------------------------
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 6.5 6.2 5 6.5 6.2 5
Average customer deposits $44.8 $42.2 6 $44.2 $42.0 5
Average loans $ 7.0 $ 7.3 (4) $ 7.0 $ 7.4 (5)
------------------------------------------==========================================================================================
</TABLE>
Revenues, net of interest expense, of $572 million and $1.716 billion in the
2000 third quarter and nine months increased $46 million or 9% and $168 million
or 11% from the 1999 periods, reflecting higher customer deposit volumes and
spreads and increased investment product fees, partially offset by lower loan
revenues. Investment product fees and commissions increased 33% and 36% from the
1999 third quarter and nine months. Adjusted operating expenses decreased $5
million or 2% in the quarter and $23 million or 2% in the nine months reflecting
lower marketing expenses and reduced fixed costs, partially offset by higher
variable compensation due to increased investment product sales.
The provision for credit losses declined to $7 million and $23 million in the
2000 third quarter and nine months from $11 million and $49 million in the 1999
periods. The net credit loss ratio of 0.86% in the 2000 third quarter declined
from 0.88% in the 2000 second quarter and 1.06% a year ago. Loans delinquent 90
days or more of $33 million or 0.46% of loans at September 30, 2000
5
<PAGE>
were essentially unchanged from June 30, 2000 and improved from $64 million or
0.90% a year ago. The declines in the provision for credit losses and
delinquencies reflect continued improvement in the portfolio and a decline in
loan volumes.
Mortgage Banking
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $203 $199 2 $613 $551 11
Total operating expenses (2) 85 93 (9) 272 238 14
(Benefit) provision for credit losses (3) 2 NM (2) 10 NM
------------------------------- -------------------------------
Income before taxes
and minority interest 121 104 16 343 303 13
Income taxes 45 41 10 130 119 9
Minority interest, after-tax 6 4 50 17 14 21
------------------------------- -------------------------------
Core income 70 59 19 196 170 15
Restructuring-related items, after-tax -- (1) 100 -- (1) 100
------------------------------- -------------------------------
Net income $ 70 $ 58 21 $196 $169 16
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $ 40 $ 29 38 $ 36 $ 29 24
Return on assets 0.70% 0.79% 0.73% 0.78%
------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 0.70% 0.81% 0.73% 0.78%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related charges.
NM Not meaningful
--------------------------------------------------------------------------------
Mortgage Banking -- which originates and services mortgages and student loans
for customers across North America -- reported net income of $70 million and
$196 million in the 2000 third quarter and nine months, up $12 million or 21%
and $27 million or 16% from the 1999 periods, reflecting higher loan volumes and
continued mortgage credit improvements, partially offset by lower spreads. Net
income in the nine months also reflects the April 1999 acquisition of the
principal operating assets and certain liabilities of Source One Mortgage
Services Corporation (Source One).
As shown in the following table, accounts and loans increased from the 1999
periods reflecting strong growth in both student loans and mortgages. Accounts
also reflect growth in serviced mortgage accounts. Mortgage originations
increased from a year ago with a larger proportion at variable interest rates,
which are typically held on-balance sheet rather than securitized.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) (1) 4.2 3.2 31 4.2 3.2 31
Average loans (1) $37.2 $27.1 37 $33.7 $27.0 25
Mortgage originations $ 5.4 $ 4.7 15 $13.8 $13.4 3
------------------------------------------==========================================================================================
</TABLE>
(1) Includes student loans.
--------------------------------------------------------------------------------
Revenues, net of interest expense, of $203 million and $613 million in the 2000
third quarter and nine months grew $4 million or 2% and $62 million or 11% from
the 1999 periods, reflecting loan growth, partially offset by reduced spreads
and lower securitization activity. Revenues in the 2000 nine months also reflect
higher servicing revenue. Operating expenses decreased $8 million or 9% in the
2000 quarter and increased $34 million or 14% in the 2000 nine months. The
expense decline in the 2000 third quarter reflects the sale of certain
non-strategic mortgage sales offices. The increase in both revenues and expenses
in the nine months reflects the effect of Source One.
The (benefit) provision for credit losses of ($3) million and ($2) million in
the 2000 third quarter and nine months declined from $2 million and $10 million
in the 1999 periods. The net credit loss ratio was 0.06% in the 2000 third
quarter compared with 0.05% in the 2000 second quarter and 0.12% a year ago.
Loans delinquent 90 days or more were $709 million or 1.82% of loans at
September 30, 2000, compared with $709 million or 1.98% at June 30, 2000 and
$629 million or 2.28% a year ago. The increase in delinquent loans from a year
ago reflects higher student loan volumes, which are predominantly
government-guaranteed.
6
<PAGE>
North America Cards
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,632 $1,419 15 $4,609 $4,203 10
Effect of credit card securitization
activity 427 552 (23) 1,415 1,710 (17)
------------------------------- -------------------------------
Adjusted revenues,
net of interest expense 2,059 1,971 4 6,024 5,913 2
Adjusted operating expenses (2) 742 697 6 2,190 2,120 3
Adjusted provision for credit losses (3) 728 797 (9) 2,285 2,433 (6)
------------------------------- -------------------------------
Core income before taxes 589 477 23 1,549 1,360 14
Income taxes 220 176 25 576 502 15
------------------------------- -------------------------------
Core income 369 301 23 973 858 13
Restructuring-related items, after-tax -- 2 (100) 4 2 100
------------------------------- -------------------------------
Net income $ 369 $ 303 22 $ 977 $ 860 14
------------------------------------------==========================================================================================
Average assets (in billions of
dollars) (4) $43 $28 54 $36 $29 24
Return on assets 3.41% 4.29% 3.63% 3.96%
------------------------------------------==========================================================================================
Excluding restructuring-related items
Return on assets (5) 3.41% 4.26% 3.61% 3.96%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
(3) Adjusted for the effect of credit card securitization.
(4) Adjusted for the effect of credit card securitization, managed average
assets were $87 billion and $82 billion in the 2000 third quarter and nine
months, respectively, compared to $76 billion and $75 billion in the 1999
third quarter and nine months, respectively.
(5) Adjusted for the effect of credit card securitization, the return on
managed assets, excluding restructuring-related items, was 1.69% and 1.59%
in the 2000 third quarter and nine months, respectively, compared with
1.57% and 1.53% in the 1999 third quarter and nine months, respectively.
--------------------------------------------------------------------------------
North America Cards -- North America bankcards and Diners Club -- reported core
income of $369 million and $973 million in the 2000 third quarter and nine
months, up $68 million or 23% and $115 million or 13% from the 1999 periods,
driven by improvements in bankcards. Net income was $369 million and $977
million in the 2000 third quarter and nine months, compared with $303 million
and $860 million in the 1999 periods.
On July 26, 2000, Citigroup acquired the bankcard portfolio of Canada Trust,
which added approximately $1.2 billion in managed receivables and 800,000
accounts.
Risk adjusted margin is a measure of profitability calculated as adjusted
revenues less managed net credit losses as a percentage of average managed
loans, consistent with the goal of matching the revenues generated by the loan
portfolio with the credit risk undertaken. As shown in the following table,
North America bankcards risk adjusted margin of 6.14% and 6.11% in the 2000
third quarter and nine months declined 14 basis points and 23 basis points from
the 1999 periods, reflecting lower spreads offset by credit improvements, and an
increase in non-interest revenue, primarily interchange fees.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------
In billions of dollars 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk adjusted revenues (1) $1.254 $1.109 $3.500 $3.279
Risk adjusted margin % (2) 6.14% 6.28% 6.11% 6.34%
---------------------------------------------------------------=====================================================================
</TABLE>
(1) Adjusted revenues less managed net credit losses.
(2) Risk adjusted revenues as a percentage of average managed loans.
--------------------------------------------------------------------------------
Adjusted revenues, net of interest expense, of $2.059 billion and $6.024 billion
in the 2000 third quarter and nine months were up $88 million or 4% and $111
million or 2% from the 1999 third quarter and nine months as higher interchange
fee revenues from sales volume growth and increased fees from other cardmember
services were offset by lower spreads. Spread compression in the portfolio
principally reflects changes in portfolio mix, including an increased percentage
of the portfolio priced at low introductory rates, and higher funding costs due
to increased interest rates. Adjusted operating expenses of $742 million and
$2.190 billion in the 2000 third quarter and nine months were up $45 million or
6% and $70 million or 3% from the 1999 periods, reflecting higher marketing
costs and the effect of recent acquisitions.
7
<PAGE>
As shown in the following table, on a managed basis, the N.A. bankcard portfolio
experienced strong receivable, sales, and account growth in both the 2000
quarter and nine months compared to the 1999 periods, reflecting base business
momentum as well as recent portfolio acquisitions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 43.9 41.0 7 43.9 41.0 7
Total sales $48.0 $41.2 17 $139.2 $119.1 17
End-of-period managed receivables $83.7 $71.0 18 $ 83.7 $ 71.0 18
------------------------------------------==========================================================================================
</TABLE>
The adjusted provision for credit losses was $728 million and $2.285 billion in
the 2000 third quarter and nine months, down from $797 million and $2.433
billion in the 1999 periods. N.A. bankcards managed net credit losses in the
2000 third quarter were $714 million and the related loss ratio was 3.50%, down
from $745 million and 3.96% in the 2000 second quarter and $777 million and
4.40% in the 1999 third quarter. N.A. bankcards managed loans delinquent 90 days
or more were $1.022 billion or 1.23% of loans at September 30, 2000, compared
with $929 million or 1.18% at June 30, 2000 and $1.000 billion or 1.42% at
September 30, 1999. The improvement in the net credit loss ratio from a year ago
reflects industry-wide bankruptcy trends and continued credit risk management
initiatives. Net credit losses and the related loss ratio may increase from the
2000 third quarter should bankruptcy filings and delinquent loans increase in
the future. This statement is a forward-looking statement within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 28.
CitiFinancial
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $491 $421 17 $1,427 $1,178 21
Adjusted operating expenses (2) 186 133 40 561 431 30
Provisions for benefits, claims
and credit losses 110 77 43 309 298 4
------------------------------- -------------------------------
Core income before taxes 195 211 (8) 557 449 24
Income taxes 71 76 (7) 204 165 24
------------------------------- -------------------------------
Core income 124 135 (8) 353 284 24
Restructuring-related items, after-tax -- (1) 100 -- (2) 100
------------------------------- -------------------------------
Net income $124 $134 (7) $ 353 $ 282 25
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $20 $16 25 $19 $15 27
Return on assets 2.47% 3.32% 2.48% 2.51%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
--------------------------------------------------------------------------------
CitiFinancial -- which provides community based lending services through its
branch network and through cross-selling initiatives with other Citigroup
businesses -- reported net income of $124 million and $353 million in the 2000
third quarter and nine months, down $10 million or 7% in the 2000 quarter and up
$71 million or 25% in the 2000 nine months from the 1999 periods. Income growth
in the 2000 quarter and nine months was reduced by a 1999 third quarter
litigation reserve release of $15 million (after-tax) related to the settlement
of a claim.
As shown in the following table, receivables grew 27% from the 1999 third
quarter due to higher volumes at CitiFinancial branches and cross selling of
products through other Citigroup distribution channels. At September 30, 2000,
the portfolio consisted of 61% real estate-secured loans, 32% personal loans,
and 7% sales finance and other compared with 58%, 35%, and 7%, respectively, at
September 30, 1999. The average net interest margin on receivables of 8.01% in
the 2000 third quarter and 8.17% in the 2000 nine months declined 100 and 78
basis points, respectively, from the 1999 periods reflecting lower yields due to
changes in portfolio mix toward more real estate-secured loans and higher
funding costs due to increased interest rates.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
End-of-period managed receivables
(in billions) $18.5 $14.6 27% $18.5 $14.6 27%
Average net interest margin % 8.01% 9.01% (100) bps 8.17% 8.95% (78) bps
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues, net of interest expense, of $491 million and $1.427 billion in the
2000 third quarter and nine months increased $70 million or 17% and $249 million
or 21% from the 1999 periods, reflecting strong growth in receivables offset by
lower spreads. Adjusted operating expenses of $186 million and $561 million in
the 2000 third quarter and nine months grew $53 million or 40%
8
<PAGE>
and $130 million or 30% from the 1999 periods, reflecting higher business
volumes and the 1999 third quarter litigation reserve release of $23 million
(pre-tax).
The provisions for benefits, claims, and credit losses were $110 million and
$309 million in the 2000 third quarter and nine months, up from $77 million and
$298 million in the 1999 periods. Net credit losses in the 2000 third quarter
were $86 million and the related loss ratio was 1.91%, compared with $80 million
and 1.93% in the 2000 second quarter and $71 million and 2.00% a year ago. The
2000 third and second quarters' net credit loss ratios included a benefit of
approximately 13 and 27 basis points, respectively, related to changes in the
write-off policy for certain bankrupt accounts. Loans delinquent 90 days or more
were $239 million or 1.29% of loans at September 30, 2000, compared with $229
million or 1.32% at June 30, 2000 and $186 million or 1.27% a year ago. The
increase in delinquencies from a year ago reflects the impact of previous
acquisitions.
Insurance
Travelers Life and Annuity
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $899 $869 3 $2,892 $2,507 15
Provision for benefits and claims 531 509 4 1,720 1,445 19
Total operating expenses 103 107 (4) 326 324 1
------------------------------- -------------------------------
Income before taxes 265 253 5 846 738 15
Income taxes 86 85 1 278 250 11
------------------------------- -------------------------------
Net income (1) $179 $168 7 $568 $488 16
------------------------------------------==========================================================================================
</TABLE>
(1) Excludes investment gains/losses included in Investment Activities
segment.
--------------------------------------------------------------------------------
Travelers Life and Annuity -- whose core offerings include individual annuity,
group annuity and individual life insurance -- reported net income of $179
million and $568 million in the 2000 third quarter and nine months,
respectively, up from $168 million and $488 million in the comparable periods of
1999. The improvements in 2000 reflect increased business volume, a strong
capital base and particularly strong investment income versus the prior-year
periods. During the third quarter and nine months of 2000, the business achieved
double-digit business volume growth in individual annuity net written premiums
and account balances and individual life net written premiums versus the
prior-year, reflecting growth in retirement savings and estate planning products
and strong momentum from cross-selling initiatives. Total operating expenses
decreased in the 2000 third quarter compared to the prior-year period due to the
contribution of The Copeland Companies (Copeland) to the CitiStreet joint
venture. The increase in revenues was also mitigated by the contribution of
Copeland.
The cross-selling initiative of Travelers Life and Annuity products through the
Primerica Financial Services (Primerica), Citibank, and Salomon Smith Barney
Financial Consultants distribution channels, along with improved sales through
CitiStreet via 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.
On July 31, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company in the form of
an indemnity reinsurance arrangement. Proceeds from the sale were $410 million,
resulting in an after-tax deferred gain of approximately $150 million.
The following table shows net written premiums and deposits by product line,
excluding long-term care insurance written premiums:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individual annuities
Fixed $ 320 $ 271 18 $ 916 $ 715 28
Variable 1,274 1,090 17 3,778 3,114 21
Individual payout 21 21 -- 63 57 11
GICs and other group annuities 1,482 1,212 22 4,378 4,681 (6)
Individual life insurance
Direct periodic premiums and deposits 136 88 55 366 259 41
Single premium deposits 22 17 29 61 54 13
Reinsurance (21) (18) (17) (60) (52) (15)
------------------------------- -------------------------------
$3,234 $2,681 21 $9,502 $8,828 8
------------------------------------------==========================================================================================
</TABLE>
9
<PAGE>
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 premiums and deposits collected are not
included in revenues.
Increased individual annuities sales, combined with favorable market returns
from variable annuities, drove account balances to $30.2 billion at September
30, 2000, up 23% from $24.5 billion at September 30, 1999. Net written premiums
and deposits for individual annuities increased 17% and 22% in the 2000 third
quarter and nine months to $1.615 billion and $4.757 billion, respectively, from
$1.382 billion and $3.886 billion in the 1999 comparable periods. The strong
sales reflect significant increased production at Salomon Smith Barney and
increased sales from all Travelers Life and Annuity core distribution channels.
Group annuity account balances and benefit reserves reached $16.7 billion at
September 30, 2000, up 10% from $15.2 billion at the end of the 1999 third
quarter. The group annuity businesses experienced continued strong sales
momentum in variable rate guaranteed investment contracts, employer sponsored
group plans and cross-selling structured settlement annuities through Travelers
Property Casualty Corp. (TAP). Net written premiums and deposits (excluding
Citigroup's employee pension plan deposits) were $1.482 billion and $4.378
billion in the third quarter and nine months of 2000, respectively, compared to
$1.212 billion and $4.681 billion in the comparable periods of 1999.
Direct periodic premiums and deposits for individual life insurance of $136
million and $366 million in the 2000 third quarter and nine months,
respectively, were 55% and 41% ahead of the $88 million and $259 million for the
comparable periods of 1999 reflecting strong core agency results and the
introduction in the 1999 fourth quarter of a new corporate-owned life insurance
product. Life insurance in force was $65.2 billion at September 30, 2000, up
from $60.6 billion at year-end 1999 and $58.4 billion at September 30, 1999.
Primerica Financial Services
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $474 $444 7 $1,425 $1,319 8
Provision for benefits and claims 106 121 (12) 357 362 (1)
Adjusted operating expenses (1) 177 146 21 498 434 15
------------------------------- -------------------------------
Core income before taxes 191 177 8 570 523 9
Income taxes 67 63 6 202 186 9
------------------------------- -------------------------------
Core income 124 114 9 368 337 9
Restructuring-related items, after-tax -- -- -- 1 -- 100
------------------------------- -------------------------------
Net income (2) $124 $114 9 $ 369 $ 337 9
------------------------------------------==========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
(2) Excludes investment gains/losses included in Investment Activities
segment.
NM Not meaningful
--------------------------------------------------------------------------------
Primerica Financial Services -- which sells life insurance as well as other
products manufactured by the Company, including Salomon Smith Barney mutual
funds, CitiFinancial mortgages and personal loans and Travelers Insurance
Company annuity products -- reported core income of $124 million and $368
million in the 2000 third quarter and nine months, respectively, up from $114
million and $337 million in the 1999 comparable periods. The improvement in 2000
reflects strong mutual fund sales and net investment income and was partially
offset by increased infrastructure investment including international expansion.
Increases in total production and cross-selling initiatives were achieved during
the 2000 third quarter and nine months. Earned premiums, net of reinsurance,
were $275 million and $823 million in the 2000 third quarter and nine months,
respectively, up from $265 million and $801 million in the 1999 comparable
periods.
Total face amount of issued term life insurance was $16.8 billion and $50.3
billion in the 2000 third quarter and nine months, respectively, compared to
$12.4 billion and $41.5 billion in the prior-year periods. Life insurance in
force reached $408.4 billion at September 30, 2000, up from $394.9 billion at
year-end 1999 and $392.8 billion at September 30, 1999, and continued to reflect
good policy persistency.
In recent years, Primerica has leveraged cross selling through the Financial
Needs Analysis (FNA) -- the diagnostic tool that enhances the ability of the
Personal Financial Analysts to address client needs -- to expand its business
beyond life insurance and now offers its clients a greater array of financial
products and services, delivered personally through more than 100,000
independent representatives. During the 2000 nine months, more than 329,000 FNAs
were submitted. Variable annuity sales continued to show momentum with net
written premiums and deposits of $270.6 million and $768.5 million in the 2000
third quarter and nine months, respectively, compared to $247.6 million and
$749.6 million in the prior-year periods. As a result of the increased emphasis
placed on cross-selling initiatives, sales of Travelers Life and Annuity
variable annuity products in the 2000 third quarter and nine months accounted
for 96% and 95%, respectively, of total variable annuity sales. Cash advanced on
$.M.A.R.T. loan(R) and $.A.F.E.(R) loan products underwritten by Travelers Bank
& Trust, fsb and CitiFinancial, respectively, was $457.2 million and $1.425
billion in the
10
<PAGE>
2000 third quarter and nine months, respectively, compared to $488.3 million and
$1.400 billion in the comparable periods last year. Mutual fund sales were
$963.7 million and $3.304 billion for the 2000 third quarter and nine months,
respectively, 31% and 42% ahead of last year's third quarter and nine months.
During the 2000 nine months, proprietary mutual funds accounted for 49% of
Primerica's U.S. sales and 42% of total sales.
Personal Lines
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,048 $1,018 3 $3,116 $3,006 4
Claims and claim adjustment expenses 709 714 (1) 2,030 1,935 5
Total operating expenses 243 271 (10) 744 759 (2)
------------------------------- -------------------------------
Income before taxes
and minority interest 96 33 191 342 312 10
Income taxes 28 5 NM 101 90 12
Minority interest, after-tax - 5 (100) 16 37 (57)
------------------------------- -------------------------------
Net income (1) $ 68 $ 23 196 $ 225 $ 185 22
------------------------------------------==========================================================================================
</TABLE>
(1) Excludes investment gains/losses included in Investment Activities
segment.
NM Not meaningful
--------------------------------------------------------------------------------
Personal Lines -- which writes all types of property and casualty insurance
covering personal risks -- reported net income of $68 million and $225 million
in the 2000 third quarter and nine months, respectively, compared to $23 million
and $185 million in the prior-year periods. Included in the 1999 third quarter
and nine months is a charge related to curtailing the sale of the TRAVELERS
SECURE (R) auto and homeowners products of $28 million after tax and minority
interest. The 2000 results reflect lower catastrophe losses, increased net
investment income and the incremental earnings from the minority interest
buyback, offset in part by higher loss trends and lower favorable prior-year
reserve development.
The following table shows net written premiums by product line:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal automobile $599 $581 3 $1,790 $1,798 --
Homeowners and other 394 371 6 1,076 1,088 (1)
------------------------------- -------------------------------
Total net written premiums $993 $952 4 $2,866 $2,886 (1)
------------------------------------------==========================================================================================
</TABLE>
Personal Lines net written premiums for the 2000 third quarter and nine months
were $993 million and $2.866 billion, respectively, compared to $952 million and
$2.886 billion in the 1999 comparable periods. Net written premiums in the 1999
first quarter included an adjustment associated with the termination of a quota
share reinsurance arrangement, which increased homeowners' premiums written by
independent agents by $72 million. The increase in net written premiums in the
2000 third quarter and nine months compared to the 1999 periods, excluding the
reinsurance adjustment, primarily reflects growth in target markets served by
independent agents and growth in affinity group marketing and joint marketing
arrangements and is offset in part by the curtailment of the sale of the
TRAVELERS SECURE(R) auto and homeowners products, a mandated rate decrease in
New Jersey and continued emphasis on disciplined underwriting and risk
management.
Catastrophe losses, net of taxes and reinsurance, were $2 million and $50
million in the 2000 third quarter and nine months, respectively, compared to $48
million and $79 million in the 1999 comparable periods. Catastrophe losses in
2000 were primarily due to Texas, Midwest and Northeast wind and hailstorms in
the second quarter and hailstorms in Louisiana and Texas in the first quarter.
Catastrophe losses in 1999 were primarily due to Hurricane Floyd in the third
quarter, wind and hailstorms on the East Coast and tornadoes in the Midwest in
the second quarter and a wind and ice storm in the Midwest and the Northeast in
the first quarter.
The statutory combined ratio for Personal Lines in the 2000 third quarter and
nine months was 102.5% and 99.9%, respectively, compared to 104.0% and 97.6% in
the comparable periods of 1999. The generally accepted accounting principles
(GAAP) combined ratio for Personal Lines in the 2000 third quarter and nine
months was 100.7% and 99.4%, respectively, compared to 106.2% and 97.5% in the
comparable periods of 1999. 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 improvement in the statutory and GAAP combined ratios for the 2000 third
quarter compared to the statutory and GAAP combined ratios for the 1999 third
quarter was primarily due to lower catastrophe losses and the TRAVELERS
SECURE(R) charge taken in the 1999 third quarter, offset in part by increased
loss trends and lower favorable prior-year reserve development.
11
<PAGE>
The 1999 nine months statutory and GAAP combined ratios for Personal Lines
include an adjustment associated with the termination of the quota share
reinsurance arrangement. Excluding this adjustment, the statutory and GAAP
combined ratios for the 1999 nine months would have been 97.3% and 98.1%,
respectively. The increase in the statutory and GAAP combined ratios for the
2000 nine months compared to the statutory and GAAP combined ratios (excluding
the premium adjustment) for the 1999 nine months was primarily due to increased
loss trends and lower favorable prior-year reserve development, offset in part
by lower catastrophe losses and the TRAVELERS SECURE(R) charge taken in the 1999
third quarter.
International Consumer
Europe, Middle East & Africa
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $572 $607 (6) $1,741 $1,731 1
Adjusted operating expenses (2) 341 370 (8) 1,063 1,112 (4)
Provisions for benefits,
claims and credit losses 67 79 (15) 208 236 (12)
------------------------------- -------------------------------
Core income before taxes 164 158 4 470 383 23
Income taxes 61 60 2 174 144 21
------------------------------- -------------------------------
Core income 103 98 5 296 239 24
Restructuring-related items, after-tax -- (8) 100 7 (17) NM
------------------------------- -------------------------------
Net income $103 $ 90 14 $ 303 $ 222 36
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $21 $23 (9) $21 $22 (5)
Return on assets 1.95% 1.55% 1.93% 1.35%
------------------------------------------==========================================================================================
Excluding restructuring-related items
Return on assets 1.95% 1.69% 1.88% 1.45%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Europe, Middle East & Africa (EMEA - including India and Pakistan) -- which
provides banking, lending, and investment services, including credit and charge
cards, to customers in Western Europe and CEEMEA -- reported core income of $103
million and $296 million in the 2000 third quarter and nine months, up $5
million or 5% and $57 million or 24% from the 1999 periods. Core income in
Western Europe of $88 million and $251 million in the 2000 third quarter and
nine months increased $17 million or 24% and $48 million or 24% from the 1999
periods, reflecting growth across the region, particularly in Germany. CEEMEA
core income of $15 million in the 2000 third quarter decreased $12 million or
44% from 1999, principally due to a $16 million gain ($25 million pretax)
related to an investment in an affiliate in 1999. CEEMEA core income of $45
million in the 2000 nine months increased $9 million or 25% from 1999. EMEA net
income was $103 million and $303 million in the 2000 third quarter and nine
months compared with $90 million and $222 million in the 1999 third quarter and
nine months.
The net effects of foreign currency translation reduced core income in the 2000
third quarter and nine months by approximately $9 million and $34 million from
the 1999 periods and reduced revenue growth by approximately 12% in both periods
and expense growth by 13% and 11% in the 2000 third quarter and nine months,
respectively.
As shown in the following table, EMEA reported 10% account growth from a year
ago reflecting both loan and deposit growth, particularly credit cards in
CEEMEA. However, loan and customer deposit growth was reduced by the effect of
foreign currency translation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 12.0 10.9 10 12.0 10.9 10
Average customer deposits $16.0 $17.1 (6) $16.3 $17.5 (7)
Average loans $16.4 $17.3 (5) $16.5 $16.7 (1)
------------------------------------------==========================================================================================
</TABLE>
Revenues, net of interest expense, of $572 million and $1.741 billion in the
2000 third quarter and nine months declined $35 million or 6% in the quarter and
increased $10 million or 1% in the nine months from the 1999 periods. Revenues
in Western Europe of $466 million and $1,437 billion in the 2000 third quarter
and nine months decreased $33 million or 7% and $44 million or 3% from the 1999
periods as increased investment product fees, higher deposit spreads and loan
growth were more than offset by the effect of foreign currency translation.
Revenue in CEEMEA of $106 million in the 2000 quarter and $304 million in the
2000 nine months
12
<PAGE>
declined $2 million or 2% and increased $54 million or 22%, respectively, as
business expansion across the region was offset by the $25 million gain related
to an investment in an affiliate in 1999. EMEA adjusted operating expenses of
$341 million and $1.063 billion in the 2000 third quarter and nine months were
down $29 million or 8% and $49 million or 4% from the 1999 periods as costs
associated with franchise growth in Central and Eastern Europe and higher
business volumes in Western Europe were more than offset by the effect of
foreign currency translation.
The provisions for benefits, claims, and credit losses were $67 million and $208
million in the 2000 third quarter and nine months, down from $79 million and
$236 million in the 1999 periods. Foreign currency translation effects reduced
the provisions for benefits, claims, and credit losses by approximately $11
million in the 2000 quarter and $29 million in the 2000 nine months compared to
the 1999 periods. Net credit losses in the 2000 third quarter were $64 million
and the related loss ratio was 1.54%, down from $65 million and 1.57% in the
2000 second quarter and $69 million and 1.60% a year ago. Loans delinquent 90
days or more were $800 million or 4.93% of loans at September 30, 2000, down
from $868 million or 5.09% at June 30, 2000 and $953 million or 5.45% a year
ago. The declines in the net credit loss ratio and the delinquency ratio from a
year ago reflect increased collection efforts in Germany and stable economic
conditions across the region.
Asia Pacific
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $695 $579 20 $2,069 $1,638 26
Adjusted operating expenses (2) 342 315 9 1,021 862 18
Provisions for benefits, claims,
and credit losses 77 77 -- 223 254 (12)
------------------------------- -------------------------------
Core income before taxes 276 187 48 825 522 58
Income taxes 98 70 40 293 196 49
------------------------------- -------------------------------
Core income 178 117 52 532 326 63
Restructuring-related items, after-tax (1) -- NM (5) (9) 44
------------------------------- -------------------------------
Net income $177 $117 51 $ 527 $ 317 66
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $34 $31 10 $33 $30 10
Return on assets 2.07% 1.50% 2.13% 1.41%
------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 2.08% 1.50% 2.15% 1.45%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Asia Pacific (including Japan and Australia) -- which provides banking, lending,
and investment services, including credit and charge cards, to customers
throughout the region -- reported core income of $178 million and $532 million
in the 2000 third quarter and nine months, up $61 million or 52% and $206
million or 63% from the 1999 periods. Core income in Asia (excluding Japan) was
$142 million in the 2000 quarter and $428 million in the 2000 nine months, up
$50 million or 54% and $171 million or 67% from 1999, reflecting loan growth,
particularly credit cards, higher investment product fees and deposit growth.
Core income in Japan was $36 million in the quarter and $104 million in the nine
months up $11 million or 44% and $35 million or 51% from the 1999 periods due to
growth in deposits, the Diners Club acquisition in the 2000 first quarter, and
higher investment product fees. Asia Pacific net income was $177 million and
$527 million in the 2000 third quarter and nine months compared with $117
million and $317 million in the 1999 periods.
13
<PAGE>
As shown in the following table, Asia Pacific experienced strong growth in
accounts, customer deposits, and loans when compared to the 1999 third quarter
and nine months, reflecting significant increases in Japan, growth in the cards
business across the region, and economic stabilization in most countries. The
growth in Japan includes the Diners Club acquisition which added approximately
$0.5 billion in loans and 0.6 million accounts.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 10.5 9.0 17 10.5 9.0 17
Average customer deposits $48.1 $42.3 14 $47.2 $41.0 15
Average loans $25.7 $23.7 8 $25.3 $22.9 10
------------------------------------------==========================================================================================
</TABLE>
Revenues, net of interest expense, of $695 million and $2.069 billion in the
2000 third quarter and nine months, increased $116 million or 20% and $431
million or 26% from the 1999 periods. In Asia (excluding Japan) revenues of $525
million in the 2000 quarter and $1.588 billion in the 2000 nine months were up
$54 million or 11% and $234 million or 17% from the 1999 periods, reflecting
improvements in most countries driven by growth in cards, investment product
fees and deposits. In Japan, revenues of $170 million in the 2000 quarter and
$481 million in the 2000 nine months were up $62 million or 57% and $197 million
or 69% from the 1999 periods reflecting the Diners Club acquisition, growth in
deposits and higher investment product fees. Asia Pacific adjusted operating
expenses were up $27 million or 9% and $159 million or 18% from the 1999 third
quarter and nine months, reflecting the Diners Club Japan acquisition, increased
variable compensation, including higher investment product sales commissions,
and increased marketing costs offset by lower expenses in certain countries
resulting from previously implemented restructuring initiatives.
The provisions for benefits, claims, and credit losses were $77 million and $223
million in the 2000 third quarter and nine months, unchanged from the 1999 third
quarter and down $31 million from the 1999 nine months. Net credit losses in the
2000 third quarter were $70 million and the related loss ratio was 1.08%,
compared to $64 million and 1.01% in the 2000 second quarter and $73 million and
1.23% a year ago. Loans delinquent 90 days or more were $359 million or 1.39% of
loans at September 30, 2000, down from $405 million or 1.56% at June 30, 2000
and $450 million or 1.87% a year ago. The declines in the net credit loss ratio
and delinquencies from a year ago reflect economic stabilization in most
countries.
Latin America
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $436 $499 (13) $1,415 $1,459 (3)
Adjusted operating expenses (2) 318 302 5 968 892 9
Provision for credit losses 69 117 (41) 235 353 (33)
------------------------------- -------------------------------
Core income before taxes 49 80 (39) 212 214 (1)
Income taxes 17 28 (39) 73 74 (1)
------------------------------- -------------------------------
Core income 32 52 (38) 139 140 (1)
Restructuring-related items, after-tax (18) (12) (50) (29) (30) 3
------------------------------- -------------------------------
Net income $ 14 $ 40 (65) $ 110 $ 110 --
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $11 $14 (21) $12 $14 (14)
Return on assets 0.51% 1.13% 1.22% 1.05%
------------------------------------------==========================================================================================
Excluding restructuring-related items
Return on assets 1.16% 1.47% 1.55% 1.34%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
--------------------------------------------------------------------------------
Latin America -- which provides banking, lending, and investment services,
including credit and charge cards, to customers throughout the region --
reported core income of $32 million and $139 million in the 2000 third quarter
and nine months, down $20 million or 38% and $1 million or 1% from the 1999
periods, reflecting reduced interest revenue related to Confia, and lower
business volumes in certain countries, partially offset by lower credit costs
and an increase in earnings from Credicard, a 33%-owned Brazilian Card
affiliate. Core income in the 2000 nine months also reflects a 2000 first
quarter gain related to the sale of an auto loan portfolio in Puerto Rico. Net
income was $14 million and $110 million in the 2000 third quarter and nine
months compared with $40 million and $110 million in the 1999 third quarter and
nine months.
As shown in the following table, Latin America accounts grew 1% and average
customer deposits were unchanged in the 2000 quarter, reflecting weak economic
conditions in Argentina and strategy changes in certain countries. Average loans
declined 11% and 10% from the 1999 third quarter and nine months primarily due
to the 2000 first quarter auto loan portfolio sale in Puerto Rico.
14
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- &
In billions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 9.1 9.0 1 9.1 9.0 1
Average customer deposits $13.6 $13.6 -- $13.7 $13.4 2
Average loans $ 7.0 $ 7.9 (11) $ 7.2 $ 8.0 (10)
------------------------------------------==========================================================================================
</TABLE>
Revenues, net of interest expense, of $436 million and $1.415 billion in the
2000 third quarter and nine months were down $63 million or 13% and $44 million
or 3% from the 1999 periods. Revenues in both the 2000 quarter and nine months
reflect increased earnings from Credicard and were offset by reduced interest
revenue from Confia and business volume declines in certain countries, including
the effect of the 2000 first quarter auto loan portfolio sale in Puerto Rico.
Revenues in the 2000 nine months include the gain related to the auto loan
portfolio sale in Puerto Rico. Adjusted operating expenses grew $16 million or
5% and $76 million or 9% from the 1999 third quarter and nine months reflecting
costs associated with new business initiatives and strategy changes in certain
countries. In the 2000 nine months, both revenue and expense increases reflect
recent acquisitions.
The provision for credit losses was $69 million and $235 million in the 2000
third quarter and nine months, down from $117 million and $353 million in the
1999 periods. Net credit losses in the 2000 third quarter were $69 million and
the related loss ratio was 3.89%, down from $76 million and 4.25% in the 2000
second quarter and $110 million and 5.55% a year ago. Loans delinquent 90 days
or more were $319 million or 4.55% of loans at September 30, 2000 compared with
$323 million or 4.52% at June 30, 2000 and $325 million or 4.10% a year ago. The
increase in the delinquency ratio from a year ago primarily reflects a change in
portfolio mix resulting from the 2000 first quarter sale of the auto loan
portfolio in Puerto Rico.
e-Consumer (1)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $77 $27 185 $136 $74 84
Total operating expenses 145 76 91 388 206 88
------------------------------- -------------------------------
Loss before tax benefits (68) (49) (39) (252) (132) (91)
Income tax benefits (25) (20) (25) (95) (54) (76)
------------------------------- -------------------------------
Net loss ($43) ($29) (48) ($157) ($78) (101)
------------------------------------------==========================================================================================
</TABLE>
(1) Includes the portion of Internet development directly related to
Citigroup's consumer businesses.
--------------------------------------------------------------------------------
e-Consumer -- the business responsible for developing and implementing Global
Consumer Internet financial services products and e-commerce solutions --
reported net losses of $43 million and $157 million in the 2000 third quarter
and nine months, up from $29 million and $78 million in the 1999 periods.
Revenues in the 2000 third quarter included gains related to internet/e-commerce
investments. Expenses reflect continued investment spending on Internet
financial services and charges related to the termination of certain contracts
and other initiatives.
15
<PAGE>
Other Consumer
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense ($11) $30 NM ($11) $118 NM
Adjusted operating expenses (2) 31 44 (30) 124 183 (32)
Provision for credit losses -- 7 (100) -- 21 (100)
------------------------------- -------------------------------
Loss before tax benefits (42) (21) (100) (135) (86) (57)
Income tax benefits (17) (9) (89) (53) (33) (61)
------------------------------- -------------------------------
Loss (25) (12) (108) (82) (53) (55)
Restructuring-related items, after-tax -- -- -- 2 -- NM
------------------------------- -------------------------------
Net loss ($25) ($12) (108) ($80) ($53) (51)
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Other Consumer -- which includes certain treasury operations and global
marketing and other programs -- reported net losses of $25 million and $80
million in the 2000 third quarter and nine months, up from $12 million and $53
million in the 1999 periods. The increase in net losses from 1999 reflects lower
treasury earnings offset by reduced staff levels and lower marketing costs. The
increase in the 2000 nine months net loss also reflects costs associated with
the termination of certain global distribution initiatives. The 1999 third
quarter and nine months revenues, expenses, and provision for credit losses
include the results of the private label cards business that was discontinued in
early 2000.
Consumer Portfolio Review
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level according to loan product and
country.
16
<PAGE>
The following table 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.
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, Sept. 30, Sept. 30, June 30, Sept. 30, 3rd Qtr. 3rd Qtr. 2nd Qtr. 3rd Qtr.
except loan amounts in billions 2000 2000 2000 1999 2000 2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking North America $ 7.1 $ 33 $ 33 $ 64 $ 7.0 $ 15 $ 15 $ 19
Ratio 0.46% 0.47% 0.90% 0.86% 0.88% 1.06%
Mortgage Banking 38.9 709 709 629 37.2 5 4 8
Ratio 1.82% 1.98% 2.28% 0.06% 0.05% 0.12%
N.A. Bankcards 83.0 1,022 929 1,000 81.2 714 745 777
Ratio 1.23% 1.18% 1.42% 3.50% 3.96% 4.40%
Other Cards 1.9 20 24 19 1.8 13 12 14
Ratio 1.05% 1.17% 1.06% 3.00% 2.84% 3.23%
CitiFinancial 18.5 239 229 186 17.8 86 80 71
Ratio 1.29% 1.32% 1.27% 1.91% 1.93% 2.00%
Europe, Middle East & Africa 16.2 800 868 953 16.4 64 65 69
Ratio 4.93% 5.09% 5.45% 1.54% 1.57% 1.60%
Asia Pacific 25.8 359 405 450 25.7 70 64 73
Ratio 1.39% 1.56% 1.87% 1.08% 1.01% 1.23%
Latin America 7.0 319 323 325 7.0 69 76 110
Ratio 4.55% 4.52% 4.10% 3.89% 4.25% 5.55%
Global Private Bank (2) 25.2 90 78 145 24.9 2 3 2
Ratio 0.36% 0.32% 0.69% 0.03% 0.05% 0.05%
Other 0.3 -- -- 1 0.3 -- -- 7
------------------------------------------------------------------------------------------------------------------------------------
Total managed 223.9 3,591 3,598 3,772 219.3 1,038 1,064 1,150
Ratio 1.60% 1.67% 1.96% 1.88% 2.06% 2.41%
-----------------------------------=================================================================================================
Securitized credit card
receivables (45.8) (611) (544) (704) (44.1) (386) (441) (525)
Loans held for sale (8.0) (66) (62) (37) (7.8) (41) (28) (27)
------------------------------------------------------------------------------------------------------------------------------------
Consumer loans $170.1 $2,914 $2,992 $3,031 $167.4 $ 611 $ 595 $ 598
Ratio 1.71% 1.84% 2.18% 1.45% 1.54% 1.74%
-----------------------------------=================================================================================================
</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) Global Private Bank results are reported as part of the Global Investment
Management and Private Banking segment.
--------------------------------------------------------------------------------
Consumer Loan Balances, Net of Unearned Income
<TABLE>
<CAPTION>
End of Period Average
-------------------------------- ------------------------------
Sept. 30, June 30, Sept. 30, 3rd Qtr. 2nd Qtr. 3rd Qtr.
In billions of dollars 2000 2000 1999 2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total managed $223.9 $215.8 $192.5 $219.3 $207.4 $189.3
Securitized credit card receivables (45.8) (44.8) (48.5) (44.1) (45.8) (47.9)
Loans held for sale (8.0) (8.1) (5.2) (7.8) (5.8) (5.2)
-------------------------------- ------------------------------
Consumer loans $170.1 $162.9 $138.8 $167.4 $155.8 $136.2
-----------------------------------------------------------=========================================================================
</TABLE>
Total delinquencies 90 days or more past due in the managed portfolio were $3.6
billion with a related delinquency ratio of 1.60% of loans at September 30,
2000, compared with $3.6 billion or 1.67% at June 30, 2000 and $3.8 billion or
1.96% a year ago. Total managed net credit losses in the 2000 third quarter were
$1.0 billion and the related loss ratio was 1.88%, down from $1.1 billion and
2.06% in the 2000 second quarter and $1.2 billion and 2.41% in the 1999 third
quarter. For a discussion on trends by business, see business discussions on
pages 4 - 16.
Citigroup's allowance for credit losses of $6.679 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citigroup's allowance for credit losses attributed to the
consumer portfolio was $3.338 billion at September 30, 2000, $3.391 billion at
June 30, 2000 and $3.449 billion at September 30, 1999. The allowance as a
percentage of loans on the balance sheet was 1.96% at September 30, 2000, down
from 2.08% at June 30, 2000 and 2.49% at September 30, 1999 reflecting improved
credit performance. The attribution of the allowance is made for analytical
purposes only and may change from time to time.
Net credit losses, delinquencies and the related ratios may increase in the
future as a result of portfolio growth, global economic conditions, the credit
performance of the portfolios, including bankruptcies, and seasonal factors.
This statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 28.
17
<PAGE>
In the fourth quarter of 2000, Citigroup will adopt the Federal Financial
Institutions Examination Council's (FFIEC) revised 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 is not expected to have a material effect on financial results since
Citigroup believes that it maintains adequate reserves for credit losses
inherent in its loan portfolios. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 28.
GLOBAL CORPORATE AND INVESTMENT BANK
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $8,097 $6,446 26 $24,154 $20,546 18
Adjusted operating expenses (2) 4,621 3,719 24 13,470 11,794 14
Provisions for benefits, claims,
and credit losses 1,028 915 12 3,028 2,876 5
------------------------------- -------------------------------
Core income before taxes
and minority interest 2,448 1,812 35 7,656 5,876 30
Income taxes 852 629 35 2,636 2,036 29
Minority interest, after-tax 8 50 (84) 64 128 (50)
------------------------------- -------------------------------
Core income 1,588 1,133 40 4,956 3,712 34
Restructuring-related items, after-tax -- -- -- 3 117 (97)
------------------------------- -------------------------------
Net income (3) $1,588 $1,133 40 $ 4,959 $ 3,829 30
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
(3) The 1999 nine-month period excludes cumulative effect of accounting
changes.
--------------------------------------------------------------------------------
The Global Corporate and Investment Bank business serves corporations, financial
institutions, governments, investors, and other participants in capital markets
in 100 countries and consists of Salomon Smith Barney (SSB), Global Relationship
Banking (GRB), Emerging Markets Corporate Banking (EM Corporate) and the
Commercial Lines business of TAP.
Global Corporate and Investment Bank core income of $1.588 billion and $4.956
billion grew $455 million or 40% in the 2000 third quarter and $1.244 billion or
34% in the 2000 nine months compared to 1999. The 2000 third quarter reflects
core income growth from the comparable 1999 quarter of $190 million or 44% in
SSB, $107 million or 75% in GRB, $98 million or 32% in EM Corporate and $60
million or 24% in Commercial Lines. The 2000 nine months reflects core income
growth from 1999 of $530 million or 31% in SSB, $278 million or 59% in GRB, $259
million or 29% in EM Corporate and $177 million or 27% in Commercial Lines.
SSB's core income growth was driven by strong revenue momentum in commissions,
investment banking fees, principal transactions and other fee-based Private
Client revenues along with earnings from the investment in Nikko Securities.
GRB's core income growth was a result of revenue growth in transaction services,
equity derivatives and structured products. EM Corporate's core income growth
was driven by broad-based growth in revenues from transaction services and
improved credit. Commercial Lines improvement primarily reflects incremental
earnings from the minority interest buyback, revenue growth from rate increases
achieved in prior quarters, lower catastrophe losses and higher fee income.
Net income in the 1999 nine months included restructuring-related items of $117
million ($198 million pretax) consisting mainly of a release of the 1997
restructuring reserve that resulted from SSB's reassessment of space needs. See
further discussion of the restructuring-related items in Note 8 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 policies and credit environments, among other
factors, in the 100 countries in which the businesses operate. Economic and
market events can have both positive and negative effects on the revenue
performance of the businesses and can negatively affect credit performance. 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. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 28.
18
<PAGE>
Salomon Smith Barney
The following segment data includes the earnings of an investment in Nikko
Securities but does not include the Asset Management division of Salomon Smith
Barney, which is included in the SSB Citi Asset Management Group and Global
Retirement Services results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $3,870 $2,791 39 $11,749 $9,401 25
Adjusted operating expenses (1) 2,887 2,107 37 8,303 6,753 23
------------------------------- -------------------------------
Core income before taxes 983 684 44 3,446 2,648 30
Income taxes 361 252 43 1,226 958 28
------------------------------- -------------------------------
Core income 622 432 44 2,220 1,690 31
Restructuring-related items, after-tax -- 18 (100) -- 142 (100)
------------------------------- -------------------------------
Net income (2) $ 622 $ 450 38 $ 2,220 $1,832 21
------------------------------------------==========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
(2) The 1999 nine-month period excludes cumulative effect of accounting
changes.
NM Not meaningful
--------------------------------------------------------------------------------
Salomon Smith Barney reported core income in the 2000 third quarter and nine
months of $622 million and $2.220 billion, respectively, compared to $432
million and $1.690 billion in the 1999 periods. Salomon Smith Barney's earnings
reflect strong growth in commissions, investment banking fees, principal
transactions and fee-based Private Client revenues combined with earnings from
the investment in Nikko Securities. Total client assets in the Private Client
business grew 24% from a year ago to $1.047 trillion while annualized gross
production per Financial Consultant reached $526,000 in the first nine months of
2000 compared to $474,000 in the first nine months of 1999. Included in the 1999
nine months net income is a net after-tax restructuring credit of $142 million
($240 million pretax). See Note 8 of Notes to Consolidated Financial Statements
for discussions of the restructuring-related items.
On May 1, 2000, the Company completed the approximately 1.36 billion British
Pound ($2.2 billion) acquisition of the global investment banking business and
related net assets of Schroders PLC (Schroders), including all corporate
finance, financial markets and securities activities. The combined European
operations of the Company are now known as Schroder Salomon Smith Barney.
Revenues by category were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions $ 992 $ 812 22 $ 3,318 $2,615 27
Investment banking 986 760 30 2,717 2,177 25
Principal transactions 763 328 133 2,259 2,000 13
Asset management
and administration fees 551 431 28 1,595 1,208 32
Interest income, net (1) 422 395 7 1,244 1,222 2
Other income 156 65 140 616 179 244
------------------------------- -------------------------------
Total revenues, net of interest
expense (1) $3,870 $2,791 39 $11,749 $9,401 25
------------------------------------------==========================================================================================
</TABLE>
(1) Net of interest expense of $3.949 billion and $2.414 billion in the 2000
and 1999 third quarters, and $10.381 billion and $7.062 billion in the
2000 and 1999 nine months.
--------------------------------------------------------------------------------
Revenues, net of interest expense, in the 2000 third quarter and nine months
were $3.870 billion and $11.749 billion, respectively, a 39% and 25% improvement
over the comparable 1999 periods. The increase in commissions reflects robust
sales of listed and over-the-counter securities. Investment banking revenue
growth reflects increases in merger and acquisition fees and equity
underwriting. The increase in principal transaction revenues reflects growth in
institutional global fixed income and global equities from a weak prior year,
which also included the scale back of the Global Arbitrage business. The
increase in other income primarily reflects an increase in ownership in Nikko
Securities along with higher income from the Nikko SSB joint venture which began
operations during the 1999 first quarter. The growth in asset management and
administration fees, which include results from assets managed by the Financial
Consultants as well as those managed externally by the Consulting Group, relates
to the 40% growth in assets under fee-based management.
19
<PAGE>
Total assets under fee-based management were as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------- %
In billions of dollars 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Consultant managed accounts $ 62.2 $ 31.6 97
Consulting Group and internally managed assets 140.2 113.0 24
-----------------------------------
Total assets under fee-based management $202.4 $144.6 40
---------------------------------------------------------------------------------===================================================
</TABLE>
Adjusted operating expenses were $2.887 billion and $8.303 billion in the 2000
third quarter and nine months, respectively, up 37% and 23% compared to the
year-ago periods. The growth reflects higher production-related compensation and
other expenses resulting from increased revenues and the Schroders acquisition
in the 2000 second quarter.
Global Relationship Banking
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,215 $1,020 19 $3,687 $3,175 16
Adjusted operating expenses (2) 815 789 3 2,408 2,423 (1)
Provision for credit losses 13 6 117 105 4 NM
------------------------------- -------------------------------
Core income before taxes
and minority interest 387 225 72 1,174 748 57
Income taxes 139 82 70 425 275 55
Minority interest, after-tax (2) -- NM (2) -- NM
------------------------------- -------------------------------
Core income 250 143 75 751 473 59
Restructuring-related items, after-tax -- (10) 100 -- (15) 100
------------------------------- -------------------------------
Net income $ 250 $ 133 88 $ 751 $ 458 64
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $96 $76 26 $92 $82 12
Return on assets 1.04% 0.69% 1.09% 0.75%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Core income from Global Relationship Banking in North America, Western Europe
and Japan was $250 million and $751 million in the 2000 third quarter and nine
months, up $107 million or 75% and $278 million or 59% from 1999. Return on
assets was 1.04% in the 2000 third quarter, up from 0.69% in 1999. In the 2000
nine months, return on assets was 1.09%, up from 0.75% in the comparable 1999
period. Net income was $133 million in the 1999 third quarter and $458 million
in the 1999 nine months.
Revenues, net of interest expense, of $1.215 billion in the 2000 third quarter
and $3.687 billion in the 2000 nine months grew $195 million or 19% and $512
million or 16%, respectively, compared to the 1999 periods. The increases were
driven by strong growth in transaction services, equity derivatives, structured
products and the 2000 second quarter acquisition of Copelco. Both comparisons
were negatively impacted by lower treasury and foreign exchange trading results
in 2000.
Adjusted operating expenses of $815 million and $2.408 billion in the 2000 third
quarter and nine months were up $26 million or 3% compared to the 1999 third
quarter but were down $15 million or 1% in the nine-month comparison. The
increase in the quarterly comparison was primarily due to higher incentive
compensation, the acquisition of Copelco and was partially offset by the impact
of previous restructuring actions and business integration initiatives. In the
nine-month comparison, the absence of year 2000 and European Economic Monetary
Union expenses, combined with the impact of previous restructuring actions and
business integration initiatives, more than offset higher incentive compensation
and the addition of Copelco.
The provision for credit losses was $13 million and $105 million in the 2000
third quarter and nine months compared to $6 million and $4 million in the 1999
third quarter and nine months, respectively. Net write-offs in the 2000 nine
months increased primarily due to exposures in the health-care industry in North
America. Exposures to healthcare were limited in 1999 and have been
significantly reduced during 2000. While the 2000 third quarter provision for
credit losses declined from the 2000 second quarter, Citigroup continues to
monitor the impact of the economic environment on its portfolio. Cash-basis
loans were $475 million at September 30, 2000, up $10 million from June 30, 2000
and $173 million from September 30, 1999. The increase in cash-basis loans
compared to 1999 was primarily attributable to the acquisition of Copelco. The
Other Real Estate Owned portfolio was $122 million at September 30, 2000, down
$13 million from June 30, 2000 and $56 million from September 30, 1999 due to
decreases in the North America real estate portfolio.
Average assets of $96 billion and $92 billion in the 2000 third quarter and nine
months increased $20 billion and $10 billion from 1999, primarily reflecting
increases in trading assets and loans as well as the acquisition of Copelco.
20
<PAGE>
Emerging Markets Corporate Banking
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,265 $1,057 20 $3,777 $3,300 14
Adjusted operating expenses (2) 597 535 12 1,737 1,582 10
Provision for credit losses 22 32 (31) 185 257 (28)
------------------------------- -------------------------------
Core income before taxes
and minority interest 646 490 32 1,855 1,461 27
Income taxes 235 186 26 676 553 22
Minority interest, after-tax 10 1 NM 16 4 300
------------------------------- -------------------------------
Core income 401 303 32 1,163 904 29
Restructuring-related items, after-tax -- (8) NM 3 (10) NM
------------------------------- -------------------------------
Net income $ 401 $ 295 36 $1,166 $ 894 30
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $93 $82 13 $88 $82 7
Return on assets 1.72% 1.43% 1.77% 1.46%
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful.
--------------------------------------------------------------------------------
Emerging Markets Corporate Banking (EM Corporate) core income was $401 million
and $1.163 billion in the 2000 third quarter and nine months, up $98 million or
32% and $259 million or 29% from 1999. In June 2000, EM Corporate completed the
acquisition of a majority interest in Bank Handlowy. Return on assets was 1.72%
in the 2000 third quarter, up from 1.43% in 1999. In the nine months ended
September 30, 2000, return on assets was 1.77%, up from 1.46% in 1999. Net
income was $401 million and $295 million in the 2000 and 1999 third quarters,
respectively, and $1.166 billion and $894 million in the 2000 and 1999 nine
months.
Revenues, net of interest expense, were $1.265 billion and $3.777 billion in the
2000 third quarter and nine months, respectively, up $208 million or 20% and
$477 million or 14% from the 1999 periods. Revenue growth in the 2000 third
quarter was led by CEEMEA (Central and Eastern Europe, Middle East and Africa),
up 30% from 1999, primarily due to the acquisition of Bank Handlowy along with
growth in principal transactions and transaction services. Latin America and
Asia revenues were up 16% and 8%, respectively, in the 2000 third quarter
primarily due to growth in transaction services. The nine-month comparison
reflected strong growth across all regions in transaction services and
structured products along with higher realized investment gains, partially
offset by lower principal transactions in Latin America and Asia. About 24% of
the EM Corporate revenue in the 2000 third quarter and 23% in the 2000 nine
months was attributable to business from multinational companies managed jointly
with GRB, with that revenue having grown 17% and 12%, respectively, from the
prior-year periods.
Adjusted operating expenses in the 2000 third quarter and nine months increased
12% and 10%, respectively, compared to the 1999 periods. The growth in expenses
was primarily due to the acquisition of Bank Handlowy, investment spending to
gain market share in selected emerging market countries and other volume related
increases.
The provision for credit losses totaled $22 million and $185 million in the 2000
third quarter and nine months, respectively, down $10 million and $72 million
from the related 1999 periods, reflecting recent trends of improving credit
quality in EM Corporate. Net write-offs in the 2000 third quarter declined in
all regions led by CEEMEA and Asia. Cash-basis loans were $1.163 billion at
September 30, 2000, compared to $1.132 billion at June 30, 2000 and $1.154
billion a year ago. These increases were primarily due to the acquisition of
Bank Handlowy, as increases in Latin America were offset by declines in Asia.
Average assets of $93 billion and $88 billion in the 2000 third quarter and nine
months reflected growth of $11 billion and $6 billion, respectively, compared to
a year ago, primarily due to higher trading assets and loans and the Bank
Handlowy acquisition.
21
<PAGE>
Commercial Lines
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,747 $1,578 11 $4,941 $4,670 6
Claims and claim adjustment expenses 993 877 13 2,738 2,615 5
Total operating expenses 322 288 12 1,022 1,036 (1)
------------------------------- -------------------------------
Income before taxes
And minority interest 432 413 5 1,181 1,019 16
Income taxes 117 109 7 309 250 24
Minority interest, after-tax -- 49 NM 50 124 (60)
------------------------------- -------------------------------
Net income (1) (2) $ 315 $ 255 24 $ 822 $ 645 27
------------------------------------------==========================================================================================
</TABLE>
(1) The 1999 nine-month period excludes cumulative effect of accounting
changes.
(2) Excludes investment gains/losses included in Investment Activities
segment.
NM Not meaningful
--------------------------------------------------------------------------------
Commercial Lines -- which offers a broad array of property and casualty
insurance and insurance-related services through brokers and independent
agencies -- reported net income, excluding the effect of accounting changes, of
$315 million and $822 million in the 2000 third quarter and nine months, up from
$255 million and $645 million in the 1999 comparable periods. The improvements
in the 2000 periods over the 1999 periods reflect the incremental earnings from
the minority interest buyback, rate increases achieved in prior quarters, lower
catastrophe losses, higher fee income and, in the 2000 nine-month period, higher
net investment income and were partially offset by increased loss trends and
lower favorable prior-year reserve development. Results for the third quarter of
2000 and 1999 reflect benefits of $43 million (after-tax) and $49 million
(after-tax and minority interest), respectively, resulting from legislative
action in the states of New York and Pennsylvania that changed the manner in
which these states finance their workers' compensation second-injury funds. The
Company continues to maintain its discipline in the competitive commercial lines
marketplace and to grow business only where market conditions warrant.
On May 31, 2000, the Company completed the acquisition of the surety business of
Reliance Group Holdings, Inc. (Reliance Surety) for $580 million. In the third
quarter of 2000, the Company purchased the renewal rights to a portion of
Reliance Group Holdings, Inc.'s commercial lines middle-market book of business
(Reliance Middle Market) and also acquired the renewal rights to Frontier
Insurance Group, Inc.'s (Frontier) environmental, excess and surplus lines
casualty businesses and certain classes of surety business.
Net written premiums by market were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National Accounts $ 132 $ 149 (11) $ 282 $ 400 (30)
Commercial Accounts 563 470 20 1,508 1,354 11
Select Accounts 382 355 8 1,176 1,121 5
Specialty Accounts 274 158 73 765 466 64
------------------------------- -------------------------------
Total net written premiums $1,351 $1,132 19 $3,731 $3,341 12
------------------------------------------==========================================================================================
</TABLE>
Commercial Lines net written premiums in the 2000 third quarter and nine months
totaled $1.351 billion and $3.731 billion, respectively, compared to $1.132
billion and $3.341 billion in the comparable periods of 1999. Included in
Specialty Accounts net written premiums in the 2000 nine months is an adjustment
of $131 million due to a reinsurance transaction associated with the acquisition
of Reliance Surety. The trend in written premiums continues to reflect the
impact of an improving rate environment as evidenced by the favorable pricing on
renewal business and an increase in new business premiums. Also contributing to
the net written premium increases was the new business associated with the
acquisition of the renewal rights for the Reliance Middle Market business in
Commercial Accounts, and the impact of the ongoing business associated with the
Reliance Surety acquisition and the new business associated with the acquisition
of the renewal rights of Frontier, as well as reinsurance activity in Specialty
Accounts. The net written premium decrease in National Accounts was primarily
due to a shift of business mix from premium-based products to fee-based
products.
National Accounts new business was significantly lower in the 2000 third quarter
than in the 1999 third quarter and was marginally lower in the 2000 nine months
than in the 1999 nine months. National Accounts business retention ratio in the
2000 third quarter and nine months was moderately lower than in the comparable
periods in 1999, reflecting the loss of several large accounts in 2000.
Commercial Accounts new business in the 2000 third quarter and nine months was
significantly higher than the comparable periods in 1999, reflecting the
increased market activity resulting from the pricing environment and the impact
of the Reliance Middle Market business. Commercial Accounts business retention
ratio in the 2000 third quarter was significantly lower and in the 2000 nine
months was moderately lower than the comparable periods in 1999, reflecting an
increase in lost business due to the renewal
22
<PAGE>
price increases in 2000. Commercial Accounts continues to focus on maintaining
its product pricing standards and its selective underwriting policy in the
renewal of accounts.
New premium business in Select Accounts was significantly higher in both the
2000 third quarter and nine months than the 1999 comparable periods. New
business was unusually low in the 1999 third quarter and nine months reflecting
its selective underwriting policy in the highly competitive marketplace. Select
Accounts business retention ratio in the 2000 third quarter was moderately lower
and in the 2000 nine months was marginally lower than the comparable periods in
1999, reflecting an increase in lost business due to the renewal price increases
in 2000.
There were no catastrophe losses in the 2000 third quarter and nine-month
periods. Catastrophe losses, net of taxes and reinsurance, were $17 million and
$27 million in the 1999 third quarter and nine months, respectively, and were
primarily due to Hurricane Floyd in the third quarter and tornadoes in Oklahoma
in the second quarter.
The statutory combined ratio before policyholder dividends for Commercial Lines
in the 2000 third quarter and nine months was 103.8% and 104.0%, respectively,
compared to 114.6% and 108.4% in the comparable periods of 1999. The GAAP
combined ratio before policyholder dividends for Commercial Lines in the 2000
third quarter and nine months was 96.1% and 99.1%, respectively, compared to
96.8% and 103.3% in the comparable periods of 1999. 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 2000 nine-month statutory and GAAP combined ratios include an adjustment due
to a reinsurance transaction associated with the acquisition of Reliance Surety.
Excluding this adjustment, the 2000 nine-month statutory and GAAP combined
ratios before policyholder dividends would have been 103.5% and 100.0%,
respectively. The 1999 nine-month statutory combined ratio reflects the
treatment, on a statutory basis only, of the commutation of an asbestos
liability to an insured. Excluding this commutation, the 1999 nine-month
statutory combined ratio before policyholder dividends would have been 105.2%.
The improvement in the 2000 third quarter and nine-month statutory and GAAP
combined ratios before policyholder dividends, excluding the adjustments above,
compared to the 1999 third quarter and nine-month statutory and GAAP combined
ratios before policyholder dividends was due to premium growth due to rate
increases as well as the impact of the ongoing business associated with the
Reliance Surety acquisition and the new business associated with the acquisition
of the renewal rights for Reliance Middle Market and Frontier businesses with a
disproportionately smaller increase in expenses, and lower catastrophe losses,
partially offset by increased loss trends and lower favorable prior-year reserve
development.
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
September 30, 2000, approximately 27% of the net aggregate reserve (i.e.,
approximately $159 million) consisted of case reserve for resolved claims. The
balance, approximately 73% of the net aggregate reserve (i.e., approximately
$434 million), was carried in a bulk reserve and included incurred but not
reported environmental claims for which specific claims have not been received.
In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of such claims. At September 30, 2000,
approximately 15% of the net aggregate reserve (i.e., approximately $118
million) was for pending asbestos claims. The balance, approximately 85% of the
net aggregate reserve (i.e., approximately $688 million), represents incurred
but not reported losses for which specific claims have not been received.
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 September 30, 2000
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, in the opinion of the Company's
management, it is not likely that these claims will have a material adverse
effect on its financial condition or liquidity. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 28.
23
<PAGE>
Commercial Portfolio Review
Commercial loans are identified as impaired and placed on a nonaccrual basis
when it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well secured and in the process of collection. Impaired
commercial loans are written down to the extent that principal is judged to be
uncollectible. Impaired collateral-dependent loans are written down to the lower
of cost or collateral value. The following table summarizes commercial
cash-basis loans at period end and net credit losses for the three months ended:
<TABLE>
<CAPTION>
Sept. 30, June 30, Sept. 30,
In millions of dollars 2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash-basis loans
Global Relationship Banking $ 475 $ 465 $ 302
Emerging Markets Corporate Banking 1,163 1,132 1,154
Insurance and Investment Activities 44 41 53
---------------------------------------------------
Total cash-basis loans $1,682 $1,638 $1,509
---------------------------------------------------------------------------------===================================================
Net credit losses
Global Relationship Banking $13 $ 52 $ 6
Emerging Markets Corporate Banking 22 79 82
Investment Activities 7 -- --
---------------------------------------------------
Total net credit losses $42 $131 $88
---------------------------------------------------------------------------------===================================================
</TABLE>
For a discussion of trends by business, see the business discussions on pages 20
and 21.
Citigroup's allowance for credit losses of $6.679 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citigroup's allowance for credit losses attributed to the
commercial portfolio was $3.341 billion at September 30, 2000, $3.345 billion at
June 30, 2000 and $3.257 billion at September 30, 1999. The increase in the
allowance in 2000 reflects acquisitions.
<TABLE>
<CAPTION>
Sept. 30, June 30, Sept. 30,
In millions of dollars 2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial allowance for credit losses $3,341 $3,345 $3,257
As a percentage of total commercial loans 2.85% 3.01% 3.30%
---------------------------------------------------------------------------------===================================================
</TABLE>
GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $828 $676 22 $2,443 $1,965 24
Adjusted operating expenses (2) 543 421 29 1,570 1,226 28
(Benefit) provision for credit losses (3) 2 NM 22 12 83
------------------------------- -------------------------------
Core income before taxes 288 253 14 851 727 17
Income taxes 112 99 13 329 281 17
------------------------------- -------------------------------
Core income 176 154 14 522 446 17
Restructuring-related items, after-tax -- -- -- 1 -- 100
------------------------------- -------------------------------
Net income $176 $154 14 $ 523 $ 446 17
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
The Global Investment Management and Private Banking group is composed of the
SSB Citi Asset Management Group and Global Retirement Services, and the Global
Private Bank. These businesses offer a broad range of asset management products
and services from global investment centers around the world, including mutual
funds, closed-end funds, managed accounts, unit investment trusts, variable
annuities, and personalized wealth management services to institutional, high
net worth, and retail clients.
Global Investment Management and Private Banking core income of $176 million in
the 2000 third quarter and $522 million in the 2000 nine months was up $22
million or 14% and $76 million or 17% from a year ago. Revenues increased,
driven by acquisitions and growth in both assets and client business volumes
under management. Expense growth was a result of higher costs associated with
the acquisitions and continued expansion of sales and marketing efforts and
investments in technology. The increase in the provision for credit losses in
the nine-month period comparison related to a loan in Europe.
24
<PAGE>
SSB Citi Asset Management Group and Global Retirement Services
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $491 $371 32 $1,406 $1,085 30
Total operating expenses 329 231 42 933 671 39
------------------------------- -------------------------------
Income before taxes 162 140 16 473 414 14
Income taxes 66 56 18 190 164 16
------------------------------- -------------------------------
Net income $ 96 $ 84 14 $ 283 $ 250 13
------------------------------------------==========================================================================================
Assets under management
(in billions of dollars) (2) $397 $364 9 $ 397 $ 364 9
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Includes $31 billion and $36 billion in the 2000 and 1999 periods,
respectively, for Global Private Bank clients. Also includes Unit
Investment Trusts held in client accounts of $11 billion and $12 billion,
respectively, and Emerging Markets Pension Administration assets of $5
billion at September 30, 2000.
--------------------------------------------------------------------------------
SSB Citi Asset Management Group and Global Retirement Services is composed 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 -- and also includes the pension
management businesses of Global Retirement Services. These businesses offer
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).
Net income of $96 million and $283 million in the 2000 third quarter and nine
months was up $12 million or 14% and $33 million or 13% from the comparable 1999
periods, reflecting the impact of acquisitions and growth in asset-based fee
revenues, partially offset by increased expenses.
Assets under management rose 9% from the year-ago third quarter to $397 billion,
as growth continued across most product categories. Growth in private client
separately managed accounts and equity funds was strong, rising 25% and 22%,
respectively, from the 1999 third quarter, and was partially offset by declines
in fixed income funds. Institutional client assets in the 2000 third quarter
rose to $151 billion, aided by cross-selling efforts including $4.9 billion in
client assets raised from Global Corporate and Investment Bank customers.
Compared to the 1999 third quarter, sales of long-term mutual funds and managed
account products through the SSB retail sales channel rose 21% to $5.2 billion
in the 2000 third quarter, representing 43% of all such products distributed
through the retail channel. In addition, in the 2000 third quarter, Primerica
sold $449 million of U.S. mutual and money funds, an increase of 14%,
representing 53% of Primerica's sales. Also in the 2000 third quarter, other
Global Consumer businesses sold $3.0 billion of mutual and money funds through
their channels, representing 53% of total sales, including $1.1 billion in Latin
America, $1.0 billion in the U.S., $580 million in Asia Pacific, and $327
million in Europe, Middle East, and Africa.
Revenues, net of interest expense, of $491 million and $1.4 billion in the 2000
third quarter and nine months increased $120 million or 32% and $321 million or
30% from the 1999 third quarter and nine months, respectively, primarily
reflecting the Siembra and Garante acquisitions in the Latin America Retirement
Services business, and growth in asset-based fee revenues.
Operating expenses of $329 million and $933 million in the 2000 quarter and nine
months increased $98 million or 42% and $262 million or 39% from the 1999
periods, reflecting the acquisitions and additional investments in sales and
marketing activities, technology, and product development.
25
<PAGE>
Global Private Bank
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $337 $305 10 $1,037 $880 18
Adjusted operating expenses (2) 214 190 13 637 555 15
(Benefit) provision for credit losses (3) 2 NM 22 12 83
------------------------------- -------------------------------
Core income before taxes 126 113 12 378 313 21
Income taxes 46 43 7 139 117 19
------------------------------- -------------------------------
Core income 80 70 14 239 196 22
Restructuring-related items, after-tax -- -- -- 1 -- 100
------------------------------- -------------------------------
Net income $ 80 $ 70 14 $ 240 $196 22
------------------------------------------==========================================================================================
Average assets (in billions of dollars) $26 $21 24 $25 $19 32
Return on assets 1.22% 1.32% 1.28% 1.38%
------------------------------------------==========================================================================================
Client business volumes under
management (in billions of dollars) $154 $128 20 $154 $128 20
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Global Private Bank -- which provides personalized wealth management services
for high net worth clients around the world -- reported core income of $80
million in the 2000 third quarter, up $10 million or 14% from 1999, reflecting
continued strong customer revenue momentum, partially offset by increased
front-end staff expenses. Core income in the 2000 nine months was $239 million,
up $43 million or 22% from 1999, reflecting the above, and a higher provision
for credit losses.
Client business volumes under management, which comprise custody accounts,
client assets under fee-based management, deposits, and loans, were $154 billion
at September 30, 2000, up 20% from $128 billion a year ago, reflecting
especially strong growth in the U.S., Asia Pacific and CEEMEA. Business volumes
grew in all product lines, led by the custody businesses.
Total revenues, net of interest expense, were $337 million in the 2000 third
quarter and $1.037 billion in the 2000 nine months, up $32 million or 10% and
$157 million or 18% from the 1999 periods. Net interest and recurring fee-based
revenues increased $38 million or 19% from the 1999 third quarter and $111
million or 18% from the 1999 nine months. Transaction revenues, including
trading, placement, and performance fees, decreased $3 million or 5% from the
1999 third quarter, but grew $46 million or 29% from the 1999 nine months. In
the 2000 third quarter and nine months, the increase in revenues reflected
continued favorable trends in the U.S., up $17 million or 16% and $48 million or
15%, respectively, from the comparable 1999 quarter and nine months, as well as
growth internationally, with revenues up $15 million or 8% from the 1999 third
quarter and $109 million or 19% from the 1999 nine months.
Total operating expenses of $214 million and $637 million in the 2000 third
quarter and nine months were up $24 million or 13% and $82 million or 15% from
the 1999 periods, primarily reflecting higher levels of bankers and product
specialists hired to improve front-end sales and service capabilities.
The provision (benefit) for credit losses declined $5 million in the quarterly
comparison and increased $10 million in the nine-month comparison. The increase
in the 2000 nine months related to a loan in Europe. Net credit losses in the
2000 third quarter remained at a nominal level of 0.03% of average loans,
compared with 0.05% for the 1999 third quarter. Loans 90 days or more past due
remained low at $90 million or 0.36% of loans at September 30, 2000, compared to
$145 million or 0.69% at September 30, 1999.
26
<PAGE>
CORPORATE/OTHER
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- % ------------------------------- %
In millions of dollars 2000 1999 (1) Change 2000 1999 (1) Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense ($171) ($ 50) (242) ($418) ($106) (294)
Adjusted operating expenses (2) 215 198 9 736 527 40
Provision (credit) for benefits,
claims, and credit losses -- 14 (100) (4) 34 NM
------------------------------- -------------------------------
Loss before tax benefits (386) (262) (47) (1,150) (667) (72)
Income tax benefits (119) (98) (21) (401) (227) (77)
------------------------------- -------------------------------
Loss (267) (164) (63) (749) (440) (70)
Restructuring-related items, after-tax (4) 2 NM (29) (14) (107)
------------------------------- -------------------------------
Net loss ($271) ($162) (67) ($778) ($454) (71)
------------------------------------------==========================================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
--------------------------------------------------------------------------------
Corporate/Other includes net corporate treasury results, corporate staff and
other corporate expenses, certain intersegment eliminations, and the remainder
of internet-related development activities (e-Citi) not allocated to the
individual businesses.
Net loss of $271 million and $778 million in the 2000 third quarter and nine
months increased $109 million or 67% and $324 million or 71% over the respective
prior-year periods, primarily reflecting higher treasury costs and increases in
certain unallocated corporate costs. The 2000 nine-month period loss also
includes a $108 million pretax expense for the contribution of appreciated
venture capital securities to Citigroup's Foundation, which had minimal impact
on Citigroup's earnings after related tax benefits and investment gains, which
are reflected in Investment Activities.
INVESTMENT ACTIVITIES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------
In millions of dollars 2000 1999 (1) 2000 1999 (1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues, net of interest expense $495 $311 $1,898 $734
Total operating expenses 26 17 69 48
Provision for credit losses 7 - 7 -
---------------------------------------------------------------------
Income before taxes and minority interest 462 294 1,822 686
Income taxes 171 103 671 239
Minority interest, after-tax (1) (3) (9) 2
---------------------------------------------------------------------
Net income $292 $194 $1,160 $445
---------------------------------------------------------------=====================================================================
</TABLE>
(1) Reclassified to conform to the current period's presentation.
--------------------------------------------------------------------------------
Investment Activities comprises Citigroup's 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. Investment
Activities net income of $292 million in the 2000 third quarter was up $98
million from the comparable 1999 period, primarily reflecting gains on the
exchange of certain Latin American bonds, partially offset by lower venture
capital results. Investment Activities net income of $1.2 billion in the 2000
nine months was up $715 million from 1999, primarily reflecting strong
performance in the venture capital portfolios and a higher level of realized
gains.
Revenues, net of interest expense, of $495 million in the 2000 third quarter
increased $184 million from 1999, primarily reflecting gains on the exchange of
Latin American bonds. For the 2000 nine months, revenues, net of interest
expense, of $1.9 billion increased $1.2 billion from 1999, primarily reflecting
an increase in venture capital results and gains on the Latin American bonds.
Partially offsetting the 2000 year-to-date revenue increases were 2000 first
quarter losses in insurance-related investments from repositioning activities
designed to improve yields and maturity profiles, and writedowns in the
refinancing portfolio.
Investment Activities results may fluctuate in the future as a result of market
and asset-specific factors. This statement is a forward-looking statement within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 28.
27
<PAGE>
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, global economic conditions, 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 and prevailing inflation and interest rates; results of
various Investment Activities; the effects of competitors' pricing policies; the
impact of future bankruptcy filings and delinquent loans on net credit losses
and the related loss ratio in the Cards business; the impact of proposed
regulations and regulatory interpretations on risk-based capital guidelines; the
adoption by the Company of an FFIEC policy that provides guidance on the
reporting of delinquent consumer loans and the timing of associated credit
charge-offs for financial institution subsidiaries; the resolution of legal
proceedings and related matters; and the actual amount of liabilities associated
with certain environmental and asbestos-related insurance claims.
MANAGING GLOBAL RISK
The Credit Process
Citigroup's credit process is described in detail in Citigroup's 1999 Annual
Report and Form 10-K.
The Market Risk Management Process
Market risk encompasses liquidity risk and price risk, both of which arise in
the normal course of business of a global 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.
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 Citigroup's 1999 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 and sensitivity analysis, which are applied to interest rate
risk in the non-trading portfolios, and Value-at-Risk and stress and scenario
analyses, 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 through the use of
derivative financial products. These include interest rate swaps and other
derivative instruments which are either designated and effective as hedges or
designated and effective in modifying the interest rate characteristics of
specified assets or liabilities. The utilization of derivatives is managed in
response to changing market conditions as well as to changes in the
characteristics and mix of the related assets and liabilities.
Price risk in the non-trading portfolios is measured using Earnings-at-Risk
within Citicorp (excluding CitiFinancial Credit Company). All other non-trading
portfolios measure price risk using sensitivity analysis.
At Citicorp, Earnings-at-Risk measures the discounted pretax 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 September 30, 2000, 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 September
30, 2000, the rate shifts applied to these currencies for purposes of
28
<PAGE>
calculating Earnings-at-Risk over a one- to four-week defeasance period ranged
from 13 to 1,851 basis points, depending on the currency.
The following table illustrates that, as of September 30, 2000, a 45 basis point
increase in the U.S. dollar yield curve would have a potential negative impact
on Citicorp's pretax earnings of approximately $98 million in the next twelve
months, and approximately $28 million for the total five-year period 2000-2005.
A two standard deviation increase in non-U.S. dollar interest rates would have a
potential negative impact on Citicorp's pretax earnings of approximately $82
million in the next twelve months, and approximately $169 million for the
five-year period 2000-2005.
Citicorp Earnings-at-Risk (impact on pretax 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 September 30, 2000 Increase Decrease Increase Decrease
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to three months ($25) $28 ($21) $20
Four to six months (24) 27 (26) 23
Seven to twelve months (49) 52 (35) 32
--------------------------------------------------------------------
Total overnight to twelve months (98) 107 (82) 75
------------------------------------------------------------------------------------------------------------------------------------
Year two (46) 43 (62) 59
Year three 12 (16) (21) 20
Year four 63 (66) (8) 8
Year five 64 (76) (13) 14
Effect of discounting (23) 19 17 (16)
--------------------------------------------------------------------
Total ($28) ($11) ($169) $160
----------------------------------------------------------------====================================================================
</TABLE>
(1) Primarily results from Earnings-at-Risk in the Euro, Canadian dollar,
Mexican Peso and Singapore dollar.
(2) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance between currencies.
--------------------------------------------------------------------------------
The table above also illustrates that Citicorp's U.S. dollar risk profile in the
one- to two-year time horizon was directionally similar, but generally tends to
reverse in subsequent periods. This reflects the fact that the majority of the
derivative instruments utilized to modify repricing characteristics as described
above will mature within two years.
The following table summarizes Citicorp's worldwide Earnings-at-Risk over the
next 12 months from changes in interest rates and illustrates that Citicorp's
pretax earnings in its non-trading activities over the next 12 months would be
reduced by an increase in interest rates and would benefit from a decrease in
interest rates.
Citicorp Twelve Month Earnings-at-Risk (impact on pretax earnings)
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
-----------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30, Sept. 30, Dec. 31, Sept. 30,
In millions of dollars 2000 1999 1999 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase ($ 98) ($166) ($151) ($82) ($119) ($98)
Decrease 107 178 165 75 120 99
-------------------------------------------------===================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
-----------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30, Sept. 30, Dec. 31, Sept. 30,
In millions of dollars 2000 1999 1999 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase ($18) ($30) ($19) ($63) ($120) ($130)
Decrease 28 42 33 64 121 130
-------------------------------------------------===================================================================================
</TABLE>
During the first nine months of 2000, 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 $76
million to $146 million in the aggregate at each month end, compared with a
range from $73 million to $166 million at each month end during 1999. 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 $78 million to $123 million in the aggregate at each month end
during the first nine months of 2000, compared with a range from $95 million to
$121 million at each month end during 1999.
29
<PAGE>
Other Non-Trading Portfolios
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 1999 Annual Report and
Form 10-K. At September 30, 2000, there was no significant change to the risk
profile as disclosed at year-end 1999.
Trading Portfolios
A tool for measuring the price risk of trading activities is the Value-at-Risk
method, 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. In addition to Value-at-Risk, stress and scenario
analyses are also applied to the trading portfolios.
The level of exposure taken depends on the market environment and expectations
of future price and market movements, and will vary from period to period. For
Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the
trading portfolios was $27 million at September 30, 2000. Daily exposures at
Citicorp averaged $24 million in the third quarter of 2000 and ranged from $16
million to $32 million. At Salomon Smith Barney, the aggregate pretax
Value-at-Risk in the trading portfolios was $32 million at September 30, 2000.
Quarterly exposures at Salomon Smith Barney averaged $31 million in the third
quarter of 2000 and ranged from $23 million to $37 million.
The following table summarizes Citigroup's Value-at-Risk in its trading
portfolios as of September 30, 2000 and December 31, 1999 along with the 2000
third quarter averages.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
-----------------------------------------------------------------------------------
2000 2000
Third Third
Sept. 30, Quarter Dec. 31, Sept. 30, Quarter Dec. 31,
In millions of dollars 2000 Average 1999 2000 Average 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate $15 $17 $15 $31 $27 $20
Foreign exchange 5 7 17 2 2 --
Equity 19 16 11 2 8 6
All other (primarily commodity) 15 7 2 13 13 8
Covariance adjustment (27) (23) (21) (16) (19) (11)
-----------------------------------------------------------------------------------
Total $27 $24 $24 $32 $31 $23
-------------------------------------------------===================================================================================
</TABLE>
The table below provides the distribution of Value-at-Risk during the third
quarter of 2000.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
---------------------------------------------------------------------
In millions of dollars Low High Low High
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate $13 $26 $20 $32
Foreign exchange 5 13 1 8
Equity 11 20 2 17
All other (primarily commodity) 1 18 11 14
---------------------------------------------------------------=====================================================================
</TABLE>
Management of Cross-Border Risk
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 1999 Annual Report and Form 10-K.
Except as described below for cross-border resale agreements and the netting of
certain long and short securities positions, the following table presents total
cross-border outstandings and commitments on a regulatory basis in accordance
with Federal Financial Institutions Examination Council (FFIEC) guidelines. In
regulatory reports under FFIEC guidelines, cross-border resale agreements are
presented based on the domicile of the issuer of the securities that are held as
collateral. However, for purposes of the following table, cross-border resale
agreements are presented based on the domicile of the counterparty because the
counterparty has the legal obligation for repayment. Similarly, under FFIEC
guidelines, long securities positions are required to be reported on a gross
basis. However, for purposes of the following table, certain long and short
securities positions are presented on a net basis consistent with internal
cross-border risk management policies, reflecting a reduction of risk from
offsetting positions.
30
<PAGE>
Beginning April 1, 2000, the FFIEC revised their cross-border reporting
guidelines to allow credit derivative contracts containing cross-border
provisions to be treated as effective guarantees. Purchased credit derivative
contracts where Citigroup is the beneficiary shift the underlying exposure to
the guarantor country. Written credit derivative contracts where Citigroup
provides an effective guarantee are included as cross-border commitments in the
country of the underlying credit exposure. Total cross-border outstandings and
commitments at December 31, 1999 have not been restated.
Total cross-border outstandings include cross-border claims on third parties as
well as investments in and funding of local franchises. Countries with FFIEC
outstandings greater than 0.75% of Citigroup assets at September 30, 2000 or
December 31, 1999 include:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------ ----------------------
Cross-Border Claims on Third Parties
------------------------------------------------- Investments
In and
Trading and Cross- Funding of Total Total
In billions of Short-term Border Resale Local Cross-Border Commit- Cross-Border Commit-
Dollars Claims (1) Agreements All Other Total Franchises Outstandings ments(2) Outstandings ments(2)
------------------------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Germany $6.7 $3.1 $1.4 $11.2 $2.5 $13.7 $6.9 $10.9 $3.7
Italy 6.4 1.2 1.8 9.4 1.3 10.7 5.7 7.1 0.4
France 5.7 2.1 1.7 9.5 -- 9.5 11.3 7.9 2.2
United Kingdom 3.7 2.2 3.4 9.3 -- 9.3 16.0 19.5 15.5
Netherlands 6.9 0.6 1.0 8.5 -- 8.5 5.1 8.1 2.9
Brazil 2.3 -- 2.1 4.4 3.4 7.8 0.2 3.8 0.1
Japan 2.7 2.3 2.0 7.0 -- 7.0 0.7 9.8 0.1
----------------====================================================================================================================
</TABLE>
(1) Trading and short-term claims include cross-border debt and equity
securities held in the trading account, trade finance receivables, net
revaluation gains on foreign exchange and derivative contracts, and other
claims with a maturity of less than one year.
(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.
--------------------------------------------------------------------------------
Total cross-border outstandings for September 30, 2000 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral, and long securities positions
reported on a gross basis, amount to $19.0 billion for Germany, $13.6 billion
for Italy, $9.4 billion for France, $9.6 billion for the United Kingdom, $8.7
billion for the Netherlands, $10.1 billion for Brazil, and $8.8 billion for
Japan.
Total cross-border outstandings for December 31, 1999 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral, and long securities positions
reported on a gross basis, amounted to $14.9 billion for Germany, $10.2 billion
for Italy, $7.7 billion for France, $8.7 billion for the United Kingdom, $5.0
billion for the Netherlands, $4.9 billion for Brazil, and $10.5 billion for
Japan.
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, TAP, and The Travelers Insurance Company (TIC) issue
commercial paper directly to investors. Citigroup and Citicorp, 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. TAP and TIC each maintains unused credit
availability under their respective bank lines of credit at least equal to the
amount of 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, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with Section 23A
of the Federal Reserve Act.
31
<PAGE>
Citigroup Inc. (Citigroup)
Citigroup and TIC have an agreement with a syndicate of banks to provide $1.0
billion of revolving credit, to be allocated to either of Citigroup 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 September 30, 2000, all of the facility was allocated to
Citigroup. Under this facility, Citigroup is required to maintain a certain
level of consolidated stockholders' equity (as defined in the agreement).
Citigroup exceeded this requirement by approximately $34 billion at September
30, 2000. At September 30, 2000, there were no borrowings outstanding under this
facility.
Citigroup is subject to risk-based capital guidelines issued by the Board of
Governors of the Federal Reserve System (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. The 1999 ratios and components of capital have
been restated to reflect the 2000 conversion of a portion of the convertible
debt of Nikko Securities Co., Ltd. into common stock.
Citigroup Ratios
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31,
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital 8.35% 8.62% 9.65%
Total capital (Tier 1 and Tier 2) 10.63 11.12 12.33
Leverage (1) 6.00 6.07 6.80
Common stockholders' equity 6.45 6.29 6.56
-------------------------------------------------------------------------------------===============================================
</TABLE>
(1) Tier 1 capital divided by adjusted average assets.
--------------------------------------------------------------------------------
Citigroup maintained a strong capital position during the 2000 third quarter.
Total capital (Tier 1 and Tier 2) amounted to $61.6 billion at September 30,
2000, representing 10.63% of net risk-adjusted assets. This compares to $60.4
billion and 11.12% at June 30, 2000 and $60.8 billion and 12.33% at December 31,
1999. Tier 1 capital of $48.4 billion at September 30, 2000 represented 8.35% of
net risk-adjusted assets, compared to $46.8 billion and 8.62% at June 30, 2000
and $47.6 billion and 9.65% at December 31, 1999. Citigroup's leverage ratio was
6.00% at September 30, 2000 compared to 6.07% at June 30, 2000 and 6.80% at
December 31, 1999.
32
<PAGE>
Components of Capital Under Regulatory Guidelines
<TABLE>
<CAPTION>
Sept. 30, June. 30, Dec. 31,
In millions of dollars 2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital
Common stockholders' equity $51,866 $49,801 $46,965
Perpetual preferred stock 1,775 1,775 1,925
Mandatorily redeemable securities of subsidiary trusts 4,920 4,920 4,920
Minority interest (1) 301 400 1,501
Less: Net unrealized gains on securities available for sale (2) (697) (505) (1,749)
Intangible assets:
Goodwill (3) (7,524) (7,388) (4,209)
Other intangible assets (3) (2,138) (2,126) (1,655)
50% investment in certain subsidiaries (4) (87) (56) (107)
---------------------------------------------------
Total Tier 1 capital 48,416 46,821 47,591
------------------------------------------------------------------------------------------------------------------------------------
Tier 2 Capital
Allowance for credit losses (5) 6,757 6,794 6,171
Qualifying debt (6) 6,331 6,565 6,728
Unrealized marketable equity securities gains (2) 228 301 400
Less: 50% investment in certain subsidiaries (4) (87) (56) (107)
---------------------------------------------------
Total Tier 2 capital 13,229 13,604 13,192
---------------------------------------------------
Total capital (Tier 1 and Tier 2) $61,645 $60,425 $60,783
---------------------------------------------------------------------------------===================================================
Net risk-adjusted assets (7) $579,915 $543,467 $493,141
---------------------------------------------------------------------------------===================================================
</TABLE>
(1) The decrease during the third quarter is attributable to an increase in
the majority ownership interest in Handlowy. The second quarter decrease
is primarily related to the purchase of all of the outstanding shares of
Common Stock of Travelers Property Casualty Corp. not previously owned.
(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) The increase in goodwill during the third quarter is primarily
attributable to an increase in the majority ownership interest in
Handlowy. The increase in goodwill and other intangibles during the 2000
second quarter was attributable to the acquisitions completed during the
quarter, including TAP's minority interest, Schroders, Handlowy, Reliance,
Copelco and Siembra.
(4) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(5) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(6) Includes qualifying senior and subordinated debt in an amount not
exceeding 50% of Tier 1 capital, and subordinated capital notes subject to
certain limitations.
(7) The increase in net risk-adjusted assets during the 2000 third quarter was
primarily attributable to growth in consumer and commercial loans, an
increase in off-balance sheet exposures, and a change in the
risk-weighting mix of other on-balance sheet assets. Net risk-adjusted
assets includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $26.9 billion for interest rate,
commodity and equity derivative contracts and foreign exchange contracts
as of September 30, 2000, compared to $26.7 billion as of June 30, 2000
and $32.8 billion as of December 31, 1999. Market risk-equivalent assets
included in net risk-adjusted assets amounted to $38.8 billion at
September 30, 2000, $43.9 billion at June 30, 2000 and $43.1 billion at
December 31, 1999. 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 $4.9 billion during the first nine
months of 2000 to $51.9 billion at September 30, 2000, representing 6.45% of
assets, compared to $47.0 billion and 6.56% at year-end 1999. The net increase
in common stockholders' equity during the nine months of 2000 principally
reflected net income of $9.7 billion and issuance of shares pursuant to employee
benefit plans and other net activity of $0.2 billion which was partially offset
by treasury stock acquired of $3.2 billion and dividends declared on common and
preferred stock of $1.8 billion. The decrease in the common stockholders' equity
ratio during the nine months of 2000 reflected the above items, which was more
than offset by the increase in total assets.
During the 2000 second quarter, the Board of Directors approved an additional $5
billion in the existing authority for the repurchase of Citigroup common stock.
During the 2000 first quarter, Citigroup redeemed its Series T perpetual
preferred stock for $150 million.
All of the mandatorily redeemable securities of subsidiary trusts (trust
securities) outstanding at September 30, 2000 qualify as Tier 1 capital. The
amount outstanding at September 30, 2000 includes $2.300 billion of
parent-obligated securities and $2.620 billion of subsidiary-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 September 30,
2000, all of Citigroup's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
During the first quarter of 2000, the FRB issued a proposed rule that would
govern the regulatory capital treatment of merchant banking investments and
certain similar equity investments, including investments made by venture
capital entities in nonfinancial companies held by bank holding companies. The
proposed rule would increase the capital required for such investments by
imposing a 50% capital requirement. The Company is monitoring the status and
progress of the proposed rule.
33
<PAGE>
Additionally, 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. This
paragraph contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 28.
Citicorp
Citicorp manages liquidity through a well-defined process described in the 1999
Annual Report and Form 10-K.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represented 66% of
its total funding at September 30, 2000 and 67% at December 31, 1999, are
broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $6.1 billion during the first nine months of
2000 to $32.1 billion at September 30, 2000, 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 the end of the 2000 third quarter was $32.4 billion, up from
$26.4 billion at 1999 year-end. Securitization of both credit card receivables
and consumer mortgages continues to be an important source of liquidity. Loans
securitized during the nine months of 2000 included $7.2 billion of U.S.
consumer mortgages and $2.9 billion of U.S. credit cards. As previous credit
card securitizations amortize, newly originated receivables are recorded on
Citicorp's balance sheet and become available for asset securitization. During
the first nine months of 2000, the scheduled amortization of certain credit card
securitization transactions made available $7.2 billion of new receivables. In
addition, $1.0 billion of credit card securitization transactions are scheduled
to amortize during the rest of 2000.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. As discussed in the 1999 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 September 30, 2000, 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 $7.9 billion. In determining whether and to what extent to pay
dividends, each bank subsidiary must also consider the effect of dividend
payments on applicable risk-based capital and leverage ratio requirements, as
well as policy statements of the federal regulatory agencies that indicate that
banking organizations should generally pay dividends out of current operating
earnings. Consistent with these considerations, Citicorp estimates that, as of
September 30, 2000, its bank subsidiaries could have distributed dividends to
Citicorp, directly or through their parent holding company, of approximately
$7.0 billion of the available $7.9 billion.
Citicorp also receives dividends from its nonbank subsidiaries. These nonbank
subsidiaries are generally not subject to regulatory restrictions on their
payment of dividends except that the approval of the Office of Thrift
Supervision (OTS) may be required if total dividends declared by a savings
association in any calendar year exceed amounts specified by that agency's
regulations.
Citicorp is subject to risk-based capital guidelines issued by 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
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31,
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital 8.24% 8.02% 8.11%
Total capital (Tier 1 and Tier 2) 12.31 11.95 12.10
Leverage (1) 7.08 6.90 6.83
Common stockholder's equity 7.31 7.08 6.70
-------------------------------------------------------------------------------------===============================================
</TABLE>
(1) Tier 1 capital divided by adjusted average assets.
--------------------------------------------------------------------------------
Citicorp maintained a strong capital position during the 2000 third quarter.
Total capital (Tier 1 and Tier 2) amounted to $44.6 billion at September 30,
2000, representing 12.31% of net risk-adjusted assets. This compares with $41.5
billion and 11.95% at June 30, 2000 and $37.4 billion and 12.10% at December 31,
1999. Tier 1 capital of $29.9 billion at September 30, 2000 represented 8.24% of
net risk-adjusted assets, compared with $27.9 billion and 8.02% at June 30, 2000
and $25.0 billion and 8.11% at December 31, 1999. Citicorp's Tier 1 capital
ratio at September 30, 2000 was within Citicorp's target range of 8.00% to
8.30%.
34
<PAGE>
CitiFinancial Credit Company (CCC)
At September 30, 2000, CCC had committed and available credit facilities in the
amount of $3.4 billion which expire in 2002. At September 30, 2000, there were
no borrowings outstanding under these facilities. Citicorp guarantees various
debt obligations of CCC, including those arising under these facilities. Under
these facilities, Citicorp is required to maintain a certain level of adjusted
consolidated net worth (as defined in the agreements). At September 30, 2000,
this requirement was exceeded by approximately $16.7 billion.
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 stockholder's equity (as
defined in the agreement). At September 30, 2000, this requirement was exceeded
by approximately $6.4 billion. At September 30, 2000, 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 $1.2 billion in 2000 without
prior approval of the Connecticut Insurance Department. TAP received $525
million of dividends from its insurance subsidiaries during the first nine
months of 2000.
Salomon Smith Barney Holdings Inc. (SSBHI)
SSBHI manages liquidity and monitors and evaluates capital adequacy through a
well-defined process described in the 1999 Annual Report and Form 10-K. Total
assets were $249 billion at September 30, 2000, up from $224 billion at year-end
1999. Due to the nature of SSBHI's trading activities, it is not uncommon for
asset levels to fluctuate from period to period.
SSBHI has a $5.0 billion 364-day revolving credit agreement with a bank
syndicate that extends through May 2001. SSBHI may borrow under this revolving
credit facility at various interest rate options (LIBOR, CD or base rate) and
compensates the banks for the facility through commitment fees. Under this
facility, SSBHI is required to maintain a certain level of consolidated adjusted
net worth (as defined in the agreements). At September 30, 2000, this
requirement was exceeded by approximately $3.9 billion. At September 30, 2000,
there were no borrowings outstanding under this facility. SSBHI 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 SSBHI's long-term capital.
Long-term debt totaled $19.5 billion at September 30, 2000 and $18.0 billion at
December 31, 1999. SSBHI 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 September 30, 2000, TIC had $28.9 billion of life and annuity product deposit
funds and reserves. Of that total, $16.1 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $12.8 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 $2.5 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $4.9 billion of the life
insurance and individual annuity liabilities which are subject to discretionary
withdrawals and have an average surrender charge of 4.5%. In the payout phase,
these funds are credited at significantly reduced interest rates. The remaining
$5.4 billion of liabilities are surrenderable without charge. 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 $679 million of statutory surplus is
available in 2000 for such dividends without Department approval, of which $510
million was paid during the first nine months of 2000.
35
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------
In millions, except per share amounts 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Loan interest, including fees $7,049 $5,784 $19,636 $17,286
Other interest and dividends 7,067 5,417 19,526 16,280
Insurance premiums 2,803 2,636 8,253 7,778
Commissions and fees 3,969 3,149 11,796 9,174
Principal transactions 1,547 954 4,705 3,996
Asset management and administration fees 1,331 1,056 3,947 3,014
Realized gains from sales of investments 507 35 618 276
Other income 801 1,066 3,996 3,250
---------------------------------------------------------------------
Total revenues 25,074 20,097 72,477 61,054
Interest expense 8,737 6,076 23,252 18,583
---------------------------------------------------------------------
Total revenues, net of interest expense 16,337 14,021 49,225 42,471
---------------------------------------------------------------------
Provisions for benefits, claims, and credit losses
Policyholder benefits and claims 2,373 2,258 6,931 6,457
Provision for credit losses 633 632 2,095 2,151
---------------------------------------------------------------------
Total provisions for benefits, claims, and credit losses 3,006 2,890 9,026 8,608
---------------------------------------------------------------------
Operating expenses
Non-insurance compensation and benefits 4,332 3,531 12,645 10,901
Insurance underwriting, acquisition, and operating 788 786 2,436 2,444
Restructuring-related items 36 22 59 (61)
Other operating 3,323 2,922 9,907 8,822
---------------------------------------------------------------------
Total operating expenses 8,479 7,261 25,047 22,106
---------------------------------------------------------------------
Income before income taxes, minority interest
and cumulative effect of accounting changes 4,852 3,870 15,152 11,757
Provision for income taxes 1,751 1,379 5,381 4,204
Minority interest, net of income taxes 13 56 88 181
---------------------------------------------------------------------
Income before cumulative effect of accounting changes 3,088 2,435 9,683 7,372
Cumulative effect of accounting changes -- -- -- (127)
---------------------------------------------------------------------
Net income $3,088 $2,435 $ 9,683 $ 7,245
---------------------------------------------------------------=====================================================================
Basic Earnings Per Share (1)
Income before cumulative effect of accounting changes $0.69 $0.54 $2.16 $1.63
Cumulative effect of accounting changes -- -- -- (0.03)
---------------------------------------------------------------------
Net income $0.69 $0.54 $2.16 $1.60
=====================================================================
Weighted average common shares outstanding (1) 4,444.8 4,442.7 4,443.5 4,446.6
---------------------------------------------------------------=====================================================================
Diluted Earnings Per Share (1)
Income before cumulative effect of accounting changes $0.67 $0.52 $2.09 $1.58
Cumulative effect of accounting changes -- -- -- (0.03)
---------------------------------------------------------------------
Net income $0.67 $0.52 $2.09 $1.55
=====================================================================
Adjusted weighted average common shares outstanding (1) 4,599.4 4,586.9 4,589.1 4,591.3
---------------------------------------------------------------=====================================================================
</TABLE>
(1) Adjusted to reflect the four-for-three split in Citigroup's common stock,
effective August 25, 2000. See Note 1.
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements (Unaudited).
36
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30,
2000 December 31,
In millions of dollars (Unaudited) 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents (including segregated cash and other deposits) $ 11,740 $ 14,158
Deposits at interest with banks 16,621 13,429
Federal funds sold and securities borrowed or purchased under agreements to resell 122,664 112,655
Brokerage receivables 30,808 23,769
Trading account assets 122,452 109,155
Investments 109,610 111,345
Loans, net
Consumer 170,058 147,968
Commercial 117,299 96,238
----------------------------------
Loans, net of unearned income 287,357 244,206
Allowance for credit losses (6,679) (6,679)
----------------------------------
Total loans, net 280,678 237,527
Reinsurance recoverables 10,565 9,704
Separate and variable accounts 25,783 23,118
Other assets 73,365 60,830
----------------------------------
Total assets $804,286 $715,690
--------------------------------------------------------------------------------------------------==================================
Liabilities
Non-interest-bearing deposits in U.S. offices $ 18,479 $ 19,492
Interest-bearing deposits in U.S. offices 54,307 48,584
Non-interest-bearing deposits in offices outside the U.S. 13,455 12,021
Interest-bearing deposits in offices outside the U.S. 207,010 180,994
----------------------------------
Total deposits 293,251 261,091
Federal funds purchased and securities loaned or sold under agreements to repurchase 127,893 92,591
Brokerage payables 15,990 16,641
Trading account liabilities 79,482 91,104
Contractholder funds and separate and variable accounts 45,107 41,335
Insurance policy and claims reserves 44,670 43,822
Investment banking and brokerage borrowings 20,687 13,719
Short-term borrowings 19,485 17,086
Long-term debt 58,801 47,092
Other liabilities 40,359 37,399
Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary
trusts holding solely junior subordinated debt securities of -- Parent 2,300 2,300
-- Subsidiary 2,620 2,620
--------------------------------------------------------------------------------------------------==================================
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 1,775 1,925
Common stock ($.01 par value; authorized shares: 10.0 billion), Issued shares --
4,816,302,310 at September 30, 2000 and 4,816,513,944 at December 31, 1999 48 48
Additional paid-in capital 10,854 10,024
Retained earnings 51,744 43,865
Treasury stock, at cost: September 30, 2000 -- 324,397,748 shares
and December 31, 1999 -- 326,480,169 shares (9,582) (7,627)
Accumulated other changes in equity from nonowner sources (182) 1,111
Unearned compensation (1,016) (456)
----------------------------------
Total stockholders' equity 53,641 48,890
----------------------------------
Total liabilities and stockholders' equity $804,286 $715,690
--------------------------------------------------------------------------------------------------==================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
37
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred stock at aggregate liquidation value
Balance, beginning of period $ 1,925 $ 2,313
Redemption or retirement of preferred stock (150) (263)
----------------------------------
Balance, end of period 1,775 2,050
------------------------------------------------------------------------------------------------------------------------------------
Common stock and additional paid-in capital
Balance, beginning of period 10,072 8,929
Employee benefit plans 762 518
Other 68 (28)
----------------------------------
Balance, end of period 10,902 9,419
------------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 43,865 35,971
Net income 9,683 7,245
Common dividends (1) (1,714) (1,354)
Preferred dividends (90) (117)
----------------------------------
Balance, end of period 51,744 41,745
------------------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost
Balance, beginning of period (7,627) (4,789)
Treasury stock acquired (3,248) (2,828)
Issuance of shares pursuant to employee benefit plans and other 1,243 931
Other 50 -
----------------------------------
Balance, end of period (9,582) (6,686)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated other changes in equity from nonowner sources
Balance, beginning of period 1,111 864
Net change in unrealized gains and losses on investment securities, net of tax (1,052) (482)
Foreign currency translations adjustment, net of tax (241) (65)
----------------------------------
Balance, end of period (182) 317
------------------------------------------------------------------------------------------------------------------------------------
Unearned compensation
Balance, beginning of period (456) (497)
Issuance of restricted stock, net of amortization (560) (71)
----------------------------------
Balance, end of period (1,016) (568)
------------------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity (shares outstanding: 4,491,904,562 in 2000
and 4,489,026,841 in 1999) (2) 51,866 44,227
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $53,641 $46,277
--------------------------------------------------------------------------------------------------==================================
Summary of changes in equity from nonowner sources
Net income $9,683 $7,245
Other changes in equity from nonowner sources, net of tax (1,293) (547)
----------------------------------
Total changes in equity from nonowner sources $8,390 $6,698
--------------------------------------------------------------------------------------------------==================================
</TABLE>
(1) Common dividends declared were 12 cents per share in both the first and
second quarters of 2000 and 14 cents per share in the third quarter of
2000, and 9 cents per share in the first quarter of 1999 and 10.5 cents
per share in both the second and third quarters of 1999.
(2) Shares outstanding reflect the four-for-three split in Citigroup's common
stock, effective August 25, 2000. See Note 1.
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements (Unaudited).
38
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 9,683 $7,245
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 1,235 1,218
Additions to deferred policy acquisition costs (1,579) (1,458)
Depreciation and amortization 1,431 1,280
Provision for credit losses 2,095 2,151
Change in trading account assets (13,297) 13,160
Change in trading account liabilities (11,622) (12,446)
Change in federal funds sold and securities borrowed or purchased under agreements to resell (10,009) (9,859)
Change in federal funds purchased and securities loaned or sold under agreements to 35,302 14,139
repurchase
Change in brokerage receivables net of brokerage payables (7,690) (5,162)
Change in insurance policy and claims reserves 848 (2)
Net gains from sales of investments (618) (276)
Venture capital activity (954) (564)
Restructuring-related items 59 (61)
Cumulative effect of accounting changes, net of tax -- 127
Other, net (2,961) 3,282
----------------------------------
Total adjustments (7,760) 5,529
----------------------------------
Net cash provided by operating activities 1,923 12,774
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Change in deposits at interest with banks (3,192) (1,796)
Change in loans (60,263) (94,270)
Proceeds from sales of loans 22,181 77,081
Purchases of investments (70,664) (66,414)
Proceeds from sales of investments 44,874 37,150
Proceeds from maturities of investments 27,540 25,381
Other investments, primarily short-term, net (2,541) (911)
Capital expenditures on premises and equipment (1,316) (1,096)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and other real 1,056 463
estate owned
Business acquisitions (8,032) (2,150)
----------------------------------
Net cash used in investing activities (50,357) (26,562)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (1,804) (1,471)
Issuance of common stock 847 575
Issuance of mandatorily redeemable securities of subsidiary trusts -- 600
Redemption of preferred stock (150) (263)
Treasury stock acquired (3,248) (2,828)
Stock tendered for payment of withholding taxes (469) (377)
Issuance of long-term debt 18,951 6,950
Payments and redemptions of long-term debt (8,397) (7,115)
Change in deposits 32,160 19,065
Change in short-term borrowings and investment banking and brokerage borrowings 7,697 (4,237)
Contractholder fund deposits 4,726 4,906
Contractholder fund withdrawals (3,824) (3,889)
----------------------------------
Net cash provided by financing activities 46,489 11,916
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (473) (266)
------------------------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (2,418) (2,138)
Cash and cash equivalents at beginning of period 14,158 13,837
----------------------------------
Cash and cash equivalents at end of period $ 11,740 $ 11,699
--------------------------------------------------------------------------------------------------==================================
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 2,295 $ 2,556
Cash paid during the period for interest 21,783 17,778
Non-cash investing activities
Transfers from loans to other real estate owned $ 235 $ 396
Noncash effects of accounting for the conversion of investments in Nikko Securities Co., Ltd. 702 --
--------------------------------------------------------------------------------------------------==================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
39
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements as of September 30, 2000 and
for the three- and nine-month periods ended September 30, 2000 and 1999 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 1999 Annual Report and
Form 10-K.
The Board of Directors on July 18, 2000 declared a four-for-three split in
Citigroup's common stock, which was paid in the form of a 33 1/3% stock dividend
on August 25, 2000 to stockholders of record on August 7, 2000. 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 16 to 18 2/3 cents per share on a
pre-split basis), which was paid on August 25, 2000.
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.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. Pending Transaction
Pursuant to an Agreement and Plan of Merger dated as of October 6, 2000,
Citigroup and Associates First Capital Corporation ("Associates") have agreed to
merge a wholly owned subsidiary of Citigroup with and into Associates, making
Associates a subsidiary of Citigroup. The transaction has been approved by the
Boards of Directors of both Citigroup and Associates. Pursuant to the agreement,
Associates common stockholders will receive .7334 of a share of Citigroup's
common stock for each share of Associates common stock that they own. The
transaction is expected to be completed prior to the end of 2000 and is subject
to various regulatory approvals and the approval by the stockholders of
Associates. The merger is expected to be a tax-free exchange and accounted for
on a "pooling of interests" basis.
3. Accounting Changes
Accounting changes in the first quarter of 1999 refer to the adoption of:
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments" (SOP 97-3) of ($135) million; adoption of SOP
98-7, "Deposits Accounting: Accounting for Insurance and Reinsurance Contracts
That Do Not Transfer Insurance Risk" of $23 million; and the adoption of SOP
98-5, "Reporting on the Costs of Start-Up Activities" of ($15) million.
Future Application of Accounting Standards
Derivatives and hedge accounting. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities", and it
amended that statement in June 1999 and June 2000. Citigroup will adopt these
new rules when they become effective on January 1, 2001 for calendar year
companies.
The new rules will change the accounting treatment of derivative contracts
(including foreign exchange contracts) that are employed to manage risk outside
of Citigroup's trading activities, as well as certain derivative-like
instruments embedded in other contracts. The rules require that all derivatives
be recorded on the balance sheet at their fair value. The treatment of changes
in the fair value of derivatives depends on the character of the transaction.
For fair value hedges, in which derivatives hedge the fair value of assets and
liabilities, changes in the fair value of derivatives will be reflected in
current earnings, together with changes in the fair value of the related hedged
item. Citigroup's fair value hedges will primarily include hedges of fixed rate
long-term debt, loans and available-for-sale securities. As a result, Citigroup
expects that the net amount reflected in current earnings under the new rules
will be substantially similar to the amounts under existing accounting practice.
For cash flow hedges, in which derivatives hedge the variability of cash flows
related to floating rate assets, liabilities or forecasted transactions, the
accounting treatment will depend on the effectiveness of the hedge. To the
extent these derivatives are effective in offsetting the variability of the
hedged cash flows, changes in the derivatives' fair value will not be included
in current earnings but will be reported as other changes in stockholders'
equity from nonowner sources. These changes in fair value will be included in
earnings of future periods when earnings are also affected by the variability of
the hedged cash flows. To the extent these derivatives are not effective,
changes in their fair values will be immediately included in current earnings.
Citigroup's cash flow hedges will
40
<PAGE>
primarily include hedges of floating rate credit card receivables and loans. As
a result, while the earnings impact of cash flow hedges may be similar to
existing accounting practice, the amounts included in other changes in
stockholders' equity from nonowner sources may vary depending on market
conditions.
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting treatment
will similarly depend on the effectiveness of the hedge. The effective portion
of the change in fair value of the derivative is reflected in other changes in
stockholders' equity from nonowner sources as part of the foreign currency
translation adjustment. The ineffective portion will be reflected in current
period earnings. Citigroup uses such derivative contracts as part of its
strategy for hedging its net foreign investments. The impact on earnings and
other changes in stockholders' equity from nonowner sources is not expected to
be materially different from the current accounting practice.
Non-trading derivatives that do not qualify as hedges under the new rules, if
not closed out prior to adoption, would be carried at fair value with changes in
value included in current earnings. The initial revaluation of these derivatives
at adoption of the new rules, along with the initial revaluations of other items
discussed in the preceding paragraphs, will be recorded as cumulative effects of
a change in accounting principle, after tax, in net income or in other changes
in stockholders' equity from nonowner sources, as appropriate. These cumulative
effects are not expected to be material to the financial statements.
Citigroup may make changes to risk management strategies outside of its trading
activities, and it also anticipates a significant increase in the complexity of
the accounting and recordkeeping requirements for these hedging activities, but
overall it does not foresee a material impact on its financial position or
results of operations from implementing the new rules. The FASB continues to
deliberate potential changes to the new rules, the effects of which cannot be
presently anticipated.
Transfers and servicing of financial assets. In September 2000, FASB issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125" (SFAS 140).
Provisions of SFAS 140 primarily relating to transfers of financial assets and
securitizations that differ from provisions of SFAS 125 are effective for
transfers taking place after March 31, 2001. SFAS 140 also provides revised
guidance for an entity to be considered a qualifying special purpose entity
(QSPE). It is not expected that there will be a material effect on the financial
statements relating to a change in consolidation status for existing QSPEs under
SFAS 140.
SFAS 140 also amends the accounting for collateral and requires new disclosures
for collateral, securitizations, and retained interests in securitizations.
These provisions are effective for financial statements for fiscal years ending
after December 15, 2000. The change in accounting for collateral is not expected
to have a material effect on the financial statements.
41
<PAGE>
4. 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) (2) Identifiable Assets
-----------------------------------------------------------------------------------
Three Months Ended September 30,
In millions of dollars, except identifiable ------------------------------------------------------------- Sept. 30, Dec. 31,
assets in billions 2000 1999 (3) 2000 1999 (3) 2000 1999 (3) 2000 1999 (3)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer $ 7,088 $ 6,638 $ 739 $ 644 $1,303 $1,116 $262 $235
Global Corporate and Investment Bank 8,097 6,446 852 631 1,588 1,133 490 430
Global Investment Management
And Private Banking 828 676 112 99 176 154 29 26
Investment Activities 495 311 171 103 292 194 11 11
Corporate/Other (171) (50) (123) (98) (271) (162) 12 14
-----------------------------------------------------------------------------------
Total $16,337 $14,021 $1,751 $1,379 $3,088 $2,435 $804 $716
-------------------------------------------------===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Income (Loss)
Before Cumulative
Effect of
Total Revenues, Net Provision for Accounting Changes
of Interest Expense Income Taxes (1) (2)
--------------------------------------------------------------
Nine Months Ended September 30,
--------------------------------------------------------------
In millions of dollars 2000 1999 (3) 2000 1999 (3) 2000 1999 (3)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Consumer $21,148 $19,332 $2,164 $1,800 $3,819 $3,106
Global Corporate and Investment Bank 24,154 20,546 2,636 2,119 4,959 3,829
Global Investment Management and Private Banking 2,443 1,965 330 281 523 446
Investment Activities 1,898 734 671 239 1,160 445
Corporate/Other (418) (106) (420) (235) (778) (454)
--------------------------------------------------------------
Total $49,225 $42,471 $5,381 $4,204 $9,683 $7,372
----------------------------------------------------------------------==============================================================
</TABLE>
(1) Results in the 2000 third quarter and nine-month periods reflect after-tax
restructuring-related charges (credits) of $19 million and $12 million in
Global Consumer and $4 million and $29 million in Corporate/Other,
respectively, ($3) million in the nine-month period in Global Corporate
and Investment Bank, and ($1) million in the nine-month period in Global
Investment Management and Private Banking. The 1999 third quarter and
nine-month results reflect after-tax restructuring-related charges
(credits) of $17 million and $73 million in Global Consumer, ($2) million
and $14 million in Corporate/Other, and ($117) million in the 1999
nine-month period in Global Corporate and Investment Bank.
(2) Results in the 2000 third quarter and nine-month periods include pretax
provisions (credits) for benefits, claims, and credit losses in Global
Consumer of $2.0 billion and $6.0 billion, in Global Corporate and
Investment Bank of $1.0 billion and $3.0 billion, in Global Investment
Management and Private Banking of ($3) million and $22 million,
respectively, $7 million in both periods in Investment Activities and ($4)
million in the nine-month period in Corporate/Other. The 1999 third
quarter and nine-month period results reflect pretax provisions for
benefits, claims and credit losses in Global Consumer of $2.0 billion and
$5.7 billion, in Global Corporate and Investment Bank of $0.9 billion and
$2.9 billion, in Global Investment Management and Private Banking of $2
million and $12 million and in Corporate/Other of $14 million and $34
million, respectively.
(3) Reclassified to conform to the current period's presentation.
--------------------------------------------------------------------------------
5. Investments
<TABLE>
<CAPTION>
September 30, December 31,
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities, primarily available for sale at fair value $ 90,755 $ 95,849
Equity securities, primarily at fair value 5,988 6,014
Venture capital, at fair value (1) 5,114 4,160
Short-term and other 7,753 5,322
----------------------------------
$109,610 $111,345
--------------------------------------------------------------------------------------------------==================================
</TABLE>
(1) For the nine months ended September 30, 2000, net pretax gains on
investments held by venture capital entities totaled $1.73 billion, of
which $1.46 billion and $321 million represented gross unrealized gains
and losses, respectively. For the nine months ended September 30, 1999,
net pretax gains on investments held by venture capital subsidiaries
totaled $672 million, of which $835 million and $483 million represented
gross unrealized gains and losses, respectively.
--------------------------------------------------------------------------------
42
<PAGE>
The amortized cost and fair value of investments in fixed maturities and equity
securities at September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999 (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 $ 30 $ -- $ -- $ 30 $ 33 $ 36
-----------------------------------------------------------------------------------
Fixed maturity securities available for sale
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $14,244 $ 122 $ 250 $14,116 $14,165 $13,735
U.S. Treasury and Federal agency 5,204 87 45 5,246 7,082 6,998
State and municipal 13,814 364 160 14,018 13,733 13,489
Foreign government 22,440 236 263 22,413 25,565 25,761
U.S. corporate 24,404 317 484 24,237 24,386 23,888
Other debt securities (2) 9,970 841 116 10,695 9,083 11,945
-----------------------------------------------------------------------------------
$90,076 $1,967 $1,318 $90,725 $94,014 $95,816
===================================================================================
Equity securities (3) $ 5,481 $ 768 $ 261 $ 5,988 $ 5,126 $ 6,014
-------------------------------------------------===================================================================================
</TABLE>
(1) At December 31, 1999, gross pretax unrealized gains and losses on fixed
maturities and equity securities totaled $5.174 billion and $2.484
billion, respectively.
(2) Investments in convertible debt of Nikko are included in other debt
securities.
(3) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
--------------------------------------------------------------------------------
6. Trading Account Assets and Liabilities
Trading account assets and liabilities at market value consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trading Account Assets
U.S. Treasury and Federal agency securities $ 27,554 $ 25,865
State and municipal securities 2,378 2,121
Foreign government securities 12,711 9,243
Corporate and other debt securities 17,594 13,858
Derivative and other contractual commitments (1) 30,660 31,646
Equity securities 15,455 11,910
Mortgage loans and collateralized mortgage securities 6,070 5,663
Other 10,030 8,849
----------------------------------
$122,452 $109,155
--------------------------------------------------------------------------------------------------==================================
Trading Account Liabilities
Securities sold, not yet purchased $46,518 $52,051
Derivative and other contractual commitments (1) 32,964 39,053
----------------------------------
$79,482 $91,104
--------------------------------------------------------------------------------------------------==================================
</TABLE>
(1) Net of master netting agreements and securitization.
--------------------------------------------------------------------------------
7. Debt
Investment banking and brokerage borrowings consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $18,999 $12,578
Bank borrowings 725 536
Other 963 605
----------------------------------
$20,687 $13,719
--------------------------------------------------------------------------------------------------==================================
</TABLE>
43
<PAGE>
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
<TABLE>
<CAPTION>
September 30, December 31,
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper
Citigroup Inc. $ 509 $ --
Citicorp 7,083 5,027
----------------------------------
7,592 5,027
Other short-term borrowings 11,893 12,059
----------------------------------
$19,485 $17,086
--------------------------------------------------------------------------------------------------==================================
</TABLE>
Long-term debt, including its current portion, consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
In millions of dollars 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Citigroup Inc. $10,726 $ 4,181
Citicorp 27,657 24,068
Salomon Smith Barney Holdings Inc. 19,549 17,970
Travelers Property Casualty Corp. 850 850
The Travelers Insurance Group Inc. 19 23
----------------------------------
$58,801 $47,092
--------------------------------------------------------------------------------------------------==================================
</TABLE>
8. Restructuring-Related Items
<TABLE>
<CAPTION>
Restructuring Initiatives
---------------------------------------------------------------------------------------
In millions of dollars 2000 1999 1998 1997 Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restructuring Charges $ 41 $ 82 $1,122 $ 1,718 $ 2,963
Additional Severance Charges -- -- 54 -- 54
Utilization (1) (41) (82) (977) (1,073) (2,173)
Changes in Estimates -- -- (196) (645) (841)
---------------------------------------------------------------------------------------
Balance at September 30, 2000 $ -- $ -- $ 3 $ -- $ 3
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Utilization amounts include translation effects on the restructuring
reserve.
--------------------------------------------------------------------------------
During the 2000 third quarter and nine months, Citigroup recorded restructuring
charges of $24 million and $46 million, respectively. These amounts included $41
million (the 2000 charge) relating to new initiatives in the Global Consumer
business and in Corporate/Other, as well as additional severance charges of $5
million (occurring in the 2000 second quarter) as a result of the continuing
implementation of 1998 restructuring initiatives. The 2000 charge includes $37
million related to employee severance costs associated with the downsizing of
various functions as well as $4 million related to exiting leasehold and other
contractual obligations. The 2000 restructuring reserve was fully utilized as of
September 30, 2000.
In 1999, Citigroup recorded restructuring charges of $131 million, including $82
million (the 1999 charge) of exit costs associated with new initiatives in the
Global Consumer business primarily related to the reconfiguration of certain
branch operations outside the U.S., the downsizing of certain marketing
operations, and the exit of a non-strategic business, as well as additional
severance charges of $49 million, which occurred in the 1999 third quarter, as a
result of the continuing implementation of 1998 restructuring initiatives. The
1999 restructuring reserve was fully utilized as of June 30, 2000.
In December 1998, Citigroup recorded a restructuring charge of $1.122 billion,
reflecting exit costs associated with business improvement and integration
initiatives. These initiatives were substantially completed at June 30, 2000.
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 1997 restructuring reserve was fully utilized as of December 31,
1999.
The implementation of these restructuring initiatives also caused certain
related premises and equipment assets to become redundant. The remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges (in addition to normal scheduled depreciation on these assets) is being
recognized over these shortened lives. Accelerated depreciation of $12 million
and $61 million was recorded during the 2000 third quarter and nine months,
respectively. Accelerated depreciation of $41 million and $169 was recorded
during the 1999 third quarter and nine months, respectively.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. During the 2000 second quarter
and the second half of 1999, changes in estimates resulted in reductions of $45
million and $151 million ($38
44
<PAGE>
million occurring in the 1999 third quarter), respectively, in the reserve for
1998 restructuring initiatives, attributable to lower than anticipated costs of
implementing certain projects and a reduction in the scope of certain
initiatives. Changes in estimates related to the 1997 restructuring initiatives
included $568 million of reductions (of which $211 million occurred in the 1999
first quarter), primarily related to a reassessment of space needs and sublease
terms for the Seven World Trade Center lease, and $77 million of other
reductions ($30 million occurring in the 1999 third quarter) primarily due to
lower than anticipated severance costs. Adjustments related to the Seven World
Trade Center lease during 1999 were attributable to the reassessment of space
needed due to the Citicorp merger, which indicated the need for increased
occupancy and the utilization of space previously considered excessive;
adjustments during 1998 resulted from negotiations on a sublease which indicated
that excess space could be disposed of on terms more favorable than had been
originally estimated. Other changes in estimates are attributable to lower
severance costs due to higher than anticipated levels of attrition and
redeployment within the Company, and other unforeseen changes including those
resulting from the Citicorp merger.
Additional information about restructuring-related items, including the business
segments affected, may be found in the 1999 Annual Report and Form 10-K.
45
<PAGE>
9. Earnings Per Share
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the three and nine months ended September
30, 2000 and 1999. Shares have been adjusted to give effect to the
four-for-three split in Citigroup's common stock as discussed in Note 1.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------------------------------------------------------------------
In millions, except per share amounts 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before cumulative effect of accounting changes $3,088 $2,435 $9,683 $7,372
Cumulative effect of accounting changes -- -- -- (127)
Preferred dividends (29) (38) (88) (116)
---------------------------------------------------------------------
Income available to common stockholders for basic EPS 3,059 2,397 9,595 7,129
Effect of dilutive securities -- 4 -- 10
---------------------------------------------------------------------
Income available to common stockholders for diluted EPS $3,059 $2,401 $9,595 $7,139
---------------------------------------------------------------=====================================================================
Weighted average common shares
outstanding applicable to basic EPS 4,444.8 4,442.7 4,443.5 4,446.6
Effect of dilutive securities:
Options 119.4 95.8 112.1 97.0
Restricted stock 34.1 34.8 32.4 34.0
Convertible securities 1.1 13.6 1.1 13.7
---------------------------------------------------------------------
Adjusted weighted average common shares
outstanding applicable to diluted EPS 4,599.4 4,586.9 4,589.1 4,591.3
---------------------------------------------------------------=====================================================================
Basic earnings per share
Income before cumulative effect of accounting changes $0.69 $0.54 $2.16 $1.63
Cumulative effect of accounting changes -- -- -- (0.03)
---------------------------------------------------------------------
Net income $0.69 $0.54 $2.16 $1.60
---------------------------------------------------------------=====================================================================
Diluted earnings per share
Income before cumulative effect of accounting changes $0.67 $0.52 $2.09 $1.58
Cumulative effect of accounting changes -- -- -- (0.03)
---------------------------------------------------------------------
Net income $0.67 $0.52 $2.09 $1.55
---------------------------------------------------------------=====================================================================
</TABLE>
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 September 30, 2000 and
December 31, 1999, 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 1999 Annual Report
and Form 10-K.
<TABLE>
<CAPTION>
Notional Balance Sheet
Principal Amounts Credit Exposure (1) (2)
---------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30, Dec. 31,
In billions of dollars 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate products $5,444.2 $5,351.0 $ 7.7 $10.2
Foreign exchange products 1,979.9 1,797.1 14.5 11.4
Equity products 168.9 144.2 6.9 9.3
Commodity products 39.8 34.9 1.4 0.4
Credit derivative products 51.8 46.0 0.2 0.3
----------------------------------
$30.7 $31.6
---------------------------------------------------------------=====================================================================
</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) The balance sheet credit exposure reflects $64.0 billion and $65.4 billion
of master netting agreements in effect at September 30, 2000 and December
31, 1999, respectively. Master netting agreements mitigate credit risk by
permitting the offset of amounts due from and to individual counterparties
in the event of counterparty default. In addition, Citibank has
securitized and sold net receivables, and the associated credit risk
related to certain derivative and foreign exchange contracts via Markets
Assets Trust, which amounted to $2.7 billion at September 30, 2000 and
$2.2 billion at December 31, 1999.
--------------------------------------------------------------------------------
46
<PAGE>
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 third
quarter of 2000.
End-User Derivative Interest Rate and Foreign Exchange Contracts
<TABLE>
<CAPTION>
Notional Principal
Amounts (1) Percentage of September 30, 2000 Amount Maturing
------------------------------------------------------------------------------
Sept. 30, Dec. 31, Within 1 to 2 to 3 to 4 to After
In billions of dollars 2000 1999 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate products
Futures contracts 12.8 $ 7.1 100% --% --% --% --% --%
Forward contracts 3.2 3.3 99 1 -- -- -- --
Swap agreements 106.7 104.7 36 15 13 9 7 20
Option contracts 9.6 7.1 18 16 3 -- 58 5
Foreign exchange products
Futures and forward contracts 80.0 50.6 99 1 -- -- -- --
Cross-currency swaps 9.3 7.0 12 41 16 3 14 14
Credit derivatives products 29.4 29.2 3 4 7 8 18 60
------------------------------------------------------==============================================================================
</TABLE>
(1) Includes third-party and intercompany contracts.
--------------------------------------------------------------------------------
End-User Interest Rate Swaps and Net Purchased Options as of September 30, 2000
<TABLE>
<CAPTION>
Remaining Contracts Outstanding --
Notional Principal Amounts
---------------------------------------------------------
In billions of dollars 2000 2001 2002 2003 2004 2005
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps $70.5 $51.8 $43.2 $31.5 $22.9 $16.0
Weighted-average fixed rate 6.3% 6.3% 6.3% 6.4% 6.6% 6.6%
Pay fixed swaps 20.8 12.5 7.8 6.3 5.5 4.9
Weighted-average fixed rate 6.2% 6.1% 6.1% 6.1% 6.2% 6.2%
Basis swaps 15.4 3.7 1.5 1.1 0.6 0.3
Purchased floors 7.3 5.7 4.7 4.7 4.7 --
Weighted-average floor rate purchased 5.9% 5.8% 5.8% 5.8% 5.8% --%
Written caps related to other purchased caps (1) 2.3 2.2 1.7 1.4 1.4 0.5
Weighted-average cap rate written 9.8% 9.8% 10.6% 10.7% 10.7% 10.8%
------------------------------------------------------------------------------------------------------------------------------------
Three-month forward LIBOR rates (2) 6.8% 6.5% 6.6% 6.7% 6.8% 7.0%
---------------------------------------------------------------------------=========================================================
</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
September 30, 2000, 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 September 30, 2000
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 its
results of operations, financial condition or liquidity.
47
<PAGE>
FINANCIAL DATA SUPPLEMENT
Cash-Basis, Renegotiated, and Past Due Loans
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
In millions of dollars 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial cash-basis loans
Collateral dependent (at lower of cost or collateral value) (1) $ 167 $ 241 $ 277
Other 1,515 1,162 1,232
---------------------------------------------------
Total $1,682 $1,403 $1,509
---------------------------------------------------------------------------------===================================================
Commercial cash-basis loans
In U.S. offices $ 407 $ 256 $ 252
In offices outside the U.S. 1,275 1,147 1,257
---------------------------------------------------
Total $1,682 $1,403 $1,509
---------------------------------------------------------------------------------===================================================
Commercial renegotiated loans
In U.S. offices $-- $16 $16
In offices outside the U.S. 22 43 52
---------------------------------------------------
Total $22 $59 $68
---------------------------------------------------------------------------------===================================================
Consumer loans on which accrual of interest had been suspended
In U.S. offices $ 735 $ 724 $ 707
In offices outside the U.S. 1,361 1,506 1,507
---------------------------------------------------
Total $2,096 $2,230 $2,214
---------------------------------------------------------------------------------===================================================
Accruing loans 90 or more days delinquent (2)
In U.S. offices $ 800 $ 732 $ 626
In offices outside the U.S. 383 452 467
---------------------------------------------------
Total $1,183 $1,184 $1,093
---------------------------------------------------------------------------------===================================================
</TABLE>
(1) 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.
(2) Substantially all consumer loans, of which $413 million, $379 million, and
$331 million are government-guaranteed student loans at September 30,
2000, December 31, 1999, and September 30, 1999, respectively.
--------------------------------------------------------------------------------
Other Real Estate Owned and Assets Pending Disposition
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
In millions of dollars 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other real estate owned
Consumer (1) $180 $204 $211
Commercial (1) 277 511 673
Corporate/Other 8 14 8
---------------------------------------------------
Total $465 $729 $892
---------------------------------------------------------------------------------===================================================
Assets pending disposition (2) $89 $86 $87
---------------------------------------------------------------------------------===================================================
</TABLE>
(1) Represents repossessed real estate, carried at lower of cost or collateral
value.
(2) Represents consumer residential mortgage loans that have a high
probability of foreclosure, carried at lower of cost or collateral value.
--------------------------------------------------------------------------------
48
<PAGE>
Details of Credit Loss Experience
<TABLE>
<CAPTION>
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
In millions of dollars 2000 2000 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for credit losses
at beginning of period $6,736 $6,657 $6,679 $6,706 $6,743
---------------------------------------------------------------------------------------
Provision for credit losses
Consumer 591 580 627 594 594
Commercial 42 131 124 92 38
---------------------------------------------------------------------------------------
633 711 751 686 632
---------------------------------------------------------------------------------------
Gross credit losses
Consumer
In U.S. offices 490 481 463 427 419
In offices outside the U.S. 281 285 312 310 324
Commercial
In U.S. offices 32 56 49 28 9
In offices outside the U.S. 42 99 94 130 95
---------------------------------------------------------------------------------------
845 921 918 895 847
---------------------------------------------------------------------------------------
Credit recoveries
Consumer
In U.S. offices 83 89 74 54 66
In offices outside the U.S. 77 82 73 82 79
Commercial
In U.S. offices 6 3 8 11 1
In offices outside the U.S. 26 21 11 46 15
---------------------------------------------------------------------------------------
192 195 166 193 161
---------------------------------------------------------------------------------------
Net credit losses
In U.S. offices 433 445 430 390 361
In offices outside the U.S. 220 281 322 312 325
---------------------------------------------------------------------------------------
653 726 752 702 686
---------------------------------------------------------------------------------------
Other -- net (1) (37) 94 (21) (11) 17
---------------------------------------------------------------------------------------
Allowance for credit losses at end of period $6,679 $6,736 $6,657 $6,679 $6,706
---------------------------------------------=======================================================================================
Net consumer credit losses $611 $595 $628 $601 $598
As a percentage of average consumer loans 1.45% 1.54% 1.71% 1.68% 1.74%
---------------------------------------------=======================================================================================
Net commercial credit losses $42 $131 $124 $101 $88
As a percentage of average commercial loans 0.15% 0.51% 0.52% 0.42% 0.37%
---------------------------------------------=======================================================================================
</TABLE>
(1) Primarily includes foreign currency translation effects and the addition
of allowance for credit losses related to acquisitions.
--------------------------------------------------------------------------------
49
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) On August 31, 2000, in connection with the acquisition of the
outstanding capital stock of AST StockPlan, Inc., the Company issued
753,503 shares of its common stock. No underwriters were used and
the recipients of the Company's common stock were the shareholders
of the acquired company and an escrow agent which shall hold 88,867
of such shares on behalf of such shareholders as security for
certain indemnification obligations of such shareholders to the
Company. The shares of common stock issued in the AST StockPlan,
Inc. acquisition were issued in reliance upon an exemption from the
registration requirements of the Securities Act of 1933 provided by
Rule 506 of Regulation D thereof. The shareholders of the acquired
company made certain representations to the Company as to investment
intent, that they possessed a sufficient level of financial
sophistication and that they received information about the Company.
The shares issued in the acquisition were subject to restrictions on
transfer absent registration under the Securities Act of 1933, and
no offers to sell the securities were made by any form of general
solicitation or general advertisement. Subsequently, the Company
registered 664,636 of such shares for resale on a registration
statement on Form S-3 declared effective by the SEC on October 5,
2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K.
On July 20, 2000, the Company filed a Current Report on Form 8-K,
dated July 19, 2000, reporting under Item 5 thereof the results of
its operations for the quarter ended June 30, 2000, and certain
other selected financial data.
On July 20, 2000, the Company filed a Current Report on Form 8-K,
dated July 11, 2000, filing as exhibits under Item 7 thereof:
(1) Terms Agreement, dated July 11, 2000, among the Company and Salomon
Brothers International Limited, Bear, Stearns International Limited,
Daiwa Securities SB Capital Markets Europe Limited, Deutsche Bank AG
London, Goldman Sachs International, IBJ International plc, Nomura
International plc, Sanwa International plc and Tokyo-Mitsubishi
International plc, as Underwriters, relating to the offer and sale
of the Company's 1.40% Notes due July 18, 2005.
(2) Form of DTC Global Note for the Company's 1.40% Notes due July 18,
2005.
(3) Form of International Global Note for the Company's 1.40% Notes due
July 18, 2005.
(4) Form of Fiscal Agency Agreement among Citibank, N.A. London Office,
the Company and Banque Internationale a Luxembourg S.A.
On July 25, 2000, the Company filed a Current Report on Form 8-K,
dated July 21, 2000, reporting under Item 5 thereof the announcement
that the Board of Directors of the Company had elected Robert I.
Lipp to the Board of Directors and appointed him Vice Chairman and a
member of the Office of the Chairman.
On September 6, 2000, the Company filed a Current Report on Form
8-K, dated September 5, 2000, (i) reporting under Item 5 thereof
that on September 5, 2000, the Company and Associates First Capital
Corporation ("Associates") announced that they had entered into a
definitive merger agreement, and (ii) filing as exhibits under Item
7 thereof (a) Agreement and Plan of Merger between Citigroup Inc.
and Associates First Capital Corporation, dated as of September 5,
2000, and (b) Joint Press Release, dated September 6, 2000, issued
by the Company and Associates.
No other reports on Form 8-K were filed during the third quarter of
2000; however,
On October 11, 2000, the Company filed a Current Report on Form 8-K,
dated October 3, 2000, filing as exhibits under Item 7 thereof (a)
Terms Agreement, dated October 3, 2000, among the Company and
Salomon Smith Barney Inc., ABN AMRO Incorporated, Banc of America
Securities LLC, Banc One Capital Markets, Inc., Banque Bruxelles
Lambert SA, Barclays Bank PLC, Bear, Stearns & Co. Inc., Blaylock &
Partners, L.P., Chase Securities Inc., First Union Securities, Inc.,
Goldman, Sachs & Co., Ormes Capital Markets, Inc., Royal Bank of
Scotland, Financial Markets, UBS Warburg LLC and
50
<PAGE>
The Williams Capital Group, L.P., as Underwriters, relating to the
offer and sale of the Company's 7.250% Subordinated Notes due
October 1, 2010, and (b) Form of Note for the Company's 7.250%
Subordinated Notes due October 1, 2010.
On October 19, 2000, the Company filed a Current Report on Form 8-K,
dated October 17, 2000, reporting under Item 5 thereof the results
of its operations for the quarter ended September 30, 2000, and
certain other selected financial data.
51
<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 13th day of November 2000.
CITIGROUP INC.
(Registrant)
By /s/ Todd S. Thomson
-------------------
Todd S. Thomson
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
52
<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).
3.01.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated April 18, 2000, incorporated by
reference to Exhibit 3.01.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2000 (File No.
1-9924).
3.02 By-Laws of the Company, as amended, effective October 26, 1999,
incorporated by reference to Exhibit 3.02 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1999
(File No. 1-9924).
10.01 Citigroup Inc. Amended and Restated Compensation Plan for
Non-Employee Directors (as of July 18, 2000).
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.
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.
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