-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HMM3jLzH+gQfxGUn/55bXMWEAqoAnU06lzwgHJbjtfk8nj8KTg9QkT+Vdps9awXu 8FkxsYNKzVz3wEd8H86hBQ== 0000950130-95-001567.txt : 19950814 0000950130-95-001567.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950130-95-001567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITICORP CENTRAL INDEX KEY: 0000020405 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132614988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05378 FILM NUMBER: 95562017 BUSINESS ADDRESS: STREET 1: 399 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10043 BUSINESS PHONE: 2125591000 MAIL ADDRESS: STREET 1: 425 PARK AVE- 2ND F STREET 2: ATTN: LEGAL AFFAIRS OFFICE CITY: NEW YORK STATE: NY ZIP: 10043 FORMER COMPANY: FORMER CONFORMED NAME: FIRST NATIONAL CITY CORP DATE OF NAME CHANGE: 19740414 FORMER COMPANY: FORMER CONFORMED NAME: CITY BANK OF NEW YORK NATIONAL ASSOCIATI DATE OF NAME CHANGE: 19680903 10-Q 1 FORM 10-Q
CONTENTS PAGE FINANCIAL HIGHLIGHTS............................................ 1 FINANCIAL SUMMARY............................................... 2 BUSINESS DISCUSSIONS - Earnings Summary............................................. 3 - Global Consumer.............................................. 4 - Global Finance............................................... 8 - North America Commercial Real Estate......................... 10 - Cross-Border Refinancing Portfolio........................... 13 - Corporate Items.............................................. 14 MANAGING GLOBAL RISK - Liquidity.................................................... 15 - Price Risk................................................... 16 - Derivative and Foreign Exchange Contracts.................... 17 - Estimated Fair Value of Financial Instruments................ 21 - Capital...................................................... 21 STATEMENT OF INCOME ANALYSIS - Net Interest Revenue......................................... 24 - Fee and Commission Revenue................................... 25 - Trading-Related Revenue...................................... 25 - Securities Transactions...................................... 26 - Other Revenue................................................ 26 - Provision and Allowance for Credit Losses.................... 27 - Operating Expense............................................ 28 - Income Taxes................................................. 29 - Effect of Credit Card Receivable Securitizations............. 29 CONSOLIDATED FINANCIAL STATEMENTS - Statement of Income.......................................... 30 - Balance Sheet................................................ 31 - Statement of Changes in Stockholders' Equity................. 32 - Statement of Cash Flows...................................... 33 - Citibank, N.A. Balance Sheet................................. 34 OTHER FINANCIAL INFORMATION - Securities................................................... 35 - Trading Account Assets and Liabilities....................... 36 - Long-Term Debt............................................... 36 - Calculation of Earnings Per Share............................ 37 - Average Balances and Interest Rates.......................... 38 - Cash-Basis, Renegotiated, and Past Due Loans................. 42 - Other Real Estate Owned and Assets Pending Disposition....... 43 - Cross-Border and Non-Local Currency Outstandings............. 44 - Cross-Border and Non-Local Currency Claims on Third Parties.. 44 - Details of Credit Loss Experience............................ 45 FORM 10-Q - Cover Page................................................... 46 - Cross-Reference Index........................................ 47 SIGNATURES...................................................... 49
FINANCIAL HIGHLIGHTS Second Quarter Six Months ------------------- ------------------ EARNINGS (In Millions) 1995 1994 1995 1994 - --------------------- -------- -------- -------- ------- Net Income Before Accounting Change..................................... $ 853 $ 877 $1,682 $1,486 After Accounting Change (A).................................. 853 877 1,682 1,430 PER SHARE Net Income (see page 37) On Common and Common Equivalent Shares Before Accounting Change..................................... $ 1.76 $ 1.83 $ 3.47 $ 3.07 After Accounting Change (A).................................. 1.76 1.83 3.47 2.94 Assuming Full Dilution Before Accounting Change..................................... $ 1.57 $ 1.64 $ 3.09 $ 2.77 After Accounting Change (A).................................. 1.57 1.64 3.09 2.66 Common Stockholders' Equity.................................... $37.35 $29.54 $37.35 $29.54 RETURN ON ASSETS AND EQUITY Return on Total Assets Before Accounting Change..................................... 1.25% 1.36% 1.25% 1.17% After Accounting Change (A).................................. 1.25 1.36 1.25 1.15 Return on Common Stockholders' Equity Before Accounting Change..................................... 20.9% 28.7% 21.3% 24.5% After Accounting Change (A).................................. 20.9 28.7 21.3 24.0 Return on Total Stockholders' Equity Before Accounting Change..................................... 18.1% 23.4% 18.4% 20.3% After Accounting Change (A).................................. 18.1 23.4 18.4 19.9 CAPITAL (Dollars in Billions) (see page 21) June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 1995 1995 1994 1994 1994 1994 ------- ------- ------- -------- ------- ------- Tier 1................................... $ 18.6 $ 17.8 $ 16.9 $ 16.0 $ 15.0 $ 14.0 Tier 1 and 2............................. 27.3 26.9 26.1 25.4 24.5 23.5 Tier 1 Ratio............................. 8.43% 8.01% 7.80% 7.47% 7.09% 6.86% Tier 1 and 2 Ratio....................... 12.40 12.06 12.04 11.86 11.60 11.55 Leverage Ratio........................... 7.19 7.00 6.67 6.42 6.22 5.95 Common Equity as a Percentage of Total Assets.................................. 6.02 5.21 5.42 5.04 4.55 4.51 Total Equity as a Percentage of Total Assets.................................. 7.59 6.83 7.09 6.70 6.14 6.12 OPERATING MARGIN (In Millions) 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 1995 1995 1994 1994 1994 1994 ------- ------- ------- -------- ------- ------- Total Revenue........................... $4,689 $4,443 $4,512 $4,325 $4,050 $3,861 Effect of Credit Card Securitization (B) 226 222 189 213 264 268 Net Cost To Carry (C)................... 8 - (1) 30 31 29 Capital Building Transactions........... - - 60 - (117) (23) ------ ------ ------ ------ ------ ------ ADJUSTED REVENUE........................ 4,923 4,665 4,760 4,568 4,228 4,135 ------ ------ ------ ------ ------ ------ Total Operating Expense................. 2,798 2,693 2,723 2,630 2,456 2,447 Net OREO Costs (D)...................... 13 - 5 (5) 19 (28) ------ ------ ------ ------ ------ ------ ADJUSTED OPERATING EXPENSE.............. 2,811 2,693 2,728 2,625 2,475 2,419 ------ ------ ------ ------ ------ ------ OPERATING MARGIN........................ 2,112 1,972 2,032 1,943 1,753 1,716 Consumer Credit Costs (E)............... 616 536 595 544 585 614 Commercial Credit Costs (F)............. 23 2 66 40 73 60 ------ ------ ------ ------ ------ ------ OPERATING MARGIN LESS CREDIT COSTS...... 1,473 1,434 1,371 1,359 1,095 1,042 Additional Provision (G)................ 75 75 80 100 90 66 Capital Building Transactions........... - - (60) - 117 23 ------ ------ ------ ------ ------ ------ INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE........... $1,398 $1,359 $1,231 $1,259 $1,122 $ 999 ====== ====== ====== ====== ====== ======
(A) 1994 six month results reflect the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," as of January 1, 1994. (B) For a description of the effect of credit card receivable securitizations, see page 29. (C) Principally the net cost to carry commercial cash-basis loans and Other Real Estate Owned ("OREO"). (D) Principally writedowns, gains and losses on sales, and direct revenue and expense related to commercial OREO. (E) Principally consumer net credit write-offs adjusted for the effect of credit card receivables securitization. (F) Includes commercial net credit write-offs, net cost to carry, and net OREO costs. (G) Represents provision for credit losses in excess of net write-offs. Fourth, second and first quarters of 1994 reflect reserve releases of $20 million, $10 million and $34 million, respectively, related to the cross-border refinancing portfolio. 1 FINANCIAL SUMMARY Citicorp reported net income of $853 million in the 1995 second quarter, compared with $877 million in the same 1994 quarter which included $200 million of deferred tax benefits. Earnings before income taxes were 25% higher when compared with the 1994 second quarter. Fully diluted earnings per common share of $1.57 compared with $1.64 in the year earlier quarter. In the six months of 1995, operating earnings were $1.7 billion or $3.09 per fully diluted share, compared with $1.5 billion or $2.77 per fully diluted share in the six months of 1994. Including the cumulative effect of adopting the accounting standard for post-employment benefits, net income in the six months of 1994 was $1.4 billion or $2.66 per fully diluted share. Operating margin of $2.1 billion and $4.1 billion in the 1995 second quarter and six months, respectively, was 20% and 18% higher than the comparable 1994 periods. The currency translation effect of the weak U.S. dollar, primarily against European currencies, increased both revenue and operating expense by approximately 3% in the 1995 second quarter and six months compared with the respective 1994 periods. Adjusted revenue was up 16% from the 1994 second quarter and 15% from the six months of 1994 led by revenue growth in the Emerging Markets, higher trading- related revenue, and investment activities. Trading-related revenue (which includes trading account and foreign exchange revenue, as well as net interest and other revenue associated with trading activities) in the second quarter and the six months of 1995 amounted to $553 million and $948 million, respectively, up significantly from the $334 million and $548 million generated in the comparable 1994 periods. Excluding trading-related revenue, adjusted revenue was $4.4 billion in the quarter and $8.6 billion in the six months of 1995, up 12% and 11%, respectively, from the same 1994 periods. Adjusted operating expense increased 14% from the 1994 second quarter, including 3% as a result of foreign currency translation. Business expansion in the Emerging Markets and in certain businesses in the Developed Markets accounted for approximately 7% of the increase, with marketing programs, investments in technology, incentive compensation and other items each contributing approximately 1% to the increase. The same factors also contributed to the 12% increase in operating expense from the six months of 1994. The expense to revenue ratio was 57.1% in the 1995 second quarter, an improvement from 58.5% in the 1994 second quarter. The effective tax rate in the 1995 second quarter was 39%, compared with 22% in the same 1994 quarter which included the recognition of $200 million of deferred tax benefits. The effective tax rates for the six month periods were 39% in 1995 and 30% in 1994, including the recognition of $220 million of deferred tax benefits in 1994. Commercial cash-basis loans and OREO of $2.7 billion at June 30, 1995 were down from $3.1 billion at December 31, 1994, principally reflecting reductions in the North America Commercial Real Estate portfolio. Commercial credit costs decreased to $23 million in the second quarter from $73 million in the 1994 second quarter, also reflecting improvements in the real estate portfolio. Consumer credit costs increased $31 million from the 1994 second quarter to $616 million, as lower loss rates in the U.S. credit card portfolio partially offset the effect of higher volumes. Economic slowdowns in Mexico and Argentina and higher losses in Germany also contributed to the increase. Citicorp continued to strengthen its balance sheet. Consumer and non- refinancing commercial credit loss reserves were built by $75 million in the quarter and $150 million in the six months of 1995 to $5.3 billion at June 30, 1995. Total regulatory capital at June 30, 1995 was $27.3 billion, or 12.40% of risk-adjusted assets. The Tier 1 capital ratio was 8.43% at June 30, 1995, up from 7.80% at year-end 1994. Return on total equity was 18.1% for the quarter and 18.4% for the six months, compared with 23.4% and 19.9% for the same 1994 periods. Average total equity of $18.9 billion in the quarter was up $3.9 billion from the year-ago period. 2 BUSINESS DISCUSSIONS The table below and the discussions that follow analyze Citicorp's results in the context of global business areas including its core business franchises of Global Consumer and Global Finance. EARNINGS SUMMARY
Second Quarter Six Months ----------------- % ----------------- % (Dollars In Millions) 1995 1994(A) Change 1995 1994(A) Change - --------------------- ------ -------- ------ ----- -------- ------ Global Consumer (see page 4): Developed Markets....................... $ 251 $249 1 $ 525 $ 504 4 Emerging Markets........................ 191 161 19 381 332 15 ----- ---- ------ ------ Total Global Consumer..................... 442 410 8 906 836 8 ----- ---- ------ ------ Global Finance (see page 8): Developed Markets....................... 234 103 NM 365 196 86 Emerging Markets........................ 303 179 69 506 346 46 ----- ---- ------ ------ Total Global Finance...................... 537 282 90 871 542 61 ----- ---- ------ ------ Total Core Businesses..................... 979 692 41 1,777 1,378 29 North America Commercial Real Estate (see page 10)........................... (13) (72) 82 (13) (148) 91 Cross-Border Refinancing Portfolio (see page 13).......................... 36 53 (32) 101 101 - Corporate Items (see page 14)............. (149) 204 NM (183) 155 NM ----- ---- ------ ------ Operating Earnings........................ 853 877 (3) 1,682 1,486 13 Cumulative Effect of Accounting Change (B) - - - - (56) NM ----- ---- ------ ------ Net Income................................ $ 853 $877 (3) $1,682 $1,430 18 ===== ==== ====== ======
(A) Reclassified to conform to latest quarter's presentation. (B) The six month 1994 results reflect the cumulative effect of adopting SFAS No. 112 as of January 1, 1994. NM Not meaningful, as percentage equals or exceeds 100%. 3 GLOBAL CONSUMER Citicorp's Global Consumer business operates a uniquely global, full-service consumer franchise encompassing branch banking, credit and charge cards, and private banking.
Second Quarter Six Months ---------------- % ---------------- % (Dollars in Millions) 1995 1994(A) Change 1995 1994(A) Change - --------------------- ------ -------- ------ ------ -------- ------ Total Revenue.................... $2,790 $2,487 12 $5,495 $4,980 10 Operating Expense................ 1,696 1,517 12 3,333 3,016 11 Provision for Credit Losses...... 429 361 19 788 739 7 ------ ------ ------ ------ Income Before Taxes.............. 665 609 9 1,374 1,225 12 Income Taxes..................... 223 199 12 468 389 20 ------ ------ ------ ------ Net Income....................... $ 442 $ 410 8 $ 906 $ 836 8 ====== ====== ====== ====== Average Assets (In Billions)..... $ 119 $ 103 16 $ 118 $ 103 15 Return on Assets................. 1.49% 1.60% - 1.55% 1.64% - OTHER DATA Developed Markets Net Income..................... $ 251 $ 249 1 $ 525 $ 504 4 Average Assets (In Billions)... 85 74 15 84 75 12 Return on Assets............... 1.18% 1.35% - 1.26% 1.36% - Emerging Markets Net Income..................... $ 191 $ 161 19 $ 381 $ 332 15 Average Assets (In Billions)... 34 29 17 34 28 21 Return on Assets............... 2.25% 2.23% - 2.26% 2.39% - ADJUSTED FOR CREDIT-RELATED ITEMS Total Revenue (B) Developed Markets.............. $2,269 $2,138 6 $4,484 $4,286 5 Emerging Markets............... 750 614 22 1,466 1,229 19 ------ ------ ------ ------ Total.......................... $3,019 $2,752 10 $5,950 $5,515 8 ====== ====== ====== ====== Operating Expense (C) Developed Markets.............. $1,272 $1,162 9 $2,512 $2,311 9 Emerging Markets............... 416 346 20 812 680 19 ------ ------ ------ ------ Total.......................... $1,688 $1,508 12 $3,324 $2,991 11 ====== ====== ====== ====== Operating Margin Developed Markets.............. $ 997 $ 976 2 $1,972 $1,975 - Emerging Markets............... 334 268 25 654 549 19 ------ ------ ------ ------ Total.......................... $1,331 $1,244 7 $2,626 $2,524 4 ====== ====== ====== ====== Credit Costs (D) Developed Markets.............. $ 552 $ 545 1 $1,046 $1,121 (7) Emerging Markets............... 64 40 60 106 78 36 ------ ------ ------ ------ Total.......................... $ 616 $ 585 5 $1,152 $1,199 (4) ====== ====== ====== ======
(A) Reclassified to conform to latest quarter's presentation. (B) Adjusted principally for the effect of credit card receivable securitizations. (C) Excludes writedowns, gains and losses on sales, and direct expense related to OREO for certain real estate lending activities. (D) Principally net credit write-offs adjusted for the effect of credit card receivable securitizations. 4 The Global Consumer business earned $442 million and $906 million, respectively, in the second quarter and six months of 1995, up 8% from the comparable 1994 periods. The increase principally reflected continued business expansion in the Emerging Markets. Earnings from private banking activities declined, primarily in Europe, reflecting difficult market conditions. Adjusted revenue increased by 10% in the quarter and 8% in the six months from the respective 1994 periods, led by double digit growth in the Emerging Markets. Revenue in Latin America reflected higher customer volumes, spreads, and fees. Revenue in Asia Pacific, although impacted by tighter spreads, increased from higher mortgage and card product volumes and fees. Revenue in the Developed Markets reflected volume increases in the U.S. credit card business and also benefited from the effect of foreign currency translation, but was hampered by weak private banking results. Bankcards in the U.S. continued to show positive results in receivables, account growth and charge volume. Revenue growth, however, continued to be slowed by tighter spreads, as well as by the phasing-out of certain fees during 1994. Managed receivables rose to $40.6 billion at the end of the second quarter, up $6.7 billion, or 20%, from the end of the 1994 second quarter, and total accounts rose to 24.3 million, up 3.3 million, or 16%. Total charge volumes in the quarter were $21.2 billion, up $4.3 billion, or 25%, from the year-ago quarter. The increase in adjusted operating expense reflected broad business expansion in the Emerging Markets and in the U.S. and Europe credit card business, as well as the effect of foreign currency translation. Spending in the card business increased in support of U.S. account growth and in preparation for launching the co-branded railway card in Germany, as well as for certain marketing and advertising programs. Expense in the U.S. branch business declined from 1994 levels, however, reflecting restructuring benefits. Adjusted credit costs increased 5% from the year-earlier quarter, but were 4% lower on a six-month basis. The quarter's results reflected substantially higher U.S. credit card volumes, which nonetheless continued to benefit from lower (albeit bottoming-out) loss rates. Credit costs improved in the U.S. branch business, reflecting a shift in loan mix to lower-risk portfolios and the continuing workout of the mortgage portfolio. Economic slowdowns in Mexico and Argentina, higher losses in Germany, and foreign currency translation also impacted both periods. The provision for credit losses included charges in excess of net write-offs of $50 million and $100 million, respectively, in the second quarter and six months of both 1995 and 1994. Average assets increased by 16% in the quarter and 15% in the six months from the respective 1994 periods, primarily due to the growth in the U.S. credit card and Emerging Markets (particularly Asia Pacific) portfolios, as well as the effect of foreign currency translation. 5 The consumer loan category represents loans managed by Citicorp's Global Consumer business. Pricing and credit policies reflect the loss experience of each particular product. Consumer loans are generally written off not later than a predetermined number of days past due on a contractual basis. The number of days is set at an appropriate level according to loan product and country. The following table summarizes delinquencies in the on-balance sheet consumer loan portfolio in terms of the dollar amount of loans 90 days past due and as a percentage of related loans.
CONSUMER LOAN DELINQUENCY AMOUNTS AND RATIOS Total Loans (A) 90 Days or More Past Due ------------------ ------------------------------------------------- June 30 Dec. 31 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 (Dollars In Billions) 1995 1994 1995 1995 1994 1994 1994 - --------------------- ------- ------- ------- -------- ------- -------- ------- U.S. Mortgages.................... $ 17.0 $16.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.6 Ratio...................... 3.28% 3.23% 3.26% 3.49% 3.94% U. S. Mortgages Purchased Under Recourse Provisions (B).... 0.5 0.6 0.4 0.4 0.5 0.5 0.5 U.S. Credit Cards................. 17.0 17.3 0.3 0.3 0.3 0.2 0.2 Ratio........................ 1.52% 1.58% 1.47% 1.62% 1.80% Other Developed Markets........... 39.0 36.3 2.0 2.1 1.8 2.0 1.9 Ratio........................ 5.17% 5.28% 5.20% 5.50% 5.41% ------- ----- ----- ----- ----- ----- ----- Total Developed Markets........... 73.5 70.7 3.2 3.3 3.1 3.2 3.2 Ratio........................ 4.44% 4.53% 4.44% 4.91% 5.22% Emerging Markets.................. 27.4 25.9 0.3 0.2 0.2 0.2 0.2 Ratio........................ 1.01% .82% .71% .71% .77% ------- ----- ----- ----- ----- ----- ----- Total 90 Days or More Past Due......................... $ 3.5 $ 3.5 $ 3.3 $ 3.4 $ 3.4 ===== ===== ===== ===== ===== Total Consumer Loans.............. $100.9 $96.6 $98.1 $96.6 $90.9 $85.5 ====== ===== ===== ===== ===== ===== Ratio........................... 3.51% 3.52% 3.44% 3.79% 4.02%
(A) Loan amounts are net of unearned income (B) Mortgages were delinquent 90 days or more when purchased under recourse provisions of mortgage sales. 6 Consumer loans 90 days or more delinquent of $3.5 billion at June 30, 1995 were unchanged from March 31, 1995, but up $0.2 billion from year-end 1994. The increase in total delinquencies since December 31, 1994 was primarily due to the impact of foreign currency translation on the European portfolio, particularly Germany, and higher delinquencies in the Emerging Markets due to recessionary conditions in Latin America and portfolio growth in Asia Pacific. The delinquency ratio at June 30, 1995 was essentially unchanged from March 31, 1995, but was up from year-end 1994 due primarily to changes in the mix of the delinquent portfolio as well as higher delinquency rates in the Emerging Markets. Adjusted for the effect of credit card receivables securitization, the delinquency ratio at June 30, 1995 was 3.14%, unchanged from December 31, 1994. Total consumer loans delinquent 90 days or more on which interest continued to be accrued were $910 million at June 30, 1995, compared with $828 million at December 31, 1994. The majority of these loans, which include personal loans in Germany and U.S. credit card receivables, are written off upon reaching a stipulated number of days past due. The increase was primarily due to the impact of foreign currency translation on the portfolio in Germany. Citicorp's policy for suspending the accrual of interest on consumer loans varies depending on the terms, security and credit loss experience characteristics of each product, and in consideration of write-off criteria in place. At June 30, 1995, interest accrual had been suspended on $1.0 billion of U.S. mortgages and $1.7 billion of other consumer loans. The corresponding amounts at December 31, 1994 were $1.0 billion of U.S. mortgages and $1.6 billion of other consumer loans. The increase in other consumer loans on which the accrual of interest has been suspended is primarily due to higher balances in the Emerging Markets and the impact of foreign currency translation on the portfolio in Germany. Consumer loans at June 30, 1995 included $4.0 billion and $2.3 billion of commercial real estate loans related to community and private banking activities conducted in the U.S. and outside the U.S., respectively, by Global Consumer businesses. At June 30, 1995, the U.S. portfolios included $268 million of loans on which the accrual of interest had been suspended, primarily in California and New York. The portfolio outside the U.S. included $85 million of loans on which the accrual of interest had been suspended. At June 30, 1995, consumer OREO was $545 million, down $24 million from December 31, 1994. Assets pending disposition totaled $195 million, level with amounts at December 31, 1994. While the U.S. economy remained stable and the European economy showed signs of further improvement during the six months of 1995, overall economic prospects remain uncertain. Credit costs could increase, reflecting the bottoming-out of loss rates in the U.S. credit card portfolio. Additionally, delinquencies and loans on which the accrual of interest is suspended could remain at relatively high levels. These factors, along with higher loan volumes, may result in further increases to credit reserves . MANAGED U.S. CREDIT CARD PORTFOLIO As more fully described on page 29 and in the 1994 Annual Report and Form 10- K, the securitization of credit card receivables has no effect on earnings reported in a period, but certain income statement and balance sheet lines, as well as credit-related ratios, are impacted. The table below presents certain information for the managed U.S. credit card portfolio.
Second Quarter Six Months --------------- ------------- (Dollars In Billions) 1995 1994 1995 1994 - --------------------- ------ ------ ------ ----- End of Period Loans....................... $40.3 $33.9 $40.3 $33.9 90 Days or More Past Due.................. 0.6 0.6 0.6 0.6 Average Credit Card Loans................. 39.2 33.3 38.6 33.2 Net Credit Losses (In Millions)........... 366 346 703 725 As a Percentage of Average Credit Card Loans...................... 3.74% 4.17% 3.67% 4.40%
7 GLOBAL FINANCE The Global Finance business serves corporations, financial institutions, governments, and other participants in capital markets throughout the world. Excluded from Global Finance is North America Commercial Real Estate, which is discussed on pages 10 - 12.
Second Quarter Six Months ----------------- % ----------------- % (Dollars in Millions) 1995 1994(A) Change 1995 1994(A) Change - --------------------- ------ -------- ------ ------ -------- ------ Total Revenue....................... $1,717 $1,240 38 $3,166 $2,443 30 Operating Expense................... 995 801 24 1,927 1,590 21 Provision for Credit Losses......... 42 21 NM 58 (13) NM ------ ------ ------ ------ Income Before Taxes................. 680 418 63 1,181 866 36 Income Taxes........................ 143 136 5 310 324 (4) ------ ------ ------ ------ Net Income.......................... $ 537 $ 282 90 $ 871 $ 542 61 ====== ====== ====== ====== Average Assets (In Billions)........ $ 141 $ 138 2 $ 141 $ 136 4 Return on Assets.................... 1.53% 0.82% - 1.25% 0.80% - OTHER DATA Developed Markets Net Income........................ $ 234 $ 103 NM $ 365 $ 196 86 Average Assets (In Billions)...... 95 96 (1) 96 94 2 Return on Assets.................. 0.99% 0.43% - 0.77% 0.42% - Emerging Markets Net Income........................ $ 303 $ 179 69 $ 506 $ 346 46 Average Assets (In Billions)...... 46 42 10 45 42 7 Return on Assets.................. 2.64% 1.71% - 2.27% 1.66% - ADJUSTED FOR CREDIT-RELATED ITEMS Total Revenue (B) Developed Markets................. $1,001 $ 704 42 $1,807 $1,398 29 Emerging Markets.................. 715 547 31 1,348 1,057 28 ------ ------ ------ ------ Total............................. $1,716 $1,251 37 $3,155 $2,455 29 ====== ====== ====== ====== Operating Expense (C) Developed Markets................. $ 654 $ 548 19 $1,277 $1,087 17 Emerging Markets.................. 350 281 25 660 544 21 ------ ------ ------ ------ Total............................. $1,004 $ 829 21 $1,937 $1,631 19 ====== ====== ====== ====== Operating Margin Developed Markets................. $ 347 $ 156 NM $ 530 $ 311 70 Emerging Markets.................. 365 266 37 688 513 34 ------ ------ ------ ------ Total............................. $ 712 $ 422 69 $1,218 $ 824 48 ====== ====== ====== ====== Credit Costs (D) Developed Markets................. $ (2) $ (15) 87 $ (30) $ (61) 51 Emerging Markets.................. 9 7 29 17 (5) NM ------ ------ ------ ------ Total............................. $ 7 $ (8) NM $ (13) $ (66) 80 ====== ====== ====== ======
(A) Reclassified to conform to latest quarter's presentation. (B) After adding back the net cost to carry cash-basis loans and OREO. (C) Excludes writedowns, gains and losses on sales, and direct revenue and expense related to OREO. (D) Includes net write-offs (recoveries), the net cost to carry cash-basis loans and OREO, as well as writedowns, gains and losses on sales, and direct revenue and expense related to OREO. NM Not meaningful, as percentage equals or exceeds 100%. 8 Global Finance reported net income of $537 million and $871 million in the second quarter and six months of 1995, compared with $282 million and $542 million in the respective 1994 periods. The results primarily reflect improved trading-related revenue in most geographies, higher non-trading-related revenue in the Emerging Markets, and higher venture capital results in North America and Europe, partially offset by higher operating expenses. Global Finance net income in the second quarter and six months of 1995 also benefited from lower effective tax rates that resulted from changes in the geographic mix of earnings. Adjusted revenue totaled $1.7 billion and $3.2 billion in the second quarter and six months of 1995, up from $1.3 billion and $2.5 billion in the respective 1994 periods. These results primarily reflect improved trading-related revenue in most geographies, higher non-trading-related revenue in the Emerging Markets, and improved venture capital results in North America and Europe. Revenue from trading-related activities contributed $490 million and $826 million (29% and 26% of adjusted revenue) in the second quarter and six months of 1995, up from $293 million and $457 million (23% and 19% of adjusted revenue) in the respective 1994 periods. Trading-related revenue--including derivatives-- reflected continued customer demand for risk management products and improved trading activities related to Citicorp's market-making activities. See pages 25 and 26 for a discussion of the income statement effect and business-sector sources of trading-related revenue. The increase in adjusted operating expense in the second quarter and six months of 1995 compared with the respective 1994 periods reflected business expansion in the Emerging Markets, increased investment in operational and technological efficiencies, costs associated with higher volume in the transaction services business, the foreign currency translation effect of the weaker U.S. dollar, and higher incentive compensation associated with improved trading results. Credit cost amounts in the second quarter and six months of 1995 compared with the respective 1994 periods reflect lower gains on the sale of OREO properties and higher net write-offs, partially offset by lower cost to carry cash-basis loans and OREO. The provision for credit losses in the second quarter and six months of 1995 included charges in excess of net write-offs of $25 million and $50 million to build the allowance for credit losses, compared with $12 million and $24 million in the respective 1994 periods. Continued uncertainty in the economic environment and higher loan volumes may result in further increases in the allowance for credit losses. Cash-basis loans at June 30, 1995 were $445 million, down from $470 million at 1994 year-end. The OREO portfolio of $183 million at June 30, 1995 increased slightly from year-end 1994. Developed Markets average assets in the second quarter and six months of 1995 were comparable to the respective 1994 periods. Emerging Markets average assets in the second quarter and six months of 1995 increased 10% and 7%, respectively, compared with the respective 1994 periods. 9 NORTH AMERICA COMMERCIAL REAL ESTATE The North America Commercial Real Estate portfolio comprises relationships managed by the commercial real estate divisions in the U.S. and Canada. Citicorp's strategy for the North America Commercial Real Estate portfolio is one of active remedial management to maximize the long-term value and recoverability of the assets.
Second Quarter Six Months ----------------- % ------------------ % (Dollars in Millions) 1995 1994(A) Change 1995 1994(A) Change - --------------------- ------ -------- ------ ----- ------- ------ Total Revenue................... $ 26 $ 25 4 $ 79 $ 45 76 Operating Expense............... 21 35 (40) 52 97 (46) Provision for Credit Losses..... 22 101 (78) 38 207 (82) ----- ----- ----- ----- Loss Before Taxes............... (17) (111) 85 (11) (259) 96 Income Taxes (Benefit).......... (4) (39) 90 2 (111) NM ----- ----- ----- ----- Net Loss........................ $ (13) $ (72) 82 $ (13) $(148) 91 ===== ===== ===== ===== Average Assets (In Billions).... $ 6 $ 9 (33) $ 6 $ 9 (33) ADJUSTED FOR CREDIT-RELATED ITEMS Total Revenue (B)............... $ 32 $ 44 (27) $ 91 $ 90 1 Operating Expense (C)........... 33 35 (6) 64 72 (11) Credit Costs (D)................ 16 82 (80) 38 201 (81)
(A) Reclassified to conform to latest quarter's presentation. (B) After adding back the net cost to carry cash-basis loans and OREO. (C) Excludes writedowns, gains and losses on sales, and direct revenue and expense related to OREO. (D) Includes net write-offs, the net cost to carry cash-basis loans and OREO, as well as writedowns, gains and losses on sales, and direct revenue and expense related to OREO. NM Not meaningful, as percentage equals or exceeds 100%. The North America Commercial Real Estate business reported net losses of $13 million in both the second quarter and six months of 1995, compared with net losses of $72 million and $148 million in the respective 1994 periods. Lower credit costs were the primary factor in the improved 1995 results. Credit costs in both the second quarter and six months of 1995 declined significantly compared with the respective 1994 periods due to improving real estate market conditions. Net write-offs and net OREO writedowns aggregated $31 million and $57 million in the second quarter and six months of 1995, compared with $75 million and $179 million in the respective 1994 periods. The provision for credit losses in the second quarter and six months of 1994 included charges in excess of net write-offs of $38 million and $76 million, respectively. 10 PORTFOLIO BY REGION AND BY PROJECT
Multi- June 30 Dec. 31 Mid- Other Location 1995 1994 (In Millions) Atlantic California U.S. Canada & Other Total Total - ------------- -------- ---------- ------ ------ -------- ------- ------- Loans (A) (B)................ $1,194 $ 876 $2,204 $217 $254 $4,745 $5,325 Cash-Basis Loans (A)......... 156 334 519 83 85 1,177 1,543 OREO......................... 150 253 306 142 20 871 806 Letters of Credit and Other.. 270 701 605 99 224 1,899 2,186 ------ ------ ------ ---- ---- ------ ------ Total Exposure............... $1,770 $2,164 $3,634 $541 $583 $8,692 $9,860 ====== ====== ====== ==== ==== ====== ====== PORTFOLIO BY PROJECT: Office....................... $ 898 $ 532 $1,884 $231 $ 20 $3,565 $3,818 Residential.................. 303 792 486 34 81 1,696 1,981 Retail....................... 313 409 586 175 43 1,526 1,845 Other (C).................... 256 431 678 101 439 1,905 2,216 ------ ------ ------ ---- ---- ------ ------ Total Exposure at June 30, 1995............... $1,770 $2,164 $3,634 $541 $583 $8,692 ====== ====== ====== ==== ==== ====== Total Exposure at December 31, 1994........... $1,853 $2,466 $4,115 $599 $827 $9,860 ====== ====== ====== ==== ==== ======
(A) Includes real estate-related loans of $244 million at June 30, 1995 and $405 million at December 31, 1994, of which $73 million at both dates was on a cash basis. (B) Loans include $306 million and $655 million of renegotiated loans at June 30, 1995 and December 31, 1994, respectively, and exclude cash-basis loans. The weighted-average contractual rate on renegotiated loans approximated 6% at June 30, 1995. The level of renegotiated loans may increase as a result of ongoing restructuring activities. (C) Includes approximately $188 million and $209 million of land-related loans at June 30, 1995 and December 31, 1994, respectively. Total North America Commercial Real Estate exposure of $8.7 billion at June 30, 1995 declined from $9.9 billion at December 31, 1994, primarily as a result of paydowns, maturities, and asset sales. Cash-basis loans and OREO totaled $2.0 billion at June 30, 1995, down from $2.3 billion at December 31, 1994 and $3.4 billion a year ago. Approximately $0.6 billion of the $1.2 billion of cash- basis loans at June 30, 1995 were contractually past due less than 90 days as to principal and interest (including $215 million of construction and self-funded loans) but were classified as cash basis because of uncertainty regarding future cash flows. CASH YIELD
Six Months 1995 -------------------------------------------- Average Cash Annualized Cash (Dollars in Millions) Carrying Value Flows Yield (%) - --------------------- -------------- ----- --------------- Cash-Basis Loans (A)........ $1,409 $50 7.1 OREO........................ 864 30 7.1 ------ --- Total Cash-Basis Loans and $2,273 $80 7.1 OREO....................... ====== ===
(A) Cash flows represent cash interest payments received of which $30 million was applied as a reduction of principal. 11
CASH-BASIS LOANS AND OREO ACTIVITY Second Quarter Six Months ------------------- ------------------- (In Millions) 1995 1994 1995 1994 - ------------- ------ ------ ------ ------ Beginning Balance................... $2,332 $3,784 $2,349 $4,051 Additions........................... 159 236 312 445 Write-offs/Writedowns (A)........... (38) (102) (70) (212) Returned to Accrual Status.......... (139) (102) (224) (132) Sales, Payments/Paydowns and Other.. (266) (375) (319) (711) ------ ------ ------ ------ Ending Balance...................... $2,048 $3,441 $2,048 $3,441 ====== ====== ====== ======
(A) Represents gross write-offs and writedowns (before recoveries and gains/losses on disposition of OREO) and excludes write-offs on letters of credit and swaps. Included in Letters of Credit and Other in the table on page 11 are unfunded commitments of $0.4 billion that were concentrated in the office (39%) and residential (24%) markets. At June 30, 1995 and December 31, 1994, $0.1 billion and $0.2 billion, respectively, of commitments related to borrowers experiencing financial difficulties. Citicorp provides standby letters of credit, the majority of which backstop tax-exempt multi-family housing bonds secured by residential properties. Approximately $0.5 billion of the $1.3 billion of outstanding letters of credit at June 30, 1995 related to projects on which debt service is continuing but the loan-to-value ratios have deteriorated below target levels and/or letter of credit fees are not being paid. 12
CROSS-BORDER REFINANCING PORTFOLIO Second Quarter Six Months ---------------- % -------------- % (Dollars in Millions) 1995 1994(A) Change 1995 1994(A) Change - --------------------- ---------------- ------- ----- ------- ------ Total Revenue................. $ 45 $ 55 (18) $ 123 $ 82 50 Operating Expense............. 5 5 - 10 10 - Provision for Credit Losses... - (11) NM - (46) NM ----- ---- ----- ---- Income Before Taxes........... 40 61 (34) 113 118 (4) Income Taxes.................. 4 8 (50) 12 17 (29) ----- ---- ----- ---- Net Income.................... $ 36 $ 53 (32) $ 101 $101 - ===== ==== ===== ==== Average Assets (In Billions).. $ 3 $ 3 - $ 3 $ 3 -
(A) Reclassified to conform to latest quarter's presentation. NM Not meaningful, as percentage equals or exceeds 100%. The Cross-Border Refinancing Portfolio reported net income of $36 million in the second quarter and $101 million in the six months of 1995, compared with $53 million and $101 million in the respective periods of 1994. The results for the six months of 1995 include revenue of $26 million related to the completion of the Ecuador refinancing agreement in the first quarter. The 1994 results included a pretax release from the allowance for credit losses of $10 million in the second quarter and $44 million in the six months. Citicorp's cross-border and non-local currency outstandings at June 30, 1995 included $3.6 billion of medium- and long-term outstandings, up $0.2 billion from March 31, 1995 and down $0.3 billion from December 31, 1994, primarily reflecting changes in the fair value of Brazilian securities (included in the available-for-sale securities portfolio). The medium- and long-term debt outstandings at June 30, 1995 included $1.7 billion in Brazil, $0.6 billion in Venezuela, $0.4 billion in the Philippines, $0.3 billion in South Africa, $0.3 billion in Uruguay, and $0.3 billion in the aggregate in nine other countries. Additionally, at June 30, 1995, Citicorp had $3.9 billion of trade and short- term claims, $1.8 billion of investments in and funding of its local franchises, and $0.7 billion of investments in affiliates and debt-equity swaps in these countries. Refer to footnote D on page 35 for an additional discussion related to amounts classified as Securities. The amount of Cross-Border Refinancing Portfolio exposure on a cash basis was $30 million at June 30, 1995, down from $104 million at December 31, 1994. 13
CORPORATE ITEMS Second Quarter Six Months --------------- % ------------- % (Dollars in Millions) 1995 1994(A) Change 1995 1994(A) Change ---- ------ ------ ---- ------ ------ Total Revenue............ $ 111 $243 (54) $ 269 $361 (25) Operating Expense........ 81 98 (17) 169 190 (11) ----- ---- ----- ---- Income Before Taxes...... 30 145 (79) 100 171 (42) Income Taxes (Benefit)... 179 (59) NM 283 16 NM ----- ---- ----- ---- Net (Loss) Income........ $(149) $204 NM $(183) $155 NM ===== ==== ===== ====
(A) Reclassified to conform to latest quarter's presentation. NM Not meaningful, as percentage equals or exceeds 100%. Corporate Items includes revenue derived from charging businesses for funds employed (based upon a marginal cost of funds concept), unallocated corporate costs, and other corporate items including net gains related to capital-building transactions and the offset created by attributing income taxes to business activities on a local tax-rate basis. The Corporate Items net loss amounted to $149 million in the second quarter and $183 million in the six months of 1995, compared with net income of $204 million and $155 million in the respective periods of 1994. Corporate Items 1995 second quarter results included a $43 million ($70 million pretax) investment writedown in Latin America. The 1994 results included net gains from capital building transactions of $74 million ($117 million pretax) for the second quarter and $88 million ($140 million pretax) for the six months of 1994. Corporate Items results for the second quarter and the six months of 1994 also included a $150 million tax benefit related to a reduction of the deferred tax asset valuation allowance following a reassessment of the expected level and mix of future earnings, and $50 million and $70 million, respectively, of valuation allowance reductions related to current operations. Excluding the items noted above, Corporate Items results for the second quarter and six months of 1995 included higher income tax offsets, partially reduced by higher revenue derived from charging businesses for funds employed. 14 MANAGING GLOBAL RISK LIQUIDITY Citicorp manages liquidity through a well-defined process described in the 1994 Annual Report and Form 10-K. Total deposits of $163.1 billion represent 63% of total funding at June 30, 1995, compared with $155.7 billion (62% of total funding) at December 31, 1994, and are broadly diversified by geography and customer segments. Stockholders' equity of $19.5 billion, which grew $1.1 billion during the second quarter and $1.7 billion during the six months of 1995, continues to be an important component of the overall funding structure. Long-term debt is issued by Citicorp (the "Parent Company") and its subsidiaries. A diversity of sources, currencies, and maturities is used to gain the broadest practical access to the investor base. Total Parent Company and subsidiary long-term debt outstanding at June 30, 1995, including subordinated capital notes, was $18.7 billion, compared with $17.9 billion at year-end 1994. Securitization of assets remains an important source of liquidity. Total assets securitized during the quarter were $2.4 billion, including $1.9 billion of U.S. credit card receivables, $0.4 billion of U.S. consumer mortgages, and $0.1 billion outside the U.S. Total assets securitized during the six months of 1995 were $5.4 billion, including $4.8 billion of U.S. credit card receivables. As securitized credit card receivables transactions amortize, newly originated receivables are recorded on Citicorp's balance sheet and become available for asset securitization. During the six months of 1995, $2.8 billion of previously securitized credit card receivables amortized and $1.9 billion are scheduled to amortize during the remainder of the year. The Parent Company is a legal entity separate and distinct from Citibank, N.A. and its other subsidiaries and affiliates. There are various legal limitations on the extent to which Citicorp's banking subsidiaries may extend credit, pay dividends, or otherwise supply funds to Citicorp. The approval of the Office of the Comptroller of the Currency ("OCC") is required if total dividends declared by a national bank in any calendar year exceed net profits (as defined) for that year combined with its retained net profits for the preceding two years. In addition, dividends for such a bank may not be paid in excess of the bank's undivided profits. State-chartered bank subsidiaries are subject to dividend limitations imposed by applicable state law. As of June 30, 1995, 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 $5.3 billion. In determining whether and to what extent to pay dividends, each bank subsidiary must also consider the effect of dividend payments on applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citicorp estimates that as of June 30, 1995, its bank subsidiaries could have distributed dividends to Citicorp, directly or through their parent holding company, of approximately $3.8 billion of the available $5.3 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 may be required if total dividends declared by a savings association in any calendar year exceed amounts specified in that agency's regulations. 15 PRICE RISK Citicorp manages the sensitivity of earnings to changes in interest rates, foreign exchange rates, and market prices and volatilities through established procedures described in the 1994 Annual Report and Form 10-K. These include limits set annually for each major category of risk which are monitored and managed by the businesses and reviewed monthly at the corporate level. Citicorp uses a risk management system based on market factors that accommodates the diversity of balance sheet and derivative product exposures and exposure management systems of its various businesses. The market factor approach identifies the variables that cause a change in the value of a financial instrument. Price risk is then measured using various tools, including the earnings at risk method, which is applied to the non-trading portfolios, and the potential loss amount method, which is applied to the trading portfolios. These measures are used as indicators to monitor sensitivity of earnings to market risk rather than as a quantification of aggregate risk amounts. Earnings at risk measures the potential pretax earnings impact on the non- trading portfolios of a specified movement in interest rates for a given time period. The earnings at risk for each currency is calculated by multiplying the repricing gap between interest sensitive items by the specified rate movement, and then taking into account the impact of options, both explicit and embedded. The specific rate movements are statistically derived from a two standard deviation movement. The potential earnings effect of market rate movements is managed by modifying the asset and liability mix, either directly or through the use of derivative instruments. 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. During the second quarter of 1995, the monthly amount of U.S. dollar earnings at risk for the following 12 months to a two standard deviation increase in rates in Citicorp's significant U.S. businesses ranged from approximately $55 million to $95 million in the aggregate, compared with the range for full year 1994 of approximately $5 million to $90 million. As of June 30, 1995, the U.S. dollar interest rate exposure taken in tenors beyond one year results in earnings at risk of a maximum of $60 million in any single future year. The price risk of the trading portfolios is measured using the potential loss amount method, which estimates the sensitivity of the value of the trading positions to changes in the various market factors, such as interest and foreign exchange rates, over the period necessary to close the position (generally one day). The method considers the probability of movements of these market factors (as derived from a two standard deviation movement) adjusted for correlation among them within each trading center. The daily price risk process monitors exposures against limits and triggers specific management actions to ensure that the potential impact on earnings, due to the many dimensions of price risk, is controlled within acceptable limits. During the second quarter of 1995, the potential loss amount in the trading portfolios based on monthly averages of daily exposures ranged from approximately $40 million to $45 million in the aggregate for Citicorp's major trading centers, compared with a range for full year 1994 of approximately $45 million to $85 million. The potential loss amounts decreased each quarter in 1994 reflecting a reduced appetite for risk which carried through the six months of 1995. The level of exposure taken is a function of the market environment and expectations of future price and market movements, and will vary from period to period. Trading-related revenue for the second quarter of 1995 was $553 million, compared with $395 million in the first quarter of 1995 and quarterly revenue ranging from $214 million to $490 million during 1994. The increase in trading-related revenue reflected continued customer demand for risk management products and improved trading activities related to Citicorp's market-making activities. 16 DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS Derivative and foreign exchange products are important risk management tools for Citicorp and its customers. These contracts typically take the form of futures, forward, swap, and option contracts, and derive their value from underlying interest rate, foreign exchange, commodity, or equity instruments. They are subject to the same types of liquidity, price, credit, and operational risks as other financial instruments, and Citicorp manages these risks in a consistent manner. As a dealer, Citicorp offers derivative and foreign exchange instruments to customers, separately or with other products, to help them to manage their risk profile, and also trades for its own account. In addition, Citicorp employs derivative and foreign exchange contracts among other instruments as an end-user in connection with its risk management activities. Monitoring procedures entail objective measurement systems, well-defined market and credit risk limits at appropriate control levels, and timely reports to line and senior management according to prescribed policies. Additional information concerning Citicorp's derivative and foreign exchange activities, including a description of accounting policies, is provided in the 1994 Annual Report and Form 10-K. Notional principal amounts are frequently used as indicators of derivative and foreign exchange activity, serving as a point of reference for calculating payments. Notional principal amounts do not reflect balances subject to credit or market risk, nor do they reflect the extent to which positions offset one another. As a result, they do not represent the much smaller amounts that are actually subject to risk in these transactions. Balance sheet credit exposure arises from unrealized gains and represents the amount of loss that Citicorp would suffer if every counterparty to which Citicorp was exposed were to default at once (i.e., the cost of replacing these contracts), and does not represent actual or expected loss amounts. The table below presents the aggregate notional principal amounts of Citicorp's outstanding derivative and foreign exchange contracts at June 30, 1995, March 31, 1995, and December 31, 1994, along with the related balance sheet credit exposure. The table includes all contracts with third parties, including both dealer and end-user positions.
DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS Balance Sheet Notional Principal Amounts Credit Exposure (A) --------------------------- --------------------------- June 30 Mar. 31 Dec. 31 June 30 Mar. 31 Dec. 31 (In Billions) 1995 1995 1994 1995 1995 1994 ------- -------- ------- ------- ------- ------- INTEREST RATE PRODUCTS Futures Contracts..................... $ 216.6 $ 214.3 $ 175.2 $ - $ - $ - Forward Contracts..................... 444.1 561.3 561.3 0.9 0.8 0.6 Swap Agreements....................... 430.3 402.0 367.5 7.3 6.3 6.0 Purchased Options..................... 137.8 104.1 110.2 1.2 1.3 1.7 Written Options....................... 170.5 169.2 105.7 - - - FOREIGN EXCHANGE PRODUCTS Futures Contracts..................... 0.5 0.5 0.1 - - - Forward Contracts..................... 1,141.5 1,259.6 1,153.0 19.5 37.4 14.9 Cross-Currency Swap Agreements........ 35.2 35.7 33.8 2.5 2.8 2.2 Purchased Options..................... 85.6 77.4 63.6 2.1 3.0 1.3 Written Options....................... 92.3 86.0 66.2 - - - COMMODITY AND EQUITY PRODUCTS............ 29.9 26.9 28.0 1.1 1.1 0.8 ------ ------ ----- 34.6 52.7 27.5 EFFECTS OF MASTER NETTING AGREEMENTS (B) (13.5) (20.5) (7.0) ------ ------ ----- $ 21.1 $ 32.2 $20.5 ====== ====== =====
(A) There is no balance sheet credit exposure for futures contracts because they settle daily in cash, and none for written options because they represent obligations (rather than assets) of Citicorp. (B) Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of counterparty default. The aggregate notional amount of derivative and foreign exchange contracts decreased 5% from a peak at March 31, 1995, which reflected a higher level of activity and customer demand in response to interest rate volatility in the European and U.S. markets. The aggregate notional amounts at June 30, 1995 were level with amounts at year-end 1994. The overall 17 reduction in the balance sheet credit exposure at June 30, 1995 compared with March 31, 1995 reflected reduced volatility in the foreign exchange markets. Citicorp manages its credit exposure on derivative and foreign exchange instruments as part of the overall extension of credit to individual customer relationships, subject to the same credit approvals, limits, and monitoring procedures used for other activities. In managing the aggregate credit extension to an individual customer, Citicorp measures the amount at risk on a derivative or foreign exchange instrument as the sum of two factors: the current replacement cost (i.e., balance sheet credit exposure), and the potential increase in the replacement cost over the remaining life of the instrument should market prices change. Citicorp's use of these two risk measures is discussed further in the 1994 Annual Report and Form 10-K. As shown in the table on page 17, replacement cost for all contracts in the aggregate was $21.1 billion at June 30, 1995. The potential increase in replacement cost, estimated as the amount of loss that Citicorp would suffer if changes in market rates resulted in additional unrealized gains and every counterparty to which Citicorp was exposed were to default at once, was approximately $47 billion in the aggregate for all contracts at June 30, 1995. At year-end 1994, approximately 96% of the total credit exposure was to investment grade counterparties and approximately 91% was under three years tenor, and Citicorp believes the distribution is substantially similar at June 30, 1995. There were no significant amounts of non-performing contracts at June 30, 1995 and gross credit-related losses on derivative contracts were approximately $1 million in the second quarter of 1995. The calculation of risk-adjusted assets for purposes of the regulatory risk- based capital ratios includes risk-weighted credit-equivalent amounts for derivative and foreign exchange contracts, net of bilateral netting arrangements, as applicable. These amounts were $2.8 billion, $2.5 billion, and $2.9 billion for interest rate contracts at June 30, 1995, March 31, 1995, and December 31, 1994, respectively, and $8.3 billion, $11.2 billion, and $7.6 billion, respectively, for foreign exchange, commodity, and equity contracts. Citicorp's management of its derivative and foreign exchange activities, including the related accounting and operational controls, is tailored to its dealer and end-user activities. Citicorp's dealer activities are managed on a market-value basis, which recognizes in earnings the gains or losses resulting from changes in market rates. For other than short-term derivative and foreign exchange contracts, Citicorp defers, at the inception of each contract, an appropriate portion of the initial market value attributable to ongoing costs such as servicing and operational activities. This amount is amortized into trading account or foreign exchange revenue over the life of the contract. The balance of unamortized revenue was $267 million at June 30, 1995. Information regarding derivative and foreign exchange trading revenue can be found on pages 25 and 26. Citicorp's risk management activities employ interest rate swaps and other derivatives that are designated and effective as hedges, as well as contracts that are designated and effective in modifying the interest rate characteristics of specified assets or liabilities. These contracts are accounted for in a manner consistent with the related assets or liabilities. Revenue and expense related to these agreements are generally included in net interest revenue over the lives of the agreements on an accrual basis, and realized gains and losses, including any related to terminated contracts, are deferred and amortized. Through the effective use of derivatives, Citicorp has been able to modify the volatility of its revenue from asset and liability positions. The table below illustrates the effect of derivatives on Citicorp's U.S. dollar earnings at risk for the next 12 months.
TWELVE MONTH U.S. DOLLAR EARNINGS AT RISK Assuming a Rate Move of ----------------------------- Two Standard Two Standard Deviation Deviation (In Millions at June 30, 1995) Increase Decrease -------------- ------------ Excluding Derivatives................... $131 $(145) Including Derivatives................... (94) 114
18 As indicated on page 18, the range of U.S. dollar earnings at risk for the following 12 months to a two standard deviation increase or decrease in rates was narrowed through risk modification using derivatives. The table illustrates that including derivatives, Citicorp's earnings in its non-trading portfolios would benefit from a decrease in interest rates and be reduced from an increase in interest rates. The notional principal amounts of Citicorp's end-user positions as of June 30, 1995, March 31, 1995 and December 31, 1994, and approximate maturities as of June 30, 1995, are reported below. Contract maturities are related to the underlying risk management strategies.
END-USER DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS (INCLUDING THIRD-PARTY AND INTERCOMPANY CONTRACTS) Notional Principal Amounts Percentage of June 30, 1995 Amount Maturing ---------------------------------- --------------------------------------------------------- June 30 Mar. 31 Dec. 31 Within 1 to 2 2 to 3 3 to 4 4 to 5 After 5 (Dollars in Billions) 1995 1995 1994 1 Year Years Years Years Years Years ------- ------- ------- ------ ------- ------ ------- ------- ------- INTEREST RATE PRODUCTS Futures Contracts.......... $18.5 $33.9 $77.4 81% 15% 3% 1% - - Forward Contracts.......... 10.6 9.0 3.7 100 - - - - - Swap Agreements............ 82.9 79.8 68.5 29 20 13 14 12% 12% Option Contracts........... 41.7 26.0 32.5 41 23 18 11 5 2 FOREIGN EXCHANGE PRODUCTS Futures and Forward Contracts................. 57.4 42.8 40.5 99 1 - - - - Cross-Currency Swap Agreements................ 3.5 3.2 3.1 24 18 8 9 16 25
The changes in notional amounts of end-user interest rate futures and option contracts during the second quarter of 1995 reflect modified risk management strategies in response to lower U.S. interest rates. The increase in notional amounts of foreign exchange futures and forwards is due to higher utilization as a result of cross-currency borrowing and lending activity in Europe. In order to achieve targeted levels of earnings at risk, Citicorp's utilization of these instruments is modified from time to time in response to changing market conditions as well as changes in the characteristics and mix of the related assets and liabilities. In this connection, during the second quarter of 1995 interest rate contracts with notional principal amounts of approximately $10 billion were closed out, resulting in a net deferred loss of approximately $8 million. Total unamortized net deferred losses, including those related to prior period close-outs, were approximately $184 million at June 30, 1995, which will be amortized through earnings over the period reflecting the original hedging or risk management strategy (30% in the remainder of 1995, 45% in 1996 and 25% in subsequent years). End-user derivative positions are components of Citicorp's designated asset and liability management activities. Derivatives provide an additional tool for accomplishing risk management objectives, but these same objectives could alternatively be accomplished using other financial instruments. Therefore, Citicorp does not believe it is meaningful to analyze the derivatives component of its risk management activities in isolation from related positions. The table on page 21 provides information about the estimated fair values of financial instruments. Additional information regarding the outstanding notional amounts and weighted average rates of interest rate swaps at June 30, 1995 is provided in the table on page 20, with three-month LIBOR forward rates included for reference. The table is intended to provide an overview of the swap component of the end-user portfolio, but should be viewed only in the context of Citicorp's related assets and liabilities. 19
END-USER INTEREST RATE SWAPS AS OF JUNE 30, 1995 Remaining Contracts Outstanding at June 30 ---------------------------------------------- (Dollars in Billions) 1995 1996 1997 1998 1999 2000 RECEIVE FIXED SWAPS Notional Amounts...................... $58.8 $44.6 $33.7 $26.6 $16.4 $ 6.7 Weighted-Average Fixed Rate........... 6.6% 6.7% 6.8% 6.9% 7.3% 7.0% PAY FIXED SWAPS Notional Amounts...................... $14.7 $ 7.7 $ 5.6 $ 3.8 $ 3.2 $ 2.8 Weighted-Average Fixed Rate........... 7.3% 7.4% 7.4% 7.3% 7.3% 7.2% BASIS SWAPS Notional Amounts...................... $ 9.4 $ 6.4 $ 2.8 $ 0.5 $ 0.1 $ 0.1 THREE-MONTH IMPLIED FORWARD LIBOR RATES (A) 6.1% 5.7% 6.1% 6.4% 6.6% 6.8%
(A) The floating rate for a substantial majority of the end-user interest rate swaps is three-month LIBOR. The three-month LIBOR rates shown above reflect the implied forward yield curve for that index as of June 30, 1995. Various proposals have been made in Congress to enact legislation which would limit or regulate derivatives activities. While Citicorp generally believes that legislation in this area is unnecessary, Citicorp cannot predict what, if any, action will be taken by Congress with respect to derivatives activities and what impact any such action may have on Citicorp's derivatives business. In addition, the Financial Accounting Standards Board is developing possible new accounting standards regarding derivatives and hedge accounting which could significantly affect the accounting treatment of derivative and foreign exchange contracts by Citicorp and its customers. Such initiatives could affect the nature and extent of these activities. 20 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The table below provides disclosure of the estimated fair value in excess of (less than) carrying value of Citicorp's financial instruments as defined in accordance with applicable requirements, including financial assets and liabilities recorded on the balance sheet as well as off-balance sheet instruments such as derivative and foreign exchange contracts, loan commitments, and credit card receivable securitizations. To better reflect Citicorp's values subject to market risk and to illustrate the interrelationships that characterize risk management strategies, the table below also provides estimated fair value data for the expected time period until runoff of existing deposits with no fixed maturity.
ESTIMATED FAIR VALUE IN EXCESS OF (LESS THAN) CARRYING VALUE June 30 Dec. 31 (In Billions) 1995 1994 ------- ------- Assets and Liabilities.................. $ 4.3 $ 4.6 End-User Derivative and Foreign Exchange Contracts..................... 0.4 (1.4) Loan Commitments........................ (0.1) (0.2) Credit Card Receivable Securitizations (A).................................... (0.1) 0.7 ----- ----- 4.5 3.7 Deposits with No Fixed Maturity (B)..... 2.4 2.9 ----- ----- Total................................... $ 6.9 $ 6.6 ===== =====
(A) Represents the estimated excess in fair value of the underlying receivables and investor certificates, which is derived by Citicorp in the form of excess servicing, and principally arises from fixed rates payable to certificate holders. (B) Represents the estimated excess fair value related to the expected time period until runoff of existing deposits with no fixed maturity on the balance sheet at June 30, 1995, without assuming any regeneration of balances, based on the estimated difference between the cost of funds on these deposits and the cost of funds from alternative sources. In the aggregate, estimated fair values exceeded carrying values by approximately $6.9 billion at June 30, 1995 and $6.6 billion at December 31, 1994. The increase from December 31, 1994 is primarily due to the effect of declining interest rates on the value of derivative contracts which was partially offset by decreases in liabilities, asset securitizations, and deposits with no fixed maturity due to the same interest rate environment. CAPITAL Citicorp is subject to risk-based capital guidelines issued by the Federal Reserve Board ("FRB"). These guidelines are supplemented by a leverage ratio requirement. The risk-based capital guidelines and the leverage ratio requirement are detailed in the 1994 Annual Report and Form 10-K. Common stockholders' equity increased $1.5 billion during the quarter to $15.5 billion at June 30, 1995, primarily reflecting net income for the quarter of $853 million, common stock issuance of $443 million relating to the redemption of Conversion Preferred Stock, Series 15 ("PERCS"), an after-tax increase in the net unrealized value of securities available for sale of $262 million, and the issuance of common stock under various staff benefit plans and the dividend reinvestment plan of $179 million, partially offset by cash dividends declared on common and preferred stock of $215 million and common stock repurchases of $50 million. Tier 1 capital at quarter-end was $18.6 billion, up $755 million from March 31, 1995. Citicorp's Tier 1 capital ratio increased to 8.43% at June 30, 1995, up from 8.01% at March 31, 1995, and 7.80% at December 31, 1994. Total capital (Tier 1 and Tier 2) was $27.3 billion at June 30, 1995, compared with $26.9 billion at March 31, 1995, and $26.1 billion at December 31, 1994. 21 On June 20, 1995, Citicorp's Board of Directors approved the repurchase of up to $3 billion in the aggregate of common stock and convertible preferred stock, to be made from time to time over the following 24 months. During the second quarter of 1995, Citicorp repurchased 850,000 shares of common stock at an aggregate purchase price of approximately $50 million. On July 21, 1995, Citicorp announced that it would redeem an additional 24 million depositary shares of PERCS, by issuing approximately 8 million shares of common stock on September 1, 1995. Also, in July 1995 holders converted approximately 2.6 million depositary shares of Citicorp's Convertible Preferred Stock, Series 13, into approximately 7 million shares of common stock. These events will have no effect on Citicorp's Tier 1 capital but together will increase common stockholders' equity by $482 million. The depositary shares of PERCS to be redeemed on September 1, 1995, together with those redeemed on June 12, 1995, constitute approximately 70% of the originally outstanding PERCS. Citicorp expects to redeem the remaining depositary shares of PERCS before their mandatory conversion date of November 30, 1995. Citicorp has entered into forward purchase agreements on its common stock, to be settled in shares of its common stock on a net basis. The agreements are designed to have an effect at settlement similar to that of the PERCS, in that they will reduce the number of shares of common stock outstanding if the market price of Citicorp common stock increases (as a result of delivery of shares of common stock by the counterparty to Citicorp). To the extent that the market price of Citicorp common stock decreases, the agreements will increase the number of common shares outstanding. The number of common shares and the forward strike prices are based in part on the common stock prices applicable to the redemption of the PERCS. The accounting for these contracts is described in Citicorp's Financial Review and Form 10-Q for the quarter ended March 31, 1995. As of June 30, 1995, an agreement was in place covering approximately $300 million of Citicorp common stock, of which approximately 21% had forward prices established. If the priced portion of this agreement was settled based on the June 30 market price of Citicorp common stock, Citicorp would be entitled to receive approximately 0.3 million shares. On July 20, 1995, Citicorp entered into an additional agreement covering $150 million of Citicorp common stock.
CITICORP RATIOS Minimum June 30 Mar. 31 Dec. 31 Required 1995 1995 1994 -------- ------- ------- ------- Common Stockholders' Equity.. 6.02% 5.21% 5.42% Tier 1 Capital............... 4.00% 8.43 8.01 7.80 Tier 1 and Tier 2 Capital.... 8.00 12.40 12.06 12.04 Leverage (A)................. 3.00+ 7.19 7.00 6.67
(A) Citicorp has not been advised by the FRB of a specific minimum leverage ratio. As of August 3, 1995, the five-year performance-based stock options granted to a key group of employees in July 1993 had vested in full. To further focus management's efforts to increase the company's return to shareholders, Citicorp intends to grant new five-year performance-based stock options to a broader group of key employees, exercisable for up to 5.75 million common shares at the price prevailing on the grant date. It is expected that one-half of these options will vest when Citicorp's common stock price has reached $100 per share and that the balance will vest when such price has reached $115 per share, in each case assuming the price remains at or above the indicated price level for twenty of thirty consecutive trading days. These options will be awarded pursuant to the Stock Incentive Plan approved by shareholders in 1988. No other material grants of options are expected to be recommended with respect to fiscal year 1995. 22
COMPONENTS OF RISK-BASED CAPITAL UNDER REGULATORY GUIDELINES June 30 Mar. 31 Dec. 31 (In Millions) 1995 1995 1994 ------- ------- ------- TIER 1 CAPITAL Common Stockholders' Equity............. $ 15,479 $ 14,024 $ 13,582 Perpetual Preferred Stock (A)........... 3,895 4,337 4,187 Minority Interest....................... 61 58 55 Less: Net Unrealized Gains (Losses) - Securities Available for Sale........ 204 (58) 278 Intangible Assets (B)................. 327 338 344 50% Investment in Certain Subsidiaries (C)..................... 307 297 283 -------- -------- -------- Total Tier 1 Capital.................... 18,597 17,842 16,919 -------- -------- -------- TIER 2 CAPITAL Allowance for Credit Losses (D)......... 2,788 2,814 2,741 Qualifying Debt (E)..................... 6,264 6,491 6,742 Less: 50% Investment in Certain Subsidiaries (C)....................... 307 297 283 -------- -------- -------- Total Tier 2 Capital.................... 8,745 9,008 9,200 -------- -------- -------- Total Capital (Tier 1 and Tier 2)....... $ 27,342 $ 26,850 $ 26,119 ======== ======== ======== Net Risk-Adjusted Assets (F)............ $220,487 $222,647 $216,856 ======== ======== ========
(A) At June 30, 1995, excludes $125 million of Perpetual Preferred Stock, Series 9, which was called for redemption on June 21, 1995 and was redeemed for cash on July 21, 1995. (B) Includes goodwill and certain identifiable intangible assets. (C) Primarily Citicorp Securities, Inc. (D) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets. (E) Includes qualifying senior and subordinated debt, in an amount not exceeding 50% of Tier 1 capital, subordinated capital notes, and limited life preferred stock, subject to certain limitations. (F) Net risk-adjusted assets include certain off-balance sheet activities and commitments such as foreign exchange and derivative products and letters of credit and also reflect deductions for intangible assets and any excess allowance for credit losses. See pages 16 through 20 for further discussion of derivative and foreign exchange activities. Citicorp's subsidiary depository institutions are subject to the risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are generally similar to the FRB's guidelines. At June 30, 1995, all of Citicorp's subsidiary depository institutions were "well capitalized" under the federal bank regulatory agencies' definitions.
CITIBANK, N.A. RATIOS Minimum June 30 Mar. 31 Dec. 31 Required 1995 1995 1994 -------- ------- ------- ------- Common Stockholder's Equity... 7.15% 6.57% 6.91% Tier 1 Capital................ 4.00% 8.43 8.14 7.83 Tier 1 and Tier 2 Capital..... 8.00 12.95 12.61 12.44 Leverage (A).................. 3.00+ 6.51 6.53 6.09
(A) Citibank, N.A. has not been advised of a specific minimum leverage ratio. From time to time, the FRB and the Federal Financial Institutions Examination Council propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. Such proposals or interpretations could, if implemented in the future, affect reported capital ratios and net risk- adjusted assets. 23 STATEMENT OF INCOME ANALYSIS NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS) Net interest revenue increased 6% from the first quarter of 1995 and 14% from the second quarter of last year, reflecting higher net rate spreads, as well as an increase in interest-earning assets. Net interest revenue and interest rate spreads for all periods presented were reduced by the effect of credit card receivable securitizations. Adjusted for the effect of credit card receivable securitizations, net interest revenue increased 6% from the 1995 first quarter and 10% from the 1994 second quarter. The adjusted net rate spread increased to 4.80% from 4.61% in the first quarter of 1995 and from 4.64% in the second quarter of 1994. The adjusted net rate spread in the U.S. of 4.81% in the second quarter of 1995 was essentially unchanged from the first quarter of 1995, and increased from 4.64% in the second quarter of 1994. The increase in the adjusted net rate spread in the U.S. from the 1994 second quarter reflected funding benefits associated with higher equity levels, partially offset by lower trading-related net interest revenue in the North America Global Finance business. Higher net interest revenue from the increase in U.S. credit card volumes was offset by a decrease in spreads. The net rate spread outside the U.S. increased to 4.80% from 4.39% in the first quarter of 1995 and from 4.63% in the second quarter of 1994. The increase from the first quarter of 1995 was primarily due to an increase in trading-related net interest revenue in the Global Finance business and a greater proportion of high spread assets and an increase in spreads in the Latin America consumer business. The improvement over the second quarter of 1994 was primarily due to increases in the Global Consumer business in the Emerging Markets and increased spreads from funding activities in Latin America Global Finance, partially offset by lower trading-related net interest revenue in the Global Finance business. The increase in adjusted average interest-earning assets of $13.8 billion from the second quarter of 1994 was mainly attributable to higher levels of consumer loans both in and outside the U.S.
NET INTEREST REVENUE STATISTICS 2nd Qtr. 1st Qtr 4th Qr. 3rd Qtr. 2nd Qtr. 1st Qtr. (TAXABLE EQUIVALENT BASIS) (A) (B) 1995 1995 1994 1994 1994 1994 ---- ---- ---- ---- ---- ---- NET INTEREST REVENUE: (In Millions) U.S.............................. $1,017 $1,047 $1,025 $1,015 $ 911 $ 945 Outside the U.S.................. 1,459 1,286 1,303 1,337 1,259 1,142 ------ ------ ------ ------ ------ ------ Total............................ $2,476 $2,333 $2,328 $2,352 $2,170 $2,087 ====== ====== ====== ====== ====== ====== AVERAGE INTEREST-EARNING ASSETS: (In Billions) U.S.............................. $103.1 $104.9 $103.9 $ 99.9 $100.8 $102.7 Outside the U.S.................. 121.8 118.8 115.3 113.6 108.9 108.1 ------ ------ ------ ------ ------ ------ Total............................ $224.9 $223.7 $219.2 $213.5 $209.7 $210.8 ====== ====== ====== ====== ====== ====== NET RATE SPREAD (%): U.S.............................. 3.96 4.05 3.91 4.03 3.63 3.73 Outside the U.S.................. 4.80 4.39 4.49 4.67 4.63 4.29 Total............................ 4.42 4.23 4.21 4.37 4.15 4.01 ADJUSTED FOR THE EFFECT OF CREDIT CARD SECURITIZATION - ----------------------------------------------------- NET INTEREST REVENUE: (In Millions) U.S............................ $1,514 $1,515 $1,495 $1,525 $1,451 $1,474 Total.......................... 2,973 2,801 2,798 2,862 2,710 2,616 AVERAGE INTEREST-EARNING ASSETS: (In Billions) U.S............................ $126.4 $127.4 $125.5 $123.1 $125.5 $126.9 Total.......................... 248.2 246.2 240.8 236.7 234.4 235.0 NET RATE SPREAD (%): U.S............................ 4.81 4.82 4.73 4.92 4.64 4.71 Total.......................... 4.80 4.61 4.61 4.80 4.64 4.52
(A) Includes appropriate allocations for capital and funding costs based on the location of the asset. (B) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% for the periods presented. 24
FEE AND COMMISSION REVENUE Second Quarter Six Months -------------------- ---------- (In Millions) 1995 1994 1995 1994 ---- ---- ---- ---- Global Consumer..................... $ 820 $ 811 $1,633 $1,631 Global Finance and Other............ 443 428 892 867 ------ ------ ------ ------ Total............................... $1,263 $1,239 $2,525 $2,498 ====== ====== ====== ======
Fee and commission revenue earned by the Global Consumer business in the Emerging Markets increased 17% and 15%, respectively, in the second quarter and six months of 1995 from the comparable 1994 periods, reflecting strong growth across various consumer products offered in these markets. These increases were partially offset by lower fees in the U.S. credit card business and in private banking activities in the Developed Markets. The reduction in U.S. credit card fees reflected actions taken during 1994 to eliminate annual cardholder fees on most credit cards. These reductions were partially offset by higher net transaction fees from increased charge volumes. Fee revenue in the Global Finance business was comparable to the year-ago periods as increases in the transaction services business were offset by reductions in other fee related activities. TRADING-RELATED REVENUE Trading-related revenue is reported in the "Trading Account" and "Foreign Exchange" captions on the income statement, but also includes other amounts, principally reflected in "Net Interest Revenue." The table below provides an analysis of trading-related revenue by income statement line, by trading activity, and by business-sector source. Trading-related revenue--including derivatives--reflected continued customer demand for risk-management products and improved trading activities related to Citicorp's market-making activities.
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. (In Millions) 1995 1995 1994 1994 1994 1994 ------- -------- -------- ------- ------- ------- BY INCOME STATEMENT LINE: Trading Account.............. $ 142 $ 39 $ 29 $ 105 $ 19 $ 5 Foreign Exchange............. 323 305 185 182 140 66 Other (A).................... 88 51 117 203 175 143 ----- ----- ----- ----- ----- ----- TOTAL........................ $ 553 $ 395 $ 331 $ 490 $ 334 $ 214 ===== ===== ===== ===== ===== ===== BY TRADING ACTIVITY: Foreign Exchange (B)......... $ 303 $ 265 $ 194 $ 183 $ 164 $ 148 Derivative (C)............... 120 99 59 166 113 57 Fixed Income (D)............. 52 (43) 13 46 (24) (43) Other......................... 78 74 65 95 81 52 ----- ----- ----- ----- ----- ----- TOTAL......................... $ 553 $ 395 $ 331 $ 490 $ 334 $ 214 ===== ===== ===== ===== ===== ===== BY BUSINESS SECTOR: Global Finance Developed Markets........... $ 282 $ 217 $ 178 $ 226 $ 146 $ 98 Emerging Markets............ 208 119 109 217 147 66 Global Consumer and Other.... 63 59 44 47 41 50 ----- ----- ----- ----- ----- ----- TOTAL......................... $ 553 $ 395 $ 331 $ 490 $ 334 $ 214 ===== ===== ===== ===== ===== =====
(A) Primarily net interest revenue. (B) Includes foreign exchange spot, forward, and option contracts. (C) Primarily interest rate and currency swaps, options, financial futures, and equity and commodity contracts. (D) Principally debt instruments including government and corporate debt as well as mortgage-backed securities. 25 Trading-related revenue increased to $553 million and $948 million in the second quarter and six months of 1995, up from $334 million and $548 million in the respective 1994 periods. The increases reflect improved foreign exchange and fixed income activity across most geographies. Second quarter and six month 1995 trading-related revenue reflects strong results in Europe and the Emerging Markets. TRADING ACCOUNT Trading account revenue, which includes activities in the debt, derivatives, and other securities markets, improved in both the second quarter and six months of 1995, reflecting the difficult market environment that existed in the respective 1994 periods. The improvements in the second quarter and six month results were broadly based across most geographies and were paced by trading in fixed income products. FOREIGN EXCHANGE Foreign exchange revenue increased in the second quarter and six months of 1995 compared with the respective 1994 periods, reflecting sustained customer demand and significantly improved market-making activity. The improvements in both periods were broadly based across most geographies. SECURITIES TRANSACTIONS Net gains from the sale of securities were $18 million in the second quarter and $44 million in the six months of 1995, compared with $123 million and $173 million in the respective 1994 periods. The net gains in the second quarter of 1995 reflected gross realized gains of $23 million ($64 million for the six months) and gross realized losses of $5 million ($20 million for the six months). The second quarter and six months of 1994 results included a realized gain of $71 million (reported as a capital building transaction) on the sale of Brazilian interest bonds received in a previous restructuring. The fair value of securities available for sale and the related adjustment to stockholders' equity may fluctuate over time based on market conditions and changes in market interest rates, as well as events and trends affecting specific securities.
OTHER REVENUE Second Quarter Six Months --------------------- ---------- (In Millions) 1995 1994(A) 1995 1994(A) Securitized Credit Card Receivables..... $ 244 $236 $ 460 $444 Venture Capital......................... 188 25 273 104 Affiliate Earnings...................... 52 52 107 117 Mortgage Pass-Through Securitization Activity............................... 14 (9) 15 (47) Foreign Currency Translation Gains...... 2 7 5 7 Capital Building Transactions........... - 46 - 69 Net Asset Gains and Other Items......... (25) 14 101 73 ----- ---- ----- ---- Total................................... $ 475 $371 $ 961 $767 ===== ==== ===== ====
(A) Reclassified to conform to latest quarter's presentation. The increase in revenue related to securitized credit card receivables reflected lower net credit loss rates, partially offset by lower securitization volumes and reduced net interest spreads. The effect of credit card receivable securitizations is discussed in more detail on page 29. Venture capital revenue in the 1995 second quarter and six months included a gain related to a public offering of shares of an investee. Investments of venture capital subsidiaries are carried at fair value and earnings volatility can occur in the future, based on general market conditions as well as events and trends affecting specific venture capital investments. 26 The improvement in 1995 second quarter and six month revenue from mortgage pass- through securitization activity reflected higher excess servicing revenue and lower net adjustments required for accelerated prepayments of securitized mortgages. Net asset gains and other items included a $70 million investment writedown in Latin America during the second quarter. Revenue in the six months of 1995 also reflected gains on the sale of real estate assets and revenue resulting from completion of the Ecuador refinancing package. Revenue from capital building transactions in the 1994 second quarter and six months included recognition of $173 million representing the fair value of bonds received in connection with the Brazil refinancing agreement, partially offset by writedowns in the value of certain investments in Latin America. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses in the second quarter and six months of 1995 included charges in excess of consumer and non-refinancing portfolio commercial net write-offs of $75 million and $150 million, respectively, to build the allowance for credit losses, compared with charges of $100 million and $200 million in the respective 1994 periods. Details of net write-offs (recoveries) and the provision for credit losses are included in the following table.
NET WRITE-OFFS (RECOVERIES) AND PROVISION FOR CREDIT LOSSES Second Quarter Six Months -------------- -------------- (In Millions) 1995 1994 1995 1994 NET WRITE-OFFS (RECOVERIES): Global Consumer........................ $ 379 $ 311 $ 688 $ 639 Global Finance......................... 17 9 8 (37) North America Commercial Real Estate... 22 63 38 131 ----- ----- ----- ------ Total Non-Refinancing Commercial....... 39 72 46 94 ----- ----- ----- ------ Cross-Border Refinancing Portfolio (A). 13 (329) (10) ( 364) ----- ----- ----- ------ Total.................................. $ 431 $ 54 $ 724 $ 369 ===== ===== ===== ====== PROVISION FOR CREDIT LOSSES: Global Consumer........................ $ 429 $ 361 $ 788 $ 739 Global Finance......................... 42 21 58 (13) North America Commercial Real Estate... 22 101 38 207 ----- ----- ----- ------ Total Non-Refinancing Commercial....... 64 122 96 194 ----- ----- ----- ------ Cross-Border Refinancing Portfolio..... - (11) - (46) ----- ----- ----- ------ Total.................................. $ 493 $ 472 $ 884 $ 887 ===== ===== ===== ======
(A) Includes a credit recovery of $318 million in the second quarter and six months of 1994 as part of the step-up to market value of instruments received pursuant to the Brazil refinancing agreement completed in the second quarter. The consumer credit loss provision included charges in excess of net write-offs of $50 million and $100 million, respectively, in the second quarter and six months of both 1995 and 1994. As a percentage of average consumer loans, net write-offs rose to 1.54% during the quarter from 1.50% in the 1994 second quarter. The increase in the loss ratio is primarily due to a higher proportion of U.S. credit card receivables in the consumer portfolio, as well as increased loss rates in Germany and Latin America. These increases were largely offset by improvements in loss rates in the U.S. branch and mortgage businesses and in the U.S. credit card business. 27 The non-refinancing commercial credit loss provisions included charges in excess of net write-offs of $25 million and $50 million in the second quarter and six months of 1995, compared with charges of $50 million and $100 million in the respective 1994 periods. The reduction in net write-offs and the charges in excess of net write-offs primarily reflected improvements in the North America Commercial Real Estate business as a result of increased liquidity and improving conditions in most markets. These improvements were partially offset by results in the Global Finance business, which experienced higher net write-offs in the second quarter and six months of 1995 compared with the respective 1994 periods. The Cross-Border Refinancing Portfolio reported net recoveries in the six months of 1995, principally related to the Ecuador refinancing agreement completed in the first quarter. In the six months of 1994, the Cross-Border Refinancing Portfolio provision reflected a release of $44 million from the allowance. All identified credit losses are immediately written off and the entire allowance is available to absorb all probable credit losses inherent in the portfolio. However, for analytical purposes, Citicorp views its allowance as attributable to the following portions of its credit portfolio:
ALLOWANCE FOR CREDIT LOSSES June 30 Mar. 31 Dec. 31 Sept. 30 June 30 ------- ------- ------- -------- ------- (Dollars In Millions) 1995 1995 1994 1994 1994 ---- ---- ---- ---- ---- Global Consumer..................... $1,923 $1,897 $1,834 $1,790 $1,711 Commercial.......................... 3,385 3,373 3,321 3,270 3,201 ------ ------ ------ ------ ------ Total............................... $5,308 $5,270 $5,155 $5,060 $4,912 ====== ====== ====== ====== ====== Reserve For Global Consumer Sold Portfolios................ $ 467 $ 450 $ 422 $ 467 $ 503 ====== ====== ====== ====== ====== Allowance As a Percentage of Total Loans: Global Consumer................... 1.91% 1.93% 1.90% 1.97% 2.00% Commercial........................ 5.90 5.79 5.95 5.90 5.76 Total............................... 3.36% 3.37% 3.38% 3.46% 3.48%
Continued uncertainty in the economic environment and higher loan volumes may result in further increases in both the consumer and commercial portions of the allowance for credit losses. OPERATING EXPENSE EMPLOYEE EXPENSE Employee expense was $1.5 billion in the second quarter and $2.8 billion in the six months of 1995, up $203 million and $344 million from the comparable 1994 periods. These increases principally reflected higher staff levels related to the continuing business expansion in the Emerging Markets, growth in the U.S. credit card business, and an increase of $23 million in the second quarter of 1995 due to the accelerated recognition of expense associated with the 1993 performance-based stock option grants (triggered by the increase in Citicorp's common stock price), as well as the foreign currency translation effect of the weaker U.S. dollar, primarily in the European exchange markets. OTHER EXPENSE Other expense was $1.3 billion in the quarter and $2.7 billion in the six months of 1995, up $139 million and $244 million from the comparable 1994 periods. These increases reflected higher costs associated with the continuing business expansion in the Emerging Markets, introduction of the co-branded railway card in Germany, higher account maintenance, marketing, 28 and advertising costs in the U.S. credit card business, costs associated with higher volume in the transaction services business, particularly in Europe, and continued investments in operational and technological efficiencies, as well as the foreign currency translation effect of the weaker U.S. dollar, primarily in the European exchange markets. RESTRUCTURING ACTIVITIES Citicorp has taken a series of actions in recent years to control costs and improve productivity. These actions included a $425 million restructuring charge in 1993, comprising $319 million related to workforce reductions, $88 million attributable to asset writedowns, and $18 million in other actions. A total of $336 million of these restructuring charges had been utilized through June 30, 1995. The $89 million remaining to be utilized relates solely to workforce reductions. Citicorp anticipates that substantially all of these amounts will be paid out in 1995. While future changes in estimates may occur, it is expected that any such changes will be immaterial to Citicorp's operations. The $319 million charge related to workforce reductions provided for the elimination of approximately six thousand positions of which approximately five thousand have been eliminated to date. These actions are directed towards improved efficiency rather than curtailments of business activity, and help to offset cost increases that otherwise result from inflation and business expansion. INCOME TAXES Income taxes were $545 million in the second quarter and $1.1 billion in the six months of 1995 compared with $245 million and $635 million in the respective 1994 periods. The effective tax rate was 39% for both the second quarter and six months of 1995. The effective tax rates for the comparable 1994 periods were 22% and 30%, which reflected the recognition of $200 million and $220 million, respectively, of deferred tax benefits. EFFECT OF CREDIT CARD RECEIVABLE SECURITIZATIONS During the six months of 1995, $4.8 billion of credit card receivables were sold. The total amount of securitized receivables, net of amortization, as of June 30, 1995, was $23.3 billion, compared with $21.3 billion as of December 31, 1994. The securitization of credit card receivables, which is fully described in the 1994 Annual Report and Form 10-K, does not affect the earnings reported in a period. However, securitization affects the manner in which the revenue is reported in the income statement. For securitized receivables, amounts that would otherwise be reported as net interest revenue, as fee and commission revenue, and as credit losses on loans are instead reported as fee and commission revenue (for servicing fees) and as other revenue (for the remaining cash flows to which Citicorp is entitled, net of credit losses). The table below shows the net impact of the securitization of credit card receivables as an increase or (decrease) to the amounts reported in the Consolidated Statement of Income and Average Balance Sheet, and under the captions of Return on Assets and Consumer Net Credit Loss Ratio. See page 7 for further discussion.
Second Quarter Six Months -------------- ----------------- (Dollars In Millions) 1995 1994 1995 1994 ---- ---- ---- ---- Net Interest Revenue................. $(497) $(540) $(965) $(1,069) Fee and Commission Revenue........... 27 40 57 93 Other Revenue........................ 244 236 460 444 Provision for Credit Losses.......... (226) (264) (448) (532) ----- ----- ----- ------- Net Income Impact of Securitization.. $ - $ - $ - $ - ===== ===== ===== ====== Average Assets (In Billions)......... $ (23) $ (25) $ (23) $ (24) Return on Assets..................... .10% .12% .10% .10% Consumer Net Credit Loss Ratio....... (.44) (.64) (.48) (.65)
29
CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME CITICORP AND SUBSIDIARIES Second Quarter Six Months -------------------- ---------- (In Millions Except Per Share Amounts) 1995 1994 1995 1994 ---- ---- ---- ---- INTEREST REVENUE Interest and Fees on Loans.............. $4,368 $4,242 $ 8,709 $ 8,367 Interest on Deposits with Banks......... 201 292 382 578 Interest on Federal Funds Sold and Securities Purchased Under Resale Agreements............................. 258 1,537 509 2,662 Interest and Dividends on Securities U. S. Treasury and Federal Agencies.. 62 60 125 116 State and Municipal.................. 23 20 45 32 Other (Principally in offices outside the U.S.)................... 301 222 581 417 Interest on Trading Account Assets...... 500 523 959 1,182 ------ ------ ------- ------- Total Interest Revenue............... 5,713 6,896 11,310 13,354 ------ ------ ------- ------- INTEREST EXPENSE Interest on Deposits.................... 2,178 2,589 4,434 5,059 Interest on Trading Account Liabilities. 62 69 145 132 Interest on Purchased Funds and Other Borrowings............................. 653 1,517 1,237 2,776 Interest on Long-Term Debt and Subordinated Capital Notes............. 352 563 701 1,144 ------ ------ ------- ------- Total Interest Expense............. 3,245 4,738 6,517 9,111 ------ ------ ------- ------- NET INTEREST REVENUE.................... 2,468 2,158 4,793 4,243 ------ ------ ------- ------- PROVISION FOR CREDIT LOSSES............. 493 472 884 887 ------ ------ ------- ------- NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES...................... 1,975 1,686 3,909 3,356 ------ ------ ------- ------- FEES, COMMISSIONS, AND OTHER REVENUE Fees and Commissions.................... 1,263 1,239 2,525 2,498 Trading Account......................... 142 19 181 24 Foreign Exchange........................ 323 140 628 206 Securities Transactions................. 18 123 44 173 Other Revenue........................... 475 371 961 767 ------ ------ ------- ------- Total Fees, Commissions, and Other Revenue.......................... 2,221 1,892 4,339 3,668 ------ ------ ------- ------- OPERATING EXPENSE Salaries................................ 1,119 974 2,199 1,928 Employee Benefits....................... 343 285 641 568 ------ ------ ------- ------- Total Employee Expense............... 1,462 1,259 2,840 2,496 Net Premises and Equipment Expense...... 417 370 827 760 Other Expense........................... 919 827 1,824 1,647 ------ ------ ------- ------- Total Operating Expense............ 2,798 2,456 5,491 4,903 ------ ------ ------- ------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE........... 1,398 1,122 2,757 2,121 Income Taxes............................ 545 245 1,075 635 ------ ------ ------- ------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE...................... 853 877 1,682 1,486 Cumulative Effect of Accounting Change (A).................................... - - - (56) ------ ------ ------- ------- NET INCOME.............................. $ 853 $ 877 $ 1,682 $ 1,430 ====== ====== ======= ======= INCOME APPLICABLE TO COMMON STOCK....... $ 757 $ 790 $ 1,492 $ 1,256 ====== ====== ======= ======= EARNINGS PER SHARE: ON COMMON AND COMMON EQUIVALENT SHARES Income Before Cumulative Effect of Accounting Change...................... $1.76 $1.83 $3.47 $3.07 Cumulative Effect of Accounting Change (A).................................... - - - ( 0.13) ------ ------ ------- ------- Net Income.............................. $1.76 $1.83 $3.47 $2.94 ====== ====== ======= ======= ASSUMING FULL DILUTION Income Before Cumulative Effect of Accounting Change...................... $1.57 $1.64 $3.09 $2.77 Cumulative Effect of Accounting Change (A).................................... - - - (0.11) ------ ------ ------- ------- Net Income.............................. $1.57 $1.64 $3.09 $2.66 ====== ====== ======= =======
(A) Represents the cumulative effect of adopting SFAS No. 112, "Employers' Accounting for Postemployment Benefits," as of January 1, 1994. 30
CONSOLIDATED BALANCE SHEET CITICORP AND SUBSIDIARIES (Dollars In Millions) June 30, 1995 Dec. 31, 1994 - --------------------- ------------- ------------- ASSETS Cash and Due from Banks................. $ 6,801 $ 6,470 Deposits at Interest with Banks......... 8,738 6,862 Securities Held to Maturity...................... 5,046 5,092 Available for Sale.................... 13,730 13,602 Venture Capital....................... 1,713 2,009 Trading Account Assets.................. 37,875 38,875 Federal Funds Sold and Securities Purchased Under Resale Agreements...... 7,594 6,995 Loans, Net of Unearned Income Consumer.............................. 100,852 96,600 Commercial............................ 57,335 55,820 -------- -------- Total Loans........................... 158,187 152,420 Allowance for Credit Losses............. (5,308) (5,155) Customers' Acceptance Liability......... 1,409 1,420 Premises and Equipment, Net............. 4,363 4,062 Interest and Fees Receivable............ 2,680 2,654 Other Assets............................ 14,166 15,183 -------- -------- TOTAL................................. $256,994 $250,489 ======== ======== LIABILITIES Non-Interest-Bearing Deposits in U.S. Offices................................ $ 12,421 $ 13,648 Interest-Bearing Deposits in U.S. Offices................................ 36,411 35,699 Non-Interest-Bearing Deposits in Offices Outside the U.S................ 8,473 7,212 Interest-Bearing Deposits in Offices Outside the U.S........................ 105,817 99,167 -------- -------- Total Deposits 163,122 155,726 Trading Account Liabilities............. 23,111 22,382 Purchased Funds and Other Borrowings.... 16,662 20,907 Acceptances Outstanding................. 1,419 1,440 Accrued Taxes and Other Expenses........ 5,359 5,493 Other Liabilities....................... 9,110 8,878 Long-Term Debt.......................... 17,375 16,497 Subordinated Capital Notes.............. 1,337 1,397 STOCKHOLDERS' EQUITY Preferred Stock (Without par value)..... 4,020 4,187 Common Stock ($1.00 par value).......... 441 421 Issued Shares: 440,846,008 and 420,589,459, respectively Surplus................................. 4,887 4,194 Retained Earnings....................... 10,817 9,561 Net Unrealized Gains - Securities Available for Sale..................... 204 278 Foreign Currency Translation............ (408) (471) Common Stock in Treasury, at Cost....... (462) (401) Shares: 26,442,767 and 25,508,610, respectively -------- -------- Total Stockholders' Equity............ 19,499 17,769 -------- -------- TOTAL................................. $256,994 $250,489 ======== ========
31 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' CITICORP AND SUBSIDIARIES EQUITY
Six Months Ended June 30 ------------------------- (In Millions) 1995 1994 -------- -------- Balance at Beginning of Period.................. $ 17,769 $ 13,953 Preferred Stock Issuance, Net of Related Costs.................................. 267 170 Conversion Preferred Stock, Series 15 ("PERCS") Redemption of PERCS........................... (443) - Issuance of Common Stock...................... 443 - Issuance of Common Stock Under Various Staff Benefit Plans (Net of Amortization) and the Dividend Reinvestment Plan............. 279 141 Net Income...................................... 1,682 1,430 Cash Dividends Declared Common........................................ (238) (58) Preferred..................................... (188) (178) Adoption of SFAS No. 115, Net Unrealized Gains on Securities Available for Sale............................ - 365 Change in Net Unrealized Securities Available for Sale (74) (275) Foreign Currency Translation.................... 63 75 Treasury Stock Transactions, at Cost (A)........ (61) (1) -------- -------- Balance at End of Period........................ $ 19,499 $ 15,622 ======== ========
(A) Reflects the repurchase of 850,000 common shares at a cost of approximately $50 million during the second quarter of 1995. See page 21 for additional discussion. 32
CONSOLIDATED STATEMENT OF CASH FLOWS CITICORP and Subsidiaries Six Months Ended June 30 ------------------------ (In Millions) 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Income.............................................. $ 1,682 $ 1,430 --------- --------- Adjustments to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities: Provision for Credit Losses.......................... 884 887 Depreciation and Amortization of Premises and Equipment.............................. 310 271 Amortization of Goodwill............................. 25 24 Provision for Deferred Taxes......................... (163) (636) Cumulative Effect of Accounting Change............... - 56 Venture Capital Activity............................. 296 (129) Net (Gain) on Sale of Securities..................... (44) (173) Net (Gain) on Sale of Subsidiaries and Affiliates.... - (11) Changes in Accruals and Other, Net................... 116 (1,991) Net Decrease (Increase) in Trading Account Assets.... 1,000 (28,176) Net Increase in Trading Account Liabilities.......... 729 27,339 --------- --------- Total Adjustments....................................... 3,153 (2,539) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,835 (1,109) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net (Increase) in Deposits at Interest with Banks.... (1,876) (971) Securities - Held to Maturity Purchases.......................................... (2,922) (6,616) Maturities......................................... 3,046 8,634 Securities - Available for Sale Purchases.......................................... (9,419) (10,166) Proceeds from Sales................................ 4,719 4,963 Maturities......................................... 4,953 3,006 Net (Increase) in Federal Funds Sold and Securities Purchased Under Resale Agreements.... (599) (1,711) Net (Increase) in Loans.............................. (48,728) (50,416) Proceeds from Sales of Loans and Credit Card Receivables......................................... 42,439 44,726 Capital Expenditures on Premises and Equipment....... (537) (631) Proceeds from Sales of Premises and Equipment........ 59 203 Proceeds from Sales of Subsidiaries and Affiliate... - 21 Proceeds from Sales of Other Real Estate Owned (OREO) 385 762 --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES................. (8,480) (8,196) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net Increase in Deposits............................. 7,396 7,203 Net (Decrease) Increase in Federal Funds Purchased and Securities Sold Under Repurchase Agreements......................... (3,350) 3,434 Proceeds from Issuance of Commercial Paper and Funds Borrowed with Original Maturities of Less Than One Year........... 234,859 143,547 Repayment of Commercial Paper and Funds Borrowed with Original Maturities of Less Than One Year.................................. (235,703) (142,736) Proceeds from Issuance of Long-Term Debt............. 2,665 996 Repayment of Long-Term Debt.......................... (2,014) (2,478) Proceeds from Issuance of Preferred Stock............ 267 170 Proceeds from Issuance of Common Stock............... 205 117 Purchase of Treasury Stock........................... (51) (2) Dividends Paid....................................... (426) (232) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............... 3,848 10,019 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND DUE FROM BANKS.................................... 128 (8) --------- --------- Net Increase in Cash and Due from Banks................ 331 706 Cash and Due from Banks at Beginning of Period......... 6,470 4,836 --------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD............... $ 6,801 $ 5,542 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Period for: Interest............................................ $ 6,070 $ 8,141 Income Taxes........................................ 788 1,016 NON-CASH INVESTING ACTIVITIES Transfer from Loans to OREO and Assets Pending Disposition........................................ $ 422 $ 672
33 Financial Printing GroupFinancial Printing GroupConsolidated Balance Sheet CONSOLIDATED BALANCE SHEET CITIBANK, N.A. AND SUBSIDIARIES
(Dollars In Millions) June 30, 1995 Dec. 31, 1994 - --------------------- ------------- ------------- ASSETS Cash and Due from Banks...................... $ 6,168 $ 5,562 Deposits at Interest with Banks.............. 9,242 7,201 Securities: Held to Maturity........................... 4,013 3,918 Available for Sale......................... 10,893 11,328 Venture Capital............................ 1,306 1,161 Trading Account Assets....................... 33,328 35,573 Federal Funds Sold and Securities Purchased Under Resale Agreements........... 5,444 7,009 Loans, Net of Unearned Income................ 129,682 122,452 Allowance for Credit Losses.................. (4,401) (4,264) Customers' Acceptance Liability.............. 1,408 1,420 Premises and Equipment, Net.................. 3,395 3,125 Interest and Fees Receivable................. 1,883 1,803 Other Assets................................. 8,466 8,383 -------- -------- TOTAL....................................... $210,827 $204,671 ======== ======== LIABILITIES Non-Interest-Bearing Deposits in U.S. Offices..................................... $ 10,727 $ 11,496 Interest-Bearing Deposits in U.S. Offices..................................... 22,216 21,919 Non-Interest-Bearing Deposits in Offices Outside the U.S. ................... 8,365 7,115 Interest-Bearing Deposits in Offices Outside the U.S............................. 103,758 96,516 -------- -------- Total Deposits............................. 145,066 137,046 Trading Account Liabilities.................. 22,079 21,458 Purchased Funds and Other Borrowings......... 9,770 14,027 Acceptances Outstanding...................... 1,418 1,440 Accrued Taxes and Other Expenses............. 3,147 3,102 Other Liabilities............................ 4,637 4,243 Long-Term Debt............................... 3,941 3,515 Subordinated Capital Notes................... 5,700 5,700 STOCKHOLDER'S EQUITY Capital Stock ($20.00 par value)............. 751 751 Outstanding Shares: 37,534,553 in each period Surplus...................................... 6,686 6,620 Retained Earnings............................ 8,024 7,125 Net Unrealized Gains - Securities Available for Sale.......................... 149 220 Foreign Currency Translation................. (541) (576) -------- -------- Total Stockholder's Equity................. 15,069 14,140 -------- -------- TOTAL....................................... $210,827 $204,671 ======== ========
34 OTHER FINANCIAL INFORMATION SECURITIES (A)
June 30, 1995 December 31, 1994(B) ------------------------------------------------ ----------------------- Gross Gross Amortized Unrealized Unrealized Fair Amortized Fair (In Millions) Cost Gains Losses Value Cost Value - ------------- --------- ---------- ---------- ------- --------- ------- SECURITIES - HELD TO MATURITY U.S. Treasury and Federal Agency (C).... $ 1,752 $ 16 $ 10 $ 1,758 $ 1,937 $ 1,903 State and Municipal..................... 2 - - 2 2 2 Foreign Government (D).................. 3,046 30 431 2,645 2,836 2,416 U.S. Corporate (C)...................... 28 - - 28 24 24 Other Debt Securities.................... 218 - 3 215 293 293 ------- ---- ---- ------- ------- ------- Total Debt Securities................... $ 5,046 $ 46 $444 $ 4,648 $ 5,092 $ 4,638 ------- ---- ---- ------- ------- ------- SECURITIES - AVAILABLE FOR SALE (E)(F) U.S. Treasury and Federal Agency (C)..... $ 3,177 $ 39 $ 13 $ 3,203 $ 2,688 $ 2,645 State and Municipal...................... 1,595 62 62 1,595 1,568 1,576 Foreign Government (D)................... 5,311 243 126 5,428 5,907 6,201 U.S. Corporate (C)....................... 859 50 13 896 776 725 Other Debt Securities.................... 1,181 12 11 1,182 1,048 1,081 ------- ---- ---- ------- ------- ------- Total Debt Securities................... 12,123 406 225 12,304 11,987 12,228 Equity Securities (G).................... 1,276 171 21 1,426 1,189 1,374 ------- ---- ---- ------- ------- ------- $13,399 $577 $246 $13,730 $13,176 $13,602 ------- ---- ---- ------- ------- ------- VENTURE CAPITAL (H)...................... 1,713 - - 1,713 2,009 2,009 ------- ---- ---- ------- ------- ------- $20,158 $623 $690 $20,091 $20,277 $20,249 ======= ==== ==== ======= ======= =======
(A) See the 1994 Annual Report and Form 10-K for a description of accounting policies. (B) At December 31, 1994, gross unrealized gains and gross unrealized losses on securities held to maturity totaled $23 million and $477 million, respectively, and gross unrealized gains and gross unrealized losses on securities available for sale totaled $825 million and $399 million, respectively. (C) Included in Federal Agency and U.S. Corporate Securities held to maturity are mortgage-backed securities with an amortized cost of $809 million, gross unrealized losses of $9 million, and a fair value of $800 million at June 30, 1995. Included in Federal Agency and U.S. Corporate Securities available for sale are mortgage-backed securities with an amortized cost of $703 million, gross unrealized gains of $8 million, gross unrealized losses of $10 million, and a fair value of $701 million at June 30, 1995. (D) Included in Foreign Government securities held to maturity at June 30, 1995 are securities issued by the Government of Venezuela with an amortized cost and fair value of $563 million and $289 million, respectively. Included in Foreign Government securities available for sale at June 30, 1995 are securities issued by the Government of Brazil with an amortized cost and fair value of $1.6 billion and $1.7 billion, respectively. (E) In the second quarter and six months of 1995, gross realized gains on sales of securities available for sale totaled $23 million and $64 million, respectively, and $144 million and $206 million in the comparable 1994 periods. In the second quarter and six months of 1995, gross realized losses on sales of securities available for sale totaled $5 million and $20 million, respectively, and $21 million and $33 million in the comparable 1994 periods. (F) Not included in the table above are securities available for sale held by equity-method affiliates. Citicorp's share of gross unrealized gains and gross unrealized losses related to those securities at June 30, 1995 was $5 million and $2 million, respectively, and are included in the net unrealized gains-securities available for sale component of stockholders' equity, net of applicable taxes. At December 31, 1994, Citicorp's share of gross unrealized gains and gross unrealized losses related to securities available for sale held by equity-method affiliates was $36 million and $48 million, respectively. (G) Equity securities available for sale include certain non-marketable equity securities which are carried at cost. At June 30, 1995, the carrying amount of those securities was $782 million (which is reported in both the amortized cost and fair value columns in the table) and the fair value was $833 million. (H) For the six months ended June 30, 1995, net gains on investments held by venture capital subsidiaries totaled $273 million, of which $261 million and $155 million represented gross unrealized gains and gross unrealized losses, respectively. For the six months ended June 30, 1994, net gains on investments held by venture capital subsidiaries totaled $104 million, of which $140 million and $69 million represented gross unrealized gains and gross unrealized losses, respectively. 35 TRADING ACCOUNT ASSETS AND LIABILITIES
June 30 Mar. 31 Dec. 31 (In Millions) 1995 1995 1994 - ------------- ------- ------- ------- TRADING ACCOUNT ASSETS Trading Account Securities.............. $16,730 $19,575 $18,331 Revaluation Gains on Derivative and Foreign Exchange Contracts (A)......... 21,145 32,196 20,544 ------- ------- ------- $37,875 $51,771 $38,875 ======= ======= ======= TRADING ACCOUNT LIABILITIES Securities Sold, Not Yet Purchased...... $ 3,119 $ 2,783 $ 3,121 Revaluation Losses on Derivative and Foreign Exchange Contracts (A)......... 19,992 30,736 19,261 ------- ------- ------- $23,111 $33,519 $22,382 ======= ======= =======
(A) Net of master netting agreements. LONG-TERM DEBT (A) (WITH ORIGINAL MATURITIES OF MORE THAN ONE YEAR) (B)
Maturity Distribution (In Millions) at June 30, 1995 - ------------- --------------------- PARENT COMPANY Due in 1995........................... $ 767 Due in 1996........................... 1,408 Due in 1997........................... 1,003 Due in 1998........................... 1,601 Due in 1999........................... 1,133 Due in 2000-2004...................... 4,202 Due in 2005-2009...................... 1,587 Due in 2010 and Thereafter............ 732 ------- 12,433 ------- SUBSIDIARIES Due in 1995........................... 760 Due in 1996........................... 1,316 Due in 1997........................... 722 Due in 1998........................... 1,190 Due in 1999........................... 217 Due in 2000-2004...................... 572 Due in 2005-2009...................... 75 Due in 2010 and Thereafter............ 90 ------- 4,942 ------- TOTAL................................. $17,375 =======
(A) Includes $9 million of redeemable preferred stock issued by the Parent Company. (B) Maturity distribution is based upon contractual maturities or earlier dates at which debt is repayable at the option of the holder, due to required mandatory sinking fund payments or due to call notices issued. 36 CALCULATION OF EARNINGS PER SHARE
Six Months Ended Six Months Ended June 30, 1995 June 30, 1994 ------------------------ --------------------- On Common On Common & Common Assuming & Common Assuming Equivalent Full Equivalent Full (In Millions Except Per Share Amounts) Shares Dilution Shares Dilution - -------------------------------------- ---------- --------- ---------- -------- INCOME APPLICABLE TO COMMON STOCK Distributed Portion - Dividends.........a $ 238 $ 238 $ 58 $ 58 Undistributed Portion Before Cumulative Effect of Accounting Change............ 1,254 1,254 1,254 1,254 Dividends on Conversion Preferred Stock, Series 15.............................. 47 47 47 47 Dividends on Convertible Preferred Stock, Series 12 and Series 13......... - 68 - 68 ------ ------ ------ ------ Income Applicable to Common Stock Before Cumulative Effect of Accounting Change, Adjusted.......................b 1,539 1,607 1,359 1,427 Cumulative Effect of Accounting Change..c - - (56) (56) ------ ------ ------ ------ Total...................................d $1,539 $1,607 $1,303 $1,371 ====== ====== ====== ====== SHARES Weighted-Average Common Shares Outstanding (A)........................ 398.9 398.9 389.1 389.1 Common Equivalent Shares: Conversion Preferred Stock, Series 15. 32.9 32.9 42.8 42.8 Other (B)............................. 10.2 15.1 8.5 8.7 Convertible Preferred Stock, Series 12 and Series 13.......................... - 73.0 - 73.0 ------ ------ ------ ------ Shares Applicable to Distributed Portion................................e 442.0 519.9 440.4 513.6 Book Value Shares Issuable Under Stock Option and Executive Incentive Compensation Plans..................... 1.6 0.9 1.9 1.9 ------ ------ ------ ------ Shares Applicable to Undistributed Portion................................f 443.6 520.8 442.3 515.5 ====== ====== ====== ====== EARNINGS PER SHARE Distributed Portion...................a/e $ 0.54 $ 0.46 $ 0.13 $ 0.11 Undistributed Portion Before Cumulative Effect of Accounting Change......(b-a)/f 2.93 2.63 2.94 2.66 ------ ------ ------ ------ Income Before Cumulative Effect of Accounting Change...................... 3.47 3.09 3.07 2.77 Cumulative Effect of Accounting Change - - (.13) (.11) ------ ------ ------ ------ Net Income................(a/e)+[(d-a)/f] $ 3.47 $ 3.09 $ 2.94 $ 2.66 ====== ====== ====== ======
(A) Includes book value shares of 1.1 million for the six months ended June 30, 1995 and 1994. (B) Includes shares issuable under deferred stock awards and the dilutive effect of stock options and stock purchase agreements computed using the treasury stock method. 37 AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) (A) (B)
Second Quarter 1995 Second Quarter 1994 ------------------------------ ----------------------------- Average % Average Average % Average (Dollars in Millions) Volume Interest Rate Volume Interest Rate - --------------------- -------- -------- --------- ------- -------- --------- INTEREST REVENUE LOANS, NET OF UNEARNED INCOME (C) Consumer Loans In U.S. Offices............................... $ 49,748 $1,368 11.03 $ 41,923 $1,020 9.76 In Offices Outside the U.S. (D)............... 48,935 1,605 13.16 41,457 1,323 12.80 -------- ------ -------- ------ TOTAL CONSUMER LOANS.......................... 98,683 2,973 12.08 83,380 2,343 11.27 -------- ------ -------- ------ Commercial Loans In U.S. Offices Commercial and Industrial................... 10,225 220 8.63 10,386 190 7.34 Mortgage and Real Estate.................... 5,684 109 7.69 6,695 107 6.41 Loans to Financial Institutions............. 392 4 4.09 508 4 3.16 Lease Financing............................. 3,207 59 7.38 3,498 58 6.65 In Offices Outside the U.S. (D)............... 37,559 1,003 10.71 34,137 1,540 18.09 -------- ------ -------- ------ TOTAL COMMERCIAL LOANS....................... 57,067 1,395 9.80 55,224 1,899 13.79 -------- ------ -------- ------ TOTAL LOANS.................................. 155,750 4,368 11.25 138,604 4,242 12.28 -------- ------ -------- ------ FUNDS SOLD AND RESALE AGREEMENTS In U.S. Offices............................... 13,186 197 5.99 15,522 148 3.82 In Offices Outside the U.S. (D)............... 2,076 61 11.79 3,116 1,389 178.80 -------- ------ -------- ------ TOTAL....................................... 15,262 258 6.78 18,638 1,537 33.08 -------- ------ -------- ------ SECURITIES HELD TO MATURITY In U.S. Offices U. S. Treasury and Federal Agencies......... 1,494 24 6.44 2,266 30 5.31 State and Municipal......................... - - - - - - Other Debt Securities....................... 35 1 11.46 42 1 9.55 In Offices Outside the U.S. (Principally Local Government Issues) (D)................ 3,443 61 7.11 2,972 44 5.94 -------- ------ -------- ------ TOTAL........................................ 4,972 86 6.94 5,280 75 5.70 -------- ------ -------- ------ AVAILABLE FOR SALE In U.S. Offices U.S. Treasury and Federal Agencies.......... 2,078 29 5.60 1,668 24 5.77 State and Municipal......................... 1,590 26 6.56 1,359 29 8.56 Other....................................... 1,501 24 6.41 953 9 3.79 In Offices Outside the U.S. (D)............... 7,551 211 11.21 7,469 172 9.24 -------- ------ -------- ------ TOTAL....................................... 12,720 290 9.14 11,449 234 8.20 -------- ------ -------- ------ VENTURE CAPITAL In U.S. Offices............................... 1,408 12 3.42 1,341 3 .90 In Offices Outside the U.S.................... 282 4 5.69 206 1 1.95 -------- ------ -------- ------ TOTAL....................................... 1,690 16 3.80 1,547 4 1.04 -------- ------ -------- ------ TOTAL SECURITIES............................ 19,382 392 8.11 18,276 313 6.87 -------- ------ -------- ------ TRADING ACCOUNT ASSETS In U.S. Offices............................... 12,422 207 6.68 14,457 215 5.97 In Offices Outside the U.S. (D)............... 10,503 295 11.27 10,716 309 11.57 -------- ------ -------- ------ TOTAL....................................... 22,925 502 8.78 25,173 524 8.35 -------- ------ -------- ------ DEPOSITS AT INTEREST WITH BANKS (PRINCIPALLY IN OFFICES OUTSIDE THE U.S.) (C) (D).................... 11,567 201 6.97 9,042 292 12.95 -------- ------ -------- ------ TOTAL INTEREST-EARNING ASSETS................. 224,886 $5,721 10.20 209,733 $6,908 13.21 ====== ====== Non-Interest-Earning Assets (E)............... 48,238 48,343 -------- -------- TOTAL ASSETS.................................. $273,124 $258,076 ======== ========
(A) The Taxable Equivalent Adjustment is based on the U.S. Federal Statutory Tax Rate. (B) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (C) Loans and deposits at interest with banks in the table above include cash- basis loans and cash-basis bank placements, respectively. (D) Average rates in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain Latin American countries. (E) Includes unrealized gains on off-balance sheet trading positions 38 AVERAGE BALANCES AND INTEREST RATES CITICORP AND SUBSIDIARIES (TAXABLE EQUIVALENT BASIS) (A) (B)
Six Months 1995 Six Months 1994 ----------------------------- ----------------------------- Average % Average Average % Average (Dollars In Millions) Volume Interest Rate Volume Interest Rate - --------------------- -------- -------- --------- ------- -------- --------- INTEREST REVENUE LOANS, NET OF UNEARNED INCOME (C) Consumer Loans In U.S. Offices........................ $ 49,387 $ 2,704 11.04 $ 42,725 $ 2,087 9.85 In Offices Outside the U.S. (D)........ 48,067 3,090 12.96 40,776 2,565 12.69 -------- ------- -------- ------- Total Consumer Loans................... 97,454 5,794 11.99 83,501 4,652 11.23 -------- ------- -------- ------- Commercial Loans In U.S. Offices Commercial and Industrial............ 10,429 457 8.84 10,144 370 7.36 Mortgage and Real Estate............. 5,803 220 7.65 7,007 200 5.76 Loans to Financial Institutions...... 366 7 3.86 468 7 3.02 Lease Financing...................... 3,224 118 7.38 3,506 118 6.79 In Offices Outside the U.S. (D)........ 36,857 2,114 11.57 33,676 3,019 18.08 -------- ------- -------- ------- Total Commercial Loans............... 56,679 2,916 10.37 54,801 3,714 13.67 -------- ------- -------- ------- Total Loans.......................... 154,133 8,710 11.40 138,302 8,366 12.20 -------- ------- -------- ------- Funds Sold and Resale Agreements In U.S. Offices........................ 13,333 383 5.79 16,283 275 3.41 In Offices Outside the U.S. (D)........ 2,021 126 12.57 2,942 2,387 163.62 -------- ------- -------- ------- Total................................ 15,354 509 6.69 19,225 2,662 27.92 -------- ------- -------- ------- Securities Held to Maturity In U.S. Offices U. S. Treasury and Federal Agencies.. 1,525 49 6.48 2,013 54 5.41 State and Municipal.................. - - - - - - Other Debt Securities................ 32 2 12.60 48 2 8.40 In Offices Outside the U.S. (Principally Local Government Issues) (D)......... 3,384 124 7.39 3,157 93 5.94 -------- ------- -------- ------- Total................................ 4,941 175 7.14 5,218 149 5.76 -------- ------- -------- ------- Available for Sale In U.S. Offices U.S. Treasury and Federal Agencies... 2,065 58 5.66 1,749 49 5.65 State and Municipal.................. 1,603 52 6.54 1,118 41 7.40 Other................................ 1,453 45 6.25 840 19 4.56 In Offices Outside the U.S. (D)........ 7,864 409 10.49 6,850 307 9.04 -------- ------- -------- ------- Total................................ 12,985 564 8.76 10,557 416 7.95 -------- ------- -------- ------- Venture Capital In U.S. Offices........................ 1,438 16 2.24 1,314 9 1.38 In Offices Outside the U.S............. 273 8 5.91 206 4 3.92 -------- ------- -------- ------- Total................................ 1,711 24 2.83 1,520 13 1.72 -------- ------- -------- ------- Total Securities..................... 19,637 763 7.84 17,295 578 6.74 -------- ------- -------- ------- Trading Account Assets In U.S. Offices........................ 13,277 450 6.83 14,438 409 5.71 In Offices Outside the U.S. (D)........ 10,684 512 9.66 11,428 775 13.68 -------- ------- -------- ------- Total................................ 23,961 962 8.10 25,866 1,184 9.23 -------- ------- -------- ------- Deposits at Interest with Banks (Principally in Offices Outside the U.S.) (C) (D)............. 11,216 382 6.87 9,601 578 12.14 -------- ------- -------- ------- Total Interest-Earning Assets.......... 224,301 $11,326 10.18 210,289 $13,368 12.82 ======= ======= Non-Interest-Earning Assets (E)........ 46,788 45,335 -------- -------- Total Assets........................... $271,089 $255,624 ======== ========
(A) The Taxable Equivalent Adjustment is based on the U.S. Federal Statutory Tax Rate. (B) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (C) Loans and deposits at interest with banks in the table above include cash- basis loans and cash-basis bank placements, respectively. (D) Average rates in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain Latin American countries. (E) Includes unrealized gains on off-balance sheet trading positions 39 AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) (A) (B)
Second Quarter 1995 Second Quarter 1994 ------------------------------- ------------------------------ Average % Average Average % Average (Dollars in Millions) Volume Interest Rate Volume Interest Rate - --------------------- ------- -------- --------- ------- -------- --------- INTEREST EXPENSE DEPOSITS In U.S. Offices Savings Deposits (C)..................... $ 24,558 $ 189 3.09 $ 26,224 $ 130 1.99 Negotiable Certificates of Deposit....... 1,501 23 6.15 973 12 4.95 Other Time Deposits...................... 10,292 188 7.33 10,232 117 4.59 -------- ------ -------- ------ Total U.S. Interest-Bearing Deposits..... 36,351 400 4.41 37,429 259 2.78 In Offices Outside the U.S. (D).............. 111,534 1,778 6.39 96,040 2,330 9.73 -------- ------ -------- ------ TOTAL.................................... 147,885 2,178 5.91 133,469 2,589 7.78 -------- ------ -------- ------ TRADING ACCOUNT LIABILITIES In U.S. Offices.............................. 2,414 38 6.31 3,246 45 5.56 In Offices Outside the U.S. (D).............. 1,112 24 8.66 1,654 24 5.82 -------- ------ -------- ------ TOTAL............................ 3,526 62 7.05 4,900 69 5.65 -------- ------ -------- ------ FUNDS BORROWED In U.S. Offices Purchased Funds and Other Borrowings Federal Funds Purchased and Securities Sold Under Agreements to Repurchase....... 17,487 245 5.62 20,894 196 3.76 Commercial Paper............................ 1,545 30 7.79 1,957 20 4.10 Other Purchased Funds....................... 3,438 83 9.68 3,042 88 11.60 Long-Term Debt and Subordinated Capital Notes............................... 14,439 267 7.42 14,167 201 5.69 -------- ------ -------- ------ Total in U.S. Offices..................... 36,909 625 6.79 40,060 505 5.06 In Offices Outside the U.S. (D).............. 9,315 380 16.36 9,099 1,575 69.43 -------- ------ -------- ------ TOTAL..................................... 46,224 1,005 8.72 49,159 2,080 16.97 -------- ------ -------- ------ Total Interest-Bearing Liabilities........... 197,635 3,245 6.59 187,528 4,738 10.13 -------- ------ -------- ------ Demand Deposits in U.S. Offices.............. 11,478 12,598 Other Non-Interest-Bearing Liabilities (E)... 45,117 42,926 Total Stockholders' Equity................... 18,894 15,024 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $273,124 $258,076 ======== ======== NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS.......... $2,476 4.42 $2,170 4.15 ====== ======
(A) The Taxable Equivalent Adjustment is based on the U.S. Federal Statutory Tax Rate. (B) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (C) Savings Deposits consist of Insured Money Market Rate accounts, NOW accounts and other Savings Deposits. (D) Average rates in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain Latin American countries. (E) Includes unrealized losses on off-balance sheet trading positions. 40 AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) (A) (B)
Six Months 1995 Six Months 1994 ----------------------------------- ---------------------------------- Average % Average Average % Average (Dollars in Millions) Volume Interest Rate Volume Interest Rate - --------------------- ------- -------- --------- -------- -------- --------- INTEREST EXPENSE DEPOSITS In U.S. Offices Savings Deposits (C)..................... $ 24,498 $ 368 3.03 $ 26,298 $ 246 1.89 Negotiable Certificates of Deposit....... 1,435 47 6.60 959 22 4.63 Other Time Deposits...................... 10,078 353 7.06 10,463 280 5.40 -------- ------ -------- ------ Total U.S. Interest-Bearing Deposits..... 36,011 768 4.30 37,720 548 2.93 In Offices Outside the U.S. (D).............. 110,388 3,666 6.70 95,278 4,513 9.55 -------- ------ -------- ------ TOTAL............................ 146,399 4,434 6.11 132,998 5,061 7.67 -------- ------ -------- ------ TRADING ACCOUNT LIABILITIES In U.S. Offices.............................. 2,822 90 6.43 3,347 88 5.30 In Offices Outside the U.S. (D).............. 1,177 55 9.42 1,705 43 5.09 -------- ------ -------- ------ TOTAL............................ 3,999 145 7.31 5,052 131 5.23 -------- ------ -------- ------ FUNDS BORROWED In U.S. Offices Purchased Funds and Other Borrowings Federal Funds Purchased and Securities Sold Under Agreements to Repurchase....... 18,351 502 5.52 21,325 360 3.40 Commercial Paper............................ 1,753 52 5.98 1,777 34 3.86 Other Purchased Funds....................... 3,353 164 9.86 2,797 166 11.97 Long-Term Debt and Subordinated Capital Notes................................ 14,452 532 7.42 14,550 398 5.52 -------- ------ -------- ------ Total in U.S. Offices..................... 37,909 1,250 6.65 40,449 958 4.78 In Offices Outside the U.S. (D).............. 9,512 688 14.59 9,560 2,961 62.46 -------- ------ -------- ------ TOTAL..................................... 47,421 1,938 8.24 50,009 3,919 15.80 -------- ------ -------- ------ Total Interest-Bearing Liabilities........... 197,819 6,517 6.64 188,059 9,111 9.77 -------- ------ -------- ------ Demand Deposits in U.S. Offices.............. 11,543 12,663 Other Non-Interest-Bearing Liabilities (E)... 43,322 40,166 Total Stockholders' Equity................... 18,405 14,736 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $271,089 $255,624 ======== ======== NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS.......... $4,809 4.32 $4,257 4.08 ====== ======
(A) The Taxable Equivalent Adjustment is based on the U.S. Federal Statutory Tax Rate. (B) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (C) Savings Deposits consist of Insured Money Market Rate accounts, NOW accounts and other Savings Deposits. (D) Average rates in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain Latin American countries. (E) Includes unrealized losses on off-balance sheet trading positions. 41 CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
June 30 Dec. 31 June 30 (In Millions) 1995 1994 1994 (B) - ------------- ------- ------- ------- COMMERCIAL CASH-BASIS LOANS (C) Collateral-Dependent (at Lower of Cost or Collateral Value) (D)................. $1,040 $1,347 $2,289 Other, Including Refinancing Portfolio.... 612 770 939 ------ ------ ------ Total Commercial Cash-Basis Loans......... $1,652 $2,117 $3,228 ====== ====== ====== In U.S. Offices........................... $1,201 $1,547 $2,293 In Offices Outside the U.S., Excluding Refinancing Portfolio.................... 421 466 770 Refinancing Portfolio..................... 30 104 165 ------ ------ ------ Total Commercial Cash-Basis Loans......... $1,652 $2,117 $3,228 ====== ====== ====== COMMERCIAL RENEGOTIATED LOANS (C)(E) In U.S. Offices........................... $ 301 $ 563 $ 354 In Offices Outside the U.S................ 84 155 63 ------ ------ ------ Total Commercial Renegotiated Loans....... $ 385 $ 718 $ 417 ====== ====== ====== CONSUMER LOANS ON WHICH ACCRUAL OF INTEREST HAS BEEN SUSPENDED In U.S. Offices........................... $1,463 $1,538 $1,779 In Offices Outside the U.S................ 1,234 1,066 1,067 ------ ------ ------ Total Consumer Loans On Which Accrual of Interest Has Been Suspended.......... $2,697 $2,604 $2,846 ====== ====== ====== ACCRUING LOANS 90 OR MORE DAYS DELINQUENT (F) In U.S. Offices........................... $ 458 $ 415 $ 332 In Offices Outside the U.S................ 535 460 425 ------ ------ ------ Total Accruing Loans 90 or More Days Delinquent............................... $ 993 $ 875 $ 757 ====== ====== ======
(A) Loan commitments and standby letters of credit to North America Commercial Real Estate borrowers or projects experiencing financial difficulties are not included in this table. Refer to detailed discussion on page 12. (B) Reclassified to conform to latest quarter's presentation. (C) Refer to detailed discussion of cash-basis and renegotiated commercial loans on pages 9 and 11. (D) This table presents data in a manner that distinguishes cash-basis collateral-dependent loans from other cash-basis loans. 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. (E) Amount at December 31, 1994 includes $385 million of loans that were renegotiated during 1994 at a market rate of interest and are performing, and accordingly, ceased to be reported as renegotiated loans in 1995. (F) Includes consumer loans of $910 million, $828 million and $691 million at June 30, 1995, December 31, 1994, and June 30, 1994, respectively. Refer to detailed discussion of the consumer loan portfolio on page 7. 42
OTHER REAL ESTATE OWNED (OREO) AND ASSETS PENDING DISPOSITION (A) - ------------------------------------------------------------------- June 30 Dec. 31 June 30 (In Millions) 1995 1994 1994(B) - ------------------------------------------------------------------- Consumer OREO........................ $ 545 $ 569 $ 693 Commercial OREO North America Real Estate.......... 871 806 959 Other.............................. 183 152 469 ------ ------ ------ Total Commercial................... 1,054 958 1,428 ------ ------ ------ Total OREO........................... $1,599 $1,527 $2,121 ====== ====== ====== Assets Pending Disposition (C)....... $ 195 $ 195 $ 468 ====== ====== ======
(A) Carried at lower of cost or collateral value. (B) Reclassified to conform to latest quarter's presentation. (C) Represents consumer residential mortgage loans that have a high probability of foreclosure. 43 CROSS-BORDER AND NON-LOCAL CURRENCY OUTSTANDINGS IN COUNTRIES WITH OUTSTANDINGS EXCEEDING 1% OF TOTAL ASSETS (A)(B)(C)(D)
Investments Cross-Border and in and Non-Local Currency Claims on Third Parties Funding of Total Outstandings --------------------------------------------- Local ------------------ Public Private Citicorp June 30, Dec. 31, (In Billions) Banks Sector Sector Total Franchises 1995 1994 - ------------- ----- ------ ------- ----- ---------- -------- -------- United Kingdom........ $0.2 $0.1 $3.8 $4.1 $3.6 $ 7.7 $ 6.7 Brazil................ 0.3 1.7 1.1 3.1 0.8(E) 3.9 4.0 Mexico................ - 2.2 0.5 2.7 0.3(E) 3.0 4.1 Argentina............. 0.1 0.2 2.0 2.3 0.3 2.6 2.5
(A) Cross-border and non-local currency outstandings are presented on a regulatory basis and include cross-border and non-local currency claims on third parties (including local-dollar claims funded with locally generated dollar liabilities) as well as investments in and funding of local Citicorp franchises. (B) Cross-border and non-local currency claims on third parties (trade, short- term and medium- and long-term claims) include loans, securities, deposits at interest with banks, and other monetary assets, as well as investments in affiliates. Adjustments have been made to assign externally guaranteed outstandings to the country of the guarantor and outstandings for which tangible, liquid collateral is held outside of the obligor's country to the country in which the collateral is held. For securities received as collateral, outstandings are assigned to the domicile of the issuer of the securities. (C) Legally binding cross-border and non-local currency commitments, including irrevocable letters of credit and commitments to extend credit, after adjustments to assign externally guaranteed commitments to the country of the guarantor, amounted to $4.7 billion in the United Kingdom at June 30, 1995. Commitments were less than $0.1 billion each in Brazil, Mexico, and Argentina. (D) At June 30, 1995, cross-border and non-local currency outstandings in Germany ($2.2 billion), Australia ($2.1 billion), and Japan ($2.1 billion), were between .75% and 1.0% of total assets. At December 31, 1994, such countries were Argentina, Australia ($2.2 billion), Singapore ($2.0 billion), and Japan ($2.0 billion). (E) Includes local currency claims funded with non-local currency liabilities where the funds provider agrees that, in the event their claim cannot be repaid in U.S. dollars or other non-local currency due to a sovereign event, they will accept payment in local currency or wait to receive the non-local currency at such time as it becomes available. Such amounts at June 30, 1995 were $0.3 billion in Brazil and less than $0.1 billion in Mexico, compared with $0.3 billion and $0.6 billion, respectively, at December 31, 1994. CROSS-BORDER AND NON-LOCAL CURRENCY CLAIMS ON THIRD PARTIES
Public Private June 30 Dec. 31 (In Billions) Banks Sector Sector 1995 1994 - ------------- ----- ------ ------- ------- ------- Organization for Economic Cooperation and Development ("OECD") (A)........... $1.3 $3.9 $11.4 $16.6 $16.2 Non-OECD Latin America (B)(C).................. 0.5 3.6 4.1 8.2 7.9 Asia.................................. 0.9 0.6 4.8 6.3 6.2 Other................................. 1.0 0.9 0.6 2.5 2.3 ---- ---- ----- ----- ----- Total (D)............................... $3.7 $9.0 $20.9 $33.6 $32.6 ==== ==== ===== ===== =====
(A) Includes $2.7 billion and $3.2 billion in Mexico at June 30, 1995 and December 31, 1994, respectively, of which $1.9 billion at June 30, 1995 and $2.0 billion at December 31, 1994 represents medium- and long-term claims on the public sector. (B) Includes $3.1 billion and $3.3 billion in Brazil at June 30, 1995 and December 31, 1994, respectively, of which $1.7 billion and $2.0 billion, respectively, related to marketable securities (held in the available-for- sale portfolio). (C) Includes $2.3 billion and $2.2 billion in Argentina at June 30, 1995 and December 31, 1994, respectively, of which $1.3 billion (for both periods) represents local-dollar claims funded by local-dollar liabilities. (D) Includes investments in affiliates of $1.1 billion at June 30, 1995 and December 31, 1994. 44 DETAILS OF CREDIT LOSS EXPERIENCE
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. (Dollars in Millions) 1995 1995 1994 1994 1994 1994 - --------------------- -------- -------- -------- -------- -------- -------- ALLOWANCE FOR CREDIT LOSSES AT BEGINNING OF PERIOD.................. $5,270 $5,155 $5,060 $4,912 $4,472 $4,379 ------ ------ ------ ------ ------ ------ ADDITIONS Provision for Credit Losses............. 493 391 558 436 472 415 DEDUCTIONS GROSS CREDIT LOSSES CONSUMER In U.S. Offices......................... 279 238 328 242 262 288 In Offices Outside the U.S.............. 199 163 166 155 141 132 COMMERCIAL In U.S. Offices......................... 41 39 77 43 82 55 In Offices Outside the U.S.............. 38 30 24 40 15 33 ------ ------ ------ ------ ------ ------ 557 470 595 480 500 508 ------ ------ ------ ------ ------ ------ CREDIT RECOVERIES CONSUMER In U.S. Offices......................... 56 49 55 45 55 59 In Offices Outside the U.S.............. 43 43 40 37 37 33 COMMERCIAL In U.S. Offices......................... 8 30 8 36 7 28 In Offices Outside the U.S. (A)......... 19 55 34 45 347 73 ------ ------ ------ ------ ------ ------ 126 177 137 163 446 193 ------ ------ ------ ------ ------ ------ NET CREDIT LOSSES (RECOVERIES) In U.S. Offices......................... 256 198 342 204 282 256 In Offices Outside the U.S. (A)......... 175 95 116 113 (228) 59 ------ ------ ------ ------ ------ ------ 431 293 458 317 54 315 ------ ------ ------ ------ ------ ------ Other Net (B)........................... (24) 17 (5) 29 22 (7) ------ ------ ------ ------ ------ ------ ALLOWANCE FOR CREDIT LOSSES AT END OF PERIOD........................ $5,308 $5,270 $5,155 $5,060 $4,912 $4,472 ====== ====== ====== ====== ====== ====== Net Consumer Credit Losses.............. $ 379 $ 309 $ 399 $ 315 $ 311 $ 328 As a Percentage of Average Consumer Loans....................... 1.54% 1.30% 1.70% 1.43% 1.50% 1.59% Net Commercial Credit Losses (Recoveries) (A)....................... $ 52 $ (16) $ 59 $ 2 $ (257) $ (13) As a Percentage of Average Commercial Loans...................... .37% NM .42% .01% NM NM
(A) Second quarter 1994 amounts include a $318 million credit recovery added to the allowance for credit losses reflecting recognition of the fair value of instruments received pursuant to the Brazil refinancing agreement completed in that quarter. (B) Includes foreign exchange effects and net transfers (to) from the reserve for Global Consumer sold portfolios. NM Not meaningful, as recoveries result in a negative percentage. 45 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1995 COMMISSION FILE NUMBER 1-5738 CITICORP (Exact name of registrant as specified in its charter) DELAWARE 13-2614988 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 PARK AVENUE, NEW YORK, NEW YORK 10043 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 559-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------- -------------- Citicorp Common Stock.................. 414,403,241 ($1.00 Par Value) (Shares Outstanding on June 30, 1995) 46 FORM 10-Q CROSS-REFERENCE INDEX This document serves both as an analytical review for analysts, stockholders and other interested persons and as the quarterly report filed on Form 10-Q with the Securities and Exchange Commission.
PART I FINANCIAL INFORMATION PAGE ---- Item 1 - Consolidated Financial Statements Consolidated Financial Statements, Schedules and Statistics Statement of Income for the Six Months Ended June 30, 1995, and June 30, 1994.......................... 30 Balance Sheet as of June 30, 1995, and December 31, 1994...................... 31 Statement of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1994........................... 33 Calculation of Earnings Per Share......................... 37 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......................2-29 PART II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K.......................... 48 Signatures.......................................................... 49
In the opinion of the management of Citicorp, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the six months ended June 30, 1995 and 1994 have been included. 47 Item 6 - Exhibits and Reports on Form 8-K -------------------------------- a) Exhibit 4.1 Certificate of Designations relating to Citicorp 7 3/4% Cumulative Preferred Stock, Series 22 (incorporated herein by reference to Exhibit 2.2 from Citicorp's Registration Statement on Form 8-A). b) Reports on Form 8-K Citicorp filed a Form 8-K Current Report dated January 19, 1995 (Item 5) which report included a summary of the consolidated operations of Citicorp for the year ended December 31, 1994 and (Item 7) the calculation of the ratio of income to fixed charges (Exhibit 12(a) thereto) and the calculation of the ratio of income to fixed charges including preferred stock dividends (Exhibit 12(b) thereto). Citicorp filed a Form 8-K Current Report dated April 24, 1995 (Item 5) which report included a summary of the consolidated operations of Citicorp for the three month period ended March 31, 1995 and (Item 7) the calculation of the ratio of income to fixed charges (Exhibit 12(a) thereto) and the calculation of the ratio of income to fixed charges including preferred stock dividends (Exhibit 12(b) thereto). Citicorp filed a Form 8-K Current Report dated July 21, 1995 (Item 5) which report included a summary of the consolidated operations of Citicorp for the six month period ended June 30, 1995 and (Item 7) the calculation of the ratio of income to fixed charges (Exhibit 12(a) thereto) and the calculation of the ratio of income to fixed charges including preferred stock dividends (Exhibit 12(b) thereto). 48 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITICORP By: /S/ Thomas E. Jones Registrant --------------------------------- Thomas E. Jones Executive Vice President A Principal Financial Officer /S/ George E. Seegers --------------------------------- George E. Seegers Assistant Secretary Date: August 11, 1995 49 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURES. 1,000,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 6,801 8,738 7,594 37,875 13,730 5,046 4,648 158,187 5,308 256,994 163,122 16,662 9,110 17,375 441 0 4,020 15,038 256,994 8,709 751 1,850 11,310 4,434 6,517 4,793 884 44 1,824 2,757 1,682 0 0 1,682 3.47 3.09 4.32 4,349 993 385 0 5,155 1,027 303 5,308 0 0 0 Includes Securities Purchased Under Resale Agreements. Purchased Funds and Other Borrowings. Taxable Equivalent Basis. Includes $1,652MM of cash-basis commercial loans and $2,697MM of consumer loans on which accrual of interest has been suspended. Accruing loans 90 or more days delinquent. Represents commercial renegotiated loans. Allowance activity for the six months of 1995 includes ($7MM) in other changes, principally net transfers to the reserve for Global Consumer sold portfolios offset by the effect of foreign exchange translation. No portion of Citicorp's credit loss allowance is specifically allocated to any individual loan or group of loans, however, $1,800MM of the allowance at December 31, 1994 was attributed to operations outside the U.S. (see Note 10 to the 1994 Annual Report). See Footnote F8 above. See Footnote F8 above.
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