-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SL3iFHTySRGx+7cQGBEUBiFSqzEACVF4qD0OyAMrPcG88FNEGBu7DVFsCuykuW4z ls5yS6tohIM9O+qlCqB2wQ== 0001005477-00-002134.txt : 20000314 0001005477-00-002134.hdr.sgml : 20000314 ACCESSION NUMBER: 0001005477-00-002134 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000313 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-K405 SEC ACT: SEC FILE NUMBER: 001-05738 FILM NUMBER: 568192 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-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) |X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999 OR |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______to _______ Commission file number: 1-5738 CITICORP (Exact name of Registrant as specified in its charter) Delaware 06-1515595 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 Park Avenue New York, New York 10043 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (800) 285-3000 Securities registered pursuant to Section 12(b) of the Act: None Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Citicorp Capital III 7.10% New York Stock Exchange Capital Securities (and Registrant's guarantee obligations with respect thereto) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Because the Registrant is a wholly-owned subsidiary of Citigroup Inc., none of its outstanding voting stock is held by nonaffiliates. As of the date hereof, 1,000 shares of the Registrant's Common Stock, $0.01 par value per share, were issued and outstanding. Documents Incorporated by Reference: None REDUCED DISCLOSURE FORMAT The Registrant meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format. 1 CITICORP Annual Report on Form 10-K For Year Ended December 31, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Form 10-K Item Number Page ---- Part I 1. Business.................................................................3-7 2. Properties.................................................................8 3. Legal Proceedings..........................................................8 4. Omitted Pursuant to General Instruction I.....................Not applicable Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................................8 6. Omitted Pursuant to General Instruction I.....................Not applicable 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................9-36 7A. Quantitative and Qualitative Disclosures About Market Risk................37 8 Financial Statements and Supplementary Data...............................37 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................37 Part III 10-13. Omitted Pursuant to General Instruction I..................Not applicable Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........37 Exhibit Index.............................................................38 Signatures................................................................39 Index to Consolidated Financial Statements...............................F-1 2 PART I Item 1. Business THE COMPANY Citicorp, a diversified financial services company, conducts its activities through Global Consumer, Global Corporate Bank, Global Investment Management and Private Banking, and Investment Activities. Its staff of 115,200 (including 60,700 outside the U.S.) serves individuals, businesses, governments, and financial institutions in 101 countries and territories. Citicorp, a U.S. bank holding company, is the sole shareholder of Citibank, N.A. (Citibank), its major subsidiary. As used in this Form 10-K, unless the context otherwise requires, "Citicorp" and "the Company" refer to Citicorp and its consolidated subsidiaries. On October 8, 1998, Citicorp, which was incorporated in 1967, merged with and into a newly formed, wholly-owned subsidiary of Travelers Group Inc. (Travelers). Following the effectiveness of the merger, that subsidiary, which was incorporated in 1998 under the laws of the state of Delaware, changed its name to Citicorp, and Travelers changed its name to Citigroup Inc. (Citigroup). Citigroup issued 1.698 billion shares (adjusted to reflect the three-for-two stock split in Citigroup's common stock in May 1999) of its common stock in exchange for all of the outstanding shares of Citicorp common stock. The merger was accounted for under the pooling of interests method. Additionally, as of October 8, 1998, the shares of Citicorp common stock held in treasury were retired. The effect of these transactions was an elimination of Citicorp common stock and Citicorp preferred stock, with an offsetting adjustment to surplus, resulting in no change in the amount of Citicorp's total stockholder's equity. On August 4, 1999, CitiFinancial Credit Company (formerly Commercial Credit Company) (CCC), an indirect wholly-owned subsidiary of Citigroup, was contributed to and became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. The consolidated financial statements give retroactive effect to the contribution as a combination of entities under common control in a transaction accounted for in a manner similar to the pooling of interests method. Citicorp is authorized to issue 10,000 shares of common stock, par value $.01 each, of which 1,000 shares are outstanding, and 1,000 shares of preferred stock, par value $1.00 each, of which none are outstanding. Citigroup owns all the outstanding shares of Citicorp common stock. Citigroup, the Company's parent, is a diversified holding company whose businesses provide a broad range of financial services to consumer and corporate customers in 101 countries and territories. Citigroup's activities are conducted through Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, and Investment Activities. The periodic reports of Citigroup provide additional business and financial information concerning that company and its consolidated subsidiaries. Citicorp is regulated under the Bank Holding Company Act of 1956 (the BHC Act) and is subject to examination by the Board of Governors of the Federal Reserve System (the FRB). Citibank is a member of the Federal Reserve System and is subject to regulation and examination by the Office of the Comptroller of the Currency (the OCC). Global Consumer Global Consumer delivers a wide array of banking, lending, and investment services, including the issuance of credit and charge cards, in 52 countries and territories. Global Consumer creates products and platforms to meet the expanding needs of the world's growing middle class. Citibanking North America delivers banking, lending, and investment services to customers through 370 branches and through electronic delivery systems. Through its Mortgage Banking unit, Global Consumer originates and services mortgages and student loans for customers across North America. The Cards unit offers products such as MasterCard and VISA, and Diners Club across North America. As of December 31, 1999, the U.S. bankcards business had 41 million accounts and $74 billion of managed receivables, which represented approximately 16% of the U.S. credit card receivables market. New accounts are primarily acquired through direct marketing efforts, portfolio acquisitions, and over the Internet. 3 The CitiFinancial unit of Global Consumer provides community-based lending services through its branch network system. As of December 31, 1999, CitiFinancial maintained 1,174 loan offices in 47 states and Canada, including 19 servicing centers for $.M.A.R.T. loans(R) and $.A.F.E.(R) loans sold through the independent agents (the Primerica sales force) of Primerica Financial Services (Primerica), a subsidiary of Citigroup. Loans to consumers include real estate-secured loans, unsecured and partially secured personal loans, and loans to finance consumer goods purchases. The International unit of Global Consumer provides full-service banking and lending, including credit and charge cards, and investment services in Europe, Middle East & Africa, Asia Pacific (including Japan and Australia), and Latin America through more than 1,000 branches in 50 countries and territories. Outside North America, Global Consumer has approximately 11 million credit and charge card member accounts. e-Citi is the business responsible for developing and implementing the Company's Internet financial services products and e-commerce solutions. e-Citi's mission is to build and deliver new forms of financial services that meet the changing needs of customers and to facilitate all aspects of e-commerce as it grows with the new digital economy. Global Corporate Bank Global Corporate Bank serves corporations, financial institutions, governments, and other participants in 100 countries and territories. The Company has a long-standing presence in emerging markets, which include all locations outside North America, Western Europe, and Japan. Emerging Markets offers a wide array of products and services that help multinational and local companies fulfill their financial goals or needs. The Company's Embedded Bank and Emerging Local Corporate strategies focus on its plans to gain market share in selected emerging market countries and to establish the Company as a local bank as well as a leading international bank. The Company typically enters a country to serve global customers, providing them with cash management, trade services, short-term loans, and foreign-exchange services. Then, the Company offers project finance, fixed-income issuance and trading and, later, introduces securities custody, loan syndications, and derivatives services. Finally, as a brand image is established and services for locally headquartered companies become significant, consumer banking services may be offered. Global Relationship Banking (GRB) provides banking and financial services to multinational companies and their subsidiaries around the world. A dedicated relationship team serves each parent company and its subsidiaries everywhere they operate. Product offerings are determined by the demands of these sophisticated customers. Core products include cash management, foreign exchange, structured products, securities custody, trade services, derivatives, and loan products. Global Investment Management and Private Banking The Global Investment Management and Private Banking group is comprised of Citibank Global Asset Management and the Citibank Private Bank. Citibank Global Asset Management offers a broad range of asset management products and services from global investment centers around the world, including mutual funds, closed-end funds, and managed accounts to institutional, high net worth, and retail clients. Clients include private and public retirement plans, endowments, foundations, banks, central banks, insurance companies, other corporations, government agencies, and high net worth and other individuals. Client relationships may be introduced through the cross marketing and distribution opportunities through Citibank Global Asset Management's own sales force. The Citibank Private Bank provides personalized wealth management services for high net worth clients through 100 offices in 31 countries and territories, generating fee and interest income from investment funds management and customer trading activity, trust and fiduciary services, custody services, and banking and lending activities. Its Relationship Managers and Product Specialists use their knowledge about their clients' individual needs and goals to bring them an array of personal wealth management services. Corporate/Other Corporate/Other includes net corporate treasury results, and corporate staff and other corporate expenses. 4 Investment Activities The Company's Investment Activities segment consists primarily of its venture capital activities, the realized investment gains and losses related to certain corporate investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043; telephone number (800) 285-3000. Competition Citicorp and its subsidiaries are subject to intense competition in all aspects of their businesses from both bank and non-bank institutions that provide financial services and, in some of their activities, from government agencies. Regulation Citicorp is a bank holding company within the meaning of the BHC Act and is registered with, and subject to examination by, the FRB. Its subsidiary depository institutions (the banking subsidiaries), including its principal bank subsidiary, Citibank, are subject to supervision and examination by their respective federal and state banking authorities. Its nationally chartered subsidiary banks, including Citibank, are supervised and examined by the OCC; its federal savings association subsidiaries are regulated by the Office of Thrift Supervision (OTS); and its state-chartered depository institutions are supervised by the banking departments within their respective states (New York, Delaware and Utah), as well as the Federal Deposit Insurance Corporation (FDIC). The FDIC also has back-up enforcement authority with respect to each of the banking subsidiaries, the deposits of which are insured by the FDIC, up to applicable limits. The Company also controls (either directly or indirectly) overseas banks, branches, and agencies. In general, the Company's overseas activities are regulated by the FRB and OCC, and are also regulated by supervisory authorities of the host countries. The Company's banking subsidiaries are also subject to requirements and restrictions under federal, state and foreign law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Company's banking subsidiaries. The activities of U.S. bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the Gramm-Leach-Bliley Act (the GLB Act), which became effective in most significant respects on March 11, 2000, bank holding companies, such as the Company, all of whose controlled depository institutions are "well capitalized" and "well managed", as defined in Federal Reserve Regulation Y, and which obtain satisfactory Community Reinvestment Act ratings, will have the ability to declare themselves to be "financial holding companies" and engage in a broader spectrum of activities than those generally permitted, including insurance underwriting and brokerage (including annuities), and underwriting and dealing securities without a revenue limit and without limits on the amounts of equity securities it may hold in conducting its underwriting and dealing activities. The Company anticipates that its declaration to become a financial holding company will become effective shortly after the effective date of the GLB Act. Financial holding companies that do not continue to meet all of the requirements for such status will, depending on which requirement they fail to meet, face not being able to undertake new activities or acquisitions that are financial in nature, or losing their ability to continue those activities that are not generally permissible for bank holding companies. Section 20 of the Glass-Steagall Act, which prohibited a member bank of the Federal Reserve System, such as Citibank, from being affiliated with a company that is principally engaged in underwriting and dealing in securities, was repealed, effective March 11, 2000, as part of the GLB Act. Accordingly, the Company will be permitted to operate without regard to revenue limits on the "ineligible" securities activities of its affiliates' securities businesses. The repeal of Section 20 will also permit the Company's securities affiliates to organize, sponsor, distribute, and advise open-end mutual funds in the United States, as well as outside the United States. Under the BHC Act, nonbank acquisitions in the U.S. have generally been limited to 5% of voting shares unless the FRB determines that the acquisition is so closely related to banking as to be a proper incident to banking or managing or 5 controlling banks. Under the GLB Act, financial holding companies will be able to make acquisitions in companies that engage in activities that are financial in nature, both in the U.S. and outside of the United States. No prior approval of the FRB will be required for such acquisitions, although it is possible that the FRB will issue regulations imposing some limitations or conditions on such acquisitions. In addition, under a new merchant banking authority added by the GLB Act, financial holding companies will be authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the investment in duration, does not manage the company on a day-to-day basis, and the investee company does not cross-market with any of the financial holding company's controlled depository institutions. This authority applies to investments both in the U.S. and outside the United States. It is possible that regulations interpreting and conditioning this authority may be promulgated. Bank holding companies will also retain their authority, subject to prior specific or general FRB consent, to acquire less than 20 percent of the voting securities of a company that does not do business in the United States, and 20 percent or more of the voting securities of any such company if the FRB finds by regulation or order that its activities are usual in connection with banking or finance outside the United States. In general, bank holding companies that are not financial holding companies may engage in a broader range of activities outside the United States than they may engage in inside the United States, including sponsoring, distributing, and advising open-end mutual funds, and underwriting and dealing in debt and, to a limited extent, equity securities, subject to local country laws. Subject to certain limitations and restrictions, a U.S. bank holding company, with the prior approval of the FRB, may acquire an out-of-state bank. Banks in states that do not prohibit out-of-state mergers may merge with the approval of the appropriate federal bank regulatory agency. A national or state bank may establish a de novo branch out of state if such branching is expressly permitted by the other state. A federal savings association is generally permitted to open a de novo branch in any state. Outside the U.S., subject to certain requirements for prior FRB consent or notice, the Company may acquire banks and Citibank may establish branches subject to local laws and to U.S. laws prohibiting companies from doing business in certain countries. The Company's earnings and activities are affected by legislation, by actions of its regulators, and by local legislative and administrative bodies and decisions of courts in the foreign and domestic jurisdictions in which the Company and its subsidiaries conduct business. For example, these include limitations on the ability of certain subsidiaries to pay dividends to their intermediate holding companies and on the abilities of those holding companies to pay dividends to the Company (see Note 25 of Notes to Consolidated Financial Statements). It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization's expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banking subsidiaries. Various federal and state statutory provisions limit the amount of dividends that subsidiary banks and savings associations can pay to their holding companies without regulatory approval. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. Numerous other federal and state laws also affect the Company's earnings and activities including federal and state consumer protection laws. Legislation may be enacted or regulation imposed in the U.S. or its political subdivisions, or in any other jurisdiction in which the Company does business, to further regulate banking and financial services or to limit finance charges or other fees or charges earned in such activities. There can be no assurance whether any such legislation or regulation will place additional limitations on the Company's operations or adversely affect its earnings. There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from banking subsidiaries or engage in certain other transactions with or involving those banking subsidiaries. In general, these restrictions require that any such transactions must be on terms that would ordinarily be offered to unaffiliated entities and secured by designated amounts of specified collateral. Transactions between a banking subsidiary and the holding company or any nonbank subsidiary are limited to 10 percent of the banking subsidiary's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20 percent of the bank's capital stock and surplus. The Company's right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other 6 resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company (such as the Company) or any shareholder or creditor thereof. In the liquidation or other resolution of a failed U.S. insured depository institution, deposits in U.S. offices and certain claims for administrative expenses and employee compensation are afforded a priority over other general unsecured claims, including deposits in offices outside the U.S., non-deposit claims in all offices, and claims of a parent such as the Company. Such priority creditors would include the FDIC, which succeeds to the position of insured depositors. A financial institution insured by the FDIC that is under common control with a failed or failing FDIC-insured institution can be required to indemnify the FDIC for losses resulting from the insolvency of the failed institution, even if this causes the affiliated institution also to become insolvent. Any obligations or liability owed by a subsidiary depository institution to its parent company is subordinate to the subsidiary's cross-guarantee liability with respect to commonly controlled insured depository institutions and to the rights of depositors. Under FRB policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. As a result of that policy, the Company may be required to commit resources to its subsidiary banks in certain circumstances. However, under the GLB Act, the FRB will not be able to compel a bank holding company to remove capital from its regulated securities or insurance subsidiaries in order to commit such resources to its subsidiary banks. The Company and its U.S. insured depository institution subsidiaries are subject to risk-based capital and leverage guidelines issued by U.S. regulators for banks, savings associations, and bank holding companies. The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards and have defined five capital tiers, the highest of which is "well-capitalized." As of December 31, 1999, the Company's bank and thrift subsidiaries, including Citibank, were "well capitalized." See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for capital analysis. A bank is not required to repay a deposit at a branch outside the U.S. if the branch cannot repay the deposit due to an act of war, civil strife, or action taken by the government in the host country, unless the bank has expressly agreed in writing to do so. The GLB Act included the most extensive consumer privacy provisions ever enacted by Congress. These provisions, among other things, require full disclosure of the Company's privacy policy to consumers and mandate offering the consumer the ability to "opt out" of having non-public customer information disclosed to third parties. In addition, these provisions require the federal banking regulators to adopt privacy regulations and permit the states to adopt more extensive privacy protections through legislation or regulation. There can be no assurance whether any such legislation or regulation will place additional limitations on the Company's operations or adversely affect its earnings. The earnings of the Company, Citibank, and their subsidiaries and affiliates are affected by general economic conditions and the conduct of monetary and fiscal policy by the U.S. government and by governments in other countries in which they do business. Legislation is from time to time introduced in Congress that may change banking statutes and the operating environment of the Company and its banking subsidiaries in substantial and unpredictable ways. The Company cannot determine whether any such proposed legislation will be enacted and, if enacted, the ultimate effect that any such potential legislation or implementing regulations would have upon the financial condition or results of operations of the Company or its subsidiaries. 7 Item 2. Properties The principal offices of Citicorp and Citibank are located at 399 Park Avenue, New York, New York, a 39-story building of which two-thirds is owned by Citibank. Citibank also owns one third of Citigroup Center, a 59-story building located at 153 East 53rd Street across Lexington Avenue from 399 Park Avenue. Citicorp occupies all of the space it owns in both buildings. Citibank also owns Citicorp at Court Square in Long Island City, New York and leases a building located at 111 Wall Street in New York City, which are totally occupied by Citicorp. In addition, Citicorp owns or leases U.S. real estate located in Albuquerque, New Mexico; Chicago, Illinois; Hagerstown and Silver Spring, Maryland; Los Angeles and San Francisco, California; New Castle, Delaware; Rio Piedras, Puerto Rico; San Antonio, Texas; Sioux Falls, South Dakota; St. Louis, Missouri; Tampa, Florida; and The Lakes, Nevada. Outside the U.S., Citicorp owns or leases major corporate premises in various cities throughout the world including: Bombay, India; Buenos Aires, Argentina; Caracas, Venezuela; Dubai, United Arab Emirates; Dublin, Ireland; Dusseldorf and Frankfurt, Germany; Paris, France; Milan, Italy; Hong Kong, China; Lewisham and London, United Kingdom; Kuala Lumpur, Malaysia; Madrid, Spain; Manila, Philippines; Mexico City, Mexico; Rio de Janeiro and Sao Paulo, Brazil; Santiago, Chile; Taipei, Taiwan; Tokyo, Japan; and Warsaw, Poland. Citicorp owns approximately 47% of the space Citicorp occupies worldwide. Item 3. Legal Proceedings In the ordinary course of business, Citicorp and its subsidiaries are defendants or co-defendants in various litigation matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on the Company and its subsidiaries' results of operations, financial condition or liquidity. Item 4. Submission of Matters to a Vote of Security Holders Pursuant to General Instruction I of Form 10-K, the information required by Item 4 is omitted. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Citigroup owns all of the outstanding common stock of Citicorp. Item 6. Selected Financial Data Pursuant to General Instruction I of Form 10-K, the information required by Item 6 is omitted. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations BUSINESS FOCUS The table below shows the core income (loss) for each of Citicorp's businesses: In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Global Consumer Citibanking North America $ 414 $ 107 Mortgage Banking 231 212 Cards 1,172 808 CitiFinancial (2) 392 222 - ---------------------------------------------------------------------------- Total North America 2,209 1,349 - ---------------------------------------------------------------------------- Europe, Middle East & Africa 327 225 Asia Pacific 443 383 Latin America 228 160 - ---------------------------------------------------------------------------- Total International 998 768 - ---------------------------------------------------------------------------- e-Citi (179) (141) Other (80) (79) - ---------------------------------------------------------------------------- Total Global Consumer 2,948 1,897 - ---------------------------------------------------------------------------- Global Corporate Bank Emerging Markets 1,190 748 Global Relationship Banking 686 490 - ---------------------------------------------------------------------------- Total Global Corporate Bank 1,876 1,238 - ---------------------------------------------------------------------------- Global Investment Management and Private Banking Asset Management (14) 5 Citibank Private Bank 278 251 - ---------------------------------------------------------------------------- Total Global Investment Management and Private Banking 264 256 - ---------------------------------------------------------------------------- Corporate/Other (320) (303) Investment Activities 523 657 - ---------------------------------------------------------------------------- Core income 5,291 3,745 - ---------------------------------------------------------------------------- Restructuring-related items and merger-related costs, after-tax (3) (96) (649) - ---------------------------------------------------------------------------- Net income $ 5,195 $ 3,096 - ------------------------------------------------------====================== (1) Reclassified to conform to the 1999 presentation, including changes in capital and tax allocations among the segments. (2) On August 4, 1999, CitiFinancial Credit Company (formerly Commercial Credit Company) (CCC), an indirect wholly-owned subsidiary of Citigroup, became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. CCC is consolidated in the results of Citicorp. Prior periods have been restated to reflect this reorganization. See Note 22 of Notes to Consolidated Financial Statements. (3) The restructuring-related items and merger-related costs in the 1999 period included $82 million of charges, $112 million of accelerated depreciation, and credits for the reversal of prior charges of $98 million. The 1998 period included a charge of $632 million, credits for the reversal of prior charges of $24 million, and $41 million of merger-related costs. See Note 12 of Notes to Consolidated Financial Statements. - -------------------------------------------------------------------------------- INCOME ANALYSIS The income analysis reconciles amounts shown on the Consolidated Statements of Income on page F-3 to the basis presented in the business segment discussions. In millions of dollars 1999 1998 - ------------------------------------------------------------------------------- Total revenues, net of interest expense $ 28,148 $ 24,678 Effect of credit card securitization activity 2,269 2,187 ------------------------ Adjusted revenues, net of interest expense 30,417 26,865 ------------------------ Total operating expenses 17,018 17,011 Restructuring-related items and merger-related costs (154) (1,011) ------------------------ Adjusted operating expenses 16,864 16,000 ------------------------ Provision for credit losses 2,837 2,751 Effect of credit card securitization activity 2,269 2,187 ------------------------ Adjusted provision for credit losses 5,106 4,938 ------------------------ Core income before income taxes 8,447 5,927 Taxes on core income 3,156 2,182 ------------------------ Core income 5,291 3,745 Restructuring-related items and merger-related costs, after-tax (96) (649) ------------------------ Net income $ 5,195 $ 3,096 - -------------------------------------------------------======================== 9 RESULTS OF OPERATIONS Citicorp reported 1999 core income of $5.291 billion, up $1.546 billion or 41% from $3.745 billion in 1998. Core income excluded $96 million and $649 million for after-tax restructuring-related items and merger-related costs in 1999 and 1998, respectively. See Note 12 of Notes to the Consolidated Financial Statements for additional details on restructuring-related items. Net income was $5.195 billion, up $2.099 billion or 68% from $3.096 billion in 1998. Core income return on common equity was 20.76% compared to 16.59% for 1998. Core income growth in 1999 reflected the strong contributions by most businesses, particularly Global Consumer, which increased $1.051 billion or 55%. Global Consumer core income growth in 1999 was led by North America, where Cards improved $364 million or 45%, reflecting significant increases in U.S. bankcards despite competitive pricing pressures; Citibanking North America increased $307 million or 287%, reflecting expense reduction initiatives, revenue growth, and credit cost improvements; and CitiFinancial grew $170 million or 77%, reflecting strong receivables growth in all major products, an improved credit environment, and the 1999 acquisition of certain Associate First Capital branches. Core income in the International businesses was up $230 million or 30%, reflecting increases across all regions. Global Corporate Bank improved $638 million or 52%, led by increases of $442 million or 59% in Emerging Markets and $196 million or 40% in Global Relationship Banking (GRB) reflecting a rebound from global economic turmoil in 1998, strong 1999 revenues, improved Emerging Markets credit and lower GRB expenses. Excluding the 1998 Russia-related losses, core income increase reflected strong Latin America revenue growth and improved credit in Emerging Markets, and lower expenses combined with strong structured products and global equities revenues in GRB. Global Investment Management and Private Banking improved $8 million or 3%, reflecting improved revenue momentum, which outpaced increases in expenses and the provision for credit losses. Partially offsetting these increases was a decrease of $134 million or 20% in Investment Activities, reflecting a decrease in realized gains from sales of investments and net asset gains, partially offset by an increase in venture capital revenues. Adjusted revenues, net of interest expense of $30.4 billion in 1999, were up $3.6 billion or 13% from $26.9 billion in 1998. Global Consumer revenues increased strongly in almost all businesses, and were up $2.5 billion or 15% in 1999 to $19.4 billion, including acquisitions. The Global Consumer revenue growth was led by a $1.5 billion or 13% increase in North America (Cards up $846 million or 12%) and a $976 million or 17% increase in International. Global Corporate Bank revenues of $8.4 billion in 1999 were up $864 million or 11% (Emerging Markets up $695 million or 19%, and GRB up $169 million or 4%). Growth, excluding the 1998 economic turmoil, was primarily due to double-digit revenue growth in loans, structured products and trade services in Emerging Markets and due to structured products and global equities in GRB. Global Investment Management and Private Banking revenues of $1.6 billion grew $82 million or 6% in 1999, and reflected continued growth in managed assets. The $165 million decrease in Investment Activities revenues in 1999 primarily reflected lower realized gains from sales of investments and net asset gains, partially offset by higher venture capital revenues. Net interest revenue as shown on the Consolidated Statements of Income was $14.5 billion in 1999, up $1.2 billion or 9% from $13.3 billion in 1998, reflecting business volume growth in most markets. Net interest revenue, adjusted for the effect of credit card securitization, of $18.7 billion was up $1.8 billion or 11% in 1999. Adjusted fees and commissions revenues of $7.5 billion were up $1.1 billion or 17% in 1999, primarily reflecting continued growth in assets under management. Foreign exchange and trading revenues increased to $2.5 billion in 1999, up from $1.9 billion in 1998, reflecting the difficult trading conditions in 1998. Aggregate securities transactions and net asset gains of $582 million for 1999 decreased $297 million from 1998, reflecting lower levels of securities sales and net asset gains. Other revenue, excluding net asset gains, of $3.0 billion increased $874 million or 41% from $2.1 billion in 1998, primarily reflecting increased credit card securitization activities and venture capital revenues. Adjusted operating expenses in 1999 of $16.9 billion, which exclude the restructuring-related items, and in 1998 excluded merger-related costs, were up $864 million or 5% in 1999. Expenses increased in Global Consumer by 8% in 1999, reflecting acquisitions, business volume growth, and higher spending in e-Citi, offset by a decline in fixed costs due to expense management initiatives. Global Corporate Bank expenses were down 2% in 1999, primarily attributable to lower year 2000 and European Economic Monetary Union (EMU) expenses as well as restructuring actions and business integration initiatives in GRB. Global Investment Management and Private Banking expenses increased 6% in 1999 driven by investments in technology and sales and marketing capabilities. 10 The adjusted provision for credit losses was $5.1 billion in 1999, compared with $4.9 billion in 1998, an increase of 3%. Global Consumer adjusted provision for credit losses of $4.7 billion was up 4% in 1999. Global Consumer managed net credit losses in 1999 were $4.7 billion and the related loss ratio was 2.49%, compared with $4.4 billion and 2.70% in 1998. The managed consumer loan delinquency ratio (90 days or more past due) was 1.91%, a decrease from 2.12% at the end of 1998. The Global Corporate Bank provision for credit losses decreased to $348 million from $394 million in 1998, reflecting economic improvements in Russia and Asia, partially offset by increased losses in Latin America, and a lower provision for credit losses resulting from an improved credit outlook in Emerging Markets. Commercial cash-basis loans and other real estate owned of $1.6 billion at December 31, 1999 were down 3% from a year earlier. The provision for credit losses as shown on the Consolidated Statements of Income was $2.8 billion in 1999, up 3% from 1998. Total capital (Tier 1 and Tier 2) was $37.4 billion or 12.10% of net risk-adjusted assets, and Tier 1 capital was $25.0 billion or 8.11% at December 31, 1999. See page 35 for the components of Tier 1 and Tier 2 capital. GLOBAL CONSUMER In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $17,118 $14,679 Effect of credit card securitization activity 2,269 2,187 -------------------- Adjusted revenues, net of interest expense 19,387 16,866 -------------------- Total operating expenses 10,003 9,837 Restructuring-related items 87 621 -------------------- Adjusted operating expenses 9,916 9,216 -------------------- Provision for credit losses 2,477 2,362 Effect of credit card securitization activity 2,269 2,187 -------------------- Adjusted provision for credit losses 4,746 4,549 -------------------- Core income before taxes 4,725 3,101 Income taxes 1,777 1,204 -------------------- Core income 2,948 1,897 Restructuring-related items, after-tax 56 393 -------------------- Net income $ 2,892 $ 1,504 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $201 $175 Return on assets 1.44% 0.86% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.47% 1.08% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. - -------------------------------------------------------------------------------- Global Consumer -- which provides banking, lending, and investment products and services, including credit and charge cards, to customers around the world -- reported core income of $2.948 billion in 1999, up $1.051 billion or 55% from 1998, reflecting strong growth in virtually all businesses, particularly in North America where Cards increased $364 million or 45%, Citibanking grew $307 million or 287%, and CitiFinancial increased $170 million or 77%. In the International businesses, core income grew $230 million or 30%, reflecting increases across all regions. Net income of $2.892 billion in 1999 and $1.504 billion in 1998 included restructuring-related items of $56 million ($87 million pretax) and $393 million ($621 million pretax), respectively. During 1999, Global Consumer recorded restructuring-related items totaling $87 million ($56 million after-tax), including charges of $104 million (pretax), of which $82 million related to new initiatives primarily for the reconfiguration of certain consumer branch operations outside the U.S., downsizing of certain marketing operations, and costs associated with exiting a non-strategic business. The 1999 items also include accelerated depreciation charges on assets associated with restructuring initiatives of $114 million (pretax), offset by a reduction of restructuring reserves due to changes in estimates attributable to facts and circumstances arising subsequent to the original restructuring charge of $131 million (pretax). In 1998, Global Consumer recorded a net restructuring charge totaling $621 million ($393 million after-tax) for regional consolidation of call centers and other back office functions worldwide, reduction of management layers, sales force restructuring, integration of overlapping marketing and product management groups, and exiting several non-strategic operations. 11 North America Citibanking North America In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $ 2,109 $ 1,974 Adjusted operating expenses (2) 1,338 1,672 Provision for credit losses 64 100 ---------------------- Core income before taxes 707 202 Income taxes 293 95 ---------------------- Core income 414 107 Restructuring-related items, after-tax (1) 89 ---------------------- Net income $ 415 $ 18 - -------------------------------------------------------====================== Average assets (in billions of dollars) $10 $10 Return on assets 4.15% 0.18% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 4.14% 1.07% - -------------------------------------------------------====================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Citibanking North America -- which delivers banking, lending, and investment services to customers through Citibank's branches and electronic delivery systems -- reported core income of $414 million in 1999, up $307 million or 287% from 1998 due to expense reduction initiatives, revenue growth, and credit cost improvements. Net income of $415 million in 1999 and $18 million in 1998 included restructuring-related credits in 1999 of $1 million ($4 million pretax) and restructuring charges of $89 million ($139 million pretax) in 1998. As shown in the following table, Citibanking grew accounts and customer deposits in 1999. The decline in loans reflects a decrease in home equity loans due to increased industry-wide mortgage refinancing activity during 1998 and the first half of 1999. See also the Mortgage Banking discussion below. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 6.3 5.8 Average customer deposits $42.1 $39.6 Average loans 7.6 7.9 - ---------------------------------------------------------------================= Revenues, net of interest expense, of $2.109 billion increased $135 million or 7% in 1999, reflecting higher customer deposits and spreads, and increased investment product fees and commissions, offset by lower loan revenues. Adjusted operating expenses of $1.338 billion in 1999 declined $334 million or 20% from 1998, reflecting the impact of significant expense management initiatives that reduced staff and other fixed expenses as well as lower marketing program spending. The provision for credit losses declined to $64 million in 1999 from $100 million in 1998. The net credit loss ratio of 1.18% in 1999 declined from 1.34% in 1998, and loans delinquent 90 days or more of $55 million or 0.75% at December 31, 1999 declined from $93 million or 1.20% at December 31, 1998. The decline in the provision for credit losses and delinquencies reflects continued improvement in the portfolio and a decline in loan volumes. 12 Mortgage Banking In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $747 $619 Adjusted operating expenses (2) 339 247 Provision for credit losses 17 20 ---------------- Core income before taxes 391 352 Income taxes 160 140 ---------------- Core income 231 212 Restructuring-related items, after-tax -- 6 ---------------- Net income $231 $206 - ------------------------------------------------------------================ Average assets (in billions of dollars) $29 $25 Return on assets 0.80% 0.82% - ---------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 0.80% 0.85% - ------------------------------------------------------------================ (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Mortgage Banking -- which originates and services mortgages and student loans for customers across North America -- reported core income of $231 million in 1999, up $19 million or 9% from 1998, reflecting growth in student loans and credit improvement in the mortgage portfolio. Net income of $206 million in 1998 included restructuring-related items of $6 million ($9 million pretax). The acquisition of the principal operating assets and certain liabilities of Source One Mortgage Services Corporation (Source One) in April 1999 added approximately $25 billion to the mortgage servicing/subservicing portfolio. As shown in the following table, Mortgage Banking accounts, loans, and mortgage originations increased in 1999, including the effect of the Source One acquisition. Excluding Source One, mortgage originations declined reflecting the industry-wide slowdown in mortgage refinancing activity in the second half of 1999. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 3.4 2.8 Average loans $27.4 $23.9 Mortgage originations 18.3 16.4 - ---------------------------------------------------------------================= Revenues, net of interest expense, of $747 million in 1999 grew $128 million or 21% from 1998, reflecting the Source One acquisition and growth in the student loan portfolio. Adjusted operating expenses increased $92 million or 37% in 1999, reflecting the Source One acquisition. The provision for credit losses of $17 million in 1999 declined from $20 million in 1998. The 1999 net credit loss ratio of 0.16% declined from 0.31% in 1998, and the ratio of loans delinquent 90 days or more of 2.31% declined from 2.44% at December 31, 1998. The declines in the provision, the net credit loss ratio, and the delinquency ratio reflect improvement in the mortgage portfolio. The improvement in mortgage delinquencies was partially offset by higher student loan delinquencies as a result of a statutory increase in the length of time Citicorp must hold delinquent government-guaranteed student loans prior to submitting a claim under the government guarantee. 13 Cards In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $ 5,729 $ 4,965 Effect of credit card securitization activity 2,269 2,187 --------------------- Adjusted revenues, net of interest expense 7,998 7,152 Adjusted operating expenses (2) 2,886 2,595 Adjusted provision for credit losses (3) 3,259 3,264 --------------------- Core income before taxes 1,853 1,293 Income taxes 681 485 --------------------- Core income 1,172 808 Restructuring-related items, after-tax (12) 39 --------------------- Net income $ 1,184 $ 769 - --------------------------------------------------------===================== Average assets (in billions of dollars) (4) $28 $28 Return on assets 4.23% 2.75% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets (5) 4.19% 2.89% - --------------------------------------------------------===================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. (3) Adjusted for the effect of credit card securitization activity. (4) Adjusted for the effect of credit card securitization activity, managed average assets were $75 billion and $64 billion in 1999 and 1998, respectively. (5) Adjusted for the effect of credit card securitization activity, the return on managed assets, excluding restructuring-related items, was 1.56% in 1999 and 1.26% in 1998. - -------------------------------------------------------------------------------- Cards -- U.S. bankcards, Canada bankcards, and North America Diners Club -- reported core income of $1.172 billion, up $364 million or 45% from 1998, reflecting significant increases in the U.S. bankcards business, despite competitive pricing pressures. Net income of $1.184 billion in 1999 and $769 million in 1998 included restructuring-related credits in 1999 of $12 million ($18 million pretax) and restructuring charges of $39 million ($58 million pretax) in 1998. Universal Card Services (UCS), which was acquired in April 1998, contributed approximately $52 million to core income in 1999 compared with a loss of $72 million in 1998. Risk adjusted margin is a measure of profitability that takes adjusted revenues less managed net credit losses as a percentage of average managed loans, consistent with the goal of matching the revenues generated by the loan portfolio with the credit risk undertaken. As shown in the following table, U.S. bankcards risk adjusted margin of 6.37% increased 27 basis points from 1998. In billions of dollars 1999 1998 - ------------------------------------------------------------------------------- Risk adjusted revenues (1) $4.4 $3.6 Risk adjusted margin % (2) 6.37% 6.10% - -------------------------------------------------------------================== (1) Adjusted revenues less managed net credit losses. (2) Risk adjusted revenues as a percentage of average managed loans. - -------------------------------------------------------------------------------- Adjusted revenues, net of interest expense, of $7.998 billion increased $846 million or 12% from 1998, reflecting receivable growth, including acquisitions, higher interchange fee revenues due to sales volume growth and pricing changes, and risk-based pricing actions, offset by changes in portfolio mix and lower spreads. Excluding the effect of UCS and 1999 acquisitions, revenues increased approximately 5%. As shown in the following table, on a managed basis, the U.S. bankcard portfolio experienced a 15% growth in sales volumes and a 7% increase in receivables, including the effect of portfolio acquisitions. Portfolio acquisitions during 1999 added approximately 1.3 million accounts and $2.6 billion of receivables. Accounts increased only slightly in the year reflecting management initiatives that resulted in the closing of inactive and/or high-risk accounts. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 40.6 40.5 Cards in force (in millions) 69 69 Total sales $162.3 $140.6 End-of-period managed receivables 74.2 69.6 - --------------------------------------------------------------================== 14 Adjusted operating expenses of $2.886 billion increased $291 million or 11% in 1999, reflecting acquisitions and increased target marketing efforts in U.S. bankcards. The adjusted provision for credit losses in 1999 was $3.259 billion compared with $3.264 billion in 1998. U.S. bankcards managed net credit losses in 1999 were $3.143 billion and the related loss ratio was 4.56%, compared with $3.123 billion and 5.33% in 1998. U.S. bankcards managed loans delinquent 90 days or more were $1.061 billion or 1.44% at December 31, 1999 compared with $1.001 billion or 1.45% at December 31, 1998. The improvement in the net credit loss ratio reflects declining industry-wide bankruptcy trends and credit risk management initiatives. CitiFinancial In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $1,619 $1,275 Adjusted operating expenses (2) 693 574 Provision for credit losses 309 350 -------------------- Core income before taxes 617 351 Income taxes 225 129 -------------------- Core income 392 222 Restructuring-related items, after-tax 2 1 -------------------- Net income $ 390 $ 221 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $16 $12 Return on assets 2.44% 1.84% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 2.45% 1.85% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- CitiFinancial (formerly Consumer Finance Services) includes the consumer lending operations (including secured and unsecured personal loans, real estate-secured loans and consumer goods financing) of CitiFinancial Credit Company (CCC). Also included are related credit insurance services provided through subsidiaries. Core income was $392 million in 1999, up $170 million or 77% from 1998, reflecting strong receivables growth in all major products, an improved credit environment, and the 1999 acquisition of certain Associates First Capital (Associates) branches. Net receivables at December 31, 1999 reached a record $15.5 billion compared to $11.9 billion at year-end 1998 due to increased business flow at CitiFinancial branches (including portfolio acquisitions), cross-selling of CitiFinancial products through Primerica distribution channels, and the Associates acquisition. The internal growth during 1999 was led by the Primerica generated portfolio, which grew 39% to $4.1 billion. At December 31, 1999, CitiFinancial had 1,174 branches, up from 980 at year-end 1998. The increase in adjusted operating expenses was primarily attributable to the acquisitions. The average yield on receivables was 14.45% in 1999, down from 14.88% in 1998, reflecting a shift in the portfolio mix towards lower yielding, higher quality real estate loans, particularly first mortgage loans. At December 31,1999, the portfolio consisted of 58% real-estate secured loans, 34% personal loans and 8% sales finance and other compared to 56% real-estate secured loans, 36% personal loans and 8% sales finance and other at December 31, 1998. The provision for credit losses was $309 million in 1999 compared to $350 million in 1998, reflecting the continued strong credit environment. The net credit loss ratio of 2.18% in 1999 was down from 2.74% in 1998 and loans delinquent 90 days or more were $203 million or 1.31% in 1999 compared to $172 million or 1.44% in 1998. 15 International Consumer Europe, Middle East & Africa In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $2,335 $2,143 Adjusted operating expenses (2) 1,513 1,476 Provision for credit losses 300 296 -------------------- Core income before taxes 522 371 Income taxes 195 146 -------------------- Core income 327 225 Restructuring-related items, after-tax 15 125 -------------------- Net income $ 312 $ 100 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $22 $22 Return on assets 1.42% 0.45% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.49% 1.02% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Europe, Middle East & Africa (EMEA - including India and Pakistan) -- which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region -- reported core income of $327 million in 1999, up $102 million or 45% from 1998, reflecting growth across the region, particularly Germany, and a $16 million ($25 million pretax) gain related to an investment in an affiliate. Net income of $312 million in 1999 and $100 million in 1998 included restructuring-related items of $15 million ($23 million pretax) and $125 million ($239 million pretax), respectively. The net effect in 1999 of foreign currency translation reduced revenue and expense growth by approximately 3 and 4 percentage points, respectively; however the impact on core income was minimal. As shown in the following table, EMEA reported 8% account growth in 1999 primarily reflecting loan growth, including credit cards. However, loans and customer deposits were reduced by the effect of foreign currency translation. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 11.1 10.2 Average customer deposits $17.0 $17.3 Average loans 16.9 16.3 - ---------------------------------------------------------------================= Revenues, net of interest expense, of $2.335 billion in 1999 grew $192 million or 9% from 1998 reflecting loan growth, improved spreads, higher insurance and investment product fees, and the $25 million gain associated with an investment in an affiliate. Adjusted operating expenses increased $37 million or 3% in 1999. Excluding the effect of foreign currency translation, expenses reflect higher business volumes and costs associated with franchise growth in Central and Eastern Europe. The provision for credit losses in 1999 was $300 million, compared to $296 million in 1998. The net credit loss ratio of 1.67% in 1999 declined from 1.70% in 1998, and loans delinquent 90 days or more were $914 million or 5.33% at December 31, 1999, down from $955 million or 5.46% at December 31, 1998. 16 Asia Pacific In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $2,248 $1,849 Adjusted operating expenses (2) 1,194 976 Provision for credit losses 345 251 -------------------- Core income before taxes 709 622 Income taxes 266 239 -------------------- Core income 443 383 Restructuring-related items, after-tax 13 64 -------------------- Net income $ 430 $ 319 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $31 $28 Return on assets 1.39% 1.14% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.43% 1.37% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Asia Pacific (including Japan and Australia) -- which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region -- reported core income of $443 million in 1999, up $60 million or 16% from 1998, reflecting business growth and expansion as the region rebounds from weak 1998 results. Net income of $430 million in 1999 and $319 million in 1998 included restructuring-related items of $13 million ($22 million pretax) and $64 million ($83 million pretax), respectively. Strengthening currencies across the region resulted in net foreign currency translation effects that increased core income by approximately $10 million in 1999, and revenue growth and expense growth were increased by approximately 5 and 6 percentage points, respectively. As shown in the following table, Asia Pacific accounts grew 21% in 1999, reflecting significant increases in Japan, growth in the Cards business across the region, and economic stabilization in most countries. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 9.2 7.6 Average customer deposits $42.1 $36.1 Average loans 23.3 20.2 - ---------------------------------------------------------------================= Revenues, net of interest expense, of $2.248 billion increased $399 million or 22% from 1998 reflecting strong performance in Japan and business volume growth and higher spreads in most other countries. Adjusted operating expenses of $1.194 billion increased $218 million or 22% from 1998 reflecting higher marketing spending across the region and costs associated with new branches and additional product offerings, particularly in Japan. The provision for credit losses in 1999 of $345 million increased from $251 million in 1998. The net credit loss ratio was 1.28% in 1999, up from 1.12% in 1998, and loans delinquent 90 days or more were $453 million or 1.80% at December 31, 1999, down from $498 million or 2.28% at December 31, 1998. The increases in the provision and the net credit loss ratio from 1998 primarily reflect increases in Taiwan and Hong Kong; however, the delinquency ratio declined in 1999 reflecting the economic stabilization across the region. 17 Latin America In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $1,983 $1,598 Adjusted operating expenses (2) 1,193 1,068 Provision for credit losses 447 265 -------------------- Core income before taxes 343 265 Income taxes 115 105 -------------------- Core income 228 160 Restructuring-related items, after-tax 27 67 -------------------- Net income $ 201 $ 93 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $14 $12 Return on assets 1.44% 0.78% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.63% 1.33% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Latin America - which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region - reported core income of $228 million in 1999, up $68 million or 43% from 1998, reflecting an increase in earnings from Credicard, a 33%-owned Brazilian Card affiliate, and the effect of certain acquisitions, partially offset by a higher provision for credit losses. Net income of $201 million in 1999 and $93 million in 1998 included restructuring-related items of $27 million ($42 million pretax) and $67 million ($88 million pretax), respectively. The Brazilian currency devaluation in the beginning of 1999 significantly contributed to foreign currency translation effects that reduced core income by approximately $34 million. Foreign currency translation effects reduced revenue and expense growth by approximately 10 and 7 percentage points, respectively. As shown in the following table, Latin America experienced strong business volume growth in 1999, including the effect of acquisitions. Average loan growth of 1% was reduced by credit risk management initiatives. Customer deposit growth also reflects a "flight to quality" in the region. In billions of dollars 1999 1998 - -------------------------------------------------------------------------------- Accounts (in millions) 8.8 7.3 Average customer deposits $13.5 $10.2 Average loans 7.9 7.8 - ---------------------------------------------------------------================= Revenues, net of interest expense, of $1.983 billion increased $385 million or 24% from 1998 reflecting acquisitions in the region and increased earnings from Credicard. Adjusted operating expenses of $1.193 billion increased $125 million or 12% from 1998 reflecting acquisitions in the region. Efficiency efforts in 1999 contributed to a 3% decline in expenses excluding the effect of acquisitions and foreign currency translation. The provision for credit losses of $447 million in 1999 increased from $265 million in 1998. The net credit loss ratio was 5.30% in 1999, up from 3.07% in 1998, and loans delinquent 90 days or more of $320 million or 4.10% at December 31, 1999 increased from $288 million or 3.60% at December 31, 1998. The increases in the provision and the net credit loss ratio from 1998 reflect economic conditions in the region, particularly in Argentina and Chile, and the effect of recent acquisitions. 18 e-Citi In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $ 233 $ 149 Adjusted operating expenses (2) 527 378 Provision for credit losses 5 3 ------------------ Loss before tax benefits (299) (232) Income tax benefits (120) (91) ------------------ Loss (179) (141) Restructuring-related items, after-tax -- 2 ------------------ Net loss ($179) ($143) - ----------------------------------------------------------================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- e-Citi -- the business responsible for developing and implementing the Company's Internet financial services products and e-commerce solutions -- reported losses before restructuring-related items of $179 million in 1999, compared to $141 million in 1998. The net loss of $143 million in 1998 included restructuring-related items of $2 million ($3 million pretax). Revenues, net of interest expense, were $233 million in 1999, up from $149 million in 1998, reflecting business volume increases in certain electronic banking services. Adjusted operating expenses of $527 million increased from $378 million in 1998, reflecting continued investment in Internet-based and other electronic financial services as well as other e-commerce solutions and volume increases associated with electronic banking services. Other Consumer In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $ 115 $ 107 Adjusted operating expenses (2) 233 230 ------------------ Loss before tax benefits (118) (123) Income tax benefits (38) (44) ------------------ Loss (80) (79) Restructuring-related items, after-tax 12 -- ------------------ Net loss ($ 92) ($ 79) - ----------------------------------------------------------================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Other Consumer -- which includes certain treasury and insurance operations and global marketing and other programs -- reported losses before restructuring-related items of $80 million in 1999, compared with a $79 million loss in 1998, reflecting higher costs associated with global distribution initiatives and lower treasury results reflecting the higher interest rate environment, offset by lower marketing costs, reduced staff levels, and higher insurance earnings. The net loss of $92 million in 1999 included restructuring-related items of $12 million ($19 million pretax). 19 Consumer Portfolio Review In the consumer portfolio, credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans. Pricing and credit policies reflect the loss experience of each particular product. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy. The number of days is set at an appropriate level according to loan product and country. The table below summarizes delinquency and net credit loss experience in both the managed and on-balance sheet loan portfolios in terms of loans 90 days or more past due, net credit losses, and as a percentage of related loans. Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
Total 90 Days or Average Loans More Past Due (1) Loans Net Credit Losses (1) -------------------------------------------------------------------- In millions of dollars, except loan amounts in billions 1999 1999 1998 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Citibanking North America $ 7.4 $ 55 $ 93 $ 7.6 $ 90 $ 106 Ratio 0.75% 1.20% 1.18% 1.34% Mortgage Banking 30.1 696 625 27.4 43 75 Ratio 2.31% 2.44% 0.16% 0.31% U.S. Bankcards 73.7 1,061 1,001 69.0 3,143 3,123 Ratio 1.44% 1.45% 4.56% 5.33% Other Cards 2.2 30 28 2.4 87 79 Ratio 1.38% 1.23% 3.70% 3.51% CitiFinancial 15.5 203 172 13.6 295 291 Ratio 1.31% 1.44% 2.18% 2.74% Europe, Middle East & Africa 17.2 914 955 16.9 281 277 Ratio 5.33% 5.46% 1.67% 1.70% Asia Pacific 25.1 453 498 23.3 298 227 Ratio 1.80% 2.28% 1.28% 1.12% Latin America 7.8 320 288 7.9 419 239 Ratio 4.10% 3.60% 5.30% 3.07% Citibank Private Bank (2) 22.4 120 193 19.2 19 5 Ratio 0.54% 1.14% 0.10% 0.03% Other 0.8 3 2 0.9 5 3 - ------------------------------------------------------------------------------------------------------------------ Total managed 202.2 3,855 3,855 188.2 4,680 4,425 Ratio 1.91% 2.12% 2.49% 2.70% - ------------------------------------------------------------------------------------------------------------------ Securitized credit card receivables (49.0) (725) (658) (46.9) (2,159) (2,053) Loans held for sale (4.5) (32) (38) (5.2) (110) (134) - ------------------------------------------------------------------------------------------------------------------ Total loans $ 148.7 $ 3,098 $ 3,159 $ 136.1 $ 2,411 $ 2,238 Ratio 2.08% 2.39% 1.77% 1.82% - ----------------------------------------------====================================================================
(1) The ratios of 90 days or more past due and net credit losses are calculated based on end-of-period and average loans, respectively, both net of unearned income. (2) Citibank Private Bank results are reported as part of the Global Investment Management and Private Banking segment. - -------------------------------------------------------------------------------- Consumer Loan Balances, Net of Unearned Income End of Period Average ---------------- ---------------- In billions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Managed $202.2 $181.6 $188.2 $163.8 Securitized credit card receivables (49.0) (44.3) (46.9) (36.5) Loans held for sale (4.5) (5.0) (5.2) (4.6) ------------------------------------ On-balance sheet $148.7 $132.3 $136.1 $122.7 - -------------------------------------------==================================== 20 Total delinquencies 90 days or more past due in the managed portfolio were $3.9 billion with a related delinquency ratio of 1.91% at December 31, 1999, compared with $3.9 billion or 2.12% at December 31, 1998. Total managed net credit losses in 1999 were $4.7 billion and the related loss ratio was 2.49%, compared with $4.4 billion and 2.70% in 1998. For a discussion on trends by business, see business discussions on pages 11-19. Citicorp's allowance for credit losses of $6.7 billion is available to absorb all probable credit losses inherent in the portfolio. For analytical purposes only, the portion of Citicorp's allowance for credit losses attributed to the consumer portfolio was $3.4 billion as of December 31, 1999, up from $3.3 billion as of December 31, 1998. The allowance as a percentage of loans on the balance sheet was 2.31% as of December 31, 1999, down from 2.50% at December 31, 1998, reflecting improved credit performance in the portfolio. The attribution of the allowance is made for analytical purposes only and may change from time to time. In millions of dollars 1999 1998 - ------------------------------------------------------------------------------- Allowance for credit losses $3,435 $3,310 As a percentage of total consumer loans 2.31% 2.50% - -------------------------------------------------------------================== Global Consumer Outlook The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29. In 2000, Citicorp will adopt the Federal Financial Institutions Examination Council's (FFIEC) revised Uniform Retail Credit Classification and Account Management Policy. The policy provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for Citicorp's financial institution subsidiaries. The revised policy is not expected to have a material effect on financial results, since Citicorp maintains adequate reserves for probable credit losses inherent in its loan portfolios. However, net credit losses, delinquencies and the related ratios may increase from 1999 levels as a result of portfolio growth, global economic conditions, and the credit performance of the portfolios, including bankruptcies. North America Citibanking North America. 1999 was a year of major transformation and success. The business significantly changed its expense structure, reducing operating expenses by $334 million or 20%. Citibanking invested in training and licensing programs and implemented new compensation programs to enable and motivate associates to sell a full range of financial products that meet clients' needs. By the end of 1999, the majority of sales associates became licensed and Citibanking introduced Citipro, a complimentary financial analysis to assess clients' financial needs and recommend appropriate financial products to meet those needs. This new sales strategy and culture has accelerated revenue growth through increased sales of banking products and higher investment product fees. As a result, revenues grew 11% in the second half of 1999 as compared to 3% in the first half of 1999. Revenue growth in 2000 is expected to exceed the growth experienced in 1999. Mortgage Banking. In 1999, Mortgage Banking, which includes the student loan business, expanded its product set and geographic presence through the acquisition of Source One and distribution through Citigroup affiliates. Continued growth is expected in 2000 through improved returns on the mortgage servicing portfolio, expanded Internet and cross-sell opportunities, and the introduction of new lending products. Student loan growth will be driven by increased presence in the wholesale business and Internet lending. Cards. The Cards business delivered outstanding performance in 1999 within a challenging business environment, led by growth in receivables and sales volume and improved risk adjusted margins despite competitive pressures. Additionally, the business successfully executed two portfolio acquisitions in the year. As a result, the business is moving into 2000 with solid momentum. While competitive pressures will continue, the business will leverage its size in meeting the needs of existing customers and gain wallet share by continuing to grow existing profitable relationships and testing new value propositions and channels, including the Internet. Further, Cards will meet its customers' broader needs through cross-selling and financial facilitation opportunities that will provide for continued business growth. Improved credit performance significantly contributed to earnings growth in 1999. Credit performance is not expected to improve further in 2000 and credit costs and delinquencies may increase from 1999 levels as a result of the economic environment and continued business growth. 21 CitiFinancial. During 1999, CitiFinancial acquired operations in Florida that had access to significant correspondent and broker networks, as well as purchased approximately 200 branches. CitiFinancial is also pursuing other sources of new volume through its affiliates within Citigroup. In addition, the number of competitors in consumer finance lending has changed over the past few years. CitiFinancial believes that the industry will continue to consolidate and this may present an opportunity to grow via acquisitions both domestically and internationally. Utilizing the existing and recently acquired new channels, CitiFinancial expects continued growth in 2000. CitiFinancial believes that its secured lending products will produce above average returns should interest rates continue to rise. Increases in interest rates could possibly have an adverse effect on the economy. Credit losses are expected to increase modestly in 2000 given that they were at historical lows in 1999. International Consumer Europe, Middle East & Africa. The newly unified Europe represents a large market whose size and strong demographic characteristics rival that of the U.S. Additional growth opportunity comes from the developing markets of Central and Eastern Europe where an emerging middle class is expected to fuel the demand for financial services. In 2000, the region will focus on the development of Internet banking and investment products, including e-brokerage services. Not unlike the U.S., as the social reforms take hold, an increasing recognition on the part of consumers that they will need to fund their own retirements is fueling a substantial investment product opportunity. Although the EMU represents great opportunity, the challenges are substantial. A single market requires pan-European product offerings, brings increased competition, and creates a greater ability on the part of consumers to comparison shop across borders. Citigroup's strengths in distribution and consistent global advertising and marketing efforts will provide a strong platform to expand beyond the current European presence. Asia Pacific. Asia's economic crisis has highlighted the need for a deep, rapid restructuring of the banking industry across the region. 1999 was one of the industry's most challenging years on record. Local banks consolidated, competition intensified with the growing presence of foreign banks and non-bank financial institutions, and market dynamics changed due to structural shifts, including the rapid development of the Internet across Asia. In 1999, the business embarked on a number of strategic cost management initiatives to support a strengthened franchise. Both revenues and earnings experienced healthy growth in 1999. Asia's economic recovery is expected to broaden in 2000. As a result of the economic outlook and the business momentum built in 1999, Asia Pacific is well positioned in 2000 for continued franchise growth. Latin America. The region experienced deteriorating economic conditions during 1999 in many of its countries, which resulted in contracting Gross Domestic Product, currency volatility, and a difficult credit environment. The macroeconomic outlook is expected to remain challenging in 2000, with most countries returning to only modest growth. The business will focus its growth on less risky products and population segments, and continue to implement operating expense reduction programs. Tight controls on loan underwriting and collections implemented in 1999, coupled with a moderately improved economic climate in 2000, should result in improved credit performance. GLOBAL CORPORATE BANK In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $8,410 $7,546 Adjusted operating expenses (2) 5,076 5,185 Provision for credit losses 348 394 -------------------- Core income before taxes 2,986 1,967 Income taxes 1,110 729 -------------------- Core income 1,876 1,238 Restructuring-related items, after-tax 22 137 -------------------- Net income $1,854 $1,101 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $163 $170 Return on assets 1.14% 0.65% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.15% 0.73% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Citicorp's Global Corporate Bank serves corporations, financial institutions, governments, investors, and other participants in capital markets throughout the world and consists of Emerging Markets and Global Relationship Banking (GRB). 22 Emerging Markets provides a wide array of banking products and services to multinational and large and emerging local corporations in 78 emerging market countries. GRB focuses on providing banking, capital markets, and transaction processing services to large multinational companies in 22 developed countries and to their subsidiaries around the world. Global Corporate Bank core income in 1999 was $1.876 billion, up $638 million or 52% from 1998. In 1999, Emerging Markets core income was $1.190 billion, up $442 million or 59% from 1998, while GRB core income was $686 million, up $196 million or 40% from 1998. The results reflect a rebound from 1998 economic turmoil, strong 1999 revenues, improved Emerging Markets' credit and lower GRB expenses. Excluding the 1998 Russia-related losses, Emerging Markets core income growth was due to strong revenue growth in Latin America and an improved credit outlook that resulted in a lower provision for credit losses. Excluding the 1998 global economic turmoil, GRB core income growth was primarily due to lower expenses and strong structured products and global equities revenues. Net income of $1.854 billion in 1999 and $1.101 billion in 1998 included net restructuring-related items of $22 million ($35 million pretax) and $137 million ($214 million pretax), respectively. The 1999 net restructuring-related items primarily include additional severance charges and accelerated depreciation related to the continuing implementation of the 1998 restructuring initiatives. The 1998 restructuring initiatives are designed to realize synergies and operating efficiencies arising from the Citicorp and Travelers merger. The savings will come from both Emerging Markets and GRB as the businesses rationalize their presence in countries with multiple operations with Salomon Smith Barney (SSB), a subsidiary of Citigroup, consolidate Citibank and SSB locations, integrate trading platforms, and exit non-strategic businesses. See Note 12 of Notes to Consolidated Financial Statements. Emerging Markets In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $4,327 $3,632 Adjusted operating expenses (2) 2,068 2,015 Provision for credit losses 347 424 -------------------- Core income before taxes 1,912 1,193 Income taxes 722 445 -------------------- Core income 1,190 748 Restructuring-related items, after-tax 10 50 -------------------- Net income $1,180 $ 698 - ---------------------------------------------------------==================== Average assets (in billions of dollars) $82 $78 Return on assets 1.44% 0.89% - ----------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.45% 0.96% - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Emerging Markets core income totaled $1.190 billion in 1999, up $442 million or 59% from 1998, reflecting Russia-related losses in 1998 and strong 1999 revenue growth in Latin America, along with an improved credit outlook that resulted in a lower provision for credit losses. In Asia (including Australia and New Zealand but excluding Japan and the Indian subcontinent), improved net write-offs and lower expenses offset revenue declines from lower trading activity. Net income of $1.180 billion and $698 million in 1999 and 1998, respectively, included restructuring-related items of $10 million ($17 million pretax) and $50 million ($73 million pretax), respectively. Revenues, net of interest expense, of $4.327 billion grew $695 million or 19% compared with 1998, reflecting double-digit growth in loan product revenues, structured products revenues and trade services and an $86 million improvement in trading-related revenues. Revenue growth in 1999 included double-digit growth in Latin America and CEEMEA (Central and Eastern Europe, Middle East and Africa) that was partially offset by a decline in trading-related revenues in Asia. Revenues attributed to the Embedded Bank and Emerging Local Corporate strategies (Citicorp's plans to gain market share in selected emerging market countries), together with new franchises, grew 30% in 1999. These revenues accounted for 7% of the Emerging Markets revenues in both 1999 and 1998. Revenues in the Emerging Markets business that were attributable to business from multinational companies managed jointly with GRB grew 18% in 1999. These revenues accounted for approximately 28% of total Emerging Markets revenues in both 1999 and 1998. 23 Adjusted operating expenses in 1999 were well controlled, increasing $53 million or 3% to $2.068 billion as investment spending to gain market share in selected emerging market countries and volume growth were essentially funded by savings from the 1997 and 1998 restructuring actions and other expense initiatives. The provision for credit losses totaled $347 million in 1999, down $77 million compared with 1998. The decrease in 1999 was primarily attributable to lower net write-offs in Russia and Asia, partially offset by an increase in Latin America, as well as an overall improved credit outlook that resulted in a lower provision for credit losses. Cash-basis loans at December 31, 1999 and 1998 were $1.044 billion and $1.062 billion. The 1999 balance reflected decreases in Asia partially offset by increases in Latin America. Average assets of $82 billion in 1999 rose $4 billion or 5% from 1998 reflecting growth across all regions. The growth was concentrated in the loan portfolio and structured products. Global Relationship Banking In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $4,083 $3,914 Adjusted operating expenses (2) 3,008 3,170 Provision (benefit) for credit losses 1 (30) ----------------- Core income before taxes 1,074 774 Income taxes 388 284 ----------------- Core income 686 490 Restructuring-related items, after-tax 12 87 ----------------- Net income $ 674 $ 403 - -----------------------------------------------------------================= Average assets (in billions of dollars) $81 $92 Return on assets 0.83% 0.44% - ---------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 0.85% 0.53% - -----------------------------------------------------------================= (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Core income from Global Relationship Banking in North America, Europe, and Japan was $686 million in 1999, up $196 million or 40% from 1998, primarily reflecting current year revenue growth, prior year economic turmoil and lower expenses. Net income of $674 million and $403 million in 1999 and 1998, respectively, included restructuring-related items of $12 million ($18 million pretax) and $87 million ($141 million pretax), respectively. Revenues, net of interest expense, in 1999 of $4.083 billion increased $169 million or 4% from 1998. Revenues in 1998 included losses attributable to global economic turmoil as well as gains related to the disposition of real estate investments. Excluding these items, the 1999 results reflect growth in structured products, global equities and transaction services, partially offset by a decline in loan portfolio revenues. Adjusted operating expenses were $3.008 billion in 1999, down $162 million or 5% from 1998. The decline in expenses from 1998 to 1999 was primarily the result of decreased costs related to the year 2000 and the EMU, coupled with restructuring actions and business integration initiatives with SSB. The provision for credit losses was $1 million in 1999 compared to net benefits of $30 million in 1998. Net benefits in 1998 were primarily the result of real estate recoveries partially offset by write-offs resulting from the financial market turmoil in Russia. Cash-basis loans at December 31, 1999 and 1998 were $304 million and $268 million, respectively, while the other real estate owned portfolio totaled $156 million and $235 million, respectively. The increase in cash-basis loans in 1999 was due to an increase in North America partially offset by improvements in the real estate portfolio. The improvement in other real estate owned in 1999 was primarily related to the real estate portfolio. Average assets of $81 billion in 1999 declined $11 billion or 12% from 1998, primarily reflecting the transfer of certain fixed income businesses to SSB. 24 Commercial Portfolio Review Commercial loans are identified as impaired and placed on a nonaccrual basis when it is determined that the payment of interest or principal is doubtful of collection or when interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection. Impaired commercial loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value. The following table summarizes commercial cash-basis loans and net credit losses (recoveries). For a discussion of trends by business, see the business discussions on pages 23-24. In millions of dollars 1999 1998 - ------------------------------------------------------------------------------- Commercial cash-basis loans at year-end Emerging Markets $1,044 $1,062 Global Relationship Banking 304 268 ----------------- Total Global Corporate Bank 1,348 1,330 Investment Activities 14 13 ----------------- Total commercial cash-basis loans $1,362 $1,343 - --------------------------------------------------------------================= Net credit losses (recoveries) Emerging Markets $ 406 $ 446 Global Relationship Banking 1 (30) ----------------- Total Global Corporate Bank 407 416 Investment Activities -- (10) ----------------- Total net credit losses $ 407 $ 406 - --------------------------------------------------------------================= Citicorp's allowance for credit losses of $6.7 billion is available to absorb all probable credit losses inherent in the portfolio. For analytical purposes only, the portion of Citicorp's allowance for credit losses attributed to the commercial portfolio was $3.2 billion at December 31, 1999 compared to $3.3 billion at December 31, 1998. The decline in the allowance in 1999 primarily reflected an improved credit outlook in Emerging Markets. In millions of dollars at year-end 1999 1998 - ------------------------------------------------------------------------------- Commercial allowance for credit losses $3,244 $3,307 As a percentage of total commercial loans 3.35% 3.76% - -----------------------------------------------------------==================== Global Corporate Bank Outlook The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29. The businesses of Global Corporate Bank are significantly affected by the levels of activity in the global capital markets which, in turn, are influenced by macroeconomic and political policies and developments, among other factors, in the 100 countries and territories in which the businesses operate. Global economic events can have both positive and negative effects on the revenue performance of the businesses and can negatively affect credit performance. In particular, levels of trading-related revenues, securities transactions, and net asset gains may fluctuate in the future as a result of market and asset-specific factors. Losses on commercial lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type. In 1998, the global capital markets experienced economic turmoil not seen in at least a decade, as currency crises sparked economic turmoil that began in Asia Pacific and spread to Russia and, in early 1999, to Latin America. In response to the turmoil, the businesses undertook a number of initiatives to mitigate the negative effects of global instability. Risk management is a priority with the goal of deriving a higher percentage of earnings from controllable business operations. Investments are expected to continue in 2000 to expand CitiDirect, which gives clients Internet-based access to cash management and trade capabilities, and CitiFX Interactive, an online tool for foreign exchange services. 25 GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING In millions of dollars 1999 1998 (1) - ----------------------------------------------------------------------------- Total revenues, net of interest expense $1,560 $1,478 Adjusted operating expenses (2) 1,128 1,062 Provision for credit losses 12 5 -------------------- Core income before taxes 420 411 Income taxes 156 155 -------------------- Core income 264 256 Restructuring-related items, after-tax (2) 52 -------------------- Net income $ 266 $ 204 - ---------------------------------------------------------==================== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- The Global Investment Management and Private Banking group is comprised of Citibank Global Asset Management and the Citibank Private Bank. These companies offer a broad range of asset management products and services from global investment centers around the world, including mutual funds, closed-end funds, managed accounts, and personalized wealth management services to institutional, high net worth, and retail clients. Global Investment Management and Private Banking core income in 1999 of $264 million, up $8 million or 3% from 1998, reflected improving revenue momentum, which outpaced increases in expenses and the provision for credit losses. Revenue growth was primed by the continued growth in managed assets in most sectors, while expense increases were driven by investments in technology, and sales and marketing capabilities. Net income of $266 million in 1999 and $204 million in 1998 included a restructuring-related credit of $2 million ($4 million pretax) and a restructuring-related charge of $52 million ($85 million pretax), respectively. Asset Management In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $ 359 $ 356 Total operating expenses (2) 385 348 --------------- (Loss) core income before taxes (26) 8 Income taxes (benefits) (12) 3 --------------- (Loss) core income (14) 5 Restructuring-related items, after-tax (1) 9 --------------- Net loss ($ 13) ($ 4) - -------------------------------------------------------------=============== Assets under management (in billions of dollars) (3) $ 151 $ 141 - -------------------------------------------------------------=============== (1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. (3) Includes $31 billion and $34 billion in 1999 and 1998, respectively, for Citibank Private Bank clients. - -------------------------------------------------------------------------------- Citibank Global Asset Management offers institutional, high net worth, and retail clients a broad range of investment disciplines from global investment centers around the world. Products and services offered include mutual funds, closed-end funds, and separately managed accounts. Assets under management totaled $151 billion as of December 31, 1999, up 7% from $141 billion in 1998. The loss before restructuring-related items of $14 million in 1999 was down $19 million from 1998, primarily reflecting continued investments in research, quantitative, and technology expertise and higher costs associated with building the business' global sales and marketing capabilities. The net losses of $13 million in 1999 and $4 million in 1998 included a restructuring-related credit of $1 million ($2 million pretax) and a restructuring-related charge of $9 million ($15 million pretax), respectively. Assets under management grew 7% in 1999, with strong growth in the liquidity funds and managed accounts asset categories. Revenues, net of interest expense, increased $3 million or 1% to $359 million in 1999. The increase reflected the broad growth in assets under management and increased performance fees, partially offset by the effects of the Brazil devaluation. Assets under management grew at a faster pace than revenue in 1999 as a result of a larger proportion of the growth occurring in lower yielding liquidity funds. 26 Adjusted operating expenses of $385 million in 1999 were up $37 million or 11% from $348 million in 1998. The increase primarily reflected continued investments in research, quantitative, and technology expertise (now more than 75% complete) and higher costs associated with building the business' global sales and marketing capabilities. Citibank Private Bank
In millions of dollars 1999 1998 (1) - ------------------------------------------------------------------------------------- Total revenues, net of interest expense $1,201 $1,122 Adjusted operating expenses (2) 743 714 Provision for credit losses 12 5 ----------------- Core income before taxes 446 403 Income taxes 168 152 ----------------- Core income 278 251 Restructuring-related items, after-tax (1) 43 ----------------- Net income $ 279 $ 208 - --------------------------------------------------------------------================= Average assets (in billions of dollars) $ 20 $ 17 Return on assets 1.40% 1.22% - ------------------------------------------------------------------------------------- Excluding restructuring-related items Return on assets 1.39% 1.48% - --------------------------------------------------------------------================= Client business volumes under management (in billions of dollars) $140 $116 - --------------------------------------------------------------------=================
(1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items. - -------------------------------------------------------------------------------- Citibank Private Bank -- which provides personalized wealth management services for high net worth clients around the world -- reported core income in 1999 of $278 million, up $27 million or 11% from 1998, reflecting improving revenue momentum, which outpaced moderate increases in expenses and the provision for credit losses. Net income of $279 million in 1999 and $208 million in 1998 included a restructuring-related credit of $1 million ($2 million pretax) and a restructuring-related charge of $43 million ($70 million pretax), respectively. Client business volumes under management, which include loans, deposits, and other client assets under management and custody, were $140 billion at the end of the year, up from $116 billion at year-end 1998, reflecting growth in all regions. Business volumes grew in all product lines, led by the custody and lending businesses. Revenues in 1999 were $1.201 billion, up $79 million or 7% from 1998, reflecting particularly strong growth in the U.S. and Japan. This growth was driven by strong lending and asset management activity, partially offset by lower fees from customer trading-related activities. Adjusted operating expenses of $743 million in 1999 were up $29 million or 4% from 1998, reflecting increased spending related to growth in the sales force and technology platform development, partially offset by lower employee-related costs associated with restructuring initiatives. The provision for credit losses for 1999 was $12 million, compared with $5 million in 1998. Net credit losses in 1999 remained at a nominal level of 0.10% of average loans outstanding. Loans 90 days or more past due at year-end were $120 million or 0.54% of total loans outstanding, compared with 1.14% at the end of 1998. GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING OUTLOOK The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29. The market for investment management and private banking services is extremely attractive because the "wealth" segment has been growing faster than the overall market, and the prospects for the overall market continue to be positive over the longer term. While competition for this attractive and dynamic market segment is increasing, the global market is highly fragmented with no dominant competitors. This presents Global Investment Management and Private Banking with an extremely attractive business opportunity because it is one of the few providers that can claim to offer a full range of services on a global basis. 27 CORPORATE/OTHER
In millions of dollars 1999 1998 (1) - -------------------------------------------------------------------------------- Total revenues, net of interest expense $ 196 ($ 54) Adjusted operating expenses (2) 680 487 -------------- Loss before tax benefits (484) (541) Income tax benefits (164) (238) -------------- Loss (320) (303) Restructuring-related items and merger-related costs, after-tax 20 67 -------------- Net loss ($340) ($370) - ------------------------------------------------------------------==============
(1) Reclassified to conform to the 1999 presentation. (2) Excludes restructuring-related items and merger-related costs. - -------------------------------------------------------------------------------- Corporate/Other includes net corporate treasury results, and corporate staff and other corporate expenses. Revenue increases in 1999 reflect lower funding costs. Expenses in 1999 included certain technology costs associated with year 2000 remediation, partially offset by decreases in corporate staff expenses as a result of headcount reductions in 1999. Expenses in 1998 included a $100 million contribution of appreciated venture capital securities to the Citigroup Foundation, which had minimal impact on Citicorp's earnings after related tax benefits and investment gains. Performance-based options granted in 1998 to a group of key employees vested in 1999 as certain pre-determined price levels were met. All expenses related to these options have been recognized. 1999 and 1998 expenses included $108 million and $70 million, respectively, associated with these performance-based stock options. The 1999 after-tax restructuring-related items of $20 million primarily included accelerated depreciation charges on the planned disposition of certain premises and equipment assets, in excess of the normal scheduled depreciation on those assets. In 1998, Corporate/Other recorded a $50 million restructuring charge ($26 million after-tax) to streamline and integrate corporate staff functions, as well as a $41 million (before and after-tax) one-time transaction cost associated with administratively closing the Citicorp and Travelers merger. INVESTMENT ACTIVITIES In millions of dollars 1999 1998 (1) - ---------------------------------------------------------------------------- Total revenues, net of interest expense $ 864 $1,029 Total operating expenses 64 50 Benefit for credit losses -- (10) ---------------- Income before taxes 800 989 Income taxes 277 332 ---------------- Net income $ 523 $ 657 - ------------------------------------------------------------================ (1) Reclassified to conform to the 1999 presentation. - -------------------------------------------------------------------------------- Investment Activities comprises Citicorp's venture capital activities, securities transactions related to certain corporate-related investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. Revenues in 1999 of $864 million declined $165 million or 16% from 1998, primarily reflecting a decline in securities transactions from sales of Brady bonds, partially offset by an increase in venture capital results and realized investment gains on certain corporate-related investments. Revenues in 1999 and 1998 included net gains (write-downs) of ($14) million and $29 million, respectively, related to investments in Latin America. Levels of venture capital revenues and securities transactions may fluctuate in the future as a result of market and asset-specific factors. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29. YEAR 2000 Reflecting the work done around the world to complete Citicorp's year 2000 program, the Company's computer systems and business processes successfully handled the date change from December 31, 1999 to January 1, 2000. The Company is not aware of any significant year 2000 problems encountered internally or with the third parties with which it interfaces, 28 including customers and counterparties, the global financial market infrastructure, and the utility infrastructure on which all corporations rely. Based on operations since January 1, 2000, Citicorp does not expect any significant impact to its ongoing business as a result of the year 2000 issue. However, it is possible that the full impact of year 2000 issues has not been fully recognized, and no assurances can be given that year 2000 problems will not emerge. The pretax cost associated with the required systems modifications and conversions totaled approximately $740 million, including approximately $250 million in 1999. Citicorp had previously estimated the cost at approximately $720 million. The cost was funded from a combination of a reprioritization of technology development initiatives and incremental costs and was expensed as incurred. The Company's expectations with respect to year 2000 issues constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" below. FORWARD-LOOKING STATEMENTS Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Many of these statements appear under the heading "Global Consumer Outlook," "Global Corporate Bank Outlook," and "Global Investment Management and Private Banking Outlook." The Company's actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could". These forward-looking statements involve risks and uncertainties including, but not limited to global economic conditions, portfolio growth, the credit performance of the portfolios, and seasonal factors; changes in general economic conditions, including the performance of global financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various Investment Activities; the effects of competitors' pricing policies, of changes in laws and regulations on competition, and of demographic changes on target market populations' savings and financial planning needs; the resolution of legal proceedings and related matters; the actual cost of year 2000-related claims, if any; and the Company's success in managing the costs associated with the expansion of existing distribution channels and developing new ones, and in realizing increased revenues from such distribution channels, including cross-selling initiatives and electronic commerce-based efforts. MANAGING GLOBAL RISK Citicorp manages its global risk exposures using Citigroup's Windows on Risk process. The Windows on Risk process has three major components: an assessment of the global external environment, drawing on our own knowledge and frequently on the knowledge of outside experts; an assessment of the corporation's exposures in terms of different risk windows, with special focus on potentially material risks to Citicorp; and decisions on desired corporate exposure levels and determination of follow-up actions required to adjust exposure. The review of the external environment encompasses the outlook for major country and regional economies; significant consumer markets and global industries; potential near-term critical economic and political events; and the implications of potential unfavorable developments as they relate to specific businesses. The review is intended to provide Citicorp with a view of the environment in which it operates and of the risks inherent in its businesses. Based on this review, senior management formulates recommendations and assigns responsibility for recommended actions. The Credit Risk Management Process Line management conducts the day-to-day credit process in accordance with core policies established by the Citigroup Credit Policy Committee which are guided by the overall risk appetite and portfolio targets set by senior management. Line management initiates and approves all extensions of credit and is responsible for credit quality. Line managers must also establish supplementary credit policies specific to each business, deploy the credit talent needed, and monitor portfolio and process quality. The managers are required to identify problem credits or programs as they develop, and to correct deficiencies as needed through remedial management. Audit and Risk Review conducts independent periodic examinations of both portfolio quality and the credit process at the individual business level. 29 Credit policies are organized around two basic approaches--Credit Programs and Credit Transactions. Credit Programs, used primarily for the Consumer businesses, focus on the decision to extend credit to sets of customers with similar characteristics and/or product needs. Approvals under this approach cover the expected level of aggregate exposure, the terms, risk acceptance criteria, operating systems, and reporting mechanisms. This is a cost-effective way of handling high-volume, small-dollar amount transactions. Credit Programs are reviewed annually, with approvals tiered on the basis of projected outstandings as well as the maturity and performance of the product. The Credit Transactions approach focuses on the decision to extend credit to an individual customer or customer relationship. It starts with target market definition and risk acceptance criteria, and requires detailed customized financial analysis. Approval requirements for each decision are tiered based on the transaction amount, the customer's aggregate facilities, credit risk ratings, and the banking business serving the customer. Credit Programs and Credit Transactions are approved by three line credit officers, with one designated as responsible to ensure that all aspects of the credit process are properly coordinated and executed. As the size or risk increases, the three approvals may include one or two Senior Credit or Securities Officers. These include over 500 of Citicorp's most experienced lenders and underwriters appointed by the Citigroup Credit Policy Committee, with their designation reviewed annually. In addition, approvals from underwriting, product, industry or functional specialists may be required. At certain higher levels of risk, Citigroup Credit Policy Committee members as well as senior management review individual credit decisions. Citicorp manages its credit exposure on derivative and foreign exchange instruments as part of the overall extension of credit to individual customer relationships, subject to the same credit approvals, limits, and monitoring procedures used for other activities. The extension of credit in a derivative or foreign exchange contract is the loss that could result if the counterparty were to default. The current replacement cost of a derivative or foreign exchange contract is equal to the amount, if any, of Citicorp's unrealized gain on the contract. In the aggregate, for all contracts, this represents a balance sheet exposure of $20.8 billion at December 31, 1999, which is reflected in Trading Account Assets. See Note 17 of Notes to Consolidated Financial Statements for additional details on these exposures. A substantial portion of the total balance sheet exposure is to counterparties considered by Citicorp to be investment grade and under three years tenor. In managing the credit risk associated with derivative and foreign exchange contracts, the amount at risk is measured as the sum of the current replacement cost (the balance sheet credit exposure) plus the potential increase in the replacement cost over the remaining life of the instrument should market rates change. The potential increase in replacement cost of a contract is estimated based on a statistical simulation of values that would result from changing market rates. The Market Risk Management Process Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that some entity, in some location and in some currency, may be unable to meet a financial commitment to a customer, creditor, or investor when due. Price risk is the risk to earnings that arises from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Citicorp's business and corporate oversight groups have well-defined market risk management responsibilities. Within each business, a process is in place to control market risk exposure. The risk management process includes the establishment of appropriate market controls, policies and procedures, appropriate senior management risk oversight with thorough risk analysis and reporting, and independent risk management with capabilities to evaluate and monitor risk limits. Management of this process begins with the professionals nearest to Citicorp's customers, products, and markets, and extends up to the senior executives who manage these businesses and to the country level. Market risk management is an evolutionary process that integrates changes in markets, products, and technologies into policies and practices. Periodic reviews are conducted by Audit Risk and Review to ensure compliance with institutional policies and procedures for the assessment, management, and control of market risk. Price risk is measured using various tools, including Earnings-at-Risk (EAR) and sensitivity analysis, which are applied to interest rate risk in the non-trading portfolios, and Value-at-Risk (VAR), which is applied to the trading portfolios. Non-Trading Portfolios Business units manage the potential earnings effect of interest rate movements by managing the asset and liability mix, either directly or through the use of derivative financial products. These include interest rate swaps and other derivative instruments, which are either designated and effective as hedges or designated and effective in modifying the interest rate characteristics of specified assets or liabilities. The utilization of derivatives is managed in response to changing market 30 conditions as well as to changes in the characteristics and mix of the related assets and liabilities. Additional information about non-trading derivatives is located in Note 17 of Notes to Consolidated Financial Statements. Citicorp does not utilize instruments with leverage features in connection with its risk management activities. Price risk in the non-trading portfolios is primarily measured using Earnings-at-Risk throughout Citicorp, except CitiFinancial Credit Company which uses sensitivity analysis and is discussed below. Earnings-at-Risk measures the discounted pretax earnings impact over a specified time horizon of a specified shift in the interest rate yield curve for the appropriate currency. The yield curve shift is statistically derived as a two standard deviation change in a short-term interest rate over the period required to defease the position (usually four weeks). Earnings-at-Risk is calculated separately for each currency and reflects the repricing gaps in the position, as well as option positions, both explicit and embedded. As part of the annual planning process, limits are set for Earnings-at-Risk on a business, country and total Citicorp basis, with exposures reviewed on a regular basis by the Finance and Capital Committee in relation to limits and the current interest rate environment. Citicorp's primary non-trading price risk exposure is to movements in U.S. dollar interest rates. As of December 31, 1999, the rate shift over a four-week defeasance period applied to the U.S. dollar yield curve for purposes of calculating Earnings-at-Risk was 45 basis points. Citicorp also has Earnings-at-Risk in various other currencies; however, there are no significant risk concentrations in any individual non-U.S. dollar currency. As of December 31, 1999, the rate shifts applied to these currencies for purposes of calculating Earnings-at-Risk over a one-to four-week defeasance period ranged from 20 to 1,781 basis points, depending on the currency. The following table illustrates that, as of December 31, 1999, a 45 basis point increase in the U.S. dollar yield curve would have a potential negative impact on Citicorp's pretax earnings of approximately $166 million for 2000, and approximately $177 million for the total five-year period 2000-2004. A two standard deviation increase in non-U.S. dollar interest rates would have a potential negative impact on Citicorp's pretax earnings of approximately $119 million for 2000, and approximately $278 million for the five-year period 2000-2004. Earnings-at-Risk (impact on pretax earnings)
Assuming a U.S. Assuming a Non-U.S. Dollar Rate Move of (1) Dollar Rate Move of (1) --------------------------------------------------------------- In millions of dollars at Two Standard Deviations (2) Two Standard Deviations (2) --------------------------------------------------------------- December 31, 1999 Increase Decrease Increase Decrease - ------------------------------------------------------------------------------------------------------------------------- Overnight to three months ($ 70) $ 75 ($ 18) $ 18 Four to six months (44) 50 (30) 30 Seven to twelve months (52) 53 (71) 72 --------------------------------------------------------------- Total overnight to twelve months (166) 178 (119) 120 - ------------------------------------------------------------------------------------------------------------------------- Year two (67) 66 (125) 126 Year three (19) 13 (34) 34 Year four 23 (28) (15) 16 Year five 57 (70) (12) 12 Effect of discounting (5) 10 27 (27) --------------------------------------------------------------- Total ($177) $169 ($278) $281 - ----------------------------------------------------------===============================================================
(1) Primarily results from Earnings-at-Risk in Singapore dollar, Hong Kong dollar and Thai baht. (2) Total assumes a two standard deviation increase or decrease for every currency, not taking into account any covariance between currencies. - -------------------------------------------------------------------------------- The table above also illustrates that Citicorp's risk profile in the one-to three-year time horizon is directionally similar, but generally tends to reverse in subsequent periods. This reflects the fact that the majority of the derivative instruments utilized to modify repricing characteristics as described above will mature within three years. Additional detail regarding these derivative instruments may be found in Note 17 of Notes to Consolidated Financial Statements. 31 The following table summarizes Citicorp's worldwide Earnings-at-Risk over the next 12 months from changes in interest rates and illustrates that Citicorp's pretax earnings in its non-trading activities over the next 12 months would be reduced by an increase in interest rates and would benefit from a decrease in interest rates. Citicorp Twelve Month Earnings-at-Risk (impact on pretax earnings)
U.S. Dollar Non-U.S. Dollar -------------------------------------------------------------------------- In millions of dollars at December 31, 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- Assuming a two standard deviation rate Increase ($166) ($148) ($180) ($119) ($93) ($25) Decrease 178 156 211 120 93 25 - -----------------------------------------------==========================================================================
Interest rate swaps and similar instruments effectively modify the repricing characteristics of certain consumer and commercial loan portfolios, deposits, and long-term debt. Excluding the effects of these instruments, Citicorp's Earnings-at-Risk over the next twelve months in its non-trading activities would be as follows: Citicorp Twelve Month Earnings-at-Risk (excluding effect of derivatives)
U.S. Dollar Non-U.S. Dollar -------------------------------------------------------------------------- In millions of dollars at December 31, 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- Assuming a two standard deviation rate Increase ($30) $10 $64 ($120) ($94) ($26) Decrease 42 (3) (44) 121 94 27 - -----------------------------------------------==========================================================================
During 1999, Citicorp's U.S. dollar Earnings-at-Risk for the following 12 months assuming a two standard deviation increase in rates would have had a potential negative impact ranging from approximately $73 million to $166 million in the aggregate at each month end, compared with a range from $65 million to $173 million during 1998 and a range from $142 million to $209 million during 1997. The U.S. dollar Earnings-at-Risk experienced during 1999 was comparable to 1998 and relatively lower than 1997 primarily due to a reduction in the level of received fixed swaps. A two standard deviation increase in non-U.S. dollar interest rates for the following twelve months would have had a potential negative impact ranging from approximately $95 million to $121 million in the aggregate at each month end during 1999, compared with a range from $53 million to $98 million during 1998 and a range from $15 million to $33 million during 1997. The higher non-U.S. dollar Earnings-at-Risk primarily reflected the higher interest rate volatility seen across the Asia Pacific region. At CitiFinancial Credit Company, the estimated decrease in the fair value of financial instruments held in other non-trading portfolios, as a result of a 100 basis point increase in interest rates (including the effect of derivatives) would be $184 million and $256 million for net consumer finance receivables at December 31, 1999 and 1998, respectively, and $216 million and $255 million for long-term debt at December 31, 1999 and 1998, respectively. Trading Portfolios A tool for measuring the price risk of trading activities is the Value-at-Risk method, which estimates the potential pretax loss in market value that could occur over a one-day holding period, at a 99% confidence level. The Value-at-Risk method incorporates the market factors to which the market value of the trading position is exposed (interest rates, foreign exchange rates, equity and commodity prices, and their implied volatilities), the sensitivity of the position to changes in those market factors, and the volatilities and correlation of those factors. The Value-at-Risk measurement includes the foreign exchange risks that arise in traditional banking businesses as well as in explicit trading positions. The level of exposure taken depends on the market environment and expectations of future price and market movements, and will vary from period to period. For Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the trading portfolios was $24 million at December 31, 1999. Daily exposures at Citicorp averaged $18 million in 1999 and ranged from $14 million to $24 million. 32 The following table summarizes Citicorp's Value-at-Risk in its trading portfolio as of December 31, 1999 and 1998 along with the averages.
Dec. 31, 1999 Dec. 31, 1998 In millions of dollars 1999 Average 1998 Average - ------------------------------------------------------------------------------------------------------------------------- Interest rate $15 $13 $13 $16 Foreign exchange 17 9 7 8 Equity 11 9 5 7 All other (primarily commodity) 2 1 1 1 Covariance adjustment (21) (14) (11) (14) --------------------------------------------------------------- Total $24 $18 $15 $18 - ----------------------------------------------------------===============================================================
The table below provides the range of Value-at-Risk in the trading portfolios that was experienced during 1999 and 1998.
1999 1998 - ------------------------------------------------------------------------------------------------------------------------- In millions of dollars Low High Low High - ------------------------------------------------------------------------------------------------------------------------- Interest rate $9 $18 $10 $25 Foreign exchange 5 17 3 16 Equity 5 16 4 13 All other (primarily commodity) 1 3 1 5 - ----------------------------------------------------------===============================================================
Management of Cross-Border Risk Cross-border risk is the risk that Citicorp will be unable to obtain payment from customers on their contractual obligations as a result of actions taken by foreign governments such as exchange controls, debt moratoria and restrictions on the remittance of funds. Citicorp manages cross-border risk as part of the Windows on Risk process described on page 29. The table below presents total cross-border outstandings and commitments on a regulatory basis in accordance with FFIEC guidelines for countries with outstandings greater than 0.75% of Citicorp assets at December 31, 1999, 1998 and 1997. Total cross-border outstandings include cross-border claims on third parties as well as investments in and funding of local franchises. Cross-border claims on third parties (trade and short-, medium- and long-term claims) include cross-border loans, securities, deposits at interest with banks, investments in affiliates, and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products. Adjustments have been made to assign externally guaranteed outstandings to the country of the guarantor and outstandings for which tangible, liquid collateral is held outside of the obligor's country to the country in which the collateral is held. For securities received as collateral, outstandings are assigned to the domicile of the issuer of the securities. Investments in and funding of local franchises represents the excess of local country assets over local country liabilities, as defined by the FFIEC. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citicorp domiciled in the country, adjusted for externally guaranteed outstandings and certain collateral. Local country liabilities are obligations of branches and majority-owned subsidiaries of Citicorp domiciled in the country for which no cross-border guarantee is issued by Citicorp offices outside the country. 33
1999 1998 ----------------------------------------------------------------------------------------------- Cross-Border Claims on Third Parties ---------------------------------------------- Total Total Investments Cross- Cross- Trading in and Border Border and Funding Out- Out- In billions of dollars, Short-Term of Local stand- Commit- stand- Commit- at year-end Banks Public Private Total Claims(1) Franchises ings ments (2) ings ments (2) - ---------------------------------------------------------------------------------------------------------------------- Germany $1.7 $1.7 $1.8 $5.2 $4.7 $3.1 $8.3 $3.7 $7.4 $1.4 United Kingdom 0.9 -- 3.5 4.4 4.1 -- 4.4 15.5 4.4 8.9 France 2.0 0.4 1.7 4.1 3.6 0.1 4.2 2.2 4.6 1.1 Mexico -- 1.6 1.5 3.1 1.7 0.6 3.7 0.1 3.4 0.2 Brazil 0.6 0.7 1.4 2.7 1.2 1.0 3.7 0.1 3.6 0.1 Italy 0.8 1.7 0.8 3.3 3.0 -- 3.3 0.4 3.6 0.3 Netherlands 1.0 0.5 1.7 3.2 2.6 -- 3.2 2.9 2.8 0.8 Switzerland 1.2 -- 1.9 3.1 2.8 -- 3.1 0.3 3.5 1.6 South Korea 0.5 0.4 0.6 1.5 1.3 1.2 2.7 0.3 2.1 0.4 Spain 0.2 0.1 0.3 0.6 0.5 1.4 2.0 0.6 2.1 0.4 Japan 0.6 -- 0.9 1.5 1.3 -- 1.5 0.1 1.9 0.1 - ----------------------================================================================================================ 1997 ------------------- Total Cross- Border Out- In billions of dollars, stand- Commit- at year-end ings ments (2) - ------------------------------------------ Germany $4.7 $1.7 United Kingdom 4.5 7.8 France 3.1 0.6 Mexico 3.0 0.6 Brazil 4.4 0.1 Italy 3.4 0.5 Netherlands 2.2 0.8 Switzerland 2.7 1.1 South Korea 2.6 0.2 Spain 2.3 0.4 Japan 3.2 1.1 - -----------------------===================
(1) Trading and short-term claims (included in total cross-border claims on third parties) include cross-border debt and equity securities held in the trading account, resale agreements, trade finance receivables, net revaluation gains on foreign exchange and derivative contracts, and other claims with a maturity of less than one year. (2) Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies. - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Management of liquidity at Citicorp is the responsibility of the Corporate Treasurer. The Country Corporate Officer and the Country Treasurer ensure that all funding obligations in each country are met when due. The Country Treasurer is appointed by the Corporate Treasurer. The in-country forum for liquidity issues is the Asset/Liability Management Committee (ALCO), which includes senior executives within each country. The ALCO reviews the current and prospective funding requirements for all businesses and legal entities within the country, as well as the capital position and balance sheet. All businesses within the country are represented on the committee with the focal point being the Country Treasurer. Each Country Treasurer must prepare a liquidity plan at least annually that is approved by the Country Corporate Officer, the Regional Treasurer, and the Corporate Treasurer. The liquidity profile is monitored on an on-going basis and reported monthly. Limits are established on the extent to which businesses in a country can take liquidity risk. The size of the limit depends on the depth of the market, experience level of local management, the stability of the liabilities, and liquidity of the assets. Regional Treasurers generally have responsibility for monitoring liquidity risk across a number of countries within a defined geography. They are also available for consultation and special approvals, especially in unusual or volatile market conditions. Citicorp's assets and liabilities are diversified across many currencies, geographic areas, and businesses. Particular attention is paid to those businesses, which for tax, sovereign risk, or regulatory reasons cannot be freely and readily funded in the international markets. A diversity of funding sources, currencies, and maturities is used to gain a broad access to the investor base. Citicorp's deposits, which represent 67% and 64% of total funding at December 31, 1999 and 1998, respectively, are broadly diversified by both geography and customer segments. Stockholder's equity, which grew $1.4 billion during the year to $26.0 billion at year-end 1999, continues to be an important component of the overall funding structure. In addition, long-term debt is issued by Citicorp and its subsidiaries. Total Citicorp long-term debt outstanding at year-end 1999 was $26.4 billion, compared with $26.8 billion at year-end 1998. Asset securitization programs remain an important source of liquidity. Loans securitized during 1999 included $7.6 billion of U.S. credit cards, $7.8 billion of U.S. consumer mortgages, and $0.4 billion of non-U.S. consumer loans. As credit card securitization transactions amortize, newly originated receivables are recorded on Citicorp's balance sheet and become available for asset securitization. In 1999, the scheduled amortization of certain credit card securitization transactions made available $4.0 billion of new receivables. In addition, $6.4 billion of credit card securitization transactions are scheduled to amortize during 2000. 34 See Note 25 of Notes to Consolidated Financial Statements for limitations on dividends paid to Citicorp by its subsidiary depository institutions. Citicorp is subject to risk-based capital guidelines issued by the FRB. These guidelines are used to evaluate capital adequacy based primarily on the perceived credit risk associated with balance sheet assets, as well as certain off-balance sheet exposures such as unused loan commitments, letters of credit, and derivative and foreign exchange contracts. The risk-based capital guidelines are supplemented by a leverage ratio requirement. Citicorp Ratios At year-end 1999 1998(1) - -------------------------------------------------------------------------------- Tier 1 capital 8.11% 8.59% Total capital (Tier 1 and Tier 2) 12.10 12.40 Leverage (2) 6.83 6.88 Common stockholder's equity 6.70 6.94 - --------------------------------------------==================================== (1) Restated to include CitiFinancial Credit Company. (2) Tier 1 capital divided by adjusted average assets. - -------------------------------------------------------------------------------- Citicorp maintained a strong capital position during 1999. Total capital (Tier 1 and Tier 2) amounted to $37.4 billion at December 31, 1999, representing 12.10% of net risk-adjusted assets. This compares with $35.6 billion and 12.40% at December 31, 1998. Tier 1 capital of $25.0 billion at year-end 1999 represented 8.11% of net risk-adjusted assets, compared with $24.7 billion and 8.59% at year-end 1998. The Tier 1 capital ratio at year-end 1999 was within Citicorp's target range of 8.00% to 8.30%. See Note 14 of Notes to Consolidated Financial Statements. Components of Capital Under Regulatory Guidelines
In millions of dollars at year-end 1999 1998(1) - -------------------------------------------------------------------------------------- Tier 1 Capital Common stockholder's equity $ 26,047 $ 24,686 Mandatorily redeemable securities of subsidiary trusts 975 975 Minority interest 133 115 Net unrealized loss (gain) on securities available for sale (2) (340) 21 Less: intangible assets (3) (1,760) (1,082) 50% investment in certain subsidiaries (4) (21) (20) -------------------- Total Tier 1 capital $ 25,034 $ 24,695 - -------------------------------------------------------------------------------------- Tier 2 Capital Allowance for credit losses (5) $ 3,895 $ 3,632 Qualifying debt (6) 8,128 7,296 Unrealized marketable equity securities gains (2) 315 30 Less: 50% investment in certain subsidiaries (4) (21) (20) -------------------- Total Tier 2 capital 12,317 10,938 -------------------- Total capital (Tier 1 and Tier 2) $ 37,351 $ 35,633 - ------------------------------------------------------------------==================== Net risk-adjusted assets (7) $308,697 $287,417 - ------------------------------------------------------------------====================
(1) Restated to include CitiFinancial Credit Company. (2) Tier 1 capital excludes unrealized gains and losses on debt securities available for sale in accordance with regulatory risk-based capital guidelines. The federal bank regulatory agencies permit institutions to include in Tier 2 capital up to 45% of pretax net unrealized holding gains on available for sale equity securities with readily determinable fair values. (3) Includes goodwill and certain other identifiable intangible assets. (4) Represents investment in certain overseas insurance activities and unconsolidated banking and finance subsidiaries. (5) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets. (6) Includes qualifying senior and subordinated debt in an amount not exceeding 50% of Tier 1 capital, and subordinated capital notes subject to certain limitations. Tier 2 capital at December 31, 1999 includes $1.4 billion of subordinated debt issued to Citigroup (Parent Company). (7) Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $15.8 billion for interest rate, commodity and equity derivative contracts and foreign exchange contracts, as of December 31, 1999, compared with $16.5 billion as of December 31, 1998. Net risk-adjusted assets also includes the effect of other off-balance sheet exposures such as unused loan commitments and letters of credit and reflects deductions for intangible assets and any excess allowance for credit losses. - -------------------------------------------------------------------------------- 35 Common stockholder's equity increased a net $1.4 billion during the year to $26.0 billion at December 31, 1999, representing 6.70% of assets, compared to 6.94% at year-end 1998. The net increase in common stockholder's equity during 1999 reflected net income of $5.195 billion, an increase in net unrealized gains on securities available for sale of $361 million, a capital contribution from Citigroup (parent company) of $321 million, and the issuance of stock under various staff benefit plans and other activity of $109 million, partially offset by cash dividends declared of $4.625 billion. The decrease in the common stockholder's equity ratio during the year reflected the above items, offset by the increase in total assets. The mandatorily redeemable securities of subsidiary trusts (trust securities) outstanding at December 31, 1999 of $975 million qualify as Tier 1 capital and are included in long-term debt on the balance sheet. Interest expense on the trust securities amounted to $76 million in 1999 and $68 million in 1998. Citicorp's subsidiary depository institutions are subject to the risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are generally similar to the FRB's guidelines. At December 31, 1999, all of Citicorp's subsidiary depository institutions were "well capitalized" under the federal bank regulatory agencies' definitions. Citibank, N.A. Ratios At year-end 1999 1998 - -------------------------------------------------------------------------------- Tier 1 capital 8.25% 8.41% Total capital (Tier 1 and Tier 2) 12.31 12.55 Leverage 6.53 6.32 Common stockholder's equity 6.58 6.56 - -----------------------------------------------================================= Citibank's net income for 1999 amounted to $3.1 billion. During 1999, Citibank paid dividends of $1.9 billion to Citicorp (parent company). During 1999, Citibank issued an additional $250 million of subordinated notes to Citicorp (parent company) that qualify for inclusion in Citibank's Tier 2 Capital. Total subordinated notes outstanding at December 31, 1999 and included in Citibank's Tier 2 Capital amounted to $6.9 billion. From time to time, the FRB and the FFIEC propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. Such proposals or interpretations could, if implemented in the future, affect reported capital ratios and net risk-adjusted assets. 36 Item 7A. Quantitative and Qualitative Disclosure About Market Risk See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" above. Item 8. Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on page F-1 hereto. There is also incorporated herein by reference in response to this Item the Company's Consolidated Financial Statements and the notes thereto and the material presented at Note 26 of such Consolidated Financial Statements under the heading "Selected Quarterly Financial Data (Unaudited)". Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Pursuant to General Instruction I of Form 10-K, the information required by Item 10 is omitted. Item 11. Executive Compensation Pursuant to General Instruction I of Form 10-K, the information required by Item 11 is omitted. Item 12. Security Ownership of Certain Beneficial Owners and Management Pursuant to General Instruction I of Form 10-K, the information required by Item 12 is omitted. Item 13. Certain Relationships and Related Transactions Pursuant to General Instruction I of Form 10-K, the information required by Item 13 is omitted. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of the report: (1) Financial Statements: See Index to Consolidated Financial Statements on page F-1 hereof. (2) Financial Statement Schedules: See Index to Consolidated Financial Statements on page F-1 hereof. (b) Exhibits: See Exhibit Index. (c) Reports on Form 8-K: i) On October 20, 1999, the Company filed a Current Report on Form 8-K dated October 19, 1999 (Item 5), which report summarized the results of operations of Citicorp and its subsidiaries for the three-month and nine-month periods ended September 30, 1999 and September 30, 1998. ii) On January 21, 2000, the Company filed a Current Report on Form 8-K dated January 18, 2000 (Item 5), which report summarized the results of operations of Citicorp and its subsidiaries for the three-month and twelve-month periods ended December 31, 1999 and December 31, 1998. 37 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------- ---------------------- 3.01 Citicorp's Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to Citicorp's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-21143, filed on October 8, 1998). 3.02 Citicorp's By-Laws. 12.01 Calculation of Ratio of Income to Fixed Charges. 12.02 Calculation of Ratio of Income to Fixed Charges Including Preferred Stock Dividends. 21.01 Subsidiaries of the Registrant. Pursuant to General Instruction I of Form 10-K, the list of subsidiaries of the Company is omitted. 23.01 Consent of KPMG LLP. 27.01 Financial Data Schedule. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CITICORP (Registrant) By: /s/ Roger W. Trupin ----------------------- Name: Roger W. Trupin Title: Vice President and Controller Dated: March 13, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 13, 2000 by the following persons on behalf of the Registrant in the capacities indicated. Signature Capacity --------- -------- /s/ John S. Reed Chairman of the Board and - ----------------------------------- a Director (Principal Executive Officer) John S. Reed /s/ Paul J. Collins Director - ----------------------------------- Paul J. Collins /s/ Robert I. Lipp Director - ----------------------------------- Robert I. Lipp /s/ Victor J. Menezes Director - ----------------------------------- Victor J. Menezes /s/ William R. Rhodes Director - ----------------------------------- William R. Rhodes /s/ H. Onno Ruding Director - ----------------------------------- H. Onno Ruding /s/ Heidi G. Miller Chief Financial Officer (Principal - ----------------------------------- Financial Officer) Heidi G. Miller /s/ Roger W. Trupin Vice President and Controller (Principal - ----------------------------------- Accounting Officer) Roger W. Trupin 39 CITICORP AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Independent Auditors' Report F-2 Consolidated Financial Statements Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997 F-3 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4 Consolidated Statements of Changes in Stockholder's Equity for the years ended December 31, 1999, 1998, and 1997 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 F-6 Consolidated Balance Sheets of Citibank, N.A. and Subsidiaries as of December 31, 1999 and 1998 F-7 Notes to Consolidated Financial Statements F-8 - F-38 Financial Data Supplement F-39 - F-44 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Citicorp: We have audited the accompanying consolidated balance sheets of Citicorp and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related consolidated balance sheets of Citibank, N.A. and subsidiaries as of December 31, 1999 and 1998. These consolidated financial statements are the responsibility of Citicorp's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citicorp and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, and the financial position of Citibank, N.A. and subsidiaries as of December 31, 1999 and 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP - ------------ KPMG LLP New York, New York January 18, 2000 F-2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME Citicorp and Subsidiaries
Year Ended December 31, --------------------------------------- In millions of dollars 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Interest revenue Loans, including fees $22,927 $22,545 $20,371 Deposits with banks 1,002 1,070 995 Federal funds sold and securities purchased under resale agreements 402 738 872 Securities, including dividends 3,670 3,028 2,269 Trading account assets 692 1,059 1,012 Loans held for sale 549 533 440 --------------------------------------- 29,242 28,973 25,959 --------------------------------------- Interest expense Deposits 10,775 11,511 9,615 Trading account liabilities 88 269 310 Purchased funds and other borrowings 1,984 2,146 1,970 Long-term debt 1,853 1,745 1,760 --------------------------------------- 14,700 15,671 13,655 --------------------------------------- Net interest revenue 14,542 13,302 12,304 Provision for credit losses 2,837 2,751 2,197 --------------------------------------- Net interest revenue after provision for credit losses 11,705 10,551 10,107 --------------------------------------- Fees, commissions, and other revenue Fees and commissions 7,547 6,457 5,991 Foreign exchange 1,569 1,628 1,486 Trading account 888 265 241 Securities transactions 332 524 668 Other revenue 3,270 2,502 2,094 --------------------------------------- 13,606 11,376 10,480 --------------------------------------- Operating expense Salaries 6,270 6,028 5,416 Employee benefits 1,333 1,403 1,346 --------------------------------------- Total employee 7,603 7,431 6,762 Net premises and equipment 2,505 2,207 1,992 Restructuring-related items and merger-related costs 154 1,011 880 Other expense 6,756 6,362 4,844 --------------------------------------- 17,018 17,011 14,478 --------------------------------------- Income before taxes 8,293 4,916 6,109 Income taxes 3,098 1,820 2,268 --------------------------------------- Net income $ 5,195 $ 3,096 $ 3,841 - -------------------------------------------------------------------------------=======================================
See Notes to Consolidated Financial Statements. F-3 CONSOLIDATED BALANCE SHEETS Citicorp and Subsidiaries
December 31, ---------------------------- In millions of dollars 1999 1998 - ----------------------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 11,385 $ 9,031 Deposits at interest with banks 12,095 11,643 Securities, at fair value Available for sale and short-term and other 46,592 41,671 Venture capital 4,160 3,297 Trading account assets 31,540 33,667 Loans held for sale 4,463 5,013 Federal funds sold and securities purchased under resale agreements 6,048 6,888 Loans, net Consumer 148,715 132,255 Commercial 96,738 88,024 ---------------------------- Loans, net of unearned income 245,453 220,279 Allowance for credit losses (6,679) (6,617) ---------------------------- Total loans, net 238,774 213,662 Customers' acceptance liability 1,133 1,280 Premises and equipment, net 4,900 5,390 Interest and fees receivable 3,836 3,900 Other assets 23,644 20,492 ---------------------------- Total $388,570 $355,934 - -------------------------------------------------------------------------------============================ Liabilities Non-interest-bearing deposits in U.S. offices $ 19,492 $ 17,058 Interest-bearing deposits in U.S. offices 49,462 44,169 Non-interest-bearing deposits in offices outside the U.S. 12,132 10,856 Interest-bearing deposits in offices outside the U.S. 179,627 154,052 ---------------------------- Total deposits 260,713 226,135 Trading account liabilities 27,429 30,171 Purchased funds and other borrowings 25,096 25,495 Acceptances outstanding 1,222 1,381 Accrued taxes and other expense 8,416 7,250 Other liabilities 13,204 13,967 Long-term debt 26,443 26,849 Stockholder's Equity Common stock: ($ 0.01 par value) issued shares: 1,000 in each period -- -- Surplus 5,844 5,361 Retained earnings 20,498 19,928 Accumulated other changes in equity from nonowner sources (295) (603) ---------------------------- Total Stockholder's Equity 26,047 24,686 ---------------------------- Total $388,570 $355,934 - -------------------------------------------------------------------------------============================
See Notes to Consolidated Financial Statements. F-4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY Citicorp and Subsidiaries
Year Ended December 31, --------------------------------- In millions of dollars 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- Preferred stock (without par value) Balance at beginning of year $ -- $ 1,903 $ 2,078 Conversion of outstanding preferred stock into Citigroup preferred stock -- (863) -- Redemption of perpetual preferred stock (1) -- (1,040) -- Redemption of perpetual preferred stock, Series 14 -- -- (175) --------------------------------- Balance at end of year $ -- $ -- $ 1,903 - --------------------------------------------------------------------------------------================================= Common stock ($0.01 par value in 1999 and in 1998 and $1.00 par value in 1997) Balance at beginning of year--Shares: 1,000 in 1999, 506,298,235 in 1998 and 1997 $ -- $ 506 $ 506 Exchange of 506,298,235 shares for shares of Citigroup Common Stock -- (506) -- --------------------------------- Balance at end of year--Shares: 1,000 in 1999 and in 1998 and 506,298,235 in 1997(2) $ -- $ -- $ 506 - --------------------------------------------------------------------------------------================================= Surplus Balance at beginning of year $ 5,361 $ 7,186 $ 6,759 Capital contribution from Citigroup 321 1,276 521 Employee benefit plans and related tax benefits 162 34 (109) Adjustment for retirement of treasury shares, conversion of preferred stock, and exchange of common stock -- (3,128) -- Issuance of stock under dividend reinvestment and common stock purchase plan -- 7 15 Other activity -- (14) -- --------------------------------- Balance at end of year $ 5,844 $ 5,361 $ 7,186 - --------------------------------------------------------------------------------------================================= Retained earnings Balance at beginning of year $19,928 $17,708 $15,170 Net income 5,195 3,096 3,841 Cash dividends declared -- common (4,625) (798) (1,162) Cash dividends declared -- preferred -- (78) (141) --------------------------------- Balance at end of year $20,498 $19,928 $17,708 - --------------------------------------------------------------------------------------================================= Accumulated other changes in equity from nonowner sources Balance at beginning of year ($ 603) ($ 79) $ 185 Net change in unrealized gains and losses on securities available for sale, net of tax 361 (568) (124) Foreign currency translations adjustment, net of tax (53) 44 (140) --------------------------------- Balance at end of year ($ 295) ($ 603) ($ 79) - --------------------------------------------------------------------------------------================================= Common stock in treasury, at cost Balance at beginning of year -- Shares: 52,355,947 in 1998 and 43,081,217 in 1997 $ -- ($4,412) ($2,950) Retirement of 53,570,309 shares of common stock in treasury in 1998 -- 4,497 -- Repurchase of 3,952,019 in 1998 and 18,836,904 shares in 1997 -- (483) (2,259) Other transactions, including issuances under employee benefit plans shares: (2,737,657) in 1998 and (9,562,174) in 1997 -- 398 797 --------------------------------- Balance at end of year--Shares: 52,355,947 in 1997 $ -- $ -- ($4,412) - --------------------------------------------------------------------------------------================================= Total stockholder's equity Balance at beginning of year $24,686 $22,812 $21,748 Changes during the year, net 1,361 1,874 1,064 --------------------------------- Balance at end of year $26,047 $24,686 $22,812 - --------------------------------------------------------------------------------------================================= Summary of changes in equity from nonowner sources Net income $ 5,195 $ 3,096 $ 3,841 Other changes in equity from nonowner sources, net of tax 308 (524) (264) --------------------------------- Total changes in equity from nonowner sources $ 5,503 $ 2,572 $ 3,577 - --------------------------------------------------------------------------------------=================================
(1) Includes redemptions of Preferred Stock, Second Series of $220 million, Third Series of $83 million, Series 8A of $62 million, Series 16 of $325 million and Series 17 of $350 million in 1998. (2) During 1998 Citicorp issued to Citigroup 1,000 shares of common stock, $0.01 par value. - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS Citicorp and Subsidiaries
Year Ended December 31, --------------------------------------- In millions of dollars 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,195 $ 3,096 $ 3,841 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 2,837 2,751 2,197 Depreciation and amortization of premises and equipment 917 817 789 Amortization of goodwill and acquisition premium costs 297 257 49 Provision (benefit) for deferred taxes 115 (103) (888) Restructuring-related items and merger-related costs 154 1,011 880 Venture capital activity (863) (698) (475) Net gain on sale of securities (332) (524) (668) Changes in accruals and other, net (793) (4,760) 3,158 Net decrease (increase) in loans held for sale 550 (1,493) (2,402) Net decrease (increase) in trading account assets 2,127 6,689 (9,571) Net (decrease) increase in trading account liabilities (2,742) (815) 8,983 --------------------------------------- Total adjustments 2,267 3,132 2,052 --------------------------------------- Net cash provided by operating activities 7,462 6,228 5,893 - ----------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Net (increase) decrease in deposits at interest with banks (452) 1,406 (1,401) Securities -- available for sale Purchases (58,617) (59,137) (53,073) Proceeds from sales 25,079 23,570 28,141 Maturities 28,740 28,980 19,340 Net decrease in federal funds sold and securities purchased under resale agreements 840 3,345 900 Net increase in loans (115,743) (167,505) (118,762) Proceeds from sales of loans 87,906 146,462 103,705 Business acquisitions (2,150) (3,890) (1,618) Capital expenditures on premises and equipment (1,114) (1,408) (1,290) Proceeds from sales of premises and equipment, subsidiaries and affiliates, and other real estate owned 1,281 718 1,157 --------------------------------------- Net cash used in investing activities (34,230) (27,459) (22,901) - ----------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net increase in deposits 34,578 27,014 14,166 Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements (2,445) (823) 1,237 Net increase (decrease) in commercial paper and funds borrowed 2,027 (3,764) 5,160 Proceeds from issuance of long-term debt 3,909 7,688 7,721 Repayment of long-term debt (4,354) (6,951) (6,119) Dividends paid (4,625) (884) (1,303) Contribution from Citigroup parent company 321 628 521 Redemption of preferred stock -- (1,040) (175) Proceeds from issuance of common stock -- 243 434 Treasury stock repurchases -- (483) (2,259) --------------------------------------- Net cash provided by financing activities 29,411 21,628 19,383 - ----------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and due from banks (289) 31 (688) --------------------------------------- Net increase in cash and due from banks 2,354 428 1,687 Cash and due from banks at beginning of year 9,031 8,603 6,916 --------------------------------------- Cash and due from banks at end of year $ 11,385 $ 9,031 $ 8,603 - --------------------------------------------------------------------------------======================================= Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 13,415 $ 14,458 $ 12,134 Income taxes 2,551 1,949 2,511 Non-cash investing activities -- transfers to other real estate owned 284 350 395 - --------------------------------------------------------------------------------=======================================
See Notes to Consolidated Financial Statements. F-6 CONSOLIDATED BALANCE SHEETS Citibank, N.A. and Subsidiaries
December 31, -------------------------- In millions of dollars 1999 1998 - ---------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 10,648 $ 8,052 Deposits at interest with banks 12,961 15,782 Securities, at fair value Available for sale 37,071 34,519 Venture capital 3,423 2,811 Trading account assets 28,321 31,683 Loans held for sale 1,279 1,164 Federal funds sold and securities purchased under resale agreements 7,255 8,039 Loans, net of unearned income 207,935 181,344 Allowance for credit losses (4,647) (4,709) -------------------------- Loans, net 203,288 176,635 Customers' acceptance liability 1,134 1,281 Premises and equipment, net 3,808 4,022 Interest and fees receivable 3,345 2,893 Other assets 15,366 14,014 -------------------------- Total $ 327,899 $ 300,895 - --------------------------------------------------------------------========================== Liabilities Non-interest-bearing deposits in U.S. offices $ 15,501 $ 13,271 Interest-bearing deposits in U.S. offices 32,469 27,239 Non-interest-bearing deposits in offices outside the U.S. 12,185 10,731 Interest-bearing deposits in offices outside the U.S. 174,677 151,687 -------------------------- Total deposits 234,832 202,928 Trading account liabilities 26,196 30,753 Purchased funds and other borrowings 19,112 22,096 Acceptances outstanding 1,222 1,382 Accrued taxes and other expense 5,273 4,572 Other liabilities 7,950 8,230 Long-term debt and subordinated notes 11,752 11,202 Stockholder's equity Capital stock ($20.00 par value) 751 751 outstanding shares: 37,534,553 in each period Surplus 9,836 9,397 Retained earnings 11,565 10,356 Accumulated other changes in equity from nonowner sources (1) (590) (772) -------------------------- Total stockholder's equity 21,562 19,732 -------------------------- Total $ 327,899 $ 300,895 - --------------------------------------------------------------------==========================
(1) Amounts at December 31, 1999 and 1998 include the after-tax amounts for net unrealized gains (losses) on securities available for sale of $116 million and ($113) million, respectively, and foreign currency translation of ($706) million and ($659) million, respectively. - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. F-7 CITICORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Citicorp, its wholly owned subsidiary, Citibank, N.A., and their majority-owned subsidiaries (the Company). Twenty-to-fifty-percent-owned affiliates, other than investments of designated venture capital subsidiaries, are accounted for under the equity method, and the pro rata share of their income (loss) is included in other revenue. Income from investments in less than twenty-percent-owned companies is recognized when dividends are received. Gains and losses on disposition of branches, subsidiaries, affiliates, and other investments and charges for management's estimate of impairment in value that is other than temporary, such that recovery of the carrying amount is deemed unlikely, are included in other revenue. Goodwill and other intangible assets are amortized over their estimated useful lives, subject to periodic review for impairment that is other than temporary. The effects of translating operations with a functional currency other than the U.S. dollar are included in stockholder's equity along with related hedge and tax effects. The effects of translating operations with the U.S. dollar as the functional currency, including those in highly inflationary environments, are included in other revenue along with related hedge effects. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities and Trading Account Activities Marketable equity securities and debt securities available for sale are carried at fair value, with unrealized gains and losses reported in a separate component of stockholder's equity net of applicable income taxes. Declines in fair value that are determined to be other than temporary are charged to earnings. Realized gains and losses on sales of securities are included in earnings on a specific identified cost basis. Citicorp's venture capital subsidiaries include subsidiaries registered as Small Business Investment Companies and those other subsidiaries that engage exclusively in venture capital activities. Venture capital investments are carried at fair value, with changes in fair value recognized in other revenue. The fair values of publicly-traded securities held by these subsidiaries are generally based upon quoted market prices. In certain situations, including thinly-traded securities, large-block holdings, restricted shares or other special situations, the quoted market price is adjusted to produce an estimate of the attainable fair value for the securities. For securities that are not publicly traded, estimates of fair value are made based upon review of the investee's financial results, condition, and prospects, together with comparisons to similar companies for which quoted market prices are available. Trading account assets include securities and money market instruments held in anticipation of short-term market movements and for resale to customers, and are valued at market. Gains and losses, both realized and unrealized, are included in trading account revenue. Obligations to deliver securities sold but not yet purchased are also valued at market and included in trading account liabilities. Trading account activities also include derivative and foreign exchange products. Derivative trading positions are carried at fair value, with realized and unrealized gains and losses included in trading account revenue. Foreign exchange trading positions are valued at prevailing market rates on a present value basis, and the resulting gains and losses are included in foreign exchange revenue. The determination of market or fair value considers various factors, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options, warrants and derivatives; price activity for equivalent or synthetic instruments; counterparty credit quality; the potential impact on market prices or fair value of liquidating the Company's positions in an orderly manner over a reasonable period of time under current market conditions; and derivatives transaction maintenance costs during that period. Revaluation gains (losses) on derivative and foreign exchange contracts are reported gross in trading account assets (liabilities), reduced by the effects of qualifying netting agreements with counterparties. F-8 Repurchase and Resale Agreements Citicorp's policy is to take possession of securities purchased under agreements to resell. The market value of securities to be repurchased and resold is monitored, and additional collateral is obtained where appropriate to protect against credit exposure. Risk Management Activities Citicorp manages its exposures to market rate movements outside of its trading activities by modifying the asset and liability mix, either directly or through the use of derivative financial products including interest rate swaps, futures, forwards, and purchased option positions such as interest rate caps, floors, and collars. These end-user derivative contracts include qualifying hedges and qualifying positions that modify the interest rate characteristics of specified financial instruments. Derivative instruments not qualifying as end-user positions are treated as trading positions and carried at fair value. To qualify as a hedge, the swap, futures, forward, or purchased option position must be designated as a hedge and effective in reducing the market risk of an existing asset, liability, firm commitment, or identified anticipated transaction which is probable to occur. To qualify as a position modifying the interest rate characteristics of an instrument, there must be a documented and approved objective to synthetically alter the market risk characteristics of an existing asset, liability, firm commitment or identified anticipated transaction which is probable to occur, and the swap, forward or purchased option position must be designated as such a position and effective in accomplishing the underlying objective. The foregoing criteria are applied on a decentralized basis, consistent with the level at which market risk is managed, but are subject to various limits and controls. The underlying assets, liability, firm commitment or anticipated transaction may be an individual item or a portfolio of similar items. The effectiveness of these contracts is evaluated on an initial and ongoing basis using quantitative measures of correlation. If a contract is found to be ineffective, it no longer qualifies as an end-user position and any excess gains and losses attributable to such ineffectiveness as well as subsequent changes in fair value are recognized in earnings. End-user contracts are primarily employed in association with on-balance sheet instruments accounted for at amortized cost, including loans, deposits, and long-term debt, and with credit card securitizations. These qualifying end-user contracts are accounted for consistent with the risk management strategy as follows. Amounts payable and receivable on interest rate swaps and options are accrued according to the contractual terms and included currently in the related revenue and expense category as an element of the yield on the associated instrument (including the amortization of option premiums). Amounts paid or received over the life of futures contracts are deferred until the contract is closed; accumulated deferred amounts on futures contracts and amounts paid or received at settlement of forward contracts are accounted for as elements of the carrying value of the associated instrument, affecting the resulting yield. End-user contracts related to instruments that are carried at fair value are also carried at fair value, with amounts payable and receivable accounted for as an element of the yield on the associated instrument. When related to securities available for sale, fair value adjustments are reported in stockholder's equity, net of tax. If an end-user derivative contract is terminated, any resulting gain or loss is deferred and amortized over the original term of the agreement provided that the effectiveness criteria have been met. If the underlying designated items are no longer held, or if an anticipated transaction is no longer likely to occur, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is accounted for at fair value with subsequent changes recognized in earnings. Foreign exchange contracts which qualify under applicable accounting guidelines as hedges of foreign currency exposures, including net capital investments outside the U.S., are revalued at the spot rate with any forward premium or discount recognized over the life of the contract in net interest revenue. Gains and losses on foreign exchange contracts which qualify as a hedge of a firm commitment are deferred and recognized as part of the measurement of the related transaction, unless deferral of a loss would lead to recognizing losses on the transaction in later periods. F-9 Loans The consumer loan category represents loans managed by Citicorp's Global Consumer business and the Citibank Private Bank. Consumer loans are generally written off not later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy. The number of days is set at an appropriate level by loan product and by country. The policy for suspending accruals of interest on consumer loans varies depending on the terms, security and loan loss experience characteristics of each product, and in consideration of write-off criteria in place. The commercial loan category represents loans managed by Citicorp's Global Corporate Bank businesses. Commercial loans are identified as impaired and placed on a cash (nonaccrual) basis when it is determined that the payment of interest or principal is doubtful of collection, or when interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection. Any interest accrued is reversed and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is doubt regarding the ultimate collectibility of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan. Impaired commercial loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment are written down to the lower of cost or collateral value. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance in accordance with the contractual terms. Loans include Citicorp's share of aggregate rentals on lease financing transactions and residual values net of related unearned income. Lease financing transactions substantially represent direct financing leases and also include leveraged leases. Unearned income is amortized under a method, which substantially results in an approximate level rate of return when related to the unrecovered lease investment. Gains and losses from sales of residual values of leased equipment are included in other revenue. Citicorp classifies credit card receivables and consumer mortgage loans originated for sale as loans held for sale, which are accounted for at the lower of aggregate cost or fair value with net credit losses charged to other revenue. Allowance for Credit Losses The allowance for credit losses represents management's estimate of probable losses inherent in the portfolio. This evaluation includes an assessment of the ability of borrowers with foreign currency obligations to obtain the foreign exchange necessary for orderly debt servicing. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the portfolio. Additions to the allowance are made by means of the provision for credit losses. Credit losses are deducted from the allowance, and subsequent recoveries are added. Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value, with any gain or loss reflected as a recovery or charge-off to the allowance, and are subsequently accounted for as securities available for sale. Larger-balance, non-homogenous exposures representing significant individual credit exposures are evaluated based upon the borrower's overall financial condition, resources, and payment record; the prospects for support from any financially responsible guarantors; and, if appropriate, the realizable value of any collateral. The allowance for loan losses attributed to these loans is established via a process which begins with estimates of probable loss inherent in the portfolio based upon various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; geographic, industry, and other environmental factors; and model imprecision. Management also considers overall portfolio indicators including trends in internally risk-rated exposures, classified exposures, cash-basis loans, and historical and forecasted write-offs; a review of industry, geographic, and portfolio concentrations, including current developments within those segments; and the current business strategy and credit process including credit limit setting and compliance, credit approvals, loan underwriting criteria, and loan workout procedures. Within the allowance for credit losses, a valuation allowance is maintained for larger-balance, non-homogenous loans that have been individually determined to be impaired. This estimate considers all available evidence including, as appropriate, the present value of the expected future cash flows discounted at the loan's contractual effective rate, the secondary market value of the loan, the fair value of collateral, and environmental factors. Each portfolio of smaller balance, homogenous loans, including consumer mortgage, installment, revolving credit and most other consumer loans, is collectively evaluated for impairment The allowance for loan losses attributed to these F-10 loans is established via a process which begins with estimates of probable losses inherent in the portfolio, based upon various statistical analyses. These include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with analyses which reflect current trends and conditions. Management also considers overall portfolio indicators including historical credit losses, delinquent, non-performing and classified loans, and trends in volumes and terms of loans; an evaluation of overall credit quality and the credit process, including lending policies and procedures; consideration of economic, geographical, product, and other environmental factors; and model imprecision. Other Real Estate Owned Upon repossession, loans are adjusted if necessary to the estimated fair value of the underlying collateral and transferred to Other Real Estate Owned, which is reported in other assets net of a valuation allowance for selling costs and net declines in value as appropriate. Employee Benefits Employee benefits expense includes prior and current service costs of pension and other postretirement benefit plans, which are accrued on a current basis, contributions and unrestricted awards under other employee plans, the amortization of restricted stock awards, and costs of other employee benefits. There are no charges to earnings upon the grant or exercise of fixed stock options or the subscription for or purchase of stock under stock purchase agreements. Compensation expense related to performance-based stock options is recorded over the period to the estimated vesting dates. Income Taxes Deferred taxes are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates, including an appropriate provision for taxes on undistributed income of subsidiaries and affiliates. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. Cash Flows Cash flows from risk management activities are classified in the same category as the related assets and liabilities. Cash equivalents are defined as those amounts included in cash and due from banks. Future Application of Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which delayed the effective date of SFAS No. 133 to January 1, 2001 for calendar year companies such as the Company. The new standard will significantly change the accounting treatment of end-user derivative and foreign exchange contracts used by the Company and its customers. Depending on the underlying risk management strategy, these accounting changes could affect reported earnings, assets, liabilities, and stockholder's equity. As a result, the Company and the customers to which it provides derivatives and foreign exchange products will have to reconsider their risk management strategies, since the new standard will not reflect the results of many of those strategies in the same manner as current accounting practice. The Company continues to evaluate the potential impact of implementing the new accounting standard, which will depend, among other things, on the possibility of additional amendments and interpretations of the standard prior to the effective date. F-11 2. Business Combinations Contribution of CitiFinancial Credit Company On August 4, 1999, CitiFinancial Credit Company (formerly Commercial Credit Company) (CCC), an indirect wholly-owned subsidiary of Citigroup Inc. (Citigroup), was contributed to and became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. The consolidated financial statements, as well as the Parent Company Only financial statements disclosed in Note 25, give retroactive effect to the contribution as a combination of entities under common control in a transaction accounted for in a manner similar to a pooling of interests. This method of accounting requires the restatement of all periods presented as if Citicorp and CCC had always been combined. Merger with Travelers On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned subsidiary of Travelers Group Inc. (Travelers) (the Merger). Following the Merger, Travelers changed its name to Citigroup. Under the terms of the Merger, 1.698 billion shares (adjusted to reflect the three-for-two stock split in Citigroup's common stock in May 1999) of Citigroup common stock were issued in exchange for all of the outstanding shares of Citicorp common stock. The merger was accounted for under the pooling of interests method. Additionally, as of October 8, 1998, the shares of Citicorp common stock held in treasury were retired. The effect of these transactions was an elimination of Citicorp common stock and Citicorp preferred stock, with an offsetting adjustment to surplus, resulting in no change in the amount of Citicorp's total stockholder's equity. Transactions in Citicorp common stock and preferred stock occurring prior to the merger are reflected on a historical basis in the Consolidated Financial Statements, with the number of common shares adjusted to reflect the exchange and the May 1999 three-for-two split in Citigroup's common stock. Acquisition of Universal Card Services On April 2, 1998, Citicorp completed its acquisition of Universal Card Services from AT&T for $3.5 billion in cash. This purchase added $15 billion in customer receivables and 13.5 million accounts. In addition, Citicorp entered into a ten-year cobranding and joint marketing agreement with AT&T. 3. Business Segment Information Citicorp's businesses provide a broad range of financial services to consumer and corporate customers around the world. Citicorp's activities are conducted through Global Consumer, Global Corporate Bank, Global Investment Management and Private Banking, and Investment Activities. Global Consumer delivers a wide array of banking, lending, and investment services, including the issuance of credit and charge cards, in 52 countries and territories. The businesses included in Global Corporate Bank serve corporations, financial institutions, governments, and other participants in 100 countries and territories. The Global Investment Management and Private Banking group offers a broad range of asset management products and services from global investment centers around the world, including mutual funds, closed-end funds, and managed accounts to institutional, high net-worth, and retail clients. The Investment Activities segment includes the Company's venture capital activities, the realized investment gains and losses related to certain corporate investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. Corporate/Other includes net corporate treasury results, and corporate staff and other corporate expenses. F-12 The following table presents certain information regarding these industry segments:
In millions of dollars, except Total Revenues, identifiable Net of Interest Expense (1) Income Taxes assets -------------------------------------------------------------------------------- in billions 1999 1998 (3) 1997 (3) 1999 1998 (3) 1997 (3) - --------------------------------------------------------------------------------------------------------- Global Consumer (4) $ 17,118 $ 14,679 $ 12,940 $ 1,746 $ 976 $ 883 Global Corporate Bank (4) 8,410 7,546 7,298 1,097 652 867 Global Investment Management and Private Banking 1,560 1,478 1,375 157 122 157 Corporate/Other 196 (54) (164) (179) (262) (138) Investment Activities 864 1,029 1,335 277 332 499 -------------------------------------------------------------------------------- Total $ 28,148 $ 24,678 $ 22,784 $ 3,098 $ 1,820 $ 2,268 - --------------------------------------------------------------------------------------------------------- In millions of dollars, except Identifiable identifiable Net Income (Loss) (2) Assets at Year-End assets --------------------------------------------------------------------------- in billions 1999 1998 (3) 1997 (3) 1999 1998 (3) 1997 (3) - ---------------------------------------------------------------------------------------------------- Global Consumer (4) $ 2,892 $ 1,504 $ 1,507 $ 168 $ 155 $ 133 Global Corporate Bank (4) 1,854 1,101 1,460 176 165 159 Global Investment Management and Private Banking 266 204 261 25 19 17 Corporate/Other (340) (370) (247) 9 9 6 Investment Activities 523 657 860 11 8 9 --------------------------------------------------------------------------- Total $ 5,195 $ 3,096 $ 3,841 $ 389 $ 356 $ 324 - ----------------------------------------------------------------------------------------------------
(1) Includes total revenues, net of interest expense, in the United States of $14.124 billion, $12.601 billion, and $10.970 billion in 1999, 1998, and 1997, respectively. Total revenues, net of interest expense attributable to individual foreign countries, are not material to the total. (2) For the 1999 period, Global Consumer, Global Corporate Bank, Global Investment Management and Private Banking, and Corporate/Other results reflect after-tax restructuring charges (credits) of $56 million, $22 million, ($2) million, and $20 million, respectively. For the 1998 period, Global Consumer, Global Corporate Bank, Global Investment Management and Private Banking, and Corporate/Other results reflect after-tax restructuring charges and merger-related costs of $393 million, $137 million, $52 million, and $67 million, respectively. For the 1997 period, Global Consumer, Global Corporate Bank, Global Investment Management and Private Banking, and Corporate/Other results reflect after-tax restructuring charges of $333 million, $168 million, $18 million, and $31 million, respectively. (3) Reclassified to conform to the 1999 presentation, including changes in capital and tax allocations among the segments. (4) Includes provision for credit losses in the Global Consumer results of $2,477 million, $2,362 million, and $2,238 million, and in the Global Corporate Bank results of $348 million, $394 million, and $36 million for 1999, 1998, and 1997, respectively. - -------------------------------------------------------------------------------- 4. Securities In millions of dollars at year-end 1999 1998 - -------------------------------------------------------------------------------- Securities available for sale, at fair value $46,403 $41,571 Short-term and other 189 100 ----------------- Available for sale and short-term and other $46,592 $41,671 ================= Venture capital, at fair value $ 4,160 $ 3,297 - ---------------------------------------------------------------=================
1999 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair In millions of dollars at year-end Cost Gains Losses Value - ------------------------------------------------------------------------------------------ Securities available for sale U.S. Treasury and Federal agency $ 8,824 $ 23 $ 211 $ 8,636 State and municipal 3,534 182 144 3,572 Foreign government 23,901 463 309 24,055 U.S. corporate 3,009 80 197 2,892 Other debt securities 3,279 38 20 3,297 Equity securities (1) 3,251 814 114 3,951 --------------------------------------------- $45,798 $ 1,600 $ 995 $46,403 ============================================= Securities available for sale include: Mortgage-backed securities $ 5,258 $ 7 $ 191 $ 5,074 Government of Brazil Brady Bonds 688 302 -- 990 Government of Venezuela Brady Bonds 422 -- 91 331 ========================================================================================== 1998 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair In millions of dollars at year-end Cost Gains Losses Value - ------------------------------------------------------------------------------------------- Securities available for sale U.S. Treasury and Federal agency $ 5,136 $ 78 $ 2 $ 5,212 State and municipal 3,361 247 224 3,384 Foreign government 24,945 331 595 24,681 U.S. corporate 2,633 287 224 2,696 Other debt securities 2,692 83 34 2,741 Equity securities (1) 2,790 206 139 2,857 ---------------------------------------------- $41,557 $ 1,232 $ 1,218 $41,571 ============================================== Securities available for sale include: Mortgage-backed securities $ 3,695 $ 23 $ 2 $ 3,716 Government of Brazil Brady Bonds 660 26 -- 686 Government of Venezuela Brady Bonds 478 -- 174 304 ===========================================================================================
(1) Includes non-marketable equity securities carried at cost, which are reported in both the amortized cost and fair value columns. - -------------------------------------------------------------------------------- F-13 The accompanying table shows components of interest and dividends on securities, realized gains and losses from sales of securities available for sale, and net gains on investments held by venture capital subsidiaries. In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Taxable interest $3,399 $2,791 $2,023 Interest exempt from U.S. federal income tax 154 145 136 Dividends 117 92 110 - -------------------------------------------------------------------------------- Gross realized securities gains $ 576 $ 792 $ 754 Gross realized securities losses 244 268 86 - -------------------------------------------------------------------------------- Net realized and unrealized venture capital gains which included: $ 816 $ 487 $ 749 Gross unrealized gains 999 709 612 Gross unrealized losses 587 412 82 - ------------------------------------------------------========================== The following table presents the amortized cost, fair value, and average yield on amortized cost of debt securities available for sale by contractual maturity dates as of December 31, 1999: Amortized Fair In millions of dollars Cost Value Yield - -------------------------------------------------------------------------------- U.S. Treasury and Federal agency Due within 1 year $ 2,482 $ 2,482 5.40% After 1 but within 5 years 1,059 1,042 5.48 After 5 but within 10 years 338 330 6.51 After 10 years (1) 4,945 4,782 6.41 --------------------- Total $ 8,824 $ 8,636 6.02 - ---------------------------------------------=================================== State and municipal Due within 1 year $ -- $ -- --% After 1 but within 5 years 218 224 5.96 After 5 but within 10 years 642 670 5.76 After 10 years (1) 2,674 2,678 6.02 --------------------- Total $ 3,534 $ 3,572 5.97 - ---------------------------------------------=================================== All other (2) Due within 1 year $11,216 $10,069 7.34% After 1 but within 5 years 12,584 13,763 12.54 After 5 but within 10 years 2,995 2,899 7.15 After 10 years (1) 3,394 3,513 7.69 --------------------- Total $30,189 $30,244 9.53 - ---------------------------------------------=================================== (1) Securities with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights. (2) Includes foreign government, U.S. corporate, and other debt securities. Yields reflect the impact of local interest rates prevailing in countries outside the United States. 5. Trading Account Assets and Liabilities In millions of dollars at year-end 1999 1998 - -------------------------------------------------------------------------------- Trading Account Assets U.S. Treasury and Federal agency securities $ 131 $ 86 Foreign government, corporate and other securities 10,627 8,010 Derivative and foreign exchange contracts (1) 20,782 25,571 ------------------- $31,540 $33,667 - -------------------------------------------------------------=================== Trading Account Liabilities Securities sold, not yet purchased $ 4,391 $ 2,644 Derivative and foreign exchange contracts (1) 23,038 27,527 ------------------- $27,429 $30,171 - -------------------------------------------------------------=================== (1) Net of master netting agreements and securitization. - -------------------------------------------------------------------------------- The average fair value of trading account assets during 1999 was $34.8 billion, including $24.9 billion relating to derivative and foreign exchange contracts, compared with $41.3 billion and $26.7 billion, respectively, during 1998. F-14 The average fair value of trading account liabilities during 1999 was $27.9 billion, including $25.3 billion relating to derivative and foreign exchange contracts, compared with $30.2 billion and $25.0 billion, respectively, during 1998. 6. Loans In millions of dollars at year-end 1999 1998 - -------------------------------------------------------------------------------- Consumer In U.S. offices Mortgage and real estate (1) (2) $ 37,261 $ 29,962 Installment, revolving credit, and other 51,570 47,869 ------------------------ 88,831 77,831 ------------------------ In offices outside the U.S. Mortgage and real estate (1) (3) 21,529 19,456 Installment, revolving credit, and other 39,306 36,048 Lease financing 475 484 ------------------------ 61,310 55,988 ------------------------ 150,141 133,819 Unearned income (1,426) (1,564) ------------------------ Consumer loans, net of unearned income $ 148,715 $ 132,255 - -------------------------------------------------------======================== Commercial In U.S. offices Commercial and industrial (4) $ 17,685 $ 13,952 Mortgage and real estate (1) 910 2,165 Lease financing 3,392 2,951 ------------------------ 21,987 19,068 ------------------------ In offices outside the U.S. Commercial and industrial (4) 60,660 55,828 Mortgage and real estate (1) 1,728 1,792 Loans to financial institutions 7,692 8,008 Governments and official institutions 3,250 2,132 Lease financing 1,648 1,386 ------------------------ 74,978 69,146 ------------------------ 96,965 88,214 Unearned income (227) (190) ------------------------ Commercial loans, net of unearned income $ 96,738 $ 88,024 - -------------------------------------------------------======================== (1) Loans secured primarily by real estate. (2) Includes $3.4 billion in 1999 and $3.3 billion in 1998 of commercial real estate loans related to community banking and private banking activities. (3) Includes $2.9 billion in 1999 and $2.4 billion in 1998 of loans secured by commercial real estate. (4) Includes loans not otherwise separately categorized. - -------------------------------------------------------------------------------- F-15 The following table presents information about impaired loans. Impaired loans are those on which Citicorp believes it is not probable that it will be able to collect all amounts due according to the contractual terms of the loan, excluding smaller-balance homogeneous loans that are evaluated collectively for impairment, and are carried on a cash basis. Valuation allowances for these loans are estimated considering all available evidence including, as appropriate, the present value of the expected cash flows discounted at the loan's contractual effective rate, the secondary market value of the loan, the fair value of collateral, and environmental factors. Amounts for 1998 have been adjusted to a basis consistent with 1999. In millions of dollars at year-end 1999 1998 - -------------------------------------------------------------------------------- Impaired commercial loans $1,285 $1,284 Other impaired loans (1) 185 218 ------------------ Total impaired loans (2) $1,470 $1,502 - --------------------------------------------------------------================== Impaired loans with valuation allowances $1,156 $1,210 Total valuation allowances (3) 344 360 - -------------------------------------------------------------------------------- During the year (4): Average balance of impaired loans $1,580 $1,435 Interest income recognized on impaired loans 65 65 - --------------------------------------------------------------================== (1) Primarily commercial real estate loans related to community and private banking activities. (2) At year-end 1999, approximately 21% of these loans were measured for impairment using the fair value of the collateral, with the remaining 79% measured using the present value of the expected future cash flows, discounted at the loan's effective interest rate, compared with approximately 19% and 81%, respectively, at year-end 1998. (3) Included in the allowance for credit losses. (4) For the year ended December 31, 1997, the average balance of impaired loans was $1.2 billion and interest income recognized on impaired loans was $62 million. - -------------------------------------------------------------------------------- 7. Allowance for Credit Losses In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Allowance for credit losses at beginning of year $ 6,617 $ 6,137 $ 5,743 Additions Consumer provision for credit losses 2,489 2,367 2,225 Commercial provision for credit losses 348 384 (28) ---------------------------- Total provision for credit losses 2,837 2,751 2,197 ---------------------------- Deductions Consumer credit losses 2,950 2,735 2,604 Consumer credit recoveries (539) (497) (507) ---------------------------- Net consumer credit losses 2,411 2,238 2,097 ---------------------------- Commercial credit losses 524 576 191 Commercial credit recoveries (117) (170) (219) ---------------------------- Net commercial credit losses (recoveries) 407 406 (28) ---------------------------- Other -- net (1) 43 373 266 ---------------------------- Allowance for credit losses at end of year $ 6,679 $ 6,617 $ 6,137 - ---------------------------------------------------============================ (1) In 1999, primarily includes the addition of allowance for credit losses related to acquisitions and foreign currency translation effects. In 1998, reflects the addition of $320 million of credit loss reserves related to the acquisition of the Universal Card portfolio. In 1997, $373 million was restored to the allowance for credit losses that had previously been attributed to credit card securitization transactions where the exposure to credit losses is contractually limited to the cash flows from the securitized receivables, $50 million attributable to standby letters of credit and guarantees was reclassified to other liabilities, and $50 million attributable to derivative and foreign exchange contracts was reclassified as a deduction from trading account assets. - -------------------------------------------------------------------------------- 8. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Generally, depreciation and amortization are computed on the straight-line basis over the estimated useful life of the asset or the lease term. Depreciation and amortization expense was $917 million in 1999, $817 million in 1998 and $789 million in 1997. F-16 9. Purchased Funds and Other Borrowings (1) In millions of dollars at year-end 1999 1998 - -------------------------------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements $ 8,004 $10,421 Commercial paper issued by parent company 5,027 3,040 Other funds borrowed 12,065 12,034 -------------------- Total $25,096 $25,495 - ------------------------------------------------------------==================== (1) Original maturities of less than one year. - -------------------------------------------------------------------------------- 10. Long-Term Debt (1) At December 31, long-term debt was as follows: Weighted Average In millions of dollars Coupon Maturities 1999 1998 - -------------------------------------------------------------------------------- Parent Company Senior notes 5.94% 2000-2025 $ 6,065 $ 7,118 Subordinated notes 7.07% 2000-2035 8,760 8,359 Subsidiaries (2) Senior notes 8.22% 2000-2012 10,643 10,397 Subordinated notes 7.78% 2027-2028 975 975 - -------------------------------------------------------------------------------- Senior notes 16,708 17,515 Subordinated notes 9,735 9,334 ------------------- Total $26,443 $26,849 ================================================================================ (1) Original maturities of one year or more. Maturity distribution is based upon contractual maturities or earlier dates at which debt is repayable at the option of the holder, due to required mandatory sinking fund payments or due to call notices issued. Weighted average interest rates reflect contractual interest rates. (2) Approximately 59% in 1999 and 64% in 1998 of subsidiary long-term debt was guaranteed by Citicorp, and of the debt not guaranteed by Citicorp, approximately 23% in 1999 and 8% in 1998 was secured by the assets of the subsidiary. - -------------------------------------------------------------------------------- Long-term debt is denominated in various currencies with both fixed and floating interest rates. Certain agreements under which long-term debt obligations were issued prohibit Citicorp, under certain conditions, from paying dividends in shares of Citibank capital stock and from creating encumbrances on such shares. Floating rates are determined periodically by formulas based on certain money market rates or, in certain instances, by minimum rates as specified in the governing agreements. A portion of Parent Company and subsidiaries debt represents local currency borrowings where prevailing rates may vary significantly from rates in the United States. Parent Company subordinated notes include $600 million of subordinated capital notes at December 31, 1998. Subsidiaries subordinated notes include $975 million of guaranteed beneficial interests in Citicorp subordinated debt issued by Citicorp Capital I, II, and III, wholly owned trusts whose sole assets are $309 million of 7.933% and $464 million of 8.015%, respectively, of Junior Subordinated Deferrable Interest Debentures of Citicorp both due 2027, and $232 million of 7.10% of Junior Subordinated Deferrable Interest Debentures of Citicorp due 2028. At December 31, 1999, Citicorp had converted, through the use of derivative contracts, $10.4 billion of its $19.5 billion of fixed rate debt into variable rate obligations. In addition, Citicorp utilizes other derivative contracts to manage the foreign exchange impact of certain debt issuances. At year-end 1999, Citicorp's overall weighted average rate for long-term debt was 7.30% on a contractual basis and 7.03% including the effects of derivative contracts. F-17 Aggregate annual maturities on long-term debt obligations (based on final maturity dates) are as follows: In millions of dollars 2000 2001 2002 2003 2004 Thereafter - -------------------------------------------------------------------------------- Parent company $1,834 $1,514 $1,563 $1,886 $ 636 $ 7,392 Subsidiaries 2,015 1,836 1,953 686 883 4,245 ------------------------------------------------------- $3,849 $3,350 $3,516 $2,572 $1,519 $11,637 - -------------------------------------------------------------------------------- 11. Fees and Commissions Trust, agency, and custodial fees included in fees and commissions were $1.5 billion in 1999, $1.4 billion in 1998 and $1.3 billion in 1997. 12. Restructuring-Related Items and Merger-Related Costs In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Restructuring charges $ 131 $ 1,008 $ 880 Changes in estimates (157) (38) -- Merger-related costs -- 41 -- Accelerated depreciation 180 -- -- ------------------------------------- Total $ 154 $ 1,011 $ 880 - -------------------------------------------===================================== During 1999, Citicorp recorded restructuring charges of $131 million, including additional severance charges of $49 million as a result of the continuing implementation of 1998 restructuring initiatives, as well as $82 million of exit costs associated with new initiatives in the Global Consumer business primarily related to the reconfiguration of certain branch operations outside the U.S., the downsizing of certain marketing operations, and the exit of a non-strategic business. These initiatives will be fully implemented during 2000. The charge included $62 million related to employee severance, $14 million related to exiting leasehold and other contractual obligations, and $6 million related to the write-down to estimated salvage value of assets available for immediate disposal. The $62 million portion of the charge related to employee severance reflects the costs of eliminating approximately 750 positions. In 1998, Citicorp recorded a restructuring charge of $1.008 billion, reflecting exit costs associated with business improvement and integration initiatives to be implemented over a 12 to 18 month period. The charge included $666 million related to employee severance for the elimination of approximately 10,700 positions, after considering attrition and redeployment within the Company. Approximately 3,100 of these positions related to the United States. The overall workforce reduction, net of anticipated rehires to fill relocated positions, is expected to be approximately 9,200 positions worldwide. The charge also included $312 million related to exiting leasehold and other contractual obligations, and $30 million related to the write-down to estimated salvage value of assets that were available for immediate disposal. Also recorded in the 1998 fourth quarter were $41 million of merger-related costs, which included the direct and incremental costs of administratively closing the merger with Travelers. The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges of $180 million (in addition to normal scheduled depreciation on those assets) were recognized over the shortened lives in 1999. Of the $1.008 billion charge, $627 million in the Global Consumer business included regional consolidation of call centers and other back office functions worldwide, reduction of management layers, sales force restructuring, integration of overlapping marketing and product management groups, and exiting several non-strategic operations; $246 million in the Global Corporate Bank included rationalization of operations in countries with multiple operations, consolidation of Citibank and Salomon Smith Barney locations, integration of trading platforms, and exiting non-strategic businesses; $85 million in the Global Investment Management and Private Banking business included elimination of redundancies; and the remaining $50 million included streamlining and integration of Corporate and other staff functions. Approximately $415 million of the $1.008 billion charge related to operations in the United States. In 1997, Citicorp recorded a restructuring charge of $880 million related to cost-management programs and customer service initiatives to improve operational efficiency and productivity. The charge included $487 million for severance benefits (associated with approximately 9,000 positions expected to be reduced), $245 million related to write-downs of F-18 equipment and premises which management committed to dispose of, and $148 million of lease termination and other exit costs. The status of the 1999, 1998, and 1997 restructuring initiatives is summarized in the following table: Restructuring Reserve Activity Restructuring Initiatives -------------------------------- In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Original charges $ 82 $ 1,008 $ 880 Additional charges -- 49 -- -------------------------------- 82 1,057 880 -------------------------------- Utilization (1) 1999 (31) (738) (165) 1998 -- -- (357) 1997 -- -- (284) -------------------------------- (31) (738) (806) -------------------------------- Changes in estimates 1999 -- (121) (36) 1998 -- -- (38) -------------------------------- -- (121) (74) - -------------------------------------------------------------------------------- Reserve balance at December 31, 1999 $ 51 $ 198 $ -- - ------------------------------------------------================================ (1) Utilization amounts include translation effects on the restructuring reserve. - -------------------------------------------------------------------------------- The 1999 restructuring reserve utilization included $6 million related to the write-down to estimated salvage value of assets available for immediate disposal and $25 million that is legally obligated. At December 31, 1999, approximately 60 gross staff positions have been eliminated under these programs. The 1998 restructuring reserve utilization included $30 million of non-cash charges for equipment and premises write-downs as well as $673 million of severance and other exit costs, occurring primarily in 1999 (of which $323 million related to employee severance and $141 million related to leasehold and other exit costs have been paid in cash and $209 million is legally obligated), together with translation effects. Through December 31, 1999, approximately 5,500 gross staff positions have been eliminated under these programs, occurring primarily in 1999. The 1997 restructuring reserve utilization included $245 million of non-cash charges for equipment and premises write-downs as well as $550 million of severance and other exit costs (of which $336 million related to employee severance and $165 million related to leasehold and other exit costs have been paid in cash and $49 million is legally obligated), together with translation effects. Approximately 5,700 gross staff positions have been eliminated under these programs, including 1,700 positions in 1999, 3,350 positions in 1998, and 650 positions in 1997. Changes in estimates are attributable to facts and circumstances arising subsequent to an original restructuring charge. During 1999, changes in estimates resulted in a $121 million reduction in the reserve for 1998 restructuring initiatives, attributable to lower than anticipated costs of implementing certain projects and a reduction in the scope of certain initiatives. Changes in estimates related to the 1997 restructuring initiatives included a reduction of $74 million. Other changes in estimates are attributable to lower severance costs due to higher than anticipated levels of attrition and redeployment within the Company, and other unforeseen changes including those resulting from the merger with Travelers. F-19 13. Income Taxes In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Current: Federal $ 1,089 $ 706 $ 1,716 Foreign 1,745 1,007 1,225 State 149 210 215 ----------------------------- 2,983 1,923 3,156 Deferred: Federal 208 (18) (807) Foreign (192) 45 -- State 99 (130) (81) ----------------------------- 115 (103) (888) ----------------------------- Provision for income tax (1) 3,098 1,820 2,268 ----------------------------- Income tax expense (benefit) reported in stockholder's equity related to: Foreign currency translation 7 3 14 Securities available for sale 215 (324) (36) Employee stock plans (19) (112) (222) ----------------------------- Total income taxes $ 3,301 $ 1,387 $ 2,024 - --------------------------------------------------============================= (1) Includes the effect of securities transactions resulting in a provision of $116 million in 1999, $183 million in 1998, and $234 million in 1997. - -------------------------------------------------------------------------------- The reconciliation of the federal statutory income tax rate to the Company's effective income tax rate applicable to income before taxes for the years ended December 31, was as follows: 1999 1998 1997 - -------------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% Limited taxability of investment income (0.5) (0.8) (0.6) State income taxes (net of federal income tax benefit) 1.9 1.0 1.4 Other, net 1.0 1.8 1.3 --------------------------- Effective income tax rate 37.4% 37.0% 37.1% - ----------------------------------------------------=========================== Deferred income taxes at December 31 related to the following: In millions of dollars 1999 1998 - -------------------------------------------------------------------------------- Deferred tax assets: Credit loss deduction $ 2,303 $ 2,319 Unremitted foreign earnings 1,495 1,265 Employee benefits 329 558 Interest related items 346 402 Foreign and state loss carryforwards 311 256 Other deferred tax assets 323 399 ------------------- Gross deferred tax assets 5,107 5,199 Valuation allowance 214 294 ------------------- Deferred tax assets after valuation allowance 4,893 4,905 ------------------- Deferred tax liabilities: Investments (762) (666) Leases (890) (887) Other deferred tax liabilities (660) (612) ------------------- Gross deferred tax liabilities (2,312) (2,165) ------------------- Net deferred tax assets $ 2,581 $ 2,740 - -----------------------------------------------------------=================== Foreign pretax earnings approximated $4.2 billion in 1999, $3.2 billion in 1998 and $4.3 billion in 1997. As a U.S. corporation, Citicorp is subject to U.S. taxation currently on all of its foreign pretax earnings earned by a foreign branch. Pretax earnings of a foreign subsidiary or affiliate are taxed when effectively repatriated. In addition, certain of Citicorp's U.S. income is subject to foreign income tax where the payor of such income is domiciled outside the United States. F-20 The 1999 net change in the valuation allowance related to deferred tax assets was a decrease of $80 million primarily relating to utilization of tax carryforwards in certain foreign jurisdictions. The valuation allowance of $214 million at December 31, 1999 is primarily reserved for specific state, local and foreign tax carryforwards or tax law restrictions on benefit recognition in the U.S. federal and the above jurisdictions. Management believes that the realization of the recognized net deferred tax asset of $2.581 billion is more likely than not based on existing carryback ability and expectations as to future taxable income. Beginning in 1998, the Company joined with Citigroup in filing a consolidated federal income tax return. Under a tax sharing agreement with Citigroup, the Company is entitled to a current benefit if it incurs losses, which are utilized in Citigroup's consolidated return. Citigroup has reported pretax financial statement income from continuing operations exceeding $12 billion on average over the last three years and has generated federal taxable income exceeding $8 billion, on average, each year during this same period. Income taxes are not provided for on the Company's life insurance subsidiaries' "policyholders' surplus account" because under current U.S. tax rules such taxes will become payable only to the extent such amounts are distributed as a dividend or exceed limits prescribed by federal law. Distributions are not contemplated from this account, which aggregated $50 million (subject to a tax effect of $18 million) at December 31, 1999. 14. Regulatory Capital
Citicorp Citibank, N.A. Minimum -------------------------------------------------------- In millions of dollars at year-end Required (1) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Tier 1 capital $ 25,034 $ 24,695 $ 20,389 $ 19,291 Total capital (2) 37,351 35,633 30,414 28,783 Tier 1 capital ratio 4.00% 8.11% 8.59% 8.25% 8.41% Total capital ratio (2) 8.00 12.10 12.40 12.31 12.55 Leverage ratio (3) 3.00+ 6.83 6.88 6.53 6.32 - --------------------------------------------====================================================================
(1) As set forth in guidelines issued by the U.S. federal bank regulators. (2) Total capital includes Tier 1 and Tier 2. (3) Tier 1 capital divided by adjusted average assets. - -------------------------------------------------------------------------------- Citicorp is subject to risk-based capital and leverage guidelines issued by the Board of Governors of the Federal Reserve System, and its U.S. insured depository institution subsidiaries, including Citibank, N.A., are subject to similar guidelines issued by their respective primary regulators. These guidelines are used to evaluate capital adequacy and include the required minimums shown above. To be "well capitalized" under federal bank regulatory agency definitions, a depository institution must have a Tier 1 ratio of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5% and not be subject to a directive, order, or written agreement to meet and maintain specific capital levels. The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards. As of December 31, 1999 and 1998, all of Citicorp's U.S. insured subsidiary depository institutions were "well capitalized." F-21 15. Changes in Equity from Nonowner Sources Changes in each component of "Accumulated Other Changes in Equity from Nonowner Sources" for the three-year period ended December 31, 1999 are as follows:
Accumulated Net Unrealized Foreign Other Changes Gains (Losses) Currency in Equity on Investment Translation from Nonowner In millions of dollars Securities Adjustment Sources - -------------------------------------------------------------------------------------------------------------- Balance, January 1, 1997 $ 671 ($486) $ 185 Unrealized gains on investment securities, net of tax of $198 310 310 Less: Reclassification adjustment for gains included in net income, net of tax of ($234) (434) (434) Foreign currency translation adjustment, net of tax of $14 (140) (140) - -------------------------------------------------------------------------------------------------------------- Current period change (124) (140) (264) - -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 547 (626) (79) Unrealized losses on investment securities, net of tax of ($141) (227) (227) Less: Reclassification adjustment for gains included in net income, net of tax of ($183) (341) (341) Foreign currency translation adjustment, net of tax of $3 44 44 - -------------------------------------------------------------------------------------------------------------- Current period change (568) 44 (524) - -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 (21) (582) (603) Unrealized gains on investment securities, net of tax of $331 577 577 Less: Reclassification adjustment for gains included in net income, net of tax of ($116) (216) (216) Foreign currency translation adjustment, net of tax of $7 (53) (53) - -------------------------------------------------------------------------------------------------------------- Current period change 361 (53) 308 - -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $ 340 ($635) ($295) - --------------------------------------------------------------------==========================================
16. Employee Benefits Prior to its merger with Travelers, Citicorp had several non-contributory defined benefit pension plans covering substantially all U.S. employees. On December 31, 1998, the qualified U.S. plan was merged with the Travelers qualified U.S. plan. Following the merger of the qualified plans, plan assets of the combined plan may be used to fund the pension benefits of any Citigroup qualified plan participant. During the 1999 first quarter, the U.S. defined benefit plan was amended to convert the benefit formula for certain employees of Citicorp to a cash balance formula effective January 1, 2000. Employees satisfying certain age and service requirements remain covered by the prior final pay formula. Citicorp also has various defined benefit pension and termination indemnity plans covering employees outside the United States and offers postretirement health care and life insurance benefits to all eligible U.S. retired employees satisfying certain age and service requirements as well as to certain employees outside the United States. F-22 The following tables summarize the components of net benefit expense recognized in the Consolidated Statements of Income and the funded status and amounts recognized in the Consolidated Balance Sheets for U.S. plans and significant plans outside the United States. Net Benefit Expense
Postretirement Pension Plans Benefit Plans (1) ----------------------------------------------------------------------------- U.S. Plans Plans Outside U.S. U.S. Plans ----------------------------------------------------------------------------- In millions of dollars 1999 1998 1997 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- Benefits earned during the year $ 125 $ 136 $ 118 $ 65 $ 57 $ 56 $ 6 $ 11 $ 10 Interest cost on benefit obligation 233 228 204 86 79 75 28 30 30 Expected return on plan assets (369) (298) (260) (74) (72) (64) (16) (13) (10) Amortization of unrecognized: Net transition (asset) obligation (18) (17) (20) 4 3 6 -- -- -- Prior service cost (2) 17 13 -- -- -- (1) -- (1) Net actuarial loss 5 5 3 6 3 2 1 -- -- Curtailment loss -- (15) -- -- 2 -- (29) -- -- ----------------------------------------------------------------------------- Net benefit expense ($ 26) $ 56 $ 58 $ 87 $ 72 $ 75 ($ 11) $ 28 $ 29 - ---------------------------------------=============================================================================
(1) For plans outside the U.S., net postretirement benefit expense totaled $13 million in 1999, $10 million in 1998, and $8 million in 1997. - -------------------------------------------------------------------------------- F-23 Prepaid Benefit Cost (Benefit Liability)
Postretirement Pension Plans Benefit Plans (3) ----------------------------------------------------------------------------- U.S. Plans (1) Plans Outside U.S. (2) U.S. Plans ----------------------------------------------------------------------------- In millions of dollars at year-end 1999 1998 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 3,679 $ 3,128 $ 1,407 $ 1,139 $ 463 $ 440 Benefits earned during the year 125 136 65 57 6 11 Interest cost on benefit obligation 233 228 86 79 28 30 Plan amendments (214) 31 10 3 -- 3 Actuarial (gain) loss (795) 255 (2) 127 (54) 9 Benefits paid (98) (84) (61) (65) (31) (30) Acquisitions -- -- 4 27 -- -- Expenses (3) -- -- -- -- -- Curtailment -- (15) -- (7) (32) -- Settlements -- -- (5) -- -- -- Foreign exchange impact -- -- (119) 47 -- -- ----------------------------------------------------------------------------- Benefit obligation at end of year $ 2,927 $ 3,679 $ 1,385 $ 1,407 $ 380 $ 463 - ----------------------------------------------------------------------------------------------------------------------------------- Change in plan assets Plan assets at fair value at beginning of year $ 4,246 $ 3,709 $ 1,035 $ 798 $ 186 $ 159 Actual return on plan assets 544 611 160 97 25 27 Company contributions 12 10 65 138 31 30 Employee contributions -- -- 3 5 -- -- Acquisitions -- -- -- 24 -- -- Settlements -- -- (5) -- -- -- Benefits paid (98) (84) (50) (52) (31) (30) Expenses (3) -- -- -- -- -- Foreign exchange impact -- -- (76) 25 -- -- ----------------------------------------------------------------------------- Plan assets at fair value at end of year $ 4,701 $ 4,246 $ 1,132 $ 1,035 $ 211 $ 186 - ----------------------------------------------------------------------------------------------------------------------------------- Reconciliation of prepaid (accrued) benefit cost and total amount recognized Funded status of the plan $ 1,774 $ 567 ($ 253) ($ 372) ($ 169) ($ 277) Unrecognized: Net transition (asset) obligation 2 (15) 18 19 -- -- Prior service cost (94) 118 17 2 (9) (7) Net actuarial (gain) loss (1,264) (288) 6 110 (70) (5) ----------------------------------------------------------------------------- Net amount recognized $ 418 $ 382 ($ 212) ($ 241) ($ 248) ($ 289) - ----------------------------------------------------------------------------------------------------------------------------------- Amounts recognized in the balance sheets consist of Prepaid benefit cost $ 684 $ 613 $ 89 $ 69 $ -- $ -- Accrued benefit liability (291) (271) (320) (337) (248) (289) Intangible asset 25 40 19 27 -- -- ----------------------------------------------------------------------------- Net amount recognized $ 418 $ 382 ($ 212) ($ 241) ($ 248) ($ 289) - ------------------------------------------------------==============================================================================
(1) For unfunded U.S. plans, the aggregate benefit obligation was $328 million and $374 million, and the aggregate accumulated benefit obligation was $264 million and $257 million at December 31, 1999 and 1998, respectively. (2) For plans outside the U.S., the aggregate benefit obligation was $524 million and $1.176 billion, and the fair value of plan assets was $145 million and $732 million at December 31, 1999 and 1998, respectively, for plans whose benefit obligation exceeds plan assets. The aggregate accumulated benefit obligation was $309 million and $308 million, and the fair value of plan assets was $46 million and $3 million at December 31, 1999 and 1998, respectively, for plans whose accumulated benefit obligation exceeds plan assets. (3) For plans outside the U.S., the accumulated postretirement benefit obligation was $82 million and $96 million, and the postretirement benefit liability was $20 million and $33 million at December 31, 1999 and 1998, respectively. - -------------------------------------------------------------------------------- F-24 The expected long-term rates of return on assets used in determining pension and postretirement expense are shown below. 1999 1998 1997 - -------------------------------------------------------------------------------- Rate of Return on Assets U.S. plans 9.5% 9.0% 9.0% Plans outside the U.S. (1) 3.5% to 12.5% 4.0% to 12.0% 4.5% to 13.0% - -----------------------------------============================================= (1) Excluding highly inflationary countries. - -------------------------------------------------------------------------------- The principal assumptions used in determining pension and postretirement benefit obligations are shown below. At year-end 1999 1998 - -------------------------------------------------------------------------------- Discount Rate U.S. plans 8.0% 6.75% Plans outside the U.S. (1) 3.0% to 12.0% 3.0% to 12.0% Future compensation increase rate U.S. plans 4.5% 4.5% Plans outside the U.S. (1) 2.5% to 12.0% 1.5% to 10.0% Health care cost increase rate -- U.S. plans Following year 6.0% 7.0% Decreasing to the year 2001 to 5.0% 5.0% - -------------------------------------------------=============================== (1) Excluding highly inflationary countries. - -------------------------------------------------------------------------------- As an indicator of sensitivity, increasing the assumed health care cost trend rate by 1% in each year would have increased the accumulated postretirement benefit obligation as of December 31, 1999 by $16 million and the aggregate of the benefits earned and interest components of 1999 net postretirement benefit expense by $2 million. Decreasing the assumed health care cost trend rate by 1% in each year would have decreased the accumulated postretirement benefit obligation as of December 31, 1999 by $15 million and the aggregate of the benefits earned and interest components of 1999 net postretirement benefit expense by $2 million. Stock Option Plans The Company participates in a number of stock option plans sponsored by Citigroup that provide for the granting of stock options in Citigroup common stock to officers and employees. Options are granted at the fair market value of Citigroup common stock at the time of grant for a period of ten years. Generally, options granted since the date of the merger vest over a five-year period. Generally, 50% of the options granted under Citicorp predecessor plans prior to the merger are exercisable beginning on the third anniversary and 50% beginning on the fourth anniversary of the date of grant. Certain of the plans also permit an employee exercising an option to be granted new options (reload options) in an amount equal to the number of common shares used to satisfy the exercise price and the withholding taxes due upon exercise. The reload options are granted for the remaining term of the related original option and vest after six months. To further encourage employee stock ownership, the Company's eligible employees participate in the CitiBuilder stock option program. Options granted under the CitiBuilder program vest after five years. These options do not have a reload feature. Options granted in 1995 and 1996 include five-year performance-based stock options granted to key Citicorp employees. Performance-based options granted in 1995 and 1996 were at prices ranging from equivalent Citigroup stock prices of $17.30 to $18.70, equal to Citicorp market prices on the respective dates of grant, and expire in 2000 and 2001. One-half of these options vested in 1996 when Citicorp's stock price reached an equivalent Citigroup stock price of $26.67 per share, and the balance vested in 1997 when Citicorp's stock price reached an equivalent Citigroup stock price of $30.67 per share. During 1998, a group of key Citicorp employees was granted 9,510,000 performance-based stock options at an equivalent Citigroup strike price of $32.17. These performance-based options vested in 1999 when Citigroup's stock price reached $53.33 per share. F-25 Vesting and expense related to performance-based options are summarized in the following table (all options are equivalent Citigroup options). 1999 1998 1997 - -------------------------------------------------------------------------------- Options vested during the year 9,007,500 -- 8,976,563 After-tax expense recognized for all grants (in millions of dollars) $68 $43 $45 Options unvested at year-end -- 9,075,000 -- - --------------------------------------------==================================== The cost of performance-based options is measured as the difference between the exercise price and market price required for vesting. This expense is recognized over the period to the estimated vesting dates and in full for options that have vested, by a charge to expense with an offsetting increase in common stockholder's equity. All of the expense related to these grants has been recognized. Restricted Stock Plan The Company participates in a restricted stock program sponsored by Citigroup that provides for the issuance of Citigroup common stock in the form of restricted stock to participating officers and employees. The restricted stock generally vests after a two- or three-year period. Except under limited circumstances, during this period the stock cannot be sold or transferred by the participant, who is required to render service during the restricted period. Unearned compensation expense associated with the restricted stock grants represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the vesting period. Information with respect to restricted stock awards is as follows: 1999 1998 1997 - -------------------------------------------------------------------------------- Shares awarded 172,877 325,785 3,123,660 Weighted average fair market value per share $ 45.99 $ 36.83 $ 33.93 After-tax compensation cost charged to earnings (in millions of dollars) $ 16 $ 19 $ 8 - -----------------------------------------------================================= Savings Incentive Plan Prior to 1999, eligible Citicorp employees received awards equal to 3% of their covered salary. Employees had the option of receiving their award in cash or deferring some or all of it in various investment funds. Citicorp granted an additional award equal to the amount elected to be deferred by the employee. The after-tax expense associated with the plan amounted to $68 million in 1998 and $63 million in 1997. During 1999, the CitiBuilder 401(k) plan replaced the Savings Incentive Plan. Under the CitiBuilder 401(k) plan, eligible employees receive awards based on their total compensation, as defined in the plan, deferred into the Citigroup common stock fund. The after-tax expense associated with the plan amounted to $31 million in 1999. Stock Purchase Plan The 1997 offering under the Stock Purchase Plan allowed eligible Citicorp employees to enter into fixed subscription agreements to purchase shares at the market value on the date of the agreements. Such shares could be purchased from time to time through the expiration date. Shares of Citigroup's common stock delivered under the Stock Purchase Plan were sourced from treasury shares. Following is the share activity under the 1997 fixed-price offering for the purchase of shares at the equivalent Citigroup price of $30.20 per share. The 1997 offering expired on June 30, 1999.
1999 1998 1997 - ----------------------------------------------------------------------------------------- Outstanding subscribed shares at beginning of year 11,317,659 15,284,070 -- Subscriptions -- -- 16,758,687 Shares purchased 10,324,229 2,585,958 952,560 Canceled or terminated 993,430 1,380,453 522,057 - ----------------------------------------------------------------------------------------- Outstanding subscribed shares at end of year -- 11,317,659 15,284,070 - -----------------------------------------------------====================================
F-26 Pro Forma Impact of SFAS No. 123 The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans under which there is generally no charge to earnings for employee stock option awards (other than performance-based options). Alternatively, FASB rules would permit a method under which a compensation cost for all stock awards would be calculated and recognized over the service period (generally equal to the vesting period). This compensation cost would be determined in a manner prescribed by the FASB using option pricing models, intended to estimate the fair value of the awards at the grant date. Under both methods, an offsetting increase to stockholder's equity is recorded equal to the amount of compensation expense charged. Had the Company applied SFAS No. 123 in accounting for the Company's stock option plans, compensation expense and net income would have been the pro forma amounts indicated below:
1999 1998 1997 ------------------------------------------------------------------------------------------- In millions of dollars As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma - ------------------------------------------------------------------------------------------------------------------------------------ Compensation expense related to stock option plans $ 108 $ 406 $ 70 $ 286 $ 72 $ 226 Net income 5,195 4,991 3,096 2,979 3,841 3,766 - -----------------------------------------===========================================================================================
The pro forma adjustments relate to stock options granted from 1995 through 1999, for which a fair value on the date of grant was determined using a Black-Scholes option pricing model. No effect has been given to options granted prior to 1995. The fair values of stock-based awards are based on assumptions that were appropriate at the grant date and have not been restated to reflect the Merger. Additional valuation and related assumption information for Citigroup option plans, and Citicorp option plans prior to the date of the Merger are presented below.
Post-Merger Option Plans Pre-Merger Option Plans For option granted during 1999 1998 1998 1997 - ----------------------------------------------------------------------- ------------------------- Weighted average fair value Options $ 10.65 $ 7.60 $ 8.59 $ 8.40 1998 performance option -- -- $ 6.41 -- 1997 stock purchase offering -- -- -- $ 4.47 Weighted average expected life Original grants 3 years 3 years 6 years 6 years Reload grants 1 year 1 year -- -- 1997 stock purchase offering -- -- -- 2 years Valuation assumptions Expected volatility 40.6% 38.8% 25.0% 25.0% Risk-free interest rate 5.48% 4.40% 5.82% 6.30% Expected annual dividends per share $ 0.63 $ 0.43 $ 0.78 $ 0.73 Expected annual forfeitures 5% 5% 5% 5.0% - ----------------------------------------------===========================================================
F-27 17. Other Contractual Commitments
Balance Sheet Notional Principal Amounts Credit Exposure (1)(2) --------------------------------------------------------- In billions of dollars at year-end 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------- Interest rate products Futures contracts $ 110.4 $ 150.1 $ -- $ -- Forward contracts 484.6 345.2 0.1 0.2 Swap agreements 965.7 841.1 3.4 8.5 Purchased options 120.6 95.8 0.5 0.6 Written options 146.4 114.9 -- -- Foreign exchange products Futures contracts 2.7 1.9 -- -- Forward contracts 1,413.3 1,590.9 7.4 9.0 Cross-currency swaps 98.4 78.4 3.4 2.0 Purchased options 106.5 174.8 1.0 1.8 Written options 112.1 192.1 -- -- Equity products 86.8 80.6 4.5 2.9 Commodity products 21.3 10.9 0.2 0.4 Credit derivative products 41.9 25.9 0.3 0.2 ------------------------ $ 20.8 $ 25.6 - --------------------------------------------------------------------------=========================
(1) There is no balance sheet credit exposure for futures contracts because they settle daily in cash, and none for written options because they represent obligations (rather than assets) of Citicorp. (2) The balance sheet credit exposure reflects $26.8 billion and $29.1 billion of master netting agreements in effect at December 31, 1999 and December 31, 1998, respectively. Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of counterparty default. In addition, Citibank has securitized and sold net receivables, and the associated credit risk related to certain derivative and foreign exchange contracts via Markets Assets Trust, which amounted to $2.2 billion and $2.7 billion at December 31, 1999 and December 31, 1998, respectively. - -------------------------------------------------------------------------------- Citicorp enters into derivative and foreign exchange futures, forwards, options, and swaps, which enable customers to transfer, modify, or reduce their interest rate, foreign exchange, and other market risks, and also trades these products for its own account. In addition, Citicorp uses derivatives and other instruments, primarily interest rate products, as an end-user in connection with its risk management activities. Derivatives are used to manage interest rate risk relating to specific groups of on-balance sheet assets and liabilities, including commercial and consumer loans, deposit liabilities, long-term debt, and other interest-sensitive assets and liabilities, as well as credit card securitizations. In addition, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, net capital exposures and foreign exchange transactions. Through the effective use of derivatives, Citicorp has been able to modify the volatility of its revenue from asset and liability positions. The preceding table presents the aggregate notional principal amounts of Citicorp's outstanding derivative and foreign exchange contracts at December 31, 1999 and 1998, along with the related balance sheet credit exposure. The table includes all contracts with third parties, including both trading and end-user positions. Futures and forward contracts are commitments to buy or sell at a future date a financial instrument, commodity, or currency at a contracted price, and may be settled in cash or through delivery. Swap contracts are commitments to settle in cash at a future date or dates, which may range from a few days to a number of years, based on differentials between specified financial indices, as applied to a notional principal amount. Option contracts give the purchaser, for a fee, the right, but not the obligation, to buy or sell within a limited time a financial instrument or currency at a contracted price that may also be settled in cash, based on differentials between specified indices. Market risk on a derivative or foreign exchange product is the exposure created by potential fluctuations in interest rates, foreign exchange rates, and other values, and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement, and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in times of high volatility and financial stress at a reasonable cost. F-28 End-User Interest Rate, Foreign Exchange and Credit Derivative Contracts
Notional Principal Amounts Percentage of 1999 Amount Maturing ---------------------------------------------------------------------------------------- Dec. 31, Dec. 31, Within 1 to 2 to 3 to 4 to After In billions of dollars 1999 1998 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years - ------------------------------------------------------------------------------------------------------------------------------------ Interest rate products Futures contracts $ 6.8 $28.1 100% --% --% --% --% --% Forward contracts 3.8 6.5 100 -- -- -- -- -- Swap agreements 89.7 96.5 29 15 8 13 10 25 Option contracts 7.0 9.7 33 10 31 3 -- 23 Foreign exchange products Futures and forward contracts 48.2 62.1 95 4 1 -- -- -- Cross-currency swaps 4.6 4.6 16 14 20 21 17 12 Credit derivative products 29.2 19.6 2 2 8 7 34 47 - -------------------------------------------------===================================================================================
End-User Interest Rate Swaps and Net Purchased Options as of December 31, 1999
Remaining Contracts Outstanding - Notional Principal Amounts ------------------------------------------------------------------------------ In billions of dollars at year-end 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Receive Fixed Swaps $61.6 $51.8 $41.8 $36.1 $25.8 $16.9 Weighted-average fixed rate 6.3% 6.3% 6.3% 6.3% 6.4% 6.6% Pay Fixed Swaps 15.1 11.6 8.7 6.9 5.5 5.1 Weighted-average fixed rate 5.9% 5.8% 5.9% 6.0% 6.0% 6.1% Basis Swaps 13.0 0.7 0.2 0.2 0.2 0.2 Purchased Caps (Including Collars) 1.6 -- -- -- -- -- Weighted-average cap rate purchased 7.1% --% --% --% --% --% Purchased Floors 2.9 2.4 1.9 0.1 0.1 0.1 Weighted-average floor rate purchased 6.6% 6.6% 6.7% 5.8% 5.8% 5.8% Written Floors Related to Purchased Caps (Collars) 0.2 -- -- -- -- -- Weighted-average floor rate written 8.2% --% --% --% --% --% Written Caps Related to Other Purchased Caps (1) 2.3 2.3 2.1 1.7 1.5 1.5 Weighted-average cap rate written 9.8% 9.8% 9.8% 10.6% 10.7% 10.7% - ------------------------------------------------------------------------------------------------------------------------------------ Three-Month Forward LIBOR Rates (2) 6.0% 6.9% 7.1% 7.2% 7.3% 7.4% - ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes written options related to purchased options embedded in other financial instruments. (2) Represents the implied forward yield curve for three-month LIBOR as of December 31, 1999, provided for reference. - -------------------------------------------------------------------------------- The tables above provide data on the notional principal amounts and maturities of end-user (non-trading) derivatives, along with additional data on end-user interest rate swaps and net purchased option positions at year-end 1999, with three-month LIBOR forward rates included for reference. The tables are intended to provide an overview of these components of the end-user portfolio, but should be viewed only in the context of Citicorp's related assets and liabilities. Contract maturities are related to the underlying risk management strategy. The majority of derivative positions used in Citicorp's asset and liability management activities are established via intercompany transactions with independently managed Citicorp dealer units, with the dealer acting as a conduit to the marketplace. Citicorp's utilization of these instruments is modified from time to time in response to changing market conditions as well as changes in the characteristics and mix of the related assets and liabilities. In this connection, during 1999, interest rate futures, swaps and options with a notional principal amount of $7.7 billion were closed out which resulted in a net deferred gain of approximately $41 million. Total unamortized net deferred gains, including those from prior year close-outs, were approximately $114 million at December 31, 1999, which will be amortized into earnings over the remaining life of the original contracts (approximately 44% in 2000, 29% in 2001, and 27% in subsequent years), consistent with the risk management strategy. F-29 18. Related Party Balances The Company has related party balances with Citigroup and certain of its subsidiaries and affiliates. These balances, which are short-term in nature, include cash accounts, collateralized financing transactions, margin accounts, derivative trading, charges for operational support and the borrowing and lending of funds and are entered into in the ordinary course of business. 19. Concentrations of Credit Risk Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to Citicorp's total credit exposure. Although Citicorp's portfolio of financial instruments is broadly diversified along industry, product, and geographic lines, material transactions are completed with other financial institutions, particularly in the securities trading, derivative, and foreign exchange businesses. Additionally, U.S. credit card receivables represent an area of significant credit exposure. 20. Estimated Fair Value of Financial Instruments
1999 1998 ------------------------------------------------------------------ Estimated In billions of dollars at year-end Carrying Value Fair Value Difference Difference - ---------------------------------------------------------------------------------------------------------------------------- Assets $362.3 $369.7 $ 7.4 $ 7.3 Liabilities 353.7 353.4 0.3 (0.9) End-user derivative and foreign exchange contracts 0.5 (0.5) (1.0) 1.7 Credit card securitizations -- 0.8 0.8 (0.6) ------------------------ Subtotal 7.5 7.5 Deposits with no fixed maturity (1) 4.6 2.8 ------------------------ Total $12.1 $10.3 - ----------------------------------------------------------------------------------------------------------------------------
(1) Represents the estimated excess fair value related to the expected time period until runoff of existing deposits with no fixed maturity on the balance sheet at year-end, without assuming any regeneration of balances, based on the estimated difference between the cost of funds on these deposits and the cost of funds from alternative sources. The increase during 1999 was primarily due to higher spreads between the cost of funds on the deposits and the cost of funds from alternative sources. Under applicable requirements, excess fair values of these deposits are excluded from amounts included under the Liabilities caption above and from the following table, in which the estimated fair value is shown as being equal to the carrying value. - -------------------------------------------------------------------------------- Citicorp's financial instruments, as defined in accordance with applicable requirements, include financial assets and liabilities recorded on the balance sheet as well as off-balance sheet instruments such as derivative and foreign exchange contracts and credit card securitizations. To better reflect Citicorp's values subject to market risk and to illustrate the interrelationships that characterize risk management strategies, the table above also provides estimated fair value data for the expected time period until runoff of existing deposits with no fixed maturity. In the aggregate, estimated fair values exceeded the carrying values by approximately $12.1 billion at December 31, 1999 and $10.3 billion at December 31, 1998. Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality, and market perceptions of value, and as existing assets and liabilities run off and new items are entered into. The changes from the prior year are a result of an increase in the fair value of deposits with no fixed maturity, credit card securitizations, long-term debt and deposits primarily due to the higher interest rate environment in the U.S., offset by a decline in the fair value of derivative contracts which were affected by the same interest rate environment. Additional detail is provided in the following table. In accordance with applicable requirements, the disclosures exclude leases, affiliate investments, and pension and benefit obligations. Also in accordance with the applicable requirements, the disclosures exclude the effect of taxes, do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, as well as other expenses that would be incurred in a market transaction. In addition, the table excludes the values of nonfinancial assets and liabilities, as well as a wide range of franchise, relationship, and intangible values, which are integral to a full assessment of Citicorp's financial position and the value of its net assets. The data represents management's best estimates based on a range of methodologies and assumptions. The carrying value of short-term financial instruments, as well as receivables and payables arising in the ordinary course of business, F-30 approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used for most investments, for loans where available, and for both trading and end-user derivative and foreign exchange contracts, as well as for liabilities, such as long-term debt, with quoted prices. For performing loans where no quoted market prices are available, contractual cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. For loans with doubt as to collectibility, expected cash flows are discounted using an appropriate rate considering the time of collection and a premium for the uncertainty of the flows. The value of collateral is also considered. For liabilities such as long-term debt without quoted market prices, market borrowing rates of interest are used to discount contractual cash flows. Fair values of credit card securitizations reflect the various components of these transactions but principally arise from fixed rates payable to certificate holders. Under the applicable requirements, the estimated fair value of deposits with no fixed maturity in the following table excludes the premium values available in the market for such deposits, and the estimated value is shown in the table as being equal to the carrying value.
1999 1998 ------------------------------------------------------------------ Estimated Estimated Carrying Fair Carrying Fair In billions of dollars at year-end Value Value Value Value - -------------------------------------------------------------------------------------------------------------- Assets and related instruments Securities $ 50.8 $ 50.8 $ 45.0 $ 45.0 Trading account assets 31.5 31.5 33.7 33.7 Loans (1) 233.3 240.7 208.9 216.3 Related derivatives 0.2 (0.3) 0.2 0.6 Other financial assets (2) 46.7 46.7 42.4 42.3 Credit card securitizations -- 0.8 -- (0.6) Related derivatives -- (0.2) 0.1 0.5 - -------------------------------------------------------------------------------------------------------------- Liabilities and related instruments Deposits 260.7 260.5 226.1 226.3 Related derivatives (0.2) (0.1) (0.3) (0.6) Trading account liabilities 27.4 27.4 30.2 30.2 Long-term debt 26.4 26.4 26.8 27.7 Related derivatives (0.1) 0.1 (0.1) (0.7) Other financial liabilities (3) 39.2 39.1 38.7 38.5 Related derivatives -- -- 0.1 0.1 - -------------------------------------------------=============================================================
(1) The carrying value of loans is net of the allowance for credit losses and also excludes $5.5 billion and $4.8 billion of lease finance receivables in 1999 and 1998, respectively. (2) Includes cash and due from banks, deposits at interest with banks, federal funds sold and securities purchased under resale agreements, and customers' acceptance liability for which the carrying value is a reasonable estimate of fair value, and the carrying value and estimated fair value of loans held for sale, interest and fees receivable, and financial instruments included in other assets on the Consolidated Balance Sheets. (3) Includes acceptances outstanding, for which the carrying value is a reasonable estimate of fair value, and the carrying value and estimated fair value of purchased funds and other borrowings, financial instruments included in accrued taxes and other expense, and other liabilities on the Consolidated Balance Sheets. - -------------------------------------------------------------------------------- The estimated fair values of loans reflect changes in credit status since the loans were made, changes in interest rates in the case of fixed-rate loans, and premium values at origination of certain loans. The estimated fair values of Citicorp's loans, in the aggregate, exceeded carrying values (reduced by the allowance for credit losses) by $7.4 billion at both year-end 1999 and 1998. Within these totals, at year-end 1999 estimated fair values exceeded carrying values for consumer loans net of the allowance by $4.5 billion, a decline of $0.1 billion from year-end 1998, and for commercial loans net of the allowance by $2.9 billion, which was an improvement of $0.1 billion from year-end 1998. The decline in estimated fair values in excess of carrying values of consumer loans is primarily due to the higher interest rate environment. The improvement in estimated fair value over the carrying values for commercial loans from year-end 1998 is a result of improved credit conditions in Latin America and Asia. The estimated fair value of credit card securitizations was $0.8 billion more than their carrying value at December 31, 1999, which is $1.4 billion higher than December 31, 1998, when the carrying value exceeded the estimated fair value by $0.6 billion. This increase is due to the effects of a higher interest rate environment on the fixed-rate investor certificates. F-31 The estimated fair value of interest bearing deposits was $0.2 billion less than the carrying value at December 31, 1999, which was a result of higher market interest rates since the deposits were taken. For all derivative and foreign exchange contracts in the previous tables, the gross difference between the fair value and carrying amount as of December 31, 1999 and 1998 was $0.4 billion and $2.1 billion, respectively, for contracts whose fair value exceeds carrying value, and $1.4 billion and $0.4 billion at December 31, 1999 and 1998, respectively, for contracts whose carrying value exceeds fair value. 21. Pledged Assets and Commitments Pledged Assets At December 31, 1999, certain investment securities, trading account assets, and other assets with a carrying value of $24.8 billion were pledged as collateral for borrowings to secure public and trust deposits, and for other purposes. Loan Commitments
In billions of dollars at year-end 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Unused commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities $180.7 $131.3 Unused credit card and other consumer revolving commitments 255.3 227.8 - ----------------------------------------------------------------------------------------------------================================
The majority of unused commitments are contingent upon customers maintaining specific credit standards. Commercial commitments generally have floating interest rates and fixed expiration dates and may require payment of fees. Such fees (net of certain direct costs) are deferred and, upon exercise of the commitment, amortized over the life of the loan or, if exercise is deemed remote, amortized over the commitment period. The table does not include commercial letters of credit issued on behalf of customers and collateralized by the underlying shipment of goods which totaled $5.3 billion at both December 31, 1999 and 1998. Loans Sold with Credit Enhancements
Amounts -------------------- In billions of dollars at year-end 1999 1998 Form of Credit Enhancement - ------------------------------------------------------------------------------------------------------------------------------------ Residential mortgages and other loans sold with recourse (1) $3.6 $ 4.1 Recourse obligation $1.8 in 1999 and $2.0 in 1998 GNMA sales/servicing agreements (2) 19.3 1.0 Secondary recourse obligation Securitized credit card receivables 49.0 44.3 Primarily net revenue over the life of the transaction - -------------------------------------------------------=============================================================================
(1) Residential mortgages represent 74% of amounts in 1999 and 83% in 1998. (2) Government National Mortgage Association sales/servicing agreements covering securitized residential mortgages. - -------------------------------------------------------------------------------- Citicorp and its subsidiaries are obligated under various credit enhancements related to certain sales of loans or sales of participations in pools of loans, as summarized above. Net revenue on securitized credit card receivables is collected over the life of each sale transaction. The net revenue is based upon the sum of finance charges and fees received from cardholders and interchange revenue earned on cardholder transactions, less the sum of the yield paid to investors, credit losses, transaction costs, and a contractual servicing fee, which is also retained by certain Citicorp subsidiaries as servicers. As specified in certain of the sale agreements, the net revenue collected each month is deposited in an account, up to a predetermined maximum amount, and is available over the remaining term of that transaction to make payments of yield, fees, and transaction costs in the event that net cash flows from the receivables are not sufficient. When the account reaches the predetermined amount, net revenue is passed directly to the Citicorp subsidiary that sold the receivables. The amount contained in these accounts is included in other assets and was $60 million at December 31, 1999 and $30 million at December 31, 1998. Net revenue from securitized credit card receivables included in other revenue was $1.8 billion, $1.3 billion, and $559 million for the years ended December 31, 1999, 1998, and 1997, respectively. F-32 Standby Letters of Credit
1999 1998 -------------------------------------------------------------------- Expire Expire Total Amount Total Amount In billions of dollars at year-end Within 1 Year After 1 Year Outstanding Outstanding - --------------------------------------------------------------------------------------------------------------------------- Financial Insurance, surety $ 1.6 $ 5.4 $ 7.0 $ 6.7 Options, purchased securities, and escrow 0.6 0.1 0.7 0.8 Clean payment 2.3 1.0 3.3 2.3 Backstop state, county, and municipal securities 0.1 0.2 0.3 0.5 Other debt related 6.3 2.5 8.8 6.5 Performance 3.7 1.9 5.6 6.6 ------------------------------------------------------------------- Total (1) $14.6 $11.1 $25.7 $23.4 - --------------------------------------------------------===================================================================
(1) Total is net of cash collateral of $2.8 billion in 1999 and $2.1 billion in 1998. Collateral other than cash covered 17% of the total in 1999 and 20% in 1998. - -------------------------------------------------------------------------------- Standby letters of credit, summarized above, are used in various transactions to enhance the credit standing of Citibank customers. They represent irrevocable assurances that Citibank will make payment in the event that the customer fails to fulfill its obligations to third parties. Financial standby letters of credit are obligations to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument, such as assuring payments by a foreign reinsurer to a U.S. insurer, to act as a substitute for an escrow account, to provide a payment mechanism for a customer's third-party obligations, and to assure payment of specified financial obligations of a customer. Performance standby letters of credit are obligations to pay a third-party beneficiary when a customer fails to perform a nonfinancial contractual obligation, such as to ensure contract performance or irrevocably assure payment by the customer under supply, service and maintenance contracts or construction projects. Fees are recognized ratably over the term of the standby letter of credit. The table does not include securities lending indemnifications issued to customers, which are fully collateralized and totaled $23.0 billion at December 31, 1999 and $11.1 billion at December 31, 1998. Lease Commitments Citicorp and its subsidiaries are obligated under a number of non-cancelable leases for premises and equipment. Minimum rental commitments on non-cancelable leases in the aggregate were $4.3 billion, and for each of the five years subsequent to December 31, 1999 were $567 million (2000), $486 million (2001), $403 million (2002), $361 million (2003), and $344 million (2004). The minimum rental commitments do not include minimum sublease rentals under non-cancelable subleases of $128 million. Most of the leases have renewal or purchase options and escalation clauses. Rental expense was $746 million in 1999, excluding $52 million of sublease rental income, $690 million in 1998, excluding $56 million of sublease rental income, and $637 million in 1997, excluding $68 million of sublease rental income. 22. Guaranteed Subsidiary Debt On August 4, 1999, CCC became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. Citicorp has issued a guarantee of all outstanding long-term debt and commercial paper of CCC. Following the restructuring, CCC ceased issuing commercial paper. In addition, Citicorp guaranteed the obligation of CCC under its committed and available five-year revolving credit facilities under which no borrowings are currently outstanding. Under these facilities, which expire in 2002, CCC can borrow up to $3.4 billion. Under this facility, Citicorp is required to maintain a certain level of consolidated stockholder's equity (as defined in the agreement). At December 31, 1999, this requirement was exceeded by approximately $10.3 billion. CCC's results are reflected in the Global Consumer and Corporate/Other segments and are consolidated in Citicorp's financial statements. Citicorp has not presented separate financial statements and other disclosures concerning CCC because management has determined that such information is not material to holders of CCC's debt securities. The following is summarized legal vehicle financial information for CCC. F-33 Summarized Balance Sheet December 31, In millions of dollars 1999 1998 - -------------------------------------------------------------------------------- Consumer loans, net of unearned income $ 17,601 $ 13,285 Allowance for credit losses (433) (393) ---------------------- Total loans, net 17,168 12,892 Other assets 3,379 2,926 ---------------------- Total assets $ 20,547 $ 15,818 - ---------------------------------------------------------======================= Due to Citicorp and affiliates $ 11,763 $ 3,504 Purchased funds and other borrowings 67 2,387 Other liabilities 1,931 1,560 Long-term debt 5,700 6,250 Stockholder's equity 1,086 2,117 ---------------------- Total liabilities and stockholder's equity $ 20,547 $ 15,818 - ---------------------------------------------------------======================= Summarized Income Statement Year ended December 31, In millions of dollars 1999 1998 - -------------------------------------------------------------------------------- Total revenues, net of interest expense $ 1,736 $ 1,428 Provision for credit losses 358 370 Operating expense 752 611 Net income $ 399 $ 286 - ---------------------------------------------------------======================= 23. Contingencies In the ordinary course of business, Citicorp and its subsidiaries are defendants or co-defendants in various litigation matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on the Company and its subsidiaries' results of operations, financial condition, or liquidity. 24. Stockholder's Equity of Citibank, N.A. Changes in Stockholder's Equity In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Balance at beginning of year $ 19,732 $ 16,998 $ 16,110 Net income 3,079 1,700 2,652 Dividends (1,875) (500) (1,750) Contributions from parent 89 1,744 50 Change in net unrealized gains (losses) on securities available for sale 229 (458) (243) Foreign currency translation (47) 40 (112) Other 355 208 291 -------------------------------- Balance at end of year $ 21,562 $ 19,732 $ 16,998 - -----------------------------------------------================================= Citibank's net income for 1999 of $3.1 billion includes after-tax restructuring-related items of $89 million ($143 million pretax). Net income in 1998 of $1.7 billion includes an after-tax restructuring charge of $504 million ($802 million pretax) primarily related to exit costs associated with business improvement and integration initiatives to be implemented over a 12- to 18-month period. 1997 net income of $2.7 billion includes an after-tax restructuring charge of $379 million ($585 million pretax) related to cost management programs and customer service initiatives to improve operational efficiency and productivity. See Note 12 for further discussions. Authorized capital stock of Citibank was 40 million shares at December 31, 1999, 1998, and 1997. F-34 25. Citicorp (Parent Company Only) The Parent Company is a legal entity separate and distinct from Citibank, N.A. and its other subsidiaries and affiliates. There are various legal limitations on the extent to which Citicorp's banking subsidiaries may extend credit, pay dividends or otherwise supply funds to Citicorp. The approval of the Office of the Comptroller of the Currency is required if total dividends declared by a national bank in any calendar year exceed net profits (as defined) for that year combined with its retained net profits for the preceding two years. In addition, dividends for such a bank may not be paid in excess of the bank's undivided profits. State-chartered bank subsidiaries are subject to dividend limitations imposed by applicable state law. Citicorp's national and state-chartered bank subsidiaries can declare dividends to their respective parent companies in 2000, without regulatory approval, of approximately $3.6 billion, adjusted by the effect of their net income (loss) for 2000 up to the date of any such dividend declaration. In determining whether and to what extent to pay dividends, each bank subsidiary must also consider the effect of dividend payments on applicable risk-based capital and leverage ratio requirements as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citicorp estimates that its bank subsidiaries can distribute dividends to Citicorp of approximately $3.0 billion of the available $3.6 billion, adjusted by the effect of their net income (loss) up to the date of any such dividend declaration. Citicorp also receives dividends from its nonbank subsidiaries. These nonbank subsidiaries are generally not subject to regulatory restrictions on their payment of dividends except that the approval of the Office of Thrift Supervision may be required if total dividends declared by a savings association in any calendar year exceed amounts specified by that agency's regulations. Condensed Statements of Income In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------- Revenue Dividends from subsidiary banks and bank holding companies $4,310 $1,475 $2,400 Dividends from other subsidiaries 30 336 217 Interest from subsidiaries 887 871 784 Other revenue (1) 268 116 92 ------------------------ 5,495 2,798 3,493 ------------------------ Expense Interest on other borrowed funds 127 108 119 Interest and fees paid to subsidiaries 212 245 210 Interest on long-term debt 879 901 844 Other expense 8 52 12 ------------------------ 1,226 1,306 1,185 ------------------------ Income before taxes and equity in undistributed income of subsidiaries 4,269 1,492 2,308 Income tax benefit -- current 5 69 77 Equity in undistributed income of subsidiaries 921 1,535 1,456 ------------------------ Net income $5,195 $3,096 $3,841 - --------------------------------------------------------======================== (1) Includes net securities gains of $200 million in 1999, $95 million in 1998, and $56 million in 1997. - -------------------------------------------------------------------------------- F-35 Condensed Balance Sheets December 31, December 31, In millions of dollars 1999 1998 - -------------------------------------------------------------------------------- Assets Deposits with subsidiary banks, principally interest-bearing $ 1,107 $ 1,466 Securities -- available for sale 2,195 857 Investments in and advances to: Subsidiary banks and bank holding companies 33,342 30,898 Other subsidiaries 11,576 7,466 Other assets 1,306 2,079 --------------------- Total $49,526 $42,766 - --------------------------------------------------------======================== Liabilities and stockholder's equity Purchased funds and other borrowings $ 6,084 $ 221 Advance from subsidiaries 128 94 Other liabilities 1,437 1,283 Long-term debt 14,825 15,477 Junior subordinated debentures held by trusts 1,005 1,005 Stockholder's equity 26,047 24,686 --------------------- Total $49,526 $42,766 - --------------------------------------------------------======================== F-36 Condensed Statements of Cash Flows
In millions of dollars 1999 1998 1997 - -------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,195 $ 3,096 $ 3,841 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (921) (1,535) (1,456) Other, net (1,066) 146 (213) -------------------------------- Net cash provided by operating activities 3,208 1,707 2,172 -------------------------------- Cash flows from investing activities Securities: Purchases (1,422) (883) (2,802) Sales 609 916 1,869 Maturities -- 500 1,525 Subsidiaries: Investments and advances (92,799) (37,195) (40,362) Repayment of advances 88,281 37,681 37,870 Net decrease (increase) in loans 775 (1,500) -- -------------------------------- Net cash (used in) provided by investing activities (4,556) (481) (1,900) -------------------------------- Cash flows from financing activities Purchased funds and other borrowings: Proceeds 25,882 6,670 5,820 Repayments (20,106) (8,540) (4,697) Advances from subsidiaries: Proceeds 478 59 111 Repayments (440) (52) (231) Long-term debt: Proceeds 1,400 2,219 4,163 Repayments (1,921) (1,443) (2,690) Proceeds from issuance of junior subordinated debentures held by trusts -- 232 464 Preferred stock redemptions -- (1,040) (175) Common stock issuance proceeds -- 243 434 Treasury stock repurchases -- (483) (2,259) Contribution from Citigroup parent company 321 628 521 Dividends paid (4,625) (884) (1,303) -------------------------------- Net cash provided by (used in) financing activities 989 (2,391) 158 -------------------------------- Net (decrease) increase in deposits with subsidiary banks (359) (1,165) 430 Deposits with subsidiary banks at beginning of year 1,466 2,631 2,201 -------------------------------- Deposits with subsidiary banks at end of year $ 1,107 $ 1,466 $ 2,631 - ------------------------------------------------------------================================ Cash paid during the year for: Interest $ 826 $ 951 $ 912 Income taxes 1,062 837 1,367 - ------------------------------------------------------------================================
F-37 26. Selected Quarterly Financial Data (Unaudited)
In millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Third Second First Fourth Third Second First ----------------------------------------------------------------------------------------------- Net interest revenue $3,696 $3,642 $3,636 $3,568 $3,568 $3,381 $3,259 $3,094 Fees, commissions, and other revenue 3,485 3,481 3,368 3,272 2,784 2,476 3,285 2,831 ----------------------------------------------------------------------------------------------- Total revenues 7,181 7,123 7,004 6,840 6,352 5,857 6,544 5,925 Provision for credit losses 686 632 790 729 680 821 655 595 Operating expense (1) 4,395 4,236 4,204 4,183 5,390 4,058 4,026 3,537 ----------------------------------------------------------------------------------------------- Income before taxes 2,100 2,255 2,010 1,928 282 978 1,863 1,793 Income taxes 773 845 756 724 84 368 697 671 ----------------------------------------------------------------------------------------------- Net income $1,327 $1,410 $1,254 $1,204 $ 198 $ 610 $1,166 $1,122 - -------------------------------------=============================================================================================== Total assets $388,570 $368,495 $365,643 $360,241 $355,934 $358,088 $344,756 $343,647 - -------------------------------------===============================================================================================
(1) The fourth quarters of 1999 and 1998 include $51 million after-tax ($82 million pretax) and $632 million after-tax ($1,008 million pretax), respectively, of restructuring charges, and in the 1998 fourth quarter, $41 million of merger-related costs. The third quarter of 1999 includes a restructuring charge of $31 million after-tax ($49 million pretax). The third and fourth quarters of 1999 include credits for reductions of prior charges of $23 million after-tax ($37 million pretax) and $75 million after-tax ($120 million pretax), respectively. The fourth quarter of 1998 includes credits for the reversal of prior charges of $24 million after-tax ($38 million pretax). The 1999 fourth, third, second and first quarters also include $8 million after-tax ($13 million pretax), $25 million after-tax ($41 million pretax), $29 million after-tax ($47 million pretax), and $50 million after-tax ($79 million pretax), respectively, of accelerated depreciation. - -------------------------------------------------------------------------------- F-38 FINANCIAL DATA SUPPLEMENT Citicorp and Subsidiaries AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis (1) (2)
Average Volume Interest Revenue/Expense --------------------------------------------------------------------- In millions of dollars 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- Loans (net of unearned income) (3) Consumer loans In U.S. offices $ 78,726 $ 71,068 $ 65,652 $ 8,211 $ 7,820 $ 7,250 In offices outside the U.S. (4) 57,341 51,664 51,274 6,377 6,385 6,308 ----------------------------------------------------------------- Total consumer loans 136,067 122,732 116,926 14,588 14,205 13,558 ----------------------------------------------------------------- Commercial loans In U.S. offices Commercial and industrial 14,584 11,664 10,670 1,199 942 916 Mortgage and real estate 1,369 2,745 2,674 111 231 285 Lease financing 3,087 2,958 3,048 201 189 205 In offices outside the U.S. (4) 71,970 64,639 50,791 6,832 6,982 5,411 ----------------------------------------------------------------- Total commercial loans 91,010 82,006 67,183 8,343 8,344 6,817 ----------------------------------------------------------------- Total loans 227,077 204,738 184,109 22,931 22,549 20,375 ----------------------------------------------------------------- Federal funds sold and resale agreements In U.S. offices 3,329 6,929 6,973 137 284 354 In offices outside the U.S. (4) 3,062 5,415 5,633 265 454 518 ----------------------------------------------------------------- Total 6,391 12,344 12,606 402 738 872 ----------------------------------------------------------------- Securities, at fair value In U.S. offices Taxable 14,270 11,110 9,800 632 455 484 Exempt from U.S. income tax 3,370 3,023 2,674 202 189 170 In offices outside the U.S. (4) 28,087 24,628 20,729 2,902 2,442 1,661 ----------------------------------------------------------------- Total 45,727 38,761 33,203 3,736 3,086 2,315 ----------------------------------------------------------------- Trading account assets (5) In U.S. offices 2,583 4,801 4,901 133 298 289 In offices outside the U.S. (4) 7,342 9,850 9,928 559 764 725 ----------------------------------------------------------------- Total 9,925 14,651 14,829 692 1,062 1,014 ----------------------------------------------------------------- Loans held for sale, in U.S. offices 5,221 4,624 3,571 549 533 440 Deposits at interest with banks (4) 12,290 14,534 14,150 1,002 1,070 995 ----------------------------------------------------------------- Total interest-earning assets 306,631 289,652 262,468 $29,312 $29,038 $26,011 Non-interest-earning assets (5) 53,935 53,336 43,605 ---------- ---------- ---------- Total assets $360,566 $342,988 $306,073 - -----------------------------------------===================================================================== Deposits In U.S. offices Savings deposits (6) $ 33,422 $ 31,315 $ 27,193 $ 928 $ 926 $ 813 Other time deposits 11,889 10,864 12,302 425 491 610 In offices outside the U.S. (4) 167,368 147,340 128,546 9,422 10,094 8,192 ----------------------------------------------------------------- Total 212,679 189,519 168,041 10,775 11,511 9,615 ----------------------------------------------------------------- Trading account liabilities (5) In U.S. offices 1,695 3,129 2,457 57 157 135 In offices outside the U.S. (4) 952 2,076 2,576 31 112 175 ----------------------------------------------------------------- Total 2,647 5,205 5,033 88 269 310 ----------------------------------------------------------------- Purchased funds and other borrowings In U.S. offices 13,349 16,750 17,040 652 864 997 In offices outside the U.S. (4) 8,783 9,507 8,030 1,332 1,282 973 ----------------------------------------------------------------- Total 22,132 26,257 25,070 1,984 2,146 1,970 ----------------------------------------------------------------- Long-term debt In U.S. offices 22,538 22,723 21,096 1,334 1,405 1,348 In offices outside the U.S. (4) 4,479 3,433 4,448 519 340 412 ----------------------------------------------------------------- Total 27,017 26,156 25,544 1,853 1,745 1,760 ----------------------------------------------------------------- Total interest-bearing liabilities 264,475 247,137 223,688 $14,700 $15,671 $13,655 ------------------------------------ Demand deposits in U.S. offices 10,761 10,747 11,166 Other non-interest-bearing liabilities (5) 59,847 61,843 48,824 Total stockholder's equity 25,483 23,261 22,395 ------------------------------- Total liabilities and stockholder's equity $360,566 $342,988 $306,073 - -----------------------------------------===================================================================== NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS In U.S. offices (7) $126,426 $118,930 $110,086 $ 6,963 $ 6,312 $ 5,870 In offices outside the U.S. (7) 180,205 170,722 152,382 7,649 7,055 6,486 ----------------------------------------------------------------- Total $306,631 $289,652 $262,468 $14,612 $13,367 $12,356 - -----------------------------------------===================================================================== % Average Rate ------------------------------ 1999 1998 1997 - ----------------------------------------------------------------------- Loans (net of unearned income) (3) Consumer loans In U.S. offices 10.43 11.00 11.04 In offices outside the U.S. (4) 11.12 12.36 12.30 Total consumer loans 10.72 11.57 11.60 Commercial loans In U.S. offices Commercial and industrial 8.22 8.08 8.58 Mortgage and real estate 8.11 8.42 10.66 Lease financing 6.51 6.39 6.73 In offices outside the U.S. (4) 9.49 10.80 10.65 Total commercial loans 9.17 10.17 10.15 Total loans 10.10 11.01 11.07 Federal funds sold and resale agreements In U.S. offices 4.12 4.10 5.08 In offices outside the U.S. (4) 8.65 8.38 9.20 Total 6.29 5.98 6.92 Securities, at fair value In U.S. offices Taxable 4.43 4.10 4.94 Exempt from U.S. income tax 5.99 6.25 6.36 In offices outside the U.S. (4) 10.33 9.92 8.01 Total 8.17 7.96 6.97 Trading account assets (5) In U.S. offices 5.15 6.21 5.90 In offices outside the U.S. (4) 7.61 7.76 7.30 Total 6.97 7.25 6.84 Loans held for sale, in U.S. offices 10.52 11.53 12.32 Deposits at interest with banks (4) 8.15 7.36 7.03 Total interest-earning assets 9.56 10.03 9.91 Non-interest-earning assets (5) Total assets - -----------------------------------------============================== Deposits In U.S. offices Savings deposits (6) 2.78 2.96 2.99 Other time deposits 3.57 4.52 4.96 In offices outside the U.S. (4) 5.63 6.85 6.37 Total 5.07 6.07 5.72 Trading account liabilities (5) In U.S. offices 3.36 5.02 5.49 In offices outside the U.S. (4) 3.26 5.39 6.79 Total 3.32 5.17 6.16 Purchased funds and other borrowings In U.S. offices 4.88 5.16 5.85 In offices outside the U.S. (4) 15.17 13.48 12.12 Total 8.96 8.17 7.86 Long-term debt In U.S. offices 5.92 6.18 6.39 In offices outside the U.S. (4) 11.59 9.90 9.26 Total 6.86 6.67 6.89 Total interest-bearing liabilities 5.56 6.34 6.10 - -----------------------------------------============================== NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS In U.S. offices (7) 5.51 5.31 5.33 In offices outside the U.S. (7) 4.24 4.13 4.26 Total 4.77 4.61 4.71 - ----------------------------------------===============================
(1) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%. (2) Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 17 of Notes to Consolidated Financial Statements. (3) Includes cash-basis loans. (4) Average rates reflect prevailing local interest rates including inflationary effects and monetary correction in certain countries. (5) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities. (6) Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits. (7) Includes allocations for capital and funding costs based on the location of the asset. F-39 ANALYSIS OF CHANGES IN NET INTEREST REVENUE
1999 vs. 1998 1998 vs. 1997 - ------------------------------------------------------------------------------------ ----------------------------------------------- Increase (Decrease) Increase (Decrease) Due to Change In: Due to Change In: ------------------------------- -------------------------------- In millions of dollars on a Average Average Net Average Average Net taxable equivalent basis (1) Volume Rate Change (2) Volume Rate Change (2) - ------------------------------------------------------------------------------------------------------------------------------------ Loans -- consumer In U.S. offices $ 813 $ (422) $ 391 $ 596 $ (26) $ 570 In offices outside the U.S. (3) 665 (673) (8) 48 29 77 ----------------------------------------------------------------------------------------------- Total 1,478 (1,095) 383 644 3 647 ----------------------------------------------------------------------------------------------- Loans -- commercial In U.S. offices 133 16 149 81 (125) (44) In offices outside the U.S. (3) 746 (896) (150) 1,495 76 1,571 ----------------------------------------------------------------------------------------------- Total 879 (880) (1) 1,576 (49) 1,527 ----------------------------------------------------------------------------------------------- Total loans 2,357 (1,975) 382 2,220 (46) 2,174 ----------------------------------------------------------------------------------------------- Federal funds sold and resale agreements In U.S. offices (148) 1 (147) (2) (68) (70) In offices outside the U.S. (3) (203) 14 (189) (20) (44) (64) ----------------------------------------------------------------------------------------------- Total (351) 15 (336) (22) (112) (134) ----------------------------------------------------------------------------------------------- Securities, at fair value In U.S. offices 165 25 190 81 (91) (10) In offices outside the U.S. (3) 354 106 460 346 435 781 ----------------------------------------------------------------------------------------------- Total 519 131 650 427 344 771 ----------------------------------------------------------------------------------------------- Trading account assets In U.S. offices (121) (44) (165) (6) 15 9 In offices outside the U.S. (3) (191) (14) (205) (6) 45 39 ----------------------------------------------------------------------------------------------- Total (312) (58) (370) (12) 60 48 ----------------------------------------------------------------------------------------------- Loans held for sale, in U.S. offices 65 (49) 16 123 (30) 93 Deposits at interest with banks (3) (176) 108 (68) 27 48 75 ----------------------------------------------------------------------------------------------- Total interest revenue 2,102 (1,828) 274 2,763 264 3,027 - ------------------------------------------------------------------------------------------------------------------------------------ Deposits In U.S. offices 101 (165) (64) 93 (99) (6) In offices outside the U.S. (3) 1,266 (1,938) (672) 1,257 645 1,902 ----------------------------------------------------------------------------------------------- Total 1,367 (2,103) (736) 1,350 546 1,896 ----------------------------------------------------------------------------------------------- Trading account liabilities In U.S. offices (58) (42) (100) 35 (13) 22 In offices outside the U.S. (3) (47) (34) (81) (31) (32) (63) ----------------------------------------------------------------------------------------------- Total (105) (76) (181) 4 (45) (41) ----------------------------------------------------------------------------------------------- Purchased funds and other borrowings In U.S. offices (168) (44) (212) (17) (116) (133) In offices outside the U.S. (3) (102) 152 50 192 117 309 ----------------------------------------------------------------------------------------------- Total (270) 108 (162) 175 1 176 ----------------------------------------------------------------------------------------------- Long-term debt In U.S. offices (11) (60) (71) 102 (45) 57 In offices outside the U.S. (3) 115 64 179 (99) 27 (72) ----------------------------------------------------------------------------------------------- Total 104 4 108 3 (18) (15) ----------------------------------------------------------------------------------------------- Total interest expense 1,096 (2,067) (971) 1,532 484 2,016 Net interest revenue $1,006 $ 239 $1,245 $1,231 $(220) $1,011 - ------------------------------------------------------------------------------------------------------------------------------------
(1) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%. (2) Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change. (3) Changes in average rates reflect changes in prevailing local interest rates including inflationary effects and monetary correction in certain countries. - -------------------------------------------------------------------------------- F-40 LOANS OUTSTANDING
In millions of dollars at year-end 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer loans In U.S. offices Mortgage and real estate $ 37,261 $ 29,962 $ 28,084 $ 27,173 $ 25,862 Installment, revolving credit, and other 51,570 47,869 42,415 41,489 37,321 ------------------------------------------------------------------------------------- 88,831 77,831 70,499 68,662 63,183 ------------------------------------------------------------------------------------- In offices outside the U.S. Mortgage and real estate 21,529 19,456 17,685 18,379 18,240 Installment, revolving credit, and other 39,306 36,048 32,179 33,905 32,521 Lease financing 475 484 544 754 765 ------------------------------------------------------------------------------------- 61,310 55,988 50,408 53,038 51,526 ------------------------------------------------------------------------------------- 150,141 133,819 120,907 121,700 114,709 Unearned income (1,426) (1,564) (1,417) (1,532) (1,606) ------------------------------------------------------------------------------------- Consumer loans -- net 148,715 132,255 119,490 120,168 113,103 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial loans In U.S. offices Commercial and industrial 17,685 13,952 11,212 9,493 9,620 Mortgage and real estate 910 2,165 2,398 2,977 4,681 Lease financing 3,392 2,951 3,087 3,017 3,239 ------------------------------------------------------------------------------------- 21,987 19,068 16,697 15,487 17,540 ------------------------------------------------------------------------------------- In offices outside the U.S. Commercial and industrial 60,660 55,828 47,417 36,901 32,966 Mortgage and real estate 1,728 1,792 1,651 1,815 1,901 Loans to financial institutions 7,692 8,008 6,480 4,837 4,229 Governments and official institutions 3,250 2,132 2,376 2,252 2,180 Lease financing 1,648 1,386 1,092 1,294 1,098 ------------------------------------------------------------------------------------- 74,978 69,146 59,016 47,099 42,374 ------------------------------------------------------------------------------------- 96,965 88,214 75,713 62,586 59,914 Unearned income (227) (190) (159) (110) (169) ------------------------------------------------------------------------------------- Commercial loans -- net 96,738 88,024 75,554 62,476 59,745 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans -- net of unearned income 245,453 220,279 195,044 182,644 172,848 Allowance for credit losses (6,679) (6,617) (6,137) (5,743) (5,561) ------------------------------------------------------------------------------------- Total loans--net of unearned income and allowance for credit losses $238,774 $213,662 $188,907 $176,901 $167,287 - --------------------------------------------------==================================================================================
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Due Over 1 but Over In millions of dollars at year-end Within 1 Year Within 5 Years 5 Years Total - ------------------------------------------------------------------------------------------------------------------------- Maturities of the gross commercial loan portfolio In U.S. offices Commercial and industrial loans $ 8,282 $ 6,954 $2,449 $17,685 Mortgage and real estate 194 470 246 910 Lease financing 1,055 1,478 859 3,392 In offices outside the U.S. 53,883 16,975 4,120 74,978 --------------------------------------------------------- Total $ 63,414 $25,877 $7,674 $96,965 - ----------------------------------------------------------------========================================================= Sensitivity of loans due after one year to changes in interest rates (1) Loans at predetermined interest rates $ 5,911 $2,308 Loans at floating or adjustable interest rates 19,966 5,366 ------------------------- Total $25,877 $7,674 - ----------------------------------------------------------------=========================================================
(1) Based on contractual terms. Repricing characteristics may effectively be modified from time to time using derivative contracts. See Notes 17 and 20 of Notes to Consolidated Financial Statements. - -------------------------------------------------------------------------------- F-41 CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
In millions of dollars at year-end 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Commercial cash-basis loans Collateral dependent (at lower of cost or collateral value) (1) $ 200 $ 142 $ 258 $ 263 $ 779 Other 1,162 1,201 806 642 755 -------------------------------------------------------------- Total $1,362 $1,343 $1,064 $ 905 $1,534 - --------------------------------------------------============================================================== Commercial cash-basis loans In U.S. offices $ 215 $ 211 $ 296 $ 292 $ 925 In offices outside the U.S. 1,147 1,132 768 613 609 -------------------------------------------------------------- Total $1,362 $1,343 $1,064 $ 905 $1,534 - --------------------------------------------------============================================================== Commercial renegotiated loans In U.S. offices $ -- $ -- $ 20 $ 264 $ 309 In offices outside the U.S. 43 45 39 57 112 -------------------------------------------------------------- Total $ 43 $ 45 $ 59 $ 321 $ 421 - --------------------------------------------------============================================================== Consumer loans on which accrual of interest had been suspended In U.S. offices (2) $ 724 $ 825 $1,009 $1,184 $1,466 In offices outside the U.S. 1,506 1,458 993 1,071 1,247 -------------------------------------------------------------- Total $2,230 $2,283 $2,002 $2,255 $2,713 - --------------------------------------------------============================================================== Accruing loans 90 or more days delinquent (3) In U.S. offices (2) $ 732 $ 592 $ 633 $ 696 $ 499 In offices outside the U.S. 452 532 467 422 498 -------------------------------------------------------------- Total $1,184 $1,124 $1,100 $1,118 $ 997 - --------------------------------------------------==============================================================
(1) A cash-basis loan is defined as collateral dependent when repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment, in which case the loans are written down to the lower of cost or collateral value. (2) Includes $12 million, $10 million, and $11 million of consumer loans on which accrual of interest had been suspended and $22 million, $30 million, and $27 million of accruing loans 90 or more days delinquent related to loans held for sale at December 31, 1999, 1998, and 1997, respectively. (3) Substantially all consumer loans, of which $379 million, $267 million, $240 million, $239 million, and $208 million are government-guaranteed student loans at December 31, 1999, 1998, 1997, 1996, and 1995, respectively. - -------------------------------------------------------------------------------- OTHER REAL ESTATE OWNED AND ASSETS PENDING DISPOSITION
In millions of dollars at year-end 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- Consumer (1) $ 204 $ 254 $ 275 $ 459 $ 535 Commercial (1) 200 262 461 614 625 Corporate/Other 6 -- -- -- -- ------------------------------------------------------------------ Total $ 410 $ 516 $ 736 $1,073 $1,160 - --------------------------------------------------================================================================== Assets pending disposition (2) $ 86 $ 100 $ 96 $ 160 $ 205 - --------------------------------------------------==================================================================
(1) Represents repossessed real estate, carried at lower of cost or collateral value. (2) Represents consumer residential mortgage loans that have a high probability of foreclosure, carried at lower of cost or collateral value. - -------------------------------------------------------------------------------- FOREGONE INTEREST REVENUE ON LOANS (1)
In U.S. In Non-U.S. 1999 In millions of dollars Offices Offices Total - ------------------------------------------------------------------------------------------------------------------------------------ Interest revenue that would have been accrued at original contractual rates (2) $111 $435 $546 Amount recognized as interest revenue (2) 45 101 146 --------------------------------------- Foregone interest revenue $ 66 $334 $400 - ---------------------------------------------------------------------------------------------=======================================
(1) Relates to commercial cash-basis and renegotiated loans and consumer loans on which accrual of interest had been suspended. (2) Interest revenue in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain countries. - -------------------------------------------------------------------------------- F-42 DETAILS OF CREDIT LOSS EXPERIENCE
In millions of dollars 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for credit losses at beginning of year $ 6,617 $ 6,137 $ 5,743 $ 5,561 $ 5,337 --------------------------------------------------------------------- Provision for credit losses Consumer 2,489 2,367 2,225 2,207 1,935 Commercial 348 384 (28) (7) 241 --------------------------------------------------------------------- 2,837 2,751 2,197 2,200 2,176 --------------------------------------------------------------------- Gross credit losses Consumer (1) In U.S. offices 1,680 1,726 1,736 1,562 1,347 In offices outside the U.S. 1,270 1,009 868 876 825 Commercial Mortgage and real estate In U.S. offices -- 13 21 27 118 In offices outside the U.S. 10 58 47 32 25 Governments and official institutions in offices outside the U.S. -- 3 -- -- 37 Loans to financial institutions in offices outside the U.S. 11 97 7 12 11 Commercial and industrial In U.S. offices 37 62 7 29 40 In offices outside the U.S. 466 343 109 159 137 --------------------------------------------------------------------- 3,474 3,311 2,795 2,697 2,540 --------------------------------------------------------------------- Credit recoveries Consumer (1) In U.S. offices 245 235 273 257 260 In offices outside the U.S. 294 262 234 216 187 Commercial Mortgage and real estate In U.S. offices 12 83 47 88 26 In offices outside the U.S. 2 10 7 8 21 Governments and official institutions in offices outside the U.S. -- 10 36 81 52 Loans to financial institutions in offices outside the U.S. 5 16 17 1 1 Commercial and industrial In U.S. offices 5 21 58 44 80 In offices outside the U.S. 93 30 54 44 46 --------------------------------------------------------------------- 656 667 726 739 673 --------------------------------------------------------------------- Net credit losses In U.S. offices 1,455 1,462 1,386 1,229 1,139 In offices outside the U.S. 1,363 1,182 683 729 728 --------------------------------------------------------------------- 2,818 2,644 2,069 1,958 1,867 --------------------------------------------------------------------- Other-net (2) 43 373 266 (60) (85) --------------------------------------------------------------------- Allowance for credit losses at end of year $ 6,679 $ 6,617 $ 6,137 $ 5,743 $ 5,561 - --------------------------------------------------------------===================================================================== Net consumer credit losses $ 2,411 $ 2,238 $ 2,097 $ 1,965 $ 1,725 As a percentage of average consumer loans 1.77 1.82 1.79 1.74 1.61 - ----------------------------------------------------------------------------------------------------------------------------------- Net commercial credit losses (recoveries) $ 407 $ 406 $ (28) $ (7) $ 142 As a percentage of average commercial loans 0.45 0.50 NM NM 0.25 - --------------------------------------------------------------=====================================================================
(1) Consumer credit losses and recoveries primarily relate to revolving credit and installment loans. (2) In 1999, primarily includes the addition of allowance for credit losses related to acquisitions and foreign currency translation effects. In 1998, reflects the addition of $320 million of credit loss reserves related to the acquisition of the Universal Card portfolio. In 1997, $373 million was restored to the allowance for credit losses that had previously been attributed to credit card securitization transactions where the exposure to credit losses is contractually limited to the cash flows from the securitized receivables, $50 million attributable to standby letters of credit and guarantees was reclassified to other liabilities, and $50 million attributable to derivative and foreign exchange contracts was reclassified as a deduction from trading account assets. NM Not meaningful. - -------------------------------------------------------------------------------- F-43 AVERAGE DEPOSIT LIABILITIES IN OFFICES OUTSIDE THE U.S. (1)
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Average % Average Average % Average % Average In millions of dollars at year-end Balance Interest Rate Balance Interest Rate Average Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------------ Banks (2) $ 21,993 7.10 $ 18,559 8.46 $ 15,326 7.33 Other demand deposits 38,867 3.14 33,466 3.49 31,833 2.99 Other time and savings deposits (2) 117,742 5.64 105,357 6.98 90,610 6.75 --------- --------- -------- Total $178,602 5.28 $157,382 6.41 $137,769 5.95 - --------------------------------------------========================================================================================
(1) Interest rates and amounts include the effects of risk management activities, and also reflect the impact of the local interest rates prevailing in certain countries. See Note 17 of Notes to Consolidated Financial Statements. (2) Primarily consists of time certificates of deposit and other time deposits in denominations of $100,000 or more. - -------------------------------------------------------------------------------- MATURITY PROFILE OF TIME DEPOSITS ($100,000 OR MORE) IN U.S. OFFICES
Under Over 3 to Over 6 to Over In millions of dollars at year-end 1999 3 Months 6 Months 12 Months 12 Months - ------------------------------------------------------------------------------------------------------------------------ Certificates of deposit $5,289 $451 $640 $596 Other time deposits 1,497 225 110 82 - ----------------------------------------------------------------========================================================
PURCHASED FUNDS AND OTHER BORROWINGS (1)
Federal Funds Purchased and Securities Sold Under Repurchase Agreements Commercial Paper Other Funds Borrowed (2) ------------------------------------------------------------------------------------------- In millions of dollars 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Amount outstanding at year-end $8,004 $10,421 $5,027 $3,040 $12,065 $12,034 Average outstanding during the year 6,734 11,197 3,819 5,564 11,579 9,496 Maximum month-end outstanding 8,465 13,616 5,027 8,711 16,405 12,034 - ------------------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate During the year (3) 5.72% 5.17% 5.11% 5.75% 12.13% 13.13% At year-end (4) 5.57 6.58 6.12 5.36 8.28 12.14 - ---------------------------------------========================================================================================
(1) Original maturities of less than one year. (2) Rates reflect the impact of local interest rates prevailing in countries outside the United States. (3) Interest rates include the effects of risk management activities. See Note 17 of Notes to Consolidated Financial Statements. (4) Based on contractual rates at year-end. RATIOS 1999 1998 1997 - -------------------------------------------------------------------------------- Net income to average assets 1.44% 0.90% 1.25% Return on average total stockholder's equity 20.39% 13.31% 17.15% Total average equity to average assets 7.07% 6.78% 7.32% - ----------------------------------------------------============================ F-44 EX-3.02 2 EXHIBIT 3.02 Citicorp - -------------------------------------------------------------------------------- By-Laws As amended effective December 16, 1998 - -------------------------------------------------------------------------------- INDEX TO BY-LAWS OF CITICORP - -------------------------------------------------------------------------------- INDEX TO BY-LAWS OF CITICORP Article I - Offices Section 1. Principal Office Section 2. Other Offices Article II - Meetings of Stockholders Section 1. Annual Meeting Section 2. Special Meetings Section 3. Place of Meetings Section 4. Notice of Meetings Section 5. Organization Section 6. Inspectors of Election Section 7. Quorum and Adjournment Section 8. Order of Business Section 9. Vote of Stockholders Article III - Board of Directors Section 1. Number Section 2. General Powers Section 3. Place of Meetings Section 4. Organization Meeting Section 5. Regular Meetings Section 6. Special Meetings: Notice and Waiver of Notice Section 7. Organization Section 8. Quorum and Manner of Acting Section 9. Voting Section 10. Resignations Article IV - Executive Committee Section 1. Constitution and Powers Section 2. Membership; Meetings; Quorum Section 3. Records Article V - Other Committees Section 1. Other Committees Section 2. Place of Meetings: Notice and Waiver of Notice Article VI - The Officers i Section 1. Officers Section 2. Term of Office Section 3. Resignations Section 4. The Chairman Section 5. The President Section 6. The Vice Chairmen Section 7. The Corporate Executive Vice Presidents Section 8. The Executive Vice Presidents / Senior Corporate Officers Section 9. The Chairman Credit Policy Committee Section 10. The Senior Vice Presidents Section 11. The Vice Presidents Section 12. The Secretary Section 13. The Chief Auditor Section 14. Compensation Article VII - Stock and Transfers of Stock Section 1. Stock Certificates Section 2. Transfer Agents and Registrars Section 3. Transfers of Stock Section 4. Lost Certificates Article VIII - Corporate Seal Section 1. Seal Section 2. Affixing and Attesting Article IX - Miscellaneous Section 1. Fiscal Year Section 2. Signatures on Negotiable Instruments Section 3. Execution of Contracts and Other Instruments Section 4. Shares of Other Corporations Section 5. References to Article and Section Numbers and to the Certificate of Incorporation Section 6. Reference to Gender Article X - Amendments ii ARTICLE I OFFICES Section 1. Principal Office. The principal office and place of business of Citicorp shall be 399 Park Avenue in the City and State of New York. Section 2. Other Offices. Citicorp may establish or discontinue, from time to time, such other offices and places of business as may be deemed proper for the conduct of Citicorp's business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of stockholders shall be held on the third Tuesday in April of each year, or if that day be a legal holiday, on the next succeeding day not a legal holiday, or such other date as may be fixed by resolution of the Board of Directors, for the election of directors and the transaction of such other business as may properly come before the meeting. Section 2. Special Meetings. Special meetings of the stockholders may be called at any time by the Board of Directors and shall be called by the Secretary upon the written request, stating the purpose or purposes of any such meeting, of the holders of common stock who hold of record collectively at least one-third of the outstanding shares of common stock. Unless limited by law, the Certificate of Incorporation, the By-Laws, or by the terms of the notice thereof, any and all business may be transacted at any special meeting of stockholders. Section 3. Place of Meetings. Each meeting of stockholders shall be held at such place either within or outside the State of Delaware as may be designated by the Board of Directors for a particular meeting prior to the time when notice thereof is given to the stockholders entitled to vote thereat. Section 4. Notice of Meetings. Except as otherwise provided or permitted by law, the Certificate of Incorporation, or the By-Laws, notice of each meeting of stockholders shall be given to each stockholder of record entitled to vote thereat either by delivering such notice to him personally or by mailing the same to him. If mailed, the notice shall be directed to the stockholder in a postage-prepaid envelope at his address as it appears on the records of Citicorp unless, prior to the time of mailing, he shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. Notice of each meeting of stockholders shall state the place, date and hour of the meeting, and if for a special meeting the purpose or purposes for which the meeting is called, and shall be given not less than ten nor more than fifty days before the date of the meeting. Section 5. Organization. The Chairman shall act as such chairman at all meetings of stockholders, shall call all meetings of stockholders to order and preside thereat. In the absence of the Chairman, the President shall act as such chairman and, in the absence of the Chairman and the President, the Vice Chairman, or if there be more than one Vice Chairman present, the one of them first appointed to such office shall act as such chairman. The Board of Directors may designate an alternate chairman for any meeting of stockholders, and if the Chairman, the President and such Vice Chairman are absent from a meeting and such an alternate chairman has been designated therefor, he shall act as chairman of the meeting. In the absence of the Chairman, the President, such Vice Chairman and such an alternate chairman, or if no such alternate chairman has been designated for a meeting and the Chairman, the President and such Vice Chairman are absent therefrom, any stockholder or the proxy of any stockholder entitled to vote at the meeting may call the meeting to order and a chairman shall be elected, who shall preside thereat. The Secretary of Citicorp shall act as secretary at all meetings of the stockholders, but in his absence the chairman of the meeting may appoint any person present to act as secretary of the meeting. Section 6. Inspectors of Election. If the Board of Directors shall so determine, any election of directors by vote by ballot at a meeting of stockholders shall be conducted by three inspectors of election appointed for that purpose by the chairman of the meeting, who, before entering upon the discharge of their duties, shall by duly sworn faithfully to execute the duties of inspectors of election at such meeting with strict impartiality, and according to the best of their ability. If any such inspector appointed to act at any meeting shall not be present or shall fail to act, the chairman of the meeting shall appoint 1 some other person present to act as inspector in his place. The inspectors of election at the request of the chairman of the meeting shall conduct any other vote by ballot taken at such meeting. Inspectors of election may also be appointed to act at meetings of stockholders at which directors are not to be elected, and at the request of the chairman of the meeting shall conduct any vote by ballot at such meeting. Section 7. Quorum and Adjournment. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the shares of stock entitled to vote at the meeting shall constitute a quorum at all meetings of the stockholders. In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn any meeting, from time to time, until a quorum shall attend. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. Section 8. Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting or as is otherwise determined by the vote of the holders of a majority of the shares of stock present in person or by proxy and entitled to vote. Section 9. Vote of Stockholders. Except as otherwise required by law or the Certificate of Incorporation, all action by stockholders by written consent in lieu of a meeting. The vote in the election of directors at a meeting of stockholders shall be by ballot unless the Board of Directors determines otherwise, and the vote upon any question before a meeting of stockholders shall be ballot if so directed by the chairman of the meeting. In a vote by ballot each ballot shall state the number of shares voted and the name of the stockholder or proxy voting. Except as otherwise required by law or by the Certificate of Incorporation, directors to be elected at a meeting of stockholders shall be elected by a plurality of the votes cast at such meeting by the holders of shares entitled to vote in the election and whenever any corporate action, other than the election of directors, is to be taken by vote of the stockholders at a meeting thereof, it shall be authorized by a majority of the votes cast at such meeting by the holders of stock entitled to vote thereon. ARTICLE III BOARD OF DIRECTORS Section 1. Number. The number of directors constituting the Board of Directors of Citicorp shall be such number as is fixed from time to time by resolution adopted by the Board of Directors or by the stockholders. Section 2. General Powers. The business, properties and affairs of Citicorp shall be managed by the Board of Directors, which, without limiting the generality of the foregoing, shall have power to appoint the officers of Citicorp, to appoint and direct agents, and to grant general or limited authority to officers, employees and agents of Citicorp to make, execute and deliver contracts and other instruments and documents in the name and on behalf of Citicorp and over its seal, without specific authority in each case. In addition, the Board of Directors may exercise all the powers of Citicorp and do all lawful acts and things which are not reserved to the stockholders by law or the Certificate of Incorporation. Section 3. Place of Meetings. Meetings of the Board of Directors, whether regular or special, shall be held at the principal office of Citicorp or such other place within or without the State of Delaware as may, from time to time, be fixed by resolution of the Board of Directors, provided that the place so determined for any meeting may be changed to some other place, in the case of a regular meeting, by order of the Chairman, the President or any Vice Chairman, and in the case of a special meeting, by order of the person or persons at whose request the meeting is called if in either such case the place so changed is specified in a notice given as provided in Section 6 of this Article III or in a waiver of notice thereof. Section 4. Organization Meeting. A newly elected Board of Directors shall meet and organize, as soon as practicable, after each annual meeting of stockholders, at the principal office of Citicorp, without notice of such meeting, provided a majority of the whole Board of Directors is present. If such a majority is not present, such organization meeting may be held at any other time or place which may be specified in a notice given as provided in Section 6 of this Article III for special meetings of the Board of Directors, or in a waiver of notice thereof. Any business which may properly be transacted by the Board of Directors may be transacted at any organization meeting thereof. Section 5. Regular Meetings. A regular meeting of the Board of Directors shall be held quarterly, unless the Board of Directors shall otherwise determine, with notice to the directors of the date and time of such meeting, or, may be held at such other time and place as the Board shall have ordered at any previous meeting. 2 Section 6. Special Meetings: Notice and Waiver of Notice. Special meetings of the Board of Directors shall be called by the Secretary on the request of the Chairman, or in the absence of the Chairman, the President, or in the absence of the Chairman and the President, any Vice Chairman, or on the request in writing of any three directors stating the purpose or purposes of such meeting. Notice of any special meeting, specifying the time and place of such meeting, shall be in form approved by the Chairman, or in the absence of the Chairman, the President, or in the absence of the Chairman and the President, such Vice Chairman, or if the meeting is called pursuant to the request of some other directors and there shall be a failure to approve the form of notice as aforesaid, then in form approved by such directors. Notice of special meetings shall be mailed to each director, addressed to him at his residence or usual place of business, not later than two days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, or be delivered personally or by telephone, not later than the day before such day of meeting. Whenever notice of any meeting of the Board of Directors is required to be given under any provision of law, the Certificate of Incorporation or the By-Laws, a written waiver thereof signed by the director entitled to notice, whether before, at, or after the time of such meeting, shall be deemed equivalent to notice. Attendance of a director at any meeting of the Board of Directors shall constitute a waiver of notice of such meeting, except when the director attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because such meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors or any committee thereof need be specified in any written waiver of notice. Section 7. Organization. The Chairman shall preside at all meetings of the Board of Directors and the Executive Committee of the Board of Directors (which Committee is provided for in Article IV and is hereinafter referred to as the "Executive Committee"). In the absence of the Chairman, the President or, in the absence of the Chairman and the President, the Vice Chairman, or if there be more than one Vice Chairman present, the one of them first appointed to such office, shall preside at all meetings of the Board of Directors and the Executive Committee. In the absence of the Chairman, the President and such Vice Chairman, a temporary chairman may be chosen by the members of the Board of Directors or of the Executive Committee present to preside at a meeting of the Board of Directors or of the Executive Committee, respectively. The Secretary of Citicorp shall act as the secretary at all meetings of the Board of Directors and of the Executive Committee and in his absence a temporary secretary shall be appointed by the chairman of the meeting. Section 8. Quorum and Manner of Acting. At every meeting of the Board of Directors, four members of the Board of Directors, three of whom being U.S. citizens, shall constitute a quorum; and, except as otherwise provided by law, or by Section 1 of Article IV, the vote of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time, until a quorum is present. No notice of any adjourned meeting need be given other than by announcement at the meeting that is being adjourned. Section 9. Voting. On any question on which the Board of Directors or the Executive Committee shall vote, the names of those voting and their votes shall be entered in the minutes of the meeting when any member of the Board of Directors or the Executive Committee so requests. Section 10. Resignations. Any director may resign at any time either by oral tender of resignation at any meeting of the Board of Directors or by such tender to the Chairman, the President or any Vice Chairman, or by giving written notice thereof to Citicorp. Any resignation shall be effective immediately unless a date certain is specified for it to take effect. ARTICLE IV EXECUTIVE COMMITTEE Section 1. Constitution and Powers. There may be an Executive Committee which shall be constituted as provided in Section 2 of this Article IV. The Executive Committee shall have and may exercise, when the Board of Directors is not in session, all the powers and authority of the Board of Directors in the management of the business and affairs of Citicorp, including the power and authority to declare dividends and to authorize the issuance of stock and other securities of Citicorp, and may authorize the seal of Citicorp to be affixed to all papers which may require it; but the Executive Committee shall not have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of Citicorp's property and assets, recommending to the stockholders a dissolution of Citicorp or a revocation of a dissolution, or amending the By-Laws. 3 Section 2. Membership; Meetings; Quorum. The Executive Committee shall be composed of at least three directors. Meetings of the Committee shall be held upon call of the Chairman or any Vice Chairman. The vote of a majority of the members present shall suffice for the transaction of business. Section 3. Records. The Executive Committee shall keep minutes of its acts and proceedings, which shall be submitted at the next regular meeting of the Board of Directors at which a quorum is present, and any action taken by the Board of Directors with respect thereto shall be entered in the minutes of the Board of Directors. All acts done and powers conferred by the Executive Committee from time to time shall be deemed to be, and may be certified as being, done or conferred under authority of the Board. ARTICLE V OTHER COMMITTEES Section 1. Other Committees. The Board of Directors may, from time to time, appoint other committees which shall have such powers and duties as the Board of Directors may properly determine, and may appoint one of the members of any such other committee to be its chairman. A majority of the members of such other committees shall constitute a quorum, unless otherwise specified by the Board of Directors. Section 2. Place of Meetings: Notice and Waiver of Notice. Meetings of committees of the Board of Directors shall be held at the principal office of Citicorp or at such other places as the committee in question may, from time to time, determine, subject to the provisions of Section 2 of Article IV with respect to meetings of the Executive Committee. Meetings of any committee of the Board of Directors other than the Executive Committee may be called by the Chairman of such committee or by the Secretary at the request of any other member thereof. Notice of any meeting of any committee of the Board of Directors other than the Executive Committee shall be in form approved by the chairman of such committee, or if the meeting is called pursuant to the request of some other member of such committee and there is a failure to approve the form of notice as aforesaid, then in the form approved by such member. The provisions of Section 6 of Article III with respect to the giving and waiver of notice of special meetings of the Board of Directors shall also apply to all meetings of such other committee. ARTICLE VI THE OFFICERS Section 1. Officers. Citicorp shall have a Chairman or a President or both, may have one or more Vice Chairmen, one or more Corporate Executive Vice Presidents, one or more Executive Vice Presidents/Senior Corporate Officers, a Chairman Credit Policy Committee, one or more Senior Vice Presidents, and one or more Vice Presidents, and shall have a Secretary and a Chief Auditor; and such officers shall be appointed by the Board of Directors, which may establish senior officer positions equivalent to and having duties and powers the same as these officers. The Board of Directors may also appoint one or more Assistant Secretaries and such other officers and agents as in their judgment the business of Citicorp may require, and any such officers may be appointed, subject to the authority of the Board of Directors, by the Chairman, the President, or any Vice Chairman. Section 2. Term of Office. All officers shall hold office during the pleasure of and until removed by the Board of Directors, or, in the case of officers who may be appointed by the Chairman, the President, or any Vice Chairman, until removed by one of them or by the Board of Directors. Section 3. Resignations. Any officer may resign at any time, either by oral tender of resignation to the Chairman, the President, or any Vice Chairman or by giving written notice thereof to Citicorp. Any resignation shall be effective immediately unless a date certain is specified for it to take effect. Section 4. The Chairman. The Chairman shall be the Chief Executive Officer of Citicorp, and shall have general executive powers as well as the specific powers conferred by these By-Laws. He shall preside at meetings of the Board of Directors and the Executive Committee and at meetings of the stockholders. Section 5. The President. In the absence of a Chairman, the President shall be the Chief Executive Officer of Citicorp, and shall have general executive powers as well as the specific powers conferred by these By-Laws. In the absence 4 of the Chairman, the President shall exercise the powers and duties of the Chairman related to meetings of the Board of Directors and the Executive Committee and meetings of the stockholders. Section 6. The Vice Chairmen. In the absence of the Chairman and the President, and in the order of their appointment to the office, the Vice Chairmen shall exercise the powers and duties of the Chairman related to meetings of the Board of Directors and the Executive Committee and meetings of the stockholders. The Vice Chairmen shall have general executive powers as well as the specific powers conferred by these By-Laws. Each of them shall also have such powers and duties as may from time to time be assigned by the Board of Directors, the Chairman, or the President. Section 7. The Corporate Executive Vice Presidents. Each Corporate Executive Vice President shall have general executive powers as well as the specific powers conferred by these By-Laws. Each Corporate Executive Vice president shall also have such further powers and duties as may from time to time be assigned to him by the Board of Directors, the Chairman, the President, or any Vice Chairman. Section 8. The Executive Vice Presidents/Senior Corporate Officers. Each Executive Vice President/Senior Corporate Officer shall have general executive powers as well as the specific powers conferred by these By-Laws. Each Executive Vice President/Senior Corporate Officer shall also have such further powers and duties as may from time to time be assigned to him by the Board of Directors, the Chairman, the President, or any Vice Chairman. Section 9. The Chairman Credit Policy Committee. The Board of Directors may appoint a Chairman Credit Policy Committee, who shall have general responsibilities in connection with the formation and administration of the credit policies of Citicorp. He shall have general executive powers, as well as the specific powers conferred by these By-Laws. He shall also have such further powers and duties as may from time to time be assigned to him by the Board of Directors, the Chairman, or the President. Section 10. The Senior Vice Presidents. Each Senior Vice President shall have general executive powers as well as the specific powers conferred by these By-Laws. Each Senior Vice President shall also have such further powers and duties as may from time to time be assigned to him by the Board of Directors, the Chairman, the President, or any Vice Chairman. Section 11. The Vice Presidents. The several Vice Presidents shall perform such duties and have such powers as may from time to time be assigned to them by the Board of Directors, the Chairman, the President, or any Vice Chairman. Section 12. The Secretary. The Secretary shall attend to the giving of notice of all meetings of stockholders and of the Board of Directors and committees thereof, as provided in Section 4 of Article II and Section 6 of Article III, and shall keep minutes of all proceedings at meetings of the stockholders, of the Board of Directors and of the Executive Committee, as well as of all proceedings at all meetings of other regular committees of the Board of Directors. He shall have charge of the corporate seal and shall have authority to attest any and all instruments or writings to which the same may be affixed. He shall have charge of the stock ledger and shall keep and account for all books, documents, papers and records of Citicorp, except those for which some other officer or agent is properly accountable. He shall generally perform all the duties usually appertaining to the office of Secretary of a corporation. In the absence of the Secretary, such person as shall be designated by the Chairman, the President or any Vice Chairman shall perform his duties. Section 13. The Chief Auditor. The Board of Directors shall appoint a Chief Auditor, who shall be the chief auditing officer of Citicorp. She shall continuously examine the affairs of Citicorp, and shall report to the Board of Directors. She shall have and may exercise the powers and duties as from time to time may be conferred upon, or assigned to him by the Board of Directors. ARTICLE VII STOCK AND TRANSFERS OF STOCK Section 1. Stock Certificates. The stock of Citicorp shall be represented by certificates signed by the Chairman or the President and the Secretary or an Assistant Secretary. Where any such certificate is countersigned by a Transfer Agent, other than Citicorp or its employee, or by a Registrar, other than Citicorp or its employee, any other signature 5 on such certificate may be a facsimile, engraved, stamped or printed. In case any such officer, Transfer Agent or Registrar who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer, Transfer Agent or Registrar before such certificate is issued, it may be issued by Citicorp with the same effect as if such officer, Transfer Agent or Registrar were such officer, Transfer Agent or Registrar at the date of its issue. The certificates representing the stock of Citicorp shall be in such form as shall be approved by the Board of Directors. Section 2. Transfer Agents and Registrars. The Board of Directors may, in its discretion, appoint one or more banks or trust companies in the Borough of Manhattan, City, County and State of New York, and in such other city or cities as the Board of Directors may deem advisable, including any banking subsidiaries of Citicorp, from time to time, to act as Transfer Agents and Registrars of the stock of Citicorp; and upon such appointments being made, no stock certificate shall be valid until countersigned by one of such Transfer Agents and registered by one of such Registrars. Section 3. Transfers of Stock. Transfers of stock shall be made on the books of Citicorp only by the person named in the certificate, or by attorney lawfully constituted in writing, and upon surrender and cancellation of a certificate or certificates for a like number of shares of the same class of stock, with duly executed assignment and power of transfer endorsed thereon or attached hereto, and with such proof of the authenticity of the signatures as Citicorp or its agents may reasonably require. No transfer of stock other than on the records of Citicorp shall affect the right of Citicorp to pay any dividend upon the stock to the holder of record thereof or to treat the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the records of Citicorp. Section 4. Lost Certificates. In case any certificate of stock shall be lost, stolen or destroyed, the Board of Directors, in its discretion, or any officer or officers or any agent or agents thereunto duly authorized by the Board of Directors, may authorize the issue of a substitute certificate in place of the certificate so lost, stolen or destroyed, and may cause or authorize such substitute certificate to be countersigned by the appropriate Transfer Agent (or where such duly authorized agent is the Transfer Agent may itself countersign) and registered by the appropriate Registrar; provided, however, that, in each such case, the applicant for a substitute certificate shall furnish to Citicorp and to such of its Transfer Agents and Registrars as may require the same, evidence to their satisfaction, in their discretion, of the loss, theft or destruction of such certificate and of the ownership thereof, and also such security or indemnity as may by them be required. ARTICLE VIII CORPORATE SEAL Section 1. Seal. The seal of Citicorp shall be in such form as may be approved, from time to time, by the Board of Directors. Section 2. Affixing and Attesting. The seal of Citicorp shall be in the custody of the Secretary, who shall have power to affix it to the proper corporate instruments and documents, and who shall attest it. In his absence, it may be affixed and attested by an Assistant Secretary or by any other person or persons as may be designated by the Board of Directors or the Secretary. ARTICLE IX MISCELLANEOUS Section 1. Fiscal Year. The fiscal year of Citicorp shall be the calendar year. Section 2. Signatures on Negotiable Instruments. All bills, notes, checks or other instruments for the payment of money shall be signed or countersigned by such officers or agents and in such manner as, from time to time, may be prescribed by resolution (whether general or special) of the Board of Directors, or may be prescribed by any officer or officers, or any officer and agent jointly, thereunto duly authorized by the Board of Directors. Section 3. Execution of Contracts and Other Instruments. The Chairman, the President, any Vice Chairman, any Corporate Executive Vice President, any Executive Vice President/Senior Corporate Officer, the Chairman Credit Policy Committee, any Senior Vice President, any Vice President, the Secretary, and the Chief Auditor, or anyone holding a position equivalent to the foregoing pursuant to provisions of these By-Laws, shall each have general authority to execute contracts, 6 bonds, deeds and powers of attorney in the name of and on behalf of Citicorp. Any contract, bond, deed or power of attorney may also be executed in the name of and on behalf of Citicorp by such other officer or such other agent as the Board of Directors may from time to time direct. The provisions of this Section 3 are supplementary to any other provisions of these By-Laws. Section 4. Shares of Other Corporations. The Chairman, the President, any Vice Chairman, any Corporate Executive Vice President, any Executive Vice President/Senior Corporate Officer, the Chairman Credit Policy Committee, any Senior Vice President, any Vice President, and the Secretary, or anyone holding a position equivalent to the foregoing pursuant to provisions of these By-Laws, is each authorized to vote, represent and exercise on behalf of Citicorp, all rights incident to any and all shares of any other corporation or corporations standing in the name of Citicorp. The authority herein granted to said officer to vote or represent on behalf of Citicorp any and all shares held by Citicorp in any other corporation or corporations may be exercised by said officer in person or by any person authorized so to do by proxy or power of attorney duly executed by said officer. Notwithstanding the above, however, the Board of Directors, in its discretion, may designate by resolution the person to vote or represent said shares of other corporations. Section 5. References to Article and Section Numbers and to the Certificate of Incorporation. Whenever in the By-Laws reference is made to an Article or Section number, such reference is to the number of an Article or Section of the By-Laws. Whenever in the By-Laws reference is made to the Certificate of Incorporation, such reference is to the Certificate of Incorporation of Citicorp, as amended. Section 6. Reference to Gender. A reference in these By-Laws to one gender, masculine, feminine, or neuter, includes the other two; and the singular includes the plural and vice versa unless the context otherwise requires. ARTICLE X AMENDMENTS The By-Laws may be altered, amended or repealed, and new By-Laws adopted, from time to time, by the Board of Directors at any regular or special meeting. 7 The undersigned, duly qualified and acting Secretary of Citicorp, a Delaware corporation, hereby certifies the foregoing to be a true and complete copy of the By-Laws of the said Citicorp, as at present in force and effect. WITNESS, the hand of the undersigned and the seal of the said Citicorp, this............... day of ....................................,................ ........................................ 8 EX-12.01 3 EXHIBIT 12.01 CITICORP CALCULATION OF RATIO OF INCOME TO FIXED CHARGES (In Millions) YEAR ENDED DECEMBER 31, EXCLUDING INTEREST ON DEPOSITS: 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ FIXED CHARGES: INTEREST EXPENSE (OTHER THAN INTEREST ON DEPOSITS) 3,925 4,162 4,042 3,911 4,574 INTEREST FACTOR IN RENT EXPENSE 205 190 169 159 150 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES 4,130 4,352 4,211 4,070 4,724 ------ ------ ------ ------ ------ INCOME: INCOME BEFORE TAXES 8,293 4,916 6,109 6,377 5,929 FIXED CHARGES 4,130 4,352 4,211 4,070 4,724 ------ ------ ------ ------ ------ TOTAL INCOME 12,423 9,268 10,320 10,447 10,653 ====== ====== ====== ====== ====== RATIO OF INCOME TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS 3.01 2.13 2.45 2.57 2.26 ====== ====== ====== ====== ====== INCLUDING INTEREST ON DEPOSITS: FIXED CHARGES: INTEREST EXPENSE 14,700 15,671 13,655 12,885 13,476 INTEREST FACTOR IN RENT EXPENSE 205 190 169 159 150 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES 14,905 15,861 13,824 13,044 13,626 ------ ------ ------ ------ ------ INCOME: INCOME BEFORE TAXES 8,293 4,916 6,109 6,377 5,929 FIXED CHARGES 14,905 15,861 13,824 13,044 13,626 ------ ------ ------ ------ ------ TOTAL INCOME 23,198 20,777 19,933 19,421 19,555 ====== ====== ====== ====== ====== RATIO OF INCOME TO FIXED CHARGES INCLUDING INTEREST ON DEPOSITS 1.56 1.31 1.44 1.49 1.44 ====== ====== ====== ====== ====== On August 4, 1999, CitiFinancial Credit Company (CCC), an indirect wholly-owned subsidiary of Citigroup Inc., became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. Citicorp has issued a guarantee of all outstanding long-term debt and commercial paper of CCC. All prior periods have been restated to include the results of CCC. EX-12.02 4 EXHIBIT 12.02 CITICORP, INC. CALCULATION OF RATIO OF INCOME TO FIXED CHARGES INCLUDING PREFERRED STOCK DIVIDENDS
(In Millions) YEAR ENDED DECEMBER 31, EXCLUDING INTEREST ON DEPOSITS: 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ FIXED CHARGES: INTEREST EXPENSE (OTHER THAN INTEREST ON DEPOSITS) 3,925 4,162 4,042 3,911 4,574 INTEREST FACTOR IN RENT EXPENSE 205 190 169 159 150 DIVIDENDS--PREFERRED STOCK -- (A) 126 (A) 223 261 553 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES 4,130 4,478 4,434 4,331 5,277 ------ ------ ------ ------ ------ INCOME: INCOME BEFORE TAXES 8,293 4,916 6,109 6,377 5,929 FIXED CHARGES (EXCLUDING PREFERRED STOCK DIVIDENDS) 4,130 4,352 4,211 4,070 4,724 ------ ------ ------ ------ ------ TOTAL INCOME 12,423 9,268 10,320 10,447 10,653 ====== ====== ====== ====== ====== RATIO OF INCOME TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS 3.01 2.07 2.33 2.41 2.02 ====== ====== ====== ====== ====== INCLUDING INTEREST ON DEPOSITS: FIXED CHARGES: INTEREST EXPENSE 14,700 15,671 13,655 12,885 13,476 INTEREST FACTOR IN RENT EXPENSE 205 190 169 159 150 DIVIDENDS--PREFERRED STOCK -- (A) 126 223 261 553 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES 14,905 15,987 14,047 13,305 14,179 ------ ------ ------ ------ ------ INCOME: INCOME BEFORE TAXES 8,293 4,916 6,109 6,377 5,929 FIXED CHARGES (EXCLUDING PREFERRED STOCK DIVIDENDS) 14,905 15,861 13,824 13,044 13,626 ------ ------ ------ ------ ------ TOTAL INCOME 23,198 20,777 19,933 19,421 19,555 ====== ====== ====== ====== ====== RATIO OF INCOME TO FIXED CHARGES INCLUDING INTEREST ON DEPOSITS 1.56 1.30 1.42 1.46 1.38 ====== ====== ====== ====== ======
Note> On August 4, 1999, CitiFinancial Credit Company (CCC), an indirect wholly-owned subsidiary of Citigroup Inc., became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. Citicorp has issued a guarantee of all outstanding long-term debt and commercial paper of CCC. All prior periods have been restated to include the results of CCC. (A) On October 8, 1998, Citicorp merged with an into a newly formed, wholly-owned subsidiary of Travelers Group Inc. (Travelers) (the Merger). Following the Merger, Travelers changed its name to Citigroup Inc. Under the terms of the Merger, Citicorp common and preferred stock were exchanged for Citigroup common stock and preferred stock. As such, there were no Citicorp preferred dividends in 1999. EX-23.01 5 EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Citicorp: We consent to the incorporation by reference in the Registration Statements of Citicorp on Form S-3: Nos. 33-33238, 33-59791, 33-64574, 333-14917, 333-20803, 333-21143, 333-32065 and 333-83741; and of Citicorp Mortgage Securities, Inc., Citibank, N.A., and other affiliates, on Form S-3: Nos. 33-66222, 333-43167, and 333-72459, and on Form S-11: Nos. 33-6979, 33-6358, 33-36313, and 33-34670, of our report dated January 18, 2000 with respect to the consolidated balance sheets of Citicorp and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and the related consolidated balance sheets of Citibank, N.A. and subsidiaries as of December 31, 1999 and 1998, which report is included in the 1999 Citicorp annual report on Form 10-K for the year ended December 31, 1999. /s/ KPMG LLP - ----------------------- KPMG LLP New York, New York March 13, 2000 EX-27.01 6 EXHIBIT 27.01
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITICORP'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURES. 0000020405 CITICORP 1999 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 11,385 12,095 6,048 31,540 46,592 0 0 245,453 6,679 388,570 260,713 25,096 13,204 26,443 0 0 0 26,047 388,570 22,927 3,670 2,645 29,242 10,775 14,700 14,542 2,837 332 6,756 8,293 5,195 0 0 5,195 0 0 4.77 3,592 1,184 43 0 6,617 3,474 656 6,679 0 0 0 On August 4, 1999, CitiFinancial Credit Company (CCC) (Formerly Commercial Credit Company), an indirect wholly-owned subsidiary of Citigroup, became a subsidiary of Citicorp Banking Corporation, a wholly-owned subsidiary of Citicorp. In connection with the restructuring of CCC, Citicorp issued a guarantee of all outstanding long-term debt ($6.05 billion) and commercial paper ($3.75 billion) of CCC. The information included in this exhibit reflects the results of CCC for the full year. Includes Securities Purchased Under Resale Agreements. Allowance activity for 1999 includes $43MM in other changes, principally foreign currency translation effects. Purchased Funds and Other Borrowings. On October 8, 1998, Citicorp merged with and into a newly formed, wholly-owned subsidiary of Travelers Group Inc. (Travelers) (the Merger). Following the Merger, Travelers changed its name to Citigroup Inc. (Citigroup). Under the terms of the Merger, Citicorp Common and Preferred Stock were exchanged for Citigroup Common and Preferred Stock. Taxable Equivalent Basis. Includes $1,362MM of cash-basis commercial loans and $2,230MM of consumer loans on which accrual of interest has been suspended. Accruing loans 90 or more days delinquent. No portion of Citicorp's credit loss allowance is specifically allocated to any individual loan or group of loans.
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