-----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, IrMpEUWs7/GM7vgPDxHEYN4pVX9ek5XGrEhMDWRCEm8aJpQ6I8ZtcQkda7uLuJhy Ee4eYGbTiSxGdjJPCZPeMQ== 0001005477-99-003636.txt : 19990816 0001005477-99-003636.hdr.sgml : 19990816 ACCESSION NUMBER: 0001005477-99-003636 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITICORP CENTRAL INDEX KEY: 0000020405 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 061515595 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05738 FILM NUMBER: 99686830 BUSINESS ADDRESS: STREET 1: 399 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10043 BUSINESS PHONE: 2125591000 MAIL ADDRESS: STREET 1: 425 PARK AVE- 2ND F STREET 2: ATTN: LEGAL AFFAIRS OFFICE CITY: NEW YORK STATE: NY ZIP: 10043 FORMER COMPANY: FORMER CONFORMED NAME: FIRST NATIONAL CITY CORP DATE OF NAME CHANGE: 19740414 FORMER COMPANY: FORMER CONFORMED NAME: CITY BANK OF NEW YORK NATIONAL ASSOCIATI DATE OF NAME CHANGE: 19680903 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file number 1-9924 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 executive offices) (Zip Code) (800) 285-3000 (Registrant's telephone number, including area code) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |x| No |_| 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. REDUCED DISCLOSURE FORMAT The Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Citicorp TABLE OF CONTENTS Part I -- Financial Information Item 1. Financial Statements: Page No. -------- Consolidated Statements of Income (Unaudited) -- Three and Six Months Ended June 30, 1999 and 1998 23 Consolidated Balance Sheets -- June 30, 1999 (Unaudited) and December 31, 1998 24 Consolidated Statements of Changes in Stockholder's Equity (Unaudited) -- Six Months Ended June 30, 1999 and 1998 25 Consolidated Statements of Cash Flows (Unaudited) -- Six Months Ended June 30, 1999 and 1998 26 Consolidated Balance Sheets of Citibank, N.A. and Subsidiaries -- June 30, 1999 (Unaudited) and December 31, 1998 27 Notes to Consolidated Financial Statements (Unaudited) 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 1-22 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17-19 30-32 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 38 Signatures 39 Exhibit Index 40 CITICORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS BUSINESS FOCUS The table below shows the business income (loss) for each of Citicorp's businesses:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------------------------------------- In millions of dollars 1999 1998 (1) 1999 1998 (1) - ------------------------------------------------------------------------------------------------------------------------------------ Global Consumer Citibanking North America $ 106 $ 37 $ 180 $ 62 Mortgage Banking 53 50 113 100 Cards 262 127 524 281 ---------------------------------------------------------------------- Total North America 421 214 817 443 ---------------------------------------------------------------------- Europe, Middle East, and Africa 78 56 152 107 Asia Pacific 108 86 210 169 Latin America 44 37 92 80 Global Private Bank 73 64 130 122 ---------------------------------------------------------------------- Total International 303 243 584 478 ---------------------------------------------------------------------- e-Citi (44) (37) (80) (67) Other (27) (11) (41) (10) ---------------------------------------------------------------------- Total Global Consumer 653 409 1,280 844 ---------------------------------------------------------------------- Global Corporate Emerging Markets 295 242 615 502 Global Relationship Banking 158 239 360 399 ---------------------------------------------------------------------- Total Global Corporate 453 481 975 901 ---------------------------------------------------------------------- Asset Management (4) 7 3 16 Corporate/Other (48) (85) (103) (196) ---------------------------------------------------------------------- Business Income 1,054 812 2,155 1,565 ---------------------------------------------------------------------- Investment Activities 142 288 214 603 ---------------------------------------------------------------------- Core Income 1,196 1,100 2,369 2,168 ---------------------------------------------------------------------- Restructuring-Related Items, After-Tax (2) (29) -- (77) -- ---------------------------------------------------------------------- Net Income $1,167 $1,100 $2,292 $2,168 - --------------------------------------------------------------======================================================================
(1) The 1998 results have been restated to reflect changes in capital and tax allocations among the segments to conform the policies of Citicorp and Travelers Group Inc. (2) See Note 5 of Notes to Consolidated Financial Statements. - -------------------------------------------------------------------------------- 1 INCOME ANALYSIS The income analysis reconciles amounts shown in the Consolidated Statements of Income to the basis employed by management for assessing financial results.
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------------------------------------- In millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues, Net of Interest Expense $6,569 $6,202 $13,011 $11,807 Effect of Credit Card Securitization Activity 567 579 1,152 1,040 ---------------------------------------------------------------------- Adjusted Revenues, Net of Interest Expense 7,136 6,781 14,163 12,847 ---------------------------------------------------------------------- Total Operating Expenses 4,016 3,878 8,022 7,267 Restructuring-Related Items (47) -- (124) -- ---------------------------------------------------------------------- Adjusted Operating Expenses 3,969 3,878 7,898 7,267 ---------------------------------------------------------------------- Provision for Credit Losses 681 564 1,314 1,071 Effect of Credit Card Securitization Activity 567 579 1,152 1,040 ---------------------------------------------------------------------- Adjusted Provision for Credit Losses 1,248 1,143 2,466 2,111 ---------------------------------------------------------------------- Core Income Before Income Taxes 1,919 1,760 3,799 3,469 Taxes on Core Income 723 660 1,430 1,301 ---------------------------------------------------------------------- Core Income 1,196 1,100 2,369 2,168 Restructuring-Related Items, After-Tax (29) -- (77) -- ---------------------------------------------------------------------- Net Income $1,167 $1,100 $ 2,292 $ 2,168 - --------------------------------------------------------------======================================================================
Results of Operations Citicorp, a wholly-owned subsidiary of Citigroup Inc., reported core income of $1.196 billion in the 1999 second quarter, up $96 million or 9% from $1.100 billion in the 1998 second quarter. Core income in the 1999 second quarter excluded a charge of $29 million related to after-tax restructuring-related items. Net income for the 1999 second quarter including the charge was $1.167 billion, up $67 million or 6% from $1.100 billion in the year-ago quarter. Core income for the 1999 six months of $2.369 billion was up $201 million or 9% from $2.168 billion for the 1998 six months. Core income in the 1999 six months excluded a charge of $77 million related to after-tax restructuring-related items. Net income for the 1999 six months including the charge was $2.292 billion, up $124 million or 6% from a year ago. Excluding the charge, core income return on common equity was 20.5% and 20.6% for the 1999 second quarter and six months, compared to 21.7% and 21.9% for the 1998 periods. Core income growth in the quarter was led by a $244 million or 60% increase in Global Consumer to $653 million and a $37 million or 44% improvement in Corporate/Other. Partially offsetting these results was a decrease of $28 million or 6% in Global Corporate to $453 million and a decrease of $146 million or 51% to $142 million in Investment Activities, primarily reflecting lower revenues from sales of Brazilian Brady Bonds and other proprietary investments, partially offset by an increase in U.S. venture capital revenues. For the six month period, Global Consumer was up 52% to $1.280 billion, Global Corporate was up 8% to $975 million, and Corporate/Other improved by 47%. Partially offsetting these improvements was a core income decrease of $389 million or 65% in Investment Activities to $214 million reflecting lower revenues from sales of Brazilian Brady Bonds and other proprietary investments, and reduced venture capital revenues, and a $13 million decrease to $3 million in Citibank Asset Management ("Asset Management"). Global Consumer core income in both the quarter and six months reflected strong growth in virtually all businesses, particularly in North America where Cards core income of $262 million and $524 million in the 1999 second quarter and six months grew $135 million or 106% and $243 million or 86%, from the prior year comparable periods, and Citibanking North America core income of $106 million and $180 million, nearly tripled from the prior year levels. Core income in the International businesses grew 25% to $303 million and 22% to $584 million in the 1999 second quarter and six months, led primarily by growth in Europe, Middle East, and Africa ("EMEA") and Asia Pacific. Global Consumer core income growth was achieved even as spending continued on global advertising and marketing initiatives and on the technological enhancements of e-Citi. In Global Corporate, core income in Emerging Markets was up 22% and 23% in the quarterly and six month comparisons to $295 million and $615 million, as revenue growth and expense discipline more than offset higher credit costs. Global Relationship Banking was down $81 million or 34% to $158 million, and down $39 million or 10% to $360 million for the 1999 second quarter and six months, due to $104 million of real estate items in the 1998 periods. Adjusted revenues, net of interest expense, of $7.1 billion and $14.2 billion in the 1999 second quarter and six months were up $355 million or 5% and $1.3 billion or 10% compared to the 1998 periods. Global Consumer second quarter revenues increased strongly in all sectors, and were $4.6 billion and $9.2 billion in the 1999 second quarter and six months, up $502 million or 12% and $1.4 billion or 18% from the comparable 1998 periods. Revenue growth in both the 1999 second quarter and six months was led by the International businesses, up 17% and 18% in the quarterly and six month comparisons to $1.9 billion and $3.7 billion, and by Cards, up 9% and 23% to $2.0 billion and $3.9 billion in the 1999 second quarter and six months. Consumer growth was driven largely by volume growth in customers and accounts in virtually all business lines, complemented by strategic acquisitions. Global Corporate revenues of $2.1 billion and $4.3 billion in the 1999 second quarter and six months were down $28 million or 1% from the 1998 2 second quarter and up $251 million or 6% from the 1998 six months. Emerging Markets revenues increased 12% and 15% to $1.1 billion and $2.2 billion in the 1999 second quarter and six months driven by increased revenues in loans and securities transactions in the quarter and by higher foreign exchange and trading and loan revenues in the six months, and revenue in Global Relationship Banking decreased 12% to $1.0 billion and 2% to $2.1 billion in the quarterly and six month comparisons including $132 million of real estate gains in the 1998 periods. Asset Management segment revenues of $81 million and $181 million for the 1999 second quarter and six months were down $9 million and up $3 million from the comparable 1998 periods. Corporate/Other revenues of $80 million in the quarter and $138 million for the six months were up $103 million and $212 million from 1998 as funding costs declined. The $213 million decrease in the 1999 second quarter and $565 million decrease in the first half in Investment Activities revenues to $233 million and $356 million was a result of lower securities transactions and reduced venture capital revenues in the six month period. Adjusted net interest revenues, including the effect of credit card securitization, of $4.3 billion and $8.6 billion for the 1999 second quarter and six months were up $406 million or 10% and $1.3 billion or 17% from the 1998 periods, reflecting business volume growth in most markets and Global Consumer acquisitions. Adjusted fees and commissions revenues of $1.8 billion and $3.4 billion were up $212 million or 13% and $430 million or 14%, primarily as a result of higher fees in Global Consumer and Global Relationship Banking businesses. Foreign exchange and trading revenues of $506 million and $1.3 billion were down $57 million or 10% in the quarter and up $150 million or 13% in the six months. The decline in the quarter reflects high 1998 second quarter foreign exchange and trading revenues in Asia; while the improvement in the six month comparison reflects increases in Latin America, partially offset by a decline in Asia. Venture capital revenues of $195 million and $333 million in the 1999 second quarter and six months were up $24 million and down $102 million from the 1998 periods. Aggregate securities transactions and net asset gains were down $239 million to $259 million in the quarter and down $473 million to $297 million in the six months, reflecting lower levels of investment sales. Adjusted operating expenses, which exclude the restructuring-related items, of $4.0 billion and $7.9 billion for the 1999 second quarter and six months were up $91 million or 2% and $631 million or 9% from the 1998 periods. Expenses increased in Global Consumer by 4% and 12% in the quarterly and six month comparisons, primarily reflecting the acquisitions in Latin America and North America, global advertising and marketing initiatives and electronic financial services development efforts, partially offset by expense reduction initiatives. Global Corporate expenses were down 5% in the quarter and were flat in the six month comparison, reflecting business integration initiatives with Salomon Smith Barney ("SSB") and lower costs related to the European Economic Monetary Union ("EMU") and Year 2000. Restructuring-related items in the 1999 second quarter and six months included a $47 million and $124 million pre-tax charge ($29 million and $77 million after-tax) of accelerated depreciation related to the 1998 actions. See Note 5 of Notes to Consolidated Financial Statements for additional details. Adjusted provision for credit losses was $1.2 billion and $2.5 billion in the 1999 second quarter and six months, up $105 million or 9% and $355 million or 17% from the 1998 periods. Global Consumer adjusted provision for credit losses of $1.1 billion and $2.2 billion, were up 2% and 11% in the quarter and six months. The increase in the six month period reflects the acquisition of Universal Card Services ("UCS"), which was acquired in April 1998. The ratio of net credit losses to average managed loans was 2.62% in the quarter, compared to 2.64% in the preceding quarter and 2.87% in the 1998 second quarter. The managed consumer loan delinquency ratio (90 days or more past due) decreased to 2.06% from 2.16% for the preceding quarter and 2.18% a year ago. Global Corporate provision for credit losses of $110 million and $221 million in the 1999 second quarter and six months increased $82 million and $128 million, reflecting increased losses in Emerging Markets and reduced recoveries in Global Relationship Banking. Commercial cash-basis loans and other real estate owned of $1.7 billion at quarter-end were up 3% from a year earlier and 2% from the preceding quarter. The provision for credit losses as shown on the Consolidated Statement of Income was $681 million and $1.3 billion in the 1999 second quarter and six months, up $117 million and $243 million from the 1998 periods, reflecting the items described above. Total capital (Tier 1 and Tier 2) was $34.8 billion or 12.52% of net risk-adjusted assets, and Tier 1 capital was $24.0 billion or 8.63% at June 30, 1999, compared to $33.8 billion or 12.15% and $23.2 billion or 8.35% at March 31, 1999. 3 GLOBAL CONSUMER
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $4,080 $3,566 14 $8,016 $6,713 19 Effect of credit card securitization activity 567 579 (2) 1,152 1,040 11 -------------------------------- ------------------------------- Adjusted revenues, Net of interest expense 4,647 4,145 12 9,168 7,753 18 -------------------------------- ------------------------------- Adjusted operating expenses (1) 2,454 2,363 4 4,861 4,349 12 -------------------------------- ------------------------------- Provision for credit losses 571 536 7 1,093 988 11 Effect of credit card securitization activity 567 579 (2) 1,152 1,040 11 -------------------------------- ------------------------------- Adjusted provision for credit losses 1,138 1,115 2 2,245 2,028 11 -------------------------------- ------------------------------- Core income before taxes 1,055 667 58 2,062 1,376 50 Income taxes 402 258 56 782 532 47 -------------------------------- ------------------------------- Core income 653 409 60 1,280 844 52 Restructuring-related items, after-tax 18 -- NM 55 -- NM -------------------------------- ------------------------------- Net income $ 635 $ 409 55 $1,225 $ 844 45 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $160 $142 13 $158 $138 14 Return on assets 1.59% 1.16% 1.56% 1.23% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.64% 1.16% 1.63% 1.23% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Global Consumer -- which provides banking and lending products and services, including credit and charge cards, to customers around the world -- reported core income of $653 million and $1.280 billion in the 1999 second quarter and six months, up $244 million or 60% and $436 million or 52% from the 1998 periods, reflecting strong growth in virtually all businesses, particularly in Cards where core income increased $135 million or 106% in the quarter and $243 million or 86% in the six months and in Citibanking where core income increased $69 million or 186% and $118 million or 190% from the 1998 periods. Core income in the International businesses grew 25% and 22% in the quarter and six months, reflecting increases in Europe, Middle East and Africa and Asia Pacific, and the effect of certain acquisitions in Latin America. Global Consumer core income growth was achieved even as spending continued on global advertising and marketing initiatives and on the technological enhancements of e-Citi. Net income of $635 million and $1.225 billion in the 1999 second quarter and six months included restructuring-related items of $18 million ($30 million pretax) and $55 million ($89 million pretax). North America Citibanking North America
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $532 $535 (1) $1,053 $1,026 3 Adjusted operating expenses (1) 329 438 (25) 693 851 (19) Provision for credit losses 18 30 (40) 45 61 (26) -------------------------------- ------------------------------- Core income before taxes 185 67 176 315 114 176 Income taxes 79 30 163 135 52 160 -------------------------------- ------------------------------- Core income 106 37 186 180 62 190 Restructuring-related items, after-tax 5 -- NM 19 -- NM -------------------------------- ------------------------------- Net income $101 $ 37 173 $ 161 $ 62 160 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $10 $10 -- $10 $10 -- Return on assets 4.05% 1.48% 3.25% 1.25% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 4.25% 1.48% 3.63% 1.25% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Citibanking North America -- which delivers banking services to customers through Citibank's branch network and electronic delivery systems -- reported core income of $106 million and $180 million in the 1999 second quarter and six months, up from $37 million and $62 million in the 1998 periods principally due to expense reduction initiatives. Net income of $101 million and $161 million in the 1999 second quarter and six months included restructuring-related items of $5 million ($9 million pretax) and $19 million ($31 million pretax). 4 As shown in the following table, Citibanking grew accounts and customers deposits from 1998. The decline in loans reflects a decrease in home equity loans due to increased industry-wide mortgage refinancing activity. See Mortgage Banking results and activity below.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % -------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) 6.4 6.0 7 6.4 6.0 7 Average customer deposits $42.2 $39.4 7 $41.9 $39.2 7 Average loans 8.1 8.3 (2) 8.1 8.4 (4) - -----------------------------------------===========================================================================================
Revenues, net of interest expense, of $532 million and $1.053 billion in the 1999 second quarter and six months declined slightly in the quarter, but increased $27 million or 3% year-to-date, reflecting higher investment product fees and commissions and growth in customer deposits, offset by reduced spreads and lower loan volumes. Revenue growth was also reduced by a 1998 second quarter gain of approximately $25 million related to a building lease buyout. Adjusted operating expenses declined $109 million or 25% and $158 million or 19% from the 1998 periods, reflecting expense management initiatives that significantly reduced staff expenses and other fixed costs. The provision for credit losses improved to $18 million and $45 million in the 1999 second quarter and six months from $30 million and $61 million in the 1998 periods. The net credit loss ratio of 1.31% in the quarter declined from 1.49% a year ago. Loans delinquent 90 days or more of $96 million or 1.20% at June 30, 1999 declined from $119 million or 1.39% in 1998. The declines in the provision for credit losses and delinquencies reflect continued improvement in the portfolio and a decline in loan volumes. Mortgage Banking
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $183 $152 20 $352 $306 15 Total operating expenses 87 61 43 151 120 26 Provision for credit losses 5 9 (44) 8 22 (64) -------------------------------- ------------------------------- Income before taxes 91 82 11 193 164 18 Income taxes 38 32 19 80 64 25 -------------------------------- ------------------------------- Net income $ 53 $ 50 6 $113 $100 13 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $29 $25 16 $28 $25 12 Return on assets 0.73% 0.80% 0.81% 0.81% - -----------------------------------------===========================================================================================
Mortgage Banking -- which provides mortgages and student loans to customers across North America -- reported net income of $53 million and $113 million in the 1999 second quarter and six months, up $3 million or 6% and $13 million or 13% from the 1998 periods, reflecting growth in student loans and continued credit improvement in the mortgage portfolio. The April 1999 acquisition of the principal operating assets and certain liabilities of Source One Mortgage Services Corporation ("Source One") contributed a net loss of approximately $4 million in the quarter, however, this acquisition is expected to be accretive to earnings in 1999. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 17. As shown in the following table, accounts, loans, and mortgage originations increased in both the 1999 second quarter and six months reflecting business growth, including the effect of the Source One acquisition.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) (1) 3.0 2.5 20 3.0 2.5 20 Average loans (1) $27.3 $23.7 15 $26.9 $23.6 14 Mortgage originations 4.8 4.0 20 8.6 6.9 25 - -----------------------------------------===========================================================================================
(1) Includes student loans. - -------------------------------------------------------------------------------- Revenues, net of interest expense, of $183 million and $352 million in the 1999 second quarter and six months grew $31 million or 20% and $46 million or 15% from the 1998 periods, reflecting higher mortgage revenues, including the effect of the Source One acquisition, and growth in the student loan portfolio. Operating expenses of $87 million and $151 million in the 1999 quarter and six months were up $26 million or 43% and $31 million or 26%, reflecting the Source One acquisition. The provision for credit losses of $5 million and $8 million in the 1999 second quarter and six months declined from $9 million and $22 million in the 1998 periods. The net credit loss ratio of 0.17% in the quarter declined from 0.31% a year ago and the ratio of loans delinquent 90 days or more of 2.09% declined from 2.67% in 1998, reflecting continued improvement in the mortgage portfolio. 5 Cards
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $1,391 $1,217 14 $2,754 $2,147 28 Effect of credit card securitization activity 567 579 (2) 1,152 1,040 11 -------------------------------- ------------------------------- Adjusted revenues, net of interest expense 1,958 1,796 9 3,906 3,187 23 Total operating expenses 727 708 3 1,456 1,145 27 Adjusted provision for credit losses (1) 816 883 (8) 1,620 1,589 2 -------------------------------- ------------------------------- Income before taxes 415 205 102 830 453 83 Income taxes 153 78 96 306 172 78 -------------------------------- ------------------------------- Net income $ 262 $ 127 106 $ 524 $ 281 86 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars)(2) $26 $29 (10) $27 $26 4 Return on assets (3) 4.04% 1.76% 3.91% 2.18% - -----------------------------------------===========================================================================================
(1) On a managed basis. (2) Adjusted for the effect of credit card securitization, managed average assets for Cards were $72 billion in both the 1999 quarter and six months, compared to $66 billion and $58 billion in the 1998 periods. (3) Adjusted for the effect of credit card securitization, the return on managed assets for Cards was 1.46% and 0.77% in the second quarters of 1999 and 1998, and 1.47% and 0.98% for the six months of 1999 and 1998, respectively. - -------------------------------------------------------------------------------- Cards -- U.S. bankcards, Diners Club, and private label cards -- reported net income of $262 million and $524 million in the 1999 second quarter and six months, up $135 million or 106% and $243 million or 86% from the 1998 periods, reflecting significant improvements in the U.S. bankcards business. Universal Cards Services ("UCS"), which was acquired in April 1998, contributed approximately $11 million and $9 million to net income in the 1999 second quarter and six months compared with a net loss of $43 million in both 1998 periods. The acquisition of Mellon Bank's credit card portfolio on March 31, 1999 contributed approximately $1 million to net income in the second quarter and six months. Adjusted revenues, net of interest expense, of $1.958 billion and $3.906 billion in the 1999 second quarter and six months increased $162 million or 9% and $719 million or 23% from the 1998 periods reflecting increases in receivables, including the Mellon acquisition, increased delinquency and other risk-based charges due to pricing actions, and higher interchange fee revenues, offset by lower spreads. The year-to-date increase also reflects the acquisition of UCS in April 1998. As shown in the following table, on a managed basis, the U.S. bankcards portfolio experienced strong growth in the quarter and the six months reflecting the impact of enhanced target marketing efforts and the acquisition of Mellon Bank's credit card portfolio. The increase in total sales in the six month period also reflects the acquisition of UCS.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) 39.8 38.3 4 39.8 38.3 4 Total sales $38.8 $34.0 14 $74.0 $58.2 27 End-of-period receivables 68.0 60.3 13 68.0 60.3 13 - -----------------------------------------===========================================================================================
Total operating expenses of $727 million and $1.456 billion in the 1999 second quarter and six months were up $19 million or 3% and $311 million or 27% from the 1998 periods, reflecting increased advertising and marketing in U.S. bankcards and the Mellon acquisition. The year-to-date increase also reflects the acquisition of UCS. The adjusted provision for credit losses was $816 million and $1.620 billion in the 1999 second quarter and six months, compared with $883 million and $1.589 billion in the 1998 periods. The increase in the six months reflects the addition of UCS since April 1998. U.S. bankcards managed net credit losses in the 1999 second quarter were $789 million and the related loss ratio was 4.75%, compared with $772 million and 4.79% in the 1999 first quarter and $843 million and 5.73% in the 1998 second quarter. U.S. bankcards managed loans delinquent 90 days or more were $942 million or 1.40% at June 30, 1999, down from $997 million or 1.49% at March 31, 1999 and $942 million or 1.58% at June 30, 1998. The improvement in both the delinquency and net credit loss ratios from a year ago reflects moderating industry-wide bankruptcy trends and previously implemented credit risk management initiatives. 6 International Consumer Europe, Middle East, & Africa
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $537 $496 8 $1,071 $967 11 Adjusted operating expenses (1) 340 337 1 681 655 4 Provision for credit losses 72 67 7 147 137 7 -------------------------------- ------------------------------- Core income before taxes 125 92 36 243 175 39 Income taxes 47 36 31 91 68 34 -------------------------------- ------------------------------- Core income 78 56 39 152 107 42 Restructuring-related items, after-tax 3 -- NM 9 -- NM -------------------------------- ------------------------------- Net income $ 75 $ 56 34 $ 143 $107 34 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $21 $21 -- $21 $21 -- Return on assets 1.43% 1.07% 1.37% 1.03% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.49% 1.07% 1.46% 1.03% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Europe, Middle East, & Africa (EMEA) -- which provides banking and lending services, including credit and charge cards, to customers throughout the region - -- reported core income of $78 million and $152 million in the 1999 second quarter and six months, up $22 million or 39% and $45 million or 42% from the 1998 periods, reflecting growth across Western Europe, particularly Germany and Greece. Net income of $75 million and $143 million in the 1999 second quarter and six months included restructuring-related items of $3 million ($5 million pretax) and $9 million ($15 million pretax). As shown in the following table, EMEA reported 7% account growth from a year ago primarily reflecting loan growth, including credit cards.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) 9.8 9.2 7 9.8 9.2 7 Average customer deposits $16.5 $16.5 -- $16.6 $16.5 1 Average loans 16.0 15.4 4 16.1 15.2 6 - -----------------------------------------===========================================================================================
Revenues, net of interest expense, of $537 million and $1.071 billion in the 1999 second quarter and six months grew $41 million or 8% and $104 million or 11% from the 1998 periods, reflecting loan growth, improved spreads, and higher investment product fees, principally in Western Europe. Adjusted operating expenses of $340 million and $681 million in the 1999 second quarter and six months increased slightly in the quarter and were up $26 million or 4% in the six months, reflecting costs associated with franchise expansion in Central and Eastern Europe. The provision for credit losses was $72 million and $147 million in the 1999 second quarter and six months, up from $67 million and $137 million in the 1998 periods. The net credit loss ratio was 1.71% in both the 1999 and 1998 second quarters. Loans delinquent 90 days or more were $882 million or 5.50% at June 30, 1999, down from $887 million or 5.80% at June 30, 1998. 7 Asia Pacific
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $544 $457 19 $1,063 $880 21 Adjusted operating expenses (1) 282 253 11 549 490 12 Provision for credit losses 89 64 39 177 114 55 -------------------------------- ------------------------------- Core income before taxes 173 140 24 337 276 22 Income taxes 65 54 20 127 107 19 -------------------------------- ------------------------------- Core income 108 86 26 210 169 24 Restructuring-related items, after-tax 2 -- NM 9 -- NM -------------------------------- ------------------------------- Net income $106 $ 86 23 $ 201 $169 19 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $29 $28 4 $29 $27 7 Return on assets 1.47% 1.23% 1.40% 1.26% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.49% 1.23% 1.46% 1.26% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Asia Pacific (including Japan and Australia) -- which provides banking and lending services, including credit and charge cards, to customers throughout the region -- reported core income of $108 million and $210 million in the 1999 second quarter and six months, up from $86 million and $169 million in the 1998 periods, as the region continues to rebound from weak 1998 results. Net income of $106 million and $201 million in the 1999 second quarter and six months included restructuring-related items of $2 million ($4 million pretax) and $9 million ($15 million pretax). As shown in the following table, Asia Pacific accounts grew 26% from 1998, driven by double digit growth in both customer deposits and loans, reflecting significant increases in Japan and economic stabilization in certain countries. Deposit volumes and accounts continued to benefit from a "flight to quality" in the region.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) 8.3 6.6 26 8.3 6.6 26 Average customer deposits $41.0 $34.9 17 $40.5 $34.1 19 Average loans 22.9 19.7 16 22.5 19.6 15 - -----------------------------------------===========================================================================================
Revenues, net of interest expense, of $544 million and $1.063 billion in the 1999 second quarter and six months increased $87 million or 19% and $183 million or 21% from the 1998 periods, reflecting strong performance in Japan and business volume growth and higher spreads in most other countries. Adjusted operating expenses in the quarter and six months were up $29 million or 11% and $59 million or 12% from the 1998 periods, reflecting higher marketing and program spending in Japan, Korea, and Singapore as well as business volume growth. The increase in the six month period also reflects marketing and program spending in Taiwan and the Philippines. The provision for credit losses was $89 million and $177 million in the 1999 second quarter and six months, up from $64 million and $114 million in the 1998 periods. The net credit loss ratio was 1.33% in the quarter, up from 1.17% a year ago, but down from 1.43% in the 1999 first quarter. Loans delinquent 90 days or more of $509 million or 2.17% at June 30, 1999 increased from $324 million or 1.64% a year ago and declined from $513 million or 2.31% at March 31, 1999. The increases in the provision, the net credit loss ratio, and delinquency ratio from a year ago primarily reflect increases in Taiwan and Hong Kong; however, net credit losses and delinquencies declined from the 1999 first quarter. 8 Latin America
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $503 $370 36 $969 $724 34 Adjusted operating expenses (1) 302 248 22 594 481 23 Provision for credit losses 135 61 121 236 110 115 -------------------------------- ------------------------------- Core income before taxes 66 61 8 139 133 5 Income taxes 22 24 (8) 47 53 (11) -------------------------------- ------------------------------- Core income 44 37 19 92 80 15 Restructuring-related items, after-tax 8 -- NM 18 -- NM -------------------------------- ------------------------------- Net income $ 36 $ 37 (3) $ 74 $ 80 (8) - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $15 $10 50 $14 $10 40 Return on assets 0.96% 1.48% 1.07% 1.61% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.18% 1.48% 1.33% 1.61% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Latin America -- which provides banking and lending services, including credit and charge cards, to customers throughout the region -- reported core income of $44 million and $92 million in the 1999 second quarter and six months, up $7 million or 19% and $12 million or 15% from the 1998 periods, reflecting the effect of certain acquisitions and an increase in earnings from Credicard, a 33%-owned Brazilian Card affiliate, partially offset by a higher provision for credit losses. Net income of $36 million and $74 million in the 1999 second quarter and six months included restructuring-related items of $8 million ($12 million pretax) and $18 million ($28 million pretax). Average assets of $15 billion in the quarter and $14 billion in the six months increased 50% and 40% from the 1998 periods due to acquisitions in the region. The Brazilian currency devaluation in the 1999 first quarter exacerbated the deteriorating economic conditions in the region. The devaluation significantly contributed to the 1999 second quarter and six months foreign currency translation effects that reduced revenue growth by 10% in both periods and expense growth by 7% and 9%, respectively. As shown in the following table, Latin America experienced strong business volume growth, principally due to the effect of acquisitions. Customer deposit growth also reflects a "flight to quality" in the region.
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In billions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Accounts (in millions) 7.2 5.5 31 7.2 5.5 31 Average customer deposits $13.5 $9.3 45 $13.1 $9.1 44 Average loans 8.1 7.9 3 7.9 7.7 3 - -----------------------------------------===========================================================================================
Revenues, net of interest expense, of $503 million and $969 million in the 1999 second quarter and six months were up $133 million or 36% and $245 million or 34% from the 1998 periods, reflecting acquisitions in the region, increased earnings from Credicard, and account and business volume growth, partially offset by reduced spreads. Adjusted operating expenses grew $54 million or 22% and $113 million or 23% in the quarter and six months, reflecting acquisitions in the region. Efficiency efforts contributed to a 3% decline in expenses in the quarter excluding the effect of acquisitions and foreign currency translation. The provision for credit losses was $135 million and $236 million in the 1999 second quarter and six months, up from $61 million and $110 million in the 1998 periods. The net credit loss ratio of 6.17% in the 1999 second quarter increased from 2.88% in the 1998 second quarter. Loans delinquent 90 days or more of $346 million or 4.32% at June 30, 1999 increased from $209 million or 2.61% at June 30, 1998. The increases in the provision, the net credit loss ratio, and delinquency ratio reflect economic conditions in the region, particularly in Argentina and Chile. 9 Global Private Bank
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $299 $285 5 $572 $549 4 Total operating expenses 181 179 1 355 355 -- Provision (benefit) for credit losses 2 -- NM 10 (7) 243 -------------------------------- ------------------------------- Income before taxes 116 106 9 207 201 3 Income taxes 43 42 2 77 79 (3) -------------------------------- ------------------------------- Net income $ 73 $ 64 14 $130 $122 7 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $19 $16 19 $19 $16 19 Return on assets 1.54% 1.60% 1.38% 1.54% - -----------------------------------------===========================================================================================
NM Not meaningful - -------------------------------------------------------------------------------- Global Private Bank -- which provides personalized wealth management services for high net-worth clients around the world -- reported net income of $73 million and $130 million in the 1999 second quarter and six months, up $9 million or 14% and $8 million or 7% from the 1998 periods, primarily reflecting revenue growth, particularly in the U.S. and Japan. Client business volumes under management were $126 billion at June 30, 1999, up from $119 billion at March 31, 1999 and $108 billion a year ago, reflecting growth in the U.S., Europe, and Japan. Total revenues, net of interest expense, were $299 million and $572 million in the quarter and six months, up $14 million or 5% and $23 million or 4% from 1998. The increases reflected growth in net interest income, placement and performance fee revenues, partially offset by reduced customer-based trading-related revenue. Regionally, strong revenue growth in the U.S. and Japan was partially offset by weakness in Asia Pacific, excluding Japan. Total operating expenses of $181 million in the quarter and $355 million in the six months were up $2 million or 1% from the year ago quarter, and were unchanged year-to-date, as an 8% reduction in staffing levels was offset by higher incentive compensation and technology expenses. The provision for credit losses was $2 million and $10 million for the 1999 quarter and six months, compared with no provision in the 1998 quarter and a benefit of $7 million in the six months. In the 1999 quarter, the reduction in Asia Pacific write-offs was more than offset by the reduction in the U.S credit recoveries. The year-to-date change was driven by the substantial reduction in U.S. credit recoveries. Loans 90 days or more past due also continued to remain low at $162 million or 0.88% of loans at June 30, 1999, compared to $191 million or 1.10% at March 31, 1999 and $197 million or 1.23% at June 30, 1998. e-Citi
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $ 55 $ 34 62 $ 109 $ 64 70 Total operating expenses 128 94 36 241 172 40 Provision for credit losses 1 1 -- 2 2 -- -------------------------------- ------------------------------- Loss before tax benefits (74) (61) 21 (134) (110) 22 Income tax benefits (30) (24) 25 (54) (43) 26 -------------------------------- ------------------------------- Net loss $(44) $(37) 19 $ (80) $ (67) 19 - -----------------------------------------===========================================================================================
e-Citi -- the business responsible for developing and implementing the Company's internet financial services products and e-commerce solutions -- reported net losses of $44 million and $80 million in the 1999 second quarter and six months, compared to $37 million and $67 million in the 1998 periods. Revenues, net of interest expense, were $55 million and $109 million in the 1999 second quarter and six months, up from $34 million and $64 million in the 1998 periods, reflecting business volume increases in certain electronic banking services. Total operating expenses of $128 million and $241 million in the quarter and six months increased from $94 million and $172 million in the 1998 periods, reflecting business volume increases and continued investment in internet-based and other electronic financial services as well as other e-commerce solutions. 10 Other Consumer
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------------------------------------- In millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $ 36 $ 20 $ 73 $ 50 Total operating expenses 78 45 141 80 ---------------------------------------------------------------------- Loss before tax benefits (42) (25) (68) (30) Income tax benefit (15) (14) (27) (20) ---------------------------------------------------------------------- Net loss $(27) $(11) $(41) $(10) - --------------------------------------------------------------======================================================================
Other Consumer -- which includes certain treasury operations and global marketing and other programs - reported net losses of $27 million and $41 million in the 1999 second quarter and six months, up from $11 million and $10 million in the 1998 periods, reflecting higher costs associated with global advertising and marketing initiatives. Consumer Portfolio Review In the consumer portfolio, credit loss experience is often expressed in terms of annual net credit losses as a percentage of average loans. Pricing and credit policies reflect the loss experience of each particular product. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy. The number of days is set at an appropriate level according to loan product and country. The following table summarizes delinquency and net credit loss experience in both the managed and on-balance sheet loan portfolios in terms of loans 90 days or more past due, net credit losses, and as a percentage of related loans. Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
Total Average Loans 90 Days or More Past Due (1) Loans Net Credit Losses (1) -------------------------------------------------------------------------------------------------- In millions of dollars June 30, June 30, Mar. 31, June 30, 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr. except loan amounts in billions 1999 1999 1999 1998 1999 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Citibanking North America $ 8.0 $ 96 $ 107 $ 119 $ 8.1 $ 26 $ 28 $ 31 Ratio 1.20% 1.33% 1.39% 1.31% 1.35% 1.49% Mortgage Banking 27.5 575 610 634 27.3 11 13 18 Ratio 2.09% 2.29% 2.67% 0.17% 0.20% 0.31% U.S. Bankcards 67.5 942 997 942 67.0 789 772 843 Ratio 1.40% 1.49% 1.58% 4.75% 4.79% 5.73% Other Cards 2.5 46 46 40 2.4 21 18 17 Ratio 1.80% 1.86% 1.61% 3.33% 3.25% 2.77% Europe, Middle East & Africa 16.0 882 878 887 16.0 68 73 65 Ratio 5.50% 5.45% 5.80% 1.71% 1.81% 1.71% Asia Pacific 23.4 509 513 324 22.9 76 78 58 Ratio 2.17% 2.31% 1.64% 1.33% 1.43% 1.17% Latin America 8.0 346 292 209 8.1 124 91 57 Ratio 4.32% 3.75% 2.61% 6.17% 4.74% 2.88% Global Private Bank 18.4 162 191 197 18.0 2 8 - Ratio 0.88% 1.10% 1.23% 0.05% 0.18% NM Other 1.1 2 2 2 1.0 1 1 1 - ------------------------------------------------------------------------------------------------------------------------------------ Total managed 172.4 3,560 3,636 3,354 170.8 1,118 1,082 1,090 Ratio 2.06% 2.16% 2.18% 2.62% 2.64% 2.87% - ------------------------------------------------------------------------------------------------------------------------------------ Securitized credit card receivables (47.1) (650) (686) (601) (46.4) (538) (553) (542) Loans held for sale (6.1) (35) (39) (40) (5.8) (29) (32) (37) - ------------------------------------------------------------------------------------------------------------------------------------ Consumer loans $119.2 $2,875 $2,911 $2,713 $118.6 $ 551 $ 497 $ 511 Ratio 2.41% 2.49% 2.52% 1.86% 1.71% 1.85% - ----------------------------------==================================================================================================
(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. NM Not meaningful. - -------------------------------------------------------------------------------- 11 Consumer Loan Balances, Net of Unearned Income
End of Period Average ------------------------------------------ ------------------------------------------ June 30, Mar. 31, June 30, 2nd Qtr. 1st Qtr. 2nd Qtr. In billions of dollars 1999 1999 1998 1999 1999 1998 - ------------------------------------------------------------------------------ ------------------------------------------ Total managed $172.4 $168.5 $153.8 $170.8 $166.6 $152.2 Securitized credit card receivables (47.1) (46.4) (41.3) (46.4) (44.0) (36.8) Loans held for sale (6.1) (5.3) (4.7) (5.8) (4.9) (4.6) ------------------------------------------ ------------------------------------------ Consumer loans $119.2 $116.8 $107.8 $118.6 $117.7 $110.8 - ------------------------------------================================================================================================
Total delinquencies 90 days or more past due in the managed portfolio were $3.6 billion with a related delinquency ratio of 2.06% at June 30, 1999, compared with $3.6 billion or 2.16% at March 31, 1999 and $3.4 billion or 2.18% at June 30, 1998. Total managed net credit losses in the 1999 second quarter were $1.1 billion and the related loss ratio was 2.62%, compared with $1.1 billion and 2.64% in the 1999 first quarter and $1.1 billion and 2.87% in the 1998 second quarter. For a discussion on trends by business, see business discussions on pages 4-11. The portion of Citicorp's allowance for credit losses attributed to the consumer portfolio was $3.0 billion at June 30, 1999, compared with $2.9 billion at March 31, 1999 and $2.9 billion at June 30, 1998. The allowance as a percentage of loans on the balance sheet was 2.50% at June 30, 1999, compared with 2.52% at March 31, 1999 and 2.65% at June 30, 1998. The attribution of the allowance is made for analytical purposes only and may change from time to time. Net credit losses and the related loss ratios may increase from the 1999 second quarter as a result of global economic conditions, particularly in Latin America and Asia Pacific, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors. Additionally, delinquencies could remain at relatively high levels. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 17. GLOBAL CORPORATE
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $2,095 $2,123 (1) $4,320 $4,069 6 Adjusted operating expenses (1) 1,262 1,330 (5) 2,543 2,540 - Provision for credit losses 110 28 293 221 93 138 -------------------------------- ------------------------------- Core income before taxes 723 765 (5) 1,556 1,436 8 Income taxes 270 284 (5) 581 535 9 -------------------------------- ------------------------------- Core income 453 481 (6) 975 901 8 Restructuring-related items, after-tax 3 -- NM 7 -- NM -------------------------------- ------------------------------- Net income $ 450 $ 481 (6) $ 968 $ 901 7 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $163 $168 (3) $166 $167 (1) Return on assets 1.11% 1.15% 1.18% 1.09% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.11% 1.15% 1.18% 1.09% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Global Corporate provides corporations, governments, institutions and investors in 100 countries with a broad range of financial products and services. Global Corporate core income was $453 million and $975 million in the 1999 second quarter and six months, down $28 million or 6% and up $74 million or 8% from 1998. The 1999 second quarter increase reflects core income growth of $53 million or 22% in the Emerging Markets, partially offset by a decline of $81 million or 34% in Global Relationship Banking (GRB). The six month comparison reflects core income growth of $113 million or 23% in the Emerging Markets, partially offset by a decline of $39 million or 10% in GRB. The GRB comparisons are affected by $104 million in after-tax items due to the disposition of real estate investments and a related real estate recovery in the second quarter of 1998. Excluding these items, GRB core income grew $23 million or 17% in the second quarter of 1999 and $65 million or 22% in the six month comparison. The Emerging Markets core income growth was driven by increased revenues in loans and securities transactions in the quarterly comparison, and primarily by higher foreign exchange and trading, and loan revenues in the six month comparison. Excluding the $104 million of 1998 real estate items, GRB's core income growth was a result of lower expenses in the quarterly comparison and higher structured products revenues and lower expenses in the six month comparison. 12 The businesses of Global Corporate 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 in which the businesses operate. Global economic exigencies can have both positive and negative effects on the revenue performance of the businesses and can negatively affect credit performance. In particular, levels of foreign exchange and trading 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, or due to global economic developments. This paragraph contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 17. Emerging Markets
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $1,087 $972 12 $2,225 $1,929 15 Adjusted operating expenses (1) 505 505 -- 1,009 982 3 Provision for credit losses 110 79 39 225 141 60 -------------------------------- ------------------------------- Core income before taxes 472 388 22 991 806 23 Income taxes 177 146 21 376 304 24 -------------------------------- ------------------------------- Core income 295 242 22 615 502 23 Restructuring-related items, after-tax 1 -- NM 2 -- NM -------------------------------- ------------------------------- Net income $ 294 $242 21 $ 613 $ 502 22 - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $83 $75 11 $82 $75 9 Return on assets 1.42% 1.29% 1.51% 1.35% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 1.43% 1.29% 1.51% 1.35% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Emerging Markets core income was $295 million and $615 million in the 1999 second quarter and six months, up $53 million or 22% and $113 million or 23% from 1998. Return on assets, excluding restructuring-related items, was 1.43% in the 1999 second quarter, up from 1.29% in 1998. In the six months ended June 30, 1999, return on assets, excluding restructuring-related items, was 1.51%, up from 1.35% in the six months ended June 30, 1998. Revenues, net of interest expense, were $1.087 billion and $2.225 billion in the 1999 second quarter and six months, up $115 million or 12% and $296 million or 15%, respectively, from 1998. The second quarter reflects strong growth in Latin America attributable to foreign exchange and trading, loans, and transaction banking revenues. Second quarter revenues in Asia and CEEMEA (Central and Eastern Europe, Middle East and Africa) were essentially unchanged as lower foreign exchange and trading revenues offset higher gains from securities transactions. The six month comparison reflects revenue growth in Latin America in foreign exchange and trading, loans, and trade finance. This was partially offset by revenue reduction in Asia due to high foreign exchange and trading revenues in 1998. Adjusted operating expenses were well-controlled and flat in the quarterly comparison, while showing a 3% increase in the six month comparison. In the quarterly comparison, investment spending to gain market share in selected emerging market countries was essentially funded by savings from the 1997 and 1998 restructuring actions and other expense savings initiatives. Expenses also benefited from the effect of foreign currency translation. The six month comparison expense growth of $27 million primarily reflects investment spending to gain market share in selected emerging market countries. The 1999 second quarter provision for credit losses totaled $110 million, up $31 million from 1998, but declined $5 million from the 1999 first quarter. The increase was in the Middle East and Latin America. The 1999 six month provision for credit losses was $225 million, up $84 million from 1998, with the increase spread across Latin America, Asia and the Middle East. Cash-basis loans were $1.197 billion at June 30, 1999, reflecting an increase of $102 million from March 31, 1999, and an increase of $216 million from June 30, 1998. The higher cash basis loans in both these comparisons were due to increases in Latin America and CEEMEA, partially offset by reductions in Asia. See the tables entitled "Cash-Basis, Renegotiated, and Past Due Loans" on page 35. While economic conditions can be volatile in any country or group of countries, Citicorp does not expect significant quarter-to-quarter increases in Emerging Markets net credit losses or cash-basis loans during the remainder of 1999. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 17. Average assets of $83 billion in the 1999 second quarter and $82 billion in the 1999 six months reflected growth of $8 billion and $7 billion, respectively. This growth was driven by higher loans, trading assets and trade finance. 13 Global Relationship Banking
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $1,008 $1,151 (12) $2,095 $2,140 (2) Adjusted operating expenses (1) 757 825 (8) 1,534 1,558 (2) Provision (benefit) for credit losses - (51) NM (4) (48) 92 -------------------------------- ------------------------------- Core income before taxes 251 377 (33) 565 630 (10) Income taxes 93 138 (33) 205 231 (11) -------------------------------- ------------------------------- Core income 158 239 (34) 360 399 (10) Restructuring-related items, after-tax 2 -- NM 5 -- NM -------------------------------- ------------------------------- Net income $ 156 $ 239 (35) $ 355 $ 399 (11) - -----------------------------------------=========================================================================================== Average assets (in billions of dollars) $80 $93 (14) $84 $92 (9) Return on assets 0.78% 1.03% 0.85% 0.87% - -----------------------------------------=========================================================================================== Excluding restructuring-related items Return on assets 0.79% 1.03% 0.86% 0.87% - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Core income from Global Relationship Banking in North America, Europe and Japan was $158 million and $360 million in the 1999 second quarter and six months, respectively. This represents a decline of $81 million or 34% in the second quarter comparison and a decline of $39 million or 10% in the six month comparison. The 1998 second quarter included $104 million in after-tax items due to the disposition of real estate investments and a related real estate recovery. Excluding these items, GRB core income grew $23 million or 17% in the second quarter of 1999 and $65 million or 22% in the six month comparison. In the 1999 second quarter, revenues, net of interest expense, of $1.008 billion declined $143 million or 12% from 1998, although revenues were essentially flat excluding the effect of the 1998 real estate gains. Strong growth in corporate finance and moderate growth in transaction services were offset by a lower level of foreign exchange and trading revenues. In the six month comparison, revenues declined by 2%, although excluding the effect of the 1998 real estate gains, revenues grew 4%. The six month revenue growth was driven by increases in structured products revenues and transaction services. Adjusted operating expenses were $757 million and $1.534 billion in the 1999 second quarter and six months, down $68 million or 8% and $24 million or 2%, respectively, from 1998. This decrease in expenses was due to business integration initiatives with SSB and lower EMU and Year 2000 expenses. The 1999 provisions (benefits) for credit losses were negligible, compared with net recoveries (primarily real estate) in both 1998 periods. Cash-basis loans were $279 million at June 30, 1999, reflecting decreases of $29 million from March 31, 1999 and $21 million from June 30, 1998. The Other Real Estate Owned portfolio was $178 million at June 30, 1999 and declined $34 million from March 31, 1999 and $146 million from June 30, 1998. See the tables entitled "Cash-Basis, Renegotiated, and Past Due Loans" and "Other Real Estate Owned and Assets Pending Disposition" on page 35. Average assets of $80 billion in the 1999 second quarter declined $13 billion from 1998, while the 1999 six month average of $84 billion declined $8 billion. These declines reflect the transfer of certain fixed income and equity businesses to SSB and lower trading assets. 14 ASSET MANAGEMENT
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $81 $90 (10) $181 $178 2 Total operating expenses 88 80 10 177 155 14 -------------------------------- ------------------------------- Income (loss) before taxes (7) 10 (170) 4 23 (83) Income taxes (benefits) (3) 3 (200) 1 7 (86) -------------------------------- ------------------------------- Net income (loss) $(4) $ 7 (157) $ 3 $ 16 (81) - -----------------------------------------=========================================================================================== Assets under management (in billions of dollars) (1) $146 $122 19 $146 $122 19 - -----------------------------------------===========================================================================================
(1) Includes $35 billion and $31 billion in the 1999 and 1998 second quarters, respectively, for Global Private Bank clients. - -------------------------------------------------------------------------------- Citibank 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. Asset Management's net loss of $4 million in the 1999 second quarter compared to net income of $7 million in the 1998 second quarter, reflected lower revenues and increased expenses from continued investments in the business' infrastructure. For the six months ended June 30, 1999, net income of $3 million was down $13 million, an 81% decrease from 1998. Assets under management rose 19% from the 1998 second quarter to $146 billion, as growth continued across all product categories. Managed account assets grew $11 billion, up 19% from the 1998 second quarter. Money fund and long-term mutual fund assets grew by 39% and 14%, respectively. Contributing to money fund growth in the second quarter was an increase in institutional liquidity funds resulting from increased selling efforts through Global Relationship Banking. Long-term mutual fund growth reflects increased mutual fund sales through the Europe Consumer Bank with sales from new initiatives including CitiEuroland Funds as well as the new CitiFunds Mutual Funds offered in Japan. Revenues, net of interest expense, decreased $9 million or 10% to $81 million in the second quarter and increased $3 million or 2% to $181 million year-to-date. The decrease in the quarter was principally due to lower performance fee revenues and the impact of exchange rates in Brazil. Additionally, the growth rate of advisory fees did not keep pace with the growth rate of assets under management due to a change in the mix of assets to lower yielding products, such as corporate liquidity. Year-to-date revenue growth did not keep pace with assets under management growth due to the impact of exchange rates in Brazil and the change in the mix of assets to lower yielding products. Operating expenses increased $8 million or 10% to $88 million in the quarter, and increased $22 million or 14% to $177 million year-to-date. These increases primarily reflected efforts to build Asset Management's investment research and quantitative analysis capabilities. CORPORATE/OTHER
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $ 80 $ (23) 448 $ 138 $ (74) 286 Adjusted operating expenses (1) 149 92 62 287 199 44 -------------------------------- ------------------------------- Business loss before tax benefits (69) (115) (40) (149) (273) (45) Income tax benefits (21) (30) (30) (46) (77) (40) -------------------------------- ------------------------------- Business loss (48) (85) (44) (103) (196) (47) Restructuring-related items, after-tax 8 -- NM 15 -- NM -------------------------------- ------------------------------- Net loss $(56) $ (85) (34) $(118) $(196) (40) - -----------------------------------------===========================================================================================
(1) Excludes restructuring-related items. NM Not meaningful - -------------------------------------------------------------------------------- Corporate/Other includes certain net treasury results, and corporate staff and other corporate expenses. Total revenues of $80 million and $138 million in the 1999 second quarter and six months increased $103 million and $212 million respectively from 1998, primarily reflecting lower funding costs. Adjusted operating expenses of $149 million and $287 million in the 1999 second quarter and six months up from $92 million and $199 million in the respective prior year periods reflect increases in certain technology expenses and other unallocated corporate costs, partially offset in the 1999 second quarter by lower corporate staff expenses, largely resulting from a 15% reduction in headcount. 15 INVESTMENT ACTIVITIES
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- % ------------------------------- % In millions of dollars 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues, net of interest expense $233 $446 (48) $356 $921 (61) Total operating expenses 16 13 23 30 24 25 Provision (benefit) for credit losses -- -- -- -- (10) NM -------------------------------- ------------------------------- Income before taxes 217 433 (50) 326 907 (64) Income taxes 75 145 (48) 112 304 (63) -------------------------------- ------------------------------- Net income $142 $288 (51) $214 $603 (65) - -----------------------------------------===========================================================================================
NM Not meaningful - -------------------------------------------------------------------------------- Investment Activities comprises venture capital and certain corporate investment activities, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. Investment Activities net income of $142 million and $214 million for the 1999 second quarter and six months was down $146 million or 51% and $389 million or 65% from the 1998 periods. Revenues, net of interest expense, of $233 million for the 1999 second quarter declined $213 million or 48% from the 1998 second quarter, reflecting a $195 million decrease in securities transactions to $64 million, partially offset by a $24 million increase in venture capital revenues to $195 million. For the six months ended June 30, 1999, revenues of $356 million decreased $565 million or 61% from the same period in 1998, reflecting a $394 million decrease in securities transactions to $70 million, coupled with a $102 million decrease in venture capital revenues to $333 million. The decreases in securities transactions resulted from lower revenues from sales of Brazilian Brady Bonds. Investment Activities results may fluctuate in the future due to 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 17. YEAR 2000 The arrival of the year 2000 poses a unique worldwide challenge to the ability of time sensitive computer systems to recognize the date change from December 31, 1999 to January 1, 2000. Citicorp has assessed and is modifying its computer systems and business processes to provide for their continued functionality and is also assessing the readiness of third parties with which it interfaces. Citicorp is highly dependent on computer systems and system applications for conducting its ongoing business functions. The inability of systems to recognize properly the year 2000 could result in major systems failure or miscalculations that would disrupt Citicorp's ability to meet its customer and other obligations on a timely basis, and Citicorp has engaged in a worldwide process of identifying, assessing, and modifying its computer programs to address this issue. As part of and following achievement of year 2000 compliance, systems are subjected to a process that validates the modified programs before they can be used in production. The pre-tax cost associated with the required modifications and conversions is expected to total approximately $720 million through 1999. This cost, which represents an increase of $60 million from previous estimates, is being funded from a combination of a reprioritization of technology development initiatives and incremental costs and is being expensed as incurred. Of the total, approximately $620 million has been incurred-to-date, including approximately $130 million in the first six months of 1999, of which approximately $60 million was incurred in the second quarter. Substantially all of the required modification and internal testing work has been completed, including modification of all critical systems, and Citicorp continues to make satisfactory progress towards full completion of its year 2000 program. The remainder of 1999 will be spent primarily to address completion of the remaining external testing, integration testing, and production assurance. Citicorp's year 2000 program encompasses a range of other matters, including business applications to be sunset (that is, removed from use in favor of replacement applications), end-user computing applications, networks, data centers, desktops, facilities, business processes, and external providers. Substantially all of the investigation and necessary remediation of these matters has been completed, and substantially all are considered compliant. Citicorp is also addressing year 2000 issues that may exist with other significant third parties with which it interfaces, including customers and counterparties, the global financial market infrastructure including payment and clearing systems, and the utility infrastructure on which all corporations rely. Unreadiness by these third parties would expose Citicorp to the potential for loss, impairment of business processes and activities, and disruption of financial markets. Citicorp is addressing these risks worldwide through bilateral and multiparty efforts and participation in industry, country, and global initiatives. While significant third parties are generally engaged in efforts intended to address and resolve their year 2000 issues on a timely basis, it is possible that a series of failures by third parties could have a material adverse effect on Citicorp's results of operations in future periods. 16 Citicorp is creating contingency plans intended to address perceived risks associated with its year 2000 effort. These activities include business resumption planning to address the possibility of systems failure, and market resumption planning to address the possibility of failure of systems or processes outside Citicorp's control. Contingency planning, and preparations for the management of the date change, will continue worldwide through 1999. Notwithstanding these activities, the failure of efforts to address in a timely manner the year 2000 problem could have a material adverse effect on the Company's results of operations in future periods. The Company's expectations with respect to remediation of and claims from customers 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. 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, particularly in Latin America and Asia Pacific, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions, including the performance of global financial markets, risks associated with fluctuating levels of foreign exchange and trading revenues, securities transactions, net asset gains, and losses on commercial lending activities, particularly in Emerging Markets; the effect on net income attributable to certain recent acquisitions; interest rates; results of various Investment Activities; customer responsiveness to both new products and distribution channels; the actual cost of year 2000-related remediation and claims, if any. MANAGING GLOBAL RISK 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 business and corporate oversight groups have well-defined market risk management responsibilities. Within each business, a process is in place to control market risk exposure. The risk management process includes the establishment of appropriate market controls, policies and procedures, appropriate senior management risk oversight with thorough risk analysis and reporting, and independent risk management with capabilities to evaluate and monitor risk limits. The risk management process is described in detail in the 1998 Form 10-K. Across Citicorp, price risk is measured using various tools, including Earnings-at-Risk (EAR), which are applied to interest rate risk in the non-trading portfolios, and Value-at-Risk (VAR), which are applied to the trading portfolios. Non-Trading Portfolios Business units manage the potential earnings effect of interest rate movements by managing the asset and liability mix, either directly or with derivative financial products. These include interest rate swaps and other derivative instruments which are either designated and effective as hedges or designated and effective in modifying the interest rate characteristics of specified assets or liabilities. The utilization of derivatives is managed in response to changes in market conditions as well as to changes in the characteristics and mix of the related assets and liabilities. Earnings-at-Risk measures the discounted pre-tax earnings impact over a specified time horizon of a specified shift in the interest rate yield curve for the appropriate currency. The yield curve shift is statistically derived as a two standard deviation change in a short-term interest rate over the period required to defease the position (usually four weeks). Earnings-at-Risk is calculated separately for each currency and reflects the repricing gaps in the position, as well as option positions, both explicit and embedded. Citicorp's primary non-trading price risk exposure is to movements in U.S. dollar interest rates. As of June 30, 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 June 30, 1999, the rate shifts applied to these currencies for purposes of calculating Earnings-at-Risk ranged from 27 to 1,991 basis points, over a four-week defeasance period. 17 The following table illustrates that, as of June 30, 1999, a 45 basis point increase in the U.S. dollar yield curve would have a potential negative impact on Citicorp's pre-tax earnings of approximately $133 million in the next twelve months, and approximately $38 million for the total five-year period 1999-2004. A two standard deviation increase in non-U.S. dollar interest rates would have a potential negative impact on Citicorp's pre-tax earnings of approximately $120 million in the next twelve months, and approximately $189 million for the five-year period 1999-2004. Citicorp Earnings-at-Risk (impact on pre-tax earnings)
Assuming a U.S. Assuming a Non-U.S. Dollar Rate Move of Dollar Rate Move of (1) --------------------------------------------------------------------- Two Standard Deviations Two Standard Deviations (2) --------------------------------------------------------------------- In millions of dollars at June 30, 1999 Increase Decrease Increase Decrease - ------------------------------------------------------------------------------------------------------------------------------------ Overnight to three months ($ 69) $ 74 ($ 24) $ 24 Four to six months (31) 39 (31) 31 Seven to twelve months (33) 41 (65) 65 --------------------------------------------------------------------- Total overnight to twelve months (133) 154 (120) 120 - ------------------------------------------------------------------------------------------------------------------------------------ Year two (26) 25 (94) 95 Year three 12 (17) (7) 7 Year four 45 (50) 15 (15) Year five 91 (108) 10 (9) Effect of discounting (27) 31 7 (7) --------------------------------------------------------------------- Total ($ 38) $ 35 ($189) $191 - ---------------------------------------------------------------=====================================================================
(1) Primarily results from Earnings-at-Risk in Singapore dollar, Hong Kong dollar, Korea won, and Mexico peso. (2) Total assumes a two standard deviation increase or decrease for every currency, not taking into account any covariance among currencies. - -------------------------------------------------------------------------------- The table above also illustrates that Citicorp's risk profile in the one- to two-year time horizon is directionally similar, but generally tends to reverse in subsequent periods. This reflects the fact that the majority of the derivative instruments utilized to modify repricing characteristics as described above will mature within three years. 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 pre-tax earnings in its non-trading activities over the next 12 months would be reduced by an increase in interest rates and would benefit from a decrease in interest rates. Citicorp Twelve Month Earnings-at-Risk (impact on pre-tax earnings)
U.S. Dollar Non-U.S. Dollar ------------------------------------------------------------------------------------ June 30, Dec. 31, June 30, June 30, Dec. 31, June 30, In millions of dollars 1999 1998 1998 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assuming a two standard deviation rate Increase ($133) ($148) ($173) ($120) ($93) ($81) Decrease 154 156 206 120 93 81 - ------------------------------------------------====================================================================================
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 ------------------------------------------------------------------------------------ June 30, Dec. 31, June 30, June 30, Dec. 31, June 30, In millions of dollars 1999 1998 1998 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assuming a two standard deviation rate Increase $ 7 $10 $18 ($137) ($94) ($91) Decrease 12 (3) (6) 138 94 91 - ------------------------------------------------====================================================================================
During the first six months of 1999, Citicorp's U.S. dollar Earnings-at-Risk for the following 12 months assuming a two standard deviation increase in rates would have had a potential negative impact ranging from approximately $73 million to $133 million in the aggregate at each month end of 1999, compared with a range from $65 million to $173 million at each month end during 1998. The relatively lower U.S. dollar Earnings-at-Risk experienced during the first six months of 1999 was primarily due to the reduction in the level of receive fixed swaps. A two standard deviation increase in non-U.S. dollar interest rates for the following twelve months would have had a potential negative impact ranging from approximately $98 million to $123 million in the aggregate at each month end during the first six months of 1999, compared with a range from $53 million to $98 million during 1998. The higher non-U.S. 18 dollar Earnings-at-Risk experienced during the 1999 six months primarily reflected the higher interest rate volatility seen across the Asia Pacific region. Trading Portfolios A tool for measuring the price risk of trading activities is Value-at-Risk, which estimates the potential pretax loss in market value that could occur over a one-day holding period at a 99% confidence level. The Value-at-Risk method incorporates the market factors to which the value of the trading position is exposed in each market (interest rates, foreign exchange rates, equity and commodity prices), the sensitivity of the position to changes in those market factors, and the volatilities and correlation of those factors. The Value-at-Risk measurement includes the foreign exchange risks that arise in traditional banking businesses as well as in explicit trading positions. The level of exposure taken depends on the market environment and expectations of future market movements, and will vary from period to period. For Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the trading portfolios was $17 million at June 30, 1999. Daily exposures averaged $19 million in the second quarter of 1999 and ranged from $14 million to $24 million. The following table summarizes Citicorp's Value-at-Risk in its trading portfolios as of June 30, 1999 and December 31, 1998 along with the second quarter 1999 average.
1999 June 30, Second Quarter Dec. 31, In millions of dollars 1999 Average 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Interest rate $11 $15 $13 Foreign exchange 9 9 7 Equity 8 9 5 All other (primarily commodity) 2 1 1 Covariance adjustment (13) (15) (11) ---------------------------------------------------- Total $17 $19 $15 - --------------------------------------------------------------------------------====================================================
The table below provides the distribution of Value-at-Risk during the second quarter of 1999.
In millions of dollars High Low - ------------------------------------------------------------------------------------------------------------------------------------ Interest rate $25 $11 Foreign exchange 14 6 Equity 13 8 All other (primarily commodity) 6 1 - ------------------------------------------------------------------------------------------------====================================
19 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 in the 1998 Form 10-K. The following table presents total cross-border outstandings and commitments on a regulatory basis in accordance with Federal Financial Institutions Examination Council (FFIEC) guidelines. Total cross-border outstandings include cross-border claims on third parties as well as investments in and funding of local franchises, as described in the 1998 Form 10-K. Countries with outstandings greater than 0.75% of Citicorp assets at June 30, 1999 and December 31, 1998 include:
June 30, 1999 December 31, 1998 -------------------------------------------------------------------------- ----------------- Cross-Border Claims on Third Parties ------------------------------------------ Total Total Trading Investments Cross- Cross- and in and Border Border Short- Funding Out- Out- Term of Local stand- Commit- stand- Commit- In billions of dollars at period ended Banks Public Private Total Claims(1) Franchises ings ments(2) ings ments(2) - ------------------------------------------------------------------------------------------------------------------------------------ Germany $1.7 $1.4 $1.3 $4.4 $4.1 $3.0 $7.4 $1.3 $7.4 $1.4 United Kingdom 1.2 -- 3.4 4.6 3.8 -- 4.6 9.4 4.4 8.9 France 2.4 0.4 1.2 4.0 3.8 -- 4.0 1.5 4.6 1.1 Mexico -- 1.6 1.5 3.1 1.7 0.8 3.9 0.2 3.4 0.2 Brazil 0.4 0.7 1.4 2.5 1.1 1.4 3.9 -- 3.6 0.1 Italy 0.5 1.8 0.6 2.9 2.8 0.5 3.4 0.4 3.6 0.3 Spain 0.1 -- 0.9 1.0 1.0 2.1 3.1 0.4 2.1 0.4 Netherlands 1.3 0.2 1.6 3.1 2.5 -- 3.1 1.5 2.8 0.8 South Korea 0.6 0.1 0.4 1.1 0.9 1.9 3.0 0.3 2.1 0.4 Switzerland 0.9 -- 1.9 2.8 2.5 0.1 2.9 1.8 3.5 1.6 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Included in total cross-border claims on third parties. (2) Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and loan commitments. - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Citicorp manages liquidity through a well-defined process described in the 1998 Form 10-K. A diversity of funding sources, currencies, and maturities is used to gain a broad access to the investor base. Citicorp's deposits, which represent 69% and 66% of its total funding at June 30, 1999 and December 31, 1998, respectively, are broadly diversified by both geography and customer segments. Stockholder's equity, which grew $1.26 billion during the six months ended June 30, 1999 to $23.8 billion, continues to be an important component of the overall funding structure. In addition, long-term debt is issued by Citicorp and its subsidiaries. Total Citicorp long-term debt outstanding at quarter-end was $21.0 billion, up from $20.6 billion at year-end. Asset securitization programs remain an important source of liquidity. Loans securitized during the first six months included $5.4 billion of U.S. credit cards, $4.6 billion of U.S. consumer mortgages, and $0.2 billion of non-U.S. consumer loans. As credit card securitization transactions amortize, newly originated receivables are recorded on Citicorp's balance sheet and become available for asset securitization. During the six months, the scheduled amortization of certain credit card securitization transactions made available $3.3 billion of new receivables. In addition, $0.5 billion of credit card securitization transactions are scheduled to amortize during the rest of 1999. Citicorp is a legal entity separate and distinct from Citibank, N.A. and its other subsidiaries and affiliates. As discussed in the 1998 Form 10-K, there are various legal limitations on the extent to which Citicorp's subsidiaries may extend credit, pay dividends, or otherwise supply funds to Citicorp. As of June 30, 1999, under their applicable dividend limitations, Citicorp's national and state-chartered bank subsidiaries could have declared dividends to their respective parent companies without regulatory approval of approximately $3.8 billion. In determining whether and to what extent to pay dividends, each bank subsidiary must also consider the effect of dividend payments on applicable risk-based capital and leverage ratios requirements, as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citicorp estimates that, as of June 30, 1999, its bank subsidiaries could have distributed dividends to Citicorp, directly or through their parent holding company, of approximately $3.4 billion of the available $3.8 billion. On August 4, 1999, Commercial Credit Company (CCC), 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. Following the restructuring, CCC ceased issuing commercial paper. In addition, Citicorp guaranteed the obligations of CCC under its committed and available 20 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. Citicorp is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve Board (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
June 30, Mar. 31, Dec. 31, 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Tier 1 Capital 8.63% 8.35% 8.44% Total Capital (Tier 1 and Tier 2) 12.52 12.15 12.38 Leverage (1) 6.97 6.74 6.68 Common Stockholder's Equity 6.76 6.58 6.57 - --------------------------------------------------------------------------------====================================================
(1) Tier 1 capital divided by adjusted average assets. - -------------------------------------------------------------------------------- Citicorp maintained a strong capital position during the 1999 second quarter. Total capital (Tier 1 and Tier 2) amounted to $34.8 billion at June 30, 1999, representing 12.52% of net risk adjusted assets. This compares with $33.8 billion and 12.15% at March 31, 1999, and $33.9 billion and 12.38% at December 31, 1998. Tier 1 capital of $24.0 billion at June 30, 1999 represented 8.63% of net risk adjusted assets, compared with $23.2 billion and 8.35% at March 31, 1999 and $23.1 billion and 8.44% at December 31, 1998. The Tier 1 capital ratio at June 30, 1999 exceeded Citicorp's target range of 8.00% to 8.30%. Components of Capital Under Regulatory Guidelines
June 30, Mar. 31, Dec. 31, In millions of dollars 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Tier 1 Capital Common Stockholder's Equity $ 23,825 $ 22,852 $ 22,569 Mandatorily Redeemable Securities of Subsidiary Trusts 975 975 975 Minority Interest 121 119 115 Net Unrealized (Gain) Loss on Securities Available for Sale (1) (97) (98) 43 Less: Intangible Assets (2) (831) (622) (611) 50% Investment in Certain Subsidiaries (3) (7) (7) (7) ---------------------------------------------------- Total Tier 1 Capital $ 23,986 $ 23,219 $ 23,084 - ------------------------------------------------------------------------------------------------------------------------------------ Tier 2 Capital Allowance for Credit Losses (4) $ 3,509 $ 3,511 $ 3,455 Qualifying Debt (5) 7,176 7,020 7,296 Unrealized Marketable Equity Securities Gains (1) 117 40 29 Less: 50% Investment in Certain Subsidiaries (3) (7) (6) (6) ---------------------------------------------------- Total Tier 2 Capital 10,795 10,565 10,774 ---------------------------------------------------- Total Capital (Tier 1 and Tier 2) $ 34,781 $ 33,784 $ 33,858 - --------------------------------------------------------------------------------==================================================== Net Risk-Adjusted Assets (6) $277,822 $278,007 $273,514 - --------------------------------------------------------------------------------====================================================
(1) 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. (2) Includes goodwill and certain other identifiable intangible assets. (3) Represents investment in certain overseas insurance activities. (4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets. (5) Includes qualifying senior and subordinated debt in an amount not exceeding 50% of Tier 1 capital, and subordinated capital notes subject to certain limitations. Tier 2 capital at June 30, 1999 includes $300 million of subordinated debt issued to Citigroup (Parent Company). (6) Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $13.6 billion for interest rate, commodity and equity derivative contracts and foreign exchange contracts, as of June 30, 1999, compared to $14.3 billion as of March 31, 1999 and $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. - -------------------------------------------------------------------------------- Common stockholder's equity increased $973 million during the second quarter of 1999 to $23.8 billion at June 30, 1999, representing 6.76% of assets, compared to 6.58% at March 31, 1999 and 6.57% at December 31, 1998. The net increase in common stockholder's equity during the quarter principally reflected net income of $1.167 billion partially offset by a cash dividend to Citigroup (parent company) of $250 million. The increase in the common stockholder's equity ratio during the quarter reflected the above items, partially offset by the increase in total assets. 21 The mandatorily redeemable securities of subsidiary trusts (trust securities) outstanding at June 30, 1999 of $975 million qualify as Tier 1 capital and are included in long-term debt on the balance sheet. For the six months ended June 30 1999, interest expense on the trust securities amounted to $38 million, compared to $30 million for the 1998 six month period. Citicorp's subsidiary depository institutions are subject to the risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are generally similar to the FRB's guidelines. At June 30, 1999 all of Citicorp's subsidiary depository institutions were "well capitalized" under the federal bank regulatory agencies' definitions. Citibank, N.A. Ratios
June 30, Mar. 31, Dec. 31, 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Tier 1 Capital 8.50% 8.33% 8.41% Total Capital (Tier 1 and Tier 2) 12.57 12.39 12.55 Leverage 6.60 6.40 6.32 Common Stockholder's Equity 6.75 6.65 6.56 - --------------------------------------------------------------------------------====================================================
Citibank's net income for the second quarter of 1999 amounted to $750 million. During the quarter, Citibank paid a dividend of $200 million to Citicorp (parent company). Citibank had $6.6 billion of subordinated notes outstanding at June 30, 1999, March 31, 1999 and December 31, 1998 that were issued to Citicorp (parent company) and included in Citibank's Tier 2 capital. 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. 22 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Citicorp and Subsidiaries
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------------------------------------- In millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Revenue Loans, including Fees $5,070 $5,096 $10,451 $ 9,939 Deposits with Banks 262 267 494 549 Federal Funds Sold and Securities Purchased Under Resale Agreements 97 187 238 429 Securities, including Dividends 836 646 1,958 1,218 Trading Account Assets 212 325 374 580 Loans Held For Sale 147 137 286 246 ---------------------------------------------------------------------- 6,624 6,658 13,801 12,961 ---------------------------------------------------------------------- Interest Expense Deposits 2,564 2,783 5,429 5,405 Trading Account Liabilities 19 85 38 177 Purchased Funds and Other Borrowings 424 474 1,072 903 Long-Term Debt 324 321 714 642 ---------------------------------------------------------------------- 3,331 3,663 7,253 7,127 ---------------------------------------------------------------------- Net Interest Revenue 3,293 2,995 6,548 5,834 Provision for Credit Losses 681 564 1,314 1,071 ---------------------------------------------------------------------- Net Interest Revenue after Provision for Credit Losses 2,612 2,431 5,234 4,763 ---------------------------------------------------------------------- Fees, Commissions, and Other Revenue Fees and Commissions 1,800 1,553 3,438 2,994 Foreign Exchange 368 465 856 814 Trading Account 138 98 442 334 Securities Transactions 151 300 174 541 Other Revenue 819 791 1,553 1,290 ---------------------------------------------------------------------- 3,276 3,207 6,463 5,973 ---------------------------------------------------------------------- Operating Expense Salaries 1,496 1,471 3,016 2,826 Employee Benefits 309 349 614 703 ---------------------------------------------------------------------- Total Employee Expense 1,805 1,820 3,630 3,529 Net Premises and Equipment Expense 619 528 1,214 1,027 Restructuring - Related Items 47 -- 124 -- Other Expense 1,545 1,530 3,054 2,711 ---------------------------------------------------------------------- 4,016 3,878 8,022 7,267 ---------------------------------------------------------------------- Income Before Taxes 1,872 1,760 3,675 3,469 Income Taxes 705 660 1,383 1,301 ---------------------------------------------------------------------- Net Income $1,167 $1,100 $ 2,292 $ 2,168 - --------------------------------------------------------------======================================================================
See Notes to Consolidated Financial Statements. 23 CONSOLIDATED BALANCE SHEETS Citicorp and Subsidiaries
June 30, 1999 December 31, In millions of dollars (Unaudited) 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Cash and Due from Banks $ 9,922 $ 8,969 Deposits at Interest with Banks 11,864 15,147 Securities, at Fair Value Available for Sale 40,897 40,404 Venture Capital 3,409 3,297 Trading Account Assets 30,876 33,667 Loans Held for Sale 6,136 4,645 Federal Funds Sold and Securities Purchased Under Resale Agreements 5,508 6,888 Loans, Net Consumer 119,209 118,970 Commercial 101,012 88,024 ----------------------------------- Loans, Net of Unearned Income 220,221 206,994 Allowance for Credit Losses (6,287) (6,224) ----------------------------------- Total Loans, Net 213,934 200,770 Customers' Acceptance Liability 1,227 1,280 Premises and Equipment, Net 5,157 5,246 Interest and Fees Receivable 3,361 3,629 Other Assets 20,067 19,678 ----------------------------------- Total Assets $352,358 $343,620 - -------------------------------------------------------------------------------------------------=================================== Liabilities Non-Interest-Bearing Deposits in U.S. Offices $ 17,544 $ 17,058 Interest-Bearing Deposits in U.S. Offices 44,785 43,847 Non-Interest-Bearing Deposits in Offices Outside the U.S. 13,028 10,856 Interest-Bearing Deposits in Offices Outside the U.S. 167,251 154,052 ----------------------------------- Total Deposits 242,608 225,813 Trading Account Liabilities 24,352 30,171 Purchased Funds and Other Borrowings 18,768 23,108 Acceptances Outstanding 1,283 1,381 Accrued Taxes and Other Expense 6,720 7,159 Other Liabilities 13,765 12,820 Long-Term Debt 21,037 20,599 Stockholder's Equity Common Stock: ($0.01 par value) Issued Shares: 1,000 in each period -- -- Surplus 4,670 4,625 Retained Earnings 19,687 18,569 Accumulated Other Changes in Equity from Nonowner Sources (1) (532) (625) ----------------------------------- Total Stockholder's Equity 23,825 22,569 ----------------------------------- Total Liabilities and Stockholder's Equity $352,358 $343,620 - -------------------------------------------------------------------------------------------------===================================
(1) Amounts at June 30, 1999 and December 31, 1998 include the after-tax amounts for net unrealized gains (losses) on securities available for sale of $97 million and $(43) million, respectively, and foreign currency translation of $(629) million and $(582) million, respectively. - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. 24 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED) Citicorp and Subsidiaries
Six Months Ended June 30, ----------------------------------- In millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at Beginning of Period $22,569 $21,026 Net Income 2,292 2,168 Net Change in Unrealized Gains and Losses on Securities Available for Sale, Net of Tax 140 (227) Foreign Currency Translation Adjustment, Net of Tax (47) (52) ----------------------------------- Total Changes in Equity from Nonowner Sources 2,385 1,889 Redemption of Perpetual Preferred Stock Second Series -- (220) Third Series -- (83) Series 16 -- (325) Cash Dividends Declared Common (1,175) (522) Preferred -- (58) Repurchase of Common Shares -- (483) Employee Benefit Plans and Other Activity 46 329 ----------------------------------- Balance at End of Period $23,825 $21,553 - -------------------------------------------------------------------------------------------------=================================== Summary of Changes in Equity from Nonowner Sources Net Income $2,292 $2,168 Other Changes in Equity from Nonowner Sources 93 (279) ----------------------------------- Total Changes in Equity from Nonowner Sources $2,385 $1,889 - -------------------------------------------------------------------------------------------------===================================
See Notes to Consolidated Financial Statements. 25 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Citicorp and Subsidiaries
Six Months Ended June 30, ----------------------------------- In millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net Income $ 2,292 $ 2,168 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Provision for Credit Losses 1,314 1,071 Depreciation and Amortization of Premises and Equipment 422 384 Amortization of Goodwill and Acquisition Premium Costs 131 85 Benefit for Deferred Taxes (309) (171) Restructuring-Related Items 124 -- Venture Capital Activity (112) (518) Net Gain on Sale of Securities (174) (541) Changes in Accruals and Other, Net 2,980 (560) Net Increase in Loans Held for Sale (1,491) (1,222) Net Decrease in Trading Account Assets 2,791 3,235 Net Decrease in Trading Account Liabilities (5,819) (1,865) ----------------------------------- Total Adjustments (143) (102) ----------------------------------- Net Cash Provided by Operating Activities 2,149 2,066 ----------------------------------- Cash Flows from Investing Activities Net Decrease (Increase) in Deposits at Interest with Banks 3,283 (964) Securities -- Available for Sale Purchases (28,183) (30,152) Proceeds from Sales 14,054 10,702 Maturities 13,453 16,025 Net Decrease (Increase) in Federal Funds Sold and Securities Purchased Under Resale Agreements 1,380 (2,142) Net Increase in Loans (68,246) (90,183) Proceeds from Sales of Loans 54,080 87,841 Business Acquisitions (2,150) (3,655) Capital Expenditures on Premises and Equipment (556) (658) Proceeds from Sales of Premises and Equipment, Subsidiaries and Affiliates, and Other Real Estate Owned ("OREO") 215 321 ----------------------------------- Net Cash Used in Investing Activities (12,670) (12,865) ----------------------------------- Cash Flows from Financing Activities Net Increase in Deposits 16,795 16,861 Net (Decrease) Increase in Federal Funds Purchased and Securities Sold Under Repurchase Agreements (2,012) 231 Net Decrease in Commercial Paper and Funds Borrowed (2,214) (4,088) Proceeds from Issuance of Long-Term Debt 1,608 1,991 Repayment of Long-Term Debt (1,237) (1,653) Redemption of Preferred Stock -- (628) Proceeds from Issuance of Common Stock -- 192 Treasury Stock Repurchases -- (483) Dividends Paid (1,175) (584) ----------------------------------- Net Cash Provided by Financing Activities 11,765 11,839 ----------------------------------- Effect of Exchange Rate Changes on Cash and Due from Banks (291) (162) ----------------------------------- Net Increase in Cash and Due from Banks 953 878 Cash and Due from Banks at Beginning of Period 8,969 8,585 ----------------------------------- Cash and Due from Banks at End of Period $ 9,922 $ 9,463 - -------------------------------------------------------------------------------------------------=================================== Supplemental Disclosure of Cash Flow Information Cash Paid During the Period for: Interest $ 6,698 $ 6,347 Income Taxes 1,518 1,051 Non-Cash Investing Activities: Transfers from loans to OREO $ 80 $ 121 - -------------------------------------------------------------------------------------------------===================================
See Notes to Consolidated Financial Statements. 26 CONSOLIDATED BALANCE SHEETS Citibank, N.A. and Subsidiaries
June 30, 1999 December 31, In millions of dollars (Unaudited) 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Cash and Due from Banks $ 9,506 $ 8,052 Deposits at Interest with Banks 12,615 15,782 Securities, at Fair Value Available for Sale 34,147 34,519 Venture Capital 2,834 2,811 Trading Account Assets 27,650 31,683 Federal Funds Sold and Securities Purchased Under Resale Agreements 7,560 8,039 Loans Net of Unearned Income 194,943 182,508 Allowance for Credit Losses (4,704) (4,709) ----------------------------------- Loans, Net 190,239 177,799 Customers' Acceptance Liability 1,228 1,281 Premises and Equipment, Net 3,924 4,022 Interest and Fees Receivable 2,726 2,893 Other Assets 17,086 14,014 ----------------------------------- Total Assets $309,515 $300,895 - -------------------------------------------------------------------------------------------------=================================== Liabilities Non-Interest-Bearing Deposits in U.S. Offices $ 14,042 $ 13,271 Interest-Bearing Deposits in U.S. Offices 28,816 27,239 Non-Interest-Bearing Deposits in Offices Outside the U.S. 13,197 10,731 Interest-Bearing Deposits in Offices Outside the U.S. 164,968 151,687 ----------------------------------- Total Deposits 221,023 202,928 Trading Account Liabilities 24,124 30,753 Purchased Funds and Other Borrowings 17,143 22,096 Acceptances Outstanding 1,283 1,382 Accrued Taxes and Other Expense 3,878 4,572 Other Liabilities 9,108 8,230 Long-Term Debt and Subordinated Notes 12,067 11,202 Stockholder's Equity Capital Stock ($20.00 par value) 751 751 Outstanding Shares: 37,534,553 in each period Surplus 9,609 9,397 Retained Earnings 11,201 10,356 Accumulated Other Changes in Equity from Nonowner Sources (1) (672) (772) ----------------------------------- Total Stockholder's Equity 20,889 19,732 ----------------------------------- Total Liabilities and Stockholder's Equity $309,515 $300,895 - -------------------------------------------------------------------------------------------------===================================
(1) Amounts at June 30, 1999 and December 31, 1998 include the after-tax amounts for net unrealized gains (losses) on securities available for sale of $27 million and $(113) million, respectively, and foreign currency translation of $(699) million and $(659) million, respectively. - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying consolidated financial statements as of June 30, 1999 and for the three and six month periods ended June 30, 1999 and 1998 are unaudited and include the accounts of Citicorp and its subsidiaries (collectively, the Company). The Company is a wholly-owned subsidiary of Citigroup Inc. In the opinion of management all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation have been reflected. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 1998. Certain financial information that is normally included in annual financial statements prepared in accordance with generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted. 2. Business Segment Information The following table presents certain information regarding the Company's industry segments:
Total Revenues, Net Net Income (Loss) of Interest Expense Income Taxes (1) Identifiable Assets ------------------------------------------------------------------------------------ Three Months Ended June 30, June 30, Dec. 31, In millions of dollars ------------------------------------------------------------------------------------ except identifiable assets in billions 1999 1998 (2) 1999 1998 (2) 1999 1998 (2) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Global Consumer (3) $4,080 $3,566 $390 $258 $ 635 $ 409 $164 $161 Global Corporate (3) 2,095 2,123 269 284 450 481 169 165 Asset Management 81 90 (3) 3 (4) 7 1 1 Investment Activities 233 446 75 145 142 288 9 8 Corporate/Other 80 (23) (26) (30) (56) (85) 9 9 ------------------------------------------------------------------------------------ Total $6,569 $6,202 $705 $660 $1,167 $1,100 $352 $344 - ------------------------------------------------====================================================================================
Total Revenues, Net Net Income (Loss) of Interest Expense Income Taxes (1) --------------------------------------------------------------- Six Months Ended June 30, --------------------------------------------------------------- In millions of dollars 1999 1998 (2) 1999 1998 (2) 1999 1998 (2) - ------------------------------------------------------------------------------------------------------------------------------------ Global Consumer (3) $ 8,016 $ 6,713 $ 748 $ 532 $1,225 $ 844 Global Corporate (3) 4,320 4,069 577 535 968 901 Asset Management 181 178 1 7 3 16 Investment Activities (3) 356 921 112 304 214 603 Corporate/Other 138 (74) (55) (77) (118) (196) --------------------------------------------------------------- Total $13,011 $11,807 $1,383 $1,301 $2,292 $2,168 - ---------------------------------------------------------------------===============================================================
(1) For the 1999 second quarter and six month periods, results reflect after-tax restructuring-related items of $18 million and $55 million in Global Consumer; $3 million and $7 million in Global Corporate; and $8 million and $15 million in Corporate/Other, respectively. (2) The 1998 results have been restated to reflect changes in capital and tax allocations among the segments to conform the policies of Citicorp and Travelers Group Inc. (3) Includes provision for credit losses in the Global Consumer results of $571 million and $536 million, and in the Global Corporate results of $110 million and $28 million for the second quarters of 1999 and 1998, respectively. Includes provision for credit losses in the Global Consumer results of $1,093 million and $988 million, and in the Global Corporate results of $221 million and $93 million for the six months of 1999 and 1998, respectively. Investment Activities results include a provision (benefit) for credit losses of $(10) million in the six months of 1998 period. - -------------------------------------------------------------------------------- 28 3. Securities
June 30, 1999 December 31, 1998(1) ------------------------------------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Amortized In millions of dollars Cost Gains Losses Fair Value Cost Fair Value - ------------------------------------------------------------------------------------------------------------------------------------ Securities Available for Sale U.S. Treasury and Federal Agency $ 6,643 $ 33 $126 $ 6,550 $ 4,649 $ 4,704 State and Municipal 3,271 178 108 3,341 3,289 3,309 Foreign Government 22,376 349 381 22,344 24,930 24,665 U.S. Corporate 2,411 31 56 2,386 2,162 2,217 Other Debt Securities 3,087 51 27 3,111 2,680 2,729 Equity Securities (2) 2,905 374 114 3,165 2,715 2,780 ------------------------------------------------------------------------------------ $40,693 $1,016 $812 $40,897 $40,425 $40,404 - ------------------------------------------------==================================================================================== Venture Capital (3) $3,409 $3,297 - ------------------------------------------------------------------------------------------------------------------------------------ Securities Available for Sale Include: Mortgage-Backed Securities $4,402 $ 5 $105 $4,302 $3,367 $3,383 Government of Brazil Brady Bonds 658 158 -- 816 660 686 Government of Venezuela Brady Bonds 450 -- 104 346 478 304 - ------------------------------------------------====================================================================================
(1) At December 31, 1998, gross unrealized gains and losses on securities available for sale totaled $1.194 billion and $1.215 billion, respectively. (2) Includes non-marketable equity securities carried at cost, which are reported in both the amortized cost and fair value columns. (3) For the six months ended June 30, 1999, net gains on investments held by venture capital subsidiaries totaled $333 million, of which $342 million and $265 million represented gross unrealized gains and losses, respectively. For the six months ended June 30, 1998, net gains on investments held by venture capital subsidiaries totaled $435 million, of which $518 million and $148 million represented gross unrealized gains and losses, respectively. - -------------------------------------------------------------------------------- 4. Trading Account Assets and Liabilities
June 30, Dec. 31, In millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Trading Account Assets U.S. Treasury and Federal Agency Securities $804 $ 86 Foreign Government, Corporate and Other Securities 10,887 8,010 Derivative and Foreign Exchange Contracts (1) 19,185 25,571 ----------------------------------- $30,876 $33,667 - -------------------------------------------------------------------------------------------------=================================== Trading Account Liabilities Securities Sold, Not Yet Purchased $3,201 $ 2,644 Derivative and Foreign Exchange Contracts (1) 21,151 27,527 ----------------------------------- $24,352 $30,171 - -------------------------------------------------------------------------------------------------===================================
(1) Net of master netting agreements and securitization. - -------------------------------------------------------------------------------- 5. Restructuring-Related Items In December 1998, Citicorp recorded a restructuring charge of $1.006 billion, reflecting exit costs associated with business improvement and integration initiatives to be implemented over a 12 to 18 month period. The charge included $666 million related to employee severance for the elimination of approximately 10,700 positions, after considering attrition and redeployment within the Company. The overall workforce reduction, net of anticipated rehires to fill relocated positions, is expected to be approximately 9,200 positions worldwide. The charge also included $310 million related to exiting leasehold and other contractual obligations, and $30 million related to the write-down to estimated salvage value of assets that are available for immediate disposal. 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 Group Inc. 29 In addition, the implementation of these restructuring initiatives will cause some related premises and equipment assets to become redundant. In accordance with recent SEC guidelines, the remaining depreciable lives of these assets have been shortened, and accelerated depreciation charges (in addition to normal scheduled depreciation on these assets) will be recognized in subsequent periods, $47 million and $124 million of which were recorded in the 1999 second quarter and six months, respectively. Additional implementation costs associated with these restructuring initiatives will be expensed as incurred but are not expected to be material. 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 status of the 1998 and 1997 restructuring initiatives is summarized in the following table. Restructuring Reserves Activity
1998 1997 Restructuring Restructuring In millions of dollars Reserve Reserve Total - ------------------------------------------------------------------------------------------------------------------------------------ Restructuring Charges $1,006 $880 $1,886 Utilization (1) (357) (744) (1,101) Changes in 1997 Estimates -- (38) (38) ---------------------------------------------------- Balance at June 30, 1999 $ 649 $ 98 $ 747 - --------------------------------------------------------------------------------====================================================
(1) Utilization amounts include translation effects on the restructuring reserve. - -------------------------------------------------------------------------------- The 1998 restructuring reserve utilization includes $30 million of non-cash charges for equipment and premises write-downs as well as $295 million of severance and other exit costs, occurring primarily in the first half of 1999, (of which $151 million related to employee severance and $54 million related to leasehold and other exit costs have been paid in cash and $90 million is legally obligated), together with translation effects. Utilization, including translation effects, in the second quarter of 1999 was $128 million. Through June 30, 1999, approximately 3,100 gross staff positions have been eliminated under these programs, including 1,100 in the 1999 second quarter. The 1997 restructuring reserve utilization includes $245 million of non-cash charges for equipment and premises write-downs as well as $491 million of severance and other exit costs (of which $299 million related to employee severance and $149 million related to leasehold and other exit costs have been paid in cash and $43 million is legally obligated), together with translation effects. Utilization, including translation effects, in the second quarter of 1999 was $36 million. Through June 30, 1999, approximately 5,400 gross staff positions have been eliminated under these programs, including 300 in the 1999 second quarter. Changes in 1997 estimates are attributable to facts and circumstances arising subsequent to the original restructuring charge and are the result of 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 Group Inc. During the fourth quarter of 1998, $38 million of the reserve was released. Additional information about the 1998 and 1997 restructuring charges, including the business segments affected may be found in the 1998 Form 10-K. 30 6. Derivative and Foreign Exchange Contracts The table below presents the aggregate notional principal amounts of Citicorp's outstanding derivative and foreign exchange contracts at June 30, 1999 and December 31, 1998, along with the related balance sheet credit exposure. Additional information concerning Citicorp's derivative and foreign exchange products and activities, including a description of accounting policies, and credit and market risk management process is provided in the 1998 Form 10-K.
Balance Sheet Notional Principal Amounts Credit Exposure (1) (2) --------------------------------------------------------------- June 30, Dec. 31, June 30, Dec. 31, In billions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Rate Products $1,556.1 $1,547.1 $6.4 $10.3 Foreign Exchange Products 1,770.6 2,038.3 8.1 11.1 Equity Products 78.4 80.6 3.3 3.6 Commodity Products 13.1 10.9 1.3 0.4 Credit Derivative Products 32.4 25.9 0.1 0.2 ------------------------------- $19.2 $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 $24.2 billion and $29.1 billion of master netting agreements in effect at June 30, 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 June 30, 1999 and December 31, 1998, respectively. - -------------------------------------------------------------------------------- The tables below provide data on the notional principal amounts and maturities of end-user (non-trading) derivatives, along with additional data on end-user interest rate swaps and net purchased option positions at the end of the second quarter 1999. End-User Derivative Interest Rate and Foreign Exchange Contracts
Notional Principal Amounts (1) Percentage of June 30, 1999 Amount Maturing ------------------------------------------------------------------------------------ June 30, 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 $22.1 $28.1 65% 24% 7% 3% 1% --% Forward Contracts 7.5 6.5 100 -- -- -- -- -- Swap Agreements 103.1 96.5 38 13 9 9 9 22 Option Contracts 8.6 9.7 64 1 13 -- 3 19 Foreign Exchange Products Futures and Forward Contracts 55.0 62.1 94 4 1 1 -- -- Cross-Currency Swaps 4.8 4.6 19 14 17 20 17 13 - ------------------------------------------------====================================================================================
(1) Includes third-party and intercompany contracts. - -------------------------------------------------------------------------------- 31 End-User Interest Rate Swaps and Net Purchased Options as of June 30, 1999
Remaining Contracts Outstanding Notional Principal Amounts --------------------------------------------------------------- In billions of dollars 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Receive Fixed Swaps $62.1 $49.1 $41.3 $34.4 $26.5 $17.8 Weighted-Average Fixed Rate 6.4% 6.4% 6.5% 6.3% 6.4% 6.7% Pay Fixed Swaps 20.8 12.6 9.2 7.1 5.6 4.6 Weighted-Average Fixed Rate 5.9% 6.0% 6.1% 6.1% 6.4% 6.6% Basis Swaps 20.2 2.7 0.2 0.2 0.2 0.2 Purchased Caps (Including Collars) 2.5 -- -- -- -- -- Weighted-Average Cap Rate Purchased 6.8% --% --% --% --% --% Purchased Floors 3.4 0.7 0.7 0.1 0.1 0.1 Weighted-Average Floor Rate Purchased 5.8% 6.0% 6.0% 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) 2.5 2.4 2.3 1.8 1.8 1.5 Weighted-Average Cap Rate Written 9.8% 9.8% 9.8% 10.6% 10.6% 10.7% - ------------------------------------------------------------------------------------------------------------------------------------ Three-Month Forward LIBOR Rates (2) 5.4% 6.0% 6.4% 6.6% 6.7% 6.8% - ---------------------------------------------------------------------===============================================================
(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 June 30, 1999, provided for reference. - -------------------------------------------------------------------------------- In June 1999, the Financial Accounting Standards Board ("FASB") deferred the effective date of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" for one year. As a result, SFAS No. 133 will become effective on January 1, 2001 for calendar year companies such as the Company. 7. Contingencies In the ordinary course of business, Citicorp and its subsidiaries are defendants or co-defendants in various litigation matters. Although there can be no assurances, the Company believes, based on information currently available, that the ultimate resolutions of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. 32 - -------------------------------------------------------------------------------- FINANCIAL DATA SUPPLEMENT - -------------------------------------------------------------------------------- Citicorp and Subsidiaries AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis - Quarterly (1)(2)
Average Volume Interest Revenue/Expense % Average Rate --------------------------------------------------------------------------------------- 1st 2nd 2nd Qtr. 1st Qtr. 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr. 2nd Qtr. Qtr. Qtr. In millions of dollars 1999 1999 1998 1999 1999 1998 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Loans (Net of Unearned Income) (3) Consumer Loans In U.S. Offices $ 62,521 $ 62,785 $ 60,282 $1,477 $1,459 $1,527 9.48 9.42 10.16 In Offices Outside the U.S. (4) 56,084 54,937 50,547 1,623 1,524 1,553 11.61 11.25 12.32 --------------------------------------------------------------- Total Consumer Loans 118,605 117,722 110,829 3,100 2,983 3,080 10.48 10.28 11.15 --------------------------------------------------------------- Commercial Loans In U.S. Offices Commercial and Industrial 13,721 14,411 10,941 280 262 223 8.19 7.37 8.18 Mortgage and Real Estate 1,447 1,887 3,088 28 41 67 7.76 8.81 8.70 Loans to Financial Institutions 4,189 3,880 279 67 70 6 6.42 7.32 8.63 Lease Financing 2,994 2,890 2,928 45 46 47 6.03 6.46 6.44 In Offices Outside the U.S. (4) 71,433 70,775 63,205 1,551 1,980 1,674 8.71 11.35 10.62 --------------------------------------------------------------- Total Commercial Loans 93,784 93,843 80,441 1,971 2,399 2,017 8.43 10.37 10.06 --------------------------------------------------------------- Total Loans 212,389 211,565 191,270 5,071 5,382 5,097 9.58 10.32 10.69 --------------------------------------------------------------- Federal Funds Sold and Resale Agreements In U.S. Offices 3,195 5,215 6,673 31 51 59 3.89 3.97 3.55 In Offices Outside the U.S. (4) 3,148 3,302 5,869 66 90 128 8.41 11.05 8.75 --------------------------------------------------------------- Total 6,343 8,517 12,542 97 141 187 6.13 6.71 5.98 --------------------------------------------------------------- Securities, At Fair Value In U.S. Offices Taxable 12,425 11,966 10,371 135 120 106 4.36 4.07 4.10 Exempt from U.S. Income Tax 3,310 3,281 2,828 47 50 42 5.70 6.18 5.96 In Offices Outside the U.S. (4) 28,139 27,347 23,164 668 970 510 9.52 14.39 8.83 --------------------------------------------------------------- Total 43,874 42,594 36,363 850 1,140 658 7.77 10.85 7.26 --------------------------------------------------------------- Trading Account Assets (5) In U.S. Offices 2,615 1,911 5,452 33 30 84 5.06 6.37 6.18 In Offices Outside the U.S. (4) 9,097 7,702 11,487 179 132 242 7.89 6.95 8.45 --------------------------------------------------------------- Total 11,712 9,613 16,939 212 162 326 7.26 6.83 7.72 --------------------------------------------------------------- Loans Held for Sale, In U.S. Offices 5,836 4,913 4,525 147 139 137 10.10 11.47 12.14 Deposits at Interest with Banks (4) 12,258 12,282 14,404 262 232 267 8.57 7.66 7.43 --------------------------------------------------------------- Total Interest-Earning Assets 292,412 289,484 276,043 $6,639 $7,196 $6,672 9.11 10.08 9.69 ---------------------------------------------------- Non-Interest-Earning Assets (5) 52,584 55,839 50,511 ----------------------------------- Total Assets $344,996 $345,323 $326,554 - ------------------------------------------------------------------------------------------------------------------------------------ Deposits In U.S. Offices Savings Deposits (6) $ 33,248 $ 32,847 $ 31,094 $ 224 $ 222 $ 229 2.70 2.74 2.95 Other Time Deposits 11,370 11,191 10,698 95 94 121 3.35 3.41 4.54 In Offices Outside the U.S. (4) 166,572 160,550 146,711 2,245 2,549 2,433 5.41 6.44 6.65 --------------------------------------------------------------- Total 211,190 204,588 188,503 2,564 2,865 2,783 4.87 5.68 5.92 --------------------------------------------------------------- Trading Account Liabilities (5) In U.S. Offices 1,333 1,781 3,698 11 14 48 3.31 3.19 5.21 In Offices Outside the U.S. (4) 766 726 2,578 8 5 37 4.19 2.79 5.76 --------------------------------------------------------------- Total 2,099 2,507 6,276 19 19 85 3.63 3.07 5.43 --------------------------------------------------------------- Purchased Funds and Other Borrowings In U.S. Offices 8,269 11,616 12,708 92 127 165 4.46 4.43 5.21 In Offices Outside the U.S. (4) 9,593 10,032 9,056 332 521 309 13.88 21.06 13.69 --------------------------------------------------------------- Total 17,862 21,648 21,764 424 648 474 9.52 12.14 8.74 --------------------------------------------------------------- Long-Term Debt In U.S. Offices 16,044 16,928 17,773 211 220 245 5.27 5.27 5.53 In Offices Outside the U.S. (4) 4,438 3,501 3,218 113 170 76 10.21 19.69 9.47 --------------------------------------------------------------- Total 20,482 20,429 20,991 324 390 321 6.34 7.74 6.13 --------------------------------------------------------------- Total Interest-Bearing Liabilities 251,633 249,172 237,534 $3,331 $3,922 $3,663 5.31 6.38 6.19 ---------------------------------------------------- Demand Deposits in U.S. Offices 11,516 10,709 10,031 Other Non-Interest-Bearing Liabilities (5) 58,388 62,498 57,649 Total Stockholder's Equity 23,459 22,944 21,340 ----------------------------------- Total Liabilities and Stockholder's Equity $344,996 $345,323 $326,554 - ------------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS In U.S. Offices (7) $112,259 $113,227 $107,392 $1,383 $1,349 $1,281 4.94 4.83 4.78 In Offices Outside the U.S. (7) 180,153 176,257 168,651 1,925 1,925 1,728 4.29 4.43 4.11 --------------------------------------------------------------- Total $292,412 $289,484 $276,043 $3,308 $3,274 $3,009 4.54 4.59 4.37 - ---------------------------------------------=======================================================================================
(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 6 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. - -------------------------------------------------------------------------------- 33 Citicorp and Subsidiaries AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis - Six Months(1)(2)
Interest Average Volume Revenue/Expense % Average Rate -------------------------------------------------------------------- Six Months Six Months Six Months Six Months Six Months Six Months In millions of dollars 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Loans (Net of Unearned Income) (3) Consumer Loans In U.S. Offices $ 62,653 $ 58,291 $ 2,936 $ 2,950 9.45 10.21 In Offices Outside the U.S. (4) 55,511 50,040 3,147 3,049 11.43 12.29 --------------------------------------------- Total Consumer Loans 118,164 108,331 6,083 5,999 10.38 11.17 --------------------------------------------- Commercial Loans In U.S. Offices Commercial and Industrial 14,066 10,955 542 443 7.77 8.15 Mortgage and Real Estate 1,667 2,933 69 129 8.35 8.87 Loans to Financial Institutions 4,034 319 137 15 6.85 9.48 Lease Financing 2,942 2,967 91 97 6.24 6.59 In Offices Outside the U.S. (4) 71,104 61,394 3,531 3,258 10.01 10.70 --------------------------------------------- Total Commercial Loans 93,813 78,568 4,370 3,942 9.39 10.12 --------------------------------------------- Total Loans 211,977 186,899 10,453 9,941 9.94 10.73 --------------------------------------------- Federal Funds Sold and Resale Agreements In U.S. Offices 4,205 7,664 82 152 3.93 4.00 In Offices Outside the U.S. (4) 3,225 6,042 156 277 9.75 9.25 --------------------------------------------- Total 7,430 13,706 238 429 6.46 6.31 --------------------------------------------- Securities, At Fair Value In U.S. Offices Taxable 12,196 9,530 255 199 4.22 4.21 Exempt from U.S. Income Tax 3,295 2,737 97 86 5.94 6.34 In Offices Outside the U.S. (4) 27,743 22,782 1,638 961 11.91 8.51 --------------------------------------------- Total 43,234 35,049 1,990 1,246 9.28 7.17 --------------------------------------------- Trading Account Assets (5) In U.S. Offices 2,263 6,019 63 184 5.61 6.16 In Offices Outside the U.S. (4) 8,400 10,693 311 397 7.47 7.49 --------------------------------------------- Total 10,663 16,712 374 581 7.07 7.01 --------------------------------------------- Loans Held for Sale, In U.S. Offices 5,374 4,070 286 246 10.73 12.19 Deposits at Interest with Banks (4) 12,270 14,180 494 549 8.12 7.81 --------------------------------------------- Total Interest-Earning Assets 290,948 270,616 $13,835 $12,992 9.59 9.68 --------------------------------------------- Non-Interest-Earning Assets (5) 54,212 49,119 ----------------------- Total Assets $345,160 $319,735 - ------------------------------------------------------------------------------------------------------------------------------------ Deposits In U.S. Offices Savings Deposits (6) $ 33,047 $ 30,581 $ 446 $ 453 2.72 2.99 Other Time Deposits 11,281 10,945 189 250 3.38 4.61 In Offices Outside the U.S. (4) 163,561 141,686 4,794 4,702 5.91 6.69 --------------------------------------------- Total 207,889 183,212 5,429 5,405 5.27 5.95 --------------------------------------------- Trading Account Liabilities (5) In U.S. Offices 1,557 4,044 25 108 3.24 5.39 In Offices Outside the U.S. (4) 746 2,364 13 69 3.51 5.89 --------------------------------------------- Total 2,303 6,408 38 177 3.33 5.57 --------------------------------------------- Purchased Funds and Other Borrowings In U.S. Offices 9,943 12,340 219 315 4.44 5.15 In Offices Outside the U.S. (4) 9,812 8,654 853 588 17.53 13.70 --------------------------------------------- Total 19,755 20,994 1,072 903 10.94 8.67 --------------------------------------------- Long-Term Debt In U.S. Offices 16,486 16,550 431 481 5.27 5.86 In Offices Outside the U.S. (4) 3,970 3,608 283 161 14.38 9.00 --------------------------------------------- Total 20,456 20,158 714 642 7.04 6.42 --------------------------------------------- Total Interest-Bearing Liabilities 250,403 230,772 $ 7,253 $ 7,127 5.84 6.23 --------------------------------------------- Demand Deposits in U.S. Offices 11,113 10,771 Other Non-Interest-Bearing Liabilities (5) 60,442 57,100 Total Stockholder's Equity 23,202 21,092 ----------------------- Total Liabilities and Stockholder's Equity $345,160 $319,735 - ------------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS In U.S. Offices (7) $112,743 $105,513 $ 2,732 $ 2,516 4.89 4.81 In Offices Outside the U.S. (7) 178,205 165,103 3,850 3,349 4.36 4.09 --------------------------------------------- Total $290,948 $270,616 $ 6,582 $ 5,865 4.56 4.37 - ----------------------------------------------------------------====================================================================
(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 6 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. - -------------------------------------------------------------------------------- 34 CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS (1)
June 30, Dec. 31, June 30, In millions of dollars 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Cash-Basis Loans Collateral Dependent (at Lower of Cost or Collateral Value) (2) $ 148 $ 142 $ 193 Other 1,341 1,201 1,100 ---------------------------------------------------- Total $1,489 $1,343 $1,293 - --------------------------------------------------------------------------------==================================================== Commercial Cash-Basis Loans In U.S. Offices $ 199 $ 211 $ 216 In Offices Outside the U.S. 1,290 1,132 1,077 ---------------------------------------------------- Total $1,489 $1,343 $1,293 - --------------------------------------------------------------------------------==================================================== Commercial Renegotiated Loans (In Offices Outside the U.S.) $50 $45 $45 - --------------------------------------------------------------------------------==================================================== Consumer Loans on which Accrual of Interest had been Suspended In U.S. Offices (3) $ 571 $ 646 $ 698 In Offices Outside the U.S. 1,527 1,458 1,176 ---------------------------------------------------- Total $2,098 $2,104 $1,874 - --------------------------------------------------------------------------------==================================================== Accruing Loans 90 or More Days Delinquent (4) In U.S. Offices (3) $ 575 $ 592 $ 570 In Offices Outside the U.S. 472 532 470 ---------------------------------------------------- Total $1,047 $1,124 $1,040 - --------------------------------------------------------------------------------====================================================
(1) For a discussion of risks in the consumer loan portfolio, see pages 4-12, and of commercial cash-basis loans, see pages 13 and 14. (2) A cash-basis loan is defined as collateral dependent when repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment, in which case the loans are written down to the lower of cost or collateral value. (3) Includes $12 million, $10 million and $10 million of consumer loans on which accrual of interest had been suspended and $26 million, $30 million and $32 million of accruing loans 90 or more days delinquent related to loans held for sale at June 30, 1999, December 31, 1998 and June 30, 1998, respectively. (4) Primarily consumer loans on the balance sheet of which $284 million, $267 million and $247 million are government-guaranteed student loans at June 30, 1999, December 31, 1998 and June 30, 1998, respectively. - -------------------------------------------------------------------------------- OTHER REAL ESTATE OWNED AND ASSETS PENDING DISPOSITION
June 30, Dec. 31, June 30, In millions of dollars 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer (1) $184 $230 $182 Commercial (1) 206 262 348 ---------------------------------------------------- Total $390 $492 $530 - --------------------------------------------------------------------------------==================================================== Assets Pending Disposition (2) $89 $100 $104 - --------------------------------------------------------------------------------====================================================
(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. - -------------------------------------------------------------------------------- 35 DETAILS OF CREDIT LOSS EXPERIENCE
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. In millions of dollars 1999 1999 1998 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for Credit Losses at Beginning of Period $6,250 $6,224 $6,240 $6,182 $5,828 --------------------------------------------------------------------------------------- Provision for Credit Losses 681 633 574 736 564 Gross Credit Losses Consumer In U.S. Offices 344 295 326 335 381 In Offices Outside the U.S. 332 304 294 262 246 Commercial In U.S. Offices 2 1 10 56 1 In Offices Outside the U.S. 132 130 128 216 81 --------------------------------------------------------------------------------------- 810 730 758 869 709 --------------------------------------------------------------------------------------- Credit Recoveries Consumer In U.S. Offices 55 39 41 49 55 In Offices Outside the U.S. 70 63 79 69 61 Commercial In U.S. Offices 3 2 17 26 50 In Offices Outside the U.S. 21 18 30 14 4 --------------------------------------------------------------------------------------- 149 122 167 158 170 --------------------------------------------------------------------------------------- Net Credit Losses In U.S. Offices 288 255 278 316 277 In Offices Outside the U.S. 373 353 313 395 262 --------------------------------------------------------------------------------------- 661 608 591 711 539 --------------------------------------------------------------------------------------- Other-Net (1) 17 1 1 33 329 --------------------------------------------------------------------------------------- Allowance for Credit Losses at End of Period $6,287 $6,250 $6,224 $6,240 $6,182 - ---------------------------------------------======================================================================================= Net Consumer Credit Losses $551 $497 $500 $479 $511 As a Percentage of Average Consumer Loans 1.86% 1.71% 1.71% 1.72% 1.85% - ------------------------------------------------------------------------------------------------------------------------------------ Net Commercial Credit Losses $110 $111 $91 $232 $28 As a Percentage of Average Commercial Loans 0.47% 0.48% 0.41% 1.11% 0.14% - ---------------------------------------------=======================================================================================
(1) Primarily includes foreign currency translation effects and the addition of allowance for credit losses related to acquisitions. In the second quarter of 1998, reflects the addition of a $320 million allowance for credit losses related to the acquisition of the Universal Card portfolio. - -------------------------------------------------------------------------------- 36 TRADING-RELATED REVENUE
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------------------------------------- In millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ By Income Statement Line Foreign Exchange $368 $465 $ 856 $ 814 Trading Account 138 98 442 334 Other (1) 94 167 174 310 ---------------------------------------------------------------------- Total $600 $730 $1,472 $1,458 - --------------------------------------------------------------====================================================================== By Trading Activity Foreign Exchange (2) $308 $425 $ 732 $ 837 Derivative (3) 183 182 473 378 Fixed Income (4) 21 31 53 101 Other 88 92 214 142 ---------------------------------------------------------------------- Total $600 $730 $1,472 $1,458 - --------------------------------------------------------------====================================================================== By Business Sector Global Corporate Emerging Markets $221 $259 $ 522 $ 530 Global Relationship Banking 285 357 733 740 ---------------------------------------------------------------------- Total Global Corporate 506 616 1,255 1,270 Global Consumer and Other 94 114 217 188 ---------------------------------------------------------------------- Total $600 $730 $1,472 $1,458 - --------------------------------------------------------------======================================================================
(1) Primarily net interest revenue. (2) Foreign exchange activity includes foreign exchange spot, forward, and option contracts. (3) Derivative activity primarily includes interest rate and currency swaps, options, financial futures, and equity and commodity contracts. (4) Fixed income activity principally includes debt instruments including government and corporate debt as well as mortgage assets. - -------------------------------------------------------------------------------- 37 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index (b) Reports on Form 8-K On April 20, 1999, the Company filed a Current Report on Form 8-K dated April 19, 1999 (Item 5), which report summarized the consolidated operations of Citicorp and its subsidiaries for the three month period ended March 31, 1999. No other reports on Form 8-K were filed during the second quarter of 1999; however, on July 20, 1999 the Company filed a Current Report on Form 8-K dated July 19, 1999 (Item 5), which report summarized the consolidated operations of Citicorp and its subsidiaries for the three and six month periods ended June 30, 1999. 38 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of August, 1999. CITICORP (Registrant) By: /s/ Heidi G. Miller ----------------------- Name: Heidi G. Miller Title: Chief Financial Officer Principal Financial Officer By: /s/ Roger W. Trupin ----------------------- Name: Roger W. Trupin Title: Vice President and Controller 39 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 (incorporated herein by reference to Exhibit 3(ii) to Citicorp's Financial Review and Form 10-Q filed on November 13, 1998). 12.01 Computation of Ratio of Earnings to Fixed Charges. 12.02 Computation of Ratio of Earnings to Fixed Charges (including preferred stock dividends). 27.01 Financial Data Schedule. The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of Citicorp does not exceed 10% of the total assets of Citicorp and its consolidated subsidiaries. Citicorp will furnish copies of any such instrument to the SEC upon request. 40 EX-12.01 2 CALCULATION OF RATIO CITICORP AND SUBSIDIARIES CALCULATION OF RATIO OF INCOME TO FIXED CHARGES (In Millions)
YEAR ENDED DECEMBER 31, SIX MONTHS JUNE 30, EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998 -------- -------- -------- -------- -------- -------- -------- FIXED CHARGES: INTEREST EXPENSE (OTHER THAN INTEREST ON DEPOSITS) 3,485 3,468 3,435 4,110 5,906 1,824 1,722 INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143 103 83 -------- -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES 3,664 3,627 3,585 4,250 6,049 1,927 1,805 -------- -------- -------- -------- -------- -------- -------- INCOME: INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631 3,675 3,469 FIXED CHARGES 3,664 3,627 3,585 4,250 6,049 1,927 1,805 -------- -------- -------- -------- -------- -------- -------- TOTAL INCOME 8,133 9,378 9,678 9,858 10,680 5,602 5,274 ======== ======== ======== ======== ======== ======== ======== RATIO OF INCOME TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS 2.22 2.59 2.70 2.32 1.77 2.91 2.92 ======== ======== ======== ======== ======== ======== ======== INCLUDING INTEREST ON DEPOSITS: FIXED CHARGES: INTEREST EXPENSE 14,988 13,081 12,409 13,012 14,902 7,253 7,127 INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143 103 83 -------- -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES 15,167 13,240 12,559 13,152 15,045 7,356 7,210 -------- -------- -------- -------- -------- -------- -------- INCOME: INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631 3,675 3,469 FIXED CHARGES 15,167 13,240 12,559 13,152 15,045 7,356 7,210 -------- -------- -------- -------- -------- -------- -------- TOTAL INCOME 19,636 18,991 18,652 18,760 19,676 11,031 10,679 ======== ======== ======== ======== ======== ======== ======== RATIO OF INCOME TO FIXED CHARGES INCLUDING INTEREST ON DEPOSITS 1.29 1.43 1.49 1.43 1.31 1.50 1.48 ======== ======== ======== ======== ======== ======== ========
EX-12.02 3 CALCULATION OF RATIO CITICORP AND SUBSIDIARIES CALCULATION OF RATIO OF INCOME TO FIXED CHARGES INCLUDING PREFERRED STOCK DIVIDENDS (In Millions)
YEAR ENDED DECEMBER 31, SIX MONTHS JUNE 30, EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998 -------- -------- -------- -------- -------- -------- -------- FIXED CHARGES: INTEREST EXPENSE (OTHER THAN INTEREST ON DEPOSITS) 3,485 3,468 3,435 4,110 5,906 1,824 1,722 INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143 103 83 DIVIDENDS--PREFERRED STOCK 126(A) 223 261 553 505(B) --(A) 93 -------- -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES 3,790 3,850 3,846 4,803 6,554 1,927 1,898 -------- -------- -------- -------- -------- -------- -------- INCOME: INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631 3,675 3,469 FIXED CHARGES (EXCLUDING PREFERRED STOCK DIVIDENDS) 3,664 3,627 3,585 4,250 6,049 1,927 1,805 -------- -------- -------- -------- -------- -------- -------- TOTAL INCOME 8,133 9,378 9,678 9,858 10,680 5,602 5,274 ======== ======== ======== ======== ======== ======== ======== RATIO OF INCOME TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS 2.15 2.44 2.52 2.05 1.63 2.91 2.78 ======== ======== ======== ======== ======== ======== ======== INCLUDING INTEREST ON DEPOSITS: FIXED CHARGES: INTEREST EXPENSE 14,988 13,081 12,409 13,012 14,902 7,253 7,127 INTEREST FACTOR IN RENT EXPENSE 179 159 150 140 143 103 83 DIVIDENDS--PREFERRED STOCK 126(A) 223 261 553 505(B) --(A) 93 -------- -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES 15,293 13,463 12,820 13,705 15,550 7,356 7,303 -------- -------- -------- -------- -------- -------- -------- INCOME: INCOME BEFORE TAXES 4,469 5,751 6,093 5,608 4,631 3,675 3,469 FIXED CHARGES (EXCLUDING PREFERRED STOCK DIVIDENDS) 15,167 13,240 12,559 13,152 15,045 7,356 7,210 -------- -------- -------- -------- -------- -------- -------- TOTAL INCOME 19,636 18,991 18,652 18,760 19,676 11,031 10,679 ======== ======== ======== ======== ======== ======== ======== RATIO OF INCOME TO FIXED CHARGES INCLUDING INTEREST ON DEPOSITS 1.28 1.41 1.45 1.37 1.27 1.50 1.46 ======== ======== ======== ======== ======== ======== ========
(A) On October 8, 1998, CITICORP merged into a newly formed, wholly owned subsidiary of Travelers Group Inc. (TRV) (The Merger). Following the Merger, TRV changed its name to Citigroup Inc. (Citigroup). Under the terms of the Merger, Citicorp's Common and Preferred stock were exchanged for Citigroup Common stock and Preferred stock. (B) Calculated using a tax rate of 29% for 1994 EX-27.01 4 ARTICLE 9
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITICORP'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURES. 0000020405 CITICORP 1999 1,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 9,922 11,864 5,508 30,876 40,897 0 0 220,221 6,287 352,358 242,608 18,768 13,765 21,037 0 0 0 23,825 352,358 10,451 1,958 1,392 13,801 5,429 7,253 6,548 1,314 174 3,054 3,675 2,292 0 0 2,292 0 0 4.56 3,587 1,047 50 0 6,224 1,540 271 6,287 0 0 0 Includes Securities Purchased Under Resale Agreements. Allowance activity for the six months of 1999 includes $18MM 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. (TRV) (the Merger). Following the Merger, TRV changed its name to Citigroup Inc. (Citigroup). Under the terms of the Merger, Citigroup Common and Preferred Stock were exchanged for Citigroup Common and Preferred Stock. Taxable Equivalent Basis. Includes $1,489MM of cash-basis commercial loans and $2,098MM 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. See Footnote F8 above.
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