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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
COMMISSION FILE NUMBER 1-5738
CITICORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1515595
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
399 PARK AVENUE, NEW YORK, NEW YORK 10043
(ADDRESS OF PRINCIPAL 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 AN INDIRECT 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.
AVAILABLE ON THE WEB AT www.citigroup.com
CITICORP
TABLE OF CONTENTS
Part I - Financial Information
Page No.
--------
Item 1. Financial Statements:
Consolidated Statement of Income (Unaudited) -
Three and Nine Months Ended September 30, 2002 and 2001 32
Consolidated Balance Sheet -
September 30, 2002 (Unaudited) and December 31, 2001 33
Consolidated Statement of Changes in Stockholder's Equity
(Unaudited) - Nine Months Ended September 30, 2002 and 2001 34
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2002 and 2001 35
Consolidated Balance Sheet of Citibank, N.A. and Subsidiaries -
September 30, 2002 (Unaudited) and December 31, 2001 36
Notes to Consolidated Financial Statements (Unaudited) 37
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1 - 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 - 25
42
Item 4. Controls and Procedures 31
Part II - Other Information
Item 1. Legal Proceedings 61
Item 6. Exhibits and Reports on Form 8-K 61
Signatures 62
Certifications 63
Exhibit Index 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EVENTS IN 2002
ACQUISITION OF GOLDEN STATE BANCORP
On November 6, 2002, Citigroup Inc. (Citigroup) completed its acquisition of
Golden State Bancorp (Golden State) in a transaction in which Citigroup paid
approximately $2.3 billion in cash and issued 79.5 million Citigroup common
shares for all of the outstanding shares of Golden State. The total transaction
value of approximately $5.8 billion was based on the average prices of Citigroup
shares, as adjusted for the effect of the TPC distribution, for the two trading
days before and after May 21, 2002, the date the terms of the acquisition were
agreed to and announced.
Golden State was the parent company of California Federal Bank, the second
largest thrift in the U.S. and, through its First Nationwide Mortgage business,
the eighth largest mortgage servicer. As of September 30, 2002, it had $25
billion in deposits, $51 billion in assets and 354 branches in California and
Nevada.
SALE OF 399 PARK AVENUE
During the 2002 third quarter, Citigroup sold its 399 Park Avenue, New York
City Headquarters building. The sale for $1.06 billion resulted in a pretax gain
of $830 million, with $527 million ($323 million after-tax) recognized in the
2002 third quarter and the remainder to be recognized over the term of
Citigroup's lease agreements. Citigroup is currently the lessee of
approximately 40% of the building with terms averaging 15 years.
CHANGES IN CREDIT CARD RECEIVABLES AND SECURITIZATIONS
During the 2002 third quarter, Citicorp increased the loan loss reserve by $206
million related to past due interest and late fees on its on-balance sheet
credit card receivables in accordance with recent guidance from the Federal
Financial Institutions Examination Council (FFIEC).
CARDS revenues in the 2002 third quarter also included net gains of $239 million
as a result of changes in estimates in the timing of revenue recognition on
securitizations. See Note 10 to Unaudited Consolidated Financial Statements.
IMPACT FROM ARGENTINA'S ECONOMIC CHANGES
Throughout 2002 Argentina continues to experience significant political and
economic changes including severe recessionary conditions, high inflation and
political uncertainty. The government of Argentina implemented substantial
economic changes, including abandoning the country's fixed U.S. dollar-to-peso
exchange rate, and redenominated substantially all its remaining loans and
deposits and certain other assets and liabilities previously denominated in U.S.
dollars into pesos. As a result of the impact of these government actions on
operations, the Company changed its functional currency in Argentina from the
U.S. dollar to the Argentine peso. Additionally, the government issued certain
compensation instruments to financial institutions to compensate them in part
for losses incurred as a result of the redenomination events. The government
also announced a 180 day moratorium against creditors filing foreclosures or
bankruptcy proceedings against borrowers. Later in the year, the government
modified the terms of certain of its obligations making them less valuable. The
government actions, combined with the severe recessionary economic situation and
the devaluation of the peso, adversely impacted Citicorp's consumer and
commercial borrowers in Argentina.
FIRST QUARTER 2002
During the 2002 first quarter, Citicorp recorded a total of $858 million in net
pretax charges, as follows: a $475 million addition to the allowance for credit
losses, $269 million in loan and investment write-downs, a $72 million net
charge for currency redenomination and other foreign currency items, and a $42
million restructuring charge. The $72 million net charge includes a benefit from
compensation instruments of the Argentine government subsequently issued in the
2002 third quarter. In addition, the impact of the devaluation of the peso
during the first quarter produced foreign currency translation losses that
reduced Citicorp's equity by $512 million, net of tax.
SECOND QUARTER 2002
During the 2002 second quarter, Citicorp recorded a total of $84 million in net
pretax charges, as follows: a $76 million loss relating to Amparos (representing
judicial orders requiring previously dollar denominated deposits to be repaid at
market exchange rates); a net loss of $5 million relating to CER adjustments
(representing inflation-indexed interest accruals to be paid to depositors and
received on certain loans); Proprietary Investment Activities' impairment
charges of $53 million; and reductions in Citicorp's
1
consumer loan loss reserve of $50 million resulting from the declining size of
the consumer loan portfolio due to the devaluation of the Argentine peso. In
addition, the impact of the devaluation of the peso in the second quarter
resulted in foreign currency translation losses that reduced Citicorp's equity
by $77 million, net of tax.
THIRD QUARTER 2002
During the 2002 third quarter, as a result of the impact of the continuing
economic recession and certain government actions on certain of Citicorp's
corporate loans and sovereign investments, Citicorp recorded a total of $531
million in net pretax charges as follows: a $281 million provision for credit
losses and $98 million of writedowns of Patriotic Bonds; Proprietary Investment
Activities' impairment charges of $111 million; and a $41 million loss relating
to Amparos. These charges were necessary to reflect government action and a
further deterioration in the Argentine economy.
As the economic situation, financial regulations and implementation issues in
Argentina remain fluid, we continue to work with the government and our
customers and continue to monitor conditions closely. Additional losses may be
incurred. In particular, we continue to monitor the potential additional impact
that the continued economic crisis may have on our commercial borrowers. This
paragraph contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 23.
EVENTS IN 2001
ACQUISITION OF BANAMEX
In August 2001, Citicorp completed its acquisition of Grupo Financiero
Banamex-Accival (Banamex), a leading Mexican financial institution, for
approximately $12.5 billion in cash and Citigroup stock. Citicorp completed the
acquisition by settling transactions that were conducted on the Mexican Stock
Exchange. Those transactions comprised both the acquisition of Banamex shares
tendered in response to Citicorp's offer to acquire all of Banamex's outstanding
shares and the simultaneous sale of 126,705,281 Citigroup shares to the
tendering Banamex shareholders. On September 24, 2001, Citicorp became the
holder of 100% of the issued and outstanding ordinary shares of Banamex
following a share redemption by Banamex. The results of Banamex are included
from August 2001 forward.
ACCOUNTING CHANGES IN 2001
ADOPTION OF EITF 99-20
During the 2001 second quarter, the Company adopted Emerging Issues Task Force
(EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets"
(EITF 99-20). EITF 99-20 provides new guidance regarding income recognition and
identification and determination of impairment on certain asset-backed
securities. The initial adoption resulted in a cumulative adjustment of $111
million after-tax, recorded as a charge to earnings, and an increase of $88
million included in stockholders' equity from non-owner sources.
DERIVATIVES AND HEDGE ACCOUNTING
On January 1, 2001, Citicorp adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 changed the
accounting treatment of derivative contracts (including foreign exchange
contracts) that are employed to manage risk outside of Citicorp's trading
activities, as well as certain derivative instruments embedded in other
contracts. SFAS No. 133 requires that all derivatives be recorded on the balance
sheet at their fair value. The treatment of changes in the fair value of
derivatives depends on the character of the transaction, including whether it
has been designated and qualifies as part of a hedging relationship. The
majority of Citicorp's derivatives are entered into for trading purposes and
were not impacted by the adoption of SFAS No. 133. The cumulative effect of
adopting SFAS No. 133 at January 1, 2001 was an after-tax charge of $33 million
included in net income and an increase of $82 million included in other changes
in stockholders' equity from nonowner sources.
2
BUSINESS FOCUS
The following table shows the net income (loss) for Citicorp's businesses on a
Product View:
CITICORP NET INCOME -- PRODUCT VIEW THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
- --------------------------------------------------------------------------------------------------------------------------------
GLOBAL CONSUMER
CARDS $ 852 $ 679 $ 2,186 $ 1,801
CONSUMER FINANCE 555 547 1,653 1,412
RETAIL BANKING 748 557 1,946 1,411
Other (49) (19) (113) (67)
----------------------------------------------------------------------
TOTAL GLOBAL CONSUMER 2,106 1,764 5,672 4,557
----------------------------------------------------------------------
GLOBAL CORPORATE AND INVESTMENT BANK
CAPITAL MARKETS AND BANKING 665 678 1,982 1,923
TRANSACTION SERVICES 121 100 406 294
----------------------------------------------------------------------
TOTAL GLOBAL CORPORATE AND INVESTMENT BANK 786 778 2,388 2,217
----------------------------------------------------------------------
GLOBAL INVESTMENT MANAGEMENT
LIFE INSURANCE AND ANNUITIES 19 14 86 35
PRIVATE BANK 115 91 338 274
ASSET MANAGEMENT 33 1 89 (2)
----------------------------------------------------------------------
TOTAL GLOBAL INVESTMENT MANAGEMENT 167 106 513 307
----------------------------------------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES (135) (240) (171) (93)
CORPORATE/OTHER 49 (34) 75 (117)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES(2) - - - (144)
----------------------------------------------------------------------
TOTAL NET INCOME $ 2,973 $ 2,374 $ 8,477 $ 6,727
================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Includes the following cumulative effect of accounting changes: 2001 first
quarter adoption of SFAS No. 133 and the 2001 second quarter adoption of
EITF 99-20. See Note 2 to Unaudited Consolidated Financial Statements.
3
RESULTS OF OPERATIONS
FINANCIAL SUMMARY
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE(1) $ 12,970 $ 11,850 $ 38,174 $ 34,112
Operating expenses 5,672 6,290 17,553 17,951
Benefits, claims, and credit losses(1) 2,811 1,882 7,721 5,338
------------------------------------------------------------------
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 4,487 3,678 12,900 10,823
Income taxes 1,482 1,279 4,345 3,905
Minority interest, net of income taxes 32 25 78 47
------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 2,973 2,374 8,477 6,871
CUMULATIVE EFFECT OF ACCOUNTING CHANGES - - - (144)
------------------------------------------------------------------
NET INCOME $ 2,973 $ 2,374 $ 8,477 $ 6,727
=============================================================================================================================
Return on Common Equity 17.5% 17.5% 17.1% 17.9%
Total Assets (IN BILLIONS) $ 655.3 $ 647.3
Total Equity (IN BILLIONS) $ 66.6 $ 62.9
Tier 1 Capital 8.55% 8.37%
Total Capital Ratio 12.73% 12.55%
=============================================================================================================================
(1) Revenues, Net of Interest Expense, and Benefits, Claims, and Credit Losses
in the table above are disclosed on an owned basis (under Generally Accepted
Accounting Principles). If this table were prepared on a managed basis,
which includes certain effects of securitization activities including
receivables held for securitization and receivables sold with servicing
retained, there would be no impact to net income, but revenues and benefits,
claims, and credit losses would have been increased by $960 million and $907
million in the 2002 and 2001 third quarters, respectively, and increased
$3.062 billion and $2.603 billion in the nine-month periods. Although a
managed basis presentation is not in conformity with GAAP, it provides a
representation of the volumes in the credit card business.
INCOME
Citicorp reported net income of $2.973 billion in the 2002 third quarter, up 25%
from $2.374 billion in the 2001 third quarter. Net income in the 2002 third
quarter included an after-tax benefit of $22 million for restructuring-related
items. Net income in the 2001 third quarter included an after-tax charge of $84
million for restructuring-related items (as described in Note 8 to Unaudited
Consolidated Financial Statements). Return on common equity was 17.5% in the
2002 and 2001 third quarter.
Net income for the 2002 nine months of $8.477 billion was up 26% from $6.727
billion in the 2001 nine months.
Net income in the 2001 nine months included an after-tax charge of $228 million
for restructuring-related items and an after-tax charge of $144 million,
reflecting the cumulative effect of adopting SFAS No. 133 and EITF 99-20 (as
described in Notes 2 and 8 to Unaudited Consolidated Financial Statements).
Return on common equity was 17.1% and 17.9% in the nine months of 2002 and 2001,
respectively.
Global Consumer net income increased $342 million or 19% and $1.115 billion or
24% in the 2002 third quarter and nine months compared to the 2001 periods.
Global Corporate and Investment Bank (GCIB) increased $8 million or 1% and $171
million or 8% in the 2002 third quarter and nine months compared to the 2001
periods. Global Investment Management grew $61 million or 58% and $206 million
or 67% from the respective 2001 periods, while Proprietary Investment Activities
increased $105 million from the 2001 third quarter and decreased $78 million in
the nine-month comparison. See individual segment and product discussions on
pages 7 - 23 for additional discussion and analysis of the Company's results and
operations.
REVENUES, NET OF INTEREST EXPENSE
Total revenues, net of interest expense, of $13.0 billion and $38.2 billion in
the 2002 third quarter and nine months were up $1.1 billion or 9% and $4.1
billion or 12%, respectively, from the 2001 periods. Global Consumer revenues
were up $969 million or 12% in the 2002 third quarter to $9.0 billion, and were
up $3.5 billion or 16% in the 2002 nine months to $25.7 billion. Increases in
RETAIL BANKING revenues of $263 million or 10% and $1.7 billion or 25% from the
2001 third quarter and nine months, respectively, were due to the impact of
acquisitions, combined with growth in all regions except Latin America. Compared
to the 2001 periods, CARDS was up $579 million or 18% in the 2002 third quarter
and $1.3 billion or 15% in the 2002 nine months, while CONSUMER FINANCE
experienced growth of $144 million or 6% in the 2002 third quarter and $538
million or 8% in the 2002 nine months. Both businesses experienced improved
spreads, strong growth in receivables and the benefit of acquisitions, with
CARDS benefiting from the changes in estimates in the timing of revenue
recognition on securitizations.
4
Compared to the 2001 periods, GCIB revenues were up $34 million or 1% in the
2002 third quarter and were up $481 million or 5% in the 2002 nine months,
driven by CAPITAL MARKETS AND BANKING, which was down $1 million in the 2002
third quarter but up $465 million or 7% in the 2002 nine-month period.
Global Investment Management revenues of $717 million in the 2002 third quarter
and $2.3 billion in the 2002 nine months were up $41 million or 6% and $390
million or 21% from the comparable 2001 periods, primarily due to growth in
asset-based fee revenues and the impact of acquisitions in the nine-month
comparison. Revenues in Proprietary Investment Activities increased $219 million
and decreased $8 million from the 2001 third quarter and nine months,
respectively, primarily reflecting lower venture capital results, and higher
impairment write-downs.
Citicorp securitizes credit card receivables as part of the management of its
funding and liquidity needs. After securitization of the receivables, the
Company continues to maintain credit card customer account relationships and
provides servicing for receivables transferred to the special purpose entity
trusts set up to facilitate securitization activities. See Note 10 to Unaudited
Consolidated Financial Statements. On a managed basis, including securitized
receivables, the Company would have increased both revenues and provisions for
benefits, claims, and credit losses by $960 million and $3.1 billion in the 2002
third quarter and nine months and would have increased by $907 million and $2.6
billion in the comparable 2001 periods.
SELECTED REVENUE ITEMS
Net interest revenue rose $705 million or 10% from the 2001 third quarter to
$7.8 billion and increased $3.5 billion or 17% from the 2001 nine months to
$23.3 billion, reflecting increases in fixed income trading and investment
positions, acquisitions, the impact of a changing rate environment and business
volume growth. Total fees and commissions of $2.6 billion were down $463 million
or 15% from the 2001 third quarter, primarily as a result of volumes.
Aggregate Trading and Foreign Exchange revenues of $1.1 billion and $3.3 billion
for the 2002 third quarter and nine months were up $98 million or 10% from the
2001 third quarter and $352 million or 12% from the 2001 nine-month period,
reflecting growth in Fixed Income. Investment Transactions were down $172
million from the 2001 third quarter and $356 million from the 2001 nine-months,
resulting primarily from higher impairment write-downs. Other revenue as shown
in the Consolidated Statement of Income of $1.7 billion in the 2002 third
quarter and $3.6 billion for the 2002 nine months increased $1.0 billion from
the year-ago quarter and was up $741 million from the 2001 nine months,
primarily reflecting higher securitization gains and activity, and venture
capital activity partially offset by increased credit losses on securitized
credit card receivables.
OPERATING EXPENSES
Operating expenses of $5.7 billion and $18.0 billion in the 2002 third quarter
and nine months, respectively, were down $618 million or 10% in the 2002 third
quarter and down $398 million or 2% in the 2002 nine months, compared to
year-ago levels. The change in expenses reflects an increase due to the impact
of acquisitions which were more than offset by expense control initiatives,
lower incentive compensation, and the absence of goodwill and indefinite-lived
intangible asset amortization. Due to the adoption of SFAS No. 141 and SFAS No.
142, operating expenses were reduced by $89 million in the 2002 third quarter
and $267 million in the nine-month period.
Global Consumer expenses in the 2002 third quarter decreased $21 million or 1%
and increased $377 million or 3% in the 2002 nine months. GCIB expenses were
down 30% in the quarter and down 16% in the nine months while Global Investment
Management expenses were down 5% and up 3% from the year-ago periods.
Operating expenses included net restructuring-related releases of $32 million
($22 million after-tax) in the 2002 third quarter and $26 million ($18 million
after-tax) in the 2002 nine months related principally to a reduction in the
reserve due to changes in estimates in the 2002 third quarter and to severance
and other costs associated with the reduction of staff within the Latin American
consumer and corporate businesses in the nine-month period.
Restructuring-related items of $133 million ($84 million after-tax) in the 2001
third quarter and $363 million ($228 million after-tax) in the 2001 nine months
related principally to severance and reduction of staff primarily in the Global
Consumer and GCIB businesses.
BENEFITS, CLAIMS, AND CREDIT LOSSES
Benefits, claims, and credit losses were $2.8 billion and $7.7 billion in the
2002 third quarter and nine months, up $929 million and $2.4 billion from the
2001 third quarter and nine months, respectively. Policyholder benefits and
claims in the 2002 third quarter decreased 60% from the 2001 third quarter to
$122 million, and were down $393 million in the 2002 nine months, primarily due
to the reorganization of a Citicorp insurance unit into a Citigroup unit. The
provision for credit losses increased 70% from the 2001 third quarter to $2.7
billion in the 2002 third quarter and increased 61% from the 2001 nine months to
$7.3 billion in the 2002 nine months.
Global Consumer provisions for benefits, claims, and credit losses of $1.9
billion in the 2002 third quarter were up 35% from the 2001 third quarter,
reflecting increases in CARDS and CONSUMER FINANCE. Total net credit losses were
$1.761 billion and the related loss
5
ratio was 2.65% in the 2002 third quarter, as compared to $1.682 billion and
2.65% in the preceding quarter and $1.379 billion and 2.28% in the year-ago
quarter. The consumer loan delinquency ratio (90 days or more past due)
increased to 2.70% at September 30, 2002 from 2.62% at June 30, 2002 and 2.57% a
year ago.
The GCIB provision for credit losses of $798 million and $1.9 billion in the
2002 third quarter and nine months increased $581 million and $1.2 billion from
year-ago levels, primarily due to an addition to the loan loss reserve for
Argentina and higher than expected write-offs in CAPITAL MARKETS AND BANKING
related to the telecommunications industry.
Commercial cash-basis loans at September 30, 2002 and 2001 were $4.753 billion
and $3.077 billion, respectively, while the commercial Other Real Estate Owned
(OREO) portfolio totaled $81 million and $174 million, respectively. The
increase in cash-basis loans from the 2001 third quarter was primarily related
to the Banamex acquisition and increases attributable to borrowers in the
telecommunications industry and in Argentina. Commercial cash-basis loans at
September 30, 2002 increased $232 million from June 30, 2002 primarily due to
exposures in the telecommunications industry, and increases in CitiCapital and
Argentina. The decrease in OREO was primarily related to Latin America.
CAPITAL
Total capital (Tier 1 and Tier 2) was $63.8 billion or 12.73% of net
risk-adjusted assets, and Tier 1 capital was $42.9 billion or 8.55% at September
30, 2002, compared to $63.4 billion or 12.53% and $42.5 billion or 8.40% of net
risk-adjusted assets at June 30, 2002.
6
The Net Income line in the following business segments and operating unit
discussions excludes the cumulative effect of accounting changes. The cumulative
effect of accounting changes is disclosed within the Corporate/Other business
segment. See Note 2 to Unaudited Consolidated Financial Statements.
GLOBAL CONSUMER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 9,025 $ 8,056 12 $ 25,730 $ 22,205 16
Operating expenses 3,823 3,844 (1) 11,432 11,055 3
Provisions for benefits, claims,
and credit losses 1,940 1,439 35 5,542 3,960 40
------------------------------- ----------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 3,262 2,773 18 8,756 7,190 22
Income taxes 1,148 1,003 14 3,057 2,615 17
Minority interest, after-tax 8 6 33 27 18 50
------------------------------- ----------------------------
NET INCOME $ 2,106 $ 1,764 19 $ 5,672 $ 4,557 24
===============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
GLOBAL CONSUMER -- which provides banking, lending, including credit and charge
cards, and investment and personal insurance products and services to customers
around the world -- reported net income of $2.106 billion and $5.672 billion in
the 2002 third quarter and nine months, up $342 million or 19% and $1.115
billion or 24% from the comparable 2001 periods, driven by double digit growth
in CARDS and RETAIL BANKING. CARDS net income increased $173 million or 25% in
the 2002 third quarter and $385 million or 21% in the 2002 nine months from the
prior-year periods, reflecting strong growth in Citi Cards and the acquisition
of Banamex. RETAIL BANKING net income increased $191 million or 34% in the 2002
third quarter and $535 million or 38% in the 2002 nine months from the
prior-year periods, as the impact of the Banamex and European American Bank
(EAB) acquisitions, including prior-year restructuring charges, combined with
strong growth in North America and the international markets were partially
offset by losses in Argentina. CONSUMER FINANCE net income increased 1% in the
2002 third quarter and 17% in the 2002 nine months compared to the prior-year
periods, as continued revenue growth and expense savings in North America were
partially offset by higher net credit losses in the U.S. and Japan.
Global Consumer net income in the 2002 third quarter included a net
restructuring reserve release of $15 million ($24 million pretax) resulting from
changes in estimates in Mexico. Net income in the 2002 nine months also included
a net restructuring reserve release of $21 million ($32 million pretax) in the
2002 second quarter due to changes in estimates in Citi Cards and Citibanking
North America and $11 million ($18 million pretax) of restructuring-related
charges in the 2002 first quarter, including $8 million related to severance and
other costs associated with the reduction of staff in Argentina. Net income in
the 2001 third quarter included restructuring-related charges of $73 million
($113 million pretax) mainly related to the acquisition of Banamex. Net income
in the 2001 nine months also included restructuring-related charges of $58
million ($92 million pretax) in the 2001 second quarter, mainly associated with
the downsizing of various functions across all products and geographies and $12
million ($19 million pretax) in the 2001 first quarter consisting of accelerated
depreciation in North America.
CARDS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- % -------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,729 $ 3,150 18 $ 10,125 $ 8,798 15
Operating expenses 1,426 1,410 1 4,148 4,108 1
Provision for credit losses 981 670 46 2,616 1,841 42
----------------------------- --------------------------
INCOME BEFORE TAXES 1,322 1,070 24 3,361 2,849 18
Income taxes 470 391 20 1,175 1,048 12
----------------------------- --------------------------
NET INCOME 852 679 25 2,186 1,801 21
----------------------------- --------------------------
Average assets (IN BILLIONS OF DOLLARS) 66 62 6 61 60 2
Return on assets 5.12% 4.34% 4.79% 4.01%
========================================================================================================================
(1) Reclassified to conform to the current period's presentation.
CARDS - which includes bankcards, private-label cards and charge cards in 47
countries around the world - reported net income of $852 million and $2.186
billion in the 2002 third quarter and nine months, respectively, up $173 million
or 25% and $385 million or
7
21% from the 2001 periods, led by North America, which benefited from revenue
growth and expense management as well as the acquisition of Banamex in August
2001.
As shown in the following table, average managed loans grew 5% in the 2002 third
quarter and nine months, reflecting growth in North America of 5% in both
periods, and growth in International Cards of 5% and 7%, respectively. Growth in
North America was led by Citi Cards, which benefited from increased marketing
and advertising expenditures. Growth in International Cards reflected
broad-based increases in Asia and growth in Western Europe, led by the U.K.,
Greece and Spain, all of which benefited from strengthening currencies in the
2002 third quarter. The growth in International Cards was partially offset by a
decline in Latin America which reflected the negative impact of foreign currency
translation and lower loan volumes in Argentina. Sales increased 11% in the 2002
third quarter, reflecting the benefit of marketing and expansion efforts in Citi
Cards, Western Europe and Asia combined with the impact of the events of
September 11th on prior-year sales levels.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ---------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -----------------------------------------------------------------------------------------------------------------------------
SALES
North America $ 62.5 $ 58.5 7 $ 179.4 $ 172.3 4
International 11.3 8.2 38 29.4 24.1 22
------------------------------- -----------------------------
TOTAL SALES $ 73.8 $ 66.7 11 $ 208.8 $ 196.4 6
AVERAGE MANAGED LOANS
North America $ 111.1 $ 105.9 5 $ 108.9 $ 103.5 5
International 10.9 10.4 5 10.6 9.9 7
------------------------------- -----------------------------
TOTAL AVERAGE MANAGED LOANS $ 122.0 $ 116.3 5 $ 119.5 $ 113.4 5
=============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
Revenues, net of interest expense, of $3.729 billion and $10.125 billion in the
2002 third quarter and nine months, respectively, rose $579 million or 18% and
$1.327 billion or 15% from the 2001 periods, primarily reflecting growth in
North America, Western Europe and Asia, partially offset by a decline in Latin
America. Revenue growth in North America was primarily due to spread
improvements, resulting from lower cost of funds partially offset by lower
yields, combined with the benefit of receivable growth, which included the
acquisition of Banamex. Citi Cards revenues in the 2002 third quarter also
included net gains of $239 million as a result of changes in estimates in the
timing of revenue recognition on securitizations. This change is expected to
benefit the next three quarters. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 23. In addition, revenues in the 2002
nine-month period included $128 million from an increase in the amortization
period for certain direct loan origination costs. Growth in Western Europe was
led by the U.K. and Spain and included the benefit of foreign currency
translation while growth in Asia was led by the Philippines and Korea. The
decline in Latin America reflected continued weakness in Argentina due to
reduced business activity and the negative impact of foreign currency
translation.
Operating expenses in the 2002 third quarter increased $16 million or 1% from
the 2001 third quarter, reflecting growth of 2% in North America and a decline
of 1% in International Cards. Operating expenses in the third quarter periods
included a net restructuring reserve release of $5 million ($3 million
after-tax) in 2002 and restructuring-related charges of $35 million ($22 million
after-tax) in 2001. Restructuring-related items in both periods were due to
actions in Mexico. Excluding restructuring-related items, growth in North
America was driven by increased advertising and marketing costs in Citi Cards.
Operating expenses of $4.148 billion in the 2002 nine months increased $40
million or 1% from the prior-year period, as the acquisition of Banamex and
increased advertising and marketing costs in Citi Cards, Western Europe and Asia
were partially offset by the benefit of foreign currency translation in Latin
America and Japan. Expenses in the nine-month periods included a net
restructuring reserve release of $23 million ($14 million after-tax) in 2002
compared to restructuring-related charges of $39 million ($25 million after-tax)
in the prior-year period.
The provision for credit losses in the 2002 third quarter and nine months was
$981 million and $2.616 billion, respectively, compared to $670 million and
$1.841 billion in the 2001 periods, primarily reflecting a $206 million addition
to the loan loss reserve established in accordance with recent FFIEC guidance
related to past due interest and late fees on the on-balance sheet credit card
receivables in Citi Cards. The increase in the provision also reflects the
impact of higher credit losses in Citi Cards and Asia, mainly Hong Kong, and in
the nine-month comparison, an addition to the loan loss reserve resulting from
deteriorating credit in Argentina. Net credit losses in the 2002 third quarter
were $807 million and the related loss ratio was 6.29%, compared to $761 million
and 6.51% in the 2002 second quarter and $666 million and 5.65% in the 2001
third quarter. The improvement in the net credit loss ratio from the 2002 second
quarter reflected improvement in Citi Cards, partially offset by deterioration
in Latin America and Asia. Loans delinquent 90 days or more were $1.097 billion
or 2.07% of loans at September 30, 2002, compared to $944 million or 1.91% at
June 30, 2002 and $1.072 billion or 2.28% at September 30, 2001. The increase
compared to the prior quarter primarily reflected increases in Citi Cards, due
in part to seasonality.
The securitization of credit card receivables is limited to the Citi Cards
business within North America. At September 30, 2002, securitized credit card
receivables were $64.6 billion, compared with $65.2 billion at September 30,
2001. Credit card receivables
8
held-for-sale were $6.5 billion, unchanged from a year ago. Because
securitization changes Citicorp's role from that of a lender to that of a loan
servicer, it removes the receivables from Citicorp's balance sheet and affects
the amount of revenue and the manner in which revenue and the provision for
credit losses are classified in the income statement. For securitized
receivables and receivables held-for-sale gains are recognized upon sale, and
amounts that would otherwise be reported as net interest revenue, fee and
commission revenue, and credit losses on loans are instead reported as fee and
commission revenue (for servicing fees) and other revenue (for the remaining
revenue, net of credit losses and the amortization of previously recognized
securitization gains). Because credit losses are a component of these cash
flows, revenues over the terms of these transactions may vary depending upon the
credit performance of the securitized receivables. However, Citicorp's exposure
to credit losses on the securitized receivables is contractually limited to the
cash flows from the receivables. Including securitized receivables and
receivables held-for-sale, net credit losses would have been $1.767 billion for
the 2002 third quarter with a related loss ratio of 5.75%, compared to $1.842
billion and 6.23% for the 2002 second quarter and $1.548 billion and 5.28% for
the 2001 third quarter. Adjusting for securitization activity, loans delinquent
90 days or more would have been $2.305 billion or 1.86% at September 30, 2002,
compared to $2.248 billion or 1.85% at June 30, 2002 and $2.119 billion or 1.79%
at September 30, 2001.
CONSUMER FINANCE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ---------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,439 $ 2,295 6 $ 7,143 $ 6,605 8
Operating expenses 744 815 (9) 2,240 2,588 (13)
Provisions for benefits, claims,
and credit losses 829 618 34 2,329 1,794 30
------------------------------- -----------------------------
INCOME BEFORE TAXES 866 862 - 2,574 2,223 16
Income taxes 311 315 (1) 921 811 14
------------------------------- -----------------------------
NET INCOME $ 555 $ 547 1 $ 1,653 $ 1,412 17
============================================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 91 $ 85 7 $ 89 $ 83 7
Return on assets 2.42% 2.55% 2.48% 2.27%
============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
CONSUMER FINANCE - which provides community-based lending services through
branch networks, regional sales offices and cross-selling initiatives with other
Citigroup businesses - reported net income of $555 million and $1.653 billion in
the 2002 third quarter and nine months, respectively, up $8 million or 1% and
$241 million or 17% from the 2001 periods, principally reflecting revenue growth
and lower expenses in North America, partially offset by higher net credit
losses in the U.S. and Japan. Net income growth in the 2002 third quarter and
nine months included after-tax benefits of $23 million and $87 million,
respectively, due to the absence of goodwill and other indefinite-lived
intangible asset amortization.
As shown in the following table, average loans grew 9% compared to the 2001
third quarter resulting from the cross-selling of products through Primerica
Financial Services (Primerica), an increase in auto loans in the U.S., the
acquisitions of Taihei and Marufuku in Japan and growth in real estate-secured
loans in Western Europe. Average auto loans for the 2002 third quarter increased
$1.6 billion or 33% from 2001, reflecting a shift in strategy to fund business
volumes internally rather than externally through the securitization of
receivables. In Japan, average loans of $13.1 billion in the 2002 third quarter
grew $2.2 billion or 20% from the prior-year quarter, reflecting, in part, the
acquisitions of Taihei and Marufuku which added $1.2 billion to average loans,
primarily personal loans.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- % ------------------------- %
IN BILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS
Real estate-secured loans $ 47.0 $ 44.5 6 $ 46.3 $ 43.6 6
Personal 21.4 19.4 10 20.4 19.0 7
Auto 6.5 4.9 33 6.1 4.4 39
Sales finance and other 4.2 3.5 20 3.6 3.5 3
-------------------------- --------------------------
TOTAL AVERAGE LOANS $ 79.1 $ 72.3 9 $ 76.4 $ 70.5 8
==========================================================================================================================
(1) Reclassified to conform to the current period's presentation.
9
As shown in the following table, the average net interest margin of 11.09% in
the 2002 third quarter increased 16 basis points from the 2001 third quarter,
mainly due to lower cost of funds, partially offset by lower yields. In North
America, the average net interest margin was 8.17% in the 2002 third quarter,
decreasing 14 basis points from the prior-year quarter as the benefit of lower
cost of funds was more than offset by lower yields, both reflecting a lower
interest rate environment. The average net interest margin for International
Consumer Finance was 21.92% in the 2002 third quarter, up 14 basis points from
the prior year, reflecting a decline in cost of funds, partially offset by lower
yields including the impact of growth in lower-yielding real estate-secured
loans.
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 Change
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE NET INTEREST MARGIN
North America 8.17% 8.31% (14 bps)
International 21.92% 21.78% 14 bps
Total 11.09% 10.93% 16 bps
=======================================================================================================================
Revenues, net of interest expense, of $2.439 billion and $7.143 billion in the
2002 third quarter and nine months, respectively, increased $144 million or 6%
and $538 million or 8% from the 2001 periods, as growth in the U.S., Japan and
Western Europe was partially offset by a decline in Latin America. Revenue
growth in the U.S. was primarily driven by growth in receivables and, in the
nine-month comparison, improved net interest margins. The increases in Japan and
Western Europe were driven by growth in receivables and lower cost of funds,
partially offset by lower foreign currency gains in Japan. The decline in Latin
America was due to continued weakness in Argentina.
Operating expenses of $744 million and $2.240 billion in the 2002 third quarter
and nine months, respectively, decreased $71 million or 9% and $348 million or
13% from the prior-year periods, primarily reflecting lower volume-related
expenses in the U.S. and the absence of goodwill and other indefinite-lived
intangible asset amortization. The decline in expenses in the nine-month
comparison also included the benefit of efficiencies resulting from the
integration of Associates in the U.S. and prior-year restructuring-related
charges of $41 million ($25 million after-tax).
The provisions for benefits, claims, and credit losses in the 2002 third quarter
and nine months were $829 million and $2.329 billion, respectively, compared to
$618 million and $1.794 billion in the 2001 periods, primarily reflecting
increases in the provision for credit losses in the U.S. and Japan, including
the impact of acquisitions. Net credit losses and the related loss ratio were
$764 million and 3.83% in the 2002 third quarter, up from $709 million and 3.71%
in the 2002 second quarter and $536 million and 2.94% in the 2001 third quarter.
In North America, the net credit loss ratio of 2.79% in the 2002 third quarter
was down from 3.10% in the 2002 second quarter and up from 2.48% in the 2001
third quarter. The decline in the net credit loss ratio from the prior quarter
was mainly due to improvements in the real estate-secured and personal loan
portfolios. The net credit loss ratio for International Consumer Finance was
7.68% in the 2002 third quarter, up from 6.12% in the 2002 second quarter and
4.86% in the 2001 third quarter due to increased bankruptcy losses and
deteriorating credit quality in Japan. Net credit losses in the 2002 third
quarter included $25 million for changes in loss recognition criteria in Japan
that accelerated the timing of contractual write-offs in the personal loan
portfolio.
Loans delinquent 90 days or more were $2.101 billion or 2.64% of loans at
September 30, 2002, compared to $2.131 billion or 2.72% at June 30, 2002 and
$2.134 billion or 2.89% a year ago. The decrease in the delinquency ratio versus
the prior year and prior quarter was mainly due to improvements in the U.S. In
Japan, net credit losses and the related loss ratio are expected to increase
from the 2002 third quarter as a result of economic conditions and credit
performance of the portfolios, including increased bankruptcy filings. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 23.
RETAIL BANKING
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,812 $ 2,549 10 $ 8,329 $ 6,638 25
Operating expenses 1,528 1,516 1 4,728 4,041 17
Provisions for benefits, claims,
and credit losses 130 162 (20) 597 374 60
----------------------------- -------------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,154 871 32 3,004 2,223 35
Income taxes 398 308 29 1,031 794 30
Minority interest, after-tax 8 6 33 27 18 50
----------------------------- -------------------------------
NET INCOME $ 748 $ 557 34 $ 1,946 $ 1,411 38
==============================================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 159 $ 144 9 $ 163 $ 124 32
Return on assets 1.87% 1.53% 1.60% 1.52%
==============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
RETAIL BANKING -- which delivers banking, lending, investment and insurance
services to customers through retail branches and electronic delivery systems --
reported net income of $748 million and $1.946 billion in the 2002 third quarter
and nine months, respectively, up $191 million or 34% and $535 million or 38%
from the 2001 periods. The increases in RETAIL BANKING were driven by growth in
North America of $170 million or 60% and $544 million or 79% in the 2002 third
quarter and nine months, respectively. The growth in North America was primarily
due to the acquisition of Banamex in August 2001, revenue growth in Citibanking
North America and Consumer Assets as well as restructuring charges in the prior
year. Net income in International Retail Banking increased
10
$21 million or 8% in the 2002 third quarter and declined $9 million or 1% in the
2002 nine months, reflecting double-digit growth across all regions with the
exception of Latin America which continued to be impacted by economic weakness
in Argentina.
As shown in the following table, RETAIL BANKING grew average loans and customer
deposits compared to 2001. The growth in North America primarily reflected the
acquisition of Banamex along with customer deposit growth in Citibanking North
America and average loan growth in Consumer Assets, primarily due to increased
mortgages and student loans. In the international markets, growth in average
customer deposits in Japan and CEEMEA and growth in average loans in Western
Europe, mainly in Germany, were essentially offset by declines in Argentina.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ---------------------------- %
IN BILLIONS OF DOLLARS 2002 2001 Change 2002 2001 Change
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE CUSTOMER DEPOSITS
North America $ 86.5 $ 80.7 7 $ 87.7 $ 62.5 40
International 79.3 79.3 - 78.9 78.8 -
------------------------------- ---------------------------
TOTAL AVERAGE CUSTOMER DEPOSITS $ 165.8 $ 160.0 4 $ 166.6 $ 141.3 18
AVERAGE LOANS
North America(1) $ 69.8 $ 63.8 9 $ 69.2 $ 57.4 21
International 38.3 37.8 1 37.7 37.6 -
------------------------------- ---------------------------
TOTAL AVERAGE LOANS $ 108.1 $ 101.6 6 $ 106.9 $ 95.0 13
=======================================================================================================================
(1) Includes loans held-for-sale.
Revenues, net of interest expense, of $2.812 billion and $8.329 billion in the
2002 third quarter and nine months, respectively, increased $263 million or 10%
and $1.691 billion or 25% from the 2001 periods. The increase in revenues
reflected growth in all regions except Latin America, which was impacted by
Argentina. Revenue in North America increased 15% and 50% in the 2002 third
quarter and nine months, respectively, driven by the acquisition of Banamex
and the benefit of increased customer volumes in Citibanking North America
and Consumer Assets (where mortgage originations in the 2002 nine months
increased 47% from 2001 to $33.1 billion). International Retail Banking
revenues increased 4% in the 2002 third quarter and were unchanged in the
nine-month comparison as increases across the regions were partially offset
by a decline in Latin America. The decline in Latin America was due to events
in Argentina, which included losses on Amparos, reduced business activity due
to the economic situation, the negative impact of foreign currency
translation and losses resulting from government-mandated inflation indexed
interest accruals. Increased loan volumes and improved spreads, mainly in
Germany, combined with the impact of foreign currency translation across the
region, drove growth in Western Europe. The increase in revenue in Japan was
due to a $55 million gain on sale of a $2.0 billion mortgage portfolio at the
end of the 2002 third quarter, while growth in Asia and CEEMEA primarily
reflected increased business volumes.
Operating expenses in the 2002 third quarter and nine months increased $12
million or 1% and $687 million or 17% from the comparable 2001 periods.
Operating expenses in the 2002 third quarter included a net restructuring
reserve release of $19 million ($12 million after-tax) compared to
restructuring-related charges of $75 million ($49 million after-tax) in the 2001
third quarter. Restructuring-related items in both periods were mainly due to
actions in Mexico. Operating expenses in the 2002 nine months included a net
restructuring reserve release of $15 million ($11 million after-tax) compared to
restructuring-related charges of $125 million ($81 million after-tax) in the
2001 nine months. Excluding restructuring-related items, the growth in expenses
was primarily due to the acquisition of Banamex and increases in Western Europe
and CEEMEA, partially offset by a decline in Latin America. The growth in
Western Europe and CEEMEA was mainly due to volume-related increases, higher
advertising and marketing costs in Western Europe and the impact of foreign
currency translation. The decline in Latin America was primarily due to the
benefit of foreign currency translation and expense reduction initiatives across
the region.
The provisions for benefits, claims, and credit losses were $130 million and
$597 million in the 2002 third quarter and nine months, respectively, down from
$162 million in the prior-year quarter and up from $374 million in the 2001 nine
months. The decrease in the provisions for benefits, claims, and credit losses
in the 2002 third quarter was mainly due to a lower provision for credit losses
in Latin America and Citibanking North America. The increase in the nine-month
comparison mainly reflected the impact of acquisitions and an addition to the
loan loss reserve in the first quarter of 2002 resulting from deteriorating
credit in Argentina. Net credit losses were $186 million and the related loss
ratio was 0.68% in the 2002 third quarter, compared to $212 million and 0.80% in
the 2002 second quarter and $184 million and 0.72% in the prior-year quarter.
Net credit losses in the 2002 third quarter included $28 million for changes in
loss recognition criteria in Germany that accelerated the timing of bankruptcy
loss recognition. The decrease in the net credit loss ratio from the prior
quarter was primarily due to higher recoveries in Mexico while the decline from
the prior year reflected improvements in Citibanking North America.
Loans delinquent 90 days or more were $3.490 billion or 3.24% of loans at
September 30, 2002, compared to $3.561 billion or 3.31% at June 30, 2002, and
$3.316 billion or 3.19% a year ago. The decrease from the prior quarter mainly
reflected improvement in Mexico. Compared to a year ago, an increase in
delinquent loans in Western Europe and Consumer Assets was partially offset by a
decline in Mexico. The increase in Western Europe was primarily in Germany and
reflected the impact of statutory changes and
11
foreign currency translation. The increase delinquent loans in Consumer
Assets was mainly due to a higher level of buy backs from GNMA pools where
credit risk is maintained by government agencies.
Average assets of $159 billion and $163 billion in the 2002 third quarter and
nine months increased $15 billion and $39 billion from the comparable 2001
periods. The increase in average assets primarily reflected the acquisition of
Banamex and growth in mortgages and student loans in Consumer Assets.
OTHER CONSUMER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % ---------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 45 $ 62 (27) $ 133 $ 164 (19)
Operating expenses 125 103 21 316 318 (1)
Provisions for benefits, claims,
and credit losses - (11) 100 - (49) 100
----------------------------
-------------------------------
INCOME BEFORE TAX BENEFITS (80) (30) NM (183) (105) (74)
Income tax benefits (31) (11) NM (70) (38) (84)
------------------------------- ----------------------------
NET LOSS $ (49) $ (19) NM $ (113) $ (67) (69)
=======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
OTHER CONSUMER - which includes certain treasury and other unallocated staff
functions, global marketing and other programs -- reported losses of $49 million
and $113 million for the 2002 third quarter and nine months compared to losses
of $19 million and $67 million in the 2001 third quarter and nine months. The
increase in losses from 2001 was primarily due to a pension curtailment gain in
the prior-year period related to the acquisition of Associates combined with an
increase in legal reserves in 2002 in connection with settlements reached during
the quarter. Revenues, expenses and the provisions for benefits, claims, and
credit losses reflect offsets to certain line-item reclassifications reported in
other Global Consumer businesses.
CONSUMER PORTFOLIO REVIEW
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set 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. The
managed loan portfolio includes loans held-for-sale and certain securitized
loans. See Note 10 to Unaudited Consolidated Financial Statements.
12
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
TOTAL AVERAGE
PRODUCT VIEW LOANS 90 DAYS OR MORE PAST DUE(1) LOANS NET CREDIT LOSSES(1)
------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, SEPT 30, SEPT 30, June 30, Sept 30, 3RD QTR. 3RD QTR. 2nd Qtr. 3rd Qtr.
EXCEPT LOAN AMOUNTS IN BILLIONS 2002 2002 2002(2) 2001(2) 2002 2002 2002(2) 2001(2)
- -----------------------------------------------------------------------------------------------------------------------------------
CARDS $ 123.9 $ 2,305 $ 2,248 $ 2,119 $ 122.0 $ 1,767 $ 1,842 $ 1,548
RATIO 1.86% 1.85% 1.79% 5.75% 6.23% 5.28%
North America Cards 112.9 2,108 2,025 1,960 111.1 1,616 1,719 1448
RATIO 1.87% 1.83% 1.81% 5.77% 6.38% 5.42%
International Cards 11.0 197 223 159 10.9 151 123 100
RATIO 1.79% 2.04% 1.53% 5.46% 4.67% 3.83%
CONSUMER FINANCE 79.6 2,101 2,131 2,134 79.1 764 709 536
RATIO 2.64% 2.72% 2.89% 3.83% 3.71% 2.94%
N. America Consumer Finance 63.1 1,776 1,828 1,908 62.3 438 470 364
RATIO 2.82% 2.97% 3.24% 2.79% 3.10% 2.48%
International Consumer Finance 16.5 325 303 226 16.8 326 239 172
RATIO 1.97% 1.82% 1.51% 7.68% 6.12% 4.86%
RETAIL BANKING 107.8 3,490 3,561 3,316 108.1 186 212 184
RATIO 3.24% 3.31% 3.19% 0.68% 0.80% 0.72%
North America Retail Banking 72.0 2,243 2,333 2,160 69.8 65 120 74
RATIO 3.11% 3.39% 3.26% 0.37% 0.70% 0.46%
International Retail Banking 35.8 1,247 1,228 1,156 38.3 121 92 110
RATIO 3.48% 3.16% 3.07% 1.26% 0.97% 1.16%
PRIVATE BANK 28.8 201 193 78 28.6 5 - 2
RATIO 0.70% 0.67% 0.31% 0.08% 0.00% 0.03%
Other(3) 1.2 251 - - 1.3 (1) - 17
--------------------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 $ 8,348 $ 8,133 $ 7,647 $ 339.1 $ 2,721 $ 2,763 $ 2,287
RATIO 2.45% 2.41% 2.36% 3.18% 3.34% 2.85%
- -----------------------------------------------------------------------------------------------------------------------------------
Securitized receivables (64.6) (1,104) (1,203) (1,203) (64.7) (874) (989) (812)
Loans held-for-sale (12.2) (103) (102) (106) (10.4) (86) (92) (96)
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS(4) $ 264.5 $ 7,141 $ 6,828 $ 6,338 $ 264.0 $ 1,761 $ 1,682 $ 1,379
RATIO 2.70% 2.62% 2.57% 2.65% 2.65% 2.28%
===================================================================================================================================
TOTAL AVERAGE
REGIONAL VIEW LOANS 90 DAYS OR MORE PAST DUE(1) LOANS NET CREDIT LOSSES(1)
------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, SEPT 30, SEPT 30, June 30, Sept 30, 3RD QTR. 3RD QTR. 2nd Qtr. 3rd Qtr.
EXCEPT LOAN AMOUNTS IN BILLIONS 2002 2002 2002(2) 2001(2) 2002 2002 2002(2) 2001(2)
- -----------------------------------------------------------------------------------------------------------------------------------
North America
(excluding Mexico) $ 256.0 $ 5,581 $ 5,511 $ 5,233 $ 250.9 $ 2,076 $ 2,220 $ 1,869
RATIO 2.18% 2.22% 2.20% 3.28% 3.65% 3.13%
Mexico 9.4 659 762 824 9.6 46 90 36
RATIO 7.04% 7.69% 7.64% 1.90% 3.43% 1.81%
Western Europe 23.6 1,090 1,015 828 23.4 129 94 86
RATIO 4.62% 4.41% 4.08% 2.19% 1.72% 1.72%
Japan 17.2 260 264 191 19.8 309 226 149
RATIO 1.51% 1.32% 1.07% 6.21% 4.79% 3.47%
Asia (excluding Japan) 26.7 340 387 355 27.0 108 91 68
RATIO 1.27% 1.42% 1.34% 1.58% 1.34% 1.01%
Latin America(3) 3.5 352 115 163 3.5 39 30 67
RATIO 10.13% 2.99% 2.95% 4.40% 3.03% 4.66%
CEEMEA 4.9 66 79 53 4.9 14 12 12
RATIO 1.34% 1.59% 1.12% 1.14% 1.03% 0.99%
--------------------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 8,348 $ 8,133 $ 7,647 $ 339.1 $ 2,721 $ 2,763 $ 2,287
RATIO 2.45% 2.41% 2.36% 3.18% 3.34% 2.85%
- -----------------------------------------------------------------------------------------------------------------------------------
Securitized receivables (64.6) (1,104) (1,203) (1,203) (64.7) (874) (989) (812)
Loans held-for-sale (12.2) (103) (102) (106) (10.4) (86) (92) (96)
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS(4) $ 264.5 $ 7,141 $ 6,828 $ 6,338 $ 264.0 $ 1,761 $ 1,682 $ 1,379
RATIO 2.70% 2.62% 2.57% 2.65% 2.65% 2.28%
===================================================================================================================================
(1) The ratios of 90 days or more past due and net credit losses are calculated
based on end-of-period and average loans, respectively, both net of unearned
income.
(2) Reclassified to conform to current period's presentation.
(3) Includes $251 million of loans received from the Argentine government in
exchange for government bonds in the 2001 fourth quarter. These loans are
included within the LIFE INSURANCE AND ANNUITIES business.
(4) Total loans and total average loans exclude certain interest and fees on
credit cards of $1.3 billion which are included in Consumer Loans on the
Unaudited Consolidated Statement of Financial Position.
13
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
END OF PERIOD AVERAGE
-------------------------------- --------------------------------
SEPT. 30, June 30, Sept.30, 3RD QTR. 2nd Qtr. 3rd Qtr.
IN BILLIONS OF DOLLARS 2002(1) 2002 2001 2002(1) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 $ 337.7 $ 323.5 $ 339.1 $ 331.5 $ 318.5
Securitized receivables (64.6) (65.8) (65.4) (64.7) (65.3) (63.0)
Loans held-for-sale (12.2) (11.4) (11.3) (10.4) (11.6) (15.3)
-------------------------------- -------------------------------
CONSUMER LOANS $ 264.5 $ 260.5 $ 246.8 $ 264.0 $ 254.6 $ 240.2
============================================================================================================================
(1) Total loans and total average loans exclude certain interest and fees on
credit cards of $1.3 billion which are included in Consumer Loans in the
Unaudited Consolidated Statement of Financial Position.
Total delinquencies 90 days or more past due in the managed portfolio were
$8.348 billion or 2.45% of loans at September 30, 2002, compared to $8.133
billion or 2.41% at June 30, 2002 and $7.647 billion or 2.36% at September 30,
2001. Total managed net credit losses in the 2002 third quarter were $2.721
billion and the related loss ratio was 3.18%, compared to $2.763 billion and
3.34% in the 2002 second quarter and $2.287 billion and 2.85% in the 2001 third
quarter. For a discussion of trends by business, see business discussions on
pages 7 - 12 and pages 18 - 20.
Citicorp's allowance for credit losses of $10.720 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citicorp's allowance for credit losses attributed to the
consumer portfolio was $5.849 billion at September 30, 2002, $5.756 billion at
June 30, 2002 and $5.454 billion at September 30, 2001. The allowance for credit
losses attributed to the consumer portfolio increased $93 million from the prior
quarter and $395 million from a year ago. The increase from the prior quarter
was mainly due to a $206 million addition established in accordance with recent
FFIEC guidance related to past due interest and late fees on the on-balance
sheet credit card receivables in Citi Cards as well as increases attributed to
the CONSUMER FINANCE portfolio in Japan. Offsetting these additions were
reductions due to accelerated write-offs resulting from changes in loss
recognition policies in Germany, Japan and Hong Kong as well as a reduction in
Consumer Assets that was attributable to improved credit in the mortgage
portfolio. The increase in the allowance from a year ago also includes an
addition related to Argentina in the first quarter of 2002. The allowance as a
percentage of loans on the balance sheet was 2.20% at September 30, 2002
compared to 2.21% at both June 30, 2002 and September 30, 2001.
Net credit losses, delinquencies, and the related ratios are affected by the
credit performance of the portfolios, including bankruptcies, global economic
conditions, portfolio growth and seasonal factors, as well as macro-economic and
regulatory policies, including pending U.S. bankruptcy legislation. In Japan,
net credit losses and the related loss ratio are expected to increase from the
2002 third quarter reflecting current economic conditions in that country,
including rising unemployment rates and bankruptcy filings. This paragraph
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 23.
GLOBAL CORPORATE AND INVESTMENT BANK
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % --------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,247 $ 3,213 1 $ 9,800 $ 9,319 5
Operating expenses 1,258 1,789 (30) 4,277 5,068 (16)
Provision for credit losses 798 217 NM 1,938 772 NM
------------------------------- ---------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,191 1,207 (1) 3,585 3,479 3
Income taxes 401 423 (5) 1,185 1,244 (5)
Minority interest, after-tax 4 6 (33) 12 18 (33)
------------------------------- ---------------------------
NET INCOME $ 786 $ 778 1 $ 2,388 $ 2,217 8
===============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
THE GLOBAL CORPORATE AND INVESTMENT BANK (GCIB) serves corporations, financial
institutions, governments, investors and other participants in capital markets
throughout the world and consists of CAPITAL MARKETS AND BANKING and TRANSACTION
SERVICES.
GCIB net income of $786 million and $2.388 billion in the 2002 third quarter and
nine months, respectively, was up $8 million or 1% and $171 million or 8% from
the 2001 periods. The 2002 third quarter reflects an increase in net income of
$21 million or 21% in TRANSACTION SERVICES, partially offset by a decline of $13
million or 2% in CAPITAL MARKETS AND BANKING. The 2002 nine months reflect an
increase in net income of $112 million or 38% in TRANSACTION SERVICES and an
increase of $59 million or 3% in CAPITAL MARKETS AND BANKING.
14
The decrease in CAPITAL MARKETS AND BANKING net income in the 2002 third quarter
primarily reflects a higher provision for credit losses and the write-down of
Argentine sovereign securities, partially offset by lower compensation and
benefits and increases in Fixed Income and Sales & Trading. The increase in the
2002 nine months primarily reflects lower compensation and benefits, increases
in Sales & Trading and Fixed Income, the acquisition of Banamex and 2001
restructuring charges of $66 million (after-tax), partially offset by a higher
provision for credit losses and a gain on the sale of a building in Asia in
2001. The increase in TRANSACTION SERVICES net income in the 2002 third quarter
primarily reflects higher volumes and fees across most regions and the impact of
expense control initiatives, partially offset by trade finance write-offs in
Argentina. The increase in the 2002 nine months is primarily due to higher
volumes, including the benefit of the Banamex acquisition, the impact of expense
control initiatives and an investment gain in the 2002 second quarter, partially
offset by trade finance write-offs in Argentina.
The businesses of the GCIB are significantly affected by the levels of activity
in the global capital markets which, in turn, are influenced by macro-economic
and government policies, among other factors, in over 100 countries in which the
businesses operate. Global economic and market events can have both positive and
negative effects on the revenue performance of the businesses and can affect
credit performance. Losses on corporate 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. It is expected that the
businesses of the GCIB will continue to be impacted by weak global economic
conditions, stress in the telecommunications and energy industries, uncertainty
in Brazil, sovereign or regulatory actions, litigation expenses, settlements,
the crisis in Argentina, and other related factors. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 23.
CAPITAL MARKETS AND BANKING
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % --------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,356 $ 2,357 - $ 7,135 $ 6,670 7
Operating expenses 633 1,092 (42) 2,382 2,907 (18)
Provision for credit losses 710 215 NM 1,778 760 NM
------------------------------- -----------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,013 1,050 (4) 2,975 3,003 (1)
Income taxes 343 368 (7) 983 1,067 (8)
Minority interest, after-tax 5 4 25 10 13 (23)
------------------------------- -----------------------------
NET INCOME $ 665 $ 678 (2) $ 1,982 $ 1,923 3
==============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
CAPITAL MARKETS AND BANKING delivers a full range of global financial
services and products including foreign exchange, derivatives, loans, leasing,
equipment finance, structured products and treasury. The primary businesses
in CAPITAL MARKETS AND BANKING include Fixed Income, Sales & Trading (which
mainly operates in Asia, Latin America, CEEMEA and Mexico), CitiCapital and
Lending.
CAPITAL MARKETS AND BANKING net income of $665 million and $1.982 billion in
the 2002 third quarter and nine months, respectively, was down $13 million or
2% from the 2001 third quarter but up $59 million or 3% from the 2001 nine
months. The decrease in the 2002 third quarter primarily reflects a higher
provision for credit losses and the write-down of Argentine sovereign
securities, partially offset by lower compensation and benefits and increases
in Fixed Income and Sales & Trading. The increase in the 2002 nine months
primarily reflects lower compensation and benefits, increases in Sales &
Trading and Fixed Income, the acquisition of Banamex and 2001 restructuring
charges of $66 million (after-tax), partially offset by a higher provision
for credit losses and a gain on the sale of a building in Asia in 2001.
Revenues, net of interest expense, of $2.356 billion and $7.135 billion in
the 2002 third quarter and nine months, respectively, decreased $1 million
from the 2001 third quarter, but increased $465 million or 7% from the 2001
nine months. The decrease in the 2002 third quarter was primarily due to
prior years gains on asset sales in CitiCapital and the write-down of
Argentine sovereign securities, partially offset by increases in Fixed
Income, Sales & Trading and gains on credit derivatives associated with the
loan portfolio. The increase in the 2002 nine months primarily reflects
growth in Fixed Income, Sales & Trading and the acquisition of Banamex,
partially offset by decreases in Latin America mainly due to the 2002 first
quarter redenomination losses and 2002 third quarter write-down of sovereign
securities in Argentina. In 2002, Fixed Income and Sales & Trading benefited
from low interest rates.
Operating expenses of $633 million in the 2002 third quarter were down $459
million 42% from the prior-year quarter primarily due to decreases in
compensation and benefits. Operating expenses were down $525 million or 18%
to $2.382 billion for the 2002 nine months primarily due to lower
compensation and benefits, expense rationalization initiatives, a benefit
from the absence of goodwill and other indefinite-lived intangible asset
amortization of $50 million (pretax) and 2001 restructuring charges of $107
million (pretax), partially offset by the acquisition of Banamex.
Compensation and benefits, mainly incentive compensation, decreased primarily
reflecting lower revenues and higher provision for credit losses and savings
from restructuring actions initiated in 2001.
The provision for credit losses was $710 million in the 2002 third quarter
and $1.778 billion in the 2002 nine months, up $495 million and $1.018
billion, respectively, fronm the comparable 2001 periods, primarily due to
provisions for Argentina and exposures in the telecommunications industry.
Cash-basis loans were $4.151 billion at September 30, 2002, $3.831 billion
at June 30, 2002, and $2.767 billion at Setpember 30, 2001. Cash-basis loans
were up $1.384 billion from September 30, 2001 primarily due to borrowers in
the telecommunications and energy industries combined with increases in
CitiCapital, Argentina and Mexico. The increase in CitiCapital primarily
reflects increases in the transportation portfolio. The increase in Mexico
primarily reflects a review of the Banamex credit portfolio in the 2001
fourth quarter as well as exposuares in the construction industry. Cash-basis
loans increased $320 million from June 30, 2002 primarily due to borrowers in
the telecommunications industry, CitiCapital and Mexico. The increase in
CitiCapital primarily reflects an increase in equipment finance. The increase
in Mexico primarily reflects exposures in the construction industry.
15
TRANSACTION SERVICES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % --------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 891 $ 856 4 $ 2,665 $ 2,649 1
Operating expenses 625 697 (10) 1,895 2,161 (12)
Provision for credit losses 88 2 NM 160 12 NM
----------------------------- --------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 178 157 13 610 476 28
Income taxes 58 55 5 202 177 14
Minority interest, after-tax (1) 2 NM 2 5 (60)
----------------------------- --------------------------
NET INCOME $ 121 $ 100 21 $ 406 $ 294 38
=======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful.
TRANSACTION SERVICES - which provides cash management, trade finance, custody,
clearing and depository services globally - reported net income of $121 million
in the 2002 third quarter and $406 million for the 2002 nine months, up $21
million or 21% and $112 million or 38%, respectively, from the 2001 periods. The
increase in the 2002 third quarter primarily reflects higher volumes and fees
across most regions and the impact of expense control initiatives, partially
offset by trade finance write-offs in Argentina of $55 million (after-tax). The
increase in the 2002 nine months is primarily due to higher volumes, including
the benefit of the Banamex acquisition, the impact of expense control
initiatives, an investment gain in the 2002 second quarter, and prior-year
restructuring-related charges of $13 million (after-tax), partially offset by
trade finance write-offs in Argentina.
As shown in the following table, average liability balances and assets under
custody experienced growth versus the prior year. Average liability balances
grew 8% primarily due to increases in the U.S. and Asia. Assets under custody of
$5.3 trillion increased 15% from a year ago primarily reflecting improvements in
North America and Europe.
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------- %
2002 2001 Change
- ---------------------------------------------------------------------------------------------------------------------------
Liability balances (AVERAGE IN BILLIONS) $ 85 $ 79 8
Assets under custody (EOP IN TRILLIONS) 5.3 4.6 15
===========================================================================================================================
Revenues, net of interest expense, of $891 million in the 2002 third quarter
increased $35 million or 4% from the 2001 period, primarily reflecting higher
volumes and fees across most regions, partially offset by declining spreads.
Total revenues, net of interest expense, of $2.665 billion in the nine months
ending September 30, 2002 increased $16 million or 1% from the comparable 2001
period, primarily reflecting an investment gain in the 2002 second quarter and
higher volumes including the benefit of the Banamex acquisition, partially
offset by declining spreads.
Operating expenses of $625 million and $1.895 billion in the 2002 third quarter
and nine months, respectively, decreased $72 million or 10% and $266 million or
12% from the 2001 periods, primarily reflecting expense control initiatives
across all regions and operational efficiency improvements resulting from
prior-year investments in Internet initiatives. The decrease for the 2002 nine
months also reflects a prior-year restructuring-related charge of $17 million
(pretax).
The provision for credit losses of $88 million and $160 million in the 2002
third quarter and nine months increased $86 million and $148 million from the
respective 2001 periods, primarily reflecting 2002 trade finance write-offs in
Argentina.
Cash-basis loans, which in the TRANSACTION SERVICES business are primarily trade
finance receivables, were $509 million at September 30, 2002, $639 million at
June 30, 2002, and $295 million at September 30, 2001. Cash-basis loans at
September 30, 2002 were up $214 million from September 30, 2001 principally due
to trade finance receivables in Argentina. Cash-basis loans decreased $130
million from June 30, 2002 primarily due to trade finance write-offs in
Argentina.
16
CORPORATE PORTFOLIO REVIEW
Corporate loans are identified as impaired and placed on a nonaccrual basis when
it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well-secured and in the process of collection. Impaired
corporate loans are written down to the extent that principal is judged to be
uncollectible. Impaired collateral-dependent loans are carried at the lower of
cost or collateral value. The following table summarizes corporate cash-basis
loans at period-end and net credit losses for the corresponding three-month
period.
SEPT. 30, June 30, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002 2001 (1)
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS
Capital Markets and Banking $ 4,151 $ 3,831 $ 2,767
Transaction Services 509 639 295
Investment Activities 93 51 6
Corporate Other - - 9
----------------------------------------------------
TOTAL CORPORATE CASH-BASIS LOANS $ 4,753 $ 4,521 $ 3,077
======================================================================================================================
NET CREDIT LOSSES
Capital Markets and Banking $ 504 $ 482 $ 280
Transaction Services 88 3 1
Investment Activities 9 - -
----------------------------------------------------
TOTAL NET CREDIT LOSSES $ 601 $ 485 $ 281
======================================================================================================================
CORPORATE ALLOWANCE FOR CREDIT LOSSES $ 4,871 $ 4,681 $ 4,464
As a percentage of total corporate loans 3.57% 3.32% 2.92%
======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
Corporate cash-basis loans were $4.753 billion, $4.521 billion, and $3.077
billion at September 30, 2002, June 30, 2002, and September 30, 2001,
respectively. Cash-basis loans increased $1.676 billion from September 30, 2001.
CAPITAL MARKETS AND BANKING increased primarily due to borrowers in the
telecommunications and energy industries combined with increases in CitiCapital,
Argentina and Mexico. The increase in CitiCapital primarily reflects increases
in the transportation portfolio. The increase in Mexico primarily reflects a
review of the Banamex credit portfolio in the 2001 fourth quarter as well as
exposures in the construction industry. TRANSACTION SERVICES increased primarily
due to trade finance receivables in Argentina. INVESTMENT ACTIVITIES increased
primarily due to increases in Mexico and Argentina. Cash-basis loans increased
$232 million from June 30, 2002 primarily due to increases in CAPITAL MARKETS
AND BANKING, partially offset by decreases in TRANSACTION SERVICES. CAPITAL
MARKETS AND BANKING increased primarily due to borrowers in the
telecommunications industry, CitiCapital and Mexico. The increase in CitiCapital
primarily reflects an increase in equipment finance. The increase in Mexico
primarily reflects exposures in the construction industry. TRANSACTION SERVICES
decreased primarily due to trade finance write-offs in Argentina.
Total corporate net credit losses of $601 million in the 2002 third Quarter
increased $320 million from the 2001 third quarter primarily due to an increase
of $224 million in CAPITAL MARKETS AND BANKING and an increase of $87 million in
TRANSACTION SERVICES. CAPITAL MARKETS AND BANKING primarily reflects higher net
credit losses in the telecommunications industry and in Argentina. TRANSACTION
SERVICES primarily reflects 2002 trade finance write-offs in Argentina.
Citicorp continues to monitor the economic impact from market uncertainties in
Brazil and the potential impact on our commercial portfolio. For further details
on Citicorp's cross-border exposure to Brazil, please see "Management of
Cross-Border Risk" on page 25.
Citicorp's allowance for credit losses of $10.720 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citicorp's allowance for credit losses attributed to the
corporate portfolio was $4.871 billion at September 30, 2002, compared to $4.681
billion at June 30, 2002 and $4.464 billion at September 30, 2001. The allowance
attributed to the corporate portfolio as a percentage of loans was 3.57% at
September 30, 2002, as compared to 3.32% at June 30, 2002 and 2.92% at September
30, 2001. The $190 million or 25 basis point increase in the allowance from the
2002 second quarter primarily reflects reserves established as a result of the
continuing deterioration in the Argentine economy and the telecommunications
industry. The $407 million or 65 basis point increase from the 2001 third
quarter primarily reflects additional reserves for Argentina and the
telecommunications industry as well as additional reserves related to a review
of the Banamex credit portfolio in the 2001 fourth quarter. Losses on corporate
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. Corporate net credit losses and cash-basis loans may continue at
the 2002 levels due to weak global economic conditions, stress in the
telecommunications and energy industries, uncertainty in Brazil, sovereign or
regulatory actions, the economic crisis in Argentina, and other factors. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements " on page 23.
17
GLOBAL INVESTMENT MANAGEMENT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % --------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 717 $ 676 6 $ 2,268 $ 1,878 21
Operating expenses 418 442 (5) 1,304 1,261 3
Provisions for benefits, claims
and credit losses 64 64 - 241 118 NM
----------------------------- ---------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 235 170 38 723 499 45
Income taxes 68 55 24 209 182 15
Minority interest, after-tax - 9 (100) 1 10 (90)
----------------------------- ---------------------------
NET INCOME $ 167 $ 106 58 $ 513 $ 307 67
========================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
GLOBAL INVESTMENT MANAGEMENT comprises LIFE INSURANCE AND ANNUITIES, PRIVATE
BANK and ASSET MANAGEMENT. These businesses offer a broad range of life
insurance, annuity, asset management and personalized wealth management products
and services distributed to institutional, high net worth and retail clients.
Global Investment Management net income of $167 million in the 2002 third
quarter and $513 million in the 2002 nine months was up $61 million or 58% and
$206 million or 67% from the comparable 2001 periods. LIFE INSURANCE AND
ANNUITIES net income of $19 million in the 2002 third quarter and $86 million in
the 2002 nine months, increased $5 million and $51 million, respectively from
the comparable 2001 periods. The $5 million increase in net income from the 2001
third quarter primarily reflects increases in Mexico due to the Banamex
acquisition. The $51 million increase in net income from the 2001 nine months
primarily reflects increases in Mexico due to the Banamex acquisition, as well
as increases in Latin America and Asia. PRIVATE BANK net income was $115 million
in the 2002 third quarter and $338 million in the 2002 nine months, up $24
million or 26% and $64 million or 23% from the comparable 2001 periods. The
increase in net income at PRIVATE BANK from the 2001 periods primarily reflects
increases in lending and client trading customer revenue, and the impact of
lower interest rates, partially offset by increased expenses. ASSET MANAGEMENT
net income was $33 million in the 2002 third quarter and $89 million in the 2002
nine months, up $32 million and $91 million, respectively, from the comparable
2001 periods. The increase in net income at ASSET MANAGEMENT from the 2001
periods primarily reflects the Banamex acquisition, partially offset by declines
in the Latin America retirement services businesses due to the continuing
economic crisis in Argentina.
LIFE INSURANCE AND ANNUITIES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
- ----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 122 $ 113 $ 459 $ 222
Provision for benefits and claims 59 60 230 111
Operating expenses 33 24 93 43
-------------------------------------------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 30 29 136 68
Income taxes 11 12 50 30
Minority interest, after-tax - 3 - 3
-------------------------------------------------------
NET INCOME $ 19 $ 14 $ 86 $ 35
=====================================================================================================================
(1) Reclassified to conform to the current period's presentation.
LIFE INSURANCE AND ANNUITIES is comprised of International Insurance
Manufacturing and Citi Insurance Group (CIG). These businesses offer a broad
range of life insurance and annuity products. The International Insurance
Manufacturing business primarily has operations in Mexico, Western Europe, Asia
and Latin America.
LIFE INSURANCE AND ANNUITIES net income was $19 million and $86 million in the
2002 third quarter and nine months, up $5 million and $51 million, respectively,
from the comparable periods of 2001. The $5 million increase in net income from
the 2001 third quarter primarily reflects a $5 million increase in Mexico due to
the Banamex acquisition which closed in August 2001. The $51 million increase
from the 2001 nine months primarily reflects a $23 million increase in Mexico
due to the Banamex acquisition, a $17 million increase in Latin America and a $9
million increase in Asia. The increase in Latin America was due to the benefit
of lower benefits and claims expense due to changes in Argentine regulations and
the impact of the Argentine peso devaluation, partially offset by decreased
revenues due to the continuing economic crisis in Argentina.
18
Revenues, net of interest expense, of $122 million and $459 million in the 2002
third quarter and nine months, respectively, increased $9 million and $237
million from the comparable periods of 2001. The $9 million increase from the
2001 third quarter primarily reflects the Banamex acquisition, partially offset
by decreased revenues in Latin America due to the continuing economic crisis in
Argentina. The $237 million increase from the 2001 nine months primarily
reflects the Banamex acquisition and higher Asia revenues, including the impact
of investments, partially offset by declines in Latin America.
Operating expenses of $33 million and $93 million in the 2002 third quarter and
nine months increased $9 million and $50 million, respectively, from the
comparable periods of 2001 primarily due to the Banamex acquisition.
Provision for benefits and claims of $59 million and $230 million in the 2002
third quarter and nine months, respectively, decreased $1 million and increased
$119 million from the comparable periods of 2001. The $119 million increase from
the 2001 nine months primarily reflects the Banamex acquisition, partially
offset by declines in Latin America.
Loans 90 days or more past due were $251 million at September 30, 2002,
representing loans received from the Argentine government in the 2001 fourth
quarter. A portion of future credit losses on these loans, if any, are expected
to be offset by a corresponding decrease in a reserve for related customer
liabilities. Investment income in future periods may be impacted by weak global
economic conditions. These statements are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 23.
PRIVATE BANK
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- % --------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- -----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 412 $ 366 13 $ 1,262 $ 1,134 11
Operating expenses 237 225 5 755 701 8
Provision for credit losses 5 4 25 11 7 57
---------------------------- ---------------------------
INCOME BEFORE TAXES 170 137 24 496 426 16
Income taxes 55 46 20 158 152 4
---------------------------- ---------------------------
NET INCOME $ 115 $ 91 26 $ 338 $ 274 23
=======================================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 29 $ 26 12 $ 29 $ 26 12
Return on assets 1.57% 1.39% 1.56% 1.41%
- -----------------------------------------------------------------------------------------------------------------------
Client business volumes under
management (IN BILLIONS OF DOLLARS) $ 157 $ 150 5 $ 157 $ 150 5
=======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
PRIVATE BANK provides personalized wealth management services for high net worth
clients around the world. PRIVATE BANK net income was $115 million in the 2002
third quarter and $338 million in the 2002 nine months, up $24 million or 26%
and $64 million or 23% from the 2001 periods, primarily reflecting increases in
lending and client trading customer revenue, and the impact of lower interest
rates, partially offset by increased expenses.
Client business volumes under management, which include custody accounts, client
assets under fee-based management, deposits, and loans, were $157 billion at the
end of the 2002 third quarter, up $7 billion or 5% from $150 billion at the end
of the 2001 third quarter, primarily reflecting increases in loans of $4 billion
and banking deposits of $3 billion. Regionally, the increase reflects continued
growth primarily in Asia, North America and Japan, partially offset by declines
in CEEMEA and Latin America.
Revenues, net of interest expense, were $412 million in the 2002 third quarter
and $1.262 billion in the nine months, up $46 million or 13% and $128 million or
11% from the respective 2001 periods. Revenue growth was primarily driven by
continued customer revenue increases in lending and client trading activity, and
the benefit of lower interest rates, partially offset by lower fee revenues. In
the 2002 third quarter and nine months, the increase in revenues reflects
continued favorable trends in North America (including Mexico), up $35 million
or 23% and $99 million or 22%, respectively, from the comparable 2001 periods.
International revenues increased $11 million or 5% from the 2001 third quarter
and $29 million or 4% from the 2001 nine months, primarily due to growth in
Japan and Asia, partially offset by declines in Latin America and CEEMEA.
Operating expenses of $237 million and $755 million in the 2002 third quarter
and nine months were up $12 million or 5% and $54 million or 8% from the
respective 2001 periods, primarily reflecting higher levels of employee-related
expenses, partially due to increased front-end sales and servicing capabilities
and investment spending in technology. The 2002 nine-month period also included
$8 million (primarily European) severance costs incurred in the 2002 first
quarter. Operating expenses include restructuring charges of $3 million pretax
($2 million after-tax) in the 2002 first quarter and $7 million pretax ($4
million after-tax) in the 2001 second quarter, primarily relating to North
America and Latin America.
19
The provision for credit losses was $5 million and $11 million in the 2002 third
quarter and nine months, up $1 million and $4 million from the year-ago periods.
The increase in the nine-month period primarily related to North America. Loans
90 days or more past due at the 2002 quarter-end were $201 million or 0.70% of
total loans outstanding, compared with $78 million or 0.31% at the end of the
2001 third quarter, and reflects increases in North America, Western Europe,
CEEMEA and Asia.
Average assets of $29 billion in the 2002 third quarter increased $3 billion or
12% from $26 billion in the 2001 third quarter, primarily due to higher mortgage
financing, and margin and tailored lending.
ASSET MANAGEMENT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- % ------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
- ----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 183 $ 197 (7) $ 547 $ 522 5
Operating expenses 148 193 (23) 456 517 (12)
------------------------- -------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 35 4 NM 91 5 NM
Income taxes (benefits) 2 (3) NM 1 - -
Minority interest, after-tax - 6 (100) 1 7 (86)
------------------------- -------------------------
NET INCOME (LOSS) $ 33 $ 1 NM $ 89 $ (2) NM
======================================================================================================================
Assets under management
(IN BILLIONS OF DOLLARS) (2) $ 160 $ 155 3 $ 160 $ 155 3
======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Includes $28 billion and $29 billion in 2002 and 2001, respectively, for
PRIVATE BANK clients.
NM Not meaningful
ASSET MANAGEMENT offers institutional, high net worth, and retail clients a
broad range of investment alternatives from investment centers located around
the world and includes the businesses of Citibank Global Asset Management,
Banamex asset management and retirement services, retirement services businesses
in Latin America and an alternative investments business. Products and services
offered include mutual funds, closed-end funds, separately managed accounts, and
pension administration services.
Net income of $33 million in the 2002 third quarter and $89 million in the 2002
nine months improved $32 million and $91 million from the comparable 2001
periods, primarily due to the Banamex acquisition, partially offset by declines
in the Latin America retirement services businesses due to the current economic
conditions in Argentina.
Assets under management for the 2002 third quarter rose 3% from the 2001 third
quarter to $160 billion, primarily reflecting the impact of the Banamex
acquisition.
Revenues, net of interest expense, of $183 million and $547 million in the 2002
third quarter and nine months decreased $14 million or 7% from the 2001 third
quarter and increased $25 million or 5% from the 2001 nine months. The decrease
in revenues from the 2001 third quarter was primarily due to a decline in the
Latin America retirement services businesses due to the continuing economic
crisis in Argentina, partially offset by the Banamex acquisition. The increase
in revenues from the 2001 nine-month period was primarily due to the Banamex
acquisition, partially offset by reduced revenues in the Latin America
retirement services businesses due to the economic conditions in Argentina.
Operating expenses of $148 million and $456 million in the 2002 third quarter
and nine months declined $45 million or 23% and $61 million or 12% from the
comparable 2001 periods, primarily reflecting reduced expenses in the Latin
America retirement services businesses due to the current economic conditions in
Argentina. The nine-month period decline in the Latin America retirement
services businesses is partially offset by the impact of the Banamex
acquisition. Operating expenses include a restructuring release of $1 million
pretax in the 2002 third quarter relating to Mexico, and restructuring charges
of $12 million pretax ($8 million after-tax) in the 2001 third quarter relating
to Mexico. The nine-month periods also included restructuring charges of $12
million pretax ($8 million after-tax) in the 2002 first quarter relating to
Latin America and $5 million pretax ($3 million after-tax) in the 2001 second
quarter, primarily relating to Western Europe.
20
PROPRIETARY INVESTMENT ACTIVITIES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
- ----------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ (128) $ (347) $ (106) $ (98)
Operating expenses 38 26 100 76
Provision for credit losses 9 - 9 -
-------------------------------------------------------
LOSS BEFORE TAXES AND MINORITY INTEREST (175) (373) (215) (174)
Income tax benefits (54) (133) (66) (79)
Minority interest, after-tax 14 - 22 (2)
-------------------------------------------------------
NET LOSS $ (135) $ (240) $ (171) $ (93)
================================================================================================================
(1) Reclassified to conform to the current period's presentation.
PROPRIETARY INVESTMENT ACTIVITIES comprises Citicorp's venture capital
activities, results from certain proprietary investments, the results of certain
investments in countries that refinanced debt under the 1989 Brady Plan or plans
of a similar nature and since August 2001, the Banamex investment portfolio.
Revenues, net of interest expense, of ($128) million for the 2002 third quarter
increased $219 million from the 2001 third quarter, primarily reflecting a $527
million gain on the sale of 399 Park Avenue related to the portion of the
building that Citigroup does not occupy, partially offset by the absence of a
prior-year mark-to-market gain on a Latin American fund and higher impairment
write-downs in certain proprietary investments. The 2002 third quarter included
impairment write-downs of $111 million on certain investments in Argentina.
For the 2002 nine months, revenues, net of interest expense, of ($106) million
decreased $8 million from the 2001 nine-month period, primarily reflecting
higher impairment write-downs on certain proprietary investments, including $264
million on certain investments in Argentina, lower venture capital results and
the absence of a prior-year gain on a Latin American fund, partially offset by
the recognized gain on the sale of 399 Park Avenue and realized gains from sales
in the venture capital portfolio.
Operating expenses of $38 million and $100 million in the 2002 third quarter and
nine months increased $12 million and $24 million, respectively, from the
comparable 2001 periods, primarily due to increased venture capital and other
proprietary investment costs, partially related to majority-owned funds
established in late 2001.
The increase in the provision for credit losses for both the 2002 third quarter
and nine-month periods relate to the write-off of a loan in U.S. Venture
Capital.
Minority interest, net of tax, increased in both the 2002 third quarter and
nine-month periods from the comparable 2001 periods, primarily due to the net
impact of majority-owned investment funds established in late 2001.
Proprietary Investment Activities results may fluctuate in the future as a
result of market and asset-specific factors. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 23.
21
CORPORATE/OTHER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
- ----------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 109 $ 252 $ 482 $ 808
Operating expenses 135 189 440 491
Provisions for benefits, claims, and credit losses - 162 (9) 488
-------------------------------------------------------
INCOME (LOSS) BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES (26) (99) 51 (171)
Income tax benefits (81) (69) (40) (57)
Minority interest, after-tax 6 4 16 3
-------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 49 (34) 75 (117)
Cumulative effect of accounting changes, after-tax - - - (144)
-------------------------------------------------------
NET INCOME (LOSS) $ 49 $ (34) $ 75 $ (261)
======================================================================================================================
(1) Reclassified to conform to the current period's presentation.
CORPORATE/OTHER includes net corporate treasury results, corporate expenses,
certain intersegment eliminations; the Internet-related development activities,
cumulative effect of accounting changes and taxes not allocated to the
individual businesses; and the results of Northland Insurance Company
(Northland). Effective October 2001, Northland was reorganized as a unit of
Citigroup's property and casualty business.
Revenues, net of interest expense, of $109 million and $482 million in the 2002
third quarter and nine months decreased $143 million and $326 million,
respectively, from the 2001 periods primarily as a result of the Northland
reorganization, partially offset by lower net treasury costs and the impact of
higher intersegment eliminations. The lower net treasury costs primarily relate
to favorable interest rate positioning and lower funding costs, including the
impact of lower interest rates.
Operating expenses of $135 million and $440 million in the 2002 third quarter
and nine months decreased $54 million and $51 million, respectively from the
2001 periods primarily due to the Northland reorganization and lower unallocated
corporate costs, partially offset by the impact of higher intersegment
eliminations. The decrease in the provisions for benefits, claims, and credit
losses in both the 2002 third quarter and nine months from the comparable 2001
periods primarily relate to the Northland reorganization. Income tax benefits of
$81 million and $40 million in the 2002 third quarter and nine months,
respectively, include the tax benefit resulting from the loss incurred on the
sale of Northland to Travelers Property Casualty Corp.
The cumulative effect of accounting changes of $144 million in the 2001
nine-month period includes a charge of $111 million due to the impact of
adopting EITF 99-20 and a $33 million charge in the 2001 second quarter related
to adoption of SFAS No. 133 in the 2001 first quarter. See Note 2 to Unaudited
Consolidated Financial Statements for further details of cumulative effects of
accounting changes.
22
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, weak global
economic conditions; the continued economic crisis in Argentina and the
impact that the crisis may have on our commercial borrowers; uncertainty in
Brazil; rising unemployment rates and an increase in bankruptcy filings in
Japan; sovereign or regulatory actions, and political conditions and
developments; credit performance of the portfolios, including bankruptcies,
portfolio growth, and seasonal factors; stress in the telecommunications and
energy industries; changes in estimates in the timing of revenue recognition
on securitizations; the effect of banking and financial services reforms and
of rules regarding the regulatory capital treatment of recourse, direct
credit substitutes and residual interest in asset securitizations; possible
amendments to, and interpretations of, risk-based capital guidelines and
reporting instructions; macro-economic and regulatory policies, including the
effect proposed U.S. bankruptcy legislation would have if enacted; the
resolution of legal proceedings and related matters; and the Company's
success in managing the costs associated with the expansion of existing
distribution channels and developing new ones, and in realizing increased
revenues from such distribution channels, including cross-selling initiatives
and electronic commerce-based efforts.
MANAGING GLOBAL RISK
The Citicorp Risk Management framework recognizes the wide range and diversity
of global business activities by balancing strong corporate oversight with
defined independent risk management functions at the business level. The
Citicorp Risk Management Framework is summarized in Citicorp's 2001 Form 10-K
and described in detail in Citigroup's 2001 Annual Report and Form 10-K.
THE CREDIT RISK MANAGEMENT PROCESS
The credit risk management process at Citicorp relies on corporate-wide
standards to ensure consistency and integrity, with business-specific policies
and practices to ensure applicability and ownership. Citicorp's credit risk
management process is described in detail in Citicorp's 2001 Form 10-K.
THE MARKET RISK MANAGEMENT PROCESS
Market risk at Citicorp - like credit risk - is managed through corporate-wide
standards and business policies and procedures.
- - Market risks are measured in accordance with established standards to ensure
consistency across businesses and the ability to aggregate like risks at the
Citigroup level.
- - Each business is required to establish, and have approved by independent
Market Risk Management, a market risk limit framework, including risk
measures, limits and controls, that clearly defines approved risk profiles
and is within the parameters of Citigroup's overall risk appetite.
- - Businesses, working in conjunction with independent Market Risk Management,
must ensure that market risks are independently measured, monitored and
reported, to ensure transparency in risk-taking activities and integrity in
risk reports.
In all cases, the businesses are ultimately responsible for the market risks
that they take, and for remaining within their defined limits.
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. Liquidity risk is discussed in the Liquidity and Capital Resources section.
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. Price risk arises in Non-Trading Portfolios, as well as in Trading
Portfolios.
NON-TRADING PORTFOLIOS
Price risk in non-trading portfolios is measured predominantly through
Earnings-at-Risk and Factor Sensitivity techniques. These measurement techniques
are supplemented with additional tools, including stress testing and
cost-to-close analysis.
Business units manage the potential earnings effect of interest rate movements
by managing the asset and liability mix, either directly or through the use of
derivative financial products. These include interest rate swaps and other
derivative instruments that are designated and effective as hedges. The
utilization of derivatives is managed in response to changing market conditions
as well as to changes in the characteristics and mix of the related assets and
liabilities.
23
Earnings-at-Risk is the primary method for measuring price risk in Citicorp's
non-trading portfolios. Earnings-at-Risk measures the pretax earnings impact of
a specified upward and downward instantaneous parallel shift in the yield curve
for the appropriate currency assuming a static portfolio. Citicorp generally
measures this impact over a one-year and five-year time horizon under
business-as-usual conditions. The 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. U.S. dollar exposures are calculated by
multiplying the gap between interest sensitive items, including assets,
liabilities, derivative instruments and other off-balance sheet instruments, by
100 basis points. Non-U.S. dollar exposures are calculated utilizing the
statistical equivalent of a 100 basis point change in interest rates and
assuming no correlation between exposures in different currencies.
Citicorp's primary non-trading price risk exposure is to movements in the U.S.
dollar and Mexican peso interest rates. Citicorp also closely monitors its
Earnings-at-Risk in other currencies, as detailed below.
The following illustrates the impact to Citicorp's pretax earnings from a 100
basis point increase or decrease in the U.S. dollar yield curve. As of September
30, 2002, the potential impact on pretax earnings over the next twelve months is
a decrease of $299 million from an interest rate increase and an increase of
$482 million from an interest rate decrease. The potential impact on pretax
earnings for periods beyond the first twelve months is an increase of $1,496
million from an increase in interest rates and a decrease of $1,611 million from
an interest rate decrease. The change in Earnings-at-Risk from the prior year
and prior year-end primarily reflects the change in the mix of assets and
liabilities to reflect Citicorp's view of interest rates.
The statistical equivalent of a 100 basis point increase in Mexican peso
interest rates would have a potential positive impact on Citicorp's pretax
earnings of approximately $223 million over the next twelve months and a
potential positive impact of $85 million for the years thereafter. The
statistical equivalent of a 100 basis points decrease in Mexican peso interest
rates would have a potential negative impact on Citicorp's pretax earnings of
approximately $223 million for the next twelve months and potential negative
impact of $85 million for the years thereafter. The change in Earnings-at-Risk
from the prior year primarily represents the changes in the repricing
characteristics of the portfolio while the change in Earnings-at-Risk from the
prior year-end reflects small changes in the composition of the balance sheet.
Excluding the impact of changes in Mexican peso interest rates, the statistical
equivalent of a 100 basis point increase in other non-U.S. dollar interest rates
would have a potential negative impact on Citicorp's pretax earnings of $213
million over the next twelve months and potential positive impact of $275
million for the years thereafter. The statistical equivalent of a 100 basis
point decrease in other non-U.S. dollar interest rates would have a potential
positive impact on Citicorp's pretax earnings of $217 million over the next
twelve months and a potential negative impact of $258 million for the years
thereafter. The change in Earnings-at-Risk from the prior year and the prior
year-end primarily represents changes in the asset and liability mix across a
range of currencies to reflect Citicorp's current view of interest rates as well
as changes in the repricing profile of the balance sheet.
CITICORP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)(1)
SEPTEMBER 30, 2002
OTHER NON-U.S.
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO DOLLAR(2)
- ------------------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
--------------------------------------------------------------
Twelve months and less $ (299) $ 482 $ 223 $ (223) $ (213) $ 217
Thereafter 1,496 (1,611) 85 (85) 275 (258)
- ------------------------------------------------------------------------------------------------
Total $ 1,197 $ (1,129) $ 308 $ (308) $ 62 $ (41)
================================================================================================
DECEMBER 31, 2001(3)
OTHER NON-U.S.
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO DOLLAR
- ------------------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
--------------------------------------------------------------
Twelve months and less $ (287) $ 290 $ 208 $ (208) $ (289) $ 292
Thereafter 904 (1,072) 207 (207) (285) 298
- ------------------------------------------------------------------------------------------------
Total $ 617 $ (782) $ 415 $ (415) $ (574) $ 590
================================================================================================
SEPTEMBER 30, 2001(3)
OTHER NON-U.S.
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO DOLLAR(2)
- ------------------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
--------------------------------------------------------------
Twelve months and less $ (475) $ 489 $ 518 $ (518) $ (440) $ 443
Thereafter 833 (1,025) (250) 250 (809) 825
- ------------------------------------------------------------------------------------------------
Total $ 358 $ (536) $ 268 $ (268) $ (1,249) $ 1,268
================================================================================================
(1) Represents discounted Earnings-at-Risk beyond twelve months and up to and
including five years.
(2) Excludes exposure to the Argentine peso beyond twelve months which reflects
Citicorp's current risk management strategy given the volatile and
uncertain economic conditions in Argentina.
(3) Reclassified to conform to the current period's presentation.
TRADING PORTFOLIOS
Price risk in trading portfolios is measured through a complementary set of
tools, including Factor Sensitivities, Value-at-Risk, and Stress Testing. Each
trading portfolio has its own market risk limit framework, encompassing these
measures and other controls, including permitted product lists and a new,
complex product approval process established by the business, and approved by
independent market risk management.
24
Factor Sensitivities are defined as the change in the value of a position for a
defined change in a market risk factor (e.g., the change in the value of a
Treasury bill for a 1 basis point change in interest rates). It is the
responsibility of independent market risk management to ensure that factor
sensitivities are calculated, monitored, and, in some cases, limited for all
relevant risks taken in a trading portfolio. Value-at-Risk estimates the
potential decline in the value of a position or a portfolio, under normal market
conditions, over a one-day holding period, at a 99% confidence level. The
Value-at-Risk method incorporates the Factor Sensitivities of the trading
portfolio with the volatilities and correlations of those factors.
Stress Testing is performed on trading portfolios on a regular basis, to
estimate the impact of extreme market movements. Stress Testing is performed on
individual trading portfolios, as well as on aggregations of portfolios and
businesses, as appropriate. It is the responsibility of independent market risk
management, in conjunction with the businesses, to develop stress scenarios,
review the output of periodic stress testing exercises, and utilize the
information to make judgments as to the ongoing appropriateness of exposure
levels and limits.
New and/or complex products in trading portfolios are required to be reviewed
and approved by the Global Corporate Capital Markets Approval Committee (CMAC).
The CMAC is responsible for ensuring that all relevant risks are identified and
understood, and can be measured, managed, and reported in accordance with
applicable Global Corporate policies and practices. The CMAC is made up of
senior representatives from market and credit risk management, legal,
accounting, operations, and other support areas, as required.
The level of price risk exposure at any given point in time depends on the
market environment and expectations of future price and market movements, and
will vary from period to period.
For Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the
trading portfolios was $29 million at September 30, 2002. Daily exposures
averaged $37 million during the 2002 third quarter and ranged from $26 million
to $45 million.
The following table summarizes Value-at-Risk in the trading portfolios as of
September 30, 2002 and December 31, 2001, along with the averages.
2002 Full
SECOND Year
SEPTEMBER 30, QUARTER December 31, 2001
IN MILLIONS OF DOLLARS 2002 AVERAGE 2001 Average
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate $ 26 $ 32 $ 16 $ 19
Foreign exchange 14 10 9 10
Equity 7 11 7 9
All other (primarily commodity) 3 2 7 9
Covariance adjustment (21) (18) (16) (21)
----------------------------------------------------------
Total $ 29 $ 37 $ 23 $ 26
===============================================================================================================================
The table below provides the range of Value-at-Risk in the trading portfolios
that was experienced during the third quarter of 2002 and all of 2001.
2002 2001
------------------------------------------------------------
IN MILLIONS OF DOLLARS LOW HIGH Low High
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate $ 26 $ 43 $ 13 $ 45
Foreign exchange 8 17 6 16
Equity 5 18 5 19
All other (primarily commodity) 1 3 1 26
================================================================================================================================
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
Citigroup's Risk Management framework described in Citicorp's 2001 Form 10-K.
25
The following table presents total cross-border outstandings and commitments on
a regulatory basis in accordance with FFIEC guidelines. Total cross-border
outstandings include cross-border claims on third parties as well as investments
in and funding of local franchises, as described in Citicorp's 2001 Form 10-K.
Countries with outstandings greater than 0.75% of Citicorp assets at September
30, 2002 and December 31, 2001 include:
SEPTEMBER 30, 2002 December 31, 2001
------------------------------------------------------------------------------- -----------------
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 BANKS PUBLIC PRIVATE TOTAL CLAIMS(1) FRANCHISES INGS MENTS(2) ings ments(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Germany $ 5.3 $ 2.7 $ 1.5 $ 9.5 $ 8.4 $ 5.6 $ 15.1 $ 6.3 $ 8.0 $ 4.4
Mexico 0.3 2.0 5.6 7.9 3.2 1.4 9.3 0.7 11.7 0.6
Brazil 0.5 0.1 3.9 4.5 2.0 3.5 8.0 0.1 10.2 0.3
Italy 0.5 4.5 0.7 5.7 5.4 2.0 7.7 0.9 6.2 2.3
Canada 1.3 - 1.3 2.6 1.8 3.1 5.7 3.2 5.6 3.4
France 1.8 0.9 1.5 4.2 3.2 0.4 4.6 6.7 5.3 8.5
=================================================================================================================================
(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 other commitments and
contingencies as defined by the FFIEC.
LIQUIDITY AND CAPITAL RESOURCES
Citicorp's primary source of capital resources is its net earnings. Other
sources include proceeds from the issuance of trust preferred securities, senior
debt, subordinated debt and commercial paper. Citicorp can also generate funds
by securitizing various financial assets including credit card receivables and
other receivables generally secured by collateral.
Citicorp and certain other subsidiaries issue commercial paper directly to
investors. Citicorp maintains combined liquidity reserves of cash, securities
and unused bank lines of credit to support its combined outstanding commercial
paper.
Associates First Capital Corporation (Associates), a subsidiary of Citicorp, has
a combination of unutilized credit facilities with unaffiliated banks of $5.4
billion as of September 30, 2002 which have maturities ranging from 2002 to
2005. All of these facilities are guaranteed by Citicorp. In connection with the
facilities, Citicorp is required to maintain a certain level of consolidated
stockholder's equity (as defined in the agreements). At September 30, 2002, this
requirement was exceeded by approximately $52.7 billion. Citicorp has also
guaranteed various debt obligations of Associates and CitiFinancial Credit
Company, an indirect subsidiary of Citicorp.
Borrowings under bank lines of credit may be at interest rates based on LIBOR,
CD rates, the prime rate, or bids submitted by the banks. Each company pays its
banks facility fees for its lines of credit.
Citicorp and some of its nonbank subsidiaries have credit facilities with
Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these
facilities must be secured in accordance with Section 23A of the Federal Reserve
Act.
MANAGEMENT OF LIQUIDITY
Management of liquidity at Citicorp is the responsibility of the Corporate
Treasurer. A uniform liquidity risk management policy exists for Citigroup and
its major operating subsidiaries. Under this policy, there is a single set of
standards for the measurement of liquidity risk in order to ensure consistency
across businesses, stability in methodologies and transparency of risk.
Management of liquidity at each operating subsidiary and/or country is performed
on a daily basis and is monitored by Corporate Treasury. Each major operating
subsidiary and/or country must prepare an annual liquidity and funding plan for
the approval by the Corporate Treasurer. Under the annual liquidity and funding
plan, liquidity limits, targets and ratios are established. Contingency Funding
Plans are prepared on a periodic basis for Citigroup and each major operating
subsidiary and country. These plans include stress testing of assumptions about
significant changes in key funding sources, credit ratings, contingent uses of
funding, and political and economic conditions in certain countries.
Citicorp's funding sources are well-diversified across funding types and
geography, a benefit of the strength of the global franchise. Funding includes a
large geographically diverse retail and corporate deposit base, a significant
portion of which is considered core.
Other sources of funding include collateralized borrowings, securitizations
(primarily credit card and mortgages), long-term debt, and purchased/wholesale
funds. This funding is significantly enhanced by Citicorp's strong capital
position. As a subsidiary of Citigroup, Citicorp finances its operations on a
basis consistent with its capitalization, regulatory structure and the operating
environment in which it operates.
26
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represented 60% of
its total funding at September 30, 2002 and 59% of its total funding at December
31, 2001, are broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $3.2 billion during the first nine months of
2002 to $66.6 billion at September 30, 2002, continues to be an important
component of the overall funding structure. In addition, long-term debt is
issued by Citicorp and its subsidiaries. Total Citicorp long-term debt
outstanding at the end of the 2002 third quarter was $66.1 billion, down from
$81.1 billion at 2001 year-end.
Asset securitization programs remain an important source of liquidity. Loans
securitized during the first nine months of 2002 included $6.9 billion of U.S.
credit cards and $21.0 billion of U.S. consumer mortgages. As credit card
securitization transactions amortize, newly originated receivables are recorded
on Citicorp's balance sheet and become available for asset securitization.
During the first nine months of 2002, the scheduled amortization of certain
credit card securitization transactions made available $5.9 billion of new
receivables. In addition, at least $2.1 billion of credit card securitization
transactions are scheduled to amortize during the rest of 2002.
Other liquidity and capital resource considerations for Citicorp follows.
OFF-BALANCE SHEET ARRANGEMENTS
Citicorp and its subsidiaries are involved with several types of off-balance
sheet arrangements, including special purpose entities (SPEs), lines and letters
of credit, and loan commitments. The principal uses of SPEs are to obtain
sources of liquidity by securitizing certain of Citicorp's financial assets, to
assist our clients in securitizing their financial assets, and to create other
investment products for our clients.
SPEs may be organized as trusts, partnerships, or corporations. In a
securitization, the company transferring assets to an SPE converts those assets
into cash before they would have been realized in the normal course of business.
The SPE obtains the cash needed to pay the transferor for the assets received by
issuing securities to investors in the form of debt instruments, certificates,
commercial paper, and other notes of indebtedness. Investors usually have
recourse to the assets in the SPE and often benefit from other credit
enhancements, such as a cash collateral account, overcollateralization in the
form of excess assets in the SPE, or a liquidity facility, such as a line of
credit or asset purchase agreement. Accordingly, the SPE can typically obtain a
more favorable credit rating from rating agencies, such as Standard and Poor's
and Moody's Investors Service, than the transferor could obtain for its own debt
issuances, resulting in less expensive financing costs. The transferor can use
the cash proceeds from the sale to extend credit to additional customers or for
other business purposes. The SPE may also enter into a derivative contract in
order to convert the yield or currency of the underlying assets to match the
needs of the SPE's investors or to limit the credit risk of the SPE. The Company
may be the counterparty to any such derivative. The securitization process
enhances the liquidity of the financial markets, may spread credit risk among
several market participants, and makes new funds available to extend credit to
consumers and commercial entities.
SECURITIZATION OF CITICORP'S ASSETS
In certain of these off-balance sheet arrangements (credit card receivable and
mortgage loan securitizations), Citicorp is securitizing assets that were
previously recorded in its statement of financial position. In other
arrangements, Citicorp acts as intermediary or agent for its corporate clients,
assisting them in obtaining sources of liquidity by selling the clients' trade
receivables or other financial assets to an SPE. The Company also securitizes
clients' debt obligations in transactions involving SPEs that issue
collateralized debt obligations. In yet other arrangements, the Company packages
and securitizes assets purchased in the financial markets in order to create new
security offerings for institutional and private bank clients as well as retail
customers. In connection with such arrangements, Citicorp may purchase, and
temporarily hold assets designated for subsequent securitization.
In the 2002 third quarter, Citicorp securitized $1.3 billion of credit card
receivables and $5.1 billion of mortgage loans, thereby reducing the Company's
assets and the related funding by approximately $6.4 billion in the quarter.
Under generally accepted accounting principles, the assets and liabilities of
these SPEs do not appear in Citicorp's Consolidated Statement of Financial
Position. At September 30, 2002, the total amount of loans securitized and
outstanding was $151 billion. See Note 10 to Unaudited Consolidated Financial
Statements for additional information about off-balance sheet arrangements.
27
The following table summarizes certain cash flows received from and paid to
securitization trusts during the quarter ended September 30, 2002:
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES
- ----------------------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 1.3 $ 5.1
Proceeds from collections reinvested in new receivables 32.7 -
Servicing fees received 0.3 0.2
Cash flows received on retained interest and other net cash flows 1.0 0.1
============================================================================================================================
CREDIT CARD RECEIVABLES
Credit card receivables are securitized through a trust, which is established to
purchase the receivables. Citicorp sells receivables into the trust on a
non-recourse basis.
After securitization of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the SPE trusts. As a result, the Company considers
both the securitized and unsecuritized credit card receivables to be part of the
business it manages. The documents establishing the trusts generally require the
Company to maintain an ownership interest in the trusts. The Company also
arranges for third parties to provide credit enhancement to the trusts,
including cash collateral accounts, subordinated securities, and letters of
credit. As specified in certain of the sale agreements, the net revenue with
respect to the investors' interest collected by the trusts each month is
accumulated up to a predetermined maximum amount, and is available over the
remaining term of that transaction to make payments of interest to trust
investors, fees, and transaction costs in the event that net cash flows from the
receivables are not sufficient. If the net cash flows are insufficient, the
Company's loss is limited to its retained interest, consisting of seller's
interest and an interest-only strip that arises from the calculation of gain or
loss at the time receivables are sold to the SPE. When the predetermined amount
is reached, net revenue with respect to the investors' interest is passed
directly to the Citicorp subsidiary that sold the receivables. Credit card
securitizations are revolving securitizations; that is, as customers pay their
credit card balances, the cash proceeds are used to replenish the receivables in
the trust. Salomon Smith Barney is one of several underwriters that distribute
securities issued by the trusts to investors. The Company relies on
securitizations to fund approximately 60% of its Citi Cards business.
At September 30, 2002, total assets in the credit card trusts were $76 billion.
Of that amount, $64 billion has been sold to investors via trust-issued
securities and has been removed from Citicorp's Consolidated Statement of
Financial Position. The remaining seller's interest of $12 billion is recorded
in Citicorp's Consolidated Statement of Financial Position as Consumer Loans.
Citicorp retains credit risk on its seller's interest. Amounts receivable from
the trusts were $1.066 billion and amounts due to the trusts were $794 million
at September 30, 2002. During the quarter ended September 30, 2002, finance
charges and interchange fees of $2.5 billion were collected by the trusts. Also
for the quarter ended September 30, 2002, the trusts recorded $1.5 billion in
coupon interest paid to third-party investors, servicing fees, and other costs.
MORTGAGES, HOME EQUITY AND AUTO LOANS
The Company provides a wide range of mortgage, home equity and auto loan
products to a diverse customer base. In addition to providing a source of
liquidity and less expensive funding, securitizing these assets also reduces the
Company's credit exposure to the borrowers. In connection with the
securitization of these loans, servicing rights entitle the Company to a future
stream of cash flows based on the outstanding principal balances of the loans
and the contractual servicing fee. Failure to service the loans in accordance
with contractual servicing obligations may lead to a termination of the
servicing rights and the loss of future servicing fees. In non-recourse
servicing, the principal credit risk to the servicer arises from temporary
advances of funds. In recourse servicing, the servicer agrees to share credit
risk with the owner of the mortgage loans, such as FNMA, FHLMC, GNMA, or with a
private investor, insurer or guarantor. Our mortgage loan securitizations are
primarily non-recourse, thereby effectively transferring the risk of future
credit losses to the purchasers of the securities issued by the trust. Home
equity loans may be revolving lines of credit under which borrowers have the
right to draw on the line of credit up to their maximum amount for a specified
number of years. In addition to servicing rights, the Company also retains a
residual interest in its home equity, manufactured housing and auto loan
securitizations, consisting of seller's interest and interest-only strips that
arise from the calculation of gain or loss at the time assets are sold to the
SPE.
SECURITIZATIONS OF CLIENT ASSETS
The Company acts as intermediary or agent for its corporate clients, assisting
them in obtaining sources of liquidity, by selling the clients' trade
receivables or other financial assets to an SPE.
The Company administers several third-party owned, special purpose, multi-seller
finance companies that purchase pools of trade receivables, credit cards, and
other financial assets from third-party clients of the Company. As
administrator, the Company provides accounting, funding, and operations services
to these conduits. The Company has no ownership interest in the conduits. The
clients continue to service the transferred assets. The conduits' asset
purchases are funded by issuing commercial paper and medium-term
28
notes. Clients absorb the first losses of the conduit by providing collateral in
the form of excess assets. The Company along with other financial institutions
provides liquidity facilities, such as commercial paper back-stop lines of
credit to the conduits. The Company also provides third loss enhancement in the
form of letters of credit and other guarantees. All fees are charged on a market
basis. At September 30, 2002, total assets in the conduits were $49 billion.
The Company also securitizes clients' debt obligations in transactions involving
SPEs that issue collateralized debt obligations (CDOs). A majority of the
transactions are on behalf of clients where the Company first purchases the
assets at the request of the clients and warehouses them until the
securitization transaction is executed. Other CDOs are structured where the
underlying debt obligations are purchased directly in the open market or from
issuers. Some CDOs have static unmanaged portfolios of assets, while others have
a more actively managed portfolio of financial assets. The Company receives fees
for structuring and distributing the CDO securities to investors.
CREATION OF OTHER INVESTMENT PRODUCTS
The Company packages and securitizes assets purchased in the financial markets
in order to create new security offerings, including hedge funds, mutual funds,
and other investment funds, for institutional and private bank clients as well
as retail customers, that match the clients' investment needs and preferences.
The SPEs may be credit-enhanced by excess assets in the investment pool or by
third party insurers assuming the risks of the underlying assets, thus reducing
the credit risk assumed by the investors and diversifying investors' risk to a
pool of assets as compared with investments in individual assets. The Company
typically manages the SPE for market-rate fees. In addition, the Company may be
one of several liquidity providers to the SPE and may place the securities with
investors. The Company has no ownership interest in these entities.
CREDIT COMMITMENTS AND LINES OF CREDIT
The table below summarizes Citicorp's credit commitments as of September 30,
2002 and December 31, 2001.
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------------------------------
Financial standby letters of credit and foreign office guarantees $ 30,124 $ 26,461
Performance standby letters of credit and foreign office guarantees 7,639 7,749
Commercial and similar letters of credit 5,315 5,681
One-to-four family residential mortgages 5,165 5,470
Revolving open-end loans secured by 1-4 family residential properties 7,646 7,107
Commercial real estate, construction and land development 1,876 1,804
Credit card lines(1) 404,340 387,396
Commercial and other consumer loan commitments(2) 214,846 215,368
-----------------------------------------
TOTAL $ 676,951 $ 657,036
==============================================================================================================================
(1) Credit card lines are unconditionally cancelable by the issuer.
(2) Includes $141 billion and $148 billion with original maturity less than one
year at September 30, 2002 and December 31, 2001, respectively.
CAPITAL
CITICORP
Citicorp is subject to risk-based capital guidelines issued by the FRB. These
guidelines are used to evaluate capital adequacy based primarily on the
perceived credit risk associated with balance sheet assets, as well as
certain off-balance sheet exposures such as unused loan commitments, letters
of credit, and derivative and foreign exchange contracts. The risk-based
capital guidelines are supplemented by a leverage ratio requirement.
CITICORP RATIOS
SEPTEMBER 30, June 30, Dec. 31,
2002 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital 8.55% 8.40% 8.33%
Total Capital (Tier 1 and Tier 2) 12.73 12.53 12.41
Leverage(1) 6.90 6.92 6.85
Common Stockholder's Equity 10.17 9.93 9.81
==================================================================================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citicorp maintained a strong capital position during the 2002 third quarter.
Total capital (Tier 1 and Tier 2) amounted to $63.8 billion at September 30,
2002, representing 12.73% of net risk adjusted assets. This compares with
$63.4 billion and 12.53% at June 30, 2002, and $62.9 billion and 12.41% at
December 31, 2001. Tier 1 capital of $42.9 billion at September 30, 2002
represented 8.55% of
29
net risk adjusted assets, compared with $42.5 billion and 8.40% at June 30,
2002, and $42.2 billion and 8.33% at December 31, 2001. The Tier 1 capital ratio
at September 30, 2002 was above Citicorp's target range of 8.00% to 8.30%.
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
SEPT. 30, June 30, Dec. 31,
IN MILLIONS OF DOLLARS 2002 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
Common Stockholder's Equity $ 66,639 $ 66,049 $ 63,453
Mandatorily Redeemable Securities of Subsidiary Trusts 1,083 1,033 975
Minority Interest 750 748 839
Accumulated Net Gains on Cash Flow Hedges, net of tax (1,311) (781) (312)
Net Unrealized Gains on Securities Available for Sale(1) (363) (58) (219)
Less: Intangible Assets(2) (23,580) (24,142) (22,528)
Other (278) (330) -
Unrealized Marketable Securities Losses(1) (46) - -
50% Investment in Certain Subsidiaries(3) (12) (12) (20)
------------------------------------------------
TOTAL TIER 1 CAPITAL $ 42,882 $ 42,507 $ 42,188
- ---------------------------------------------------------------------------------------------------------------------------------
TIER 2 CAPITAL
Allowance for Credit Losses(4) 6,349 6,375 6,378
Qualifying Debt(5) 14,627 14,509 14,248
Unrealized Marketable Securities Gains(1) - 8 77
Less: 50% Investment in Certain Subsidiaries(3) (12) (12) (20)
------------------------------------------------
TOTAL TIER 2 CAPITAL 20,964 20,880 20,683
------------------------------------------------
TOTAL CAPITAL (TIER 1 AND TIER 2) $ 63,846 $ 63,387 $ 62,871
=================================================================================================================================
NET RISK-ADJUSTED ASSETS(6) $ 501,597 $ 505,835 $ 506,502
=================================================================================================================================
(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. Institutions are required to deduct from Tier 1 capital net
unrealized holding losses on available-for-sale equity securities with
readily determinable fair values, net of tax.
(2) Includes goodwill and certain other identifiable intangible assets.
(3) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(5) Includes qualifying senior and subordinated debt in an amount not exceeding
50% of Tier 1 capital, and subordinated capital notes subject to certain
limitations.
(6) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $24.7 billion for interest rate,
commodity, and equity derivative contracts and foreign exchange contracts
as of September 30, 2002, compared to $25.1 billion as of June 30, 2002 and
$21.8 billion as of December 31, 2001. 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 $3.2 billion during the first nine months
of 2002 to $66.6 billion at September 30, 2002, representing 10.17% of assets,
compared to 9.93% at June 30, 2002 and 9.81% at December 31, 2001. The net
increase in common stockholder's equity during the first nine months principally
reflected net income of $8.5 billion, offset by cash dividends declared of $4.8
billion, and $0.5 billion related to the net change in foreign currency
translation adjustment, change in hedging activities and unrealized gains and
losses on investment securities.
The mandatorily redeemable securities of subsidiary trusts (trust securities)
outstanding at September 30, 2002 of $1,083 million qualify as Tier 1 capital
and are included in long-term debt on the balance sheet. For the nine months
ended September 30, 2002 and 2001, interest expense on the trust securities
amounted to $57 million.
The final rules governing the regulatory capital treatment of nonfinancial
equity investments, which became effective April 1, 2002, were adopted for the
quarter ended June 30, 2002. The implementation had a minimal impact on
Citicorp's capital ratios both at September 30, 2002 and June 30, 2002. For the
quarter ended September 30, 2002 the capital ratio impact of the $278 million
capital charge was substantially offset by the $3.1 billion net reduction in
risk-adjusted assets for the nonfinancial equity investments. For the quarter
ended June 30, 2002, the capital ratio impact of $330 million capital charge was
offset by the $3.3 billion net reduction in risk-adjusted assets for the
non-financial equity investments.
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 September 30,
2002, all of Citicorp's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. As discussed in the Citicorp 2001 Form 10-K,
there are various legal limitations on the extent to which Citicorp's
subsidiaries may extend credit, pay dividends, or otherwise supply funds to
Citicorp. As of September 30, 2002, 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 $8.4 billion. In determining whether and to what extent to pay
dividends, each bank subsidiary must also consider the
30
effect of dividend payments on applicable risk-based capital and leverage ratio
requirements, as well as policy statements of the federal regulatory agencies
that indicate that banking organizations should generally pay dividends out of
current operating earnings. Consistent with these considerations, Citicorp
estimates that, as of September 30, 2002, its bank subsidiaries could have
distributed dividends to Citicorp, directly or through their parent holding
company, of approximately $8.0 billion of the available $8.4 billion.
CITIBANK, N.A. RATIOS
SEPT. 30, June 30, Dec. 31,
2002 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital 8.50% 8.15% 9.23%
Total Capital (Tier 1 and Tier 2) 12.71 12.19 13.60
Leverage 6.90 6.78 7.16
Common Stockholder's Equity 7.88 7.45 8.24
=================================================================================================================================
Citibank's net income for the third quarter of 2002 amounted to $1.9 billion.
During the quarter, Citibank paid a dividend of $1.8 billion to Citicorp (parent
company). Citibank had $11.2 billion of subordinated notes outstanding at
September 30, 2002 and $10.7 billion at June 30, 2002 and December 31, 2001,
that were issued to Citicorp (parent company) and included in Citibank's Tier 2
capital.
In December 2001, the Basel Committee on Banking Supervision (Committee)
announced that a consultative package on the new Basel Capital Accord (new
Accord) would not be issued in early 2002, as previously indicated. Instead,
the Committee will first seek to complete a comprehensive impact assessment
of the draft proposal, after which a new consultative package will be issued.
The Committee launched a Quantitative Impact Study on October 1, 2002 which
allows banks to perform a concrete and comprehensive assessment of how the
Committee's proposals will affect their organization. Banks are asked to
submit their findings by December 20, 2002. The new Accord, which will apply
to all "significant" banks, as well as to holding companies that are parents
of banking groups, is intended to be finalized in the fourth quarter of 2003,
with implementation of the framework by year-end 2006. The Company is
monitoring the status and progress of the proposed rule.
On November 29, 2001, the FRB issued final rules regarding the regulatory
capital treatment of recourse, direct credit substitutes and residual interest
in asset securitizations. The rules require a deduction from Tier 1 capital for
the amount of credit-enhancing interest-only strips (a type of residual
interest) that exceeds 25% of Tier 1 capital, as well as requiring
dollar-for-dollar capital for residual interests not deducted for Tier 1
capital. On May 17, 2002, the FRB issued guidance that requires institutions to
treat accrued interest receivables related to credit card securitizations as
residual interest, which will also require dollar-for-dollar capital. These
rules, which require full implementation in the fourth quarter of 2002, are not
expected to have a significant impact on Citicorp.
Additionally, from time to time, the FRB and the FFIEC propose amendments to,
and issue interpretations of, risk-based capital guidelines and reporting
instructions. Such proposals or interpretations could, if implemented in the
future, affect reported capital ratios and net risk-adjusted assets. This
paragraph and the preceding paragraph contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 23.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, the Company's disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's reports filed or submitted under the
Exchange Act.
CHANGES IN INTERNAL CONTROLS
Since the Evaluation Date, there have not been any significant changes in the
Company's internal controls or in other factors that could significantly
affect such controls.
31
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) CITICORP AND SUBSIDIARIES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST REVENUE
Loans, including fees $ 9,647 $ 10,263 $ 28,258 $ 29,942
Deposits with banks 230 303 752 946
Federal funds sold and securities purchased
under resale agreements 101 196 306 427
Investments, including dividends 1,301 1,140 3,607 2,977
Trading account assets 351 383 1,276 835
Loans held for sale 269 363 846 1,194
---------------------------------------------------------------
11,899 12,648 35,045 36,321
---------------------------------------------------------------
INTEREST EXPENSE
Deposits 2,586 3,290 6,891 9,859
Trading account liabilities 15 13 43 37
Purchased funds and other borrowings 611 941 1,949 2,593
Long-term debt 907 1,329 2,884 4,016
---------------------------------------------------------------
4,119 5,573 11,767 16,505
---------------------------------------------------------------
NET INTEREST REVENUE 7,780 7,075 23,278 19,816
BENEFITS, CLAIMS, AND CREDIT LOSSES
Policyholder benefits and claims 122 302 416 809
Provision for credit losses 2,689 1,580 7,305 4,529
---------------------------------------------------------------
TOTAL BENEFITS, CLAIMS, AND CREDIT LOSSES 2,811 1,882 7,721 5,338
---------------------------------------------------------------
NET INTEREST REVENUE AFTER BENEFITS, CLAIMS, AND CREDIT LOSSES 4,969 5,193 15,557 14,478
---------------------------------------------------------------
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 2,575 3,038 8,264 8,401
Foreign exchange 313 833 1,606 1,854
Trading account 779 161 1,689 1,089
Investment transactions (146) 26 (215) 141
Other revenue 1,669 717 3,552 2,811
---------------------------------------------------------------
5,190 4,775 14,896 14,296
---------------------------------------------------------------
OPERATING EXPENSE
Salaries 2,105 2,456 6,743 6,872
Employee benefits 482 437 1,427 1,312
---------------------------------------------------------------
Total employee and related expenses 2,587 2,893 8,170 8,184
Net premises and equipment 809 786 2,382 2,237
Restructuring-related items (32) 133 (26) 363
Other expense 2,308 2,478 7,027 7,167
---------------------------------------------------------------
5,672 6,290 17,553 17,951
---------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 4,487 3,678 12,900 10,823
Income taxes 1,482 1,279 4,345 3,905
Minority interest, net of income taxes 32 25 78 47
---------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 2,973 2,374 8,477 6,871
Cumulative effect of accounting changes - - - (144)
---------------------------------------------------------------
NET INCOME $ 2,973 $ 2,374 $ 8,477 $ 6,727
================================================================================================================================
See Notes to Unaudited Consolidated Financial Statements.
32
CONSOLIDATED BALANCE SHEET CITICORP AND SUBSIDIARIES
SEPTEMBER 30,
2002 December 31,
IN MILLIONS OF DOLLARS (UNAUDITED) 2001
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 11,262 $ 13,568
Deposits at interest with banks 15,183 19,210
Investments
Held to maturity 69 11
Available for sale and short-term and other (including $7,797 and $12,724
pledged to creditors at September 30, 2002 and December 31, 2001, respectively) 89,494 85,288
Venture capital 3,549 4,316
Trading account assets (including $2,163 and $2,386 pledged to creditors at September 30, 2002
and December 31, 2001, respectively) 49,204 39,465
Loans held for sale 12,164 11,900
Federal funds sold and securities purchased under resale agreements 14,999 14,568
Loans, net
Consumer 265,869 248,201
Corporate 136,422 143,472
--------------------------------
Loans, net of unearned income 402,291 391,673
Allowance for credit losses (10,720) (10,088)
--------------------------------
Total loans, net 391,571 381,585
Goodwill 20,277 19,140
Intangible assets 6,813 7,360
Premises and equipment, net 6,344 6,188
Interest and fees receivable 4,631 5,979
Other assets 29,734 38,366
--------------------------------
TOTAL ASSETS $ 655,294 $ 646,944
==================================================================================================================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 22,527 $ 23,060
Interest-bearing deposits in U.S. offices 122,834 114,509
Non-interest-bearing deposits in offices outside the U.S. 19,452 18,850
Interest-bearing deposits in offices outside the U.S. 230,413 222,548
--------------------------------
Total deposits 395,226 378,967
Trading account liabilities 24,989 22,333
Purchased funds and other borrowings 59,799 56,912
Accrued taxes and other expense 11,438 15,048
Other liabilities 31,143 29,178
Long-term debt 66,060 81,053
STOCKHOLDER'S EQUITY
Common stock: ($0.01 par value)
issued shares: 1,000 in each period - -
Surplus 34,129 34,112
Retained earnings 34,358 30,702
Accumulated other changes in equity from nonowner sources (1,848) (1,361)
--------------------------------
TOTAL STOCKHOLDER'S EQUITY 66,639 63,453
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 655,294 $ 646,944
==================================================================================================================================
See Notes to Unaudited Consolidated Financial Statements.
33
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
CITICORP AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
IN MILLIONS OF DOLLARS 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD $ 63,453 $ 47,865
Net income 8,477 6,727
Cumulative effect of accounting changes, after-tax(1) - 170
Net change in unrealized gains and losses on investment securities, after-tax 144 (134)
Net change in foreign currency translation adjustment, after-tax (1,630) (902)
Net change for cash flow hedges, after-tax 999 93
----------------------------------
Total changes in equity from nonowner sources 7,990 5,954
Common dividends declared (4,821) (3,672)
Capital contribution from Parent(2) - 12,707
Employee benefit plans and other activity 17 26
----------------------------------
BALANCE AT END OF PERIOD $ 66,639 $ 68,880
===================================================================================================================================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income $ 8,477 $ 6,727
Other changes in equity from nonowner sources (487) (773)
----------------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 7,990 $ 5,954
===================================================================================================================================
(1) Refers to the adoption of SFAS 133 in the first quarter of 2001 and the
adoption of EITF 99-20 in the second quarter of 2001, resulting in
increases to equity from nonowner sources of $82 million and $88 million,
respectively.
(2) Includes contribution related to the Banamex acquisition in the third
quarter of 2001.
See Notes to Unaudited Consolidated Financial Statements.
34
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) CITICORP AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
IN MILLIONS OF DOLLARS 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,477 $ 6,727
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 7,305 4,529
Depreciation and amortization of premises and equipment 751 1,041
Amortization of goodwill and acquisition premium costs 25 568
Restructuring-related items (26) 363
Cumulative effect of accounting changes, net of tax - 144
Venture capital activity 767 752
Net loss (gain) on sale of securities 215 (141)
Changes in accruals and other, net 8,373 (818)
Net (increase) decrease in loans held for sale (264) 2,370
Net (increase) decrease in trading account assets (9,739) 1,240
Net increase (decrease) in trading account liabilities 2,656 (8,858)
----------------------------------
Total adjustments 10,063 1,190
----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,540 7,917
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in deposits at interest with banks 4,027 (1,315)
Securities -- available for sale and short-term and other
Purchases (274,951) (230,995)
Proceeds from sales 224,695 210,972
Maturities 43,135 18,251
Net increase in federal funds sold and securities purchased under resale agreements (431) (19,697)
Net increase in loans (29,693) (31,211)
Proceeds from sales of loans 12,920 18,516
Business acquisitions (2,682) (6,869)
Capital expenditures on premises and equipment (852) (959)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed
assets 1,753 1,603
----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (22,079) (41,704)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 16,259 22,835
Net increase in federal funds purchased and securities sold under repurchase agreements 1,723 13,561
Net increase (decrease) in commercial paper and funds borrowed 1,920 (6,993)
Proceeds from issuance of long-term debt 40,743 32,666
Repayment of long-term debt (54,569) (20,128)
Dividends paid (4,821) (3,668)
----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,255 38,273
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND DUE FROM BANKS (22) (282)
Net (decrease) increase in cash and due from banks (2,306) 4,204
----------------------------------
Cash and due from banks at beginning of period 13,568 11,658
----------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 11,262 $ 15,862
===================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 10,700 $ 16,686
Income taxes 3,321 2,639
Non-cash investing activities:
Transfers to repossessed assets $ 797 $ 438
===================================================================================================================================
See Notes to Unaudited Consolidated Financial Statements.
35
CONSOLIDATED BALANCE SHEET CITIBANK, N.A. AND SUBSIDIARIES
SEPTEMBER 30,
2002 December 31,
IN MILLIONS OF DOLLARS (UNAUDITED) 2001
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 9,265 $ 11,056
Deposits at interest with banks 12,884 19,181
Investments
Held to maturity 59 -
Available for sale (including $750 and $619 pledged
to creditors at September 30, 2002 and December 31, 2001, respectively) 60,213 48,638
Venture capital 1,252 1,939
Trading account assets (including $161 and $424 pledged
to creditors at September 30, 2002 and December 31, 2001, respectively) 46,828 36,633
Loans held for sale 8,993 4,354
Federal funds sold and securities purchased under resale agreements 14,394 14,935
Loans, net of unearned income 296,513 280,455
Allowance for credit losses (7,806) (5,446)
--------------------------------
Total loans, net 288,707 275,009
Goodwill 5,234 5,068
Intangible assets 4,569 3,897
Premises and equipment, net 3,883 3,920
Interest and fees receivable 2,899 3,451
Other assets 22,228 24,262
--------------------------------
TOTAL ASSETS $ 481,408 $ 452,343
==================================================================================================================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 18,814 $ 19,268
Interest-bearing deposits in U.S. offices 87,438 81,298
Non-interest-bearing deposits in offices outside the U.S. 15,568 14,962
Interest-bearing deposits in offices outside the U.S. 201,332 191,395
--------------------------------
Total deposits 323,152 306,923
Trading account liabilities 28,362 20,306
Purchased funds and other borrowings 43,826 37,826
Accrued taxes and other expense 6,503 8,955
Other liabilities 20,720 18,209
Long-term debt and subordinated notes 18,942 22,501
STOCKHOLDER'S EQUITY
Preferred stock ($100 par value) 1,950 350
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period 751 751
Surplus 20,120 18,582
Retained earnings 18,016 19,227
Accumulated other changes in equity from nonowner sources (1) (934) (1,287)
--------------------------------
TOTAL STOCKHOLDER'S EQUITY 39,903 37,623
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 481,408 $ 452,343
===================================================================================================================================
(1) Amounts at September 30, 2002 and December 31, 2001 include the after-tax
amounts for net unrealized gains (losses) on investment securities of $253
million and $17 million, respectively, for foreign currency translation of
($2.254) billion and ($1.460) billion, respectively, and for cash flow
hedges of $1.067 million and $156 million, respectively.
See Notes to Unaudited Consolidated Financial Statements.
36
CITICORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of September
30, 2002 and for the three- and nine-month periods ended September 30, 2002
and 2001 include the accounts of Citicorp and its subsidiaries (collectively,
the Company). In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation have been
reflected. The accompanying unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
Certain financial information that is normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, but is not required for interim reporting
purposes, has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. ACCOUNTING CHANGES
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141 and
certain provisions of SFAS No. 142 as required for goodwill and intangible
assets resulting from business combinations consummated after June 30, 2001. The
new rules require that all business combinations consummated after June 30, 2001
be accounted for under the purchase method. The nonamortization provisions of
the new rules affecting goodwill and intangible assets deemed to have indefinite
lives are effective for all purchase business combinations completed after June
30, 2001.
On January 1, 2002, Citicorp adopted the remaining provisions of SFAS No. 142,
when the rules became effective for calendar year companies. Under the new
rules, effective January 1, 2002, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized, but are subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives.
The Company has performed the required impairment tests of goodwill and
indefinite-lived intangible assets and there was no impairment upon adoption of
SFAS No. 142.
Net income for the third quarter and first nine months of 2002 and 2001 and
the full years 2001, 2000 and 1999 adjusted to exclude amortization expense
(net of taxes) related to goodwill and indefinite-lived intangible assets
which are no longer amortized are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, FULL YEAR FULL YEAR FULL YEAR
-------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME:
Reported net income $ 2,973 $ 2,374 $ 8,477 $ 6,727 $ 9,642 $ 8,110 $ 6,571
Goodwill amortization - 68 - 203 272 208 182
Indefinite-lived intangible assets
amortization - 1 - 3 5 5 4
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 2,973 $ 2,443 $ 8,477 $ 6,933 $ 9,919 $ 8,323 $ 6,757
==================================================================================================================================
During the first nine months of 2002, no goodwill was impaired or written off.
The Company recorded goodwill of $41 million during the 2002 second quarter and
$74 million during the 2002 first quarter in connection with the consumer
finance acquisitions of Marufuku Co., Ltd. and Taihei Co., Ltd., respectively,
in Japan. Additionally, in February 2002, Banamex completed the purchase of the
remaining 48% interest in Seguros Banamex, a life insurance business, and AFORE
Banamex, a pension fund management business, from AEGON for $1.24 billion which
resulted in additional goodwill of $1.07 billion in the Global Investment
Management segment.
37
The changes in goodwill during the third quarter of 2002 were as follows:
GLOBAL
CORPORATE AND GLOBAL
GLOBAL INVESTMENT INVESTMENT
IN MILLIONS OF DOLLARS CONSUMER BANK MANAGEMENT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 $ 13,058 $ 4,029 $ 2,053 $ 19,140
Goodwill acquired during the period 115 - 1,070 1,185
Other(1) 404 8 (51) 361
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 $ 13,577 $ 4,037 $ 3,072 $ 20,686
- -----------------------------------------------------------------------------------------------------------------------------------
Other(1) (224) (107) (78) (409)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $ 13,353 $ 3,930 $ 2,994 $ 20,277
===================================================================================================================================
(1) Other changes in goodwill includes foreign exchange effects on non-dollar
denominated goodwill, purchase accounting adjustments and certain other
reclassifications.
At September 30, 2002, $425 million of the Company's acquired trade names were
considered to be indefinite-lived and not subject to amortization. All other
acquired intangible assets are subject to amortization.
The components of intangible assets were as follows:
SEPTEMBER 30, 2002 December 31, 2001
---------------------------------------------------------------------------------------------
GROSS CARRYING ACCUMULATED NET CARRYING Gross Carrying Accumulated Net Carrying
IN MILLIONS OF DOLLARS AMOUNT AMORTIZATION AMOUNT Amount Amortization Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Purchased credit card relationships $ 4,053 $ 1,370 $ 2,683 $ 4,084 $ 1,136 $ 2,948
Mortgage servicing rights 1,819 903 916 2,248 1,075 1,173
Core deposit intangibles 931 98 833 975 38 937
Other customer relationships 980 279 701 709 197 512
Other (1) 1,424 169 1,255 2,124 334 1,790
---------------------------------------------------------------------------------------------
TOTAL AMORTIZING INTANGIBLE ASSETS $ 9,207 $ 2,819 $ 6,388 $ 10,140 $ 2,780 $ 7,360
Indefinite-lived intangible assets 425 -
---------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS $ 6,813 $ 7,360
===================================================================================================================================
(1) Primarily contract-related intangible assets.
The intangible assets recorded during the first nine months of 2002 and their
respective amortization periods were as follows:
NINE MONTHS ENDED WEIGHTED-AVERAGE
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2002 AMORTIZATION PERIOD IN YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights $ 520 15
Other customer relationships 210 9
Other (1) 35 22
----------------------
Total intangible assets recorded during the period (2) $ 765
====================================================================================================================================
(1) Represents present value of future profits acquired during the first nine
months of 2002 that will be amortized on an accelerated basis over 22
years.
(2) There was no significant residual value estimated for the intangible assets
recorded during the first nine months of 2002.
Intangible assets amortization expense was $201 million and $184 million for the
three months ended September 30, 2002 and 2001, respectively, and $574 million
and $521 million for the nine months ended September 30, 2002 and 2001,
respectively. Intangible assets amortization expense is estimated to be $190
million for the remainder of 2002, $750 million in 2003, $700 million in 2004,
$660 million in 2005, $610 million in 2006, and $570 million in 2007.
ADOPTION OF EITF 99-20
During the third quarter of 2001, the Company adopted Emerging Issues Task Force
(EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Asset"
(EITF 99-20). EITF 99-20 provides new guidance regarding income recognition and
identification and determination of impairment on certain asset-backed
securities. The initial adoption resulted in a cumulative adjustment of $111
million after-tax, recorded as a charge to earnings, and an increase of $88
million included in other changes in stockholder's equity from nonowner sources.
DERIVATIVES AND HEDGE ACCOUNTING
On January 1, 2001, Citicorp adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 changed the
accounting treatment of derivative contracts (including foreign exchange
contracts) that are employed to manage risk outside of Citicorp's trading
activities, as well as certain derivative instruments embedded in other
contracts. SFAS No. 133 requires that all derivatives be recorded on the balance
sheet at their fair value. The treatment of changes in the fair
38
value of derivatives depends on the character of the transaction, including
whether it has been designated and qualifies as part of a hedging relationship.
The majority of Citicorp's derivatives are entered into for trading purposes and
were not impacted by the adoption of SFAS No. 133. The cumulative effect of
adopting SFAS No. 133 at January 1, 2001 was an after-tax charge of $33 million
included in net income and an increase of $82 million included in other changes
in stockholder's equity from nonowner sources.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of FASB Statement No. 125" (SFAS
No. 140). In July 2001, FASB issued Technical Bulletin No. 01-1, "Effective Date
for Certain Financial Institutions of Certain Provisions of Statement 140
Related to the Isolation of Transferred Assets."
Certain provisions of SFAS No. 140 require that the structure for transfers of
financial assets to certain securitization vehicles be modified to comply with
revised isolation guidance for institutions subject to receivership by the
Federal Deposit Insurance Corporation. These provisions were effective for
transfers taking place after December 31, 2001, with an additional transition
period ending no later than June 30, 2006 for transfers to certain master
trusts. It is not expected that these provisions will materially affect the
financial statements. SFAS No. 140 also provides revised guidance for an entity
to be considered a qualifying special purpose entity.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
On January 1, 2002, Citicorp adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), when the rule
became effective for calendar year companies. SFAS No. 144 established
additional criteria for determining when a long-lived asset is held-for-sale. It
also broadens the definition of "discontinued operations," but does not allow
for the accrual of future operating losses, as was previously permitted. The
provisions of the new standard are generally to be applied prospectively.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES In September 2002, FASB
issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" (SFAS No. 146). SFAS No. 146 requires that a liability for costs
associated with exit or disposal activities be recognized when the liability
is incurred. Existing generally accepted accounting principles provide for
the recognition of such costs at the date of management's commitment to an
exit plan. In addition, SFAS No. 146 requires that the liability be measured
at fair value and be adjusted for changes in estimated cash flows. The
provisions of the new standard are effective for exit or disposal activities
initiated after December 31, 2002. It is not expected that SFAS No. 146 will
materially affect the financial statements.
3. BUSINESS DEVELOPMENTS
ACQUISITION OF GOLDEN STATE BANCORP
On November 6, 2002, Citigroup completed its acquisition of Golden State Bancorp
(Golden State) in a transaction in which Citigroup paid approximately $2.3
billion in cash and issued 79.5 million Citigroup common shares for all of the
outstanding shares of Golden State. The total transaction value of approximately
$5.8 billion was based on the average prices of Citigroup shares, as adjusted
for the effect of the TPC distribution, for the two trading days before and
after May 21, 2002, the date the terms of the acquisition were agreed to and
announced.
Golden State was the parent company of California Federal Bank, the second
largest thrift in the U.S. and, through its First Nationwide Mortgage business,
the eighth largest mortgage servicer. As of September 30, 2002, it had $25
billion in deposits, $51 billion in assets and 354 branches in California and
Nevada.
39
4. BUSINESS SEGMENT INFORMATION
The following table presents certain information regarding the Company's
industry segments:
INCOME (LOSS)
BEFORE CUMULATIVE
TOTAL REVENUES, NET PROVISION (BENEFIT) EFFECT OF ACCOUNTING
OF INTEREST EXPENSE FOR INCOME TAXES CHANGES(1)(2) IDENTIFIABLE ASSETS
------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
IN MILLIONS OF DOLLARS, EXCEPT IDENTIFIABLE ----------------------------------------------------------------SEPT. 30, Dec. 31,
ASSETS IN BILLIONS 2002 2001(3) 2002 2001(3) 2002 2001(3) 2002 2001(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Global Consumer 9,025 8,056 1,148 1,003 2,106 1,764 344 343
Global Corporate and Investment Bank 3,247 3,213 401 423 786 778 263 255
Global Investment Management 717 676 68 55 167 106 34 31
Proprietary Investment Activities (128) (347) (54) (133) (135) (240) 8 9
Corporate/Other 109 252 (81) (69) 49 (34) 6 9
------------------------------------------------------------------------------------
TOTAL 12,970 11,850 1,482 1,279 2,973 2,374 655 647
====================================================================================================================================
INCOME (LOSS)
BEFORE CUMULATIVE
TOTAL REVENUES, NET PROVISION (BENEFIT) EFFECT OF ACCOUNTING
OF INTEREST EXPENSE FOR INCOME TAXES CHANGES(1)(2)
---------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(3) 2002 2001(3) 2002 2001(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Global Consumer 25,730 22,205 3,057 2,615 5,672 4,557
Global Corporate and Investment Bank 9,800 9,319 1,185 1,244 2,388 2,217
Global Investment Management 2,268 1,878 209 182 513 307
Proprietary Investment Activities (106) (98) (66) (79) (171) (93)
Corporate/Other 482 808 (40) (57) 75 (261)
---------------------------------------------------------------
TOTAL 38,174 34,112 4,345 3,905 8,477 6,727
====================================================================================================================================
(1) Results in the 2002 third quarter and nine-month periods reflect after-tax
restructuring-related credits (charges) in Global Consumer of $15 million
and $25 million, in Global Corporate and Investment Bank of $5 million and
$1 million, in Global Investment Management of $1 million and ($9) million,
respectively and in Corporate/Other of $1 million in both periods. The 2001
third quarter and nine-month results reflect after-tax
restructuring-related credits (charges) in Global Consumer of ($73) million
and ($143) million, in Global Corporate and Investment Bank of ($6) million
and ($79) million, in Global Investment Management of ($8) million and
($15) million, and in Corporate/Other of $3 million and $9 million,
respectively.
(2) Results in the 2002 third quarter and nine-month periods include pretax
provisions (credits) for benefits, claims, and credit losses in Global
Consumer of $1.9 billion and $5.5 billion, in Global Corporate and
Investment Bank of $798 million and $1.9 billion, in Global Investment
Management of $64 million and $241 million, respectively, and in
Proprietary Investment Activities of $9 million and $9 million,
respectively, and in Corporate/Other of ($9) million in the nine-month
period. The 2001 third quarter and nine-month results reflect pretax
provisions (credits) for benefits, claims, and credit losses in Global
Consumer of $1.4 billion and $4.0 billion, in Global Corporate and
Investment Bank of $217 million and $772 million, in Global Investment
Management of $64 million and $118 million and in Corporate/Other of $162
million and $488 million, respectively.
(3) Reclassified to conform to the current period's presentation.
40
5. INVESTMENTS
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed maturities, primarily available-for-sale, at fair value $ 84,271 $ 79,414
Equity securities, primarily at fair value 4,963 5,388
Venture capital, at fair value (1) 3,549 4,316
Short-term and other 329 497
---------------------------------
$ 93,112 $ 89,615
====================================================================================================================================
(1) For the nine months ended September 30, 2002, net losses on investments
held by venture capital subsidiaries totaled $201 million of which $408
million and $801 million represented gross unrealized gains and losses,
respectively. For the nine months ended September 30, 2001, net losses on
investments held by venture capital subsidiaries totaled $226 million, of
which $538 million and $847 million represented gross unrealized gains and
losses, respectively.
The amortized cost and fair value of investments in fixed maturities and equity
securities at September 30, 2002 and December 31, 2001 were as follows:
SEPTEMBER 30, 2002 December 31, 2001 (1)
---------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED Amortized
IN MILLIONS OF DOLLARS COST GAINS LOSSES FAIR VALUE Cost Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY(2) $ 69 $ - $ - $ 69 $ 11 $ 11
---------------------------------------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury and Federal agencies $ 23,648 $ 557 $ 2 $ 24,203 $ 18,400 $ 18,480
State and municipal 6,297 576 2 6,871 5,761 5,880
Foreign government 40,936 141 302 40,775 43,598 43,682
U.S. corporate 5,385 180 334 5,231 5,905 5,858
Other debt securities 7,158 45 81 7,122 5,442 5,503
---------------------------------------------------------------------------------
83,424 1,499 721 84,202 79,106 79,403
---------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 83,493 $ 1,499 $ 721 $ 84,271 $ 79,117 $ 79,414
==================================================================================================================================
Equity securities(3) 5,032 168 237 4,963 5,218 5,388
==================================================================================================================================
(1) At December 31, 2001, gross pretax unrealized gains and losses on fixed
maturities and equity securities totaled $1.146 billion and $679 million,
respectively.
(2) Recorded at amortized cost.
(3) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
6. TRADING ACCOUNT ASSETS AND LIABILITIES
SEPT. 30, Dec. 31,
IN MILLIONS OF DOLLARS 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal Agency Securities $ 859 $ 405
Foreign Government, Corporate and Other Securities 22,595 17,375
Derivative and Foreign Exchange Contracts (1) 25,750 21,685
--------------------------------
$ 49,204 $ 39,465
==================================================================================================================================
TRADING ACCOUNT LIABILITIES
Securities Sold, Not Yet Purchased $ 2,874 $ 4,035
Derivative and Foreign Exchange Contracts (1) 22,115 18,298
--------------------------------
$ 24,989 $ 22,333
==================================================================================================================================
(1) Net of master netting agreements and securitization.
41
7. DERIVATIVES AND OTHER ACTIVITIES
The following table summarizes certain information related to the Company's
hedging activities for the three and nine months ended September 30, 2002 and
2001:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
FAIR VALUE HEDGES:
Hedge ineffectiveness recognized in earnings $ (13) $ (16) $ 16 $ 93
Net gain (loss) excluded from assessment of effectiveness 88 (11) 86 60
CASH FLOW HEDGES:
Hedge ineffectiveness recognized in earnings (2) 8 5 19
Amount excluded from assessment of effectiveness - - - -
NET INVESTMENT HEDGES:
Net gain (loss) included in foreign currency translation
adjustment within accumulated other changes in equity
from nonowner sources 229 71 (834) 234
- ----------------------------------------------------------------------------------------------------------------------------------
The accumulated other changes in equity from nonowner sources from cash flow
hedges for the nine months ended September 30, 2002 and 2001 can be summarized
as follows (net of taxes):
IN MILLIONS OF DOLLARS 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, (1) $ 312 $ 65
Net gain (loss) from cash flow hedges 115 (40)
Net amounts reclassified to earnings (99) (31)
------------------------------
BALANCE AT MARCH 31, $ 328 $ (6)
Net gain from cash flow hedges 593 35
Net amounts reclassified to earnings (140) (28)
------------------------------
BALANCE AT JUNE 30, $ 781 $ 1
Net gain from cash flow hedges 694 180
Net amounts reclassified to earnings (164) (23)
------------------------------
BALANCE AT SEPTEMBER 30, $ 1,311 $ 158
===================================================================================================================================
(1) Balance at January 1, 2001 results from the cumulative effect of the
accounting change for cash-flow hedges.
8. RESTRUCTURING-RELATED ITEMS
RESTRUCTURING INITIATIVES
-----------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2000 Total
- ----------------------------------------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES $ 42 $ 315 $ 576 $ 933
Acquisitions (1) - 112 23 135
Utilization (2) (20) (336) (546) (902)
Changes in estimates - (32) (53) (85)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $ 22 $ 59 $ - $ 81
==================================================================================================================================
(1) Represents additions to restructuring liabilities arising from
acquisitions.
(2) Utilization amounts include translation effects on the restructuring
reserve.
During the first quarter of 2002, Citicorp recorded restructuring charges of $42
million, primarily consisting of the downsizing of Global Consumer and Global
Corporate and Investment Bank operations in Argentina. Through September 30,
2002, utilization of this reserve included $20 million of severance and other
costs which were paid in cash. Utilization of this reserve in the 2002 third
quarter and first nine months was $16 million and $20 million, respectively.
During 2001, Citicorp recorded restructuring charges of $315 million. Of the
$315 million, $186 million related to the downsizing of certain functions in the
Global Corporate and Investment Bank and Global Consumer businesses in order to
align their cost structures with current market conditions and $129 million
related to the acquisition of Banamex and the integration of its operations. In
addition, a restructuring reserve of $112 million was recorded in connection
with the acquisition of Banamex and recognized as a liability in the purchase
price allocation of Banamex. The total Banamex reserves of $241 million include
costs related to downsizings, the reconfiguration of branch operations in
Mexico, and the integration of operations and operating platforms. These
restructuring initiatives are expected to be substantially implemented this
year. The reserves included $299 million related to employee severance, $63
million related to exiting leasehold and other contractual obligations, and $65
million of asset impairment charges.
42
The $299 million related to employee severance reflects the cost of eliminating
approximately 10,160 positions, including 4,200 in Citicorp's Global Consumer
business and 3,600 in Banamex related to the acquisition, and 1,300 in the
Global Consumer business and 1,060 in the Global Corporate and Investment Bank
business related to other restructuring initiatives. Approximately 1,220 of
these positions are in the United States.
Through September 30, 2002, the 2001 restructuring reserve utilization included
$65 million of asset impairment charges as well as $271 million of severance and
other costs (of which $205 million of employee severance and $29 million of
leasehold and other exit costs have been paid in cash and $37 million is legally
obligated), together with translation effects. Utilization of the 2001
restructuring reserve in the 2002 third quarter and first nine months was $53
million and $103 million, respectively. Through September 30, 2002,
approximately 10,500 gross staff positions have been eliminated under these
programs, including approximately 1,700 in the 2002 third quarter and 4,000 in
the first nine months of 2002.
During 2000, Citicorp recorded restructuring charges of $576 million, primarily
consisting of exit costs related to the acquisition of Associates. The charges
included $238 million related to employee severance, $154 million related to
exiting leasehold and other contractual obligations, and $184 million of asset
impairment charges.
Of the $576 million charge, $474 million related to the acquisition of
Associates and included the reconfiguration of certain branch operations, the
exit from non-strategic businesses and from activities as mandated by federal
bank regulations, and the consolidation and integration of corporate, middle and
back office functions. In the Global Consumer business, $51 million includes the
reconfiguration of certain branch operations outside the United States and the
downsizing and consolidation of certain back office functions in the United
States. Approximately $440 million of the $576 million charge related to
operations in the United States.
The $238 million portion of the charge related to employee severance reflects
the costs of eliminating approximately 5,600 positions, including approximately
4,600 in Associates and 700 in the Global Consumer business. Approximately 4,900
of these positions related to the United States. In 2000, a reserve of $23
million was recorded, $20 million of which related to the elimination of 1,600
non-U.S. positions of an acquired entity.
The 2000 restructuring reserve was fully utilized at September 30, 2002,
including $184 million of asset impairment charges and $362 million of severance
and other exit costs (of which $184 million of employee severance and $126
million of leasehold and other exit costs have been paid in cash and $52 million
is legally obligated), together with translation effects. Utilization of the
2000 restructuring reserve in the 2002 third quarter and nine months was $10
million and $63 million, respectively. Through September 30, 2002, approximately
6,350 staff positions have been eliminated under these programs including
approximately 150 in the 2002 third quarter and 1,100 in the first nine months
of 2002.
The implementation of these restructuring initiatives also caused certain
related premises and equipment assets to become redundant. The remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges (in addition to normal scheduled depreciation on those assets) of $8
million were recognized in the first nine months of 2002, and $4 million and $48
million were recognized in the 2001 third quarter and first nine months of 2001.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. Changes in estimates
attributable to lower than anticipated costs of implementing certain projects
and a reduction in the scope of certain initiatives during the third quarter of
2002 resulted in a reduction of the reserve for 2001 restructuring initiatives
of $21 million, and a reduction of reserves for prior restructuring initiatives
of $11 million. Changes in estimates during the second quarter of 2002 resulted
in a reduction of the reserve for 2001 restructuring initiatives of $6 million,
a reduction of the reserve for 2000 restructuring initiatives of $24 million and
a reduction of reserves for prior restructuring initiatives of $13 million.
Changes in estimates during 2001 resulted in a reduction of the reserve for 2001
restructuring initiatives of $5 million during the third quarter of 2001 and a
reduction of $29 million for 2000 restructuring initiatives during the fourth
quarter of 2001.
Additional information about restructuring-related items, including the business
segments affected, may be found in Citicorp's 2001 Form 10-K.
43
9. CHANGES IN EQUITY FROM NONOWNER SOURCES
Changes in each component of "Accumulated Other Changes in Equity from Nonowner
Sources" for the nine-month period ended September 30, 2002 are as follows:
ACCUMULATED
NET UNREALIZED FOREIGN OTHER CHANGES
GAINS ON CURRENCY IN EQUITY FROM
INVESTMENT TRANSLATION CASH FLOW NONOWNER
IN MILLIONS OF DOLLARS SECURITIES ADJUSTMENT HEDGES SOURCES
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 219 $ (1,892) $ 312 $ (1,361)
Unrealized losses on investment securities, after-tax (1) (103) - - (103)
Foreign currency translation adjustment, after-tax (2) - (402) - (402)
Cash flow hedges, after-tax - - 16 16
- -----------------------------------------------------------------------------------------------------------------------------------
Change (103) (402) 16 (489)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2002 116 (2,294) 328 (1,850)
Unrealized losses on investment securities, after-tax (58) - - (58)
Foreign currency translation adjustment, after-tax (3) - (811) - (811)
Cash flow hedges, after-tax - - 453 453
- -----------------------------------------------------------------------------------------------------------------------------------
Change (58) (811) 453 (416)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 58 (3,105) 781 (2,266)
Unrealized gains on investment securities, after-tax (4) 305 - - 305
Foreign currency translation adjustment, after-tax (5) - (417) - (417)
Cash flow hedges, after-tax - - 530 530
- -----------------------------------------------------------------------------------------------------------------------------------
Current period change 305 (417) 530 418
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 $ 363 $ (3,522) $ 1,311 $ (1,848)
===================================================================================================================================
(1) Primarily reflects the impact of a rising interest rate yield curve on
fixed-income securities.
(2) Includes the $512 million after-tax impact of translating Argentina's net
assets into the U.S. dollar equivalent. As a result of government actions
in Argentina, which began in the fourth quarter of 2001 and continue, the
functional currency of the Argentine branch and subsidiaries was changed in
the 2002 first quarter from the U.S. dollar to the Argentine peso.
(3) Primarily reflects the decline in the Mexican peso against the U.S. dollar,
and includes the $77 million after-tax impact of translating Argentina's
operations into the U.S. dollar equivalent.
(4) Primarily reflects realized losses resulting from the sale of securities
and a declining interest rate yield curve on fixed-income securities.
(5) Primarily reflects the decline in the Mexican peso against the U.S. dollar.
10. SECURITIZATIONS
ACCOUNTING POLICIES
Citicorp securitizes, sells and services various consumer and commercial loans.
Interest in the securitized and sold loans may be retained in the form of
subordinated interest-only strips, subordinated tranches, spread accounts and
servicing rights. The Company retains a seller's interest in the credit card
receivables transferred to the trusts, which is not in securitized form.
Accordingly, the seller's interest is carried on a historical cost basis and
classified as consumer loans. Other retained interests are primarily recorded as
investments. Gains or losses on securitization and sale depend in part on the
previous carrying amount of the loans involved in the transfer and are allocated
between the loans sold and the retained interests based on their relative fair
values at the date of sale. The Company values its securitized retained
interests at fair value using either financial models, quoted market prices or
sales of similar assets. Where quoted market prices are generally not available,
the Company estimates the fair value of these retained interests by determining
the present value of future expected cash flows using modeling techniques that
incorporate management's best estimates of key assumptions, including payment
speeds, credit losses and discount rates. Gains are recognized at the time of
securitization and are reported in other income.
For each securitization entity with which the Company is involved, the Company
makes a determination of whether the entity should be considered a subsidiary of
the Company and be consolidated into the Company's financial statements or
whether the entity is sufficiently independent that it does not need to be
consolidated. If the securitization entity's activities are sufficiently
restricted to meet certain accounting requirements to be a qualifying special
purpose entity, the securitization entity is not consolidated by Citicorp as
seller of the transferred assets. For all other securitizations in which
Citicorp participates, an evaluation is made of whether the Company controls the
entity by considering several factors, including how much of the entity's
ownership is in the hands of third-party investors, who controls the
securitization entity, and who reaps the rewards and bears the risks of the
entity. Only securitization entities controlled by Citicorp are consolidated.
For a transfer of financial assets to be considered a sale: financial assets
transferred by the Company must have been isolated from the seller, even in
bankruptcy or other receivership; the purchaser must have the right to sell the
assets transferred, or the purchaser must be a qualifying special purpose entity
meeting certain significant restrictions on its activities, whose investors have
the right to sell their ownership interests in the entity; and the seller does
not continue to control the assets transferred through an agreement to
44
repurchase them or have a right to cause the assets to be returned (known as a
call option). A transfer of financial assets that meets the sale requirements is
removed from the Company's consolidated statement of financial position. If the
conditions for sale are not met, the transfer is considered to be a secured
borrowing, the asset remains on the Company's consolidated statement of
financial position and the proceeds are recognized as the Company's liability.
In determining whether financial assets transferred have, in fact, been isolated
from the Company, an opinion of legal counsel is obtained for complex
transactions or where the Company has continuing involvement with the assets
transferred or with the securitization entity. For sale treatment to be
appropriate, those opinions must state that the asset transfer would be
considered a sale and that the assets transferred would not be consolidated with
the Company's other assets in the event of the Company's insolvency.
In the case of asset transfers to certain master trust securitization entities,
the Company has until no later than June 30, 2006 to make the changes needed in
the master trusts' organizational structure and governing documents that are
necessary to meet these isolation requirements.
SECURITIZATION ACTIVITIES
Citicorp and its subsidiaries securitize primarily credit card receivables and
mortgages. Other types of assets securitized include home equity loans, auto
loans and student loans.
After securitizations of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the trusts. The Company also arranges for third
parties to provide credit enhancement to the trusts, including cash collateral
accounts, subordinated securities and letters of credit. As specified in certain
of the sale agreements, the net revenue collected each month is accumulated up
to a predetermined maximum amount, and is available over the remaining term of
that transaction to make payments of yield, fees, and transaction costs in the
event that net cash flows from the receivables are not sufficient. When the
predetermined amount is reached net revenue is passed directly to the Citicorp
subsidiary that sold the receivables.
The Company provides a wide range of mortgage and home equity products to a
diverse customer base. In connection with these loans, the servicing rights
entitle the Company to a future stream of cash flows based on the outstanding
principal balances of the loans and the contractual servicing fee. Failure to
service the loans in accordance with contractual requirements may lead to a
termination of the servicing rights and the loss of future servicing fees. In
non-recourse servicing, the principal credit risk to the servicer is the cost of
temporary advances of funds. In recourse servicing, the servicer agrees to share
credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a
private investor, insurer or guarantor. Losses on recourse servicing occur
primarily when foreclosure sale proceeds of the property underlying a defaulted
mortgage or home equity loan are less than the outstanding principal balance and
accrued interest of such mortgage loan and the cost of holding and disposing of
the underlying property.
The Company also originates and sells first mortgage loans in the ordinary
course of its mortgage banking activities. The Company sells certain of these
loans to the Government National Mortgage Association (GNMA) with the servicing
rights retained. GNMA has the primary recourse obligation on the individual
loans; however, GNMA's recourse obligation is capped at a fixed amount per loan.
Any losses above that fixed amount are borne by Citicorp as the seller/servicer.
45
The following table summarizes certain cash flows received from and paid to
securitization trusts during the three and nine months ended September 30, 2002
and 2001:
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES AND OTHER(1) CREDIT CARDS MORTGAGES AND OTHER(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 1.3 $ 5.1 $ 5.8 $ 6.1
Proceeds from collections reinvested
in new receivables 32.7 - 32.6 -
Servicing fees received 0.3 0.2 0.3 0.1
Cash flows received on retained
interests and other net cash flows 1.0 0.1 0.9 0.1
===================================================================================================================================
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES AND OTHER(1) CREDIT CARDS MORTGAGES AND OTHER(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 6.9 $ 15.5 $ 17.6 $ 13.6
Proceeds from collections reinvested
in new receivables 99.7 - 96.5 -
Servicing fees received 0.9 0.4 0.9 0.2
Cash flows received on retained
interests and other net cash flows 2.9 0.4 2.7 0.2
===================================================================================================================================
(1) Other includes auto loans and student loans.
The Company recognized gains on securitizations of mortgages of $60 million and
$51 million for the three-month periods ended September 30, 2002 and 2001,
respectively, and $115 million and $144 million for the nine-month periods ended
September 30, 2002 and 2001, respectively. In the third quarter of 2002 the
Company recorded gains of $239 million related to the securitization of credit
card receivables as a result of changes in estimates in the timing of revenue
recognition on securitizations. Gains recognized on the securitization of other
assets during the first six months of 2002 were $40 million.
Key assumptions used for credit cards, mortgages and other assets during the
nine months ended September 30, 2002 in measuring the fair value of retained
interests at the date of sale or securitization follow:
CREDIT CARDS MORTGAGES AND OTHER(1)
- -----------------------------------------------------------------------------------------------------------------------------
Discount rate 10.0% 12.0%
Constant prepayment rate 17.5% 3.0% to 6.6%
Anticipated net credit losses 5.6% 0.03% to 0.24%
=============================================================================================================================
(1) Other includes student loans.
As required by SFAS No. 140, the effect of two negative changes in each of the
key assumptions used to determine the fair value of retained interests must be
disclosed. The negative effect of each change in each assumption must be
calculated independently, holding all other assumptions constant. Because the
key assumptions may not in fact be independent, the net effect of simultaneous
adverse changes in the key assumptions may be less than the sum of the
individual effects shown below.
At September 30, 2002, the key assumptions used to value retained interests and
the sensitivity of the fair value to two adverse changes in each of the key
assumptions were as follows:
CONSTANT PREPAYMENT ANTICIPATED NET
KEY ASSUMPTIONS AT SEPTEMBER 30, 2002: DISCOUNT RATE RATE CREDIT LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
Mortgages 9.3% 38.3% 0.04%
Credit cards 10.0% 17.5% 5.6%
Auto loans 11.0% 16.0% to 20.6% 8.4% to 15.8%
Manufactured housing loans 12.8% 10.5% 13.9%
- ------------------------------------------------------------------------------------------------------------------------------
46
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Carrying value of retained interests $ 2,477
- --------------------------------------------------------------------------------------------------------------------------------
Discount rate
+10% $ (88)
+20% $ (167)
- --------------------------------------------------------------------------------------------------------------------------------
Constant prepayment rate
+10% $ (190)
+20% $ (362)
- --------------------------------------------------------------------------------------------------------------------------------
Anticipated net credit losses
+10% $ (112)
+20% $ (232)
================================================================================================================================
MANAGED LOANS
For the loan portfolios where the Company continues to manage loans after they
have been securitized, the following table presents the total loan amounts
managed, the portion of those portfolios securitized, and delinquencies (loans
which are 90 days or more past due) at September 30, 2002 and December 31, 2001,
and credit losses, net of recoveries, for the three and nine-month periods ended
September 30, 2002 and 2001.
SEPTEMBER 30, 2002 DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD CREDIT CARD
MANAGED LOANS RECEIVABLES OTHER(1) RECEIVABLES OTHER(1)
- ---------------------------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS
Principal amounts, at period end:
Total managed $ 110.8 $ 31.2 $ 108.7 $ 20.9
Securitized amounts (64.6) - (67.0) -
- ---------------------------------------------------------------------------------------------------------------------------------
On-balance sheet(2) $ 46.2 $ 31.2 $ 41.7 $ 20.9
=================================================================================================================================
IN MILLIONS OF DOLLARS
- ---------------------------------------------------------------------------------------------------------------------------------
Delinquencies, at period end:
Total managed $ 2,066 $ 1,091 $ 2,141 $ 1,112
Securitized amounts (1,104) - (1,268) (4)
- ---------------------------------------------------------------------------------------------------------------------------------
On-balance sheet (2) $ 962 $ 1,091 $ 873 $ 1,108
- ---------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD CREDIT CARD CREDIT CARD CREDIT CARD
RECEIVABLES OTHER(1) RECEIVABLES OTHER(1) RECEIVABLES OTHER(1) RECEIVABLES OTHER(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Credit losses,
net of recoveries:
Total managed $ 1,601 $ 104 $ 1,433 $ 159 $ 4,965 $ 328 $ 4,034 $ 458
Securitized amounts (874) - (790) (22) (2,798) - (2,270) (70)
- ---------------------------------------------------------------------------------------------------------------------------------
On-balance sheet (1) $ 727 $ 104 $ 643 $ 137 $ 2,167 $ 328 $ 1,764 $ 388
=================================================================================================================================
(1) Includes home equity loans and auto loans.
(2) Includes loans held-for-sale.
SERVICING RIGHTS
The fair value of capitalized mortgage loan servicing rights was $916 million,
$1.173 billion and $991 million at September 30, 2002, December 31, 2001 and
September 30, 2001, respectively. The following table summarizes the changes in
capitalized mortgage servicing rights (MSR):
THREE MONTHS ENDED NINE MONTHS ENDED
IN MILLIONS OF DOLLARS SEPTEMBER 30, SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------
BALANCE, BEGINNING OF PERIOD $ 1,381 $ 1,092 $ 1,173 $ 1,069
Originations 95 126 330 293
Purchases - - 190 -
Amortization (45) (55) (130) (137)
Gain (loss) on change in MSR value 2 (158) 26 (83)
Provision for impairment (518) (19) (681) (132)
Other 1 5 8 (19)
-----------------------------------------------------------------
BALANCE, END OF PERIOD $ 916 $ 991 $ 916 $ 991
==================================================================================================================================
47
The following table summarizes the changes in the valuation allowance for
capitalized mortgage servicing rights:
THREE MONTHS ENDED NINE MONTHS ENDED
IN MILLIONS OF DOLLARS SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------
BALANCE, BEGINNING OF PERIOD $ 316 $ 132 $ 153 $ 19
Provision for impairment(1) 518 19 681 132
---------------------------------------------------------------
BALANCE, END OF PERIOD $ 834 $ 151 $ 834 $151
=================================================================================================================================
(1) The Company utilizes various financial instruments including swaps, option
contracts, futures, principal only securities and forward rate agreements
to manage and reduce its exposure to changes in the value of MSRs. The
provision for impairment does not include the impact of these instruments
which serve to protect the overall economic value of the MSRs.
11. CONTINGENCIES
For a discussion of certain legal proceedings, see Part II, Item 1 of this Form
10-Q. In addition, in the ordinary course of business, Citicorp and its
subsidiaries are defendants or co-defendants or parties in various litigation
and regulatory matters incidental to and typical of the businesses in which they
are engaged. In the opinion of the Company's management, the ultimate resolution
of these legal and regulatory proceedings would not be likely to have a material
adverse effect on the consolidated financial condition of the Company but, if
involving monetary liability, may be material to the Company's operating results
for any particular period.
12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CITIFINANCIAL CREDIT COMPANY (CCC)
On August 4, 1999, CCC, an indirect wholly-owned subsidiary of Citigroup, was
contributed to and became a subsidiary of Citicorp Banking Corporation (CBC), a
wholly-owned subsidiary of Citicorp. Citicorp issued a full and unconditional
guarantee of the outstanding long-term debt securities and commercial paper of
CCC.
ASSOCIATES FIRST CAPITAL CORPORATION (AFCC)
In connection with Citigroup's November 30, 2000 acquisition of AFCC in which
AFCC became a wholly-owned subsidiary of Citicorp, Citicorp issued a full and
unconditional guarantee of the outstanding long-term debt securities and
commercial paper of AFCC and Associates Corporation of North America (ACONA), a
subsidiary of AFCC.
Effective as of August 10, 2001, CBC, the parent company of CCC, transferred
100% of the stock of CCC to AFCC in exchange for convertible preferred stock of
AFCC, making CCC a wholly-owned subsidiary of AFCC. The condensed consolidating
financial statements account for the transaction in a manner similar to a
pooling of interest and therefore all prior periods have been restated.
On October 2, 2001, ACONA merged with and into AFCC at which time, AFCC assumed
ACONA's obligations under all debt instruments and agreements. Information
included in the following condensed financial statements under the AFCC column
represents AFCC Consolidated which includes ACONA's and CCC's results.
On July 1, 2002, Citicorp contributed its remaining interest in the stock of
AFCC to CBC, making AFCC a wholly-owned subsidiary of CBC. Citicorp remains the
guarantor of the outstanding long-term debt securities and commercial paper of
AFCC.
AFCC has a combination of unutilized credit facilities with unaffiliated banks
of $5.4 billion as of September 30, 2002 which have maturities ranging from 2002
to 2005. All of these facilities are guaranteed by Citicorp. In connection with
the facilities, Citicorp is required to maintain a certain level of consolidated
stockholder's equity (as defined in the agreements). At September 30, 2002, this
requirement was exceeded by approximately $52.7 billion. Citicorp also has
guaranteed various debt obligations of AFCC and CCC.
48
CONDENSED CONSOLIDATING INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Dividends from subsidiary banks
and bank holding companies $ 1,783 $ - $ - $ - $ (1,783) $ -
Interest from subsidiaries 617 - - (617) - -
Interest on loans, including fees - third party - 1,737 2,025 7,622 (1,737) 9,647
Interest on loans, including fees - intercompany - 61 62 (62) (61) -
Other interest revenue - 43 63 2,189 (43) 2,252
Fees, commissions and other revenues - third 23 143 146 5,021 (143) 5,190
party
Fees, commissions and other revenues -
intercompany - 5 6 (6) (5) -
----------------------------------------------------------------------------------
2,423 1,989 2,302 14,147 (3,772) 17,089
----------------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds - third party 662 - 16 (52) - 626
Interest on other borrowed funds - intercompany - 22 6 (6) (22) -
Interest and fees paid to subsidiaries 32 - - (32) - -
Interest on long-term debt - third party - 64 325 582 (64) 907
Interest on long-term debt - intercompany - 461 317 (317) (461) -
Interest on deposits - 4 5 2,581 (4) 2,586
Benefits, claims, and credit losses - 430 507 2,304 (430) 2,811
Other expense - third party 54 406 517 5,101 (406) 5,672
Other expense - intercompany - - 13 (13) - -
----------------------------------------------------------------------------------
748 1,387 1,706 10,148 (1,387) 12,602
----------------------------------------------------------------------------------
INCOME BEFORE TAXES, MINORITY INTEREST,
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 1,675 602 596 3,999 (2,385) 4,487
Income tax (benefit) 61 208 95 1,326 (208) 1,482
Minority interest, net of income taxes - - - 32 - 32
Equity in undistributed income of subsidiaries 1,359 - - - (1,359) -
----------------------------------------------------------------------------------
NET INCOME $ 2,973 $ 394 $ 501 $ 2,641 $ (3,536) $ 2,973
===================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of distributed and
undistributed income of subsidiaries and the elimination of CCC, included
in the AFCC column.
49
CONDENSED CONSOLIDATING INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Dividends from subsidiary banks
and bank holding companies $ 31 $ - $ - $ - $ ( 31) $ -
Interest from subsidiaries 756 - - (756) - -
Interest on loans, including fees - third party - 1,859 2,575 7,688 (1,859) 10,263
Interest on loans, including fees - intercompany - 94 565 (565) (94) -
Other interest revenue - 57 68 2,317 (57) 2,385
Fees, commissions and other revenues (41) 201 563 4,253 (201) 4,775
-------------------------------------------------------------------------------
746 2,211 3,771 12,937 (2,242) 17,423
-------------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds - third party 729 - 76 149 - 954
Interest on other borrowed funds - intercompany - 401 175 (175) (401) -
Interest and fees paid to subsidiaries 33 - - (33) - -
Interest on long-term debt - third party - 84 451 878 (84) 1,329
Interest on long-term debt - intercompany - 610 372 (372) (610) -
Interest on deposits - 5 53 3,237 (5) 3,290
Benefits, claims, and credit losses - 379 650 1,232 (379) 1,882
Other expense - third party 23 474 784 5,483 (474) 6,290
Other expense - intercompany - (43) - - 43 -
-------------------------------------------------------------------------------
785 1,910 2,561 10,399 (1,910) 13,745
-------------------------------------------------------------------------------
INCOME BEFORE TAXES, MINORITY INTEREST,
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES (39) 301 1,210 2,538 (332) 3,678
Income tax (benefit) (55) 102 442 892 (102) 1,279
Minority interest, net of income taxes - - - 25 - 25
Equity in undistributed income of subsidiaries 2,358 - - - (2,358) -
-------------------------------------------------------------------------------
NET INCOME $ 2,374 $ 199 $ 768 $ 1,621 $ (2,588) $ 2,374
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of distributed and
undistributed income of subsidiaries and the elimination of CCC, included in
the AFCC column.
50
CONDENSED CONSOLIDATING INCOME STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Dividends from subsidiary banks
and bank holding companies $ 6,607 $ - $ - $ - $ (6,607) $ -
Interest from subsidiaries 1,360 - - (1,360) - -
Interest on loans, including fees - third party 10 5,199 6,030 22,218 (5,199) 28,258
Interest on loans, including fees - intercompany - 201 185 (185) (201) -
Other interest revenue - 130 198 6,589 (130) 6,787
Fees, commissions and other revenues - third party (16) 459 594 14,318 (459) 14,896
Fees, commissions and other revenues -
intercompany - 8 12 (12) (8) -
-------------------------------------------------------------------------------
7,961 5,997 7,019 41,568 (12,604) 49,941
-------------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds - third party 1,465 2 41 486 (2) 1,992
Interest on other borrowed funds - intercompany - 147 119 (119) (147) -
Interest and fees paid to subsidiaries 103 - - (103) - -
Interest on long-term debt - third party - 210 1,087 1,797 (210) 2,884
Interest on long-term debt - intercompany - 1,291 810 (810) (1,291) -
Interest on deposits - 12 14 6,877 (12) 6,891
Benefits, claims, and credit losses - 1,289 1,546 6,175 (1,289) 7,721
Other expense - third party 95 1,228 1,578 15,880 (1,228) 17,553
Other expense - intercompany - - 18 (18) - -
-------------------------------------------------------------------------------
1,663 4,179 5,213 30,165 (4,179) 37,041
-------------------------------------------------------------------------------
INCOME BEFORE TAXES, MINORITY INTEREST,
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 6,298 1,818 1,806 11,403 (8,425) 12,900
Income tax (benefit) (2) 645 539 3,808 (645) 4,345
Minority interest, net of income taxes - - - 78 - 78
Equity in undistributed income of subsidiaries 2,177 - - - (2,177) -
-------------------------------------------------------------------------------
NET INCOME $ 8,477 $ 1,173 $ 1,267 $ 7,517 $ (9,957) $ 8,477
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of distributed and
undistributed income of subsidiaries and the elimination of CCC, included in
the AFCC column.
51
CONDENSED CONSOLIDATING INCOME STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Dividends from subsidiary banks
and bank holding companies $ 2,968 $ - $ - $ - $ (2,968) $ -
Interest from subsidiaries 2,143 - - (2,143) - -
Interest on loans, including fees - third party - 5,266 7,508 22,434 (5,266) 29,942
Interest on loans, including fees - intercompany - 94 1,317 (1,317) (94) -
Other interest revenue 10 247 337 6,032 (247) 6,379
Fees, commissions and other revenues 21 490 1,404 12,871 (490) 14,296
-------------------------------------------------------------------------------
5,142 6,097 10,566 37,877 (9,065) 50,617
-------------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds - third party 2,038 - 195 397 - 2,630
Interest on other borrowed funds - intercompany - 1,007 724 (724) (1,007) -
Interest and fees paid to subsidiaries 107 - - (107) - -
Interest on long-term debt - third party - 258 1,812 2,204 (258) 4,016
Interest on long-term debt - intercompany - 1,700 1,010 (1,010) (1,700) -
Interest on deposits - 13 70 9,789 (13) 9,859
Benefits, claims, and credit losses - 1,044 1,889 3,449 (1,044) 5,338
Other expense - third party 69 1,477 2,505 15,377 (1,477) 17,951
Other expense - intercompany - (43) - - 43 -
-------------------------------------------------------------------------------
2,214 5,456 8,205 29,375 (5,456) 39,794
-------------------------------------------------------------------------------
INCOME BEFORE TAXES, MINORITY INTEREST,
CUMULATIVE EFFECT OF ACCOUNTING CHANGES,
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 2,928 641 2,361 8,502 (3,609) 10,823
Income tax (benefit) (48) 223 880 3,073 (223) 3,905
Minority interest, net of income taxes - - - 47 - 47
Cumulative effect of accounting changes - - (125) (19) - (144)
Equity in undistributed income of subsidiaries 3,751 - - - (3,751) -
-------------------------------------------------------------------------------
NET INCOME $ 6,727 $ 418 $ 1,356 $ 5,363 $ (7,137) $ 6,727
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of distributed and
undistributed income of subsidiaries and the elimination of CCC, included in
the AFCC column.
52
CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks - third party $ 3 $ 530 $ 671 $ 10,588 $ (530) $ 11,262
Cash and due from banks - intercompany 18 21 367 (385) (21) -
Deposits at interest with banks - third party - - - 15,183 - 15,183
Deposits at interest with banks - intercompany 2,407 - - (2,407) - -
Investments 405 2,506 4,601 88,106 (2,506) 93,112
Loans, net of unearned income - third party - 56,779 66,421 335,870 (56,779) 402,291
Loans, net of unearned income - intercompany - 6,986 4,238 (4,238) (6,986) -
Allowance for credit losses - (882) (1,173) (9,547) 882 (10,720)
-------------------------------------------------------------------------------
Total loans, net - 62,883 69,486 322,085 (62,883) 391,571
Advances to subsidiaries 40,061 - - (40,061) - -
Investments in subsidiaries 73,028 - - - (73,028) -
Other assets - third party 361 4,038 7,628 136,177 (4,038) 144,166
Other assets - intercompany - 74 315 (315) (74) -
-------------------------------------------------------------------------------
TOTAL ASSETS $ 116,283 $ 70,052 $ 83,068 $ 528,971 $ (143,080) $ 655,294
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $ - $ 983 $ 1,180 $ 394,046 $ (983) $ 395,226
Purchased funds and other borrowings - third
party 14,791 44 1,638 43,370 (44) 59,799
Purchased funds and other borrowings -
intercompany - 4,466 690 (690) (4,466) -
Long-term debt - third party 30,147 3,342 23,571 12,342 (3,342) 66,060
Long-term debt - intercompany - 51,325 44,637 (44,637) (51,325) -
Advances from subsidiaries 2,720 - - (2,720) - -
Other liabilities - third party 1,986 2,252 3,650 61,934 (2,252) 67,570
Other liabilities - intercompany - 872 121 (121) (872) -
Stockholder's equity 66,639 6,768 7,581 65,447 (79,796) 66,639
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 116,283 $ 70,052 $ 83,068 $ 528,971 $ (143,080) $ 655,294
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of investments in subsidiaries
and the elimination of CCC, included in the AFCC column.
53
CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks - third party $ 3 $ 489 $ 1,575 $ 11,990 $ (489) $ 13,568
Cash and due from banks - intercompany 15 150 161 (176) (150) -
Deposits at interest with banks - third party 1 - - 19,209 - 19,210
Deposits at interest with banks - intercompany 2,454 - - (2,454) - -
Investments 482 2,498 4,658 84,475 (2,498) 89,615
Loans, net of unearned income - third party 1,197 56,707 65,497 324,979 (56,707) 391,673
Loans, net of unearned income - intercompany - 5,422 1,290 (1,290) (5,422) -
Allowance for credit losses - (1,001) (1,286) (8,802) 1,001 (10,088)
-------------------------------------------------------------------------------
Total loans, net 1,197 61,128 65,501 314,887 (61,128) 381,585
Advances to subsidiaries 35,990 - - (35,990) - -
Investments in subsidiaries 68,239 - - - (68,239) -
Other assets - third party 361 4,393 12,262 130,343 (4,393) 142,966
Other assets - intercompany 12 - 7,888 (7,900) - -
-------------------------------------------------------------------------------
TOTAL ASSETS $ 108,754 $ 68,658 $ 92,045 $ 514,384 $ (136,897) $ 646,944
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $ - $ 829 $ 1,060 $ 377,907 $ (829) $ 378,967
Purchased funds and other borrowings - third
party 12,951 83 2,027 41,934 (83) 56,912
Purchased funds and other borrowings -
intercompany - 22,920 19,207 (19,207) (22,920) -
Long-term debt - third party 29,710 4,262 32,014 19,329 (4,262) 81,053
Long-term debt - intercompany - 31,930 26,023 (26,023) (31,930) -
Advances from subsidiaries 1,622 - - (1,622) - -
Other liabilities - third party 102 2,520 5,047 61,410 (2,520) 66,559
Other liabilities - intercompany 916 610 380 (1,296) (610) -
Stockholder's equity 63,453 5,504 6,287 61,952 (73,743) 63,453
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 108,754 $ 68,658 $ 92,045 $ 514,384 $ (136,897) $ 646,944
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes Citicorp Parent Company elimination of investments in subsidiaries
and the elimination of CCC, included in the AFCC column.
54
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,079 $ 3,523 $ 4,618 $ 6,843 $ (3,523) $ 18,540
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities - available for sale
and short-term and other
Purchases (33) (1,765) (2,028) (272,890) 1,765 (274,951)
Proceeds from sales 110 1,565 1,516 223,069 (1,565) 224,695
Maturities - 255 403 42,732 (255) 43,135
Changes in investments and advances -
intercompany (6,523) (1,309) (4,651) 11,174 1,309 -
Net increase in loans - (4,251) (5,736) (23,957) 4,251 (29,693)
Proceeds from sales of loans - - - 12,920 - 12,920
Business acquisitions - - - (2,682) - (2,682)
Other investing activities 1,203 - 447 2,847 - 4,497
-------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,243) (5,505) (10,049) (6,787) 5,505 (22,079)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits - 157 256 16,003 (157) 16,259
Net change in purchased funds
and other borrowings - third party 1,840 (39) (389) 2,192 39 3,643
Net change in purchased funds, other
borrowings and advances - intercompany 710 (17,199) 13,309 (14,019) 17,199 -
Proceeds from issuance of long-term debt-
third party 44,462 - - (3,719) - 40,743
Repayment of long-term debt - third party (44,024) (920) (8,443) (2,102) 920 (54,569)
Proceeds from issuance of long-term debt-
intercompany, net - 19,895 - - (19,895) -
Dividends paid (4,821) - - - - (4,821)
-------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,833) 1,894 4,733 (1,645) (1,894) 1,255
-------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND DUE FROM BANKS - - - (22) - (22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and due from banks 3 (88) (698) (1,611) 88 (2,306)
Cash and due from banks at
beginning of period 18 639 1,736 11,814 (639) 13,568
-------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT
END OF PERIOD $ 21 $ 551 $ 1,038 $ 10,203 $ (551) $ 11,262
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 769 $ 1,665 $ 2,791 $ 7,140 $ (1,665) $ 10,700
Income taxes 738 891 633 1,950 (891) 3,321
NON-CASH INVESTING ACTIVITIES:
Transfers to repossessed assets - 658 658 139 (658) 797
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes the elimination of CCC, included in the AFCC column.
55
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
CITICORP OTHER CITICORP
PARENT SUBSIDIARIES AND CONSOLIDATING CITICORP
IN MILLIONS OF DOLLARS COMPANY CCC AFCC ELIMINATIONS(1) ADJUSTMENTS(2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 967 $ 13,639 $ 3,829 $ 3,121 $ (13,639) $ 7,917
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities - available for sale
and short-term and other
Purchases (6,165) (1,068) (865) (223,965) 1,068 (230,995)
Proceeds from sales 4,697 584 1,431 204,844 (584) 210,972
Maturities - - 477 17,774 - 18,251
Changes in investments and advances-
intercompany (29,268) (49,947) 3,159 26,109 49,947 -
Net increase in loans - (7,560) (8,175) (23,036) 7,560 (31,211)
Proceeds from sales of loans - - - 18,516 - 18,516
Business acquisitions - - - (6,869) - (6,869)
Other investing activities (24) (7) 38 (20,382) 7 (20,368)
-------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (30,760) (57,998) (3,935) (7,009) 57,998 (41,704)
-------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits - 402 247 22,588 (402) 22,835
Net change in purchased funds
and other borrowings - third party 14,324 (329) (18,261) 10,505 329 6,568
Net change in purchased funds, other
borrowings and advances - intercompany 1,299 28,540 26,726 (28,025) (28,540) -
Proceeds from issuance of long-term debt-
third party 19,750 - - 12,916 - 32,666
Repayment of long-term debt - third party (1,921) (201) (7,340) (10,867) 201 (20,128)
Proceeds from issuance of long-term debt-
intercompany, net - 15,986 - - (15,986) -
Dividends paid (3,668) - 23 (23) - (3,668)
-------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 29,784 44,398 1,395 7,094 (44,398) 38,273
- ----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND DUE FROM BANKS - - - (282) - (282)
-------------------------------------------------------------------------------
Net (decrease) increase in cash
and due from banks (9) 39 1,289 2,924 (39) 4,204
Cash and due from banks at
beginning of period 28 128 259 11,371 (128) 11,658
-------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT
END OF PERIOD $ 19 $ 167 $ 1,548 $ 14,295 $ (167) $ 15,862
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,046 $ 1,026 $ 4,818 $ 10,822 $ (1,026) $ 16,686
Income taxes 1,037 119 696 906 (119) 2,639
NON-CASH INVESTING ACTIVITIES:
Transfers to repossessed assets - 366 366 72 (366) 438
==================================================================================================================================
(1) Includes all other subsidiaries of Citicorp and intercompany eliminations.
(2) Includes the elimination of CCC, included in the AFCC column.
56
FINANCIAL DATA SUPPLEMENT
CITICORP AND SUBSIDIARIES
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS -
QUARTERLY(1)(2)(3)
AVERAGE VOLUME INTEREST REVENUE/EXPENSE % AVERAGE RATE
------------------------------------------------------------------------------------------
3RD QTR. 2nd Qtr. 3rd Qtr. 3RD QTR. 2nd Qtr. 3rd Qtr. 3RD QTR. 2nd Qtr. 3rd Qtr.
IN MILLIONS OF DOLLARS 2002 2002 2001 2002 2002 2001 2002 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS (NET OF UNEARNED INCOME)(4)
Consumer loans
In U.S. offices $ 177,156 $ 166,965 $ 154,362 $ 4,371 $ 4,300 $ 4,379 9.79 10.33 11.25
In offices outside the U.S.(5) 88,191 87,574 82,353 2,767 2,600 2,649 12.45 11.91 12.76
-------------------------------------------------------------
Total consumer loans 265,347 254,539 236,715 7,138 6,900 7,028 10.67 10.87 11.78
-------------------------------------------------------------
Commercial loans
In U.S. offices
Commercial and industrial 30,751 31,611 38,938 487 502 697 6.28 6.37 7.10
Lease financing 14,453 14,913 15,406 283 308 338 7.77 8.28 8.70
Mortgage and real estate 765 786 762 9 9 11 4.67 4.59 5.73
In offices outside the U.S.(5) 86,544 88,942 96,469 1,731 1,761 2,190 7.94 7.94 9.01
-------------------------------------------------------------
Total commercial loans 132,513 136,252 151,575 2,510 2,580 3,236 7.51 7.60 8.47
-------------------------------------------------------------
Total loans(6) 397,860 390,791 388,290 9,648 9,480 10,264 9.62 9.73 10.49
-------------------------------------------------------------
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. offices 5,898 5,599 10,270 26 24 92 1.75 1.72 3.55
In offices outside the U.S.(5) 2,658 2,765 5,895 75 73 104 11.19 10.59 7.00
-------------------------------------------------------------
Total 8,556 8,364 16,165 101 97 196 4.68 4.65 4.81
-------------------------------------------------------------
INVESTMENTS
In U.S. offices
Taxable 32,690 36,731 24,048 303 388 256 3.68 4.24 4.22
Exempt from U.S. income tax 6,494 6,158 6,027 116 115 110 7.09 7.49 7.24
In offices outside the U.S.(5) 52,299 52,403 40,344 916 876 809 6.95 6.71 7.96
-------------------------------------------------------------
Total 91,483 95,292 70,419 1,335 1,379 1,175 5.79 5.80 6.62
-------------------------------------------------------------
TRADING ACCOUNT ASSETS(7)
In U.S. offices 6,973 6,879 5,214 66 65 67 3.76 3.79 5.10
In offices outside the U.S.(5) 16,962 15,031 13,690 285 326 316 6.67 8.70 9.16
-------------------------------------------------------------
Total 23,935 21,910 18,904 351 391 383 5.82 7.16 8.04
-------------------------------------------------------------
LOANS HELD FOR SALE, IN U.S. OFFICES 10,351 11,620 15,266 269 285 363 10.31 9.84 9.43
DEPOSITS AT INTEREST WITH BANKS(5) 16,511 18,030 21,285 230 247 303 5.53 5.49 5.65
-------------------------------------------------------------
Total interest-earning assets 548,696 546,007 530,329 $ 11,934 $ 11,879 $ 12,684 8.63 8.73 9.49
==============================================
Non-interest-earning assets(7) 99,750 96,092 84,915
------------------------------
TOTAL ASSETS $ 648,446 $ 642,099 $ 615,244
==================================================================================================================================
DEPOSITS
In U.S. offices
Savings deposits(8) $ 94,561 $ 91,222 $ 76,457 $ 324 $ 279 $ 481 1.36 1.23 2.50
Other time deposits 29,172 26,928 25,237 187 154 259 2.54 2.29 4.07
In offices outside the U.S.(5) 228,747 229,611 213,949 2,075 2,021 2,550 3.60 3.53 4.73
-------------------------------------------------------------
Total 352,480 347,761 315,643 2,586 2,454 3,290 2.91 2.83 4.14
-------------------------------------------------------------
TRADING ACCOUNT LIABILITIES(7)
In U.S. offices 3,060 2,948 2,617 10 11 10 1.30 1.50 1.52
In offices outside the U.S.(5) 592 568 504 5 4 3 3.35 2.82 2.36
-------------------------------------------------------------
Total 3,652 3,516 3,121 15 15 13 1.63 1.71 1.65
-------------------------------------------------------------
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. offices 36,057 38,467 46,748 205 256 386 2.26 2.67 3.28
In offices outside the U.S.(5) 18,919 20,524 23,287 406 385 555 8.51 7.52 9.46
-------------------------------------------------------------
Total 54,976 58,991 70,035 611 641 941 4.41 4.36 5.33
-------------------------------------------------------------
LONG-TERM DEBT
In U.S. offices 59,870 61,876 80,439 730 848 1,158 4.84 5.50 5.71
In offices outside the U.S.(5) 9,826 11,567 10,374 177 146 171 7.15 5.06 6.54
-------------------------------------------------------------
Total 69,696 73,443 90,813 907 994 1,329 5.16 5.43 5.81
-------------------------------------------------------------
Total interest-bearing liabilities 480,804 483,711 479,612 $ 4,119 $ 4,104 $ 5,573 3.40 3.40 4.61
========================================================
Demand deposits in U.S. offices 6,685 7,578 9,044
Other non-interest-bearing liabilities(7) 93,415 84,642 72,700
Total stockholder's equity 67,542 66,168 53,888
------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $ 648,446 $ 642,099 $ 615,244
==================================================================================================================================
NET INTEREST REVENUE AS A PERCENTAGE OF
AVERAGE INTEREST-EARNING ASSETS
In U.S. offices(9) $ 284,743 $ 281,426 $ 270,356 $ 4,412 $ 4,429 $ 4,035 6.15 6.31 5.92
In offices outside the U.S.(9) 263,953 264,581 259,973 3,403 3,346 3,076 5.11 5.07 4.69
-------------------------------------------------------------
TOTAL $ 548,696 $ 546,007 $ 530,329 $ 7,815 $ 7,775 $ 7,111 5.65 5.71 5.32
==================================================================================================================================
(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 7 to
Unaudited Consolidated Financial Statements.
(3) Monthly or quarterly averages have been used by certain subsidiaries, where
daily averages are unavailable.
(4) Includes cash-basis loans.
(5) Average rates reflect prevailing local interest rates including inflationary
effects and monetary correction in certain countries.
(6) Total loans include certain interest and fees on credit cards of $1.3
billion which are included in Consumer Loans on the Unaudited Consolidated
Statement of Financial Position.
(7) The fair value carrying amounts of derivative and foreign exchange contracts
are reported in non-interest-earning assets and other non-interest-bearing
liabilities.
(8) Savings deposits consist of Insured Money Market Rate accounts, NOW
accounts, and other savings deposits.
(9) Includes allocations for capital and funding costs based on the location of
the asset.
57
CITICORP AND SUBSIDIARIES
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS - NINE
MONTHS(1)(2)(3)
AVERAGE VOLUME INTEREST REVENUE/EXPENSE % AVERAGE RATE
---------------------------------------------------------------------------------
NINE MONTHS Nine Months NINE MONTHS Nine Months NINE MONTHS Nine Months
IN MILLIONS OF DOLLARS 2002 2001 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
LOANS (NET OF UNEARNED INCOME)(4)
Consumer loans
In U.S. offices $ 168,331 $ 149,395 $ 12,955 $ 12,949 10.29 11.59
In offices outside the U.S.(5) 86,867 78,928 7,784 7,611 11.98 12.89
-----------------------------------------------------
Total consumer loans 255,198 228,323 20,739 20,560 10.87 12.04
-----------------------------------------------------
Commercial loans
In U.S. offices
Commercial and industrial 32,107 38,591 1,529 2,240 6.37 7.76
Lease financing 15,369 14,175 918 956 7.99 9.02
Mortgage and real estate 762 840 25 35 4.39 5.57
In offices outside the U.S.(5) 87,364 89,805 5,049 6,153 7.73 9.16
-----------------------------------------------------
Total commercial loans 135,602 143,411 7,521 9,384 7.42 8.75
-----------------------------------------------------
Total loans(6) 390,800 371,734 28,260 29,944 9.67 10.77
-----------------------------------------------------
FEDERAL FUNDS SOLD AND RESALE AGREEMENTS
In U.S. offices 6,254 7,588 82 251 1.75 4.42
In offices outside the U.S.(5) 2,681 3,807 224 176 11.17 6.18
-----------------------------------------------------
Total 8,935 11,395 306 427 4.58 5.01
-----------------------------------------------------
INVESTMENTS
In U.S. offices
Taxable 33,754 21,942 992 697 3.93 4.25
Exempt from U.S. income tax 6,193 5,965 344 304 7.43 6.81
In offices outside the U.S.(5) 52,975 34,149 2,379 2,066 6.00 8.09
-----------------------------------------------------
Total 92,922 62,056 3,715 3,067 5.35 6.61
-----------------------------------------------------
TRADING ACCOUNT ASSETS(7)
In U.S. offices 6,556 4,446 194 183 3.96 5.50
In offices outside the U.S.(5) 14,823 11,905 1,082 652 9.76 7.32
-----------------------------------------------------
Total 21,379 16,351 1,276 835 7.98 6.83
-----------------------------------------------------
LOANS HELD FOR SALE, IN U.S. OFFICES 11,486 15,055 846 1,194 9.85 10.60
DEPOSITS AT INTEREST WITH BANKS(5) 17,706 18,424 752 946 5.68 6.86
-----------------------------------------------------
Total interest-earning assets 543,228 495,015 $ 35,155 $ 36,413 8.65 9.83
=====================================================
Non-interest-earning assets(7) 101,178 78,557
-------------------------
TOTAL ASSETS $ 644,406 $ 573,572
==================================================================================================================================
DEPOSITS
In U.S. offices
Savings deposits(8) $ 92,426 $ 63,315 $ 877 $ 1,395 1.27 2.95
Other time deposits 27,404 22,006 468 783 2.28 4.76
In offices outside the U.S.(5) 226,008 203,862 5,546 7,681 3.28 5.04
-----------------------------------------------------
Total 345,838 289,183 6,891 9,859 2.66 4.56
-----------------------------------------------------
TRADING ACCOUNT LIABILITIES(7)
In U.S. offices 3,093 2,459 32 27 1.38 1.47
In offices outside the U.S.(5) 596 934 11 10 2.47 1.43
-----------------------------------------------------
Total 3,689 3,393 43 37 1.56 1.46
-----------------------------------------------------
PURCHASED FUNDS AND OTHER BORROWINGS
In U.S. offices 37,494 43,636 720 1,287 2.57 3.94
In offices outside the U.S.(5) 20,280 16,958 1,229 1,306 8.10 10.30
-----------------------------------------------------
Total 57,774 60,594 1,949 2,593 4.51 5.72
-----------------------------------------------------
LONG-TERM DEBT
In U.S. offices 63,503 77,085 2,450 3,543 5.16 6.15
In offices outside the U.S.(5) 10,689 9,703 434 473 5.43 6.52
-----------------------------------------------------
Total 74,192 86,788 2,884 4,016 5.20 6.19
-----------------------------------------------------
Total interest-bearing liabilities 481,493 439,958 $ 11,767 $ 16,505 3.27 5.02
=====================================================
Demand deposits in U.S. offices 7,445 8,294
Other non-interest-bearing liabilities(7) 89,239 74,968
Total stockholder's equity 66,229 50,352
-------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 644,406 $ 573,572
==================================================================================================================================
NET INTEREST REVENUE AS A PERCENTAGE
OF AVERAGE INTEREST-EARNING ASSETS
In U.S. offices(9) $ 280,636 $ 258,095 $ 13,256 $ 11,169 6.32 5.79
In offices outside the U.S.(9) 262,592 236,920 10,132 8,739 5.16 4.93
-----------------------------------------------------
TOTAL $ 543,228 $ 495,015 $ 23,388 $ 19,908 5.76 5.38
==================================================================================================================================
(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 7 to
Unaudited Consolidated Financial Statements.
(3) Monthly or quarterly averages have been used by certain subsidiaries, where
daily averages are unavailable.
(4) Includes cash-basis loans.
(5) Average rates reflect prevailing local interest rates including inflationary
effects and monetary correction in certain countries.
(6) Total loans include certain interest and fees on credit cards of $0.4
billion which are included in Consumer Loans on the Unaudited Consolidated
Statement of Financial Position.
(7) The fair value carrying amounts of derivative and foreign exchange contracts
are reported in non-interest-earning assets and other non-interest-bearing
liabilities.
(8) Savings deposits consist of Insured Money Market Rate accounts, NOW
accounts, and other savings deposits.
(9) Includes allocations for capital and funding costs based on the location of
the asset.
58
FINANCIAL DATA SUPPLEMENT
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
SEPT. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002(1) 2002(1) 2001(1) 2001(1)
- -------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS
Collateral dependent (at lower
of cost or collateral value)(2) $ 430 $ 447 $ 456 $ 680 $ 672
Other 4,323 4,074 3,488 2,834 2,405
-----------------------------------------------------------
TOTAL $ 4,753 $ 4,521 $ 3,944 $ 3,514 $ 3,077
=======================================================================================================
CORPORATE CASH-BASIS LOANS
In U.S. offices $ 1,568 $ 1,413 $ 1,417 $ 1,296 $ 1,063
In offices outside the U.S. 3,185 3,108 2,527 2,218 2,014
-----------------------------------------------------------
TOTAL $ 4,753 $ 4,521 $ 3,944 $ 3,514 $ 3,077
=======================================================================================================
CORPORATE RENEGOTIATED LOANS
In U.S. offices $ 202 $ 248 $ 219 $ 206 $ 226
In offices outside the U.S. 65 69 116 130 143
-----------------------------------------------------------
TOTAL $ 267 $ 317 $ 335 $ 336 $ 369
=======================================================================================================
CONSUMER LOANS ON WHICH ACCRUAL
OF INTEREST HAD BEEN SUSPENDED
In U.S. offices $ 2,268 $ 2,396 $ 2,428 $ 2,501 $ 2,630
In offices outside the U.S. 2,787 2,596 2,619 2,241 2,118
-----------------------------------------------------------
TOTAL $ 5,055 $ 4,992 $ 5,047 $ 4,742 $ 4,748
=======================================================================================================
ACCRUING LOANS 90 OR MORE DAYS
DELINQUENT(3)
In U.S. offices $ 2,299 $ 2,084 $ 2,101 $ 1,822 $ 1,761
In offices outside the U.S. 562 718 716 776 832
-----------------------------------------------------------
TOTAL $ 2,861 $ 2,802 $ 2,817 $ 2,598 $ 2,593
=======================================================================================================
(1) Reclassified to conform to the current period's presentation.
(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) Substantially all consumer loans, of which $1,250 million, $1,257 million,
$1,106 million, $920 million, and $980 million are government-guaranteed
student loans and mortgages at September 30, 2002, June 30, 2002, March 31,
2002, December 31, 2001, and September 30, 2001, respectively.
OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
SEPT. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002 2002 2001 2001
- -----------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED
Consumer(1) $ 473 $ 458 $ 384 $ 393 $ 407
Corporate(1) 81 123 125 127 174
---------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED $ 554 $ 581 $ 509 $ 520 $ 581
=====================================================================================================
OTHER REPOSSESSED ASSETS(2) $ 227 $ 320 $ 381 $ 439 $ 479
=====================================================================================================
(1) Represents repossessed real estate, carried at lower of cost or fair value,
less costs to sell.
(2) Primarily commercial transportation equipment and manufactured housing,
carried at lower of cost or fair value, less costs to sell.
59
DETAILS OF CREDIT LOSS EXPERIENCE
3RD QTR. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
IN MILLIONS OF DOLLARS 2002 2002 2002 2001 2001
- ----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF PERIOD $ 10,437 $ 10,520 $ 10,088 $ 9,918 $ 8,917
----------------------------------------------------------
PROVISION FOR CREDIT LOSSES
Consumer 1,885 1,599 1,878 1,573 1,362
Corporate 804 458 681 688 218
----------------------------------------------------------
2,689 2,057 2,559 2,261 1,580
----------------------------------------------------------
GROSS CREDIT LOSSES
CONSUMER
In U.S. offices 1,255 1,281 1,281 1,284 1,041
In offices outside the U.S. 784 660 617 600 549
CORPORATE
In U.S. offices 323 429 316 572 303
In offices outside the U.S. 382 197 241 371 97
----------------------------------------------------------
2,744 2,567 2,455 2,827 1,990
----------------------------------------------------------
CREDIT RECOVERIES
CONSUMER
In U.S. offices 149 155 148 144 109
In offices outside the U.S. 129 104 107 116 102
CORPORATE(1)
In U.S. offices 50 114 30 94 78
In offices outside the U.S. 54 27 42 58 41
----------------------------------------------------------
382 400 327 412 330
----------------------------------------------------------
NET CREDIT LOSSES
In U.S. offices 1,379 1,441 1,419 1,618 1,157
In offices outside the U.S. 983 726 709 797 503
----------------------------------------------------------
2,362 2,167 2,128 2,415 1,660
----------------------------------------------------------
Other-net(2) (44) 27 1 324 1,081
----------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT END OF PERIOD $ 10,720 $ 10,437 $ 10,520 $ 10,088 $ 9,918
======================================================================================================================
Net consumer credit losses $ 1,761 $ 1,682 $ 1,643 $ 1,624 $ 1,379
As a percentage of average consumer loans 2.65% 2.65% 2.71% 2.62% 2.28%
- ----------------------------------------------------------------------------------------------------------------------
Net corporate credit losses $ 601 $ 485 $ 485 $ 791 $ 281
As a percentage of average corporate loans 1.80% 1.43% 1.37% 2.11% 0.74%
======================================================================================================================
(1) Includes amounts recognized under credit default swaps purchased from third
parties.
(2) Primarily includes foreign currency translation effects and the addition of
allowance for credit losses related to acquisitions.
60
Part II - Other Information
Item 1. Legal Proceedings.
In April 2002, Citigroup and various of its affiliates, including affiliates of
Citicorp, were named as defendants along with, among others, commercial and/or
investment banks, certain current and former Enron officers and directors,
lawyers and accountants in two putative consolidated class action complaints
that were filed in the United States District Court for the Southern District of
Texas seeking unspecified damages. One action, brought on behalf of individuals
who purchased Enron securities (NEWBY, ET AL. V. ENRON CORP., ET AL.), alleges
violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and
the other action, brought on behalf of current and former Enron employees
(TITTLE, ET AL. V. ENRON CORP., ET AL.), alleges violations of the Employment
Retirement Income Security Act of 1974, as amended (ERISA), and the Racketeer
Influenced and Corrupt Organizations Act (RICO), as well as claims for
negligence and civil conspiracy. On May 8, 2002, Citigroup filed motions to
dismiss the complaints, which are pending.
In July 2002, Citigroup and various of its affiliates, including affiliates of
Citicorp, and certain of their officers and other employees were named as
defendants, along with, among others, commercial and/or investment banks,
certain current and former Enron officers and directors, lawyers and accountants
in a putative class action filed in the United States District Court for the
Southern District of New York on behalf of purchasers of the Yosemite Notes and
Enron Credit-Linked Notes, among other securities (HUDSON SOFT CO., LTD. V.
CREDIT SUISSE FIRST BOSTON CORPORATION, ET AL.). The amended complaint alleges
violations of RICO and of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended, and seeks unspecified damages.
Additional actions have been filed against Citigroup and certain of its
affiliates, including affiliates of Citicorp, along with other parties,
including (i) two actions brought in different state courts by state pension
plans alleging violations of state securities law and claims for common law
fraud and unjust enrichment; (ii) an action by banks that participated in two
Enron revolving credit facilities, alleging fraud, gross negligence, and breach
of implied duties in connection with defendants' administration of a credit
facility with Enron; (iii) an action brought by several funds in connection with
secondary market purchases of Enron Corp. debt securities alleging violations of
the federal securities law, including Section 11 of the Securities Act of 1933,
as amended, and claims for fraud and misrepresentation; (iv) a series of
putative class actions by purchasers of NewPower Holdings common stock alleging
violations of the federal securities law, including Section 11 of the Securities
Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of
1934, as amended; (v) an action brought by two investment funds in connection
with purchases of Enron-related securities for alleged violations of state
securities and unfair competition statutes; (vi) an action brought by several
investment funds and fund owners in connection with purchases of notes of the
Osprey I and Osprey II Trusts for alleged violation of state and federal
securities laws and claims for common law fraud, misrepresentation and
conspiracy; (vii) an action brought by several investment funds and fund owners
in connection with purchases of notes of the Osprey I and Osprey II Trusts for
alleged violation of state and federal securities laws and state unfair
competition laws and claims for common law fraud and misrepresentation; and
(viii) an action brought by the Attorney General of Connecticut in connection
with various commercial and investment banking services provided to Enron.
Several of these cases have been consolidated with the NEWBY action and stayed
pending the Court's decision on the pending motions to dismiss NEWBY.
Additionally, Citigroup and certain of its affiliates, including affiliates of
Citicorp, have received inquiries and requests for information from various
regulatory and governmental agencies and Congressional committees, as well as
from the Special Examiner in the Enron bankruptcy, regarding certain
transactions and business relationships with Enron and its affiliates. Citigroup
and Citicorp are cooperating fully with all such requests.
Additional lawsuits containing similar claims to those described above may be
filed in the future.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On July 19, 2002, the Company filed a Current Report on Form 8-K, dated July 17,
2002, reporting under Item 5 thereof the summarized results of operations of
Citicorp and its subsidiaries for the quarter ended June 30, 2002.
No other reports on Form 8-K were filed during the third quarter of 2002;
however, on October 21, 2002, the Company filed a Current Report on Form 8-K,
dated October 15, 2002, reporting under Item 5 thereof the summarized results of
operations of Citicorp and its subsidiaries for the quarter ended September 30,
2002.
61
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of November, 2002.
CITICORP
(Registrant)
By:/s/ Todd S. Thomson
------------------------
Name: Todd S. Thomson
Title: Chief Financial Officer
Principal Financial Officer
By:/s/ William P. Hannon
------------------------
Name: William P. Hannon
Title: Controller
Principal Accounting Officer
62
CERTIFICATIONS
I, Victor J. Menezes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Citicorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
By: /s/ Victor J. Menezes, Chief Executive Officer
-------------------------------------------------------
63
CERTIFICATIONS
I, Todd S. Thomson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Citicorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
By: /s/ Todd S. Thomson, Chief Financial Officer
------------------------------------------------------
64
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 by reference to Exhibit 3.02 to
Citicorp's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2001, File No. 1-5738).
12.01+ Calculation of Ratio of Income to Fixed Charges.
12.02+ Calculation of Ratio of Income to Fixed Charges (including preferred
stock dividends).
99.01+ Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.02+ Residual Value Obligation Certificate.
- ----------
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 Securities and Exchange Commission upon
request.
- ----------
+ Filed herewith
65