Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

Commission file number 1-5738

Citicorp
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        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

THE COMPANY

        Citicorp (Citicorp and, together with its subsidiaries, the Company) is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers in over 100 countries and territories. Citicorp was incorporated in 1967 under the laws of the State of Delaware. Citicorp is an indirect, wholly owned subsidiary of Citigroup Inc. (Citigroup).

        The Company's activities are conducted through the Global Consumer, Global Corporate and Investment Bank (GCIB), Global Investment Management (GIM) and Proprietary Investment Activities business segments.

        The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 (BHC Act) registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Certain of the Company's subsidiaries are subject to supervision and examination by their respective federal and state authorities. This quarterly report on Form 10-Q should be read in conjunction with Citicorp's 2003 Annual Report on Form 10-K.

        The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212 559 1000. Additional information about Citicorp is available on Citigroup's website at http://www.citigroup.com.

        Citicorp's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K, and all amendments to these reports, are available free of charge through Citigroup's website by clicking on the "Investor Relations" page and selecting "SEC Filings." The Securities and Exchange Commission (SEC) website contains reports, information statements, and other information regarding the Company at http://www.sec.gov.

GLOBAL CONSUMER

        Global Consumer delivers a wide array of banking, lending, insurance and investment services through a network of local branches, offices and electronic delivery systems, including ATMs, Automated Lending Machines (ALMs) and the World Wide Web. The Global Consumer businesses serve individual consumers as well as small businesses. Global Consumer includes Cards, Consumer Finance, Retail Banking and Other Consumer.

        Cards provides MasterCard, VISA and private label credit and charge cards. North America Cards includes the operations of Citi Cards, the Company's primary brand in North America, and Mexico Cards. International Cards provides credit and charge cards to customers in Europe, the Middle East and Africa (EMEA), Japan, Asia and Latin America.

        Consumer Finance provides community-based lending services through branch networks, regional sales offices and cross-selling initiatives with other Citigroup businesses. The business of CitiFinancial is included in North America Consumer Finance. As of March 31, 2004, North America Consumer Finance maintained 2,759 offices, including 2,597 CitiFinancial offices in the U.S., Canada, and Puerto Rico, while International Consumer Finance maintained 915 offices, including 530 in Japan. Consumer Finance offers real-estate-secured loans, unsecured and partially secured personal loans, auto loans and loans to finance consumer-goods purchases. In addition, CitiFinancial, through certain subsidiaries and third parties, makes available various credit-related and other insurance products to its U.S. customers.

        Retail Banking provides banking, lending, investment and insurance services to customers through retail branches and electronic delivery systems. In North America, Retail Banking includes the operations of Citibanking North America, Consumer Assets, CitiCapital, and Mexico Retail Banking. Citibanking North America delivers banking, lending, investment and insurance services through 779 branches in the U.S. and Puerto Rico and through Citibank Online, an Internet banking site on the World Wide Web. The Consumer Assets business originates and services mortgages and student loans for customers across the U.S. The CitiCapital business provides equipment leasing and financing products to small-and middle-market businesses. Mexico Retail Banking consists of the branch banking operations of Banamex, which maintained 1,357 branches. International Retail Banking consists of 868 branches and provides full-service banking and investment services in EMEA, Japan, Asia, and Latin America. The Commercial Markets Group is included in Retail Banking and consists of the operations of CitiCapital, as well as middle-market lending operations in North America and the international regions.

2

GLOBAL CORPORATE AND INVESTMENT BANK

        Global Corporate and Investment Bank (GCIB) provides corporations, governments, institutions and investors in approximately 100 countries with a broad range of financial products and services. GCIB includes Capital Markets and Banking and Transaction Services.

        Capital Markets and Banking offers a wide array of commercial banking services and products, including foreign exchange, structured products, derivatives, and lending.

        Transaction Services is comprised of Cash Management, Trade Services and Global Securities Services (GSS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. GSS provides custody and fund services to investors such as insurance companies and pension funds, clearing services to intermediaries such as broker/dealers and depository and agency/trust services to multinational corporations and governments globally.

GLOBAL INVESTMENT MANAGEMENT

        Global Investment Management offers 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 includes Life Insurance and Annuities, Private Bank and Asset Management.

        Life Insurance and Annuities comprises International Insurance Manufacturing (IIM) and Citi Insurance Group (CIG). IIM provides annuities, credit, life, health, disability and other insurance products internationally, leveraging the existing distribution channels of the Consumer Finance, Retail Banking and Asset Management (retirement services) businesses. IIM has operations in Mexico, Asia, EMEA, Latin America and Japan.

        Private Bank provides personalized wealth management services for high-net-worth clients through 129 offices in 36 countries and territories, generating fee and interest income from investment funds management, client trading activity, trust and fiduciary services, custody services, and traditional banking and lending activities. Through its Private Bankers and Product Specialists, Private Bank leverages its extensive experience with clients' needs and its access to Citigroup to provide clients with comprehensive investment and banking services.

        Asset Management includes the businesses of Citibank Global Asset Management, Banamex asset management and retirement services businesses, other retirement services businesses in Latin America and an alternative investments business. These businesses offer institutional, high-net-worth and retail clients a broad range of investment alternatives from investment centers located around the world. Products and services offered include mutual funds, closed-end funds, separately managed accounts, alternative investments (including hedge funds, private equity and credit structures), and pension administration services.

PROPRIETARY INVESTMENT ACTIVITIES

        Proprietary Investment Activities is comprised of Citicorp's proprietary Private Equity investments, including venture capital activities, and Other Investment Activities which includes Citicorp's proprietary investments in hedge funds and real estate investments, investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature, and Citicorp's Alternative Investments (CAI) business, for which the net profits on products distributed through Citicorp's Asset Management and Private Bank businesses are reflected in the respective distributor's income statement through net revenues.

CORPORATE/OTHER

        Corporate/Other includes net corporate treasury results, corporate expenses, certain intersegment eliminations and taxes not allocated to the individual businesses.

3

CITICORP AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Financial Summary

(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 (GAAP)). If this table were prepared on a managed basis, which includes certain effects of credit card securitization activities including receivables held for securitization and receivables sold with servicing retained, there would be no impact to net income, but Revenues, Net of Interest Expense, and Benefits, Claims, and Credit Losses would each have been increased by $1.325 billion and $1.102 billion in the 2004 and 2003 first quarters, respectively. Although a managed basis presentation is not in conformity with GAAP, the Company believes it provides a representation of performance and key indicators of the credit card business that is consistent with the way management reviews operating performance and allocates resources. Furthermore, investors utilize information about the credit quality of the entire managed portfolio as the results of both the held and securitized portfolios impact the overall performance of the Cards business. See the discussion of the Cards business on page 10.

(2)

Reclassified to conform to the current period's presentation.

4

Business Focus

        The following table shows the net income (loss) for Citicorp's businesses on a product view:

Citicorp Net Income—Product View

(1)

Reclassified to conform to the current period's presentation.

5

Results of Operations

Income

        Citicorp reported income of $3.933 billion in the 2004 first quarter, up 26% from $3.117 billion in the 2003 first quarter.

        Global Consumer net income increased $447 million or 22% compared to the 2003 first quarter, Global Corporate and Investment Bank increased $225 million or 24%, Global Investment Management grew $68 million or 42%, and Proprietary Investment Activities increased $2 million or 17% from the 2003 first quarter.

        Return on average total stockholder's equity was 18.8% compared to 16.6% a year ago.

        See individual segment and product discussions on pages 10 - 23 for additional discussion and analysis of the Company's results of operations.

Revenues, Net of Interest Expense

        Total revenues, net of interest expense as calculated from the Consolidated Statement of Income, of $15.4 billion in the 2004 first quarter were up $2.2 billion or 16% from the 2003 first quarter. Global Consumer revenues were up $1.7 billion or 18% in the 2004 first quarter to $11.0 billion, led by a $1.3 billion or 39% increase in Cards, reflecting the results of the acquisition of the Sears and Home Depot portfolios, an increase of $315 million or 9% in Retail Banking, and a $128 million or 5% increase in Consumer Finance from the prior-year period.

        GCIB revenues of $3.0 billion in the 2004 first quarter increased $156 million or 6% from the 2003 first quarter, including a $121 million or 6% increase in Capital Markets and Banking, reflecting stronger performances in global equities. There was also an increase of $35 million or 4% in Transaction Services from the 2003 first quarter.

        Global Investment Management revenues of $1.0 billion in the 2004 first quarter were up $207 million or 28% from the 2003 first quarter, reflecting increases of $47 million or 26% in Life Insurance and Annuities, $113 million or 25% in Private Bank, and $47 million or 42% in Asset Management. Revenues from Proprietary Investment Activities in the 2004 first quarter increased $43 million or 48% from a year ago.

Selected Revenue Items

        Net interest revenue of $9.5 billion increased $1.3 billion or 15% from year-ago levels, reflecting the impact of a changing rate environment, business volume growth in certain markets and the impact of acquisitions. Fees and Commissions of $3.2 billion were up $498 million or 18% from the 2003 first quarter primarily due to increases in business volumes and the Sears acquisition. Foreign exchange revenues of $492 million decreased $415 million or 46% from the prior-year quarter.

        Trading account revenues increased $504 million from the prior-year quarter and investment transactions revenues remained flat year-over-year at $112 million. Other revenue of $1.6 billion increased $300 million or 23%, primarily reflecting the gain on the divestiture of Citicorp's Electronic Financial Services Inc.

Operating Expenses

        Total operating expenses were $7.2 billion for the 2004 first quarter, up $741 million or 11% from the comparable 2003 period. The increase primarily reflected increased costs related to acquisitions as well as spending undertaken to support customer initiatives in a number of businesses, and expense increases related to higher options, pension and legal costs.

        Global Consumer expenses were up 18% from the 2003 first quarter, driven by acquisitions as well as increased marketing and advertising costs. Global Investment Management expenses increased 20% primarily due to higher incentive compensation, legal expenses and commissions reflecting increased trading volumes, while GCIB expenses decreased 4%, primarily reflecting lower incentive compensation.

Benefits, Claims, and Credit Losses

        Benefits, claims, and credit losses were $2.4 billion in the 2004 first quarter, up $166 million or 8% from the 2003 first quarter. Global Consumer provisions for benefits, claims, and credit losses of $2.3 billion were up 17% from the 2003 first quarter, reflecting the impact of acquisitions, partially offset by an improved credit environment.

        GCIB provision for credit losses of ($60) million in the 2004 first quarter decreased $176 million from the year-ago level, due to improved credit quality in the corporate loan portfolio.

6

        Corporate cash-basis loans at March 31, 2004 and 2003 were $2.9 billion and $4.1 billion, respectively, while the corporate Other Real Estate Owned (OREO) portfolio totaled $41 million and $59 million, respectively. The decrease in corporate cash-basis loans from March 31, 2003 was related to improvements in the overall credit environment, write-offs, as well as sales of loans in the portfolio. Corporate cash-basis loans at March 31, 2004 decreased $494 million from December 31, 2003.

Income Taxes

        The Company's effective tax rate of 31.4% in the 2004 first quarter increased 10 basis points from 31.3% in the 2003 first quarter. The 2004 rate included a credit to the tax provision of $121 million as a result of the closing of certain audit cycles. The effective tax rate for full-year 2003 was 29.7%.

Regulatory Capital

        Total capital (Tier 1 and Tier 2) was $79.1 billion or 13.00% of net risk-adjusted assets, and Tier 1 capital was $53.5 billion or 8.80% of net risk-adjusted assets at March 31, 2004, compared to $76.2 billion or 12.68% and $50.7 billion or 8.44%, respectively, at December 31, 2003.

Accounting Changes and Future Application of Accounting Standards

        See Note 2 to the Consolidated Financial Statements for a discussion of Accounting Changes and the Future Application of Accounting Standards.

7

EVENTS IN 2004 and 2003

Charge for Regulatory and Legal Matters

        On May 10, 2004, Citigroup Inc. announced that it was taking a charge of $4.95 billion after-tax to cover the cost of resolving numerous lawsuits and other legal proceedings arising out of the transactions and activities that were the subjects of (i) the April 2003 settlement of research and IPO spinning-related inquiries conducted by the Securities and Exchange Commission, the National Association of Securities Dealers, the New York Stock Exchange and the New York Attorney General, (ii) the July 2003 settlement of the Enron-related inquiries conducted by the Securities and Exchange Commission, the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency, and the Manhattan District Attorney, (iii) underwritings for, and research coverage of, WorldCom, and (iv) the allocation of, and aftermarket trading in, securities sold in initial public offerings. The Company is a defendant in numerous lawsuits and other legal proceedings arising out of the transactions and activities described in (ii) above. Subject to further review and adjustment, it is anticipated that the Company will record an after-tax charge of approximately $950 million in the second quarter of 2004.

        The Company believes that its reserve, subject to any further adjustments in allocation, is adequate to meet all of its remaining exposure for these matters. However, in view of the large number of these matters, the uncertainties of the timing and outcome of this type of litigation, and the significant amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the reserve. The Company will continue to defend itself vigorously in these cases, and to resolve them in the manner management believes is in the best interest of the Company. In the opinion of the Company's management, the ultimate resolution of these lawsuits and other proceedings, while not likely to have a material adverse effect on the consolidated financial condition of the Company, may be material to the Company's operating results for any particular period.

Acquisition of KorAm Bank

        On February 22, 2004, Citigroup and KorAm Bank announced that they, together with an investor consortium led by The Carlyle Group and JP Morgan Corsair II (the investor consortium), signed an agreement for Citigroup to acquire a controlling interest in KorAm. Based on 2003 revenues, KorAm Bank is the seventh-largest commercial bank in Korea, with 222 domestic branches and total assets of $35.9 billion.

        The terms of the transaction included the acquisition of the investor consortium's 36.6% stake in KorAm Bank and a tender offer for all of the remaining shares at a price of KRW 15,500 per share in cash.

        Under the tender offer, which expired on April 30, 2004, approximately 60.9% of the outstanding shares were tendered. When combined with the investor consortium's stake in KorAm Bank, Citigroup's overall shareholding will be approximately 97.5%, with a total purchase price of KRW 3.07 trillion ($2.6 billion). The acquisition is expected to close during the 2004 second quarter.

        The businesses of Citigroup and KorAm Bank, taken together, will create the sixth-largest commercial bank in Korea, based on 2003 revenues. Citigroup expects that the transaction will be accretive to 2004 earnings. The operations of KorAm will be integrated into the businesses of Citicorp.

        Certain of the above statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 42.

Divestiture of Citicorp Electronic Financial Services Inc.

        During January 2004, the Company completed the sale of Electronic Financial Services Inc. (EFS) for $390 million. EFS is a provider of government-issued benefits payments and prepaid stored value cards used by state and federal government agencies, as well as of stored value services for private institutions. The sale of EFS resulted in an after-tax gain of $180 million in the 2004 first quarter.

Acquisition of Washington Mutual Finance Corporation

        On January 9, 2004, Citigroup acquired Washington Mutual Finance Corporation (WMF) for $1.25 billion. WMF was the consumer finance subsidiary of Washington Mutual, Inc. WMF provides direct consumer installment loans and real-estate-secured loans, as well as sales finance and the sale of insurance. The acquisition includes 427 WMF offices located in 26 states, primarily in the Southeastern and Southwestern United States. WMF has more than 2,300 employees and total assets of $3.8 billion. Citicorp has guaranteed all outstanding unsecured indebtedness of WMF in connection with this acquisition. The operations of WMF were integrated into the businesses of Citicorp.

8

Acquisition of Sears' Credit Card and Financial Products Business

        On November 3, 2003, Citigroup acquired the Sears' Credit Card and Financial Products business (Sears). $28.6 billion of gross receivables were acquired for a 10% premium of $2.9 billion and annual performance payments over the next 10 years based on new accounts, retail sales volume, and financial product sales. $5.8 billion of intangible assets and goodwill have been recorded as a result of this transaction. In addition, the companies signed a multi-year marketing and servicing agreement across a range of each company's businesses, products, and services. The results of Sears are included in the Consolidated Financial Statements from November 2003 forward. The operations of Sears were integrated into the businesses of Citicorp.

Acquisition of The Home Depot's Private-Label Portfolio

        In July 2003, Citigroup completed the acquisition of The Home Depot's private-label portfolio (Home Depot), which added $6 billion in receivables and 12 million accounts. The results of Home Depot are included in the Consolidated Financial Statements from July 2003 forward. The operations of Home Depot were integrated into the businesses of Citicorp.

SIGNIFICANT ACCOUNTING POLICIES

        The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Argentina and Legal Reserves. The Company, in consultation with the Citigroup Audit and Risk Management Committee, has reviewed and approved these significant accounting policies, which are further described in the Company's 2003 Annual Report on Form 10-K.

Certain amounts in prior periods have been reclassified to conform to the current period's presentation.

9

GLOBAL CONSUMER

        Global Consumer reported net income of $2.438 billion in the 2004 first quarter, up $447 million or 22% from the prior-year period, driven by double digit growth across all products. Cards net income increased $263 million or 37% in the 2004 first quarter compared to the 2003 first quarter, mainly reflecting the addition of the Sears and Home Depot portfolios and growth in Mexico, Asia, and EMEA, combined with a lower effective tax rate in International Cards. Retail Banking net income increased $186 million or 23% in the 2004 first quarter, primarily reflecting strong international growth in all regions driven by increases in wealth management products, combined with growth in mortgages and improved credit in North America. Consumer Finance net income increased $64 million or 13% from the 2003 first quarter, primarily reflecting growth in North America, including the acquisition of the WMF consumer finance business, partially offset by the impact of portfolio contraction and lower spreads in Japan.

        In January 2004, Citigroup completed the acquisition of WMF, which added $3.8 billion in average loans and 427 loan offices. In November 2003, Citigroup completed the acquisition of Sears, which added $15.4 billion of private-label card receivables, $13.2 billion of bankcard receivables and 32 million accounts. In July 2003, Citigroup completed the acquisition of the Home Depot portfolio, which added $6 billion in receivables and 12 million accounts. In July 2003, Citigroup also acquired the remaining stake in Diners Club Europe, adding 1 million accounts and $0.6 billion of receivables. These acquisitions were accounted for as purchases; therefore, their results are included in the Global Consumer results from the dates of acquisition.

Cards

        Cards reported net income of $980 million in the 2004 first quarter, up $263 million or 37% from the first quarter of 2003. North America Cards reported net income of $832 million in the 2004 first quarter, up $214 million or 35% over the same period in 2003, mainly reflecting the Sears and Home Depot acquisitions and increased volumes and spreads in the U.S. and Mexico. International Cards net income of $148 million increased $49 million or 49% over the first quarter of 2003, reflecting receivables growth and improved credit combined with a lower effective tax rate.

10

        As shown in the following table, average managed loans grew 21% from the prior-year period, reflecting growth of 21% in North America and 25% in International Cards. In North America, the addition of the Sears and Home Depot portfolios and growth in Mexico was partially offset by a decline in introductory promotional rate balances that was driven by a change in account acquisition marketing strategies in 2003, as well as the sale of $1.7 billion of non-strategic portfolios in 2003. International Cards growth reflected increases in Asia and EMEA, and also included the benefit of strengthening currencies and the addition of Diners Club Europe.

        Total card sales were $79.1 billion, up 20% from the 2003 first quarter. North America sales were up 19% over the prior-year quarter to $67.8 billion, reflecting the impact of acquisitions and higher purchase volumes, and was partially offset by the change in account acquisition marketing strategies. International Cards sales grew 31% over the prior-year quarter to $11.3 billion reflecting broad-based growth, led by Asia, as well as the addition of Diners Club Europe and the benefit of strengthening currencies.

        Revenues, net of interest expense, of $4.598 billion in the 2004 first quarter increased $1.292 billion or 39% from the prior-year quarter, reflecting growth in North America of $1.152 billion or 43% and in International Cards of $140 million or 23%. Revenue growth in North America was mainly due to the impact of acquisitions, net interest margin expansion, the benefit of increased purchase volumes and increased loans in Mexico. Revenue growth in North America was partially offset by increased credit losses on securitized receivables (which are recorded as a contra-revenue item after receivables are securitized) and the absence of prior-year net gains of $146 million that resulted from changes in estimates related to the timing of revenue recognition on securitized portfolios. Revenue growth in International Cards reflected the benefit of loan and sales growth in all regions. Revenue growth in the international markets also reflected the benefit of foreign currency translation and the addition of Diners Club Europe.

        Operating expenses in the 2004 first quarter of $1.938 billion were $492 million or 34% higher than the prior-year quarter, reflecting the impact of acquisitions and foreign currency translation combined with increased advertising and marketing costs in the U.S. and international markets.

        The provision for credit losses in the 2004 first quarter was $1.228 billion, compared to $774 million in the prior-year quarter. The increase in the provision for credit losses was mainly in North America and reflected the impact of acquisitions, partially offset by an increase in the level of securitized receivables.

        The securitization of credit card receivables is limited to the Citi Cards business within North America. At March 31, 2004, securitized credit card receivables were $76.2 billon, compared to $71.0 billion at March 31, 2003. There were no credit card receivables held-for-sale at March 31, 2004, compared to $3.0 billion at March 31, 2003. 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 term of the 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, managed net credit losses in the first quarter of 2004 were $2.554 billion, with a related loss ratio of 6.69%, compared to $2.186 billion and 6.02% in the 2003 fourth quarter and $1.832 billion and 5.86% in the prior-year quarter. The increase in the ratio from the prior-year period reflected the addition of the Sears portfolio, which impacted both the bankcard and private label portfolios in North America, as well as the impact of lower introductory promotional rate balances, and was partially offset by improvements in Asia. The increase in the ratio from the prior quarter was primarily due to seasonality and the timing of the Sears acquisition.

11

        Loans delinquent 90 days or more on a managed basis were $3.152 billion or 2.08% of loans at March 31, 2004, compared to $3.392 billion or 2.14% at December 31, 2003 and $2.406 billion or 1.92% at March 31, 2003. The increase in delinquent loans from a year ago was primarily attributable to the addition of the Sears and Home Depot portfolios.

Consumer Finance

        Consumer Finance reported net income of $567 million in the 2004 first quarter, up $64 million or 13% from the 2003 period, principally reflecting growth in North America, including the acquisition of WMF, partially offset by a decline in Japan.

        As shown in the preceding table, average loans grew 10% compared to the 2003 first quarter, resulting from the WMF acquisition which contributed $3.8 billion in average loans, growth in real-estate secured loans in North America and EMEA, and the impact of strengthening currencies in the international markets. In Japan, average loans in the 2004 first quarter declined 6% from the prior-year quarter, as the benefit of foreign currency translation was more than offset by the impact of charge-offs, higher pay-downs, reduced loan demand and tighter underwriting standards.

        As shown in the following table, the average net interest margin of 10.16% in the 2004 first quarter declined 52 basis points from the 2003 first quarter, reflecting compression in International Consumer Finance. The average net interest margin for International Consumer Finance was 15.35% in the 2004 first quarter, declining 202 basis points from the prior-year quarter, driven by Japan. The compression of net interest margin in Japan reflected a decline in higher-yielding personal loans as well as increased non-performing loans, combined with a change in the treatment of adjustments and refunds of interest. Beginning in the 2003 second quarter, adjustments and refunds of interest charged to customer accounts are accounted for as a reduction of net interest margin whereas in prior periods, such amounts were treated as credit costs. The net interest margin decline in Japan was offset, in part, by margin expansion in Europe, reflecting lower funding costs. In North America, the average net interest margin was 8.69% in the 2004 first quarter, increasing 9 basis points from the prior-year quarter as the benefit of lower cost of funds and the addition of WMF was partially offset by lower yields. The decline in yields in North America was mainly due to the lower interest rate environment and the continued shift to higher-quality credits, particularly in the auto loan business.

        Revenues, net of interest expense, of $2.688 billion in the 2004 first quarter increased $128 million or 5% from the prior-year quarter. Revenue in North America increased $200 million or 12% from the first quarter of 2003, primarily driven by the acquisition of WMF and growth in receivables, partially offset by declines in insurance-related revenue. Revenue in International Consumer Finance declined $72 million or 8% from the first quarter of 2003, mainly due to lower volumes and spreads in Japan, partially offset by the benefit of foreign currency translation and growth in EMEA and Asia.

        Operating expenses of $923 million in the 2004 first quarter increased $58 million or 7% from the prior-year period, reflecting increases of $50 million or 9% in North America and $8 million or 2% in International Consumer Finance. The increase in North America was due to the acquisition of WMF. In International Consumer Finance, the impact of foreign currency translation, volume

12

growth and front office expansion in Asia and EMEA was partially offset by lower operating expenses in Japan, reflecting expense savings from branch closings, headcount reductions and the absence of prior-year repositioning costs.

        The provisions for benefits, claims, and credit losses were $916 million in the 2004 first quarter, down from $930 million in the 2003 first quarter, as a lower provision for credit losses in Japan and the U.S. was partially offset by the impact of the WMF acquisition. Net credit losses and the related loss ratio were $870 million and 3.57% in the 2004 first quarter, compared to $867 million and 3.68% in the 2003 fourth quarter and $855 million and 3.91% in the 2003 first quarter. In North America, the net credit loss ratio of 2.79% in the 2004 first quarter was down from 2.81% in the 2003 fourth quarter and 3.06% in the 2003 first quarter, reflecting improvements across all products. The net credit loss ratio for International Consumer Finance was 6.31% in the 2004 first quarter, down from 6.65% in the 2003 fourth quarter and 6.69% in the 2003 first quarter, primarily due to improved conditions in Japan, where lower bankruptcy losses were partially offset by the impact on the ratio of lower loan volumes. The net credit loss ratio for International Consumer Finance was reduced by 37 basis points and 64 basis points in the 2004 first quarter and 2003 fourth quarter, respectively, as a result of the change in treatment of adjustments and refunds of interest as discussed above.

        Loans delinquent 90 days or more were $2.127 billion or 2.15% of loans at March 31, 2004, compared to $2.221 billion or 2.36% at December 31, 2003 and $2.183 billion or 2.45% a year ago. The decrease in the delinquency ratio versus the prior year and prior quarter was mainly due to improvements in North America, partially offset by an increase in Japan.

Retail Banking

        Retail Banking reported net income of $985 million in the 2004 first quarter, up $186 million or 23% from the 2003 first quarter. The increase in Retail Banking was driven by growth in both North America and International Retail Banking of $89 million or 17% and $97 million or 36%, respectively. Growth in North America was mainly driven by revenue increases in all businesses except CitiCapital, combined with improved credit in the U.S. and Mexico. The increase in International Retail Banking reflected growth in all regions, led by increases in wealth management products.

(1)

Includes bank deposit program balances generated from the Smith Barney channel managed by Citibanking North America.

        As shown in the preceding table, Retail Banking grew average loans and customer deposits by 4% and 7%, respectively. Average customer deposit growth in North America primarily reflected increases in higher-margin demand and savings deposits that were partially offset by declines in time and mortgage escrow deposits. Average loan growth in North America reflected increased mortgages and student loans in Consumer Assets that were partially offset by a decline in CitiCapital resulting from the run-off of non-core portfolios and the sale of the $1.2 billion CitiCapital Fleet Services portfolio in 2003. In the international markets, average customer deposits grew 18% driven by growth in Asia, EMEA and Japan and the impact of foreign currency translation. International Retail Banking average loans increased 10% from the prior-year quarter reflecting the impact of foreign currency translation and growth in installment loans in Germany and Asia. Growth in both average loans and customer deposits were negatively impacted by volume declines in Latin America, largely reflecting the impact of strategic repositioning in the region.

13

        As shown in the following table, revenues, net of interest expense, of $3.698 billion in the 2004 first quarter increased $315 million or 9% from the 2003 period. Revenues in North America increased $66 million or 3% in the 2004 first quarter driven by growth in all businesses except CitiCapital. Growth in North America, excluding Mexico, was driven by higher mortgage servicing revenue and the benefit of increased deposit volumes and investment product sales. These increases were partially offset by spread compression in the deposit business of Citibanking North America, the impact of lower volumes in CitiCapital and a decline in mortgage securitization-related revenue. Revenues in Mexico increased $45 million or 10% in the 2004 first quarter, primarily reflecting increased deposit volumes and banking fees, partially offset by the negative impact of foreign currency translation. International Retail Banking revenues increased $249 million or 22% in the 2004 first quarter, reflecting improvements across all regions, as well as the impact of strengthening currencies. Excluding the impact of foreign currency translation, higher investment product sales and increased branch lending, mainly in Germany, drove growth in EMEA. Revenue increases in Asia and Japan reflected continued growth in investment product sales and deposit volumes, while revenue growth in Latin America was driven by improvements in Argentina combined with net interest margin expansion.

        Operating expenses in the 2004 first quarter increased $155 million or 8% from the comparable 2003 period. In North America, operating expense growth of $73 million or 6% was primarily due to higher advertising spending in Citibanking North America and Mexico, volume-related increases in Consumer Assets, and increased legal costs in Mexico. International Retail Banking operating expenses increased $82 million or 12%, mainly reflecting the impact of foreign currency translation, volume-related increases, and higher advertising and marketing costs, partially offset by the absence of prior-year repositioning costs, mainly in EMEA and Latin America.

        The provisions for benefits, claims and credit losses were $188 million in the 2004 first quarter, down from $283 million in the prior-year period, primarily due to improvements in the North America Commercial Markets portfolio. Net credit losses (excluding commercial markets) were $155 million and the related loss ratio was 0.49% in the 2004 first quarter, compared to $119 million and 0.39% in the 2003 fourth quarter and $120 million and 0.42% in the prior-year quarter. The increase in the net credit loss ratio (excluding commercial markets) in the 2004 first quarter was primarily driven by an increase in Germany that was partially offset by improvements in Mexico and Asia. Commercial Markets net credit losses were $50 million and the related loss ratio was 0.51% in the 2004 first quarter, compared to $94 million and 0.93% in the 2003 fourth quarter and $179 million and 1.65% in the prior-year quarter. The improvement in Commercial Markets net credit losses in the 2004 first quarter was due to declines in CitiCapital, Citibanking North America and Mexico.

        Loans delinquent 90 days or more (excluding Commercial Markets) were $3.698 billion or 2.86% of loans at March 31, 2004, compared to $3.802 billion or 3.07% at December 31, 2003, and $3.644 billion or 3.18% a year ago. Compared to a year ago, the increase in delinquent loans was primarily due to an increase in Germany, including the impact of foreign currency translation, and was partially offset by declines in Consumer Assets and Asia (primarily in Taiwan). The decline in Consumer Assets mainly reflected a lower level of buybacks from GNMA pools where credit risk is maintained by government agencies.

        Cash-basis loans in Commercial Markets were $1.213 billion or 3.11% of loans at March 31, 2004, compared to $1.350 billion or 3.38% at December 31, 2003 and $1.250 billion or 2.88% a year ago. The decrease in cash-basis loans from the prior year mainly reflected improvements in Mexico and Citibanking North America and was partially offset by an increase in CitiCapital.

14

Other Consumer

        Other Consumer—which includes certain treasury and other unallocated staff functions, global marketing and other programs—reported a loss of $94 million in the 2004 first quarter, compared to a loss of $28 million in the prior-year quarter. The change from the prior year was primarily due to an increase in legal reserves and lower treasury results.

15

GLOBAL CORPORATE AND INVESTMENT BANK

NM    Not meaningful

        GCIB reported net income of $1.157 billion in the 2004 first quarter, up $225 million or 24% from the 2003 first quarter. The increase in net income reflects increases of $182 million or 25% in Capital Markets and Banking and $43 million or 23% in Transaction Services.

        Capital Markets and Banking net income of $923 million in the 2004 first quarter increased $182 million or 25% compared to the 2003 first quarter, primarily due to the absence of prior-year mark-to-market losses on credit derivative hedges (which serve as an economic hedge for the loan portfolio), increases in derivatives trading and a lower provision for credit losses.

        Transaction Services net income of $234 million in the 2004 first quarter increased $43 million or 23% from the 2003 first quarter primarily due to a lower provision for credit losses, higher assets under custody and liability balances and a lower effective tax rate, partially offset by lower spreads and higher expenses.

        The businesses of GCIB are significantly affected by the levels of activity in the global capital markets which, in turn, are influenced by macro-economic and political policies and developments, among other factors, in approximately 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.

Capital Markets and Banking

NM    Not meaningful

        Capital Markets and Banking net income of $923 million in the 2004 first quarter was up $182 million or 25% from the 2003 first quarter primarily due to the absence of prior-year mark-to-market losses on credit derivative hedges, increases in derivatives trading and a lower provision for credit losses.

        Revenues, net of interest expense, of $2.053 billion in the 2004 first quarter increased $121 million or 6% from the 2003 first quarter driven by the absence of prior-year mark-to-market losses on credit derivative hedges, increases in equity derivatives and Fixed Income trading. Fixed Income trading increased primarily due to higher interest rate and mortgage trading.

        Operating expenses of $734 million in the 2004 first quarter decreased $85 million or 10% from the 2003 first quarter primarily due to lower compensation and benefits expense (primarily reflecting lower incentive compensation accrual).

        The provision for credit losses of ($26) million in the 2004 first quarter includes a release of $128 million resulting from improved credit quality in the corporate loan portfolio in the following regions: $86 million in Latin America, $29 million in North America, $8 million in Asia, and $5 million in EMEA.

        Cash-basis loans were $2.806 billion at March 31, 2004, compared to $3.246 billion at December 31, 2003, and $3.520 billion at March 31, 2003. Cash-basis loans net of write-offs decreased $714 million from March 31, 2003, primarily due to decreases to borrowers in the telecommunications and power and energy industries and charge-offs against reserves as well as paydowns from corporate borrowers in Argentina, Mexico, Hong Kong, and New Zealand, partially offset by a reclassification of cash-basis loans

16

($248 million) in Mexico from Transaction Services to Capital Markets and Banking. Cash-basis loans decreased $440 million from December 31, 2003, primarily due to charge-offs taken against reserves and paydowns from borrowers in the power and energy industry.

Transaction Services

NM    Not meaningful

        Transaction Services reported net income of $234 million in the 2004 first quarter, up $43 million or 23% from the 2003 first quarter, primarily due to a lower provision for credit losses, higher revenues and a lower effective tax rate, which were partially offset by higher expenses.

        As shown in the following table, average liability balances of $111 billion grew 21% compared to the 2003 first quarter, primarily due to increases in Europe and Asia. Assets under custody reached $6.6 trillion, an increase of $1.4 trillion or 27% compared to the 2003 first quarter, primarily reflecting market appreciation and increases in customer volumes.

        Revenues, net of interest expense, of $939 million in the 2004 first quarter increased $35 million or 4% from 2003 first quarter, due to growth in assets under custody and liability balances including the acquisition of Forum Financial during the fourth quarter of 2003, as well as an improving market environment, partially offset by lower spreads as interest rates declined and prior-period gains on the early termination of intracompany deposits (which were offset in Capital Markets and Banking).

        Operating expenses of $658 million in the 2004 first quarter increased $33 million or 5% from the 2003 first quarter, primarily due to the acquisition of new businesses including Forum Financial, as well as increased compensation and benefits costs.

        The provision for credit losses of ($34) million in the 2004 first quarter decreased $43 million from the 2003 first quarter, primarily due to general reserve releases of $22 million reflecting improved credit trends and prior-year write-offs in Latin America. Taxes of $80 million in the 2004 first quarter increased $1 million from 2003 first quarter, while pre-tax income of $315 million in the 2004 first quarter increased $45 million from the prior-year period reflecting a lower effective tax rate in the current period.

        Cash-basis loans, which are primarily trade finance receivables, in the Transaction Services business were $102 million, $156 million, and $539 million at March 31, 2004, December 31, 2003 and March 31, 2003, respectively. Cash-basis loans decreased $437 million from March 31, 2003, primarily due to a reclassification of cash-basis loans ($248 million) in Mexico from Transaction Services to Capital Markets and Banking, along with charge-offs in Argentina and Poland. The decrease of $54 million from December 31, 2003 was primarily due to reductions in cash basis loans in Latin America.

17

GLOBAL INVESTMENT MANAGEMENT

        Global Investment Management net income of $229 million in the 2004 first quarter increased $68 million or 42% from the 2003 first quarter. Life Insurance and Annuities net income of $37 million in the 2004 first quarter increased $16 million or 76% from the prior-year period reflecting an increase of $13 million in International Insurance Manufacturing (IIM), primarily resulting from a partial recovery in the value of Argentine Government Promissory Notes (GPNs) and business volume growth. Private Bank net income of $159 million in the 2004 first quarter was up $34 million or 27% from the 2003 first quarter primarily reflecting increased investment management and capital markets activity, and increased lending and banking activities, partially offset by increased incentive compensation associated with higher revenues, increased salary and benefits costs, and the impact of a narrowing net interest margin. Asset Management net income of $33 million in the 2004 first quarter was up $18 million from the 2003 first quarter, primarily reflecting the absence of prior-year insurance costs on fees earned in a Latin America Retirement Services (LARS) business and lower capital funding costs in Mexico.

Life Insurance and Annuities

NM    Not meaningful

        Life Insurance and Annuities reported net income of $37 million in the 2004 first quarter, a $16 million or 76% increase from $21 million in the prior-year period. The $16 million increase reflects a $13 million increase in IIM, primarily resulting from a partial recovery in the value of Argentine GPNs, lower capital funding costs in Mexico, and business volume growth in Japan.

        Revenues, net of interest expense, of $226 million increased $47 million or 26% in the 2004 first quarter, primarily driven by higher business volumes in Asia, EMEA and Japan, as well as lower capital funding costs in Mexico. Operating expenses of $84 million increased $26 million or 45% in the 2004 first quarter, reflecting the higher business volumes in EMEA and Asia.

18

International Insurance Manufacturing

        The majority of the annuity business and a substantial portion of the life business written by IIM are accounted for as investment contracts, such that the premiums are considered deposits and are not included in revenues. Combined net written premiums and deposits is a non-GAAP financial measure which management uses to measure business volumes, and may not be comparable to similarly captioned measurements used by other life insurance companies.

        The following table shows combined net written premiums and deposits, which is a non-GAAP financial measure, by product line for the three-month periods ended March 31:

(1)

Includes 100% of net written premiums and deposits for Company's Japanese joint venture.

(2)

Includes $1.8 billion and $355 million of deposits in 2004 and 2003, respectively.

NM

Not meaningful

        IIM annuity product net written premiums and deposits increased $1.3 billion in the 2004 first quarter to $1.6 billion from $365 million in the 2003 first quarter. The increase was driven by strong variable annuity sales in Japan through the Company's joint venture with Mitsui Sumitomo.

        IIM life products net written premiums and deposits were $336 million in the 2004 first quarter, an increase of $238 million from $98 million in the 2003 first quarter, primarily driven by a $168 million increase in variable universal life sales in Mexico.

        In Argentina, the restructuring of customer annuity liabilities was approved by the Argentine Ministry of Insurance on July 3, 2003. An insurance subsidiary of the Company offered the plan to its voluntary annuity holders. The election period expired on January 31, 2004, at which time 70% of the voluntary annuity customers elected to participate. During the 2003 fourth quarter, the Company contributed $55 million of new capital to its Argentine Global Investment Management companies, primarily to fund the voluntary annuity restructuring plan. Additional capital totaling $45 million was contributed during the 2004 first quarter to maintain required regulatory capital and to fund ongoing operating expenses.

Private Bank

        Private Bank reported net income of $159 million in the 2004 first quarter, up $34 million or 27% from the 2003 first quarter, primarily reflecting increased investment management and capital markets activity, and increased lending and banking activities, partially offset by increased incentive compensation associated with higher revenues, increased salary and benefit costs associated with an investment in increased front-end staff, and the impact of a narrowing net interest margin. Investment management and capital markets activity includes client trading, management, performance and placement fees, and investment products fees.

        Client business volumes under management, which include custody accounts, assets under fee-based management, deposits and loans, were $202 billion as of March 31, 2004, up 17% from $172 billion as of March 31, 2003, reflecting increases in other (principally custody) accounts of $15 billion, banking and fiduciary deposits of $6 billion, assets under fee based management of $5 billion, and loans of $4 billion. Regionally, the increase reflects continued growth in EMEA (primarily in Europe), Asia, North America (including Mexico), Japan and Latin America. The regional disclosures contained in this Private Bank discussion are aligned with the Citicorp management structure and therefore the business in Mexico is reflected in the results of North America and is excluded from Latin America.

19

        Revenues, net of interest expense, were $573 million in the 2004 first quarter, up $113 million or 25% from the 2003 first quarter, primarily driven by revenue increases from investment management and capital markets activity, and increases in lending and banking activities, partially offset by the impact of a narrowing net interest margin. The 2004 increase also reflects an increase in North America (including Mexico) of $11 million or 5% from the prior-year period, primarily in banking and lending activity. International revenues increased $102 million or 41% from the prior-year period, primarily due to growth in Asia of $46 million or 53% (client trading), in Japan of $23 million or 38% (client trading), in EMEA of $22 million or 39% (client trading and management and placement fees), and in Latin America of $11 million or 24% (client trading, placement and management fees).

        Operating expenses of $339 million in the 2004 first quarter were up $64 million or 23% from the 2003 first quarter, primarily reflecting increased incentive compensation associated with higher revenues, and increased salary and benefit costs associated with an investment in increased front end staff. The increased expenses in North America (including Mexico) reflect the increased revenues in the region, with expenses up $11 million or 12%, driven by higher incentive compensation. International expenses increased $53 million or 29% from the 2003 first quarter, primarily due to higher employee-related costs, including incentive compensation, in Asia, Latin America and Japan. The $53 million increase in operating expenses internationally was driven by increases in Asia of $31 million or 62%, in Japan of $10 million or 29% and in Latin America of $10 million or 28%.

        The provision for credit losses was $4 million in the 2004 first quarter, unchanged from the 2003 first quarter. Net credit losses in the 2004 first quarter remained at a nominal level of 0.04% of average loans outstanding, compared with 0.03% in the 2003 first quarter. Loans 90 days or more past due as of March 31, 2004 were $155 million or 0.43% of total loans outstanding, compared with $157 million or 0.49% at March 31, 2003.

        Average assets of $41 billion in the 2004 first quarter increased $7 billion or 21% from $34 billion in the 2003 first quarter. The increase from the prior-year period was primarily related to increased lending activity (higher margin lending and mortgage financing and re-financing) and the consolidation of a previously unconsolidated entity due to changes in the contractual relationship with this entity.

Asset Management

(1)

Includes $34 billion and $30 billion in 2004 and 2003, respectively, for Private Bank clients.

NM

Not meaningful

        Asset Management reported net income of $33 million in the 2004 first quarter, up $18 million compared to the 2003 first quarter, primarily reflecting the absence of prior-year insurance costs on fees earned in a LARS business and lower capital funding costs.

        Assets under management for the 2004 first quarter were $172 billion, an increase of $7 billion or 4% from the 2003 first quarter.

        Revenues, net of interest expense, increased $47 million or 42% from the prior-year period to $159 million in the 2004 first quarter, resulting from an increase related to certain assets consolidated under FIN 46-R, the absence of prior-year insurance costs on fees earned in a LARS business and increases in Mexico due to lower capital funding costs. The assets consolidated under FIN 46-R (which are denominated in euro) generated $10 million of gains (offset in minority interest) due to foreign currency translation.

        Operating expenses of $108 million in the 2004 first quarter were down $1 million or 1% from the 2003 first quarter, primarily reflecting continued expense management.

        Minority interest, after tax, of $6 million in the 2004 first quarter was due to the impact of consolidating certain assets under FIN 46-R.

20

PROPRIETARY INVESTMENT ACTIVITIES

NM

Not meaningful

        Proprietary Investment Activities reported revenues, net of interest expense, of $132 million in the 2004 first quarter, which increased $43 million or 48% from the 2003 first quarter, reflecting higher Other Investment Activities revenues of $31 million, primarily related to hedge fund investments and higher Private Equity revenues of $12 million. Operating expenses of $56 million in the 2004 first quarter increased $3 million from the 2003 first quarter primarily reflecting increased expenses in CAI and hedge funds resulting from business growth, partially offset by lower expenses in Private Equity. Minority interest, after-tax, of $36 million in the 2004 first quarter increased $28 million from the 2003 first quarter due to a mark-to-market valuation on the recapitalization of investments held within the Emerging Markets private equity portfolio and stronger performance in hedge funds.

        See Note 5 to the Consolidated Financial Statements for additional information on investments in fixed maturity and equity securities.

        The following sections contain information concerning revenues, net of interest expense, for the two main investment classifications of Proprietary Investment Activities:

        Private Equity includes equity and mezzanine debt financing on both a direct and indirect basis, including investments made by CVC Equity Partners Fund, to companies primarily located in the United States and Western Europe, investments in companies located in developing economies with a private equity focus, the investment portfolio related to the Banamex acquisition in August 2001, and CVC/Opportunity Equity Partners, LP (Opportunity). Opportunity is a third-party managed fund through which Citicorp co-invests in companies that were privatized by the government of Brazil in the mid-1990s. The remaining investments in the Banamex portfolio were liquidated during 2003.

        Certain private equity investments held in investment company subsidiaries and Opportunity are carried at fair value with unrealized gains and losses recorded in income. Direct investments in companies located in developing economies are principally carried at cost with impairments recognized in income for "other than temporary" declines in value.

        As of March 31, 2004 and March 31, 2003, Private Equity included assets of $5.103 billion and $5.886 billion, respectively, with the portfolio primarily invested in industrial, consumer goods, communication and technology companies. The decline in the portfolio of $783 million relates to sales of U.S. private and public equity investments, the impact of valuation adjustments, and the liquidation of the Banamex portfolio.

        Revenues for Private Equity, net of interest expense, are composed of the following:

(1)

Includes the changes in unrealized gains (losses) related to mark-to-market reversals for investments sold during the year.

(2)

Includes valuation adjustments on private equity investments.

(3)

Includes other investment income (including dividends), management fees, and funding costs.

        Revenues, net of interest expense, of $76 million in the 2004 first quarter increased $12 million from the 2003 first quarter primarily resulting from higher net impairment/valuation revenues of $98 million and higher other revenues of $38 million resulting from increased dividends and fees and lower funding costs, partially offset by higher net mark-to-market losses on public securities of $117 million and lower net realized gains on sales of investments of $7 million. The higher net mark-to-market losses on public securities in the 2004 first quarter was primarily driven by higher net mark-to-market losses on an investment in an Indian software company, reflecting a general decline in the Indian software market.

21

        Other Investment Activities includes CAI, various proprietary investments, including certain hedge fund investments and the LDC Debt/Refinancing portfolios. The LDC Debt/Refinancing portfolios include investments in certain countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature and earnings are generally derived from interest and restructuring gains/losses.

        Other Investment Activities investments are primarily carried at fair value, with impairment write-downs recognized in income for "other than temporary" declines in value. As of March 31, 2004, Other Investment Activities included assets of $1.510 billion, including $1.081 billion in hedge funds, the majority of which represents money managed for third-party customers, $326 million in the LDC Debt/ Refinancing portfolios, and $103 million in other assets. As of March 31, 2003, total assets of Other Investment Activities were $1.537 billion, including, $885 million in hedge funds, $520 million in the LDC Debt/Refinancing portfolios and $132 million in other assets.

        The major components of Other Investment Activities revenues, net of interest expense are as follows:

        Revenues, net of interest expense, in the 2004 first quarter of $56 million increased $31 million from the 2003 first quarter, primarily resulting from a $29 million increase from improved hedge fund results and a $4 million increase in other revenues, primarily reflecting growth in CAI, partially offset by a $2 million decrease in LDC Debt/Refinancing revenues.

        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 42.

22

CORPORATE/OTHER

        Corporate/Other reported net income of $95 million in the 2004 first quarter, an increase of $74 million from the 2003 first quarter. The increase was primarily attributed to the sale of EFS, which resulted in an after-tax gain of $180 million in the 2004 first quarter, partially offset by lower treasury results.

        Revenues, net of interest expense, of $389 million in the 2004 first quarter, increased $47 million from the 2003 first quarter primarily driven by the EFS gain, partially offset by lower treasury results and lower intersegment eliminations. The decreased treasury revenues predominantly related to increased funding costs associated with higher debt levels partially offset by higher earnings on intercompany placements.

        Operating expenses of $206 million in the 2004 first quarter decreased $53 million from the 2003 first quarter primarily due to the absence of the prior-year operating expenses in EFS.

23

MANAGING GLOBAL RISK

        The Company's Global Risk Management process is consolidated within Citigroup's Global Risk Management process as summarized below and as described in more detail in Citigroup's 2003 Annual Report on Form 10-K under the section titled "Managing Global Risk."

        The Citigroup risk management framework recognizes the diversity of Citigroup's global business activities by balancing strong corporate oversight with well-defined independent risk management functions within each business.

        The risk management framework is grounded on the following principles, which apply universally across all businesses and all risk types:

•

Risk management is integrated within the business plan and strategy.



•

All risks and resulting returns are owned and managed by an accountable business unit.



•

All risks are managed within a limit framework; risk limits are endorsed by business management and approved by independent risk management.



•

All risk management policies are clearly and formally documented.



•

All risks are measured using defined methodologies, including stress testing.



•

All risks are comprehensively reported across the organization.

        The Citigroup Senior Risk Officer is responsible for establishing standards for the measurement, approval, reporting and limiting of risk, for managing, evaluating, and compensating the senior independent risk managers at the business level, for approving business-level risk management policies, for approving business risk-taking authority through the allocation of limits and capital, and for reviewing, on an ongoing basis, major risk exposures and concentrations across the organization. Risks are regularly reviewed with the independent business-level risk managers, the Citigroup senior business managers, and, as appropriate, the Citigroup Board of Directors.

        The independent risk managers at the business level are responsible for establishing and implementing risk management policies and practices within their business, while ensuring consistency with Citigroup standards. As noted above, the independent risk managers report directly to the Citigroup Senior Risk Officer, however they remain accountable, on a day-to-day basis, for appropriately meeting and responding to the needs and issues of their business unit, and for overseeing the risks present.

        The following sections summarize the processes for managing credit, market, operational and country risks within Citicorp's major businesses.

24

CREDIT RISK MANAGEMENT PROCESS

        Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. Credit risk arises in many of the Company's business activities including lending activities, sales and trading activities, derivatives activities, securities transactions, settlement activities, and when the Company acts as an intermediary on behalf of its clients and other third parties. The credit risk management process at Citigroup relies on corporate-wide standards to ensure consistency and integrity, with business-specific policies and practices to ensure applicability and ownership.

Details of Credit Loss Experience