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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
Part I—Financial Information

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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, 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, Diner's Club 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 September 30, 2004, North America Consumer Finance maintained 2,624 offices, including 2,450 in the U.S., Canada, and Puerto Rico, and 174 offices in Mexico, while International Consumer Finance maintained 1,039 offices, including 529 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 776 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 1,347 branches. International Retail Banking consists of 1,118 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.

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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. IIM and CIG include the realized investment gains/losses from sales of certain insurance-related investments.

        Private Bank provides personalized wealth management services for high-net-worth clients through 123 offices in 34 countries and territories. With a global network of 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 management, investment finance and banking services. Investment management services include investment funds management and capital markets solutions, as well as trust, fiduciary and custody services. Investment finance provides standard and tailored credit services including real estate financing, commitments and letters of credit, while Banking includes services for deposit, checking and savings accounts, as well as cash management and other traditional 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 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.

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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 $1.250 billion and $1.210 billion in the 2004 and 2003 third quarters, respectively, and by $3.865 billion and $3.520 billion for the respective nine-month periods. 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 14.

(2)

Reclassified to conform to the current period's presentation.

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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.

(2)

The 2004 nine-month period includes a $378 million after-tax gain related to the sale of The Samba Financial Group (Samba).

(3)

The 2004 nine-month period includes a $378 million after-tax gain related to the sale of Samba and an approximately $850 million after-tax charge related to the Litigation Reserve Charge.

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EVENTS IN 2004 and 2003

Credit Reserve Releases

        During the past year, the world-wide credit environment has continuously improved, as evidenced by declining cash-basis loans balances and lower delinquency rates. Accordingly, the Company has recorded releases to its general credit reserves from its Allowance for Credit Losses. During the 2004 third quarter, the Company released $686 million of general reserves consisting of $250 million of GCIB general reserves and $436 million in Global Consumer general reserves.

        The GCIB releases consisted of a $202 million release in Capital Markets and Banking and a $48 million release in Transaction Services. The Consumer releases consisted of a $202 million release in the cards portfolio, a $165 million net release in Retail Banking, and a $69 million release in Consumer Finance. The Company's total allowance for loans, leases and commitments was $12.6 billion at September 30, 2004.

        Management evaluates the adequacy of loan loss reserves by analyzing probable loss scenarios and economic and geopolitical factors that impact the portfolios. See pages 34 – 38 herein and on pages 45 and 46 of Citigroup's 2003 Annual Report on Form 10-K for an additional discussion of the reserve levels and process.

        The 2004 nine-month period included $1.398 billion of general credit reserve releases, consisting of $750 million in GCIB and $648 million in Global Consumer.

        The 2003 third quarter and nine-month period included $230 million and $222 million, respectively, of general credit reserve releases, consisting of $100 million for both periods in GCIB and $130 million and $122 million, respectively, in Global Consumer.

Financial Services Agency of Japan Imposed Sanctions

        The sanctions imposed by the FSA required the Private Bank division of Citibank Japan to suspend all new transactions with its customers beginning on September 29, 2004 and exit all private banking operations by September 30, 2005.

        All banking services provided to existing retail customers, including CitiGold customers, will be unaffected by the sanctions. This includes access to all banking services through Citibank Japan's network of 25 retail branches and sub-branches, call centers and other channels.

        The Company's Private Bank operations in Japan had total revenues, net of interest expense, of $173 million and net income of $48 million for the first nine months of 2004 and $265 million and $84 million, respectively, for the 2003 full year.

        In connection with the exiting of private banking operations in Japan, the Company is performing a comprehensive review of the Private Bank division of Citibank Japan's customers and products to develop an appropriate exit plan. Implementation of the plan may result in significant charges in future periods. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 50.

Acquisition of First American Bank

        On August 24, 2004, Citigroup announced it will acquire First American Bank in Texas (FAB). The transaction is expected to be accretive to Citigroup's earnings and is expected to close in the first quarter of 2005, subject to applicable regulatory approvals. The transaction will establish Citigroup's retail banking presence in Texas, giving Citigroup over 100 branches, $3.5 billion in assets and approximately 120,000 new customers in the state. The above statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 50. The operations of FAB will be integrated into the businesses of Citicorp.

Charge for Regulatory and Legal Matters

        On May 10, 2004, at the time of Citigroup's settlement of the WorldCom class action lawsuit, Citigroup announced that it had reevaluated its reserves and 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. As part of the reevaluation of

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reserves described above, Citicorp increased its reserve for these transactions and activities by approximately $850 million (after-tax) in the 2004 second quarter (Litigation Reserve Charge).

        The Company believes that its reserve 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 seek to resolve them in the manner management believes is in the best interest of the Company.

Sale of Samba Financial Group

        On June 15, 2004, the Company sold, for cash, its 20 percent stake in The Samba Financial Group (Samba), formerly known as the Saudi American Bank, to the Public Investment Fund, a Saudi public sector entity. Citigroup recognized an after-tax gain of $756 million ($1.168 billion pretax) on the sale during the 2004 second quarter. The gain was recognized equally between Global Consumer and GCIB.

Acquisition of Principal Residential Mortgage, Inc.

        On July 1, 2004, Citigroup completed the acquisition of Principal Residential Mortgage, Inc. (PRMI) from Acquire Principal Residential Mortgage, Inc. PRMI, one of the largest independent mortgage servicers in the United States, originates, purchases, sells and services home loans, consisting primarily of conventional, conforming, fixed-rate prime mortgages.

        The transaction includes approximately $6.5 billion in assets and also includes $102 million of franchise premium. These amounts are subject to the finalization of the purchase price allocation. The operations of PRMI were integrated into the businesses of Citicorp.

Acquisition of KorAm Bank

        On April 30, 2004, Citigroup completed its tender offer to purchase all the outstanding shares of KorAm Bank (KorAm) at a price of KRW 15,500 per share in cash. In total, Citigroup has acquired 99.65% of KorAm's outstanding shares for a total of KRW 3.14 trillion ($2.7 billion). The results of KorAm are included in the Consolidated Financial Statements from May 2004 forward.

        KorAm is a leading commercial bank in Korea, with 223 domestic branches and total assets at June 30, 2004 of $37 billion. In the 2004 fourth quarter, Citigroup plans to merge its Citibank Korea Branch into KorAm. The operations of KorAm were integrated into the businesses of Citicorp.

Divestiture of Citicorp Electronic Financial Services Inc.

        During January 2004, the Company completed the sale for cash of Citicorp's Electronic Financial Services Inc. (EFS), a subsidiary of Citigroup, for $390 million (pretax). 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 completed the acquisition of Washington Mutual Finance Corporation (WMF) for $1.25 billion in cash. 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 included 427 WMF offices located in 26 states, primarily in the Southeastern and Southwestern United States, and total assets of $3.8 billion. Citicorp has guaranteed all outstanding unsecured indebtedness of WMF in connection with this acquisition. The results of WMF are included in the Consolidated Financial Statements from January 2004 forward. The operations of WMF were integrated into the businesses of Citicorp.

Acquisition of Sears' Credit Card and Financial Products Business

        On November 3, 2003, Citigroup acquired the Sears' Credit Card and Financial Products business (Sears). Approximately $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. Approximately $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.

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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.

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Results of Operations

Income

        Citicorp reported income of $4.397 billion in the 2004 third quarter, up 20% from $3.666 billion in the 2003 third quarter. Return on average common equity was 19.8% compared to 19.0% in the 2003 third quarter. Net income of $12.458 billion for the 2004 nine-month period was up 25% from $10.002 billion in the 2003 nine months.

        In the 2004 third quarter, Global Consumer net income increased $582 million or 25% compared to the 2003 third quarter, while the Global Corporate and Investment Bank (GCIB) increased $51 million or 6%. Global Investment Management grew $198 million and Proprietary Investment Activities decreased $6 million or 6% from the 2003 third quarter. For the nine-month period, Global Consumer net income recorded a $1.9 billion or 29% increase, while GCIB increased $180 million or 7%. Global Investment Management net income recorded a $262 million or 66% increase from the 2003 nine-month period. Proprietary Investment Activities increased $191 million from the prior year's nine-month period.

        See individual segment and product discussions on pages 13 - 30 for additional discussion and analysis of the Company's results of operations.

Revenues, Net of Interest Expense

        Total revenues, net of interest expense, of $14.9 billion and $46.9 billion in the 2004 third quarter and nine-month period, respectively, were up $1.2 billion or 9% and $6.2 billion or 15% from the respective 2003 periods. Global Consumer revenues in the 2004 third quarter were up $1.5 billion or 16% from the 2003 third quarter to $11.2 billion, and were up $5.4 billion or 19% from the 2003 nine months to $33.7 billion. The increase was led by a $1.1 billion or 30% increase in Cards from the 2003 third quarter and a $3.5 billion or 35% increase from the 2003 nine months, reflecting the results of the acquisitions of the Sears and Home Depot portfolios. Consumer Finance revenues increased $118 million or 5% and $471 million or 6% from the 2003 third quarter and nine months, respectively, primarily reflecting the integration of the Washington Mutual consumer finance business and growth in average loans. Retail Banking revenues increased $396 million or 11% and $889 million or 8% from the 2003 three- and nine-month periods, respectively, due primarily to growth in average loans, average deposits and the acquisition of KorAm in the second quarter of 2004.

        GCIB revenues of $2.5 billion and $9.1 billion in the 2004 third quarter and nine-month period, respectively, decreased $139 million or 5% and increased $722 million or 9% from the 2003 third quarter and nine months, respectively. There was an increase of $160 million or 18% and $283 million or 11% in Transaction Services from the respective 2003 three- and nine-month periods, primarily due to increases in securities services and the impact of recent acquisitions. The increases were partially offset by a decrease in Capital Markets and Banking of $299 million or 17% from the 2003 third quarter, reflecting reduced revenues in fixed income and equity underwriting due to rising interest rates, lower customer volumes and market volatility, while there was a $439 million or 8% increase from the 2003 nine-month period.

        Global Investment Management revenues were $886 million in the 2004 third quarter and $2.6 billion in the 2004 nine-month period, up $172 million or 24% from the 2003 third quarter and $338 million or 15% from the prior-year nine-month period. Life Insurance and Annuities revenues increased $191 million and $251 million or 57% from the 2003 three- and nine-month periods, respectively, primarily related to record high volumes. Asset Management noted increases of $9 million or 6% and $18 million or 5% from the 2003 three- and nine-month periods, respectively. Private Bank noted a decrease of $28 million or 5% from the third quarter of 2003 but an increase of $69 million or 5% from the 2003 nine-month period.

        Revenues from Proprietary Investment Activities in the 2004 third quarter and nine-month period decreased $211 million from the third quarter of 2003 but increased $119 million from the year-to-date 2003 period due to market fluctuations.

Selected Revenue Items

        Net interest revenue of $9.4 billion and $28.4 billion in the 2004 three- and nine-month periods, respectively, increased $1.0 billion or 13% and $3.6 billion or 15% from the respective 2003 periods, primarily reflecting the impact of acquisitions, a changing rate environment and business volume growth in certain markets. Total fees and commissions of $2.8 billion and $9.4 billion decreased by $344 million or 11% from the three-month period of 2003 and increased $834 million or 10% compared to the 2003 nine-month period, primarily as a result of higher asset management fees driven by positive market action.

        Foreign exchange revenues of $602 million and $1.5 billion in the 2004 three- and nine-month periods, respectively, were down $173 million or 22% and $1.1 billion or 41%, compared to a year ago, primarily reflecting decreased volatility and lower FX trading. Trading account gains were down $507 million in the 2004 three-month period and up $680 million from the 2003 nine-month period due primarily to interest rate fluctuation and prior-year weakness in interest rate products. Investment transactions of $241 million and $526 million in the 2004 three- and nine-month periods were up $161 million from the third quarter of 2003 and $206 million from the 2003 nine-month period. Other revenue of $2.3 billion and $6.6 billion in the three- and nine-month periods of 2004,

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respectively, increased $990 million or 74% and $2.0 billion or 44% from the 2003 third quarter and nine-month period, respectively, primarily reflecting the absence of the $1.2 billion gain on the sale of Samba, partially offset in the quarterly comparison from decreases in revenue earned from securitization activity and SFAS 133 hedging activities in the mortgage business.

Operating Expenses

        Total operating expenses were $7.6 billion and $23.5 billion for the 2004 third quarter and nine-month periods, up $923 million or 14% and $3.7 billion or 19% from the comparable 2003 periods. The increases primarily reflected the $1.4 billion Litigation Reserve Charge taken in the second quarter of 2004 and the impact of acquisitions.

        Global Consumer expenses were up 19% and 18% from the 2003 third quarter and nine-month period, respectively, driven by acquisitions as well as increased marketing and advertising costs. Operating expenses in the GCIB increased 18% and 39%, primarily from the WorldCom and Litigation charges taken in the second quarter of 2004. Global Investment Management noted a 5% decrease and a 3% increase in expenses from the 2003 third quarter and nine-month period, respectively, and Proprietary Investment Activities noted a 32% and 31% increase from the three- and nine-month periods of 2003.

Benefits, Claims, and Credit Losses

        Benefits, claims, and credit losses were $1.2 billion and $5.2 billion in the 2004 third quarter and nine-month period, down $577 million or 33% and $1.0 billion or 17% from the respective 2003 periods. Global Consumer provisions for benefits, claims, and credit losses of $1.5 billion and $5.8 billion were down 8% and up 5% from the 2003 third quarter and nine months, reflecting the impact of acquisitions, partially offset by an improved credit environment which resulted in credit reserve releases.

        GCIB provision for credit losses of ($405) million in the 2004 third quarter decreased $483 million from the year-ago level, due to loan loss reserve releases resulting from the overall improvement in the credit environment.

        Corporate cash-basis loans at September 30, 2004 and 2003 were $2.2 billion and $3.8 billion, respectively, while the corporate Other Real Estate Owned (OREO) portfolio totaled $26 million in the current quarter and $59 million in the prior-year quarter. Corporate cash-basis loans decreased $418 million from June 30, 2004, $1.2 billion from December 31, 2003, and $1.6 billion from September 30, 2003.

Income Taxes

        The Company's effective tax rate of 28.9% in the 2004 third quarter reflected a tax reserve release of $147 million due to the closing of a tax audit. In addition, results included a $47 million tax benefit associated with the life and annuity business in Argentina resulting from the Company receiving an IRS ruling allowing it to deduct losses incurred in the prior-year period. The effective tax rate also reflected the tax benefits for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested.

        The 2004 nine-month period effective tax rate was 30.5%, which reflected the items above and the separately reported Litigation Reserve Charge and gain on the sale of Samba.

        The 2003 third quarter tax rate was 29.2% and included a $200 million release of a tax reserve that had been held at the legacy Associates' businesses and was deemed to be in excess of expected tax liabilities, and the benefit of indefinitely-invested international earnings.

Regulatory Capital

        Total capital (Tier 1 and Tier 2) was $82.5 billion or 12.46% of net risk-adjusted assets, and Tier 1 Capital was $55.8 billion or 8.42% of net risk-adjusted assets at September 30, 2004, compared to $76.2 billion or 12.68% and $50.7 billion or 8.44%, respectively, at December 31, 2003.

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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.

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 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.

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GLOBAL CONSUMER

        Global Consumer reported net income of $2.937 billion and $8.310 billion in the 2004 third quarter and nine months, respectively, up $582 million or 25% and $1.858 billion or 29% from the comparable 2003 periods, driven by double-digit growth across all products. Growth in the nine-month comparison includes the 2004 second quarter gain on the sale of Samba of $378 million, reported in Other Consumer. Cards net income increased $287 million or 29% in the 2004 third quarter and $804 million or 33% in the 2004 nine months from the comparable periods of 2003, mainly reflecting an improved credit environment including the impact of credit reserve releases, the addition of the Sears and KorAm portfolios and a lower effective tax rate. Consumer Finance net income increased $167 million or 35% in the 2004 third quarter and $304 million or 20% in the 2004 nine months, primarily reflecting growth in North America, including the acquisition of WMF, growth in Latin America and Asia, and the benefit of an improved credit environment including the impact of credit reserve releases. The nine-month comparison was also impacted by the absence of a 2003 second quarter $94 million tax release in Japan. Retail Banking net income increased $160 million or 17% in the 2004 third quarter and $501 million or 19% in the 2004 nine months from the comparable periods of 2003, primarily reflecting improved credit performance in North America and the international regions, including the impact of credit reserve releases, the KorAm acquisition in Asia, an increase in wealth management product sales, primarily in Asia, and a lower effective tax rate. Significant general credit reserve releases occurred in Global Consumer in the 2004 second and third quarters, in which $191 million and $436 million were released, respectively.

        On July 1, 2004, Citigroup acquired PRMI, a servicing portfolio of $115 billion. In the 2004 second quarter, Citigroup completed the acquisition of KorAm, which added $10.0 billion in deposits and $12.6 billion in loans, with $11.5 billion in Retail Banking and $1.1 billion in Cards at June 30, 2004. 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 forward.

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Cards

        Cards reported net income of $1.267 billion and $3.259 billion in the 2004 third quarter and nine months, respectively, up $287 million or 29% and $804 million or 33% from the 2003 periods. North America Cards reported net income of $1.067 billion and $2.749 billion in the 2004 third quarter and nine months, respectively, up $252 million or 31% and $667 million or 32% from the 2003 periods, mainly reflecting the Sears acquisition, an improved credit environment including the impact of a $160 million pretax credit reserve release, higher sales and the impact of higher securitization levels, primarily related to the Home Depot portfolio. International Cards net income of $200 million and $510 million in the 2004 third quarter and nine months, respectively, increased $35 million or 21% and $137 million or 37% from the 2003 periods, reflecting receivables growth, improved credit, a lower effective tax rate and the addition of KorAm.

        As shown in the following table, average managed loans grew 22% in both the 2004 third quarter and nine months, reflecting growth of 22% and 21%, respectively, in North America and 24% and 27%, respectively, in International Cards. In North America, the addition of the Sears portfolio and growth in the U.S. and Mexico were partially offset by a decline in introductory promotional rate balances that was driven by a change in account acquisition marketing strategies in 2003. International Cards reflected growth driven by strong account acquisitions in all regions, led by Asia, which included the addition of KorAm, and the benefit of strengthening currencies.

        Total card sales were $90.8 billion and $256.9 billion in the 2004 third quarter and nine months, respectively, up 25% and 24% from the 2003 periods. North America sales were up 24% and 23% over the prior-year quarter and nine months to $77.3 billion and $219.4 billion, respectively, reflecting the impact of acquisitions and higher purchase sales. International Cards sales grew 31% and 34% over the prior-year quarter and nine months to $13.5 billion and $37.5 billion, reflecting broad-based growth led by Asia, and also reflected the addition of KorAm and the benefit of strengthening currencies.

        Revenues, net of interest expense, of $4.602 billion and $13.667 billion in the 2004 third quarter and nine months, respectively, increased $1.067 billion or 30% and $3.530 billion or 35% from the 2003 periods. Revenue growth in North America was $954 million or 33% and $3.103 billion or 38% in the 2004 third quarter and nine months, respectively. The growth in the 2004 third quarter was mainly due to the impact of acquisitions, the benefit of increased purchase sales, a gain on the securitization of Home Depot receivables of $146 million in the 2004 third quarter and increased loans in Mexico, partially offset by a higher cost of funds and the absence of net gains of $64 million in the 2003 third quarter resulting from changes in estimates related to the timing of revenue recognition on securitized portfolios. The growth in the 2004 nine-month period primarily resulted from the impact of acquisitions, net interest margin expansion, the benefit of increased purchase sales, the gain on the Home Depot securitizations and increased loans in Mexico. Adversely impacting the nine-month comparison were increased credit losses on securitized receivables

14

(which are recorded as a contra-revenue item after receivables are securitized) and the absence of 2003 net gains of $279 million related to the timing of revenue recognition on securitized portfolios. Revenue growth in International Cards of $113 million or 17% and $427 million or 23% in the 2004 third quarter and nine months was mainly driven by loan and sales growth in all regions, the additions of KorAm and Diners Club Europe, and the benefit of foreign currency translation.

        Operating expenses in the 2004 third quarter and nine months of $2.053 billion and $5.955 billion, respectively, were $545 million or 36% and $1.538 billion or 35% higher than the prior-year periods, primarily reflecting the impact of acquisitions and foreign currency translation, combined with increased marketing and advertising costs in both North America and International Cards.

        The provision for credit losses in the 2004 third quarter and nine months was $646 million and $2.889 billion, respectively, compared to $540 million and $1.992 billion in the prior-year periods. The increase in the provision for credit losses primarily reflected the impact of the Sears and Home Depot acquisitions. In North America, these acquisitions more than offset a decline in net credit losses and the release of general credit reserves of $160 million pretax in the 2004 third quarter and $220 million pretax in the 2004 nine-month period resulting from the improved credit environment, as well as the impact of increased levels of securitized receivables. The International Cards provision declined by 22% and 10% in the 2004 three-and nine-month periods, respectively, reflecting an improved credit environment and general credit reserve releases of $42 million pretax in the 2004 third quarter and $51 million pretax in the 2004 nine-month period.

        The securitization of credit card receivables is limited to the CitiCards business within North America. At September 30, 2004, securitized credit card receivables were $79.9 billion, compared to $73.6 billion at September 30, 2003. Credit card receivables held-for-sale were $7.5 billion at September 30, 2004 compared to $3.0 billion a year ago.

        Securitization changes Citicorp's role from that of a lender to that of a loan servicer, as receivables are derecognized from the balance sheet but continue to be serviced by Citicorp. As a result, securitization affects the amount of revenue and the manner in which revenue and the provision for credit losses are recorded with respect to securitized receivables.

        A gain is recorded at the time receivables are securitized, representing the difference between the carrying value of the receivables removed from the balance sheet and the fair value of the proceeds received and interests retained. Interests retained from securitization transactions include interest-only strips, which represent the present value of estimated excess cash flows associated with securitized receivables (including estimated credit losses). Collections of these excess cash flows are recorded as commission and fees revenue (for servicing fees) or other revenue. For loans not securitized these excess cash flows would otherwise be reported as gross amounts of net interest revenue, commission and fees revenue and credit losses.

        In addition to interest-only strip assets, Citigroup may retain one or more tranches of certificates issued in securitization transactions, provide escrow cash accounts or subordinate certain principal receivables to collateralize the securitization interests sold to third parties. However, Citicorp's exposure to credit losses on securitized receivables is limited to the amount of the interests retained and collateral provided.

        Including securitized receivables and receivables held-for-sale, managed net credit losses in the 2004 third quarter were $2.142 billion, with a related loss ratio of 5.50%, compared to $2.373 billion and 6.27% in the 2004 second quarter, and $1.789 billion and 5.62% in the 2003 third quarter. In North America, the 2004 third quarter net credit loss ratio of 5.66% declined from 6.61% in the 2004 second quarter and 5.77% from the 2003 third quarter, reflecting an improved credit environment, offset by the addition of the Sears portfolio, which impacted both the bankcard and private label portfolios in North America. In International Cards, the 2004 third quarter net credit loss ratio of 4.09% increased from 3.25% in the 2004 second quarter, but declined from 4.27% in the 2003 third quarter. The increase from the 2004 second quarter reflected the acquisition of KorAm. Citigroup reserved against a certain non-strategic portfolio of KorAm at the time of acquisition, and releases reserves against credit losses as such losses are incurred. This treatment of the non-strategic portfolio increases the net credit loss ratio, but has minimal impact on the total provision for credit losses. The decrease in the ratio versus the 2003 third quarter primarily reflects the improved credit environment offset by the impact of KorAm.

        Loans delinquent 90 days or more on a managed basis were $2.842 billion or 1.81% of loans at September 30, 2004, compared to $2.808 billion or 1.82% at June 30, 2004 and $2.353 billion or 1.83% at September 30, 2003. The net impact of acquisitions was more than offset by the improved credit environment in driving the declines in the ratio versus both the prior year and the prior quarter.

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Consumer Finance

        Consumer Finance reported net income of $643 million and $1.804 billion in the 2004 third quarter and nine months, respectively, up $167 million or 35% and $304 million or 20% from the comparable 2003 periods, principally reflecting continued growth in North America, including the acquisition of WMF, and continued strong international growth in Latin America and Asia. A decline in EMEA in the 2004 third quarter from the 2003 period was mainly due to the expansion of 58 new offices in 6 countries—Italy, Poland, Spain, UK, Romania and Slovakia. Japan, which increased income in the 2004 third quarter due to lower credit losses, declined in the 2004 nine-month period from 2003 due to lower personal loan and real-estate revenues, and the absence of a $94 million prior-year tax reserve release related to a settlement with tax authorities, offset by improved net credit losses and lower expenses.

        As shown in the preceding table, average loans grew $9.1 billion or 10% compared to the 2003 third quarter, primarily reflecting growth in North America of $8.5 billion or 12%. North American growth reflected the addition of WMF, which contributed $3.5 billion in average loans, and growth in all products, but primarily real estate-secured and auto loans. Growth of $0.6 billion or 3% in the International markets was mainly driven by growth in real estate-secured and personal loans in both EMEA and Asia, and included the impact of strengthening currencies, partially offset by a decline in EMEA auto loans. In Japan, average loans in the 2004 third quarter and nine-month periods declined 8% and 6%, respectively, from the comparable 2003 periods, as the benefit of foreign currency translation was more than offset by the impact of higher pay-downs, reduced loan demand, and tighter underwriting standards.

        As shown in the following table, the average net interest margin of 9.68% in the 2004 third quarter decreased 34 basis points from the 2003 third quarter, primarily reflecting spread compression in North America, where the average net interest margin declined 36 basis points. The decline in North America primarily represented a one-time increase in cost of funds related to the repositioning of debt, which decreased the average net interest margin in the 2004 third quarter by 30 basis points. Additionally, lower yields in North America reflected the continued shift to higher-quality credits, particularly in the real estate-secured and auto loan business. The average net interest margin for International Consumer Finance was 16.02% in the 2004 third quarter, increasing 25 basis points from the prior-year quarter, primarily driven by the impact of recording adjustments and refunds of interest in Japan, all in net credit losses, beginning in the 2004 third quarter, which positively impacted the International net interest margin by 49 basis points. Excluding this impact, the International net interest margin declined 24 basis points from the 2003 third quarter, primarily due to lower yields and a higher cost of funds in EMEA.

        Revenues, net of interest expense, of $2.631 billion and $7.996 billion in the 2004 third quarter and nine months, respectively, increased $118 million or 5% and $471 million or 6% from the prior-year periods. Revenue in North America increased $86 million or

16

5% and $467 million or 9% from the 2003 third quarter and nine-month period, respectively, primarily driven by the acquisition of WMF and growth in receivables, partially offset by declines in insurance-related revenue and the impact of a one-time increase in cost of funds by $66 million related to the repositioning of intercompany debt (offset in treasury earnings in Corporate Other). Revenue in International Consumer Finance increased $32 million or 4% from the 2003 third quarter, mainly due to growth in Asia and the impact of foreign currency translation, partially offset by a decline in Japan due to lower volumes. International Consumer Finance revenue for the 2004 nine-month period was essentially flat to the prior year as declines in Japan due to lower volumes and spreads were offset by growth in Asia and EMEA, including the impact of foreign currency translation.

        Operating expenses of $853 million and $2.649 billion in the 2004 third quarter and nine months, respectively, decreased $14 million or 2% from the 2003 third quarter, but increased $82 million or 3% from the 2003 nine-month periods, respectively. Operating expenses in North America decreased $11 million or 2% from the 2003 third quarter, but increased $63 million or 4% from the 2003 nine-month period. The increase in the nine-month period primarily reflects the WMF acquisition. Included in the 2004 third quarter expenses was a change in estimate related to the WMF portfolio of $22 million. Internationally, expenses decreased $3 million or 1% from the 2003 third quarter, but increased $19 million or 2% from the 2003 nine-month period. The low level of expense growth produced through prior-year repositioning in Japan was slightly offset by the impact of foreign currency translation, volume growth, and branch expansion in Asia (primarily India) and EMEA.

        The provisions for benefits, claims, and credit losses were $786 million in the 2004 third quarter, down from $894 million in the 2004 second quarter and $925 million in the 2003 third quarter, as lower credit losses in Japan due to lower bankruptcies, improved credit conditions in the U.S., and credit reserve releases of $69 million pretax in the 2004 third quarter and $74 million pretax in the 2004 nine-month period were partially offset by the impact of the WMF acquisition and the impact of recording adjustments and refunds of interest in Japan, all in net credit losses, beginning in the 2004 third quarter. Net credit losses and the related loss ratio were $832 million and 3.31% in the 2004 third quarter, compared to $857 million and 3.52% in the 2004 second quarter and $898 million and 3.92% in the 2003 third quarter. In North America, the net credit loss ratio of 2.46% in the 2004 third quarter was down from 2.69% in the 2004 second quarter and 2.93% in the 2003 third quarter, reflecting improvements in the real estate, auto and personal loan businesses, partially offset by the impact of WMF. The net credit loss ratio for International Consumer Finance was 6.52% in the 2004 third quarter, down from 6.57% in the 2004 second quarter and 7.34% in the 2003 third quarter. The decrease from the prior quarter primarily represents improvements in personal loans and real estate, partially offset by the impact in Japan related to adjustments and refunds of interest. The decrease from the 2003 third quarter primarily reflects improved conditions in Japan, where lower bankruptcy losses were partially offset by the impact related to adjustments and refunds of interest.

        Loans delinquent 90 days or more were $1.938 billion or 1.91% of loans at September 30, 2004, compared to $1.948 billion or 1.96% at June 30, 2004 and $2.127 billion or 2.30% a year ago. The decrease in the delinquency ratio versus the prior quarter was mainly due to improvements in Japan, while the decrease versus the prior-year quarter primarily relates to North America and Japan.

Retail Banking

        Retail Banking reported net income of $1.089 billion and $3.099 billion in the 2004 third quarter and nine months, respectively, up $160 million or 17% and $501 million or 19% from the 2003 periods. The increase in Retail Banking was driven by growth in North America Retail Banking of $128 million or 23% and $237 million or 14% in the 2004 third quarter and nine months, respectively, primarily due to credit improvements in CitiCapital. Net income in International Retail Banking increased $32 million or 9% and $264 million or 29% in the 2004 third quarter and nine months, respectively, primarily reflecting growth in Asia including the impact of KorAm, and growth in Japan. The nine-month period comparison additionally reflected growth in EMEA.

17

(1)

The Bank Deposit Program balances are generated from the Citigroup Smith Barney channel and the funds are managed by Citibanking North America.

        As shown in the preceding table, Retail Banking grew average customer deposits and average loans compared to 2003. Average customer deposit growth in North America primarily reflected increases in both higher-margin demand and money market accounts, 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, 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 at the end of the 2003 third quarter. In the international markets, average customer deposits grew 21% from the prior-year quarter driven by growth in Asia, EMEA and Japan and the impact of foreign currency translation. The growth in Asia included the impact of the KorAm acquisition, which added $9.7 billion in average customer deposits, while the growth in EMEA was primarily in Germany. International Retail Banking average loans increased 41% from the prior-year quarter due to growth in Asia and EMEA, and included the impact of the KorAm acquisition, which added $11.7 billion, and foreign currency translation. Growth in average loans was impacted by a decline in Latin America, largely reflecting the impact of strategic repositioning in the area.

        As shown in the following table, revenues, net of interest expense, of $3.972 billion and $11.512 billion in the 2004 third quarter and nine months, respectively, increased $396 million or 11% and $889 million or 8% from the 2003 periods. Revenues in North America increased $200 million or 9% compared to the prior-year quarter and $164 million or 2% in the nine-month comparison, primarily reflecting increased results in Mexico, CitiCapital and Citibanking North America, partially offset by a decline in Consumer Assets. In Mexico, revenues increased due to the absence of a prior-year $85 million write-down of the Fobaproa investment security and higher deposit and loan revenues, partially offset by the negative impact of foreign currency translation. The increase in CitiCapital primarily resulted from the reclassification of operating leases from loans to other assets and the related operating lease depreciation expense from revenue to expense. This reclassification increased both revenues and expenses by $137 million pretax in the 2004 third quarter and $272 million pretax in the 2004 nine-month period, and was partially offset by the impact of lower loan volumes. The increase in Citibanking North America was driven by higher deposit and loan volumes, partially offset by lower net funding spreads. The decline in Consumer Assets resulted primarily from lower securitization revenues due to spread compression and lower origination volumes, and the impact of losses on mortgage servicing hedge ineffectiveness resulting from the volatile rate environment, partially offset by the impact of the PRMI acquisition and a higher net interest margin.

        International Retail Banking revenues increased $196 million or 15% and $725 million or 20% in the 2004 third quarter and nine-month period, respectively, reflecting growth in Asia and EMEA and the impact of strengthening currencies. Revenue increases in Asia were primarily due to the KorAm acquisition, increased investment product sales, growth in branch lending and deposits, and favorable foreign currency translation. Growth in EMEA was driven by the impact of favorable foreign currency translation, improved investment product sales and growth in deposits, mainly in Germany.

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        Operating expenses in the 2004 third quarter and nine months increased $279 million or 14% and $632 million or 10%, respectively, from the comparable 2003 periods. In North America, expenses grew $176 million or 13% and $367 million or 9% from the 2003 third quarter and nine months, respectively. The increase primarily reflected the impact of the operating lease reclassification in CitiCapital of $137 million and $272 million in the 2004 third quarter and nine months, respectively, higher volume-related expenses and increased investment spending in technology projects in Citibanking North America, higher legal and staff-related costs in Mexico, and the impact of the PRMI acquisition. International Retail Banking operating expenses increased $103 million or 15% and $265 million or 13% from the 2003 third quarter and nine months, respectively, mainly reflecting the addition of KorAm, the impact of foreign currency translation, and increased investment spending in branch expansion, technology, and advertising and marketing, partially offset in the nine-month comparison by the absence of prior-year repositioning costs in Latin America and EMEA.

        The provisions for benefits, claims, and credit losses were $32 million and $291 million in the 2004 third quarter and nine months, respectively, down $87 million or 73% and $411 million or 59% from the comparable periods in 2003. The decline in the 2004 third quarter primarily reflected general credit reserve releases of $165 million, which were net of a $66 million credit reserve build in Germany, and lower credit losses in CitiCapital and Citibanking North America, partially offset by the absence of a prior-year $64 million credit recovery in Mexico and higher credit losses in EMEA due to Germany. The decline in the provisions for benefits, claims and credit losses in the nine-month comparison was additionally impacted by the 2004 second quarter general credit reserve release of $117 million. Net credit losses (excluding Commercial Markets) were $176 million and the related loss ratio was 0.47% in the 2004 third quarter, compared to $176 million and 0.51% in the 2004 second quarter and $210 million and 0.72% in the 2003 third quarter. The decrease in the net credit loss ratio from the 2003 third quarter was primarily due to the absence of an $87 million write-down of an Argentina compensation note in the prior year (which was written down against previously established reserves) and improved credit losses in Citibanking North America, partially offset by higher credit losses in Germany and Mexico. Commercial Markets net credit losses were $43 million and the related loss ratio was 0.43% in the 2004 third quarter, compared to $31 million and 0.31% in the 2004 second quarter and $50 million and 0.47% in the 2003 third quarter. The increase in the loss ratio from the 2004 second quarter was primarily due to increases in CitiCapital, Citibanking North America and Mexico, while the improvement in the loss ratio from the 2003 third quarter resulted from improvements in CitiCapital and Citibanking North America, offset by the absence of a prior-year recovery in Mexico.

        Loans delinquent 90 days or more (excluding Commercial Markets) were $3.907 billion or 2.53% of loans at September 30, 2004, compared to $3.576 billion or 2.46% at June 30, 2004, and $3.707 billion or 3.19% a year ago. The increase in delinquent loans compared to a year ago resulted from increases in Consumer Assets, reflecting the impact of a GNMA portfolio that was purchased in the PRMI acquisition, and increases in Germany including the impact of foreign currency translation. These increases were partially offset by improvements in Asia, Latin America and Mexico. The increase in delinquent loans from the 2004 second quarter related to the GNMA portfolio in PRMI, offset by improvements in all other regions.

        Cash-basis loans in Commercial Markets were $1.000 billion or 2.55% of loans at September 30, 2004, $1.173 billion or 2.96% at June 30, 2004, and $1.283 billion or 3.17% at September 30, 2003. Cash-basis loans improved from the prior quarter primarily due to broad-based declines in all products and regions, led by CitiCapital, where the business continues to work through the liquidation of non-core portfolios. Compared to a year ago, the decline in cash-basis loans was driven by improvement in all products and regions except Mexico, led by CitiCapital.

        Average assets of $265 billion and $248 billion in the 2004 third quarter and nine months, respectively, increased $40 billion and $26 billion from the comparable periods of 2003. The increase in average assets primarily reflected the impact of the KorAm acquisition and growth in mortgages, partially offset by a reduction in CitiCapital due to the liquidation of non-core portfolios.

19

Other Consumer

        Other Consumer—which includes certain treasury and other unallocated staff functions, global marketing and other programs—reported a loss of $62 million in the 2004 third quarter and income of $148 million in the 2004 nine months, compared to losses of $30 million and $101 million in the comparable 2003 periods. The increase in income of $249 million in the 2004 nine months was primarily due to a $378 million after-tax gain related to the sale of Samba in the 2004 second quarter. Excluding the Samba gain, the decrease in income in both the 2004 third quarter and nine-month period was due to lower treasury results, including the impact of higher capital funding costs, and an increase in staff-related expenses and advertising and marketing costs.

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GLOBAL CORPORATE AND INVESTMENT BANK

NM    Not meaningful

        GCIB reported net income of $973 million and $2.869 billion in the 2004 third quarter and nine months, up $51 million or 6% and $180 million or 7% from the 2003 third quarter and nine months, respectively. The 2004 third quarter reflects an increase of $89 million or 45% in Transaction Services, offset by a decrease of $38 million or 5% in Capital Markets and Banking. The 2004 nine months reflects an increase of $213 million or 38% in Transaction Services, offset by a decrease of $33 million or 2% in Capital Markets and Banking.

        Capital Markets and Banking net income of $688 million and $2.089 billion in the 2004 third quarter and nine months, respectively, decreased $38 million or 5% from the 2003 third quarter and $33 million or 2% from the 2003 nine months. The decrease in the 2004 third quarter is primarily due to decreases in Fixed Income Markets and Equity Markets revenues as well as higher legal reserves and increased investment spending, partially offset by a lower provision for credit losses reflecting improved credit trends and higher Lending revenue due to the impact of the KorAm acquisition. The decrease in the 2004 nine months primarily reflects the approximately $850 million (after-tax) Litigation Reserve Charge, partially offset by a lower provision for credit losses and higher Lending and Equity Markets revenues.

        Transaction Services net income of $285 million and $780 million in the 2004 third quarter and nine months increased $89 million or 45% from the 2003 third quarter and $213 million or 38% from the 2003 nine months, respectively. The increases in net income in 2004 were primarily due to lower provision for credit losses, higher revenue reflecting growth in assets under custody and liability balances, and improved spreads, partially offset by 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.

21

Capital Markets and Banking

NM    Not meaningful

        Capital Markets and Banking reported net income of $688 million and $2.089 billion in the 2004 third quarter and nine months, respectively, a decrease of $38 million or 5% from the 2003 third quarter and $33 million or 2% from the 2003 nine months. The decrease in the 2004 third quarter is primarily due to decreases in Fixed Income Markets and Equity Markets revenues as well as higher expenses due to a $100 million increase in legal reserves and increased investment spending, partially offset by a lower provision for credit losses reflecting improved credit trends and higher Lending revenue due to the impact of the KorAm acquisition. The decrease in the 2004 nine months primarily reflects the approximately $850 million (after-tax) Litigation Reserve Charge, partially offset by a lower provision for credit losses and higher Lending and Equity Markets revenues.

        Revenues, net of interest expense, of $1.505 billion and $6.160 billion in the 2004 third quarter and nine months decreased $299 million or 17% from the 2003 third quarter and increased $439 million or 8% from the 2003 nine months, respectively. The revenue decrease in the 2004 third quarter was driven by declines in Fixed Income and Equity Markets, partially offset by increases in Lending. Fixed Income Markets decreased primarily due to weaker trading results as a result of declining interest rates and lower client activity, partially offset by higher commodity revenues. The Equity Markets decline primarily reflects decreases in convertible and derivative volumes as rising interest rates and widening spreads reduced market activity. Lending revenues increased primarily reflecting the acquisition of KorAm.

        The increase in revenues in the 2004 nine months was primarily driven by increases in Lending and Equity Markets. Lending increased primarily reflecting the absence of prior-year losses in credit derivatives (which serve as an economic hedge for the loan portfolio) and the acquisition of KorAm. The Equity Markets increase is primarily due to higher derivatives trading activity, partially offset by declines in convertibles.

        Operating expenses of $890 million and $3.870 billion in the 2004 third quarter and nine months, respectively, increased $151 million or 20% from the 2003 third quarter and $1.470 billion or 61% from the 2003 nine months primarily reflecting the $1.4 billion Litigation Reserve Charge, the acquisition of KorAm, and increased investment spending on strategic growth initiatives, partially offset by lower compensation and benefits expense (primarily reflecting a lower incentive compensation accrual).

        The provision for credit losses was ($335) million in the 2004 third quarter and ($637) million in the 2004 nine months, down $410 million and $1.105 billion, respectively, from the 2003 periods primarily due to general loan loss reserve releases as a result of improving credit quality, and lower credit losses in the power and energy industry, Argentina and Brazil. The 2004 third quarter included the release of $202 million in general loan loss reserves, which consisted of releases of $118 million in Mexico, $71 million in Latin America, $11 million in Japan and $2 million in EMEA.

        Cash-basis loans were $2.145 billion at September 30, 2004, compared to $2.496 billion at June 30, 2004, $3.246 billion at December 31, 2003, and $3.571 billion at September 30, 2003. Cash-basis loans net of write-offs decreased $1.426 billion from September 30, 2003, primarily due to decreases related 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, Australia, Hong Kong, and New Zealand, partially offset by increases in Korea reflecting the acquisition of KorAm. Cash-basis loans decreased $351 million from June 30, 2004, primarily due to charge-offs taken against reserves and paydowns from borrowers in the power and energy industry, Argentina, Thailand and Mexico, partially offset by an increase in Russia.

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Transaction Services