Text

Citicorp Repts 1986
	ML20212F569
Person / Time
Site:	Perry
Issue date:	12/31/1986
From:	Jeffrey Reed; CITIBANK, N.A.
To:	;
Shared Package
ML20212F471	List: ML20212F465; ML20212F541; ML20212F569; ML20212F602; ML20212F637; ML20212F660; ML20212F681; ML20212F707; ML20212F741;
References
	NUDOCS 8703050116
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IN W IONS OF DOL L ARS EXCEPT PER SHARE AMOUNTS NETINCOME RESULTS neonmAns in 1986, earnings per share were flat compared with U50 the prior year.

19ss 1985 Earnings Per Share (Fully Dluted)

$ 7.13

$ 7.11

88 g

Net Income.

1,058 998 Retum on Common Stockholders' Equity 13.8%

15.1 %

gg SECTOR EARNINGS o

Sector earnings rose _14% in 1986.

1986 awn 850 Eamings of Core Businesses including the Information Business (Not including items retained at the corporate level)

$1,300

$1,143 5) 72s g t) Resratea we+tr wganaarenat changes COMMON DIVIDENDS The annual dividend rate on common stock increased 9% from 1985.

1986 1985 531 Cash Dvidends Declared

$ 250

$ 290 450 Annual Dvidend Rate Per Share, at Year End.

2.46 2.26 WI 982 1983 1984 1985 1s36 CAPITAL EARNINGS AND DIVIDENDS Total and primary capitalincreased 35% and 24%,

PER SHARE respectively, from a year ago.

1986 1985 55 i!EARNINGSPERsHARE TotalCapital

$ 21,531 $ 15,948 unus ANNUAL DMDEND RATE PER SHATE ATYEAR END Percentage of Total Assets.

10.88 %

9.12%

Pnmary Capital

$ 13,490 $ 10,892 8

Percentage of Total Assets.

6.82 %

6.23 %

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7.13 f-O]g s.se YEAR.END BALANCES s.1s 6

Total assets rose 13% from 1985, primarily s.ss g_ -

r18ecting growth in the consu_mer loan portfolio.

1986 1985 4.02 /

Total Assets

$196,124 $173.597 4

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Commercial Loans, Net of Unearned Dscount 59,439 58,172 E

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,t, Consumer Loans, Net of Unearned Dscount.

68,243 55,518 2

-1 TotalDeposits.

114,689 104,959 l

Total Stockholders' Equity 9,060 7,765 0

Common Stockholders' Equity Per Share 55.92 50.63 1981 1982 1983 1984 1985 1986 l

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j the year well and have made good progress, something that augurs well for the future but which is only partially reflected in this year's results.

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During 1986, Citicorp earned $7.13 per share and a return on equity of 13.8%; this represents flat year to year performance on an earnings per share basis and a drop in our return on equity.

During the year, the annual dividend rate on your common stock was increased by 9% from $2.26 a share to $2.46 per share, reflecting our continued confidence in the underlying business i

etrength of our activities. On December 31, Citicorp common stock was traded at $53.00 per

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share, up from $49.38 last year.

Sector earnings, which are the best description of our basic business performance, increased by 14% to $1.3 billion.This represents a return of 17.7% on your equity and reflects the underlying earnings characteristic of our portfolio of businesses.1mportantly, these Sector earnings continue to be well diversified by geography, customer and product.

As has been indicated in prior reports, we continued to strengthen our liquidity, capital and reserve position during the year. This effort accounts for the differences between not income cnd Sector earnings growth. Our total capital now stands at $21.5 billion. Our total reserves are

$1.7 billion, up 37% year over year, including an increase to $1 billion at the Corporate level, to

$357 million in the Institutional Bank and $341 million in the Individual Bank. We believe that it is important to strengthen your Company's balance sheet and anticipate that we will continue to do so during 1987.

Some of the many cross currents affecting our business include a relatively hostile credit environment, continuing difficulties associated with sovereign exposure, extremely encouraging 2

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.y-s x From lett to rght: Paul J. Colkns. James Q Farley. Rchard S Braddock. John S. Reed. Thomas C Theobald. Lawrence M. Small. Hans H. Angermueller and satisfactory progress in the consumer business, the need for substantial restructuring i

of our traditional corporate business, the major effort associated with building important trading l

and distribution capabilities for financial instruments in many markets and the continued rsality that your Company is faced with many attractive opportunities and promising business l

dsvelopments even while we are restructuring and building balance sheet strength.

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As is reported in the following pages, Citicorp's Individual banking business emerged in many

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important ways during 1986. The business continues to grow and the level of service continues to improve, as does our franchise with our millions of customers around the world. Not only is the I

i business doing well on a current basis, but we believe that we have investments in places today i

which insure its continued development over the next five to seven years. There is little doubt i

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cnd will add important strength, and predictability, to our results in the years ahead. We also continue to make new consumer investments which we feel are quite attractive and will insure the longer term development of the business.

Our commitment to the Institutional customer has been at the cultural core of Citicorp and its i

predecessors since 1812. Today, in the highly developed economies and in an " innovative capital j

market" environment our Institutional customers have substantially changed their demands on us. This, in turn, necessitates a substantial reorganization of the distribution and professional capabilities through which we serve our Institutional customers. There are inany elements in j

i this transition. We are restructuring our business so as to more oQectively call on our customers.

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This has led to a substantial redeployment and reduction in staff which will continue. We are also doing a tremendous amount of training to be sure that our calling officers can maintain the high level of energy, professionalism and skill which has always characterized Citicorp employees.

l Because customers demand access to capital markets we are, through our investment bankmg l

organization, building a global trading and distribution capability in approximately 50 markets l

cround the world.We have over the years been major traders of foreign exchange, U.S. Government

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securities and short-term money market instruments.We are adding to this capability and now are ctarting to trade virtually all financial instruments. In order to be effective in the capital markets, we must also distribute securities. In essence, we are restoring an old capability; that of having j

o preeminent capability to distribute financial instruments to investors in all relevant markets.

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The process of restructuring the business, of retraining our calling officers, and building l

o trading and distribution business is complicated and will undoubtedly take years. Yet, at the end I

cf 1986, we have made good progress. Our corporate calling structure has been substantially i

altered and this change should be completed during 1987. New training programs are coming on stream. We have a trading and distribution presence in virtually every important money center and capital market around the world and can already see the emergence of new business capabilities. Most importantly, we have a good sense of how we will evolve and are, even today, l

making important progress in serving our customers worldwide.

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Results of the Institutional and l

following pages. While in financial terms these results reflect high credit write-offs, the impact of the business restructuring underway and the cost of building our trading and distribution business, all of which represent significant expenses, those businesses continue to account for the bulk of your Corporation's earnings and provide a good return on your equity.

As we mentioned last year, we are living in a global economy which continues to reflect change

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cnd tension. Our commercial write-offs, as in 1985, are high and we would expect this to be i

l true for the next few years. We continue to feel confident that our portfolio is strong and that the j

process of managing credit is excellent. The write-offs tend to reflect harsh business realities that impact our customers as their businesses change.

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During 1986, we probably lost some ground in the sovereign debt situation as certain countries I

tuffered difficulties. However, the Baker initiative, which anticipates growth oriented policies, j

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ctructural adjustment on the part of the borrowing nations and new bank support is very much a reality. But there has been a tendency for borrowers to look for concessional lending, as opposed i

to market-oriented financing, as an element of their growth plans. On balance, our impression is that the borrowing countries have done quite wellin starting to restructure their economies and indeed are back on growth trajectories. On the other hand, we feel that concessional lending contains within it the seeds for longer term and fundamental problems for both the borrowers and

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lenders and is causing visible strain within the banking system.There has been much effort to return bank lending packages to a market related profile, but without clear success. We believe that in conjunction with the other elements of the Baker initiative, appropriately tailored lending can play a key role in supporting structural adjustment and easing the debt burden itself.

I in that sense, the bank lending should be structured so as to facilitate a return to markets, so cs to directly support the private sector initiatives that are central to the structural adjustment I

within each country and, most importantly, so as to insure continued long-term access to cdditional support.

n view of the changes taking place in the global economy, we continue to believe it is impor-l tant to strengthen reserves and the balance sheet. We maintain credit or loan loss reserves within each Sector at levels we consider to be appropriate for managing our businesses, but we are incrementing these at the corporate level. The corporate reserve is primarily necessi-tated by the changes taking place in the global business system and the sovereign risk portfolio.

Risk assessment in the consumer business benefits from the small transaction size and high predictability of loss by product and by market. As was mentioned earlier, the corporate reserve ctands at $1 billion today. We expect to continue to build this reserve over the immediate future.

6

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I During 1986, the Company lost the services of two long-term and able Directors: Jack Harbin and f

Amory Houghton, Jr., and added one new Director, Frank Shrontz. Mr. Harbin retired after

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estving on the Board for ten years. Jack, who was Chairman of Halliburton Co., brought his great l

l energy and sharp mind to bear on Citicorp's business to the great benefit of us all. Mr. Houghton, r

I after following his father onto our Board in 1968, resigned at the end of the year after having been

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elected to represent his Upstate New York District in the United States House of Representatives.

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We are all proud of Amo and wish him well. Both Jack and Amo have served your Company with l

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distinction and dedication and we will miss them. We were fortunate to gain the services of Frank Chrontz, President and CEO of the Boeing Company, who joined the Board in April. Frank has

&lready become one of us and we are delighted to welcome him to Citicorp.

l l

The strength of your Company relates ultimately to two factors: customers and employees. The i

i balance sheet of a financialinstitution simply reflects the financial health of our customers.

Cver the years, we have developed a strong and impressive group of customers and we continue to j

believe that doing business with these customers is the source of our own business success.

At the same time we know, and our customers tell us, that they are impressed with the profession-Elism, confidence, energy level and integrity of our staff. We continue to believe that the 88,500 Citicorpers who work for you around the world are uniquely talented, enthusiastic and 5

capable.They do and will ensure that your Company will continue as one of the world's great Cnancial enterprises.

i e

JOHN S. REED 1

1 7

C O

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To Citicorp investors 2 Serving Our Customers 9 l

ServingIndividual Customers 10 Serving InstitutionalCustomers 14 internationalFinancing 20 Risk Management 28 l

Senior Management 36 Financiallnformationindex 39 Citicorpin Brief 40 Summary of Financial Results 46 Ctatement ofincome Analysis 47 Financial Reporting Responsibility 51 Report ofIndependent Auditors 51 Financial Statements 52 Ctatement of Accounting Policies 57 Notes to FinancialStatements 59 Form 10-K Cross-Reference Index 74 Citicorp and Citibank Senior Management 82 Citicorp and Citibank Directors 85 Boards of Directors' Committees 86 l

Ctockholderinformation 88 Service Excellence Award 89 8

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O n the next two sections we report on how we are serving our customers. We serve both individuals and institutions in marketplaces throughout the United States and in 91 countries around the world. As these financial l

marketplaces are evolving at an increasing pace, we see the needs of our customers changing rapidly Citicorp is committed to meeting these changing needs by continuing to offer innovative products and excellent service. To supplement the products that are provided to customers from our present core business entities (which are described in the next two sections), we took an important step towards our goal of developing a range of significant information-based products. In June, we acquired Quotron, one of the world's largest suppliers of on-line, real-time financial information services. We are confident that Quotron and our other information-based businesses will play an increasingly important role in meeting the future needs of our customers.

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S E R V I N G l

N D 1 V l D U A L C U S T O M E R S i.h

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C T he Individual Bank is entering its seco the District of Columbia, Nevada, and Utah. Over the next four continued dedication to meeting the broadest range years, the barriers limiting our banking business will drop in of consumers' financia! needs around the world.

11 more states.

Significantly the Individual Bank is larger today than All of this augurs well for building new relationships and Citicorp was at the time of the original commitment deepening existing ones. Already we serve 175 million households to developing this business. In 1986, reported Sector earnings in the United States and another 6.7 million overseas. In the U.S.

were more than the not income of all but two United States based we continue to be the largest issuer of bank credit cards, the largest banks in their entirety We now do business in 41 countries private lender for student loans ($17 billion), and the largest around the world.

originator ($13 billion) and servicer ($36 billion) of mortgages.

While our efforts are sometimes limited by regulatory restraints Size counts, but not as much as quality We take pnde in being in the United States and the 40 other countries in which we operate, the largest in these categones and others. However, our goal is to l

we have made great stndes. In the years ahead we will continue to be viewed by our customers as first in providing quality of service push for powers that will allow us to meet consumers' total financial and value, for these will be the ultimate reasons consumers choose service needs, whether in banking, investment, or insurance Citicorp /Citibank services. The market, in fact, belongs to our services.

customers, and,ve must earn their respect and business each day Our results at the end of 1986 contrasted sharply with those in order to ensure that our customers receive quality service earlier in our development. Our first years resulted in net losses as everywhere, we have been developing a more synergistic approach we strove to establish ourselves; in 1986 we earned $462 million.

across all our efforts. In addition to creating a common identity rec-From 1985 to 1986 alone our earnings increased by 41%. In 1976, ognizable to our customers, a synergistic approach gives us cur first full year, our assets were $4.4 billion and our customer net economic efficiencies, particularly in research and marketing, revenue was $583 million; in 1986 we had $71 bilicn in average and dramatically enhances our ablity to quickly offer appealing assets and generated $5.6 bilion in customer net revenue innovative services to our customers in widespread Our performance is solid as we enter our second decade, but geographic markets.

we are still young with great potential ahead of us. We believe we omestically where our businesses have developed are well positioned for steady growth into the 1990s and beyond.

more rapidly our branch based businesses have We have averaged earnings increases of almost $100 million made significant headway in capitalizing on services each year since we became profitable in 1982. And our revenue developed first for our most mature market in momentum, the backbone of our earnings strength, remains New York and adapting them to newer markets such substantial with 1986 customer net revenue up 35%, or $t5 bilion as Anzona and lilinois. These include our unique 24-hour over 19851evels. Over the last five years, our revenue has grown electronic banking centers and products such as Citi-One, a pack-at a compounded rate of 30%.

aged account of checking, savings, investment and credit ser-Some in the consumer financial services business believe vices; the Landmark Family of Mutual Funds; and the Equity Source the market is saturated; that each player has carved out a niche Account, a revolving home equity loan. As our overseas branch that only can grow in limited amounts. We believe the opposite distnbut on develops further, the most appropnate of these same and despite our substantial progress to date still have relatively services will be adaptable to local markets. Similarly we are taking small shares from which to grow further.

services developed for local overseas markets-such as Citifunds, Covering the breadth of the market in both services and a multiproduct money management account first offered in Hong customers allows our growth to be limited only by our imagination-Kong-and, where appropnate and permissible under current reg-and regulators, who ever so slowly are yielding to the reality of ulatons, adapting them to both intemational and U.S. markets.

a global consumer financial marketplace. Consumers will settie This activity complements and supports our basic domestic for nothing less. In the US alone in 1986 we opened our doors strategy which is developing along two related paths: the expan-for full-service banking in five new markets-Maryland, Anzona, sion of individual products which can be offered nationally with or without a banking presence, such as mortgages and credit cards, and the selective establishment of branches in key markets to act l

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Davd E. Gbson, IraS Rimerman.

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t as the delivery mechanism for a full array of financial services, Providing mortgages to consumers across the US. has been an including being the local interface for products developed as integral part of our strategy throughout the Individual Bank's national offenngs.

existence. Today we are a major factor in the nationwide mortgage With the five new full banking markets opened in 1986, we have business, originating some $13 bilion in the past year, through a broad physical banking presence in nine states and the Distnct of our banking and mortgage financing branches. This year we put Columba. We completed our announced acquisition of Great into place a more focused organization to position this business Western Bank & Trust in Arizona, giving us a 36 branch presence in for major growth in both originations and servicing, as well as the the second fastest growing state in the country in addition, we capablity to access the secondary markets.

opened Citibank Maryland and acquired National Permanent, a The deliberate branch expansion and the national mortgage 14 branch thnf t in the Distnct of Columba-the two combned business, combned with our continued strength in the card provide a unique presence in the much sought-af ter Washington-market, give us a formidable overall domestic presence, resulting Baltimore corndor. While federal legislators have not acted to in relationships with one out of five households nationally, which recognize the reality of a national marketplace, state authonties increases to one out of three in the ten largest metropolitan continue at an accelerated pace to see the benefits. With an eye markets. This penetration continues to grow at a healthy rate L

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towards enhancing our position in existing markets and expanding of about 15% per year l

into new ones, we continue to evaluate opportunities on a state-by state basis.

Our most mature branch system, New York, continued to gain market share and posted record profits which had matenal impact on our overall per formance. Steady progress in managing our onginal tbree savings and loans in California, Flonda, and lilinois was reflected in significant improvements in both earnings and market position.

11

r O ur card business, which has paced product initiatives, returns in the overall international businesses several years, continued to be a major contnbutor in remained in excess of the corporate standards.

1986. Although the growth slowed somewhat, we While not as substantial as our domestic presence, we continue made strong market share gains, saw increases in to emphasize development of a strong competitive presence in l

purchase sales and receivables, and made adjust-each of our 40 countries. We are well-positioned in Europe / Middle ments that will significantly over time, improve the quality of the East and South America with businesses in most major countries; total portfolio. Strategically, we repositioned our preferred bank however, our presence is not yet as broadly based as we think is credit cards to more clearly target those customers with higher needed in Asia / Pacific, primanly because of specifc countries' spending levels. Diners Club continued to improve its position regulatory biases against foreign-owned banks, although we are against the business travelers. At the same time, Diners reevaluated quite profitable there, too. We are targeting regulatory efforts in the long-term benefit of Signature Magazine in light of the regula-countries we deem cntical to our success at the same time we tory limitations we faced in its future development and sold it to pursue business avenues open to us.

an established publishing concern which is not encumbered by Our overseas potential is particularly tied to building market such regulations.

share in key localities. In most we have a relatively small share-We rounded out the infrastructure to support our card business much as we had in New York ten years ago-but we are quite well-with a third processing center in Hagerstown, Maryland. The others positioned in such diverse markets as Puerto Rico, Brazil, are in Sioux Falls, South Dakota and The Lakes, Nevada. This Argentina, Spain, Italy Germany Belgium, and Hong Kong.

completed a planned consohdation of all card operations into three The first full year of the strategic integration of Citicorp's world-geographic locations, resulting in important modernization and wide high net worth banking activities into the Individual Bank saw streamlining of operations and service for all cards and provided notable progress as we established a common identity throughout signifcant local employment for each location-a total of nearly our markets. We also began to reduce operational overlaps, which 3,100 jobs to date.

will result in significant efficiency improvements while we still main-ATM access for our customers grew through the installation of tained a high level of customer service. Our units in New York, proprietary terminals in key new markets such as Illinois and Zurich, and Miami, which control the bulk of our assets under Califomia and additional agreements to share with certain ATM management, strengthened their coordination to bring the full force ratworks. Today we believe we have the largest such access of our expertise to bear on customers' investment needs. Overall, for customers of any finanaalinstitution in the country We operate we showed encouraging momentum in growing the existing our own systems in eight states with nearly 1,000 machines business and expanding our product lines, in such areas as asset and participate in 11 shared networks with a total of 19,000 ATMs.

management and the packaging of multiple services, to provide Overseas access to our services through ATMs also is growing a fuller range of services to our various customer groups.

with 186 proprietary machines in 12 countries and another Although the year's overall performance was robust, we had 3,300 ATMs through seven major shared systems.

some disappointing credit pressures in a spotty even sluggish, nternationally we slowed our acquisition pace of the last economy Our loan losses continued to rise, both as a result of several years to emphasize the rapid assimilation of those overall loan growth and a shif t to more credit card receivables, businesses. However, we did undertake a few important which have an historically higher credit loss experience especially strategicinitiatives,includingacquisitionsof additional during accounts' early years. As accounts mature in the branches in Argentina to complement our existing network portfolio, credit losses fall appreciably We view this as a necessary and British National Life Assurance, which broadened our cost of building and maintaining a healthy card business over the insurance activity in the United Kingdom and can be used to long term and consider these losses well under control, although help our expansion of insurance services in other foreign countries, losses from bankruptcies continue to be a concern. The uneven and estabhshment of a bank based on new regulatory powers economy particularly affected specialized areas of our mobile in Australia. Despite these investments and wide-ranging new home business whose activity is concentrated in sections of the country experiencing a difficult recovery Our international perfor-mance on this dimension was more steady For almost all of our businesses, as well as the Individual Bank as a whole, our revenue growth has outpaced deirvery expenses, 12

c-which increased 26% to $3.4 billiort This increase supported the demands for more sophisticated and all-encompassing financial expansion of our basic businesses, as well as investments in new services. Our contribution to the Corporation is significant today -

marketing or infrastructure activities aimed at improving our com-We have a proven track record of substantial profits in the New York petitive position from both geographic and product perspec-branch system and bankcards. Each year that goal becomes more tives, not only today but, primanly through longer. term initiatives attainable for other initiatives, including the domestic national mort-bused in our Development Division, wellinto the future. Despite gage business, current permissible insurance activities, the S&Ls, tinse investments and because of our earnings momentum, we our global activities for high net worth individuals, and our activities were able to increase our ROE to 16.2%, in the process exceeding overseas. Over the next five years we believe each of these will our 20% target in such diverse businesses as our international have earnings comparable to those of the New York branches and consumer activity pnvate banking, cards, mortgage banking, and bankcards today, significantly increasing our overall contribution.

the New York branch system.

To ensure we reach that level, and beyond, we have the dedica-Putting all these developments in perspective, we are extremely tion, talent, and vitality of some 65,000 people around the world.

optimistic about the current position of the Individual Bank. Al-A decade ago the Corporation and its shareholders gave us a though our growth has been meteonc since we became profitable a mandate to build a world-class consumer business. We have four years ago, we believe our major potential continues to lie met the originai goal but we have new honzons to attain. We have abad. Today's efforts in permissible businesses are laying a foun-the strategic direction, the momentum, the resources, the dation for tomorrow's initiatives in insurance, investment, informa.

people and, above all, the commitment to build the preeminent tion, and still uncharted areas that will develop out of consumers' consumer financial services organization in the world.

EARNINGS AVERAGE BALANCE SHEET wmON3OF DrX_L Ms 1986 1985a VAR IN FML UONS OF DOLL us DECEMBER 1986*

Customer Net Revenue

$5,638

$4,180

$1,458 35 Assets Expenses:

Revolving Loans.

$15.0 Shelter Loans 33.6 Credit Cycle Expense 1,476 1,000 476 48 Student Loans 1.7 Delivery Expense 3,392 2,692 700 26 Other Loans *'

18 5 Total Expenses

$4,868

$3,692

$1,176 32 Other Assets.

11.5 Other income (Expense) 72 98 (26) (27)

$80.3 income Before Taxes 842 586 256 44 Liabilities NET INCOME,

$ 462

$ 327

$ 135 41 Transaction Account Deposits".

$10.2 Average Assets ($ Billions) 71 56 15 27 S vingsDeposits 52.2 Retum on Assets (%)

.65

.59

.06 Other (includes Allocated Equity) 17.9 Return on Equity (%)

16.2 14.7 1.5

$80.3 (1) Restated to reflect orgaruzatend changes (2) Aeragebatances & the month of December r3) Prrncrpatry includes tending to hgh net worth ondnnivals. auto loans andother onstalment tosns (4) Includes oemand doposas. and trave +1s check and money order outstandogs The sector performance summary presents Individual Banking excess of wnto-offs, traud losses, and the expense associated results in a format using terms closely related to the Individual with credit appraisal and the process of collecting past-due or Banking business. Customer net revenue embraces all net wntten-off accounts. Delivery expense includes all non-credit revenue pnmanly generated through customer relationships.

related costs of delivenng our products and services to the Credit cycle expense includes credit wnte-offs, the portion of consumer. Other income (expense) pnmanly includes interest the provision for possible credit losses allocated to the sector in costs of carrying non-customer assets, gains on sales of non-customer assets, affiliate earnings, and earnings on allocated equity 13

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k f there is one charactenstic common to today's diverse and dehvered cash management and transaction processing g complex financial marketplace. that charactenstic is change capabihties They want innovative investment banking seruces

,h Change is a force that Citicorp uses to differentiate itself in the that meet their borrowing investing, and hedging needs in j marketplace by developing innovative financial solutions increasingly global hnancial markets The'e is no reason to eyect rather than simply adapting old methods to new prot >lems tne pace of change to abate Technology and the global flow We were among the first to respond to the nerxis of the customer of information wiH continue to make markets more accessible and and go beyond traditional banking activities of deposit taking and create new opportunit y and economic volatihty will continue makinq loans But never has change been so deep and ex tens;ve to create the need for new products as in the past five years. nor has it accelerated more rapidh than in Citicorp is in a strong strategic position to satisty these new 1986 Today customers demand a broad array of : or vices to rneet customer demands Working closely together the Institutional the+r fast changing needs They want asset iriten"ediation and Bank uth its long standing relationships; with corporations trade products financial quarantees asset based f:nanc e. reat finannal institutions and gnvernments. and the investment Bank estate financing financing for restructunng. and electronicah s a rnalor par tiapant to the work 1 s capital markets are meeting the chahengo of providing excellent products to an extremeN broad cu,ttimer base throughout the Worki Citicorps institut onal c

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major government enterprises. They are to be found in almost banking, we continued to expand our g!obal capital markets every manufacturing and service industry and they are supported presence. We streamlined some traditional lines of business that i

by our offices in 92 countries.

are less in demand today particularfy in the more developed l

In 1986, our earnings from providing products to our institutional marketplaces. Additionally a number of unprofitable products were customers, and from the capital markets activities that support discontinued. The Institutional Bank's staff level was reduced them, were $872 million, an increase of $48 million, or 6%, over the 15%, a decrease of more than 3,400 people, and expenses were previous year's. These earnings represented just over two-thirds of limited to a 2% increase over 1985. To meet growing demand Citicorp's total sector earnings. Earnings from traditional corporate for the newer capital markets-oriented products, we increased our banking products were up over last year af ter absorbing the staff and expanded our facilities in the Investment Bank.

continued high level of wnte-offs. Investment banking products More and more of Citicorp's products are custom-tailored delivered to institutional customers sustained strong earnings solutions to the of ten complex problems encountered by our growth, while the camings from capital markets and other customers in today's marketplace. Generally they meet three basic investment banking activities declined, reflecting lower trading customer requirements: to raise money, to invest it, and to protect it results and rapid expense growth.

against nsk. Many of our products-such as foreign exchange and A businesses that serve them. W n acceleration in our institutional customers' demands for creative economic solutions made 1986 a year of significant change for the Citicorp banking, we redirected resources to meet a rapidly expanding demand for innovative products and a shrinking demand for the more conventional products, while in investment 15

1 interest rate options, floor and ceiling rate agreements, and other A key element in successfully providing products to customers hadging tools-are innovations of the 1980s. In fact, we have been is the global network of experienced Institutional Relationship

. a leader in innovation; it was Citicorp who developed the interest customer specialists who work closely with Investment Bank prod-rate swap and Eurocommercial paper. We also stepped up our uct specialists and have participated jointly in an extensive activity in the corporate restructuring areas, and in 1986 we par-product-training program to keep themselves at the cutting edge ticipated in over 15 of the larger financings covering more than of financialtechnology.

$20 billion. Such innovation has successfully met both customer The demands of Citicorp's customers are as diverse as the needs and Citcorp's business expansion objectives.

geographic regions they cover, but even so trends can be per-ceived. To benefit from the current trend in the United States we will Citicorp continues to offer strong asse financial guarantee, and trade products; a thriving set continue developing our capacity to originate and structure asset-of cash management and transaction processing based financings as well as expanding the broad range of invest-activities; and a growing group of specialized finance ment banking products we offer in 1986, Citicorp emerged as a products. We have redirected personnel resources clear leader in providing transaction-based services designed to and spending to further our capability of correctly valuing cus-satisf y the cash management and secunties-processing needs tomer assets and to structure and control financing against of financialinstitutions and corporate customers, and this solid those assets These capabilities are the heart of our very success-growth will continue in 1987 We also expect to remain a leader in ful asset-based lending and real estate financing businesses and the U.S. Treasury and municipal secunty markets. Our insurance key to attracting more and more of the large corporate restructuring subsidiary, AMBAC, is a leader in the financial guarantees arena.

deals that are dominating the financial services market. Our more AMBAC made a strong contnbution to eamings in 1986, and conventional lending activities, which were certainly less in we expect that to continue.

demand, remained quite profitable in 1986, even af ter absorbing n Japan, many European countries, Australia, and other

$398 million in creditlosses.

Organization for Economic Cooperation and Development We provide a full range of investment banking products, includ-(OECD) nations, we see trends developing similar to those ing debt and equity products, foreign exchange, advisory activities in the United States. In most of these countries, we lead the such as merger and acquisition services, and pension fund man-market in foreign exchange and interest rate risk manage-agement. In the area of risk protection products, Citicorp's position ment products, and enjoy strong relationships with many large is unparalleled-we have developed many of today's rate and risk multi-national companies whom we frequently assist in financing management tools.

transactions best descnbed as large, global, and complex. We also have rapidly growing transaction-processing and securities-processing businesses, partcularly in the U K. and Japan. As in the United States, our customers are developing a need for asset-driven financing services. It is not surprising our response has been to extend our market-proven, asset-based lending 16

r and real estate financing expertise to these countries in the form of be smaller in size and less complex in nature than in the OECD people and products.

countries or the major debtor natons involved in rescheduling.

Given the size of these countries' economies, the sophistication But however different the marketplaces and our approaches to of their capital markets, and the fast pace at which they are them, one element remains constant throughout the globe, and l

deregulating-charactenzed by the well-publicized changes in that is the quality of the people serving our customers. Indeed, the places like the U.K., Canada, and Japan-we are able to provide decisive element in this whole equation is, as it has always been, our customers in these countries with the broadest range of invest-people. In the rapidly evolving financial marketplaces where ment banking products. This contrasts with the United States mar-customer requirements are changing at an unprecedented speed, ketplace where the Glass-Steagall Act prevents us from competing we need to attract, train, motivate, and retain the very best talent fuity by barring us irorn underwnting corporate debt and equity not just to keep pace but to excel. This is an increasingly complex commercial paper, private mortgage-backed secunties, and most and sophisticated requirement of our business, and we view it municipal revenue bonds. While in 1985 this excluded us from as our number-one prionty j

underwnting in only about 4% of the U.S. securities market, we still The delivery of our vast array of products to customers in many believe that today's financial marketplace and customer needs markets around the world requires strong distnbut:on-a broad demand a dismantling of the half century-old Glass-Steagall Act.

investor base. Building this base remains the key element in Citicorp's investment banking strategy it provides the placing T he developing countries involved in the turing process present problems unlike those in the power essential for effective origination as well as depth and United Stwes or the other major financial markets.

liquidity essential to trading activity In 1986, we distnbuted more We continue to expand our local currency business than $4.3 trillion in securities to investors throughout the world.

and have developed several new investment banking We will continue to emphasize distnbution, seeking to improve our products such as debt / equity swaps to assist our customers in investor marketing efforts-targeting our customers, identif ying these countries, while simultaneously helping the countries lower their needs, and winning their business.

tinir total debts. Our immediate focus is to work with these n the future, we expect an increasing share of earnings countries to help bnng them back to the markets. As mentioned will come from equity products. We already have well-in the chairman's letter, we have been supporting the Baker Initiative established and highly successful venture capital and with new funding as required, and with a focus on motivating corporate recapitalization businesses. With corporations structural changes likely to facilitate a return to markets and greater undergoing significant restructuring, particularly in the support of private sector initiatrves. There are no easy, short-term United States and increasingly in Europe, profitable investment solutions for borrowers or lenders, but the Baker initiative currently opportunities created by corporate mergers and divestitures offers the most promise for longer term, lasting improvement in willcontinue to grow theeconomicsof thesecountries.

The global equities market presents one of the newest and most With respect to the remaining countries where Citicorp has an significant opportunities for Citicorp. The aggregate capitalization active presence, we will continue along our path, which has proven to be successful, offenng a full range of local currency products and services that are uniquely structured to meet the diverse requirements of our customers. Generally, these transactions will 17 I

of equites on the world's stock exchanges is roughly $4 trillion, and new markets. Trading, however, and particularly secunties About half of that falls outside the U.S., with one quarter in trading, can be volatile, resulting in sizeable swings in revenue. The European markets and one quarter in Asian markets.

downside of this volatility is reflected in the 1986 secunties Over the last t wo years we have assembled the structure and trading revenues in Europe and North America.

marshalled the resources for a major strategic thrust in the global Citicorp continues to be the world's largest foreign exchange equities markets. We have invested some $100 million in the dealer, with an estimated market share in excess of 5%. Uke many acquisition of vanous brokerage companies around the world. We other areas of investment banking, the foreign exchange market have established other securities firms de novo, including is now being transformed by innovation, with customers making Newbndge Secunties, a member of the New York Stock Exchange.

use of foreign exchange options and complex currency swaps.

s a member of 19 stock exchanges in the world's Citicorp has been a leader in these products and will remain in A principal capital markets, Citcorp is no the forefront.

as a strong participant in both domestic equity Looking back on 1986, we have seen our customers' needs markets and the increasingly important interna-changing more rapidly than ever, and we have responded tional markets. This past year we reorganized the accordingly We have made and shall continue to make appropriate equities business, creating a single, global unit to take full advantage investments in the businesses that serve our institutional of cross-border opportunities. This new organization will, among customers. This investment has given us a range of products and other things, focus on large institutional investors seeking to geographic breadth that is unsurpassed. While we are most diversif y internationally We also developed a global secunties mindful of the volatility of the world's economy, we believe we have clearing business linking such leading financial centers as New a structure that will lead to substantial returns in the years ahead.

York, London, and Tokyo.

With that structure firmly in place, we are confident that the out-Earnings from our investment management business also standing people of the Citicorp Institutional and Investment continued to grow in 1986, largely as a result of strong performance Banks will serve customers and shareholders alike with ever-of specialized product areas and expansion internationally increasing success.

Citcorp Investment Management now has offices in London, Hong Kong Tokyo, and Sydney as well as New York, San Francisco, Houston, and Chicago.

Trading of both foreign exchange and secunties is a most important element in our revenues and earnings, and the trading expertise provided the base for expansion into new products 18

g vemments in the U.S. and for many sovereign governments.

EARNINGS Oticorp assists corporations and financialinstitutions in raising m uumsor ocu Ans 1sSS 1985m VAR short-term funds through note issuance facilities, commercial p per and interbank money market instruments. We also arrange Total Revenue -

$4e500

$4,094

$406 10 long-term financing through pnvate placements, mortgage-Provision for Possible backed securities, and bonds issued outside the U.S. Otcorp also Credit Losses 423 388 35 9

may take positions within pre-approved limits that result in a Operating Expenses 2,664 2,283 381 17 mismatch of interest rate matunties.

Specialized Finance. Specialized Finance is the generic term Income Before Taxes 1,413 1,423 (10)

(1) for our non-traditionallending, for example. Asset Based Lending.

NETINCOME

$ 872

$ 824

$ 48 6

Corporate Asset Funding, and Equipment Finance. Activities include Average Assets ($ Billions) 111 105 6

6 the wholesale purchase of all or part of a company's portfolio of financial assets; equipment-related secured lending, and lease Retum on Assets (%)

.78

.79

(.01) options to end users; leveraged leasing, tax leasing, and vendor Retum on Equity (%).

19.5 19.7

(.2) finance to assist the manufacturers or sellers of capital equipment.

(f) Restatut to re8ect organgatonal changes.

Liquidity lnsurance, Financial Guarantees, and Asset Intermediation. Included in this category are fees AVERAGE BALANCE SNEET generated on loan commitments outstanding earnings from guaranteeing performance by another party; and income from m aumsor oou Ans DECEMsER1sSS" asset intermediation activities such as asset sales, brokering, and direct placements.

Assets Liabilities Equity Products. For new and emerging businesses, Citicorp Loans & Leases

.$ 60.4 Interest Bearing has established venture capital companies in the U S., Canada, the Deposits atinterest with Deposits.

.$ 28.3 U K., France, Germany and Australia. We have stock brokerage Banks 13.7 Non-interest-Beanng businesses in Japan, Hong Kong, Singapore, the U.K., and Austra-lia. Our brokerage subsidiary Newbndge Securities, is a member Investment Secunties 8.6 Deposits.

23.0 firm of the New York Stock Exchange. Lynch, Jones & Ryan is a do-Trading Assets 6.8 Other Borrowed Money. 29.0 mestic brokerage firm, specializing in institutional research products.

Acceptances.

5.3 Acceptances.

5.4 Advisory, Trade, Transaction Processing, and Other 15.9 Other 8 25.0 Other. Oticorp is a leading manager in the US of pension funds r

$110.7

$110.7 for corporations, state and local governments, and non-profit organi-zations. We have merger and acquisition specialists in 15 countries puerage wances tarinonEtt oecernw puncwes anocaweowty to assist companies in finding buyers or sellers, and in structuring these complex transactions. Trade includes direct financing of PRODUCTS DELIVERED TO INSTITUTIONAL trade-related transactions; countertrade and transaction process-CUSTOMERS ing such as documentary collections. Also included in this Core Lending. Net income in this product family reflects our category are Cash Management and earnings on allocated equity more traditionallending activities, for example, working capital toans, long-term financing and syndicated lending to corporations.

NETINCOME BY PRODUCT

- - ~

governments, and financialinstitutions.

Foreign Exchange and Hedging. Oticorp is the world's m vuesa oou Ans

_ _ _ _1s_86 largest foreign exchange dealer. We obtain currency for our.

Core Lending

$184 customers whose business, investment or fund raising activities Foreign Exchange and Hedging.

172 reach beyond national boundaries. We also help customers hedge their currency and interest rate exposure through a vanety Debt Products / Money Market Services.

164 of risk management products such as interest rate and foreign Specialized Finance.

150 exchange swaps, futures, forwards and options. Oticorp may also Liquidityinsurance,FinancialGuarantees& Asset take positions within pre approved guidelines in anticipation Intermediation 113 of changesin currency markets.

Debt Products / Money Market Services. Citcorp is Equity Products 46 one of the top three dealers in US Govemment secunties, which Advisory Trade, Transaction Processing & Other.

43 represents the largest and most liquid debt market in the world.

TOTAL ~ ~ ~ ~ ' '

~

$872 We also underwnte, trade, and distnbute secunties for municipal 19

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T be year 1986 brought important chan expenditures and corrected over-valued exchange rates. These international debt situation. There were some set-measures had some success, and in 1984 the trade balance in backs, but there also was progress, particularly Latin America improved by $32 billion over 1982's balance.

toward implementing the Baker initiative.

For countries that made progress in these short term adjustments, This growth-oriented approach, outlined by U.S.

the focus shif ted toward multi-year restructuring agreements Treasury Secretary James A. Baker 111 in October 1985, offers a (MYRAs), which cover at least three years of maturities of the path out of the problem for countries willing to adopt free-market countries' commercial bank debt. In this second phase, these solutions. His initiatrve is based on the success of such economies agreements postpone principal repayments to later years, when as South Korea Taiwan, and Hong Kong, which have continued they can be more easily managed by larger, growing national their economic growth and avoided the debt problem.

economies. Four more countries signed MYRAs in 1986, increasing Generally, countries caught in the debt problem have built highly the total to seven.

irtafficient, govemment-dominated economies based on import However, satisfactory growth had not returned by 1985.

substituttort These countries' highly efficient production of various Secretary Baker and others, including many developing-country agricultural, energy and mineral commodities offset these governments, recognized that short-term adjustment was inefficiencies. Howevet; the rapid drop in world inflation rates insufficient and that the centralized and inefficient economic baginning in 1980 (called disinflation) caused commodity prices systems of the debtor countries needed more fundamental to fall sharply As a result, the efficient sectors could no longer adjustments to respond to the new, disinflationary era.

support the costs of the inefficient sectors.

The third phase, one of structural adjustment, addresses the That is the background that led to the intemational debt problem, need for countries to resume growth through economic reforms v.tich began in August 1982.

that encourage investment and internal savings, reduce During the first phase of the problem, the immediate task for government intervention, and emphasize greater competition in commercial banks was to address the countries' short-term the private sector. This approach is similar to those being taken balance-of-payments problems and provide new money where by certain industrialized countries.

rtaeded. The countnes themselves began to address some Last autumn Mexico became the first of the troubled debtor of the excesses of the previous era. Many reduced government countries to negotiate a Baker initiative package. Under the agreement, governments, international financial agencies, and commercial banks will make funds available to support the country's structural adjustment. The World Bank will play a far more important role here than in any package to date.

For its part, the Government of Mexico has committed to pursue structural-adjustment policies that to date have included the closing or privatization of some inefficient state-owned companies.

It has also been increasing govemment revenues and has joined the General Agreement on Tanffs and Trade. All commercial bank drawdowns under the current package are conditioned upon specific actions to be taken by Mexico and confirmed by the international Monetary Fund (IMF) and World Bank.

l l

l 20 i

i

Mexico also has been maintaining a realistic exchange rate We have desenbed some of the countnes' first steps toward and positive real domestic interest rates, which have reversed structural adjustment. Yet we recognize that this process takes capital flight and in 1986 gave it private capitalinflows of more than time and, initially, hurts those who have an interest in the existing

$15 bilion.

structure. Non-economic pressures occasionally support Later in 1986, the second and third Baker initiative packages inefficient industries and government programs that do not make f

were negotiated with Nigeria and Morocco. Each of the three senseforthelonger-termhealthof acountry packages is geared to the individual characteristics of the There always is resistance to change. Therefore it is not country's economy surpris;ng that these first steps toward structural adjustment caused Last October, Uruguay became the first restructuring country a reaction. Some are calling for non-market " easy" solutions in to sign a voluntary loan with commercial banks, a $45 million co-order to avoid the short-term difficulties of adjustment.

financing with the World Bank. Ecuador followed with a These proposals, some of which would force significant losses

$220 million oit-export facility on commercial banks, are in our view impractical and counter-In 1986, there was further progress on debt-equity exchanges, productive. If implemented, banks would not be forthcoming with I

which allow a country to reduce its external debt by converting the fresh capital these developing countries need as they portions into equity Chile approved in excess of $1 billion in resume growth. Indeed, such approaches would reduce the conversions, and Mexico approved $800 million.

incentives for countries to make the necessary structural economic reforms to grow their way out of the problem.

A s in the past, there were setbacks as advances. Although Brazirs progress earlier in the As we move ahead, the usualimponderables remain, including year allowed it to sign a two-year $31 bilion the threat of protectionism, the need for continued growth in the commercial bank refinancing package in July, a developed world, and the direction of interest rates, oil prices, booming economy later contributed to a resur-commodity prices, and exchange rates.

gence of inflatiort in response, the Government allowed imports to The key question is whether the developing countries have the rise and exports to drop, causing a shnnking of the record and political will to continue to take the steps needed for stable growth.

raar-record trade surpluses that Brazil has enjoyed in recent years.

The evidence to date is, by and large, that they do. We believe that On the other hand, Argentina, the third largest Latin American other countries will join Mexico, Nigeria, and Morocco in their initial debtor country af ter Mexico and Brazil, has reduced inflation from steps with Baker Initiative agreements. Continued progress, an annualized rate of 1,000% in June 1985 to 80% in 1986. It has however, will require the same hard work and intemational cut its public-sector deficit to 3.9% of gross domestic product from cooperation achieved among all parties in recent years.

6.3% in 1985, and resumed growth, at 5.5% in 1986; and has achieved a net capitalinflow Today all the major debtor countries are current on public-sector interest payments to commercial banks. Overall, growth is returning: The United Nations estimates that growth in Latin Amer-ica reached 3.4% in 1986, wtule inflation dropped from 275% to 70%.

21 t

I N T E R N ATION AL Fl N A N CIN G A CTIV I TIES eh A

k k

v Citicorp's exposure to other countries was lower. There are five L ike all of Oticorp's activities, internatio involves the management of risk. Whenever Citicorp other countries in which outstandings were between 1% and 3%

lends, places, or invests funds across a national border of total assets and one country where outstandings were or in a currency that is ' foreign" to the borrower, between 0.75% and 1% of total assets.

it incurs a transfer and/or convertibility risk, commonly Since 1982 a number of countries have found it necessary to referred to as " country" risk. This risk anses because a country may refinance their external debt. Citicorp has cross-border and foreign impose exchange controls that may prevent Oticorp's customer currency outstandings to 31 such refinancing countries, amounting at least temporanly from obtaining and/or transferring the foreign to $14.9 billion at the end of 1986. This level is slightly lower than exchange needed to service its obligation to Oticorp in full and/or at year-end 1985 and significantly lower relative to Citicorp's total on time, even though the customer remains at all times credit-assets and capital. Cash basis loans in the refinancing countries worthy in terms nf local currency If this situation persists for dechned to $.9 billion from $11 bilion at year-end 1985. As explained E0 days, Citicorp must place the affected assets on a cash basis, on page 26, the estimated impact on earnings from cash basis and this has an adverse impact on earnings. Interest previously loans in the refinancing countries was a benefit of $24 million in 1986 accrued mwt be deducted from current earnings, and current compared with $30 million in 1985.

earnings are brther reduced by the cost of carrying the cash basis A summary of developments in the major refinancing countries loans, net of interest actually received in cash.

follows. While no absolute assurance can be given, Oticorp Citicorp manages country risk by evaluating the economic management believes that these developments will not ultimately chmate and prospects for individual countries and by imposing have a materially adverse effect on Citicorp's financial condition.

limits on total cross-border and foreign currency amounts that may be lent within each country At the end of 1986 approximately CROSS-BORDER AND

$48.0 bihon of Oticorp's assets were cross-border and foreign FOREIGN CURRENCY OUTSTANDINGS Adjusted For Net Local Currency Outstandings, currency outstandings and therefore exposed to country risk. This figure represents a slight decline from the level prevailing at the end of 1985. However, relative to total assets and capital, Citicorp's a swoNs or oou ans Ar vE AR END 1986 1985 1984 total cross-oorder exposure has fallen sharply IndustrialCountries

$25.4 $24.3 $25.4 Total cross-border exposure at year-end 1986 was divided Centrally Planned Economies of among industrial countries ($25.4 bilhon), non-oit developing Eastem Europe.

.2

.2 countnes ($18.2 billion), oil exporting developing countries Oil Exporting Developing Countries.

2.4 3.3 3.7

($2.4 billion), and offshore banking centers ($18 bilion). In no single Non-OI Developing Countries.

18.2 18.5 19.0 country did cross-border and foreign currency outstandings Offshore Banking Centers 1.8 2.0 1.9 account for more than 3% of Citicorp's total assets. Oticorp's TnTAL

$48.0 $48.3 $50.2 largest exposure ($5.7 billion, or 2.9% of total assets) was to Japan, tstarid, rigs ar rited ori a reratormsis. ame air darisers at which is, af ter the United States, the largest economy in the world.

,iterest.,rn canas acceptances. orne,,nterest eeanng mestments, and orner monetary assets Adjustments are made to onclude the excess oflocalcurrency outstandings over bcalcurrency Isabristres. uf any for each country wicluded on a category and to al low for enternalguarantees andco!Uteral MEXICO In October 1986, discussions were finalized between the Bank Advisory Group, of which Otibank, N. A. is a member and principal co-chairman, and Mexico on the commercial bank portion of the country's external financing program. The terms have been sert to Mexico's creditors worldwide. The prehminary terms agreed to by the Bank Advisory Group and Mexico include the following:

E A new loan of up to $6.0 billion will be provided, to be repaid over 12 years with a 5-year grace period for principal payments. The loan includes a $10 bilion co financed program with the banks, 22

i y

e DATA ON MEXICO AND BRAEIL RESTRUCTURINGS i /

WEfGHTED AVERAGE RATE MARGIN MIGHTED AVERAGE YEAR OF MATURITY BEFORE AFTER BEFORE AFTER IN Mtt LIGNS OF [Vfd ARS Ate 0CteT.

RE STRUCTURtNG RESTRUCTURWG RE STRUCTUR6NG RESTRUCTURtNG Mexico S 538~

0.875% over LIBOR"*

0.8125%/er LIBOR6 -

1995 2002 612 0.875% over LIBOR*

0.8125% odLIBOR*

' %95 2002 341',_

1.125% over prime

0.8125% over LIBOR*m '

1992 1992 TOTAL

$1,4952 Brazil 24 1.75% over prime 1,125% over UBOR*m

.,1985 1992 78 1.75% over primo 1.125% oect LIBOR*m 1986 1987 478 2% over LIBOR 1.125% over UBORS 1985 1992 472 2% over UBOR 1.125% over UBOR* ~

1986 1987 TOTAL..

. $1,052 p) Rate margsns Inbe restructunng were toKwe been 0875% over UBOR lbr a comparave domeste reference rate)as shown th,ough 148G tt?5% o.er UDOR k tt e pmxt 1987-199t and 1250% over UBOR & the penod 139? -1998 (2) These bans had prevoously been restructured on 1985 Pnor to the 1985 restructunng the werghted average rate margon was 07m Mr va,cus seterence rases <cJudong prome andLsBoR and the weoghtedaverage year of matunty was 1988 (3) Pnor to the 1985 restructunng, the svogh ed average rate margon was t 75% overpome and the we,ghted ave we ye nr or matunty was 1967 (4) IncAudes 5189 methon whoch were cowed by the 198', restructunngs Pnor to ttse 1985 restructunng, the weg ned aserage rate margen was 2 G'5% overpnme and !!'e werghted average year of matunty was 1987 (S)Oroverdomeste cost or runds tisp or ovu an ad usted certshcate oideposot tor comparably pnced dinestA rate i

(7) At December 3t 1986 prene enceeded USOR by approssmately w5%.

of which the World Bank will guaran' tee $500 million. The interest CNANGES IN CROSS-BORDER AND margin will be 13/16 percent over the London interbank cNred rate FOREIGN cut 1RENCY OUT&TANDINGS (LIBOR) or over domestic cost of funds.

IN MEXICO AMD BP.AZIL Adjutted For Idet Local Currency Outstandings, O The interest margin on $43.7 blion of Mexican public-sector Emtornal Guarantees, and Collateral -

debt which was restructured during the past three years will also be swomNs or couan MEXICO BRAZIL reduced to 13/16 percent over UBOR. A grace period for pnnc. pal payments on this debt of 7 years was agreed to with final maSnty Total Adjusteo Cdtandings at of 20 years so that these loar.s will ba payable from 1994 to 2006.

December 31,1985

. $2,777

$4.658 Short-Teim Ostetaneiingsm C Except for $950 millon onginally due in 1985, which will be payable over the five-year penod 1989 through 1994, the mattc, ties

~

of approximately $8.6 billon of new leans granted in 1983 and 1984 Addend Outstandirgs 40 589 will remain unchanged, but the in'erest margin will be reduced Inteiest Incoms Accreed*.

177 470 to 13/16 percent over LIBOR.

Ccilectons of Principal.

(39) 6 1 26)

O The package will also include a commercial bank growth Collections of Accrued ti'iterestm.

(188)

(497) contingency co4nancing with the Wr,rld Bank of $500 million, of Other Changes 7

(32) s which $250 millon will be guaranteed by the World Bank, and TOTAL AoJusTEoouTsTAmotNGE AT a commercial bank contingent investment support facility of DECEMBER 31,1966m

. $2 774

$4.560 t

$12 blion to support public-and pnvate-sector investment.

p;Re sent3 trade c,,d,t3 and,nte,o rupos,r, w,tn orgns matun, es or one yea, Citicorp's share of the new foan will be approximately $269 millon, (2nn 1986. tots,nterest on totai aa,usica cross border and we on currency outstandmos and its shares of the growth contingency facility and contingent "Q]" 7,,, * *'38 8'8[,,'"[j,'*c"o, Ns

'""8" c

r a-investment support facility will be approximately $22 mulon and anciudes shut ten e outs'andings of $526 meticnin Braat(nom en Mevo)

$54 million, respectively As detailed in the accompanying tabic, Citicorp's share of the restructured loans totals approximately

$15 bilon. It is not anticipated that any loans will be removed from the cash basis of accounting as a mEult of the restructuring.

BRAZIL in July 1986, the Government of Brazil and the participating intematonal banks signed an agreement that affects principal of approximately $61 blion of 1985 matunties and $96 b II.on of 1986 matunties of medium term public and private sector debt. The a

23

s

./

agreement became effective in September 1986. Under the Venezuela agreement, the debt that fell dua :n 1985 has been rescheduled Agreements were signed by Venezuela and the partcipating inter-through 1993, with principal payments beginning in 1991 and natonal banks in February 1986 encompassing the restructuring the debt that fell due in 1986 is payabe on the earlier of demand or of $212 billon of Venezuelan public-sector debt. The agreements April 15,1987 Also, as part of the agreement, interbank and became effective in October 1986. The restructuring covers trade lines of approximately $16 billon are being maintained prinopal payments maturing through 1988 and provides for the until March 31,1987 rescheduling of these maturities over 12 years with quarterly Oticorp's share of the interbank and trade lines is approximately payments commencing in 1987 and ending in 1997 in addrm, 5661 million. As detailed in the table on the previous page, its share pnncipal payments totalling $750 million are being paid in of the restructured loans totals approximately $11 billion. It is not accordance with the rescheduling agreements.

antiopated that any loans will be removed from the cash basis Citcorp's share of the restructunng is $709 millon The agree-of accountingasaresultof theres;ructuring.

ments stipulate interest margins of 1 %% over UBOR or other Brazil has not commenced discussions with its foreign creditor domestic reference rate, compared with a 2.27% weighted spread banks v'ith res, rect to the rescheduling of 1987 and other matunties over reference rates including UBOR and pnme prior to the of med urh t errrmubt. As an interim measure for the debt maturing restructunng. None of Otcorp's outstandings were removed from durirQ the period January 1,1987 through March 31,1987, repayments the cash basis of accounting as a result of the restructuring.

of precipal will be deposited on a demand basis with the A new program for making foreign exchange available at prefer-Brazilian Central Bank. However, Brazil has recently suffered a ential rates for qualif ying private-sector debtors has been approved reduction of its foreign exchange reserves. Accordingly, this and is in the process of implementation. Outlines of the program could impact the timing of interest payments and the level of recently announced by the Government are being reviewed.

Oticorp's cash basis loans.

Philippines With respect to the Philippines, Otibank and other creditor OTHER COUNTRIES banks signed an agreement in May 1985 that provides for a new The following paragraphs summarize developments in certain

$925 millon,9-year term loan. They also committed to maintain other refinsocing countries wnere Citcorp's adjusted total cross-approximately $2.9 billion of short-term trade credit faolities through border anri (oreign currency outstandings were less than 1% of 1986. In additon, various programs are in place to reschedule total assets.

approximately $5.8 billion of existing bank debt maturing Argentina through 1986.

Discussions between the representatives of the Government of Oticorp's sM.re of the 9-year term loan is approximately ArgentinTand the Bank Advisory Committee on a 1986-1987

$126 million, and its commitment under the trade credit faolity agree-refinanortg program are expected to begin in early 1987 Pending ment is approximately $753 million. The rescheduling of existing the devetopment of the 1986-1987 program Otcorp has agreed to bank debt under the various rescheduling programs involves the follow lng Argentine governmant requests to roll over public-approximately $371 million of Citicorp's Philippine outstandings.

and pnvate-sector pnncipal matunties currently scheduled to in October 1986, the Internatonal Monetary Fund (IMF) approved fall due through March 31,1987 for an additional 180-day perod; a new standby credit faality of Special Drawing Rights (SDR) 198 to roll over the first (0,Tober 10,1986) and second (January 12, millon with certain conditionalities, as well as, a compensatory 1987) installments of the 1983 Term Credit Agreement until April 10, financing facility Pending further negotiatons expected in the first 1987 (the thisd installment date); and to extend, until June 15,1987, quarter of 1987 covering post 1986 maturities and other terms, the Oticorp's ccmmitments under the trade credit maintenance facility creditor banks in December 1986 agreed to a 90-day extension of

($95 millon) and standby mcney market faolity ($156 million) whch Philippine debt maturing between January 1 and March 31,1987 cxpired on Sepbmber 13,1986.

The same banks also agreed to extend the short-term trade credit facility agreement for six months to June 30,1987 In January 1987, Westem creditor nations compnsing the Pans Club agreed to re-schedule $870 million of the Philippines' offcial foreign debt matur-ing between January 1987 and June 196. The agreement covers the restructunng of all the principal and 70% of the interest and pro-vides for repayment over 10 years including a 5-year grace penod.

A t

0 "

[

+

CROSS-BORDER t *4D FOREIGN CURRENCY OUTSTANDINGS in Countries With 0.! standings Exceeding %% of Tbtal Assets Adjusted For Not Local Currency Outstandings, External Guarantees, and Collateral 1986 1985 1984 CnOSS-sOnoEn ANo =

FOREBON CURRENCV OUTSTANONeOSM TOTAL TOTAL TOTAL PostaC PRIVATE AOJUST.

ADJUSTED ADJUSTED ADJUSTED INBlulONSOF OOLL ARS Af yF AR END BA880LS SECTOA SECTOR TOTAL MENTS*

OUTSTANDONOSm - OUT STANDINGS OUTSTANDiNGS Japan.

$2.3

$.1

$.9

$3.3

$2.4

$5.7

$5.8

$7.6 United Kingdom 1.6

.1 1.5 3.2 1.8 5.0 3.6 3.4 Braal

.6 2.6 1.0 4.2

.4 4.6 4.7 4.9 1.6 2.0

.8 2.8 2.8 2.9 Canada

.4 Mexco

.4 1.7

.7 2.8 2.8 2.8 2.9 Federal Republic of Germany.

.2

.6

.5 1.3 1.5 2.8 2.4 1.7 Philippines

.1 1.0

.4 1.5

.3 1.8 1.8 1.6 Argentina *

.5

.6 1.6

(.2) 1.4 1.4 1.2

.6

.9

.3 1.2 1.4 1.4 Korea *

.3 France *

.9

.1

.2 1.2 1.2 1.5 2.0

.7

.4 1.1

!.8 1.6 Australia

Venezuela *.

.3

.5

.3 1.1

(.1) 1.0 1.2 1.3 (t) outstandings are presentedon a vegulatory basis and rnclude atllaans deposits at enterest woth banks. acceptances, other mterest bearong anvestments, and other monetary assets.

(2) Amounts primanty represent excess of local currency outstandungs over localcurrency Imboktes, sf any Actistoonally adjustments are made to ass 9n extemalty guaranteedoutstandings and outstandungs for whnch langsble, Isqud collateralis hektoutsde of the obhgor's country to the country of the guarantor and the country on whrch the collateralis held. respectively (3) Legally bndung cross border and torergn currency commitments. oncludong ormvocabk! letters of credit and commitments to entend credit. after adjustment to assgn externally guaranteed commotments to the couniry of the guarantot amounted to $ 6 blhan m Austraha, 5 8 blem m Canada. $ 5 &Ihon m the FederalRepubhc of Germany $ to blhon on France. $ 7 bikon m.lapan.

$ 4 bolhon on Korea. and $22 bolhonin the lhered hngdom at December 3l 1986 Commitments were not matenalm relstoon to ad usted outstandings on any other country a the table t

(4) Les than %% of rotalassets at December 3t 1986.

(5) Less than %% ot totalassets at December 3t 1986 and 1985 t

\\

E 9

25

CASH BASIS AND RENEGOTIATED included in overseas cash basis loans are a number of loans in COMMERCIAL LOANS countries that are currently in the process of refinancing their ex-Cash basis (nonaccrual) loans are those on which, as a result of ternal debt or that have completed such refinancings. In view of doubt as to collection, income is recognized only to the extent cash inv9stor interest in this aspect of Citicorp's activities, the accompa-is received. Renegotiated loans are those on which the rate of nying table provides additional details of cross border and foreign interest has been reduced as a result of the borrower's inability to currency outstandings and also local and foreign currency cash meet the originalterms.

basis loans in the affected countries; the third column of the table The classifcation of loans as cash basis and renegotiated is a shows the impact on our earnings, spread among various coun-specialized diagnostic tool used by financial institutions. Citcorp's tries. The amounts include interest reversed when loans are placed experience, as well as the experience of others, generally has shown on a cash basis, plus the cost of carrying the cash basis loans, that a substantial percentage of cash basis and renegotiated loans reduced by interest received in cash and included in income.

are ultimatelycollected.

Citicorp's policy of placing loans on cash basis status embraces DETAILS OF REFINANCING COUNTRIES allloans on which principal or interest is 90 days past due, or when tst mto payment of interest or principal is determined to be doubtful of A $$ E T$

AfbRTAX ca a

collection. Even if a cash payment may be anticipated, accrued ANoronocN cAss cAss Basis interest is reversed and the loan is put on cash basis status af ter gR 8^$

^"$

a 90-dayperiod has elapsed.

0A Buoms uuons uuons Cash basis and renegotiated commercial loans at year-end 1986 were $2.6 billion, up $306 million from a year ago, compared Argentina'

$ 1.4

$ 28

$6 Braz:1 4.6 68 13 with a $170 million decrease in 1985 from year-end 1984. Th Chile 0.6 9

1 1986 increase primarily reflects increased cash basis loans in the domestic loan portfolio. Cash basis and renegotiated loans as a Dominican Republic.

0.1 2

Ecuador 04 10 parcentage of totalloan volume was 2.0% at December 31,1986, Jamaica 0.1 unchanged from the prior year end. The percentage was 2.4%

Mexico 2.8 115 (2) at December 31,1984. Cash basislease financings were $29 million Morocco '

0.1 at December 31,1986 and $35 million at December 31,1985.

Nigeria 0.1 108 (2) anama

&3 4

CASH BASIS AND RENEGOTIATED COMMERCIAL LOANS AS.A PERCENTAGE OFTOTAL LOANS PIfnes 1

30 Poland 0.1 104 3

2A%

2.4%

South Africa.

0.7 4

20 1.e%

8% 2.o%

Uruguay 0.3 1

i.s Venezuela 1.0 166 1

S Yugoslavia 0.2 l

AllOthera

_ 0.2 103 1

1979 1980 1981 1982 1983 1984 1985 1986 (1) Includes both bcaland loregn currency loans.

(2) Brachets renect a reduction of earnings.

(3) 14 countroes under $50 rnaltoon of cross Border outstandings: Bolma. Costa Aca.

Honduras. Ivory Coast. Libena. Malagasy Maiam. Mozambique. Nocaragua. Senegal.

Sudan. Togg Zaae, and Zambra 26

CASH BASIS AND RENEGOTIATED COMMERCIAL LOANS toes CASH RENEGO.

TOTAL BASIS TIATED IN VILLIONS OF DOLLAFIS LOANS LOANS TOTAL 1985 1984 1983 1982 Cash Basis and Renegotiated Loans in Domestic Offces Real Estateloans,

$ 296 $8 $ 304

$ 101

$ 233 $ 127 $ 107 Other Commercialloans 589 6

575 392 302 345 444 in Overseas Offices.

1,670 5

1,875 1,755 1,883 1,638 1,111 TOTAL cASN sASIS AND RENEGOTIATED LOANS.-

$2,535 $19 $2,554

$2,248 $2,418 $2.110 $1,662 Cash Basis and RenegotiatedLoans as a % of CommercialLoans 4.3%

3.9%

4.1 %

3.5%

2.7%

Cash Basis and Renegotiated Loans as a % of Total Loans.

2.0%

2.4%

1.9%

Real estate acquired in set tiement of loans, included in other assets estate at year end, and overseas real estate accounted for in the financial statements, totaled $274 million at December 31,

$31 milliort (For further analysis see Commercial Loan Portfolio 1986, up $24 million from $250 million at December 31,1985.

Analysis on page 30.)

Domesto real estate represented $243 million of the total real i

F i

l l

l 27

R I

S K

M A

N A

G E

M E

N T

+V/\\

M, E @,,,&

g A

'N" 5E

=

w M

I M

i T Effective risk management is entical to hat financia! institutions have many risks to manage is of risk management as it relates to sovereign and cross-border a well-known fact. Indeed, risk-taking is an integral exposure (page 22), accounting policies (page 57), and non-funds part of the business, but what is important is not that related financial products (page 69).

risks exist but how they are measured and managed.

What all our risk management processes share and what is key to Citicorp's approach in managing risk is clear, sound mana00-and long-term profitability of any financial institution.

ment policies and their effective communication to alllevels of the At Citicorg risk management is central to all aspects of our corporation. These policies are embodied by five principles:

businesses and subject to continual review. New risk management 9

i emmeerpenW techniques continue to evolve in response to changes in the geography Referred to as "the actuarial base," this diversification environment and the nature of Citicorp's own businesses. In the hedges against the adverse impact to the institution from any one past the most significant risks have been interest-rate risk, credit event or set of conditions.

risk, and liquidity risk. But as Citicorp's activities and geographic distribution have expanded into the multi-business financial E Decentralization of management to keep decision-making services corporation it is today, the range of risks has broadened as close to the marketplace as possible and to ensure that those to include foreign exchange risk, sovereign and cross-border risk, decisions are based on the best available information and on a trading risk, business and environmental risk, legal and regulatory close understanding of the changes that could affect us.

j risk, and operations risk.

E Strong financial and operating controls, including formally l

In this year's annual report, we have taken the opportunity t eMisedIMWI4@imesWan kipeg describe in detail the management of credit risk at Citicorp and trading exposure for all Citicorp units. Sovereign risk and tae most established and formalized of our risk management cross-border risks are also subject to a formal review process processes. That is followed by a discussion of capital and liquidity by senior management. All businesses are required to document g

ere sr 1

y f d

u sions s a es E Conservative accounting policies applicable to credit losses which ensure that write-offs are recognized at the earliest moment.

E An independent review process. Citicorp's internal audit staff exceeds 700 people. External auditors and regulatory bodies l

around the world also perform examinations.

But however thorough and sound our policies are, they cannot be better than the quality of information provided. Our extensive electronic information systems represent a substantial investment I

in state-of-the-art technology that supplies timely and accurate

)

in'ormation to alllevels of management.

I Finally Citicorp continues to believe that strong earnings, in I

conjunction with a large capital base, provide the ability to absorb unforeseen risks orlosses.

28

THE CREDIT PROCESS AT CITICORP sees the maintenance of sound portfolio standards in each of our n our subsequent risk analysis discussion of the commercial businesses. Each member of the Credit Policy Committee is and consumer loan portfolios, it is clear that Olcorp is responsible for certain banking groups or businesses, and they operating many of its businesses in unusual and difficult are stationed in the major credit centers around the world.

economic environments. We believe that the best protection They coordinate their activities during weekly teleconferences over time against risks created in our loan portfolio, regard-and scheduled reviews of transactions and portfolios.

less of the economic environment, is the maintenance of a strong This system of checks and balances ensures that our credit credit culture embodying sound fundamental credit practices.

policies and procedures are functioning effectively and on a timely These practices are applied not only to loans but to all transactions basis, from loan initiation and proper documentation to remedial that could result in a claim on a third party For each new product, credit management when necessary we fine tune our credit practices, but the basic approach as Maintenance of the credit discipline starts with our insistence outlined belcw remains unchanged.

that line managers follow the credit process, manage it actively and From the time a loan or other credit transaction is first considered aggressively and be realistic about the quality of their portfolios.

until it is paid, Citcorp's comprehensive credit process controls They are held accountable for staying within defined target markets the risk. It operates at all levels in all Citicorp businesses and is and approved product types, and must document operational applied from the smallest loan to the iargest. It is the responsibihty procedures that specify levels of approval authority and separation of our line business managers and is supported and controlled of duties.

by a staff of credit specialists who not only monitor the quality Citcorp's conservative accounting policy demands that credit of the credit but insure that our policies and procedures are wnte-offs be recognized at the earliest moment. In the Institutional followed at every step.

Bank, credit policy requires that as soon as loss situations are These policies and procedures, developed out of many years of recognized, charge-offs be taken even if the actual loss, such experience and continuously updated, form the foundation of as bankruptcy or liquidation, has not yet occurred. Thus, we Citcorp's credit process.

consider the allowance for possible credit losses to be a general it all starts with a three-initial requirement-three lending offcers, reserve, available for potential credit losses in the portfolio that each exercising independent judgment, must approve every cred:t might occurin the future.

or credit program and initial it. High value is placed on the initial.

In the Individual Bank, a different method for computing write-The owners are held accountable for their credit judgments, and offs is used, generally based on loans reaching a predetermined their reputations throughout Citcorp rest upon the skill in credit number of days past due on a contractual basis.

decision making they represent.

ln both businesses, our early identifcation of write-offs and As transactions get larger, an increasing level of skill and experi-well-developed procedures for managing problem credits lead ence is brought to bear. For large loans, two of the initials must be to a higher probability of pnncipal recovery those of a " senior credit offcer," a designation given to only 485 A strong independent review process ensures that our controls Citicorp professionals. To be designated as a senior credit offcer and procedures are followed. The Risk Asset Review group requires at least ten years of successfullending experience in conducts periodic independent examinations of both credit quality several areas, matunty of judgment, and a willingness to contin-and credit process at the lending unit level. They are also ually improve credit skills of others.

responsible for identif ying any problem loan situations not yet Two thirds of the senior credit offcers also have direct business identified by line management as well as any substandard management responsibilities so that their credit judgment reflects elements of the credit process.

a close knowledge of their customers and markets. We believe These audits are conducted by senior officers with an average of that decision-making must be placed as close as possible to the ten years' line lending expenence who are on temporary two-year market to ensure that credit evaluation is based on the best available information. The other third of the senior credit offcers are in full time nsk-control assignments, managing credit and audit staffs.

Each year the performance of every senior credit offcer is reviewed, and the designation can be withdrawn if credit judgment has not been exercised with proper care and diligence.

At the top of this pyramid sits the Credit Polcy Committee, consisting of 14 of our most expenenced credit professionals. It is closely involved in all large or unusual transactions and over-29

or three year auditing assignments. By using such expenenced COMMERCIAL LOAN PORTFOLIO ANALYSIS people, we achieve a high level of efficiency The fact that these iticorp's management philosophy has always auditors were themselves senior line managers gives them a great emphasized the importance of assets and earnings deal of credibility Failure to pass the audit review process is a being diversified in terrns of geography currency very serious issue.

custorner, tenor, and product. This diversification, An example of our major investment in information systems referred to as the "actuanal base," hedges against is Citilocs, an on-line computer system that monitors all classified the adverse impact to the institution from any one event or set of outstanding credits in the commercial loan portfolio. It also conditions. History has shown that adverse developments affecting provides summaries on concentration of risk by industry and individual countries or industries or particular products tend geographic area, factors that are continually monitored by to be cancelled out by favorable devclopments in other activities the Credit Policy Committeo.

in the long run. Citicorp utilizes this strategy of broad diversification Remedial credit management is also crucial to our credit process.

in its loan portfolio management to better control the amount Our Institutional Recovery Department, based in New York, of unpredictable losses. For example, no single country outside is staffed by 20 professionals whose major responsibilities are the United States has accounted for more than 9% of the total maximizing rec eries on large credit problems, as well as commercial loan portfolio in the last five years. However, banks are minimizing losses. This group also shares their experience and in the business of measured nsk-taking, and losses are part skills with remedial management teams in almost all of our of the normal cost of lending money in commercial lending, the business units around the worki amount of losses as a percentage of outstanding loans can In consumer lending, our credit process has the same conceptual vary widely from period to period and is particularly sensitive to structure as credit management for commercialloans. But the fluctuations caused by changing economic conditions. The actuarial nature of consumer banking makes avslable additional percentage of loan losses to average loans reached a post-war credit management tools and skills. Key to the Individual Bank peak of.83% in 1975 due primanly to the 1973-1975 recession in the processes is the monthly consumer portfolio review, which uses a U.S. which particularly affected the real estate industry The loss centralized management information system that identifies trends percentage steadily improved in the 1975-1980 period, paralleling in delinquencies or write-offs by product. Whenever these levels the progress of economic recovery in the wake of the past deviate from business profit models, the Individual Bank credit recession. As the pace of economic growth slowed, initiating a management professionals and line managers review the reasons continuing period of weakness in certain industries, the for the variance and start appropriate remedial action. This percentage rose to.32% in 1982 and.65% in 1985 and reached kind of review also enables the line businesses to continuously fine

.72% in 1986. These percentages are below the 1975 high. Looking tune and improve their credit enteria. Our audit specialists in ahead over the next 12 to 18 months we expect ou loss experi-the Individual Bank have the same strong, independent portfolio ence will remain within the range experienced in the past five years.

quality review functions.

Citicorp emphasizes a well-diversified and healthy earnings stream in summary we continue to believe that our decentralized as the primary means of absorbing recurring loan losses. Accord-system that places highly qualified decision makers close to their ingly Citicorp immediately recognizes as losses all loan amounts customers produces the best credit decisions. This system is judged to be uncollectible. Over time a significant portion of these supported by strong controls and auditing processes. These, losses are recovered. Historical experience indicates that certain coupled with our philosophy of spreading out risk, never losses exist in the portfolio at a point in time but have not been commit ting too much to one borrower and working continuously specifically identified. In anticipation of these unidentified losses, to maintain the risk-reward trade-off of our products within a the allowance for possible credit losses is established by charging dynamic policy framework, will result in predictable and balanced current earnings with amounts over and above actual net credit credit quality over time.

losses. No portion of the resulting allowance is specifically allocated or restricted to any individual loan, groups of loans, or geographic areas, and the entire allowance is available to absorb losses from any and allloans and lease financing receivables. In order to assess the risk characteristics of the loan portfolio at year-end 1986, Citicorp believes it is appropriate to view the portfolio according to the elements shown in the accompanying table.

30

w COMMERCIAL LOAN PORTFOLIO, NETOF UNEARNED DISCOUNT 1985 1985 NETLOAN NETLOAN LOANSAT AteO LEASE LOSSES TO AND LE ASE LOSSES TO DECERASER 31, AVERAGE LOSSES AVERAGE AVERAGE

. LOSSES AVERAGE

4MILLIONSOF DOLLARS

,SSG LOANS (RECOVERIES)

LOANS LOANS (RECOVERES)

LOANS Comenercial and Industrial Loans

InDomesticOffices

$16,868

$12,361

$ 73

.6%

$12,827

$ 59

.5%

in Overseas Offices'a 22,922 26,210 259 1.0%

27,929 249

.9%

TOTAL

$39,790

$38,571

$332

.9%

$40,756

$308

.8%

Loans to FinancialInstitutions

$ 604 in DomesticOffices 875 $

416 In OverseasOfficesta 4,341 4,507 19

.4%

4,733 19

.4%

TOTAL

$ 5,216

$ 4,923

$ 19

.4%

$ 5,337

$ 19

.4%

Real Estate Loansa

$ 5,300 inDomesticOffices

$ 7,570

$ 7,032

$ (1)

In Overseas Offices.

2,311 2,107 30 1.4%

1,995 14

.7%

TOTAL

$ 9,881

$ 9,139

$ 29

.3%

$ 7,295

$ 14

.2%

Loans to Governments and OWicial Institutions *'*

$ 4,552

$ 5,076

$ 33

.7 %

$ 4,695

$ 36

.8%

TOTAL Confe8ERCIAL LOANS

$59,439

$57,709

$413

.7 %

$58,083

$377

.7%

(1) Inchxtes bans not otherwuse separately categonzed (3) Loan classohcates are basedon Comptrollerof the Currency dehnetes (2) Loans to govemment ownedenterposes and banks that are not uncluded m dorect (4) Substantually all m overseas 05ces bans to gownments andoMCknlmstitut>0ns are Mcluded MCommerctaland umstnalbans and bans to snanciat estitutens. respectrvely COMMERCIAL ANDINDUSTRIAL LOANS LOANS TO FINANCIALINSTITUTIONS Citmorp's commercial and industrial loan portfolio is broadly Loans extended to correspondent banks and other financial diversified in terms of industry geography and size of customer.

institutions in the U.S. and overseas averaged $4.9 billion, or None of the major industry segments in Citicorp's commercial approximately 9%, of Citicorp's portfolio.

and industrialloan porifolio represents a significant concentration.

Credit experience in this portfolio continues to be better than This diversification has proven to be a successful factor in average, particularly in light of the difficulties that were experienced controlling risk. The weakness of the worldwide economy in certain by some institutions in the banking industry this past year. Potential industry sectors contributed to an increase in the net loan loss loan losses to financial institutions are anticipated to remain below ratio to.9% in 1986, with higher losses overseas. In the past five that for commercial and industrial lending, and this trend is years, commercial and industrial loan loss experience has expected to continue over the next 12 to 18 months.

ranged between.4% and.9%. Net losses on commerciallending can vary widely from period to period, particularly within any given narrowly defined sector. While loan losses in commercial and industrial lending cannot be accurately predicted, Citicorp expects tnat over the next 12 to 18 months its loan losses will remain within the range experienced in the last five years.

i l

31

REAL ESTATE LOANS CONSUMER LOAN PORTFOLIO ANALYSIS Caspite well-publicized problems in the U.S. commercial real estate he profit dynamics of consumer lending are such economy in 1986, the domestic portfolio continued to generate that each product has an expected level of credit recmeries. These were offset by losses in the international portfolio, loss, which is generally a statistically predictable which resulted in a net loss overall Over the next 12 to 18 months, expense of doing business. For example, loans with credit losses are expected to remain within acceptable levels.

Iow loss experience include home mortgage loans 0

LOANS TO GOVERNMENTS AND Loans with medium loan loss experience are secured products, such as mobile home loans and automobile loans. Included in International lending to governments and official institutions is a the category of high loan loss experience are such unsecured contini ung part of Citicorp's worldwide activities. Outstanding loans products as credit cards, travel and entertainment cards, and to govemments and official institutions averaged $5.1 billion during other personal revolving credit products. Pricing and marketing 1986 and were approximately 9% of the average commercial pol cies reflect the loss experience of each particular product.

Ioan Mfob Citicorp follows a wnte-off policy that requires that most i osses recorded in this category largely represent certain consumer loans, with the exception of adequately secured inst 8nces where portions of loans were wntten off based on a consumer mortgages, be written off when payments are delinquent provacted inability to service foreign currency debt and a lack of by a predetermined number of days af ter the contractual payment denave prospects for the resumption of orderly debt servicing.

date. The number of days is set at a ievel appropriate to loan During the next 12 to 18 months, Citicorp expects the net loss product and environmental characteristics so as to result in the l

ratio in this category to remain within the range experienced in the recognition of losses that makes the likelihood of subsequent last frve years. Hosever, excluding those instances of wnte-offs recovery of those losses fall between 20% to 30% Those loans based on foreign currency debt servicing considerations, Citicorp not yet wntten off and with principal or interest payment expects any losses to be well below those in commercial and delinquencies of 90 days or more comprised 193% of the total industnallending year-end 1986 ccasumer loan portfolio, an increase from the comparable 1985 ratio of 155% The policy for suspending PERCENT OF COMMERCIAL LOAN & LEASE accruals of interest on consumer loans varies depending on LOSSES TO AVERAGE LOANS the terms, security, and loan loss experience characteristics 75 of each product and in consideration of write-off cnteria in place.

.72%

.ss%

Consumer loans for which accruals of interest had been g

suspended were $840 million at year-end 1986. Foregone interest 45 revenue resulting from suspension of interest accruals was not 8'%

materialin 1986. Consumer loans with delinquencies of 90 days 20 or more for which interest continued to be accrued were l

$557 million at year end 1986.

Losses as a percentage of average loans were up substantially from 123% in 1985 to 158% in 1986. This increase in credit g

loss expense was driven by three factors: the newness of the m

19m m

1985 1986 credit card receivables which histoncally have higher loss rates NET LOAN ANo LEASE LOSSES N MLuoNS OF DOMS during the early stages of portfolio formation; an increase in

$1e2

$241

$221

$377

$4 3 personal bankruptcy filings which accelerate loss recognition; and i

the impact of weak economies in states with high dependence on egy aM agde, sphh m seges d w db j

AVERAGE LOANS. NET OF UNEARNED DSCOUNI N MILUONs OF DOLLARS i

home portfolio. Increased collection efforis and appropriate i

ssa,ata seo, sat sss,o27 sse,osa ss7,70s modification of credit cnteria have stabilized these segments of the portfolio. The lower risk, secured lending segment (mostly mortgages) which is 47% of the worldwide portfolio continues to perform at stable and very low credit loss expense leve!s.

i 32

i i

DOMESTIC PORTFOLIO PERCENTOFCONSUMER LOAN & LEASE The average domestic loan portfolio increased by $9.0 billion LOSSESTO AVERAGE LOANS to $496 billion. Growth occurred in each category of consumer credit loss expense experience.

175 150 1986 1986 1986 1985 avrRaca nat Loan LOAN 125 1.23 %

l LOANS LOSSES LOSS LOSS IN BiLUONS IN MILUONS RATIO RATIO 100 g

Credit loss expense

.7sw

.7s%

3 experience:

I Higher

$14.1

$696 4.9 3.8 50 Medium.

11.1 167 1.5 1.0 z,

Lower

_24.4 13 0.1 0.1 i

T3TAL

$49.6

$876 1.8 1.3 I

1982 1983 1984 1985 1986

[

NET i. DAN AND LEASE Losses N MILuoNs OF DOLLARS The relative year to-year comparisons in the portfolio are shown in sis 4 sies sass sses sess the following table:

AVERAGE LOANS NET OF UNEARNED DISCOUNT N M!LuoNs OF DOLLARS PERCFNT OF AVERAGE LOANS 1986 1985 1984 Higher 29 28 24 Medium.

22 22 23 Lower

_49 50 53 MAL M

100 100 CAPITAL ANALYSIS D unng 1986, Citicor

$5,583 million, or 35%, to a year-end total of

$21,531 million,10.88% of total assets, compared INTERNATIONAL PORTFOLIO with a ratio of 9.12% at year-end 1985. This increase The average international portfolio volume rose from $72 billion included internal equity generation, the issuance of to $11.1 billion, principally due to a combination of new acquisitions common and perpetual preferred stock, growth of the allowance and growth of base business. The portfolio remains concentrated for possible credit losses, and the issuance of subordinated capital in the major industrial nations of Europe and Asia.

notes mandatonly convertible to equity including such notes with no stated maturity and non-convertable long-term debt.

pac 7d Ave's7A Citicorp has continued to develop new markets and new

^

tuRorE instruments for raising capital and to respond quickly to regulatory Avf RAGE t CANS ME A AGE LOANS AVERAGE LCANS l

iNencons iN ewoNs s iN emoNs s and market changes. Following the announcement by the Federal Germany.$3.3 30 Australia. $0.7 6 PuertoRico$0.8 7 Reserve in November 1986 permitting debt with no stated matunty U.K.

1.8 16 Hong Kong 0.7 6 Other 0.5.._ 5 to be included in primary capital under certain conditions, Citicorp Other 2.2 20 Other 1.1 10 became the first U.S. bank holding company to issue this type of TOTAL,.$7.3 66 TOTAL

.$2.5 22 TOTAL

. $1.3 12 subord:nated capital notes in a $500 million sale.

~ - -

In June 1986, Citicorp issued 5 million shares of common stock for $285 million, one million shares of which were sola outside the U.S. Citicorp also issued an additional $150 million of perpetual preferred stock, $249 million in subordinated mandatorily convert-ible capital notes, and $3,069 million of non-convertible subordi-nated long-term debt which, under existing regulatory guidelines, is included in totalcapital.

Dunng 1986, Citicorp increased pnmary capital by $2,598 million, or 24%, to a year-end total of $13,490 million,6.82% of tofal assets, compared with a ratio of 6.23% at year-end 1985.

Both total and pnmary capital ratios were well above the regulators

minimum requirements of 60% for total capital and 5.5% for pnmary capital for national banks and bank hoiding 33

companies. In addition, the capital ratios for each of Citicorp's permits managers to anticipate potentialliquidity problems and domestic subsidiary banks and savings and loan associations also fundingneedsmonths ahead.

were maintained above the regulatory minimum requirements.

Citicorp's strategy is to enhance liquidity two ways: by extending the maturities of its liabilities, and by diversifying its funding COMPONENTS OF CAPITAL sources. In 1986, Citicorp raised a total of $7,436 million of debt wwmsor oonas 9

CHANGE withfinalmaturitiesof 20yearsorlonger.

TOTAL CAPITAL

$21,531

$15,948 $5.583 Extensive diversification by market, by currency by lender, by Of which:

maturity and by instrument enhancesliquidity Over the years, Common Stock and Surplus

$ 1,636

$ 1,250 $ 386 Citicorp has been able to react quickly to changing market conditions Preferred Stock 1,365 1,215 150 including the development of new funding sources. Importantly, Retained Earnings 6,059 5,300 759 liquidity has been enhanced through the growth of consumer Allowance for Possible Credit liablities that have added further stablity and depth to Citicorp's Losses 1,698 1,235 463 funding profile. In 1986, average U.S. consumer liablities grew Oualifying Subordinated by $2.8 billion from $29.9 bition to $32.7 billion. In addition, increased CapitalNotes 2,648 1,815 833 securitization of single family home mortgages and sales of MinontyInterest in participations in commercial loans have significantly improved liquidity Consoldated Subsdiaries 84 77 7

The combination of issuance of long-term debt, increased customer deposits in several countries around the world, but PRWARY CAPITAL

$13,490

$10,892 $2,598 particularly in the U.S., and creation of assets which could be sold Remainderof Subordinated readily in the market has given Citicorp an unprecedented level 84 $ (84) ofliquidity.

Capital Notes Redeemable Preferred Stock.

40 40 Qualifying Debt 8,001 4,932 3,069 SECONDARY CAPITAL,

$ 8,041

$ 5,056 $2.985 MANAGEMENT OF INTEREST R ATE EXPOSURE Primary Capital, as defined by the Federal Reserve, includes Total nterest rate exposure is the sensitivity of earnings to changes Stockholders' Equity the Allowance for Possible Credit Losses, in interest rates. This exposure exists when market interest Qualif ying Subordinated Capital Notes, and Minority Interest in movements affect assets and liabilities differently Banks Consolidated Subsidiaries.

assume interest rate risk as a basic economic function and Total Capital includes Primary Capital, Redeemable Preferred derive income for undertaking this risk. The less interest Stock, and gross Qualifying Debt.

rate risk assumed, the less income is likely to be earned. Activities that neutralize interest rate exposure are also likely to minimize earnings potential.

Citicorp senior management has established parameters for LIQUIDITY MANAGEMENT Citicorp worldwide within which interest rate exposure is to be Citicorp defines adequate liquidity as ha managed. Thus, Citicorp manages the portion of earnings that available at all times to repay fully and promptly all will be exposed to interest rate movements in the expectation maturing liablities including customer demand of taking advantage of the opportunities to increase earnings deposits in accordance with their terms. However, resulting from properly anticipated movements in interest rates.

one economic function performed by banks and it is the responsibility of Citicorp's Finance Committee to bank holding companies as financial intermediaries is to assume establish and oversee policy regarding interest rate exposures.

liquidity risk by borrowing for shor ter terms than they lend. Thus, The Committee, which meets on a monthly basis, is composed of successful fiqudity management is essential to the ability of a bank members of senior management including a Vce Chairman, or bank holding company to fulfill one of its prime economic Sector and Group Executives, and the Chief Financial Offcer. The functions. Liquidity is cntcal to maintaining market confdence. Each committee reviews the institution's total interest rate exposure and indivdual business and legal entity within Citcorp must manage ensures that the potential impact on earnings from future changes its liquidity to ensure it can constantly meet its obligations.

in interest rates is kept within the confines of established limits.

The management of liquidity exposure is Iacilitated by forecast-The Finance Committee's analysis of Citicorp's overallinterest ingthemaximumoutflowof fundsnetof anticipatedreceipt rate position breaks interest rate exposure into two reprcing of f unds. Calculating the maximum cumulative outflow of funds ranges: by month up to one year (short term exposure) and longer than one year (long term exposure). The analysis focuses on expected behavior of assets and liablities rather than the contrac-34 1

tual term. For instance, the anticipated impact of home mortgage N-TERM NDE N prepayments in a penod of rapidly declining rates is factored int INTEREST RATE GAP

the analysis. The purpose of this analysis is to be certain that the IN mms ONARS AME AR END maximum potential risk on future earnings resulting from the impact of possible future changes in interest rates on currently 8

7.s existing net asset or net liability positions is dimensioned and 7

7 7,2 managed. Interest rate exposure limits are set at a maximum of 10% of Citicorp's annual earnings. The amount of earnings at 6

risk is calculated by applying the most adverse histoncal interest 5

s.3 rate environment to the current exposure position.

d Interest rate exposure is also created in Citicorp's trading 34 porifolios, which are managed to take advantage of short term 3

2.s 2.s i

market opportunities. Trading portfolios, which include non-funds 2

related products, are revalued to market with gains and losses reflected in earnings on a current basis. Trading positens are i

as managed under a separate process of specific portfolio limits.

g While overall corporate targets are established by the Finance 1

2 3

4 5

6 7

8 9

10 11 12 Committee, Citcorp's basic strategy of diversification and decen-nowfus tralization permits the business and country treasurers to take acess e assets omraatares, ncsudg me esects e,muxfs resaledproducts uraced interest rate positions they deem appropriate to the size and nature h ee@m purposes. we repncm dafes beyond me mond she of their businesses within the limits set for that unit. Local asset LONG-TERM MESTIC E MAR and liability committecs establish and monitor these limits subject INTEREST RATE GAP

to approval by the Finance Committee. Overseas units are not permitted to maintain signifcant long-term U.S. dollar interest rauoNsor DouARS AT YEAR END rate exposure.

5 Because the net exposure of the sum of the individual units-4.s interest rate positions will not necessanly match the overall corporatu objectives, the Finance Committee is responsible for a

2.s taking actions which will adjust Citicorp's total U.S. dollar interest 2

rate exposure to meet the corporate objective. These actions include the issuance of fixed and floating rate debt and interest rate I

hedges using non funds related products such as interest rate o.2 o

swaps, futures, and options.

g, 1

E4 as as As a consequence of the size and diversity of Citcorp's e

e s2 m

m m

m customer base for both assets and sources of funds, there are

- " #'88#8 "' *** "#"#N ** #8 #" " "'"#8 "# #'*8 "'d""#

offsetting rate exposure factors among our assets, liabilities b hedg ng purposes, wth repncmg dates beyondone year and cerlain non funds related activities. A factor that might have an adverse effect on earnings from one asset or liability may be LONG-TERM INTEREST RATE GAP

benefcial to earnings of another asset or liability and thus cushion IN SELECTED CURRENCIES the exposure of Citcorp's carnings.

iNmms&us uMANS AMEARWD A small porten of Citicorp's total earnings at risk is denominated in currencies other than U.S. dollars, including Deutsche marks, 2

yen, pounds sterling, Australian dollars, and Canadian dollars.

12 These exposures tend to be offsetting in the longer term, as inter-g3 est rates in all currencies do not move in the same magnitude, or even in the same direction, at the same time.

t a4 The accompanying charts illustrate Citcorp's long term and Df

[jy Ag*gijn c

n shori term dollar interest rate positions, as well as long term

.ncess d assets owr hateres ocunng the esects v non a;nds reared pramcts utseed interest rate positions in selected other currencies. Trading posF w hedging purposes wth roprong dates eeyond one year i ons, including non funds related products, are not included in the accompanying interest rate positions since the effects of interest rate changes are recognized in earnings on a current basis While the charts capture Citicorp's posit on at points in time, in reality these positions are constantly changing with the flow of assetsandliabilities.

35

r I

S E

N I

O R

M A

N A

G E

M E

N T

I I IES

XElll A a JE:*:I""" e l

In the previous sections, we have discussed who our customers experience to its customers. Some of our senior management have l

are, how they are responding to a fast-changing financial environ-been pictured within the discussions of the businesses. Rounding ment, how we are meeting their needs now, and our strategy for the out that team are the senior managers shown below and on the development of innovative ways to meet future needs. Oticorp following page.

I brings a unique combination of products and services, talent, and Fromleft to nght Rchard J. Lehmann, Vctor Menezes.

DavdS VanPelt, l

PaulJ. Collins l

l s'

e -

t a

3s r

y er fromlef t to rght' DanelIJac> Men, Charles E. L_. g.

Paul Kolterjahn, GeorgeJ Clark c

8

.r, As j

kl' 1

\\

A',f l

36

I I

I l

ffomlett toight.

Thomas E. %

bald S. Howard.

I Pamela P Flaher1y bwrence R Genn, PaulF Glaser r

6 b

J h

l l

l I

I, i

l 37

m

~

.i FIN ANCI AL INFORM ATION 'INDEX y17 n meu 9

L Qb C

ff)

I-l' l

f Citicorpin Brief 40 The Businesses of Citicorp 42 Summery of Financial Results.' 48.-

4 Statement ofIncome Analysis 47 NetinterestRevenue _47_

Provision and Allowance for Possible Credit Losses 47 Fees, Commissons, and Other Revenue 48.

Operating Expense 49 income Taxes 49 GeographicDistnbutionof Revenue Eamings,-

and Assets 49 Financial Reporting Responsibility 51 Report ofIndependent Auditors 51 Financial Statements 52

+

Statementof AccountingPolicies 57 Notes to FinancialStatements 59

('

Financial Statistics 73 l

Form 10 K Cross-Reference Index 74 Financial Data Supplement 75 39

i:

JC' I

T I'

C'

^ O R

P:

. I N

8-R' i

E F

m w-musumsuecas a m m - l-g' g

..~g~ (-

mummmmmmmu a sum i

~

l

.i l

6 i

F l'i e

l i

i CAPRRLM TOTALCAPREL A800 -

mer PRIAAARY CAPRRL Common Stockhoklers 50.000 i

- nea.uousoroaunanvunoe CtaN -

{

Domestic 49 000 mueomemAsAnmcmE&

mm r'ew.

3 total ASSETS EMmMACML i

. Overseas 39,500 EEEE YEAR DOMMCARW. AS AP;ND@GE W l

i Tow. ASSETS i

TOTAL.

. 88,500 1o.e%

st.s l

l J

OFFICES U

i p.;

j l'

. United States (1,214 offices in 40 states M

j and the Dstnct of Columbia)

/?'?

]

l Otibank. N.A., branches

'301

'5W w

,Y I

,NA M

Otibank. N.A., subsidiaries 65

[.,[WID h

Otibank (New York State),

l N. A., branches.

46 Otibank (New York State),

C i'Q,R8Q tsp y

g

f.(;j d @l

(:gj

[

- N.A.,subsdaries.

35-Otcorp Savings.

236 7.as 4, WVwMW fM "

W#

Other Oticorp subsidiaries 531 j[j

,n "m i J

<^"

Overseas (1,907 offices in 91 countries) f v

Otibank branches and 8

7 c

- m 7-representative offices.

286 ' f js Banking subsidiaries 609

[J,

Banking affiliates.

96 I

Other financialaffiliates S " '?

.4 and subsidianos 916 b*

I 87:

v 4

TOTALDOMESTIC AND OVERSEAS.

3,121

,L 7.9 ?

7.2 /RT'--

I s.7/(N-

,;,er,

g 5.1p

,g,

E 3

1982 1983 1984 1985 1986 1977 1978 1979 1980 19 81 1982 1983 1984 1985 1986 40

....)

N M AMERAGE ASSETg*

NETusccm u anoe,,,,,,

mum svocKnoLoans'meusTy*

"T'=== = na s=An.

Emmamm.

1.=

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lifestnIR&1 j

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2. m:- g&%Cglu M77 1978 E79 1980 1981 1982 1983 1964 1985 19P6 1977 1978 1979 1980 1981 1982 1983 1984 1 % 1966 S77 S?8 679 1900 1981 1982 1983 1984 1985 1986

'Not htomeas a Ptweentageof Aerage Leaf Assets

Net teame Less Fk*wed Steen Op*nts as a Fwtontage or l

Awage Common StockhcUers'EquWy l

i 41

T H

E B

U

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S S

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T~

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Y$

O CiticorpL a holding company was inco liabilities of a financial institution are primarily monetary in nature.

1967 under the laws of Delaware and is the sole _

During periods of inflation, monetary assets lose value in terms of shareholder of Otibank, N.A.

purchasing power, and monetary liabilities have corresponding -

Today Oticorp, with its subsidiaries and affiliates, purchasing power gains. The financial statements and other data is a multinational financial services organization. Its appearing in this annual report, and in particular the discussion staff of 88,500 people serves the financial needs of individuals, of interest rate risk management on page 34, illustrate how businesses, governments, and financial institutions in over Oticorp operates in an environment of changing interest rates 3,100 locations, including branch banks, representative offices and andinflationary trends.

subsidiary and affiliate offices in 40 states and the District of in order to meet the challenges of today's and tomorrow's Columbia and 91 other countries throughout the worki marketplace, Oticorp has organized its activities around customer-Oticorp, Otibank and their subsidiaries and affiliates are subject oriented core businesses: the Individual Bank, which focuses to intense competition in all aspects of their businesses from on serving the needs of consumers, and the Institutional Bank, both bank and nonbank institutions that provide financial services Investment Bank, and Information Business, which work in and, in some of their activities, from govemmental agencies.

conjunction to serve corporations, financia! institutions, and govern-The impact of inflation on Oticorp and other financial institutions ments. For further information regarding the core businesses is significantly different from the impact in industries that require see the sector discussions below a high proportion of investment in fixed assets. The assets and S

E C

T O

R P

E R

F O

R M

A N

C E

S NET INCOME-SECTOR AND CORPORATE ITEMS INDIVIDUAL BANKING Indivdual Bank earnings rose to $462 million, up 41%, or w uwwscwooums 1sse 1989 VAR

$135 million over 1985. Growth in net income was achieved in most Individual Banking.

$ 462

$ 327

$135 41 of the Sector's major businesses, both domestically and abroad.

Institutional Bank Products Domestically earnings gains were paced by the Sector's delivered toInstitutional national credit card and mortgage businesses and the New York Relationships.

443 400 43 11 branch system. Continuing market share gains enhanced the investment Bank Products Sector's dominant market positions in credit cards and in delivered toInstitutional New York. The Sector also continued to build its national mortgage Relationships.

357 290 67 23 bank where loan originations reached record levels. The Private Investment Banking Banking Group showed strong eamings gains domestically and Products.

72 134 (62) (46) nternationally as loan and deposit volumes, assets under information Business.

(34)

(8)

(26) management, and securities-related revenues increased significantly Sector Earnings.

$1,300

$1,143

$157 14 The Individual Bank's international activities in three geographic Corporateitems.

(_ 242)

(145)

(97)

(67) regions-Asia / Pacific, Europe, and Latin America-also posted ToTAt.cmCORP

$1,058

$ 998

$ 60 6

strong eamings.

hNstatemenectagawarmscranges.

The improwment in Individual Bank returns was driven by its major businesses-card products, private banking, the New York branch system, and most overseas activities-which substantially exceeded corporate retum targets, while returns from other devel-oping businesses were below corporate hurdles.

Average assets increased 27% led by mortgage and credit card activities. Lower domestic interest rates helped propel demand for mortgage financing to reco-d levels. First mortgages grew 36%

despite $4.6 billion in first mortgage sales, as the packaging and selling of mortgages has become an integral part of this business.

Card receivables rose 20% while card accounts increased to 175 million.

42

Revenue momentum continued as customer net revenue INSTITUTIONAL RELATIONSNIPS increased 35% to $5B billion, primarily related to higher customer Institutional Relationships' results include earnings from the asset and liability volumes, which grew 23% and 21%,

delivery of both Institutional Banking and Investment Banking respectrvely Fees increased 31% driven by record mortgage products to corporations, governments, and financialinstitutions servicing volumes and the increased credit cardholder base.

worldwide. The table below summarizes Sector earnings-Higher gains on sales of mortgage pass-throughs and mortgage-backed securities also contributed to revenue growth.

INSTITUTIONAL RELATIONSNIPS The rapid increase in customer assets and revenues was IN WLOONS OF DOLL ARs 1986 1985*

VAR accompanied by higher credit cycle expense, which includes TotalRevenue.

$3,664 $3,361

.$303 9

wnte-offs. The higher write-offs were driven by volume increases, Provision forPossible Credit particularly in credit card receivables, which have an historically Losses 390 389' 1

higher credit loss experience in the early years of portfolio forma.

tion. Additionally,wnte-offswerehigherincertainsegmentsof the OperatingExpenses 1,833 1,733 100 6-income Before Taxes 1,441 1,239

~202.

16-mobile home portfolio due to economic conditions in certain parts NETINCOME.

, $ 800 $ 690 - $110 16 of the United States. The higher write-offs were reflected in the comparative ratios of net loan losses to aveuge loans: 1.58%

Averaga Assets ($ Billions).

75 74 1

1' compared with 123% in 1985. The Sector was charged $59 million Returnon Assets (%)

1.06 0.93 0.13 during the year to maintain its allowance for possible credit losses Return on Equity (%).

26.6 23.2 3.4 at 50% of year-end loans; the comparable charge in 1985 was g; g,3,,,mc, o,y,,,,,,,,,cn,,y,,

$61 million.

In contrast to the 35% increase in customer net revenue, delivery institutional Relationships

1986 earnings were up strongly despite cxpense increased by 26% or $700 million, year-to-yeat This a continuing high level of credit write-offs. The higher wnte-offs increase was primanly related to the support of base businesses, reflected the persistent weaknesses of certain industries, both particularly in the area of higher processing costs for expanded domesticaHy and overseas. The Sector's strong performance was customer volumes. The remainder of the increase was directed bolstered by a $46 million af ter tax benefit from the impact of the toward initiatives aimed at improving our longer-term positioning Tax Reform Act of 1986 on leveraged leases, which primarity and development of new revenue sources, including acquisitions, reduced tax expense. Last year's earnings benefited from the and investments in marketing, technology and product

$19 million reduction in New York State and City taxes related toleveragedleases. '

development.

Revenues from institutional Relationships were derived from a INDIVIDUAL BANK broad range of financial products. The 9% increase in revenues reflected significant gains in fees and commissions and other iN wtuoNs or oot t ans 1986 1985$

VAR revenues, with strcng contnbutions from risk protection products Customer Net Revenue-

$5,638

$4,180

$1,458 35 and advisory actrvities, as well as gains from sales r f aircraf t lease residuals. Asset-related credit revenues were down 2% for the year Expenses:

Credit Cycle Expense 1,476 1,000 476 48 Delivery Expense 3,392 2,692 700 26 Total Expenses

$4,868

$3,692

$1,176 32 Other Income.

72 98 _ (26) (27_)

Income Before Taxes.

842 586 __ 256 44 NETINCOME.

$ 462

$ 327

$ 135 41 Average Assets ($ Billions) 71 56 15 27 Return on Assets (%)-

.65

.59

.06 Return on Equity (%)

16.2 14.7 1.5 U) Restatec, so reRect organgatenat charges I

l 43

b L

due to strong cash collections on cash basis loans in the previous commercial loan and lease wnte-offs were $398 million for 1986, year and repricing on certa'n country debt restructurings. Full-year up 5% for the year. The wnte-offs translated into 69% of the 1 operating expenses grew only 6% to support the revenue full-year average commercial loans, up from last year's level of increases.

65%. The Institutional Relationships' provision for possible credit Eamings remairwd geographically diverse with approximately losses also reflected the impact of maintaining the credit allow-

half attnbutabletoNorth Americanoperations Eamingsgrowthin ance at 60% ofloans.

North America and Asia / Pacific offset declines in Latin America On a geographic basis, increased eamings were recorded in

' and Europe, the Middle East, and Nrica. The Financial Institutions both North America and Asia / Pacific on sharply higher fees and Group 6 which operates within all the geographic regions, recorded commissions and other revenue. Latin America's eamings a modest increase in eamings over last year.

declined due to stronger cash collections last year and the Key performance indicators improved on a slightly higher repricing impact of certain country debt restructurings. Europe, average asset base, generating a 26.6% retum on equity and a the Middle East and Africa posted lower eamings due to higher 106% retum on assets..

write-offs and realignment expenses.

Cash basis and renegotiated loans totalled $2,554 million at the

{

InstitutionalBanking Products end of 1986, up $306 million from last year. However, the ratio of 9 aMansWaNans sN4 n mucusorconAns sees 1985m VAR unchanged from the 1985 level. The year-to-year increase in TotalRevenue.

. $2,635 $2,549

$86 3

non-performing loans was spread across North America, Europe, 1,513 1,477 36 2

Operating Expenses...

the Middle East, and Africa, while decreases occurred in Latin

- NETINCORSE,

$ 443 $ 400

$43 11 America and Asia.

i m aestated merect organaatonar changes.

Average assets in 1986 were $73 billion, up $1 billion from 1985.

j Eamings from the delivery of institutional Banking products to the 1

institutional customer base were $443 million for the year, up 11%

investment Banking Products l

~ over 198Ss tesults.

muuaonsor couans toes 19859 VAR Revenues from lnstitutional Banking products were $26 billion, TotalRevenue.

$1,029

$812

$217 27 up 3% over those of a year agat The increased revenues stemmed Operating Expenses 320 256 64 25 from fees and commissions and other revenues. However, strong NETmcoass.

$ 357

$290

$ 67 23 cash collections on cash basis loans in the previous year and repricing on certain country debt restructurings resulted in lower asset-related credit revenues. Institutional Banking's results also Eamings from the delivery of Investment Banking products to the 1

. reflect a $46 million benefit related to the impact of the Tax Reform institutional customer base were $357 million for the year, up Act of 1986 on leveraged leases. Operating expenses were up 23% over 198Ss earnings.

only 2% for the year despite the adverse impact of the weaker Revenues from investment Banking products advanced 27% to dollar on overseas operations and costs associated with the recent

$10 billion for the year The rewnue gains were fueled by sharply realignment of certain businesses. The realignment has resulted in higher fees and commissions-particularly fees related to corpo-c more strean lined expense base.

rate restructurings, risk protection products, and debt / equity Citicorp continteo maintain an aggressive posture in the swaps arranged for customers-plus strong commercial foreign

. recognition of tx h pa Ic and private sector write-offs. Net exchange activities and improved funding revenues. Operating expenses were up 25% for the year, reflecting costs required to support underlying strategic initiatives and to maintain the higher volumes. The eamings growth from investment Banking products was spread geographically These results are also included in the discussion of Investment Banking. which immediately follows this section.

44

INVESTMENT BANKING INFORMATION BUSINESS AND CORPORATE ITEMS Investment Banking at Citicorp encompasses securities activities, For 1986 the Information Business posted a toss of $34 million foreign exchange and money market trading, equity products, compared to a loss of $8 million in 1985.

venture capital investment, merchant banking, investment management, insurance, trust, and custodial services.

INFORMATION BUSINESS Earnings were $429 million, a slight rise over 1985's. The impact of substantially higher equity product eamings through venture TotalRevenue

$105

$105 capital gains, strong foreign exchange income, gains from security investments and insurance, and increased fees and commissions OperatingExpenses 181 14 147 wTs offset bylower secunties trading revenues and higher expenses.

Income BeforeTaxes (56)

(14)

(42)

NET Loss

$ (34)

$ (8)

$ (26) -

Revenues of $1.9 billion grew 21% over last year's, propelled by higher equity product earnings through venture capital gains, (9 nestated m esect orgamiarmat eAarves increased revenues from foreign exchange, revenues from The year-to year increase primarily reflects the costs associated f

recent acquisitions, advisory fees, and other commissions. Trading w th the June 1986 acquisition of Ouotron. The operations of revenues-which remained an important contnbutor to overall Quotron, excluding acquisition costs, are profitable, having added earnings-declined in companson with last year's reflecting difficult

$9 million to Citicorp's net income since acquisition. The costs conditions in Europe and North America.

of acquisition, including amortization of premium and the cost of Operating expenses grew 43% for the year. The increase carrying the investment, resulted in an earnings charge of was largely due to costs associated with recent acquisitions

$33 million. Continuing investment in other information-related

($77 million), the continued worldwide expansion of the businesses resulted in an earnings charge of $10 million in 1986,'.

Investment Bank franchise ($60 million)-including expenses compared with $8 million in 1985.

related to the development of a global systems network to support this expansion-and the costs of sustaining the higher volumes.

CORPORATEITEMS The adverse impact of a weaker dollar on overseas operations also contnbuted to the higher expenses. Average assets grew by W MwONS Or DOLURS 1984 198SM VAR 18% to $39 billion, while return on assets and retum on equity TutalRevenue

.$ 35

$ 38

$ (3)

(8) continued to exceed corporate targets.

Operating Expenses 149 108 41 38 Trading and positioning in foreign exchange, money market Provision For PossibleCredit and secunties instruments and commercial foreign exchange Losses.

385 209 176 84 accounted for approximately 83% of totalinvestment Bank Income Before Taxes (499)

(279)

(220). (79) earnings. Equity-related products, including venture capital, NETLoss

. $(242) $(145)

$ (97)

(67) contributed 11%

A major portion of Investment Bank earnings in 1986 came As ge Assets ($Edlions) 1 1

from products sold to lnstitutional Relationship customers. The (0 8eS'8d b **c' c'98*'8'*8'ct*"0"S products include foreign exchange and hedging products, Corporate items consist of the provision for possible credit losses financial advisory services, debt products, investment manage-reported at the corporate level, as well as unallocated corpciJe rrent, and portfolio services.

costs and other corporate items. The 1986 increase in caporate Geographically North America contnbuted approximately half tems primarily reflects the higher additions to the allowance for of totalInvestment Bank net income, the Asia /Pacifc region 23%'

possibla credit losses, which were $176 millon higher than 1985.

with Europe, the Mddle East and Afnca, and Latin America accounting for the balance.

INVESTMENT B_A,NK nuwoNsor coums 1984 1985m VAR.

TotalRevenuo

.$1,865

$1,545

$320 21 Oprating Expenses 1,151 806 345 43 Income Before Taxes 682 746 (64)

(9)

NETINCoME.

.$ 429

$ 424

$ 5 1

herage Assets ($ Billions) 39 33 6

18 Retum on Assets (%)

1.10 1.28

(.18)

Return on Equ! y(%)

27_.5..

, 32.1 (41) t rn entams e vsves agentau enanum 45

.S.U M.M-A R'Y O F F I N A N C I ~A L

.R E S U L T S b_ggg3 ce gllme= e

-

o e E!2 SSLSCTSD FINANCIALINFORMATION CITICORP AND SUBSIDIARIES 1988 1985 1984 1983 1982 ce MwCNSOF DOM ARS (XCEPTPER$ HARE AMOUNTS A400U00T C04A00GE AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE NetInterest Revenue.

. $ S 128 13

$5.446 26

$4,319 7

$4,043 15

$3,526 42 Fees, Commissions and 4,272 41 3,030 32 2.300 25 1,840 15 1,595 1

Other Revenue TotaLasvassus

$10,400 -

23

$8.476 -

28

$6,619 13

$5.883 15

$5,121 26 Provision for PossibleCredit Losses'

$ 1,82S 47

$1,243

$ 619 19

$ 520 10

$ 473 55'

- Operating Expense.

- 6,87S 28 5,517 24 4,456 19 3,757 11 3,398 16 TOTALampaseSa

$ S,700 29

$6,760 33

$5,075 19

$4.277 10

$3,871 19

)

Income BeforeTaxes

$ 1,700 (1)

$1,716 11

$1.544 (4)

$1.606 28

$1,250 54 S42 (11) 718 10 654 (12) 746 42 527 88 -

Income Taxes.

esavsescones.

$ 1,0S8 S

$ 998 12

$ 890 3

$ 860 19

$ 723 36 PerShare NetIncomem On Common andCommon

$7.12 10

$6.45

$6.48 16

$5.60 33 Equivalent Shares.

$ 7.14

$7.11 12

$6.36 3

$6.15 15

$5.33 33 Assuming FullDilution

$ 7.13 Dividends Declared Per Common Share.

$1.848 (18)

$2.26 10

$2.06 10

$1.88 9

$1.72 10 m

...$196,124 13 $173,597 15 $150,586 12 $134,655 4 $129,997

.9 TOTAL ASSETS '

DESTa

.$ 23,383 28 $ 18,255 24 $ 14,682 20 $ 12,221 16 $ 10,566 25 (1) On Net Income available kw Common Stockhdders after deductog Total Preferred Stock Duvdends at $75 mdloon n 1986, $63 maison n 1985, $60 malon n 1984, $37 mdte n 1983, and $4 mdlen a 1982 Q) Begnneg wuth the secondquarterof 1986, common divdends wdlbe consskved kw declaratoon un kly October January av4 April mstead of June, Septemter Decembez and March As a result ordy three devdends were declared n 1986 as compared to four divdends each m 19851984.1983, and 1982 (3) bckx}es Long Term Debt. Subordinated CaputalNotes, and Redeemable heterred Stock.

1 1

l 46

S T A T E M

E N

T O F iN C

O M E

A N A L Y S

I S X = i E li B i l E:

.IlEL o w.a.I+IGER

~

NETINTEREST REVENUE PROVISION AND ALLOWANCE TAXABLE EQUIVALENT BASIS FOR POSSIBLE CREDIT LOSSES he continued rapid increase in consumer loan Citicorp has continued its policy of reflecting all known losses in Tincrease in net interest revenue during volumes was the primary force behind the 13%

current earnings. In 1986, the total provision for possible credit losses was $1,825 million and included $1,371 million of net credit a slight decrease in the net rate spread from 3.98%

losses while adding $454 million to the allowance. In 1985, the in 1985 to 3.95% in 1986, net interest revenue grew total provision for possible credit losses of $1,243 million covered

$738 million to total $6.3 billion for the year. The domestic net rate

$962million of net credit losses while adding $281 million to the spread increased.25% to 4.73% largely dnven by higher consumer allowance, and in 1984 the comparable amounts were $619 million, outstandings. The lower overseas net rate spread reflects the

$507 million, and $112 million, respectively The allowance strong cash collections on cash basis loans in the previous year, for possible credit losses totalled $1.698 million at the end of 1986, repricing on cortain country debt restructurings, and lower yield on reflecting 130% of totalloans and lease financing. In 1985, the -

cer tain overseas trading secunties. Higher consumer loan volumes amounts were $1,235 million and 106%, and in 1984, $917 million and a 37 basis point increase in the interest rate spread were and Q88%, respectively important factors in the 25% increase in 198Ss net interest revenue.

Net credit losses as a percentage of average consumer loans Tha 9% increase in net interest revenue in 1984 was generated by were 158%, up from 123% in 1985 and.78% in 1984. The higher an increase in consumer loar; volumes.

level of net credit losses primarily reflects loan growth, particularly Average interest-eaming asset volume of $160.5 billion in 1986 in credit card receivables, which have an historically higher credit was 14% higher than last year, whereas the volume increases in loss experience during the early years of portfolio formation.

1985 and 1984 were 13% and 12%, respectively The 1986 increase Additionally wnte-offs were higher in certain segments of the in loan volumes was led by a $9.0 billion increase in domestic mobile home loan portfolio due to economic conditions in consumer loans, principally in mor tgage and credit card activities.

certain regions of the United States.

D3 mand for shelter financing was strong in the low interest rate The 5% increase in net commercial credit losses in 1986 over erwironment.

the previous year reflected the continued weakness in certain in 1986, international interest-eaming asset volumes were also industries, both domestically and overseas. Such industnes affected by the appreciation of several key currencies against the included shipping and energy in addition, write-offs related to US. dollac foreign debt servicing problems continued in certain countries. The ratio of net credit losses as a percentage of average commercial NET R ATE SPREAD TAX ABLE EQUIVALENT BASIS loans was.72% in 1986 compared with.65% in 1985, and.38% in 1984. The ten-year average of this ratio is.37%. Higher recoveries a

mas a

were derived primarily from commercial and industria! loans.

In Domestic Offices.

4.73 4.48 3.79 These strong recovenes are an indicator of Citicorp's conservative in Overseas Offices.

3.07 3.45 3.44 wnte-off policy and sinngent processes to monitor and assess TOTAL 3.95 3.98 3.61 problem credit situations.

The following discussion and accompanying table reflect the provision for possible credit losses allocated on a management basis.

Citicorp charges its sectors with a credit loss provision that maintains an allowance at a level that provides a measurement of costs against revenue generation consistent with the manner in which Caticorp manages its businesses and makes incremental business decisions. In any time period, the total allowance required to present the total loan portfolio in accordance with generally accepted accounting principles may be more than that allocated to l

47

the businesses. The additional amourit along with its related provi-ucts were driven by. continued strong consumer spending, while sion is recorded at the corporate level

' intemationally acquisitions and a favorable foreign exchange impact fueled this growth. Significant gains were recorded in prod.

PROVISION FOR POSSIBLE CREDIT LOSSES ucts delivered by the Institutional and Investment Banks, with strong contributions from risk protecton and advisory activities, w o uso m m s mes e

m corporate restructurings, and insurance. In addition, Ouotron IndividualBank:

has contnbuted $127 million in fees and commissions since its Gross Loan and Lease acquisitioninJune 1986 Losses

.. $1,172

$ 719

$386 The $437 million rise in fees and commissions recorded in 1985 Loan and Lease Recoveries '.

214 134 100 over 1984 was primarily attributable to improved credit card fees

- NetWnto-offs

$ 958

$ 585

$286 in the lndividual Bank, increased letter-of-credit activity in institu-Additions to Allowance.

SS 61 68 tional Banking and fees from diersifod activities in investment TotalIndividualBank.

$1,017

$ 646

$354 Banking.

Trading revenues decreased in 1986 to $162 million from l

Institutional Bank:

$210 million,23% below 1985. Trading results, particularly securi-Gross Loan and Lease ties trading, can fluctuate given market movements and the nature Losses.

$ 472

$ 445-

$277 of positons taken. The decrease in 1986 revenues is primarily Loan and Lease Recoveries,

74 65 56 a result of diffeult market conditions in both Europe and North Amenca.

NetWrite-offs.

$ 398

$ 380

$221 Global foreign exchange revenue, from both customer commer.

(Reductions from) Additions to cial f ransactions and intertmnk trading, continued to be diversifed

(

Allowance (8) 9 (9) acrcss many profit centers. Foreign exchange revenues of TotallnstitutonalBank.

. $ 390

$ 389

$212

$412 millon increased $54 milton over 1985, primarily reflecting continued gainsin Asia and Europe.

Corporato Addition Investment securities transactions posted a strong net gain of to Allowanco.

385 209 53

$214 million in 1986, compared with net gains of $59 million in 1985 and $16 million in 1984. The increase in 1986 of $155 million reflects Other Provision (Recoveries) 33 (1) strong gains in North America and Europe.

TOTAL PROVIS40N

$1,825

$1.243

$619 Other revenue was $505 million in 1986 compared with $280 mil-lion in 1985 and $197 million in 1984. The strong improvement Allocating the corporate provision for possible credit losses in in 1986 reflects a $38 millon gain on the sale of a building in Japan, conformity with generally accepted accounting principles would gains on the sales of venture capitalinvestments of $72 million, and have resulted in incremental pretax provisions in Individual Banking gains on sales of mortgage pass-throughs, and other assets.

of $226 million for 1986, and incremental pretax provisons in Insti-In 1985, other revenue was principally derived from gains real-tutional Banking of $159 million for 1986. The resulting consumer ized on sales of mortgage portfolios and other assets, amounts allowance for possible credit losses as a percentage of consumer received in a contract settiement and gains on sales of aircraf t and loans would have been 112% at year end versus.85% at December railcar lease residuals. In 1984, other revenue included gains on the 31,1985 and the commercial allowance for possible credit losses sales of venture capitalinvestments of $49 million, a $12 millon as a percentage of commercialloans would have been 156%

af ter tax gain on the sale of an affiliate, a $14 milhon gain on the versus 131% a year ago, buyback of the corporation's convertible notes and gains on sales 9 "

FEES, COMMISSIONS, AND dTHER REVENUE Total fees, commissions, ant o.her revenue of $4.3 billion in 1986 OTHER REVENUE increased 41%, or $1,242 million, over 1985; the totaf in 1985 was up

$730 million, or 32%, over 1984.

wu' ossa oou as tese 198v 19Be Fees and commissions increased $856 million, or 40%, to Affiliate Earnings

$ 56 $ 68 $ 78

$3.0 billon in 1986 from $2.1 billon in 1985. Individual Banking con-Gains on Sale of Residual Value of Leased tributed $286 millon of this growth. Increases in US. Card Prod-Equipment 51 43 14 Net Gains on Sale / Disposition of Assets 62 23 24 Net Gains on Sale of Mortgage PassThroughs 178 43 11 Venturo CapitalGains.

72 25 49 Otheritems 86 78

_ 2_1.

TOTAL.

$505 $280 $197 (f) Nesf aled iO Cordym lO Currenf ye,1t pfetenfafCft 48

q

~ OPERATING EXPENSE -

change the pricing of leases. The elimination of the deduction for -

Total operating expense in 1986 was $6.9 billion, up $14 billion, interest expense attributable to newly acquired state and municipal or 25%, over the $5.5 billion posted in 1985; the 1985 level rose tax-exempt securities will either reduce the attractiveness of 24% over the $4.5 billion recorded in 1984.

that investment or cause banks in general to require higher interest The Individual Bank's actrvities expanded across all major busi-rates. The most potentially significant new rules in the 1986 legisla-ness segments in 1986, including the completion of several tion are those dealing with the U.S. taxation of foreign income and acquisitons within the United States and the purchase of a life new limitations on the use of foreign tax credits. Their impact can-insurance company in the UK in addition, the individual Bank's not presently be assessed due to their complexity and the absence operating expenses increased due to higher processing costs in of operating rules and explanations. Howevel; the application of.

support of expanded customer volumes. Expenses related to the transiton rules should tend to diminish their impact to some extent institutional Bank rose modestly from year-to-year reflecting the over the next few years.

realignment of certain businesses during the year. The Investment GEOGRAPHIC DISTRIBUTION OF REVENUE, Bank's expense increase was largely generated by costs asso-EARNINGS, AND ASSETS ciated with business and technological development, as well as Oticorp attributes its net income to geographic regions based openditures related to newly acquired businesses. Expenses of on the domolle of the customer. United States possessions are the information Business increased by $147 million, primanly due to included in their respective geographic areas. In the accompany-the June 1986 acquisition of Ouotron. The weaker dollar affected ing table, the North American region (" Domestic Earnings").

the reported expenses of overseas operations in all sectors.

includes the United States and Canada. Refer to page 69 for fur.

Total staff expense was $3.2 billion in 1986, up 28% over 1985; ther discussion of the principal adjustments and allocations that 1985's staff expense marked a 21% increase over 1984's level. The are made to present results on a geographic basis.

1986 increase reflects additional staff of approximately 7,200 peo-in 1986, domestic earnings were $568 million, up $105 million, or pio needed to support our growing businesses, plus normal 23%, over a year ago. In 1985, earnings from domestic operations compensaton increments and higher benefit expenses.

increased $96 mm or 26%, over 1984's level reflecting higher Net premises and equipment expenses increased 29%, or revenues from asset-related credit products, gains on the sales of

$281 million, in 1986 to $12 billon. This expense increased 25% in lease residuals, foreign exchange trading, and fees and 1985. The current year's increase was largely attnbutable to costs co associated with business expansion, including recent acquisitons.

l estic Individual Bank, strong growth in loans-par.

INCOME TAXES ticularly mortgages and credit cards-and improved spreads con-Oticorp's effective tax rate was 377% in 1986, compared with 4t8%

tinued to contnbute to significantly higher asset-related credit in 1985 and 42.4% in 1984. The decline in 1986's rate was largely revenues. Individual Bank revenues were also buoyed by higher attnbutable to the effect of the Tax Reform Act of 1986 on the tax fees and commissions and solid gains on sales of mortgage pass-rates applied to the leveraged lease portfolio, increased capital throughs and mortgage-backed secunties. Domestic Institutional gains and higher tax-exempt income, partly offset by lower invest-Bank revenues were higher, reflecting increased fees and commis-ment tax credits and higher state and local taxes.

sions, partly offset by lower asset-related credit revenues and The 1986 Federal income tax legislation includes several provi-lower gains on safes of lease residuais investment Bank revenues sons that may affect Otcorp and its business. The Federal income were higher, driven by venture capital gains, insurance fees, and trx rate reduction from 46% to 40% for 1987 and 34% for 1988 and increased fees and commissions related to corporate restructur-subsequent years will reduce the current tax liabilit es in years af ter ings and risk protection products; these increases were partly 1986 from pre-1987 requirements. The changes in the tax treat-offset by lower domestic secuntos trading revenues.

ment of bad debt losses and reserves are not expected to have a Offsetting the strong domestic revenue gains were substantial matenal effect on net income. Those changes consist of (1) the new increases in the domestic credit wnto-offs and operating expenses.

requirement that bad debt losses af ter 1986 can only be deducted when charged off, and (2) the requirement that deductions pre-viously claimed for additons to the reserve for bad debts must be restored to taxable income and currently taxed over the perod 1987-1990 The newly expanded attemative minimum tax, which willinclude half of the excess of financialincome over taxable income, is intended to apply only to the U S subsidiaries and affili-ates of Otcorp, but that provision is presently scheduled to change af ter 1989. The impact, if any, of this provision cannot yet be ascer-tained because of the need for US Treasury regulatons to explain howit is to be applod.

Other new provisions will have some impact on Citcorp's busi-nesses. The eliminaton of :he investment tax credit will at least 19

Consumer loan losses rose signifcantly during the yeat The The accompanying chart provides a breakdown of Citicorp's growth in loan losses was due largely to growth in credit card receiv-

earnings using the economic classifcations designated by the ables, whch have an historically higher loss experience in the ~

Organization for Economic Cooperation and Development (OECD).

early years of portfolio formation. Additionally consumer write-While Citicorp businesses are diversified across a broad range offs were higher in segments of the mobile home portfolio due of countries and economies, the OECD countries, contributing to economic conditions in certain regions of the United States.

69% in 1986, represent the largest source of eamings for Citicorp. '

Domestic commercial write offs were h.gher reflecting continued This contnbution to net income has grown steadily since 1984. The weaknessesin certain industries.

OECD primarily consists of the industrialized nations of the world, The increase in domestic operating expenses was largely including the United States which accounts for approximately dedicated to improved product delivery and continued technologi-51% of Citicorp's eamings as compared with 45% last yeat Earnings cal development, as well as the increased expenses required

. from countries designated Newly industrialized Countries (NIC)- -

to support substantially higher volumes, particularly in the most prominently Brazil, Argentina, and Mexico-represent 27%

Individual Bank.

of eamings, up slightly from last year's level. The Less-Developed Domestic Institutional Bank eamings reflect a $46 million Countries (LDC)/Other category was adversely af fected by af ter-tax benefit from the impact of the Tax Reform Act of 1986 on credit write-offs.

leveraged leases, pnmanly in income tax. In 1985, a change in New Ybrk State and City tax rates resulted in a reduction of deferred NETINCOME tax expense by $19 million.

aes& mas m

was s 84 The Information Business results for 1986 amounted to a North America

. $ 568 54% - $463 46%-$367 41%

$34 millon charge to earnings, up from $8 millon a year ago, primarily reflecting the costs associated with the June 1986 Caribbean, Central and '

acquisition of Ouotron.

South America 257-24 245 25 177 20 Total domesto assets grew 18% in 1986 and 22% in 1985t The asset growth in both years was largely attributable to higher Europe, Middle Eastand consumer loan volumes.

Africa.

99 9

191 19 208 23 Net income from overseas operations declined $45 million to

$490 millon in 1986. This compares with a $12 million year-to-year Asia / Pacific.

134 13 99 10 138 16 increase in 1985. Robust international revenues from foreign TOTAL

, $1,058100% $998100% $890100%

exchange trading, fees and commissions, gains on investment secunties, as well as other revenues were outweighed by lower NET INCOME revenues from secunties trading and asset-related credit products-OECD CLASSIFICATION Operating expenses associated with overseas operations grew in aes& ens m

s 85 s 84 comparison with last year ref;ecting the impact of certain newly acquired businesses, continued business development, and TotalOECDm.

,$ 732 69% $646 65% $540 61%

investment in improved product delivery The higher expenses also TotalNICm 289 27 244 24 226 25 reflected the impact of a weaker U.S. dollar on overseas operations.

Total Results from Asia /Pacife improved substantially fueled by LDC/Other*

3_7 4

108 11 124 14 sharply higher fees and commissions, foreign exchange eamings, TOTAL

. $1,058100% $998100% $890100%

and other revenues, including the gain on sale of real estate. The g,; see accompannno ceograpuc escussen.

strong revenues in Asia / Pacific were partially of fset by the increase in expenses needed to sustain the higher volumes and support continued business expansion. Latin Amercan earnings were up modestly with higher revenues from fees and commissions and asset related credit products. However, the higher earnings in Asia /

Pacifc and Latin Amenca were of fset by reduced earnings in Europe / Middle East and Africa. The reduction is largely attnbutable to lower secunties trading and asset related credit revenues, as well as higher wnte-of fs and an increase in expenses supporting business expansion, including acquisitions.

Total assets overseas increased 10% in 1986 primanly as a result of the decline in the US dollar dunng the year. In 1984. growth in overseas assets was 4%

50

1 1

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W EM-M M E

/A 9

FINANCIAL REPORTING RESPONSIBILITY REPORT OF INDEPENDENT AUDITORS The accompanying financial statements have been prepared by the management of Otcorp in conformity with generally accepted PEAT p.., u., wick, mitch.si a co.

accounting principles appropriate in the circumstances. Where ggg amounts must be based on estimates and judgments, they repre-sent the best estimates and judgmer,ts of management. The financial information appearing throughout this annual report is consistent with that in the financial statements.

The Board of Directors and Stockholders of Citicorp-The financial control system of Citicorp is designed to provide reasonable assurance that the financial records are reliable for pre-We have examined the consolidated balance sheet of Citicorp and paring financial statements and maintaining accountability for subsidiaries as of December 3t 1986 and 1985, the related assets and that assets are safeguarded against loss from unautho-consolidated statements of income, changes in stockholders

rized use or dispositon. The system in use at Citcorp provides equity and changes in financial position for each of the years such reasonable assurance, supported by the careful selecton in the three-year period ended December 3t 1986, and the consoli-ar:d training of staff, the establishment of organizational structures dated balance sheet of Otibank, N. A. and subsidiaries as of providing an appropriate and well-defined division of responsibili-December 31 1986 and 1985. Our examinations were made in bes, and the communication of policies and standards of business accordance with generally accepted auditing standards conduct throughout the institutiori and, accordingly, included such tests of the accounting records The accounting po!cies and system of internal accounting and such other auditing procedures as we considered controls are under the general oversight of the Oticorp and necessary in the circumstances.

Otibank Boards of Directors, acting through the Audit and Examin-In our opinion, the aforementioned consolidated financial state-ing Commit tees descnbed on page 86. These committees are ments present fairly the financial position of Otcorp and sub-compnsed entirely of directors who are not officers or employees of sidiaries at December 3t 1986 and 1985, and the results of their Ofcorp. The Chief Auditor of Citicorp, who reports directly to operations and the changes in their financial position for each the Board of Directors, conducts an extensive program of audits of the years in the three-year period ended December 31 1986, and nsk asset reviews workfwide, carried out by a staff of resident and the financial position of Otibank, N A. and subsidiaries at inspectors and reviewers and traveling teams. In addition, Peat, December 31 1986 and 1985, in conformity with generally Marwick, Mitchell & Co, independent certified pubic accountants, accepted accounting principles applied on a consistent basis.

is engaged to examine our financial statements.

Peat, Marwick, Mitchell & Co. obtains and maintains an under-

p standing of our accounting and financial controls and conducts 4

1 f

such tests and other auditing procedures as they consider neces-sary in the circumstances to express the opinion in their report that follows. Peat, Marwick, Mitchell & Co. has free access to the New York, New York Audit and Examining Committees, with no members of manage-January 20,1987 ment present, to discuss their examinaten and their findings as to the integnty of Otacorp's financial reporting and the adequacy of the system of intemal accounting controls.

i 51

A F

I N

A N

C 1-A L

S T

A T

E M

E N

T S

E3+

2=":"l3D 1

I H E IK4

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CONSOUDATED STATEMEN7 OFINCOME CITICORP AND SU_BS.lDIARIES y

n uwrwsor ocaANS ExCEPf FERSHARE AMC4)NYS 1sGG IG..

1984 Interest Revenue Interest and Fees on Loans and Lease Financing

$15,675

$15,529

$14,549 interest on Deposits wim 6anks 1,072 1,156 1,273 Interest on Federal Funds Sold and Secunties Ptachased Under Resale Agreemots 892 1,087 936 Interest and Dividend'; on Investment Securites (Note 1).

1,033 843 655 Interest on Trading Account Assets.

752 860 781

$19,224

$19,474

$18.194 Interest Expens0 interest on Deposits

$ 8,191 ti 8.865

$ 8.631 Interest on Other Bonowed Money (Note 7) L 2,828 3,356 3 582 Interest on Long-Term Debt and Subordinated Cap 4ai Notes (Notes 8 and 9) '

2,077 1,807 L662l

$13,0vG

$14,028

$13.875 -

NET INTEREST REVENUE.

$ 6,128

$ 5,446

$ 4,3y.

Provision for Possible Credit Losses (Note 4). [

$ 1,825

$ 1.243

_$_ 619 NET INTEREST REVENUE AFTER PROVlf10N FOR POSSIBLE CREDIT LOSSES.

$ 4,303

$ 4.203

$ 3,700 Fees, Commissions, and Other Revenue Fees and Commissions.

$ 2,978

$ 2,123

$ 1,686 lading Account 162 210 143 Foreign Exchange 412 358 258 Investment Secunties Transactions (Note 14).

214 59 N;

i Other Revenue 505 280 19I

$ 4,272

$ 3,030

$ 2,300 Other Operating Expense Salanes

$ 2,739

$ 2.116

$ 1,749 Staff Benefits (Note 13)

_ _ 500 424 3!M TotalStaff Expense

$ 3,239

$ 2,540 l 2.193 Net Premises Expense (Notes 5 and 18) 612 480 391 Equipment Expense (Notes 5 and 18) 630 481

.Y 6 2

Other Expense 2,394 2,016 1,61 6

$_6,8_75_ J 5,517

$ 4.4 56 Income Before Taxes

$ 1,700

$ 1,716

$ 1,f 44 locome Taxes (Note 14).

642__

718_ _ _'.i5_4 NETINCOME

$ 1,058

$ 998

$ 800 Earnings Per Share (Note 15)

On Common and Common Equivalent Shares

$7.14 f,7. I?

1R45 Assuming fullDilution..

......._ _ _ $7.1 'l_

17 11 _ _ y $h36 ACCnevitr9 twknes arw$ Nphytentrwy notes tt1pwjes 57-72 kym an a wagr,alpytllthn h va^.' gements l

l I

I l

)6

,7'.

x 3

a CONSOUDATED BALANCE SHEE7 CITICORP AND SUBSIDIARIES DECERABER31 CECEMBER 31 1986 1985 auumcs ocxtAns i

Assets

$ 5,181

$' 5,218 Cash and Due from Banks..

15,882_

-12.693

' DepositsatInterestwithBanks.

12,880 9,647 trustment Secunties (Market valuo $13,537 in 1986 and $9.892 in 1985) (Note 1).

frading Account Assets.

8,886 6,408

-5,888 _

6.343 Federal Funds Sold and Securities Purchased Under Resale Agreements

, Loans and Lease Financin];. Net ' Notes 2. 3 and 4)

Commercial (Net of uneamed atscount of $467 in 1986 and $483 in 1985)

.. $ 58,439

$ 58,172 68,243 255,518-i Consumer (Net of unedrned discount of $4,154 in 1986 and $4,418 in 1985).

LeaseFinancing.

3,222

' 2,809 o

$130,904

$116.499 Loans and Lease Financing. Net of Unearned Discount (1,088)

(1,235)

Allowance for Possible Credit Losses.

$129,206_

$115,264 ~

TotalLoans andLea:e Fansocing,Not Customers' A:ceptance Liatil.ty 4,789 6,396 Promises and Equipment, Net (Note 5).

3,177 2,544 '

Interest and Fees Recewable.

2,887 2.653 Other Assets (Note 6)

-7,748 6,431

$196,124

$173.597 TOTAL Umbilities Non-interest-Bearing Deposits in Domestic Offices.

.- $ 12,846

$ 10,792 -

41,796 39,344 Interest BearingDepositsinDomesticOffices.

Non Interest Beanng Deposits in Overseas Offices 3,791 3.424 Interest Bearing Npos4ts in Overseas Offices 54,436 51.399 TotalDeposits.

$114,889

$104,959 Purchased Funds and ONr Honowings (Note 7) 33,731 26,616 4

Acceptances Outstanding.

4,912 6,598 '

Accrued Taxes and Other D p. nses (Note 14) 3,989 3.581 Other Liabilities 8,380 5.823 Long Term Debt (Note 8) 20,885 16,316 I'

Subordinated CapitalNotes(Note 9) 2,848 1,899 Redeemable Preferred Stock (Note 10).

40 40 Stockholders' Equity u

Preferred Steck(Noto 11)

$ 1,365

$ 1,215 4

Common Stock ($400 Par)(Note 12) 802 569 Issued Shares: 150.577230 in 1986 and 142,265.429 in 1985 Surplus 1,421 1,056 Retained Earnings 8,059 5,300 Common Stock in Treasury, at Cost.

(387)

(375)

Share r 12h62,986 h 1986 and 12,888,539 in 1985 Tot M Stod ho'ueW Equity

$ 9,060

$ 7,765 s

__ $196,124

$173.597 TOTAL w,oan men., s m,,an. n n<m onon., snnm,,n ermao,ieo tre era,cmwem, nr, n r 1.

=

1 r

k CONSOLIDATED STATERSENT OF CNANGES IN STOCKNOLDERS' EQUITY -

CITICORP AND SUBSIDIARIES nwuoNscw ootL Aas 1984 1985 1984 Preferred Stock (Note 11)

BalanceatBeginningof Year.

$1,215

$ 640

$ 540 -

Issuance of Stock.

150 575 100

$1,365

$1.215

$ 640 BALANCE AT END OF YEAR Common Stock (Note 12) -

BalanceatBeginningof Y ar.

$ 589

$ 556

$ 549 Shares: 142.265,429 in 1986,138,970,558 in 1985 and 137152.815 in 1984 Sale of Stock: Shares 5,000,000 20 Issuance of Stock under Savings incentive. Stock Option and Stock Purchase 13 13 /

7 Plans and Conversion of Convertible Notes (Notes 8 and 13).

Shares: 3.312.401 in 1986,3.294.871 in 1985 and 1,817743 in 1984

'x /

$ 802

$ C59 -

$ 556 BALANCE AT ENO OF YEAR Shares: 150,577.830 in 1986,142.265.429 in 1985 and 138.970,558 in 1984 Balance at Beginning of Year.

$1,056 U 958

$ 911 Preferred Stockissuance Cost.

(2)

(9)

(1)

Sale of Common Stock 265 Issuance of Stock under Savings incentive, Stock Option, Stock Purchase,

- Executive incentive Compensation and Restricted Stock Plans and Conversion of Convertible l

Notes (Notes 8and 13) 108 107 48 i

Restricted Stock Plan Grants-net of amortization (Note 13).

(8)

BALANCE AT END OF YEAR

$1,421

$1.056

$ 958 Retained Earnings Balance at Beginning of Year

$5,300

$4.637

$4,129 t

Netincome.

1,056 998 890 Cash Dividends Declared (including preferred dividends of $71 in 1986,

$59 in 1985 and $56 in 1984, and redeemable preferred dividends of $4 in 1986,1985, and 1984)(Note 12).

(325)

(353)

(319)

Foreign Currency Translation (Accumulated amount of ($73) at December 31,1986) 26 18 (63)

BALANCE AT ENO OF YEAR

$6,059

$5.300

$4.637 Common Stockin Treasury,at Cost Balanceat Beginning of Year

$ (375)

$ (365)

$ (358)

Shares 12.888.539 in 1986,12,702.161 in 1985 and 12.577.465in 1984 Treasury Stock Transactions, at Cost.

(12)

(10)

(7)

Shares 74,447 in 1986,186.378 in 1985 and 124,696 in 1984 sALANCE AT ENO OF YEAR

$ (387)

$ (375)

$ (365) 2 -

Shares 12,962.986 in 1986,12.888.539 in 1985 and 12,702,161 in 1984 lbtal Stockholders' Equity Balanceat Beginning of Year

$7,765

$6.426

$5.771 Changes during the Year, Net.

1,295 1.339 655 BALANCE AT END OF YEAR

$9,060

$7.765

$6.426 Account *ng pohces and explanatory notes ors pages 57-72 kym an vrtegralpart cithe inancoal staternents l

54 t

l l

CONSOLIDATED STATEMENT OF CNANGES IN FINANCIAL POSITION CITICORP AND SUBSIDIARIES nuarwsor oott Ans 1984 1%S 1%4 Funds Provided Operatiors

$ 1,058

$ 998

$ 890 Netincome.

Non-Cash Charges 450 349 262 Depreciation and Amortization of Premises and Equipment Provision for Possible Credit Losses.

1,825 1.243 619 Funds Provided from Operations 3,333 2.590 1,771 Increasein 9,730 14.610 10.555 Deposits.

7,115 2,226 2.091 Purchased Funds and Other Borrowings Long-Term Debt.

4,379 3.323 812

{

749 250 1,649 Subordinated Capita! Notes 150 575 100 Preferred Stock.

Proceeds from Sale of Common Stock.

285 Decreasein Federal Funds Sold and Securities Purchased Under Resale Agreements.

855 1,149 Cash and Due from Banks and Deposits at Interest with Banks.

548

[

Other, Net.

TOTAL

$26,396

$24.122

$18.127 Funds Used Cash Dividends Declared 325

$ 353

$ 319 increasein.

Cash and Due from Banks and Deposits at interest with Banks.

2,962 3,626 Investment Securities and Trading Account Assets.

5,721 4,388 2.043 1,202 1,545

- Federal Funds Sold and Securities Purchased Under Resale Agreements Loans and Lease Financing 15,767 13.800 13,043 1,083 753 553 Premises and Equipment Othei; Net 538 624 TOTAL

$26,396

$24.122

$18.127 Accounteg pohces and explanatcry notes on pages $7-72 larm an mtegralpart of tte Gnancnal statements i

I l

t

- CONSOUDATED BALANCE SHEET

' CITIBANK, N.A. AND SUBSIDIARIES DECEMBER 31 DECEMBER 31 gVRUONS OF DOR ARs 1986 1985 Assets Cash and'Oue from Banks _.

$ '.4,110

$ - 4.586

- Deposits atInterest with Banks '

15,929 12.602 :

Investment Securities (Market value $10.938 in 1986 and $8.596 in 1985)

-10,427-

, 8,347 -

. Trading Account Assets

. R;deral Funds Sold and Securities Purchased Under Resale Agreements 4,645 2.725

. 7,440

.11.812 Loans and Lease Financing

'.$ 90,833

- $ 77,933 Less Allowance for Possible Credit Losses (842)

(626)'

~

Unearned Discount on Loans.

(2,256)

(1,930)

Loans and Lease Financing. Net.

$ 87,535

$ 75,377

Customers' Acceptance Uability

.5,982

' 7,473 Premises and Equipment, Net 2,052

.1,831-

' interest and Fees Receivable ~.

2,008 1,984

- Other Assets.

4,680 4.113 TOTAL

$144,808

$130.850 Liatellities

.. $ 10,763

. $ ' 9.379 '

Non-Interest-Bearing Depositsin Domestic Offices.

Interest Bearing Deposits in Domestic Offices.

29,193

' 27,280

- Non-interest-Bearing Deposits in Overseas Offices 3,749 3,512 Interest-Beariro Deposits in Overseas Offices 56,203 51,639 TotalDeposits

$ 99,908

$ 91,810 Purcha, sed Funds and Other Borrowings 20,679 15,327

" Acceptances Outstanding.

6,126 7,671 Accrued Taxes and Other Expenses 2,812 2,608 Other Liabilities 4,058 3,506 Longterm Debt 3,218 -

2,891 Stockholder's Equity (Note 19)

Capitat Stock ($20.00 par).

751 751 Outstanding Shares: 37.534.553 in 1986 and 1985 Surplus 2,015 1,493 Retained Earnings 5,243 4,793

- Totat Stockholder's Equity

$_ 8,009

$ 7,037

~ oTat 5144,808

$130.850 T

Accountog polces arriexplanatory notes onpages 57-72 bem an mtegralpart of the Snanaalstatements.

56

ST A T EM E NT OF ACCO UN Tl NG POLI CI E S EE:=: r""5 L*

o**M "

e llEll z

=

BASIS OF PRESENTATION COMMERCIAL LOANS T he consolidated financial state Commercial loans are stated at their face amount, net of unearned accounts of Oticorp, its wholly-owned subsidiary, discount.

Ot; bank, N.A., and their majority-owned subsidiaries, When it is determined as a result of evaluation procedures that af ter the elimination of all matenal intercompany the payment of interest or principal on a commercial loan is ~

transactions.

doubtful of collection, the loan is placed on a cash (nonaccrual)

Affiliates which are 20%- to 50% owned are carried under the basis. In any case where interest or principalis past due for 90 days equity method of accounting and the pro rata share of their income or more, the loan is automatically placed on a cash basis irrespec.

(loss) is included in other revenue. Income from investments in tiw of collateral or other favorable prospects. Any interest accrued less than 20% owned companies is recognized when dividends on a loan placed on a cash basis is reversed and charged against are received.

current earnings. Interest on cash basis loans is thereaf ter included Gains and losses on disposition of branches, subsidiaries, in camings only to the extent actually received in cash. Cash basis affiliates and other equity investments (including venture capital loans are returned to an accrual status when such loans are investments) and charges for management's estimate of perma-current as to principal and interest payments and future payments nent impairment in value are included in other revenue.

are expected to be made on schedule.

Foreign currency translation, which represents the effects of translating into US dollars, at current exchange rates, financial Consumer loans are stated at their face amount, net of uneamed statements of overseas operations with a primary or functional cur.

discount.

rency other than the US dollar, is included in retained earnings in Consumer lo ns are wntten off upon reaching a predetermined the accompanying consohdated balance sheet, along with related number of days past due on a contractual basis. The number of tedge and tax effects.

days is set at an eppropriate level by loan product and by country The effects of translating foreign currency financial statements so as to resu!!in the recognition of losses on a basis which makes of those overseas operations with the US dollar as the primary or the likelihood of subsequent recovery of those losses fall between functional currency, including those operating in a highly inflation-2W.to Ma ary environment, are included in foreign exchange revenue, along The policy for suspending accruals of interest on consumer with related hedge effects. Foreign exchange trading positions, to ns varies depending on the terms, secunty, and loan loss expe-including spot and forward contracts, are valued monthly at rience characteristics of each product and in consideration of prevailing market rates on a net present value basis, and the result, writ off e

am ing gains and losses are included in foreign exchange revenue.

INVESTMENT SECURITIES AND an approximate level rate of return over the term of the loan. Interest TRADING ACCOUNT ACTIVITIES accrued on nondiscount loans is based on the principal amount treestment secunties are carried at cost, adjusted for amortization ofloans outstanding.

of premiums to the earliest call date and accretion of discounts to maturity Gains and losses on sales of investment securities are computed on a specific identifed cost basis.

Trading account assets, consisting of secunties and money market instruments, are presented net of obligations to deliver assets sold but not yet purchased and are valued at market. Gains and losses, both realized and unrealized, are included in trading account revenue. Interest on trading account assets, net, is included in interest revenue.

Financial futures and forward contracts, interest rate swaps, and options are valued at market, with both realized and unrealized gains and losses included in trading account revenue, except for those designated as hedges. Gains and losses related to financial futures and forward contracts, interest rate swaps, and options that are designated as hedges are deferred and reflected as an adjustment to interest revenue or expense.

It is Oticorp's policy not to make transfers between investment secuntes and the trading account. However, in 1986 certain secunties were transferred (see note 1).

57

f LEASE FINANCING per share book value at the time of sale but which has the same Lease financing represents Oticorp's share of aggregate rentals voting, dividend, and liquidation rights as market value stock. For on lease financing transactions and residual values net of related outstanding options and subsenptions involving only market value uneamedincome.

shares, common equivalent shares are computed using the Lease financing transactions substantialty represent direct treasury stock method.

financing leases and also include leveraged leases. Unearned Under the stock option and stock purchase plans, options are

{

income is amortized under a method which substantially results in also granted in tandem, and subscription agreements are also an approximate level rate of retum when related to the unrecovered entered into that give the staff member the attemative to pyrchase

{

leaseinvestment, either market value or book value shares up to the end of the Gains and losses from sales of residual values of leased option or subscription period at exercise or purchase prices fixed equipment are included in other revenue.

at the date of grant or subscription.

ALLOWANCE FOR POSSIBLE CREDIT LOSSES clearly represents the economically preferable altemative to the Additions to the allowance are made by means of the provision for staff member, the earnings per share calculation includes common possible credit losses charged to expense. Credit losses are deducted from the allowance, and subsequent recoveries are equivalent shares representing the dilutive effect, computed by the l'easury stock method, of the market value shares under option or added. The level of net credit losses for the year is a significant subscriptiort if circumstances indicate that purchase of book value factor in determining the appropriate level for the provision for pos-shares is the staff member's preferable altemative, the book value srble credit losses. Based on management's judgment as to the shares under option or subscription enter into the earnings per appropriate level of the allowance for possible credit losses, the share calculation according to the two-class method. This method amount actually provided may be greater or less than the net credit recognizes the fact that there are effectively two classes of stock

{

losses for the yeat The determination of the amount by which the participating in eamings: one, outstanding shares of stock which share in all earnings, and another, book value shares under option

(

provision should exceed or be less than net credit losses is based on management's current evaluation of the anticipated impact of or subscription which share only in undistributed earnings.

domestic and international economic conditions, changes in the Atter issuance, book value shares are included in the weighted character and size of the portfolios and non-funds related financial average number of shares of common stock outstanding used to products, including commitments, guarantees, swaps, options, calculate camings per share.

futures and forward agreements, past and expected future loss Upon issuance of shares under the savings incentive, stock experience, and other pertinent indicators. This evaluation option, and stock purchase plans, proceeds received in excess of includes an assessment of the ability of borrowers with foreign par value are credited to surplus. Upon issuance of treasury shares currency obligations to obtain the foreign exchange necessary for under the executrve incentive compensation plan, the excess of orderly debt servicing.

the amount of the awards over the average cost of treasury shares STAFF BENEFITS AND EARNINGS PER SHARE is crecited to surplus.

In 1986, Oticorp adopted the new pension accounting rufes con-INCOME TAXES tained in the Financial Accounting Standards Board's Statement of Provision for deferred taxes is made for items of revenue and Financial Accounting Standards No. 87 (see note 13).

expense reported in the financial statements in different years than Staff benefits expense includes prior and current service costs for tax purposes, including an appropriate provision for taxes on of retirement plans, which are accrued on a current basis, contribu-undistributed income of subsidiaries and affi!iates.

tions under the savings incentive plan, awards under the executive Investment tax credits on leased equipment are recognized over incentive plan, and costs of other staff benefits. No charges are a penod of time related to the recovery of the lease investment reflected in earnings due to the granting or exercise of options which gives rise to such credits. Other investment tax credits are under the stock option plans or the subscription for or purchase of recognized in the year the asset is placed in service. Investment stock under the stock purchase plans.

tax credits were repealed under the Tax Reform Act of 1986 and Common equ'rvalent shares are included in the calculation of hence have not been recorded for property placed in service f amings per share representing shares issuable under the af ter December 31,1985 (except as permitted by the Act's executive incentive compensation plan and the dilutive effect of transition rules).

options and subscriptions to purchase shares under the stock option and stock purchase plans. Options and subscriptions may b3 for either market value or book value stock. Market value stock is Oticorp common stock that is not restricted by Oticorp as to resale but can be sold by the staff member in the market. Book value stock is Oticorp common stock that is issued at a price equal to book value per share and can be resold only to Oticorp at the 58 L

N O.T.E ~ S T

O.

F l N-A NC=I 'A EL ST A T E

'M-E N T S 1

mmmem===r giam immme '

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mese a.=.x_

1. INVESTMENT SECURITIES -

1986 1985 CARRYlese tsaftstET.

CARRYtNG '

MARKET" IN MILUONS OF OOLL ARS, AT YE AR ENO WALUE WuASE VALUE VALUE US. Treasury and Federal Agencies.

$ 3,228

$ 3,415

$2,818

$2,919 1,955"8 1,900"8 825 799

' State and Municipal.

Other.

7,8e78=8 s,142m 6,004 6.174 TOTAL

$12,880 -

$13,537

$9.647

$9,892 Interest and Divklends on Investment Securities t

1988 1985-1984 IN MILUONS OF DOLL ARS FOR THE VE Aa

$. 238

$268

$290 US Treasuryand Federal Agencies 85' 34 31 State and Municipal (Substantially all exempt from federalincome tax)

Other

'732 541 334 TOTAL.

. $1,033

$843

$655 (1) Certan state and munscnoal secuntes were translened at thew market vakse of $599 rndhon from Trading to Irsestment Secuntes to relect Olcorp's mtention su hood these secuntes as long-term enestments m conssderahort of certam provussons of the Tax Reform Act of 1986 other than a ttus estance, no transfers are made between uwestment and tradmg portibhos. '

(2) Other nuestment securates at December 3t 1986 ackade hondangs in Treasury Bonds issued by the Gosemment of naly wuth an aggregare carryung vakse of $1B14 mahon and market value of

$r,620 muon.

2. COMMERCIALLOANS Commercial Loans Outstanding.

1984 1985~

IN MILLIONS OF DOLLARS. AT YE AR END In Domestic Offices

$16,994 '

$13,514 CommercialandIndustrialm 7,637 6,165 Mortgage and RealEstatem 1,299 1,353 Loans to Financialinstitutionsa

$25,930

$21,032 in Overseas Offices 4

$23,101 -

$25,683 Commercialandindustrialm Mortgage and RealEstatem 2,330 2,143 Loans to Financiatinstitutions.

4,375 5,363-Govemments and Officiallnstitutions 4,170 4.434

$33,978

$37,623

$59,906

$58,655 Unearned Discount (467)

(483)

COMMERCIAL LOANS, NET OF UNEARNED DISCOUNT.

$59,439

$58.172 (t) Ancodes loans not otherwise separately categonzed

}

(2)lnckdes only Joans secured pnmardy by reatestate.

(3pncludes toans to governments andoscualmstututens of $415 mdten and $434 mehon m 1986 and 1985, respectrvely Citicorp's cash basis and renegotiated commercialloans amount-iN uituoNS OF DOLL ARS FOR THE YE AR 1986 1985 1984 ed to $2.554 million, $2,248 million, and $2.418 million at December interestincome that would have been 31,1986,1935, and 1984, respectively. Renegotiated loans are accrued at original contractual rates.. $344 $397 $466 a

those commercial loans on which the rate of interest has been m

250 279 311 Amount recognized as interest income reduced as a result of the inability of the borrower to meet the origi-FOREGONE REVENUE

$ 94 $118 $155 nal terms of the loan. Foregone revenue from cash basis and renegotiated commercial loans was as follows:

(1) $12 rndten, $13 monen and $c2 mdten a domeste omces. $2r2 mium $324 mum and $404 mdton art overseas osces in 1986,1985 and 1984. respectivery (2)RepresentsmterestcollectedoncashbasesJoans andsnierestaccruedatreducedrates

+

on renegabated loans $38 rntHron, $32 mdhon, and $43 mahon a domeste obces, t

$212 mdbon, $247 mdhon, and $268 mdhon on overseas ohCes m1986.1985, and 1984, respeCbvely

'r 59

3. CONSUMER LOANS Consurner Loans Outstanding The consumer loan category represents loans managed by iNuiltioN or tAas Atvtan No 1988 1985 Oticorp's Individual Banking business. This is generally defined as including loans to individual consumers throughout the world to in Domestic OWices meet their borrowing requirements for housing, automobiles, and Mortgage and realestatem

. $27,991

$21,719

' other personal and family purposes. The consumer category also Installment, revolving credit and other includes indirect types of consumer finance such as dealer floor consumerloans..

29,700 27.490 plan tending.

$57,891 ~

$49,209 in Overseas OfHces m

., $. 5,017

$ 3,474 Mortgageandrealestate '

Installment, revolving credit and other -

consumer loans, 9,689 7,253'

$14,706

$10,727 '

i

$72,397 -

$59,936 Uneamed discount (4,154)

(4,418)

CONSUMER LOANS, l

NET OF UNEARNED DISCOUNT

- $68,243 '

$55,518 (9 Inch &s ordy loans securedpnrnanty by realestate

4. CHANGES IN THE ALLOWANCE FOR POSSISLE CREDIT LOSSES IN M'LLIONS OF DOLL ARs 1988 1985 1984 Balance at Beginning of Year.

$1,235

$ 917

$ 771 Deductions Commercialloan andleaselosses

$ 489

$ 442

$ 277 Commercialloan and lease recoveries.

(76)

(65)

(56)

Net commercialloan and lease losses.

$ 413

$ 377

$ 221 Consumerloan andleaselosses

$1,172

$ 719

$ 386 Consumerloan andlease recoveries (214)

(134)

(100)

Net consumerloan andleaselosses

$ 958

$ 585

$ 286 Additions Provision for possible credit losses

$1,825

$1,243

$ 619 Other (Principally from allowance balances of acquired companies and translation of overseas allowance balances) 9 37 34 sALANCE AT END OF YEAn

$1,898

$1,235

$ 917 60

5. PREMISES AND EQUIPMENT Generally depreciation and amortization are computed on the Depreciation and amortization of premises and equipment was straight-line basis over the estimated useful life of the asset or

$450 million in 1986, $349 million in 1985, and $262 million in 1984.

thelease term.

6. GOODWILL and $705 million, respectively Goodwill is being amortized Other assets include goodwill, which represents the excess of primarily using the straight-line method over the periods estimated I

purchase price over the estimated value of net assets acquired to be benefited The remaining period of amortization, on a accounted for under the purchase method of accounting. At weighted average basis, approximates 16 years.

December 31,1986 and 1985, goodwill amounted to $977 million 7, PURCHASED FUNDS AND OTHER BORROWINGS l

Purchased Funds and Other Borrowings, Original Maturities of Less Than One Year l

l 1986 1985 1984 INuwONSOFDOLLARs -

Federal funds purchased and securities repurchase agreements (in domestic offces) m

$13,365

$ 7,421

$ 9,597 Amountoutstanding atyearend

$10,433

$10,064

$ 9,329 Average outstanding during the year.

Maximum outstanding at any month end

$13,365

$10,769

$10.520 Commercialpaperm Amount outstanding atyearend

. $ 9,291

$ 7,172

$ 4,976 Average outstanding during the year

$ 6,206

$ 4,977

$ 4,970 Maximum outstanding at any month end

$ 9,291

$ 7,172

$ 6,883 Other funds borrowed

Amountoutstandingatyearend.

' $11,075

$12,023

$ 9,817 Average outstandingduringtheyear

$10,899

$10,485

$ 9,497 Maximum outstanding at anymonth end

$12,643

$12,023

$ 9,998 (1) Weghted awrage eterest rate was 709% durug 1986 8 50% dunty 1985, and K142% dunng 19841195% at year-end 1986 and 8 43% at year-en:11985.

(2) Weghted average eterest rate was 680%dunng 1986 834% dunng 1985 and 1056% dunng 19841107% at year-end 1986 829% at year end 1985, and 963% at year-end 1984 (3) Weghted average mterest rate was 15.21% durmg 1986 and 1955% durmg 1985 i

61 l

8. LO900-TEftM DEBT Long-lierm Debt, Original Maturities of One Year or Morem h408 15 vm Ous vARos FIXEO RATE FLOArlNG RATE N MILilONS OF DOLLARS. AT YEAA END OEBT OBUGATIONS DEBT OBUGATIONS TOTAL -

TOTAL Parent Company Duein 1986

$ 3,032 1 Due in 1987 433 1.274 1,707-417

~ Duein 1988.

735 568 1,303 1,431 Duein 1989 1,390 1,053 2,443 1,326

. Duein 1990 1,135 -

59 1,194 1,015 Duein 1991 1,180 290 1,470 113 Duein 1992-1996 -

'2,865 345 3,210 1,847 Duein 1997-2001 1,166' 1,162 2,328 584 Duein 2002 and thereafter 780 1,262 2,042 1,523

$ 9,684

$ 6,013

$15,897

$11,288 Subsidiaries Duein 1986

$ 1,329 Duein 1987 647 382 1,029 585

' Duein 1988 -

886 85 971 672 Duein 1989 349 302 851 398 Duein 1990 354-407 781 425 Duein 1991 126 76 202 482 Duein 1992-1996 317 964 1,281 1,097 Oue in 1997-2001 19 35 54 38 Duein2002andthereafter,

15 34 49 2

$ 2,713

$ 2,285

$ 4,998

$ 5,028 TOTAL

$12,397

$ 8.298

$20,895

$16,316 optage d 3s based upon contractuar matuntes or earter cares at wrwn cebt is repayaue at tre coten or tre twoon ove e reau,res maraamey smkmg rara payments or ove

' Fixed-rate long-temi debt matures over the period to 2016. The At December 311986 and 1985, $270 million and $739 m:ilion, interest rates on fixed-rate debt issues ranged from 3.00% to 24.1%

respectively of subsidiary long-term debt were not guaranteed at December 3t 1986 and 4.25% to 2100% at December St 1985, by Oticorp. The weighted avemge interest rates on such long-term representing rates on issues denominated in various currencies.

debt were 1044% and 12.43% at December 311986 and 1985, The weighted average interest rates were 9.56% and 1152% at respectively Substantially atilor.g-term debt issued by subsidiaries December 31,1986 and 1985, respectively not guaranteed by Oticorp is secured by the assets of the Floating-rate long-term debt matures over the penod to 2035.

subsidiary The interest rates are determined periodically by formulas based At December 31 1986 and 1985, outstanding SM% convertible on certain money market rates or, in certain instances, by minimum subordinated notes due in 2000 were 15 million and $9 million, interest rates as specified in the agreements governing the respec-respectiwly Noteholdars converted $3 mi!! ion of convertible notes tive issues. The interest rates on floating-rate debt issues ranged into 77270 shares of common stock in 1986 and $3 million of

' from 3.00% to 25.60% at December 31,1986 and 6.10% to 18.50%

convertible notes into 69,527 shares of common stock in 1985.

at December 3t 1985, representing mtes on issues denominated in The notes are convertible at the option of the holder into Citicorp various currencies. The weighted average interest rates were 6.67%

common stock at a conversion price of $41 per share, subject and 9.99% at December 31,1986 and 1985, respectrvely to adjustment in certain events.

Certain of the agreements under which long-term debt obligations were issued prohibit Oticorp, under certain conditions, from paying dividends in shares of Otibank capital stock and from creating encumbrances on such shares.

The prior year's disclosure of long-term debt has been reclassi-fied to conform with the current financial statement presentation.

62

. 9. SUBORDINATED CAPITAL NOTES Altematively the issuer will unconditionally undertake to sell capital.

securitias on behalf of the holders who elect to receive cash for WLUONS OF DOLL ARS AT YE AR ENO 1986 1985 capital securities upon an exchange of the notes in an amount Roating rate subordinated capital notes sufficient to pay the principal o'such notes. Because the

$ 500 $

type of secunties to be issued at maturity will be at the option of with no stated maturity.

Floating rate subordinated capital notes Oticorp or the Oticorp subsidiary that issued the notes and due 1996 1,050 1,050 because the amount of securities to be issued will depend on 12%% subordinated capital notes due 1996.

349 349 their future market values, the amount and type of securities to

. Roating rate subordinated capital notes be issued at maturity or redemption of the notes cannot be due 1997.

500 500 determined. If common stock is issued, some dilution of eamings 8M% subordinated capital notes due 1998.

249 per share may occur.

TOTAL.

$2,648 $1.899 If Oticorp's consolidated retained earnings and surplus accounts.

become negative, the subordinated capital notes with no stated The subordinated capital notes with no stated maturity are maturity must be exchanged for the marketable permanent unsecured subordinated obligations of Citicorp. Subordinated primary capital securities of Oticorp, as discussed above.

! capital notes with' stated maturity dates are unsecured subordi-The agreements under which the notes are issued prohibit nated obligations of Oticorp subsidiaries and are unconditionally Oticorp, under certain conditions, from paying dividends in shares.

guaranteed on a subordinated basis by Oticorp. The interest of Otibank capital stock.

. rates on the floating rate issues are determined periodically by formulas based on certain money market rates, or in certain instances, by minimum interest rates as specified in the

10. REDEEMABLE PREFERRED STOCK

. agreements governing the respective issues. Citicorp may defer At December 31,1986 and 1985,400,000 shares of non-voting payment of interest on the subordinated capital notes with no redeemable preferred stock were issued and outstanding, subject stated maturity if no dnndends have been declared on any class of to redemption at a price of $100 per share through a mandatory Oticorp stock in the preceding six months. During 1986, $500 sinking fund. From 1990 through 2005, $1 million must be retired mil' ion of subordinated capital notes with no stated maturity and each year and from 2006 to 2013, $3 million must be retired each

$249 million of 8.75% subordinated capital notes due 1998 were year. Dividends, which are cumulative, are payable semiannually issued. During 1985, $250 million of floating rate subordinated Beginning in 1985 the dividend rate is determined every three years capital notes due 1996 were repurchased, the gain on which was until 2009 by a formula based on certain money market rates. The not material, and an additional $500 million of floating rate subordi-dividend rate established in 2009 will be applicable until 2013. Prior

- nated capital notes due 1997 were issued. The interest rates on to November 1985, dividends were paid at a fixed annual rate.

floating rate issues ranged from 6.188% to 7090% at December 31 Dividends amounted to $1G45 per share in 1986, $10.91 per share 1986 and 7938% to 8.520% st December 31,1985. The weighted in 1985 and $1100 per share in 1984. Citicorp may be required to average intereat rates wera 6.520% at December 31 1986 and repurchase the preferred stock at $100 per share if loans are not a208% at December 311985 extended to the preferred stockholder under certain circumstances.

At maturity of the subordinated capital notes, or in the case of tits subordinated capital notes with no stated maturity at the election of the holders in each year commencing in 2016 or at the election of Citicorp in each year commencing in 1991 the notes will t:3 exchanged for a security of Citicorp that qualifies as primary capital then having a market value equal to the principal amount of the notes, or under certain circumstances redeemed, in whole or in part, for cash. At the option of the issuec the exchange may be for common stock, nonreceemable preferred stock or other

- marketable permanent primary capital securities of Oticorp.

63

11.- PREFERRED STOCK Oticorp may at its option, redeem the Sund Series on or after February 28,1988 at $103 per share through February 28,1993 and metuousor cattAss At vsAatwo toes 1985 at $100 per share thereaf ter, may at its option, redeem the Third

. AdjustableRatePreferredStock Series on or after September 1,1988 at $103 per share until August Second Series,3,900,000 shares.

$ 390 $ 390 31,1989 and at amounts declining thereaf ter to $100 per share

~

Third Series,1,500,000 shares 150 150 beginning September 1,1992; and may, at its option, redeem the '

Price Adjusted Rate Pre' erred Stock Fourth Series at any time at $100 per share.

Fourth Series,1,000,000 shares 100 100 Citicorp may at its option, redeem the Money Market Cumulative Money Market Cumulative Preferred Stock -

Preferred Stock Series SA through SG at $510,000 per share,

Series SA through 5G,1,150 shares 575 575 plus accrued dividends, until various dates in 1987 and at amounts Series 6A and 68,1,500 shares 150 declining thereatter to $500,000 per share beginning on various TOTAL

$1,365 $1,215 dates in 1988. These shares are also redeemable at the option -

of Citicorp, in whole but not in part, at $500,000 per share, plus Dividends on the Second, Third, and Fourth Series of preferred accrued dividends, in the event that the dividend rate should equal stock are cumulative and payable quarterly at rates determined or exceed the 60-day AA" Composite Comrnercial Paper Rate.

quarterly by formulas based on interest rates of certain U.S. Trea.

Citicorp may at its option, redeem the Money Market Cumulative sury obligations. Dividends on the Second and Third Series of pre-Preferred Stock Series 6A and 6B, in whole or in part, at $100,000 ferred stock are subject to certain minimum and maximum rates as per share, plus accrued dividends on any dividend payment date. -

specifsd in the agreements governing the respective instruments.

All series rank prior to Common Stock as to dividends and The weighted-average dividend rates on the Second, Third, and liquidation and do not have general voting rights.

Fourth Series were 6.029%, 7133%, and 6.412%, respectively Authorized preferred stock (issuable as either redeemable or

{

for 1986 nonredeemable) was 20 million shares at December 31,1986 and j

Dividends on Money Market Cumulative Preferred Stock Series 1985. At December 31,1986 and 1985,6,402,650 shares and

{

SA through SG and Series 6A and 6B are cumulative. Rates are 6,401,150 shares, respectively, of nonredeemable preferred stock ~

determined every 49 days by auction unless Citicorp fails to pay were issued and outstanding and 400,000 shares of redeemable any dividend or redeem any shares for which it has given notice of preferred stock were issued and outstanding.

redemption, in which case the dividend rate will be set at 150% of London Interbank Offered Rate (UBOR). The current maximum dividend rate in any auction is 120% of the 60-day %A" Composite Commercial Paper Rate. During 1986, the weighted-average divi-dend rates on Money Market Cumulative Preferred Stock Series SA, 58, SC,50t 5E,5Fiand SG, which have different dividend reset dates were 4.970%,4.871%,5.022%,4.981%,4.848% 4.849%, and 4.768%, respectively. The weighted-average dividend rates on Money Market Cumulative Preferred Stock Series 6A and 68, which were issued at different dates during tne yeai, were 4.481% and 4.502%, respectively 64

M.CMMSM

-umsor ooams At December 31,1986 and 1985, authorized common stock was N

8'*I"'

325 million shares. The outstanding shares at December 31,1986 Ran assets at fair value, primarily listed stocks, and 1985 include 32 million and 3.0 million book value shares, fixed income securities and commingfed funds respectively issued in connection with certain staff benefit p!ans.

managed by Otibank, N.A...

. $1,327 Under the terms of the plans the payment for book value shares sold back to Oticorp can be settied in cash or in market value Actuarial present value of benefits for service rendered

' shares at the option of Oticorp.

to date-At December 31,1986, shares were reserved for issuance as Accumulated benefits based on salaries to date, follows: on conversion of convertible notes, Q1 million shares; unrier including vested benefits of $612.

719 the savings incentive plan,12.2 million book value shares; under Additional benefits based on estimated future salary 287 the1973stockoptionplan,amaximumof 2.6millionsharesifissued levels

- at market value and a maximum of 5.2 million shares if issued at Projected benefit obligation.

1,006 book value; under the 1983 stock option plan, under which options Ran assets in excess of projected benefit may be granted in tandem, a maximum of 8.9 million shares if obligation 321 issued at market value and a maximum of 140 million shares if issued Unrecognizednetactuanalloss.

168 at book value; under the stock purchase plan,4.0 million shares; Unamortized transition net asset.

(445) under the restricted atock plan,0.2 million shares; and under the sTIN s.UDEDIN enecutive incentive compensation plan,12 million shares.

QM,%ses Beginning with the second quarter of 1986, common dividends will be considered for declaration in July, October, January and Components of Not Pensionincome Apn!, instead of June, September, December, and March. As a Service cost-benefits eamed during the penod.

$ (34) result only three dividends were declared in 1986 as compared Interest cost on projected benefit obligation (68) with four dividends each in 1985 and 1984.

Expected retum on plan assets (Actual return $172).

112 Amortization of transition net asset 34 NET 1986 PENssoN INCOME.

$ 44

13. STAFF BENEFITS g

ama sen a e nmase Wure Retirement Mans. There are a number of noncontributory c mpens tion levels used in determining the actuanal present pension plans covering substantially all domestic staff members.

value of the projected benefit obligation were 8.0% and 6.5%,

Tb employees of foreign operations participate in various respectively The expected long-term rate of return on assets used localplans.

in determining net pension income was 11%.

With regard to all domestic plans, Oticorp elected to apply the Savings incentive Plan. Under the Savings incentive Plan, provisions of Statement of Financial Accounting Standards No. 87 eligible staff members receive awards equal to 3% of their covered

" Employers' Accounting for Pensions" effective January 1,1986.

salary Staff members have the option of receiving their award in cash Asaresult,tne 1986costof theprincipalplanwasreduced,resulting or deferring some or all of it in various irvestment funds. Oticorp in pension income for the year of $44 million. Pension expense was $8 million in 1985 and 1984. Under the principal plan, retirement bnefits are based on years of credited service, the highest average compensation (as defined) and the primary social security bnefit. Oticorp's funding strategy has been to maintain plan assets sufficient to provido not only for benefits based on service to date, but also for those expected to be earned in the future.

As of January 1,1986, the fair value of plan assets was

$12 billion and the projected benefit obligation was $682 million

- (the accumulated benefit obligation was $493 million). The excess rtat asset at transition, equal to $479 million, is being amortized over 14 years. The following table presents the pnncipal benefit plan's funded status and amounts recognized in Ofcorp's consolidated financial statements at December 31,1986.

65

grants an additional award equal to the amount deferred by the Changes In Options And Shares Under Options employee. Severa1 investment options are available including

Oticorp market value shares, which the fund acquires in the open qsgng g

a market, and book value shares issued by Oticorp. The expense Shares under option at associated with the plan amounted to $56 million in 1986, December 31,1986

.8,183,094 $18 to $54

$48 million in 1985, and $44 million in 1984.

December 31,1985 7,819,399 $18 to $50 Stock Option Mans. During 1983, the shareholders of Oticorp Options granted approved a new stock option plan, which became effective March 1986 2,476,487.$51 to $54

~ 31 1983. No further options may be granted pursuant to previous 1985 2,020,961 $41 to $50 stock option plans. Options previously granted under a stock option 1984 1,879,495 $31 to $39

' plan that became effective April 2,1973 and was extended and Options exercised amended effective April 1,1977 do not fully expire until 1992. Under 1986 1,802,261 $18 to $54

- both the 1983 plan and 1973 plan, as extended and amended, 1985 1,517,798 $18 to $44 options have been granted to key staff members for terms up to 1984 526,824 $20 to $42 10 years to purchase common stock at not less than the fair market value of the shares at the date of grant. in addition, the 1983 plan Stock Purchase Man. The plan permits all eligible staff and 19_ 73 plan, as extended and amended, provide for the granting members (two years employment with Otcorp or its subsidiaries) in tandem of options to purchase market value shares of common to purchase shares within a specified period not to exceed stock at not less than the market value at the date of grant or a 24 months under agreements entered into with all such staff proportionate number of book value shares of common stock at not members from time to time at the fair market vakie or book value less than the book value per share at the date of grant. Such a per share at the dates of the agreements.

pDportionate number of book value shares is determined based Agreements aggregating $117 million were entered into on June on the ratio of market value to book value per share at the date 30,1986. Outstanding subscriptions, which aggregated $103 of grant. Under the 1983 plan and 1973 plan,50% of the options million at December 31 1986, may be used for the purchase of granted are exercisable beginning on the first anniversary and market value shares at $59.250 per share, book value shares at 50% beginning on the second anniversary of the date of grant.

$53.569 per share or a combination of both. In 1986,107 market in the captions " shares under option" and " options granted" in shares and 8,689 book value shares were purchased by staff.

the accompanying table, options granted in tandem are included members under the terms of the June 30,1986 agreements. These on the basis that represents the economically preferable attemative agreements expire on March 311988.

to the staff member.

Under the agreements entered into on June 30,1984 for the At December 31,1986, options to purchase 4,903,565 Jhares purchase of market value shares at $30.758 per share and book were exercisable. At that date,2,702,379 shares, were available to value shares at $43.788 per share,1,115,829 market value and 29,610 grant options to purchase market value shares and 2,567,308 book value shares were purchased in 1986,1006,109 market value shares (a proportionate number based on the price ratio of book and 899 book va!ue shares were purchased in 1985, and 193,372 value shares to market value shares) were available to grant options market value and 526 book value shares were purchased in 1984.

to purchase book valus shares. Additional shares may become These agreements expired on March 31,198G.

available for options to purchase market value shares under the Executive Incentive Compensation Man. Under the plan to the extent presently outstanding options under the 1983 Executive incentive Compensation Plan, awards are made to key plan terminate or expire unexercised. As the number of market staff members, payable at the election of the participants, in cash, value shares available for cptions so ircreases, or if the price ratio of or in market value or book value shares of Oticorp common stock, market value shares to book value shares increases, the number of in two installments for awards made in 1986, in three installments book value shares available for options will increase proportionately for awards made in 1985 and 1984 or on a deferred basis.

subject to a maximum cf 15 million shares.

The aggregate amount of the awards was approximately

$15 million in 1986, $14 million in 1985, and $11 milhon in 1984.

Restricted Stock Man. During 1986, the shareholders of Oticorp approved the Restricted Stock Plan which grants awards of market value shares to key executives contingent upon their continued employment over a restriction penod not to exceed ten years. The value of shares at the date of grant is amortized to expense over the restriction period. In 1986,112,000 shares at an aggregate market value of approximately $7 million were granted.

The expense recognized for the plan in 1986 amounted to

$0.4 million.

66

14. INCOMETAXES Analysis Of Effective Rate W MILUONS OF DOLL ARS FOR TsE YE AR 1984 1985 1984-roa rse yraa tees 1985 1984 Domestic US Federalincome tax rate 460% ~46.0% 46.0%

Current Changes from statutory rate resulting Federal *.

$ 22

. $ 30

. $ 28 frorrt 90 52 35-Tax exemptinterestincome (5.3%) (4.7%) (5.2%)

State and local.

$ 112

$ 82

$ 63 Income subject to tax at -

capitalgains rates.

(1.5%)

(.4%)

(.6%)

at

$ (87)

$ 56

- $ 45 of US Federalincome State and local.

(17)

(19) -.

6 tax benefit 2.3%

1.0%

1.5% -

$(104) - $ 37

$ 51 Taxes onincome of -

Totaldomestic.

8

$119

$114 overseas subsidiaries..

(.4%)

.8%

Foreign (substantially current) 634 599 540 Income from20% to 50% owned affiliatesincluded on an after-tax TOTAL PROVISION

$ 642

$718

$654 basis

(.9%) (1.2%) (1.6%)

Effect of changesin tax rates on As a result of the lower future Federal tax rates included in the Tax Imagedlease portfoho.

(2.9%) (1.1 %)

Reform Act of 1986, Citicorp adjusted the deferred tax balances Other.

.4 %

2.6%

1.5%

related to its investment in leveraged leases reducing federal income tax expense in 1986 by $55 million. In 1985, a charge in TOTAL

37.7 % 41.8 % 42.4 %

New York state and city tax rates resulted in a similar reduction ofincome tax expense by $19 million.

U.S. Federal income taxes in these analyses do not include Within the total provision, the tax effect of investment securities amounts which, in the opinion of management, represent a de transactions amounted to a provision of $60 million in 1986, facto additional Federal tax burden that is paid currently Banks

$23 million in 1985, and $7 million in 1984.

effectively incur this tax in the form of earnings remitted to the Although not affecting the total provision, current income tax US Treasury by the Federal Reserve, representing the Fed's inwst-payments may differ from the amounts shown as current as a result ment earnings on the non-interest bearing reserves that banks of the final determination as to the timing of certain deductions are required to maintain with Federal Reserve Banks. For Citicorp, -

and credits.

it is estimated that this de facto additional tax approximated As a uS corporation, all of Citicorp's foreign pre-tax eamings are

$78 million, $68 milkon, and $59 million for the years 1986,1985, subject to domestic taxation currently if earned by a foreign branch, and 1984, respectively based on average reserve deposits of or when earnings are effectively repatriated if eamed by a foreign

$1,024 million, $823 miIlion, and $738 million in 1986,1985, and subsidiary or affiliate. For 1986, foreign pre-tax earnings represent.

1984, respectively The total effective tax rate for such years, adjust-ed 60% of consolidated pre-tax income (approximately 67% in ed for these amounts and including an equivalent adjustment to 1985 and 70% in 1984). In addition, certain of Citicorp's domestic increase income before income tax, would be 40.5%,44.1%, and ir=ome is subject to foreign income tax where the payor of such 44.5%, respectively The de facto additional tax is calculated based income is domiciled overseas.

on Citicorp's bank subsidiaries' average reserve deposits as a Deferred taxes result from timing differences in the recognition of percentage of average total Federal Reserve assets, applied to the revenue and expense for tax and financial accounting purposes.

eamings remitted to the US Treasury by the Federal Reserve.

Wh;la no single method can precisely quantify this additional Fed-Components Of Deferred Tnxes eral tax burden, Citicorp believes the foregoing method is an n uituons or omes ron ise yran 19es 1985 1984 Not included above is the effect of investments in tax exempt lease financing transactions

$ 70

$ 78

$ 86 state and municipal securities, assets that yield lower rates of Effect of changes in tax rates on interest than would be the case if the income was taxable.

leveragediease portfolio.

(55)

(19)

Credit loss deduction (154)

(62)

(9)

Interestincome (56)

(25)

(6)

Domestic taxes on overseasincome 89 46 (67)

Other.

2 19 47 TOTAL

$(104)

$ 37

$ 51 67

15. EARNINGS F ER SHARE attemative to purchase either market value or book value shares are The accompanying able shows the calculation of earnings per either included as common equivalent shares or enter into the -

share on common e d common equivalent shares for net income camings per share calculation according to the two-class method af ter deduction of e dends on redeemable preferred stock and based upon the economical ly preferable attemative to staff preferred stock. S, as issuable under stock option grants and members, as further described in the Statement of Accounting stock purchase pLin subscriptions which give staff members the Policies.

Calculation of Earnings Per Share n uuoNS. E XCEPT PER SHARE AMCUNTs 1984 1985 1984 Not income Available for Common Stockholders

$250

$290

$259

a. Distributed portion (dividends).

733 645 571

b. Undistributed portion TOTAL.

$983

$935

$830 Shares Weighted average common shares outstanding-Market value

.131.2 125.4 123.4 Weighted average common shares outstanding-Book value 3.1 2.5 2.0 Common stock equivalentsm 1.8 1.8 1.1

c. Shares applicable to distributed portion

.138.1 129.7 126.5 Book value shares issuable under stock option and stock purchase plans 2.4 2.6 3.2

d. Shares applicable to undistributed portion

.138.5 132.3 129.7 Earnings Per Share a+c Distnbuted portion

. $1.84

$2.24

$2.05 b+d Undistributed portion 5.30 4.88 4.40 TOTAL.

. $7.14

$7.12

$6.45 p) common stock equivaets represent shares issuave under the executme scentne compensation plan and thedautwe eMect otinarket value shares assuave under stock opton and stock purchase plans computed using the treasury stock rnethod The fully diluted calculation assumes conversion of all outstanding 1985, and 0.2 million in 1984) are added to the number of shares convertible notes and the maximum dilutive effect of common included in the calculation (resulting in a total of 138.8 million shares stock equivalents. The number of shares issuable on conversion of in 1986,1326 million chares in 1985, and 132.3 million shares in the notes (Q2 million in 1986 and 1985, and 2.4 million in 1984) ar.d 1984), and the related af ter-ta x interest expense ($0.2 million in the additional common stock equivalents (Q1 million in 1986 and 1986, $Q3 million in 1985, and $3.7 million in 1984)is eliminated.

i l

i e

t l

68

tion of the difference between actual net credit losses and the

16. GEOGRAPHIC DISTRIBUTION OF REVENUE, pr vision for possible credit losses; and (5) allocation of corporate EARNINGS, AND ASSETS staff costs (other than those charged to the core businesses) and Oticorp attnbutes total revenue, income before taxes, net income other corporate items including certain start-up activities.

and average total assets to operations based on the domicile of the The Secunties and Exchange Commission requires that an customet U.S< possessions are included in their respective allowance for possible credit losses applicable to loans related to p

geographic areas.

foreign activities be disclosed in a note to the financial statements.

L Because of the integration of global activities, it is not practicable Oticorp makes no such allocation, and no portion of the allowance

{

to make a precise separation, and various assumptions must be for p ssible credit losses is restricted to any individual loans or s

made in arriving at allocations and adjustments to be used in gr ups of loans. For the purpose of meeting the requirement under presenting this data.

gensaHy accepted accounting principles to calculate eamings The princ! pal allocations and adjustments are- (1) charges for all and assets attributable to foreign operations, $630 million of the funds employed that are not generated locally are calculated on allowance at December 31,1986, $486 million at December 31, the amount and nature of the assets and based on a marginal cost 1985 aW350 m%on at Decemba 31,1984 is allocated to foreign of funds concept; Oticorp stockholders' equity is treated as gener-paations. In the judgment of management, such allocation is not ated and earned based on each area's percentage of total assets; meaningful, since the entire amount of the allowance is available to

- (2) allocation of expenses incurred by one area on behalf of another, absorb losses with respect to both domestic and foreign loans.

including administrative costs, based on methods intended to

. reflect services provided; (3) allocation of tax expenses: (4) alloca-Geographic Distribution of Revenue, Earnings, and Assets AVERAGE TOTAL INCOME BEFORE NET

. TOTAL REVENUE">

TAXES INCOME ASSETS IN MettlONS OF OOLL ARs 1984 1985 1984 1984 1985 1984 1984 1985 1984 1984 -

1985 1984 l orth Americam

. $ 6,368 $4,938 $3.653 $ 823m $ 762'*> $ 590

$ 568 $463 $367 $101,432 $ 85,653 $ 70,407 Caribbean, Central and South Arnencara 1,191 1,183 919 431 403 277 257 245 177 19,016 19.094 18,785 Europe, Middle East and Africa.

1,878 1,567 1,330 190 364 391 99 191 208 40,678 33,899 31,197 Asia / Pacific 963 788 717 256 187 286 134 99 138 22,887 21,859 22,242 TOTAL

$10,400 $8,476 $6,619 $1,700

$1,716 $1,544

$1,058 $998 $890 $184,013 $160,505 $142.631 (1) trcludes Nei inlcrest Reenue and Fees, Commssens andother Revenue.

(al ancludes amnunts attnbuted to unded states operations (in 1986.1965 and 1984. tespec twerylas MIows lutalrevenue,56.248 mahon, $4.843 milen and $1556 mdlen; mcome before taxes,

$764 mdhon, $728 mdiert and $547 mdimn, net sncor'w $536 mdhon. $453 melhon and $343 mdimn, and average totalassets, $97,896 melhon, $82,246 mann and $67234 nilen.

(3) includes arnounts attnbuted to Brazdoperat:ons (nn 1986,196S and 1984. respectruely)as follows. tot &ever'ue, $444 nulkon, $375 nilen and $370 mden, accme before taxes $305 mdien,

$202 mahan arri $243 m lhart nelmcome, $174 mdhor, $120 mdhon and $140 malert and average totar assets denominatedin cruzad6s andothercurrences. $6,759 mahon, $6.375 mahan and%271 matert (4} kt North Amerra. mcome before taxes actudes appronsmately $173 mdlen r 1986, $112mdhm m 1985 and $76 alhon m 1984 or tax-exempt mcone reductng the lederalmcome tax provsson attr&uted to theUrnted Stahn 17, NON-FUNDS RELATED FINANCIAL PRODUCTS commitments, guarantees, or executory contracts.

Oticorp offers various financial products to its customers to meet Foilowing are discussions of certain significant products with their needs for liquidity, credit enhancement, foreign exchange, indications of gross volumes.

and interest rate protection. Many of these products were developed Loan Commitments. At December 31,1986. Oticorp l

in response to the growing sophistication of the financial markets and its subsidiaries had outstanding unused commitments of and customers' needs for flexible ways to manage funding costs

$36.8 bilion to make or purchase loans, to purchase third party and foreign exchange exposure. In addition, the offering of these receivables, to provide note issuance facilities or resolving products may serve to reduce rather than increase Oticorp's underwriting facilities, or to extend credit in the form of lease own exposure to movements in interest and foreign exchange rates.

financing. Substantially all of these commitments are contingent All products offered by Oticorp are subject to its normal stnngent upon customers' maintaining specific credit standards. In addition,

+

credit standards, financial controls, and risk limiting and monitoring Oticorp and its subsidiaries are obligated under various recourse procedures. Many of these products do not entail present or future provisions related to sales of loans or sales of participations in funded asset or liability positions but are instead in the nature of 69

_ pools of loans._ At December 31,1986, the maximum obligation Municipal Bond Insurance. AMBAC Indemnity Corporation, -

. under all recourse provisions was $3.4 billion, of which approxi-a majority-owned subsidiary of Citibank, provides default insurance mately 87% related to sales of residential mortgages. Estimated on bonds issued by t.1S. municipalities. Under municipal bond losses pursuant to these obligations are not expected to be -

insurance policies, if a bond issuer defaults on an insured issue, the material insurer promises to pay the principal and interest in accordance _

Standipy Letters of Credit. Standby letters of credit are with the original payment schedule. Acceleration of payment under used in various transactions to enhance the credit standing of the insurance policy by the insured is not permitted.

Otibank customers. Standby letters of credit are irrevocable assur-AMBAC's insurance underwriting procedures include a rigorous ances that Otibank will make payment in the event that a Otibank credit review along with an ongoing risk monitoring process, customer cannot perform its obligations to third parties.

AMBAC limits its exposure to losses by underwriting only invest-Otibank issues standby letters of credit on behalf of its ment grade municipal bonds, by diversifying its risk geographically, customers for four primary purposes: to ensure contract perfor-by type of bond and by single issue limitations, and by obtaining mance and irrevocably assure payment by the customer under reinsurance. Premiums are recognized over the term of the insur-supply, service, and maintenance contracts or construction ance policy Reserves for losses are provided for when default projects; to provide a payment mechanism for a customer's third -

by the bond issuer is reasonably anticipated; such losses have not party obligations or act as a substitute for an escrow account; to been material. At December 31,1986, the principal amount of

. tssure payment by a foreign reinsurer to a domestic insurer; and to municipal bond insurance in force retained by AMBAC was $30.8 bil-tssure payment of specified financial obligations of a customet lion. The municipal bonds insured have a weighted average life Fees are recognized ratably over the term of the standby letter of of 16.9 years.

credit. Losses have not been material

_ Interest Rate and Foreign Exchange Products.

Oticorp offers interest rate and foreign exchange futures, forwards, Standtsy Letters Of Credit options, and swaps which enable customers to transfer, modify or reduce their interest rata and foreign exchange risks. Futures and matuousor ocuAs noccruemn me forward contracts are commitments to buy or sell at a future date a financial instrument or currency at a contracted price and may be out eut ovEeme StE s"sTs s"rEsc E E ro settied in cash or through delivery Swap contracts are commit-im ments to settle in cash at a future date or dates based on differen-Bid Guarantee, _

tials between specified financial indices as applied to a notional Performance

$ 5,354 $ 2,808 $1,567 $ 979 13.2 %

principal amount. Option contracts give the buyer, for a fee, the right Dean Payment 3,217 2.236 763 '218 46.8 %

but not the obligation to buy or sell within a limited time a financial Options, Purchased instrument or currency at a contracted price and may also settle in Secunties, Escrow.

295 178 87 30 18.6%

cash based on differentials between specified indices.

in m st cases, Oticorp manages the exposures related to these Insurance, surety.

4,156 3,173 469 514 26.5 %

products as part of its overall interest rate and foreign exchange Backstop State, trading activities, which include both funded asset and !iability Countyard positons and non-funded positions. For example, Oticorp may Mumcipal hold a secunty in its trad:ng portfolio and at the same time nave Securities 3,822 174 156 3 292 34.0 %

futures contracts to seil that secur:ty The Icsses on one position AllOtherDebt may substantially offset gains on the other position. These Related.

5,728 1,716 3,155 857 40.5 %

products are also utilized by Oticorp to reduce exposures outside TOTAL.

$22,372 $10.285 $6,197 $5.890 30.5 %

the tradMg portfolios, as hedges of interest rate gaps and foreign exchange positions.

The market and credit nsks inherent in traditional banking services a o also present in these specialized financial products, as sre the various operating risks that exist in all financial activities.

National priropal amounts are of ten used to express the volume of these transactions but do not represent the much smaller amounts potentially subject to risk.

Market risk is the exposure created by fluctuations in interest and foreign exchange rates, and is a function of the type of product, the volume of the transaction, the tenor and terms of the agreement, and the volatility of the underlying interest rate or exchange rate.

Market risk is affected by the mix of the aggregate portfolio and the extent to which positions have offsetting expocures. The market risk of an interest rate swap, for example, will be reduced by the 70

~

1 m

s presence of secuntos, financial futures, or other interest rate swap At December 31,1986, ccrtain investment secunties, trading positons with offsetting exposures. Oticorp manages its trading account assets, and other ascets with a carrying value of m

activitos in these specialized financial products on a market value

$13,704 million were pledged as collateral for borrowings. to basis that recognizes in earnings the gains or losses resulting from secure public and trust deposits and for other purposes.

I changes in market interest or exchange rates. Trading limits and Various legal proceedings are pending against Oticorp and its monitoring procedures are used to control the overall exposure to subsidiaries. Management of Oticorp considers that the aggregate E

market risk.

liability, if any resulting from these proceedings will not be material.

A variety of monitonng procedures are used to control the overall

{

exposure to market risk. These monitoring procedures include risk E

points, a system that measures the exposure to movements in

19. STOCKHOLDER'S EQUITY OF CITIBANK, N.A.

i market interest rates; cost to close, a concept that determines the Authorized capital stock of Otibank was 40 million shares at cost of covering an open positon; and earnings at risk, which December 31,1986,1985, and 1984.

estimates the earnings impact of changes in market interest rates L

based on historical interest rate volatility Oticorp believes that Changesin Stockholder's Equity presentation of the amounts estimated to be at risk under these h

monitonng procedures would not be meaningful because of r

the many assumptions used in deriving these amounts.

Balance at Beginning of Year

$7,037 $6,318 $5,924 Credit risk is the exposure to loss in the event of non-perfor-Additions mance by the other party to a transaction, and is a function of the Net income.

$ 803 $ 807 $ 777 h

ability of the counterparty to honor its obligations to Citicorp.

Contribution from Parent Company.

508 405 P;

For these specialized financial products the amounts due from or Other additions, net.

14 10 E

due to the counterparty will change as a result of movements in

$1,325 $1,222 $ 777 market rates, and the amount subject to credit risk is limited to this L

fluctuating amount. Citicorp controls credit risk through credit approvals, limits and monitoring procedures, and the recognition in Foreign currency translation 18 29 42 h

earnings of unrealized gains on these transactions is dependent Wnte-off of intangibles associated t

on management's assessment as to collectibilty w a@@ of s2sdass E

Oticorp has signifcant presence in the markets for these interest and affiliates.

10 114 30 rate and foreign exchange products. At December 31,1986, the F

Other deductions, net 19 notional principal amount of Oticorp's outstanding interest rate g

swaps was $63.4 billion; commitments to purchase and sell money

$ 353 $ 503 $ 383 r

market instruments or securities and commitments to settie BALANCE AT END OF YEAR

$8,009 $7,037 $6,318 7

against financial indices under interest rate futures, forward, and F

option contracts were $78.9 billon; and commitments to purchase Citibank charges retained eamings with the amount of goodwill 2

and sell currencies under foreign currency spot, forward and option associated with investments by Citibank in subsidiaries ano affil-y transactions were $2163 billion. These amounts are gross volume iates to the extent required to carry the investments at a va'ue not i

indcators only and do ret ref:ect the extent to which pos.tions may in excess of underlying book value. In accordance with generally 7

offset one another As discussed above, the amounts potentially accepted accourit;ng principles, such charges are not reflected g

subject to market and credit nsk are substantially smaller than the in the Citicorp f; racial statements, and the related amounts, net of 7

gross volumes indicated here.

amortization, aggregating $316 million, $256 million, and $109 mil-lion at December 31,1936,1985, and 1984, respectively are

._E included in other assets in the Citicorp consolidated balance sheet.

b

18. COMMITMENTS AND CONTINGENT LIABILITIES Citicorp's equity investment in Otibank amounted to $8,325 million, F

Oticorp ard its subsidiaries are obligated under a number of

$7293 million, and $6,427 million at December 31,1986,1985 and noncancelable operating leases for premises and equipment, 1984, respectively

{

most of which have renewal or purchase options. Minimum rental L

commitments on noncancelable operating leases, net of sublease F"

income, are $229 milton in 1987, $199 million in 1988, $178 millon in f

1989, $160 million in 1990, $145 million in 1991, and $479 million thereaf ter, totalling $1,390 million. Rental expense was $351 million In in 1986 net of $57 million sublease rental income, $256 million in

{

1985 net of $55 millon sublease rental income, and $209 million in 1984 net of $53 million sublease rentalincome.

_h

-~

k 71

20. CITICORP (PARENT COMPANY ONLY)

Condensed Statement of Changesin FinancialPosition Condensed Balance Sheet oscansonnas DECEMBER 31 IN MLLLloNs OF OOLLARS

'190s 1985 1984.

iN uwoNs or Dou Ans 190s 1985 A***I" Netincome.

$1,058 $ 998 $ 890 Deposits with Subsidiary Banks, principa'ty Deduct Equityin

.. $ 3,937 $ 4,073 Undistributed Netincome interest-bearing.

investment Securities at Cost (Market value of Subsidiaries.

547 982 904

$399in1986 and $111in1985) 421 117

. Investmentsin and Advances to Funds Derived from Operations.

$ 511 $ 16 $ ~ (14)

Imreasein Subsidiaries Other Than Banks.

24,948 17,599 Purchased Funds and Other lovestments in and Advances to Citibank, N.A.and Other Subsidiary Banks 12,507 10,851 Bonowings.

2,106 2,399 1.028 Other Assets.

'451 253 L ng-TermDebt, Subordinated Capital Notes, and

$42,264 $32.893.

Redeemable Preferred Stock 4,909 -3,421 1,087 TOTAL.

Liabilities and Preferred Stock.

150 575 100

- Stockholders' Equity Advances from Subsidiaries 1,341.

Purchased Funds and Other Borrowings.

$13,569 $11,463 Decreasein

- AdvancesfromSubsidiaries 2,339 998 Deposits with Subsidiary Banks 136 245 1,203 Other Liabilities.

1,059 1,339 investment Securities 163 Long-Term Debt, Subordinated Capital Other, Net 87 308

- Notes, and Redeemable Preferred Stock TOTAL

$9,153 $6.906 $3,712 (Notes 8,9, and 10) 16,237 11,328 Stockholders' Equity 9,060 7,765 Punds Used TOTAL.

$42,264 $32.893 Cash Dividends Declared

$ 325 $ 353 $ 319 -

Increasein Condensed Statement ohome es ents n dvances to iNuwoNsor oon Ass toss 1985 1984 Subsidiaries.

8,458 6,057 2,288 Decreasein Revenue 496 1,057 Advames from Subsidiaries Dividends from Subsidiary Banks

$ 625 $ 360 $ 292 Dividends from Subsidiaries Other

' Other, Net 66 Than Banks.

300 TOTAL

$9,153 $6.906 $3.712 Interest from Subsidiaries,

1,509 1,295 1,421 Other(principallyinterest on Various legal restnctions limit tne extent to which certain sub-investment securities) 13 34 46 sidiaries of Oticorp can supply funds to Oticorp or its other subsid-ianes and affiliates. In addition, the approval of the Comptroller of

$2,447 $1,689 $1,759 the Currency is required if total dividends declared by a national Expense bank in any calendar year exceed the bank's net profits (as defined) toterest on OtherBorrowed Money

$ 830 $ 857 $ 907 for that year combined with its retained net profits for the preceding interest and Fees Paid to two calendar years. Under the formula as it applies to Oticorp's Subsidiaries 191 167 316 national bank subsidiaries (which at December 31,1986 had Interest on Long-Term Debt and combined net assets of approximately $9.6 billion), Oticorp can Subordinated Capital Notes 1,325 1,005 802 receive dividends from such bank subsidiaries in 1987 without Other Expense 23 11 9

approvalof theComptrollerof theCurrencyof approximately

$2,369 $2,040 $2,034

$1.4 billion, plus an additional amount equal to their net profits for

' income (Loss)before Taxes and 1987 up to the date of any such dividend declaration.

Equityin Undistributed Net income of Subsidiaries 78 $ (351) $ (275) income Tax Benefit-Current.

433 367 261 Equity in Undistributed Net income of Subsidiaries.

547 982 904 NETINCo64E

$1,058 $ 998 $ 890 72

l F

' l' N'

A N-

.C 1

-A L

S T-A T

I S

T l

C S

h-I] - EE O - H5":llll" 105Ellll" GUARTERLY FINANCIALINFORMATION CmCORP AND SUBSIDIARIES 1984 1985 54 MILUONS OF DOLLARS EXCEPTPt'RSHARE AMOUNrs 4th 3rd 2nd 1st 4th 3rd 2nd 1st NetInterest Revenue

. $1,662

$1,571

$1,464

$1,431

$1,533

$1,368

$1,311

$1,234 Fees, Commissions and OtherRevenue 1,230 1,070 1,013 959 844 751 740 695 TOTAL REVENUE

$2,892

$2,641

$2,477

$2,390

$2,377

$2.119

$2,051 - $1,929 Provision for Possible Credit Losses

$ 508

$ 431

$ 457

$ 429

$ 394

$ 346

$ 280

$ 223 Operating Expense..

1,981 1,784 1,611 1,499 1,609 1,407.

1,310 1,191 TOTAL EXPENSE

$2,489

$2,215

$2,068

$1,928

$2,003

$1,753

$1,590

$1,414 income Before Taxes

$ 403

$ 426

$ 409

$ 462

$ 374

$ 366

$ 461

$ 515 Income Taxes )

97 179 174 192 131 139 210 238 o

NETINCOME.

$ 306

$ 247

$ 235

$ 270

$ 243

$ 227

$ 251

$ 277 PerShare' Netincomem On CommonandCommon Equivalent Shares.

$2.03

$1.64

$1.60

$1.87

$1.69

$1.60

$1.81

$2.02 Assuming FullDilution.

$2.03

$1.63

$1.60

$1.87

$1.68

$1.60

$1.81

$2.02 ToraLAssETs

$196,124 $186,047 $183,388 $181,896

$173,597 $169.062 $159,580 $154,603 Cash Dividends Deciated Redeemable Preferred and Preferred Stock

$19

$17

$19

$20

$19

$16

$14

$14 Common Stocka.

$85

$80

$73

$72

$72 Common Stock, Per Sharem.

$.615 LA15

. $.615

$.565

$.565 Comenon Stock Price Range High.

55%

6074 63 %

63 %

50%

51 %

50 47%

Low 47 %

49%

55%

46%

40W 40 42%

36%

Close 53 50 %

59 %

62 %

49%

40%

49%

43%

__ 1)Rener60 Note 14 foraduscussen of the wnpact of the lax Refor n Act

(

(2) on luet Incarne avadable krCommon StockMders after onductog total I%Ie,nd Stock Ovands (3) Beginneng wth the ricord quarterof 1986 com7mn dovderus wdlbe const.kked kw dylaruton v1 Jafg octobet January and A,xt estead of June. Se xember. Decembez and Afactn As a result only ttwe drvr%nds were declared m 1986 as con %wed to Ibut Jrvdende m 1985.

RATIOS 1996 1985 1984 Retum on Average Total Assets")

.58%

.62%

Retum on Common Stockholders' Equitym.

13.8 %

15.1 %

15.0 %

Retum on Total Stockholders' Equitya 12.6 %

14.1 %

14.4 %

Average Common Stockholders' Equity as a Percentage of Average Total Assets 3.9%

3.9%

Average TotalStockholders' Equity as a Percentage of Average Total Assets.

4.6%

4.4%

4.3%

Dividends Per Common Share as a Percentage of Net income Per Common Share

25.9 %

31.7 %

31.9 %

(t) Net k1come as a percentage of Amage rotal Assets (2)Netincomeless htalPrekeredStock Ovdends asapercentageof AverageCommonStockholdews Equity (3) Net income less Retk1vnable Preterred Stock Ovdends as a percentage of Aeage brat Stockhoners'Eqwty (4) Beginnaig with the secondquarterof 1986. common dndends wolbe consdered kw declaratoon in July october January and Apr4 onstead of June. September. Decerrber and March.

As a resun only threedevdends were declared m 1986 as compared to fourdivdends e 085 and 1984 73

1'9 8 6 FORM 1 0-K CROSS-REFERENCE I N D E.X 4*

9g gg c. g g MEEEo== g T'

.g g e{

Securities and Exchange Commission his Annual Report and Form 10-K incorporates into a Washington,DC 20549 single document the requirements of the accounting profession and the Securities and Exchange Annual Report Pursuant to Section 13 or 15(d)

Commission, including a comprehensive explanation of The Securities Exchange Act of 1934 of 1986 results.

For the fiscal year ended December 31,1986 Commission File Number 1-5738 PARTI Pm item 1 Business 10-19 and 40-45 CITICORPO Rom,

,,o,e, ties.

8.

item 3 Le9al Proceedings 71 Irtcorporated in the State of Delaware IRS Employer identification Number.13-2614988 Item 4 Not Applicable Address: 399 Park Avenue, New York, NY 10043 PARTII Telephone:(212)559-1000 hem 5 Market for the Registant's Canmon SECURITIES REGISTERED PURSUANTTO EW and Mated Stockm SECTION 12(b)OFTHE ACT:

Matters

. 48,73,and 88 A list of Citicorp securities registered pursuant to Section 12(b) of the item 8 Selected Financial Data

. 48 Secunties Exchange Act of 1934 is available from the Office of the item 7 Management's Discussion and Analysis of Secretary 399 Park Avenue, New York, NY 10043.

FinancialConditionand Results of Operations -

10-35 and 42-50 As of December 31,1986 Citicorp had 137,614,844 shares of Common Item 8 Financial Statements and Supplementary Stock outstanding.

Data

,52-73 Citicorp (1) has filed all reports required to be filed by Section 13 or item 9 Not Applicable 15(d) of the Secunties Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required PARTlit to file such reports), and (2) has been subject to such filing requirements forthe past90 days.

Item 10 Directors and Executive Officers of the Registunt 82-85*

The aggregate ma ket value of Citicorp common stock held by non-affiliates on January 31,1987 was approximately $7.3 billion.

Item 11 Executive Compensation.

Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions PART IV Item 14 ExhiNts, Financial Statement Schedules, and Reports on Form 8-K.

80

Citictyp's 1987 Proxy statement is incorporated herein by reference.

Certain statistical data required by the Securities and Exchange Commission are included on pages 22 to 27, pages 30 to 33, page 73,and pages 75 to 79.

74

F I

N A

N C

I A

L D

A T

A S

U P

P L

E M

E N

T X

iEliBLJ" E HEllll:o*2.I+ BEEE AVERAGE BALANCES ANDINTEREST RATES lAXABLE EQUIVALENTBASISm CmCORPANDSUBSIDIARIES 19e6 1985 1984 AVERAGE AVERAGE AVERAGE NERAGE AVERAGE AVERAGE N MILLIONS CF DOLL ARS WOLUME INTEREST RATE VOLUME NTEREST RATE VOLUME INTEREST RATE INTEREST REVENUE L ns and L..se Financin9 (Notof Unearned Discount)'*

Commercialloans tn Deneshc Oftces Cornmercal and hdustnal

$ 12,888

$ 1,871 13.17

$ 13.212

$ 1.822 13 79

$ 14 082

$ 2.069 14 69 Mortgage and RealEstate 7,032 676 9.51 5.300 591 11.15 4.331 509 11 75 Loans to Fnancelinstdutons.

416 52 14.90 604 84 13.91

'.189 128 10.77 tn Overseas Ottees,

37,573 4,797 12.77 38.967 5.738 14.73 38.425 6.101 15 88 TotalCommercialloans

$ 57,709

$ 7,206 12A9

$ 58.083

$ 8.235 14.18

$ 58.027

$ E.807 15.18 Consumer Loans enDomestcOfices.

$ 49,807

$ S,635 13.38

$ 40.566

$ 5.735 14 14

$ 30.671

$ 4.431 14 45 in Overseas Offces.

11,090 1,500 13.80 7.171 1.186 16 54 6.084 1.013 16 65 TotalConsumer Loans.

$ 80,706

$ 8,144 13A2

$ 47.737

$ 6.92a 14 50

$ 36.755

$ 5.444 14 81 Totalloans

$118,415

$15,350 12.96

$105.820

$15.156 14 32

$ 94.782

$14.251 -

15 04 Lease Fnancog 2.864 413 14A2 2.424 463 19 10 1.900 392 20 63 TotalLoans and Lease Financing

$121,279

$15,763 13.00

$108.244

$15.619 14 43

$ 96.682

$14.643 15 15 Funds Sold and Resale Agreements (Principally tn domestic offices)

$ 7,852

$ 892 9.04 5 6.835

$ 1.087 15 90

$ 4.908 5 936 19 07 Investment Securities M Domestc Othces US. Treasury and Federal Agences

$ 2,550

$ 245 9.41

$ 2.505

$ 268 10 70

$ 2.745

$ 304 11 07 State and Municipal 537 54 10.06 395 48 12.15 419 52 12 41 Other 1,330 117 8.80 788 105 13 32 704 71 10 09 h Overseas Offces (Procipally local govemment rssues).

5,984 880 11.36 3.448 466 13 52 2.313 279 12 06 Total

$ 10,401

$ 1,096 10.54

$ 7.136

$ 887 12.43

$ 6.181

$ 706 11 42 Trading Account Assets US TreastsyandFederal Agences 288 39 13A9

$ 817

$ 98 12 00

$ 1.075

$ 134 12 47 State and Municipal.

6,628 627 9AS 4 888 709 14 50 3.248 611 18 81 1,204 144 11.96 864 71 8.22 TJ6 53 13 38 Other (Pnncipally in overseas oftces)

Total

$ 8,121

$ 810 9.97

$ 6,569

$ 878 13 37 5 4.719

$ 798 16 91 Interest Searing Deposits (Principally 6noverseas offices)

$ 13,051

$ 1,072 8.21 5 11.811 5 1.156 9 79

$ 11.577

$ 1.273 11 00 Totalinterest Eaming Assets

$100,504

$19,433 12.11 5140.595

$19.627 13 96

$124.067

$18.356 14 80 Non interest Eamog Assets.

23,509 19.910 18.564 TOTAL ASSETS

$184,013

$160.505

$142.631 INTEREST EXPENSE Deposits M Domeste Oftces Savings Deposds*..

$ 17,219

$ 977 5.67

$ 14 295

$ 968 6 77

$ 11.629

$ 894 7 69 Ne90tiable Certifcates of D*:pos:t.

1,953 182 9.32 2.314 241 10 81 1.573 151 9 60 Other Tune Diposite.

21,108 1,824 8.64 10.553 1.895 9 09 16.162 1.918 1187 TotalDomesticlnterest Beanng Depost.

$ 40,290

$ 2,983 7At

$ 36,162

$ 3.104 8 58

$ 29.364

$ 2.963 10 09 h Overse as Offces,

tis,534 5,208 9.21 50.328 5.761

'1 45 46.786 5.668 12 11

$ 98,814

$ 8,191 SAS

$ 86 490

$ 8.865

~ 0 25

$ 76.150

$ P.631 11 33 htal Ands Borrowed in Domestic Oficcs Purchased Furwis and Other to rowogs Federal Funds Purchased and Securit'es Sold Under Agreemerns to fbpurchase

$ 10,433

$ 740 7.09

$ 10.064

$ eSS 8 50

$ 9.329

$ 972 10 42 Commercel Paper.

Otner Purchased Funds.

6,208 422 6.80 4.977 415 8.34 4 970 525 10 56 5,865 552 9At 6,396 597 9 33 5.646 568 10 06 l

Long Term Debt. ConvertitMe Notes and l

SubordeatedCapita Notes.

17,075 1,611 SA3 12.032 1.335 11.10 9.063 1.034 11 41 Totalm Domestc Off ces

$ 39,581

$ 3,325 SAO

$ 31469

$ 3.202 9 57

$ 29.008

$ 3099 10 68 h Overseas Ofhces.

9,046 1,580 17A7 7.915 1.901 24 78 8.098 2.145 26 49 Total

$ 48,627

$ 4,905 10.09

$ 41.384 5 5.163 12.48

$ 37.106

$ 5.244 14.13 Totallnterest Ocanng Liatzktes.

$145,441

$13,096 9.00

$127.874

$14.028 10 97

$113 256

$13.875 12 25 Demand Deposits m Domestic Othces 9,428 72';8 6 021 l

Other Non interest Beanng Laatmhtes 20,750

?8.349 17.195 Total Stockholders' Equity 8,394 7.024 6.159 TOTALuAssuTIES AND STOCKMOLDERS'EGUSTY.

$184,013

$160.505

$142.631 NETMTEREST REVENUE AS A PERCENTAGE OF l

AVERAGE INTEREST-EARNING ASSETS InDomesticOthces.

$ 85,182

$ 4,025 4.73

$ 72 %5

$ 3 267 4 48

$ 60 936

$ 2 312 3 79 h Overseas Othces.

75,322 2,312 3.07 67.630 2.332 3 45 63.131 2.169 3 44 TOTAL,

$180,504

$ S,337 3.95

$140.595

$ 5.599 3 98

$124 067

$ 4 481 3 61 m the tanave wa.ere esiusrenens twas x rne magnar tware or m

\\

m t oans ana wase snancm twances inove casn tes?s cens ams meses 1

m sems Depos,rs cms sr or mswea wr M.ner nate accows. Now accows ams orner sawngs oevous

ANALYSIS OF CNANGES 'M NET INTEREST REVENUE TAXABLE EQUIVALENT B/.2id 1986 vs.1985 1985 vs.1984 EO E

~

O CHA E

^ nun "N

csA$Ea NUME a

RA E CHA Ea nuwowsor ocu*as Loans-Commercial in Domestic Offices

$ 129

$ (217)

$ (88)

$ (66)

$ (143)

$(209)

In Overseas Offices (200)

(741)

(941) 88 (451)

(363)

Total

$ (71)

$ (958)

$(1,029)

$ 22

$ (594)

$ (572)

Loans-Consumer in Domestic Offices

$1,223

$ (323)

$ 900

$1,397

$ (93)

$1,304 in Overseas Offices 562 (239) 323 179 (6) 173-Total

$1,785

$ (562)

$ 1,223

$1,576

$ (99)

$1,477 Lease Financing in Domestic Offees

$ 39

$ (49)

$ (10)

$ 51 2

$ 53 In Overseas Offices 18 (58)

(40) 30 (12) 18 Total

$ 57

$ (107)

$ (50)

$ 81

$ (10)

$ 71 TotalLoans and Lease Financing

$1,771

$(1,627)

$ 144

$1,679

$ (703)

$ 976 1%mds Sold & Resale Agreements (Principallyin domestic oWices)

$ 118

$ (513)

$ (395)

$ 261

$ (110)

$ 151 investment Securities in Domestic Offices

$ 75

$ (80)

(5)

$ (22) 16 (6) in Overseas Offices 298 (84) 214 150 37 187 Total

$ 373

$ (164)

$ 209

$ 128

$ 53

$ 181' Trading Account Assets in Domestic Offices 6

$ (44)

$ (38)

$ 83

$ (36)

$ 47 inOverseasOffices,

209 (239)

(30) 82 (49) 33 Total

$ 215

$ (283)

$ (68)

$ 165

$ (85)

$ 80 Interest-Bearing Deposits (Principally in overs eas offices)

$ 114

$ (198)

$ (84)

$ 26

$ (143)

$ (117)

TOTAuMTEREST REVENUE.

$2,591

$(2,785)

$ (194)

$2,259

$ (988)

$1,271 Deposits in Domestic Offices

$ 331

$ (452)

$ (121)

$ 397

$ (256)

$ 141 in Overseas Offices 657 (1,210)

(553) 342 (249) 93 Fotal

$ 988

$(1,662)

$ (674)

$ 739

$ (505)

$ 234 Rmds Borrowed in Domestic Offices

$ 542

$ (419)

$ 123

$ 321

$(218)

$ 103 in Overseas Offices

_253 (634)

(381)

(47)

(137)

(184)

Total

$ 795

$(1,053)

$ (258)

$ 274

$ (355)

$ (81)

TOTAL INTEREST EXPENSE.

$1,783

$(2,715)

$ (932)

$1,013

$ (860)

$ 153 NETINTEREST REVENUE.

$ 808

$ (70)

$ 738

$1,246

$ (128)

$1,118 (1) Rare,when wence us anocated based on the percentage relatonsrup olchanges a woune anc* changes a rate to the tota! " Net Change" 76

i INVESTMENT SECURITIES CARRYING VALUE AND YlELD9 BY MATURITY DATE AS OF DECEMBER 31,1986 EEoSIfi$c"ES E'c^p"AE OvEEE'EO IN MILLIONS OF DOLL ARS AMOUNT YlELD AMOUNT YlELD AMOUNT YIELD Due Within 1 Year.

. $ 237 9.44 %

$ 86 4.21 %

$1,968 Af ter 1 but Within 5 Years.

553 9.72 %

83 4.54 %

3,338 -

Af ter5 but Within 10 Years.

435 10.11 %

304 6.75 %

1,431 Alter 10 Years.

2,003 8.91 %

1,482 5.70 %

960-TOTAL

$3,228 9.22 %

$1.955m 5.79 %

$7,697(3)

Carrying Value and Yieldm As of December 31,1985

$2.818 9.90 %

$ 825 6.19 %

$6,004 Carrying Value and Yieldm As of December 31,1984

$2,811 10.60 %

$ 439 6.68 %

$3,272 (1)Computedbydv6ngannualmterestt etofamortizatwotprenumoraccretmof6scount)bythecarrymqvalueottherespectiveinvestmentsecuntesatDecember3t 1986, h

985 and 1984 (2) See(1) m nove 1 of notes to the inanCnalstatements.

t3) See (2) e note 1 of notes to the knancialstatements.

. Yeldotormalmnotreaddyavadabne.

LOANS AND LEASE FINANCING OUTSTANDING IN MIL LIONS OF DOLL ARS. AT YE AA END 1984 1985 1984 1983 1982 CommercialLoans in Domestic Offices CommercialandIndustrialm

$ 18,994

$ 13,514

$ 16,028

$14,910

$17,817 Mortgage and RealEstatem.

7,837 6,165 4.912 3,975 2,915 Loans to Financialinstitutionse, 1,299 1,353 1,003 2,341 2,623

$ 25,930

$ 21,032

$ 21,943

$21,226

$23,355 In Overseas Offices Commercialandindustrialm

$ 23,101

$ 25,683

$ 25,235

$27,592

$29,590 Mortgage and RealEstatem 2,330 2,143 1,906 1,822 2,745

(

Loans to Financialinstitutions.

4,375 5,363 5,827 5,914 4,151 Governments and Officiallnstitutions 4,170 4,434 4,298 4,074 3,140

$ 33,978

$ 37,623

$ 37,266

$39,402

$39,626

$ 59,908

$ 58,655

$ 59,209

$60,628

$62,981 Unaamed Discount (487)

(483)

(410)

(386)

(463)

Commercial Loans, Net of Unearned D6scount.

$ 59,439

$ 58,172

$ 58,799

$60,242

$62,518 Consumer Loans in DomesticOffees Mortgage and RealEstatem

$ 27,991

$ 21,719

$ 17,679

$10,751

$ 9,261 Installment, Revolving Credit and Other 29,700 27,490 21,913 15,418 11,213

$ 57,891

$ 49,209

$ 33,592

$26,169

$20,474 In Overseas Offices,

14,708 10,727 7,593 6,856 6,824

$ 72,397

$ 59,936

$ 47,185

$33,025

$27,298 Unearned Discount (4,154)

(4,418)

(4,524)

(4,030)

(4,093)

Consumer Loans, Net of Unearned Discount

$ 88,243

$ 55,518

$ 42,661

$28,995

$23,205 Lease Financing Lease Financing, Net of Uneamed Income

$ 3,222

$ 2,809

$ 2,164

$ 1,817

$ 1,855 Allowance for Possible Credii Losses

$ (1,898)

$ (1,235)

(917)

$ (771)

$ (687)

TOTAL LOANS AND LEASE FINANCING, NET

$129,208

$115.264

$102,707

$90,283

$86,891 (t> mesas.s bens not othera,se sepaarety categonzed

42) hchaws only bans securedpnmanty by reat estare t3) Mckans bans to governments endoaceal estitutes of $415 mona m 1986, $434 mune m 1985 $273 maison a 1984. $t75 manon m 1983, and $243 md.m m 1982 77

DETAILOF CREDIT LOSS EXPERIENCE Di MILUONS OF DOLL ARS 1988 1985 1984 1983 1982 ALLOWANCE FOR POSSISLE CREDff LOSSES AT BEGINNING OF YEAR

$1,235 $ 917

$771

$687

$581 Deductions

. Gross Loan and Lease Losses Commercial Mortgage and Real Estate-2

$5

$3

$4 in Domestic Offices inOverseasOffices.

33 15 3

11 8

Governments and Officiat institutions 37 44 40 47 11 Loans to FinancialInstitutions:

In Domestic Offices in Overseas Offices 19 19 9

23 Commercialand Industrial:

In Domeste Offices 100 84 83 81 91 In Overseas Offices 300 278 137 127 131 ConSumerm in Domestic Offices 1,050 642 320 210 197 in Overseas Offices 122 77 66 73 69

$1,661 $1,161

$663

$575

$511 Loan and Lease Recoveries Commercial Mortgage and RealEstate:

In DomesticOffices 1 $

2

$ 6

$ 10

$ 11 In Overseas Offces 3

1 4

1 1

Govemments and Official institutions 4

8 Loans to FinancialInstitutions:

8 9

In Domestic Offices in Overseas Offices Commercialand Industrial:

i In DomesticOffces 27 25 25 11 3

in Overseas Offices 41 29 21 21 29 Consumerm in DomesticOffices 174 111 81 67 62 in Overseas Offices 40 23 19 20 20

$ 290 $ 199

$156

$138

$135 Net Loanand Lease Losses in DomestcOffces

$ 948 $ 590

$296

$198

$207 in Overseas Offices 423 372 211 239 169

$1,371 $ 962

$507

$437

$376 Additions Provision for Possible Credit Losses.

$1,825 $1,243

$619

$520

$473 Other (Principally from allowance balances of acquired companies and translation of owrseas allowance balances).

9 37 34 1

9

$1,834 $1.280

$653

$521

$482 ALLOWANCE FOR POSSIBLE CREDIT LOSSES AT END OF YEAR.

$1,698 $1.235

$917

$771

$687 Excess of Provision over Net Loan and Lease Losses

$ 454 $ 281

$112

$ 83

$ 97 Cumulatrve Excess of Provision over Net Loan and Lease Losses (since 1981)

$1,027 $ 573

$292

$180

$ 97 CumulativeIncreasein Allowance (since 1981)

$1,117 $ 654

$336

$190

$106 (1) Consumer kun bsses pnmanly relate to vnstallment and redwng credit noans 78

l LOAM MATURITIES AND SENSIYIVITY TO CNANGES IN INTEREST RATES THE MATURITIES OF THE GROSS COMMERCIAL LOAN PORTFOUO AS OF DECEMBER 31,1986 DUE -

OVER 1 BUT

- WITHIN WITHIN 5 OVER IN MILLIONS OF OOLL ARS tYEAR YEARS

$ YEARS TOTAL in DomesticOffees

.$ 6,873

$ 4,299

$ 5,822

$16,994 CommercialandindustrialLoans

{

Mortgage and RealEstate 2,727 1,491 3,419 7,637 542 292 465 1,299

~

AllOtherLoans In Overseas Offices.

21.481 7,827 4.668 33,976 TOTAL.

.$31,623

$13,909

$14.374

$59,906

- The following table represents the sensitivity'of the above loans due af ter one year to changesininterest rates-

$ 4,416

$ 6,795 Loans at Predetermined Interest Rates 9,493 7.579 LoansatFloatingor AdjustableInterestRates.

TOTAL.

$13.909

$14,374 TIME DEPOSITSIN DOMESTIC OFFICES

[

<sco.ooooRMORo.

cERTscATES oTHER Time NMILLIONSOF DOLLARS AT YEAR END OF DEPOSIT DEPOSITS

[

Under3 months.

. $3,244

$2,730 3 to 6 months 484 926

~

6to 12 months 410 582 Over 12 months 670 2.315 AVERAGE DEPOSIT LIABILITIES IN OVERSEAS OFFICES 1984 1985 1984 AVERAGE AVERAGE AVERAGE AVERAGE lef7EREET AVERAGE INTEREST AVERAGE INTEREST N MILL'ONS OF DOLL ARS BALA00CE RATE BALANCE RATE BALANCE RATE Banks"

. $17,729 9.65

$17,501 11.37

$17,816 11.27 Other demand deposits.

8,330 4.73 6,470 4.20 4,782 5.51 Other time and savings depositsa 33,961 9.15 28,958 12.04 26,467 12.83 TOTAL

. $60,020 8.68

$52,929 10.86

$49,065 11.55 (f) Pnmar#y consists oitsne cert 44 cates of deposet and cther tene deposus wi denominat,ans of $100,000 orincre.

79

r i

[

'3-*

PROPERTIES EXHIBITS, FINANCIAL STATEMENT GCHEDULES, The principal offces of Oticorp and Otibank, N.A. ("Citibank") am AND REPORTS ON FORM 8-K.

. located at 399 Park Avenue, New Ybrk, New York, a 39-story Financial StatementWed-building owned by Citibank. Otibank a:so owns Oticorp Center, Oticorp and Subsidwies-a 59-story building located at 153 East 53rd Seeet across from Consolidated Statement ofincome 399 Park Avenue. Approximately 68% of the Oticorp Center and Const,ydated B&)nce Sheet 399 Park Avenue complex is occupied by Oticorp. In addition, Consu: dated Statement of Changesin Otibank also owns other properties in New York, including 111 Wall Stodholders' Equity Street which is totally occupied by Citicorp dnd its af'diates and Censolidated Statement 6f Changes in Firuncial Position 55 Wall Street, a nine-story building of which 34% is so occupied.

Oticorp also has major domestic corporate real estate holdings Citcorp filed no Form 8Nunant Repor t fle ag moritn in the year in Los Angeles, San Francisco and S.oux Falls.

ended Dtcember 31,1936.

Internationally Citicorp also owns major corporate premises Oticerfls significant subsidiafes (as defined) and their pl. ace in various cities throughout the world including Paris, London, of incomoration or organiza#.deplude-Dusseldorf, Brussels, Buenos Aires, Rio de Janeiro, Sao Paulo, Citil;ank, N.A.

United States Mexico City San Juan, Caracas, Hong Kong, Manila and Tokyo.

Oticorp Banking Corporation Delaware in all, some 36% of Citcorp owned corporate red estate is Citicorp Holdings,Inc.

Delaware lccated outside the United States. Of the approximatty 2,300 Other subsidiaries of Oticorp and their place of incorporation or offces and other facilities of Citicorp located throughout the.

organc'ation include:

world, 440 are owned and the balance are leased.

Cit bank (New Yor'< State), N.A.

United States Citcorp DigitalExchango inc.

' Citicorp Latino,Inc.

Delaware s

Delaware Otccrp Trust, N.A. (Califcink)

United States i

CONSENT OF INDEPENDENT AUDITORS Citico.p Trust, N.A. (Florid,'o United States Peat, Marwick, Mitchell & Co.

CibcypidemabmalGrourr Inc.

Delaware MARWKK Cerbfied Puuic Accountants Citicorp Overkas Services Inc.

Delaware Citicwn Fbalty Consultants,Inc.

Delaware OticowSet urities Marke:s,Inc.

Delaware The Board of Directors Otiban Inc.'

Delaware Oticorp-OticniRetail Suvices, Jr.c.

Delaware Otk'orp's Cer tificate of Incorporation and By-laws, Instruments We consent to incorporation by reference of our report dated Defining the3ights of Securities Holders, including indentures and January 20,1987, relating to the consolidated balance sheet of mnswed.nstmmeds miabng to vahs exembw aM sta#

Otcorp and subsidiaries as of December 2198fand 1985 benefit plans, have been pmviously filed w,th the Commission as and the related consolidated statements 1 income, changes in stockholders' equity and changes in financial p$ tion for each of Exhibits to varicus Citicorp registration statements.

Stockholders may obtain copies of such documents oy wribng the years in the three-year period ended December 31,1986 and ceo ag N a W maMw M, the consolidated balance sheet of Otibank, N.A. and sut:sidieries New York 10043.

as of December 311986 and 1985, which report appears on page 51 of the 1986 Oticorp Annual Report and Form 10-K, in the fol-lowing Registration Statements: of Citicorp, Nos. 2-47647 2-47643, 2-58678,2-58679,2-77058,2-32298, and 33-5564 on Form S 6 and Nos. 2-96725,33-784,33-3114,33 6151 33-2928,33-4400, 33-5702,33-11927, and 33-11928 on Fcrm S-3, and of Otibank, N.A. and other affiliates, Nos. 7t3142,35 78Q 2-98882. ? Y 356.

2 98528,33 316133-6358,33 8718, and 33-6979 on Fonn S-11 hew 'vbrk, New Ybrk February 271987 s

l l

l 80

(

[N

.~

d. ; ' -

SIGOGAftNtEkd (

John S. Reed (Citicorp's Principal Executive Officer) and the Pursuant to then9:irem<mts of Section 13 or 15(d) of the Secunties Directors of Citicorp (listed below) executed a power of attorney Eythance Act of 1934, the registrant has duly caused this report to appointing Paul Kolterjahn their attorney-in-fact, empowenng him 1 t;o signed On its behalf by the undersgned, thcreunto duly to sign thisreport ontheirbehalf authonzul Hans H Angermueller

~CmCORP.

Richard S. Braddock tRegistrant)

Colby H Chandler

~'-

Paull Collins James H Evans James D Farley Lawrence E.Fouraker PaulKolterjahn Arthur Furer SeniorVeePresident--Secre ry Clifton C Garvin,Jc HarryJ Gray John W Hanley HJ.Haynes.

4

. February 27,1987

+

Jucoita M. Kreps C PeterMcColough l-L Pursuant to the requiren'ents of the Securities Exchange Act of RogerMilliken 1934, this report has bt.cn signed on February 27,1987 by the Charles M. Pigott l

following persons in the capacities indicated.

Donald V Seibert Frank Shrontz

/

Mario HennqueSimonsen

,J' Lawrence M. Sma'i.

e Darwin E. Smith Donald S. Howard ThomasC Theobald ExecutivaVee President e.

Franklin A. Thomas (PrinopalFinancialOfficer)

I Thomas nos SeiorVi sdent and Chief AccountingOfficer (Prinopal ounting Offcer)

\\

~,

J

~

81 W

ClTICORP A.N D CITIBANK SENIOR MANAGEMENT gg 39m M.,;.;;,.m K muuss F

l "E,

m. d a u n - m u m mMums A

v w

HANS H. ANGERMUELLER, MICHAEL A.CALLEN, PAUL J. COLLINS, DAVID E. GIBSON, 62,vce chairman of Otcorp and 46, group executive of Oticorp 50, senor corporate officer of 466 group executive of Citicorp Otibank,is policy making officer and Otibank, assumed responsi-Citcorp and Citibank,is respon-and Otibank, assumed responsi-for Otcorp's and Otibank'slegal, bilityin 1985 for the North Ameri-sible for North America,Citcorp's blityin 1985 for the Private Bank-regulatory and extemalaffairs.

can Finance Group andis Informaton Business and strate-ing Groupin theIndividualBank.

Mr. Angermuellerhasservedas responsible forthe development gic planning. Previously he was He has broad experiencein chairmanof theCorporation's and management of financial chief investment officer, head of corporate banking in New York,

{

Country Risk Review Committee.

services to commercial, industrial Corporate Planning, supervised Japan and Brazil. He also served f

Hejoined Citibankin 1973 and servce businessesin the the Corporaton's accounting as country head for the World as senior vice president and US. and Canada.His previous andcontrolfunctions,headof the Corporation Group in Brazil, and generalcounsel.

assignmentsinclude servicein FinancialMarketsGroupand chief of staff fortheCanbbean, Southeast Asia, the Mddle East, mostrecentlyheadof theInvest-Centraland South American ROBERM. BAKEY, Saudi Arabia, chief executive ment Bank.Hejoined Citibank Banking Group In 1981 he was 47, group executr.ve of Otcorp g

,saMa p e h 19M WMWMWm and Citibank, assumed responsi-Saudi American Bank in Riyadh, Australasia and Southeast Asia

[

blityin 1985 for the Asia /Pacifc JAMES D. FARLEY' a @ espo d W f e m Division of theInstitutional Bank i

Groupin theInstitutionalBank.

60, vice chairman of Citicorp and eh raN n Singapore. He joined Citibank

[

s pWous assignMs bad,is espmem N ties and theinvestmer;t portfolio in 1969.

[

include service in Otibank's western United States activities

. in the US. He joined Otibank branchesin Venezuela, senior m the Mc Bash ama, PAU U. R A H R, in 1965.

offcerin charge of operatonsin and specialworldwide customer 60, senior vice president of Mexico, and senior offcer foritaly PEI-YUAN CHI A, relatons. He is also chaiiman of Citibankischairmanof the Cor-In 1975 he was named Area Cor.

48, group executive of Otcorp the Corporation'sintemal Person-porate Technology Committee.

parate Officerin charge of activi-and Otibank, assumed responsi-nelPlanning Committee. Pre-Heisresponsible forestablishing tasin the United Kingdom, the bilityin 1985 for the US. Card viouslyhe headed the Merchant technology policyand standards, Republic of Ireland and Scandi-ProductsGroupof theIndividual Bankand was Group Executive forintroducing new technology f

navia. In 1980 he was named Bank. Previous assignments inchargeof theCanbbean,Cen-and for evaluating the qualityand i

Country Head for Brazil. He include respons,bbty for market-traland South American Banking direction of systems efforts. Until joined Cuibankin 1961 ing and the ATM programin Group.Hejoined Citibankin 1950.

1985 he was chairman of Trans-8 Y

a@Meh% M mspms RICHARD S. BRADDOCK, PAMELA P. FLAHERTY, nagng DmctsoWambad' ble for the design, development 45, sector executive of Oticorp 42, Senior Human Resources elg, an@e Cade Blanche /

a@pwahmof aWan d eleo and Citibank, heads the Individ-Officer of Citicorp and Citibank, Diners Club business in the U.S.

tons systems and news fm ualBank.He has served in the assumed this position in 1985.

He asund esponsMWs N n

a alsesto New'rbrk branch system, as divi-Joining Citibankin the intema-Devel pmentDivisionof theIndi' ad anGwp msWnss.

sion head of Otibank's European tionalBanking Group, she was n

,aM b h o

an d M consumer operatons and the nvolvedin developing support mp Savngs Mm in $84.

Card Products Division. In 1982 systems for consumer finance in

I 8"

ha assumed responsiblity for the the US.and abroad. Poor to her Consumer Banking, Traveland GEORGE J. CLARK, current assignment she held key Entertainment Group. In 1984 he 62, executive vice president of managerialpositionsin Citibank's was head of domeste busi-Citibank, assists in representing branch system and most recently rasses for theIndividual Bank.

Oticorp internationally and man-was director of marketing and He assumed his current respon-ages the country-risk exposure development for Citibank's siblities in September 1985. He lendinglimits.Before this assign-Northeast Division retailbanking jo ned Otibankin 1973.

ment, he was division head for activities. She joined Citibank the Western Caribbean, South in 1968.

America, Canada, the Middle East, Asia and Afncain theInter-natonal Banking Group. He joined Otibank in 1964.

82

LAWRENCE R. OLENN, WlLLIAM J. HERON, JR.,

RICHARD L. HUBER, PAAN.NOLTERJANN, 48, chairman credit policy com-45 group executive of Oticorp

. SQ group executive of Citicorp 62,was appointed seniorvice mittee,isthe chieflending officer andOtibank,headof theUSt and Citibank,is responsible for president-secretary of Oticorp of both Otcorp and Otibank. He ConsumerBankingGroupof the US. Equity Finance,the Latin and Otibankin 1981 Heis is responsible forestablishing IndividualBarA assumed his AmericanInvestment Bank and responsble for the Corporate credit rules and policies and pro-present responsibilities in 1985.

Globallnsurance.In 1977 he Secretary's Offceincluding vidinggeneralsupervisionof the Since 1976, Mr. Heron has held became areacorporate officer for Drectors' activities, stockholder

=

sourdnessof theloanportfolia various positionsin the Card Japanand Guam.In 1980 he was relations,exchangelistings -

He assumed his present respon-Products Dvision and the New named head of the institutional.

proxy and annualmeeting mat-sibilities in 1982. Previous assign-York BankingDvision.In 1982 he Bank's North East Asia division, ters, head offce contnbutions,.

~

mentsinclude division headin wasappointed divisionexecutive and most recently wasin charge publicissues and corporate chargeof theRealEstateindus-for NewWrk consumer banking of the AsiaPacife Banking Group secunty Previously hewas tries of the North American business,which alsoincluded of theInstitutionalBank.He responsible for Administration RaanceGroup and senioroffcer Upstate New Wrk,New Jersey assumed his current responsibili-and Credit Management for the in the field for countriesin the -

and Connecteut.Hejoined tiesinSeptember 1985.Hejoined Metropolitan NewYorkbranch Northem Canbbean Region. He Otibank in 1%9.

Citibankin 1973.

system.Hejoined Citibankin joined Otibankin 1963.

ma

,,,,,,L,,,,,,,,

,,,,,gy,__,,,

ouENTHER E. GREINER, 44, group executive of Oticorp 54, chief auditorof Citicorpand RICHARD J. LEHMANN,

=

4& group executive of Otcorp and Citibank, directs the Institu-Citibank,is responsible forworld-42,seniorcorporate offcerof and Otibank,is responsible for tionalBank's Caribbean, Central wide Citicorp /Otibank audits and Citicorp and Otibank,is respon-the Institutional Bank's Europe /

and South America Group His loan reviews.He has heldinterna-sible for Europe and the Mddle Mddle East /AfricaGroup and previous assignmentsinclude tional posts in Mexico, Canada.

East.His previous assignments tssumed his p esent positionin seniormanagement positionsin Japan, Hong Kong, and the Phil-includepostsinEuropeforthe -

1985t Previousassignments Colombia,the Mddle East ar'd ippines,where he was country international Bank.In 1977 he includeSeniorVice President /

North Africa and supervision of

! u officer from 1975 to 1980.

was appointed president and DvisonExecutrveof theNorth theWestern Hemisphere Group As. chief auditorhereports chief executive offcerof AmericanBanking Group and of theIndividualBankoverseeing directly to the Board of Directors.

Oticorp's Nationwide Financial prior to that, the area corporate Citicorp's domeste consumer He joined Citibankin195E Services Corp. Most recently Mr officer for Germany, Austria and subsidiaries,its Savings and Lehmann was US. division exec-I' Erstern Europe.Hejoined Loan Associations, the upstate utive fortheWesternHemisphere 48, se Otibank in 1965 NewWrk branches and Latin Consumer Groupin charge of domestic consumer banking out-GEORGE E. HAGERMAN, JR.,

controller forCiticorp and Sa group executive of Citicorp Otibank.Since joining Otcorpin g

1g and Otibank, heads the Financial DONAL D S. HOWARD, 1980, he has been responsible Institutions Group which main-58, executive vice president,is for the Corporation's accounting, CHARLES E. LONG, tains the bank's operationaland the Chief FinancialOffcer of Mis,operationalplanning and tax 46, executive vice president of marketing relationships with Otcorp and Otibank, responsi-functions.

Oticorp and Otibnk, supervises domesto and intemationalcorre-ble for worldwide liquidity capital Legal and External Affairs, which sf ondentbanksarc'otherfinan-structure planning. the develop-incluoestheOffeeof theGeneral i

cialinstitutions. Joining Otibank ment of Oticorp'slong range Counsel,the Corporate Secre-in the overseas division, he was fundingplan andmanagement of tary's Office, Government Rela-assigned to keymanagement allintermediateandlong term tions, Public Affairs and Advertis-positionsin Venezuela, Argentina debt issues. He joined Citibankin ing and administers the Audit and Brazil.He has served as divi-1957 Dvision. Previously he had sion head for Central ar'd South responsibility for consumer finan-Amenca and the Canbbean.He cialservices overseas and the assumed his present responsibil-operatingactivitiesof thePer-ities in January 1980. He joined sonal Banking Group.He took on Otibank in 1957.

his current assignmentin August 1982. He joined Otibank in 1972.

i 83

ALAN S. na-nnam n VICTOR MENEZES, MtA S. R8 MERMAN, LAWRENCE M. SMALL, i

43, group executNe of Otcorp 37,seniorcorporate offcerof 48 group executive of Citicorp 45, sector executive cf Citicorp 5

and Otibank,is head of Oticorp's Oticorp and Otibank, assumed and Citibank, assumed responsi-and Citibank,is responsible for NorthAmencaninvestment responsibility for Latin America /

bilityin 1985 fortheIndividual theInstitutionalBank. Prevous Bank.His responsibilitiesinclude Africa in 1985.His prevous Bank'sConsumer Servces assignmentsinclude servicein theinvestment Bank's secunties, assignmentsinclude postsin Groupintemational Previous Chile, head of various operating moneymarket and foreign India and New Ybrk.In 1978 he assignmentsinclude chief finan-departments, the upstate New exchange operationsin thellS, was appointed seniorofficerof cialofficerof a Citicorp subsidi-York banking subsidiaries,and Canada,andPuertoRico Priorto india.His most recent assign-ary head of Citibank's Urban SeniorPersonnelOfficet Most assuming his cunent responsibili-mentwascountrycorporate Affairs Department's Economic recently he was responsible for tiesin1986,he servedashead of officerforHong Kong and China.

DevelopmentCentes;and theInstitutional Bank's North Citicorp'sInformation Business HejoinedOtibankin 1972.

responsibility for Otibank's con-American Finance Group He Group From 1979 to 1984, Mr.

sumer businessin Hong Kong. In joined Citibank in 1964.

MacDonald wasthe Managing 1981 he was selected tohead up eeM hp AS C.THEOS%

' Discta and Chief Exewtw anks Msa a@astaCad and Citibank,is responsible for 49,vicechairman and sector Offcerof theCrefisulgroupn ssEso, cbdedwrops-theInvestment Bank for Europe, executive of Citicorp and Brazil. He pned Otibankin 1974.

ationsin South Dakota, Nevada the Middle East and Africa. Prior Otibank, has responsibihty for ANTMONY S.MANTEAVIseOS, to this appointment, he was Citicorp'sinvestment Bank and p.

al cco t'

58, group executive of Oticorp offcerin chargeinGemag also Wses Nat Wy Choice card and privatelabel and Otibank, assumed responsi-headed the South Asia /Australa Services andInvestor Relations.

cmdcamsNsseswee bilityin 1985 fortheinstitutional divisionof theinstitutionalBank HeischairmanoftheCorpora-Bank'sWorld Corporation Group and most recently served as fH tion's Finance Committee. Pre-ba 7

serving major corporate multina.

senior corporate offcerfor viously hewasinchargeof the tionalclients around the world, Europs the Mddle East and PETER N. SCNURING, Institutional Bank,theInterna-and shipping accounts. His pre-North Africa. He joined Citibank 46, group executive of Oticorp tionalBanking Group the World viousassignmentsinclude in 1%9.

and Citibank directs the Invest-Corporation Group theInvest-responsibdity forthe Asia /Austra-ment Bank in Asia-Pacific.He has ment Management Group and a j,,,,,,,,,,

tia/Mddle East-Africa banking had responsibility forlending consumer financeaffiliatein an group and the Financialinstitu-activities of Citibank's wholly-Australia. He joined Citibankin g

a s tionsdmson,asweX assenia owned subsidiaries in Canada, 1960.

top policymaking officerof oKca n Spain, Patugal,Cypms' was sem &Mpain, N-Citicorp and Citibank.Hejoined

,,,,,,, y,,,,Ly, Greece and Canada.Hismost tugd aWndara, and most Citibankin 1965 and has held 45, senior corporate officer of recent assignmentwas head of recently was division head for vrimspositions' theoveseas Citicorp and Citibank,is respon-n theInstitutionalBankin the e shalBah Argen-division, operating group con-sible for the Asia /Pacifc regiort Europe / Middle East Africabank-sumer services group, and until a, We, Paragua@m Previously, he held posts in var-ing group HepnedCitibankin September 1985was responsible fn 8U U**U for theIndividual Bank.

Banking Groupin New York and was division head for theWorld pa n s most 51, group executive of Citicorp m n assWMwasMsbn and Citibank,is responsible for head for theInstitutonalBankin establishing and implementing Northern Europe. Hejoined Citicorp's sovereign debt restruc-Citibankin 1967 turing policies. He also serves as chairmanof theCiticorpand Citibank Restructunng Commit-tea Previously hewas senior corporateoffcer responsible for the Canbbean, Centraland South Amenca and Sub Sahara Africa.

He has held several positionsin the Latin Amencan and Carib-bean area.He joined Citibank in 1957 84

C l T l C O R P A N D C I T I B A N K D I R E C T O R S h)h D

O ammmm he Boards of HANS H. ANGERMUELLER ' A HARRY J. GRAY ' A CHARLES M. PlOOTT t a Directors of Citicorp Vce Chairman Chairman Chairman and President Oticorp and Citibank, N. A.

U ted ogies PACCARInc and Citibank meet RICHARD S. BRADOOCK ' A JOHNS. REED'A on the third Tuesday Sector Executive JOHN W. HANLEY ' A Chairman of every month to Citcorp and Otibank, N.A.

Director and Former Oticorp and Otibank. N.A.

administertheaffairsof the Chairmanof theBoard COtmY H. CHANDLER ' A

,,,, g,,,,,,,,,3 MonsantoCompany organizations. Certain specific Chairman and Drector and Former Chairman operationsandareasof the Chief Executive Offcer H.J. HAYNES ' A of theBoard Eastman Kodak Company Senior Counselor J.C Penney Company Inc.

corporation and the bank are Bechtel Group,Inc.

PAK A COLuNS ' A FR ANK SHRONTZ '

re9utarly monitored by the Senior Corporate Officer AMORY HOUGHTON, JR. ' A President and directors' committees, whose Oticorp and Otibank, N.A.

Chairmanof the Chief Executive Offcer activities are descnbed on the Executive Committee The Boeing Company JAMESH. EVANS'A ComingGlassWorks fotlowing pages.

Former Chairman Union Pacifc Corporation DR. JUANITA M. KREPS ' A Vice Chairman Former United States BrazilianInstitute of Economics

' Drector of Otcorp JA S FARLEy t a Secretary of Commerce TheGetulioVargas Foundation a Drector of Citibank Oticorp and Citibank, N A.

C. PETER McCOLOUGH f A LAWRENCE M. SMALL ' A Chairmanof the Sector Executive "RENCEE.

f Executive Committee Otcorp and Otibank, N.A.

g,,

Xerox Corporation Professor Ementus, DARWIN E. SMITH ' A Graduate Schoolof ROGERMILLIKEN f A Chairmanof theBoardand Business Administration Chairmanof theBoard Chief Executive Officer Harvard University and Chief ExecutiveOffcer Kimberly-Clark Corporation Milliken & Company DR. ARTHUR FURER,

THOMAS C. THEOBALD ' A Chairman Vice Chairman /

Bank Leu AG Sector Executive Oticorp and Otibank, N.A.

CUFTON C. GARVIN, JR. t A Chairmanof theBoard FRANKLIN A. THOMAS f A and Chief Executive Offcer President Exxon Corporation The Ford Foundation C

I T

l C

O R

P S

E N

I O

R M

A N

A G

E M

E N

T HansH. Angermueiier Lawrence R. Gknn Thomas E. Jones John S. Reed Robert D Bailey Guenther E. Gre.ner Paul Kolterjahn William R. Rhodes Rchard S. Braddock George E. Hager Tian, Jr.

Rchard J. Lehmann Ira S. Rimerman Michael A. Callen William J. Heron, Jr Charles E. Long Peta' H. Schuring PeiYuan Chia Edwin P Hoffman Alan S. MacDonald LawaaceM Small l

Paul J. Collins Donald S. Howard Anthony G. Mantzavinos Thomas C Tneobald James D Farley Richard L. Huber Victor Menezes David S. Var, Pelt Pamela PFlaherty DanielIJacobsen Glen R. Moreno David E. Gibson Patnck J. Mulhem i

85

~ B O-A R -D S

O F D I R E' 'C T O R S'

C O M M i TT E E S a EE:=:I"5" e ::::: -

"Mo eZ t

=

Audit Committee:

Committee On Directors:

Examining Committee:

Executive Committee:

supervises independent recommends nualified conducts a continuous provides backup forthe

- audits of Citicorp and candidates for examinationinto the Boards of Directors of oversees the estab-membership on the Boards affairs of Citibank.

Citicorp and Citibank.

- lishment of g;-#M of Directors of Citicorp W Members: Darwin E Smith, Members: Citicorp JamesH Chairman;Colby H Chandler, Evans, Clifton C Garvin, Jr, Harry Members:Jchn S. Reed, Dc Lawrence E Fouraket;JohnW J Gray Dc Juanita M. Kreps, Members: Darwin E Smith,

. Chairman; Clifton C Garvin, Jr.

Hanley C PeterMcColough and Donald V Seibert and Franklin A.

Chairman;Colby H.Chandk; De Juanita M. Kreps, Roger Charles M.Pigott.

Thomas.

Dc Lawrence E Fourakes; John W Milliken and Darwin E Smith.

Citibank, N.Ac James H Evans, Han% C Na McColmgh' ntz Clifton C Garvin,Jr.HarryJ Gmy The Corrmitee on Directors who ers indepen-Charles M. Pigott, Frank Shro wgh, DonaW actrvely solcits recommenda-dentoutsidedirectors, conducts anMarMmonsm.

Seibert and Franklin A. Thomas.

tions for prospective directors a continuous examinationinto Ex Officio Members Both Com-The Audit Committee, whose from their current members and theaffairs of Citibank and mittees: John S. Reed, Hans H membersareal! independent stockholders and, consistent together with the Audit Commit-cutside directors, all but two of withtheneedsof thecorporation tee, reportsits findings to the fs Y

whom serve jointly on the Exam-andrepresentationof thevarious Board.The Committee meets ining Committee of Citibank.

services and customers, recom-jointly with the Audit Committee,'

ThisCommittee actson behalf of meets atleast four times each mends the approval of a candi-thechief accountingofficet;the theBoard of Directors shouldan year with the corporation's public date. The nominees are then pre-chief auditorandthecorpora-urgent matter anse that requires a accountants,itschief accounting sented to the fullBoard, which tion's public' accountants.

decision before the Boardis next officerandthechief auditot proposes the slateof directorsto scheduled to meet.The Execu-suMMo the stNers unmuh nea@ ah One ofits pnncipalfunctonsisto gsely ors tions by atthe annuaknee% in ad powesohhe Board omredas, review the audit plansand scope the bank's pnncipal regulator, the on, hemnmumischarged ex pt fa stain powas of examination of both the inde-Comptrollerof theCurrency,as w

uW mmnt aM man-expresslyreserved to the Board pendent auditors and the corpo-wellasinternaland extemalaudi-mending changesin directas o mctas.

ration's internal audit division. In tors, and follows up toinsure N nPensa m addition, it is the responsibility of e update actionis taken by thiscommittee to recommend to managementin response.

theBoard the annualappoint

[ h.k mentof theoutsideauditors.Tne N S. nEED Board accepted the recommen-Chairman JOHN S. REED

" ' SM'TH dation that Peat, Marwick, Mitch' Chain Chairman ell & Co, be retained for 1987 and this proposalwillbe presented to the stockholders for approvalat th3 annualmeeting.

Dunngjointmeetingswith the Examining Committee, the find-ings of internaland extemalaudi-tors and externalregulatory agencies are reviewed and responses to their findings are monitored toinsure appropriate follow-up measures are taken.

Thesearereviewedwith and i

without the presence of manage-1 mant, and in separate meetings with Peat, Marwick, Mitchell&

Co,with no members of man-agement present.The results of these examinations, along with cur own findings, are reported regularly to the full Board, itisalsothefunctionof thiscom-mittee to oversee theaccounting polices usedin prepanng the financialstatements of Citicorp l

and Citibank.

DARWIN E. SMITH Chairman j

86 l'

Fiduciary Review FinancialInstitutions personnelCommitteet putdiclasues Committee:

Conomittees oversees Acesuisitions Committee oversees employee _

reviews Citicorpispolicies.

theadministrationof of Citicorp and Citibank.

policies and programs of andperformance en theEduciary powers and M M.

mM@

Members HansH Angermueller, RichardS.Braddock,PaulJ Col-Members: Chiton C Garvin, Jt, Members: Franklin A. Thomas, Members:DonaldV Seibert, lins,JamesD.Farley John S.

Charman; Harry J. Gray HJ.

Charman;HansH Angermuellec Charman;Dt Arthur Furet Harry

' Reed, Lawrence M. Smalland Haynes,DonaldV Seibertand JamesH Evans,Dt ArthurFurec J Gray Amory Houghton,Jr, ThomasC Theobaki Franklin A. Thomas.

- JohnW Hanley and Dc JuanitaM.

Rog een a@anMM ThisCommittee, composed of The PersonnelCommittee directorsofCiticorpandOtibank reviews and approves compen.

The Public L, sues Committee's TheFduciaryReviewCommit-who are also seniorexecutivesof sation policy and otherperson-missionistoessurethatthepub-tee,which meetsfour trnesa Citicorp /Ottbank,has asits func-nel< elated programs tomaintain licinterestisrrkiintainedin the year, monitors fduciary activities tiontheapprovalof theacquisi-anenwonmentatCiticorpl performanceofourbusiness conductedthroughsubsdiaries tionbothdomesticallyandinter-Citibankthat attractsandretains roles andin achie Ang amore and affiliates aroundtheworki nationallyof friancialservices peopleof highcapabihty com-competitive busint.ss These activitesincludethe man-institutions. Approvalbya major-mitment and integrity in addition,.

environment.

agement andadministrationof ityofthemembersconstitutes thecommitteeoverseesman-trust and agencyaccountssuch Committee actiort Each acquisi-agementdevelopmentprograms, as pension trustsand other tionisreportedtothefullBoard of successionplanning, and em-employer-sponsored benefit Drectorsof Citicorpatthe meet-playee benefit programs.

plans,personaltrusts, estates, ingimmediately following FRANKUN A.THeasAs investment advisoryaccounts approvalbythe Committee anda Charrman ardcorporate trusteeships.The summaryof allacquisitions h)h, committee alsoreviewspolicies approved bythe Committeeis

/1 andcontrolsinsuch areasof fidu-presentedtothefullBoard of curtose c.cARVIN,JR.

ciary responsibihtyasinvestment Drectors annually.

Chairman standards and confiicts ofinter-est.The Committee was estab-listtsdby the Boardof Citicorpin May1985 toreflecttheincreased fduciaryactivitiesconductedin s.Reso vehiclesother than Otibank and Chairman rep'acedasimilarcommittee of the Board of Otibank.

\\

DONALD V. SElBERT Chairman

\\

1 87

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h NOTICE OF TME ANNUAL MEETING TRANSFER AGENT The annual meeting of stockholders will be held on Tuesday, April Otibank, N.A., Corporate Trust Services, Box 4855, New York, NY 21,1987, at 11 am, in the auditorium of Citicorp Headquarters at 10043-

- 399 Park Avenue, New York, NY CO-TRANSFER AGENTS A formal notice of this meeting, together with a proxy and proxy The First National Bank of Chicago, Corporate Trust Department, statement, has been included with this annual report. Stockholders One Rrst National Plaza, Chicago, IL 60670 are urged to sign and retum their proxies promptly, to assure that the stock of the corporation will be represented as fully as possible First Interstate Bank of Califomia,707 Wilshire Boulevard, at the meeting.

Los Angeles, CA 90017 Otcorp has approximately 50,000 common stockholders of REGISTRAR record. About 80% of the Citicorp shares entitled to vote were voted United States Trust Company of New York,45 Wall Street, in person or by proxy at the last annual stockholdcrs' meeting on NewYork, NY 10005 Apnl 15,1986. Additionally, there are 173 Equity Holders of 534%

Convertible Subordinated Notes Due 2000.

CO-REGISTRARS The First National Bank of Chicago, Corporate Trust Department, Additonal copies of this annual report are available. Write to One First National Plaza, Chicago, IL 60670 Oticorp, Public Affairs Division,399 Park Avenue,18th Floor, New York, NY 10043.

First Interstate Bank of Califomia,707 Wilshire Boulevard, Los Angeles, CA 90017 Copies of the wntten transcript and tape recording of the proceedings at Oticorp stockholder meetings are available to JAPANESE SHARENOLDER SERVICE Otcorp stockholders at cost from the Offce of the Secretary ORGANIZATION AND PAYING BANK 399 Park Avenue, New York, NY 10043.

The Yasuda Trust and Banking Company Limited, Stock Transfer Department, Yasuda Seimei Daini Building,10-1, Nishi Shinjuki Also available from the Public Affairs Division is Corporate Giving, 1-chome, Shinjuku-ku, Tokyo, Japan which describes Otibank/Oticorp contributions to community cultural, education, health, and urban revitalization organizations CITICORP STOCK LISTED throughout the country NewYork Stock Exchange MidwestStock Exchange Supplemental financial data are published quarterly and are avail-Pacirc Stock Exchange able from Citicorp Investor Relations Department, 399 Park London Stock Exchange Avenue, New York, NY 10043.

Amsterdam Stock Exchange Tokyo Stock Exchange Zurich Stock Exchange Geneva Stock Exchange BaselStock Exchange Oticorp/Otibank 399 Park Avenue New York, NY 10043 212/559-1000 A PuBuCArlON OF THE OTCoRP PuBuC AFFAIRS oMSON DESGN/ PHOTOGRAPHY OTCoRP COMMUNCATION DESGN PRINTEDIN THE us A 350M 4466 C CoPYRGHT 1987 BY CITCoRP i

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is what sets Citicorp apart from its competitors throughout the worki.

That excellence is the sum total of the achievements of many individual staff members. Here are but a few of the 1,768 who were honored with the Citicorp Service Excellence Award in 1986.

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CITICORPO E

0"e"?ew and Form 10Q Third Quarte

00lffENTS PAGE Financial High11ghts............................................................-

2 Financial Summary...............................................................

3 Individual Banking..............................................................

5

- Detsil of Consumer Credit Losses................................................

6

. Institutional Relationships.....................................................

7 Deteil of Commercial Loan Losses................................................

9 Cc2h Basis and Renegotiated Commercial Loans....................................

10 International Financing Activities..............................................

11 Inv:stment Banking..............................................................

15 Other Items.....................................................................

16 Statement of Income Analysis

- Nst Interest Revenue............................................................

17 Credit Loss Expense and A11owance...............................................

17 Fse and Commission Revenue......................................................

17 Trcding Account.................................................................

18 Foreign Exchange................................................................

18 Investment Securities Transactions..............................................

18 Other Revenue...................................................................

19 Total Other Operating Expense...................................................

19 Income Taxes....................................................................

19 Geographic Distribution of Net Income...........................................

20 Net Interest Revenue Statistics.................................................

21 Liquidity and Capital Funds Analysis............................................

22 Financial Statements

- Consolidated Statement of Income............................................

23

- Consolidated Statement of Income - Quarterly................................

24

- Consolidated Balance Sheet..................................................

25

- Consolidated Statement of Changes in Stockholders' Equity - Quarterly.......

26

- Consolidated Statement of Changes in Financial Position.....................

27 Calculation of Net Income Per Share.............................................

27 Citibank, N.A. Consolidated Balance Sheet.......................................

28 Average Balances and Interest Rates Tab 1e.......................................

29 Citicorp Financial Statistics

- Net Income..................................................................

31

- Common Dividends............................................................

31

- Stockholders' Equity and Selected Returns...................................

31

- Loans and Lease Financing Outstanding.......................................

31

- De t ail o f C red i t Lo s s Expe r ie n ce............................................

32

- Investment Securities.......................................................

33

- Long-Term Debt..............................................................

33 F rm 10-Q.......................................................................

34 Form 10-Q Cross-Reference Index.................................................

35 Signatures......................................................................

36

FINANCIAL HICHLICHTS - SELECTED INCOME STATEMENT ITEMS CITICORP and Subsidiaries (In Millions Except Per Share Amounts)

Third Quarter Nine Months 1986 1985 Change 1986 1985 Change PER SHARE Net Income

On Common & Common Equivalent Shares.........

$ 1.64

$ 1.60 3

$ 5.11

$ 5.43 (6)

Assuming Full Dilution.......................

$ 1.63

$ 1.60 2

$ 5 10

$ 5.43 (6)

Common Dividends Declared Per Share............

$.615

$.565 9

$1.230

$1.695 Common Stockholders' Equity Per Share..........

$54.37

$49.50 10

On net income available for common stockholders af ter deducting preferred stock dividends of $17 million and $16 million in the third quarter of 1986 and 1985, respectively and $56 million and $44 million in the first nine j

months of 1986 and 1985, respectively.

- Beginning with the second quarter of 1986, common dividends will be declared in July, October, January and April, instead of June, September, December, and March.

g_l Net Interest Revenue...........................

$1.571

$1,368 15

$4,466

$3,913 14

"=

Total Fees, Commissions and Other Revenue......

1,070 751 42 3,042 2,186 39 Total Revenue..................................

2,641 2,119 25 7,508 6,099 23 Provision for Possible Credit Losses...........

431 346 25 1,317 849 55 c

Operating Expenses.............................

1,784 1.407 27 4,894 3,908 25 Net Income.....................................

247 227 9

752 755 SECTOR EARNINGS Earnings of the Three Core Businesses (not including items retained at the corporate 1evel).........................

$ 293

$ 266 10

$ 961

$ 910 6

RETURN ON ASSETS AND EQUITY ***

Return on Total Assets (1).....................

.53%

.56%

.55%

.64%

Return on Common Stockholders' Equity (2)......

12.3%

13.2%

13.3%

15.5%

Return on Total Stockholders' Equity (3).......

11.4%

12.4%

12.2%

14.4%

- - Based on annualized results.

(1) Net income as a percentage of average total assets.

(2) Net income less total preferred stock dividends as a percentage of average common stockholders' equity.

(3) Net income less redeemable preferred stock dividends as a percentage of average total stockholders' equity.

FINANCIAL HIGHLICHTS - SELECTED BALANCE SHEET ITEMS (In Millions)

September 30 1986 1985 Change 1

Loans and Lease Financing, Net Commercia1...................................

$ 57,375

$ 60,665

$ (3,290)

(5)

Consumer.....................................

63,599 51,644

!!,955 23 Lease Financing..............................

2,941 2,641 300 11 Loans and Lease Financing, Net of Unearned Discount.....................

$123,915

$114,950

$ 8,965 8

Allowance for Possible Credit Losses...........

(1,568)

(1,146)

(422)

(37)

Total Loans and Lease Financing, Net...........

$122,341

$113,804

$ 8,543 8

Total Assets...................................

186,047 169,062 16,985 10 Total Stockholders' Equity.....................

8,692 7,358 1,334 18 Total Capital (4)..............................

20,284 14,243 6,041 42 Primary Capital (5)............................

12,409 10,290 2,119 21 (4) Total Capital includes Primary Capital, Redeemable Preferred Stock, and gross Qualif ying Debt.

(5) Primary Capital, as defined by the Federal Reserve, includes Total Stockholders' Equity, Qualifying Subordinated Capital Notes, the Allowance for Possible Credit Losses and minority interest in consolidated subsidiaries.

2

FINANCIAL

SUMMARY

Citicorp's third-quarter 1986 fully diluted earnings per share were $1.63, up 2% over the

$1c60 reported for the same period last year.

Third-quarter net income of $247 million

.r: presented a 9% increase over last year's third quarter.

Year-to-date fully diluted ccrnings per share were $5.10, down 6% from 1985, while net income of $752 million was within 1% of last year's total.

T:tal sector earnings (see table below) of $293 million were up 10% over the prior year; ccctor earnings of $961 million for the year-to-date were up 6% over 1985.

Th] consumer business continued to report strong gains in revenue and earnings for both the quarter and the nine months.

Results from investment banking products delivered to c:rporations, governments, and financial institutions were also up significantly, r:flecting the continued shif t of business to these products.

Earnings from traditional c:rporate banking products were up slightly for the quarter, and down year-to-date, r:flecting continued high credit write-offs, while poor trading results and rapid expense growth led to a decline in investment banking earnings.

Corporate credit loss reserves cnd capital continued to be strengthened.

Third Quarter 3rd Year-to-date YTD vs vs 1986 1985 3rd 1986 1985 YTD CITICORP NET INCOME PER SHARE.

$1.63

$1.60 2%

$5.10

$5.43 (6%)

13.3%

15.5%

RETURN ON COMMON EQUITY.......

12.3%

13.2%

NET INCOME (In Millions of Dollars)

Individual Banking *...........

$ 126

$ 76 66%

$ 332

$ 240 38%

Instit. Bank Products delivered to Instit. Relationships *....

90 86 5%

313 354 (12%)

Invest. Bank Products delivered to Instit. Relationships.....

94 71 32%

259 213 22%

Investment Banking Products...

(17) 33 57 103 (45%)

S:ctor Earnings...............

$ 293

$ 266 10%

$ 961

$ 910 6%

Sector Return on Equity.......

15.9%

16.4%

17.7%

19.4%

C:rporate Items (after-tax)*..

(46)

(39)

(18%)

(209)

(155)

(35%)

T tal Citicorp................

$ 247

$ 227 9%

$ 752

$ 755 0 Refer to note on page 4.

Citicorp's third-quarter revenues were $2.6 billion, up 25% over the third quarter of 1985 cnd 7% higher than the second quarter of 1986.

The third-quarter increase reflected 30% for Individual Banking, 13% for r: venue growth across all three sectors Institutional Relationships, and 16% for Investment Banking. For the first three quarters cf the year, Citicorp's revenues were $7.5 billion, representing a $1.4 billion, or 23%,

increase over last year. Both third-quarter and year-to-date revenue growth were paced by increased fees and commissions, improved revenues f rom asset-related credit products, in cddition to strong investment securities gains and other revenues.

These increases were p rtially offset by a reduction in revenues from trading activities.

3 I

Operating expenses were up 27% against 1985's third quarter and up 25% over the year-to-date level of the prior year.

The inclusion of recent acquisitions - including Quotron, Citicorp Savings of Washington, D.C.,

AMBAC Indemnity, Vickers da Costa, and Scrimgeour, Kemp-Gee - contributed to the higher expenses.

As the result of a change in New York Gity and State tax rates, last year's third-quarter and nine-month periods reflected the benefit of a reduction of $18.7 million in deferred tax expense related to leveraged leases.

In both the quarter and year-to-date periods, earnings and returns were reduced as a result of the continued commitment to build the corporate level allowance for possible credit losses. This growth reduced the year-to-date return on equity by 2.2% compared to a 1.5% reduction in the prior year.

Details of the provision for possible credit losses are included in the following table.

Third Quarter 3rd Year-to-date YTD vs vs (In Millions of Dollars) 1986 1985 3rd 1986 1985 YTD Individual Bank:

Net Write-offs...............

$235

$156 51%

$ 694

$ 391 77%

Additions to Allowance.......

17 25 (32%)

38 47 (19%)

Total Individual Bank *...........

252 181 39%

732 438 67%

Institutional Bank:

Net Write-offs...............

104 83 25%

290 235 23%

Additions to (Reductions from) Allowance.............

(3) 8 (7) 6 Total Institutional Bank *........

101 91 11%

283 241 17%

Corporate Addition to Allowance *.

64 67 (4%)

274 163 68%

Other Provisions.................

14 7

28 7

Total Provision (pretax).........

$431

$346 25%

St.317

$ 849 55%

0 Allocating the corporate provision for possible credit losses in conformity with generally accepted accounting principles would have resulted in incremental pretax provisions in Individual Banking of $50 million for the quarter and $162 million for the first nine months of 1986, and incremental provisions in Institutional Banking of $14 million for the quarter and $112 million year-to-date. The resulting consumer allowance for possible credit losses as a percentage of consumer loans would have been 1.07% at quarter-end versus.83% at September 30, 1985 and the commercial allowance for possible credit losses as a percentage of commercial loans would have been 1.54% versus 1.18% a year ago.

Third-quarter return on common stockholders' equity was 12.3% versus 13.2% in the third quarter of last year.

Return on assets of.53% for the current quarter marked a decline from the previous year's return of.56%.

Year-to-date, return on equity was 13.3% and return on assets was.55% compared with corresponding returns of 15.5% and.64% in 1985.

Total capital of $20.3 billion rose $1.2 billion during the quarter and represented 10.81%

of period-end assets.

This compared to $14.2 billion, or 8.37% of total assets at September 30, 1985 and $19.1 billion, or 10.34% of total assets reported at June 30, 1986.

The growth in total capital resulted from increases in retained earnings, the issuance of five million shares of common stock in the previous quarter, additions to the allowance for possible credit losses, and vigorous funds-raising in worldwide capital markets.

I 4

INDIVIDUAL BANKING - FINANCIAL PERFORMANCE AND DISCUSSION Citicorp's Individual Banking activities provide a complete range of financial services to c;n umers in the United States and, through its Private Banking and International Groups, to consumers around the world.

These activities include transactional services, savings products, loans, insurance - particularly life, accident and health, where permissible --

cnd investment services, specifically, stock brokerage and tax-exempt money market funds.

Incr./(Decr.) vs.

Third Third Qtr Y-T-D Qtr Y-T-D (In Millions of Dollars) 1986 1986 1985 1985 Tatol Revenue..........................

$1,454

$4,145

$338 30%

$1,035 33%

Pr: vision for Possible Credit Losses...

252 732 71 39%

294 67%

Oparating Expenses.....................

975 2,806 176 22%

564 25%

N2t Income.............................

126 332 50 66%

92 38%

Avsrage Assets ($ Billions)............

73 69 16 28%

16 30%

R2 turn on Assets

(%)...................

.68

.64

.15

.0 1.0 R2 turn on Equity

(%)...................

17.1 16.1 3.9 Tha Individual Bank maintained its robust earnings growth into the third quarter with c:rnings advancing 66% versus a year ago, as strong revenue momentum was sustained in most of its businesses, both domestically and internationally.

The Sector's third-quarter ravenues grew 30% and year-to-date revenues grew 33% compared to a year ago, benefiting from sustained growth in average assets.

Revenues were augmented by the sale of mortgage p::s-throughs and mortgage-backed securities.

Growth in market share continued in the credit card businesses and the New York branch system, as well as in domestic mortgages -

wh2re loan originations remained at record levels.

Supporting the Sector's revenue momentum and business expansion, operating expenses increased 22% in the quarter and 25% year-to-date compared to the same periods last year.

Thsse increases reflect the infrastructure expenses required to sustain greater volumes, es well as higher promotional expenses and investments in technological and new product dsvelopment.

Revenue growth substantially exceeded expense increases not only for the S2ctor in total, but for virtually all the major businesses.

Third-quarter net consumer loan write-offs were $235 million, up $79 million against the icvel of write-of fs a year earlier.

Year-to-date write-offs of $694 million rose $303 cillion above the same period last year. The Individual Bank has been charged $17 million in order to maintain its allowance for possible credit losses at.50% of quarter-end loans.

The equivalent charge in the third quarter of 1985 was $25 million.

The y cr-to-date charge was $38 million, $9 million lower than the previous year's charge.

Th2 higher write-offs continued to stem from both loan growth and higher levels of write-offs, particularly in credit cards.

The increased credit losses in card products raflect the dynamics of recent growth in bankcard receivables which have an historically higher credit loss experience, especially during the early years of portfolio formation.

Th2 ratio of loan losses to average loans was 1.50% for the quarter compared to 1.64% in the second quarter of 1986 and 1.26% in the third quarter of 1985.

5

The overall improvement in Individual Bank returns was driven by the major businesses -

Bankcards, the New York branch system, Private Banking and most overseas activities -

which substantially exceeded corporate return targets, while returns from other businesses, including acquisitions, were below target.

During the quarter, the Individual Bank significantly expanded its domestic franchise by completing the acquisition of the National Permanent S&L of Washington, D.C.

- now Citicorp Savings of Washington, D.C. - providing the Sector with the opportunity to enter this important market.

In Arizona, the Individual Bank finalized its purchase of the

=q Great Western Bank and Trust of Arizona - renamed Citibank ( Arizona) - on October 1, thus extending Citicorp's consumer services in the growing and profitable Southwest.

Detail of Consumer Credit Losses (primarily installment and revolving credit loans) 3rd 2nd 1st 4th 3rd Y-T-D Y-T-D Qtr Qtr Qtr Qtr Qtr (In Millions) 1986 1985 1986 1986 1986 1985 1985 Gross Loan Losses In Domestic Offices...........

$764

$432

$259

$267

$238

$210

$170 In Overseas Offices...........

86 52 31 29 26 25 21

$850

$484 S290 S296

$264

$235

$191 Loan Recoveries In Domestic Offices...........

$129

$ 78

$ 45

$ 49

$ 35

$ 33

$ 30 l

In Overseas Offices...........

27 15 10 9

8 8

5

$156

$ 93

$ 55 S 58 S 43

$ 41

$ 35 Net Loan Losses In Domestic Offices...........

$635

$354

$214

$218

$203

$177

$140 In Overseas Offices...........

59 37 21 20 18 17 16 S694 S391 S235 S238 S221 S194 S156 4

Net Loan Losses as a Percentage of Average Consumer Loans.....

1.58%

1.14%

1.50%

1.64%

1.59%

1.45%

1.26%

A strict contractual write-of f policy dictates that consumer loans will be written off after a predetermined number of days.

Those loans not yet written off and with principal or interest payment delinquencies of 90 days or more comprised 1.90% of the total September 30, 1986 consumer loan portfolio, compared with the September 30, 1985 ratio of 1.54%.

The policy for suspending accruals of interest on consumer loans varies based on the terms, security and loan loss experience characteristics of each product, and in consideration of write-off criteria in place.

Consumer loans for which accruals of interest had been suspended were $741 million at September 30, 1986. Consumer loans with delinquencies of 90 days or more for which interest continued to be accrued were $514 million at September 30, 1986.

6

r.

INSTITUTIONAL RELATIONSHIPS - FINANCIAL PERFORMANCE AND DISCUSSION In:titutional Relationships' results include earnings from the delivery of Institutional Banking and Investment Eanking products to corporations, governments and financial institutions worldwide. Refer to page 9 for an analysis of earnings by product.

Incr./(Decr.) vs.

Third Third Qtr Y-T-D Qtr Y-T-D (In Millions of Dollars) 1986 1986 1985 1985 T;tal Revenue..........................

$ 929

$2,706

$105 13%

$209 8%

Provision for Possible Credit Losses...

101 283 10 11%

42 17%

Operating Expenses.....................

464 1,317 25 6%

103 8%

Net Income.............................

184 572 27 17%

5 1%

Av; rage Assets ($ Billions)............

73 76 (4)

(5%)

1 1%

Return on Assets (%)...................

1.01 1.01

.20

(.01)

R; turn on Equity (%)...................

25.2 25.2 4.9

(.2)

Current quarter earnings were up 17% over last year's third quarter.

However, earnings wero relatively flat on a year-to-date basis af ter absorbing a $55 million increase in cr:dit write-offs and an 8% increase in expenses.

The higher write-offs reflected the c:ntinuing weakness of certain industries, both domestically and overseas.

In the third-quarter and nine-month periods of last year, net income benefited from part of the r: duction in deferred tax expenses related to leveraged leases, resulting from lower New Ysrk City and State tax rates.

In;titutional Relationships' broadly diversified corporate financial service activities g;nerated revenue growth of 13% for the third quarter and 8% on a year-to-date basis.

F :s, commissions, and other revenue were up strongly for both the third quarter and first nine months with contributions from financial guarantees, advisory activities and grins from sales of aircraft lease residuals.

In addition, third-quarter revenues included a gain on the sale of real estate overseas.

Quarter-to-quarter asset-related cr:dit revenues were unchanged.

However, on a year-to-date basis, asset-related credit r: venues were down 2% due to last year's strong cash collections on cash basis loans.

Opsrating expenses for the current quarter were $464 million, up 6% versus the third qu;rter a year ago, and include the impact of realigning certain businesses, as well as tha continuing investments in improved service delivery and product development.

The oxpense increases also reflect the adverse effect of a weaker dollar on overseas op; rations.

Tha Sector's earnings remained geographically diverse with approximately half attributable to North American operations.

Key performance indicators for the quarter continued to surpass corporate hurdles with a 25.2% return on equity and a 1.01% return on assets.

Av2 rage third-quarter assets of $73 billion declined in comparison with the same quarter a y;2r earlier.

E rnings that result from the delivery of Institutional Banking products to the institutional customer base were $90 million for the third quarter of this year r; presenting an increase of 5% over the prior year. Year-to-date earnings of $313 million ccrked a 12% decline from the prior year.

Both periods of the prior year benefited from tha reduction of New York City and State tax rates mentioned earlier.

7

Incr./(Decr.) vs.

Third Third Qtr Y-T-D Qtr Y-T-D Institutional Banking Products 1986 1986 1985 1985 (In Millions of Dollars)

Total Revenue..............

$662

$1,972

$45 7%

$78 4%

Operating Expenses.........

384 1,095 13 4%

72 7%

Net Income.................

90 313 4

5%

(41)

(12%)

Total revenues for the quarter were $662 million, up 7% over the corresponding period of a l

year ago representing significant gains in fees and commissions, in addition to increases b_

in other revenues which included the real essate sale mentioned earlier.

Year-to-date revenues of $1,972 million marked an increase of 4% over last year, rising largely on the strength of higher fees, commissions, and other revenues.

Asset-related credit revenues were down 6% year-to-date and 9% for the quarter as a result of strong cash collections on cash basis loans in the previous year.

Operating expenses rose 4% in comparison to the g

j third quarter of last year and advanced 7% over 1985's first nine months and include the

=

I costs related to the business realignments mentioned earlier.

The Institutional Bank's net commercial loan write-offs were $104 million for the quarter and $290 million for the first three quarters of the year, an increase of $21 million over 1985's third quarter and up $55 million year-to-date.

Citicorp continued to maintain an aggressive posture in the recognition of both public and private sector write-offs.

The Institutional Relationships' provision for possible credit losses decreased $3 million during the third quarter in order to maintain the credit allowance at.60% of quarter-end loans.

The equivalent charge in the third quarter of 1985 was $8 million. For the first nine months, the credit to maintain the allowance was $7 million compared with a charge of

$6 million in the previous year.

Cash basis and renegotiated loans totaled $2,816 million at period-end, up $332 million from 1985's third quarter and an increase of $231 million from the previous quarter.

Geographically, the increase in non-performing loans was spread across Europe, the Middle East, Africa, Asia and North America, while Latin American non-performing loans continued to decline.

The ratio of cash basis and renegotiated loans to total loans was 2.3% for the present quarter versus 2.2% a year ago and 2.2% for the prior quarter.

Average assets decreased $2 billion from the 1985 level, declining to $70 billion in the third quarter.

Earnings that result from the delivery of Investment Banking products to the institutional customer base were $94 million for the third quarter and $259 million year-to-date, an increase of 32% and 22% over the respective periods of a year earlier.

Incr./(Decr.) vs.

Third Third l

l Qtr Y-T-D Qtr Y-T-D Investment Banking Products 1986 1986 1985 1985 (In Millions of Dollars)

Total Revenue.................

$267

$134

$60 29%

$131 22%

Operating Expenses............

80 222 12 18%

31 16%

Net Income....................

94 259 23 32%

46 22%

8

Third-quartcr r v:nu:3 gr;w 29% to $267 r.illion cnd y;;r-to-dcta r;v:nu;3 re;a 22% to $734 cillion reflecting improved funding-related revenues, fees, commissions, foreign exchange crnings, and other revenues from Investment Banking products.

Third-quarter operating cxpenses of $80 million were 18% higher than last year. These results are also included in the discussion of Investment Banking on page 15.

Products Delivered to Institutional Relationships Th2 table below shows net income by product for the third quarter and year-to-date 1986.

Detailed descriptions of these products are presented in Citicorp's 1985 Annual Report.

Third Qtr Y-T-D (In Millions of Dollars) 1986 1986 Core Lending.................................

$ 37

$133 Debt Products / Money Market Services..........

57 1^'

Foreign Exchange Services....................

16 5.

Specialized Finance..........................

21 75 Liquidity Insurance, Financial Guarantees

& Asset Intermediation......................

21 69 Advisory, Trade, Transaction Processing

& 0ther.....................................

32 102 Total Institutional Relationships..........

$184

$572 Det-il of Commercial Loan Losses 3rd 2nd 1st 4th 3rd Y-T-D Y-T-D Qtr Qtr Qtr Qtr Qtr (In Millions) 1986 1985 1986 1986 1986 1985 1985 Gro s Loan Losses In Dome s t i c O f f i ce s................ S 61

$ 56

$ 33

$ 13

$ 15

$ 30

$ 21 In Overseas Offices................

285 218 91 111 83 138 79

$346

$274

$124

$ 98

$168

$100 Lorn Recoveries In Dome s t ic Of fices................ $ 23

$ 14

$ 4

$ 12

$ 7

$ 13

$ 2 In Overseas Offices................

29 25 12 8

9 13 15

$ 52

$ 39

$ 16

$ 20 S 16 S 26 S 17 N:;t Loan Losses In Domestic Offices................

$ 38

$ 42

$ 29

$ 1

$ 8

$ 17

$ 19 In Overseas Offices................

256 193 79 103 74 125 64

$294

$235

$108 S104 S 82

$142 S 83 nit Loan Losses as a Percentage of Average Commercial Loans...........

68%

.54%

.74%

72%

.57%

96%

56%

9

CASH BASIS AND RENECOTIATED COMMERCIAL LOANS Cash basis (nonaccrual) loans are those on which, as a result of doubt as to collection, income is recognized only to the extent cash is received.

Renegotiated loans are those on which the rate of interest has been reduced as a result of the borrower's inability to meet the original terms.

Citicorp follows strict cash basis practices whereby loans are classified as cash basis whenever they reach 90 days past due status, irrespective of collateral or any other favorable prospects.

While Citicorp's policy allows for exceptions in unusual circumstances, any such exceptions have been insignificant in amount.

Cash basis and renegotiated commercial loans at September 30, 1986 were $2,816 million, up $332 b

million f rom a year ago.

Of the $2,816 million, approximately 34% was to borrowers in North America.

The Asia / Pacific region accounted for 25% of the outstanding balance, while Central and South America, and Europe, Middle East and Africa represented approximately 20% each.

Cash basis lease financings were $29 million at September 30, 1986 and $71 million at September g

30, 1985.

The classification of loans as cash basis or renegotiated is a specialized diagnostic tool used by financial institutions.

Citicorp's experience, as well as the experience of others, generally has shown that a substantial percentage of cash basis and renegotiated loans are ultimately collected.

Real estate acquired in settlement of loans, included in other assets in the financial statements, totaled $250 million at September 30, 1986, down $18 million from a year ago and up

$3 million from June 30, 1986.

Domestic real estate, which represented $204 million of the total real estate acquired at September 30, 1986, was primarily responsible for the decrea'se in total real estate acquired since September 30, 1985.

September 30, 1986 Cash Renego-June 30 Mar. 31 Dec. 31 Sept. 30 (In Millions)

Basis tlated Total 1986 1986 1985 1985 Cash Basis and Renegotiated Loans:

In Domestic Offices Real Estate Loans...........

$ 286

$ 8

$ 294 $ 127 99

$ 101 95 other commercial Loans......

592 7

599 573 355 392 549 In Overseas Offices..........

1,899 24 1,923 1,885 1,742 1,755 1,840 Total Cash Basis and Renegotiated Loans........

$2.777

$ 19

$2.816 $2.585

$2.196

$2.248

$2.484 Cash Basis and Renegotiated Loans as a % of Commercial Loans....

4.9%

4.5%

1.R%

3.9%

4.1%

Cash Basis and Renegotiated Loans as a % of Total Loans.........

2.3%

2.2%

1.9%

2.0%

2.7%

10

INTERNATIONAL FINANCING ACTIVITIES International financing activities are discussed in Citicorp's Annual Report and Form 10-K f:r the year ended December 31, 1985 and in its Financial Review and Form 10-Q for the fir:t and second quarters of 1986. The following is a summary of developments in certain countries concerning efforts toward the resolution of payment problems experienced by th: e countries.

While no absolute assurance can be given, Citicorp management believes th:t these developments will not ultimately have a material adverse ef fect on Citicorp's fin:ncial condition.

MEXICO On October 16, 1986, discussions were finalized between the Bank Advisory Group and Mexico en the commercial bank portion of the country's external financing program.

The terms h:va been sent to Mexico's creditors worldwide.

Th2 preliminary terms agreed to by the Bank Advisory Group and Mexico include:

(1) A new loan of up to $6.0 billion will be provided, to be repaid over 12 years with a 5-year grace period for principal payments.

The loan includes a $1 billion co-financed program with the banks of which the World Bank will guarantee

$500 million.

The interest margin will be 13/16 percent over Libor or over domestic cost of funds.

(2) The interest margin on $43.7 billion of Mexico public-sector debt which was restructured last year will also be reduced to 13/16 percent over Libor. A grace period for p-incipal payments on this debt of 7 years was agreed to with final maturity of 20 years.

(3) The maturities of approximately $8.6 billion of new loans granted in 1983 and 1984 will remain unchanged, but the interest margin will be reduced to 13/16 percent over Libor.

(4) The package will also include a commercial bank growth contingency co-financing with the World Bank of $500 million, of which $250 million will be guaranteed by the World Bank, and a commercial bank contingent investment support facility of

$1.2 billion to support public-and private-sector investment.

Detsils of previous restructuring agreements are included in the 1985 Annual Report and Form 10-K.

During the nine months ended September 30, 1986, approximately $10 million additional cross-border advances were made to Mexican public-sector borrowers, and approximately $23 tillion of principal was repaid.

Interest on Mexican public-sector outstandings included in income amounted to $110 million, and such interest received in cash amounted to $99 cillion.

BRAZIL On July 25, 1986, the government of Brazil and the participating international banks oigned an agreement which affects principal of approximately $6.1 billion of 1985 c:turities and $9.6 billion of 1986 maturities.

The agreement became effective on Ssptember 4,

1986.

Under the agreement the debt that fell due in 1985 has been rascheduled through 1993, with principal payments beginning in 1991.

The 1986 maturities era being rolled forward under an interim deposit agreement with the Brazilian Central B2nk.

The debt has interest rate margins of 1 1/8% over Libor or over an adjusted esrtificate of deposit (or comparably priced domestic) rate, compared to the previous apreads of 2% over Libor or 1 3/4% over prime.

Citicorp's share of the restructuring includes $109 million of debt previously priced over prime and $959 million of debt which utilized Libor as its reference rate. Also, as part of the agreement, interbank and trade lines of approximately $16 billion (Citicorp's share is $661 million) are being maintained until March 31, 1987 with a possible extension to June 30, 1987.

11

During the nine months ended September 30, 1986, cross-border outstandings in Brazil were affected by additions of approximately $107 million and reductions of approximately $45 million, primarily due to principal payments.

Approximately $381 million of gross interest revenue was earned on cross-border and foreign currency outstandings, and approximately $417 million was collected in cash.

ARCENTINA Based on IMF support for Argentina's 1984-1985 economic program, the participating international banks in 1985 executed agreements with Argentina providing for a $3.7 billion, 10-year term credit, with principal payments beginning af ter three years, and a g

$500 million, four-year trade credit and deposit facility.

Banks also agreed to commit

]

for one year to a trade credit maintenance f acility and a money market facility.

In addition, agreements for refinancing $9.9 billion of public-sector maturities and $3.5 billion of private-sector debt have been completed.

The public-sector refinancing covers maturities from 1982 to 1985 and provides for tenors of up to 12 years.

The private-sector refinancing covers 1984 and 1985 maturities plus certain 1982 and 1983 maturities not previously covered and provides for tenors of 10 years.

k The agreements are described in detail in the 1985 Annual Report and Form 10-K.

Citicorp's participation in the new lending, the final disbursement of which occurred on June 30, 1986, was approximately $226 million, and its share of the public-and private-sector refinancing amounts to $387 million.

Citicorp's commitments under the trade credit maintenance facility and money market facility which expired on September 13, 1986 were $95 million and $156 million, respectively. Citicorp has agreed to an Argentine government request to an interim extension of its commitments under these facilities to December 15, 1986.

The final drawdown under Argentina's 1984-1985 IMF standby arrangement was made on June 27, 1986.

After considering a request from the government of Argentina, the Bank Advisory Committee agreed in January to roll over public-and private-sector principal maturities falling due' during the period January 1,

1986 through April 30, 1986 for 90- and 180-day periods, respectively, and in April, the Bank Advisory Committee agreed to roll over principal maturities during the period May 1,

1986 through September 30, 1986 for an additional 180-day period.

In September 1986, the Bank Advisory Committee agreed to a further Argentine rollover request for principal maturities falling due during the period October 1,

1986 through March 31, 1987 for an additional 180-day period.

On October 7,

1986, Argentina, pending development of its 1986-1987 financing program, also requested a 90-day rollover of the first principal installment (approximately $74 million) which was due on October 10, 1986 under a term credit agreement entered into by Argentina in 1983 with participating international banks.

Discussions between the representatives of the government of Argentina and the Bank Advisory Committee on a 1986-1987 refinancing program are expected to begin within the next several weeks.

During the nine months ended September 30, 1986, Citicorp's cross-border advances to Argentina were increased by additions of $299 million.

Approximately $322 million of principal was repaid.

Interest on cross-border outstandings included in income was approximately $99 million, and approximately $104 million was received in cash.

Of the cash received, approximately $6 million represented interest on cash basis loans for years prior to 1986.

VENEZUELA Agreements were signed by Venezuela and the participating international banks in February 1986, encompassing the restructuring of $21.2 billion of Venezuelan public-sector debt.

The restructuring covers principal payments maturing through 1988 and provides for the rescheduling of these maturities over 12 years with quarterly payments commencing in 1987 and ending in 1997. A $750 million principal payment is to be made upon the effectiveness of the rescheduling.

12

A program for making foreign exchange available at preferential rates for private-sector debtors is in the process of development. Outlines of a new program recently announced by the government are being reviewed.

Citicorp's share of the public-sector restructuring, which is described in detail in the 1985 Annual Report and Form 10-K, is $709 million.

During the nine months ended September 30, 1986, no cross-border advances to Venezuelan public-sector borrowers were made, and $7 million of principal was repaid.

Interest on Venezuelan public-sector outstandings included in income amounted to $51 million, and $49 million of interest on such outstandings was received in cash.

PHILIPPINES In the Philippines, Citibank and other banks signed in May 1985 an agreement that provides for a new $925 million, 9-year term loan and have committed to maintain approximately $2.9 billion of short-term trade credit facilities through 1986. In addition, various programs are in place to reschedule approximately $5.8 billion of existing bank debt maturing through 1986.

In October 1986, the IMF has approved a new standby credit facility as well as a compensatory financing facility based on certain targets and conditionalities.

Citicorp's share of the new term loan is approximately $126 million, and its commitment under the trade credit facilities is approximately $753 million.

The rescheduling of existing bank debt under the various rescheduling programs involves approximately $371 million of Citicorp's Philippine outstandings.

CROSS-BORDER AND FOREIGN CURRENCY OUTSTANDINGS (1)

Adjusted for Net Local Currency Outstandings, External Guarantees and Collateral Total Adjusted Outstandings (2)

(In Billions)

Sept. 30, 1986 Dec. 31, 1985 Countries With Outstandings Exceeding 3/4% of Total Assets Japan........................................

$5.4

$5.8 Brazi1.......................................

4.6 4.7 United Kingdom...............................

3.1 3.6 Federal Republic of Germany..................

3.0 2.4 Mexico.......................................

2.8 2.8 Canada.......................................

2.7 2.8 Philippines..................................

1.7 1.8 Argentina....................................

1.4 1.4 France......................................

1.4 1.5 Australia (3)................................

1.2 1.8 Korea (3)....................................

1.2 1.4 (1) Outstandings are presented on a regulatory reporting basis, and include all loans, deposits at interest with banks, acceptances, other interest-bearing investments and other monetary assets.

(2) Legally binding cross-border and foreign currency commitments, including irrevocable letters of credit and commitments to extend credit, after adj ustment to assign externally guaranteed commitments to the country of the guarantor, amounted to $.5 billion in Australia, $.7 billion in Canada, $.5 billion in the Federal Republic of Germany, $1.2 billion in France, $.9 billion in Japan, $.4 billion in Korea, and $2.1 billion in the United Kingdom at September 30, 1986.

Commitments were not material in relation to adjusted outstandings in any other country in the tabic.

(3) Less than 3/4% of total assets at September 30, 1986.

13

Included in overseas cash basis loans are a number of loans in countries which are currently in the process of refinancing their external debt or which have completed such refinancings.

In view of investor interest in this aspect of Citicorp's activities, the table below provides additional details of cross-border and foreign currency outstandings and also local and foreign currency cash basis loans in the affected countries; the third column of the table shows the impact on Citicorp's earnings (after-tax), for the nine-month period ending September 30, 1936 spread among various countries.

The amounts include interest reversed when loans are placed on a cash basis status, plus the cost of funding the cash basis loans, reduced by interest received in cash and included in income.

c DETAILS OF REFINANCING COUNTRIES At September 30, 1986 Adjusted Total Estimated Cross-Border Impact Of l

And Foreign Cash Cash Basis Currency Basis Loans on Y-T-D I

Outstandings (3)

Loans (1)

Earnings (In Billions)

(In Millions)

Argentina.......................

$ 1.4 41

$ 3.0 Brazi1..........................

4.6 105 6.9 Chi 1e...........................

0.6 13 0.1 Dominican Republic..............

0.1 7

0.2 Ecuador.........................

0.4 8

0.3 Ivory Coast.....................

0.1 1

Jamaica.........................

0.1 Mexico..........................

2.8 64 (0.8)

Morocco.........................

0.1 Nigeria.........................

0.1 108 (2.8)

Panama..........................

0.3 4

Peru............................

0.1 30 (0.6)

Philippines.....................

1.7 169 3.3 Poland..........................

0.1 104 2.5 South Africa....................

0.7 4

(0.3) l Uruguay.........................

0.3 1

1 Venezuela.......................

1.1 260 (0.7)

Yugoslavia......................

0.2 All Other (2)...................

0.2 104 (4.9)

T0TAL...........................

$15.0 St,023 S 6.2 (1)

Includes both local and foreign currency loans.

(2) The remaining 13 countries, none of which exceed $50 million of Cross-Border and Foreign Currency Outstandings are: Bolivia, Costa Rica, Honduras, Liberia, Malagasy, l

Malawi, Mozambique, Nicaragua, Senegal, Sudan, Togo, Zaire, Zambia.

(3) Legally binding cross-border and foreign currency commitments, including irrevocable letters of credit and commitments to extend credit, after adjustment to assign externally guaranteed commitments to the country of the guarantor, amounted to $.1 billion in South Africa at September 30, 1986.

Commitments were not material in relation to adjusted outstandings in any other refinancing country.

14 1

INVESTMENT BANKING - FINANCIAL PERFORMANCE AND DISCUSSION

..- Citicorp 's Investment Banking business L includes global ~ investment and' merchant banking,-

funding, foreign exchange services, venture. capital investment, securities - brokerage -

irurance, and = financial advisory services provided to both Institutional and Investment Banking clients.

Incr./(Decr.) vs.

Third

. Third-Qtr Y-T-D Qtr

'Y-T-D' (In Millions of Dollars) 1986 1986 1985 1985 Tatc1 Revenue..........................

$457

'$1,363

$ 62 16%

$222 19%

Operating Expenses.....................

305 796 102 50%

233 41%

Net Income.............................-

77 316 (27)

(26%)

'Avarage Assets ($ Billions)............

39 39 6

18%

7 22%

(.24)

Return on Assets (%)...................

.79 1.09

(.48)

(5.8)

Return on Equity (%)...................

19.7 27.3 (12.0)

Third-quarter earnings were down against 1985's third quarter largely as a result of lower c curities trading revenues and the higher costs associated with building a global invastaent banking capability.

'In comparison with the third quarter of last year, fees, commissions, and investment while foreign exchange revenues were flat and trading escurity gains rose strongly,.

rcycnues declined.

Total revenue of $457 million increased 16%.

Year-to-date revenues were up, fueled by strong foreign exchange trading, Equity Product earnings through vsnture capital gains, revenues from recent acquisitions, advisory fees, and other commissions.

Th2 Sector's operating expenses were up 50% over the third quarter and 41% over the first nine months of 1985.. The growth in the quarterly and year-to-date expenses raflected the expansion of the worldwide investment banking franchise and the impact of n:wly acquired businesses - including AMBAC Indemnity, Vickers da Costa, and Scrimgeour, K=p-Gee.

The expense increases also reflect the adverse impact of a weaker dollar on cvarseas operations.

During the quarter, Citicorp completed its acquisition of Lynch, Jones & Ryan, a domestic brskerage firm that specializes in institutional research products.

The Lynch, Jones &

Rycn acquisition is an important addition to the Investment Bank's expanding worldwide brckerage network.

Yssr-to-date earnings were geographically diverse with 44% of earnings attributed to North America, 25% to Asia / Pacific, with Europe, the Middle East and Africa, and Latin America centributing the balance.

For the nine-month period, the key performance indicators - return on assets and equity -

surpassed corporate hurdles.

Average assets for the period were $39 billion, an increase of'22% over the level of a year ago.

15-

Investment Banking Products The table below summarizes Investment Banking earnings by type of product.

It includes the products delivered to the Institutional customer base as well as Investment Banking clients.

Detailed descriptions of these products are presented in Citicorp's 1985 Annual Report.

Third Qtr Y-T-D (In Millions of Dollars) 1986 1986 Debt Products / Money Market Services..................

S 50

$142 Equity Products......................................

(16) 21 Foreign Exchange Services............................

38 132 Advisory Products....................................

9 26 0ther................................................

(4)

(5)

Total Investment Banking............................

S 77

$316 OTHER ITEMS Incr./(Decr.)vs.

Third Third Qtr Y-T-D Qtr Y-T-D (In Millions of Dollars) 1986 1986 1985 1985

$ 74 Total Revenue..........................

$ 68

$ 28

$ 77 Provision for Possible Credit Losses...

78 302 4

5%

132 78%

117 Operating Expenses.....................

120 197 86 Net Income.............................

(46)

(209)

(7) (18%)

(54)

(35%)

The components of the Corporation's activities that are not identified with the three core businesses are presented in aggregate within this category. The items primarily include (i) the provision for possible credit losses that represents the build-up of the allowance for possible credit losses beyond that charged to the businesses; (ii) unallocated corporate staff costs; and (iii) other corporate items including certain start-up and other activities not included in the three core sectors.

The quarter-to-quarter and year-to-year increases in revenue and operating expenses are mainly related to Quotron which was acquired in June of 1986.

The growth in the provision for possible credit losses reflects the continued commitment to build the corporate level allowance for possible credit losses. The corporate portion of the total allowance at September 30, 1986 was $906 million as compared with $524 million at September 30, 1985.

Refer to pages 5 and 8 for a discussion of the provision charged to Individual Banking and Institutional Relationships.

l 16

l s

STATENENT OF INCOME ANALYSIS (See Pages 23 and 24 )

}

i NET INTEREST REVENUE (Taxable Equivalent Basis)

Net interest revenue for the first nine months of 1986 was $4,626 million, up $584 cillion, or 14%, over the s ue peciod last year.

This significant growth in net interest r v:nue was primarily due to the 15% rise in average interest-earning assets, offset by a clight decrease in the-net rate spread (currently 3.90% versus 3.93% a year ago).

The incr:ase in average earning. assets reflects the substantial growth in consumer loans.

Third-quarter net interest revenue of,$1,617 million was up $202 million, or 14%, over the third quarter of 1985 as average earning assgts increased $19.5 billion, or 14%, to $161.7 billion.

Quarter-to-quarter there, was an increase in the net rate spread of 2 basis points from 3.95% in 1985 to 3.97% in 1986.

. CREDIT LOSS EXPENSE AND ALIANANCE In the first nine months of 1986, the total provision for posssible credit losses was

$1,317 million, including $988 million in net credit write-offs and a $329 million cddition to the allowance.

For the Jitst nine months of 1985, the total provision for psczible credit losses was $849 million, consisting of $626 million it, net credit writs-offs and a $223 million addition to the allowance.

For the third quarter, the provision for possible c r e d !.t losses of $431 million r:prasented $343 million in_ net credit write-offs and an $88 million addition to the cliewance.

The comparable andunts for last year'sthirdquart*rwere$346million,'l$239 cillion, and $107 million.

Tha Corporation's allowance for possible credit losses totaled $1,568 million, up $422 tillion over September 30, 1985 and $92 million from the prior quarter-end. The allowance espr sented 1.27% of the total period-end loans and leases, an increase of 27 basis points cbova the prior year's third quarter and 5 basis points over June 30, 1986.

Yser-to-date net consumer credit loan losses totaled $694 million, up $303 million over 1985. Third quarter net write-offs were $235 million, an increase of $79 million over the cc psrable period of 1985.

The higher write-offs continued to stem from both loan growth cnd higher levels of write-of fs, particularly in credit cards.

The increased credit lo22 s in card products refleets the dynamics of recent growth in bankcard receivables which have an historically higher credit loss experience, especially during the early y:ars of portfolio formation. Refer to the Individual Bank's financial discussion on page 5 for further details.

Net commercial write-of fs were $294 million for the first nine months of 1986 compared to

$235 million in 1985.

For the quarter, write-offs were $108 million, an increase of $25 zillion over the third quarter of 1985.

The higher write-of fs resulted f rom continuing w=knesses in certain industries, both domestically and overneas.

Refer to the Institutional Relationships' financial discussion on pago 7 for further details.

f FEE & C00GIISSION REVENUE Far the first nine months'of 1986, total fee and commission revenue roso $626 mii1J6n, or i

42%, over the corresponding period a year ago to $2,121 million.

This growth wan due to cub:tantial advances in each of the three sectors. Individual Bank revenue increaved $229 cillion, or 26%, due primarily to the continued strong growth in the credit card portfolio rsculting in increased meubership, merchant discount and Jnterchange fees.

Revenue from Institutional Banking products grew by $167 million, or 42%, mainly related to finincial gu:rantees, letters of credit, and advisory fees.

In the Invectment Bank, fee and commission revenue increased $153 million, or 66%, year-to -year due to higher insure nce -

ralcted fees, increased brokerage commissions, as well as gruwth in corporate advisory and funds-raising activities.

In addition, revenues held at the Corportte level increased by

$77 million, primarily due to the acquisition of Quotron.

Quarter-to-quarter, fee and commission revenue increased $232 million, or 45%, reflecting sub:tantial increases in each of the three core businesses and at the Corporate level.

17 l

TRADING ACCOUNT The year-to-dace trading account profits of $96 million dropped 43% from 1985's level.

Trading perfory.ance in North America was down significantly compared to the first nine l

months'of last year; while overseas earnings also declined moderately.

Third-quarter trading profits of $43 million represented a decrease of $15 million from last year.

A strong performance in North America was more than offset by lower trading results overseas, particularly in Europe.

FORE 1CN EXCHANGE Total nine-month foreign exchange revenues of $330 million were up $42 million, or 15%, in comparison with the same period last year.

Foreign exchange revenue of $113 million for the third quarter was $5 million, or 4%, lower than the strong performance recorded in the corresponding period in 1985. The year-to-date increase was largely attributable to gains overseas.

Foreign ev. change activities from both customer transactions and treding continued to be diversified across many trading centers.

Accumulated foreign currency translation, which represents the after-tax effects of translating certain foreign currency statements into U.S. dollars, is included in retained earnings in the consolidated balance sheet.

Foreign currency translation amounted to a

$20 million credit in the first nine months of 1986 and a $11 million charge in the third quarter, versus a nine-month credit of $14 million and a third-quarter credit of $21 m1!. lion last year.

IldESTMENT SECURITIES TRANSACTIONS Investment security gains during the first nine months of the year were $125 million, up

$90 million over the same period last year.

Third quarter gains from investment securities transactions were $43 million, up $18 million over the same quarter last year.

The increases for both the quarter and year-to-date were primarily driven by gains rccorded in the Investmer.t Bank.

t 4

f.

4 I

l

)

1 l

l

+

18

i OTHER REVEIRIE Incr./(Decr.) vs.

Third Third Qtr Y-T-D Qtr Y-T-D (I, Millions) 1986 1986 1985 1985 Affiliate Earnings............................

$ 16

$ 55

$ (6)

$ (9)

Net Gains on Sale /

Dicposition of Assets........................

104 267 115 238 Gains on Sale of Residual Value of Le::ed Equipment.............................

5 28 4

(7)

Oth2r Items...................................

2 20 (24)

(51)

T:tal.........................................

S127 S370

$ 89 S171 Yacr-to-date other revenue of $370 million advanced $171 million, or 86%, over the same period last year. The year-to-year increase was driven by gains from the sale / disposition of cssets, primarily reflecting profits from the sales of mortgage pass-throughs and mortgage-backed securities, as well as gains from the sale of real estate overseas and v;nture capital investacets.

However, the strong performance in asset sales in the first nina months of 1986 was partially offset by amounts received in a contract settlement in 1985.

.Tha third-quarter total other revenue of $127 million increased $89 million compared to tha game period a year ago.

Contributing to this growth were gains from the sales of mortgage pass-throughs, and real estate overseas.

TOTAL OTHER OPERATING EXPENSES Op3 rating expenses for the first nine months were $4,894 million, an increase of $986 cillion, or 25%, over the corresponding period a year ago. A significant portion of this incr ase reflects the higher infrastructure expenses required to support greater volumes -

.p rticularly in consumer banking - as well as expenses related to new business expansion, including acquisitions and technological development, especially related to the Investment Bank.

The expense increase also reflects the adverse impact of a weaker dollar on ovsrzeas operations.

For further analysis see separate sector financial performance and diccussion sections.

Third-quarter operating expenses of $1,784 million were up 27% over the third quarter of 1985 mainly for the same reasons noted above.

INCOME TAKES Income taxes for the first nine months of 1986 were $545 million, a decrease of $42 cillion, or 7%, from the same period in 1985.

The effective tax rate for the first nine months of 1986 was 42%, compared with a 44% tax rate in the same period a year earlier.

Thm lower effective rate in the first nine months of 1986 reflects higher levels of tax except income and the beneficial impact of the translation of overseas branch and cub 2idiary income, partly offset by the favorable impact of a reduction in New York State cnd City deferred' taxes related to leverageN lease transactions in 1985.

Th2 cffective tax rate of 42% for 1986's third quarter contrasted with the 3P% tax rate of a yacr. ago.

As noted above, the 1985 effective tax rate was favorably impacted by a r; duction in 'New York State and City deferred taxes related to leveraged lease trtnractions.

19

CancRAPHIC FISTRIBUTION OF NET INCOME Based on internal allocations and adjustments, earnings are categorized between domestic cnd overseas as follows:

(In Millions)

Domestic Overseas Total 1986 Third Quarter......................

$117 47%

$130 53%

$247 Second Quarter.....................

134 57%

101 43%

235 First Quarter......................

115 43%

155 57%

270-Nine Months.....................

S366 49%

S386 51%

$752 1985 Frurth Quarter.....................

$154 63%

$ 89 37%

$243 Third Quarter......................

87 38%

140 62%

227 S:cond Quarter.....................

115 46%

136 54%

251

-First Quarter......................

97 35%

180 65%

_277, Nine Months.....................

$299 40%

$456 60%

$755 Because of the integration of global activities, it is not practical to make a precise ctparation, and various assumptions must be made in arriving at allocations and (djustments to be used in presenting this data.

The principa'l allocations and adjustments are: (1) charges for all funds employed that are not generated locally are calculated on the amount and nature of the assets and based on a u rginal cost of funds concept; Citicorp stockholders' equity is treated as generated and c:rned based on each area's percentage of total assets; (2) allocation of expenses incurred by one area on behalf of another, including administrative costs is based on methods intended to reflect services provided; (3) allocation of tax expenses; (4) cllocation of the difference between actual net credit losses and the provision for possible credit losses; and (5) allocation of corporate staff costs (other than those charged to the core businesses) and other corporate items including certain start-up retivities.

The prior year's disclosures have been reclassified to conform with the current year's presentation.

In the first nine months of 1986, domestic earnings grew 22% over the corresponding period a year ago. Domestically, Citicorp's businesses continued to build revenue momentum, with j

higher asset-related credit revenues, fees and commissions, gains from securities transactions and other revenues compared to the first nine months of 1985.

Growth in consumer assets, particularly shelter finance and domestic card products, contributed cignificantly to the increase in asset-related credit revenues and fees and commissions.

Gains on sales of mortgage pass-throughs, mortgage-backed secui tties and venture capital investments also bolstered the year-to-date revenue perform <nce.

However, domestic trading account profits decreased significantly year-to-year. Ir addition, the portion of l

the domestic provision for possible credit losses allocated to romestic results increased markedly, reflecting higher domestic consumer write-of fs and aciittons to the allowance k

for possible credit losses.

Domestic earnings were also adversely impacted by higher operating expenses related to continued business development, expansion and improvements to product delivery.

Overseas, nine-month earnings declined 15% compared to the first nine months of 1985.

Despite solid growth in all revenue generating activities, except trading account profits, which decreased moderately year-to-year, earnings declined due to increases in operating expenses, commercial write-offs and additions to the allowance for possible credit losses.

The higher operating expenses reflect the impact of several newly acquired businesses, as well as continued business development, improvements to product delivery, and the weakening of the U.S. dollar.

20

In th2 third quartsr, d:me2 tic strnings incracs:d cubstcntially cvsr thm ystr esrlist perird.

Strong growth in asset-related credit revenues, fees and commissions, trading ccc unt profits and other revenues was partially offset by increases in the provision for po:sible credit losses and operating expenses.

International earnings decreased 7%

qu rter-to-quarter despite a substantial increase in total revenue.

Weaker trading pr: fits and a significant increase in operating expenses - primarily the impact of several n:wly acquired businesses, as well as the realignment of certain businesses - were mainly rssponsible for the quarterly decline.

NET INTEREST REVENUE STATISTICS * (Taxable Equivalent Basis)

Domestic Overseas Total NET INTEREST REVENUE j

(In Millions) 1986 hird Quarter

$1,061

$ 556

$1,617 Secund Quarter 961 552 1,513 j

First Quarter 917 579 1,496 i

Nine Months S2.939 St.687

$4.626 1985 F:urth Quarter S 903

$ 654

$1,557 Third Quarter 848 567 1,415 S:cond Quarter 776 576 1,352 First Quarter 740 535 1,275 Nine Months

$2.364 St.678

$4.042 AVERACE EARNING ASSETS (In Billions) 1986 Third Quarter

$ 85.9

$ 75.8

$161.7 S:cond Quarter 83.2 75.1 158.3 First Quarter 81.3 74.3 155.6 Nine Months 83.5 75.0 158.5 1985 Fcurth Quarter S 77.1

$ 72.7

$149.8

(

Third Quarter 73.1 69.1 142.2 Sacond Quarter 71.6 65.5 137.1 First Quarter 70.1 63.2 133.3 Nine Months 71.6 65.9 137.5 NET RATE SPREAD (Parccnt) 1986 Third Quarter 4.90 2.91 3.97 Seccnd Quarter 4.63 2.95 3.83 Fir:t Quarter 4.57 3.16 3.90 Nine Months 4.71 3.01 3.90 l

1985 Fcurth Quarter 4.65 3.57 4.12 Third Quarter 4.60 3.26 3.95 S cond Quarter 4.35 3.52 3.96 First Quarter 4.28 3.43 3.88 Nine Months 4.41 3.40 3.93

The prior year's amounts have been restated to conform with the current yrsr's presentation.

21

LIQUIDITY AND CAPITAL FUNDS ANALYSIS During the third quarter, Citicorp increased its total capital (as defined by the r:gulators) by $1,160 million bringing the balance at September 30, 1986 to $20,284 tillion or 10.81% of total assets. This represents an increase of $6,041 million, or 42%,

from a year ago.

Primary espital (as defined by the regulators) was $12,409 million, or 6.61% of total ccsets on September 30, 1986, an increase of $2,119 million, or 21%, over one year ago and

$266 million, or 2%, over the second quarter.

The increase in primary capital during the third quarter primarily reflected internal equity generation of $145 million and cdditions to the Allowance for Possible Credit Losses of $92 million.

Citicorp enhanced its liquility by borrowing $2,120 million in the term debt marketa during the third quarter, including $1,050 million which qualified as secondary capital.

Fixed rate debt of $850 million was issued in the U.S. with maturities from four to twelve ysars.

Fixed rate debt totaling $320 million was issued in the Euromarket, with caturities up to seven years.

Floating rate debt of $950 million, with final maturities from one to twelve years, was raised both domestically and overseas.

Liquidity was further enhanced by the issuance of $500 million in Variable Coupon R:newable Notes (VCR's) which mature in 2036. These instruments give the holder the right to put the notes to Citicorp on nine months notice, but there are strong rate incentives sgainst putting the notes.

Because of the puts, VCR's are defined as short-term instruments, although the expected maturity is long-term.

At September 30, 1986 Citicorp's total assets were $186 billion, up $17 billion, or 10%,

from the end of the third-quarter last year.

Of this asset growth, consumer loans increased $12 billion, or 23%, from September 30, 1985, largely through continued growth in credit card receivables and mortgages.

Citicorp's $17 billion asset growth since September 30, 1985 has been funded largely by increases in both interest-bearing deposits (including significant increases in consumer d: posits) and the components of total capital.

R tios 3rd 2nd 1st 4th 3rd Qtr Qtr Qtr Qtr Qtr Percent 1986 1986 1986 1985 1985 Total Capital (1) as a Percentage of Total Assets (2)......................

10.81 10.34 9.65 9.12 8.37 Primary Capital (1) as a Percentage of Totel Assets (2)......................

6.61 6.57 6.20 6.23 6.05 Common Stockholders' Equity Generation l

Rate (3)..............................

7.78 10.32 9.32 8.65 Dividend Payout Ratio..................

36.9 32.1 32.4 34.5 l

Beginning with the second quarter of 1986, common dividends will be declared in July, October, January and April, instead of June, September, December, and March.

(1) See page 2 for definitions.

(2) Total assets, prior to deducting the allowance for possible credit losses, in compliance with regulatory requirements.

(3) Net income available for common stockholders less common stockholders' dividend as a percentage of average common stockholders' equity.

22

.1 i

CONSULIDATED STATEMENT OF INCOME

' CITICORP and Subsidiaries-l Nine Months (19 Mi11 tons Except Per Share Amounts) 1986 1985 Change INTEREST REVENUE

' L.tcr:st and Fees on Loans and Lease Financing...............

$11,728

$11,531

$ 197 2-Ii t: r:s t on De pos i t s wi th Banks..............................

799 877 (78).

(9)

I;ttr:st on Federal Funds Sold and Securities A

Purihased Under Resale Agreements...........................

580 765-(185)

(24)

IIt:r:st and Dividends on Investment Securities U.S. Treasury and Federal Agencies.....................

176 205 (29)

(14)

State and Municipa1.........t..........................

42 24 18 75 other (Principally in overseas offices)................

542 379 163-43 ILt:r:st on Trading Account Assets...........................

549 623 (74)

.(12)

' Total Interest Revenue.................................

$14,416

$14,404 12 INITELST EXPENSE I t t: r: s t on De pos i t s.........................................

$ 6.249

$ 6,695

$ (446)

(7)

Int:rIst on other Borrowed Money.............................

2,152 2,474 (322)

-(13)

Int:r:st on Long-Tera Debt and Subordinated Capital Notes....

1,549 I,322 227 17 Total Int e rt e t Ex pense.................................

$ 9,950

$10,491

$ (541)

(5)

. NET INTEREST REVENUE.........................................

$ 4,466

$ 3,913

$ 553 14 LOAN LOSS EXPENSE

' Prtvizion f or Possible Credi t Los ses.........................

$ 1,317 849

$ ' 468 55 NET INTEREST REVENUE AFTER PROVISION FOR POSSIBLE CREDIT LOS3ES......r...............................

$ 1,149

$ 3,064 85 3

FEES, COMMISSIONS AND OTHER REVENUE F; 0 tnd Commissions.........................................

$ 2,121

$ 1,495

$ 626 42 Trrding Account..............................................

96 169 (73)

(43)

F rsign Exchange.............................................

330 288 42 15 11v3 tment Securities Transactions...........................

125 35 90 Oth:r Revenue................................................

370 199 171 86 Total Fees, Commissions and Other Revenue..............

$ 3,042

$ 2,186-

$ 856 39 4

OTHER OPERATING EXPENSE Sa1rries.....................................................

$ 1,973 1,525

$ 448 29 Staff Benefits...............................................

366 308 58 19 To t al S t a f f Ex pe n s e....................................

$ 2,339

$ 1,833

$ 506 28 Net Premises Expense.........................................

438 338 100 30 Equipment Expense............................................

442 337 105 31 Oth2r Expense................................................

1,675 I,400 275 20 Total Other Operating Expense..........................

$ 4,894 3 3,908

$ 986 25 In come Be f o re Taxe s..........................................

$ 1,297

$ 1.342

$ (45)

(3)

Income Taxes.................................................

545 587 (42)

(7)

NET 1NCOME...................................................

M M

1,,,,,,,Q)

NET INCOME PER SHARE

On Common and Common Equivalent Shares.......................

$ 5.11

$ 5.43

$ (.32)

(6)

Astuming Full Dilution.......................................

$ 5.10

$ 5.43

$ (.33)

(6)

On net-income available for common stockholders af ter deducting preferred stock dividends of $56 million and $44 c1111on in 1986 and 1985, respectively.

i t

i 23

CONSOLIDATED STATEMENT OF INCOME - QUARTERLY CITICORF and Subsidi. ries 1986 1985 (In N11tions Except Per Share Amounts)

Third Second First Fourth Third IIFFEREST REVENUE Interest and Fees on Loans and Lease Financing.............

$3,843

$3,847

$4,038

$3,997

$3,870 Interest on Deposits with Banks............................

252 262 285 279 289 l

Interest on Federal Funds Sold and Securities Purchased Under Resale Agreements.........................

126 136 318 322 266 Interest and Dividends on Investment Securities U.S. Treasury and Federal Agencies...................

58 57 61 63 63 State and Municipa1..................................

15 12 15 10 8

Other (Principally in overseas offices)..............

185 182 175 162 138 Interest on Trading Account Assets.........................

159 172 218 237 195 Total Interest Revenue...............................

$4.638

$4,668

$5,110

$5,070

$4,829 INTEREST EIFENSE I n t e re s t on De po s i t s....................................... $1.931

$2,056

$2.262

$2,170

$2,206 l

Int ere s t on Othe r Bo rrowed Money...........................

622 638 892 882 800

(

Interest on Long-Term Debt and Subordinated Capital Notes..

514 510 525 485 455 Tot al Int e re s t Ex pense............................... $ 3,06 7

$3,204

$ 3,679

$3,537

$ 3,461 NET INTEEEST REVENUE.......................................

$1,571

$1,464

$1.431

$1,533

$1,368 LO&N LOSS EXPENSE Provision for Possible Credit Losses.......................

$ 431

$ 457

$ 429

$ 394

$ 346 NET INTEREST REVENUE AFTER PROVISION FOR POSSIBLE CREDIT LOSSES....................................

$1,140

$1,007

$1,002

$1,139

$1,022 FEES, COISEISSIONS AND OTHER REVENUE Fees and Commissions.......................................

$ 744

$ 718

$ 659

$ 628

$ 512 Trading Account............................................

43 18 35 41 58 Foreign Exchange...........................................

113

!!8 99 70 118 Investment Securities Transactions.........................

43 53 29 24 25 Other Revenue..............................................

127 106 137 81 38 Total Fees, Commissions and Other Revenue..................

$1,070

$1,013

$ 959

$ 844

$ 751 OTHER OPERATING EIFENSE Salaries...................................................

$ 724

$ 649

$ 600

$ 591

$ 546 Staff Benefits.............................................

133 116 117 116 107 Total Staff Expense..................................

S 857

$ 765

$ ?!?

$ 107

$ 653 Net Premises Expense..........................

4...........

159 146 133 142 118 Equipment Expense..........................................

164 143 135 144 122 Other Expense..............................................

604 557 514 616 514 Total Other Operating Expense........................

$1.784

$1,611

$1,499

$1,609

$1,407 Income Before Taxes........................................

$ 426

$ 409

$ 462

$ 374

$ 366 Income Taxes...............................................

179 174 192 131 139 NET INCOME.................................................

s 247 WJJ.

U72 M

M i

NET INCOME PER SHARE

l On Common and Common Equivalent Shares.....................

$ 1.64

$ 1.60

$ 1.87

$ 1.69

$ 1.60 Assuming Full Dilution.....................................

$ 1.63

$ 1.60

$ 1.87

$ 1.68

$ 1.60

On net income available for common stockholders af ter deducting preferred stock dividends of $17 million in the third quarter of 1986, $19 million in the second quartur of 1986, $20 million in the first quarter of 1986, $19 million in the fourth quarter of 1985 and $16 million in the third quarter of 1985.

)

l t

l 24

CONSOLIDATED m Auf"e SEEET CITICDRP and Subsidiaries 1986 1985 (In Millions)

Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 ASSETS Ca s h r od Due f rom Ba nk s....................................... $ 4,215

$ 6,196

$ 6,978

$ 5.218 4,888 De po i t s at Int e re s t wi t h Bank s...............................

13,819 12,139 12,643 12,693 12.118-

~ Ilve;tment Securities U.S. Treasury.and Federal Agencies.......................

3,032 2,545l 2,446 2,818 2.514 i

State and Municipa1......................................

970 779 720 825 485 Other (Principally in overseas of fices)..................

7.316 6,369 6,373 6,004 5,027 Tr: ding Account Assets........................................

8,511 7,314 9,622 6,408 6,198 FJd:rsl Funds Sold and Securities Purchased Under Re:cle Agreements............................................

5,720 8,128 5,780 6.343 6.495 Lo %2 and Lease Financing, Net Commercia1...............................................

S 57,375.

$ 57,697-S 58,503

$ 58,172

$ 60,665 Consumer.................................................

63,599 60,002 57,243 55,518 51,644 Lease Financing..........................................

2.941 2,849 2,R65 2,909 2,641 Loans and Lease Financing, Net of Unearned Discount......

$123,915

$120.548

$118,611

$116,499

$114,950 Allowance for Possible Credit Losses.....................

(1,568)

(1,476)

(1,366)

(1,235)

(1,146)

Total Loans and Lease Financing, Net....................

$122,347

$119.072

$117.245

$115.264

$113,804 CuItomers' Acceptance Liability...............................

5,697 5,975 5,958 6,396 7,332 Premises and Equipment, Net...................................

3,051 2.946 2.650 2.544 2,452 Intarsat and Fees Receivable..................................

2,832 2,644 2,629 2,653 2,492 Othir Assets..................................................

8,537 9,281 8,852 6,43I 5,257 TOTAL.........................................................

si86.047 s i83.388 s181.896 sl73.597 1111a211 LIABILITIES Non-Interest-Bearing Deposits in Domestic Offices.............

$ 9,311

$ 11,652

$ 10,216

$ 10,792 4 9,842 Intsrsst-Bearing Deposits in Domestic Of fices.................

40,440 39,970 39,771 39,344 36,905 Non-Interest-Bearing Deposits in Overseas Offices.............

3,610 3,650 3,322 3,424 3,517 Intsrsst-Bearing Deposits in Overseas Of fices.................

57,647 54,136 57,479 51,399 52,686 To t a l De po s i t s...........................................

$111,008

$109,408

$110,788

$104.959

$102.950 -

Purchased Funds and Other Borrowings..........................

24.686 26,322 26,779 26,616 25,086 Acc!ptances Outstanding.......................................

5,815 6.133 6,093 6,598 7,495 Accrued Taxes and Other Expenses..............................

3,894 3,757 3,722 3,581 3,593 Othir Liab111 ties.............................................

9,503 8.372 6,657 5,823 5,716 Long-Te ra De b t................................................

20.262 18,662 17,644 16,316 14,925

- Su bo rdinat ed Capi ta l Not es....................................

2,147 2,147 2,147 1,899 1,899 -

Redl enable Pre f e rred Stock....................................

40 40 40 40 40 STOCKNOLDERS' EQUITT Prsistred Stock (Without Par Va1ue)...........................

$ 1,215

$ 1,215 990 Common Stock ($4.00 par)......................................

601 599 577 569 566

.ircurd Shares: 150,159,190; 149,784,151; 144,403.544; 142,265,429; and 141.466,614, respectively surplus.......................................................

1,406 1,397 1,120 1,056 1,030 Re t c i ned Ea rn i ng s.............................................

5,851 5,717 5,492 5,300 5,145 Common Stock in Treasury, at Cost.............................

(3RI)

(381)

(378)

(375)

(373)

ShIrzo: 12,641,417; 12,915,502; 12,856,210; 12,888,539; cnd 12,830,383, respectively Total Stockholders' Equity...............................

$ 8,692 S 8,547 s 8,026

$ 7,765

$ 7,358 TOTAL.........................................................

s186.047 sI83.388 s181.896 si73.597 1112.211 25

CONSOLIDATED STATBENT OF CHANGES 15 STOCKBOLDERS' EQUITY - QUARTER 1.Y CITICDEP and Subelditries 1986 1985 (In Millions)

Third Second First Fourth Third PREFERRED STOCK Balance at Beginning of Period...............................

$ 1,215

$ 1.215

$ 990 840 Sharea: 6,401,150; 6,400,700; and 6,400,400, respectively issuance of Stock.......................................

225 150 Shares: 450 and 300, respectively Balance at End of Period.....................................

j_1,dl5 j_121,l)5 1,_l,,J,,j)S,,

j,j,djj,,

S 990 l

Shares: 6,401.150 and 6,400,700, respectively COISION S10CK Balance at Beginning of Period...............................

$ 599 $ 577 569

$ $66

$ 564 Shares: 149,784,151; 144,403,544; 142,265,429; 141.466,614; and 140,919.455, respectively Issuance of Stock......................................

20 Shares: 5,000,000 Issuance of Stock under Savings Incentive, Stock Option, Stock Purchase Plans and Conversion of Convertible Notes....................................

2 2

8 3

2 Shares: 375,039; 380,607; 2,138,115; 798,815; and 547,159, respectively Balance at End of Period.....................................

S 601 S

599 S

577 569 566 Shares: 150,159,190; 149,784,151; 144,403,544; 142,265,429; and 141.466,614, respectively SURPLUS Balance at Beginning of Period...............................

$ 1,397

$ 1,120

$ 1,056

$ 1,030

$ 1,014 Pre f e r red S tock Is suance Cos t..........................

(3)

Insuance of Common Stock...............................

265 Issuance of Stock under Savings Incentive, Stock Option, Stock Purchase and Executive Incentive Compensation Plans and Conversion of Convertible Notes............

9 12 64 29 19 Balance at End of Per1od.....................................

j,,1,dO,1

$ 1.397 S l.120 M

M O

RETAINED EARNINGS Balance at Beginning of Period...............................

$ 5,717

$ 5,492

$ 5,300

$ 5,145

$ 4,986 Net income..............................................

247 235 270 243 227 Cash Dividends Declared Common.................................................

(85)

(80)

(73)

Preferred..............................................

(17)

(19)

(20)

(19)

(16)

Foreign Currency Translation............................

(11) 9 22 4

21 Balance at End of Per1od.....................................

S 5.851

$ 5.717 M

S 5.300 M

C0lgt0N STOCK IN TREASURY, AT COST Balance at Beginning of Period...............................

$ (381) $ (378) $ (375) $ (373)

$ (371)

Shares 12,915,502; 12,856,210; 12.688,539; 12,830,383; and 12,792,471, respectively Other Treasury Stock Transactions, at Cost.............

(3)

(2)

Shares (274,085); 59,292; (32,329); 58,156; and 37,912; respectively Balance at End of Period.....................................

j__{lil) 1__ildl) S ( 378)

$ (375)

S (373)

Shares: 12,641,417; 12,915,502; 12,856,210; 12,888,539; and 12,830,383, respectively TOTAL STOCKHOLDERS' EQUITY Balance at Beginning of Per1od...............................

$ 8,547

$ 8,026

$ 7.765

$ 7.358

$ 7,033 Changes during Period, Net.............................

145 521 261 407 325 Balance at End of Period.....................................

1,34692 S 8.547 8.026 S 7.765 S 7.358

Beginning with the second quarter of 1986, common dividenda will be declared in July, October, January and April, instead of June, September, December, and March.

26

CONSOLIn&TED STATEMEET OF CNANGES IN FINANCIAL POSITION CITICOEF and Subsidiaries Nine Months Ended September 30

/ (In Millions) 1986 1985 FUNDS PROVIDED NetIncome............................................................................

752 755 Incr::se in Deposits...........................4c...........................................

6,049 12,601 Purchased Funds and Other Borros ag;.............................................

696

)

long-Term-Debt...................................................................

3,946 1,935 Subordinated Capital Notes.......................................................

248 250 Common Stock (5,000,000 shares)....m............................................

285 Preferred Stock..................................................................

350

' Decrs se in Federal Funds Sold and Securities Purchased Under Resale Agreements..............

623 Other, Net............................................................................

1,735 1,718 10TAL.................................................................................

jl},gg, j,jjg ronds usEn Ca:h Dividends Declared...............................................................

221 261 Incrsase in Cash and Due From Banks and Deposits at Interest with Banks......................

123' 2,721 Inve4tment Securities and Trading Account Assets.................................

3,774 2,557 Federal Funds Sold and Securities Purchased Unde r Re s a l e Ag r e e me n t s.........................................................

1,354 Loans and Lease Financing, Net...................................................

7,083 11,097 Premises and Equipment, Net......................................................

507 312 Decrsase in Purchased Funds and Other Borrowingo.............................................

1,930 Convertible. Notes................................................................

3 10TAL................................................................................. jl}aig jlg,a,$j, CALCUIATION OF NET INCOME PER SHARE On Common and Common Equivalent Shares (1)

Nine Months Ended September 30 (In Millions Except Per Share Amounts) 1986 1985 Net income Available for Common Stockholders

o. Distributed portion (dividends)..................................................

$ 165*

$ 217

b. Undistributed portion............................................................

531 494 TUTAL.................................................................................

j_s2k 1.211 Sh+rss Weighted average common shares outstanding - Market va1ue.............................

130.1 125.2 Weighted average common shares outstanding - Book va1ua...............................

3.1 2.4 Common stock equivalents (2)..........................................................

1.9 1.8

c. Shares applicable to distributed portion.........................................

135.1 129.4 Book value shares issuable under stock option and stock purchase plans................

I.6 2.2

d. Shares applicable to undistributed portion.......................................

136.7 131.6 Net Income Per Common and Common Equivalent Share ctc Distributed portion =..............................................................

$1.22

$1.68 btd Undistributed portion............................................................

3.89 3.75

(

10TAL.................................................................................

,jj.a.Id

.3).& 2, l

4 1

F Beginning with the second quarter of 1986, common dividends will be declared in July, October, January and April, instead of June, September, December, and March.

(1) The fully diluted calculation assumes conversion of all outstanding convertible notes and the maximum dilutive ef fect of common stock equivalents. The number of shares issuable on conversion of the notes and the additional common stock equivalents (0.3 million in 1986 and 0.3 million in 1985) are added to the number of shares included in the calculation (resulting in a total of 137.0 million shares in 1986 and 131.9 million shares in 1985), and the related after-tax interest expense ($0.1 millivs in 1986 and

$0.2 million in 1985) is eliminated.

(2) Common stock equivalents represent shares issuable ander the executive incentive compensation plan and the dilutive effect of market value shares issuable under stock option and stock purchase plans computed using the treasury stock method.

27-

CONSOLI3&TED W Am N S M CITISAM, M.A. and Subsidiaries 1986 1985 (I, Millions)

Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 ASSETS Cash and Due from Banks..................................

$ 3,417

$ 5,341

$ 6,288

$ 4.586

$ 4.389 Deposits at I nt e re s t wi t h Ba nk s..........................

13,871 12.299 13,180 12,602 12,674 Investment Securities U.S. Treasury and Federal Agencies..................

1,820 1,608 1,755 2,097 1,517 State and Municipa1.................................

96) 775 697 801 462 Other (Principally in overseas offices).............

6,374 5.763 5,770 5.449 4,483 Trading Account Assets...................................

4,635 3.577 5.083 2,725 3,178 Federal Funds Sold and Securities Purchased Under Resale Agreements.......................................

6,154 10,304 8,976 11,812 10,104 Loans and Lease Financing................................

$ 85,145

$ 82,600

$ 80,583

$ 77,933

$ 77,911 Le:s Allowance for Loan and Lease Financing Losses.....

(821)

(777)

(100)

(626)

. Unearned Discount on Loans........................

(2,159)

(2,113)

(2,047)

(1,930)

(1,824)

. Total Loans and Leaae Financing, Net...............

$ 82,165

$ 79,710

$ 77,836

$ 75,377

$ 75,461

- Cus tome rs ' Accept ance Liab(11ty..........................

6,731 6,928 7.287 7,473 8.117 Prcaises and Equipment. Net..............................

2,027 1,979 1,903 1,831 1,767 Int e res t and Fee s Receivable.............................

1,930 1,878 1,955 1,984 1,859 Other Assets........

5,266 5.768 5,799 4,113 3,052 TUTAL...............,....................................

$135.355

$135.930

$136.529

$130.850

$127.063 LIABILITIES Non-Interest-Bearing Deposits in Domestic Offices........

$ 7,946

$ 10,424

$ 8,890

$ 9,379

$ 8,915 Interest-Bearing Deposits in Domestic Of fices............

27,379 27,462 27,341 27,280 24,652 Non-Interest-Bearing Deposits in overseas Of fices........

3,625 3,743 3.184 3,512 3,774 Interest-Bearing Deposits in Overseas Of fices............

57,523 53,130 56,800 51,639 51,507 To t a l De po s i t s......................................

$ 96,473

$ 94,759

$ 96,215

$ 91,810

$ 88,848 Purchased Funds and othe r Borrowings.....................

13.376 15,846 16,145 15,327 14.922 Acceptances Outstanding..................................

6,849 7,081 7,417 7,671 8,269 Acc rued Ta xes and Othe r Expense s.........................

2,781 2,680 2,689 2,608 2,416 Other Liabilities........................................

5,339 5,284' 3,906 3,506 3,278 Long-Tera Debt...........................................

2,962 2,886 2,915 2,891 2,593 STOCKEOLDER'S EQUITY Capital Stock'($20.00 par)...............................

751 751 751 751 751 Outstanding Shares 37,534.553 in each period Surplus..................................................

1.512 1,510 1,501 1,493 1,091 R;tained Earnings........................................

5,312 5,133 4,990 4,793 4,895 Total Stockholder's Equ1ty..........................

$ 7,575

$ 7,394

$ 7,242

$ 7,037

$ 6,737 1DTAL....................................................

,1jjj,aJ, M $136.529 M $127.063 I 28

. A#ERACg aanamenS AND 1HTEREST RATES (Tasable Equivalent Basis) (1) Third Quarter 1986 Second Quarter 1986 1 1 Average Averabe Average Average (In Millions) Volume Interest Rate Volume Interest Rate INTEREST REYENUE Loans and 14ase Financing (Net of Unearned Discount) (2) Cosmercial loans In Domestic Offices Commercial and Industrial..................... $ 12,416 $ 406 12.97 $ 12,567 $ 419 13.37 Mortgage and Real Estate...................... 7.254 170 9.30 6,582 163 9.93 Loans to Financial Institutions............... 404 15 14.73 418 16 15.35 In Overseas 0ffices.............................. '37,228 1,103 11.75 38,560 1,192 12.40 To t al Commserc ial 14ans...................... $ 57,302 $1,694 11.73 $ 58,127 $1.790 12.35 Consumer loans In Domestic 0ffices.............................. $ 50,606 $1.696 13.30 $ 47,621 $1,611 13.57 - In Overseas 0ffices.............................. 11,549 378 12.99 10,741 368 13.74 To t al Consume r 14ans........................ $ 62,155 $2,074 13.24 $ 58,362 $1,979 13.60 To t a l 14a n s................................. $119.457 $3,768 12.51 $116,489 $3.169 12.98 2 98 13.99 2,878 93 12.96 $122,780 Lease Financing................................. ,237 $3,866 1.!.35 $119,361 TUU 12.98 Total loans and Lease Financing............. Funds Sold and Resale Agreements (Principally in domestic offices)........... $ 7,496 $ 126 6.67 $ 8,078 $ 136 6.75 Investment Securities In Domestic Offices U.S. Treasury and Federal Agencies............ $ 2,603 $ 60 9.14 $ 2,565 $ 60 9.38 State and Municipa1........................... 472 12 10.09 368 9 9.81 0ther......................................... 1,346 28 8.25 1,252 32 10.25 In Overseaa Offices (Principally local government issues)............................ 6,310 173 10.88 5,659 164 11.62 Tota 1....................................... $ 10,731 N 10.09 $ 9,844 $ 265 10.80 Trading Account Assets U.S. Treasury and Federal Agencies............... 131 3 9.09 $ 1,152 $ 28 9.75 State and Municipa1.............................. 1,330 31 9.25 1.145 40 14.01 Other (Frincipally in overseas offices).......... 6,670 133 7.91 6,257 124 7.95 Tota 1....................................... $ 8,131 j 167 8.15 $ 8,554 $ 192 9.00 Interest-Bearing Deposits (Frincipally in overseas offices)............................. $ 13.118 $ 252 7.62 $ 12.493 $ 262 8.41 Total Interest-Earning Assets.................... $161,713 $4,684 11.49 $158,336 $4,717 !!.95 Non-Interest-Earning Assets...................... 23.059 25,504 TOTAL ASSETS..................................... jj,l,4,U7,1 $163,640 a INTEREST EIFl.NSE Deposits In Domestic Offices Savings Deposits (3).......................... $ 17,863 $ 244 5.42 $ 16,497 $ 246 5.98 Negotiable Certificates of Deposit............ 1,893 44 9.22 1,958 47 9.63 Othe r Time De pos it s ( 3)....................... 20,524 422 8.16 21,536 457 8.51 Total Domestic Interest-Bearing Deposits.... $ 40,280 $ 740 6.99 $ 39,991 $ 750 7.52 In Overseas 0ffices.............................. 56,398 1,221 8.59 56,280 1.306 9.31 Tota1....................................... $ 96,078 $1,931 7.92 $ 96,271 $2,056 8.57 Funds Borrowed In Domestic Offices Purchased Funds and Other Borrowings Federal Funds Purchased and Securities Sold Under Agreements To Repurchase....... $ 9,856 $ 160 6.44 $ 11,985 $ 218 7.30 Commercial Paper............................ 6,806 110 6.41 5,433 96 7.09 Other Purchased Funds....................... 5.203 147 !!.21 5,906 137 9.30 long-Tern Debt, Convertible Notes and i Subordinated Capital Notes.................. 17,763 411 9.18 16,174 395 9.80 Total in Domestic Offices................... $ 39,628 $ 828 8.29 $ 39,498 $ 846 8.59 8 308 14.27 9,171 302 13.21 In overseas 0ffices.............................. $ 48,561 ,189 $1,136 9.35 4 48,669 $1,148 9.46 Tota 1....................................... Total Interest-Bearing Liabilities............... $144,867 $3,067 8.40 $144,940 $3,204 8.87 Demand Deposits in Domestic Offices.............. 9,658 9,214 Other Non-Interest-Bearing Liabilities........... 21,662 21,484 Total Stockholders' Equity....................... 8,585 8,202 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... jjd,JJ,,1 SlH3340 NET INTEREST REVENUE AS A PERCENTAGE OF AVERACE INTEREST-EARNING ASSETS............... 1]aj,)J, 3.97 JLj,JJ 3.83 (1) The Taxable Equivalent Adjustment is based on the marginal tax rate of 461 for each quarter. (2) Loans and lease financing balances include cash basis loans and leases. 29 (3) Savings Deposits consist of Insured noney sartet Race acounts, Now accounts and other Savings Deposits.

CITICORP and Subsidirri m First Quarter 1986 Fourth Quarter 1985 Third Quarter 1985 E 1-1 Average 1 Average Average Average . Average Average JVilues .' Interest Rat e - ' Volume ' Interest Rate Volume Interest Rate $ 12,930' $ 443 13.89 - .$ 12,768 $ 425 .13.21 $ 12,869 $ 412 12.70 ~6,256 165-10.70 5,872 156 -10.54 '5,436 147 10.73 455 - 16 '- 14.26 559 20 14.19 565 17 !!.94 38 842 I 381 - 14.42. - 39,666 1 414 14.14 39.594 1 400 14.03 M 13.90- $ 58.865 M 13.58 $ 58.464 N 13.41 $ 46,385' .$1,592 13.92 ~$ 44,236 $1.505 13.50 $ 41,595 - $1,490 14.21 9 358 14.73 8,812 353 15.89 7.419 314 16.79 56,858 M. 14.06 $ 53.048 $1,858 13.90 - 49 014 I 804 14.60 243 1, , 55 13.98 $111,913 $3,873 13.73 10, 13.95 2.782 118 17.20 2.746 126 18.20 2.537 117 18.30 $117.508- $4.073 14.06 .$114.659 $3.999 13.84 $110.015 $3.897 14.05 ~ .' $ 8.361 - $ 318 15.42 $ 7.542 $'322 16.94 $ '6.917 8 266 15.26 2.546 $ 64 10.19 $ 2.574 $ 65 10.02 $ 2.347 $ 66 11.16 432 10 9.39 440 12 10.82 345 12.65 1,330 31 9.45 726 31 16.94 751 26 13.74 5,491' 161 !!.89 4.485 137 12.12 3.641-- 118 12.86 - $ 9.799 $ 266-11.01 $ 8.225 $ 245 !!.82 $ 7.084 $ 221 12.38

(56) 1 (7.24)

~$ 433 $ 10 9.16 390 $ 15 !$.26 1,197 39 13.21 1,093 25 9.07 1.075 23 8.49 6.228 193 12.57 - 5.360 214 15.84 4.735 165 13.83 $ 7.369 $ 233 12.82 $ 6.886 $ 249 14.35 $ 6.200 $ 203 12.99 17 591 $ 285 9.18- .$ 12,463 $ 279 8.88 $ 11,980 $ 289 9.57 $5.175 13.49 $149,775 $5,094 13.49 $142,196 $4.876 .13.60 27 938 21.467 19.790 ALIlad81 11Al.a.IIi $ 15,636 $ 247 6.41 $ 15,239 $ 251 6.53 $ 14,503 $ 240 6.57 -2,138 52 9.86. 2,131 54 10.05 2,263 59 10.34 21,783 488 9.09 20,419 415 8.06 18,471 473-10.16 $ 39,$57. M 8.07 $ 37,789 - $ 720 7.56 $ 35,237 $ 772 8.69 56 131 1 475 10.66 54,957 1,450 10.47 51,489 I,434 11.05 N3R b 9.59 $ 92.746 $2.170 9.28 $ 86.726 $2.206 10.09 _$ 10,283 .$.206 8.12 9,869 $ 210 8.44 $ 10,549 $ 224 8.42 5,169 101 7.92 5.677 114 7.97 4,250 85 7.93 6,973 162 9.42 6.387 148 9.19 6,401 124 7.69 15 til 385 10.33 13.597 356 10.39 12.400 337 10.78 $ 854 9.23 $ 35,530 $ 828 9.25 $ 33,600 N 9.09 9.628 563 23.71 8.630 539 24.78 7.934 485 24.25 47 164 HI 417 12.18 $ 44 160 IM 10.44 TIRN $1,531 @$41534-367 12.28 lil 255 11.99 $3 10.25 1M 10.71 8,666 8,224 7,436 '19,144 18,591 19.091 7.904 7.521 7.199 M 11.ll.als1 Allt.la?.Il nan 3.90 11.}.2.7 4.12 11a 11 3.95 4 30

-t t CITICDeP F1545CIAL STATISTICS ET 15CIME Net Net income Per Share Income On Common and Year Quarter (in sillions) Common Equivslent Shares Assuming Full Dilution 1986 - Third $247- $1.64 $1.63 Second' 235 1.60 1.60 ~First 270 1.87 1.87 1985 Fourth - $243 $1.69 $1.68. Third 227 1.60 1.60 Second 251 1.81 1.81 .l First 277 2.02 2.02 .) CDISION DITIDENDS Dividende Dividends Annual Date Record Date Declared Declared Dividend - Year Declared Date Paid (in millions) Per Share Rate . 1986 10-21-86 10-31-86 11-10-86 e 7-15-86 7-25-86 8-11-86 $85 $.615 $2.46 3-18-86 3-28-86 5-1-86 80 .615 2.46 8' A dividend of $.615 was declared on October 21, 1986. Beginning with the second quarter of 1986, common dividends will be dictared in July, October, January and April, instead of June, September. December, and March. 1985 12-17-85 12-30-85 2-3-86 $73 $.565 $2.26 9-17-85 9-27-85 11-1-85 73 .565 2.26 6-18-85 6-28-85 8-1-85 72 .565 2.26 3-19-85 3-29-85 5-1-85 72 .565 2.26 STOCIEDLaBas' aQUITY AND SELECTED RETURBS Return Return Common Common Return on Common On Stockholders' Primary Total Shares on Stock-Total Equity Capital (1) Capital (!) Outstanding Total holders' Stockholders' Y m< r Quarter Per Share (in millions) (in millions) (19 thousands) Assets (2) Equity (2) Equity (2) 1986 Third $$4.37 $12,409 $20,284 137,518 .53% 12.3% 11.4% Second 53.57 12,143 19,124 136,869 .51 12.4 11.4 First 51.78 11.370 17,688 131.547 .61 15.2 13.8 1985 Fourth $50.63 $10,892 $15,948 129,377 .56% 13.8% 12.7% Third 49.50 10,290 14,243 128,636 .56 13.2 12.4 Second 48.34 9,733 13.165 128,127 .65 15.5 14.8 First 47.16 9,197 12.487 127.533 .74 18.0 17.0 IAANS AIID LEASE FINANCING OUTSTAIIDIIIG 1986 1985 (In Millions) Sept. 10 June 10 March 31 Dec. 31 Sept. 30, Comme rc i a l Loa ns.................................... $ 57,816 $ 58,185 $ 58,992 $ 58,655 $ 61.110 Uneirned Discount.................................. (441) (488) (489) (483) (445) Commercial Loans, Net of Unearned Discount.......... $ 57,375 $ 57,697 $ 58,50) 172 $ 60,665 $ 5s,436 8 59, $ 56,093 Coni ume r Lo a n s...................................... $ 67,829 $ 64,333 $ 61,648 Uneirned Discount.................................. (4,210) (4,131) (4,405) (4,418) (4,449) Consumer Loans, Net of Unearned Discount............ $ 63,599 $ 60,002 $ 57,243 $ 55,518 $ 51,644 Leise Financing, Net of Unearned Income............. $ 2,941 $ 2,849 $ 2,865 $ 2,809 $ 2,64l Allowance for Possible Credit Losses................ $ (1,568) $ (1,476) $ (1,366) $ (l.235) $ (1,146) Tats 1 Loans and Lease Financing, Net................ $ 122,34 7 $lt9,072 $117.245 $115,264 jl1}a124 (1) See Page 2 for definitions. (2) 8ased on annualized quarterly results. l 01 1 l

DETAIL OF CREDIT LOSS EIFERIENCE' 1986 1985 (In Millions of' Dollars) Third Second First' Fourth Third ALLOWANCE FOR PO$i'3LE CREDIT LOSSES AT BEGINNING OF i nRI0D..................... $1,476 $1,366 $1,235 $1,146 $1,034 Deductions Gross Loan Insses commercial Loarts - In Domestic 0ffices........................ 33 13 15 30 21 In overseas 0ffices........................ 91 111 83 138 79 Consumer Loans-l In Domestic 0ffices........................ 259 267 238 210 170 In Overseas 0ffices........................ 31 29 26' 25 21 l $ 414 $ 420 $ 362 $ 403 $ 291 loan Recoverica Cosmercial Loans In Domestic 0ffices........................ 4 12 7 13 2. In Overseas 0ffices........................ 12 8 9 13 15 Consumer loans In Domestic 0ffices........................ 45 49 35 33~ 30 In Overseas 0ffices........................ 10 9 8 8 5 71 78 59 67 52 Net Loan Losses In Domestic 0ffices........................ $ 243 $ 219 $ 211 $ 194 $ '159 In Overseas 0ffices........................ 100 123 92 142 80 $ 343 $ 342 $ 303 $ 336 $ 239 Additions Provision fo. Possible Credit Losses......... $ 431 $ 457 $ 429 $ 394 $ 346 Other (Principally from allowance balances of acquired companies and translation of overseas allowance balances)............... 4 (5) 5 31 5 $ 435 $ 452 $ 434 $ 425 $ 351 ALLOWANCE FOR POSSIBLE CREDIT IDSSES AT END OF PERI 0D........................... j,LL), j,1.476 j,L,}M j,L2,H M Excess of Provision over Net loan Losses..... 88 $ 115 $ 126 58 $ 107 Allowance for Credit Losses as a Percentage of Period-End Loans and Leases............. M M 1.15% 1.06% M i l ) ) l 1 I l l I 32 t

- inumaa - ass SECURITIES -1986 -1985 (in Million) Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 Carrying Value U1S, Treasury and Federal Agencies................ $ 3,032 $ 2.545 $ 2,446 $ 2,818 $ 2,514 St;ts and Municipa1............................... 970 779 720 825 485 Other (Principally in overseas of fices)........... 7,316 6,369 6,373 6,004 . 5,027 $11.318 $ 9.693 $ 9.539 $ 9.647 j;8jLyg a Mark t Value U.S. Treasury and Federal Agencies................ $ 3,286' $ 2.675 $ 2.628 $ 2,919 $ 2,516 Stcto and Municipal............................... 973 777 - 731 ' 799 445 Other (Principally in overseas of fices)........... 7.453 6,571 6,593 6.t74 5,246 $11.712 $10.023 $ 9.952 S 9 / 92 j_8,101 1 INVESTMENT SECURITIES . Maturity Distributions at September 30,. .j 1986 i Due Due - Due Due Within 1-5 5-10. Over - C'rrying Value 1 Year Years Years 10 Years Total U.S. Treasury and Federal Agencies................~ $ 158 $ 661 $ 409 $1,804 $ 3,032 Stits and Municipa1............................... 61 61 230 618 970 Other (Principally in overseas offices)........... 1,750 3,383 1,171 .I,012 7,316 Tot:1............................................. $1.969 $4,105 $1.810 $3,434' $11.318 Im G-TERM DEST (With final original m'aturttles of more than one year) (1) - Maturity Distributions at September 30, 1986 (In Millions) Parent Company . Dus in 1986.....................................................................- $ 1,134 Dur in 1987..................................................................... 1,370 Dua in 1988..................................................................... 1, 30 5 Dum in 1989..................................................................... 2,294 Dua in 1990..................................................................... 1,275 Due in'1991 - 1995.............................................................. 3,479 . Dus in 1996 - 2000.............................................................. 2,541 Due in 2001 and over............................................................ 2,003 $15,401 Subsidiaries Due in 1986..................................................................... 501 Dus in 1987..................................................................... 678 Due in 1988..................................................................... 936 Dui in 1989..................................................................... 560 Du's in 1990..................................................................... 806 Due in 1991 - 1995.............................................................. 749 Dua in 1996 - 2000.............................................................. 628 Du s i n 200 1 a n d o v e r............................................................ 3 $ 4,861 - T0TAL........................................................................... jl0 112 2 (1) Maturity distribution is based upon contractual maturities or earlier dates at which debt is rspayable at the option of the holder or due to required mandatory sinking fund payments or due to call notices issued. ) 33

SECURITIES AND EXCHANGE ColetISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) 0F .THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1986 Commission file number 1-5738 CITICORP (Exact name of registrant as specified in its charter) Delaware 13-2614988 (State or other jurisdiction of) (I.R.S. Employer incorporation or organization) Identification No.) 399 Park Avenue, New York, New York 10043 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 559-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Citicorp Common Stock............. 137,517,773 L ($4.00 Par) (Shares Outstanding on September 30, 1986) 34

FORN 10-Q CROSS-REFERENCE INDEX Thie document serves both as an analytical review for analysts, stockholders and.othes -intsrested persons and as the quarterly report filed on Form 10-Q with the Securities anf Exchange Commission. Pcrt I Financial Information Pg Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 3-22 Financial Statements, Schedules and Statistics Consolidated Statement of Income for the Nine Months Ended September 30, 1986 and 1985............................................... 23 Consolidated Statement of Income for the Three Months Ended j September 30, 1986 and 1985............................................... 24 Co,nsolidated Balance Sheet as of September 30, 1986 and December 31, 1985..................................................... 25 Consolidated Statement of Changes in Financial Position for the Nine Months Ended September 30, 1986 and 1985..................... 27 Consolidated Calc ulation of Ne t Income Pe r Share........................... 27 Citicorp Financial Statistics.............................................. 31-33 P;rt II Other Information Item 6 - Exhibits and Reports on Form 8-K.................................. 36 Signatures................................................................. 36 l l In the opinion of the management of Citicorp, all adjustments necessary for a fair presentation of the results of operations for the nine months ended September 30, 1986 and 1985 have been 1 included. i i l 35

. Item 6 - Exhibits and Reports on Form 8-K. -(b) Reports on Form 8-K. Citicorp filed no Form 8-K Current Report for any month -in the quarter ended September 30, 1986. SIGNATURES l Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. i CITICORP Registrant By: THOMAS E. JONES Thomas E. Jones Senior Vice President Chief Accounting Officer By: CHRISTOPHER C. YORK Christopher C. York Assistant Secretary Date: November 14, 1986 36

r-f Citicorp investor Relations Department 399 Park Avenue New York, New York 10043

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