ML20238F585

Citicorp Repts,1986

ML20238F585
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1986
From:	Jeffrey Reed CITICORP
To:
Shared Package
ML20238F529	List: ML20238F528 ML20238F530 ML20238F543 ML20238F555 ML20238F585 ML20238F625 ML20238F651 ML20238F662 ML20238F711
References
NUDOCS 8709160234
Download: ML20238F585 (201)

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IN MILUONs OF DOLL ARs EXCEPT PE A SHARE AMOUNTS nagugyg gg mueam he 1998, earnings por share were flat compared with the_ prior yeaa, teos un5 8 j

l Earnngs Per Share (Funy Dluted) $ 7.13 $ 7.11 id**

Netincome

,g l 1,058 998 j Retum on Common Stockholders' Equity . 13.3% 15.1 %

350 i ses l SECTOR EARNINGS Sector earnings rose 14%in 1984. tses mso' 850 Earangs of Core Busnesses rduding the information Business (Not including stcra: retained at the corporate IcNel) $1,30C $1.143 N rr>A stasewiver.ruawcws 1 1

COGG060M OfVIDENDS The annual dividend rate on common stock g incrossed 9% from 1988, toes 1985 sat  !

Cash Dvoends Dedared $ 250 $ 290 450 I Annual Dvdend Rate Per Share, at war End . 2.44 2 26 iset im im iss. .m ises 1 CAPtTAL EARNINGSANDOfVIDENDS html and primary capital increased 35% and 24%, pgR SHARE respectively, from a year ago. tee 6 1985 Total Captal g

$ 21,531 $ 15.948 asumaamem stam avtAnte Percentage of Total Assets . 10.80 % 9 12 %

Pnmary Capitat $ 13,490 $ 10.892 Percentage of Total Assets . 8 S.42 % 6 23 % ,,,, 7.1 j YEAR.END BALANCES s.1s "'8" -

Wtal assets rose 13% from 1988 primatify 6 m j roGecting growth in the consume, r loan portfolio, teos ._

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Commercial Loans. Net of Uneamed Dscount S196,134 $173.597 98,439 58.172 d

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Consumer Loans Net of unearned Oscount . 08,243 55.518 TotalDeposts 2 i 114,400 104.959 lotal Stockholders' Equity 9,000 7.76' Cornmon Stockhobers Equety Per Share SF.92 0 50 E J

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I N Insteen-eighty six has bee the year weH and have made good progress, something that augurs well for the future but which is only partially renected in this year's results.

l During 1984, Citicorp earned $7.13 per share and a retum on equity of 13.8%; this represents flat year to year perforrnance on an eamings per share basis and a drop in our retum on equity.

During the year, the annual dividend rate on your common stock was increased by 9% from $2.26

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a share to $2.46 per share, reflecting our continued confidence in the undertying business strength of our activities. On December 31, Citicorp common stock was traded at $53.00 per share,up froen $43.38 tastyear.

Sector eamings, which are the best description of our basic business performar,ce, increased by 14% to $1.3 billion. This reptesents a retum of 17.7% on your equity and reflects the undertying earnings characteristic of our portfolio of businesses. importantly, these Sector eamings continue t . 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 and $ector earnings grewth. Our total capital now stands at $21.8 billion. Our total reserves are

$1.7 billion.up 3T% year over year, including an increase to $1 billion at the Corpomte level, to

$3g7 million in the lastitutional Bank and $341 million in the Individual Bank. We believe that it is important to strengthen your Company's belance sheet and anticipate that we will continue to do se during 1987.

Some of the many cross currents affecting our business include a relatively hostile orodit environment, continuing dlWlouttles assecleted with sovereign exposure, estremely encouraging 2

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n f 'E W' N b the seneumer W b Weed for M f"setrtDORWhtg ofourtredenenaleseperatebushtees,thenuderegeet wthhundtrelesportenttrading and distremeten e for seenstelinetnenents in many neartete and use sentinued reesty that your company le tened with many attressee esportensees and swemleing husences devotepniente even wedle we are restructuring and hundens hetense atmet strength.

Ao le reported in the fellowins peces, cetteory's inevideel tenking bumeneee enterood in nieny hupertent were during toes. The besshises condness to grew and We level et servios sentinues to Lm es does our frenentee week our utneone et eustomere ereund the weeld, stet esdy le sie bestesse delns weII en e earrant heeh, best we believe that we have levoetweente in ytesee tedey utdelt Iseure he sentinued developmes d over the nort Sve to seven years. There le Nttle deut t 3

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that the consuener business around the world will account for an increasing portion of our growth 4

and will add important strength, and peedictabillty, 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 tomt development of the business.

Our commitment to the Institutional customer has been at the cultural core of Citicorp and Ms predecessors since 1912. Today,in the highly developed economies and in an "lanovative capital market" environment our lastitutional customers have substantially changed their demands on us. This,in turn, necessitates a substantial reo ganlaation of the distribution and professional capabilities through which we serve our Institutional customers.There are many elements in this transition. We are restructut=tg our business so as to more effectively call on our customers.

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 ofilcers can maintain the high level of energy, professionalism and skillwhich has always che recterlaed Citicorp employees.

Because customers demand access to capital markets we are, through our investment banking organlaation, beiWing a global trading and distribution capability in approximately 50 markets around the world. We have over the years been major traders of foreign exchange, U.S. Government securities and short term enoney market instruments.We are adding to this capability and now are starting to trade virtually all financial instruments. In order to be effective in the caisital markets, ,

we musb.se distribute securtthes. In essence, we are restering an ohl capabilitys that of having a preeminent capability to distribute flaancial Instruments to investors in all relevsan t markets.

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The process of restructuring the leusiness, of retraining our calling ofRcers, and tsullding a trading and distribution business is complicated and will undoutetedly take years. Yet, at the end of tagg, we have made good progress. Our corporate calling structure has tesen substantially ,

aftered and this change should be comp %ted during 1937. New training programs are coming on stream. We have a trading and distribution presence in virtually every impostant money center and capital market around the world and can already see the emergence of new business  !

capabilities.180stimportantly, we have a good sense of how we will evolve and are, even today, snaking important progress in serving our customers workhwide.

following pages. While in financial terms these results reHoct high credit write offs, Results of the institutional and the impact of the business restructunne underway and the cost of building our trading and distribution teusiness, all of which represent signHicant expenses, those businesses continue to account for the bulk of your Corporation's earnings and provide a l good retum on yourequMy  !

As we mentioned last year, we are living in a global economy which continues to resect change and tensten. Our commercial write ofs, as in 1985, are high and we would expect this to be true for the next few years. We continue to feel coandent that our portfelle is strong and that the process of managing credit is etvellent. The write oWs tend to reRoot harsh business realities that impact our customers as their businesses change.

Durtng 1998, we probably lost some ground in the severelen debt attuation as certain countries ouWered dHRoultles. % the Baker initiative, whleh enHelpetes crederlented pellones, 5

structural adjustment on the part of the borrowing nations and new bank support is very enuch a reality. But there has been a tendency for borrowers to look for concessionellending, as opposed to market-ertented Snancing, as an element of their growth plane. On balance, our impression is that the borrowing countries have done quite woll in starting to thre their economies and )

Indeed are back en yowth trajectories. On the other hand, we feel that confessional lending contains within it the seeds for longer term and fundamental problems for both the borrowers and lende 2 and is causing visibk strsin within the banking system. There has been much effort to return bank lending packagea to a market related proRio, but without clear success. Me believe that in conjunction with the sther elements of the Baker Initiative, appropriately tailored lending can ptey a key role in supporting structural adjustment anc weing the debt burden itself.

In that sense, the bank lending should be structured so as to facilitate a retum to markets, so as to directly suppoet the private sector initiatives that are central to the structural adjustment within each country and, most importantly, so as to insure continued long term acs,ess to  !

additionalsupport.

tant to strengthen reserwas and the balance sheet. We maintain credit or loan less reserves I n view of the changes taking within each Sector at levels we consider to be appropelate for managing our businesses, but we are incrementing these at the corporate level.The serporate reserve is primarily necessi-tated by the changes taking pleoe in the glotal business system and the sovereign risk portfolk, IIIsk assessmentin the consumer business benetts from the smell transaction slae and high predictability of less by product and by market. As was mentioned earlier the corporate reserve stands at $1 billion today. We espect to continue to build this reserve over the immediate future.

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I During 1g84, the Company lost the services of two long-term and able Directors: Jack Hartsin and Amory Houghton, Js, and added one new Director, Frank Shrontz. Ma Hadnin retired after serving en the Board for ten years. Jack, who was Chairman of Halliburton Co., brought his great energy and sharp mind to bear on Citicorp's hus! ness to the great benefit of us all. Mr. Noughton, after following his father onto our Board in 1g68, resigned at the end of the year after having been elected to sW;; cat his Upstate New York District in the United States House of Representattwes.

l We are all proud of Amo and wish him well. Both Jack and Amo have served your Company with distinction and dedication and we will mis a them. We were fortunate to gain the services of Frank Shronta, president and ChiO of the Boeing Company, whojoined the Board in Apri'. Frank has already become one of ue 7nd we are delighted to welcome him to Citicorp.

The strength of your Company relates ut+1mately to two factors: customers and employees. The balance sheet of a financial institution simply reflects the financial health of our customers. '

Over the years, we have devi; d a strong and impressive group of customers and we continue to 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.

l alkm, confidence, energy level and Integrity of our staff. We continee to believe that the l

l 88,500 %_ m. . who work for you around the world are uniquely talented, enthusiastic and j i

l capable.They de and will ensure that your Company will continue as one of the world's great j i

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y C O N T E N T S 8s iMm M M Citicorp kwesters 2 Seewtng ourCaseemners e SeewingIndMdualCisstemers 10 ServengInstitutionalCustomers 14 intomationalFinancing 20 i

l RiskISenagesment 28 SeniorItanagernent M Financiallnfennetienindex m Citicorpin Sclef 40 Summary of FinancialResults 44  ;

I Statement ofincome Anotysts 47  !

Financial Reporting Responsibility 51 l l

hopert ofIndependent Auditors 51 I l

FinancialStatements 52 l Statementof Accounting Pe!Icles 57 Notes to PhancialStatements 50 Form 10 K Cross 4teforenceInder 74  ;

1 Cettoery and Citibank Senior tienagement et l Citieerp and Citibank Direetors SS  ;

l Seerde of Directors' Committees SS 86eekholderinformation 88 Sorvice EnseHenee Awsed SS 1

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institubons in marketplaces thrtufe.i the United States and in 91 countnes around the worid. As these financial I n the next two sections we rnarketJaces are evoMng at ar' increasng pace, we see the needs of our customers changing rapidly Oticorp is corretted to mecting these changing needs by continuing to offer innovative products and excellent serke. To supplernent the prodacts that are provided to customers from our present core business entities (which are desenbed in the next two r.ectione. we took an important step towards our goal ef demlopng a range of signifcant hjormation based products. 'n June, we acquired Ouctrort one of the workislargest suppliers of on line, real tme financial information services. We are confdent that Ouotron and our other information t'ased businesses will play an increasingly important role in meeting the future needs of our customers i

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the Distnct of Columba, Nevada, and Utah. Over the next four continued dedcation to mec rig the */cadest range years, the bamurs Irnetrig our bankng busness will drop in T he indrvdual Bank is entenng its sec uf consumers' friancial nee;is arcurd the world.

Signihcantly the indtvdual Mnk is larger today than Otacorp was at the sime of the onginal commitment 11 more states Allof this augurs well b buddng new relationships and deepening eaustng ones Already we serw 175 milton households j

to deelopng this busness in 1968. reported Sector earnings n tne United States and another 6.7 milton oerseas. In the U S. j were more than the net income d ati but two Uruted States based we continue to be the largest rssuer of bank credrt cards, the targest banks ri ther ernety We now du busness r141 countres pnvate lender for student loans ($17 bliert ard tte largest i

aroundlle wortr" ongnator ($13 blion) ard servicer ($36 blion) d mortgages l Whilo our efforts are sometimes hmited by regulatory restra:nt s

' Size counts, but not as much as quality We take pode in being v1 the United Starca and the 40 other countres r) whch we operate, the largest in these categones and others HoAewt; our goal is to we ha/c made great strdes. vi the years ahead we wl; ca itinue to oe viewod by our customers as frst ri prtmding quality of servce push br powers that will allow us to meet consumers' total financial and value, for these will be the ulbmate reasons consumcrs d)oose servce needs, whether in banking ovestment, or trsurance OtcorpCitibank servces The market, ri fact be6ongs to our servces.

customers, and we must eam ther vespect and business each day l Our results at the end of 1986 contrasted sharpty with those in order lo ensure that our customers reCerwe quality servce earter ri our dewtopment Our frst years resulted vi net losses as  !

ewrywhere. we have been dewtopng a more spergiste approach I we strWe to estthsh oursehes; n 1986 we earned $462 milhoo across all our efforts in addebon to creating a common dentity rec.

From 1985 to 1986 alone our eamngs ricreased by 41% in .976, ognizable to our customers, a synergiste approach gives us our trst tuli yeat; our assets were $44 biton and our customer net econome effoeroes, particularly v1 research and marketing, revenue was $583 rallion. n 1986 we had $71 bilon o average and dramatcatty enhances our abbty to quckly offer aopeakng assets and generated $56 blion si customer net reenue vinovatre servces to our customers in .,despread Our performance is sold as we enter our secord decade but geographcmarkets we are still young with great potential ahead of us We beiese we l domestically where our bus nesses have developeo  !

am weit positiuned lor steady grow th into the 1990s and beyond rapdly our brarkhbased busnesses hese We have averagud eamrngs nereases of atmost $100 rnthon cigrufcant headway ri capitakzrig on servces cich year since wo became profitable n 1982 And our revenue oeveloped frst for our most mature market r) rioruitun the backbone of our earnngs strengtti remains )

New Wrk and adaphng tnert to newer markets such subs:antal with 1986 customer nel resenue up 35%, or $15 tWre as Antona and thros These ricludo our unique 24 hour2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> mor t%5 tevets Over the last frve years, our revenue has grown e4ectronc banking centers and p'oducts txb as OtdOne. a pack-at acon'poundcdrateof 30%

i aged accourt of checking, sesngs treatment and credit ser.

I Soi ne n the consumer friancial servces bussress telee I vices, the Landmark Famdy of Mutual Funds and the Equity Source the mar 6at is saturated. that cach player has carved out a noche Account, a rwolvng home equet, loan. As our overseas branch that orty cari grow n imted mu iis A iaeve tre opposite distnbuton deve4 ops further, the most appropnate of these ..ame and despite our substantial progress to date sN! have rotatively l servces wd be adaptable to localmarkets. Solarty we are nog i sman shares tram whd.to grow furthe servees developed for locat merseas markets-swh a S Otti . is, Comnng tnn ta nadth of the markut n oath services and {

,1 muitoroduct rnoney management account frst otlerod in Hor.

customors asows o a grn*th to be irtwted only by our anaginator: Ntig-and,whereapp:opriateandpermestableundef currente i and segulators ato twr so slowty are yoidng to the reakty of ut,)tions, adaptng them to both r11ematenal and US markets i a global consumnt trurmt marketplace Consumers wd settio TNs actmty cc@Tants and supporis our besc domeste i or nothng loss in tro OS alnro ri 198G wo a' . ied our doors straMgy, whch is developog slung two related paths the expan.  !

br tuit sorvco har arv; vi tw new markets -Marytand. An/ona. son *;t indudual products whdi can be oflived naton4lty uth

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or witnout a bankrig presence, such as mortgages and credit cards. I and tha selecttw establishment of branches .n key marWs to act l L

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1 es te deMry macher em lor a IL.A empy rf fnenoel serwees, Proddhg morigeges to consumus actoes he US. has been an nching beng te loca! reertece for proc 1Jcts dweioped as stegral part of our enrelegy tvoughout the htM1Jef Bert's l neuonalonennga esonence. Todor we are a mehr tector in tw nemonnade mortgeos j Wth the M new lui berting markats opened a 1986, we hem buences, ongnseng some 80 bition h tue past yest twough 4 a broad phyncal bankhg pesence b nne statas and the Detzt d our bankng and asy.w. linenang branches This year we put CetJmbe. We wS/d our anrounced acqueoon of Gmet rto piecs a mom tocused orgenszemon to possion tes bushece Westem Bank & lust n Anzcna, gung us a 36tranch pesence n for motor growth in both onginellene and eennorg as was as the the semnd testest gemeng sale n the courtry In ack$ bon, we t'armhery to access the somndary markets, 5 opened Behank Mar) tend and accgired Nabonal Permanent, a The delberale branch erpenson and he nellonel Ewy Q6 j 14 trench thnft n the Detnct of CotJmtne-lhe two combned Quences, combned wPh our cortnued almrgh h the card '

proede a unque presence n the much tougN after Washngton- merket, gNe us a tormdatie omra8 domeetc pmeence, resulthg Bedtmos comdoc Whie lederallegaistors have not acted to n reishonehps we one out of 8vm households nationalN which moogrtre he rechty of a nemonal merkelpiece, etole whontes nerentes to one out of thee in the tenlargest metropostan cortnue et en acenterated pace to see t.a benetts. With an eye markets The penetraton contnves to grow at a heethy rate kwards drtanong our ponhan n esseng marksts arexpandng of about 15%peryeet irto new ones, we congnue to eweluste opportunees on a state.

tystesebens.

Our most melurs branch system, New bk, conhnued to gen merket duwe end W moord praets whu:h had mehmal vrpact un our eneres yo uss Steeor poryosm managng our artphal eyes esangs and loans n Cablorrus, Ront'a. and # os was seAnched h alguncert impwoments n both eamngs and merliet>

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y product initiatus, returns in the overall intemational busnesses several) ears, continued to be a mapr contnbutor in remaned in excess of the corporate standards.

O ur card busness, whch has paced 1906. Although the growth slowed somewhat, wa rnade strong market share garis, saw increases r) purchase sates and receivables, and made adjust-Whde not as substantal as our domeste presence, we continue to emphasize dedvient of a strong competitive presence in each of our 40 countnes. We are well. positioned a Europe /Mickfle ments that wdl @Aru), on.r time, improw the qualrty of the East and South Amenca wth busnesse:in most mator countnes, Otal portbic Strategcaly we repostboned our prefened bank however, our presence is not yet as broadly based as we thok is credit cards to more clearty target those afstomers wth hgher needed ri Asia /Pacfc, pnmanly because of speofc countnes' spendng lewis. Oners Oub contoued to rnprow its postion regulatory bis ses against foregn-owned banks, although we are aganst the busness trawlers. At the same trne, Dners reevaluated quite prohtable there tock We are targehng regulatory effort 3 m the long-term benefit of Sicytature Magazine in Ight of the regola, countnes we deem crtcal to our succes3 at the same time we tory limrtators we faced ri its future development and sold d to pursue business evenues open to us, an estabhshed pubbshng concern whch rs not encumbered by Our cNefsoas potental is partcdarty hed to buiding market such regulabons share in key locaktaes. In most we have a retattety stiell share-We rounded out the rifrastructure to support our card business much as we had in New 'vbrk ten years ogo-but we are quite well.

wth a ttvd processng certer in Hagerstown, Marytand. The others postoned in such dr,ersemarkets as Puerto Rca Brazd,

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are o Soux Falls, South Dakota and The Lakes, Nevada This Argentna. Spari,ltay Germany Belgium, and Hong Kcncy completed a rianned consoldabon of all card operatens nto three The frd full yea' of the strategc integraten of Crtcorp's wortl.

Cp pinc locatons, resulting in rnportant modernizaten and wde hgh net worth bankng actrvrbes rto the indtvdual Bar *, saw streaminng of operatens and serv <e for all cards and prtWded notable Drugress as we estabirshed a common dertdy throughout  ;

sgnilcant local employment for each bcation-a total of nearty our markets VW tiso began to reduce operatonal o.ertaps, whch  !

3.100;obs to date wil result r) sgnifnant efhoency rnprowenerts whle we still main.

l ATM access for our customers grew through the nstattaton of tained a hgh newl of customer service. Our unas o New 'itA l propretary termnals in key new markets such as liinos and Zunc'i, and Memi, whch control the bulk of our assets under Cahtomia and additional agreemerts to share with certan ATM managemert,5twytW6d ther coordnabon to bnng the full bree networks Today we betese we have the ta gest such access of our expertrse to bear on customers' rNestment needs. Owrall, lor customers of any francalinsttution n tre country We opeate we showed encouragng momentum ri growng the existir g our own systems in egN states wan nearty 1000 machnes txasness and expandrg our product loes. n such areas as asset ard partopate r) 11 shared networks wth a total of 19.000 ANs. managemert a n 1 the packagng cl muniple servees, to prwde Overseas access to our services tNougn ATMs also is growng a fuller range of servees to our varcus customer grcxtps.

wth 186 propnetary machines r) G. countnes and another Although the year's overalt perbrmance was robust, we had 3,300 ATMs through seven maior shared systems some disappordng ciscit pressures ria spotty eNer sluQgtsh, rsematonalty we slowed our acquston pace d the tast economy Our ban lossc s contnued to tree. both as a resutt of sewral years to emphasee the rapd assmtaton of those overa!I loan gmwth ard a shif t to rnore credd card receivables, busnesses Howevet we dd undertake a few rnportant whch have an hrs!oncalty hgher credit loss axpenence especelty i strategentiattves,includogacoustioris08 additonal Wrng accourts' eeny years As accounts mature o the branchL1 o ArDentiria to cun ATsit our existng network portlolect credd losses fall anyec.abty We vow thes as a necessary and Ek trsh Natonal Lilo Assurr nce, whch troedered our cost of buildog and rnanntanng a nealthy card busness over the rieurance actmty in the Unded Kingdom and can be used to long term and consder these losses well under control, although help our expannon of risurance see v ces ri other loregn countres, losses from banknaptces continue to be a concem The uneven and estabhahmont of a bank baw1 on new regulator y powers economy parteuerty aflected spaceli20d areas of our mobde r) Austraba Despde theso rivostmonts and wdo rangng new home business whose actMty is concentrated in sections of the l Countty e*Defencng a diffcult roccwry Our intemetonal pertor-mance on thes dimenson was more Steady For aWest all of our businesset as veil as the IndMdual Bank as a whole, our rewnue growth h4s ou' paced deirvery expenses, i

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k whch ricreased 26% to $34 blion. Tnts increase supported the demands for more sophisticated and all encompassing firms cal expanson of our base businesses, as wc!! as investments o new servces. Our contnbuton to the Corporaton is sgnifcant today marketog or infrastructure actMtes arned at ernproving our com. We have a proven track record of substantial prohts in the New York petitrve positon frorn both geographic and product perspec- branch system and bankcards Each year that goal becomes rnore trves, not only today but, pnmanly through longer term initiatrues sttainade for otner enitiatrves, including the domeste na:sonal rnor t.

housed ri our Dewtopment DMson, wellirdo the future Despite gage busness, current oermissble insurance actMtes, the S&Ls.

these twestments and because of our earnings momentum we our glooal actMhes for high net wor th endtvduals, and our actMtes were able to inc. ease our R')E to 162%, in the process exceeding overseas. Over the next fre years we beleve each of these will l our 20% target i,1 such diverse busnesses as our international have earnings comparable to those of the New 'crk bersches and consurner actMty pnvate bankinq cards, mortgage banking. and bankcards today significantly increasng our overall cantnbutort the Newibrk branch system. To ensure we reach that levet and beyond. we nave the dedca-Puttog all thesc developments in perspect:ye. ve are extremefy tion. talent, and vilahty of some 65.000 people aroui 4 the worid.

optimeste about the ostent position of the Indrsdual Bank. Al A decade ago the Corporaton and its sharehobers gavs us a though our growth has tnen meteonc snce we became prohtabe a mandate to buikt a world chss consumer busness We have tour years ago. we belee our maror potential continues to le met the nnginalgoal but we have new tiort ons to attan We haw ahead Today's efforts ri permrssble bustiesses are laying a loun. tne stratege direct nrt the mornentum. the resources, the daton for tomorrow's nitiatives en insurance, r' vestment, informa- peo" .a and, atxwe all, the commitrnent to build the preeminent ton. and sbit urcharted areas that wel develop out of consumers' conwrner financal servces orgarnaton in the world EARNINGS AVERAGE EAR ANCE SHEET sees r9sy vm .. ..,,.....a.,

occansaan toes

• Customer Net Revenue $3,438 $4.180 $1.458 35 Assets E noenses og Leans $150 Credit Cycle E < pense 1,474 1.000 476 48 shelter Loans 33 6 Dehvery E xper'se 3,392 2.692 700 26 Tutal Expenses $4,468 nh$

$3.692 $1.176 32 Other Assels 11.5 l Other income (Expense) 73 98 (26) (27) gao 3 income Before Taxes $42 586 256 44 gig, l natneccess 4 443 $ 327 $ 135 4i Transacton Act.ot itDeposits*. $10 2

' Average Assets ($ Bitions) 71 56 15 27 Savings Deponts 52 2 Return on Assets N .45 59 06 . Other(include 1 Alkx:stedEquity) 17 9 Return on Equity N 14.2 14 7 15 -

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The sector por tormance summary presents indr. dual Bar *i x; excess of wnte offs. fraudim.ses. ard the expense associated result s in a larmat ussg terms closnty mtated in tho lndivduai nith crod4 3ppraisal and tne process of collecting past due or Bankrig busint'ss Cirstorner net revenue ontraces all net writton oft accounts Dettvery expense inchdes allnon credit revenue pnmanly garcrated though customor rotationshgrs related costs of deliverog our prodWth and servaces to the Credn cycits expnnse r gigios crndi1 writo offs. the por tg u t of t:onsirnnt Other incomo expense)prirt anlfincludes intorest the provtsson for posstdo enxht losses ailocated to tho snctor ai costs of cartywy non custor')er assets. gains ori sales of nun customer atsets, aflihato earnings, and earnogs ori a!nucatnd eqtaty 13 l

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.W They went r' voel>w rwesenert benlang ser*ms l I complex fnencialm@ that dieracione Change a a tome that CRcorp uses to 00emnbete feen in the marketpleos by demiopng hnmetNo Anancel SohAons reiher tien empty artagang old rnethods to new problems.

M meet their boromtrG kNWig and hedgng needs in aCfoserigly @obel Snendel frurkett These is no mason b expect the pace d change to abelt Tec.W end the g%el Scw l

m wem among to frst to sepond b the needs d the o rWomer of strmaton wf continue e make markets mom mand j and go bepnd tracitonal berJung actydbes d depoen talung and asete new opportunty r M econorruc wishity we contnue matung bene, BA nws has change bem to deep and exknew to emete the needtar newproduckt se in tie rest the pe1B, not has .t seestorated mom rapdy then n (Acorp is in a almng alreleQC poolhon to CatlJfy theet new 19861bdeg customers demand a boed arrey d sorwcas to meet customer demands. Wortang cioesly togethat the betNuhonal twir test changng needs. They wert sseet rW and Bank wth is lovetandrig veletonttips wsth corporatona, nos posces, enenaal paranmes, asset beeed nnance, roes rnanoni nemutons and gmerrnents, ena the Irwominert Bank, celete Anenerg Ananong forrestructunrg and electmncaty a maior pertcpent n tie wortds captel merkets, am meeng the chenange d posang *W peducle to an enemely broad  ;

cuenomer bene thmughout the wcyti Choorp4 nahtutonal customes runge imm estatsehed musunkrete e ne* cueneenas, imm derts wth ierge Anandng recper9ents to twestors lookng br porttote opportuntos, krn termyhee prwee compenes e M

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.' l maior gwemmert etterpriset They are b be laund h almost bertog we conhnued to sapend our (pobel captal merhets j mery menulactunng and servos indusery and they are s@perted pesonot We steamined some tecAlonel ines d bushees that I

.byourdhoes ri32courtnes '

am lees h demand todeg particuatty h he mom dmeloped h 1966, our ammngs from podng peducts to ots inettutunal mew AddthoneBg a nornbar d unprotable products were

customers, ann tem the captal merWs actdies met suppcst I

deconthued The hattuhonal Bert4 stellimel was ra$1ood merrt wee $572 trnon, an increase d $48 mdl% or OE cuer the ISA a deemese d trere then 3,400 peopia and expenses ao peacus per a b;,e aemings opmeentoOJet mer two thirds o. limited to a 2% inomeas mer 1995 h meet growing demand Otoorp4 total asw samrgt Earnngs imm bxt honalcorporate i br he newer capital marlists.ortanted prodsets, we inesessed our bordung pod.ots were tp over hist year ehor absorbing the s'.aff and sapended our leottles h the Irnestment Berk.

oordinued tyh lent d wete oss, Ingeetmart ben 6ang podt. cts More and more d Ote'Jros peduda are cudom tadored detvesed 4 heesumanal aJetomers sustaned stang eamngs ac4Alone to me ahen complex problems encountered ty our gostudde the eirnngs wm capaal martets and olhar customers b tode/s martel#nce Genere#g they meet bee beme ,

lnualdrPort bar*ang eckv4as decined, seAeding lower tndng customer aquesTierts to rues maneg to thest it, and to pMed I ames'indupd egenes garts agenet nek. Many d our peducts-tuct) es foregn enchange Nid demands lor nesthe econome solutons mede Anaccelwoonnourrwannaicue Ilf06 a par of egndeant change for the Oncorp buoneeste that eene thorn Wlhn inemutonei p banlung we edacted remotscos to meet a readly aqar dry demard lor sinoweshe peduas and a shhniung e id tir he more ocnertonal pedics, whde ri rnestment

_' 15

WN interest rate ophons, floor and ceiling rate agreements and other A key element in successfully prmdang products to custorners hedging toois-are rrmatons of the 1980s, in tact, we have been is the global network of expenenced instituacnal Relatonshp a leader in innovahon; A was Otacorp who developed the rderest custorr' specalists who work closeiy with inwstmc/ Bank prod-rate swap and Eurocommercal paper. We also stepped up our uct spe alists and haw partiopated joint!y in an exte .we achty n the corporate restnactunng areas, and in 1986 we par. product-trainng program to keep themseNes at the cuttog edge hop 3ted in odr 15 of the larger fnancogs cmenng more than of finanoaltedirology

$20 bilhori Such nnovahon has successfully met both customer The demands of Otcorp's customers are as dtverse as the needs and Otcorp's busness expanson ob tectives geographic regens they ccMK but een so trends can be per-cervec. To benefd from the cunent trend c 'he Unded States we will fnancalguarartee, and trade products, a thnving set continue dewloping our capacty to ongnate and structure asset-Citcorp conhnues to offer strong ass of cash management and transacton-processng actMbes; and a groMng group of speoalized financo products We have redirected personnel resources based finanongs as well as expanding the broad range of invest-ment bankog products we offer in 1986, Ctcorp emerged as a clear leader in provdng transacton based services desgned to and spending to further our CSDability of Correctly valuing cus- satisf y the cash management and secunhes-processing needs tomer assets and to st ucture and control frunang aganst of finanoal institutions and corporate customem, and this sold those assets These c6pabildes are the heari of our very success- growth wdl contnus in 1967 We also expect to remain a leader in lui asset basec tendng and real estate fnanong businesses and the U.S Treasury and muncaal secunty markets. Our insurance key to attractog more and rnore of the large corporate restructunng subsdiary AMBAC is a leader in the financal guarantees a'ena.

deals that are domnabng the francal seraces market. Our rrore AMBAC made a strong contnbuten to earnings n 1986, and Conventunal lendog actMtes, wt%tt were Certainly less n we expOC1 that to Conbnue, demand, remained quite prohtacie n 1986, even af ter absort>ng n Japan many European countnes. Austraha, and other j

$398 makonin creditlocces. Organi2ation for Econome Cooperston and Development We provce a fuhange of investment bankng products. includ- (CECD) natons, we see trends dewlopng smdar to those ing debt and oquit y products, foreign exchange. adviv.fy actvtes in the United States in most of these countnes, wo lead the suoi as merger ard acquiston services. and penson fund man- market in foreign exchange ard interest rate nsk manage-agement in tne area of nsk protecton products. Otcorp's poston ment products, and engoy strong relat.onshcs with many large is unparaitelec'-we have oeveloped many of today's rate and nsk multi natonal companes whom we frequentty assist in finanong mar agement touls transactions best desenbed as targe, g6obat and complex. We i tsis0 have rapdty growing transacton processing and seCuntes-procesong busancsss, particularly in the UK. and Japan. As in the Umted States. Our custoniers are developng a need for asset dnven fnanong servces. It is not surpnsing our respunw.

has been to extend our market prcNen, asset based lenong 16

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and real estate inanong expertse to these countres in the form of l be smaller in s2e and less complex in nature than in the OECD I people and prodt. cts, countres or the major debtor nations in oNed ri resdedulng i G#ven the s2e d these countres' economes the sophistx.ation But however different tte marketplaces and our approaches to d ther capital rnarkets, and the fast pace at which they are {

them, one element remains constant thr xsghout the globe, and {

deregulating-diaracterued by the well-pubhcued changes in th61 ts the quality of the people scrving cur customers, indeed. the i places hke the U.K., Canada, and Japan-we are able to provde decsive element in this whole eouation is, as it has always teen, our customers r) these courbies with the broadest range of twest. peop6e. In the rapdty eding fnancal marketplaces wrere rnent banking products. This contrasts uth the United States mar. customer requirements are changing at a n unprecedented speed.

1 ketplace where the Glass Steagalt Act prevents us from competng we need to attract, tra n, motrvate and retain the Wry best talent l fi.dly by barrng us from underwntrg corporate cet) and equity not just to keep pace but to excet This is an increasingly complex j commercalpaper, pnvate mortgage backed secu:ites and most and sophisticated regurement of our busness, and ve view it I munional revenue bonds. Whae in 1985 this excluded us from as our number one prionty l

underwntrig ri only about 4% of the USL secunties market, we still The deirvery d our vast arrey of product s to customors in many {

belew that loday's fcancal marke' place and cus'omer needs markets around the world requaes strong oistnbution-a broad demand a esmantting of the ha!! century old Glasosteagall Act investor base, Building this base remains tt c key element en ,

Catcorp s irwes! ment banking strategy it prcedes the plaang tunng process present probems unlike those in the (

power essential for effectrve orgnation as well as depth arid T te developng countnes invoNed c th United States or the c'her mator financial markets.

We cortriue to expand our bcal 'urrency business and hwe deve6oped several new , vestment banking Iqudity essential to trading actrvity in 1986, w distnbuted more that) $43 tnilion irl securtles to inves! Ors thrcughout the worict We mit contnue to emphasee distnbution, s.eng to rnon:Ne our products such as debt /eauit y swaps to assist our custorners in irwestor marketing etforts-targetng our customers. dentif ying these countnes, while simultaneously helpng the countnes Ic y ther needs, and winning ther bosness.

ther totaldebts Our rnmedete locusis to work wth these n the future, we expect an nereasog stare d earnogs countnes to helo bnng them back to the markets As mentioned ull come from equity products. We alniady have weit. i in the charmatis letlet we have been supporting 'he Mer Initiatrve established ard higNy stucessful ventu,e captal td l sth new tundog as requrmi and uth a locus on rnotrvating corporate recaptah2ation busnesses. With corporations '

structural changes hkety to tachtate a retum to markets and greater undergoing signifcant restructunng, part cularly in the suppor1 of pnvate sector ntiatrves. Tlere are no easy snort term United Ststes and cereasngly o Europe. profittb'e awestment solutiore lor borrowers or lenders, but the Baker Initiattve cunentty oppertunites created by corporate mergers and divestitures allers the rnost promrse lor longer term. lasting tnptnvertent in wi4 contoue to grow treeconomicsof thesecountres The global equites market presen'.m one of the newest and rnost With respect to the remanng countres where Otacorp has an signifcant opportunities lor Oticorp The aggrcQa'e captalliation active presence, we ull conhnue along our path which has prown to be successful. ollanng a full range of local currency products and servces that are unquety structuied to moet the dverse mqupemonts of our customers Gonerah these transactions wil 17

1 I

l l

d egates on the worirfs stock exdwnges is roughly $4 tnihon. and new markets. Tradrg, howwer, and partcutarty secunbes ,

About had d that laps outsde the US , w:th one quarter n tradng, can be volatile, resultog in szeade swngs in revenue. The European rnarkets and one quarter n Aman markets. downsde of tnis volathty!s reflected n the 1986 secuntes Oar the tast two years we hee assembied the structure and tradng revenues n Europe and North Amenca marshal:ed the resources ler a mator stratego thrust in the g obal Obcorp conunues to be the words targest foreign exchange equites markets. We have cested some $100 rallion n the dealer, with an estrnated market share o excess d 5% Uke many I accpston of vanous brokerage companes around the woru We other areas of investment bankog, the foreign exchange market

ham estabirshed other secuntes frms de novo, neluding is now beng trai4bu ed by inreaton, w th customers makng Needge Secuntes, a member of the New trk Stock Exchange. use of foregn exchange octons and complex currency swaps.

Otcorp has been a leader in these products and will remain in j pnnapal capital markets. Otcorp is now postorv,4 the forefront i A s a member of 19 stock excnanges as a strong partopant in bcAh domestc equity markets and the nereasngly rnportant intema-tonal markets This past year we reorgarved the Lookng back on 1986 we ha.t: s sen our customurs' needs changing rnore rapdly than evet and we have responded accordingly We have made and shall contnue to make appropnate equites busness, creattg a sngle gbbat urut to take fuil achantage awestments o the busnesses that serve our Ostitutional of Cross border opportunities. This new orgarvation will, among customers. This irwestmerit has geven us a range of products and otner things, focus nn large institutional erMrsto.s seeking to geographc breadth that n unsurpassed. While we are mos' dversf y intomatonalty We atso deve60ced a gbbal secuntes mindfulof the Wilatility of te worid's economy we beleve we has e dearog t'usiness knb rg such leading f nancial centers as thw i

a structure that willlead to substantal retums in tho ) ears ahdao. l l Wrk. London, and Tokyo With that structure frmly in place, we am contdent that the out  !

! Earnirgs from our investment maragement busness also stanckng people of the Ctcorp institutenal and irwestment j coritinued to grow n 1986,largely as a result of strong perbrmarce Banks will sere customors and shareholders alike with w i of soccahied product areas and expanson intematonalry ocreasng success. l Otcorp investment FAanagement riow has of'ces in London  !

i h inq Kcnct Tokyo and Sydrug ar, well as New trk. San Franosco.

Huushn and Chicago

)

Trao.ng of both breign exchange and secuntes is a most ernpor tant element in our revenues and earnings and the tradng I capertrso provded the base tra e panson nto new products i

18

samannanna 90V8fnments in the US and for many soveri gn governments Otcorp assists corporahons and financialinstdutions in rassmg wuo.sor txu os '

tees r9e5*-- -VAR- '-

% short term funds throuch note issuance facdites. commercial TotalRevenue $4,000 $4,094 $406 l0 pape( and irderbank money market instruments. We also arrange Prwsson for Possible long. term financng through pnvate placements, mortgage- I backed secunhee, and bonds issued outsue the US Citcorp also )

Credd Losses . 423 388 35 9 may take positions w then pre approwd limits rtst result in a  ;

OperatogExpenses 2,484 2,283 381 17 rnsmatch dinterest rate matunbes. j income Belore Taxes 1,413 1'423 (10) (1) Specaue#manceisthe game term j sesy_eescoass - $ 873 $ 824 $ 48 6 ~ lor our non-traddsonallending for exampe, Asset Based Leqding, Cerporate Asset Funding and Equipment Fmance. Actutes include i Auerage Assets ($ Bilhons) til 105 6 ts the wholesale puchase of all or part of a company's portioho of Retumon Assets (%) .78 .79 (01) - fmancial assets; equipment 4 elated secured lending, and lease Returnon Equdy(%) . 19 7 ophons to end users. leveraged leasog, tax teasing, and vendor 19.5 _ ( 2) -

fmance to assst the manufacturers or seiners of capital equipment ro ess.mm.*'a9ewane=a9=s uguidity M r. Financial Guerantees, and Asset Intennedletten. Included m thrF category are fees AVERMbE BALAf0CE SHEET generated on in'in comrntments outstanding eamings from 4..m n o % s ..

guaranteeing performance by another party; and income from esosasses tesea ascet intermediation actshes such as asset saks bro 6erog.

Assets and dwect placements.

Mabinties Loans &I ease t 5 604 Interest Beanng Equity Products. For new and emergog busnesses. Otcorp Deposts atInterest wth has established wnture capital companes in the US., Canada. the Deposts .* 28 3 U.K., France, Germany and Australia We haw stock brokeragc Banks 13 7 Non-Interest Beanng busnesses in Japan, Hong Kong, Singapore, the UK., and Austra.

Inwstment Secuntes 86 Deposts' 23 0 ha. Ow bmkwage subsdiary Newbndge Secuntes is a membe Trading Assets 68 Mer Bonomed Money frm of the New Yark Stock Exchan 29 0 Acceptances . 53 Acceptances 54 meste brokerage irm, specqge. in institutionalLynch, Jones & Rys research products.

Other Adyteseg trade,T, ; 7 r pre ,essing, and 15 9 Other* 25 0 Othes Otcorp is a leadog manager in the US of penson funds

$1107 $110 7 tor corporahons, state and iocal govemments, and non pedit organi-iMwe g r.n.v. e u w orver. ore.e t'inums shree*f es ry s. 9 SN SCQus. ton spedaWs te 6 CouNs to assist Compensesin fre buyefs or sellers, and A structurmg these coinplex transactions. includes direct financing of PRODUCTS OSUVERED 70 GIISTITUT9000AL trade related transachons; countertrade and transachon process-IRO_ .. ang such as documentary cotiections Also included .n this I Gere Landin5. Net income n this product famdy reflects our _ category are Cash Management and eamings 07 allocated equity l more tradihonahereng actutes, tot examolu, workog capital l loats long term fnarsong and syndcated tendog to corporations. pggt 3g000088 SY PRODUCT nments and finanoaf noldubons.

i Eschenge and fledging. Cdcorp es the world s m . e m i. e. i largest loregn exchange dealer We obtain cunency for our toes i Coeetendog customers whose busness, rwestment or fund raisng actstes Foregn Exchange and Hedging

$184 )

reach beyond national boundare s We also help customers (73 .l hodge ther currency and interest rate eup;sure through a venet y Debt ProcJcts/ Money Market Servces of risk management products such as interest rate and toregn t04 j Spechhzed Fr.ance enchange swaps, futues, forwards and ophons Cdrorp may also 20  :

Liquiddy insurance, Franosi Guarantees & Asset take postons wthe pre approed gudehnus n escoahon ofchan  % 3on g Seht.ges ocunency marketa. f_TC_6 Merliet Servlete.Cdcorp EquiyProducts rs 44 one of the lop three dealers in US Governmert securlies, whch Mvisory Trade. Transacton Prccessing & Other sepresents the largest arid most hquai debt market en the world 43 We also urderweno, trude, and destnbote secuntes tot muncipal g g i

e i 19

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.I N T E R N A T l O N A L F N A N C l 1 N G I

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experwitures and conected cuer vabed exctiange rates. Th ne adernahonal debt stuatort There were some set- rr easures had some success, and in 1984 the trace balance in  !'

T he year 1996 brougtt imptrtant chan backs, but there a>so was progress, partnAarty loward unplemenhng the Baker Irvbatre, This cyowth onerded approach, outlined by US Labn Amenca rnprMd by $32 bilon cuer 1982's balanca Forcountnes that made progress r1 these short term adpstmerts, the bcus shstted toward multi-year restructunng agreements Treasury Secretary James A. Baker til r1 Octot er 1985, offers a (MYRA4 wt'ich coer at least three years of matunties of the path out of the problem for countnes wiling to adcpt free market enuntnes' commercal bank debt. In this second phase, these solubans. Ms irvaatrve is based on the sur. cess of such sexuines agreements postpone poncipal repayments to later years, when as South Korea, Tafwen, and Hong Kong whch have continued they can be more easily managed by larget grovMng national  !

1her econome grow th and aroded the debt problerrt ecxuv es Four rnore countnes egned MYRAs rt 1986, rweasng {

Generalty countnes caught in the debt protsem had budt highly the totalto severt '

rufoent, gc.ctnment comnated economies based on rnport Howeet satisfactory growth had not retumed by 1985 si .cstdutcri These courtnes' higtty effcerd production of vanous Secetary Baker and others, incit *g mar / develop ng country ,

agncultural, energy and meneral commodttes diset these gcwna erus, recogneed that stiort-term adpstment was vh Howevet tt e rapd drop rt wcdd innten rates {

nsufficent and that the ccraralet4 and anefhcent econome  !

t=w. mgin 1980Icalleddrsrillauon)causedcommoditypnces systems of the debtor countnes eded more furdamerital to tall sharply As a result, the efhoent soctors could no longer adystments to respond to tee new Csinflabonary era.

support the costs of the rieffoent sectors. l The thrd phase, ore ci structural adpstroent, addresses tre That is the background that led to the intematonal debt problem, need for countnes 4 resume growth through ecmnc rebrms which began r1 August 1982.

that encourage i.vvestment and intemal savngs, reduce Durrig the frst phase J the problem, the rnmed. ate task tur goernment entervenbon, and emphasce greater competiton an commercal banks was to address the countnes' short term the privie sectoc Ths approach is stratar to those being taken balance of payments problems and provde new money where by cartari ndustnaleed countnes 4

needed. The countres themsares began ',o 6ddress some  !

Last surun n Mexco became the frst of the trouded debtor of theexcessesof theprevrusera Manyreducedgovernment countrra b negobate a Baker insbebve package Under the l

agreemerd, govemments, untematonal frianoal agenoes, and commeraal banks mit maka funds e 1plable to support the country's structural adpstment. The World Bank wil play a far l more rrwW4 role here than r) any package to date.

For ds part, the Govemment of Mexco has committed to persue structural adp0tment poices that to date have included the closing or pnvatuaton of some reffoent stats owned companes.

It has also been ricreasng govemment evenues and has joried the General Agreement on Tanffs and Tradst All commernal tr.nk drawdowns under the cunent package are condiboned upon speofc actions to be taken by Mexco and confrrred by the intema'onal Monetary Fund (IMF) and World Bank.

20

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Menco also het been martanng a reahste excharry! rate We bee descnbed some of the countnes' tst steps toward i

at pos:ne real domeste i derest rates. whch has reversed structural adpstment. W we recogree that this process takes (

capAal lbght and n 1986 gee a prwste captal ollows d more than trne and, initialh hurts those who hee an interest in the existing

$15tdhon, l structtaa Non econome presstses occasionally sumort l Later n 1986, the second and third Baker htiatre packages neffnent ndustnes and gowmment programs that do not make were negctaded wth Ngeis and Morocco Each of the three sensc br the longer term health d a courtry pedugasis geared to the ndMdualcharactenstcs of the Trnre always is reestarca to changa Thtnetom it is not I

counery's ceonomy surpnsng that these f:rst steps towstd structural adystment em mwt Last October. Uruguey became the frst restructunng country

)

s reachort Some are callr ig for rtn market easy" sdubons n J to s gn a wiuntary loan wth commermi banks, a $45 mmon co- order to eod the short-term dactAes d adpstment inanong wth tre Wbrd Benk. Ecuador 'Jnowed eth a These proposals, some of whgtmrxjd force argruficant losses ,

$220 rnehon od. export facMy on cst =isc4 banks, are n our vr w imprecocal and courter j in ?"196, tt(re was turther progress en debt equity exchanges prockctrst if riipsemented, banks would not be LLcvis q wth '

whch anon a r ounity to reduce As extemal debt bv conver tog the fresh capital these demsopng courtries reed as they corte3 rio equit t iChde appromd ri excess or $1 tillon n resume growth indeed, such appru66=5 would reduce the creier.uons, and Merco approsed $800 rruttori neertives tor countnes to make the necessary structural ecorome s n the past, these were setbacks as well as relorms to gn:w ther way out et the probiern achrances AlthoughBraNsprogressearierr the As me move ahead the usual Ev&RE renen, rdudng A boorrang economy later contnbute year allowed a to sgn a two year $31 tWlon commeroot bank refnancng package n ,kdy a the threat d protectionism, the need for conhnued grtwth an the demiooed world and the dwecton d rierest ra'..rs, oil pnces, commodity pnces, and exchange rates.

l l

gence d rifiahort in response. the Goi ernment allowed rnports to The key questun s whether the dewicpng countnes hem the  !

nse and exports to drop causng a shnnkrig of the recott,! and poistcal wil to conta us to take the step 6 needed Ior stable growth near ecad trade surpluses that Braal has enoyed in recent nears The eviderce to date is, by andlarga that they (b We beheve that <

On the olher hand, Argentna, the thrd tbtgest Latri Amoncan other cou ines wel on Mexcci Ngena, and Morocco ri threr rutal debsor country af ter Mexco and Brsh, has reduced oftaton from steps wth Baker inr'intrve agrectrents Coqbnued proposs, an annuaued rate of 1.00CTA rikne 1985 to 80% in 1986 it has homMK *dt reques the same hard work and rtomatonal cut is pubic sector dahat 1o 3% d gros- domeste procket from coopyranon actnever,I anong all partes ri tecent yeent 63% r1198h arxi res med rywth, at 55% n 19% sad has artweved a net capitat eMow l

brisy al! the mapor <jetter countres are cunent on pubhc seLiar s eemst paymorts to nommerral banks Overall, growth s returrung Thelhted Nat ins estrnstns that growth r1 Latri Amer- l ca reachnd 34% ri 1986. whde riflaten dropped rom 275% to 70% '

4 21

INTERNATIONAL F! NANC1NG A C T 'l V I TIES

' E , x M Otcorp's exposure to oths countres was lower There are frve l

~

rwahosthemanagementof nsk WheneverObcorp other countnes in whch outstanding were between f% ard 3%

L ilie alt of Oticorp's actMtes, internati lends, places, or twests funds across a nadonal border or in a cunency that s *to:egn" to the bonoweq it incurs a transter an$or corwertiblity trA commony of totai assets and one country where outstanding were between 075% and 1% of tcAal assets.

Soce 1982 a number of countres haw found it necessary to veiened to as

• country" nsk. The nsk anses because a country may refinance ther extertral debt. Otcorp has cross border and foregn impose exdienge controls that may prevert Obccrp s customec currency outstardngs to 31 suen refinancing countnes, amounting seast temporanh from ottarung andhr transiemng the foregn to $149 blion at the end of 1986 This lemi e sightfy lower than i ercharge reeded to servce is obhgaton to Otcorp in full and/or at year end 1985 and sgnifcantty lower relatNe to Otesp's total i on vme, een thcugh the customer remans at all trnes credit- assets and capital Cash bass loans in the refinancing countres I warthy ri term . d local cunency if thrs situation perststs lor dechned to 5.9 bilon from $11 bilon at year-end 1985. As explained j 90 clays. Otcorp must place the allected assets on a cash basis, on page 26, the estmated rnpact on earnings from cash basis

.and ths has an r&erse mpad on eamrigs. Interest premously loans in the refnanchg countnes was a benefit of $24 rrvllon in 1986 accrued rrust te dejucted from cunent sam'ngs, and current compared wth $30 truilon n 1985.

carrings are furthM recbced by the cost of carryrg tht' cash basis A summary of dewJ,oprrents in the major refnanong countres i J

loans, net of interest actualY recerved ri castt follows While no absolute assurance can be gren, Otcorp Obcorp ntanages comtry mk by evaluat ng the econor.,c marugement Delew diat these developments will not uitmately donate and pospects for indrvuhal couritres aid by rnposng have a materaly aderse effect on Otcorp's financal conditon.

Imts on tutal cross boroer and kregn cunenc, amounts that ,,

may be lent withn eadi courtry At the end of 1986 approxrnateif CROSS-DORDER AND

$480 blion of Otcorp's assets were cross border and toregn FORMN CWIRDOCY OUTSMMON ,

cunency outstanding and the'ebre exposed to ccuntry usk. Tlus MW"'I W ExternalGuarantees and ConsteM' NN% ,

fgure represents a shght dechne from the leei prevealing at the - - - - - ~ - - --- -- -

end of 1985 However relathe to lotal assets and captal. Ctcorp's

• yow ooen y gaw

_ seet _1985 1964 totalcross boroer exposure has ta:len sharply Indust 1alCountnes $1W4 $24.3 $25 4 Total cross border exposure at year cod 1966 was dMded CentraNy PlannedEconomes of '

anong incbstnal counti es ($254 blion). non od dee60png Eastem Europe. it 2 ,2 muntres ($182 tdont oil expo trg demkong courWres Od Exportng Developng Countnes 2.4 33 U  !

($24 bhonk &nd c?' shore bankrtj centerG ($18 tallcn) bi no sangle 143 Non OIDessiopng Countnes. 18 5 19 0 coun!ry dd cros , border and loregn cuecy outstano ngs Offshore Ban 6ung Centers . 1.4 20 1.9 a wiunt tre rrree than 3% of Cdcorgls total assets Otcorp's kk9es *xposure ($57 biton, or 29% c/ totai assets) was to Japan, veint $44.0 $48 3 $50 2 t'J ChtSr.F@n95 De De AnanOOn a 99ASWy fap&S #6 stuW Af OF'S Orpore # I whCh is. itter the United States, the largt:St economy n the worti ,,,,,,, .*n banks. accepse,ces orner ve.ess twwag wan ent; sworie yrswer I anaers we e.,.srer wuc mnri se mas wrares .,,, e ,cun

• iw werneuws o n.ca ess or ar eemie,w,,Um r.senry usr*',t e h.'s

= o."

1. s h*na p are ces .991Cof41sta RAEXICO in Ocober 1966, oscussons were fnaleed between the Banir

[ Advisory Grous, of which Otibank N A. es a rnomber ard pnncapal l co charman, ardiAexco on the commorcalbark portion of te j

. count'y's exleerial fnancing program The terms have been art to l l Mrxco's creditors wertfwee be preumnary terms agreed to by l

tntt Bank Mvisory Group a'id %xco incudo the loaomrg E Aneoloanof upto$60bilonwebeprtMded tobercondover t2 yeers with a 5 year grace penod Mr prncipal payments The  !

loan rxAJdeo a $10 baon co financed nrogram eth the banke 1

! y+

.( i L

9. . _

y)

DEIR ON RIEX9C3 AND BRAZIL RESTRUCTURING WfiGWf $ avia&0f RA I M&aGW W(G.fE0 AvtaaGF vtan os uar ua ty filf fD6 AF ER ggsCa( ap ng l

e_. giy sor ocu as_ asesure, e sta u ctuu.c. _

. _ arstauem ., _ a grauctuaWo aesra u c.uag MLudoo . $.,,530 , . 4815%__oer L1BORoua, 0 81.2i% _wer UBOR* __ g _ ,MS ,.._ . 20_02 412 0 875% over UBOR'un '

0 8125% oer UBOR5) 1M5 2002 342 1.125% over pnmem

._0 8125% over UBORSM 5992 1992 1 1MninL $1s492 .. , _ ._

Sraall . _ . . ; $_ . 34 1.75% owrpnme_ _ ._ . _.l .125% cwer UBOR*m i985 1992 1

_ _ . . 78. . 1_.75% owr pnme _ _1.125% over UBORam _ ,' 45_._ _ 1987 l 478' 2% oef.UBOB.__. ,_, . 1.125% wer UBOR* _,. 1985 _ 1992 l 472,. 2% over LIBOR. _. _. 1.125% _over UBOR* _ . . _1986 1987 14lrmL tyn em,,ns e==e.st,ucurs

.M _ .. . . _ .

wre.emnoamo osceaerv,onae.wesse *wera.sassho areme rosa resswusca traws.enod W991 se r?$0% me USoH dor ene gaers.wl 9EO 8998 r?) Inese naaris matype.oramly been espansed n 8985 Ao to the 7965 estrut. erry me me@m(l average rase ma9n was 0172%aer weicus re ssvonce rases ricaxfuy creve aruf U80A I sotre weegnrrstswerage yearor marise, mas P988 (3; Ao lo eie #9fl$ arspuchsrug tre weeped. wage ra,e mepsi was I.% ower trvne and the eeffed a=erage year or maturey was 1987 (4) earAsps $ 99 8*8'%6 mar:fi su8p Ctheed by fPk' 7986 8esfrVCMdg5 Awr to me 798$ e&ffuClurwtr,, the meagreed average r;3. mapri was 2 P5% over tyvne aid the mosgerad eierage ye,nf maksdy mes P967 IS)O mee (*sfrsic cost of hsids (6)(htnev,i,4 esAeatertet.sfeofitspossf ftr6cr%3r4 DrCM7 dor iestarf fste (7)at On= reabs, '.t f94f2 grarw escoededL60Rby appmem aroerfOS%

d whch the Wyld Bart wdl guarattoe $500 millon. The interest

• margin w6 be 1%1C percent mer the Lordon ir.terbank offered rate

[ ANO FOREDQ88 CURRE30CY OUTSTA80 DIN 68 (UBOR)or rer domeshc cost d funds IN BAEXICO Af0D BRAISL E The interest margo on $437 bdhon d Mexcan pubic sector Adhested For Not Local Currency Outstanding, Emtornal and Collaterol detMuch was res'ructured cbrng tt c past three years Mi abe be reduced to 13n6 percent omt UBOR A grace pered for prnc4al * " d ' ' a as MEXCC BRAZIL payn erws on this debt of 7 years was agreed to wth fna: matunty Total Ardysted Outstard ngs at d 20 pars so that these loans mil be payatde trom 1994 to 2006. {

Oecember 31.1985 $2.777 $4.658 j E E acept Int $950 mdlon orgnalty &e o 1985 whch wdl be Short hnn OuMtandings'*

Net Change -

(2) payate o*r ine fiw year perod 1989 through 1994 the matuntses d approxanately $86 brilon d new loans granted n 1983 at 41984 OtherOutstandings wdl remain ut ithangtx1 tot the riterest margn wdl be redLCed AdohonalOutstendings 40 589 to 13/16 percent oser UBOR Interest incomo Accrue @ 177 470 Collectes of Prrcapal p9) (626)

N The packarje wil also rcbde a (orn nerClal bark growth CoheCfonb of ACCruedIntereste !Id8) (497) aranvency co fnanong with the %rts Bar* d $500 mdlon. of Other Changes 7 (32) i Much $260 Waun wvl be guararied t3 the World Bank. and vq n nt a s,n g g o o u rs m ass ese s ar a etwrruntui bar di coningent tw stmer t suppo t tachty of enestseen F.seesa $2.774 $4.560

$12isihon to suxrt pubic and pn ale e:'.or nvestment ,ou,,,,,,,..,e.,,,,.o,,,,,,,,,,,,,v,,,,,&,,,s.,..,m,,,,,,,,,,,,,,,m,e.,,,,

Citicorps share of the few loan wel be appronrnalety $?69 ridon, i.'s a' 'de nu e,*w rr eve s 6usammon em

.<=f e*9, r . . 'm r uds'*ovv.

arw1 s stustes of trmpowth conhngency tacht y and contrgent " L','f,,',"7[,,*f,,,s .e<<ms w en.nt aa pa;-,,n,;rgy,,;.u,l ,

swstmerd <muxwI tacety we be approsirrateh **? rrulkon aid , m s,aus no-<>< awn u ~w~ te.ew e Aa.- o,

$54 mdlusi rispectivety As detaded r) the accorry.arleng1able.

Cdctvp's share d its re..tn dumd loans totals approximately

$15 tsoon it is ::d a swated that any loans we be nvnwed from tio .'. ash bevs d accts eeng as 3 restA d the testructunng M

h ,My fMG. Its Gmornmont of tirvl and the pairteopatog rtumshonal tydes signed an agroomer : that anocta p nopal of ap,1romrnale6y $61iAr)cd 15 06maturder and $96bdiond 1986 makades d mods an Intm putde and prevale sectoi dott Ihe

! 23

f

. /

/ $1

. ,e 4*

agmement became eflectiw r1 Septemta 1966Mrw ge Venezuela agmement, the detd that tell due n 1965 has been rescheduled Agreements pve sgned by Venezuela r.nd the participating i. iter, tvuugh 1993, wth pnnapal payments beginnerg n 1$9,1 and national banks in February 1986 encompt.ssing the restructuring the dets that leg due n 1986 es payabe on the earher of citimend or of $21.2 biton of VenemWar, pubic sector debt. The agreements Apnl 1561987 Alset as part d tie agreement, rierbar.k ard became effectrve in Octote; 1906 The restructunng covers trade ines of approxanately $16 bdbon are being marntanned pnncipalpayments matunng ttrotgh 1988 and provdes for the unkiMach3t 1987 ,

reschedul:ng of thew matuntra cnr 12 years wth quarterly Caicorps share of the reerbank and trade knes is approxanatey paymerus commener g c %B7 and ending in 1997 in additon,

$661 rndbort As detaned ri the tabbs on the primous page, rts share pnnc0al payments totat:ng $750 muion are being pad in of the restructuedloans totals approxrnately $11 bmon. It is not accordance wth the rescheJLAng agreements.

anaopaled that any loans wel be emowd from the cash basis Cecorp's share of the restrtxwring is $709 maliott The agree-d acrrunhng as a resut of thc estructunng, monts sipulate interest margos of 1 %% cw UBOR or other Bra 2d has not commenced <k -ns wth vts foregn credfor damestk' reference rate, compared wth a 227% weghted spread banks weh respect to the nrecheckhng of 1987 and other matuntes over reference rates neludrg UBOR and pnme pnor to the dmechurn term debt. As an rterrn measure for tM debt matunng restructinng None of Cdcorps outstandngs were remond from dunng the penod January 1 1987 through March 31 1987, repaymen's tne cash bases of accounting as a result of the <ertructunng.

ci pnnapal wet be deposded on a demand basis wth the A new program for making foreign exchange a 4dable at preter.

Brarhan Central Bank. Homent Brazil has recenth sullered a enhat rates for y sakfyrq povate sector debtors has been approved n%cten of ds loregn exchange reserws Accordrgly,this and ts in the process of emiementabori. Outhnt.s of the program coukj rnpact the Imng c1 rWerest payments and the level of recentty announced bi the Gcwemment ae being timewed Cecorps cash basesloans Philippines Wdh respect to the Pt shppnes, Cdibank and other creddor OTHERCOUMTRiss banks sgned an asTiard in May 1985 that prowdes for a new The followng paragraohs summante deveiopmerds n certmn

$925 minion,9 gar term loart They also commdted to maintan other reinanong cotntnes wMe Cdcorp's adjusted totst cross border and toregn cur =ncy outstandirgs were less than !% of approx =Tsately $29 bdhon of short term trade credit fachtes through 1986 In abtson, vanous programs are r) place to reschedule totalassets.

approxrnately $5.8 bd'en of existry bank dets matunng AfWentina throegh 1986L Discusoons betweenine represertarr es of the Gowrnant of Cecorp's share of the 9 tear term loan is approxrnatsy Argentna and the 6et AtMsory Committee on a 1986-1987

$126 mdlion, and its commtment under tho trade credit fachty agree.

revruncarq program are especteo to tqn o earty '987 Pending mems approxanately $753 mdhon The rrschedukng of ostrg

,' the dMiopment of the 1986-1987 program. Cdcorp has agreed to bara detd under the vanous rescheduhn) programs ovorves ,

the tollomng Argentine gowmment requests to rollow.r p@he-and pnvate sector pnncpa, rnatunhes currently scheduled to anryostnaisty $371 trulhon of Oncorp's Phihopine outstan$rgc' m OttcAw 1986, the Intemational Mrteta. y Furd (NF) approed tail due through March 3127 tot an addikanal 180 der period.

a nenancOy crodrt isoht y of Special Drawng Rghts (SOR) 198 to rod twor the trst (October IQ '986) and second panuary 12, muon .mth cartan condshonahtws, as weit as, a comperAory 1987) nstaNments of the 1983 Term Credrt Agecmentytd Acid 10 f awng tarAty Pondrq futher negobahons expected n the fre:

' 19117 Che thrd ristahment dalet, and to en tend, unid Juru 11 1967.'

quam 1967 covenng post-1966 matuntes and other terms the j Olcorp's commdmeris under the trade credit mentenance incihty vection banks r) December 1986 agoed to a 90 day extenecn of

($95 mision) anti standby money market Iacdd y ($156 rilhon) whch ~

capired on Septembut G,1986 Phihopme debt matunng between January 1 and March 31 1987 The same banks also agseed to extend the short term trade credit lachty agreement for six months lo Arie 3Q 1987 in January t'J87, Westem cseddor natiort, compnenj the Pans Club agted to re-schedule $870 mdhon of the Phdippnes' ofhoalloreign deot rnaf.y eng botween January 1987 and.Asne 1988 71 e ageoment r. overs the restructunng of all the pnncaual and 70% of the ruerest and pro ,

voes lor repermont oier 10 years includtg a 5 year grace perca i l

l l

34

. I CROSS 80ROER AND PORENbN CURREleCY OUTSTANDING In Countr6es With Outstanding Exceedig %% of 11staf Assets Adjusted For Blot Local Currency OutstaeWings, External Ouarantees, and Colleteral ,

1.988. . . . . . - 19 .85 1984 I

• sea - owTs w og l Mpeut samart Taram nu ASAfw? AeafSTim ACMTED ADOS 4D we em iwwd rsa t Aus At vt AN tNO taants becTOR tetten TOML RMBrTSa OWFS1hagbestem OL.fyAND%$.  % f$ TANOMS Ja. pan . $13 $ .1 $ .9 $3.3 $2A $8.7 $5.8 $7 6 Unded Krgdom 1.4 .1 1.5 3.2 1A S.O 36 3.4 Brazd . .5 2A 1A 4.2 4 4.4 4.7 49 Canada A - 1A 2.0 A 2A 2.8 2.9 Mexco A 1.7 .7 2A -

2.8 2.8 2.9 l FederalRepubic of Germany .2 .4 .5 1.3 1.6 2A 2.4 1.7 !

Phsi m nes .1 1.0 .4 1.5 .3 1A 1.8 1.6 l Argentniaa .5 .5 .4 1.8 14

(.2) 1.4 1.2 Korea * .3 - .6 .9 .3 1.2 1.4 1.4 Francea .9 .1 .2 1.2 - 1A 1.5 2.0 Austraka* - - .7 .7 A 1.1 1.8 1.6 Woer%P .3 .5 .3 1.1 (.1) 1.0 1.2 1.3

,,m,, ,s,. ,,,s ... s, , n,, , ,,,u , w m ,~,,o . . . .,,s +, ,s ., --e, ..<,i n.a., mm. ices o,,i., n , -m o.s,~,s .4;, .,',non , ..-s c., ..a w ,.., , ,.-. m m n ,..dsr.m n ,. sa.,,- e o..,.i

( .s A!.,.a,.ss a n .s hi.,=ptise moumf e,ese,m a r.t ats <ses.**.v th ,d.nyr e s < ,.,v,y e r,w s. msiti ,&a m ,uno, nas m masm, w aa auswem,ano i n -giv e .a.,q. .m esm ens =>.,gr,ru, n, .a,m -n in avg oewu .w,s oi. .r os er gusanm,sidtrectuwri vi nrectifttr eassas a s tmei sospectae's oi nrcomm.evnes .oe,wec=me. orer am.s, ,v e nsson...rrwsy guan a d

, ,,,,.i. , rs e.. .w., osv,,.d er p.,anny w vuw ss ni s #.a.u nn n. d.asu..#

3 Jr.s .. , s...,,

s e t.,#m si Canau s i t=4 ace si tre er Je,e Amts c at Gerrnen, s to cinari e A,are 3 7 c. net n JapeA edit.ss e c. ws,dars.eswe.a fe eaorv ) r9Hh

.isnt,mee rt lawasa.,wpe.# rk ..,een 'it w Com,,wnwee rms , ras,.s an aN # ors m e@muodou'stanongs c ai, orher carw y st re taba (he l e%s tfus. %%4d fs d.W efWh .W rX9 f4 Fief 4 'If Ws #DI h4%

1 l

1 l  !

l l

i 1

1 l

I l  !

N

CASH BASIS AND RENEGOTIATED included in overseas cash basis loans are a number of loans in CON LOAtt$ countres that are currentty in the process of refinancing their ex.

Cash bass bonaccrual) loans are those on which, as a result of temal detX or that hwe competed sudi refinancugs. In view of doWt as to collechon, neome s recognized only to the ex tent cash investor interest in this aspect of Citcorp's actMtes, the aCCompa-is seceuxi Renegocated loans are those on which the rate of nying table provdes additional details of cross border and foregn rterest has been reduced as a result of the borrower's inablity to currency outstanding and also local and foregn currency cash meet the ongnalterms. bass loans n the affected countnes; the third column of the table The classification of loans as cash bases and renegotiated es a shows the anpact on our eamings, spread among vanous coun-specakzed chagroste tooi used by fnancial institutions. Catcorp's tra The amounts include oferest rearsed w+en loans are placed expenence, as well as the expenence of others. generaltv has shown 71 a cash basis, plus the cost of carrying the cash basts loans, that a substantial percentage of cash bass and renegohated loans reduced by oferest recered ri cash and ncluded in income are uitmalety collected Cstcorp's policy of pleang loans on cash basis status embraces DETAILS 0F REFINA30C8900.C00MTRJES __

al loans on whch pnnopal or interest s 90 days past due, or when isr u.rio payment of interest or pnncpal ts determined to be doutAful of collecturt Even if a cash payment may be antcapated. accrued

^3lyS"yy c 'y ,"

• ~o,omocu cass cas, sis,s interr.st s roersed and the loan s put on casn bass status af ter a" ** S'5

,,p, l$ , $^[53 a90 dayperodhaselapsed ,,u,u y,,g, ,,u, m Cash bass and renegobaled commercialloans at year end 1986 were $26 blion, up $306 rrdson from a year ago, compared Argenhna $ 1.4 $ 28 $6 utt a $170 trilhon decrease n 1985 from year end 1984 The Br d 46 68 13 1986 nerease g nmarty seflects nereased cash bass loans in the Chi'.e 06 9 1

"" ~

domeste loan portiolic Cash bass and renegotiated loans as a ua 0 -

percentage of totalloon vclume was 2D% at December 311986, Jamaca 0.1 - -

undTanged from the pnor year erd The percentage was 24%

at December 31.1964. Cash bass icaw financings were S29 million M* * 20 iib (2) at December 31 1986 and $35 rndhor: at Deember 31,1985 e. 0.1 - -

Ngena 0.1 108 (2)

Panama 0.3 4 -

LOANS AS A PERCEstmOE OFTU11LLOApes Peru 0.1 31 (1)

Philippines 18 100 4 4 Poland 0.1 104 3 sd% SA% South Afnca . 01 4 -

1 .

< w = w ne, m a ,u % ,w m , ,

rh kre bs% 64m1d enAg'iny> Leed* wags OJ I4 8 Al##8e'6 4* 6*'s%rlPn'horiof Cs0&& .hrOsv Odypdngh Sr)f.ess Cg,td 46 e f*1ruAs8J's fasey Code' i sfas*f ad MdfdQA ,g Md&sen 406/aristmqw fife (ag $eeunger Se hgri / e se t/dn. .

26 L

C._A...S__H__B_.A__ SIS.._A_ ND REN_ .EGOTIA_T.E. ._D C. OMMERCIAL L._O._ AN.S

_ _ _ _ . . toes caname

& & 488 Tists . . . . .

TofAt OLN@ M L A#' _ , , . _ , _ , M ,406J0$ , ,,1986_ _ _ ,1964. . _ 1983 _jg62 Cash Basis and Renegotiated Loans in Domeste Offices RealE!.tateloans S 296 $8 $ 304 $ 101 $ 233 $ 127 $ 107 OtherCommercalloans 500 6 578 392 302 345 444 inOverseas Offces 1,670 5 1,875 1.755 1.883 1.638 1.111 T9thLCASM BASIS AND Rt9EESODATED LOAMS $2,538 $19 $2,564 $2.248 $2.418 $2.110 $1.662 Cash Bass atd Renegotiated Loans as a %of Commeraaltoans 4.3% 3.9% 4.1 % 3.5% 2.7%

Cash Bass and Renegotiated Loans as a % of Total Loans . 2.0% 2.0%  ?.4% 2.4% 1.9%

Real es' ate acqured n settiement of loans, neluded n other assets estate at War end, and overseas real estate accounted for i n the it areal statements totaled $274 rnilon at December 31 $31 milon. For further analyss see Commercal Loan Portlolo l 1986, up $24 rrulhon from $250 milon al December 31.1985 Analyss on page30) l Domestc roal estate represented $243 mdlon of the total real I

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27  !

l R I S K M A N A G E M E N T

= ~ W55

=+XI I+ge==g= c =g of nsk management as it relates to scwreign and crcss-border a well Arown fact. Indeed, nsk taking is an inMgral exposure (page 22), accountog poloes (page 57), and non furds T hat financol nstnutons haw many ns part ci the busr. ass, but what is important is not that nd.s exist but how they are rneasured and managed E!Iectre nsk rnanagement is entcal to the success related finarcal products (page 69).

What all our nu manage.?ent processes share and what is key to Checep's approach s i mareging nsk is clear, sound manage-andiong term profitabildy of any financiahnstitutort ment poices af d ther effect!Ve communcahon to allleMs of the M Cecora nsk management is central to all aspects of our corporaton. These poloes are embooed by fNe pnnerpies-

.and @ b mm h nw magend W Drversfcaton in products, tenors, customers. curency and technicpes cartriue to ede in response to changes in the ,, ,,

envuonment and the nature of Cdoorp's own businesses. In the past the mo'd sagnricant nsks have been oferest-rate nsn, credit g

nsk, and liquddy nsk. But as Cdcorp's actrvites ard geograp5c distnbuton how expanded into the mulb busaness fit ancial E Decentralizaton of manager- r to ket p deciso+ma;ang services corpciaisilt is todag the range of nskt has broadened as close to the marketplace as powt2 and to ensure that those to rdude foreign exchange r;sk . uweregn and cross txyder n A deosions are based on the best available riformaton and on a i tradng nsk, busness and envrur rnental nsk, legal and regulato. y cluse understandno cd the changes that could altect us.

h this year's annuairepcr , we have taken the opportunity to E Strong hnancal and operahng contro's, includry larmalty dest ribe o detaal the management of creet nsk at Oticorp, te vre,t estat*sted and tormaleed of our nsk management pocesses That is toilowed by a escusson of capt?l and hqudity cross border nsks are atso subi ect to a formai revew pecess rnanagement and an expanded descussaan of interest rate nsk by senior management. All businesses are required to document management Elsewhem n this seport rnay be found discusm E Conservative accountog poloes appicat8e to credit losses which ensure that wnte ons are recognized at tht> earitest moment E Ar independent revew processs Citcorp's ritemal audit staff exceeds 700 people Extemal aud, tors and regulatory txyfes around the world also pertym oxamnabons.

1 But however thoroug5 and sound our poices are. they cannot i be better than the quahty of unformaton provded. Our extensive i elec9 enc olormaton sr.,lems represent a substantial russtmerd n state of the art iscriv4ogy that suppies trnety ard accurate 1 ainormaton to alllewis or management Foalty Otcorp continues to behow that strong aarrangs, n conpocton wth a large captal base, prcMde the abety to absorb unforeseennsks orlosses I

78 1

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I Tlm CREDITPROCESS MCITICORP sees tne maintenance of sound portfcle standards rn each of our l busnesses Each member of the Credd Pdcy Commdtee is md consumer loan port bhos, it is clear that CMorp is {

re sponsibe for certain bankeng groups or busnesses, and they Inour91-ntnskanalysis6scussonof t'ec l

operating many of its busnesses n unusual and offcult are statoned in the major cr2dit centers around the world I ecomme envronmerts W3 behew that the best protection They coordinate ther actMtes dunng weekly teleconferences mer time aganst nsks created n our loan pon foho, regard - and scheduled rtMews of transactions and portidos less of the econome envronment,is the maintenance of a strong This system of ched(s and balances ensures tnat our credd cred t culture embodpng sound fundamental credit practces poloes and procedures ase functontng effectively and on a timely These practces are applied not only to loans but to alt transactions bass, from loan tutsaton and proper documentation to remedial that couid result in a cbm on a thud party For each new product, credit managemerd when necessary we frie tune our credd practces, but the base approach as Maintenance of the credit dscipkne starts with our insstence culined be60wremains unchanged. that hne managers follow the credit process, manage it actrvely and From the trne a loan or other credit transacton is frst consdered aggressively and t e reakste about the quahty of their portiolos.

untd d is pad, Catcorp's cuTynsve credit process controls l hey are held accountable for stayrig withri defined target markets tie nsk It operates at all leets vi ait Otcorp busnesses and is and apprwed product types, and must document operatonal appled from the sma5est loan to the largest it is the responsbkty procedures that spec:'y lewis of apptwal authonty and separaton d our kne busness managery, and is supported and controlled of dotes.

by a staff of crec't speciahsts who rot only monitor the quahty C:tcorp's consorvattve accountrg pdcy demands that credit of the creed but insure that our poloes and procedures are wate ofts be recognized at the eariest moment in the institutional loilowed at every step. Bank, credit polcy requres that as soon as loss 9ttiat>ons are These polces and procedures. developed out of many yeart of recognized cnaryotfsbe takenevenif theactualloss Such experence and contriuously updated. form the founcaton of as bankruptcy or hqudafon, has not yet occurred Thus, we Otcorp's credt proces5 consder the allowance for possible credd losses to be a general it all starts with a three initial requirement-three lending offcers reserW. Jvailabie for potentialcredt losses in the port t';,, Ait each enerostg odependent udgmet J W, must approve every crecit mignt occurin the future or credd prograrn a,1d ntialit Hgh value is placed on the initial in the inovdual Bank, a diflerent method for computrq mte.

The owners are hed acemntabic for ther crect judgments. and offs is used, generally based 06 ioans reaching a predetermined thor reputations t'voignout CAcorp rest upon the skillin credd number of days past due on a coritractual bass decision maktio they repr"sent in both businesses our earty dentifcaton el wnte offs and As transaclarm get target. an increasng !avel of skdi and expen weit develoOed procedures for managrg prodem cmdit s lead coce es trougl it to bear for large loans. t wo of the initials must be to a hghe' probabbt y of pnnopal recovery tho',o ut a sr qant credt ottcer." a desgnaton grwr' t<a only 485 A strong endependert revew process ensures that our controls Uticner pro'essionals To be desgnated as a senor credit offcer and procedures are tollowed The Risk Asset Revew group roryes at least ten yeam of successfullending expenence o conducts penode ridepercent exarnnatons of both credt quaintf mvorat areas maturdy of judgment. and a wchngness to contin and credt process at the lendrg urut newt They are also ually stigem t.nxid skdis of others responsible tot dentd yrg any problem loan stuations not yet Twu ttads of the sr.rwor cread offcors also haw drect busaness dentified by Ire managenent as weil as any sutW,ndard m.arwynnW ttyr.trsibidh6 So that their Ciodt judgment reflects elemerits rd the Cre' lit process a clos i krn Mc@mlINW customers ard markets We behow these auots are conducted by senor off cors utn an average of 3 inat oeosur: rnakrt; must be placed as close as possde to the ten years' line lending experence who are on temporary two year j nwsot to orasure Piat crudd wakjaborn is basod on the best av;ulat A? r ,k Wru stan ihn other thed of the senior cruid officer 4 aro i j

ri tull fatw! rtw.k s.uttnit asstyynetts. managing credit and aur ht stA  !

Fadi year Itm ic k Wmarce ot overy sorwur credd oftm is reviewi xt .d rf itw > dess piatrm can tx? wtharawn it credt judrjnv'nt has and twvri estirc w d with proprit care at d (hingut wat At itwi top ol tiws pp ,rt u i sds ttr; Crn ht Polt:y Conttwiton j

r> Wimhng ul 14 of (a r n a r.1 capirur W:od Cnw bl I rolca. rat uidis it es ckNity rrvolw xt ri allLittyny tsiusualtr+isar; tuns mf ovtfr i

29

or ttreetear auddrg assgnments By us ng such expenenced COMMERCIAL LOAN PORTFOUO ANALYSIS peopia, we acherne a hgh leve! d effuency The fact that these itcorp's management ptulosophy has always au2' ors were themselves senor kne managers gras them a great empnasized the unportance of assets and earnings deal d credbbty Faelure to pass the audt rever pccess is a being diversfed n terms of geography currency wrysenousissua customet teno( and product. This dversifcabon.

An example d our mapor investment n informa!Kn sys' ems referred to as the "actuanal base," hedges agarist is Catinots, an on hne computer system that morwtors all dassfed the aderse impact to the ristituton from any one cent or set of outstarxhng credts n the commercal loan portfolo it also condrbons History has shown that adserse developments affechng powdes summanes on concentrabon of nsk by industry and ridtvrbal courdnes or industnes or partK2Jiar products tend geographc area, factors that are conhnuaPy mondored by to be cancelled out by favorable desetopments in other actMtes theCredd Poicy Comm#ttea r1 the long rurt CJ. corp u1ik.'s this strategy of broad drversifcation Remedalcredd management es also crucal to our credt process. r1 ds loan portfolo managernent to better control the amo'id Our insinubonal Recoery Dere tment, based r1 New trk, d unpredctab!e losses For example, no sogne country outsde es stalled by 20 professonais whose major responsib hbes are the Unded States has accounted for more than 9% of the total maxmeng reemenes on large credd problems, as well as commercalloan portfolo in the last free years Hcme; banks are l mrwmiang losses. Thrs group also shares ther experence and ri the busness d rneasured nsk-taking, and losse s are part skdts wth remedal management teams n almost all of our d the normal cost d lending money in commercel lending, the busness units around the worti amount of los*es as a percentage of outstanding loans can in concumer lendrig a r credd process has the same conceptual vary wdely from penod to penod and is partculaiy sensittee to structum as credit maragernyv h commercalloans. But the futi sabons caused by changng econome cont kbons. The actuanal nature of consumer bankog makes avadable ad$ tonal percentage of loan losses to aerage loans reachoci a ost-wer oedd manage, oent lods ern 2 dis. Key to the indMdual Bank peak of .83% r) 195 due pnmanly to the 1973-105 rewsson n the '

processes is the morWtty consumer particleo rever wNch uses a L,1S. whedi parbculariy affected the real estate ridustry The loss cerd. alized managem int ri'ormahon system that denh'es trends it delnquenoec ct wnlerdfs by product. Whenmor these levets percentage stead +9 r Wsed r1 the 195-1900 penod. parallehog )

the progress at eco . true recosery n the wake of tM past deviate trom busness proh models, the n' iorvrtal Bank credd recessen As the pace of ecorvame growth skmed a A4 tog a management proiessonah, ardene managers revew the reasons contnuing penod of weakness in certan rdustnes, the br the vanance and start c.oprognate remedial acton. TNs percentage rose to 32% n 19824.d 65% n 1985 and reached knd of revew also enables the hne busnesses to continuously fne .72% r11986 These percentages are below the 195 hgtt Lookng tune and rrprose ther credt enterc Our act speoat 51s o ahead over the next 12 to 18 months we expect our loss expen-the indvdual Bank have tre same stra ry1 dependent portho ence miliemar) wdhr) the range expenenced r1 the past frse years (paidy evew functons Cibcorp emphaszes a well drwrsfed and healthy earrwngs stream '

in summary we covoue to bele.e thar our decentrakzed as the pnmary means of aGooh q reo rnng loan losses. Accord systeni that place

• higNy Quakted deoson maken: close to their angly Catcorp rnmedately recognues as losses all loan amounts customers produces the test credit deossor is Ths system es pdged to be urcollecbbia Owr tme a sgnricant portion of these

. sipportod by strong con rds and audting processes These, losses are recovered. Hrstoncal experence ridcates that certan coupled eth our phskno(hy of spreadng out nsk never losses exist r) the portiolso at a pont in time but have not been i commdting too much to cne borrower and corking Cr.ntnuously spechcally dentifed. bl antcipator) of these unsdentifed losses, I to mattar) the nsk rewanj trade off d our products wthm a the allowance lor pnaashim credd losses is estabitehed by chargng dynarruc poicy tramework, mil result ri predctabe and balanc ed currert earrungs with amounts mer and aboe actual net credit credet(pahtyoser trna bases No portion of the resulbng allowance rs spoofcaDy abocated or <estncted to any rdtvutalloan, groups of loans, or geographc areas, at d the erste allowance rs evadable to absorb lossus from a ty and sit loans and lease financang receivables. In 3rder 'o este6s the nsk dieractensbcs of the loan portio 6c at year - j errt 1986, Catcorp behoves d is approonste to vww the poritalc l accordsig to th0 elomerta W)own n the accompanying table 1

30

COMMERCIAL LOAM PORT 7CUO, NETOF UNEARNED _ DIS.COUN. T_ .._. _ .

1984

' 1985 serttM Nio.as Lestes AT Afe LEAes 8 adame TO ANf a f A$f m%f s !.;

-n naas tones. ans .m a een ,a a u .i S a * $ m 'a5 _ . _ _ _ _ _ . _ _ . . S . _ __'**"* L""*****.it

. .5*a"* ->" *

• a> ' "^ u Commercial and trulustrial Loans"'

InDarresteOthces $16,888 $12,341 $ 73 .8% $12.827 $ 59 5%

It' Overseas Ofhces* _22,922 24,210 , __2es , 1.0% 27J29 ,, __ , 249 .9%

TomL $30 p $38,571, $332 $40,756

.9% . $308 .y3 Loens to PinancialinstHutions hDornes:cOf5ces $ 875 8 416 $- $ 604 5- -

h Owseas Othces* 4,341 4.507 19 .4 % 4.733, t 9_ .4%

TmmL $ 5,214 8 4,923 $ 19 _ _.4% $ .5.337 $ 19 _ .4%

i RealEstateLoansa' I inDomesteOthces $ 7.570 $ 7,032 $ (1) - $ 5.300 $- -

in Overseas Offces . 2,311 2,107 30 1.4 %_

1.995 ,_ _14 .7%

i TmmL & 9,881 8 9,130 8 29 .3% _ , $ 7,29_5_ $ 14_. 2%

Leans to Govemments and 01pcial Institutions ^a' $ 4,552 8 5,078 $ 33 .7%

I $ 4,6_95 $ 36_ 8%

l Tomt.comemncuLLopes $50,439 $87,700 $413 .7% $58.083 $377 .7%

\ m u. us,s nw.s ,a ,ee.me seca. wor eom.n m e .was so gow nmv n nsoe<ve,onses au osas *n.at se not <rnama,n ones i on oe wsrsws se taseaun cavm,ma onne c.narr aren,ta,s (4) sesuwsas, etnowreds ont es a,*= m urwarners so oarw reforms av <rumd.acom,'=cw ed

,o,saw ws au r.,is ni

• w emi uois , stwe,wer COMMERCtAL ANDINDUSTRIAL LOANS LOAN $ YO PlNANCIALINSTITUTIONS Otcorp's commercial and ndustnalloan portlolo is broadly Loans e xtefided to corresocodent banks and other 'inarcal diversitedin temis of irwijstry geography and we of customer institutions n the US. and oWrseas aWtaged $19 blion. or None of the ma#or a dustr y segments in Otcorp S commercial approx:maleiy 9%, of Otcorp's porIIck l and ndustnalloan portioho represerts a sgrvfcant concentration Credit emperence ri ttus pcrtfolo contnues to be better than This drmrsatcaton has ptM n to be a succe' Atul factor ti

' awrage, partrJarty n ligN of the diffcuttes that were experenced cont'oling risk The weakness of the wordwidr economiin cortain by "some inst:iurorts tri the banking rdustry thrs past voar Potenhal industt y sectoi s contributed 10 an nCrease r. the net loan loss loan losbes lo financel institutions are antcpated to remar) beks rato 10 9% r) 1986 VAth hgher losseA oWrseas. In the past fue that for commerual and industnalleading and this trend is Wars commercal and retnallaan loss exponence has expected to contnue o.er the nex t 12 to 18 rnanths.

ranged then 45 and 9% Net los',es on commecallending caen,4ry wdoly from penod to per01 parIcularty When any gNen narroMy delnod sector Whale loan los es r, commerc;aland rdustnallendeg cannot be accuateiy predeCleri Ote ep expocts that met the next t? to 18 months its kwn losws will femaan WWhr) the targo expertanced n the last f,A years l

l 31 Q____ _ _ _ _ _ _ _ _ . _ _ _ - _ _ _ _ - . - - - - - - - - - - - - - - - -

L q l

nam.aswaumes consumani.oam pom0UO AwMYSis Despde we#-pubhcued problems n d i e U.C. commercal real estate he profit dynames et consumer lendog are such econo.n/ n 1906 the domeshe port iho contoued to generate that each product has an expected level of credit mccuenes These were onset bylosse dn the intemabonal portioho, loss wruch is generally a statrstcally predictable 1 which restaed r1 a not loss owralt OC the next 12 to 18 months, expense of doing busntss For example, loans wrth andt bsses are expected to remasn wdhin acceptable lewis, low loss expenence nclude home mortgage loans (frst and second) and gwemtr.ed g,aranteed student loans.

MM AwD Loans with medium loan loss expenence are .ecured prooucts, N . such as mobia home loars cod automoble bans included in l Ir4=Wsmalienchng b gmemments and affoal institutens e a the catenory ci bgh loan bss expenence are such unsecured i

~

stinung padFWsN actMbes Qtstandng M voducts as credt car 9, tnmel and entertariment cards, and b gwemmerts W MnshhJhons awaged W h dunng othei persona! rwohnt, credit products Pricing and marketing 1986and were M% of the merage h paleoes refbet tne bss expenence d each parbcutar product ben portbta Cibcorp lonows a wnte-off pohoy that requaes that most I-recorded' n McategorylargeyWwtan consumer loans, with the excephon d =*a % secured netances where porbons of loans were wntten oil based on a morpbewnttenMhWsareW I protracted inabikty to serwce breign currency debt and a tack of by a pnedeterrrunud number d days af ter the contractual paymert l defnibw psospects b the resum@on d orderW sm date. The number d dqs is set at a lesel appropnate to ban Dunng the next C o 18 moniha, Ctcorp expects the net loss i

product and m'nmertal characteristes so & S M 'esdt in N rabo in this category to reman withm the range expenencer'in the '

ondbsw that Wh MW W last Wars W e@ those nstances of wrteds recoveryof thoselos estallber veen20%to30%.Tlv.seloans baWon Wm e semengm.s,% notptwnttenoff and. thpnncoolorinterestpaymen:

expects Wbasesbbe debw those ncM W de{ricpenoes of 90 deyo or triore composed 193% d the total

1. U year end 1996 consumer ican pryttohet an increase from the ouriparable 1985 rabo d 'iSS'E The poicy br suspendng i

, g accruals of rierest on conesner loans vanes dependrig on the terms, secunty and Ican bss expenenen charactenstes 5 .?se, d each prock;ct and in consstieraten of wnttoff cntena n place.

Ao'6 Consumer loans br whch ac.cruais of interest had been g

suspended were $840 rnelion at war-end 1906 Foregone rieest a ree 'esulbng fnyn suspenso) d rterat accruals was ned

" matonn 1 '986 Consumer loans with det.nquenoes of 90 days 10 or more b which reerest contant.td to be accrued were

$557 rnillion at year end 1986 Losses as a percentage of aserage lohns viere up substant;alty c, from 123% o 1985 to 158% ri '986. Tnes nctease n vedit iw ists iak is im bcs expense was drMyn by three factorx the newness of the ,

credit card receivables which hetoncapy i'.aw higher loss rates  !

7 ' '." " " E """ ""'S durag the eary stages d portlolo lorrnatut an rosase in este east sees een esta personal bankruptcy fihngs which accelers' iloss recognibort and 4 the rnpact d weak economes n Stases wer', high dependence una tcus u tie inunonscotst r4uurew cauus on esgy and egnetAare, specrheap y on vaiments of our moble home pnrtbha Irweased conecten efbr11 at d appropnate

"* 8m tes,ser essass e morir'eahon d credit entena have stabladd tht,*e segments ci the puritoic The lower nsk. secured servang tegrcant (mostly mortgages) whch rs 47% d the woridude portiolc conhnues j gi perform at stable and wty low credt loss esxpense n.vois, l 3r

____m

i 30008879C PORTrou0 The eierage domechc loan portiolo nereased by $90 tAon WCN M& M to $4E6 biton. Growth occurred in each category of consumer TOANM andW loss expense expenence. 175

= tso saem teos toes teos tees manaes east Lamas t 0 *a. ta 8 sansse 6er.sas m inss

__ _ _ n.eunes way.s. mano up oo ,

Credd loss expenw .?s% .

3 expenence.

Hgher $14.1 8806 4.9 38 50 Mudium . 11.1 187 1.5 1.0 3 Lower . 3_4.4. . _.13 -

0.1 01 n

Total .,;, $48.8 $$76 1.4 13 ser ses ine4 ses ese ET U"pN Mo LEASE IfJtaES N MUM "F oot1WE The retalte year to-year compansons r) the porttolo are siown n sees sees

\

sees sees sees f1e loibung Iable-wuct uwa wt cr tsauwo nscxuc w uurns cr oatws

.......m..: .e.. temas '985 6 84

, , a m ,,,,,

agher as 28 24 m it 22 2' tower 44  % S'l touL 100 100 gggggyggg

• 10]

$5.583 rnilort or 35% to a yeer end Iotal of NITERNATIONAL PCMTPou0 The awrage rWematonal partloho miume rose from $72 bHor' D urwig 1986. Cdco

$21531 rntion.1088% d total assets compared uth a rato d 912% at war end 1985 TNs screaw neluded internal .gmty generaton the issuance of to $111 hilor,. prncapaRy due to a Cnmbnation of new acQlms to1s common and pt.rpetual preferred stodt, growth of the allowance and growth of base tusness The portido remans concentral.t lor possarie credit lo?ies, arKj the issuance d subordinated captal wi the maior ecustrW natons d Europe and Ase rvdes mandatortj emtde to equity neludog s(ch notes eth no stated matunty and non cotwettable long term detX

, . . ..'.'. ,,.~.'".' Cahcorp has v5 Weived lo demion new markets and new

,a v. i...... 4., a. ...'

• * nst'uments lor rarsang captal and to responri QuicMy to regulatory l arvirnarket changes Fcllowng the anrvuncement try the Federal i Go,many $3 3 30 Australu $0 7 6 PtcetoRco $0 8 7 Peserve :4)oember 1986 perrnttav; debt with no staled matunty UK 18 16 HugKnng 0 7 6 Othev 05 5 Ottw to te ociuood n onmary captal under rettari cordetons. Cdcorp 2 2 20 Otone 11 10 became the frst US br.% holdng cortpany toissue ins type el i

{

Yqnu. $7 3 66 Tomt $2 5 22 To1LL $13 12 s ;bordriated capdat '1 oles r) a $ i00 ration sale In Jtane 190E Cdicorp sW 5 rniten shares of conwnan stock l kw $285 rneort one muon viases of stiert were su:d outw the i u S Cdcorp also issued an acW.o el $150 mdien of perpetual pro 60ered stock, $249 mdhon r) abordnated mandatordy conwri  !

de capdai noles and $3069 e neon of nno corwritae sutxm l rulod long term debt wheef\ unck* Osr trig fugt Aalory Qude4tles, es vicluded ri totalcapta

flanng 1986, Olcoro nercated pnmar y rapdal by $2.598 enilson rw 2d% to a year cirfdalof $0.490 mdte., b2Nd trda! assets. 1 carnparea wth a rano d 623 at year end 19A5 i Odh notal er ni prnary captal ratos were ur4 abrwo no i rogtdators' merittlum requwernonis al 60% lor 'otma capt.si a*d 55% kr prenary capdal tar natanal twr*s and her* hotli N 33

1

. - l l

I comparses. in addhon, the capdal rabos for each of C,tcorp's ' permits manage., to antcipate potent.allqudity praelems ard domeste subedery banks and seongs and loan associations also fundingreedsmonthc ahead wewe manlained abwe the egulatory mrumum requeements. Olcorp's strategyis to enhance hquesty two ways; by extend'ng the matunties of its habehties, and by diversifying ds fundng m OFCApf1&L sources. In 1906, Otecorp.assed a totalof $7,436 mdhon of debt

-~ase se. 'nh. V with a matunty of one year orlonger indudwig 51.252 mdbon

"" * "?"*5. # 88 * '"

withIntaimatuntesof 20yearsorlonger.

1emttuhmed. $31,531 $15.948 $5,583 Extensivedversfcanonby ..arke:,bycurrencybylerder,by Of whim matunty and by nstrument enhancec hquidty Over the years, Common Stock and Surplus $ 1,638 $ 1,250 $ 386 Ofcorp has been able to react auckly to changng market condrhons Preferred Stock 1,385 1.215 150 includng the devoicpment of new tundrig socces hiportantty

. Retaned Earrungs 6,000 5,300 750 hqudity has been enhanced through the growth of consumer Anowance for Possible Oedd habdites that have added further stabbty and deptn to Otco;p's Losses 1,806 . 1,235 463 fundng proida in 1986, awrage US. consumer habides grew Ouaktyng Subordinated - by $28 bdhon from $299 bdhan to $32.7 bdhort in addrhon,'r creased CapdalNotes 2.448 1.815 833 secuntuabon of sogle tamdy home mortgages and sales of Mnordyinterest ri partopalons ricommesoa! loans how sgnificanity rnproved bqixW y Cmockdated Subedenes 84 77 7 The combnation of tssuance of long term debt, increased

$13,400 custorrer deposds ri several counites around the world, but nussanYcantat $10.892 $2.598 ggg g g Remarder of Subordiriated teaddy r1 the market has gnen Cdcorp an unprecedented level CapdalNotes $ - $ 84 $ (84) of hqudity Redeemable Preferred Stott . 40 40 --

Oualityrsg Debt 4,001 4,932 3.069 seo .maNY CAM'EL $ 8,041 $ 5.056 12.985 anansaanneens? 0F Nf75 HEST Raft EXPOSURS Pranary Captal as deired by the Federal Reserw, ricludes Total nieiest rete exposure a the sensdtvit y of eamngs to cianges ssuckhoiders Equity the Allowance lor possible Credt Lossen r) interest rates, This exposure exists when market rtenest Qualityv g Soburriviated Capdal Notes, at 4 Minont y Intomst ri mosaments aflect assets and hebddes dfierently BarAs C<rwdatated Sutsderrs assume nierest rate nek as a base econome function and IdalCaptat ncudos Pranaiy Caudal. Redeemab6c Dreierred dtste ricome for unc' wtalung the risk The less rderest Skrk. atd grtss O'saidywg Debt rate n% acsumed, the less reorN rs hkely to be earned. Actrvites that neutrah/e interest rate exposu'e are also likely to mrirrue eamngs pole'itel.

Cdcorp senor manager,cnt has estabbshed parameters lor MeutOfTV asannamarnamas? Cdcorp wortowde wahr1 *hch interest rate exposure is to be e

managed Thus. Oecorp manages the porton of eamngs that avadatdo at att hmes to mpey fuity atvi prornpity all ull be expneed to rde est rate mowemords ri the expectsten C doorp oetres adoquale qurwy as maharig lebddes ocbdng customer domaru depr. ads si accntdar co walh ther norms Huwewt is io oc rw u n nic 'uncton per formnd by banks at d of taksng advantage of !! e opportundes to increase earrungs resultrig from property arne 1 pated mowemerits vi rierest rates it is the responsbddy of Oicorp s Friarkm Commitee to Iw a 'u e in,I ctriipanuis <ts triancial r 4ermtwhates is to assue se establish and cuersee pohcy regarding rterest rate exposuret la pmWy re*A t ry (x rrt w q k w shot for larms than they kn1 ihus. The Commdice, whch meets on 3 rrentdy bases,6 composed of untev.hd hi p w hty rnarspiment rs essor dial to tte absty of a bar a members of tensor management rdudin0 a Vee Charman, j tu bank heiktry c utiparty lo tidid one of dil pretw? rnwwwfuc Sottor and Grup EsoaArves, and the ChetFnantaalOficer The tisw:tann tsps:My r*;i.rdcalforriasisaaiing'iiarke tcinifvierur Each curnmdtw renews the inehtulon's totalinteest rale enposure and rvtvuk.d Iw u" %t rflorlaler edy withn07:ypreunt rtorap3 ensures th* the polentralimpact on earns fys imm future changes et ap mWg toorniamt c.ricawistirsty moot ds ohhyoirun ri olorosi rates rs kept wdhm the confines of estabhahed hmda

!! , trwppsimt of lu y a bly s'y umso in I trititatedI >y h vitast ihu Frence Commdiee's analyes of Cdcorgbaerall rderes; a y the u naa rni un i nst th m of its ris e t't rd an8m patrwt nes q d rato pr, eden breaks reemst rate exposum reo Iwepreing id itsiib Cah:tdale v3 ttui etwta trman cisnulairvmndthm ii hs u h rangris by month up to one year tehori term esposum) and longeir than one year (lon0 term esposural The ana>yers totves on onnclad behenor of asnets and batables radher than tha cr*=c 31 l

)

tualterm. For instance. the anhopated mpact of home rrntgage prepaymerds vi a penod of rapdly declnng rates is factved into gg q the analyset The purpose d this anahss is to be certari that the ggy '

maxsissn potenbal nsk on future earnrigs resu*hng from the eiaamor oottans. anwe enf3act of possitde future changes ri v1terest rates on currently e u j eashng net asset or net liabibty postaans is demensoned and

, u ,

managed herest rate expostre Imts are set at a maxmurn of 0% of Otecorps annualeamrigs. The amount of t'arnings at 6 nsk ts cakdated by apphrg the mo61 actverse historcal enterest 8'8 5

rate enwonment to the cunerd expostre positort Herest rate exposure is also created in CAcorp's . rad rq portloliot. wNcti are managed to take advantage of short tem n u 8 3

as market opporturubes. Trading portiohos, wNch inclu1e noti furds relaleo products, are revedued to market uth gaos and losses redlected in earfungs ori a cunent bass Trading postions are i i managed ' sider a separate process of speofc portlolo Imts 68 e

Whele oeetall corporate targets a*c estabhslied by the Finar ce g g

3 4 3 , , , , ,, e Commdtee. Otcorp's base strategy of drersfcalon ar d decen meernes traluaton permds the business and country treasurers to lake rna ar ,aema.,xansrumesumarnera,xa, emurpixummaar ruerest rate posdons they deem appropnate to the szs ard nattre "' #"80'W 8888*** * *piary ens censur m nyvi wimini of ther bumriesses wellwi the Imts set for that urit Local asset i

and hatMy commettoes estabbsh arvi r' orator these Imts subpct NE UM '

to acprcual by the Friance Commdter i Aerseas unit; are not NEW y$rmetted to maantarl sgnifcant lork, um t IS donar anterest wais seus ruu am at vtappe rate espcrue s ticcausa the not exposure of tre s an d the n$vidual units 48 enlemst rate postxjns wel not ntcccsanh rnatch the (wrall * ~

corparate i ap.tivei t*v3 Finance Cor:mtIce is respnrisetAe lor 3 as takrv) actions whch wt!! ade st Cdcorp) total U S doltar is detest ,

ratecxynre tomoet thec rpwateobpec'cr Theseactrwis r w:ks h? the essance al itxed arvi thwanr] ' ate dobt and nierest rate i htxkp; uss q non funds it.4attri products m ult as rut' rest rate as o

swans tuttres andoptons As a coissectuence of the ac ard r1rvorsty of Ofcorps ' u l M

nm'setwatiesolor bothasmtsandsatscesof krids therearo * # " * * "

ortsetty y rate exposurc lacttsf 7nur9 otr assets. habktu . T**#'****"'"**"*'""*""#""'**#

tr morg supa.ma e spurg auss riswrvurw seer arvi certari nun turuss ectated activdesr s tactor that rngtt haw an adverse ettoi't on earnrgs tenm one asset or kabid y may txt gg ggy lumelnal to castwqs of anottlet asset rr habitty and thus ctisnrdi twexp:nre d Otexrp4 carnnos gg A sman p r tai d Otontp's taial east wqs .d ersk es derxyrw uted ' ' * ' " " ' * " ' ' " " '

v13tstoncaos of hot thati US donars, ry:ludry thdsche marks.  ?

ym. polnis storts v&Australvin dAss. atx1CarwAarickAars , %s Theso expostces terwl kifut dtsrits y ei ttu4wwpt norm. ans aser g g

. . _ ,r _ at,.d _ r., _ _ - -

er cWn r1 the same drocturi, af ttu! sattu? frfw) i M 1ht)accompariyrychuts entsstrateCda:tWp'h kWW1t ano 4'ul age. mag

, inn,iic.ma<a,s m i,. nu n us m a,y am .,..,_,,,,,_...,_..,.., , , . , , , _

r $0f0Si re@ poGdoris r19)ilictOrf dtit!r CMftXXX"t hirIl4lptN asit@giurm WatsuviaimiaWoni,s es lions rict.xing ntviluruts frbtod gworts'tE. are rud au;hrixt tilhe accorY(wiysty r* west rato(m uutew1s brw o %'ftets of svoroal rWe Ch8rigM af0 enLXyrt/f Ki ri cartingS (Wl a Orfurt!

been While the cheris capturo Chcorp's gxetoust Iaa is r) triu ri toaldy thnee gxstrris vn o r1ritartty chargrq wdh Itut ik m of a6aetsafW.Ihabt4ihr's 35

_ _ _ _ _ _ _ _ - - - - - - - - - - - ~

__ .- __ N a.:]y' j'- - -

R M A N A G E M E N T m - e o = a mon =

$[ $9 Wik '

==n.noe = = am.orn . sorr.w nu m.n.o.m.vA

.. win . e n-ou -. -%

g@9mtnondstwut andour sWegyfor he out tot team are me eersor mana0ers sw below and on tw tmust kAse needs Choopp fotowingpa06 cenernsen W pa*

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_ _ _ . . - _ _ - - - . - - - ~ - - _ _ - - - - - - - - - - - -

FIN ANCI AL INFO R M ATION INDEX kd ' J. D r' h I

CiticorpinBelof 40 vew emeneeses of cetteerp en summaryof Financistneousts de Statmentofincome Analyste 4F NetinterestRevenue &

Prtsson and Alkwance ky Pnch Oecht Losses 4 Fees.Commessons, and Other Rewnue 48 l OperatingExpense 49 income Taxes 40 Geographe Dstnbution d benue. Eamogs, and Assets 49 l

pinancias nepertine neepenemmty at nepwtofIndependent Austers 81 ,

\

1 Statementof AssountingPetteles 57  :

StatettoFinanotelStatements OS i ptneneleittettet6cs 73 i

m M N

C I T 1 C O R P l N 8 R I E F ImIng -

Comessen StockheWees. 50 000 ,,

Doc Stas Domeste 49.000 "" "d*,32pm

• as4 ewx & g Owrseas

,q, m .

39.500 eumny7 Nasa em * *,g 31 4 48,500 United States (1214 offras e 40 states and the Dstnct of Cdumba)

Ottar*.N A tranches 301 a.s 01 dust A N A . subsdares 65 Ofder A (New York Slale).

N A.trarv:hes 46 Olitar* (New Ynth Stale). , 1 N A.situdiares 35 Ofcorp Smrw3s 236 7 Other Ole p subsdares 531 Overseas (1907 onces vi91 countnes)

Otdura tra;rtes and f reyresentahvo df trs 78h ,., .

B.inkn y subsdares 609 B.tokir q :.thhttles 9t) '

Utlw 4 lu ur K'tal <tMilules

< sinh an ktenw 916 a TotAt toesssTic Asse ovsasaAs 3,131 s l 7

ar suo one ash ees WP em We ego est IIW ett and sah est 40

l j

l l

INTUIWION AlfWLAGE ASSETS

• RETUIW6ON000A80N INT 30000m AND000A00N STOCIU40LDWts'ReurTY* DlveWWGPWI804ARE nou,a mum N RME.4VDADO Ar tu , r.t s tsa l

' 1 i

M e l 29 1

4.54 I'

i erf me que eso esi ear e ses em get seri rese sus e ist ser seu ions e sus e/7 est tre suo est est ese est sat ens l

==..%,% m w - , - . ~~ . . e. ,

kunsgrLapew travtakt #$4p i l

.ms

'I.. .

r T H..E. B U S I N E S S E S O F C 1 T I C O R P i 6"llll3 IMEE E

" H":::P D'."~.leC ::

habilites of a fnancalinshidion are pnmanly monetary in riature.

1967 under thelaws of Delaware and rs the sole Durtig penods of oflaton, monetary assets lose value in terms of Cahcorn a holding ccenpany was in shanMider of Cdbank,N.A bday Cecorp wit)is sutxidanes and altistes, e a muitnehonal finanoel serwces orgaruatson. Its purchaeng power, and monetary haddes ham correspondog pumhasng power gans. The finanaal strements and other data appeanng vi trws annual report, and in partcular the descusston sted of 88,500 peopio senes the finanoel reeds of indmdurA of inleest rate nsk rnanagement on page 34, illustote how buaneeses, governments, and tnencelinsatuhans r) oer C& corp operates ri an erwoonment d chargng intere rates 1100 lrrshnns, indudrg branch banks, representatre othces and andinnetsonary trendrL m emntary and affihese olhces in 40 states and the Detnct of in order to mset the challenges of today's and lorrontWs CohJmtne and 91 other countries Ihroughcut the worti marketplace, rarwp has orgerwed its actmhes aruund customer-l Ceoorg omhww and ther stbodanos and afhhates are subpect onented core txminesset tie bdedual Bank, which focuses to reer.se compenhan ri aN aspects of ther busnesses from on sorwng the needs of consumers, and the inshtuhonal Bank, ,

bo#1 benk and nonbank nettuhons that prende finanoel services Irurstment Bank, and Informaton Bueness, whch work in (

and, ri nome of their achvibes, ham governmardalagences. conpJnchon to sene corporebons, finanoel nottuhons, and gern-

The rnpact of riAston on Ohrwp and other financelinsteuhans

' monts, For further riformehon agarchng the core busnesses s egnricansy ddlerent kom the anpact ri industnes that requee see the sedor r*mmaonsbelow a high pmportson of tweetment n fixed assets The assets and S E C T O R P E R F 0 R M A N C E S ges? 100C000E-40C7088 A80D C0wCftAIS fTERSS IIt00MOGAAL BA801GIIS indudual Bank a:ynngs rose to $462 mdhon, up of% or w.n . a . im w. 1ees ses* .. w  %

indmdualBanking 8 448 $ 327 $t33 41

$135 trulhon twer 1985 Growti n not income was arfueved in most d the Sector's maior buoneeses, both domeebcapy and atwood instdutonalBank Producth deirveved toinstdutonal Domeshcapg samngs tyms wee peced by the Sodor's nehonal credd card and n ertgage buonevaes and the New 'rbrk Retalsonships 443 400 43 11 l branch systern Conhnung merlet share genna enhanced the investment Bank Products Sector's domment market pombons r) cmdd cards and r) delmwedto hstduhanal Retalon-hos 387 290 New trk. The Secler also conenued to budd As netonal mortgage 67 23 bank where toen ongnehons reedied word hpielt The Pmele investmers Banking (

Bankng Grote shoned esong eamngs gens do,T : :W and Products 73 134 (62) (4) reernatonapy as loan and depost volumes, assets under informaton Bussness (34) (8) (26) - i management, and securees-$ahad e,enues nemated agrshcarWy SectorEarnngs $1,30s $1.143 $157 14 The Indmiel Bank's reemenonal actMoss ri thee geograistuc  ;

Corporatetiems $343) (145) (97) (67) regens-Ame/PacAc Europe,anomaan Amanca-alsopoeled wenternoQeur 31,ess $M $ 60 6 M i,a.. w s,+,o m .s m ., w r. The anpromment n Madual Bank souns was unven by da

-card p p W Fie New Wrk i branch system, and mest perseas educes-whcfi eubstantiapy  ;

enceeded corporene stum largelt whde stums imm other dewi-opng buoneeses were below corporale hurdlet Awarage assets ricreased ??%, led by imrtgage and cred4 card acevdes 1.oner domosec reemst roles habed propei demand lor mortgage knenorg to ecoid levelt Fret morige0se gew 30%

deepte $46 teon n hret marige0s seios, as the packagrig and seang of mortgeons has become an reogrei part cf the buonest Ca@ecorvebius rose 20% ahde caro accounts ricreased to 175mdhon 42

I Re enue momentum contnued as customer net revenue INSTITUTIONAL RELAfl0NSHIPS j ncreased 35% to $56 taiton, pnmanty related to Ngher customer Instdutonal Rotatonships' results include earnings from the asset ard habkty volumes, whch grew 23% and 2 fk, delivery of both instdutonal Banking and inwstment Banke ig seepectheN Fees ncreased 3fE, drwen by record mortgage products to corporations, gcM nmerts, and financial ostitutons sorwong volumes and the incrcased credit cardholdef base. woridwrie. The tabe bekw summarces Sector eamrgs Higher gens on sales of rnortgage pass throughs and morigage-baded sewdies aM contnbuted to rewnue growtrt INSTITUTIONAL _RELArl0NENtPS_. __

Ti a rapd u crease ri customer assets anr1 revenues was

,,,,,,,3n,,,,,,,,,

,,,, ,gg,, y,A -y, accoTipaneo by Ngher credd cyde expense, wtch ric!.; des - - - - - -

wnte off s. The Ngher wnte-ons wefe dnven by volume enemases, Total h $3,464 $3,361 $303 9 par tcularty ri oeckt card racervables, wNch have an histoncally son W e Oedd Ngher credd k ss exponence in the early years of portiolo torma. 300 389 1 -.

bon. Addr',une tv wnte ons wee Ngher r) certain segments of the OperaengExpenses 1,833 1,733 100 6 moble home ror tioic ch;e to econome condrbons n cer' ar. parts incomeBetore Taxes 1,441 1.239 202 16 of the Unded Stales, The Ngher wnte-offs were reflected n the 8U.10000am _;__ . $ 900 $ 690 $110 16 comparatNe ratos of net loan losses to awrage loars 158% Average Assets ($ Belhons). 75 74 1 1 compwed wdh 123% n 1985 The Sector was charged $59 rnihon naturn on AssetsW 1.06 0.93 0.13 -

channg the year to maintsn As alkwary e for possible credd losses Return en Ecpty(%). 23.0 23.2~'"~3.4 --" -

at .50% of ye y end loans, the urnpamble chargJ u 1965 was ,QL %,,my ~~-

$61 mdhcn in contra ,t to the 35% increase ri customer net remnue dottery insitutonei RelatonsNps' 1986 earnngs were up strongly despte expense rereased by 26%, or $700 rration year to yeat TNs a cor*'ang h@ lMI ci credd wn6e ons. The Ngher wnte offs increase was prrnanty related to the suppur1 of base busnesses, refMed ;he pergslert weaknesses 01 certan ridustnes, both partcuta9y n the area of Ngher processng costs b expanded de mestcaN and omrseas The Sector's strong portormance was 4 customer volurnes The semainder of the ncrease was daccted bolstered ty a $46 mnon af ter tax beneht from the rnpact of the toward inihatrves aimed at imprcMng our longee term positioning Tu Reform Act of 1986 on lang leases, whch pnmanty and deve60pment of new rewnue sources. nctudng accusitons. reduced tax expensa Last year s earnngs bcne6ted from the and ovestments vi ma$etrig technology and product $19 rmilon reduchon n New trk State and Oty Iaxes relateo development tolewragedleases

_ Revenuen from instdutonal Relatonshps were daned from a ,

IMOlVICUAL SANK broad range of inancal products The 9% rcrease r) vewn.es  !

. ,$ ,, .u. ,gss. ] g Ned sagndicant gens c hs and commissons and c#)er rewnues. wdh strong contnbutons from nsk protecton products Customer Net Revenue $8,438 $4.180 5i d58 35 and adosory actNetes. as wed as gans from sales of arenstt lease  !

Expenses resduals Asset related credd reenues were down 2% tor the year  !

Credit Cycle E xpense 1,474 1.000 476 48  !

Ddrvery Empenso 3,303 2.692 10 26 i TotalE ammses $4,864 $3,692 $1,176 32  !

l Other income 72 98 (26) (27) l income Botore Taxes 848 586 256 44 INT ale 000m $ 448 $ 327 $ 135 41 Aworage Aswts ($ Billior14 71 56 15 27 Return m AswN N .44 59 06 Return on Etpty N 14.3 14 7 1 f, o . -a .o n . . . . . n . . . . . . .. . .c.

43

=

, . =

l' due to chang catti coNechons 51 tash basis loans o the prevous commesoclloan and lease wnteoffs were $393 rnlion for 1986, year and epnong on certan ecuntry debt restructunngs. Fdi year up 5% for the yeat The wrrte-offs ranslated into 69% of the j- Opersing expenses grew only 6% to support the rewnue fulkyear average commercalloane up from tast year's lewi of massess. 65%. The inshtuhonal Relanonshp.' provisort ior possible credit Eamngs romaned geogreptecally drerne wei spproxrnate#y losses isiso renected the rnpact of muntanng the credit allow-haf eigh anna to Norm Amancen operemons Eamngs grown ri - ance et 60% dioens. -

Perth Amenca and Ame/Pecdc ofeet dochnes r1 Letri Amenca On a geographc bass, ricreased canvgs were recorded in and Euope, the Middle East. and Afnca The F1nanoellnstitutions both North Amenca and Asa/Pache on st vpiy hgher fees and Gmic wendt operases wohin al me g&y.pruc regens, recorded commasons and other strenue. Lahn Amer?,a's eamngs a modest rosene in earnngs awr last ,eer dedned due to simnger cash cu cecr4 latt , ear and the Key portarmance n$*Jors rnpromd on a shgrey hsgher repnang impact of certan country debt restwt ongs. Eumpe, merage asset bees, generobry a 268% retum on equity and a the Paddle East and Ainca posted 10 ver estwgs due to hgher 100% mbamonaeosta wnee cNs and mahgnmant expenses Cashbeecandr.,--;-r Edloanstota: led $2,554millonatthe teethetensiSemidaspoedients _ _ , , _ _ _ _ end d 1986. m 8306 rnmen Imrn last yeeJbnewr, the; ratio of

• * *'Su *

• se69 cash bees and renegabeted loans to blal loens was 2%

d oes .

WAR  %

unchanged from the 1985 lowl. The par to yser increase. in intelRe enue . 48,834 $2,549 $86 3 nonportormngloans was spread across North Amenca Eu ape, OperehngExpenses .. 1,813 1,477 36 2 tie Midde East, and Ainca, while Jacmanes occured in Lahn Instemesses __f_,,$_,_9__$,400

$Q , .,,_1 ! Amenca and Ase.

mn=ama

• es wawwemon- Awarige assets in 1986 were $73 billion, up $1 tzition hem 1981 1

Eamngs imm the deirery of Irdt emel BanMng prxics to the innaeumansi customer base were $443 miern tor the pane t1% Basedng__ _ , ,

oe 198Sameh a3=_ p sy, m aas_ VAR  %

_ seens_ .s954 Rewni es bom kiebiuhmal Banlung poducts were $26 bAon' TotelRevenue . . $1,000 $812 $217 27 up 3% over trose of a year apa lhe s ceased reenues stemmed Openeng Exponess 33D 256 64 25 tom toes and commasons wm other emnues Howem skmg osvgsmoosso , , . g 387 $290 cash rear *va on cash bass noens n the prewous par and

.epnong on cortan country debt restructunngs resuted n lower g g g g g - - ~~- ~ ~~$ 67 --23 assel elated oedit sqrvenues heiduhensi Senhng's meu'ts ano Camsngs imm the desvery of hastnent Banlung products to the ehect a $46 milhon benefit mieled to the rnpact of the Tax Rebrei ristbudonal customer base were $357 mmon br the yeac up Act of 1986 on ME+j leases. Operebng expenses were up 23% omr 198Ss eamngt on>, 29, br the par deepte the adverse impact nf the weaker Reenues imm heernent Banlung prWucts advanced 27% to doser cn overseas opersions and cos.: saarv=ted wth the recars

$10 talon for the year The reenue gens were fueled tn sharpty feehgrment of cartan buensues. the realgnment has resulted n hgher ises and commasons -partculerty ines reisted to corpo-a rr. ore stmemhned expensebasa rate restructunngs, nek protection pm&crs, and debtlequty Citcorp conhnued to rnartan an ag)eserve post'pe n thn sweps arranged lor cuelomers-plus ctrong commercallorogn ecognihon of both pubhc ard pnveis soctor wnte oft Net endienge actMbes and ripened fundng nhenues Operating exponess were up 29% lor me year, enschng costs requesd to support undertying strategc niebws and to ma.nlen the hsgher volumet The enmngs gmwth born irwestment Benlung proicts as speed geographca#y .-

These resuRs are giac ricbded r) the r6an marvi of hwettment  !

Banlung whch anmediately lotows me sectort

)

i I

44 1

l

4 INUSSTRIsaff BA801(1000 BMFORIAAt1000 SUSildSSS ANO 00RPOR ATS #78308 Irwestrnent Bankog at CAcorp encompasses seconties actmtens. For 1986 the iniormaton Busness posted a k>ss of $34 trulhon loseign excharge and morwsy market te song. equey products, compared to a loss of $8 rrulion r11985. .

Senlise captal rwestment, merchant bankrg twestment management, nsuranco, trust, and aestodal serOces. 191PORIAArl0000U8401888 Earrangs wera $429 nullen, a shgtt nse over ISBSs. The rnpact d tubstanhany Ngher equity product eamings through wnture uuoisce omans

-- - sees 19853 W  %

captal gens, strong besgn exchange encune, gans from securny Tdalh . $186 $- $105 -

rwestmvits and osurace, and ricreased fees and commessons Operating Expenses 181 14 147 -

was onset tyy lower securdies tradng revenues and Ngher oxponses inuyne Bedorelaxes (Sep (14) (42) -

Revenues of $19 been grew 2f% over last year's, propelled 88TL888 t a-

$ (Sep $ (8i $(26) -

by Ngher equity product eamnga through venture captal garis, ") aa"8 8"*c' *oa"*'* c'**"

neressed revenues hom icreign exchange, remes b it e year.to-year meresse pnmanh reRects the costs aser natad recent acqtsudona a$nsory tees, and @er cornmissons Tradng eth the June 1986 acquesbon d Ouceert The @erabons of revenues-whch remaned an amortant contnbutor to omrall earnngs-dechreo in compenson utn fast year's refWctrg ethcult W exdudrig Ma'itaan costs. are prontatse, having adsid

$9 mdton to C& corp's not incx)me ance acquianort The costs .

condeonsin Europe and North Ament.a 'i Operatog expenses grew 43% for the par The recrease of acquisibort inclu&n0 amortgaten of premetrn and the cost of '

was largely due to costs assocasted mth recent acqusator.s

, g ggg gg

($77mnort thecontinuedworldmdeexpansonof the $33 dier stormabon M oane

$ses cheige d $D miten n 1986, .

l Investment Bank trenchse (180 methon)-rv,luding expenses retaled to the development of a global systems retwork to support # $8mdienn 198E j ins espansion and the costs of sustanng the higher volunws The adverse impact d a weaker dofar on oerseas operattons 90RPORatsn M l also coninbuled to the hsgher expenses Averas e assets grew by a viu ma rm aas sees "Mi5 N  %

18% to $39 bihon, wNie retum an assets and retum on equdy corwoued to exceed corporale targc:s.

TotalReveru $ SS $ 38 $ (3) (8)

Operating E<penses tot 108 41 38 Tradrig ard positonog in begn exchange, money market prov,ssonfor Pr)ss ole Oedd ard securdes .nstruments atd commercat foreign excnange Losses. 388 -209 176 84 accu antal int app'oxtr.alesy 83% d total kwestment Bank Incune Betore Taxes (408) (279) (220) (79) earrugs Equety related prodtcts. inchdng venture capid, segTLMS rordr*.tused tf% ~

$(348) $(145) $ (97) (67) l A re utor porton ol lnvestment Barw eaming'. in 1986 came Aerage hs@W 1 -

1 -

trum pre xiuch said 1o Institutional Relabonshqp customers D e ' W 5"** * *' *9'***' *9'8 p(x k.ts rr.lur to loreign exchange and hedging products.

Corporate dems consatt of the pr'wisson tor posable credt losses la w waat:wMsvry setvra debt prodictr, twestmort manage nord. we porthin wrvres w W W me W M as W as N M W W costs and other corporate dems The 1986 norease si covirate l G'twpepf w:ady Notth Ar ierca cortnbuted apprnxrnateh hall

. terns pnmanly reRects the Ngher addstons to the allowance tor

<d totalinvestmetW Ehnk net ricame, the Assa/Pacife regson 23%'

wth f urope. Irw Mririlo East and Airca. and Latn America W M W WW $176 mdhon @ m 1985 accatsittg kW tim t4urJ 1

M i i

. ./ . 4, e a.. M Fist 9' vAH  % I LWalRnvenun $1,004 $15t5 $320 ?I Oprairr:E spine,  !

1.151 806 346 43 j berne fuito tases 883 146 (64) (L  !

INTIIIeefst 8 4N $ 424 $ 5 1 '

Awi.rmp3 Ascre,($ Fhilusr4 30 33 6 18 Rt*rn tri Assnts(*LI 1.10 t 28 (tR)

RNien tribyty iN ST.S 3? ! 44 0)

, w,,,s. , m . . . g . . ... .. . , r 45

SU M M A R Y OF F i N A N C I A L R E S U L T S e

WPWNAE NGFOResATION gdEgg . c. tll:ws: s e -

E .ogara CITICORP AND SUBSIDIAR,lES

~

teot 1985~ ~

1964 1983 1982

~

simuows vou ams

( ECEPf prh $HAAl an4)e ssf $

A'# v%I d ei&N(d AWA;e at

~S g nae,.h atAv gjNT . e.A v d T

- - . ANS4MT.~.(lBt48 45 aunygt o.an.(g Not Heroet Re,enue $ 6.138 13 $5.446 26 $4.319 7 $4,043 15 $3.526 42 Foss,Comtressons and Olher Revenue 4,272 41 3.030 32 ., 2,300 25 1.840 15 _ 1,595 __1 1rsintamvenus _ _ $16,400 23 $8.476 28 $6.619 13 $5.883 15 $5.121 26 Proween for Pesable Credd Losses . $ 1,838 47 $1.243 --

S 619 19 $ 520 10 $ 473 55 Operatog Expense ,

,8,875 25 5,517 24 4.456_ .._ 19 _ 3.757 , _ 11 _ 3.398 _ _1,6 1esatamassa $ S,700 to $6.760 33 $5.0TJ, 19 $4.277 _10_53J71_, ,19 income Betore Temos 8 1.700 (1) $1,716 11 $1.544 (4) $1.606 28 $1.250 54 iniatie Taxes . Sea (11) 718 10 654 (12) ,.,_ 746 42 , _, 527 , _88 artsecoeut 8 1,488 4 $ 998 12 $ 890 3 $ 860 19 $ 723 36 perthere Not income'*

On Co.rvtion and Cor, mon i Equneent shares 8 7.14 - $712 10 $6.45 -

$6.13 16 $5 60 33 Asaurtun:JF ullOdutvin 8 7.13 - 57 11 12 $6.36 3 $615 15 $5.33 33 Omtends oociated per Cornmon W $1.848 (14) $2 26 10 $2 06 10 $188 9 $172 10 Total & seats $196,134 13 $173 597 15 $150.586 12 1134 655 4 $129.997 9 eget'* $ 33,383 28 $ 18 255 24 $ 14.682 20 $ 12.221 16 $ 10.566 25 gio,,,.o. .r a i,c.,, .n m in.. s ,,.. n a e,,94.e i .+ . .,'.a. .is.a,.es o, se> = n a so,ee sons som, ann e ess4 su e a m a , t s4,,.n.,, n rw

'i te,p, -y m t).. w, tris,p,.nar..d *w , ircav:ts w.ss . .t. . . n n w.s a v.a. w y m As nr aien s ,leius s . rid 4Fd M&lrdf ul.l.#10 SdGWt@t OFLemDF, .Vid . 1 4Ap. h 4s J W4'tudy Fwer ebwe t taA usve D. Asegls " Wits Js t aar'(kaeV 4. h e.e n.s h eass ess A c Pet $ P944 Pidtl .g4l f947 s i. 's an as t ieg & ere ihti Sder A,6m=H. 4 af.s 4

• s .w.f le,6,*.de 8 %* <*>.s ',A. e i

\

j i

i i

l l

i

.D

, S TA T E M' E N LT 0F i N C 0 M "E A N A L Y S l S XrnillidElll E J INTNfVEREST REVEIOUE

$11lllll6 *._a.I+13b~ ==

PROVIS40N AND ALLOWANCS MEASLE BSUNMENT BASIS FOR POS$4GLE CREDrT LOSSES he corenued rapd nerease in consumer loan t

' Citcorp has conunued its pokcy of redectog all known losses n

]

wiumes was the prrnary lorce behnd the 13% current eamh gs. In 1986, tre total ocean tar possible credit ncrease n not interqNt rewnue dunng 1986 Despie losses was $t825 mdici and neluded St371 mdison of net credit a sight descase in the net rate cpread from 398% losses while ackkng $454 rnelson to the allovenca in 1985 the r) 1985 to 396% r) 19866 net storest rewnue grew total pomon for posasbie credit losses of $t243 rrullen ccated

$738 mdhon to total $63 bdhon for tt e year. The domeste net rate $962 rathcal d net credd losses whde adong $281 mWon to the spiend ricJeased 25% to 473% targefy drren ty hsgher consumer allowance, and n 1984 the comparacle amounts vee $619 rnsson, outstandrigs. Tte lower overseas net rue spread reflects the $507 milhon, and $t12 mdhon, renrisr%ely The anowance strong cash cottoctons on cash bas s loans in the prevous year, for possible credd losses idan=d $1Ai98 mikon at the end of 1986, repnang on certan ccurtry debt restrxtunngs, and lower yeld on renc: tang 130% d total loans and luese friencrig in 1985 the cortari o erseas Wadng securess. Hgher consumer loan voltanes amounts were $1.235 niden and 106% and in 1984 $917 mdhon and a 37 bas.. port increase in the recest rate spread were and 083%, trac'=8y anpartart factors n the29% roesse r 198Ss net ruerest resenue Not credit loses as a pementage d perage consumer noens The 9% roesse o net reerest reenue n 1984 was generated by wee 158%, w fro n 123% r11905 and .78% n 1384. The tugher an ricrease ri consumer loan voksnes. level of net croca losses pnmarWy idectmen growthL pertadetty Aerage rierest eamng asset wksne d $1505 bdhon ri 1986 ri credd cvd recer.ebics wh c:h has an asitanca#y higher crertt was 14% higher than last year, whereas the wiume ricreases vi lossexpone sce* dragtheewtyyearsof pNicholorr'tetort l N85 and 1984 were Off and 12% espectrety The 1986 ncresse ' edthtionapg wrne-offs were tugher vicertar is. ~ pnetts d the ri loan volumes was led by a $90 bdhon ricrease ri domeste - mobde home lo6.1 portfaho due to econornac a, ek,i6 rs consasner loans. prriccany n mor agsge and crudd card actretes. cartariregions d 'he tru'ad States.

Demarvi br shcGet inanong was streng ri the low rderest rale The 5% increase n not ci. vi euel ocC.i lossi.s e 19685 owr erwronment the prevuxJs year renected the corte sued weaknr ss ri cedar) h 19rt6. n aernahnnal reevest earnng asset volumes were abo industnes. both domestot#y anc' vrseas Such ruastnes  !

afkx*xt by the appreoadon d sewral key currences agarist the neluded shippng and energy in adddior' wnee dls erteled c l US dolLv toregn debt sesvong problems contrued e certani crjseip.' The rt.to d net credit losses as a percer.' age d eerage con u

.t i IIET RATE SPREAD 1EX ASLE BOUIVA&2NT BAS 48 loans was 72% r) 1986 compared weh 6S% 6i 1985 and J8*. n l

,,,, , ,,,, 1984 The ten year average of this rahois 37% Hgr at recoenes hia versta. Ofir.cs * #

4.73 4 48 3 79 ir Owe #.ss Offr.es ***" '"

S.87 3 45 3 44 Tet&L 3.SS 3 98 3 61 problem Cretti sduations The luitowing drscussen and accowig tpble senect he pronson br posasble oedd losans anocated on a managemert bases Cshcorp cherr;os es sectors adh a rJedd loss IstMeon that j martens an arowance at a level thel podes a measusrenert d costs ageret sewnue genersten conester.t w*n th. . cwr #1 which Cahct tp manages da buensenes and mW ..nnsmiental I txisaness oecreens h any time penod the total abovence reQured i to preser A the total toen portioho in accorderr:e val genereBy a':c4Arsl act tuntng pnnooles may be moe 5)hn that ghot aled to l

l 41

. - - - - 0

tie buonesses. The additon.sl amount along with its related provi- Ucts were dnwm by contintA!d strong consumer spendng, while sonis recoded at the corporate lewl. intematonally acqmtons and a tavarable breign exchange impact fueted this growth Signrhcant gaens were recorded r. prod-POR POGSIgLE CREDf7 LOSsas _ [ OLts dehvered t y the hSituhonal and Irhestment BarAs, with strong contnbubons from nsk protecton and advisory achuties, maucesce oguaas ,,,,,,, ,_ _,, , , 200,, , _ . Ge5 y corporate restructunngs, and nsurance. h addibon. Quotton hemidneelReeds:

has contnbuted $127 mdhon n lees and commsenns str.e cs Gsoastoen andLease acossten nJune 1986 Lossu $1,173 4 719 $386 The $437 million noe vilees and commasons recorded n 1985 LoanandLease"sw , 214 134 130 mer 1364 was prenanly mable to rnpro,ed credd card 'ees Not h oNs 8 988 $ 585 $286 n the indrvdual Bank. ncreased letter of emd4 actrvey riinstau-Adddnns to Anowance. _ . M , , ,, .,, 61 __,,_68 tonal Bankng and less ham diershed actvtses n inestmart Total hdividualBar*. $1,017 $ 646 $35d B""k"3 lactng revenues deemesed n 1986 to $182 mdhon from N Beeds: $210 mdhon. 23% below 1985 Tradng results, perbcuistty secun-GscosmndLemie nos tradrg can auctusse grwon market rrommerts and the natum Losses $ 473 $ 445 1277 d poemons m The decsosse n 1986 rewnues a pnmardy Loan andLease Reco enes 74 65 56 e mea of diNoA market condtons n both Esope and Nor1h Not m ess 4 308 $ 380 $221 Global toreign W nminus, from beh customer commer (Reductons hont Adddons to oel trenmartnns and rierbank tradrg conhnued to be dMnwhad Anowance (4) 9 (9) across many profit careert Famign e% w d Tot .Ibestutonal Bank 8 300 $ 380 $212 $412 rmeen ncreased $54 mdhon over 1985 pnmerdy renocting cont:1ued gensin AesandEtsopa Oesperate Add #iest investment secunhos transechons posted a strong not r,ari of toAnswenee SOS 209 53 $214 talhon c 1986 compeed adh net gens of $50 rnihon r.1985 and $16 mdien n 1964 The rossee ri 1986 of $155 mdhon reReds Other Psonson(11ccurvd 33 (1) -

strong gens n North Amenca nno Europe.

vgus,peserte0001 $1.415 $1243 $619 Other revenue was $506 mdhun n 1986 cssd with $200 md-tann c 1985 y cf $197 mdkri n 1964. The eeong anprwome0(

Anocairq tt c .orporate proesot tor poss,bie creed iosses n n1986znircu 530 mew ri,legen, condorrrwr y with genera'! f accepted accountrig pnnegdes would gensonthe salesof ensure captal t%e rest 4W n neromental preta s proveens si ty1rvwal Bankng geris on sales of moregege pass 'hroughs, and other asseta m $226 mdhan lor 1986, and riemmental opeta a pronsons n insb in t985, other revenue wat pnncipe#y dorwed from gens mal-tuinnal Banking of $159 rnfloorilor 1986 The resuenig consumer ited on sales tortgege portiolet and other assets, amounts alinwanro ky gxetic crodd losses as a peecenlage of consumer scened ri a contract esttiemert 1. ad gens on sales d astral 1 and loans nutilnave txwn 1 t/% at year end wesus 85% at Deeember redcar lease remduals h i964. Other nhenue incbdert raers an he 31,1985 armi the comtrwwoai a'lowance lor putable credd losses sales of venture capdal swestments of $49 mdhort a $12 mdlon as a porcerWage of commr cel toens woLdd how been 156% attor taa r)=n oriine sale of an Whhese, a $14 miten gart on ther ,

vnesus 131% a per ago buytxeck al the corporebon's cornertible notes and gens an males {

of real estale. mar egeges, and cher essett Total lees wrntf summir, erid other travenue of $4 3 enern si 1986 ancreaw141% nr $1742 mienyt mer 1981 the totalr11995 was to gg

$130rnitun aw 3?% iwo 1984 ' ' * '

' "" # 88 'U 'esea pees erut nsiviesw is annawi $856 mdirn (s 40% in A% ele Earnings $ OG $ 68 $ 78

$30 tien n i ri #9R6 in an $P l iseu vi ri 1985 h>vebal Bar* sin cm Gans unSale niReschatVhius of Locwd triiutad$286nveinvud neuronth WmawsnUS CodP'tx1 Equiprnoia 51 43 14 Not Ganson Sale /Chapostenof Assets W 73 24 Net Gann on Sale of Mortoege Pew Thenugh6 1?$ 43 11 wwsiecCapdelGens  ?$ 26 49 j Owen econ $$ 74 21 j 195L

$ N S $29') $19?

... ~ ... ... ~.. . ..

48

i l

l 6 EXPENSE change the poeng u teases The elmnation ct the deductron for bias operstag expense n 1986 was $6.9 bihon. up $14 tuikon, nierest expense attnbutarde to newty acquned nate and mun coal or 25% owr the $55 bihon posted n 198E the 198; nevel rose tax exempt secueses will erther reduce the attractrwness ut anl, owr the $45 bikon recorded n 1964. that rurstment ar cause banks o general to requwe hgher intarest Tie Individual Bank's actubes expanded across all major busi. rates The most potentalty sgnrhcant new rules r)the 1996 legrsla nees segmeras ni 1986. ncsudng the compiehon of several ton are those deahng weh the uSlaxahon ci losign neome and  !

aoguetons wehin the unded States and the purchse of a lete new Imtabons on the use of tosegn tax codds Ther impact c,an. l reurance company n tne UK in addeon. the indedual Bank's not presordly be assessed due to ther complexdy and the absence operatog exoenses mercased due to hgher processng costs n

{

of operahng rules and expienations. HowsNet the apphcaban of j nupport of expanded custerner volumes, Expenses related to tre tr6nssbon rules should tend to dmnah ther rnpact to some extent i inemuhonal Bank rose mociesth Imm year to-year renectog the over the textfewyears mehgnment oi cortar bussnesseb dunng the year The investment tienk's expense ricmse was lasgely generated tu costs asso. OF N acted witt' busness and technological dewtopmert. as well as expenddues stated t newty acquad businesses Expemes of tio Hormamon Busness ricreased tw $147 mdhon pnmardy be to on the domcde d the customet (Med States possessces we the June 1986 acquissten of Quotort The weaker donar affected e n ther espectre geogephe amas Mie aw,p 3 tie reported expenses ut oerseas operahans r1 all sectors "9 '

"W I Total stall expense was $32 tWhen r11986. up 28% owr 1985 " # S* O P89 '

1985 utan expense marked a 21% ricoste over 1984's lewi The ther discussen of N pnncip% e and eHocahona 1386 nerease renects addrtional sta# of approxanately 7200 peo, aremadetopeserwsona ,n@basit pie needed to support our growing busnesses, plus normal SE earnngs we@ mNon, upM6 mton, cr i 1

comperisaton rictements and higher beneht expenses w a yearaga h M g Womeshe operabons  ;

i Net premses and scppment ospenses noeased 29'k or memN m M WAscqW l

$281 rrviknn. r.1986 to $12 tWhon Thrs expense increased 25% in ownues asse eletow peduch gains on me sales of 1985 The current year's incesse was largely attnbutable to costs w e m W e m W W W and assncated wdh buoness expansort ricludog recent acqu 9 tens sent N000NE Y$.XES tcule.rty morigeges and oedit cards-and anproved sptgeds con.

Catcorp s cAcctmr la w rMe was 377% in 1986 compared wi'h 418% hnued to conenbute to sgndicangy higher asset leisted credit r) 1985 and 424% n 1984 The deckne in 1986's rate was large4 revenues hchvsiasi Bank rewnues wee also buoyed by hight 7 attributable to itic effect of the aan Fletorm Act of 1986 on the laa lees and commrshens and sohd garis on sales of mortgage pass.  ;

rates aophed in the itNeraged lease porfloisa increased capital throught and mortgage backed securitiet Domesbc hestuhonal I garis ano hghnt la x onempt wicome, parfly offset by lower Inwst Bank eqMenues inere hi@ist reiscting ncleased lees and commes j rtu' sit ta a credds and hsghrv state and local 18 mes

• scWit parfly o# set by lower asset related codd evenues and i Thn 1986 Fodoral ocnme tax logrstaton includes several provi kwer gains on seles of lease residuals heetment Bank sevenues 9ans triat may anect Cdctwp and ds ousiness The Federe neome weve hgher, drrven by vetture enodal gains, neurance less, and i

ta r;sts re 1urinn from 46% to 40% tor *387 and 34% tor 1988 and increased lees and commer.ssons reia'ed to corporate restructur. ,

%i d N 4 not it year'. W 11 tritir.e the currefit tar habMes ti years af ter angs and risk pelection products. these acreases v4.4 par Wy 1986 in m pre 1987 reisenents The changes ri the tas treat reset th lower domeste macunta s trechng evenuet rTw.nl nr had fire kw%srvi res,cr ves are not es pected to have a Offsettrig the strong domeste revenue gens were avbstantet rthshvia' efkct tri r ui d a i nu t t r aore i changes consest of (1) the new increates ti thf,r domestc credit wrde ons end operating empenset i

ser y sprw w vi that I a Ii k ii k s*Ms attiw 1986 can onPy be deducted wheri o wi#9x1 Lft 4r ri i?) tt w e trw pmmert that (1ndurtenns pre vuvity . IanwwI k n .y k lite w ri to the .or or ve lur tvert dritss must be i

sesk wer: to la e at do e a i n u nw w i nssertty la act! tuw the pct:od 1818 7 19 10 f rwiru wiv v.luerv>'it astevnate.frarianurn tas whcb wdl ru:k le h.dt ad ft v esi e ,*. of tekerwul ru1mHmw tasut 4) inrsrir* s vihvWkilo .it(dy e rily ka the US *iul Am&4 mis and afh e ains d ( da a vp iad erhet inovi*a em (neey vtiertdrvt hmise igr*

afk e 19f 9 The ngkw I et.wir id lere,1wt Animwir arv=W yet he aur tarwelt onmdtte emos t.f 46 bi'assy r:9).sieristoesttant tu nn, d as tolas 44 dkwl Other tw% getst*. aire. blh.tve *dwf ue stquet limit ds::sp iim6s rue.srss Thu 04lrturwds n ni tt u e m**.kruitd I,t s s.rtu M wils at le.tst 4'l

_____.___________m______

4 4 Cons;rner loan losses rose sgnifcantly dunng the year The _ The accompanying chart provdes a treakdown of Cdcorp's growth n loan lo6ses we$ due largely to growth ri credit Card recerv. eamngs usng the econoric classications desgnated by the abies, which have an histoncally higher loss expenence n the Organization for Econome Cooperahon and Development (OECD) early years d porttoho tormaton. Additiona#y consumer wnte. ' Whde Cdcorp busnesses are chersted across a troed range ces were higher n segmerts d the mobde horre portfolio due of countnes and economes, the OECD countnes, conenbunng to econome ccsics 6 vi cartan mgons d the treted States. 69% r) 198ti apresent the largest source of enmngs for Cebcorn Dor.ieste cua vi .ic.i wree-oWs were higher reflectng cordinued The contribubon to not income has gman 3teeddy ance 1984. The weaknesses n cortan nduetnes, OECD prunenty conwets d :he nducinahzeci nanons of the wertci The ncrease in domeste operatng expenses was large6y inciuctng the Unned States which accourts for.4 w.7 rr; dedcoled to rnptcNed prochet deirvery and conhnued tm.iMy' $1% of Cecorp's camings as compeed wth 48% last yeet Earrings ca! development, as well as the rcreased expenses regured from counties desgnated Newty kickstnakzed Countnes (NIC)-

to s@ port substanhe#y higher volumes, particularly rt the most pmmrienty Brazd. Argribna, and Meaco--reposent 27%

indrwdualsw*. of esmnge, e shchey from iset years levet The Lees Dmeioped Domente insaiuional Bank earrangs wieci a $46 mairn Counsies (LDCWeher cologory was E&ersely ettected by of',er tax beneht from the rnpact of the Tax Reform Act of 1966 on cadt wnteoffs leveraged lem prunenly n ncome tar in 1985, a dienge r1 New '!trk State and Cdy tax rates slutted n a reduchon of delened IE7M tax expense by $19meien

,,,,,,,,,ou,,, ,,,, ,,,, . ,,,,

The trirmaten Sumness results for 1986 amourted to a 1

$34 mdhon chargo to earnings, up from $8 mdien a year agaL NonhAmenca .$ SW S4% $463 46% $367 41% l pnmardy *tuctruj the costs assoomed with the hie 1986 N accusehonof Ouotryt Centmland Total damoste assets grew 18% n 1986 and 22% n 1985. South Amenca SS7 34 245 25 177 20 The asset govth n both years was largely atinbutable lo i gner Eusupa m consumerloan wournea Eastand Net neome from over seas operatens dedried $45 mdkon to Afnca 90 9 191 19 208 23 l

$490 nothon at 190E The comparea wth a $12 mdhon pr to year Aha/Pacec 184_1p___.'@ 10 138 1.D._ l ricrease n i985 Rot.ust stemahonal reenues from toreign M .. __c.$1.000 100% $996100% $M0100%

cuchange tradrq leet and commesssons, gains on awestment securstics. as weti as other revenues were out weighed by lower ~

gggy gg revenues tram secunties ;rariang and asset Waled credd products Operatng expenses assooated with overseas operassons gew r)

M M 40'ICMl001

~ - ~ ' - ~ ~~ '~~ ~ --" ~~

compenson with last par vc'lectsng the impact of cortarinewly * '*" "

• W M" S

- E~ 2000- - 80d..

.nlured busnesses, contsted bussness C.4.T,6;, and Totai0 ECD' 8 788 40% $646 66% $540 61% i rivestmorW r) rnpond product dc4r.=3ry The hsgher expenses also TotalMC* MS 27 244 24 226 25 l

'i tincted the ampact of a we8her US dollar on cNerseas ooershons Total f4cmdts trorn Asu/Pactc ir1prowd substanh4By lueled by LOC /Ovie" 87 4 106 1.1 .. 114. 14 sharpry tugher lees and comrwssons. loresjn endienge samrip, TWRI. $1s$$$ 100% $006100% $m0100%  !

arvioinor revenues ricludng the gain on sale of realestale The ,.is m w e Gene w es e strung mwnues r1 As;aiPacds: wrmi partMy dfast by the ricmase  !

c e.pt=s* s 8*WWW1IMustasilty highor W Afnes and Suppor1 aytriunt tur avwapensasi Lahn Anetcan samrigs were up murtes'ty with higher revermaet, from locs arid commsesons and l asWt et4diV1cr0(ift fynrincts HInierNor the heCfier eamings r1 Assa/ 'I '

Pacdc .was L atti Art =wra wnno he try chrod eamngs r)

Europo,%tMast art Aws a Thor da tunes targe#y alehdaha i

kikwnr sesmenu t#4lem;atvj aset nesterIrnwht NNertues af; i

tud. th heyhdr srde (dI4 dr'it att rM.n' %f' dli'8l18til8511(porteng s

(mass , f*.es ut art zu trtruj as (pas #tuvo.

kWei, sah t etwas as t 'as#x1 ft)N wi t936 grenarieras a *e%It of trwirtectrut ri tte'US 6 mit <tarv3 tre vear ki 18164 groof.

r)anges set awh was 4% {

-3 R E P O 'R T o S I

,' u,g ,, a e _ un a muss summ ammmi y u-  :- J R 5 5 15 5 M m a m ms ,, Y g ,,,

/%s p mmme i

FIf0A80CIAL REP 0ftflNG WSSPONSISluTY ftEP0ft? 0 INDEPENDENT ADOtT0ftS Tre accompanywig loanoat statements hwe been prepared by ine management of cdcorp o coniormd y wiin guieraw accepted PEAT is.n,,6cau asneheit a ce.

• • • ""'"9"*PP"""""'*"S'"" pm$d Pubic Accountants amounts must be based on esemales ord Judpients. they repre- MARWKK cert I sent the best estrnates and pdgments d man.W. The feiancal mtormahon a@eakag throughout this annual report ac -

cr;nsstord with that r) the frisnoat statements. The Board of D ectors and Stockholde's of Olcorg The friancial cortrol system or Cdcorp is designed to prcMde p reasonable assurance Inst the Inanaal records are reliable lor pre. A %e examnad the consolidated balance sheet of Cdcorp and j l panng finanaal statemats and mattaining accountab ht y for e

=m sasvDecember311966and 1985.therelated I assets and that assets are safeguarded agenst loss from unautho- corwv*taiM steerts of neome. changes in sicnricAh s '

nted use or es'erumsen. L wrisem o use at Cacorp prtMdee equdy and osar jes ri frianoel puerbon kr each of the years  ;

such reasonable assurance, wpported by the careld setecton n the itvee year penod ended Decemoor 31 1986, and the consoli ard tranrg of stall, ther establishment d orgarwatonal structures dated balance sheet of Cdibank. N A are subedianes as of  ;

provdng an apprognate and well defred division of responssbili. December 31 1996 and 1985 Ou examnahons were made n  !

tes. and the communication of pohoes and standards of business recc.us. rice with generally accepted audihng standards i conduct throughout the instdubon .

anti accortingig 'ry:duded such tests of the accounhng records  !

The &ccourtng pdc 4 and system of rdemal accoursng ard such other auditing prr.edu'es as we consdered controts are under the general oversght of the Cabcorp and necessaryra the cucumstances Catsbank Ekwards of E' rectors. achr'g through the Audit and Examen. In our opnon, the aloremenhonad conschdated frianoel stste-rg Comituth.s descnbed on page 65 These commettoes are ments present tar'y the fnenoel posdson of Cshcorp and sih s compm, entudy of cWoctors eso arJ nor oNcers or employees of scares at December 31 1986 and 1981 and the results of ther Cite wp t,y Chef .4uditor at Cdicorp, wto reporfs drecW in opershons and the changes r) ther finanoei poeten for ead) the Bo.ard t.i Drer. tors. conducts an extenseve program of audds of the years r) the three Aar penDd ended Cacember 31 1986.

I at af U h .tw t revicws wardwdc. carned out by a staf of rescent and the fnanoatposson of Cdibank. N A. and subsdianes at sign (f(wwirr1revawors atd traveur.J teams in adc$ ton Peat. Decemba 31196S and t065 nconlormdy wth gernerah We wu

• Mitchell & Co .tdepen1m. certifed pubic accountants. accepted accountrig pnnoples appled on a consrstent basrs e . cs w p p i lo r*mamr un xy financui statement s 86

. .. 6.st, PAtt

• a k. Mitcliell & Cc, eblaans and maintaris an under

. . ., _ ..., _, ,r _, _ a.ie coeeec,,

.s.fis

. .t.. . .. . . . ~,, _,, , .he, _ nec, it y ni trni trus N.siw:es to espr0% ttaf opinion r) ther reps t g, y,Q,. g q.g, 4 ,

l Iti.st h A e. Podt 5 Air wick Milchell & Co has trer' access to the New 'Ibrk. New York l Aielit.sluil aarfurutv)Cinttuttees withruirewartters of manarje Jar)uary2Q fW j rin sit g rivait to chvar A ttra endrfunatinn anr1ther lindings as i

to it u

• W ili'< lrit y of l'da:t rps takes ia al rug on trng and the adoQuacy 4 II trle * *.y*.te'fil1.! Witserikal W.E.(18 dirVj CnritrOPs i

l

• st '

l

(

• F i N' A N C I A L S T A~ T E M E N T S g g+gn=llll:gc:llll: g llllll + -g gg gg gq3. XElll Big 1 6 N OF.800C0005,_,,,_,,_,_,_,,__,.,,.., ,_._ ,. , CITCORP AND S_U,,BS,,,10! ARIES l

._.w.u,oo na ocu ans t acter era saaar ai<vetL,,,, _ _ , , tees , _ , , ,, ifes__ __i964 hnterest Revesnee Heest and Fees on Loans and Lease Finanong $15,875 $15.528 $14.549 Neest onDepossts wehBanks . . . 1,072 1.156 1,273 Herest on Federal Funds Sok$ and Secur'tes Purchased Under Resaie Ar,nTgs . get 1.087 936 Werest and Dmdends on trwestment Secuntes (Note 1) . 1,083 843 655 Interest on Trading Account Assets . . 788 860 1 78_1

$19,394 $19,474 $18.194 Interest Empense Herest onWs . $ 4,191 $ 8.865 $ 8.631 heest onOtherBonowed Money (Note 7) . . S 808 3,356 3.582 Weest on Long Term Debt and Subordwieled Capdal Notes (Notes 8 and 9) 2,077 1.807 1.662

$13,006 $14.028 $13.875 seeTerranestnevenus , ,

. 8 4,188 ,, $ 5.446 _

$ 4.319 Provissan tur Possible Credd Losses (Note 4) . . . . $ 1,885 ,_ $_ ,1,.243_ $' 619 seeT erruamsT asysseug m sonowmasses poe.m ansert m 8 4,308_ _ , $ dp $_,3.700 poem,e-h endothernevenue Fees and Commess,ons 4 2,979 $ 2.123 $ 1.686 1rading Accourd . ,

1st 210 143 Foregn Emchange dit 358 258 inveserners secuntes Trraectons (Note W) . 314 59 16 Or a h ainue , . ,.806, ,,, , ,, , 280, . _ _ , 197 8W_ .,$ 3.030. $,2.300 eenercoereuns sapense Svanes 4 S,739 $ 2.116 $ 1.749 S*4h Bennids(Note 13)

M 424 354 he* Stan Empense 8 S, Set S 2.540 $ 2.103 Ni t Pien.ws Expenso b'.vs 5 and 10) tit 480 391 frppnet E spense(Notes 5 and 18) age 481 376

( m t monso 8,394 2.016 1.586

$ S,WS $ 5.517 $ 4.456 hurw Botore fanot 8 1,700 $ 1.716 $ 1.544

h. w:r Taws (Nuno M) 948 718 654 g sestusosses 81 A08 $ 998 $ 890 l l Per b(Note $ i cnc<wmuiariscomnuite she,es 37.14 sr 12 $6 45 i A w stwigFidlDkdnin $7.13 $711 $6 %

A...~e..,,....s............,...,,ov.ug,,,,,,,,.%-

i I

52

CONSOUDATED BALANCE SHEET CITICORP AND SUBSIU!ARIE$

I DeCatseER 31 DECEMBF.R 31

"*5 m * .. _ . . . _ _ . .

. . . . . _ . _ _ _ . . . .. . . . _ . _ . __.?ses 985 Assets CashandDue trom Banks $ S,181 $ 5.218 i Deposds atinterest with Bar*s 15,002 12.693  !

kwestment Secuntes (Market value $13.537 in 1986 and $9.892 n 1905)(Note 1) . 12,000 9.647 Tradng Account Assets. . . 8,806 6.408 Federal Funds Sdd andevites Purchased Undef Rasale Agreements 5,438 6 343 Loans at lease Fnancang, Net (Ncts 2. 3 and 4)

Cui iracci(Not d unnamed dscourt d $467 n 1996 and $483 in 1985) . . $ 0m,430 $ 58.172 l Consumer (Net d uneamed descount d $4.154 n 1986 and $4.418 n 1985) . 08,343 55.518 Lease Fnanong . _ 3,232__ _2p )

Loans and Lease Fnanong, Net d Uneamed Dst.ouit . $130,064 $116.499 Allowance for Nssade CredetLosses (1,400) 11J35)

TotalLoans andLease Fnanong Net $139,308 $115.264 l Customers' AcceptanceLiabbty 4,700 6,396 l Prerrwses and Equipment. Net (Ncte 5) . 3,177 2.544 l interest and Fees Recervatne . 3,M7 2.653 l Otner Assets (Note 6) _ .7 t7_48 _ _ 6.431 i T81EL  ; _; 2 : . :. . . .

_ c.. $164,134 $173.597 l

ushitmes  ;

Ni n kiterest Bearing Deposatr. n Domestc O!hees . $ 13.008 $ 10.792 l kitorest Bearing Deposits n Domeste Othces 41,796 39344 l Ni ni nnterest Beating Depouts n Overseas Offces 3,791 3.424 i kitere.si Bearng Deposits n Oerseas Othces 98,436 _ 51.399

]

n daloviets $114,000 $10a 959 [

1%,. .tiawi runes and Other Borrowngs (Note 7) 33,731 26.616 l A< o13tairesOutsianchng 4,918 6.598 i A . rue =1 ta os ana Other E spenses (Nde 14) 3,900 3.581

< itta , t iatnwes 4,300 5.623 j i s,j L emixw (Nota 8) 90,005 16.316

%t.walinatetl Captal Notes (Nole 9) j S,448 1.839 4 H.9 h

• mat ** Preterred Stock (Note 13) 40 40 j Stockholders' Egedty pret i,...,,..,,,,,y,o,,..u.,n l

l l

l l

l l

56 l

l

U N __ W_._ .._... . . . . _ _ .. __ _._ . .CITIBANK. N.A. ANO,S_U8SIDtARIES h

DeCateSEAM OCCFMBEA 31 I a**

• N*5 _.. . . . . . . _ _ _ . ...

• _ _._ _ __. 9_89 '

sene ihand Due fromBanks . $ 4.110 $ 4,586 xmuts ciinterest w,thBanks 18,999 12.602 atmort Secunties (Ma% value $10.938 n 1986 and $8.596 in 1985) 10,427 8,347

$ng Accourt Asus , 4,848 2,725 l.

lera!Funes' Sold and Secuntas Purchased Under Resale Agteements 7,440 11.812 os raidLease Finary; g 8 90,833 5 77.933 sss Asower.ca lor Posse 60 Credd Losses 1842) (626) theamed Decount or 6: ens 12,3843 ,,,,, ,, .,,J.1,,930)

Loans andLeaseFrontrg Net . $ 87,836 $ 75.377 isomers' AcceptanceLabAtv 8,982 7,473 mees and EQupment, Net 2,488 1,831 vest and Fees Recervsbla . 2,000 1,984 ier Assets 4,MS 4,13 E  ;.. __. . :.  : -

$144,808 $130.850

.__..- _._..n..

deitities i hiemst Beanng Deposas n Domeste OMees 8 10,763 $ 9.379 vest Bewng DeposdsinDomeste Ofkces 28,190 27,280 i nnierest Bewsig Deposas n Owseas Onces 3,740 3.512 vest Bearng Deposds n OesesOWces

_86@08 _,, _,

51.639 j

lotalDeposds 8 00,908 $ 91.810 chased Funds and Other Boromgs 20,479 15.327 f

cpttnces Otistandng

%198 7.671 I

rt ed Taxes and Other Expenses 2,813 2,608  ;

of Liabhtes 4.464 3.506  !

g hem Debt 3,914 2.891 l soldtalder'sIguityNote 19) ons Stor* 52000 par)

$ 781 $ 751 hstaningtheres 37.534 553n 1986and 1985 ptJs 5,015 1,493 treCarnngs 3,343 4,793 bt# Stockholder's Equd y $ S,008 $ 7.037 IEL $144,008 $130.850 w,...m,.....,.......,..w.,>.v,.,,,,,,.i.,v....u,...

TATEMENT OF ACCOUN T ING P OLlCI ES B :*:I"* * ::" , - "N"Ht R :l0ll ~ M 5

., ,.0,.S.00-0 0. 0.--

he conwanad frsioal stmements nelude the Commeroai loans are stated at ther fece amount, net A unearned accounts of Cdrre Dt towned subsdiary discount rCitibank,MA,an. e pWy. owned subsdianes after the etrrunabon. .J malenal riiercornpany transactions.

When d rs determned as a result of evaluaton proced ses that the payment of n iterest or pnrLpal on a commercal ban is doutttui of collecton, the loan s placed on a cash honaccrual) tibaies whch are W4 to 50% owned i a camed under the basas in any case where tterest or pnnopel s past due for 90 days ly method d accounhng and the pro iata share of ther ricome or rnore, the loan es automahcally placed on a cash b3?ts NTesOec

) e riduded n other rmenua income from rwestments r1 trve d ediate;al or other tworable prospects Any rierest acenM than 20% owned compones a recognized when drxlends on a lcan placed on a cash bases is revei wd and charged agest tcermi cunert samrigs sterest on cash base bans s thereaf ter tr!uded at:s and losses on depochon d tranches, subsdianes, ri eamings onty to the extort actualty recared ri cash Cash base des and orier aquty irwesemerts (ridudng verture captal loans are retumed W an accruel status when such icens are simer13 and dierges for management's eshmate of perma cunent as to prnopal and interest paymerit4 and future perments imperment ri value are induded r) Other rmenua are expected to be made on sched:le.

>egn r:urmney transineirvi, whch repesents the etects d sistrg in:o uS doners. at assert exchange rates, fnenoel Consumer bane are stated at ther face amount, net of uncarned smerts of ms opersiors wth a pnmary or functonal cur

.y other than the uS donat is ricbded n retened eainr'gs r) dscount regm coneMaded balance h along with reiWed Consumer loans am wetten 08 upm seachng a predetermried ge Max eNeds number d d.tys past (Le on a contracttof beces. The numbtv d he cfd ts of translatng bet 4gn cmency inanoel statements days es set at an apprepnau My W Wt and by My ose overseas openr.cns weh the US donar as the pomary or soas W n the %Mich on 3 base whchInales

tonal cunency induding those operaeng n a hg*1y riftston.

d m M h h W ween envrvimert, are riebded r11oreign exatange revenue, aw]

irt4ated hedge enects Foreign exchange tradng postuns Be pdcy b suspendng 6 d rteest on consumer ding spd and br ward contradt are vabed W W loans vares cependng on the torms, secunty and loan loss expe-radng market rates on a net presert vabe bases, and the result.

nonce esd W andnNd j gans gid losses are rd riari n lorogn exchange twenue wnMd crtena oplaca j interest on decourt loans e accrued on a beses whch results n l fS ST985807 8 80 4 E M S A400 an approarnate newt rate of retum over the torfi of the loan, Interest l

ADIIGS A000UtrT ActfWmE8 accrued on nondscount toens is based on the pnnopel amourt j stmeri t ecmtes are camed at cost. adusted br amortaaton of bens outstandrg remeur'is in the eeriest f.all date and accreton of descounts tc trit y Gans and bsses on sales o' rwstmort securtes are

%puted on a specdc dentfed cott tuses radsq account assett consstrig of securibes and rnoney sat astruments are pesersed .iet of edigstr,ns to doirser ets ses but rot yet pucated and a e valued at market Gans llosses both realued and unreatved are ini:ludW n tredry ,

nunt revenue Interest on tradng account assets, net, s  ;

uded rirmorest revenue  !

'rianc.,el futuren and lorward cartracts, ritorest rato cWhps and f

KW m 3fC VilkNX1 al rnarhet wdh b$l M ard Lgire=Dod l na and lossts rictuded n tredng account revenue, e acept for i se desyrstod Ac hex 1gos GJans and insaes reia'ed io finanoel j pet arX1lorWard enneracts, rterest rate swage and ophons j i am dewakd as nodges are deieret and reneced as an ustment 9 averest revenue or e pense i c Cdx sp h puen :y rict to rfulw trar;f ters tut woori rwtst.nort

]

urdes ao1 tt e tradrq accourt Howest n 1986 cortan  !

urdes wwe irerwad See noen ti s::w w l C .j enc:: .

~

I M l 1

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _a

i

)

1 mASE RNANCING ce's're n .a e rwe sa e t& mas tne ee i

l. ease finanCng represent s Citcorp snare d yg's; pie renta s 4 9g omoeno and Squ Jaton ngNs as market value stock For j on lease financing transactor's arx. residual values net of re:ated OR .tandng optons and subsenptions nvoMng only market value j unearnedincome. shares Corimon eQutvalent shares are Ccmptited using the j L. ease inanong transactions substantially represent cirect treasury stock method. 1 fnanong leases and also include leveraged leases Unearned Under the stock option and st purchase plans. optons are income is amortized under a mett'od who substantially 'esults in alsograntedintandern andsut) 'pon agreements are also

]

i an approximate level rate of retum wheri related to the unrecovered entered nto that give the staff rfy ber the attemative to purenase leaseinvestment. either market value or book van shares up to the end of the Gains and insses from ssies of rescual values of leased option or subsenpron penod at exe<cse or purenase pnces hed equiprrent are induded n other revenue. at the date of grant or subsenpton if cucurnstances are such that purchase of market value shares ANCE M WM CRM NSES clea ly represents the economcaliy preferable attemative to the Achtons to the anowance are made ty means of the provtsion for staff rnembet the eamings per st'are calculaton indudes common possible credit losns charged to expense Credit losses are deducted from the albwance and subsequent recovenes are eausvalent snares representor the ddutive eflect, computed by the I treasury stock method, of the market value shares under opbon or i acbed. The level of net credit losses for the year is a sgraficant subsenpton. lf circumstances indcate that purchaw of book value i tactor m determining the a@ropnate leal for the provison for pos' she the W membps preferabie altematrve, the book value I sable credit losses Based on management's pdgment as to the appropnate levoi of the allowar.ce for cossse credit losses. m shares under option or subsenption enter nto the earrvngs per  !

share calculaton according to the two class method. The method i amount actually provded may t'e greater or less than the net credit recognizes tre fact that there are effectaty two Classes of stock losses for the year The determnaton of the amount by wnch the poison shouH exceed nr be less than net credit losses is based partcip6tng n eamings' one, outstanding shares of stock whch I sham o all earrangs, and erother, book value shares under opton m management's currera evaluanon of the ar,topated impact of or subsenpton whid i share onfy n undistnbuted earnogs oomeste and internatenal econome conctons. changes in the cnaracer and se of tne portiolos and non funds related fnarcal eer em vabe shares areindudM n N wegNM average number of shares of common stock outstandng used to productsancluengcommitments.guarantaes swaps,cpons, calculate camings per share. 1 iutures and vwa d agreements. past and expected future loss upon ssuance of shares under the savirgs ocentw. stock expenence, and other pertinent ndicators This evalitation p and stock pse sans p e n em d endudes an assessment of the ablity of corrowers with lorego par value are credted to surplus. Upon issuance of treasury shares currency obigatons to obrain the foregn exenage necessary I '

under the ex0CJtive Ac60tw compensabon plan, the excess of

'0*"V " 58'VC'9 the amount of the awards cwr the average cost of treasury shares SMPF BENEPrit AND EARNINGS PER SHARg is crected to surplus '

in 1986 Catcorp adopted the new penson accounting nAes con-g gg taned n the Fnanaal Accountng Standards Boa-Js Statemant of Fnancal Accuuntng Stanc%rds No 87 (see note G Poisson W h tam m b m d m and I Staff benehts expense indudes pnor and currtet servce costs expense reported in the financal statements in dfflerord years than d retrement plans, which are accrued on a current bas >s, contnbu-for tax purposes, ocbdng t n appropnete prwoon for taxes on tons under the saangs incente plan, awards under the executrve ggga pwa ggg ncente plan, and costs d dhed MS No charges am taws o%asMWm Ww a penod of time related to the recovery of the lease investment mGece esmngs che to the grantng or exerose of optons whch gews nse to such credits. Other irwestment tax credits are Wer N mpon piens a he subsenpton 6 m pucase d recognized n the year the asset is placed n servica inestment mock umer the mock Ase plans tax creets were repealed under the Tax Relorm Act of 198ti and Common erweiert shares s'e indi oed in the calculatxn of semngs pu sham momsedng shamsim un@ N W h h a d e W po p uty M n m atter December 31 1985 pxcept as permitted by the Act's executs incentrve compensator.n plan and the slutw effect of opbons and subscrpions to purchase shares under the stock g

opton and stock our:hase sans Optons and subscrpens may be b either market veue or back value stock Martet value stock e Catecrp common stock that is not restncied by Cecorp as to esale but can os noid ty the staff mwnbw n the market Bock elue stocx is Catcorp common stock that rs issued at a pnce e@el to book value per share and can be resold onPy to Cabcorp at the

N O T E S T O F l. N A N C f A L $ T A T E M E N TS k asuu I **e'

1. INVEST.M._E.N._T.SE. C__U. R. .m_.ES.

19ss 1985 nmucssyoouiss anemate

~~ M ~~~ asanast an u . a !-

eaws . eaws,,,, ,_ . ,93 ,_ . ..,, ,,,,,g g LIS. Treasury and Federal Agenoes. $ 3,228 $ 3,415 $2.818 $2.919 State and Munopal . 1,9658" 1,900s" 825 799 Other 7,8878* _ S.1428* 6.004 _ 6.174 Torat _, _

$12,800 $13,537 $9.647 $9 892 heterest and DMdends on Imreatment Securttles n.swor.s cr eo.. as sw+s aa toes _ 1985 6 US Treasuryand Federal Agsnoes $ 238 $268 $290 State and Munopal(SubstantaHy all exempt from federal income tax) 65 34 31 Other , 732 541 334 votaa. $1.033 $843 $655 m came sca sna munceei nes,res rreswer u tnename u ar sses me mng to r~esime.a secur.m e <eect orwas .nre.r.on o w ima socur.r s as eng r

arm anestmores .n consoe eron of eMac provisens of the faa Ae'orm 3:t et r964 Or* tear a ms estance m treas*s ee maae perasen aestmeer and traoeg conto,.os e orr s -e acun= , cec, ee Jr ses ecun noe,noc .n %.so scres >sse e, .,e coi.e.ar or av .e e ag;rega e, ,,aw o,:te v4 nie ano r ,.e ..w or sr.cc rwe

2. 000stsERC4AL LOANS Leans Outstandy, ,,, ,,_,, _,,,, , , , , ,,,,, ,,, , ,_ , _ , , , , _ _ , _ , , , , , , , , _ _ , _ , , .

. s m.as .: . .. .e .._ .... sees

_ _ _ _ _ _ _ 298s in Desnestic OSeces Commercalandindustnap $16,994 $13.514 Mortgege andRealEstate a 7,837 6.165 Loans to Fnancalinst:tutensa _ 1,299 t .35?

__. _ ... . _.. $25,930 $21 W hiOversees Oeces CommercalandIndustnae $23,101 $25.683 Mortgage an:tRealEstatea 2,330 2.143 Loens to Fnancalinstitutions. 4,375 5.363 Cmwemments and Of'calinstitutions , 4:170 4,434

$33,976 $37.623 See,00s $58.655 UnsamedDescount 1487)

(483) I osannutenas. Lamass, ust or - Ameena sescouerr $88,438 $58.172 rrjacame com er ernermee snowaw. em ooneen

1. ) Mcasses are ears ar.noearmer4 cy se esos i

g3 meaAses ams so ;perw*s,Wesceest4uruns of $4'5 ewaan eno sd34 me' on m #6 anet 19P' espe: eve, f 8MhW Nef0SlM N ,% m.oss or ocuaossce t g ,a en m g g ed to $2.564 rrullen. 52.2s8 moon, and $2418 rnitron at Decemoer ~ ~ ' ~ ~ ~ "

wincome Mmem 3 M M and E W W W W am accrued at ongral contractual rates . 4244 $397 $466 m WM on which wilsniensthat been fr&ced as a feeA of the nebMy of the brarrower to meet the org-Amount recogruod as enteest ncomem 300 279 ---4 311 nel terms of the Icen. Foregone reenue 'som cash bears and m e m oest pt m,,ay ,,,, , , ,, _ .$ g St18 $155 enegabated cr.mnercelloans was as totown msr#=amsnanoaowser== caw tomow srw%n mem ears eneesosauseneasaseaccesen ses es5ana esa sepecewey

1. 1. aspeeeres sepost casetuso e can tea.s lors aw , assent acched at estese 'mos en airs LMneem $3rmeum aw843%eenegarmeestcecet 8tri SMF mmort and SME ** nam e oweseen 08ces a 8806. etS sauf 8084 sepochey S8

3. C000SUtBER LOANS Consumer Loans Outstanding '

' ~~ ~

The consumer loan catep.ar y represems , cans managee cy Ohcorp's indivdual Banking ousness inis 's genera'ly efined as

" * " " ' " ' " ~ ****

• n:iudog loans to indmdual consumers thoughout the world to in Domestic Of5ces meet ther bor'owing reoutrements for housng automot>les and Mortgage anc realestate' $27,991 - $21719 other personal and famdy purposes The consumer category also Instatment. revolving credit and cther rdudes indvect types of consumer finance such as deater floo, consumer loans ,,,q,?00 _ _.,27 490 j

1. "*'"9 887,881 549_2,09 I in Overseas OfRces Mortgage and reai estatet 8 S,017 $ 3.474 Installment, revolving credit and other consumeu.ans . 9,809 7.253

$14,708 $10.7'e7

$72,387 $59.936 i Unearned 6scount (4,154) (4,418) consumet Loans, (

met of UNEANNES Discount $38,343 $55.518 1 m num m ws suu,w n 1 ev ,a n:a

4. CetA300ES 4087HE ALLOWA80CE FOft POSSISLE CflEDIT LOSSES A wtLONSCt30L,sas gggg 198$ jgg4 i Balance at Begrnng of Year . $1,235 $ 917 $771 Deductiem COrcscallean andleaselosses $ 480 $ 442 Commecajloan andlease recoseres

$277 1 (76) _ (65) (56) {

Netcuicer lloanandleaselosses $ 413 $ 377 $ 221 Consumerloan andleaselosses $t,172 5 719 $ 386 Consumerloan andlease recovenes (21 4) (134) (100)

Net consumerloan andleaselosses $ SSS $ 585 $ 286

{

Admelens Pr:mson forposselecreditlosses

$1,025 $1.243 $ 619 l Other (Pnncipally from allowance balar.es of accured companes and transisbon of overseas allowance balances) 9 37 34 eauuseseausorvaAR $1,$$$ $1.235 $917 I

3 1

I i

N i

. _ . _.__. I

4 4

5. PREMISES AND EQUIPMENT 3ere 3 . ;ec c < r1 a-" t r - 3 c n ~, e : - .

Deprecaton and amortaaten of premises arc eo pment ..as sra rt" e cas > 0.er me est -atec an de et tne asse or

$450 meon n 198d $349 milton in 1985. and $262 rnnon n 1984 re tease term j

~

S. 0000WlLL and $705 moon. respectively GoocMhs being amortized I Other assets include goodwill. whch represents the excess of primanly using the straight line metnod over the perods esemated I purchase once over the estmated value of net assets acquired to De benefited The remaining pened of amortization on a accounted for under the purchase rnethod of BCcounting At weighted average bas:s. approximates 16 vears ,

December 31,1986 and 1985. goodull amounted to $977 moon I

7. PURCHASED FUNOS AND OTHER BORROWINGS Purchased FWeds and Other "n ,- M;:, Onginal Matuntes of Less Than One Year e.awms tr ocaans 1984 1985 _ , _ 1984 Federal funds purchased and secuntes reporttiase agreements (o dome ;te oncesP Amount outstandng at year end $13:368 $ 7,421 $ 9.597 Average outstandog dunng the year $10,433 $10.064 $ 9.329

Maunum outsta sing at any month end $13,368 $10.769 $10 520 Commercialpaper'm Anourt outstanding at yearend $ 9,291 $ 7.172 $ 4.976 Average outstand ngdunng the year $ S,308 5 4.977 $ 4.970  ;

Maunurn outstandng at any month end & 9,291 $ 7.172 5 6883 Other funds bonowed*

Amount outstanding at year end 'M f 075 $12.023 $ 9.817 Amrage outstandng dunng the year $10,809 $10.485 5 9497 Maximum outstandng at any month end 812,643 $12.023 $ 9.998 l

h i

2 swysedwage mesw are was e 80t,um S86 8 3^ MN %5 am 'O 56% Ou r g % "C%atyear et '986 8 29% atf ear ew %5 av 963% a. ,ma ev W G owvvec se'ap etees 'are aes '$ 2'% ug '986 am SSS% uq '985

)

I I

l l

61

= _. _ . . -_. . . . . . . .

u_--_______________________________-______ _ _ _ _ _ _

_~

l 1

8. LONO 7ERM DEST I l

Long-Teem Debt. Or9nal Matuntes of One Year oryore " ,

_ 1ese- _

_ ,_1985 e$!s$ s.;e$sk m uoww was . naae.c a

_ __ae s ceas __.. - s._ _e. ca.s.__. . . . .. wm a_ i Due n 1986 $ -

$ S

$ 3.032 D;e n 1987 433 1.274 1,707 417 Due o 198F. 735 568 1,303 1,431 Duein r3&l 1,390 1.053 2,443 1.326 Due in 19U) 1,135 59 1.194 1.015 Due n 1991 1,180 290 1,470 113 Duein 1992-1996 2,865 345 3,210 1,847 1 Duein 1997-2001 1,166 1,162 2,328 '

584 Duein2002 and themafter 780 2,042

_ __ _ _1.262 1.623

$ 9.684 S 6.013 $15,887 $11.288  ;

Duein 1986 $ -

S -

$ - $ 1,329  !

Dae n 1987 647 382 1,029 585 l Due n 1988 886 85 971 672 l Due o 1989 349 302 661 '

398 Dueo 1990 354 407 761 425 Duein 1991 126 76 202 l 482 1 Due o 1992-1996 317 964 1,281 1,097 i Due n 1997-200', 3 l 19 54 38 j l Duein 2002 and thereaf ter 15 34 48 2 l

$ 2.713 3 2.285 8 4/i38 $ 5.028 Tovat $12.397 $ 8.298 $20,868 $16.316 ce astneu s t.nma ucan urraz,e metas a ww asw a w.r> oeu ,s mou, sew a ww coren or tr.e am ca m w,omaary song w wets or as Fued rate long-term detx matures ce the penod to 2015 The A' D3 camber 31,1986 and 1985 $270 mdlon and $739 milon, interest rates on f.xed ra:e debt rssues angea from 300% to 241% resrectr#y d subsdery lov term debt were not guaranteed at December 31 1986 and 42S% to 2100% at December 31 1985, by Otcorp The weghted awage nterest rates on such long term spresenung etes on ssues denomneted n various currencies. oebt vee 1044% and 12A3% at Demnber 31,1986 and 1985.

The vegNed awrage intemst rates were R56% and 1152% at respectrwy "M mA bng term debt issued oy subsdanes ,

December 311986 and 1985 espectrWy not guamnteed by Crbcorp is secured by the assets of the l Peanng<me eng tem debt matume on the perod to 2035 subscary The olemst rs%s ase desermned perntr-mey by torm;tas based # DeceC1.1986 end 1905. outstanding SM% corwertbie on certan money market rules oc n carten ostances by mnmum subordnatet -+es dee n 2000 were $5 rreicn and $9 mHon, domst naes es speched in te ageoments gwernng tM respec. respectrey NJteholders conerted $3 mdion of corwerbus rttes the asues The miemet rWee on nombng rwe debt issues ranged irro 77270 shenes of common stock n 1986 and $3 rndion of tom 300% to 2560% et December 31,1986 and a10% to 1&50%

conertbie riotes into 89527 shares af common stock n 1985 W Decembw 31 198E reposerang rates on neues OvuT.wed n The notes tore conwrtible W the c,pbon si the holder rto Crbcorp j arous cwences The wegtted swege newest rctos were 6S7% common stoch W a corurson prx;e of $d1 pu sham, subsoct I and 199% W December 311986 and 198E mapectrey to adi ustment n certen eerst Carten d the agreemorts inder wNcti lcng-term debt ,

obigeLons woe leeued prohNt ceoorn under certen came.6, kom psyng dwsonds o shares of cabenk capaal mock and from orse:rg encumbrances on eucit ehenst The pnor year's rear *m se of larg term debt het teen reclase fled to conform wth the cuart financial statement pDs3rubort 62

__2__.._m _------

I i S. SUSORutMATED CAPfTAL NOTES "~# *

- ' ' * - F r c 'a.

- ~ - - -

.le <

3

+ ,

y, sv . m : .. m - -* 1984  %-

cap tai SeCJ ties LOor d* e ACha'Ne el n %tes i* are amount l Roatng rate subordinated captai notes sufficient td pay the pnncipal of such notes Beause the with no stated matunty. $ S00 $ -

t ype of secuntes to be issued at matur:ty w< oe at it e opon of Roabng rate subordinated capital nctes Citcorp or the Catcorp subscary !nat issued the notes and due 1996 1,050 1 05') because the amount of secu~res to te issued will depend on 12%% subordinated captai notes due 1996 34% 349 their 'sture marnet values, the amount and type of secuntes to Floanng rate subordinated captal notes ce issued at matunty or recemption of the riotes canr.at be due 1997 500 500 determned if common stock is issued. some dilution of earnings 8W. subordinated captal ncies due 1998 _2.49 _

per snare may occur Total . .

-~

$2,848 $1899 if Otcorps consolidated retained earnings and surplus accounts become negatwe, the subordina;*d capitai notes with no stated The subordinated captal notes wth no stated matunty are matunty must be exchanged for the marketabe permanent unsecured subordinated obigatons of Otcorp Suboronated pmary cGotal secunties of Catcorn as discussed above, captal notes with stated matunty dates are unsecured Sut'ordi. ~ The agreements under whch the notes are issued prohibit r.ated obigations of Otcorp subsidiaries ard are unconcitionaliy Otcorp, unde' cartain conditons frorr, paying divdends in shares l guaranteed on a subordinated bass by Cibcorp The inte'est of Otibank captalstock l tetes on the floabng rate issues a'e determined penodca4y by  :

l brmulas based on cuta n money market rates, or in certan --

nstances, by mnrnurn interest rates as soecihed in the 10. RW8m.m # PREFERRED STOCK agreements gwerning the respectrve issues Catcorp may defer At December 31,1986 and 1985. 400.000 shares of non voting l payment of interest on the subordinated captal notes utn no redeemab6e preferred stock were issued and outstandog subject i stated matunty if no dudends haw been declared on any class of to reoemption at a pnce of $100 pe' share through a mandatory Otcorp stod in the preceding sx months Dunng 198d $500 siriking fund From 1990 through 2005. $1 millon must be retred mlhon of subordinated captal notes w'th no stated matunty and each year and from 2006 to 2013. $3 r ulkon must be 'etred each

$249 m!'on et &75% subordinated captal notes due 1998 were year Dvdends, whch are cumulatNe, are payable semiannually issued. Dunng 1985. $250 millon of floatng rate subordinated Beginning in 1985 the devdend rate is deiermned every tnree years captal notes due 1996 were repurchased, the gain on whch was until 2009 by a formula based on cartain money market rates. The not matenal, and an addihonal $500 millon of floatirc rate subordi- divde'd rate establish!rd in 2009 wil be apolcable unti 200 Pnor nated castal notes due 1997 were issued The interest rates on to November 1985 divrunds were pad 1 a ftxed annual rate floahng rate issues ranged from 6188% to 7090% at Decernber 31, Divdends amounted to $10.45 per share in 1986. $1091 per share 1986 and 7933% to 8.520% at December 31,1985 The wegnted in 1985 and $1100 per share m 1984 Onearp may be requ red to agrege interest rates were ES20% at December 31.1986 and repurchase the preferred stock at $100 per shtze if loans are not

&208% at December 31,1985 extended to the prelened stockbrAder. under certarl orcurnstarces At matunty of the subordinated captai notes. or in the case of l he subordinated captal notes wth no stated rnatunty at the shchon af the holders ri esch year com,TMsg in 2016 or at the electiori of Obcorp en each year cutin W&g in 1991, the notes el l be exclarged for a secunty of Ducorp that quahfes as pnmary i

capta' then haung a rnarket value eQJai to the pnncipal .smount of the rttes, or under certan cutumstances redeemed, in whose or in pert. lor castt At the opton of the issuer the excharge may be to common stock, nortedeemable prefer red stode, or other marv etable pwiTWWE pnn 'ary captal seo aihes of Otcorp l

l l

.53 l

C '; ~3 Y 'i W '906E" Pe Se:M 3*' eS C' / ??

n PMEFERRED STOCK l re;' .s',26 933 r 103 w r re Wougn Cemy,23 $93 ay

%.ce n..m c m n: toes  % at 1100 per saa e tnereane, may at ts coter receem ine Tmrc Adpstabe Rate Prefened Stocx Ser:es on nr af;er Septemoer

• 1988 at $103 per share until August Secord Senes.3.900000 shares . $ 390 $ 390 3* 1989 and at amounts dechning tnereatter to $100 per snare Thre Senes.1500.000 shares 150 150 beginning September 11992. and may at its opton, receem the Pnce Adysted Rate Preferred Stock Fourth Seres at ar'y t:me at $100 per snare Fourtn Senes. 1000.000 <,ha es 100 100 Citcorp may at itt opton. redeem the Money Market Cumulative Money Market Cumulatn e Preferreo Stock Preferred S ock Senes SA througn SG at $510000 per share. {

Senes SA through SG 1,150 shares 575 575 plus accrued divdends. until vanous cates in 1987 and at amoants  !

Senes 6A and 68.1500 shares 150 - cechning thereafter to $'00000 per share beginning on iatcus cates in 1988 These shares are also redeemab6e at the coton P $12 $1.215 of Otcorp. in whole but not in part. at $500000 per share plus i Drvdends or,the Second Thini and Fourth Senes of preferred accrued dvdends, in the ewnt that the dmoend rate sho/d equal  !

stock are curnulative and payable quarterty at rates determined or exceed the 60 day "AK Composte Commercal Paper Rate. j quarterty by brmulas based on interest rates of certain U S. Trea. Otcup may at its opton, redeem the Money Market Cumulatiw l sury ot*gationsL DMdends on the Second and Third Senes of pre. Preferred Stock Seres 6A and 68 n whole or in part. at $100.000 )

lened stock are subgect to certain minimurn and maximum rates as per share. plJs accrued dMdends on any dMderd payment date.  !

I s@cdied in the agreemerts goserning the respective instruments All ser.as rank poor to Common Stock as to divcends and l The weigtved average dmoend rates on the Second. Third, and I'audaton and do not have general voting nghts. l Fourth Senes were 6029% 7133% and 6412% respectrvety Authonzed pretened stock Ossuable as erther redeemab6e or I t/1986 nonredeemab6e) was 20 milhon shues at December 31 1986 and i OMdends on Money Matet Cumulatie Preferred Stock. Senes 1965 4 December 311986 are 1985 6.402660 snares are l SA through SG and Senes 6A and 68 are cumulatne. Rates are 6.401150 shares. respectively of nonreceemab6e preferred stock determined ewry 49 aays by aucten unless Otcorp fails to pay we*e issued are outstanding and 400000 shares of 'edeemable any drvdend or redeem any shares for which it has geven notce of prdened stock were issued and outstandincy j redemptort in whch case the dmoend rate will be set at 150% of London rterbank O'le ed Rate A180R) The current maxrnum l' (heerd rate in any auccon is 120% of the 60 day %K Composite l Commecal Paper Rate. Dunng 1986 the weighted-awrage du-cond rates on Money Market Cumulatrve Prefened Stock Senes 5A, SR SC. SQ SE. SE and SG whch have different dMdend reset deles were 4970% 4871% 5022% 498f% 4 848%. 4 849%. and 4768% iespectrsery The weighted arerage dvdend rates on Abney Market Cumularve Prebned Stocr. Senes 6A ard 6a whch were asued at ddlemnt dates during the year were 4 481% and 4502% iespectrvety i

1 1 i

4

)

)

u 1

- - 3

12. COMMON STOC%

At December 311986 and 1985 autnorm: c< wc N .,.

325 milion snares the outstarong snares at Cecerrbe J1 19eo Funded Status and 1985 include 32 mehon and 30 melon book value sta'es mu k e mag e es espectNely issued in connecton uth certain staff ceneh pans nm secuss yd commngled Ws Ovjer the terms of the pans the payment for book value stiares e ge y a4NA $1327 sok1 back to Otcorp can be setned in cash or in market value Actuanal present value of benefits for service rendered shares at the opton of Otcorp to cate At December 31.1986. snares were reserved for issuance as Accumulated benefits based on salares to date.  ;

'ncluding vested benehts of $612 bibws. on converson of convertit>e nctes 01 millon shares: under the savings incentrw pan.12 2 rruthon book value snares: under 719 )

Additonal bonetits teased on estimated future satary l

the 1973 stock opton plan. a maxrnum of 2 6 mill.on snares ihssued levels 287 )

at market value and a manmum oi s.2 milon shares if issued at Protected bereht oblgaton. 1,006 book value; under the 1983 stock opbon plan, under whch options Piart assets in excess of protected benefit may be granted n tandem, a maxmum of 89 millon snares if obigation ,

321 ismed at market value ano a maxrnum of 14.0 millo . shares if issued Unrecognized net actuanallocs 168 at book value under the stock purchase dan. 40 mikon snares:

under the restncted stock plan,02 milton shares: and under the Unartorueermton net use . g.

executie incentNe compensation plan.12 milon shares CO N CL nm Begoning Mth the second quarter of 1986, commari dMdencs --

g wil be consideiwi lor declaranon in July October, January and 0:g:=3 of Net Pension loconte April, ostead of June, Setxemtg December, and March As a Servce cost-benefits earned durirg the perort . $ (34; l result only three dmdends were declared in 1986 as compared Intemst cost on pro 9ected benefit obigaton (f8) j L

uth four drnE1s eachin 1985 and 1984. E xpec'ed retum on plan assets (Actual return $ 172), 112 l Amortization of transiton net a;'et 34 l l

stet tees.P.EMt.40.ed IseCo. tAE- - -

,$ 44 W

4 Retireenent Mans. There are a number of noncontntatory wage $w rate W ram d ncrease iri future penson plans covenng substantially all domeste staff members cesabon Ms M n mmnng N acWa%sent va gabon wem M and 65% '

The emtioyees of loreign operatons participate n vamus loca@ia a resoectnely The e.:pected long term rate of retum on Assets used With regard to all domesbc plans, CDcorp ekcted to appry the enn w p son newne was %

l pKMsions d S:atement of Finar cnal Accoureng Standarcs No 87, N Saviv Mnhw Pan  !

e aH We meew awads W toNf Nor coered

-Ernpb,ers' Accounting br Pensions." effectNe January 1,1986 i As a rewit, the 1986 cost of the pnncipal p4an w is reduced. resuttng sal ry Staff members have the opton of recemog their awardin cash n perraon ricome for the year cf $44 mum Pansson expense a ng m or an d st n varcus ovestment funds. Otcorp was $8 rnton n 1985 and 1984 under the ynopal plan, rebrerrent bene 6ts are based on years of credited set vice, the hghest seerage compensation las c phned) and the pnmary social secunty benelt Otcorp's fundrig s*rategy has teen to maintasn plan essets sufhcent to proxie not orey br benefts based on service 40 dele, but also br those expected to be earne 3 n the futura i

As of January 1 1986 the far value of plan assets was

$12 billon and the progected beneht ochgaton was $682 mlhon (he ao:umused tendt obhgation was $493 mittons. The excess not atest at transton, e@ei to $479 rnilhorps beng amos ti2ed oer M years. The tonowng table preseris the poncipal % eht pan's funded status and amounts recognized n Otcorps consolidWed in.ncial stsemerts at Decemeer 31 1986 66

l

. . j i

grants an bdditional award egga' to ty & .nt qe, wn,, N j employee. Several nvestment cptur,s are &awrac ,r ..ct; '

C4 corp rna. vet value shares whcn the funo acquires .n the open marvet, and book valuc shares issued by Citcorp. Tre expense e, nares under opton at assocated with the plan amounted to $56 milon in 1986. December 31 1986 8.183 094 $18 to $54 1

$48 rruilon ri $85, and $44 mikon in 1984. December 31 1985 7 819 599 $181o$50 Stock Option Masa.Dunng $83 the shareholders of Otcorp Optons granted approved a new stock ophon plan, wnch became effectrve March 1966 2.476.497 $51 to $54 31,1983 No further opons may be grantec pursuant ta previous 1985 2.020.961 9 : to $50 stock opton plans. Ophons prevously granted under a stock opton 1984 1 879.495 $3' to $39 plan that became effecuve Apnl 2.1973 and was ex tended and Opted exeroseo amended effectrve Apnl 1, $77 do r et fury expire until 1992. Under 1986 1.80r.261 $18'o$54 both the 1983 pian ard 1973 pie t as extenoeo arid amended, 1985 1 517.798 $18 to $44 I op:,ons ha e been granted to key staff members for terms up to 1984 526,824 500 to $42 I 10 years to purchase common stock at not less than the far market vabe d the snares at the date of grant. in add tion, tne 1983 plan Stock Puechase Man. The plan permits a'i annNe staff -

and G73 plan, as extended and amended. prevde lor t're grantog memoers (two years employment with Cucorp or its subsdanes) ri tandem of optons J purchase market value shares of common to purchase shares within a $, wfed penod not to exceed stock at not less than the market value at the date of grant or a 24 months under ag eements reredinto with all such staff prvpoibonate number of book value shares of common stock at not members from time to 'ime at the fair market value or book value less than the book value per share at the date of grant, Suca a per share at the dates of the agreements. <

propoitasate rumber of book value shares rs dctermined ba sed Agreements aggregating $117 milion were entered into on June f an the mto of market vabe to book value per share at the date 3a $8G Outstanding subsenotons. whch aggregated $103 i d grant.Under the 1983 plan and $73 plan,50% of the optons mil:;on at December 31 $86 may be ased for the purchase of l granted are exerosatte begrrung on the frst anrwersary and market .alue shares at $59250 per share, book value shares at 50% begrr.ing m the second anrwersary o rthe date of grant $53569 per share or a combnaton d botn in $86,107 marNet i h the caphons wares under opton" and *optons graated" n shares and 8689 book vadue shares were purchased by staff the accompanying tabie, optons granted c tandem are included members unde, the terms of the June 30,1986 agreements. These on the bases that represents the economc2% prderade attemative agreements exoire on March 31, $88 to the st.aff member Under the agreemerts entered into on June 30, $84 for the At December 31, 686 optons to purchase 4,903,565 shares purcnase of market value shares at $30758 per share and book

}

wre exercisatse At that date 2,702.379 shares, ere availab6e to value shares at $43788 per share. *,M829 market value and 29610 grant optons to purchase market value shares and 2.567308 book value shares were purche ed in 1986,1006.109 rnarket value shares (a proportionate number besed on the pnce rabo d book and B99 book value shares were purchased in 1985, and 193,372 ebe shares to market value sharcs) were avadable to grant optons market value and 526 book value shares were purchased in $84 to purchate toon value shares Acbti m snarr8 may becorne These agreen ents expired on Marth 31,1986  ;

estable tar opsons to purrhase m/ , ' vabe shares under tf e ENeeuthre Ineenthre Cesnponestien Man. Under the pian to the extent preserey outstar> ;optuns under the 1983 Executrve incentre Compensanon Plan, awards are made to key piantermnateorexpreunexercer ,, Asthenumberof market staff members, payable at the electon of the partcents, in cash, wiue shares avalable for optons : . rcreases, or if the pree rato of or n market vabe or bcok vabe sharts of Chcorp < omrron stuck, '

market vabe shares to book value tares nereases, the number of r two installments for awarcs made n 1986, in three installments l book value shares avelede br opsonb wA inosase propcrtonatefy for awards made in 1995 and 1964 or on a delened bass s4ect to a rnaxrmrn of 15 millon cheres The aggregate amount of the cwards was approxrnately l $15 mnon n 19866 $14 milien n 1985, and $11 milion n t9Bd. i 14eetr6eted Steek Men, Jumg 1996, the shareholders of j Chcorp appoed the Restre ed Stock Plan whch grants awards  ;

cr market alue sharea to hay execatraw iuveni upon ther  ;

conhnued emplopt ett mer a festnchon penod not to exceed ten years, The abe of shares et the 6de of grant a amortued to j expones mer the restncnon pwocun eso, it2D00 shares et en aggregate market abe of approxrnately $7 millon were granted,

, The expones w,y uw tr,. vu pian n 1986 amourted to SQ4rtwiert 80 I

14,_. ,900COtSE TAKl[$ AnalysiA Of Effective Rate

y. % s : a aww tesa w w toss  % ug Domeste US Feceralincome tan rate Cunent 44.0% 160% 46 0 %

Changes from statutory rate resutting Federaf* $ 22 5 30 $ 28 from State andlocal . 90 52 35 Tan enemot interestincorne (5.3%) ('7%) 62%)

$112 5 82 $ 63 Mcm sume t to tai at capita ga.ns rates (1.5%) I44) (6%)

Federal

$ (87) $ 56 5 45 Stateand t ( 6

-. -.17)- - - -l19) tax bene 6t 2.3% 10% 15%

$(104) $ 37 5 51 Taxes on income of Total domeste . $ e $119 5114 werseas suosenes (.4%) (4%) 8%

Foregn (substantial cunent, 834 ~ 599 540 income from 20% to60% owned n - -

$ 642 $718 $654 aWi ms mluded m an auer4ax t'asas

(.9%) (12%) (1.6%)

As a result of the lower future F ederal tax rates inctuoed in tite Tax of cnanges r tax rates on Reform Act of 1986 Otcorp adjusted the deferred ta < balances mapleaseWo Q.W U Po) .-

retted to its irvestment in iveraged leases reducing federal O 2O M ncome tax expense in 19-3 by $55 mitort in 1985. a ct'ange in TOTAL

• 37.7 % 41 8 % 42 4 %

New brk state and city ta x raes resurted in a similar reducton )

of neome tax expense byits milert *U.S Federalincome taxes n it'ese analyses do not include Within the total provision, the tax effect of inestment sacunties amounts which in the opinun of management, represent a de transactions amounted to a petwison of $60 mellon in 1986. lacto adddonal Federal ta x ourden tr at is pad currentry Banks

$23 milleen in 1965 and $7 m t!on in 1984 effect vely incur this ta x in the form o' o imings remit ted to the l

Althougn rot a*tec:ng the total prtyson, current income ta x U.S Tr6asury by the Federal Reserw. representing the Fed's invest-payments may dif'er from the amounts shown as curnant as a result rnent earnings on the non interest bearing reserves that banks d the foaldetermraton as to the timng of certain deductons hre required to mainta n uth Federal ResefW Banks For Otcorp, and credrts it is estimated tha'. this de facto add; tonal ta x approximated AsaOS corporation a!!of Otcorp'sforegnpre taxeamingsare $78 mdlion, $68 mdlion and $59 tndlon for the years 198& 1985.

)

subpect to dameste taxation currerrJy if earned by a foregn branch and 1984, respectively based on average reserve deposits of '

or when eamings are eMectively repatnated if eamed by a foregn $1024 mdlort $823 mdlon, av d $738 mdlion in 1986,1985, and sub9 diary cr affdete For 1986 tcregn pre te x earnings represent. 1984. respectively The total effective ta x rate for such years. adjust-ed 60% of consoktated pre tax necme (appro.umately 67% in ed for these amounts and including an equivalent adt ustment to N65 and 70% in 1984). In additon, certain of Otcorp's domeste nerease income before income tax, would be 405% 44.1%. and sncome es subrect to loregn income tax wtere tne pavor of such 445%, respectiety The de facto additonal tax is caculated based incomeis domo.ed oerseas on CitcoQs bank subsadianes average reserw deposits as a

%stred taxes result from tiinr.g diflerertes in the recogrwton 0; percentage of aserage totalFederal Reserve assets, applied to the se .erue ard expense for tax ar4 foancial accountng ourposes eamings remitted to the US$ Treasury by the Federal Reserw Whde r o sang 6e method can precisety QuarWif y this additonal Fed-p, monta of De#emdJlsmos , ,_ eral tax burden Otcorp belees the Itmpng method is an approonate estimam Max burde m.._ m :ou m _rwtm c a . _ . .

te. o..s._.-__s_ e.s tw Not included atxwe is the eflect of investments in tax exempt Lease fnanongtransactons 8 *r0 $ 78 $ 86 state and munopal securmes, assets itsat yeld lower rates of Bloct of changesin tas rates on lewrngedlease porttolo. interest than woud be the case if the income was taxatie.

(55) (19) -

Oedit to".1educton (184) (62) .9)

.4erest ancome (SG) (25) (6)

Domeste taxes on overseas necme SS 46 (67)

Other. 8 19 _ 47 WE ,

u ,, . 9(104) $ 37 1 51 67

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16. EARNINGS PER SHARE a w"at .e :a .e_me  % < ~ m e: , a .,c .i / r. -

i The accompanying taoe shows the calcu:at.on o eamqs per e.tne rclucec as comrmn eau,aien: snares a ent ;r ute tne I share on cnmmon and commcn eQurvalent shA.% for net income carnings per snare calcuuton according tc the t* , cM.ss method after deducton of dudends on edeernde pre l erred stock and cased upon the economcIly oreferabie afterratue to stat preferrea stock Shares issuade under stock opton grants and members as furmer ceecnced...the Statemer' of AcCcunting stod pu.r.hase plan surg.Wons *nch grse staff members the Poloes Catedstion of Emmings Per Shere l w.we .s : ctp ata s_.as *iao.,s's 1sts 1985 1%

90et income Availab4e for Common Stocitholders

a. Dstabuted porton cmderds) $250 $290 $259 h Undistnbuted porton 7 3._3._ . 645

- __ 571 M LL -_- .._.2. . _ _ . _ . _ . ..c..-- .1_ ; teS3 $935 $M Shares i WeigNed average common shares outstanding-Market value .131.2 125 4 123 4 Weighted reage common shares outstanding-Book value 3.1 ?5 20 Common stock equrvakmts* 1.8 1.8 11

c. Ercres arpicable to distnbuted porton 138.1 129 7 126 5 Book value shares issuave under stock opton and stock purchasa plans 2.4 26 32

__ci__C._ha_res a_ppic_ad__e to u.ndi.s.tnb_u_ted. po.rton

_138.5 132 3 129 7 l Earninga Per Chate i a,-c Dstnbuted porton $1.84 $2 24 $2 05 b+d Undistnbuted porton . 5.30 4 88 4 40 1m._n. n.L . ._ -.- -. _ . _ . _ . _. .

. $7.14 $712 $6 45 n come im m. <ws ,mer in .$.sm u iw..c r ., u, r#:or,D.<se w e o~r... .#.c or e i,.., a v. m ss ac .m- sw w ,

Af*7180CA (LICn&St Def'$ COMDiJOU sSety Ifle l'.AS# . SJOCs MriOO J

1 l

The fuity diluted calculaton assumes converse of all outstanding 1985. and 0.2 millor in 1984) are adoed to the number of nares convertue notes ard the maximum dilutNe effect of common included in the c3lC Jlaton (resulting in a total of 138.8 millon snares l stock equnralents The number of shares issuable on converson of in 1986, C26 milknn shares in 1985, and T 3 milton shares in i the notes (Q2 mdlon n 1986 ard 1965, and 2 4 millon in 1984) and 19841 r.nd the rett ted atter ta x interest expence ($0 2 milton in the additonas commor stock equea'ents (01 rnuton in 1986 ai d 1986 $03 rnmor in 1985, and $3 7 millon in 1984)is eliminated.

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16. GEOGRAPHIC DISTRIBUTION OF REVENUE, ' me Mewe w AmcLa mt ce m en EARNINGS, AND ASSETS s"0eW Wm N o>ses ed 6 auaM S cmcorato Cdcorp attnbutes totalrevenue m:ome betore ta es ret occme Sad Costs phe4han Nse Charged to me Co'e ousmesses) and and average total assets to opetates based on the comcde of the ome capeate nems meng cenam start up actMt,es customet US possessons are incaded in their respectNe The SeCunties arx1 Exchange Commission equires that an geograpbc areas. allowance for possib6e credit losses appicable to loans related to a foregn actMtes be di3 closed in a note to the financal statements Because of the integraton of glob.11 actuites it is not practcable makes no such allocaton, and no porton of the attowance

]

to make a prectse separatc<t and varous assumptons must De {

,a poss ed sses as o any mdNMoans a made in amving at allocatons and adi'.:tments to be used in groups of loane orc the purpose of meeting the regt.arement under sM The pnnopal at:ocatow and a4ustmants are (1) charges tu al1 generatty accepted accountng pnnopies to calculate earnings funds empio/ed that are rot generatad oc*ty are calculated on and assets atinbutable to foregn operations, $MO milton ct the allowance at December 31,1986, $486 millon at Dacembei 31 the amour.t and nature of tne assets anci base J on a margnal cost of funde corcept; Oticorp stockholders equiti is t'eated as gener 1985 and $350 miion at December 311984 s allocated to foregn afed and earned based on each area s percentage of total ascets mam WMd mpM e WMmW (2) allocation of expenses incured by ore arca on oenaif of another mamW, se N emm amont m aHowame is avadaW to including admintsiratrve costs. t,ased on methods intended to aM bssu WeMMhtc a@egmoans re8tect services prouded (3) alkcaton of tax expenses. (4) attoca e

Geographic D6strituution of Revenue, Earnings, and Assets s . v. w s sys Mr t.g ag*

g 3 vf,s ,

"A tt $ * ' Pfl 4.4-w ocwr n an 950s t9BS 1984 toes G85 1984 teos $85 G84 feet 1%5 9 44 terth Amerca* $ 6,Mla $4 938 $3653 $ 312 $ 762+ $ 590* $ See $4&3 $367 4101,432 5 85 653 $ 70 407 Cartoean. Central andSoutr. Arnenca* 1,191 1 183 919 43' 403 277 257 245 .177 19.018 19 094 18785 i Europe Md3Ie East i

i andAinca t,878 1567 1330 190 364 391 te 19t 208 40,878 33 899 %197 As4a/Paotic. 943 788 717 134 187 4' 4 ,

134 99 , "I _ 22,887 21 609 22 242 Nriat $10A00 $8 476 $6619 $1,700 $17 6 $1144 $1,444 $998 $890 $144,013 $160 505 $142 631 tom,ewno ,,,sen .w e , cn u m e rna. .+

O ricaud 4 dmmri er%r4>M m 'm+0 %,H awe'm r r W W cc 'WJ vs: cr %ew as vimos mora arsev $6 244 Nr ry $d ad3 'we ar 7 $3 %6 aww nome or'om ?,'e5 8W Me 8% ev s.e 5547- " ,e -

• S ur e m - SJ' - 1 n'o 3

• 1 auw am e e<a,pr cra# assers 597e9r,waar' 58? Pd6. ur'a,irr $U234 <w r),ww5,e rveeum e - w w ,w w e .. ,wms w.,~ s'm ~.y s3pae ms),cm..or' worw e, orn.es saew w spop m,us e em tw n .. v, vn~ we < ve s ? ~ .., , n s's w : n o.m mte assers oenomearea + crandos ext arvo wnwes $rs n9ma.on$6y'm w a

arid 3#!?F wwr, osoe rawn ,,,<. . me,, r. w .,+,, m ue ~ . s - . a w s n ~.-w a n sm,n ri,ewua. eaemor ~ome m r~ m -,,s. wnm.

attreurst,"o me gr wf Sues e

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fL NON FUNDS RELATED MMANCIAL PRODUCTS comnumerts guarartees, or executory contractt  !

Otoorp o6ers varous finarcial prndt. cts to its customers to meet Foilowirg are discussons of certain sgniicant pMets with  !

l ther needs br hcMortg cred:t erMncement. loregn exchange. ,nd catons of gross volumes

)

and interest rate protecten Many of these products were develocad Leen Centatitntents. At Decembo 11,1986. Ofcorp j in response to the growing sophestcaton of the loancal markets and its subsdanes had outstand.rg unused comentment s ci l and customer 1/ reeds br flexible wers to manage funding costs $368 bdion to make or purchase loans to purchase third party and foregn exchange exposure n a:cteurt the offerog of these ncervables, to provce rote issuance fachtes or re dving peducts may serve to reduce .rner than increase Otcorp s underweong fachtet, or to ex tend credit in tWorm of easo I -

own exposure to mcNement s in interest and toregn exchange rates fnancrg Suostant.alty all of these corntntments am contngent M products c6ered by Orico o etc subpect to its normai sinngent upon customers' maintanng spectc cmdat stand nrds in aciton cndt ses. wards. hnencal contrers, are nsk trnrting and monitarrg Oticorp and a subsdanes are oNgated urcer venous recourse prootdAls Many of these products oo not critati preserit or future provtsons related to sales of loans or sales ul parficapatons en IWided asset or liat)ld y po9 tons but afe instead e the nature of M

t

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pools of loans. At December 31 1986 the 'r a urv ctsgatc- Municipal Bond Insurance.wsc caer% 'r. cmg n under all recourse provisions was $34 billon of wnicn aoproxo a majont rownec suoscary af C.t can< crc., ces x'assvar.:e mately 87% related to sales of rescent al mortgages Estirna'ec on conds 'ssued by US r"ur ocant.es '.,nder mu ocal bond losses pursuant to these obgatons are not expected to be insurance pohces, it a bond issuer defaults en an insured tssue the malenat insurer promises to pay the pnncipal and interest in accordance Standtsy Letters of CrediL Standby letters of credit are with the eng ndl payment schedule Accelera9on of payment unoer us&1 ri vanous transactions to enhance the credit standing of the insurance policy by the insured is not permstted Citibank customers. Standby Letters of credit are it 'mcabe assur. ' AMBAC's rsurance underwnting procedures inciude a ngorous ances that Ctibank wWi make payment in the event that a Citibank cred t revew along wrth an ongoing nsk moni'onng pecess customer cannot perbrm as obigatons to thrd partes AMGAC hmits its exposure to losses by under wnting only invest. {

Ctibank issues standby letters of credit on behatt of its ment grade monopel bonds by d'versi ying f

<ts ask geog *aphicaiy.

customers for four pnmary purposes to ensure contract perfer. by type of bond and by angle issue I'mitations, and by obtaining mance and rrwocabPy assure payment by the customer und.r reinsurance Premiums are recognized over the term of the insur.

ssp 9 servce, and maintenance contracts or construction ance pokcy Reserves der losses are provded ter when default  !

projects. to prcmde a payment mechanism for a customers tnird t'y the bond issuer is reasorably antopated such losses have not party obigatons or act as a substitute for an escrow account; to been matenal At December 31 1986, the pnnopal amount of assime payment by a foregn reinsurer to a dormstic r. surer; are to munopal bond insurance o force retained by AMBAC was $308 bil- l assure payment d specfed fnarcal obigations of a customer '

lon. The munopal bonds ensured have a weghted average li s j Fees are recognized ratabty over the term of the standby letter of of 16.9 years.

cedit. Losses have not been matenal Interest Rate and Foreign Exchange Products,.

Citicorp offers interest rate an .1 foregn exchange futures, forwards J i StandtryAetters Of Credit

-- - ~'

optons, and swaps which enable customers to transfer, modif y or j

reduce ther interest rate anet foreign exchange risks Futures and  !

" $P' M S . 9 W . T . - _ _ . . _

lorward contracts are comm0ments to buy or sell at a future date  !

our av a fnarcalinstrument or curreey at a contracted prre and may be me _ _ _ . -

_I[s). [t$. as. .sNs.. ,.h settled in cash or through dpilver y Swap Contracts tre commit-g h 1ce $ A,364 $ 2.808 $1.567 $ 979 132% tials between speofed financialindices as applie 3 to a robonal l

pnnopal amount Ophon contracts gNe the buyef. for a lee, the r:ght

• flleen Payment 3,217 2.236 763 218 46 8 %

but nct the ocWgatron to buy or sell within a limited ime a financal Oubans.Purthased instrument or curre-)cy at a contraNed pace and rlay also settie o Secunte s. Escrow 296 178 87 'O 186% cash based on ddforentJs bet ween spr>cifed inc. :es Instrance. Surety 4,196 3.173 469 . 26 5 %

cases. Ohcorp manages the expoms $awo tMse ,

products as part of att owfallintefest rate ano for Ign exchange Backstop SteH tradeng actrvites, which octude both funded asset ard habkty Courty ard h apet postens and non funded positons For exampk. Ot. corp may hold a secunty n is trading portiolo and at the same tit e haw S*Cd*3 8'est t74 46 3 292 2 futures contracts to sell thtt secunty The losses on one posit on As otherDeet may substanbally c# set gasns on the other positon Ther U _I.EJ .. bI.l.0 .N_ _89 40 5 % prodirts are also utik2ed by Citiccep to reduce exposures outsde .

TWEL

-- M $10.295 5197 $$890 .,3N% the trading portiolos, as nedges of interest rate gaps and bregn 1

, j The market and credt nsks inhemnt in tradttonal bankfig j Sernaces are also presort in these specali2ed Inancal, ductss as '

are the venous op..iig noks that exist in at fnancal . %es, Ncasonal princcas amounts are of tien used to snapress tr ,cume of inese transactions but do not represent the much smalb amounts potentiapy subpecttonek. I Market nok vs the exposure created by fluctuations e rserest and i tomign eactienge rates, and es a functon d the type of product, the j volume d the transecion, the tenor and terms of the agreement, l and the voletdtty d the undertyng inteest rate or auchange rate ,

Market nek wt afleciwd by the m of the aggregate portlo6c and the i entent to whch pcotone have oMeetting exposome The market j nek of an rtemet rule swap, for esempie, will be rechced by the  !

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presence of secu~ es Waw ' .v '"'

- m .x ' 2; " " mr *<- .~ ~ m.' nnvq possons witha c se tey %%rs . - , a 23 y;i.: g a 4 e .c.; y s a- n f ,y a w ej actvities in these specialeec foancei pea s on a raarket s ar.e 513 70 8 mil en ere geoged as totaterat tur ocnowings to basas that recognizes o eamogs the gains or losses resultog f'om secure pubc and trust deposits and for other purposes changes in market interest or exchange rates. Trading limes and Vanous legal proceedings are penoing against Citicorp and its monitonng procedures are used to control the overall eposure to subsdar es Management of OtiCorp Considers that the i ggregate market nsk. liabbty if any resultog from these proceedogs willnot N matenal A vanety of monitonng procedures are used to control the overall exposure to market nsk. These monitonng procedures ociude nsk _

poots. a system that measures the es posure to mcwments in it. STOCKHOLDER'S EQUITY OF CITIBAllM. N.A.

market interest rates cost to c!csc. a conceu tr ct determ,ncs the Authented capital stock of Citibank uas 40 mdlon shares at cost of covenng an open pom and eamings a' ask. which December 31 1986.1985, and 1984.

i estimates the earninris rnpact of changes in market interest rates based on histoncal anterest rate Wiatikty Otacorp bebeves that Chainges in Stockholder's Equity presentation of the amounts estimated to be at nsk urxter these monitonng procedunsould not be meaningful tsecause of

,,,,y y ,

the many assumptons used in denving these amounts Balame at BegmngoWear @? . $6.318 $5.924 Credit risk is the exposure to loss in the event of non per for. Additlens l I mance by the other party to a transacton, and is ; %ncton of the Net encome . $ 803 5 807 5 777 1 acihty of the counterparts to honor its obigatons to Catcorp Contnbuton from Parent Company SOS 405 .-

For these specialized financial products the amounts due from or Other additons. net 14 10 -

che to the counterparts will change as a result of movements o $1,325 $1.222 $ 777 market rates ano the amount sub tect to credit nsk is limited to ',nis fluctuating amount Otcorpcortrois redit nsk through crer'at agprovats. hmits ano mordonng procedures ano ine recognition in earnings of unreah2td gaos on these trar'sactons is .seoendent g e panslaton M 29 42 e angN associaW on managemer.t s af,sessment as to collectiblity Otcoro nas sgnihcant presence in the markets 'or these interest wm acmim of s2sdares and aNiates 10 M4 30 rate and toregn excnm ge prooucts At Decemtur 31 1986. the 0 *"8' "# ~ -

19 notonal pnncipal ammnt of Citcoro s outstarung interest rate swaps was 5634 bilon. commtments te p ,renac.e and seil money 8 353 $ 503 $ 383 rr.arket ostruments or secuntes and commitments to set'te maa annesErEIIDeff YEAft $8,000 F7.037 $6 318 against financiat and'ces under interest rate futurec forward and opton contracts were $789 bihon a'.d comm.tments to purchase Citibank charges retained earnings with the amount of goodwill and sell currerces under toregrn. ,,rrency spot forward and opton associated with emestments by Citibank in subsdares and affd-transactions were $2163 talion " nese amounts are gross volume iates to the entent requeed to carry the investments at a value not indcators only arx1 do not refbet the extent to wnen positons may in excess of undertyng book value in accordance with generally offset one another As oiscussed above the amounts potentially accepted accounting pnnciples, such charges are not rdected subpect to market and creoit nsk are suts. tant. ally sma!ler than the in the Olcorp foancial statements and the related amounts, net of gross volumes ndcated he<e amortuation aggregating $316 milen. $256 mdlon. and $109 ml.

Im at December 3119861985. and 1964, respectively are octuded m other assets in the Otcorp consolidated balance sheet j S. M AND N Li&glLlTlgg Catcorp $ ecy,Jity irwstmerit n Clibank inmQuiilted to $8,325 mdion, i Otcr.;rp and its subsidanes am obigated under a number of $7293 mit!cn and $6.427 ff'illion at December 31.1986,1985 ano noncancelabio operating leases ior premeses and e@gment, 1964.resoecttvely j l most of which have renewal or parchase options Mirumum rental l commitments on noncancelete operatng leases, ret of sublease l

neome. are $229 mution in 1987 $199 mdhon n 1988. $178 mitison n 1989, $160 mswon n 19901145 miton n 1991 and $479 miten beredter, totaling $1.390 mdlon Nntal expense was $351 nnlison in 1986 net of $57 mdlian subsease rental ecome. $256 milliori n 1985 net of $55 mikon sutseese rentalincorre and $209 miden n 1964 ret of $53 mtion sutseate ventai ncome i i

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20. CmCOflP (P#.Rt.NT COGAPANY ONLY) Condensed Statement of Changes in Condensed Balance Sheet FinancialPosition sessenen n :r.r.ua. . w a:M >:n t.n ses 99 mmuow) ocu nos ..

_ tees , . Gep '~* ~ toes ~ ~

Deposts with Subsdary Banks. Onncipally Netincome $1,054 $ 998 $ 890 Deduct Equity in inteest beanng 8 3,337 $ 4.073 inestment Secuntes at Cost (Market value WstnW Mnm of Subsdanes . - 447 n82 904

$399r)1986 and STil in 1985) 421 117 '

investmentsin and Acvances to Furds Derrved from Operations 8 511 $ 16 $ (14)

Subsdaries Other Than Banks 24,944 17.599 Increase in investments in and Advances to Citibank. Purchased Funds and Other N.A.and Other Subsdary Banks .12,507 10.851 Bonowros . 2,106 2.399 1.028 Other Assets. 481 253 Long Term Dett. Subordinated CapdalNotes, and 788L  :.:. _ ... $42,284 $32.893 Recieemable Pre 4 erred Stock 4,900 3.421 1.087 LJoh1Elles and Prederred Stock 150 575 100 Stockholders' hydty Advances from Subs 6 anes 1,341 - -

Pun:hesed Funds a d Other Borrowings $13,500 $11.463 Decreasein Advances hom Subsdanes 2,330 998 Depnsits wth Subsdary Banks 138 245 1.203 OmerUebddes . 1,009 1.339 investment Securtes - 163 -

Long Term Debt. Subordinated Candal Other, Net -

87 ~308 Notes ardMPr*nedStock Se,1S3 (NJtes 8,9. and 10) . 14.237 11.328 votat

- ~~.

~' $dk)6 $3.7i2 SicnN&,s' Equdy 5,000, 7.765 ggands tpned IL*1mL;._1. _.. . .: ;. $42,284 $32.893 CashDevderds Declared $ 325 $ 353 $ 319 increasein

- W - . _ . - -

tid Advances to

]

• f ?"* ** S _ .. .. ._

• ese__, ses . _ (984 Subsdees. 8,498 6.057 2.288 fW enee Decrease n Woends from Subedary Banks 8 ett $ 360 $ 292 Advances from Subscanes -

4% 1.057 Dmdends from Subsdares Other Other.Ne $$ - -

ThenBenks. 300 - -

19tmL_ .. ._. 1 98,163 $6.906 $3.712 tterast hem hrannes 1,000 1.295 1.421 Other(pnncipany enterest on Vanous legal restnchons limit the extent to which certar) sub-rmestment secunties) 13 34 46 sdenes of Cibcorp can supply funds to Catcorp or its other subsd 38,447 $1.689 $1.759 enes aN aEsta t) adddon. N aporwsM the Co.vN M the Cunency es requwed if total dvdends decta ed by a national bank r) arr/ calender per exceed the bank's net prdits (as defwwd) kteestonOtherSunomedMoney 8 830 $ 857 $ 907 titorest andFees Pod to w Nt year m wth is remned ne prdns for te me Sendenes 191 Iwo calender years. Wder the formula as d applies to Cdcorp's i 167 316 n,.onet b,vik shadenes (whch at December 31.1986 had teoresonWTerm DetW and CapdalNases 1,MS comuned not assets of approxrnately $96 bdlert Cdcorp can 1.005 802 OmrExpense Ms recewe omdends from such bank subedenes m 1987 watoat u_. .9 appor,il of the Comptroner of the Cunency d approximately

$$@N ,$2.040 $2.034 $14 ptwi. plus an addrhonal amount emello t*er not prc6ts 1or WeomeSomebeforeTexes and 1987 up to the dele of any such dedend declareton EgdyriOdelnbutedNet incomeof Subedenes . 8 78 $ (351) $ (275) tcome 4x Bonellt-Cunent .  !

488 367 261 Equeyetundelnbuted l Notkicomeof Subedenes 847 ,. 962 _,_904 arroisses . .._ suas s 900 8 800 i

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F i N A N C I A L S T A T I S T C l S mumm GutRTERLif FINANCIALINFORMATION

? --

ammmmhOsa !N $

' 7;;; C ?..? v t.: p, 194s o%

.ec s.v: L aas encer na s-.w iuce s 4th 3rd 2nd 1st 4th 3'd 2nd 1st Netinterest Revenue $1,M2 $1,571 $1,464 $1,431 $1533 $1.368 $1.311 51 234 Fees,Commssons and Other Revenue _1,230 1,070 1,013 954 844 751 740 695 1mysu savanus $2,892, ,,82_,64,1 82,477 $2,300 $2 377 $2.119 $2 051 $1929 Prowsaon for Posscle Credit losses 8 500 $ 431 $ 457 $ 429 $ 394 $ M6 $ 280 $ 223 Operating Expense. 1,981 , _ 1,784_ , . _1,411, 1,496 1.609 ,,1 307 1 310 1.191 Teintenumenesa $2,488 $2,215 , $2_,008 , $,,1,928, , $1003 _ $ 1. 7,_53 $1.590 $1414 heorne Belore Taxes $ 403 $ 428 8 400 . $ 482 5 374 5 366 $ 461 $ 515 income Taxes'9 97 179, ,__, 174, ._192 131 ,, 139 210 238 surTascossu ., ,. . . $ 306 8 247 $ 235 8 270 $ 243 $ 227 $ 251 $ 277 i

f erSharo Net hcome*

OnCommon andCommon EqurwWit SNues. 82 03 $1.44 $1.00 $1.87 $169 $160 $161 $202 Assuming FullOduton . $2.03 $1.83 $1.00 $1.87 $168 $160 $181 $2 02 tosn assets $196,124 $148,047 $183,388 $181,496 $173.597 $169062 5159580 $154603 i

Cash Dhridende Declared Redeemabie Prefened ard Pretened Stock $19 $17 Sit $20 $19 $16 $14 $14 Common Stocka $85 $85 - 300 $73 $73 $72 $72 Common Stock, Per Sha# $.815 8.415 $.615 5 56S $565 5565 5565 car.meen Stock Pr6ce Range Ngh 58 % 80% S3% Sa% 50 % 51 % 50 47%

Low 47% 40 % SS% 48 % 40 4 40 42 % 36 %

Close, , ., 83 90 % SD% 82% 49% 40 4 49% 43%

cs a.=, e w. w w e os ur a m ,,r acr a me r.. a am m Oost new e*aurm *w Co-aw Secutes a'er loweg he me*1so Stoca D,<><os a amenwww re me wcw r m a 'wa c.eww ci, owes .* ce conso e o ance4,u u, S w so,, se au . ,.s...,s ,, s.,, seve-.re zu. -r., c., u, r. 4s .

agBJ 0% frWet @vcerrfs isara cercapW e W at cy'%##uc so Owr 3.q,hmen a f96$

l O_ . . . _ _ _ . .

_ . . . . . _ _ - . . _ . 1988 1985 N Rutan on Aerage Total Assets'" .S$% 62 % S2%

Renanon Common Snw E@ty*. 18.8% 151% 15 0%

Rekan on 1btalSAdhoders' Ecpty* 18.9% 14 1% 14 4 %

{ Agre0s Corrmon Stockhobers Equey as a percentage of Average Total Asras $.9% 39% 39%

l Aerage Total Stock %ders' Equay as a Percentage d Average Total Assets . 4.9% 44% 43%

j DMdends,Per Ccmmon Share hs e Percentage of Not hcomeo er Common Share * $5.9% 31 7% 31 9%

cs nurnum a eame.uouea, aeon se snues 2 ame eicoae ens has meewiec Saecs Dust as as a posterwage ut a,e age f er+ai Sax sa u eam iS,.t, e amr etow ass flamemass meeuse San.* Dua>wn as epeatsavage o A.er*>n he 5a voaws do,r, Ml W WIP WW 3 Corid!$stWF Bf W C9'w'Etr evdhnos and Pe &F A42'800 0 26 eaton e Ju,y &st. Der aerb sy .e10 kird esimeo of sur e 'ergM re.+ lse ce w pits Mpe e as aon,ognoese anc ea 'ess. ev oe sa.,e.eue e are im D

.___ -___ -u_ ---- -----

l 1986 F0RM 10 K CROSS REFERENCE iNDEX  !

4" h Y hhhh C' Secunte ',nd Exchange Commisson hb =h ' h c O E$NM his Annual Rep yi r,J Form t0 K incorporates into a Washingt.n,DC 20549 sng.eoccumentthe equ:rementsof tneaccountmg protesson anri the Secunties and Exchange ,

Annual Report Pursuant to Section 13 or 15(d) Commiss.on. inciuong a comprehensive explanaton I of TheSecunties Exdiange Actof 1934 of 1986 results.

For the fiscal year enrfe d December 31 1986 CorrmssonFile Numbx 15738 yg g Stem 1 Business 10-19 and 40-45 Iten 2 %:;- A te incorporated in the State of Delaware "*" 3 *D RS Empbyer xbwa,auun Number.13 2614988 8eone 4 seetAppucalde Mhs: 399 Park Avenue, New Wrk, NY 10043 Te6ephone (212)S591000 pinR7 N secunmasneessTantoPunsu&MTTO *" 8 "tieHor die RestetrmWe Ceaunen Baluity and Related Stockholder 4#ME theaters . 44.73,andet A ist d Cdcorp secuntes regmtered pursuant to Section 12(t) of the Stem 8 Seiseted pinenelalData A6 Sectrees Exchange Act of 1934 is avalable from the Ofice of the Secretary 399 Park Avenue, New wrk, NY 10043 Ibsen 7 %Ibleeusaien and Analysis W y W CeeHIMen W fleeutts W As of D:cember 31 19th utcorp had 137614.844 shaies of Common Stock outstanding itsen 4 Finansiel h and ? ;; :- L._, ,

Date .

53-73 i Cacorp (9 has fed ait reports requeed to be hied by Secten 13 o' j 15W) d the Secuntes Exchange Act of 1934 dunng the preceeng nesa e test W 12 months (or tar such shonor pened that the registrant was recured to hie such report $ and (2) has been

• Yt to s'Jch fiisng FAft? 3 thesn te Dereetors and EmooutDe OSeers of stee The aggregate macet value of Cecorp common stock held by .

83-44*

non anentes on January 31 1967 was approximately $73 tdort these yt geoeuttee yh

• Ibest 18 Seetutty Denneraldp of Carteln SeneGeist comers andv

• Itone13 Oestein RetallemeMps and Reested  ;

Tiensaseens .

• i PAltTN  !

Items te n=amaam PteeneialStateneoutm r

end Reports en perus64 . . . . , te t:acaroa esS ~weimwsaneaemanov nt,ymine.nca l

CWrt4fn WiellMICW data feC5Aled by the Securtles mdiost$m0s Cw.w , se rduded on peGee 22 to 27, peGee 30 to 33, pe0s 73,andpeGet 75 to 73 I

l i

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1 M i J

F l N A N C 1 A L D A T A S U P P L M E E N T

, EX MERAGE SALABOCES ANDINTEREST RATES tram:::E: El Hallll:tD*e.

• l'IGCBelb. 1 RXABL_E E.OU.%_._ LENT BAS._IS.*_ . - _ .

CmCORP AND SUBS l DIARIES

. _.._.. . _ '.'88 N? 96J eig g g i AveRAe8 AvtAA48 Ad 84^4 U 44 NMI7 h'"I 6 & 6. 4 a.1 % i emamor navesem U. . . _ DYI .

..@ . . . N N... ..\,* fI .

Laeme and Lemme fineneene game of tensassed Seseommer" Cyrustas Loans etkresac osces Camrneec es and testnai $ 1S.ees 8 1471 13.17 5 t3 2'2 Marige;pe ano ResiEstate $ 1 822 13 79 $ $4 082 $ 2 069 34 69 7.ma sM ut 5 J00 59: t: 15 4 331 509 Loans toFmar= s msiitussans .

mNorseas Oecas .

4ts a 14As 604 84 i3 91 1189 128 11 75 10 77 37,573  ;

tasm corwnsens uns .

4.7FF _ t177 38 967 5 Ud 14 1 j 46 g ut 15,es s sr. fee a y.nas t SAs , 5 58 083 $ 8 235 Constannt Loans je is $ 58 027 _$ 8 %7 jy i m0amosac cams, s deAct 8 aAss 13.as {

$ 40 566 $ 5 735 14 14 $ 30671 $ 4 431 mO wesesOoms. . . t Age t see 13.as 7 i7t t '86 14 45 fateCarewner Loans . $ et,70s 8 a,144 16 54 6 One_ , 10t3 f 6,65 1SAs $ 47737 $ 6 921 i4 50 $ 36 755 $ $ 444 14 81 b atoons 9118,418 918,am 13As Laese Fosncaig 3,me 413 14AR

$105 820 2 424

$15156 463 14 32 $ E4I82'~5 51 15 04 9 'O t900 _ 392 loss Loans ano Laase Fnaricng Stat #7e $18.?ns 13.88

_2 _0 63

$108 244 $15 619_ _,14 4,3__ $ 96 682_ , $14 643 15 15 Rumes9sedand Ameets Aereommenes NesdummesseseSeme) $ 7AER $ WER SA4 , $ 6 635 tunessummesGesar e

$ 1 Ot'7 15 90

_$ 4 906 , 8 936 59 07 m0mmsenc OEkes US Treewyano5ede<a egence* $ S, des 8 MS ut Siese and hAncest

$ 2 505 1 266 to 70 $ 2 745 $ 304 11 07 357 M 14.as 396 da ' 2 'S 419 Oiher . . . .... 1,338 9t7 &as 788 05 13 32 52 124i 704 71 to 09 m Owneas Oeces iPrncesey iocs gover'imem essues ..... _SAes me 19.as 3 448 466 _t 3 52 ,_ 2 3t3 , _ 279 Tais i2,rf 8 tev et._t $ t Age 94.84

.$ 7136

$_.887 706 54 42

'2 _43 $. .. _618_1 .$ .

us teamsy aidFeasrs Agmicas S 308 8 30 1MS 9 mis erva eArucces.

$ 811 4 98 r2 00 $ e075 $ 1 34 12 4?

1.334 144 e t As ab4 71 8 22 196 olhar (Percsery siowedees opers 4.MS M 4 bd8 53 i3 la toss mF~~ 709 to 50 3 248 611 ?88I S 4. tit 8 ~ tie SAF " $ 6 569 ~ $ 876 I3 3T ~ $ 4 fi9' 1 798 ~

~

teensene Gospeng Depeeses 16 9i poematpeApton eelseal 4 13Ast $ tAf3 &&t $ it 811 $ 1156 9 19 $ 115?? '1 00 harness Earringassets stes. gee '5 3,433 ~ ~

$ 129~

Non.eeereat tammg Assets.

t 3.11 $140 596 ~ ~ E ~ 73 90 S

$124 067~ Si8 356 dm

~SRABS '

19 910 18 564 sumLaenste .

_.,,., $1eM' ~ NO SOS

~ ~~"

0 42 631 MM55peatet Ospesees eDirnmenc Oskes Senigs Deponeva sesganetno Ceance*4 oicepose S t?Att S 97F SAF $ 14 296 8 968 6 77 $ 11629 $ 854 tAS4 tet M 2 314 241 7 69 Oster toneCeconds . St.tes 10 41 6573 tsi 9 60

.-- .f ms .S. .As-19 563__t 806

- __9_09 16 162 1 918 11 87 Deposes .

$ 48.800 $ RASS fat S 36 182 $ 3104 8 56 P Overeses chres . GRAme $ 29 364 $ ?963 10 09 e.fdes 631 5038 5 761 11 45 46 786 toes . '

5 tice t? tt g -

-8 GRAI4' .._T. edE ~ ~S.48 8 86 400

- $ 8 86E.~~ 10 ~ . 25l6.$ i50.

$ a *i31 i t J3 mDamesec Onaes PwermeadFisias m10er* Sar'tW195 Ms Fisies Pwc' aneo anc Secwens Sono undee Apes'uresenf e Keines 8 94A98 8 MS Camr'escer P.c r . . fAS $ 10 064 5 465 8 50 $ 9329 $ 9 72 Oper PwerieVunr*1 ... 4W8 43 &at 4977 415 8 34 4970 to 42 8,805 On teet 6 306 525 10 56 Lanetwm0sts ',arnertsuHseseno iP 1 33 5 6d6 Sad 3 06

• , I me e0*ume onces e mAet. . . e a,ams. . . _ mess..

,,._[ 900,. ,y u tio

$ 33 de $ 3 202 e $7 , $ 29 00s 5 a 0m moversand oeices . .

emoS t,ses stat 7 9t1 test i0 w 24 76 lose 2 i45 tes 4 M'~5' Em 26 49

~

tseverw teenrgLetmanos .

' t5.05 ' ~' UE 7'5IIed ^ ' 12 40

~~ ~ ~ ~ '37106

$ ' $ 5244 to 13 ii451-. Esist'_. t.A.s.

. .$.I27'tE~~F. 4M ~ ' 10 97~

_. .$t LI2i6" ~ S.t3 gra,, tp pg Oser A mvezesi hearqnepinen E?te ta Sag 17 196 La* *daa"' kat_

_  : :. . ..***1 . . .

_ "* *Iw mesaimensessans .... _ . . _ . _ .

,,8 N M . _ ,,,;, s ;_ ,.,,9994At3 $100 '". $142631 asresumsresumasanassmemmesw smammaAMM m%esset onces . .

mtrueresas 0eres . EPS $ 72 906 8 3387 4 44  % e0836 8 23i2

&st 3 79 6_7. e3) . ._2 33f.. . 3 46 6313t 2 ito 3 44 Mr t . _; _ 94lNuo A,_;,_.;_ -.,g; 8 Genf -SM_ . . .$140 SE $ $ 988 3 GB $124 087 $ 4 48 t 36t A* eesseop.ee se aimas, esiae sa m %yie sevee nr 4sg

9. we erwesasbenugesames. aseeenaaos eramisesase f* W W Last6dit et 5% des shamp etter %e 46Epps W 468 ufs anc afaut tendigs Quietas N

_ ___m_-._._-____-_m.__-___m _ _ _ _ _ _ _ _ - _ _ _

AftALYSIS OF CHANOES IN NET INTEnEST REVENUE RXABLE EQUIVALENT BASIS

- - = . . _ . . . . . _ . ..

• NCat ASE 'DEORE ASti ++CSE ASE iXORE ASEt OL{ TC CMANGE iN D.st to > A%cg .g AVERAGE AVEpaGE NET AsEmAGE AVERAGE NET suswoNS OF '10LL ARS y0Luut p a?E CaaNGEa vCwMf AAfE cmANGE".

Leone-Comsnercial hDanestc Othces $ 129 $ (217) $ (88) $ (66) $ (143) $(209) hOvtyseas Ofhces (200) (741) (941) 88 f451) (363) l Total $ (71) $ (958) $(1.029) $ 22 $(594) $ (572)

I Leone-Ceneumer hDomeste Othces $1.223 $ 3) $ 900 $1.397 $ (93) $1.304 hOerseas Othces 562 (239) 323 179 (6) 173 Total ._ $1.785 $ (562) $1.223 $1.576 $ (99) $1.477 Lease Fineneing l

M Domeste Othces $ 39 $ (49) C (10) $ 51 $ 2 $ 53 bow seasOthces 18 (58) (40) 30 (12) 18 Total . ,, $ 57 $ (107) $ (50) $ 81 $ (10) $ . 71 TotalLoans and Lease Financs,g $1.771 $(1.627) $ 144 $1.679_ $ (703) $ 976 menes seua nosen Aeroemente

.. / "M;in desnectie oftesel $ 118 $ (513) $ (395) $ 261 _$_(110) $ 151 I teuestament Seewlties hDomestcOthces S 75 $ (80) $ (5) - $ (22) $ 16 $ (6)

H OverseasOthees 298 (84) 214 150 37 187

_ Total _,, 8 373 $ (164) $ 209 $ 128 $_ 5's $ 181 Trading h Asaste M DomestcOthces S 6 $ (44) $ (38) $ 83 $ (36) $ 47 hOwnseasOthces 209 (239) (30) 82 (49) 33

~

l Total ._. $ 215 $ (283) $ (68) $ 165 $ (85) $ 80 heeeessanneens oepoeste preneipeNy toeveresseeGesel . , $ 114 $ (198) $ (84) $ 26 _$ (143) $ (117)

W WhL erTE nest R5WWImis $2.501 $(2.785) $ (194) $2.259 _$(988) $1.271 Sepeelte MDomenteOeces . . 8 331 8 (452) $ (121) $ 397 $ (256) $ 141 hOerseasOlhees . . . 667 (1.210) (S53) 342 (249) 93 bei 8 988 $(1.862) $ (674) $ 739 $(506) _$ 234 pondsBarrased l

hDomescOnces . . . . . 8 542 $ (419) $ 123 $ 321 $(218) 5 103 homessesOscos 253 (634) (381) , (47.)_ (137) (184) hal,. . ;,,,,,; ,. 8 796 $(1.063) ,8 (258) $ 274 _ ,8,_QS$) $ (81) wentarvensersupeses ., . $1.783 $(2.715) _$ (932) 81.013 $(800) $ 153 aisterremest y .

,,_t 808 8 (70) $ 738 $1.246 $ (128) 81.118

,,aswww aw ww wnamew=a sew..weawe,Eema wsweetemen men ==ow-t

b.47tBENT SECUMTIES CARRYltJGVALUE ANDYiELD' BY MATURf1 Y DATE AS OF DECEMBER 31 1986 l

y,wltrous4 D0a na$

diA'bE.Si C'S8 c..CJC;

.v%%? *EC .wC.Nr = a . ~, .vu' ,ia Due Weiin 1 Year. $ 237 9 44 % $ 86 4 21 % $1968 -

1. ter 1 but Wer 5 years 553 9 72 % 83 454% 3 338 -

1. ter 5 tut Withn 10 Years. 435 10 11% 304 6 75% 1.431 -

Nier 10 Years . 2,003 8 91 % 1.482 5.70 % 960

• i tenet .

$3 228 9 22% $1.955* 5 79 % $7 697*

• Cartyng Wue and Yokf' As of Dec_ ember 31.1985 $2.818 9.90 % $ 825 6.19 % $6 004  ;

Carrying Value and Yekf* As d December 31.1984 $2.811 10 60% $ 439 6.68 % $3.272 (9c ,vu.or eevanem.semeremne va.n, n'wacc=an vmecom or = cm ev= aoe.mme, secer.s a c crw at 'm seiaui 984 O See19Mone f of no es e P. Marrw sammen nrs

@ See 4e now t or nonas e N Marc

• saww'n vws v eawnae eyma Le4NS AND LEA _SE PINANCING OLFTSTANDING ,_,

e u o - wu .e .. .. .. ~ __ sees nas __

m ._ sea. _ . se2 Ceaunerolet Leone hDomeshcCAces Commecaland hdustnar* $ 16,SM $ 13.514 $ 16.028 $14.910 $17.817 Mortgage and RealEstatta 7,837 6.165 4 912 3.975 2.915 Loans toFnancialhstitutons* 1,330 1.353 1.003 _ 2.341 , _ _2.623

$ $5,939 $ 21.032 $ 21.943 _$2L226, . _$2_3 355 hOverseas Ctees Commecat and hdustnar* 4 33,101 $ 25.683 $ 25.235 $27.592 $29.590 Mortgage andRealEstatem 2,330 2.143 1 906 1.822 2 745 Loans to Fmrcal bstdutons. 4,375 5 'M3 5.827 5.914 4 '51 Gomunentiand O#calhstnutons 4,179 4.434 4.298 _ 4074 __ 3.140 8 38,974 $ 37.623 $ 37.266 _ $39 402 . $_39_626 8 80,006 $ 58.05) $ 59.209 $60.628 $62.981 UnnamedDsecont (407) (483) (410) (386) f463)

Commecal Louns. Net of Uneured Dscount ,,

$ 38,440 $ 58.172 $ 58.799 $60.242 $62 518 GemensnerLeens hDomosecOmoes Mar' gage and RealEstate* $ 27,991 $ 21.119 $ 17.679 $10.751 $ 9 261 Instamment, fwvoMng Oedd and O'her _ M 700__,,,,27.490 ,, 21.913 15 418,,, ,_ 11;21_3 4 57,N1 8 49.200 $ 39.592 $26.169 $20.474 hoverseas Othces _ 14.798 10.727 7.593 6.856_ _ ,,_ 6 824

$ 78.397 $ 50.036 $ 47.185 $33.025 $27.298 Unnamed Decourt _ 64,1 84) (4.418) (4.524)

(4.030L,_, (4.093)

C.onsum,e,_r L, oans. Not of (#memed Dorount 0 08,344 $ 55.518 $ 42g1

_$2835_ $23 205 taasensenems toneeFnamnay a utwemed!neces,_,,, ._. $ s,ses $ 2.e0s S 3 .164_. $18.jt $.1.855 Anomence tor Posatis_0 edit Loness __ __

$ (t et) i $ (1.235) $ (017) _$_(11_$, 7 (687)

Teintnaansaastaans putaneses,est ,

pSS.308 $115 264 $102.707 $90.283 $86 891 mem.m.mww w see.aserwan cases ==s moeten our are answeepusw4 ay asseen a eumans epis a paesviu,us av escas remuusw of Sd4 atmei an ses Sos aimer' e ses &FP3 aume e eed SO! auny r est agr ps) anem e es?

T1

, =

O k_E.9 E N.N._I.D.Y N -

• ,wums or :x>..aa s fees 9 15 tW 1983 1982 as a mammaanes POR POSSteLE CREDff LOSSES AT eE04MMit00 0F YEAR $1_,235__$_917_ $7L $687 $58_1 Dodesetions Gas Loan and LeaseLwes Cassesnercial Mortgage and Real Estate:

in Dwes*x:04ces $ -$ 2 5 5 $ 3 $ 4 h Overwas Ofces 33 15 3 11 8 Gmemments and Orcalinst tutions 37 44 40 47 11 Loans toFnancetinstmhons In Domesuc Of'ces - - - - -

hOwrseas Offees 19 19 9 23 -

Commeraaland hdustnat in Domestv. Offces 100 64 83 81 91 h overseas Ofhce> 300 278 137 127 131 h Domesbc Ofhces 1,0$0 642 320 210 197 in Ovemeas Offees 122 77 66 73 69

__ . _ . . . . . . _ _ _ . . _ . 81,081_ $_1.161 .$663 $575 $511 dan and Lease Recoenes Cerissearcial Mortgage and RealEstate.

bDomeste Othces 8 1$ 2 $6 $ 10 $ 11 In Owneas Othces 3 1 e 1 1 Gwemments and Offcal bstdu*cns 4 8 - - -

Loans toFinancallnstitutois, hDomeste Othces - -

8 9 i hOversec Nees - - - - -

Ccmmercal vid industnal h Domeste Offees 37 25 25 11 3 MOwrseas Ofhces 41 29 21 21 29 Cemeumane M DemesacCfhees 174 111 81 67 62 h Oerseas Ofces de 23 19 20 20

$ 390 $ 199 $156 .._$138 $135 NotLoan andLesse Losses bDomesac Othces 8 944 5 590 $296 $196 $27 h Overseas Othces 483 372_ 211 239 169

$1,371 $ 962 $507 $431 1376 Aetchloss Pausen tar PosadeOnda Lones . 81,808 $1.243 $619 $500 $473 Other PvmpePy from ekMance telences of angused conpenses enc tranaki>on of weets skwance beknces) . 9 37 34 1 9

. ... . _. $1,884 $1280 $653 1521 _$482 emnummes pee possess enserr,Laeoss m ame_er vsaa . 31,80s $1235 $917 $771 $687 9e***#P*aon_a_N.8 Loan and,Lem_,e,Lem n ;.. _. .

.,, s 4e4 $ 281 $112 $ a3 $ 97 M E* jess,0f P(omon,w N,W Loan atLasu Qeses %,,W,,,,,,

, , , , , , ,;, $1.487 $ $13 $292 $180 $_97 h ho=_*m._ M. a*anca_ W * .__._u_.___... . . et.it? $ w $ws $180 SiO6 mcom,wamma -- =ineasumi re -voww an 70 l . .. .

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LOAM RSATURmES AND SENSmVITY TO CHANGES IN INTEREST R ATES THE MATURIT12S OF THE GRO_SS COMMERCAL LGAN PORTFOuO AS OF CECEMBER 31 1986 a uo.sa oouAas .vA .um .. ,o m hDomeste Ofrces cut.T wrA ud irdstnalLeans S 6 873 $ 4 299 5 5822 810,994 i

Mortgage atd Rea' Estate 2.727 1 491 3 419 7,437 A8 Other Loans 542 292 465 1,299 hCherseas Ofh s. 2 ' .48,1, , , 7.827_ , 4 668 33,976 Totat _, __._ , , , $31.623 $13.909 $14 374 $59,904 The tenown tabe repeserts the sensttMty of the abtw loans due after one par to changes ririerest rants ,

Loans at Predetermined interest Rates 5 4.416 $ 6.795 l Loans at Roatrg cr Adpstatie irterest Rates 9.J 93 ,7J79 venL . . ....-.

$13.909 $14 374 YttaE DC*. 0SITB GN DotAESTEC OFnCES wouru uam, .u , : .. s w hamustsouF L. AR0 A *s ea tw , 3o s . ,.a, ..~.5 Urder 3 months $3 244 2 730 3 to 6 morwhs 484 926 i 6 to t2 months 410 582 Cher 12 months . . .

. 670 2 315

~

AlfERAGE DEP068T LIABILmES IN Oyrman a a OFMCES l

fM4 1985 1984

. s M RA44 A i 8 4 4( A . t & A ',e m anes arremsst s e m.-

A.s aa .e A n a .e ne . -

h lAL.h#4S M M. A,A _ _ M AM M _, kA. AN .I, " A'I A A'(

D Af".*l Banks $17,739 S 44 $17.501 11 37 $17.816 11 27 Other demano deposits 6,330 4.73 6 470 4 20 4 782 5 51 Omer trne and wrgs deposits'9 _33,961_ S.15 _ 26.958, 12 04 12 83 26_467 turent . . . . . . $80,090 8.08 552 929 10 86 $49 065 11 55 ty si , era.a a r.,. ar r a mu wrww tc. amie ==~.ons a :xxwoc. mo, 1

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PROPERTIES The onncipa c%ct s J C.t cyc o EXNIBITS, FINANCIAL STATEMENT SCNEDULES,

~ ! ca N: a- :- AND REPORTS ON FORM 8 X iccated at 399 Pani Aver e New Yeo Ne.. & 319 s:3. vaa 5 med a tu. ding owned of Cit can* Ct bank afs0 oA?s C.tcup Ce'te- )

CJ :UO anc 3.csc F M a 59 story cueng ictated at 153 East 53rc St<eet a:< css from :c s:..ca'ec 5 arereert o' cm 399 Park Ave %e AcproximateN 68% of the Oticoro Center anc CCoscicated Ba'ance $neet 399 Park Asent.e cornp;ps 4s occuyc ey C ticorp in aO]ition Cons >catec St gement of Lnangesin Ot. tank also owns otne< pmpocies in New cr4 inciuoing m Wa6 5tocencioe s E: pits Street wh*Cn is total!y oCCuped t,( C tco

re story cueng of *rien 34% is so occupec Otcorp au nas map comest.c :orogate real estate noo gs 3 cup seo no Form 8 K Current Aepat for any month in tne , ear o Los Angoes San Francisco ana Soum Fans enceo Decemoer 31 1986 Intematiorgy Oticap also owns mapr co porate premises Otcup s sgndicant sucsd. ares (as cefinea) and the r place in vanous ates inraughout tne wono inctuc.ng Par:s Loncor of incorporation or organcaton eclude Dussedori Brustets Buenos A.res Rio ce Janet Sao Paulo. Otitank N A Un, tea Sta es Mexco City San Juan Caracas Hong Kong Marda anc Tcyo Otcup Baniong Corporaton Delaware in all some 36% or Otcorp ownea :c<porate real estate is Cit: corp Mobngs Inc De: aware j locatec outsde the United States Of the aporox.mately 2 300 O'ner suosoaries of Citccen arc tneir placc cf incorporation or l orfces and other facihtes of Of cypiocated throughout tne organi2aton inctuoe mrd. 440 are caned and the aamrce a<e leased f OtcanhNew York Stafet N A Unitec States Orcorp Dgital Excnange inc Deiaware Otcup Latino. Irc Delaware CONSENT OF fWDEPENDENT AUDsTORS Citicorp Trust. N A (Calitomia) Uni'ec States Citicorp Trust N A iFlorca) United States PFAT P t. warwick, uitch.si a ca. O'* * ** *"* * *C D* ' * * MARWKK Cenited PWc Accountants QticorpOverseas Services Inc Deiana e l j Oticorp Reasty Consultants Inc De awa'e i Catcorp Secuntes Markets Inc Delasare i TneBoardof Directors Otaease inc O'icop Deiswa e Otcorp Aetan Services Inc Delaw a'e I we consent to .ncorovaw o, e'erence et our reput catea Otc ros nicate oNncopea'on anc kaws n'strumts l l January 20 1987 reiating to tne consolcated ta'ance sneet of Defi ning Mghts of Secuntes Homes. ocweg erves and Otcap arc suosdeet as of Decemoe 3$ 1986 and 1985 ccnsment ostnants relatog to vares eecutme and staM { tene i plans, na,re oeen p<eviously fi ed wiln the Commisson as l ( are tne related consoi.caten statements of inccme. changes in j stockhocers eo' 9t y are changes in financia: pos. ton for eacn of E ancits toares Otcup registration stamma the years in the three year peroc enoed Decemoer 31 1986 ard s of sucn oocuments ty wntog tne consoedated ca:ance sheet of Ot bar* N A anr1 suosd. ares Stemse may man ay cg& M MM % M a; of December 31 1986 ard 1985 wnicn report appears on page

• m 10043 51 o' the 1986 Citcorp Annual Report ana Form 10 K in the foi inwirq Regrstrat.on StaNments of Otcorp. Ws 2 47647 2 47648, 2 5867a 2 58679 2 7705a 2 82298 ana 33 5564 or Form 5 8 and Nos 2 96725 33 784. 33 31M 33 615133 2928 33 4400 33 5702. 3311927 and 3311078 on Form S 3. arc of C.tcarw N A and other affiliate $ hbs 33 342,33 780 2 98882.2 96656 2 98528. 33 3161. 33 635a 33 8718 and 33 6979 on Form S 11 7 o ,

Ne A brk. Mw York Ft.cruary 271987 l I l 80 I 8000MTURES John S Reec(C.ticeros >ec ca Execute.e CNen a : r e  ! Punsuant b the requirements of Sectoo 13 ? 15d) of tne Secuntes Extenge Act of 1934, te regis:rart has d/y caused this repori to Derectors of Citicorp mstec Leow. executec a power of attuney ) acconting Paui Kolterjahn their at correy in-f act. empowenng him l besupedonisbehalf tytheur@ngned thereuntoduty to sv;n thes report on ther behatt . auhei , HansH. Angermueller GiuX w Fkhard S Braddock ) (Reqpstrant) ColbyH Chandler l PaulJ Cdins ' James H Evans James D Farley [ Lamence E.Fouraker PaulKonerjahn Arthur Furor Sono vce nesdert- CMton C Garvn.Jr. / HarryJ Gmy ) now Haruy ) HJ Hages February 27,867 Jueva M Kmps j C Peter McCobugh Punuant b the ocprements of the Seanbes Echange Act of Roger Wkken 834 tus report hds been egned on February 27 $87 by the CW M Pgott t*mnopersons n te capectes noemed j Donauv Se bert , Frank Strontz 7 Maro Hemout Srnonsen a - # Lawmoce M Small l Darun E. Srruth DonedS Mcword Thomas C Theobad EmscuweVce Pesdort Frar*hn A Thomas , (PnncpalFnanc4Ofheen b Twomes v. SenorV s det andChet Accoming Ofheer Pnnepal <stng Oker) l l l l m ClTICORP AND C1TIBANK S E N1 O R MANAGEMENT Mages K. AseGUttsutLLER, 1 M=m BM MICHAEL A, CALLEN, sumus ' PAUL.L COLLINS, 'M.VID E. CIS SON, 62 vicecharmanof Otcorpand 46 73;P eec~t se T C

• cn 50 vec cytan Wer of Gbank. is poncy mabra oftcer 46 yc.r e=ac.Ne Chcorp and Of bar .ssur ec *esocn C t:n eic C+ tao resoce ric Ot1ca% assur ed escons b Crbcorps ard Oficarw slegal. tant en 1985 f at tne Neytn Amer o Stde for North Amenca Otcorp5 3

wt, n $85 for the Pn. ate Bank ner;Aatory and ertemalaffars can Fcance Goup and.s informanon ihrsness and strate- og Group in :he inde,idual Bank Mr Angermuener has served as responstde lor the oe/eooment gic c:anning P eonusly he was He nas t, cad experence n marmanof theCorporahans and man 6gement c inancal chef irkestment othcer head of corporate ban = ng in New York Courtry Risk Recew Comr vttee seraces to commercal industnaf Corporate Pianning superused He pned Ottank r)1973 Jacan and Brazd He also terved and ser rce trisnesses en the the Corporations accounting as country head br 'ne #and as sen.or oce pre 9 den 1 and US andCanada asprevous andcontrolfunctions headcf the Corpora' ion Group n Brazii. and generalcounset assgnments include serace in Financal Markets Group and chef of staff for theCartbean.

g, Southeast As.a tte Vedle East rnostrecenttyheadof theinvest Central and Soum Amercan

1. Mem Otc&p Sauds AraDia chef 9xecutw r"ent Bar* He pned Catbank Banhng Group in 1981 he was othcer for Ottank s af% ate the n 1%1 hppoented c reson nead of the l n N Asa, M Save Amercan Bar* n Aryadn, Australasaa and Southeast Asia l Goto o the estitutiorud Bank and responstn6ty for treasury g 60 acecharmanof Catcorpand Omsson d the inst:tutional Bank f Hs prevotzs assarmcris Ot6v*. s responstne for the g nCide seroce o Otbank s eemmh in $69 West 6rn United States &ctiwtpes trenches o Venezuda. senior d Citecap the Pacrhc Basn area, oficer n Charge of operations ri g PAUL R at a sagt, and 50e081 woridwide Custome* 6Q senior oc0 pressdent of ueuco and sensor dhcer lor Itaty PEWuAN CDEA, relations He is also charman d Citnank is e.hasman of the Cor-b G75 he wasnamed Area Cor 48 group executrwe d Otcorp the Capcration s ritemat Persor porate QWcer in che ge of actra pora'e Tecnnok,gy Committee andOtcann assumedrespons relPlannnngCommittee Pre tes rithe Urvtod Krupam.the tanty n 1985 lar the US Card he is responste lor Wardishing vous'y he headed the Merchant ' econo ogy p5cy are standaros.

Rep @bc of Wetar c are Scand rhoducts Group of the hdrsdual Bar* and was Group E mecutrue nant m 1% he was narved for rfroducog new techno6ogy Bar* Pr4Mous assgnmerits ochargeof theCarittean.Cen Courtry Head for Bralil He ard nor evaluatirg the Quality aLrv$ neluoe responst)tity lor market pned Cttar* n 1963 trai a'id South Arnencan Bar*nct Orection of systems e%rts Untd rg are the ATM program in Group He pned Ottar* in 1950 1985 he was charman of Trans asonAK s S. m '"' t***'" E'*"C" *fS" { 45 tector esecuthe d Otcorp # mnm( acton Teuinoiogg ne respons 4 ' 0"' 42. Senor Htsten Resources 9" I and C4 car

• heads the hdrvd */

OfhCef of Oticorp and Ottank pr of &Mnced eec l Diners Citt tu rsness rithe US uniLer* He br.s ser.ed r1 the , g tronec systems and networks nor New itrL trane system, as ou H8 8W WsN W Y N og Yanoa DMson d the b6 bring Otcar* n the etoma aces to son read of Catar* s European Ocank aN Cdicap custerws teorw Bar*rq Groun she was cona.mer cpersons and the p n G82 4 rw ;ce .%', moing siopart He pneriC tear

• n $73 ,

Ced Poducts Crvison m .982 he ass sned rursnonstdry b the W Qcane in 19X svstems 6 constsner fnance r) Connaw Ber* rug M ard iteUS and atschd Pnor tu ner 4808088 A CLA3tK. l current actrymert she hed ke, Entertariment Goto e 19M he 62. esecutre oce pressonnt of managenalposacns riCdear* s les heed d domestc Duw C4cer* assrstsomcresering nessee or the rumm Bar6, tranrts system and most recert*y Cacorpreematorv arer an aos erector of tweeng and He sob sned he cLivent ieepon ages the country nsk expos.se seithes n Seplermer 1985 He orelopmers tar Cacers s Anong trnds Bebe thrs assgn Northeast Dvsen retad bankng F3ried WMr* lh $73 me't. he was $ngon head br actMtsoa $he prily CAcenk the Westem Cartheen, Soum rt 1968 i Amence Cara.*e theMosie ' East. Asse and AMca n the ruer-nabor'elBens rig 3 rote He pned oncer* e 19tA $2 ses-e LAerpEseCE R.as m 4 yygts,J Age J. Hgnon, Jat., plCH ARD L. Huse n, Pact ROLTRAJAM N, 48 chairman credit poicy ccc- 45 gmcem J <e 9 :'ex 50 ; race'ecs.e:tOf coc 62 aas acooin'ec senor ..cc mittee es tre chet tendrg ciffcer anc Otcana meac ot t .e u s ec Ot.cark es tesoons.t>e for presioent secretary of Oticoro d both Otcoro and Ottank He Consumer Banning Grouo of tre US EgaityFir.ance the Latn and Of tank n 1983 He is is responsoelor estatash ng indroduaiBanu assumed 9is Amencan Investment Ba% and resoonsbie for the Corporate creat rtAes ard po6ces and pro- present resporStwit.es in t%$ G'onalinsurance in 1977 he Secretary s Ofte octuorg eding general superws.on of the Srce 1976.Mr Heron tas hed becarne area corporate of5r,er for Drectors actrotes.stockhober soundness of 'he can partioio <arous positors n ma Cad Japan and Guam in 1980 he was relatons exChangelistrqs. . He assumed rus present respon- P'oducts Des on an3 tne Neu names nead of the ir st tutiona; pron y and annuai meetng mat-9tsties in 1982 P'evous assgn- s' ark Bankng Dvison la t%2 he Bank s North East Asa arvison. ters. ead odce contnbutons. merts ncitne drasacri head n was appanted orvision executve ard most recer> tty was n charge pub 4 sues andcorpurate charge d the Real Estare edas- br New *arv consumar can=ng of the AsaPac6cBar*ngGroup sectrey F%cust/ he was treesof treNorth Arnencan busaress. whCn a:so neluded of theinsttatonalBar* He respon90le br AGTienrstraton Fnance Group and senior othcer Upstate Nea 1brK New sersey assumed 4 current responsabde and Credit Management br the o the field br countnes n tne are Connecteut He pned tes n September 085 He pned Metropour New York tranch NorthernCanbbeanRegon he Caibar* r11969 Otibank n 1973 5vsterrt He fo:ned Cmbank n paned Caber

• n 190

,,,,,,,,,,,,,,,,, ,m y, ,,,,1 m E.em 44 groix exeoittse of Oticorp 54. crset auditor of Ct. corp ard sm J. L,smaans, 48 goiS emncutre of OtsCorp and Otbansi Cirects the erstitu- Otibank d "edpon9ble br world- 42, senor Corporale Cicer of ard C.tibar* . is respor'Sbie for tonal Bank s Canobea'i. Cerd wide Oticorp/Ottar* aLdts and C6 corp and Ottank, es respon. j the insttutoTal Bank s Esrope/ and Soum Amenca Group Hrs loan renews He has hed niema ;Me br Etsope and the Mode mee EastAlnca Group ard preoous assicrirrents ocksoe tionalposts n Mex co Canada East His previous assg.vnents assumed hrs presert posman in senor rrvinagement postons in Japan. Hong Kong, and theobs nctuJe posts r1 Europe for the 19&5 F%ious assgrime'as Cc6crnuna. the 41dle East and opres wrere he was country intematonal Bar*. M $77 he l nclu3e Sensir Vce P'esadery/ North Airca ard sacerv son o. se' var afhcer trom '975 to 1990 was acconted presde t and l Orcson Ereiutrue d the North the Westem Hemrsphere Gew Ascesef auctorhereports c*ve'avecutheoe cercf Amontan Bankng Grote anc > the in1Ndua) Bar* owrseeng drect'y 'o the Board d Drectors Otcorp s Natonwde Fnstnoel pnor to that the area corporate Otcorp's domeste consumer He oevd Ottank n 1959 Services Corp Mcnt recanuy Mr omeer lor Gmnary Auston and suasoaner its Saengs ano Lenmann was Us devisaon exec Eas18!rnEurcpe Hepaied L oan Assoc atons. the upstate

1. C* utNe tor the Westem Hemrschere Cdear* n 1'l65 New 1ert traceres ard Latin Consurner Gro o o charge of 4,,,,_., ~neea ~~ n co,e _ C,mo,,a , e me.cc - ar* .

61 grots emcutNe of Catscorp Cdcank SriceporungOtcorpn .-C _ .d,,ernano -- ,.c he ha_espens. 01steutons Gote wrecn man- Sa esecute.e me procent,is br the Corporstons accourerg ,844sekas s. Lees., tans the bancs operatons and the Chet Fr.anaal Onic.v of Mrs nperanons plannng and tai 46 execuerve ace prescent ut rN'lleting fellhonsrups with C#tcorp and CAbar*. res,' ions functions CAscorp and Cdcarm, keervises don este nne reamstonalcorte tse nor woro oeioni, nortal LegalandEparra ARars. whicn apandert bar6s and other fir.en structure pierryg ite dewtop ric4Jdes the ONice of the Genered onirisasutors JainngOtcare n. ort of Otcorp s torg range Ccunset tre Corparse Sece n the oversat s divison. he was tunang pian aco mana;emern of tarysO#r.:e GommmentRela , anagrwt toheymanagement as roermecate andnon; term tiones Putsc AAers and kNortis  ! postor.3 o Wuse, Argermi oeet rssu s He pned Ltcare n ng and acmntsters the Aust i Nd Brazil t*e has seriec i '#W 1967 C)vison W iishad i son heed br C ent'el and South responetery br cornumer inen- l Amence and e a Carebeen He omi servees c>esens ard to I aestrneous presort seu onshi opoveling actPdlIs$ nf the per-

• es n January 1980 He pned nond Bankng Grote He ook on j Omber* n f957 rus etraery naagnmort n August 1 1982 He pned Camer* n 1972 l l 1

I l i e e a . ALAst S. nam ehnas a s n i WCTOR MENEZE S, IR A S. RIMER Ma M, L autre NCE M. SMaLL,  ! 43 group esecutrve of Otcoro 37 ser.or .youn +ce< r G r 4 nc .e.c .: E ., - " -  ! .c , . 3 ano Cebank, s head d otcorp s Oticorp and Ot. tart assee: ana C t tar

• assv ed <etcons. and C tiao s *ascorwe mt North Arrercan twestrnert responsolity for Latin Amencae tviity in 1985 for tne inauduai tne answt.onat Bani. P ewous Berk.His esponshttiesnclude Mnca in 1985 His prevout Bank s Consarner Ser aces assignr"erts eclude ser ece n j the Wiment Bar*'s sectaties, assgnments incksoe oosts in Group. in'ematonal P evous Chae head of .ar,ous coeratng i minsy .71erket and lorBeg1 incha and New trv in 197B he assagrEnents nciuoe Chief hnan departments Pe upstaie New extrenge operabons o the us, was apronted senor cNer d c.at cocer of a C4tcorp subsidi erk Dawng subsca"es and Canasa. and Puw1v Aco Pnor to inoa Hrs most recent assgn- ary head of Otcane s Urban Senor Personce 0%cer Vost e6'unng fus Curfent responsitA mer1' was countty crYporak Afairs Department s Econcmic recently he was rt spors.tye tot tes n 986, he servsxt as heaJ of o#r.er for Horig Kong and China Dewopment Center and the institutional Bank s North Ohcarps hbmaton Busness He pned Otrbank n 1972 resoonsitAty tor Otcar* s con Amencan Mance Go.:p He Groun Fnm 1979 to 19% Mr g sumer businessin Hong Kong in pned O can* in 1964

"'8 ' 3 71up esecutw of Cacorp *** Duece and Chief Executve gg Ottank s visa and MasterCard TM004A5 C. TW'ha 8 a th ,, gg gyg ,y Oscard the W gap n busness hseourope , Braat He pned Otibank n 13M tt.urwstrnent Bank b Eurooe. esecutive of Otacc*c ano that %se East and Afoca Pnot atons n Sou@ada M Ottank has respor'sbtit y for Aam00erf S.REAfffEAMII08, to h6 hipsiiei, he was a a N g Otcorpsin Et nent Bank and k 58, goo emcutue d Oticorp ch n cMrge n Ga rariy " ' and Other*. assumed fespone Choice card ard private label heeded the South As.a htraba ServceG and inwstor Peiations tahty r119'l5 for the hstitutional oveison of the tr:stitutional Banet g g , Heis cttsirman et the Corpora Bank's vibre Corpr. seton Gram artrost recentty sened as g g , ,gy vonsFnanceCommrttee Pte-sennng motor Corporate mur na- sen=r corporate oPcer lor Asly he was in chary of the honalchants arourid the world. Eurote the Muisle East and MrTs2 N.SCDEUIt000s, nstitutsonal Bank the miema. and shpprig accounti Hs pre- P*rth Atrca Ha pner!Otcank 46, goto esecutive of Otacorp tiore Banking Groun, the Wand wous asegrrnetts

• cide n1969 and Otaar* Grects the invest Corporaton Group. the .nwst venponetty b the AseAmtra merit BarA r1 ase Peofc He f.as ment Management Group and a g

knMite East Mnce banNng had responsbaty tor ienderg goup and the Fhencial hsata 4g, , g g, consumer bnance aitnete in oNerdCocorpandOtibann s actmtes d Ocane s % Australs He pned Cdcanii n tons demort as welas stner owned subsdenes n Canada 1960 omoor n Sport Portuget CyprLs. andCanesa *most [ Cabenk n 1965 and has hed was senor cfncer 6 Somrt Por-Y *"d ^"d " ""O " SI mort asagnrnent was head d 45 senor corporate oecer of enous posmons n the oeseas was w head b the bana mnal Ber* r1the Oticorp and Otibari k $ Tspon the nstrtutonal Bar* n Argen-EuopeMite East Mnca bar* ##**"#'"9 9'" # tes Bolive.Chae Paraguay Peru $' 9 rig goto He pned Ceber* r1 '""*' '#

• M * ## and Uruguey He pnad Orcana " h' h** POSIS '" #

g~ Sepomber 1985 *ns responscie n ,9g o4 unts d the Commercal l b the Whdual Bar* Barwing Group n New e and gg was Ovison '<ead for the #3 rid 51 goto executNe d Otecrp I*" D "S

• d eN Oth is 6% *"'O*90**"'*"S**'*"

r ud m e g head for the estitutonal Bar* ri Otterp's facesign dets sestf x -e .e_ as charmen of the Cecorp rd Ceber* Restneturng Corrrnit i e % he wu wner Corporate OEtar espunsee b theCartceen Certraland South knence and S@ Sahara Mnca He has had as* si posibons n  ! the Latn Anwean ard Cartt been area He pned CAcer* r1 l 1967 ' l l l 1 l CI T I C O R P A N D C I T I B A N K D I R E C T O R S I 1 I9+ 2=lllllilic:llll ' :lll:EPI I II IG o XEl:EI MAM8 M. AMCERHUtlLLER H ARRY a ORA _f ' CM ARLE $ M. P900TT Directors of C.ticorg Vice Ch ar a- /rr Crair r a~; P escer t @ can m t Otcces anc Ct cam N A g r r oqes PACCAR mc TbeScarasof l mp s. BRm " J0 mms.maso 1 on the tnard Tuesday Sector E secutNe JOHet E MANI.KY . Charr".an of every month to OtccipandCecank N A Ca ector and Former Ottorpanc.Citcank N A admonistertheaffairsof tre N YM.,CHA W A. Ctarrran of the Board g ,, .. orgarwzations Certainspecifc Charman anrs mant Canpany Drect0* and Forrrer Charman operations and areas of tre Che' E smtw Ot'cer M.J.MAvuus - of the thrd Eastman Kocak Cornpany Senor Counseor corporaton and the banx are Becntei Grouo. Inc J C Penney Company vc ) peut.J.00LLees PRA80K SMROttTZ

1. egJ! arty monitored tN the Senior Corporate Othcer Ansoory MoL g Jm.- Wesr%ct and drectors committees. wnos3 Ofcorp and Ctcann N A Charrnanof the Chef ExecuttaOhr actMtes am oescroec on try. EsecutNe Committee The Boaing Company 34,,,,g,,,,,,.

following pages Former Charman nsng ss h s set taAmpo MEtappeUE successase

• Uruon Pacifc Corporaton Oft. Juhaer M 38.IutE Ps . VceCharmen Drector of Citcorp paJtLEY . ,~ Former t.hted States Brazman ristitute d Economes Secretary d Commerce The Getuic Vargas Foundation c Dmctor d Otcann Otcoro and Ofcanx. N A C. PerTWA - m a u e LJurgtepect bL sesALL

• t E*

Charman d the Sector Executne ,, E secutre Commsttee OtcorpandOtitunk N A rp raton Prdessor Emeritus. DAsnutes4.Sesme . Graduate Scnoof d shoeart hans e eruru e. Charman of the Board and Busaness Aomrustraton Chamrid the Board Chef Esecutw Of'cer Harvard Urwersat y ard Chet Executw Oftcer kenberte Dark Corporaton m ANTHunrunsa W*an & Company g, , Chaman Vce Charrrwy Bar* Leu AG Sector Esecutw N C. SARY98, JR. Otecrp and Ottenk. N A Charmanof the Board PULA88KLIII A. 79000$AS

• ato Chief E secutw ONcer Prescent E sonCorporaton The Ford Fourcaton C I T I C O R P S E N I O R M A N A G E M E N T HansH Angermueller Lamence A Glenn ThomasE Jow Robert D Bai6ey JahnS Reed Guenther t Geerer Paul Koiteqahn W&amR Rhodes Achard S Braddock GeorgeE Hagerman.Jr AchaM J Lenmann Mchael A Caten hS Arnerman WA.am J Heron. Jr Chartes E L:ng Pe'erH Sct1urrig Po Wan Chia EowriP HoMman Aan S MacDonsid Pad J Comins LamenceM Cman Doned S Howard AnthonyG Mant2avircs Thomas O Theobaid JamesD Farley Rchard L Huber Vctor Mere 2es C1rvd S WnPelt Parrwa PFlaherty Datset T Jacobsen GNmR Moreno Do4E Gbson Patrck J Mriem I

8ti 1 ( . . \ B O A R D S O F D I R E C T O R S~ COMMiTTEES G. > -- 'G' seemes i -

• TS;:::::: M ,

- Wlfh)." 9 pl g 1 g WM AcadItCassurdttee ascrwn Committee On Directors: inc / ges 9 Eaamining Commettee: Executive Committee: empervtses 'f:;: Ef::t recomimends atualifted conducts a continuous provides backup for the seemts et Cetteery sM candidates for examination into the euereses the estats speembership en the Boards Boards of Dire'eters of a# airs of Citibank. Ceticorp and Cetiabank. Memters Carene Smtn. Charman.Coloy H. Chandler Members Cecorp James H Evans. Chtton C Garvin Jr., Harry 4 Members John S Reed. Dr Lauence E Fouraker JohtiW J Grag Dr Juanita M Keeps. I uombers DenwnE Smth. Charman ChttonC Gar.,n A Hanw C Peter McColough and Charman,CobyH Chandier. Donad v Secert and Franklin A Dr JisindaM Kreps Roger (.,hanes M Pgott Thomas Dr Lawence E Fouraker Jann W Me*en and Daren E Smth Ottank, N A James H Evans. Henwy C Peter Mr g M % Frank hd2  % e on Drectm Chtton C Garvrt Jr Harry J Gray activery sotots recommenca dent cutsee drectors, conducts C Peter McColougn Donad V andDr Meno H hm tions br prospectr<e drectors and in a ccnnuous examnate nio as The Ao$t Comminee, whose from ther cunent rrecers are , the aftars d Otcars ord , members are all . Japa doi 4 stockholders a'd cons 4 stent together eth the Audit Commd " 8 outade drectors. af but two d with the needs of the corporaron p tee, reports its fridings to the whom sene prey on the Exam- andropeserdatenof thevanous g, Board The Commatee meets j ririg Comrriettee of Cdibank services ano customers, recorm goint?y with the Auot Committea This Com'nitten acts on tahalf ot j meets atleast hs tmes each mends the appovel of a cani the chsel accountog cAce( the year witn the corporaron's pubbc the Board of Drectors snood an i j due The namnees se thenpre chief auotorandthecorpora urgert matter anse that requaes a aotourtants,itschief accour1 trig serited to the fullBoani wNch toris pubbc accountants. decesson belose the Board is next oncer and the chet auotor poposes the state of chectors t The Examnng Conynr. tee scheou6edtomeet TheExecu-One or as penopal strictionsis to ""* *# "5 M wm has nemm c)osety mondors examnatons by m ,.se aucet plans and w "h*'U""'I"**U"9 the bank's pnnapW regulaw the powers of the Board of Dwectors of exarenacon of both the nde- conntee 's charged except b certain powers

1. #" Comptrcser d the Cunency as pendert aucktcrs and the rapo- espressry to N Board

• 1. " well as niemal and extemal avo.

raton'sreemalsueteveson n tors and lotows up to rtsse dh artisinn, s 6 the sesponsstasty of ** appropnato acton rs taken by the communee 10 recommend to management n response the Board the annual apport mersof theoutadeautstors The Boed accepted the sommen S.sess -[ g g,,,,, durin that Peat.Herwick, Mach eas m a s.see m Charman % Oarm el A Co.De setaned tar 1987 ard thepocosed we be pesersed to he stockholders br aoptwhl at the annualmeetsng OLnng prt mestngs with the Esamring Commatee, the fre noe of romer ud exieme aus-ters ardextems m;petary ageroes are evie=ed erd seaponses to ther frskgs are , mondored to court appoprate Itdougmeasures a tasen These w evnened weiand wehout he posenos of mehege-mort.mid n esperate mesenga ustPest,Manneck Mettial& CA,udhnomeneers of man-agemertpesert TheenJtsof hees taamnehons. elong with ontowninctngs, se reported segnderv to the tidBoed Ie steo heluncton ofihn corrv frees toodernes he toccureng potaesusedri ihe Inancelelstemeras of p and Ottank l Bem E.GW911 Oimmen 46 f l . . ~ i ) Mdescaery Review Mnanciat institutions Personnel Committee: Ceaussetttees erversees Acquisitions Committee Public is sues Committee: oversees employee rev6ews Citicorp 4 policles tone estumisdotretion of of Citicorp and Citibank, policies and programs of and performance on i See educessy powers '"*

1. Merreers HansH Angemluele '

A crat S Bracoock PaulJ Cd Members CWton C Garvin Jr. Members Ffar*hn A Thomas. Merrters Donald V Se oert. k15 Jarms Q Fa% John S Charmart Harry J Gray HJ Charman.HansH AngermuelW Q1er nart Dt Arthur Furec Harry Reed Lawrence M Smallano Haynes Donald V Setert and JamesH Evans Dr ArthurFaer. J Greg Amory Hour / fort Jc, ThomasC Theotsad Frar*in A Thorros John W Hansey and D Aarvta M W men ah*M Tres Commatee composed of The Pvsonnel Corvvttee

• orectors o'Catcorp ard Ccoar* re 9ws and approvec compen. The PutAc issues Committee s The Foucia v Penew Comrrut who are atso senor erecetws of saton policy and other person rnssion 5 to assure that the pte tee, whsdi rrests four 'Jrnes a CdaCorQCtbarm has as els funC- neMeLated programs to rnaor80 i

hC FliereSt is maintaned O the  ! yent monetcrs frAnary actMbes bon the approvalet the acouess- perbmance d our tnsness an envronment at CecorW f cordJCled through stintanes hon both CbnestCalty ard ofer- Cdhank that attnbCts and retans  ! and aphases arotndthe wru ro6es and n aCrueW9 a fr<re namonney of fnanc.al sera:es peopse d hgn vipabirrg com- corroetzw busriess l T?ese actvees rick.sde the man- nsututons. Appro41 by a mapr. 'Twtment and rgegrty #1acnuort crMrorynent agemers are sunrestratond tv d the enerroers consotutes the commatee cmwes man-trust and agency accotsts suct) Commrttee action Each accurs agement dwekr/nent programs, , as parrer1 trusts and other tion s repcrted to the ttAl Board of successon pannog and em-emp60)er sportored beneAt Drectors d Caicorp at the meet- pe bce programs peerer, personal trusts estales, ng rnmedbatery bnowng maasstne A,metaA4 rwernert acMsory accourts apprime of tne Currrwnee and a { CNrman ' ert' corponse :russeeships The ccrnrruttee atso revews sc6oes syrrnary d aptcquseor:s appmed by the Commenee s h/ . ard conr/obs r) sacri areas d frir preserted to the tu6lBoard of CE.ar' C. SA81YIIE. JfL l cary % dEy as rwstment Drectors annuari, Ch'm t f.tandards ind cor6 cts d riter-est. The Committe6 Was estab-esnedby the Soard of Cecorp n Mey f985 to renact the nereased trt rwy actMbes condtced r1 s.intse wihces other then Cdcank and OWman soplaced a simmar committee d tN Board d Camenk B Charman l l 87 L . o l, l i S T O C K H O L D E R I N 5 O R M A T I O N k summs . e 8- C NOTICP.0FTHE ANNUAL.MEE51NG TRANSTER AGENT The sitsimeeting of stockholde t M4 be tec cr Tuesca, s orc' Ct oav N A Corporate Tr;st Serwces Box 4855 New York NY 21,1987 a' 11 a m. in the au(Nnum of Citcorp HeacQvarters at 10043 399 Park Asenue. New York. NY CC TMAMSFER AGENTS A tormal notce of th s meetrg together uth a proxy anc proxy the First National Bank of Chicago, Corporate Trust Department, statenent, has been neluded wth this annual report Stocknoide's Ore First Natonal P!aza. CNcago, IL 60670 are urged to sagn and retum their proxes promptly to assu'e that the stock of the corporaton ull be represented as fully as possabe Frst rterstate Bank of Cahtom.s. 707 Wilshire Boulevard. l at the meetng Los Argeles. CA 90017 i i Otcorp has approtrnaey 50000 cornmon stockhouers of REO4STRAR recoro About 80% of the Otcorp shares entrbed to vote were voted Unrted States Trust Company of %v Wk,45 Wall Street, n person or by proxy at the last annual stockholders' rreeting on Newbk, NY 10005 Apnl 15.1986 Additionally there are 173 Ecuo Ho'ders of 53A % Convertible Subordinated Notes Due 2000 COMEGISTRAAS The First Natonal Bank of Chcago, Corporate Trust Department. Adstonalcopes of this annualreport are availade W ste to One Frst Natonal Plaza Chcago IL 60670 Otcorp. Pubic Aftairs Dvison. 309 Park Avenue.18th Floor. New bk. NY 10043 Fest Interstate Bank of Cahtornia. 707 Wilshre Boulevard, Los Angeses.CA 90017 C(Oes of the wntten trar$Cript a'# ape recording of the pr>ceedings at Otcorp s:ockhober meetings are availabe to JAPANESE SHAREHOLDER SERVICE . C.tcorp stockhobers at cost from the Othee of *he Secretary ORGAMEKFION AND PAY 1000 BANK l 399 Park Avenue. New Wk NY 10043 The Yasuda T t:st and Benking Company Lmted. Stock Transfer  ! Deoartmert Yasuda Senei Dan Bundrg 101 Nishi Shquki Also avaitade from the Pudc Aflan s Dvisen es Corporate Gveng, I chorrr., Shquku ku. Tokyo, Japan j whch desenbes OtibankfQtcorp contnbutons to comrnurvty j cultural educaton heam andurb n revitahtalon organizate - CmCORP STOCK USTED l throughout the courcy New Wk Stock Exc%nge Wrwest Stock Excharge Suop6emental Snancal data am p#shed oaar terty a'xs are asipl. Pacit e Stock Exchange abe from Otcorp investor Restor.s Department,399 Park London Str:ck Excharge i Aenue. New wk, NY 10043 Amstert'am Stock Exchange l TokW Seck Exchange l Zunch Stod Exchange i Geneve Stxk Exchange BaseiStock Exchange Otcornottenk Ts0Fark Aenue New bx, NY 10043 21P/5591000 4 auntcsw or w crwe uuc anansm OlsCA*HCToCM>rf TcopFConA4>CDDESO. r P W EDeshtUSa 23ld 6aes & CCPYM@tt 1987 SY Cr'EXPP i I I l I 88 R V I C E E X C E L L E N C E A W A R D 12 E E - MI I"llll:'+ D lcEllll"" F < _= =S _ = _ 1 ?,.. '"lllll1"lll,r, J.a". ""Fa*r" i ., ,~.~ u.. , , t W =.'f. *~ . h.i.. Snd. [5L'- _. _ _ _ - - - - . - .. . .O i ( t J. '.: \

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• l 1

j s. 1- , %*' 1 I"..j CortENTS e L: PAGE Af j.* Fissusci a l, 31ghli gh t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. . . . . . . . . . . . . . . . . . . . . . . . u .; 2 ' ~'R - k> T C Fi onacial Summa ry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ladividual Esak1ag.............................................................. 6 \ Detail of Consumer Credit Losses.. ......................................*...... 7 + 4 e k Imotitutiemal malationships..................................................... 6 Detail of Commercial Loan and Lease b International Financing Losses...................................... Activities................................-............. 11 s f- >, h* Cash Basis and Renegotiated Commercial Loses.................................... 12 16 %i lovestment Bank 1ag.............................................................. 19 " Infetaattan Business and Corporate Items......................................... 20 h.7 i Statammet of Operations Analyets x ]1

• Net Interest Revenue............................................................ 21 Provision and Allowance for Possible Credit Losses..........

p(,('-# 21 Fee and Commission Trading Revenue...................................................... .................... 22 Account.................................. 22 1 , Fo re i gn Ex c ha ng e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E ;g M' j4 s . Investment Securities Transactions.... .. .... Other 22 23 s Ravenue............................... ......................... 23 -E Total other Operating Espense................................................... 23 q@!. ? .. Incess Tames.................................................................... .......... 24 (.. i .meten v-Osagraphie Distribution of Det Iacone (Loes).................................... 25 . ;$  % >~ Set Interest Revenne Statistics................................................. 3

• DDt &, - 26 E y ,

,,./ y?k fM Liquidity and Capttal Puede Analysis............................................ U [ _ s fo b, - 31,uh,...................................................................... 28 p 1 ;gg Fiamocial Statements F -gi - Consolidated Statement of Operations........................................ q jc" g - Consolidated Statement of Operations - Quarterly............................ 29 30 23 - Consolidated Balance Sheet...................................... ........... 31

• - Consolidated Statement of Changes in Stockholders' Eculty - Quar.erly....... 32

- Consolidated Statement of Changes in Financial Pos1t un. .. ... . . .. . .... .... . . p 4 33 g , Caleula ti N.A. on ofConsolidated Net Income (Loe s ) Pe r Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 .. M& ^ i- Citibank, Balance E ' e I Average Balances and Interest Rates Tab Sheet....................................... 34 y ,f. . . 1e....................................... 35 k y': ,]- x Citicorp Financial Statistica "  ! rp ' (Loss).................................... - Net Income Q = Common Dividends...........................................o...,........... 37 y*g$ - Stockholders' Equity and Selected Returne................................... ....................... 37 M l p: 'g - leans and lasse Financing Outstanding.......................................

• 37 g

- Detail of Credit Icos Experience......................... .................. y[-14; , - Investment Securities.................................... .................. 38 39 - Long. Tera .g. . y m qt lu n Debt......................................,........................ 39 W i _Pers10-Q....................................................................... 40 J Foris 10-Q Cross-Kaference Index................................................. 41 5  % 51gnatures...................................................................... 43 0 g.&s a [ b,k. '  ? %gg 1 f O er gt '* '[.' p g g y f k an!f: $ j $.g*\ n ey ' QM y ow .g ['b- . Q. 6 l [ .sv ( , .3.\ .h . ad'.184d . . e. , E J.( & M h y' ( , 4 ) (4.N x5M  : w. DEANCIAL gitatfCg11 - SELECTED INCOME $7ATDtBNT ITDt3 CIT!C0tp and $wheidleries ,, , (la N1118eae Escept Per Share Aeouete) y Second Quarter  ! Sta *tonthe  ! 1987 I r s PER 94118 1986 h 1987 1986 Change ) h;,g g Det locoes (tese) (A) Os Commoa 4 Common Egulvelent Sharee......... $(18.87) $ l.60 N/N $(17.12) $ 3.47 N/ft ^ y ' Consmes Dt vidende Declared Per share ( 8)......... , . ' teasen Stockholders' Equity Per share.......... $ .675 (ll it) i 1 29 5 .615 (8) $ 37.63 853.57 ( 30)I , ,]$l

• i $.IA ,

(A) De not income (lose) ave 11able f,r h] $m3 y and St9menths first sin etliton to of the 198F second common stockholders after deducting preferred stock dividende of $24 ellitos and oatter of 1947 sad 1946. respectively, and $4) ettlion and $39 elllion in the ebare cateutettens 'because th< 646, respectively. Common stock equivalents are not tactuded in the lose per ! p*. M " / would be antidttutive, k'h' r a h '. (3) Bestaatng in the second gue: Jeeverr. and Apett, tastead of June, september. December, and March.4er of 1986, commoe dividende are conaldered for y ti,1987, payable en August 10. 1987 to holdera of record es of July 31.A1987. dividend of 4.675 was declared on July . i% 3 t i nt e re. t avenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . i.552 . 46. . 3. m ' Total Fees. Comatostene and Other 8,eeenue...... l.120 1.013 6 .2.895 . Total 8evenue.................................. 30 2.577 8.972 31 Prevletoe for poselble Credit Losse 2.472 1.477 16 5.704 4.867 17 Q:.,% Operating Espense..................s........... 3.403 457 N/N 3.877 886 N/N ? .. l.175 1.611 23 3.886 3.180 25

2* Net f aceae ( Los e ) . . . . . . . . . . . . . . . . .......... ............ (2.585) 231 N/N (2.325) 505 N/N 1.%?

m . $8CTOR EARNINGS ~7 *1 d Earetage of Businesses including the Inforutloa Sustaeos (not including stees retained at g the serporat e 1e ve l) . . . . . . .. . . . . . . . . . . . . . . . . . f(2.703) # 256 N/N $(2.428) 4 566 g.V s w ' , s/N SITURE es ASSET 8 AND EqCITT(C) v Mgg Retere se Tot s! Asset s (1). . .... . . . ... ... . . . .. . (5.33)2 ,,,,,,,g  % ps J Reture se Common Stockholders' Equity (2)...... .515 N/N (2.39)3 .561 m/N g* tetura se Total Stockholders' Equity (161.2)I 12.43 m/N (66.8)I 13.83 g/M (3)....... (128.4)! 11.41 N/N (54.2)! 12.6I s/N ( e M i .. (C) Besed on ennualised results. i3 (1) Det tecome (lose) as a percentage of evere8e total assets. I

f. : M

4

• (2) Not secome (least less totsi preferred stock dividende se a percentage of average cosmoe u y. eteckholders' eq it

.gL _ (3) equity. Not tecome (lese) teos redeemable preferred etsch dividende se a percentage of average total stockholders' ' 78 ' T$ - FIILANCtAL RICWLICB11 = $ ELECTED BA1AMCI Sute? ITDtS t

p w (to N111 tone of Do11ers) June 30

_1987 _ 1986 Change L ". f,y tasas and tee.e ransectas, met 1 g ' 6ad9 Cessner 1al................................... 6 57,604 $ 57.697 (93) N/N * . ing, My Comeumer..................................... Lease Fiamacing.............................. 78.121 60.002 11.189 19 3,405 2,8e9 Loans and Lasse Finsectag. 556 20 I. C U T,, ,b - +4 pe t of poe s tned Di s coun t . . . . . . . . . . . . . . . . . . . . . $t32,130 $t20.548 , , . g? , utovence for Posetbis Credit toesee........... 858 ( 476 8 11 542J II/N to A. ~x retai 1.a. end L..e ria.aci . De t. . . ... .. .. . nh4'.m) S a .1 m o ) rh35827 @' ' b' fetal Assets..........,........................ fotal Stockholders' Equit 194,415 183.368 18.027 6 \ y y/ .'%* , Fet al Caps t et ( s ) . . . . . . . . y . . . . . . . . . . . . . . . . . . . . . 6.798 4.547 (1.749) (20) 1 4 U Pramary Car t t al ( 5 ) . . . . . . . . . . . . . . . . . . .......... ........ 22.944 16.126 3.820 2a ' I 14.679 i<"&S _ $ 12.143 2.536 21 . [ j f-f .'6) Debt Total . Capital includes Priesty Capital. 8adeemable Preferred Stock. and groes S.alifying 'd

• .js M

l5) Primary capital. se deftsed by the Federal Reserve, includee Total Stockholders' Equity. " . ,h hp Gb Oua!!fysed 8derdtaated Capital Notes, the Allsvence for Poselble Credit lessee and staetity 1sterest la consolidated subsidtettee. .7'f ,1/5 #et ihmeelegfel. " 4 4 f F' _FINANCIA1, SLD0tARY A}hk P. (q" p* h.*,p ' Citicorp reported a secoed-quarter loss of $2,585 million as a result of the previously ann 6unced $3.0 billion addition to the corporation's allowance for possible credic losses. R For the !!rst sin months, the loss was $2.321 million. Citicorp's loss per share was [Q ; $18.87 for the quarter and $17.12 for the first half of 1987. g C' n , ' Citicorp earnings for the second quarter and first half would have been $288 m111 ton and l R $552 million,'it the $3 0 billion provision and related tax benefits were excluded.

• In 1986, not income was $235 million for the second quarter and $505 million for the half,

{, } or $1.60 and $3.47 per share respect 1*.'ely. , N,g Citicorp senounced the $3.0 billion addition to its allovence - bringing the total balance J '"' ; Q .b# to approximately $4.9 billion - af ter its Board meeting on May 19, moting at the time that 9NU 7 the addition would result in a loss of approximately $2.5 billion in the second quarter. Y . ' As previously disclosed, this loss is expected to be reduced to approsimetely $1.0 billion by year end. h h Yesc -to-year, total and primary espital were up 20% and 211, respectively, while totsi assets increased 61. ~ h.i.-. yg Total capital now stands at $22.9 billion, or 11.51% of total  ; assets, up f rom $19.1 billion, or 10.34Z of total assets. at June 30, 1986. Primary hYf5j . T' capital amounted to $14.7 billion at June 30, 1987, or 7.37% of total assets, up from $12.1 billion, or 6.57% of total assets et June 30, 1986. As a result of the increase in hyy # a the allovence, conson stockholders' equity has been reduced to $5.2 billion, or 2.68I of l total assets, from $7.9 billion, or 41 of total assets at the end of last quarter and $7.3 7, .. ag billion, or 4% of total assets a year ago.

• 4*- g" g* Sosiness Discueston

" ~

• f the consumer business continues to report good earnings performance, although there has t .$

d ~m .\;%? J beennormal more a slightspreads. slowdown of the growth rete reflecting the slower United States economy and l [h c7.t 'r..N.M f; Business with corporations, governments, and financisl institutions continues to be 4.%; . % adrersely impacted by the absence of interest payments from Brasil and the relatively t igh level of write-of fs that have existed for the last severs 1 years. In the United States - 'r,wg dyg and Asiasoft. somewhat / Pacific, this bustness continues to be relatively strong, while Europe is economies. !.atin America reflects the effect of the adjustments taking place in those . Citicorp continues to make good progress in building local franchises across y Latin American and other major markets. l l < e. e.. _ C ' 'e, Citicorp's second quarter revenues were $2.9 billion, advancing 161 over 1986. The higher r,, i revsoues were generated by growth across all sectors - 171 for Individual Banking. 53 for < ).MM];p* ,',E Institutional llelationships, and 181 for the Investment Bank. The Information Business added $61 million in revenues reflecting revenue from Quotron which was acquired in June WF of 1986. Total Citicorp revenues for the first half were up 17%, reaching $5.7 billion. = gg.ly. ffA , Wet interest revenue increased 61 to $1.6 billion for the quarter, and 8% to $3.1 billion ' Q'[# for the first six months compared to the corresponding periods a year ago. The increases ' were largely due to higher consumer loans outstanding, partially offset by the $172 jQ - sillion pre-tas year-to-date impact of foregone interest related to the placement of l Brasilian loans on nonaccrual status. Fees and commissions grew 21% for the quarter and y[er~ , . i %, W 19% for the half year based on increased membership and merchant discount fees in the . consumer card business, as well as continued growth in f bst.clal sterantees and advisory ' 4T 4 activities within the Institutional and Investment Banks. W. , . . + / g- ,,pe y y . ,m c ,e 'A. t , ( ~ i w  ; J. 'A m d )M) . Foreign exchange revenues wers up $11 at11 ton while securities trading results remained

• i A ** flat compared to the second quarter of 1986: Citicorp continues to be encouraged by this b..

performance . [' i relative to some major competitors and by the increasing breadth of trading f k resylts as the role of its activities in Tokyo and 1.ondon become more important. For the #y/ 7 first half of the year, foreign exchange revenues were flat, but trading account profits

1. were up quarter the first $100 million of 1987. reflecting strong trading results across the major trading centers in n Ni .

p@]w i MD Other revenue increased $138 million over 1986's second ouarter reflecting equity gains

• i M

h*M J.q'48#y f rom venture ' capital investments - which were immaterial in the 1986's second quarter - the sale proceeds f rom the sale of real estate in Osaka, Japan ($52 million after-tax), the of one of Citicorp's overseas subsidiaries, as well as higher investmant securttice 6-C gi G. gains. On a year-to-date basis, other revenue was $220 million better. on the strength of Q j; higher mortgage sales and improved investment securities gains, -f g( . 5 (Wy g Espenses across the corporation continued to grow in the second quarter and year-to-date, in comparison with the same periods in 1986. Second quarter expenses of $1,975 million ;j+r.; 5 y 4 were up or million, $364251. million, or 235, while year-to-data expenses were $3,886 million, up $776 - Y-M % ,' ' ") h[i . Within corporate banking activities, year-to-date operating expense growth is quite 9 i I Tf@g$ g,, nodest, up 5%, while the investment banking units continue to record significant increases  % ' gs wt% in expenses, up 372, and our consumer banking businesses were up 21%. The expenses

• associated with Quotron, reported in the second quarter of 1987, did not exist last year.

!? 1 ' y ,- % As previously reported. Citicorp increased its credit lose allowance by $3.0 billion t.. bringing the ' allovence to a total of $4.9 billion, or 3.68%, of period-end loans and r1 q 1 eases. This was done to provide for the risks associated with the sovereign debt p,'  ; dz y% portfolio given the reality of recent agtsenents with borrowers, the situation in Brazil, and the likely evolution of the global economy. The allowance provides Citicorp with NQ. j' b,'#h increased flexibility in sanaging its exposure. - DM7i "Q. ,y 4.jN,f Of the total allowance. $3.5 billion is attributable to sovereign risk. This amount will, O ~ y.SPM when foreigntaken with debt currency approximately $300 million of previous los:,. write-offs based on countries'  ; e p* in refinancing countries. servicing problems, approximate 25% of total croes-border exposure 's M.'[N k The entire credit allowance is, of course, available to absorb .' ,. s future specificcharges credits. presently unidentified, and no part of the allowance is allocated to Q%( y g& ,e& f,g Details of the provision for possible credit losses are included in the following tabic. , k. .. , w -* ') ; in Hillions of Dollars r~k id Second Quarter 2nd vs Year-to-date YTD fM.$ 1987 1986(A) 2nd vs --- fgyy [ Q.g d. Individual Banks 1987 1986(A) YTD ie hc Net Write-offs........... $ 253 $238 62 $ 514 ~y e., Excess of Provision over Net $459 12 I

• M$ht Wr i t e -o f f s . . . . . . . . . . . . . . 0 *:

4$f 91 N/M 64 133 ' V ' >M Tots! Individual Bank ....... $ 153 $329 (23)% $ 578 (52)% 9 Institutional Banks $592 (2)I * ; C h. : - Net Write-offs........... 104 104 - 207 186 Excess of Provision over Net 11 % W.W('E N ' Urite-offe.............. L. 7,h Total Institutional sank .... 3,046 83,150 _ 19 $123 N/M 3,087 104 N/H .W N/M $3,294 $290 N/H [

1. i  ? Othe r Provis ions . . . . . . . . . . . . . 0

.$h%. 5 N/M $ 4 25 1 %f MG"v Total Provision (pretax)..... $3,403 $457 N/H $3,877 $886 N/M # 9.4 c. j. . c / M.9 ~(A) Prior ye a r 's W.g 4 presentation. results have been changed to conform to the current year's * ' g;. . J j N/M Not Meaningful. j. - a Q1f, ,l,2 ., , h,J dE ~=n Ln--- . a - 1 J s  ! b  ! , r \ @y .4 , l W'.',iQ 1 ? I w f .% Not consumer write-of f s continued to decline as a percentage of everage outstanding: J 1.47% in thequarter secondofquarter 1986. ofNet 1987 versus 1.54% in the first quarter of 1987 and 1.64% in yld

' , f.{$ the second  ?

commercist write-of fs were even with the prior year's t ",P second quarter and were up $21 million over the prior year's first half. g- l h N h The tables below present the business sector results for the ((+',QChi [4 M of 1987. quarter antt the first half I l \ QUlp ?; J Second Cu rter 1997 (In Millions of Dollars) Impact of f' ,"; h'! Business 1987 Excess vs. Provision 1987 vs. Net 1987 'lid$ 'J Income (A) 1986 After-Tax (B) 1986 Income / vs. * [ !? ~ NET INCOME /(1,0$S) (14ss)(C) 1986 v R Individual Banking.............. $ 134 20 I 4 !TN Instit. Bank Products delivered $ 7 N/M $ 141 96 % .. CyQ to Instit. Relationships..... 88 (9)! (3,006) N/M (2,918) N/M (b.N Invest. Bank Products delivered to Instit. Relationships..... 90 25 I hj 'l Investment Banking Products..... 5 (78)I O - 90 25 1 f + (2) 331 3 (85)%

.y$ "

• a.

Information Business............ Total Sectors................... N/M 0 - (19) q N/M T h . j Corporate Items (after-tax)..... Q(19) (1)1 M N/M TCG77J) N/M M Total 118 N/M <#. Citicorp.................. m+; M N/M OMiJ $ "M.-Th % . g&Qg Tear-to-date 1987 lapact of %c JS:g,Q-b,. J. # 1987 Excess 1987 Net 1987 . k'; Business vs. Provision vs. Incose/ vs. {l M*W,,1 Income (A) 1996 1 ~- e M. NET INCOME /(1.0$$) After-Tax (B) _1986 (Loss)(C) 1986 i,*

1. , ' ::yf >T T .M Individuni Banking..............

?.' 7% $ 277 35 I $ (18) 68 2 $ 259  ?-. Instit. Bank Products delivered 74 I %f6? to Instit. Relationships..... .W pa Invest. Bank Products delivered to Instit. Relationships..... 140 (38)! (3,019) N/M (2,8/9) N/M Q 177 20 1 0 - 177 20 I Investment Banking Producta..... %'@M[3d fy . Information Business............ 55 (37) (35)! N/M (3) 0 (50)I 52 (37)I

l

,  ;,g} Total Sectors................... (1)! (37) N/M Corporate Itees (after-tar)..... JE M ,,, r . N/M 4(2,428) N/M  ?;; 4 U;.;(g.j i Total Citicorp.................. 107 N/M  ; i I. ._ s ! e,s.y s. M N/M .,}7 { n'  : (A) As discussed in the first quarter's Financial Review and Form 10-Q, Citicorp's I ia f '. presentation of sector results and management discussion new charges not credit write-offs to the sector's business income and allocates the excess provision for g, y[ possible credit losses (" excess provision") over net write-offs to sector earnings in accordance the sector's with generally accepted accounting principles. tusiness income includes , rv ,M . revenues, not write-offs f.tp*.h before allocation of the excess pr,ovision for possible creditoperating expenses, and applicable income taxes b write-offs. losses over not p 'M (B) Including the af ter-tax funding benefit of the credit: loss allowance, excluding the 7.,14 portion attributable to sovereign risk. & Wl w.$ (, (C) Sector results have been adjusted to reflect organizational changes. Prior ye.r . , Sp] N/M Not Meaningful. results have been changed to conform to the current year's presentation. '4pl;j ' 4 E, d',i. i hWJy  ? gSq p d j k< l Y f QA.J "n / M _INDITIDUAL BANKINC - HNANCIAL ptRPORMANCs AND DISCUSSION Citicorp's Individual Banking activities provide a complete range of financial services to I W consumers in the United States and. through its private Banking and International Groups. to consumers around the world. These activities include transactional services. savings Products. Ioans. insurance particularly life. accident and health. where permissible - and investment services. specifically, stock brokerage and tax-exempt monez market funds. , [ ' Incr./(Deer.) vs. k k ] N Second Second i Qtr T-T-D Qtr T-T-D (In M111 tom of Dollars) _ 1987 1987 1986(A) . y. 1986(A) 4 Boeiness Ine w (B)..................... M 1.,jZl, = M J11 1]l ,Q1 Tot al Rave nue . . . . . . . . . . . . . . . . . . . . . . . . . . $1.663 $3.339 $ 244 17 1 $617 25 1 ' Provision for Poselble credit t.c, eses...

• . Operating Espenses.....................

253 578 (76) (23)! (14) (2)! 1.130 2.249 168 17 Z 397 21 1 Net Income............................. 141 259 69 96 % 110 74 I k " Average Assets ($ 81111ons). .... ... . . . . " 82 82 14 21 1 Return on Assets (I)(C)................ .68 .63 15 22 2  ;- ,% / Return on Equity (I)(C) . . . . . . . . . . .. . . . . 17 1 15.9 .26 6.5 = .18 - '( 4.7 - ig[y. y (1) Sector results have been adjusted to reflect organtastional changes. prior year .Em , results have been changed to conform to current year's presentation. 4*p (3) Refer to page 5 for a discussion on Business Income. 4S (C) Based on Net Income. Return on equity is based on dividing not income by a standard [g b imputed everage equity reflecting Citicorp's internal target. g- Individe l Bank net income for the second quarter and first half of the year continued to f-Q & grow at a strong rate reflecting sustained growth in the base consumer businesses and the ( F)% L improved quality of the consumer loan portfolio. Second-quarter not income nearly doubled EG Wy over a year ago propelled by strong seeults from Citicorp's credit card businesses and .id.f notable gains in y' O. ed;. the allovence forthe consumer possible credit businesses losees. overseas and the impact of lower addditions to S 3 [ 4 Second quarter revenus grew 171 over the corresponding period of a year ago to $1.7 billion. while year-tn-data revenue rose 232 to $3.3 billion. The sector's bankcard 3$ g business - Citibank Visa and Citibank MasterCard - intensified promotional efforts C+ N resulting in increased volumes which led to substantial second quarter revenue gains. Da l a year-to-date basis, revenues from the New York branch system romained strong sad the . $[.% eW f .r~ n overseas cc >sumer business continued to perform well. enjoying volume and earnings growth. e;M p ~ %'/.' 'N The Sector's continued revenue growth anJ investment in business expansion was reflected in operating expense growth of 17% during the second quarter und 21% year-to-date. M M Tsar-to-date revenue growth continued to outpace expense growth. Q ^ Net 1astconsumer write offs were $253 million for the quarter, an increase of $15 million over year's level. kl Q _ same period in 1986. Year-to-date A significant write-offs of $514 million ross $55 million above the My -y higher volumes v.ithin the bankcard businesses. portion of the increase in write-offs was due to Write-offs were also up in segments of the W 1 mobile home portfolio as difficult economic conditions continued to prevail in certain .% AM-M- areas of the United States. While total write-offs hava increased fros year-to ye.r, the SN Ak -f percentage of credit losses to average loans and leases continues to improvet declining MS ?y~ from 1.641 a year ago to 1 472 at the end of the second quarter. Ie j$ % YL [ }A .a E T$ h w %) 1 )* - hh NW g[ l y The excess provision over not write-of f s was sero for the quarter and $64 millich V.t?T l year-to-date compared to charges of $91 million and $133 eitlion for corresponding periode is the prior year. The consumer allowance for possible credit losses equaled $837 million g'p f 4 versus last year's balance of $611 million. At quarter-end the allowancs equated 1.16Z of g. consumer first quarter loans and leases outstanding compared with 1.01% a year earlier and 120% in the of 1987. l , 4 Contributing to the reduction in this ratio in comparison with the F ri j p',"j previous quar,ter, was the recent acquisition of a $1,296 million portfolio of loans of NL l i t 5t* . Sears' California branch system. 'the portfolio is predominantly made up of residential kW I first mortgages which historically have a lower risk profile. Y 4' .c The aojor Individual Banking businesses--card products, the New York branch system, most .b overseu activittee, and worldwide Private Banking-substantially exceeded corporate Mj( return key overall targets, but returns performance free other developing areas vers below target, reducing indicators. "% - _Datall of Consumer Credit Losses (primarily installeenr_ and revolving credit loans) y { 2nd [N W T-T-D T-T-D let 4th 3rd 2nd  %, 9,iA Qcr Qte Qtr Qtr (in Millions of Dollars) 1987 1986 1987 1987 1986 Qtr 1986 1986 g#g f s , Cross Loan and Lease 1,osses -, ' In Domestic Offices........... $565 $505 $280 $285 M e In Ove rseas Of fices . . . . . . . . . . . 91 55 47 44 $286 36 - $259 31 $267 29 g-T63T TM T52T TTf9 THE h $g taan and 14ase Recoveries $290 $296 M M-In Domestic offices........... $108 $ 84 $ 58 $ 50 $ 45

39, In overseas offices........... 8 45 $ 49 4 34 17 16 18 13 to Tk}-

$1a2 $101 $ 74 $ 68 $ 58 $ $$ _ 9 $ $8 g 6N[g. Net 1.oan and l4sse Losses y F) In Domestic offices........... $457 $421 .Nt In ove rseas Of fices . . . . . . . . . . . . . $222 $235 $241 $214 $218 Q hS ,k ~ Net Loan and I. ease lasses as a Percentage of Average Consumer i };{. Loans and Leases.............. 1.50% 1.62% 1.47% 1.54% 1 58% 1.50% 1 64I &. .di..b. y _, ((A(9 W,' d. A strict contractual write-off policy dictstes that 6 y g% consumer loans will be written off ,[ af ter a predetermined number of days. Those Roans not yet written off and with principal r 4 or interest payment delinquencies of 90 days or more comprised 1.84% of the total consumer ,. - [,h lu n portfolio at June 30, 1987 and 1986. The policy for suspending accruals of interest .yLg# W4

f. Qy on consumer loans varies based on the teram, security and risk characteristics of each product, and in consideration of write-off criteria in place. Consumer loans for which

.t,? p4.0 accruals of interest l[ l loans with delinquencies of 90 days or more for which interesthad been suspendedP were $823 m were $520 million at June 30, 1987. continued to. be accrued 44N 3

1. e&j&

C f*. . A x 1 I'bh _ Mg .h- Nh 4 4 ~~$ - ,(1' * ' . *e. F ' 1 ; g f , r h 1l p .,<: u,- , ..e, (ah v}+5e ,- Y , h(4 ^7 7,# b, l . tr ' W 'h,?.p'f g ,T - M h .

• l4 5 pl fy

.-Qg, r, g . r; y 4 Wl ' ~ e, fd m h ' INSTITUT10NA1, RIt.ATIONSHIPS - FINANCIAL PERFORMANCE AND DISCt!SSION ,A ' d, "."* 4 Q^ N4 Institutional Relationship results include sarningn from the delivery of Institutions 1 e L *E Banking and Investment Banking prod: cts to corporation, governments and finanetal *b institutions worldwice. i 0M ND  ; Incr./(Deer.) vs. ;t. 2 Seccad Secor.d K-[1yh 4 (In Millions of Do!!ars) Qtr Y-T-D Qtr Y-T-D [gy~ 1987 1987 1986 (A)* i 1 1986 (A)'  % ' n k.l2cr Business locome(B)................... $ 176 L,,,,,}j,J, 8 9 ,,,J, I $ (56) ,,,(jj,)2 ki hfi To t a l Reve nue . . . . . . . . . . . . . . . . . . . . . . . . $ 924 $ 1,785 8 47 51 $ (6) N/M 7(p[m M.M~ Provision for Possible credit Lo 3.150 .3.294 3,027 N/M 3,004 N/M 3 Ope rating Expe nses . . . . . . . . . . . . . . s..... ses . 490 1 956 48 11 1 V M[A 82 9 Eet Income /(Loss).................... (2,828) (2,702) (2,eC5) N/M (3,039) q w N/M

• ' %n Average Assets ($ Billions).......... 75 75 /

Return on Assets (t)(c).............. (5) (6)I (4). (5)1 f.f c,@1) (15 08) (7.26) (15.91) - (8.12) - y -94 bg Re tu rn on Equity (!)(C) . . . . . . . . . . . . . . (377.1) (181.4) (398.0) - (203.0) - 5  %, j Q >nf (A) Sector results have been adjusted to reflect organlaational changeJ. Prior year results have been changed to conform to the current year's presentation. . . 4,- lj' d' (3) Refer to page 5 for a discussion of Business Income. (C) Based on Net Income. Return on equity is based on dividing not income by a standard ,k y 3 h',.: dj inputed average equity reflecting Citicorp's internal target. N/M Not Heaningful. h ~ >:4 f.?a( $[Mg Institutional Reistionships' reported a loss of $7,828 alliton for the second quarter and mr \ 6 $2,702 million year-to-date as a result of the $3.0 billion addition to the allowance for possible credit losses which related to the Corporation's sovereign risk exposure. i y ? . ( ,Q) Secoed-quarter revenues of $924 million increased 52 from the $877 million recorded in the ' '%g- f ' J,3 same period last year. Jgf 1 i y' M due to a decline in assetYear-to-date revenues were down in comparison with the prior year, of interest payments by Brasil. related credit revenues - principally reflecting the suspension 2M { Fees, commissions and other revenue for the second [ NAy gb quarter were up with contributions from financial guarantees, advisory activities, as well

g! as theJapan.sector's share (a $40 million af ter-tar gain) from the sale of real estate in  %

7 Osaka, L . Sis; ? ? "idi 4, ~ j ,d] Higher write-offs for the first six months resulted from continuing weaknesses in certain industries, both domestically and overseas. Operating expenses of $490 million in the hy d, A ~' M M'M second periods of quarter a yearand ago.$956 million in the first half rose 112 and 9% over the comparable DN.v - The higher expenses were primarily attributable to the adverse ef fect of the weakening dollar on overseas expenses and costo needed to sustsin higher L T M volumes and further product development of investment banking products. .'[1 . - "pg .1 .s A 62 decline in average assets, from $80 billion in the second quarter of last year to $75 W.. N billion at June 30, 1987, is mataly the result of the $3 billion addition to the f' M , fh' allowance, as well as continued efforts to reduce low yielding assets. N Jd yh Y{[ W

Q'S dt; Q/Q m\"u ,,

kB W y s.w$ h.9@'v e 1 B E M B R M d B, ,g ] . i \ ( k I t h ?N $" Results from the delivary of Institutions Banking products to the institutional customer base reflect the $3.0 billian addition to the allowance for possible credit losses leading a i* i,. - to thee,first cet half. loss of $2.918 million for the second quarter and a loss of $2,879 million for T This compared with earnings of $95 at111on and $190 at111on posted in the corresponds.ng periods of 1986. '. Incr.4 Deer.) ys. Second 'Tecond k

• Qtt T-T-D )

$.i, Qtr Y-T-D .,s

1. ' Institutional Bank'. LProducts 198', 1987

~1986 ~~(A) M86 (A) (in Millions of Dolb re) gj' ' A I ~r Bucinese income (B)......... $ 8 18, $ 140 $ W 1,1)! > L W) I.$I h .*- < Total Revenue,............. $ 652 $ 1,238 Provision for Possible $ (10) (2)% $ (127) (9): *^ ~ - X 'Y Cred i t 'o s se s . . . . . . . . . . . . . 3.150 N294 3,027 N/M 3,004 Operating Expensee......... 390 718 N/F '"f Net income /(toss).......... 29 e1 34 5% h{y P (2,918) (*.879) (3.013) N/M (3,069) N/M 7-G (A) Results have been adjusted to reflect organizational changes. Price year results have R" j been changed to conform to the current year's presentation. M (B) Refer to page 5 for a discussion of Business Income. g N/N Not Meaningful. W { I Total revenues corresponding for the periods quatter and the first half decreased 2% and 9%, coopered with the of 1986. ' The decline in revenues was largely related to the %.t nonaccruel offset, in part, status of Bes 111an outstanding, lower tevenues from fees and commissions, M..g. h h@ by higher revenues from other sources - including the sector's share of f 9i N ,4 gains from the sale of real estate in Osaka, Japan and the sale e-(p$ < . iw of an o year and were up $34 alliton, or $1, over 1986's first half. growth reflected the benefits achieved from t The lower rate of expense q" ,M '%b prior year's business realignment. @ y iM Met first commercial half, equal to loan thewrite-offs level of lest wereyear's $104 mill.on for the quarter and $207 million f or the p V .w " comparison with the level of 1986's first half. second quarter and up $21 millica in N: allowance for possible credit The addition of $3.0 biliton made to the p net s write-of fs of $3.046 million and, losses resulted in a second-quarter excess provistou over Jy

• d', $3.087 million for the first half. The excess provisions half, were $19 million and M04 million in the prior year's second quarter and first respectively.

s.... g June 30, 1987, versus The $865coenercial million lastloenyear. anc losse allowance equalod $4,021 million at Q !* e O [ Cash from basis and renegotiated loans totated $6,343 million et quarter-end ? 1986's second quarter and down $95 million from thai prior quarter. , up $3,758 million ~ Year-to-year, nP non performing loans were higher in all arese except Asia anu z f4% t $3.8 billion of Mrasilian outstanding in the first quarter of this year. included an additf The ratio of M on of ' *p'.' cash basis 2.21 a year agoandand renegotiated 3.1% for the priorloans quarter.to total toens was 4.9% for thevapresent sus quarter "* p *h - { . ; J-Year-to-dste the same periodaverage last year. assets for the period of $70 biliton declined $3 billi on, or 4%, f rom ii I 5 '/.g E.arnings that result from the delivery of Investment Banking products to th C , customer 20% over thebasesamewere periods 890 million for the quarter and MU million ye.ar-to-date of 1986. e institutional 'kh ag , up 25% and ' J 1 'L u K , e 43 4? f f __m k.he .,gaugw,- %4e>Mu; Min _4n q %^; ne U .' Y5 t Yq h KA. 'M  ! Ty $5VT;& .

e. JS s O

'7 O In c r . /( De c r. ) ' vs . gw j Investeent Banking Products Second Quarter Y-T-D Second as( i 5A ]p; .l ; (In Militons of Do11ers) ~ 1987 1987 Quarter Y-T-D G 1986(A) 1966(A) f Business Income (B)....... g Ey t d' Total Revenue............ MQ $l77 $ 'Q 10J $272 ,i  %' Si ' operating Expenses....... 100 4547 198 $57 19 27% $121 28% ' i a ) ff Net income /(Loss)........ 90 177 18 23% 25I 48 30 32X 20% ' ' g y 7 (A) Results have been adjusted to tefleet organizational changes. Prior year e (5) results have been changed to confotle to the current year's presentation. Refer to page 5 for a discussion of Business Income. 4 < .Y ' d Revenues from Investment Banking products adesaced 271 to $272 million for the quarter and [b 'h: 5 climbed 28% to $547 million for the first half. The quarter and year-to-date revenue gaine were fueled by sharply higher revenues from the sector's funding sci!+1 ties, as well as strong revenues from risk protection products and foreign exchange services. Operating f' . . " expenses were up 32I for the year and 23I for the quarter. A significant portion of the C_ 3 (, . higher expenses steseed from the costs required to support the underlying business g " developer.nt. in addition to the expenses required to maintain the higher volumes. The A sy, Investeent Bank's earning growth continued to be geographically diverse. M4 h ose results are also included in the discussion of Investment Banking below.  % N i K! Products Delivered to Institutional Relationships () '$ The table below shows not income by product for the second quarter and year-to-date 1987.

e m

M g'.A Second Qtr. Y-T-D d (In M111 tons of Do11ers) [ Cors Landing (A).............................. 1987 1987

• v . @4 we Debt Products / Money Market Services.......... $(3.040) $(3,080) #g h 45 99 Fo rei gn Excha nge Se r',1ce s . . . . . . . . . . . . . . . . . . . .

+ It '* }' Specialized Finance.......................... 19 31 41 65 4 g 4 Liquidity Insurance, Financial Guarantees # *! 4 4,T e & Asset Intermediation...................... Advisory. Trade. Transaction Processing 30 55 i , (' .i M Tj, l: y:' , 6 0ther..................................... Total Institutional Relationships......... 87 118 'ke t mm aWa s g1q) g MA s (A) Core tending results for the period shown reflect j ,' addition to the credit loss allowance. the $3,000 million V< .,

• 3  ? ~

e . .fy  ;

i S k, ?j {,. e &' 1 g. ) . Aw  ?$ Nlw;4' m 5  %$. .y W O ~ aby[Q,@.;,3 L / . wCQ< 7 y emf 7 I ~ QJ$ ,.. A w:  : h' Q. e ; . , qi . ,2 Detail of Commercial Loan and Lease Losses (' 2nd let 4tM 3rd Y-T-D Znd 4 Y. Y-T-D Qtr Qtr Qtr ,g q ,,e fin Millions of tollars) 1987 Qtr Qtr O 1986 1987 kfY 1 'e 1987 1986 1986 1966 h* Croce Loan and IAase 148see g*; "45 In Doenestic offices................ $ 53 $ 28 4 24 .- 4 29 $ 39 $ 33 $ 13  % ya . la Ove rseaa Of fices . . . . . . . . . . . . . . . . 207 T2R 194 int 107 TIH 100 104 91 til E $T2T Tra UfT TDT 4 h"'., taan and Lease Recoveries , In Domestic Offices................ $ 18 In Oversese 0fficas................ $ 19 $ 4 $ 14 $ 5 $ 4 35 17 23 $ 12 , l' .Cfg 12 19 12 ~8 4 i ( If '_ iiet Loas and I. ease tosses _ITf $ 36 $ 27 ~$ 26 $ 24 8 16 $ 20 7 -u4 '. q. lI,Dp In Domestic Offices................ $ 35 8 9 $ 20 $ 15 $ 34 $ 29 p In Overseae Offices................ 172 177 84 $ 1 f ',["g ( E E E E 88 D *E 85 79 E 103 h# 8 ^U,. b- liet 14an and Lease tosses as a -[h M fb Percentage of Average Connercial ~' ' 'Y, 14ans and and Leases ................ .691 .641 .693 .68I l .79% .741 .721 [ W' . , ? $ - - - s y' . , ,, W* y.,]5Y. l.U

• 1^

., u . ..' A ,, J ,.' A _, , ' h*q m._  ; f, . E C :$.&' t ( .y g ~ F

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,s . : I,;& &'l Y h.! o.. %' M & . . .3 @ + - h s wa 4<!/ 7 .e.,. . .' y &,. ) g +. ty I1 -;&. Y .g-y ,.}qp' ~ gl - ~ 4 1 ( k a ( 4 , 1M Egm& Tion &L FIE45CINC ACT!f!TIEg / \ q'M - ,IM Dp International financing activities are discussed in Citicorp's Annual Report and Form 10-K " for the year ended December 31, 1986, its Financial Review and Form 10-Q for the quarter P' ' GN ended March 31, 1987 and its Current Reports on Forn 8-K dated March 10, 1987 and Kay 19, 1 Ice f'~ 1987. The following is a summary of development in certain countries concerning ef forts . j toward the resolution of payment probless experienced by those countries. e ma

• M Citicorp

(, management continues to evaluate these developments and their possible impact on its 1 . financial condition. j ~ -ag.IICO gh. ~- - 3.'y# ^ A new money agreement between Mexico and its foreign creditor banks became ef fective on , =f April 16, 1987, t)nder this agreement, the banks agreed to provide the following ' ?" f **; e (1) Two new money facilities providing a new loan of up to $5.75 billion of which . l h $4.75 billion is to be repaid over 12 years with 5 years grace and of which $1 bi11 ton is , g pg to be repate over 15 years with 9 years grace. This new loan includes a $1 biliton E co-financing with the World Bank of which $500 million is guaranteed by the World Bank and .gh f carries an interest margin of 13/16% over the London Interbank Of fered Rate (L1802) or 3 A domestic cost of funds. Citicorp's share of the new loan is approximately $260 million. j O 4 b47 The first drawdown of $3.5 biliton under the agreement took place on April 30, 1987. # 3% ~ (2) Two contingent facilities providing a commercial bank growth contingency IWu' g: 4 g ct co-financing with the World Bank of $500 million of which $250 million will be guaranteed , 9 fd]y)p ['g y,% M by the World Bank and a consarcist bank contingent investment support f acility of $1.2 billion to support public and private sector investment. Both facilities carry an as.I i 9a interest margin of 13/16% over LIBOR. The growth contingency facility is to be repaid - M over 12 years with 7 years groes while the contingent investment support facility is to be f' 3 @g 4v . / repaid over 8 years with 4 years grace. Citicorp's share of the growth contingency i MD" g f acility is approximately $22 million and its share of the contingent investment support g* f %3 facility is approximately $54 million. The Mexican government has cancelled the first . W M'g three tranches, totalling $795 million of the investment support facility. Citibank's { i share of the reduction is $36 million. a

p. -  ? g {l MN%yIf: In addition, the Bank Advisory Committee for Mexico, of which Citicorp is a member and principal co-chairman, has reached agreement respecting esteting Mexican debt to foreign [

r" gMk banka. Amendments implementing the agressent are currently being signed by creditor banks '

g. w fy . worldwide and provide the following C - k,pM@g '#

M c (1) The interest margin on $43.7 billion of Mexico's public sector debt is to be j 1 l reduced of maturity to20 13/16% years.over LIBOR. This debt will have a grace period of 7 years and a final v pf' , } (2) Except for $950 million originally due in 1985 which will now be payable over the p%g ,'.4  : five year period 1989-1994, the naturities of new loans granted in 1983 and 1984 which tots 1 approximately $8.6 billion will remain unchanged. The interest margin on these am# I i n 1 cans will also be reduced to 13/16% over LIBot. i' j ' %[,(y'.[i j" Q y Negotiations between the Bank Advisory Committee and the Government to refinance payments due under the Covernment's foreign exchange program for certain private sector borrowers 48' , g... r .. U have been concluded, and documentation implementing the agreement is scheduled to be 6 h ,pAg$ ./h aigned beginning August 14, 1987. The agreement covers approximately $10 billion of > V .e . h g4Q t private program sector to be debt (Citicorp's share, $572 million) and provides for payments under the Z '% ' !$4 G Wp;, ,v referred to above, 2006. refinanced on to me comparable to the multi-year rescheduling agreement including interest rates of 13/161 over LIBOR and final maturity in ;p g ~. During this period, banks will have the ability to reland these funds to pubite or P c, w  ;> @Q private sector borrowers under specified conditions. 1 Y

• M= 7'h(

M m x g.., .y: e v h n. m:d Y. fs s V <9~p t

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tw e:. ,  ?. 3.c~ q. ; , gA 4 w j[h.h g, y .%eM *="*- .u m _ . . _ - -- h tr*, s y g BB&g1L ,n.. s .11; D 3[W a ## '4"'Y During 1986, the Covernnest of Brasil and the participating international banks retiched an , ic ,4 sgreement to reschedule inedfue-tern public- and private-sector debt. D e agreement was < ef fective September 1986 and covered maturities of approximately $6.1 billion originally

b. O; Q* due in 1983 and the agreement, thenaturities debt that of approximately $9.6 billion ortginally due in 1986. Under ,

fell due in 1985 was rescheduled through 1993 with principal ih payments beginning in 1991 and the debt that fell due in 1986 was payable on the earlier , M* of demand or April 15, 1987. Cicicorp's share of the restructured loans totals + {.  ; approximately,$1.1 billion. wi . . . > . lg@  % M@ In addition, as part of the agreement, interbank and trade lines of approximately $16 billion were committed until March 31 1987. Citicorp's share of these interbank and 'y trade lines is approximately $661 million. l ' dhe '. ;d The Central Bank has requested the banks to accept interis seasures for the esturities of ) public and private sector debt falling due in the first, second and third quarters of Q:'@4 a 1987, and has indicated that interim deposits have been opened for the payment of such naturities. e j l j ( In rebruary 1987, the Covernment cf Brasil announced a suspension of the payment of fw interest ontointermediate-obligations banks. and long-ters public- and private-sector foreign currency j g the period of negotiations, between Brasil andThe suspension of interest payments le expected to continue M throug Q. its foreign creditor banks. These negotiations are expected to commence in the near future. As a result of the suspenelon 7 %( of interestoutstanding payments, on Citicorp f

g. Brasilian a cashhas placed $3.8 billion of intermediate- sod long-ters beats. ne impact of the action to a reduction in i

d7 after-tax earnings of $103 million for the year-to-date and an estimated full year gy reduction of $204 atilion at current interest rates. i kk fy;f d Interest payments on trade and interbank outetendings continue to be made while principal balances have been frozen at previously committed levels. ?g n

c. i nose trade and interbank v$

't "4 ,gg agreements expired on March 31, 1987 and in a telex to the creditor banks, the Government of Brasil has requested, in lieu of a formal agreement, that banka maintain outstanding at the previously committed levels.

s 7

6 g .> Wr 7 y + i/M@ In addition, se noted above, the approximately 39.6 billion medium-term publie- and , 4), #! ,jN private-sector April  !$. 1987.debt originally due in 1986 came due under the restructuring agreement on ? l 'iE97 In a telex to the creditor banks the covernment of Brs:11 has. requested di ff g , de . - formal amendment to the restructuring agreements to date. 15, 1987 extend the Aprilthat banks .' i not g Mr , /.@ AgCgNTINA

• j;

( %):;'N, 4 d {' M In April 1987, an agreement in principle was reached between the Covernment of Argentina l and its bank advisory committee to restructure approximately $29.5 billion of public- and Private-sector debt to banks. ne agreement provideo for the rescheduling of this debt as Wr e f.gij$q

g. follows. * '

("yM with seven years' grace and an interest margin ofNaturitiae totalling approximatelyf"% 13/16% over LIBog. Citicorp holds $25.3 )' billion are re ? approximately $437 million of this debt. The remaining naturittee of $4.2 billion are qhg rescheduled over 12 years with five years grace and interest sargin of 13/16% over LIBog. i j ,j i Citicorp holds approximately $208 million of this debt. In addition, the maturity of the ,$f trade credit and deposit fact 11ty of $$00 million is extended by approximately two years ,M to June 30, 1991. s q $% agreement Citicorp's share of thle f acility is approminately $22 million. De also calle for the extension of the maturity of the trade credit maintenance - .; d!$ ,j

,gg f1986 acilitybyand twothe standby years money market f acility which originally expired on September 13 to aid-1989.

Citicorp's commitments under these facilities total 7 q j.q approximately $95 million and $156 million, respectively. loans will be removed from the cash basis of accounting as a result of the restructuring.It is 1 not anticipated th $k- . c. A M [ (, 13 &lM$AW I -i l .v 1 l i l i i l j i~ nA he agreement in principle also includes a provision for a new tern loan of $155 b!11 ion 1,y . (including $500 million in the form of a parallel co-financing with the World Bank) and . + s $. $400 million years' grace, trade and anfacility. De new ters loan has a saturity of 12 years including five interest 4,{ , margin of 7/81 over LIBOR. The trade tseility has a n1 v four year term and an interest margin of 13/161 over LIBot. A

• 7 .

As chairman of the bank advisory committee. Citicorp has endorsed the agreement, and has committed on its own behalf, subject to the approval of definitive loan documentation by y;g,,, the creditor banks, approximately 390 million to the new tern toso (including $19 stilion to the parallel co-financing with the World Bank) and approximately $23,million to the l VP@,t it trade facilit'y. In the interia, Citicorp has granted the Argentine government requests to Uffi ,O roll over public-and private-sector principal maturities due f rom January 1,1986 through the anticipated ef festiveness date of the new agreements for 180 days and to roll over the g,g ',.g$ maturities due on(the Julynext 10, 1987 under the 1983 term credit agreement until the earlier of 4g h, , Cctober 13,1987 1983 ters credit agreement. principal payment date) or the date of the amendment of the i '$ e % gggggggg pl y ' he@ r f, Sp Agreements were signed by Venezuela and the participating international banks in February 1986 encompassing the restructuring of '.212 billion of Venezuelan pubite sector debt. A'b' p-.'f1 The agreements became effective in October 1986. De restructuring covers principal 2.Q payments esturing through 1988 and provides for the rescheduling of these naturities over 12 years with quarterly payments commencing in 1987 and ending in 1997. In addition, . T4 ' principal payments q /* 1,M ' rescheduling agreements.totalling $750 million are being paid in accordance with the y f , .N ) C ./ ~W2 sy{~ b ,* *yC) Citicorp's share of the restructuring is $709 million. The agreements stipulate interest margins of 1 1/8% over LIBot or other domestic reference rate, compared with a 2.27I weighted spread over reference rates including LIBOR and prime prior to the restructuring. ..' f p g , $ None of theof Citicorp's outstanding were removed f rom the cash basis cf accounting as a result restructuring. 1 y$.. ,, k- p%, ' Recently, Venezuels proposed a reduction of interest margin to 7/8I over LIBOR, a realignment of amortization payments and an extension of saturities to 1999. The bank p- -. advisory committee has agreed to these amendments, which must be approved by all banka , , 3

&h- party to the 1986 restructuring. - ..g a

• Ij%g'g g A new program for making foreign exchange available at preferentist rates for qualifying private-sector debtors has been approved and is in the process of implementation.

! ,e.g .[ .I .b Outlines reviewed. of the program recently announced by the Covernment of Venezuels are being j ( PEILIPFINES w-P #*,% . ' $ ,' On March 27, 1987, the Bank Advisory Committee and representatives of the Philippines agreed to a set m ?! A of restructuring and repricing terms affecting public-sector debts with g ,,ss,. , , . k., post-1986 saturities, the $925 million tern loan granted in 1985, $5.8 billion of . ,Q ' ' previously restructured debts and $2.9 billion of a short-ters t rade credit f acility. The 4s'" , g (g , terms include restructuring serially in three tranches the unrestructured maturities 4 ...:% k +' scheduled to come due in the period 1987-1992 to provide for repayment in 20 equal semi-annust payments commencing on June 30, 1994 1983-1986 All e 1 sting maturities under the , period, terspublic-sector restructuring agreements w!11 be restructured with the same grace and soortiention. - p 'fg,*  ;, period of four years from June 30, 1987.The trade facility cc,maitment w!!! be entended for a N*' 4 8"* Qf t L sw VM # :' R) i j ( p ~dfl  %& L L. 7;i%h.,

• 14 j#

1 $$ $&V 4 % ;i M ; $ 5 i. M k n % h a p te ew My n QWk cumxww~~ ^ 'g ,.. ,$ h ' the interest ergin on the restructured debt and the 9-year ters loan is !!. except that .j;l if the Philippines ashes optional prepayment of 4% ($37 million) on the $925 million tern loan in each of the years 1987, 1988 and 1989 and pays the scheduled amortization on the g; =r $925 million tern loan in 1990 and afterwards then the irterest margin drops to 7/81. The J.. g. trade deposit with the Philippine Central Bank. representing unused amounts under the ;K ^; h trade f acility, is priced at an interest margin of 3/41. 9;,.

m

.

The above terms and conditions have beer sent to the creditor banks for their approval. 9 .. , Citicorp outstnadings affected by the restructuring and repricing include its $126 million g g~A ( share of the $925 million te.m loan, its $753 million commitment under the trade f acility Mk and its $371 million share of previously restructured debts. - W, ~ gyg 4

• as

, s's"4 pf Cnoss-aosDER AND FORRIGE CURRENCY OUTSTANDING % F$ Adjusted for Net tocal currency outsteadinas. Enternal cuarantees and Collateral *( t.4l ~ C Total Adjusted Outstanding (1) U@Wc ,, /(In_ Billions j- of Dollars) June 30 1987 sec. 31 1986 HI4 Countries with Outsteadings Eaceeding 6 T* k./  ? $, 3/4% of Total Assets # E United Kingdos............................... ,"?)k ) p Tv Brs 11....................... Japan........................................ $5.6 4.4 $5.0 4.6 ......... 4.2 5.7 4 k,7 , 1 ' Mexico....................................... Federal Republic of Gerasn ....... 2.9 2.8 0 M?g Canada....................y.................. 2.6 1.7 2.8 ,

igfy Ph111ppines..................................

........... 1.7 2.6 4 1 1.8 pp j $$k 'W7 (1) Outstanding are presented og a regulatory reporting basis, and include all loans, b

deposits other at interest with banks. acceptances. other interest-bearing investments and monetary asser.s. M l Total adjusted outstanding esclude legally binding *

j,g'. S ,4 cross-border and foreign currency consiteents. Such commitments, which include I irrevocable letters of credit and commitments to extend credit, af ter adjustment to S k,t [Y vyl 2 assign esternally guaranteed commitments to the country of the guarantor, amounted to ,"b O ?w i7 $0.7 billion tu Japan. $2.9 billion in the United Kingdom. $0 2 billion in Mexico. ' , cres?;. $0.61987. 30, billion in the Federal Republic of Cernany, and $1.0 billion in Canada at June . s', g , hf other country in the table. Complements were not material in relation to adjuated outstanding inJ- any j M ~ + .rA.

r. g e l

-.=w- m s m,s,p ~ I b kd , eset w$'t bl s

• h e qp r

[h v:? + c 4/% $ f* y i I ,,,,- Ay f.{

),7 --

e' ' .h$ I .QN- zy , Y < g"Y NrpQ ,. -

c.  !

1 I - <s, s' f' 4 3 ' ' ' , , - f h w -+ W. , r.j ge '),) 4[ $ + s 4, % ~: e ( N . . \ t . . .. - y h b. .g .p Mf / E CASH BA$f S AND RL lCOTIATED CortKERCIA1,1.0ANS ~ u ]#. by. Cash basis (nonaccrual) loans are chose on which, as a result of doubt sa to collection, ncome is recognised only to the extens cash is received. Renegotiated loans are those on which the h(4 g h.9 %g. , D,{ jT N ' terms.of interert has been reduced as a reeult of the borrower's inability t'o mest the original rate )

• hse Y

4 %. . a' QlW .hr" f Q Citicorp followe strict cash basis practices whereby loans are classified as cash basic wheneur they reach 90 days past due status, irrespective of collateral or any crher favorable prospects. 4. , $l h While Citicorp's policy allows for exceptions in unusual circumstances, any such eueptions have  !*/ f .e. ' been insignificant in enount. ,3 [ ~'

59d QW Cash basis sillion f rom and a yearrenes.stisted ago. Of the commeretal loans at June 30,1987 were $6,343 million, up $3,758V'J 's.

ph America. $6,343 million, approxiastely 14% was to borrowers in North jfg NU* I South America The Asia and/ Europe, Pacific region Miedle accounted East and for 8% of the outstanding balance, while Central and 1*; Africa represented approximately 70% and 82 ?p l ( , respectively. The increase in total cash basis loans is primarily due to the addition of $3,785 sillion of Brazil's medium - and long-ters outstanding as a result of that country's open-ended 9T Qr / 93 } t suspension of interest payments announced in February. gf ? 7%* d Included in Brasilian cash basis - ; -- 'If outstanding at June 30, 1987 are $1,072 million of bar.k placements. In addition, $311 million of Ecuador's public e3 # # {p* developments in that sectorcountry.loans were placed on a cash basis during the first quarter due to d5 g['gC) Cash basis lease financings were $23 at111on at June 30, 1987 and $30 mil 11oo at June 30, 1986. .M WN Real estate acquired in settlement of loans, included in other assets in the financial g kl.T Q',h statements, aillion from March totaled 31, $295 1987. million at June 30, 1987, up $48 million from a year ago and up $4 d' seM . d-Q3 a estate acquired at June 30, Domestic real estate represented $258 million of the total real ' 4 ." , i sillion from March 31, 1987. 1987, up $65 million from the second quarter of 1986 and up $7 M p' i M 4 ,J i June 30, 1987 R[y x .y n (in Millions of Dollars) Cash Renego-Basis tiated Total Mar. 31 1967 Dec. 31 Sept. 30 Jone 30 1986 19M d4 // f 1986 jh k N[^" t 7, ash Basie and Renegotiated loans: p '! In Domestic Offires N k,[*d p , Real Es ta t e Loa 1s . . . . . . . . . . . $ 334 Ot he r Comme rci al Loau . . . . . . 500 $ 1 5 $ 335 $ 262 505 564 3 304 575 $ 294 $ 127 .Ch N* a \

fy in Overseas Offices.......... 599 573 .d N

• 9 5.498 5 5,503 _5,612 1.675 _1.923 1,885

" y., Total Cash Basis and ~;.9 renegotiated Loans (1)..... M ,(,,j,1 M f,,$,d)3,g, M MJ,,6,6 M 'd4 ash Basis and Renegotiated Loans $ ;;g as a I of Commercial Loans.... M ,,Q ,g 4.3% 4.9% ash Basis and Renegotiated Loans 3 . g as a I of Total Loans.........

1. Tq ;l)

MM _ 2.0% 2.3% 2.2% Includes $

• [{mh 31, 1987,$1,072 respectively. million and $1,019 million of Bank Placements at June 30, 1987 and March 9

• p*@m 2# _M

.fv m.v.g 1 Ca .y gf ..isflW 4, Q 'M W s$ ' m pwp .. k] i ' _f ,. - - - - - - - 1 A N t . /,1 . t. l' M Included in overseas cash basis loans are a number of loans it countries which are currently in the process of refinancing their external debt or which have completed such 'i TgI', refinancing. (See discueston of Provision and Allowance for Possible Credit 1.osses on page $1.) In view of investor interest in this aspect of Citicorp's activities. the table , 5 ; below provides additional details of cross-border and foreign currency outstanding and also local and foreign currency cash basis loans in the af fected countries; the third m# ~ ^ column of the table shows the tapact on Citicorp's earnings (af ter-tas), for the six-month M* % 'i period ending June 30, 1987 apread among various countries. The amounts include interest .~ reversed when losse are placed ou a cash basis status, plus the cost of funding the cash  ; basir loans. riduced by interest received in cash and included in income. h; h,k N.] ,' n; ' DETAIX.8 0F REFINANCING COUNTRIES At June 30. 1987 h Adjusted Total U Crosa-Border Estimated -(' Impact Of  ! And Foreign Cash Cash 'issis "d... E Currency Basis Loans on Y-T-0 Outstanding (3) ___tosns (t) Earnings ,g (In B1111ons) ,.v (In M1111ons) (In F1111ons) ?,% Argentina....................... $ 1.4 $ 21 8 (0.5)

• } - ~%%

4?. Bes 11.......................... Cn11e.........................., 4.4 3,795 (103.1) o 0.6 0.1 _ . .N. Dominican Republic.............. 0.1 11 1 - Nppk- Ecuador......................... 0.3 ,/ .:M .? Cabon........................... 0.1 319 (6.2)  ; 4 ,. Jamaica......................... 0.1 . M  ;'J m:1eo.......................... 2.9 0.1 9 yg K ~ 'g% Morocco......................... 01 96 (1.6) .g Wi g s r1 a . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 3 + 125 0.7

1. % <e Panama.......................... 0.3 4 .4 Peru........................ ... 01 W .i bl.jj. M 24

/ J c $**N,. Ph111ppines..................... Poland.......................... South Africa.................... 1.7 0.1 83 87 (0.5) 2.2 2.1 'y' t fg 0.8 - p[i Uruguay......................... 0.3 Venezuela....................... 1 - ' ";GQ's. Yugoslavia...................... 0.9 118 2.8  % ' 0.2 - - All Ot he r ( 2 ) . . . . . . . . . . . . . . . . . . . 0.2 82. . '

• k*j 120 (2.7 TOTA 1 ..........................

h) *M . %.a, -1 . M M ?l h&q 7.p- l f.9 'N [ [d j (1) Includes both local and foreign currency loans. (2) The rea:aining 13 countries, none of which exceed $50 millit,a of Cross-Bordet and Foreign Curruncy outstanding are L. g. g, 1.*q 3 Bolivia. Costa Rica, Honduras, Ivory Coast, , (3) Liberia, Malagasy, Malevi, Mosambique, Nicaragua. Senegal, Sudan, Zaire, and Zambia.

• g' ?p.j Total adjusted outstanding exclude legally binding cross-border and foreign currency

... commitments. M* i ry Such comatteents, which include irrevocable letters of credit and L . . g[- j .' consitsents to estond credit, after adjustment to assign este ~ sily guaranteed eg , ' s.k <[-O commitments June 30, 1987. to the country of the guarantor, amounted to $0.2 bt ston in Mexico at Cr p lf.Y asy other refinancing Commitments country. were not material in relation to adjusted outstanding in 1" - y 6 y;.  ! w ,y' 3:; ,' de - e .. J; s % f[ ,~ y  ! i .T ; .Q . w. y, 1d.) . . :3#;A( , i p[ W \ m,_ __ , . > - l l 1 *. I i l 4, 4[. l,s . A 'u 4. - . Df . ..k .cWs 5 '"kt The following table provides a breakdown of totsi outstanding to refinancing t count' ries, presented on a regulatory reporting basis, distinguishing between short term gQ'j t i I and medium /long ters outstanding. At June 30 1987, short ters outstanding represented f[hf... u ": , 31 15% of total outstanding. . ) ft.*'r 4 ,,r L ' & Refinancing Countries Total Outstanding June 30, 1987 'i , C 4.g (In Billions of Dollars) - f. 1 . Trade Financing...................................... $ 1.4 (hspe[3 Interbank Placements............. 0.3 ] 0ther................................................ ghort Tara .................... 0.5 , 0utstandings............................ $ 2.2 , 'aas -M  % bdium/ tong Te ra loans and F1scenent s . . . . . . . . . . . . . . . . $11.3 k 3jf; Equ1ty............................................... I y.pf';. Intercompany 0.5 sc3 14ans................................... b dium/ tong Ters 0utstandings...................... 0.6 $12.4 3 Total 0utstandings............................ M L e{n h-kWL M?f[& Uis& fM ~Q ,.,i. 's i 'e.p *"* g_ y ,' w% me o W ' '.? %,: , A - . 4 r.,' %.,g , a- &N.>* . t +?i G t . 7,' ,14 m.  : p '? $ )+ y- ' % 7kif e .. V h i , M. - b r \ ,[.

if

.. c o i yp u?: c. m ..; -g k y,1477 - W

• p>

. i t t,,.* Q:,g 1 { fr ~., 4 , , ,

" 3- ?q;  ; Rig. '

y . ) %r R *f .9 .- p h*%$,f& ,' % f ;.* , L i WQ j_f$ye g y y, ~ ~  ? . ~

e Q . . pdrg

^ y Qy' w g p.d. lg p p..Jg.$g, i .. ~ ; . -.nu1C%arne,w, ew ylig&g , j n,,*y A'g%' Q"na,. 3 4 3. - afp / l _ > \ . ^ t, p i 6 . 1 f& ' -) INVESTMENT RANKINC - FINANCIAi, PERF03NJCR AND Df 8Ctf$$f0N h // p Citicorp's Investment Banking business includes global investment and merchant banking, funding, foreign exchange services, venture espital investment, securities brokersge. 4(,.*a d .' insurance, and financial advisory services provided to both Institutional and Investment q h ', Banking clients. f %h W.4y ( ~ 1 l

1. 'N

' ,$ iner./(Decr.) vs. \ ... Gt , Second Second . Qtr T-T-D Qtt ,- ,T\ (in Mittions of Dollars) 1987 198y T-T-D k h 1986(A) 1986(A) h Business Income (B).................... jji jl}1 h d fE5 h d }

1. ~

Total 5 Revenue.......................... Operating Espenses............ $506 $1,057 $77 18E $187 21E # 349 . - Not 1ncoes........,.................... ......... 93 661 229 83 311 179 371 - 1  !! (1) N/M id Ave rage Ass e t s ( $ 81111ons ) . . . . . . . . . . . . 43 f'/ 'r Return on Assets (t)(c)................ .86 43 1.08 3 SE 3 81 i qq tate n on Equity (1)(c)................ 21.5 27.0 (.06) (1.5) -(.10) - - (2.4) W (A) gector results have been adjusted to reflect organizational changes. "n. 't results have been changed to conform to the current year's presentation. Prior year ~{M {NW, ,? (B) Refer to page 5 for a discussion of Business Income. gj; h 8 (C) Based on Net Income. f UM imputed everage equity reflecting Citicorp's intetnal target. Return on equity is based on dividing !Q N/M Not Meaningful. @%;.43 [h5 gQ

~

M. >W - Investment sank results for the second quarter and the first half were flat with the prior bank activities. year as revenue in:reases supported the ongoing investment in sloveloping global investment /[;hk Wg Ty.)Q j 4K ]y,+ ekv4 Second quarter funding revenues actirities of $506 in volatile million grew 181 over last year bolstered by profitable markets, (7 / ? '? j .? venture capital gains. higher insurance related income, and increased attained in the prior year while securities trading resulta declined. Foreign exchange ]$h ~.incomeM incre ,~:. ,8 Q.M Yea r-to-date revenues increased 212 &% /- dm _o $1.057 million driven by funding activities, 'ENN securities trading and a higher level of investment securities gains.  : jfy operating expenses were up 311 for the quarter and 372 for the first half of the year. M.qs j , ., the increase in expenses ves attributed to continuing business expansion, particularly in #E <3 Clobal Equities, the costs associated with building the sector's worldwide distribution hg[M +f cs ' il network - including W,M 1 Q the recent completion of the perchsee of Clarke Vickers, one of f M;: Australia's Isrgest stock brokerage systes. firme - as well as investment in the development of a h global customer information the declining do11er on overseas businesses.The expense increases also reflected the effect of Md i h 9 Japan is emerging as one of the leportant k&n [p l p(}%; results. contributors to the Investment Bank's 1987 C. W the prior year. Second quarter and yeat-to-date earnings more than tripled in comparison with k Japanese earninge growth was driven by trading in Japanese government ef, 1 ,91 bonds, while efforts 113+Y /,': .3 to diverstfy into corporate finance, advisory activities, trust s

r. activities, success. hedging producte, and securities trading continue to meet with notable c

> l:, Q 4 ;; [.. b,.i Z p 3' 6 tC ):* Sector's key performance indicators - return on assets and equity - surpassed corporate hurdles for the first half. Avera d of 8I over the level of a year ago.ge assets for the quarter wers $43 billion, an increase A4 [*jf Ed%e y; s% n- QQQ 19 M @C+- Y' 4 l Investment Bankirw Products h" y .. , j

• The table below summarises Investment Banking earnings by type of product. It includes

{ m.t the products delivered to the Institutional customer base as well as Investment Banking clients. 1,d

• p  !

J Second op~ Otr T-T-D d 7* (In Millions of Dollars) _1987 _1987 M[. De bt Produc t s/ Noney A rke t Se rv ices . . . . . . . . . . . . . . . . . .' 63 $ 31 ff** Equity Products...................................... k Hedging Products..................................... 10 LO 6# Foreign Exchange services.,........... runding...............................~.............. 11 25 44 51 g T

m .............. 30 67 Investaant Mensgenent................................  %

3 4 Insurance Products................................... $ Total Investment Banking............................. 11 __ 21  ;

1. 2 E JMf, i

(- - / c . INFORMATION BUSINESS AND CORPORATE ITDt3 i -, g$ # t- - db,, _ Ince./(Decr.) vs. 3 Second Second [I* WW f Information Suainess Otr T-T-D Ctr T-T-D i g. (In Millions of Dollars) 1987 1987 1986 2 -Y [9.a Susiness income (14ss)( A) . . . . . . . . . . . . . . . jMf) %W jM,j) 1986  %- f' (S) jj,))) (8) [" D Total Ravena:s........................... . 4, ,. g , Ope ra t i ng Espens e s . . . . . . . . . . . . . . . . . . . . . . $61 91 $120 177 $ 61 87 (5) $120 (3) $169 (3) i

ml&ge

. met Income (14ss)....................... (19) (37) (16) (3) $(32) (B) (B) i7 % ', - 7" (A) Refer to page 5 for a discussion of Business income. ' Asyx+ K. h . . fgf,. 1 (B) Persentags changs not meaningful. ' ,. 'V M s[C4 N b For the second quarter of 1987, the Information Business posted a loss of $19 million " " .L'y]R coupered with a loss of $3 million in the previous year. The total lose for the first two M s J., quarters of the year raounted to $37 m111 ton versus $5 million a year ago. The decline in .. h thelast year-to-year comparisons was due to the impact of the acquisition of Quotron in June ,n ed)  ! of year. The Information Business loss van generated by the costs associated with N, ? 3 the purchase of Quotron - including soortisation of the preatua and the cost of carrying 4., k[Q the investment - and continuing investment in other information-related i e hoases. -, 7 ' ,, f y h' p a n.. Second li.cr./(Decr.) vs. b .' Corporate Items Second f* 7 (Is M111 tons of Dollars) Qtt 1987 T-T-D Qtr T-T-D K[.h.) %g 1987 Total Revenue........................... 1986 1986 - AW k ,( Operating Espenses . . . . . . . . . . . . ......... Net Income.................... ......... 5(10) 15 S(50) 41 5 23' (3) (70)Z $ 30 (38)I (17)! $ (3) (8)! b 'I [ l n ,9 o  !!8 107 139 N/M $(166) N/M {%jM 'f 7 e . i, M/M Not Meaningfu1. - J Om. i>F Corporate itses consist of unallocated corporate costs and other corporate items. For the g second - ". 7,[ charge quarter of 1987, inCorporate the same Items periodamounted of 1986. to a credit of $116 million ,versus a of $21 million p -yx '$I For the first half of the year. .G i Corporate the same period Items amounted a year ago. to a credit of $107 million compared to a $59 million charge in 4, .; 3 Both the second-quarter and year-to-date credits are principally the result of tax benefits of $117 million related to the $3.0 billion + ' + . addition to the allowance for possible credit losses, which are held at the corporate N 1evel. b'[l 4 x 4 ; k h',&x p -- r- '[ Y&N ? b$ .h rYAff? * ' 'fY * * $ 5}  ? ,4- , .[ - h h- f fhf! . . _ . b: i_ b 5 = . I* 'A ' . e I 1 l I i ;g> $T&TL'*Orr OF OPERATIOE5 AllALYSIS NET IsrTEREST REVEaltTE (Tasable Equivalent Basts) $ '? Second-quarter net interest h, siecond quarter of 1986. revenue of $1,585 alliton was up $72 million. or 5%, over the 3e i J;.. 171 growth in consu=er loans. Average interest-earning assets e.ere up 91 primarily driven by ' $ points in the net The increase was partially offset by a decrease of 14 basis # lct rate spread, which resulted largely from placing Brasilian loans on a nonaccruel status during the first quarter. ( A.4 b F , ,'m,9 h Net interest revenue for the first six months of 1987 was $3,202 million, up $193 million, or 63, over the same period last year. The increase in nec interest revenue is largely due to the 101 increase in average interest-earning sesets. The rise in average n W kg,  % tutorest-earning assets is the re sult of higher consumer loans outstanding-principally mortgages and credit card re *eivsbles. The increase is partially of fset by the doctease in the net rate spread (currently 3,732 versus 3.862 a year ego). $@Q ',' ]

h. ision and Altomance for Possible Credit losses (Refer also to P.able os page 4) j k.

U" ' l m i For the second quarter of 1987, the credit loss provision of $3,403 million represented $357 million in net tredit write-offs and a $3,046 million addition to the allowance. The ^3 comparable amounts for last g $115 million. year's second quarter were $457 million, $342 million, and  ? ru 3cb In the first half of 1987, the total provision for possible credit losses was $3,877 o at111on, including $721 million in net credit write-offs and a 83,156 million addition to jf ?T the allovence. For the first six months of 1986, the total credit loss provision was $886 V million, consisting to the allowance. of $645 million in net credit write-offe and a $241 million addition T Q- R, 1 7' jfi- ^J.' Net consumer write-of fs of $253 million continued to declins as a percentage of average 3* h< M outstanding: 1.47% in the second quarter of 1987 versus 1.543 'o the first quarter of ' *l;t 1987 and 1.64% in the second quarter of 1986. det coemercial i se-offs of $106 million N werequarter first even with the level of the prior year's second quarter ana were slightly above the of 1987. $ ~"

• I b

 ?,b}' k@%d ,W D

h. a.

At Juns 30, 1987, the Corporation's allowance for possible credit losses totated $6,858 million, compared to $1,808 million at March 31, 1987 is available to absorb future charges that The entire credit loss allowance bb fr% O allovence is allocated to any specific credits.are presently unidentified, and no part of the d - il For analytical purposes, $837 million of "( W the allowance at June 30, 1987 was utributable to consumer credits and a total of $4,021 M AN million was attributable to commercial credits. The portion attributable to consumer credits enounted to 1.16% of consumcr loans est lessee at June 30, 1987, coispared to 101E O -N3 at the end of the second quarter of last year, and the portion attributable to commercial d  ; Y% credits amounted to 6.68% of commerciel loans and lecces, compared to 1.443 last year. s The cosusercial pottion of the allowance included $3,482 million attributable to 4 j" ? cross-border and foreign currency outstanding in refinancing countries, which are R G d't detailed on page 17 of this report. This amount, when taken together with approximately 7.h 7[j $300 million of previous charge-of fs based on countries' foreign currency debt servicing problems, 4 W ,4 countries. represented approximately 25% of cross-border outstanding in the refinancing The portion of the allowance attributable to other commercial credits was $539 b*k e million, or 1.10% of other commercial loans and leases. M. y-y .g

• y 0;l ,

y - V ) ' {A:) ..v q 4 i ( z;* ' The portion of the allowance attributable to, cross-border and foreign currency. ' outstanding in the refinancing countries reflects the $3,000 million addition to Citicorp's credit loss allowance announced on May 19, 1987, plus $500 sillion of the j existing allowance identified at that time as attributable to the refinancing countries' ' cross-border and foreign currency outstanding. Since that time, this portion of the t allow' ance.was reduced by $23 million of net charge ef fs, including $18 million of losses on selee end susps of loans to refinancing countries and write-offs taken based on _"T countries' foreign currency debt servicing problems and also $5 million of other net credit write-offs ($11 million of gross write-of fs less $6 million of recoveries). This , portion of the allowance was increased by $$ sillion through the provision for possible j , credit losses". y! < Ms81ae ErwJsUt . j{

• j Second quarter fee and commission revenue increased 211, to $869 millf oe from $718 million

% e year ago. The grcwth in fee and consission revenue reflects increases in the Individual h

• Bank and the Information Business. Within the Indieldual Bank, increased acabership fees, P marchant of growf.h.discount fees and overall increases in CSC International were the primary sources '

The increase in the Information Business is the result of including revenue fna Quotron which wee acquired in June of 1986. l decreases in the Institutional Bank and the Investment Bank.These increases were partially offset by ;l " f A 1 faar-to-date fee and tocountasion revenue rose $255 million, or 191, over the corresponding  ;*. period a year ago $1,632 million. i j In addition to the increases discussed above, on a x ' year-to-date basis, the Investment Bank rose $19 million, or 9%, as a result of growth in } financial guarantees and advisory activities. j( 3 " TRADDIC Accourt se. 'hR E ,e Second-quarter trading account profits of $18 million were flat compared to the same _d S- $3h ,, -  ? y# - a period last year, reflecting market conditions in the U.S. and certain overseas markets. gp$ .NM M M ' Year-to-date period a year trading ago. Theaccount profits of $153 million were up $100 million versus the same .g, o  ;, wg gg year-to year increase reflects improved trading results in North America and Asia / Pacific during the first quarter of 1987. 4,%,4* fd /p;w% e retIImi ExcaANGE d, y, 4 UTp y C 1 Foreign exchange revecue of $129 million for the second quarter was up 9% over the $118 million reported in the corresponding period in 1986.

y The quarterly increase was 1@j#*j$4$y attributable to gains overseas, primarily in Europe and Asia.

For the first half of the e@.v.N.y -D" year, Periodforeign exchange revenues of $218 mill!on were level in cosparison w!th the same last year. .M,h .g ~ continued to be diversified acrosa many trading centers. Foreign exchange activities from "3.both h'M'i$s g (tcust ,; Accumulated foreign currenry translation, which represents the after-tat effects of 4 ' translating certain foreign currency statements into U.S. dollars, is included in retained earnings in the consolidated balance sheet. h*ffi l ..' wt p aillion credit in the second quarter and aForeign currency translation staounted to a $6 en]k- $33 sillion credic in the first half of 1987, 7gI versus $9 million and $31 eillion credits in the corresponding periode a year ago. .  :. ^hQd M 4 C #n ~ $f ' .w%  ; %gdf , N.M;*h. .3 b cmg \ dA ]dh w' d[u(4 ' J n t u,.S k N h.h '4 . g. au. 22 y@Q m gam. n_~;d h A _Whdu7 _d W 6* _h i* _* " "'^ "' _*~'~ _ y j;g *" _amesmannar mawaa rtas .rsasuttriums Second-quarter gains from investment securities transactions were $60 million, up $7 4

7. '

million over the same quarter last year. Itivestsent securities gaine during the first six months of the year ;ere $111 million, up $29 million over the first half of 19866 Cains "h' q i I 4$ " 3 4'4h*h'from$(- free. investeent securities transactions both' for the quarter and year-to-date resulted advances in the Investment Bank. 4~ l y l l M*~. . f acr./(Decr.) vs. 4 w Second Second .J;t . qM (In Millions) Qtr 1987 T-T-D 1987 Qtr 1986(A) Y-T-D DE 1986(A) Ma Affiliate Earnings............................ { , # $ 18 8 46 8 (2) $ 7 3 $ Not Gains on 8 ale / ) I, Disposition of Assets........................ 125 130 ti r'Ej ( ~ 171 117 { Gains on Sale of Residual Value of C g 3 Leased Equipment............................. .J - Bet Gains on Sale of Nortgages................ 2 24 (13) s 1,. ( gj g4 > 1 70 207 19 100 Venture Capital Cains.. ...................... 24 I i Other 1tems................................... 31 24 (15) 2 k i j . Tota 1......................................... E 5 E 25 E(11) E 10 x,  ; J-( (A) Restated to confore to current year's presentation. ) .g Second-quarter other revenue of $244 million increased $138 million compared to the same period a year ago. CoMributing to this growth were gains from the sale of assets (an h "' ' .'J y overseas and sales of subsidia y and the building in Osaka. Japan unntioned earlier), venture capital, mortgages. *., h. *f' = ).:!  ; y v.c 9.. " 7.' Year-to-date year. other revenue of $463 million advanced $220 million over the same period last The year to year increase was driven by gains from the sales of acsets described 4[s b i  %, above, as well as profits from the sales of murtgages. J" 4 g g$ty i% g .

• g ..g gd TUTAL vanna OPERATING Hr; -9 K- Qn. s. ~*Q yl

[ .. . Quarter-to-quarter operating expenses increased $364 million, or 23E. to $1.975 uillion, d 7% JQ 3 I. i Operating $776 million, expenses or 251. for the first six months of 1987 were $3,886 million, an increase of g i ,i 7 Appromf astely httf of the overall increases were in the Individual ,. ff* i Saak - where expenses rose 171 for the quarter and 211 year-to-date - reflecting support 3, f.. d w for the sector's revenue increases and continuing investment in business expansion. The Wd Fg*[ .f ~ g. Individual Bank's revenue growth rate surpassed its expense growth rate.

• g,#

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y . ]^ The Investment Bank contributed approximately a quarter of the overall operating expense increase with a growth of 311 for the quarter and 373 year-to-date. A portion of this hk .g Pf f Cl increase was attr1* af,ip*he

4. "'~

Also contributing t 31e to business expansion, particularly within Global Equities. ^ ' 7" Y%g ( 'agher expenses were the continuing costs associated with building D the sector's worldvise distribution network - including the recent acquisition of C1stke g

4. , g1 Vickers, one of Australia's largest . 2 ,.h w I :

global custone: information system. brokerage firms - as well as the cost of building a . .Q,3 - a% 3- 47, , J vg4 , ,am&_d.f e- y ,s. 1,4!. A ".W. dy . A wn 6 n *'y iw , ' lh.?!w. , m,.  % f  % Q. y 23 k f l .: _ __ _ ( __ - , - w e vva , w ar * * = eenc, . w#3ase:aWgge ~ ~ ' i- - - ~ < . - 4 n i 5: p :*T Pluch of the remaining increase in overall eperating expenses related to the Information Business, where expenses were up $87 million for the quarter and $169 million . .g q.dg ,pvMgi*-Qg year to-date. The the year-to-date inclusion of Quotron's results af ter 'the second quarter of 1986 led to increase. r ) -l .dtf @ D -:A In the Institutional Bank, operating expeise growth over last year was held to $29 s f M,.. Ntg:g,,'pj.IS'[D aillion, e.,r 81 in the quarter and $14 million, or 5Z year-to-date. During this year, the 1evel of expense increase in the Institutional tank has significantly moderated as a 7 { -gy%g;$f Uq result of last year's business realignacot. f D,, I INCorGL TAIES . "" e-Tax expense was $262 million for the first six months and $79 million for the second "g Y ~ quarter, down 281 and 551, respectively, from e year earlier. The decline reflected the i 5 . impact of n , allowance for t' epossible $117 aillion tax benefit related to the $3.0 billion addition to the credit losses. -i W [. g y% **i i gp , e d ^

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* ; ,f . 3 hf 3 ..s .'sydh,i. id ^ -w, .MV @1 W{qu.; $ $M.m"DM t.d . m t. 4/ sMii.VM[**p% f /9 ;8 , 'j.L (#*d * $ADW R4 ( )!h, 1  %./ #$  ; yf $WN  : .: W{g W un M u W;W gfDF' %w w@}@y k wrs a., W..u5%q$WPJM m Q w.. ww m o w e,e f .x *9@w w w ., am 9 ngy \.? h. 5 - k- ) '.E f L'? - 2% --.? ,, n . n _. $i Q L W h , fi J il0't  % h m ,u S,* Gq,W .?,..w A .. ,i_, Y.a n... ..,- <:Qa .. ..Q., ~ - t M;' , . yg. - .- ... ' - 7 ~ JM@$ ~ " ~ v v(T ' p3 ,.; 3 .. y , ,,g y, y ,;, . - . . . <*ht , 4 4 .g~ ' ' .3 .4(e ;s.g . : .~ y y. g g , a 3 :y > \ G ). m;9 /Q j

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l Ir . 4 N '- p , .y prrrmagIC DisT11ser!ON OF Ilff 12C00E(1483) d D. fN r %q Based on internal allocations and adjustments, earnings are categorized Netween domestic and overseas as follows: C [p 4 g r a (in Mtitions) k,, 1987 Doseette overseas Totat # second Quarter..................... P97 N/N $(2,772) 9 @hD49Af4 First Quarter (A)................... 125 47 2 N/M $(2,585) 7. #.. p < 2 rirst naif...................... m 139 53 1 264 N , y' ,, m. w/n lusw n/n . . u .u.o 1986(A)  ?.- p@,y$ p Fourth Quarter..................... f' yy-P 'g Rird Quarter...................... $183 99 60 % 40 1 $ 123 148 40 1 60 2 $ 306 247  ;;g 6 g Q ib Second Quarter..................... 50 I  !!8 ' (k 3 9.. - First Quarter...................... $117 110 41 1 160 50 I 59 1 $ 235 I k'y } 270 'i . Firse Ka1f......................  ! $227 45 1 1,,,,,,,2_7 8 55 I W j NN , KM g N/M Not Meaningful. $' %E agy , 9.5.'4{ - i 3 'l-Because of the integration of global activities, it is not practical to make a precise ,N separation, and various assumptions must be made in arriving at allocations and d adjustments to be used in presenting this data. . tp a tv - n 4 .4. 4 g dg T .i , He principal allocations and adjustments ares (1) charges for all funds esployed that are not generated locally are calculated on the amount and nature of the assets and based on a -9 gt< f 4@4c */> ,M marginal cost of funds concept; citicorp stockholders' equity is created as generated and k1 A,N;4 earned through a standard allocation based on total assets; (2) allocation of espensas .d J- -  % incurred by one area on behalf of another, including administrative costs is based on  %  ; 4 l,h methods intended to reflect services provided; (3) ellocation of tax expenses; (4) .%g *g. .fygfgpossible allocation of the difference between actual not credit losses and the provision for credit losses; and (5) allocation of corporate staff costs (other than those W[ ,, _[ p ' d". -CDM3M charged to the core businesses) and other corporate items including certain start-up 7' activities. The prior year's disclosures have been reclassified to conform with the ll gdrW(y] im current year's presentation. .. 4 < v., -] M,, CVfWf, 9 ,g. d Q ~~ - - {- _M In the second period. quarter, domestic earnings increased substantially over the year earlier ' Continued growth in asset-related credit revenues, fees and consissions, and .M - ~ g : J$g. 'b ' b, other revenues was partially offset by incresses in operating expenses. International ,f d$r $; E *4 . earnings decreased $2.9 billion quarter-to-quarter due to the $3.0 billion addition to the allovence. hl r" T Wesker foreign exchaege profits, lower fees and commissions and increases in ~ ;37 g operating expenses - primarily the 1spect of several newly acquired businesses - were also , responsible for the quarterly decline. , R.W 2 . $g' l2.YM}%y Ji d Q ff aInyear the first ago. six months of 1987, domestic earnings grew 37% over the corresponding period n N *pf> 1%ip%, higher asset-related creditDomestically, Citicorp's businesses continued to build revenue momentum, with 3 QicW*y,Q revenues, fees and commissions, trading secount profits and 1 MRkt.gg . other revenue compared to the first half of 1986. Crowth in consumer assets, particularly q NIM t,M shelter finance acd domestic card products, contributed significantly to the increase in asset-related credit revenues and fees and commissions. n tfl4 j 9 Caine on sales of mortgage ' j 4 jlVl k pass-throughs and mortgage-backed securities also bolstered the year-to-date revenue 'Q. p ", M.g3 pe rfot1sance while gains on other securities transactions decreased year-to-year. In 4,.f.y. %;f4 addition,inthe decrease thedomestic provision excess provision for credit losses decreased slightly, reflecting a booked. A' 1 77t' ao p' d higher operating expenses related to continued business expansion and development.However, g 5w' g% $a -  % &yM Q A g% +w9

, 2g /*r5C

. %mp M+m%w,7 -  % f e c w n" n m e m a* l ^ kn, e b g% M W B q p % p m m m&w& Q W W N M ,. .9 y n w,73 ,s m B p A n w n a. y .u ~ r n. . . . . ~ ,m - ,

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• a y @h 7 ,, Overseas, six-month earnings declined $2.9 billion cospered to the first half of 1986 reflecting the $3.0 billion addition to the allowance. Higher gains on the sale of assets MN l.YA [#

 %;M-\

• oversese (primarily the sale of the Osaka building in Japan) more than of fset the adverse 7 effect of the non-accrual status of Citicorp's loans to Brasil resulting in an overall y

n. f .' 7fd :( increase in operating revenues. Despite strong growth in all other revenue generating  % af 7 J activities, except foreign erchange trading, operating earnings declined due to increases ni in operating expenses and commercist write-of f s. The higher operating expenses reflect } y*-)

• the impact of several newly acquited businesses, as well se continued business $2 y.{j development, improvements to product delivery, and the weakening of the U.S. dollar.

KET INTEREST REvrJfUE STATISTICS (Taxable Equivalent _ Baats) / Domestic Overseas Total M NET TkTEREST RETENUE Y (In Millions) 1987 r E secoed Quarter $1,061 8 524 f'- First Quarter First Malf _l.069 548 $1,585 _l.617 hI Y E f _$ ? . I '50 M M [ %g ' 1986 a 7 .- ' Fourth Quarter $1,066 $ 625 $1,711 N Third Quarter 1,061 556 1,617 p .- r Second Quarter S 961 x "*-. First Quarter $ 552 $1,513 , MNqp "_ First Half Q 917 1Q 579 g _0.496  %)1 8. i .~ 1 l f* - , AYERACE EARNIIC ASSET 5 (In 81111ons) , V.S y gggy + Uk, 4f hef d d Second Quarter $ 94.9 $ 77.3 $172.2 First Quarter 94.0 79.6 173.8 g First Kalf 94.4 M 78.6 173.0

• o reh Quarter S 90.2 $ 76.1 Third Quartst $166.3 t '. M. :, ? 85.9 75.8 161.7 i.h ~ "$

E' p h ' Second Quarter First Quarter $ 83.2 $ 75.1 $158.3 n. b 81.3 74.3  ; At First Half 82.3 74.7 155.6 ki, j " _ NET RATE SFRZAD 157.0 [ p , . (Percent) r.5 $. WF . , A E!. 4 1987 d , . g Second Quarter 4.48 j% ndt , First Quarter 4.61 2.72 349 h ': 2.78 3.77 ,,3.c >tffp., First Half 4.55 2.75 ,~ 3.73 :iij l' ifik,. 1986 > , , Fourth Quarter 4.80 3.26 g  % Third Quarter 4.08 ea 4.90 2.91 3.97  % Second Quarter Q - 4.63 2.95 3.83 ... ,, First Quarter 4.57 3.16 3.90 n; ,37, First Half 4.60 3.05 3.86 L g - yQ ff m_... 9 . u , V 4 y. w .~ TL q <, t ..d n+, 1 .w 1  : f M W x 8:  % .2. [ 4s' vh d . I . "' ' k ' . , I.#. [3 4,h  ? . :q *h .- .. is h sL 4: n,.fmq~g.x.. ' s ny .g,_ y:. ;a y .wwm: _ _ 1 , g..~.'

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.J f , .V - f ,/ ,, . i - [g 1.IQUIDITY AND CAPITAL F1mDS ARA 1,TSis 6* I During the second quarter, Citicorp increased its .' k the balanca at June 30, 1987 to $22,944 million or 11.5% of total assets. total Thiscapital by $438 million bringing f an increase of $3,820 million, or 202, over one year earlier. representa #[. h Primary capital (as dettned by the regulators) was $14,679 million, or 7.37% of total M* h.'N. assets on June 30. 1987, sillion, or 5t, over the first quarter.an increase of $2.H6 million or 21%. over one year ago and S647 7. h (k- As a result of the $3.0 billion increase in the !9Ik ;d allowance for possible credit losses, common stockholders' equity has been reduced to $5.2 W Lit [M

• billion, or 2.681 of total assets, from $7.9 bi111on, or 41 of total assets at the end of 1ast quarter and $7.3 billion, or 4% of total assets a year ago. In April, Citicorp p

 %%f E issued $300 million of fixed rate subordinated capital notes. Of this amount, $288 M hit ' %g(G ' aillion was included in primary capital during the second quarter. f ' ' M'g Citicorp enhanced its liquidity by borrowing $500 million through three-year esturity ;W py' ' , fixed-rata notes in the tern U.S. debt markets during the second quarter. An additional e (4 , 1*

• te
• million in fixed-rate debt was issued in the U.S. with asturities from four to five

$500 > Q '1 v; 17 sg? , W At June 30, 1987 @ of the Citicorp's total assets were $194.4 biliton, up $11 billiots, or 6.01, from the end second-quarter last year. 'W , increases in consumer loans principally mortgagte and creditThe growth in assets resulted ontirely N from y ~. card receivables - and was f $t. N .- chiefly funded by increases in interest bearing denosite (including significant increases - y4 in consumer deposits) and growth in the components of total capital.  % Rattos r w / @ [,[fN 2nd  !. t 4th t *% C Percent Qtr 1987 let Qte 1997 Qtr 1986 3rd Qtr 2nd Qtr  % qM 1986 1986 7.jd Total Capital (1) as a Fercentage of Afg ', Total Assets (2)..................... 11 51 11.30 10.88 53 "Mp" Primary Capital (1) as a Percentage of 10.81 10.34  % p Total Assets (2)..................... 7.37 7,? k '- g, 7.05 6.82 6.61 6.57 , Common Stockholders' Equity Generation 8.e gg%g- a  ;) Rate (3)............................. f T[*

e. (166.96) 8.34 10.73 7.78 4 'ci Dividend Payout Ratto................. N/M 34.6 29.4 36.9 (A) /~ fp

, } (A) WA mat Q l& ' (A) Beginning in the second quarter of 1986, cosson dividends are coesidered for hA . declaration December, andin July, October, January and April, instead of June. September, March. As a result only three dividends were declared in 1986. g] d C [g'

• F' W[3

* 'T (1) See page 2 for definitions. M SF.%gh ' (2) Total assets, prior to deducting the allowance for possible credit i,Vp .T compliance with regulatory requirements. lossen, in "Q" 4 r$ r Y [ (3) Net locose/(loss) available for common stockholders less common stockholders' J. dividend as a percentags of average common stockholders' equity. t N/M Not Meaningful. N ,5Y b ,f , , i,-i r H ip . gy 7d a$ s.- $h WW 9 ,E V $ x n k s A ' e - V. ., f ,4 @ . ;f DITIDENDS .d ',~x" , 1 /f @ ' Various legal restricticas limit the extent to which certain subsidiaries of Citicorp can ' remit dividends to Citicorp or its other subsidiaries. The approval of the Comptroller of = i 4.5[ ' W ..* the Currency is required, pursuant to 12 U.S.C. 60, if dividends declared by a national ~~~ bank in any calendar year exceed the bank's net profits (as defined) for that year  ! h' 'h,/ combined with its retained not profits for the preceding two calendar years. In addition 47 @ to the pursuant bank, restrictions onU.S.C. to 12 dividende contained to 12 U.S.C. 60, citibank, N.A., as a national fy @ 56, may not pay a dividend in an amount greater than net profits then on hand, deducting therefrom its actual losses and bad debts. Bad debts are 'e j h ':, ~ after thein defined duethedate. statute as debts on which interest is unpaid for a period of six months Even assuming Brs 11 continues to withhold interest payments on its j g, medive- and long-ters debt, .J 9 34 expectation that Citibank, N. A.,which were suspended in February of 1987, it is our g gf '47 would have suf ficient not profits available under both i S ,, l statutora provisions dividends to remit earnings to Citicorp sufficient to cover anticipated to its stockholders. j f g ,'g . In addition, earnings of other Citicorp banking and ?p non-banking subsidiaries are also espected to be sufficient to cover such dividends. W %Y 4 b. ',_'.Fuj , 3 . .gt - h  ;;./?nn 3 ., e g I s h:e$. -_ 19<

z. y

'.g .

e. g

'" v' .c5 ' *:l,,% ' m., e. 'y - l,2 . .!: 4  ; J {g'% T ,.N>& 14 e Y,  ? ? jb _ sf . .: i s# ,.'/p ~ ?g 5r k.s - (/ 3,  %; */J3 '.h .h &a sw - a ( W it Cs ik .y F.' _ _ $.o* ; ;Y.. . h..m 4R * .n f.. 5 . rs ,& .x ^% , K a ned , ,.h. k m j$ i E.p,$.7 -s s 28 A s e~nId4Wgg,4mm@n r W 4 L e.v. m.u. w.. mm 7dM6EhliaA*MN'I ~ ?Mqw?' w :w m w . m .4 %g is.e::n X- J "' ":m " "m "" zw ' * " ^ ^ ' " ,am+ wm e y I h% e e' 4 . ( I S , W. CONSOLIDATED STATENENT OP 0? ERAT 10s$ CITICORP and Subsidiaries '-%w. 4.j e7- "f"#,, on =t tit n. tueer ter share rooete) i+si sts Moathe avae - ew.are t I e 4 _T hi;. Interest and rees en Loene and Lease Financin late rest en Depos ita wit h ta ske .. . . . . . . . . . . . .g. . . . . . . . . . . n . . 9 8.486 87,881 $ 601 0 g laterest en Federal Funde Sold and Securttles ................ 606 547 59 il 'j , (9 4 Purchased Unde r Asea te Ag reeeent s . . . . . . . . . . . . . . . . . . . . . . . . . . . toterest and 01stdende en lovestment Securteles 339 454 * (95) (!!) v(fg i ,fQ U.8. Treasu ry and Fede rs! Agene tee. . .... . . . . . . . ... .. . . . 140 tte .y Beste and Montetpa1.................................... Il 19 { 39 27 , jy ' ~ " . 0ther (Principe117 la oversese of fices).... .. .......... 32 N/N & dn'^ Intereet se Trading Account Aasete........................... 393 157 36 to u s p Tes e t rat e ru t ne u m, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sto.s;0 827 190 _st.fis s s.o*2 437 N/N  : , II I. ..Q * ' ENTEREST EEPENSE -. y c Interest se Depestre........................................ 6 4.454 $4.318 9 138 i late res t se ot he r te rreved Noney. .. . . . . . . . . . . . . . . . . . . .. . . .. ... 3 y 1.005 1.130 475 31 P f.,g.. laterest ce teng-Tere Totai reter.st Es,s. Debt.e.d Subordtaated Capital Notes.... an ................................ 247 24 O . r = n g 'iQ NET INTE283T R2TENUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$.3.127 . . . . . . . . $2.495 $ 232 a $ M *' -' 3 Ug im s toss EIrissa Q - Previelse for Poselble Credi t Leeses. . . . .... . .. ... . .. ... .. ... f 3.077 $ 886 $ 2.691 54 .a # - ' g/M W1 {.. Ntf INTt3EST tafENUE AFTER Fuott31(gr F04 ba h POSSISLN C180!T I48888. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. .(750) ..... $2,009 $(2.759) N/N Y8 3%& FESS. CJ881881058 AND OTWER 8871W05  ?@@ h. , p( ~ ,, 4 Fees Trading and Camei s e 1eaJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$. 1.632 Account..................... Fore i ge Enchang e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$8.377 153 53 8 255 100 19 k) ar -g g"y N/M 4 - ......................... 218 217 tevestaaet Securities Transactions. 8 g/M ,L 4o . T " Ot he r te ve nus . . . . . . . . . . . . . . . . . . .......................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 LLL 82 29 33 Jr'W [. Total Fees. Commissions and Other tevenue.............. TTT77 M 243 220 98 Q ,1 s m.c /~ 0158 OPERAftsp EI78388 Q 31 g[%& L lJ[N Y 8aleries............................................ $ l.559 %f- - S t a f f Be ne f i t e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ Total Staff . . . . . . . . . . . . . . 323 $1.249 233 8 Sto 90 2$ '3d D @j tapanee..................... Not Freesses Espense.......................... .............. $ !.s8T si.6a1 s 600 39 M 3, 14mipment 1spense............... .............. . 330 279 54 27 it kjg .F 9 '! Other Espeese................................................ 360 270 82 29  % > #rh ./" ........................ I 314 1 263 Total Other Operet t as aspeau. .. ... ... .. .... ... . . ..... .... $ 1,see R,078 23 it0 T" YTi Incese (Leu ) s f o re Tue s . . . . . . . . . . . . s(2,059) 8 871 25 [% N laesesTasu................................................ l'9h ( ...................... 262 364 8(2.930) 0 04) N/N (1s) ' i p, stT recoms ( L0s 8 ) . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . $(2.328) . . . . . . . . $ 503 4(2.826) s/u I erf tumus (toss) fra ssAas(A) g, {, M' n,:@g., ce Ceu.oe end Comeu Equtvalent sharu ....................... sgar s(17.12) $ 3.47 " $4 $(20.59) N/w ey* g. , (a,) y Ce set laceae (toes) avst!sble for coseon stockholders after dedseting preferre4 stock dividende of $43 g' # r %M aillies and $39 a1111oa la 1987 and 1984. respectively, Common eteck equivalents are act included to the lose Per ehere calculottee because they would be antidtlutive. ]Q. s.M . j B/N Net Measletful. 4[ D- .' i ..- ,g t,W .- t %A t , 4 -.* ' 4,y . JNp &ff A 29 m . 94b  ! p l s qa .e kE. g-d( 1 m' &U. i.*4 % , T.Y p E W4 concettomres *TAtacut or Oestattous- goaartaLT ~ (. s  % CITitBtf and Subsidiaries ., M' y (la Millione recept Per Shere amounts) 1987 1964 v %econd 4 k.Fqh INTER 88T RETE N E First Fourth Thted Second] interest and Fees on taans and Lasse Flasocing............. d i*h /[7,M

• 1st e re s t en De pos i t e ut t h Sa nke . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4.330 289 84.156 317 $3.94 7 $ 3.64 3 $3.847 7 !steress en Federal Funds Sold and Securities 273 252 262 / 9d Z Purchased Unde r tes ale ag r esse nt e . . . . . . . . . . . . . . . . . . . . . . . . . 195 164 / Q taterset and Dividende se lavesteent Securittee 112 126 134 e M. . i U.S. Treasu ry and Fede ra t 4geac tes..... .. . .. . ... ..... State and Muntelpa1.................................. 64 72 60 54 57 s C, MNt Other (Prinespally te oversese of fices).............. 30 29 23 15 12 Qd' 1sterest ee trading 4ccount 4asete......................... 193 200 190 183 182 1 Totat laterest tevenue............................... 4tt 409 103 139 172 $g% TYTIT $h M7 II'EI _.$4.414 K664  ? ternaser straum # bd 1sterest se Depos1te....................................... fG hp Inte rest se Ot he r te rrowed Money. . . .. .. . ... . . . . . . ... .. . . ... $ 2.260 1.031 $2.194 972 $1.942 $1,931 $2.034

• Interest en tang-ters Debt and Subordinated Capitat notes.. 676 422 6 38 674 604 totet interut tapaa ............................... TT"T7T TD7Y TimT 528 514 510 g NT tattasst asysuus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TTRT M e ' k O f.552 $1.17$ e' , ?i

• Ims lass zIPERM St.642 lbsfl $1.444 p t [

.Vy Previates for Pose 141e Credit Loeses....................... $ 1.403 _$ 474 0 504 4 431 $ eSF e set tuTzasst aavuuss arrsa teortsIce paa Q M,. m, Posstas.a casett tassss.................................... Q $(f .8S t) $ 1201, $t.154 $1.140 -I9 PERS, cust18dIOut am ofEsa 887 DER jyq?, c ;;[ #ses sad -/ trading 4ccountCommissioner....................................... .................. $ 849 8 743 $ 838 8 744 $ Tis %Id Mb Fore 16a Eschange........................................... 14 135 64 43 18 4N Y, tavestaaet Securities Trans 129 89 WN O b er Ra venue . . . ................................ . . . . . . . . . . . act1oos ........ . . . . . . 244 82 .60. . . . . .51. . . . . . . . . . . . 333 3sg "' -/. #h'A Totas fees. Comatestone and other tevenue............ f l 120 TN 119 49 133 43 ff? 53 106 - 'b . 4 TT f15 5 em:n orsmartso arransa TTUT5 M $s$-- L -.]  % Salar1ee................................................... $ 798 8 768 f @*- i [f . , ? 49Q  ; .k Staff Benefits............................................. Totat #et Prealsas Staff tapense......... ........................ $ 95T N 161 162 $ 764 134 $ 900 $ 724 s s>7 133 $ 649 - tt6 T@AL. if e ', I Egulpeset tapense.............. Espense............. ........................ 164 164 8 "Tii kA " I l>9 other ............................ Espense................. .............. 147 373 lie 184 159 164 146 'D , - ' - 643 tel Tot al Ot he r Ope ra t ing Empease. . . . . . . . . . . . . . . . . .. . . . . 451 719 604 F; M TWT TFUT $6.7s4 m 517 +4 7j g' p[Q.- Income ( Los ) Be f o re fa ae s . . . . . . . . . . . . . . . . . . .4(2.504) . . . . . . .$. 447 ...... 8 403 $ 426 j m.+ - tacoesfames............................................... 79 J 97 179 8 409  ! ?. Y 374 MT tacom ( toss ) . . . . . . . . . . .. . . . .. . . . . . . . . .. . . ..gg,}g) . . . . . 1,,164, ...... Q.,yL uur toerner (toss) ran smaas (A) L,jgg g L,,3 b.1f #3 # r, on Common and conson agu t va tent sharu . . . . . . . . . . . . . . . . . . . . . $(18.87) 1 72 8203 $ .64 ,$~ , {d ,x 8 I.60 E .4 p . 6" #^ y ,hk.C (4) On met incese (lees) available for common stockholders af ter dedocting preferred stock di id - LM go .(;' la the second guarter of 1987. $19 ell 18ea in the first quarter of 1987. v ende 419 of $24 ottitonell!!oe in the fourth b quarter I _J. c 1984. $47 o!!1 ton in the third quarter of 1986, and SL9 eLitten in the second quarter of 1986 r M ,of pph i egetestante are set sectuded to the tese per share cattutetten beesuse they would be aattetivetve. Common stock j n) Wn {k l 4 - ! 73 1 ) j ' -h M4 p L Q, E. 4 l / $ $p 3 ph l , \ 1 .\ l \ ' );,.;. m  ; d* ^ 4 i l 2.^ 1 OBEBOLIR&TW 84Lesm sm ET _ ggTtcoer med Subsidiertes (te Ntittene)' June M iu? Mar. 31 Dec. 14 it Sept . 30 8 asas s June 30 -_ l Ceek med th.e f ree 6e ske . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9. 4.354 . . . . . . . 5 S.S07 8 S.148 8 4.215 8 6,194 Depee l t e et tot e res t wit h 5eeks...... . . . . . . . . . . . . . . ... .. . ... .. LS.2l3 L 3,704 leenstemet seceristes 13,692 13.449 12. 39 9.8. Tre asury' sad Feders t 4geac tes. . . . . . . . . . . . . . . . . . . . . . . 3.S92 3.383 3.228 3.012 St ate and mat e 1pe t. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. u . . .. 2.545 Other (Principally to seereese ef fices).. ... .... .. .... . . 1. 7 M l.640 1.933 MO 779 , 7.797 7.843 7.697 7.314 ) tred t ag Aecomet as set e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,233 6.369 6.343 8,896 8.518 7.386 i Federst Fuede Se&d and Seeurittee Purchased Geder i Somete Lienee end4slasse reesest e . . . .Het Florestag. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.813 ....... S.627 S,6es f 5.720 8.120 Commera t e!. . . . . . . . . . . ) Ceesuser................................................ $ 17.604 71.121 8 $4.000 68.494 $ 19.439 $ 57.375 4 $7.647 i Lasse Fieses t ag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . o . . . . . . . . . . 64.243 63.399 60.002 ............. , 1 405 3 190 3 112 1 941 taene ese 14eee Pleasetsg. Not of Usearned Discovet...... 1 649 Alteusees for Poes t4Le Credit Loosee..................... 4 SM) l 80s l Total Laane and 14ase Fleaccing. Bot..... ............... 1 696) 1 Me) 1 476 e/ ' - Coo temers ' 4eeept ance Lia6 t it tF . . ... . .... . . . . . .. . . . . . . . . . . . . . . 4.671 6,084 . It . . Frent ees and tee t poest . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,769 5.697 eA h toterest and Fees 8ecetesbie.................. Oth.,4es.te................................................. 3.304 2.816 3.244 2.743 3.877 2.647 3.058 S.975 2.946 2.812 2.644 w ............... 10.442 .,, 10Jp. v.74e s.S37 A weis........................................................ EHau. MJ11 (1st i Y*& . ,) - % l.ta82Liftas Estati Eneau. Ettom ' JA ' mes-teterest-tearles Depeette to Deeestis 0f flese............. $ 82.374 $ II.954 [ tenerwet-teartog Depee tte in Domestic 0f f tees................. 43.135 8 12.644 -4 9.31t $ 11.652 Ree-teterest-tearles Depeette is oversese Of fices............. 40.d44 48.796 40.440 39,970 'ft 4.283 S.349 teternet.4eartog Depeatse te overoaae 0f fleso................. .1.793 3.610 3.450 .h Total Depee t t e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 $117.,410 S6 SM S4 4M _ 17.647 54, f 16 , s Purthesed Feede and other terreetage.............. 202 6414.,045 III . 6448.004 4409.404 f' heceptances 0st e tendtes . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . secreed Te ams med ot her tapessee .. . .. .. . ....... ... .. .. . . . ... . . 29.434 4.714 32.372 6.874 33.731 4.912 24.646 26.322

u. 9 ,

5.815 6.835 3.723 3.793 3.969 3.894 @ ot her Lia6 t t i t tee. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 8.29 Lest-te re De bt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21.248 .... 7 M7 6.340 9.503 3.737 8.373 '>'gt 'W  !. ' d 28.397 20,693 e l (( Seboed s se t ed Capit al pos ee . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . Bedeement e Pre f erred 5tec k. . . . . . . .. . . . . . . . . ... .. . ... ... ... .. .. .. . .... 2.944 2.644 2.644 20.242 1.147 14.642 2.147 40 40 40 40 40 .~ E9CMeissas' aptTT 4ep preferred steet (Witheet for Valve .. p Ceems.e 5t ect( A) . . . . . . . . . . ... .. ... .. ... .. ... .. ... ..). ... .. ... .. ... . . $. .1.590 . .ISI. . . . .8 .1.590 . .604. . . . . $. .1.36 5 8 1.2tS 8 1.215 j 14emed shareas 151.314.303: 130.996.254; ISO.577.4M4 602 601 S99 '2 4 150.159.1901 and 149 y , . SerMus . . . . . . . . . . . . . . . ,78 6,1 $ 1. roepee t t roly

• tot at eed ta rat ag e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l.096 f.432 8.421 1.406 8 M7

 !? ........................ 3.350 n 4? Ceemse 8t ect is treasury, at Coe t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.244 6.059 S.4St S.217 >a sharees 12.924,998; 12,838,7024 12.962.9441 !!.641.417s and (M9) E (M73 (Mt3 (MI) *4 ,. 82.919.502 respectivet? y fot s! St echhe lde rs ' 81si t y . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . $ 4.794 0 9.487 $ 9.060 0 8,692 2 L 8Mr seens......................................................... g&gt umna una31 nmap. umat (2 & (4) Ef feett.,e April ll 1987 the ' ether p et.4e shove to sLOO. per value of Commee Stock ese redeced to 31.00 per free $4,00 per. The par yelve for all N .. . , a 2 "-', A - 9 w , W'3 ,. p.gy  : (,.4 1' .e*  % ~- s - W~c.y 31 Mk ewe - e = i y

o. ;gg%q-S a

nz 6$3 3im -- - , t ( , n$ N , . .. .- a ~,,,. b' r' ' i M. ass mm,.h.4E f m{ ~ g 2 ~ ~ - *;. . ~~ .. . s - e  %. . CONSOLZnsftp StafEIWT OF Cmass:ss la stoCEp0tssaa' Squ?!TT - quAaT14LT CITIODAP and substelartee M == (to mattiene) 1947 . .Q Second ri r.T _ Fourth 1944 Third 4 I~". N STOCK (1) Second I .,M Selease et beginet ag et Parted. . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . $ l.$90 f 1. 345 Sharee r 6.409.500; 6.407,250 and 4.401.850 respectively 8 1.215 $ l.215 8 8.815 ,4 ) .9 te a uence o f S t ee k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . shune 2.250 ew 4.500. respectina 225 150 yy jg ta tance at Ead of Pert en. . . . . . . . . . . . . . . . . . r g, y shareas 6.409.5003 6.402,650s and 6.408.850 ................... respectively M M LMu L.L.hl L.LaLL i i .s D yy l talance et leginet ag of heted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M.; i Shareas $50.994.254; 450.577.830; 150.159.890; 449.744.158 8 604 $ 602 $ 608 9 $99 $ $77 - l and 844.403 $44 respeetteely e I sharee somence o f S t ock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -. . . . . . r 5.000.000 * =

• 20

./. #,QFZ N teemance of Stock under Saetngs facentive. Stock OP ttee. stern Perena. Pt.as ad Cas=retse of d Cems t i t te set u . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- . . . 2 e F rees 320,247; 418.4263 elf.640; 371.019 and 2 2 r y 's 3.9.501. respectively -1_ '/ Reduct lee of Per Vales... .... . . .. . .. . ... . .. .. i 411) - - - Selance 3heroe s at ta.1 e t Pe r iod . . . . . . . . . . . . . . . . . . . . . ........, ............... - Q G G G 151.316.103g 150.996.2568 130.577.830; 150.159.190 -i  %#To and 149.784.151, respectively SEtrtA8 ,.y- ' 4 1 @f s* aslence e t Beg inn i ng o f Pe r l ed . . . . . . . . . . . . . . . . . . . . . . . . . . . .$. t.432 .. y*M - $ I.428 8 8.406 8 1.397 m i 8 1.120 T *k fg nbr Pre f e r red S t oc k t a sma nce Cos t . . . . . . . . . . . . . . . . . -. . . . . . .(1) laseance of Caseee st u k. . . . . . . . . . . . . . . . . . . . . . . . .=. . . . . . = Isoesees of Stock mader Seeinse lacestive. Stock opstee, stuk Pachue and tausta= teceosta Caspe=tta .. (2) = = 265 4 h, 4,, he% Plase ed Cseverstee of Caseertible Notes (2).......... leeresse Due to the Reducties of Par ra taa Il 433 il 16 86 it g _e i 1 hettleted Stock Flee Crsate - Net of A - '.g' Salan ce a t tad o f Po r t e4. . . . . . . . ................. . . . . . . . . . . . .se r t i s a t t e.t .} . ... ) d'. 1 - 9 , 17 gearese RAastsCS M M

• M e Selanes a t Beg i na t es o f Pe r t ed . . . . . . . . . . . . . . . . . . . . . . . . . . . .8. 6,246 .. 'Q t '

he i aw eae n ,.eeee ,etd.as mee0-s > . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i n.s m.8 4,039 m 8 5.811 we 8 S.717 . 247 $ $.492 . m 4 14- fm$~ &( Cepen. . . . . . . . . . .......... . na ra T Preterred............................................. $h ........................... 9 (93) (24) $ (83) $ (85) 8 (85) $ -(A) d h m Fors ten Curreecy Tranelectee........... asle=. e : zad o f Pe r s ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (19) 27 _ (49) ,_6_ (17) (ll) (19) 9 ^Q# . ' Gy 4~ 0 ................ L u.ut J idth 1_.L.2n Luh J1.h1 N.W 0 01880 8 stata ts TtSA88tf. af Cost as iance a t Begi na t as o f Pu t ed. . . . . . . .... . . . . . . . . . . . . . . . . . . . . sharea s da , D t@ 12,438.702382.962.986;12.648.4873 82.915.502; end 12,8H.260. roepeetteely $ (MS) 8 (347) f (341) 9 (MI) 8 (!78)  % Other treaevry Stock fransace tone. et Cest............. @ shares: 64.294;(124,284);321.569.(274.041) (4) 2 (4) - (3) ' .% ~% sed 59.192. toepeetteely $F fl - hy-f.-'sj Se tases theres e a t tad o f Pe r ted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.924.994; 12.838.7023 12.962.944; 12.64 4.48 78 and 12.913.M2. respectiesly @ L (141) j_Mll) L,QiL) J M1L) eQe G Trtnk fforvene eene ggggg #4. jd

p. A Es t aees Chan at tes t an t ar o f Pe r t ed . . . . . . . . . . . . . . . . . . $. 9.487 . . . . . . .$.9,060

. $ 8.692 ,, t $ S.547 8 8,026 g.n ui e g es d uto r i,ng of Pe r t ed , met . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e,1od..................................... ) 42 %4 14 K~' MN _ . 9.. 7, rm u.y . . Si,l s. k[ seJ g (A) Beginetag to the sessed quarter of 1944 Jeeeary. and April, tastead of Jvas. September. Deceeber. end starch,toneen eteldemns are considered for declaraties desiered te 1986. As a reevit. only three dieldends were g,yf$  ? to July. Cetsb Mj,, "x - . (1) Neober of shares to the first e[ Preferred Stech. Settee 14 through $$. effective April 22.196f. quarter of 1967 vere adjusted for a S.for-l spilt * [ofb.i Money Market Cu > < ' (1) leetetad ItH. to reflest treakeet of teeteteted 8tect Plan greets. -Q " The Plan becaes ef fective to the third quarter of gM 4 y 4 w ,: h.4 , z. s- i ( .q -- - ~--- ~ ) l .e. + I l , h i \ GIB30 LID &fsD FfafDIENT of CEeacts 12 FillANCIAt. P05 tit 08  ! { CITIC04P sed Subetstaries V Sta Months taded its milliens) 1987 June 30 - 4986 PtW G Peoviass J, 0,. ret teen *F -# Wettaceae(Lees).................................................................... 16ee-Cseh Cherges $(2.321) $ 505 a

1. Deprec ia t t ee and Asert i sa t t en of Freelsea sed Equipeset .. . . . . . . ..... .. . . . . .. .. . .. 273 198 p Provi s t os f o r Pes e t b le C r ed i t Lee s t e . . . . . . . . . . . . . . . . . . . . . . . . . . 1. .117 tecreuerunde ta P fev i ded f r o 0pe re t t ens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wa7

. . . . . . . . . .884 sl. se t . Depeetts........ ....... ........................................................ 2.513 4.449 l 1 Land-TaruDebt................................................................... Sobe rdiested Capi ta l 16et es . . . ... .. . . .. . 544 2.346 3-? CeeseeStock..................................................................... Preferred 8teck.................................................................. 300 248 283 l I f Deeresse to ......................................... 221 - Cash and Due Free Banke and Depeette at laterest with p levoeteest Securttl lasLo...................... 1.106 = g totaa . .. .. . . .. . . . . . . . . .es and Tr ad ing Accoun t As se t e . . . . . . . . . . . e e . . . . . . . . . . . . . . . . . . . .I 444 - ' l $ rumb8 psde - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIfD M [ i N , Cas tsaresse P. teD t vi d e ade 0ec t a t ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $. .fil . . . . . . . $. .119 ..................... ' g Cast and Due Free Seeks and **,. .its at Inte res t with 8anks . . . . .. .. . . . . . . . . . . . . .. . A Investeent Seevrities sa t 424 Federst Pende Seid end $eturttles /urchased Under heset. red t.g Acceent As e s t e . *. . . . . . . . .952 . .* Lease end la ss e etas-s tag . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . e Ag resse nt e . . . . . . . . . . . . .l.123 . 1.743 Proel s e e a nd 2q e t ,ee n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.943 4.694

• l

i. Deeresse te ....................... 400 600 Purchased Pende and Other Serrowle

)0: Other,5et.............................ga............................................ 4.293 294 .i fotAL................................................................................ 983 49 - A v'i ..............................................M M - i. $ Ca84Lafl0E of Arf 133llg (14tt) PER 3s4a3 w ^ m'I De Cameos and Ceemon Eqstralent Sharea (1) h ,Mit" g I 1 e'~ E+ $1s Itoothe Ended (le Mill ene terept e r Shere Aeovate) June 30 W 198F t986 ' Ret ineses (toes) Avat tabte for Common Stockbelders -

e. Dis e r t ber ed por t ion ( di vise n4s )... . .. . . . . . . . ..... . .

b. Redistributed 3 IF8e 3 40

,e veTAL..............porties............................................................ ................... (1 j542) . ........................................................ .......... .......... g m) A, a 344 w sharee l heighted e,erage censon shares outetending

• M4thet c Weighted everage common shares ort standin value............... 834.9 128 2 j

i hases s t ec h eg et rale nt s ( 2 ) . . . . . . .. . . . . . g = 9 ,vt value . . . . . . . . .............. . . . . . . . . . . . . . . . 3.2 ..... 3.0 ll 2 ... .. .......................... = 2.1  ; W, e. Shares applicable t o di s t ri buted port t en. . .. . . . . . . . . . . . . . . . . . . . . . . .. . . ........... ......... i took value chares teeuable vader stock option and stock purchase M M t pleas................ = l.4  ; end.tuoes Shared applie sble t ando und t e t enoiesi.nt t but ed port n.re ten. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E .......E I aus) te, e.ees. conse.

g. a +s M a t r i twt e e po r t t en . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i tc b+d Undle t tibut ed $ l.29 .

AL..............portten........................................................... 0 0.60 10 ............... _(l8.4I) 2.87 A m[ .................................................... .............. ..........,..g g 9.4 7

• I A A Ju1Fdleidend 31.198F. et 5 67) was declared on Jufy~24, 1957, payable en August 10, 1981 to holders of record as of

-( and perseet of quarterly dividends.Esfer to page 2 for further detette regarding the change in the tislag of the declarettes I Q rg (l) Fully diluted not incees (lead) per shore, soeuslag seneerstee of ett estatesitag convertible and not(* , the easteue dilutive effect of comese stut etstvateets has not been pieeented becaves the ef fecta are ( estthe of esterlat notes ande and for 1987, would be entidttutive. le 1986, the number of shares toevette og conversten a teterest esponse was 80.1 elliten.the additional coemee eteck egetealeets .4 ellitea, were and the related af ter-tas

h. (2) Ceseen clock equivalents represent 1 I

y! the diluttes effect setog the t reasury eteckof earket value shares toevabte mader stock option anJ eteck pvechase plans computedshare method. Q- Celtetettee beteese they wohld be entidttstive. Ceemos etech equivalents are not faciudad to the 1987 lose per ehere 4 33 j h , s  ; U -(_ ',f' %gsg ' ' ' 0 ' ' ' Ac 'a t 7 ~.. ' ' m l, as-c . WOlt E 7 9,,l _ . . . 'j . ' ' 4 ,g ,, :r' .. p. ='+A P :n (* . >r k' . e. 20* .. , A ,

• J

/; ae t y' i M+n Q ?' rP <0 0uom .o n m CimAlft, N.4. ead subsidiaries N %.Th$ , n.g

• 1987 h ".yt.%6ey;

} (In stillions) . June lo le86 J,,J Py,g 4 , hJ7I tm . 31 sept. 10 Juae 36 N ASStTS . , *F?c g d t.aa h and the f rom Denks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.690 8 4.761 8 4.840 ,wd-j Q .t Depeette at Is.t e r e s t wi t h Banks . . . . . . . . . . . . . . . . . . . . . . 8 3.417 8 5. 34 8 yf 13.190 p p[$w., e [, lavesteent Setarities 14.540 15.929 13.871 12.299 s. U.S. Tre sea ry a ad Fede rs t Agencies. . . . . . ... ... ... . t . I 8 ste and sevnicipal... .. ........ ... .......... 2.196 1,736 2.226 1.637 4.813 8.951 1.820 1.608 L 4%g$. i, ';2,, Othat (Principatir la oversene ef f tces)............. 6.463 965 775 . W' ' , M.. %y= ' a% Tr adi ng Ac covat As se t e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.894 6,648 6.374 5.763 *d 3 rd'5'. ) . Federal Fonds told and Seevelties Purchased Under 4.262 5,109 4.643 4.635 3.577 ( jyfy,'rQ . . ,r .c ' tesa l e 4s r seme n t e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.440 6.273 7.440 J. Y'd*f.fy ,,v % Leane and Le a se Fi nancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 4 92.635 6.154 10.3')4 8 91.429 8 90.633 8 81.14S  ; .. %[Ce@ '% 'h Least A110weace f or Possible credit Losses...... ........ (3.719) (955) (842) $ 82.6T, . 17esa rmed Di ocevnt ei t o4e s . . . . . . . . . . . . . . . . . . . . . . . . (2 293) (821) (777) -

• i v *,

(2,360_) 2 756) (2tS9) (2 113) 3 Total Loans and Lasse P tnanclag. Iset. . ... .. .. .. . .. . 446l603 $ 44,116 , 'M ;k,k

Centeners ' Acceptance L.1akt lit y. . . . . . . . . . .. . . . . . . . . . . . . .. . 4'42.165 4 79.740 t j-4.903 6.782 S.982 4.731 Preek s e s oed Eq ui pmen t . Ne t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 starve t end fees Reco t e s b1a . . . . .. . . . . . . . . . . . . .. . . . . . . . 3.125 2.044 2.107 J.00$ 2.052 2.027 4.928 1.979 a Cb.(% 8' xy. d 2.068 OtbstAssete............................................ 5.739 S.915 4.680 1.930 S.166 B.878 S.768 ,* t.ss)pft tot 4L.................................................... niyn n41a,n 4 n,1m14 inun e nS.930 74( .,iGi 4 LIA8!I.2TtES  ;":.m @us y l yy,).s alee-laterest-Bearing Depeette is comestie Of fices... .... $ 10,612 laterest-Beartag Deposite is Dooestic of fices............ Wee-taterest-Searing Deposite is Overseas offkee........ 28,937 $ 9.S26 28.685 8 10.763 29.193 $ 7.944 27.379 8 10,424 27,442 fQae .f-; t'Q,i ' s .. ~ 1sterest-Bearing Depos tte le Oversese of flees............ 6.212 5.424 3.749 3,625 ' *..' $7 516 $7 086 3.743 Tot a l De pos t t e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,203 _ $7.523 . 3 3. D0 4:01.,277 Ti5o',7IT ' Purchased Pveds and Ottier Sorrowin 4 89.90T s 96.673 s 9*.759 #^ lsg *6 , , * ; g 7 q *, Accept .- ances Out s tand ing . . . . . . . . . . .g s . . . . . . . . . . . . . . . . . . . . . Acerned Tasee and other tapenses. . .......... ..

17. 31 $

4,946 18.583 6.472 20.679 4.826 13.376 15.846 ~ ,,M j 4.849 ' p ,f 7.041 2.288 2.124 2.812 ot he r tt aht t t t i s e . . . . . . . . . . . . . . . . . . . . . . . . ........... . . . . . . . . . . . . . . . S.325 . 2.784 2.680 /D 3 toes-race Debt.... ..................................... 4.946 4.0$$ @hs%. Q, f 4. / + . k. g 3,506 3.336 3.246 5.339 2.962 S,284 2.s46 h , ar10CIBOLitt'$ BQtI2TT gy yJ Capi ts 1 8 t oc k ( 8 20. 00 pa r ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ N h.! l,'d , . p M y* _.  %  ?$1 4 731 8 "'fg n',.. Outstandica stares: 37 FSt 8 711 8 758 $vrples.. .. . . . ... . . . .. . 314.S $ 3 in eac h pe riod P^7 .W 6 ....................... 3.094 ic.itW y%'lt['h,_g. g,, met a i ned E.a rn i ng s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... Tn a t 4 t ec ue14. <

• e sq.s t r . . . . . . . . . . . . . . . . . . . . . . . 8. .6.s __ 56 3.011 3.093 9.417 2.613 5 243 1.512 5.)t2 8.510

__ 1.133 .f* s 9.26I 5 8.o09  : 7.39s psotas.................................................... Sist.sn 8 7.sil N h, g;:a ,t# 8:44.4 n 8:64. sos $nsass nn,9,,n s ,',;

g. +

~^ N.*S ' ..k - $' ~i 0  % h ' i ,e4 i yf.f, .. 7%w * -y , w yI(*# h g y .o sq W *[r..,k b. u .:. " ~

w. .,

a , RtW ,m3 p.w W;.*4 Q. .p w"&g V. .m~,+ A. "' l W . f;) 2.", . *. . ., .:, w<WW.rQ1

t. ,yJ. c M n~w;

.g nm ' g. . ...x ab.: x L j g .,& c --sn jg. s. Q. M;46d  %!y. l, . 7 Y .#, P ,,,6 % g"Q s ' . . , ~ ~. ?n .,U.A.k; *[af ) Q,Q p'. . Ar? a T: S . , .. ,'.. W t .ht;. fNf4*h '. 4 - $'sW@s.W.a.?!$sP6 t  ;.' Y. r$7,)A 5 34 ,,, 7. ; V - g [.s . l' a. M.? . k@Q:7NM..,D NO ' s em . w SNERK 4 eq W F.WgMS@w A y$MTMis

4. a ,.n_wum_n.om,~~_-

_ _ _ _ - _ - _ - - - - - - - - - - - - - - ~ ~ - - A. . , - . l 1 i I, E j i I 2 .F. , I l l svuomu - _ -- ens w .... . um (seemue stones &oes posse) O) . 4

• Serend %erter 19tP First Ouerter 1987 i

11. sis i t t ees) a,nese Aurage a.mg.

x we i ,se are ese t teemu em wtae 1stmet t4 e , 4  % ,)* j t L.#ft3127 ees eed LeaseM. v. u ,,* ca oron t Flammeleg (Bet of D= earned 916eeeet) (t) -( ' # .s 1 to aseestle Of fices # cameenten and fedest etet... .... .. .. . 1 ', Inertgage and asen get at e...... ..... . t 31.166 8 427 11.11 4 tl.0M . . .n. 9.094 S 45 12. 11 . 1, treu . riuuto suitieum.. . .. . . . . ...n m 196 n 4.., is.or 8.20.1 4 7J 4.% g" b J e le Dee resse of fle ee . . . . . . . . . . . . . . . . . ... .. .... . . 24 : I Tesel Ceemercle! Leses......... . n. .... if $19 8 184 13.71 19 e 9.46 .; - e .,p[g - ( toneamer 1.see .... DTIE TfiTI 13.64 5 4e,757. s. F .I,df I s i .4J 8 8.34 -v* * .sJ . a< la esees t i e 0f f sees . . . . . . . . . . . . . . . . . . . . . . . .8. .$4.kl .. $1.694 12.50 $ $4.841 6 2.e4 ,,'/ * + . .a. ,m is Doume On noe. . . . . . . . . . . . . . .. . . . . . . . . . . . . . o, 91. F 44 4 **i ~ sua c eemer 6.eu .. . . . . . .... . . . . .. . . . . . .. n. nm n, > nm m L2. 64 i.a f. ar Tote n loses. . .. .. . . . . . . .. . . . ...n... .. TITCH3 TCTTV i .. . a , s. i irmi n.u ~ , ., '#  ; e Fe'g* Lemee Pt eens t ag . . . . . . . . . .. . . . . . . .n .. mu en.. 1 774 s3.07 TT7fi35 WTH 12.73 4 ee .au.see neemae.. Puede Sold eed teeele agresseste . . . . ... .. . . .... . . . . m v,M40 m 26.79 o.o 1 m , .217. .s e l ?t 22.10 u.9' " %i . ^  % -g . J (htenpelly se deaeet te of fices).. .. ..... _ A, M f 999 84.91 0 6.194 4 464 10.99 leseeeemme Seeerttlee <.g!#'" **^ _ y te heestle Offsees ' X 7 j 9.8. Treenery and Pederet ageeste .. Stees and eb.etes 0 3.224 8 46 8.11 ' g 3 'e t i q 0then........... pet......n.......n.......... .........................n... .... .. .. I,320 34 9.42 4 1,t to 1.270 6 6e. 8.54 * .h x4 ] to eservese Offlees (Prtecipetty local seeerneses teswee).......

1. 364 4 847

 !! 6.09 1.277 il 30 4.99 4.11 ,,gg r .h 187 A 5 i f tra t e use1.ausen .usce . . . . . . . . . . . . . . . TW . . . . . . . . ......n.e.o....... . . . . .T90T ..... 10.89 9.53 7 til TTDIT Q let 80.34 9.a 4.y[g.t'

v. h' W 9.5. '% t P' unetreasury

.w ,s.aa, med rederal egenetee........... . . 6 ( 309) 8 (4) * ** M . 7.7% $ Su 9 11 e= =o r ar t u i ,e u ,ase . . mu ........................... , n2 a s.n m P.07 { . $j . nr u. 23.a ie u.n ~ e ' 4[ g Tetd . . . . u . . . . . . .. .. .. . .. .us ....o . . .f .n. .uo . . . .. ... .. . . . .T*T'775 M 7T rm m 20. o s v. - Wh R~M " i laterese-6earles Depeette (Prisetpatty to eserene eH tue)......... . . . . . . . . . . . . . . . . . . 23,33 f"T'TTI T*'TTT ts.ti h [u + , Q 4e,9 ..6.qt] $d,3 9 ff9 la ill feu resa.swerut emig unu......tunne-serwee amie.......u.......... mes . IT'N . 14 474 3 317 4.43 n.u  ::.u ( 9 -' . A setna 4serts. . . . . . . . . . . . . . . . . . . . . ..... .. .. .. .. .. .. ..... .. .. . tr 111g,iggw n us ]T2H , . W: P

T' Vi$ .-

]HQH, - Na S  ;, tel5Mff S:Pg838 g.Q,.%. Q* ...g 3 &pg,, ' . .g me,eene t w4> ~j.h . G%p ,r... c# p' D( -g la Dessette Of f teee 8eseece Depee tt e W.u n u n n . n. n.n . o $ 19,0 76 t'p&geQ m a ~, a- 3 anges sable 0.m n.e .cors titeates of Depeelt .... ........ e,emem....................... 0 261 el 5.17 0 H.Su $ 24) 3. 6 g[,gh y $j.' A~.w .n i .o IIN,l.723 w, 9.14 4 );.39'sg,u-1 Tesel Demeetic tesoreas-te rse )II I~III ..>9 .1. 7 T'ID50 .el 9.50, .. *h d f M j - '

• le eseresee of f teee . . .. . . . . . . . . .. .g Depee t t e . . . .

imo..................................... ............. TV 9 f.06

10. H 19 I5 T"'Il3 iJoe f.10 10.31 r

$w .; - >'O.

• e.a s u.,.7.to A Y s.
• o nai 9.o e r N".p 7,.w haie mennow g'? ' *2'.e M .- te neueste orfsue p b.

huneew rude au coer neereetge m.,de/:um 7p % g'g'Mg,4 q heerst rende pereund ud seuenta seid ower 4 aea c., 9 g commeruss reu r. . .reenne . v. asemhm....... s 9 us em e.u M4 gV u m.. g um hro tese-te re .souw re.or ..... . 9.si0 s,us ...w..................... m 6.st o n,t.t: 9.22 s in 93

6. a sen Mf gAc '.# ,.6@36 .y.,.

.me h. h me. coe iiste soies and in 9.ra 3,m no a.u s .Je ' : f / - . sworn uc ed ce,s s a t nose..... . tout se mente osf nu.. . .... ...n.... .n to set 6u s.e3 19 949 are . jys t ws. .2 . . . b"h to eve reese Of f s ene . . . . . . . . . . ..... TTI'TTT T sar r.u riT'TTI Tm e.69 y . '.l JQ,M  %* , $ ,

• Q Tote 1.....................................

Total leserees.amrtag Liens tattes.........n t et i h.il 6. t tot ITTU n.$) 12.64 .e 8 le,en ett t.n 21.11 . hvC.'.'.9.3 ID77 b6 i 11.H ggD$p +..g }. bIa [A E ".b[6h JI Deseed Depeelte le Demees te Of fices... ... . . ..... ... 4 0 . 16, 10.041

30. H g i be,,6 6 9.g3 , y '0. *Y' vn-v'\ . .,

ether noe.teterest.tearles Liabilities..... n.. !Tb ' 8*, ,'9*heh:p 10.140 fpV ((4 teu smknem es ' se t : 7. . . .. .. . . . . . . . . ... . . . 31.077

o. oso 22.H2

,,_ut,9

u. a

,7^ # Dial Lla8ILif188 4ED STOC 30 Lasts' $Qattfu.....gle,,,jg , ,,,Dab' g { ,Q ,S . ; rd}., , g9g6), T .-.)q9 ~ n.Q '" ff kf g , g..,.s,i set arrasser navssou as a nacertas or  ; avsansa isresast-aaasiss uuts............... tun s +9 @.M. ," e%fW . f] m tse .< inn.ta=>ie ew s.o:ienen u3enue se mu a ehe moni ne nu .f 40: n,nt 3.17 ys..g:[yh f 9~ ur na m Lem .a i.ue nueue., ou tume.. .n ee,e.no to os warut le ine. en o enn and emed wenm fi y @p4pm.cgo, 4 u,g (n somse g%iemeaw ee,ua 6 te 6.a eine.ene, m,enisoir. soie a ee iusede me #c4{rp*M@ #p %gN . .M eetu man o sumo nose, urso asu usene. som meene su . , u.a.e o.eoe ime ew s,ee n.. 2.ec.4 g/mg.3 pmgg kNM n ;:.,.ny M 35 f$$, khhh' %ww n-~~~ l l l l . CITLCo.7 en. lpa.dierte. g Penarth O. set er 19.. Thf ed th.orter ,0.. I __1eeend Ouerter 19.. .serage .*e t ag e .serege i 1 e . _W e l ene laterest .verege .e'erage .ve r ag e tet e Te l ese l a t e res t Rat e Vo lume I n t ecos t .at e 4 . 12.4,9 42.., . I,I ..f. . 0. 12.9, . .le I,.,, 9,0-M, .0,.,, 4, n. 9 2$.6 no, i .9. ,30, . 8 2.,4. .2 , 15

i. ,.,9. H p ,

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-s + u' , .s. .-y'k - & w: A. E h$ l ., + ., . . . . y- - t i 'E~, lf. is , y. . j'ETAIL OF CREDIT LOSS _ EXPERIENCE 4 Y ' Znd let ") 4th 3rd 2nd F Qte Qtt ${ Qtr } . (In Millions Of Dollars) 1987 Qtr Qtr ~ ,,... 1987 _1986 98 6, ,l_9,8 _1986 ' p AL14 WINCE FOR POSSIBLE CREDIT I4SSES t .* s AT BEGINNING OF FE1 ICD..................... $1,808 $1.698 _$1.568 $1,476 $1.366 L. 2 ' Deductions Gross Loan and lasse Lossea Consercial In Domestte In overseas offices........................ $ 24 $ 29 $ 39 33 $ .y. < g* ' ha  % d 0ffices........................ 107 100 104 $ 13 . .d  ; 7 ' Consumer 91  !!! $ge ~ ' In Domestic offices,...................... p - -[ In Overseas 0ffices,...................... $ 280 47 $ 285 $ 286 $ 259 $ 267 - j pN $ 465 44 36 31 29 N' - $ 414 $ 420 h F I4an sad Lease Recoveries ( l Commercial 0ffices................... In Domestic .... 4 5 $ $ 14 In Overseas 0ffices................... .... 23 12 19 5 $ 12 4 $ 12 8 '[. -% + .. , . g,f ' , In Domestic 0ffices........................ a In Overseas $ 58 3 50 $ 45 3 4 0ffices........................ 16 18 13 $ 45 10 8 49 9  :[ , _ -4 d - 1 M U O D $ 78 t-Net Loan and lasse losses In Domestic 0ffices.................... -4 4 q $3 3t.a $50/f[5 in overseas 0ffices.................... $ 242 115 $ 250 114 $ 275 $ 243 $ 219 k.# s N $ ' 364 _ 383' 8 108 100 $ 343 _ 123 $ 342  % k; ~ Additions 3, ,f? j . ;t Provision for Possible Credit Losses......... $3.403 $ 474 8 508 $ 431 8 457 $ 7t c. ) Other (Principally from allowance balances of fq,, PlC'

• acquired companies and translation of I""Pt overseas allowance balances)...............  ?.Li '.,

@.,* 4 'M e 4 - 5 4 .gb? $3,'407 N $ 513 T~ 43T $ 452 (5) MP  ?.9 . L t.$eg $4  ? y 'g AL14WANCE FOR POS$1BLE CREDIT 10$$ES i"' AT END OF PERI 0D........................... j#.y* c* f' r '. . Excan eg sgas f Fr iston e ga s e M M M M M f.[;.I  ;!f .. s . . o. ve. r. N. e. t. . L. o. a. n. . . . . . . . . . . . . ""j 1 MQ Q W gy '& -D Allovence for Credit lasses as a Percentage T. 4.f ; of Feriod-End 14ans and Leases............. M b 4 9,*, Jg ~ _l.191 1 ),0.1 _l.271 E , . ?: jt" b, M  !@ # b, .. .' T d.g Q a ., .~hr ,s *n 9

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(c' l-1( - , an g .R)Ql -l$Y.$sQ ~% 2?5RNW k VNWWWWP nn -; -. - - - -- j - ' * ^ " ^ # a . I k e 2 0 + w q _ tem mrY u m m u $ I h ..u . .+. S - 2- ,, lia Milltone). 1987 1986 Kw 1 June 30 Mar. Il 9 Carrytag Value Dec. Il Sept. M June T ' Q ,; y D.5, Treasury and Federal Agencies........ ....... tQ $ . 8 tate and Municipat............................... $ 3,392 $ 3.381 ' rt G $ 3.228 8 3.032 $ 2.545 ,, y ouar (Principally in overseas of fices)........... t.754 t,640 1.955 " b..3l 7 797 7 a61 7 697 970 7 3l6 779 6 369 J['b h.' . , h.t,. 4 Mrket value U.S. Tresou ry a nd Fede ra l Agenc ie s . . . . . . . . . . . . . . . . State and Municipat............................... $ 3.488 8 3.527 9 3.415 $ 3.266 M. '[. / g " 1.120 1.665 8 2.675 y Ag Other (Principally la ove rseaa of fices)........... 8.980 973 777 o- ' ^ we . ,' e 's Es'.3erf $1CDam3 -u-Natuetty Disertbur.ons at June 30, 1987 Y.d ..w .* FA', f .d' he he he he  ?. .= Within 1-5 3-10 Carrying value 1 Year Years Years over 10 Yeste 7 t ' Totat [1 " U.S. Treasury and federet _' E State and Agencies................ S 370 $ 643 $ 296 4 Municipal............................... to 126 364 $2.085 $ 3.392 '.M N1, O.4j{m Other (Principally in ove rseas of fices)... ........ _f.006 _2.891 M 1.254 t.274 1.758 7.797 Mi p p, toca1.............................................  %[i b * . ? h. M M M M gy,J4 , g .v 4 4,g tam rzanput .

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Cpg-h4p., (With final original natuettles of eure thaa one year) (L) Materity Dlatribut tone at June 10 1987 } n- A J

• gk, Og 73 g

'- (la Kittlene) m i i g.9 4.y + Parsat M:_y b to k.!qp *M . . N4 1987..................................................................... $ 1,471 'DT%* ' Y .7 Duela1988.................................................................... the in 1.307 7 .'f6 %c9 M. . M N to 1989..................................................................... 1990......................... 2,655 i2, # g,, z1 o W'd Min 1991.................................................................... 1,698 p 'a d .om. .e i. iit,7 i996....................... itu -- 2* ...................................... 1.479 g,gyy y ,3 ;.r . - i................... ...................................... 3.507 c12x2ando..e........................................................... 2.0n v M.%p6 .......................................... y , km !CY m ndsersee gy 4: 4 @U t *Y. Due la Due is Due is 1987..................................................................... 1988....................... 1989.................... ................................................ $ 886 1,129 D.- m .A gyN., Due wto1990.................................................................... le 1991..................................................................... 670 652  ? .~@%. hV - bw' .a the to 1992 - 1996........................ ..................................... 2tt pyre I %3 m ta 1997 - 2001.............................................................. l.314 g'Ys . wd,f ,y ,g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 Due i n 200 2 a nd o v e r . . . . . . . . . . . . . . . . . . .................................... . 55 h '? '. 7 W, tot $4 4r............................................................................ gu/9H y,, -' . f g  % (1) Maturity distribution 's based upon contractual estuettles or earlier dates at which debt is , %j ' ry 4 y reparable due to callatnotices the optfor of the holder or due to required sandatory etnking fund paymenta or issued.  ?,@ , . ). g.# , c t .y -4 .wv s h W:g'y%} M V. ' %y - ;m_:..:@ s 9ha  ;, m 4.'. ~$ {h .; 1 39 .hY w W m.y M s ~,h  ; p)g"y'8%K. L ,. ,;y PpQ, jg.y. 7,43, . 7Mr N pg.X . .s

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f ..gh a y', a y ,?;.Qp y .m u  %,@@px$dIgg %Q i@g@? qq~. g[c.g',[.j3 y. g cg,. gu ' $ ..@, h g ,,sg. g,a g%ygg]q gjg N ,a . 2 h . g, ' i .*,.4p S > ': g e ,, . . , .. a ,. n. . n,. n, . . . _ . _ e .,f;7t%1/>"ga, g ,. ;3 ' ; f) U ., . _. a j. 4s~ + t.?,w!, . m,,., u . - . p 3.- ,~ , - .N  ;. * "j A _n e .~ . .n m k.i W :wn,e%+ ad'W r q,. N M ,.j. ~ J e N. ( - M -4., of . e ... . 88CUtmES AND rvr'waar'E COWIIS$10N .d?i'.' 14SEINC1US, D.C. M 20549 ~ + FCEM 10.-Q ^ Q t QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) 0F THE SECURITIES EXCHANGE ACT OF 1934 A' . [ For Quarter Ended June 30, 1987 ( & Commission file number 1-5738 ' S -- ee P' y ~ c m coar (Esset name of registrant as specified in its charter) m 'h; ., asincere "1 ',, c - (State or other jurisdiction of 13-2614988 1 R. - incorporation or organization) (I.R.S. Employer - Identificatice No.) "Il 4 .tY .h 4 aanG~ #g> 399 Park Avenue. Eew York, New York Jd (Address of principal executive offices) 10043 M ni (Zip Code) js f L Y' M h,7 ?kl',., Registrant's telephone number, including ares codes (212) 559-1000 Mk s 76 3,h .14,  : krc # i -- p' , ,- $d.4 .h Indicate by check mark whether the registrant (1) has filed all reports n%4 '+ A lWU7@;[8 # required to be filed by Section 13 or 15(d) of the Securities Exchange Act of Y . ,( 1934 during the preceding 12 months (or for such shorter period that the "Y t.;' ; registrant was required to file such reports), and (2) has been subject to s sch filing requirements for the past 90 days. p, r - %j; .a ;q .v. . I Yes f*(y%.g X No l} q(-i e T( ' r 2 h, .. i. I Citicorp Common Stock............. y. l  !$. . - ($1.00 Par value) 138,391,505 (Ishares outstanding on June 30, 1987) f72 y ^% < ,t_.: L, d ?, * ~ y '; a% E L A *[+ 9,hyp,y38 . 2. ss 3 a b " * "h[(k . _ . j- ,n ,l. ,.S5k .h w ,,.4 40 W.; '[  :  ? l y h. \ ~ r . .6 p-3.~. . i .s . w  % E I N M IS E 2 w ."% S This document serves both as an analytical review for analysts, stockholders and other f *g mpg interested Exchange persons Commission. and as the quarterly report filed on Forg 10-Q with the Securities and 4 g'## em x ri - m I.f tt . m Ites 1 - Financial Stacemente q consolidated Statement of Operations for the Sin Months Ended ( J,- June 30, 1987 and k 1986........................................... 29 p y$.;e Consolidated Statement of Operations for the Three Monthe Ended June 30, 198 7 and 1986. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 , 7%... consolidated Balance Sheet as of June 30, 1987 and toesober 31, 1986..................................... 'k ..... 31 h. W Consolidated Statement of Changes in Finenefat Position 8 1 LM,' for the Sir Months Ended June 30. 198 7 and 1906. . . . . . . .. . . . . . . 33 ... di' { Consolidated Calculation of Net Incoen(Loss) Per Share............ 33 Citicorp Financial Statistics..................................... 37 t-i,7 Ites 2 - Management's Discussion and Analysis of Financial Condition .Nb% tf: ; and Re sults o f Ope ra t ions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-28 Q

• q a - 0,2 i

t Part II Other Info -sties e

s" d:: -  ; , p. i, Ites 2 - Changes in Securities............................................. Ites 4 - Submission of Matters to a Vote of Security fielders............... 42 42 W

• i[ Itee 6 - Exhibits and Reports on Fors

. 8-K.................................. 42 jg $1gnatures................................................................. 43 hM 'j In the opinion of the sangement of Citicorp, all adjustments necessary for a fair presentation of the results of operations for the six sonths ended June 30,1987 and 1996 have been included. t -- s g t i Q Copies of he Fors 8-K's filed on April 17. 1987 and May 19. 1987 \ 4 by writing the office of the Secretary. 399 Fark Avenue. New York, NY 10043.are available from Citicorp 3 S.;1. .I?5 b3 l*, s, . rd,j S& " Q - >. 4 Mat g [7 f (:;- k'  ? Mt e *" yd y <

w. .

L3 hN ' nth 1 - -^T] . s i I, w [- Ytem2-ChangesinSecurtries On April 21, 1987, the stockholders of Citicorp approved asendments to the Certificate of Incorporation of Citicorp, the ef fect of which was (a) to reduce the par value of the Common Stock of Citicorp f ron $4.00 per share to $1.00 per share and (b) to ef fect a five-for-one split of Citicorp's Money Farket Cumuistive Preferred Stock, Series 5A through 50, with a stated value of $1 per share, by increasing the authortred shares ' of such Preferred Stock f rom 2,100 shares to 10.500 shares, adjusting the 11guldstion .- preference and amount in respect of dividends per share f rom $500,000 to $100.000 and  % the redemption prfce per share accordingly and cf.anging each of the 1.150 shares cutrently outstanding shares into five shares of such adjusted Preferred Stock. The ' Certificate of Amendment of the certificate of Incorporation of Citicorp filed with the Secretary of State of the State of Delsvere evidencing such amendments was filed as Exhibit 4 to Citicorp's Form 10-Q for the quarter ended March 31, 1987. ,. Ites 4 -ighgleston of Matters to a Vote of Security Holders 3 At the annual meeting of Citicorp held on April 21, 1987 the following matters were voted on by stockholders (a) An increase in Citicorp's authorised common stock from 325 million shares to 500 #t militon shares with an adjustment in par value from $4 to $1 was approved by a 1 s- - Q ;- vote of approniastely 95.468,164 shares in favor to 13,752,038 agalests e, y (b) 20,000,000 shares of new class 8 Common Stock of Citicorp were authorised by a vote of 88,026,437 in favor to 11.763,373 against; < g@ (e) An increase from 20 sillion to 50 a1111on in the number of authorised shares of /j $ preferred stock of citicorp was approved by a vote of 90,040,530 in fever to 9,811,566 assinst; I Y . A' (d) A fi ve-for-one split of Citicorp's Money Market cueulative Preferred Stock, l' ,j, series 5A through 50, was approved by a vote of 105,787,661 in favor to 2,919,945 # N* i M against; 'd N f,_ (e) An soendment of Citicorp's Certificate . Incorporation to provide for , [d elimination of certain director's Inabilities and to adjust indemnification g, r2 " , procedures and was approved by a vote of 94,622,634 in favor to 5,608,777 against; a f [f (f) Stockholder proposals relating to the handling of solicitations from employees j for political purposes, cumulative voting for directors, immediate termination of 1 , i 4#. A all Citicorp operations in South Africa, banning any nee cross-border loans to N o g' " South Af rica and publication of data on capital outflow deposita from lesser 5 developed nations were defeated by votes of 92,155,922 against to 5.616.406 in favor, 85.968,308 against to 11,802,939 in favor, 83,159,769 against to ,J do /  ! 13,063,214 in favor, 86.452,895 against to 8,134,302 in f avor and 83,969,150 assinst to 11,805,609 in favor, respectively. .N i P] Ites 6 - Reports on Fore 8-K on April 17, Securities 1987, Citicorp filed a Fors 8-K Current Report (Items 5 and 7) with the and 'jp i i Exchange Commission relating to Citicorp's issuance of $300 million j aggregate principal amount of 91 Subordinated Capital Notes duc April 15, 1999 ed"" ,i putsuant to an Indenture dated as of April 1, 1986 between Citicorp and Cheetcal Bank, Trustee, '% j; . - as supplemented by a First Supplemental Indenture dated as of April 15, 1987 M between Citicorp and Cheetcal Bank Trustee and including as an eshibit thereto the N t

• form of the First Supplemental Indenture. 1[r sq- '

r- On May 19, 1987 Citicorp flied a Fors 8-K Current Report (! tee 5) with the Securities Q' .f" 7.- M and Enchange possib'le Commission relating to its addition of $h0 billion to its allowance f or credit losses. IM S $ + av

• 4 .

The above reports were the only reports on Forn 8-K filed by Citicorp for any month in 1 j' . . ' y,, e the quarter ended done 30, 1987, gj 42 e . -- h .: I P 1 r e k IIcauTUmss  % e -r ' Pursuant t',the requirements of the Securities Eschsoge Act of 1934, the registrant has duly caused this report to be signed on its behstf by the undersigned thereunto duly authorised. CITICORP Registrant ) By: f'N ." s* I' Thomas 5. Jones ' Sentot lice President ntir:g Of ficer .c Chief (3:

• t A '

s  % .a. : , 17 ' '  ; Ch M phe C. Tork [ - ' ' "- Assist nt j'y a cretary J g-r% m { ,y Dete: Angset 13, 1987 . IT - \ ti . s,:,.. . .

i. .

) asy .* n _ ..- n. JQ ' -J719 *i , ' }- g g Southern California Edison Company 1986 Annual Report i- { I ' ~ Southern Calithrnia Edison Company celebrated j _LUVA) its centennial in 1986. Although the Company was incorporated in 1909. its beginnings can be traced to 1886 when predecessor companies first supplied electricity to portions of Central j and Southern Caiifornia. During the first 100 years. lidison's record of inilos atiol'.. technological achies eiiielits. ens irontitental protection. Clistolliel Aers ice alid lillalicial sten ardship to shareholders is a testament j 1 \ to the ellorts of lidison people. past and present. working together I W ith great dedie:itioii. ereatis its .ind cot: rage. They has e 11es er lost sight ol olli eall,s opelitlilip p!'lticiple- (it xkl Ser\ ice, Stltlare ()ealing, l t l , Colllleolls 'lIillllhellt. As %e elllel olir seColid centtir) ol'sers kee. we hkik at the past with pritle. but more  ! i I iniportallil). to ll.e l'uttire w ith opillinisit). fddh.) ) l w yy '~ lI ggimtf a I. a '1 4 Y ;1 s

• 1 s

a - h a 4 o s ~. i l m etem 2: The Year et a Glence j 3: Lamer to Shehokien l 7: Year in Review 21: Fmancul keyww 2$: Regelseory 8teview 27: Lagulative Review - 24: Censomeial-100Yearsof Achievements , 36: Respomubility for Financial Sunements and

• l ReportofIe Public Accountants  !

37. FinancalSasaarnests {

$4. "-. '- 's D6ecussace and Analysis of Resuks of Opersoons and Financal Condata , SS: Selenad PhaeacialData 19%I966 1 to Board of Doectors 62: Eaeewive OMkers l I e > Soutliern Californla Edison Cornpans I

Hiohliohts '

C C (tompoun ~d e Annu41 . Persent Gn.w ih 1986 1985 ch.nge Kee ,' Operating Resenuo stoji 15.311.733 55.I68.848 2.84 5tN , Fuel and Purchased Power Costs itoJ' 51.653.854 52.389.Ost 130 Hi aM 46 t Earmngs Asailable for Common and Oriymal Preterred Stak 4000i 5713.933 5702.409 1.6 11.1 , Weighted Aserage Sharn of Cuiiiiix>n .nJ Original Prete. red Stak ituh 217.732 215.649 1.0 49 ' Earmngs Per Share , $3.28 53 26 06 59 , Dnidenda Paid Pu Comrnon share 52.22 52.10 57 7 . Market Prwe Per Common Share-Year End . - 533 % 526 % 27.2 18.7 6 Book Wlue Per Common Share 522.02 521 04 4.7 5.5 t Toul Assets unn $13.244.952 512.593.449 52 8.8 ', Funds l'wd for Con..truction Espendituro duli 51.089.677 51.076.495 1.2 2.6  ! Know an. Hour Sales don 64.197.405 ed.984.566 ii 2 I p Number 01 Customers 3.58?.414 3.490.325 2.H 2.1  ; i i -Numhet at }.mployees 17.553 I7.lB2 2.2 38 ) p Area Generating Capai.ity at Peak (Megawattsi 18.320 17.776 31 33 P i Earnings Per Shart and { Annual Dhldend Rate nann and Nirhtinn e : Hnniun ' j e $ af allit. %884tf L'4'% e in.. kin), llestrihuleuse a L4'. L .wima n ial e 4,'- e .'n', Nc..J. ritial l in t swi tts. lia. .t h... . , -- - -. - " e f 4 . I sig i.g.. n .ni.i %qsien. is . . S ' n' lemlu.n.ai e l t i. ..t na, m.: ten. n . e ir . 1%hle. %otaia di . e 14'. l.a s aemll him i y a 4 ' . Mc.,g. e 19 . I kp. . ,n..n i . . en ' ,, e l's \ve m ultuh

• t e 4' . N. ni.. .t il l .o inns.

e l'. I ktwa ll l t h t .a..p. . . l'a.. v n.nv. pr i h.n n *i. . as all ison h.gti .4 % . .'m Hw uut. . *w. um. .. ed .e4 d. . .d l . dt ttetty. % % ft's ifu l d u .n um . .a e n s e . 4.s t .pi.e#t 'f t at. h tel es.m J iner, n . . . u. ine . i.... O ...n. .we. .i sguarnt 41..w u a .ui.i t urt nJ pui ,h..,gt gg.4.gr . ma. ..swinimi te. trferwat J Hwe 8 PWItatt .d Iftr Ji.inhu s set .d fr rtha. ifbI ent.4pd6 .h.' h tail id4. ts. % ' .'S lt t .indt. P i _ _ . l i l The Year at a Glance  : 1 1 a Earnings per share of common ,tock mereased moderately os er the 1985 lesel to an all. time high of l 53.28. the eth consecutive year of record earning .. l l The common stock dividend was, increased in June by 5.0 percent to 52.28 a year. the lith increase in the past 10 years. The market price of common stock reached a record high of 538% ir August and closed the year at , 533%. 27 percent higher than year-end 1985. l Total return to common stock shareholders from uock appreciation and dividends was almost 36 percent; total return oser the past rise years has aseraged 28.5 percent annuall). . Customers increased b) nearly 100.000, the largest increase in 20 y ears. and , ales to customers within the Company \ ersice territory rose 1.9 percent. Howeser, total kilowatt hour sales declined 1.2 percent, largely because sales to other utilities declined, and some of Edisoni municipal re , ale cuvomers obtained more of their power from outside the Edi,on system. Forr non utilit) subsidiaries v ere established to take adsantage of businew oppor; unities in areas other than the regulated utility basinen. The California Public Utilities Commission iCPUCI disalluwed 5258.6 rnillion of 53 4 billion ot the Companyi conuruction costs for San Onotre Nuclear Generatmg Station Units 2 and 3. The Company has filed for a rehearing on 5213.4 mdlion of the dnallowance. The CPUC and Edison agreed to rate and rate base treatment for the Compan)\ 15 8 percent interest m the Palo Verde Nuclear Generating Station in Arizona. The agreement, which asoided a lengthy prudency resiew. phases rate ,in oser 10 years and ties ne amount of Edisoni insestment in Palo Verde that will be put in the rate base to the outcome ut the San Onotre prudency resiew. Based on the current CPUC deci$, ion, the disallow anee for Edisoni 515 bilhon insegment in Palo Verde will total $50 mdhon. . Authorized return c.. common equity wa, reduced by the CPUC trom 16 percent to 14 6 percent m

• Iwh and to 13 9 percent m 19M7 because ol lower lesels of inflation and lower miere ,1 rate .

Edium iwued a record 51.7 billion et debt, all of which was used to retinance higher cou secuntiet - t hn brought total retinancmps oi higher. cow ,um mes to s2 7 bdhon smce 19K4. w hich a dl sase sunomers more than $70 mlhon annuall) fuel and purchased ptmer costs decimed il percent nomarily because el lower ml and natural gas praci, trom %2 19 bilhon m 19M5 to st 65 bilhon m 19Mh. wlush n retlected m lower cows to customert Ecutment of the Mettric Cornumers Protutkm Act of 1994 ensured f airnew m lederal reheenung ol hydroele6tric planto The new law makes 6 tear that no preterence euws lawrmy municipal utihties, mer unewor owned utilities when low-tost hydroele6tne facihties are rekeensed L_____ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 3 -- Fellow Shareholders: In 1986, we celebrated our corporate centennial We also are seeking to rewucture rates. The with the best financial performance in the Com- California Public Utilities Commission (CPUC), pany's history. We recorded our sixth consecutive for various public policy reasons. over the years , year of record earnings and our lith dividend in- has set industrial rates higher than the cost of pro-crease in the past 10 yeart Our ec amon stock viding senice to industrial customers. In some  ; . price reached an al! time high, anu total return to cases this has made it economically attractive for i our shareholders from stock appreciation and divi- industrial customers to generate their ou n elec-der.ds was almost 36 percent. Today, we are one tricity and bypass the Edison system. If these cus-of the nation's largest and most financially sotmd tomers bypass the utility system the result would l  ; imestor owned electric utilities. be more expensise electrical service for the re-i Our 50.000 square mile service territory, if a maining customers because the tised costs of ser. separate nation, would have the 14th larfest econ- sice would be spread across a smaller base. Our  ; omy of any country in the world. Future economie Company is taking a number of steps to try to cor-growth could make our service territory the equn. reet this inequitable situation and to continue serv- ', alent of the 10th largest economy in the world b) ing these large industrial customers so they will l the turn of the century. pay their fair share of the cost of providing l Serving well the people who work and live in electric senice to all our customers. i our service territory presents a continuing chal- At the same time, we are working closely with lenge. We are proud of the record we have estab- large commercial and industrial customers to in-lished in our first centur) of senice, and we are notatisel) meet their parucular needs. We also confident of the future as we enter our second are increasing employee productisit) and focuv century of " Good Senice. Square Dealing, ing, to an esen greater estent than presiously. on l Courteous Treatment? cost control programt Another matter involses ell. rts I-) some non. Changes in Business Emironment regulated pmer producers to obtain unlimited use The environment in which we do businew as a of our trammission lines in order to sell their l reFulated electrie utility has changed substantially power whereser and wheneser they want. This is in the last few yeart An unanticipated ef fect of know n as " mandator) wheeling" and would in-federal legislation and state implementing regula- crease costs to all but :s few of our customers and I tions. designed to cope with the energy crisis m reduce electric sy ste n reliability tor all our euw rhe 1970s, has been the emergence of unregulated tomert We are opposing such ef forts nationally power producers from whom we are required to and in California. purchase power at prices otten higher than it costs Southern Calitorma Edison remains dedicated us to generate it or purchase it elsew here. The re- to as pnmary miwion as a regulated electne util suh has been an unfair co.t burden on our custom. it). We are, howeser, also ready to proceed in :.

• ett We are working with regulator) authonties unregulated emironment il public polic) makers and the non regulated producen to reduce this change the rules under whigh we do businest impact on our customen.

1.ast 3 car we estabinhed new non utiht) subsidi-artes to deselop busmew opsuttunities m seseral unreputated markch One ot them. M. mon En-s l I i l ergy Company, is a co-owner and operator of sev- our appeal to the CPUC for rehearing and a pos-eral cogeneration and alternative energy projects sible appeal to the California Supreme Court. For ) in Califarnia and Nevada. Two other subsidiaries a further discussion of the financial implications are engaged respectively, in industrial park devel- of this matter. please refer to the Financial Review i , opment and in engineering and construction of section of this report on page 21 and in Note 2 of  ! electrical facilities; another will specialize in " Notes to the Financial Statements" on page 46. . tinancial services. We achieved a major legislative victory in 1986 < when Congress passed, and the President signed. l Regulatory and Legislathe Matters a bill protecting the rights of investor-owned  ; The only major disappointment for the Company utilities who own and operate federally licensed  : I during the year was a regulatory decision in late hydroelectric facilities. The new law should allow i 1986. The CPUC, following a four-y ear prudency our customers to continue to enjoy the benefits of review. by a 3-to-2 vote disallowed 5258.6 mil- low-cost power from the hydro facilities that we  ; lion, or 7.6 percent, of 53.4 billion of Edison's la- have built oser the past 50 years.  ; i - sestment in the San Onofre Nuclear Generating i Station Units 2 and 3. This decision was directly Our Second Century ' contradictory to the findings of the CPUC Admin- ' We have learned much from our first century of istratise Law Judge who heard all 95 days of sersice. One important lesson is that things sel- i public hearings and who recommended that no dom turn out the way experts predict. World en-tinancial penalty be awessed against the construe- ergy markets, forceasts about future electricity tion costs of San Onofre Units 2 and 3. We have demand, laws, regulations affecting our business, appealed to the CPUC for reconuderation of most and many other factors are hkely to change tomor-of the disallowance anu a ruling on our petition row i'i wa)s that are impossible to predict today, for rehearing is expected in March. Recognizing this, we hase developed strategies to The CPUC decision on San Onoire Units 2 and cope with future changes by building considerable 3 alw alfects our $1.5 billion intestment in the flexibility into our Company. l - three nuclear units at Palo Verde. Arizona. In Our future resource plans proside clearly 1986. Edison and the CPUC agreed that the mapped paths into the future no matter how out. CommiwinnN decision on San Onofre Umts 2 and side conditions change and regardlew of how 3 would be uwd as a hasis for asoiding a pro- quickly or slowly demand grows. We are pursuing j tracted and costly prudency proceeding of Palo important new research efforts that will gise us i Verde insolsing four state regulatory agencies. the technical ability to respond to more rapidly . l The agreemerit established a disallowance lesel changing customer needs. Our strategy of starting j for Palo Verde amounting to 19 cents for each 51 to disersify into non utihty businewes gises us an disallowed at 3an Onofre Umts 2 and 3. Based on opporiumt) for carnings growth ind.' pendent of , the cpl'C decision as it currently stands 550 mil- powihie changes in regulation.

• I hon. or 3.3 percent, of EdienN 51.5 billion  !

insestment m Palo Verde would be disallowed. The impact that the CPUC decision may hase I oc earmnys depends on the timing and outcome of j l 1 a , l 1 i Our commitment to good customer service will Our conhdence in the future is strengthened by  ; continue as we enter our second century, for we the proven dedication, abilities and hard work of are convinced that our shareholders and investors our 17.500 employees. the prudent counsel of our are best served if the needs of our customers are Directors and the continued support of you, our well met. shareholders. Management Changes A._f_ -- - , Resecting our diversification efforts, two of our Howard P. Allen i , l vice presidents resigned from the Company t ~ become presidents of new Edison subsidiaries. Chairman of the Board I and Chief Executive Ogicer Edw ard A. Myers. Jr.. became president of Minion Energy Company, and Robert E. ' ., y . Umbaugh became president of Mission Land -- -- Company. Their responsibilities at the pareni com- H. Frederick Christie pany were assumed by other officers as part of fresident l our progr:im to increase productivity and control costs. February 19.1987 Two other officers retired in 1986. Joe T. Head. I Jr.. vice president of Power Supply, retired in Sep- , ,.  ; tember after 37 years of dedicated service. His responsibilities were awumed by Dr. L. T. Papay.  ! senior vice president. Honor Muller, corporate ' } secretar) retired at year end after 39 years et - , . j valued servise. l In November. the Board of Directors elected l Jenmler Moran, presiously senior coewel in the  ; 1.aw Department. as corporate sevretary, effectne January 1.1987. N ,  ! Confidence for the Future . ~ i As we enter our second centus) of scrvice we 7 [ . stand at the threshold of a new era of change in - j our industr). We have positioned ourwises to take advantage of new opportunities and meet new {t i challenges, w hile neser forgetting that our mam i .  ; busmew a prouding regulated electric utilit) ser- H 115*"d th'""e l'"* ddl' \Hv" sice to the 10 million people who Ine and work m ', our vo we ternton. I i l I i i 1 \ I i 1 1 1 i p.m l 4 1 l t } l e m e.tlurnsion of its bolingual ser-a umrinuing .srars h lor nor u ays sis es to nunintuninae bener u oth to respond ro the spa rfu nents 01 non [:neli.sh.spraling custannen, inshridual rustornen. Custinner renis e spa ialnts hLe I. aura f s. M Gosuln usta f.c< n lu Ione the une of nunfern trs.da respond to onore than In e unnnuun< attons to knolveres, nodhon us!!s annualis front < us. Idnonernphnres,asseensuthe torner s at the Coannarn 's sne ntern, I one Itau h alln e un Iw t.N. u cre u ntputern:nlCuaorner lhle- dah, atal to the Compun ura tto phone Inhurnatson Ceraen I.di- of 'Go,ul.\ro us v, Mpeare son unpIrmentala nru Inoeront Ih ohne Cour tonn IVvannent ' dunne 14.%h "t.ut one luded the her-one and toannure of;nn t tune run-plus ers to handle < alls, and 6 i i 1 Year in Review oa raeuunas oo pear enod o aJJinon, the Company has requoted CLISIOmer Service in in recently ided 19AH General Rate in 1986. Southern CaliWms 14hwn Case th.it the Cahfornu Pubhc Os er the last 1003 eart the Company Company marked mother ycar of t uhties Commnsion t CPlt i appnn e has recopm/ed the utal importance of ewellence m tmanual performance low er rates for inJustrul and commer- pnn iJmg quaht) seruee to its custom-and seruce to customers and aho in- ual customen to reflect more closcl) ert Thn seruce is constant!) hemg creased ih operatmg fleubdity to meet the cosh of prouding them sen he. nwasured and imprmed An esample the new challenges of a changmy t usi. Thn propined new rate stru ture, of thn comrmtment n a connnuing new enuronment and v. uncertam comhmed with new ettorh to meet the search for new and more ettectn e , worldenergy market specuh/ed needs of large customers, w a)s to respond to the speciahred should reduce f uture by paw ot the needs oi indindual customert Customer Gro% th and Ed'"* 9 stem To ashiese ihn. Ednon has otab-E,nergy Saks lisheJ programs JeQned to make Peak Demand empio)ees more sensiin c io customer Edison recorded strong grow th during needs includmg new t ammy pro-The pea customer demand for elec. gramw screenmg of new employees , 19M6 it. the number of customen it trhit) in 19M6 w as 14.599 megaw atn for a "doire to wn e." t.nl forces wr ce 4roughout its 50.000 square-IM% ton August 20 On that day, the dedicated to speone senice quaht) nule tet..mr> m Central and Southern Compen had a electric resene mar. and cost iwuet recognition of emp)m - Cahtornia The number of customer' gm of 25'.5 percent. The 1946 pea en prmiding ewmplary seruce. and nne h) 99.0x9. the largest merene m w.n 0 t percent abme the 19M$ high. mercawd custorner 60mmunicatiott 20 years There wawontmued grow th ' but below the record ped of 15.lN9 lhe Company receno tne milhon m all sestors partwutarly mdustrui. M% set m 19M4 durmg unusualh hat custonwr scruce telephone callonnu-where the number of customen m. summer w cather. all) in us tis e telephone ir:tormatiorn 6teawd by 4 6 percent, the highese growth smee N.' Commerual and centert in 1986. the Compans signiti-reudentul

• us:omer prow th msre.ned Energ,s Management cantly incre.ned the aceewibility and

.ed of responw at these centers ,' by 2 9 percent .md 2 N percent. TheCompannenergs management improung the reponw time to cue i F'"'#b programs reduse reA'Jemand by en. W nh thn grow th in the as tual num- tomers o only one o: n.a'n wruce im. her ot sustomers, the ( ompany s 1986 w - pnnements ashined m 1986. Others l salo to customers u nhm in seruse ol i trwit) from umo of high uw to msluJe forHory grew I 9 percent. MW hv M

• A m'w p%voM'y Mu's FualLdowsithouriKWllisale' thee programs w hk h imprm e the largot industrul and sonunercul l twiwoer. Jeshned i 2 percent trom uubranon ot esnnn; generatmg re. customen w 95 a wnple person to h$ 0 bdhon K%llIn NM$ to 6J 2 bd.

w mrJmate meeting.their we use hon h% ll hevauw ol Iw o map f .h - nearly 1.400 MW in ele 6tra sapaun needs m a nwere eithient wa) . ton ili .i Jrop m " spot marLet salo durmg peak permds, roughh equna-

• l.sterded otthe boun to betts r to other utihties and i2:Jecri awJ en-u aa omudge mum n a ed enerating umi locaaons g erg) pur6hees h) 1:dnon s *n rnale i uty s ustomer% w ho oht.uned an in-sreemp proporhon of their pow et Kilowatt Hour Sales

. trom non-1 Anon sourcet m,luJing Cle of Seruse Kdow att Ilour Salo i wnenhip micro by soetalin a i tah usd ured generatrig station "I 'l" E !b'* "  ! lither taston atteump Wah eles 19"ht"idl 14"h 19" $h *fV triot) (do were im'd sunmier teoiFi Commerual tl 4 20.144  !':. I i i 44 sturo th H f eilused .ui-g onditionWp Reujyntial ju j ( M, thi lk,44 % [O use athl an mucawd numho ol lat ge Industrul 24 4 1 %. 4 Mk 14 ?ui to Mi tildustnal s ustonn a aim do eloped Pubbs \uthormo *9 4.u % 4.kx4 49 itwo ow n wie generation and bs pewd Ayns ultural O!hu I4 the i shwm o stem k%1 1.u lh alt tu l dnon is motking approsnct) lo R&d Wio 44 i WH 49. E' I9 g , 4, g g gg g asmd terttwi low ol vivs u h m salo so gg.g g., g g, gg yn jg JI[e s ust4 His'Is 44I c es ilit e. tu s' rompans began nuet mp mdusn ul I"IdI H '" " 'l 2' susiomen ns % Jnonmu durmg tunt. $l9' M'*

• 7

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• the (,,,I " "Urtn/u , g a ,,g,, ,

duui,je. , . ')', '# E ArdJyyjpg Clftffjg 4,j ,, " ft'!!'0' fier I Ell lttr Enuj,y# '""' r. *s / tic /r z, n., linente,, g, ""'"'"Yvt. rhitity ' "undpu,,,,,p,4 ' he tru,; l snts dnienedairj as'conh/eg . by zy;,,,,,50YsH!Ujvf ' In the fytyy,, ,'.""'*"

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e Urnt11;d1/rej,,,,,~. i ,,,,i,,,, .. hc.s,,,,,,,. ., , ~ n ~ u,, ,,,, n . s. ,, ,,, ,,.. . . l f I l eM l O l f a

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• The completam of Sujm iree shee from other wurces thw os er- -- - -

i erwrgy suney* tor reudentui su - prwmg. which will be about $l45 Projected Peak Demand tomers and ar adJitumal 3.l ollo authon in lW7 and could reach $350 and Reserse Marxin 6 y for mdustrui,6ommercul and milhon by lWO. has unfairly tacreased --- agricuhural customers to promote ethoent energs consu.nption. the cost of electricity to customers ihese ur.r gulated producers are * [' i

• Hnarxialirwesitnes. offered to ot' ten large con ,umen o' electricity. """"'"""

NUluu cu tomen aimed a' partully The) are free to either sell the power of f settmg the nurchase of cnergy - they generate to Ediwn or to use it - == W 8 E  ?" i ~ efhoent equipment and applu kes.

• bhum a'w ousted N).Uuo low.

themsches Some also seek to sell the p>w er tney produce to other large gg EE ll um l a + l , +eome customen m uh a s ariety of energy management senNew ar.Jud. mdustrial and comrnercial customen now ser ed by Edison if they are me- llElE m lllllll EEEEEEE - i: mg the tree mst.ittation of ener.t.. Leuful m taking customers ana IVvri ll,ll l l} citioent apphances, the utiht), the result aould te mme EE EE E ~s

• An information 1.nigram her sc nnir espernis e electra al senice for the re. .

otuens msoturig sescrat towm t.. matmng rustomen bec suse 'he lhed l tercewn a part tmw baus, sosermy so.ts of wrrte 9 ould be spread actms sush subjests e salety, heat and cold a smaller bx. E EEEE strew and energy u c. Thn utuainm could se f"rther p,,, I IIII J

• Ioll. tree telepAme numhen with .sggre ated because wwne unregulated .is anis a.

binon repts entatnes fluent m Chi- power producen alw ar: seekmg nat.- p,,g,,,,,,,,,,,,a,,,,,,,g,,,, . tww. Winanwse and C smtssjun to ilator,. w hechng. iw onei nt.viled , m ar. .a g,,, p . nc,, ,,4 9 9 l aunt th : gr.sw my number of Souih- 46ecu to msestomsv neJ util.ty trans aws.n .ns on inw do = ca,p.n. naa 4 .cet Asun immigrant = not prothient miwamimes Mandatory wheelmg ""d 'r* 8'a uf 3 F*

• Cim9 " oli 4 n 1;nginh.thn proyram augments uould benefit a tew su. tome s at the **"***'"""**""

l l me custing capabihties for Spannh. eyvnse of M the test Currently. , .[', {' ' # "'" speakmg s ustonwn 1he Company ubject to 6 ertain iaintractual commit. l alwootters cu tonwn aritten nute- ments ara' regulatory requiremere, ruliin Auanlanyuqcs e welle bhum he 'he right to determme w he.. %pannh to p.oud tranunnuun vn ice user . _ - . . - . . _ . _ . . . . . _ hnes it om ns and to gne trangert:wson I l TWei hunm 'c'"' c '" o'he "*')

• he'
• ill '* "  !

mterfere with e.he Compann priman EN ' " l sen ne ohhpatne to itwu9 amen i M.uwlaton w hechng. by omtret. the t%hhs t tikts Reputatory Poboes ' would sequire that tranunawain we. At ol ivh ePL RPAi whosh i e guet ot ttv leyntaine enaced to .reet the N M d m dn M enterfeie with sptem tchabahty and incip) .ran" ot rhe ICth. mstered ,,g , ,,, g, , n ,j ,q ,, ,,n the entr) of then alblih towhpJmes into g g t ttw eleisrw yerwratnm bu mcw

• nde' l

proude h Amtits ot A aper power Pt RPA. rse regolateJ pimer pratu' tol. rye users at it% espenic of Egher j , ers are allowed to bud.l generatinf prned elestthily hw lJnoni remien. plant % and utshiws are riundaico ." tid. ut 11 imwrud and p uhurA pie h.sw inc e6rs irn .it ou;wt of trw w , ,%.3 l plants ai peno .et ni state eeewid.ws g. g ., ,,4

• tivy whechng at the tederal and state loda) although t u6 l oit atwi rutural

( a r is es ha,, am ,s. . <a ..,mt, pin ernnient les els ,,,,,,,,,,..,,,..,,n,,.sp,,,,,,,,, . . intl 3 i .h==. n enguard t..s.wwonei- ,, iin t.w wit gerwracion and man  ; to hun peuet f rint> =.wiec teosi serulateil g ,, , g.g g g. g , g , g l i p.w el [wt eJus t is p um ipalh m ihr g , ,, g haetuu owl yciatwsmalarce at , ,, gg ,g g . , pi.e. mush hayber than the gow er the i i ( ..mgung . au n..w p.sk. . .4 pu' M oure hw W A in ih m W ir. N of wes s6 matsents Ihn a hc6ause. i mer the let .'ti,es's rats s for farye + . ustiwurts m eve us reced b) the ( ft ( ahnste a6tualposts pafil) toi p ) I __. I I ). ' ~ ' 4 . - . n . 8 .' ), ' jf ' ,3 e . 1'- Q u y _ . .n . , l , l - s . I . [.i . i <  ? A . ly . . . -,ere,ggEtiN W

• 4

.. . u - g, .y 7 a . < ~ * ^N h r_  ; l ,~ ' ,t i 4 .; - e a 3 1 .- A 175 tuon trarnformer n plus ed dartne lYM and soll Fr f:dnon's on 1923. the lonerst u ater tratn< l untdr the incurjuns erhotor fareest hsdro plant n hen el be- on Ihr unrld as Ihr conor In onor 4 tes t in r *1 thf Nao%tHn .\lnhlt sss glin operalh al ist fleg enther 14NI. ontenth, nliners ghty thitough h4) Androvice trn profes I, buill 1.tMM) h et of grantIr Ihrn a rn ord for Irrt underground on Ihr Mrrra in. . arber phase of ihr Hae hard ro L tunnel < onstrus non %cs uda en an e sa nuon of 1.sh- Crerl in elon proin I, an f.dnon Ihn on ord uas sarpaurdbs the wn's Hrv CarrL hsdro< lo tru n orL e orn a vonpIrted unnu u. - Halsarn (Iradou prornIuhen . ...onples Ihr 2th nuryouan toon al the Ilorem r I, ale tunnel < ocu s etun ated I.tl51 tert ponto IInocoe us d on u halu!r of tunnelnoll Jan .'? **= = ' % .E s .__ encourai:e energy sonwrtatum and the 450 MW Unit I ren.rned to ser. partly to subudi/e reudentul ratet s ke m July .itter being taken out of gg g hdnon's IWM General Rate Case wn he n NineniNr 19x5 to repair pendmp before the CPLC att mpts to damage to pipmg in the non r uslear - - bony rato bask nio hne with the cost part of the plant caused by an equip-of seruce ment malf unction. During the outage. Unhke the rkm-regulat d power thi Company completed a wheduled producers. Edium and other electne ret'uelmg. and made whmic and other utihuo has e the obliption to proude miditseations required by the lederal elecine seruce to all customers at teg- Nuclear Regulanity Commnuon * # 8 , uleed rates in tulntimg thn ropm+ Ednon h.n an Ma pertent on nenhip H . or,i hdn> and puShe triot. Ediwm miends imere 4 in Cnit 4. and a 75 percent m- , to do what it can to e md haung un- terev in t mis 2 and .L The Compan,t regulated prw a pnducen. w h.i hee n responuble tor managmg ar.d ro,a l rwi hmu on their pronn and no obhp- openting the three Nast Onotre unitt  ; po,, g,,,., tum to sen e. t' rom takmp ads antage of bjiwin aho has a 15 N percent inter- ot h6 the smaller comrnercul, reudennal et .a the Palo Verde Nus kar Generat- i W' n '^ l . and agncultural custome ', the Corn- ing St.ition kicated near Phoenn. Rdo$m pan 3 now .cnet An/ona The project, nunaged by ihe (",$',I.,*" ', Current law presenh Edivm trom Antona Pubhc Seruce Company. ,,,,,,~,,,,,, , , oimpetmg on a f air ben w ith thee will he the largest nuskar f aciht) m e 1"*. h J . unregulated power pndsen Unen the t mted States w heriik three tw co,nNns vie. nme amereni c= rys , an opportumt) to do wi. the Compan) I.."bMW umb ire completed remrses to rennaic ewrm us nii ,itan any , e o chdem it c.in meet the needs of ib During the year. tuo Palo Verde hide nahr m.wlJ In i*'J o ***u s ustomers in a f air and equitable unas went mio commercut operahon ennys nunei iho Jarnen prouJcs 1 Jn.wi nunner l n t i on I chruary I and Umt ! " ' ' " ' ' " ' " ' ' ' ' " * " ' ^ ' * "* t ..mNns has reJu.cJ ib Jeprnonks ..n ni on September 19 L nit .4 n wheduled .na g, no,n < .. ,,, e io y , ,, n,w, (ieltenttille Resources f or summers ul ogwonon m ise tw7 l' The Comp.sny .o nine ditterent en. H.s dro Resources cry) rewurso to generate elesins u3 t more than any other utihn in the Cittstrus h.m sonunued on ss hedule world in h AtJ>i morld energ:. nut. and unik budge: on the 200 Mw Leh. wNre supply and demand lor Baham Meadow pront. a nuior twk san shange drethall) m a short addihon to t diumi Hip Cres k h>Jro tm c. tha da erut) alvi proudes ekstr A sompin hsated northeau 1.diwn more alcubiht) m wrung of Fre no. Cahtornu. in the %wrra .ustonwrs relubly A reawnahk rate No ada %shedukd for operahon m lhem l Nuclear Power 'cr 1*7. the t.wihn w di he 1.dnor i , largot hydroelestra umt t he under Ihe Ciunpan> i three um s at ib Nan ground powerhouw will be nanwd the . Diotte Nuslear Genereing % ation Jahn % t nwin e Po et Stanin, ,n yerwreed shphil) otet 14 vr6cnt of i honor of the engirver w ho oithet.ed i the tiestrsin used b3 suuomers m the Hip Creck hydrocksteh $ompin j tuh t he output ut thew three ural, 1 Jew m he r64uested .iuttiori, suon e maJe the burnmp of shout 24 nulhim hinn the lydeolI rwrps Neyuta.org

• harrek of in) or cyun aknt natur41 y n C""i"""hm ath! the CPL ( tot dw un'iescuan s.nung a udonwn o.c, Haham Meadow pro,c t to opeinte c f

Wu nnihim in bri s osa m l$nri a pungest uniaye o sieni gi tha  ; 18ef my ttic uar ths ! Im MW %,n ProlWd s'skm n appt.ned w aks i Ihk'Oc I nib ? arwl 6 operated fope.

• eu!J l'c p.mpcd up to a tesen oir a ta sh at ra gvesent and '? pctum ut '"6 h t W""Fl os ogsnsn e p.i.ct nicn

, then 5apasiten suspeung itw nati. mal NkaWd 8o *lth V irk turbnw ys netatin r ireduur) aserage he nusleA umh dW"F del ** Pvdk 141e ds Ihn a di I nd 2 owigsicled ih woakt 4%chny hdpiA ( omguns ssJ65c th eost of s Jurmg 1%rt wh.l. I nd I me taken I"'dus mr 6 ksih*"$ in 1% akt wis.ds out ot is u ke knuan ? t%' he in b* #8s s usumwh scowd atushug I 11 ( l i 4 a Cen.aolequerator Atart Sun Let adunsts the Iaehlv wplusta used. < ornptarrt:vd < ontrol rue un capap. rrtent Itur (Inst ] tot the Orntentd Stras h erncratutty plant en Ottlard, Hurin_e 14Mts, the Connpant s ennt. ph red neajour nroultlu sottorn too the 7 ttl onrean att una that enabird a to operate at a lon er nunununt f' .'pf *Th.

• butd. therrbs en tne a ven ater / ,9 n .

1 l Ifrsubthts and redan one overall >  ! $ E. , ,- e .. sos to e nstomers k. . ' y _ 7, _. . In an raolt< r cra su a< hiuuard f ,- #* 'f , . e onarolhne unas. sue b as the one l Y ~ at teor.\anta Ana Nuro % I , =~? hs.!ro u ' .nr that uas < ontph trd on n INYY s ros usar:ue dls ope rate el.

• 1' a o paru :ad;!.s atvsrand " -

j. 7 de stre tts he enerHil.Un l0f tsjet*t ,. l ^

.. x guvs *I l, s n'ls . _1 ew ' ' _ _ . . . . . . _.. . . _ . = - _ . Coal Power producerwontributing 3J4 \lW to the enery) and upxity that J uhht) Ediwn s)siem There are an additismal u ould otherm ne generate inim in ow n F.diwniciul fired power planh m 198 pnyects under cont *act (nim plants or obtam f rom other wurco. Noad.: and New Moico gerwrated unregulated pnducen. reprew*itmg in Cchtornia. the CPL C procriNd - 14 percent of the electriot) the Com- another potential .1.513 MW. the terms for utilitio to buy power pany pndui.ed for th customen in tvM6. E r a number of reawns including irom unregulated pewer pndusen. The Iwn umh at the Mons e change m lederal tat law % air quahty One pricing formula was bawd im a Generatmg Station in No ada set a ree- omuderanons and utmg and permit 19x3 forecasiof ssipnces Betore in ord m 1986 ny operatmp at 72 percent requirements the Company estimato uw wJs suspended tsy the CPLC m of capaaty. *eli ahme the national that only about 40 pereest of pl.mned April 19M5. unregulated pm er produe. . aserage for coal tired plantt Smce projects will .actuall) he budt. en submitted a large number of new out is one of Edismi le.nt eywrnhe The Cahtornia Energy Commiwinn. contract that ohhgated Ednim to pur- . generating rewurces WNse;19M6 m hith is the state beensmg agene) for chase piwer at prwcs ugnshcantly . pnduction meant upmticant wn mgs all thermal pnyech of 50 MW or higher than its current n oiJed cost. l tur Edien customen more. swued new gui&hno in 1986 This has roulted m unf air and un-in 1946. the CPUC granted Ediwn a on non-regul.ited pmer pnyect that necewar) 60sh to cust.mwr for pmer f one tirne $17 nulhon ieward in rates should reduce untair cosh to custom. trom i'kleperdent pris'ucen that h al. !a for the eftiaent operation ot :twoal- en hrst. thee guidelmo gne hhwn ready on hne and addinonal.;mb tor e fired plans in 19K4. based upm a Ciul and other Cahtornu utilnio the oppir. . piwer projech not >ct buih The Com. l Plant incemne Program estabbsheti h) tunity to nwet the electrie vnice pany n w orkmg hard in .i number of . ihe Commiuton. needs of large induerul custonwn he. wap na pnweet consumers from ihn i Edium ow ns 56 percent of the 790- tore they can undertake their om n en- unt.or pra mg. instuding the $line l MW Wh.ne umh and 4M percent of ergy protects Seamd. all new pmer ow eitonng and .dmmatranon ot the two 7inMW coal fired umts at h>ur purs haw sontract between utilitio teinn ot thev conh Ats  ; Corners m New Mowo anJ non regulated pnducen must nLe . mto arount the clu trie generating re- pg.b.d POMr  ! Oiland NaturalGas quiremenh ot utihtses As a conse-quetwe, thn allow s uuhtio to seduce in 19xt , Edien obramed 37 percent of , t hb and naiural gavttred generanng then pmer purshase trom thew non-the ekettwity it pnn &d customen unin renum the haLhime of Edieni regulated pndocen w hen lew onti) , dueruned cln trk generatmp 9 stem. hom oubi& wurso. prmutil) other j alternatn e p. u ct n as.nlabic. sus h a' w hah helps te numt.un the relabihty utihun m the Pactiw %rthwof and pursh.noof aonimS eneryy Inun the %outhw ot w ho uw hy dni and uul re-of eleitrh wts we toituustonien PAntw Northwot and Neuthwe% lWiwm Ns 47 oil .ind gavfired wieso Mint at these pur Nws were  ! the large number ot (ontra h on tN mpit ndet" aist u ere x-generatmg units w uh a toul upA ity NIw een 1.dmm and nim-regulated of shghth mer tour MW tnch wught b) Edium Nuuw of pow er pridus en rouhcd from the mi-their low er 6ost lasn with the sub in tvMa. l.Jiwn pdv.eJ 25 per- piementahon of Prl(PA thelernta stantut da Ime m od and natural gas 6ent of its s ystomeri clanut) Inm- tion requircJ eles tru unihho to l inoil and natur.d g.n.tueled pmer p,no, thew spH nurket punNso purs Nw all th.- renewable ahernaine planh Ihn sm.sil uhh/ataim of od r0 %n ed 6 ustonwn about M40 milhon pm er pridus ed bs inskp nJem pro-durmp '9no. 6ompared w sih vung l pas revuno n hcsauss the Compan) dusen at "aunded ont" w ha 6' " sutural g.n as a luel n its ow n gener. pur5NwJ 47 persent of th pmer solo detmeJ as the reptaenwnt one of the aunyNans f rom outsale wur6ew at lew than the ont at generating sles triots w un oil or p,n on as o stem Re ouren from Non.Neglutated Power Producer i i nJet Cimera t Hut %t Hudt ' On i me L

• Non.llegulated Puner Producers

 % ot Megawaib  % ot Megaw ath , i Mthough the sNrp Jeop m itw prw n PI"les t' CdPA d' P'"ks b U Pd"h of fuelod and natur.it pas Nw redused Hinman 2' 49? 22 m2 i Hwone ownpepineswwof nung t ' ys nevauon 4l 1.4'h " 41i { scrww his assl ates ret,stige rewiufses, t es othereinal fi'8r. 22 4 list l tlwse in hnol yrs omispus to rrpte %m llihdro lh lu if 44 i wns impwtant sumpitwnti of Ihs 8 'o n %ol.o 17 44a 2I lut lunn Jnerw cowsp r zwuss e mn u owl of uI 44 9t \1 theessiof 19th trwre acre fit gqg g, nim eept.ded pme, p.nws h omivil i l .wstolvsale,in unn o +wicnt p m es ) 1 l I I

• s

[. . . , A 4 Q N  %/ W-y&* g s. . , ** t ( 7 gy, , ~ h l , f pe - '

g. . t.

q, s a g s, . . *P . g .

; w y ip .

$g f.  ; lg ... "/ a lahson alue ation d scrue e rep- < hn srenun njuippal u :Jt lasen, rrsentatn es Jan Strueo and Jim renbon. liber optu . uomputen llurns uunJm I a u actu e demon. and state ol.the art audun nual strenient hur snth grade .rud, nn cannponenn ' as part on Ihr ('onsp<un 's no, , '% orm e (' onna tron' cdu. a. nu. ('ornparn 's <. arts , due ensours tuonalInveram that nas m ao. progrann u cor novo c pa,,y, ,,,,~ s enratol on 148h the progrant. a than ' htgh tn h ' k'ar salets pro , \ toons tu van I hs I dan on and the Jrt enuns. n hu h lu von m the lv 4t's. ' . l'ootndsoon I abooator s. n nh sup Icatterniout the sp. t in sun s hs j VorIItout the Nanonal .trovnau- Inon one n tu s and ' stun e \dnunnuattoon. l h atorrs o ok obdc lueh to knohues l l During the scar. Edison uorked t.' of new transnuwamcapxity by acceu pilie). and is a o:Lmp in con-mereaw its long term accos to eco- 1991. includmg Ednon's share of junctum w ith other Cahtornu pubhe  ! nomicah out of state pmer b) en- about 2M0 Stu and im otor ow ned utihtio to hase tenng mio new hmg term 6ontrxt- The sompletam of all planned im- thee pohcio modined. The Company ugned a 25 year son. pnnements m thee hnes will increase trxt with Portland General Electric the total transfer capacity between Cal. Compan) that should wie Edium cue Fuel 111d Purchased itin nu and the Pxitic Northmot to timwrs abou: 5200 million during . at appnninutel> 7,790 $1W. with Edi-P0%erC,0 sis periid. The new contract proudes um's transmndon .apabihts climbmg Edison with up to.100 %1W Jurmy S.s f rom 1.2Kl \1W to oser I.950 \1W Ednon's luel and nutchased p>w er ~ summer peak period and supplio _ ne dropped .it percent to $l h5 bil-i Portland General Electris with accos lum in 1 mrn 5 bauam in Southwest 'hansmission to piwer to meet its w inter peak. M P "'"d"I) " d '#'"I' "I I"* #' '"I Inaddition.theCompany and es- A maior step in opanding transmiu a natural gas p&o. Although these ' er,al other Californu and PA ke om were lower than in any year since ) ' uon hetween Californu and the South-

• 1979, fuel and powet purchase con.

Northuest utihnes ugned amiFree- wot was taken u hen Edison hled an nwnt wich Bntoh Columbu H)dro to .sppheauon a uh the CPt 'C to con- tinued to be the dngle largot compo.  !. study the teaubikty ut a propned struet a second highaottage AC hne nent of the total cost of pnn idmg ym41% hydroelectrw proiect m from the Palo Verde Nuclear Generat- #I#'I"#'#'"'#'"'"*"#''#P'#* Hntah Columbu. ing Suiion near Phoemo Arvona to seming , emsout of exh re enue dollar. the 1)oers Substation. near Palm i Northuet Transmission Srnng' 11 aPenned this propned ""E' > # # '"""#E"" l.20041% hne w di pnnide Edson '" #'"I'#d"'"""' "'h' P' "Ii 'Ihe maior hnL lor ewhangmg piuer will about riou S1W of new transmn. natural gas purch.no that Lept sup-i betu een Cahtornu ,and the PA ihe phers o( this tuel competitn e w ith the ' uon 6apuns m 1944h with the remain-  %>rthwot n the Pxithi interne tr ine mg bio \l%' being shared by twher deceaung poce of oil Ednon alvi musum o stem. u hkh w n built Cahtornu utihho w as aNc. tor the first inue, to purshaw durmg the twit A 1:insludo eao smallquanatio of low sust pas-alternJtAng 6urrctit t ACi trJftsinnsiori about .1 percent of us total purch.sws - llofitwslile Pawet Polic) Imo and one Jiresi surrent it)C e hne. Jirectly f rom wiurco outude Cahlor. ,all capable os transinannp large the Honneulle Power Admmntratum nu hir kinery to its power plants. As , , (, , , amounts el ele 6 trait) m cuher dirce iHPAi. a tederal poweraurketmg non at otra high soilago ageth) in the PAits Northwe t and a g4 nWhon Htu I hn tranunnuon sptem hers'ih w. alnwns 40 percent low er than nutor suppher et piu er purchased by hoih regams. allowmg ths %irthwi si g g. gg i daon. h.o . adopted i arnius polNio lo market its surplus pewct ma mak g , mienJed to ins re.ne its resenue and iny ( shtornu energ) wurce .6 Jilanic in thow of PAsth %irthwol utdttio , .. i to the %irthwei lhe PAdk inictite inim ulo ot surplus clectne t) to transmn.hm splem he sased I dtum l dnon arkiidher C thtornu utihties ., p,w rironithe P the North-s ustoniwts imitams el JoHars cA h s eat %nt of thn elestneti) sold by HPA urse in 6onstrus thm , ,, ,, n gener.sted by low se t, Icderally in t A tober, s onsttin hon began on a subskived h)Jrocie6 toc tuihties Ju6 my the $ ost ot ecimum) energ;s protc6i to m6 rcec the transmnuon  % g, ,,

• HPA he praed the surplus energy 6apAin of the Pasits intertie DC how sold toCahlornu at toch wcil abme trom 1.99M to 2.tNu \t% lha ime its pndm hon s mh. and he res.ith led 17 s nh per K% 11.12 per6ent below n ioiml> ou ned h> l dn.m. the I os g ,g y g A o,io the Pa6os Imerne by PAon Angelo ikpartment of Watet aeed Nirihwest ind wescen CanAhan g % ,,,g,g, ,,,y ,,, p,g Pow et .ma the munn spal unhtin of unhtws Ihn he m6reerJ pn o avst W d t hiN (ilend.k. fe,htu aest Hurbank , 3 ggg reduscd ric6:: nits salo to Cahtornaa

 % hen the proint n ompicicJ m l459 utihtio In t Alohes. HPA nsurd its Hs .omparewm, tlw higlws: .6 crage i dn m s transtnnsumiapAin osci Jeati pnipowl bw a l.mg term piho prh c l dnon paid lar purs hawd energ) itw hrw e di pu rcaw trom 421 \1% to ,,, ,g,g ic n.os to the PA us Intertic w hnh. tid i \in jg g it alopkJ. would turther irsts cc thu mp me war. plasming also um thoc toon tains u sth ,an .eds erw A%){ s J 6 nbrd rather tha hsyh tihuttl oli the e oint1Ws tiim of a thif d mipaiicrahunnu utibh suse Miers g, p, ,, M h5w to ttw Pads %wthwot g, , g, thew polsin et HPA hec ontaith i ht' pioih twd htii' kru tw D e ths ttinicawd puls h.4Wd @Hbfr 6 mt a lo rahtivnu Oregon leaswunsuem t ,ihbunu clestek simsunwr= 1 Jn

• Protes t. esimid AlJ about i idlit \l% isppews HPA s rate strutturr 48%) Hs y,g, p gg g g gg 44

To seek new brasinen opportuni. . . . . ties in areas taher than the regu- * ~ Iated utility busincu. Ediwn - - establi.shed a non-utility subsid- . . lary. Minton Energy Cunnpany, n his h has beconte one of the larg. <*ss ett,genertition conifa!!ies itt . ~ ' the United States. In first project. . a joint venture nith a Texaev - 1 subsidian, was the Kern River l Ctrgeneration Projet I that gener. ' ,  ? ates .itM niegawath ofricetricity. . ~ J l " ~ ^ then Indi:es the e.\haust heat ' - ^ froon the sur hines to prochoce steant . for nuore cflu ient oil.oes overy . - . - - - ~ operanon s. ., in the late 19.44h 1:diwn alw . 1 wayht new busonen opportuni. nes n hen it noounted vigorous annpaigns to nu rease Lilun art. - hour wies to in < ustoonen. In . . one sun entudprogrant. fidiwn cnernern prnuaded unan; vil , b . bcht opcraton to n onvert their l \ stearn pon cred snonsps he onore , cllu ornt cln toir pumps, thereby . , , produs in e nuore od for sale. g t - )iyjggy...- .. Ng. 'l - 2 ~ n l e l . . e 9 , ' - . ' . s-  % ,t y g \b , l'he auitab'ht) i of natural pe. pur- tirst dectric utiht) a the uiuntry to businen opportunitio m ws eral unreg-i chased pow er. and to a lewer estent. of ter aIwo.w a) data 6 immumeatums ulated market . These non utsht) sub- [ renewable and alternatne resources netw ork to us cuoonwrs siduno are separate trorn Ednoni 1 , helped nunimve omsamptam ot The Company \ new rew. arch thrust regulated busmew and are not chgible l lueloil The Company burnedimly aho mdudes greater emphnis on wir for reemer) of ciab or return through l l l 3 mithim barrels ot oil in 19M6. nohyin that w ill hdp it to beuime a utihty ratemalmg. compared to nearly $N nulkm in the more dherutied suppher o1 energ) The capHal comtmtted to thee s en-peak 3ear of 1977 By comparnon, a seruco The e teshnologws include tures a mislot compared w ith Edo l deeWe ago % on projected th.it it more produetn e heating and air conde soniinsohement m utihi) operationt l would neev .c % q more than N0 mib inmmy 9 Mems, nuire energ).ettident At > ear end l'MS. l.Jnoni equity m , hon barrelud : wl oil in 19M6 houwhold apphancet and adunced these non utdity subsidiarws totaled j l eleetneal euuipment used b) custonwes Shl7 milhon. In total. the sutwidiano New Phinning and in addition. the Company n toimg coninbuted 6 cenh per share to the f soerA pnimning energs Morage tech- Compann 19M6 carmnps Although NeseMt;h Szegies, nuiopin,mgoamp,inX,wpn,j,v, smaa no,, in nny ,na unae, yn,n that willN the worldilargot hatter). circumstanen these non regulated , in 19Mh. Edium adopted a nea strat-energ) y stem u hen it poo mio opera- busineu enterpraes could become i I , egy m its reuiurce plannmg pnsen to hon m 19u more significant contnbutors to the i better prepare the Company for tuture t ompann earnmp l unwrt.nnuo It hwuse on fleiNht} CoalGasif catiori Miwi$n Er ergy Compan). the and imwl) ropinsn enew to shange largot subudurt n hwated m trune. by mdudmp contmperw) roour" Re CM %ed coa G.nmeaun Cahfornia. and n engaged m the de-plan to meet unf orocen world and plant, hwated near Daggett. C.ihtor. sdopnwnt ot'electne generatum proj-l nanonA o cab or unpudn table nu. suusutully 6ompleteJ the second ects 1auona ide through jointa enture shango m i nern *uppi,s ,ind uw b mahe r teu pa'rtnerships m the oyencration md a realt. ths ( ompany n piunoned t rmine ib $Ennwro." pre yram to de-to proude chable eles enc seruce to leasihiht) The Aternatne enern areas At 3 car end. n n MW plant sombu . new and o. Mnuon Energ) had 315 MW oi 6 uMomers o en w nh 6onhnueJ atm te6hreihyes m an enuronmen. capaoh in operation and another  ; shango m the busmeu enuror. ment t4h deame toconurt a wide f.uinniW un&r &.elopment l and unopested growth pattern' s ar et ol ouh indudmg hg:% 1 Maior projeeb in operation irklade i in addition. Ednan nuned to l lur ul mio a 9 nthchs ge u.eJ m the "It AtW Omar Hillcogeneranon i s hange tne drestion of th rewars h # M - ' A'etrAH) lauht) near Okenhdd. and the 15 programs to prou& s u4onwr* w ith a i.msutons f rom the de ti.mirahon Mw Heow.sw e Scothermal plant near j beiter bdue for their energy dollar plant hase been e low e one temh of tho. No ada Manir oyener.ition I  !!".o new ppma6h em;ihevo itn- g .y pnncJ telub.lity anJ quahty ot de. .MMi% i . o Mer de dopment in Cahtor. ,. Protation Age:io fos sod plants Ins w,uw. ,w.nid ens wn.g.a ,m. , ,, p, , ,,,, c, ,, , r',u .rslu& two m the hlershdd .irca . wrs ke opoons tor s uuonwts \tthe , , ,,..s,,,,,,,,,.y, i aluable intoonation . - thn tes hnol. Midway Sunset proiesh therealui sanw tune. the rs w dirn han s om piemenh the l ampany i uinunued Whd N lo's o.jprk o, arc twonearlung beash the kS-hin oa t- . Junonur anin plant a M% %atumand the rio M% Harbor i rewars h im plant operation '*o n- - M pr b miphnenwnb. Aternatne tus b .ind Ar r r aiuti e . % tih nhire Mewton I.and Company. h.ncJ m ennwinn omiroh t h- ninns 6ansunum m the GaranGrine Cahtornu.ouns and l . A nutor hi6 unit 1.divin s tewars h tuture howoer. tha nhn i'on 6ouLi olvreo mdeind parks m a number twiyram n the Asdopnrnt 014 , > rehable. low s ma nunmunkatam' AaU iw m ek the 6 oumtp donwsh6 .oal reuiui6o ol %Ain CMomwin W j me P.ai.inhount. Heca .ind Garden ( mIworL hetaeen ow Compan) and assi protn ting or quahti di w Ihers aho are plans to doclop m s ushmwn s a nw ns ot proustmg in akhtion to l /iu.n suh r protnt othe in lehiA parks m ur.tario and owm as sos t,i a ,4,wn .it s,w,n , ,,,,,,,,,.,,,g, m , m ,,,,,,  ; vn ne peiyram. and mhirmahon wn no lho onummasanon u wn. N A d h m Comioii m M M Mnwd%d i pow m O g g. p, g ,, y g ,dmb mCM.ien aould enaNe i dn.in unionw s t" It wars h Inunate and the bran piouJo owaultmy .o oubek 6 hems snhneItwn. neat etwrp smh bs g g, p ,, ,, g ,.g shitung wee.e of dww kgten om ,, ,,, g , i sutuptuin he bem ont pethiih y g i  % inn priysani hw 2 Mst.auonwn ' I C st ohiHi. ** als hbtfdt o yen restnet s n%hoh&db tua?..&terinuwitv t i leauhahn elIW twh4I " TsaniLean bng Wu ihe Compion otah.9 i

• W WW e dw %tu *k i ommune, au un % lous non uhhh suhusks ws to &sdop t itdw.uung geinhomet end uttist f e t.s iuf. o idesilsus6solbi r dissiti e i..i.' ti't the 17

/. .,7 : s , i-). *$ N s $ > - M, . ., s .,' . . , . - jf j'& ~ 2 . . . 4 s- N, o ' q" . - / -( ' t i . .*t j  ;, w9 n  : 4  % yt -  ; Q. //j ~ t I;diwn s olmstes n put theliswl toIn hrs on Iltrir ss'innine l $.1001-lall e ntrs ut a sand ss ulpturIIIe umir.st sponwrrdbs Cntled % aliInmer C swur la ran< limds Ior the needs and wuderpr n oleerd. Ihe Conopwn and as emphners

• has e a lone tradutum vlJumarme .

moncs and usiwsterrine thror innt'intels'rtel es ke neutterann e n u , < har aable, oeitusoon an<i , pubh< orcano:alwns theemehota ' I doson~ s se o s se < ten nor s .h an .. ,. . . . varIs r sample. altro the IV.t.! - .., I one He as h car thquale I.do wn rmphnres I,rmedshrn cles tore , esohne apphan< rs see Ihr Hrd hh I , t son ten as oclurt <lloots. u oth ., .. . p, the t 'omp,ms pomnhne to sas an.I .;-;[ $ ,, por table Las he on -E '.l. . ,h W 4K 5 8 Wo.on Fmanetel Management rose to 19 percent f rom 13 7 percent. mental science. wilar energ) and other Company, as y et inacine, w as normed Ednon estanished a Female and energ)4e!ated torio. The Company I to inset m high quality weu.itio. \1:nority Dusmew program w tihin ib prin ides esterwn e educational mate-leasmg actiutin and other t'nanual procurement dnidon in 1979 Smee ruls to whools w ithm th sen we tern-undertaktrigs then. the number et female and mmor. tor). It alwaupporh south 6t> budnewo qualihed to do buunew organuations such adumor Achiese. Edhon People with Edium has rnen by rnore than ment and the Esplorer Scout program. .bJ percent. from 207 to N96 Total Dunng 1986. Edium mtroduceJ TI.e The succewo of 19k6 retteict the hard '""I*h *w arded competitn ely to Science Omncetion a new eJucation work. JeJutnin and inntn etion of these hrnd inamed m safue from program aimed at timulaimg student + 53 7 milhon m 1979 to $75 millam nw te than 17.500 Ediwin emplos ces. interest m wience and te6hnokig) and They are the Compann greateEt asset, during 19M6 acquaintmg teachen w ich a s anet) oi w hether thes are the Enice crew s and high teshnohigs tea 6hmp roources. In

suppirt perbmnel uorking hmg houn COmnWnih ln\OhCMCnl a partnership with the kt Propuldor

, to rotore piw er dunny storms, power Labomtor) and the Ntional Aeronau-plant operaton a ho keep the generat- In addihon to sen my customers on the in s and Space AJmmatr.inon. the ing stations runmnp smoothly, or engi- pih. the Compan) and ib emph um61ue project leaturn the u.c of .i 40-

• 9 en neers, aWountants. ClerieJ1 worken. soritribute in J sarsel on was s to lm- oot s senirig Js a phihile elJss-meter readers and thouunds of other pnn mg the qualit) ok hie an'the citio inim. equipped u ith lawrs. robot .

people workmg ethewntly behmd the and commumtio they sene. tiber opties and computert weno to proude the bot pomble ser. The Company encourage ih em. me to customerund a 6ompetiin e plo)ees to partiupate m many commu. Emergency Alert Serslee return to shareholder nity wn we aetnino, such .n the in reoynition no the m.m) chango i \1C A a,J Y% C A. it.e .specul in a new commumt) serme of tered taL mp pl.ne m the c'ectric utiht) in- 01)mpics. wouting and programs I ir sp.ema nie Juring ;9Mh. Ednon i dustry. EJnon 6ontmue to create ani. wmor uniens Heido thee actoi. Wl'Io)e6 'n schwlo with two *a) espand traimng, me mae and reoig, ho. the Comp n> also suppirk ., w ide radiowan now rela) calls for help i nition pnyrams to impmse emplo>cc sanet) of culturaland eduonorwl trom ausens to emergenc) genon. uork sLdis .md athtudo to help them pnigrams m 60mmunities thro pt out sus h as pa amenten pdue and hre Je. hetter ropinJ to new shallengn its wruce territory pa7tmenh I hne LJnon s chalo are iJent:'ied w uh a des al readmg "Emer-l ARirmatise Action Education Programs FV"') Men %enice. Odio+ quipped \e% c ' l.dium omimuej to trkrc w the pro- 1.dni.n has a long tradmon of proud. pittum ut Mth . nnorihn and uomen mg suppirt and an.st.ms e to edas.nuon ERIlfd U8.6 Campaign m it work forse duftny 19M6 \tmor f or studenh. the Company h.n three n) reprewnlation rose to itt percent sep. irate %hol.ir mp proprann. and in 19Mh. Edium emplo) to 6oninhuted l trom 29 I persent m 19M9 and female through in i Ju atomal % nory %2 B milhon to the l nited W ) On a emplo)co insrea*cd to 24 7 per6cnt Counut, the Company aorkulowly per capua b nn, ihn pla6ed l-Jnon trom 24 2 persent in the pro nous ) car u nh tea 6 hen, admmatr.iton anJ 60m. people amimg the le.idmg .ontnbulon i Durmy the last ine yean. mmoratio munity le.sders to J;s chip cioccine

• in Cahlorm. to t mied %a) and the l in mangenwnt pnitions uk re.ncJ to sJui,atnmal materials that an be used more than 9tiu.haritable organua sons

, ju per6ent trum l5 S persent. u hile to te.n h sim'. .h bout ele 6 tr ul it supperb mangement pannita held h tem.ilo utet), enerp sonwn ation. enuron-IVreenasse of tuan suwe ., an 1,s i \ lair, Irmalt setl \ tale temak lit.id I smces is lisliai- l l..pam. \lm gines i , \liaisritt Isiipliam 's . '. . .. ,

8. h 0*4 Rd i h.J l si.1 hai l imi har i sea h at i J has i siJ h.it I we ie,ir i est Inti and tw lut t9me, bis inna tunt avan tunt ensi rmt nne. oni p,sn gunn l

tuni m I \I4na(cHl. . hh I 44 4, 't' tS8 o 4) 0 *$ %i

• is % .i 4 '

li 9 .) 41 l% 4 li s g kbiususuatac A 6 Its sain. 's, o ') l 24 o 4 e6 6e .a 4 4t 4o t si i] l*4 l) o no j n eg 14d t .aliep.,io # 4 '% i )ie h 24 ' 'o '4 4' 4 .J o4 si 'l le a j f. a J4 4 46 9 il

4. h ......m....c ..... u.4 uu i m.. .s . ,,a st... ... . . a n..i... s. ,o,u.s... .. .. % . I

s. .. .....v. .. mn it s . ... . g ... . , a. ii i......,.. i io . ,,a . i, ,,. .a ........ e in ,,. , , , . . . ,,,,a  !

s . t . . u .e 6. 4. , si. g.e . 1 . se. l. . di . I a e . ..I i.ept.... . . 19 1 Edison common stock traded at record high prices in 1986 and outperformed both the Dow Jones utility.:verage and the DowJones industrialaverage. boisIngham. manager ofInves. torRelationsforEdison dis-cusses the trading activity of . Edison common stock at the new . Pacific Stock Exchange in bn  ! Angeles with Mike Harper. the

• specialist who executes buy and sellordersfor the Company's
• securnoes. ,

In 1917. the Company adoptedas \ eme ofitsfundamentalpolicies l the sale ofstoc k directly to cus-tomers, employees and the local < public. Edison's Securities Depart-  : mentfacilitatedthe sale ofstock l l directly to the public. including e. . < ' the multi million dollarfinancing , i ofBig Creek hydroelectric

• projectsin the 1920s.

. . ,f i l I . . j ~ i l I . 20 L__ __. . . . . - - _ . .. .. l The rate of retum earned on com-Financial Redew mon equit> wa,15 i perceni. exceed. ing the 14.6 pcreent level authonted  % p m co,p ,% The Company reentded significant by the CPLC. Howeser. the return on --- fmancial achievements in 1986. common equity aould have been 14.8 l], including: percent w ithout the eval plant incen- ,m..

• Eamings per share reached an all- tise award authorized by the CPUC.

tine high of 53 28 for the sixth con- Contributing to the high level of secutive year of record earnings. earnings for 1985 wcre lower interest

• The Board of Directors increased the costs and preferred dividends resulting common stock dnidend 5 6 percent to

/ u, , from the Company's aggressive re- $2.28 per share annually, the Iith financing program contmued empha- , mcrease in the past 10 years; sis on cost cont ol and productivity.

• Total return to ecmrnon stock share-  ;

and the reward for favorable coal plant " ' holders from stock appreciation and operatmg performance. The increased = I dividends was almost 36 percent, sig- earnings were achieved despite a nificantly caceeding both the Dow downward adjustment in the Com- , knes utility aserage and the Dow ,,  ; pany's authonzed rate of return on - Jones industrial aserage. "Du Com- common equity from 16 percent to i pany's ascrage compound annual re-j  ; 14.6 percent and refunds to wholesale ,,,,,,,,g  % i turn of 28.5 pereen ner the past five customers resulting from Federal > cars also has outpe. formed the Dow

• C"*P"> ' 'k P'' h'$ '"'""'d Energy Regulatory Commission rate Jones averages oser the same period;
• decisions.
• The market pnce of common stock Earnmgs also reflected a $15 mil-

, "$"$"M","il,$ #',*I, , ) .no u,, a,. une, induanal avmp. reached an all-time high of $38% per hon, or 7 cents per share, charge shre on August 21.1986; against income related to the portion of i + 1he quality of carnmps reached its the CPLC's msestment disallowances highest level since 1974 as the percent-j forSan Onofre and Palo Verde that the i age of earnings exclusive of ron cash Company did not appeal. Allowance for Funds Used Dunng Dividend inertases Compared ) in terms of the fmancialimpact of with inAstion Constructxm meressed to 81 percent; I the portion of the disa"owaxe being i , + Taking adsantaFe of deciming appealed. it is currently estimated that e sch on.dend Ree interest raten.the Company issued a if the appeals were denied m their en. - Gewner Prw inh i record $17 billion of debt.allof tirety u nte ofh for San Onofre and he , which was used to refinance higher- Paso Verde would total 5314 million. l'a ) cost secunties. The Company reduced This amourit, which may be affected its weighted aser Fe etwt of outstand- by the timmg and the outcome of both u3 - * ) ing debt to 9.1 percent. 6ower than any  ! the appeal to the CPUC for rehearing j other major Cahforma utihty; and a pmsible appeal to the Cahfornia n.  ; i a Interest coverage, although down Supreme Court. n comprised of $102 6 slightl) from the 1985 level. at 4.2 milhon, or 47 cents per share, for past i times remains well above the industry revenue collectums that would be " ' average; treated as a charge agamst earnings in ,

• Internal generation of funds reached 1987 and 5212 milhon.or 97 c6nts per ,n 80 pertent of capital requirements, stare, for a one. time rate base adjust.

' i the most favorable leselin over 25 ment that would te reflected an a l , years restaternent of pnor earnirgs. These "ai enmm and financial reportmg '*? '"' * ' " ' ' * * > Record Earning and Rewitues methmh mume that the appeah *ill n' Ik*d of hace **=8 the ddmd ' be desded during 19tl7 m hich is "" "'"""" '"'d 8 " "' C ' 8 *h*" * , Earnings and revenues for inhet

n.

• recards at $714 mitla and 55.3 cunentty anticipated, [',"' 7,,',[,*,7

, , "",,,, l t Fur addisonal mformatkm em the i,un , m,,,,,,o ,,, in, et,,,,,,er Pries indra l  ; bilhan. respectively. tinannalimphcatiorn of this myter, i Earnirigi per d.are of coramon stock ple.ne refer to he 2 of " Nines to ' of 53 211 were up modercich imm Fm.acial Statemenn" m pre 46. , 53.26 camed in !9t5. Egrpnes pn p share have gmwn at an annual cora. l pnund rite of 5 V percera oscr the past ' , five prats. r hI l i l Rate of Return Reduced in the plan. These participants pur-Pretas interest Cmerage chased approximately I.7 million The CPUC. m August, concluded its re- shares by investing oser $52 million of l siew ot'the authonzed rate of return on dividends and optional payments. ) common equity for all major Cahfor-  ! ,,,,,,, nia energy utilities. This review was Credit Watch Systern l undertaken because of signi6cantly ,, lower mflation and interest rates. The Edison was the first U.S. utility to op-

i. a CPUC approsed a stipulation negoti- erate an early warning credit system ated between its Public Staff Dmsion that tracks the creditworthiness of its  ;

and Edison rega-tmg rate of return on 350.000 commercial and industrial . 1 common equity and capital structure customers. The system is designed to l' for 1986 and 1987. identify customers who are in danger . l ^ . The approved stipulation reduced of business failure. Once identified. the Company's authorized return on arrangements are made to ensure that common equity from 16 percent to those customers will remain current on ' 14 6 percent in 1986 and to 13 9 per- their electric bdis through cash de-cent in 19f>7. The effect of these re- posits, surety bonds or more frequent - duced returns was partially offset by payments. This saves money for all ~ m: mi i.,o ,,,,, ,,,s,, increasinF the equity portion of the Edison customers by reducing the Company's capital structure from 45 amount written off as bad debt. temps heiore mcome ines aw imeresi snnve .m Jehi .en a : unes ,rraier ih.n percent to 47 percent. The impact of in 1986. the Edison credit watch detu erm .mh Esett though leniereg the decision. independent of other fac- system reduced write offs by $2.2 mil- .meuve .e o.n siishii> m m tws. 4 r.tia tors, w as to reduce authorized earning lion. bringing total savings to 16.5 ..e 4 : une n ewelleni est siemthdad) lesels by 17 cents per share in 1986 mdhon since it began five years ago. hipher than the ristusiry aser.se MhaWMedMmuyAn in 1987. Capitalization Dividend increase The Companyi total capitalization at year end w as 510.1 billion. Over the lcternal Generution of l'unds in keeping with the Company's mtent past hs e years, capitalization has to prov>de a competitisc return to com- grown at an averaFe annual rate of 6.8 mon shareholders, the Board of Direc- percent. The capital structure at ton in June increased the Compaiy's year end 1986 was composed of 47.3

m. common stock dividend for the lith percent common equity. 6.6 percent time in the past to years. Over that preferred and preference stock and time, the annual dividend growth rate 46.1 percent long term debt.

has exceeded the rate of inflation by ,,., . 2.5 percentaFe points. The new annual Corporate Financings ,,,, dividend rate of $2.28 per share is 5.6 percent higher than the previous an- In 1986. Edison entered the capital nual rate of 52.16 per share. The cur- markets nine times, completmg 51.7 *

2. rent dividend presided a b 7 percent billion of tinancings-the largt st ti. ,

yield on Edison's year-end common nancing pmgram in the Company's stoci. market price of 533% per share. history. None of this amount repec. 1 = =A sented requirements for new capital. I E DMdend Reinwstment and ' Rather, the financmgi were used to i Stock Purchase Plan refund higher cosi securities with . ...s : o,. i . ,4 m. me. lower-cost debt These retinanemp  % th mapw nre generaiseg ta6iMc Hk.hadegi The Compan) contmues to ciIer a weit accomplished through aggrVsshe j m.wo-wr r.ies meer he neo ve unnel Dmdend Reinvestment and Stock Par- i imprmemem in un.m . imern.i renerna.m .. chase Plan as an investment opuon for tuWs in lwsth, the Camipeep prt mN .4 n, ' I 6erwist requiremanh imemelf). the hiphrs:  ; iriei ni,ee ih.n :s 3,, year end. over 40.000 sharehokiers, or  ; about 25 percent of the holder' of Edi- l wm commim stock, were participating l I , use of call provisions market tender 1986 Financing Program programs and open market purchases. Term Ami>um We6t html A$erage Cost , Since the Company began its re- enes Wearo .Waw of Long Term Debt 6nancing program in late 198 8 mhen uw issu mterest rates started to dechne. Edison riru neid acturidla Marts.se so as: ! has issued more than $2.7 billion of mA. 4 .4 to 5 400 R68. 8' 9 ,,y debt, mostly to re6 nance higher cost 32 2W securities, saving customers over $70 "C "'d 33 25 *><-'"' i million iri mterest costs annually "d* # g ,,, ) ,93 - ~ 'o Durirg the past three yenn. the ,' a v. to 2uu . Company has aciively utilized prosi- 21.7%4 to 20u I ,,,., sions of the federal ta law to pursue 8eJ. Mumn Cimirut.129 29 8 " ,, the benc6ts of tax exempt 6nancing of ""A '25 g pollution control equipment at the San Taal Eked Issued I A29 1. , Onofre and Palo Verde nu,: lear plants. 1he result of these efforts was the is-c p,,,, 4, - ,n l suance of over $575 million in 5 ariable imaN h.ves U42 - !. rate tax. exempt bonds. The s anable u riners i rate structur of thew bonds has pro-vided Edison with s. ,e of the lowest Firm med Refunding Marteese Be ds: " { u9 an ia' la' ia5 i*' i = financing costs asailable in the capital c,i, cine a%, m markets. The average rate for 1986 ^ " ' " " " * .'" 8 P'"' *" * *' 6 i " 38 P'I##U Ongoems I"I"*cr the Company.""'""tned a weig aserage cost $mlung Ftied Obhgatwm (34: of debt from the peak or 10 59 n 1983 to These Gnancifigs, along with mam. - 919 in 1986. *Nch mill uve customers over taining a high quality AA bond ratmg. noiunoss. 570 mains annuali; , hase contributed to the reduction of First med Refunding Mortanee sands: Edisoni average cost of debt from i x$ A.139. duc :ois 10 5 percent at year end 1983 to 9.1 oender purchasci si74, percent at year <nd 1986. This is the u ilus. due 2ms walh i:tio lowcs: cost among all the major Cali- "P 35' A d"' '9"i alb ihm $1,000 Isriestment in i fomia utilitie,- W N oca e ' 3h Edison Common Stock Edison is the only major Califomia n i:9.due:oi:nenden si6n utility whose bonds hase not been tr. vv.g. aue t9 3,c.in m , , nac. ilos. Jue Outs . n,,w.a, downgraded by Moody's or Standard ~ oender Purchnen 117$1 m tijuninmalinscunwm d"' 2"' ' "'l" "'"' j & Poor's since these agencies first "" " b' ** rated the Company's bonds. Pos.6 c tria new. e sends: j o j Although the Company's ;mproved n4 A. var Raie. Ju n u.lu 0 96i intemal generation of funds has re- # '" ** d* 2"2 ' " " "" ' " L' duced the need for new money to fund 14mtens: its construction program. Edison " '#" " "*"' ' l foresees another actise financmg pro- reminisim rnreme sano ini l gram m 1987. This program includes 5'UD P 12 " "*lh '"h ) tinancing for a moderate amount of '[, - [3 N '[*,",', -w money as weii ., *c ,eder, ion of high-coupon debt. maturing bond g,o,,,,,,, ,,,,,3, iwues, sinking funds, and the restruc- . ., g , , luring of the nuclear fuel financing. To === i , , meet these needs. Edison will continue .n,,,,,,,,#,,,,,,,,,,,,,,,,,,,.,g,,, in: n. n,u .., n,,,,, to trumitnr the dornestic. European and japaflese financial markets to seek the "* '" ' " lowest <tht smsfves of capital- bhum cummon stak pnnn!cd a returti to ' invessors of simme WI en 19866 A $i.nuu i IN%e%InW9% 18 IMm Wilf%rlhe %I(Ek $I lII j IIegiftfilfig ul lWK2 m nuld heve ghten iO 13.hoh l II) )f@Pftle lNla. 5 Eurhlhi,Jhd aftfingl f?fuff, j id :sl $9 ._ - 23 I Throughout the 20th Century. ' l Edison employees hase been . l l at theforefront ofdeveloping . new applications ofelectricity ' l' to benefit its customers and . l communities. At the Orange County Performing Arts Center, Edison enerey services represen-tative Douglas Quick discusses the ,  ; operation ofa new, sophisticated air conditioning system with Jim \ ' ' , \ , . } , \  ; Napier, the Center's chiefengi. . neer. Edison has given the Center [ an energy-efficiency awardfora , system thalfree:es water during - ofpeak periods when electricity \ isless expensive to generate, creating massive blocks ofice \ thatfdltwo basement tanks the \m \ ,, si:e ofrailroad cars, which in \\ , turn are used to coolthe Center . .1 during the heat ofthe day. in the early1900s. Company .. < representatives worked with ice manufat turers to utili:elarge , . nectric motors to run ammonia . 1 compreswrs, which provideda -' continuous supply of 25 pound l blocks ofice topreserve perish- l ablefoodandrefrigeratefresh produce shtppedby railto distant vaarLets. = 4 e 24 . * \ , PaloVerrk Ratemaking 1988 General Rate Reqeest Regulatot} Re\13 Stipulation t Edison applied to the CPUC on San Onofer Units 2 and 3 in October.the CPLC apprmed a December 26.1986, for an merease in Reasonableness Review stipulation negotiated by its Public hase revenues of $265 million annually. l Stalf Disision and Ediwn to establish or 4.7 percent. effective January I. De CPUC's four year pmdene) re- ratemaking treatment for the Com- 1988. Fuel and purchased power s icw to determine the reasonableness panyi 15.8 perc ent ow nership inierest etPenses are handled in separate pro-of the construction and start-up costs in the three um Palo Verde Nuclear ceedmgs and are not included in this  ; for San Onofre Units 2 and 3 resulted Generstmg Station application. The requested increase is , m a 3 2 Commission vote to remose Edison agreed to the stipulation to designed to provide an 11.79 percent 5344.6 million of certain costs of the avoid the protracted heanngs and sub- rate of return on rate base and a raw of , units from cate base. Edisoni share of stantial e apense that a formal reasons- return on common equitv of 14.75 the disallowance is $258 6 million. bieness review of the Palo Verde percent. The Company has asked the CPUC construction process might entail. The

• De Cornpany also requested an for a rehearing on $284.3 mdhon of San Onofre reasonableness resiea additional 537 million rate increase ef-the disallowance-5185.7 million in required four years to complete, and fective January 1,1984 for previously 1 i . alleged licensing delay costs and 598 6 the Palo Verde review could be more authorized Palo Vert Umts I and 2 milhon in indirect costs, ne Com- complicated because four state public costs. Together these actions, if ap-panti appeal challenges the disallow - utihty commissions could be invohed. proved, would increase rates $302 mil-l ance of these items because it is The stipulation provides that: lion, or 5 4 percent, on January 1.1988 contrary to uncontested evdence in a for esery dollar of Edisoni San

' in its application. the Company re-the ca.c. Onofre Units 2 and 3 disallowance, quested that the Commission approve l De Commissionidecision was 19.3 cents of Palo Verde construction a new rate design that would more unjust in many respects. including: costs are to be disallowed. Based on ' closely reflect the costs of prmiding 4

• De CPUCi Administrative Law the CPUC's decision on San Onofre as service to s arious classes of customers.

l Judge-the one person who heard all it now stands, the disallow ance for l 1 Current rates teflect a long time 95 days of testimony by 37 wimesses Edhoni st.5 bdlion imestment in CPUC practice of keepmg residential for the Company and 16 *itnesses for Palo verde would total $50 milhon. rates low w hile increasmg industrial the Ptblic Staff Division of the CPLC.

• Palo Verde will be phased into rates and commercial rates above the cost of and read more than .t.300 e shibits ard oser a 10-3 ear period. A portion of the service. As a result, some commercial

 ; bnefs-recommended no dnaNwance; resenue requirement of the investment and mdustrial ;ustomers are (mding it

• The daallow ances are not supported is being deferred in the firu four ) cars, by the record of the case; ar.d cost effectn4 to install their ow n elec-but will be recos ered fully, w ith inter- tric generstion facilities, bypassirq the

(

• The Saa Onofre Umts 2 and 3 mere est. mer the inflowing six years. Edison syuem. De reduction in ules huilt faster and atleu cmt than other
• A target capacity factor procedure to these customers results in reverue comparable plants in the nation. identicalto the one applied to San losses w hich must be absorbed la'gely i Additionalinformation on the Onofre Units 2 and 3 mdi be estab- by residential. agricultural and smaller financial implication of this decision lished for Palo Verde.nc procedure commercial customers. Therefore, in  ;

is asailable m Note 2 of" Notes to the pmvides financial rewards if Palo

• its cu rem rate request. the Company  !

Financial Statements" on page 46.1 Verdei capacity factor la rnessure of is asking the CPUC to increase tesi- . The CPUC h also reviewing the operating efficienep esceeds 80 per. I dential raies and decrease industrial 5320 million capital investment that cent and awcoes penalties if the

• rates in order to pratect etsiden.ial the Company has made, or oill make, capacity feetor falls below 55 percent customers from even higher rates in m San Onotre Units 2 and 3 betseen during each fuelcyle period. the future.

the units' comrrercial operstmg dates and January 1,19NN. , 1987 Attrition Allowance San Onofre Unit 1 Ratt Matters i i . Effective hauary I,19N7, the Com- he Company is seekmg to inciude in pany w as authmited a 52 9 million an. rate base $125 mdlion of capital addi-nual revenue m6 rease as an " attrition tions that resulted from seismic design i J l abw snee," s,hich h a change m rates upgrading of San Onofre Unit 1. man- i to reflect changes m inflatitm und capi. { tal costs in the }cers hetween general I rate cases. I i f 15 3 I,. : . 3 sl j 4L 3 i { - . _ dated by the Nuclear Regulatory . wtitsns were included in an Apnl 1986 Commmir,n. dunng an outage be- deosion on the reasonablenew of R.nte oGe enn on Come a Equity tween Fettuary 1982 and November Ediwn's 198 e fuel ano fuel-relaied j , 1984. The Company also is asking the e xpenses. 4 * '" * *"'" 8  ! CPUC to determine that 5193.5 mil- During 1986, hearings were held on ' i lion of replacernent energy costs that the reasonableness of Edison's 1985 ', l resu!ced fmm the outage were incurred ECAC operations. A decision is - ,,; rer.sonably. The CPCC is expected to expected in early 1987. !4 "' n s. ~~ .. announce a decision in sprmg 1987. On February 5.1987. Edison re- . i , In 1980 and 1981. the Company quested a $111 million annual race  ! expended 553 million to repair steam decrease under ECAC, effectise June 1. 5 - = ~ !L generators at San Onofre Umt 1. In 1987. The projected rate decrease ' 1986, the CPUC ordered the Compan / is possible because oflower oil and , = , to refund to customers akut 516 natural gas pnces and increased avail-million of the 529 million already col- ability of lower cost spot market i lected and to permanently forego purchased power.

• I

= = 2 collecting the remaining repair costs. The Company will retam 513 million Chevron Settlement . of the amount already collected, and i ~ m2 m. . . m e .,, 516 million will be refunded through Edison paid Chevron Corporation future rate adjustments. Edison filed a 5350 million in May 1985 to settle liti-on N M ', , , lawsuit against Westinghouse Electric gation begun in 1982 mhen the Com-ncaded the newe.9 ie e ennunh as a ,,. Corpration in March 1983 to recover pany terminated an oil supply contract  ; . wh c4 te>arabie can; stant operenes perfor. the costs asscciated with the steam before completion of its 10-year term. ,ums ;ct an =<um myam estabinhed l  ! generator repairs. In Apnl 1984, the As a part of settlement. Chevron t3 the m c on n rw tee uarned court dismissed several of the Com- agreed to supply oil at market price a 1 ewn a c=mun ewe mer pany's claims, and in January 1987, the under a new 10-year standby contract, court dismissed most of the rersaining and Edison agreed to pay Chevron 59 claims.1he Company is currently con- million per year for the standby ser-sidering whether to pursue a court vice. The early termmation and settle- 1 appeal. ment saved Edison customers more i than 51 billion. and the new contract  ! Energy Cost Rate Matters will tower oil inventory costs by pet,-  ! viding the Company with a reliable  ! The CPUC authorized Edison to and competitively priced alternative I collect 527 million in Energy Cost source of oil. Heanngs were com-Adjustment Clause tECACl rates as a pleted in 1986 on Edison's application j rewstd for efficient operatson of to the CPUC to recover the settlement j the Company's coal fired plants- payment over a 2% year period and to i Monave Units I and 2 in Newada and find tne standby contract reasonable. i Four Corners Generstmg Statior. Units A decision is capected in spring 1987. l 4 and 5 in New Mexico. The CPUC . granted this award in 1986 for the Revaluation of Fuel planti1984 performance, based on OU Inventory - 1,  : the Coal Plant incentive Progrern  ; I established by the Commission. The Edison and the CPUC's Public Staff CPUC. however. dis.llowed 53 mil- Division agreed to a stipulation that hon ofeapenses for research relat*d will resolve the disparity hetween the ) fueluit testing, finding that these pnce of fueloilin mventory and the , expenses would be more suitably re. current market value of fuel oil. The covered through base rates in a gener61 stipulation requires Edison to revalue rate case proceedmg. Iloth of these the fuel oil inventory, w hich w as pur-l chased when oil prices aere much higher than the cunint market price. ' s l It  ! n . . l l Edison will recmer the approximately lives and loss ofinvestnwnt tax l $96 5 milhon differerawl through credits. The reduced cash flow and rates with interest.oser a two-year Funds Required for Construction the lower corporate tax rate will be period beginning June 1.1987. The reflected in customer rates The new CPUC approved the stipulation m tax law should have httle impact '"'" December 1986. along with similar on earnings. ,',',"l", l aFreements 1or the other Cahforma u,.. o ~ 5' " electnc utilities Hydro Relicensing 5' ' 4 New CPUC Commissioners Federal enactment of the Electric Con-sumers Protection Act of 19% con-Stanley W. Hulett, a San Francisco cluded a successful effort by Edison ' , energy consultant, was appointed by and other investor-owned utilities to Ocvernor George Deukmejian to j ensure fairness in the federal relicens- . the Commission in May to replace ing of hydroelectric plants. The new o William I'. Bagley. G. Mitchell Wilk. law protects the interests of millions of a special assistant to the govemor's inscstor-owned utility customers by i . chief of staff, was appointed in De- allowing them to continue to benefit cember to replace Priscilla Grew. from low-cost hydroelectric power. Halett's term expires December 31. The Federal Power Act of 1920 gave ' ,, ,. ,,,,m,,,,, 1990; Wilk's term expires December preference to municipally owned 4HwMs iPropkd s 31,1992. ' utilities over investor-owned utihties a,on , conuniction pmemm owe ihe next In December. Hulett was elected in licensing the initial developrnent of Ave years is esumated io mal sa 5 bation. President of the CPUC. succ-eding hydroelectric projects. The Act was emped to 5(8 balun for the pan fin Donald Vial, who will continue to unclear as to whether that preference t C """" " '"P'"'t"um M Pmfected serve as a commissioner and whose ' ' applied to relicensing when original ,[I""'*"'*'" term expires December 31. 988. c ,, g licenses expired. 't such a preference gains...on y i,m, The other commissioner is were to apply upon relicensing,it , Fredenck Duda, who was appointed would give an unfair advantage to the by Governor Deukmejian in 1984 for a relatively few municipal utility cus-term expmng December 31.1990. tomers over the millions of investor- , Victor Calvo. who was appointed to owned utihty customers who paid for the Commission by former Governor the bydro facilities and who now er. joy Edmund G. Brown, Jr. in 1981, com- the benefits of low-cost hydro power. l pleted his terrr on December 31.1986. The new law establishes that there is i Gosernor Deukmejian is expected to no statutory preference given to any , appoint a successor soon. appheant, including municipal utilities, l when emistmg hydroelectric facihties Legislative Review 8'e relicensed. insiend. ii resvires that the Federal Energy Regulatory j l Tax Reform Act of1986 Commission, when evaluating 1 competmg relicense applications, must i The Tax Reform Act of 1986 lignif . determine which applicant is best candy changed the nation's tax system, adapted tc serve the public i iterest. The major impact of this law on Com. The Company appreciates the sup-p pany operatiom, other than a lower port of the shareholder, customers. . corporate tax rate. will te a modest legislators and regulators who helped I > . decreaw in imernal cas generation achieve the passage of this impartant  !' l resuking from lorger depreciation consumer protection legislation. I 1 i > i l 27 ..__________d I g.g hetween rival raitrewi companies briefly lowered the fare from St. i Imis to Los Angeles to just one dol-tar. While that amazing fare didn't last X long it provided the impetus for a flow of new senters ieto this region  ; that continues to this day. These new residents demanded the y 4 same quality oflife they had enjoyed Dogy or s8 m,2 Dansforneen areJirst used to raise 8t*'rator nunput voltagefor long- = '"""' "a*"""" "f '""'r a"' 100 Years of of se san Antonio or "romona" ' Achievements service within Sousern California in the East, especially those "new-The Pioneer Years was especialty challensins. It was a fingied" electric lishes. In ademon to 1886.-1900 resion of r=Pid giowth and change, Visalia's mility, other predecessor and a place where even the geography companies of Edison wre organized On the evening of July 4,1886, a of the land-with its long distances in Santa Barbara and at Highgrove, in pratanewr of the Southern California between power plants and population Riversade County,in 1886 (though FAman Company first provided elec. centers, towering mountains and blis- they did not deliver electricity until triciry for street lights in Visalia. Since tering deserts-tested the hron, the following year). that important day, generaborn of de6 daring and creativity of the people cased electric mility e-@ym have warting to establish electnc service. l been wortmg hard to provide an ade- In the same year that Edison's first o j 4 quase and reliable surpiy of electric ancestral utility began providing d power within the 50,000 square-mile electric service, fierce competition - t , area of Cesar 1 and Southerr. Califor- , I nia that now cornpnses Edison's ser- ggy ' vice terrnary

• armaad in that arts are Calfornia'sJirst conwnercial hydro-

't . ' 'e than W cities and cornmu- electric plant, budt by one of a trio of + "' **0 W IO *illb0* F**F It- enterprises that connprised Edison's Whik & workers across the ea,g;,,,p,,geces,o,,,y,g ,,op ,,,. g s' ***** I*C*0 SIbC'h*** 0 " 6 'bc tion at Highy we in Rineside \ ' Pesar years of the electric utility c,,,,y, , g N inc'estry, the task of prtmhng electric p m . s hers. CaAny, in wtons, and her endsenet conne to Resen trema General Doctrie = to desmesserene earty electrie eenking sayineness. . 1II More than 2/100 real estase agents west regissered in la Angeles Cous;ty in 1888 and iti not too sur. . prising that 60 cormnunities and . *,e

• towns sprung up in the greater Los Angeles ares thsd year. Cospled with the convaalent travel otfered by the new transcontinental railroad ayseems, a ser6ous Minard in the East in March of 1888 innde California) sunshine seem especially atractive. As still VtmAs ashbreen te pourt af Mp 135. %else a glas globe, p at the essesmo.

amps pieuser sheett serest Bass sysema, heaghs eier me seest is apper ha serner. 28 Consolidation 1901-1919 During the 6rst decade of the hen. tieth Cemury. the original pioreer elecme companies were consolidmeed inao larger regbnal syste:ns. This amalgamanon of electic compemes resuhed in more reliable and lower ' ' cost electric service ') Southern Cali- ' fornia commumtics Under the drectice .a presadent. John B. Miller,:he E&aos Electre .#- Company ofles Angeles quickly ex- " pended. The utility eveamany pro. vided power to commumties as far a # south as Santa Ana. sorth to santa ,i Barbara and east to liedlands. To re- ) , , .4 flect this expensace, the Company's name was changed to Southern Bend ==rhuss immesE the last seguesas of pousset pipe at Elg Creek Ms.1. Cahfornia Edman and h was rein-Mus esugheed. the pepsene had the Isaged and sengest W Bruna reurweir to weest whos; et any J ha the wortd. caporated on July 6.1909. og % g g oxurs soday, many of the Easterner, electric utilities comanued to imind meio planned a:Jy to vacanon on EM new Power plants and expand 1 heir 6 the smany Ps i6c Coast stayed and EAson's Smua Ana Riwr No.1 Rydro / her==e new residents. Plast begiar operation, cronsmining  ! The,qndaoon ofles Angeles and Powrissoles Angeles awr At Ornager%= hee was 33.400 in 1880. aa'ioa's loatest W asil'8)Powsr fine. This increased more than five times over to 190,000 in just 10 years. Dur- peopic to the area. In 1895, the re. ing the 1890s, electrx companies gion's anraial oi' output reached one were forrned in enany communities to trullion barrels. meet customer demand for a serwcc in this time penod. farmers began ' > , w that spuckly became a necessity to benett from electric water pump-of life. ing, making irrigation of crops easier. Dining At Home Dunng the 1890s. Southern Cali- ' la 1994, the FM Electric Light b = * ,ew .n fornia's oil industry boomed. and the Potential forjobs and weehh from and Power Company, a predecessor of UlmT. EmT " black gold" twed thousesds of Sowhern California Edison. became the Aret utility to offer farmers elec. $ 7.*,"'f,,T,g l tric ranspreg.1h Rarilaath utility M***ad **;=,=,;'

• w asemis. <t

, was able to do sie hara==e in 1893 it .,

• s"dtY,,

, began gerating its Mill Creek No. I ,',

• gr==se -m==4 U.M Gi plant, the nation) Erst Comeinto dayandlet i three-phase shernaung cummt power us abow you the mer-i l pleet. This new semerating technology its of this new lanap.

could opense moeora bener and more ]  %%h% i - l ekiently, and it was swetually I . . . . . . ado,.edbyseu m % .e  ;"_...,.* Uniesd Steses. gensesseener,r,tes,imeegestoo la 1997, the E& son Electric Com. 2 l j rephenment of hersehne Oght heAme pesy. Southern California E&enng servkes a men he Southland4 j hy to deDeery hope of the Lamp De- direct predecessor, began opersions growleg need for electricky for ens  ; periment.Tth sordse was tapertemt lighes, troiley lines. homes and bush in w Asgags, ' a the esye peler to the wthopstod ser nesses, le 1907. Edison Electric Com. af the emeters stenderd sevv.hsee U pesy waikws est a m'orld W for r Ices distance power lies construction i N j l 1 I with a lig-emik line to Los Angeles ime a Kern River trydrockctric phet. That line was also the first to be rgparted entuely on snel towers. , N tammar busmesses s and in-duearmes connaued to stow rapidly b i Caifornia became the nation's leading cil produceg stue is 1900, with the * '{ osspa concenerneed mamly in South- _

n California. San Pedro Harbor

.ierasmus increased folkmag a es-par exponsen prvam com. h, - y,*d in 1903. That year President , u ,. 7emodwe Rooseveh also signed the ' Pumana Canal'Desty, which paved - ' h -* Les Aaydse b. 3 Stumm Flant was the aerw center of the Edses synaus in 19t2,

• pH lighting engineers developed flood-other business a.r.M did much to
• fosaer growth in Soushern California, lighting systems to enable movie Mr. Huntmgton's bummess ventures directors to use indoor studios for included electric, water and gas filming.

utilities in addition to electric railways. Daring this period, electricity He helped to establish the Pacific usage also was incressang rapidy in the Light and Power Company in 1902 in farming areas of Central California. order so build power plants to assure The Mount Wlutney Power Compar.y. adequase electric power for his tmiley a pihenr of Southern California Dur% gnecetal Prusperty Wesk to opersoons Edison established in 1899, sold most 19e5 the Company Sned ens an decerte "' The m industry of Southern "' ## Califamia began in 1906 when avie-tion peoneer Glenn Curtas buik a the way for mastruction of a project commercial aircraft at r.is manufactur-that would dramatically increase ac- ing facility in Seta Ana. A few years tivity a Cahforma parts. la 1901, the Pnci6c Dectnc Rail. W "" Edtson's Kern River-Los Angeles

• F* # ""

Y 11ansnaission Line is placed inno oper. I"** ^W "'** arson, the nanon's longest (118 miles) unece and W H&gwa's ,,, gg,g,,, wg,g, , y gy, pow, line. It is AtJirst line ve the nethe redrely mqpported on sseel towers for in euerelengsk. laser, Donald Douglas staned rr.anu-facturing ,ircreA a in Santa Monica, and he buik the Arnt planes to fly - , amord the world. His aircraft gave W w pehin Ist2 W e the Unhed States a decided strasegic let af monde poirer, , advessage when the nation sneered . World Mr i la 1911. of its power e farmers in the San By 1960 another meer induatry was kmquin Valley for crop irrigation. That formlag la Hollywood as earty movie utilky buik power p6 ants along the makers began operations that would Kaweak and TWe Rivers to enable the ,. econ have a signiAcant impact on en- fegion's farmers to beneth from low-nortasament the world over. Edison's cost hy*oelectric generation. Another predecessor compary of M g af meert Edison, the Netada power, Mining h tours, and Milling Corgemy, was organized 30 . . l l rn 1904 and ;c - * ^:iy began con- ect to build a massive 250-mile-long 2- -. f ) y,Ak" - , - structxm of hys-Ask plants along gravity-now aqueduct to bring water * , ^ ' Bishop Creek. Bis compesy pm- to IAs Angeles from th' Owens < vided power for the n Hng operations Valley.De aqueduct was completed in the Nevada towlis of Tonopah and Goldfield, as well as to taher mming ' ?D' s g,g3 camps along the Califors*a-Nevada v gguo, p,,g,,,,,, ,g, pacgy,c ygg, i b*'U" *,'.~ and Powr Corporanon. energizes Akhough most of those minin8 Big Creek Powr Hoeue No. I and the *****0 Y b*'bh * **** ' Big Creek-Eagle Rock Tran.smaswa w ' 'b' Yb d'**W P I'*** '*U **'"'* line. marking the initial startup of the ~ mdey. As minmg opennons closed ,,,j,,. largesthydroefterricproject. s * , down. the power from those hydro. electric plants at Bishop Crect was " sold in various m rw in 1913 and immedimely spurred already served by electric - .m new giowth in the 1.os Angeles area. Also in 1913. Huntington's Pacific he Samhlan(s conneued M , . led to demands for exwe electncity. @ and Power Company finished the construction of Big Creek Power Ng Crest No. 2 pleet. M and also for more plentiful weser sup-p ;,,, g, ,,,, , g,, ,,,,,g ,,,g,gj g Houses No. I and No. 2. he abun- hNMWhd amnemmi asses began. i dont weser resources of the Sierra Nevada mountain range thus began ,  ; . pros.cmg power fa Cemral and Difficult Decades Sawhern California. Since ihm time. 1920-1940 Big Creek facdicies have been ex-i , panded to pro ide as much low cost Humorist Will Rogers was pyutar i . hytro pow to customers as possible. throughout the nation in tic 1920s. i ne et , eprut of Big Catek was But he was espectally popular in 8 4 a challenging effort. Huetioston had Southern California, where he lived. ..4 to build a railroad, the See Joaquin Rogen provided comic relief to Cali-and Enese 3. in ader m haul supplies fornia msidents and othen throughout ]l=e * ' 1' g and men to the renne area of Big the nation who were fa:ing eenous 1 9 vg Creek. Det feat was acecruplished la July 1912. less than six months ther difnculties in the years before and _ _ . , _ _ dwing he Great Depression  ; i . , work began. even though Huntegton In 1923 and 1924 a drought r=wd had none of the bulldomers and other economic problems for farmers and j modern earthmoving equipment for electne utilities and their custom-l l used today. ers, since Edison solied almost en-  !  ! LAng Beseh Steens Phot's speastere la amir whns omseh nearme seems ' hesus tist Ma. I en he era ser d eperuden. was inancient to enom she water needs of the growing musters of n 4 hasses and buskmeses, while still pro. vidlag enough weser for forslands. l j l Aa ==== ally *y **e8er cycle et de are of the ceaney endeepend  ; fannen' wheel emps sad focused the puhdici amantion on the poussbility of , earlons weser shortages. After much public discussies,l.as Angslos voers appeeved e inuhl miniastolwr pmp puent meerkPtig ned Can" heredend need traut a Gambers Caggerals and prestees nestie tres pertenes is nahes of anseemine hr men ene 88 Fears. 31 _______.__m_ _ - _ - _ ' ' - l tisely on bydmelectric power plaats One of de few causes for cele- w-  ; for ec.,cky. In the latter part of the bratson during this period was the . , j 1920s. she Company expanded its wus-n of the magnificent Hoover ., f i seeam generstag plant m Img Beach Dam in 1936, which is still today re- g - sgs-p ' to prevens fuese problems due to garded as one of de largest and most PIE - water shortages successful engineering mervels in the y s A, Major earthquakes struck Southern world. h - *; ^ Califerai' in 1925 and 1933, destroy. 'the Edison Electric Company had l ,, ing homes, h and one ce,-C building hydroelectric fa- t k power plant. Many Edison e..M cilities on the Colorado River as early ga volumenered to help wish relief as 1902, but transenisson of power , cNarts, and the Compscy donesed would have been dif5cuh and coudy. - - supphes to Red Cross food mana== and those plans were shelved. In 1921 - g e \- . , j ) . \ -t[ ' ,1 - ...%f* g 3 2*

• 1

. f- ' . Innover Desa, envim6mmeel by sugissers . g ' la 330.becomme a reeAry la 1936. .. j

g. '

. g = , Edison's proposals to build its own fa-J . cilities. a compromise was reached in k**g, . . S 1930 that designated Edison as the }' ' - s s > o utility that would operage some of # 1. -g.)A * . Hoover Dam's ,, ..;ecs for itself  ; . .' c s[g , v. and other inaesect owned utilities. ums.mecoo - iow d . l kA g 1-les Angeles C , i...ci,; of Water and , , ( Power to generate power for the par-g ;M # tscapeting anaes, municipal utilities a " U , . . , and the Metropolitan Water District. in 1931, a 549 million contract was bmWhwdWM@hwh apped, and constmctice began on "m Deter ler" seestsa af read treed pendte eiseg the precipheus gorge af she sea Jeegsh Rhur. the world's highest dam-726 feet-that would crease the world's largest W catasenphe occurred with msnmade lake. 'the project was com-the coilopee of the Cky of tas N pieted in October 1936, and nearly a Angeles' St. Francis Dem 43 miles N roshmaar,P k Soudhrrn million rmadents of the les Angeh northwest of Las Angeles, which led h P8"Tr CoaP887 *id8

• aree cMI downtown stroets to to essnesive nooding. As soon as an Arar W power @ men view the Arm delivery of electricity Eshson line patmint.i moti8ed Edison da d*r Uad88388r8-

 % % % g,m 4 Deepsecher J. D. Poe ofIhe dom's conspes a a few mismes aher mid- Edison,in coopers 6on with the U.S.

• night on Much 13.1928. Poe Geoingical Survey, esat surwyors ,

' " 3 phoned wereises to io snect posessial ehes for hydro. communkies in the pediuf she reging electric pleans along the Colorado needwesers. Poebysist ibisidag was Rivw. Beleon ofteials wwe pleased ~ credded w6ei enving many thes. with the reashs and tied federal y ^ to build dams and gener- * . . E, esing facilities et wverallocat6ans But several utilities and associos , wanted to be levolved la developing power muources along the Colorado River. Aher much 66ese le Can-gmas, the Boulder Canyon Act of 1928 pasand. Although k raled out 15 erb an enI beseh Steens Ptees 90gisplesamtersinneshesidedu Ms 3 assessed am Gross thphy Bayertasest truit to 1939. Deprestem as em Coupeay sendt to keeples wortfores emptered. 33 - - - - - - - - - - - - - _ - - - , ~ . _ _ _- 4.iannues to provide power so the cus- - 3 , tamers of Edison and aher utilities. Durieg this period ofluseory, the , l e-W of the 1920s and 19:10s, the a i service serruones of Southern Califor-l mis utilities changed. In May 1922 - - i the Faaan Parap=iy f-M the transfer of estnbuuan facilities - witbisi die City ofles Angeles to that city's Bweau of Ptwr and Light. . , which udsy is known as the Los T Angeles W of Water and e sammhere man-min harm- the asiasi basset pewtug aren m the end af WW B. , Power. la A*igust 1939. Edison and the tricity needs daring this so<alled City of Las Angelesej addi- Warand Postwar pomwar baby boom These me. tionsi duinh-nan faciitii s. The city. 1941-1960 l=**-*cale seacruias P ant l

• also helped to lower electricity prices be-On rs--nh,,7.1941. Japanese war cause of economies of scale. Electnc.

planes bombed Pearl Harbor. The ity was plentiful, and appliance U.S. now was at war with Japan, manufacturers coatinued to introduce . f. - f. Germany and lealy. Business and in. new products for the home. -.. s destry all across the nation focused efforts on aiding de war effort. geo , ; ,. . . . . In Southern California, individuals .e Edsos ergiar a researre projrer to . and companies such as Southern Cali- coeural sible causmeis and @ M 4 *, r fania Edison participosed in scrap drives to collect copper, iron. steel. diaride at its steen plama. This .@37,...,. ,,/,,uary egorr im: At frst rescard h brass and rubber for war masenals. People learned to liw with less and program ofiu Aindin the industry. ** supported goverrunent food and gas * . ...*.k9A _ renoming programs. E& son also s genenting capach sommd from one milli n kilowatts a the end ' taught its m how m ** light. pmof" their homes to comply wis of World War 11 to nearty seven mil-s blackow regulsions. lion kilowatts in 1965. Ahhough oil la one of the more unusual events and gas 4ral steam piants accounted , Estessi"FIRh and Grund"Gaawul in Edison's history. Soviet Union offi. fw the bulk of his new generEing ca-  ; Omme heading syssed its dears to mt. cials visited Edison's long Beach pach. Edison also doubled de maput which had pwchased 'he Los Aagenes Sesam Plant to cowdinate the dis- of its Big Crock hydmelectne facili-Oss amJ Eleceric Corporation in early mantling at a generating unit. The W d M War H 1937. gave to Edsson facilities outside federal gevenuneet of5cially sciaeJ - , of the city liniits that formerly be. the unit and ordered Edison to turn it - - e longed to L.A. Oss and Electric. In ove to the Soviet Union. a U.S. ally rueurs. Edison saw so the city dis- during the war. . l trRivaloa factities la areas sus had it.: U.S. and its allies prevailed. , .- been anaesad bylas Angeles since Germany surrendered in May 1945. - l the original sales agmement betime Ediese and es city in 1922. Three enonths later, aher seomic bombs fell on Hiroshima and .y k - i' ' Nagasaki. Japan also surrendered. g l Subwbs spmuesd up actus the country as evtwning U.S. amops r

j. h , j, warted families and used 01 loans to .

w 6 g i twy homes. Many of the veserens who ' ' had trained at Califamia niilitary N ' - bases relocated the6r families to this g gge,,, ,,,,g , g ,, mate, apana booming the Southlandi Fdhsa m h w w a ekyeh eartag te led 6 4B hessa survise to the heendes ang PDPo h pertad. laiiehad rubatens egry Thlress. Edison amit other militles screas ilw sussemer meter. country began betiding enessive new j power plants to most growing cloc.  ! l i The Modern Era mostruma of the San omfie - ggg Nuclear Generating Station. That first . S kulW . A_. San Onofre unit was dedicated in -.---_.  ; ~~ la California, the 1960s was a de- January 1%8. Units 2 and 3 went , a cade of dramatic gmwth. In 1%2, I"'O"P*T*I5 "I"I903""dI984' California surpassed New York as the roost popdous ssene. On Decernber 31, 1963, Cahfornia Ekstne Power Co.. M,I - Company completed Y in 1%7 the

• C""5'** " I * **I ' *"5"5"

[g ' - ' ^*'. si a link with the Pacific Northwest. e served some 450@ # in enabHng cusemers m benefit fan a 41,500 square-mile nr.rvice ie:Titory, >ip . wieb Fh the purchase oflow-cost surplus hy. , , . droelectric power fmm the federally  % , owned Bonneville Power Administra- p , ,4g(. # tion. A second transmission link to . the Paci6c Northwest was completed b h "'etaar me. I emermd in 1970 as a joint project with the Los Angeles Cpgra of Water and ficial ocean reef, designed to enhance Power. At the tirne it was the highest marine life, was constnacted off the . capacity and longest direct current California coast as a joint venture transmission line in the world. between Edison and the California Electne utilities have faced C4 i..-;of Fish and Game. dramatic changes in recent years. in- Another of Edison's many environ-ciuding increased public concern for mental projects involves the urms-the environment, a more unstable ful une of by-product heat frorn world energy market, a shift away coastal generstmg sezions to cult'vate froen the coast uccon of large scale lobsaers and abalone.1he warm weser power plants, h'~,,.a.; of aherne- accelermes their growth. Edisco has tive and renewabic energy resources, previ4cd thousands of juvenile and a changing ku- environment. abe'.one to the California Fish and This habr at he Garte Simee Paper Southern California Edison has re- Game for pla==ar in ocean waters. "F" '88 E8'an) trat hemm*8 spended well to these changes and is World energy supplies were plenti-I' "* recognized as one of the most suc. cessful and innovative electric utility g Somehern Cahfonus Edison ce canpanies in k d EA80sWrAtlos Angeles Depart-tiewed to expand its facilities to meet Edison began etiviroarnental studies . she increasing desnands for electricity by its customers and earned to nuclear reisend to air quality in the late 1940s and has implemented a variety of en- '] . g power to moet some of that increasing vironmental programs since that time. derased. la 1963 the Company begas For example. California's largest arti- 'g, . Wghtst cmarity andlongest basance DC Innunussion line in he world. and theJirst estro Mgk.mitage DC line built in at Umted $sants. . ful and prices stable for the period ex-tending frois the end of World War 11 until 1973, when the oil emberto dra-metically inctensed the price of oil, a . pnmary fuel for ponerating plants. " Edison , d to the volatine & ['~ ~ ~ changes la the world oil markets by pmmating conservake end deniop. o

• ing a wide range of energy resources.

Slect the 1973 oil embargo. Edloon d o.e, es se ,e.co.,,,ed ^, 4 customers no practice energy conser-fte servant themmmend General omse ses sempested and assupied in Im. M _.___A__ _ _ _ _ _ _ - - I varios and load management ("pve y.' your asyfiances the afternoon off"). . .IOk - Edison developed a number of conser-1988 f g* / / e 1 e.. ,- i.. ** Euson is thejirst electric utility in the p ,, ., 4 ( ,,

• e nanion so nuate a large scale commis-b ' ' (y

,' ' N ' , nernt so the development cf renemable d**

• l amialternare energy resources. >

, vaion pmgrams to help residential , and business cusnomers reduce their energy consumption. These prgiams , help to make maxinum use of exist- - ing esources and reduce the need for , building new generming facilities. . Akhough Edison was involved in seest One, the assion) Grut comammini N p g W ge several ahernative and renewable en- Gret pomar hs 1982, ergy pmhets before October 1980. danng that month the Company pub. To take advantage of busmess op-p rtunities beyond the traditional util- 1964 licly made a large-scale commitment ity area. Edisco established four Edison and Texaco. Inc., jornsly piace so develop unewable and ahernate - n n-utility subsidia ies in 1986. The isso operation she weld'sjirst energy resnurees. Today. Edison pro-subsidianes are Mission Energy Com. commercial-snale cool gasrjication vides electricity to i:s cuseomers from mise different energy resources, peny, which is involved la cogenera- Pl ant skt converts coalinto a clean ' ti n and alternate energy projects; burning gas so produce electricity. esose than any other electric utility in the world- Mission Land Company, which is in- ' volved in commercial land develop- by the Company's president John B. ' ment; Mission Power Ettgineering Miller, in 1905. That morto has not Company, which provides energy en- changed. The people of Edison pro-vide more than reliable electric ser-  ! 1933 vice at a reasonable cou. They help 6 Edison obsoins eft ric powerfrcm, the communines in which they wort nine primeary energy resources- and live; they have a genuine con-muer oil, aarural gas, uraniumi. coal, cern for the environtnent; they are geothermal, wind. solar o.id bio- committed to providing quality ser-menss-neore resources than any otAcr vice to customers; and their succesa l , j electric utility in world, over the years has benef!sted share- , f holders by enabling them to earn a , fair return a their investment ,,,,,.ng and mion serv'm . e and Mission Financial Management s Company. which will engage in Anan-ciel investments - Eens leeredmeed a new esapesy lige Edison and its employees have re. I I - d

• I' E sponded well to the dramatic changes '

. la 142. Southern California Edinan of recent years. Their comb 6ned er. l , was th: prestigious Thomes A. Ed. forts have enabled the Compney in nos Award froen the Edison Electric gain mengn'a ion for innovation widiin lentieme, an association of electric the electric utility industry, and foi esihiles throughcm. ihr United 5 ases, being a good corporsee citizen in the The Sesehere Camlerals Eason casa. I Edison has receiwd EEI's top honor communities it serven. pony has was the proseglass Themes foot times since the award was enab. Ediw>n's long4tanding mono of A. Edbes Award more nues than ser lished in 1922. more times than any " Good Servke. Square Dealing. "'h*' 'dEP W 8'id **d'88 k the Courteous Thatment" was Arnt stated '" (W and the ever( other utility. Edison won the award ,,, that Arst year.1922. and again in Charts: A.C Medal won in 1913. 1944.1963 and 1982. The IN4 Award was a serettese relber than a ended hoessee of wee. Ihme shortages. i l , l  % cambre uma compen Responsibility for Financial Statements Report ofIndependent Public Accountants < The management of Southern California Edison Company is To the Shareholders and the Board of Directors, responsible for the}}