<Page>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
COMMISSION FILE NUMBER 1-9924
CITIGROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1568099
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
399 PARK AVENUE, NEW YORK, NEW YORK 10043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 559-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_|
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
COMMON STOCK OUTSTANDING AS OF JULY 31, 2001: 5,031,151,618
AVAILABLE ON THE WEB AT www.citigroup.com
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CITIGROUP INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 2001 and 2000 38
Consolidated Statement of Financial Position -
June 30, 2001 (Unaudited) and December 31, 2000 39
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Six Months Ended June 30, 2001 and 2000 40
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 2001 and 2000 41
Notes to Consolidated Financial Statements (Unaudited) 42
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1 - 37
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29 - 33
45 - 46
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 51
Item 6. Exhibits and Reports on Form 8-K 51
Signatures 52
Exhibit Index 53
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CITIGROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITION OF BANACCI
On August 6, 2001, Citicorp, an indirect wholly-owned subsidiary of Citigroup
Inc. (Citigroup), completed its acquisition of 99.86% of the issued and
outstanding ordinary shares of Grupo Financiero Banamex-Accival (Banacci), a
leading Mexican financial institution, for approximately $12.5 billion in cash
and Citigroup stock. Citicorp completed the acquisition by settling transactions
that were conducted on the Mexican Stock Exchange on Friday, August 3, 2001.
Those transactions comprised both the acquisition of Banacci shares tendered in
response to Citicorp's offer to acquire all of Banacci's outstanding shares and
the simultaneous sale of 126,705,281 Citigroup shares to the tendering Banacci
shareholders. Banacci's and Citigroup's operations in Mexico will be integrated
and will conduct business under the "Banamex" brand name. The transaction will
be accounted for under the purchase method of accounting.
BUSINESS FOCUS
The table below shows the core income (loss) for each of Citigroup's businesses:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA 2001 2000(1) 2001 2000(1)
- -----------------------------------------------------------------------------------------------------------------------------------
GLOBAL CONSUMER
Citibanking North America $ 157 $ 134 $ 314 $ 265
Mortgage Banking 88 71 165 137
North America Cards 455 388 922 768
CitiFinancial 286 205 498 384
--------------------------------------------------------------------
Total Banking/Lending 986 798 1,899 1,554
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Travelers Life and Annuity 231 202 441 389
Primerica Financial Services 128 125 253 244
Personal Lines 39 82 126 156
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Total Insurance 398 409 820 789
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Japan 229 173 427 323
Western Europe 106 91 216 187
Asia 147 139 294 280
Latin America 45 39 75 103
Central & Eastern Europe, Middle East and Africa 21 15 39 30
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Total Emerging Markets Consumer Banking 213 193 408 413
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Total International 548 457 1,051 923
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e-Consumer (32) (46) (67) (114)
Other (9) (33) (5) (71)
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TOTAL GLOBAL CONSUMER 1,891 1,585 3,698 3,081
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GLOBAL CORPORATE
Corporate and Investment Bank 919 904 1,931 2,181
Emerging Markets Corporate Banking
and Global Transaction Services 467 345 923 685
Commercial Lines 286 272 564 519
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TOTAL GLOBAL CORPORATE 1,672 1,521 3,418 3,385
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GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING
Citigroup Asset Management 87 91 182 185
The Citigroup Private Bank 93 79 190 159
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TOTAL GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING 180 170 372 344
--------------------------------------------------------------------
INVESTMENT ACTIVITIES 227 258 359 907
CORPORATE/OTHER (185) (193) (402) (437)
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CORE INCOME 3,785 3,341 7,445 7,280
Restructuring-Related Items, after-tax(2) (133) (2) (213) (85)
Cumulative Effect of Accounting Changes(3) (116) -- (158) --
--------------------------------------------------------------------
NET INCOME $3,536 $3,339 $7,074 $7,195
====================================================================
DILUTED EARNINGS PER SHARE
CORE INCOME $ 0.74 $ 0.65 $ 1.45 $ 1.41
NET INCOME $ 0.69 $ 0.65 $ 1.37 $ 1.39
- ---------------------------------------------------------------====================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Restructuring-related items in the 2001 first quarter related principally
to severance and costs associated with the reduction of staff in the
Global Corporate businesses and in the 2001 second quarter related
principally to severance and costs associated with the reduction of staff
primarily in the Global Corporate and Global Consumer businesses. See Note
9 of Notes to Consolidated Financial Statements. The 2000 six-month period
includes a $71 million (after-tax) charge associated with the
discontinuation of the loan origination operations of Associates Housing
Finance unit.
(3) Accounting changes refer to the 2001 first quarter adoption of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended (SFAS 133) and the 2001
second quarter adoption of EITF Issue No. 99-20, "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets" (EITF 99-20). See Notes 3 and 7 of Notes to
Consolidated Financial Statements.
- --------------------------------------------------------------------------------
1
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RESULTS OF OPERATIONS
MANAGED BASIS REPORTING
The discussion that follows includes amounts reported in the financial
statements (owned basis) adjusted to include certain effects of securitization
activities, receivables held for securitization, and receivables sold with
servicing retained (managed basis). On a managed basis, these earnings are
reclassified and presented as if the receivables had neither been held for
securitization nor sold.
The income analysis below reconciles amounts shown in the Consolidated Statement
of Income on page 38 to the basis presented in the business segment discussions.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $19,385 $18,220 $39,666 $37,350
Effect of securitization activities 930 574 1,696 1,236
Housing Finance unit charge -- -- -- 47
--------------------------------------------------------------------
ADJUSTED REVENUES, NET OF INTEREST EXPENSE 20,315 18,794 41,362 38,633
--------------------------------------------------------------------
Total operating expenses 9,592 9,290 20,093 18,657
Restructuring-related items (213) (3) (345) (23)
Housing Finance unit charge -- -- -- (25)
--------------------------------------------------------------------
ADJUSTED OPERATING EXPENSES 9,379 9,287 19,748 18,609
--------------------------------------------------------------------
Benefits, claims, and credit losses 4,166 3,753 8,367 7,438
Effect of securitization activities 930 574 1,696 1,236
Housing Finance unit charge -- -- -- (40)
--------------------------------------------------------------------
ADJUSTED BENEFITS, CLAIMS, AND CREDIT LOSSES 5,096 4,327 10,063 8,634
--------------------------------------------------------------------
CORE INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 5,840 5,180 11,551 11,390
Taxes on core income 2,040 1,819 4,082 4,035
Minority interest, net of income taxes 15 20 24 75
--------------------------------------------------------------------
CORE INCOME 3,785 3,341 7,445 7,280
Restructuring-related items, after-tax (133) (2) (213) (85)
--------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 3,652 3,339 7,232 7,195
Cumulative effect of accounting changes (116) -- (158) --
--------------------------------------------------------------------
NET INCOME $ 3,536 $ 3,339 $ 7,074 $ 7,195
- ---------------------------------------------------------------====================================================================
</Table>
INCOME AND EARNINGS PER SHARE
Citigroup reported core income of $3.785 billion or $0.74 per diluted common
share in the 2001 second quarter, up 13% and 14% from $3.341 billion or $0.65
per diluted share in the 2000 second quarter. Core income in the 2001 second
quarter excluded an after-tax charge of $133 million for restructuring-related
items and an after-tax charge of $116 million, reflecting the cumulative effect
of adopting EITF 99-20 (as described in Notes 3, 7 and 9 of Notes to
Consolidated Financial Statements). Net income for the quarter was $3.536
billion or $0.69 per diluted share, both up 6% from $3.339 billion or $0.65 per
diluted share in the year-ago quarter. Core income return on common equity was
22.4% compared to 22.9% a year ago.
Core income for the 2001 six months of $7.445 billion or $1.45 per diluted share
was up 2% and 3% from $7.280 billion or $1.41 per diluted share in the 2000 six
months. Net income in the 2001 six months was $7.074 billion or $1.37 per
diluted share, down 2% and 1% from $7.195 billion or $1.39 per diluted share a
year ago. Core income return on common equity was 22.5% and 25.1% in the six
months of 2001 and 2000, respectively.
Global Consumer core income increased $306 million or 19% and $617 or 20% in the
2001 second quarter and six months compared to the 2000 periods, including
second quarter and six-month comparative increases of 40% and 30% in
CitiFinancial, 17% and 20% in North America Cards, and 32% for both periods in
Japan. Global Corporate increased $151 million or 10% and $33 million or 1% from
the 2000 second quarter and six-month periods. Global Investment Management and
Private Banking grew $10 million or 6% and $28 million or 8%, while Investment
Activities decreased $31 million or 12% and $548 million or 60% from the 2000
second quarter and six-month periods.
REVENUES, NET OF INTEREST EXPENSE
Adjusted revenues, net of interest expense, of $20.3 billion and $41.4 billion
in the 2001 second quarter and six months were up $1.5 billion or 8% and $2.7
billion or 7%, respectively, from the 2000 periods. Global Consumer revenues
were up $1.2 billion or 12% in the 2001 second quarter to $10.7 billion, and
were up $2.2 billion or 12% in the 2001 six months to $21.2 billion, led by 2001
second quarter and six-month increases in Banking/Lending of $801 million or 17%
and $1.4 billion or 15% from the 2000 second quarter and six months. Compared to
the 2000 periods, North America Cards was up $542 million or 21% in the 2001
second quarter and
2
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$995 million or 19% in the 2001 six months, while CitiFinancial experienced
growth of $121 million or 10% in the 2001 second quarter and $238 million or 10%
in the 2001 six months, both businesses reflecting strong growth in receivables.
International Consumer revenues were up $221 million or 9% in the 2001 second
quarter and $448 million or 10% in the 2001 six months, reflecting strong growth
in Japan's consumer finance business. Insurance businesses grew $66 million or
3% in the 2001 second quarter and $250 million or 5% in the 2001 six months.
Compared to the 2000 periods, Global Corporate revenues were up $334 million or
4% in the 2001 second quarter and $1.295 billion or 8% in the 2001 six months,
led by double-digit growth in Commercial Lines and Emerging Markets Corporate
Banking & Global Transaction Services, reflecting growth and acquisitions.
Corporate and Investment Bank revenues were down $119 million or 2% in the 2001
second quarter and were up $271 million or 3% in the 2001 six-month period,
reflecting principal transactions activity and commissions and fees activity,
offset by investment banking revenues.
Global Investment Management and Private Banking revenues of $867 million in the
2001 second quarter and $1.774 billion in the 2001 six months were up $49
million or 6% and $157 million or 10% from the comparable 2000 periods,
primarily due to growth in asset-based fee revenues and the impact of
acquisitions in the six-month comparison. Revenues in Investment Activities
decreased $65 million and $874 million from the 2000 second quarter and six
months, respectively, primarily reflecting lower venture capital results.
SELECTED REVENUE ITEMS
Net interest revenue as calculated from the Consolidated Statements of Income
rose $1.3 billion or 19% from the 2000 second quarter to $8.3 billion and
increased $2.2 billion or 16% from the 2000 six months to $15.9 billion,
reflecting business volume growth in most markets as well as the changing rate
environment. Net interest revenue, including the effect of securitization
activities, increased $1.5 billion or 19% from the 2000 second quarter and $2.5
billion or 15% from the 2000 six months. Total commissions, asset management and
administration fees of $5.1 billion were down $284 million or 5% from the 2000
second quarter, primarily as a result of lower Private Client transactional
activity, partially offset by volume-related growth in customer activities and
assets under fee-based management. Insurance premiums of $3.2 billion were up
$202 million or 7%, and $569 million or 9%, reflecting particularly strong
growth in Commercial Lines.
Principal transactions revenues of $1.4 billion and $3.7 billion for the 2001
second quarter and six months were down $18 million or 1% from the 2000 second
quarter and up $584 million or 18% from the 2000 six-month period, reflecting
strong Fixed Income growth in the 2001 six months, offset by declines in Global
Equities, Commodities, and Foreign Exchange in the 2001 second quarter. Realized
gains from sales of investments were down $220 million from the 2000 second
quarter and up $404 million from the 2000 six-month, resulting primarily from
the Company's insurance investment portfolio. Other income as shown in the
Consolidated Statements of Income of $1.3 billion in the 2001 second quarter was
up $142 million from the year-ago quarter, and was down $1.3 billion from the
2000 six months, primarily reflecting venture capital activity.
OPERATING EXPENSES
Adjusted operating expenses of $9.4 billion and $19.7 billion in the 2001 second
quarter and six months, respectively, which exclude restructuring-related items,
were up $92 million or 1% in the 2001 second quarter and $1.1 billion or 6% in
the 2001 six months, compared to year-ago levels. Global Corporate expenses were
down 2% in the 2001 second quarter, reflecting lower compensation and benefits,
and were up 10% in the 2001 six months, primarily attributable to increased
compensation and benefits in the first quarter of 2001, investment spending to
expand product platforms and the impact of the acquisitions of Schroders and
Copelco.
Compared to the 2000 periods, Global Consumer expenses increased 2% in the 2001
second quarter and 3% in the 2001 six months, reflecting the effect of foreign
currency translation and expense management initiatives (including CitiFinancial
branch consolidations) which were partially offset by volume-related increases.
Global Investment Management and Private Banking expenses increased 6% and 13%
from the year-ago quarter and six-month periods, primarily reflecting increased
compensation and benefits and investments in sales and marketing initiatives, as
well as the impact of acquisitions in the six-month comparison. Corporate/Other
expenses decreased $127 million in the 2001 six months, which primarily
reflected a 2000 first quarter $108 million pretax expense for the contribution
of appreciated venture capital securities to Citigroup's Foundation.
RESTRUCTURING-RELATED ITEMS
Restructuring-related items of $213 million ($133 million after-tax) in the 2001
second quarter and $345 million ($213 million after-tax) in the 2001 six months
related principally to severance and costs associated with the reduction of
staff primarily in the Global Corporate and Global Consumer businesses.
Restructuring-related items of $3 million ($2 million after-tax) in the 2000
second quarter and $23 million ($14 million after-tax) in the 2000 six months
primarily represented charges for accelerated depreciation. Included in other
operating expenses for the 2000 six-month period is a $71 million (after-tax)
charge associated with the discontinuation of the loan origination operations of
Associates Housing Finance unit.
3
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BENEFITS, CLAIMS, AND CREDIT LOSSES
Adjusted benefits, claims, and credit losses were $5.1 billion and $10.1 billion
in the 2001 second quarter and six months, up $769 million and $1.4 billion from
the 2000 second quarter and six months, respectively. Policyholder benefits and
claims in the 2001 second quarter increased 9% from the 2000 second quarter to
$2.7 billion, and were up 12% to $5.4 billion in the 2001 six months, primarily
as a result of increases in Personal Lines and Commercial Lines. The adjusted
provision for credit losses increased 29% from the 2000 second quarter to $2.4
billion in the 2001 second quarter and increased 22% from the 2000 six months to
$4.7 billion in the 2001 six months, primarily reflecting increases in Cards.
Global Consumer adjusted provisions for benefits, claims and credit losses of
$3.7 billion in the 2001 second quarter were up 20% from the 2000 second
quarter, primarily reflecting increases in North America Cards, Personal Lines
and CitiFinancial. Total managed net credit losses were $2.154 billion and the
related loss ratio was 2.85% in the 2001 second quarter, as compared to $1.931
billion and 2.61% in the preceding quarter and $1.606 billion and 2.42% in the
year-ago quarter. The managed consumer loan delinquency ratio (90 days or more
past due) increased to 2.10% at June 30, 2001 from 2.04% at March 31, 2001 and
1.74% a year ago.
Global Corporate provisions for benefits, claims, and credit losses of $1.4
billion in the 2001 second quarter increased 13% from a year ago, primarily due
to higher loss cost trends in Commercial Lines and expected higher loss rates in
the transportation portfolio in the Corporate and Investment Bank. Emerging
Markets Corporate Banking & Global Transaction Services provision for credit
losses improved in most regions compared to year-ago levels.
Commercial cash-basis loans at June 30, 2001 and 2000 were $2.629 billion and
$1.784 billion, respectively, while the commercial Other Real Estate Owned
(OREO) portfolio totaled $280 million and $292 million, respectively. The
increase in cash-basis loans from the 2000 second quarter was primarily related
to the transportation portfolio, the addition of Copelco and increases
attributable to borrowers in the retail, telecommunication and utility
industries. Commercial cash-basis loans at June 30, 2001 increased $212 million
from March 31, 2001. The improvements in OREO were primarily related to the
North America real estate portfolio.
CAPITAL
Total capital (Tier 1 and Tier 2) was $76.2 billion or 11.49% of net
risk-adjusted assets, and Tier 1 capital was $58.5 billion or 8.82% at June 30,
2001, compared to $75.0 billion or 11.31% and $56.7 billion or 8.56% at March
31, 2001.
- -------------------------------------------------------------------------------
The Income line in each of the following business segment discussions excludes
the cumulative effect of adopting EITF 99-20 and SFAS 133. See Notes 3 and 7 of
Notes to Consolidated Financial Statements.
GLOBAL CONSUMER
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ------------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $9,733 $8,918 9 $19,508 $17,772 10
Effect of securitization activities 930 574 62 1,696 1,236 37
------------------------------- -------------------------------
ADJUSTED REVENUES,
NET OF INTEREST EXPENSE 10,663 9,492 12 21,204 19,008 12
------------------------------- -------------------------------
Adjusted operating expenses (2) 4,017 3,921 2 8,121 7,892 3
------------------------------- -------------------------------
Provisions for benefits, claims,
and credit losses 2,752 2,502 10 5,579 5,018 11
Effect of securitization activities 930 574 62 1,696 1,236 37
------------------------------- -------------------------------
ADJUSTED PROVISIONS FOR BENEFITS,
CLAIMS, AND CREDIT LOSSES 3,682 3,076 20 7,275 6,254 16
------------------------------- -------------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 2,964 2,495 19 5,808 4,862 19
Income taxes 1,066 901 18 2,098 1,754 20
Minority interest, after-tax 7 9 (22) 12 27 (56)
------------------------------- -------------------------------
CORE INCOME 1,891 1,585 19 3,698 3,081 20
Restructuring-related items, after-tax (60) 11 NM (72) 7 NM
------------------------------- -------------------------------
INCOME $1,831 $1,596 15 $ 3,626 $ 3,088 17
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Global Consumer -- which provides banking, consumer lending, including credit
and charge cards, investment and personal insurance products and services, to
customers around the world -- reported core income of $1.891 billion and $3.698
billion in the 2001 second
4
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quarter and six months, up $306 million or 19% and $617 million or 20% from the
comparable 2000 periods, reflecting growth in most businesses. Banking/Lending
core income increased $188 million or 24% in the 2001 second quarter and $345
million or 22% in the 2001 six months from the prior-year periods, reflecting
strong performance across all businesses. In the International businesses, core
income increased $91 million or 20% in the 2001 second quarter and $128 million
or 14% in the 2001 six months, marked by growth in all regions except Latin
America, where core income increased $6 million or 15% in the 2001 second
quarter but decreased $28 million or 27% in the 2001 six months primarily due to
lower earnings from Confia. In the Insurance segment, core income decreased $11
million or 3% in the 2001 second quarter primarily driven by higher catastrophe
losses in Personal Lines; however, core income increased $31 million or 4% in
the 2001 six months from the comparable 2000 period. Income of $1.831 billion
and $3.626 billion in the 2001 second quarter and six months included
restructuring-related items of $60 million ($95 million pretax) and $72 million
($114 million pretax), respectively. Income of $1.596 billion and $3.088 billion
in the 2000 second quarter and six months included restructuring-related credits
of $11 million ($19 million pretax) and $7 million ($13 million pretax),
respectively. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of the restructuring-related items.
BANKING/LENDING
CITIBANKING NORTH AMERICA
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $662 $566 17 $1,273 $1,145 11
Adjusted operating expenses(2) 394 334 18 740 685 8
Provision for credit losses 13 7 86 20 16 25
------------------------------- -----------------------------
CORE INCOME BEFORE TAXES 255 225 13 513 444 16
Income taxes 98 91 8 199 179 11
------------------------------- -----------------------------
CORE INCOME 157 134 17 314 265 18
Restructuring-related items, after-tax (3) 8 NM (3) 8 NM
------------------------------- -----------------------------
INCOME $154 $142 8 $ 311 $ 273 14
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) 9 9 -- 9 9 --
Return on assets 6.86% 6.35% 6.97% 6.10%
- ------------------------------------------========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 7.00% 5.99% 7.04% 5.92%
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Citibanking North America -- which delivers banking, lending and investment
services to customers through Citibank's branches and electronic delivery
systems -- reported core income of $157 million and $314 million in the 2001
second quarter and six months, respectively, up $23 million or 17% and $49
million or 18% from the 2000 periods, as revenue growth and a realized
investment gain were partially offset by increased expenses. Income of $154
million in the 2001 second quarter included restructuring-related items of $3
million ($5 million pretax). Income of $142 million in the 2000 second quarter
included restructuring-related credits of $8 million ($14 million pretax).
On July 17, 2001, Citibanking North America completed the acquisition of
European American Bank (EAB), a state-chartered bank with $10.7 billion in
deposits, $15.0 billion in assets and 97 branches in the New York area as of
June 30, 2001.
As shown in the following table, Citibanking grew customer deposits and accounts
from 2000, while loans were unchanged from a year ago.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ------------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 6.8 6.4 6 6.8 6.4 6
Average customer deposits $48.1 $44.5 8 $48.0 $44.1 9
Average loans $ 7.0 $ 7.0 -- $ 7.0 $ 7.0 --
- ------------------------------------------========================================================================================
</Table>
Revenues, net of interest expense, of $662 million and $1.273 billion in the
2001 second quarter and six months, respectively, increased $96 million or 17%
and $128 million or 11% from the 2000 periods. Revenue growth in the 2001 second
quarter and six months was driven by higher treasury results, growth in customer
deposits and debit card fees and was partially offset by reduced investment
product fees that reflect current market conditions. Revenues in the 2001
periods include a realized investment gain resulting from the disposition of an
equity investment. Adjusted operating expenses for the 2001 second quarter and
six months increased $60 million or 18% and $55 million or 8% compared to the
2000 second quarter and six months, reflecting investments in technology and
higher advertising and marketing.
5
<Page>
The provision for credit losses increased to $13 million and $20 million in the
2001 second quarter and six months from $7 million and $16 million in the 2000
periods. The net credit loss ratio was 1.03% in the 2001 second quarter, up from
0.85% in the 2001 first quarter and 0.88% in the prior-year quarter. Loans
delinquent 90 days or more were $41 million or 0.58% of loans at June 30, 2001,
compared to $41 million or 0.59% at March 31, 2001 and $33 million or 0.47% a
year ago.
MORTGAGE BANKING
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ------------------------------ %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $268 $226 19 $510 $449 14
Adjusted operating expenses(2) 116 102 14 225 201 12
(Benefit) provision for credit losses (3) (1) NM (3) 8 NM
------------------------------- ------------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 155 125 24 288 240 20
Income taxes 60 48 25 111 92 21
Minority interest, after-tax 7 6 17 12 11 9
------------------------------- ------------------------------
CORE INCOME 88 71 24 165 137 20
Restructuring-related items, after-tax (2) -- NM (2) -- NM
------------------------------- ------------------------------
INCOME $ 86 $ 71 21 $163 $137 19
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 48 $ 37 30 $ 48 $ 36 33
Return on assets 0.72% 0.77% 0.68% 0.77%
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Mortgage Banking -- which originates and services mortgages and student loans
for customers across the United States -- reported core income of $88 million
and $165 million in the 2001 second quarter and six months, respectively, up $17
million or 24% and $28 million or 20% from the 2000 periods, reflecting higher
loan and origination volumes and increased securitization activity which were
partially offset by lower servicing revenue. Income of $86 million in the 2001
second quarter included restructuring-related items of $2 million ($3 million
pretax).
As shown in the following table, accounts in the 2001 second quarter increased
13% while average managed loans increased 33% from the 2000 second quarter,
reflecting strong growth in mortgage loans held for sale and student loans.
Mortgage originations were up significantly from the 2000 periods, reflecting
increased refinancing activity due to lower interest rates.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS)(1) 4.5 4.0 13 4.5 4.0 13
Average managed loans(1) $45.7 $34.4 33 $45.2 $33.4 35
Mortgage originations $ 8.8 $ 5.1 73 $14.7 $ 8.8 67
- ------------------------------------------=========================================================================================
</Table>
(1) Includes student loans.
- --------------------------------------------------------------------------------
Revenues, net of interest expense, of $268 million and $510 million in the 2001
second quarter and six months, respectively, grew $42 million or 19% and $61
million or 14% from the 2000 second quarter and six months, mainly due to higher
securitization income and growth in on-balance sheet loans, partially offset by
lower servicing revenue, primarily reflecting increased prepayment activity
driven by lower interest rates. Adjusted operating expenses increased $14
million or 14% and $24 million or 12% in the 2001 second quarter and six months,
reflecting volume-related increases.
The (benefit) provision for credit losses was ($3) million in both the 2001
second quarter and six months compared to ($1) million and $8 million in the
2000 second quarter and six months, respectively. The net credit loss ratio was
0.08% in the 2001 second quarter compared to 0.06% in the 2001 first quarter and
0.08% in the 2000 second quarter. Loans delinquent 90 days or more were $1.191
billion or 2.61% of loans at June 30, 2001, up from $957 million or 2.14% at
March 31, 2001 and $722 million or 2.10% a year ago. The increase in
delinquencies from the prior quarter and prior year reflects an increase in
mortgage and student loans guaranteed by the U.S. government.
6
<Page>
NORTH AMERICA CARDS
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $2,197 $1,983 11 $4,470 $3,894 15
Effect of securitization activities 902 574 57 1,633 1,214 35
------------------------------- -----------------------------
ADJUSTED REVENUES,
NET OF INTEREST EXPENSE 3,099 2,557 21 6,103 5,108 19
------------------------------- -----------------------------
Adjusted operating expenses(2) 1,003 975 3 2,044 1,932 6
Adjusted provision for credit losses(3) 1,371 961 43 2,592 1,951 33
------------------------------- -----------------------------
CORE INCOME BEFORE TAXES 725 621 17 1,467 1,225 20
Income taxes 270 233 16 545 457 19
------------------------------- -----------------------------
CORE INCOME 455 388 17 922 768 20
Restructuring-related items, after-tax -- 4 (100) -- 4 (100)
------------------------------- -----------------------------
INCOME $ 455 $ 392 16 $ 922 $ 772 19
- --------------------------------------------======================================================================================
Average assets (IN BILLIONS OF DOLLARS)(4) $ 39 $ 38 3 $ 40 $ 35 14
Return on assets(5) 4.68% 4.15% 4.65% 4.44%
- --------------------------------------------======================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
(3) Adjusted for the effect of securitization activities.
(4) Adjusted for the effect of securitization activities, managed average
assets for North America Cards were $106 billion in both the 2001 second
quarter and six months, compared to $94 billion and $92 billion in the
2000 second quarter and six months, respectively.
(5) Adjusted for the effect of securitization activities, the return on
managed assets, excluding restructuring-related items, for North America
Cards was 1.72% and 1.75% in the 2001 second quarter and six months and
1.66% and 1.68% in the 2000 second quarter and six months.
- --------------------------------------------------------------------------------
North America Cards -- which includes Citi Cards (bankcards and private-label
cards) and Diners Club -- reported core income of $455 million and $922 million
in the 2001 second quarter and six months, respectively, up $67 million or 17%
and $154 million or 20% from the 2000 periods, driven by strong revenue growth
that was partially offset by higher credit costs. Income of $392 million in the
2000 second quarter included restructuring-related credits of $4 million ($5
million pretax).
Adjusted revenues, net of interest expense, of $3.099 billion and $6.103 billion
in the 2001 second quarter and six months, respectively, were up $542 million or
21% and $995 million or 19% from the 2000 periods, reflecting receivable growth
and spread improvements that resulted from repricing actions and lower interest
rates. Adjusted operating expenses increased $28 million or 3% in the 2001
second quarter and $112 million or 6% in the 2001 six months from the comparable
2000 periods, reflecting increased business volumes that were partially offset
by disciplined expense management.
As shown in the following table, on a managed basis, the Citi Cards portfolio
experienced strong growth in receivables and accounts in the 2001 second quarter
and six months, reflecting base business momentum as well as portfolio
acquisitions. Total sales were up marginally compared to the 2000 periods as
growth in purchase sales volumes was partially offset by lower balance
consolidation activity.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 94.1 83.9 12 94.1 83.9 12
Total sales $ 55.6 $55.3 1 $106.8 $103.7 3
End-of-period managed receivables $103.9 $92.3 13 $103.9 $ 92.3 13
- ------------------------------------------=========================================================================================
</Table>
Risk adjusted margin is a measure of profitability calculated as adjusted
revenues less managed net credit losses as a percentage of average managed loans
and is consistent with the goal of matching the revenues generated by the loan
portfolio with the credit risk undertaken. As shown in the following table, the
Citi Cards risk adjusted margin of 6.49% and 6.70% in the 2001 second quarter
and six months declined 42 and 25 basis points, respectively, from the 2000
periods, as higher spreads were more than offset by higher net credit losses and
lower non-interest revenue.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
IN BILLIONS OF DOLLARS 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Risk adjusted revenues(1) $1.627 $1.516 $3.336 $2.987
Risk adjusted margin %(2) 6.49% 6.91% 6.70% 6.95%
- -------------------------------------------------------------====================================================================
</Table>
(1) Citi Cards adjusted revenues less managed net credit losses.
(2) Risk adjusted revenues as a percentage of average managed loans.
- --------------------------------------------------------------------------------
The adjusted provision for credit losses was $1.371 billion and $2.592 billion
in the 2001 second quarter and six months, up from $961 million and $1.951
billion in the comparable 2000 periods. Citi Cards managed net credit losses in
the 2001 second quarter
7
<Page>
were $1.383 billion and the related loss ratio was 5.51% up from $1.196 billion
and 4.84% in the 2001 first quarter and $948 million and 4.32% in the 2000
second quarter. Net credit losses in the 2001 second quarter include a recovery
of $55 million from the sale of certain bankrupt accounts which resulted in a 22
basis point reduction of the managed net credit loss ratio. The increase in net
credit losses reflects current U.S. economic conditions and an industry-wide
rise in bankruptcy filings. Citi Cards managed loans delinquent 90 days or more
were $1.775 billion or 1.72% of loans at June 30, 2001, up from $1.156 billion
or 1.26% at June 30, 2000 but down $61 million or 12 basis points compared to
$1.836 billion or 1.84% at March 31, 2001.
CITIFINANCIAL
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ------------------------------ %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTED REVENUES,
NET OF INTEREST EXPENSE(2) $1,390 $1,269 10 $2,729 $2,491 10
Adjusted operating expenses(3) 502 571 (12) 1,071 1,107 (3)
Adjusted provisions for benefits, claims,
and credit losses(2) 434 373 16 862 777 11
------------------------------ ------------------------------
CORE INCOME BEFORE TAXES 454 325 40 796 607 31
Income taxes 168 120 40 298 223 34
------------------------------ ------------------------------
CORE INCOME 286 205 40 498 384 30
Restructuring-related items, after-tax (14) -- NM (22) -- NM
------------------------------ ------------------------------
INCOME $ 272 $ 205 33 $ 476 $ 384 24
- ------------------------------------------=========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 65 $ 55 18 $ 64 $ 53 21
Return on assets 1.68% 1.50% 1.50% 1.46%
- ------------------------------------------=========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 1.76% 1.50% 1.57% 1.46%
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Adjusted for the effect of securitization activities of $28 million and
$63 million in the 2001 second quarter and six months, respectively, and
$22 million in the 2000 six-month period.
(3) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
CitiFinancial - which provides community-based lending services, through its
branch network and regional sales offices and through cross-selling initiatives
with other Citigroup businesses, and originates real estate-secured loans
through centralized and distributed platforms - reported core income of $286
million in the 2001 second quarter, up $81 million or 40% from 2000, principally
reflecting operating expense savings, lower cost of funds and strong growth in
receivables. For the six months ending June 30, 2001, core income was $498
million, up $114 million or 30% from 2000, principally reflecting operating
expense savings and strong growth in receivables. Income of $272 million and
$476 million in the 2001 second quarter and six months included
restructuring-related items of $14 million ($23 million pretax) and $22 million
($36 million pretax), respectively.
As shown in the following table, receivables in the 2001 second quarter grew 13%
compared to the 2000 second quarter due to higher volumes at CitiFinancial
branches and the cross selling of products through other Citigroup distribution
channels. At June 30, 2001, the portfolio consisted of 69% real estate-secured
loans, 17% personal loans, 10% auto loans and 4% sales finance and other loans
compared with 69%, 19%, 7% and 5%, respectively, in 2000. The average net
interest margin on receivables of 7.85% and 7.78% in the 2001 second quarter and
six months, respectively, increased 1 basis point and decreased 24 basis points
compared to the 2000 periods, reflecting growth in lower-risk real estate loans
that have lower yields, offset in the 2001 second quarter by lower cost of
funds.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ Increase/ --------------------------- Increase/
2001 2000 Decrease 2001 2000 Decrease
- ------------------------------------------------------------------------------------------------------------------------------------
End-of-period managed receivables (IN BILLIONS) $58.5 $51.6 13% $58.5 $51.6 13%
Average net interest margin % 7.85% 7.84% 1 bp 7.78% 8.02% (24) bp
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
Adjusted revenues, net of interest expense, of $1.390 billion and $2.729 billion
in the 2001 second quarter and six months, respectively, increased $121 million
or 10% and $238 million or 10% from the comparable 2000 periods, reflecting
strong growth in receivables. Revenues in the 2001 second quarter also benefited
from a lower cost of funds. Adjusted operating expenses of $502 million and
$1.071 billion in the 2001 second quarter and six months decreased $69 million
or 12% and $36 million or 3% from the prior-year periods, mainly reflecting
efficiencies resulting from the consolidation of Associates branches, partially
offset by volume-related increases.
Adjusted provisions for benefits, claims and credit losses were $434 million and
$862 million in the 2001 second quarter and six months, respectively, up from
$373 million and $777 million in the comparable 2000 periods. The net credit
loss ratio was 2.55% in the 2001 second quarter, down from 2.57% in the 2001
first quarter and up from 2.49% in the 2000 second quarter. Loans delinquent 90
days or more were $1.757 billion or 3.00% of loans at June 30, 2001, up from
$1.599 billion or 2.77% at March 31, 2001 and
8
<Page>
$1.033 billion or 1.98% a year ago, primarily due to the alignment of credit and
collection policies in the Associates real estate portfolio to those of
CitiFinancial and, to a lesser extent, current U.S. economic conditions.
INSURANCE
TRAVELERS LIFE AND ANNUITY
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % --------------------------- %
IN MILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $975 $983 (1) $2,105 $1,993 6
Provision for benefits and claims 546 586 (7) 1,275 1,189 7
Total operating expenses 87 97 (10) 175 223 (22)
------------------------------ -----------------------------------------
INCOME BEFORE TAXES 342 300 14 655 581 13
Income taxes 111 98 13 214 192 11
------------------------------ -----------------------------------------
INCOME(1) $231 $202 14 $ 441 $ 389 13
- ------------------------------------------======================================================================================
</Table>
(1) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
Travelers Life and Annuity -- whose core offerings include individual annuity,
group annuity, and individual life insurance -- reported income of $231 million
and $441 million in the 2001 second quarter and six months, respectively, up
from $202 million and $389 million in the comparable periods of 2000. The
improvements in 2001 reflect higher net investment income principally driven by
increased business volumes. Despite a declining market, individual annuity net
written premiums were up 5% in the 2001 second quarter and 2% in the 2001 six
months versus the prior-year periods, resulting in increased market share.
During 2001, Travelers Life and Annuity also achieved double-digit business
volume growth in group annuity account balances and individual life net written
premiums versus the prior-year periods. These increases reflect strong sales in
retirement savings and estate planning products. Total operating expenses
decreased in the 2001 second quarter and six months compared to the prior-year
second quarter and six months due to continued expense management and the
absence of expenses related to the long-term care insurance business sold during
the third quarter of 2000. The long-term care transaction also reduced the
amount of premium revenue reported.
The cross-selling initiative of Travelers Life and Annuity products through
Primerica Financial Services (Primerica), Citibank, Salomon Smith Barney
Financial Consultants, and CitiStreet, as well as strong sales through various
intermediaries and a nationwide network of independent agents, reflect the
ongoing effort to build market share by strengthening relationships in key
distribution channels.
The following table shows net written premiums and deposits by product line,
excluding long-term care insurance written premiums:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL ANNUITIES
Fixed $ 572 $ 303 89 $ 999 $ 596 68
Variable 1,068 1,258 (15) 2,167 2,504 (13)
Individual payout 15 22 (32) 33 42 (21)
GICS AND OTHER GROUP ANNUITIES 1,397 1,439 (3) 3,899 2,896 35
INDIVIDUAL LIFE INSURANCE
Direct periodic premiums and deposits 142 113 26 329 230 43
Single premium deposits 48 21 129 96 39 146
Reinsurance (24) (20) (20) (47) (39) (21)
------------------------------ -----------------------------
$3,218 $3,136 3 $7,476 $6,268 19
- ------------------------------------------========================================================================================
</Table>
The majority of the annuity business and a substantial portion of the life
business written by Travelers Life and Annuity are accounted for as investment
contracts, with the result that the premiums are considered deposits and are not
included in revenues.
Increased individual annuities sales and strong retention margins, despite
declining market conditions, kept account balances level at $29.7 billion at
June 30, 2001, compared to $29.4 billion at December 31, 2000 and $29.5 billion
at the end of the 2000 second quarter. Net written premiums and deposits for
individual annuities in the second quarter and six months of 2001 were $1.66
billion and $3.20 billion, respectively, up from $1.58 billion and $3.14 billion
in the comparable periods of 2000. Sales continue to reflect the cross-selling
initiatives at all of the Citigroup affiliates, and also reflect the continued
penetration of outside broker-dealer channels.
Group annuity account balances and benefit reserves reached $19.3 billion at
June 30, 2001, up from $17.5 billion at December 31, 2000 and $15.8 billion at
the end of the 2000 second quarter. The group annuity business experienced
continued strong sales momentum in all products, particularly fixed rate
guaranteed investment contracts. Net written premiums and deposits (excluding
9
<Page>
Citigroup's employee pension plan deposits) were $1.40 billion and $3.90 billion
in the second quarter and six months of 2001, respectively, compared to $1.44
billion and $2.90 billion in the comparable periods of 2000.
Direct periodic premiums and deposits for individual life insurance of $142
million and $329 million in the second quarter and six months of 2001,
respectively, were 26% and 43% ahead of the $113 million and $230 million for
the comparable periods of 2000, reflecting strong core agency results and
significant growth in the corporate-owned life insurance product. Life insurance
in force was $71.0 billion at June 30, 2001, up from $66.9 billion at year-end
2000 and $63.2 billion at June 30, 2000.
PRIMERICA FINANCIAL SERVICES
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $497 $479 4 $987 $951 4
Provision for benefits and claims 127 126 1 255 251 2
Total operating expenses(1) 172 159 8 341 321 6
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES 198 194 2 391 379 3
Income taxes 70 69 1 138 135 2
------------------------------ -----------------------------
CORE INCOME(2) 128 125 2 253 244 4
Restructuring-related items, after-tax -- 1 (100) -- 1 (100)
------------------------------ -----------------------------
INCOME $128 $126 2 $253 $245 3
- ------------------------------------------========================================================================================
</Table>
(1) Excludes restructuring-related items.
(2) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
Primerica Financial Services -- which sells life insurance as well as other
products manufactured by the Company, including Salomon Smith Barney mutual
funds, CitiFinancial mortgages and personal loans, and Travelers Insurance
Company annuity products -- reported core income of $128 million and $253
million in the 2001 second quarter and six months, respectively, up from $125
million and $244 million in the comparable periods of 2000. The improvement in
2001 reflects strong net investment income and $.M.A.R.T. loan(R) sales,
partially offset by lower mutual fund sales and increased infrastructure
investment, including international expansion. Earned premiums, net of
reinsurance, were $285 million and $569 million in the 2001 second quarter and
six months, respectively, up from $277 million and $548 million in the
comparable periods of 2000.
Total face amount of issued term life insurance was $18.6 billion and $34.9
billion in the 2001 second quarter and six months, respectively, compared to
$18.5 billion and $33.5 billion in the prior-year periods. Life insurance in
force reached $422.9 billion at June 30, 2001 up from $412.7 billion at year-end
2000 and $403.6 billion at June 30, 2000, and continued to reflect good policy
persistency.
In recent years, Primerica has leveraged cross selling through the Financial
Needs Analysis (FNA) -- the diagnostic tool that enhances the ability of the
Personal Financial Analysts to address client needs -- to expand its business
beyond life insurance by offering its clients a greater array of financial
products and services, delivered personally through its sales force. During the
2001 six months, 237,000 FNAs were submitted. Primerica sales of Travelers
variable annuities continued its strong pace, with net written premiums and
deposits of $237 million and $485 million in the 2001 second quarter and six
months, respectively, compared to $248 million and $498 million in the
prior-year periods. Cash advanced on $.M.A.R.T. loan(R) and $.A.F.E.(R) loan
products underwritten by CitiFinancial was $1.092 billion and $1.786 billion in
the 2001 second quarter and six months, respectively, compared to $476 million
and $968 million in the comparable periods last year. The increase in cash
advanced reflects rate reductions implemented during 2001. Mutual fund sales
were $868 million and $1.86 billion for the 2001 second quarter and six months,
respectively, 24% and 20% below last year's second quarter and six months,
reflecting a difficult market environment. During the first six months of 2001,
proprietary mutual funds accounted for 63% of Primerica's U.S. sales and 53% of
total sales.
10
<Page>
PERSONAL LINES
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,106 $1,050 5 $2,186 $2,084 5
Claims and claim adjustment expenses 793 673 18 1,481 1,332 11
Total operating expenses(2) 261 256 2 528 506 4
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 52 121 (57) 177 246 (28)
Income taxes 13 36 (64) 51 74 (31)
Minority interest, after-tax -- 3 (100) -- 16 (100)
------------------------------ -----------------------------
CORE INCOME(3) 39 82 (52) 126 156 (19)
Restructuring-related items, after-tax (2) -- NM (2) -- NM
------------------------------ -----------------------------
INCOME $ 37 $ 82 (55) $ 124 $ 156 (21)
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
(3) Excludes investment gains/losses included in Investment Activities
segment.
NM Not meaningful
- --------------------------------------------------------------------------------
Personal Lines -- which writes all types of property and casualty insurance
covering personal risks -- reported core income of $39 million and $126 million
in the second quarter and six months of 2001, respectively, compared to $82
million and $156 million in the prior-year periods. Catastrophe losses were
significantly higher in the 2001 second quarter and slightly lower in the 2001
six months when compared to the comparable periods in 2000. Additionally, the
2001 results reflect increased loss cost trends, primarily due to inflationary
pressures and lower favorable prior-year reserve development. Also reflected in
the 2001 six months are the incremental earnings from the minority interest
buyback.
The following table shows net written premiums by product line:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Personal automobile $ 669 $615 9 $1,308 $1,203 9
Homeowners and other 404 378 7 727 687 6
------------------------------ -----------------------------
Total net written premiums $1,073 $993 8 $2,035 $1,890 8
- ------------------------------------------========================================================================================
Personal Lines net written premiums for the 2001 second quarter and six months
were $1.073 billion and $2.035 billion, respectively, compared to $993 million
and $1.890 billion in the comparable periods of 2000. The increase in net
written premiums in the 2001 second quarter and six months compared to the 2000
second quarter and six months, primarily reflects growth in target markets
served by independent agents and growth in affinity group marketing and joint
marketing arrangements, partially offset by continued emphasis on disciplined
underwriting and risk management. Rate increases implemented in both the
automobile and homeowners product lines contributed to the growth in net written
premiums. The business retention ratio in 2001 remains stable compared to 2000.
Catastrophe losses, net of taxes and reinsurance, in 2001 of $42 million all
occurred in the 2001 second quarter compared to $17 million and $48 million in
the second quarter and six-month periods of 2000. Catastrophe losses in 2001
were primarily due to Tropical Storm Allison and wind and hailstorms in Texas
and the Midwest in the second quarter. Catastrophe losses in 2000 were primarily
due to wind and hailstorms in Texas, the Midwest and the Northeast in the second
quarter and hailstorms in Louisiana and Texas in the first quarter.
The statutory combined ratio for Personal Lines in the 2001 second quarter and
six months was 104.4% and 101.4%, respectively, compared to 98.3% and 98.7% in
the comparable periods of 2000. The GAAP combined ratio for Personal Lines in
the 2001 second quarter and six months was 103.7% and 101.4%, respectively,
compared to 98.0% and 98.8% in the comparable periods of 2000. GAAP combined
ratios for Personal Lines differ from statutory combined ratios primarily due to
the deferral and amortization of certain expenses for GAAP reporting purposes
only.
The increase in the statutory and GAAP combined ratios for the 2001 second
quarter and six months compared to the statutory and GAAP combined ratios for
the 2000 second quarter and six months was primarily due to higher catastrophe
losses in the second quarter of 2001 and slightly lower catastrophe losses for
the six months of 2001 combined with increased loss cost trends and lower
favorable prior-year reserve development, partially offset by a
disproportionately smaller increase in expenses related to the growth in
premiums.
11
<Page>
INTERNATIONAL CONSUMER
JAPAN
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $818 $662 24 $1,643 $1,253 31
Adjusted operating expenses(2) 313 267 17 666 516 29
Provision for credit losses 147 121 21 309 226 37
-----------------------------
------------------------------
CORE INCOME BEFORE TAXES 358 274 31 668 511 31
Income taxes 129 101 28 241 188 28
------------------------------ -----------------------------
CORE INCOME 229 173 32 427 323 32
Restructuring-related items, after-tax (6) -- NM (6) -- NM
------------------------------ -----------------------------
INCOME $223 $173 29 $ 421 $ 323 30
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 20 $ 16 25 $ 20 $ 16 25
Return on assets 4.47% 4.35% 4.24% 4.06%
- ------------------------------------------========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 4.59% 4.35% 4.31% 4.06%
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Japan - which provides banking, community-based lending, including credit and
charge cards, and investment products and services - reported core income of
$229 million and $427 million in the 2001 second quarter and six months,
respectively, up $56 million or 32% and $104 million or 32% from 2000,
reflecting growth in the consumer finance business, including the impact of the
acquisitions of Unimat in September 2000 and the Chiyoda Trust portfolio in June
2000. Income of $223 million in the 2001 second quarter included
restructuring-related items of $6 million ($12 million pretax).
The net effect of foreign currency translation in the 2001 second quarter
reduced revenue, expense and provision for credit losses growth rates by 6, 7
and 13 percentage points, respectively, compared to the 2000 second quarter. For
the six months ended June 30, 2001, the net effect of foreign currency
translation reduced revenue, expense and provision for credit losses growth
rates by 8, 8 and 12 percentage points, respectively, compared to the prior-year
period.
As shown in the following table, the Japan business experienced strong growth in
accounts, customer deposits and loans from 2000, including the Unimat
acquisition which added approximately $1.5 billion to average loans and 0.4
million to accounts in the 2001 second quarter.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ---------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 5.0 4.1 22 5.0 4.1 22
Average customer deposits $14.7 $13.5 9 $14.5 $13.3 9
Average loans $14.0 $10.9 28 $13.8 $10.3 34
- ------------------------------------------=======================================================================================
</Table>
Revenues, net of interest expense, of $818 million and $1.643 billion in the
2001 second quarter and six months increased $156 million or 24% and $390
million or 31% from the respective 2000 periods, primarily reflecting growth in
consumer finance revenues and customer deposits along with the impact of
acquisitions, partially offset by the effect of foreign currency translation.
Adjusted operating expenses in the 2001 second quarter and six months increased
17% and 29%, respectively, from the 2000 periods, reflecting volume-related
increases and the impact of acquisitions, partially offset by the effect of
foreign currency translation.
The provision for credit losses was $147 million and $309 million for the 2001
second quarter and six months, up $26 million and $83 million from the
comparable 2000 periods, primarily due to higher loan volumes, including the
impact of acquisitions. Net credit losses in the 2001 second quarter were $131
million and the related loss ratio was 3.74%, compared to $135 million and 4.06%
in the 2001 first quarter and $88 million and 3.19% in the 2000 second quarter.
The increase in net credit losses was primarily due to higher bankruptcy
filings. Loans delinquent 90 days or more were $129 million or 0.91% of loans at
June 30, 2001, compared to $107 million or 0.81% at March 31, 2001 and $100
million or 0.83% a year ago.
12
<Page>
WESTERN EUROPE
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $602 $600 -- $1,224 $1,218 --
Adjusted operating expenses(2) 332 365 (9) 682 728 (6)
Provisions for benefits, claims,
and credit losses 101 92 10 200 196 2
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES 169 143 18 342 294 16
Income taxes 63 52 21 126 107 18
------------------------------ -----------------------------
CORE INCOME 106 91 16 216 187 16
Restructuring-related items, after-tax (2) -- NM (2) -- NM
------------------------------ -----------------------------
INCOME $104 $ 91 14 $ 214 $ 187 14
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 22 $ 21 5 $ 22 $ 22 --
Return on assets 1.90% 1.74% 1.96% 1.71%
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Western Europe -- which provides banking, community-based lending, including
credit and charge cards, and investment products and services -- reported core
income of $106 million and $216 million in the 2001 second quarter and six
months, respectively, up $15 million or 16% and $29 million or 16% from the 2000
periods, mainly reflecting growth in the branch and consumer finance businesses
across the region, particularly in Germany, and in the six-month comparison
reflecting a gain related to the sale of the Diners Club franchises in the
region. Income of $104 million in the 2001 second quarter included
restructuring-related items of $2 million ($3 million pretax).
The net effect of foreign currency translation reduced income growth by
approximately $9 million and $24 million in the 2001 second quarter and six
months and reduced revenue growth by approximately 7% and 8%, reduced expense
growth by approximately 6% in both periods and reduced provisions for benefits,
claims, and credit losses growth by approximately 7% and 6%, respectively, from
the comparable prior-year periods.
As shown in the following table, Western Europe accounts were up slightly from a
year ago. Growth in both deposit and loan volumes was reduced by foreign
currency translation effects.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 10.0 9.9 1 10.0 9.9 1
Average customer deposits $13.0 $12.5 4 $13.0 $12.8 2
Average loans $17.1 $16.8 2 $17.2 $16.9 2
- ------------------------------------------========================================================================================
</Table>
Revenues, net of interest expense, of $602 million and $1.224 billion in the
2001 second quarter and six months increased $2 million and $6 million from the
2000 periods, principally due to growth in consumer finance and branch lending
revenues, partially offset by the adverse effects of foreign currency
translation and reduced investment product fees. Additionally, the benefit of
deposit volume growth was offset by reduced spreads due to lower interest rates.
Adjusted operating expenses of $332 million and $682 million in the 2001 second
quarter and six months declined $33 million or 9% and $46 million or 6% from the
comparable 2000 periods as costs associated with higher business volumes were
more than offset by the effect of foreign currency translation and lower
expenses due to expense management initiatives.
The provisions for benefits, claims, and credit losses were $101 million and
$200 million in the 2001 second quarter and six months, up from $92 million and
$196 million in the respective 2000 periods. The net credit loss ratio was 1.98%
in the 2001 second quarter, up from 1.92% in the 2001 first quarter and 1.84% in
the 2000 second quarter. Loans delinquent 90 days or more were $740 million or
4.34% of loans at June 30, 2001 decreased from $785 million or 4.68% at March
31, 2001 and $892 million or 5.18% a year ago. The decline in the dollar amount
of delinquent loans from a year ago reflects the effect of foreign currency
translation and portfolio improvements.
13
<Page>
ASIA
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ------------------------------ %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $539 $519 4 $1,079 $1,058 2
Adjusted operating expenses(2) 242 241 -- 486 487 --
Provisions for benefits, claims,
and credit losses 67 62 8 129 136 (5)
------------------------------ --------------------------------------------
CORE INCOME BEFORE TAXES 230 216 6 464 435 7
Income taxes 83 77 8 170 155 10
------------------------------ --------------------------------------------
CORE INCOME 147 139 6 294 280 5
Restructuring-related items, after-tax (3) (1) NM (3) (4) 25
------------------------------ --------------------------------------------
INCOME $144 $138 4 $ 291 $ 276 5
- ------------------------------------------=========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 25 $ 26 (4) $ 25 $ 27 (7)
Return on assets 2.31% 2.13% 2.35% 2.06%
- ------------------------------------------=========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 2.36% 2.15% 2.37% 2.09%
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Asia (excluding Japan) -- which provides banking, lending, including credit and
charge cards, and investment products and services -- reported core income of
$147 million and $294 million in the 2001 second quarter and six months,
respectively, up $8 million or 6% and $14 million or 5% from the 2000 periods,
as volume growth across most countries and products was partially offset by the
net effects of foreign currency translation. Core income in the 2001 second
quarter and six months also includes gains on the contribution of Citigroup's
insurance operations in Taiwan to its joint venture with Fubon. Income of $144
million in the 2001 second quarter and $291 million in the 2001 six months
included restructuring-related charges of $3 million ($4 million pretax) in both
periods. Income of $138 million in the 2000 second quarter and $276 million in
the 2000 six months included restructuring-related charges of $1 million ($2
million pretax) and $4 million ($6 million pretax), respectively.
The net effect of foreign currency translation reduced income growth by
approximately $13 million and $26 million in the 2001 second quarter and six
months from the 2000 periods and reduced revenue growth by 9 and 8 percentage
points, reduced expense growth by 8 percentage points in both periods, and
reduced the provisions for benefits, claims, and credit losses growth rates by 8
and 7 percentage points, respectively, from the 2000 periods.
As shown in the following table, Asia experienced strong growth in accounts,
however, both loan and deposit volumes were reduced by foreign currency
translation effects.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 8.8 7.5 17 8.8 7.5 17
Average customer deposits $35.5 $34.4 3 $35.8 $34.3 4
Average loans $21.2 $22.2 (5) $21.4 $22.4 (4)
- ------------------------------------------========================================================================================
</Table>
Revenues, net of interest expense, of $539 million and $1.079 billion in the
2001 second quarter and six months, respectively, were up $20 million or 4% and
$21 million or 2% from the 2000 periods, reflecting improvements in most
countries driven by growth in deposits and cards, and Fubon-related gains,
partially offset by foreign currency translation effects, and in the six months
lower investment product fees. Adjusted operating expenses increased $1 million
in the 2001 second quarter and declined $1 million in the 2001 six months as
costs associated with new branch initiatives and increased advertising and
marketing were offset by foreign currency translation effects.
The provisions for benefits, claims, and credit losses were $67 million in the
2001 second quarter and $129 million in the 2001 six months compared with $62
million and $136 million in the 2000 periods. Net credit losses in the 2001
second quarter were $65 million and the related loss ratio was 1.23%, up from
$61 million and 1.14% in the 2001 first quarter and $59 million and 1.07% a year
ago, reflecting economic conditions in the region. Loans delinquent 90 days or
more were $338 million or 1.59% of loans at June 30, 2001, compared to $334
million or 1.58% at March 31, 2001 and $396 million or 1.75% a year ago.
14
<Page>
LATIN AMERICA
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $480 $466 3 $951 $979 (3)
Adjusted operating expenses(2) 328 330 (1) 667 655 2
Provisions for benefits, claims,
and credit losses 87 76 14 176 166 6
------------------------------ ------------------------------------------
CORE INCOME BEFORE TAXES 65 60 8 108 158 (32)
Income taxes 20 21 (5) 33 55 (40)
------------------------------ ------------------------------------------
CORE INCOME 45 39 15 75 103 (27)
Restructuring-related items, after-tax (19) (10) (90) (19) (11) (73)
------------------------------ ------------------------------------------
INCOME $ 26 $ 29 (10) $ 56 $ 92 (39)
- ------------------------------------------=======================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 13 $ 12 8 $ 13 $ 13 --
Return on assets 0.80% 0.97% 0.87% 1.42%
- ------------------------------------------=======================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 1.39% 1.31% 1.16% 1.59%
- ------------------------------------------=======================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
- --------------------------------------------------------------------------------
Latin America -- which provides banking, lending, including credit and charge
cards, and insurance and investment services -- reported core income of $45
million and $75 million in the 2001 second quarter and six months, respectively,
compared with $39 million and $103 million in the 2000 periods. Income of $26
million and $56 million in the 2001 second quarter and six months included
restructuring related charges of $19 million ($28 million pretax) in both
periods. Income of $29 million and $92 million in the 2000 second quarter and
six months included restructuring related charges of $10 million ($12 million
pretax) and $11 million ($14 million pretax), respectively.
The net effects of foreign currency translation reduced income by approximately
$7 million and $11 million, reduced revenue growth by approximately 5 and 4
percentage points, reduced expense growth by 3 and 4 percentage points, and
reduced the provisions for benefits, claims and credit losses by 3 and 2
percentage points in the 2001 second quarter and six months, respectively, from
the 2000 periods.
As shown in the following table, Latin America accounts grew only slightly as
growth in banking-related insurance products and increases in cards were
partially offset by declines in deposit accounts and other loan products.
Average customer deposits were unchanged, reflecting weak economic conditions in
the region and strategy changes in certain countries. Average loans declined 8%
in the 2001 second quarter and 9% in the 2001 six months, reflecting continued
credit risk management initiatives and, for the 2001 six months, the effect of
the 2000 first quarter auto loan portfolio sale in Puerto Rico.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ------------------------------ %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 9.4 9.3 1 9.4 9.3 1
Average customer deposits $13.6 $13.6 -- $13.7 $13.7 --
Average loans $ 6.6 $ 7.2 (8) $ 6.7 $ 7.4 (9)
- ------------------------------------------=========================================================================================
</Table>
Revenues, net of interest expense, of $480 million in the 2001 second quarter
were up $14 million or 3% from 2000, reflecting higher revenues in Mexico
(primarily higher cards revenues partially offset by reduced revenues related to
Confia), Puerto Rico, and Brazil, partially offset by foreign currency
translation effects. Revenues of $951 million in the 2001 six months declined
$28 million or 3% from 2000, reflecting reduced earnings related to Confia,
foreign currency translation effects, and the 2000 first quarter gain related to
the sale of the Puerto Rico auto loan portfolio, offset by business volume
increases in certain countries. Adjusted operating expenses in the 2001 second
quarter declined $2 million or 1% from 2000 and increased $12 million or 2% in
the 2001 six months, as costs associated with business repositioning
initiatives, strategy changes in certain countries and increased technology
costs were offset by foreign currency translation effects.
The provisions for benefits, claims, and credit losses were $87 million and $176
million in the 2001 second quarter and six months, up from $76 million and $166
million in the 2000 periods, reflecting increases in policyholder benefits and
claims. Net credit losses in the 2001 second quarter were $69 million with a
related loss ratio of 4.22%, down from $71 million and 4.24% in the 2001 first
quarter and $76 million or 4.25% a year ago. The decline in net credit losses
from a year ago reflects improvements in Panama and Chile, partially offset by
higher losses in Argentina. Loans delinquent 90 days or more were $310 million
or 4.80% of loans at June 30, 2001 compared with $318 million or 4.76% at March
31, 2001 and $323 million or 4.52% a year ago.
15
<Page>
CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ------------------------------ %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $135 $106 27 $265 $206 29
Total operating expenses(2) 94 76 24 187 143 31
Provision for credit losses 10 8 25 19 18 6
------------------------------ --------------------------------------------
CORE INCOME BEFORE TAXES 31 22 41 59 45 31
Income taxes 10 7 43 20 15 33
------------------------------ --------------------------------------------
CORE INCOME 21 15 40 39 30 30
Restructuring-related items, after-tax (1) 7 NM (1) 7 NM
------------------------------ --------------------------------------------
INCOME $ 20 $ 22 (9) $ 38 $ 37 3
- ------------------------------------------=========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 4 $ 3 33 $ 4 $ 3 33
Return on assets 2.01% 2.95% 1.92% 2.48%
- ------------------------------------------=========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on Assets 2.11% 2.01% 1.97% 2.01%
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Central & Eastern Europe, Middle East & Africa (CEEMEA -- including India and
Pakistan) -- which provides banking, lending, including credit and charge cards,
and investment services -- reported core income of $21 million and $39 million
in the 2001 second quarter and six months, respectively, up $6 million or 40%
and $9 million or 30% from the 2000 periods, reflecting continued growth in
loans and deposits across the region, partially offset by investments in new
initiatives. Income of $20 million in the 2001 second quarter and $38 million in
the 2001 six months included restructuring-related charges of $1 million ($1
million pretax) in both periods. Income of $22 million in the 2000 second
quarter and $37 million in the 2000 six months included restructuring-related
credits of $7 million ($11 million pretax) in both periods.
As shown in the following table, CEEMEA reported 35% account growth from a year
ago, primarily reflecting growth in customer deposits, cards, and other lending
as franchise growth efforts continued across the region, including the effect of
Bank Handlowy, a Polish bank in which Citigroup acquired a majority interest in
June 2000, which added approximately $1.0 billion and $0.9 billion to average
customer deposits in the 2001 second quarter and six months, respectively.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN BILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts (IN MILLIONS) 3.5 2.6 35 3.5 2.6 35
Average customer deposits $5.8 $3.9 49 $5.7 $3.9 46
Average loans $2.3 $1.9 21 $2.3 $1.9 21
- ------------------------------------------========================================================================================
</Table>
Revenues, net of interest expense, of $135 million and $265 million in the 2001
second quarter and six months increased $29 million or 27% and $59 million or
29% from the comparable 2000 periods, and total operating expenses increased $18
million or 24% in the 2001 second quarter and $44 million or 31% in the 2001 six
months, both reflecting franchise growth in the region, particularly deposits
and cards, and the Bank Handlowy acquisition.
The provision for credit losses of $10 million and $19 million in the 2001
second quarter and six months was up from $8 million and $18 million in the 2000
periods primarily due to loan growth. The net credit loss ratio was 1.70% in the
2001 second quarter, up slightly from 1.66% in both the 2001 first quarter and a
year ago. Loans delinquent 90 days or more were $32 million or 1.31% of loans at
June 30, 2001, down from $33 million or 1.40% at March 31, 2001 and $38 million
or 1.95% at June 30, 2000.
16
<Page>
E-CONSUMER
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 35 $ 28 25 $ 82 $ 59 39
Adjusted operating expenses(2) 91 103 (12) 194 246 (21)
------------------------------- -----------------------------
CORE LOSS BEFORE TAX BENEFITS (56) (75) 25 (112) (187) 40
Income tax benefits (24) (29) 17 (45) (73) 38
------------------------------- -----------------------------
CORE INCOME (LOSS) (32) (46) 30 (67) (114) 41
Restructuring-related items, after-tax (8) -- NM (8) -- NM
------------------------------- -----------------------------
LOSS ($ 40) ($ 46) 13 ($ 75) ($114) 34
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
e-Consumer -- the business responsible for developing and implementing Global
Consumer Internet financial services products and e-commerce solutions --
reported losses before restructuring-related items of $32 million and $67
million in the 2001 second quarter and six months, down from losses of $46
million and $114 million in the 2000 second quarter and six months. The loss of
$40 million in the 2001 second quarter included restructuring-related items of
$8 million ($13 million pretax).
Revenues, net of interest expense, in the 2001 second quarter and six months
increased $7 million and $23 million from the comparable 2000 periods,
reflecting higher revenues associated with both new and established product
offerings and, in the six-month comparison, gains related to the sale of
internet/e-commerce investments. Adjusted operating expenses declined $12
million or 12% and $52 million or 21% from the 2000 second quarter and six
months, reflecting the effect of initiatives discontinued in 2000, partially
offset by continued investment spending on Internet financial services and
products.
OTHER CONSUMER
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 57 ($ 19) NM $ 67 $ 14 NM
Adjusted operating expenses(2) 82 45 82 115 142 (19)
Provisions for benefits, claims,
and credit losses (11) (8) (38) (40) (12) NM
------------------------------ -----------------------------
CORE LOSS BEFORE TAX BENEFITS (14) (56) 75 (8) (116) 93
Income tax benefits (5) (23) 78 (3) (45) 93
------------------------------ -----------------------------
CORE INCOME (LOSS) (9) (33) 73 (5) (71) 93
Restructuring-related items, after tax -- 2 (100) (4) 2 NM
------------------------------ -----------------------------
LOSS ($ 9) ($ 31) 71 ($ 9) ($ 69) 87
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Other Consumer -- which includes certain treasury and other unallocated staff
functions, global marketing and other programs -- reported losses before
restructuring-related items of $9 million and $5 million for the 2001 second
quarter and six months compared to losses of $33 million and $71 million in the
2000 second quarter and six months. The improvement compared to the prior-year
quarter and six months was primarily due to higher treasury earnings. Losses of
$9 million and $69 million in the 2001 and 2000 six months, respectively,
included restructuring-related items of $4 million ($6 million pretax) in 2001
and a restructuring-related credit of $2 million ($3 million pretax) in 2000.
Revenues, expenses and the provisions for benefits, claims and credit losses
reflect offsets to certain line-item reclassifications reported in other Global
Consumer operating segments.
CONSUMER PORTFOLIO REVIEW
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level according to loan product and
country.
17
<Page>
The following table summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolios in terms of loans 90 days
or more past due, net credit losses, and as a percentage of related loans.
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
<Table>
<Caption>
TOTAL AVERAGE
LOANS 90 DAYS OR MORE PAST DUE(1) LOANS NET CREDIT LOSSES(1)
------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, JUNE 30, JUNE 30, Mar. 31, June 30, 2ND QTR. 2ND QTR. 1st Qtr. 2nd Qtr.
EXCEPT LOAN AMOUNTS IN BILLIONS 2001 2001 2001(2) 2000(2) 2001 2001 2001(2) 2000(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Citibanking North America $ 7.0 $ 41 $ 41 $ 33 $ 7.0 $ 18 $ 15 $ 15
RATIO 0.58% 0.59% 0.47% 1.03% 0.85% 0.88%
Mortgage Banking 45.4 1,191 957 722 45.7 9 6 7
RATIO 2.61% 2.14% 2.10% 0.08% 0.06% 0.08%
Citi Cards 103.0 1,775 1,836 1,156 100.6 1,383 1,196 948
RATIO 1.72% 1.84% 1.26% 5.51% 4.84% 4.32%
Other North America Cards 1.7 5 6 24 1.7 12 12 12
RATIO 0.29% 0.32% 1.17% 2.92% 2.90% 2.84%
CitiFinancial 58.6 1,757 1,599 1,033 58.2 370 363 314
RATIO 3.00% 2.77% 1.98% 2.55% 2.57% 2.49%
Japan 14.1 129 107 100 14.0 131 135 88
RATIO 0.91% 0.81% 0.83% 3.74% 4.06% 3.19%
Western Europe 17.1 740 785 892 17.1 84 82 77
RATIO 4.34% 4.68% 5.18% 1.98% 1.92% 1.84%
Asia (excluding Japan) 21.3 338 334 396 21.2 65 61 59
RATIO 1.59% 1.58% 1.75% 1.23% 1.14% 1.07%
Latin America 6.4 310 318 323 6.6 69 71 76
RATIO 4.80% 4.76% 4.52% 4.22% 4.24% 4.25%
CEEMEA 2.4 32 33 38 2.3 10 9 8
RATIO 1.31% 1.40% 1.95% 1.70% 1.66% 1.66%
The Citigroup Private Bank 24.6 64 65 78 24.8 3 (1) 3
RATIO 0.26% 0.27% 0.32% 0.04% (0.01%) 0.05%
Other 3.5 22 24 24 3.4 -- (18) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MANAGED $305.1 $6,404 $6,105 $4,819 $302.6 $2,154 $1,931 $1,606
RATIO 2.10% 2.04% 1.74% 2.85% 2.61% 2.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Securitized receivables (63.6) (1,115) (1,243) (761) (62.3) (838) (691) (517)
Loans held for sale (16.6) (144) (148) (83) (16.5) (92) (75) (45)
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS $224.9 $5,145 $4,714 $3,975 $223.8 $1,224 $1,165 $1,044
RATIO 2.29% 2.14% 1.88% 2.19% 2.10% 2.07%
- ------------------------------------===============================================================================================
</Table>
(1) The ratios of 90 days or more past due and net credit losses are
calculated based on end-of-period and average loans, respectively, both
net of unearned income.
(2) Reclassified to conform to current period's presentation.
- --------------------------------------------------------------------------------
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
<Table>
<Caption>
END OF PERIOD AVERAGE
-------------------------------- -------------------------------
JUNE 30, Mar. 31, June 30, 2ND QTR. 1st Qtr. 2nd Qtr.
IN BILLIONS OF DOLLARS 2001 2001 2000 2001 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MANAGED $305.1 $299.6 $277.4 $302.6 $300.0 $266.4
Securitized receivables (63.6) (63.7) (56.0) (62.3) (62.2) (55.8)
Loans held for sale (16.6) (15.3) (10.0) (16.5) (13.4) (8.1)
-------------------------------- -------------------------------
CONSUMER LOANS $224.9 $220.6 $211.4 $223.8 $224.4 $202.5
- -----------------------------------------------------------========================================================================
</Table>
Total delinquencies 90 days or more past due in the managed portfolio were
$6.404 billion or 2.10% of loans at June 30, 2001, compared with $6.105 billion
or 2.04% at March 31, 2001 and $4.819 billion or 1.74% at June 30, 2000. Total
managed net credit losses in the 2001 second quarter were $2.154 billion and the
related loss ratio was 2.85%, compared with $1.931 billion and 2.61% in the 2001
first quarter and $1.606 billion and 2.42% in the 2000 second quarter. For a
discussion on trends by business, see business discussions on pages 4 - 17.
Citigroup's allowance for credit losses of $8.917 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citigroup's allowance for credit losses attributed to the
consumer portfolio was $4.914 billion at June 30, 2001, $4.956 billion at March
31, 2001 and $5.062 billion at June 30, 2000. The allowance as a percentage of
loans on the balance sheet was 2.18% at June 30, 2001, down from 2.24% at March
31, 2001 and 2.39% at June 30, 2000. The decline in the allowance as a
percentage of loans primarily reflects the growth in consumer loans. On-balance
sheet consumer loans of $224.9 billion grew 6% from a year ago, primarily driven
by growth in Mortgage Banking, mainly student loans and mortgages, and in
CitiFinancial, mostly real-estate secured loans. In addition, loans increased in
Japan, mainly in consumer finance, and Citi
18
<Page>
Cards, where managed receivable growth was partially offset by increased
securitization activity, and decreased in Asia and Latin America. The
attribution of the allowance is made for analytical purposes only and may change
from time to time. Consumer net credit losses and loans 90 days or more past due
may increase from 2001 second quarter levels as a result of portfolio growth,
seasonal factors and as uncertain economic conditions persist, mainly in the
U.S., Japan and the Latin American region. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 29.
GLOBAL CORPORATE
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $8,552 $8,218 4 $18,083 $16,788 8
Adjusted operating expenses(2) 4,603 4,683 (2) 10,092 9,192 10
Provisions for benefits, claims,
and credit losses 1,413 1,249 13 2,785 2,357 18
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 2,536 2,286 11 5,206 5,239 (1)
Income taxes 856 753 14 1,776 1,798 (1)
Minority interest, after-tax 8 12 (33) 12 56 (79)
------------------------------ -----------------------------
CORE INCOME 1,672 1,521 10 3,418 3,385 1
Restructuring-related items, after-tax (66) 3 NM (134) 3 NM
------------------------------ -----------------------------
INCOME $1,606 $1,524 5 $ 3,284 $ 3,388 (3)
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
The Global Corporate business serves corporations, financial institutions,
governments, investors and other participants in capital markets throughout the
world and consists of the Corporate and Investment Bank, Emerging Markets
Corporate Banking & Global Transaction Services (EM Corporate & GTS) and the
Commercial Lines business of Travelers Property Casualty Corp. (TPC).
Global Corporate core income was $1.672 billion and $3.418 billion in the 2001
second quarter and six months, up $151 million or 10% and $33 million or 1% from
the comparable 2000 periods. The 2001 second quarter reflects core income growth
from the comparable 2000 quarter of $122 million or 35% in EM Corporate & GTS,
$15 million or 2% in the Corporate and Investment Bank and $14 million or 5% in
Commercial Lines. The 2001 six months reflects core income growth of $238
million or 35% in EM Corporate & GTS and $45 million or 9% in Commercial Lines
partially offset by a decrease of $250 million or 11% in the Corporate and
Investment Bank.
EM Corporate & GTS core income growth reflects broad-based growth in
trading-related revenues, the contribution of Bank Handlowy, the impact of net
investment hedging, disciplined expense management, lower credit costs and a
building sale in Asia. The Corporate and Investment Bank increase in the 2001
second quarter reflects strong Fixed Income results and lower compensation and
benefits, which were partially offset by lower earnings from the investment in
Nikko Securities, decreases in Global Equities and Private Client and higher
credit losses. The Corporate and Investment Bank decrease in the 2001 six months
reflects declines in Private Client, lower earnings from the investment in Nikko
Securities and higher net credit losses, which were partially offset by
increases in Fixed Income. Commercial Lines growth primarily reflects the
benefit of rate increases and higher favorable prior-year reserve development,
which were largely offset by increased loss cost trends, lower net investment
income and higher catastrophe losses. Also reflected in the 2001 six months are
the incremental earnings from the TPC minority interest buyback.
Income of $1.606 billion in the 2001 second quarter and $3.284 billion in the
2001 six months included net restructuring-related charges of $66 million ($105
million pretax) and $134 million ($218 million pretax), respectively. Income of
$1.524 billion in the 2000 second quarter and $3.388 billion in the 2000 six
months included restructuring-related credits of $3 million ($4 million pretax)
and $3 million ($3 million pretax), respectively. See Note 9 of Notes to
Consolidated Financial Statements for a discussion of the restructuring-related
items.
The businesses of Global Corporate are significantly affected by the levels of
activity in the global capital markets which, in turn, are influenced by
macro-economic and political policies and developments, among other factors, in
the 100 countries in which the businesses operate. Global economic and market
events can have both positive and negative effects on the revenue performance of
the businesses and can affect credit performance. Losses on commercial lending
activities and the level of cash-basis loans can vary widely with respect to
timing and amount, particularly within any narrowly-defined business or loan
type. The slowdown in the U.S. economy and weakening global economic conditions
are affecting the businesses of Global Corporate. A variety of factors continue
to affect the property and casualty insurance market, including the competitive
pressures affecting pricing and profitability,
19
<Page>
inflation in the cost of medical care and litigation. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 29.
CORPORATE AND INVESTMENT BANK
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $4,682 $4,801 (2) $10,352 $10,081 3
Adjusted operating expenses(2) 3,045 3,280 (7) 6,915 6,443 7
Provision for credit losses 230 160 44 460 250 84
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 1,407 1,361 3 2,977 3,388 (12)
Income taxes 488 456 7 1,046 1,204 (13)
Minority interest, after-tax -- 1 (100) -- 3 (100)
------------------------------ -----------------------------
CORE INCOME 919 904 2 1,931 2,181 (11)
Restructuring-related items, after tax (39) -- NM (105) -- NM
------------------------------ -----------------------------
INCOME $ 880 $ 904 (3) $ 1,826 $ 2,181 (16)
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
The Corporate and Investment Bank, through Salomon Smith Barney (SSB), delivers
investment banking services that encompass a full range of global capital market
activities, including the underwriting and distribution of fixed income and
equity securities, and also provides brokerage services, research and advisory
services to its customers. Through the Global Relationship Bank (excluding
Transaction Services), the Corporate and Investment Bank provides products and
services that include foreign exchange, structured products, derivatives and
loans. The Corporate and Investment Bank, through CitiCapital, also provides
leasing and commercial finance products.
The Corporate and Investment Bank core income of $919 million and $1.931 billion
in the 2001 second quarter and six months was up $15 million or 2% from the 2000
second quarter, but down $250 million or 11% from the 2000 six months,
respectively. The increase in the 2001 second quarter reflects strong Fixed
Income results and lower compensation and benefits that were partially offset by
lower earnings from the investment in Nikko Securities, decreases in Global
Equities and Private Client and higher credit losses. The decrease in the 2001
six months reflects declines in Private Client and lower earnings from the
investment in Nikko Securities along with higher net credit losses, partially
offset by increases in Fixed Income. Income of $880 million in the 2001 second
quarter and $1.826 billion in the 2001 six months, includes net
restructuring-related charges of $39 million ($66 million pretax) and $105
million ($176 million pretax), respectively.
On May 1, 2000, the Corporate and Investment Bank completed the acquisition of
the global investment banking business and related net assets of Schroders PLC
(Schroders), including all corporate finance, financial markets and securities
activities. During the second quarter of 2000, CitiCapital strengthened its
position in the U.S. leasing market through the purchase of Copelco.
Revenues by category were as follows:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
Commissions and fees $ 940 $1,049 (10) $ 1,984 $ 2,387 (17)
Investment banking 1,139 964 18 2,374 1,963 21
Principal transactions 835 993 (16) 2,396 2,282 5
Asset management and administration fees 503 546 (8) 1,039 1,046 (1)
Interest and dividend income, net 1,128 948 19 2,126 1,821 17
Other income 137 301 (54) 433 582 (26)
------------------------------ -----------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $4,682 $4,801 (2) $10,352 $10,081 3
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
- --------------------------------------------------------------------------------
Revenues, net of interest expense, of $4.682 billion and $10.352 billion in the
2001 second quarter and 2001 six months decreased $119 million or 2% from the
2000 second quarter, but increased $271 million or 3% from the 2000 six months,
respectively. Commissions and fees in the 2001 second quarter and six months
decreased $109 million and $403 million, respectively, mainly reflecting lower
customer transactional volumes in over-the-counter securities. Investment
banking revenues increased $175 million or 18% and $411 million or 21% in the
2001 second quarter and six months, respectively, primarily due to growth in
high-grade debt underwriting, partially offset by a decline in equity
underwriting. For the 2001 six months, mergers and acquisitions fees also
contributed to the increase, primarily due to completed transactions in the
first quarter of 2001. Principal transactions revenues decreased $158 million in
the 2001 second quarter compared to 2000, primarily reflecting declines in
Global Equities, Commodities
20
<Page>
and Foreign Exchange partially offset by increases in Fixed Income. In the six
months comparison, principal transactions revenues increased $114 million,
mainly reflecting strong growth in Fixed Income, partially offset by decreases
in Global Equities and Foreign Exchange. Net interest and dividend income
increased $180 million or 19% and $305 million or 17% in the 2001 second quarter
and six months, respectively, mainly in Fixed Income and Loans. Other income
decreased $164 million and $149 million in the 2001 second quarter and six
months, respectively, primarily reflecting a decrease in earnings from the
investment in Nikko Securities and a change in intercompany billing practices
that had the effect of reducing other income and other expense. Asset management
and administration fees include results from assets managed by the Financial
Consultants and other internally-managed assets as well as those that are
managed through the Consulting Group. For the 2001 second quarter and six
months, asset management and administration fees decreased $43 million or 8% and
$7 million or 1%, respectively, from the 2000 periods, primarily due to a
decrease in assets under fee-based management billings, which are calculated on
a quarter lag.
Total assets under fee-based management at June 30, were as follows:
<Table>
<Caption>
JUNE 30, June 30, %
IN BILLIONS OF DOLLARS 2001 2000 Change
- -------------------------------------------------------------------------------------------------------------------------------
Financial Consultant managed accounts $ 57.0 $ 58.2 (2)
Consulting Group internally managed assets 149.1 135.8 10
---------------------------
TOTAL ASSETS UNDER FEE-BASED MANAGEMENT(1) $206.1 $194.0 6
- ----------------------------------------------------------------------------------------=======================================
</Table>
(1) Includes assets managed jointly with Citigroup Asset Management.
- --------------------------------------------------------------------------------
Adjusted operating expenses were $3.045 billion in the 2001 second quarter, down
$235 million or 7% compared to the prior-year quarter primarily due to decreases
in compensation and benefits and other operating and administrative expenses.
Compensation and benefits decreased primarily as a result of declines in
production-related compensation and savings from restructuring actions initiated
in the first quarter of 2001. Other operating and administrative expenses
declined $170 million primarily due to tight expense controls and a change in
intercompany billing practices that had the effect of reducing other expense and
other income. Expenses were up $472 million or 7% to $6.915 billion for the 2001
six months primarily due to increased compensation and benefits in the first
quarter of 2001 and investment spending to expand product platforms.
The provision for credit losses was $230 million in the 2001 second quarter and
$460 million in the 2001 six months, up $70 million and $210 million from the
respective 2000 periods, reflecting increases in CitiCapital and Corporate
Finance. Net credit losses increased in CitiCapital principally due to higher
write-offs in the transportation portfolio. Net credit losses increased in
Corporate Finance primarily due to a write-down on a loan in the retail
industry.
Cash-basis loans were $1.149 billion at June 30, 2001, $776 million at December
31, 2000 and $611 million at June 30, 2000, reflecting increases in CitiCapital
and Corporate Finance. The increase in CitiCapital was primarily related to the
transportation portfolio. The increase in Corporate Finance was primarily
attributable to borrowers in the retail and telecommunication industries and
asbestos-related bankruptcies. The OREO portfolio totaled $107 million, down $8
million from December 31, 2000 and $28 million from June 30, 2000. The
improvements in OREO were primarily related to the North America real estate
portfolio. Other Repossessed Assets at June 30, 2001 were $382 million, up $111
million from December 31, 2000 and $143 million from June 30, 2000. The increase
in Other Repossessed Assets was primarily due to increased repossessed
transportation equipment in CitiCapital. Losses on commercial lending activities
and the level of cash-basis loans can vary widely with respect to timing and
amount, particularly within any narrowly-defined business or loan type. Net
credit losses and cash-basis loans may increase from the 2001 second quarter
levels due to weakening U.S. economic conditions and stress in the
telecommunications industry. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 29.
21
<Page>
EMERGING MARKETS CORPORATE BANKING AND GLOBAL TRANSACTION SERVICES
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $1,852 $1,629 14 $3,743 $3,200 17
Adjusted operating expenses(2) 1,052 1,000 5 2,172 1,949 11
Provision for credit losses 59 80 (26) 106 167 (37)
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 741 549 35 1,465 1,084 35
Income taxes 266 201 32 530 396 34
Minority interest, after-tax 8 3 NM 12 3 NM
------------------------------ -----------------------------
CORE INCOME 467 345 35 923 685 35
Restructuring-related items, after-tax (27) 3 NM (29) 3 NM
------------------------------ -----------------------------
INCOME $ 440 $ 348 26 $ 894 $ 688 30
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 118 $ 101 17 $ 116 $ 99 17
Return on assets 1.50% 1.39% 1.55% 1.40%
- ------------------------------------------========================================================================================
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 1.59% 1.37% 1.60% 1.39%
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful.
- --------------------------------------------------------------------------------
Citigroup's EM Corporate & GTS business offers a wide array of banking and
financial services products in the emerging markets and also includes the global
operations of Transaction Services. In June 2000, EM Corporate & GTS completed
the acquisition of a majority interest in Bank Handlowy, a leading bank in
Poland.
EM Corporate & GTS core income was $467 million and $923 million in the 2001
second quarter and six months, up $122 million or 35% and $238 million or 35%
from the comparable 2000 periods. The improvements reflect broad-based growth in
trading-related revenues, the contribution of Bank Handlowy, the impact of net
investment hedging, disciplined expense management, lower credit costs and a
building sale in Asia. Income of $440 million in the 2001 second quarter and
$894 million for the 2001 six months included restructuring-related charges of
$27 million ($39 million pretax) and $29 million ($42 million pretax),
respectively. Income of $348 million in the 2000 second quarter and $688 million
in the 2000 six months included restructuring-related credits of $3 million ($4
million pretax) and $3 million ($3 million pretax), respectively.
Revenues, net of interest expense, were $1.852 billion and $3.743 billion in the
2001 second quarter and six months, up $223 million or 14% and $543 million or
17% from the respective 2000 periods. Revenue growth primarily reflects
increased trading-related revenues across all regions, the impact of the
acquisition of Bank Handlowy in CEEMEA, benefits from net investment hedging in
CEEMEA and Latin America and a building sale in Asia.
Adjusted operating expenses increased $52 million or 5% to $1.052 billion in the
2001 second quarter and $223 million or 11% to $2.172 billion in the 2001 six
months compared to the respective 2000 periods. The increases reflect the impact
of the acquisition of Bank Handlowy and volume-related increases, partially
offset by cost controls in all regions and benefits from foreign currency
translation effects.
The provision for credit losses totaled $59 million and $106 million in the 2001
second quarter and six months, down $21 million or 26% and $61 million or 37%
from the respective 2000 periods. The decrease reflects lower net credit
write-offs in Asia and the impact of 2000 second quarter write-offs taken in
Bolivia. Cash-basis loans at June 30, 2001 were $1.443 billion, up $311 million
from June 30, 2000 primarily due to increases in Latin America (specifically in
Argentina and Mexico) and CEEMEA. Cash basis loans increased $295 million from
December 31, 2000 primarily due to increases in Latin America (specifically in
Argentina and Mexico) and Asia, partially offset by decreases in CEEMEA. Losses
on commercial lending activities and the level of cash-basis loans can vary
widely with respect to timing and amount, particularly within any
narrowly-defined business or loan type. Net credit losses and cash-basis loans
may increase from the 2001 second quarter levels due to weakening global
economic conditions, sovereign or regulatory actions and other factors. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29.
22
<Page>
COMMERCIAL LINES
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $2,018 $1,788 13 $3,988 $3,507 14
Claims and claim adjustment expenses 1,124 1,009 11 2,219 1,940 14
Total operating expenses 506 403 26 1,005 800 26
------------------------------- -------------------------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 388 376 3 764 767 --
Income taxes 102 96 6 200 198 1
Minority interest, after-tax -- 8 (100) -- 50 (100)
------------------------------- -------------------------------------------
INCOME(2) $ 286 $ 272 5 $ 564 $ 519 9
- ------------------------------------------=========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes investment gains/losses included in Investment Activities
segment.
Commercial Lines -- which offers a broad array of property and casualty
insurance and insurance-related services through brokers and independent
agencies -- reported income of $286 million and $564 million in the 2001 second
quarter and six months, up from $272 million and $519 million in the comparable
periods of 2000. The slight improvements in the 2001 second quarter and six
months over the 2000 second quarter and six months reflect the benefit of rate
increases and higher favorable prior-year reserve development, largely offset by
increased loss cost trends, lower net investment income and higher catastrophe
losses. Also reflected in the 2001 six months are the incremental earnings from
the minority interest buyback. The Company continues to maintain its discipline
in the competitive commercial lines marketplace and to grow business only where
market conditions warrant.
On May 31, 2000, the Company completed the acquisition of the surety business of
Reliance Group Holdings, Inc. (Reliance Surety). In the third quarter of 2000,
the Company purchased the renewal rights to a portion of Reliance Group
Holdings, Inc.'s commercial lines middle-market book of business (Reliance
Middle Market) and also acquired the renewal rights to Frontier Insurance Group,
Inc.'s (Frontier) environmental, excess, and surplus lines casualty businesses
and certain classes of surety business.
Net written premiums by market were as follows:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000 Change 2001 2000 Change
- ----------------------------------------------------------------------------------------------------------------------------------
National Accounts $ 77 $ 59 31 $ 203 $ 151 34
Commercial Accounts 527 457 15 1,074 945 14
Select Accounts 440 407 8 869 794 9
Specialty Accounts 512 481 6 1,069 813 31
------------------------------ -----------------------------
TOTAL NET WRITTEN PREMIUMS $1,556 $1,404 11 $3,215 $2,703 19
- ------------------------------------------========================================================================================
</Table>
Commercial Lines net written premiums in the 2001 second quarter and six months
totaled $1.556 billion and $3.215 billion, respectively, compared to $1.404
billion and $2.703 billion in the comparable periods of 2000. Included in
Specialty Accounts net written premiums in the 2000 second quarter and six
months is an increase of $131 million due to a reinsurance transaction
associated with the acquisition of the Reliance Surety business. The trend in
written premiums for all lines reflects the impact of an improving rate
environment as evidenced by the continued favorable pricing on new and renewal
business. Also contributing to the net written premium increases were the impact
of the acquisition of the renewal rights for the Reliance Middle Market business
in Commercial Accounts, the impact on Specialty Accounts of the Reliance Surety
acquisition and the acquisition of the renewal rights for the Frontier business.
The increase in National Accounts net written premiums is due to the purchase of
less reinsurance, reflecting the shift in business mix from guaranteed-cost
products to loss-sensitive products, combined with the re-population of the
involuntary pools.
National Accounts new business was moderately lower in the 2001 second quarter
than in the 2000 second quarter and was significantly lower in the 2001 six
months than in the 2000 six months, reflecting the continued disciplined
approach to underwriting and risk management. National Accounts business
retention ratio in the 2001 second quarter and six months was moderately lower
than in the 2000 comparable periods.
Commercial Accounts new business in the 2001 second quarter and six months was
marginally lower than in the comparable periods of 2000, reflecting the
continued focus on selective underwriting. Commercial Accounts business
retention ratio in the 2001 second quarter was moderately lower than in the 2000
second quarter and significantly lower in the 2001 six-month period compared to
the 2000 six-month period, reflecting the continued disciplined approach to
achieving acceptable levels of account profitability.
New business in Select Accounts in the 2001 second quarter and six months was
marginally higher than in the comparable periods of 2000, reflecting the
increased market activity resulting from the pricing environment. Select
Accounts business retention ratio in the 2001 second quarter and six months was
marginally lower than in the comparable periods of 2000.
23
<Page>
Catastrophe losses, net of taxes and reinsurance, were $13 million and $21
million in the 2001 second quarter and six months, respectively. There were no
catastrophe losses in the 2000 first and second quarters. Catastrophe losses in
2001 were primarily due to the Seattle earthquake in the first quarter and
Tropical Storm Allison in the second quarter.
The statutory combined ratio before policyholder dividends for Commercial Lines
in the 2001 second quarter and six months was 101.3% and 100.9%, respectively,
compared to 105.6% and 103.0% in the comparable periods of 2000. The GAAP
combined ratio before policyholder dividends for Commercial Lines in the 2001
second quarter and six months was 101.5% and 99.9%, respectively, compared to
100.7% and 100.3% in the comparable periods of 2000. GAAP combined ratios for
Commercial Lines differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
The 2000 second quarter and six months statutory and GAAP combined ratios
include an adjustment due to a reinsurance transaction associated with the
acquisition of the Reliance Surety business. Excluding this adjustment, the 2000
second quarter statutory and GAAP combined ratios before policyholder dividends
would have been 104.5% and 103.3%, respectively, and for the 2000 six-month
period would have been 102.4% and 101.7%, respectively.
The improvement in the 2001 second quarter and six-month statutory and GAAP
combined ratios before policyholder dividends compared to the 2000 second
quarter and six-month statutory and GAAP combined ratios before policyholder
dividends, excluding the related adjustment above, was primarily due to premium
growth related to rate increases, the impact of the business associated with the
Reliance Surety acquisition, the purchase of the renewal rights for the Reliance
Middle Market and Frontier businesses and higher favorable prior-year reserve
development. This was partially offset by increased loss cost trends and
catastrophe losses due to the Seattle earthquake in the 2001 first quarter and
Tropical Storm Allison in the 2001 second quarter.
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES
The reserves for environmental claims are not established on a claim-by-claim
basis. An aggregate bulk reserve is carried for all of the environmental claims
that are in the dispute process, until the dispute is resolved. This bulk
reserve is established and adjusted based upon the aggregate volume of
in-process environmental claims and the experience in resolving such claims. At
June 30, 2001, approximately 80% of the net aggregate reserve (i.e.,
approximately $354 million), is carried in a bulk reserve and includes
unresolved as well as incurred but not reported environmental claims for which
the Company has not received any specific claims. The balance, approximately 20%
of the net environmental loss reserve (i.e., approximately $88 million),
consists of case reserves for resolved claims.
In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of such claims. At June 30, 2001,
approximately 87% (i.e., approximately $705 million) of the net asbestos
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims. The balance, approximately 13% of the net
aggregate reserve (i.e., approximately $109 million), is for pending asbestos
claims.
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation, and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
The reserves carried for environmental and asbestos claims at June 30, 2001 are
the Company's best estimate of ultimate claims and claim adjustment expenses
based upon known facts and current law. However, the uncertainties surrounding
the final resolution of these claims continue. These include, without
limitation, any impact from the bankruptcy protection sought by various asbestos
producers, a further increase or decrease in asbestos and environmental claims
which cannot now be anticipated as well as the role of any umbrella or excess
policies issued by the Company for such claims, the resolution or adjudication
of certain disputes pertaining to asbestos non-products / operations claims in a
manner inconsistent with the Company's previous assessment of such claims as
well as unanticipated developments pertaining to the Company's ability to
recover reinsurance for environmental and asbestos claims.
It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and
environmental claims. Such development will be affected by future court
decisions and interpretations, as well as changes in legislation applicable to
such claims. Because of these future unknowns, and the uncertainties set forth
above, additional liabilities may arise for amounts in excess of the current
reserves. These additional amounts, or a range of these additional amounts,
cannot now be reasonably estimated, and could result in a liability exceeding
reserves by an amount that would be material to the Company's operating results
in a future period. However, in the opinion of the Company's management, it is
not likely that these claims will have a material adverse effect on its
financial condition or liquidity. This paragraph contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 29.
24
<Page>
COMMERCIAL PORTFOLIO REVIEW
Commercial loans are identified as impaired and placed on a nonaccrual basis
when it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well-secured and in the process of collection. Impaired
commercial loans are written down to the extent that principal is judged to be
uncollectible. Impaired collateral-dependent loans are written down to the lower
of cost or collateral value. The following table summarizes commercial
cash-basis loans at period-end and net credit losses for the three months ended.
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31, June 30,
IN MILLIONS OF DOLLARS 2001 2001 2000 2000
- ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL CASH-BASIS LOANS
Corporate and Investment Bank $1,149 $1,149 $ 776 $ 611
EM Corporate & GTS 1,443 1,205 1,148 1,132
---------------------------------------------------------------------
Total Global Corporate 2,592 2,354 1,924 1,743
Insurance and Investment Activities 37 63 46 41
---------------------------------------------------------------------
TOTAL COMMERCIAL CASH-BASIS LOANS(1) $2,629 $2,417 $1,970 $1,784
- -------------------------------------------------------------=====================================================================
NET CREDIT LOSSES
Corporate and Investment Bank $230 $ 229 $ 201 $ 144
EM Corporate & GTS 57 48 37 81
---------------------------------------------------------------------
TOTAL NET CREDIT LOSSES $287 $ 277 $ 238 $ 225
- -------------------------------------------------------------=====================================================================
</Table>
(1) Prior period cash-basis loans were restated to change the policy of the
Associates Commercial Leasing business for suspending accrual of interest
on past due loans to conform with other leasing businesses in the
Corporate & Investment Bank. The prior policy of placing loans that are 60
days or more past due into cash-basis, was changed to 90 days or more past
due.
- --------------------------------------------------------------------------------
Total commercial cash-basis loans were $2.629 billion, $2.417 billion, $1.970
billion, and $1.784 billion at June 30, 2001, March 31, 2001, December 31, 2000
and June 30, 2000, respectively. Cash-basis loans in the Corporate and
Investment Bank were $1.149 billion at June 30, 2001 and March 31, 2001, $776
million at December 31, 2000 and $611 million at June 30, 2000, reflecting
increases in CitiCapital and Corporate Finance. The increase in CitiCapital was
primarily related to the transportation portfolio. The increase in Corporate
Finance was primarily attributable to borrowers in the retail and
telecommunication industries and asbestos-related bankruptcies. EM Corporate &
GTS cash-basis loans at June 30, 2001 were $1.443 billion, up $311 million from
June 30, 2000 primarily due to increases in Latin America (specifically in
Argentina and Mexico) and CEEMEA. Cash basis loans increased $295 million from
December 31, 2000 primarily due to increases in Latin America (specifically in
Argentina and Mexico) and Asia, partially offset by decreases in CEEMEA. Other
Repossessed Assets at June 30, 2001 were $382 million, up $111 million from
December 31, 2000 and up $143 million from June 30, 2000. The increase in Other
Repossessed Assets was primarily due to increased repossessed transportation
equipment in CitiCapital.
Total commercial net credit losses of $287 million in the second quarter of 2001
increased $62 million compared to the second quarter of 2000, reflecting
increases in the Corporate and Investment Bank partially offset by a decline in
EM Corporate & GTS. Corporate and Investment Bank net credit losses of $230
million in the 2001 second quarter were up $86 million compared to the second
quarter of 2000, reflecting increases in CitiCapital and Corporate Finance. Net
credit losses increased in CitiCapital principally due to higher write-offs in
the transportation portfolio. Net credit losses increased in Corporate Finance
primarily due to a write-down on a loan in the retail industry. EM Corporate &
GTS net credit losses of $57 million in the 2001 second quarter were down $24
million from the respective 2000 period. The reduction in net credit losses
reflects improvements in Asia and the impact of 2000 second quarter write-offs
taken in Bolivia. For a further discussion of trends by business, see the
business discussions on pages 20 - 24.
Citigroup's allowance for credit losses of $8.917 billion is available to absorb
probable credit losses inherent in the entire portfolio. For analytical purposes
only, the portion of Citigroup's allowance for credit losses attributed to the
commercial portfolio was $4.003 billion at June 30, 2001 compared to $4.001
billion, $4.015 billion and $3.790 billion at March 31, 2001, December 31, 2000
and June 30, 2000, respectively. The increase in the allowance in 2000 primarily
reflects additional provisions related to the transportation portfolio and the
impact of acquisitions. The decrease in the allowance as a percentage of total
commercial loans compared to December 31, 2000 was primarily due to growth in
the commercial loan portfolio. Losses on commercial lending activities and the
level of cash-basis loans can vary widely with respect to timing and amount,
particularly within any narrowly-defined business or loan type. Commercial net
credit losses and cash-basis loans may increase from 2001 second quarter levels
due to the slowdown in the U.S. economy, weakening global economic conditions,
stress in the telecommunications industry, sovereign or regulatory actions and
other factors. This statement is a forward-looking statement within the meaning
of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 29.
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31, June 30,
IN BILLIONS OF DOLLARS 2001 2001 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial allowance for credit losses $4.003 $4.001 $4.015 $3.790
As a percentage of total commercial loans 2.79% 2.75% 2.90% 2.83%
- -------------------------------------------------------------======================================================================
</Table>
25
<Page>
GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $867 $818 6 $1,774 $1,617 10
Total operating expenses(2) 571 539 6 1,165 1,032 13
Provision for credit losses 1 3 (67) 3 25 (88)
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 295 276 7 606 560 8
Income taxes 115 106 8 233 216 8
Minority interest, after-tax -- -- -- 1 -- NM
------------------------------ -----------------------------
CORE INCOME 180 170 6 372 344 8
Restructuring-related items, after-tax (7) 1 NM (7) 1 NM
------------------------------ -----------------------------
INCOME $173 $171 1 $ 365 $ 345 6
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuing-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Global Investment Management and Private Banking is composed of Citigroup Asset
Management and The Citigroup Private Bank. These businesses offer a broad range
of asset management products and services including mutual funds, closed-end
funds, managed accounts, unit investment trusts, variable annuities, pension
administration, and personalized wealth management services distributed to
institutional, high net worth, and retail clients.
Global Investment Management and Private Banking core income of $180 million in
the 2001 second quarter and $372 million in the 2001 six months was up $10
million or 6% and $28 million or 8% from the year-ago periods. The increase in
core income reflects growth in The Citigroup Private Bank primarily due to
increased customer activity and lower provision for credit losses, partially
offset by decreases in Citigroup Asset Management, as growth in asset-based fee
revenues was more than offset by increased expenses.
Income of $173 million in the 2001 second quarter and $365 million in the 2001
six months included a restructuring-related charge of $7 million ($13 million
pretax). Income of $171 million in the 2000 second quarter and $345 million in
the 2000 six months included a restructuring-related credit of $1 million ($2
million pretax). See Note 9 of Notes to Consolidated Financial Statements for a
discussion of the restructuring-related items.
CITIGROUP ASSET MANAGEMENT
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, % SIX MONTHS ENDED JUNE 30, %
------------------------------ -----------------------------
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $492 $479 3 $1,009 $915 10
Total operating expenses(2) 345 328 5 704 607 16
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES
AND MINORITY INTEREST 147 151 (3) 305 308 (1)
Income taxes 60 60 -- 122 123 (1)
Minority interest, after-tax -- -- -- 1 -- NM
------------------------------ -----------------------------
CORE INCOME 87 91 (4) 182 185 (2)
Restructuring-related items, after-tax (3) -- NM (3) -- NM
------------------------------ -----------------------------
INCOME $ 84 $ 91 (8) $ 179 $185 (3)
- ------------------------------------------========================================================================================
Assets under management
(IN BILLIONS OF DOLLARS)(3)(4) $409 $389 5 $ 409 $389 5
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
(3) Includes $29 billion and $31 billion in 2001 and 2000, respectively, for
The Citigroup Private Bank clients.
(4) Includes Unit Investment Trusts held in client accounts of $8 billion and
$11 billion and Emerging Markets Pension Administration assets under
management of $7 billion and $5 billion in 2001 and 2000, respectively.
NM Not meaningful
- --------------------------------------------------------------------------------
Citigroup Asset Management comprises the substantial resources that are
available through its three primary asset management business platforms -- Smith
Barney Asset Management, Salomon Brothers Asset Management, and Citibank Asset
Management -- along with the pension administration businesses of Global
Retirement Services. These businesses offer institutional, high net worth, and
retail clients a broad range of investment alternatives from investment centers
located around the world. Products and services offered include mutual funds,
closed-end funds, separately managed accounts, unit investment trusts, variable
annuities (through affiliated and third party insurance companies), and pension
administration.
26
<Page>
Core income of $87 million and $182 million in the 2001 second quarter and six
months was down $4 million or 4% and $3 million or 2% from the comparable 2000
periods, reflecting growth in asset-based fee revenues that was more than offset
by increased expenses. Income of $84 million in the 2001 second quarter and $179
million for the 2001 six months included a restructuring-related charge of $3
million ($6 million pretax). See Note 9 of Notes to Consolidated Financial
Statements for a discussion of the restructuring-related items.
Assets under management for the 2001 second quarter rose 5% from the year-ago
quarter to $409 billion, reflecting strong net flows that were partially offset
by negative market activity and the transfer of retail Money Market assets to
the SSB Bank Deposit Program. Institutional client assets were $173 billion at
June 30, 2001, up 13% compared to the year-ago quarter aided by cross-selling
efforts, including $11 billion in client assets raised from Global Corporate
customers. Retail client assets were $229 billion, down 1% compared to a year
ago, primarily reflecting lower market values and the impact of the SSB Bank
Deposit Program on money market funds partially offset by strong net flows.
Sales of proprietary mutual funds and managed account products at SSB were $7.3
billion in the second quarter of 2001, up 51% from the 2000 second quarter
primarily driven by growth in managed account products. These sales represented
58% of SSB's retail channel sales. Sales of mutual and money funds through
Global Consumer's banking network were $3.2 billion in the 2001 second quarter,
representing 65% of total sales, including $2.2 billion in International and $1
billion in the U.S. Primerica sold $509 million of proprietary U.S. mutual and
money funds, representing 66% of Primerica's total sales in the 2001 second
quarter compared to 46% in the year-ago quarter.
Revenues, net of interest expense, of $492 million and $1.009 billion in the
2001 second quarter and six months increased $13 million or 3% and $94 million
or 10% from the 2000 second quarter and six months, respectively, primarily due
to growth in asset-based fee revenues corresponding to the increase in assets
under management. For the six months comparison, revenues from the acquisitions
of Siembra, Garante, and Colfondos in the Global Retirement Services business
also contributed to the increase.
Operating expenses of $345 million and $704 million in the 2001 second quarter
and the six months were up $17 million or 5% and $97 million or 16% from the
2000 periods, primarily reflecting increased compensation and benefits and
investments in sales and marketing. The acquisitions in the Global Retirement
Services business also contributed to the increase for the six months
comparison.
THE CITIGROUP PRIVATE BANK
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $375 $339 11 $765 $702 9
Total operating expenses(2) 226 211 7 461 425 8
Provision for credit losses 1 3 (67) 3 25 (88)
------------------------------ -----------------------------
CORE INCOME BEFORE TAXES 148 125 18 301 252 19
Income taxes 55 46 20 111 93 19
------------------------------ -----------------------------
CORE INCOME 93 79 18 190 159 19
Restructuring-related items, after-tax (4) 1 NM (4) 1 NM
------------------------------ -----------------------------
INCOME $ 89 $ 80 11 $186 $160 16
- ------------------------------------------========================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 26 $ 25 4 $26 $ 24 8
Return on assets 1.37% 1.29% 1.44% 1.34%
- ----------------------------------------------------------------------------------------------------------------------------------
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets 1.43% 1.27% 1.47% 1.33%
- ------------------------------------------========================================================================================
Client business volumes under
management (IN BILLIONS OF DOLLARS) 150 149 1 150 149 1
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
The Citigroup Private Bank provides personalized wealth management services for
high net worth clients around the world. The Citigroup Private Bank core income
was $93 million in the 2001 second quarter and $190 million in the 2001 six
months, up $14 million or 18% and $31 million or 19% from the 2000 periods,
primarily reflecting increased customer activity across most products and lower
provision for credit losses. Income of $89 million in the 2001 second quarter
and $186 million for the 2001 six months included a restructuring-related charge
of $4 million ($7 million pretax). Income of $80 million in the 2000 second
quarter and $160 million in the 2000 six months included a restructuring-related
credit of $1 million ($2 million pretax).
Client business volumes under management, which include custody accounts, client
assets under fee-based management, deposits, and loans, were $150 billion at the
end of the 2001 second quarter, up $1 billion or 1% from $149 billion at the end
of the year-ago quarter. The increase primarily reflects growth in Asia,
partially offset by decreases in CEEMEA and Europe.
27
<Page>
Revenues, net of interest expense, were $375 million in the 2001 second quarter
and $765 million in the six months, up $36 million or 11% and $63 million or 9%
from the 2000 periods. Revenue growth was driven by the impact of lower interest
rates, higher placement fees, increased client trading activity and higher loan
spreads. In the 2001 second quarter and six months, the increase in revenues
reflects continued favorable trends in the U.S., up $17 million or 14% and $26
million or 11%, respectively, from the comparable 2000 periods. International
revenues increased $19 million or 9% from the 2000 second quarter and $37
million or 8% from the 2000 six months primarily due to growth in Asia and
Japan.
Operating expenses of $226 million and $461 million in the 2001 second quarter
and six months were up $15 million or 7% and $36 million or 8% from the
respective 2000 periods, primarily reflecting higher levels of revenues and
investment spending in front-end sales and servicing capabilities.
The provision for credit losses was $1 million in the 2001 second quarter and $3
million in the 2001 six months, down $2 million and $22 million from the
respective 2000 periods. The decline was primarily related to a provision taken
in the 2000 periods for a loan in Europe. Loans 90 days or more past due at the
2001 quarter-end were $64 million or 0.26% of total loans outstanding, compared
with $78 million or 0.32% at the end of the 2000 second quarter.
CORPORATE/OTHER
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
ADJUSTED REVENUES,
NET OF INTEREST EXPENSE(2) ($128) ($160) 20 ($293) ($248) (18)
Adjusted operating expenses(2) 166 121 37 317 444 (29)
Adjusted credit for benefits, claims,
and credit losses(2) -- (1) 100 -- (2) 100
------------------------------ -----------------------------
CORE INCOME (LOSS) BEFORE TAX BENEFITS (294) (280) (5) (610) (690) 12
Income tax benefits (109) (87) (25) (208) (253) 18
------------------------------ -----------------------------
CORE INCOME (LOSS) (185) (193) 4 (402) (437) 8
Restructuring-related items, after-tax(3) -- (17) 100 -- (96) 100
------------------------------ -----------------------------
LOSS ($185) ($210) 12 ($402) ($533) 25
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
(2) Excludes Housing Finance unit charge and restructuring-related items.
(3) The 2000 six-month period includes a $71 million (after-tax) charge
associated with the discontinuation of the loan origination operations of
Associates Housing Finance unit.
- --------------------------------------------------------------------------------
Corporate/Other includes net corporate treasury results, corporate staff and
other corporate expenses, certain intersegment eliminations, and the remainder
of Internet-related development activities not allocated to the individual
businesses.
Core loss of $185 million and $402 million in the 2001 second quarter and six
months decreased $8 million or 4% and $35 million or 8% over the respective
prior-year periods. The 2001 second quarter results, as compared to the
prior-year second quarter, included lower net treasury costs, partially offset
by increases in certain unallocated corporate costs and inter-segment
eliminations. The six-month 2001 results, as compared to the prior-year
six-month period, included lower expenses primarily related to a 2000 first
quarter $108 million pretax expense for the contribution of appreciated venture
capital securities to Citigroup's Foundation, which had minimal impact on
Citigroup's earnings after related tax benefits and investment gains. The
decrease in expenses was partially offset by increased funding costs primarily
related with the Associates acquisition and intersegment eliminations.
28
<Page>
INVESTMENT ACTIVITIES
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ % ----------------------------- %
IN MILLIONS OF DOLLARS 2001 2000(1) Change 2001 2000(1) Change
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $361 $426 (15) $594 $1,468 (60)
Total operating expenses 22 23 (4) 53 49 8
------------------------------ -----------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 339 403 (16) 541 1,419 (62)
Income taxes 112 146 (23) 183 520 (65)
Minority interest, after-tax -- (1) 100 (1) (8) 88
------------------------------ -----------------------------
INCOME $227 $258 (12) $359 $ 907 (60)
- ------------------------------------------========================================================================================
</Table>
(1) Reclassified to conform to the current period's presentation.
- --------------------------------------------------------------------------------
Investment Activities comprises Citigroup's venture capital activities, realized
investment gains (losses) related to certain corporate and insurance-related
investments, and the results of certain investments in countries that refinanced
debt under the 1989 Brady Plan or plans of a similar nature.
Revenues, net of interest expense, of $361 million for the 2001 second quarter
decreased $65 million or 15% from 2000, primarily reflecting lower realized
gains in certain proprietary investments and the refinancing portfolio,
impairment write-downs in the 2001 second quarter in insurance-related and other
proprietary investments, partially offset by an increase in venture capital
results. For the 2001 six months, revenues, net of interest expense, of $594
million decreased $874 million or 60% from the 2000 six months, primarily
reflecting lower venture capital results, partially offset by increased gains in
insurance-related investments. The 2000 first quarter included losses in
insurance-related investments from repositioning activities designed to improve
yields and maturity profiles, and write-downs in the refinancing portfolio.
Investment Activities results may fluctuate in the future as a result of market
and asset-specific factors. This statement is a forward-looking statement within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" below.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar
expressions or future or conditional verbs such as "will," "should," "would,"
and "could." These forward-looking statements involve risks and uncertainties
including, but not limited to, global economic and political conditions, levels
of activity in the global capital markets, portfolio growth, the credit
performance of the portfolios, including bankruptcies, and seasonal factors;
changes in general economic conditions including uncertainty in the U.S., Japan
and the Latin American region, the performance of global financial markets,
prevailing inflation and interest rates, stress in the telecommunications
industry and the rising cost of medical care; the effects of competitors'
pricing policies; the impact of proposed rules that would govern the regulatory
treatment of merchant banking investments and certain similar equity investments
in nonfinancial companies; possible amendments to, and interpretations of,
risk-based capital guidelines and reporting instructions; the resolution of
legal proceedings and related matters; the actual amount of liabilities
associated with certain environmental and asbestos-related insurance claims; and
the Company's success in managing the costs associated with the expansion of
existing distribution channels and developing new ones, and in realizing
increased revenues from such distribution channels, including cross-selling
initiatives and electronic commerce-based efforts.
MANAGING GLOBAL RISK
The Citigroup Risk Management framework recognizes the wide range and diversity
of global business activities by balancing strong corporate oversight with
defined independent risk management functions at the business level. The
Citigroup Risk Management Framework is described in detail in Citigroup's 2000
Annual Report and Form 10-K.
THE CREDIT RISK MANAGEMENT PROCESS
The credit risk management process at Citigroup relies on corporate-wide
standards to ensure consistency and integrity, with business-specific policies
and practices to ensure applicability and ownership. Citigroup's credit risk
management process is described in detail in Citigroup's 2000 Annual Report and
Form 10-K.
29
<Page>
THE MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise in
the normal course of business of a global financial intermediary. Liquidity risk
is the risk that some entity, in some location and in some currency, may be
unable to meet a financial commitment to a customer, creditor, or investor when
due. Price risk is the risk to earnings that arises from changes in interest
rates, foreign exchange rates, equity and commodity prices, and in their implied
volatilities. Price risk arises in Non-Trading Portfolios, as well as in Trading
Portfolios.
Market risk at Citigroup is managed through corporate-wide standards and
business-specific policies and procedures which are described more fully in
Citigroup's 2000 Annual Report and Form 10-K.
NON-TRADING PORTFOLIOS
Price risk in non-trading portfolios is measured predominantly through
Earnings-at-Risk and Factor Sensitivity techniques. These measurement techniques
are supplemented with additional tools, including stress testing and
cost-to-close analysis.
Business units manage the potential earnings effect of interest rate movements
by managing the asset and liability mix, either directly or through the use of
derivative financial products. These include interest rate swaps and other
derivative instruments which are either designated and effective as hedges or
designated and effective in modifying the interest rate characteristics of
specified assets or liabilities. The utilization of derivatives is managed in
response to changing market conditions as well as to changes in the
characteristics and mix of the related assets and liabilities. Citigroup does
not utilize instruments with leverage features in connection with its
non-trading risk management activities.
Earnings-at-Risk is the primary method for measuring price risk in Citigroup's
non-trading portfolios (excluding the Travelers Insurance Companies).
Earnings-at-Risk measures the pretax earnings impact of a specified upward and
downward shift in the yield curve for the appropriate currency. Earnings-at-Risk
is calculated separately for each currency and reflects the repricing gaps in
the position as well as option positions, both explicit and embedded. U.S.
dollar exposures are calculated by multiplying the gap between
interest-sensitive items, including assets, liabilities, derivative instruments,
and other off-balance sheet instruments, by 100 basis points. Non-U.S. dollar
exposures are calculated utilizing the statistical equivalent of a 100 basis
point change in interest rates and assumes no correlation between exposures in
different currencies.
Citigroup's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. Citigroup also has Earnings-at-Risk in various other
currencies; however, there are no significant risk concentrations in any
individual non-U.S. dollar currency.
The following table illustrates the impact to Citigroup pretax earnings from a
100 basis point increase or decrease in the U.S. dollar yield curve. As of June
30, 2001, a 100 basis point increase in U.S. dollar interest rates would have a
potential negative impact on pretax earnings within the next twelve months of
$78 million and the negative impact ranged from $66 million to $144 million at
each month-end during the 2001 second quarter. A 100 basis point decrease in
U.S. dollar interest rates would have a potential positive impact on pretax
earnings over the next 12 months of $147 million and the positive impact ranged
from $108 million to $156 million at each month-end during the quarter. The
potential impact on pretax earnings for periods beyond the first 12 months was
an increase of $1,428 million from a 100 basis point increase in U.S. dollar
interest rates and a decrease of $1,467 million from a 100 basis point decrease
in U.S. dollar interest rates. The change in Earnings-at-Risk from the prior
year reflects the growth in Citigroup's fixed funding as well as the reduction
in the use of derivatives in managing our risk portfolio. The change in
Earnings-at-Risk from the prior year-end reflects the cancellation of receive
fixed swaps, the growth in Citigroup's fixed funding, and the change in mortgage
prepayment characteristics in our portfolio.
As of June 30, 2001, the statistical equivalent of a 100 basis point increase in
non-U.S. dollar interest rates would have a potential negative impact on
Citigroup's pretax earnings over the next 12 months of $261 million and the
negative impact ranged from $209 million to $261 million at each month-end
during the 2001 second quarter. The statistical equivalent of a 100 basis point
decrease in non-U.S. dollar interest rates would have a potential positive
impact on Citigroup's pretax earnings over the next 12 months of $263 million
and the positive impact ranged from $211 million to $263 million at each
month-end during the quarter. The potential impact on pretax earnings for
periods beyond the first 12 months was a decrease of $361 million for the
statistical equivalent of a 100 basis point increase in non-U.S. dollar interest
rates and an increase of $373 million for the statistical equivalent of a 100
basis point decrease in non-U.S. dollar interest rates. The sensitivity to
rising rates in the non-U.S. dollar Earnings-at-Risk from the prior year and
from the prior year-end reflects the change in the use of derivatives in
managing the risk portfolio and a change in the asset/liability mix to reflect
Citigroup's current view of interest rates.
30
<Page>
CITIGROUP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)(1)(2)
<Table>
<Caption>
IN MILLIONS JUNE 30, 2001 DECEMBER 31, 2000 JUNE 30, 2000
OF DOLLARS U.S. DOLLAR NON-U.S. DOLLAR(3) U.S. DOLLAR NON-U.S. DOLLAR U.S. DOLLAR NON-U.S. DOLLAR
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE Increase Decrease Increase Decrease Increase Decrease Increase Decrease
----------------------------------------------------------------------------------------------------------------------
Twelve months
and less ($ 78) $ 147 ($261) $263 ($243) $ 270 ($187) $189 ($189) $ 207 ($211) $212
Thereafter 1,428 (1,467) (361) 373 778 (883) (98) 115 373 (409) (140) 143
----------------------------------------------------------------------------------------------------------------------
Total $1,350 ($1,320) ($622) $636 $ 535 ($613) ($285) $304 $ 184 ($202) ($351) $355
- --------------======================================================================================================================
</Table>
(1) Excludes the Travelers Insurance Companies (see below).
(2) Prior-year information has been restated to reflect reorganizations and a
change in assumptions (specifically revising the measurement of
Earnings-at-Risk from a two standard deviation change in interest rates to
a 100 basis point change). These changes were made to reflect a more
consistent view for managing price risk throughout the organization.
(3) Primarily results from Earnings-at-Risk in the Japanese Yen, the Mexican
Peso and the Euro.
- --------------------------------------------------------------------------------
TRAVELERS INSURANCE COMPANIES
The table below reflects the estimated decrease in the fair value of financial
instruments held in the Travelers Insurance Companies, as a result of a 100
basis point increase in interest rates.
<Table>
<Caption>
JUNE 30, December 31, June 30,
IN MILLIONS OF DOLLARS 2001 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------
Assets
Investments $3,057 $2,715 $2,693
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt $ 27 $ 28 $ 28
Contractholder funds 571 542 519
Redeemable securities of subsidiary trusts 86 44 85
- --------------------------------------------------------------------------------=============================================
</Table>
A significant portion of Travelers Insurance Companies liabilities (e.g.,
insurance policy and claims reserves) are not financial instruments and are
excluded from the above sensitivity analysis. Corresponding changes in fair
value of these accounts, based on the present value of estimated cash flows,
would materially mitigate the impact of the net decrease in values implied
above. The analysis reflects the estimated gross change in value resulting from
a change in interest rates only and is not comparable to the Earnings-at-Risk
used for the Citigroup non-trading portfolios described above or the
Value-at-Risk used for the trading portfolios described below.
TRADING PORTFOLIOS
Price risk in trading portfolios is measured through a complementary set of
tools, including Factor Sensitivities, Value-at-Risk, and Stress Testing. Each
trading portfolio has its own market risk limit framework, encompassing these
measures and other controls, including permitted product lists and a new product
approval process for complex products, established by the business and approved
by independent market risk management.
Factor Sensitivities are defined as the change in the value of a position for a
defined change in a market risk factor (e.g., the change in the value of a
Treasury bill for a 1 basis point change in interest rates). It is the
responsibility of independent market risk management to ensure that factor
sensitivities are calculated, monitored, and, in some cases, limited for all
relevant risks taken in a trading portfolio. Value-at-Risk estimates the
potential decline in the value of a position or a portfolio, under normal market
conditions, over a one-day holding period, at a 99% confidence level. The
Value-at-Risk method incorporates the Factor Sensitivities of the trading
portfolio with the volatilities and correlations of those factors.
Stress Testing is performed on trading portfolios on a regular basis, to
estimate the impact of extreme market movements. Stress Testing is performed on
individual trading portfolios, as well as on aggregations of portfolios and
businesses, as appropriate. It is the responsibility of independent market risk
management, in conjunction with the businesses, to develop stress scenarios,
review the output of periodic stress testing exercises, and utilize the
information to make judgments as to the ongoing appropriateness of exposure
levels and limits.
New and/or complex products in trading portfolios are required to be reviewed
and approved by the Global Corporate Capital Markets Approval Committee (CMAC).
The CMAC is responsible for ensuring that all relevant risks are identified and
understood and can be measured, managed, and reported in accordance with
applicable Global Corporate policies and practices. The CMAC is made up of
senior representatives from market and credit risk management, legal,
accounting, operations, and other support areas, as required.
31
<Page>
The level of price risk exposure at any given point in time depends on the
market environment and expectations of future price and market movements, and
will vary from period to period.
For Citigroup's major trading centers, the aggregate pretax Value-at-Risk in the
trading portfolios was $68 million at June 30, 2001. Daily exposures averaged
$73 million during the 2001 second quarter and ranged from $60 million to $96
million.
The following table summarizes Value-at-Risk in the trading portfolios as of
June 30, 2001 and December 31, 2000, along with the averages.
<Table>
<Caption>
2001 Full
Second Year
JUNE 30, Quarter December 30, 2000
IN MILLIONS OF DOLLARS 2001 Average 2000 Average(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate $57 $64 $53 $43
Foreign exchange 12 12 11 10
Equity 18 19 24 20
All other (primarily commodity) 20 21 15 14
Covariance adjustment (39) (43) (39) (35)
--------------------------------------------------------------------
Total $68 $73 $64 $52
- --------------------------------------------------------------====================================================================
</Table>
(1) Prior-year information has been restated from that previously presented to
reflect reorganizations and a more consistent view for managing price risk
throughout the organization.
- --------------------------------------------------------------------------------
The table below provides the range of Value-at-Risk in the trading portfolios
that was experienced during the second quarter of 2001 and all of 2000.
<Table>
<Caption>
2001 2000(1)
----------------------------------------------------------------------
IN MILLIONS OF DOLLARS LOW HIGH Low High
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate $55 $90 $36 $55
Foreign exchange 7 19 6 19
Equity 10 53 11 47
All other (primarily commodity) 16 27 6 30
- -------------------------------------------------------------======================================================================
</Table>
(1) Prior-year information has been restated from that previously presented to
reflect reorganizations and to a more consistent view for managing price
risk throughout the organization.
- --------------------------------------------------------------------------------
MANAGEMENT OF CROSS-BORDER RISK
Cross-border risk is the risk that Citigroup will be unable to obtain payment
from customers on their contractual obligations as a result of actions taken by
foreign governments such as exchange controls, debt moratoria, and restrictions
on the remittance of funds. Citigroup manages cross-border risk as part of the
risk management framework described in Citigroup's 2000 Annual Report and Form
10-K.
Except as described below for cross-border resale agreements and the netting of
certain long and short securities positions, the following table presents total
cross-border outstandings and commitments on a regulatory basis in accordance
with Federal Financial Institutions Examination Council (FFIEC) guidelines. In
regulatory reports under FFIEC guidelines, cross-border resale agreements are
presented based on the domicile of the issuer of the securities that are held as
collateral. However, for purposes of the following table, cross-border resale
agreements are presented based on the domicile of the counterparty because the
counterparty has the legal obligation for repayment. Similarly, under FFIEC
guidelines, long securities positions are required to be reported on a gross
basis. However, for purposes of the following table, certain long and short
securities positions are presented on a net basis consistent with internal
cross-border risk management policies, reflecting a reduction of risk from
offsetting positions.
32
<Page>
Total cross-border outstandings include cross-border claims on third parties as
well as investments in and funding of local franchises. Countries with FFIEC
outstandings greater than 0.75% of Citigroup assets at June 30, 2001 and
December 31, 2000 include:
<Table>
<Caption>
JUNE 30, 2001 December 31, 2000
- ----------------------------------------------------------------------------------------------------- ----------------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES
----------------------------------------- INVESTMENTS
IN AND
TRADING AND CROSS- FUNDING OF TOTAL Total
IN BILLIONS OF SHORT-TERM BORDER RESALE ALL LOCAL CROSS-BORDER Cross-Border
DOLLARS CLAIMS(1) AGREEMENTS OTHER TOTAL FRANCHISES OUTSTANDINGS COMMITMENTS(2) Outstandings Commitments(2)
- ----------------------------------------------------------------------------------------------------- ----------------------------
Japan $2.7 $8.1(3) $2.1 $12.9 $4.6 $17.5 $ 0.7 $7.4 $0.8
Germany 5.4 5.8 1.9 13.1 2.0 15.1 5.7 12.4 7.1
France 5.4 3.8 1.8 11.0 -- 11.0 7.5 13.4 8.4
Italy 5.4 1.8 1.8 9.0 1.8 10.8 4.1 9.9 5.7
Brazil 2.9 -- 2.5 5.4 4.8 10.2 0.2 8.1 0.2
United Kingdom 3.9 2.5 3.6 10.0 -- 10.0 15.4 10.9 15.4
Canada 2.8 0.1 2.7 5.6 2.6 8.2 5.0 8.9 5.0
Netherlands 5.2 1.2 1.7 8.1 -- 8.1 2.1 10.6 1.9
- -----------------===================================================================================================================
</Table>
(1) Trading and short-term claims include cross-border debt and equity
securities held in the trading account, trade finance receivables, net
revaluation gains on foreign exchange and derivative contracts, and other
claims with a maturity of less than one year.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and other commitments and
contingencies as defined by the FFIEC.
(3) Increase from December 31, 2000 primarily represents resale agreements
primarily collateralized by U.S. treasury securities.
- --------------------------------------------------------------------------------
Total cross-border outstandings for June 30, 2001 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral and long securities positions
reported on a gross basis, amounted to $13.8 billion for Japan, $16.3 billion
for Germany, $13.5 billion for France, $14.1 billion for Italy, $12.5 billion
for Brazil, $9.8 billion for the United Kingdom, $8.5 billion for Canada, and
$8.5 billion for the Netherlands.
Total cross-border outstandings for December 31, 2000 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral and long securities positions
reported on a gross basis, amounted to $9.1 billion for Japan, $16.8 billion for
Germany, $13.5 billion for France, $13.9 billion for Italy, $9.8 billion for
Brazil, $9.6 billion for the United Kingdom, $9.0 billion for Canada, and $7.7
billion for the Netherlands.
LIQUIDITY AND CAPITAL RESOURCES
Citigroup services its obligations primarily with dividends and advances that it
receives from subsidiaries. The subsidiaries' dividend paying abilities are
limited by certain covenant restrictions in credit agreements and/or by
regulatory requirements. Citigroup believes it will have sufficient funds to
meet current and future commitments. Each of Citigroup's major operating
subsidiaries finances its operations on a basis consistent with its
capitalization and ratings.
Citigroup, Citicorp and certain of its subsidiaries, TPC and The Travelers
Insurance Company (TIC) issue commercial paper directly to investors. All of the
commercial paper issued by subsidiaries of Citicorp is guaranteed by Citicorp.
Citigroup and Citicorp, both of which are bank holding companies, maintain
combined liquidity reserves of cash, securities and unused bank lines of credit
to support their combined outstanding commercial paper. TPC and TIC each
maintains unused credit availability under their respective bank lines of credit
at least equal to the amount of outstanding commercial paper.
Citigroup has a $500 million 364-day revolving credit agreement that extends to
May 2002. Under this facility, Citigroup is required to maintain a certain level
of consolidated stockholders' equity (as defined in the agreement). Citigroup
exceeded this requirement by approximately $46.8 billion at June 30, 2001. At
June 30, 2001, there were no borrowings outstanding under this facility.
Associates, a subsidiary of Citicorp, has a combination of unutilized bilateral
and syndicated credit facilities of $18.6 billion as of June 30, 2001. These
facilities, which have maturities ranging from 2001 to 2005, are all guaranteed
by Citicorp. CitiFinancial Credit Company (CCC), an indirect subsidiary of
Citicorp, has unutilized revolving credit facilities in the amount of $3.4
billion that expire in 2002 and are guaranteed by Citicorp. In connection with
the facilities for both Associates and CCC, Citicorp is required to maintain a
certain level of consolidated stockholder's equity (as defined in the
agreements). At June 30, 2001, this requirement was exceeded by approximately
$33.6 billion. Citicorp has also guaranteed various other debt obligations of
Associates and CCC.
Borrowings under bank lines of credit may be at interest rates based on LIBOR,
CD rates, the prime rate, or bids submitted by the banks. Each company pays its
banks' commitment fees for its lines of credit.
Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with Section 23A
of the Federal Reserve Act.
33
<Page>
CITIGROUP INC. (CITIGROUP)
Citigroup is subject to risk-based capital guidelines issued by the Board of
Governors of the Federal Reserve System (FRB). These guidelines are used to
evaluate capital adequacy based primarily on the perceived credit risk
associated with balance sheet assets, as well as certain off-balance sheet
exposures such as unused loan commitments, letters of credit, and derivative and
foreign exchange contracts. The risk-based capital guidelines are supplemented
by a leverage ratio requirement.
CITIGROUP RATIOS
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31,
2001 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 8.82% 8.56% 8.38%
Total capital (Tier 1 and Tier 2) 11.49 11.31 11.23
Leverage(1) 6.17 6.10 5.97
Common stockholders' equity 7.21 7.09 7.14
- --------------------------------------------------------------------------------==================================================
</Table>
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citigroup maintained a strong capital position during the second quarter of
2001. Total capital (Tier 1 and Tier 2) amounted to $76.2 billion at June 30,
2001, representing 11.49% of net risk-adjusted assets. This compares with $75.0
billion and 11.31% at March 31, 2001 and $73.0 billion and 11.23% at December
31, 2000. Tier 1 capital of $58.5 billion at June 30, 2001 represented 8.82% of
net risk-adjusted assets, compared to $56.7 billion and 8.56% at March 31, 2001
and $54.5 billion and 8.38% at December 31, 2000. Citigroup's leverage ratio was
6.17% at June 30, 2001 compared to 6.10% at March 31, 2001 and 5.97% at December
31, 2000.
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31,
IN MILLIONS OF DOLLARS 2001 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
Common stockholders' equity $68,765 $ 66,912 $ 64,461
Perpetual preferred stock 1,763 1,747 1,745
Mandatorily redeemable securities of subsidiary trusts 4,575 4,920 4,920
Minority interest 343 348 334
Accumulated net losses on cash flow hedges, net of tax 42 52 --
Less: Net unrealized gains on securities available for sale(1) (949) (1,129) (973)
Intangible assets:
Goodwill (11,975) (11,949) (11,972)
Other intangible assets (3,556) (3,640) (3,572)
Net unrealized losses on available-for-sale equity securities, net of tax(1) (87) (122) (68)
50% investment in certain subsidiaries(2) (92) (90) (82)
Other (302) (305) (295)
-------------------------------------------------
TOTAL TIER 1 CAPITAL 58,527 56,744 54,498
- ---------------------------------------------------------------------------------------------------------------------------------
TIER 2 CAPITAL
Allowance for credit losses(3) 8,299 8,293 8,140
Qualifying debt(4) 9,490 10,004 10,492
Less: 50% investment in certain subsidiaries(2) (92) (90) (82)
-------------------------------------------------
TOTAL TIER 2 CAPITAL 17,697 18,207 18,550
-------------------------------------------------
TOTAL CAPITAL (TIER 1 AND TIER 2) $76,224 $74,951 $73,048
- --------------------------------------------------------------------------------=================================================
NET RISK-ADJUSTED ASSETS(5) $663,235 $662,709 $650,351
- --------------------------------------------------------------------------------=================================================
</Table>
(1) Tier 1 capital excludes unrealized gains and losses on debt securities
available for sale in accordance with regulatory risk-based capital
guidelines. The federal bank regulatory agencies permit institutions to
include in Tier 2 capital up to 45% of pretax net unrealized holding gains
on available-for-sale equity securities with readily determinable fair
values. Institutions are required to deduct from Tier 1 capital net
unrealized holding losses on available-for-sale equity securities with
readily determinable fair values net of tax.
(2) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(3) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(4) Includes qualifying senior and subordinated debt in an amount not
exceeding 50% of Tier 1 capital, and subordinated capital notes subject to
certain limitations.
(5) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $25.0 billion for interest rate,
commodity, and equity derivative contracts and foreign exchange contracts
as of June 30, 2001, compared to $28.6 billion as of March 31, 2001 and
$27.7 billion as of December 31, 2000. Market risk-equivalent assets
included in net risk-adjusted assets amounted to $45.0 billion at June 30,
2001, $41.1 billion at March 31, 2001, and $39.6 billion at December 31,
2000. Net risk-adjusted assets also includes the effect of other
off-balance sheet exposures such as unused loan commitments and letters of
credit and reflects deductions for intangible assets and any excess
allowance for credit losses.
- --------------------------------------------------------------------------------
Common stockholders' equity increased a net $4.3 billion during the first six
months of 2001 to $68.8 billion at June 30, 2001, representing 7.21% of assets,
compared to $64.5 billion and 7.14% at year-end 2000. The net increase in common
stockholders' equity during the first six months of 2001 principally reflected
net income of $7.1 billion and issuance of shares pursuant to employee benefit
plans and other activity of $0.7 billion which was partially offset by treasury
stock acquired of $2.0 billion and
34
<Page>
dividends declared on common and preferred stock of $1.5 billion. The increase
in the common stockholders' equity ratio during the first six months of 2001
also reflected the above items, partially offset by the increase in total
assets.
All of the mandatorily redeemable securities of subsidiary trusts (trust
securities) outstanding at June 30, 2001 qualify as Tier 1 capital. The amount
outstanding at June 30, 2001 includes $2.3 billion of parent-obligated
securities and $2.275 billion of subsidiary-obligated securities.
Citigroup's subsidiary depository institutions are subject to the risk-based
capital guidelines issued by their respective primary federal bank regulatory
agencies, which are generally similar to the FRB's guidelines. At June 30, 2001,
all of Citigroup's subsidiary depository institutions were "well capitalized"
under the federal bank regulatory agencies' definitions.
On January 18, 2001, the FRB issued new proposed rules that would govern the
regulatory treatment of merchant banking investments and certain similar equity
investments, including investments made by venture capital subsidiaries, in
nonfinancial companies held by bank holding companies. The new proposal
generally would impose a capital charge that would increase in steps as the
banking organization's level of concentration in equity investments increased.
An 8 percent Tier 1 capital deduction would apply on covered investments that in
the aggregate represent up to 15 percent of an organization's Tier 1 capital.
For covered investments that aggregate more than 25 percent of the
organization's Tier 1 capital, a top marginal charge of 25 percent would be set.
The Company is monitoring the status and progress of the proposed rule, which,
at the present time, is not expected to have a significant impact on Citigroup.
This statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29.
In June 2001, the Basel Committee on Banking Supervision (Committee) announced
that it would issue a new consultative package on the new Basel Capital Accord
(new Accord) in early 2002. The new Accord, which will apply to all
"significant" banks, as well as to holding companies that are parents of banking
groups, is intended to be finalized by year-end 2002, with implementation of the
new framework beginning in 2005. The Company is monitoring the status and
progress of the proposed rule.
Additionally, from time-to-time, the FRB and the FFIEC propose amendments to,
and issue interpretations of, risk-based capital guidelines and reporting
instructions. Such proposals or interpretations could, if implemented in the
future, affect reported capital ratios and net risk-adjusted assets. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 29.
CITICORP
Citicorp manages liquidity through a well-defined process described in
Citigroup's 2000 Annual Report and Form 10-K.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represented 56% of
its total funding at June 30, 2001 and 55% of its total funding at December 31,
2000, are broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $705 million during the first six months of
2001 to $48.6 billion at June 30, 2001, continues to be an important component
of the overall funding structure. In addition, long-term debt is issued by
Citicorp and its subsidiaries. Total Citicorp long-term debt outstanding at June
30, 2001 was $86.6 billion, up from $80.3 billion at 2000 year-end. Asset
securitization programs remain an important source of liquidity. Loans
securitized during the first six months of 2001 included $11.8 billion of U.S.
credit cards and $11.1 billion of U.S. consumer mortgages. As previous credit
card securitizations amortize, newly-originated receivables are recorded on
Citicorp's balance sheet and become available for asset securitization. During
the first six months of 2001, the scheduled amortization of certain credit card
securitization transactions made available $7.5 billion of new receivables. In
addition, at least $5.7 billion of credit card securitization transactions are
scheduled to amortize during the rest of 2001.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. As discussed in Citigroup's 2000 Annual
Report and Form 10-K, there are various legal limitations on the extent to which
Citicorp's subsidiaries may extend credit, pay dividends, or otherwise supply
funds to Citicorp. As of June 30, 2001, under their applicable dividend
limitations, Citicorp's national and state-chartered bank subsidiaries could
have declared dividends to their respective parent companies without regulatory
approval of approximately $8.0 billion. In determining whether and to what
extent to pay dividends, each bank subsidiary must also consider the effect of
dividend payments on applicable risk-based capital and leverage ratio
requirements, as well as policy statements of the federal regulatory agencies
that indicate that banking organizations should generally pay dividends out of
current operating earnings. Consistent with these considerations, Citicorp
estimates that as of June 30, 2001, its bank subsidiaries could have distributed
dividends to Citicorp, directly or through their parent holding company, of
approximately $6.6 billion of the available $8.0 billion.
Citicorp also receives dividends from its nonbank subsidiaries. These nonbank
subsidiaries are generally not subject to regulatory restrictions on their
payment of dividends except that the approval of the Office of Thrift
Supervision may be required if total dividends declared by a savings association
in any calendar year exceed amounts specified by that agency's regulations.
35
<Page>
Citicorp is subject to risk-based capital guidelines issued by the FRB.
CITICORP RATIOS
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31,
2001 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 8.43% 8.34% 8.41%
Total capital (Tier 1 and Tier 2) 12.58 12.51 12.29
Leverage(1) 7.41 7.32 7.54
Common stockholder's equity 8.66 8.47 8.68
- --------------------------------------------------------------------------------===================================================
</Table>
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp maintained a strong capital position during the 2001 second quarter.
Total capital (Tier 1 and Tier 2) amounted to $60.1 billion at June 30, 2001,
representing 12.58% of net risk-adjusted assets. This compares with $59.6
billion and 12.51% at March 31, 2001 and $58.0 billion and 12.29% at December
31, 2000. Tier 1 capital of $40.3 billion at June 30, 2001 represented 8.43% of
net risk-adjusted assets, compared with $39.7 billion and 8.34% at March 31,
2001 and $39.7 billion and 8.41% at December 31, 2000. Citicorp's Tier 1 capital
ratio at June 30, 2001 was above Citicorp's target range of 8.00% to 8.30%.
SALOMON SMITH BARNEY HOLDINGS INC. (SSBHI)
SSBHI manages liquidity and monitors and evaluates capital adequacy through a
well-defined process described in Citigroup's 2000 Annual Report and Form 10-K.
Total assets were $281 billion at June 30, 2001, up from $238 billion at
year-end 2000. Due to the nature of SSBHI's trading activities, it is not
uncommon for asset levels to fluctuate from period to period.
SSBHI has a $5.0 billion 364-day revolving credit agreement that extends to May
2002. SSBHI may borrow under this revolving credit facility at various interest
rate options (LIBOR, CD, or base rate) and compensates the banks for this
facility through commitment fees. Under this facility, SSBHI is required to
maintain a certain level of consolidated adjusted net worth (as defined in the
agreements). At June 30, 2001, this requirement was exceeded by approximately
$4.7 billion. At June 30, 2001, there were no borrowings outstanding under this
facility. SSBHI also has substantial borrowing arrangements consisting of
facilities that it has been advised are available, but where no contractual
lending obligation exists. These arrangements are reviewed on an ongoing basis
to ensure flexibility in meeting short-term requirements.
Unsecured term debt is a significant component of SSBHI's long-term capital.
Long-term debt totaled $25.2 billion at June 30, 2001 and $19.7 billion at
December 31, 2000. SSBHI utilizes interest rate swaps to convert the majority of
its fixed rate long-term debt used to fund inventory-related working capital
requirements into variable rate obligations. Long-term debt issuances
denominated in currencies other than the U.S. dollar that are not used to
finance assets in the same currency are effectively converted to U.S. dollar
obligations through the use of cross-currency swaps and forward currency
contracts.
TRAVELERS PROPERTY CASUALTY CORP. (TPC)
TPC has a five-year revolving credit facility in the amount of $250 million with
a syndicate of banks that expires in December 2001. Under this facility, TPC is
required to maintain a certain level of consolidated stockholder's equity (as
defined in the agreement). At June 30, 2001, this requirement was exceeded by
approximately $5.6 billion. At June 30, 2001, there were no borrowings
outstanding under this facility.
TPC's insurance subsidiaries are subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. A maximum of $1.2
billion is available by the end of the year 2001 for such dividends without
prior approval of the Connecticut Insurance Department. TPC received $650
million of dividends from its insurance subsidiaries during the first six months
of 2001.
36
<Page>
THE TRAVELERS INSURANCE COMPANY (TIC)
At June 30, 2001, TIC had $32.0 billion of life and annuity product deposit
funds and reserves. Of that total, $17.7 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $14.3 billion is for life and
annuity products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal is $3.6 billion of liabilities that are surrenderable with market
value adjustments. Also included is an additional $5.0 billion of the life
insurance and individual annuity liabilities which are subject to discretionary
withdrawals and have an average surrender charge of 4.6%. In the payout phase,
these funds are credited at significantly reduced interest rates. The remaining
$5.7 billion of liabilities is surrenderable without charge. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding policy
loans and related accrued interest prior to payout.
TIC is subject to various regulatory restrictions that limit the maximum amount
of dividends available to its parent without prior approval of the Connecticut
Insurance Department. A maximum of $984 million of statutory surplus is
available by the end of the year 2001 for such dividends without the prior
approval of the Connecticut Insurance Department, of which $315 million was paid
during the first six months of 2001.
37
<Page>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUES
Loan interest, including fees $ 9,753 $ 9,127 $ 19,757 $ 17,576
Other interest and dividends 7,013 6,666 14,182 12,660
Insurance premiums 3,217 3,015 6,578 6,009
Commissions and fees 3,752 4,035 7,884 8,159
Principal transactions 1,417 1,435 3,742 3,158
Asset management and administration fees 1,331 1,332 2,720 2,616
Realized gains from sales of investments 60 280 511 107
Other income 1,311 1,169 2,284 3,589
---------------------------------------------------------
TOTAL REVENUES 27,854 27,059 57,658 53,874
Interest expense 8,469 8,839 17,992 16,524
---------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE 19,385 18,220 39,666 37,350
---------------------------------------------------------
BENEFITS, CLAIMS, AND CREDIT LOSSES
Policyholder benefits and claims expense 2,681 2,451 5,408 4,827
Provision for credit losses 1,485 1,302 2,959 2,611
---------------------------------------------------------
TOTAL BENEFITS, CLAIMS, AND CREDIT LOSSES 4,166 3,753 8,367 7,438
---------------------------------------------------------
OPERATING EXPENSES
Non-insurance compensation and benefits 4,762 4,630 10,091 9,217
Insurance underwriting, acquisition, and operating 990 883 1,989 1,801
Restructuring-related items 213 3 345 23
Other operating 3,627 3,774 7,668 7,616
---------------------------------------------------------
TOTAL OPERATING EXPENSES 9,592 9,290 20,093 18,657
---------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 5,627 5,177 11,206 11,255
Provision for income taxes 1,960 1,818 3,950 3,985
Minority interest, net of income taxes 15 20 24 75
---------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 3,652 3,339 7,232 7,195
Cumulative effect of accounting changes(1) (116) -- (158) --
---------------------------------------------------------
NET INCOME $ 3,536 $ 3,339 $ 7,074 $ 7,195
- -------------------------------------------------------------------------=========================================================
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting changes $ 0.72 $ 0.67 $ 1.44 $ 1.43
Cumulative effect of accounting changes(1) (0.02) -- (0.03) --
---------------------------------------------------------
NET INCOME $ 0.70 $ 0.67 $ 1.41 $ 1.43
- -------------------------------------------------------------------------=========================================================
Weighted average common shares outstanding 4,979.6 4,977.1 4,982.2 4,976.3
- -------------------------------------------------------------------------=========================================================
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting changes $ 0.71 $ 0.65 $ 1.40 $ 1.39
Cumulative effect of accounting changes(1) (0.02) -- (0.03) --
---------------------------------------------------------
NET INCOME $ 0.69 $ 0.65 $ 1.37 $ 1.39
- -------------------------------------------------------------------------=========================================================
Adjusted weighted average common shares outstanding 5,100.0 5,121.6 5,105.0 5,118.5
- -------------------------------------------------------------------------=========================================================
</Table>
(1) Refers to the 2001 first quarter adoption of SFAS 133 and the 2001 second
quarter adoption of EITF 99-20.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
38
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<Table>
<Caption>
JUNE 30,
2001 December 31,
IN MILLIONS OF DOLLARS (UNAUDITED) 2000
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (including segregated cash and other deposits) $ 15,081 $ 14,621
Deposits at interest with banks 15,199 16,164
Federal funds sold and securities borrowed or purchased under agreements to resell 138,668 105,877
Brokerage receivables 23,238 25,696
Trading account assets (including $28,174 and $30,502 pledged to creditors at June 30, 2001
and December 31, 2000 respectively) 145,113 132,513
Investments (including $2,432 and $3,354 pledged to creditors at June 30, 2001
and December 31, 2000, respectively) 123,480 120,122
Loans, net of unearned income
Consumer 224,923 228,879
Commercial 143,703 138,143
---------------------------------
Loans, net of unearned income 368,626 367,022
Allowance for credit losses (8,917) (8,961)
---------------------------------
Total loans, net 359,709 358,061
Reinsurance recoverables 10,636 10,541
Separate and variable accounts 25,102 24,947
Other assets 97,201 93,668
---------------------------------
TOTAL ASSETS $ 953,427 $ 902,210
- --------------------------------------------------------------------------------------------------=================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 18,056 $ 21,694
Interest-bearing deposits in U.S. offices 85,515 58,913
Non-interest-bearing deposits in offices outside the U.S. 14,115 13,811
Interest-bearing deposits in offices outside the U.S. 196,912 206,168
---------------------------------
Total deposits 314,598 300,586
Federal funds purchased and securities loaned or sold under agreements to repurchase 148,365 110,625
Brokerage payables 16,517 15,882
Trading account liabilities 76,034 85,107
Contractholder funds and separate and variable accounts 46,812 44,884
Insurance policy and claims reserves 45,432 44,666
Investment banking and brokerage borrowings 12,817 18,227
Short-term borrowings 45,923 51,675
Long-term debt 121,705 111,778
Other liabilities 50,121 47,654
Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary
trusts holding solely junior subordinated debt securities of -- Parent 2,300 2,300
-- Subsidiary 2,275 2,620
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 1,763 1,745
Common stock ($.01 par value; authorized shares: 15 billion), issued shares --
5,351,143,583 AT JUNE 30, 2001 and at December 31, 2000 54 54
Additional paid-in capital 16,881 16,504
Retained earnings 64,460 58,862
Treasury stock, at cost: JUNE 30, 2001 -- 325,020,613 shares
and December 31, 2000 -- 328,921,189 shares (10,763) (10,213)
Accumulated other changes in equity from nonowner sources (90) 123
Unearned compensation (1,777) (869)
---------------------------------
TOTAL STOCKHOLDERS' EQUITY 70,528 66,206
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 953,427 $ 902,210
- --------------------------------------------------------------------------------------------------=================================
</Table>
See Notes to Consolidated Financial Statements.
39
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-----------------------------
IN MILLIONS OF DOLLARS EXCEPT SHARES IN THOUSANDS 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE
Balance, beginning of period $ 1,745 $ 1,895
Redemption of preferred stock -- (150)
Other 18 1
-----------------------------
Balance, end of period 1,763 1,746
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 16,558 15,361
Employee benefit plans 307 546
Other 70 48
-----------------------------
Balance, end of period 16,935 15,955
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period 58,862 47,997
Net income 7,074 7,195
Common dividends(1) (1,418) (1,177)
Preferred dividends (58) (61)
-----------------------------
Balance, end of period 64,460 53,954
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance, beginning of period (10,213) (7,662)
Issuance of shares pursuant to employee benefit plans 1,311 1,003
Treasury stock acquired (2,038) (2,289)
Other 177 25
-----------------------------
Balance, end of period (10,763) (8,923)
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance, beginning of period 123 1,155
Cumulative effect of accounting changes(2) 118 --
Net change in unrealized gains and losses on investment securities, net of tax (125) (1,249)
Net change for cash flow hedges, net of tax (39) --
Net change in foreign currency translation adjustment, net of tax (167) (267)
-----------------------------
Balance, end of period (90) (361)
- ---------------------------------------------------------------------------------------------------------------------------------
UNEARNED COMPENSATION
Balance, beginning of period (869) (456)
Issuance of restricted stock, net of amortization (908) (531)
-----------------------------
Balance, end of period (1,777) (987)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY (SHARES OUTSTANDING: 5,026,123 IN 2001
and 5,027,223 in 2000) 68,765 59,638
-----------------------------
TOTAL STOCKHOLDERS' EQUITY $ 70,528 $ 61,384
- ----------------------------------------------------------------------------------------------------=============================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income $ 7,074 $ 7,195
Other changes in equity from nonowner sources, net of tax (213) (1,516)
-----------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 6,861 $ 5,679
- ----------------------------------------------------------------------------------------------------=============================
</Table>
(1) Common dividends declared were 14 cents per share in both the first and
second quarters of 2001, and 12 cents per share in both the first and
second quarters of 2000.
(2) Refers to the adoption of SFAS 133 in the first quarter of 2001 and the
adoption of EITF 99-20 in the second quarter of 2001, resulting in
increases to equity from nonowner sources of $25 million and $93 million,
respectively.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
40
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-----------------------------
IN MILLIONS OF DOLLARS 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,074 $ 7,195
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 918 796
Additions to deferred policy acquisition costs (1,224) (1,017)
Depreciation and amortization 1,352 1,274
Provision for credit losses 2,959 2,611
Change in trading account assets (12,600) (19,646)
Change in trading account liabilities (9,073) (15,277)
Change in federal funds sold and securities borrowed or purchased under agreements to resell (32,791) (7,619)
Change in federal funds purchased and securities loaned or sold under agreements to
repurchase 37,740 36,466
Change in brokerage receivables net of brokerage payables 3,093 (4,275)
Change in insurance policy and claims reserves 766 824
Net gains from sales of investments (511) (107)
Venture capital activity 145 (1,096)
Restructuring-related items 345 23
Cumulative effect of accounting changes, net of tax 158 --
Other, net 408 (4,252)
-----------------------------
TOTAL ADJUSTMENTS (8,315) (11,295)
-----------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,241) (4,100)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in deposits at interest with banks 965 (1,653)
Change in loans (17,424) (48,241)
Proceeds from sales of loans 12,550 17,680
Purchases of investments (67,353) (46,243)
Proceeds from sales of investments 46,755 27,855
Proceeds from maturities of investments 14,311 19,180
Other investments, primarily short-term, net (699) (1,108)
Capital expenditures on premises and equipment (932) (950)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed
assets 831 524
Business acquisitions -- (6,552)
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,996) (39,508)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,476) (1,238)
Issuance of common stock 567 667
Redemption of preferred stock -- (150)
Redemption of mandatorily redeemable securities of subsidiary trusts (345) --
Treasury stock acquired (2,038) (2,289)
Stock tendered for payment of withholding taxes (292) (360)
Issuance of long-term debt 26,696 17,604
Payments and redemptions of long-term debt (15,032) (13,942)
Change in deposits 14,012 24,769
Change in short-term borrowings and investment banking and brokerage borrowings (10,730) 15,626
Contractholder fund deposits 4,429 3,060
Contractholder fund withdrawals (2,774) (2,751)
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,017 40,996
- ----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (320) (284)
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS 460 (2,896)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 14,621 15,978
-----------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 15,081 $ 13,082
- -----------------------------------------------------------------------------------------------------=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes $ 1,700 $ 1,500
Cash paid during the period for interest $ 17,841 $ 15,665
NON-CASH INVESTING ACTIVITIES
Transfers to repossessed assets $ 291 $ 269
Non-cash effects of accounting for the conversion of investments in Nikko Securities Co., Ltd. $ -- $ 702
- -----------------------------------------------------------------------------------------------------=============================
</Table>
See Notes to Consolidated Financial Statements.
41
<Page>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements as of June 30, 2001 and for
the three- and six-month periods ended June 30, 2001 and 2000 are unaudited and
include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries
(collectively, the Company). In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
have been reflected. The accompanying consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in Citigroup's 2000 Annual Report and Form 10-K.
Certain financial information that is normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, but is not required for interim reporting
purposes, has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. BUSINESS DEVELOPMENTS
ACQUISITION OF BANACCI
On August 6, 2001, Citicorp completed its acquisition of 99.86% of the issued
and outstanding ordinary shares of Grupo Financiero Banamex-Accival (Banacci), a
leading Mexican financial institution, for approximately $12.5 billion in cash
and Citigroup stock. Citicorp completed the acquisition by settling transactions
that were conducted on the Mexican Stock Exchange on Friday, August 3, 2001.
Those transactions comprised both the acquisition of Banacci shares tendered in
response to Citicorp's offer to acquire all of Banacci's outstanding shares and
the simultaneous sale of 126,705,281 Citigroup shares to the tendering Banacci
shareholders. Banacci's and Citigroup's operations in Mexico will be integrated
and will conduct business under the "Banamex" brand name. The transaction will
be accounted for under the purchase method of accounting.
ACQUISITION OF EAB
On July 17, 2001, Citicorp completed its acquisition of European American Bank
(EAB), a state-chartered bank with 97 branches in the New York area, for $1.6
billion plus the assumption of $350 million in EAB preferred stock. The
transaction will be accounted for under the purchase method of accounting.
The Company is in the process of integrating these acquisitions. The Company is
anticipating incurring a restructuring charge in the third quarter of 2001,
related to these integrations.
3. ACCOUNTING CHANGES
ADOPTION OF EITF 99-20
During the second quarter of 2001, the Company adopted Emerging Issues Task
Force (EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Asset"
(EITF 99-20). EITF 99-20 provides new guidance regarding income recognition and
identification and determination of impairment on certain asset-backed
securities. The initial adoption resulted in a cumulative adjustment of $116
million after-tax, recorded as a charge to earnings.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
TRANSFERS AND SERVICING OF FINANCIAL ASSETS. In September 2000, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, a replacement of FASB Statement No. 125"
(SFAS 140). In July 2000, FASB issued Technical Bulletin No. 01-1, "Effective
Date for Certain Financial Institutions of Certain Provisions of Statement 140
Related to the Isolation of Transferred Assets."
Certain provisions of SFAS 140 require that the structure for transfers of
financial assets to certain securitization vehicles be modified to comply with
revised isolation guidance for institutions subject to receivership by the
Federal Deposit Insurance Corporation. These provisions will become effective
for transfers taking place after December 31, 2001, with an additional
transition period ending no later than June 30, 2006 for transfers to certain
master trusts. SFAS 140 also provides revised guidance for an entity to be
considered a qualifying special purpose entity. It is not expected that SFAS 140
will materially affect the financial statements.
42
<Page>
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS. In July 2001, the
FASB issued Statement of Financial Accounting Standards (SFAS) 141, "Business
Combinations" (SFAS 141) and SFAS 142, "Goodwill and Other Intangible Assets"
(SFAS 142), effective for fiscal years beginning after December 15, 2001. Under
the new rules, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with the new standards. Other intangible assets will continue to be
amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the new standards is expected to result in an
increase in net income; however, the Company is still assessing the impact of
the new standard. During 2002, the Company will perform the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1, 2002
and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
SFAS 142 stipulates that goodwill will no longer be amortized for all business
combinations completed after June 30, 2001. This will impact the goodwill
associated with the Company's acquisitions of EAB and Banacci. The beneficial
impact of this change on 2001 earnings is not anticipated to be significant.
4. BUSINESS SEGMENT INFORMATION
The following table presents certain information regarding the Company's
industry segments:
<Table>
<Caption>
INCOME (LOSS)
BEFORE CUMULATIVE
EFFECT OF
TOTAL REVENUES, NET PROVISION (BENEFIT) ACCOUNTING CHANGES
OF INTEREST EXPENSE FOR INCOME TAXES (1)(2) IDENTIFIABLE ASSETS
------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, JUNE 30, Dec. 31,
--------------------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT IDENTIFIABLE
ASSETS IN BILLIONS 2001 2000(3) 2001 2000(3) 2001 2000(3) 2001 2000(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Consumer $ 9,733 $ 8,918 $1,031 $ 909 $1,831 $1,596 $344 $337
Global Corporate 8,552 8,218 817 754 1,606 1,524 560 506
Global Investment Management
and Private Banking 867 818 109 107 173 171 29 31
Investment Activities 361 426 112 146 227 258 10 10
Corporate/Other (128) (160) (109) (98) (185) (210) 10 18
------------------------------------------------------------------------------------
TOTAL $19,385 $18,220 $1,960 $1,818 $3,652 $3,339 $953 $902
- ----------------------------------------------====================================================================================
</Table>
<Table>
<Caption>
INCOME (LOSS)
BEFORE CUMULATIVE
EFFECT OF
TOTAL REVENUES, NET PROVISION (BENEFIT) ACCOUNTING CHANGES
OF INTEREST EXPENSE FOR INCOME TAXES (1)(2)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2001 2000(3) 2001 2000(3) 2001 2000(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Consumer $ 19,508 $ 17,772 $ 2,056 $ 1,760 $ 3,626 $ 3,088
Global Corporate 18,083 16,788 1,692 1,798 3,284 3,388
Global Investment Management and Private Banking 1,774 1,617 227 217 365 345
Investment Activities 594 1,468 183 520 359 907
Corporate/Other (293) (295) (208) (310) (402) (533)
--------------------------------------------------------------------------------
TOTAL $ 39,666 $ 37,350 $ 3,950 $ 3,985 $ 7,232 $ 7,195
- --------------------------------------------------================================================================================
</Table>
(1) Results in the 2001 second quarter and six-month periods reflect after-tax
restructuring-related charges of $60 million and $72 million in Global
Consumer and $66 million and $134 million in Global Corporate,
respectively, and $7 million in both periods in Global Investment
Management and Private Banking. The 2000 second quarter and six-month
results reflect after-tax restructuring-related (credits) of ($11) million
and ($7) million in Global Consumer, respectively, ($3) million in both
periods in Global Corporate, and ($1) million in both periods in Global
Investment Management and Private Banking. The 2000 second quarter and
six-month results reflect after-tax restructuring-related charges (and
after-tax housing finance unit charges in the 2000 six-month results only)
of $17 million and $96 million in Corporate/Other, respectively.
(2) Results in the 2001 second quarter and six-month periods include pretax
provisions for benefits, claims, and credit losses in Global Consumer of
$2.8 billion and $5.6 billion, in Global Corporate of $1.4 billion and
$2.8 billion, and in Global Investment Management and Private Banking of
$1 million and $3 million, respectively. The 2000 second quarter and
six-month period results reflect pretax provisions (credits) for benefits,
claims, and credit losses in Global Consumer of $2.5 billion and $5.0
billion, in Global Corporate of $1.2 billion and $2.4 billion, in Global
Investment Management and Private Banking of $3 million and $25 million
and in Corporate/Other of ($1) million and ($2) million, respectively.
(3) Reclassified to conform to the current period's presentation.
- --------------------------------------------------------------------------------
43
<Page>
5. INVESTMENTS
<Table>
<Caption>
JUNE 30, December 31,
IN MILLIONS OF DOLLARS 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed maturities, primarily available for sale at fair value $104,749 $ 99,484
Equity securities, primarily at fair value 6,575 6,652
Venture capital, at fair value(1) 5,059 5,204
Short-term and other 7,097 8,782
-----------------------------------
$123,480 $120,122
- -----------------------------------------------------------------------------------------------===================================
</Table>
(1) For the six months ended June 30, 2001, net gains on investments held by
venture capital subsidiaries totaled $323 million, of which $722 million
and $493 million represented gross unrealized gains and losses,
respectively. For the six months ended June 30, 2000, net gains on
investments held by venture capital subsidiaries totaled $1.59 billion, of
which $1.50 billion and $274 million represented gross unrealized gains
and losses, respectively.
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and equity
securities at June 30, 2001 and December 31, 2000 were as follows:
<Table>
<Caption>
JUNE 30, 2001 December 31, 2000(1)
-------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Fair
IN MILLIONS OF DOLLARS COST GAINS LOSSES VALUE Cost Value
- ---------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY,
PRINCIPALLY MORTGAGE-BACKED SECURITIES(2) $ 28 $ -- $ -- $ 28 $ 28 $ 28
-------------------------------------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $ 17,408 $ 323 $ 109 $ 17,622 $ 16,196 $ 16,314
U.S. Treasury and Federal agency 3,489 67 71 3,485 5,680 5,836
State and municipal 16,502 584 43 17,043 15,314 15,903
Foreign government 27,202 259 163 27,298 25,934 25,928
U.S. corporate 28,402 720 561 28,561 25,143 25,185
Other debt securities(3) 10,016 790 94 10,712 9,633 10,290
-------------------------------------------------------------------------------
$103,019 $ 2,743 $ 1,041 $104,721 $ 97,900 $ 99,456
-------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $103,047 $ 2,743 $ 1,041 $104,749 $ 97,928 $ 99,484
- --------------------------------------------------===============================================================================
EQUITY SECURITIES(4) $ 6,710 $ 175 $ 310 $ 6,575 $ 6,757 $ 6,652
- --------------------------------------------------===============================================================================
</Table>
(1) At December 31, 2000, gross pretax unrealized gains and losses on fixed
maturities and equity securities totaled $3.070 billion and $1.619
billion, respectively.
(2) Recorded at amortized cost.
(3) Investments in convertible debt of Nikko are included in other debt
securities.
(4) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
- --------------------------------------------------------------------------------
6. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities at market value consisted of the
following:
<Table>
<Caption>
JUNE 30, December 31,
IN MILLIONS OF DOLLARS 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal agency securities $ 43,281 $ 30,939
State and municipal securities 3,195 2,439
Foreign government securities 13,849 13,308
Corporate and other debt securities 23,381 17,046
Derivative and other contractual commitments(1) 29,198 35,177
Equity securities 15,314 17,174
Mortgage loans and collateralized mortgage securities 7,341 6,024
Other 9,554 10,406
----------------------------------
$145,113 $132,513
- -----------------------------------------------------------------------------------------------==================================
TRADING ACCOUNT LIABILITIES
Securities sold, not yet purchased $47,669 $48,489
Derivative and other contractual commitments(1) 28,365 36,618
----------------------------------
$76,034 $85,107
- -----------------------------------------------------------------------------------------------==================================
</Table>
(1) Net of master netting agreements and securitization.
- --------------------------------------------------------------------------------
44
<Page>
7. DERIVATIVES ACTIVITIES
On January 1, 2001, Citigroup adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended (SFAS 133). These new rules
changed the accounting treatment of derivative contracts (including foreign
exchange contracts) that are employed to manage risk outside of Citigroup's
trading activities, as well as certain derivative-like instruments embedded in
other contracts. SFAS 133 requires that all derivatives be recorded on the
balance sheet at their fair value. The treatment of changes in the fair value of
derivatives depends on the character of the transaction, including whether it
has been designated and qualifies as part of a hedging relationship, as
discussed below. The cumulative effect of adopting SFAS 133 at January 1, 2001
was an after-tax charge of $42 million included in net income and an increase of
$25 million included in other changes in stockholders' equity from nonowner
sources.
To qualify as a hedge, the hedge relationship is designated and formally
documented at inception detailing the particular risk management objective and
strategy for the hedge which includes the item and risk that is being hedged,
the derivative that is being used, as well as how effectiveness is being
assessed. A derivative must be highly effective in accomplishing the objective
of offsetting either changes in fair value or cash flows for the risk being
hedged. The effectiveness of these hedging relationships is evaluated on a
retrospective and prospective basis using quantitative measures of correlation.
If a hedge relationship is found to be ineffective, it no longer qualifies as a
hedge and any excess gains or losses attributable to such ineffectiveness, as
well as subsequent changes in fair value, are recognized in other income.
The foregoing criteria are applied on a decentralized basis, consistent with the
level at which market risk is managed, but are subject to various limits and
controls. The underlying asset, liability, firm commitment or forecasted
transaction may be an individual item or a portfolio of similar items.
For fair value hedges, in which derivatives hedge the fair value of assets and
liabilities, changes in the fair value of derivatives are reflected in other
income, together with changes in the fair value of the related hedged item. The
net amount, representing hedge ineffectiveness, is reflected in current
earnings. Citigroup's fair value hedges are primarily the hedges of fixed-rate
long-term debt, loans and available-for-sale securities. During the 2001 second
quarter and six months, the amount of hedge ineffectiveness recognized in other
income related to fair value hedges was $65 million and $137 million,
respectively. The amount of gains or losses on derivatives designated as fair
value hedges that were excluded from the assessment of effectiveness during the
2001 second quarter and six months was $24 million and $71 million,
respectively.
For cash flow hedges, in which derivatives hedge the variability of cash flows
related to floating rate assets, liabilities or forecasted transactions, the
accounting treatment depends on the effectiveness of the hedge. To the extent
these derivatives are effective in offsetting the variability of the hedged cash
flows, changes in the derivatives' fair value will not be included in current
earnings but are reported as other changes in stockholders' equity from nonowner
sources. These changes in fair value will be included in earnings of future
periods when earnings are also affected by the variability of the hedged cash
flows. To the extent these derivatives are not effective, changes in their fair
values are immediately included in other income. Citigroup's cash flow hedges
primarily include hedges of floating rate credit card receivables and loans,
rollovers of commercial paper and foreign currency denominated funding. Cash
flow hedges also include hedges of certain forecasted transactions up to a
maximum tenor of 30 years, although a substantial majority of the tenor is under
5 years. During the 2001 second quarter and six months, the amount of hedge
ineffectiveness recognized in other income related to cash flow hedges was $9
million and $6 million, respectively. No amounts have been excluded from the
assessment of effectiveness for derivatives designated as cash flow hedges.
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting treatment
will similarly depend on the effectiveness of the hedge. The effective portion
of the change in fair value of the derivative, including any forward premium or
discount, is reflected in other changes in stockholders' equity from nonowner
sources as part of the foreign currency translation adjustment. During the 2001
second quarter and six months, the amounts included in other changes from
stockholders' equity from nonowner sources from these hedges were ($14) million
and $234 million, respectively.
Non-trading derivatives that are either hedging instruments that are carried at
fair value or do not qualify as hedges under the new rules are also carried at
fair value with changes in value included either as an element of the yield or
return on the hedged item or in other income.
For those hedge relationships that are terminated, hedge designations that are
removed, or forecasted transactions that are no longer expected to occur, the
hedge accounting treatment described in the paragraphs above is no longer
applied. The end-user derivative is terminated or transferred to the trading
account. For fair value hedges, any changes to the hedged item remain as part of
the basis of the asset or liability and are ultimately reflected as an element
of the yield. For cash flow hedges, any changes in fair value of the end-user
derivative remain in other changes in stockholders' equity from nonowner sources
and are included in earnings of future periods when earnings are also affected
by the variability of the hedged cash flow. If the hedged relationship was
discontinued or a forecasted transaction is not expected to occur when
scheduled, any changes in fair value of the end-user derivative are immediately
reflected in other income.
45
<Page>
The accumulated other changes in equity from nonowner sources from cash flow
hedges for the 2001 six months can be summarized as follows (net of taxes):
<Table>
<Caption>
IN MILLIONS OF DOLLARS SIX MONTHS ENDED JUNE 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------
BEGINNING BALANCE(1) ($ 3)
Net gains and (losses) from cash flow hedges 14
Net amounts reclassified to earnings (51)
Discontinuation of cash flow hedge accounting (2)
-----------------------------------
ENDING BALANCE ($42)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Results from the cumulative effect of accounting change for cash flow
hedges.
- --------------------------------------------------------------------------------
Additional information concerning Citigroup's derivative and foreign exchange
products and activities, including a further description of accounting policies,
and the credit and market risk management process is provided in Citigroup's
2000 Annual Report and Form 10-K, in the Notes to Consolidated Financial
Statements and in the Managing Global Risk section.
8. DEBT
Investment banking and brokerage borrowings consisted of the following:
<Table>
<Caption>
JUNE 30, December 31,
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial paper $11,528 $ 16,705
Bank borrowings 561 429
Other 728 1,093
----------------------------------
$12,817 $ 18,227
- -------------------------------------------------------------------------------------------------==================================
</Table>
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
<Table>
<Caption>
JUNE 30, December 31,
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER
Citigroup Inc. $ 473 $ 496
Citicorp 31,771 37,656
----------------------------------
32,244 38,152
OTHER SHORT-TERM BORROWINGS 13,679 13,523
----------------------------------
$45,923 $ 51,675
- -------------------------------------------------------------------------------------------------==================================
</Table>
Long-term debt, including its current portion, consisted of the following:
<Table>
<Caption>
JUNE 30, December 31,
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $ 31,222 $ 18,197
Citicorp 64,908 73,060
Salomon Smith Barney Holdings Inc. 25,208 19,652
Travelers Property Casualty Corp. 350 850
The Travelers Insurance Group Inc. 17 19
----------------------------------
$121,705 $111,778
- -------------------------------------------------------------------------------------------------==================================
</Table>
46
<Page>
9. RESTRUCTURING-RELATED ITEMS
<Table>
<Caption>
RESTRUCTURING INITIATIVES
-------------------------------------------------
2ND QTR. 1st Qtr.
IN MILLIONS OF DOLLARS 2001 2001 2000 Total
- ---------------------------------------------------------------------------------------------------------------------------------
Restructuring Charges $ 209 $ 110 $ 579 $ 898
Acquisitions(1) -- -- 23 23
Utilization(2) (39) (37) (380) (456)
Changes in estimates -- (18) -- (18)
-------------------------------------------------
BALANCE AT JUNE 30, 2001 $ 170 $ 55 $ 222 $ 447
- --------------------------------------------------------------------------------=================================================
</Table>
(1) Represents additions to restructuring liabilities arising from
acquisitions.
(2) Utilization amounts include translation effects on the restructuring
reserve.
- --------------------------------------------------------------------------------
During the second quarter of 2001, Citigroup recorded restructuring charges of
$209 million, primarily related to the downsizing of various functions in the
Global Corporate and Global Consumer businesses. These new initiatives are
expected to be implemented over the next 12 months. The charge consisted of $177
million related to employee severance, $17 million related to asset impairment
charges and $15 million related to exiting leasehold and other contractual
obligations.
The $177 million portion of the charge related to employee severance reflects
the costs of eliminating approximately 3,500 positions. Approximately 2,150 of
these positions relate to the United States.
The 2001 second quarter restructuring utilization included $17 million of asset
impairment charges as well as $22 million of severance and other exit costs (of
which $12 million related to employee severance has been paid in cash and $10
million is legally obligated), together with translation effects. Through June
30, 2001, approximately 500 gross staff positions have been eliminated under
these programs.
During the first quarter of 2001, Citigroup recorded restructuring charges of
$110 million, primarily consisting of the downsizing of certain front office and
back office functions at the Corporate and Investment Bank in order to align its
cost structure with current market conditions. These initiatives are expected to
be implemented over the next year. The charge consisted of $101 million related
to employee severance and $9 million related to exiting leasehold and other
contractual obligations. The $101 million portion of the charge related to
employee severance reflects the costs of eliminating approximately 1,200
positions. Approximately 1,000 of these positions relate to the United States.
The 2001 first quarter restructuring reserve utilization, all of which occurred
in the 2001 second quarter, included $37 million of severance, of which $21
million was paid in cash and $16 million is legally obligated. Through June 30,
2001, approximately 250 gross staff positions have been eliminated under these
programs, all during the second quarter.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. During the second quarter of
2001, changes in estimates resulted in reductions in the reserve for first
quarter 2001 restructuring initiatives of $18 million, primarily attributable to
the sale of certain businesses. The related costs will not be borne by the
Company as a result of the sale which closed in the third quarter of 2001.
Additionally, during the 2000 second quarter, changes in estimates resulted in
reductions of $43 million of reserves related to prior restructuring
initiatives.
During 2000, Citigroup recorded restructuring charges of $579 million ($17
million of which occurred in the 2000 second quarter), primarily consisting of
exit costs related to the acquisition of Associates. These initiatives are
expected to be implemented this year. The charges included $241 million related
to employee severance, $154 million related to exiting leasehold and other
contractual obligations and $184 million of asset impairment charges.
Of the $579 million charge, $474 million related to the acquisition of
Associates (primarily in the Global Consumer business) includes the
reconfiguration of certain branch operations, the exit from non-strategic
businesses and from activities as mandated by Federal bank regulations and the
consolidation and integration of Corporate and middle and back office functions.
In the Global Consumer business, $51 million includes the reconfiguration of
certain branch operations outside the U.S. and the downsizing and consolidation
of certain back office functions in the U.S. Approximately $440 million of the
$579 million charge related to operations in the United States.
The $241 million portion of the charge related to employee severance reflects
the costs of eliminating approximately 7,400 positions, including approximately
4,600 related to the acquisition of Associates and 700 in the Global Consumer
business. Approximately 5,000 of these positions related to the United States.
In 2000, a reserve for $23 million was recorded, $20 million of which related to
the elimination of 1,600 non-U.S. positions of an acquired entity.
The implementation of these restructuring initiatives also caused certain
related premises and equipment assets to become redundant. The remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges (in addition to normal
47
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scheduled depreciation on these assets) are being recognized over these
shortened lives, $22 million and $44 million of which were recorded in the 2001
second quarter and six-month periods, respectively, and $29 million and $49
million of which were recorded in the 2000 second quarter and six-month periods,
respectively.
The 2000 restructuring reserve utilization included $184 million of asset
impairment charges and $196 million of severance and other exit costs (of which
$109 million related to employee severance and $69 million related to leasehold
and other exit costs have been paid in cash and of which $18 million is legally
obligated), together with translation effects. Utilization of the 2000
restructuring reserve in the 2001 second quarter and six months was $51 million
and $125 million, respectively. Through June 30, 2001, approximately 3,100 gross
staff positions have been eliminated under these programs, including
approximately 600 in the 2001 second quarter.
Additional information about restructuring-related items, including the business
segments affected, may be found in Citigroup's 2000 Annual Report and Form 10-K.
10. EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the three and six months ended June 30, 2001
and 2000.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
- ----------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 3,652 $ 3,339 $ 7,232 $ 7,195
Cumulative effect of accounting changes (116) -- (158) --
Preferred dividends (28) (29) (56) (59)
--------------------------------------------------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR BASIC EPS 3,508 3,310 7,018 7,136
Effect of dilutive securities -- -- -- --
--------------------------------------------------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR DILUTED EPS $ 3,508 $ 3,310 $ 7,018 $ 7,136
- --------------------------------------------------------------====================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
APPLICABLE TO BASIC EPS 4,979.6 4,977.1 4,982.2 4,976.3
Effect of dilutive securities:
Options 86.7 110.1 91.3 109.6
Restricted stock 32.6 33.3 30.4 31.5
Convertible securities 1.1 1.1 1.1 1.1
--------------------------------------------------------------------
ADJUSTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
APPLICABLE TO DILUTED EPS 5,100.0 5,121.6 5,105.0 5,118.5
- --------------------------------------------------------------====================================================================
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting changes $ 0.72 $ 0.67 $ 1.44 $ 1.43
Cumulative effect of accounting changes (0.02) -- (0.03) --
--------------------------------------------------------------------
NET INCOME $ 0.70 $ 0.67 $ 1.41 $ 1.43
- --------------------------------------------------------------====================================================================
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting changes $ 0.71 $ 0.65 $ 1.40 $ 1.39
Cumulative effect of accounting changes (0.02) -- (0.03) --
--------------------------------------------------------------------
NET INCOME $ 0.69 $ 0.65 $ 1.37 $ 1.39
- --------------------------------------------------------------====================================================================
</Table>
11. CONTINGENCIES
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation, and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
The reserves carried for environmental and asbestos claims at June 30, 2001 are
the Company's best estimate of ultimate claims and claim adjustment expenses,
based upon known facts and current law. However, the uncertainties surrounding
the final resolution of these claims continue. Currently, it is not possible to
predict changes in the legal and legislative environment and their impact on the
future development of asbestos and environmental claims. Such development will
be affected by future court decisions and interpretations as well as changes in
legislation applicable to such claims. Because of these future unknowns and the
uncertainties set forth above, additional liabilities may arise for amounts in
excess of the current reserves. These additional amounts, or a range of these
additional amounts, cannot now be reasonably estimated, and could result in a
liability exceeding reserves by an amount that would be material to the
Company's operating results in a future period. However, the Company believes
that it is not likely that these claims will have a material adverse effect on
the Company's financial condition or liquidity.
In the ordinary course of business, Citigroup and its subsidiaries are
defendants or co-defendants in various litigation matters incidental to and
typical of the businesses in which they are engaged. In the opinion of the
Company's management, the ultimate
48
<Page>
resolution of these legal proceedings would not be likely to have a material
adverse effect on the results of the Company and its subsidiaries' operations,
financial condition, or liquidity.
FINANCIAL DATA SUPPLEMENT
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31, June 30,
IN MILLIONS OF DOLLARS 2001 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL CASH-BASIS LOANS
Collateral dependent (at lower of cost or collateral value)(1) $ 527 $ 528 $ 390 $ 356
Other 2,102 1,889 1,580 1,428
------------------------------------------------------
TOTAL(2) $ 2,629 $ 2,417 $ 1,970 $ 1,784
- ---------------------------------------------------------------------------======================================================
COMMERCIAL CASH-BASIS LOANS
In U.S. offices $ 1,108 $ 1,052 $ 700 $ 477
In offices outside the U.S. 1,521 1,365 1,270 1,307
------------------------------------------------------
TOTAL(2) $ 2,629 $ 2,417 $ 1,970 $ 1,784
- ---------------------------------------------------------------------------======================================================
COMMERCIAL RENEGOTIATED LOANS
In U.S. offices $ 700 $ 740 $ 634 $ 622
In offices outside the U.S. 164 169 151 98
------------------------------------------------------
TOTAL(3) $ 864 $ 909 $ 785 $ 720
- ---------------------------------------------------------------------------======================================================
CONSUMER LOANS ON WHICH ACCRUAL OF INTEREST
HAD BEEN SUSPENDED(4)
In U.S. offices $ 2,480 $ 2,146 $ 2,182 $ 1,870
In offices outside the U.S. 1,631 1,658 1,626 1,808
------------------------------------------------------
TOTAL $ 4,111 $ 3,804 $ 3,808 $ 3,678
- ---------------------------------------------------------------------------======================================================
ACCRUING LOANS 90 OR MORE DAYS DELINQUENT(4)(5)
In U.S. offices $ 1,694 $ 1,475 $ 1,090 $ 847
In offices outside the U.S. 433 393 385 397
------------------------------------------------------
TOTAL $ 2,127 $ 1,868 $ 1,475 $ 1,244
- ---------------------------------------------------------------------------======================================================
(1) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the underlying collateral and there are
no other available and reliable sources of repayment, in which case the
loans are written down to the lower of cost or collateral value.
(2) Prior period cash-basis loans were restated to change the policy of the
Associates Commercial Leasing business for suspending accrual of interest
on past due loans to conform with other leasing businesses in the
Corporate and Investment Bank. The prior policy of placing loans that are
60 days or more past due into cash-basis, was changed to 90 days or more
past due.
(3) Prior period commercial renegotiated loans were restated to remove
Associates cash-basis loans already included above.
(4) Prior periods have been restated to conform Associates cash-basis and
accruing loans 90 or more days delinquent.
(5) Substantially all consumer loans, of which $973 million, $755 million,
$503 million, and $423 million are government-guaranteed student loans and
mortgages at June 30, 2001, March 31, 2001, December 31, 2000, and June
30, 2000, respectively.
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
<Table>
<Caption>
JUNE 30, Mar. 31, Dec. 31, June 30,
IN MILLIONS OF DOLLARS 2001 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED
Consumer(1) $289 $268 $366 $380
Commercial(1) 280 296 291 292
Other 8 8 8 8
------------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED $577 $572 $665 $680
- ---------------------------------------------------------------==================================================================
OTHER REPOSSESSED ASSETS(2) $409 $419 $292 $263
- ---------------------------------------------------------------==================================================================
</Table>
(1) Represents repossessed real estate, carried at lower of cost or fair
value, less costs to sell.
(2) Primarily commercial transportation equipment and manufactured housing,
carried at lower of cost or fair value, less costs to sell.
- --------------------------------------------------------------------------------
49
<Page>
DETAILS OF CREDIT LOSS EXPERIENCE
<Table>
<Caption>
2ND QTR. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
IN MILLIONS OF DOLLARS 2001 2001 2000 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF PERIOD $8,957 $8,961 $8,900 $8,852 $8,713
--------------------------------------------------------------------------------------
PROVISION FOR CREDIT LOSSES
Consumer 1,196 1,197 1,113 1,078 1,062
Commercial 289 277 394 143 240
--------------------------------------------------------------------------------------
1,485 1,474 1,507 1,221 1,302
--------------------------------------------------------------------------------------
GROSS CREDIT LOSSES
CONSUMER
In U.S. offices 945 915 946 812 844
In offices outside the U.S. 462 449 566 454 446
COMMERCIAL
In U.S. offices 285 241 204 120 149
In offices outside the U.S. 84 90 83 49 103
--------------------------------------------------------------------------------------
1,776 1,695 1,799 1,435 1,542
--------------------------------------------------------------------------------------
CREDIT RECOVERIES
CONSUMER
In U.S. offices 81 101 140 128 143
In offices outside the U.S. 102 98 105 101 103
COMMERCIAL
In U.S. offices 56 35 26 9 6
In offices outside the U.S. 26 19 23 26 21
--------------------------------------------------------------------------------------
265 253 294 264 273
--------------------------------------------------------------------------------------
NET CREDIT LOSSES
In U.S. offices 1,093 1,020 984 795 844
In offices outside the U.S. 418 422 521 376 425
--------------------------------------------------------------------------------------
1,511 1,442 1,505 1,171 1,269
--------------------------------------------------------------------------------------
Other -- net(1) (14) (36) 59 (2) 106
--------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES AT END OF PERIOD $8,917 $8,957 $8,961 $8,900 $8,852
- ---------------------------------------------======================================================================================
Net consumer credit losses $1,224 $1,165 $1,267 $1,037 $1,044
As a percentage of average consumer loans 2.19% 2.10% 2.25% 1.89% 2.07%
- ---------------------------------------------======================================================================================
Net commercial credit losses $287 $277 $238 $134 $225
As a percentage of average commercial loans 0.82% 0.81% 0.69% 0.40% 0.72%
- ---------------------------------------------======================================================================================
</Table>
(1) Primarily includes foreign currency translation effects and the addition
of allowance for credit losses related to acquisitions.
- --------------------------------------------------------------------------------
50
<Page>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Information concerning all matters voted on by stockholders at Citigroup's
Annual Meeting of Stockholders held on April 17, 2001 is incorporated herein by
reference to Item 4 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On April 10, 2001, the Company filed a Current Report on Form 8-K, dated April
9, 2001, (a) reporting under Item 5 thereof that Citigroup had changed its
operating segments presentation to include the various Associates businesses
within the other existing operating segments of Citigroup, and (b) filing as an
exhibit under Item 7 thereof the restated 4th Quarter 2000 Financial Data
Supplement of Citigroup.
On April 17, 2001, the Company filed a Current Report on Form 8-K, dated April
16, 2001, reporting under Item 5 thereof the results of its operations for the
quarter ended March 31, 2001, and certain other selected financial data.
On April 25, 2001, the Company filed a Current Report on Form 8-K, dated April
23, 2001, filing as an exhibit under Item 7 thereof the Distribution Agreement,
dated April 23, 2001, relating to the offer and sale of the Company's
Medium-Term Senior Notes, Series E, Due Nine Months or More from Date of Issue
and Medium-Term Subordinated Notes, Series E, Due Nine Months or More from Date
of Issue.
On May 8, 2001, the Company filed a Current Report on Form 8-K, dated May 3,
2001, filing as exhibits under Item 7 thereof the Terms Agreement, dated May 3,
2001, and the Form of Note relating to the offer and sale of the Company's
5.750% Notes due May 10, 2006.
On May 17, 2001, the Company filed a Current Report on Form 8-K, dated May 17,
2001, (a) reporting under Item 5 thereof that Grupo Financiero Banamex-Accival
("Banacci") and Citigroup announced that they had reached an agreement through
which Banacci, and all its direct and indirect subsidiaries, will integrate with
Citigroup's global operations, and (b) filing as an exhibit under Item 7
thereof a copy of the related joint press release.
On May 29, 2001, the Company filed a Current Report on Form 8-K, dated May 23,
2001, filing as exhibits under Item 7 thereof the Terms Agreement, dated May 23,
2001, and the form of Note relating to the offer and sale of the Company's
Floating Rate Notes due May 30, 2003.
No other reports on Form 8-K were filed during the second quarter of 2001;
however, on July 17, 2001, the Company filed a Current Report on Form 8-K, dated
July 16, 2001, reporting under Item 5 thereof the results of its operations for
the quarter ended June 30, 2001, and certain other selected financial data.
On August 9, 2001, the Company filed a Current Report on Form 8-K, dated August
2, 2001, filing as exhibits under Item 7 thereof the Terms Agreement, dated
August 2, 2001, and the Form of Note relating to the offer and sale of the
Company's 5.50% Notes due August 9, 2006.
51
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of August, 2001.
CITIGROUP INC.
(Registrant)
By /s/ TODD S. THOMSON
----------------------------
Todd S. Thomson
Chief Financial Officer
Principal Financial Officer
By /s/ IRWIN R. ETTINGER By /s/ ROGER W. TRUPIN
---------------------------- ----------------------------
Irwin R. Ettinger Roger W. Trupin
Principal Accounting Officer Principal Accounting Officer
52
<Page>
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.01.1 Restated Certificate of Incorporation of Citigroup Inc. (the
Company), incorporated by reference to Exhibit 4.01 to the Company's
Registration Statement on Form S-3 filed December 15, 1998 (No.
333-68949).
3.01.2 Certificate of Designation of 5.321% Cumulative Preferred Stock,
Series YY, of the Company, incorporated by reference to Exhibit 4.45
to Amendment No. 1 to the Company's Registration Statement on Form
S-3 filed January 22, 1999 (No. 333-68949).
3.01.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated April 18, 2000, incorporated by
reference to Exhibit 3.01.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2000 (File No.
1-9924).
3.01.4 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated April 17, 2001, incorporated by
reference to Exhibit 3.01.4 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2001 (File No.
1-9924).
3.02 By-Laws of the Company, as amended, effective October 26, 1999,
incorporated by reference to Exhibit 3.02 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1999
(File No. 1-9924).
12.01+ Calculation of Ratio of Income to Fixed Charges.
12.02+ Calculation of Ratio of Income to Fixed Charges (including preferred
stock dividends).
- --------------
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
- --------------
+ Filed herewith
53