New York Citigroup Inc. today reported third quarter 2010 net income of $2.2 billion or $0.07 per diluted share, marking its third consecutive quarterly operating profit. Citigroup income from continuing operations, which excludes an $800 million pre-tax ($435 million after-tax) loss on the previously-announced sale of The Student Loan Corporation ("SLC"), was $2.6 billion or $0.08 per diluted share in the third quarter 2010. In the first nine months of 2010, Citigroup earned $9.3 billion of net income and $9.6 billion of income from continuing operations.
"Achieving our third straight quarter of positive operating earnings is continued evidence that we are successfully executing our strategy and we believe we have put in place all the elements for continued profitability. We remain completely focused on serving our clients with excellence and capturing the growth potential inherent in the core businesses within Citicorp, while reducing the size of Citi Holdings as quickly as economically practical," said Vikram Pandit, Chief Executive Officer of Citi.
Net income was down $529 million, or 20%, from the second quarter 2010, mainly driven by the loss on the previously-announced sale of SLC, as well as Securities and Banking, which declined 17%. Regional Consumer Banking net income of $1.2 billion increased 5% from the prior quarter, driven by Latin America and North America. In addition, Transaction Services net income of $920 million was down 1% from the prior quarter, reflecting consistent strength in the business, despite a low rate environment, and continued investments, as growth in Latin America and Asia was offset by declines in North America and EMEA.
Third quarter 2010 revenues of $20.7 billion declined $1.3 billion, or 6%, from the second quarter 2010, primarily driven by Local Consumer Lending and Securities and Banking. Citicorp Latin America and Asia revenues were up 7% and 1%, respectively, from the prior quarter, while North America and EMEA revenues declined 6% and 2%, respectively.
Provisions for credit losses and for benefits and claims declined $746 million sequentially to $5.9 billion, the lowest level since the second quarter of 2007,4 reflecting continued improvement in credit quality.
Expenses of $11.5 billion decreased $346 million, or 3%, from the prior quarter. Excluding the impact of the U.K. bonus tax in the second quarter 2010, expenses increased $58 million, or 1%, reflecting continued investment spending in Citicorp, partially offset by lower Citi Holdings expenses.
During the quarter, Citi continued to focus on growing its core businesses in Citicorp, while divesting assets in Citi Holdings in an economically rational manner. Expressed on a pro forma basis for the previously-announced sale of SLC, Citi Holdings represented 20% of Citi's assets at the end of the third quarter 2010, as compared to 38% in the first quarter 2008.
Citi remained one of the best capitalized banks with $125.4 billion of Tier 1 Capital and a Tier 1 Common ratio of 10.3% at the end of the third quarter 2010. In addition, it had common equity of $162.6 billion and $43.7 billion of allowance for loan losses.
"Overall, I am very pleased with the progress we are making as our team executes our strategy. Our unique footprint and strong presence in the emerging markets have us well aligned for the growth trends we see globally, and we continue to make investments in our franchise so we can serve our clients at the highest level all over the world," concluded Mr. Pandit.
Citigroup revenues were $20.7 billion, down $1.3 billion, or 6%, from the second quarter 2010.
Citicorp revenues were $16.3 billion, down $200 million, or 1%, from the second quarter 2010, driven by a decline in Securities and Banking, partially offset by growth in Regional Consumer Banking and Transaction Services. Growth in Citicorp Latin America and Asia revenues, up 7% and 1%, respectively, was offset by declines in North America and EMEA, down 6% and 2%, respectively.
Citi Holdings revenues were $3.9 billion, down $1.1 billion, or 22%, from the prior quarter.
Corporate/Other revenues were $596 million, down $67 million, or 10%, from the prior quarter, reflecting losses on hedging activities and gains on sale of AFS securities.
Citigroup expenses were $11.5 billion, down $346 million, or 3%, from the prior quarter. Excluding the U.K. bonus tax of $404 million in the prior quarter, expenses were up 1%, reflecting continued investments in Citicorp businesses, partially offset by expense reductions in Citi Holdings.
Citicorp expenses were $8.9 billion, down $207 million, or 2%, from the prior quarter. Excluding the U.K. bonus tax in the prior quarter, expenses increased 2%, reflecting continued investment spending.
Citi Holdings expenses were $2.2 billion, down $215 million, or 9%, from the prior quarter, mainly driven by Local Consumer Lending, reflecting lower restructuring costs and declining assets.
Citigroup total provisions for credit losses and for benefits and claims of $5.9 billion declined $746 million, or 11%, sequentially, to the lowest level since the second quarter of 2007.
Citicorp credit costs were $2.6 billion, and included net credit losses of $3.0 billion and a $426 million net release of allowance for loan losses and unfunded lending commitments. Net credit losses increased $55 million, or 2%, primarily due to a restructuring of a specific corporate credit, partially offset by a $191 million decline in consumer net credit losses. Underlying credit trends in the corporate and consumer portfolios generally continued to improve.
Citi Holdings credit costs were $3.3 billion, which included $4.6 billion of net credit losses, a net release of allowance for loan losses and unfunded lending commitments of $1.5 billion, and a $189 million provision for policyholder benefits and claims. Net credit losses declined $358 million, or 7%, sequentially, and the net reserve release compared to a $845 million net release in the prior quarter.
The effective tax rate on continuing operations was 21%, versus 23% in the prior quarter, reflecting taxable earnings in lower tax rate jurisdictions, as well as tax advantaged earnings.
Citigroup net income was $2.2 billion, down $529 million, or 20%, from the prior quarter.
Citicorp net income of $3.5 billion was $242 million, or 6%, lower than the prior quarter, primarily driven by higher credit costs in Securities and Banking.
Citi Holdings net loss of $1.1 billion was $71 million, or 6%, less than the net loss of $1.2 billion in the prior quarter, as continued improvement in credit costs and expenses more than offset the decline in revenues.
Corporate/Other net income of $91 million, was down $38 million, or 29%, primarily reflecting Corporate Treasury activity, including hedging.
Discontinued operations net loss of $323 million compared to a net loss of $3 million in the prior quarter, and primarily reflected the loss on the previously-announced sale of SLC.
Citi will host a conference call today at 11:00 AM (EDT). A live webcast of the presentation, as well as financial results and presentation materials, will be available at http://www.citigroup.com/citi/fin. Dial-in numbers for the conference call are as follows: (877) 700-4194 in the U.S.; (706) 679-8401 outside of the U.S. The conference code for both numbers is 10403840.
Citi, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Through Citicorp and Citi Holdings, Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. Additional information may be found at www.citigroup.com or www.citi.com.
Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Quarterly Financial Data Supplement. Both the earnings release and the Third Quarter 2010 Quarterly Financial Data Supplement are available on Citigroup's website at www.citigroup.com or www.citi.com.
Certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Citigroup's filings with the U.S. Securities and Exchange Commission.
1 Third quarter 2009 included a net negative impact of $0.18 per share due to Citi's completion of its exchange offers. Pursuant to the exchange offers, Citi generally exchanged preferred stock and certain preferred securities for common stock. The completion of the exchange offers resulted in an $851 million after-tax gain, and a $3.1 billion reduction in income available to common shareholders. The $0.18 loss per share from the impact of the exchange offers was defined as (Gain on Extinguishment of Debt + Impact of Exchange Offers on Retained Earnings)/Average Common Shares Outstanding = ($851 million + $(3,055) million)/12.1 billion average shares = $(0.18).
2 Excludes a net loss from discontinued operations of $374 million, primarily related to the previously-announced sale of The Student Loan Corporation, currently expected to close in the fourth quarter 2010.
3 Tangible Book Value per Share is a non-GAAP financial measure. See Appendix B for additional information on this metric.
4 As previously disclosed, effective January 1, 2010, Citigroup adopted SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (SFAS 166) and SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). As a result, reported and managed basis presentations are equivalent for periods beginning January 1, 2010. For comparison purposes throughout this release, revenues, net credit losses, and provisions for credit losses and for benefits and claims for periods prior to January 1, 2010 are presented on a managed basis. For additional information, see Citigroup's Third Quarter 2010 Quarterly Financial Data Supplement furnished as an exhibit to Form 8-K filed with the U.S. Securities and Exchange Commission on October 18, 2010.
1 See Appendix A for quarterly CVA amounts.