New York Citigroup Inc. today reported net income for the second quarter 2017 of $3.9 billion, or $1.28 per diluted share, on revenues of $17.9 billion. This compared to net income of $4.0 billion, or $1.24 per diluted share, on revenues of $17.5 billion for the second quarter 2016.
Revenues increased 2% from the prior year period, driven by growth in Institutional Clients Group (ICG) and Global Consumer Banking (GCB), partially offset by lower revenues in Corporate / Other. Net income of $3.9 billion decreased 3%, as the higher revenues were more than offset by higher cost of credit and operating expenses, as well as a higher effective tax rate. Earnings per share of $1.28 increased 3% from $1.24 per diluted share in the prior year period, driven by a 6% reduction in average diluted shares outstanding, partially offset by the lower net income.
In the discussion throughout the remainder of this press release, percentage comparisons are calculated for the second quarter 2017 versus the second quarter 2016, unless otherwise specified.
Citigroup's net income decreased to $3.9 billion in the second quarter 2017, as the higher revenues were more than offset by higher cost of credit and operating expenses, as well as a higher effective tax rate. Citigroup's effective tax rate was 31.6% in the current quarter compared to 29.9% in the second quarter 2016.
Citigroup's operating expenses were up slightly at $10.5 billion in the second quarter 2017. In constant dollars, operating expenses increased by 2%, as higher volume-related expenses, performance-based compensation and ongoing investments were largely offset by efficiency saves and the wind-down of legacy assets.
Citigroup's cost of credit in the second quarter 2017 was $1.7 billion, a 22% increase, driven by an increase in net credit losses of $94 million and a net loan loss reserve release of $16 million, compared to a net release of $256 million mostly related to legacy assets in the prior year period.
Citigroup's allowance for loan losses was $12.0 billion at quarter end, or 1.88% of total loans, compared to $12.3 billion, or 1.96% of total loans, at the end of the prior year period. Total non-accrual assets declined 19% from the prior year period to $5.1 billion. Consumer non-accrual loans declined 23% to $2.8 billion and Corporate non-accrual loans decreased 15% to $2.1 billion.
Citigroup's end of period loans were $645 billion as of quarter end, up 2% from the prior year period. In constant dollars, Citigroup's end of period loans also grew 2%, as 4% growth in both GCB and ICG was partially offset by the continued wind down of legacy assets in Corporate / Other.
Citigroup's deposits were $959 billion as of quarter end, up 2%. In constant dollars, Citigroup deposits were also up 2%, as a 3% increase in both GCB and ICG was slightly offset by a decline in Corporate / Other.
Citigroup's book value per share was $77.36 and tangible book value per share was $67.32, each at quarter end, both representing a 6% increase. At quarter end, Citigroup's Common Equity Tier 1 Capital ratio was 13.0%, up from 12.5% in the prior year period, driven primarily by earnings partially offset by capital return. Citigroup's Supplementary Leverage Ratio for the second quarter 2017 was 7.2%, down from 7.5% in the prior year period, as an increase in Total Leverage Exposure more than offset an increase in Tier 1 Capital. During the second quarter 2017, Citigroup repurchased approximately 29 million common shares and returned a total of approximately $2.2 billion to common shareholders in the form of common share repurchases and dividends.
GCB net income decreased 12% to $1.1 billion, as the higher revenues were more than offset by higher cost of credit and higher operating expenses. Operating expenses were $4.5 billion, an increase of 5% on both a reported and constant dollars basis, driven by the addition of the Costco portfolio, volume growth and continued investments, partially offset by ongoing efficiency savings.
North America GCB revenues of $4.9 billion increased 5%, as higher revenues in Citi-branded cards and Citi retail services were partially offset by lower revenues in retail banking, driven by lower mortgage revenues. Citi-branded cards revenues of $2.1 billion increased 10%, reflecting the impact of the Costco portfolio acquisition as well as modest organic growth in core portfolios, partially offset by the run-off of non-core portfolios. Citi retail services revenues of $1.6 billion increased 4%, reflecting continued loan growth and a favorable prior period comparison. Retail banking revenues declined 2% mainly due to the lower mortgage revenues. Excluding mortgage, retail banking revenues increased 7% driven by continued growth in average loans, deposits and assets under management, as well as a benefit from higher interest rates.
North America GCB net income was $670 million, down 18%, driven by higher cost of credit and higher operating expenses, partially offset by the higher revenues. Operating expenses increased 6% to $2.6 billion, primarily driven by the addition of the Costco portfolio, volume growth and continued investments, partially offset by efficiency savings.
North America GCB cost of credit increased 27% to $1.3 billion. The net loan loss reserve build in the second quarter 2017 was $103 million, compared to a build of $56 million in the prior year period, largely supporting volume growth and the impact of changes in collections activity in cards. Net credit losses of $1.2 billion increased 24%, driven by the Costco portfolio acquisition, organic volume growth and seasoning, and the impact of changes in collections activity in the cards businesses.
International GCB revenues increased 4% to $3.1 billion. In constant dollars, revenues increased 5%. On this basis, revenues in Latin America GCB of $1.3 billion increased 8%, driven by growth in retail loans and deposits, as well as improved deposit spreads, partially offset by a modest decline in cards revenues. Revenues in Asia GCB of $1.8 billion increased 3%, driven by improvement in cards and wealth management revenues, partially offset by lower retail lending revenues.
International GCB net income decreased 3% to $455 million. In constant dollars, net income was down 2%, as the higher revenues were offset by higher credit costs and higher expenses. Operating expenses increased 3% both on a reported and constant dollars basis, versus the prior year period. Credit costs increased 15% on a reported basis and increased 18% in constant dollars. On this basis, the net loan loss reserve build was $21 million, compared to a release of $25 million in the prior year period, net credit losses increased by 5% and the net credit loss rate was 1.58% of average loans, increasing from 1.52% in the prior year period.
Banking revenues of $4.8 billion increased 19% (including gain / (loss) on loan hedges)8. Excluding gain / (loss) on loan hedges in Corporate Lending, Banking revenues increased 13%. Treasury and Trade Solutions (TTS) revenues of $2.1 billion increased 3%, reflecting continued volume growth and improved deposit spreads. Investment Banking revenues of $1.5 billion were up 22% versus the prior year period, reflecting strength in equity underwriting and advisory, as well as continued momentum in debt underwriting. Advisory revenues increased 32% to $314 million, equity underwriting revenues increased 70% to $295 million and debt underwriting revenues increased 9% to $877 million. Private Bank revenues increased 17% to $788 million, driven by loan and deposit growth, improved spreads and increased investment activity. Corporate Lending revenues of $477 million increased 25% (excluding gain / (loss) on loan hedges) reflecting lower hedging costs as well as the absence of a prior period adjustment to the residual value of a lease financing.
Markets and Securities Services revenues of $4.4 billion declined 5% as a decline in Markets revenues was partially offset by higher revenues in Securities Services. Fixed Income Markets revenues of $3.2 billion in the second quarter 2017 decreased 6% primarily reflecting lower G10 currencies revenue, given low volatility in the current quarter and the comparison to higher Brexit-related activity a year ago. Equity Markets revenues of $691 million decreased 11%, reflecting episodic activity in the prior year period, as well as low volatility in the current quarter. Securities Services revenues of $584 million increased 10% driven by growth in client volumes across the global custody business.
ICG net income of $2.8 billion increased 6%, driven by the higher revenues, partially offset by higher operating expenses. ICG operating expenses increased 5% to $5.0 billion as higher incentive compensation, investments and volume-related expenses were partially offset by efficiency saves. ICG cost of credit included net credit losses of $71 million ($141 million in the prior year period) and a net loan loss reserve build of $16 million (net loan loss reserve release of $59 million in the prior year period).
ICG average loans grew 3% to $312 billion. In constant dollars, average loans also increased 3%.
ICG end of period deposits increased 2% to $624 billion. In constant dollars, end of period deposits grew 3%.
Corporate / Other net loss of $15 million, compared to income of $116 million in the prior year period, reflected the lower revenues, partially offset by lower operating expenses and lower cost of credit. Corporate / Other operating expenses declined 24% to $990 million, reflecting the wind-down of legacy assets.
Corporate / Other cost of credit was a benefit of $132 million compared to a benefit of $98 million in the prior year period. Net credit losses declined 76% to $24 million, reflecting the impact of ongoing divestitures, and the provision for benefits and claims declined by $29 million to $0 reflecting the absence of insurance-related business activity. The net loan loss release was $156 million, mostly related to the legacy mortgage portfolio, as compared to a release of $228 million in the prior year period.
Citigroup will host a conference call today at 11:30 a.m. (ET). A live webcast of the presentation, as well as financial results and presentation materials, will be available at http://www.citigroup.com/citi/investor. Dial-in numbers for the conference call are as follows: (866) 516-9582 in the U.S. and Canada; (973) 409-9210 outside of the U.S. and Canada. The conference code for both numbers is 12260944.
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. 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.
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Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Quarterly Financial Data Supplement. Both this earnings release and Citigroup's Second Quarter 2017 Quarterly Financial Data Supplement are available on Citigroup's website at www.citigroup.com.
Certain statements in this release are "forward-looking statements" within the meaning of the rules and regulations of the U.S. Securities and Exchange Commission (SEC). These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. These statements are not guarantees of future results or occurrences. Actual results and capital and other financial condition may differ materially from those included in these statements due to a variety of factors, including the precautionary statements included in this release and those contained in Citigroup's filings with the SEC, including without limitation the "Risk Factors" section of Citigroup's 2016 Annual Report on Form 10-K. Any forward-looking statements made by or on behalf of Citigroup speak only as to the date they are made, and Citigroup does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.
Press: Mark Costiglio (212) 559-4114
Investors: Susan Kendall (212) 559-2718
Fixed Income Investors: Thomas Rogers (212) 559-5091
1 Citigroup's total expenses divided by total revenues.
2 Preliminary. Citigroup's return on average tangible common equity (RoTCE) and RoTCE excluding deferred tax assets (DTAs) are non-GAAP financial measures. RoTCE represents annualized net income available to common shareholders as a percentage of average TCE. The amount that is excluded from average tangible common equity represents the average net DTAs excluded for purposes of calculating Citigroup's Common Equity Tier 1 (CET1) Capital under full implementation of the U.S Basel III rules. For the components of the calculation, see Appendix A.
3 Preliminary. Citigroup's CET1 Capital ratio, which reflects full implementation of the U.S. Basel III rules, is a non-GAAP financial measure. For the composition of Citigroup's CET1 Capital and ratio, see Appendix C.
4 Preliminary. Citigroup's Supplementary Leverage Ratio (SLR), which reflects full implementation of the U.S. Basel III rules, is a non-GAAP financial measure. For the composition of Citigroup's SLR, see Appendix D.
5 Citigroup's payout ratio is the sum of common dividends and common share repurchases divided by net income available to common shareholders. For the components of the calculation, see Appendix A.
6 Preliminary. Citigroup's tangible book value per share is a non-GAAP financial measure. For a reconciliation of this measure to reported results, see Appendix E.
7 Results of operations excluding the impact of foreign exchange translation (constant dollar basis) are non-GAAP financial measures. For a reconciliation of these measures to reported results, see Appendices A and B.
8 Hedges on accrual loans reflect the mark-to-market on credit derivatives used to hedge the corporate accrual loan portfolio. The fixed premium cost of these hedges is included in (netted against) the core lending revenues. Results of operations excluding the impact of gain / (loss) on loan hedges are non-GAAP financial measures.