New York Citigroup Inc. today reported net income for the second quarter 2018 of $4.5 billion, or $1.63 per diluted share, on revenues of $18.5 billion. This compared to net income of $3.9 billion, or $1.28 per diluted share, on revenues of $18.2 billion for the second quarter 2017.
Revenues increased 2% from the prior-year period, driven by growth in both the Institutional Clients Group (ICG) and Global Consumer Banking (GCB), partially offset by lower revenues in Corporate / Other due to the continued wind-down of legacy assets. Net income of $4.5 billion increased 16%, driven by the higher revenues and a lower effective tax rate, partially offset by higher cost of credit. Earnings per share of $1.63 increased 27% from $1.28 per diluted share in the prior-year period, driven by the growth in net income and an 8% reduction in average diluted shares outstanding.
Percentage comparisons throughout this press release are calculated for the second quarter 2018 versus the second quarter 2017, unless otherwise specified.
Citigroup's operating expenses of $10.7 billion in the second quarter 2018 were largely unchanged, as higher volume-related expenses and investments were offset by efficiency savings and the wind-down of legacy assets.
Citigroup's cost of credit in the second quarter 2018 was $1.8 billion, a 6% increase, primarily driven by volume growth and seasoning in GCB.
Citigroup's net income increased to $4.5 billion in the second quarter 2018, primarily driven by the higher revenues and a lower effective tax rate, which more than offset the higher cost of credit, as expenses remained largely unchanged. Citigroup's effective tax rate was 24% in the current quarter compared to 32% in the second quarter 2017.
Citigroup's allowance for loan losses was $12.1 billion at quarter end, or 1.81% of total loans, compared to $12.0 billion, or 1.88% of total loans, at the end of the prior-year period. Total non-accrual assets declined 20% from the prior-year period to $4.1 billion. Consumer non-accrual loans declined 16% to $2.4 billion and corporate non-accrual loans decreased 23% to $1.6 billion.
Citigroup's end of period loans were $671 billion as of quarter end, up 4% from the prior-year period. Excluding the impact of foreign exchange translation6, Citigroup's end of period loans grew 5%, as 6% aggregate growth in ICG and GCB was partially offset by the continued wind-down of legacy assets in Corporate / Other.
Citigroup's end of period deposits were $997 billion as of quarter end, an increase of 4% from the prior-year period on both a reported and a constant dollar basis. The increase in constant dollars was driven by 9% growth in ICG, as GCB remained largely unchanged.
Citigroup's book value per share of $71.95 and tangible book value per share of $61.29, both as of quarter end, were largely unchanged sequentially, as the benefit of a lower share count was offset by the aggregate impact to common equity of net income, share repurchases and dividends, as well as currency translation. At quarter end, Citigroup's CET1 Capital ratio was 12.1%, unchanged sequentially, as net income was largely offset by the return of capital to common shareholders. Citigroup's SLR for the second quarter 2018 was 6.6%, down slightly from 6.7% sequentially. During the second quarter 2018, Citigroup repurchased 33 million common shares and returned a total of $3.1 billion to common shareholders in the form of common share repurchases and dividends.
North America GCB revenues of $5.0 billion increased 1%, driven by higher revenues in Retail Banking and Citi Retail Services, partially offset by lower revenues in Citi-Branded Cards. Retail Banking revenues of $1.3 billion increased 4%. Excluding mortgage, Retail Banking revenues increased 9%, driven by continued growth in deposit margins and investments, as well as increased commercial banking activity. Citi-Branded Cards revenues of $2.1 billion decreased 1%. Excluding the impact of the Hilton portfolio sale, Citi-Branded Cards revenues increased 1% as the benefit of higher interest-earning balances and a gain of approximately $45 million related to the sale of Visa B shares were partially offset by the impact of previously disclosed items, including partnership terms and repricing actions related to APR rate re-evaluations under the CARD Act. Citi Retail Services revenues of $1.6 billion increased 1%, primarily reflecting continued loan growth.
Latin America GCB revenues increased 6% to $1.4 billion. In constant dollars, revenues increased 11%. On this basis, retail banking revenues grew 12%, with continued volume growth across loans and deposits. Cards revenues increased 9%, driven by continued growth in purchase sales and full rate revolving loans.
Asia GCB revenues increased 3% to $1.9 billion. In constant dollars, revenues increased 2%, or 4% excluding the benefit of a modest gain on sale in the prior-year period. Retail banking revenues increased 4%, driven by growth in wealth management. Cards revenues remained largely unchanged; excluding the modest gain, revenues increased 4% driven by continued growth in loans and purchase sales.
GCB operating expenses were $4.7 billion, up 3% on both a reported and a constant dollar basis, as efficiency savings were more than offset by higher investments, volume-related expenses and a provision of approximately $50 million for an industry-wide legal matter in North America GCB.
GCB cost of credit was $1.9 billion, up 8%. In constant dollars, cost of credit increased 9%, driven by an 8% increase in net credit losses reflecting volume growth and seasoning, primarily in North America GCB as well as a 27% increase in loan loss reserves as the prior-year period benefited from a reserve release in Asia GCB.
GCB net income of $1.3 billion increased 14%. In constant dollars, net income increased 15%, as the higher revenues across regions and a lower tax rate were partially offset by the higher expenses and cost of credit.
Banking revenues of $5.2 billion increased 6%, as continued growth across businesses more than offset a decline in Investment Banking. Treasury and Trade Solutions revenues of $2.3 billion increased 11%, reflecting higher volumes and improved deposit spreads with growth in both net interest and fee revenues. Investment Banking revenues of $1.4 billion were down 7% versus the prior-year period, as growth in advisory and equity underwriting was more than offset by a very strong prior year comparison in debt underwriting. Advisory revenues increased 14% to $361 million, equity underwriting revenues increased 8% to $335 million and debt underwriting revenues decreased 20% to $726 million. Private Bank revenues increased 7% to $848 million, driven by growth in clients, loans and investments, as well as improved deposit spreads. Corporate Lending revenues of $589 million increased 22% (excluding gain / (loss) on loan hedges)7, reflecting loan growth as well as lower hedging costs.
Markets and Securities Services revenues of $4.5 billion decreased 1%, as strong revenue growth in Equity Markets and Securities Services was more than offset by a decline in Fixed Income Markets. Fixed Income Markets revenues of $3.1 billion in the second quarter 2018 decreased 6%, driven by a more challenging market environment and a strong prior-year period comparison in G10 rates and securitized products. Equity Markets revenues of $864 million increased 19%, with growth across all products, reflecting the benefit of continued higher market volatility, as well as continued momentum with investor clients. Securities Services revenues of $665 million increased 12%, driven by continued growth in client volumes and higher net interest revenue.
ICG net income of $3.2 billion increased 17%, driven by the higher revenues, a lower tax rate and lower cost of credit, partially offset by higher operating expenses. ICG operating expenses increased 4% to $5.5 billion, driven by an increase in compensation costs, volume-related expenses and investments, partially offset by efficiency savings. ICG cost of credit declined due to a decrease in net credit losses as ICG recorded a net recovery of $1 million in the current period compared to net credit losses of $71 million in the prior-year period.
Corporate / Other expenses of $599 million decreased 40% from the prior-year period, driven by the wind-down of legacy assets and lower legal and infrastructure costs.
Corporate / Other income from continuing operations before taxes of $47 million increased from a loss of $203 million in the prior-year period, as the lower expenses more than offset the lower revenues.
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 https://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 83785275.
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 2018 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 2017 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) is a non-GAAP financial measure. RoTCE represents annualized net income available to common shareholders as a percentage of average tangible common equity (TCE). For the components of the calculation, see Appendix A.
3 Ratios as of June 30, 2018 are preliminary. Citigroup's Common Equity Tier 1 (CET1) Capital ratio and Supplementary Leverage Ratio (SLR) reflect full implementation of the U.S. Basel III rules for all periods. As of December 31, 2017 and for all prior periods, these ratios are non-GAAP financial measures, which reflect full implementation of regulatory capital adjustments and deductions prior to the effective date of January 1, 2018. For the composition of Citigroup's CET1 Capital and ratio, see Appendix C. For the composition of Citigroup's SLR, see Appendix D.
4 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.
5 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.
6 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 Appendix B.
7 Credit derivatives are used to economically hedge a portion of the corporate loan portfolio that includes both accrual loans and loans at fair value. Gains / (losses) on loan hedges includes the mark-to-market on the credit derivatives and the mark-to-market on the loans in the portfolio that are at fair value. The fixed premium costs of these hedges are netted against the corporate lending revenues to reflect the cost of credit protection. Citigroup's results of operations excluding the impact of gains / (losses) on loan hedges are non-GAAP financial measures.