New York Citigroup Inc. today reported net income for the third quarter 2020 of $3.2 billion, or $1.40 per diluted share, on revenues of $17.3 billion. This compared to net income of $4.9 billion, or $2.07 per diluted share, on revenues of $18.6 billion for the third quarter 2019.
Revenues decreased 7% from the prior-year period, primarily reflecting lower revenues in Global Consumer Banking (GCB) and Corporate / Other, partially offset by growth in Fixed Income Markets, Investment Banking, Equity Markets and the Private Bank in the Institutional Clients Group (ICG). Net income declined 34% from the prior-year period, largely driven by the lower revenues, an increase in expenses and higher credit costs. Results include a $400 million civil money penalty in connection with consent orders recorded in Corporate / Other. Earnings per share of $1.40 decreased 32% from the prior-year period, primarily reflecting the decline in net income.
Michael Corbat, Citi CEO, said, “We continue to navigate the effects of the COVID-19 pandemic extremely well. Credit costs have stabilized; deposits continued to increase; and revenues are up 3% year-to-date. Our Institutional Clients Group again had very strong performance, especially in Markets, Investment Banking and the Private Bank. The backbone of our global network, Treasury and Trade Solutions experienced strong client engagement in the face of low interest rates. Although Global Consumer Banking revenues remained lower as a result of the pandemic, we did see higher activity in our mortgage and wealth management products.
“Our capital position strengthened during the quarter with our Common Equity Tier 1 ratio increasing to 11.8% and our Tangible Book Value per share increasing to $71.95. We remain committed to returning capital to our shareholders, subject to the industry-wide approach determined by the Federal Reserve.
“We are committed to thoroughly addressing the issues contained in the Consent Orders we entered into last week with the Federal Reserve and the Office of the Comptroller of the Currency. These investments will not only further enhance our safety and soundness, they will result in a digital infrastructure that will improve our ability to serve our clients and customers and make us more competitive,” Mr. Corbat concluded.
Percentage comparisons throughout this press release are calculated for the third quarter 2020 versus the third quarter 2019, unless otherwise specified.
Citigroup operating expenses of $11.0 billion in the third quarter 2020 increased 5%, as the civil money penalty, investments in infrastructure, risk management and controls, higher compensation and COVID-19 related expenses more than offset efficiency savings and reductions in marketing and other discretionary spending.
Citigroup cost of credit of $2.3 billion in the third quarter 2020 increased 8%, largely reflecting an increase in ICG allowance for credit loss (ACL) reserves, partially offset by decreases in GCB and Corporate / Other.
Citigroup net income of $3.2 billion in the third quarter 2020 declined 34%, driven by the lower revenues, the higher expenses, the higher cost of credit and a higher effective tax rate. Citigroup’s effective tax rate was 20% in the current quarter compared to 18% in the third quarter 2019, reflecting the impact of the non-deductible civil money penalty this quarter.
Citigroup’s allowance for credit losses on loans was $26.4 billion at quarter end, or 4.00% of total loans, compared to $12.5 billion, or 1.82% of total loans, at the end of the prior-year period. Total non-accrual assets grew 40% from the prior-year period to $5.3 billion. Consumer non-accrual loans declined 9% to $1.7 billion, while corporate non-accrual loans of $3.6 billion increased 94% from the prior-year period.
Citigroup's end-of-period loans were $667 billion as of quarter end, down 4% from the prior-year period, as reported and excluding the impact of foreign exchange translation6, driven by declines across GCB and ICG, and the continued wind-down of legacy assets in Corporate / Other.
Citigroup's end-of-period deposits were $1.3 trillion as of quarter end, an increase of 16% from the prior-year period, as reported and in constant dollars6, driven by a 17% increase in GCB and a 16% increase in ICG.
Citigroup's book value per share of $84.48 and tangible book value per share of $71.95 each increased 4% versus the prior-year period, driven by net income. At quarter end, Citigroup’s CET1 Capital ratio was 11.8%, up from the prior quarter, driven by net income, partially offset by an increase in risk-weighted assets. Citigroup’s SLR for the third quarter 2020 was 6.8%, an increase from the prior quarter. During the quarter, Citigroup returned a total of $1.1 billion to common shareholders in the form of dividends.
North America GCB revenues of $4.5 billion decreased 13%. Citi-Branded Cards revenues of $2.1 billion decreased 12%, reflecting lower purchase sales and higher payment rates driving lower average loans. Citi Retail Services revenues of $1.4 billion decreased 21%, reflecting lower average loans as well as higher partner payments. Retail Banking revenues of $1.1 billion decreased 2%, as the benefit of stronger deposit volumes and an improvement in mortgage revenues were more than offset by lower deposit spreads.
Latin America GCB revenues of $1.0 billion declined 19% on a reported basis and 10% in constant dollars, driven by lower average loans and lower interest rates, partially offset by strong deposit growth.
Asia GCB revenues of $1.6 billion declined 12% on a reported basis and 13% in constant dollars, as lower card purchase sales and lower interest rates were partially offset by strong investment revenues.
GCB operating expenses of $4.2 billion decreased 3% on a reported basis and 2% in constant dollars, as lower volume-related expenses, reductions in marketing and other discretionary spending and efficiency savings were partially offset by increases in COVID-19 related expenses.
GCB cost of credit of $1.6 billion decreased 20% on a reported basis and 19% in constant dollars, including an ACL release driven by reduced loan volumes and lower net credit losses given high levels of liquidity in the U.S., lower spending and the benefits of relief programs.
GCB net income of $1.1 billion declined 30% from the prior-year period on a reported basis and 29% in constant dollars, driven by the lower revenues, partially offset by the lower cost of credit and the lower expenses.
Banking revenues of $5.1 billion decreased 4% versus the prior year (including gain / (loss) on loan hedges)7. Treasury and Trade Solutions revenues of $2.4 billion declined 6% on a reported basis and 4% in constant dollars, as strong client engagement and growth in deposits were more than offset by the impact of lower interest rates and reduced commercial card spend. Investment Banking revenues of $1.4 billion increased 13%, reflecting solid growth in capital markets, particularly in equity underwriting. Advisory revenues decreased 41% to $163 million, while equity underwriting revenues increased 96% to $484 million and debt underwriting revenues increased 5% to $740 million. Private Bank revenues of $938 million increased 8% (excluding gain / (loss) on loan hedges), driven by increased capital markets activity, improved managed investments revenues as well as higher lending and deposit volumes, partially offset by lower deposit spreads. Corporate Lending revenues of $538 million declined 25% (excluding gain / (loss) on loan hedges), as higher loan volumes were more than offset by lower spreads.
Markets and Securities Services revenues of $5.2 billion increased 16%. Fixed Income Markets revenues of $3.8 billion increased 18%, driven by strong performance across spread products and commodities. Equity Markets revenues of $875 million increased 15%, as solid performance in cash equities and derivatives was partially offset by lower revenues in prime finance. Securities Services revenues of $631 million decreased 5% on a reported basis and 4% in constant dollars, as higher deposit volumes were more than offset by lower spreads.
ICG net income of $2.9 billion decreased 10%, as the revenue growth was more than offset by higher cost of credit and expenses. ICG operating expenses increased 3% to $5.8 billion, driven by continued investments in infrastructure, risk management and controls, as well as higher compensation costs. ICG cost of credit included net credit losses of $326 million, compared to $110 million in the prior-year period, and an ACL build of $529 million compared to a build of $43 million in the prior-year period, reflecting the impact of continuing uncertainty surrounding the macroeconomic outlook.
Corporate / Other expenses of $969 million increased significantly, as the wind-down of legacy assets was more than offset by the civil money penalty, investments in infrastructure, risk management and controls and incremental costs associated with COVID-19.
Corporate / Other loss from continuing operations before taxes of $(1.1) billion compared to a loss of $(36) million in the prior-year period, driven by the lower revenues and the increased expenses, partially offset by a larger ACL release on the legacy portfolio.
Citigroup will host a conference call today at 10:00 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 9492234.
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 Third Quarter 2020 Quarterly Financial Data Supplement are available on Citigroup’s website at www.citigroup.com.
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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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. These factors include, among others, macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, financial markets and consumer and corporate customers and clients, including economic activity and employment, as well as the various actions taken in response by governments, central banks and others, including Citi, and the precautionary statements included in this release. These factors also consist of those contained in Citigroup’s filings with the SEC, including without limitation the “Risk Factors” section of Citigroup’s Second Quarter 2020 Form 10-Q and Citigroup’s 2019 Form 10- K. Any forward-looking statements made by or on behalf of Citigroup speak only as to the date they are made, and Citi 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: Jennifer Lowney (212) 793-3141
Investors: Elizabeth Lynn (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 September 30, 2020 are preliminary. Commencing January 1, 2020, Citigroup’s Common Equity Tier 1 (CET1) Capital ratio and Supplementary Leverage ratio (SLR) reflect certain deferrals based on the modified regulatory capital transition provision related to the Current Expected Credit Loss (CECL) standard. Excluding the deferrals based on the modified CECL transition provision, Citigroup’s CET1 Capital ratio and SLR as of September 30, 2020 would be 11.3% and 6.6%, respectively, on a fully reflected basis.
Citigroup has elected to apply the modified transition provision related to the impact of the CECL accounting standard on regulatory capital, as provided by the US banking agencies’ September 2020 final rule (which is substantively unchanged from the March 2020 interim final rule). Under the modified CECL transition provision, the allowance for credit losses (after-tax) upon the January 1, 2020 CECL adoption date has been deferred and will phase in to regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, Citigroup is allowed to adjust the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021. The cumulative adjustments to the allowance for credit losses between January 1, 2020 and December 31, 2021 will also phase in to regulatory capital at 25% per year commencing January 1, 2022, along with the deferred impacts related to the January 1, 2020 CECL adoption date. The corresponding adjustments on average on-balance sheet assets are also reflected in Total Leverage Exposure. Additionally, the increase in deferred tax assets (DTA) arising from temporary differences upon the January 1, 2020 adoption date has been deducted from risk-weighted assets (RWA) and will phase in to RWA at 25% per year commencing January 1, 2022.
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 private bank and 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. In the third quarter 2020, gains / (losses) on loan hedges included $(117) million related to Corporate Lending and $(8) million related to the Private Bank, compared to losses of $(33) million related to Corporate Lending in the prior-year period. The fixed premium costs of these hedges are netted against the Private Bank and 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.