Citigroup Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; comparisons are primarily with Q3 2021. Nine-month figures cover the period ended September 30. Citi reports Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), Legacy Franchises, and Corporate/Other. Segment results were recast to reflect the 2022 reporting structure.
Financial results and position
| Metric | Q3 2022 | Comparison / context |
|---|---|---|
| Revenue, net of interest expense | $18.5 billion | Up 6% year over year; excluding Asia Consumer divestiture impacts, down 1%. |
| Net interest income | $12.6 billion | Up 18%; taxable-equivalent net interest margin was 2.31%, up 32 basis points year over year. |
| Operating expenses | $12.7 billion | Up 8%; up 7% excluding divestiture-related costs. |
| Provisions for credit losses and benefits/claims | $1.4 billion expense | Compared with a $0.2 billion benefit in Q3 2021. |
| Net income / diluted EPS | $3.5 billion / $1.63 | Net income down 25%; diluted EPS down 24% from $2.15. |
| Efficiency ratio / return metrics | 68.9%; ROA 0.58%; RoTCE 8.2% | Efficiency ratio was 67.5%, ROA 0.79%, and RoTCE 11.0% in Q3 2021. |
The Philippines sale produced an approximately $616 million pretax gain; divestiture-related costs were approximately $107 million. Together with other Asia Consumer exit impacts, these items contributed approximately $256 million after tax and $0.13 to reported EPS. Citi reported adjusted EPS of $1.50 excluding these impacts; this is a non-GAAP measure.
Nine-month results: Revenue was $57.3 billion, up 4%; net income was $12.3 billion, down 34%; diluted EPS was $5.84, down 32%. Higher expenses and the shift from prior-year credit reserve releases to builds weighed on earnings.
Balance sheet and capital at September 30: Total assets were $2.38 trillion; deposits $1.31 trillion, down 3% year over year; long-term debt $253.1 billion, down 2%. Net loans were $646.0 billion, down 3% year over year. Common equity was $179.6 billion and tangible book value per share was $80.34. CET1 was 12.29% under the Standardized Approach, versus 11.65% a year earlier; supplementary leverage ratio was 5.71%, versus 5.80%.
Credit: Total cost of credit was $1.4 billion. The allowance for credit losses on loans and unfunded commitments increased by a net $0.4 billion, primarily reflecting consumer loan growth and weaker macroeconomic forecasts affecting corporate exposures. Net credit losses were $0.9 billion, down 8% year over year; consumer losses were $881 million. Total loan allowance was $16.3 billion, or 2.54% of loans.
Cash flow, nine months: Operating cash flow from continuing operations was negative $4.2 billion, versus positive $59.2 billion in 2021; investing cash flow was negative $26.8 billion, versus negative $112.1 billion; financing cash flow was positive $71.6 billion. Cash, due from banks, and deposits with banks rose $37.6 billion to $299.6 billion. Bank cash flows are affected by large securities, trading, and funding movements.
Liquidity and funding: Average HQLA was $557.1 billion and average LCR was 117% (115% in Q3 2021), leaving $80.1 billion of HQLA above net outflows. Citi reported approximately $967 billion of available liquidity resources at quarter-end. Short-term borrowings were $47.4 billion, up 60% year over year.
Material changes and business performance
- ICG: Revenue fell 5% to $9.5 billion and net income fell 30% to $2.2 billion. Services rose 33%, led by Treasury and Trade Solutions; Markets fell 7%, and Banking fell 50%, including a steep decline in investment banking fees.
- PBWM: Revenue rose 6% to $6.2 billion, but net income fell 58% to $792 million, largely due to the comparison with a prior-year reserve release, higher expenses, and increased credit costs. U.S. cards loan growth and higher rates supported revenue; Global Wealth revenue declined 2% amid investment-fee pressure.
- Legacy Franchises: Revenue rose 66% to $2.6 billion and net income was $316 million, compared with a $200 million loss. The Philippines sale gain and comparison with the prior-year Australia sale loss were major drivers.
- Corporate/Other: Net income was $209 million, compared with a $143 million loss, reflecting higher investment-portfolio revenue and lower expenses, partly offset by mark-to-market losses.
- Reported company revenue benefited from the Philippines gain compared with the Australia loss in the prior-year period. Excluding those divestiture effects, revenue declined 1%.
Outlook, risks, and unusual items
- Citi expected expenses to remain higher for the rest of 2022, reflecting transformation and control investments, business investment, inflation, and other costs. Management cited approximately 25% of transformation-program investments as technology-related.
- Citi expected investment banking revenues to continue reflecting weaker capital-markets and M&A activity. The filing provides no specific earnings or revenue guidance.
- Common share repurchases were paused as Citi built capital amid macroeconomic uncertainty and higher regulatory requirements. Citi returned $1.0 billion to common shareholders in Q3 through dividends; the quarterly dividend was $0.51 per share.
- The required Standardized CET1 ratio was 11.5% from October 1, 2022 and was scheduled to rise to 12.0% on January 1, 2023. Citi’s Q3 ratio exceeded the October requirement, but management said capital needs and uncertainty informed the repurchase pause.
- Consumer exits continued. The Australia and Philippines sales closed in 2022; Thailand and Malaysia closed November 1, after quarter-end. Other transactions remained subject to approvals and closing conditions. Citi was also winding down its Korea and Russia consumer businesses and exiting Mexico consumer/SBMM.
- Russia exposure totaled $7.9 billion, including $4.6 billion of country-risk exposure; a loss of control of the Russian subsidiary could require a $1.3 billion investment write-off, a $1.0 billion pretax currency-translation loss, and a $0.3 billion loss on intercompany liabilities. Citi estimated approximately $170 million of Russia consumer/local commercial wind-down costs and approximately $100 million for ending nearly all institutional banking services; a post-quarter loan-portfolio sale was expected to incur an additional approximately $35 million loss.
- Macroeconomic risks included elevated inflation and rates, recession risk, market volatility, the Ukraine war, supply-chain disruptions, and China economic and property-sector stress. Citi also cited foreign-exchange, credit, funding, cyber, operational, regulatory, and consent-order remediation risks.
- Citi disclosed approximately $1.2 billion of reasonably possible unaccrued losses across litigation, regulatory, tax, and other matters. In September, it paid $125 million to the SEC and $75 million to the CFTC to resolve record-keeping matters involving unapproved messaging channels.
- Net income was affected by unusual items, including a $535 million Asia Consumer goodwill impairment in Q1, foreign-currency translation losses, and divestiture gains, losses, and costs. The Banking reporting unit had no goodwill impairment in Q3, but its estimated fair value was 106% of carrying value, leaving sensitivity to future assumptions.
Important facts for investors to verify
- How much of reported earnings and revenue reflects divestiture gains, exit costs, and other unusual items, and what earnings level remains after those effects?
- Whether credit costs, card delinquencies, and allowance builds continue to rise as loan growth and economic conditions evolve.
- Whether CET1 remains comfortably above the higher regulatory requirement, and when Citi may resume share repurchases.
- Whether planned business exits close on schedule and within expected costs, particularly in Asia, Mexico, and Russia.
- How transformation spending, consent-order remediation, and the disclosed litigation and regulatory exposures affect future expenses and results.
- How to interpret negative operating cash flow in the context of bank balance-sheet movements, alongside funding trends and liquidity measures.