Citigroup Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Citi operates through Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), Legacy Franchises, and Corporate/Other. The filing was signed May 5, 2023.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net revenue | $21.447 billion | Up 12%; up 6% excluding divestiture-related impacts |
| Net interest income | $13.348 billion | Up 23% |
| Non-interest revenue | $8.099 billion | Down 3% |
| Operating expenses | $13.289 billion | Up 1%; up 5% excluding divestiture-related costs |
| Provisions for credit losses and benefits/claims | $1.975 billion | Compared with $755 million |
| Net income attributable to Citi | $4.606 billion | Up 7% |
| Diluted EPS | $2.19 | Up 8% |
| Efficiency ratio | 62.0% | 68.6% |
| Net interest margin | 2.41% | 2.05% on a taxable-equivalent basis |
Q1 2023 included $953 million of pretax divestiture-related gains net of costs, primarily the India consumer-banking sale, adding $0.33 to EPS; EPS excluding these impacts was $1.86. Q1 2022 included $677 million of pretax divestiture-related losses; EPS excluding those impacts was $2.32. Citi attributed underlying revenue growth mainly to higher net interest income, partly offset by lower non-interest revenue.
Credit. Net credit losses were $1.3 billion, up 49%, primarily reflecting normalization in U.S. cards. Citi recorded a $0.7 billion net build in the allowance for credit losses and other provisions, versus a $0.1 billion net release in Q1 2022. Total allowance for credit losses on loans and unfunded commitments was $19.1 billion at quarter-end, broadly unchanged from year-end. The loan allowance was 2.65% of loans, compared with 2.60% at December 31, 2022.
Cash flow. The cash flow statement reported $30.5 billion of cash used in operating activities, $3.1 billion used in investing activities, and $15.8 billion provided by financing activities. Cash, due from banks, and deposits with banks decreased by $18.1 billion during the quarter. These cash-flow movements should be read in the context of a large, transaction-driven bank balance sheet.
Balance sheet and funding. At March 31, total assets were $2.455 trillion; deposits were $1.330 trillion, down from $1.366 trillion at December 31, 2022; loans were $652.0 billion, down from $657.2 billion at year-end. Long-term debt was $279.7 billion, up from $271.6 billion at year-end and 10% above Q1 2022. Common stockholders’ equity was $188.1 billion. Book value per share was $96.59 and tangible book value per share was $84.21.
Liquidity and capital. Average high-quality liquid assets (HQLA) were $584.3 billion and the average liquidity coverage ratio (LCR) was 120%, with $96.1 billion of HQLA above modeled net outflows. Citi reported approximately $1.033 trillion of available liquidity resources at quarter-end. The Basel III Standardized Approach CET1 ratio was 13.44%, above the 12.0% requirement; the Supplementary Leverage ratio was 5.96%. Citi paid $1.0 billion in common dividends and paused common share repurchases. It issued $1.25 billion of preferred stock during the quarter.
Material changes and segment performance
- ICG: Revenue of $11.2 billion was up 1% and net income was $3.3 billion, up 23%. Services revenue grew 29%, while Markets declined 4% and Banking declined 38%, including adverse loan-hedge impacts. Investment banking revenue fell 25%.
- PBWM: Revenue of $6.4 billion rose 9%, but net income fell 74% to $489 million as credit costs and expenses increased. U.S. Personal Banking revenue grew 18%; Global Wealth revenue declined 9%, reflecting investment-product headwinds and deposit repricing.
- Legacy Franchises: Net income was $604 million versus a $383 million loss in Q1 2022. The improvement was chiefly driven by the India-sale gain and lower expenses, including the absence of the prior-year goodwill impairment.
- Corporate/Other: Revenue was $914 million versus $190 million, primarily from higher investment-portfolio net interest income. Results included a $111 million provision, largely related to an uninsured deposit at First Republic Bank.
Outlook, risks, contingencies, and unusual items
- Management expects higher expenses in 2023, reflecting transformation and risk/control investments, business volumes, and inflation. It also expects higher net credit losses, particularly as card losses normalize toward pre-pandemic levels.
- Citi completed the India and Vietnam consumer-banking sales in Q1 and continued other exits and wind-downs. Management cited approximately $210 million of estimated charges for the Russia wind-down, excluding portfolio-sale impacts. Remaining consumer-banking sales and wind-downs may entail execution risk and foreign-currency translation losses; Citi cautioned that some potential sale-related losses could be significant.
- Management identified inflation, higher interest rates, recession risk, market volatility and recent bank failures, the U.S. debt-limit uncertainty, and geopolitical tensions as factors that could adversely affect customers, funding costs and results. A potential FDIC special assessment following bank failures could increase expenses; the amount was not reasonably estimable.
- Citi disclosed a $5 billion uninsured deposit at First Republic Bank, assumed by JPMorgan Chase in its May 1, 2023 acquisition of certain First Republic assets and liabilities.
- At March 31, Citi estimated reasonably possible unaccrued losses for litigation, regulatory, tax and other contingencies of up to approximately $1.2 billion in aggregate. Management said the eventual outcome of disclosed matters was not likely to materially affect consolidated financial condition, but adverse outcomes could materially affect particular periods’ results or cash flows.
- Other notable exposures include $66 billion of commercial real estate credit exposure, including $8 billion related to office buildings; Citi said 86% of CRE exposure was investment grade. Russia exposure was $6.1 billion, including restricted funds held at Russia’s National Settlement Depository. Citi also highlighted Argentine currency-control and devaluation risks.
Most important facts for investors to verify
- How much of revenue and earnings growth persists after excluding the India-sale gain and other divestiture impacts.
- Whether card delinquencies, net credit losses and allowance builds continue to rise, and whether 2023 credit costs exceed management’s expectations.
- Deposit levels, pricing and mix, particularly Global Wealth deposit reallocations and institutional funding trends; also monitor LCR and available liquidity.
- Capital headroom and the timing and effects of remaining divestitures, including potential CTA losses and the resumption of share repurchases.
- Actual transformation spending, FDIC assessment costs, Russia wind-down charges, and developments in the disclosed legal and regulatory contingencies.