Citigroup Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are primarily with Q1 2020. Balance-sheet figures are as of March 31, 2021 unless otherwise noted. Amounts are U.S. dollars.
Financial performance
| Metric | Q1 2021 | Prior-year comparison |
|---|---|---|
| Revenue, net of interest expense | $19.3 billion | Down 7% |
| Net interest revenue | $10.2 billion | Down 12%; net interest margin was 1.95%, down 53 basis points |
| Non-interest revenue | $9.2 billion | Down 1% |
| Operating expenses | $11.1 billion | Up 4%; efficiency ratio rose to 57.3% from 51.3% |
| Provision for credit losses and benefits and claims | $2.1 billion benefit | Compared with a $7.0 billion expense |
| Net income attributable to Citigroup | $7.9 billion; diluted EPS $3.62 | Compared with $2.5 billion and $1.06 |
| Net credit losses | $1.7 billion | Down 15% |
| Return on average assets / common equity | 1.39% / 17.2% | 0.49% / 5.2% |
| Return on tangible common equity | 20.1% | 6.1%; non-GAAP measure |
| Cash flows from continuing operations | Operating $23.2 billion; investing $(40.9) billion; financing $33.3 billion | Operating $(25.5) billion; investing $(72.9) billion; financing $191.4 billion |
The large earnings improvement was primarily driven by a $3.9 billion net allowance for credit losses (ACL) release, reflecting an improved macroeconomic outlook and lower loan balances. Credit-loss provisions were a benefit even as net credit losses continued.
Balance sheet, capital and liquidity
- Total assets were $2.314 trillion, compared with $2.260 trillion at December 31, 2020 and $2.220 trillion a year earlier.
- Deposits were $1.301 trillion, up 10% year over year; loans were $666 billion, down 8%. Excluding foreign-exchange translation, deposits rose 7% and loans fell 10% year over year.
- Long-term debt was $256.3 billion, down from $271.7 billion a year earlier and $271.7 billion at year-end 2020. Short-term borrowings were $32.1 billion.
- Common Equity Tier 1 ratio was 11.78% under the Advanced Approaches framework, versus 11.11% a year earlier. The Supplementary Leverage Ratio was 6.96%; temporary regulatory relief added approximately 100 basis points and expired March 31, 2021.
- Average high-quality liquid assets were $534.8 billion and the average Liquidity Coverage Ratio was 115%, down from 118% in Q4 2020. Citi reported approximately $957 billion of available liquidity resources.
- Book value per common share was $88.18 and tangible book value per share was $75.50; both increased 5% year over year.
Material changes and business trends
- Global Consumer Banking: Revenue fell 14% to $7.0 billion, while net income was $2.2 billion versus a $740 million loss. Lower card balances, payment rates, reduced activity and low interest rates weighed on revenue; reserve releases supported earnings.
- Institutional Clients Group: Revenue declined 2% to $12.2 billion, while net income rose 64% to $5.9 billion. Investment banking revenue increased 46% and equity markets revenue increased 26%; loan-hedge results were a $81 million loss versus an $816 million gain in Q1 2020. Excluding loan-hedge results, Banking revenue increased 9%.
- Corporate/Other: Net loss narrowed to $170 million from $351 million, mainly due to lower credit costs.
- Citi repurchased $1.6 billion of common stock and paid $1.1 billion in common dividends during the quarter, returning $2.7 billion to common shareholders in total.
Outlook, management commentary and risks
- Citi announced a strategy to focus consumer banking in Asia and EMEA on Singapore, Hong Kong, the UAE and London, and to pursue exits from consumer franchises in 13 other markets. No definitive sale transactions for those exits existed as of March 31, 2021.
- Management said markets and investment banking revenue will likely continue to reflect the overall market environment in the near term. The filing does not provide company-wide earnings or revenue guidance.
- Citi continued transformation investments, including risk, control, technology and data infrastructure. The Federal Reserve and OCC consent orders remain significant compliance priorities; Citi intended to submit its complete plan to both regulators by Q3 2021.
- COVID-19 effects, the pace of economic recovery, the end of government assistance, consumer credit trends, interest rates, market volatility and the execution of strategic exits remain important uncertainties. Credit losses increased in Mexico and Asia as relief programs expired and pandemic-related economic pressure continued.
- At March 31, the reasonably possible unaccrued loss for litigation, regulatory, tax and other matters was estimated at up to approximately $1.4 billion. Management said the eventual outcome of disclosed matters was not expected to materially affect consolidated financial condition, but adverse outcomes could materially affect results or cash flows in a particular period.
- Other notable exposures include Argentina’s currency controls and limited hedging liquidity, potential funding and collateral costs from ratings downgrades, and the end of temporary Supplementary Leverage Ratio relief. Citi estimated that a one-notch downgrade of Citigroup and Citibank across the three major rating agencies could create approximately $1.9 billion of additional aggregate cash obligations and collateral requirements.
Key facts for investors to verify
- How much of the $7.9 billion profit reflects recurring operating performance versus the $3.9 billion ACL release, and how reserve assumptions change as stimulus and relief programs end.
- Whether loan and card volumes recover, and whether deposit growth can offset low interest rates and pressure on net interest margin.
- Progress, timing, costs and potential losses associated with the planned exits from 13 consumer markets in Asia and EMEA.
- Capital and liquidity ratios after the expiry of temporary leverage relief, and the effect of future regulatory capital requirements on dividends and repurchases.
- Developments in the consent-order remediation plan, legal and regulatory matters, and the estimated unaccrued loss exposure.