Citigroup : Reports Second Quarter 2014 Earnings per Share of $0.03; $1.24 Excluding CVA/DVA and Impact of Mortgage Settlement

New York - Citigroup Inc. today reported net income for the second quarter 2014 of $181 million, or $0.03 per diluted share, on revenues of $19.3 billion. This compared to net income of $4.2 billion, or $1.34 per diluted share, on revenues of $20.5 billion for the second quarter 2013. Second quarter 2014 results included the impact of a $3.8 billion charge ($3.7 billion after-tax) to settle RMBS and CDO-related claims, which consisted of $3.7 billion in legal expenses and a $55 million loan loss reserve build, each recorded in Citi Holdings.

CVA/DVA was negative $33 million (negative $20 million after-tax) in the second quarter 2014, compared to positive $477 million ($293 million after-tax) in the prior year period. Excluding CVA/DVA in both periods, second quarter revenues of $19.4 billion declined 3% from the prior year period. Excluding CVA/DVA and the impact of the mortgage settlement in the second quarter 2014, earnings were $1.24 per diluted share, a 1% decline from prior year earnings of $1.25 per diluted share.

Michael Corbat, Chief Executive Officer of Citi, said, "Our businesses showed resilience in the face of an uneven economic environment. During the quarter, we continued to grow loans in our core businesses, reduce operating expenses by simplifying our products and processes and utilize our deferred tax assets. Despite the significant impact of today's settlement on our net income, our capital position strengthened to an estimated Tier 1 Common ratio of 10.6% on a Basel III basis, and our tangible book value increased."

Read the full press release with tables.

Citigroup
Citigroup revenues of $19.3 billion in the second quarter 2014 declined 6% from the prior year period. Excluding CVA/DVA, revenues of $19.4 declined 3% from the prior year period. This decrease was driven by a 5% decline in Citicorp revenues, primarily due to a decline in Fixed Income Markets revenues in Institutional Clients Group (ICG) and lower U.S. mortgage refinancing activity in North America Global Consumer Banking (GCB), partially offset by higher Citi Holdings revenues.

Citigroup's net income declined to $181 million in the second quarter 2014 from $4.2 billion in the prior year period. Excluding CVA/DVA and the impact of the mortgage settlement, Citigroup net income of $3.9 billion increased 1% versus the prior year period driven by lower operating expenses and a decline in credit costs, partially offset by lower revenues. Operating expenses were $15.5 billion in the second quarter 2014, compared to $12.1 billion in the prior year period. Excluding the impact of the mortgage settlement, operating expenses were $11.8 billion in the second quarter 2014, 3% lower than the prior year period, driven by continued efficiency savings, the overall decline in Citi Holdings assets and lower legal expenses, partially offset by higher regulatory and compliance costs and higher repositioning expenses. Excluding the impact of the mortgage settlement, operating expenses in the second quarter 2014 included legal and related expenses of $402 million, compared to $832 million in the prior year period, and $397 million of repositioning charges, compared to $75 million in the prior year period. Excluding the impact of the mortgage settlement, Citigroup's cost of credit in the second quarter 2014 was $1.7 billion, a decrease of 17% from the prior year period, primarily reflecting a $419 million improvement in net credit losses. Excluding CVA/DVA and the impact of the mortgage settlement, Citi's effective tax rate was 33% in both the current quarter and prior year period.

Citigroup's allowance for loan losses was $17.9 billion at quarter end, or 2.70% of total loans, compared to $21.6 billion, or 3.38% of total loans, at the end of the prior year period. Excluding the impact of the mortgage settlement, the $696 million net release of loan loss reserves in the current quarter compared to a $784 million release in the prior year period. Citigroup asset quality continued to improve as total non-accrual assets fell to $8.3 billion, an 18% reduction compared to the second quarter 2013. Corporate non-accrual loans declined 43% to $1.2 billion, while consumer non-accrual loans declined 12% to $6.7 billion.

Citigroup's capital levels and book value per share increased versus the prior year period. As of quarter end, book value per share was $66.76 and tangible book value per share was $56.89, 6% and 7% increases, respectively, versus the prior year period. At quarter end, Citigroup's estimated Basel III Tier 1 Common ratio was 10.6%, up from 10.0% in the prior year period, largely driven by earnings and the utilization of deferred tax assets (DTA). Citigroup utilized approximately $1.1 billion of DTA in the second quarter 2014 and $2.2 billion year-to-date 2014. Citigroup's estimated Basel III Supplementary Leverage ratio for the second quarter 2014 was 5.7%, up from 4.9% in the prior year period.

Citicorp
Citicorp revenues of $17.9 billion in the second quarter 2014 declined 8% from the prior year period. CVA/DVA, reported within ICG, was negative $32 million in the second quarter 2014 (negative $20 million after-tax), compared to positive $462 million ($284 million after-tax) in the prior year period. Excluding CVA/DVA, revenues were down 5% from the second quarter 2013, reflecting declines in both GCB and ICG revenues of 3% and 7%, respectively. Corporate/Other revenues were $35 million versus $114 million in the prior year period.

Citicorp net income decreased 23% from the prior year period to $3.7 billion. Excluding CVA/DVA, net income declined 18% compared to the prior year period, as lower revenues and higher expenses were partially offset by an improvement in credit.

Citicorp operating expenses increased 4% from the prior year period to $11.0 billion primarily reflecting higher legal and related and repositioning charges as well as higher regulatory and compliance costs, partially offset by efficiency savings.

Citicorp cost of credit of $1.4 billion in the second quarter 2014 declined 12% from the prior year period. The decline reflected both a 3% decline in net credit losses as well as a higher net loan loss reserve release, which increased 42% versus the prior year period. Citicorp's consumer loans 90+ days delinquent increased 6% from the prior year period to $2.8 billion, but the 90+ days delinquency ratio remained roughly stable at 0.93% of loans.

Citicorp end of period loans grew 8% versus the prior year period to $585 billion, with 9% growth in corporate loans to $283 billion and 7% growth in consumer loans to $303 billion. The growth in consumer loans included the impact of the acquisition of Best Buy's U.S. credit card portfolio in the third quarter 2013.

Global Consumer Banking
GCB revenues of $9.4 billion declined 3% from the prior year period, as lower U.S. mortgage refinancing activity, regulatory changes, repositioning actions in certain markets and the continued impact of spread compression globally more than offset the impact of the Best Buy portfolio acquisition and ongoing volume growth in most international businesses.

GCB net income declined 14% versus the prior year period to $1.6 billion, reflecting the decline in revenues and higher operating expenses, partially offset by a lower cost of credit. Operating expenses increased 3% versus the prior year period, reflecting higher repositioning charges in Korea and the impact of the Best Buy portfolio acquisition, partially offset by ongoing cost reduction initiatives.

North America GCB revenues declined 5% to $4.8 billion versus the prior year period driven by lower retail banking revenues, partially offset by higher Citi-branded card and retail services revenues. Retail banking revenues declined 26% to $1.2 billion from the second quarter 2013, primarily reflecting the lower U.S. mortgage refinancing activity, partially offset by revenue increases attributable to 4% growth in average deposits and 11% growth in average loans. Citi-branded cards revenues of $2.0 billion were up 3% versus last year, as purchase sales grew and lower average loans were partially offset by an improvement in spreads driven by a reduction in promotional rate balances. Citi retail services revenues increased 7% to $1.6 billion, mainly reflecting the impact of the Best Buy portfolio acquisition.

North America GCB net income was $1.1 billion, broadly flat versus the second quarter 2013, as the decline in revenues was offset by lower operating expenses, a decline in net credit losses and higher loan loss reserve releases. Operating expenses declined by 4% versus the prior year period to $2.3 billion, reflecting ongoing cost reduction initiatives, partially offset by the impact of the Best Buy portfolio acquisition.

North America GCB credit quality continued to improve as net credit losses of $1.1 billion decreased 10% versus the prior year period. Net credit losses improved in Citi-branded cards (down 14% to $570 million) and in Citi retail services (down 3% to $465 million) versus the prior year period. Delinquency rates improved in Citi-branded cards and Citi retail services versus the prior year period and ended the quarter at close to historically low levels. The reserve release in the second quarter 2014 was $396 million, $45 million higher than in the second quarter 2013.

International GCB revenues declined 1% versus the second quarter 2013 to $4.6 billion on a reported basis. On a constant dollar basis,7 international GCB revenues were up 1% versus the second quarter 2013 as growth in Latin America offset declines in Asia and EMEA. In constant dollars, revenues in Latin America increased 3% to $2.3 billion as volume growth more than offset spread compression. In Asia, revenues decreased by 2% to $1.9 billion primarily due to the ongoing impact of regulatory changes as well as continued franchise repositioning in Korea and lower investment sales revenues reflecting weaker investor sentiment, partially offset by volume growth. In EMEA, revenues declined 1% in constant dollars to $359 million, primarily due to the previously-announced market exits in 2013.

International GCB net income declined 33% from the prior year period to $521 million on a reported basis and declined 30% in constant dollars. On a constant dollar basis, higher expenses and higher credit costs more than offset the higher revenues. Operating expenses in the second quarter 2014 increased 12% in constant dollars (increased 10% on a reported basis) driven by higher repositioning charges in Korea, partially offset by efficiency savings, while credit costs increased 10% versus the prior year (increased 8% on a reported basis) mostly driven by portfolio growth and seasoning in Latin America.

International GCB credit quality reflected portfolio seasoning as well as the ongoing impact of fiscal reforms and slower economic growth in Mexico. On a reported basis, net credit losses rose 19% to $711 million, primarily reflecting the impact of portfolio growth as well as portfolio seasoning in Latin America. The international net credit loss rate was 1.97% of average loans in the second quarter 2014, compared to 1.74% in the prior year period.

Institutional Clients Group
ICG revenues declined 11% from the prior year period to $8.5 billion. Excluding the impact of CVA/DVA, revenues were $8.5 billion, 7% lower than the prior year period, primarily reflecting a decline in Fixed Income Markets and Equity Markets revenues, partially offset by higher Investment Banking revenues.

Banking revenues of $4.5 billion increased 6% from the prior year period, primarily reflecting growth in Investment Banking revenues. Investment Banking revenues increased 16% versus the prior year period, driven by a 17% increase in debt underwriting revenues to $748 million and a 31% increase in equity underwriting revenues to $397 million, partially offset by a 10% decline in advisory revenues to $193 million. Private Bank revenues increased 2% to $656 million from the prior year period as growth in client volumes was partially offset by the impact of spread compression. Corporate Lending revenues rose 12% versus the prior year period to $454 million primarily reflecting growth in average loans. Treasury and Trade Solutions (TTS) revenues were flat versus the prior year period. Excluding a one-time gain of $50 million in the prior year, TTS revenues were up 3% versus the prior year period as volume and fee growth more than offset the impact of spread compression globally.

Markets and Securities Services revenues of $4.1 billion (excluding negative $31 million of CVA/DVA, versus positive $461 million in the second quarter 2013) declined 16% from the prior year period. Fixed Income Markets revenues of $3.0 billion in the second quarter 2014 (excluding negative $36 million of CVA/DVA) declined 12% from the prior year period reflecting historically low volatility and continued macro uncertainty, which led to lower market volumes, as well as the impact of gains in the prior year period. Equity Markets revenues of $659 million (excluding positive $4 million of CVA/DVA) were down 26% versus the prior year period, reflecting lower client activity and weak trading performance in EMEA. Securities Services revenues were roughly flat versus the prior year period as higher client activity was offset by a reduction in high margin deposits.

ICG net income was $2.5 billion in the second quarter 2014. Excluding CVA/DVA, net income of $2.6 billion declined 9% from the prior year period, primarily reflecting the decline in revenues, partially offset by a decline in operating expenses and improved credit costs. Operating expenses declined 2% to $4.9 billion driven by lower incentive compensation, partially offset by higher regulatory and compliance costs and legal and related expenses.

ICG average loans grew 10% versus the prior year period to $279 billion while deposits increased 8% to $577 billion.

Citi Holdings
Citi Holdings revenues in the second quarter 2014 increased 33% versus the prior year period to $1.5 billion. Revenues in the second quarter 2014 included CVA/DVA of negative $1 million compared to positive $15 million in the prior year period. Excluding CVA/DVA, Citi Holdings revenues increased 35% to $1.5 billion primarily driven by the absence of repurchase reserve builds for representation and warranty claims in the current quarter, a higher level of gains on asset sales compared to the prior year and lower funding costs. As of the end of the quarter, total Citi Holdings assets were $111 billion, 15% below the prior year period, and represented approximately 6% of total Citigroup assets.

Citi Holdings net loss was $3.5 billion in the second quarter 2014, compared to a net loss of $582 million in the prior year. Excluding the impact of the mortgage settlement in the second quarter 2014, Citi Holdings net income was $244 million, reflecting higher revenues, lower operating expenses and lower credit costs. Excluding the impact of the mortgage settlement, operating expenses in the second quarter 2014 declined 51% from the prior year period, principally reflecting lower legal and related costs ($15 million in the second quarter 2014, compared to $705 million in the prior year period) as well as the ongoing decline in Citi Holdings assets. Net credit losses decreased 48% or $371 million from the prior year period, primarily driven by improvements in the North America mortgage portfolio.

Citi Holdings allowance for credit losses was $5.4 billion at the end of the second quarter 2014, or 6.57% of loans, compared to $8.2 billion, or 8.15% of loans, in the prior year period. 90+ days delinquent consumer loans in Citi Holdings decreased 22% to $2.5 billion, or 3.32% of loans.

Citigroup will host a conference call today at 10 a.m. (EDT). A live webcast of the presentation, as well as financial results and presentation materials, will be available at http://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 54126232.