Citigroup (NYSE:C) reported first-quarter financial results on Tuesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Access the full call at https://www.veracast.com/webcasts/citigroup/webinars/CITI1Q26.cfm
Summary
Citigroup reported a strong first quarter with net income of $5.8 billion, EPS of $3.06, and an ROTC of 13.1% on $24.6 billion of revenues, reflecting a 14% increase in total revenues driven by business growth and FX impact.
The company emphasized strategic initiatives focused on client-led growth, productivity improvements, and disciplined capital deployment, alongside a commitment to organic growth and leveraging AI for operational efficiency.
Management expressed confidence in meeting the 10-11% ROTC target for the year, despite economic uncertainties, and highlighted significant progress in their transformation program, with 90% of initiatives reaching target stage.
Full Transcript
Jane
Second, I’m excited about the opportunity to help deliver significant return improvement over time by driving client led growth, continuously pursuing productivity improvement, and deploying capital to accretive return opportunities. Finally, I’m highly energized by our relentless focus on execution. I see how each of our businesses and teams operate with urgency focused on driving performance every single day and my role will be to ensure we are strategically purposeful and tactically disciplined in resource allocation. We are firmly in execution mode and I feel it is time to continue to elevate Citi and leave an indelible mark on a 200 year plus iconic firm. With that, let me remind you that on April 3rd we published a recasted historical financial supplement for our reportable business segments to facilitate comparability with the results this quarter and going forward. Additionally, the results for the segments this quarter reflect the TCE allocations for this year and we’ve included additional details on this in the appendix of the earnings presentation. Now turning to the quarter, I’ll start with the firmwide financial results focusing on year on year comparisons. Unless I indicate otherwise, then review the performance of our businesses in greater detail. On slide 6 we show financial results for the full firm which demonstrate the progress we’ve made and the momentum of our strategy. This quarter we reported net income of $5.8 billion and EPS of $3.06 and an ROTC of 13.1% on $24.6 billion of revenues, generating positive operating leverage for the firm and the majority of our five businesses. Total revenues were up 14% with growth driven by each of our businesses and legacy franchises as well as the impact of FX translation partially offset by a decline in corporate. Other Net interest income excluding markets which you can see on the bottom left side of the slide was up 7% driven by growth across all businesses and legacy franchises, partially offset by a decline in corporate. Other non interest revenues excluding markets were up 29% driven by growth across all businesses and all other and total market revenues were up 19%. Expenses of $14.3 billion were up 7% with an efficiency ratio of 58% which I’ll provide details on shortly. And cost of credit was $2.8 billion, primarily consisting of net credit losses in US cards as well as a firm wide net acl bill of $597 million. On slide 7 we show the expense and efficiency trend over the past five quarters. As I just mentioned, expenses increased 7% and you can see on the bottom of the slide we incurred nearly $500 million of severance and as we target efficiencies across our expense base and bring down headcount. Excluding severance, the increase in expenses was 4% primarily driven by FX as well as volume and revenue related expenses including compensation and transactional and product servicing expenses partially offset by lower legal expenses. As you can see on the bottom right side of the slide, in addition to severance, growth in compensation and benefits included investments we’ve made to support growth in the businesses as well as performance related expenses partially offset by productivity saves, stranded cost reduction and lower transformation expenses in corporate other and it is worth noting that this expense increase was against 14% revenue growth resulting in an improvement in our efficiency ratio of approximately 400 basis points. On slide 8 we show us cards and corporate credit metrics. As I mentioned, the firm’s cost of credit was $2.8 billion primarily consisting of net credit losses in US cards as well as a firm wide net ACL bill. Embedded in the firm wide net ACL bill is a farther skew to the downside scenario reflecting the increased uncertainty in the macroeconomic outlook and our reserves now incorporate an 8 quarter weighted average unemployment rate of approximately 5.4% which continues to include a downside scenario average unemployment rate of nearly 7%. At the end of the quarter we had nearly $22 billion in total reserves with a reserve to funded loans ratio of 2.6%. We continue to maintain a high credit quality card portfolio with approximately 85% of balances extended to consumers with FICO scores of 660 or higher and a reserve to funded loan ratio in our US card portfolio of 8%. Looking at the right hand side of the slide you can see that our Corporate exposure is 78% investment grade and in the quarter corporate nonaccrual loans as well as corporate net credit losses remained low. We are confident in the high quality nature of our portfolios which reflect our robust risk appetite framework, rigorous client selection and our focus on using the balance sheet in the context of the overall client relationship. And this quarter we included a slide in the appendix of the presentation that shows Citibank’s loan to non bank financial institutions including $22 billion of corporate private credit which is 100% securitized, 98% investment grade and not a significant component of our overall exposure. Turning to capital and the balance sheet on slide 9 where I will speak to sequential variances, our total assets of $2.8 trillion increased 5% driven by growth in trading related assets, cash and loans. Net end of period loans increased 1% with client driven growth in banking and markets, partially offset by a seasonal decline in U.S. cards. Our $1.4 trillion deposit base remains well diversified and increased 3% driven by growth in services as we continue to deepen with clients with a focus on high quality operating deposits. We reported a 114% average LCR and maintained over $1 trillion of available liquidity resources in the first quarter.. We continued to deploy capital to support client driven growth while at the same time prioritizing the return of capital to common shareholders as evidenced by the $6.3 billion in buybacks executed which includes the benefit from the sale of the remaining operations in Russia. We ended the quarter at 12.7% CET1 ratio under the binding standardized approach, approximately 110 basis points above the 11.6% regulatory capital requirement including a 100 basis points management buffer. Turning to the businesses on Slide 10, we show the results for services in the first quarter revenues were up 17% with the best first quarter in a decade driven by growth across both Treasury and Trade Solutions (TTS) and security services. NII increased 18% driven by higher average deposit balances and deposit spreads. NIR increased 15% as we continue to see strong activity and engagement with both corporate and commercial clients and across key high growth segments including E Commerce and fintech. Driving momentum across underlying fee drivers with cross border transaction value up 12% and assets under custody and administration up 21% which includes the impact of the market valuations as well as new assets. Onboarded expenses increased 14%, primarily driven by higher volume and revenue related expenses, higher compensation as well as higher technology costs. Average loans increased 14% largely driven by export agency finance and working capital loans. Average deposits increased 16% with growth across both North America and international largely driven by an increase in operating deposits. As we continue to deepen relationships with existing clients and onboard new clients. Services generated positive operating leverage and delivered net income of $2.2 billion with an ROTCE of 27%. Turning to markets on slide 11 markets had its best quarter in over a decade with revenues up 19% driven by growth in both fixed income and equities. With strong momentum across client segments including corporates, asset managers, hedge funds and banks. Fixed income revenues were up 13% with growth across spread products and other fixed income as well as rates and currencies. Rates and currencies was up 6% driven by effects on higher volumes and optimization of the balance sheet largely offset by rates and spread. Products and other fixed income was up 27% primarily driven by strong growth in commodities equities. Revenues were up 39% driven by continued momentum across derivatives and prime services and cash. We grew prime balances by more than 50% with growth across both new and existing clients as well as higher market valuations. Expenses increased 11% primarily driven by higher performance related compensation as well as higher volume related and legal expenses. Average loans increased 27% primarily driven by financing activity in spread products. Markets generated positive operating leverage and delivered net income of $2.6 billion with an ROTCE of 18.7%. Turning to banking on slide 12, revenues were up 15% driven by investment banking and corporate lending. Investment banking fees increased 12% driven by growth in MA and ECM partially offset by a decline in DCM. M&A was up 19% and represented our strongest first quarter in a decade with continued growth in sell side fees and strong performance with sponsors. DCM was up 64% reflecting growth in follow ons and convertibles against the backdrop of an active market and while DCM fees were down 6% amid lower non investment grade activity, we maintained our Overall market share versus year end 2023. Corporate lending revenues excluding mark to market on loan hedges declined 3%. Expenses increased 20% primarily driven by higher compensation and benefits reflecting performance and investments and higher volume related transaction expenses. Cost of credit was $132 million consisting of a net ACL build of $126 million reflecting the increased uncertainty in the macroeconomic outlook and exposure growth largely offset by refinements to loss assumptions. We continue to feel good about the high quality nature of our corporate lending portfolio with nonaccrual loans and net credit losses remaining low. Banking delivered net income of $304 million with an ROTCE of 15.8%. Turning to wealth on slide 13, revenues were up 11% driven by growth in Citigold and retail banking as well as the private bank, partially offset by a decline in wealth at work. NII which you can see on the bottom left side of the slide, increased 14% driven by higher deposit spreads and average balances partially offset by lower mortgage spreads. NIR increased 5% driven by 11% higher investment fee revenues partially offset by the sale of the trust business. Net new investment asset flows were approximately $15 billion in the quarter, contributing to approximately $43 billion in the last 12 months representing approximately 7% organic growth. This contributed to Klein investment assets being up 14% which also includes the impact of market valuations and was partially offset by the sale of the trust business assets. Expenses increased 1% driven by investments in technology and higher volume related expenses partially offset by lower compensation and benefits including the impact of the sale of the trust. Business average loans were up 6% as we continue to grow securities based lending and deploy balance sheet to support clients and drive client investment. Asset Growth average deposits were up 4% largely in the private bank as net new deposits were partially offset by outflows and a shift from deposits to higher yielding investments. Including on Citi’s platform Wealth had a pretax margin of 18%, generated positive operating leverage and delivered net income of $432 million with an ROTCE of 10.8%. We remain confident in the path to higher returns from here as we continue integrating our retail banking business within wealth and building on its improved performance this quarter. Turning to US consumer cards on slide 14 as we’ve said in the past, customer preferences have continued to shift toward general purpose cards and as such we’ve provided disclosures for this segment to show metrics split between our general purpose and private label portfolios. This quarter revenues were up 4% driven by growth across both NII and NIR. NII was up 3% driven by higher interest earning balances and spreads and NIR was up 14%, driven by lower partner payment accruals and higher annual fees. We saw momentum in underlying drivers supported by growth in general purpose cards with acquisitions up 12%, spend volume up 6% and average loans up 4%, partially offset by declines in private label cards. Expenses increased 1%. Cost of credit was $2.1 billion consisting of $1.7 billion of net credit losses which declined 11% as well as a net ACL bill of $350 million reflecting seasonal portfolio mix changes, the forward purchase commitment of the Barclays American Airlines Co branded card portfolio and as well as increased uncertainty in the macroeconomic environment. This was largely offset by lower seasonal volumes and refinements to loss assumptions. US Cards generated positive operating leverage and delivered net income of $732 million with an ROTCE of 19.2%. Turning to slide 15, we show results for All Other on a managed basis which includes corporate other and legacy franchises and excludes divestiture related Items. Revenues were up 15% driven by growth in legacy franchises largely offset by a decline in corporate other. Growth in legacy franchises was driven by Mexico Consumer which included the impact of Mexican peso appreciation momentum in underlying business drivers and a gain on the sale of an investment, partially offset by the impact of continued reduction from our close exit and wind down markets. The decline in corporate other was driven by lower NII which included a lower benefit from cash and securities reinvestment resulting from actions taken to reduce Citi’s asset sensitivity in a lower interest rate environment, partially offset by higher nir expenses were down 4%, driven by lower legal and transformation expenses as well as expenses related to close exits and wind downs and professional services expenses. This was primarily offset by higher severance and the impact of FX translation. Cost of credit was $400 million, primarily consisting of net credit losses of $371 million driven by loans in Mexico to close. We’ve included Our full year 2026 outlook on slide 16. While there remains a lot of uncertainty at this point, our overall expectations are unchanged subject to macro and market conditions. Expect NII EX markets up approximately 5 to 6%. NIR excluding markets growth driven by momentum in services, banking and wealth and an efficiency ratio of around 60%. In terms of credit, we expect a total US credit cards NCL rate of between 4 and 4.5%, which is lower than the aggregate of the expectations that we provided previously for branded cards and retail services, reflecting the delinquency trends and loss performance we’ve seen year to date and the ACL will continue to be a function of the macroeconomic environment and business volumes. Additionally, we remain well positioned to return capital to shareholders and plan to provide more detail on our expectations for share repurchases going forward at our Investor Day in May. As we take a step back, the results in the first quarter represent significant progress towards our goal of improved firm wide and business performance. We remain steadfast and focused on executing our transformation and confident in delivering our ROTC target of 10 to 11% this year. And we look forward to laying out the path to delivering higher returns beyond that at Investor Day. With that, Jane and I would be glad to take your questions.
Operator (Moderator)
At this time we will open the floor for questions. If you’d like to ask a question please press Star five on your telephone keypad. You may remove yourself at any time by pressing 5 again. Please note you’ll be allowed one question and one follow up question again that is star 5 to ask questions and we’ll pause for just a moment. Okay, our first question will come from Glenn Shore with Evercore isi. Your line is now open. Please go ahead.
Glenn Shore (Analyst)
Hi, thanks very much. I wonder if we could get the great trading and banking results. I want to talk about services if we could. One is if you could give any color on the $4 trillion win on the BlackRock Middle Office Servicing ETF platform or portfolio and then two maybe bigger picture. Talk about what you think maybe I and the rest of us could be underappreciating in terms of the growth outlook in services, including tokenization as a good thing as opposed to maybe the threat that people might think it is.
Jane
Yeah, Glenn, good to hear from you. Look, services, exceptional performance this quarter comes from successfully executing the strategy that Shamir and his team precisely outlined at our investor day two years ago and then going beyond it. We’ve told everyone this is a through the cycle business which consistently delivers strong returns in a range of environments. And this quarter the team did just that. Revenue’s up 17%, deposits up 16%, fees up 14%, returns at 27%. This is firing on all cylinders, but part of your question why is this business growing so much? So the growth is coming from deepening with existing clients, new client acquisition and new product innovations. Our investments over the last few years I think are best demonstrated by the 40% growth in new client mandates. We have a very high retention of existing client business and we have what can only be described as exceptional win rates. We are the leading franchise not only in share but in innovation and you’re seeing momentum across the board. For example, as you point out in digital assets we are leading in tokenization. We’ve been investing in this for many years. I’ve talked about it on many of the recent calls on this. This is a benefit for us in driving and meeting more of our client needs in an always on world. In an instant world. You’re seeing us in real time payments where we are doing a lot of business with the global e commerce juggernaut. And as you say in security services. We laid out a strateg of growing share with North American asset managers, ETF and in other spaces. And frankly, BlackRock is the most notable win we’ve had. It is far from the only. And we’re also benefiting from our focus on fee generation which continues to make over 30% of our revenues across different macro environments. So there’s a reason we call services our crown jewel. It is an incredibly durable while our offerings are deeply embedded in our client operations, that creates lasting relationships and stable deposits. There is always a flight to quality when there are things going on in the world and we are quality.
Glenn Shore (Analyst)
Maybe we could just follow up With a lot going on in the world. There was some conversation about linking you to some interest in being a bigger retail bank in the States, watching you fold the business into wealth and tweaking the strategy. I know that lack of low cost deposits has been a thing in limiting your profitability in the Past, but you seem to be getting by now without that. I wonder if you could just comment in terms of just aspirations or not on that front. Thanks.
Jane
Let me kick off. I want to be crystal clear. We are only interested in and focused on organic growth, period. End of story for the whole firm. We have achieved a lot in the last five years. We have a lot more to do and there is a large organic growth opportunity ahead of us across all five of our businesses and that is what we are focused on and we are excited about it. So I would say, Glenn, and for everyone listening on the call, if you walk away from this call thinking of nothing else, let it be this. Citi has a lot of momentum and we’re not going to be distracted from it. Now let’s turn to the question about the retail bank and what are we looking at there? The retail branch network, it’s 650 branches. The deposit base that we have across wealth and the retail bank in the US is about $284 billion. The footprint is a targeted one. It’s in …
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