Mark Mason
Chief Financial Officer at Citigroup
Thanks, Jane, and good morning, everyone. I'm going to start with the firm wide financial results focusing on our year-over-year comparisons for the first quarter, unless I indicate otherwise and then spend a little more time on the businesses.
On Slide 6, we show financial results for the full firm. In the first quarter, we reported net income of approximately $3.4 billion, EPS of $1.58, and an RoTCE of 7.6% on $21.1 billion of revenues. Total revenues were down 2% on a reported basis. Excluding divestiture-related impacts, largely consisting of the $1 billion gain from the sale of the India Consumer business in the prior year, revenues were up more than 3% driven by growth across Banking, USPB and Services, partially offset by declines in Markets and Wealth.
Expenses were $14.2 billion, up 7% on a reported basis. Excluding divestiture-related impacts and the incremental FDIC special assessment, expenses were up 5%. Cost of credit was approximately $2.4 billion, primarily driven by higher card net credit losses, which were partially offset by ACL releases in Wealth, Banking and Legacy Franchise. At the end of the quarter, we had nearly $22 billion in total reserves with a reserve to funded loan ratio of approximately 2.8%.
On Slide 7, we show the expense trend over the past five quarters. We reported expenses of $14.2 billion, which included the incremental FDIC special assessment of roughly $250 million. Also included in this number are $225 million of restructuring charges largely related to the organizational simplification. In total, we've incurred approximately $1 billion of restructuring costs over the last two quarters.
As part of these actions, we expect approximately $1.5 billion of annualized run rate saves over the medium term related to a headcount reduction of approximately 7,000. In addition to the restructuring, we took approximately $260 million of repositioning costs, largely related to our efficiency efforts across the firm, including the reduction of stranded costs associated with the consumer divestitures.
The expected savings from these actions will allow us to continue to fund additional investments in the transformation this year. And relative to the prior year, the remainder of the expense growth was largely driven by inflation and volume-related expenses, partially offset by productivity savings. In the remainder of the year, we expect a more normalized level of repositioning, which is already embedded in our guidance. Therefore, you can expect our quarterly expense trend to go down from here, in line with our $53.5 billion to $53.8 billion ex-FDIC expense guidance.
On Slide 8, we show net interest income, deposits, and loans where I'll speak to sequential variances. In the first quarter, net interest income decreased by $317 million, largely driven by markets, which resulted in a 4 basis point decrease in net interest margin. Excluding markets, net interest income was relatively flat. Average loans were up $4 billion, primarily driven by loans and spread products in markets, as well as card and mortgage loans in U.S. personal banking, partially offset by declines in services. And average deposits were up nearly $7 billion, primarily driven by services as we continue to grow high-quality operating deposits.
On Slide 9, we show key consumer and corporate credit metrics. This quarter, we adjusted our FICO distribution to be more aligned with the industry reporting practices and now show our FICO mix using a 660 threshold. Across branded cards and retail services, approximately 85% of our card loans are to consumers with FICO scores of 660 or higher. And we remain well reserved with a reserve-to-funded loan ratio of 8.2% for our total card portfolio.
In our corporate portfolio, the majority of our exposure is investment-grade, which is reflected in our low level of non-accrual loans at 0.5% of total corporate loans. As a reminder, our loan loss reserves in corporate a scenario-weighted average unemployment rate of approximately 5%, which includes a downside scenario unemployment rate of close to 7%. As such, we feel very comfortable with the nearly $22 billion of reserves we have in the current environment.
Turning to Slide 10, I'd like to take a moment to highlight the strength of our balance sheet, capital, and liquidity. We maintain a very strong $2.4 trillion high-quality balance sheet, which increased 1% sequentially. Despite this increase, we were able to decrease our risk-weighted assets, reflecting our continued optimization efforts and focus on capital efficiency. Our balance sheet is a reflection of our risk appetite, strategy and diversified business model.
The foundation of our funding is a $1.3 trillion deposit base, which is well-diversified across regions, industries, customers and account types. The majority of our deposits, $812 billion, are corporate and span 90 countries. Most of our corporate deposits reside in operating accounts that are crucial to how our clients fund their daily operations around the world. In most cases, we are fully integrated in our client systems and help them efficiently manage their operations through our three integrated services, payments and collections, liquidity management and working capital solutions, all of which greatly increased the stickiness of these deposits. The majority of our remaining deposits, about $423 billion, are well diversified across the private bank, Citigold, retail and Wealth at Work as well as across regions and products.
Now turning to the assets side. Over the last several years, we've maintained a strong risk appetite framework and have been very deliberate about how we deploy our deposits and other liabilities into high-quality assets. This starts with our $675 billion loan portfolio, which is well diversified across consumer and corporate loans. And the duration of the total portfolio is approximately 1.2 years. About one-third of our balance sheet is held in cash and high-quality short-duration investment securities that contribute to our nearly $1 trillion of available liquidity resources. And for the quarter, we had an LCR of 117%. So to wrap it up, we are active and deliberate in the management of our balance sheet, which is reflected in our high-quality assets and strong capital and liquidity position.
On Slide 11, we show the sequential CET1 walk to provide more detail on the drivers this quarter. First, we generated $3.1 billion of net income to common shareholders, which added 27 basis points. Second, we returned $1.5 billion in the form of common dividends and share repurchases, which drove a reduction of about 13 basis points. Third, we saw an increase in our disallowed DTA, which resulted in a 10 basis point decrease. And finally, the remaining 6 basis point benefit was largely driven by a reduction in RWA.
We ended the quarter with a preliminary 13.5% CET1 capital ratio, approximately 120 basis points or over $13 billion above our regulatory capital requirement of 12.3%. That said, our current capital requirement does not yet reflect our simplification efforts, the benefits of our transformation or the full execution of our strategy, all of which we expect to bring down capital requirements over time.
So now turning to Slide 12. Before I get into the businesses, let me remind you that in the fourth quarter, we implemented a revenue-sharing arrangement within banking and between banking, services and markets to reflect the benefit the businesses get from our relationship-based lending. The impact of revenue-sharing is included in the all other line for each business in our financial supplement. In Services, revenues were up 8% this quarter, driven by continued momentum across both TTS and Security Services. Net interest income increased 6%, driven by higher deposit and trade loan spreads. Non-interest revenue increased 14%, largely driven by continued strength across underlying fee drivers. In TTS, cross-border volumes increased 9%, U.S. dollar clearing volumes increased 3%, and commercial card spend volumes increased 5%, all of which was driven by strong corporate client activity.
In Security Services, our preliminary assets under custody and administration increased 11%, benefiting from higher market valuations as well as new client onboarding. The growth in both businesses is a direct result of our continued investment in product innovation, the client experience, and platform modernization to gain share across all client segments. TTS continues to maintain its number one position with large corporate and FI clients and see good momentum in the commercial client segment, and we continue to gain share in Security Services.
Expenses increased 11%, largely driven by continued investments in technology and product innovation. Cost of credit was $64 million as net credit losses remain low. Net income was approximately $1.5 billion. Average loans were up 4%, primarily driven by strong demand for working capital loans in TTS. Average deposits were down 3% as the impact of quantitative tightening more than offset new client acquisitions and deepening with existing clients. However, it is worth noting that we continue to see good operating deposit inflow and services continues to deliver a high RoTCE of 24.1% for the quarter.
On Slide 13, we show the results for markets for the first quarter. Markets revenues were down 7% as lower fixed-income revenues more than offset growth in equities. Fixed income revenues decreased 10%, driven by rates and currencies, which were down 21% on the back of lower volatility and a strong quarter in the prior year. This was partially offset by strength in spread products and other fixed-income, which was up 26%, driven by an increase in client activity, particularly in asset-backed lending. And we continue to see good underlying momentum in equities with revenues up 5%, driven by growth across cash trading and equity derivatives. And we continue to make progress in prime with balances up more than 10%.
Expenses increased 7%, largely driven by the absence of a legal reserve release last year. Cost of credit was $200 million, primarily driven by macroeconomic assumptions related to loans and spread products that impacted reserves. Net income was approximately $1.4 billion. Average loans increased 8% primarily driven by asset-backed lending in spread products due to an improvement in market activity. Average trading assets increased 4% sequentially, largely driven by seasonally stronger activity in the first quarter. Markets delivered an RoTCE of 10.4% for the quarter.
On Slide 14, we show the results for Banking for the first quarter. Banking revenues increased 49%, driven by growth in investment banking and corporate lending and lower losses on loan hedges. As I previously mentioned, corporate lending results include the impact of revenue-sharing from investment banking, services, and markets. Investment banking revenues increased 35%, driven by DCM and ECM as improved market sentiment led to an increase in issuance activity, particularly investment-grade, which is running at near-record levels.
Advisory revenues declined given the low level of announced merger activity last year. However, in the quarter, we participated in the pickup in announced M&A across sectors, including those where we've been investing such as technology and healthcare. Corporate lending revenues, excluding mark-to-market on loan hedges, increased 34%, largely driven by higher revenue share. We generated positive operating leverage this quarter as expenses decreased 4% driven by actions taken to right-size the expense base. Cost of credit was a benefit of $129 million, primarily driven by changes in portfolio composition.
The NCL rate was 0.3% of average loans and we ended the quarter with a reserve to funded loan ratio of 1.5%. Net income was approximately $536 million. Average loans decreased 6% as we maintained strict discipline around capital efficiency as we optimize corporate loan balances. RoTCE was 9.9% for the quarter, reflecting a rebound in activity, reserve releases, and continued expense discipline.
On Slide 15, we show the results for wealth for the first quarter. Wealth revenues decreased 4% driven by a 13% decrease in NII from lower deposit spreads and higher mortgage funding costs, partially offset by higher investment fee revenue. We're seeing good momentum in non-interest revenue, which was up 11% as we benefited from higher investment assets across regions, driven by increased client activity as well as market valuation.
Expenses were up 3%, driven by technology investments focused on risk and controls as well as platform enhancements, partially offset by the initial benefits of expense reduction as we continue to right-size the workforce. Cost of credit was a benefit of $170 million, driven by a reserve release of approximately $200 million, primarily related to a change in estimate as we enhanced our data related to margin lending collateral. Net income was $150 million. End of period client balances increased 6% driven by higher client investment assets. Average loans were flat as we continued to optimize capital usage. Average deposits decreased 1%, largely reflecting lower deposits in the private banks and Wealth at Work and the continued shift of deposits to higher-yielding investments on Citi's platform, which more than offset the transfer of relationships and the associated deposits from USPB.
Client investment assets were up 12%, driven by net new investment asset flows and the benefit of higher market valuation. RoTCE was 4.6% for the quarter. Looking ahead, we're going to improve the returns of our Wealth business by executing on our three foundational priorities. As Jane mentioned, this will take time, but over the medium to longer term, we view this as a greater than 20% return business.
On Slide 16, we show the results for U.S. Personal Banking for the first quarter. U.S. Personal Banking revenues increased 10%, driven by NII growth of 8% and lower partner payments. Branded cards revenues increased 7%, driven by interest-earning balance growth of 10% as payment rates continue to moderate and we continue to see healthy growth in spend volumes up 4%, primarily driven by our more affluent customers.
Retail Services revenues increased 18%, primarily driven by lower partner payments due to higher net credit losses as well as interest-earning balance growth of 9%. Retail banking revenues increased 1% driven by higher deposit spreads, loan growth, and improved mortgage margins. Expenses were roughly flat due to lower compensation costs, including repositioning offset by higher volume-related expenses.
Cost of credit of approximately $2.2 billion increased 34%, largely driven by higher NCLs of $1.9 billion as card loan vintages that were originated over the last few years were delayed in their maturation due to the unprecedented levels of government stimulus during the pandemic and are now maturing.
In branded cards, the NCL rate came in at 3.65%, in line with our expectations. In Retail Services, the NCL rate of 6.32% was slightly above the high end of our guidance range for the full year and will likely remain above the range in the second quarter, reflecting historical seasonality patterns. However, given the persistent inflation, higher interest rates, and continued sales pressure at our partners, we now expect to be closer to the high end of the full-year NCL guidance range for retail services. This expectation along with the continued mix-shift from transactors to revolvers across both portfolios led to an ACL build of approximately $340 million. Net income decreased to $347 million.
Average deposits decreased 10% as the transfer of relationships and the associated deposits to our wealth business more than offset the underlying growth. RoTCE for the quarter was 5.5%. We recognize that this business is facing a number of headwinds from a regulatory perspective and from higher credit costs given where we are in the credit cycle, both of which are putting pressure on returns for the quarter and for the full year 2024. However, this doesn't impact our longer-term view of the business. We feel good about our position as a prime and lend-centric issuer. We will continue to take mitigating actions to manage through the headwinds, lap the credit cycle, and drive more value from retail banking and retail services while improving the overall operating efficiency of the business, all of which will ultimately result in a higher returning business over the medium term.
On Slide 17, we show results for All Other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture-related items. Revenues decreased 9%, primarily driven by closed exits and wind-downs as well as higher funding costs, partially offset by higher revenue in Mexico. And expenses increased 18%, primarily driven by the incremental FDIC special assessment and restructuring charges, partially offset by lower expenses from the wind-down and exit markets.
Slide 18 shows our full-year 2024 outlook and medium-term guidance, both of which remain unchanged. We have accomplished a lot over the past few years and have made substantial progress on simplifying our business and organizational structure. The year is off to a good start as we are laser-focused on executing the transformation and enhancing the business performance. These two priorities will not only enable us to be a more efficient agile company but a client-centric one that brings together the best of Citi to drive revenue growth and improve returns. And we are on the path to reach our 11% to 12% return target over the medium term.
With that, Jane and I will be happy to take your questions.
