Mark Mason
Chief Financial Officer at Citigroup
Thank you, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results, focusing on year-over-year comparisons for the first quarter, unless I indicate otherwise, then spend a little more time on expenses in Russia and end with the results of each segment.
On Slide 4, we show financial results for the full firm. As Jane mentioned earlier, in the first quarter, we reported net income of $4.3 billion and an EPS of $2.02 and with an RoTCE of 10.5% on $19.2 billion of revenues. Embedded in these results are Asia consumer divestiture-related impacts that are detailed in the appendix of the presentation. In the quarter, total revenues decreased 2% as strength in net interest income driven by Services and PBWM, was more than offset by lower non-interest revenue across businesses. That said, we continue to see strong performance in the key business drivers we shared on Investor Day, which I will walk you through in detail shortly.
Total expenses of $13.2 billion increased 15% or 10% excluding the Asia divestiture-related impacts I just mentioned. Cost of credit was $755 million as net credit losses of $872 million were partially offset by a net ACL release. Embedded in the net ACL release is a Russia-related build of approximately $1.9 billion. This includes $1 billion related to exposure to Russia and about $900 million to account for the broader impact on the macro environment. This was more than offset by a release related to a COVID-19 uncertainty reserve, primarily in U.S. Personal Banking, given the continued resilience of the underlying portfolio, specifically in the U.S. As of today, we have about $17.9 billion in total reserves, with a reserve to funded loan ratio of 2.35%.
On Slide 5, we show an expense walk for the first quarter with the key underlying drivers. As I mentioned earlier, we incurred some divestiture-related costs this quarter. These costs largely related to a goodwill write-down that we incurred in legacy franchise as part of our re-segmentation and divestitures. It is important to note the goodwill impact is capital neutral. Excluding the divestiture-related costs, expenses increased by approximately 10%. 3% of the increase was driven by transformation investments with about two-third related to the risks, controls, data and finance programs, and approximately 30% of that is related to technology investments.
About 2% of the increase was driven by business-led investments as we continue to hire commercial and investment bankers as well as client advisers. In addition, we are investing in technology across services, wealth and cards. 1% was due to higher revenue and volume-related expenses, largely in markets and cards. And approximately 4% and was driven by inflation and other risk and control investments, partially offset by productivity savings. Across all of these buckets, we continue to invest in technology, which is up 12% for the quarter.
On Slide 6, we provide an update on our exposure to Russia. As Jane mentioned, as of the end of the quarter, our remaining exposure to Russia stood at about $7.8 billion, down from $9.8 billion at year-end. And importantly, the mix of the remaining exposure has changed and shifted in a positive way. We have reduced our direct Russia country risk exposure from $5.4 billion to about $3.7 billion, which consists of loans, AFS, derivatives and off-balance sheet exposure. The remaining exposure, which previously totaled $4.4 billion, now totals $4.1 billion and consist of deposits and cash with the Central Bank, reverse repos and cross-border exposure. Additionally, our net investment in our Russian entity is now approximately $700 million, down from about $1 billion at year-end. And the currency translation adjustment or CTA related to our net investment stands at $1 billion.
And as I mentioned previously, we took credit reserves of about $1.9 billion, with about $1 billion for direct exposures to Russia and another approximately $900 million for broader impacts given the macro environment. So we feel we have reserved prudently at this point. In the normal course of our planning and risk management, we run a range of stress scenarios, and we've taken the same approach with our exposure to Russia. And as a result of the actions that we've taken to reduce our risk, we now believe that under a range of severe stress scenarios, our potential risk of loss is now estimated at approximately $2.5 billion to $3 billion, down meaningfully from what I described at our Investor Day.
On Slide 7, we show net interest income, loans and deposits. In the first quarter, net interest income increased by approximately $50 million on a sequential basis as interest income from loans as well as higher deposit spreads were partially offset by day count. Excluding day count, net interest income increased by approximately $290 million. Sequentially, net interest margin increased by 7 basis points as lower average deposits in services and higher interest income from loans were partially offset by balance sheet growth in Markets. On a year-over-year basis, net interest income increased by approximately $370 million, driven by cards, deposits volumes and spreads as well as income from the investment portfolio, partially offset by lower net interest income in Markets, and we grew average loans by approximately 3% in both ICG and PBWM.
On Slide 8, we show our summary balance sheet and key capital and liquidity metrics. We maintained a very strong balance sheet. Of our $2.4 trillion balance sheet, about 23% or $551 billion are high-quality liquid assets, or HQLA, and we maintained total liquidity resources of approximately $960 billion. From a capital perspective, we ended the quarter with a CET1 capital ratio of approximately 11.4% under both standardized and advanced approaches, with standardized remaining the binding ratio, down from 12.2% at year-end. During the quarter, we adopted SACR and absorbed a significant impact from the sharp move in interest rates.
We will go into more detail shortly on the drivers of capital in the quarter. However, it is important to note that despite these impacts, we continue to expect to manage to a CET1 ratio of 12% by the end of the year due to the expected GCIB surcharge increase to 3.5% at the beginning of 2023. We expect the combination of net income generation, DTA utilization and capital generated by the closing of several of the consumer exits in Asia to be sufficient to reach the 12% CET1 ratio by the end of the year.
As we said at Investor Day, we're committed to returning excess capital to our shareholders. And as we see a pull to par in the investment portfolio, reversing that $4 billion interest rate-driven impact, we would expect to be able to deploy that capital over time. And as you know, under the SCB framework and given the uncertain macro environment, we assess on a quarter-by-quarter basis the right level of buybacks, and we will continue to do so throughout the year. For the second quarter, we expect only a modest amount of buybacks, and we'll evaluate that level throughout the quarter, taking into account market conditions.
On Slide 9, we show a sequential CET1 capital ratio to provide more detail on the drivers this quarter. As I just mentioned, our CET1 capital ratio ended the year at 12.2% as we build capital to absorb the impact of SACR on our RWA. Post SACR adoption, our ratio stood at 11.8% as of January 1, 2022. Given the sizable impact of some of the drivers, I wanted to spend a minute to walk through the puts and takes this quarter and how we ended the quarter with a CET1 ratio of about 11.4%. First, we generated net income, which added 35 basis points. Second, over $4 billion of dividends and buybacks drove a reduction of about 36 basis points.
Third, the interest rate impact on AOCI through our investment portfolio drove a 35 basis point reduction. Fourth, the increase in disallowed DTA, largely driven by the reduction in CET1 due to the interest rate impact I just mentioned, drove another 15 basis point reduction. Finally, the remainder was driven by a combination of other factors, including a reduction in RWA. With all of that said, as I just mentioned, we have a path to a 12% CET1 capital ratio by year-end and remain committed to returning excess capital to shareholders.
On Slide 10, we show the results for our Institutional Clients Group. Revenues decreased 2%, largely driven by Investment Banking partially offset by an increase in services revenue. And Markets declined slightly against a strong quarter last year. Expenses increased 13% driven by transformation investments, business-led investments and volume-related expenses, partially offset by productivity savings. Cost of credit was nearly $1 billion, largely driven by a $1.5 billion build related to our exposures in Russia as well as the broader impact on the macro environment.
And outside of Russia, we continue to see strong credit performance across our portfolio as clients' balance sheets remain healthy. This resulted in net income of $2.6 billion, down approximately 51%, largely driven by the higher expenses and an ACL build versus a release in the prior year. We grew average loans by 3%, largely driven by trade finance. Average deposits grew 2% as we continue to see good momentum and deepening of existing client relationships and new client acquisitions. And ICG delivered an RoTCE of 11.2%.
On Slide 11, we show revenue performance by business and the key drivers we laid out at Investor Day, which we will continue to show you each quarter. In Services, we continue to see a very strong new client pipeline and a deepening with our existing clients and we expect that momentum to continue. In Treasury and Trade Solutions, revenues were up 18%, driven by growth in net interest income as well as strong fee growth with both commercial and large corporate clients. And we continue to see strong underlying drivers in TTS that indicate continued strong client activity with U.S. dollar clearing volumes up 2%, cross-border flows up 17% and commercial card volumes up 54%. Again, these metrics are indicators of client activity and fees, and on a combined basis, drive approximately 50% of total TTS fee revenue.
Securities Services revenues grew 6% as net interest income grew 17%, driven by higher interest rates across currencies, and fee revenues grew 2% due to higher assets under custody. Overall markets revenues were down 2% versus a strong quarter last year. In the quarter, activity levels benefited from client repositioning and strong risk management in light of Fed actions and overall geopolitical uncertainty. Fixed Income Markets revenues were down 1%. We saw strong client engagement, particularly with our corporate clients in FX and commodities, with our rates business also benefiting from higher volatility. Spread products were negatively impacted by less client activity. Equity Markets revenues were down 4% compared to a very strong prior year period.
In the quarter, we saw strong equity derivatives performance and grew prime finance balances. Banking revenues, excluding gains or losses on loan hedges were down 32% as heightened geopolitical uncertainty and the overall macro backdrop impacted activity in debt and equity capital markets. Investment Banking revenues were down 43%, driven by the contraction in capital markets activity, partially offset by growth in M&A. Corporate Lending revenues were down 6%, largely driven by lower average loans.
Now turning to Slide 12. We show the results for our Personal Banking and Wealth Management business. Revenues declined 1% as net interest income was more than offset by lower non-interest revenue. Expenses were up 14%, driven by transformation investments, business-led investments and higher volume-driven expenses, partially offset by productivity savings.
Cost of credit was a $376 million benefit as an ACL release more than offset net credit losses. We had a net release of over $1 billion of ACL related to COVID-19 uncertainty reserves. I would note that even after this release, we maintained over $9.8 billion in credit reserves against our U.S. cards portfolios or approximately 7.6% of total loans. This resulted in a net income decline of 23% and an RoTCE of just over 23%. Adjusting for the ACL release, RoTCE would have been approximately 13%.
On Slide 13, we show PBWM revenues by product as well as key business drivers and metrics. Credit cards revenues declined 1% on higher average payment rates and higher acquisition and rewards costs as we continue to see attractive investment opportunities and strong customer engagement. We are seeing encouraging underlying drivers with new accounts up 24%, card spend volumes also up 24% and average loans up 7%. Retail services revenues were flat as higher net interest income was offset by higher partner payments, driven by improved credit performance. And we are seeing positive underlying drivers with spend up 14% and average loans up 1%.
While payment rates remain elevated, we believe we have finally begun to see some normalization. As a result, interest earning balances in branded cards were relatively flat on a sequential basis, while Retail Services grew interest-earning balances by 3% sequentially despite seasonally lower card spending volumes. Retail banking revenues declined 6%, largely driven by lower mortgage originations. Wealth revenues declined 1%, driven by less client activity and investments, partially offset by higher deposits. Investment revenues declined as geopolitical tensions impacted the capital markets, which resulted in clients pulling back their trading activity, particularly in Asia. However, underlying drivers remain strong, with average deposits up 14%, average loans up 5%, client assets up 4% and client advisers up 6%.
On Slide 14, we show results for the legacy franchises. Revenues declined 14%, driven by lower revenue across the exit markets, largely driven by the Korea wind down as well as the muted investment activity in Asia. Expenses were up 31%, largely driven by the goodwill impairment I mentioned earlier, but again, this is neutral to capital. Cost of credit was $160 million in the quarter, driven by net credit losses, and as a result, net income declined significantly.
On Slide 15, we show results for Corporate-Other. Revenues increased significantly, largely driven by higher net revenue from the investment portfolio. Expenses are down largely on lower compensation expenses. And to briefly touch on the full year 2022 outlook, at this point, we still expect to see low-single-digit revenue growth and mid-single-digit expense growth, both excluding divestiture related impacts this year.
And with that, Jane and I would be happy to take your questions.
