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 year-over-year comparisons for the first quarter, unless I indicate otherwise and spend a little more time on expenses, our balance sheet and capital, then I will turn to the results of each segment.
On Slide 4, we show financial results for the full firm. In the first quarter, we reported net income of approximately $4.6 billion and an EPS of $2.19 and an ROTCE of nearly 11% on $21.4 billion of revenues. Embedded in these results are pre-tax divestiture-related impact of approximately $950 million, largely driven by the gain on sale of the India consumer business. Excluding these items, EPS was $1.86 with an ROTCE of over 9%.
In the quarter, total revenues increased by 12% on a reported basis and increased 6%, excluding divestiture-related impacts as strength across services, fixed income and U.S. Personal Banking was partially offset by declines in Investment Banking, equity market and wealth, as well as the revenue reduction from the closed exit and wind-down.
Our results include expenses of $13.3 billion, an increase of 1% versus the prior year. Excluding divestiture-related costs in the prior year, expenses increased 5%, largely driven by the transformation, other risk and control investments and inflation, partially offset by productivity savings and the expense reductions from the exit and wind-downs.
Cost of credit was approximately $2 billion, primarily driven by the continued normalization in card net credit losses, an ACL and other provision build of approximately $700 million, largely related to a deterioration in macroeconomic assumptions and growth in card revolving balance. At the end of the quarter, we had nearly $20 billion in total reserves with the reserve to funded loan ratio of approximately 2.7%.
On Slide 5, we show an expense walk for the first quarter with the key underlying drivers. Transformation investments drove 1% of the growth, largely in the data, finance and risk and control program and 4% of the increase was driven by structural, largely in the form of compensation and benefits including the full year impact of the people we hired last year as well as those we hired in the first quarter.
Embedded in the structural bucket are few key items. First, other risk and control investments that are enterprise-wide and in the businesses which makeup about 2% of the total expense increase; second, the impact of additional front and back office hires; third, inflation in severance costs. All of this was partially offset by productivity savings as well as the benefit from foreign exchange translation and the expense reduction from the exit. And across the firm, technology-related expenses grew 12%. We recognize these investments have driven a significant increase in expenses, but they are crucial to modernize the firm, address the consent orders and position Citi for success in the years to come.
Now turning to Slide 6. I'd like to spend a few minutes giving you some tangible examples of what we're investing in and the benefits we'll see over time. In many cases, these investments will simplify our processes and platforms. For example, we are retiring consolidating 20 cash equities platforms to one single modern platform eliminating cost over time. And we have consolidated 11 platforms to one global sanction screening platform, reducing false alerts, improving the client experience and eliminating cost.
We're also modernizing our infrastructure and the security of our data and information by enhancing cybersecurity through the use of AI and improving the security of our infrastructure and devices leading to fewer operating loss. We are leveraging industry-leading cloud-based solutions to modernize and streamline the connectivity between our front office systems and the general ledger, eliminating manual processes and operating cost over time. We're driving the strategy by investing in the client experience both in terms of our technology interface and innovative new products. We launched our cloud-based instant payments platform or e-commerce clients in TTS.
We're also deploying CitiDirect Commercial Banking, our mobile and digital interface for commercial clients, so they too can open accounts and access all products and services across ICG in the same way our large corporate clients do. And finally, we're investing in data to create advanced decision making, client targeting and risk management capabilities, which has allowed us to enhance our returns through greater RWA efficiency. And we expect many of these investments to generate efficiencies that will allow us to self-fund future investments over time.
On Slide 7, we show net interest income, deposits and loans, where I'll speak to sequential variance. In the first quarter, net interest income increased by approximately $80 million, largely driven by interest-earning balances in cards. Average loans were up slightly as growth in PBWM was largely offset by a decline in ICG. Average deposits were also up slightly driven by growth in both PBWM and ICG, and our net interest margin increased 2 basis points.
On Slide 8, we show key consumer and corporate credit metrics. We are well reserved for the current environment with nearly $20 billion of reserves. Our reserves to funded loan ratio was approximately 2.7%. And within that, U.S. Cards is 8.1%. In PBWM, 44% of our lending exposures are in U.S. Cards, and of that exposure, nearly 80% is to customers with FICO scores of 680 or higher. And NCL rates, while reflecting some typical seasonality this quarter are still below pre-COVID levels and are normalizing in line with our expectations. The remaining 56% of our PBWM lending exposure is largely in wealth and predominantly mortgages and margin lending.
In our ICG portfolio, of our total exposure, approximately 85% is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiary. And corporate non-accrual loans remained low at about 40 basis points of total loans. As you can see on the page, we break out our commercial real estate lending exposures across ICG and PBWM, which totaled $66 billion, of which 90% is investment grade. So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, exposures and reserve levels and we continuously review and stress the portfolio under a range of scenarios.
On Slide 9, we show our summary balance sheet and key capital and liquidity metrics. We've added a few additional metrics to the page to provide additional transparency into how we manage the balance sheet. We maintain a very strong $2.5 trillion balance sheet which is funded in part by a well-diversified $1.3 trillion deposit base across regions, industries, customers and account types, which is deployed into high-quality diversified assets.
Our balance sheet is a reflection of our strategy and well-diversified business model. We leverage our unique assets and capabilities to serve corporates, financial institutions, investors and individuals with global needs. First, the majority of our deposits, $819 billion, are institutional and span 90 countries. And the majority of these institutional deposits tend to be interest rate sensitive. So when rates go up, we reprice the deposits accordingly, but that reprice takes into account the overall client relationship as well as the level of rates.
But despite this interest rate sensitivity, these deposits tend to be stable as they are tied to the operational services that we provide and these institutional deposits are complemented by $437 billion of U.S. retail consumer and global wealth deposits as you can see on the bottom right side of the page. These deposits are well-diversified across the Private Bank, Citigold, Retail and Wealth at Work as well as across regions and products with 75% of U.S. Citigold clients and approximately 50% of ultra-high-net-worth clients having been with Citi for more than 10 years. Our wealth deposits tend to also be interest rate sensitive, but this usually results in our customers moving to higher yielding deposit and investment products.
Now turning to the asset side. At a high level, you can think of our deposits being largely deployed in three asset buckets: loans, investment securities and cash, which complement the interest rate sensitivity and liquidity value of our liability. And this deployment is also linked to our strategy. We use our resources to lend and transact with our clients in ways that deepen the relationship and drive returns for our shareholders while maintaining strong liquidity and capital.
Our $652 billion loan portfolio is well-diversified across consumer and corporate loans. And the duration of the total portfolio is approximately 1.3 years as the majority of these loans are variable rate. About 35% of our balance sheet is in cash and investment securities, which contribute to our $1 trillion of available liquidity resources. And at the end of the quarter, we had an LCR of 120%, which means we have roughly $100 billion of HQLA in excess of the amount required by the rule to cover stressed outflows. And you can see the details of this on Page 27 in the appendix.
But just as important as the quantum of liquidity is the composition and duration of that liquidity. And our $513 billion investment portfolio consists largely of highly liquid U.S. treasury, agency and other sovereign bond and is split evenly between available-for-sale and held-to-maturity, where we've maintained a short duration of less than three years, so we could benefit from higher interest rates. And we actively and prudently manage our assets and liabilities by considering a range of possible stress scenarios and how they might impact interest rate risk, liquidity and capital.
So in summary, our assets and liabilities are aligned across interest rate sensitivity, liquidity value and duration and reflect the diversified business model and execution of our strategy.
On Slide 10, we show our sequential CET1 walk to provide more detail on the drivers this quarter. Walking from the end of the fourth quarter, first, we generated $4.3 billion of net income to common which added 38 basis points; second, we returned $1 billion in the form of common dividends, which drove a reduction of about 9 basis points; third, impact on AOCI through our AFS investment portfolio drove a 7 basis point increase; and finally, the remaining 4 basis point increase was largely driven by the RWA benefit from closing our consumer exit.
We ended the quarter with a 13.4% CET1 capital ratio, approximately 40 basis points higher than last quarter and this includes a 100 basis point internal management buffer. And as it relates to buybacks, we did not buyback any stock this quarter and we will continue to make that decision on a quarter-by-quarter basis.
On Slide 11, we show the results for our Institutional Clients Group for the first quarter. Revenues were up 1% this quarter, largely driven by services and fixed income, mostly offset by investment banking and equity. Expenses increased 4% driven by transformation, other risk and control investment and volume-related expenses, partially offset by FX translation and productivity savings. Cost of credit was a $72 million benefit as an ACL release more than offset net credit loss. This resulted in net income of approximately $3.3 billion, up 23% driven by the lower cost of credit and higher revenues partially offset by higher expenses.
ICG delivered a 13.8% ROTCE for the quarter and average loans were down 2%, reflecting discipline around our strategy and return. Average deposits were up 3% as we continue to acquire new clients and deepen relationships with existing ones and sequentially average deposits were up 1%. And on an end of period basis, ICG deposits were down 3% sequentially, driven by seasonality as our clients tend to make tax payments in the first quarter.
On Slide 12, we show revenue performance by business and the key drivers we laid out in Investor Day. In Treasury and Trade Solutions, revenues were up 31% driven by 41% growth in net interest income and 13% in NIR with growth across all client segments. We continue to see healthy underlying drivers in TTS that indicate consistently strong client activity with U.S. dollar clearing volumes up 6%, reflecting continued swift share gains, cross-border flows up 10% outpacing global GDP growth and commercial card volumes up roughly 40% led by spend in travel. So while the rate environment drove about 60% of the growth this quarter, business actions drove the remaining 40% as we continue to deepen relationships with existing clients and win new clients. In fact, client wins are up approximately 50% across all segments. These include marquee transactions where we are serving as the clients' primary operating bank.
In Security Services, revenues grew 23% as net interest income grew 94%, driven by higher interest rates across currency, partially offset by a 6% decrease in non-interest revenue due to the impact of market valuations. We are pleased with the execution in Security Services as we continue to onboard assets under custody and administration from significant client [Technical Issues] about the pipeline of new deal. [Technical Issues] the services businesses are central to our strategy and are two of our higher returning businesses with strong linkages across the firm.
Markets revenues were down 4% as growth in fixed income was more than offset by equity. Fixed income revenues were up 4% relative to a very strong quarter last year as strength in our rates franchise was partially offset by a decline in FX and commodities. Equities revenues were down 25%, also relative to a strong quarter last year, primarily reflecting reduced client activity in cash and equity derivatives. Corporate client flows remained strong and stable and we continued to make solid progress on our revenue to RWA target.
And finally, banking revenues excluding gains and losses on loan hedges were down 21%, driven by investment banking as heightened macro uncertainty and volatility continued to impact client activity. Having said that, we do see revenue growth sequentially, largely driven by the investment grade market opening up. So overall, while the market environment remains challenging, we feel good about the progress that we're making in ICG.
Now turning to Slide 13, we show the results for our Personal Banking and Wealth Management business. Revenues were up 9% driven by net interest income growth of 10%, partially offset by a 1% decline in non-interest revenue, driven by lower investment product revenues in wealth. Expenses were also up 9%, predominantly driven by investments in transformation and other risk and control initiatives. Cost of credit was $1.6 billion, driven by higher net credit losses as we continue to see normalization in our card portfolios and a reserve build of approximately $500 million, largely driven by a deterioration in macroeconomic assumption and growth in card revolving balance. Average loans increased 7% driven by cards, mortgages and installment lending. Average deposits decreased 3%, largely reflecting our wealth clients putting cash to work in fixed income investments on our platform. And PBWM delivered an ROTCE of 5.5%, largely driven by higher credit costs.
On Slide 14, we show PBWM revenues by products as well as key business drivers and metrics. Branded Cards revenues were up 18%, driven by higher net interest income. We continue to see strong underlying drivers with new account acquisitions up 17%, card spend volumes up 9% and average loans up 15%.
Retail Services revenues were up 24%, also driven by higher net interest income. For both card portfolios, we continue to see payment rates decline and that combined with the investments that we've been making contributed to growth in interest earning balances of 18% in Branded Cards and 11% in Retail Services.
Retail Banking revenues were up 3% primarily driven by higher mortgage revenue and strong growth in personal installment lending, partially offset by the impact of the transfer of relationships and the associated deposits to our wealth business. In fact, consistent with the strategy, we continue to leverage our retail network to drive over 13,000 wealth referrals in the first quarter.
Wealth revenues were down 9% driven by continued investment fee headwind and higher deposit costs particularly in the Private Bank. However, we did see notable improvement in revenues in Asia, which were up approximately 20% on a sequential basis. Client advisors were up 3% and we are seeing net new investment inflows and strong new client acquisitions across our wealth business with new clients in the Private Bank and Wealth at Work, up 62% and 81%, respectively. While the environment continues to remain challenging for wealth, we're seeing strong underlying business drivers as we execute against our strategy.
On Slide 15, we show results for legacy franchises. Revenues grew 48% driven by a gain on sale of our consumer business in India, partially offset by the wind downs and closed consumer exit. Expenses decreased 24% largely driven by the absence of a goodwill impairment we had in the prior year as well as the impact of the wind downs and closed consumer exits.
On Slide 16, we show results for Corporate/Other for the first quarter. Revenues increased, largely driven by higher net revenue from the investment portfolio. Expenses increased, driven by transformation and other risk and control investments, partially offset by a reduction in consulting fees.
Before we move to Q&A, I'd like to end with a few key points. Despite recent events and the economic uncertainty that remained, our full year outlook for revenue and expenses remains unchanged. We have a very strong balance sheet with a diversified set of assets and funding sources, and ample capital and liquidity. This positions us well to serve clients and navigate any number of scenarios. We're seeing solid momentum in the underlying drivers of the majority of our businesses and continue to execute on our strategy. Financial path will not be linear, but we are confident that we can achieve our medium-term targets. And finally, I'm incredibly proud of how our firm and our employees have continued to help our clients navigate the recent environment and support the health of the overall banking system.
And with that, Jane and I would be happy to take your questions.
