C-6.30.2014-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
52-1568099
(I.R.S. Employer Identification No.)
399 Park Avenue, New York, NY
(Address of principal executive offices)
 
10022
(Zip code)
(212) 559-1000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of June 30, 2014: 3,031,772,710
Available on the web at www.citigroup.com

 



Inside Cover Page




CITIGROUP INC SECOND QUARTER 2014 — FORM 10-Q
OVERVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Summary of Selected Financial Data
SEGMENT AND BUSINESS—INCOME (LOSS) AND REVENUES
CITICORP
Global Consumer Banking (GCB)
North America GCB
EMEA GCB
Latin America GCB
Asia Global GCB
Institutional Clients Group
Corporate/Other
CITI HOLDINGS
BALANCE SHEET REVIEW
OFF-BALANCE-SHEET
  ARRANGEMENTS
CAPITAL RESOURCES
   Current Regulatory Capital Standards
 
   Basel III (Full Implementation)
 
   Regulatory Capital Standards Developments
 
   Tangible Common Equity, Tangible Book Value
       Per Share and Book Value Per Share
 
MANAGING GLOBAL RISK
Table of Contents—Credit, Market (Including Funding and Liquidity), Country and Cross-Border Risk Sections
FAIR VALUE ADJUSTMENTS FOR DERIVATIVES AND FAIR VALUE OPTION LIABILITIES
CREDIT DERIVATIVES
INCOME TAXES
DISCLOSURE CONTROLS AND PROCEDURES
DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT
FORWARD-LOOKING STATEMENTS
FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
UNREGISTERED SALES OF EQUITY, PURCHASES OF EQUITY SECURITIES, DIVIDENDS


1



OVERVIEW

Citigroup’s history dates back to the founding of Citibank in 1812. Citigroup’s original corporate predecessor was incorporated in 1988 under the laws of the State of Delaware. Following a series of transactions over a number of years, Citigroup Inc. was formed in 1998 upon the merger of Citicorp and Travelers Group Inc.
Citigroup is a global diversified financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. Citi has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions.
Citigroup currently operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of Citi’s Global Consumer Banking businesses and Institutional Clients Group; and Citi Holdings, consisting of businesses and portfolios of assets that Citigroup has determined are not central to its core Citicorp businesses. For a further description of the business segments and the products and services they provide, see “Citigroup Segments” below, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to the Consolidated Financial Statements.
Throughout this report, “Citigroup,” “Citi” and “the Company” refer to Citigroup Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q should be read in conjunction with Citigroup’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission (SEC) on March 3, 2014 (2013 Annual Report on Form 10-K) and Citigroup’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 2, 2014 (First Quarter of 2014 Form 10-Q).
Additional information about Citigroup is available on Citi’s website at www.citigroup.com. Citigroup’s recent annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, as well as other filings with the SEC, are available free of charge through Citi’s website by clicking on the “Investors” page and selecting “All SEC Filings.” The SEC’s website also contains current reports, information statements, and other information regarding Citi at www.sec.gov.
Certain reclassifications, including a realignment of certain businesses, have been made to the prior periods’ financial statements to conform to the current period’s presentation. For information on certain recent such reclassifications, see Note 3 to the Consolidated Financial Statements.




2



As described above, Citigroup is managed pursuant to the following segments:
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.

3



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


EXECUTIVE SUMMARY

Second Quarter of 2014—Continued Progress on Execution Priorities and Strategy Despite Ongoing Challenging Operating Environment
Citi’s results of operations for the second quarter of 2014 were significantly impacted by a $3.8 billion charge ($3.7 billion after-tax) related to the settlement announced on July 14, 2014 with the U.S. Department of Justice, several state attorneys general and the Federal Deposit Insurance Corporation regarding certain of Citi’s legacy RMBS and CDO activities (for additional information, see Note 25 to the Consolidated Financial Statements). While significantly impacting second quarter results, the settlement represented a significant milestone in Citi’s ability to put its legacy legal and regulatory issues behind it and get Citi Holdings to break-even (see discussion below).
Excluding the impact of the mortgage settlement, Citi’s second quarter of 2014 results continued to reflect a challenging operating environment, particularly in the fixed income and equities markets businesses within the Institutional Clients Group (ICG), where macro-uncertainty and historically low volatility reduced client activity. Despite these challenges, corporate lending and investment banking revenues within ICG each increased from the prior-year period, and treasury and trade solutions revenues continued to grow as volumes continued to increase. Within Global Consumer Banking (GCB), year-over-year comparisons continued to be impacted by the lower mortgage refinancing activity in North America GCB as well as the repositioning of Citi’s consumer franchise in Korea within Asia GCB, although Citi continues to believe that each such business has stabilized as of the end of the current quarter.
Citi also continued to make progress on its execution priorities during the second quarter, including:

Efficient resource allocation and disciplined expense management: during the second quarter of 2014, Citi benefitted from savings resulting from its previously-announced repositioning actions, continuing efforts to simplify and streamline the organization as well as improved productivity.
Winding down of Citi Holdings: Citi Holdings’ assets declined by $20 billion, or 15%, from the prior-year period. During the current quarter, Citi also announced it had entered into agreements to sell its consumer businesses in Greece and Spain (for additional information, see “Citi Holdings” below). In addition, as noted above, excluding the impact of the mortgage settlement, Citi Holdings generated its first net profit during the current quarter.
Utilization of deferred tax assets (DTAs): Citi reduced its DTAs by approximately $1.1 billion during the second quarter of 2014 (for additional information, see “Income Taxes” below).
 

During the remainder of 2014, Citi intends to remain focused on these and its other execution priorities, particularly as macroeconomic uncertainties and challenges, including in certain emerging markets, persist.

Second Quarter of 2014 Summary Results

Citigroup
Citigroup reported second quarter net income of $181 million or $0.03 per diluted share, compared to $4.2 billion or $1.34 per share in the second quarter of 2013. As noted above, reported net income included the $3.8 billion pretax charge related to the mortgage settlement, which consisted of $3.7 billion of legal expenses and a $55 million loan loss reserve build, each recorded in Citi Holdings. Results in the second quarter of 2014 also included a credit valuation adjustment (CVA) on derivatives (counterparty and own-credit), net of hedges, and debt valuation adjustment (DVA) on Citi’s fair value option debt of negative $33 million (negative $20 million after-tax), compared to positive $477 million (positive $293 million after-tax) in the second quarter of 2013.
Excluding the impact of the mortgage settlement in the second quarter of 2014 and CVA/DVA in both periods, Citi reported net income of $3.9 billion in the second quarter of 2014, or $1.24 per diluted share, compared to $3.9 billion, or $1.25 per share, in the prior-year period. The year-over-year increase of 1% in net income was driven by increased net interest revenues, lower operating expenses and a decline in credit costs, partially offset by lower non-interest revenues.
Citi’s revenues, net of interest expense, were $19.3 billion in the second quarter of 2014, down 6% versus the prior-year period. Excluding CVA/DVA, revenues were $19.4 billion, down 3% from the second quarter of 2013, as revenues in Citicorp declined 5% while Citi Holdings revenues increased 35% compared to the prior-year period. Net interest revenues of $11.9 billion were 2% higher than in the prior-year period, mostly driven by lower funding costs in Citi Holdings. Excluding CVA/DVA, non-interest revenues were $7.4 billion, down 11% from the prior-year period, principally driven by lower revenues in ICG and North America GCB in Citicorp, partially offset by higher non-interest revenues in Citi Holdings.

Operating Expenses
Citigroup expenses increased 28% versus the prior-year period to $15.5 billion. Excluding the impact of the mortgage settlement, operating expenses declined 3% to $11.8 billion, driven by efficiency savings, the overall decline in Citi Holdings assets and lower legal and related expenses, partially offset by higher regulatory and compliance costs, which Citi expects to continue, and higher repositioning charges in the current quarter, primarily due to repositioning in Korea in Asia GCB. Excluding the impact of the mortgage settlement, Citi incurred legal and related costs of $402 million (compared to $832 million in the prior-year period) and repositioning


4



charges of $397 million (compared to $75 million in the prior-year period). Excluding the impact of the mortgage settlement, other legal and related costs, repositioning charges and the impact of foreign exchange translation into U.S. dollars for reporting purposes (FX translation), which increased reported expenses by approximately $17 million in the second quarter of 2014 as compared to the prior-year period, operating expenses were $11.0 billion compared to $11.2 billion in the prior-year period. Consistent with its execution priorities, Citi currently expects its repositioning charges in the second half of 2014 to be roughly in line with the $608 million of repositioning charges recorded in the first half of 2014.
Citicorp’s expenses were $11.0 billion, up 4% from the prior-year period, primarily reflecting higher legal and related expenses ($387 million in the current quarter, compared to $128 million in the prior-year period) and higher repositioning costs ($376 million in the current quarter, compared to $72 million in the prior-year period), partially offset by efficiency savings. Citi expects legal and related expenses in Citicorp will likely remain somewhat elevated and episodic in nature going forward. Citi Holdings’ expenses were $4.5 billion compared to $1.6 billion in the second quarter of 2013. Excluding the impact of the mortgage settlement, Citi Holdings’ expenses decreased 51% versus the prior-year period to $765 million, driven by lower legal and related expenses and the 15% reduction in assets.

Credit Costs and Allowance for Loan Losses
Citi’s total provisions for credit losses and for benefits and claims of $1.7 billion declined 15% from the second quarter of 2013. Excluding the impact of the mortgage settlement, Citi’s total provisions for credit losses and for benefits and claims declined 17% to $1.7 billion versus the prior-year period. Net credit losses of $2.2 billion were down 16% versus the prior-year period. Consumer net credit losses declined 15% to $2.2 billion, reflecting continued improvements in the North America mortgage portfolio within Citi Holdings, as well as North America Citi-branded cards in Citicorp. Corporate net credit losses decreased 76% to $11 million from the prior-year period reflecting improvements in ICG.
The net release of allowance for loan losses and unfunded lending commitments was $641 million in the second quarter of 2014. Excluding the impact of the mortgage settlement, the net release of allowance for loan losses and unfunded lending commitments was $696 million compared to a $784 million release in the prior-year period. Citicorp’s net reserve release increased 42% to $442 million, primarily due to a higher reserve release in North America GCB and ICG, partially offset by a net reserve build in international GCB, primarily reflecting portfolio growth and seasoning in Latin America GCB. Citi Holdings’ net reserve release, excluding the impact of the mortgage settlement, decreased 46% to $254 million, substantially all of which related to the North America mortgage portfolio.
Citigroup’s total 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%, at the end of the prior-year period. The decline in the total allowance for loan losses reflected the
 
continued wind down of Citi Holdings and overall continued improvement in the credit quality of Citi’s loan portfolios.
The Consumer allowance for loan losses was $15.5 billion, or 4.04% of total consumer loans, at quarter end, compared to $18.9 billion, or 4.95% of total loans, at June 30, 2013. Total non-accrual assets fell to $8.3 billion, an 18% reduction compared to June 30, 2013. Corporate non-accrual loans declined 43% to $1.2 billion, while Consumer non-accrual loans declined 12% to $6.7 billion, both reflecting the continued improvement in credit trends.

Capital
Despite the impact of the mortgage settlement, Citi continued to grow its regulatory capital versus the prior-year period, primarily through net income and a further reduction of its DTAs. Citigroup’s estimated Tier 1 Capital and Tier 1 Common ratios under Basel III, on a fully implemented basis, were 11.4% and 10.6% as of June 30, 2014, respectively, compared to 10.4% and 10.0% as of June 30, 2013. Citigroup’s estimated Basel III Supplementary Leverage ratio as of June 30, 2014 was 5.7% compared to 4.9% as of June 30, 2013. For additional information on Citi’s estimated Basel III Tier 1 Common ratio, Supplementary Leverage ratio and related components, see “Capital Resources” below.

Citicorp
Citicorp net income decreased 23% from the prior-year period to $3.7 billion. CVA/DVA, recorded in the ICG, was negative $32 million (negative $20 million after-tax) in the second quarter of 2014, compared to positive $462 million (positive $284 million after-tax) in the prior-year period (for a summary of CVA/DVA by business within ICG for the second quarters of 2014 and 2013, see “Institutional Clients Group” below).
Excluding CVA/DVA, Citicorp’s net income was $3.7 billion, down 18% from the prior-year period, as lower revenues and higher expenses, primarily due to higher legal and repositioning costs, were partially offset by an improvement in credit.
Citicorp revenues, net of interest expense, decreased 8% from the prior-year period to $17.9 billion. Excluding CVA/DVA, Citicorp revenues were $17.9 billion in the second quarter of 2014, down 5% from the prior-year period. GCB revenues of $9.4 billion declined 3% versus the prior-year period. North America GCB revenues declined 5% to $4.8 billion, driven by lower retail banking revenues, partially offset by higher revenues in Citi-branded cards and Citi retail services. Retail banking revenues declined 26% to $1.2 billion versus the prior-year period, primarily reflecting the lower U.S. mortgage refinancing activity. Citi-branded cards revenues of $2.0 billion were up 3% versus the prior-year period as purchase sales grew and lower average loans were partially offset by an improvement in spreads driven by a continued 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 average deposits of $171 billion grew 4% year-over-year and average retail loans of $46 billion grew 11%. Average card loans of $109 billion increased 4%, and purchase sales of $64 billion increased 7% versus the prior-


5



year period. For additional information on the results of operations of North America GCB for the second quarter of 2014, see “Global Consumer Banking—North America GCB” below.
International GCB revenues (consisting of Asia GCB, Latin America GCB and EMEA GCB) decreased 1% versus the prior-year period to $4.6 billion. Excluding the impact of FX translation, international GCB revenues rose 1% from the prior-year period, driven by 3% revenue growth in Latin America GCB, partially offset by a 2% decline in Asia RCB and a 1% decline in EMEA GCB (for the impact of FX translation on the second quarter of 2014 results of operations for each of EMEA GCB, Latin America GCB, and Asia GCB, see the table accompanying the discussion of each respective business’ results of operations below). This growth in international GCB revenues, excluding the impact of FX translation, mainly reflected volume growth in Latin America GCB, partially offset by ongoing regulatory changes, the franchise repositioning in Korea and lower investment sales revenues in Asia GCB, as well as the previously-disclosed market exits in EMEA GCB. For additional information on the results of operations of EMEA GCB, Latin America GCB and Asia GCB for the second quarter of 2014, see “Global Consumer Banking” below.
Year-over-year, international GCB average deposits increased 3%, average retail loans increased 8%, average card loans increased 3%, and card purchase sales increased 2%, while investment sales decreased 2%, all excluding the impact of FX translation.
ICG revenues were $8.5 billion in the second quarter of 2014, down 11% from the prior-year period. Excluding CVA/DVA, ICG revenues were $8.5 billion, or 7% lower than the prior-year period. Banking revenues of $4.4 billion increased 4% 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 to $397 million, partially offset by a 10% decline in advisory revenues to $193 million. Private bank revenues, excluding CVA/DVA, 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 decreased 4% to $410 million, including $44 million of mark-to-market losses on hedges related to accrual loans compared to a $23 million gain in the prior-year period. Excluding the mark-to-market impact on hedges related to accrual loans, corporate lending revenues rose 12% versus the prior-year period to $454 million, primarily reflecting growth in average loans. Treasury and trade solutions revenues were unchanged compared to the prior-year period. Excluding a gain of $50 million in the prior-year period, treasury and trade solutions 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 CVA/DVA, declined 16% from the prior-year period. Fixed income markets revenues of $3.0 billion, excluding CVA/DVA, declined 12% from the prior-year
 
period, reflecting historically low volatility and continued macro-uncertainty in the current quarter, 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 CVA/DVA, were down 26% versus the prior-year period, reflecting lower client activity and weak trading performance in EMEA. Securities services revenues were largely unchanged at $598 million versus the prior-year period as higher client activity was offset by a reduction in high margin deposits. For additional information on the results of operations of ICG for the second quarter of 2014, see “Institutional Clients Group” below.
Corporate/Other revenues decreased to $35 million from $114 million in the prior-year period, driven mainly by hedging activities. For additional information on the results of operations of Corporate/Other for the second quarter of 2014, see “Corporate/Other” below.
Citicorp end-of-period loans increased 8% versus the prior-year period to $585 billion, with 7% growth in consumer loans and 9% growth in corporate loans.

Citi Holdings
Citi Holdings’ net loss was $3.5 billion in the second quarter of 2014 compared to a net loss of $582 million in the second quarter of 2013. Excluding the impact of the mortgage settlement, Citi Holdings net income was $244 million, reflecting higher revenues, lower operating expenses and lower credit costs.
Citi Holdings’ revenues increased 33% to $1.5 billion from the prior-year period. Excluding CVA/DVA (negative $1 million in the current quarter, compared to a positive $15 million in the prior-year period), Citi Holdings revenues increased 35% to $1.5 billion from the prior-year period. Net interest revenues increased 24% year-over-year to $1.0 billion, largely driven by lower funding costs. Non-interest revenues, excluding CVA/DVA, increased to $492 million from $297 million in the prior-year period, driven by the absence of repurchase reserve builds for representation and warranty claims in the second quarter of 2014, as well as higher gains on asset sales. For additional information on the results of operations of Citi Holdings for the second quarter of 2014, see “Citi Holdings” below.
Citi Holdings’ assets were $111 billion, 15% below the prior-year period, and represented approximately 6% of Citi’s total GAAP assets and 16% of its estimated risk-weighted assets under Basel III (based on the “Advanced Approaches” for determining risk-weighted assets) as of quarter-end.




6



RESULTS OF OPERATIONS
SUMMARY OF SELECTED FINANCIAL DATA—PAGE 1
Citigroup Inc. and Consolidated Subsidiaries
 
Second Quarter
 
Six Months
 
In millions of dollars, except per-share amounts and ratios
2014
2013
% Change
2014
2013
% Change
Net interest revenue
$
11,946

$
11,682

2
 %
$
23,705

$
23,312

2
 %
Non-interest revenue
7,396

8,806

(16
)
15,761

17,424

(10
)
Revenues, net of interest expense
$
19,342

$
20,488

(6
)%
$
39,466

$
40,736

(3
)%
Operating expenses
15,521

12,149

28

27,670

24,437

13

Provisions for credit losses and for benefits and claims
1,730

2,024

(15
)
3,704

4,483

(17
)
Income from continuing operations before income taxes
$
2,091

$
6,315

(67
)%
$
8,092

$
11,816

(32
)%
Income taxes
1,838

2,127

(14
)
3,888

3,697

5

Income from continuing operations
$
253

$
4,188

(94
)%
$
4,204

$
8,119

(48
)%
Income (loss) from discontinued operations, net of taxes (1)
(22
)
30

NM

15

(3
)
NM

Net income before attribution of noncontrolling interests
$
231

$
4,218

(95
)%
$
4,219

$
8,116

(48
)%
Net income attributable to noncontrolling interests
50

36

39

95

126

(25
)
Citigroup’s net income
$
181

$
4,182

(96
)%
$
4,124

$
7,990

(48
)%
Less:
 
 


 
 


Preferred dividends-Basic
$
100

$
9

NM

$
224

$
13

NM

Dividends and undistributed earnings allocated to employee restricted and deferred shares that contain nonforfeitable rights to dividends, applicable to Basic EPS
1

83

(99
)%
64

155

(59
)%
Income allocated to unrestricted common shareholders for Basic EPS
$
80

$
4,090

(98
)%
$
3,836

$
7,822

(51
)%
Add: Interest expense, net of tax, and dividends on convertible securities and adjustment of undistributed earnings allocated to employee restricted and deferred shares with nonforfeitable rights to dividends, applicable to diluted EPS

1

(100
)
$

$
1

(100
)
Income allocated to unrestricted common shareholders for diluted EPS
$
80

$
4,091

(98
)
$
3,836

$
7,823

(51
)%
Earnings per share
 
 


 
 


Basic
 
 


 
 


Income from continuing operations
$
0.03

$
1.34

(98
)%
$
1.26

$
2.57

(51
)%
Net income
0.03

1.35

(98
)
1.26

2.57

(51
)
Diluted
 
 


 
 


Income from continuing operations
$
0.03

$
1.33

(98
)%
$
1.26

$
2.57

(51
)%
Net income
0.03

1.34

(98
)
1.26

2.57

(51
)
Dividends declared per common share
0.01

0.01


0.02

0.02



Statement continues on the next page, including notes to the table.

7



SUMMARY OF SELECTED FINANCIAL DATA—PAGE 2
Citigroup Inc. and Consolidated Subsidiaries
 
Second Quarter
 
Six Months
 
In millions of dollars, except per-share amounts, ratios and direct staff
2014
2013
% Change
2014
2013
% Change
At June 30:
 
 
 
 
 
 
Total assets
$
1,909,715

$
1,883,988

1
 %
 
 
 
Total deposits
965,725

938,427

3

 
 
 
Long-term debt
226,984

220,959

3

 
 
 
Citigroup common stockholders’ equity
202,394

191,633

6

 
 
 
Total Citigroup stockholders’ equity
211,362

195,926

8

 
 
 
Direct staff (in thousands)
244

253

(4
)
 
 
 
Ratios
 
 


 
 
 
Return on average assets
0.04
%
0.88
%


0.44
%
0.85
%
 
Return on average common stockholders’ equity (2)
0.2

8.7



3.9

8.5

 
Return on average total stockholders’ equity (2)
0.3

8.6



4.0

8.3

 
Efficiency ratio
80

59



70

60

 
Tier 1 Common (3)
13.00
%
N/A

 
 
 
 
Tier 1 Capital (3)
13.00

N/A

 
 
 
 
Total Capital (3)
14.44

N/A

 


 
 
Tier 1 Leverage (4)
8.88

N/A

 
 
 
 
Estimated Basel III Tier 1 Common (5)
10.58
%
10.03
%
 
 
 
 
Estimated Basel III Tier 1 Capital (5)
11.36

10.38

 
 
 
 
Estimated Basel III Total Capital (5)
12.71

12.80

 
 
 
 
Estimated Basel III Supplementary Leverage Ratio (5)
5.74

4.89

 
 
 
 
Citigroup common stockholders’ equity to assets
10.60
%
10.17
%
 


 
 
Total Citigroup stockholders’ equity to assets
11.07

10.40

 


 
 
Dividend payout ratio (6)
33

0.7

 
 
 
 
Book value per common share
$
66.76

$
63.02

6
 %


 
 
Ratio of earnings to fixed charges and preferred stock dividends
1.55x

2.47x

 
2.06x

2.35x

 
(1)
Discontinued operations include Credicard, Citi Capital Advisors and Egg Banking credit card business. See Note 2 to the Consolidated Financial Statements for additional information on Citi’s discontinued operations.
(2)
The return on average common stockholders’ equity is calculated using net income less preferred stock dividends divided by average common stockholders’ equity. The return on average total Citigroup stockholders’ equity is calculated using net income divided by average Citigroup stockholders’ equity.
(3)
The capital ratios reflect the capital (numerator) as derived under the transition provisions of the final U.S. Basel III rules, which became effective January 1, 2014, and risk-weighted assets (denominator) as Basel III risk-weighted assets based on the “Advanced Approaches” for determining total risk-weighted assets.
(4)
The leverage ratio represents Tier 1 Capital divided by quarterly adjusted average total assets.
(5)
Citi’s estimated Basel III ratios and related components as of June 30, 2014 are based on the final U.S. Basel III rules, and with full implementation assumed for capital components; and the estimated Basel III risk-weighted assets are based on the “Advanced Approaches” for determining total risk-weighted assets.
(6) Dividends declared per common share as a percentage of net income per diluted share.
N/A Not available.

8



SEGMENT AND BUSINESS—INCOME (LOSS) AND REVENUES
The following tables show the income (loss) and revenues for Citigroup on a segment and business view:
CITIGROUP INCOME
 
Second Quarter
% Change
Six Months
% Change
In millions of dollars
2014
2013
2014
2013
Income (loss) from continuing operations
 
 
 
 
 
 
CITICORP
 
 
 
 
 
 
Global Consumer Banking
 
 
 
 
 
 
North America
$
1,077

$
1,084

(1
)%
$
2,097

$
2,158

(3
)%
EMEA
15

22

(32
)
30

23

30

Latin America
299

346

(14
)
610

702

(13
)
Asia
214

410

(48
)
595

804

(26
)
Total
$
1,605

$
1,862

(14
)%
$
3,332

$
3,687

(10
)%
Institutional Clients Group


 




 


North America
$
1,068

$
984

9
 %
$
2,357

$
2,240

5
 %
EMEA
557

1,003

(44
)
1,336

1,657

(19
)
Latin America
430

527

(18
)
771

999

(23
)
Asia
507

622

(18
)
1,063

1,310

(19
)
Total
$
2,562

$
3,136

(18
)%
$
5,527

$
6,206

(11
)%
Corporate/Other
$
(432
)
$
(229
)
(89
)%
$
(890
)
$
(394
)
NM

Total Citicorp
$
3,735

$
4,769

(22
)%
$
7,969

$
9,499

(16
)%
Citi Holdings
$
(3,482
)
$
(581
)
NM

$
(3,765
)
$
(1,380
)
NM

Income from continuing operations
$
253

$
4,188

(94
)%
$
4,204

$
8,119

(48
)%
Discontinued operations
$
(22
)
$
30

NM

$
15

$
(3
)
NM

Net income attributable to noncontrolling interests
50

36

39
 %
95

126

(25
)%
Citigroup’s net income
$
181

$
4,182

(96
)%
$
4,124

$
7,990

(48
)%
NM Not meaningful

9



CITIGROUP REVENUES
 
Second Quarter
% Change
Six Months
% Change
In millions of dollars
2014
2013
2014
2013
CITICORP
 
 
 
 
 
 
Global Consumer Banking
 
 
 
 
 
 
North America
$
4,782

$
5,053

(5
)%
$
9,565

$
10,163

(6
)%
EMEA
359

364

(1
)
706

732

(4
)
Latin America
2,324

2,333


4,592

4,641

(1
)
Asia
1,916

1,968

(3
)
3,811

3,928

(3
)
Total
$
9,381

$
9,718

(3
)%
$
18,674

$
19,464

(4
)%
Institutional Clients Group


 


 
 


North America
$
3,146

$
3,245

(3
)%
$
6,704

$
6,822

(2
)%
EMEA
2,441

3,088

(21
)
5,223

5,841

(11
)
Latin America
1,150

1,223

(6
)
2,252

2,446

(8
)
Asia
1,726

2,004

(14
)
3,518

4,042

(13
)
Total
$
8,463

$
9,560

(11
)%
$
17,697

$
19,151

(8
)%
Corporate/Other
$
35

$
114

(69
)%
$
176

$
120

47
 %
Total Citicorp
$
17,879

$
19,392

(8
)%
$
36,547

$
38,735

(6
)%
Citi Holdings
$
1,463

$
1,096

33
 %
$
2,919

$
2,001

46
 %
Total Citigroup net revenues
$
19,342

$
20,488

(6
)%
$
39,466

$
40,736

(3
)%


10



CITICORP
Citicorp is Citigroup’s global bank for consumers and businesses and represents Citi’s core franchises. Citicorp is focused on providing best-in-class products and services to customers and leveraging Citigroup’s unparalleled global network, including many of the world’s emerging economies. Citicorp is physically present in approximately 100 countries, many for over 100 years, and offers services in over 160 countries and jurisdictions. Citi believes this global network provides a strong foundation for servicing the broad financial services needs of its large multinational clients and for meeting the needs of retail, private banking, commercial, public sector and institutional clients around the world.
Citicorp consists of the following operating businesses: Global Consumer Banking (which consists of consumer banking in North America, EMEA, Latin America and Asia) and Institutional Clients Group (which includes Banking and Markets and securities services). Citicorp also includes Corporate/Other. At June 30, 2014, Citicorp had $1.8 trillion of assets and $946 billion of deposits, representing 94% of Citi’s total assets and 98% of Citi’s total deposits, respectively.

 
Second Quarter
 
Six Months
% Change
In millions of dollars except as otherwise noted
2014
2013
% Change
2014
2013
Net interest revenue
$
10,974

$
10,898

1
 %
$
21,830

$
21,775

 %
Non-interest revenue
6,905

8,494

(19
)
14,717

16,960

(13
)
Total revenues, net of interest expense
$
17,879

$
19,392

(8
)%
$
36,547

$
38,735

(6
)%
Provisions for credit losses and for benefits and claims


 


 
 


Net credit losses
$
1,790

$
1,838

(3
)%
$
3,710

$
3,786

(2
)%
Credit reserve build (release)
(414
)
(301
)
(38
)
(719
)
(618
)
(16
)
Provision for loan losses
$
1,376

$
1,537

(10
)%
$
2,991

$
3,168

(6
)%
Provision for benefits and claims
39

46

(15
)
92

109

(16
)
Provision for unfunded lending commitments
(28
)
(10
)
NM

(51
)
8

NM

Total provisions for credit losses and for benefits and claims
$
1,387

$
1,573

(12
)%
$
3,032

$
3,285

(8
)%
Total operating expenses
$
11,007

$
10,585

4
 %
$
21,612

$
21,356

1
 %
Income from continuing operations before taxes
$
5,485

$
7,234

(24
)%
$
11,903

$
14,094

(16
)%
Income taxes
1,750

2,465

(29
)
3,934

4,595

(14
)
Income from continuing operations
$
3,735

$
4,769

(22
)%
$
7,969

$
9,499

(16
)%
Income (loss) from discontinued operations, net of taxes
(22
)
30

NM

15

(3
)
NM

Noncontrolling interests
50

35

43

94

120

(22
)
Net income
$
3,663

$
4,764

(23
)%
$
7,890

$
9,376

(16
)%
Balance sheet data (in billions of dollars)


 


 
 


Total end-of-period (EOP) assets
$
1,799

$
1,753

3
 %
 
 


Average assets
1,791

1,756

2

$
1,782

$
1,745

2
 %
Return on average assets
0.82
%
1.09
%


0.89
%
1.08
%


Efficiency ratio (Operating expenses/Total revenues)
62
%
55
%


59
%
55
%


Total EOP loans
$
585

$
544

8

 
 


Total EOP deposits
$
946

$
874

8

 
 


NM Not meaningful

11



GLOBAL CONSUMER BANKING
Global Consumer Banking (GCB) consists of Citigroup’s four geographical consumer banking businesses that provide traditional banking services to retail customers through retail banking, commercial banking, Citi-branded cards and Citi retail services. GCB is a globally diversified business with 3,463 branches in 35 countries around the world as of June 30, 2014. For the three months ended June 30, 2014, GCB had $400 billion of average assets and $335 billion of average deposits.
GCB’s overall strategy is to leverage Citi’s global footprint and seek to be the preeminent bank for the emerging affluent and affluent consumers in large urban centers. As of June 30, 2014, Citi had consumer banking operations in 120, or 80%, of the world’s top 150 cities. In credit cards and in certain retail markets, Citi serves customers in a somewhat broader set of segments and geographies. Consistent with its overall strategy, Citi intends to continue to optimize its branch footprint and further concentrate its presence in major metropolitan areas.

 
Second Quarter
% Change
Six Months
% Change
In millions of dollars except as otherwise noted
2014
2013
2014
2013
Net interest revenue
$
7,182

$
7,067

2
 %
$
14,238

$
14,233

 %
Non-interest revenue
2,199

2,651

(17
)
4,436

5,231

(15
)
Total revenues, net of interest expense
$
9,381

$
9,718

(3
)%
$
18,674

$
19,464

(4
)%
Total operating expenses
$
5,461

$
5,285

3
 %
$
10,651

$
10,637

 %
Net credit losses
$
1,781

$
1,785

 %
$
3,567

$
3,694

(3
)%
Credit reserve build (release)
(318
)
(237
)
(34
)
(536
)
(577
)
7

Provision (release) for unfunded lending commitments
(3
)
9

NM

(6
)
24

NM

Provision for benefits and claims
39

46

(15
)
92

109

(16
)
Provisions for credit losses and for benefits and claims
$
1,499

$
1,603

(6
)%
$
3,117

$
3,250

(4
)%
Income from continuing operations before taxes
$
2,421

$
2,830

(14
)%
$
4,906

$
5,577

(12
)%
Income taxes
816

968

(16
)
1,574

1,890

(17
)
Income from continuing operations
$
1,605

$
1,862

(14
)%
$
3,332

$
3,687

(10
)%
Noncontrolling interests
6

6


14

11

27

Net income
$
1,599

$
1,856

(14
)%
$
3,318

$
3,676

(10
)%
Balance Sheet data (in billions of dollars)


 


 
 


Average assets
$
400

$
391

2
 %
$
399

$
396

1
 %
Return on average assets
1.60
%
1.90
%


1.68
%
1.88
%


Efficiency ratio
58
%
54
%


57
%
55
%


Total EOP assets
$
406

$
391

4

 
 


Average deposits
335

326

3

333

328

2

Net credit losses as a percentage of average loans
2.39
%
2.54
%


2.42
%
2.62
%


Revenue by business


 


 
 


Retail banking
$
4,069

$
4,542

(10
)%
$
8,086

$
9,074

(11
)%
Cards (1)
5,312

5,176

3

10,588

10,390

2

Total
$
9,381

$
9,718

(3
)%
$
18,674

$
19,464

(4
)%
Income from continuing operations by business


 


 
 


Retail banking
$
362

$
665

(46
)%
$
798

$
1,332

(40
)%
Cards (1)
1,243

1,197

4

2,534

2,355

8

Total
$
1,605

$
1,862

(14
)%
$
3,332

$
3,687

(10
)%
(Table continues on next page.)


12



Foreign Currency (FX) Translation Impact
 
 


 
 
 
Total revenue-as reported
$
9,381

$
9,718

(3
)%
$
18,674

$
19,464

(4
)%
Impact of FX translation (2)

(99
)



(346
)


Total revenues-ex-FX
$
9,381

$
9,619

(2
)%
$
18,674

$
19,118

(2
)%
Total operating expenses-as reported
$
5,461

$
5,285

3
 %
$
10,651

$
10,637

 %
Impact of FX translation (2)

(45
)



(186
)


Total operating expenses-ex-FX
$
5,461

$
5,240

4
 %
$
10,651

$
10,451

2
 %
Total provisions for LLR & PBC-as reported
$
1,499

$
1,603

(6
)%
$
3,117

$
3,250

(4
)%
Impact of FX translation (2)

(13
)



(65
)


Total provisions for LLR & PBC-ex-FX
$
1,499

$
1,590

(6
)%
$
3,117

$
3,185

(2
)%
Net income-as reported
$
1,599

$
1,856

(14
)%
$
3,318

$
3,676

(10
)%
Impact of FX translation (2)

(28
)



(58
)


Net income-ex-FX
$
1,599

$
1,828

(13
)%
$
3,318

$
3,618

(8
)%
(1)
Includes both Citi-branded cards and Citi retail services.
(2)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2014 average exchange rates for all periods presented.
NM Not meaningful

13



NORTH AMERICA GCB
North America GCB provides traditional banking and Citi-branded cards and Citi retail services to retail customers and small- to mid-size businesses in the U.S. North America GCB’s 912 retail bank branches as of June 30, 2014 are largely concentrated in the greater metropolitan areas of New York, Chicago, Miami, Washington, D.C., Boston, Los Angeles, San Francisco, Sacramento, San Diego, Dallas, Houston and Las Vegas.
At June 30, 2014, North America GCB had approximately 12.0 million retail banking customer accounts, $46.2 billion of retail banking loans and $170.6 billion of deposits. In addition, North America GCB had approximately 112.9 million Citi-branded and Citi retail services credit card accounts, with $110.4 billion in outstanding card loan balances.

 
Second Quarter
% Change
Six Months
% Change
In millions of dollars, except as otherwise noted
2014
2013
2014
2013
Net interest revenue
$
4,210

$
4,065

4
 %
$
8,396

$
8,216

2
 %
Non-interest revenue
572

988

(42
)
1,169

1,947

(40
)
Total revenues, net of interest expense
$
4,782

$
5,053

(5
)%
$
9,565

$
10,163

(6
)%
Total operating expenses
$
2,342

$
2,450

(4
)%
$
4,773

$
4,945

(3
)%
Net credit losses
$
1,070

$
1,190

(10
)%
$
2,173

$
2,445

(11
)%
Credit reserve build (release)
(397
)
(351
)
(13
)
(668
)
(721
)
7

Provisions for benefits and claims
1


100

3


NM

Provision for unfunded lending commitments
12

13

(8
)%
18

27

(33
)%
Provisions for credit losses and for benefits and claims
$
686

$
852

(19
)%
$
1,526

$
1,751

(13
)%
Income from continuing operations before taxes
$
1,754

$
1,751

 %
$
3,266

$
3,467

(6
)%
Income taxes
677

667

1

1,169

1,309

(11
)
Income from continuing operations
$
1,077

$
1,084

(1
)%
$
2,097

$
2,158

(3
)%
Noncontrolling interests
(1
)
1

NM


1

(100
)
Net income
$
1,078

$
1,083

 %
$
2,097

$
2,157

(3
)%
Balance Sheet data (in billions of dollars)


 


 
 


Average assets
$
176

$
172

2
 %
$
177

$
174

2
 %
Return on average assets
2.46
%
2.53
%


2.39
%
2.50
%


Efficiency ratio
49
%
48
%


50
%
49
%


Average deposits
$
171

$
165

4

$
171

$
165

4

Net credit losses as a percentage of average loans
2.78
%
3.29
%


2.82
%
3.34
%


Revenue by business


 


 
 


Retail banking
$
1,173

$
1,592

(26
)%
$
2,312

$
3,165

(27
)%
Citi-branded cards
2,028

1,978

3

4,047

4,004

1

Citi retail services
1,581

1,483

7

3,206

2,994

7

Total
$
4,782

$
5,053

(5
)%
$
9,565

$
10,163

(6
)%
Income from continuing operations by business


 


 
 


Retail banking
$
89

$
257

(65
)%
$
106

$
469

(77
)%
Citi-branded cards
558

440

27

1,124

872

29

Citi retail services
430

387

11

867

817

6

Total
$
1,077

$
1,084

(1
)%
$
2,097

$
2,158

(3
)%


NM Not meaningful


14



2Q14 vs. 2Q13
Net income was unchanged at $1.1 billion as lower revenues were offset by lower operating expenses, a decline in net credit losses and higher loan loss reserve releases.
Revenues decreased 5% primarily due to lower retail banking revenues, partially offset by higher Citi-branded cards and Citi retail services revenues. Net interest revenue increased 4% primarily due to an increase in average loans driven by the Best Buy portfolio acquisition in September 2013, partially offset by continued spread compression in retail banking and lower average loans in Citi-branded cards. Non-interest revenue decreased 42% primarily due to the lower mortgage origination revenues, partially offset by a 7% increase in purchase sales.
Retail banking revenues of $1.2 billion declined 26% due to lower mortgage origination revenues driven by lower U.S. mortgage refinancing activity and the absence of a gain on the sale of a mortgage portfolio in the prior-year period (approximately $180 million). While retail banking continued to experience spread compression in the deposit portfolios within the consumer and commercial banking businesses, this impact was partially offset by growth in average deposits (4%), average commercial loans (7%) and average retail loans (11%). Although retail banking revenues will likely continue to be negatively impacted during the remainder of 2014 by lower mortgage origination revenues and spread compression in the deposit portfolios, deposit spreads improved sequentially and Citi believes mortgage revenues have broadly stabilized.
Cards revenues increased 4%. In Citi-branded cards, revenues increased 3% as purchase sales increased 5% from the prior-year period and lower average loans (3% decline from the prior-year period) were partially offset by higher net interest spreads driven by the continued reduction of promotional balances in the portfolio. The decline in average loans, primarily reflecting the continued emphasis on reducing promotional balances as well as increased customer payment rates, were partially offset by the higher net interest spreads.
Citi retail services revenues increased 7% primarily due to an 18% increase in average loans driven by the Best Buy acquisition, partially offset by continued declines in revenues due to improving credit and the resulting impact on contractual partner payments. Citi retail services revenues also benefited from lower funding costs, partially offset by a decline in net interest spreads due to a higher percentage of promotional balances within the portfolio. Purchase sales in Citi retail services increased 11% from the prior-year period, driven by the acquisition of the Best Buy portfolio.
Expenses decreased 4%, reflecting ongoing cost reduction initiatives, partially offset by an increase in retail services expenses due to the impact of the Best Buy portfolio acquisition. Cost reduction initiatives included the ongoing repositioning of the mortgage business due to the decline in mortgage refinancing activity, as well as continued rationalization of the branch footprint, including reducing the number of overall branches.
Provisions decreased 19% due to lower net credit losses in Citi-branded cards (down 14% to $570 million) and Citi retail services (down 3% to $465 million) and higher loan loss
 
reserve releases ($396 million compared to $351 million in the prior-year period), primarily related to cards. Despite the increase in the cards loan loss reserve release in the current quarter, Citi expects releases relating to its cards businesses to be lower during the remainder of 2014 as net credit losses have generally stabilized in these portfolios.

2014 YTD vs. 2013 YTD
Year-to-date, North America GCB has experienced similar trends to those described above. Net income decreased 3%, mainly due to lower revenues, partially offset by lower expenses and lower net credit losses.
Revenues decreased 6% primarily due to a 40% decline in non-interest revenues, partially offset by a 2% increase in net interest revenue. Retail banking revenues declined 27% due to the significantly lower mortgage origination revenues and the continued spread compression in the deposit portfolios. Cards revenues increased 4% due to a 1% increase in Citi-branded cards revenues and 7% increase in Citi retail services revenues, driven by the factors described above.
Expenses declined 3%, driven by the factors described above.
Provisions decreased 13% due to an 11% decline in net credit losses, partially offset by lower loan loss reserve releases ($665 million in the first half of 2014 compared to $721 million in the prior-year period) primarily related to cards, as well as reserve builds for new loans originated in the Best Buy portfolio.










15



EMEA GCB
    
EMEA GCB provides traditional banking and Citi-branded card services to retail customers and small- to mid-size businesses, primarily in Central and Eastern Europe and the Middle East. The countries in which EMEA GCB has the largest presence are Poland, Russia and the United Arab Emirates.
At June 30, 2014, EMEA GCB had 159 retail bank branches with approximately 3.3 million retail banking customer accounts, $6.0 billion in retail banking loans, $13.8 billion in deposits, and 2.1 million Citi-branded card accounts with $2.5 billion in outstanding card loan balances.

 
Second Quarter
% Change
Six Months
% Change
In millions of dollars, except as otherwise noted
2014
2013
2014
2013
Net interest revenue
$
233

$
237

(2
)%
$
464

$
483

(4
)%
Non-interest revenue
126

127

(1
)
242

249

(3
)
Total revenues, net of interest expense
$
359

$
364

(1
)%
$
706

$
732

(4
)%
Total operating expenses
$
313

$
342

(8
)%
$
628

$
695

(10
)%
Net credit losses
$
20

$
(1
)
NM

$
31

$
28

11
 %
Credit reserve build (release)
3

(9
)
NM

3

(20
)
NM

Provision for unfunded lending commitments
1

(1
)
NM

1


100

Provisions for credit losses
$
24

$
(11
)
NM

$
35

$
8

NM

Income (loss) from continuing operations before taxes
$
22

$
33

(33
)%
$
43

$
29

48
 %
Income taxes (benefits)
7

11

(36
)%
13

6

NM

Income (loss) from continuing operations
$
15

$
22

(32
)%
$
30

$
23

30
 %
Noncontrolling interests
5

5

 %
10

8

25
 %
Net income (loss)
$
10

$
17

(41
)%
$
20

$
15

33
 %
Balance Sheet data (in billions of dollars)


 


 
 


Average assets
$
10

$
10

 %
$
10

$
10

 %
Return on average assets
0.40
%
0.68
 %


0.40
%
0.30
%


Efficiency ratio
87
%
94
 %


89
%
95
%


Average deposits
$
14

$
13

8

$
13

$
13


Net credit losses as a percentage of average loans
0.97
%
(0.05
)%


0.77
%
0.70
%


Revenue by business


 


 
 


Retail banking
$
224

$
214

5
 %
$
438

$
429

2
 %
Citi-branded cards
135

150

(10
)
268

303

(12
)
Total
$
359

$
364

(1
)%
$
706

$
732

(4
)%
Income (loss) from continuing operations by business


 


 
 


Retail banking
$
7

$
(5
)
NM

$

$
(18
)
100
 %
Citi-branded cards
8

27

(70
)%
30

41

(27
)
Total
$
15

$
22

(32
)%
$
30

$
23

30
 %
Foreign Currency (FX) Translation Impact


 


 
 


Total revenues-as reported
$
359

$
364

(1
)%
$
706

$
732

(4
)%
Impact of FX translation (1)

(2
)



(15
)


Total revenues-ex-FX
$
359

$
362

(1
)%
$
706

$
717

(2
)%
Total operating expenses-as reported
$
313

$
342

(8
)%
$
628

$
695

(10
)%
Impact of FX translation (1)





(11
)


Total operating expenses-ex-FX
$
313

$
342

(8
)%
$
628

$
684

(8
)%
Provisions for credit losses-as reported
$
24

$
(11
)
NM

$
35

$
8

NM

Impact of FX translation (1)





(3
)


Provisions for credit losses-ex-FX
$
24

$
(11
)
NM

$
35

$
5

NM

Net income (loss)-as reported
$
10

$
17

(41
)%
$
20

$
15

33
 %
Impact of FX translation (1)





3



Net income (loss)-ex-FX
$
10

$
17

(41
)%
$
20

$
18

11
 %

16



(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2014 average exchange rates for all periods presented.
NM
Not meaningful

The discussion of the results of operations for EMEA GCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of EMEA GCB’s results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.

2Q14 vs. 2Q13
Net income declined $7 million to $10 million as higher credit costs and lower revenues were partially offset by lower expenses.
Revenues decreased 1%, mainly driven by lower revenues resulting from the sales of Citi’s consumer operations in Turkey and Romania during 2013, partially offset by higher volumes in core markets, particularly in Russia, Poland and the United Arab Emirates. Net interest revenue decreased 1%, due to continued spread compression in cards and an 11% decrease in average cards loans, primarily due to the sales of the consumer operations in Turkey and Romania, partially offset by growth in average retail loans of 11%. Interest rate caps on credit cards, particularly in Poland, and the continued low interest rate environment were the main contributors to the lower net interest spreads. Non-interest revenue decreased 1%, mainly reflecting lower revenues due to the sales of the consumer operations in Turkey and Romania, partially offset by higher investment fees due to an increase in the sale of higher spread products. Investment sales increased 7% and average deposits increased 2%, while cards purchase sales decreased 11% due to the sales of the consumer operations in Turkey and Romania. Continued regulatory changes, including caps on interchange rates in Poland, and spread compression will likely continue to negatively impact revenues in EMEA GCB during the remainder of 2014.
Expenses declined 8%, primarily due to repositioning savings and the impact of the sales of the consumer operations in Turkey and Romania, partially offset by continued investment spending on new internal operating platforms.
 Provisions increased $35 million due to higher net credit losses and the absence of a loan loss reserve release in the current quarter. The higher net credit losses reflected the absence of a $28 million benefit in the prior-year period primarily due to the sales of written-off accounts.

Russia/Ukraine
To date, the ongoing instability in Russia and Ukraine has not had a material impact on the results of operations of EMEA GCB. However, future developments, including actions by Citi to mitigate its exposures and risks or the imposition of additional sanctions, such as asset freezes, involving Russia or against Russian entities, business sectors, individuals or otherwise, could negatively impact the business. For additional information on Citi’s exposures in these countries, see “Managing Global Risk-Country and Cross-Border Risk” below.

 

2014 YTD vs. 2013 YTD
Year-to-date, EMEA GCB has experienced similar trends to those described above. Net income increased 11%, mainly due to lower expenses, partially offset by lower revenues and higher credit costs.
Revenues decreased 2% primarily driven by the lower revenues resulting from the sales of Citi’s consumer operations in Turkey and Romania, partially offset by higher volumes in core markets.
Expenses declined 8%, driven by the factors described above.
Provisions increased by $30 million primarily due to the absence of loan loss reserve releases in the current period. Net credit losses increased 11% due to a benefit in the prior-year period due to the sales of written-off accounts.





17



LATIN AMERICA GCB
Latin America GCB provides traditional banking and Citi-branded card services to retail customers and small- to mid-size businesses, with the largest presence in Mexico and Brazil. Latin America GCB includes branch networks throughout Latin America as well as Banco Nacional de Mexico, or Banamex, Mexico’s second-largest bank, with nearly 1,600 branches.
At June 30, 2014, Latin America GCB had 1,921 retail branches, with approximately 32.2 million retail banking customer accounts, $30.8 billion in retail banking loans and $48.3 billion in deposits. In addition, the business had approximately 9.0 million Citi-branded card accounts with $11.7 billion in outstanding loan balances.

 
Second Quarter
% Change
Six Months
% Change
In millions of dollars, except as otherwise noted
2014
2013
2014
2013
Net interest revenue
$
1,571

$
1,575

 %
$
3,076

$
3,117

(1
)%
Non-interest revenue
753

758

(1
)
1,516

1,524

(1
)
Total revenues, net of interest expense
$
2,324

$
2,333

 %
$
4,592

$
4,641

(1
)%
Total operating expenses
$
1,360

$
1,351

1
 %
$
2,674

$
2,692

(1
)%
Net credit losses
$
493

$
416

19
 %
$
962

$
835

15
 %
Credit reserve build (release)
111

104

7

167

142

18

Provision (release) for unfunded lending commitments
1


100




Provision for benefits and claims
27

33

(18
)
74

82

(10
)
Provisions for loan losses and for benefits and claims (LLR & PBC)
$
632

$
553

14
 %
$
1,203

$
1,059

14
 %
Income from continuing operations before taxes
$
332

$
429

(23
)%
$
715

$
890

(20
)%
Income taxes
33

83

(60
)
105

188

(44
)
Income from continuing operations
$
299

$
346

(14
)%
$
610

$
702

(13
)%
Noncontrolling interests
2


NM

4

2

100

Net income
$
297

$
346

(14
)%
$
606

$
700

(13
)%
Balance Sheet data (in billions of dollars)


 


 
 


Average assets
$
81

$
80

1
 %
$
81

$
83

(2
)%
Return on average assets
1.47
%
1.73
%


1.51
%
1.72
%


Efficiency ratio
59
%
58
%


58
%
58
%


Average deposits
$
47

$
45

4

$
47

$
45

4
 %
Net credit losses as a percentage of average loans
4.65
%
4.06
%


4.62
%
4.14
%


Revenue by business


 


 
 


Retail banking
$
1,511

$
1,544

(2
)%
$
3,009

$
3,088

(3
)%
Citi-branded cards
813

789

3

1,583

1,553

2

Total
$
2,324

$
2,333

 %
$
4,592

$
4,641

(1
)%
Income from continuing operations by business


 


 
 


Retail banking
$
208

$
190

9
 %
$
413

$
418

(1
)%
Citi-branded cards
91

156

(42
)
197

284

(31
)
Total
$
299

$
346

(14
)%
$
610

$
702

(13
)%
Foreign Currency (FX) Translation Impact


 


 
 


Total revenues-as reported
$
2,324

$
2,333

 %
$
4,592

$
4,641

(1
)%
Impact of FX translation (1)

(80
)



(225
)


Total revenues-ex-FX
$
2,324

$
2,253

3
 %
$
4,592

$
4,416

4
 %
Total operating expenses-as reported
$
1,360

$
1,351

1
 %
$
2,674

$
2,692

(1
)%
Impact of FX translation (1)

(43
)



(128
)


Total operating expenses-ex-FX
$
1,360

$
1,308

4
 %
$
2,674

$
2,564

4
 %
Provisions for LLR & PBC-as reported
$
632

$
553

14
 %
$
1,203

$
1,059

14
 %
Impact of FX translation (1)

(14
)



(49
)


Provisions for LLR & PBC-ex-FX
$
632

$
539

17
 %
$
1,203

$
1,010

19
 %
Net income-as reported
$
297

$
346

(14
)%
$
606

$
700

(13
)%
Impact of FX translation (1)

(18
)



(35
)


Net income-ex-FX
$
297

$
328

(9
)%
$
606

$
665

(9
)%
(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2014 average exchange rates for all periods presented.
NM Not Meaningful


18



The discussion of the results of operations for Latin America GCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Latin America GCB’s results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.

2Q14 vs. 2Q13
Net income decreased 9% as higher credit costs and higher expenses were partially offset by higher revenues.
Revenues increased 3%, primarily due to continued volume growth in retail banking and cards, partially offset by continued spread compression and slower overall economic growth across the region, including in Mexico and Brazil. Net interest revenue increased 2% due to increased volumes, partially offset by spread compression. Non-interest revenue increased 5%, primarily due to higher fees from increased business volumes in retail banking and cards as well as a gain on sale (approximately $10 million) related to the sale of Citi’s consumer business in Honduras.
Retail banking revenues increased 1% as average loans increased 8%, investment sales increased 13% and average deposits increased 8%, partially offset by lower spreads in Brazil and Mexico. Cards revenues increased 7% as average loans increased 8% and purchase sales increased 1%. This increase in overall cards revenues was partially offset by the lower economic growth and slowing cards purchase sales in Mexico due to the previously-disclosed fiscal reforms enacted in 2013, which included higher income and other taxes and continued to negatively impact consumer behavior. Citi expects these trends as well as spread compression could continue to negatively impact revenues in Latin America GCB during the remainder of 2014.
Expenses increased 4%, primarily in Mexico due to higher legal and related costs, increased compliance costs and higher technology spending, partially offset by productivity and efficiency savings.
Provisions increased 17%, primarily due to higher net credit losses as well as a higher loan loss reserve build. Net credit losses increased 22%, driven primarily by Mexico cards and, to a lesser extent, the personal loan portfolio, as the portfolios continued to grow and season. In addition, Mexico fiscal reforms (as discussed above) negatively impacted card delinquencies in Mexico across the industry. The continued impact of the fiscal reforms and economic slowdown in Mexico could cause net credit losses in Latin America GCB to remain elevated. Any further deterioration in Citi’s Mexican homebuilders clients could also result in higher net credit losses, although any losses related to those homebuilder clients should be charged against existing loan loss reserves as of June 30, 2014, and thus should be neutral to overall cost of credit. The loan loss reserve build increased 8%, primarily due to portfolio growth and seasoning.

Argentina/Venezuela
For additional information on Citi’s exposures in Argentina and Venezuela and the impact, or potential future impact, to Latin America GCB results of operations as a result of certain developments in these countries, see “Managing Global Risk-Country and Cross-Border Risk” below.

 
2014 YTD vs. 2013 YTD
Year-to-date, Latin America GCB has experienced similar trends to those described above. Net income decreased 9% as higher credit costs and higher expenses were partially offset by higher revenues.
Revenues increased 4%, primarily due to volume growth in retail banking and cards, partially offset by continued spread compression and slower overall economic growth across the region, including in Mexico. Net interest revenue increased 4% due to increased volumes, partially offset by spread compression. Non-interest revenue increased 4%, primarily due to higher fees from increased business volumes in retail and cards as well as gains on sale (approximately $50 million) related to the sale of Citi’s consumer business in Honduras in the current period and Citi’s partial sale of its indirect investment in Banco de Chile during the first quarter of 2014. Retail banking revenues increased 2% as average loans increased 8%, investment sales increased 13% and average deposits increased 7%. Cards revenues increased 7% as average loans increased 9% and purchase sales increased 3%, partially offset by lower economic growth and slowing cards purchase sales in Mexico due to the 2013 fiscal reforms.
Expenses increased 4%, driven by the factors described above.
Provisions increased 19%, primarily due to higher net credit losses as well as a higher loan loss reserve build. Net credit losses increased 21%, driven primarily by Mexico cards and, to a lesser extent, the personal loan portfolio, as the portfolios continued to grow and season. The loan loss reserve build increased 24%, primarily due to portfolio growth and seasoning.







19



ASIA GCB
Asia GCB provides traditional b