Citigroup Inc. earnings

Management highlights

### Firm-Wide Performance & Transformation Progress - The firm delivered its highest quarterly revenue in a decade, with 9% positive operating leverage, double-digit overall revenue growth, and 430 basis points of year-over-year improvement in firm-wide ROTCE. - 4 of 5 core business segments achieved revenue growth, and every segment improved returns. Transformation work is largely winding down, with most core work passing internal audit validation. - Citi completed planned divestitures: sold its Polish consumer business, closed the sale of an additional 22.6% stake in Banamex, and remains on track to reach 49% total divestment by summer 2026. - The simplified firm structure and improved performance passed the Fed stress test, enabling management to announce a 12% dividend increase and a $30 billion common stock repurchase program, with $4 billion in repurchases completed in Q2. The CET1 ratio stood at 12.8%, 120 basis points above the regulatory minimum. ### Strategic Priorities - Organic investment to drive long-term growth, with 9 of 10 Citi employees currently using internal AI tools to improve productivity, client experience, and growth. - Continued share gain in high-momentum core segments, including investment banking ECM/DCM, Services custody and transaction banking, and Wealth organic asset growth. - Cost discipline and structural efficiency: Headcount was reduced to 219,000, with $800 million in severance incurred year-to-date, as the firm targets productivity savings from AI and automation. ### Market & Macro Context - U.S. growth and labor markets remain stable, with AI and related infrastructure investment providing a strong tailwind to the U.S. and parts of Asia, while Europe faces more challenging growth and competitive headwinds. - Citi's global corporate client base maintains strong balance sheets and has proven adept at navigating the current complex operating environment, supporting overall resiliency.

Guidance

- The firm maintained its full-year 2026 ROTCE target of 10% to 11%, despite a 13.1% year-to-date ROTCE, to retain flexibility for accelerated long-term investments. - NII excluding markets is projected to grow 5% to 6% full-year, with management maintaining this guidance even after stronger-than-expected first half growth, in expectation of deposit growth normalization. - Non-interest revenue excluding markets is expected to grow driven by momentum in Services, Banking, and Wealth, offset by U.S. Consumer Cards investment headwinds; U.S. Consumer Cards non-interest revenue is expected to stay at Q2 2026 absolute levels in H2 2026. - Management notes that Markets has historically seen ~20% revenue decline between H1 and H2, and the decline could be larger than average in 2026 due to the exceptionally strong first half performance. - Full-year 2026 efficiency ratio is guided to around 60%, as the firm ramps up investments and incurs additional severance for structural efficiency initiatives in H2. - U.S. Consumer Cards full-year net credit loss rate is projected between 4% and 4.5%, with ACL changes dependent on macroeconomic conditions and business volumes. - Management maintains a target CET1 ratio of ~12.6% under current existing rules, with medium-term target of 13.1% by 2028 to accommodate higher G-SIB requirements.

Segment performance

Citi reported $24.8 billion in total firm revenues in Q2 2026, up 14% year-over-year, with $5.8 billion in net income, an EPS of $3.15, and a ROTCE of 13%. Performance by segment: 1. **Services**: Revenues up 18% year-over-year, generating $2.6 billion in net income with a 30.9% ROTCE (29% year-to-date). It contributed ~26% of total Q2 revenue. Cross-border transaction value grew 13%, average deposits increased 19%, and assets under custody/administration rose 22%. 2. **Markets**: Revenues up 17% year-over-year to over $7 billion, generating $2.4 billion in net income with a 17% ROTCE (17.8% year-to-date). It contributed ~28% of total Q2 revenue. Equities revenues grew 45% (prime balances up nearly 60%), while fixed income revenues rose 7%, led by spread products and currencies. 3. **Banking**: Revenues up 34% year-over-year, generating $350 million in net income with an 18% ROTCE (16.9% year-to-date). It contributed ~6% of total Q2 revenue. Investment banking revenues grew 44% (ECM up 92%, DCM up 65%), while corporate lending revenues (excluding hedge mark-to-market) declined 4%. 4. **Wealth**: Revenues up 13% year-over-year, generating $583 million in net income with a 14.4% ROTCE (12.6% year-to-date). It contributed ~8% of total Q2 revenue. Net new investment assets were $15.7 billion for the quarter, total client investment assets rose 14%, and organic growth reached 9% over the prior 12 months. 5. **U.S. Consumer Cards**: Revenues up 1% year-over-year, generating $852 million in net income with a 22% ROTCE (20.6% year-to-date). It contributed ~11% of total Q2 revenue. Following the acquisition of the American Airlines co-branded portfolio, general purpose card acquisitions grew 135%, spend volume rose 12%, and average loans increased 8%. 6. **All Other (Corporate Other + Legacy Franchises)**: Revenues up 1% year-over-year, with expenses down 3% year-over-year, driven by cost reductions from exit/wind-down activities and lower transformation costs.

Risks & headwinds

- Uncertainty around macroeconomic and market conditions in the second half of 2026, particularly for Markets revenues which are heavily dependent on client activity and market sentiment. - Geopolitical instability remains a key wildcard for global market activity and economic growth. - Uncertainty around the timing of the lifting of the consent order, which remains fully at the discretion of Citi's regulators. - Uncertainty around finalization of Basel III, G-SIB, and SCB regulatory rules, which will impact Citi's required capital levels. - Intense competition in the U.S. general purpose credit card market, requiring sustained high levels of investment to gain share. - Normalization of the exceptionally high deposit growth seen in Services in the first half of 2026 is expected, which will moderate NII growth over the medium term. - Higher-than-expected rate volatility or deposit betas could pressure net interest margins across business segments.

Analyst Q&A

• Q: Management maintained the 10-11% full-year 2026 ROTCE target despite a 13% first half ROTCE. How much of this decision stems from conservatism about H2, versus planned investments? /

  A: Management says the decision is driven by three core factors: uncertainty around H2 macro and market conditions, historical seasonality that drives significantly lower Markets revenues in H2, and intentional choice to retain flexibility to accelerate long-term organic investments if conditions remain constructive. Management notes they are prioritizing durable medium-term returns over hitting a short-term waypoint target, and may accelerate structural efficiency and funding improvements alongside investments to deliver higher long-term value. (312 characters)

• Q: Should investors interpret the guidance as meaning you expect a much worse H2 than H1, and what areas will you accelerate investment spending in? /

  A: Management clarifies they are not expecting a worse H2, but are prioritizing long-term growth over short-term earnings. They plan to accelerate organic investments across all five core businesses, not inorganic acquisitions. Investments will support higher sustainable future returns, and the firm will also accelerate structural efficiency initiatives (including additional automation and severance) to help fund these investments. (298 characters)

• Q: Can you give details on the expected magnitude of additional severance in H2 2026, and what drives structural efficiency gains? /

  A: Management did not provide a specific H2 severance number, but noted $800 million in severance has already been recorded year-to-date, matching full-year 2025 levels. Structural efficiency comes from three areas: reduction of stranded legacy costs, winding down temporary transformation-related costs (with peak transformation costs already passed), and productivity gains from AI automation of over 100 end-to-end processes. (301 characters)

• Q: How do you see the path for CET1 capital, and could discretionary buffers be reduced if performance improves and rules are finalized? /

  A: Citi's current CET1 ratio is 12.8%, 120bps above the current regulatory minimum, with a medium-term target of 13.1% by 2028 to account for expected G-SIB rule changes. Management says there is still too much regulatory uncertainty to change the 100bps discretionary buffer right now. The main expected capital upside comes from finalized rules that accurately reflect Citi's actual risk, and continued improvements in PPNR and stress loss performance that reduce the required stress capital buffer. (354 characters)

• Q: Citi's global corporate clients are seeing strong performance despite elevated geopolitical risk. What is driving this resiliency? /

  A: Citi's global corporate client base has extremely strong balance sheets, diversified revenue streams, and has learned to adapt swiftly to shocks like the pandemic and energy volatility. Firms are repositioning supply chains to balance risk and growth, with European firms pursuing growth in the U.S. and Asia, U.S. firms benefiting from AI-driven innovation, and Chinese exporters growing rapidly abroad, with the AI electronics upcycle providing a broad tailwind across Asia. (323 characters)