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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, 2013

Commission file number 1-9924

Citigroup Inc.
(Exact name of registrant as specified in its charter)

        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.

        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, 2013: 3,041,026,489

Available on the web at www.citigroup.com

   

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CITIGROUP INC
SECOND QUARTER 2013—FORM 10-Q

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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, transaction 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 Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool. 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, 2012 filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2013 (2012 Annual Report on Form 10-K) and Citigroup's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 3, 2013 (First Quarter of 2013 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.

        Within this Form 10-Q, please refer to the tables of contents on pages 2 and 108 for page references to Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements, respectively.

        Certain reclassifications 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 Citi's Forms 8-K furnished to the SEC on April 5, 2013 and June 28, 2013.

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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.

   

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(1)

North America includes the U.S., Canada and Puerto Rico, Latin America includes Mexico, and Asia includes Japan.

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

EXECUTIVE SUMMARY

Second Quarter of 2013 Summary Results

        During the second quarter of 2013, Citi saw growth in its core businesses in Citicorp versus the prior-year period, driven principally by strong results in its markets businesses within Securities and Banking as well as an improved credit environment. Despite this growth, Citi's results for the second quarter of 2013 also reflected a continued challenging operating environment, including slowing growth in the emerging markets, continued spread compression(1) globally impacting its Global Consumer Banking (GCB) and Transaction Services businesses and elevated legal and related expenses as Citi continues to work through its "legacy" legal issues. Legal and related expenses are expected to continue to remain elevated and somewhat volatile as Citi works through these issues, although Citi was able to resolve a portion of its legacy representation and warranty issues during the second quarter of 2013, with its announced agreement with Fannie Mae (see "Managing Global Risk—Credit Risk—Citigroup—Residential Mortgages—Representations and Warranties" below).

Citigroup

        Citigroup reported second quarter of 2013 net income of $4.2 billion, or $1.34 per diluted share. Citi's reported net income increased by 42%, or $1.2 billion, from the second quarter of 2012. Results for the second quarter of 2013 included a positive 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 $477 million ($293 million after-tax), compared to $219 million ($140 million after-tax) in the second quarter of 2012, reflecting a widening of Citi's credit spreads and a tightening of counterparty spreads during the quarter. Second quarter of 2012 results also included a net loss of $424 million ($274 million after-tax) related to the sale of a 10.1% stake in Akbank T.A.S (Akbank).

        Excluding CVA/DVA in both periods and the Akbank loss in the second quarter of 2012,(2) Citigroup net income increased 26% to $3.9 billion. Earnings per share of $1.25 increased 25% compared to $1.00 in the prior year period. The year-over-year increase in earnings per share primarily reflected higher revenues and lower net credit losses, partially offset by higher legal and related expenses, a lower loan loss reserve release and a higher effective tax rate as compared to the prior-year period. Citi's higher effective tax rate in the second quarter of 2013 reflected higher earnings in North America, a higher effective tax rate on its international operations due to the previously-disclosed change in its assertion surrounding the indefinite reinvestment of earnings in certain of its international entities as well as the resolution of certain tax issues in the current quarter (for additional information, see "Income Taxes" below).

        Citi's revenues, net of interest expense, were $20.5 billion in the second quarter of 2013, up 11% versus the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, revenues were $20.0 billion, up 8% compared to the prior-year period, as revenues in Citicorp and Citi Holdings grew by 7% and 17%, respectively. Net interest revenues of $11.7 billion were 3% higher than the prior-year period, as growth in Securities and Banking in Citicorp and an increase in Local Consumer Lending in Citi Holdings was partially offset by the ongoing impact of spread compression in Transaction Services in Citicorp, which Citi expects will likely continue to negatively impact net interest revenues in the near term. Non-interest revenues were $8.8 billion, up 25% from the prior-year period, driven by growth in Securities and Banking revenues and the absence of the Akbank loss in the second quarter of 2012. Excluding CVA/DVA in both periods and the Akbank loss in the second quarter of 2012, non-interest revenues of $8.3 billion were 15% higher than the prior-year period.

Operating Expenses

        Citigroup expenses increased 1% versus the prior-year period to $12.1 billion, driven by higher legal and related expenses in Citi Holdings (see below), partially offset by lower repositioning charges of $75 million in the second quarter of 2013 compared to $186 million in the prior-year period. Citi incurred legal and related expenses of $832 million (compared to $480 million in the prior-year period). Excluding legal and related expenses, repositioning charges and the impact of foreign exchange translation into U.S. dollars for reporting purposes (as used throughout this report, FX translation),(3) Citi's operating expenses were $11.2 billion, a 1% reduction versus the prior-year period. This expense decline reflected approximately $200 million of repositioning savings, partially offset by higher performance-based compensation expense as compared to the prior-year period given the improved operating performance.

        Citicorp's expenses were $10.6 billion, down 2% from the prior-year period, largely reflecting lower legal and related expenses. Citicorp legal and related expenses were $131 million in the second quarter of 2013, compared to $278 million in the prior-year period. Citi Holdings expenses increased 25% from the prior-year period to $1.5 billion, principally due to the higher legacy legal and related expenses, which were primarily reflected in the Special Asset Pool. Citi Holdings legal and related expenses were $702 million in the second quarter of 2013, compared to $202 million in the prior-year period.

   

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(1)

As used throughout this report, spread compression refers to the reduction in net interest revenue as a percentage of loans or deposits, as applicable, as driven by either lower yields on interest-earning assets or higher costs to fund such assets (or a combination thereof).

(2)

Citigroup's results of operations, excluding the impact of CVA/DVA and gains/(losses) on minority investments, are non-GAAP financial measures. Citi believes the presentation of its results of operations excluding the impact of CVA/DVA and gains/(losses) on minority investments provides a more meaningful depiction of the underlying fundamentals of its businesses.

(3)

FX translation decreased reported operating expenses by approximately $0.1 billion in the second quarter of 2013 as compared to the prior-year period. For the impact of FX translation on second quarter 2013 results of operations for each of EMEA Regional Consumer Banking (RCB), Latin America RCB, Asia RCB and Transaction Services, see the table accompanying the discussion of each respective business' results of operations below.

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Credit Costs and Loan Loss Reserve Positions

        Citi's total provisions for credit losses and for benefits and claims of $2.0 billion declined 25% from the prior-year period. Net credit losses of $2.6 billion were down 25% from the second quarter of 2012. Consumer net credit losses declined 23% to $2.6 billion reflecting improvements in mortgages in Citi Holdings—Local Consumer Lending and North America Citi-branded cards and Citi retail services in Citicorp. Corporate net credit losses were $45 million in the second quarter of 2013, compared to $154 million in second quarter of 2012.

        The net release of allowance for loan losses and unfunded lending commitments was $784 million in the second quarter of 2013, 22% lower than the prior-year period, with $705 million related to Consumer and the remainder in Corporate. Of the $784 million net reserve release, $311 million was attributable to Citicorp, compared to a $740 million release in the prior-year period. The decline in the Citicorp reserve release principally reflected lower releases in North America RCB largely related to cards. The $473 million net reserve release in Citi Holdings increased from $269 million in the prior-year period and included a reserve release of approximately $525 million related to North America mortgages.

        Citigroup's total allowance for loan losses was $21.6 billion at quarter end, or 3.4% of total loans, compared to $27.6 billion, or 4.3%, at the end of the prior-year period. The decline in the total allowance for loan losses reflected asset sales, lower non-accrual loans, and overall continued improvement in the credit quality of Citi's loan portfolios.

        The Consumer allowance for loan losses was $18.9 billion, or 5.0% of total Consumer loans, at quarter end, compared to $24.6 billion, or 6.0% of total loans, at June 30, 2012. Total non-accrual assets decreased 12% to $10.1 billion as compared to June 30, 2012. Corporate non-accrual loans declined 17% to $2.1 billion, reflecting continued credit improvement. Consumer non-accrual loans declined 9%, to $7.6 billion, versus the prior-year period.

Capital

        Citigroup's Basel I Tier 1 Capital and Tier 1 Common ratios were 13.2% and 12.2% as of June 30, 2013, respectively, each reflecting the final U.S. market risk capital rules (Basel II.5) which became effective on January 1, 2013. Citi's estimated Tier 1 Common ratio under Basel III was 10.0% at the end of the second quarter of 2013, up from an estimated 9.3% at March 31, 2013. Citi's estimated Basel III Supplementary Leverage Ratio for the second quarter of 2013 was 4.9%.(4)

Citicorp(5)

        Citicorp net income increased 23% from the prior-year period to $4.8 billion. CVA/DVA in Securities and Banking was $462 million ($284 million after-tax), compared to $198 million ($127 million after-tax) in the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, Citicorp net income increased 12% from the prior-year period to $4.5 billion, as revenue growth, lower operating expenses and lower net credit losses were partially offset by lower loan loss reserve releases and a higher effective tax rate.

        Citicorp revenues, net of interest expense, were $19.4 billion in the second quarter of 2013, up 11% versus the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, Citicorp revenues were $18.9 billion in the quarter, a 7% increase versus the prior-year period, as growth in Securities and Banking and GCB revenues was partially offset by a decline in Transaction Services revenues.

        Global Consumer Banking revenues of $9.7 billion increased 2% versus the prior-year period. North America RCB revenues of $5.1 billion declined 1% from the prior-year period, driven by a 4% decline in retail banking revenues with total cards revenues (Citi-branded cards and Citi retail services) unchanged. The decline in retail banking revenues was driven by lower mortgage servicing revenues combined with ongoing spread compression, partially offset by a gain of approximately $180 million on the sale of a mortgage portfolio during the current quarter. Citi expects retail banking revenues will continue to be negatively impacted due to the current interest rate environment as historically high mortgage origination volumes are expected to decline and gain on sale margins to reduce. Spread compression in the deposit portfolio is also expected to continue to negatively impact retail banking revenues. North America RCB average retail loans of $41 billion grew 2% and average deposits of $165 billion grew 8%, both versus the prior-year period. North America RCB cards revenues remained unchanged, as a 1% increase in Citi retail services revenues to $1.5 billion was offset by a 1% decline in Citi-branded cards revenues to $2.0 billion. Average card loans of $104 billion declined 4% versus the prior-year period, driven by increased payment rates resulting from ongoing consumer deleveraging. Citi retail services revenues were also negatively impacted by higher contractual partner payments due to the impact of continued improving credit trends. Card purchase sales of $60 billion increased 2% versus the prior-year period.

        International GCB revenues (consisting of Asia RCB, Latin America RCB and EMEA RCB) grew 6% versus the prior-year period. Excluding the impact of FX translation, international GCB revenues grew 5%, driven by 8% revenue growth in Latin America RCB and 2% revenue growth in each of Asia RCB and EMEA RCB. While international GCB revenues continued to reflect spread compression in certain markets, as well as the impact of regulatory changes, particularly in Asia, most underlying business metrics continued to exhibit growth. International GCB average retail loans increased 5% versus the prior-year period, investment sales grew 36%, average card

   

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(4)

Citi's estimated Basel III Tier 1 Common ratio and estimated Basel III Supplementary Leverage ratio as of June 30, 2013 are based on the U.S. banking agencies proposed Basel III rules (Basel III NPR). In July 2013, the U.S. banking agencies adopted the final U.S. Basel III rules. Citi continues to review these and other recent developments relating to the future capital requirements of financial institutions such as Citi. In addition, Citi's estimated Basel III Tier 1 Common ratio, Supplementary Leverage ratio and certain related components are non-GAAP financial measures. For additional information on these matters, see "Capital Resources and Liquidity—Capital Resources" below.

(5)

Citicorp includes Citi's three operating businesses—Global Consumer Banking, Securities and Banking and Transaction Services—as well as Corporate/Other. See "Citicorp" below for additional information on the results of operations for each of the businesses in Citicorp.

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loans grew 3%, and card purchase sales grew 9%, all excluding the impact of FX translation.

        Securities and Banking revenues were $6.8 billion in the second quarter of 2013, up 25% from the prior-year period. Excluding CVA/DVA,(6) Securities and Banking revenues of $6.4 billion increased 21% from the prior-year period, driven principally by growth in equity and fixed income markets and investment banking revenues.

        Fixed income markets revenues of $3.4 billion, excluding CVA/DVA, increased 18% from the prior-year period with strength in all major products. Equity markets revenues of $942 million in the second quarter of 2013, excluding CVA/DVA, increased 68% from the prior-year period, driven by an improvement in derivatives performance as well as higher cash equity volumes.

        Investment banking revenues rose 21% from the prior-year period to $1.0 billion with higher revenues in all major products. Private Bank revenues of $645 million, excluding CVA/DVA, increased 9% from the prior-year period, with growth in all regions. Lending revenues decreased to $424 million from $571 million in the prior-year period, reflecting $23 million of mark-to-market gains on hedges related to accrual loans as credit spreads widened less significantly during the second quarter of 2013 (compared to a $156 million gain in the prior-year period). Excluding the mark-to-market impact on hedges related to accrual loans, core lending revenues declined 3% to $401 million versus the prior year, as lower volumes were offset by slightly higher spreads.

        Transaction Services revenues declined 1% to $2.7 billion versus the prior-year period. Treasury and Trade Solutions revenues declined 3%, as the impact of spread compression globally was only partially offset by loan and deposit growth. Securities and Fund Services revenues increased 5% (6% excluding the impact of FX translation), as higher settlement volumes and fees offset lower net interest spreads. Despite the continued negative impact of spread compression on revenues in Transaction Services, underlying volumes continued to grow, with average deposits and other customer liability balances up 7% and assets under custody up 10%, each versus the prior-year period.

        Citicorp end of period loans increased 3% from the prior-year period to $544 billion, with Consumer loans flat and 7% growth in Corporate loans. Excluding $3.2 billion of Consumer loans as of the end of the second quarter of 2012 (related to Citi's agreement to sell Credicard, which was moved to discontinued operations in Corporate/Other in the second quarter of 2013), (7) Consumer loans grew 1% versus the prior-year period. Growth in Corporate loans included the impact of adding approximately $7 billion of previously unconsolidated assets during the second quarter of 2013, reflected in North America Transaction Services (for additional information, see "Balance Sheet—Loans" as well as Note 19 to the Consolidated Financial Statements). Excluding this consolidation, Corporate loans increased 4% compared to the prior-year period.

Citi Holdings(8)

        During the second quarter of 2013, Citi continued to make progress on its goal of reducing the negative impact of Citi Holdings on its overall results of operations. Citi Holdings net loss was $570 million in the second quarter of 2013, compared to a net loss of $910 million in the second quarter of 2012. Excluding CVA/DVA,(9) Citi Holdings net loss decreased to $579 million compared to a net loss of $923 million in the prior-year period, as growth in revenues and lower credit costs were partially offset by higher expenses. Expenses increased 25% from the prior-year period reflecting the higher legal and related costs discussed above. Excluding legal and related costs, expenses declined 18% versus the prior-year period.

        Citi Holdings revenues increased 16% to $1.1 billion from $938 million in the prior-year period. Excluding CVA/DVA, Citi Holdings revenues increased 17% to $1.1 billion versus the prior-year period, as higher revenues in Local Consumer Lending and the Special Asset Pool were partially offset by a decline in Brokerage and Asset Management revenues.

        Local Consumer Lending revenues of $1.1 billion increased 13% from the prior year primarily due to lower funding costs. Special Asset Pool revenues, excluding CVA/DVA, were $42 million in the second quarter of 2013, compared to $(102) million in the prior-year period, primarily reflecting lower funding costs and improved asset marks. Brokerage and Asset Management revenues were $(20) million, compared to $87 million in the prior year, reflecting lower Morgan Stanley Smith Barney (MSSB) joint venture equity-related revenues. As previously announced, Citigroup completed the sale of its remaining 35% stake in the MSSB joint venture during the second quarter of 2013. Net interest revenues increased 32% to $784 million versus the prior-year period, driven predominately by improvements in Local Consumer Lending and the Special Asset Pool. Non-interest revenues, excluding CVA/DVA, declined 9% from the prior-year period to $293 million, driven by lower Brokerage and Asset Management revenues.

        Citi Holdings end of period assets declined 31% from the prior-year to $131 billion at the end of the second quarter of 2013 (for additional information on the drivers of the asset decline during the current quarter, see "Citi Holdings" below). At the end of the quarter, Citi Holdings assets comprised approximately 7% of total Citigroup GAAP assets, 12% of risk-weighted assets (as defined under current regulatory guidelines), and 21% of its estimated risk-weighted assets under Basel III. Local Consumer Lending continued to represent the largest segment within Citi Holdings, with $115 billion of assets as of the end of second quarter of 2013, of which approximately 70%, or $80 billion, were related to mortgages in North America real estate lending.

   

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(6)

For the summary of CVA/DVA by business within Securities and Banking for the second quarter of 2013 and comparable periods, see "Citicorp—Institutional Clients Group" below.

(7)

For additional information, see "Citigroup—Global Consumer Banking—Latin America Regional Consumer Banking" below and Note 2 to the Consolidated Financial Statements.

(8)

Citi Holdings includes Local Consumer Lending, Special Asset Pool and Brokerage and Asset Management. See "Citi Holdings" below for additional information on the results of operations for each of the businesses in Citi Holdings.

(9)

CVA/DVA in Citi Holdings, recorded in the Special Asset Pool, was $15 million in the second quarter of 2013, compared to $21 million in the prior-year period.

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RESULTS OF OPERATIONS

SUMMARY OF SELECTED FINANCIAL DATA—Page 1

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

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SUMMARY OF SELECTED FINANCIAL DATA—Page 2

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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

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CITIGROUP REVENUES

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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. At June 30, 2013, Citicorp had approximately $1.8 trillion of assets and $874 billion of deposits, representing 93% of Citi's total assets and deposits, respectively.

        Citicorp consists of the following operating businesses: Global Consumer Banking (which consists of Regional Consumer Banking in North America, EMEA, Latin America and Asia) and Institutional Clients Group (which includes Securities and Banking and Transaction Services). Citicorp also includes Corporate/Other.

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GLOBAL CONSUMER BANKING

        Global Consumer Banking (GCB) consists of Citigroup's four geographical Regional Consumer Banking (RCB) 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 3,912 branches in 38 countries around the world as of June 30, 2013. For the quarter ended June 30, 2013, GCB had $391 billion of average assets and $326 billion of average deposits. Citi's strategy is to focus on the top 150 cities globally that it believes have the highest growth potential in consumer banking. Consistent with this strategy, as announced in the fourth quarter of 2012 as part of its repositioning efforts, Citi intends to optimize its branch footprint and further concentrate its presence in major metropolitan areas. As of June 30, 2013, Citi had consumer banking operations in approximately 120, or 80%, of these cities.

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NORTH AMERICA REGIONAL CONSUMER BANKING

        North America Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded cards and Citi retail services to retail customers and small to mid-size businesses in the U.S. NA RCB's approximate 983 retail bank branches as of June 30, 2013 are largely concentrated in the greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., Boston, Philadelphia, Dallas, Houston, San Antonio and Austin. At June 30, 2013, NA RCB had approximately 12.0 million customer accounts, $41.7 billion of retail banking loans and $165.9 billion of deposits. In addition, NA RCB had approximately 99.7 million Citi-branded and Citi retail services credit card accounts, with $105.3 billion in outstanding card loan balances.

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2Q13 vs. 2Q12

        Net income decreased 4%, mainly driven by a $463 million reduction in loan loss reserve releases, partially offset by a $321 million reduction in net credit losses and lower expenses.

        Revenues decreased 1%, as higher volumes in retail banking were offset by significant continued spread compression.

        Retail banking revenues of $1.6 billion declined 4% due to lower mortgage servicing revenues and ongoing spread compression in both mortgage gain-on-sale margins and in the deposit portfolio. The decline in retail banking revenues was partially offset by a gain of approximately $180 million on the sale of a mortgage portfolio during the current quarter. Mortgage originations increased 33%, average retail loans were unchanged and average deposits increased 9%. Citi expects retail banking revenues will continue to be negatively impacted due to the current interest rate environment as historically high mortgage origination volumes are expected to decline and gain on sale margins to reduce. Spread compression in the deposit portfolio is also expected to continue to negatively impact retail banking revenues.

        Cards revenues were unchanged, as improved net interest spreads, benefitting from both higher yields and lower funding costs, were offset by continued lower average loan balances. In Citi-branded cards, revenues declined 1% to $2.0 billion, reflecting a 5% decline in average loans, partly offset by an improvement in net interest spreads. Net interest revenue increased 2%, reflecting lower cost of funds, partially offset by the decline in average loans and a continued increased payment rate from consumer deleveraging. In Citi retail services, revenues increased 1% to $1.5 billion. Net interest revenues increased 3% due to improved spreads, partially offset by a 2% decline in average loans as well as declining non-interest revenues, driven by improving credit and the resulting impact on contractual partner payments. Citi expects cards revenues could continue to be negatively impacted by higher payment rates for consumers, reflecting ongoing economic uncertainty and deleveraging as well as Citi's shift to higher credit quality borrowers.

        As previously disclosed, as part of its U.S. Citi-branded cards business, Citibank, N.A. issues a co-branded credit card product with American Airlines, the Citi/AAdvantage card. AMR Corporation and certain of its subsidiaries, including American Airlines, Inc. (collectively, AMR), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in November 2011, and on February 14, 2013, AMR and US Airways Group, Inc. announced a merger agreement under which the companies would be combined. In a filing in U.S. Bankruptcy Court on June 3, 2013, AMR agreed to assume the agreements for the Citi/AAdvantage card program upon confirmation of its filed plan of reorganization, which includes the merger with US Airways. AMR's filed plan of reorganization and the assumption of the Citi/AAdvantage card program agreements are subject to U.S. Bankruptcy Court approval.

        Expenses decreased 3%, primarily due to lower legal and related costs, lower repositioning charges as well as efficiency savings, partially offset by higher volume-related mortgage origination costs.

        Provisions increased 19%, as lower net credit losses in the cards portfolio and in retail banking were offset by continued lower loan loss reserve releases largely related to cards ($351 million compared to $814 million in the prior-year period).

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, NA RCB has experienced similar trends to those described above. Net income decreased 10%, mainly due to lower loan loss reserve releases, partially offset by lower net credit losses.

        Revenues decreased 1%, as a 1% increase in net interest revenue offset a 10% decrease in non-interest revenue. Retail banking revenues declined 4%, as higher mortgage originations and average deposits were more than offset by the significant continued spread compression. Cards revenues were unchanged as improved net interest spreads were offset by lower volumes, driven by the factors described above.

        Expenses were flat as lower legal and related costs and efficiency savings were offset by higher volume-related mortgage origination costs.

        Provisions increased 15% due to a $934 million reduction in loan loss reserve releases, partially offset by a $696 million reduction in net credit losses in the cards portfolio and in retail banking.

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EMEA REGIONAL CONSUMER BANKING

        EMEA Regional Consumer Banking (EMEA RCB) 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 RCB has the largest presence are Poland, Turkey, Russia and the United Arab Emirates. As part of Citi's previously announced repositioning efforts, in July 2013, Citi completed the sales of its consumer operations in Romania and Turkey, including approximately $113 million and $628 million of consumer loan balances and $210 million and $790 million of deposits, respectively.

        At June 30, 2013, EMEA RCB had 222 retail bank branches with approximately 3.8 million customer accounts, $5.3 billion in retail banking loans, $13.0 billion in deposits, and 2.8 million Citi-branded card accounts with $2.8 billion in outstanding card loan balances.

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        The discussion of the results of operations for EMEA RCB 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 RCB'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.

2Q13 vs. 2Q12

        Net income of $23 million compared to net income of $12 million in the prior-year period and was mainly due to lower net credit losses and higher revenues.

        Revenues increased 2%, with growth across all major products due to higher investment and loan volumes, partially offset by lower revenues that occurred after Citi announced the sale of its consumer operations in Turkey and Romania. Net interest revenue decreased 4%, due to spread compression in cards as well as portfolio liquidation, partially offset by growth in average deposits of 6%, average retail loans of 12% and average cards loans of 3%. Interest rate caps on credit cards, particularly in Poland, the continued liquidation of a higher yielding non-strategic retail banking portfolio and the continued low interest rate environment were the main contributors to the lower spreads. Citi expects continued regulatory changes and spread compression to continue to negatively impact revenues in this business during the remainder of 2013. Non-interest revenue increased 16%, mainly reflecting higher investment fees and card fees due to increased sales volumes. Cards purchase sales increased 8% and investment sales increased 26%.

        Expenses declined 1%, as efficiency savings were mostly offset by continued investment spending on new internal operating platforms and higher repositioning charges related to the sales of the consumer operations in Turkey and Romania.

        Provisions were a benefit of $11 million, due to a net credit recovery as a result of sales of written-off accounts and the sales of the consumer operations in Turkey and Romania, partially offset by lower loan loss reserve releases. Net credit losses also continued to reflect stabilizing credit quality and Citi's strategic move toward lower-risk customers. Assuming the underlying core portfolio continues to grow during the remainder of 2013, Citi believes credit costs in EMEA RCB could begin to rise.

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, EMEA RCB has experienced similar trends to those described above. Net income of $27 million compared to a net loss of $1 million in the prior-year period and was primarily due to lower net credit losses, higher revenues and lower operating expenses.

        Revenues increased 2%, with growth across all major products due to higher volumes, partially offset by lower revenues resulting from the exit of certain markets, including the sales of the consumer operations in Turkey and Romania. Net interest revenue declined 2% primarily due to spread compression, driven by the same factors described above. Non-interest revenue increased 11%, mainly reflecting higher investment fees and card fees due to increased sales volume, partially offset by a loss on the sale of certain businesses. Cards purchase sales increased 8% and investment sales increased 19%.

        Expenses decreased 1%, primarily due to efficiency savings and lower repositioning charges, partially offset by the continued investment spending.

        Provisions decreased 67% to $8 million, primarily due to lower net credit losses, driven by the factors described above.

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LATIN AMERICA REGIONAL CONSUMER BANKING

        Latin America Regional Consumer Banking (Latin America RCB) 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 RCB includes branch networks throughout Latin America as well as Banco Nacional de Mexico, or Banamex, Mexico's second-largest bank, with nearly 1,700 branches. As part of Citi's previously announced repositioning efforts, during the second quarter of 2013, Citi entered into an agreement to sell Credicard, Citi's non-Citibank branded cards business and consumer finance business in Brazil, including approximately $3.3 billion in consumer loan balances. Results of operations have been restated for all historical periods, while all balance sheet data have been reclassified as of the second quarter of 2013, to reflect Credicard as discontinued operations and reported in Corporate/Other (for additional information, see Note 2 to the Consolidated Financial Statements). During the second quarter of 2013, Citi also entered into an agreement to sell its retail banking operations in Uruguay, including approximately $69 million of consumer loan balances and $267 million of deposits, respectively.

        At June 30, 2013, Latin America RCB had 2,136 retail branches, with approximately 32.2 million customer accounts, $29.9 billion in retail banking loans and $46.6 billion in deposits. In addition, the business had approximately 9.3 million Citi-branded card accounts with $11.5 billion in outstanding loan balances.

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The discussion of the results of operations for Latin America RCB 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 RCB'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.

2Q13 vs. 2Q12

        Net income increased 4% as higher revenues were partially offset by higher credit costs and higher expenses.

        Revenues increased 8%, primarily due to volume growth in retail banking and cards, partially offset by continued spread compression. Net interest revenue increased 5% due to increased volumes, partially offset by spread compression. Citi expects slower volume growth and continued spread compression to negatively impact net interest revenues during the remainder of 2013. Non-interest revenue increased 17%, primarily due to higher fees from increased business volumes in retail and cards. Retail banking revenues increased 6% as average loans increased 13% and investment sales increased 19% while deposits were flat. Cards revenues increased 12% as average loans increased 9% and purchase sales increased 13%.

        Despite the year-over-year growth, Citi expects overall volume growth could begin to slow, particularly in Mexico, due to slowing economic growth in the region. In addition, the Mexico governmental authorities are considering various reforms, including reducing borrowing costs through increased banking competition, increasing lending activity, increasing disclosure requirements and client mobility as well as imposing additional requirements in the consumer finance area. These reforms have not yet been adopted, and thus the impact on Citi's businesses is not certain. For information on the potential impact to Latin America RCB from foreign exchange controls, see "Managing Global Risk—Cross-Border Risk" below.

        Expenses increased 4% on increased volume-related costs, mandatory salary increases in certain countries and higher transactional costs, partially offset by lower repositioning charges and marketing costs.

        Provisions increased 22%, primarily due to higher net credit losses as well as a higher loan loss reserve build. Net credit losses increased 32%, primarily in the Mexico cards and personal loan portfolios, reflecting both portfolio seasoning and volume growth. The higher loan loss reserve build in the current quarter was partially due to an increase in reserves for Mexican homebuilders. Homebuilders in Mexico have recently begun to experience financial difficulties, primarily due to, among other things, decreases in government subsidies, new government policies promoting vertical housing and an overall renewed government emphasis on urban planning. Citi's outstanding loans to the top three builders totaled approximately $300 million at the end of the current quarter, with nearly 100% collateralized. Citi currently expects the net credit loss rate in Latin America to remain relatively unchanged for the remainder of 2013, although the rate could be higher if any material losses are incurred in the Mexico homebuilder portfolio.

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, Latin America RCB has experienced similar trends to those described above. Net income increased 2% as higher revenues were partially offset by higher expenses and credit costs.

        Revenues increased 7%, primarily due to volume growth in retail banking and cards, partially offset by spread compression, driven by the factors described above. Net interest revenue increased 4% due to increased volumes, partially offset by continued spread compression. Non-interest revenue increased 13%, primarily due to higher fees from increased business volumes in retail and cards. Retail banking revenues increased 6% as average loans increased 14%, investment sales increased 14% while deposits grew 1%. Cards revenues increased 12% as average loans increased 9% and purchase sales increased 13%.

        Expenses increased 6% on increased volume-related costs, higher repositioning charges, mandatory salary increases in certain countries and higher transactional and marketing costs.

        Provisions increased 16%, primarily due to higher net credit losses, partially offset by lower loan loss reserve builds. Net credit losses increased 29%, primarily in the Mexico personal loan and card portfolios, reflecting both volume growth and portfolio seasoning.

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ASIA REGIONAL CONSUMER BANKING

        Asia Regional Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest Citi presence in Korea, Australia, Singapore, Hong Kong, Taiwan, Japan, India, Malaysia and Indonesia. At June 30, 2013, Asia RCB had 571 retail branches, approximately 16.9 million customer accounts, $68.5 billion in retail banking loans and $101.2 billion in deposits. In addition, the business had approximately 16.4 million Citi-branded card accounts with $18.9 billion in outstanding loan balances.

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The discussion of the results of operations for Asia RCB 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 Asia RCB'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.

2Q13 vs. 2Q12

        Net income decreased 5%, primarily due to a higher effective tax rate (see "Income Taxes" below) and higher credit costs, partially offset by higher revenues and lower expenses.

        Revenues increased 2%, as higher non-interest revenue was partially offset by lower net interest revenue. Several key markets experienced strong revenue growth, including India, Hong Kong and Singapore, partially offset by the continued negative impacts from the low interest rate environment and ongoing regulatory changes in the region, particularly Korea as well as Indonesia and Taiwan. Net interest revenue declined 6%, primarily driven by continued spread compression, particularly in Korea. Average retail deposits declined 4%, partly reflecting an outflow to investment products and efforts to rebalance the deposit portfolio mix. Average retail loans increased 2% (11% excluding Korea). Spread compression and regulatory changes in the region are expected to continue to have an adverse impact on cards revenue.

        Non-interest revenue increased 20%, including a 62% increase in investment sales, due to favorable market conditions. Most underlying business metrics continued to improve in Asia RCB, including a 7% increase in cards purchase sales.

        Expenses declined 2%, as efficiency savings were partially offset by increased investment spending, particularly investments in China cards, and higher volume related growth.

        Provisions increased 17%, reflecting a higher loan loss reserve build, primarily due to regulatory requirements in Korea as well as volume growth in China, India and Singapore, partially offset by lower net credit losses due to higher recoveries as a result of sales of written-off accounts in the current quarter. Despite this increase year-over-year, overall credit quality in the region continued to remain stable.

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, Asia RCB has experienced similar trends to those described above. Net income decreased 11%, primarily due to the higher effective tax rate as well as higher credit costs, partially offset by higher revenues and lower expenses.

        Revenues increased 1%, due to higher non-interest revenue, partially offset by lower net interest revenue. Net interest revenue declined 7%, primarily driven by the ongoing spread compression. Average retail deposits declined 3%, partly reflecting an outflow to investment products and efforts to rebalance the deposit portfolio mix. Non-interest revenue increased 16%, reflecting a 52% increase in investment sales, due to favorable market conditions, and a 6% increase in Citi-branded cards purchase sales.

        Expenses declined 1%, as efficiency savings were mostly offset by increased investment spending and higher volume-related growth.

        Provisions increased 17%, primarily reflecting a higher loan loss reserve build, driven by the factors described above.

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INSTITUTIONAL CLIENTS GROUP

        Institutional Clients Group (ICG) includes Securities and Banking and Transaction Services. ICG provides corporate, institutional, public sector and high-net-worth clients around the world with a full range of products and services, including cash management, foreign exchange, trade finance and services, securities services, sales and trading of loans and securities, institutional brokerage, underwriting, lending and advisory services. ICG's international presence is supported by trading floors in approximately 75 countries and jurisdictions and a proprietary network within Transaction Services in over 95 countries and jurisdictions. At June 30, 2013, ICG had approximately $1.1 trillion of assets and $532 billion of deposits.

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SECURITIES AND BANKING

        Securities and Banking (S&B) offers a wide array of investment and commercial banking services and products for corporations, governments, institutional and public sector entities and high-net-worth individuals. S&B transacts with clients in both cash instruments and derivatives, including fixed income, foreign currency, equity and commodity products. S&B includes investment banking and advisory services, lending, debt and equity sales and trading, institutional brokerage, derivative services and private banking.

        S&B revenue is generated primarily from fees and spreads associated with these activities. S&B earns fee income for assisting clients in clearing transactions, providing brokerage and investment banking services and other such activities. Revenue generated from these activities is recorded in Commissions and fees. In addition, as a market maker, S&B facilitates transactions, including holding product inventory to meet client demand, and earns the differential between the price at which it buys and sells the products. These price differentials and the unrealized gains and losses on the inventory are recorded in Principal transactions. S&B interest income earned on inventory and loans held is recorded as a component of Net interest revenue.

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2Q13 vs. 2Q12

        Net income increased 63%. Excluding $462 million of CVA/DVA (see table below), net income increased 57%, primarily driven by an increase in revenues and a decline in expenses, partially offset by a higher effective tax rate (see "Income Taxes" below).

        Revenues increased 25%. Excluding CVA/DVA:

•

Revenues increased 21%, reflecting higher revenues in fixed income markets, equity markets and investment banking. Overall, Citi's wallet share continued to improve during the current quarter in most products, while maintaining what Citi believes to be a disciplined risk appetite for the market environment.



•

Fixed income markets revenues increased 18%, reflecting strength across all major products, including rates and currencies, credit-related and securitized products and commodities. Rates and currencies performance improved due to higher investor flows compared to a weaker prior-year period, particularly in FX and Citi's local markets business. Credit-related and securitized products improved from increased investor demand for yields.



•

Equity markets revenues increased 68%, primarily due to improved derivatives performance, particularly in Asia and North America, and higher cash equity volumes as a result of improved market conditions. Cash equity and derivatives client activity also reflected an increased client market share.



•

Investment banking revenues increased 21%, reflecting growth in all major products and improved overall investment banking wallet share. Advisory revenues increased 6%, reflecting improved wallet share resulting from announced volumes during the second half of 2012, despite a contraction in the overall M&A market wallet. Equity underwriting revenues increased 58%, primarily driven by improved wallet share and increased market activity and share gains in initial public offering activity. Debt underwriting revenues rose 14%, primarily due to increased leveraged finance activity.



•

Lending revenues decreased 26%, driven by lower mark-to-market gains on hedges related to accrual loans (see table below) due to less significant credit spread widening versus the prior-year period. Excluding lending hedges related to accrual loans, core lending revenues decreased 3%, as lower volumes were partially offset by slightly higher spreads. Citi expects demand for corporate loans to remain muted in the current market environment.



•

Private Bank revenues increased 9%, driven mainly by growth across regions. Growth across most products, particularly in capital markets and managed investments, was partially offset by lending, which declined slightly on spread compression despite strong volume growth.

        Expenses decreased 2%, primarily due to efficiency savings due to the impact of repositioning, partially offset by higher incentive compensation and volume-based transaction expenses driven by improved performance.

        Provisions declined to a net credit benefit of $79 million, primarily reflecting lower net credit losses and a higher loan loss reserve release reflecting portfolio improvement.

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, S&B has experienced similar trends to those described above. Net income increased 71%. Excluding $152 million of CVA/DVA (see table below), net income increased 33%, primarily driven by the increase in revenues and decline in expenses, partially offset by the higher effective tax rate.

        Revenues increased 28%. Excluding CVA/DVA:

•

Revenues increased 14%, reflecting higher revenues in all major products. Overall, Citi's wallet share continued to improve during the period in most products.



•

Fixed income markets revenues increased 5%, primarily reflecting strong performance in spread products and commodities. Rates and currencies were lower compared to a strong prior-year period that benefited significantly from long-term refinancing operations (LTRO) activity in EMEA. Credit-related and securitized products improved, particularly in North America, which experienced increased investor demand for higher yields.



•

Equity markets revenues increased 20% due to the strong derivatives performance and higher cash equity volumes.



•

Investment banking revenues increased 21%, reflecting growth in all major products and improved overall investment banking wallet share. Advisory revenues increased 34%, reflecting improved wallet share resulting from announced volumes during the second half of 2012, despite a contraction in the M&A market wallet. Equity underwriting revenues increased 52%, primarily due to improved wallet share and increased market activity. Debt underwriting revenues rose 9%, primarily due to increased leveraged finance activity.



•

Lending revenues increased 26%, driven by the absence of mark-to-market losses on hedges related to accrual loans (see table below). Credit spreads tightened more in the prior-year period. Excluding lending hedges related to accrual loans, core lending revenues decreased 5%, primarily related to lower volumes and loan sale activity, partially offset by higher spreads.



•

Private Bank revenues increased 7%, driven mainly by growth across regions. All products showed improved performance, particularly in capital markets and managed investments.

        Expenses decreased 3%, primarily due to efficiency savings due to the impact of repositioning, partially offset by higher incentive compensation and volume-based transaction expenses driven by improved performance.

        Provisions declined $124 million, primarily due to a loan loss reserve release resulting from portfolio improvement, partially offset by higher net credit losses.

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