Citigroup (C) Q1 Earnings Jumps on Lower Expenses - Analyst Blog

Citigroup Inc.C delivered a positive earnings surprise of 9.4% in first-quarter 2015 as the the company's business streamlining efforts seems to bear results. Adjusted earnings per share of $1.52 for the quarter outpaced the Zacks Consensus Estimate of $1.39. Further, earnings compared favorably with the year-ago figure of $1.30 per share.

Citigroup Inc. - Earnings Surprise | FindTheCompany

Following the earnings release, investors have been bullish on the results as shares of Citigroup gained over 1% in the beginning of the trading session. However, the price reaction during the full trading session will give a better idea.

Results were aided by reduced expenses, partially offset by lower revenues. Also the quarter exhibited a strong capital position and an improving credit quality.

Adjusted net income jumped 16% year over year to $4.8 billion in the quarter. Including the impact of credit valuation adjustment (CVA) and debt valuation adjustment (DVA), Citigroup reported net income of $4.8 billion, up from $3.9 billion reported in the prior-year quarter.

Citigroup's costs of credit for the first quarter were down 3% year over year to $1.9 billion. The improvement was primarily attributable to a decline in net credit losses, mostly offset by lower net release of loan loss reserves.

Performance in Detail

Adjusted revenues of Citigroup declined 2% year over year to $19.8 billion. Also, the revenue figure missed the Zacks Consensus Estimate of $20.0 billion. The decrease reflected a 1% decline in revenues of Citicorp and a 7% decline in revenues of Citi Holdings. Including CVA/DVA, Citigroup revenues decreased 2% from the prior-year period to $19.7 billion.

At Citicorp, adjusted revenues came in at $18.0 billion, down 1% year over year. The decline reflected lower revenues in Corporate/Other, Institutional Clients Group (ICG) and Global Consumer Banking (GCB). Including CVA/DVA, revenues were down 2% year over year.

Further, Citi Holdings reported adjusted revenues of $1.8 billion, down 7% year over year. Including CVA/DVA, revenues exhibited 8% decline year over year, reflecting increased gains on asset sales and lower cost of funds. Notably, Citi Holdings continued to report profitability.

Operating expenses at Citigroup declined 10% year over year to $10.9 billion. The decline was primarily driven by cost reduction efforts, reduced legal and related costs and repositioning charges. However, these positives were partially offset by elevated regulatory and compliance costs and volume-related costs.

Notably, in the first quarter, operating expenses included legal and related expenses of $387 million against $945 million in the prior year quarter. Further, repositioning charges were only $16 million versus $211 million in the prior year quarter.

At quarter end, Citigroup's end of period assets was $1.8 trillion, down 3% year over year. The company's loans and deposits decreased 7% each year over year to $621 billion and $900 billion, respectively. Citi Holdings' assets decreased 19% from the prior-year quarter level to $122 billion and represented just 7% of the company's total assets at the quarter end.

Credit Quality

Citigroup's credit quality improved in the reported quarter. Total non-accrual assets declined 22% year over year to $7.0 billion. The company reported a 28% fall in corporate non-accrual loans and a decline of 20% was reported in consumer non-accrual loans.

Citigroup's total allowance for loan losses was $14.6 billion at quarter end, or 2.38% of total loans, down from $18.9 billion, or 2.87%, in the prior-year period.

Capital Position

At the quarter end, Citigroup's Basel III Common Equity Tier 1 Capital ratio was 11.0%, increasing from 10.5% in the prior-year quarter. The company's Supplementary Leverage Ratio for first-quarter 2015 stood at 6.4%, up from 5.7% in the prior-year quarter.

As of Mar 31, 2015, book value per share was $66.79 and tangible book value per share was $57.66, up 1% and 2%, respectively, from the prior-year period.

Our Viewpoint

The results reflect a strong quarter for Citigroup. Restructuring efforts including streamlining moves should continue to ease burden on the company's expense base thereby supporting its financials.

One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Also the Federal Reserve's approval to the company's capital plan certainly boosted investors' confidence in the stock.

However, several legal hassles along with the thrust of new banking regulations continue to be concerns for the company.

Citigroup carries a Zacks Rank #2 (Buy).

Performance of Other Major Banks

Banking majors - Wells Fargo & Company WFC and JPMorgan Chase & Co. JPM kick started the first-quarter earnings season.

Wells Fargo's first-quarter 2015 earnings of $1.04 outpaced the Zacks Consensus Estimate of 98 cents. However, the reported figure fell a penny below the year-ago figure. JPMorgan's earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.39. The bottom line also improved 13.3% over the year-ago earnings of $1.28 per share.

Driven by lower expenses and absence of substantial legal costs, Bank of America Corp.'s BAC first-quarter 2015 results marked a year-over-year improvement. Earnings of 27 cents per share were up from a loss of 5 cents in the prior-year quarter. However, it was below the Zacks Consensus Estimate of 29 cents.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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