Citigroup Inc. (C) has reported its first quarter earnings from continuing operations of 14 cents, well ahead of the Zacks Consensus Estimate of a break-even quarter. This also compares favorably with a loss of 34 cents in the prior quarter and -16 cents incurred in the year-ago quarter.

Strong trading revenues coupled with an improvement in loan loss provisions have attributed to this result. The company achieved a reduction in expenses as well. Citi reported a net profit of $4.4 billion compared with a loss of $7.8 billion in the prior quarter and a loss of $696 million a year earlier.

Revenues from securities and banking operations were more than doubled to $8.0 billion from $3.3 billion reported in the prior quarter. Provisions for credit losses and for benefits and claims were down $2.4 billion sequentially to $8.6 billion.

Citi reported a net release of reserves for loan losses and unfunded lending commitments of $53 million in the reported quarter, compared with a $755 million net build in the previous quarter.

Behind the Headline Numbers

Total revenues were $25.4 billion, up 4% year-over-year and significantly above the $5.4 billion reported in the prior quarter. Excluding the impact associated with the TARP repayment and for the termination of the loss-sharing agreement in the fourth quarter, the reported quarter revenues were up 42% sequentially.

Net interest revenue for the quarter was up 30% sequentially and 13% year-over-year to $14.6 billion. Non-interest income was $10.9 billion compared with a loss of $5.8 billion in the prior quarter. However, it was down 6% year-over-year.

Operating expenses decreased 6% sequentially and 1% year-over-year to $11.5 billion, reflecting the re-engineering efforts and expense control.

Credit Quality

Credit quality metrics were mixed. Total non-accrual assets as of Mar 31, 2010 were $30.2 billion (1.51% of total assets), down from $33.3 billion (1.79%) in the prior quarter but up from $27.4 billion (1.50%) in the year-ago quarter. Allowance for loan losses as a percentage of total loans increased to 6.80%, compared to 6.09% as of Dec 31, 2009 and 4.82% as of Mar 31, 2009.

Capital Ratios

As of Mar 31, 2010, Citi reported Tier 1 Capital and Tier 1 Common ratios of 11.2% and 9.1%. During the quarter, return on common equity (ROE) improved to 12.0% compared to a negative return of 21.6% in the prior quarter and a negative return of 5.6% in the year-ago quarter.

Citigroup’s book value at the end of the quarter deteriorated to $5.28 per share, compared with $5.35 at the end of the prior quarter and $12.64 at the end of the prior-year quarter.

Citi, one of the companies severely hurt during the credit crisis, had received $45 billion in bailout funds in 2008 through the Troubled Asset Relief Program (TARP). Later, in 2009, around $25 billion of that was converted into common stock.

In December 2009, Citi repaid $20 billion of trust preferred securities held by the U.S. Treasury under the TARP. Bank of America Corporation, or BofA (BAC) and Wells Fargo & Co. (WFC) also repaid TARP money during that time. Currently, the Treasury continues to hold approximately 27% of Citi’s common stock, which the government is now selling off.

Last week, BofA and JPMorgan Chase (JPM) released their first quarter earnings. Both the companies reported strong performances and the results were well ahead of the Zacks Consensus Estimate. The better-than-expected earnings were primarily driven by solid investment banking performances and lower loan losses.

Though such strong performances from the major banks are encouraging, the management at Citi remains cautious, given the uncertainty of the economic recovery and the high level of unemployment.

Shares of Citi are trading at a significant premium following the announcement of the earnings.
Read the full analyst report on “C”
Read the full analyst report on “WFC”
Read the full analyst report on “BAC”
Read the full analyst report on “JPM”
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