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Citigroup (C) Beats on Q2 Earnings, Shares Fall Slightly

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Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 5.0% in second-quarter 2017, riding on higher revenues. The company’s income from continuing operations per share of $1.27 for the quarter outpaced the Zacks Consensus Estimate of $1.21. Also, earnings compared favorably with the year-ago figure of $1.25 per share.

Despite earnings beat, investors were a bit disappointed on elevated costs of credit which led shares to decline around 0.45% to close at $66.72.

Net income came in at $3.9 billion or $1.28 per share compared with $4.0 billion or $1.24 per share recorded in the prior-year quarter.

Overall revenues escalated, driven by higher banking revenues. However, expenses surged. Further, Citigroup’s costs of credit for the second quarter were up 22% year over year to $1.7 billion. The rise largely reflects net credit losses of $94 million and a net loan loss reserve release of $16 million.

Higher Banking Revenues, Costs Flare Up

Revenues increased 2% year over year to $17.9 billion in second-quarter 2017. The rise highlighted higher revenues in institutional clients group and global consumer banking, partially offset by decline in corporate/other revenues. The revenue figure also surpassed the Zacks Consensus Estimate of $17.3 billion.

At Institutional Clients Group (ICG), revenues came in at $9.2 billion in the quarter, up 6% year over year. Notably, revenues from total banking climbed 13%, partially offset by a 5% decline in total markets & securities services revenues on a year-over-year basis.

Global Consumer Banking (GCB) revenues increased 5% year over year, mainly driven by higher revenues in North America, Latin America and Asia GCB.

Corporate/Other revenues were $653 million, plunging 45% from the prior-year quarter. The decline mainly reflected legacy assets runoff and divestiture activity.

Operating expenses at Citigroup were slightly up year over year to $10.5 billion. Further, expenses elevated 2% (in constant dollars) on increased volume-related expenses, performance-based compensation and ongoing investments. These were mostly offset by efficiency savings and the winding-down of legacy assets.

Strong Balance Sheet

At quarter end, Citigroup’s end of period assets was $1.86 trillion, up 2% year over year. The company’s loans grew 2% year over year at $645 billion. Deposits increased 2% year over year to $959 billion.

Credit Quality Improved

Total non-accrual assets decreased 19% year over year to $5.1 billion. The company reported a decline of 23% in consumer non-accrual loans to $2.8 billion. In addition, corporate non-accrual loans of $2.1 billion went down 15% from the prior-year period.

Citigroup’s total allowance for loan losses was $12.0 billion at quarter end, or 1.88% of total loans, down from $12.3 billion, or 1.96%, in the year-ago period.

Solid Capital Position

At the end of the reported quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 13.0%, increasing from 12.5% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.2%, down from 7.5% in the prior-year quarter.

As of Jun 30, 2017, book value per share was $77.36 and tangible book value per share was $67.32, both up 6%, from the prior-year period.

Capital Deployment

During second-quarter 2017, Citigroup repurchased about 29 million of common stock. Notably, the company returned around $2.2 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Results reflected an impressive quarter for Citigroup. Furthermore, restructuring efforts, including streamlining moves, should continue to ease its burden on the expense base to some extent. The company exhibits capital strength that continues to support its dividend and a share buyback program. Moreover, rise in revenues is commendable.

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. Additionally, the company’s growth looks encouraging amid the rising rate environment, as well as expected potential ease of regulations under Donald Trump’s administration.

However, several legal hassles remain concerns for the company.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise | Citigroup Inc. Quote

Currently, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Higher interest income drove Wells Fargo & Company’s (WFC - Free Report) second-quarter 2017 earnings which recorded a positive surprise of about 4.9%. Earnings of $1.07 per share outpaced the Zacks Consensus Estimate of $1.02. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $1.01 per share.

Among other Wall Street giants, U.S. Bancorp (USB - Free Report) is scheduled to report second-quarter 2017 earnings on Jul 19, while Comerica Inc. (CMA - Free Report) will report on Jul 18.

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