Shares in Citigroup (C -0.32%) are up sharply after the nation's third-largest bank by assets reported adjusted earnings that beat analysts' estimates. Excluding a number of one-time charges, the lender earned $1.06 a share on revenue of $19.4 billion compared with respective consensus estimates of $0.96 and $18.72 billion.
Four important takeaways from Citi's earnings
Mirroring its competitors JPMorgan Chase (JPM 0.49%) and Wells Fargo (WFC -0.56%) both of which reported last week, Citigroup experienced solid year-over-year growth in loans and deposits, while its expenses continued to decline. End-of-period loans increased by 3%, while deposits grew an impressive 11% -- though roughly 40% to 50% of the uptick in deposits was related to "episodic" end-of-quarter activity. Meanwhile, operating expenses were down 2% due in large part to a consummate headcount reduction.
Second, the credit quality of Citigroup's loan portfolio continued to improve. Its stable of delinquent residential mortgages fell to $3.68 billion, down from $3.87 billion last year. While its net credit losses increased on a year-over-year basis, the uptick was caused by new regulatory guidance that obligated the bank to charge off the uncollateralized portion of mortgages held by certain borrowers, irrespective of whether or not they were current on their debt payments.
Third, Citigroup made further progress winding down Citi Holdings, a separate division of the company which houses undesirable assets associated with the financial crisis. On a year-over-year basis, Holding's assets decline by 31%. A large portion of the decrease related to a $4.7 billion writedown of its brokerage unit, Morgan Stanley Smith Barney, which it's in the process of selling to Morgan Stanley (MS 0.10%). Also, according to statements made by executives on the conference call, approximately $750 million in delinquent loans were sold off to distressed debt investors.
Finally, in a sign that capital markets are becoming more hospitable, Citi's investment bank recorded year-over-year growth across the board, led by 30%-plus growth in equity and debt underwriting. Trading activities also surged as a full $1.4 billion in additional revenue came from fixed-income trading alone. This is also unquestionably good news for Bank of America (BAC -0.13%), which reports later this week and saw its shares rise today as well.
Foolish bottom line
All things considered, it's hard to deny that Citigroup had a solid third quarter and continued to make progress putting its past misdeeds behind it. Despite this, I'd urge investors to exercise caution when buying its shares. In my opinion, if you're going for a value play in the financial sector, the better move is Bank of America, which could easily double or triple over the next five years. To see why this is so, simply download our new in-depth report on B of A by clicking here now.
