At first glance, Citigroup (NYSE:C) earnings couldn't have been better in the first quarter, but a deeper dive reveals one troubling reality.

Citigroup Tower By Asibiri

Source: Flickr/asibiri.

The resounding rebound
Citigroup reported earnings per share of $1.23 per share in the first quarter of 2014, surpassing the $1.14 expectation of analysts on Wall Street. In fact, the $1.23 in earnings were identical to what it earned in the first quarter of last year.

This stands in stark contrast to competitor JPMorgan Chase (NYSE:JPM), which saw its earnings drop a staggering 19% as a result of lower mortgage and trading revenue and in total its revenue fell by 8%. JPMorgan Chase also missed the expectations of analysts, who thought the bank would earn $1.41 per share versus the $1.28 at which it came in.

All of this explains why the stock at JPMorgan Chase fell by nearly 5% in the two days following the announcement, whereas Citigroup saw its stock rise by almost 4% on the day of earnings.

And while seemingly Citigroup delivered a resounding victory over JPMorgan Chase, a glance beneath the surface reveals something that didn't grab headlines, but is critical to note.

The important thing to see
Citigroup separates its earnings into two segments, Citicorp and Citi Holdings. Citicorp consists of its core operations, whereas Citi Holdings are its noncore businesses it is seeking to wind down in both a quick and rational way. As a result, a consideration of Citigroup should almost always observe the performance of Citicorp, and it is there where trouble has originated.


Source: Company investor relations.

In fact, Citigroup's income from continuing operations dropped by 10%, or $500 million to $4.2 billion from the first quarter of last year to this year. Its revenue fell by $675 million, and its return on average assets fell from 1.08% to 0.97%.

Meanwhile, its Citi Holdings' operations moved in the exact opposite direction and improved substantially. Its net loss declined from $804 million to $284 million, a gain of 65%. This was the result of both rising revenue and a reduction in what it lost from its loan portfolio.

Ultimately, the reason for the great results from Citigroup were not the result of its core businesses, but instead those it "has determined are not central to its core."

The Foolish takeaway
Citigroup undoubtedly has many appealing things going for it, and the reality remains a 10% dip in income from its continuing operations is certainly better than the 19% drop seen by JPMorgan Chase. However, it's critical for investors to see that Citigroup still faced its own set of difficulties in the first quarter, and it didn't escape unscathed.

This doesn't mean Citigroup shouldn't be considered as an investment, but the simple reality remains its results were not as great as the first glance would indicate.

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Patrick Morris has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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