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Citigroup (C) Q3 Earnings Beat on Low Costs & High Revenues

Zacks

Despite weak fixed income market revenues, Citigroup Inc. C delivered a positive earnings surprise of 7.6% in third-quarter 2017 on prudent expense management. Earnings per share of $1.42 for the quarter easily outpaced the Zacks Consensus Estimate of $1.32. Also, earnings compared favorably with the year-ago figure of $1.24 per share. Notably, results included after-tax gain related to the sale of a fixed income analytics business.

Net income came in at $4.1 billion compared with $3.8 billion in the prior-year quarter. Excluding the gain, earnings came in at $1.29 per share.

Overall top-line strength was reflected, driven by higher banking and consumer banking revenues. Moreover, expenses declined on efficiency savings by the bank.

However, Citigroup’s costs of credit for the third quarter were up 15% year over year to $2 billion. This rise largely reflects net credit losses of $1.8 billion and a net loan loss reserve build of $16 million due to hurricane and earthquake-related loan loss reserve builds.

Top-Line Strength & Low Expenses Recorded

Revenues increased 2% year over year to $18.2 billion in the reported quarter. The rise highlighted elevated revenues in the 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 $17.7 billion.

At Institutional Clients Group (ICG), revenues came in at $9.2 billion in the quarter, up 9% year over year. Notably, revenues from total banking climbed 11%. Further, though fixed income revenues declined 16%, higher equity markets (up 16%) and securities services (up 12%) revenues offset the decline on a year-over-year basis.

Global Consumer Banking (GCB) revenues increased 3% year over year to $8.4 billion, mainly driven by higher revenues in North America, Latin America and Asia GCB.

Corporate/Other revenues were $509 million, plunging 55% from the prior-year quarter. The decline mainly reflected legacy assets runoff, hedging activities impact and divestiture activity.

Operating expenses at Citigroup were down 2% year over year to $10.2 billion. Efficiency savings and the winding-down of legacy assets mitigated increased volume-related expenses and ongoing investments.

Strong Balance Sheet

At quarter end, Citigroup’s end of period assets was $1.89 trillion, up 4% year over year. The company’s loans grew 2% year over year at $653 billion. Deposits increased 3% year over year to $964 billion.

Credit Quality Improved

Total non-accrual assets decreased 19% year over year to $5 billion. The company reported a drop of 22% 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 $12.4 billion at quarter end, or 1.91% of total loans, compared with $12.4 billion, or 1.97%, 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 12.6% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.1%, down from 7.4% in the year-earlier quarter.

As of Sep 30, 2017, book value per share was $78.81 and tangible book value per share was $68.55, both up 6%, from the prior-year period.

Capital Deployment

During third-quarter 2017, Citigroup repurchased about 81 million of common stock. Notably, the company returned around $6.4 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results this time around also. Furthermore, restructuring efforts, including streamlining moves, will likely continue to ease the bank’s burden on the expense base. The company exhibits capital strength which continues to support its dividend and a share buyback program. Also, 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 anticipated potential ease of regulations under President Trump’s administration.

Nevertheless, several legal hassles and escalating costs of credit 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.

Among major banks, along with Citigroup, JPMorgan Chase & Co. JPM also reported third-quarter 2017 results. Amid an expected trading slump, rising rates and loan growth drove the company’s earnings of $1.76 per share, easily surpassing the Zacks Consensus Estimate of $1.67. Also, the figure reflects an 11% rise from the year-ago period. Notably, the results included a legal benefit of $107 million.

Solid loan growth (driven mainly by improved credit card loans) and higher interest rates supported net interest income. Further, rise in advisory fees supported the top-line growth. A slight fall in operating expenses acted as a tailwind.

Among other Wall Street giants, U.S. Bancorp USB is scheduled to report third-quarter 2017 earnings on Oct 18, while Comerica Incorporated CMA will report on Oct 17.

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