) --


(C) - Get Report

boosted its

first-quarter earnings

performance by releasing $3.3 billion in credit reserves, and its asset quality numbers strongly suggest the reserve releases will continue for several quarters.

Even after seeing its loan loss reserves decline by $12.1 billion over the past year, the bank's allowance for loan losses covered 5.79% of total loans as of March 31, while the annualized ratio of net credit losses to average loans for Citicorp -- representing all of Citigroup's portfolio loans -- for the first quarter was 3.69%. These figures point to further reserve releases over coming quarters, which should continue to boost earnings.

Citigroup's credit reserve release followed first-quarter releases of $2 billion by

JPMorgan Chase

(JPM) - Get Report

and $2 billion by

Bank of America

(BAC) - Get Report

as the nation's largest banks showed confidence in a continued improvement for the U.S. economy and reported improved credit numbers to back up this view.

While there is some risk in allowing reserves to be released by adding less to reserves than loan losses take away, Citigroup, JPMorgan and Bank of America are being far less aggressive on this front than


(KEY) - Get Report

, which transferred $40 million from its loan loss reserves during the first quarter, after transferring $97 million from reserves in the fourth quarter. KeyCorp was the first large regional bank to do this, and CLSA analyst Mike Mayo

questioned the move

in a March report, concerned about the possible link between the fourth-quarter transfer from reserves that directly improved earnings, and executive compensation. The analyst did say that there was "latitude with this type of action based on loss forecasts over the next year."

Citi's strong level of reserve coverage and the improved credit trends make it appear the bank is not taking much of a risk by allowing reserves to run-off to a level that is still historically high. The release of reserves has the effect of moving money "from one bucket to another," since it will flow through earnings to boost the bank's core capital. The risk to investors would come if credit trends were to reserves and the company had to change course. The money would still be there, however, the headline earnings figures would be severely affected and threaten an orderly recovery in the company's stock price.

Citigroup's Net credit losses in the first quarter totaled $6.3 billion, declining from $6.9 billion the previous quarter and $8.4 billion a year earlier.

The company's nonaccrual assets -- including loans for which principal and interest payment is not expected, and repossessed real estate and other assets -- made up 0.84% of total assets as of March 31, improving from 1.10% the previous quarter and 1.51% in March 2010.

A forward indicator for credit quality is early stage delinquencies of 30-89 days in Citigroup's consumer loan portfolio. These delinquencies made up 2.54% of total consumer loans as of March 31, declining from 2.92% the previous quarter and 3.21% in March 2010.

Looking at credit card master trust data, for all card portfolios serviced by Citigroup -- including those serviced for other lenders -- Citigroup's annualized loss rate during March was 7.89%, declining from 7.95% in February.

According to SNL Financial, several of the six major U.S. card servicers, including Citigroup,

Discover Financial Services

(DFS) - Get Report


JPMorgan Chase

(JPM) - Get Report

, had seen a spike in loss rates in February, but all three saw improvements in March.

For serviced credit card balances, Citigroup had the second-highest delinquency rate among the six major U.S. card servicers in March according to SNL, of 4.21%, behind

Bank of America

(BAC) - Get Report

, with a delinquency rate of 4.82%. Citigroup reports credit card delinquencies of 35 or more days, while the other major credit card servicers report delinquencies of 30 or more days.

American Express

(AXP) - Get Report

had the lowest March delinquency rate for serviced credit cards of 2%, followed by JPMorgan at 3.08%, Discover at 3.42%, and

Capital One Financial

(COF) - Get Report

at 3.66%.

In his April 8 report initiating coverage of Citigroup with a buy rating and $6 price target, Sterne Agee analyst Todd Hagerman said his firm was expecting "continued improvement in credit quality through 2011 with declining

nonperforming asset volume and associated credit losses." Sterne Agee's 2011 earnings estimate of 35 cents a share for Citigroup assumes "continued reserve release throughout the next several quarters, at a rate of roughly $1.2-$1.7" billion per quarter.


Citigroup Earns $3B, Tops Per-Share Views by a Penny 0 >>

Citigroup: Time to Double Down >>

Analysts: Pandit's Overseas Bet Will Pay Off >>

Bank of America Earnings Miss >>

Bove: Moynihan Needs to Move Quickly >>

JPMorgan Investors Need Patience >>


Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here:

Philip van Doorn


To follow the writer on Twitter, go to


To submit a news tip, send an email to:


Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.