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12 EARNINGS SEASON FIRST QUARTER REPORT CARD WHAT HAPPENED TO BANK PROFITS IN Q1? e tough time for banks continued Friday as Citigroup reported a year-over-year decline in net profits of 27 percent during the first quarter in the bank's Q1 earnings statement released in March, from $4.8 billion down to $3.5 billion. e sharp decline in profits for Citigroup in Q1 echoed a theme that has been reverberating throughout the week for the nation's larger banks. JPMorgan Chase, Bank of America, Wells Fargo, and PNC Financial all reported that their net incomes had dropped over- the-year during the first quarter. Bank of America's net income fell 13 percent down to $2.7 billion; JPMorgan Chase's net income dropped from $5.9 billion to $5.5 billion year- over-year in Q1. Wells Fargo's net income dropped slightly from $5.6 billion from $5.5 billion. According to banking industry analyst Ron Shevlin, director of research at Cornerstone Advisors, there are two main drivers of the declines in Q1 earnings for the country's largest banks. Shevlin said one reason for the declines was loan losses and increased reserves in the oil and gas sectors. "Low oil and gas prices hurt an industry with already high debt ratios," Shevlin said. "is hurt JPMorgan Chase, Bank of America, and Wells Fargo, in particular, pretty hard." e second factor driving the declines, according to Shevlin, was, "Investment banking revenue and profits declined. e stock market decline at the beginning hurt profits, global volatility didn't help, and the uncertainty in the direction of interest rates all combined to put downward pressure on bank revenue and profits." Adding to the banks' troubles was the announcement that the Federal Reserve and FDIC had jointly determined that the "living wills" submitted by five systemically important financial institutions (Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo) were "not credible." Living wills are plans as to how the banks would enter bankruptcy without causing widespread damage to the financial industry in the United States; the Fed's and FDIC rejection of the living wills essentially mean the banks failed to prove they are not too big to fail. Citigroup was the only institution out of the eight that received feedback that was not determined by either the Fed or FDIC to be not credible. "We are pleased that neither the Fed nor the FDIC found any deficiencies in our 2015 Resolution Plan," Citigroup CEO Michael Corbat said. "e preparation of the plan entailed a rigorous, firm-wide process across Citi's businesses, functions and regions. We will address the feedback we received from the Fed and FDIC and are committed to continuing to strengthen Citi's resolution planning capabilities. Citi has become a simpler, smaller, safer and stronger institution since the financial crisis and it is critical that Citi can be resolved without the use of taxpayer funds and without adverse systemic impact." Despite the overall declines in profits, the banks' consumer banking sectors generally performed well during Q1, largely due to credit card demand and strong consumer credit, Shevlin said. Bank of America's consumer banking net income jumped by 22 percent up to $1.8 billion in Q1. Also, JPMorgan Chase's Mortgage Banking sector performed well in the first quarter, reporting a net revenue increase of 7 percent up to $1.9 billion. e increase was driven by higher mortgage servicing rights (MSR) risk management) results and strong loan growth, partially offset by lower servicing revenue, according to JPMorgan Chase. Wells Fargo, however, reported a decline of $62 million over-the-quarter in mortgage banking noninterest income down to $1.6 billion and a decline in residential mortgage loan originations from $47 billion down to $44 billion. Wells Fargo reported an increase in servicing income from $730 million in Q 4 up to $850 million in Q1. Citigroup's Q1 net income of $3.5 billion ($1.10 per diluted share) was on revenues of $17.6 billion, which was a decline from the $19.7 billion in revenues the bank reported for the first quarter of 2015. "While our market-sensitive products clearly suffered from weak investor sentiment during the quarter, we continued to make progress in several key areas," Corbat said. "We grew loans and deposits in our core businesses, reduced our expenses while absorbing a significant repositioning charge, utilized additional Deferred Tax Assets, and generated capital in excess of what we returned to our shareholders."

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