Citigroup Inc. ( C ) is America's third largest bank by assets with about $1.95 trillion on its balance sheet, and among the Financial Stability Board's 29 Global Banks that are Too Big to Fail . It released its second-quarter earnings, eking out a solid bottom line figure of $2.9 billion, or $0.95 per share.

Excluding one-time factors—primarily the bank's credit and debit evaluation adjustments of a positive $219 million and its loss of $424 million from the sale of about half its interest in Turkish bank Akbank Turk Ano Adr ( AKBTY.PK )—its earnings would have been $3.1 billion, or $1 per share. In last year's second quarter, Citigroup earned after adjusting for myriad one-time events, $1.01 per share. Analysts were expecting, on average, $0.89 per share. Therefore, on the basis of expectations, the quarter was a success. Let's take a closer look.

While Citigroup reports consolidated financial reports, several years ago, it divided itself into two companies—"good Citi" is anything associated with the title "Citibank", and "Bad City" is known as Citi Holdings, holding the loans and other assets that Citigroup wished in 2008 it did not have. That included all commercial and residential mortgage loans, student loans, and auto loans. It is not that Citigroup has stopped writing mortgages, or auto loans. Since 2009 though, it has been able in its financial reports to segregate the good Citi from bad Citi, which is both misleading and confusing.

Citigroup is not the only financial group that brought onto itself billions of worthless mortgages in the late 2000s. But Wells Fargo & Co. 's ( WFC ) purchase of Wachovia was far larger than Citigroup's biggest domestic purchase ever—that of Golden West thrift 's parent in 2002—and Wells Fargo does not run a separate balance sheet, though it does occasionally refer to "legacy assets." Any of Citigroup's asset issues are its own doing, and it is horrible hypocrisy to imply that mortgage assets are "non-core," while at the same time operating a large, core mortgage operation.

I bring this up because the core part of Citigroup is actually performing quite well. Citi Holdings is in liquidation mode, and quarter after quarter is a drag on overall assets, revenues and earnings. Of course, none of that is a surprise. It is the implication that Citi Holdings is separate that has been done now for several years. Citi Holdings, which at one time held some 40% of Citigroup's assets, is now down to under 10% of overall assets with about $190 billion.

Revenues in the second quarter came to $18.6 billion or $18.8 billion if we exclude the one-time factors. The most salient feature of Citigroup's income statement is the enormous release of reserves it still is posting. Over the past four quarters, Citigroup's overall reserve for credit losses has fallen from $34.4 billion to $27.6 billion. Specifically, in the just concluded second quarter, there was a reserve release of $984 million, accounting for about one-third of the quarter's profit amount.

A reserve release is distinct from provisions for loss, and in that regard, Citigroup's provision for loan losses of $214 million was little changed from the year ago's $219 million. Citigroup obviously believes it was overaggressive in reserving over the last several years, and now can afford to let credit losses be absorbed as its customers' credit environment improves.

Management has announced its intent to have its large, global consumer bank become more focused on emerging economies around the globe. I will note that among North America, Europe / Middle East / Africa, Latin America, and Asia, the only geographic unit to report a year-over-year revenue or income increases was the North American unit.

Time will tell weather Citigroup's worldwide campaign works for it. I might also add that the two most profitable large banks in this country, Wells Fargo and U.S. Bancorp ( USB ), have little to no presence outside this country. In the second quarter, Citigroup received 53% of its revenue, and 60% of its consumer banking profit from North America.

Citigroup's Securities and Banking unit saw a 16% net income increase over last year's highly depressed quarter, to $1.28 billion. This increased income was sustained strictly from expense reductions, most of which were personnel related. Revenue actually fell 2% from the second quarter of 2011. The investment banking industry can be forgiven for lackluster profits in the second quarter, as both North America and Europe have seen substantial reductions in mergers and acquisitions, and other capital activities. Investment banking revenues at Citigroup were down 21% from the year ago, already depressed quarter.

Citigroup has not been kind to shareholders in recent years, given its 1 for 10 reverse stock split last year, and its token dividend. After failing the Federal Reserve's Comprehensive Capital Analysis and Review, aka stress test in March, Citigroup has announced it will not seek a dividend boost or other return of capital before 2013.

There are reasons to be interested in Citigroup. Its tangible book value has climbed to over $51 per share, nearly double today's stock price. And there is little doubt in my mind that the earnings profile of the bank is growing each quarter. I used to compare Citigroup with Bank of America Corporation ( BAC ), but the two have diverged in my mind, and Citigroup is a quality candidate for big capital gains over the next two to three years.

There is also plenty of risk. Citigroup will be involved in the burgeoning LIBOR scandal . The company has far more exposure to deeply troubled Europe than any of its domestic competitors. But if you have some patience and can take a risk, Citigroup just might be for you.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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