By Geoffrey Seiler, BullMarket.com

Financial stocks were among the best-performing sectors of the market in the first quarter as companies put the struggles of the mortgage meltdown, financial crisis and ensuing recession behind them.

Citigroup (C) reported profits ahead of Wall Street's consensus forecast, though revenue was a little lower than expected. The bank did a good job of holding the line on its operating costs, and its tier 1 capital ratio improved to 12.4% from 11.8% in the fourth quarter.

Citigroup earned $2.9 billion for the first three months of this year, equal to 95 cents per share. Excluding items, the bank would have earned $1.11 per share, which was 10 cents per share better than the Wall Street consensus estimate.

The bank's international reach was a benefit during the quarter, as it was able to take advantage of the struggles of European banks to increase international transaction services revenue by 7% to $2.7 billion. Emerging markets were also a strong point, as revenue grew by 6% in Latin America to $2.4 billion and by 5% in Asia to $2.0 billion.

Citi Holdings is the entity Citicorp created to be the repository for the billions in toxic assets it accumulated leading up to the financial crisis. While it continues to wind down that legacy portfolio, it still represented 11% of the bank's total assets as of March 31.

The banking sector is gradually improving as it works its way past headwinds like the Durbin debit rules and sluggish loan demand. Citi's results were a mixed bag, but it is in significantly better shape than it was several years ago.

Give CEO Vikram Pandit some credit. It was often joked that he got the job only because no one else wanted it. Despite being dealt a tough hand, he has made the most of the opportunity given to him.

The bank has staged an impressive comeback, aided by the rather significant help of American taxpayers, but since the government cashed in its chips in 2010, Citigroup has continued to improve.

One of the most noteworthy changes is that management now has its operating costs under control and is looking to lower them further. Considering this once was a bank that was synonymous with bloat and excess, it has been a remarkable turnaround.

Trading well under tangible book value of about $51, the stock is cheap, but it's also cheap for a reason, given the trouble it had gotten itself into before Pandit took over as the CEO and the toxic assets it still holds.

However, things are looking up, and this international banking behemoth remains an interesting higher risk-reward play on a banking turnaround.

Related Articles

• Insiders Plus banks on banks
• JP Morgan: Turn for the better
• MetLife: Treated unfairly?