Citigroup Inc. (C) reported a net loss for the 2008 second quarter of $2.5 billion, or $0.54 per share, as write-downs and credit costs helped push the nation’s largest banking institution by assets into the red for the third consecutive quarter. Q2’s results were substantially better than the $5.1 billion loss reported one quarter earlier. The financial giant posted $7 billion in write-downs in its investment bank and another $7.2 billion in credit costs — huge losses, to be sure, but also far less than one quarter earlier. Analysts had generally expected Citigroup to report a $3.67 billion loss, which meant that shares were trading up 8.7 percent to $19.54 in early trading on Friday morning as a result, despite the massive income hit tied to write-downs and credit costs. Write-downs primarily included $3.4 billion on sub-prime related direct exposures and another $2.4 billion tied to exposure to now-downgraded monoline insurers, Citigroup said. Credit costs included $4.4 billion in net credit losses and a $2.5 billion charge to build loss reserves. Mortgage delinquencies continue to rise While investors seemed to take the report as a signal that the worst of the credit crisis was over, it’s clear that the worst of the mortgage mess is yet to come. A simple look at collateral trends bears this out. Citi holds first mortgages totaling $145.2 billion, and second mortgages totaling $61.5 billion; both loan portfolios continued to see the number of severely delinquent borrowers jump during the second quarter. In a presentation to investors, Citi noted that 90+ day delinquencies in first mortgages had jumped to 3.69 percent of loan volume — that’s roughly $5.4 billion in badly troubled first mortgages, as jump of 22.1 percent within one quarter and well over double year-ago numbers. Among seconds, severe delinquencies increased from 1.45 percent in Q1 to 1.75 percent of loan volume, or $1.08 billion, by the end of the second quarter. That’s a total of almost $6.5 billion in severely delinquent mortgages on Citgroup’s books at the end of Q2. The commercial and investment bank had an allowance for loan losses that stood at $20.8 billion by the end of Q2, net of charge-off activity; keep in mind that Citi has much more than mortgages as part of its massive financial services business. That said, given the importance of mortgages to the bottom line of Citigroup and other firms like it, any investor hope that there will be a quick bottom to the bank’s woes may be misplaced; if anything, today’s results seem to suggest the bank will skirt along a bottom for quarters to come, as mortgage losses continue to materialize. Related links: Press statement, investor presentation Disclosure: The author held no direct positions in C or GS when this story was written, although indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.