On October 15, 2013 Citigroup (NYSE: C) reported its 3Q 2013 financial report with a net income of $3.2 billion, or $1.00 a share on revenue of $17.9 billion. Citigroup's net income increased over third quarter 2012 of $468 million. Although some analysts were expecting a bit more, the whole picture of Citigroup in this economy was a win for the company and investors. Citigroup's main website and its Investor's Page are valuable reads. Over the last 12 months Citigroup's stock price has jumped 26%. (October 16, 2012 the open stock price was $36.41. The open for October 16, 2013 was $49.69. The increase of $13.28 represents a 26% increase in one year.) After additional analysis, we see a strong growth potential for Citigroup in the next 18 months with a healthy double-digit investment return through 2014. I have written 5 articles covering Citigroup's growth potential which can be viewed by looking through my past articles. All of these articles have discussed the growth potential we have seen in the recent past, as well as positioned for future growth.
Citicorp loans grew 5% versus the prior year period to $561 billion. Corporate loans of $268 billion grew by 8% compared to the prior year period, including the impact of adding approximately $7 billion of previously unconsolidated assets in the second quarter 2013. Consumer loans grew 1% to $293 billion, including the impact of adding approximately $7 billion of loans related to the previously-announced acquisition of Best Buy's U.S. credit card portfolio in the third quarter 2013. Citigroup's allowance for loan losses was $20.6 billion at quarter end, or 3.2% of total loans, compared to $25.9 billion, or 4.0%, at the end of the prior year period. The continued decrease in the delinquent loans and less write offs will continue as the market grows and economy improves. Going below 3% will show excellent progress in the coming quarters. Analysis from the market is Citicorp will continue to grow their corporate loan sector into 2014 and continue to decrease the volume of bad loans. This will be the second strongest area of growth for the company.
Citigroup's Global Consumer Banking revenues of $9.2 billion declined 7% from the prior year period, directly affected from lower U.S. mortgage refinancing activity. Revenues declined 12% in North American sector to $4.7 billion, while international revenues declined 1% to $4.5 billion. The slow down of home loans in the U.S. has cleared the bubble it created with the government supported refinancing. The numbers define a level of banking that is in line with a solid, slow growing world economy.
Operating expenses of $11.7 billion were 4% lower than the prior year period. Citigroup's cost of credit in the third quarter 2013 was $2.0 billion, 25% below the prior year period, reflecting a $1.5 billion improvement in net credit losses partially offset by a $827 million decline in net loan loss reserve releases. Citi has trimmed expenses two years in a row. Trimming more will not be the focus in the future, but maintaining costs with growing the revenue with new business opportunities.
The Securities and Banking revenues declined 2% from the prior year period to $4.7 billion. Excluding the impact of the negative $332 million of CVA/DVA in the third quarter 2013 (compared to a negative $799 million impact in the prior year period), the Securities and Banking revenues were $5.1 billion. Securities and Banking is one of the more profitable divisions in Citigroup. We expect to see this grow through 2014.
Citi Holdings assets of $122 billion declined $49 billion, or 29%, from the third quarter 2012. Currently Citi Holdings is now 6% of the company's balance sheet with revenues of $1.3 billion in the third quarter 2013. Although this reduced the total income the effects are positive on streamlining the business operations. As Citi continues to sell these assets, less income, but also less write offs.
Citigroup also announced their estimated book value increased from $54.52 to $64.49. This will relieve pressure on the stock price and allow it to move upward. The stock price has been bumping from $47 to $53, and this should allow a $57-60 by the end of 2013. Our assessment of this increased book value was due based on the low dividend ($0.01 per share per quarter) and the accumulation of value in the company.
CEO Michael Corbat, has led Citigroup since January 2012 by setting a solid course and hitting several home runs along the way. His leadership style has been key in bringing Citigroup from a 'just-recovered' bank to a leader of the pack in the world of finance. Citi is better positioned today than any other large bank due to the CEO. Citi has met every Fed requirement and continues to increase their Basel III Tier 1 Common Ratio to an estimated 10.4%. During the January 2013 review, Citigroup was recognized as being in the best financial position of all the banks reviewed. Their selling off of assets in Citi Holdings has been successful by selling at fair market value rather than holding a fire sale and taking deep losses. Cutting expenses 2 years in a row, while expanding business opportunities around the world has been a successful endeavor.
One challenge the company still faces is investors still want to see the dividend increase. After the Fed's review in January 2014, it is likely that with another stellar review, the company is more likely to increase the dividend to a modest $0.05 per share, per quarter ($0.20 per year) and conduct a stock buyback to enhance the stock price. Even a limited dividend increase and small buyback will send a strong signal to the market that Citigroup is not only a world banker, but a solid investment for growth in the future.
Citigroup is a recommended buy and hold stock for the long term appreciation of the stock. The book value has increased along with the stock price and the world banking markets are seen as positive. Citigroup has positioned itself for positive growth. Banking will grow strong in the world economy that in the U.S. and Citigroup more prepared to engage with leaders and organizations around the world. Citigroup's world-wide network of financial services can integrate more producers to suppliers to customers than any other banking organization. Citigroup is also better positioned inside China as the growth explosion continues. Gone are the years of double digit growth, but 7-9% growth over the next 5 years will help fuel the world economy, and Citigroup with it.