Citigroup (C) reported third quarter 2019 results that were modestly ahead of consensus estimates. The bank continues to make incremental yet steady progress toward improving its earnings and profitability.
Revenues were in-line with consensus estimates and increased 1% from a year ago. Expenses were unchanged from a year ago and credit losses were 6% higher, but taxes were 27% lower. This produced net income that was about 6% above a year ago. When combined with a 10% reduction in shares outstanding, this produced a 20% increase in per-share earnings. Earnings per share (adjusted for a one-time gain) of $2.07 were about 6% above consensus estimates.
Both revenues and expenses reflected modest increases and decreases across its mix of businesses. Credit costs were higher primarily due to higher loan balances and a slight uptick in credit card losses. Overall, Citi’s credit quality remains high with reserves at 1.82% of loans, essentially unchanged from a year ago, with non-accrual assets declining 6% from a year ago.
Citi generated a 12.2% return on tangible common equity, a measure of how efficiently it uses its capital. Reaching a 12% RoTCE has been a long-standing goal.
Citigroup returned to investors $6.3 billion in dividends and share repurchases in the quarter, about 130% of net income. Tangible book value per share increased 2% from the prior quarter and 12% from a year ago, to $69.03. Capital strength remains high, with its Common Equity Tier 1 Capital Ratio at 11.6% - down a tick from a year ago due to the dividends and share repurchases.
The Citi turnaround remains on-track and the shares are still undervalued at just over 1x tangible book value.
We retain our Buy rating and our $85 price target.