CIT Group Inc.
) first-quarter 2013 earnings of 81 cents per share came in
marginally below the Zacks Consensus Estimate of 89 cents.
However, this is significantly better than the year-ago loss of
$2.13. The results include debt refinancing charges related to
the redemption of high-cost debt.
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Lower-than-expected quarterly results were impacted by lower
non-interest income and a rise in operating expenses, partially
offset by improvement in net interest revenues. Nevertheless,
continuously improving credit quality and stable capital ratios
were the tailwinds.
CIT's net income came in at $163 million in the quarter under
review, compared with a net loss of $427 million in the year-ago
Performance in Detail
On a non-GAAP basis, total net revenue stood at $435.6 million
compared with negative revenue of $96.0 million in the
previous-year quarter. Significantly higher net finance revenue
was the primary reason for the rise. Yet, net revenue
substantially missed the Zacks Consensus Estimate of $735.0
Net interest revenues stood at $63.9 million in the reported
quarter compared with a negative $654.3 million in the year-ago
quarter. The main reason for the improvement was lower interest
Total non-interest income stood at $515.0 million, down 26.0%
year over year. The fall was mainly due to lower other income.
Net finance revenue as a percentage of average earning assets
(excluding the impact of debt prepayment) improved 167 basis
points to 4.64%. The rise was driven mainly by lower funding
Operating expenses were $235.3 million, rising 4.9% from $224.3
million in the prior-year quarter. The expense in the reported
quarter included $6 million of restructuring costs.
CIT's credit quality continued to improve during the reported
quarter with almost all the major metrics declining. Net
charge-offs were $10 million, plunging from $22 million in the
Moreover, non-accrual loans dropped 39.0% year over year to $294
million. Non-accruing loans as a percentage of finance
receivables declined 103 bps year over year to 1.33%.
Further, provision for credit losses was $20 million in the first
quarter compared with $43 million in the year-ago quarter. This
favorable trend reflects the overall improvement in the asset
Balance Sheet and Capital Ratios
As of Mar 31, 2013, cash and short-term investment securities
were $6.9 billion, consisting of $5.5 billion of cash and $1.4
billion of short-term investments. Additionally, CIT had
approximately $1.9 billion of unused and committed liquidity
under a $2 billion revolving credit facility as of Mar 31, 2013.
Capital ratios were stable as of Mar 31, 2013, with a Tier 1
capital ratio of 16.3% and a total capital ratio of 17.1%, both
unchanged from the end of the prior quarter. Book value per share
was $42.21 as of Mar 31, 2013 compared with $42.17 as of Mar 31,
CIT's initiatives to restructure the balance sheet and its access
to low-cost debts will not only support its future growth plans,
but lead to an improvement in net interest margin and
profitability. Moreover, the company is poised to benefit from
its strong capital and liquidity position.
However, CIT's growth prospects will likely be adversely impacted
by sluggish growth in the industries where the company provides
finance, stringent regulations as well as the weak economic
recovery. Further, the company will have to focus on improving
its top line; otherwise, its bottom line will continue to remain
Another miscellaneous services finance company,
Asset Acceptance Capital Corp.
), is expected to release its results on Apr 24.
CIT currently carries a Zacks Rank #2 (Buy). Other miscellaneous
services finance stocks that are worth considering include
Moneygram International Inc.
SS&C Technologies Holdings, Inc.
). Both these companies carry the same Zacks Rank as CIT.