CIT Group Inc.
) fourth-quarter earnings of $1.03 per share significantly
exceeded the Zacks Consensus Estimate of 65 cents. This is also
substantially ahead of the prior-year quarter's earnings of 18
The results include charges related to the redemption of student
loan asset-backed securities, certain senior unsecured notes and
debt refinancing charges related to the redemption of high-cost
Better-than-expected quarterly results were driven by augmented
revenues, partially offset by higher operating expenses.
Moreover, continuously improving credit quality and stable
capital ratios were the highlights of the quarter.
CIT's net income came in at $207 million in the quarter under
review, compared with $36 million in the year-ago quarter.
For 2012, net loss reached $592 million or $2.95 per share
compared to net income of $15 million or 7 cents per share in
2011. Loss per share in 2012 was narrower than the Zacks
Consensus Estimate loss of $3.27.
Performance in Detail
On a non-GAAP basis, total net revenues stood at $483.8 million
in the fourth quarter, surging 62.5% from $297.8 million in the
previous-year quarter. Higher net finance revenue was the primary
reason for the rise. Yet, net revenues were nowhere near the
Zacks Consensus Estimate of $759.0 million.
For 2012, total net revenues were $576.2 million, plunging 61.1%
year over year. Moreover, net revenues were much lower than the
Zacks Consensus Estimate of $3,381 million.
Net interest revenues reached a negative $9.6 million in the
reported quarter compared with a negative $199.1 million in the
year-ago quarter. The main reason for the negative net interest
revenue was higher interest expense.
Total non-interest income stood at $623.7 million, down 1.6% year
over year. The fall was mainly due to lower other income.
Net finance revenue as a percentage of average earning assets
(excluding fresh start accounting and debt prepayment penalties)
improved 161 basis points (bps) year over year to 3.63%. The rise
was driven mainly by lower funding costs as well as reduction of
Operating expenses were $231.9 million, rising 4.2% from $222.5
million in the prior-year quarter. The expense in the reported
quarter included $10 million of legal charges.
CIT's credit quality continued to improve during the reported
quarter with almost all the major metrics declining. Net
charge-offs (NCOs) were $17 million, down from $24 million in the
prior-year quarter. NCOs as a percentage of average finance
receivables declined 21 bps year over year to 0.41%.
Moreover, non-accrual loans dropped 52.7% year over year to $332
million. Non-accruing loans as a percentage of finance
receivables declined 194 bps year over year to 1.59%.
Further, there was no provision for credit losses in the fourth
quarter compared with a provision of $16 million in the year-ago
quarter. This favorable trend reflects the overall improvement in
Balance Sheet and Capital Ratios
As of Dec 31, 2012, cash and short-term investment securities
were $7.6 billion, consisting of $6.8 billion of cash and $0.8
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 Dec 31, 2012.
Capital ratios were stable as of Dec 31, 2012, with a Tier 1
capital ratio of 16.2% and a total capital ratio of 17.0%, both
showing marginal deterioration from the end of the prior quarter.
Book value per share was $41.49 as of Dec 31, 2012 compared with
$44.27 as of Dec 31, 2011.
CIT's initiatives to restructure the balance sheet as well as its
access to low-cost debts will not only support its future growth
plans, but also 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 fourth-quarter earnings on Mar 4,
CIT currently retains a Zacks Rank #3 (Hold). Other miscellaneous
services finance company that are worth considering include
Euronet Worldwide Inc.
FleetCor Technologies Inc.
), both carrying a Zacks Rank #2 (Buy).
ASSET ACCEPTNCE (AACC): Free Stock Analysis
CIT GROUP (CIT): Free Stock Analysis Report
EURONET WORLDWD (EEFT): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
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