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CIT Announces Fourth Quarter and Full Year 2018 Results

NEW YORK, Jan. 29, 2019 /PRNewswire/ --

(PRNewsfoto/CIT Group Inc.)

Financial Results:

  • Fourth quarter net income available to common shareholders and income from continuing operations available to common shareholders were each $82 million or $0.78 per diluted common share
  • Excluding noteworthy items, fourth quarter income from continuing operations available to common shareholders1 of $127 million or $1.21 per diluted common share
  • Full year net income available to common shareholders of $428 million or $3.61 per diluted common share; income from continuing operations available to common shareholders of $453 million or $3.82 per diluted common share
  • Excluding noteworthy items, full year income from continuing operations available to common shareholders of $480 million or $4.04 per diluted common share

Highlights:

  • Delivered on our 2018 financial targets through steady execution of our strategic plan:
  • Increased full year average loans and leases by 1%, notwithstanding the divestiture of non-core portfolios. Average loans and leases in the core portfolios for the full year 2018 increased 6%
  • Grew full year average consumer deposits in the direct bank by 25%; added over 60,000 customers in 2018
  • Continued to simplify, de-risk and return capital in 2018:
  • Received a non-objection from our regulators to repurchase up to $450 million of common stock through Sept. 30, 2019 and to increase our quarterly dividend by 40% to 35 cents per common share starting in 2Q19, which is subject to CIT Board approval

CIT Group Inc. (CIT) today reported fourth quarter net income available to common shareholders of $82 million or $0.78 per diluted common share, compared to a net loss available to common shareholders of $98 million or $0.74 per diluted common share for the year-ago quarter. Income from continuing operations available to common shareholders for the fourth quarter was $82 million or $0.78 per diluted common share, compared to a loss available to common shareholders of $93 million or $0.70 per diluted common share in the year-ago quarter.

Income from continuing operations available to common shareholders excluding noteworthy items for the fourth quarter was $127 million or $1.21 per diluted common share, compared to $130 million or $0.99 per diluted common share in the year-ago quarter, as lower net finance revenue and lower other non-interest income were offset by lower operating expenses and a lower effective income tax rate. The increase in income from continuing operations excluding noteworthy items per diluted common share reflects the decline in the average number of diluted common shares outstanding due to significant share repurchases over the past four quarters.

Net income available to common shareholders for the full year was $428 million or $3.61 per diluted common share, compared to net income available to common shareholders of $458 million or $2.80 per diluted common share for the prior year. Income from continuing operations available to common shareholders for the full year was $453 million or $3.82 per diluted common share, compared to income available to common shareholders of $250 million or $1.52 per diluted common share in the prior year.

Income from continuing operations available to common shareholders excluding noteworthy items for the full year was $480 million or $4.04 per diluted common share, compared to $504 million or $3.07 per diluted common share in the prior year, as a decline in net finance revenue (reflecting the sale of NACCO and the reverse mortgage portfolio) and an increase in the provision for credit losses were partially offset by lower operating expenses, higher other non-interest income and a lower effective income tax rate. The increase in income from continuing operations excluding noteworthy items per diluted common share reflects the decline in the average number of diluted common shares outstanding due to significant share repurchases over the past four quarters.

"2018 was a pivotal year. We successfully executed on our multi-year strategic plan, delivered on our financial targets and achieved significant earnings per share growth," said CIT Chairwoman and Chief Executive Officer Ellen R. Alemany. "Through steady implementation of our plan we completed two complex divestitures, significantly reduced operating expenses, grew our core assets by 6 percent, increased deposits, repurchased $1.6 billion of common stock and achieved our 2018 return on tangible common equity goal."

Alemany continued, "We enter 2019 stronger and ready to build on our momentum and continue to create shareholder value. The investments we have made in our operations and technology, paired with our decades of industry expertise, are a source of strength in the marketplace. We are committed to further improving profitability through thoughtful asset growth, further capital optimization, improved risk-adjusted returns, and enhanced operating efficiency."

Return on average common equity from continuing operations available to common shareholders in the current quarter was 5.8%. Return on Tangible Common Equity (ROTCE) from continuing operations in the current quarter was 6.7%. ROTCE from continuing operations excluding noteworthy items3 in the current quarter was 10.1%, in line with our 2018 financial target. Tangible book value per common share at Dec. 31, 2018 was $51.15. The preliminary Common Equity Tier 1 Capital ratio decreased from the prior quarter end and remained strong at 12.0%, and the preliminary Total Capital ratio decreased to 14.8% at Dec. 31, 2018.

Financial results for the fourth quarter in continuing operations included noteworthy items related to our strategic initiatives:

  • $52 million (after tax) ($0.50 per diluted common share) net charge related to the termination of our Dutch total return swap facility.
  • $19 million (after tax) ($0.18 per diluted common share) gain on the sale of NACCO, our European railcar leasing business, which closed in October 2018.
  • $12 million (after tax) ($0.11 per diluted common share) in debt extinguishment costs related to the redemption of $434 million in unsecured senior debt and $465 million of Rail-related secured debt.

Selected Financial Highlights

Select Financial Highlights*













4Q18 change from











2018
change*
from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17



2018



2017



2017









































Net finance revenue(1)

$

374



$

389



$

399



$

(15)



-4

%



$

(25)



-6

%


$

1,543



$

1,606



$

(63)


Non-interest income


48




86




137




(39)



-45

%




(90)



-65

%



374




364




10


Total net revenue


421




476




537




(54)



-11

%




(115)



-21

%



1,917




1,970




(54)


Non-interest expenses


274




267




561




7



3

%




(288)



-51

%



1,109




1,664




(556)


Income (loss) from continuing operations before credit provision


148




209




(25)




(61)



-29

%




173


NM




808




306




502


Provision for credit losses


31




38




30




(7)



-18

%




1



3

%



171




115




56


Income (loss) from continuing operations before provision (benefit)
for income taxes


117




171




(55)




(54)



-32

%




172


NM




637




192




445


Provision (benefit) for income taxes


25




41




28




(16)



-40

%




(3)



-10

%



165




(68)




233


Income (loss) from continuing operations


92




129




(83)




(38)



-29

%




175


NM




472




259




213


Income (loss) from discontinued operations, net of taxes


0




2




(5)




(2)



-95

%




5


NM




(25)




209




(234)


Net income (loss)


92




132




(88)




(40)



-30

%




180


NM




447




468




(21)


Preferred stock dividends


10




-




10




10


NM





(0)



-3

%



19




10




9


Net income available to common shareholders

$

82



$

132



$

(98)



$

(49)



-37

%



$

180


NM



$

428



$

458



$

(30)


Income (loss) from continuing operations available to common
shareholders

$

82



$

129



$

(93)



$

(47)



-36

%



$

175


NM



$

453



$

250



$

204


Income from continuing operations available to common
shareholders, excluding noteworthy items(2)

$

127



$

131



$

130



$

(4)



-3

%



$

(3)



-2

%


$

480



$

504



$

(24)









































Per common share







































Diluted income (loss) per common share

$

0.78



$

1.15



$

(0.74)



$

(0.37)







$

1.52






$

3.61



$

2.80




0.81


Diluted income per common share, excluding noteworthy items(2)

$

1.21



$

1.17



$

0.95



$

0.04







$

0.26






$

3.94



$

3.39




0.56


Tangible book value per common share (TBVPS)(1)

$

51.15



$

50.02



$

49.58



$

1.14







$

1.58






$

51.15



$

49.58




1.58


Average diluted common shares outstanding (in thousands)


105,149




114,007




131,343




(8,858)








(26,194)







118,777




163,950




(45,173)









































Capital adequacy







































CET1 Ratio(3)


12.0

%



12.4

%



14.4

%


-42bps







NM







12.0

%



14.4

%


NM


Total Capital Ratio(3)


14.8

%



15.1

%



16.2

%


-30bps







NM







14.8

%



16.2

%


NM









































Asset quality







































Net charge-offs as a % of average loans


0.32

%



0.35

%



0.26

%


-3bps







6bps







0.39

%



0.39

%


-1bps


Allowance for loan losses as a % of loans


1.59

%



1.57

%



1.48

%


2bps







11bps







1.59

%



1.48

%


11bps









































Key performance metrics







































Net finance margin(1)


3.39

%



3.43

%



3.59

%


-4bps







-19bps







3.41

%



3.43

%


-2bps


Net finance margin, excluding noteworthy items(2)


3.39

%



3.36

%



3.51

%


3bps







-12bps







3.35

%



3.49

%


-14bps


Loans and leases to deposit ratio


121

%



126

%



130

%


NM







NM







121

%



130

%


NM


CIT Bank Loans and leases to deposit ratio


101

%



101

%



104

%


76bps







NM







101

%



104

%


NM


Return on average common equity (available to common
shareholders, continuing operations)


5.81

%



8.62

%



-5.29

%


NM







NM







7.30

%



3.53

%


NM


Return on tangible common equity (available to common
shareholders, continuing operations)(1)


6.67

%



9.66

%



8.42

%


NM







NM







8.20

%



7.72

%


48bps


Return on tangible common equity (available to common
shareholders, continuing operations), excluding noteworthy
items(1)(2)


10.12

%



9.78

%



8.47

%


34bps







NM







8.66

%



8.24

%


42bps


Return on AEA, applicable to common shareholders(1)


0.75

%



1.16

%



-0.88

%


-41bps







NM







0.95

%



0.98

%


-3bps


Return on AEA, excluding noteworthy items(1)(2)


1.15

%



1.17

%



1.12

%


-2bps







3bps







1.04

%



1.21

%


-17bps


Net efficiency ratio(1)


59.8

%



54.1

%



49.6

%


NM







NM







54.6

%



56.4

%


NM


Net efficiency ratio, excluding noteworthy items(2)


54.1

%



53.9

%



53.4

%


23bps







73bps







54.6

%



56.3

%


NM


Headcount


3,678




3,757




3,909




(79)








(231)







3,678




3,909




(231)
















































(1)Net finance revenue; tangible book value per common share; net finance margin; return on tangible common equity; return on tangible common equity, excluding noteworthy items, return on AEA; return on AEA, excluding noteworthy items; and net efficiency ratio are non-GAAP measures. See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


(2)Excludes noteworthy items.  See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


(3)Ratios on fully phased-in basis.


* Certain balances may not sum due to rounding.


Unless otherwise indicated, all references below relate to continuing operations.

Income Statement Highlights:
Income from continuing operations available to common shareholders excluding noteworthy items5 was $127 million down from $131 million in the prior quarter, primarily reflecting lower net finance revenue and other non-interest income and the semi-annual preferred dividend paid in the current quarter, partially offset by a decline in operating expenses and credit costs and a lower effective income tax rate.

Net Finance Revenue

Net Finance Revenue*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Interest income

$

492



$

474



$

448



$

18



4

%



$

44



10

%

Rental income on operating leases


230




264




253




(35)



-13

%




(23)



-9

%

Depreciation on operating lease equipment


79




78




74




1



2

%




5



7

%

Maintenance and other operating lease expenses


53




57




58




(4)



-7

%




(5)



-9

%

Net rental income on operating leases


97




130




120




(32)



-25

%




(23)



-19

%

Interest expense


216




214




169




2



1

%




47



28

%

Net finance revenue(1)

$

374



$

389



$

399



$

(15)



-4

%



$

(25)



-6

%

Average earning assets(1)

$

44,113



$

45,377



$

44,562



$

(1,264)



-3

%



$

(449)



-1

%

Net finance margin(1)


3.39

%



3.43

%



3.59

%


-4bps







-19bps





Excluding Noteworthy Items(1)



























Net finance revenue

$

374



$

381



$

391



$

(7)



-2

%



$

(17)



-4

%

Average earning assets

$

44,113



$

45,377



$

44,562



$

(1,264)



-3

%



$

(449)



-1

%

Net finance margin


3.39

%



3.36

%



3.51

%


3bps







-12bps











(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


* Certain balances may not sum due to rounding.


Net finance revenue6 was $374 million, down from $389 million in the prior quarter. Net finance revenue in the prior quarter included a $9 million benefit from the suspension of depreciation expense related to NACCO because its assets were included in assets held for sale. Excluding noteworthy items, net finance revenue6 was $374 million, down from $381 million in the prior quarter, as lower net operating lease income, driven by a lease prepayment in Rail in the prior quarter and the sale of NACCO early in the current quarter, and an increase in deposit costs were partially offset by higher income from commercial loans and higher net purchase accounting accretion in the Consumer Banking segment.

Net finance revenue as a percentage of average earning assets ("net finance margin6") excluding noteworthy items was 3.39%, a 3 bps increase from 3.36% in the prior quarter. The increase in net finance margin excluding noteworthy items reflects higher yields on commercial loans and investments, cash representing a smaller portion of average earning assets and higher net purchase accounting accretion, partially offset by a decrease in lease yields and higher deposit costs.

Net finance revenue in the year-ago quarter included a $9 million benefit from the suspension of depreciation expense related to NACCO because its assets were included in assets held for sale. Excluding noteworthy items, net finance revenue decreased $17 million or 4% compared to the year-ago quarter, primarily due to lower average earning assets from the NACCO and reverse mortgage portfolio sales and higher funding costs, partially offset by higher income on loans in the Commercial Banking segment and on investment securities.

Net finance margin excluding noteworthy items decreased 12 bps compared to the year-ago quarter, reflecting lower net rental income and higher funding costs, partially offset by increases in yields on loans and cash and investments.

Other Non-interest Income

Other Non-Interest Income*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Fee revenues

$

22



$

28



$

30



$

(7)



-23

%



$

(9)



-29

%

Factoring commissions


26




27




27




(1)



-4

%




(1)



-2

%

Gains on leasing equipment, net of impairments


18




14




9




4



32

%




9



98

%

Gains on investment securities, net of impairments


5




4




11




1



31

%




(7)



-59

%

BOLI income


6




7




6




(1)



-9

%




0



3

%

Other revenues


(29)




7




54




(36)


NM





(83)


NM


Total other non-interest income

$

48



$

86



$

137



$

(39)



-45

%



$

(90)



-65

%




























Total other non-interest income, excluding noteworthy items(1)

$

92



$

97



$

108



$

(5)



-5

%



$

(16)



-15

%







(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


* Certain balances may not sum due to rounding.


Other non-interest income was $48 million compared to $86 million in the prior quarter. Other non-interest income in the current quarter included aggregate noteworthy items of a $44 million net charge in other revenue from the $25 million gain on the sale of NACCO and the $69 million net charge related to the termination of our Dutch total return swap facility. In the prior quarter, other non-interest income included aggregate noteworthy items of a $10 million net charge in other revenue from a $21 million impairment charge to the indemnification asset related to a loss share agreement on assets in our LCM portfolio in the Consumer Banking segment that was partially offset by an $11 million benefit from a release of a valuation reserve related to assets held for sale in China in the NSP segment.

Excluding noteworthy items, other non-interest income7 was $92 million, compared to $97 million in the prior quarter, primarily driven by lower fee revenues from a decrease in capital markets fees and lower income from customer derivatives, partially offset by higher gains on the sale of leasing equipment. Factoring commissions decreased $1 million, as higher volumes were offset by a lower average commission rate.

Other non-interest income in the year-ago quarter included a $29 million benefit in other revenues related to the cumulative effect of an accounting policy change for LIHTC investments, which was more than offset by a related $38 million expense in the provision for income taxes. Other non-interest income excluding noteworthy items decreased by $16 million from the year-ago quarter reflecting lower capital markets fees and decreases in gains from the reverse mortgage portfolio in LCM in the Consumer Banking segment.

Operating Expenses

Operating Expenses*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Compensation and benefits

$

130



$

137



$

139



$

(7)



-5

%



$

(9)



-6

%

Technology


34




32




31




2



6

%




3



11

%

Professional fees


20




17




29




3



17

%




(9)



-32

%

Insurance


14




16




16




(2)



-12

%




(2)



-11

%

Net occupancy expense


17




16




17




1



7

%




1



4

%

Advertising and marketing


11




11




13




0



0

%




(2)



-17

%

Other expenses


26




28




23




(2)



-7

%




4



16

%

Operating expenses, excluding restructuring costs and intangible
asset amortization(1)


252




257




266




(5)



-2

%




(14)



-5

%

Intangible asset amortization


6




6




6




(0)



-2

%




(0)



-3

%

Restructuring costs


0




0




32




0


NM





(32)



-100

%

Total operating expenses

$

258



$

263



$

304



$

(5)



-2

%



$

(46)



-15

%

Net efficiency ratio(1)


59.8

%



54.1

%



49.6

%


NM







NM
































Total operating expenses, excluding noteworthy items and
intangible asset amortization(1)

$

252



$

257



$

266



$

(5)



-2

%



$

(14)



-5

%

Net efficiency ratio, excluding noteworthy items and intangible
asset amortization(1)


54.1

%



53.9

%



53.4

%


23bps







73bps











(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


* Certain balances may not sum due to rounding.


Operating expenses excluding noteworthy items and intangible asset amortization8 was $252 million, a decrease from $257 million in the prior quarter, driven primarily by decreases in employee costs and FDIC insurance costs, partially offset by an increase in professional fees and technology costs. The sale of NACCO contributed $3 million to the decline in operating expenses, the majority of which was in employee costs.

Operating expenses in the year-ago quarter included $32 million in restructuring charges. Compared to the year-ago quarter, operating expenses excluding noteworthy items and intangible asset amortization decreased $14 million or 5%, primarily reflecting lower professional fees and employee costs, partially offset by higher other non-income tax expenses.

The net efficiency ratio8 increased to 60% compared to 54% in the prior quarter. The net efficiency ratio excluding noteworthy items8 was 54% unchanged from the prior quarter and up 1% from the year-ago quarter, as the decreases in net finance revenue and other non-interest income were offset by the decrease in operating expenses.

Debt Extinguishment Costs
We recognized $16 million in debt extinguishment costs associated with the redemption of $434 million of unsecured senior debt and of $465 million of Rail-related secured debt from the proceeds of the NACCO sale earlier in the quarter. In the prior quarter, we recognized $3 million in debt extinguishment costs associated with the redemption of $500 million of unsecured senior debt from the proceeds of the issuance of $500 million in unsecured senior debt earlier in the quarter.

Income Taxes
The effective tax rate in the current quarter was 21% and for the full year 2018 was 26%. Excluding discrete tax items and noteworthy items, the effective tax rate was 24% in the current quarter, 28% in the prior quarter and 39% in the year-ago quarter. The current quarter effective tax rate was positively impacted by a decrease in state and local income taxes and tax credits recognized for research and development costs.

The provision for income taxes in the current quarter of $25 million included an aggregate of $2 million in discrete tax benefits. The provision for income taxes in the prior quarter of $41 million included an aggregate of $5 million in discrete tax benefits, and the provision for income taxes in the year-ago quarter of $28 million included an aggregate $26 million benefit from noteworthy items, including the impact of tax items related to NACCO, the change in accounting policy for LIHTC and U.S. tax reform and an additional aggregate $22 million in discrete tax benefits from other tax adjustments, including the reversal of a valuation allowance related to a restructured international legal entity.

Balance Sheet Highlights:

Earning Assets

Earning Assets*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Loans (including assets held for sale)

$

30,884



$

30,700



$

30,210



$

184



1

%



$

674



2

%

Operating lease equipment, net (including assets held for sale)


6,971




8,065




7,906




(1,095)



-14

%




(936)



-12

%

Loans and leases


37,854




38,765




38,116




(911)



-2

%




(262)



-1

%

Interest-bearing cash


1,597




1,200




1,440




397



33

%




157



11

%

Investment securities and securities purchased under agreement
to resell


6,634




6,540




6,620




94



1

%




14



0

%

Indemnification asset


11




27




142




(16)



-60

%




(132)



-92

%

Credit balances of factoring clients


(1,674)




(1,672)




(1,469)




(2)



0

%




(206)



-14

%

Total earning assets(1)

$

44,421



$

44,859



$

44,850



$

(438)



-1

%



$

(428)



-1

%

Average earning assets(1)

$

44,113



$

45,377



$

44,562



$

(1,264)



-3

%



$

(449)



-1

%






(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.


* Certain balances may not sum due to rounding.


Total earning assets decreased 1% compared to the prior quarter, primarily reflecting a reduction in operating leases from the NACCO sale, partially offset by an increase in interest bearing cash and loans. Total earning assets decreased 1% also compared to the year-ago quarter, primarily reflecting a reduction in operating leases from the NACCO sale and a decline in consumer loans from the sale of the reverse mortgage portfolio and run-off of the LCM portfolio, partially offset by growth in commercial loans and in consumer loans in Other Consumer Lending.

Average earning assets decreased 3% from the prior quarter, primarily due to a reduction in operating leases from the NACCO sale and a reduction in interest-bearing cash, which was used to redeem debt and repurchase common shares, partially offset by growth in commercial loans. Average earning assets compared to the year-ago quarter declined 1%, primarily reflecting a reduction in operating leases from the NACCO sale, a decline in consumer loans from the sale of the reverse mortgage portfolio and run-off of the LCM portfolio, and a decline in interest-bearing cash, partially offset by growth in the core portfolios and the investment portfolio.

Average loans and leases declined 2% in the quarter, primarily driven by a reduction in operating leases from the NACCO sale and run-off of the LCM portfolio, while average loans and leases in the core portfolios grew by 2% compared to the prior quarter, as strong growth in funded volume in the Commercial Finance, Real Estate Finance and Business Capital divisions of Commercial Banking was partially offset by an increase in prepayments. Average loans and leases in the core portfolio grew 8% compared to the year-ago quarter and 6% compared to the full year 2017, primarily driven by growth in the Business Capital and Commercial Finance divisions of Commercial Banking and the Other Consumer Lending division of Consumer Banking.

Cash and Investment Securities
Of the $8.2 billion in interest-bearing cash and investment securities (including securities purchased under agreements to resell) at Dec. 31, 2018, $7.1 billion was at CIT Bank, N.A. (CIT Bank) and $0.8 billion was at the financial holding company, while the remaining $0.3 billion consisted of amounts held at the operating subsidiaries and restricted balances.

Deposits and Borrowings

Deposits and Borrowings*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Noninterest-bearing checking

$

1,521



$

1,296



$

1,352



$

225



17

%



$

169



13

%

Interest-bearing checking


1,553




1,768




2,653




(214)



-12

%




(1,100)



-41

%

Other money markets/sweeps


4,990




4,795




5,076




195



4

%




(86)



-2

%

Savings and online money market accounts


8,958




8,268




5,987




690



8

%




2,971



50

%

Time deposits


14,066




14,507




14,344




(441)



-3

%




(278)



-2

%

Other


152




192




158




(40)



-21

%




(6)



-4

%

Total deposits

$

31,240



$

30,825



$

29,569



$

415



1

%



$

1,670



6

%

Unsecured borrowings

$

3,808



$

4,238



$

3,738



$

(429)



-10

%



$

71



2

%

Secured borrowings


4,310




4,437




5,237




(126)



-3

%




(927)



-18

%

Total borrowings

$

8,119



$

8,674



$

8,974



$

(555)



-6

%



$

(856)



-10

%





* Certain balances may not sum due to rounding.


Total deposits at Dec. 31, 2018 represented approximately 79% of CIT's funding. Total deposits increased 1% compared to Sep.30, 2018, primarily driven by growth in savings and online money market accounts, partially offset by a decrease in time deposits. Total deposits increased 6% compared to Dec. 31, 2017, primarily driven by growth in savings and online money market accounts, partially offset by a decrease in interest-bearing checking.

The loans and leases-to-deposits ratio at CIT Bank was 101% at Dec. 31, 2018, unchanged from Sep. 30, 2018 and down from 104% at Dec. 31, 2017. For CIT Group, the loans and leases-to-deposits ratio was 121% at Dec. 31, 2018, down from 126% at Sep. 30, 2018 and 130% at Dec. 31, 2017, primarily driven by liability management actions including those following the NACCO sale.

Total average deposits decreased by $374 million or 1% compared to the prior quarter, driven by a decline in the branch, online and brokered channels. The weighted average rate on average outstanding deposits increased 10 bps to 1.68% from 1.58% in the prior quarter. Total average deposits increased by $1.2 billion or 4% compared to the year-ago quarter, driven by growth in the online channel, partially offset by declines in the branch, commercial and brokered channels. Compared to the year-ago quarter, the weighted average rate on average outstanding deposits increased 44 bps from 1.24%. The rate increases from the prior and year-ago quarters both primarily reflect increases in the average savings and online money market accounts and time deposits in the online, retail and brokered channels, partially offset by a reduction in the commercial channel.

Unsecured borrowings comprised 10% of the funding mix at Dec. 31, 2018, down from 11% at Sep. 30, 2018. During the quarter we redeemed $431 million of our 5.375% senior unsecured debt due 2020 and acquired $3 million of our 5% senior unsecured debt due 2022 through open market repurchases.

The weighted average coupon on our unsecured senior and subordinated debt was 5.02% at Dec. 31, 2018, with a weighted average maturity of approximately 5.0 years, compared to 5.05% at Sep. 30, 2018, with a weighted average maturity of approximately 4.9 years.

Secured borrowings decreased compared to the prior quarter, as a portion of the net proceeds from the sale of NACCO was used to terminate our Dutch subsidiary's total return swap facility (TRS) and redeem the $465 million railcar securitization that served as the TRS's reference obligation. This was partially offset by an increase in FHLB borrowings in the quarter. Secured borrowings comprised 11% of the funding mix at Dec. 31, 2018, unchanged from the level at Sep. 30, 2018.

Capital

Capital*




4Q18 change from


($ in millions, except per share data)

4Q18



3Q18



4Q17



3Q18




4Q17





























Common stockholders' equity

$

5,622



$

5,995



$

6,995



$

(374)



-6

%



$

(1,373)



-20

%

Tangible common equity

$

5,163



$

5,530



$

6,512



$

(368)



-7

%



$

(1,350)



-21

%

Total risk-based capital(1)

$

6,519



$

6,824



$

7,233



$

(305)



-4

%



$

(713)



-10

%

Risk-weighted assets(1)

$

44,052



$

45,193



$

44,687



$

(1,142)



-3

%



$

(635)



-1

%




























Book value per common share (BVPS)

$

55.70



$

54.22



$

53.25



$

1.48



3

%



$

2.45



5

%

Tangible book value per common share (TBVPS)

$

51.15



$

50.02



$

49.58



$

1.14



2

%



$

1.58



3

%

CET1 ratio(1)


12.0

%



12.4

%



14.4

%


-42bps







NM





Total capital ratio(1)


14.8

%



15.1

%



16.2

%


-30bps







NM





Tier 1 leverage ratio(1)


11.7

%



12.0

%



13.8

%


-31bps







NM











(1)Balances and ratios on fully phased-in basis.


* Certain balances may not sum due to rounding.


Capital returns during the quarter included the repurchase of approximately 9.7 million common shares at an average share price of $47.45, resulting in the completion of our $750 million share repurchase authorization. Capital actions in the quarter also included a regular quarterly cash dividend of $0.25 per common share.

Common stockholders' equity decreased from the prior quarter, primarily driven by capital returns, partially offset by net income in the current quarter. Tangible book value per common share increased in the quarter to $51.15, as net income and the reduced share count were partially offset by share repurchases and the quarterly dividend.

Total common shares outstanding was 100.9 million at Dec. 31, 2018, down from 110.6 million at Sep. 30, 2018 and 131.4 million at Dec. 31, 2017.

As a result of significant common share repurchases over the past two years, we retired 48 million common shares that were held as treasury shares in the current quarter, which did not impact total stockholders' equity but reduced treasury stock by $2.3 billion, with corresponding reductions in paid-in capital ($2.0 billion) and retained earnings ($0.3 billion).

The preliminary Common Equity Tier 1 Capital ratio decreased from the prior quarter and remained strong at 12.0%. Common Equity Tier 1 Capital decreased, primarily from capital returns in the quarter, partially offset by earnings, a decrease in goodwill related to the NACCO sale and a decrease in the DTA deduction. Risk-weighted assets (RWA) decreased, primarily reflecting the NACCO sale. The preliminary Total Capital ratio also decreased from the prior quarter to 14.8%.

On Jan. 22, 2019, the Board of Directors declared a quarterly cash dividend of $0.25 per common share on outstanding common stock. The dividend is payable on Feb. 22, 2019 to common shareholders of record as of Feb. 8, 2019.

On Oct. 15, 2018, the Board of Directors declared a semi-annual dividend of $29.00 per share on outstanding preferred stock. The dividend was paid on Dec. 17, 2018, to preferred shareholders of record as of Nov. 30, 2018.

Asset Quality

Asset Quality*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Net charge-offs (NCOs)

$

24



$

26



$

18



$

(2)



-7

%



$

6



32

%

NCOs as a % of average loans


0.32

%



0.35

%



0.26

%


-3bps







6bps





Non-accrual loans

$

282



$

318



$

221



$

(36)



-11

%



$

61



28

%

OREO

$

32



$

34



$

55



$

(2)



-6

%



$

(23)



-41

%

Provision for credit losses

$

31



$

38



$

30



$

(7)



-18

%



$

1



3

%

Total portfolio allowance as a % of loans


1.59

%



1.57

%



1.48

%


2bps







11bps









* Certain balances may not sum due to rounding.


Provision
The provision for credit losses was $31 million in the current quarter including $28 million related to the Commercial Banking segment and $4 million related to the Consumer Banking segment. In the prior quarter, the $38 million provision for credit losses included $39 million related to the Commercial Banking segment, while the Consumer Banking segment had a $1 million reserve release. The decrease in the provision for credit losses from the prior quarter was primarily driven by lower provisions in the Real Estate Finance and Business Capital divisions of Commercial Banking and lower net charge-offs in the Commercial Finance division of Commercial Banking. The provision in the year-ago quarter was relatively unchanged at $30 million.

Net Charge-offs
Net charge-offs were $24 million (0.32% of average loans), compared to $26 million (0.35% of average loans) in the prior quarter and $18 million (0.26% of average loans) in the year-ago quarter.

Nearly all net charge-offs are in the Commercial Banking segment. Net charge-offs in the Commercial Banking segment were $23 million (0.38% of average loans), down from $25 million (0.42% of average loans) in the prior quarter and up from $18 million (0.32% of average loans) in the year-ago quarter.

Loan Loss Allowance
The allowance for loan losses was $490 million (1.59% of loans) at Dec. 31, 2018, compared to $477 million (1.57% of loans) at Sep. 30, 2018 and $431 million (1.48% of loans) at Dec. 31, 2017.

In the Commercial Banking segment, the allowance for loan losses was $460 million (1.90% of loans) at Dec. 31, 2018, compared to $450 million (1.87% of loans) at Sep. 30, 2018 and $402 million (1.74% of loans) at Dec. 31, 2017. The increases in the allowance for loan losses as a percentage of loans from the prior and year-ago quarters were driven by increases in the Commercial Finance division. The change from the year-ago quarter also reflects an increase in specific reserves associated with non-accruals.

Purchase credit impaired (PCI) loans acquired as part of the OneWest acquisition are carried at a significant discount to the unpaid principal balance. At Dec. 31, 2018, PCI loans with an aggregate unpaid principal balance of $2.5 billion were carried at $1.7 billion, representing a 32% discount. The vast majority of the discount is related to our LCM portfolio in Consumer Banking. A significant portion of the portfolio is covered by a loss sharing agreement with the FDIC that expires in March 2019.

Non-accrual Loans
Non-accrual loans were $282 million (0.92% of loans) compared to $318 million (1.04% of loans) in the prior quarter and $221 million (0.76% of loans) in the year-ago quarter.

In Commercial Banking, non-accrual loans were $238 million (0.98% of loans), compared to $275 million (1.14% of loans) at Sep. 30, 2018 and $191 million (0.82% of loans) at Dec. 31, 2017. The decrease from the prior quarter was primarily driven by a loan sale in the Commercial Finance division, and the increase from the year-ago quarter was primarily driven by an increase in the Commercial Finance division.

In Consumer Banking, non-accrual loans were $38 million (0.59% of loans) at Dec. 31, 2018, compared to $35 million (0.55% of loans) at Sep. 30, 2018, and $20 million (0.34% of loans) at Dec. 31, 2017, primarily related to non-PCI loans in the LCM portfolio.

Commercial Banking

Earnings Summary*




4Q18 change from


($ in millions)

4Q18



3Q18



4Q17



3Q18




4Q17





























Interest income

$

349



$

339



$

315



$

10



3

%



$

34



11

%

Rental income on operating leases


230




264




253




(35)



-13

%




(23)



-9

%

Interest expense


193




190




139




2



1

%




54



39

%

Depreciation on operating lease equipment


79...