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CIT Group (CIT) Up 1% on Q2 Earnings Beat, Provisions Surge

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CIT Group (CIT) Up 1% on Q2 Earnings Beat, Provisions Surge

CIT Group's (CIT) Q2 earnings reflect strong fundamentals and improved efficiency from streamlining initiatives.

Shares of CIT Group Inc. CIT gained nearly 1% following the release of its second-quarter 2018 results. Adjusted earnings from continuing operations of $1.00 per share surpassed the Zacks Consensus Estimate of 97 cents. Also, this was above the prior-year quarter’s figure of 68 cents.

Results benefited from stable net interest income, an increase in non-interest income and lower operating expenses. However, drastic rise in provision for credit losses was an undermining factor.

After considering several non-recurring items, net income was $127 million or 94 cents per share compared with $157 million or 85 cents per share in the prior-year quarter.

Revenues Rise, Expenses Decline

Total net revenues for the quarter were $524.4 million, up 11% year over year. The figure beat the Zacks Consensus Estimate of $483 million.

Net interest revenues were $268.4 million, relatively stable year over year.

Total non-interest income was $396.7 million, increasing 18% from the year-ago quarter.

Net finance margin increased 30 basis points to 3.37%.

Operating expenses (excluding restructuring costs and intangible assets amortization) were $261.5 million, down 9% from the prior-year quarter.

Credit Quality: A Mixed Bag

Provision for credit losses came in at $33 million, up significantly from $4 million recorded a year ago. Also, non-accrual loans increased 14% year over year to $292 million.

However, net charge-offs were $15 million, down 45% from the prior-year quarter.

Strong Balance Sheet & Capital Ratios

As of Jun 30, 2018, interest bearing cash and investment securities amounted to $9.4 billion, comprising $3.3 billion in interest bearing cash and $6.1 billion in investment securities. Further, there was approximately $0.2 billion of non-interest-bearing cash.

As of Jun 30, 2018, Common Equity Tier 1 and Total Capital ratios were 13.2% and 16.0%, respectively, as calculated under the fully phased-in Regulatory Capital Rules compared with 14.4% and 16.2% in the prior-year quarter.

Share Repurchase Update

During the reported quarter, CIT Group repurchased 12.5 million shares for $680 million.

Additionally, the company announced an additional capital return of up to $750 million.

Our Viewpoint

CIT Group’s business streamlining initiatives are to likely further improve efficiency. With improving economy, demand for financing of inventories and capital equipment will continue to increase, thereby enabling rise in earning assets. Also, exemption from annual stress tests will provide the company financial flexibility to some extent.

Steady rise in credit costs is expected hamper CIT Group’s bottom-line growth to some extent. Also, sluggish growth in the industries where the company provides finance is a concern.

CIT Group Inc. Price, Consensus and EPS Surprise

CIT Group Inc. Price, Consensus and EPS Surprise | CIT Group Inc. Quote

Currently, CIT Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Peers

Among the other stocks in the same industry, Moody’s MCO and Synchrony Financial SYF are scheduled to announce on Jul 27, while LendingClub Corporation LC will report on Aug 7.

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Moody's Corporation (MCO) : Free Stock Analysis Report
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