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CIT Group (CIT) Q1 Earnings Lag, Stock Falls, Provisions Up

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Shares of CIT Group Inc. CIT declined 1.2% following the release of its first-quarter 2018 results. Adjusted earnings from continuing operations of 74 cents per share lagged the Zacks Consensus Estimate of 96 cents. However, this was above the prior-year quarter’s figure of 54 cents per share.

Results were adversely impacted by a decline in net interest revenues and higher provision for credit losses. These were partly offset by lower expenses, a rise in non-interest income and a strong balance sheet.

After considering several non-recurring items, the company reported net income of $97 million or 74 cents per share, down from $180 million or 88 cents per share in the prior-year quarter.

Revenues Stable, Expenses Decline

Total net revenues for the quarter were $495 million, relatively stable year over year. The figure surpassed the Zacks Consensus Estimate of $481 million.

Net interest revenues were $270.7 million for the quarter, down 7.5% from the prior-year quarter.

Total non-interest income was $358.3 million, increasing 8.4% from the year-ago quarter.

Net finance margin decreased 12 basis points to 3.45%.

Operating expenses (excluding restructuring costs and intangible assets amortization) were $275.3 million, down 5.1% from the prior-year quarter.

Credit Quality: A Mixed Bag

Net charge-offs were $50 million, surging 78.6% from the prior-year quarter. Also, provision for credit losses came in at $69 million, increasing 38% year over year. The rise was mainly due to a $22 million charge-off of a single commercial exposure and a higher level of reserves primarily within the Commercial Finance division of Commercial Banking.

However, non-accrual loans decreased 8.5% year over year to $237 million.

Strong Balance Sheet & Capital Ratios

As of Mar 31, 2018, interest bearing cash and investment securities amounted to $10.1 billion, comprising $3.9 billion in interest bearing cash and $6.2 billion in investment securities. Further, there was approximately $0.2 billion of non-interest-bearing cash.

As of Mar 31, 2018, Common Equity Tier 1 and Total Capital ratios were 14.0% and 16.7%, respectively, as calculated under the fully phased-in Regulatory Capital Rules compared with 14.3% and 15.1% in the prior-year quarter.

Share Repurchase Update

During the reported quarter, CIT Group repurchased 3.7 million shares for $195 million.

Additionally, the company received no objection for the amended 2017 capital plan from the Federal Reserve. This increased the approved equity distributions to up to $900 million for the first half of 2018.

Our Viewpoint

The company's business-streamlining initiatives are expected to improve efficiency, going forward. Also, its efforts toward becoming a leading regional commercial banking institution through restructuring are commendable. However, despite certain cost-savings measures, expenses are expected to increase due to the company’s strategic initiatives and continued investments in the franchise.

CIT Group Inc. Price, Consensus and EPS Surprise

 

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

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

Performance of Other Stocks

Among other stocks in the finance space, Capital One Financial Corporation’s COF first-quarter 2018 adjusted earnings of $2.65 per share surpassed the Zacks Consensus Estimate of $2.34. Results benefited from a rise in revenues, a decline in provision for credit losses and easing margin pressure. Yet, an increase in expenses was the undermining factor.

Sallie Mae’s SLM first-quarter 2018 core earnings of 27 cents per share surpassed the Zacks Consensus Estimate of 24 cents. Earnings growth was supported by an increase in net interest income and non-interest income. The private education loan portfolio and deposits grew considerably. However, these positives were offset by elevated expenses and poor credit quality.

Navient Corporation’s NAVI first-quarter 2018 adjusted core earnings per share of 40 cents surpassed the Zacks Consensus Estimate by a penny. Results reflected lower revenues and a rise in expenses. However, lower provisions were a tailwind.

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