Improved operating lease revenues aided CIT Group Inc.'s (CIT) fourth-quarter 2014 adjusted earnings from continuing operations of $1.13 per share, which surpassed the Zacks Consensus Estimate by 20.2%. Also, this was above the year-ago figure of 61 cents.
For 2014, adjusted earnings from continuing operations of $3.48 per share surpassed the Zacks Consensus Estimate of $3.37. Further, it compared favorably with $3.19 earned in 2013.
Better-than-expected results benefited from increase in rental income on operating lease and lower operating expenses, which were, however, partially offset by lower net interest and other income. Notably, credit quality was mixed, while liquidity position remained strong.
After considering certain non-recurring items, net income came in at $251 million or $1.37 per share. This was up from $130 million or 65 cents per share reported in the prior-year quarter. Similarly, net income in 2014 came in at $1.13 billion or $5.96 per share, up from the prior-year figure of $676 million or $3.35 per share.
Performance in Detail
On a non-GAAP basis, total net revenue was $489.3 million, up 8.1% from the prior-year quarter. The rise was largely attributable to increase in net finance revenue, partly offset by a dip in other income. Further, the figure outpaced the Zacks Consensus Estimate of $448.0 million.
In 2014, total net revenue (non-GAAP) was $1.73 billion, down 2.4% year over year. However, the figure beat the Zacks Consensus Estimate of $1.69 billion.
Net interest revenue was $29.3 million, down 26.2% from the year-ago quarter, mainly due to higher interest expenses.
Total non-interest income was $662.9 million, up 12.1% year over year. The increase was driven by higher rental income on operating leases, partially offset by a fall in other income.
Net finance margin (excluding the impact of debt prepayment) grew 5 basis points to 4.34%. The improvement reflects strong equipment utilization, higher level of interest recoveries and the benefit of suspended depreciation on operating lease equipment held for sale, which were partially offset by portfolio re-pricing.
Operating expenses (excluding restructuring costs) were $242.1 million, down 9% from the prior-year quarter. The decrease was due to the absence of a $45 million tax agreement settlement related expense incurred in the prior-year quarter.
Credit Quality
CIT Group's credit quality was a mixed bag during the reported quarter. Non-accrual loans fell 33.3% year over year to $160.5 million.
However, net charge-offs were $23.1 million, up 54% from the prior-year quarter. Also, provision for credit losses was $38.2 million, up 4.2% from the year-ago quarter.
Balance Sheet and Capital Ratios
As of Dec 31, 2014, cash and short-term investment securities amounted to $8.9 billion, comprising $7.1 billion of cash, $0.7 billion of reverse repo securities and $1.1 billion of short-term investments. Also, CIT Group had approximately $1.4 billion of unused and committed liquidity under a $1.5 billion revolving credit facility, as of the same date.
As of Dec 31, 2014, Tier 1 capital ratio of 14.5% and total capital ratio of 15.2% declined from the prior-year quarter level. Book value per share was $50.13 as of Dec 31, 2014, up from $44.78 as of Dec 31, 2013.
Share Repurchase
During the quarter, CIT Group bought back 2.5 million shares for $117 million.
Our Viewpoint
We expect CIT Group’s liability-restructuring initiatives and access to low-cost debts to aid growth going forward. Also, the company’s enhanced capital deployment activities will boost shareholders value. However, sluggish development in the industries where CIT Group provides finance and stringent regulations could dent the company’s growth prospects.
Currently, CIT Group carries a Zacks Rank # 2 (Buy).
Among other miscellaneous services companies, FleetCor Technologies, Inc. (FLT) and Ladder Capital Corp (LADR) are expected to report quarterly results on Feb 4, while Global Cash Access Holdings, Inc. (GCA) is expected to report on Mar 10.
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