Fall in interest income led CIT Group Inc.'s CIT first-quarter 2015 adjusted earnings of 62 cents per share, which missed the Zacks Consensus Estimate of 78 cents. However, this came above the year-ago figure of 59 cents.
Results were adversely impacted by a rise in operating expenses owing to acquisitions as well as lower net interest income. However, higher rental income on operating leases, rise in other income and a slight fall in provision for credit losses marginally offset the adverse impact. Notably, credit quality improved and liquidity position remained strong.
Results excluded a $44-million tax provision and $6 million of charges related to exiting portfolios. After considering these charges, net income from continuing operations came in at $103.7 million, down 11.5% from the prior-year quarter.
Performance in Detail
Net revenue was $626.7 million, up 5.6% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $463.0 million. On a non-GAAP basis, total net revenue of $423.8 million was up 7.8% from the prior-year quarter, driven by an increase in net finance revenue as well as other income.
Net interest revenue was $9.7 million, down 68.0% from the year-ago quarter, mainly due to lower interest income, partially offset by stable interest expenses.
Total non-interest income was $617.0 million, up 9.6% year over year. The increase was attributable to higher rental income on operating leases and other income.
Net finance margin (excluding the impact of debt prepayment) fell 1 basis point to 4.00%.
Operating expenses (excluding restructuring costs) stood at $242.6 million, up 8.5% from the prior-year quarter. The rise reflected higher compensation costs, mainly related to the addition of Direct Capital in Aug 2014, along with costs pertaining to the pending OneWest acquisition.
Credit Quality
CIT Group's credit quality improved during the reported quarter. Non-accrual loans fell 17.9% year over year to $179.2 million.
Further, net charge-offs were $20.9 million, down 41.3% from the prior-year quarter. Also, provision for credit losses was $34.6 million, a decline of 5.7% from the year-ago quarter.
Balance Sheet and Capital Ratios
As of Mar 31, 2015, cash and short-term investment securities amounted to $7.7 billion, comprising $6.3 billion of cash, $0.5 billion of reverse repo securities, $0.4 billion of debt securities held for sale and $0.5 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 Mar 31, 2015, Common Equity Tier 1 and Total Capital ratios were 14.1% and 14.8%, as calculated under the fully phased-in Regulatory Capital Rules. Book value per share was $50.26 as of Mar 31, 2015, up from $45.10 as of Mar 31, 2014.
Share Repurchase
During the quarter, CIT Group bought back 7.3 million shares for $332 million. In total, the company returned nearly $360 million in capital to its shareholders.
Our Viewpoint
We expect CIT Group’s liability-restructuring initiatives and access to low-cost debts will 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 prospects.
Currently, CIT Group carries a Zacks Rank # 4 (Sell).
Among other miscellaneous services companies, Ladder Capital Corp LADR is expected to report on May 4, while Global Cash Access Holdings, Inc. GCA will report on May 5 and FleetCor Technologies, Inc. FLT on May 7.
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