CIT Group Inc.'s (CIT) second-quarter 2013 earnings of 91 cents per share came in line with the Zacks Consensus Estimate. Moreover, this is significantly better than the year-ago loss of 36 cents, which included debt refinancing charges related to the redemption of high-cost debt.
Results on a year-over-year basis benefited from increased net interest revenue, partly offset by lower non-interest income and a rise in operating expenses. Credit quality was a mixed bag, while capital ratios remained strong during the quarter.
CIT’s net income came in at $184 million in the said quarter, compared with a net loss of $73 million in the year-ago quarter.
Performance in Detail
On a non-GAAP basis, total net revenue was $460.6 million, almost twice the prior-year quarter figure of $230.9 million. Increases in net finance revenue and other income were the primary reasons for the rise. However, net revenue missed the Zacks Consensus Estimate of $689.0 million.
Net interest revenues were $70.2 million, compared with a negative $223.9 million in the year-ago quarter. The improvement came primarily on the back of a fall in interest expense.
Total non-interest income was $531.7 million, down 9.2% year over year. The fall was mainly due to lower other income.
Net finance revenue as a percentage of average earning assets (excluding the impact of debt prepayment) improved 21 basis points (bps) to 4.62%. The rise was driven mainly by lower funding costs.
Operating expenses (excluding restructuring costs) were $229.7 million, up 1.3% from $226.8 million in the prior-year quarter. The expense in the reported quarter included $9.5 million of restructuring costs.
Credit Quality
CIT's credit quality was a mixed bag in the reported quarter. Non-accrual loans fell 38.7% year over year to $279 million. Non-accruing loans as a percentage of finance receivables declined 98 bps year over year to 1.28%.
However, net charge-offs were $29 million, up from $17 million in the prior-year quarter. Further, provision for credit losses was $15 million in the second quarter, compared with $9 million in the year-ago quarter.
Balance Sheet and Capital Ratios
As of Jun 30, 2013, cash and short-term investment securities were $6.9 billion, comprising $5.7 billion of cash and $1.2 billion of short-term investments. Additionally, CIT had approximately $1.9 billion of unused and committed liquidity under a $2 billion revolving credit facility as of Jun 30, 2013.
Capital ratios were stable as of Jun 30, 2013, with Tier 1 capital ratio of 16.3% and a total capital ratio of 17.0%, both almost unchanged from the end of the prior quarter. Book value per share was $43.16 as of Jun 30, 2013 compared with $41.79 as of Jun 30, 2012.
Share Repurchases
In Jun 2013, CIT repurchased approximately 280,000 shares at an average price of $44.36 per share. In May, the company had announced a repurchase authorization of shares worth up to $200 million. The buyback program is expected to be completed by the end of 2013.
Our Take
We expect CIT’s liability restructuring initiatives and access to low-cost debts to support its growth. Moreover, the company is meaningfully deploying capital. However, sluggish growth in the industries where CIT provides finance, stringent regulations and a weak economic recovery could dent the company’s growth prospects.
CIT currently carries a Zacks Rank #2 (Buy).
Among other miscellaneous services finance stocks, Euronet Worldwide, Inc. (EEFT) is scheduled to announce results on Jul 24, CapitalSource Inc. (CSE) on Jul 30 and Financial Engines, Inc. (FNGN) on Aug 1.
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