CIT Group Inc. (NYSE:CIT) announced third-quarter 2016 earnings from continuing operations of 73 cents per share, which lagged the Zacks Consensus Estimate of 79 cents. However, the figure surpassed the year-ago tally of 26 cents per share.
Shares of CIT Group declined nearly 1.5% as investors remain concerned about the increase in the company’s non-accrual loans.
Lower-than-expected results were primarily due to elevated levels of provision for loan losses. However, higher revenues and stable expenses were on the positive side. Moreover, capital ratios reflected improvement during the quarter.
Net income came in at $133 million or 65 cents per share, compared with $693 million or $3.61 per share in the prior-year quarter. The year-ago quarter figure included certain non-recurring items.
Higher Revenues, Expenses Stable
Net revenue was $848.2 million, up 15.3% year over year. On a non-GAAP basis, net revenue of $608.7 million grew 16.9% year over year, driven by a rise in both net finance revenue and other income. Further, the figure outpaced the Zacks Consensus Estimate of $622.3 million.
Net interest revenue was $210.7 million, up 33.9% from the prior-year quarter, mainly on account of higher interest income.
Total non-interest income was $637.5 million, an increase of 10.2% year over year. The rise reflected an increase in all income components.
Net finance margin decreased 4 basis points year over year to 3.63%.
Operating expenses (excluding restructuring costs and intangible assets amortization) of $323.3 million were almost in line with the prior-year quarter. Higher intangible asset amortization was offset by the fall in operating expenses and provision for severance and facilities exiting activities.
Credit Quality Improved
Net charge-offs were $23.4 million, down 61.8% from the prior-year quarter. Also, provision for credit losses was $46.2 million, down 7.4% year over year.
However, non-accrual loans increased 34.4% year over year to $288.5 million.
Healthy Balance Sheet and Capital Ratios
As of Sep 30, 2016, interest bearing cash and investment securities amounted to $10.1 billion, comprising $6.5 billion in cash and $3.6 billion in investment securities.
As of Sep 30, 2016, Common Equity Tier 1 and Total Capital ratios were 13.7% and 14.4%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 12.5% and 13.0% in the prior-year quarter. Book value per share was $55.62 as of the same date, up from $53.74 as of Sep 30, 2015.
Our Viewpoint
CIT Group’s sale of aircraft leasing business will help it in focusing more on the U.S. operations, which will support profitability growth. Also, the access to low-cost debt and steady capital deployment activities continues to impress shareholders.
However, deteriorating asset quality is a major concern. Moreover, sluggish growth in industries where CIT Group provides finance, together with stringent regulations, will likely dent its performance in the near term. Also, mounting costs make us apprehensive.
Currently, CIT Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Among other stocks in this space, On Deck Capital, Inc. (NYSE:ONDK) , General Finance Corp. (NASDAQ:GFN) and StoneCastle Financial Corp. (NASDAQ:BANX) are expected to report their results on Nov 3, Nov 7 and Nov 10, respectively.
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CIT GROUP (CIT): Free Stock Analysis Report
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