CIT Group Inc.'s (CIT - Analyst Report) third-quarter 2013 earnings per share of 99 cents surpassed the Zacks Consensus Estimate by a nickel. Results were also significantly better than the year-ago loss of $1.49 per share, which included debt refinancing charges related to redemption of high-cost debt.
Better-than-expected results were aided by top-line growth and lower-than-expected operating expenses. Further, credit quality was a mixed bag, while capital ratios remained strong during the quarter.
CIT Group’s net income came in at $200 million in the said quarter, compared with a net loss of $299 million in the year-ago quarter.
Performance in Detail
On a non-GAAP basis, total net revenue was $462.3 million, compared with negative net revenue of $42.5 million in the prior-year quarter. The significant improvement was driven by growth in both net finance revenue and other income. However, net revenue missed the Zacks Consensus Estimate of $665.0 million.
Net interest revenue was $59.4 million, up from negative net interest revenue of $440.5 million in the year-ago quarter. The improvement came mainly on the back of a 65.9% fall in interest expense.
Total non-interest income was $545.9 million, up 2.5% year over year. The increase was driven by rise in other income, partially offset by lower rental income on operating leases.
Net finance revenue as a percentage of average earning assets (excluding the impact of debt prepayment) improved 20 basis points (bps) to 4.22%. The rise came on the back of lower funding costs.
Operating expenses (excluding restructuring costs) were $232.2 million, down 1.3% from $235.2 million in the prior-year quarter.
CIT Group's credit quality was a mixed bag in the reported quarter. Non-accrual loans fell 37.4% year over year to $258 million.
However, net charge-offs were $27 million, up from $18 million in the prior-year quarter. Further, provision for credit losses was $16 million in the quarter, compared with nil provision in the year-ago quarter.
Balance Sheet and Capital Ratios
As of Sep 30, 2013, cash and short-term investment securities were $7.4 billion, comprising $6.0 billion of cash and $1.4 billion of short-term investments. Moreover, CIT Group had approximately $1.9 billion of unused and committed liquidity under a $2 billion revolving credit facility as of Sep 30, 2013.
Capital ratios were stable as of Sep 30, 2013, with Tier 1 capital ratio of 16.7% and total capital ratio of 17.4%, both of which increased from the prior quarter level. Book value per share was $44.16 as of Sep 30, 2013, compared with $40.37 as of Sep 30, 2012.
Since Jun 2013, CIT Group repurchased approximately 1.1 million shares worth $52.1 million. In May, the company had announced a repurchase authorization of shares worth up to $200 million. The buyback program will expectedly be complete by the end of 2013.
Earlier in the week, CIT Group restarted the payment of its quarterly cash dividend. The company announced a quarterly dividend of 10 cents per share. The dividend will be paid on Nov 29 to common shareholders of record as of Nov 15.
We expect CIT Group’s liability restructuring initiatives and access to low-cost debts to support growth. Moreover, with the company reinitiating dividends and continuously repurchasing shares will boost shareholders’ value. However, sluggish growth in the industries where CIT Group provides finance, stringent regulations and a weak economic recovery could dent the company’s growth prospects.
CIT Group currently carries a Zacks Rank #3 (Hold).
Among other miscellaneous services companies, CapitalSource Inc. and Euronet Worldwide, Inc. (EEFT - Snapshot Report) are scheduled to declare results on Oct 23, while FleetCor Technologies, Inc. (FLT - Snapshot Report) will report on Oct 30. All these companies have a Zacks Earnings ESP of 0.00% for the third quarter. Also, CapitalSource and Euronet Worldwide carry a Zacks Rank #2 (Buy), while FleetCor Technologies has a Zacks Rank #3 (Hold). These companies’ current Zacks Ranks, along with their 0.00% Earnings ESP, reduces the chances of a positive earnings surprise.