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CIT Group (CIT) Beats Q2 Earnings & Revenue Estimates
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Shares of CIT Group Inc. rose 1.1% following its second-quarter 2016 earnings release, before the market opened yesterday. Earnings from continuing operations of 90 cents per share outpaced the Zacks Consensus Estimate of 79 cents. Moreover, the figure came 36.4% above the year-ago tally.
Better-than-expected results were primarily driven by higher revenues, due to a rise in both net interest revenue as well as non-interest income. However, escalated expenses and provisions were the headwinds. Nonetheless, capital ratios reflected improvement during the quarter.
Net revenue was $886.4 million, up 44.4% year over year. On a non-GAAP basis, net revenue of $645.1 million grew 58.7% year over year, driven primarily by a rise in net finance revenue. Further, the figure outpaced the Zacks Consensus Estimate of $620.6 million.
Net interest revenue was $212.8 million, up significantly from $18.6 million in the prior-year quarter, mainly on account of higher interest income.
Total non-interest income was $673.6 million, an increase of 13.2% year over year. The rise reflected an increase in all income components.
Net finance margin increased 32 basis points to 3.65%.
Operating expenses (excluding restructuring costs and intangible assets amortization) of $321.4 million surged 37.7% year over year. The increase was due to a rise in all expense components except advertising and marketing costs.
Credit Quality Deteriorated
Non-accrual loans increased 42.8% year over year to $282.8 million.
Further, net charge-offs were $41 million, up 74.5% from $23.5 million recorded in the prior-year quarter. Also, provision for credit losses was $28.1 million, up 52.7% year over year.
Healthy Balance Sheet and Capital Ratios
As of Jun 30, 2016, interest bearing cash and investment securities amounted to $10.3 billion, comprising $7.1 billion of cash and $3.2 billion of debt, Federal Home Loan Bank stock and equity securities.
As of Jun 30, 2016, Common Equity Tier 1 and Total Capital ratios were 13.4% and 14.1%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared to 13.1% and 13.8%, respectively, in the prior quarter. Book value per share was $55.07 as of Jun 30, 2016, up from $50.91 as of Jun 30, 2015.
Our Viewpoint
CIT Group’s recent divestiture of its Canadian business and commercial aircraft leasing business will help it in focusing more on the U.S. operations, which in turn 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).
Among other in this space companies, On Deck Capital, Inc. , StoneCastle Financial Corp. (BANX - Free Report) and General Finance Corporation are expected to report results on Aug 8, Aug 11 and Sep 13, respectively.
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CIT Group (CIT) Beats Q2 Earnings & Revenue Estimates
Shares of CIT Group Inc. rose 1.1% following its second-quarter 2016 earnings release, before the market opened yesterday. Earnings from continuing operations of 90 cents per share outpaced the Zacks Consensus Estimate of 79 cents. Moreover, the figure came 36.4% above the year-ago tally.
Better-than-expected results were primarily driven by higher revenues, due to a rise in both net interest revenue as well as non-interest income. However, escalated expenses and provisions were the headwinds. Nonetheless, capital ratios reflected improvement during the quarter.
Higher Revenues Offset Escalated Expenses
Net revenue was $886.4 million, up 44.4% year over year. On a non-GAAP basis, net revenue of $645.1 million grew 58.7% year over year, driven primarily by a rise in net finance revenue. Further, the figure outpaced the Zacks Consensus Estimate of $620.6 million.
Net interest revenue was $212.8 million, up significantly from $18.6 million in the prior-year quarter, mainly on account of higher interest income.
Total non-interest income was $673.6 million, an increase of 13.2% year over year. The rise reflected an increase in all income components.
Net finance margin increased 32 basis points to 3.65%.
Operating expenses (excluding restructuring costs and intangible assets amortization) of $321.4 million surged 37.7% year over year. The increase was due to a rise in all expense components except advertising and marketing costs.
Credit Quality Deteriorated
Non-accrual loans increased 42.8% year over year to $282.8 million.
Further, net charge-offs were $41 million, up 74.5% from $23.5 million recorded in the prior-year quarter. Also, provision for credit losses was $28.1 million, up 52.7% year over year.
Healthy Balance Sheet and Capital Ratios
As of Jun 30, 2016, interest bearing cash and investment securities amounted to $10.3 billion, comprising $7.1 billion of cash and $3.2 billion of debt, Federal Home Loan Bank stock and equity securities.
As of Jun 30, 2016, Common Equity Tier 1 and Total Capital ratios were 13.4% and 14.1%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared to 13.1% and 13.8%, respectively, in the prior quarter. Book value per share was $55.07 as of Jun 30, 2016, up from $50.91 as of Jun 30, 2015.
Our Viewpoint
CIT Group’s recent divestiture of its Canadian business and commercial aircraft leasing business will help it in focusing more on the U.S. operations, which in turn 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.
CIT GROUP Price, Consensus and EPS Surprise
CIT GROUP Price, Consensus and EPS Surprise | CIT GROUP Quote
Currently, CIT Group carries a Zacks Rank #3 (Hold).
Among other in this space companies, On Deck Capital, Inc. , StoneCastle Financial Corp. (BANX - Free Report) and General Finance Corporation are expected to report results on Aug 8, Aug 11 and Sep 13, respectively.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>