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CIT Group (CIT) Q4 Earnings Beat on Higher Revenues, Stock Down

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CIT Group Inc.’s fourth-quarter 2020 adjusted earnings per share of $1.50 hugely surpassed the Zacks Consensus Estimate of 54 cents. In the prior-year quarter, the company recorded earnings of $1.27 per share.

Results benefited from an improvement in revenues. Also, the company recorded provision benefit in the reported quarter. Further, the balance sheet position remained strong. However, an increase in expenses hurt results to some extent. Probably, because of this, shares of the company lost 1.8% following the earnings release.

After considering noteworthy items, net loss available to common shareholders (GAAP basis) was $3.6 million in the fourth quarter against net income of $121.1 million recorded in the year-ago quarter.

For 2020, adjusted loss per share was 70 cents compared with earnings per share of $5.06 recorded in the previous year. The Zacks Consensus Estimate was pegged at a loss of $1.66 per share. Net loss available to common shareholders (GAAP basis) was $646.4 million against net income of $511 million recorded in 2019.

Revenues Improve, Expenses Rise

Quarterly total net revenues (non-GAAP) were $496.1 million, up 7.6% year over year.

For the year, net revenues (non-GAAP) of $1.88 billion were up 1.6% from 2019.

Quarterly net interest revenues were $275.6 million, up 9.5% year over year.

Total non-interest income was $360.2 million, up 10.3% from the year-ago quarter. The rise was due to an improvement in other non-interest income.

Net finance margin contracted 64 basis points year over year to 2.37%.

Operating expenses (excluding noteworthy items and intangible asset amortization) were $272 million, up 7.5% from the prior-year quarter.

Credit Quality: Mixed Bag

In the reported quarter, the company recorded net provision benefit of nearly $1 million against provision for credit losses of $22.6 million in the year-earlier quarter.

However, non-accrual loans increased 80.4% year over year to $588 million. Net charge-offs were $138 million, up significantly from $32 million recorded in the prior-year quarter.

Balance Sheet Strong, Capital Ratios Worsen

As of Dec 31, 2020, average interest-bearing cash and investment securities amounted to $13.07 billion, comprising $6.24 billion in interest-bearing cash, and $6.83 billion in investment securities and securities purchased under the agreement to resell.

As of Dec 31, 2020, Common Equity Tier 1 and Total Capital ratios (as calculated under the fully phased-in Regulatory Capital Rules) were 10.0% and 13.2%, respectively, compared with 12% and 15.4% at the end of the prior-year quarter.

Our Viewpoint

Elevated operating expenses (as witnessed in the fourth quarter as well), owing to investments in technology, will likely continue to hurt CIT Group’s profitability in the quarters ahead. Moreover, sluggish growth in industries where the company provides finance might hamper performance and hence makes us apprehensive.

CIT Group Inc. Price, Consensus and EPS Surprise


CIT Group Inc. Price, Consensus and EPS Surprise

CIT Group Inc. price-consensus-eps-surprise-chart | CIT Group Inc. Quote

Currently, CIT Group carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Major Banks

Successful cost-saving initiatives and unexpected release of reserves supported Wells Fargo’s (WFC - Free Report) fourth-quarter 2020 earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents.

Citigroup (C - Free Report) delivered an earnings surprise of 53.3% in the fourth quarter on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

Unexpected large reserve releases along with solid capital markets performance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72. Results included credit reserve releases. Excluding these, earnings amounted to $3.07 per share. The company earned $2.57 in the prior-year quarter.

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