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CIT Group's (CIT) Stock Down 3.9% Despite Q3 Earnings Beat

CIT Group Inc.’s CIT third-quarter 2017 adjusted earnings from continuing operations of $1.02 per share beat the Zacks Consensus Estimate of 84 cents. Further, the reported figure was up 88.9% year over year.

Lower expenses and a fall in provision for credit losses helped the company deliver exceptional results. A strong balance sheet lent further support.

However, a decline in revenues hurt results to quite an extent and perhaps caused the stock to lose 3.9% after the results were announced.

Upon considering several non-recurring items, net income was $220 million or $1.61 per share compared with $131 million or 65 cents per share in the prior-year quarter.

Revenues and Expenses Decline

Total net revenues (GAAP basis) were $593 million, reflecting a decline of 5% from the prior-year period. However, the figure surpassed the Zacks Consensus Estimate of $488 million.

Net interest revenues were $277 million, down 4% from the prior-year quarter. Also, total non-interest income was $316 million, reflecting a decline of 7% year over year.

Net finance margin decreased 2 basis points year over year to 3.53%.

Operating expenses (excluding restructuring costs and intangible assets amortization) were $268 million, down 9% from the prior-year quarter.

Credit Quality: A Mixed Bag

Net charge-offs were $42 million, 96% higher than the prior-year quarter.

Provision for credit losses came in at $30 million, decreasing 33% year over year. Further, non-accrual loans decreased 7% year over year to $265 million.

Balance Sheet Strengthens, Capital Ratios Deteriorate

As of Sep 30, 2017, interest bearing cash and investment securities amounted to $8.4 billion, comprising $2.7 billion in cash and $5.7 billion in investment securities.

As of Sep 30, 2017, Common Equity Tier 1 and Total Capital ratios were 14% and 15.7%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, comparing unfavorably with 14.4% and 16.2% in the prior quarter.

Our Viewpoint

The company's business streamlining initiatives are expected to improve efficiency, going forward. Also, its efforts toward becoming a leading regional commercial banking institution through restructuring are commendable. A solid balance sheet position is another tailwind for the company.

However, despite certain cost-savings measures, expenses are expected to increase in the long term due to the company’s strategic initiatives and continued investments in the franchise. Also, sluggish growth in the industries where CIT Group provides finance continues to be a concern.

CIT Group Inc (DEL) Price, Consensus and EPS Surprise

Currently, CIT Group carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Stocks in the Same Space & Upcoming Releases

Among other stocks in the finance space, Citigroup Inc. C, delivered a positive earnings surprise of 7.6% in third-quarter 2017 on prudent expense management. Earnings per share of $1.42 easily outpaced the Zacks Consensus Estimate of $1.32 and compared favorably with the year-ago figure of $1.24.

On Deck Capital, Inc. ONDK is slated to report results on Nov 6, while StoneCastle Financial Corp. BANX is expected to report its numbers on Nov 9.

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Citigroup Inc. (C): Free Stock Analysis Report
 
CIT Group Inc (DEL) (CIT): Free Stock Analysis Report
 
StoneCastle Financial Corp (BANX): Free Stock Analysis Report
 
On Deck Capital, Inc. (ONDK): Free Stock Analysis Report
 
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