Washington, D.C. 20549
FORM 10-Q
|X| | ||||
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended |
Commission File Number: 001-31369
CIT GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 65-1051192 (IRS Employer Identification Number) | |
11 West 42nd Street New York, New York (Address of Registrant’s principal executive offices) | 10036 (Zip Code) | |
(212) 461-5200 (Registrant’s telephone number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’, ‘smaller reporting company’ and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_| (Do not check if a smaller reporting company) Smaller reporting company |_| Emerging growth company |_|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |_|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |_| No |_|
As of April 30,October 31, 2018, there were 127,065,926105,592,774 shares of the registrant’s common stock outstanding.
Item 1. | 2 | |||
2 | ||||
3 | ||||
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | 4 | |||
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) | 5 | |||
6 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 45 | ||
and | ||||
Item 3. | 45 | |||
Item 4. | 89 | |||
Item 1. | 90 | |||
Item 1A. | 90 | |||
Item 2. | 90 | |||
Item 4. | 90 | |||
Item 6. | 91 | |||
94 |
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data)
| September 30, |
|
| December 31, |
| ||
| 2018 |
|
| 2017 |
| ||
Assets |
|
|
|
|
|
|
|
Cash and due from banks, including restricted balances of $22.8 at September 30, 2018 and $42.9 at December 31, 2017(1) (see Note 6 for amounts pledged) | $ | 167.6 |
|
| $ | 278.6 |
|
Interest bearing deposits, including restricted balances of $79.1 at September 30, 2018 and $81.8 at December 31, 2017(1) (see Note 6 for amounts pledged) |
| 1,199.9 |
|
|
| 1,440.1 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| 150.0 |
|
Investment securities, including securities carried at fair value with changes recorded in net income of $44.0 at September 30, 2018 and $0.4 at December 31, 2017 (see Note 6 for amounts pledged) |
| 6,339.5 |
|
|
| 6,469.9 |
|
Assets held for sale(1) |
| 1,380.5 |
|
|
| 2,263.1 |
|
Loans (see Note 6 for amounts pledged) |
| 30,495.8 |
|
|
| 29,113.9 |
|
Allowance for loan losses |
| (477.4 | ) |
|
| (431.1 | ) |
Total loans, net of allowance for loan losses(1) |
| 30,018.4 |
|
|
| 28,682.8 |
|
Operating lease equipment, net (see Note 6 for amounts pledged)(1) |
| 6,888.7 |
|
|
| 6,738.9 |
|
Bank-owned life insurance |
| 808.2 |
|
|
| 788.6 |
|
Goodwill |
| 369.9 |
|
|
| 369.9 |
|
Other assets, including $129.3 at September 30, 2018 and $68.7 at December 31, 2017, at fair value |
| 1,562.0 |
|
|
| 1,595.5 |
|
Assets of discontinued operations(1) |
| 327.7 |
|
|
| 501.3 |
|
Total Assets | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
Liabilities |
|
|
|
|
|
|
|
Deposits | $ | 30,825.0 |
|
| $ | 29,569.3 |
|
Credit balances of factoring clients |
| 1,672.4 |
|
|
| 1,468.6 |
|
Other liabilities, including $195.5 at September 30, 2018 and $198.1 at December 31, 2017, at fair value |
| 1,461.9 |
|
|
| 1,437.1 |
|
Borrowings, including $170.4 at September 30, 2018 and $1,626.3 at December 31, 2017 contractually due within twelve months |
| 8,674.2 |
|
|
| 8,974.4 |
|
Liabilities of discontinued operations(1) |
| 308.6 |
|
|
| 509.3 |
|
Total Liabilities |
| 42,942.1 |
|
|
| 41,958.7 |
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock: $0.01 par value, 100,000,000 shares authorized, 325,000 shares issued and outstanding |
| 325.0 |
|
|
| 325.0 |
|
Common Stock: $0.01 par value, 600,000,000 shares authorized |
|
|
|
|
|
|
|
Issued: 209,039,304 at September 30, 2018 and 207,628,491 at December 31, 2017 |
| 2.1 |
|
|
| 2.1 |
|
Outstanding: 110,565,933 at September 30, 2018 and 131,352,924 at December 31, 2017 |
|
|
|
|
|
|
|
Paid-in capital |
| 8,831.3 |
|
|
| 8,798.1 |
|
Retained earnings |
| 2,182.3 |
|
|
| 1,906.5 |
|
Accumulated other comprehensive loss |
| (199.4 | ) |
|
| (86.5 | ) |
Treasury stock: 98,473,371 shares at September 30, 2018 and 76,275,567 shares at December 31, 2017 at cost |
| (4,821.0 | ) |
|
| (3,625.2 | ) |
Total Common Stockholders’ Equity |
| 5,995.3 |
|
|
| 6,995.0 |
|
Total Equity |
| 6,320.3 |
|
|
| 7,320.0 |
|
Total Liabilities and Equity | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data) | ||||||||
March 31, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Cash and due from banks, including restricted balances of $34.7 and $42.9 at March 31, 2018 and December 31, 2017(1), respectively (see Note 6 for amounts pledged) | $ | 200.9 | $ | 278.6 | ||||
Interest bearing deposits, including restricted balances of $82.3 and $81.8 at March 31, 2018 and December 31, 2017(1), respectively (see Note 6 for amounts pledged) | 3,895.4 | 1,440.1 | ||||||
Securities purchased under agreement to resell | 250.0 | 150.0 | ||||||
Investment securities, including securities carried at fair value with changes recorded in net income of $44.1 at March 31, 2018 and $0.4 at December 31, 2017 (see Note 6 for amounts pledged) | 5,910.5 | 6,469.9 | ||||||
Assets held for sale(1) | 2,298.8 | 2,263.1 | ||||||
Loans (see Note 6 for amounts pledged) | 29,453.6 | 29,113.9 | ||||||
Allowance for loan losses | (447.6 | ) | (431.1 | ) | ||||
Total loans, net of allowance for loan losses(1) | 29,006.0 | 28,682.8 | ||||||
Operating lease equipment, net (see Note 6 for amounts pledged)(1) | 6,774.9 | 6,738.9 | ||||||
Bank-owned life insurance | 795.1 | 788.6 | ||||||
Goodwill | 369.9 | 369.9 | ||||||
Other assets, including $118.7 and $68.7 at March 31, 2018 and December 31, 2017, respectively, at fair value | 1,577.9 | 1,595.5 | ||||||
Assets of discontinued operations(1) | 463.1 | 501.3 | ||||||
Total Assets | $ | 51,542.5 | $ | 49,278.7 | ||||
Liabilities | ||||||||
Deposits | $ | 30,593.9 | $ | 29,569.3 | ||||
Credit balances of factoring clients | 1,549.0 | 1,468.6 | ||||||
Other liabilities, including $215.4 and $198.1 at March 31, 2018 and December 31, 2017, respectively, at fair value | 1,338.9 | 1,437.1 | ||||||
Borrowings, including $1,875.0 and $1,626.3 contractually due within twelve months at March 31, 2018 and December 31, 2017, respectively | 10,437.3 | 8,974.4 | ||||||
Liabilities of discontinued operations(1) | 496.6 | 509.3 | ||||||
Total Liabilities | 44,415.7 | 41,958.7 | ||||||
Stockholders’ Equity | ||||||||
Preferred Stock: $0.01 par value, 100,000,000 authorized, 325,000 shares issued and outstanding | 325.0 | — | 325.0 | |||||
Common Stock: $0.01 par value, 600,000,000 authorized | ||||||||
Issued: 208,830,397 and 207,628,491 at March 31, 2018 and December 31, 2017, respectively | 2.1 | 2.1 | ||||||
Outstanding: 128,418,283 and 131,352,924 at March 31, 2018 and December 31, 2017, respectively | ||||||||
Paid-in capital | 8,811.8 | 8,798.1 | ||||||
Retained earnings | 1,982.7 | 1,906.5 | ||||||
Accumulated other comprehensive loss | (149.9 | ) | (86.5 | ) | ||||
Treasury stock: 80,412,114 and 76,275,567 shares at March 31, 2018 and December 31, 2017 at cost, respectively | (3,844.9 | ) | (3,625.2 | ) | ||||
Total Common Stockholders’ Equity | 6,801.8 | 6,995.0 | ||||||
Total Equity | 7,126.8 | 7,320.0 | ||||||
Total Liabilities and Equity | $ | 51,542.5 | $ | 49,278.7 |
(1) | The following table presents information on assets and liabilities related to Variable Interest Entities |
Assets |
|
|
|
|
|
|
|
Cash and interest bearing deposits, restricted | $ | 76.7 |
|
| $ | 80.4 |
|
Total loans, net of allowance for loan losses |
| 3.0 |
|
|
| 119.1 |
|
Operating lease equipment, net |
| 775.0 |
|
|
| 763.3 |
|
Total Assets | $ | 854.7 |
|
| $ | 962.8 |
|
Liabilities |
|
|
|
|
|
|
|
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings) | $ | 462.7 |
|
| $ | 566.6 |
|
Total Liabilities | $ | 462.7 |
|
| $ | 566.6 |
|
Assets | |||||||
Cash and interest bearing deposits, restricted | $ | 80.5 | $ | 80.4 | |||
Total loans, net of allowance for loan losses | 2.7 | 119.1 | |||||
Operating lease equipment, net | 771.8 | 763.3 | |||||
Total Assets | $ | 855.0 | $ | 962.8 | |||
Liabilities | |||||||
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings) | $ | 484.6 | $ | 566.6 | |||
Total Liabilities | $ | 484.6 | $ | 566.6 |
The accompanying notes are an integral part of these consolidated financial statements.
2 Item 1. Consolidated Financial Statements
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in millions — except per share data) |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in millions — except per share data) | |||||||||||||||||||||||
Quarters Ended March 31, | Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
2018 | 2017 | 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest and fees on loans | $ | 400.9 | $ | 412.1 | $ | 417.4 |
|
| $ | 403.5 |
|
| $ | 1,233.8 |
|
| $ | 1,236.9 |
| ||||
Other interest and dividends | 50.3 | 43.6 |
| 56.2 |
|
|
| 50.5 |
|
|
| 164.6 |
|
|
| 151.0 |
| ||||||
Interest income | 451.2 | 455.7 |
| 473.6 |
|
|
| 454.0 |
|
|
| 1,398.4 |
|
|
| 1,387.9 |
| ||||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest on borrowings | 83.4 | 69.1 |
| 90.8 |
|
|
| 84.1 |
|
|
| 268.8 |
|
|
| 267.8 |
| ||||||
Interest on deposits | 97.1 | 94.0 |
| 123.1 |
|
|
| 92.6 |
|
|
| 330.8 |
|
|
| 281.2 |
| ||||||
Interest expense | 180.5 | 163.1 |
| 213.9 |
|
|
| 176.7 |
|
|
| 599.6 |
|
|
| 549.0 |
| ||||||
Net interest revenue | 270.7 | 292.6 |
| 259.7 |
|
|
| 277.3 |
|
|
| 798.8 |
|
|
| 838.9 |
| ||||||
Provision for credit losses | 68.8 | 49.7 |
| 38.1 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
| ||||||
Net interest revenue, after credit provision | 201.9 | 242.9 |
| 221.6 |
|
|
| 247.2 |
|
|
| 659.0 |
|
|
| 754.7 |
| ||||||
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Rental income on operating leases | 253.6 | 251.3 |
| 264.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
| ||||||
Other non-interest income | 104.7 | 79.1 |
| 86.2 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
| ||||||
Total non-interest income | 358.3 | 330.4 |
| 350.5 |
|
|
| 315.6 |
|
|
| 1,105.5 |
|
|
| 981.8 |
| ||||||
Total revenue, net of interest expense and credit provision | 560.2 | 573.3 |
| 572.1 |
|
|
| 562.8 |
|
|
| 1,764.5 |
|
|
| 1,736.5 |
| ||||||
Non-interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Depreciation on operating lease equipment | 76.4 | 73.5 |
| 78.0 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
| ||||||
Maintenance and other operating lease expenses | 57.4 | 53.8 |
| 56.6 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
| ||||||
Operating expenses | 281.3 | 311.6 |
| 263.3 |
|
|
| 277.3 |
|
|
| 812.1 |
|
|
| 884.5 |
| ||||||
Loss on debt extinguishment and deposit redemption | 0.1 | — |
| 3.5 |
|
|
| 53.5 |
|
|
| 22.9 |
|
|
| 218.3 |
| ||||||
Total non-interest expenses | 415.2 | 438.9 |
| 401.4 |
|
|
| 459.8 |
|
|
| 1,244.1 |
|
|
| 1,489.8 |
| ||||||
Income from continuing operations before benefit (provision) for income taxes | 145.0 | 134.4 | |||||||||||||||||||||
Provision for income taxes | 41.3 | 56.2 | |||||||||||||||||||||
Income from continuing operations before (benefit) provision for income taxes |
| 170.7 |
|
|
| 103.0 |
|
|
| 520.4 |
|
|
| 246.7 |
| ||||||||
Provision (benefit) for income taxes |
| 41.3 |
|
|
| (119.8 | ) |
|
| 140.0 |
|
|
| (95.5 | ) | ||||||||
Income from continuing operations | 103.7 | 78.2 |
| 129.4 |
|
|
| 222.8 |
|
|
| 380.4 |
|
|
| 342.2 |
| ||||||
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income (loss) from discontinued operations, net of taxes | (6.7 | ) | 89.0 |
| 2.1 |
|
|
| (1.9 | ) |
|
| (8.8 | ) |
|
| 95.4 |
| |||||
Gain on sale of discontinued operations, net of taxes | — | 12.7 | |||||||||||||||||||||
Loss (gain) on sale of discontinued operations, net of taxes |
| — |
|
|
| (1.3 | ) |
|
| (16.3 | ) |
|
| 118.6 |
| ||||||||
Total income (loss) from discontinued operations, net of taxes | (6.7 | ) | 101.7 |
| 2.1 |
|
|
| (3.2 | ) |
|
| (25.1 | ) |
|
| 214.0 |
| |||||
Net Income | $ | 97.0 | $ | 179.9 | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 355.3 |
|
| $ | 556.2 |
| ||||
Preferred dividends |
| — |
|
|
| — |
|
|
| 9.4 |
|
|
| — |
| ||||||||
Net income available to common shareholders | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
| $ | 556.2 |
| ||||||||
Income from continuing operations available to common shareholders | $ | 129.4 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
| $ | 342.2 |
| ||||||||
Basic income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from continuing operations | $ | 0.79 | $ | 0.39 | $ | 1.15 |
|
| $ | 1.66 |
|
| $ | 3.04 |
|
| $ | 1.98 |
| ||||
Income (loss) from discontinued operations | (0.05 | ) | 0.50 |
| 0.02 |
|
|
| (0.02 | ) |
|
| (0.21 | ) |
|
| 1.24 |
| |||||
Basic income per share | $ | 0.74 | $ | 0.89 | $ | 1.17 |
|
| $ | 1.64 |
|
| $ | 2.83 |
|
| $ | 3.22 |
| ||||
Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from continuing operations | $ | 0.79 | $ | 0.38 | $ | 1.13 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
| ||||
Income (loss) from discontinued operations | (0.05 | ) | 0.50 |
| 0.02 |
|
|
| (0.03 | ) |
|
| (0.21 | ) |
|
| 1.23 |
| |||||
Diluted income per share | $ | 0.74 | $ | 0.88 | $ | 1.15 |
|
| $ | 1.61 |
|
| $ | 2.80 |
|
| $ | 3.19 |
| ||||
Average number of common shares (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic | 130,483 | 202,449 |
| 112,842 |
|
|
| 133,916 |
|
|
| 122,185 |
|
|
| 172,682 |
| ||||||
Diluted | 131,588 | 203,348 |
| 114,007 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
| ||||||
Dividends declared per common share | $ | 0.16 | $ | 0.15 | $ | 0.25 |
|
| $ | 0.15 |
|
| $ | 0.57 |
|
| $ | 0.45 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (dollars in millions)
| Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Net Income | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 355.3 |
|
| $ | 556.2 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 7.3 |
|
|
| 11.1 |
|
|
| 0.7 |
|
|
| 54.6 |
|
Net unrealized gains (losses) on available for sale securities |
| (30.6 | ) |
|
| 3.9 |
|
|
| (116.9 | ) |
|
| 10.6 |
|
Changes in benefit plans net gain (loss) and prior service (cost)/credit |
| — |
|
|
| 0.1 |
|
|
| 3.8 |
|
|
| 1.6 |
|
Other comprehensive income (loss), net of tax |
| (23.3 | ) |
|
| 15.1 |
|
|
| (112.4 | ) |
|
| 66.8 |
|
Comprehensive income | $ | 108.2 |
|
| $ | 234.7 |
|
| $ | 242.9 |
|
| $ | 623.0 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (dollars in millions) | ||||||||
Quarters Ended March 31, | ||||||||
2018 | 2017 | |||||||
Net Income | $ | 97.0 | $ | 179.9 | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Foreign currency translation adjustments | (2.4 | ) | 12.8 | |||||
Net unrealized gains (losses) on available for sale securities | (63.9 | ) | 2.7 | |||||
Changes in benefit plans net gain (loss) and prior service (cost)/credit | 3.4 | 0.9 | ||||||
Other comprehensive income (loss), net of tax | (62.9 | ) | 16.4 | |||||
Comprehensive income | $ | 34.1 | $ | 196.3 |
The accompanying notes are an integral part of these consolidated financial statements.
4 Item 1. Consolidated Financial Statements
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions)
| Preferred Stock |
|
| Common Stock |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Noncontrolling Minority Interests |
|
| Total Equity |
| ||||||||
December 31, 2017 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,798.1 |
|
| $ | 1,906.5 |
|
| $ | (86.5 | ) |
| $ | (3,625.2 | ) |
| $ | — |
|
| $ | 7,320.0 |
|
Adoption of Accounting Standard Updates 2016-01, 2016-16, and 2018-02 |
| — |
|
|
| — |
|
|
| — |
|
|
| 0.7 |
|
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 355.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 355.3 |
|
Other comprehensive loss, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (112.4 | ) |
|
| — |
|
|
| — |
|
|
| (112.4 | ) |
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| (80.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80.2 | ) |
Share repurchases |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,167.2 | ) |
|
| — |
|
|
| (1,167.2 | ) |
Amortization of restricted stock, stock option and performance shares expenses |
| — |
|
|
| — |
|
|
| 31.0 |
|
|
| — |
|
|
| — |
|
|
| (28.6 | ) |
|
| — |
|
|
| 2.4 |
|
Employee stock purchase plan |
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.2 |
|
September 30, 2018 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,831.3 |
|
| $ | 2,182.3 |
|
| $ | (199.4 | ) |
| $ | (4,821.0 | ) |
| $ | — |
|
| $ | 6,320.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 | $ | — |
|
| $ | 2.1 |
|
| $ | 8,765.8 |
|
| $ | 1,553.0 |
|
| $ | (140.1 | ) |
| $ | (178.1 | ) |
| $ | 0.4 |
|
| $ | 10,003.1 |
|
Adoption of Accounting Standard Update 2016-09 |
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 556.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 556.2 |
|
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 66.8 |
|
|
| — |
|
|
| — |
|
|
| 66.8 |
|
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| (82.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (82.4 | ) |
Issuance of preferred stock |
| 325.0 |
|
|
| — |
|
|
| (7.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 318.0 |
|
Share repurchases |
| — |
|
|
| — |
|
|
| (9.6 | ) |
|
| — |
|
|
| — |
|
|
| (3,416.5 | ) |
|
| — |
|
|
| (3,426.1 | ) |
Amortization of restricted stock, stock option and performance shares expenses |
| — |
|
|
| — |
|
|
| 34.8 |
|
|
| — |
|
|
| — |
|
|
| (20.8 | ) |
|
| — |
|
|
| 14.0 |
|
Employee stock purchase plan |
| — |
|
|
| — |
|
|
| 2.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
Other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
September 30, 2017 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,787.1 |
|
| $ | 2,025.8 |
|
| $ | (73.3 | ) |
| $ | (3,615.4 | ) |
| $ | — |
|
| $ | 7,451.3 |
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions) | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Minority Interests | Total Equity | ||||||||||||||||||||||||
December 31, 2017 | $ | 325.0 | $ | 2.1 | $ | 8,798.1 | $ | 1,906.5 | $ | (86.5 | ) | $ | (3,625.2 | ) | $ | — | $ | 7,320.0 | |||||||||||||
Adoption of Accounting Standard Updates 2016-01, 2016-16, and 2018-02 | — | — | — | 0.7 | (0.5 | ) | — | — | 0.2 | ||||||||||||||||||||||
Net income | — | — | — | 97.0 | — | — | — | 97.0 | |||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (62.9 | ) | — | — | (62.9 | ) | |||||||||||||||||||||
Dividends paid | — | — | — | (21.5 | ) | — | — | — | (21.5 | ) | |||||||||||||||||||||
Share repurchases | — | — | — | — | — | (194.9 | ) | — | (194.9 | ) | |||||||||||||||||||||
Amortization of restricted stock, stock option and performance shares expenses | — | — | 13.0 | — | — | (24.8 | ) | — | (11.8 | ) | |||||||||||||||||||||
Employee stock purchase plan | — | — | 0.7 | — | — | — | — | 0.7 | |||||||||||||||||||||||
March 31, 2018 | $ | 325.0 | $ | 2.1 | $ | 8,811.8 | $ | 1,982.7 | $ | (149.9 | ) | $ | (3,844.9 | ) | $ | — | $ | 7,126.8 | |||||||||||||
December 31, 2016 | $ | — | $ | 2.1 | $ | 8,765.8 | $ | 1,553.0 | $ | (140.1 | ) | $ | (178.1 | ) | $ | 0.4 | $ | 10,003.1 | |||||||||||||
Adoption of Accounting Standard Update 2016-09 | — | — | 1.0 | (1.0 | ) | — | — | — | — | ||||||||||||||||||||||
Net income | — | — | — | 179.9 | — | — | — | 179.9 | |||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 16.4 | — | — | 16.4 | |||||||||||||||||||||||
Dividends paid | — | — | — | (30.8 | ) | — | — | — | (30.8 | ) | |||||||||||||||||||||
Amortization of restricted stock, stock option and performance shares expenses | — | — | 15.0 | — | — | (18.8 | ) | — | (3.8 | ) | |||||||||||||||||||||
Employee stock purchase plan | — | — | 0.8 | — | — | — | — | 0.8 | |||||||||||||||||||||||
Other | — | — | — | — | — | — | (0.1 | ) | (0.1 | ) | |||||||||||||||||||||
March 31, 2017 | $ | — | $ | 2.1 | $ | 8,782.6 | $ | 1,701.1 | $ | (123.7 | ) | $ | (196.9 | ) | $ | 0.3 | $ | 10,165.5 |
The accompanying notes are an integral part of these consolidated financial statements.
5
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Cash Flows From Operations |
|
|
|
|
|
|
|
Net income | $ | 355.3 |
|
| $ | 556.2 |
|
Adjustments to reconcile net income to net cash flows from operations: |
|
|
|
|
|
|
|
Provision for credit losses |
| 139.8 |
|
|
| 84.2 |
|
Depreciation on operating lease equipment |
| 231.6 |
|
|
| 222.0 |
|
Amortization of stock compensation expenses |
| 31.0 |
|
|
| 34.8 |
|
Net gain on asset sales and impairments on assets held for sale |
| (73.7 | ) |
|
| (278.6 | ) |
Loss on debt extinguishment and other deposit redemption |
| 22.9 |
|
|
| 256.6 |
|
Provision for deferred income taxes |
| 79.9 |
|
|
| 0.6 |
|
(Increase) decrease in finance receivables held for sale |
| (97.4 | ) |
|
| 43.4 |
|
(Increase) decrease in other assets |
| (92.0 | ) |
|
| 147.8 |
|
Decrease in other liabilities |
| (81.8 | ) |
|
| (721.0 | ) |
Other operating activities | 176.3 |
|
| 60.2 |
| ||
Net cash flows provided by operations |
| 691.9 |
|
|
| 406.2 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
Changes in loans, net |
| (1,439.0 | ) |
|
| 602.3 |
|
Purchases of investment securities |
| (2,129.5 | ) |
|
| (4,465.2 | ) |
Proceeds from sales and maturities of investment securities |
| 2,087.3 |
|
|
| 3,189.8 |
|
Proceeds from asset and receivable sales |
| 1,266.8 |
|
|
| 792.3 |
|
Proceeds from sale of commercial air |
| — |
|
|
| 10,026.0 |
|
Purchases of assets to be leased and other equipment |
| (470.6 | ) |
|
| (660.2 | ) |
Proceeds from sale of OREO, net of repurchases |
| 52.9 |
|
|
| 82.7 |
|
Purchase of bank owned life insurance |
| — |
|
|
| (650.0 | ) |
Other investing activities |
| 29.2 |
|
|
| 56.3 |
|
Net cash flows (used in) provided by investing activities |
| (602.9 | ) |
|
| 8,974.0 |
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
Proceeds from the issuance of term debt and FHLB advances |
| 4,061.4 |
|
|
| 1,668.1 |
|
Repayments of term debt, FHLB advances, and net settlements |
| (4,424.2 | ) |
|
| (9,231.3 | ) |
Net increase (decrease) in deposits |
| 1,257.2 |
|
|
| (2,707.3 | ) |
Repurchase of common stock |
| (1,167.2 | ) |
|
| (3,425.5 | ) |
Net proceeds from issuance of preferred stock |
| — |
|
|
| 318.0 |
|
Dividends paid |
| (80.2 | ) |
|
| (82.4 | ) |
Other financing activities |
| (86.3 | ) |
|
| (11.6 | ) |
Net cash flows used in financing activities |
| (439.3 | ) |
|
| (13,472.0 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| (8.6 | ) |
|
| 15.2 |
|
Decrease in cash, cash equivalents and restricted cash |
| (358.9 | ) |
|
| (4,076.6 | ) |
Cash, cash equivalents, and restricted cash beginning of period |
| 1,726.4 |
|
|
| 7,195.4 |
|
Cash, cash equivalents, and restricted cash end of period | $ | 1,367.5 |
|
| $ | 3,118.8 |
|
Supplementary Cash Flow Disclosures |
|
|
|
|
|
|
|
Interest paid | $ | (626.4 | ) |
| $ | (776.1 | ) |
Federal, foreign, state and local income taxes (paid) refunded, net | $ | (20.8 | ) |
| $ | (38.0 | ) |
Supplementary Non Cash Flow Disclosure |
|
|
|
|
|
|
|
Transfer of assets from held for investment to held for sale | $ | 280.0 |
|
| $ | 2,074.6 |
|
Transfer of assets from held for sale to held for investment | $ | 50.1 |
|
| $ | 122.6 |
|
Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment | $ | — |
|
| $ | 91.2 |
|
Transfers of assets to OREO | $ | 30.8 |
|
| $ | 85.3 |
|
Capital lease unexercised bargain purchase options | $ | — |
|
| $ | 17.5 |
|
Commitments extended during the period on affordable housing investment credits | $ | 64.1 |
|
| $ | 60.1 |
|
CIT GROUP INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions) | |||||||
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Cash Flows From Operations | |||||||
Net income | $ | 97.0 | $ | 179.9 | |||
Adjustments to reconcile net income to net cash flows from operations: | |||||||
Provision for credit losses | 68.8 | 49.7 | |||||
Depreciation on operating lease equipment | 76.4 | 73.5 | |||||
Amortization of stock compensation expenses | 13.0 | 15.0 | |||||
Net gain on asset sales and impairments on assets held for sale | (20.9 | ) | (35.0 | ) | |||
Loss on debt extinguishment and other deposit redemption | 0.1 | 39.0 | |||||
Provision for deferred income taxes | 25.4 | 113.5 | |||||
Decrease in finance receivables held for sale | 7.6 | 53.8 | |||||
(Increase) decrease in other assets | (33.4 | ) | 21.2 | ||||
Decrease in other liabilities | (112.7 | ) | (220.4 | ) | |||
Other operating activities | 5.8 | 15.5 | |||||
Net cash flows provided by operations | 127.1 | 305.7 | |||||
Cash Flows From Investing Activities | |||||||
Changes in loans, net | (412.7 | ) | 28.0 | ||||
Purchases of investment securities | (662.4 | ) | (1,806.2 | ) | |||
Proceeds from sales and maturities of investment securities | 1,067.0 | 1,827.9 | |||||
Proceeds from asset and receivable sales | 175.6 | 393.2 | |||||
Purchases of assets to be leased and other equipment | (148.3 | ) | (399.5 | ) | |||
Proceeds from sale of OREO, net of repurchases | 19.9 | 28.9 | |||||
Other investing activities | 16.1 | 25.2 | |||||
Net cash flows provided by investing activities | 55.2 | 97.5 | |||||
Cash Flows From Financing Activities | |||||||
Proceeds from the issuance of term debt and FHLB advances | 3,061.6 | 8.5 | |||||
Repayments of term debt, FHLB advances, and net settlements | (1,636.6 | ) | (1,083.3 | ) | |||
Net increase in deposits | 1,023.3 | 35.0 | |||||
Repurchase of common stock | (194.9 | ) | — | ||||
Dividends paid | (21.5 | ) | (30.8 | ) | |||
Other financing activities | (35.0 | ) | 6.5 | ||||
Net cash flows provided by (used in) financing activities | 2,196.9 | (1,064.1 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 0.5 | 3.8 | |||||
Increase (decrease) in cash, cash equivalents and restricted cash | 2,379.7 | (657.1 | ) | ||||
Cash, cash equivalents, and restricted cash beginning of period | 1,726.4 | 7,195.4 | |||||
Cash, cash equivalents, and restricted cash end of period | $ | 4,106.1 | $ | 6,538.3 | |||
Supplementary Cash Flow Disclosures | |||||||
Interest paid | $ | (200.8 | ) | $ | (315.3 | ) | |
Federal, foreign, state and local income taxes (paid) refunded, net | $ | (3.2 | ) | $ | 0.2 | ||
Supplementary Non Cash Flow Disclosure | |||||||
Transfer of assets from held for investment to held for sale | $ | 150.2 | $ | 227.2 | |||
Transfer of assets from held for sale to held for investment | $ | 20.8 | $ | 26.7 | |||
Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment | $ | — | $ | 91.2 | |||
Transfers of assets to OREO | $ | 9.6 | $ | 38.9 | |||
Capital lease unexercised bargain purchase options | $ | — | $ | 17.5 | |||
Commitments extended during the period on affordable housing investment credits | $ | 15.0 | $ | — |
The following tables shows a reconciliation of cash, cash equivalents and restricted cash on the Balance Sheet to that presented in the above Statements of Cash Flow.
As of September 30, |
| ||||||
| 2018 |
|
| 2017 |
| ||
Cash and due from banks, including restricted balances of $22.8 and $60.8 at September 30, 2018 and September 30, 2017, respectively | $ | 167.6 |
|
| $ | 453.4 |
|
Interest bearing deposits, including restricted balances of $79.1 and $90.1 at September 30, 2018 and September 30, 2017, respectively |
| 1,199.9 |
|
|
| 2,658.9 |
|
Cash included in assets of discontinued operations |
| — |
|
|
| 6.5 |
|
Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows | $ | 1,367.5 |
|
| $ | 3,118.8 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Cash and due from banks, including restricted balances of $34.7 and $126.8 at March 31, 2018 and March 31, 2017, respectively | $ | 200.9 | $ | 741.7 | |||
Interest bearing deposits, including restricted balances of $82.3 and $102.8 at March 31, 2018 and March 31, 2017, respectively | 3,895.4 | 5,415.2 | |||||
Cash included in assets of discontinued operations | 9.8 | 381.4 | |||||
Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows | $ | 4,106.1 | $ | 6,538.3 |
The accompanying notes are an integral part of these consolidated financial statements.
6 Item 1. Consolidated Financial Statements
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
CIT Group Inc., together with its subsidiaries (collectively "we", "our", "CIT" or the "Company"), is a bank holding company ("BHC") and a financial holding company ("FHC"). CIT was formed in 1908 and provides financing, leasing and advisory services principally to middle-market companies in a wide variety of industries, primarily in North America. CIT also provides banking and related services to commercial and individual customers through its banking subsidiary, CIT Bank, N.A. ("CIT Bank" or the "Bank"), which includes 7069 branches located in Southern California and its online bank, bankoncit.com.
CIT is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Federal Reserve Bank of New York ("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank is regulated by the Office of the Comptroller of the Currency of the U.S. Department of the Treasury ("OCC").
BASIS OF PRESENTATION
Basis of Financial Information
These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial information and accordingly do not include all information and note disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The financial statements in this Form 10-Q, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of CIT’s financial position, results of operations and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2017.
The accounting and financial reporting policies of CIT conform to GAAP and the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates and assumptions. Some of the more significant estimates include: allowance for loan losses, loan impairment, fair value determination, lease residual values, liabilities for uncertain tax positions, realizability of deferred tax assets, purchase accounting adjustments, indemnification assets, goodwill, intangible assets, and contingent liabilities, including amounts associated with the discontinued operation.operations. Additionally where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.
Principles of Consolidation
The accompanying consolidated financial statements include financial information related to CIT and its majority-owned subsidiaries and those variable interest entities (“VIEs”)VIEs where the Company is the primary beneficiary.
In preparing the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated. Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.
The current period’s results of operations do not necessarily indicate the results that may be expected for any other interim period or for the full year as a whole.
Discontinued Operations
Discontinued Operations as of March 31,September 30, 2018 and December 31, 2017 included certain assets and liabilities of (i) the Financial FreedomBusiness Air business that was acquired as part of the OneWest Transaction and (ii) the Business AirFinancial Freedom business. Income from discontinued operations reflects the activities of the Business Air and Financial Freedom and Business Air businesses for the quarter and nine months ended March 31,September 30, 2018 and the Financial Freedom2017, and the Aerospace (CommercialCommercial Air and Business Air) businesses(a component of Aerospace) for the quarternine months ended March 31,September 30, 2017. We completed the sale of our Commercial Air business inon April 4, 2017.
The Financial Freedom business, a former division of CIT Bank N.A. has agreedthat serviced reverse mortgage loans, was acquired in conjunction with the OneWest Transaction in 2015 and was sold on May 31, 2018. The sale included all the operations, mortgage servicing rights and related servicing assets and liabilities, although certain assets and liabilities of the Financial Freedom business were still held by CIT Bank at September 30, 2018 and will continue to sellbe held until the required investor consent is received to qualify for sale treatment. See further discussion in Note 2 — Discontinued Operations. In conjunction with the sale of the Financial Freedom business, the Company also sold its reverse mortgage servicingportfolio, comprised of loans and related other real estate owned (“OREO”) assets previously reported in continuing operations, and which was serviced by the Financial Freedom business. (Collectively, the sale of the Financial Freedom business and the reverse mortgage portfolio serviced by Financial Freedom (theis referred to as the “Financial Freedom Transaction”). The Financial Freedom Transaction is targeted to close in the second quarter of 2018 and is subject to certain regulatory and investor approvals and other customary closing conditions. SeeSee further discussionsdiscussion in Note 23 — Discontinued Operations.Loans
SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K").10-K. Effective January 1, 2018, CIT changed its accounting policy for revenue recognition resulting from the adoption of Accounting Standards Codification ("ASC") 606,
7
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
On January 1, 2018, CIT adopted ASU 2014-09, Revenue Recognition - Revenue from Contracts with Customers (ASC 606) and subsequent related ASUs. ASU 2014-09 establishes the principles to apply in determining the amount and timing of revenue recognition. The core principle is that a company will recognize revenue when it transfers control of goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The guidance introduces a five step,five-step, principle-based model, requiring more judgment than under previous GAAP to determine when and how revenue is recognized. The standard defers to existing guidance where revenue recognition models are already in place.
"Interest Income" and "Rental Income on Operating Leases", CIT's two largest revenue items, are out of scope of the new guidance, as are many other revenues relating to other financial assets and liabilities, including loans, leases, securities, and derivatives. As a result, the implementation of the new guidance was limited to certain revenue streams within Non-Interest Income, including some immaterial bank related fees and gains or losses related to the sale and disposition of leased equipment and Other Real Estate Owned ("OREO"),OREO, which is accounted for under ASC 610-20,
CIT evaluated its in-scope revenue streams under the five stepfive-step model and concluded that ASU 2014-09 did not materially impact the current practice of revenue recognition as ASC 606 is consistent with the current accounting policy being applied by the Company for these revenues. Therefore, no change in the timing or amount of income recognized was identified. CIT also determined that costs incurred to obtain or fulfill contracts and financing components relating to in-scope revenue streams were immaterial to the Company.
Non-interest revenue, including amounts related to the sale and disposition of leased equipment and OREO, is recognized at an amount reflecting the consideration received, or expected to be received, when control of goods or services is transferred, which generally occurs when services are provided or control of leased equipment or OREO is liquidated.
ASU 2014-09 was adopted using the modified retrospective transition method. CIT elected to apply this guidance only to contracts that were not completed at the date of the initial application. The adoption did not have a significant impact on CIT’s financial statements or disclosures. No adjustment to the opening balance of retained earnings was necessary.
Interest income on held for investment ("HFI") loans is recognized using the effective interest method or on a basis approximating a level rate of return over the life of the asset. Interest income includes components of accretion of the fair value discount on loans and lease receivables recorded in connection with Purchase Accounting Adjustments (“PAA”), which are accreted using the effective interest method as a yield adjustment over the remaining contractual term of the loan and recorded in interest income. If the loan is subsequently classified as assets held for sale ("AHFS"), accretion (amortization) of the discount (premium) will cease.
Rental revenue on operating leases is recognized on a straight line basis over the lease term and is included in Non-interest Income. Intangible assets related to acquisitions completed by the Company and Fresh Start Accounting (“FSA”) adjustments that were applied as of December 31, 2009 (the Convenience Date), were recorded to adjust the carrying value of above or below market operating lease contracts to their fair value. The FSA related adjustments (net) are amortized into rental income on a straight line basis over the remaining term of the respective lease.
The recognition of interest income (including accretion) on commercial loans (exclusive of small ticket commercial loans) is suspended and an account is placed on non-accrual status when, in the opinion of management, full collection of all principal and interest due is doubtful. All future interest accruals, as well as amortization of deferred fees, costs, purchase premiums or discounts are suspended. To the extent the estimated cash flows, including fair value of collateral, does not satisfy both the principal and accrued interest outstanding, accrued but uncollected interest at the date an account is placed on non-accrual status is reversed and charged against interest income. Subsequent interest received is applied to the outstanding principal balance until such time as the account is collected, charged-off or returned to accrual status. Loans that are on cash basis nonaccrual do not accrue interest income; however, payments designated by the borrower as interest payments may be recorded as interest income. To qualify for this treatment, the remaining recorded investment in the loan must be deemed fully collectable.
The recognition of interest income (including accretion) on consumer mortgages and small ticket commercial loans and lease receivables is suspended and all previously accrued but uncollected revenue is reversed, when payment of principal and/or interest is contractually delinquent for 90 days or more. Accounts, including accounts that have been modified, are returned to accrual status when, in the opinion of management, collection of remaining principal and interest is reasonably assured, and there is a sustained period of repayment performance for a minimum of six months.
The recognition of interest income on reverse mortgages is suspended upon the latter of the foreclosure sale date or date on which marketable title has been acquired (i.e., property becomes OREO).
The Company periodically modifies the terms of a loan in response to borrowers’ financial difficulties. These modifications may include interest rate changes, principal forgiveness or payment deferments. Loans that are modified, where a concession has been made to the borrower, are accounted for as Troubled Debt Restructurings (“TDRs”). TDRs are generally placed on nonaccrual upon their restructuring and remain on non-accrual until, in the opinion of management, collection of remaining principal and interest is reasonably assured, and upon collection of six consecutive scheduled payments.
Purchased credit impaired ("PCI") loans in pools that the Company may modify as TDRs are not within the scope of the accounting guidance for TDRs.
8
CIT early adopted ASU 2017-12,
The following pronouncements were issued by the Financial Accounting Standards Board (“FASB”) and adopted by CIT as of January 1, 2018:
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities Liabilities.
includes amendments on recognition, measurement, presentation and disclosure of financial instruments. In addition, this guidance adds a new Topic (ASC 321, Investments - Equity Securities) to the FASB Accounting Standards Codification, which provides guidance on accounting for equity investments. ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10).clarifies certain aspects of ASU 2016-01.
ASU 2016-16, Income Taxes (Topic 740): Intra - Entity Transfers of Assets Other Than Inventoryrequires that a Company recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, and any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer even though the pre-tax effects of the transaction are eliminated in consolidation..
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Paymentsclarifies how entities should classify certain cash receipts and cash payments within the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows..
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash requires that the Statement of Cash Flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.h.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Businessnarrows the definition of a business and provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business..
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costrequires employers that present a measure of operating income in their Statement of Income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses in a separate line item(s). This standard also stipulates that only the service cost component of net benefit cost is eligible for capitalization. The amendments related to presentation of service cost and other components in the Income Statements must be applied retrospectively to all periods presented. The amendments related to the capitalization of the service cost component should be applied prospectively, on and after the date of adoption.
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting..
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Incomeallows.
The following pronouncements were issued by FASB and adopted by CIT as of July 1, 2018.
Intangibles – Goodwill and Other – Internal-Use Software
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a reclassification from accumulated other comprehensive incomeCloud Computing Arrangement, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to retained earnings for stranded tax effects resulting fromdevelop or obtain internal-use software. The new guidance provides that costs incurred during the Tax Cutsapplication development stage of implementation would generally be capitalized, whereas costs incurred during the preliminary project and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users.
CIT early adopted this guidanceASU 2018-15 as of JanuaryJuly 1, 2018 by applying the aggregate portfolio approach. Adjustmentguidance prospectively to opening retained earnings dueall implementation costs incurred after the date of adoption. Capitalized implementation costs and amortization expense related to the reclassificationdevelopment of certain tax effects strandedinternal financial planning and workflow tools are reflected in accumulated other comprehensive income was a $1.6 million increase.“Other assets” and “Operating expenses” within the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income, respectively. The adoption did not have a material impact on CIT’s consolidated financial statements and disclosures.
Fair Value Measurement
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements. Entities are permitted to early adopt any removed or modified disclosure requirements and delay adoption of the added disclosure requirements until the standard effective date of January 1, 2020.
CIT early adopted the removed and modified disclosure requirements in ASU 2018-13 as of July 1, 2018. The amendment on changes to the narrative description of measurement uncertainty was applied prospectively for the most recent period presented. All other amendments were applied retrospectively to all periods presented. The adoption of this standard did not have a material impact on CIT’s disclosures as disclosure enhancements are more qualitative in nature.
Recent Accounting Pronouncements
The following accounting pronouncements were issued by the FASB but are not yet effective for CIT.
Standard | ||
Summary of Guidance | Effect on CIT's Financial Statements | |
ASU 2017-08, Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt SecuritiesIssued March 2017 | • • • | • •Based on CIT’s evaluation, the adoption of this standard is not expected to have a material impact on CIT’s consolidated financial statements as unamortized premiums on debt securities are immaterial. However, CIT will continue to assess new securities purchased in 2018. •CIT does not intend to early adopt this standard. |
9
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
10
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
11
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Aerospace
As discussed in
Note 2 — Discontinued Operations in our Annual Report on Form 10-K for the year ended December 31, 2017, the activity for 2017 in the following tables included Commercial Air, which was sold on April 4, 2017. The following condensed financial information also reflects the Business Air business for the quarter and nine months endedCondensed Balance Sheet — Aerospace
(dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Net Loans | $ | 110.6 |
|
| $ | 165.8 |
|
Operating lease equipment, net |
| - |
|
|
| 18.4 |
|
Other assets |
| 0.9 |
|
|
| - |
|
Assets of discontinued operation | $ | 111.5 |
|
| $ | 184.2 |
|
Other liabilities | $ | 1.4 |
|
| $ | 8.8 |
|
Liabilities of discontinued operation | $ | 1.4 |
|
| $ | 8.8 |
|
March 31, 2018 | December 31, 2017 | ||||||
Net Loans | $ | 153.0 | $ | 165.8 | |||
Operating lease equipment, net | 11.4 | 18.4 | |||||
Other assets | 0.1 | — | |||||
Assets of discontinued operations | $ | 164.5 | $ | 184.2 | |||
Other liabilities | $ | 20.1 | $ | 8.8 | |||
Liabilities of discontinued operations | $ | 20.1 | $ | 8.8 |
Condensed Statement of Income — Aerospace
(dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||
| 2018 |
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income | $ | 1.9 |
|
| $ | 3.0 |
|
|
|
| $ | 6.1 |
|
|
|
| $ | 26.8 |
|
Interest expense |
| 0.7 |
|
|
| 1.2 |
|
|
|
|
| 2.6 |
|
|
|
|
| 98.5 |
|
Rental income on operating leases |
| — |
|
|
| 2.0 |
|
|
|
|
| 0.5 |
|
|
|
|
| 310.7 |
|
Other income |
| 1.7 |
|
|
| — |
|
|
|
|
| 0.9 |
|
|
|
|
| 13.4 |
|
Maintenance and other operating lease expenses |
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4.2 |
|
Operating expenses |
| 0.5 |
|
|
| 1.0 |
|
|
|
|
| 1.3 |
|
|
|
|
| 39.6 |
|
Loss on debt extinguishment(1) |
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 39.0 |
|
Income from discontinued operation before provision for income taxes |
| 2.4 |
|
|
| 2.8 |
|
|
|
|
| 3.6 |
|
|
|
|
| 169.6 |
|
Provision for income taxes |
| 0.7 |
|
|
| 0.3 |
|
|
|
|
| 1.0 |
|
|
|
|
| 71.0 |
|
(Loss) gain on sale of discontinued operation, net of taxes |
| — |
|
|
| (1.3 | ) |
|
|
|
| — |
|
|
|
|
| 118.6 |
|
Income from discontinued operation, net of taxes | $ | 1.7 |
|
| $ | 1.2 |
|
|
|
| $ | 2.6 |
|
|
|
| $ | 217.2 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Interest income | $ | 2.1 | $ | 20.2 | |||
Interest expense | 1.0 | 95.9 | |||||
Rental income on operating leases | 0.5 | 306.7 | |||||
Other income (losses) | (1.0 | ) | 13.4 | ||||
Maintenance and other operating lease expenses | — | 4.2 | |||||
Operating expenses | 0.3 | 24.9 | |||||
Loss on debt extinguishment(1) | — | 39.0 | |||||
Income from discontinued operations before provision for income taxes | 0.3 | 176.3 | |||||
Provision for income taxes | 0.1 | 78.1 | |||||
Gain on sale of discontinued operations, net of taxes | — | 12.7 | |||||
Income from discontinued operations, net of taxes | $ | 0.2 | $ | 110.9 |
(1) | The Company repaid approximately $1 billion of secured borrowings in the first quarter of 2017 within discontinued operations and recorded a loss of $39 million in relation to the extinguishment of those borrowings. |
12
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Statement of Cash Flows — Aerospace (dollars in millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Net cash flows (used in) provided by operations | $ | (4.2 | ) |
| $ | 32.7 |
|
Net cash flows provided by investing activities |
| 75.7 |
|
|
| 10,247.7 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Net cash flows provided by operations | $ | 13.6 | $ | 128.1 | |||
Net cash flows provided by investing activities | 20.1 | 98.7 |
Reverse Mortgage Servicing
The Financial Freedom business, a former division of CIT Bank that servicesserviced reverse mortgage loans, was acquired in conjunction with the OneWest Transaction. TheTransaction in 2015 and was sold on May 31, 2018. As part of the Financial Freedom Transaction, the sale of the Financial Freedom business is reflectedincluded all the operations, mortgage servicing rights and related servicing assets and liabilities. During the second quarter of 2018, CIT recognized a net pre-tax loss on disposal of the Financial Freedom business of $22 million in discontinued operations. Assetsoperations primarily related to reserves and transaction costs. CIT has agreed to indemnify the purchaser for potential loan defects and servicing deficiencies related to the transferred servicing rights, both of which are capped and subject to time limitations. See Note 1 – Businessand Summary of Significant Accounting Policies for a description of the Financial Freedom Transaction.
At September 30, 2018, certain assets and liabilities of the Financial Freedom business were still held by CIT Bank after the sale, and will continue to be held until the required investor consent is received to qualify for sale treatment, although the economic benefit and risk of the business has been transferred to the buyer. At September 30, 2018, assets of discontinued operations primarily includeincluded Home Equity Conversion Mortgage ("HECM") loans and servicing advances. The liabilities of discontinued operations includeloans. Liabilities included reverse mortgage servicing liabilities, which related primarily to loans serviced for third party investors, secured borrowings and contingent liabilities. Continuing operations includes a separate portfolio of reverse mortgage loans of $861 million and other real estate owned assets of $17 million at March 31, 2018, which are recorded in the Consumer Banking segment (refer to
As a mortgage servicer of residential reverse mortgage loans prior to the sale of Financial Freedom, the Company iswas exposed to contingent liabilities for breaches of servicer obligations as set forth in industry regulations established by the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) and in servicing agreements with the applicable counterparties, such as third party investors. Under these agreements, the servicer may be liable for failure to perform its servicing obligations, which could include fees imposed for failure to comply with foreclosure timeframe requirements established by servicing guides and agreements to which CIT iswas a party as the servicer of the loans. The Company had established reserves for contingent servicing-related liabilities associated withfor CIT’s servicer obligation that shall remain in discontinued operations.operations until the contingency is resolved. Separately, the Company had recognized an indemnification receivable from the FDIC of $29 million as of March 31, 2018, and December 31, 2017 for covered servicing-related obligations related to reverse mortgage loans pursuant to the loss share agreement between CIT Bank and the FDIC related to the acquisition by OneWest Bank from the FDIC of certain assets of IndyMac Federal Bank FSB ("IndyMac"(“IndyMac”) (the "IndyMac Transaction"“IndyMac Transaction”). During 2018, the indemnification receivable was reduced to zero as the contingent obligation for FDIC covered loans was no longer deemed probable pursuant to ASC 450 and related ASC 805. See the Company's Report on Form 10-K for the year ended December 31, 2017, Note 5 - Indemnification Assets, for further information.
Condensed Balance Sheet — Financial Freedom
(dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Cash and interest bearing deposits, restricted | $ | - |
|
| $ | 7.7 |
|
Net loans(1) |
| 212.1 |
|
|
| 272.8 |
|
Other assets |
| 4.1 |
|
|
| 36.6 |
|
Assets of discontinued operation | $ | 216.2 |
|
| $ | 317.1 |
|
Secured borrowings(1) | $ | 213.2 |
|
| $ | 268.2 |
|
Other liabilities(2) |
| 94.0 |
|
|
| 232.3 |
|
Liabilities of discontinued operation | $ | 307.2 |
|
| $ | 500.5 |
|
March 31, 2018 | December 31, 2017 | ||||||
Total cash and deposits, all of which is restricted | $ | 9.8 | $ | 7.7 | |||
Net Loans(1) | 253.7 | 272.8 | |||||
Other assets(2) | 35.1 | 36.6 | |||||
Assets of discontinued operation | $ | 298.6 | $ | 317.1 | |||
Secured borrowings(1) | $ | 247.8 | $ | 268.2 | |||
Other liabilities(3) | 228.7 | 232.3 | |||||
Liabilities of discontinued operation | $ | 476.5 | $ | 500.5 |
(1) | Net loans primarily include |
(2) | |
|
Other liabilities primarily include |
13
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Statement of Income — Financial Freedom (dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||
| 2018 |
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income(1) | $ | 1.7 |
|
| $ | 2.5 |
|
|
|
| $ | 5.8 |
|
|
|
| $ | 8.0 |
|
Interest expense(1) |
| 1.7 |
|
|
| 2.3 |
|
|
|
|
| 5.8 |
|
|
|
|
| 7.2 |
|
Other income (loss)(2) |
| 2.8 |
|
|
| 5.7 |
|
|
|
|
| 13.8 |
|
|
|
|
| (29.8 | ) |
Operating expenses (benefits)(3) |
| 2.4 |
|
|
| 13.1 |
|
|
|
|
| 29.4 |
|
|
|
|
| (23.8 | ) |
Income (loss) from discontinued operation before benefit for income taxes |
| 0.4 |
|
|
| (7.2 | ) |
|
|
|
| (15.6 | ) |
|
|
|
| (5.2 | ) |
Benefit for income taxes(4) |
| — |
|
|
| (2.8 | ) |
|
|
|
| (4.2 | ) |
|
|
|
| (2.0 | ) |
Loss on sale of discontinued operation, net of taxes |
| — |
|
|
| — |
|
|
|
|
| (16.3 | ) |
|
|
|
| — |
|
Income (loss) from discontinued operation, net of taxes | $ | 0.4 |
|
| $ | (4.4 | ) |
|
|
| $ | (27.7 | ) |
|
|
| $ | (3.2 | ) |
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Interest income(1) | $ | 2.1 | $ | 2.8 | |||
Interest expense(1) | 2.1 | 2.5 | |||||
Other income | 6.7 | 7.3 | |||||
Operating expenses(2) | 16.1 | 22.7 | |||||
Loss from discontinued operations before benefit for income taxes | (9.4 | ) | (15.1 | ) | |||
Benefit for income taxes(3) | (2.5 | ) | (5.9 | ) | |||
Loss from discontinued operation, net of taxes | $ | (6.9 | ) | $ | (9.2 | ) |
(1) | Includes amortization for the premium associated with the HECM loans and related secured borrowings. |
(2) | For the |
(3) | Operating expense is comprised of |
| For the quarters ended |
Condensed Statement of Cash Flows — Financial Freedom
(dollars in millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Net cash flows provided by (used in) operation | $ | 15.2 |
|
| $ | (26.5 | ) |
Net cash flows provided by investing activities |
| 9.1 |
|
|
| 84.9 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Net cash flows used for operation | $ | (3.3 | ) | $ | (8.4 | ) | |
Net cash flows provided by investing activities | 22.1 | 25.0 |
Combined Results for Discontinued Operations
The following tables reflect the combined results of the discontinued operations. Details of the balances are discussed in prior tables.
Condensed Combined Balance Sheet
(dollars in millions)
| September 30, 2018 |
|
|
|
| December 31, 2017 |
| ||
Total cash and deposits | $ | — |
|
|
|
| $ | 7.7 |
|
Net Loans |
| 322.7 |
|
|
|
|
| 438.6 |
|
Operating lease equipment, net |
| — |
|
|
|
|
| 18.4 |
|
Other assets |
| 5.0 |
|
|
|
|
| 36.6 |
|
Assets of discontinued operations | $ | 327.7 |
|
|
|
| $ | 501.3 |
|
Secured borrowings | $ | 213.2 |
|
|
|
| $ | 268.2 |
|
Other liabilities |
| 95.4 |
|
|
|
|
| 241.1 |
|
Liabilities of discontinued operations | $ | 308.6 |
|
|
|
| $ | 509.3 |
|
March 31, 2018 | December 31, 2017 | ||||||
Total cash and deposits | $ | 9.8 | $ | 7.7 | |||
Net Loans | 406.7 | 438.6 | |||||
Operating lease equipment, net | 11.4 | 18.4 | |||||
Other assets | 35.2 | 36.6 | |||||
Assets of discontinued operations | $ | 463.1 | $ | 501.3 | |||
Secured borrowings | $ | 247.8 | $ | 268.2 | |||
Other liabilities | 248.8 | 241.1 | |||||
Liabilities of discontinued operations | $ | 496.6 | $ | 509.3 |
Condensed Combined Statement of Income
(dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||||
| 2018 |
|
|
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income | $ | 3.6 |
|
|
|
| $ | 5.5 |
|
|
|
| $ | 11.9 |
|
|
|
| $ | 34.8 |
|
Interest expense |
| 2.4 |
|
|
|
|
| 3.5 |
|
|
|
|
| 8.4 |
|
|
|
|
| 105.7 |
|
Rental income on operating leases |
| — |
|
|
|
|
| 2.0 |
|
|
|
|
| 0.5 |
|
|
|
|
| 310.7 |
|
Other income (losses) |
| 4.5 |
|
|
|
|
| 5.7 |
|
|
|
|
| 14.7 |
|
|
|
|
| (16.4 | ) |
Maintenance and other operating lease expenses |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4.2 |
|
Operating expenses |
| 2.9 |
|
|
|
|
| 14.1 |
|
|
|
|
| 30.7 |
|
|
|
|
| 15.8 |
|
Loss on debt extinguishment |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 39.0 |
|
Income (loss) from discontinued operations before benefit (provision) for income taxes |
| 2.8 |
|
|
|
|
| (4.4 | ) |
|
|
|
| (12.0 | ) |
|
|
|
| 164.4 |
|
(Benefit) provision for income taxes |
| 0.7 |
|
|
|
|
| (2.5 | ) |
|
|
|
| (3.2 | ) |
|
|
|
| 69.0 |
|
(Loss) gain on sale of discontinued operations, net of taxes |
| — |
|
|
|
|
| (1.3 | ) |
|
|
|
| (16.3 | ) |
|
|
|
| 118.6 |
|
Income (loss) from discontinued operations, net of taxes | $ | 2.1 |
|
|
|
| $ | (3.2 | ) |
|
|
| $ | (25.1 | ) |
|
|
| $ | 214.0 |
|
Condensed Combined Statement of Cash Flows (dollars in millions)
| Nine Months Ended September 30, |
| |||||||
| 2018 |
|
|
|
| 2017 |
| ||
Net cash flows provided by operations | $ | 11.0 |
|
|
|
| $ | 6.2 |
|
Net cash flows provided by investing activities |
| 84.8 |
|
|
|
|
| 10,332.6 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Interest income | $ | 4.2 | $ | 22.9 | |||
Interest expense | 3.1 | 98.4 | |||||
Rental income on operating leases | 0.5 | 306.7 | |||||
Other income (losses) | 5.7 | 20.7 | |||||
Maintenance and other operating lease expenses | — | 4.2 | |||||
Operating expenses | 16.4 | 47.6 | |||||
Loss on debt extinguishment | — | 39.0 | |||||
Income (loss) from discontinued operations before benefit (provision) for income taxes | (9.1 | ) | 161.1 | ||||
(Benefit) provision for income taxes | (2.4 | ) | 72.1 | ||||
Gain on sale of discontinued operations, net of taxes | — | 12.7 | |||||
Income (loss) from discontinued operations, net of taxes | $ | (6.7 | ) | $ | 101.7 |
14
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Net cash flows provided by operations | $ | 10.3 | $ | 119.7 | |||
Net cash flows provided by investing activities | 42.2 | 123.7 |
NOTE 3 — LOANS
Loans, excluding those reflected as discontinued operations, consist of the following:
Loans by Product (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial loans | $ | 22,082.7 |
|
| $ | 20,892.1 |
|
Direct financing leases and leveraged leases |
| 2,496.8 |
|
|
| 2,685.8 |
|
Total commercial |
| 24,579.5 |
|
|
| 23,577.9 |
|
Consumer loans |
| 5,916.3 |
|
|
| 5,536.0 |
|
Total loans |
| 30,495.8 |
|
|
| 29,113.9 |
|
Loans held for sale(1) |
| 204.1 |
|
|
| 1,095.7 |
|
Loans and held for sale loans(1) | $ | 30,699.9 |
|
| $ | 30,209.6 |
|
Loans by Product (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Commercial loans | $ | 21,163.9 | $ | 20,892.1 | |||
Direct financing leases and leveraged leases | 2,625.2 | 2,685.8 | |||||
Total commercial | 23,789.1 | 23,577.9 | |||||
Consumer loans | 5,664.5 | 5,536.0 | |||||
Total loans | 29,453.6 | 29,113.9 | |||||
Loans held for sale(1) | 1,085.9 | 1,095.7 | |||||
Loans and held for sale loans(1) | $ | 30,539.5 | $ | 30,209.6 |
(1) | Since the Company manages the credit risk and collections of loans held for sale consistently with its loans held for investment, the aggregate amount is presented in this table. |
As part of the Financial Freedom Transaction, on May 31, 2018, CIT sold its reverse mortgage portfolio comprised of loans and related OREO assets of $884 million and recognized a net pre-tax gain on the sale of $27 million in other non-interest income. The loans were included in loans held for sale in the above table at December 31, 2017. See Note 1 – Business and Summary of Significant Accounting Policies for a description of the Financial Freedom Transaction.
The following table presents loans, excluding loans held for sale, by segment, based on obligor location:
Loans (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||||||||||
| Domestic |
|
| Foreign |
|
| Total |
|
| Domestic |
|
| Foreign |
|
| Total |
| ||||||
Commercial Banking | $ | 22,518.2 |
|
| $ | 1,577.5 |
|
| $ | 24,095.7 |
|
| $ | 21,368.7 |
|
| $ | 1,790.6 |
|
| $ | 23,159.3 |
|
Consumer Banking(1) |
| 6,400.1 |
|
|
| — |
|
|
| 6,400.1 |
|
|
| 5,954.6 |
|
|
| — |
|
|
| 5,954.6 |
|
Total | $ | 28,918.3 |
|
| $ | 1,577.5 |
|
| $ | 30,495.8 |
|
| $ | 27,323.3 |
|
| $ | 1,790.6 |
|
| $ | 29,113.9 |
|
Loans (dollars in millions) | |||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
Domestic | Foreign | Total | Domestic | Foreign | Total | ||||||||||||||||||
Commercial Banking | $ | 21,693.8 | $ | 1,652.1 | $ | 23,345.9 | $ | 21,368.7 | $ | 1,790.6 | $ | 23,159.3 | |||||||||||
Consumer Banking(1) | 6,107.7 | — | 6,107.7 | 5,954.6 | — | 5,954.6 | |||||||||||||||||
Total | $ | 27,801.5 | $ | 1,652.1 | $ | 29,453.6 | $ | 27,323.3 | $ | 1,790.6 | $ | 29,113.9 |
(1) | The Consumer Banking segment includes certain commercial loans, primarily consisting of a portfolio of Small Business Administration ("SBA") loans. These loans are excluded from the Consumer loan |
The following table presents selected components of the net investment in loans:
Components of Net Investment in Loans (dollars in millions)
|
|
|
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||
Unearned income |
|
|
|
|
|
| $ | (749.3 | ) |
|
|
| $ | (727.8 | ) |
Unamortized premiums |
|
|
|
|
|
|
| 18.3 |
|
|
|
|
| 3.7 |
|
Accretable yield on PCI loans |
|
|
|
|
|
|
| (944.9 | ) |
|
|
|
| (1,063.7 | ) |
Net unamortized deferred costs(1) |
|
|
|
|
|
|
| 79.8 |
|
|
|
|
| 68.7 |
|
Components of Net Investment in Loans (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Unearned income | $ | (726.8 | ) | $ | (727.8 | ) | |
Unamortized premiums / (discounts) | 9.4 | 3.7 | |||||
Accretable yield on Purchased Credit-Impaired (“PCI”) loans | (1,016.3 | ) | (1,063.7 | ) | |||
Net unamortized deferred costs and (fees)(1) | 69.6 | 68.7 |
(1) | Balance relates to the Commercial Banking |
Certain of the following tables present credit-related information at the “class” level in accordance with ASC 310-10-50,
Credit Quality Information
The following table summarizes commercial loans by the risk ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. The consumer loan risk profiles are different from commercial loans, and use loan-to-value (“LTV”) ratios in rating the credit quality, and therefore are presented separately below.
15
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Commercial Loans and Held for Sale Loans — Risk Rating by Class / Segment (dollars in millions) | |||||||||||||||||||||||
Grade: | Pass | Special Mention | Classified- accruing | Classified- non-accrual | PCI Loans | Total | |||||||||||||||||
March 31, 2018 | |||||||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||
Commercial Finance | $ | 8,020.5 | $ | 641.1 | $ | 1,189.0 | $ | 153.2 | $ | 10.4 | $ | 10,014.2 | |||||||||||
Real Estate Finance | 5,158.3 | 241.2 | 183.8 | — | 39.2 | 5,622.5 | |||||||||||||||||
Business Capital | 7,192.3 | 246.1 | 263.5 | 45.6 | — | 7,747.5 | |||||||||||||||||
Rail | 120.8 | 2.5 | 1.8 | — | — | 125.1 | |||||||||||||||||
Total Commercial Banking | 20,491.9 | 1,130.9 | 1,638.1 | 198.8 | 49.6 | 23,509.3 | |||||||||||||||||
Consumer Banking | |||||||||||||||||||||||
Other Consumer Banking(1) | 398.9 | 4.2 | 37.9 | — | 2.2 | 443.2 | |||||||||||||||||
Total Consumer Banking | 398.9 | 4.2 | 37.9 | — | 2.2 | 443.2 | |||||||||||||||||
Non- Strategic Portfolios | 31.5 | 9.6 | 5.2 | 12.2 | — | 58.5 | |||||||||||||||||
Total | $ | 20,922.3 | $ | 1,144.7 | $ | 1,681.2 | $ | 211.0 | $ | 51.8 | $ | 24,011.0 | |||||||||||
December 31, 2017 | |||||||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||
Commercial Finance | $ | 8,284.1 | $ | 640.9 | $ | 981.9 | $ | 134.8 | $ | 10.6 | $ | 10,052.3 | |||||||||||
Real Estate Finance | 5,228.1 | 139.9 | 174.3 | 2.8 | 45.1 | 5,590.2 | |||||||||||||||||
Business Capital | 7,028.6 | 269.2 | 228.8 | 53.2 | — | 7,579.8 | |||||||||||||||||
Rail | 100.6 | 2.0 | 1.2 | — | — | 103.8 | |||||||||||||||||
Total Commercial Banking | 20,641.4 | 1,052.0 | 1,386.2 | 190.8 | 55.7 | 23,326.1 | |||||||||||||||||
Consumer Banking | |||||||||||||||||||||||
Other Consumer Banking(1) | 378.5 | 5.9 | 31.9 | — | 2.2 | 418.5 | |||||||||||||||||
Total Consumer Banking | 378.5 | 5.9 | 31.9 | — | 2.2 | 418.5 | |||||||||||||||||
Non- Strategic Portfolios | 35.7 | 7.6 | 10.2 | 9.8 | — | 63.3 | |||||||||||||||||
Total | $ | 21,055.6 | $ | 1,065.5 | $ | 1,428.3 | $ | 200.6 | $ | 57.9 | $ | 23,807.9 |
(1) Commercial Loans Including Held for Sale Loans — Risk Rating by Class / SegmentOther Consumer Banking loans consisted of SBA loans.
Grade: | Pass |
|
| Special Mention |
|
| Classified- accruing |
|
| Classified- non-accrual |
|
| PCI Loans |
|
| Total |
| ||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 8,299.0 |
|
| $ | 653.5 |
|
| $ | 1,054.4 |
|
| $ | 229.3 |
|
| $ | 5.9 |
|
| $ | 10,242.1 |
|
Real Estate Finance |
| 4,994.4 |
|
|
| 247.5 |
|
|
| 267.2 |
|
|
| 2.3 |
|
|
| 36.2 |
|
|
| 5,547.6 |
|
Business Capital |
| 7,529.1 |
|
|
| 456.1 |
|
|
| 310.3 |
|
|
| 43.1 |
|
|
| — |
|
|
| 8,338.6 |
|
Rail |
| 125.5 |
|
|
| 0.8 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 127.5 |
|
Total Commercial Banking |
| 20,948.0 |
|
|
| 1,357.9 |
|
|
| 1,633.1 |
|
|
| 274.7 |
|
|
| 42.1 |
|
|
| 24,255.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking(1) |
| 419.8 |
|
|
| 15.7 |
|
|
| 45.2 |
|
|
| 1.0 |
|
|
| 2.1 |
|
|
| 483.8 |
|
Total Consumer Banking |
| 419.8 |
|
|
| 15.7 |
|
|
| 45.2 |
|
|
| 1.0 |
|
|
| 2.1 |
|
|
| 483.8 |
|
Non- Strategic Portfolios |
| 17.5 |
|
|
| 3.1 |
|
|
| 3.2 |
|
|
| 8.3 |
|
|
| — |
|
|
| 32.1 |
|
Total | $ | 21,385.3 |
|
| $ | 1,376.7 |
|
| $ | 1,681.5 |
|
| $ | 284.0 |
|
| $ | 44.2 |
|
| $ | 24,771.7 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 8,284.1 |
|
| $ | 640.9 |
|
| $ | 981.9 |
|
| $ | 134.8 |
|
| $ | 10.6 |
|
| $ | 10,052.3 |
|
Real Estate Finance |
| 5,228.1 |
|
|
| 139.9 |
|
|
| 174.3 |
|
|
| 2.8 |
|
|
| 45.1 |
|
|
| 5,590.2 |
|
Business Capital |
| 7,028.6 |
|
|
| 269.2 |
|
|
| 228.8 |
|
|
| 53.2 |
|
|
| — |
|
|
| 7,579.8 |
|
Rail |
| 100.6 |
|
|
| 2.0 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 103.8 |
|
Total Commercial Banking |
| 20,641.4 |
|
|
| 1,052.0 |
|
|
| 1,386.2 |
|
|
| 190.8 |
|
|
| 55.7 |
|
|
| 23,326.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking(1) |
| 378.5 |
|
|
| 5.9 |
|
|
| 31.9 |
|
|
| — |
|
|
| 2.2 |
|
|
| 418.5 |
|
Total Consumer Banking |
| 378.5 |
|
|
| 5.9 |
|
|
| 31.9 |
|
|
| — |
|
|
| 2.2 |
|
|
| 418.5 |
|
Non- Strategic Portfolios |
| 35.7 |
|
|
| 7.6 |
|
|
| 10.2 |
|
|
| 9.8 |
|
|
| — |
|
|
| 63.3 |
|
Total | $ | 21,055.6 |
|
| $ | 1,065.5 |
|
| $ | 1,428.3 |
|
| $ | 200.6 |
|
| $ | 57.9 |
|
| $ | 23,807.9 |
|
(1) | Other Consumer Banking loans primarily consisted of SBA loans. |
The following table provides a summary of the consumer portfolio credit quality. The amounts represent the carrying value, which differ from unpaid principal balances, and include the premiums or discounts and the accretable yield and non-accretable difference for PCI loans recorded in purchase accounting. Included in the consumer single-family residential (“SFR”) loans are “covered loans” for which the Company can be reimbursed for a substantial portion of future losses under the terms of the loss sharing agreementsagreement with the FDIC.FDIC related to IndyMac, which expires in March 2019. Covered loans are limited to the Legacy Consumer Mortgage ("LCM") division. CoveredDue to continued improvement of the covered loan performance, significantly shorter remaining life of the indemnification asset in comparison to the weighted average life of the related covered loans, and significant decline in loss share claims filed with the FDIC in the last six months, CIT performed a collectability assessment of the probable losses to be reimbursed by the FDIC for the remaining indemnification period. Separate from the higher negative yield to amortize the reductions in expected indemnification asset cash flows due to an increase in expected cash flows on the covered loans from improved credit performance, CIT recorded an impairment of $21.2 million, in other non-interest income, to reduce the carrying value of the indemnification asset (included in other assets) to $27.2 million in the quarter ended September 30, 2018, for the amounts deemed uncollectable within the remaining indemnification period based on CIT’s loan level review of the covered loans. Indemnification assets are discussed further discussed in our 2017 Form 10-K, for the year ended December 31, 2017,
Included in the consumer loan balances as of March 31,September 30, 2018 and December 31, 2017, were loans with terms that permitted negative amortization with an unpaid principal balance of $452$413 million and $484 million, respectively.
16
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The table below summarizes the consumer loan LTV distribution and the covered loan held for investment balances as of March 31,September 30, 2018 and December 31, 2017 for single family residentialSFR mortgage loans.
Consumer Loan LTV Distribution (dollars in millions)
| Single Family Residential |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
| Covered Loans |
|
| Non-covered Loans |
|
| Consumer |
| |||||||||||
LTV Range | Non-PCI |
|
| PCI |
|
| Non-PCI |
|
| PCI |
|
| Loans |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 125% | $ | 1.4 |
|
| $ | 113.8 |
|
| $ | 4.9 |
|
| $ | - |
|
| $ | 120.1 |
|
101% – 125% |
| 4.8 |
|
|
| 194.8 |
|
|
| 4.7 |
|
|
| — |
|
|
| 204.3 |
|
80% – 100% |
| 33.9 |
|
|
| 470.0 |
|
|
| 181.9 |
|
|
| — |
|
|
| 685.8 |
|
Less than 80% |
| 1,128.1 |
|
|
| 936.1 |
|
|
| 2,841.3 |
|
|
| — |
|
|
| 4,905.5 |
|
Not Applicable(1) |
| — |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| 0.6 |
|
Total | $ | 1,168.2 |
|
| $ | 1,714.7 |
|
| $ | 3,033.4 |
|
| $ | — |
|
| $ | 5,916.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 125% | $ | 2.7 |
|
| $ | 160.0 |
|
| $ | 7.7 |
|
| $ | — |
|
| $ | 170.4 |
|
101% – 125% |
| 6.4 |
|
|
| 291.5 |
|
|
| 4.4 |
|
|
| — |
|
|
| 302.3 |
|
80% – 100% |
| 77.4 |
|
|
| 566.2 |
|
|
| 137.3 |
|
|
| — |
|
|
| 780.9 |
|
Less than 80% |
| 1,306.1 |
|
|
| 878.1 |
|
|
| 2,089.7 |
|
|
| 7.7 |
|
|
| 4,281.6 |
|
Not Applicable(1) |
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
Total | $ | 1,392.6 |
|
| $ | 1,895.8 |
|
| $ | 2,239.9 |
|
| $ | 7.7 |
|
| $ | 5,536.0 |
|
(1) | Certain Consumer Loans do not have LTV's. |
17
Consumer Loan LTV Distribution (dollars in millions) | ||||||||||||||||||||
Single Family Residential | ||||||||||||||||||||
Covered Loans | Non-covered Loans | Total Consumer Loans | ||||||||||||||||||
LTV Range | Non-PCI | PCI | Non-PCI | PCI | ||||||||||||||||
March 31, 2018 | ||||||||||||||||||||
Greater than 125% | $ | 3.5 | $ | 145.7 | $ | 5.8 | $ | — | $ | 155.0 | ||||||||||
101% – 125% | 6.0 | 260.4 | 4.8 | — | 271.2 | |||||||||||||||
80% – 100% | 58.1 | 538.3 | 178.9 | — | 775.3 | |||||||||||||||
Less than 80% | 1,254.5 | 895.0 | 2,304.9 | 7.8 | 4,462.2 | |||||||||||||||
Not Applicable(1) | — | — | 0.8 | — | 0.8 | |||||||||||||||
Total | $ | 1,322.1 | $ | 1,839.4 | $ | 2,495.2 | $ | 7.8 | $ | 5,664.5 | ||||||||||
December 31, 2017 | ||||||||||||||||||||
Greater than 125% | $ | 2.7 | $ | 160.0 | $ | 7.7 | $ | — | $ | 170.4 | ||||||||||
101% – 125% | 6.4 | 291.5 | 4.4 | — | 302.3 | |||||||||||||||
80% – 100% | 77.4 | 566.2 | 137.3 | — | 780.9 | |||||||||||||||
Less than 80% | 1,306.1 | 878.1 | 2,089.7 | 7.7 | 4,281.6 | |||||||||||||||
Not Applicable(1) | — | — | 0.8 | — | 0.8 | |||||||||||||||
Total | $ | 1,392.6 | $ | 1,895.8 | $ | 2,239.9 | $ | 7.7 | $ | 5,536.0 | ||||||||||
(1) Certain Consumer Loans do not have LTV's. |
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The table that follows presents portfolio delinquency status, regardless of accrual/non-accrual classification:
Loans Including Held for Sale Loans - Delinquency Status (dollars in millions)
| Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| 30–59 Days Past Due |
|
| 60–89 Days Past Due |
|
| 90 Days or Greater |
|
| Total Past Due |
|
| Current(1) |
|
| PCI Loans(2) |
|
| Total |
| |||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 12.4 |
|
| $ | 8.5 |
|
| $ | 98.0 |
|
| $ | 118.9 |
|
| $ | 10,117.3 |
|
| $ | 5.9 |
|
| $ | 10,242.1 |
|
Real Estate Finance |
| 30.1 |
|
|
| — |
|
|
| 7.9 |
|
|
| 38.0 |
|
|
| 5,473.4 |
|
|
| 36.2 |
|
|
| 5,547.6 |
|
Business Capital |
| 105.0 |
|
|
| 25.1 |
|
|
| 15.7 |
|
|
| 145.8 |
|
|
| 8,192.8 |
|
|
| — |
|
|
| 8,338.6 |
|
Rail |
| 2.4 |
|
|
| 1.0 |
|
|
| 0.3 |
|
|
| 3.7 |
|
|
| 123.8 |
|
|
| — |
|
|
| 127.5 |
|
Total Commercial Banking |
| 149.9 |
|
|
| 34.6 |
|
|
| 121.9 |
|
|
| 306.4 |
|
|
| 23,907.3 |
|
|
| 42.1 |
|
|
| 24,255.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 33.2 |
|
|
| 6.1 |
|
|
| 41.9 |
|
|
| 81.2 |
|
|
| 1,118.4 |
|
|
| 1,714.7 |
|
|
| 2,914.3 |
|
Other Consumer Banking |
| 27.9 |
|
|
| 2.1 |
|
|
| 5.4 |
|
|
| 35.4 |
|
|
| 3,460.2 |
|
|
| 2.1 |
|
|
| 3,497.7 |
|
Total Consumer Banking |
| 61.1 |
|
|
| 8.2 |
|
|
| 47.3 |
|
|
| 116.6 |
|
|
| 4,578.6 |
|
|
| 1,716.8 |
|
|
| 6,412.0 |
|
Non-Strategic Portfolios |
| 1.4 |
|
|
| — |
|
|
| 7.0 |
|
|
| 8.4 |
|
|
| 23.7 |
|
|
| — |
|
|
| 32.1 |
|
Total | $ | 212.4 |
|
| $ | 42.8 |
|
| $ | 176.2 |
|
| $ | 431.4 |
|
| $ | 28,509.6 |
|
| $ | 1,758.9 |
|
| $ | 30,699.9 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 4.5 |
|
| $ | — |
|
| $ | 49.3 |
|
| $ | 53.8 |
|
| $ | 9,987.9 |
|
| $ | 10.6 |
|
| $ | 10,052.3 |
|
Real Estate Finance |
| 8.7 |
|
|
| — |
|
|
| 4.1 |
|
|
| 12.8 |
|
|
| 5,532.3 |
|
|
| 45.1 |
|
|
| 5,590.2 |
|
Business Capital |
| 172.2 |
|
|
| 33.4 |
|
|
| 19.1 |
|
|
| 224.7 |
|
|
| 7,355.1 |
|
|
| — |
|
|
| 7,579.8 |
|
Rail |
| 3.9 |
|
|
| 1.4 |
|
|
| 0.8 |
|
|
| 6.1 |
|
|
| 97.7 |
|
|
| — |
|
|
| 103.8 |
|
Total Commercial Banking |
| 189.3 |
|
|
| 34.8 |
|
|
| 73.3 |
|
|
| 297.4 |
|
|
| 22,973.0 |
|
|
| 55.7 |
|
|
| 23,326.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 26.7 |
|
|
| 7.6 |
|
|
| 34.8 |
|
|
| 69.1 |
|
|
| 2,219.5 |
|
|
| 1,903.5 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
| 9.6 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 10.5 |
|
|
| 2,615.4 |
|
|
| 2.2 |
|
|
| 2,628.1 |
|
Total Consumer Banking |
| 36.3 |
|
|
| 8.1 |
|
|
| 35.2 |
|
|
| 79.6 |
|
|
| 4,834.9 |
|
|
| 1,905.7 |
|
|
| 6,820.2 |
|
Non-Strategic Portfolios |
| 1.8 |
|
|
| 7.7 |
|
|
| 9.4 |
|
|
| 18.9 |
|
|
| 44.4 |
|
|
| — |
|
|
| 63.3 |
|
Total | $ | 227.4 |
|
| $ | 50.6 |
|
| $ | 117.9 |
|
| $ | 395.9 |
|
| $ | 27,852.3 |
|
| $ | 1,961.4 |
|
| $ | 30,209.6 |
|
Loans and Held for Sale Loans - Delinquency Status (dollars in millions) | |||||||||||||||||||||||||||
Past Due | |||||||||||||||||||||||||||
30–59 Days Past Due | 60–89 Days Past Due | 90 Days or Greater | Total Past Due | Current(1) | PCI Loans(2) | Total | |||||||||||||||||||||
March 31, 2018 | |||||||||||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||||||
Commercial Finance | $ | 17.5 | $ | — | $ | 43.8 | $ | 61.3 | $ | 9,942.5 | $ | 10.4 | $ | 10,014.2 | |||||||||||||
Real Estate Finance | 10.4 | 2.9 | 4.1 | 17.4 | 5,565.9 | 39.2 | 5,622.5 | ||||||||||||||||||||
Business Capital | 135.8 | 24.3 | 18.0 | 178.1 | 7,569.4 | — | 7,747.5 | ||||||||||||||||||||
Rail | 6.5 | 0.9 | 0.8 | 8.2 | 116.9 | — | 125.1 | ||||||||||||||||||||
Total Commercial Banking | 170.2 | 28.1 | 66.7 | 265.0 | 23,194.7 | 49.6 | 23,509.3 | ||||||||||||||||||||
Consumer Banking | |||||||||||||||||||||||||||
Legacy Consumer Mortgages | 79.5 | 7.3 | 38.2 | 125.0 | 2,091.3 | 1,847.2 | 4,063.5 | ||||||||||||||||||||
Other Consumer Banking | 137.5 | 4.4 | 0.3 | 142.2 | 2,763.8 | 2.2 | 2,908.2 | ||||||||||||||||||||
Total Consumer Banking | 217.0 | 11.7 | 38.5 | 267.2 | 4,855.1 | 1,849.4 | 6,971.7 | ||||||||||||||||||||
Non-Strategic Portfolios | 0.7 | — | 12.2 | 12.9 | 45.6 | — | 58.5 | ||||||||||||||||||||
Total | $ | 387.9 | $ | 39.8 | $ | 117.4 | $ | 545.1 | $ | 28,095.4 | $ | 1,899.0 | $ | 30,539.5 | |||||||||||||
December 31, 2017 | |||||||||||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||||||
Commercial Finance | $ | 4.5 | $ | — | $ | 49.3 | $ | 53.8 | $ | 9,987.9 | $ | 10.6 | $ | 10,052.3 | |||||||||||||
Real Estate Finance | 8.7 | — | 4.1 | 12.8 | 5,532.3 | 45.1 | 5,590.2 | ||||||||||||||||||||
Business Capital | 172.2 | 33.4 | 19.1 | 224.7 | 7,355.1 | — | 7,579.8 | ||||||||||||||||||||
Rail | 3.9 | 1.4 | 0.8 | 6.1 | 97.7 | — | 103.8 | ||||||||||||||||||||
Total Commercial Banking | 189.3 | 34.8 | 73.3 | 297.4 | 22,973.0 | 55.7 | 23,326.1 | ||||||||||||||||||||
Consumer Banking | |||||||||||||||||||||||||||
Legacy Consumer Mortgages | 26.7 | 7.6 | 34.8 | 69.1 | 2,219.5 | 1,903.5 | 4,192.1 | ||||||||||||||||||||
Other Consumer Banking | 9.6 | 0.5 | 0.4 | 10.5 | 2,615.4 | 2.2 | 2,628.1 | ||||||||||||||||||||
Total Consumer Banking | 36.3 | 8.1 | 35.2 | 79.6 | 4,834.9 | 1,905.7 | 6,820.2 | ||||||||||||||||||||
Non-Strategic Portfolios | 1.8 | 7.7 | 9.4 | 18.9 | 44.4 | — | 63.3 | ||||||||||||||||||||
Total | $ | 227.4 | $ | 50.6 | $ | 117.9 | $ | 395.9 | $ | 27,852.3 | $ | 1,961.4 | $ | 30,209.6 |
(1) | As of September 30, 2018, the reverse mortgage loans were sold. As of December 31, 2017, due to their nature, reverse mortgage loans are included in Current, as they do not have contractual payments due at a specified time. During the |
(2) | PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be collectible. Accordingly, such loans are no longer classified as past due or non-accrual even though they may be contractually past due as we expect to fully collect the new carrying values. |
18
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth non-accrual loans, assets received in satisfaction of loans (OREO and repossessed assets) and loans 90 days or more past due and still accruing.
Loans on Non-Accrual Status (dollars in millions)(1)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Held for Investment |
|
| Held for Sale |
|
| Total |
|
| Held for Investment |
|
| Held for Sale |
|
| Total |
| ||||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 222.6 |
|
| $ | 6.7 |
|
| $ | 229.3 |
|
| $ | 134.8 |
|
| $ | — |
|
| $ | 134.8 |
|
Real Estate Finance |
| 2.3 |
|
|
| — |
|
|
| 2.3 |
|
|
| 2.8 |
|
|
| — |
|
|
| 2.8 |
|
Business Capital |
| 43.1 |
|
|
| — |
|
|
| 43.1 |
|
|
| 53.2 |
|
|
| — |
|
|
| 53.2 |
|
Total Commercial Banking |
| 268.0 |
|
|
| 6.7 |
|
|
| 274.7 |
|
|
| 190.8 |
|
|
| — |
|
|
| 190.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 29.4 |
|
|
| — |
|
|
| 29.4 |
|
|
| 19.9 |
|
|
| — |
|
|
| 19.9 |
|
Other Consumer Banking |
| 5.7 |
|
|
| — |
|
|
| 5.7 |
|
|
| 0.4 |
|
|
| — |
|
|
| 0.4 |
|
Total Consumer Banking |
| 35.1 |
|
|
| — |
|
|
| 35.1 |
|
|
| 20.3 |
|
|
| — |
|
|
| 20.3 |
|
Non-Strategic Portfolios |
| — |
|
|
| 8.3 |
|
|
| 8.3 |
|
|
| — |
|
|
| 9.8 |
|
|
| 9.8 |
|
Total | $ | 303.1 |
|
| $ | 15.0 |
|
| $ | 318.1 |
|
| $ | 211.1 |
|
| $ | 9.8 |
|
| $ | 220.9 |
|
Repossessed assets and OREO |
|
|
|
|
|
|
|
|
| 35.8 |
|
|
|
|
|
|
|
|
|
|
| 54.6 |
|
Total non-performing assets |
|
|
|
|
|
|
|
| $ | 353.9 |
|
|
|
|
|
|
|
|
|
| $ | 275.5 |
|
Commercial loans past due 90 days or more accruing |
|
|
|
|
|
|
|
| $ | 53.6 |
|
|
|
|
|
|
|
|
|
| $ | 11.7 |
|
Consumer loans past due 90 days or more accruing |
|
|
|
|
|
|
|
|
| 17.8 |
|
|
|
|
|
|
|
|
|
|
| 20.2 |
|
Total Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
| $ | 71.4 |
|
|
|
|
|
|
|
|
|
| $ | 31.9 |
|
Loans on Non-Accrual Status (dollars in millions)(1) | |||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
Held for Investment | Held for Sale | Total | Held for Investment | Held for Sale | Total | ||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||
Commercial Finance | $ | 153.2 | $ | — | $ | 153.2 | $ | 134.8 | $ | — | $ | 134.8 | |||||||||||
Real Estate Finance | — | — | — | 2.8 | — | 2.8 | |||||||||||||||||
Business Capital | 45.6 | — | 45.6 | 53.2 | — | 53.2 | |||||||||||||||||
Total Commercial Banking | 198.8 | — | 198.8 | 190.8 | — | 190.8 | |||||||||||||||||
Consumer Banking | |||||||||||||||||||||||
Legacy Consumer Mortgages | 25.2 | — | 25.2 | 19.9 | — | 19.9 | |||||||||||||||||
Other Consumer Banking | 0.3 | — | 0.3 | 0.4 | — | 0.4 | |||||||||||||||||
Total Consumer Banking | 25.5 | — | 25.5 | 20.3 | — | 20.3 | |||||||||||||||||
Non-Strategic Portfolios | — | 12.2 | 12.2 | — | 9.8 | 9.8 | |||||||||||||||||
Total | $ | 224.3 | $ | 12.2 | $ | 236.5 | $ | 211.1 | $ | 9.8 | $ | 220.9 | |||||||||||
Repossessed assets and OREO | 45.6 | 54.6 | |||||||||||||||||||||
Total non-performing assets | $ | 282.1 | $ | 275.5 | |||||||||||||||||||
Commercial loans past due 90 days or more accruing | $ | 9.9 | $ | 11.7 | |||||||||||||||||||
Consumer loans past due 90 days or more accruing | 17.1 | 20.2 | |||||||||||||||||||||
Total Accruing loans past due 90 days or more | $ | 27.0 | $ | 31.9 |
(1) | Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual loan balances; however factored receivables are considered for credit provisioning purposes. |
Payments received on non-accrual financing receivablesloans are generally applied first against outstanding principal, though in certain instances where the remaining recorded investment is deemed fully collectible, interest income is recognized on a cash basis. Reverse mortgages are not included in the non-accrual balances.
The table below summarizes the residential mortgage loans in the process of foreclosure and OREO:
Loans in Process of Foreclosure and OREO (dollars in millions)(1)
September 30, 2018 |
|
| December 31, 2017 |
| |||
PCI | $ | 133.4 |
|
| $ | 133.7 |
|
Non-PCI |
| 21.1 |
|
|
| 140.9 |
|
Loans in process of foreclosure | $ | 154.5 |
|
| $ | 274.6 |
|
OREO | $ | 32.3 |
|
| $ | 52.1 |
|
Loans in Process of Foreclosure and OREO (dollars in millions)(1) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
PCI | $ | 134.5 | $ | 133.7 | |||
Non-PCI | 138.2 | 140.9 | |||||
Loans in process of foreclosure | $ | 272.7 | $ | 274.6 | |||
OREO | $ | 43.1 | $ | 52.1 |
(1) | As of |
Impaired Loans
The following table contains information about impaired loans and the related allowance for loan losses by class. Impaired loans exclude PCI loans. Loans that were identified as impaired at the date of the OneWest Transaction (the “Acquisition Date”) for which the Company is applying the income recognition and disclosure guidance in ASC 310-30 (
Loans and Debt Securities Acquired with Deteriorated Credit Quality), are not included in the following table but are disclosed further below in Loans Acquired with Deteriorated Credit Quality.19
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Impaired Loans (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
| Average Recorded Investment(3) |
| |||||||||||||
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Quarter Ended September 30, 2018 |
|
| Quarter Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2017 |
| |||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 127.0 |
|
| $ | 153.2 |
|
| $ | — |
|
| $ | 93.2 |
|
| $ | 64.5 |
|
| $ | 82.3 |
|
| $ | 61.9 |
|
Business Capital |
| 17.1 |
|
|
| 18.1 |
|
|
| — |
|
|
| 12.6 |
|
|
| 3.4 |
|
|
| 11.9 |
|
|
| 4.2 |
|
Real Estate Finance |
| 2.3 |
|
|
| 2.4 |
|
|
| — |
|
|
| 2.4 |
|
|
| 0.3 |
|
|
| 1.2 |
|
|
| 0.5 |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 95.9 |
|
|
| 103.9 |
|
|
| 40.0 |
|
|
| 120.2 |
|
|
| 154.8 |
|
|
| 102.8 |
|
|
| 146.8 |
|
Business Capital |
| 7.7 |
|
|
| 7.7 |
|
|
| 3.3 |
|
|
| 9.1 |
|
|
| 13.1 |
|
|
| 9.2 |
|
|
| 15.1 |
|
Real Estate Finance |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.8 |
|
|
| 0.7 |
|
|
| 6.3 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 0.5 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.3 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
Total Impaired Loans(1) |
| 250.5 |
|
|
| 285.8 |
|
|
| 43.7 |
|
|
| 237.8 |
|
|
| 238.9 |
|
|
| 208.2 |
|
|
| 234.8 |
|
Total Loans Impaired at Acquisition Date(2) |
| 1,758.9 |
|
|
| 2,583.4 |
|
|
| 17.4 |
|
|
| 1,796.2 |
|
|
| 2,125.5 |
|
|
| 1,863.2 |
|
|
| 2,220.7 |
|
Total | $ | 2,009.4 |
|
| $ | 2,869.2 |
|
| $ | 61.1 |
|
| $ | 2,034.0 |
|
| $ | 2,364.4 |
|
| $ | 2,071.4 |
|
| $ | 2,455.5 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 51.9 |
|
| $ | 72.7 |
|
| $ | — |
|
| $ | 59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Capital |
| 11.7 |
|
|
| 13.4 |
|
|
| — |
|
|
| 5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Finance |
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 95.9 |
|
|
| 96.1 |
|
|
| 21.3 |
|
|
| 136.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Capital |
| 10.5 |
|
|
| 10.5 |
|
|
| 4.3 |
|
|
| 14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Finance |
| 2.7 |
|
|
| 2.8 |
|
|
| 0.4 |
|
|
| 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans(1) |
| 172.7 |
|
|
| 195.5 |
|
|
| 26.0 |
|
|
| 222.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Impaired at Acquisition Date(2) |
| 1,961.4 |
|
|
| 2,870.2 |
|
|
| 19.1 |
|
|
| 2,168.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 2,134.1 |
|
| $ | 3,065.7 |
|
| $ | 45.1 |
|
| $ | 2,391.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans (dollars in millions) | |||||||||||||||||||
Average Recorded Investment(3) | |||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Quarter Ended March 31, 2018 | Quarter Ended March 31, 2017 | |||||||||||||||
March 31, 2018 | |||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||
Commercial Banking | |||||||||||||||||||
Commercial Finance | $ | 90.6 | $ | 136.7 | $ | — | $ | 71.3 | $ | 59.4 | |||||||||
Business Capital | 10.9 | 13.0 | — | 11.3 | 4.9 | ||||||||||||||
Real Estate Finance | — | — | — | — | 0.7 | ||||||||||||||
With an allowance recorded: | |||||||||||||||||||
Commercial Banking | |||||||||||||||||||
Commercial Finance | 74.8 | 80.3 | 21.4 | 85.3 | 138.9 | ||||||||||||||
Business Capital | 7.9 | 7.9 | 3.9 | 9.2 | 17.2 | ||||||||||||||
Real Estate Finance | — | — | — | 1.4 | 9.8 | ||||||||||||||
Total Impaired Loans(1) | 184.2 | 237.9 | 25.3 | 178.5 | 230.9 | ||||||||||||||
Total Loans Impaired at Acquisition Date(2) | 1,899.0 | 2,778.5 | 19.2 | 1,930.2 | 2,316.0 | ||||||||||||||
Total | $ | 2,083.2 | $ | 3,016.4 | $ | 44.5 | $ | 2,108.7 | $ | 2,546.9 | |||||||||
December 31, 2017 | |||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||
Commercial Banking | |||||||||||||||||||
Commercial Finance | $ | 51.9 | $ | 72.7 | $ | — | $ | 59.9 | |||||||||||
Business Capital | 11.7 | 13.4 | — | 5.7 | |||||||||||||||
Real Estate Finance | — | — | — | 0.4 | |||||||||||||||
With an allowance recorded: | |||||||||||||||||||
Commercial Banking | |||||||||||||||||||
Commercial Finance | 95.9 | 96.1 | 21.3 | 136.6 | |||||||||||||||
Business Capital | 10.5 | 10.5 | 4.3 | 14.2 | |||||||||||||||
Real Estate Finance | 2.7 | 2.8 | 0.4 | 5.6 | |||||||||||||||
Total Impaired Loans(1) | 172.7 | 195.5 | 26.0 | 222.4 | |||||||||||||||
Total Loans Impaired at Acquisition Date(2) | 1,961.4 | 2,870.2 | 19.1 | 2,168.8 | |||||||||||||||
Total | $ | 2,134.1 | $ | 3,065.7 | $ | 45.1 | $ | 2,391.2 |
(1) | Interest income recorded for the quarter and nine months ended |
(2) | Details of finance loans that were identified as impaired at the Acquisition Date are presented under Loans Acquired with Deteriorated Credit Quality. |
(3) | Average recorded investment for the quarters and nine months ended |
Loans Acquired with Deteriorated Credit Quality
The Company applied the income recognition and disclosure guidance in ASC 310-30 (
Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans that were identified as20
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Purchased Credit Impaired Loans (dollars in millions)
September 30, 2018 | Unpaid Principal Balance |
|
| Carrying Value |
|
| Allowance for Loan Losses |
| |||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 10.2 |
|
| $ | 5.9 |
|
| $ | 0.5 |
|
Real Estate Finance |
| 43.2 |
|
|
| 36.2 |
|
|
| 9.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 2.6 |
|
|
| 2.1 |
|
|
| — |
|
Legacy Consumer Mortgages |
| 2,527.4 |
|
|
| 1,714.7 |
|
|
| 7.8 |
|
| $ | 2,583.4 |
|
| $ | 1,758.9 |
|
| $ | 17.4 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 16.4 |
|
| $ | 10.6 |
|
| $ | 0.7 |
|
Real Estate Finance |
| 60.1 |
|
|
| 45.1 |
|
|
| 7.0 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 3.0 |
|
|
| 2.2 |
|
|
| — |
|
Legacy Consumer Mortgages |
| 2,790.7 |
|
|
| 1,903.5 |
|
|
| 11.4 |
|
| $ | 2,870.2 |
|
| $ | 1,961.4 |
|
| $ | 19.1 |
|
Purchased Credit Impaired Loans (dollars in millions) | |||||||||||
March 31, 2018 | Unpaid Principal Balance | Carrying Value | Allowance for Loan Losses | ||||||||
Commercial Banking | |||||||||||
Commercial Finance | $ | 16.3 | $ | 10.4 | $ | 0.8 | |||||
Real Estate Finance | 49.4 | 39.2 | 7.0 | ||||||||
Consumer Banking | |||||||||||
Other Consumer Banking | 2.8 | 2.2 | — | ||||||||
Legacy Consumer Mortgages | 2,710.0 | 1,847.2 | 11.4 | ||||||||
$ | 2,778.5 | $ | 1,899.0 | $ | 19.2 | ||||||
December 31, 2017 | |||||||||||
Commercial Banking | |||||||||||
Commercial Finance | $ | 16.4 | $ | 10.6 | $ | 0.7 | |||||
Real Estate Finance | 60.1 | 45.1 | 7.0 | ||||||||
Consumer Banking | |||||||||||
Other Consumer Banking | 3.0 | 2.2 | — | ||||||||
Legacy Consumer Mortgages | 2,790.7 | 1,903.5 | 11.4 | ||||||||
$ | 2,870.2 | $ | 1,961.4 | $ | 19.1 |
The following table summarizes the carrying value of commercial PCI loans, within Commercial Banking, which are monitored for credit quality based on internal risk classifications. See previous table Consumer Loan LTV Distribution for credit quality metrics on consumer PCI loans.
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
(dollars in millions) | Non- criticized |
|
| Criticized |
|
| Total |
|
| Non- criticized |
|
| Criticized |
|
| Total |
| ||||||
Commercial Finance | $ | — |
|
| $ | 5.9 |
|
| $ | 5.9 |
|
| $ | — |
|
| $ | 10.6 |
|
| $ | 10.6 |
|
Real Estate Finance |
| 14.4 |
|
|
| 21.8 |
|
|
| 36.2 |
|
|
| 21.8 |
|
|
| 23.3 |
|
|
| 45.1 |
|
Total | $ | 14.4 |
|
| $ | 27.7 |
|
| $ | 42.1 |
|
| $ | 21.8 |
|
| $ | 33.9 |
|
| $ | 55.7 |
|
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
(dollars in millions) | Non- criticized | Criticized | Total | Non- criticized | Criticized | Total | |||||||||||||||||
Commercial Finance | $ | — | $ | 10.4 | $ | 10.4 | $ | — | $ | 10.6 | $ | 10.6 | |||||||||||
Real Estate Finance | 20.4 | 18.8 | 39.2 | 21.8 | 23.3 | 45.1 | |||||||||||||||||
Total | $ | 20.4 | $ | 29.2 | $ | 49.6 | $ | 21.8 | $ | 33.9 | $ | 55.7 |
Non-criticized loans generally include loans that are expected to be repaid in accordance with contractual loan terms. Criticized loans are risk rated as special mention or classified.
Accretable Yield
See the recorded investment (estimated fair value at acquisition) of the PCI loans represents the accretable yield and is recognized in interest income on an effective yield basis over the remaining life of the loan, or pools of loans. The accretable yield is adjusted for changes in interest rate indices for variable rate PCI loans, changes in prepayment assumptions and changes in expected principal and interest payments and collateral values. Further, if a loan within a pool of loans is modified, the modified loan remains part of the pool of loans.
Changes in the accretable yield for PCI loans are summarized below.
Change in Accretable Yield (dollars in millions)
Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Balance, beginning of period | $ | 972.8 |
|
| $ | 1,176.0 |
|
| $ | 1,063.7 |
|
| $ | 1,261.4 |
|
Accretion into interest income |
| (40.4 | ) |
|
| (50.5 | ) |
|
| (126.0 | ) |
|
| (156.8 | ) |
Reclassification from non-accretable difference |
| 13.9 |
|
|
| 3.6 |
|
|
| 14.7 |
|
|
| 37.3 |
|
Disposals and Other |
| (1.4 | ) |
|
| (12.2 | ) |
|
| (7.5 | ) |
|
| (25.0 | ) |
Balance, end of period | $ | 944.9 |
|
| $ | 1,116.9 |
|
| $ | 944.9 |
|
| $ | 1,116.9 |
|
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Balance, beginning of period | $ | 1,063.7 | $ | 1,261.4 | |||
Accretion into interest income | (44.0 | ) | (52.6 | ) | |||
Reclassification from non-accretable difference | 0.5 | 33.4 | |||||
Disposals and Other | (3.9 | ) | (8.5 | ) | |||
Balance, end of period | $ | 1,016.3 | $ | 1,233.7 |
Troubled Debt Restructuring
The Company periodically modifies the terms of loans in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs).TDRs. See the Company's Annual Report on2017 Form 10-K for the year ended December 31, 2017 for discussion of policies on TDRs.
At March 31,September 30, 2018, the loans in trial modification period were $7.9 millioninsignificant under proprietary programs. Trial modifications with a recorded investment of $7.7 million at March 31, 2018 were accruing loans and $0.2 million were non-accruing loans. At December 31, 2017, the loans in trial modification period were $0.3 million under the Home Affordable Modification Program ("HAMP")HAMP and $12.2 million under proprietary programs. Trial modifications with a recorded investment of $12.3 million at
The recorded investment of TDRs, excluding those classified as PCI and those within a trial modification period discussed in the preceding paragraph, at March 31,September 30, 2018 and December 31, 2017 was $94.4$84.6 million and $103.5 million, of which 61%62% and 63%, respectively, were on non-accrual. See the preceding paragraph on discussion related to TDRs in a trial modification period. Commercial Banking and Consumer Banking receivables accounted for 81%80% and 19%20% of the total TDRs, respectively, at March 31,September 30, 2018. Commercial Banking and Consumer Banking receivables accounted for 83.0%83% and 17.0%17% of the total TDRs, respectively at December 31, 2017. There were $15.7$14.8 million and $13.4 million as of March 31,September 30, 2018 and December 31, 2017, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.
21
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The recorded investment related to modifications qualifying as TDRs that occurred during the quarters ended March 31,September 30, 2018 and 2017 were $36.5$13.1 million and $34.1$39.0 million and $60.9 million and $129.7 million for the nine months ended September 30, 2018 and 2017, respectively. The recorded investment as of March 31,September 30, 2018 and 2017 of TDRs that experienced a payment default (payment default is one missed payment), during the quarters ended March 31,September 30, 2018 and 2017, and for which the payment default occurred within one year of the modification totaled $1.6$0.4 million and $1.2$7.5 million, respectively. The defaults that occurred duringrespectively, and $2.4 million and $72.0 million for the current quarter related to Commercial Bankingnine months ended September 30, 2018 and Consumer Banking, 74% and 26%,2017, respectively.
The financial impact of the various modification strategies that the Company employs in response to borrower difficulties is described below. While the discussion focuses on the March 31,September 30, 2018 amounts, the overall nature and impact of modification programs were comparable in the prior year.
▪ | |
The nature of modifications qualifying as |
▪ | |
Payment deferrals result in lower net present value of cash flows, if not accompanied by additional interest or fees, and increased provision for credit losses to the extent applicable. The financial impact of these modifications is not significant given the moderate length of deferral periods. |
▪ | |
Interest rate reductions result in lower amounts of interest being charged to the customer, but are a relatively small part of the Company’s restructuring programs. The weighted average change in interest rates for all TDRs occurring during the quarters ended |
▪ | |
Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form of higher charge-offs. While these types of modifications have the greatest individual impact on the allowance, the amounts of principal forgiveness for TDRs occurring during quarters ended |
▪ | |
The other elements of the Company’s modification programs that are not TDRs, do not have a significant impact on financial results given their relative size, or do not have a direct financial impact, as in the case of covenant changes. |
22
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company maintains an allowance for loan losses for estimated credit losses in its HFI loan portfolio.
Allowance for Loan Losses and Recorded Investment in Loans (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| Total |
|
| Commercial Banking |
|
| Consumer Banking |
|
| Total |
| ||||||
| Quarter Ended September 30, 2018 |
|
| Quarter Ended September 30, 2017 |
| ||||||||||||||||||
Balance - beginning of period | $ | 437.8 |
|
| $ | 29.5 |
|
| $ | 467.3 |
|
| $ | 397.7 |
|
| $ | 28.3 |
|
| $ | 426.0 |
|
Provision for credit losses |
| 39.0 |
|
|
| (0.9 | ) |
|
| 38.1 |
|
|
| 11.1 |
|
|
| 19.0 |
|
|
| 30.1 |
|
Other(1) |
| (1.9 | ) |
|
| (0.1 | ) |
|
| (2.0 | ) |
|
| 4.8 |
|
|
| 0.3 |
|
|
| 5.1 |
|
Gross charge-offs(2) |
| (29.4 | ) |
|
| (1.4 | ) |
|
| (30.8 | ) |
|
| (27.7 | ) |
|
| (20.5 | ) |
|
| (48.2 | ) |
Recoveries |
| 4.7 |
|
|
| 0.1 |
|
|
| 4.8 |
|
|
| 6.0 |
|
|
| 0.5 |
|
|
| 6.5 |
|
Balance - end of period | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2017 |
| ||||||||||||||||||
Balance - beginning of period | $ | 402.2 |
|
| $ | 28.9 |
|
| $ | 431.1 |
|
| $ | 408.4 |
|
| $ | 24.2 |
|
| $ | 432.6 |
|
Provision for credit losses |
| 139.4 |
|
|
| 0.4 |
|
|
| 139.8 |
|
|
| 60.1 |
|
|
| 24.1 |
|
|
| 84.2 |
|
Other(1) |
| (2.2 | ) |
|
| (0.1 | ) |
|
| (2.3 | ) |
|
| (0.5 | ) |
|
| 0.1 |
|
|
| (0.4 | ) |
Gross charge-offs(2) |
| (108.6 | ) |
|
| (2.7 | ) |
|
| (111.3 | ) |
|
| (92.4 | ) |
|
| (22.0 | ) |
|
| (114.4 | ) |
Recoveries |
| 19.4 |
|
|
| 0.7 |
|
|
| 20.1 |
|
|
| 16.3 |
|
|
| 1.2 |
|
|
| 17.5 |
|
Balance - end of period | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
| Allowance balance at September 30, 2018 |
|
| Allowance balance at September 30, 2017 |
| ||||||||||||||||||
Loans individually evaluated for impairment | $ | 43.3 |
|
| $ | 0.4 |
|
| $ | 43.7 |
|
| $ | 35.6 |
|
| $ | - |
|
| $ | 35.6 |
|
Loans collectively evaluated for impairment |
| 397.3 |
|
|
| 19.0 |
|
|
| 416.3 |
|
|
| 347.0 |
|
|
| 16.1 |
|
|
| 363.1 |
|
Loans acquired with deteriorated credit quality(3) |
| 9.6 |
|
|
| 7.8 |
|
|
| 17.4 |
|
|
| 9.3 |
|
|
| 11.5 |
|
|
| 20.8 |
|
Allowance for loan losses | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
Other reserves(1) | $ | 46.8 |
|
| $ | - |
|
| $ | 46.8 |
|
| $ | 44.2 |
|
| $ | - |
|
| $ | 44.2 |
|
| Loans at September 30, 2018 |
|
| Loans at September 30, 2017 |
| ||||||||||||||||||
Loans individually evaluated for impairment | $ | 250.0 |
|
| $ | 0.5 |
|
| $ | 250.5 |
|
| $ | 246.2 |
|
| $ | - |
|
| $ | 246.2 |
|
Loans collectively evaluated for impairment |
| 23,803.6 |
|
|
| 4,682.8 |
|
|
| 28,486.4 |
|
|
| 22,380.6 |
|
|
| 3,832.1 |
|
|
| 26,212.7 |
|
Loans acquired with deteriorated credit quality(3) |
| 42.1 |
|
|
| 1,716.8 |
|
|
| 1,758.9 |
|
|
| 65.8 |
|
|
| 1,980.6 |
|
|
| 2,046.4 |
|
Ending balance | $ | 24,095.7 |
|
| $ | 6,400.1 |
|
| $ | 30,495.8 |
|
| $ | 22,692.6 |
|
| $ | 5,812.7 |
|
| $ | 28,505.3 |
|
Percent of loans to total loans |
| 79.0 | % |
|
| 21.0 | % |
|
| 100.0 | % |
|
| 79.6 | % |
|
| 20.4 | % |
|
| 100.0 | % |
Allowance for Loan Losses and Recorded Investment in Loans (dollars in millions) | |||||||||||||||||||||||
Commercial Banking | Consumer Banking | Total | Commercial Banking | Consumer Banking | Total | ||||||||||||||||||
Quarter Ended March 31, 2018 | Quarter Ended March 31, 2017 | ||||||||||||||||||||||
Balance - beginning of period | $ | 402.2 | $ | 28.9 | $ | 431.1 | $ | 408.4 | $ | 24.2 | $ | 432.6 | |||||||||||
Provision for credit losses | 67.2 | 1.6 | 68.8 | 49.2 | 0.5 | 49.7 | |||||||||||||||||
Other(1) | (2.4 | ) | — | (2.4 | ) | (6.2 | ) | — | (6.2 | ) | |||||||||||||
Gross charge-offs(2) | (54.6 | ) | (0.5 | ) | (55.1 | ) | (32.4 | ) | (0.6 | ) | (33.0 | ) | |||||||||||
Recoveries | 4.8 | 0.4 | 5.2 | 5.0 | 0.5 | 5.5 | |||||||||||||||||
Balance - end of period | $ | 417.2 | $ | 30.4 | $ | 447.6 | $ | 424.0 | $ | 24.6 | $ | 448.6 | |||||||||||
Allowance balance at March 31, 2018 | Allowance balance at March 31, 2017 | ||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 25.3 | $ | — | $ | 25.3 | $ | 39.5 | $ | — | $ | 39.5 | |||||||||||
Loans collectively evaluated for impairment | 384.1 | 19.0 | 403.1 | 376.8 | 17.5 | 394.3 | |||||||||||||||||
Loans acquired with deteriorated credit quality(3) | 7.8 | 11.4 | 19.2 | 7.7 | 7.1 | 14.8 | |||||||||||||||||
Allowance for loan losses | $ | 417.2 | $ | 30.4 | $ | 447.6 | $ | 424.0 | $ | 24.6 | $ | 448.6 | |||||||||||
Other reserves(1) | $ | 46.9 | $ | — | $ | 46.9 | $ | 49.9 | $ | — | $ | 49.9 | |||||||||||
Loans at March 31, 2018 | Loans at March 31, 2017 | ||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 184.2 | $ | — | $ | 184.2 | $ | 240.1 | $ | — | $ | 240.1 | |||||||||||
Loans collectively evaluated for impairment | 23,112.1 | 4,258.3 | 27,370.4 | 22,530.7 | 4,638.6 | 27,169.3 | |||||||||||||||||
Loans acquired with deteriorated credit quality(3) | 49.6 | 1,849.4 | 1,899.0 | 107.8 | 2,174.2 | 2,282.0 | |||||||||||||||||
Ending balance | $ | 23,345.9 | $ | 6,107.7 | $ | 29,453.6 | $ | 22,878.6 | $ | 6,812.8 | $ | 29,691.4 | |||||||||||
Percent of loans to total loans | 79.3 | % | 20.7 | % | 100 | % | 77.1 | % | 22.9 | % | 100 | % |
(1) | “ |
(2) | Gross charge-offs of amounts specifically reserved in prior periods that were charged directly to the Allowance for loan losses included |
(3) | Represents loans considered impaired as part of the OneWest transaction and are accounted for under the guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality). |
NOTE 5 — INVESTMENT SECURITIES
Investments include debt and equity securities.
Investment Securities (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Available for sale securities |
|
|
|
|
|
|
|
Debt securities | $ | 6,053.5 |
|
| $ | 6,123.6 |
|
Securities carried at fair value with changes recorded in net income |
|
|
|
|
|
|
|
Debt securities |
| — |
|
|
| 0.4 |
|
Equity securities(1) |
| 44.0 |
|
|
| 44.7 |
|
Non-marketable investments(2) |
| 242.0 |
|
|
| 301.2 |
|
Total investment securities | $ | 6,339.5 |
|
| $ | 6,469.9 |
|
(1) | Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, these investments were reclassified from available for sale securities category and the presentation of equity securities as of December 31, 2017 is conformed accordingly. For details refer to Note 1 — Business and Summary of Significant Accounting Policies. |
(2) | Non-marketable investments include restricted stock of the FRB and Federal Home Loan Bank ("FHLB") carried at cost of $228.4 million at September 30, 2018, and $258.9 million at December 31, 2017. The remaining non-marketable investments without readily determinable fair values measured under the measurement exception totaled $13.6 million as of September 30, 2018. As of December 31, 2017, the remaining non-marketable investments of $42.3 million included $31.6 million of ownership interests greater than 3% in limited partnership investments including qualified Community Reinvestment Act ("CRA") investments, equity fund holdings and shares issued by customers during loan work out situations or as part of original loan investments and other equity investments without readily determinable fair values measured under the measurement exception of $10.7 million. |
Investment Securities (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Available-for-sale securities | |||||||
Debt securities | $ | 5,564.1 | $ | 6,123.6 | |||
Securities carried at fair value with changes recorded in net income | |||||||
Debt securities | — | 0.4 | |||||
Equity securities(1) | 44.1 | 44.7 | |||||
Non-marketable investments(2) | 302.3 | 301.2 | |||||
Total investment securities | $ | 5,910.5 | $ | 6,469.9 |
23
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Realized investment gains totaled $6.2$4.0 million and $1.6$4.1 million for the quarters ended March 31,September 30, 2018 and 2017, respectively, and $12.3 million and $4.6 million for the nine months ended September 30, 2018 and 2017, respectively, and exclude losses from OTTI.
In addition, the Company had $3.9$1.2 billion and $1.4 billion of interest bearing deposits at banks at March 31,September 30, 2018 and
December 31, 2017, respectively, which are cash and cash equivalents and are classified separately on the balance sheet.
The following table presents interest and dividends on interest bearing deposits and investments:
Interest and Dividend Income (dollars in millions)
| Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Interest income — debt securities(1) | $ | 41.6 |
|
| $ | 35.5 |
|
| $ | 120.9 |
|
| $ | 93.8 |
|
Interest income — interest bearing deposits |
| 11.7 |
|
|
| 12.5 |
|
|
| 34.7 |
|
|
| 48.9 |
|
Dividends — equity securities |
| 2.9 |
|
|
| 2.5 |
|
|
| 9.0 |
|
|
| 8.3 |
|
Total interest and dividends | $ | 56.2 |
|
| $ | 50.5 |
|
| $ | 164.6 |
|
| $ | 151.0 |
|
(1) | Includes interest income on securities purchased under agreement to resell |
Interest and Dividend Income (dollars in millions) | |||||||
Quarters Ended March 31, | |||||||
2018 | 2017 | ||||||
Interest income — debt securities | $ | 40.5 | $ | 27.8 | |||
Interest income — interest bearing deposits | 7.0 | 12.5 | |||||
Dividends — equity securities | 2.8 | 3.3 | |||||
Total interest and dividends | $ | 50.3 | $ | 43.6 |
TheThe following table presents amortized cost and fair value of securities available for sale (“AFS”).
Amortized Cost and Fair Value (dollars in millions)
September 30, 2018 | Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,300.3 |
|
| $ | 0.3 |
|
| $ | (191.2 | ) |
| $ | 5,109.4 |
|
Non-agency securities |
| 36.6 |
|
|
| 3.4 |
|
|
| — |
|
|
| 40.0 |
|
Commercial agency |
| 158.0 |
|
|
| 0.1 |
|
|
| (0.6 | ) |
|
| 157.5 |
|
U.S. government agency obligations |
| 25.0 |
|
|
| — |
|
|
| (0.7 | ) |
|
| 24.3 |
|
U.S. Treasury securities |
| 603.4 |
|
|
| — |
|
|
| (8.6 | ) |
|
| 594.8 |
|
Supranational securities |
| 50.0 |
|
|
| — |
|
|
| (0.9 | ) |
|
| 49.1 |
|
State & municipal bonds |
| 11.9 |
|
|
| — |
|
|
| (0.6 | ) |
|
| 11.3 |
|
Corporate bonds - foreign |
| 65.8 |
|
|
| 1.3 |
|
|
| — |
|
|
| 67.1 |
|
Total debt securities AFS | $ | 6,251.0 |
|
| $ | 5.1 |
|
| $ | (202.6 | ) |
| $ | 6,053.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,010.2 |
|
| $ | 2.1 |
|
| $ | (62.1 | ) |
| $ | 4,950.2 |
|
Non-agency securities |
| 297.3 |
|
|
| 21.7 |
|
|
| (0.5 | ) |
|
| 318.5 |
|
U.S. government agency obligations |
| 25.0 |
|
|
| — |
|
|
| (0.2 | ) |
|
| 24.8 |
|
U.S. Treasury securities |
| 297.7 |
|
|
| 0.2 |
|
|
| (0.2 | ) |
|
| 297.7 |
|
Supranational securities |
| 449.8 |
|
|
| — |
|
|
| (0.3 | ) |
|
| 449.5 |
|
State & municipal bonds |
| 16.2 |
|
|
| — |
|
|
| (0.4 | ) |
|
| 15.8 |
|
Corporate bonds - foreign |
| 65.7 |
|
|
| 1.4 |
|
|
| — |
|
|
| 67.1 |
|
Total debt securities AFS | $ | 6,161.9 |
|
| $ | 25.4 |
|
| $ | (63.7 | ) |
| $ | 6,123.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost and Fair Value (dollars in millions) | |||||||||||||||
March 31, 2018 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
Debt securities AFS | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. government agency securities | $ | 4,865.4 | $ | 0.4 | $ | (139.4 | ) | $ | 4,726.4 | ||||||
Non-agency securities | 225.6 | 18.4 | — | 244.0 | |||||||||||
U.S. government agency obligations | 25.0 | — | (0.4 | ) | 24.6 | ||||||||||
U.S. Treasury securities | 443.7 | — | (4.4 | ) | 439.3 | ||||||||||
Supranational securities | 49.9 | — | (0.7 | ) | 49.2 | ||||||||||
State & municipal bonds | 13.6 | — | (0.3 | ) | 13.3 | ||||||||||
Corporate bonds - foreign | 65.7 | 1.6 | — | 67.3 | |||||||||||
Total debt securities AFS | $ | 5,688.9 | $ | 20.4 | $ | (145.2 | ) | $ | 5,564.1 | ||||||
December 31, 2017 | |||||||||||||||
Debt securities AFS | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. government agency securities | $ | 5,010.2 | $ | 2.1 | $ | (62.1 | ) | $ | 4,950.2 | ||||||
Non-agency securities | 297.3 | 21.7 | (0.5 | ) | 318.5 | ||||||||||
U.S. government agency obligations | 25.0 | — | (0.2 | ) | 24.8 | ||||||||||
U.S. Treasury securities | 297.7 | 0.2 | (0.2 | ) | 297.7 | ||||||||||
Supranational securities | 449.8 | — | (0.3 | ) | 449.5 | ||||||||||
State & municipal bonds | 16.2 | — | (0.4 | ) | 15.8 | ||||||||||
Corporate bonds - foreign | 65.7 | 1.4 | — | 67.1 | |||||||||||
Total debt securities AFS | 6,161.9 | 25.4 | (63.7 | ) | 6,123.6 | ||||||||||
Equity securities AFS | 45.8 | — | (1.1 | ) | 44.7 | ||||||||||
Total securities AFS | $ | 6,207.7 | $ | 25.4 | $ | (64.8 | ) | $ | 6,168.3 |
24
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the debt securities AFS by contractual maturity dates:
Maturities - Debt Securities AFS (dollars in millions)
| September 30, 2018 |
| |||||||||
| Amortized Cost |
|
| Fair Value |
|
| Weighted Average Yield |
| |||
Mortgage-backed securities — U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years | $ | 222.0 |
|
| $ | 215.2 |
|
|
| 2.23 | % |
Due after 10 years |
| 5,078.3 |
|
|
| 4,894.2 |
|
|
| 2.68 | % |
Total |
| 5,300.3 |
|
|
| 5,109.4 |
|
|
| 2.66 | % |
Mortgage-backed securities — Non-agency securities |
|
|
|
|
|
|
|
|
|
|
|
Due after 10 years |
| 36.6 |
|
|
| 40.0 |
|
|
| 6.99 | % |
Total |
| 36.6 |
|
|
| 40.0 |
|
|
| 6.99 | % |
Mortgage-backed securities — Commercial agency |
|
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years |
| 138.1 |
|
|
| 137.5 |
|
|
| 3.24 | % |
Due after 10 years |
| 19.9 |
|
|
| 20.0 |
|
|
| 2.42 | % |
Total |
| 158.0 |
|
|
| 157.5 |
|
|
| 3.14 | % |
U.S. government agency obligations |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 25.0 |
|
|
| 24.3 |
|
|
| 2.26 | % |
Total |
| 25.0 |
|
|
| 24.3 |
|
|
| 2.26 | % |
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year |
| 403.5 |
|
|
| 403.4 |
|
|
| 1.91 | % |
After 1 but within 5 years |
| 4.0 |
|
|
| 4.0 |
|
|
| 2.53 | % |
After 5 but within 10 years |
| 195.9 |
|
|
| 187.4 |
|
|
| 2.51 | % |
Total |
| 603.4 |
|
|
| 594.8 |
|
|
| 2.11 | % |
Supranational securities |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 50.0 |
|
|
| 49.1 |
|
|
| 2.02 | % |
Total |
| 50.0 |
|
|
| 49.1 |
|
|
| 2.02 | % |
State & municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year |
| 0.1 |
|
|
| 0.1 |
|
|
| 2.55 | % |
After 5 but within 10 years |
| 0.2 |
|
|
| 0.2 |
|
|
| 2.70 | % |
Due after 10 years |
| 11.6 |
|
|
| 11.0 |
|
|
| 2.40 | % |
Total |
| 11.9 |
|
|
| 11.3 |
|
|
| 2.41 | % |
Corporate bonds - foreign |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 65.8 |
|
|
| 67.1 |
|
|
| 6.11 | % |
Total |
| 65.8 |
|
|
| 67.1 |
|
|
| 6.11 | % |
Total debt securities AFS | $ | 6,251.0 |
|
| $ | 6,053.5 |
|
|
| 2.68 | % |
Maturities - Debt Securities AFS (dollars in millions) | ||||||||||
March 31, 2018 | ||||||||||
Amortized Cost | Fair Value | Weighted Average Yield | ||||||||
Mortgage-backed securities — U.S. government agency securities | ||||||||||
After 5 but within 10 years | $ | 172.3 | $ | 168.6 | 2.12 | % | ||||
Due after 10 years | 4,693.1 | 4,557.8 | 2.56 | % | ||||||
Total | 4,865.4 | 4,726.4 | 2.54 | % | ||||||
Mortgage-backed securities — non-agency securities | ||||||||||
After 1 but within 5 years | 12.0 | 12.1 | 5.16 | % | ||||||
After 5 but within 10 years | 5.3 | 5.7 | 4.68 | % | ||||||
Due after 10 years | 208.3 | 226.2 | 5.83 | % | ||||||
Total | 225.6 | 244.0 | 5.76 | % | ||||||
U.S. government agency obligations | ||||||||||
After 1 but within 5 years | 25.0 | 24.6 | 2.26 | % | ||||||
Total | 25.0 | 24.6 | 2.26 | % | ||||||
U.S. Treasury securities | ||||||||||
Due within 1 year | 248.1 | 247.8 | 1.53 | % | ||||||
After 5 but within 10 years | 195.6 | 191.5 | 2.51 | % | ||||||
Total | 443.7 | 439.3 | 1.96 | % | ||||||
Supranational securities | ||||||||||
After 1 but within 5 years | 49.9 | 49.2 | 2.02 | % | ||||||
Total | 49.9 | 49.2 | 2.02 | % | ||||||
State & municipal bonds | ||||||||||
Due within 1 year | 0.1 | 0.1 | 2.36 | % | ||||||
After 1 but within 5 years | 0.1 | 0.1 | 2.56 | % | ||||||
After 5 but within 10 years | 0.3 | 0.3 | 2.70 | % | ||||||
Due after 10 years | 13.1 | 12.8 | 2.38 | % | ||||||
Total | 13.6 | 13.3 | 2.39 | % | ||||||
Corporate bonds - foreign | ||||||||||
After 1 but within 5 years | 65.7 | 67.3 | 6.11 | % | ||||||
Total | 65.7 | 67.3 | 6.11 | % | ||||||
Total debt securities AFS | $ | 5,688.9 | $ | 5,564.1 | 2.66 | % |
At March 31,September 30, 2018 and December 31, 2017, certain securities AFS arewere in unrealized loss positions. The following table summarizes by investment category the gross unrealized losses, respective fair value and length of time that those securities have been in a continuous unrealized loss position.
Gross Unrealized Loss (dollars in millions)
| September 30, 2018 |
| |||||||||||||
| Less than 12 months |
|
| 12 months or greater |
| ||||||||||
| Fair Value |
|
| Gross Unrealized Loss |
|
| Fair Value |
|
| Gross Unrealized Loss |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 3,118.8 |
|
| $ | (88.0 | ) |
| $ | 1,907.7 |
|
| $ | (103.2 | ) |
Commercial agency |
| 114.8 |
|
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
U.S. government agency obligations |
| — |
|
|
| — |
|
|
| 24.3 |
|
|
| (0.7 | ) |
U.S. Treasury securities |
| 594.8 |
|
|
| (8.6 | ) |
|
| — |
|
|
| — |
|
State & municipal bonds |
| 2.1 |
|
|
| — |
|
|
| 9.2 |
|
|
| (0.6 | ) |
Supranational securities |
| 49.0 |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
Total debt securities AFS | $ | 3,879.5 |
|
| $ | (98.1 | ) |
| $ | 1,941.2 |
|
| $ | (104.5 | ) |
Gross Unrealized Loss (dollars in millions) | |||||||||||||||
March 31, 2018 | |||||||||||||||
Less than 12 months | 12 months or greater | ||||||||||||||
Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | ||||||||||||
Debt securities AFS | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. government agency securities | $ | 3,567.3 | $ | (82.3 | ) | $ | 1,133.7 | $ | (57.1 | ) | |||||
U.S. government agency obligations | 24.6 | (0.4 | ) | — | — | ||||||||||
U.S. Treasury securities | 439.3 | (4.4 | ) | — | — | ||||||||||
State & municipal bonds | 2.0 | — | 11.1 | (0.3 | ) | ||||||||||
Supranational securities | 49.2 | (0.7 | ) | — | — | ||||||||||
Total debt securities AFS | $ | 4,082.4 | $ | (87.8 | ) | $ | 1,144.8 | $ | (57.4 | ) |
25
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Gross Unrealized Losscontinued (dollars in millions)
| December 31, 2017 |
| |||||||||||||
| Less than 12 months |
|
| 12 months or greater |
| ||||||||||
| Fair Value |
|
| Gross Unrealized Loss |
|
| Fair Value |
|
| Gross Unrealized Loss |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 3,492.2 |
|
| $ | (30.9 | ) |
| $ | 1,151.4 |
|
| $ | (31.2 | ) |
Non-agency securities |
| 2.1 |
|
|
| — |
|
|
| 0.4 |
|
|
| (0.5 | ) |
U.S. government agency obligations |
| 24.8 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
U.S. Treasury securities |
| 199.1 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
State & municipal bonds |
| — |
|
|
| — |
|
|
| 13.6 |
|
|
| (0.4 | ) |
Supranational securities |
| 349.5 |
|
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
Total debt securities AFS | $ | 4,067.7 |
|
| $ | (31.6 | ) |
| $ | 1,165.4 |
|
| $ | (32.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | |||||||||||||||
Less than 12 months | 12 months or greater | ||||||||||||||
Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | ||||||||||||
Debt securities AFS | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. government agency securities | $ | 3,492.2 | $ | (30.9 | ) | $ | 1,151.4 | $ | (31.2 | ) | |||||
Non-agency securities | 2.1 | — | 0.4 | (0.5 | ) | ||||||||||
U.S. government agency obligations | 24.8 | (0.2 | ) | — | — | ||||||||||
U.S. Treasury securities | 199.1 | (0.2 | ) | — | — | ||||||||||
State & municipal bonds | — | — | 13.6 | (0.4 | ) | ||||||||||
Supranational securities | 349.5 | (0.3 | ) | — | — | ||||||||||
Total debt securities AFS | 4,067.7 | (31.6 | ) | 1,165.4 | (32.1 | ) | |||||||||
Equity securities AFS | 0.1 | (0.2 | ) | 44.5 | (0.9 | ) | |||||||||
Total securities available-for-sale | $ | 4,067.8 | $ | (31.8 | ) | $ | 1,209.9 | $ | (33.0 | ) |
Purchased Credit-Impaired AFS Securities
Changes in the accretable yield for PCI securities are summarized below for the quarter and nine months ended March 31,September 30, 2018 and 2017:2017, respectively:
Changes in Accretable Yield (dollars in millions)
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
Balance, beginning of period | $ | 30.0 |
|
| $ | 101.7 |
|
| $ | 152.0 |
|
| $ | 165.0 |
|
Accretion into interest income |
| (1.1 | ) |
|
| (7.7 | ) |
|
| (6.2 | ) |
|
| (19.1 | ) |
Reclassifications from non-accretable difference due to improving cash flows |
| - |
|
|
| 0.1 |
|
|
| - |
|
|
| 0.5 |
|
Reclassifications to non-accretable difference due to decreasing cash flows |
| - |
|
|
| (1.0 | ) |
|
| (0.2 | ) |
|
| (0.9 | ) |
Disposals |
| (15.4 | ) |
|
| (79.6 | ) |
|
| (9.8 | ) |
|
| (9.7 | ) |
Balance, end of period | $ | 13.5 |
|
| $ | 13.5 |
|
| $ | 135.8 |
|
| $ | 135.8 |
|
Changes in Accretable Yield (dollars in millions) | |||||||
Quarters Ended | |||||||
March 31, 2018 | March 31, 2017 | ||||||
Balance, beginning of period | $ | 101.7 | $ | 165.0 | |||
Accretion into interest income | (3.8 | ) | (6.5 | ) | |||
Reclassifications from non-accretable difference due to improving cash flows | 0.1 | 0.1 | |||||
Reclassifications to non-accretable difference due to decreasing cash flows | — | (0.5 | ) | ||||
Disposals and other | (22.3 | ) | — | ||||
Balance, end of period | $ | 75.7 | $ | 158.1 |
The estimated fair value of PCI securities was $238.4$40.0 million and $312.5 million with a par value of $302.9$49.3 million and $387.6 million as of March 31,September 30, 2018 and December 31, 2017, respectively.
Securities Carried at Fair Value with Changes Recorded in Net Income
Upon the adoption of
ASU 2016-01- Financial Instruments on January 1, 2018, CIT reclassified eligible equity securities AFS to Securities Carried at Fair Value with Changes Recorded in NetAs of December 31, 2018.
Other Than Temporary Impairment (“OTTI”)
The Company conducted and documented its periodic review of all securities with unrealized losses, which it performs to evaluate whether the impairment is other than temporary.
The Company reviewed PCIAFS securities with unrealized losses and determined the unrealized losses were credit-related and recognized OTTI losses. There was an insignificant amount ofwere no OTTI credit-related losses recognized for the quarter and insignificant losses for the nine months ended March 31,September 30, 2018 respectively and $0.1$0.2 million wasand $0.4 million of OTTI losses were recognized as permanent write-downs for the quarter and nine months ended March 31, 2017.
The Company reviewed debt securities classified as AFS with unrealized losses and determined that the unrealized losses were neither OTTI nor credit-related, and believes it is not more-likely-than-not that the Company will have to sell the debt securities classified as AFS with unrealized losses prior to the recovery of the amortized cost basis.
There were no adjustments related to impairment for securities without readily determinable fair values measured under the measurement exception.
There were immaterial unrealized losses on non-marketable investments.
26
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the carrying value of outstanding borrowings.
Borrowings (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| CIT Group Inc. |
|
| Subsidiaries |
|
| Total |
|
| Total |
| ||||
Senior unsecured | $ | 3,842.3 |
|
| $ | — |
|
| $ | 3,842.3 |
|
| $ | 3,737.5 |
|
Subordinated unsecured debt |
| 395.3 |
|
|
| — |
|
|
| 395.3 |
|
|
| — |
|
Secured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other secured and structured financings |
| — |
|
|
| 1,286.6 |
|
|
| 1,286.6 |
|
|
| 1,541.4 |
|
FHLB advances |
| — |
|
|
| 3,150.0 |
|
|
| 3,150.0 |
|
|
| 3,695.5 |
|
Total Borrowings | $ | 4,237.6 |
|
| $ | 4,436.6 |
|
| $ | 8,674.2 |
|
| $ | 8,974.4 |
|
Borrowings (dollars in millions) | |||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||
CIT Group Inc. | Subsidiaries | Total | Total | ||||||||||||
Senior Unsecured | $ | 4,730.8 | $ | — | $ | 4,730.8 | $ | 3,737.5 | |||||||
Subordinated unsecured debt | 395.9 | — | 395.9 | — | |||||||||||
Secured borrowings: | |||||||||||||||
Structured financings | — | 1,416.1 | 1,416.1 | 1,541.4 | |||||||||||
FHLB advances | — | 3,894.5 | 3,894.5 | 3,695.5 | |||||||||||
Total Borrowings | $ | 5,126.7 | $ | 5,310.6 | $ | 10,437.3 | $ | 8,974.4 |
Unsecured Borrowings
Revolving Credit Facility
The Revolving Credit Facility has a total commitment amount of $500 million, with $41.7 million maturing on January 25, 2019 and the maturity date of the commitment isbalance maturing on February 29, 2020. The applicable margin charged under the facility is 2.00% for LIBOR Rate loans and 1.00% for Base Rate loans.
The Revolving Credit Facility was amended in February 2018 to lower the total commitments from $750 million to $500 million and to extend the final maturity date of the lenders’ commitments from January 25, 2019 to February 29, 2020, for all but one lender.lender that did not extend. The Revolving Credit Facility includes a covenant that requires that the Company maintain a minimum Tier 1 capital ratio of 9.0%. As of March 31,September 30, 2018, the Revolving Credit Facility was unsecured and was guaranteed by four of the Company’s domestic operating subsidiaries. In addition, the applicable required minimum guarantor asset coverage ratio ranged from 1.0:1.0 to 1.5:1.0, and was 1.25:1.01.00 at March 31,September 30, 2018.
There were no outstanding borrowings at March 31,September 30, 2018 and December 31, 2017. The amount available to draw upon at March 31,September 30, 2018 was approximately $448$458 million, with the remaining amount of approximately $52$42 million being utilized for issuance of letters of credit to customers.
Senior Unsecured Notes
The following table presents the principal amounts by maturity date.
Senior Unsecured Notes (dollars in millions)
Maturity Date | Rate (%) |
|
| Date of Issuance |
| Par Value |
| |
May 2020 | 5.375% |
|
| May 2012 |
| $ | 430.6 |
|
March 2021 | 4.125% |
|
| March 2018 |
|
| 500.0 |
|
August 2022 | 5.000% |
|
| August 2012 |
|
| 1,150.0 |
|
August 2023 | 5.000% |
|
| August 2013 |
|
| 750.0 |
|
February 2024 | 4.750% |
|
| August 2018 |
|
| 500.0 |
|
March 2025 | 5.250% |
|
| March 2018 |
|
| 500.0 |
|
Weighted average rate and total | 4.928% |
|
|
|
| $ | 3,830.6 |
|
Senior Unsecured Notes (dollars in millions) | ||||||||
Maturity Date | Rate (%) | Date of Issuance | Par Value | |||||
February 2019 | 5.500% | February 2012 | $ | 383.0 | ||||
February 2019 | 3.875% | February 2014 | 1,000.0 | |||||
May 2020 | 5.375% | May 2012 | 435.6 | |||||
March 2021 | 4.125% | March 2018 | 500.0 | |||||
August 2022 | 5.000% | August 2012 | 1,150.0 | |||||
August 2023 | 5.000% | August 2013 | 750.0 | |||||
March 2025 | 5.250% | March 2018 | 500.0 | |||||
Weighted average rate and total | 4.771% | $ | 4,718.6 |
On April 9, 2018, CIT redeemed $383 million aggregate principal amount of our 5.500% senior unsecured notes due February 2019 and $500 million aggregate principal amount of our 3.875% senior unsecured notes due February 2019, at an aggregate premium of $15.7 million. ReferIn addition to
In addition to the date of such repurchase.
Subordinated Unsecured Notes
In March 2018, CIT issued $400 million aggregate principal amount of 6.125% subordinated notes with thea maturity date onof March 9, 2028. The notes are subordinated in right of payment to the payment of ourCIT’s senior indebtedness and secured indebtedness, to the extent of the value of the collateral.
27
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
At March 31,September 30, 2018, the Company had pledged $28.7$29.6 billion of assets (including collateral for the FRB discount window that is currently not drawn). The collateral specifically identified and used to calculate available borrowings was $12.9$13.6 billion, which included $11.5$12.3 billion of loans, $1.2$1.0 billion of operating lease assets, $0.1$0.2 billion of cash and cash equivalentequivalents and $0.1 billion of investment securities. Under the FHLB Facility, CIT Bank, N.A. may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that CIT Bank, N.A. is in compliance with the collateral maintenance requirement immediately following such disposition and all other requirements of the facility at the time of such disposition.
FHLB Advances
As of March 31,September 30, 2018, the Company had $5.3$5.5 billion of financing availability with the FHLB, of which $1.4$2.3 billion was unused and available, and $85.8$2.3 million was being utilized for issuance of letters of credit related to deposits.lease agreements. FHLB Advances as of March 31,September 30, 2018 have a weighted average rate of 2.04%2.37%. The following table includes the total outstanding FHLB Advances, and respective pledged assets
FHLB Advances with Pledged Assets(1) Summary (dollars in millions) | |||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||
FHLB Advances | Pledged Assets (1) | FHLB Advances | Pledged Assets (1) | ||||||||||||
Total | $ | 3,894.5 | $ | 6,338.6 | $ | 3,695.5 | $ | 6,154.1 |
FHLB Advances with Pledged Assets(1)
Summary
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| FHLB Advances |
|
| Pledged Assets |
|
| FHLB Advances |
|
| Pledged Assets |
| ||||
Total | $ | 3,150.0 |
|
| $ | 6,602.5 |
|
| $ | 3,695.5 |
|
| $ | 6,154.1 |
|
(1) | For purposes of this table the term "Pledged Assets" means the assets required under the collateral maintenance requirement in connection with FHLB advances at each of the dates. |
Other Secured and Structured Financings
Set forth in the following table are amounts primarilyborrowings and pledged assets related to secured (other than FHLB) and structured financings of CIT-owned subsidiaries and assets owned by consolidated VIEs. Creditors of these VIEs received ownership and/or security interests in the assets. These entities are intended to be bankruptcy remote so that such assets are not available to creditors of CIT or any affiliates of CIT until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings. StructuredThe secured and structured financings as of March 31,September 30, 2018 had a weighted average rate of 4.02%4.31%, with rates ranging from 0.59%0.65% to 5.5%5.50%.
Other Secured and Structured Financings and Pledged Assets Summary (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Secured Borrowing |
|
| Pledged Assets |
|
| Secured Borrowing |
|
| Pledged Assets |
| ||||
Business Capital | $ | 697.0 |
|
| $ | 3,070.0 |
|
| $ | 768.8 |
|
| $ | 2,838.6 |
|
Rail(1) (2) |
| 589.6 |
|
|
| 1,059.5 |
|
|
| 772.6 |
|
|
| 1,272.0 |
|
Total | $ | 1,286.6 |
|
| $ | 4,129.5 |
|
| $ | 1,541.4 |
|
| $ | 4,110.6 |
|
Structured Financings and Pledged Assets Summary (dollars in millions) | |||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||
Secured Borrowing | Pledged Assets | Secured Borrowing | Pledged Assets | ||||||||||||
Business Capital | $ | 695.5 | $ | 2,817.5 | $ | 768.8 | $ | 2,838.6 | |||||||
Rail(1) (2) | 720.6 | 1,259.9 | 772.6 | 1,272.0 | |||||||||||
Total | $ | 1,416.1 | $ | 4,077.4 | $ | 1,541.4 | $ | 4,110.6 |
(1) | At |
(2) | At |
Not included in the above table are secured borrowings of discontinued operations of $247.8$213.2 million and $268.2 million at March 31,September 30, 2018 and December 31, 2017, respectively. See
FRB
There were no outstanding borrowings with the FRB Discount Window as of March 31,September 30, 2018 and December 31, 2017.
28
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Described below are the results of the Company’s assessment of its variable interests in order to determine its current status with regards to being the VIE primary beneficiary.
Consolidated VIEs
The Company utilizes VIEs in the ordinary course of business to support its own and its customers’ financing needs. Each VIE is a separate legal entity and maintains its own books and records. The most significant types of VIEs that CIT utilizes are "on balance sheet" secured financings of pools of leases and loans originated by the Company where the Company is the primary beneficiary. Refer to the Company’s Annual Report on2017 Form 10-K for the year ended December 31, 2017 for further discussion.
Unconsolidated VIEs
Unconsolidated VIEs include government sponsored entity (“GSE”) securitization structures, private-label securitizations and limited partnership interests where the Company’s involvement is limited to an investor interest wherein which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and limited partnership interests.
Although the economic benefit and risk has certain contractual obligations relatedbeen transferred to the buyer in connection with the Financial Freedom business sale in the second quarter of 2018, until the required investor consent is obtained from the Government National Mortgage Association (“GNMA”), CIT remains the master servicer for the HECM loans and the GNMA HMBS securitizations, whichsecuritizations. These are VIEs for which CIT is not the primary beneficiary.beneficiary, and which are reported in discontinued operations. The Company, as servicer of these HECM loans, is currently obligated to fund future borrower advances, which include fees paid to taxing authorities for borrowers’ unpaid taxes and insurance, mortgage insurance premiums and payments made to borrowers for line of credit draws on HECM loans. In addition, the Company is required to repurchase the HECM loans once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO, which reduces the secured borrowing balance. Additionally, the Company services $136.5$127.2 million and $140.3 million of HMBS outstanding principal balance at March 31,September 30, 2018 and December 31, 2017, respectively, for transferred loans securitized by IndyMac for which OneWest Bank prior to the acquisition had purchased the mortgage servicing rights (“MSRs”) in connection with the IndyMac Transaction. The carrying value of the MSRs was not significant at March 31,September 30, 2018 and December 31, 2017. As the HECM loans are federally insured by the FHA and the secured borrowings guaranteed to the investors by GNMA, the Company does not believe maximum loss exposure as a result of its involvement is material.
The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of its interests and any associated collateral declines to zero and assuming no recovery or offset from any economic hedges. The Company believes the possibility is remote under this hypothetical scenario; accordingly, this required disclosure is not an indication of expected loss.
Unconsolidated VIEs Carrying Value (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Securities |
|
| Partnership Investment |
|
| Securities |
|
| Partnership Investment |
| ||||
Agency securities | $ | 5,267.0 |
|
| $ | — |
|
| $ | 4,950.2 |
|
| $ | — |
|
Non agency securities — Other servicer |
| 40.0 |
|
|
| — |
|
|
| 318.8 |
|
|
| — |
|
Tax credit equity investments |
| — |
|
|
| 240.9 |
|
|
| — |
|
|
| 198.8 |
|
Equity investments |
| — |
|
|
| 59.8 |
|
|
| — |
|
|
| 38.6 |
|
Total Assets | $ | 5,307.0 |
|
| $ | 300.7 |
|
| $ | 5,269.0 |
|
| $ | 237.4 |
|
Commitments to tax credit investments | $ | — |
|
| $ | 116.5 |
|
| $ | — |
|
| $ | 66.6 |
|
Total Liabilities | $ | — |
|
| $ | 116.5 |
|
| $ | — |
|
| $ | 66.6 |
|
Maximum loss exposure(1) | $ | 5,307.0 |
|
| $ | 300.7 |
|
| $ | 5,269.0 |
|
| $ | 237.4 |
|
Unconsolidated VIEs Carrying Value (dollars in millions) | |||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||
Securities | Partnership Investment | Securities | Partnership Investment | ||||||||||||
Agency securities | $ | 4,726.4 | $ | — | $ | 4,950.2 | $ | — | |||||||
Non agency securities — Other servicer | 244.0 | — | 318.8 | — | |||||||||||
Tax credit equity investments | — | 207.0 | — | 198.8 | |||||||||||
Equity investments | — | 46.7 | — | 38.6 | |||||||||||
Total Assets | $ | 4,970.4 | $ | 253.7 | $ | 5,269.0 | $ | 237.4 | |||||||
Commitments to tax credit investments | $ | — | $ | 79.7 | $ | — | $ | 66.6 | |||||||
Total Liabilities | $ | — | $ | 79.7 | $ | — | $ | 66.6 | |||||||
Maximum loss exposure(1) | $ | 4,970.4 | $ | 253.7 | $ | 5,269.0 | $ | 237.4 |
(1) | Maximum loss exposure to the unconsolidated VIEs excludes the liability for representations and warranties, corporate guarantees and also excludes servicing advances. |
29
See Note 1 — Business and Summary of Significant Accounting Policies in the Company’s 2017 Form 10-K, for the description of its derivative products and transaction policies.
The following table presents fair values and notional values of derivative financial instruments:
Fair and Notional Values of Derivative Financial Instruments(1) (dollars in millions) | |||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
Qualifying Hedges | Notional Amount | Asset Fair Value | Liability Fair Value | Notional Amount | Asset Fair Value | Liability Fair Value | |||||||||||||||||
Foreign currency forward contracts — net investment hedges | $ | 989.0 | $ | 23.9 | $ | (7.2 | ) | $ | 977.3 | $ | 0.2 | $ | (18.7 | ) | |||||||||
Interest rate swap - fair value hedge (2) | 250.0 | 0.6 | — | — | — | — | |||||||||||||||||
Total Qualifying Hedges | 1,239.0 | 24.5 | (7.2 | ) | 977.3 | 0.2 | (18.7 | ) | |||||||||||||||
Non-Qualifying Hedges | |||||||||||||||||||||||
Interest rate swaps(2) | 7,686.3 | 82.4 | (65.6 | ) | 7,112.0 | 60.8 | (38.6 | ) | |||||||||||||||
Written options | 2,722.4 | — | (2.2 | ) | 2,744.3 | — | (0.7 | ) | |||||||||||||||
Purchased options | 2,567.0 | 2.2 | — | 2,571.5 | 0.7 | — | |||||||||||||||||
Foreign currency forward contracts | 1,505.3 | 9.5 | (12.6 | ) | 1,375.5 | 6.9 | (14.9 | ) | |||||||||||||||
Total Return Swap (TRS) | 189.6 | — | (16.2 | ) | 182.4 | — | (14.1 | ) | |||||||||||||||
Equity Warrants | 0.8 | — | — | 0.8 | — | — | |||||||||||||||||
Interest Rate Lock Commitments | 14.6 | 0.1 | — | 7.7 | 0.1 | — | |||||||||||||||||
Forward Sale Commitments on Agency MBS | 11.5 | — | (0.1 | ) | 8.0 | — | — | ||||||||||||||||
Credit derivatives | 306.3 | — | — | 285.1 | — | — | |||||||||||||||||
Total Non-qualifying Hedges | 15,003.8 | 94.2 | (96.7 | ) | 14,287.3 | 68.5 | (68.3 | ) | |||||||||||||||
Total Derivatives | $ | 16,242.8 | $ | 118.7 | $ | (103.9 | ) | $ | 15,264.6 | $ | 68.7 | $ | (87.0 | ) |
Fair and Notional Values of Derivative transactions are documented under an International Swaps and Derivatives Association (“ISDA”) agreement.Financial Instruments(1)(dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Notional |
|
| Asset Fair |
|
| Liability |
|
| Notional |
|
| Asset Fair |
|
| Liability |
| ||||||
| Amount |
|
| Value |
|
| Fair Value |
|
| Amount |
|
| Value |
|
| Fair Value |
| ||||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts | $ | 967.7 |
|
| $ | 0.8 |
|
| $ | (11.9 | ) |
| $ | 977.3 |
|
| $ | 0.2 |
|
| $ | (18.7 | ) |
Interest rate swap - fair value hedge (2) |
| 250.0 |
|
|
| — |
|
|
| (1.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Total derivatives designated as hedging instruments |
| 1,217.7 |
|
|
| 0.8 |
|
|
| (13.6 | ) |
|
| 977.3 |
|
|
| 0.2 |
|
|
| (18.7 | ) |
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (2) |
| 15,277.9 |
|
|
| 107.7 |
|
|
| (91.1 | ) |
|
| 12,443.5 |
|
|
| 61.5 |
|
|
| (39.3 | ) |
Foreign exchange contracts |
| 2,614.7 |
|
|
| 20.7 |
|
|
| (11.1 | ) |
|
| 1,375.5 |
|
|
| 6.9 |
|
|
| (14.9 | ) |
Other contracts(3) |
| 607.5 |
|
|
| 0.1 |
|
|
| (13.3 | ) |
|
| 468.3 |
|
|
| 0.1 |
|
|
| (14.1 | ) |
Total derivatives not designated as hedging instruments |
| 18,500.1 |
|
|
| 128.5 |
|
|
| (115.5 | ) |
|
| 14,287.3 |
|
|
| 68.5 |
|
|
| (68.3 | ) |
Gross derivative fair values presented in the Consolidated Balance Sheets | $ | 19,717.8 |
|
| $ | 129.3 |
|
| $ | (129.1 | ) |
| $ | 15,264.6 |
|
| $ | 68.7 |
|
| $ | (87.0 | ) |
Less: Gross amounts offset in the Consolidated Balance Sheets |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
Net Amount Presented in the Consolidated Balance Sheet |
|
|
|
|
| 129.3 |
|
|
| (129.1 | ) |
|
|
|
|
|
| 68.7 |
|
|
| (87.0 | ) |
Derivative Financial Instruments(4) |
|
|
|
|
| (15.8 | ) |
|
| 15.8 |
|
|
|
|
|
|
| (18.7 | ) |
|
| 18.7 |
|
Cash Collateral Pledged/(Received)(4)(5)(6) |
|
|
|
|
| (42.0 | ) |
|
| 11.0 |
|
|
|
|
|
|
| (8.4 | ) |
|
| 23.0 |
|
Total Net Derivative Fair Value |
|
|
|
| $ | 71.5 |
|
| $ | (102.3 | ) |
|
|
|
|
| $ | 41.6 |
|
| $ | (45.3 | ) |
Offsetting of Derivative Assets and Liabilities (dollars in millions)(1) | |||||||||||||||||||||||
Gross Amounts not offset in the Consolidated Balance Sheet | |||||||||||||||||||||||
Gross Amount of Recognized Assets (Liabilities) | Gross Amount Offset in the Consolidated Balance Sheet | Net Amount Presented in the Consolidated Balance Sheet | Derivative Financial Instruments(2) | Cash Collateral Pledged / (Received)(2)(3) | Net Amount | ||||||||||||||||||
March 31, 2018 | |||||||||||||||||||||||
Derivative assets | $ | 118.7 | $ | — | $ | 118.7 | $ | (24.8 | ) | $ | (33.2 | ) | $ | 60.7 | |||||||||
Derivative liabilities | (103.9 | ) | — | (103.9 | ) | 24.8 | 1.9 | (77.2 | ) | ||||||||||||||
December 31, 2017 | |||||||||||||||||||||||
Derivative assets | $ | 68.7 | $ | — | $ | 68.7 | $ | (18.7 | ) | $ | (8.4 | ) | $ | 41.6 | |||||||||
Derivative liabilities | (87.0 | ) | — | (87.0 | ) | 18.7 | 23.0 | (45.3 | ) |
(1) | Presented on a gross basis. |
(2) | Fair value balances include accrued interest |
(3) | Other derivative contracts not designated as hedging instruments include a total return swap and risk participation agreements. See Note 14 – Subsequent Events relating to |
(4) | The Company accounts for swap contracts cleared by the Chicago Mercantile Exchange |
(5) | |
| The Company’s derivative transactions are governed by ISDA agreements that allow for net settlements of certain payments as well as offsetting of all contracts |
(6) | |
| Collateral pledged or received is included in Other assets or Other liabilities, respectively. |
Qualifying Hedges
CIT enteredenters into a $250 million notional interest rate swap agreementagreements to manage interest rate exposure on half of its three years 4.125% fixed-rate senior notesborrowings. The agreements that were newly issued in March 2018. This agreement isqualify for hedge accounting are designated as a fair value hedge. The following table represents the impact of fair value hedges on the condensed consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying Hedges (dollars in millions) |
|
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
|
|
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
| Amounts Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized on derivatives | Interest Expense |
| $ | (0.8 | ) |
| $ | (1.8 | ) |
| $ | — |
|
| $ | — |
|
Recognized on hedged item | Interest Expense |
|
| 0.8 |
|
|
| 1.8 |
|
|
| — |
|
|
| — |
|
Net recognized on fair value hedges (No Ineffectiveness) |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
30
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Derivative Instruments | March 31, 2018 | |||||||||||
Amounts Recognized | Derivative | Hedged Item | Hedge Ineffectiveness | |||||||||
Hedges of interest rate risk on borrowings using interest rate swaps | Interest Expense | $ | 0.5 | $ | (0.5 | ) | $ | — | ||||
The following table presents the impact of non-qualifying hedges on the condensed consolidated statements of income
Non Qualifying Hedges (dollars in millions) |
|
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
| Amounts Recognized |
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
Interest rate contracts | Other non-interest income |
| $ | 4.9 |
|
| $ | 14.4 |
|
| $ | 1.2 |
|
| $ | 3.9 |
|
Foreign currency forward contracts | Other non-interest income |
|
| 22.2 |
|
|
| 25.1 |
|
|
| 5.8 |
|
|
| (22.0 | ) |
Other Contracts | Other non-interest income |
|
| 1.0 |
|
|
| 0.1 |
|
|
| (1.4 | ) |
|
| (2.6 | ) |
Total Non-qualifying Hedges -income statement impact |
|
| $ | 28.1 |
|
| $ | 39.6 |
|
| $ | 5.6 |
|
| $ | (20.7 | ) |
Derivative Instrument Gains and Losses (dollars in millions) | |||||||||
Quarters Ended March 31, | |||||||||
Derivative Instruments | Gain / (Loss) Recognized | 2018 | 2017 | ||||||
Non Qualifying Hedges | |||||||||
Interest rate swaps | Other income | $ | 4.0 | $ | 2.2 | ||||
Interest rate options | Other income | 0.1 | 0.1 | ||||||
Foreign currency forward contracts | Other income | (29.9 | ) | (7.0 | ) | ||||
Equity warrants | Other income | — | (0.1 | ) | |||||
Total Return Swap (TRS) | Other income | (2.1 | ) | (0.9 | ) | ||||
Interest Rate Lock Commitments | Other income | — | 0.1 | ||||||
Forward Sale Commitments on Agency MBS | Other income | 0.2 | (0.1 | ) | |||||
Credit Derivatives | Other income | (0.2 | ) | — | |||||
Total Non-qualifying Hedges -income statement impact | $ | (27.9 | ) | $ | (5.7 | ) | |||
The following table presents the changes in AOCI relating to derivatives:
Changes in AOCI Relating to Derivatives (dollars in millions)
Contract Type | Derivatives - effective portion reclassified from AOCI to income |
|
| Total income statement impact |
|
| Derivatives - effective portion recorded in OCI |
|
| Total change in OCI for period |
| ||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | (5.6 | ) |
| $ | (5.6 | ) |
Total | $ | — |
|
| $ | — |
|
| $ | (5.6 | ) |
| $ | (5.6 | ) |
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | (33.0 | ) |
| $ | (33.0 | ) |
Total | $ | — |
|
| $ | — |
|
| $ | (33.0 | ) |
| $ | (33.0 | ) |
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | 33.9 |
|
| $ | 33.9 |
|
Total | $ | — |
|
| $ | — |
|
| $ | 33.9 |
|
| $ | 33.9 |
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | 13.4 |
|
| $ | 13.4 |
|
| $ | (74.7 | ) |
| $ | (88.1 | ) |
Total | $ | 13.4 |
|
| $ | 13.4 |
|
| $ | (74.7 | ) |
| $ | (88.1 | ) |
Changes in AOCI Relating to Derivatives (dollars in millions) | |||||||||||||||
Contract Type | Derivatives - effective portion reclassified from AOCI to income | Total income statement impact | Derivatives - effective portion recorded in OCI | Total change in OCI for period | |||||||||||
Quarter Ended March 31, 2018 | |||||||||||||||
Foreign currency forward contracts — net investment hedges | $ | — | $ | — | $ | 7.2 | $ | 7.2 | |||||||
Total | $ | — | $ | — | $ | 7.2 | $ | 7.2 | |||||||
Quarter Ended March 31, 2017 | |||||||||||||||
Foreign currency forward contracts — net investment hedges | $ | 6.9 | $ | 6.9 | $ | (8.9 | ) | $ | (15.8 | ) | |||||
Total | $ | 6.9 | $ | 6.9 | $ | (8.9 | ) | $ | (15.8 | ) |
Dutch TRS Transactions
As of March 31,September 30, 2018, ,CIT’s wholly-owned subsidiary, CIT TRS Funding B.V. (“BV”) was party to a financing facility between a wholly-owned Dutch subsidiary of CIT and(the “Dutch TRS Facility”) with Goldman Sachs International (“GSI”), which was structured as a total return swap (“TRS”). AmountsThe amount available for advances (otherwise known as the unused portion) werewas accounted for as derivativesa derivative (“TRS Derivative”) and recorded at the estimated fair value. The total facility capacity available under the Dutch TRS Facility was $625 million at March 31,September 30, 2018, and December 31, 2017. The utilized portion reflects the borrowing.
The aggregate “notional amounts”amount” of the Dutch TRS of $189.6Derivative was $209.7 million at March 31,September 30, 2018, and $182.4 million at December 31, 2017, represent the aggregate unused portions and constitute derivative financial instruments. These2017. The notional amounts wereamount was calculated as the maximum facility commitment amount, or $625 million, under the Dutch TRS Facility, less the actual adjusted qualifying borrowing base outstanding of $435.4$415.3 million at March 31,September 30, 2018, and $442.6 million under the facility at December 31, 2017. The notional amounts of the derivative will increase as the adjusted qualifying borrowing base decreases due to repayment of the underlying asset-backed securities ("ABS") to investors. If CIT funds additional ABS under the Dutch TRS, the aggregate adjusted qualifying borrowing base of the total return swap will increase and the notional amount of the derivative will decrease accordingly.
Based on the Company’s valuation, a liability of $16.2$13.3 million and $14.1 million was recorded at March 31,September 30, 2018, and December 31, 2017, respectively. The decrease in liability of $1.4 million and $0.8 million were recognized in other non-interest income for the quarter and nine months ended September 30, 2018, respectively. An increase in liability of $2.1$1.1 million and $2.4 million was recognized as a reduction to Other Incomeother non-interest income for the quarter and nine months ended March 31, 2018September 30, 2017, respectively.
See Note 14 – Subsequent Events relating to the Company’s termination of the Dutch TRS Facility on November 2, 2018.
Fair Value Hierarchy
The Company measures certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an increaseasset or paid to transfer a liability in liabilityan orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. See Note 1 — Business and Summary of $0.9 million was recognized asSignificant Accounting Policies in the Company's 2017 Form 10-K for a reduction to Other Incomedescription of its valuation process for the quarter ended March assets and liabilities measured at fair value and fair value hierarchy.
31 2017.
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company is required to report fair value measurements for specified classes of assets and liabilities. See Note 1 — Business and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for a description of its fair value measurement policy.
The following table summarizes the Company’s assets and liabilities measured at estimated fair value on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)
| Total |
|
| Level 1 |
|
|
|
| Level 2 |
|
| Level 3 |
| ||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,109.4 |
|
| $ | — |
|
|
|
| $ | 5,109.4 |
|
| $ | — |
|
U.S. treasury securities |
| 594.8 |
|
|
| 403.4 |
|
|
|
|
| 191.4 |
|
|
| — |
|
Other securities |
| 349.3 |
|
|
| — |
|
|
|
|
| 242.2 |
|
|
| 107.1 |
|
Total debt securities AFS |
| 6,053.5 |
|
|
| 403.4 |
|
|
|
|
| 5,543.0 |
|
|
| 107.1 |
|
Securities carried at fair value with changes recorded in net income(1) |
| 44.0 |
|
|
| 0.2 |
|
|
|
|
| 43.8 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 107.7 |
|
|
| — |
|
|
|
|
| 107.6 |
|
|
| 0.1 |
|
Other derivative — non-qualifying hedges |
| 20.8 |
|
|
| — |
|
|
|
|
| 20.7 |
|
|
| 0.1 |
|
Total derivative assets at fair value — non-qualifying hedges(2) |
| 128.5 |
|
|
| — |
|
|
|
|
| 128.3 |
|
|
| 0.2 |
|
Foreign currency forward contracts — net investment qualifying hedges |
| 0.8 |
|
|
| — |
|
|
|
|
| 0.8 |
|
|
| — |
|
Total | $ | 6,226.8 |
|
| $ | 403.6 |
|
|
|
| $ | 5,715.9 |
|
| $ | 107.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts | $ | (91.1 | ) |
| $ | — |
|
|
|
| $ | (91.1 | ) |
| $ | — |
|
Other derivative— non-qualifying hedges |
| (24.4 | ) |
|
| — |
|
|
|
|
| (11.1 | ) |
|
| (13.3 | ) |
Total derivative liabilities at fair value — non-qualifying hedges(2) |
| (115.5 | ) |
|
| — |
|
|
|
|
| (102.2 | ) |
|
| (13.3 | ) |
Interest rate contracts —fair value hedge |
| (1.7 | ) |
|
| — |
|
|
|
|
| (1.7 | ) |
|
| — |
|
Foreign currency forward contracts — net investment qualifying hedges |
| (11.9 | ) |
|
| — |
|
|
|
|
| (11.9 | ) |
|
| — |
|
Total derivative liabilities at fair value — qualifying hedges |
| (13.6 | ) |
|
| — |
|
|
|
|
| (13.6 | ) |
|
| — |
|
FDIC True-up liability |
| (66.4 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (66.4 | ) |
Total | $ | (195.5 | ) |
| $ | — |
|
|
|
| $ | (115.8 | ) |
| $ | (79.7 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 4,950.2 |
|
| $ | — |
|
|
|
| $ | 4,950.0 |
|
| $ | 0.2 |
|
U.S. treasury securities |
| 297.7 |
|
|
| 199.0 |
|
|
|
|
| 98.7 |
|
|
| — |
|
Other securities |
| 875.7 |
|
|
| — |
|
|
|
|
| 490.1 |
|
|
| 385.6 |
|
Total debt securities AFS |
| 6,123.6 |
|
|
| 199.0 |
|
|
|
|
| 5,538.8 |
|
|
| 385.8 |
|
Securities carried at fair value with changes recorded in net income(1) |
| 0.4 |
|
|
| — |
|
|
|
|
| — |
|
|
| 0.4 |
|
Equity securities AFS |
| 44.7 |
|
|
| 0.2 |
|
|
|
|
| 44.5 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 61.5 |
|
|
| — |
|
|
|
|
| 61.4 |
|
|
| 0.1 |
|
Other derivative — non-qualifying hedges |
| 7.0 |
|
|
| — |
|
|
|
|
| 7.0 |
|
|
| — |
|
Total derivative assets at fair value — non-qualifying hedges(2) |
| 68.5 |
|
|
| — |
|
|
|
|
| 68.4 |
|
|
| 0.1 |
|
Foreign currency forward contracts — net qualifying investment qualifying hedges |
| 0.2 |
|
|
| — |
|
|
|
|
| 0.2 |
|
|
| — |
|
Total | $ | 6,237.4 |
|
| $ | 199.2 |
|
|
|
| $ | 5,651.9 |
|
| $ | 386.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps | $ | (39.3 | ) |
| $ | — |
|
|
|
| $ | (39.3 | ) |
| $ | — |
|
Other derivative— non-qualifying hedges |
| (29.0 | ) |
|
| — |
|
|
|
|
| (14.9 | ) |
|
| (14.1 | ) |
Total derivative liabilities at fair value — non-qualifying hedges(2) |
| (68.3 | ) |
|
| — |
|
|
|
|
| (54.2 | ) |
|
| (14.1 | ) |
Foreign currency forward contracts — net investment qualifying hedges |
| (18.7 | ) |
|
| — |
|
|
|
|
| (18.7 | ) |
|
| — |
|
Consideration holdback liability |
| (46.0 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (46.0 | ) |
FDIC True-up liability |
| (65.1 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (65.1 | ) |
Total | $ | (198.1 | ) |
| $ | — |
|
|
|
| $ | (72.9 | ) |
| $ | (125.2 | ) |
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions) | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
March 31, 2018 | |||||||||||||||
Assets | |||||||||||||||
Debt securities AFS | $ | 5,564.1 | $ | 247.8 | $ | 5,005.0 | $ | 311.3 | |||||||
Securities carried at fair value with changes recorded in net income(1) | 44.1 | 0.2 | 43.9 | — | |||||||||||
Derivative assets at fair value — non-qualifying hedges(2) | 94.2 | — | 94.1 | 0.1 | |||||||||||
Derivative assets at fair value — qualifying hedges(2) | 24.5 | — | 24.5 | — | |||||||||||
Total | $ | 5,726.9 | $ | 248.0 | $ | 5,167.5 | $ | 311.4 | |||||||
Liabilities | |||||||||||||||
Derivative liabilities at fair value — non-qualifying hedges(2) | $ | (96.7 | ) | $ | — | $ | (80.5 | ) | $ | (16.2 | ) | ||||
Derivative liabilities at fair value — qualifying hedges(2) | (7.2 | ) | — | (7.2 | ) | — | |||||||||
Consideration holdback liability | (46.0 | ) | — | — | (46.0 | ) | |||||||||
FDIC True-up liability | (65.5 | ) | — | — | (65.5 | ) | |||||||||
Total | $ | (215.4 | ) | $ | — | $ | (87.7 | ) | $ | (127.7 | ) | ||||
December 31, 2017 | |||||||||||||||
Assets | |||||||||||||||
Debt securities AFS | $ | 6,123.6 | $ | 199.0 | $ | 5,538.8 | $ | 385.8 | |||||||
Securities carried at fair value with changes recorded in net income | 0.4 | — | — | 0.4 | |||||||||||
Equity securities AFS | 44.7 | 0.2 | 44.5 | — | |||||||||||
Derivative assets at fair value — non-qualifying hedges(2) | 68.5 | — | 68.4 | 0.1 | |||||||||||
Derivative assets at fair value — qualifying hedges | 0.2 | — | 0.2 | — | |||||||||||
Total | $ | 6,237.4 | $ | 199.2 | $ | 5,651.9 | $ | 386.3 | |||||||
Liabilities | |||||||||||||||
Derivative liabilities at fair value — non-qualifying hedges(2) | $ | (68.3 | ) | $ | — | $ | (54.2 | ) | $ | (14.1 | ) | ||||
Derivative liabilities at fair value — qualifying hedges | (18.7 | ) | — | (18.7 | ) | — | |||||||||
Consideration holdback liability | (46.0 | ) | — | — | (46.0 | ) | |||||||||
FDIC True-up liability | (65.1 | ) | — | — | (65.1 | ) | |||||||||
Total | $ | (198.1 | ) | $ | — | $ | (72.9 | ) | $ | (125.2 | ) |
(1) | Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, equity securities AFS were reclassified to securities carried at fair value with changes recorded in net income. See Note 1 |
(2) | Derivative fair values include accrued interest. |
See Fair Value of Financial Instruments later in this note for fair value measurements ofDebt and Equity Securities Classified as AFS, and Securities carried at fair value with changes recorded in net income and— Debt securities classified as AFS included investments in U.S. federal government agencies, U.S. Treasury Notes and supranational securities and were valued using Level 2 inputs, primarily quoted prices for similar securities. U.S. Treasury Bills and certain equity securities classified as AFS were valued using Level 1 inputs, primarily quoted prices in active markets. For Agency pass-through MBS, which are classified as Level 2, the Company generally determines estimated fair value utilizing prices obtained from independent broker dealers and recent trading activity for similar assets. Debt securities classified as AFS and securities carried at fair value with changes recorded in net income represent non-Agency MBS, the market for such securities is not active and the estimated fair value was determined using a discounted cash flow technique. The significant unobservable assumptions, which are verified to the extent possible using broker dealer quotes, are estimated by type of underlying collateral, including credit loss assumptions, estimated prepayment speeds and appropriate discount rates. Given the lack of observable market data, the estimated fair value of the non-agency MBS is classified as Level 3.
32
FDIC True-up Liability — The FDIC True-up liability was recorded at estimated fair value as of the Acquisition Date and is remeasured tomeasured at fair value at each reporting date until the contingency is resolved. The FDIC True-up liability was valued using the discounted cash flow method based on the terms specified in the loss share agreement with the FDIC, the actual FDIC payments collected and significant unobservable inputs, including a risk-adjusted discount rate (reflecting the Company’s credit risk plus a liquidity premium), prepayment and default rates. Due to the significant unobservable inputs used, to calculate the estimated fair value, these measurements arewere classified as Level 3.
The following tables summarize information about significant unobservable inputs related to the Company’s categories of Level 3 financial assets and liabilities measured on a recurring basis as of March 31,September 30, 2018 and December 31, 2017.
Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions)
Financial Instrument | Estimated Fair Value |
|
| Valuation Technique(s) |
| Significant Unobservable Inputs |
| Range of Inputs |
|
| Weighted Average |
| |||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — AFS | $ | 107.1 |
|
| Discounted cash flow |
| Discount Rate |
| 3.2% - 6.2% |
|
| 5.6% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 4.7% - 10.7% |
|
| 8.0% |
| ||
|
|
|
|
|
|
| Default Rate |
| 2.2% - 6.9% |
|
| 4.7% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 26.1% - 48.1% |
|
| 33.0% |
| ||
Derivative assets — non qualifying |
| 0.2 |
|
| Internal valuation model |
| Borrower Rate |
| 3.8% - 5.0% |
|
| 4.4% |
| ||
Total Assets | $ | 107.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC True-up liability | $ | (66.4 | ) |
| Discounted cash flow |
| Discount Rate |
| 3.6% |
|
| 3.6% |
| ||
Derivative liabilities — non-qualifying |
| (13.3 | ) |
| Market comparables |
|
|
|
|
|
|
|
|
|
|
Total Liabilities | $ | (79.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — AFS | $ | 385.8 |
|
| Discounted cash flow |
| Discount Rate |
| 0.0% – 37.1% |
|
| 4.6% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 2.1% – 22.3% |
|
| 8.8% |
| ||
|
|
|
|
|
|
| Default Rate |
| 0.0% – 7.3% |
|
| 3.7% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 0.3% – 72.4% |
|
| 35.3% |
| ||
Securities carried at fair value with changes recorded in net income |
| 0.4 |
|
| Discounted cash flow |
| Discount Rate |
| 31.1% |
|
| 31.1% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 10.9% |
|
| 10.9% |
| ||
|
|
|
|
|
|
| Default Rate |
| 2.4% |
|
| 2.4% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 59.2% |
|
| 59.2% |
| ||
Derivative assets — non qualifying |
| 0.1 |
|
| Internal valuation model |
| Borrower Rate |
| 3.0% - 4.4% |
|
| 3.8% |
| ||
Total Assets | $ | 386.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC True-up liability | $ | (65.1 | ) |
| Discounted cash flow |
| Discount Rate |
| 2.9% |
|
| 2.9% |
| ||
Consideration holdback liability |
| (46.0 | ) |
| Discounted cash flow |
| Payment Probability |
| 0% – 100% |
|
| 48.0% |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities — non-qualifying |
| (14.1 | ) |
| Market comparables |
|
|
|
|
|
|
|
|
|
|
Total Liabilities | $ | (125.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions) | |||||||||||
Financial Instrument | Estimated Fair Value | Valuation Technique(s) | Significant Unobservable Inputs | Range of Inputs | Weighted Average | ||||||
March 31, 2018 | |||||||||||
Assets | |||||||||||
Securities — AFS | $ | 311.3 | Discounted cash flow | Discount Rate | 0.0% - 11.6% | 4.7% | |||||
Prepayment Rate | 3.8% - 26.7% | 8.5% | |||||||||
Default Rate | 0.0% - 6.6% | 3.9% | |||||||||
Loss Severity | 0.3% - 76.2% | 35.5% | |||||||||
Derivative assets — non qualifying | 0.1 | Internal valuation model | Borrower Rate | 3.5% - 4.9% | 4.2% | ||||||
Total Assets | $ | 311.4 | |||||||||
Liabilities | |||||||||||
FDIC True-up liability | $ | (65.5 | ) | Discounted cash flow | Discount Rate | 3.5% | 3.5% | ||||
Consideration holdback liability | (46.0 | ) | Discounted cash flow | Payment Probability | 0% - 100% | 48.0% | |||||
Derivative liabilities — non-qualifying | (16.2 | ) | Market Comparables(1) | ||||||||
Total Liabilities | $ | (127.7 | ) | ||||||||
December 31, 2017 | |||||||||||
Assets | |||||||||||
Securities — AFS | $ | 385.8 | Discounted cash flow | Discount Rate | 0.0% – 37.1% | 4.6% | |||||
Prepayment Rate | 2.1% – 22.3% | 8.8% | |||||||||
Default Rate | 0.0% – 7.3% | 3.7% | |||||||||
Loss Severity | 0.3% – 72.4% | 35.3% | |||||||||
Securities carried at fair value with changes recorded in net income | 0.4 | Discounted cash flow | Discount Rate | 31.1% | 31.1% | ||||||
Prepayment Rate | 10.9% | 10.9% | |||||||||
Default Rate | 2.4% | 2.4% | |||||||||
Loss Severity | 59.2% | 59.2% | |||||||||
Derivative assets — non qualifying | 0.1 | Internal valuation model | Borrower Rate | 3.0% - 4.4% | 3.8% | ||||||
Total Assets | $ | 386.3 | |||||||||
Liabilities | |||||||||||
FDIC True-up liability | $ | (65.1 | ) | Discounted cash flow | Discount Rate | 2.9% | 2.9% | ||||
Consideration holdback liability | (46.0 | ) | Discounted cash flow | Payment Probability | 0% – 100% | 48.0% | |||||
Derivative liabilities — non-qualifying | (14.1 | ) | Market Comparables(1) | ||||||||
Total Liabilities | $ | (125.2 | ) |
33
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities Measured on a Recurring Basis (dollars in millions)
| Securities- AFS |
|
| Securities Carried at Fair Value with Changes Recorded in Net Income |
|
| Derivative Liabilities- Non- Qualifying(1) |
|
| FDIC True-up Liability |
|
| Consideration Holdback Liability |
| |||||
December 31, 2017 | $ | 385.8 |
|
| $ | 0.4 |
|
| $ | (14.1 | ) |
| $ | (65.1 | ) |
| $ | (46.0 | ) |
Included in earnings |
| 13.5 |
|
|
| — |
|
|
| 0.8 |
|
|
| (1.3 | ) |
|
| 8.0 |
|
Included in comprehensive income |
| (18.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Sales, paydowns, and adjustments |
| (274.2 | ) |
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
| 38.0 |
|
Balance as of September 30, 2018 | $ | 107.1 |
|
| $ | — |
|
| $ | (13.3 | ) |
| $ | (66.4 | ) |
| $ | — |
|
December 31, 2016 | $ | 485.5 |
|
| $ | 283.5 |
|
| $ | (11.5 | ) |
| $ | (61.9 | ) |
| $ | (47.2 | ) |
Included in earnings |
| (1.4 | ) |
|
| 15.0 |
|
|
| (2.3 | ) |
|
| (2.7 | ) |
|
| — |
|
Included in comprehensive income |
| 15.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Impairment |
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Sales, paydowns, and adjustments |
| (88.6 | ) |
|
| (50.8 | ) |
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Balance as of September 30, 2017 | $ | 411.0 |
|
| $ | 247.7 |
|
| $ | (13.8 | ) |
| $ | (64.6 | ) |
| $ | (46.0 | ) |
Securities- AFS | Securities Carried at Fair Value with Changes Recorded in Net Income | Derivative Assets- Non- qualifying(1) | Derivative Liabilities- Non- qualifying(2) | FDIC True-up Liability | Consideration Holdback Liability | ||||||||||||||||||
December 31, 2017 | $ | 385.8 | $ | 0.4 | $ | 0.1 | $ | (14.1 | ) | $ | (65.1 | ) | $ | (46.0 | ) | ||||||||
Included in earnings | 3.5 | — | — | (2.1 | ) | (0.4 | ) | — | |||||||||||||||
Included in comprehensive income | (2.7 | ) | — | — | — | — | — | ||||||||||||||||
Sales, paydowns, and adjustments | (75.3 | ) | (0.4 | ) | — | — | — | — | |||||||||||||||
Balance as of March 31, 2018 | $ | 311.3 | $ | — | $ | 0.1 | $ | (16.2 | ) | $ | (65.5 | ) | $ | (46.0 | ) | ||||||||
December 31, 2016 | $ | 485.5 | $ | 283.5 | $ | — | $ | (11.5 | ) | $ | (61.9 | ) | $ | (47.2 | ) | ||||||||
Included in earnings | (1.7 | ) | 3.2 | 0.1 | (0.8 | ) | (1.1 | ) | (0.2 | ) | |||||||||||||
Included in comprehensive income | 6.9 | — | — | — | — | — | |||||||||||||||||
Impairment | (0.1 | ) | — | — | — | — | — | ||||||||||||||||
Sales, paydowns, and adjustments | (20.1 | ) | (17.8 | ) | — | — | — | — | |||||||||||||||
Balance as of March 31, 2017 | $ | 470.5 | $ | 268.9 | $ | 0.1 | $ | (12.3 | ) | $ | (63.0 | ) | $ | (47.4 | ) |
(1) |
| Valuation of the |
Assets Measured at Estimated Fair Value on a Non-recurring Basis
Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurringnon-recurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. In determining the estimated fair values, during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. This was determined by examining the changes in market factors relative to instrument specific factors.
The following table presents assets measured at estimated fair value on a non-recurring basis for which a non-recurring change in fair value has been recorded in the current year:
Carrying Value of Assets Measured at Fair Value on a Non-recurring Basis
(dollars in millions)
|
|
|
| Fair Value Measurements at Reporting Date Using: |
|
|
|
|
| ||||||||||
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Gains (Losses) |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale | $ | 58.4 |
|
| $ | — |
|
| $ | 9.9 |
|
| $ | 48.5 |
|
| $ | 8.9 |
|
Other real estate owned |
| 3.8 |
|
|
| — |
|
|
| — |
|
|
| 3.8 |
|
|
| (1.0 | ) |
Impaired loans |
| 87.4 |
|
|
| — |
|
|
| — |
|
|
| 87.4 |
|
|
| (38.5 | ) |
Total | $ | 149.6 |
|
| $ | — |
|
| $ | 9.9 |
|
| $ | 139.7 |
|
| $ | (30.6 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale | $ | 177.8 |
|
| $ | — |
|
| $ | — |
|
| $ | 177.8 |
|
| $ | (15.0 | ) |
Other real estate owned |
| 18.8 |
|
|
| — |
|
|
| — |
|
|
| 18.8 |
|
|
| (4.4 | ) |
Impaired loans |
| 89.1 |
|
|
| — |
|
|
| — |
|
|
| 89.1 |
|
|
| (21.9 | ) |
Total | $ | 285.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 285.7 |
|
| $ | (41.3 | ) |
Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total (Losses) | |||||||||||||||
March 31, 2018 | |||||||||||||||||||
Assets held for sale | $ | 153.6 | $ | — | $ | 2.5 | $ | 151.1 | $ | (0.4 | ) | ||||||||
Other real estate owned | 13.2 | — | — | 13.2 | (0.5 | ) | |||||||||||||
Impaired loans(1) | 37.6 | — | — | 37.6 | (35.3 | ) | |||||||||||||
Total | $ | 204.4 | $ | — | $ | 2.5 | $ | 201.9 | $ | (36.2 | ) | ||||||||
December 31, 2017 | |||||||||||||||||||
Assets held for sale | 177.8 | — | — | 177.8 | (15.0 | ) | |||||||||||||
Other real estate owned | 18.8 | — | — | 18.8 | (4.4 | ) | |||||||||||||
Impaired loans | 89.1 | — | — | 89.1 | (21.9 | ) | |||||||||||||
Total | $ | 285.7 | $ | — | $ | — | $ | 285.7 | $ | (41.3 | ) |
Assets of continuing operations that are measured at fair value on a non-recurring basis are as follows:
Assets Held for Sale
—Other Real Estate Owned
— Estimated fair values ofImpaired Loans
—34 Item 1. Consolidated Financial Statements
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The carrying values and estimated fair values of financial instruments presented below exclude leases and certain other assets and liabilities, which arewere not required for disclosure.
Financial Instruments
(dollars in millions)
|
|
|
|
| Estimated Fair Value |
|
|
|
|
| |||||||||
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest bearing deposits | $ | 1,367.5 |
|
| $ | 1,367.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,367.5 |
|
Derivative assets at fair value — non-qualifying hedges |
| 128.5 |
|
|
| — |
|
|
| 128.3 |
|
|
| 0.2 |
|
|
| 128.5 |
|
Derivative assets at fair value — qualifying hedges |
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
Assets held for sale (excluding leases) |
| 132.2 |
|
|
| — |
|
|
| 11.9 |
|
|
| 121.2 |
|
|
| 133.1 |
|
Loans (excluding leases) |
| 27,999.0 |
|
|
| — |
|
|
| 858.7 |
|
|
| 27,260.9 |
|
|
| 28,119.6 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| — |
|
|
| 200.0 |
|
|
| — |
|
|
| 200.0 |
|
Investment securities(1) |
| 6,339.5 |
|
|
| 403.6 |
|
|
| 5,586.8 |
|
|
| 349.1 |
|
|
| 6,339.5 |
|
Indemnification assets(2) |
| 27.2 |
|
|
| — |
|
|
| — |
|
|
| 20.0 |
|
|
| 20.0 |
|
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) |
| 538.6 |
|
|
| — |
|
|
| — |
|
|
| 538.6 |
|
|
| 538.6 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(4) |
| (30,847.1 | ) |
|
| — |
|
|
| — |
|
|
| (30,833.1 | ) |
|
| (30,833.1 | ) |
Derivative liabilities at fair value — non-qualifying hedges |
| (115.5 | ) |
|
| — |
|
|
| (102.2 | ) |
|
| (13.3 | ) |
|
| (115.5 | ) |
Derivative liabilities at fair value — qualifying hedges |
| (13.6 | ) |
|
| — |
|
|
| (13.6 | ) |
|
| — |
|
|
| (13.6 | ) |
Borrowings(4) |
| (8,711.6 | ) |
|
| — |
|
|
| (8,017.0 | ) |
|
| (830.7 | ) |
|
| (8,847.7 | ) |
Credit balances of factoring clients |
| 1,672.4 |
|
|
| — |
|
|
| — |
|
|
| 1,672.4 |
|
|
| 1,672.4 |
|
Other liabilities subject to fair value disclosure(5) |
| (689.7 | ) |
|
| — |
|
|
| — |
|
|
| (689.7 | ) |
|
| (689.7 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest bearing deposits | $ | 1,718.7 |
|
| $ | 1,718.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,718.7 |
|
Derivative assets at fair value — non-qualifying hedges |
| 68.5 |
|
|
| — |
|
|
| 68.4 |
|
|
| 0.1 |
|
|
| 68.5 |
|
Derivative assets at fair value — qualifying hedges |
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
Assets held for sale (excluding leases) |
| 1,011.4 |
|
|
| — |
|
|
| 4.7 |
|
|
| 1,044.8 |
|
|
| 1,049.5 |
|
Loans (excluding leases) |
| 26,428.1 |
|
|
| — |
|
|
| 624.3 |
|
|
| 26,220.5 |
|
|
| 26,844.8 |
|
Securities purchased under agreement to resell |
| 150.0 |
|
|
| — |
|
|
| 150.0 |
|
|
| — |
|
|
| 150.0 |
|
Investment securities(1) |
| 6,469.9 |
|
|
| 199.2 |
|
|
| 5,583.3 |
|
|
| 687.4 |
|
|
| 6,469.9 |
|
Indemnification assets(2) |
| 113.5 |
|
|
| — |
|
|
| — |
|
|
| 87.4 |
|
|
| 87.4 |
|
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) |
| 542.2 |
|
|
| — |
|
|
| — |
|
|
| 542.2 |
|
|
| 542.2 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(4) |
| (29,586.5 | ) |
|
| — |
|
|
| — |
|
|
| (29,668.6 | ) |
|
| (29,668.6 | ) |
Derivative liabilities at fair value — non-qualifying hedges |
| (68.3 | ) |
|
| — |
|
|
| (54.2 | ) |
|
| (14.1 | ) |
|
| (68.3 | ) |
Derivative liabilities at fair value — qualifying hedges |
| (18.7 | ) |
|
| — |
|
|
| (18.7 | ) |
|
| — |
|
|
| (18.7 | ) |
Borrowings(4) |
| (9,043.8 | ) |
|
| — |
|
|
| (8,281.7 | ) |
|
| (991.2 | ) |
|
| (9,272.9 | ) |
Credit balances of factoring clients |
| (1,468.6 | ) |
|
| — |
|
|
| — |
|
|
| (1,468.6 | ) |
|
| (1,468.6 | ) |
Other liabilities subject to fair value disclosure(5) |
| (725.2 | ) |
|
| — |
|
|
| — |
|
|
| (725.2 | ) |
|
| (725.2 | ) |
Estimated Fair Value | |||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
March 31, 2018 | |||||||||||||||||||
Financial Assets | |||||||||||||||||||
Cash and interest bearing deposits | $ | 4,096.3 | $ | 4,096.3 | $ | — | $ | — | $ | 4,096.3 | |||||||||
Derivative assets at fair value — non-qualifying hedges | 94.2 | — | 94.1 | 0.1 | 94.2 | ||||||||||||||
Derivative assets at fair value — qualifying hedges | 24.5 | — | 24.5 | — | 24.5 | ||||||||||||||
Assets held for sale (excluding leases) | 980.2 | — | 3.6 | 1,011.5 | 1,015.1 | ||||||||||||||
Loans (excluding leases) | 26,828.4 | 668.8 | 26,495.2 | 27,164.0 | |||||||||||||||
Securities purchased under agreement to resell | 250.0 | — | 250.0 | — | 250.0 | ||||||||||||||
Investment securities(1) | 5,910.5 | 248.0 | 5,048.9 | 613.6 | 5,910.5 | ||||||||||||||
Indemnification assets(2) | 91.6 | — | — | 72.2 | 72.2 | ||||||||||||||
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) | 476.2 | — | — | 476.2 | 476.2 | ||||||||||||||
Financial Liabilities | |||||||||||||||||||
Deposits(4) | (30,616.7 | ) | — | — | (30,638.8 | ) | (30,638.8 | ) | |||||||||||
Derivative liabilities at fair value — non-qualifying hedges | (96.7 | ) | — | (80.5 | ) | (16.2 | ) | (96.7 | ) | ||||||||||
Derivative liabilities at fair value — qualifying hedges | (7.2 | ) | — | (7.2 | ) | — | (7.2 | ) | |||||||||||
Borrowings(4) | (10,480.9 | ) | — | (9,711.9 | ) | (943.1 | ) | (10,655.0 | ) | ||||||||||
Credit balances of factoring clients | (1,549.0 | ) | — | — | (1,549.0 | ) | (1,549.0 | ) | |||||||||||
Other liabilities subject to fair value disclosure(5) | (613.7 | ) | — | — | (613.7 | ) | (613.7 | ) | |||||||||||
December 31, 2017 | |||||||||||||||||||
Financial Assets | |||||||||||||||||||
Cash and interest bearing deposits | $ | 1,718.7 | $ | 1,718.7 | $ | — | $ | — | $ | 1,718.7 | |||||||||
Derivative assets at fair value — non-qualifying hedges | 68.5 | — | 68.4 | 0.1 | 68.5 | ||||||||||||||
Derivative assets at fair value — qualifying hedges | 0.2 | — | 0.2 | — | 0.2 | ||||||||||||||
Assets held for sale (excluding leases) | 1,011.4 | — | 4.7 | 1,044.8 | 1,049.5 | ||||||||||||||
Loans (excluding leases) | 26,428.1 | — | 624.3 | 26,220.5 | 26,844.8 | ||||||||||||||
Securities purchased under agreement to resell | 150.0 | — | 150.0 | — | 150.0 | ||||||||||||||
Investment securities(1) | 6,469.9 | 199.2 | 5,583.3 | 687.4 | 6,469.9 | ||||||||||||||
Indemnification assets(2) | 113.5 | — | — | 87.4 | 87.4 | ||||||||||||||
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) | 542.2 | — | — | 542.2 | 542.2 | ||||||||||||||
Financial Liabilities | |||||||||||||||||||
Deposits(4) | (29,586.5 | ) | — | — | (29,668.6 | ) | (29,668.6 | ) | |||||||||||
Derivative liabilities at fair value — non-qualifying hedges | (68.3 | ) | — | (54.2 | ) | (14.1 | ) | (68.3 | ) | ||||||||||
Derivative liabilities at fair value — qualifying hedges | (18.7 | ) | — | (18.7 | ) | — | (18.7 | ) | |||||||||||
Borrowings(4) | (9,043.8 | ) | — | (8,281.7 | ) | (991.2 | ) | (9,272.9 | ) | ||||||||||
Credit balances of factoring clients | (1,468.6 | ) | — | — | (1,468.6 | ) | (1,468.6 | ) | |||||||||||
Other liabilities subject to fair value disclosure(5) | (725.2 | ) | — | — | (725.2 | ) | (725.2 | ) |
(1) | Level 3 |
(2) | The indemnification assets relating to the SFR loans purchased in the OneWest Bank Transaction were measured on the same basis as the related indemnified item, and the underlying SFR loans. The estimated fair values reflect the present value of expected reimbursements under the indemnification agreements based on the loan performance discounted at an estimated market rate, and were classified as Level 3. The indemnification assets included in the above table do not include Agency claims indemnification |
(3) | Other assets subject to fair value disclosure primarily include unsecured counterparty receivables, accrued interest receivable and miscellaneous receivables. |
(4) | Deposits and borrowings include accrued interest, which is included in “Other liabilities” |
(5) | Other liabilities subject to fair value disclosure include accounts payable, accrued liabilities, customer security and maintenance deposits and miscellaneous liabilities. The fair value of these |
35
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The methods and assumptions used to estimate the fair value of each class of financial instruments are explained below:
Derivative Assets and interest bearing depositsLiabilities — Cash and cash equivalents and restricted cash approximate estimated—Derivatives were valued using models that incorporate inputs depending on the type of derivative. Besides the fair value and are classified as Level 1.
Investment Securities
—▪ | Debt securities classified as AFS —Investments in U.S. federal government agency securities, U.S. Treasury Notes, agency pass-through and supranational securities were valued using Level 2 inputs. The market for non-Agency MBS is not active; therefore the estimated fair value was determined using a discounted cash flow technique. Given the lack of observable market data, the estimated fair value of the non-agency MBS was classified as Level 3. Non-marketable equity securities utilize Level 3 inputs to estimate fair value and were generally recorded under the cost or equity method of accounting. For investments in limited partnership equity interests, the Company used the net asset value provided by the fund manager as an appropriate measure of fair value. |
▪ | Securities carried at fair value with changes recorded in net income — included equity securities AFS that were reclassified to securities carried at fair value with changes recorded in net income upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018. A majority were valued using Level 2 inputs and the remaining were valued using Level 1 inputs. |
Assets held for sale
—Loans
— Within the Loans category, there are several types of loans as follows:▪ | |
Commercial and Consumer Loans — |
▪ | |
Impaired Loans — The value of impaired loans |
▪ | |
PCI loans — These loans |
Deposits
— The estimated fair value of deposits with no stated maturity, such as demand deposit accounts (including custodial deposits), money market accounts, and savings accountsBorrowings
The Level 2 fair value of borrowings were valued using market inputs and discounted value of the contractual cash flow analysis. Theflows using current estimated market discount raterates for the time deposit accounts is derived from the rate currently offered on funding sourcesborrowings with similar terms, remaining maturities for similar terms, which are Level 3 inputs.
▪ | |
Unsecured debt — Unsecured debt |
▪ | |
Secured borrowings — Secured borrowings |
The Level 3 fair value of borrowings included:
▪ | Secured borrowings — Market estimates were not available for |
Credit balances of factoring clients — The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances (typically 90 days or less) as of March 31, 2018 and December 31, 2017. Accordingly, credit balances of factoring clients approximate estimated, therefore, the carrying value approximated fair value, and arethe credit balances were classified as Level 3.
Number of Shares of Common Stock | |||||||||
Issued | Less Treasury | Outstanding | |||||||
Common Stock – December 31, 2017 | 207,628,491 | (76,275,567 | ) | 131,352,924 | |||||
Restricted stock issued | 1,188,303 | — | 1,188,303 | ||||||
Repurchase of common stock | — | (3,665,866 | ) | (3,665,866 | ) | ||||
Shares held to cover taxes on vesting restricted shares and other | — | (470,681 | ) | (470,681 | ) | ||||
Employee stock purchase plan participation | 13,603 | — | 13,603 | ||||||
Common Stock – March 31, 2018 | 208,830,397 | (80,412,114 | ) | 128,418,283 | |||||
Components of Accumulated Other Comprehensive Loss (dollars in millions) | |||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
Gross Unrealized | Income Taxes | Net Unrealized | Gross Unrealized | Income Taxes | Net Unrealized | ||||||||||||||||||
Foreign currency translation adjustments | $ | 1.8 | $ | (8.9 | ) | $ | (7.1 | ) | $ | 0.8 | $ | (8.8 | ) | $ | (8.0 | ) | |||||||
Changes in benefit plan net gain (loss) and prior service (cost)/credit | (49.1 | ) | (1.7 | ) | (50.8 | ) | (53.6 | ) | (0.9 | ) | (54.5 | ) | |||||||||||
Unrealized net gains (losses) on securities AFS | (124.9 | ) | 32.9 | (92.0 | ) | (39.5 | ) | 15.5 | (24.0 | ) | |||||||||||||
Total accumulated other comprehensive loss | $ | (172.2 | ) | $ | 22.3 | $ | (149.9 | ) | $ | (92.3 | ) | $ | 5.8 | $ | (86.5 | ) |
36
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 9 — STOCKHOLDERS' EQUITY
A roll forward of common stock is presented in the following table.
Number of Shares of Common Stock
| Issued |
|
| Less Treasury |
|
| Outstanding |
| |||
Common Stock – December 31, 2017 |
| 207,628,491 |
|
|
| (76,275,567 | ) |
|
| 131,352,924 |
|
Restricted stock issued |
| 1,368,262 |
|
|
| — |
|
|
| 1,368,262 |
|
Repurchase of common stock |
| — |
|
|
| (21,657,560 | ) |
|
| (21,657,560 | ) |
Shares held to cover taxes on vesting restricted shares and other |
| — |
|
|
| (540,244 | ) |
|
| (540,244 | ) |
Employee stock purchase plan participation |
| 42,551 |
|
|
| — |
|
|
| 42,551 |
|
Common Stock – September 30, 2018 |
| 209,039,304 |
|
|
| (98,473,371 | ) |
|
| 110,565,933 |
|
During the quarter ended September 30, 2018, CIT repurchased a total of $290.9 million in common shares via open market repurchases of 5,497,460 common shares.
During the nine months ended September 30, 2018, CIT repurchased a total of $556.8 million in common shares via open market repurchases of 10,534,273 common shares and $609.0 million, excluding fees, via an equity tender offer of 11,123,287 common shares.
Accumulated Other Comprehensive Income (Loss) ("AOCI")
The following table details the components of AOCI, net of tax:
Components of Accumulated Other Comprehensive Loss (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Gross Unrealized |
|
| Income Taxes |
|
| Net Unrealized |
|
| Gross Unrealized |
|
| Income Taxes |
|
| Net Unrealized |
| ||||||
Foreign currency translation adjustments | $ | 8.0 |
|
| $ | (12.0 | ) |
| $ | (4.0 | ) |
| $ | 0.8 |
|
| $ | (8.8 | ) |
| $ | (8.0 | ) |
Changes in benefit plan net gain (loss) and prior service (cost)/credit |
| (48.6 | ) |
|
| (1.8 | ) |
|
| (50.4 | ) |
|
| (53.6 | ) |
|
| (0.9 | ) |
|
| (54.5 | ) |
Unrealized net losses on securities AFS |
| (197.4 | ) |
|
| 52.4 |
|
|
| (145.0 | ) |
|
| (39.5 | ) |
|
| 15.5 |
|
|
| (24.0 | ) |
Total accumulated other comprehensive loss | $ | (238.0 | ) |
| $ | 38.6 |
|
| $ | (199.4 | ) |
| $ | (92.3 | ) |
| $ | 5.8 |
|
| $ | (86.5 | ) |
The following table details the changes in the components of AOCI, net of income taxes:
Changes in Accumulated Other Comprehensive Income (Loss) by Component (dollars in millions) | |||||||||||||||
Foreign currency translation adjustments | Changes in benefit plan net gain (loss) and prior service (cost) credit | Unrealized net gains (losses) on available for sale securities | Total AOCI | ||||||||||||
Balance as of December 31, 2017 | $ | (8.0 | ) | $ | (54.5 | ) | $ | (24.0 | ) | $ | (86.5 | ) | |||
Adoption of ASUs 2016-01 and 2018-02(1) | 3.3 | 0.3 | (4.1 | ) | (0.5 | ) | |||||||||
AOCI activity before reclassifications | (2.4 | ) | 3.3 | (60.1 | ) | (59.2 | ) | ||||||||
Amounts reclassified from AOCI | — | 0.1 | (3.8 | ) | (3.7 | ) | |||||||||
Net current period AOCI | (2.4 | ) | 3.4 | (63.9 | ) | (62.9 | ) | ||||||||
Balance as of March 31, 2018 | $ | (7.1 | ) | $ | (50.8 | ) | $ | (92.0 | ) | $ | (149.9 | ) | |||
Balance as of December 31, 2016 | $ | (61.4 | ) | $ | (65.3 | ) | $ | (13.4 | ) | $ | (140.1 | ) | |||
AOCI activity before reclassifications | 3.3 | 0.9 | 2.7 | 6.9 | |||||||||||
Amounts reclassified from AOCI | 9.5 | — | — | 9.5 | |||||||||||
Net current period AOCI | 12.8 | 0.9 | 2.7 | 16.4 | |||||||||||
Balance as of March 31, 2017 | $ | (48.6 | ) | $ | (64.4 | ) | $ | (10.7 | ) | $ | (123.7 | ) |
Changes in Accumulated Other Comprehensive Income (Loss) by Component See Note 1 -(dollars in millions)
| Foreign currency translation adjustments |
|
| Changes in benefit plan net gain (loss) and prior service (cost) credit |
|
| Unrealized net gains (losses) on available for sale securities |
|
| Total AOCI |
| ||||
Balance as of December 31, 2017 | $ | (8.0 | ) |
| $ | (54.5 | ) |
| $ | (24.0 | ) |
| $ | (86.5 | ) |
Adoption of ASUs 2016-01 and 2018-02(1) |
| 3.3 |
|
|
| 0.3 |
|
|
| (4.1 | ) |
|
| (0.5 | ) |
AOCI activity before reclassifications |
| 0.7 |
|
|
| 3.3 |
|
|
| (105.3 | ) |
|
| (101.3 | ) |
Amounts reclassified from AOCI |
| — |
|
|
| 0.5 |
|
|
| (11.6 | ) |
|
| (11.1 | ) |
Net current period AOCI |
| 0.7 |
|
|
| 3.8 |
|
|
| (116.9 | ) |
|
| (112.4 | ) |
Balance as of September 30, 2018 | $ | (4.0 | ) |
| $ | (50.4 | ) |
| $ | (145.0 | ) |
| $ | (199.4 | ) |
Balance as of December 31, 2016 | $ | (61.4 | ) |
| $ | (65.3 | ) |
| $ | (13.4 | ) |
| $ | (140.1 | ) |
AOCI activity before reclassifications |
| 28.4 |
|
|
| 0.9 |
|
|
| 12.9 |
|
|
| 42.2 |
|
Amounts reclassified from AOCI |
| 26.2 |
|
|
| 0.7 |
|
|
| (2.3 | ) |
|
| 24.6 |
|
Net current period AOCI |
| 54.6 |
|
|
| 1.6 |
|
|
| 10.6 |
|
|
| 66.8 |
|
Balance as of September 30, 2017 | $ | (6.8 | ) |
| $ | (63.7 | ) |
| $ | (2.8 | ) |
| $ | (73.3 | ) |
(1) | See Note 1 — Business and Summary of Significant Accounting Policies for information on these ASUs. |
37
CIT Group Inc. and Summary of Significant Accounting Policies for information on these ASUs.
The amounts included in the StatementCondensed Consolidated Statements of Comprehensive Income are net of income taxes.
Foreign currency translation reclassification adjustments impacting net income for the quarter and the nine months ended March 31,September 30, 2018 and $9.5 millionwere insignificant. Foreign currency translation reclassification adjustments impacting net income for the quarter and the nine months ended March 31, 2017.September 30, 2017 were insignificant and $26.2 million, respectively. Of the year to date 2017 balance, $16.7 million was a result of the sale of the Commercial Air business and was recorded in gain on sale of discontinued operations. The change in income taxes associated with foreign currency translation adjustments was $(0.1)an increase of $1.8 million and $4.4$9.2 million for the quarters ended March 31,September 30, 2018 and 2017, respectively, and a decrease of $3.2 million and an increase of $26.3 million for the nine months ended September 30, 2018 and 2017, respectively.
The changes in benefit plans net gain/(loss) and prior service (cost)/credit reclassification adjustments impacting net income were insignificant and $0.1 million and insignificant for the quarters ended March 31,September 30, 2018 and 2017, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2018 and 2017, respectively. The change in income taxes associated with changes in benefit plans net gain/(loss) and prior service (cost)/credit was $(0.8) million and $(0.6) millioninsignificant for the quarters ended March 31,September 30, 2018 and 2017, respectively, and a decrease of $0.9 million and a decrease of $0.6 million for the nine months ended September 30, 2018 and 2017, respectively.
Reclassification adjustments impacting net income for unrealized gains/(losses) on available for sale securities was $(3.8)a decrease of $2.3 million and insignificanta decrease of $2.1 million for the quarters ended March 31,September 30, 2018 and 2017, respectively and a decrease of $11.6 million and a decrease of $2.3 million for the nine months ended September 30, 2018 and 2017, respectively. The change in income taxes associated with net unrealized gains/(losses) on available for sale securities was $17.4an increase of $11.4 million and $(1.6)a decrease of $2.3 million for quarters ended March 31,September 30, 2018 and 2017, respectively.
Reclassifications Out of AOCI (dollars in millions) | |||||||||||||||||||||||||
Quarters Ended March 31, | |||||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||||
Gross Amount | Tax | Net Amount | Gross Amount | Tax | Net Amount | Income Statement line item | |||||||||||||||||||
Foreign currency translation adjustments gains | $ | — | $ | — | $ | — | $ | 8.1 | $ | 1.4 | $ | 9.5 | Other Income | ||||||||||||
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses | 0.1 | — | 0.1 | — | — | — | Operating Expenses | ||||||||||||||||||
Unrealized net gains (losses) on securities AFS | (5.2 | ) | 1.4 | (3.8 | ) | — | — | — | Other Income | ||||||||||||||||
Total Reclassifications out of AOCI | $ | (5.1 | ) | $ | 1.4 | $ | (3.7 | ) | $ | 8.1 | $ | 1.4 | $ | 9.5 |
Reclassifications Out of AOCI (dollars in millions)
Quarters Ended September 30, | 2018 |
|
| 2017 |
|
|
| ||||||||||||||||||
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Income Statement Line Item | ||||||
Foreign currency translation adjustments losses | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| Other non-interest income |
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses |
| 0.1 |
|
|
| (0.1 | ) |
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
| Operating Expenses |
Unrealized net gains on securities AFS |
| (3.1 | ) |
|
| 0.8 |
|
|
| (2.3 | ) |
|
| (3.4 | ) |
|
| 1.3 |
|
|
| (2.1 | ) |
| Other non-interest income |
Total Reclassifications out of AOCI | $ | (3.0 | ) |
| $ | 0.7 |
|
| $ | (2.3 | ) |
| $ | (3.3 | ) |
| $ | 1.3 |
|
| $ | (2.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | 2018 |
|
| 2017 |
|
|
| ||||||||||||||||||
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Income Statement Line Item | ||||||
Foreign currency translation adjustment losses(1) | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 24.1 |
|
| $ | 2.1 |
|
| $ | 26.2 |
|
| Other non-interest income |
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses |
| 0.6 |
|
|
| (0.1 | ) |
|
| 0.5 |
|
|
| 0.8 |
|
|
| (0.1 | ) |
|
| 0.7 |
|
| Operating Expenses |
Unrealized net gains on securities AFS |
| (15.8 | ) |
|
| 4.2 |
|
|
| (11.6 | ) |
|
| (3.6 | ) |
|
| 1.3 |
|
|
| (2.3 | ) |
| Other non-interest income |
Total Reclassifications out of AOCI | $ | (15.2 | ) |
| $ | 4.1 |
|
| $ | (11.1 | ) |
| $ | 21.3 |
|
| $ | 3.3 |
|
| $ | 24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) $16.7 million of the reclassification from AOCI during the second quarter of 2017 was a result of the sale of the Commercial Air business and is recorded in gain on sale of discontinued operations. |
38 Item 1. Consolidated Financial Statements
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Capital Components and Ratios (dollars in millions) | |||||||||||||||
CIT | CIT Bank, N.A. | ||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | ||||||||||||
Common Equity Tier 1 Capital | $ | 6,321.5 | $ | 6,479.8 | $ | 4,730.9 | $ | 4,751.6 | |||||||
Tier 1 Capital | $ | 6,637.7 | $ | 6,775.4 | $ | 4,730.9 | $ | 4,751.6 | |||||||
Total Capital | $ | 7,528.2 | $ | 7,251.0 | $ | 5,165.5 | $ | 5,183.3 | |||||||
Risk-Weighted Assets | $ | 44,777.8 | $ | 44,537.7 | $ | 34,742.2 | $ | 34,527.2 | |||||||
Capital Ratios: | |||||||||||||||
Common Equity Tier 1 Capital Ratio: | |||||||||||||||
Actual | 14.1 | % | 14.5 | % | 13.6 | % | 13.8 | % | |||||||
Effective minimum ratios under Basel III guidelines(1) | 6.375 | % | 5.750 | % | 6.375 | % | 5.750 | % | |||||||
Tier 1 Capital Ratio: | |||||||||||||||
Actual | 14.8 | % | 15.2 | % | 13.6 | % | 13.8 | % | |||||||
Effective minimum ratios under Basel III guidelines(1) | 7.875 | % | 7.250 | % | 7.875 | % | 7.250 | % | |||||||
Total Capital Ratio: | |||||||||||||||
Actual | 16.8 | % | 16.3 | % | 14.9 | % | 15.0 | % | |||||||
Effective minimum ratios under Basel III guidelines(1) | 9.875 | % | 9.250 | % | 9.875 | % | 9.250 | % | |||||||
Tier 1 Leverage Ratio: | |||||||||||||||
Actual | 13.5 | % | 13.8 | % | 11.6 | % | 11.8 | % | |||||||
Required minimum ratio for capital adequacy purposes | 4.0 | % | 4.0 | % | 4.0 | % | 4.0 | % |
The Company’s global effective income tax rate from continuing operations for the first quarter and year-ago quarter was 28.5% and 41.8%, respectively, including discrete tax items. The declineitems for the third quarter and nine months ended September 30, 2018 was 24.2% and 26.9%, respectively, up from (116.3)% in the effective tax rate is primarily driven by lower statutory income tax rates from U.S. tax reform, partially offset byprior year quarter and (38.7)% in the impact of the change in accounting method for the low income housing tax credit ("LIHTC") investment, disallowance of FDIC insurance premiums, and state income taxes.
The quarterly income tax expense is based on a projection of the Company’s annual effective tax rate. This annual effective tax rate is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The year-to-date impact of any change in the projected annual effective tax rate from the prior quarter estimate is included in the current quarter income tax expense. The effective tax rate each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted effective tax rate may vary from the actual year-end 2018 effective tax rate due to the changes in these factors.
2017 U.S. Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (or “U.S. Tax Reform legislation”(“TCJA”) was enacted on December 22, 2017. The Tax Cuts and Jobs ActTCJA required management to make certain adjustments to the Company’s year-end financial statements for the effects of the law relating to the remeasurement of deferred taxes, liabilities for taxes due on mandatory deemed repatriation, liabilities for taxes due on other foreign income, and the reassessment of the Company’s valuation allowance. The SEC staff has afforded registrants a measurement period to record adjustments for the affectseffects of the law, per Staff Accounting Bulletin No. 118
Valuation Allowances
The Company established valuation allowances (“VAs”) against certain U.S. federal, U.S. state, and international deferred tax assets (“DTAs”) that are not expected to be realized in the future. The Company maintained a VA of $208.6 million against U.S. state DTAs on certain state net operating losses and $32.4a $28.6 million VA against certain non-U.S. reporting entities' net DTAs as of March 31,September 30, 2018. Additionally,
In 2017, the Company reported a net $177.4 million U.S. income tax benefit comprised of a gross $234.2 million tax benefit on a capital loss of $610.5 million realized on the liquidation of a wholly-owned foreign subsidiary partially offset by a $56.8 million charge to establish a VA against the unused portion of the capital loss. As a result of the change in the U.S. Federal income tax rate from 35 percent to 21 percent beginning in 2018, the VA against the capital loss carryforwards was revalued to $39.6 million as of MarchDecember 31, 2017. As of the third quarter of 2018, the Company maintained a $21.7 million U.S. federalFederal and state VA onof $15.8 million against certain capital loss carryforwards, down from $39.6 million as of December 31, 2017. The reduction was attributable to changes in expected capital gains and additional net capital gains recognized year to date in the normal course of business as well as a reduction to the DTA established on capital loss carryforwards generated incarryforward and associated VA. The Company will recognize the prior year from an equity investment in a wholly-owned foreign subsidiary.income tax benefit on the remaining portion of the DTA subject to the VA to the extent of additional capital gains. Capital losses can be carried forward for five years to offset capital gains but requires a VA until additional capital gains are identified. gains.
The Company’s ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect its ability to utilize existing DTAs. If events are identified that affect its ability to utilize its DTAs, VAs may be adjusted accordingly.
Liabilities for Uncertain Tax Positions
The Company’s liability for uncertain tax positions ("UTPs") before interest and penalties was $13.2$13.3 million at March 31,September 30, 2018 and $13.5 million at December 31, 2017. The Company anticipates changes to its UTP liability upon the resolution of open tax matters and closure of statutes of limitations. Management estimates that the total potential liability before interest and penalties may be reduced by up to $5 million within the next twelve months. The Company’s accrued liability for interest and penalties totaled $6.5$7.1 million at March 31,September 30, 2018 and $6.3 million at December 31, 2017. Management believes that it is reasonably possible the total potential liability may be increased or decreased by $5 to $10 million within the twelve months following the reporting date because of anticipated settlement with taxing authorities. The Company recognizes accrued interest and penalties on unrecognized tax benefits in income tax expense.
39
NOTE 1211 — COMMITMENTS
The accompanying table summarizes credit-related commitments and guarantees, as well as purchase and funding commitments:
Commitments (dollars in millions) | |||||||||||||||
March 31, 2018 | |||||||||||||||
Due to Expire | December 31, 2017 | ||||||||||||||
Within One Year | After One Year | Total Outstanding | Total Outstanding | ||||||||||||
Financing Commitments | |||||||||||||||
Financing assets (1) (2) | $ | 2,018.1 | $ | 4,689.7 | $ | 6,707.8 | $ | 6,351.1 | |||||||
Letters of credit | |||||||||||||||
Standby letters of credit | 31.8 | 212.8 | 244.6 | 213.3 | |||||||||||
Other letters of credit | 14.3 | — | 14.3 | 14.2 | |||||||||||
Guarantees | |||||||||||||||
Deferred purchase agreements | 1,870.6 | — | 1,870.6 | 2,068.1 | |||||||||||
Guarantees, acceptances and other recourse obligations | 2.1 | — | 2.1 | 2.1 | |||||||||||
Purchase and Funding Commitments | |||||||||||||||
Rail and other purchase commitments (1) | 252.9 | 27.5 | 280.4 | 222.9 |
Commitments In preparing the quarter-end financial statements as of March 31, 2018, the Company discovered and corrected an immaterial error impacting December 31, 2017 "Financing assets" and "Rail and other purchase commitments", which were understated by $113.4 million ($86.6 million for financing assets and $26.8 million for purchase commitments). The current presentation has been revised to reflect the corrected balances at December 31, 2017.
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Due to Expire |
|
|
|
|
| |||||||||
| Within One Year |
|
| After One Year |
|
| Total Outstanding |
|
| Total Outstanding |
| ||||
Financing Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing assets (1) | $ | 2,421.3 |
|
| $ | 4,061.7 |
|
| $ | 6,483.0 |
|
| $ | 6,351.1 |
|
Letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
| 31.2 |
|
|
| 211.1 |
|
|
| 242.3 |
|
|
| 213.3 |
|
Other letters of credit |
| 11.4 |
|
|
| 0.7 |
|
|
| 12.1 |
|
|
| 16.3 |
|
Guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred purchase agreements |
| 2,082.7 |
|
|
| — |
|
|
| 2,082.7 |
|
|
| 2,068.1 |
|
Purchase and Funding Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail and other purchase commitments (1) |
| 393.2 |
|
|
| 33.8 |
|
|
| 427.0 |
|
|
| 222.9 |
|
(1) | In preparing the quarter-end financial statements as of March 31, 2018, the Company discovered and corrected an immaterial error impacting December 31, 2017 "Financing assets" and "Rail and other purchase commitments", which were understated by $113.4 million ($86.6 million for financing assets and $26.8 million for purchase commitments). The current presentation has been revised to reflect the corrected balances at December 31, 2017. |
Discontinued Operations
Financing commitments include HECM reverse mortgage loan commitments associated with Financial Freedom discontinued operations of $33$24 million at March 31,September 30, 2018 and $34 million at December 31, 2017. In addition, as2017 due to CIT’s servicer of HECM loans, the Company is requiredobligation to repurchase the loan out of the GNMA HMBS securitization pools once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO. In October 2017,On May 31, 2018, the Company announcedcompleted the sale of the Financial Freedom business and a reverse mortgage loan portfolio in connection with the Financial Freedom Transaction. UponAt September 30, 2018, the required investor (GNMA) consent remains outstanding; although the economic benefit and risk of the business has been transferred to servicing transfer in connection with the sale,buyer. Upon receiving the GNMA consent, CIT shall no longer have this servicer repurchase obligation. See
Financing Commitments
Commercial
Financing commitments, referred to as loan commitments or lines of credit, primarily reflect CIT’s agreements to lend to its customers, subject to the customers’ compliance with contractual obligations. Included in the table above are commitments that have been extended to and accepted by customers, clients or agents, but on which the criteria for funding have not been completed of $1,464.9$1,616.3 million at March 31,September 30, 2018 and $950.3 million at December 31, 2017. Financing commitments also include credit line agreements to Business Capital clients that are cancellable by us only after a notice period. The notice period is typically 90 days or less. The amount available under these credit lines, net of the amount of receivables assigned to us, was $105$135 million at March 31,September 30, 2018 and $190 million at December 31, 2017. As financing commitments may not be fully drawn, may expire unused, may be reduced or canceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.
At March 31,September 30, 2018, substantially all undrawn financing commitments were senior facilities. Most of the Company’s undrawn and available financing commitments are in the Commercial Banking segment.
The table above excludes uncommitted revolving credit facilities extended by Business Capital to itsits’ clients for working capital purposes. In connection with these facilities, Business Capital has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.
Consumer
The Company issold its reverse mortgage portfolio in connection with the Financial Freedom Transaction on May 31, 2018. Prior to the sale, the Company was committed to fund draws on certain reverse mortgages in conjunction with loss sharing agreements with the FDIC.FDIC from the OneWest acquisition. The FDIC agreed to indemnify the Company for losses on the first $200 million of draws that occur subsequent to the purchase date. In addition, the FDIC agreed to fund any other draws in excess of the $200 million.date (post March 2009). As of March 31, 2018 and December 31, 2017, $132 million and $134 million respectively, had been advanced on the reverse mortgage loans post March 2009. The Company’s2009 with exposure for additional draws on loan commitments on these purchased reverse mortgage loans was $68 million at March 31, 2018 andof $66 million at December 31, 2017. The aggregate amount advanced and the remaining loan commitments on these purchased loans increase or decrease as the Company funds additional draws or outstanding draws are repaid.million. See
40
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Separately, the Company’s commitmentCompany is committed to fund draws on certain home equity lines of credit (“HELOCs”). Under the HELOC participation and servicing agreement entered into with the FDIC, the FDIC agreed to reimburse the Company for a portion of the draws that the Company madefunded on the purchased HELOCs.
Letters of Credit
In the normal course of meeting the needs of clients, CIT sometimes enters into agreements to provide financing and letters of credit. Standby letters of credit obligate the issuer of the letter of credit to pay the beneficiary if a client on whose behalf the letter of credit was issued does not meet its obligation. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Condensed Consolidated Balance Sheets. To minimize potential credit risk, CIT generally requires collateral and in some cases additional forms of credit support from the client.
Deferred Purchase Agreements
A Deferred Purchase Agreement (“DPA”) is provided in conjunction with factoring, whereby CIT provides a client with credit protection for trade receivables without purchasing the receivables. The trade receivable terms are generally 90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, then CIT purchases the receivable from the client. The outstanding amount in the table above is the maximum potential exposure that CIT would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring CIT to purchase all such receivables from the DPA clients.
The table above includes $1,774$2,020 million and $1,979 million of DPA credit protection at March 31,September 30, 2018 and December 31, 2017, respectively, related to receivables which have been presented to us for credit protection after shipment of goods has occurred and the customer has been invoiced. The table also includes $96$62 million and $89 million available under DPA credit line agreements, net of the amount of DPA credit protection provided at March 31,September 30, 2018 and December 31, 2017, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period. The notice period is typically 90 days or less.
The methodology used to determine the DPA liability is similar to the methodology used to determine the allowance for loan losses associated with the finance loans, which reflects embedded losses based on various factors, including expected losses reflecting the Company’s internal customer and facility credit ratings. The liability recorded in Other Liabilities related to the DPAs totaled $5.4$6.6 million and $5.3 million at March 31,September 30, 2018 and December 31, 2017, respectively.
Purchase and Funding Commitments
CIT’s purchase commitments relate primarily to purchases of rail equipment.
Other Commitments
The Company has commitments to invest in affordable housing investments, and other investments qualifying for community reinvestment tax credits. These commitments were $80$116 million at March 31,September 30, 2018 and $67 million at December 31, 2017. These commitments are payable on demand and are recorded in Otherother liabilities.
Litigation and other Contingencies
CIT is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings relating toas well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies. These matters that arise in connection with the conduct of its business (collectively,CIT’s business. At any given time, CIT may also be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing collectively being referred to as, “Litigation”). While most Litigation relates to individual claims, CIT is also subject to putative class action claims and similar broader claims.
In view of the inherent difficulty of predicting the outcome of Litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, CIT cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, CIT establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can be reasonably estimated. Based on currently available information, CIT believes that the resultsoutcome of Litigation that is currently pending taken together, will not have a material adverse effect on the Company’s financial condition, but may be material to the Company’s operating results or cash flows for any particular period, depending in part on its operating
41
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
For certain Litigation matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates the aggregate range of reasonably possible losses as up to $55$65 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters, if any.matters. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31,September 30, 2018. The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.
Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure.
The foregoing statements about CIT’s Litigation are based on the Company’s judgments, assumptions, and estimates and are necessarily subjective and uncertain. The Company has several hundred threatened and pending judicial, regulatory and arbitration proceedings at various stages. Several of the Company’s significant Litigation matters are described below.
Brazilian Tax Matter
Banco Commercial Investment Trust do Brasil S.A. (“Banco CIT”), CIT’s Brazilian bank subsidiary, was sold in a stock sale in the fourth quarter of 2015, thereby transferring the legal liabilities of Banco CIT to the buyer. Under the terms of the stock sale, CIT remains liable for indemnification to the buyer for any losses resulting from certain Imposto Sobre Circulaco de Mercadorias e Servicos (“ICMS”) tax appeals relating to disputed local tax assessments on leasing services and importation of equipment (the “ICMS Tax Appeals”).
Notices of infraction were issued to Banco CIT relating to the payment of ICMS taxes charged by Brazilian states in connection with the importation of equipment. The state of São Paulo claims that Banco CIT should have paid it ICMS taxes for tax years 2006 - 2009 because Banco CIT, the purchaser, was located in São Paulo. Instead, the ICMS taxes were paid to the state of Espirito Santo where the imported equipment arrived. A regulation issued by São Paulo in December 2013 reaffirms a 2009 agreement by São Paulo to conditionally recognize ICMS tax payments made to Espirito Santo. An assessment related to taxes paid to Espirito Santo was upheld in a ruling issued by the administrative court in May 2014. That ruling has been appealed. Another assessment related to taxes paid to Espirito Santo remains pending. Petitions seeking São Paulo’s recognition of the taxes paid to Espirito Santo were also filed in a general amnesty program. In the first quarter of 2018, CIT was advised that the larger of the two amnesty petitions had been granted and dismissal of that matter would be considered byis pending with the court in the second quarter. The second amnesty petition remains pending.
Hawaiian Foreclosure Litigation Claims
Based on recent rulings of the Hawaii Supreme Court, lawsuits have been filed against CIT in Hawaii alleging technical violations in non-judicial foreclosures. Similar cases have been filed against other mortgage lenders in Hawaii. The Hawaii Supreme Court did not establish a clear methodology for calculating alleged damages if a violation is proven and there is substantial dispute in this regard. In many instances the borrower had no equity in the home at the time of foreclosure. Damages sought in these cases include any lost equity, compensation for loss of use of the house and, in some cases, treble or punitive damages under Hawaii's unfair practices law. At this time, the Company does not have sufficient information to make an assessment of the outcome or the impact of these cases.
HUD OIG Investigation
In 2009, OneWest Bank acquired the reverse mortgage loan portfolio and related servicing rights of Financial Freedom Senior Funding Corporation, including HECM loans, from the FDIC as Receiver for IndyMac Federal Bank. HECM loans are insured by the FHA, and administered by HUD. In addition, Financial Freedom is the servicer of HECM loans owned by third party investors. Beginning in the third quarter of 2015, the Office of the Inspector General for HUD (the “HUD OIG”), served a series of subpoenas on the Company regarding HECM loans. The subpoenas requested documents and other information related to Financial Freedom’s HECM loan origination and servicing business, including the curtailment of interest payments on HECM insurance claims. On May 16, 2017, CIT entered into a settlement of approximately $89 million to resolve the servicing related claims. The settlement was within CIT’s existing reserves and included interest to be reimbursed to HUD. CIT has provided information and documents responsive to the subpoena’s request for information relating to the mortgage originations and does not currently expect the outcome of the remaining loan origination matter to have a material adverse effect on CIT’s financial condition or results of operations.
NY Attorney General
In the second quarter of 2017, the Office of the Attorney General of the State of New York (“NYAG”), served a subpoena on the Company regarding HECM loans. The subpoena requested documents and other information related to Financial Freedom’s HECM loan business in the State of New York. The NYAG subsequently withdrew the subpoena and has requested the Company’s continued voluntary cooperation with the inquiry. The Company is continuing to cooperatehas cooperated with the NYAG’s office and has produced certain documents. The Company does not have sufficient information to make an assessment of the outcome or the impact of the NYAG’s ongoing inquiry.
42
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Segment Profit and Assets
The following table presents segment data related to continuing operations. Refer to
Note 25 — Business Segment Information in ourSegment Pre-tax Income (Loss) (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| NSP |
|
| Corporate and Other |
|
| Total CIT |
| |||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 338.9 |
|
| $ | 79.0 |
|
| $ | 1.4 |
|
| $ | 54.3 |
|
| $ | 473.6 |
|
Interest expense (benefit) |
| 190.3 |
|
|
| (41.6 | ) |
|
| 0.8 |
|
|
| 64.4 |
|
|
| 213.9 |
|
Provision (benefit) for credit losses |
| 39.0 |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
|
| 38.1 |
|
Rental income on operating leases |
| 264.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 264.3 |
|
Other non-interest income |
| 76.4 |
|
|
| (18.1 | ) |
|
| 11.6 |
|
|
| 16.3 |
|
|
| 86.2 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 78.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56.6 |
|
Operating expenses and loss on debt extinguishment and deposit redemption |
| 172.3 |
|
|
| 88.9 |
|
|
| 2.2 |
|
|
| 3.4 |
|
|
| 266.8 |
|
Income from continuing operations before provision for income taxes | $ | 143.4 |
|
| $ | 14.5 |
|
| $ | 10.0 |
|
| $ | 2.8 |
|
| $ | 170.7 |
|
Select Period End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 24,095.7 |
|
| $ | 6,400.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,495.8 |
|
Credit balances of factoring clients |
| (1,672.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,672.4 | ) |
Assets held for sale |
| 1,336.5 |
|
|
| 11.9 |
|
|
| 32.1 |
|
|
| — |
|
|
| 1,380.5 |
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,888.7 |
|
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 309.4 |
|
| $ | 92.2 |
|
| $ | 4.6 |
|
| $ | 47.8 |
|
| $ | 454.0 |
|
Interest expense (benefit) |
| 131.3 |
|
|
| (16.0 | ) |
|
| 3.0 |
|
|
| 58.4 |
|
|
| 176.7 |
|
Provision for credit losses |
| 11.1 |
|
|
| 19.0 |
|
|
| — |
|
|
| — |
|
|
| 30.1 |
|
Rental income on operating leases |
| 252.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 252.3 |
|
Other non-interest income |
| 70.9 |
|
|
| (22.7 | ) |
|
| 4.9 |
|
|
| 10.2 |
|
|
| 63.3 |
|
Depreciation on operating lease equipment |
| 71.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71.1 |
|
Maintenance and other operating lease expenses |
| 57.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57.9 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 168.6 |
|
|
| 106.2 |
|
|
| 9.2 |
|
|
| 46.8 |
|
|
| 330.8 |
|
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 192.6 |
|
| $ | (39.7 | ) |
| $ | (2.7 | ) |
| $ | (47.2 | ) |
| $ | 103.0 |
|
Select Period End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 22,692.6 |
|
| $ | 5,812.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,505.3 |
|
Credit balances of factoring clients |
| (1,698.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,698.5 | ) |
Assets held for sale |
| 1,208.3 |
|
|
| 865.9 |
|
|
| 87.8 |
|
|
| — |
|
|
| 2,162.0 |
|
Operating lease equipment, net |
| 6,724.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,724.2 |
|
43
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Segment Pre-tax Income (Loss) continued (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| NSP |
|
| Corporate and Other |
|
| Total CIT |
| |||||
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 984.2 |
|
| $ | 249.2 |
|
| $ | 5.7 |
|
| $ | 159.3 |
|
| $ | 1,398.4 |
|
Interest expense (benefit) |
| 523.6 |
|
|
| (103.2 | ) |
|
| 4.3 |
|
|
| 174.9 |
|
|
| 599.6 |
|
Provision for credit losses |
| 139.4 |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| 139.8 |
|
Rental income on operating leases |
| 779.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 779.2 |
|
Other non-interest income |
| 227.5 |
|
|
| 30.9 |
|
|
| 13.5 |
|
|
| 54.4 |
|
|
| 326.3 |
|
Depreciation on operating lease equipment |
| 231.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 231.6 |
|
Maintenance and other operating lease expenses |
| 177.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177.5 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 526.8 |
|
|
| 278.6 |
|
|
| 6.6 |
|
|
| 23.0 |
|
|
| 835.0 |
|
Income from continuing operations before provision for income taxes | $ | 392.0 |
|
| $ | 104.3 |
|
| $ | 8.3 |
|
| $ | 15.8 |
|
| $ | 520.4 |
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 933.5 |
|
| $ | 293.8 |
|
| $ | 17.8 |
|
| $ | 142.8 |
|
| $ | 1,387.9 |
|
Interest expense (benefit) |
| 378.9 |
|
|
| (32.1 | ) |
|
| 13.0 |
|
|
| 189.2 |
|
|
| 549.0 |
|
Provision for credit losses |
| 60.1 |
|
|
| 24.1 |
|
|
| — |
|
|
| — |
|
|
| 84.2 |
|
Rental income on operating leases |
| 754.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 754.8 |
|
Other non-interest income |
| 218.0 |
|
|
| (9.1 | ) |
|
| 2.2 |
|
|
| 15.9 |
|
|
| 227.0 |
|
Depreciation on operating lease equipment |
| 222.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 165.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 165.0 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 523.8 |
|
|
| 298.0 |
|
|
| 13.0 |
|
|
| 268.0 |
|
|
| 1,102.8 |
|
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 556.5 |
|
| $ | (5.3 | ) |
| $ | (6.0 | ) |
| $ | (298.5 | ) |
| $ | 246.7 |
|
Commercial Banking | Consumer Banking | Non-Strategic Portfolios | Corporate and Other | Total CIT | |||||||||||||||
Quarter Ended March 31, 2018 | |||||||||||||||||||
Interest income | $ | 314.9 | $ | 85.2 | $ | 2.4 | $ | 48.7 | $ | 451.2 | |||||||||
Interest expense (benefit) | 156.3 | (24.3 | ) | 1.7 | 46.8 | 180.5 | |||||||||||||
Provision for credit losses | 67.2 | 1.6 | — | — | 68.8 | ||||||||||||||
Rental income on operating leases | 253.6 | — | — | — | 253.6 | ||||||||||||||
Other non-interest income | 78.0 | 11.5 | 1.2 | 14.0 | 104.7 | ||||||||||||||
Depreciation on operating lease equipment | 76.4 | — | — | — | 76.4 | ||||||||||||||
Maintenance and other operating lease expenses | 57.4 | — | — | — | 57.4 | ||||||||||||||
Operating expenses / loss on debt extinguishment and deposit redemption | 183.1 | 96.0 | 2.2 | 0.1 | 281.4 | ||||||||||||||
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 106.1 | $ | 23.4 | $ | (0.3 | ) | $ | 15.8 | $ | 145.0 | ||||||||
Select Period End Balances | |||||||||||||||||||
Loans | $ | 23,345.9 | $ | 6,107.7 | $ | — | $ | — | $ | 29,453.6 | |||||||||
Credit balances of factoring clients | 1,549.0 | — | — | — | 1,549.0 | ||||||||||||||
Assets held for sale | 1,376.3 | 864.0 | 58.5 | — | 2,298.8 | ||||||||||||||
Operating lease equipment, net | 6,774.9 | — | — | — | 6,774.9 | ||||||||||||||
Quarter Ended March 31, 2017 | |||||||||||||||||||
Interest income | $ | 307.5 | $ | 100.0 | $ | 7.0 | $ | 41.2 | $ | 455.7 | |||||||||
Interest expense (benefit) | 119.8 | (6.5 | ) | 5.0 | 44.8 | 163.1 | |||||||||||||
Provision for credit losses | 49.2 | 0.5 | — | — | 49.7 | ||||||||||||||
Rental income on operating leases | 251.3 | — | — | — | 251.3 | ||||||||||||||
Other non-interest income | 72.3 | 7.9 | (2.9 | ) | 1.8 | 79.1 | |||||||||||||
Depreciation on operating lease equipment | 73.5 | — | — | — | 73.5 | ||||||||||||||
Maintenance and other operating lease expenses | 53.8 | — | — | — | 53.8 | ||||||||||||||
Operating expenses / loss on debt extinguishment | 178.7 | 95.6 | 2.0 | 35.3 | 311.6 | ||||||||||||||
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 156.1 | $ | 18.3 | $ | (2.9 | ) | $ | (37.1 | ) | $ | 134.4 | |||||||
Select Period End Balances | |||||||||||||||||||
Loans | $ | 22,878.6 | $ | 6,812.8 | $ | — | $ | — | $ | 29,691.4 | |||||||||
Credit balances of factoring clients | 1,547.1 | — | — | — | 1,547.1 | ||||||||||||||
Assets held for sale | 336.4 | 64.1 | 162.1 | — | 562.6 | ||||||||||||||
Operating lease equipment, net | 7,516.2 | — | — | — | 7,516.2 |
NOTE 1514 — SUBSEQUENT EVENTS
Sale of NACCO
On October 4, 2018, CIT sold NACCO, the Company’s European railcar leasing business. With the closing of the NACCO sale, CIT fully divested its interest in NACCO as of October 4, 2018. Railcar loans and leases of approximately $1.2 billion were sold and we expect to recognize a pretax gain of approximately $30-35 million in the fourth quarter. The Company expects to use a portion of the net proceeds received of approximately $1.1 billion to fund the termination of the Dutch TRS Facility (discussed below) and the redemption of a related Railcar Securitization (defined below). The remaining proceeds will be used to return capital to shareholders under the remaining amount of the Company’s common equity capital return, to reduce unsecured debt (discussed below), and for general corporate purposes.
Termination of Dutch TRS Facility
On October 5, 2018, BV issued an Optional Termination Notice (as that term is defined for purposes of that certain Master Agreement) to GSI to terminate the $625 million Dutch TRS Facility between BV and GSI. Pursuant to the Optional Termination Notice, the Dutch TRS Facility was terminated on November 2, 2018 (the “Optional Termination Date”).
The exercise of BV’s option to terminate the Dutch TRS Facility prior to maturity required a payment to GSI on November 2, 2018 of the present value of the remaining facility fee (the “Optional Termination Fee”). The Optional Termination Fee and the reduction of the liability associated with the TRS Derivative are expected to result in net pretax charges for the Company of approximately $70 - $75 million in the fourth quarter of 2018.
Redemption
On October 25, 2018, CIT repaid $500approximately $465 million of secured financings of the $1.0 billionCompany’s railcar asset backed securitization vehicle (the “Railcar Securitization”), which was the reference obligation under the Dutch TRS Facility. In addition, the termination of the Dutch TRS Facility and redemption of the associated reference obligation Railcar Securitization resulted in the unencumbering of approximately $775 million of railcar assets.
On November 1, 2018, the Company sold approximately $350 million of railcar assets in the Railcar Securitization to CIT Bank.
Approximately $300 million of proceeds from the sale of NACCO, net of cash held by the securitization trust and other collateral held by the securitization trustee and the counterparty on the Dutch TRS Facility, was used for the redemption of the Railcar Securitization and the termination of the Dutch TRS Facility, including payment of the Optional Termination Fee.
Debt Redemptions
On October 19 and November 2, 2018, we announced our intent to redeem the outstanding 3.875%5.375% senior unsecured notes due February 2019May 2020, which totaled approximately $431 million at September 30, 2018, which we will redeem using net proceeds from the NACCO sale and allthe sale of the outstanding $383rail assets to CIT Bank. The unsecured debt redemptions are expected to result in debt extinguishment losses of approximately $15 million of 5.500% senior unsecured notes due February 2019. The debt was repaid at a premium of $16 million.
44
Management's Discussion and Analysis of Financial Condition and Results of Operations
and Quantitative and Qualitative Disclosures about Market Risk ("MD&A") contain financial terms that are relevant to our business, and a Glossary of key terms is includedManagement uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of the Company. See "
Non-GAAP Financial Measurements" for a reconciliation of these financial measures to comparable financial measures based on U.S. GAAP.Throughout this MD&A we reference specific "Notes" to our financial statements. These Notes are includednotes to the Condensed Consolidated Financial Statements in
SUMMARY OF 2018 FINANCIAL RESULTS
The following table summarizes the Company’s results in accordance with GAAP as included in the Condensed Consolidated Statements of Income, for the quarters ended March 31, 2018 and 2017, and foralong with the quarter ended December 31, 2017. In addition, weJune 30, 2018. We also provide results that are not in accordance with GAAP, and are reconciled to GAAP in the "Non-GAAP Financial Measurements" section at the end of this MD&A. Further detail on the 2017 noteworthy items is presented
Results of Operations (dollars in tabular format further in this section, and prior year noteworthy items are reconciled in the "Non-GAAP Financial Measurements" section.millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
GAAP Results | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Income from continuing operations available to common shareholders | $ | 129.4 |
|
| $ | 137.9 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
| $ | 342.2 |
|
Income (loss) from discontinued operations, net of taxes |
| 2.1 |
|
|
| (20.5 | ) |
|
| (3.2 | ) |
|
| (25.1 | ) |
|
| 214.0 |
|
Net income available to common shareholders | $ | 131.5 |
|
| $ | 117.4 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
| $ | 556.2 |
|
Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 1.13 |
|
| $ | 1.11 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
|
Income (loss) from discontinued operations, net of taxes |
| 0.02 |
|
|
| (0.17 | ) |
|
| (0.03 | ) |
|
| (0.21 | ) |
|
| 1.23 |
|
Diluted income per common share available to common shareholders | $ | 1.15 |
|
| $ | 0.94 |
|
| $ | 1.61 |
|
| $ | 2.80 |
|
| $ | 3.19 |
|
Average number of common shares — diluted (thousands) |
| 114,007 |
|
|
| 124,686 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Results, excluding noteworthy items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 131.0 |
|
| $ | 124.6 |
|
| $ | 138.7 |
|
| $ | 352.5 |
|
| $ | 373.8 |
|
Income (loss) from discontinued operations, net of taxes |
| 2.1 |
|
|
| (6.7 | ) |
|
| (0.9 | ) |
|
| (11.3 | ) |
|
| 56.2 |
|
Net income available to common shareholders | $ | 133.1 |
|
| $ | 117.9 |
|
| $ | 137.8 |
|
| $ | 341.2 |
|
| $ | 430.0 |
|
Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 1.15 |
|
| $ | 1.00 |
|
| $ | 1.02 |
|
| $ | 2.86 |
|
| $ | 2.15 |
|
Income (loss) from discontinued operations, net of taxes |
| 0.02 |
|
|
| (0.05 | ) |
|
| (0.01 | ) |
|
| (0.09 | ) |
|
| 0.32 |
|
Diluted income per common share available to common shareholders | $ | 1.17 |
|
| $ | 0.95 |
|
| $ | 1.01 |
|
| $ | 2.77 |
|
| $ | 2.47 |
|
Average number of common shares — diluted (thousands) |
| 114,007 |
|
|
| 124,686 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
|
Results of Operations (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
GAAP Results | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Income (loss) from continuing operations available to common shareholders | $ | 103.7 | $ | (92.6 | ) | $ | 78.2 | ||||
Income (loss) from discontinued operations, net of taxes | (6.7 | ) | (5.2 | ) | 101.7 | ||||||
Net income (loss) available to common shareholders | $ | 97.0 | $ | (97.8 | ) | $ | 179.9 | ||||
Diluted income per common share | |||||||||||
Income (loss) from continuing operations available to common shareholders | $ | 0.79 | $ | (0.70 | ) | $ | 0.38 | ||||
Income (loss) from discontinued operations, net of taxes | (0.05 | ) | (0.04 | ) | 0.50 | ||||||
Diluted income (loss) per common share available to common shareholders | $ | 0.74 | $ | (0.74 | ) | $ | 0.88 | ||||
Average number of common shares — diluted (thousands) | 131,588 | 131,343 | 203,348 | ||||||||
Non-GAAP Results, excluding noteworthy items | |||||||||||
Income from continuing operations available to common shareholders | $ | 96.9 | $ | 130.3 | $ | 109.4 | |||||
(Loss) income from discontinued operations, net of taxes | (6.7 | ) | (5.2 | ) | 53.7 | ||||||
Net income available to common shareholders | $ | 90.2 | $ | 125.1 | $ | 163.1 | |||||
Diluted income per common share | |||||||||||
Income from continuing operations available to common shareholders | $ | 0.74 | $ | 0.99 | $ | 0.54 | |||||
(Loss) income from discontinued operations, net of taxes | (0.05 | ) | (0.04 | ) | 0.26 | ||||||
Diluted income per common share available to common shareholders | $ | 0.69 | $ | 0.95 | $ | 0.80 | |||||
Average number of common shares — diluted (thousands) | 131,588 | 131,343 | 203,348 |
Income from continuing operations available to common shareholders for the firstthird quarter was updown from the year-ago and prior quarters.quarters, as each quarter was impacted by varying amounts of noteworthy items that are discussed in various sections of the MD&A. Compared to the year-ago and prior quarters,quarter, income from continuing operations available to common shareholders excluding
45
noteworthy items11 was down, as a decline inlower net finance revenue and an increase in the provision for credit losses were partially offset byhigher other non-interest income and lower operating expenses. The decline wasimprovement from the prior quarter excluding noteworthy items reflected lower operating expenses and income taxes, along with no semi-annual preferred dividend paid in the current quarter, partially offset by highera decline in other non-interest income compared to the year-ago quarter.and higher credit costs. The increase in income from continuing operations excluding noteworthy itemsresults per diluted common share excluding noteworthy items compared to the year-ago quarterprior quarters also reflects the decline in the average number of diluted common shares outstanding due to significant share repurchasesrepurchases. For the nine months ended September 30, 2018, higher credit and borrowing costs offset higher other non-interest income and lower operating expenses.
Net income available to common shareholders and net income available to common shareholders excluding noteworthy items2 were down from the year-ago quarter and up from the prior quarter. While the trends reflected the results from continuing operations, the decline from the year-ago nine months was also affected by the loss in discontinued operations in 2018, compared to income in the year-ago period.
The following table reflects the reconciliation of income from continuing operations and net income excluding noteworthy items2 for the quarter and nine months ended September 30, 2018, to our results in accordance with GAAP.
Noteworthy Adjustments to 2018 Results (dollars in millions, except per share amounts)
| Income from Continuing Operations Available to Common Shareholders |
|
| Net Income Available to Common Shareholders |
| ||||||||||||||||||||||||||
| Quarter Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2018 |
|
| Quarter Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2018 |
| ||||||||||||||||||||
GAAP Results | $ | 129.4 |
|
| $ | 1.13 |
|
| $ | 371.0 |
|
| $ | 3.01 |
|
| $ | 131.5 |
|
| $ | 1.15 |
|
| $ | 345.9 |
|
| $ | 2.80 |
|
Third Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
Impairment of LCM indemnification asset |
| 15.5 |
|
|
| 0.14 |
|
|
| 15.5 |
|
|
| 0.13 |
|
|
| 15.5 |
|
|
| 0.14 |
|
|
| 15.5 |
|
|
| 0.13 |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
Loss on debt redemption |
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP Results | $ | 131.0 |
|
| $ | 1.15 |
|
|
|
|
|
|
|
|
|
| $ | 133.1 |
|
| $ | 1.17 |
|
|
|
|
|
|
|
|
|
Second Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
|
|
|
|
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
|
|
|
|
|
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
Gain and other revenues from sale of reverse mortgage portfolio |
|
|
|
|
|
|
|
|
| (21.6 | ) |
|
| (0.18 | ) |
|
|
|
|
|
|
|
|
|
| (21.6 | ) |
|
| (0.18 | ) |
Loss on debt redemption |
|
|
|
|
|
|
|
|
| 14.3 |
|
|
| 0.12 |
|
|
|
|
|
|
|
|
|
|
| 14.3 |
|
|
| 0.12 |
|
Loss on Financial Freedom servicing operations |
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| 13.8 |
|
|
| 0.11 |
|
First Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
|
|
|
|
|
|
|
|
| (6.8 | ) |
|
| (0.06 | ) |
|
|
|
|
|
|
|
|
|
| (6.8 | ) |
|
| (0.06 | ) |
Non-GAAP Results (certain EPS balances may not sum due to rounding) |
|
|
|
|
|
|
|
| $ | 352.5 |
|
| $ | 2.86 |
|
|
|
|
|
|
|
|
|
| $ | 341.2 |
|
| $ | 2.77 |
|
SUBSEQUENT EVENTS
In October 2018 we sold NACCO, our European Railcar business. The sale included $1.2 billion of loans and leases that were in AHFS, and we expect to recognize a pretax gain of approximately $30-35 million in the fourth quarter.
We also terminated the Dutch TRS Facility on November 2, 2018, which is expected to result in a net pretax charge of approximately $70-75 million in the fourth quarter that reflects the present value of the facility fee over the past four quarters thatremaining term of nearly 10 years, net of the reduction of the liability associated with the TRS Derivative.
In October 2018, we redeemed all of the outstanding notes of the Company’s Railcar Securitization related to the Dutch TRS Facility of approximately $465 million, which resulted in approximately $775 million of rail assets becoming unencumbered.
On November 1, 2018, the Company sold approximately $350 million of the recently unencumbered railcar assets in the Railcar Securitization to CIT Bank, where there is more than offsetefficient deposit-based financing.
On October 19 and November 2, 2018, we announced our intent to redeem the declineoutstanding 5.375% senior unsecured notes due May 2020, which totaled approximately $431 million at September 30, 2018, which we will redeem using net proceeds from the NACCO sale and the sale of rail assets to CIT Bank. The unsecured debt redemptions are expected to result in income.debt extinguishment losses of approximately $15 million in the fourth quarter.
Due to the reduction of borrowings of nearly $1 billion in the fourth quarter, and the termination of the Dutch TRS Facility, we expect to realize the benefit of lower interest expense going forward. SeeNote 14 — Subsequent Events.
1 | |
Income from continuing operations excluding noteworthy items and other non-interest income excluding noteworthy items are non-GAAP measures; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
Noteworthy Adjustments to 2018 Results (dollars in millions, except per share amounts) | |||||||||||||||||
Income from Continuing Operations Available to Common Shareholders | Net Income Available to Common Shareholders | ||||||||||||||||
GAAP Results | $ | 103.7 | $ | 0.79 | $ | 97.0 | $ | 0.74 | |||||||||
Suspended depreciation benefits related to the European Rail business (NACCO) held for sale | (6.8 | ) | (0.05 | ) | (6.8 | ) | (0.05 | ) | |||||||||
Non-GAAP Results | $ | 96.9 | $ | 0.74 | $ | 90.2 | $ | 0.69 |
2 | Net income excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
46
At September 30, 2018, discontinued operations was comprised of Business Air and as discussed below, certain assets and liabilities of Financial Freedom, a reverse mortgage servicing business that we sold on May 31, 2018. At September 30, 2018, although the economic benefit and risk of the Financial Freedom business has been transferred to the buyer, certain assets and liabilities of the Financial Freedom business remain in discontinued operations until the required investor consent is received. The sale is described further in Note 2 — Discontinued Operations.
The Financial Freedom business, a former division of CIT Bank that serviced reverse mortgage loans, was sold on May 31, 2018 and included all the operations, mortgage servicing rights and related servicing assets and liabilities. CIT recognized an after tax loss on disposal of the Financial Freedom business of $16 million in discontinued operations in the second quarter, related primarily to reserves and transaction costs.
Income from discontinued operations was $2 million in the current quarter, compared to losses of $3 million in the year-ago quarter and $20 million in the prior quarter. Excluding noteworthy items, of which there were none in the current quarter, there was a loss in the year-ago quarter of $1 million and a loss of $7 million in the prior quarter. For the nine months ended September 30, 2018 and 2017, net loss from discontinued operations totaled $25 million in 2018, compared to income of $214 million in 2017. Excluding noteworthy items, the current year to date loss was $11 million, compared to income of $56 million in the year-ago period. Noteworthy items are listed in "Non-GAAP Financial Measurements".
Business Air loans and leases totaled $111 million at September 30, 2018, down from $134 million at June 30, 2018 and $184 million at December 31, 2017.
Further details of discontinued operations, along with condensed balance sheets and income statements are included in Note 2 — Discontinued Operations. See also Note 12 — Contingencies for discussion related to the servicing obligations of the Financial Freedom business.
Unless specifically noted, the discussions and data presented throughout the following sections reflect CIT balances on a continuing operations basis.
NET FINANCE REVENUE
Net Finance Revenue ("NFR")
3 and Net Finance Margin ("NFM")3 are key metrics used by management to measure the profitability of our earning assets. NFR includes interest and yield-related fee income on our loans, rental income on our operating lease equipment, and interest and dividend income on interest-bearing cash and investments, less funding costs and depreciation, maintenance and other operating lease expenses from our operating lease equipment.Average Balances and Rates(1) (dollars in millions) | ||||||||||||||||||||||||||||||||
Quarters Ended | ||||||||||||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||||||||||||||||||||||
Average Balance | Revenue / Expense | Average Rate (%) | Average Balance | Revenue / Expense | Average Rate (%) | Average Balance | Revenue / Expense | Average Rate (%) | ||||||||||||||||||||||||
Interest bearing cash deposits | $ | 2,100.8 | $ | 7.0 | 1.33 | % | $ | 2,270.2 | $ | 8.9 | 1.57 | % | $ | 5,652.4 | $ | 12.5 | 0.88 | % | ||||||||||||||
Investments and securities purchased under agreement to resell | 6,345.6 | 43.3 | 2.73 | % | 6,067.9 | 37.6 | 2.48 | % | 4,452.4 | 31.1 | 2.79 | % | ||||||||||||||||||||
Loans and loans held for sale (net of credit balances of factoring clients)(2)(3) | 28,753.5 | 415.1 | 5.77 | % | 28,225.3 | 417.1 | 5.91 | % | 28,705.3 | 419.9 | 5.85 | % | ||||||||||||||||||||
Total interest earning assets / interest income(2)(3) | 37,199.9 | 465.4 | 5.00 | % | 36,563.4 | 463.6 | 5.07 | % | 38,810.1 | 463.5 | 4.78 | % | ||||||||||||||||||||
Operating lease equipment, net (including held for sale)(4) | 7,934.6 | 119.8 | 6.04 | % | 7,841.0 | 120.4 | 6.14 | % | 7,500.9 | 124.0 | 6.61 | % | ||||||||||||||||||||
Indemnification assets | 130.6 | (14.2 | ) | (43.49 | )% | 157.7 | (15.9 | ) | (40.33 | )% | 327.9 | (7.8 | ) | (9.52 | )% | |||||||||||||||||
Average earning assets ("AEA")(2) | 45,265.1 | 571.0 | 5.05 | % | 44,562.1 | 568.1 | 5.10 | % | 46,638.9 | 579.7 | 4.97 | % | ||||||||||||||||||||
Non-interest earning assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | 246.8 | 403.4 | 783.6 | |||||||||||||||||||||||||||||
Allowance for loan losses | (434.6 | ) | (424.7 | ) | (436.0 | ) | ||||||||||||||||||||||||||
All other non-interest bearing assets | 2,683.0 | 2,793.5 | 2,321.3 | |||||||||||||||||||||||||||||
Assets of discontinued operation | 480.3 | 532.6 | 12,969.7 | |||||||||||||||||||||||||||||
Total Average Assets | $ | 48,240.6 | $ | 47,866.9 | $ | 62,277.5 | ||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Interest bearing deposits and borrowings | ||||||||||||||||||||||||||||||||
Deposits | $ | 28,595.2 | 97.1 | 1.36 | % | $ | 28,133.7 | 92.1 | 1.31 | % | $ | 30,953.0 | 94.0 | 1.21 | % | |||||||||||||||||
Borrowings | 9,045.4 | 83.4 | 3.69 | % | 8,630.9 | 76.6 | 3.55 | % | 14,815.0 | 69.1 | 1.87 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 37,640.6 | 180.5 | 1.92 | % | 36,764.6 | 168.7 | 1.84 | % | 45,768.0 | 163.1 | 1.43 | % | ||||||||||||||||||||
Non-interest bearing deposits | 1,456.1 | 1,501.3 | 1,387.3 | |||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 1,406.0 | 1,618.3 | 1,778.8 | |||||||||||||||||||||||||||||
Liabilities of discontinued operation | 496.9 | 541.9 | 3,223.6 | |||||||||||||||||||||||||||||
Noncontrolling interests | — | — | 0.3 | |||||||||||||||||||||||||||||
Stockholders' equity | 7,241.0 | 7,440.8 | 10,119.5 | |||||||||||||||||||||||||||||
Total Average Liabilities and Shareholders' Equity | $ | 48,240.6 | $ | 47,866.9 | $ | 62,277.5 | ||||||||||||||||||||||||||
Net revenue spread | 3.13 | % | 3.26 | % | 3.55 | % | ||||||||||||||||||||||||||
Impact of non-interest bearing sources | 0.32 | % | 0.32 | % | 0.03 | % | ||||||||||||||||||||||||||
Net finance revenue ($) / net finance margin (%)(2) | $ | 390.5 | 3.45 | % | $ | 399.4 | 3.59 | % | $ | 416.6 | 3.57 | % | ||||||||||||||||||||
Adjusted NFR / NFM (excluding noteworthy items) | $ | 381.2 | 3.37 | % | $ | 390.6 | 3.51 | % | $ | 416.6 | 3.57 | % |
3 | Net finance revenue, net finance margin, net operating lease revenue and average earnings assets, and respective amounts excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of non-GAAP to GAAP financial information. |
47
The following table presents the average balance sheet and related rates, along with the NFR and NFM.
Average Balances and Rates(1) (dollars in millions)
| Quarters Ended |
| |||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
| |||||||||
Interest bearing cash deposits | $ | 2,466.4 |
|
| $ | 11.7 |
|
|
| 1.90 | % |
| $ | 3,530.8 |
|
| $ | 16.0 |
|
|
| 1.81 | % |
| $ | 3,873.9 |
|
| $ | 12.5 |
|
|
| 1.29 | % |
Investment securities and securities purchased under agreement to resell |
| 6,415.7 |
|
|
| 44.5 |
|
|
| 2.77 | % |
|
| 6,062.8 |
|
|
| 42.1 |
|
|
| 2.78 | % |
|
| 5,796.3 |
|
|
| 38.0 |
|
|
| 2.62 | % |
Loans and loans held for sale(2)(3) |
| 28,408.7 |
|
|
| 427.6 |
|
|
| 6.02 | % |
|
| 28,553.9 |
|
|
| 428.0 |
|
|
| 6.00 | % |
|
| 27,793.1 |
|
|
| 417.1 |
|
|
| 6.00 | % |
Total interest earning assets(2)(3) |
| 37,290.8 |
|
|
| 483.8 |
|
|
| 5.19 | % |
|
| 38,147.5 |
|
|
| 486.1 |
|
|
| 5.10 | % |
|
| 37,463.3 |
|
|
| 467.6 |
|
|
| 4.99 | % |
Operating lease equipment, net (including held for sale)(4) |
| 8,031.8 |
|
|
| 129.7 |
|
|
| 6.46 | % |
|
| 7,980.3 |
|
|
| 120.6 |
|
|
| 6.04 | % |
|
| 7,797.6 |
|
|
| 123.3 |
|
|
| 6.33 | % |
Indemnification assets |
| 54.5 |
|
|
| (10.2 | ) |
|
| -74.86 | % |
|
| 101.8 |
|
|
| (12.5 | ) |
|
| -49.12 | % |
|
| 193.3 |
|
|
| (13.6 | ) |
|
| -28.14 | % |
Average earning assets ("AEA")(2)(5) |
| 45,377.1 |
|
|
| 603.3 |
|
|
| 5.32 | % |
|
| 46,229.6 |
|
|
| 594.2 |
|
|
| 5.14 | % |
|
| 45,454.2 |
|
|
| 577.3 |
|
|
| 5.08 | % |
Non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| 172.7 |
|
|
|
|
|
|
|
|
|
|
| 215.9 |
|
|
|
|
|
|
|
|
|
|
| 522.5 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (468.9 | ) |
|
|
|
|
|
|
|
|
|
| (449.3 | ) |
|
|
|
|
|
|
|
|
|
| (421.7 | ) |
|
|
|
|
|
|
|
|
All other non-interest bearing assets |
| 2,717.2 |
|
|
|
|
|
|
|
|
|
|
| 2,734.7 |
|
|
|
|
|
|
|
|
|
|
| 2,330.5 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
| 352.9 |
|
|
|
|
|
|
|
|
|
|
| 416.2 |
|
|
|
|
|
|
|
|
|
|
| 591.5 |
|
|
|
|
|
|
|
|
|
Total Assets | $ | 48,151.0 |
|
|
|
|
|
|
|
|
|
| $ | 49,147.1 |
|
|
|
|
|
|
|
|
|
| $ | 48,477.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits and borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits | $ | 29,735.4 |
|
|
| 123.1 |
|
|
| 1.65 | % |
| $ | 29,549.6 |
|
|
| 110.6 |
|
|
| 1.50 | % |
| $ | 28,820.2 |
|
|
| 92.6 |
|
|
| 1.29 | % |
Borrowings |
| 8,692.2 |
|
|
| 90.8 |
|
|
| 4.18 | % |
|
| 9,437.0 |
|
|
| 94.6 |
|
|
| 4.01 | % |
|
| 8,591.6 |
|
|
| 84.1 |
|
|
| 3.92 | % |
Total interest-bearing liabilities |
| 38,427.6 |
|
|
| 213.9 |
|
|
| 2.23 | % |
|
| 38,986.6 |
|
|
| 205.2 |
|
|
| 2.11 | % |
|
| 37,411.8 |
|
|
| 176.7 |
|
|
| 1.89 | % |
Non-interest bearing deposits |
| 1,503.2 |
|
|
|
|
|
|
|
|
|
|
| 1,414.5 |
|
|
|
|
|
|
|
|
|
|
| 1,495.9 |
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities |
| 1,473.6 |
|
|
|
|
|
|
|
|
|
|
| 1,401.4 |
|
|
|
|
|
|
|
|
|
|
| 1,582.3 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
| 327.9 |
|
|
|
|
|
|
|
|
|
|
| 419.0 |
|
|
|
|
|
|
|
|
|
|
| 579.6 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
| 6,418.7 |
|
|
|
|
|
|
|
|
|
|
| 6,925.6 |
|
|
|
|
|
|
|
|
|
|
| 7,407.2 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity | $ | 48,151.0 |
|
|
|
|
|
|
|
|
|
| $ | 49,147.1 |
|
|
|
|
|
|
|
|
|
| $ | 48,477.0 |
|
|
|
|
|
|
|
|
|
Net revenue spread |
|
|
|
|
|
|
|
|
| 3.09 | % |
|
|
|
|
|
|
|
|
|
| 3.03 | % |
|
|
|
|
|
|
|
|
|
| 3.19 | % |
Impact of non-interest bearing sources |
|
|
|
|
|
|
|
|
| 0.34 | % |
|
|
|
|
|
|
|
|
|
| 0.34 | % |
|
|
|
|
|
|
|
|
|
| 0.34 | % |
NFR ($) / NFM (%)(2) |
|
|
|
| $ | 389.4 |
|
|
| 3.43 | % |
|
|
|
|
| $ | 389.0 |
|
|
| 3.37 | % |
|
|
|
|
| $ | 400.6 |
|
|
| 3.53 | % |
Adjusted NFR / NFM (excluding noteworthy items) |
|
|
|
| $ | 380.8 |
|
|
| 3.36 | % |
|
|
|
|
| $ | 380.4 |
|
|
| 3.29 | % |
|
|
|
|
| $ | 392.8 |
|
|
| 3.46 | % |
(1)...(5) See footnotes below table on next page.
48
Average Balances and Rates(1)(dollars in millions) (continued)
| Nine Months Ended |
| |||||||||||||||||||||
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||||||||||
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
| ||||||
Interest bearing cash deposits | $ | 2,645.9 |
|
| $ | 34.7 |
|
|
| 1.75 | % |
| $ | 6,265.5 |
|
| $ | 48.9 |
|
|
| 1.04 | % |
Investment securities and securities purchased under agreement to resell |
| 6,302.8 |
|
|
| 129.9 |
|
|
| 2.75 | % |
|
| 5,105.3 |
|
|
| 102.1 |
|
|
| 2.67 | % |
Loans and loans held for sale(2)(3) |
| 28,535.8 |
|
|
| 1,270.7 |
|
|
| 5.94 | % |
|
| 28,259.6 |
|
|
| 1,268.0 |
|
|
| 5.98 | % |
Total interest earning assets(2)(3) |
| 37,484.5 |
|
|
| 1,435.3 |
|
|
| 5.11 | % |
|
| 39,630.4 |
|
|
| 1,419.0 |
|
|
| 4.77 | % |
Operating lease equipment, net (including held for sale)(4) |
| 7,979.8 |
|
|
| 370.1 |
|
|
| 6.18 | % |
|
| 7,637.1 |
|
|
| 367.8 |
|
|
| 6.42 | % |
Indemnification assets |
| 95.6 |
|
|
| (36.9 | ) |
|
| -51.46 | % |
|
| 268.2 |
|
|
| (31.1 | ) |
|
| -15.46 | % |
Average earning assets ("AEA")(2)(5) |
| 45,559.9 |
|
|
| 1,768.5 |
|
|
| 5.18 | % |
|
| 47,535.7 |
|
|
| 1,755.7 |
|
|
| 4.92 | % |
Non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| 213.2 |
|
|
|
|
|
|
|
|
|
|
| 647.3 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (449.6 | ) |
|
|
|
|
|
|
|
|
|
| (431.6 | ) |
|
|
|
|
|
|
|
|
All other non-interest bearing assets |
| 2,736.8 |
|
|
|
|
|
|
|
|
|
|
| 2,279.9 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
| 415.2 |
|
|
|
|
|
|
|
|
|
|
| 4,837.7 |
|
|
|
|
|
|
|
|
|
Total Assets | $ | 48,475.5 |
|
|
|
|
|
|
|
|
|
| $ | 54,869.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits and borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits | $ | 29,259.6 |
|
| $ | 330.8 |
|
|
| 1.51 | % |
| $ | 29,952.9 |
|
| $ | 281.2 |
|
|
| 1.25 | % |
Borrowings |
| 9,089.1 |
|
|
| 268.8 |
|
|
| 3.94 | % |
|
| 11,351.1 |
|
|
| 267.8 |
|
|
| 3.15 | % |
Total interest-bearing liabilities |
| 38,348.7 |
|
|
| 599.6 |
|
|
| 2.08 | % |
|
| 41,304.0 |
|
|
| 549.0 |
|
|
| 1.77 | % |
Non-interest bearing deposits |
| 1,464.5 |
|
|
|
|
|
|
|
|
|
|
| 1,437.2 |
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities |
| 1,427.8 |
|
|
|
|
|
|
|
|
|
|
| 1,642.7 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
| 412.8 |
|
|
|
|
|
|
|
|
|
|
| 1,560.3 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
| - |
|
|
|
|
|
|
|
|
|
|
| 0.3 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
| 6,821.7 |
|
|
|
|
|
|
|
|
|
|
| 8,924.5 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity | $ | 48,475.5 |
|
|
|
|
|
|
|
|
|
| $ | 54,869.0 |
|
|
|
|
|
|
|
|
|
Net revenue spread |
|
|
|
|
|
|
|
|
| 3.10 | % |
|
|
|
|
|
|
|
|
|
| 3.15 | % |
Impact of non-interest bearing sources |
|
|
|
|
|
|
|
|
| 0.32 | % |
|
|
|
|
|
|
|
|
|
| 0.23 | % |
NFR ($) / NFM (%)(2) |
|
|
|
| $ | 1,168.9 |
|
|
| 3.42 | % |
|
|
|
|
| $ | 1,206.7 |
|
|
| 3.38 | % |
Adjusted NFR / NFM (excluding noteworthy items) |
|
|
|
| $ | 1,142.4 |
|
|
| 3.34 | % |
|
|
|
|
| $ | 1,213.2 |
|
|
| 3.49 | % |
(1) | The average balances presented are derived based on month end balances during the year. Tax exempt income was not significant in any of the periods presented. Average rates are impacted by PAA. |
(2) | The balance and rate presented is calculated net of average credit balances for factoring clients. |
(3) | Non-accrual loans and related income are included in the respective categories. |
(4) | Operating lease rental income is a significant source of revenue; therefore we have presented the rental revenues net of depreciation and net of maintenance and other operating lease expenses. |
(5) | AEA is a non-GAAP measure. See “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
The following table presents disaggregated quarter-over-quarter changes in net interest revenue and operating lease margins as presented in the preceding table between volume (level of lending or borrowing) and rate (rates charged customers or incurred on borrowings). Volume change is calculated as change in volume times the previous rate, while rate change is change in rate times the previous volume. The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total.
Average Balances and Rates(1)(dollars in millions)
| September 2018 Over June 2018 Comparison |
|
| September 2018 Over September 2017 Comparison |
| ||||||||||||||||||
| Increase (Decrease) Due To Change In: |
|
|
|
|
|
| Increase (Decrease) Due To Change In: |
|
|
|
|
| ||||||||||
| Volume |
|
| Rate |
|
| Net |
|
| Volume |
|
| Rate |
|
| Net |
| ||||||
Interest-bearing cash | $ | (5.0 | ) |
| $ | 0.7 |
|
| $ | (4.3 | ) |
| $ | (5.5 | ) |
| $ | 4.7 |
|
| $ | (0.8 | ) |
Investment securities and securities purchased under agreement to resell |
| 2.4 |
|
|
| — |
|
|
| 2.4 |
|
|
| 4.2 |
|
|
| 2.3 |
|
|
| 6.5 |
|
Loans and loans held for sale(2)(3) |
| (2.2 | ) |
|
| 1.8 |
|
|
| (0.4 | ) |
|
| 9.3 |
|
|
| 1.2 |
|
|
| 10.5 |
|
Operating lease equipment, net (including held for sale)(4) |
| 0.8 |
|
|
| 8.3 |
|
|
| 9.1 |
|
|
| 3.7 |
|
|
| 2.7 |
|
|
| 6.4 |
|
Indemnification assets |
| 7.2 |
|
|
| (4.9 | ) |
|
| 2.3 |
|
|
| 14.7 |
|
|
| (11.3 | ) |
|
| 3.4 |
|
AEA(2)(5) | $ | 3.2 |
|
| $ | 5.9 |
|
| $ | 9.1 |
|
| $ | 26.4 |
|
| $ | (0.4 | ) |
| $ | 26.0 |
|
Interest-bearing deposits | $ | 0.8 |
|
| $ | 11.7 |
|
| $ | 12.5 |
|
| $ | 3.1 |
|
| $ | 27.4 |
|
| $ | 30.5 |
|
Borrowings(4) |
| (7.7 | ) |
|
| 3.9 |
|
|
| (3.8 | ) |
|
| 1.0 |
|
|
| 5.7 |
|
|
| 6.7 |
|
Total interest-bearing liabilities | $ | (6.9 | ) |
| $ | 15.6 |
|
| $ | 8.7 |
|
| $ | 4.1 |
|
| $ | 33.1 |
|
| $ | 37.2 |
|
Average Balances and Rates(1) (dollars in millions) (continued) | |||||||||||||||||||||||
March 2018 Over December 2017 Comparison | March 2018 Over March 2017 Comparison | ||||||||||||||||||||||
Increase (Decrease) Due To Change In: | Increase (Decrease) Due To Change In: | ||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||
Interest-bearing cash | $ | (0.6 | ) | $ | (1.3 | ) | $ | (1.9 | ) | $ | (10.0 | ) | $ | 4.5 | $ | (5.5 | ) | ||||||
Investments | 1.8 | 3.9 | 5.7 | 12.9 | (0.7 | ) | 12.2 | ||||||||||||||||
Loans (including held for sale and net of credit balances of factoring clients)(2) | 7.7 | (9.7 | ) | (2.0 | ) | 0.7 | (5.5 | ) | (4.8 | ) | |||||||||||||
Operating lease equipment, net (including held for sale)(3) | 1.4 | (2.0 | ) | (0.6 | ) | 6.9 | (11.1 | ) | (4.2 | ) | |||||||||||||
Indemnification assets | 2.9 | (1.2 | ) | 1.7 | 7.1 | (13.5 | ) | (6.4 | ) | ||||||||||||||
Total earning assets | $ | 13.2 | $ | (10.3 | ) | $ | 2.9 | $ | 17.6 | $ | (26.3 | ) | $ | (8.7 | ) | ||||||||
Interest-bearing deposits | $ | 1.5 | $ | 3.5 | $ | 5.0 | $ | (7.5 | ) | $ | 10.6 | $ | 3.1 | ||||||||||
Borrowings(4) | 3.7 | 3.1 | 6.8 | (34.4 | ) | 48.7 | 14.3 | ||||||||||||||||
Total interest-bearing liabilities | $ | 5.2 | $ | 6.6 | $ | 11.8 | $ | (41.9 | ) | $ | 59.3 | $ | 17.4 |
(1)...(4)(
49
NFR is driven by revenues on loans and leases and was $391 million compared to $399$389 million in the current quarter, unchanged from the prior quarter and down from $401 million in the year-ago quarter. NFR in both the current and prior quartersquarter included a $9 million benefit from the suspension of depreciation expense related to NACCO, because its assets are includedcompared to $8 million in assets held for sale.the year-ago quarter. When operating lease equipment is in AHFS, depreciation is suspended, resulting in a benefit to NFR. The impact from suspended depreciation is further explained later in this section. Excluding noteworthy items, NFR was $381 million in the current quarter, compared to $391$380 million in the prior quarter and $393 million in the year-ago quarter. Compared to the prior quarter, NFR excluding noteworthy items was relatively unchanged, as a benefit from an $8.5 million prepayment on a lease (compared to a $4 million prepayment in the prior quarter) and lower PAA andmaintenance costs in Rail were mostly offset by higher deposit and borrowingcosts. Compared to the year-ago quarter, NFR excluding noteworthy items decreased due to a reduction in PAA, as higher funding costs were partiallymostly offset by higher interest income on loans and investments. Higher borrowing costs were driven by the unsecured debt issuance and higher deposit rates paid, as discussed further below. NFR in the current quarter included $2 million related to the timing mismatch between the unsecured debt issuance in March 2018Commercial Banking segment and the portion of the proceeds used to redeem debt in April 2018. on investment securities.
Revenues generated on our interest-bearing cash and investments are indicative of the rising interest rate environment. The average balance and revenues have increased in investments, reflecting our strategy to grow that portfolio. The returns may fluctuate depending on the composition of the investments, interest rates and credit spreads. Interest expenseThe year-ago nine month average balance and income was up inelevated due to the current quarter, reflecting higher balances.
NFM
For the nine months ended September 30, 2018, NFR was down compared to 2017, reflecting lower PAA and higher deposit costs. Borrowing costs in the current year reflected an increase in FHLB costs, primarily driven by rate increases, and the impact of the subordinated debt issued in March 2018 and other unsecured debt issued in 2018. The year-ago period included $23 million in interest expense on approximately $5.8 billion of unsecured senior debt that previously was allocated to discontinued operations but was recorded in continuing operations following the Commercial Air sale on April 4, 2017, until the redemption of that debt later in the quarter. Partially offsetting this cost was $9 million in interest income related to the elevated cash balances for the period between the closing of the Commercial Air sale and the related liability management and capital actions. NFM was up 4 basis points (“bps”), reflecting mix shift in assets and the noteworthy items in the prior year. Excluding noteworthy items, NFR and NFM were down following similar trends noted above for the quarter.
While we explain in the Risk Management section that our balance sheet has a moderate amount of asset sensitivity, there are factors in Corporate.
AEA decreased from the prior quarter, reflecting the deployment of interest-bearing cash into certain liability and capital management actions and the full impact of the reverse mortgage portfolio sale in May. AEA for the nine months ended September 30, 2017 included elevated cash balances for the period between the closing of the Commercial Air sale and related liability management and capital actions. Excluding the Commercial Air impact, AEA decreased 2% as the decline in interest-bearing cash deposits and run-off and sales of the noted portfolios, offset growth in Commercial Banking.
The composition of our average funding mix was virtually unchanged from the prior quarter as follows:
Average Funding Mix
Quarters Ended |
| ||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||
Deposits |
| 78 | % |
|
| 77 | % |
|
| 78 | % |
Unsecured borrowings |
| 11 | % |
|
| 11 | % |
|
| 11 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Secured Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
Structured financings |
| 3 | % |
|
| 3 | % |
|
| 4 | % |
FHLB advances |
| 8 | % |
|
| 9 | % |
|
| 7 | % |
Average Funding Mix | ||||||||
Quarters Ended | ||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||
Deposits | 77 | % | 77 | % | 69 | % | ||
Unsecured | 10 | % | 10 | % | 22 | % | ||
Secured Borrowings: | ||||||||
Structured financings | 4 | % | 4 | % | 4 | % | ||
FHLB Advances | 9 | % | 9 | % | 5 | % |
These proportions will fluctuate in the future depending upon our funding activities. The change fromIn October 2018 we repaid approximately $465 million of structured financings related to Rail, the year-ago quarter reflectspurchaser of NACCO assumed approximately $100 million of structured financings, and we announced in October and November 2018 redemptions of $431 million of senior unsecured notes in the reduction of the unsecured debt, including redemptions totaling $6.9 billion during 2017.
50
The following table details further the rates of interest bearing liabilities.
Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
| |||||||||
Interest-bearing Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits | $ | 14,126.1 |
|
| $ | 70.0 |
|
|
| 1.98 | % |
| $ | 13,839.9 |
|
| $ | 62.4 |
|
|
| 1.80 | % |
| $ | 14,924.4 |
|
| $ | 62.1 |
|
|
| 1.66 | % |
Interest-bearing checking |
| 1,918.3 |
|
|
| 2.8 |
|
|
| 0.58 | % |
|
| 2,339.4 |
|
|
| 3.6 |
|
|
| 0.62 | % |
|
| 2,775.6 |
|
|
| 3.9 |
|
|
| 0.56 | % |
Savings and Online money market accounts |
| 8,765.4 |
|
|
| 35.4 |
|
|
| 1.62 | % |
|
| 8,411.2 |
|
|
| 31.5 |
|
|
| 1.50 | % |
|
| 5,598.6 |
|
|
| 14.6 |
|
|
| 1.04 | % |
Other money markets / sweeps |
| 4,925.6 |
|
|
| 14.9 |
|
|
| 1.21 | % |
|
| 4,959.1 |
|
|
| 13.1 |
|
|
| 1.06 | % |
|
| 5,521.6 |
|
|
| 12.0 |
|
|
| 0.87 | % |
Total interest-bearing deposits |
| 29,735.4 |
|
|
| 123.1 |
|
|
| 1.65 | % |
|
| 29,549.6 |
|
|
| 110.6 |
|
|
| 1.50 | % |
|
| 28,820.2 |
|
|
| 92.6 |
|
|
| 1.29 | % |
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured notes |
| 4,422.4 |
|
|
| 56.9 |
|
|
| 5.15 | % |
|
| 4,318.4 |
|
|
| 55.4 |
|
|
| 5.13 | % |
|
| 4,346.3 |
|
|
| 57.4 |
|
|
| 5.28 | % |
Secured borrowings |
| 1,517.8 |
|
|
| 16.5 |
|
|
| 4.35 | % |
|
| 1,641.0 |
|
|
| 16.6 |
|
|
| 4.05 | % |
|
| 1,969.7 |
|
|
| 16.7 |
|
|
| 3.39 | % |
FHLB advances |
| 2,967.4 |
|
|
| 17.4 |
|
|
| 2.35 | % |
|
| 3,711.0 |
|
|
| 20.5 |
|
|
| 2.21 | % |
|
| 2,583.0 |
|
|
| 9.5 |
|
|
| 1.47 | % |
Other credit facilities(1) |
| — |
|
|
| 2.5 |
|
|
| — | % |
|
| — |
|
|
| 4.9 |
|
|
| — | % |
|
| — |
|
|
| 4.0 |
|
|
| — | % |
Borrowings |
| 8,907.6 |
|
|
| 93.3 |
|
|
| 4.19 | % |
|
| 9,670.4 |
|
|
| 97.4 |
|
|
| 4.03 | % |
|
| 8,899.0 |
|
|
| 87.6 |
|
|
| 3.94 | % |
Allocated to discontinued operations |
| (215.4 | ) |
|
| (2.5 | ) |
|
|
|
|
|
| (233.4 | ) |
|
| (2.8 | ) |
|
|
|
|
|
| (307.4 | ) |
|
| (3.5 | ) |
|
|
|
|
Total borrowings |
| 8,692.2 |
|
|
| 90.8 |
|
|
| 4.18 | % |
|
| 9,437.0 |
|
|
| 94.6 |
|
|
| 4.01 | % |
|
| 8,591.6 |
|
|
| 84.1 |
|
|
| 3.92 | % |
Total interest-bearing liabilities | $ | 38,427.6 |
|
| $ | 213.9 |
|
|
| 2.23 | % |
| $ | 38,986.6 |
|
| $ | 205.2 |
|
|
| 2.11 | % |
| $ | 37,411.8 |
|
| $ | 176.7 |
|
|
| 1.89 | % |
Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions) | ||||||||||||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||||||||||||||||||||||
Average Balance | Interest Expense | Rate % | Average Balance | Interest Expense | Rate % | Average Balance | Interest Expense | Rate % | ||||||||||||||||||||||||
Interest-bearing Deposits | ||||||||||||||||||||||||||||||||
Time deposits | $ | 14,140.2 | $ | 59.8 | 1.69 | % | $ | 14,449.8 | $ | 61.2 | 1.69 | % | $ | 16,454.2 | $ | 64.3 | 1.56 | % | ||||||||||||||
Interest-bearing checking | 2,658.7 | 4.1 | 0.62 | % | 2,637.8 | 3.7 | 0.56 | % | 3,197.0 | 4.4 | 0.55 | % | ||||||||||||||||||||
Savings | 6,512.1 | 21.1 | 1.30 | % | 6,003.6 | 16.8 | 1.12 | % | 4,499.7 | 10.7 | 0.95 | % | ||||||||||||||||||||
Money markets / sweeps | 5,284.2 | 12.1 | 0.92 | % | 5,042.5 | 10.4 | 0.82 | % | 6,802.1 | 14.6 | 0.86 | % | ||||||||||||||||||||
Total interest-bearing deposits | 28,595.2 | 97.1 | 1.36 | % | 28,133.7 | 92.1 | 1.31 | % | 30,953.0 | 94.0 | 1.21 | % | ||||||||||||||||||||
Borrowings | ||||||||||||||||||||||||||||||||
Unsecured notes(1) | 4,092.3 | 51.0 | 4.98 | % | 3,745.9 | 46.7 | 4.99 | % | 10,599.8 | 136.8 | 5.16 | % | ||||||||||||||||||||
Secured borrowings | 1,756.5 | 16.4 | 3.73 | % | 1,881.3 | 16.3 | 3.47 | % | 2,948.9 | 27.0 | 3.66 | % | ||||||||||||||||||||
FHLB advances | 3,454.1 | 15.0 | 1.74 | % | 3,283.0 | 11.9 | 1.45 | % | 2,410.7 | 6.4 | 1.06 | % | ||||||||||||||||||||
Other credit facilities(2) | — | 4.1 | — | % | — | 5.0 | — | % | — | (2.7 | ) | — | % | |||||||||||||||||||
Total borrowings | 9,302.9 | 86.5 | 3.72 | % | 8,910.2 | 79.9 | 3.59 | % | 15,959.4 | 167.5 | 4.20 | % | ||||||||||||||||||||
Allocated to discontinued operations | (257.5 | ) | (3.1 | ) | (279.1 | ) | (3.3 | ) | (1,144.4 | ) | (98.4 | ) | ||||||||||||||||||||
Total borrowings | 9,045.4 | 83.4 | 3.69 | % | 8,631.1 | 76.6 | 3.55 | % | 14,815.0 | 69.1 | 1.87 | % | ||||||||||||||||||||
Total interest-bearing liabilities | $ | 37,640.6 | $ | 180.5 | 1.92 | % | $ | 36,764.8 | $ | 168.7 | 1.84 | % | $ | 45,768.0 | $ | 163.1 | 1.43 | % |
(1) |
| Balance includes interest expense related to facility fees and amortization of deferred costs on unused portions of credit facilities, including the Revolving Credit Facility and total return swaps. |
We remain focused on improving theoptimizing our mix of deposits. The change in mix of our deposits reflects our strategyCompared to increasethe year-ago quarter, we have increased the percentage of non-maturity deposits relative to total deposits. As a result ofdeposits in conjunction with our strategy to optimize deposit costs through the rate cycle, while working within our risk management discipline. Compared to the prior quarter, time deposits were up as we offered attractive rates on shorter-term CDs. The table above reflects increased savings and online money market deposits compared to both the year-ago and prior quarters. Compared to the year-ago quarter, we decreased money market and time deposit accounts in the higher cost commercial channel. In addition, we significantly lessenedreduced sweep accounts and time deposits in the brokered channel. The deposit cost increases from the year-ago and prior quarters also reflected the impact from the Federal Reserve increases in the short-term interest rate. The Federal Reserve raised rates by 0.25% in March, June and December 2017 and again in March 2018. See
Borrowing costs increased compared to the year-ago quarter and was down from the prior quarter. The reduction from the prior quarter aswas primarily driven by decreased FHLB advance levels, while the increase from the year-ago quarter was impacted by rising rates. During the 2018 third quarter, we further extended our unsecured maturities and issued $500 million of unsecured notes at 4.750% due in February 2024 and repaid approximately $500 million of 3.875% unsecured notes due in February 2019. In the first quarter of 2018 we issued $1 billion of senior unsecured notes at a weighted average coupon rate of 4.69%. In addition, we issued and a weighted term of 5 years, and $400 million of unsecured subordinated debt at 6.125% in conjunction with our capital plan that will allowallowed us to return up to $800$400 million of capital.common equity. Most of the proceeds of the senior unsecured borrowings issued in the first quarter were used in April to repay $883$500 million of the 3.875% senior unsecured notes due in April.February 2019 and $383 million of 5.500% senior unsecured notes due in February 2019. During this period, we extended the weighted average maturity profile of the combined unsecured senior and subordinated notes to 4.9 years at September 30, 2018 from 4.1 years at March 31, 2018.
The following table reflects our total deposit base, interest bearing and non-interest-bearing deposits, and related rate:
Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
| |||||||||
Interest-bearing deposits | $ | 29,735.4 |
|
| $ | 123.1 |
|
|
| 1.65 | % |
| $ | 29,549.6 |
|
| $ | 110.6 |
|
|
| 1.50 | % |
| $ | 28,820.2 |
|
| $ | 92.6 |
|
|
| 1.29 | % |
Non-interest-bearing deposits |
| 1,503.2 |
|
|
| — |
|
|
| — |
|
|
| 1,414.5 |
|
|
| — |
|
|
| — |
|
|
| 1,495.9 |
|
|
| — |
|
|
| — |
|
Total deposits | $ | 31,238.6 |
|
| $ | 123.1 |
|
|
| 1.58 | % |
| $ | 30,964.1 |
|
| $ | 110.6 |
|
|
| 1.43 | % |
| $ | 30,316.1 |
|
| $ | 92.6 |
|
|
| 1.22 | % |
Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions) | ||||||||||||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||||||||||||||||||||||
Average Balance | Interest Expense | Average Rate (%) | Average Balance | Interest Expense | Average Rate (%) | Average Balance | Interest Expense | Average | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 28,595.2 | $ | 97.1 | 1.36 | % | $ | 28,133.7 | $ | 92.1 | 1.31 | % | $ | 30,953.0 | $ | 94.0 | 1.21 | % | ||||||||||||||
Non-interest-bearing deposits | 1,456.1 | — | — | 1,501.3 | — | — | 1,387.3 | — | — | |||||||||||||||||||||||
Total deposits | $ | 30,051.3 | $ | 97.1 | 1.29 | % | $ | 29,635.0 | $ | 92.1 | 1.24 | % | $ | 32,340.3 | $ | 94.0 | 1.16 | % |
Deposits and borrowings are also discussed in
Funding and Liquidity.51
The following table depicts selected earning asset yields and margin-related data for our segments and divisions within the segments.
Segment Average Yield and Other Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 30,319.4 |
|
| $ | 29,965.1 |
|
| $ | 29,011.1 |
|
| $ | 30,116.1 |
|
| $ | 29,161.9 |
|
NFR |
| 278.3 |
|
|
| 274.0 |
|
|
| 301.4 |
|
|
| 830.7 |
|
|
| 922.4 |
|
Gross yield |
| 7.96 | % |
|
| 7.90 | % |
|
| 7.74 | % |
|
| 7.81 | % |
|
| 7.72 | % |
NFM |
| 3.67 | % |
|
| 3.66 | % |
|
| 4.16 | % |
|
| 3.68 | % |
|
| 4.22 | % |
Average Earning Assets (AEA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 10,230.6 |
|
| $ | 10,068.7 |
|
| $ | 9,541.0 |
|
| $ | 10,153.4 |
|
| $ | 9,876.8 |
|
Rail |
| 7,774.6 |
|
|
| 7,712.5 |
|
|
| 7,542.7 |
|
|
| 7,728.9 |
|
|
| 7,421.2 |
|
Real Estate Finance |
| 5,398.5 |
|
|
| 5,469.2 |
|
|
| 5,599.0 |
|
|
| 5,500.4 |
|
|
| 5,598.5 |
|
Business Capital |
| 6,915.7 |
|
|
| 6,714.7 |
|
|
| 6,328.4 |
|
|
| 6,733.4 |
|
|
| 6,265.4 |
|
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 5.78 | % |
|
| 5.66 | % |
|
| 5.58 | % |
|
| 5.58 | % |
|
| 5.44 | % |
Rail |
| 11.51 | % |
| �� | 11.45 | % |
|
| 11.44 | % |
|
| 11.32 | % |
|
| 11.70 | % |
Real Estate Finance |
| 5.60 | % |
|
| 5.58 | % |
|
| 5.32 | % |
|
| 5.51 | % |
|
| 5.19 | % |
Business Capital |
| 9.04 | % |
|
| 9.05 | % |
|
| 8.75 | % |
|
| 9.01 | % |
|
| 8.85 | % |
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 84.2 |
|
| $ | 83.4 |
|
| $ | 94.8 |
|
| $ | 253.7 |
|
| $ | 293.5 |
|
Rail |
| 77.7 |
|
|
| 71.5 |
|
|
| 80.9 |
|
|
| 219.2 |
|
|
| 240.3 |
|
Real Estate Finance |
| 40.2 |
|
|
| 42.7 |
|
|
| 50.7 |
|
|
| 129.6 |
|
|
| 151.2 |
|
Business Capital |
| 76.2 |
|
|
| 76.4 |
|
|
| 75.0 |
|
|
| 228.2 |
|
|
| 237.4 |
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 3.29 | % |
|
| 3.31 | % |
|
| 3.97 | % |
|
| 3.33 | % |
|
| 3.96 | % |
Rail |
| 4.00 | % |
|
| 3.71 | % |
|
| 4.29 | % |
|
| 3.78 | % |
|
| 4.32 | % |
Real Estate Finance |
| 2.98 | % |
|
| 3.12 | % |
|
| 3.62 | % |
|
| 3.14 | % |
|
| 3.60 | % |
Business Capital |
| 4.41 | % |
|
| 4.55 | % |
|
| 4.74 | % |
|
| 4.52 | % |
|
| 5.05 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 6,433.2 |
|
| $ | 6,896.9 |
|
| $ | 6,904.3 |
|
| $ | 6,729.4 |
|
| $ | 7,101.0 |
|
NFR |
| 120.6 |
|
|
| 122.3 |
|
|
| 108.2 |
|
|
| 352.4 |
|
|
| 325.9 |
|
Gross yield |
| 4.91 | % |
|
| 4.93 | % |
|
| 5.34 | % |
|
| 4.94 | % |
|
| 5.52 | % |
NFM |
| 7.50 | % |
|
| 7.09 | % |
|
| 6.27 | % |
|
| 6.98 | % |
|
| 6.12 | % |
AEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking | $ | 3,397.7 |
|
| $ | 3,098.6 |
|
| $ | 2,240.2 |
|
| $ | 3,077.4 |
|
| $ | 2,196.2 |
|
LCM |
| 3,035.5 |
|
|
| 3,798.3 |
|
|
| 4,664.1 |
|
|
| 3,652.0 |
|
|
| 4,904.8 |
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 3.66 | % |
|
| 3.64 | % |
|
| 3.49 | % |
|
| 3.62 | % |
|
| 3.50 | % |
LCM |
| 6.31 | % |
|
| 5.99 | % |
|
| 6.23 | % |
|
| 6.05 | % |
|
| 6.42 | % |
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking | $ | 90.3 |
|
| $ | 87.6 |
|
| $ | 58.4 |
|
| $ | 248.4 |
|
| $ | 157.5 |
|
LCM |
| 30.3 |
|
|
| 34.7 |
|
|
| 49.8 |
|
|
| 104.0 |
|
|
| 168.4 |
|
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 10.63 | % |
|
| 11.31 | % |
|
| 10.43 | % |
|
| 10.77 | % |
|
| 9.56 | % |
LCM |
| 4.01 | % |
|
| 3.65 | % |
|
| 4.27 | % |
|
| 3.80 | % |
|
| 4.58 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Strategic Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 78.6 |
|
| $ | 123.0 |
|
| $ | 226.9 |
|
| $ | 116.8 |
|
| $ | 307.7 |
|
NFR |
| 0.6 |
|
|
| 0.1 |
|
|
| 1.6 |
|
|
| 1.4 |
|
|
| 4.8 |
|
Gross yield |
| 7.12 | % |
|
| 6.18 | % |
|
| 8.11 | % |
|
| 6.51 | % |
|
| 7.71 | % |
NFM |
| 3.05 | % |
|
| 0.33 | % |
|
| 2.82 | % |
|
| 1.60 | % |
|
| 2.08 | % |
Segment Average Yield and Other Data (dollars in millions) | ||||||||||||||||||||||||
Quarters Ended | Quarters Ended | |||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||||||||||||
Commercial Banking | Consumer Banking | |||||||||||||||||||||||
AEA | $ | 30,021.7 | $ | 29,507.3 | $ | 29,304.7 | AEA | $ | 7,009.4 | $ | 6,885.6 | $ | 7,291.8 | |||||||||||
NFR | 278.4 | 296.1 | 311.7 | NFR | 109.5 | 104.0 | 106.5 | |||||||||||||||||
Gross yield | 7.57 | % | 7.69 | % | 7.63 | % | Gross yield | 4.86 | % | 4.90 | % | 5.49 | % | |||||||||||
NFM | 3.71 | % | 4.01 | % | 4.25 | % | NFM | 6.25 | % | 6.04 | % | 5.84 | % | |||||||||||
AEA | AEA | |||||||||||||||||||||||
Commercial Finance | $ | 10,132.5 | $ | 9,748.6 | $ | 10,216.9 | Other Consumer Banking | $ | 2,747.0 | $ | 2,452.7 | $ | 2,165.9 | |||||||||||
Rail | 7,695.1 | 7,583.2 | 7,320.0 | LCM | 4,262.4 | 4,432.9 | 5,125.9 | |||||||||||||||||
Real Estate Finance | 5,616.2 | 5,615.0 | 5,565.4 | Gross yield | ||||||||||||||||||||
Business Capital | 6,577.9 | 6,560.5 | 6,202.4 | Other Consumer Banking | 3.53 | % | 3.52 | % | 3.46 | % | ||||||||||||||
Gross yield | LCM | 5.73 | % | 5.66 | % | 6.34 | % | |||||||||||||||||
Commercial Finance | 5.30 | % | 5.61 | % | 5.16 | % | NFR | |||||||||||||||||
Rail | 11.02 | % | 11.25 | % | 11.98 | % | Other Consumer Banking | $ | 70.6 | $ | 62.4 | $ | 46.6 | |||||||||||
Real Estate Finance | 5.36 | % | 5.18 | % | 4.90 | % | LCM | 38.9 | 41.6 | 59.9 | ||||||||||||||
Business Capital | 8.94 | % | 8.79 | % | 9.01 | % | NFM | |||||||||||||||||
NFR | Other Consumer Banking | 10.28 | % | 10.18 | % | 8.61 | % | |||||||||||||||||
Commercial Finance | $ | 86.1 | $ | 96.1 | $ | 97.8 | LCM | 3.65 | % | 3.75 | % | 4.67 | % | |||||||||||
Rail | 70.0 | 78.5 | 81.8 | |||||||||||||||||||||
Real Estate Finance | 46.7 | 48.2 | 48.2 | Non-Strategic Portfolios | ||||||||||||||||||||
Business Capital | 75.6 | 73.3 | 83.9 | AEA | $ | 148.6 | $ | 188.0 | $ | 367.5 | ||||||||||||||
NFM | NFR | 0.7 | 2.9 | 2.0 | ||||||||||||||||||||
Commercial Finance | 3.40 | % | 3.94 | % | 3.83 | % | Gross yield | 6.46 | % | 10.85 | % | 7.62 | % | |||||||||||
Rail | 3.64 | % | 4.14 | % | 4.47 | % | NFM | 1.88 | % | 6.17 | % | 2.18 | % | |||||||||||
Real Estate Finance | 3.33 | % | 3.43 | % | 3.46 | % | ||||||||||||||||||
Business Capital | 4.60 | % | 4.47 | % | 5.41 | % |
Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were downup from the year-ago and prior quarters. The Commercial Finance increaseincreases in gross yields from the year-ago quarter wasand prior quarters were primarily driven by the benefit of higher short-term interest rates, partially offset by a decline in PAA, which, in additionPAA. Higher interest recoveries also contributed to lower prepayment benefits, also drove the division’s decreaseincrease from the prior quarter. Gross yields in Rail were lowerup from the year-ago and prior quarters, asbenefiting from a $8.5 million lease prepayment (compared to a $4 million prepayment benefit in the prior quarter) and higher utilization, which was partially offset by lease rates that continued to re-price lower on average across the North American portfolio. The Real Estate Finance gross yield improved from the year-ago and prior quarters, driven by the benefit of higher short term interest rates that more than offset lower purchase accounting accretion.PAA and prepayment related benefits. Gross yields in Business Capital were down slightlyup from the year-ago quarter and up fromflat with the prior quarter, due toreflecting asset mix and the interest rate increase.
52
Consumer Banking gross yields were down from the year-ago quarter, asreflecting lower PAA, and down slightly from the declineprior quarter. Although both divisional gross yields were up, impact of the sale of the reverse mortgage portfolio, lower PAA and the dynamics of the AEA weighting for each division caused the segment level gross yield to be down compared to the year-ago and prior quarters. Gross yields in LCM offset a modest increase inthe Other Consumer Banking. The decline in grossBanking division reflect the benefit of the higher interest rate environment as that division grows its portfolio. Gross yields in LCM was driven bywere up, as rising interest rates and lower purchase accounting accretionnegative interest income on mortgage loans in LCM, some of which was due to ceasing PAA accretion related to the reverse mortgages that were transferred toindemnification assets held for sale (" AHFS") at the endoffset lower PAA. Each of the third quarter of 2017. The decline also reflects higher amounts ofperiods includes negative interest income associated with amortizing the indemnification asset.asset on single family residential mortgage loans. The negative interest income on the indemnification asset totaled $14was down about $2 million this quarter, $16 million lastfrom the prior quarter and $8$3 million infrom the year agoyear-ago quarter. The negative amounts reduce interest income and are due to lower expected reimbursable losses under the loss share agreement, reflecting better than expected credit performance of the covered loans. While we expect the yield to remain negative, the level can increase or decrease as the indemnification assets amortizesamortize over the remaining contract period, which expires in March 2019. NFM in Consumer Banking is higher than gross yields as this segment receives credit from the other segments for the value of the deposits generated.
As of March 31,September 30, 2018, the remaining accretable PAApurchase accounting adjustment was $700$653 million, of which $86$68 million related to Commercial Banking and $614$585 million related to Consumer Banking. This compares to $733 million of remaining accretable PAApurchase accounting adjustment as of December 31, 2017, of which $97 million related to Commercial Banking and $636 million related to Consumer Banking. We are forecasting 40-50% of the remaining accretable PAA in Commercial Banking to be realized in the next four quarters. The remaining accretable PAApurchase accounting adjustment in Consumer Banking is expected to run off at a rate consistent with the run-off of the underlying mortgages, which has averaged 10-15% annually.annually and we are expecting accretion of the remaining Commercial Banking purchase accounting adjustment to continue to trend lower. However, amounts may vary quarter to quarter from fluctuations in prepayments, which results in a loan's remaining PAA to bepurchase accounting adjustments being accelerated into interest income. (See footnote 1 to the following table).
The following table displays PAA by segment and division for both interest income and interest expense.
Purchase Accounting Accretion (dollars in millions)
Quarters Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| PAA Recognized in: |
|
| PAA Recognized in: |
|
| PAA Recognized in: |
| |||||||||||||||||||||||||||
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
|
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
|
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
| |||||||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 3.0 |
|
| $ | — |
|
| $ | 3.0 |
|
| $ | 4.2 |
|
| $ | — |
|
| $ | 4.2 |
|
| $ | 10.2 |
|
| $ | 0.2 |
|
| $ | 10.4 |
|
Real Estate Finance |
| 4.5 |
|
|
| — |
|
|
| 4.5 |
|
|
| 4.5 |
|
|
| — |
|
|
| 4.5 |
|
|
| 11.4 |
|
|
| — |
|
|
| 11.4 |
|
Total Commercial Banking |
| 7.5 |
|
|
| — |
|
|
| 7.5 |
|
|
| 8.7 |
|
|
| — |
|
|
| 8.7 |
|
|
| 21.6 |
|
|
| 0.2 |
|
|
| 21.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 0.3 |
|
|
| 0.6 |
|
|
| 0.9 |
|
|
| 0.3 |
|
|
| 0.7 |
|
|
| 1.0 |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.0 |
|
Legacy Consumer Mortgages(3) |
| 19.2 |
|
|
| — |
|
|
| 19.2 |
|
|
| 20.6 |
|
|
| — |
|
|
| 20.6 |
|
|
| 29.1 |
|
|
| — |
|
|
| 29.1 |
|
Total Consumer Banking |
| 19.5 |
|
|
| 0.6 |
|
|
| 20.1 |
|
|
| 20.9 |
|
|
| 0.7 |
|
|
| 21.6 |
|
|
| 29.1 |
|
|
| 1.0 |
|
|
| 30.1 |
|
Corporate and Other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Total CIT | $ | 27.0 |
|
| $ | 0.6 |
|
| $ | 27.6 |
|
| $ | 29.6 |
|
| $ | 0.7 |
|
| $ | 30.3 |
|
| $ | 50.7 |
|
| $ | 1.3 |
|
| $ | 52.0 |
|
Purchase Accounting Accretion (PAA) (dollars in millions) | |||||||||||||||||||||||||||||||||||
Quarters Ended | |||||||||||||||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||||||||||||||||||||||||||
PAA Accretion Recognized in: | PAA Accretion Recognized in: | PAA Accretion Recognized in: | |||||||||||||||||||||||||||||||||
Interest Income(1) | Interest Expense(2) | NFR | Interest Income(1) | Interest Expense(2) | NFR | Interest Income(1) | Interest Expense(2) | NFR | |||||||||||||||||||||||||||
Commercial Banking | |||||||||||||||||||||||||||||||||||
Commercial Finance | $ | 4.0 | $ | 0.1 | $ | 4.1 | $ | 7.8 | $ | 0.2 | $ | 8.0 | $ | 12.2 | $ | 0.3 | $ | 12.5 | |||||||||||||||||
Real Estate Finance | 6.6 | — | 6.6 | 7.9 | — | 7.9 | 11.9 | — | 11.9 | ||||||||||||||||||||||||||
Total Commercial Banking | 10.6 | 0.1 | 10.7 | 15.7 | 0.2 | 15.9 | 24.1 | 0.3 | 24.4 | ||||||||||||||||||||||||||
Consumer Banking | |||||||||||||||||||||||||||||||||||
Other Consumer Banking | 0.1 | 0.8 | 0.9 | 0.1 | 0.9 | 1.0 | (0.4 | ) | 1.2 | 0.8 | |||||||||||||||||||||||||
Legacy Consumer Mortgages(3) | 21.0 | — | 21.0 | 23.0 | — | 23.0 | 30.7 | — | 30.7 | ||||||||||||||||||||||||||
Total Consumer Banking | 21.1 | 0.8 | 21.9 | 23.1 | 0.9 | 24.0 | 30.3 | 1.2 | 31.5 | ||||||||||||||||||||||||||
Corporate and Other | — | — | — | — | — | — | — | 0.2 | 0.2 | ||||||||||||||||||||||||||
Total CIT | $ | 31.7 | $ | 0.9 | $ | 32.6 | $ | 38.8 | $ | 1.1 | $ | 39.9 | $ | 54.4 | $ | 1.7 | $ | 56.1 |
(1) | Included in the above are accelerated recognition of approximately |
(2) | Debt and deposits acquired in the OneWest Bank acquisition were recorded at a net premium, therefore the |
(3) | The decline from the year-ago quarter reflects the transfer of the reverse mortgage portfolio to AHFS at the end of the third quarter of 2017. |
The following table sets forth the details on net operating lease revenues.
Net Operating Lease Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||
Rental income on operating leases | $ | 264.3 |
|
|
| 13.16 | % |
| $ | 261.3 |
|
|
| 13.09 | % |
| $ | 252.3 |
|
|
| 12.94 | % |
| $ | 779.2 |
|
|
| 13.02 | % |
| $ | 754.8 |
|
|
| 13.18 | % |
Depreciation on operating lease equipment |
| 78.0 |
|
|
| 3.88 | % |
|
| 77.2 |
|
|
| 3.87 | % |
|
| 71.1 |
|
|
| 3.64 | % |
|
| 231.6 |
|
|
| 3.87 | % |
|
| 222.0 |
|
|
| 3.88 | % |
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 2.82 | % |
|
| 63.5 |
|
|
| 3.18 | % |
|
| 57.9 |
|
|
| 2.97 | % |
|
| 177.5 |
|
|
| 2.97 | % |
|
| 165.0 |
|
|
| 2.88 | % |
Net operating lease revenue and % | $ | 129.7 |
|
|
| 6.46 | % |
| $ | 120.6 |
|
|
| 6.04 | % |
| $ | 123.3 |
|
|
| 6.33 | % |
| $ | 370.1 |
|
|
| 6.18 | % |
| $ | 367.8 |
|
|
| 6.42 | % |
Average operating lease equipment, including amounts held for sale | $ | 8,031.8 |
|
|
|
|
|
| $ | 7,980.3 |
|
|
|
|
|
| $ | 7,797.6 |
|
|
|
|
|
| $ | 7,979.8 |
|
|
|
|
|
| $ | 7,637.1 |
|
|
|
|
|
Net Operating Lease Data (dollars in millions) | ||||||||||||||||||||
Quarters Ended | ||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||||||||||
Rental income on operating leases | $ | 253.6 | 12.78 | % | $ | 252.6 | 12.89 | % | $ | 251.3 | 13.40 | % | ||||||||
Depreciation on operating lease equipment | 76.4 | 3.85 | % | 74.3 | 3.79 | % | 73.5 | 3.92 | % | |||||||||||
Maintenance and other operating lease expenses | 57.4 | 2.89 | % | 57.9 | 2.95 | % | 53.8 | 2.87 | % | |||||||||||
Net operating lease revenue and % | $ | 119.8 | 6.04 | % | $ | 120.4 | 6.14 | % | $ | 124.0 | 6.61 | % | ||||||||
Average operating lease equipment, including amounts held for sale | $ | 7,934.6 | $ | 7,841.0 | $ | 7,500.9 |
Net operating lease revenue, which is a component of NFR, is driven principally by the performance of the Rail portfolio within the Commercial Banking segment. Net operating lease revenue was flat with the prior quarter and downup from the year-ago and prior quarters on strong utilization, portfolio growth, lower maintenance costs and benefits from a lease prepayment ($8.5 million in the current quarter reflecting continued downward pressures on renewal ratescompared to a $4 million prepayment benefit in Rail, partially offset by increased utilization. Netthe prior quarter). In each of the quarters, net operating lease revenue benefited infrom suspended depreciation, $9 million for the current and prior quarters (noneand $8 million in the year-ago quarter) from suspended depreciation of about $9 million in each period,quarter, related to the pending sale of our European Rail business, NACCO. IncreasingNACCO, which was in AHFS. See Note 14 – Subsequent Events for disclosure of the sale of NACCO in October 2018. If the suspended depreciation inwere included, the operating lease margins would have been 6.03%, 5.92% and
53
5.61%, for the current, year-ago and prior quarters, for the amount suspended would have decreased the respective net operating lease revenue in each period, and the rates to 5.57% for the current quarter and 5.69% for the prior quarter, respectively. Suspended depreciation is discussed further below.
North America railcar utilization, including commitments to lease, improved to nearly 97%remained at 98% unchanged from 96% at December 31, 2017, primarily driven by improvements in tank, mill gondola and box car utilization. RailJune 30, 2018. Overall lease rates in the current quarter continued to priceof cars renewing priced down 15% compared to the rates on expiring leases, reflectingwhich, although better than our guidance, continues to reflect excess capacity in the market. We continue to expect downward pressure, and anticipate re-pricing to be down 20%-30% on average through the rest of 2018 and into 2019, reflecting continued pressure from tank car lease rates, which are coming due for renewal at a faster pace.
Depreciation is recognized on railcars and other operating lease equipment. Depreciation was up from the year-ago and prior quarters driven primarily by asset growth in the non-rail portfolio, which is depreciated over a shorter timespan.growth. Once a long-lived asset is classified as assets held for sale,AHFS, depreciation expense is no longer recognized, and the asset is evaluated for impairment with any such charge recorded in other income, of which none wasincome. There were no related impairment charges recorded in the quarter on these assets.periods presented. Consequently, net operating lease revenue includes rental income on operating lease equipment classified as assets held for sale,AHFS, but there is no related depreciation expense. Suspended depreciation on operating lease equipment in assets held for sale totaled $9 million for the current and prior quarters, with none in the year-ago quarter. The 2018 second quarter is expected to have suspended depreciation at a similar level. See
Maintenance and other operating lease expenses relatestend to be variable and relate to the Rail portfolio. The decline from the prior quarter was driven by lower freight expenses in the North America portfolio and lower costs in the NACCO portfolio. The increase fromin 2018 for the year-ago quarternine month comparison reflected increased maintenance, freightvolume from remarketing cars and pulling cars from storage costs in Rail due to growth in the portfolio.
CREDIT METRICS
The following provides information on certain credit metrics, including non-accrual loan and net charge-off levels, as well as the provision for credit losses and allowance for loan losses, that management uses to track the credit quality of the portfolio.
Non-accrual loans totaled $237$318 million (0.80%(1.04% of loans), compared to $292 million (0.99% of loans) at June 30, 2018, and $221 million (0.76%) of loans) at December 31, 2017, and $259 million (0.87%) at March 31, 2017.
The provision for credit losses was $69$38 million, up from the prior quarter provision of $33 million and up from a $30 million and fromprovision in the prior year quarteryear-ago quarter. The year-ago-quarter provision of $50 million, primarily reflectingincluded a $22 million charge-offnoteworthy item of a single$15 million charge related to the reverse mortgage portfolio transferred to held for sale in connection with the Financial Freedom Transaction. Our assets are primarily commercial exposure and a higher levellarge part of reserves withinour consumer loans are carried at a significant discount, which reduces charge-offs in our LCM division. As a result, the provision for credit losses is primarily driven by the Commercial Finance division of Commercial Banking.
Net charge-offs were $50$26 million (0.68%(0.35% of average loans) in the current quarter, up from $18$15 million (0.26%)(0.21% of average loans) in the prior quarter and down from $28$42 million (0.37%)(0.58% of average loans) in the year-ago quarter. The increase from the prior quarter was driven by the $22Commercial Banking segment. The prior year quarter included $20 million charge-off noted above. Excluding that charge-off, netof charge-offs inrelated to the current quarter were $28 million (0.39%transfer of average loans).
The following table presents detail on our allowance for loan losses, including charge-offs and recoveries and provides summarized components of the provision and allowance:
Allowance for Loan Losses (dollars in millions)
Quarters Ended |
|
| Nine Months Ended |
| |||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Allowance — beginning of period | $ | 467.3 |
|
| $ | 447.6 |
|
| $ | 426.0 |
|
| $ | 431.1 |
|
| $ | 432.6 |
|
Provision for credit losses(1) |
| 38.1 |
|
|
| 32.9 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
|
Other(1) |
| (2.0 | ) |
|
| 2.1 |
|
|
| 5.1 |
|
|
| (2.3 | ) |
|
| (0.4 | ) |
Net additions |
| 36.1 |
|
|
| 35.0 |
|
|
| 35.2 |
|
|
| 137.5 |
|
|
| 83.8 |
|
Gross charge-offs |
| (30.8 | ) |
|
| (25.4 | ) |
|
| (48.2 | ) |
|
| (111.3 | ) |
|
| (114.4 | ) |
Recoveries |
| 4.8 |
|
|
| 10.1 |
|
|
| 6.5 |
|
|
| 20.1 |
|
|
| 17.5 |
|
Net Charge-offs |
| (26.0 | ) |
|
| (15.3 | ) |
|
| (41.7 | ) |
|
| (91.2 | ) |
|
| (96.9 | ) |
Allowance — end of period | $ | 477.4 |
|
| $ | 467.3 |
|
| $ | 419.5 |
|
| $ | 477.4 |
|
| $ | 419.5 |
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserves on impaired loans | $ | 6.9 |
|
| $ | 11.5 |
|
| $ | 2.3 |
|
| $ | 17.7 |
|
| $ | 6.3 |
|
Non-specific reserves |
| 31.2 |
|
|
| 21.4 |
|
|
| 27.8 |
|
|
| 122.1 |
|
|
| 77.9 |
|
Total | $ | 38.1 |
|
| $ | 32.9 |
|
| $ | 30.1 |
|
| $ | 139.8 |
|
| $ | 84.2 |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserves on impaired loans | $ | 43.7 |
|
| $ | 36.8 |
|
| $ | 35.6 |
|
|
|
|
|
|
|
|
|
Non-specific reserves |
| 433.7 |
|
|
| 430.5 |
|
|
| 383.9 |
|
|
|
|
|
|
|
|
|
Total | $ | 477.4 |
|
| $ | 467.3 |
|
| $ | 419.5 |
|
|
|
|
|
|
|
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of total loans |
| 1.57 | % |
|
| 1.59 | % |
|
| 1.47 | % |
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of loans/Commercial |
| 1.87 | % |
|
| 1.90 | % |
|
| 1.73 | % |
|
|
|
|
|
|
|
|
Allowance for Loan Losses (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Allowance — beginning of period | $ | 431.1 | $ | 419.5 | $ | 432.6 | |||||
Provision for credit losses(1) | 68.8 | 30.4 | 49.7 | ||||||||
Other(1) | (2.4 | ) | (0.5 | ) | (6.2 | ) | |||||
Net additions | 66.4 | 29.9 | 43.5 | ||||||||
Gross charge-offs | (55.1 | ) | (23.3 | ) | (33.0 | ) | |||||
Recoveries | 5.2 | 5.0 | 5.5 | ||||||||
Net Charge-offs | (49.9 | ) | (18.3 | ) | (27.5 | ) | |||||
Allowance — end of period | $ | 447.6 | $ | 431.1 | $ | 448.6 | |||||
Provision for credit losses | |||||||||||
Specific reserves on impaired loans | $ | (0.7 | ) | $ | (9.6 | ) | $ | 9.6 | |||
Non-specific reserves | 69.5 | 40.0 | 40.1 | ||||||||
Total | $ | 68.8 | $ | 30.4 | $ | 49.7 | |||||
Allowance for loan losses | |||||||||||
Specific reserves on impaired loans | $ | 25.3 | $ | 26.0 | $ | 39.5 | |||||
Non-specific reserves | 422.3 | 405.1 | 409.1 | ||||||||
Total | $ | 447.6 | $ | 431.1 | $ | 448.6 | |||||
Ratio | |||||||||||
Allowance for loan losses as a percentage of total loans | 1.52 | % | 1.48 | % | 1.51 | % | |||||
Allowance for loan losses as a percent of loans/Commercial | 1.79 | % | 1.74 | % | 1.85 | % |
(1) | The provision for credit losses also includes amounts related to reserves on unfunded loan commitments, |
54
The allowance for loan losses was $448$477 million (1.52%(1.57% of loans, 1.70% excluding loans subject to loss sharing agreements with the FDIC)loans) at March 31,September 30, 2018, compared to $431$467 million (1.48%(1.59% of loans, 1.67% excluding loans subject to loss sharing agreements with the FDIC)loans) at December 31, 2017June 30, 2018 and $449$419.5 million (1.51%(1.47% of loans, 1.76% excluding loans subject to loss sharing agreements with the FDIC)loans) at March 31,September 30, 2017. The current quarter provision for credit losses included an increase into the allowance for loan losses, from the prior quarter reflected a higher level of reserves, primarily within the Commercial Finance division of Commercial Banking. The decreasedue to asset growth in the Commercial Banking allowance ratio from the year-ago quarter reflects the charge-off of previously established specific reserves on impaired loans, partially offset by the increase in the allowance for loan losses for reserve build.
See Note 3 — Loans for details regarding the unpaid principal balance, carrying value and allowance for loan losses related to PCI loans.
Loan Net Carrying Value (dollars in millions)
Loans |
|
| Allowance for Loan Losses |
|
| Net Carrying Value |
| ||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking | $ | 24,095.7 |
|
| $ | (450.2 | ) |
| $ | 23,645.5 |
|
Consumer Banking |
| 6,400.1 |
|
|
| (27.2 | ) | �� |
| 6,372.9 |
|
Total | $ | 30,495.8 |
|
| $ | (477.4 | ) |
| $ | 30,018.4 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking | $ | 23,159.3 |
|
| $ | (402.2 | ) |
| $ | 22,757.1 |
|
Consumer Banking |
| 5,954.6 |
|
|
| (28.9 | ) |
|
| 5,925.7 |
|
Total | $ | 29,113.9 |
|
| $ | (431.1 | ) |
| $ | 28,682.8 |
|
Loan Net Carrying Value (dollars in millions) | |||||||||||
Loans | Allowance for Loan Losses | Net Carrying Value | |||||||||
March 31, 2018 | |||||||||||
Commercial Banking | $ | 23,345.9 | $ | (417.2 | ) | $ | 22,928.7 | ||||
Consumer Banking | 6,107.7 | (30.4 | ) | 6,077.3 | |||||||
Total | $ | 29,453.6 | $ | (447.6 | ) | $ | 29,006.0 | ||||
December 31, 2017 | |||||||||||
Commercial Banking | $ | 23,159.3 | $ | (402.2 | ) | $ | 22,757.1 | ||||
Consumer Banking | 5,954.6 | (28.9 | ) | 5,925.7 | |||||||
Total | $ | 29,113.9 | $ | (431.1 | ) | $ | 28,682.8 |
The following table presents charge-offs, by class and business segment. See
Results by Business Segment for additional information.Net Charge-offs (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||
Gross Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 14.6 |
|
|
| 0.58 | % |
| $ | 9.8 |
|
|
| 0.40 | % |
| $ | 5.2 |
|
|
| 0.22 | % |
| $ | 64.4 |
|
|
| 0.86 | % |
| $ | 23.2 |
|
|
| 0.32 | % |
Real Estate Finance |
| 0.2 |
|
|
| 0.01 | % |
|
| — |
|
|
| — | % |
|
| (0.2 | ) |
|
| (0.01 | )% |
|
| 0.2 |
|
|
| 0.00 | % |
|
| 4.1 |
|
|
| 0.10 | % |
Business Capital |
| 14.6 |
|
|
| 0.73 | % |
|
| 14.8 |
|
|
| 0.77 | % |
|
| 22.7 |
|
|
| 1.23 | % |
|
| 44.0 |
|
|
| 0.76 | % |
|
| 65.1 |
|
|
| 1.18 | % |
Commercial Banking |
| 29.4 |
|
|
| 0.50 | % |
|
| 24.6 |
|
|
| 0.43 | % |
|
| 27.7 |
|
|
| 0.49 | % |
|
| 108.6 |
|
|
| 0.62 | % |
|
| 92.4 |
|
|
| 0.54 | % |
Legacy Consumer Mortgages |
| 1.4 |
|
|
| 0.20 | % |
|
| 0.8 |
|
|
| 0.10 | % |
|
| 20.5 |
|
|
| 1.94 | % |
|
| 2.7 |
|
|
| 0.12 | % |
|
| 22.0 |
|
|
| 0.65 | % |
Consumer Banking |
| 1.4 |
|
|
| 0.09 | % |
|
| 0.8 |
|
|
| 0.05 | % |
|
| 20.5 |
|
|
| 1.27 | % |
|
| 2.7 |
|
|
| 0.06 | % |
|
| 22.0 |
|
|
| 0.44 | % |
Total | $ | 30.8 |
|
|
| 0.41 | % |
| $ | 25.4 |
|
|
| 0.35 | % |
| $ | 48.2 |
|
|
| 0.67 | % |
| $ | 111.3 |
|
|
| 0.50 | % |
| $ | 114.4 |
|
|
| 0.52 | % |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 0.2 |
|
|
| 0.01 | % |
| $ | 2.0 |
|
|
| 0.08 | % |
| $ | 0.1 |
|
|
| — | % |
| $ | 2.3 |
|
|
| 0.03 | % |
| $ | 0.8 |
|
|
| 0.01 | % |
Business Capital |
| 4.5 |
|
|
| 0.23 | % |
|
| 7.9 |
|
|
| 0.41 | % |
|
| 5.9 |
|
|
| 0.32 | % |
|
| 17.1 |
|
|
| 0.29 | % |
|
| 15.5 |
|
|
| 0.28 | % |
Commercial Banking |
| 4.7 |
|
|
| 0.08 | % |
|
| 9.9 |
|
|
| 0.18 | % |
|
| 6.0 |
|
|
| 0.10 | % |
|
| 19.4 |
|
|
| 0.11 | % |
|
| 16.3 |
|
|
| 0.09 | % |
Legacy Consumer Mortgages |
| 0.1 |
|
|
| 0.02 | % |
|
| 0.2 |
|
|
| 0.02 | % |
|
| 0.5 |
|
|
| 0.04 | % |
|
| 0.7 |
|
|
| 0.03 | % |
|
| 1.2 |
|
|
| 0.04 | % |
Consumer Banking |
| 0.1 |
|
|
| 0.01 | % |
|
| 0.2 |
|
|
| 0.01 | % |
|
| 0.5 |
|
|
| 0.03 | % |
|
| 0.7 |
|
|
| 0.01 | % |
|
| 1.2 |
|
|
| 0.02 | % |
Total | $ | 4.8 |
|
|
| 0.06 | % |
| $ | 10.1 |
|
|
| 0.14 | % |
| $ | 6.5 |
|
|
| 0.09 | % |
| $ | 20.1 |
|
|
| 0.09 | % |
| $ | 17.5 |
|
|
| 0.08 | % |
Net Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 14.4 |
|
|
| 0.57 | % |
| $ | 7.8 |
|
|
| 0.32 | % |
| $ | 5.1 |
|
|
| 0.22 | % |
| $ | 62.1 |
|
|
| 0.83 | % |
| $ | 22.4 |
|
|
| 0.31 | % |
Real Estate Finance |
| 0.2 |
|
|
| 0.01 | % |
|
| — |
|
|
| — | % |
|
| (0.2 | ) |
|
| (0.01 | )% |
|
| 0.2 |
|
|
| 0.00 | % |
|
| 4.1 |
|
|
| 0.10 | % |
Business Capital |
| 10.1 |
|
|
| 0.51 | % |
|
| 6.9 |
|
|
| 0.36 | % |
|
| 16.8 |
|
|
| 0.91 | % |
|
| 26.9 |
|
|
| 0.46 | % |
|
| 49.6 |
|
|
| 0.90 | % |
Commercial Banking |
| 24.7 |
|
|
| 0.42 | % |
|
| 14.7 |
|
|
| 0.25 | % |
|
| 21.7 |
|
|
| 0.39 | % |
|
| 89.2 |
|
|
| 0.51 | % |
|
| 76.1 |
|
|
| 0.45 | % |
Legacy Consumer Mortgages |
| 1.3 |
|
|
| 0.18 | % |
|
| 0.6 |
|
|
| 0.08 | % |
|
| 20.0 |
|
|
| 1.90 | % |
|
| 2.0 |
|
|
| 0.09 | % |
|
| 20.8 |
|
|
| 0.61 | % |
Consumer Banking |
| 1.3 |
|
|
| 0.08 | % |
|
| 0.6 |
|
|
| 0.04 | % |
|
| 20.0 |
|
|
| 1.24 | % |
|
| 2.0 |
|
|
| 0.04 | % |
|
| 20.8 |
|
|
| 0.42 | % |
Total | $ | 26.0 |
|
|
| 0.35 | % |
| $ | 15.3 |
|
|
| 0.21 | % |
| $ | 41.7 |
|
|
| 0.58 | % |
| $ | 91.2 |
|
|
| 0.41 | % |
| $ | 96.9 |
|
|
| 0.44 | % |
Net Charge-offs (dollars in millions) | ||||||||||||||||||||
Quarters Ended | ||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||||||||||
Gross Charge-offs | ||||||||||||||||||||
Commercial Finance | $ | 40.0 | 1.61 | % | $ | 8.2 | 0.34 | % | $ | 10.6 | 0.43 | % | ||||||||
Real Estate Finance | — | — | % | 0.2 | 0.02 | % | 3.9 | 0.28 | % | |||||||||||
Business Capital | 14.6 | 0.77 | % | 14.4 | 0.76 | % | 17.9 | 0.99 | % | |||||||||||
Commercial Banking | 54.6 | 0.94 | % | 22.8 | 0.40 | % | 32.4 | 0.57 | % | |||||||||||
Legacy Consumer Mortgages | 0.5 | 0.06 | % | 0.5 | 0.06 | % | 0.6 | 0.03 | % | |||||||||||
Consumer Banking | 0.5 | 0.03 | % | 0.5 | 0.03 | % | 0.6 | 0.03 | % | |||||||||||
Total | $ | 55.1 | 0.75 | % | $ | 23.3 | 0.32 | % | $ | 33.0 | 0.45 | % | ||||||||
Recoveries | ||||||||||||||||||||
Commercial Finance | $ | 0.1 | — | % | $ | 0.3 | 0.01 | % | $ | 0.1 | — | % | ||||||||
Business Capital | 4.7 | 0.25 | % | 4.5 | 0.24 | % | 4.9 | 0.27 | % | |||||||||||
Commercial Banking | 4.8 | 0.08 | % | 4.8 | 0.08 | % | 5.0 | 0.09 | % | |||||||||||
Legacy Consumer Mortgages | 0.4 | 0.04 | % | 0.2 | 0.03 | % | 0.5 | 0.02 | % | |||||||||||
Consumer Banking | 0.4 | 0.02 | % | 0.2 | 0.01 | % | 0.5 | 0.02 | % | |||||||||||
Total | $ | 5.2 | 0.07 | % | $ | 5.0 | 0.06 | % | $ | 5.5 | 0.08 | % | ||||||||
Net Charge-offs | ||||||||||||||||||||
Commercial Finance | $ | 39.9 | 1.61 | % | $ | 7.9 | 0.33 | % | $ | 10.5 | 0.43 | % | ||||||||
Real Estate Finance | — | — | % | 0.2 | 0.02 | % | 3.9 | 0.28 | % | |||||||||||
Business Capital | 9.9 | 0.52 | % | 9.9 | 0.52 | % | 13.0 | 0.72 | % | |||||||||||
Commercial Banking | 49.8 | 0.86 | % | 18.0 | 0.32 | % | 27.4 | 0.48 | % | |||||||||||
Legacy Consumer Mortgages | 0.1 | 0.02 | % | 0.3 | 0.03 | % | 0.1 | 0.01 | % | |||||||||||
Consumer Banking | 0.1 | 0.01 | % | 0.3 | 0.02 | % | 0.1 | 0.01 | % | |||||||||||
Total | $ | 49.9 | 0.68 | % | $ | 18.3 | 0.26 | % | $ | 27.5 | 0.37 | % |
The increases in net charge-offs compared to the year-ago and prior quarters resulted primarily from a charge-off on a single account of $22 million, most of which was in Commercial Finance.
55
Non-accrual Loans (dollars in millions)(1)
| September 30, 2018 |
|
| December 31 2017 |
| ||
Non-accrual loans |
|
|
|
|
|
|
|
U.S. | $ | 298.3 |
|
| $ | 211.1 |
|
Foreign |
| 19.8 |
|
|
| 9.8 |
|
Non-accrual loans | $ | 318.1 |
|
| $ | 220.9 |
|
Troubled Debt Restructurings |
|
|
|
|
|
|
|
U.S. | $ | 84.6 |
|
| $ | 103.5 |
|
Restructured loans | $ | 84.6 |
|
| $ | 103.5 |
|
Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
Accruing loans past due 90 days or more | $ | 71.4 |
|
| $ | 31.9 |
|
Non-accrual Loans (dollars in millions)(1) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Non-accrual loans | |||||||
U.S. | $ | 212.8 | $ | 211.1 | |||
Foreign | 23.7 | 9.8 | |||||
Non-accrual loans | $ | 236.5 | $ | 220.9 | |||
Troubled Debt Restructurings(2) | |||||||
U.S. | $ | 94.4 | $ | 103.5 | |||
Restructured loans | $ | 94.4 | $ | 103.5 | |||
Accruing loans past due 90 days or more | |||||||
Accruing loans past due 90 days or more | $ | 27.0 | $ | 31.9 |
(1) | Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual |
Non-accrual Loans (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Commercial Finance | $ | 229.3 |
|
|
| 2.25 | % |
| $ | 134.8 |
|
|
| 1.36 | % |
Real Estate Finance |
| 2.3 |
|
|
| 0.04 | % |
|
| 2.8 |
|
|
| 0.05 | % |
Business Capital |
| 43.1 |
|
|
| 0.52 | % |
|
| 53.2 |
|
|
| 0.70 | % |
Commercial Banking |
| 274.7 |
|
|
| 1.14 | % |
|
| 190.8 |
|
|
| 0.82 | % |
Legacy Consumer Mortgages |
| 29.4 |
|
|
| 1.01 | % |
|
| 19.9 |
|
|
| 0.60 | % |
Other Consumer Banking |
| 5.7 |
|
|
| 0.16 | % |
|
| 0.4 |
|
|
| 0.02 | % |
Consumer Banking |
| 35.1 |
|
|
| 0.55 | % |
|
| 20.3 |
|
|
| 0.34 | % |
Non-Strategic Portfolios |
| 8.3 |
|
| NM |
|
|
| 9.8 |
|
| NM |
| ||
Total | $ | 318.1 |
|
|
| 1.04 | % |
| $ | 220.9 |
|
|
| 0.76 | % |
Non-accrual Loans (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Commercial Finance | $ | 153.2 | 1.54 | % | $ | 134.8 | 1.36 | % | |||||
Real Estate Finance | — | — | % | 2.8 | 0.05 | % | |||||||
Business Capital | 45.6 | 0.59 | % | 53.2 | 0.70 | % | |||||||
Commercial Banking | 198.8 | 0.85 | % | 190.8 | 0.82 | % | |||||||
Legacy Consumer Mortgages | 25.2 | 0.79 | % | 19.9 | 0.60 | % | |||||||
Other Consumer Banking | 0.3 | 0.01 | % | 0.4 | 0.02 | % | |||||||
Consumer Banking | 25.5 | 0.42 | % | 20.3 | 0.34 | % | |||||||
Non-Strategic Portfolios | 12.2 | NM | 9.8 | NM | |||||||||
Total | $ | 236.5 | 0.80 | % | $ | 220.9 | 0.76 | % |
NM — Not meaningful; Non-accrual loans include loans held for sale. All of NSP non-accrual loans reflected loans held for sale; since there waswere no portfolio loans, no % is displayed.
Non-accrual loans were up from December 31, 2017, primarily due to an increasedriven by various loans across different industries in Commercial Finance partially offsetFinance. Non-accrual loans in Consumer Banking were up, driven by decreasesnon-PCI loans in Real Estate Finance and Business Capital.
Approximately 48%64% of our non-accrual accounts were paying currently compared to 52% at December 31, 2017. Our impaired loan carrying value (including PAA discount and charge-offs) to estimated outstanding unpaid principal balances approximated 67%73% compared to 76% at December 31, 2017. For this purpose, impaired loans comprise principally non-accrual loans over $500,000 and troubled debt restructurings (“TDRs”).
Total delinquency (30 days or more) was 1.8%1.4% of loans at March 31,September 30, 2018 and 1.3% of loans at December 31, 2017.
Forgone Interest (dollars in millions) | |||||||||||||||||||||||
Quarters Ended March 31, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
U.S. | Foreign | Total | U.S. | Foreign | Total | ||||||||||||||||||
Interest revenue that would have been earned at original terms | $ | 8.0 | $ | 1.3 | $ | 9.3 | $ | 5.9 | $ | 0.6 | $ | 6.5 | |||||||||||
Less: Interest recorded | (0.8 | ) | — | (0.8 | ) | (0.5 | ) | (0.1 | ) | (0.6 | ) | ||||||||||||
Foregone interest revenue | $ | 7.2 | $ | 1.3 | $ | 8.5 | $ | 5.4 | $ | 0.5 | $ | 5.9 |
The tables that follow reflect loan carrying values of accounts that have been modified, excluding PCI loans.
TDRs and Modifications (dollars in millions)
September 30, 2018 |
|
| December 31 2017 |
| |||||||||||
|
|
|
|
| % Compliant |
|
|
|
|
|
| % Compliant |
| ||
Troubled Debt Restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferral of principal and/or interest | $ | 26.8 |
|
|
| 85 | % |
| $ | 31.8 |
|
|
| 95 | % |
Covenant relief and other |
| 57.8 |
|
|
| 72 | % |
|
| 71.7 |
|
|
| 70 | % |
Total TDRs | $ | 84.6 |
|
|
| 76 | % |
| $ | 103.5 |
|
|
| 78 | % |
Percent non-accrual |
| 62 | % |
|
|
|
|
|
| 63 | % |
|
|
|
|
Modifications(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended maturity | $ | 31.9 |
|
|
| 100 | % |
| $ | 35.7 |
|
|
| 100 | % |
Covenant relief |
| 157.7 |
|
|
| 80 | % |
|
| 260.2 |
|
|
| 100 | % |
Interest rate increase |
| 176.5 |
|
|
| 100 | % |
|
| 102.8 |
|
|
| 100 | % |
Other |
| 396.9 |
|
|
| 97 | % |
|
| 229.5 |
|
|
| 90 | % |
Total Modifications | $ | 763.0 |
|
|
|
|
|
| $ | 628.2 |
|
|
|
|
|
Percent non-accrual |
| 16 | % |
|
|
|
|
|
| 8 | % |
|
|
|
|
TDRs and Modifications (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
% Compliant | % Compliant | ||||||||||||
Troubled Debt Restructurings(1) | |||||||||||||
Deferral of principal and/or interest | $ | 25.5 | 81 | % | $ | 31.8 | 95 | % | |||||
Covenant relief and other | 68.9 | 78 | % | 71.7 | 70 | % | |||||||
Total TDRs | $ | 94.4 | 79 | % | $ | 103.5 | 78 | % | |||||
Percent non-accrual | 61 | % | 63 | % | |||||||||
Modifications(2) | |||||||||||||
Extended maturity | $ | 30.0 | 100 | % | $ | 35.7 | 100 | % | |||||
Covenant relief | 223.0 | 95 | % | 260.2 | 100 | % | |||||||
Interest rate increase | 154.3 | 100 | % | 102.8 | 100 | % | |||||||
Other | 332.2 | 98 | % | 229.5 | 90 | % | |||||||
Total Modifications | $ | 739.5 | $ | 628.2 | |||||||||
Percent non-accrual | 10 | % | 8 | % |
(1) |
| Table depicts the predominant element of each modification, which may contain several of the characteristics listed. |
PCI loans, TDRs and other credit quality information is included in
Note 3 —Certain line-items in the table haveare changed from previous disclosures,the year-ago presentation; all prior periods are conformed.
Non-interest Income (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Rental income on operating leases | $ | 264.3 |
|
| $ | 261.3 |
|
| $ | 252.3 |
|
| $ | 779.2 |
|
| $ | 754.8 |
|
Other non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenues |
| 28.2 |
|
|
| 26.5 |
|
|
| 26.2 |
|
|
| 81.9 |
|
|
| 83.3 |
|
Factoring commissions |
| 27.2 |
|
|
| 23.5 |
|
|
| 27.0 |
|
|
| 76.3 |
|
|
| 76.2 |
|
Gains on leasing equipment, net of impairments |
| 13.6 |
|
|
| 14.4 |
|
|
| 12.2 |
|
|
| 41.5 |
|
|
| 34.0 |
|
BOLI Income |
| 6.5 |
|
|
| 6.6 |
|
|
| 1.8 |
|
|
| 19.6 |
|
|
| 1.8 |
|
Gains on investment securities, net of impairments |
| 3.6 |
|
|
| 3.7 |
|
|
| 10.4 |
|
|
| 10.6 |
|
|
| 17.5 |
|
Other revenues |
| 7.1 |
|
|
| 60.7 |
|
|
| (14.3 | ) |
|
| 96.4 |
|
|
| 14.2 |
|
Total other non-interest income |
| 86.2 |
|
|
| 135.4 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
|
Total other non-interest income, excluding noteworthy items(1) | $ | 96.8 |
|
| $ | 106.1 |
|
| $ | 90.1 |
|
| $ | 307.6 |
|
| $ | 261.9 |
|
Total non-interest income | $ | 350.5 |
|
| $ | 396.7 |
|
| $ | 315.6 |
|
| $ | 1,105.5 |
|
| $ | 981.8 |
|
Factoring volume | $ | 7,999.0 |
|
| $ | 6,648.9 |
|
| $ | 7,205.9 |
|
| $ | 22,073.9 |
|
| $ | 19,748.8 |
|
(1) | Total non-interest income, excluding noteworthy itemsare non-GAAP balances, see reconciliations to GAAP balance in Non-GAAP Financial Measurements. |
Non-interest Income (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Rental income on operating leases | $ | 253.6 | $ | 252.6 | $ | 251.3 | |||||
Other non-interest income: | |||||||||||
Fee revenues | 27.2 | 30.3 | 28.9 | ||||||||
Factoring commissions | 25.6 | 26.7 | 26.1 | ||||||||
Gains on leasing equipment, net of impairments | 13.5 | 7.9 | 6.9 | ||||||||
BOLI Income | 6.5 | 5.8 | — | ||||||||
Gains on investment securities, net of impairments | 5.4 | 12.4 | 4.1 | ||||||||
Other revenues | 26.5 | 54.1 | 13.1 | ||||||||
Total other non-interest income | 104.7 | 137.2 | 79.1 | ||||||||
Total other non-interest income, excluding noteworthy items(1) | $ | 104.7 | $ | 107.8 | $ | 87.2 | |||||
Total non-interest income | $ | 358.3 | $ | 389.8 | $ | 330.4 | |||||
(1) Total non-interest income, excluding noteworthy items are non-GAAP balances, see reconciliations to GAAP balance in Non-GAAP Financial Measurements. |
Rental Income on Operating Lease Equipment
Rental income on operating leases
from equipment we lease is generated in the Rail and Business Capital divisions in the Commercial Banking segment and recognized principally on a straight line basis over the lease term. Rental income is discussed in “Net Finance Revenues” and “Results by Business Segment”. See also ourOther Non-Interest Income
Other non-interest income changes reflect the following:
Other non-interest income in the current quarter, excluding noteworthy items, increased from the year-ago quarter, driven by an increase in the technology industry. Factoring volume was $7.4 billion
For the nine months ended September 30, 2018, other non-interest income housing tax credit ("LIHTC") investments. Other revenue in the year-ago quarter included awas up compared to 2017. Excluding noteworthy item related to a currency translation charge of $8 million.
Non-Interest Expense (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Depreciation on operating lease equipment | $ | 76.4 | $ | 74.3 | $ | 73.5 | |||||
Maintenance and other operating lease expenses | 57.4 | 57.9 | 53.8 | ||||||||
Operating expenses: | |||||||||||
Compensation and benefits | 147.8 | 138.6 | 143.3 | ||||||||
Technology | 32.4 | 30.7 | 32.7 | ||||||||
Professional fees | 25.8 | 28.8 | 39.8 | ||||||||
Insurance | 19.9 | 15.7 | 25.6 | ||||||||
Net occupancy expense | 16.2 | 16.7 | 19.9 | ||||||||
Advertising and marketing | 13.0 | 12.8 | 5.4 | ||||||||
Other expenses | 20.2 | 22.7 | 23.9 | ||||||||
Operating expenses, excluding restructuring costs and intangible asset amortization | 275.3 | 266.0 | 290.6 | ||||||||
Intangible asset amortization | 6.0 | 6.1 | 6.2 | ||||||||
Restructuring costs | — | 31.9 | 14.8 | ||||||||
Total operating expenses | 281.3 | 304.0 | 311.6 | ||||||||
Goodwill impairment | — | 255.6 | — | ||||||||
Loss on debt extinguishment and deposit redemption | 0.1 | 1.7 | — | ||||||||
Total non-interest expenses | $ | 415.2 | $ | 693.5 | $ | 438.9 | |||||
Headcount | 3,898 | 3,909 | 4,058 | ||||||||
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA(1) | 2.43 | % | 2.39 | % | 2.49 | % | |||||
Net efficiency ratio(2) | 55.6 | % | 49.6 | % | 58.6 | % | |||||
Net Efficiency Ratio excluding noteworthy items(2) | 56.7 | % | 53.4 | % | 57.7 | % |
4 | Other non-interest income excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
57
Non-Interest Expense (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Depreciation on operating lease equipment | $ | 78.0 |
|
| $ | 77.2 |
|
| $ | 71.1 |
|
| $ | 231.6 |
|
| $ | 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
| 137.3 |
|
|
| 143.2 |
|
|
| 139.0 |
|
|
| 428.3 |
|
|
| 427.7 |
|
Technology |
| 32.3 |
|
|
| 32.7 |
|
|
| 30.6 |
|
|
| 97.4 |
|
|
| 97.2 |
|
Professional fees |
| 16.7 |
|
|
| 20.7 |
|
|
| 32.1 |
|
|
| 63.2 |
|
|
| 103.5 |
|
Insurance |
| 15.9 |
|
|
| 18.5 |
|
|
| 18.5 |
|
|
| 54.3 |
|
|
| 69.0 |
|
Net occupancy expense |
| 16.1 |
|
|
| 16.0 |
|
|
| 16.1 |
|
|
| 48.3 |
|
|
| 51.1 |
|
Advertising and marketing |
| 10.6 |
|
|
| 13.4 |
|
|
| 13.6 |
|
|
| 37.0 |
|
|
| 29.4 |
|
Other expenses |
| 28.4 |
|
|
| 17.0 |
|
|
| 18.3 |
|
|
| 65.6 |
|
|
| 66.9 |
|
Operating expenses, excluding restructuring costs and intangible asset amortization |
| 257.3 |
|
|
| 261.5 |
|
|
| 268.2 |
|
|
| 794.1 |
|
|
| 844.8 |
|
Intangible asset amortization |
| 6.0 |
|
|
| 6.0 |
|
|
| 6.2 |
|
|
| 18.0 |
|
|
| 18.6 |
|
Restructuring costs |
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| — |
|
|
| 21.1 |
|
Total operating expenses |
| 263.3 |
|
|
| 267.5 |
|
|
| 277.3 |
|
|
| 812.1 |
|
|
| 884.5 |
|
Loss on debt extinguishment and deposit redemption |
| 3.5 |
|
|
| 19.3 |
|
|
| 53.5 |
|
|
| 22.9 |
|
|
| 218.3 |
|
Total non-interest expenses | $ | 401.4 |
|
| $ | 427.5 |
|
| $ | 459.8 |
|
| $ | 1,244.1 |
|
| $ | 1,489.8 |
|
Headcount |
| 3,757 |
|
|
| 3,843 |
|
|
| 3,966 |
|
|
| 3,757 |
|
|
| 3,966 |
|
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA(1) |
| 2.27 | % |
|
| 2.26 | % |
|
| 2.36 | % |
|
| 2.32 | % |
|
| 2.43 | % |
Net efficiency ratio(2) |
| 54.1 | % |
|
| 49.9 | % |
|
| 57.8 | % |
|
| 53.1 | % |
|
| 58.9 | % |
Net Efficiency Ratio excluding noteworthy items(2) |
| 53.9 | % |
|
| 53.8 | % |
|
| 55.5 | % |
|
| 54.8 | % |
|
| 57.3 | % |
(1) | Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
(2) | Net efficiency ratio and net efficiency ratio |
Depreciation on Operating Lease Equipment
Depreciation expense is driven by rail equipment and smaller ticket equipment, such as office equipment, in the Rail and Business Capital divisions in Commercial Banking, respectively.Banking. Depreciation expense is discussed in
Maintenance and Other Operating Lease Expenses
Maintenance and other operating lease expenses relates to equipment ownership and leasing costs associated with the Rail portfolio.portfolio and tend to be variable. Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for
Operating Expenses
Operating expenses were down from the year-ago and prior quarters. Operating expenses excluding noteworthy items and intangible assets amortization5 were down from the year-ago quarter on lower professional fees, partially offset by higher other non-income tax expenses. The decline from the growing portfolio, with increasedprior quarter was driven by lower employee costs associated with endand professional fees, and the prior quarter included a benefit of lease railcar returns and higher Railroad Interchange repaira $5 million reversal of a non-income tax-related reserve in other expenses.
Compared to the year-ago nine months, operating expenses excluding restructuring costs and intangible assetassets amortization were up from the prior quarter, driven primarily by higher compensation and benefits, due to the annual restart of certain benefit costs, and higher FDIC insurance costs. Compared to the year-ago quarter, operating expenses were down, reflecting lower professional fees and FDIC insurance costs, partially offset by higher advertising and marketing costs.
We remain focused on reducing our operating costs and are on track to achieve the reduction ofreduce our annual operating expense to our target of $1,050 million (before noteworthy items and intangible amortization) for 2018 through reduction of consulting services and other professional fees and continuingas we continue to right-size the organization.
The net efficiency ratio excluding noteworthy items was unchanged from the prior quarter mostly reflecting the restart of annual benefit costs. Compared to the year-ago quarter, higher costs were partially offset by the impact of fewer employees.
5 | Operating expense excluding restructuring costs and intangible assets amortization is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information |
58
Otherexpenses include items such as travel and entertainment, office equipment and supplies and taxes (other than income taxes, etc.), and from time to time includes settlement agreement costs, including OneWest Bank legacy matters.
In the current quarter, we recognized $3 million in debt extinguishment costs associated with the redemption of approximately $500 million of unsecured senior debt. In the prior quarter, we recognized $19 million in debt extinguishment costs associated with the redemption of $883 million of unsecured senior debt. The $54 million in debt extinguishment costs in the year-ago quarter related to limited activity. See Note 6 — Borrowingsthe redemption of $800 million of unsecured senior debt. The year-ago nine-months also included $165 million in debt extinguishment costs associated with the reduction of $5.8 billion of unsecured senior debt from the proceeds of the Commercial Air sale.
Income Tax Data (dollars in millions)Item 1. Consolidated Financial Statements.
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Provision for income taxes, before noteworthy and tax discrete items | $ | 49.5 |
|
| $ | 49.6 |
|
| $ | 53.2 |
|
| $ | 136.2 |
|
| $ | 171.5 |
|
Tax on noteworthy items and other tax discrete items |
| (8.2 | ) |
|
| 7.8 |
|
|
| (173.0 | ) |
|
| 3.8 |
|
|
| (267.0 | ) |
Provision (benefit) for income taxes | $ | 41.3 |
|
| $ | 57.4 |
|
| $ | (119.8 | ) |
| $ | 140.0 |
|
| $ | (95.5 | ) |
Effective tax rate |
| 24.2 | % |
|
| 28.0 | % |
|
| (116.3 | )% |
|
| 26.9 | % |
|
| (38.7 | )% |
Effective tax rate, before tax discrete items and noteworthy items(1) |
| 28.2 | % |
|
| 26.7 | % |
|
| 27.4 | % |
|
| 27.4 | % |
|
| 31.6 | % |
Income Tax Data (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Provision for income taxes, before discrete items | $ | 39.6 | $ | 45.4 | $ | 44.9 | |||||
Discrete items | 1.7 | (17.7 | ) | 11.3 | |||||||
Provision (benefit) for income taxes | $ | 41.3 | $ | 27.7 | $ | 56.2 | |||||
Effective tax rate | 28.5 | % | (50.3 | )% | 41.8 | % | |||||
Effective tax rate, before tax discrete items and noteworthy items(1) | 27.3 | % | 39.4 | % | 31.9 | % |
(1) | Effective tax rate excluding discrete items |
The Company'sCompany’s current quarter income tax expense from continuing operationsbefore noteworthy and discrete tax items is $41.3$49.5 million. This compares to an income tax provisionexpense of $27.7$49.6 million in the prior year quarter and an income tax provision of $56.2$53.2 million in the year-ago quarter. The provision for income tax provisiontaxes before the impact of tax discrete and noteworthy items was lower this year, asin the current nine months ended period compared to the prior year quarter and year-ago quarter,ago nine months ended period, primarily driven by lower statutory income tax rates from U.S. tax reform, partially offset by the impact of thea change in accounting methodpolicy for the LIHTC investments from the equity method of accounting to the proportional method, disallowance of FDIC insurance premiums, and higher state income taxes.
The effective tax rate each quarter is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances (“VA”), and discrete items. The near term future periodsperiod’s effective tax rate may vary from the actual year-end 2018 effective tax rate due to the changes in these factors.
Included in the nettax on noteworthy and other discrete tax expenseitems of $1.7$3.8 million for the current quarternine months ended September 30, 2018 was:
$4.09.9 million deferred income tax benefit recorded resulting from the release of a valuation allowanceVA on deferred tax assets established on the capital losses generated in the prior year from an equity investment in a wholly-owned foreign subsidiary,
$3.76.9 million net deferred income tax expense related to the increase to the deferred tax liability on the Company’s investment in NACCO, which includes $5.3is classified as “held for sale,”
$4.5 million deferred income tax expense resulting from revaluation of U.S. state deferred tax assets and liabilities as a result of state tax rate changes, partially offset by $1.6 million of net tax benefits from various other U.S. federal, state, and international discrete tax items,
$2.0 million deferred income tax expense related to the increase to the deferred tax liability on the Company’s investment in NACCO, which is categorized as “held for sale.”
$26.63.7 million income tax expense related toon other tax discrete items and noteworthy items remaining as listed in the cumulative effect adjustment for the Company’s election to change the accounting policy for LIHTC investments from the equity method to the proportional amortization method. The total income tax expense of $38.2 million disclosed within Management’s Discussion and Analysis “Non-GAAP Financial Measurements” section includes an $11.6section.
Included in the tax on noteworthy and other discrete tax items of $(267.0) million tax effect offor the $29 million pretax item recorded in other non-interest income,
$11.6 million net deferred tax benefit was recognized from the effect of the enacted U.S. tax reform legislation which included the following:
$4.9 million expense reported on the income tax expense line for an increase in amortization expense resulting from revaluation of the LIHTC investments,
$19.3 million current tax benefit, including interest and penalties, related to revaluationlegacy OneWest Bank matters, including the release of a tax reserve upon the U.S. deferredfavorable resolution of an uncertain tax assetsposition and liabilities as a result of change in U.S federal tax rates from 35% to 21% with an effective date of January 1, 2018, and
$13.9 million in deferred income tax expense recorded related to the restructuring of legal entities in preparation for the Commercial Air sale,
$2.96.9 million in deferred income tax benefit related to the revaluationrecognition of a deferred taxes from state tax rate changes,asset related to the Company’s investment in NACCO, which is now classified as “held for sale,” and
$0.328.8 million of miscellaneous netincome tax expense items.benefit on other tax discrete items and noteworthy items remaining as listed in the “Non-GAAP Financial Measurements” section.
Management expects the 2018 global effective tax rate to be approximatelyin the range of 26% to 28%, excluding discrete tax items and noteworthy items. Furthermore, cash income taxes paid will remain minimal until the Company's NOLnet operating loss (“NOLs”) carry-forwards are fully utilized.
The amount of future cash taxes will depend on the level of taxable income after utilization of the remaining NOLs, including the implications of amounts subject to the aforementionedSection 382 limitation. Cash taxes were a net payment of $3.2$2.7 million for the current quarter, compared to $2.5$15.0 million in the prior quarter, and $0.2$24.2 million net refundpayment in the year-ago quarter.
59
See Note 11 - Income TaxesOn July 1, 2018, New Jersey signed legislation which implements a new surtax effective January 1, 2018. Corporations will pay an additional 2.5 percent surtax in Item 1. Consolidated Financial Statements for additional information, including2018 and 2019, followed by 1.5 percent surtax in 2020 and 2021 before phasing out entirely in 2022. Additionally, the newly enacted legislation changed the filing requirements of Corporations from a separate tax return basis to a mandatory combined unitary tax return basis effective January 1, 2019. The Company evaluated the impact of the enacted legislation and determined the amount was immaterial to the deferred income tax expense from the revaluation of the U.S. state deferred tax assets and specificliabilities. Additionally, there was an immaterial impact to the overall effective tax discrete items.rate which the Company believes will remain consistent in future periods.
CIT manages its business and reports its financial results in three operating segments, Commercial Banking, Consumer Banking, and Non-Strategic Portfolios, and a non-operating segment, Corporate and Other.
Commercial Banking
Commercial Banking
is comprised of four divisions: Commercial Finance, Rail, Real Estate Finance and Business Capital. Revenue is generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities. A detailed description of the divisions is included at the end of Item 1. Business Overview in ourCommercial Banking: Financial Data and Metrics
(dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 338.9 |
|
| $ | 330.4 |
|
| $ | 309.4 |
|
| $ | 984.2 |
|
| $ | 933.5 |
|
Rental income on operating leases |
| 264.3 |
|
|
| 261.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
|
Finance revenue |
| 603.2 |
|
|
| 591.7 |
|
|
| 561.7 |
|
|
| 1,763.4 |
|
|
| 1,688.3 |
|
Interest expense |
| 190.3 |
|
|
| 177.0 |
|
|
| 131.3 |
|
|
| 523.6 |
|
|
| 378.9 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net finance revenue (NFR) |
| 278.3 |
|
|
| 274.0 |
|
|
| 301.4 |
|
|
| 830.7 |
|
|
| 922.4 |
|
Provision for credit losses |
| 39.0 |
|
|
| 33.2 |
|
|
| 11.1 |
|
|
| 139.4 |
|
|
| 60.1 |
|
Other non-interest income |
| 76.4 |
|
|
| 73.1 |
|
|
| 70.9 |
|
|
| 227.5 |
|
|
| 218.0 |
|
Operating expenses |
| 172.3 |
|
|
| 171.4 |
|
|
| 168.6 |
|
|
| 526.8 |
|
|
| 523.8 |
|
Income before income taxes | $ | 143.4 |
|
| $ | 142.5 |
|
| $ | 192.6 |
|
| $ | 392.0 |
|
| $ | 556.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases | $ | 32,320.9 |
|
| $ | 31,160.4 |
|
| $ | 30,625.1 |
|
| $ | 32,320.9 |
|
| $ | 30,625.1 |
|
Earning assets (net of credit balances of factoring clients) |
| 30,911.9 |
|
|
| 29,996.9 |
|
|
| 29,163.3 |
|
|
| 30,911.9 |
|
|
| 29,163.3 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans (includes HFS, and net of credit balances) | $ | 22,017.7 |
|
| $ | 21,723.9 |
|
| $ | 20,977.7 |
|
| $ | 21,865.7 |
|
| $ | 21,280.3 |
|
Average operating leases (AOL)* (includes HFS) |
| 8,031.8 |
|
|
| 7,980.3 |
|
|
| 7,797.6 |
|
|
| 7,979.8 |
|
|
| 7,637.1 |
|
Average earning assets (AEA) |
| 30,319.4 |
|
|
| 29,965.1 |
|
|
| 29,011.1 |
|
|
| 30,116.1 |
|
|
| 29,161.9 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin - NFR as a % of AEA |
| 3.67 | % |
|
| 3.66 | % |
|
| 4.16 | % |
|
| 3.68 | % |
|
| 4.22 | % |
Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses* | $ | 129.7 |
|
| $ | 120.6 |
|
| $ | 123.3 |
|
| $ | 370.1 |
|
| $ | 367.8 |
|
Operating lease margin as a % of AOL* |
| 6.46 | % |
|
| 6.04 | % |
|
| 6.33 | % |
|
| 6.18 | % |
|
| 6.42 | % |
Net efficiency ratio |
| 48.2 | % |
|
| 49.0 | % |
|
| 44.9 | % |
|
| 49.4 | % |
|
| 45.5 | % |
Pretax return on AEA |
| 1.89 | % |
|
| 1.90 | % |
|
| 2.66 | % |
|
| 1.74 | % |
|
| 2.54 | % |
New business volume | $ | 2,770.4 |
|
| $ | 2,378.5 |
|
| $ | 2,044.0 |
|
| $ | 7,416.1 |
|
| $ | 5,705.7 |
|
Factoring volume |
| 7,999.0 |
|
|
| 6,648.9 |
|
|
| 7,205.9 |
|
|
| 22,073.9 |
|
|
| 19,748.8 |
|
Quarters Ended | |||||||||||
Earnings Summary | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Interest income | $ | 314.9 | $ | 314.5 | $ | 307.5 | |||||
Rental income on operating leases | 253.6 | 252.6 | 251.3 | ||||||||
Finance revenue | 568.5 | 567.1 | 558.8 | ||||||||
Interest expense | 156.3 | 138.8 | 119.8 | ||||||||
Depreciation on operating lease equipment | 76.4 | 74.3 | 73.5 | ||||||||
Maintenance and other operating lease expenses | 57.4 | 57.9 | 53.8 | ||||||||
Net finance revenue (NFR) | 278.4 | 296.1 | 311.7 | ||||||||
Provision for credit losses | 67.2 | 28.6 | 49.2 | ||||||||
Other non-interest income | 78.0 | 73.0 | 72.3 | ||||||||
Operating expenses | 183.1 | 167.9 | 178.7 | ||||||||
Goodwill impairment | — | 255.6 | — | ||||||||
Income (loss) before income taxes | $ | 106.1 | $ | (83.0 | ) | $ | 156.1 |
Select Period End Balance | |||||||||||
Loans and leases | $ | 31,497.1 | $ | 31,232.4 | $ | 30,731.2 | |||||
Earning assets (net of credit balances of factoring clients) | 30,193.7 | 30,039.0 | 29,428.8 | ||||||||
Select Average Balances | |||||||||||
Average loans (includes HFS, and net of credit balances) | $ | 21,813.6 | $ | 21,420.2 | $ | 21,549.9 | |||||
Average operating leases (AOL)* (includes HFS) | 7,934.6 | 7,841.0 | 7,500.9 | ||||||||
Average earning assets (AEA) | 30,021.7 | 29,507.3 | 29,304.7 | ||||||||
Statistical Data | |||||||||||
Net finance margin - NFR as a % of AEA | 3.71 | % | 4.01 | % | 4.25 | % | |||||
Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses* | $ | 119.8 | $ | 120.4 | $ | 124.0 | |||||
Operating lease margin as a % of AOL* | 6.04 | % | 6.14 | % | 6.61 | % | |||||
Net efficiency ratio | 51.0 | % | 45.1 | % | 46.1 | % | |||||
Pretax return on AEA | 1.41 | % | (1.13 | )% | 2.13 | % | |||||
New business volume | $ | 2,267.2 | $ | 2,902.0 | $ | 1,615.4 | |||||
Factoring volume | $ | 7,426.0 | $ | 7,731.2 | $ | 6,811.6 |
*
See discussion below for the impact of suspended depreciation.Pre-tax earnings in each of the current and prior quarters both included a noteworthy item related to the benefit from the suspension of depreciation expense related to NACCO of $9 million. Pre-tax earnings inmillion for the current and prior quarter also included a noteworthy item from goodwill impairment. Excluding noteworthy items, pre-tax earnings of $97quarters and $8 million decreased fromfor the prior quarter of $164 million, primarily driven by an increase in the credit provision, a decrease in net finance revenue and higher operating expenses.year-ago quarter. Compared to the year-ago quarter, pre-tax earnings excluding noteworthy items of $135 million decreased from $156$185 million, primarily driven by a decline in NFR and an increase in the credit provision. Similar trends are noted for the year to date periods. Excluding noteworthy items, pre-tax earnings increased from $134 million in the prior quarter as increases in net finance revenue and a higherother non-interest income were mostly offset by an increase in the credit provision.
AEA consistsconsisted primarily of loans and leases. AverageAs displayed in the above table, average loans and leases, net of credit balances of
60
factoring clients, was $29.7 billion for the quarter ended March 31, 2018, up 2% from both the year-ago and prior quarters.quarters, mostly reflecting growth in Business Capital and Rail (primarily NACCO) drove growth from the year-ago quarter. Growth compared to the prior quarter was driven by the Commercial Finance division, which benefited from lower prepayment rates in the current quarter and strong originations towards the end of the prior quarter.
Compared to the year-ago quarter, new lending and leasing volume increased, 40%, with strong growth in Commercial Finance Real Estate and equipment financing businesses in Business Capital. New lending and leasing volume decreasedincreased from the prior quarter representing a declinedriven by growth in all divisions, due to strongCommercial Finance and seasonally high volumesReal Estate Finance while new origination volume in the prior quarter and typically lower volumes experiencedequipment financing businesses in the first quarter.
Factored volume of $7.4$8.0 billion was up 9%11% compared to the year-ago quarter, driven primarily by increased volume in the technology industry, and down 4%up 20% from the prior quarter due to seasonal trends.
Trends included:
Excluding the noteworthy items, NFR was down from the year-ago quarter and nine-months, as pressure on rental income as noted below, higher interest expense and lower PAA offset the growth in earning assets and an increase in interest income from higher interest rates on floating rate earning assets. The increase from the prior quarter reflects a benefit from an lease prepayment of $8.5 million compared to $4 million in the prior quarter.
CIT GROUP INC. 57NFM decreased compared to the year-ago quarter and nine-months from the mentioned decreases in NFR. Pressure on NFM was also driven by continued lower lease renewal rates on our rail portfolio, as discussed below and in the
PAA totaled $8 million, $9 million and $22 million in the current, prior and year-ago quarters, respectively. Essentially all accretion benefited interest income. See Purchase Accounting Accretion table in Net Finance Revenue section for amounts of PAA by division. The current quarter, prior and year-ago quarters included $3 million, $3 million and $12 million, respectively, of PAA that was accelerated due to prepayments.
Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were up from the year-ago and prior quarters. See Select Segment and Division Margin Metrics table and discussion that follows that table in Net Finance Revenue section for gross yields by division.
Net operating lease revenue, which is a component of NFR, is driven primarily by the performance of our rail portfolio. Rail’s net rental income was up from the prior quarter, benefiting from an increase in lease prepayment benefits ($8.5 million in the current quarter and $4 million in the prior quarter) and increased railcar utilization. Excluding noteworthy items (suspended depreciation), compared to both the year-ago and prior quarters, net operating revenue was up, mainly driven by the increase in lease prepayment benefits, partially offset by renewal rates that continue to price lower due to excess capacity in the market. We expect renewal rates to continue to be below expiring rates through 2019, as discussed in the Net Finance Revenue section. The amount of this re-pricing will fluctuate depending on the number and types of cars renewing during any given quarter. Suspended depreciation on operating lease equipment in AHFS was noted above. If the suspended depreciation were included, the operating lease margin was 6.03%, 5.92% and 5.61%, for the current, year-ago and prior quarters, respectively. Railcar utilization in our North America portfolio, including commitments to lease, remained at 98%, unchanged from June 30, 2018.
Consumer Banking
Consumer Banking includes Retail Banking, Consumer Lending, and SBA Lending, which are grouped together for purposes of discussion as Other Consumer Banking, and Legacy Consumer Mortgages (“LCM”). A detailed description of the divisions is included at the end of
Item 1. Business Overview in our61
Consumer Banking: Financial Data and Metrics (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 79.0 |
|
| $ | 85.0 |
|
| $ | 92.2 |
|
| $ | 249.2 |
|
| $ | 293.8 |
|
Interest (benefit) |
| (41.6 | ) |
|
| (37.3 | ) |
|
| (16.0 | ) |
|
| (103.2 | ) |
|
| (32.1 | ) |
Net finance revenue (NFR) |
| 120.6 |
|
|
| 122.3 |
|
|
| 108.2 |
|
|
| 352.4 |
|
|
| 325.9 |
|
Provision (benefit) for credit losses |
| (0.9 | ) |
|
| (0.3 | ) |
|
| 19.0 |
|
|
| 0.4 |
|
|
| 24.1 |
|
Other non-interest income |
| (18.1 | ) |
|
| 37.5 |
|
|
| (22.7 | ) |
|
| 30.9 |
|
|
| (9.1 | ) |
Operating expenses |
| 88.9 |
|
|
| 93.7 |
|
|
| 106.2 |
|
|
| 278.6 |
|
|
| 298.0 |
|
Income (loss) before income taxes | $ | 14.5 |
|
| $ | 66.4 |
|
| $ | (39.7 | ) |
| $ | 104.3 |
|
| $ | (5.3 | ) |
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (includes HFS) | $ | 6,412.0 |
|
| $ | 6,328.0 |
|
| $ | 6,678.6 |
|
| $ | 6,412.0 |
|
| $ | 6,678.6 |
|
Earning assets |
| 6,447.7 |
|
|
| 6,415.5 |
|
|
| 6,850.4 |
|
|
| 6,447.7 |
|
|
| 6,850.4 |
|
Deposits |
| 26,048.1 |
|
|
| 26,004.5 |
|
|
| 23,247.6 |
|
|
| 26,048.1 |
|
|
| 23,247.6 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans (includes HFS) | $ | 6,363.9 |
|
| $ | 6,786.7 |
|
| $ | 6,711.0 |
|
| $ | 6,626.3 |
|
| $ | 6,832.7 |
|
Average earning assets (AEA) |
| 6,433.2 |
|
|
| 6,896.9 |
|
|
| 6,904.3 |
|
|
| 6,729.4 |
|
|
| 7,101.0 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin - NFR as a % of AEA |
| 7.50 | % |
|
| 7.09 | % |
|
| 6.27 | % |
|
| 6.98 | % |
|
| 6.12 | % |
Net efficiency ratio |
| 82.2 | % |
|
| 55.8 | % |
|
| 118.9 | % |
|
| 69.1 | % |
|
| 89.7 | % |
Pretax return on AEA |
| 0.90 | % |
|
| 3.85 | % |
|
| (2.30 | )% |
|
| 2.07 | % |
|
| (0.10 | )% |
New business volume | $ | 360.0 |
|
| $ | 482.6 |
|
| $ | 223.2 |
|
| $ | 1,231.2 |
|
| $ | 527.5 |
|
Quarters Ended | |||||||||||
Earnings Summary | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Interest income | $ | 85.2 | $ | 84.3 | $ | 100.0 | |||||
Interest benefit | (24.3 | ) | (19.7 | ) | (6.5 | ) | |||||
Net finance revenue (NFR) | 109.5 | 104.0 | 106.5 | ||||||||
Provision for credit losses | 1.6 | 1.8 | 0.5 | ||||||||
Other non-interest income | 11.5 | 13.2 | 7.9 | ||||||||
Operating expenses | 96.0 | 103.5 | 95.6 | ||||||||
Income before income taxes | $ | 23.4 | $ | 11.9 | $ | 18.3 | |||||
Select Period End Balance | |||||||||||
Loans (includes HFS) | $ | 6,971.7 | $ | 6,820.2 | $ | 6,876.9 | |||||
Earning assets | 7,092.2 | 6,962.6 | 7,190.0 | ||||||||
Deposits | 24,915.4 | 23,421.8 | 22,584.1 | ||||||||
Select Average Balances | |||||||||||
Average loans (includes HFS) | $ | 6,878.8 | $ | 6,728.0 | $ | 6,963.9 | |||||
Average earning assets (AEA) | 7,009.4 | 6,885.6 | 7,291.8 | ||||||||
Statistical Data | |||||||||||
Net finance margin - NFR as a % of AEA | 6.25 | % | 6.04 | % | 5.84 | % | |||||
Net efficiency ratio | 75.5 | % | 84.4 | % | 79.5 | % | |||||
Pretax return on AEA | 1.34 | % | 0.69 | % | 1.00 | % | |||||
New business volume | $ | 388.6 | $ | 421.9 | $ | 154.7 |
Pre-tax earnings in each of the quarters included noteworthy items. The current quarter non-interest income included a $21 million impairment charge to reduce the carrying value of the indemnification asset for the amounts deemed uncollectable within the remaining indemnification period (see Credit Quality section of Note 3 – Loans for discussion of impairment.) The year-ago quarter included $42 million of noteworthy charges; including $27 million on reverse mortgage related assets that were part of the Financial Freedom Transaction in non-interest income and $15 million of charge-offs related to the reverse mortgage portfolio transfer to AHFS in the provision for credit losses. The prior quarter included $29 million of other non-interest income related to the Financial Freedom transaction, primarily a gain on the sale of the reverse mortgage portfolio. Excluding the noteworthy items, pre-tax earnings were $36 million, compared to $37 million in the prior quarter and $3 million in the year-ago quarter, and $96 million and $37 million for the nine months ended 2018 and 2017, respectively. Compared to the year-ago quarter and nine months, pre-tax earnings increased as anwas up reflecting the increase in the benefit in interest expense received from the other segments for the value of the excess deposits Consumer Banking generates was partially offset by the decrease in interest income. Compared to the prior quarter, pre-tax results were up primarily driven by an increase in the benefit in interest expense received from the other segments for the value of the excess deposits Consumer Banking generates and lower operating expenses.
Average loans, including held for sale, totaled $6.9 billion for the quarter and nine-months ended March 31,September 30, 2018, up slightlywere down compared to the year-ago periods, as run-off of the LCM portfolio and the sale of the reverse mortgage portfolio, comprised of loans and related OREO assets of $884 million, were partially offset by new business volume in the Other Consumer Banking division. Average loan growth in Other Consumer Banking was primarily driven by increases in residential mortgage lending in the retail and correspondent origination channels and closed loan purchases. The decline in average loans, including held for sale, from the prior quarter as originations offset run-offwas driven by the full quarter impact of the reverse mortgage portfolio sold in May 2018 and run-off in LCM, portfolios. Thepartially offset by new business volumes in the Other Consumer Banking division. LCM portfolios made up $4.1$3.0 billion of the current quarter average balance, with a significant portion covered by the loss sharing agreementsagreement with the FDIC. These agreements begin to expireFDIC under IndyMac. The IndyMac loss share agreement expires in March 2019, the benefit of which is recorded within theas an indemnification assets. At March 31, 2018, LCM includes $861 million of reverse mortgage loans held for sale (along with $17.2 million of OREO)asset. See Note 2 — Discontinued Operations and Note 3 – Loans earlier in connection with the announced Financial Freedom Transaction.this document. See
Deposits, which include deposits from the branch and online channels, increased from the prior and year-ago quarters, primarily driven by an increase in savings and online High Yield Savings Accounts (“HYSA”)money market accounts and money-market accounts,in the current quarter, the increase in short term time deposits, partially offset by a decrease in interest-bearing checking accounts and also long term time deposits compared to the year-ago quarter.
Trends included:
NFR increased from the year-ago quarter and other interest-bearing accounts.
62
NSP consists of businesses and portfolios that we no longer consider strategic. These portfolios include international equipment financing, secured lending and leasing and advisory services to small and middle-market businesses.
Non-Strategic Portfolios: Financial Data and Metrics
(dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 1.4 |
|
| $ | 1.9 |
|
| $ | 4.6 |
|
| $ | 5.7 |
|
| $ | 17.8 |
|
Interest expense |
| 0.8 |
|
|
| 1.8 |
|
|
| 3.0 |
|
|
| 4.3 |
|
|
| 13.0 |
|
Net finance revenue (NFR) |
| 0.6 |
|
|
| 0.1 |
|
|
| 1.6 |
|
|
| 1.4 |
|
|
| 4.8 |
|
Other non-interest income |
| 11.6 |
|
|
| 0.7 |
|
|
| 4.9 |
|
|
| 13.5 |
|
|
| 2.2 |
|
Operating expenses |
| 2.2 |
|
|
| 2.2 |
|
|
| 9.2 |
|
|
| 6.6 |
|
|
| 13.0 |
|
Income (loss) before income taxes | $ | 10.0 |
|
| $ | (1.4 | ) |
| $ | (2.7 | ) |
| $ | 8.3 |
|
| $ | (6.0 | ) |
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases | $ | 32.1 |
|
| $ | 29.7 |
|
| $ | 87.8 |
|
| $ | 32.1 |
|
| $ | 87.8 |
|
Earning assets |
| 85.1 |
|
|
| 81.4 |
|
|
| 228.8 |
|
|
| 85.1 |
|
|
| 228.8 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets (AEA) | $ | 78.6 |
|
| $ | 123.0 |
|
| $ | 226.9 |
|
| $ | 116.8 |
|
| $ | 307.7 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin — NFR as a % of AEA |
| 3.05 | % |
|
| 0.33 | % |
|
| 2.82 | % |
|
| 1.60 | % |
|
| 2.08 | % |
Pretax return on AEA |
| 50.89 | % |
|
| (4.55 | )% |
|
| (4.76 | )% |
|
| 9.47 | % |
|
| (2.60 | )% |
Quarters Ended | |||||||||||
Earnings Summary | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Interest income | $ | 2.4 | $ | 5.1 | $ | 7.0 | |||||
Finance revenue | 2.4 | 5.1 | 7.0 | ||||||||
Interest expense | 1.7 | 2.2 | 5.0 | ||||||||
Net finance revenue (NFR) | 0.7 | 2.9 | 2.0 | ||||||||
Other non-interest income | 1.2 | 0.9 | (2.9 | ) | |||||||
Operating expenses | 2.2 | (0.3 | ) | 2.0 | |||||||
(Loss) income before income taxes | $ | (0.3 | ) | $ | 4.1 | $ | (2.9 | ) | |||
Select Period End Balance | |||||||||||
Loans and leases | $ | 58.5 | $ | 63.3 | $ | 162.1 | |||||
Earning assets | 151.3 | 145.3 | 348.2 | ||||||||
Select Average Balances | |||||||||||
Average earning assets (AEA) | 148.6 | 188.0 | 367.5 | ||||||||
Statistical Data | |||||||||||
Net finance margin — NFR as a % of AEA | 1.88 | % | 6.17 | % | 2.18 | % | |||||
Pretax return on AEA | (0.81 | )% | 8.72 | % | (3.16 | )% |
Income before income taxes for the year-agocurrent quarter and pre-tax income of $4reflects an $11 million in the prior quarter. Interest income continues to decline as earning assets continue to run off. Operating expense in the prior quarter benefited from the reversal of a legal provision.valuation reserve in other non-interest income due to an increase in fair value of certain assets held for sale in China. In the year-ago quarter, other non-interestnine-month period, the loss before income taxes included a noteworthy item of an $8 million currency translation adjustment charge in other non-interest income related to the exit of international businesses.
The loans and leases areat September 30, 2018, were all in China, and were down from $63 million in the prior quarter and $162 million in the prior year quarter.
Corporate and Other
Certain items are not allocated to operating segments and are included in Corporate and Other. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate liquidity costs, (interest expense), mark-to-market adjustments on non-qualifying derivatives and BOLI (other non-interest income), restructuring charges, for severance and facilities exit activities as well as certain unallocated costs (operating expenses), certainand intangible assets amortization expenses (other(operating expenses) and loss on debt extinguishments.
Corporate and Other: Financial Data and Metrics
(dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 54.3 |
|
| $ | 56.3 |
|
| $ | 47.8 |
|
| $ | 159.3 |
|
| $ | 142.8 |
|
Interest expense |
| 64.4 |
|
|
| 63.7 |
|
|
| 58.4 |
|
|
| 174.9 |
|
|
| 189.2 |
|
Net finance revenue (NFR) |
| (10.1 | ) |
|
| (7.4 | ) |
|
| (10.6 | ) |
|
| (15.6 | ) |
|
| (46.4 | ) |
Other non-interest income |
| 16.3 |
|
|
| 24.1 |
|
|
| 10.2 |
|
|
| 54.4 |
|
|
| 15.9 |
|
Operating expenses - Including gain/ (loss) on debt extinguishment |
| 3.4 |
|
|
| 19.5 |
|
|
| 46.8 |
|
|
| 23.0 |
|
|
| 268.0 |
|
Income (loss) before benefit for income taxes | $ | 2.8 |
|
| $ | (2.8 | ) |
| $ | (47.2 | ) |
| $ | 15.8 |
|
| $ | (298.5 | ) |
Select Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 8,545.9 |
|
| $ | 9,244.6 |
|
| $ | 9,311.9 |
|
| $ | 8,597.6 |
|
| $ | 10,965.1 |
|
Earning assets (end of period) |
| 7,414.5 |
|
|
| 9,038.7 |
|
|
| 8,026.0 |
|
|
| 7,414.5 |
|
|
| 8,026.0 |
|
Quarters Ended | |||||||||||
Earnings Summary | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Interest income | $ | 48.7 | $ | 43.8 | $ | 41.2 | |||||
Interest expense | 46.8 | 47.4 | 44.8 | ||||||||
Net finance revenue (NFR) | 1.9 | (3.6 | ) | (3.6 | ) | ||||||
Other non-interest income | 14.0 | 50.1 | 1.8 | ||||||||
Operating expenses - Including gain/ (loss) on debt extinguishment | 0.1 | 34.6 | 35.3 | ||||||||
Income (loss) before benefit for income taxes | $ | 15.8 | $ | 11.9 | $ | (37.1 | ) | ||||
Select Balances | |||||||||||
Average earning assets | $ | 8,085.4 | $ | 7,981.2 | $ | 9,674.9 | |||||
Earning assets (end of period) | $ | 9,717.5 | $ | 7,702.8 | $ | 9,460.7 |
Noteworthy items related to our strategic initiatives impact this division in the year-ago and prior quarters, which include an accounting policy change for LIHTC investments and restructuring costs. In total, these amounts reduced pretaxdecreased pre-tax income by $15$3 million, $56 million and $19 million for the quarters ended September 30, 2018 and 2017, and June 30, 2018, respectively. Noteworthy items decreased pre-tax income by $22 million and $254 million for the nine months ended September 30, 2018 and 2017, respectively. Noteworthy items included loss on debt extinguishments in each of the periods. Noteworthy items in the year-ago quarter and $3nine months included restructuring charges, and the year-ago nine months also included interest expense partially offset by interest income, related to the timing of debt repayments and the elevated cash balances from the Commercial Air sale and the related liability management and capital actions. Noteworthy items are listed in the Non-GAAP Financial Measurements section.
Excluding noteworthy items, pre-tax income in the current quarter was $6 million compared to $16 million in the prior quarter.
The following table presents our period end loans and leases by segment.
Loans and Leases Composition (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Commercial Banking | |||||||
Commercial Finance | |||||||
Loans | $ | 9,926.1 | $ | 9,928.8 | |||
Assets held for sale | 88.1 | 123.5 | |||||
Total loans and leases | 10,014.2 | 10,052.3 | |||||
Rail | |||||||
Loans | 81.5 | 82.8 | |||||
Operating lease equipment, net | 6,268.4 | 6,260.9 | |||||
Assets held for sale | 1,256.5 | 1,188.5 | |||||
Total loans and leases | 7,606.4 | 7,532.2 | |||||
Real Estate Finance | |||||||
Loans | 5,594.5 | 5,567.9 | |||||
Assets held for sale | 28.0 | 22.3 | |||||
Total loans and leases | 5,622.5 | 5,590.2 | |||||
Business Capital | |||||||
Loans | 7,743.8 | 7,579.8 | |||||
Operating lease equipment, net | 506.5 | 478.0 | |||||
Assets held for sale | 3.7 | — | |||||
Total loans and leases | 8,254.0 | 8,057.8 | |||||
Total Segment - Commercial Banking | |||||||
Loans | 23,345.9 | 23,159.3 | |||||
Operating lease equipment, net | 6,774.9 | 6,738.9 | |||||
Assets held for sale | 1,376.3 | 1,334.2 | |||||
Total loans and leases | 31,497.1 | 31,232.4 | |||||
Consumer Banking | |||||||
Legacy Consumer Mortgages | |||||||
Loans | 3,203.0 | 3,331.1 | |||||
Assets held for sale | 860.5 | 861.0 | |||||
Total loans | 4,063.5 | 4,192.1 | |||||
Other Consumer Banking | |||||||
Loans | 2,904.7 | 2,623.5 | |||||
Assets held for sale | 3.5 | 4.6 | |||||
Total loans | 2,908.2 | 2,628.1 | |||||
Total Segment - Consumer Banking | |||||||
Loans | 6,107.7 | 5,954.6 | |||||
Assets held for sale | 864.0 | 865.6 | |||||
Total loans | 6,971.7 | 6,820.2 | |||||
Non-Strategic Portfolios | |||||||
Assets held for sale | 58.5 | 63.3 | |||||
Total loans and leases | 58.5 | 63.3 | |||||
Total Loans | $ | 29,453.6 | $ | 29,113.9 | |||
Total operating lease equipment, net | 6,774.9 | 6,738.9 | |||||
Total assets held for sale | 2,298.8 | 2,263.1 | |||||
Total loans and leases | $ | 38,527.3 | $ | 38,115.9 |
Loans and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market RiskLeases Composition (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 10,176.4 |
|
| $ | 9,899.9 |
|
| $ | 9,928.8 |
|
Assets held for sale |
| 65.7 |
|
|
| 70.4 |
|
|
| 123.5 |
|
Total Loans and leases |
| 10,242.1 |
|
|
| 9,970.3 |
|
|
| 10,052.3 |
|
Rail |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 89.4 |
|
|
| 80.9 |
|
|
| 82.8 |
|
Operating lease equipment, net |
| 6,378.3 |
|
|
| 6,312.8 |
|
|
| 6,260.9 |
|
Assets held for sale |
| 1,214.5 |
|
|
| 1,206.4 |
|
|
| 1,188.4 |
|
Total Loans and leases |
| 7,682.2 |
|
|
| 7,600.1 |
|
|
| 7,532.1 |
|
Real Estate Finance |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 5,502.8 |
|
|
| 5,309.3 |
|
|
| 5,567.9 |
|
Assets held for sale |
| 44.8 |
|
|
| — |
|
|
| 22.3 |
|
Total Loans and leases |
| 5,547.6 |
|
|
| 5,309.3 |
|
|
| 5,590.2 |
|
Business Capital |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 8,327.1 |
|
|
| 7,749.6 |
|
|
| 7,579.8 |
|
Operating lease equipment, net |
| 510.4 |
|
|
| 521.1 |
|
|
| 478.0 |
|
Assets held for sale |
| 11.5 |
|
|
| 10.0 |
|
|
| — |
|
Total Loans and leases |
| 8,849.0 |
|
|
| 8,280.7 |
|
|
| 8,057.8 |
|
Total Segment - Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 24,095.7 |
|
|
| 23,039.7 |
|
|
| 23,159.3 |
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,738.9 |
|
Assets held for sale |
| 1,336.5 |
|
|
| 1,286.8 |
|
|
| 1,334.2 |
|
Total loans and leases |
| 32,320.9 |
|
|
| 31,160.4 |
|
|
| 31,232.4 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 2,914.3 |
|
|
| 3,054.3 |
|
|
| 3,331.1 |
|
Assets held for sale |
| — |
|
|
| — |
|
|
| 861.0 |
|
Total Loans and leases |
| 2,914.3 |
|
|
| 3,054.3 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 3,485.8 |
|
|
| 3,254.4 |
|
|
| 2,623.5 |
|
Assets held for sale |
| 11.9 |
|
|
| 19.3 |
|
|
| 4.6 |
|
Total Loans and leases |
| 3,497.7 |
|
|
| 3,273.7 |
|
|
| 2,628.1 |
|
Total Segment - Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 6,400.1 |
|
|
| 6,308.7 |
|
|
| 5,954.6 |
|
Assets held for sale |
| 11.9 |
|
|
| 19.3 |
|
|
| 865.6 |
|
Total Loans and leases |
| 6,412.0 |
|
|
| 6,328.0 |
|
|
| 6,820.2 |
|
Non-Strategic Portfolios |
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
| 32.1 |
|
|
| 29.7 |
|
|
| 63.3 |
|
Total loans and leases |
| 32.1 |
|
|
| 29.7 |
|
|
| 63.3 |
|
Total Loans | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 29,113.9 |
|
Total operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,738.9 |
|
Total assets held for sale |
| 1,380.5 |
|
|
| 1,335.8 |
|
|
| 2,263.1 |
|
Total loans and leases | $ | 38,765.0 |
|
| $ | 37,518.1 |
|
| $ | 38,115.9 |
|
Total loans and leases were $38.5 billion at March 31,up 3.3% and 1.7% from June 30, 2018 up 1.1% fromand December 31, 2017, as increasesrespectively. The increase in Commercial Banking reflects higher loans and leases in the equipment finance businesses and seasonally higher factoring receivables in Business Capital and growth in Commercial Finance. Rail assets held for sale related to NACCO, our European rail business that was sold in October 2018. Consumer Banking was up compared to June 30, 2018, as originations in Other Consumer Banking werewas partially offset by the run-off of LCM portfoliosrun-off. The decline in Consumer Banking and a legacy real estatefrom year-end reflects the sale of the reverse mortgage loan portfolio in Real Estate Finance.
Total loans and leases trends are discussed in the respective segment descriptions in the prior section, “
Results by Business Segment.”64
The following table presents the changes to our total loans and leases:
Changes in Loans and Leases (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| Non- Strategic Portfolios |
|
| Total |
| ||||
Balance as of June 30, 2018 | $ | 31,160.4 |
|
| $ | 6,328.0 |
|
| $ | 29.7 |
|
| $ | 37,518.1 |
|
New business volume |
| 2,770.4 |
|
|
| 360.0 |
|
|
| — |
|
|
| 3,130.4 |
|
Loan and portfolio sales |
| (64.3 | ) |
|
| (31.3 | ) |
|
| — |
|
|
| (95.6 | ) |
Equipment sales |
| (57.8 | ) |
|
| — |
|
|
| — |
|
|
| (57.8 | ) |
Depreciation |
| (78.0 | ) |
|
| — |
|
|
| — |
|
|
| (78.0 | ) |
Gross charge-offs |
| (29.4 | ) |
|
| (1.4 | ) |
|
| — |
|
|
| (30.8 | ) |
Collections and other |
| (1,380.4 | ) |
|
| (243.3 | ) |
|
| 2.4 |
|
|
| (1,621.3 | ) |
Balance as of September 30, 2018 | $ | 32,320.9 |
|
| $ | 6,412.0 |
|
| $ | 32.1 |
|
| $ | 38,765.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017 | $ | 31,232.4 |
|
| $ | 6,820.2 |
|
| $ | 63.3 |
|
| $ | 38,115.9 |
|
New business volume |
| 7,416.1 |
|
|
| 1,231.2 |
|
|
| — |
|
|
| 8,647.3 |
|
Loan and portfolio sales |
| (233.1 | ) |
|
| (938.7 | ) |
|
| — |
|
|
| (1,171.8 | ) |
Equipment sales |
| (167.1 | ) |
|
| — |
|
|
| (5.4 | ) |
|
| (172.5 | ) |
Depreciation |
| (231.6 | ) |
|
| — |
|
|
| — |
|
|
| (231.6 | ) |
Gross charge-offs |
| (108.6 | ) |
|
| (2.7 | ) |
|
| — |
|
|
| (111.3 | ) |
Collections and other |
| (5,587.2 | ) |
|
| (698.0 | ) |
|
| (25.8 | ) |
|
| (6,311.0 | ) |
Balance as of September 30, 2018 | $ | 32,320.9 |
|
| $ | 6,412.0 |
|
| $ | 32.1 |
|
| $ | 38,765.0 |
|
Changes in Loans and Leases (dollars in millions) | |||||||||||||||
Commercial Banking | Consumer Banking | Non- Strategic Portfolios | Total | ||||||||||||
Balance at December 31, 2017 | $ | 31,232.4 | $ | 6,820.2 | $ | 63.3 | $ | 38,115.9 | |||||||
New business volume | 2,267.2 | 388.6 | — | 2,655.8 | |||||||||||
Loan and portfolio sales | (79.1 | ) | (19.0 | ) | — | (98.1 | ) | ||||||||
Equipment sales | (46.5 | ) | — | (0.2 | ) | (46.7 | ) | ||||||||
Depreciation | (76.4 | ) | — | — | (76.4 | ) | |||||||||
Gross charge-offs | (54.6 | ) | (0.5 | ) | — | (55.1 | ) | ||||||||
Collections and other | (1,745.9 | ) | (217.6 | ) | (4.6 | ) | (1,968.1 | ) | |||||||
Balance at March 31, 2018 | $ | 31,497.1 | $ | 6,971.7 | $ | 58.5 | $ | 38,527.3 |
Portfolio activities are discussed in the respective segment descriptions in “
Results by Business Segment”.The following tables present new business and factoring volumes, along with loan and portfolio sales and equipment sales by segment:
New Business and Factoring Volume (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 2,770.4 |
|
| $ | 2,378.5 |
|
| $ | 2,044.0 |
|
| $ | 7,416.1 |
|
| $ | 5,705.7 |
|
Consumer Banking |
| 360.0 |
|
|
| 482.6 |
|
|
| 223.2 |
|
|
| 1,231.2 |
|
|
| 527.5 |
|
Total | $ | 3,130.4 |
|
| $ | 2,861.1 |
|
| $ | 2,267.2 |
|
| $ | 8,647.3 |
|
| $ | 6,233.2 |
|
Factoring volume | $ | 7,999.0 |
|
| $ | 6,648.9 |
|
| $ | 7,205.9 |
|
| $ | 22,073.9 |
|
| $ | 19,748.8 |
|
Loan and Portfolio Sales (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 64.3 |
|
| $ | 89.8 |
|
| $ | 31.9 |
|
| $ | 233.1 |
|
| $ | 271.4 |
|
Consumer Banking |
| 31.3 |
|
|
| 888.4 |
|
|
| 23.8 |
|
|
| 938.7 |
|
|
| 101.5 |
|
Non-Strategic Portfolios |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.6 |
|
Total | $ | 95.6 |
|
| $ | 978.2 |
|
| $ | 55.7 |
|
| $ | 1,171.8 |
|
| $ | 373.5 |
|
Equipment Sales (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 57.8 |
|
| $ | 62.8 |
|
| $ | 36.9 |
|
| $ | 167.1 |
|
| $ | 122.0 |
|
Non-Strategic Portfolios |
| — |
|
|
| 5.2 |
|
|
| 6.4 |
|
|
| 5.4 |
|
|
| 37.5 |
|
Total | $ | 57.8 |
|
| $ | 68.0 |
|
| $ | 43.3 |
|
| $ | 172.5 |
|
| $ | 159.5 |
|
New Business and Factoring Volume (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Commercial Banking | $ | 2,267.2 | $ | 2,902.0 | $ | 1,615.4 | |||||
Consumer Banking | 388.6 | 421.9 | 154.7 | ||||||||
Total | $ | 2,655.8 | $ | 3,323.9 | $ | 1,770.1 | |||||
Factoring volume | $ | 7,426.0 | $ | 7,731.2 | $ | 6,811.6 |
Loan and Portfolio Sales (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Commercial Banking | $ | 79.1 | $ | 38.8 | $ | 126.9 | |||||
Consumer Banking | 19.0 | 26.8 | 44.9 | ||||||||
Total | $ | 98.1 | $ | 65.6 | $ | 171.8 |
Equipment Sales (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Commercial Banking | $ | 46.5 | $ | 57.3 | $ | 33.0 | |||||
Non-Strategic Portfolios | 0.2 | 2.3 | 17.9 | ||||||||
Total | $ | 46.7 | $ | 59.6 | $ | 50.9 |
65
Geographic Concentrations
The following table represents CIT’s combined commercial and consumer loans and leases by geographical regions:
Total Loans and Leases by Geographic Region (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
West | $ | 12,155.8 |
|
|
| 31.3 | % |
| $ | 12,009.8 |
|
|
| 31.5 | % |
Northeast |
| 9,139.0 |
|
|
| 23.6 | % |
|
| 9,658.7 |
|
|
| 25.3 | % |
Midwest |
| 5,005.7 |
|
|
| 12.9 | % |
|
| 4,641.1 |
|
|
| 12.2 | % |
Southwest |
| 4,636.6 |
|
|
| 12.0 | % |
|
| 4,063.5 |
|
|
| 10.7 | % |
Southeast |
| 3,634.8 |
|
|
| 9.4 | % |
|
| 3,346.0 |
|
|
| 8.8 | % |
Total U.S. |
| 34,571.9 |
|
|
| 89.2 | % |
|
| 33,719.1 |
|
|
| 88.5 | % |
Canada |
| 1,379.8 |
|
|
| 3.6 | % |
|
| 1,326.4 |
|
|
| 3.4 | % |
Europe |
| 1,358.5 |
|
|
| 3.5 | % |
|
| 1,444.1 |
|
|
| 3.8 | % |
Asia / Pacific |
| 512.9 |
|
|
| 1.3 | % |
|
| 720.8 |
|
|
| 1.9 | % |
All other countries |
| 941.9 |
|
|
| 2.4 | % |
|
| 905.5 |
|
|
| 2.4 | % |
Total | $ | 38,765.0 |
|
|
| 100.0 | % |
| $ | 38,115.9 |
|
|
| 100.0 | % |
Total Loans and Leases by Geographic Region (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
West | $ | 12,121.2 | 31.5 | % | $ | 12,009.8 | 31.5 | % | |||||
Northeast | 9,671.8 | 25.1 | % | 9,658.7 | 25.3 | % | |||||||
Midwest | 4,669.1 | 12.1 | % | 4,641.1 | 12.2 | % | |||||||
Southwest | 4,302.5 | 11.2 | % | 4,063.5 | 10.7 | % | |||||||
Southeast | 3,469.2 | 9.0 | % | 3,346.0 | 8.8 | % | |||||||
Total U.S. | 34,233.8 | 88.9 | % | 33,719.1 | 88.5 | % | |||||||
Europe | 1,491.6 | 3.9 | % | 1,444.1 | 3.8 | % | |||||||
Canada | 1,231.8 | 3.2 | % | 1,326.4 | 3.4 | % | |||||||
Asia / Pacific | 631.3 | 1.6 | % | 720.8 | 1.9 | % | |||||||
All other countries | 938.8 | 2.4 | % | 905.5 | 2.4 | % | |||||||
Total | $ | 38,527.3 | 100.0 | % | $ | 38,115.9 | 100.0 | % |
Ten Largest Accounts
Our ten largest loan and lease accounts, primarily lessors of rail assets and factoring clients, in the aggregate represented 4.3%4.6% of our total loans and leases at March 31,September 30, 2018 (the largest account was less than 1.0%). The ten largest loan and lease accounts were 4.4% of total loans and leases at December 31, 2017.
Geographic Concentrations
The following table represents the commercial loans and leases by obligor geography:
Commercial Loans and Leases by Obligor - Geographic Region (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Northeast | $ | 8,425.5 |
|
|
| 25.6 | % |
| $ | 8,646.1 |
|
|
| 27.3 | % |
West |
| 7,542.3 |
|
|
| 23.0 | % |
|
| 7,349.9 |
|
|
| 23.2 | % |
Midwest |
| 4,842.8 |
|
|
| 14.7 | % |
|
| 4,448.7 |
|
|
| 14.0 | % |
Southwest |
| 4,555.3 |
|
|
| 13.9 | % |
|
| 3,970.2 |
|
|
| 12.5 | % |
Southeast |
| 3,277.8 |
|
|
| 10.0 | % |
|
| 2,902.5 |
|
|
| 9.2 | % |
Total U.S. |
| 28,643.7 |
|
|
| 87.2 | % |
|
| 27,317.4 |
|
|
| 86.2 | % |
Canada |
| 1,379.8 |
|
|
| 4.2 | % |
|
| 1,326.4 |
|
|
| 4.2 | % |
Europe |
| 1,358.5 |
|
|
| 4.1 | % |
|
| 1,444.1 |
|
|
| 4.5 | % |
Asia / Pacific |
| 512.9 |
|
|
| 1.6 | % |
|
| 720.8 |
|
|
| 2.2 | % |
All other countries |
| 941.9 |
|
|
| 2.9 | % |
|
| 905.5 |
|
|
| 2.9 | % |
Total | $ | 32,836.8 |
|
|
| 100.0 | % |
| $ | 31,714.2 |
|
|
| 100.0 | % |
Commercial Loans and Leases by Obligor - Geographic Region (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Northeast | $ | 8,675.5 | 27.1 | % | $ | 8,646.1 | 27.3 | % | |||||
West | 7,317.5 | 22.9 | % | 7,349.9 | 23.2 | % | |||||||
Midwest | 4,480.2 | 14.0 | % | 4,448.7 | 14.0 | % | |||||||
Southwest | 4,207.1 | 13.1 | % | 3,970.2 | 12.5 | % | |||||||
Southeast | 3,024.9 | 9.5 | % | 2,902.5 | 9.2 | % | |||||||
Total U.S. | 27,705.2 | 86.6 | % | 27,317.4 | 86.2 | % | |||||||
Europe | 1,491.6 | 4.7 | % | 1,444.1 | 4.5 | % | |||||||
Canada | 1,231.8 | 3.8 | % | 1,326.4 | 4.2 | % | |||||||
Asia / Pacific | 631.3 | 2.0 | % | 720.8 | 2.2 | % | |||||||
All other countries | 938.8 | 2.9 | % | 905.5 | 2.9 | % | |||||||
Total | $ | 31,998.7 | 100.0 | % | $ | 31,714.2 | 100.0 | % |
The following table summarizes both state concentrations greater than 5.0% and international country concentrations in excess of 1.0% of our loans and leases:
Commercial Loans and Leases by Obligor - State and Country (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California | $ | 5,583.0 |
|
|
| 17.0 | % |
| $ | 5,430.5 |
|
|
| 17.1 | % |
Texas |
| 3,693.3 |
|
|
| 11.2 | % |
|
| 3,223.7 |
|
|
| 10.2 | % |
New York |
| 3,237.9 |
|
|
| 9.9 | % |
|
| 3,195.7 |
|
|
| 10.1 | % |
All other states |
| 16,129.5 |
|
|
| 49.1 | % |
|
| 15,467.5 |
|
|
| 48.8 | % |
Total U.S. |
| 28,643.7 |
|
|
| 87.2 | % |
|
| 27,317.4 |
|
|
| 86.2 | % |
Country |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| 1,379.8 |
|
|
| 4.2 | % |
|
| 1,326.4 |
|
|
| 4.2 | % |
France |
| 348.1 |
|
|
| 1.1 | % |
|
| 383.8 |
|
|
| 1.2 | % |
Marshall Islands |
| 337.6 |
|
|
| 1.0 | % |
|
| 442.5 |
|
|
| 1.4 | % |
All other countries |
| 2,127.6 |
|
|
| 6.5 | % |
|
| 2,244.1 |
|
|
| 7.0 | % |
Total International | $ | 4,193.1 |
|
|
| 12.8 | % |
| $ | 4,396.8 |
|
|
| 13.8 | % |
Commercial Loans and Leases by Obligor - State and Country (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
State | |||||||||||||
California | $ | 5,490.2 | 17.2 | % | $ | 5,430.5 | 17.1 | % | |||||
Texas | 3,439.1 | 10.7 | % | 3,223.7 | 10.2 | % | |||||||
New York | 3,416.6 | 10.7 | % | 3,195.7 | 10.1 | % | |||||||
All other states | 15,359.3 | 48.0 | % | 15,467.5 | 48.8 | % | |||||||
Total U.S. | 27,705.2 | 86.6 | % | 27,317.4 | 86.2 | % | |||||||
Country | |||||||||||||
Canada | 1,231.8 | 3.8 | % | 1,326.4 | 4.2 | % | |||||||
France | 402.6 | 1.3 | % | 383.8 | 1.2 | % | |||||||
Marshall Islands | 392.3 | 1.2 | % | 442.5 | 1.4 | % | |||||||
All other countries | 2,266.8 | 7.1 | % | 2,244.1 | 7.0 | % | |||||||
Total International | $ | 4,293.5 | 13.4 | % | $ | 4,396.8 | 13.8 | % |
The following table represents loans and leases by industry of obligor:
Commercial Loans and Leases by Obligor - Industry (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Real Estate | $ | 5,222.5 |
|
|
| 15.9 | % |
| $ | 5,224.8 |
|
|
| 16.5 | % |
Manufacturing(1) |
| 5,148.3 |
|
|
| 15.7 | % |
|
| 4,729.8 |
|
|
| 14.9 | % |
Retail(2) |
| 2,736.9 |
|
|
| 8.3 | % |
|
| 2,531.2 |
|
|
| 8.0 | % |
Energy and utilities |
| 2,510.3 |
|
|
| 7.6 | % |
|
| 2,253.3 |
|
|
| 7.1 | % |
Wholesale |
| 2,230.1 |
|
|
| 6.8 | % |
|
| 2,343.7 |
|
|
| 7.4 | % |
Rail |
| 1,713.6 |
|
|
| 5.2 | % |
|
| 1,916.7 |
|
|
| 6.1 | % |
Business Services |
| 1,675.8 |
|
|
| 5.1 | % |
|
| 1,559.0 |
|
|
| 4.9 | % |
Oil and gas extraction / services |
| 1,580.2 |
|
|
| 4.8 | % |
|
| 1,437.6 |
|
|
| 4.5 | % |
Healthcare |
| 1,574.8 |
|
|
| 4.8 | % |
|
| 1,458.0 |
|
|
| 4.6 | % |
Service industries |
| 1,561.6 |
|
|
| 4.8 | % |
|
| 1,464.5 |
|
|
| 4.6 | % |
Finance and insurance |
| 1,328.1 |
|
|
| 4.1 | % |
|
| 1,183.8 |
|
|
| 3.7 | % |
Maritime |
| 1,146.2 |
|
|
| 3.5 | % |
|
| 1,341.8 |
|
|
| 4.2 | % |
Transportation |
| 927.2 |
|
|
| 2.8 | % |
|
| 810.7 |
|
|
| 2.6 | % |
Other (no industry greater than 2%) |
| 3,481.2 |
|
|
| 10.6 | % |
|
| 3,459.3 |
|
|
| 10.9 | % |
Total | $ | 32,836.8 |
|
|
| 100.0 | % |
| $ | 31,714.2 |
|
|
| 100.0 | % |
Commercial Loans and Leases by Obligor - Industry (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Real Estate | $ | 5,243.7 | 16.4 | % | $ | 5,224.8 | 16.5 | % | |||||
Manufacturing(1) | 4,739.0 | 14.8 | % | 4,729.8 | 14.9 | % | |||||||
Retail(2) | 2,564.2 | 8.0 | % | 2,531.2 | 8.0 | % | |||||||
Wholesale | 2,260.6 | 7.1 | % | 2,343.7 | 7.4 | % | |||||||
Energy and utilities | 2,255.3 | 7.0 | % | 2,253.3 | 7.1 | % | |||||||
Rail | 1,903.1 | 5.9 | % | 1,916.7 | 6.1 | % | |||||||
Oil and gas extraction / services | 1,550.9 | 4.9 | % | 1,437.6 | 4.5 | % | |||||||
Service industries | 1,534.9 | 4.8 | % | 1,464.5 | 4.6 | % | |||||||
Business Services | 1,512.9 | 4.7 | % | 1,559.0 | 4.9 | % | |||||||
Healthcare | 1,510.6 | 4.7 | % | 1,458.0 | 4.6 | % | |||||||
Finance and insurance | 1,328.8 | 4.2 | % | 1,183.8 | 3.7 | % | |||||||
Maritime | 1,290.8 | 4.0 | % | 1,341.8 | 4.2 | % | |||||||
Transportation | 833.3 | 2.6 | % | 810.7 | 2.6 | % | |||||||
Other (no industry greater than 2%) | 3,470.6 | 10.9 | % | 3,459.3 | 10.9 | % | |||||||
Total | $ | 31,998.7 | 100.0 | % | $ | 31,714.2 | 100.0 | % |
(1) | At |
(2) | At |
The following table presents our total outstanding consumer loans, including PCI loans and loans held for sale. PCI loans are discussed in more detail in Note 3 — Loans.
Consumer Loans (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Net Investment |
|
| % of Total |
|
| Net Investment |
|
| % of Total |
| ||||
Single family residential | $ | 5,825.9 |
|
|
| 98.3 | % |
| $ | 5,390.3 |
|
|
| 84.2 | % |
Home Equity Lines of Credit |
| 101.6 |
|
|
| 1.7 | % |
|
| 149.6 |
|
|
| 2.4 | % |
Reverse mortgage |
| — |
|
|
| — | % |
|
| 861.0 |
|
|
| 13.4 | % |
Other consumer |
| 0.7 |
|
|
| — | % |
|
| 0.8 |
|
|
| — | % |
Total loans | $ | 5,928.2 |
|
|
| 100.0 | % |
| $ | 6,401.7 |
|
|
| 100.0 | % |
See Note 3 — Loans in Item 1. Consolidated Financial Statements.
Consumer Loans (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Net Investment | % of Total | Net Investment | % of Total | ||||||||||
Single family residential | $ | 5,534.8 | 84.8 | % | $ | 5,390.3 | 84.2 | % | |||||
Reverse mortgage | 860.5 | 13.2 | % | 861.0 | 13.4 | % | |||||||
Home Equity Lines of Credit | 132.5 | 2.0 | % | 149.6 | 2.4 | % | |||||||
Other consumer | 0.8 | – | 0.8 | — | |||||||||
Total loans | $ | 6,528.6 | 100.0 | % | $ | 6,401.7 | 100.0 | % |
Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes the carrying value of consumer loans, with concentrations in the top five states based upon property address.
Consumer Loans Geographic Concentrations (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Net Investment |
|
| % of Total |
|
| Net Investment |
|
| % of Total |
| ||||
California | $ | 4,224.5 |
|
|
| 71.3 | % |
| $ | 4,230.7 |
|
|
| 66.1 | % |
New York |
| 298.0 |
|
|
| 5.0 | % |
|
| 479.8 |
|
|
| 7.5 | % |
Florida |
| 168.4 |
|
|
| 2.8 | % |
|
| 250.6 |
|
|
| 3.9 | % |
New Jersey |
| 112.7 |
|
|
| 1.9 | % |
|
| 133.0 |
|
|
| 2.1 | % |
Maryland |
| 103.6 |
|
|
| 1.8 | % |
|
| 122.4 |
|
|
| 1.9 | % |
Other States and Territories(1) |
| 1,021.0 |
|
|
| 17.2 | % |
|
| 1,185.2 |
|
|
| 18.5 | % |
| $ | 5,928.2 |
|
|
| 100.0 | % |
| $ | 6,401.7 |
|
|
| 100.0 | % |
Consumer Loans Geographic Concentrations (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Net Investment | % of Total | Net Investment | % of Total | ||||||||||
California | $ | 4,373.7 | 67.0 | % | $ | 4,230.7 | 66.1 | % | |||||
New York | 467.5 | 7.2 | % | 479.8 | 7.5 | % | |||||||
Florida | 250.0 | 3.8 | % | 250.6 | 3.9 | % | |||||||
New Jersey | 135.0 | 2.1 | % | 133.0 | 2.1 | % | |||||||
Maryland | 120.3 | 1.8 | % | 122.4 | 1.9 | % | |||||||
Other States and Territories(1) | 1,182.1 | 18.1 | % | 1,185.2 | 18.5 | % | |||||||
$ | 6,528.6 | 100.0 | % | $ | 6,401.7 | 100.0 | % |
(1) | No state or territory has a total in excess of 2%. |
The following tables present the components of other assets and other liabilities.
Other Assets (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Tax credit investments and Investments in Unconsolidated Subsidiaries | $ | 308.6 |
|
| $ | 247.6 |
|
Counterparty receivables |
| 202.0 |
|
|
| 241.3 |
|
Current and deferred federal and state tax assets |
| 183.8 |
|
|
| 205.2 |
|
Property, furniture and fixtures |
| 170.8 |
|
|
| 173.9 |
|
Intangible assets |
| 95.0 |
|
|
| 113.0 |
|
Indemnification asset(1) |
| 27.2 |
|
|
| 142.4 |
|
Other(2) |
| 574.6 |
|
|
| 472.1 |
|
Total other assets | $ | 1,562.0 |
|
| $ | 1,595.5 |
|
Other Assets (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Tax credit investments and Investments in Unconsolidated Subsidiaries | $ | 228.3 | $ | 247.6 | |||
Current and deferred federal and state tax assets | 204.2 | 205.2 | |||||
Counterparty receivables | 203.6 | 241.3 | |||||
Property, furniture and fixtures | 178.4 | 173.9 | |||||
Indemnification assets | 120.5 | 142.4 | |||||
Intangible assets | 107.0 | 113.0 | |||||
Other | 535.9 | 472.1 | |||||
Total other assets | $ | 1,577.9 | $ | 1,595.5 |
(1) | “Indemnification asset” declined reflecting the reduction in the related estimated contingent liabilities from servicing activities to zero as disclosed in Note 2 – Discontinued Operations and an impairment charge related to covered SFR loans within the remaining indemnification period, as quantified and discussed briefly in Other Non-interest Revenues section and disclosed in Note 3 – Loans in the Credit Quality Information section. |
(2) | “Other” includes executive retirement plan and deferred compensation, prepaid expenses, accrued interest and dividends, servicing advances, OREO and other miscellaneous assets. |
Other Liabilities (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Accrued expenses and accounts payable | $ | 576.4 |
|
| $ | 584.8 |
|
Current and deferred taxes payable |
| 229.5 |
|
|
| 204.3 |
|
Fair value of derivative financial instruments |
| 129.1 |
|
|
| 87.5 |
|
Accrued interest payable |
| 59.4 |
|
|
| 86.6 |
|
Other liabilities(1) |
| 467.5 |
|
|
| 473.9 |
|
Total other liabilities | $ | 1,461.9 |
|
| $ | 1,437.1 |
|
Other Liabilities (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Accrued expenses and accounts payable | $ | 538.4 | $ | 584.8 | |||
Current and deferred taxes payable | 215.1 | 204.3 | |||||
Fair value of derivative financial instruments | 104.3 | 87.5 | |||||
Accrued interest payable | 66.5 | 86.6 | |||||
Other liabilities | 414.6 | 473.9 | |||||
Total other liabilities | $ | 1,338.9 | $ | 1,437.1 |
(1) | Other consists of liabilities for taxes other than income, fair value of derivative financial instruments, equipment maintenance reserves, cash collateral deposits and contingent liabilities and other miscellaneous liabilities. |
CIT’s Risk Management Group has established a Risk Governance Framework that is designed to promote appropriate risk identification, measurement, monitoring, management and control. Our policies and procedures relating to Risk Management are detailed in our Annual Report on Form 10-K for the year ended December 31, 2017.
Interest Rate Risk (a component of Market Risk)
CIT is exposed to the risk that adverse changes in market conditions may negatively impact earnings. The risk arises from the composition of ourCIT’s balance sheet and changes in the magnitude or shape of the yield curve. CIT looks to strategically manage this inherent risk based on prescribed guidelines and Board approved limits.
Interest rate risk arisescan arise from many of CIT’s business activities such as: lending, leasing, investments, deposit taking and funding, asfunding. This risk is a result of assets and liabilities repricerepricing at different times as interest rates change. We evaluate and monitor interest rate risk primarily through two metrics.
Net Interest Income Sensitivity (“NII Sensitivity”), which measures the net impact of hypothetical changes in interest rates on forecasted net finance revenue, for our interest rate sensitive assets, liabilities, and off-balance sheet instruments, assuming a static balance sheet over a twelve month period; and
Economic Value of EquitySensitivity (“EVE Sensitivity"), which measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.
The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position, concentrated at the short end of the yield curve, mostly driven by moves in LIBOR, whereby our assets will reprice faster than our liabilities. Our interest rate sensitive assets generally consist of interest-bearing cash, investment securities and commercial and consumer loans and leases. Nearly 45%loans. Approximately 50% of our loans and leases are indexed to either LIBOR 1 month, 3 month,1-month, LIBOR 3-month, or the PRIME rate.
Our funding sources consist mainly of non-maturity deposits and time deposits from the online, branch, brokered and commercial channels, as well as wholesale funding (unsecured and secured debt) and FHLB advances. TheOur funding mix utilized consists of time deposits and unsecured debt which are fixed-rate, secured debt which is a mix of fixed and floating rate, and other deposits whose rates vary based on the market environment and competition.
68
Table of total funding. Contents
CIT Bank, N.A. sources deposits primarily through a retail branch network in Southern California, and national direct-to-consumer (via the Internet), as well as commercial and brokered channels. At March 31,September 30, 2018, deposits totaled approximately $31 billion. The deposit rates we offer can be influenced by market conditions and competitive factors. Beta represents the correlation between changes in overall market interest rates andrelative to the rates paid by CIT Bank. Cumulative Depositdeposit betas on total deposits have remained low at approximately 10%is 21% since the Fed started raising rates at the end of 2015 and 20%approximately 45% over the last 12 months. We model a beta of approximately 40% - 50%expect the trailing twelve month betas on our non-maturitytotal deposits for a +100 bps rate increase over the next 12 months. Deposit betas are expected to continue to increase throughramp up to approximately 50% by the cycle for non-maturity deposits, which are currently 54% of our deposit base, and expected to grow over time.year end with continued gradual increases into 2019. Changes in interest rates, as well as actions by competitors, can affect our deposit pricing and potentially impact our ability to attract and retain deposits. In a rising rate environment, we may need to increase rates to renew maturing time deposits and attract new deposits. Rates on our savings account deposits may fluctuate due to pricing competition and may also move with short-term interest rates. In general, retail deposits represent a low-cost source of funds and are less sensitive to interest rate changes than floating rate non-deposit funding sources. We regularly test the effect of deposit rate changes on our margins and seek to achieve optimal alignment between assets and liabilities from an interest rate risk management perspective.
The table below summarizes the results of simulation modeling produced by our asset/liability management system. The simulations run require assumptions about rates, time horizons, balance sheet volumes, prepayment speeds, pricing and deposit behaviors, along with other inputs. The results presented below reflect the percentage changesimulation of dollar changes in the EVE over the life of the asset and the NII Sensitivity over the next twelve months assumingand in the EVE Sensitivity over the life of the interest rate sensitive assets, liabilities and off-balance sheet items. These simulations assume an immediate 100 basis point parallel increase or decrease and an immediate 200 basis point increase in interest rates from the market-based forward curve. The NII sensitivitySensitivity is presented based on an assumption that the total balance sheet composition and size remains static over the projection period.
NII Sensitivity and EVE Sensitivity (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| |||||||||||||||||||||||||||
| +200 bps |
|
| +100 bps |
|
| -100 bps |
|
| +200 bps |
|
| +100 bps |
|
| -100 bps |
|
| +200 bps |
|
| +100 bps |
|
| -100 bps |
| |||||||||
NII Sensitivity | $ | 114 |
|
| $ | 57 |
|
| $ | (64 | ) |
| $ | 138 |
|
| $ | 69 |
|
| $ | (77 | ) |
| $ | 114 |
|
| $ | 57 |
|
| $ | (56 | ) |
EVE Sensitivity | $ | (535 | ) |
| $ | (268 | ) |
| $ | 204 |
|
| $ | (406 | ) |
| $ | (202 | ) |
| $ | 140 |
|
| $ | (374 | ) |
| $ | (192 | ) |
| $ | 196 |
|
March 31, 2018 | December 31, 2017 | ||||||||||
+200 bps | +100 bps | –100 bps | +200 bps | +100 bps | –100 bps | ||||||
NII Sensitivity | 6.8% | 3.5% | (3.9)% | 6.1% | 3.0% | (3.0)% | |||||
EVE Sensitivity | (3.4)% | (1.7)% | 1.4% | (4.4)% | (2.3)% | 2.3% |
We have modified our presentation in the currentabove table from a percentage of sensitivity in previous periods in order to provide a more transparent view of the simulation’s impact from rate environmentchanges on interest sensitive assets, liabilities and off-balance sheet instruments. We have also refined the simulation to remove sensitivity related to rail operating leases as the scenario is less relevant. Werepricing of these assets do not exhibit a correlation to the movement in interest rates and instead are primarily driven by other factors that impact supply and demand of railcars. While rail assets comprise almost 20% of our average earning assets, this change had a minimal impact on the dollar sensitivity. See the net operating lease revenue discussion in the Net Finance Revenue section of MD&A for additional information on rail operating lease re-pricing. The prior period numbers have an assumed rate floor of 0% forbeen conformed to the decline scenarios.
As of MarchSeptember 30, 2018, the +100 bps NII sensitivity and EVE sensitivity changeSensitivity changes from December 31, 2017June 30, 2018 (see table above) is primarily driven byreflect the changes in balance sheet composition from the net deployment of cash into liability reduction actions and loan originations over the quarter.
Changes in EVE Sensitivity reflect a mix shift in the composition of our deposits as well as a net reduction in cash and borrowings over the period. The changes in the balance sheet mix resulted in a net increase in cash fromduration of equity, adding to the issuance of Senior Unsecured and Subordinated notes in March 2018 for us to redeem outstanding debt and return capital to shareholders. We expect this to normalize lower next quarter withEVE Sensitivity during the redeployment of that cash.
As detailed above, NII sensitivitySensitivity, is positive with respect to an increase in interest rates. This position is primarily driven by our floating rate loan portfolio, which reprices frequently, and interest-bearing cash. On a net basis, we generally have more floating/repricing interest sensitive assets than liabilities in the near term. As a result, the interest rate risk sensitivity of our current portfolio is more sensitive toimpacted by moves in short-term interest rates in the near term. Therefore, our net finance revenue associated with the interest incomerate sensitive assets, liabilities and off-balance sheet items may increase if short-term interest rates rise, or decrease if short-term interest rates decline. An increase in net interest income from a rise in short-termHowever, changes would also be impacted by factors beyond interest rates, may be partially offset by lower benefitssuch as changes in balance sheet composition, spread compression and deviations from modelled deposit betas. In addition, repricing of our non interest rate sensitive assets (in particular the declining PAA, lower level of interest recoveries and pressure on Rail margins. rail operating leases) will impact net finance revenue.
Market-implied forward rates over the future twelve months are used to determine a base interest rate scenario for the net interest income projection for the base case. This base projection is compared with those calculated under varying interest rate scenarios such as a 100 basis point parallel rate shift to arrive at NII Sensitivity.
EVE Sensitivity complements net interest income simulation and sensitivity analysis as it estimates risk exposures beyond a twelve month horizon. EVE Sensitivity modeling measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to a fluctuationchange in interest rates. EVE Sensitivity is calculated by subjecting the balance sheet to different rate shocks, measuring the net value of assets, liabilities and off-balance sheet instruments, and comparing those amounts with the EVE sensitivityin base case calculated using a market-based forward interest rate curve. The methodology with which the operating lease assets are assessed in the EVE Sensitivity results in the table above reflects the existing contractual rental cash flows and the expected residual value at the end of the existing contract term.
69
The simulation modeling for both NII Sensitivity and EVE Sensitivity assumes we take no action in response to the changes in interest rates.rates and includes only impacts from interest rate related influences. NII Sensitivity generally assumes cash flows from portfolio run-off are reinvested in similar products or cash to keep the balance sheet static.
A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. All interest sensitive assets, liabilities and liabilitiesoff-balance sheet instruments are valued using discounted cash flow analysis.analysis for EVE Sensitivity. Rates are shocked up and down via a set of scenarios that include both parallel and non-parallel interest rate movements. Scenarios are also run to capture our sensitivity to changes in the shape of the yield curve. Furthermore, we evaluate the sensitivity of these results to a number of key assumptions, such as credit quality, spreads and prepayments.
NII Sensitivity and EVE Sensitivity limits have been set and are monitored for certain of the key scenarios. We manage the exposure to changes in NII Sensitivity and EVE Sensitivity in accordance with our risk appetite and within Board approved limits.
We use results of our various interest rate risk analyses to formulate asset and liability management (“ALM”) strategies, in coordination with the Asset Liability Committee (“ALCO”), in order to achieve the desired risk profile, while managing our objectives for capital adequacy and liquidity risk exposures. Specifically, we may manage our interest rate risk position through certain pricing strategies for loans and deposits, our investment strategy, issuing term debt with floating or fixed interest rates, and using derivatives such as interest rate swaps, which modify the interest rate characteristics of certain assets or liabilities.
These measurements provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, and prepayment characteristics of our balance sheet.sheet, changes in PAA, or changes in the competition for business in the industries we serve. They also do not account for other business developments that could affect income,net finance revenue, or for management actions that could affect incomenet finance revenue or that could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, the range of such simulations does not represent our current view of the expected range of future interest rate movements.
CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events including unanticipated funding obligations, such as customer line draws, or disruptions to our access to capital markets or other funding sources. Primary sources of liquidity include cash, investment securities and credit facilities as discussed below.
Cash
Cash totaled $4.1$1.4 billion at March 31,September 30, 2018, updown from $1.7 billion at December 31, 2017.2017, reflecting capital returns during 2018. Cash at March 31,September 30, 2018 consisted of $3.4nearly $1.0 billion at CIT Bank $0.7and $0.4 billion related to the bank holding company and other operating subsidiaries. The increase in cash was driven by proceeds from the issuance of unsecured senior and subordinated debt during the quarter and the increase in deposits.
Investment Securities
Investment securities consist primarily of High Quality Liquid Asset (“HQLA”) fixed income debt securities
. Investment securitiesLiquidity Regulation
The Basel III Final Rule requires banks and BHCs to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario. Beginning January 1, 2017,Changes in regulatory reporting requirements resulted in CIT no longer being required to disclose its LCR. While CIT is no longer required to disclose certain liquidity measurements, the minimum requirement was 100%. At March 31, 2018, our modified LCR was above 100% at both the BankCompany will continue prudent liquidity management and on a consolidated basis.
Funding Sources
Funding sources consist of deposits and borrowings. See
See
Net Finance Revenue section for a tabular presentation of our average funding mix for the quarter ended70
CIT offers its deposits through various channels. The period end balances are as follows:
Deposits by Channel (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Total |
|
| Percent of Total |
|
| Total |
|
| Percent of Total |
| ||||
Online | $ | 14,502.7 |
|
|
| 47 | % |
| $ | 11,756.6 |
|
|
| 40 | % |
Branch |
| 11,545.4 |
|
|
| 37 | % |
|
| 11,665.2 |
|
|
| 39 | % |
Brokered / Other Channel |
| 2,952.8 |
|
|
| 10 | % |
|
| 3,618.3 |
|
|
| 12 | % |
Commercial |
| 1,824.1 |
|
|
| 6 | % |
|
| 2,529.2 |
|
|
| 9 | % |
Total | $ | 30,825.0 |
|
|
| 100 | % |
| $ | 29,569.3 |
|
|
| 100 | % |
Deposits by Channel (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Total | Percent of Total | Total | Percent of Total | ||||||||||
Online | $ | 13,227.6 | 44 | % | $ | 11,756.6 | 40 | % | |||||
Branch | 11,687.8 | 38 | % | 11,665.2 | 39 | % | |||||||
Brokered | 3,442.8 | 11 | % | 3,618.3 | 12 | % | |||||||
Commercial | 2,235.7 | 7 | % | 2,529.2 | 9 | % | |||||||
Total | $ | 30,593.9 | 100 | % | $ | 29,569.3 | 100 | % |
The following table details our period end deposit balances by type:
Deposits (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Total |
|
| Percent of Total |
|
| Total |
|
| Percent of Total |
| ||||
Checking and Savings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing checking | $ | 1,296.4 |
|
|
| 4 | % |
| $ | 1,352.0 |
|
|
| 5 | % |
Interest bearing checking |
| 1,767.7 |
|
|
| 6 | % |
|
| 2,653.3 |
|
|
| 9 | % |
Other money market / Sweeps |
| 4,794.9 |
|
|
| 15 | % |
|
| 5,075.5 |
|
|
| 17 | % |
Savings and Online money market accounts |
| 8,267.5 |
|
|
| 27 | % |
|
| 5,986.7 |
|
|
| 20 | % |
Time deposits |
| 14,506.8 |
|
|
| 47 | % |
|
| 14,343.8 |
|
|
| 49 | % |
Other |
| 191.7 |
|
|
| 1 | % |
|
| 158.0 |
|
|
| — | % |
Total | $ | 30,825.0 |
|
|
| 100 | % |
| $ | 29,569.3 |
|
|
| 100 | % |
Deposits (dollars in millions) | |||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Total | Percent of Total | Total | Percent of Total | ||||||||||
Checking and Savings: | |||||||||||||
Non-interest bearing checking | $ | 1,226.5 | 4 | % | $ | 1,352.0 | 5 | % | |||||
Interest bearing checking | 2,618.4 | 9 | % | 2,653.3 | 9 | % | |||||||
Money market / Sweeps | 6,268.5 | 20 | % | 5,075.5 | 17 | % | |||||||
Savings | 6,226.7 | 20 | % | 5,986.7 | 20 | % | |||||||
Time deposits | 14,089.3 | 46 | % | 14,343.8 | 49 | % | |||||||
Other | 164.5 | 1 | % | 158.0 | — | % | |||||||
Total | $ | 30,593.9 | 100 | % | $ | 29,569.3 | 100 | % |
CIT Bank, N.A. offers a full suite of deposit offerings to its commercial and consumer customers through a network of 7069 branches in Southern California and a national online platform. IncreasingDuring 2018, we have executed on our plan to grow the proportion ofonline channel and we have been growing our non-maturity deposits in conjunction with our strategy to optimize deposit funding and lowering costs relative to the index is a key area of focus for CIT.while working within our risk management discipline. Deposits increased, during the quarter, as growth in the online channel more than offset the decline in higher-cost deposits in the brokered channel and higher beta deposits in the commercial channel. See
Borrowings
Borrowings consist of senior unsecured notes, subordinated unsecured notes and secured borrowings (structured financings and FHLB advances), all of which totaled $10.4$8.7 billion in aggregate at March 31,September 30, 2018, updown from $9.0 billion at December 31, 2017, reflecting the issuance of unsecured senior and subordinated borrowings, as noted below.lower FHLB borrowings. The weighted average coupon rate of borrowings at March 31,September 30, 2018, was 3.71%3.97%, up from 3.30% at December 31, 2017, reflecting the newly issuedissuance of subordinated unsecured debt.
Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and terms of our existing indebtedness, including the Revolving Credit Facility, the Dutch TRS Facility and seniorsecured and unsecured borrowings, we may repay, repurchase, exchange or redeem outstanding senior unsecured borrowings, repay the Revolving Credit Facility, TRS Facilityindebtedness, or otherwise enter into transactions regarding our debt or capital structure. For example, we may periodically evaluate and may engage in liability management transactions, including repurchases of outstanding senior unsecured notes funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to mitigate refinancing risk by actively managing our debt maturity profile and interest cost.
See Note 6 — Borrowings and Note 14 – Subsequent Events.
Unsecured Borrowings
Revolving Credit Facility
There were no borrowings outstanding under the Revolving Credit Facility, which had a total commitment of $500 million at March 31, 2018, and the amount available to draw upon was approximately $448 million, with the remaining amount of approximately $52 million utilized for issuance of letters of credit.
71
At March 31,September 30, 2018, senior unsecured notes outstanding totaled $4.7$3.8 billion and the weighted average coupon rate was 4.78%4.97%, compared to $3.7 billion and 4.81% at December 31, 2017. As noted in the following sentences, we redeemed various notes coming due and issued new notes that resulted in extending our maturity profile. During the first quarter, CIT issued $500 million, 4.125% aggregate principal amount of 4.125% senior unsecured notes due 2021 and $500 million, 5.25% aggregate principal amount of 5.250% senior unsecured notes due 2025. In April 2018, $883 million of the proceeds were used to repay $500 million of the $1.0 billion of outstanding 3.875% senior unsecured notes due February 2019 and all of the outstanding $383 million outstanding of the 5.500% senior unsecured notes due February 2019. See
On October 19 and November 2, 2018, we announced our intent to redeem the outstanding 5.375% senior unsecured notes due May 2020, which totaled approximately $431 million at September 30, 2018, which we will redeem using net proceeds from the NACCO sale and the sale of rail assets to CIT Bank. The unsecured debt redemptions Note 15 — Subsequent Eventsare expected to result in debt extinguishment losses of approximately $15 million in the fourth quarter.Item 1. Consolidated Financial Statements.
Subordinated Unsecured Notes
During the first quarter, CIT issued $400 million of 10-year subordinated unsecured notes with a coupon of 6.125%.
The weighted average coupon of our unsecured senior and subordinated notes increased to 5.05% from 4.95% at June 30, 2018 and 4.89% at March 31, 2018, the first quarter after the issuance of the subordinated notes. During this period, we extended the weighted average maturity profile of the combined unsecured senior and subordinated notes to 4.9 years at September 30, 2018 from 4.1 years at March 31, 2018.
Secured Borrowings
We may pledge assets for secured financing transactions, which include borrowings from the FHLB and/or FRB, conduit securitizations, or for other purposes as required or permitted by law. Our secured financing transactions do not meet accounting requirements for sale treatment and are recorded as secured borrowings, with the assets remaining on-balance sheet pursuant to GAAP. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, loans, leases and/or underlying equipment. Certain related cash balances are restricted.
FHLB Advances
CIT Bank is a member of the FHLB of San Francisco and may borrow under a line of credit that is secured by pledged collateral. The Bank makes decisions regarding utilization of advances based upon a number of factors, including available collateral, liquidity needs, cost of funds and alternative sources of funding.
FHLB Balances (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Total borrowing capacity | $ | 5,501.7 |
|
| $ | 5,217.8 |
|
Less: |
|
|
|
|
|
|
|
Advances |
| (3,150.0 | ) |
|
| (3,695.5 | ) |
Letters of credit |
| (2.3 | ) |
|
| (87.8 | ) |
Available capacity | $ | 2,349.4 |
|
| $ | 1,434.5 |
|
Weighted average rate |
| 2.37 | % |
|
| 1.56 | % |
Pledged assets | $ | 6,602.5 |
|
| $ | 6,154.1 |
|
FHLB Balances (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Total borrowing capacity | $ | 5,334.2 | $ | 5,217.8 | |||
Less: | |||||||
Advances | (3,894.5 | ) | (3,695.5 | ) | |||
Letters of credit | (85.8 | ) | (87.8 | ) | |||
Available capacity | $ | 1,353.9 | $ | 1,434.5 | |||
Weighted average rate | 2.04 | % | 1.56 | % | |||
Pledged assets | $ | 6,338.6 | $ | 6,154.1 |
FHLB Advances and pledged assets are also discussed in
Note 6 — BorrowingsOther Secured and Structured Financings
Structured financings totaled $1.4$1.3 billion at March 31,September 30, 2018, and $1.5 billion at December 31, 2017. The weighted average coupon rate of structured financings was 4.02%4.31% at March 31,September 30, 2018, up from 3.75% at December 31, 2017, reflecting increases in benchmark rates and repayment of lower coupon debt tranches.
There were no structured financings at CIT Bank, N.A. at March 31,September 30, 2018, and $74 million at December 31, 2017, which were secured by pledged assets of $0.7 million and $146 million, respectively.million. Non-CIT Bank, N.A. structured financings were $1.4$1.3 billion and $1.4 billion at March 31,September 30, 2018 and December 31, 2017, respectively, and were secured by $4.1 billion of pledged assets at March 31,September 30, 2018, and $4.0 billion of pledged assets at December 31, 2017.
In October 2018, we redeemed all of the Railcar Securitization related to the Dutch TRS Facility of approximately $465 million, which resulted in approximately $775 million of rail assets becoming unencumbered. In addition, the buyer of NACCO assumed secured borrowings, which were $104 million at September 30, 2018 and
pledged assets of $179 million. The Optional Termination Fee and the reduction of the liability associated with the TRS Derivative are expected to result in net pretax charges for the Company of approximately $70 - $75 million in the fourth quarter of 2018. See Note 7 — Derivative Financial Instruments for discussion of the Dutch TRS Facility and Note 14 — Subsequent Events for discussions related to the termination of the Dutch TRS Facility and redemption of the Railcar Securitization.72
At September 30, 2018, we maintained additional liquidity sources in the form of:
A multi-year committed Revolving Credit Facility that has a total return swap.commitment of $500 million, of which approximately $458 million was available to be drawn; and
Committed securitization facilities and secured bank lines totaled $2.1 billion, of which $936 million was unused at September 30, 2018, provided that eligible assets are available that can be used for short-term, typically overnight, borrowings. The borrowing capacity is determined by the funded through these facilities.
FRB based on the collateral pledged.
There were no outstanding borrowings with the FRB Discount Window as of March 31,September 30, 2018, or December 31, 2017. See
Debt Ratings
Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company’s liquidity and financial condition.
CIT and CIT Bank, N.A. debt ratings, as rated by Standard & Poor’s Ratings Services (“S&P”), Fitch Ratings, Inc. (“Fitch”), Moody’s Investors Service (“Moody’s”) and DBRS Inc. (“DBRS”) are presented in the following table:
Ratings
S&P | Fitch | Moody’s | DBRS | ||||
Last Credit Update | 10/12/18 | 1/10/18 | 10/17/18 | 4/4/18 | |||
CIT Group Inc. | |||||||
Issuer Rating | BB+ | BB+ | N/A | BB (high) | |||
Long Term Senior Unsecured Debt | BB+ | BB+ | Ba1 | BB (high) | |||
Short Term Instruments | B | B | N/A | R-4 | |||
Revolving Credit Facility Rating | N/A | BB+ | Ba1 | BBB (low) | |||
Subordinated Debt | BB | BB | Ba1 | BB | |||
Non-Cumulative Perpetual Stock | B+ | B | Ba3 | B(high) | |||
Outlook | Stable | Stable | Positive | Positive | |||
CIT Bank, N.A. | |||||||
Issuer Rating | BBB- | BB+ | Ba1 | BBB (low) | |||
Deposit Rating (LT/ST) | N/A | BBB-/F3 | Baa1/P-2 | BBB (low) / R-2 (mid) | |||
Outlook | Stable | Stable | Positive | Positive |
N/A — Not Applicable
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes, including as a result of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Potential changes in rating methodology as well as in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above could impact our liquidity and financial condition.
A debt rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Contractual Commitments
Commitment Expiration for the Twelve Months Ended September 30 (dollars in millions)
| Total |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023+ |
| ||||||
Financing commitments | $ | 6,483.0 |
|
| $ | 2,421.3 |
|
| $ | 890.8 |
|
| $ | 1,236.9 |
|
| $ | 1,064.1 |
|
| $ | 869.9 |
|
Rail and other purchase commitments |
| 427.0 |
|
|
| 393.2 |
|
|
| 33.7 |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Letters of credit |
| 254.4 |
|
|
| 42.6 |
|
|
| 17.1 |
|
|
| 71.7 |
|
|
| 41.2 |
|
|
| 81.8 |
|
Deferred purchase agreements |
| 2,082.7 |
|
|
| 2,082.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Liabilities for unrecognized tax benefits (1) |
| 13.2 |
|
|
| 1.0 |
|
|
| 12.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual commitments | $ | 9,260.3 |
|
| $ | 4,940.8 |
|
| $ | 953.8 |
|
| $ | 1,308.6 |
|
| $ | 1,105.3 |
|
| $ | 951.8 |
|
(1) | The balance for 2020 reflects the remaining balance, which cannot be estimated further. |
Commitment Expiration for the Twelve Months Ended March 31 (dollars in millions) | |||||||||||||||||||||||
Total | 2019 | 2020 | 2021 | 2022 | 2022+ | ||||||||||||||||||
Financing commitments | $ | 6,707.8 | $ | 2,018.1 | $ | 961.3 | $ | 1,182.3 | $ | 1,165.9 | $ | 1,380.2 | |||||||||||
Rail and other purchase commitments | 280.4 | 252.9 | 27.5 | — | — | — | |||||||||||||||||
Letters of credit | 258.9 | 46.1 | 47.9 | 33.8 | 73.4 | 57.7 | |||||||||||||||||
Deferred purchase agreements | 1,870.6 | 1,870.6 | — | — | — | — | |||||||||||||||||
Guarantees, acceptances and other recourse obligations | 2.1 | 2.1 | — | — | — | — | |||||||||||||||||
Liabilities for unrecognized tax benefits (1) | 13.2 | 1.0 | 12.2 | — | — | — | |||||||||||||||||
Total contractual commitments | $ | 9,133.0 | $ | 4,190.8 | $ | 1,048.9 | $ | 1,216.1 | $ | 1,239.3 | $ | 1,437.9 |
73
At March 31,September 30, 2018, substantially all our undrawn financing commitments were senior facilities, with approximately 84%83% secured by commercial equipment or other assets, and the remainder comprised of cash flow or enterprise value facilities. Most of our undrawn and available financing commitments are in the Commercial Finance divisionand Real Estate Finance divisions of Commercial Banking. The top ten undrawn commitments totaled $581$635 million at March 31,September 30, 2018. The table above includes approximately $2.2 billion of undrawn financing commitments at March 31, 2018 for instances where the customer is not in compliance with contractual obligations or does not have the adequate collateral to borrow against the unused facility, and therefore CIT does not have a contractual obligation to lend under such financing commitments.
See Note 1211 — Commitments in Item 1. Consolidated Financial Statements for further detail.
Capital Management
With the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, CIT manages its capital position to ensure that it is sufficient to: (i) support the risks of its businesses, (ii) maintain a “well-capitalized” status under regulatory requirements, and (iii) provide flexibility to take advantage of future investment opportunities. Capital in excess of these requirements is available to distribute to shareholders,no longer subject to a “non-objection” to our capital plan from the FRB.
While CIT was subject to the FRB on April 5, 2017CCAR, CIT submitted and on June 28, 2017, received a non-objection to the plan.its 2017 Capital Plan (“Original Plan”). The plan included a quarterly cash dividend of up to $0.16 per share and common stock repurchases of up to $225 million for the four quarters ending June 30, 2018, including up to $25 million of common share repurchases to offset dilution from issuances pursuant to CIT's employee stock plans. Entering 2018, CIT had up to $100 million remaining under this plan, inclusive of the $25 million related to employee stock plans.plan. On February 1, 2018, the Company received a “non-objection” from the FRBNY to an amendment to the Original Plan (the "Amended Capital Plan"). The Amended Capital Plan includesincluded (i) the issuance of up to $400 million in Tier 2 qualifying subordinated debt (which was completed in March 2018); and (ii) an increase in common equity distribution of up to $800 million (as a result of issuing the subordinated debt) for the remainder of the four-quarter period that began July 1, 2017 and endsended on June 30, 2018.
On June 28, 2018, CIT announced that the Board of Directors (the “Board”) approved a common equity capital return of up to $750 million (exclusive of the quarterly cash dividend). The Company will determine the timing and amount of any share repurchases, special dividends, or combination of the two that may be authorized based on market conditions and other considerations. Any share repurchases may be effected through tender offer, in the open market, through derivative, accelerated repurchase and other negotiated transactions, and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934. See Return of Capital below for shares repurchased during the first quarter and Note 15 - Subsequent Events in Item 1. Consolidated Financial Statements for description of an equity tender announced in April 2018.
CIT’s capital management is discussed further in its Annual Report on Form 10-K for the year ended December 31, 2017 in the “Regulation” section of
Item 1. Business Overview with respect to capital and regulatory matters, including “Capital Requirements” and “Stress Test and Capital Plan Requirements”.Return of Capital
During the third quarter of 2018, CIT repurchased a total of $194.95.5 million in common shares via open market repurchases (“OMRs”) for a total of 3,665,866$290.9 million, at an average price of $52.91. During the nine months ended September 30, 2018, CIT repurchased 21.7 million common shares for a total of $1,165.8 million in common shares, via OMRs and a tender offer, at an average share price of $53.16. As of March 31, 2018, CIT had up to $705 million of repurchases remaining, including $25 million related to employee stock ownership plans, which can be executed by the end of the first half of 2018 under current authorizations.$53.83. The Company has purchased in the open market an additional $71$242.0 million, or 1.45.0 million shares, at an average repurchasepurchase price of $51.86$48.58 from October 1 through April 24. On April 26, 2018,October 31, 2018. There is $217.1 million remaining in the Company initiated a common stock tender offer for upcurrent share repurchase authorization, most of which is expected to $500 million of stock. See
We declared and paid the following common and preferred stock dividenddividends in the first quarter of 2018:
2018 Common Stock Dividends
Declaration Date | Payment Date |
| Per Share Dividend |
| |
January 22, 2018 | February 23, 2018 |
| $ | 0.16 |
|
April 16, 2018 | May 25, 2018 |
| $ | 0.16 |
|
July 17, 2018 | August 24, 2018 |
| $ | 0.25 |
|
October 15, 2018 | November 27, 2018 |
| $ | 0.25 |
|
On April 16,October 15, 2018, the Board of Directors of the Company (the “CIT Board”) declared a quarterly cash dividend in the amount of $0.16$0.25 per common share,share. The common stock dividend is payable on May 25,November 27, 2018 to common shareholders of record on May 11,as of November 13, 2018.
On April 16,October 15, 2018, the CIT Board declared a semi-annual dividend in the amount of $29.00 per share on the Series A preferred stock, which is payable on June 15,December 17, 2018 to preferred stockholders of record atas of November 30, 2018. Previously, the close of businesscompany paid a $29.00 per share dividend on May 31,June 15, 2018.
Capital Composition and Ratios
The Company is subject to various regulatory capital requirements. We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. The regulatory capital guidelines applicable to the Company were based on the Basel III Final Rule through December 31, 2017.September 30, 2018. At March 31,September 30, 2018 and December 31, 2017, the capital ratios of the Company and the Bank exceeded all capital adequacy requirements underrequirements. The December balances in the Basel III Final Rule on a fully phased-in basis.
74
In November 2017, the Federal Reserve Board, together with the OCC and FDIC adopted a final rule effective January 1, 2018 to extend the regulatory capital treatment under 2017 transition provisions for certain items, applicable to banking organizations that are not subject to advanced approaches capital rules (“Transition Final Rule”). These items include regulatory capital deductions, risk weights, and certain minority interest limitations. There were no items that exceeded the deduction threshold at March 31,September 30, 2018, for CIT and CIT Bank, therefore balances and ratios were the same for the transition basis and fully-phased-in basis.
Capital Components, Risk-Weighted Assets, and December 31, 2017, the capital ratios of the Company and the Bank exceeded all capital adequacy requirements. The December balancesCapital Ratios (dollars in the following table present amounts in effect as of that period.millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||
| Fully Phased-in Basis(5) |
|
| Transition Basis |
|
| Fully Phased-in Basis |
| |||
Common Equity Tier 1 (CET1) Capital |
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders’ equity(1) | $ | 5,995.3 |
|
| $ | 6,995.0 |
|
| $ | 6,995.0 |
|
Effect of certain items in AOCI excluded from CET1 Capital |
| 195.4 |
|
|
| 77.4 |
|
|
| 77.4 |
|
Adjusted total equity |
| 6,190.7 |
|
|
| 7,072.4 |
|
|
| 7,072.4 |
|
Goodwill, net of associated deferred tax liabilities (DTLs)(2) |
| (431.7 | ) |
|
| (436.0 | ) |
|
| (436.0 | ) |
Deferred tax assets (DTAs) arising from net operating loss and tax credit carryforwards |
| (89.8 | ) |
|
| (83.3 | ) |
|
| (104.2 | ) |
Intangible assets, net of associated DTLs(2) |
| (78.6 | ) |
|
| (73.3 | ) |
|
| (91.5 | ) |
Total CET1 Capital |
| 5,590.6 |
|
|
| 6,479.8 |
|
|
| 6,440.7 |
|
Additional Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
| 325.0 |
|
|
| 325.0 |
|
|
| 325.0 |
|
Other Additional Tier 1 Capital deductions(3) |
| (10.9 | ) |
|
| (29.4 | ) |
|
| (8.6 | ) |
Total Additional Tier 1 Capital |
| 314.1 |
|
|
| 295.6 |
|
|
| 316.4 |
|
Total Tier 1 Capital |
| 5,904.7 |
|
|
| 6,775.4 |
|
|
| 6,757.1 |
|
Tier 2 Capital |
|
|
|
|
|
|
|
|
|
|
|
Qualifying Tier 2 Capital Instruments |
| 395.3 |
|
|
| — |
|
|
| — |
|
Qualifying allowance for credit losses and other reserves(4) |
| 524.2 |
|
|
| 475.6 |
|
|
| 475.6 |
|
Total Tier 2 Capital |
| 919.5 |
|
|
| 475.6 |
|
|
| 475.6 |
|
Total Capital | $ | 6,824.2 |
|
| $ | 7,251.0 |
|
| $ | 7,232.7 |
|
Risk-Weighted Assets | $ | 45,193.3 |
|
| $ | 44,537.7 |
|
| $ | 44,687.1 |
|
CIT Ratios |
|
|
|
|
|
|
|
|
|
|
|
CET1 Capital Ratio |
| 12.4 | % |
|
| 14.5 | % |
|
| 14.4 | % |
Tier 1 Capital Ratio |
| 13.1 | % |
|
| 15.2 | % |
|
| 15.1 | % |
Total Capital Ratio |
| 15.1 | % |
|
| 16.3 | % |
|
| 16.2 | % |
Tier 1 Leverage Ratio |
| 12.0 | % |
|
| 13.8 | % |
|
| 13.8 | % |
CIT Bank, N.A. Capital Components and Ratios |
|
|
|
|
|
|
|
|
|
|
|
CET1 Capital | $ | 4,759.4 |
|
| $ | 4,751.6 |
|
| $ | 4,734.2 |
|
Tier 1 Capital |
| 4,759.4 |
|
|
| 4,751.6 |
|
|
| 4,734.2 |
|
Total Capital |
| 5,193.7 |
|
|
| 5,183.3 |
|
|
| 5,165.8 |
|
Risk-Weighted Assets |
| 34,694.1 |
|
|
| 34,527.2 |
|
|
| 34,517.2 |
|
CET1 Capital Ratio |
| 13.7 | % |
|
| 13.8 | % |
|
| 13.7 | % |
Tier 1 Capital Ratio |
| 13.7 | % |
|
| 13.8 | % |
|
| 13.7 | % |
Total Capital Ratio |
| 15.0 | % |
|
| 15.0 | % |
|
| 15.0 | % |
Tier 1 Leverage Ratio |
| 11.6 | % |
|
| 11.8 | % |
|
| 11.8 | % |
Capital Components, Risk-Weighted Assets, and Capital Ratios (dollars in millions, except ratios) | ||||||||||||
March 31, 2018 | December 31, 2017 | |||||||||||
Fully Phased-in Basis(5) | Transition Basis | Fully Phased-in Basis | ||||||||||
Common Equity Tier 1 (CET1) Capital | ||||||||||||
Total common stockholders’ equity(1) | $ | 6,801.8 | $ | 6,995.0 | $ | 6,995.0 | ||||||
Effect of certain items in AOCI excluded from CET1 Capital | 142.8 | 77.4 | 77.4 | |||||||||
Adjusted total equity | 6,944.6 | 7,072.4 | 7,072.4 | |||||||||
Goodwill, net of associated deferred tax liabilities (DTLs)(2) | (436.9 | ) | (436.0 | ) | (436.0 | ) | ||||||
Deferred tax assets (DTAs) arising from net operating loss and tax credit carryforwards | (98.9 | ) | (83.3 | ) | (104.2 | ) | ||||||
Intangible assets, net of associated DTLs(2) | (87.3 | ) | (73.3 | ) | (91.5 | ) | ||||||
Total CET1 Capital | 6,321.5 | 6,479.8 | 6,440.7 | |||||||||
Additional Tier 1 Capital | ||||||||||||
Preferred Stock | 325.0 | 325.0 | 325.0 | |||||||||
Other Additional Tier 1 Capital deductions(3) | (8.8 | ) | (29.4 | ) | (8.6 | ) | ||||||
Total Additional Tier 1 Capital | 316.2 | 295.6 | 316.4 | |||||||||
Total Tier 1 Capital | 6,637.7 | 6,775.4 | 6,757.1 | |||||||||
Tier 2 Capital | ||||||||||||
Qualifying Tier 2 Capital Instruments | 395.9 | — | — | |||||||||
Qualifying allowance for credit losses and other reserves(4) | 494.6 | 475.6 | 475.6 | |||||||||
Total Tier 2 Capital | 890.5 | 475.6 | 475.6 | |||||||||
Total Capital | $ | 7,528.2 | $ | 7,251.0 | $ | 7,232.7 | ||||||
Risk-Weighted Assets | $ | 44,777.8 | $ | 44,537.7 | $ | 44,687.1 | ||||||
CIT Ratios | ||||||||||||
CET1 Capital Ratio | 14.1 | % | 14.5 | % | 14.4 | % | ||||||
Tier 1 Capital Ratio | 14.8 | % | 15.2 | % | 15.1 | % | ||||||
Total Capital Ratio | 16.8 | % | 16.3 | % | 16.2 | % | ||||||
Tier 1 Leverage Ratio | 13.5 | % | 13.8 | % | 13.8 | % | ||||||
CIT Bank, N.A. Ratios | ||||||||||||
CET1 Capital Ratio | 13.6 | % | 13.8 | % | 13.7 | % | ||||||
Tier 1 Capital Ratio | 13.6 | % | 13.8 | % | 13.7 | % | ||||||
Total Capital Ratio | 14.9 | % | 15.0 | % | 15.0 | % | ||||||
Tier 1 Leverage Ratio | 11.6 | % | 11.8 | % | 11.8 | % |
(1) | See Condensed Consolidated Balance Sheets for the components of Total common stockholders’ equity. |
(2) | Goodwill and intangible assets deductions also reflect the portion included within |
(3) | Represents covered funds deductions required by the Volcker Rule. The balance as of December 31, 2017 also includes 20% of the deduction on DTAs arising from net operating loss and tax credit carryforwards applied to Additional Tier 1 Capital under transition basis. |
(4) | “Other reserves” represents additional credit loss reserves for unfunded lending commitments, letters of credit, and deferred purchase agreements, all of which are recorded in Other Liabilities. |
(5) | At |
The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Balance sheet assets | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
Risk weighting adjustments to balance sheet assets |
| (9,800.6 | ) |
|
| (10,230.4 | ) |
Off-Balance sheet items |
| 5,731.5 |
| �� |
| 5,489.4 |
|
Risk-Weighted Assets | $ | 45,193.3 |
|
| $ | 44,537.7 |
|
Risk-Weighted Assets (dollars in millions) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Balance sheet assets | $ | 51,542.5 | $ | 49,278.7 | |||
Risk weighting adjustments to balance sheet assets | (12,372.3 | ) | (10,230.4 | ) | |||
Off-Balance sheet items | 5,607.6 | 5,489.4 | |||||
Risk-Weighted Assets | $ | 44,777.8 | $ | 44,537.7 |
The 2018 off-balance sheet items primarily reflect $2.9$2.7 billion of unused lines of credit (largely related to the Commercial Finance and Real Estate Finance divisions), $1.9$2.1 billion of deferred purchase agreements (related to the Business Capital division), and $0.8$0.9 billion of other items. The risk-weighted assets for off-balance sheet items as of March 31,September 30, 2018 increased slightly from
75
December 31, 2017 mainly due to the unused lines of credit.increases in rail and other purchase commitments. See Note 1211 — Commitments in Item 1. Condensed Consolidated Financial Statements for further detail on commitments.
Tangible Book Value and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Riskper Share Amounts (dollars in millions, except per share amounts)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Total common stockholders’ equity | $ | 5,995.3 |
|
| $ | 6,995.0 |
|
Less: Goodwill |
| (369.9 | ) |
|
| (369.9 | ) |
Intangible assets |
| (95.0 | ) |
|
| (113.0 | ) |
Tangible book value(1) | $ | 5,530.4 |
|
| $ | 6,512.1 |
|
Book value per share | $ | 54.22 |
|
| $ | 53.25 |
|
Tangible book value per share(1) |
| 50.02 |
|
|
| 49.58 |
|
Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Total common stockholders’ equity | $ | 6,801.8 | $ | 6,995.0 | |||
Less: Goodwill | (369.9 | ) | (369.9 | ) | |||
Intangible assets | (107.0 | ) | (113.0 | ) | |||
Tangible book value(1) | $ | 6,324.9 | $ | 6,512.1 | |||
Book value per share | $ | 52.97 | $ | 53.25 | |||
Tangible book value per share(1) | $ | 49.25 | $ | 49.58 |
(1) | Tangible book value and tangible book value per share are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of Non-GAAP to GAAP financial information |
Book value and tangible book value (“TBV”) decreased from December 31, 2017, primarily reflecting the capital actions completed through March 31,September 30, 2018. Book value per share and TBV per share decreased, asincreased from December 31, 2017 primarily due to the 3.7year to date repurchase of 21.7 million common shares repurchased during the quarter, which were at amounts in excess of book value, and cumulative unrealized net losses on available for sale securities, were only partially offset by net income for the quarter and the reduced share count.
The following presentstables present condensed financial information for CIT Bank, N.A. Trends and significant items are discussed in the previous sections of the MD&A.
Condensed Balance Sheets
(dollars in millions)September 30, 2018 |
|
| December 31, 2017 |
| |||
ASSETS: |
|
|
|
|
|
|
|
Cash and deposits with banks | $ | 944.5 |
|
| $ | 961.8 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| — |
|
Investment securities |
| 6,327.2 |
|
|
| 6,455.9 |
|
Assets held for sale |
| 244.5 |
|
|
| 1,170.5 |
|
Loans |
| 27,429.5 |
|
|
| 26,427.9 |
|
Allowance for loan losses |
| (444.0 | ) |
|
| (403.5 | ) |
Operating lease equipment, net |
| 3,897.7 |
|
|
| 3,765.5 |
|
Bank owned life insurance |
| 808.2 |
|
|
| 788.6 |
|
Goodwill |
| 323.1 |
|
|
| 323.1 |
|
Other assets |
| 884.4 |
|
|
| 939.7 |
|
Assets of discontinued operation |
| 216.2 |
|
|
| 317.1 |
|
Total Assets | $ | 40,831.3 |
|
| $ | 40,746.6 |
|
LIABILITIES AND EQUITY: |
|
|
|
|
|
|
|
Deposits, including $565.8 at September 30, 2018 and $475.8 at December 31, 2017 deposits of affiliates | $ | 31,392.0 |
|
| $ | 30,048.8 |
|
FHLB advances |
| 3,150.0 |
|
|
| 3,695.5 |
|
Borrowings |
| — |
|
|
| 73.5 |
|
Other liabilities, including $100.0 at September 30, 2018 and $570.5 at December 31, 2017 payables to affiliates |
| 973.1 |
|
|
| 1,306.8 |
|
Liabilities of discontinued operation |
| 307.2 |
|
|
| 500.5 |
|
Total Liabilities |
| 35,822.3 |
|
|
| 35,625.1 |
|
Total Equity |
| 5,009.0 |
|
|
| 5,121.5 |
|
Total Liabilities and Equity | $ | 40,831.3 |
|
| $ | 40,746.6 |
|
March 31, 2018 | December 31, 2017 | ||||||
ASSETS: | |||||||
Cash and deposits with banks | $ | 3,395.4 | $ | 961.8 | |||
Securities purchased under agreement to resell | 150.0 | — | |||||
Investment securities | 5,897.4 | 6,455.9 | |||||
Assets held for sale | 1,138.3 | 1,170.5 | |||||
Loans | 26,636.2 | 26,427.9 | |||||
Allowance for loan losses | (418.9 | ) | (403.5 | ) | |||
Operating lease equipment, net | 3,803.3 | 3,765.5 | |||||
Bank owned life insurance | 795.1 | 788.6 | |||||
Goodwill | 323.1 | 323.1 | |||||
Other assets | 912.4 | 939.7 | |||||
Assets of discontinued operation | 298.7 | 317.1 | |||||
Total Assets | $ | 42,931.0 | $ | 40,746.6 | |||
LIABILITIES AND EQUITY: | |||||||
Deposits, including $1,575.9 and $475.8 deposits of affiliates at March 31, 2018 and December 31, 2017, respectively | $ | 32,171.1 | $ | 30,048.8 | |||
FHLB advances | 3,894.5 | 3,695.5 | |||||
Borrowings | — | 73.5 | |||||
Other liabilities, including $695.8 and $570.5 payables to affiliates at March 31, 2018 and December 31, 2017, respectively | 1,345.3 | 1,306.8 | |||||
Liabilities of discontinued operation | 476.5 | 500.5 | |||||
Total Liabilities | 37,887.4 | 35,625.1 | |||||
Total Equity | 5,043.6 | 5,121.5 | |||||
Total Liabilities and Equity | $ | 42,931.0 | $ | 40,746.6 |
Capital Ratios
| September 30, 2018 |
|
| December 31, 2017 |
| ||
CET1 Capital Ratio |
| 13.7 | % |
|
| 13.7 | % |
Tier 1 Capital Ratio |
| 13.7 | % |
|
| 13.7 | % |
Total Capital Ratio |
| 15.0 | % |
|
| 15.0 | % |
Tier 1 Leverage Ratio |
| 11.6 | % |
|
| 11.8 | % |
* | The capital ratios presented above are reflective of the fully-phased in Basel III approach. |
March 31, 2018 | December 31, 2017 | ||||
Common Equity Tier 1 Capital | 13.6 | % | 13.7 | % | |
Tier 1 Capital Ratio | 13.6 | % | 13.7 | % | |
Total Capital Ratio | 14.9 | % | 15.0 | % | |
Tier 1 Leverage ratio | 11.6 | % | 11.8 | % |
76
Loans and Leases by Segment (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial Banking |
|
|
|
|
|
|
|
Commercial Finance | $ | 10,347.1 |
|
| $ | 10,203.5 |
|
Real Estate Finance |
| 5,547.6 |
|
|
| 5,590.2 |
|
Business Capital |
| 5,845.8 |
|
|
| 5,429.9 |
|
Rail |
| 3,419.2 |
|
|
| 3,320.1 |
|
Total |
| 25,159.7 |
|
|
| 24,543.7 |
|
Consumer Banking |
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 2,914.3 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
| 3,497.7 |
|
|
| 2,628.1 |
|
Total |
| 6,412.0 |
|
|
| 6,820.2 |
|
Total loans and leases, including assets held for sale | $ | 31,571.7 |
|
| $ | 31,363.9 |
|
March 31, 2018 | December 31, 2017 | ||||||
Commercial Banking | |||||||
Commercial Finance | $ | 10,161.0 | $ | 10,203.5 | |||
Real Estate Finance | 5,622.5 | 5,590.2 | |||||
Business Capital | 5,495.1 | 5,429.9 | |||||
Rail | 3,327.5 | 3,320.1 | |||||
Total | 24,606.1 | 24,543.7 | |||||
Consumer Banking | |||||||
Legacy Consumer Mortgages | 4,063.5 | 4,192.1 | |||||
Other Consumer Banking | 2,908.2 | 2,628.1 | |||||
Total | 6,971.7 | 6,820.2 | |||||
Total loans and leases, including assets held for sale | $ | 31,577.8 | $ | 31,363.9 |
Condensed Statements of Operations
(dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 448.5 |
|
| $ | 449.3 |
|
| $ | 427.4 |
|
| $ | 1,325.8 |
|
| $ | 1,309.8 |
|
Interest expense |
| 143.8 |
|
|
| 139.1 |
|
|
| 107.4 |
|
|
| 403.0 |
|
|
| 327.9 |
|
Net interest revenue |
| 304.7 |
|
|
| 310.2 |
|
|
| 320.0 |
|
|
| 922.8 |
|
|
| 981.9 |
|
Provision for credit losses |
| 32.4 |
|
|
| 35.7 |
|
|
| 30.6 |
|
|
| 135.5 |
|
|
| 68.0 |
|
Net interest revenue, after credit provision |
| 272.3 |
|
|
| 274.5 |
|
|
| 289.4 |
|
|
| 787.3 |
|
|
| 913.9 |
|
Rental income on operating leases |
| 119.8 |
|
|
| 116.9 |
|
|
| 112.4 |
|
|
| 350.7 |
|
|
| 331.5 |
|
Other non-interest income |
| 41.9 |
|
|
| 104.2 |
|
|
| 37.9 |
|
|
| 217.2 |
|
|
| 189.8 |
|
Total net revenue, net of interest expense and credit provision |
| 434.0 |
|
|
| 495.6 |
|
|
| 439.7 |
|
|
| 1,355.2 |
|
|
| 1,435.2 |
|
Operating expenses |
| 222.0 |
|
|
| 238.4 |
|
|
| 215.5 |
|
|
| 699.6 |
|
|
| 729.4 |
|
Depreciation on operating lease equipment |
| 56.9 |
|
|
| 56.4 |
|
|
| 51.3 |
|
|
| 169.2 |
|
|
| 146.5 |
|
Maintenance and other operating lease expenses |
| 13.7 |
|
|
| 11.7 |
|
|
| 7.1 |
|
|
| 29.4 |
|
|
| 21.0 |
|
Loss on debt extinguishment and deposit redemption |
| 0.2 |
|
|
| — |
|
|
| 0.7 |
|
|
| 0.2 |
|
|
| 1.2 |
|
Income before provision for income taxes |
| 141.2 |
|
|
| 189.1 |
|
|
| 165.1 |
|
|
| 456.8 |
|
|
| 537.1 |
|
Provision for income taxes |
| 38.9 |
|
|
| 51.3 |
|
|
| 55.8 |
|
|
| 123.7 |
|
|
| 170.0 |
|
Income from continuing operations |
| 102.3 |
|
|
| 137.8 |
|
|
| 109.3 |
|
|
| 333.1 |
|
|
| 367.1 |
|
Income (loss) on discontinued operations |
| 0.4 |
|
|
| (21.1 | ) |
|
| (4.4 | ) |
|
| (27.7 | ) |
|
| (3.2 | ) |
Net income | $ | 102.7 |
|
| $ | 116.7 |
|
| $ | 104.9 |
|
| $ | 305.4 |
|
| $ | 363.9 |
|
New business volume — funded | $ | 3,113.9 |
|
| $ | 2,825.4 |
|
| $ | 2,216.5 |
|
| $ | 8,564.7 |
|
| $ | 6,132.6 |
|
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Interest income | $ | 428.0 | $ | 421.1 | $ | 429.0 | |||||
Interest expense | 120.1 | 110.2 | 105.1 | ||||||||
Net interest revenue | 307.9 | 310.9 | 323.9 | ||||||||
Provision for credit losses | 67.4 | 33.6 | 28.7 | ||||||||
Net interest revenue, after credit provision | 240.5 | 277.3 | 295.2 | ||||||||
Rental income on operating leases | 114.0 | 112.0 | 108.3 | ||||||||
Other non-interest income | 71.1 | 118.5 | 77.1 | ||||||||
Total net revenue, net of interest expense and credit provision | 425.6 | 507.8 | 480.6 | ||||||||
Goodwill Impairment | — | 167.8 | — | ||||||||
Operating expenses | 239.2 | 269.3 | 260.7 | ||||||||
Depreciation on operating lease equipment | 55.9 | 54.6 | 46.4 | ||||||||
Maintenance and other operating lease expenses | 4.0 | 8.0 | 8.1 | ||||||||
Income before provision for income taxes | 126.5 | 8.1 | 165.4 | ||||||||
Provision for income taxes | 33.5 | 64.1 | 60.9 | ||||||||
Income (loss) from continuing operations | 93.0 | (56.0 | ) | 104.5 | |||||||
Loss on discontinued operations | (7.0 | ) | (4.5 | ) | (9.2 | ) | |||||
Net income (loss) | $ | 86.0 | $ | (60.5 | ) | $ | 95.3 | ||||
New business volume — funded | $ | 2,625.4 | $ | 3,281.4 | $ | 1,747.3 |
Net Finance Revenue
(dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 448.5 |
|
| $ | 449.3 |
|
| $ | 427.4 |
|
| $ | 1,325.8 |
|
| $ | 1,309.8 |
|
Rental income on operating leases |
| 119.8 |
|
|
| 116.9 |
|
|
| 112.4 |
|
|
| 350.7 |
|
|
| 331.5 |
|
Finance revenue |
| 568.3 |
|
|
| 566.2 |
|
|
| 539.8 |
|
|
| 1,676.5 |
|
|
| 1,641.3 |
|
Interest expense |
| 143.8 |
|
|
| 139.1 |
|
|
| 107.4 |
|
|
| 403.0 |
|
|
| 327.9 |
|
Depreciation on operating lease equipment |
| 56.9 |
|
|
| 56.4 |
|
|
| 51.3 |
|
|
| 169.2 |
|
|
| 146.5 |
|
Maintenance and other operating lease expenses |
| 13.7 |
|
|
| 11.7 |
|
|
| 7.1 |
|
|
| 29.4 |
|
|
| 21.0 |
|
NFR | $ | 353.9 |
|
| $ | 359.0 |
|
| $ | 374.0 |
|
| $ | 1,074.9 |
|
| $ | 1,145.9 |
|
AEA | $ | 39,454.0 |
|
| $ | 40,353.3 |
|
| $ | 39,026.7 |
|
| $ | 39,687.4 |
|
| $ | 41,286.0 |
|
Net Finance Margin
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
As a % of AEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| 4.55 | % |
|
| 4.45 | % |
|
| 4.38 | % |
|
| 4.45 | % |
|
| 4.23 | % |
Rental income on operating leases |
| 1.21 | % |
|
| 1.16 | % |
|
| 1.15 | % |
|
| 1.18 | % |
|
| 1.07 | % |
Finance revenue |
| 5.76 | % |
|
| 5.61 | % |
|
| 5.53 | % |
|
| 5.63 | % |
|
| 5.30 | % |
Interest expense |
| 1.46 | % |
|
| 1.38 | % |
|
| 1.10 | % |
|
| 1.35 | % |
|
| 1.06 | % |
Depreciation on operating lease equipment |
| 0.57 | % |
|
| 0.55 | % |
|
| 0.53 | % |
|
| 0.57 | % |
|
| 0.47 | % |
Maintenance and other operating lease expenses |
| 0.14 | % |
|
| 0.12 | % |
|
| 0.07 | % |
|
| 0.10 | % |
|
| 0.07 | % |
NFM |
| 3.59 | % |
|
| 3.56 | % |
|
| 3.83 | % |
|
| 3.61 | % |
|
| 3.70 | % |
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Interest income | $ | 428.0 | $ | 421.1 | $ | 429.0 | |||||
Rental income on operating leases | 114.0 | 112.0 | 108.3 | ||||||||
Finance revenue | 542.0 | 533.1 | 537.3 | ||||||||
Interest expense | 120.1 | 110.2 | 105.1 | ||||||||
Depreciation on operating lease equipment | 55.9 | 54.6 | 46.4 | ||||||||
Maintenance and other operating lease expenses | 4.0 | 8.0 | 8.1 | ||||||||
NFR | $ | 362.0 | $ | 360.3 | $ | 377.7 | |||||
AEA | $ | 39,259.0 | $ | 38,466.4 | $ | 40,510.9 |
77
Quarters Ended | ||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||
As a % of AEA: | ||||||||
Interest income | 4.36 | % | 4.38 | % | 4.24 | % | ||
Rental income on operating leases | 1.16 | % | 1.16 | % | 1.07 | % | ||
Finance revenue | 5.52 | % | 5.54 | % | 5.31 | % | ||
Interest expense | 1.22 | % | 1.15 | % | 1.04 | % | ||
Depreciation on operating lease equipment | 0.57 | % | 0.57 | % | 0.46 | % | ||
Maintenance and other operating lease expenses | 0.04 | % | 0.08 | % | 0.08 | % | ||
NFM | 3.69 | % | 3.74 | % | 3.73 | % |
The preparation of financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect reported amounts of assets and liabilities, reported amounts of income and expense and the disclosure of contingent assets and liabilities. The following estimates, which are based on relevant information available at the end of each period, include inherent risks and uncertainties related to judgments and assumptions made. We consider the estimates to be critical in applying our accounting policies, due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact on the financial statements.
Management believes that the judgments and estimates utilized infor the followingmore critical accounting estimates, such as the allowance for loan losses, loan impairments, lease residual values, realizability of deferred tax assets and goodwill, are reasonable.
We do not believe that different assumptions are more likely than those utilized, although actual events may differ from such assumptions. Consequently, our estimates could prove inaccurate, and we may be exposed to charges to earnings that could be material.
The determination of goodwill impairment requires significant judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments. There is risk that if the Company does not meet forecasted financial results, such as asset volume and returns and deposit growth and rate projections, there could be incremental goodwill impairment. In addition to financial results, other inputs to the valuation, such as the discount rate and market assumptions, including stock prices of comparable companies, could negatively affect the estimated fair value of the reporting units in the future. Refer to Note 26 - Goodwill and Intangible Assets in Item 8. Financial Statements and Supplementary Data in our Annual Report on2017 Form 10-K for the year ended December 31, 2017 for a detailed description of the key assumptions used to identify and quantify goodwill impairment, if applicable.
There have been no significant changes to the methodologies and processes used in developing estimates relating to these items from those described in our Annual Report on2017 Form 10-K for the year ended December 31, 2017.
78
Select Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Select Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue | $ | 259.7 |
|
| $ | 268.4 |
|
| $ | 277.3 |
|
| $ | 798.8 |
|
| $ | 838.9 |
|
Provision for credit losses |
| 38.1 |
|
|
| 32.9 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
|
Total non-interest income |
| 350.5 |
|
|
| 396.7 |
|
|
| 315.6 |
|
|
| 1,105.5 |
|
|
| 981.8 |
|
Total non-interest expenses |
| 401.4 |
|
|
| 427.5 |
|
|
| 459.8 |
|
|
| 1,244.1 |
|
|
| 1,489.8 |
|
Income from continuing operations, net of tax |
| 129.4 |
|
|
| 147.3 |
|
|
| 222.8 |
|
|
| 380.4 |
|
|
| 342.2 |
|
Net income |
| 131.5 |
|
|
| 126.8 |
|
|
| 219.6 |
|
|
| 355.3 |
|
|
| 556.2 |
|
Net income available to common shareholders |
| 131.5 |
|
|
| 117.4 |
|
|
| 219.6 |
|
|
| 345.9 |
|
|
| 556.2 |
|
Per Common Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share — continuing operations | $ | 1.13 |
|
| $ | 1.11 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
|
Diluted income per common share |
| 1.15 |
|
|
| 0.94 |
|
|
| 1.61 |
|
|
| 2.80 |
|
|
| 3.19 |
|
Book value per common share |
| 54.22 |
|
|
| 53.47 |
|
|
| 54.25 |
|
|
|
|
|
|
|
|
|
Tangible book value per common share |
| 50.02 |
|
|
| 49.41 |
|
|
| 48.58 |
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
| 0.25 |
|
|
| 0.16 |
|
|
| 0.15 |
|
|
| 0.57 |
|
|
| 0.45 |
|
Dividend payout ratio |
| 21.7 | % |
|
| 17.0 | % |
|
| 9.3 | % |
|
| 20.3 | % |
|
| 14.1 | % |
Performance Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity (available to common shareholders, continuing operations) |
| 8.62 | % |
|
| 8.48 | % |
|
| 12.74 | % |
|
| 7.73 | % |
|
| 6.30 | % |
Return on average tangible common equity, adjusted for estimated capital adjustment |
| 9.66 | % |
|
| 9.44 | % |
|
| 14.58 | % |
|
| 8.64 | % |
|
| 7.34 | % |
Net finance revenue as a percentage of average earning assets |
| 3.43 | % |
|
| 3.37 | % |
|
| 3.53 | % |
|
| 3.42 | % |
|
| 3.38 | % |
Return on average earning assets applicable to common shareholders (ROA) |
| 1.14 | % |
|
| 1.19 | % |
|
| 1.96 | % |
|
| 1.09 | % |
|
| 0.96 | % |
Return (from continuing operations) on average continuing operations total assets |
| 1.08 | % |
|
| 1.21 | % |
|
| 1.86 | % |
|
| 1.06 | % |
|
| 0.91 | % |
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans including receivables pledged | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 28,505.3 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (477.4 | ) |
|
| (467.3 | ) |
|
| (419.5 | ) |
|
|
|
|
|
|
|
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,724.2 |
|
|
|
|
|
|
|
|
|
Goodwill |
| 369.9 |
|
|
| 369.9 |
|
|
| 625.5 |
|
|
|
|
|
|
|
|
|
Total cash and deposits |
| 1,367.5 |
|
|
| 3,475.6 |
|
|
| 3,112.3 |
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,339.5 |
|
|
| 5,907.4 |
|
|
| 5,744.8 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operation |
| 327.7 |
|
|
| 382.4 |
|
|
| 562.0 |
|
|
|
|
|
|
|
|
|
Total assets |
| 49,262.4 |
|
|
| 49,855.0 |
|
|
| 49,335.5 |
|
|
|
|
|
|
|
|
|
Deposits |
| 30,825.0 |
|
|
| 31,181.2 |
|
|
| 29,594.7 |
|
|
|
|
|
|
|
|
|
Borrowings |
| 8,674.2 |
|
|
| 8,859.6 |
|
|
| 8,531.2 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operation |
| 308.6 |
|
|
| 350.9 |
|
|
| 563.7 |
|
|
|
|
|
|
|
|
|
Total common stockholders’ equity |
| 5,995.3 |
|
|
| 6,200.7 |
|
|
| 7,126.3 |
|
|
|
|
|
|
|
|
|
Credit Quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans as a percentage of loans |
| 1.04 | % |
|
| 0.99 | % |
|
| 0.93 | % |
|
|
|
|
|
|
|
|
Net charge-offs as a percentage of average loans |
| 0.35 | % |
|
| 0.21 | % |
|
| 0.58 | % |
|
| 0.41 | % |
|
| 0.44 | % |
Allowance for loan losses as a percentage of loans |
| 1.57 | % |
|
| 1.59 | % |
|
| 1.47 | % |
|
|
|
|
|
|
|
|
Capital Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending equity to total ending assets |
| 12.8 | % |
|
| 13.1 | % |
|
| 15.1 | % |
|
|
|
|
|
|
|
|
CET1 Capital Ratio (fully phased-in) |
| 12.4 | % |
|
| 13.2 | % |
|
| 14.0 | % |
|
|
|
|
|
|
|
|
Tier 1 Capital Ratio (fully phased-in) |
| 13.1 | % |
|
| 13.9 | % |
|
| 14.7 | % |
|
|
|
|
|
|
|
|
Total Capital Ratio (fully phased-in) |
| 15.1 | % |
|
| 16.0 | % |
|
| 15.7 | % |
|
|
|
|
|
|
|
|
Select Data (dollars in millions) | |||||||||||
At or for the Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Select Statement of Operations Data | |||||||||||
Net interest revenue | $ | 270.7 | $ | 279.0 | $ | 292.6 | |||||
Provision for credit losses | 68.8 | 30.4 | 49.7 | ||||||||
Total non-interest income | 358.3 | 389.8 | 330.4 | ||||||||
Total non-interest expenses | 415.2 | 693.5 | 438.9 | ||||||||
Income (loss) from continuing operations, net of tax | 103.7 | (82.8 | ) | 78.2 | |||||||
Net income (loss) | 97.0 | (88.0 | ) | 179.9 | |||||||
Net income (loss) applicable to common shareholders | 97.0 | (97.8 | ) | 179.9 | |||||||
Per Common Share Data | |||||||||||
Diluted income per common share — continuing operations | $ | 0.79 | $ | (0.70 | ) | $ | 0.38 | ||||
Diluted income per common share | $ | 0.74 | $ | (0.74 | ) | $ | 0.88 | ||||
Book value per common share | $ | 52.97 | $ | 53.25 | $ | 50.14 | |||||
Tangible book value per common share | $ | 49.25 | $ | 49.58 | $ | 46.09 | |||||
Dividends declared per common share | $ | 0.16 | $ | 0.16 | $ | 0.15 | |||||
Dividend payout ratio | 21.6 | % | NM | 17.0 | % | ||||||
Performance Ratios | |||||||||||
Return (continuing operations) on average common stockholders' equity (ROATCE) | 6.83 | % | 8.42 | % | 5.36 | % | |||||
Return on average common stockholders' equity applicable to Common shareholders (ROE) | 6.09 | % | (5.29 | )% | 4.49 | % | |||||
Net finance revenue as a percentage of average earning assets | 3.45 | % | 3.59 | % | 3.57 | % | |||||
Return on Average Earning Assets applicable to Common Shareholders (ROA) | 0.92 | % | (0.83 | )% | 0.67 | % | |||||
Return (from continuing operations) on average continuing operations total assets | 0.87 | % | (0.70 | )% | 0.63 | % | |||||
Balance Sheet Data | |||||||||||
Loans including receivables pledged | $ | 29,453.6 | $ | 29,113.9 | $ | 29,691.4 | |||||
Allowance for loan losses | (447.6 | ) | (431.1 | ) | (448.6 | ) | |||||
Operating lease equipment, net | 6,774.9 | 6,738.9 | 7,516.2 | ||||||||
Goodwill | 369.9 | 369.9 | 686.1 | ||||||||
Total cash and deposits | 4,096.3 | 1,718.7 | 6,156.9 | ||||||||
Investment securities | 5,910.5 | 6,469.9 | 4,476.3 | ||||||||
Assets of discontinued operation | 463.1 | 501.3 | 12,718.2 | ||||||||
Total assets | 51,542.5 | 49,278.7 | 63,094.4 | ||||||||
Deposits | 30,593.9 | 29,569.3 | 32,336.2 | ||||||||
Borrowings | 10,437.3 | 8,974.4 | 14,736.3 | ||||||||
Liabilities of discontinued operation | 496.6 | 509.3 | 2,731.9 | ||||||||
Total common stockholders’ equity | 6,801.8 | 6,995.0 | 10,165.2 | ||||||||
Credit Quality | |||||||||||
Non-accrual loans as a percentage of loans | 0.80 | % | 0.76 | % | 0.87 | % | |||||
Net charge-offs as a percentage of average loans | 0.68 | % | 0.26 | % | 0.37 | % | |||||
Allowance for loan losses as a percentage of loans | 1.52 | % | 1.48 | % | 1.51 | % | |||||
Capital Ratios | |||||||||||
Total ending equity to total ending assets | 13.8 | % | 14.9 | % | 16.1 | % | |||||
CET1 Capital Ratio (fully phased-in) | 14.1 | % | 14.4 | % | 14.3 | % | |||||
Tier 1 Capital Ratio (fully phased-in) | 14.8 | % | 15.1 | % | 14.3 | % | |||||
Total Capital Ratio (fully phased-in) | 16.8 | % | 16.2 | % | 15.1 | % |
The SEC adopted regulations that apply to any public disclosure or release of material information that includes a non-GAAP financial measure. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts, or is adjusted in some way to the effect of including or excluding, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements.
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure about Market Risk contain certain non-GAAP financial measures. We intend our non-GAAP financial measures to provide additional information and insight regarding operating results and financial position of the business and in certain cases to provide financial information that is presented to rating agencies and other users of financial information.
79
These non-GAAP measures are not in accordance with, or a substitute for, GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies.
1. | |
Total Net Revenue, Net Finance Revenue, and Net Operating Lease Revenue |
Total net revenue is a non-GAAP measure that represents the combination of net finance revenueNFR and other non-interest income and is an aggregation of all sources of revenue for the Company. The source of the data is various statement of income line items, arranged in a different order, and with different subtotals than included in the statement of income, and therefore is considered non-GAAP. Total net revenue is used by management to monitor business performance and is used by management to calculate a net efficiency ratio, as discussed below.
NFR is a non-GAAP measure that represents the level of revenue earned on our loans and leases. NFR is another key performance measure used by management to monitor portfolio performance. NFR is also used to calculate a performance margin, NFM.
Due to the nature of our loans and leases, which include a higher proportion of operating lease equipment than most BHCs, certain financial measures commonly used by other BHCs are not as meaningful for our Company. As such, given our asset composition includes a high level of operating lease equipment, NFM as calculated below is used by management, compared to net interest margin (“NIM”) (a common metric used by other bank holding companies), which does not fully reflect the earnings of our portfolio because it includes the impact of debt costs of all our assets but excludes the net operating lease revenue.
Net operating lease revenue is a non-GAAP measure that represents the combination of rental income on operating leases less depreciation on operating lease equipment and maintenance and other operating lease expenses. The net operating lease revenues measurement is used by management to monitor portfolio performance and returns on its purchased equipment.
Total Net Revenue and Net Operating Lease Revenue (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||
| September 30, 2018 |
|
|
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 473.6 |
|
|
|
| $ | 473.6 |
|
| $ | 454.0 |
|
| $ | 1,398.4 |
|
| $ | 1,387.9 |
|
Rental income on operating leases |
| 264.3 |
|
|
|
|
| 261.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
|
Finance revenue (Non-GAAP) |
| 737.9 |
|
|
|
|
| 734.9 |
|
|
| 706.3 |
|
|
| 2,177.6 |
|
|
| 2,142.7 |
|
Interest expense |
| 213.9 |
|
|
|
|
| 205.2 |
|
|
| 176.7 |
|
|
| 599.6 |
|
|
| 549.0 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net finance revenue (Non-GAAP) |
| 389.4 |
|
|
|
|
| 389.0 |
|
|
| 400.6 |
|
|
| 1,168.9 |
|
|
| 1,206.7 |
|
Other non-interest income |
| 86.2 |
|
|
|
|
| 135.4 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
|
Total net revenue (Non-GAAP) | $ | 475.6 |
|
|
|
| $ | 524.4 |
|
| $ | 463.9 |
|
| $ | 1,495.2 |
|
| $ | 1,433.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFR (Non-GAAP) | $ | 389.4 |
|
|
|
| $ | 389.0 |
|
| $ | 400.6 |
|
| $ | 1,168.9 |
|
| $ | 1,206.7 |
|
Suspended depreciation on assets HFS |
| (8.6 | ) |
|
|
|
| (8.6 | ) |
|
| (7.8 | ) |
|
| (26.5 | ) |
|
| (7.8 | ) |
Excess interest costs over interest income from Commercial Air proceeds usage |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23.4 |
|
Interest on excess cash |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9.1 | ) |
Adjusted NFR (Non-GAAP) | $ | 380.8 |
|
|
|
| $ | 380.4 |
|
| $ | 392.8 |
|
| $ | 1,142.4 |
|
| $ | 1,213.2 |
|
NFR as a % of AEA |
| 3.43 | % |
|
|
|
| 3.37 | % |
|
| 3.53 | % |
|
| 3.42 | % |
|
| 3.38 | % |
NFR as a % of AEA, adjusted for noteworthy items |
| 3.36 | % |
|
|
|
| 3.29 | % |
|
| 3.46 | % |
|
| 3.34 | % |
|
| 3.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Lease Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income on operating leases | $ | 264.3 |
|
|
|
| $ | 261.3 |
|
| $ | 252.3 |
|
| $ | 779.2 |
|
| $ | 754.8 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net operating lease revenue (Non-GAAP) | $ | 129.7 |
|
|
|
| $ | 120.6 |
|
| $ | 123.3 |
|
| $ | 370.1 |
|
| $ | 367.8 |
|
Total Net Revenue and Net Operating Lease Revenue (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Interest income | $ | 451.2 | $ | 447.7 | $ | 455.7 | |||||
Rental income on operating leases | 253.6 | 252.6 | 251.3 | ||||||||
Finance revenue (Non-GAAP) | 704.8 | 700.3 | 707.0 | ||||||||
Interest expense | 180.5 | 168.7 | 163.1 | ||||||||
Depreciation on operating lease equipment | 76.4 | 74.3 | 73.5 | ||||||||
Maintenance and other operating lease expenses | 57.4 | 57.9 | 53.8 | ||||||||
Net finance revenue (Non-GAAP) | 390.5 | 399.4 | 416.6 | ||||||||
Other non-interest income | 104.7 | 137.2 | 79.1 | ||||||||
Total net revenue (Non-GAAP) | $ | 495.2 | $ | 536.6 | $ | 495.7 | |||||
NFR (Non-GAAP) | $ | 390.5 | $ | 399.4 | $ | 416.6 | |||||
Suspended depreciation on assets HFS | (9.3 | ) | (8.8 | ) | — | ||||||
Adjusted NFR (Non-GAAP) | $ | 381.2 | $ | 390.6 | $ | 416.6 | |||||
NFR as a % of AEA (Non-GAAP) | 3.45 | % | 3.59 | % | 3.57 | % | |||||
NFR as a % of AEA, adjusted for noteworthy items (Non-GAAP) | 3.37 | % | 3.51 | % | 3.57 | % | |||||
Net Operating Lease Revenues | |||||||||||
Rental income on operating leases | $ | 253.6 | $ | 252.6 | $ | 251.3 | |||||
Depreciation on operating lease equipment | 76.4 | 74.3 | 73.5 | ||||||||
Maintenance and other operating lease expenses | 57.4 | 57.9 | 53.8 | ||||||||
Net operating lease revenue (Non-GAAP) | $ | 119.8 | $ | 120.4 | $ | 124.0 |
2. | |
Operating Expenses and Net Efficiency Ratio, Excluding Certain Costs |
A key performance metric the Company uses to gauge the level of expenses is in comparison to the AEA. A decline in this metric could show improvement, i.e. expenses not going up at the same rate of asset growth, or decreasing at a rate in excess of asset decline. Operating expenses excluding restructuring costs and intangible asset amortization is a non-GAAP measure used by management to compare period over period expenses. Another key performance metric gauges our expense usage via our net efficiency calculation. This calculation compares the level of expenses to the level of net revenues and is calculated by dividing the operating expenses by total net revenue, as presented below. A lower result reflects a more efficient use of our expenses to generate revenue. Net efficiency ratio is a non-GAAP measurement used by management to measure operating expenses (before restructuring costs and intangible amortization) to total net revenues. We exclude the recurring itemsrestructuring costs and intangible amortization from these calculations as they are charges resulting from our strategic initiatives and not our operating activity, and exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of the mentioned items, and in certain instances, other noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.
80
Operating Expenses Excluding Certain Costs (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Operating expenses | $ | 263.3 |
|
| $ | 267.5 |
|
| $ | 277.3 |
|
| $ | 812.1 |
|
| $ | 884.5 |
|
Intangible asset amortization |
| 6.0 |
|
|
| 6.0 |
|
|
| 6.2 |
|
|
| 18.0 |
|
|
| 18.6 |
|
Restructuring costs |
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| — |
|
|
| 21.1 |
|
Operating expenses excluding restructuring costs, intangible assets amortization, and other noteworthy items | $ | 257.3 |
|
| $ | 261.5 |
|
| $ | 268.2 |
|
| $ | 794.1 |
|
| $ | 844.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding restructuring costs and intangible assets amortization) as a % of AEA (excluding noteworthy items) |
| 2.27 | % |
|
| 2.26 | % |
|
| 2.36 | % |
|
| 2.32 | % |
|
| 2.43 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue (Non-GAAP) | $ | 475.6 |
|
| $ | 524.4 |
|
| $ | 463.9 |
|
| $ | 1,495.2 |
|
| $ | 1,433.7 |
|
Suspended depreciation on assets HFS |
| (8.6 | ) |
|
| (8.6 | ) |
|
| (7.8 | ) |
|
| (26.5 | ) |
|
| (7.8 | ) |
Financial Freedom Transaction impairments on reverse mortgage related assets |
| — |
|
|
| — |
|
|
| 26.8 |
|
|
| — |
|
|
| 26.8 |
|
Net costs of excess liquidity |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.3 |
|
CTA charge |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.1 |
|
Gain and other revenues from sale of reverse mortgage portfolio |
| — |
|
|
| (29.3 | ) |
|
| — |
|
|
| (29.3 | ) |
|
| — |
|
Impairment of LCM indemnification asset |
| 21.2 |
|
|
| — |
|
|
| — |
|
|
| 21.2 |
|
|
| — |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| — |
|
|
| — |
|
|
| (10.6 | ) |
|
| — |
|
Total Net Revenue, excluding noteworthy items (Non-GAAP) | $ | 477.6 |
|
| $ | 486.5 |
|
| $ | 482.9 |
|
| $ | 1,450.0 |
|
| $ | 1,475.1 |
|
Net Efficiency Ratio (Non-GAAP) |
| 54.1 | % |
|
| 49.9 | % |
|
| 57.8 | % |
|
| 53.1 | % |
|
| 58.9 | % |
Net Efficiency Ratio excluding noteworthy items (Non-GAAP) |
| 53.9 | % |
|
| 53.8 | % |
|
| 55.5 | % |
|
| 54.8 | % |
|
| 57.3 | % |
Operating Expenses Excluding Certain Costs (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
Operating Expenses | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Operating expenses | $ | 281.3 | $ | 304.0 | $ | 311.6 | |||||
Intangible asset amortization | 6.0 | 6.1 | 6.2 | ||||||||
Restructuring costs | — | 31.9 | 14.8 | ||||||||
Operating expenses excluding restructuring costs, intangible assets amortization, and other noteworthy items (Non-GAAP) | $ | 275.3 | $ | 266.0 | $ | 290.6 | |||||
Operating expenses (excluding restructuring costs and intangible assets amortization) as a % of AEA (excluding noteworthy items) | 2.43 | % | 2.39 | % | 2.49 | % | |||||
Total Net Revenue (Non-GAAP) | $ | 495.2 | $ | 536.6 | $ | 495.7 | |||||
Suspended depreciation on assets HFS | (9.3 | ) | (8.8 | ) | — | ||||||
LIHTC accounting policy change | — | (29.4 | ) | — | |||||||
CTA charge | — | — | 8.1 | ||||||||
Total Net Revenue, excluding noteworthy items (Non-GAAP) | $ | 485.9 | $ | 498.4 | $ | 503.8 | |||||
Net Efficiency Ratio | 55.6 | % | 49.6 | % | 58.6 | % | |||||
Net Efficiency Ratio excluding noteworthy items | 56.7 | % | 53.4 | % | 57.7 | % |
3. | |
Other Non-Interest Income |
Other non-interest income serves as a source of revenue for CIT. Management monitors the level absent certain items to assist in comparability with prior period levels. We exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.
Other Non-Interest Income (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Other non-interest income | $ | 86.2 |
|
| $ | 135.4 |
|
| $ | 63.3 |
|
| $ | 326.3 |
|
| $ | 227.0 |
|
Financial Freedom Transaction impairments on reverse mortgage related assets |
| — |
|
|
| — |
|
|
| 26.8 |
|
|
| — |
|
|
| 26.8 |
|
CTA charge |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.1 |
|
Gain and other revenues from sale of reverse mortgage portfolio |
| — |
|
|
| (29.3 | ) |
|
| — |
|
|
| (29.3 | ) |
|
| — |
|
Impairment of LCM indemnification asset |
| 21.2 |
|
|
| — |
|
|
| — |
|
|
| 21.2 |
|
|
| — |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| — |
|
|
| — |
|
|
| (10.6 | ) |
|
| — |
|
Total other non-interest income, excluding noteworthy items (Non-GAAP) | $ | 96.8 |
|
| $ | 106.1 |
|
| $ | 90.1 |
|
| $ | 307.6 |
|
| $ | 261.9 |
|
Other Non-Interest Income (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Other non-interest income | $ | 104.7 | $ | 137.2 | $ | 79.1 | |||||
CTA charge | — | — | 8.1 | ||||||||
LIHTC accounting policy change | — | (29.4 | ) | — | |||||||
Total other non-interest income, excluding noteworthy items (Non-GAAP) | $ | 104.7 | $ | 107.8 | $ | 87.2 |
4. | |
Earning Assets, |
Earning asset balances (period end balances) displayed in the table below are directly derived from the respective line items in the balance sheet. These represent revenue generating assets, and the average (AEA) of which provides a basis for management performance calculations, such as NFM and operating expenses as a percentage of AEA. The average is derived using month end balances for the respective period. Because the balances are used in aggregate, as well as the average, there are no direct comparative balances on the balance sheet, therefore these are considered non-GAAP measures.
Earning Assets (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
Period End Earning Assets | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Loans | $ | 29,453.6 | $ | 29,113.9 | $ | 29,691.4 | |||||
Operating lease equipment, net | 6,774.9 | 6,738.9 | 7,516.2 | ||||||||
Assets held for sale | 2,298.8 | 2,263.1 | 562.6 | ||||||||
Credit balances of factoring clients | (1,549.0 | ) | (1,468.6 | ) | (1,547.1 | ) | |||||
Interest-bearing cash | 3,895.4 | 1,440.1 | 5,415.2 | ||||||||
Investment securities | 5,910.5 | 6,469.9 | 4,476.3 | ||||||||
Securities purchased under agreement to resell | 250.0 | 150.0 | — | ||||||||
Indemnification assets | 120.5 | 142.4 | 313.1 | ||||||||
Total earning assets (Non-GAAP) | $ | 47,154.7 | $ | 44,849.7 | $ | 46,427.7 | |||||
Average Earning Assets (for the respective periods) (Non-GAAP) | $ | 45,265.1 | $ | 44,562.1 | $ | 46,638.9 | |||||
AEA, excluding noteworthy items (Non-GAAP) | $ | 45,265.1 | $ | 44,562.1 | $ | 46,638.9 |
81
Earning Assets (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Period End Earning Assets | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Loans | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 28,505.3 |
|
|
|
|
|
|
|
|
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,724.2 |
|
|
|
|
|
|
|
|
|
Assets held for sale |
| 1,380.5 |
|
|
| 1,335.8 |
|
|
| 2,162.0 |
|
|
|
|
|
|
|
|
|
Credit balances of factoring clients |
| (1,672.4 | ) |
|
| (1,430.8 | ) |
|
| (1,698.5 | ) |
|
|
|
|
|
|
|
|
Interest-bearing cash |
| 1,199.9 |
|
|
| 3,267.0 |
|
|
| 2,658.9 |
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,339.5 |
|
|
| 5,907.4 |
|
|
| 5,744.8 |
|
|
|
|
|
|
|
|
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| 200.0 |
|
|
| — |
|
|
|
|
|
|
|
|
|
Indemnification assets |
| 27.2 |
|
|
| 70.8 |
|
|
| 171.8 |
|
|
|
|
|
|
|
|
|
Total earning assets (Non-GAAP) | $ | 44,859.2 |
|
| $ | 45,532.5 |
|
| $ | 44,268.5 |
|
|
|
|
|
|
|
|
|
Average Earning Assets (for the respective periods) (Non-GAAP) | $ | 45,377.1 |
|
| $ | 46,229.6 |
|
| $ | 45,454.2 |
|
| $ | 45,559.9 |
|
| $ | 47,535.7 |
|
AEA adjustment for Commercial Air sale impacts |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,244.0 | ) |
AEA, excluding noteworthy items (Non-GAAP) | $ | 45,377.1 |
|
| $ | 46,229.6 |
|
| $ | 45,454.2 |
|
| $ | 45,559.9 |
|
| $ | 46,291.7 |
|
Certain portfolios within the segments are being managed but are being either run-off or sold. These include a legacy real estate portfolio, NACCO rail assets in AHFS, the LCM portfolio and NSP. In order to gauge the underlying level of loans and leases, management will exclude these portfolios when comparing to prior periods. By excluding these from the total of loans, operating lease equipment and AHFS balances on the balance sheet, this metric is considered non-GAAP, and is presented only to assist the reader in understanding how management views the underlying change in these asset levels in aggregate. The following table reflects the average balances for the respective periods.
Core Average Loans and Leases (dollars in millions) | Quarters Ended |
| |||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||
Total average loans (incl HFS, net of credit balances) | $ | 28,408.7 |
|
| $ | 28,553.9 |
|
| $ | 27,793.1 |
|
Total average operating lease equipment (incl HFS) |
| 8,031.8 |
|
|
| 7,980.3 |
|
|
| 7,797.6 |
|
Total average loans and leases |
| 36,440.5 |
|
|
| 36,534.2 |
|
|
| 35,590.7 |
|
Non-core average portfolio, LCM |
| 2,981.0 |
|
|
| 3,696.5 |
|
|
| 4,470.8 |
|
Non-core average portfolio, NACCO |
| 1,208.6 |
|
|
| 1,226.1 |
|
|
| 1,093.4 |
|
Non-core average portfolios, NSP |
| 27.2 |
|
|
| 43.2 |
|
|
| 104.4 |
|
Core average loans and leases | $ | 32,223.7 |
|
| $ | 31,568.4 |
|
| $ | 29,922.1 |
|
5. | |
Tangible Book Value, ROTCE and Tangible Book Value per Share |
Tangible book value (TBV,(“TBV”), also referred to as tangible common equity),equity, return on tangible common equity (ROTCE)(“ROTCE”), and TBV per share are considered key financial performance measures by management, and are used by other financial institutions. TBV, as calculated and used by management, represents CIT’s common stockholders’ equity, less goodwill and intangible assets. ROTCE measures CIT’s net income applicable to common shareholders as a percentage of average tangible common equity. This measure is useful for evaluating the performance of CIT as it calculates the return available to common shareholders without the impact of intangible assets and deferred tax assets. The average adjusted tangible common equity is derived using averages of balances presented, based on month end balances for the period. TBV per share is calculated by dividing TBV by the outstanding number of common shares. TBV, ROTCE and TBV per share are measurements used by management and users of CIT’s financial data in assessing CIT’s use of equity. We believe the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
CIT management believes TBV, ROTCE and TBV per share are important measures for comparative purposes with other institutions, but are not defined under U.S. GAAP, and therefore are considered non-GAAP financial measures.
To provide further information, management included ROTCE calculations, ROTCE calculations excluding noteworthy items and adjusted for the previously disclosed return of capital of common equity to shareholders from the net proceeds of the Commercial Air sale.
82
Tangible Book Value (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
Tangible Book Value | September 30, 2018 |
|
|
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
|
|
| September 30, 2017 |
| |||||
Total common shareholders' equity | $ | 5,995.3 |
|
|
|
| $ | 6,200.7 |
|
| $ | 7,126.3 |
|
| $ | 5,995.3 |
|
|
|
| $ | 7,126.3 |
|
Less: Goodwill |
| (369.9 | ) |
|
|
|
| (369.9 | ) |
|
| (625.5 | ) |
|
| (369.9 | ) |
|
|
|
| (625.5 | ) |
Intangible assets |
| (95.0 | ) |
|
|
|
| (101.0 | ) |
|
| (119.1 | ) |
|
| (95.0 | ) |
|
|
|
| (119.1 | ) |
Tangible book value (Non-GAAP) |
| 5,530.4 |
|
|
|
|
| 5,729.8 |
|
|
| 6,381.7 |
|
|
| 5,530.4 |
|
|
|
|
| 6,381.7 |
|
Less: Disallowed deferred tax asset |
| (89.9 | ) |
|
|
|
| (93.7 | ) |
|
| (116.6 | ) |
|
| (89.9 | ) |
|
|
|
| (116.6 | ) |
Tangible common equity (Non-GAAP) | $ | 5,440.5 |
|
|
|
| $ | 5,636.1 |
|
| $ | 6,265.1 |
|
| $ | 5,440.5 |
|
|
|
| $ | 6,265.1 |
|
Average tangible common equity (Non-GAAP) | $ | 5,534.8 |
|
|
|
| $ | 6,030.4 |
|
| $ | 6,249.1 |
|
| $ | 5,925.3 |
|
|
|
| $ | 7,878.3 |
|
Estimated capital adjustment related to Commercial Air sale |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| (1,424.8 | ) |
Average tangible common equity, excluding noteworthy items (Non-GAAP) | $ | 5,534.8 |
|
|
|
| $ | 6,030.4 |
|
| $ | 6,249.1 |
|
| $ | 5,925.3 |
|
|
|
| $ | 6,453.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders | $ | 131.5 |
|
|
|
| $ | 117.4 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
|
|
| $ | 556.2 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income - for ROTCE calculation | $ | 135.8 |
|
|
|
| $ | 121.8 |
|
| $ | 224.6 |
|
| $ | 359.0 |
|
|
|
| $ | 569.2 |
|
Return on average tangible common equity |
| 9.81 | % |
|
|
|
| 8.08 | % |
|
| 14.38 | % |
|
| 8.08 | % |
|
|
|
| 9.63 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP income available to common shareholders (from the following non-GAAP noteworthy tables) | $ | 133.1 |
|
|
|
| $ | 117.9 |
|
| $ | 137.8 |
|
| $ | 341.2 |
|
|
|
| $ | 430.0 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income - for ROTCE calculation | $ | 137.4 |
|
|
|
| $ | 122.3 |
|
| $ | 142.8 |
|
| $ | 354.3 |
|
|
|
| $ | 443.0 |
|
Return on average tangible common equity, excluding noteworthy items |
| 9.93 | % |
|
|
|
| 8.11 | % |
|
| 9.14 | % |
|
| 7.97 | % |
|
|
|
| 9.15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 129.4 |
|
|
|
| $ | 137.9 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
|
|
| $ | 342.2 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 133.7 |
|
|
|
| $ | 142.3 |
|
| $ | 227.8 |
|
| $ | 384.1 |
|
|
|
| $ | 355.2 |
|
Return on average tangible common equity, adjusted for estimated capital adjustment |
| 9.66 | % |
|
|
|
| 9.44 | % |
|
| 14.58 | % |
|
| 8.64 | % |
|
|
|
| 7.34 | % |
Non-GAAP income from continuing operations (from next page) | $ | 131.0 |
|
|
|
| $ | 124.6 |
|
| $ | 138.7 |
|
| $ | 352.5 |
|
|
|
| $ | 373.8 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 135.3 |
|
|
|
| $ | 129.0 |
|
| $ | 143.7 |
|
| $ | 365.6 |
|
|
|
| $ | 386.8 |
|
Return on average tangible common equity, after noteworthy items and proforma for estimated capital adjustment |
| 9.78 | % |
|
|
|
| 8.56 | % |
|
| 9.20 | % |
|
| 8.23 | % |
|
|
|
| 7.99 | % |
Tangible Book Value (dollars in millions) | |||||||||||
Quarters Ended | |||||||||||
Tangible Book Value | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Total common shareholders' equity | $ | 6,801.8 | $ | 6,995.0 | $ | 10,165.2 | |||||
Less: Goodwill | (369.9 | ) | (369.9 | ) | (686.1 | ) | |||||
Intangible assets | (107.0 | ) | (113.0 | ) | (134.3 | ) | |||||
Tangible book value (Non-GAAP) | 6,324.9 | 6,512.1 | 9,344.8 | ||||||||
Less: Disallowed deferred tax asset | (98.9 | ) | (104.8 | ) | (140.6 | ) | |||||
Tangible common equity (Non-GAAP) | $ | 6,226.0 | $ | 6,407.3 | $ | 9,204.2 | |||||
Average tangible common equity (Non-GAAP) | $ | 6,332.1 | $ | 6,327.5 | $ | 9,118.8 | |||||
Estimated capital adjustment related to Commercial Air sale | — | — | (2,975.0 | ) | |||||||
Average tangible common equity, excluding noteworthy items (Non-GAAP) | $ | 6,332.1 | $ | 6,327.5 | $ | 6,143.8 | |||||
Net income (loss) applicable to common shareholders | $ | 97.0 | $ | (97.8 | ) | $ | 179.9 | ||||
Goodwill impairment | — | 222.1 | — | ||||||||
Intangible asset amortization, after tax | 4.4 | 3.7 | 4.1 | ||||||||
Non-GAAP income - for ROTCE calculation | $ | 101.4 | $ | 128.0 | $ | 184.0 | |||||
Return on average tangible common equity | 6.41 | % | 8.09 | % | 8.07 | % | |||||
Non-GAAP income applicable to common shareholders (from the following non-GAAP noteworthy tables) | $ | 90.2 | $ | 125.1 | $ | 163.1 | |||||
Intangible asset amortization, after tax | 4.4 | 3.7 | 4.1 | ||||||||
Non-GAAP income - for ROTCE calculation | $ | 94.6 | $ | 128.8 | $ | 167.2 | |||||
Return on average tangible common equity, excluding noteworthy items | 5.98 | % | 8.14 | % | 10.89 | % | |||||
Income (loss) from continuing operations applicable to common shareholders | $ | 103.7 | $ | (92.6 | ) | $ | 78.2 | ||||
Goodwill impairment | — | 222.1 | — | ||||||||
Intangible asset amortization, after tax | 4.4 | 3.7 | 4.1 | ||||||||
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 108.1 | $ | 133.2 | $ | 82.3 | |||||
Non-GAAP income from continuing operations (from next page) | $ | 96.9 | $ | 130.3 | $ | 109.4 | |||||
Intangible asset amortization, after tax | 4.4 | 3.7 | 4.1 | ||||||||
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 101.3 | $ | 134.0 | $ | 113.5 | |||||
Average tangible common equity(7) | $ | 6,332.1 | $ | 6,327.5 | $ | 9,118.8 | |||||
Estimated capital adjustment related to Commercial Air sale | — | — | (2,975.0 | ) | |||||||
Average tangible common equity(7) pro forma for estimated capital adjustment | $ | 6,332.1 | $ | 6,327.5 | $ | 6,143.8 | |||||
Return on average tangible common equity, proforma for estimated capital adjustment | 6.83 | % | 8.42 | % | 5.36 | % | |||||
Return on average tangible common equity, after noteworthy items(8) and proforma for estimated capital adjustment | 6.40 | % | 8.47 | % | 7.40 | % |
6. | |
Net income excluding noteworthy items and income from continuing operations excluding noteworthy items |
Net income excluding noteworthy items and income from continuing operations excluding noteworthy items are non-GAAP measures used by management as each excludes items from the respective line item in the GAAP statement of income. Due to the volume and size of noteworthy items, the Company believes that adjusting for these items provides the user of CIT’s financial information a measure of the underlying performance of the Company and of continuing operations specifically. The non-GAAP noteworthy items are summarized in the following categories: significant due to the magnitudesize of the transaction; transactions pertaining to items no longer considered core to CIT’s on-going operations ((e.g.i.e. sales of Non-Strategic Portfolios); legacy
83
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data)
| Description | Line Item |
| Pre-tax Balance |
|
| Income Tax(2) |
|
|
|
| After-tax Balance |
|
| Per Share |
| ||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 131.5 |
|
| $ | 1.15 |
| |||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.7 |
|
|
|
|
| (5.9 | ) |
|
| (0.05 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
|
|
| 15.5 |
|
|
| 0.14 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 3.3 |
|
|
| (0.7 | ) |
|
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 133.1 |
|
| $ | 1.17 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
| $ | 129.4 |
|
| $ | 1.13 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.7 |
|
|
|
|
| (5.9 | ) |
|
| (0.05 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
|
|
| 15.5 |
|
|
| 0.14 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 3.3 |
|
|
| (0.7 | ) |
|
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 131.0 |
|
| $ | 1.15 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 117.4 |
|
| $ | 0.94 |
| |||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.6 |
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
|
|
| (21.6 | ) |
|
| (0.17 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 19.1 |
|
|
| (4.8 | ) |
|
|
|
| 14.3 |
|
|
| 0.11 |
|
Discontinuing Operations | Loss on Financial Freedom servicing operations |
|
| 18.7 |
|
|
| (4.9 | ) |
|
|
|
| 13.8 |
|
|
| 0.11 |
| |
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 117.9 |
|
| $ | 0.95 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
| $ | 137.9 |
|
| $ | 1.11 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.6 |
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
|
|
| (21.6 | ) |
|
| (0.17 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 19.1 |
|
|
| (4.8 | ) |
|
|
|
| 14.3 |
|
|
| 0.11 |
|
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 124.6 |
|
| $ | 1.00 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Description | Line Item |
| Pre-tax Balance |
|
| Income Tax(2) |
|
|
|
| After-tax Balance |
|
| Per Share |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 219.6 |
|
| $ | 1.61 |
| |||||||||
Continuing Operations | Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
| $ | 15.5 |
|
| $ | (6.0 | ) |
|
|
| 9.5 |
|
|
| 0.07 |
| |
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
|
|
| 16.4 |
|
|
| 0.12 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
|
|
| (5.2 | ) |
|
| (0.04 | ) |
| Restructuring expenses | Operating expenses |
|
| 2.9 |
|
|
| (0.5 | ) |
|
|
|
| 2.4 |
|
|
| 0.02 |
|
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 53.5 |
|
|
| (20.3 | ) |
|
|
|
| 33.2 |
|
|
| 0.24 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
|
|
| (140.4 | ) |
|
| (1.03 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations | Financial Freedom servicing asset-related items |
|
| 3.7 |
|
| (1.4) |
| 2.3 |
| 0.02 |
| ||||||||
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 137.8 |
|
| $ | 1.01 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
| $ | 222.8 |
|
| $ | 1.64 |
| |
Continuing Operations | Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
| $ | 15.5 |
|
| $ | (6.0 | ) |
|
|
| $ | 9.5 |
|
|
| 0.07 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
|
|
| 16.4 |
|
|
| 0.12 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
|
|
| (5.2 | ) |
|
| (0.04 | ) |
| Restructuring expenses | Operating expenses |
|
| 2.9 |
|
|
| (0.5 | ) |
|
|
|
| 2.4 |
|
|
| 0.02 |
|
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 53.5 |
|
|
| (20.3 | ) |
|
|
|
| 33.2 |
|
|
| 0.24 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
|
|
| (140.4 | ) |
|
| (1.03 | ) |
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 138.7 |
|
| $ | 1.02 |
|
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data) | ||||||||||||||||||
Description | Line Item | Pre-tax Balance | Income Tax(2) | After-tax Balance | Per Share | |||||||||||||
Quarter Ended March 31, 2018 | ||||||||||||||||||
Net income applicable to common shareholders | $ | 97.0 | $ | 0.74 | ||||||||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment | $ | (9.3 | ) | $ | 2.5 | (6.8 | ) | (0.05 | ) | |||||||
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1) | $ | 90.2 | $ | 0.69 | ||||||||||||||
Income from continuing operations applicable to common shareholders | $ | 103.7 | $ | 0.79 | ||||||||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment | $ | (9.3 | ) | $ | 2.5 | (6.8 | ) | (0.05 | ) | |||||||
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1) | $ | 96.9 | $ | 0.74 | ||||||||||||||
Quarter Ended December 31, 2017 | ||||||||||||||||||
Net income applicable to common shareholders | $ | (97.8 | ) | $ | (0.74 | ) | ||||||||||||
Continuing Operations | LIHTC accounting policy change | Other non-interest income | $ | (29.4 | ) | $ | — | (29.4 | ) | (0.22 | ) | |||||||
LIHTC accounting policy change | Benefit / provision for income taxes | — | 38.2 | 38.2 | 0.29 | |||||||||||||
NACCO suspended depreciation | Depreciation on operating lease equipment | (8.8 | ) | 2.7 | (6.1 | ) | (0.05 | ) | ||||||||||
NACCO DTA/DTL rate change | Benefit / provision for income taxes | — | (11.0 | ) | (11.0 | ) | (0.08 | ) | ||||||||||
NACCO investment | Benefit / provision for income taxes | — | 12.0 | 12.0 | 0.09 | |||||||||||||
Goodwill impairment | Goodwill impairment | 255.6 | (33.5 | ) | 222.1 | 1.69 | ||||||||||||
Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (11.3 | ) | (11.3 | ) | (0.09 | ) | ||||||||||
Tax reform | Benefit / provision for income taxes | — | (11.6 | ) | (11.6 | ) | (0.09 | ) | ||||||||||
Restructuring expenses | Operating expenses | 31.9 | (11.9 | ) | 20.0 | 0.15 | ||||||||||||
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1) | $ | 125.1 | $ | 0.95 | ||||||||||||||
Income from continuing operations applicable to common shareholders | $ | (92.6 | ) | $ | (0.70 | ) | ||||||||||||
Continuing Operations | LIHTC accounting policy change | Other non-interest income | $ | (29.4 | ) | $ | — | (29.4 | ) | (0.22 | ) | |||||||
LIHTC accounting policy change | Benefit / provision for income taxes | — | 38.2 | 38.2 | 0.29 | |||||||||||||
NACCO suspended depreciation | Depreciation on operating lease equipment | (8.8 | ) | 2.7 | (6.1 | ) | (0.05 | ) | ||||||||||
NACCO DTA/DTL rate change | Benefit / provision for income taxes | — | (11.0 | ) | (11.0 | ) | (0.08 | ) | ||||||||||
NACCO investment | Benefit / provision for income taxes | — | 12.0 | 12.0 | 0.09 | |||||||||||||
Goodwill impairment | Goodwill impairment | 255.6 | (33.5 | ) | 222.1 | 1.69 | ||||||||||||
Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (11.3 | ) | (11.3 | ) | (0.09 | ) | ||||||||||
Tax reform | Benefit / provision for income taxes | — | (11.6 | ) | (11.6 | ) | (0.09 | ) | ||||||||||
Restructuring expenses | Operating expenses | 31.9 | (11.9 | ) | 20.0 | 0.15 | ||||||||||||
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1) | $ | 130.3 | $ | 0.99 | ||||||||||||||
Quarter Ended March 31, 2017 | ||||||||||||||||||
Net income applicable to common shareholders | $ | 179.9 | $ | 0.88 | ||||||||||||||
Continuing Operations | CTA Charge | Other non-interest income | $ | 8.1 | $ | (1.3 | ) | 6.8 | 0.03 | |||||||||
Restructuring expenses | Operating expenses | 14.8 | (4.4 | ) | 10.4 | 0.05 | ||||||||||||
Entity Restructuring | Benefit / provision for income taxes | — | 14.0 | 14.0 | 0.07 | |||||||||||||
Discontinued Operations | Suspended depreciation | (113.0 | ) | 44.0 | (69.0 | ) | (0.34 | ) | ||||||||||
Secured Debt Paydown | 39.0 | (5.0 | ) | 34.0 | 0.17 | |||||||||||||
Gain on Sale - TC CIT joint venture | (14.0 | ) | 1.0 | (13.0 | ) | (0.06 | ) | |||||||||||
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1) | $ | 163.1 | $ | 0.80 | ||||||||||||||
Income from continuing operations applicable to common shareholders | $ | 78.2 | $ | 0.38 | ||||||||||||||
Continuing Operations | CTA Charge | Other non-interest income | $ | 8.1 | $ | (1.3 | ) | 6.8 | 0.03 | |||||||||
Restructuring expenses | Operating expenses | 14.8 | (4.4 | ) | 10.4 | 0.05 | ||||||||||||
Entity Restructuring | Benefit / provision for income taxes | — | 14.0 | 14.0 | 0.07 | |||||||||||||
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1) | $ | 109.4 | $ | 0.54 |
(1) | Items may not sum due to rounding. |
(2) | Income tax rates vary depending on the specific item and the entity location in which it is recorded. |
85
|
|
| Pre-Tax |
|
| Income |
|
| After-tax |
|
| Per |
| |||||
| Description | Line Item |
| Balance |
|
| Tax(2) |
|
| Balance |
|
| Share |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 345.9 |
|
| $ | 2.80 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (26.5 | ) |
| $ | 7.8 |
|
|
| (18.7 | ) |
|
| (0.15 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
| (21.6 | ) |
|
| (0.18 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
| 15.5 |
|
|
| 0.13 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 22.4 |
|
|
| (5.5 | ) |
|
| 16.9 |
|
|
| 0.14 |
|
Discontinued Operations | Loss on Financial Freedom servicing operations |
|
|
| 18.7 |
|
|
| (4.9 | ) |
|
| 13.8 |
|
|
| 0.11 |
|
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 341.2 |
|
| $ | 2.77 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 371.0 |
|
| $ | 3.01 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (26.5 | ) |
| $ | 7.8 |
|
|
| (18.7 | ) |
|
| (0.15 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
| (21.6 | ) |
|
| (0.18 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
| 15.5 |
|
|
| 0.13 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 22.4 |
|
|
| (5.5 | ) |
|
| 16.9 |
|
|
| 0.14 |
|
Non-GAAP income from continuing operations available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 352.5 |
|
| $ | 2.86 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 556.2 |
|
| $ | 3.19 |
| ||
Continuing Operations | Interest on excess cash | Interest income |
| $ | (9.1 | ) |
| $ | 3.5 |
|
|
| (5.6 | ) |
|
| (0.03 | ) |
| Excess interest costs from Commercial Air proceeds usage | Interest expense |
|
| 23.4 |
|
|
| (8.9 | ) |
|
| 14.5 |
|
|
| 0.08 |
|
| Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
|
| 15.5 |
|
|
| (6.0 | ) |
|
| 9.5 |
|
|
| 0.05 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
| 16.4 |
|
|
| 0.09 |
|
| CTA charge | Other non-interest income |
|
| 8.1 |
|
|
| (1.3 | ) |
|
| 6.8 |
|
|
| 0.04 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
| (5.2 | ) |
|
| (0.03 | ) |
| Restructuring Expenses | Operating expenses |
|
| 21.1 |
|
|
| (6.1 | ) |
|
| 15.0 |
|
|
| 0.09 |
|
| Debt redemption costs | Loss on debt extinguishment and deposit redemption |
|
| 218.3 |
|
|
| (85.5 | ) |
|
| 132.8 |
|
|
| 0.76 |
|
| Resolution of legacy tax items | Benefit (provision) for income taxes |
|
| - |
|
|
| (19.3 | ) |
|
| (19.3 | ) |
|
| (0.11 | ) |
| Deferred tax recognition | Benefit (provision) for income taxes |
|
| - |
|
|
| (6.9 | ) |
|
| (6.9 | ) |
|
| (0.04 | ) |
| Entity restructuring | Benefit (provision) for income taxes |
|
| - |
|
|
| 14.0 |
|
|
| 14.0 |
|
|
| 0.08 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
| (140.4 | ) |
|
| (0.81 | ) |
Discontinued Operations | Gain on sale - Commercial Air, net of certain expenses |
|
|
| (134.7 | ) |
|
| 35.0 |
|
|
| (99.7 | ) |
|
| (0.57 | ) |
| Financial Freedom net settlement items & servicing rights impairment |
|
|
| (20.2 | ) |
|
| 7.8 |
|
|
| (12.4 | ) |
|
| (0.07 | ) |
| Financial Freedom servicing asset-related items |
|
|
| 3.7 |
|
|
| (1.4 | ) |
|
| 2.3 |
|
|
| 0.01 |
|
| Suspended depreciation |
|
|
| (113.0 | ) |
|
| 44.0 |
|
|
| (69.0 | ) |
|
| (0.40 | ) |
| Secured debt paydown |
|
|
| 39.0 |
|
|
| (5.0 | ) |
|
| 34.0 |
|
|
| 0.20 |
|
| Gain on sale - TC CIT joint venture |
|
|
| (14.0 | ) |
|
| 1.0 |
|
|
| (13.0 | ) |
|
| (0.07 | ) |
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 430.0 |
|
| $ | 2.47 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
| Pre-Tax |
|
| Income |
|
| After-tax |
|
| Per |
| |||||
| Description | Line Item |
| Balance |
|
| Tax(2) |
|
| Balance |
|
| Share |
| ||||
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 342.2 |
|
| $ | 1.96 |
| ||
Continuing Operations | Interest on excess cash | Interest income |
| $ | (9.1 | ) |
| $ | 3.5 |
|
|
| (5.6 | ) |
|
| (0.03 | ) |
| Excess interest costs from Commercial Air proceeds usage | Interest expense |
|
| 23.4 |
|
|
| (8.9 | ) |
|
| 14.5 |
|
|
| 0.08 |
|
| Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
|
| 15.5 |
|
|
| (6.0 | ) |
|
| 9.5 |
|
|
| 0.05 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
| 16.4 |
|
|
| 0.09 |
|
| CTA charge | Other non-interest income |
|
| 8.1 |
|
|
| (1.3 | ) |
|
| 6.8 |
|
|
| 0.04 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
| (5.2 | ) |
|
| (0.03 | ) |
| Restructuring Expenses | Operating expenses |
|
| 21.1 |
|
|
| (6.1 | ) |
|
| 15.0 |
|
|
| 0.09 |
|
| Debt redemption costs | Loss on debt extinguishment and deposit redemption |
|
| 218.3 |
|
|
| (85.5 | ) |
|
| 132.8 |
|
|
| 0.76 |
|
| Resolution of legacy tax items | Benefit (provision) for income taxes |
|
| - |
|
|
| (19.3 | ) |
|
| (19.3 | ) |
|
| (0.11 | ) |
| Deferred tax recognition | Benefit (provision) for income taxes |
|
| - |
|
|
| (6.9 | ) |
|
| (6.9 | ) |
|
| (0.04 | ) |
| Entity restructuring | Benefit (provision) for income taxes |
|
| - |
|
|
| 14.0 |
|
|
| 14.0 |
|
|
| 0.08 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
| (140.4 | ) |
|
| (0.81 | ) |
Non-GAAP income from continuing operations available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 373.8 |
|
| $ | 2.15 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Items may not sum due to rounding. |
| |||||||||||||||||
(2) Income tax rates vary depending on the specific item and the entity location in which it is recorded. |
|
7. | Effective Tax Rate Reconciliation |
The provision for income taxes before noteworthy items and separately, tax only discrete items and the respective effective tax rate are non-GAAP measures, which management uses for analytical purposes to understand the Company’s underlying tax rate. Noteworthy items are presented in item 6 above, and discussed in various sections of the MD&A. The tax discrete items are discussed in the Income Tax section.
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Effective Tax Rate Reconciliation - Noteworthy Items (dollars in millions) | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Provision (benefit) for income taxes - GAAP | $ | 41.3 |
|
| $ | 57.4 |
|
| $ | (119.8 | ) |
| $ | 140.0 |
|
| $ | (95.5 | ) |
Income taxes on noteworthy items |
| 3.7 |
|
|
| (5.5 | ) |
|
| 174.9 |
|
|
| (4.3 | ) |
|
| 264.7 |
|
Provision for income taxes, before noteworthy items - Non-GAAP |
| 45.0 |
|
|
| 51.9 |
|
|
| 55.1 |
|
|
| 135.7 |
|
|
| 169.2 |
|
Income tax - remaining discrete items |
| 4.5 |
|
|
| (2.3 | ) |
|
| (1.9 | ) |
|
| 0.5 |
|
|
| 2.3 |
|
Provision for income taxes, before noteworthy and discrete tax items - Non-GAAP | $ | 49.5 |
|
| $ | 49.6 |
|
| $ | 53.2 |
|
| $ | 136.2 |
|
| $ | 171.5 |
|
Income from continuing operations before provision for income taxes - GAAP | $ | 170.7 |
|
| $ | 204.7 |
|
| $ | 103.0 |
|
| $ | 520.4 |
|
| $ | 246.7 |
|
Noteworthy items before tax |
| 4.9 |
|
|
| (18.8 | ) |
|
| 90.9 |
|
|
| (23.2 | ) |
|
| 296.3 |
|
Adjusted income from continuing operations before provision for income taxes - Non-GAAP | $ | 175.6 |
|
| $ | 185.9 |
|
| $ | 193.9 |
|
| $ | 497.2 |
|
| $ | 543.0 |
|
Effective tax rate - GAAP |
| 24.2 | % |
|
| 28.0 | % |
|
| -116.3 | % |
|
| 26.9 | % |
|
| -38.7 | % |
Effective tax rate, before noteworthy items - Non-GAAP |
| 25.6 | % |
|
| 27.9 | % |
|
| 28.4 | % |
|
| 27.3 | % |
|
| 31.2 | % |
Effective tax rate, before noteworthy and tax discrete items - Non-GAAP |
| 28.2 | % |
|
| 26.7 | % |
|
| 27.4 | % |
|
| 27.4 | % |
|
| 31.6 | % |
Quarters Ended | |||||||||||
Effective Tax Rate Reconciliation - Noteworthy Items | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
Provision for income taxes - GAAP | $ | 41.3 | $ | 27.7 | $ | 56.2 | |||||
Income taxes on noteworthy items | 2.5 | (26.4 | ) | 8.3 | |||||||
Provision for income taxes, before noteworthy items - Non-GAAP | 38.8 | 54.1 | 47.9 | ||||||||
Income tax - remaining discrete items | 1.7 | (22.4 | ) | (2.3 | ) | ||||||
Provision for income taxes, before noteworthy and discrete tax items - Non-GAAP | $ | 37.1 | $ | 76.5 | $ | 50.2 | |||||
Income (loss) from continuing operations before provision for income taxes - GAAP | $ | 145.0 | $ | (55.1 | ) | $ | 134.4 | ||||
Noteworthy items before tax | (9.3 | ) | 249.3 | 22.9 | |||||||
Adjusted income from continuing operations before provision for income taxes - Non-GAAP | $ | 135.7 | $ | 194.2 | $ | 157.3 | |||||
Effective tax rate - GAAP | 28.5 | % | (50.3 | )% | 41.8 | % | |||||
Effective tax rate, before noteworthy items - Non-GAAP | 28.6 | % | 27.9 | % | 30.5 | % | |||||
Effective tax rate, before noteworthy and tax discrete items - Non-GAAP | 27.3 | % | 39.4 | % | 31.9 | % |
8. | |
Regulatory |
Included within this Form 10-Q are risk-weighted assets, (RWA), risk-based capital and leverage ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we report our capital in accordance with Transitional Requirements, but also monitor our capital based on a fully phased-in methodology. Such measures are considered key regulatory capital measures used by banking regulators, investors and analysts to assess the CIT (as a BHC) regulatory capital position and to compare that to other financial institutions. For information on our capital ratios and requirements, see
Certain statements contained in this document are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “could,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to known and unknown risks, uncertainties and contingencies. Forward-looking statements are included, for example, in the discussions about:
our liquidity risk and capital management, including our capital plan, leverage, capital ratios, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, to repay secured and unsecured debt, to issue qualifying capital instruments, including Tier 1 qualifying preferred stock, and for a return of capital,
our plans to change our funding mix, to access new sources of funding, and to broaden our use of deposit taking capabilities, including increasing our level of commercial deposits and expanding our treasury management services,
our pending or potential acquisition and disposition plans, and the integration and restructuring risks inherent in such acquisitions, including our proposedthe sale of our Financial Freedom reverse mortgage servicing business and reverse mortgage loan portfolio, our Business Air loan portfolio, and NACCO, our European railcar leasing business, and our proposed sale of our Business Air loan portfolio,
our credit risk management and credit quality,
our asset/liability risk management,
our funding, borrowing costs and net finance revenue,
our operational risks, including risk of operational errors, failure of operational controls, success of systems enhancements and expansion of risk management and control functions,
our mix of portfolio asset classes, including changes resulting from growth initiatives, new business initiatives, new products, acquisitions and divestitures, new business and customer retention,
our legal risks, including the enforceability of our agreements, the impact of legal proceedings, and the impact of changes in laws and regulations,
our growth rates, and
our commitments to extend credit or purchase equipment.
All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements expressed or implied in these statements. Forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Factors, in addition to those disclosed in
“Risk Factors”, that could cause such differences include, but are not limited to:risks inherent in deposit funding, including reducing reliance on brokered deposits, increasing commercial deposits and retail non-maturity accounts, and expanding treasury management services,
risks inherent in capital markets, including liquidity, changes in market interest rates and quality spreads, and our access to secured and unsecured debt and asset-backed securitization markets,
risks inherent in a return of capital, including risks related to obtaining regulatory approval, the nature and allocation among different methods of returning capital, and the amount and timing of any capital return,
risks of actual or perceived economic slowdown, downturn or recession, including slowdown in customer demand for credit or increases in non-accrual loans or default rates,
industry cycles and trends, including in oil and gas, power and energy, telecommunications, information technology, and commercial and residential real estate.
uncertainties associated with risk management, including evaluating credit, adequacy of reserves for credit losses, prepayment risk, asset/liability risk, interest rate and currency risks, and cybersecurity risks,
risks of implementing new processes, procedures, and systems, including those required to strengthen internal controls, improve data quality, and reliability, or comply with the additional laws and regulations applicable to systemically important financial institutions, such as the CCAR process, enhanced prudential standards, and Basel III,
risks associated with the value and recoverability of leased equipment and related lease residual values, including railcars, telecommunications towers, technology and office equipment, information technology equipment, including data centers, and large and small industrial, medical, and transportation equipment,
risks of failing to achieve the projected revenue growth from new business initiatives or the projected expense reductions from efficiency improvements,
application of goodwill accounting or fair value accounting in volatile markets,
regulatory changes and developments, including changes in laws or regulations governing our business and operations, or affecting our assets, including our operating lease equipment or changes in the regulatory environment, whether due to events or factors specific to CIT, or other large multi-national or regional banks, or the industry in general,
risks associated with dispositions of businesses or asset portfolios, including how to replace the income associated with such businesses or asset portfolios and the risk of residual liabilities from such businesses or portfolios,
risks associated with acquisitions of businesses or asset portfolios, including integrating and reducing duplication in personnel, policies, internal controls, and systems.
Any or all of our forward-looking statements here or in other publications may turn out to be wrong, and there are no guarantees regarding our performance. We do not assume any obligation to update any forward-looking statement for any reason.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31,September 30, 2018. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31,September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CIT is currently involved, and from time to time in the future may be involved, in a number of judicial, regulatory, and arbitration proceedings relating to matters that arise in connection with the conduct of its business (collectively, “Litigation”), certain of which Litigation matters are described in
NoteFor more information about pending legal proceedings, including an estimate of certain reasonably possible losses in excess of reserved amounts, see
NoteRisk factors remain unchanged during the quarter. For a discussion of risk factors, see
Part I, Item 1A. Risk Factors, of CIT’sThere were approximately 3.75.5 million shares of the Company’s common stock repurchased through open market repurchases (OMR) during the quarter ended March 31,September 30, 2018 as shown in the following table:
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||
July 1 - 31, 2018 |
| 2,844,700 |
|
| $ | 52.14 |
|
|
| 2,844,700 |
|
|
| — |
|
August 1 - 31, 2018 |
| 1,384,500 |
|
| $ | 53.91 |
|
|
| 1,384,500 |
|
|
| — |
|
September 1 - 30, 2018 |
| 1,268,260 |
|
| $ | 53.54 |
|
|
| 1,268,260 |
|
|
| — |
|
Total Purchases |
| 5,497,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||
January 1 - 31, 2018 | 87,600 | $ | 49.62 | 87,600 | |||||||
February 1 - 28, 2018 | 1,653,519 | $ | 52.39 | 1,653,519 | |||||||
March 1 - 31, 2018 | 1,924,747 | $ | 53.98 | 1,924,747 | |||||||
Total Purchases | 3,665,866 |
On June 28, 2018, CIT announced that the Board of Directors approved a common equity capital return of up to $750 million, beginning July 1, 2018 and to be completed by June 30, 2019. As of March 31,September 30, 2018, CIT had up to $705$459 million remained available for return. See the Capital section for further discussion of share repurchases remaining, including $25 million related to employee stock ownership plans that can be executed by the end of the first half of 2018 under current authorizations. The Company has purchased in the open market an additional $71 million, 1.4 million shares, at an average repurchase price of $51.86 through April 24. On April 26, CIT commenced a modified "Dutch auction" cash tender offer to purchase up to $500 million of its common stock, par value $0.01 per share. See
Not applicable
90
(a) | Exhibits |
2.1 | |
91
101.INS | XBRL Instance Document (Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
92
XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
* | |
Indicates a management contract or compensatory plan or arrangement. |
** | Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended. |
*** | This information is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any filing under the Securities Act of 1933. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 2, 2018 | |
CIT GROUP INC. | |
/s/ John Fawcett | |
John Fawcett | |
Executive Vice President and | |
Chief Financial Officer | |
/s/ Edward K. Sperling | |
Edward K. Sperling | |
Executive Vice President and Controller |
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