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Section 1: 8-K (8-K)

cit-8k_20180724.htm

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

 

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 24, 2018 (July 24, 2018)

CIT GROUP INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware

001-31369

65-1051192

(State or other

(Commission

(IRS Employer

jurisdiction of

File Number)

Identification No.)

incorporation)

 

 

 

11 West 42nd Street 

 

New York, New York 10036 

 

(Address of registrant's principal executive office)

Registrant's telephone number, including area code: (212) 461-5200

 

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

[ ] Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

[ ] 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.


 


 

Section 2 – Financial Information

Item 2.02.  Results of Operations and Financial Condition.

This Current Report on Form 8-K includes as an exhibit a press release, dated July 24, 2018, reporting the financial results of CIT Group Inc. (the “Company”) as of and for the quarter ended June 30, 2018. The press release is attached as Exhibit 99.1. This press release includes certain non-GAAP financial measures.  A reconciliation of those measures to the most directly comparable GAAP measures is included as a table to the press release.  The information reported under this Item 2.02, including Exhibit 99.1, shall be considered furnished, not filed, for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Section 7 – Regulation FD

Item 7.01.  Regulation FD Disclosure.

In addition, this Form 8-K includes a copy of the Company’s presentation to analysts and investors of its Second Quarter 2018 Financial Results for the quarter ended June 30, 2018, which is attached as Exhibit 99.2.  The information included in Exhibit 99.2 shall be considered furnished, not filed, for purposes of the Exchange Act.  The Company also provides supplementary financial information on its website, which is not incorporated by reference in this Form 8-K.

Section 9 – Financial Statements and Exhibits

Item 9.01.   Financial Statements and Exhibits.

(d)

Exhibits.

 

    

99.1     

Press release issued by CIT Group Inc. on July 24, 2018 reporting its financial results as of and for the quarter ended June 30, 2018.

    

99.2

Presentation by CIT Group Inc. on July 24, 2018 regarding its  Second Quarter 2018  Financial Results.

Forward-Looking Statements

This Form 8-K contains forward-looking statements within the meaning of applicable federal securities laws that are based upon our current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “commence,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements contained in this Form 8-K, other than statements of historical fact, including without limitation, statements about our plans, strategies, prospects and expectations regarding future events and our financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and our actual results may differ materially. Important factors that could cause our actual results to be materially different from our expectations include, among others, the risk that (i) CIT is unsuccessful in implementing its strategy and business plan, (ii) CIT is unable to react to and address key business and regulatory issues, (iii) CIT is unable to achieve the projected revenue growth from its new business initiatives or the projected expense reductions from efficiency improvements, (iv) CIT becomes subject to liquidity constraints and higher funding costs, or (v) the parties to a transaction do not receive or satisfy regulatory or other approvals or conditions on a timely basis or approvals are subject to conditions that are not anticipated. We describe these and other risks that could affect our results in Item 1A, “Risk Factors,” of our latest Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission. Accordingly, you should not place undue reliance on the forward-looking statements contained in this Form 8-K. These forward-looking statements speak only as of the date on which the statements were made. CIT undertakes no obligation to update publicly or otherwise revise any forward-looking statements, except where expressly required by law.

 


 


 

SIGNATURES

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 hereunto duly authorized.

 

 

 

 

  

CIT GROUP INC.

 

(Registrant)

 

 

 

 

By:

/s/ John Fawcett

 

 

John Fawcett

 

 

Executive Vice President & Chief Financial Officer

 

 

 

Dated:  July 24, 2018

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

cit-ex991_9.htm

1

 

 

Exhibit 99.1

                            

FOR IMMEDIATE RELEASE                                   

 

CIT Announces Second Quarter 2018 Results

 

Highlights:

 

Second quarter net income available to common shareholders of $117 million or $0.94 per diluted common share; income from continuing operations available to common shareholders of $138 million or $1.11 per diluted common share

 

 

Excluding noteworthy items, second quarter income from continuing operations available to common shareholders1 of $125 million or $1.00 per diluted common share

 

 

Average loans and leases were essentially unchanged compared to the prior quarter. Average loans and leases in core portfolios2 grew 1%

 

o

Funded volume increased to $2.9 billion, up 30% compared to the year-ago quarter

 

o

Significant prepayments in Commercial Finance and Real Estate Finance divisions

 

 

Completed repurchase of $680 million in common equity in 2Q18, consisting of approximately 12.5 million shares at a weighted average price per share of $54.43

 

o

CET1 ratio of 13.2% at the end of the quarter remains above our target level

 

 

Announced an additional common equity capital return of up to $750 million

 

 

Increased quarterly per share common stock dividend by 56% to $0.25

 

 

Closed on the sale of Financial Freedom, including our reverse mortgage portfolio

 

 

NEW YORK – July 24, 2018 – CIT Group Inc. (NYSE: CIT) today reported second quarter net income available to common shareholders of $117 million or $0.94 per diluted common share, compared to net income available to common shareholders of $157 million or $0.85 per diluted common share for the year-ago quarter.  Income from continuing operations available to common shareholders for the second quarter was $138 million or $1.11 per diluted common share, compared to income available to common shareholders of $41 million or $0.22 per diluted common share in the year-ago quarter.

 

Income from continuing operations available to common shareholders excluding noteworthy items for the second quarter was $125 million or $1.00 per diluted common share, compared to $126 million or $0.68 per diluted common share in the year-ago quarter, as lower operating expenses, higher other non-interest income and the

 

1 

Income from continuing operations excluding noteworthy items is a non-GAAP measure. See “Non-GAAP Measurements” at the end of this press release and starting on page 25 for reconciliation of non-GAAP to GAAP financial information.

2 

Core portfolios is net of credit balances of factoring clients, NACCO assets held for sale, legacy consumer mortgages (LCM) and non-strategic portfolios (NSP).

 


2

 

 

benefit of a lower effective tax rate were offset by a decline in net finance revenue, an increase in the provision for credit losses and the preferred stock dividend. The increase in income from continuing operations excluding noteworthy items per diluted common share reflects the decline in the average number of diluted common shares outstanding due to significant share repurchases over the past four quarters.

 

“Our second quarter results reflect strong originations, lower operating expenses and continued capital optimization as we make steady progress on our strategic plan,” said CIT Chairwoman and Chief Executive Officer Ellen R. Alemany. “The direct bank delivered steady performance as we continued to build that franchise, adding $1.5 billion of average deposits and about 20,000 new customers.  In addition, the Business Capital division posted another quarter of solid growth, which was fueled by the investments we have made in technology and talent in our equipment financing operation.”

 

Alemany continued, “Capital return remains a key component for us to achieve our ROTCE targets, and we are pleased with our progress in the second quarter. Going forward, we have increased our quarterly dividend by 56 percent per share and plan to return an additional $750 million of capital.”

 

Return on Tangible Common Equity (ROTCE)3 for continuing operations was 9.4%. ROTCE for continuing operations excluding noteworthy items3 was 8.6%. Tangible book value per common share at June 30, 2018 was $49.41. The preliminary Common Equity Tier 1 Capital ratio decreased from the prior quarter and remained strong at 13.2%, and the preliminary Total Capital ratio decreased to 16.0%, at June 30, 2018.

 

Financial results for the second quarter in both continuing and discontinued operations included noteworthy items related to our strategic initiatives.

 

Noteworthy items (after-tax) in the second quarter in continuing operations included:

 

$22 million ($0.17 per diluted common share) in other non-interest income related to the Financial Freedom transaction, primarily a gain on the sale of our reverse mortgage portfolio.

 

$14 million ($0.11 per diluted common share) in debt extinguishment costs related to the redemption of $883 million in unsecured senior debt.

 

$6 million ($0.05 per diluted common share) benefit in net finance revenue from the suspension of the depreciation of assets related to NACCO that are in assets held for sale.

 

Noteworthy items (after tax) in the second quarter in discontinued operations included:

 

$14 million ($0.11 per diluted common share) net loss related to the Financial Freedom servicing business, primarily from reserves and transaction costs.

 

3 

Return on Tangible Common Equity and ROTCE excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 25 for reconciliation of non-GAAP to GAAP financial information.

 


3

 

 

Selected Financial Highlights

 

Select Financial Highlights

 

 

 

 

 

 

 

 

 

 

 

 

2Q18 change* from

 

 

($ in millions)

2Q18

 

 

1Q18

 

 

2Q17

 

 

1Q18

 

 

 

2Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance revenue(1)

$

389

 

 

$

391

 

 

$

390

 

 

$

(1

)

 

0

%

 

 

$

(0

)

 

0

%

 

Non-interest income

 

135

 

 

 

105

 

 

 

85

 

 

 

31

 

 

29

%

 

 

 

51

 

 

60

%

 

Total net revenue

 

524

 

 

 

495

 

 

 

474

 

 

 

29

 

 

6

%

 

 

 

50

 

 

11

%

 

Non-interest expenses

 

287

 

 

 

281

 

 

 

460

 

 

 

5

 

 

2

%

 

 

 

(174

)

 

-38

%

 

Income from continuing operations before credit provision

 

238

 

 

 

214

 

 

 

14

 

 

 

24

 

 

11

%

 

 

 

224

 

NM

 

 

Provision for credit losses

 

33

 

 

 

69

 

 

 

4

 

 

 

(36

)

 

-52

%

 

 

 

29

 

NM

 

 

Income from continuing operations before benefit (provision) for income taxes

 

205

 

 

 

145

 

 

 

9

 

 

 

60

 

 

41

%

 

 

 

195

 

NM

 

 

Provision (benefit) for income taxes

 

57

 

 

 

41

 

 

 

(32

)

 

 

16

 

 

39

%

 

 

 

89

 

NM

 

 

Income from continuing operations

 

147

 

 

 

104

 

 

 

41

 

 

 

44

 

 

42

%

 

 

 

106

 

NM

 

 

(Loss) income from discontinued operations, net of taxes

 

(21

)

 

 

(7

)

 

 

116

 

 

 

(14

)

NM

 

 

 

 

(136

)

NM

 

 

Net income

 

127

 

 

 

97

 

 

 

157

 

 

 

30

 

 

31

%

 

 

 

(30

)

 

-19

%

 

Preferred stock dividends

 

9

 

 

 

-

 

 

 

-

 

 

 

9

 

NM

 

 

 

 

9

 

NM

 

 

Net income available to common shareholders

$

117

 

 

$

97

 

 

$

157

 

 

$

20

 

 

21

%

 

 

$

(39

)

 

-25

%

 

Income from continuing operations available to common shareholders

$

138

 

 

$

104

 

 

$

41

 

 

$

34

 

 

33

%

 

 

$

97

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per diluted common share

$

0.94

 

 

$

0.74

 

 

$

0.85

 

 

$

0.20

 

 

 

 

 

 

$

0.09

 

 

 

 

 

Tangible book value per common share (TBVPS)(1)

$

49.41

 

 

$

49.25

 

 

$

46.34

 

 

$

0.16

 

 

 

 

 

 

$

3.07

 

 

 

 

 

Average diluted common shares outstanding (in thousands)

 

124,686

 

 

 

131,588

 

 

 

183,796

 

 

 

(6,902

)

 

 

 

 

 

 

(59,110

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital adequacy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Ratio(3)

 

13.2

%

 

 

14.1

%

 

 

14.4

%

 

-90bps

 

 

 

 

 

 

NM

 

 

 

 

 

Total Capital Ratio(3)

 

16.0

%

 

 

16.8

%

 

 

16.2

%

 

-80bps

 

 

 

 

 

 

-20bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs as a % of average loans

 

0.21

%

 

 

0.68

%

 

 

0.38

%

 

-47bps

 

 

 

 

 

 

-17bps

 

 

 

 

 

Allowance for loan losses as a % of loans

 

1.59

%

 

 

1.52

%

 

 

1.47

%

 

7bps

 

 

 

 

 

 

12bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance margin(1)

 

3.37

%

 

 

3.45

%

 

 

3.07

%

 

-8bps

 

 

 

 

 

 

30bps

 

 

 

 

 

Loans and leases to deposit ratio

 

121

%

 

 

126

%

 

 

120

%

 

NM

 

 

 

 

 

 

74bps

 

 

 

 

 

CIT Bank Loans and leases to deposit ratio

 

96

%

 

 

98

%

 

 

96

%

 

NM

 

 

 

 

 

 

10bps

 

 

 

 

 

Return on average common equity (available to common shareholders, continuing operations)

 

8.48

%

 

 

6.09

%

 

 

2.30

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

Return on tangible common equity (available to common shareholders, continuing operations)

 

9.44

%

 

 

6.83

%

 

 

2.84

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

Return on tangible common equity (available to common shareholders, continuing operations), excluding noteworthy items(2)

 

8.56

%

 

 

6.40

%

 

 

8.14

%

 

NM

 

 

 

 

 

 

42bps

 

 

 

 

 

Return on AEA, applicable to common shareholders(1)

 

1.02

%

 

 

0.86

%

 

 

1.24

%

 

16bps

 

 

 

 

 

 

-22bps

 

 

 

 

 

Return on AEA, excluding noteworthy items(1)(2)

 

1.02

%

 

 

0.80

%

 

 

1.10

%

 

22bps

 

 

 

 

 

 

-8bps

 

 

 

 

 

Net efficiency ratio(1)

 

49.9

%

 

 

55.6

%

 

 

60.3

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

Headcount

 

3,843

 

 

 

3,898

 

 

 

3,994

 

 

 

(55

)

 

 

 

 

 

 

(151

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Certain balances may not sum due to rounding.

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 25 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(2)Excludes noteworthy items and pro forma for capital reduction associated with Commercial Air sale that occurred in 2Q17.  See "Non-GAAP Measurements" at the end of this press release and beginning on page 25 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(3)Ratios on fully phased-in basis.

Unless otherwise indicated, all references below relate to continuing operations. Discontinued operations in the second quarter consisted of a partial period of operations for Financial Freedom, our reverse mortgage servicing business, and our Business Air portfolio. In the year-ago quarter, discontinued operations included a full period of operations for Financial Freedom.

 


 


4

 

 

Income Statement Highlights:

Income from continuing operations available to common shareholders excluding noteworthy items was $125 million compared to $97 million in the prior quarter, primarily reflecting a decline in operating expenses and credit costs.

 

Net Finance Revenue

Net Finance Revenue*

 

 

 

2Q18 change from

 

 

($ in millions)

2Q18

 

 

1Q18

 

 

2Q17

 

 

1Q18

 

 

 

2Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

$

474

 

 

$

451

 

 

$

478

 

 

$

22

 

 

5

%

 

 

$

(5

)

 

-1

%

 

Rental income on operating leases

 

261

 

 

 

254

 

 

 

251

 

 

 

8

 

 

3

%

 

 

 

10

 

 

4

%

 

Depreciation on operating lease equipment

 

77

 

 

 

76

 

 

 

77

 

 

 

1

 

 

1

%

 

 

 

(0

)

 

0

%

 

Maintenance and other operating lease expenses

 

64

 

 

 

57

 

 

 

53

 

 

 

6

 

 

11

%

 

 

 

10

 

 

19

%

 

Net rental income on operating leases

 

121

 

 

 

120

 

 

 

121

 

 

 

1

 

 

1

%

 

 

 

0

 

 

0

%

 

Interest expense

 

205

 

 

 

181

 

 

 

209

 

 

 

25

 

 

14

%

 

 

 

(4

)

 

-2

%

 

Net finance revenue

$

389

 

 

$

391

 

 

$

390

 

 

$

(1

)

 

0

%

 

 

$

(0

)

 

0

%

 

Average earning assets(1)

$

46,230

 

 

$

45,265

 

 

$

50,676

 

 

$

965

 

 

2

%

 

 

$

(4,446

)

 

-9

%

 

Net finance margin

 

3.37

%

 

 

3.45

%

 

 

3.07

%

 

-8bps

 

 

 

 

 

 

30bps

 

 

 

 

 

Excluding Noteworthy Items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance revenue

$

380

 

 

$

381

 

 

$

404

 

 

$

(1

)

 

0

%

 

 

$

(23

)

 

-6

%

 

Average earning assets

$

46,230

 

 

$

45,265

 

 

$

46,990

 

 

$

965

 

 

2

%

 

 

$

(760

)

 

-2

%

 

Net finance margin

 

3.29

%

 

 

3.37

%

 

 

3.44

%

 

-8bps

 

 

 

 

 

 

-15bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 25 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

 

* Certain balances may not sum due to rounding.

 

 

Net finance revenue4 was $389 million compared to $391 million in the prior quarter. Net finance revenue in the current and prior quarter included a $9 million benefit from the suspension of depreciation expense related to NACCO because its assets are included in assets held for sale. Excluding noteworthy items, net finance revenue4 was $380 million, compared to $381 million in the prior quarter, as higher interest income on loans and investments was offset by higher deposit and borrowing costs. Higher funding costs in the current quarter primarily reflect higher deposit costs, higher borrowing costs on floating rate debt and a full quarter of interest expense related to our Tier 2 qualifying subordinated debt that was issued in March.

 

Net finance revenue as a percentage of average earning assets (“net finance margin4”) excluding noteworthy items was 3.29%, an 8 bps decrease from 3.37% in the prior quarter. The decrease in net finance margin reflects the aforementioned drivers of net finance revenue, which was essentially flat compared to the prior quarter, and the change in asset mix, which included a significant increase in average interest-bearing deposits.

 

Net finance revenue in the year-ago quarter 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. Excluding

 

4 

Net finance revenue, net finance revenue excluding noteworthy items and net finance margin are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 25 for reconciliation of non-GAAP to GAAP financial information.

 

 


5

 

 

the aforementioned noteworthy items, net finance revenue decreased $23 million or 6% compared to the year-ago quarter. The decrease in net finance revenue primarily reflected lower purchase accounting accretion, lower gross yields in Rail and higher funding costs, partially offset by higher earnings on investment securities and loans in the Commercial Banking segment.

 

Net finance margin in the year-ago quarter was also impacted by average earnings assets that reflected elevated cash balances in continuing operations for the period between the closing of the Commercial Air sale and the related liability management and capital actions. Excluding noteworthy items in net finance revenue and in average earning assets, net finance margin decreased 15 bps compared to the year-ago quarter, reflecting the aforementioned drivers of the decrease in net finance revenue, partially offset by a shift in asset mix from interest-bearing deposits to investment securities and loans and leases in the Commercial Banking segment.

 

Other Non-interest Income

Other Non-Interest Income*

 

 

 

2Q18 change from

 

 

($ in millions)

2Q18

 

 

1Q18

 

 

2Q17

 

 

1Q18

 

 

 

2Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenues

$

27

 

 

$

27

 

 

$

28

 

 

$

(1

)

 

-3

%

 

 

$

(2

)

 

-6

%

 

Factoring commissions

 

24

 

 

 

26

 

 

 

23

 

 

 

(2

)

 

-8

%

 

 

 

0

 

 

2

%

 

Gains on leasing equipment, net of impairments

 

14

 

 

 

14

 

 

 

13

 

 

 

1

 

 

7

%

 

 

 

1

 

 

11

%

 

Gains on investment securities, net of impairments

 

4

 

 

 

3

 

 

 

5

 

 

 

0

 

 

12

%

 

 

 

(1

)

 

-18

%

 

BOLI income

 

7

 

 

 

7

 

 

 

0

 

 

 

0

 

 

2

%

 

 

 

7

 

NM

 

 

Other revenues

 

61

 

 

 

29

 

 

 

16

 

 

 

32

 

NM

 

 

 

 

45

 

NM

 

 

Total other non-interest income

$

135

 

 

$

105

 

 

$

85

 

 

$

31

 

 

29

%

 

 

$

51

 

 

60

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other non-interest income, excluding noteworthy items(1)

$

106

 

 

$

105

 

 

$

85

 

 

$

1

 

 

1

%

 

 

$

22

 

 

25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 25 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

 

* Certain balances may not sum due to rounding.

 

 

Other non-interest income was $135 million compared to $105 million in the prior quarter. Other non-interest income in the current quarter included $29 million in other revenues related to the Financial Freedom transaction, primarily a gain on the sale of the reverse mortgage portfolio. Excluding noteworthy items, other non-interest income6 was $106 million, compared to $105 million in the prior quarter. Factoring commissions declined by $2 million from seasonally lower volumes. Fee income was unchanged. Other revenues in the current quarter included a $6 million benefit from a release of reserves related to the OneWest acquisition.

 

Other revenues in the current quarter included income of $5 million related to the reverse mortgage portfolio, which was sold during the quarter as part of the Financial Freedom transaction.

 

Other non-interest income excluding noteworthy items increased by $22 million from the year-ago quarter, primarily driven by higher gains on derivatives, income from bank-owned life insurance (BOLI), higher income from the reverse mortgage portfolio and a benefit from a release of reserves related to the OneWest acquisition.

 

5 

Other non-interest income excluding noteworthy items is a non-GAAP measure. See “Non-GAAP Measurements” at the end of this press release and starting on page 25 for reconciliation of non-GAAP to GAAP financial information.

 


6

 

 

 

Operating Expenses

Operating Expenses*

 

 

 

2Q18 change from

 

 

($ in millions)

2Q18

 

 

1Q18

 

 

2Q17

 

 

1Q18

 

 

 

2Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$

143

 

 

$

148

 

 

$

145

 

 

$

(5

)

 

-3

%

 

 

$

(2

)

 

-2

%

 

Technology

 

33

 

 

 

32

 

 

 

34

 

 

 

0

 

 

1

%

 

 

 

(1

)

 

-4

%

 

Professional fees

 

21

 

 

 

26

 

 

 

32

 

 

 

(5

)

 

-20

%

 

 

 

(11

)

 

-34

%

 

Insurance

 

19

 

 

 

20

 

 

 

25

 

 

 

(1

)

 

-7

%

 

 

 

(6

)

 

-26

%

 

Net occupancy expense

 

16

 

 

 

16

 

 

 

15

 

 

 

(0

)

 

-1

%

 

 

 

1

 

 

6

%

 

Advertising and marketing

 

13

 

 

 

13

 

 

 

10

 

 

 

0

 

 

3

%

 

 

 

3

 

 

29

%

 

Other expenses

 

17

 

 

 

20

 

 

 

25

 

 

 

(3

)

 

-16

%

 

 

 

(8

)

 

-31

%

 

Operating expenses, excluding restructuring costs and intangible asset amortization

 

262

 

 

 

275

 

 

 

286

 

 

 

(14

)

 

-5

%

 

 

 

(25

)

 

-9

%

 

Intangible asset amortization

 

6

 

 

 

6

 

 

 

6

 

 

 

0

 

 

0

%

 

 

 

(0

)

 

-3

%

 

Restructuring costs

 

0

 

 

 

0

 

 

 

3

 

 

 

0

 

NM

 

 

 

 

(3

)

 

-100

%

 

Total operating expenses

$

268

 

 

$

281

 

 

$

296

 

 

$

(14

)

 

-5

%

 

 

$

(28

)

 

-10

%

 

Net efficiency ratio(1)

 

49.9

%

 

 

55.6

%

 

 

60.3

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses, excluding noteworthy items and intangible asset amortization(1)

$

262

 

 

$

275

 

 

$

286

 

 

$

(14

)

 

-5

%

 

 

$

(25

)

 

-9

%

 

Net efficiency ratio, excluding noteworthy items and intangible asset amortization(1)

 

53.8

%

 

 

56.7

%

 

 

58.6

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 25 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

 

* Certain balances may not sum due to rounding.

 

 

Operating expenses in the current and prior quarter included $6 million in intangible asset amortization. Operating expenses excluding noteworthy items and intangible asset amortization7 in the current quarter was $262 million, a decrease from $275 million in the prior quarter, driven primarily by decreases in professional fees and compensation and benefits as well as a $5 million reversal of a non-income tax-related reserve. The decline in professional fees was partially due to a legal accrual in the prior quarter related to Rail.

 

Operating expenses in the year-ago quarter included $3 million in restructuring charges and $6 million in intangible asset amortization. Compared to the year-ago quarter, operating expenses excluding noteworthy items and intangible asset amortization decreased $25 million or 9%, primarily reflecting lower professional fees, lower FDIC insurance costs and a $5 million non-income tax-related charge in the year-ago quarter for which we recognized a reserve reversal in the current quarter, partially offset by higher advertising and marketing costs, primarily in the Consumer Banking segment.

 

The net efficiency ratio6 improved to 50% compared to 56% in in the prior quarter. The net efficiency ratio excluding noteworthy items6 was 54% compared to 57% in the prior quarter, driven by the decrease in operating expenses. Compared to the year-ago quarter, the net efficiency ratio excluding noteworthy items improved from 59%, primarily due to the decrease in operating expenses.

 


 

6 

Operating expenses excluding noteworthy items and intangible asset amortization, net efficiency ratio and net efficiency ratio excluding noteworthy items and intangible asset amortization are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 25 for reconciliation of non-GAAP to GAAP financial information.

 

 


7

 

 

Debt Extinguishment Costs

We recognized $19 million in debt extinguishment costs associated with the redemption of $883 million of unsecured senior debt from the proceeds of the issuance of $1 billion in unsecured senior debt in the prior quarter. In the year-ago quarter, we recognized $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 Taxes

The provision for income taxes in the current and prior quarter of $57 million and $41 million, respectively, both included an aggregate of $2 million in discrete tax expense. The benefit for income taxes in the year-ago quarter of $32 million included a $13 million net current tax benefit recognized for the resolution of an uncertain tax position, a $7 million net current tax benefit related to certain refunds expected and a $7 million deferred tax benefit related to the recognition of a deferred tax asset related to the company’s investment in NACCO.

 

The effective tax rate in the current quarter was 28%. Excluding discrete tax items and noteworthy items, the effective tax rate was 27% in the current and prior quarter and 36% in the year-ago quarter. The decline in the effective tax rate compared to the year-ago quarter was primarily driven by lower statutory income tax rates from U.S. tax reform, partially offset by disallowance of FDIC insurance premiums, a change in accounting policy for low income housing tax credit (LIHTC) investments from the equity method of accounting to the pro