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Section 1: 8-K (8-K)

cit-8k_20181023.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): October 23, 2018 (October 23, 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 October 23, 2018, reporting the financial results of CIT Group Inc. (the “Company”) as of and for the quarter ended September 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 Third Quarter 2018 Financial Results for the quarter ended September 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 October 23, 2018 reporting its financial results as of and for the quarter ended September 30, 2018.

    

99.2

Presentation by CIT Group Inc. on October  23, 2018 regarding its Third 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:  October 23, 2018

 

 

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

cit-ex991_6.htm

1

 

Exhibit 99.1

 

                             

FOR IMMEDIATE RELEASE                                   

 

CIT Announces Third Quarter 2018 Results

 

Highlights:

 

Third quarter net income available to common shareholders of $132 million or $1.15 per diluted common share; income from continuing operations available to common shareholders of $129 million or $1.13 per diluted common share

 

 

Excluding noteworthy items, third quarter income from continuing operations available to common shareholders1 of $131 million or $1.15 per diluted common share

 

 

Average loans and leases were essentially unchanged compared to the prior quarter and up 2% compared to the year-ago quarter. Average loans and leases in core portfolios2 grew 2% compared to the prior quarter and 8% compared to the year-ago quarter.

 

o

Funded volume increased to $3.1 billion, up 38% compared to the year-ago quarter

 

 

Completed repurchase of $291 million in common equity in 3Q18, consisting of approximately 5.5 million shares at an average price per share of $52.91

 

o

Completed the purchase of an additional $188 million in common equity through Oct. 22, consisting of 3.8 million shares at an average price of $49.63

 

o

$271 million remaining in current share repurchase authorization, most of which is expected to be completed by year-end

 

o

CET1 ratio of 12.3% at the end of the quarter remains above our target level

 

 

Completed the sale of our European railcar leasing business (NACCO) on October 4

 

o

Use of net proceeds of $1.1 billion to include liability management actions, including the termination of the TRS, and return of capital to shareholders under the current share repurchase authorization

 

o

Expected sale of approximately $350 million of railcar assets to CIT Bank to enable more efficient deposit-based funding

 

 

NEW YORK – Oct. 23, 2018 – CIT Group Inc. (NYSE: CIT) today reported third quarter net income available to common shareholders of $132 million or $1.15 per diluted common share, compared to net income available to common shareholders of $220 million or $1.61 per diluted common share for the year-ago quarter. Income from continuing operations available to common shareholders for the third quarter was $129 million or $1.13 per diluted common share, compared to income available to common shareholders of $223 million or $1.64 per diluted common share in the year-ago quarter.

 

 

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 26 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

 

Income from continuing operations available to common shareholders excluding noteworthy items for the third quarter was $131 million or $1.15 per diluted common share, compared to $139 million or $1.02 per diluted common share in the year-ago quarter, as lower net finance revenue and an increase in the provision for credit losses were partially offset by higher other non-interest income and lower operating expenses. 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.

 

“In the third quarter, we delivered strong performance in all areas of our strategic plan,” said CIT Chairwoman and Chief Executive Officer Ellen R. Alemany. “The average core loan and lease portfolio grew 8% year-over-year driven by strong originations as our strategic initiatives gained momentum. In addition, we made significant progress in reducing operating expenses, returning capital and driving greater funding efficiency through continued consumer deposit growth and the extension of debt maturities.”

 

Alemany continued, “In October, we completed the sale of the European rail business, which enabled us to initiate a series of liability management actions to further optimize our funding profile. Collectively, these efforts advance our plan to improve our return on tangible common equity.”

 

Return on Tangible Common Equity (ROTCE)3 for continuing operations was 9.66%. ROTCE for continuing operations excluding noteworthy items3 was 9.78%. Tangible book value per common share at September 30, 2018 was $50.02. The preliminary Common Equity Tier 1 Capital ratio decreased from the prior quarter and remained strong at 12.3%, and the preliminary Total Capital ratio decreased to 15.1% at September 30, 2018.

 

Financial results for the third quarter in continuing operations included noteworthy items related to our strategic initiatives:

 

$16 million (after tax) ($0.14 per diluted common share) charge in other non-interest income from an impairment to the indemnification asset related to a loss share agreement on assets in our Legacy Consumer Mortgage (LCM) portfolio in the Consumer Banking segment.

 

$11 million (after tax) ($0.09 per diluted common share) benefit from a release of a valuation reserve in other non-interest income related to assets held for sale in China in the Non-strategic Portfolios (NSP) segment.

 

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

 

$3 million (after tax) ($0.02 per diluted common share) in debt extinguishment costs related to the redemption of $500 million in unsecured senior debt.


 

3 

ROTCE and ROTCE excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 26 for reconciliation of non-GAAP to GAAP financial information.


3

 

Selected Financial Highlights

 

Select Financial Highlights*

 

 

 

 

 

 

 

 

 

 

 

 

3Q18 change from

 

 

($ in millions)

3Q18

 

 

2Q18

 

 

3Q17

 

 

2Q18

 

 

 

3Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance revenue(1)

$

389

 

 

$

389

 

 

$

401

 

 

$

0

 

 

0

%

 

 

$

(11

)

 

-3

%

 

Non-interest income

 

86

 

 

 

135

 

 

 

63

 

 

 

(49

)

 

-36

%

 

 

 

23

 

 

36

%

 

Total net revenue

 

476

 

 

 

524

 

 

 

464

 

 

 

(49

)

 

-9

%

 

 

 

12

 

 

3

%

 

Non-interest expenses

 

267

 

 

 

287

 

 

 

331

 

 

 

(20

)

 

-7

%

 

 

 

(64

)

 

-19

%

 

Income from continuing operations before credit provision

 

209

 

 

 

238

 

 

 

133

 

 

 

(29

)

 

-12

%

 

 

 

76

 

 

57

%

 

Provision for credit losses

 

38

 

 

 

33

 

 

 

30

 

 

 

5

 

 

16

%

 

 

 

8

 

 

27

%

 

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

 

171

 

 

 

205

 

 

 

103

 

 

 

(34

)

 

-17

%

 

 

 

68

 

 

66

%

 

Provision (benefit) for income taxes

 

41

 

 

 

57

 

 

 

(120

)

 

 

(16

)

 

-28

%

 

 

 

161

 

NM

 

 

Income from continuing operations

 

129

 

 

 

147

 

 

 

223

 

 

 

(18

)

 

-12

%

 

 

 

(93

)

 

-42

%

 

(Loss) income from discontinued operations, net of taxes

 

2

 

 

 

(21

)

 

 

(3

)

 

 

23

 

NM

 

 

 

 

5

 

NM

 

 

Net income

 

132

 

 

 

127

 

 

 

220

 

 

 

5

 

 

4

%

 

 

 

(88

)

 

-40

%

 

Preferred stock dividends

 

-

 

 

 

9

 

 

 

-

 

 

 

(9

)

 

-100

%

 

 

 

-

 

NM

 

 

Net income available to common shareholders

$

132

 

 

$

117

 

 

$

220

 

 

$

14

 

 

12

%

 

 

$

(88

)

 

-40

%

 

Income from continuing operations available to common shareholders

$

129

 

 

$

138

 

 

$

223

 

 

$

(9

)

 

-6

%

 

 

$

(93

)

 

-42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per common share

$

1.15

 

 

$

0.94

 

 

$

1.61

 

 

$

0.21

 

 

 

 

 

 

$

(0.46

)

 

 

 

 

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

$

50.02

 

 

$

49.41

 

 

$

48.58

 

 

$

0.61

 

 

 

 

 

 

$

1.44

 

 

 

 

 

Average diluted common shares outstanding (in thousands)

 

114,007

 

 

 

124,686

 

 

 

136,126

 

 

 

(10,679

)

 

 

 

 

 

 

(22,119

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital adequacy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Ratio(3)

 

12.3

%

 

 

13.2

%

 

 

14.0

%

 

-90bps

 

 

 

 

 

 

NM

 

 

 

 

 

Total Capital Ratio(3)

 

15.1

%

 

 

16.0

%

 

 

15.7

%

 

-90bps

 

 

 

 

 

 

-60bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs as a % of average loans

 

0.35

%

 

 

0.21

%

 

 

0.58

%

 

14bps

 

 

 

 

 

 

-23bps

 

 

 

 

 

Allowance for loan losses as a % of loans

 

1.57

%

 

 

1.59

%

 

 

1.47

%

 

-3bps

 

 

 

 

 

 

9bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance margin(1)

 

3.43

%

 

 

3.37

%

 

 

3.53

%

 

7bps

 

 

 

 

 

 

-10bps

 

 

 

 

 

Loans and leases to deposit ratio

 

126

%

 

 

121

%

 

 

127

%

 

NM

 

 

 

 

 

 

-89bps

 

 

 

 

 

CIT Bank Loans and leases to deposit ratio

 

101

%

 

 

96

%

 

 

102

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

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

 

8.62

%

 

 

8.48

%

 

 

12.74

%

 

14bps

 

 

 

 

 

 

NM

 

 

 

 

 

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

 

9.66

%

 

 

9.44

%

 

 

14.58

%

 

22bps

 

 

 

 

 

 

NM

 

 

 

 

 

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

 

9.78

%

 

 

8.56

%

 

 

9.20

%

 

NM

 

 

 

 

 

 

58bps

 

 

 

 

 

Return on AEA, applicable to common shareholders(1)

 

1.16

%

 

 

1.02

%

 

 

1.93

%

 

14bps

 

 

 

 

 

 

-77bps

 

 

 

 

 

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

 

1.17

%

 

 

1.02

%

 

 

1.21

%

 

15bps

 

 

 

 

 

 

-4bps

 

 

 

 

 

Net efficiency ratio(1)

 

54.1

%

 

 

49.9

%

 

 

57.8

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

Headcount

 

3,757

 

 

 

3,843

 

 

 

3,966

 

 

 

(86

)

 

 

 

 

 

 

(209

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(2)Excludes noteworthy items.  See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(3)Ratios on fully phased-in basis.

* Certain balances may not sum due to rounding.

Unless otherwise indicated, all references below relate to continuing operations.

 



4

 

Income Statement Highlights:

Income from continuing operations available to common shareholders excluding noteworthy items4 was $131 million compared to $125 million in the prior quarter, primarily reflecting lower operating expense and income tax expense and no semi-annual preferred dividend paid in the current quarter, partially offset by a decline in other non-interest income and higher credit costs.

 

Net Finance Revenue

Net Finance Revenue*

 

 

 

3Q18 change from

 

 

($ in millions)

3Q18

 

 

2Q18

 

 

3Q17

 

 

2Q18

 

 

 

3Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

$

474

 

 

$

474

 

 

$

454

 

 

$

-

 

 

0

%

 

 

$

20

 

 

4

%

 

Rental income on operating leases

 

264

 

 

 

261

 

 

 

252

 

 

 

3

 

 

1

%

 

 

 

12

 

 

5

%

 

Depreciation on operating lease equipment

 

78

 

 

 

77

 

 

 

71

 

 

 

1

 

 

1

%

 

 

 

7

 

 

10

%

 

Maintenance and other operating lease expenses

 

57

 

 

 

64

 

 

 

58

 

 

 

(7

)

 

-11

%

 

 

 

(1

)

 

-2

%

 

Net rental income on operating leases

 

130

 

 

 

121

 

 

 

123

 

 

 

9

 

 

8

%

 

 

 

6

 

 

5

%

 

Interest expense

 

214

 

 

 

205

 

 

 

177

 

 

 

9

 

 

4

%

 

 

 

37

 

 

21

%

 

Net finance revenue

$

389

 

 

$

389

 

 

$

401

 

 

$

0

 

 

0

%

 

 

$

(11

)

 

-3

%

 

Average earning assets(1)

$

45,377

 

 

$

46,230

 

 

$

45,454

 

 

$

(853

)

 

-2

%

 

 

$

(77

)

 

0

%

 

Net finance margin

 

3.43

%

 

 

3.37

%

 

 

3.53

%

 

7bps

 

 

 

 

 

 

-10bps

 

 

 

 

 

Excluding Noteworthy Items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance revenue

$

381

 

 

$

380

 

 

$

393

 

 

$

0

 

 

0

%

 

 

$

(12

)

 

-3

%

 

Average earning assets

$

45,377

 

 

$

46,230

 

 

$

45,454

 

 

$

(853

)

 

-2

%

 

 

$

(77

)

 

0

%

 

Net finance margin

 

3.36

%

 

 

3.29

%

 

 

3.46

%

 

7bps

 

 

 

 

 

 

-10bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

 

* Certain balances may not sum due to rounding.

 

 

Net finance revenue5 was $389 million, unchanged from the prior quarter. Net finance revenue in the current and prior quarters included a $9 million benefit from the suspension of depreciation expense related to NACCO because its assets were included in assets held for sale. Excluding noteworthy items, net finance revenue5 was $381 million, compared to $380 million in the prior quarter, as higher net operating lease income, driven by a lease prepayment and lower maintenance costs in Rail, were mostly offset by higher deposit costs.

 

Net finance revenue as a percentage of average earning assets (“net finance margin5”) excluding noteworthy items was 3.36%, a 7 bps increase from 3.29% in the prior quarter. The increase in net finance margin excluding noteworthy items reflects higher yields on commercial loans and an increase in rental income, partially offset by higher deposit costs and the full quarter impact of the sale of the reverse mortgage portfolio.

 

Net finance revenue in the year-ago quarter included an $8 million benefit from the suspension of depreciation expense related to NACCO because its assets were included in assets held for sale. Excluding noteworthy items, net finance revenue decreased $12 million or 3% compared to the year-ago quarter. The decrease in net finance revenue primarily reflected higher funding costs and lower net purchase accounting accretion, partially offset by higher income on loans in the Commercial Banking segment and on investment securities.

 

 

4 

Income from continuing operations available to common shareholders excluding noteworthy items is a non-GAAP measure. See “Non-GAAP Measurements” at the end of this press release and starting on page 26 for reconciliation of non-GAAP to GAAP financial information.

5 

Net finance revenue, net finance revenue excluding noteworthy items, net finance margin and net finance margin excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 26 for reconciliation of non-GAAP to GAAP financial information.


5

 

Net finance margin excluding noteworthy items decreased 10 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 higher yielding assets.

 

Other Non-interest Income

Other Non-Interest Income*

 

 

 

3Q18 change from

 

 

($ in millions)

3Q18

 

 

2Q18

 

 

3Q17

 

 

2Q18

 

 

 

3Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenues

$

28

 

 

$

27

 

 

$

26

 

 

$

2

 

 

6

%

 

 

$

2

 

 

8

%

 

Factoring commissions

 

27

 

 

 

24

 

 

 

27

 

 

 

4

 

 

16

%

 

 

 

0

 

 

1

%

 

Gains on leasing equipment, net of impairments

 

14

 

 

 

14

 

 

 

12

 

 

 

(1

)

 

-6

%

 

 

 

1

 

 

12

%

 

Gains on investment securities, net of impairments

 

4

 

 

 

4

 

 

 

10

 

 

 

(0

)

 

-3

%

 

 

 

(7

)

 

-65

%

 

BOLI income

 

7

 

 

 

7

 

 

 

2

 

 

 

(0

)

 

-2

%

 

 

 

5

 

NM

 

 

Other revenues

 

7

 

 

 

61

 

 

 

(14

)

 

 

(54

)

 

-88

%

 

 

 

21

 

NM

 

 

Total other non-interest income

$

86

 

 

$

135

 

 

$

63

 

 

$

(49

)

 

-36

%

 

 

$

23

 

 

36

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

97

 

 

$

106

 

 

$

90

 

 

$

(9

)

 

-9

%

 

 

$

7

 

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 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 $86 million compared to $135 million in the prior quarter. Other non-interest income in the current quarter included aggregate noteworthy items of a $10 million net charge in other revenue from a $21 million impairment charge to the indemnification asset related to a loss share agreement on assets in our LCM portfolio in the Consumer Banking segment that was partially offset by an $11 million benefit from a release of a valuation reserve related to assets held for sale in China in the NSP segment. Other non-interest income in the prior quarter included aggregate noteworthy items of a $29 million benefit 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 $97 million, compared to $106 million in the prior quarter, which included income of $5 million related to the reverse mortgage portfolio in Consumer Banking that was sold in the prior quarter and a $6 million benefit from a release of reserves related to the OneWest acquisition. Factoring commissions increased $4 million from seasonally higher volumes, partially offset by a lower average commission rate. Fee income increased $2 million.

 

Other non-interest income in the year-ago quarter included noteworthy items totaling $27 million in aggregate charges related to the Financial Freedom transaction, including a $5 million write-down of OREO, a $9 million impairment of reverse mortgage-related assets and a $12 million write down of reverse mortgage loans. Other non-interest income excluding noteworthy items increased by $7 million from the year-ago quarter reflecting higher income from bank-owned life insurance (BOLI).

 


 

6 

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 26 for reconciliation of non-GAAP to GAAP financial information.


6

 

Operating Expenses

Operating Expenses*

 

 

 

3Q18 change from

 

 

($ in millions)

3Q18

 

 

2Q18

 

 

3Q17

 

 

2Q18

 

 

 

3Q17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$

137

 

 

$

143

 

 

$

139

 

 

$

(6

)

 

-4

%

 

 

$

(2

)

 

-1

%

 

Technology

 

32

 

 

 

33

 

 

 

31

 

 

 

(0

)

 

-1

%

 

 

 

2

 

 

6

%

 

Professional fees

 

17

 

 

 

21

 

 

 

32

 

 

 

(4

)

 

-19

%

 

 

 

(15

)

 

-48

%

 

Insurance

 

16

 

 

 

19

 

 

 

19

 

 

 

(3

)

 

-14

%

 

 

 

(3

)

 

-14

%

 

Net occupancy expense

 

16

 

 

 

16

 

 

 

16

 

 

 

0

 

 

1

%

 

 

 

0

 

 

0

%

 

Advertising and marketing

 

11

 

 

 

13

 

 

 

14

 

 

 

(3

)

 

-21

%

 

 

 

(3

)

 

-22

%

 

Other expenses

 

28

 

 

 

17

 

 

 

18

 

 

 

11

 

 

67

%

 

 

 

10

 

 

55

%

 

Operating expenses, excluding restructuring costs and intangible asset amortization

 

257

 

 

 

262

 

 

 

268

 

 

 

(4

)

 

-2

%

 

 

 

(11

)

 

-4

%

 

Intangible asset amortization

 

6

 

 

 

6

 

 

 

6

 

 

 

0

 

 

0

%

 

 

 

(0

)

 

-3

%

 

Restructuring costs

 

0

 

 

 

0

 

 

 

3

 

 

 

0

 

NM

 

 

 

 

(3

)

 

-100

%

 

Total operating expenses

$

263

 

 

$

268

 

 

$

277

 

 

$

(4

)

 

-2

%

 

 

$

(14

)

 

-5

%

 

Net efficiency ratio(1)

 

54.1

%

 

 

49.9

%

 

 

57.8

%

 

NM

 

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

257

 

 

$

262

 

 

$

268

 

 

$

(4

)

 

-2

%

 

 

$

(11

)

 

-4

%

 

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

 

53.9

%

 

 

53.8

%

 

 

55.5

%

 

12bps

 

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

 

* Certain balances may not sum due to rounding.

 

 

Operating expenses excluding noteworthy items and intangible asset amortization7 in the current quarter was $257 million, a decrease from $262 million in the prior quarter, driven primarily by decreases in employee costs and professional fees, partially offset by a $5 million reversal of a non-income tax-related reserve in the prior quarter.

 

Operating expenses in the year-ago quarter included $3 million in restructuring charges. Compared to the year-ago quarter, operating expenses excluding noteworthy items and intangible asset amortization decreased $11 million or 4%, primarily reflecting lower professional fees, partially offset by higher other non-income tax expenses.

 

The net efficiency ratio7 increased to 54% compared to 50% in the prior quarter. The net efficiency ratio excluding noteworthy items7 was 54%, unchanged from the prior quarter, as the decrease in other non-interest income was offset by the decrease in operating expenses. Compared to the year-ago quarter, the net efficiency ratio excluding noteworthy items improved from 56%, primarily due to the decrease in operating expenses and increase in other non-interest income, partially offset by the decrease in net finance revenue.

 

Debt Extinguishment Costs

We recognized $3 million in debt extinguishment costs associated with the redemption of $500 million of unsecured senior debt from the proceeds of the issuance of $500 million in unsecured senior debt earlier in the quarter. In the prior quarter, 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 first quarter 2018. In the year-ago quarter, we recognized $54 million in debt extinguishment costs associated with the repayment of $800 million of unsecured senior debt.

Income Taxes

 

7 

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 26 for reconciliation of non-GAAP to GAAP financial information.


7

 

The provision for income taxes in the current quarter of $41 million included an aggregate of $5 million in discrete tax benefits. The provision for income taxes in the prior quarter of $57 million included an aggregate of $2 million in discrete tax expense, and the benefit for income taxes in the year-ago quarter of $120 million included a $140 million deferred tax benefit from a restructuring of an international legal entity.

 

The effective tax rate in the current quarter was 24%. Excluding discrete tax items and noteworthy items, the effective tax rate was 28% in the current quarter and 27% in the prior and year-ago quarters.

 

Balance Sheet Highlights:

Earning Assets

Earning Assets*

 

 

 

3Q18 change from

 

 

($ in millions)

3Q18

 

 

2Q18

 

 

3Q17