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Section 1: 8-K (8-K)

cit-8k_20200421.htm
false 0001171825 0001171825 2020-04-21 2020-04-21 0001171825 us-gaap:CommonStockMember 2020-04-21 2020-04-21 0001171825 cit:FivePointSixTwoFivePercentageNonCumulativePerpetualPreferredStockSeriesBMember 2020-04-21 2020-04-21

 

 

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): April 21, 2020 (April 21, 2020)

 

CIT GROUP INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

001-31369

 

65-1051192

(State or other jurisdiction of incorporation)

 

(Commission File Number)

 

(I.R.S. Employer Identification No.)

 

11 W. 42nd Street,

New York, New York 10036

(Address of principal executive offices) (Zip Code)

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

Not Applicable

 

(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:

 

 

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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CIT

New York Stock Exchange

5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share

CITPRB

New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2 of this chapter).

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.  

 

 


 

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 April 21, 2020, reporting the financial results of CIT Group Inc. (the “Company”) as of and for the quarter ended March 31, 2020.  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 the 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 financial results for the quarter ended March 31, 2020, which is attached as Exhibit 99.2, and its response to the COVID-19 pandemic, which is attached as Exhibit 99.3.  The information included in Exhibit 99.2 and Exhibit 99.3 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.

 

Exhibit No.

  

Description

 

 

 

99.1

  

Press release issued by CIT Group Inc. on April 21, 2020 reporting its financial results as of and for the quarter ended March 31, 2020.

 

 

 

99.2

 

Presentation by CIT Group Inc. on April 21, 2020 regarding its financial results for the quarter ended March 31, 2020.

 

 

 

99.3

 

Presentation by CIT Group Inc. on April 21, 2020 regarding its response to the COVID-19 pandemic.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 


 

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,” “will,” “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. In particular, any projections or expectations regarding the acquisition by CIT Bank of Mutual of Omaha Bank, our future revenues, expenses, earnings, capital expenditures, deposits or stock price, as well as the assumptions on which such expectations are based, are such forward-looking statements reflecting only our current judgment and are not guarantees of future performance or results. 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, including planned or potential acquisitions or divestitures; (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; (v) the parties to a transaction do not obtain regulatory or other approvals or satisfy closing conditions to the transaction on a timely basis, or at all, or approvals are subject to conditions that are not anticipated; (vi) CIT Bank experiences difficulties and delays in integrating CIT Bank’s and Mutual of Omaha Bank’s respective businesses or fully realizing cost savings and other benefits; (vii) changes in asset quality and credit risk, interest rates and capital markets or other economic conditions; or (viii) the duration, extent and severity of the recent COVID-19 (coronavirus) pandemic, including its impacts across our business, operations and employees as well as its effect on our customers and service providers and on economies and markets more generally. We further 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, 2019, which was filed with the Securities and Exchange Commission. Information regarding CIT’s capital ratios consists of preliminary estimates. These estimates are forward-looking statements and are subject to change, possibly materially, as CIT completes its financial statements. 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. The Company 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.

 

Date: April 21, 2020

 

CIT GROUP INC.

 

 

(Registrant)

 

 

 

 

 

 

 

By:

 

/s/ John Fawcett

 

 

Name:

 

John Fawcett

 

 

Title:

 

Executive Vice President & Chief Financial Officer

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

cit-ex991_15.htm

 

 

 

Exhibit 99.1

 

 

 

CIT Announces First Quarter 2020 Results                

NEW YORK – April 21, 2020 – CIT Group Inc. (NYSE: CIT) today reported first quarter 2020 financial results.

Financial Results

Our financial results and trends in the first quarter 2020 reflect three key events during the quarter:

The global pandemic from the spread of the COVID-19 virus and the ensuing adverse impact on the macroeconomic environment.

The adoption of the Current Expected Credit Losses (CECL) standard, which requires the estimation of credit losses over the full remaining expected life of the portfolio, rather than the incurred loss model.

The acquisition of Mutual of Omaha Bank (MOB) on January 1, 2020, which impacts the comparability of current quarter results to prior periods.

Because the CECL standard introduces economic forecasting into the allowance setting process, the macroeconomic impact of the global pandemic significantly increased our first quarter provision for credit losses.

In addition, the deterioration of the macroeconomic environment triggered a goodwill impairment assessment that resulted in an impairment in the current quarter.

First quarter loss to common shareholders of $628 million or $6.40 per diluted common share.

Excluding noteworthy items, first quarter loss to common shareholders of $238 million or $2.43 per diluted common share1, reflecting a $469 million provision for credit losses, of which $405 million ($3.38 per diluted common share) relates to the forecasted macroeconomic environment.

Chairwoman and CEO Commentary

“After several years of transformation, CIT entered 2020 as a stronger company. These unprecedented times have tested and confirmed that we have the resources, expertise and rigor to respond to the challenges related to COVID-19,” said CIT Chairwoman and Chief Executive Officer Ellen R. Alemany. “Our first response to the pandemic was to ensure the continuity of our operations, support for our employees and assistance for our customers and communities. Additionally, we remain focused on ensuring our capital and liquidity positions remain solid and our funding profile strong.”

Alemany continued, “While our first quarter results were affected by the current economic environment, I’m proud of the agility and resilience of the CIT team. We will continue to operate steadily through this dynamic environment and to meet the evolving needs of our customers with the breadth of our experience and dedication.”

Strategic Pillars

Grow Core Businesses

Average loans and leases up 18% from prior quarter, primarily reflecting the MOB acquisition.

Excluding MOB, 1% growth in average core loans and leases2 from the prior quarter.

Optimize Balance Sheet

Average outstanding deposit costs decreased 34 bps compared to the prior quarter, including a 21 bps benefit from the addition of lower-cost MOB deposits.

Loans and leases-to-deposits ratio at CIT Bank up slightly to 95% at March 31, 2020.

Enhance Operating Efficiency

Continue to target $50 million in net operating expense reductions for 2021.

Integration of MOB remains on track.

Maintain Strong Risk Management

Capital levels well in excess of CCB3 (CET1 ratio of 9.7%) and strong liquid asset levels ($9.5 billion in available cash and HQLA securities4) at March 31, 2020.

Proactive portfolio management.

Selected Financial Highlights:

 

 

Select Financial Highlights*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Q20 change from

 

($ in millions)

1Q20

 

 

4Q19

 

 

1Q19

 

 

4Q19

 

 

1Q19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance revenue(1)

$

366

 

 

$

350

 

 

$

369

 

 

$

16

 

 

5

%

 

$

(4

)

 

-1

%

Non-interest income

 

131

 

 

 

111

 

 

 

97

 

 

 

19

 

 

17

%

 

 

34

 

 

35

%

Total net revenue(1)

 

496

 

 

 

461

 

 

 

466

 

 

 

35

 

 

8

%

 

 

30

 

 

6

%

Goodwill impairment

 

345

 

 

 

-

 

 

 

-

 

 

 

345

 

NM

 

 

 

345

 

NM

 

Operating expenses and loss on debt extinguishment

 

334

 

 

 

259

 

 

 

276

 

 

 

76

 

 

29

%

 

 

58

 

 

21

%

(Loss) income from continuing operations before credit provision

 

(183

)

 

 

203

 

 

 

190

 

 

 

(385

)

NM

 

 

 

(373

)

NM

 

Provision for credit losses

 

514

 

 

 

23

 

 

 

33

 

 

 

491

 

NM

 

 

 

481

 

NM

 

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

 

(697

)

 

 

180

 

 

 

157

 

 

 

(877

)

NM

 

 

 

(854

)

NM

 

(Benefit) provision for income taxes

 

(72

)

 

 

49

 

 

 

38

 

 

 

(122

)

NM

 

 

 

(110

)

NM

 

(Loss) income from continuing operations

 

(624

)

 

 

131

 

 

 

119

 

 

 

(755

)

NM

 

 

 

(744

)

NM

 

Income from discontinued operations, net of taxes

 

-

 

 

 

-

 

 

 

(0

)

 

 

-

 

NM

 

 

 

-

 

 

-

 

Net (loss) income

 

(624

)

 

 

131

 

 

 

119

 

 

 

(755

)

NM

 

 

 

(743

)

NM

 

Preferred stock dividends

 

4

 

 

 

10

 

 

 

-

 

 

 

(6

)

 

-60

%

 

 

4

 

NM

 

Net (loss) income available to common shareholders

$

(628

)

 

$

121

 

 

$

119

 

 

$

(749

)

NM

 

 

$

(747

)

NM

 

(Loss) income from continuing operations available to common shareholders

$

(628

)

 

$

121

 

 

$

119

 

 

$

(749

)

NM

 

 

$

(747

)

NM

 

Noteworthy items(2)

 

390

 

 

 

-

 

 

 

-

 

 

 

390

 

 

 

 

 

 

390

 

 

 

 

(Loss) income from continuing operations available to common shareholders, excluding noteworthy items¹⁾⁽²

$

(238

)

 

$

121

 

 

$

119

 

 

$

(360

)

NM

 

 

$

(358

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) income per common share

$

(6.40

)

 

$

1.27

 

 

$

1.18

 

 

$

(7.68

)

NM

 

 

$

(7.58

)

NM

 

Diluted (loss) income per common share, excluding noteworthy items

$

(2.43

)

 

$

1.27

 

 

$

1.18

 

 

$

(3.70

)

NM

 

 

$

(3.61

)

NM

 

Average diluted common shares outstanding (in thousands)

 

98,089

 

 

 

95,143

 

 

 

101,096

 

 

 

2,946

 

 

3

%

 

 

(3,007

)

 

-3

%

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

$

51.12

 

 

$

56.77

 

 

$

52.42

 

 

$

(5.64

)

 

-10

%

 

$

(1.29

)

 

-2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loans and leases (includes HFS and net of credit balances)

$

43,910

 

 

$

37,241

 

 

$

36,360

 

 

$

6,669

 

 

18

%

 

$

7,549

 

 

21

%

Average core loans and leases (includes HFS and net of credit balances)

 

41,754

 

 

 

35,081

 

 

 

33,602

 

 

 

6,673

 

 

19

%

 

 

8,152

 

 

24

%

Average earning assets (AEA)(1)

 

53,685

 

 

 

46,504

 

 

 

46,169

 

 

 

7,181

 

 

15

%

 

 

7,515

 

 

16

%

New business volume

 

3,592

 

 

 

3,619

 

 

 

2,684

 

 

 

(27

)

 

-1

%

 

 

908

 

 

34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key performance metrics, continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance margin(1)

 

2.73

%

 

 

3.01

%

 

 

3.20

%

 

-28bps

 

 

 

 

 

-47bps

 

 

 

 

Net efficiency ratio(1)

 

65.6

%

 

 

54.8

%

 

 

58.0

%

 

NM

 

 

 

 

 

NM

 

 

 

 

Net charge-offs

 

0.57

%

 

 

0.40

%

 

 

0.43

%

 

17bps

 

 

 

 

 

14bps

 

 

 

 

Return on AEA (ROAEA)(1)

NM

 

 

 

1.04

%

 

 

1.03

%

 

NM

 

 

 

 

 

NM

 

 

 

 

Return on tangible common equity (ROTCE)(1)

NM

 

 

 

9.41

%

 

 

9.67

%

 

NM

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key performance metrics, continuing operations excluding Noteworthy Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net finance margin(1)(2)

 

2.73

%

 

 

3.01

%

 

 

3.20

%

 

-28bps

 

 

 

 

 

-47bps

 

 

 

 

Net efficiency ratio(1)(2)

 

62.2

%

 

 

54.8

%

 

 

58.0

%

 

NM

 

 

 

 

 

NM

 

 

 

 

Net charge-offs

 

0.57

%

 

 

0.40

%

 

 

0.43

%

 

17bps

 

 

 

 

 

14bps

 

 

 

 

ROAEA(1)(2)

NM

 

 

 

1.04

%

 

 

1.03

%

 

NM

 

 

 

 

 

NM

 

 

 

 

ROTCE(1)(2)

NM

 

 

 

9.41

%

 

 

9.67

%

 

NM

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net finance revenue, total net revenue, TBVPS, AEA, net finance margin, net efficiency ratio, ROAEA and ROTCE are non-GAAP measures that management uses to evaluate the performance of the business. See "Non-GAAP Measurements" at the end of this press release for a reconciliation of non-GAAP to GAAP financial information, descriptions of the non-GAAP measures, and noteworthy items. TBVPS is detailed on page 16.

 

(2)We exclude noteworthy items due to their episodic nature and size. See "Non-GAAP Measurements" at the end of this press release for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

 

*Certain balances may not sum due to rounding.

 

 

1 

Loss to common shareholders excluding noteworthy items is a non-GAAP measure. See “Non-GAAP Measurements” at the end of this press release for a reconciliation of non-GAAP to GAAP financial information.

2 

Average core loans and leases excluding the MOB acquisition is a non-GAAP measure. Core portfolios excluding the MOB acquisition are total loans and leases net of credit balances of factoring clients, Legacy Consumer Mortgages (LCM), Non-Strategic Portfolios (NSP) and the loans added in the MOB acquisition. See “Non-GAAP Measurements” at the end of this press release for a reconciliation of non-GAAP to GAAP financial information.

3 

Capital conservation buffer.

4 

Available cash consists primarily of unrestricted cash held at the Fed or correspondent banks. High Quality Liquid Assets (HQLA) consist of readily marketable and unencumbered Treasury and Agency securities at market value held outright or via reverse repurchase agreements.

 

 

1

 


 

 

 

 

First Quarter Financial Highlights:

Net finance margin of 2.73% was down 28 bps from the prior quarter, primarily reflecting lower yields on loans and investment securities from lower market rates and lower yields on operating leases.

Other non-interest income increased $19 million from the prior quarter to $131 million, primarily driven by higher gains on sale of loans, leasing equipment in Rail and investment securities.

Operating expenses, excluding noteworthy items in the current quarter and intangible asset amortization, increased $56 million from the prior quarter to $309 million, primarily from higher employee and advertising and marketing costs.

Net efficiency ratio excluding noteworthy items of 62% increased from 55% in the prior quarter, primarily reflecting the increase in operating expenses, partially offset by an increase in total net revenue.

Goodwill impairment of $345 million, a noteworthy item, primarily related to the OneWest Bank acquisition.

Provision for credit losses was $514 million, up from $23 million in the prior quarter, reflecting the impact of the current market environment under CECL and the MOB acquisition.

Net charge-offs of $54 million (0.57% of average loans) was primarily driven by an increase in oil & gas-related loans acquired in the MOB acquisition.

Non-accrual loans increased by $59 million and represented 1.00% of total loans.  The increase was mostly driven by the transition of purchase credit impaired (PCI) loans in the Legacy Consumer Mortgages (LCM) division of Consumer Banking to purchase credit deteriorated (PCD) loans upon the adoption of CECL.

Effective tax rate of 10% (19% excluding noteworthy items), reflecting the effect of the lower pre-tax income on permanent differences and credits.

Loans and leases to deposit ratio was 95% at CIT Bank and 109% at CIT Group.

Tangible book value per share of $51.12 decreased from the prior quarter primarily due to the net loss in the quarter and the MOB acquisition.

CET1 ratio decreased to 9.7%, reflecting the MOB acquisition and the net loss in the quarter.

 

Noteworthy Items

Financial results for the first quarter included the following noteworthy items:

$339 million (after-tax) ($3.46 per diluted common share) in goodwill impairment charges, primarily related to the OneWest Bank acquisition.

$37 million (after tax) ($0.37 per diluted common share) charge to the provision for credit losses from the adoption of CECL related to the MOB acquisition.

$14 million (after tax) ($0.14 per diluted common share) in merger and integration costs related to the MOB acquisition.

 

 

 

 

 

2

 


 

 

 

Income Statement Highlights:

Net Finance Revenue

 

Net Finance Revenue*

 

 

 

 

 

 

 

 

 

 

 

 

1Q20 change from

 

($ in millions)

1Q20

 

 

4Q19

 

 

1Q19

 

 

4Q19

 

 

1Q19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

$

514

 

 

$

481

 

 

$

517

 

 

$

32

 

 

7

%

 

$

(3

)

 

-1

%

Net operating lease revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income on operating leases

 

210

 

 

 

215

 

 

 

218

 

 

 

(6

)

 

-3

%

 

 

(8

)

 

-4

%

Depreciation on operating lease equipment

 

78

 

 

 

76

 

 

 

79

 

 

 

2

 

 

2

%

 

 

(1

)

 

-1

%

Maintenance and other operating lease expenses

 

54

 

 

 

41

 

 

 

50

 

 

 

13

 

 

32

%

 

 

4

 

 

8

%

Total net operating lease revenue(1)

 

78

 

 

 

98

 

 

 

89

 

 

 

(20

)

 

-21

%

 

 

(11

)

 

-12

%

Interest expense

 

226

 

 

 

230

 

 

 

236

 

 

 

(4

)

 

-2

%

 

 

(10

)

 

-4

%

Net finance revenue (2)

$

366

 

 

$

350

 

 

$

369

 

 

$

16

 

 

5

%

 

$

(4

)

 

-1

%

Net finance revenue, excluding noteworthy items(2)(3)

$

366

 

 

$

350

 

 

$

369

 

 

$

16

 

 

5

%

 

$

(4

)

 

-1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

$

53,685

 

 

$

46,504

 

 

$

46,169

 

 

$

7,181

 

 

15

%

 

$

7,515

 

 

16

%

Net finance margin(2)

 

2.73

%

 

 

3.01

%

 

 

3.20

%

 

-28bps

 

 

 

 

 

-47bps

 

 

 

 

Net finance margin, excluding noteworthy items(2)(3)

 

2.73

%

 

 

3.01

%

 

 

3.20

%

 

-28bps

 

 

 

 

 

-47bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)Net operating lease revenue is a non-GAAP measure, and is reconciled in the table as a combination of GAAP balances, rental income on operating leases less depreciation on operating lease equipment and maintenance and other operating lease expenses. Net operating lease revenue is used by management to monitor portfolio performance and returns on purchased equipment.

 

(2)These balances and metrics are non-GAAP measures used to measure the profitability of our earning assets. See "Non-GAAP Measurements" at the end of this press release for a reconciliation of non-GAAP to GAAP financial information.

 

(3)See "Non-GAAP measurements" for a listing of Noteworthy items.

 

*Certain balances may not sum due to rounding.

 

Net finance revenue was $366 million compared to $350 million in the prior quarter.

 

o

Higher income on loans from asset growth, including the MOB acquisition, partially offset by lower market rates.

 

o

Lower net operating lease income in Rail, primarily due to lower utilization and renewal rates and higher maintenance costs in the current quarter and higher rental income from excess mileage in the prior quarter.

 

o

Lower deposit costs from the addition of lower-cost Homeowners Association (HOA) and commercial deposits from the MOB acquisition and lower rates in all deposit channels.

 

o

Lower interest recoveries and prepayment fees, as prepayment rates slowed considerably.

 

o

Acceleration of the premium amortization on agency mortgage-backed securities (MBS) within the investment portfolio of $9 million due to higher actual and forecasted prepayment speeds.

Net finance margin (net finance revenue as a percentage of average earning assets) was 2.73%, a 28 bps decrease from 3.01% in the prior quarter.

 

o

Lower operating lease yields in Rail.

 

o

Lower yields on loans from the addition of lower-yielding MOB loans and from lower market rates.

 

o

Lower yields on investment securities from lower market rates.

 

o

Lower weighted average deposit and borrowing rates.

 

o

Lower prepayment fees from the decline in prepayment rates.

Net finance revenue decreased $4 million compared to the year-ago quarter.

 

o

Higher income on loans from asset growth, including the MOB acquisition, partially offset by lower market rates.

 

o

Lower income on cash and investment securities due to lower market rates.

 

 

3

 


 

 

 

 

o

Lower net operating lease income in Rail, primarily due to lower utilization rates and higher maintenance costs.

 

o

Lower interest costs driven by lower average FHLB balances and lower FHLB rates.

 

o

Lower prepayment fees, as prepayment rates slowed considerably.

Compared to the year-ago quarter, net finance margin decreased 47 bps.

 

o

Lower yields on loans from the addition of lower-yielding MOB loans and from lower market rates.

 

o

Lower yields on investment securities from lower market rates.

 

o

Lower operating lease yields in Rail.

 

o

Lower weighted average deposit and borrowing rates.

 

o

Lower prepayment fees from the decline in prepayment rates.

 

 

Other Non-Interest Income

 

Other Non-Interest Income*

 

 

 

 

 

 

 

 

 

 

 

 

1Q20 change from

 

($ in millions)

1Q20

 

 

4Q19

 

 

1Q19

 

 

4Q19

 

 

1Q19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

$

34

 

 

$

29

 

 

$

31

 

 

$

5

 

 

16

%

 

$

3

 

 

10

%

Factoring commissions

 

23

 

 

 

26

 

 

 

24

 

 

 

(3

)

 

-11

%

 

 

(1

)

 

-4

%

Gains on leasing equipment, net of impairments

 

23

 

 

 

20

 

 

 

17

 

 

 

4

 

 

19

%

 

 

7

 

 

40

%

BOLI income

 

8

 

 

 

8

 

 

 

6

 

 

 

(0

)

 

-1

%

 

 

1

 

 

19

%

Gains on investment securities, net of impairments

 

14

 

 

 

1

 

 

 

2

 

 

 

13

 

NM

 

 

 

12

 

NM

 

Property tax income

 

5

 

 

 

5

 

 

 

6

 

 

 

(1

)

 

-12

%

 

 

(2

)

 

-25

%

Other income

 

25

 

 

 

23

 

 

 

11

 

 

 

2

 

 

8

%

 

 

13

 

NM

 

Total other non-interest income

 

131

 

 

 

111

 

 

 

97

 

 

 

19

 

 

17

%

 

 

34

 

 

35

%

Total other non-interest income, excluding noteworthy items(1)(2)

$

131

 

 

$

111

 

 

$

97

 

 

$

19

 

 

17

%

 

$

34

 

 

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)See "Non-GAAP measurements" for a listing of Noteworthy items.

 

(2)Total other non-interest income, excluding noteworthy items is a non-GAAP measure and is reconciled to the GAAP balance, total other non-interest income, in the table above. Total other non-interest income, excluding noteworthy items is used by management to monitor the underlying level of income.

 

*Certain balances may not sum due to rounding.

 

Other non-interest income was $131 million, compared to $111 million in the prior quarter

 

o

Higher fee income from the addition of fee income in our Community Association Business (CAB) and an increase in capital markets fees.

 

o

Lower factoring commissions due to lower volumes, especially late in the quarter as a result of the downturn in the macroeconomic environment.

 

o

Higher gains on sale of loans, including loans in the LCM portfolio.

 

o

Higher gains on investment securities, driven by sales of legacy MBS and the sale of certain investment securities acquired in the MOB transaction.

 

o

Negative mark-to-market of $8 million in the current quarter on credit valuation adjustments (CVA) related to customer derivatives.

Other non-interest income increased by $34 million compared to the year-ago quarter.

 

o

Higher gains on sale of LCM loans.

 

 

4

 


 

 

 

 

o

Higher gains on investment securities, driven by sales of legacy MBS and the sale of certain investment securities acquired in the MOB transaction.

 

o

Higher gain on the sale of leasing equipment, driven by increased gains on the sale of railcars.

 

 

 

Operating Expenses

 

Operating Expenses*

 

 

 

 

 

 

 

 

 

 

 

 

1Q20 change from

 

($ in millions)

1Q20

 

 

4Q19

 

 

1Q19

 

 

4Q19

 

 

1Q19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

$

182

 

 

$

142

 

 

$

146

 

 

$

40

 

 

28

%

 

$

36

 

 

25

%

Technology

 

39

 

 

 

35

 

 

 

33

 

 

 

4

 

 

12

%

 

 

6

 

 

19

%

Professional fees

 

25

 

 

 

20

 

 

 

19

 

 

 

5

 

 

26

%

 

 

6

 

 

34

%

Insurance

 

13

 

 

 

11

 

 

 

14

 

 

 

3

 

 

25

%

 

 

(1

)

 

-8

%

Net occupancy expense

 

19

 

 

 

16

 

 

 

16

 

 

 

3

 

 

19

%

 

 

3

 

 

19

%

Advertising and marketing

 

17

 

 

 

7

 

 

 

13

 

 

 

10

 

NM

 

 

 

3

 

 

26

%

Property tax expense

 

5

 

 

 

6

 

 

 

6

 

 

 

(1

)

 

-20

%

 

 

(2

)

 

-24

%

Intangible asset amortization

 

9

 

 

 

6

 

 

 

6

 

 

 

3

 

 

47

%

 

 

3

 

 

47

%

Other expenses

 

27

 

 

 

17

 

 

 

23

 

 

 

10

 

 

56

%

 

 

3

 

 

14

%

Total operating expenses

 

334

 

 

 

259

 

 

 

276

 

 

 

76

 

 

29

%

 

 

58

 

 

21

%

Noteworthy items

 

17

 

 

 

-

 

 

 

-

 

 

 

17

 

NM

 

 

 

17

 

NM

 

Intangible asset amortization

 

9

 

 

 

6

 

 

 

6

 

 

 

3

 

 

47

%

 

 

3

 

 

47

%

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

$

309

 

 

$

253

 

 

$

270

 

 

$

56

 

 

22

%

 

$

39

 

 

14

%

Net efficiency ratio(2)

 

65.6

%

 

 

54.8

%

 

 

58.0

%

 

NM

 

 

 

 

 

NM

 

 

 

 

Net efficiency ratio, excluding noteworthy items and intangible asset amortization(2)

 

62.2

%

 

 

54.8

%

 

 

58.0

%

 

NM

 

 

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)Operating expenses excluding intangible asset amortization is used by management to compare period over period expenses, absent the strategic nature of the adjustments. Due to the exclusion of intangible amortization, this is considered a non-GAAP measure, as reconciled to total operating expenses in the table.

 

(2)These metrics are non-GAAP measures. See "Non-GAAP Measurements" at the end of this press release for details on the calculation and description of the use of the metric. See non-GAAP disclosures for reconciliation of total net revenues.

 

*Certain balances may not sum due to rounding.