Washington, D.C. 20549
FORM 10-Q
|X| | ||||
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended September 30, |
Commission File Number: 001-31369
CIT GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 65-1051192 (IRS Employer Identification Number) | |
11 West 42nd Street New York, New York (Address of Registrant’s principal executive offices) | 10036 (Zip Code) | |
(212) 461-5200 (Registrant’s telephone number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’, ‘smaller reporting company’ and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_| (Do not check if a smaller reporting company) Smaller reporting company |_| Emerging growth company |_|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |_|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |_| No |_|
As of October 31, 2017,2018, there were 131,258,836105,592,774 shares of the registrant’s common stock outstanding.
Item 1. | 2 | |||
2 | ||||
3 | ||||
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | 4 | |||
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) | 5 | |||
6 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 45 | ||
and | ||||
Item 3. | 45 | |||
Item 4. | 89 | |||
Item 1. | 90 | |||
Item 1A. | 90 | |||
Item 2. | 90 | |||
Item 4. | 90 | |||
Item 6. | 91 | |||
94 | ||||
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data)
| September 30, |
|
| December 31, |
| ||
| 2018 |
|
| 2017 |
| ||
Assets |
|
|
|
|
|
|
|
Cash and due from banks, including restricted balances of $22.8 at September 30, 2018 and $42.9 at December 31, 2017(1) (see Note 6 for amounts pledged) | $ | 167.6 |
|
| $ | 278.6 |
|
Interest bearing deposits, including restricted balances of $79.1 at September 30, 2018 and $81.8 at December 31, 2017(1) (see Note 6 for amounts pledged) |
| 1,199.9 |
|
|
| 1,440.1 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| 150.0 |
|
Investment securities, including securities carried at fair value with changes recorded in net income of $44.0 at September 30, 2018 and $0.4 at December 31, 2017 (see Note 6 for amounts pledged) |
| 6,339.5 |
|
|
| 6,469.9 |
|
Assets held for sale(1) |
| 1,380.5 |
|
|
| 2,263.1 |
|
Loans (see Note 6 for amounts pledged) |
| 30,495.8 |
|
|
| 29,113.9 |
|
Allowance for loan losses |
| (477.4 | ) |
|
| (431.1 | ) |
Total loans, net of allowance for loan losses(1) |
| 30,018.4 |
|
|
| 28,682.8 |
|
Operating lease equipment, net (see Note 6 for amounts pledged)(1) |
| 6,888.7 |
|
|
| 6,738.9 |
|
Bank-owned life insurance |
| 808.2 |
|
|
| 788.6 |
|
Goodwill |
| 369.9 |
|
|
| 369.9 |
|
Other assets, including $129.3 at September 30, 2018 and $68.7 at December 31, 2017, at fair value |
| 1,562.0 |
|
|
| 1,595.5 |
|
Assets of discontinued operations(1) |
| 327.7 |
|
|
| 501.3 |
|
Total Assets | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
Liabilities |
|
|
|
|
|
|
|
Deposits | $ | 30,825.0 |
|
| $ | 29,569.3 |
|
Credit balances of factoring clients |
| 1,672.4 |
|
|
| 1,468.6 |
|
Other liabilities, including $195.5 at September 30, 2018 and $198.1 at December 31, 2017, at fair value |
| 1,461.9 |
|
|
| 1,437.1 |
|
Borrowings, including $170.4 at September 30, 2018 and $1,626.3 at December 31, 2017 contractually due within twelve months |
| 8,674.2 |
|
|
| 8,974.4 |
|
Liabilities of discontinued operations(1) |
| 308.6 |
|
|
| 509.3 |
|
Total Liabilities |
| 42,942.1 |
|
|
| 41,958.7 |
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock: $0.01 par value, 100,000,000 shares authorized, 325,000 shares issued and outstanding |
| 325.0 |
|
|
| 325.0 |
|
Common Stock: $0.01 par value, 600,000,000 shares authorized |
|
|
|
|
|
|
|
Issued: 209,039,304 at September 30, 2018 and 207,628,491 at December 31, 2017 |
| 2.1 |
|
|
| 2.1 |
|
Outstanding: 110,565,933 at September 30, 2018 and 131,352,924 at December 31, 2017 |
|
|
|
|
|
|
|
Paid-in capital |
| 8,831.3 |
|
|
| 8,798.1 |
|
Retained earnings |
| 2,182.3 |
|
|
| 1,906.5 |
|
Accumulated other comprehensive loss |
| (199.4 | ) |
|
| (86.5 | ) |
Treasury stock: 98,473,371 shares at September 30, 2018 and 76,275,567 shares at December 31, 2017 at cost |
| (4,821.0 | ) |
|
| (3,625.2 | ) |
Total Common Stockholders’ Equity |
| 5,995.3 |
|
|
| 6,995.0 |
|
Total Equity |
| 6,320.3 |
|
|
| 7,320.0 |
|
Total Liabilities and Equity | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data) | ||||||||
| September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
Cash and due from banks, including restricted balances of $60.8 and $176.1 at September 30, 2017 and December 31, 2016(1), respectively (see Note 6 for amounts pledged) | $ | 453.4 | $ | 822.1 | ||||
Interest bearing deposits, including restricted balances of $90.1 and $102.8 at September 30, 2017 and December 31, 2016(1), respectively (see Note 6 for amounts pledged) | 2,658.9 | 5,608.5 | ||||||
| Investment securities, including securities carried at fair value with changes recorded in net income of $247.7 and $283.5 at September 30, 2017 and December 31, 2016, respectively (see Note 6 for amounts pledged) | 5,744.8 | 4,491.1 | ||||||
Assets held for sale(1) | 2,162.0 | 636.0 | ||||||
| Loans (see Note 6 for amounts pledged) | 28,505.3 | 29,535.9 | ||||||
| Allowance for loan losses | (419.5 | ) | (432.6 | ) | ||||
Total loans, net of allowance for loan losses(1) | 28,085.8 | 29,103.3 | ||||||
Operating lease equipment, net (see Note 6 for amounts pledged)(1) | 6,724.2 | 7,486.1 | ||||||
| Bank-owned life insurance | 651.8 | — | ||||||
| Goodwill | 625.5 | 685.4 | ||||||
| Other assets, including $71.5 and $111.6 at September 30, 2017 and December 31, 2016, respectively, at fair value | 1,667.1 | 2,117.0 | ||||||
Assets of discontinued operations(1) | 562.0 | 13,220.7 | ||||||
| Total Assets | $ | 49,335.5 | $ | 64,170.2 | ||||
| Liabilities | ||||||||
| Deposits | $ | 29,594.7 | $ | 32,304.3 | ||||
| Credit balances of factoring clients | 1,698.5 | 1,292.0 | ||||||
| Other liabilities, including $190.6 and $177.9 at September 30, 2017 and December 31, 2016, respectively, at fair value | 1,496.1 | 1,897.6 | ||||||
| Borrowings, including $897.4 and $2,321.7 contractually due within twelve months at September 30, 2017 and December 31, 2016, respectively | 8,531.2 | 14,935.5 | ||||||
Liabilities of discontinued operations(1) | 563.7 | 3,737.7 | ||||||
| Total Liabilities | 41,884.2 | 54,167.1 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock: $0.01 par value, 100,000,000 authorized, 325,000 shares issued and outstanding | 325.0 | — | — | |||||
| Common Stock: $0.01 par value, 600,000,000 authorized | ||||||||
| Issued: 207,439,872 and 206,182,213 at September 30, 2017 and December 31, 2016, respectively | 2.1 | 2.1 | ||||||
| Outstanding: 131,370,803 and 202,087,672 at September 30, 2017 and December 31, 2016, respectively | ||||||||
| Paid-in capital | 8,787.1 | 8,765.8 | ||||||
| Retained earnings | 2,025.8 | 1,553.0 | ||||||
| Accumulated other comprehensive loss | (73.3 | ) | (140.1 | ) | ||||
| Treasury stock: 76,069,069 and 4,094,541 shares at September 30, 2017 and December 31, 2016 at cost, respectively | (3,615.4 | ) | (178.1 | ) | ||||
| Total Common Stockholders’ Equity | 7,126.3 | 10,002.7 | ||||||
| Noncontrolling minority interests | — | 0.4 | ||||||
| Total Equity | 7,451.3 | 10,003.1 | ||||||
| Total Liabilities and Equity | $ | 49,335.5 | $ | 64,170.2 | ||||
(1) | The following table presents information on assets and liabilities related to Variable Interest Entities |
Assets |
|
|
|
|
|
|
|
Cash and interest bearing deposits, restricted | $ | 76.7 |
|
| $ | 80.4 |
|
Total loans, net of allowance for loan losses |
| 3.0 |
|
|
| 119.1 |
|
Operating lease equipment, net |
| 775.0 |
|
|
| 763.3 |
|
Total Assets | $ | 854.7 |
|
| $ | 962.8 |
|
Liabilities |
|
|
|
|
|
|
|
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings) | $ | 462.7 |
|
| $ | 566.6 |
|
Total Liabilities | $ | 462.7 |
|
| $ | 566.6 |
|
| Assets | |||||||
| Cash and interest bearing deposits, restricted | $ | 88.3 | $ | 99.9 | |||
| Total loans, net of allowance for loan losses | 146.8 | 300.5 | |||||
| Operating lease equipment, net | 759.9 | 775.8 | |||||
| Assets of discontinued operations | — | 2,321.7 | |||||
| Total Assets | $ | 995.0 | $ | 3,497.9 | |||
| Liabilities | |||||||
| Beneficial interests issued by consolidated VIEs (classified as long-term borrowings) | $ | 603.9 | $ | 770.0 | |||
| Liabilities of discontinued operations | — | 1,204.6 | |||||
| Total Liabilities | $ | 603.9 | $ | 1,974.6 | |||
The accompanying notes are an integral part of these consolidated financial statements.
2 CIT GROUP INC.
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in millions — except per share data) |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in millions — except per share data) | ||||||||||||||||||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||||||||||
| Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Interest and fees on loans | $ | 403.5 | $ | 443.8 | $ | 1,236.9 | $ | 1,343.4 | $ | 417.4 |
|
| $ | 403.5 |
|
| $ | 1,233.8 |
|
| $ | 1,236.9 |
| |||||||
| Other interest and dividends | 50.5 | 31.9 | 151.0 | 93.9 |
| 56.2 |
|
|
| 50.5 |
|
|
| 164.6 |
|
|
| 151.0 |
| |||||||||||
| Interest income | 454.0 | 475.7 | 1,387.9 | 1,437.3 |
| 473.6 |
|
|
| 454.0 |
|
|
| 1,398.4 |
|
|
| 1,387.9 |
| |||||||||||
| Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Interest on borrowings | (84.1 | ) | (88.8 | ) | (267.8 | ) | (276.5 | ) |
| 90.8 |
|
|
| 84.1 |
|
|
| 268.8 |
|
|
| 267.8 |
| |||||||
| Interest on deposits | (92.6 | ) | (99.4 | ) | (281.2 | ) | (298.3 | ) |
| 123.1 |
|
|
| 92.6 |
|
|
| 330.8 |
|
|
| 281.2 |
| |||||||
| Interest expense | (176.7 | ) | (188.2 | ) | (549.0 | ) | (574.8 | ) |
| 213.9 |
|
|
| 176.7 |
|
|
| 599.6 |
|
|
| 549.0 |
| |||||||
| Net interest revenue | 277.3 | 287.5 | 838.9 | 862.5 |
| 259.7 |
|
|
| 277.3 |
|
|
| 798.8 |
|
|
| 838.9 |
| |||||||||||
| Provision for credit losses | (30.1 | ) | (45.1 | ) | (84.2 | ) | (157.9 | ) |
| 38.1 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
| |||||||
| Net interest revenue, after credit provision | 247.2 | 242.4 | 754.7 | 704.6 |
| 221.6 |
|
|
| 247.2 |
|
|
| 659.0 |
|
|
| 754.7 |
| |||||||||||
| Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Rental income on operating leases | 252.3 | 254.3 | 754.8 | 779.4 |
| 264.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
| |||||||||||
| Other non-interest income | 63.3 | 83.6 | 227.0 | 268.2 |
| 86.2 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
| |||||||||||
| Total non-interest income | 315.6 | 337.9 | 981.8 | 1,047.6 |
| 350.5 |
|
|
| 315.6 |
|
|
| 1,105.5 |
|
|
| 981.8 |
| |||||||||||
| Total revenue, net of interest expense and credit provision | 562.8 | 580.3 | 1,736.5 | 1,752.2 |
| 572.1 |
|
|
| 562.8 |
|
|
| 1,764.5 |
|
|
| 1,736.5 |
| |||||||||||
| Non-interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Depreciation on operating lease equipment | (71.1 | ) | (66.9 | ) | (222.0 | ) | (191.3 | ) |
| 78.0 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
| |||||||
| Maintenance and other operating lease expenses | (57.9 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) |
| 56.6 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
| |||||||
| Operating expenses | (277.3 | ) | (302.9 | ) | (884.5 | ) | (942.3 | ) |
| 263.3 |
|
|
| 277.3 |
|
|
| 812.1 |
|
|
| 884.5 |
| |||||||
| Loss on debt extinguishment and deposit redemption | (53.5 | ) | (5.2 | ) | (218.3 | ) | (9.2 | ) |
| 3.5 |
|
|
| 53.5 |
|
|
| 22.9 |
|
|
| 218.3 |
| |||||||
| Total non-interest expenses | (459.8 | ) | (431.6 | ) | (1,489.8 | ) | (1,298.9 | ) |
| 401.4 |
|
|
| 459.8 |
|
|
| 1,244.1 |
|
|
| 1,489.8 |
| |||||||
| Income from continuing operations before benefit (provision) for income taxes | 103.0 | 148.7 | 246.7 | 453.3 | ||||||||||||||||||||||||||
| Benefit (provision) for income taxes | 119.8 | (54.5 | ) | 95.5 | (210.1 | ) | ||||||||||||||||||||||||
Income from continuing operations before (benefit) provision for income taxes |
| 170.7 |
|
|
| 103.0 |
|
|
| 520.4 |
|
|
| 246.7 |
| |||||||||||||||
Provision (benefit) for income taxes |
| 41.3 |
|
|
| (119.8 | ) |
|
| 140.0 |
|
|
| (95.5 | ) | |||||||||||||||
| Income from continuing operations | 222.8 | 94.2 | 342.2 | 243.2 |
| 129.4 |
|
|
| 222.8 |
|
|
| 380.4 |
|
|
| 342.2 |
| |||||||||||
| Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Income (loss) from discontinued operations, net of taxes | (1.9 | ) | 37.3 | 95.4 | 51.3 |
| 2.1 |
|
|
| (1.9 | ) |
|
| (8.8 | ) |
|
| 95.4 |
| ||||||||||
| Gain (loss) on sale of discontinued operations, net of taxes | (1.3 | ) | — | 118.6 | — | |||||||||||||||||||||||||
Loss (gain) on sale of discontinued operations, net of taxes |
| — |
|
|
| (1.3 | ) |
|
| (16.3 | ) |
|
| 118.6 |
| |||||||||||||||
| Total income (loss) from discontinued operations, net of taxes | (3.2 | ) | 37.3 | 214.0 | 51.3 |
| 2.1 |
|
|
| (3.2 | ) |
|
| (25.1 | ) |
|
| 214.0 |
| ||||||||||
| Net Income | $ | 219.6 | $ | 131.5 | $ | 556.2 | $ | 294.5 | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 355.3 |
|
| $ | 556.2 |
| |||||||
Preferred dividends |
| — |
|
|
| — |
|
|
| 9.4 |
|
|
| — |
| |||||||||||||||
Net income available to common shareholders | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
| $ | 556.2 |
| |||||||||||||||
Income from continuing operations available to common shareholders | $ | 129.4 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
| $ | 342.2 |
| |||||||||||||||
| Basic income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Income from continuing operations | $ | 1.66 | $ | 0.47 | $ | 1.98 | $ | 1.21 | $ | 1.15 |
|
| $ | 1.66 |
|
| $ | 3.04 |
|
| $ | 1.98 |
| |||||||
| Income (loss) from discontinued operations | (0.02 | ) | 0.18 | 1.24 | 0.25 |
| 0.02 |
|
|
| (0.02 | ) |
|
| (0.21 | ) |
|
| 1.24 |
| ||||||||||
| Basic income per share | $ | 1.64 | $ | 0.65 | $ | 3.22 | $ | 1.46 | $ | 1.17 |
|
| $ | 1.64 |
|
| $ | 2.83 |
|
| $ | 3.22 |
| |||||||
| Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Income from continuing operations | $ | 1.64 | $ | 0.47 | $ | 1.96 | $ | 1.21 | $ | 1.13 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
| |||||||
| Income (loss) from discontinued operations | (0.03 | ) | 0.18 | 1.23 | 0.25 |
| 0.02 |
|
|
| (0.03 | ) |
|
| (0.21 | ) |
|
| 1.23 |
| ||||||||||
| Diluted income per share | $ | 1.61 | $ | 0.65 | $ | 3.19 | $ | 1.46 | $ | 1.15 |
|
| $ | 1.61 |
|
| $ | 2.80 |
|
| $ | 3.19 |
| |||||||
| Average number of common shares (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Basic | 133,916 | 202,036 | 172,682 | 201,775 |
| 112,842 |
|
|
| 133,916 |
|
|
| 122,185 |
|
|
| 172,682 |
| |||||||||||
| Diluted | 136,126 | 202,755 | 174,201 | 202,388 |
| 114,007 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
| |||||||||||
| Dividends declared per common share | $ | 0.15 | $ | 0.15 | $ | 0.45 | $ | 0.45 | $ | 0.25 |
|
| $ | 0.15 |
|
| $ | 0.57 |
|
| $ | 0.45 |
| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (dollars in millions)
| Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Net Income | $ | 131.5 |
|
| $ | 219.6 |
|
| $ | 355.3 |
|
| $ | 556.2 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 7.3 |
|
|
| 11.1 |
|
|
| 0.7 |
|
|
| 54.6 |
|
Net unrealized gains (losses) on available for sale securities |
| (30.6 | ) |
|
| 3.9 |
|
|
| (116.9 | ) |
|
| 10.6 |
|
Changes in benefit plans net gain (loss) and prior service (cost)/credit |
| — |
|
|
| 0.1 |
|
|
| 3.8 |
|
|
| 1.6 |
|
Other comprehensive income (loss), net of tax |
| (23.3 | ) |
|
| 15.1 |
|
|
| (112.4 | ) |
|
| 66.8 |
|
Comprehensive income | $ | 108.2 |
|
| $ | 234.7 |
|
| $ | 242.9 |
|
| $ | 623.0 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (dollars in millions) | |||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net Income | $ | 219.6 | $ | 131.5 | $ | 556.2 | $ | 294.5 | |||||||
| Other comprehensive income, net of tax: | |||||||||||||||
| Foreign currency translation adjustments | 11.1 | (2.2 | ) | 54.6 | 16.3 | ||||||||||
| Net unrealized gains on available for sale securities | 3.9 | 5.6 | 10.6 | 20.3 | |||||||||||
| Changes in benefit plans net gain (loss) and prior service (cost)/credit | 0.1 | 0.1 | 1.6 | 1.3 | |||||||||||
| Other comprehensive income, net of tax | 15.1 | 3.5 | 66.8 | 37.9 | |||||||||||
| Comprehensive income | $ | 234.7 | $ | 135.0 | $ | 623.0 | $ | 332.4 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
4 CIT GROUP INC.
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions)
| Preferred Stock |
|
| Common Stock |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Noncontrolling Minority Interests |
|
| Total Equity |
| ||||||||
December 31, 2017 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,798.1 |
|
| $ | 1,906.5 |
|
| $ | (86.5 | ) |
| $ | (3,625.2 | ) |
| $ | — |
|
| $ | 7,320.0 |
|
Adoption of Accounting Standard Updates 2016-01, 2016-16, and 2018-02 |
| — |
|
|
| — |
|
|
| — |
|
|
| 0.7 |
|
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 355.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 355.3 |
|
Other comprehensive loss, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (112.4 | ) |
|
| — |
|
|
| — |
|
|
| (112.4 | ) |
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| (80.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80.2 | ) |
Share repurchases |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,167.2 | ) |
|
| — |
|
|
| (1,167.2 | ) |
Amortization of restricted stock, stock option and performance shares expenses |
| — |
|
|
| — |
|
|
| 31.0 |
|
|
| — |
|
|
| — |
|
|
| (28.6 | ) |
|
| — |
|
|
| 2.4 |
|
Employee stock purchase plan |
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.2 |
|
September 30, 2018 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,831.3 |
|
| $ | 2,182.3 |
|
| $ | (199.4 | ) |
| $ | (4,821.0 | ) |
| $ | — |
|
| $ | 6,320.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 | $ | — |
|
| $ | 2.1 |
|
| $ | 8,765.8 |
|
| $ | 1,553.0 |
|
| $ | (140.1 | ) |
| $ | (178.1 | ) |
| $ | 0.4 |
|
| $ | 10,003.1 |
|
Adoption of Accounting Standard Update 2016-09 |
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 556.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 556.2 |
|
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 66.8 |
|
|
| — |
|
|
| — |
|
|
| 66.8 |
|
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| (82.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (82.4 | ) |
Issuance of preferred stock |
| 325.0 |
|
|
| — |
|
|
| (7.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 318.0 |
|
Share repurchases |
| — |
|
|
| — |
|
|
| (9.6 | ) |
|
| — |
|
|
| — |
|
|
| (3,416.5 | ) |
|
| — |
|
|
| (3,426.1 | ) |
Amortization of restricted stock, stock option and performance shares expenses |
| — |
|
|
| — |
|
|
| 34.8 |
|
|
| — |
|
|
| — |
|
|
| (20.8 | ) |
|
| — |
|
|
| 14.0 |
|
Employee stock purchase plan |
| — |
|
|
| — |
|
|
| 2.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
Other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
September 30, 2017 | $ | 325.0 |
|
| $ | 2.1 |
|
| $ | 8,787.1 |
|
| $ | 2,025.8 |
|
| $ | (73.3 | ) |
| $ | (3,615.4 | ) |
| $ | — |
|
| $ | 7,451.3 |
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Minority Interests | Total Equity | |||||||||||||||||||||||||
| December 31, 2016 as reported | $ | — | $ | 2.1 | $ | 8,765.8 | $ | 1,553.0 | $ | (140.1 | ) | $ | (178.1 | ) | $ | 0.4 | $ | 10,003.1 | ||||||||||||||
| Adoption of Accounting Standard Update 2016-09 | — | — | 1.0 | (1.0 | ) | — | — | — | — | |||||||||||||||||||||||
| December 31, 2016 | — | 2.1 | 8,766.8 | 1,552.0 | (140.1 | ) | (178.1 | ) | 0.4 | 10,003.1 | ||||||||||||||||||||||
| Net income | — | — | — | 556.2 | — | — | — | 556.2 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 66.8 | — | — | 66.8 | ||||||||||||||||||||||||
| Dividends paid | — | — | — | (82.4 | ) | — | — | — | (82.4 | ) | ||||||||||||||||||||||
| Issuance of preferred stock | 325.0 | — | (7.0 | ) | — | — | — | — | 318.0 | |||||||||||||||||||||||
| Share repurchases | — | — | (9.6 | ) | — | — | (3,416.5 | ) | — | (3,426.1 | ) | |||||||||||||||||||||
| Amortization of restricted stock, stock option and performance shares expenses | — | — | 34.8 | — | — | (20.8 | ) | — | 14.0 | |||||||||||||||||||||||
| Employee stock purchase plan | — | — | 2.1 | — | — | — | — | 2.1 | ||||||||||||||||||||||||
| Distribution of earnings and capital | — | — | — | — | — | — | (0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
| September 30, 2017 | $ | 325.0 | $ | 2.1 | $ | 8,787.1 | $ | 2,025.8 | $ | (73.3 | ) | $ | (3,615.4 | ) | $ | — | $ | 7,451.3 | ||||||||||||||
| December 31, 2015 | $ | — | $ | 2.0 | $ | 8,718.1 | $ | 2,524.0 | $ | (142.1 | ) | $ | (157.3 | ) | $ | 0.5 | $ | 10,945.2 | ||||||||||||||
| Net income | — | — | — | 294.5 | — | — | — | 294.5 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 37.9 | — | — | 37.9 | ||||||||||||||||||||||||
| Dividends paid | — | — | — | (92.2 | ) | — | — | — | (92.2 | ) | ||||||||||||||||||||||
| Amortization of restricted stock, stock option and performance shares expenses | — | — | 38.2 | — | — | (20.7 | ) | — | 17.5 | |||||||||||||||||||||||
| Issuance of common stock — acquisition | — | 0.1 | — | — | — | — | — | 0.1 | ||||||||||||||||||||||||
| Employee stock purchase plan | — | — | 1.9 | — | — | — | — | 1.9 | ||||||||||||||||||||||||
| September 30, 2016 | $ | — | $ | 2.1 | $ | 8,758.2 | $ | 2,726.3 | $ | (104.2 | ) | $ | (178.0 | ) | $ | 0.5 | $ | 11,204.9 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Cash Flows From Operations |
|
|
|
|
|
|
|
Net income | $ | 355.3 |
|
| $ | 556.2 |
|
Adjustments to reconcile net income to net cash flows from operations: |
|
|
|
|
|
|
|
Provision for credit losses |
| 139.8 |
|
|
| 84.2 |
|
Depreciation on operating lease equipment |
| 231.6 |
|
|
| 222.0 |
|
Amortization of stock compensation expenses |
| 31.0 |
|
|
| 34.8 |
|
Net gain on asset sales and impairments on assets held for sale |
| (73.7 | ) |
|
| (278.6 | ) |
Loss on debt extinguishment and other deposit redemption |
| 22.9 |
|
|
| 256.6 |
|
Provision for deferred income taxes |
| 79.9 |
|
|
| 0.6 |
|
(Increase) decrease in finance receivables held for sale |
| (97.4 | ) |
|
| 43.4 |
|
(Increase) decrease in other assets |
| (92.0 | ) |
|
| 147.8 |
|
Decrease in other liabilities |
| (81.8 | ) |
|
| (721.0 | ) |
Other operating activities | 176.3 |
|
| 60.2 |
| ||
Net cash flows provided by operations |
| 691.9 |
|
|
| 406.2 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
Changes in loans, net |
| (1,439.0 | ) |
|
| 602.3 |
|
Purchases of investment securities |
| (2,129.5 | ) |
|
| (4,465.2 | ) |
Proceeds from sales and maturities of investment securities |
| 2,087.3 |
|
|
| 3,189.8 |
|
Proceeds from asset and receivable sales |
| 1,266.8 |
|
|
| 792.3 |
|
Proceeds from sale of commercial air |
| — |
|
|
| 10,026.0 |
|
Purchases of assets to be leased and other equipment |
| (470.6 | ) |
|
| (660.2 | ) |
Proceeds from sale of OREO, net of repurchases |
| 52.9 |
|
|
| 82.7 |
|
Purchase of bank owned life insurance |
| — |
|
|
| (650.0 | ) |
Other investing activities |
| 29.2 |
|
|
| 56.3 |
|
Net cash flows (used in) provided by investing activities |
| (602.9 | ) |
|
| 8,974.0 |
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
Proceeds from the issuance of term debt and FHLB advances |
| 4,061.4 |
|
|
| 1,668.1 |
|
Repayments of term debt, FHLB advances, and net settlements |
| (4,424.2 | ) |
|
| (9,231.3 | ) |
Net increase (decrease) in deposits |
| 1,257.2 |
|
|
| (2,707.3 | ) |
Repurchase of common stock |
| (1,167.2 | ) |
|
| (3,425.5 | ) |
Net proceeds from issuance of preferred stock |
| — |
|
|
| 318.0 |
|
Dividends paid |
| (80.2 | ) |
|
| (82.4 | ) |
Other financing activities |
| (86.3 | ) |
|
| (11.6 | ) |
Net cash flows used in financing activities |
| (439.3 | ) |
|
| (13,472.0 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| (8.6 | ) |
|
| 15.2 |
|
Decrease in cash, cash equivalents and restricted cash |
| (358.9 | ) |
|
| (4,076.6 | ) |
Cash, cash equivalents, and restricted cash beginning of period |
| 1,726.4 |
|
|
| 7,195.4 |
|
Cash, cash equivalents, and restricted cash end of period | $ | 1,367.5 |
|
| $ | 3,118.8 |
|
Supplementary Cash Flow Disclosures |
|
|
|
|
|
|
|
Interest paid | $ | (626.4 | ) |
| $ | (776.1 | ) |
Federal, foreign, state and local income taxes (paid) refunded, net | $ | (20.8 | ) |
| $ | (38.0 | ) |
Supplementary Non Cash Flow Disclosure |
|
|
|
|
|
|
|
Transfer of assets from held for investment to held for sale | $ | 280.0 |
|
| $ | 2,074.6 |
|
Transfer of assets from held for sale to held for investment | $ | 50.1 |
|
| $ | 122.6 |
|
Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment | $ | — |
|
| $ | 91.2 |
|
Transfers of assets to OREO | $ | 30.8 |
|
| $ | 85.3 |
|
Capital lease unexercised bargain purchase options | $ | — |
|
| $ | 17.5 |
|
Commitments extended during the period on affordable housing investment credits | $ | 64.1 |
|
| $ | 60.1 |
|
The following tables shows a reconciliation of cash, cash equivalents and restricted cash on the Balance Sheet to that presented in the above Statements of Cash Flow.
As of September 30, |
| ||||||
| 2018 |
|
| 2017 |
| ||
Cash and due from banks, including restricted balances of $22.8 and $60.8 at September 30, 2018 and September 30, 2017, respectively | $ | 167.6 |
|
| $ | 453.4 |
|
Interest bearing deposits, including restricted balances of $79.1 and $90.1 at September 30, 2018 and September 30, 2017, respectively |
| 1,199.9 |
|
|
| 2,658.9 |
|
Cash included in assets of discontinued operations |
| — |
|
|
| 6.5 |
|
Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows | $ | 1,367.5 |
|
| $ | 3,118.8 |
|
| CIT GROUP INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Cash Flows From Operations | |||||||
| Net income | $ | 556.2 | $ | 294.5 | |||
| Adjustments to reconcile net income to net cash flows from operations: | |||||||
| Provision for credit losses | 84.2 | 173.6 | |||||
| Net depreciation, amortization and (accretion) | 291.8 | 603.0 | |||||
| Net gains on asset sales and impairments on assets held for sale and other | (255.8 | ) | (68.8 | ) | |||
| Loss on debt extinguishment | 256.6 | — | |||||
| Provision for deferred income taxes | 0.6 | 136.4 | |||||
| Decrease in finance receivables held for sale | 43.4 | 168.1 | |||||
| Goodwill and intangible assets - impairment | — | 4.2 | |||||
| Net (payment) reimbursement of expense from FDIC | (4.6 | ) | 3.1 | ||||
| Decrease in other assets | 145.7 | 52.2 | |||||
| (Decrease) increase in other liabilities | (729.4 | ) | 72.9 | ||||
| Net cash flows provided by operations | 388.7 | 1,439.2 | |||||
| Cash Flows From Investing Activities | |||||||
| Changes in loans, net | 916.3 | 520.9 | |||||
| Purchases of investment securities | (4,447.7 | ) | (3,347.3 | ) | |||
| Proceeds from sales and maturities of investment securities | 3,180.7 | 2,835.8 | |||||
| Proceeds from asset and receivable sales | 795.5 | 1,094.9 | |||||
| Proceeds from sale of commercial air | 10,026.0 | — | |||||
| Purchases of assets to be leased and other equipment | (660.2 | ) | (1,420.2 | ) | |||
| Net decrease in short-term factoring receivables | (308.8 | ) | (288.1 | ) | |||
| Purchases of restricted stock | (17.5 | ) | — | ||||
| Proceeds from redemption of restricted stock | 9.1 | 9.8 | |||||
| Payments to the FDIC under loss share agreements | (0.2 | ) | (2.2 | ) | |||
| Proceeds from the FDIC under loss share agreements and participation agreements | 56.5 | 83.9 | |||||
| Proceeds from sale of OREO, net of repurchases | 82.7 | 103.3 | |||||
| Purchase of bank owned life insurance | (650.0 | ) | — | ||||
| Net change in restricted cash | 662.8 | (22.4 | ) | ||||
| Net cash flows provided by (used in) investing activities | 9,645.2 | (431.6 | ) | ||||
| Cash Flows From Financing Activities | |||||||
| Proceeds from the issuance of term debt | 18.1 | 10.1 | |||||
| Repayments of term debt and net settlements | (8,308.9 | ) | (1,332.2 | ) | |||
| Proceeds from FHLB advances | 1,650.0 | 1,645.5 | |||||
| Repayments of FHLB debt | (915.4 | ) | (2,324.9 | ) | |||
| Net (decrease) increase in deposits | (2,707.3 | ) | 91.5 | ||||
| Collection of security deposits and maintenance funds | 64.2 | 260.3 | |||||
| Use of security deposits and maintenance funds | (35.6 | ) | (118.2 | ) | |||
| Repurchase of common stock | (3,425.5 | ) | — | ||||
| Net proceeds from issuance of preferred stock | 318.0 | — | |||||
| Dividends paid | (82.4 | ) | (92.3 | ) | |||
| Taxes paid through withholding of common stock under employee stock plans | (20.6 | ) | (20.6 | ) | |||
| Payments on affordable housing investment credits | (17.5 | ) | (8.4 | ) | |||
| Net cash flows used in financing activities | (13,462.9 | ) | (1,889.2 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | 15.2 | (2.3 | ) | ||||
| Decrease in unrestricted cash and cash equivalents | (3,413.8 | ) | (883.9 | ) | |||
| Unrestricted cash and cash equivalents, beginning of period | 6,375.2 | 7,470.6 | |||||
| Unrestricted cash and cash equivalents, end of period | $ | 2,961.4 | $ | 6,586.7 | |||
| Supplementary Cash Flow Disclosure | |||||||
| Interest paid | $ | (776.1 | ) | $ | (915.9 | ) | |
| Federal, foreign, state and local income taxes (paid) refunded, net | $ | (38.0 | ) | $ | 49.9 | ||
| Supplementary Non Cash Flow Disclosure | |||||||
| Transfer of assets from held for investment to held for sale | $ | 2,074.6 | $ | 2,020.5 | |||
| Transfer of assets from held for sale to held for investment | $ | 122.6 | $ | 91.0 | |||
| Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment | $ | 91.2 | $ | 210.4 | |||
| Transfers of assets from held for investment to OREO | $ | 85.3 | $ | 71.6 | |||
| Capital lease unexercised bargain purchase options | $ | 17.5 | $ | 7.1 | |||
| Unfunded payments on affordable housing investment credits committed during the period | $ | 60.1 | $ | — | |||
The accompanying notes are an integral part of these consolidated financial statements.
6 CIT GROUP INC.
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
CIT Group Inc., together with its subsidiaries (collectively “we”"we", “our”"our", “CIT”"CIT" or the “Company”"Company"), has providedis a bank holding company ("BHC") and a financial solutions to its clients since 1908. The Companyholding company ("FHC"). CIT was formed in 1908 and provides financing, leasing and advisory services principally to middle marketmiddle-market companies in a wide variety of industries, primarily in North America. CIT is a bank holding company (“BHC”) and a financial holding company (“FHC”). Through its bank subsidiary, CIT Bank, N.A., doing business as OneWest Bank, CITalso provides a full range of commercial and consumer banking and related services to commercial and individual customers through 70its banking subsidiary, CIT Bank, N.A. ("CIT Bank" or the "Bank"), which includes 69 branches located in Southern California and its online bank, bankoncit.com.
CIT is regulated by the Board of Governors of the Federal Reserve System (“FRB”("FRB") and the Federal Reserve Bank of New York (“FRBNY”("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank N.A. is regulated by the Office of the Comptroller of the Currency of the U.S. Department of the Treasury (“OCC”("OCC").
BASIS OF PRESENTATION
Basis of Financial Information
These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial information and accordingly do not include all information and note disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The financial statements in this Form 10-Q, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of CIT’s financial position, results of operations and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The accounting and financial reporting policies of CIT Group Inc. conform to GAAP and the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates and assumptions. Some of the more significant estimates include: allowance for loan losses, loan impairment, fair value determination, lease residual values, liabilities for uncertain tax positions, realizability of deferred tax assets, purchase accounting adjustments, indemnification assets, goodwill, intangible assets, and contingent liabilities, including amounts associated with the discontinued operation.operations. Additionally where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.
Principles of Consolidation
The accompanying consolidated financial statements include financial information related to CIT Group Inc. and its majority-owned subsidiaries and those variable interest entities (“VIEs”)VIEs where the Company is the primary beneficiary.
In preparing the consolidated financial statements, all significant inter-companyintercompany accounts and transactions have been eliminated. Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.
The current period’s results of operations do not necessarily indicate the results that may be expected for any other interim period or for the full year as a whole.
Discontinued Operations
Discontinued Operations as of September 30, 20172018 and December 31, 20162017 included certain assets and liabilities of the Financial Freedom business that was acquired as part of the OneWest Transaction and(i) the Business Air business while December 31, 2016 also included certain assets and liabilities of(ii) the Commercial AirFinancial Freedom business. Income from discontinued operations reflects the activities of the Aerospace (CommercialBusiness Air and Business Air) and Financial Freedom businesses for the quartersquarter and nine months ended September 30, 2018 and 2017, and 2016.Commercial Air (a component of Aerospace) for the nine months ended September 30, 2017. We completed the sale of our Commercial Air business inon April 4, 2017.
The Financial Freedom business, a former division of CIT Bank N.A. has agreedthat serviced reverse mortgage loans, was acquired in conjunction with the OneWest Transaction in 2015 and was sold on May 31, 2018. The sale included all the operations, mortgage servicing rights and related servicing assets and liabilities, although certain assets and liabilities of the Financial Freedom business were still held by CIT Bank at September 30, 2018 and will continue to sellbe held until the required investor consent is received to qualify for sale treatment. See further discussion in Note 2 — Discontinued Operations. In conjunction with the sale of the Financial Freedom business, the Company also sold its reverse mortgage servicingportfolio, comprised of loans and related other real estate owned (“OREO”) assets previously reported in continuing operations, and which was serviced by the Financial Freedom business. (Collectively, the sale of the Financial Freedom business and the reverse mortgage portfolio serviced by Financial Freedom (theis referred to as the “Financial Freedom Transaction”). The Financial Freedom Transaction is expected to close in the second quarter of 2018 and is subject to certain regulatory and investor approvals and other customary closing conditions. SeeSee further discussionsdiscussion in Note 23 — Discontinued Operations Loansand Note 17 - Subsequent Events.
SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are included in the Company's 2017 Form 10-K. Effective January 1, 2018, CIT changed its accounting policy for revenue recognition resulting from the adoption of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with the current Form 10-K for the year ended December 31, 2016. Customers and subsequent related Accounting Standards Updates ("ASUs"). There were no other material changes to these policies during the nine months ended September 30, 2017.
7
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
On January 1, 2018, CIT adopted ASU 2014-09, Revenue Recognition - Revenue from Contracts with Customers (ASC 606) and subsequent related ASUs. ASU 2014-09 establishes the principles to apply in determining the amount and timing of revenue recognition. The core principle is that a company will recognize revenue when it transfers control of goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The guidance introduces a five-step, principle-based model, requiring more judgment than under previous GAAP to determine when and how revenue is recognized. The standard defers to existing guidance where revenue recognition models are already in place.
"Interest Income" and "Rental Income on Operating Leases", CIT's two largest revenue items, are out of scope of the new guidance, as are many other revenues relating to other financial assets and liabilities, including loans, leases, securities, and derivatives. As a result, the implementation of the new guidance was limited to certain revenue streams within Non-Interest Income, including some immaterial bank related fees and gains or losses related to the sale and disposition of leased equipment and OREO, which is accounted for under ASC 610-20, Gains and Losses From the Derecognition of Nonfinancial Assets, and requires the Company to apply certain recognition and measurement principles of ASC 606.
CIT evaluated its in-scope revenue streams under the five-step model and concluded that ASU 2014-09 did not materially impact the current practice of revenue recognition as ASC 606 is consistent with the current accounting policy being applied by the Company for these revenues. Therefore, no change in the timing or amount of income recognized was identified. CIT also determined that costs incurred to obtain or fulfill contracts and financing components relating to in-scope revenue streams were immaterial to the Company.
Non-interest revenue, including amounts related to the sale and disposition of leased equipment and OREO, is recognized at an amount reflecting the consideration received, or expected to be received, when control of goods or services is transferred, which generally occurs when services are provided or control of leased equipment or OREO is liquidated.
ASU 2014-09 was adopted using the modified retrospective transition method. CIT elected to apply this guidance only to contracts that were not completed at the date of the initial application. The adoption did not have a significant impact on CIT’s financial statements or disclosures. No adjustment to the opening balance of retained earnings was necessary.
Interest income on held for investment ("HFI") loans is recognized using the effective interest method or on a basis approximating a level rate of return over the life of the asset. Interest income includes components of accretion of the fair value discount on loans and lease receivables recorded in connection with Purchase Accounting Adjustments (“PAA”), which are accreted using the effective interest method as a yield adjustment over the remaining contractual term of the loan and recorded in interest income. If the loan is subsequently classified as assets held for sale ("AHFS"), accretion (amortization) of the discount (premium) will cease.
Rental revenue on operating leases is recognized on a straight line basis over the lease term and is included in Non-interest Income. Intangible assets related to acquisitions completed by the Company and Fresh Start Accounting (“FSA”) adjustments that were applied as of December 31, 2009 (the Convenience Date), were recorded to adjust the carrying value of above or below market operating lease contracts to their fair value. The FSA adjustments (net) are amortized into rental income on a straight line basis over the remaining term of the respective lease.
The recognition of interest income (including accretion) on commercial loans (exclusive of small ticket commercial loans) is suspended and an account is placed on non-accrual status when, in the opinion of management, full collection of all principal and interest due is doubtful. All future interest accruals, as well as amortization of deferred fees, costs, purchase premiums or discounts are suspended. To the extent the estimated cash flows, including fair value of collateral, does not satisfy both the principal and accrued interest outstanding, accrued but uncollected interest at the date an account is placed on non-accrual status is reversed and charged against interest income. Subsequent interest received is applied to the outstanding principal balance until such time as the account is collected, charged-off or returned to accrual status. Loans that are on cash basis nonaccrual do not accrue interest income; however, payments designated by the borrower as interest payments may be recorded as interest income. To qualify for this treatment, the remaining recorded investment in the loan must be deemed fully collectable.
The recognition of interest income (including accretion) on consumer mortgages and small ticket commercial loans and lease receivables is suspended and all previously accrued but uncollected revenue is reversed, when payment of principal and/or interest is contractually delinquent for 90 days or more. Accounts, including accounts that have been modified, are returned to accrual status when, in the opinion of management, collection of remaining principal and interest is reasonably assured, and there is a sustained period of repayment performance for a minimum of six months.
The recognition of interest income on reverse mortgages is suspended upon the latter of the foreclosure sale date or date on which marketable title has been acquired (i.e., property becomes OREO).
The Company periodically modifies the terms of a loan in response to borrowers’ financial difficulties. These modifications may include interest rate changes, principal forgiveness or payment deferments. Loans that are modified, where a concession has been made to the borrower, are accounted for as Troubled Debt Restructurings (“TDRs”). TDRs are generally placed on nonaccrual upon their restructuring and remain on non-accrual until, in the opinion of management, collection of remaining principal and interest is reasonably assured, and upon collection of six consecutive scheduled payments.
Purchased credit impaired ("PCI") loans in pools that the Company may modify as TDRs are not within the scope of the accounting guidance for TDRs.
8
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Other Newly Adopted Accounting Standards
The following pronouncements were issued by the Financial Accounting Standards Board (“FASB”) and adopted by CIT as of January 1, 2017.2018. Refer to Note 1 - Business and Summary of Significant Accounting Policies on Form 10-Q for the quarter ended March 31, 20172018 for a detailed description of these pronouncements:
Accounting Standards Update (“ASU”) 2016-05,ASU 2016-01, DerivativesFinancial Instruments - Overall (Subtopic 825-10): Recognition and Hedging (Topic 815): EffectMeasurement of Derivative Contract Novations on Existing Hedge Accounting Relationships.Financial Assets and Financial Liabilities.
ASU 2016-06,2018-03, DerivativesTechnical Corrections and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.Improvements to Financial Instruments—Overall (Subtopic 825-10).
ASU 2016-07,2016-16, Investments-Equity Method and Joint VenturesIncome Taxes (Topic 323)740): Simplifying the Transition to the Equity MethodIntra - Entity Transfers of Accounting.Assets Other Than Inventory.
ASU 2016-09,2016-15, Compensation-StockStatement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.Scope of Modification Accounting.
ASU 2017-03, 2018-02,Accounting Changes Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The following pronouncements were issued by FASB and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323).
Intangibles – Goodwill and Other – Internal-Use Software
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance provides that costs incurred during the application development stage of implementation would generally be capitalized, whereas costs incurred during the preliminary project and post implementation stages would generally be expensed as incurred.
CIT early adopted ASU 2018-15 as of July 1, 2018 by applying the guidance prospectively to all implementation costs incurred after the date of adoption. Capitalized implementation costs and amortization expense related to the development of internal financial planning and workflow tools are reflected in “Other assets” and “Operating expenses” within the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income, respectively. The adoption did not have a material impact on CIT’s consolidated financial statements and disclosures.
Fair Value Measurement
ASU 2018-13, Fair Value Measurement (Topic 350).820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
CIT early adopted the removed and modified disclosure requirements in ASU 2018-13 as of July 1, 2018. The amendment on changes to the narrative description of measurement uncertainty was applied prospectively for the most recent period presented. All other amendments were applied retrospectively to all periods presented. The adoption of this standard did not have a material impact on CIT’s disclosures as disclosure enhancements are more qualitative in nature.
Recent Accounting Pronouncements
The following accounting pronouncements were issued by the FASB but are not yet effective for CIT.
Standard | ||
Summary of Guidance | Effect on CIT's Financial Statements | |
ASU Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Issued | • •The new guidance applies to all entities that hold investments in • | • •Based on CIT’s evaluation, the adoption of this standard is not expected to have a material impact on CIT’s consolidated financial statements as unamortized premiums on debt securities are immaterial. However, CIT will continue to assess new securities purchased in 2018. • |
9
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
10
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
11
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 9
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Issued June 2016 | • • • •It amends existing impairment guidance for • • | • • •While CIT is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements, it currently expects the ALLL to increase upon adoption given that the allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of CIT’s loan and lease portfolios at adoption date. |
Aerospace
As discussed in
Note 2 —Condensed Balance Sheet — Aerospace (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Total cash and deposits | $ | — | $ | 759.0 | |||
| Net Loans | 198.9 | 1,047.7 | |||||
| Operating lease equipment, net | 19.6 | 9,677.6 | |||||
| Goodwill | — | 126.8 | |||||
Other assets(1) | (3.2 | ) | 1,161.5 | ||||
| Assets of discontinued operations | $ | 215.3 | $ | 12,772.6 | |||
| Secured borrowings | $ | — | $ | 1,204.6 | |||
Other liabilities(2) | 9.3 | 1,597.3 | |||||
| Liabilities of discontinued operations | $ | 9.3 | $ | 2,801.9 | |||
Condensed Balance Sheet — Aerospace (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Net Loans | $ | 110.6 |
|
| $ | 165.8 |
|
Operating lease equipment, net |
| - |
|
|
| 18.4 |
|
Other assets |
| 0.9 |
|
|
| - |
|
Assets of discontinued operation | $ | 111.5 |
|
| $ | 184.2 |
|
Other liabilities | $ | 1.4 |
|
| $ | 8.8 |
|
Liabilities of discontinued operation | $ | 1.4 |
|
| $ | 8.8 |
|
Condensed Statement of Income — Aerospace (dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||
| 2018 |
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income | $ | 1.9 |
|
| $ | 3.0 |
|
|
|
| $ | 6.1 |
|
|
|
| $ | 26.8 |
|
Interest expense |
| 0.7 |
|
|
| 1.2 |
|
|
|
|
| 2.6 |
|
|
|
|
| 98.5 |
|
Rental income on operating leases |
| — |
|
|
| 2.0 |
|
|
|
|
| 0.5 |
|
|
|
|
| 310.7 |
|
Other income |
| 1.7 |
|
|
| — |
|
|
|
|
| 0.9 |
|
|
|
|
| 13.4 |
|
Maintenance and other operating lease expenses |
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4.2 |
|
Operating expenses |
| 0.5 |
|
|
| 1.0 |
|
|
|
|
| 1.3 |
|
|
|
|
| 39.6 |
|
Loss on debt extinguishment(1) |
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 39.0 |
|
Income from discontinued operation before provision for income taxes |
| 2.4 |
|
|
| 2.8 |
|
|
|
|
| 3.6 |
|
|
|
|
| 169.6 |
|
Provision for income taxes |
| 0.7 |
|
|
| 0.3 |
|
|
|
|
| 1.0 |
|
|
|
|
| 71.0 |
|
(Loss) gain on sale of discontinued operation, net of taxes |
| — |
|
|
| (1.3 | ) |
|
|
|
| — |
|
|
|
|
| 118.6 |
|
Income from discontinued operation, net of taxes | $ | 1.7 |
|
| $ | 1.2 |
|
|
|
| $ | 2.6 |
|
|
|
| $ | 217.2 |
|
Condensed Statement of Income — Aerospace (dollars in millions) | |||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest income | $ | 3.0 | $ | 17.7 | $ | 26.8 | $ | 49.5 | |||||||
| Interest expense | (1.2 | ) | (91.2 | ) | (98.5 | ) | (273.5 | ) | |||||||
| Provision for credit losses | — | (1.0 | ) | — | (15.7 | ) | |||||||||
| Rental income on operating leases | 2.0 | 309.3 | 310.7 | 928.8 | |||||||||||
| Other Income | — | (3.8 | ) | 13.4 | 16.7 | ||||||||||
Depreciation on operating lease equipment(1) | — | (112.3 | ) | — | (339.4 | ) | |||||||||
| Maintenance and other operating lease expenses | — | (3.8 | ) | (4.2 | ) | (25.4 | ) | ||||||||
Operating expenses(2) | (1.0 | ) | (27.6 | ) | (39.6 | ) | (74.5 | ) | |||||||
Loss on debt extinguishment(3) | — | — | (39.0 | ) | (1.6 | ) | |||||||||
| Income from discontinued operations before provision for income taxes | 2.8 | 87.3 | 169.6 | 264.9 | |||||||||||
| Provision for income taxes | (0.3 | ) | (20.1 | ) | (71.0 | ) | (12.5 | ) | |||||||
| Gain (loss) on sale of discontinued operations, net of taxes | (1.3 | ) | — | 118.6 | — | ||||||||||
| Income from discontinued operations, net of taxes | $ | 1.2 | $ | 67.2 | $ | 217.2 | $ | 252.4 | |||||||
(1) |
|
| The Company repaid approximately $1 billion of secured borrowings in the first quarter of 2017 within discontinued operations and recorded a loss of $39 million in relation to the extinguishment of those borrowings. |
Condensed Statement of Cash Flows — Aerospace (dollars in millions) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Net cash flows provided by operations | $ | 32.7 | $ | 726.9 | |||
| Net cash flows provided by (used in) investing activities | 10,783.2 | (462.8 | ) | ||||
12
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Statement of Cash Flows — Aerospace (dollars in millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Net cash flows (used in) provided by operations | $ | (4.2 | ) |
| $ | 32.7 |
|
Net cash flows provided by investing activities |
| 75.7 |
|
|
| 10,247.7 |
|
Reverse Mortgage Servicing
The Financial Freedom business, a former division of CIT Bank that servicesserviced reverse mortgage loans, was acquired in conjunction with the OneWest Transaction. Pursuant to ASC 205-20,Transaction in 2015 and was sold on May 31, 2018. As part of the Financial Freedom Transaction, the sale of the Financial Freedom business is reflected as discontinued operations.
At September 30, 2018, certain regulatoryassets and liabilities of the Financial Freedom business were still held by CIT Bank after the sale, and will continue to be held until the required investor approvalsconsent is received to qualify for sale treatment, although the economic benefit and other customary closing conditions. See Note 17 - Subsequent Events.
As a mortgage servicer of residential reverse mortgage loans prior to the sale of Financial Freedom, the Company iswas exposed to contingent liabilities for breaches of servicer obligations as set forth in industry regulations established by the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) and in servicing agreements with the applicable counterparties, such as third party investors. Under these agreements, the servicer may be liable for failure to perform its servicing obligations, which could include fees imposed for failure to comply with foreclosure timeframe requirements established by servicing guides and agreements to which CIT iswas a party as the servicer of the loans. The Company had established reserves for contingent servicing-related liabilities associated withfor CIT’s servicer obligation that shall remain in discontinued operations.
Condensed Balance Sheet — Financial Freedom was driven by a net release of the curtailment reserve of $111 million, partially offset by an increase of $40 million (dollars in other servicing-related reserves. In addition, during the nine months ended September 30, 2017, the Company entered into a settlement of approximately $89 million with the HUD OIG and Department of Justice to resolve servicing related claims, which was within the Company’s existing reserves. Further, the Company recognized a write-down of its servicing operations of $54 million, of which $50 million related to impairment of its mortgage servicing rights, included in Other liabilities below.millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Cash and interest bearing deposits, restricted | $ | - |
|
| $ | 7.7 |
|
Net loans(1) |
| 212.1 |
|
|
| 272.8 |
|
Other assets |
| 4.1 |
|
|
| 36.6 |
|
Assets of discontinued operation | $ | 216.2 |
|
| $ | 317.1 |
|
Secured borrowings(1) | $ | 213.2 |
|
| $ | 268.2 |
|
Other liabilities(2) |
| 94.0 |
|
|
| 232.3 |
|
Liabilities of discontinued operation | $ | 307.2 |
|
| $ | 500.5 |
|
Condensed Balance Sheet — Financial Freedom (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Total cash and deposits, all of which is restricted | $ | 6.5 | $ | 5.8 | |||
Net Loans(1) | 299.2 | 374.0 | |||||
Other assets(2) | 41.0 | 68.3 | |||||
| Assets of discontinued operations | $ | 346.7 | $ | 448.1 | |||
Secured borrowings(1) | $ | 293.6 | $ | 366.4 | |||
Other liabilities(3) | 260.8 | 569.4 | |||||
| Liabilities of discontinued operations | $ | 554.4 | $ | 935.8 | |||
(1) | Net loans primarily include |
(2) | |
|
| Other liabilities primarily include |
13
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 15
TableCondensed Statement of ContentsIncome — Financial Freedom (dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||
| 2018 |
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income(1) | $ | 1.7 |
|
| $ | 2.5 |
|
|
|
| $ | 5.8 |
|
|
|
| $ | 8.0 |
|
Interest expense(1) |
| 1.7 |
|
|
| 2.3 |
|
|
|
|
| 5.8 |
|
|
|
|
| 7.2 |
|
Other income (loss)(2) |
| 2.8 |
|
|
| 5.7 |
|
|
|
|
| 13.8 |
|
|
|
|
| (29.8 | ) |
Operating expenses (benefits)(3) |
| 2.4 |
|
|
| 13.1 |
|
|
|
|
| 29.4 |
|
|
|
|
| (23.8 | ) |
Income (loss) from discontinued operation before benefit for income taxes |
| 0.4 |
|
|
| (7.2 | ) |
|
|
|
| (15.6 | ) |
|
|
|
| (5.2 | ) |
Benefit for income taxes(4) |
| — |
|
|
| (2.8 | ) |
|
|
|
| (4.2 | ) |
|
|
|
| (2.0 | ) |
Loss on sale of discontinued operation, net of taxes |
| — |
|
|
| — |
|
|
|
|
| (16.3 | ) |
|
|
|
| — |
|
Income (loss) from discontinued operation, net of taxes | $ | 0.4 |
|
| $ | (4.4 | ) |
|
|
| $ | (27.7 | ) |
|
|
| $ | (3.2 | ) |
Condensed Statement of Income — Financial Freedom (dollars in millions) | |||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income(1) | $ | 2.5 | $ | 2.8 | $ | 8.0 | $ | 8.8 | |||||||
Interest expense(1) | (2.3 | ) | (2.5 | ) | (7.2 | ) | (8.2 | ) | |||||||
Other income (losses)(2) | 5.7 | (10.2 | ) | (29.8 | ) | 7.3 | |||||||||
Operating expenses(3) | (13.1 | ) | (38.5 | ) | 23.8 | (299.1 | ) | ||||||||
| Loss from discontinued operations before benefit for income taxes | (7.2 | ) | (48.4 | ) | (5.2 | ) | (291.2 | ) | |||||||
Benefit for income taxes(4) | 2.8 | 18.5 | 2.0 | 90.1 | |||||||||||
| Loss from discontinued operation, net of taxes | $ | (4.4 | ) | $ | (29.9 | ) | $ | (3.2 | ) | $ | (201.1 | ) | |||
(1) | Includes amortization for the premium associated with the HECM loans and related secured borrowings. |
(2) | For the nine months ended September 30, 2017, other income included an impairment charge of approximately $50 million on the mortgage servicing |
(3) | Operating expense is comprised of |
(4) | For the |
Condensed Statement of Cash Flows — Financial Freedom Discontinued Operations (dollars in millions) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Net cash flows used for operations | $ | (33.8 | ) | $ | (32.0 | ) | |
| Net cash flows provided by investing activities | 84.3 | 69.8 | |||||
Condensed Statement of Cash Flows for the nine months ended September 30, 2017 included $102 million of activity within the decrease— Financial Freedom (dollars in other liabilities related to the Company's net release of servicing-related reserves partially offset by the impairment charge to the servicing liability, and $77 million of activity within the decrease in other assets related to the Company's release of the FDIC from its indemnification obligation to CIT with respect to the Fannie Mae serviced loans. For the nine months ended September 30, 2016, there was $230 million of activity within the increase in other liabilities related to the Company’s net increase in servicing-related reserves.millions)
| Nine Months Ended September 30, |
| |||||
| 2018 |
|
| 2017 |
| ||
Net cash flows provided by (used in) operation | $ | 15.2 |
|
| $ | (26.5 | ) |
Net cash flows provided by investing activities |
| 9.1 |
|
|
| 84.9 |
|
Combined Results for Discontinued Operations
The following tables reflect the combined results of the discontinued operations. Details of the balances are discussed in prior tables.
Condensed Combined Balance Sheet (dollars in millions)
| September 30, 2018 |
|
|
|
| December 31, 2017 |
| ||
Total cash and deposits | $ | — |
|
|
|
| $ | 7.7 |
|
Net Loans |
| 322.7 |
|
|
|
|
| 438.6 |
|
Operating lease equipment, net |
| — |
|
|
|
|
| 18.4 |
|
Other assets |
| 5.0 |
|
|
|
|
| 36.6 |
|
Assets of discontinued operations | $ | 327.7 |
|
|
|
| $ | 501.3 |
|
Secured borrowings | $ | 213.2 |
|
|
|
| $ | 268.2 |
|
Other liabilities |
| 95.4 |
|
|
|
|
| 241.1 |
|
Liabilities of discontinued operations | $ | 308.6 |
|
|
|
| $ | 509.3 |
|
Condensed Combined Statement of Income (dollars in millions)
| Quarters Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||||
| 2018 |
|
|
|
| 2017 |
|
|
|
| 2018 |
|
|
|
| 2017 |
| ||||
Interest income | $ | 3.6 |
|
|
|
| $ | 5.5 |
|
|
|
| $ | 11.9 |
|
|
|
| $ | 34.8 |
|
Interest expense |
| 2.4 |
|
|
|
|
| 3.5 |
|
|
|
|
| 8.4 |
|
|
|
|
| 105.7 |
|
Rental income on operating leases |
| — |
|
|
|
|
| 2.0 |
|
|
|
|
| 0.5 |
|
|
|
|
| 310.7 |
|
Other income (losses) |
| 4.5 |
|
|
|
|
| 5.7 |
|
|
|
|
| 14.7 |
|
|
|
|
| (16.4 | ) |
Maintenance and other operating lease expenses |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4.2 |
|
Operating expenses |
| 2.9 |
|
|
|
|
| 14.1 |
|
|
|
|
| 30.7 |
|
|
|
|
| 15.8 |
|
Loss on debt extinguishment |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 39.0 |
|
Income (loss) from discontinued operations before benefit (provision) for income taxes |
| 2.8 |
|
|
|
|
| (4.4 | ) |
|
|
|
| (12.0 | ) |
|
|
|
| 164.4 |
|
(Benefit) provision for income taxes |
| 0.7 |
|
|
|
|
| (2.5 | ) |
|
|
|
| (3.2 | ) |
|
|
|
| 69.0 |
|
(Loss) gain on sale of discontinued operations, net of taxes |
| — |
|
|
|
|
| (1.3 | ) |
|
|
|
| (16.3 | ) |
|
|
|
| 118.6 |
|
Income (loss) from discontinued operations, net of taxes | $ | 2.1 |
|
|
|
| $ | (3.2 | ) |
|
|
| $ | (25.1 | ) |
|
|
| $ | 214.0 |
|
Condensed Combined Statement of Cash Flows (dollars in millions)
| Nine Months Ended September 30, |
| |||||||
| 2018 |
|
|
|
| 2017 |
| ||
Net cash flows provided by operations | $ | 11.0 |
|
|
|
| $ | 6.2 |
|
Net cash flows provided by investing activities |
| 84.8 |
|
|
|
|
| 10,332.6 |
|
Condensed Combined Balance Sheet Discontinued Operations (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Total cash and deposits | $ | 6.5 | $ | 764.8 | |||
| Net Loans | 498.1 | 1,421.7 | |||||
| Operating lease equipment, net | 19.6 | 9,677.6 | |||||
| Goodwill | — | 126.8 | |||||
| Other assets | 37.8 | 1,229.8 | |||||
| Assets of discontinued operations | $ | 562.0 | $ | 13,220.7 | |||
| Secured borrowings | $ | 293.6 | $ | 1,571.0 | |||
| Other liabilities | 270.1 | 2,166.7 | |||||
| Liabilities of discontinued operations | $ | 563.7 | $ | 3,737.7 | |||
14
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Combined Statement of Income Discontinued Operations (dollars in millions) | |||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest income | $ | 5.5 | $ | 20.5 | $ | 34.8 | $ | 58.3 | |||||||
| Interest expense | (3.5 | ) | (93.7 | ) | (105.7 | ) | (281.7 | ) | |||||||
| Provision for credit losses | — | (1.0 | ) | — | (15.7 | ) | |||||||||
| Rental income on operating leases | 2.0 | 309.3 | 310.7 | 928.8 | |||||||||||
| Other income (losses) | 5.7 | (14.0 | ) | (16.4 | ) | 24.0 | |||||||||
| Depreciation on operating lease equipment | — | (112.3 | ) | — | (339.4 | ) | |||||||||
| Maintenance and other operating lease expenses | — | (3.8 | ) | (4.2 | ) | (25.4 | ) | ||||||||
| Operating expenses | (14.1 | ) | (66.1 | ) | (15.8 | ) | (373.6 | ) | |||||||
| Loss on debt extinguishment | — | — | (39.0 | ) | (1.6 | ) | |||||||||
| Income (loss) from discontinued operations before benefit (provision) for income taxes | (4.4 | ) | 38.9 | 164.4 | (26.3 | ) | |||||||||
| Benefit (provision) for income taxes | 2.5 | (1.6 | ) | (69.0 | ) | 77.6 | |||||||||
| Gain (loss) on sale of discontinued operations, net of taxes | (1.3 | ) | — | 118.6 | — | ||||||||||
| Income (loss) from discontinued operations, net of taxes | $ | (3.2 | ) | $ | 37.3 | $ | 214.0 | $ | 51.3 | ||||||
Condensed Combined Statement of Cash Flows Discontinued Operations (dollars in millions) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Net cash flows (used for) provided by operations | $ | (1.1 | ) | $ | 694.9 | ||
| Net cash flows provided by (used in) investing activities | 10,867.5 | (393.0 | ) | ||||
NOTE 3 — LOANS
Loans, excluding those reflected as discontinued operations, consist of the following:
Loans by Product (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial loans | $ | 22,082.7 |
|
| $ | 20,892.1 |
|
Direct financing leases and leveraged leases |
| 2,496.8 |
|
|
| 2,685.8 |
|
Total commercial |
| 24,579.5 |
|
|
| 23,577.9 |
|
Consumer loans |
| 5,916.3 |
|
|
| 5,536.0 |
|
Total loans |
| 30,495.8 |
|
|
| 29,113.9 |
|
Loans held for sale(1) |
| 204.1 |
|
|
| 1,095.7 |
|
Loans and held for sale loans(1) | $ | 30,699.9 |
|
| $ | 30,209.6 |
|
Loans by Product (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Commercial loans | $ | 20,346.6 | $ | 20,117.8 | |||
| Direct financing leases and leveraged leases | 2,746.0 | 2,852.9 | |||||
| Total commercial | 23,092.6 | 22,970.7 | |||||
| Consumer loans | 5,412.7 | 6,565.2 | |||||
| Total loans | 28,505.3 | 29,535.9 | |||||
Loans held for sale(1) | 1,056.6 | 635.8 | |||||
Loans and held for sale loans(1) | $ | 29,561.9 | $ | 30,171.7 | |||
(1) | Since the Company manages the credit risk and collections of loans held for sale consistently with its loans held for investment, the aggregate amount is presented in this table. |
As part of the Financial Freedom Transaction, on May 31, 2018, CIT sold its reverse mortgage portfolio comprised of loans and related OREO assets of $884 million and recognized a net pre-tax gain on the sale of $27 million in other non-interest income. The loans were included in loans held for sale in the above table at December 31, 2017. See Note 1 – Business and Summary of Significant Accounting Policies for a description of the Financial Freedom Transaction.
The following table presents loans, excluding loans held for sale, by segment, based on obligor location:
Loans (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||||||||||
| Domestic |
|
| Foreign |
|
| Total |
|
| Domestic |
|
| Foreign |
|
| Total |
| ||||||
Commercial Banking | $ | 22,518.2 |
|
| $ | 1,577.5 |
|
| $ | 24,095.7 |
|
| $ | 21,368.7 |
|
| $ | 1,790.6 |
|
| $ | 23,159.3 |
|
Consumer Banking(1) |
| 6,400.1 |
|
|
| — |
|
|
| 6,400.1 |
|
|
| 5,954.6 |
|
|
| — |
|
|
| 5,954.6 |
|
Total | $ | 28,918.3 |
|
| $ | 1,577.5 |
|
| $ | 30,495.8 |
|
| $ | 27,323.3 |
|
| $ | 1,790.6 |
|
| $ | 29,113.9 |
|
Loans (dollars in millions) | |||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
| Domestic | Foreign | Total | Domestic | Foreign | Total | ||||||||||||||||||
| Commercial Banking | $ | 20,778.5 | $ | 1,914.1 | $ | 22,692.6 | $ | 20,440.7 | $ | 2,121.6 | $ | 22,562.3 | |||||||||||
Consumer Banking(1) | 5,812.7 | — | 5,812.7 | 6,973.6 | — | 6,973.6 | |||||||||||||||||
| Total | $ | 26,591.2 | $ | 1,914.1 | $ | 28,505.3 | $ | 27,414.3 | $ | 2,121.6 | $ | 29,535.9 | |||||||||||
(1) | The Consumer Banking segment includes certain commercial loans, primarily consisting of a portfolio of Small Business Administration |
The following table presents selected components of the net investment in loans:
Components of Net Investment in Loans (dollars in millions)
|
|
|
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||
Unearned income |
|
|
|
|
|
| $ | (749.3 | ) |
|
|
| $ | (727.8 | ) |
Unamortized premiums |
|
|
|
|
|
|
| 18.3 |
|
|
|
|
| 3.7 |
|
Accretable yield on PCI loans |
|
|
|
|
|
|
| (944.9 | ) |
|
|
|
| (1,063.7 | ) |
Net unamortized deferred costs(1) |
|
|
|
|
|
|
| 79.8 |
|
|
|
|
| 68.7 |
|
Components of Net Investment in Loans (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Unearned income | $ | (792.9 | ) | $ | (727.1 | ) | |
| Unamortized premiums / (discounts) | (4.1 | ) | (31.0 | ) | |||
| Accretable yield on Purchased Credit-Impaired (“PCI”) loans | (1,116.9 | ) | (1,261.4 | ) | |||
Net unamortized deferred costs and (fees)(1) | 64.6 | 55.8 | |||||
(1) | Balance relates to the Commercial Banking |
Certain of the following tables present credit-related information at the “class” level in accordance with ASC 310-10-50,
Credit Quality Information
The following table summarizes commercial loans by the risk ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. The consumer loan risk profiles are different from commercial loans, and use loan-to-value (“LTV”) ratios in rating the credit quality, and therefore are presented separately below.
Commercial Loans and Held for Sale Loans — Risk Rating by Class / Segment (dollars in millions) | |||||||||||||||||||||||
| Grade: | Pass | Special Mention | Classified- accruing | Classified- non-accrual | PCI Loans | Total | |||||||||||||||||
| September 30, 2017 | |||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||
| Commercial Finance | $ | 7,696.3 | $ | 494.7 | $ | 1,000.5 | $ | 192.5 | $ | 12.4 | $ | 9,396.4 | |||||||||||
| Real Estate Finance | 5,205.0 | 137.0 | 165.8 | 2.8 | 53.4 | 5,564.0 | |||||||||||||||||
| Business Capital | 7,129.3 | 305.0 | 251.1 | 45.2 | — | 7,730.6 | |||||||||||||||||
| Rail | 101.0 | 1.5 | 2.0 | — | — | 104.5 | |||||||||||||||||
| Total Commercial Banking | 20,131.6 | 938.2 | 1,419.4 | 240.5 | 65.8 | 22,795.5 | |||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||
| Other Consumer Banking | 373.4 | 4.6 | 19.7 | — | 2.3 | 400.0 | |||||||||||||||||
| Total Consumer Banking | 373.4 | 4.6 | 19.7 | — | 2.3 | 400.0 | |||||||||||||||||
| Non- Strategic Portfolios | 55.1 | 16.6 | 11.3 | 4.8 | — | 87.8 | |||||||||||||||||
| Total | $ | 20,560.1 | $ | 959.4 | $ | 1,450.4 | $ | 245.3 | $ | 68.1 | $ | 23,283.3 | |||||||||||
| December 31, 2016 | |||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||
| Commercial Finance | $ | 8,184.7 | $ | 677.6 | $ | 1,181.7 | $ | 188.8 | $ | 42.7 | $ | 10,275.5 | |||||||||||
| Real Estate Finance | 5,191.4 | 168.7 | 115.6 | 20.4 | 70.5 | 5,566.6 | |||||||||||||||||
| Business Capital | 6,238.7 | 422.0 | 271.7 | 41.7 | — | 6,974.1 | |||||||||||||||||
| Rail | 88.7 | 14.1 | 0.9 | — | — | 103.7 | |||||||||||||||||
| Total Commercial Banking | 19,703.5 | 1,282.4 | 1,569.9 | 250.9 | 113.2 | 22,919.9 | |||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||
| Other Consumer Banking | 374.9 | 8.3 | 22.4 | — | 2.8 | 408.4 | |||||||||||||||||
| Total Consumer Banking | 374.9 | 8.3 | 22.4 | — | 2.8 | 408.4 | |||||||||||||||||
| Non- Strategic Portfolios | 143.7 | 36.9 | 19.1 | 10.3 | — | 210.0 | |||||||||||||||||
| Total | $ | 20,222.1 | $ | 1,327.6 | $ | 1,611.4 | $ | 261.2 | $ | 116.0 | $ | 23,538.3 | |||||||||||
15
Grade: | Pass |
|
| Special Mention |
|
| Classified- accruing |
|
| Classified- non-accrual |
|
| PCI Loans |
|
| Total |
| ||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 8,299.0 |
|
| $ | 653.5 |
|
| $ | 1,054.4 |
|
| $ | 229.3 |
|
| $ | 5.9 |
|
| $ | 10,242.1 |
|
Real Estate Finance |
| 4,994.4 |
|
|
| 247.5 |
|
|
| 267.2 |
|
|
| 2.3 |
|
|
| 36.2 |
|
|
| 5,547.6 |
|
Business Capital |
| 7,529.1 |
|
|
| 456.1 |
|
|
| 310.3 |
|
|
| 43.1 |
|
|
| — |
|
|
| 8,338.6 |
|
Rail |
| 125.5 |
|
|
| 0.8 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 127.5 |
|
Total Commercial Banking |
| 20,948.0 |
|
|
| 1,357.9 |
|
|
| 1,633.1 |
|
|
| 274.7 |
|
|
| 42.1 |
|
|
| 24,255.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking(1) |
| 419.8 |
|
|
| 15.7 |
|
|
| 45.2 |
|
|
| 1.0 |
|
|
| 2.1 |
|
|
| 483.8 |
|
Total Consumer Banking |
| 419.8 |
|
|
| 15.7 |
|
|
| 45.2 |
|
|
| 1.0 |
|
|
| 2.1 |
|
|
| 483.8 |
|
Non- Strategic Portfolios |
| 17.5 |
|
|
| 3.1 |
|
|
| 3.2 |
|
|
| 8.3 |
|
|
| — |
|
|
| 32.1 |
|
Total | $ | 21,385.3 |
|
| $ | 1,376.7 |
|
| $ | 1,681.5 |
|
| $ | 284.0 |
|
| $ | 44.2 |
|
| $ | 24,771.7 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 8,284.1 |
|
| $ | 640.9 |
|
| $ | 981.9 |
|
| $ | 134.8 |
|
| $ | 10.6 |
|
| $ | 10,052.3 |
|
Real Estate Finance |
| 5,228.1 |
|
|
| 139.9 |
|
|
| 174.3 |
|
|
| 2.8 |
|
|
| 45.1 |
|
|
| 5,590.2 |
|
Business Capital |
| 7,028.6 |
|
|
| 269.2 |
|
|
| 228.8 |
|
|
| 53.2 |
|
|
| — |
|
|
| 7,579.8 |
|
Rail |
| 100.6 |
|
|
| 2.0 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 103.8 |
|
Total Commercial Banking |
| 20,641.4 |
|
|
| 1,052.0 |
|
|
| 1,386.2 |
|
|
| 190.8 |
|
|
| 55.7 |
|
|
| 23,326.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking(1) |
| 378.5 |
|
|
| 5.9 |
|
|
| 31.9 |
|
|
| — |
|
|
| 2.2 |
|
|
| 418.5 |
|
Total Consumer Banking |
| 378.5 |
|
|
| 5.9 |
|
|
| 31.9 |
|
|
| — |
|
|
| 2.2 |
|
|
| 418.5 |
|
Non- Strategic Portfolios |
| 35.7 |
|
|
| 7.6 |
|
|
| 10.2 |
|
|
| 9.8 |
|
|
| — |
|
|
| 63.3 |
|
Total | $ | 21,055.6 |
|
| $ | 1,065.5 |
|
| $ | 1,428.3 |
|
| $ | 200.6 |
|
| $ | 57.9 |
|
| $ | 23,807.9 |
|
(1) | Other Consumer Banking loans primarily consisted of SBA loans. |
The following table provides LTV distributiona summary of the consumer portfolio.portfolio credit quality. The amounts represent the carrying value, which differ from unpaid principal balances, and include the premiums or discounts and the accretable yield and non-accretable difference for PCI loans recorded in purchase accounting. Included in the consumer single-family residential (“SFR”) loans are “covered loans” for which the Company can be reimbursed for a substantial portion of future losses under the terms of the loss sharing agreementsagreement with the FDIC if losses occur withinrelated to IndyMac, which expires in March 2019. Covered loans are limited to the Legacy Consumer Mortgage ("LCM") division. Due to continued improvement of the covered loan performance, significantly shorter remaining life of the indemnification asset in comparison to the weighted average life of the related covered loans, and significant decline in loss share claims filed with the FDIC in the last six months, CIT performed a collectability assessment of the probable losses to be reimbursed by the FDIC for the remaining indemnification period. AsSeparate from the higher negative yield to amortize the reductions in expected indemnification asset cash flows due to an increase in expected cash flows on the covered loans from improved credit performance, CIT recorded an impairment of September 30, 2017 and December 31, 2016,$21.2 million, in other non-interest income, to reduce the carrying value of the indemnification asset (included in other assets) to $27.2 million in the quarter ended September 30, 2018, for covered single family residential and reverse mortgage loans totaled $143 million and $233 million, respectively, under the IndyMac Transaction. Noamounts deemed uncollectable within the remaining indemnification asset was recognized in connection with the First Federal or La Jolla Transactions. The indemnification asset is measuredperiod based on the same basisCIT’s loan level review of accounting as the covered loans (e.g., as PCI loans under the effective yield method). Covered loansloans. Indemnification assets are discussed further discussed in our 2017 Form 10-K, for the year ended December 31, 2016,
Included in the consumer loan balances as of September 30, 20172018 and December 31, 2016,2017, were loans with terms that permitted negative amortization with an unpaid principal balance of $529$413 million and $761$484 million, respectively.
16
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The table below summarizes the Consumerconsumer loan LTV distribution and the covered loan held for investment balances as of September 30, 20172018 and December 31, 2016.2017 for SFR mortgage loans.
Consumer Loan LTV Distribution (dollars in millions)
| Single Family Residential |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
| Covered Loans |
|
| Non-covered Loans |
|
| Consumer |
| |||||||||||
LTV Range | Non-PCI |
|
| PCI |
|
| Non-PCI |
|
| PCI |
|
| Loans |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 125% | $ | 1.4 |
|
| $ | 113.8 |
|
| $ | 4.9 |
|
| $ | - |
|
| $ | 120.1 |
|
101% – 125% |
| 4.8 |
|
|
| 194.8 |
|
|
| 4.7 |
|
|
| — |
|
|
| 204.3 |
|
80% – 100% |
| 33.9 |
|
|
| 470.0 |
|
|
| 181.9 |
|
|
| — |
|
|
| 685.8 |
|
Less than 80% |
| 1,128.1 |
|
|
| 936.1 |
|
|
| 2,841.3 |
|
|
| — |
|
|
| 4,905.5 |
|
Not Applicable(1) |
| — |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| 0.6 |
|
Total | $ | 1,168.2 |
|
| $ | 1,714.7 |
|
| $ | 3,033.4 |
|
| $ | — |
|
| $ | 5,916.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 125% | $ | 2.7 |
|
| $ | 160.0 |
|
| $ | 7.7 |
|
| $ | — |
|
| $ | 170.4 |
|
101% – 125% |
| 6.4 |
|
|
| 291.5 |
|
|
| 4.4 |
|
|
| — |
|
|
| 302.3 |
|
80% – 100% |
| 77.4 |
|
|
| 566.2 |
|
|
| 137.3 |
|
|
| — |
|
|
| 780.9 |
|
Less than 80% |
| 1,306.1 |
|
|
| 878.1 |
|
|
| 2,089.7 |
|
|
| 7.7 |
|
|
| 4,281.6 |
|
Not Applicable(1) |
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
Total | $ | 1,392.6 |
|
| $ | 1,895.8 |
|
| $ | 2,239.9 |
|
| $ | 7.7 |
|
| $ | 5,536.0 |
|
Consumer Loan LTV Distribution (dollars in millions) | |||||||||||||||||||||||||||||||||||||||
| Single Family Residential | Reverse Mortgage(2) | ||||||||||||||||||||||||||||||||||||||
| Covered Loans | Non-covered Loans | Total Single Family Residential | Covered Loans Non-PCI | Non-covered Loans | Total Reverse Mortgages | Total Consumer Loans | |||||||||||||||||||||||||||||||||
| LTV Range | Non-PCI | PCI | Non-PCI | PCI | Non-PCI | PCI | |||||||||||||||||||||||||||||||||
| September 30, 2017 | |||||||||||||||||||||||||||||||||||||||
| Greater than 125% | $ | 2.7 | $ | 186.7 | $ | 8.3 | $ | — | $ | 197.7 | $ | — | $ | — | $ | — | $ | — | $ | 197.7 | |||||||||||||||||||
| 101% – 125% | 6.6 | 323.0 | 6.3 | — | 335.9 | — | — | — | — | 335.9 | |||||||||||||||||||||||||||||
| 80% – 100% | 104.8 | 585.0 | 60.2 | — | 750.0 | — | — | — | — | 750.0 | |||||||||||||||||||||||||||||
| Less than 80% | 1,374.7 | 876.1 | 1,870.0 | 7.5 | 4,128.3 | — | — | — | — | 4,128.3 | |||||||||||||||||||||||||||||
Not Applicable(1) | — | — | 0.8 | — | 0.8 | — | — | — | — | 0.8 | |||||||||||||||||||||||||||||
| Total | $ | 1,488.8 | $ | 1,970.8 | $ | 1,945.6 | $ | 7.5 | $ | 5,412.7 | $ | — | $ | — | $ | — | $ | — | $ | 5,412.7 | |||||||||||||||||||
| December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
| Greater than 125% | $ | 2.2 | $ | 261.4 | $ | 12.3 | $ | — | $ | 275.9 | $ | 0.6 | $ | 8.8 | $ | 33.8 | $ | 43.2 | $ | 319.1 | |||||||||||||||||||
| 101% – 125% | 4.7 | 443.7 | 13.6 | — | 462.0 | 1.2 | 12.7 | 7.9 | 21.8 | 483.8 | |||||||||||||||||||||||||||||
| 80% – 100% | 226.6 | 588.1 | 40.5 | — | 855.2 | 24.0 | 42.3 | 7.5 | 73.8 | 929.0 | |||||||||||||||||||||||||||||
| Less than 80% | 1,515.6 | 872.4 | 1,713.1 | 9.2 | 4,110.3 | 405.4 | 304.9 | 9.8 | 720.1 | 4,830.4 | |||||||||||||||||||||||||||||
Not Applicable(1) | — | — | 2.9 | — | 2.9 | — | — | — | — | 2.9 | |||||||||||||||||||||||||||||
| Total | $ | 1,749.1 | $ | 2,165.6 | $ | 1,782.4 | $ | 9.2 | $ | 5,706.3 | $ | 431.2 | $ | 368.7 | $ | 59.0 | $ | 858.9 | $ | 6,565.2 | |||||||||||||||||||
(1) | Certain Consumer Loans do not have |
17
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 19
The table that follows presents portfolio delinquency status, regardless of accrual/non-accrual classification:
Loans Including Held for Sale Loans - Delinquency Status (dollars in millions)
| Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| 30–59 Days Past Due |
|
| 60–89 Days Past Due |
|
| 90 Days or Greater |
|
| Total Past Due |
|
| Current(1) |
|
| PCI Loans(2) |
|
| Total |
| |||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 12.4 |
|
| $ | 8.5 |
|
| $ | 98.0 |
|
| $ | 118.9 |
|
| $ | 10,117.3 |
|
| $ | 5.9 |
|
| $ | 10,242.1 |
|
Real Estate Finance |
| 30.1 |
|
|
| — |
|
|
| 7.9 |
|
|
| 38.0 |
|
|
| 5,473.4 |
|
|
| 36.2 |
|
|
| 5,547.6 |
|
Business Capital |
| 105.0 |
|
|
| 25.1 |
|
|
| 15.7 |
|
|
| 145.8 |
|
|
| 8,192.8 |
|
|
| — |
|
|
| 8,338.6 |
|
Rail |
| 2.4 |
|
|
| 1.0 |
|
|
| 0.3 |
|
|
| 3.7 |
|
|
| 123.8 |
|
|
| — |
|
|
| 127.5 |
|
Total Commercial Banking |
| 149.9 |
|
|
| 34.6 |
|
|
| 121.9 |
|
|
| 306.4 |
|
|
| 23,907.3 |
|
|
| 42.1 |
|
|
| 24,255.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 33.2 |
|
|
| 6.1 |
|
|
| 41.9 |
|
|
| 81.2 |
|
|
| 1,118.4 |
|
|
| 1,714.7 |
|
|
| 2,914.3 |
|
Other Consumer Banking |
| 27.9 |
|
|
| 2.1 |
|
|
| 5.4 |
|
|
| 35.4 |
|
|
| 3,460.2 |
|
|
| 2.1 |
|
|
| 3,497.7 |
|
Total Consumer Banking |
| 61.1 |
|
|
| 8.2 |
|
|
| 47.3 |
|
|
| 116.6 |
|
|
| 4,578.6 |
|
|
| 1,716.8 |
|
|
| 6,412.0 |
|
Non-Strategic Portfolios |
| 1.4 |
|
|
| — |
|
|
| 7.0 |
|
|
| 8.4 |
|
|
| 23.7 |
|
|
| — |
|
|
| 32.1 |
|
Total | $ | 212.4 |
|
| $ | 42.8 |
|
| $ | 176.2 |
|
| $ | 431.4 |
|
| $ | 28,509.6 |
|
| $ | 1,758.9 |
|
| $ | 30,699.9 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 4.5 |
|
| $ | — |
|
| $ | 49.3 |
|
| $ | 53.8 |
|
| $ | 9,987.9 |
|
| $ | 10.6 |
|
| $ | 10,052.3 |
|
Real Estate Finance |
| 8.7 |
|
|
| — |
|
|
| 4.1 |
|
|
| 12.8 |
|
|
| 5,532.3 |
|
|
| 45.1 |
|
|
| 5,590.2 |
|
Business Capital |
| 172.2 |
|
|
| 33.4 |
|
|
| 19.1 |
|
|
| 224.7 |
|
|
| 7,355.1 |
|
|
| — |
|
|
| 7,579.8 |
|
Rail |
| 3.9 |
|
|
| 1.4 |
|
|
| 0.8 |
|
|
| 6.1 |
|
|
| 97.7 |
|
|
| — |
|
|
| 103.8 |
|
Total Commercial Banking |
| 189.3 |
|
|
| 34.8 |
|
|
| 73.3 |
|
|
| 297.4 |
|
|
| 22,973.0 |
|
|
| 55.7 |
|
|
| 23,326.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 26.7 |
|
|
| 7.6 |
|
|
| 34.8 |
|
|
| 69.1 |
|
|
| 2,219.5 |
|
|
| 1,903.5 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
| 9.6 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 10.5 |
|
|
| 2,615.4 |
|
|
| 2.2 |
|
|
| 2,628.1 |
|
Total Consumer Banking |
| 36.3 |
|
|
| 8.1 |
|
|
| 35.2 |
|
|
| 79.6 |
|
|
| 4,834.9 |
|
|
| 1,905.7 |
|
|
| 6,820.2 |
|
Non-Strategic Portfolios |
| 1.8 |
|
|
| 7.7 |
|
|
| 9.4 |
|
|
| 18.9 |
|
|
| 44.4 |
|
|
| — |
|
|
| 63.3 |
|
Total | $ | 227.4 |
|
| $ | 50.6 |
|
| $ | 117.9 |
|
| $ | 395.9 |
|
| $ | 27,852.3 |
|
| $ | 1,961.4 |
|
| $ | 30,209.6 |
|
Past Due Finance and Held for Sale Loans (dollars in millions) | |||||||||||||||||||||||||||
| Past Due | |||||||||||||||||||||||||||
30–59 Days Past Due | 60–89 Days Past Due | 90 Days or Greater | Total Past Due | Current(1) | PCI Loans(2) | Total | |||||||||||||||||||||
| September 30, 2017 | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | $ | — | $ | 9.4 | $ | 62.5 | $ | 71.9 | $ | 9,312.1 | $ | 12.4 | $ | 9,396.4 | |||||||||||||
| Real Estate Finance | 0.2 | — | 2.6 | 2.8 | 5,507.8 | 53.4 | 5,564.0 | ||||||||||||||||||||
| Business Capital | 126.0 | 32.4 | 21.6 | 180.0 | 7,550.6 | — | 7,730.6 | ||||||||||||||||||||
| Rail | 0.7 | 0.3 | 1.0 | 2.0 | 102.5 | — | 104.5 | ||||||||||||||||||||
| Total Commercial Banking | 126.9 | 42.1 | 87.7 | 256.7 | 22,473.0 | 65.8 | 22,795.5 | ||||||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||||||
| Legacy Consumer Mortgages | 30.2 | 5.1 | 31.5 | 66.8 | 2,320.1 | 1,978.3 | 4,365.2 | ||||||||||||||||||||
| Other Consumer Banking | 3.3 | — | 0.4 | 3.7 | 2,307.4 | 2.3 | 2,313.4 | ||||||||||||||||||||
| Total Consumer Banking | 33.5 | 5.1 | 31.9 | 70.5 | 4,627.5 | 1,980.6 | 6,678.6 | ||||||||||||||||||||
| Non-Strategic Portfolios | — | — | 3.7 | 3.7 | 84.1 | — | 87.8 | ||||||||||||||||||||
| Total | $ | 160.4 | $ | 47.2 | $ | 123.3 | $ | 330.9 | $ | 27,184.6 | $ | 2,046.4 | $ | 29,561.9 | |||||||||||||
| December 31, 2016 | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | $ | 21.4 | $ | — | $ | 17.6 | $ | 39.0 | $ | 10,193.8 | $ | 42.7 | $ | 10,275.5 | |||||||||||||
| Real Estate Finance | 0.1 | — | — | 0.1 | 5,496.0 | 70.5 | 5,566.6 | ||||||||||||||||||||
| Business Capital | 143.6 | 42.4 | 16.3 | 202.3 | 6,771.8 | — | 6,974.1 | ||||||||||||||||||||
| Rail | 5.9 | 0.6 | 2.3 | 8.8 | 94.9 | — | 103.7 | ||||||||||||||||||||
| Total Commercial Banking | 171.0 | 43.0 | 36.2 | 250.2 | 22,556.5 | 113.2 | 22,919.9 | ||||||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||||||
| Legacy Consumer Mortgages | 22.6 | 6.1 | 36.6 | 65.3 | 2,563.6 | 2,233.8 | 4,862.7 | ||||||||||||||||||||
| Other Consumer Banking | 7.4 | 4.9 | 0.6 | 12.9 | 2,163.4 | 2.8 | 2,179.1 | ||||||||||||||||||||
| Total Consumer Banking | 30.0 | 11.0 | 37.2 | 78.2 | 4,727.0 | 2,236.6 | 7,041.8 | ||||||||||||||||||||
| Non-Strategic Portfolios | 3.0 | 1.1 | 7.0 | 11.1 | 198.9 | — | 210.0 | ||||||||||||||||||||
| Total | $ | 204.0 | $ | 55.1 | $ | 80.4 | $ | 339.5 | $ | 27,482.4 | $ | 2,349.8 | $ | 30,171.7 | |||||||||||||
(1) | As of September 30, 2018, the reverse mortgage loans were sold. As of December 31, 2017, due to their nature, reverse mortgage loans are included in Current, as they do not have contractual payments due at a specified time. During the first quarter of 2018, an immaterial error was discovered and corrected relating to the December 31, 2017 Current balance for LCM, which was understated by $861 million, and the Current balance for Other Consumer Banking, which was overstated by $861 million. The current presentation reflects the revised Current balances at December 31, 2017. |
(2) | PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be collectible. Accordingly, such loans are no longer classified as past due or non-accrual even though they may be contractually past due as we expect to fully collect the new carrying values. |
18
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth non-accrual loans, assets received in satisfaction of loans (OREO and repossessed assets) and loans 90 days or more past due and still accruing.
Loans on Non-Accrual Status (dollars in millions)(1)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Held for Investment |
|
| Held for Sale |
|
| Total |
|
| Held for Investment |
|
| Held for Sale |
|
| Total |
| ||||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 222.6 |
|
| $ | 6.7 |
|
| $ | 229.3 |
|
| $ | 134.8 |
|
| $ | — |
|
| $ | 134.8 |
|
Real Estate Finance |
| 2.3 |
|
|
| — |
|
|
| 2.3 |
|
|
| 2.8 |
|
|
| — |
|
|
| 2.8 |
|
Business Capital |
| 43.1 |
|
|
| — |
|
|
| 43.1 |
|
|
| 53.2 |
|
|
| — |
|
|
| 53.2 |
|
Total Commercial Banking |
| 268.0 |
|
|
| 6.7 |
|
|
| 274.7 |
|
|
| 190.8 |
|
|
| — |
|
|
| 190.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 29.4 |
|
|
| — |
|
|
| 29.4 |
|
|
| 19.9 |
|
|
| — |
|
|
| 19.9 |
|
Other Consumer Banking |
| 5.7 |
|
|
| — |
|
|
| 5.7 |
|
|
| 0.4 |
|
|
| — |
|
|
| 0.4 |
|
Total Consumer Banking |
| 35.1 |
|
|
| — |
|
|
| 35.1 |
|
|
| 20.3 |
|
|
| — |
|
|
| 20.3 |
|
Non-Strategic Portfolios |
| — |
|
|
| 8.3 |
|
|
| 8.3 |
|
|
| — |
|
|
| 9.8 |
|
|
| 9.8 |
|
Total | $ | 303.1 |
|
| $ | 15.0 |
|
| $ | 318.1 |
|
| $ | 211.1 |
|
| $ | 9.8 |
|
| $ | 220.9 |
|
Repossessed assets and OREO |
|
|
|
|
|
|
|
|
| 35.8 |
|
|
|
|
|
|
|
|
|
|
| 54.6 |
|
Total non-performing assets |
|
|
|
|
|
|
|
| $ | 353.9 |
|
|
|
|
|
|
|
|
|
| $ | 275.5 |
|
Commercial loans past due 90 days or more accruing |
|
|
|
|
|
|
|
| $ | 53.6 |
|
|
|
|
|
|
|
|
|
| $ | 11.7 |
|
Consumer loans past due 90 days or more accruing |
|
|
|
|
|
|
|
|
| 17.8 |
|
|
|
|
|
|
|
|
|
|
| 20.2 |
|
Total Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
| $ | 71.4 |
|
|
|
|
|
|
|
|
|
| $ | 31.9 |
|
Loans on Non-Accrual Status (dollars in millions)(1) | |||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Held for Investment | Held for Sale | Total | Held for Investment | Held for Sale | Total | ||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||
| Commercial Finance | $ | 185.3 | $ | 7.2 | $ | 192.5 | $ | 156.7 | $ | 32.1 | $ | 188.8 | |||||||||||
| Real Estate Finance | 2.8 | — | 2.8 | 20.4 | — | 20.4 | |||||||||||||||||
| Business Capital | 45.2 | — | 45.2 | 41.7 | — | 41.7 | |||||||||||||||||
| Total Commercial Banking | 233.3 | 7.2 | 240.5 | 218.8 | 32.1 | 250.9 | |||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||
| Legacy Consumer Mortgages | 18.9 | — | 18.9 | 17.3 | — | 17.3 | |||||||||||||||||
| Other Consumer Banking | 0.4 | — | 0.4 | 0.1 | — | 0.1 | |||||||||||||||||
| Total Consumer Banking | 19.3 | — | 19.3 | 17.4 | — | 17.4 | |||||||||||||||||
| Non-Strategic Portfolios | — | 4.8 | 4.8 | — | 10.3 | 10.3 | |||||||||||||||||
| Total | $ | 252.6 | $ | 12.0 | $ | 264.6 | $ | 236.2 | $ | 42.4 | $ | 278.6 | |||||||||||
| Repossessed assets and OREO | 64.2 | 72.7 | |||||||||||||||||||||
| Total non-performing assets | $ | 328.8 | $ | 351.3 | |||||||||||||||||||
| Commercial loans past due 90 days or more accruing | $ | 17.3 | $ | 7.2 | |||||||||||||||||||
| Consumer loans past due 90 days or more accruing | 18.1 | 24.8 | |||||||||||||||||||||
| Total Accruing loans past due 90 days or more | $ | 35.4 | $ | 32.0 | |||||||||||||||||||
(1) | Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual loan balances; however factored receivables are considered for credit provisioning purposes. |
Payments received on non-accrual financing receivablesloans are generally applied first against outstanding principal, though in certain instances where the remaining recorded investment is deemed fully collectible, interest income is recognized on a cash basis. Reverse mortgages are not included in the non-accrual balances.
The table below summarizes the residential mortgage loans in the process of foreclosure and OREO:
Loans in Process of Foreclosure and OREO (dollars in millions)(1)
September 30, 2018 |
|
| December 31, 2017 |
| |||
PCI | $ | 133.4 |
|
| $ | 133.7 |
|
Non-PCI |
| 21.1 |
|
|
| 140.9 |
|
Loans in process of foreclosure | $ | 154.5 |
|
| $ | 274.6 |
|
OREO | $ | 32.3 |
|
| $ | 52.1 |
|
Loans in Process of Foreclosure (dollars in millions) (1) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| PCI | $ | 137.3 | $ | 201.7 | |||
| Non-PCI | 144.9 | 106.3 | |||||
| Loans in process of foreclosure | $ | 282.2 | $ | 308.0 | |||
| OREO | $ | 61.7 | $ | 69.9 | |||
(1) | |
As of September 30, 2018 the decrease in Non-PCI and OREO balances reflects the sale of the reverse mortgage portfolio in May 2018. As of December 31, 2017, the table included |
Impaired Loans
The following table contains information about impaired loans and the related allowance for loan losses by class, exclusive ofclass. Impaired loans exclude PCI loans. Loans that were identified as impaired at the date of the OneWest Transaction (the “Acquisition Date”) for which the Company is applying the income recognition and disclosure guidance in ASC 310-30 (
19
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 21(Unaudited)
Impaired Loans (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
| Average Recorded Investment(3) |
| |||||||||||||
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Quarter Ended September 30, 2018 |
|
| Quarter Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2017 |
| |||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 127.0 |
|
| $ | 153.2 |
|
| $ | — |
|
| $ | 93.2 |
|
| $ | 64.5 |
|
| $ | 82.3 |
|
| $ | 61.9 |
|
Business Capital |
| 17.1 |
|
|
| 18.1 |
|
|
| — |
|
|
| 12.6 |
|
|
| 3.4 |
|
|
| 11.9 |
|
|
| 4.2 |
|
Real Estate Finance |
| 2.3 |
|
|
| 2.4 |
|
|
| — |
|
|
| 2.4 |
|
|
| 0.3 |
|
|
| 1.2 |
|
|
| 0.5 |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 95.9 |
|
|
| 103.9 |
|
|
| 40.0 |
|
|
| 120.2 |
|
|
| 154.8 |
|
|
| 102.8 |
|
|
| 146.8 |
|
Business Capital |
| 7.7 |
|
|
| 7.7 |
|
|
| 3.3 |
|
|
| 9.1 |
|
|
| 13.1 |
|
|
| 9.2 |
|
|
| 15.1 |
|
Real Estate Finance |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.8 |
|
|
| 0.7 |
|
|
| 6.3 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 0.5 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.3 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
Total Impaired Loans(1) |
| 250.5 |
|
|
| 285.8 |
|
|
| 43.7 |
|
|
| 237.8 |
|
|
| 238.9 |
|
|
| 208.2 |
|
|
| 234.8 |
|
Total Loans Impaired at Acquisition Date(2) |
| 1,758.9 |
|
|
| 2,583.4 |
|
|
| 17.4 |
|
|
| 1,796.2 |
|
|
| 2,125.5 |
|
|
| 1,863.2 |
|
|
| 2,220.7 |
|
Total | $ | 2,009.4 |
|
| $ | 2,869.2 |
|
| $ | 61.1 |
|
| $ | 2,034.0 |
|
| $ | 2,364.4 |
|
| $ | 2,071.4 |
|
| $ | 2,455.5 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 51.9 |
|
| $ | 72.7 |
|
| $ | — |
|
| $ | 59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Capital |
| 11.7 |
|
|
| 13.4 |
|
|
| — |
|
|
| 5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Finance |
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 95.9 |
|
|
| 96.1 |
|
|
| 21.3 |
|
|
| 136.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Capital |
| 10.5 |
|
|
| 10.5 |
|
|
| 4.3 |
|
|
| 14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Finance |
| 2.7 |
|
|
| 2.8 |
|
|
| 0.4 |
|
|
| 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans(1) |
| 172.7 |
|
|
| 195.5 |
|
|
| 26.0 |
|
|
| 222.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Impaired at Acquisition Date(2) |
| 1,961.4 |
|
|
| 2,870.2 |
|
|
| 19.1 |
|
|
| 2,168.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 2,134.1 |
|
| $ | 3,065.7 |
|
| $ | 45.1 |
|
| $ | 2,391.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans (dollars in millions) | |||||||||||||||||||||||||||
Average Recorded Investment(3) | |||||||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Quarter Ended September 30, 2017 | Quarter Ended September 30, 2016 | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||
| September 30, 2017 | |||||||||||||||||||||||||||
| With no related allowance recorded: | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | $ | 58.4 | $ | 70.3 | $ | — | $ | 64.5 | $ | 33.9 | $ | 61.9 | $ | 23.4 | |||||||||||||
| Business Capital | 3.3 | 4.0 | — | 3.4 | 5.5 | 4.2 | 6.2 | ||||||||||||||||||||
| Real Estate Finance | — | — | — | 0.3 | 0.8 | 0.5 | 1.5 | ||||||||||||||||||||
| With an allowance recorded: | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | 174.2 | 176.9 | 32.9 | 154.8 | 138.2 | 146.8 | 129.4 | ||||||||||||||||||||
| Business Capital | 7.5 | 7.5 | 2.3 | 13.1 | 5.9 | 15.1 | 8.6 | ||||||||||||||||||||
| Real Estate Finance | 2.8 | 2.8 | 0.4 | 2.8 | 3.1 | 6.3 | 2.4 | ||||||||||||||||||||
Total Impaired Loans(1) | 246.2 | 261.5 | 35.6 | 238.9 | 187.4 | 234.8 | 171.5 | ||||||||||||||||||||
Total Loans Impaired at Acquisition Date(2) | 2,046.4 | 3,004.3 | 20.8 | 2,125.5 | 2,449.2 | 2,220.7 | 2,536.5 | ||||||||||||||||||||
| Total | $ | 2,292.6 | $ | 3,265.8 | $ | 56.4 | $ | 2,364.4 | $ | 2,636.6 | $ | 2,455.5 | $ | 2,708.0 | |||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment (3) | ||||||||||||||||||||||||
| December 31, 2016 | |||||||||||||||||||||||||||
| With no related allowance recorded: | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | $ | 54.3 | $ | 72.2 | $ | — | $ | 29.5 | |||||||||||||||||||
| Business Capital | 0.5 | 1.8 | — | 5.1 | |||||||||||||||||||||||
| Real Estate Finance | 0.7 | 0.7 | — | 1.3 | |||||||||||||||||||||||
| With an allowance recorded: | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||
| Commercial Finance | 143.0 | 146.2 | 25.5 | 132.1 | |||||||||||||||||||||||
| Business Capital | 6.6 | 6.6 | 4.2 | 8.2 | |||||||||||||||||||||||
| Real Estate Finance | 16.7 | 16.8 | 4.0 | 5.2 | |||||||||||||||||||||||
Total Impaired Loans(1) | 221.8 | 244.3 | 33.7 | 181.4 | |||||||||||||||||||||||
Total Loans Impaired at Acquisition Date(2) | 2,349.8 | 3,440.7 | 13.6 | 2,504.4 | |||||||||||||||||||||||
| Total | $ | 2,571.6 | $ | 3,685.0 | $ | 47.3 | $ | 2,685.8 | |||||||||||||||||||
(1) | Interest income recorded for the |
(2) | Details of finance loans that were identified as impaired at the Acquisition Date are presented under Loans Acquired with Deteriorated Credit Quality. |
(3) | Average recorded investment for the quarters and nine months ended September 30, |
Loans Acquired with Deteriorated Credit Quality
The Company applied the income recognition and disclosure guidance in ASC 310-30 (
Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans that were identified as20
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
Purchased Credit Impaired Loans (dollars in millions)
September 30, 2018 | Unpaid Principal Balance |
|
| Carrying Value |
|
| Allowance for Loan Losses |
| |||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 10.2 |
|
| $ | 5.9 |
|
| $ | 0.5 |
|
Real Estate Finance |
| 43.2 |
|
|
| 36.2 |
|
|
| 9.1 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 2.6 |
|
|
| 2.1 |
|
|
| — |
|
Legacy Consumer Mortgages |
| 2,527.4 |
|
|
| 1,714.7 |
|
|
| 7.8 |
|
| $ | 2,583.4 |
|
| $ | 1,758.9 |
|
| $ | 17.4 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 16.4 |
|
| $ | 10.6 |
|
| $ | 0.7 |
|
Real Estate Finance |
| 60.1 |
|
|
| 45.1 |
|
|
| 7.0 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 3.0 |
|
|
| 2.2 |
|
|
| — |
|
Legacy Consumer Mortgages |
| 2,790.7 |
|
|
| 1,903.5 |
|
|
| 11.4 |
|
| $ | 2,870.2 |
|
| $ | 1,961.4 |
|
| $ | 19.1 |
|
Purchased Credit Impaired Loans (dollars in millions) | |||||||||||
| September 30, 2017 | Unpaid Principal Balance | Carrying Value | Allowance for Loan Losses | ||||||||
| Commercial Banking | |||||||||||
| Commercial Finance | $ | 33.8 | $ | 12.4 | $ | 2.4 | |||||
| Real Estate Finance | 72.9 | 53.4 | 6.9 | ||||||||
| Consumer Banking | |||||||||||
| Other Consumer Banking | 3.0 | 2.3 | — | ||||||||
| Legacy Consumer Mortgages | 2,894.6 | 1,978.3 | 11.5 | ||||||||
| $ | 3,004.3 | $ | 2,046.4 | $ | 20.8 | ||||||
| December 31, 2016 | |||||||||||
| Commercial Banking | |||||||||||
| Commercial Finance | $ | 70.0 | $ | 42.7 | $ | 2.4 | |||||
| Real Estate Finance | 108.1 | 70.5 | 4.9 | ||||||||
| Consumer Banking | |||||||||||
| Other Consumer Banking | 3.7 | 2.8 | — | ||||||||
| Legacy Consumer Mortgages | 3,258.9 | 2,233.8 | 6.3 | ||||||||
| $ | 3,440.7 | $ | 2,349.8 | $ | 13.6 | ||||||
The following table summarizes the carrying value of commercial PCI loans, within Commercial Banking, which are monitored for credit quality based on internal risk classifications. See previous table Consumer Loan LTV DistributionsDistribution for credit quality metrics on consumer PCI loans.
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
(dollars in millions) | Non- criticized |
|
| Criticized |
|
| Total |
|
| Non- criticized |
|
| Criticized |
|
| Total |
| ||||||
Commercial Finance | $ | — |
|
| $ | 5.9 |
|
| $ | 5.9 |
|
| $ | — |
|
| $ | 10.6 |
|
| $ | 10.6 |
|
Real Estate Finance |
| 14.4 |
|
|
| 21.8 |
|
|
| 36.2 |
|
|
| 21.8 |
|
|
| 23.3 |
|
|
| 45.1 |
|
Total | $ | 14.4 |
|
| $ | 27.7 |
|
| $ | 42.1 |
|
| $ | 21.8 |
|
| $ | 33.9 |
|
| $ | 55.7 |
|
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
| (dollars in millions) | Non- criticized | Criticized | Total | Non- criticized | Criticized | Total | |||||||||||||||||
| Commercial Finance | $ | — | $ | 12.4 | $ | 12.4 | $ | 5.4 | $ | 37.3 | $ | 42.7 | |||||||||||
| Real Estate Finance | 25.9 | 27.5 | 53.4 | 35.6 | 34.9 | 70.5 | |||||||||||||||||
| Total | $ | 25.9 | $ | 39.9 | $ | 65.8 | $ | 41.0 | $ | 72.2 | $ | 113.2 | |||||||||||
Non-criticized loans generally include loans that are expected to be repaid in accordance with contractual loan terms. Criticized loans are risk rated as special mention or classified.
Accretable Yield
See the Company’s 2017 Form 10-K, Note 1 — Business and Summary of cash flows expected to be collected over the recorded investment (estimated fair value at acquisition) of the PCI loans represents the accretable yield and is recognized in interest income on an effective yield basis over the remaining life of the loan, or pools of loans. The accretable yield is adjusted Significant Accounting Policies for changes in interest rate indices for variable rate PCI loans, changes in prepayment assumptions and changes in expected principal and interest payments and collateral values. Further, if a loan within a pool of loans is modified, the modified loan remains part of the pool of loans. The difference between the cash flows contractually required to be paid, measured as of the Acquisition Date, over the expected cash flows is referred to as the non-accretable difference.
Changes in the accretable yield for PCI loans are summarized below for the quarters ended September 30, 2017 and 2016.below.
Change in Accretable Yield (dollars in millions)
Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Balance, beginning of period | $ | 972.8 |
|
| $ | 1,176.0 |
|
| $ | 1,063.7 |
|
| $ | 1,261.4 |
|
Accretion into interest income |
| (40.4 | ) |
|
| (50.5 | ) |
|
| (126.0 | ) |
|
| (156.8 | ) |
Reclassification from non-accretable difference |
| 13.9 |
|
|
| 3.6 |
|
|
| 14.7 |
|
|
| 37.3 |
|
Disposals and Other |
| (1.4 | ) |
|
| (12.2 | ) |
|
| (7.5 | ) |
|
| (25.0 | ) |
Balance, end of period | $ | 944.9 |
|
| $ | 1,116.9 |
|
| $ | 944.9 |
|
| $ | 1,116.9 |
|
| September 30, 2017 | ||||||
| (dollars in millions) | Quarter Ended | Nine months ended | ||||
| Balance, beginning of period | $ | 1,176.0 | $ | 1,261.4 | ||
| Accretion into interest income | (50.5 | ) | (156.8 | ) | ||
| Reclassification from non-accretable difference | 3.6 | 37.3 | ||||
| Disposals and Other | (12.2 | ) | (25.0 | ) | ||
| Balance at September 30, 2017 | $ | 1,116.9 | $ | 1,116.9 | ||
| September 30, 2016 | ||||||
| Quarter Ended | Nine months ended | |||||
| Balance, beginning of period | $ | 1,277.3 | $ | 1,299.1 | ||
| Accretion into interest income | (51.7 | ) | (155.2 | ) | ||
| Reclassification from non-accretable difference | 35.8 | 146.2 | ||||
| Disposals and Other | (5.4 | ) | (34.1 | ) | ||
| Balance at September 30, 2016 | $ | 1,256.0 | $ | 1,256.0 | ||
Troubled Debt Restructuring
The Company periodically modifies the terms of loans in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs).TDRs. See the Company's Annual Report on2017 Form 10-K for the year ended December 31, 2016 for discussion of policies on TDRs.
At September 30, 2018, the loans in trial modification period were insignificant under proprietary programs. At December 31, 2017, the loans in trial modification period were $4.2$0.3 million under the Home Affordable Modification Program ("HAMP")HAMP and $8.6$12.2 million under proprietary programs. Trial modifications with a recorded investment of $11$12.3 million at September 30,December 31, 2017, were accruing loans and $1.8 million were non-accruing loans. At December 31, 2016, the loans in trial modification period were $36.4 million under HAMP, $0.1 million under the Second Lien Modification Program ("2MP") and $3.0 million under proprietary programs. Trial modifications with a recorded investment of $38.1 million at December 31, 2016 were accruing loans and $1.4$0.2 million were non-accruing loans. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.
The recorded investment of TDRs, excluding those classified as PCI and those within a trial modification period discussed in the preceding paragraph, at September 30, 20172018 and December 31, 20162017 was $149.2$84.6 million and $82.3$103.5 million, of which 60%62% and 41%63%, respectively, were on non-accrual. See the preceding paragraph on discussion related to TDRs in trial modification period. Commercial Banking and Consumer Banking receivables accounted for 90%80% and 10%20% of the total TDRs, respectively, at September 30, 2017.2018. Commercial Banking and Consumer Banking receivables accounted for 85.0%83% and 15.0%17% of the total TDRs, respectively at December 31, 2016.2017. There were $14.1$14.8 million and $5.4$13.4 million as of September 30, 20172018 and December 31, 2016,2017, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.
21
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The recorded investment related to modifications qualifying as TDRs that occurred during the quarters ended September 30, 2018 and 2017 were $13.1 million and 2016 were $39.0 million and $39.4$60.9 million and $129.7 million and $58.1 million for the nine month periods,months ended September 30, 2018 and 2017, respectively. The recorded investment as of September 30, 20172018 and 20162017 of TDRs that experienceexperienced a payment default (payment default is one missed payment), during the quarters ended September 30, 20172018 and 2016,2017, and for which the payment default occurred within one year of the modification totaled $7.5$0.4 million and $10.5$7.5 million, respectively, and $72.0$2.4 million and $12.6$72.0 million for the nine month periods,months ended September 30, 2018 and 2017, respectively. The defaults that occurred during the current quarter and year to date related to Commercial Banking and Consumer Banking.
The financial impact of the various modification strategies that the Company employs in response to borrower difficulties is described below. While the discussion focuses on the September 30, 20172018 amounts, the overall nature and impact of modification programs were comparable in the prior year.
▪ | |
The nature of modifications qualifying as |
▪ | |
Payment deferrals result in lower net present value of cash flows, if not accompanied by additional interest or fees, and increased provision for credit losses to the extent applicable. The financial impact of these modifications is not significant given the moderate length of deferral periods. |
▪ | |
Interest rate reductions result in lower amounts of interest being charged to the customer, but are a relatively small part of the Company’s restructuring programs. |
▪ | |
Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form of higher charge-offs. While these types of modifications have the greatest individual impact on the allowance, the amounts of principal forgiveness for TDRs occurring during quarters ended September 30, |
▪ | |
The other elements of the Company’s modification programs that are not TDRs, do not have a significant impact on financial results given their relative size, or do not have a direct financial impact, as in the case of covenant changes. |
22
CIT Group Inc. and Subsidiaries – Notes to the Financial Freedom Transaction, of which $728.7 million related to the uninsured proprietary reverse mortgage loans and the remaining related to FHA-insured HECM loans. At December 31, 2016, the reverse mortgages had an outstanding balance of $891.8 million, of which $769.6 million related to the uninsured proprietary reverse mortgage loans.
Future Advances (dollars in millions) | |||
| Year Ending: | |||
| 2017 | $ | 4.4 | |
| 2018 | 11.8 | ||
| 2019 | 9.8 | ||
| 2020 | 8.0 | ||
| 2021 | 6.6 | ||
| Years 2022 – 2026 | 18.1 | ||
| Years 2027 – 2031 | 5.6 | ||
| Years 2032 – 2036 | 1.4 | ||
| Thereafter | 0.3 | ||
Total (1),(2) | $ | 66.0 | |
The Company maintains an allowance for loan losses for estimated credit losses in its HFI loan portfolio. The allowance is adjusted through a provision
Allowance for credit losses, which is charged against current period earnings,Loan Losses and reduced by any charge-offs for losses, net of recoveries.
| Commercial Banking |
|
| Consumer Banking |
|
| Total |
|
| Commercial Banking |
|
| Consumer Banking |
|
| Total |
| ||||||
| Quarter Ended September 30, 2018 |
|
| Quarter Ended September 30, 2017 |
| ||||||||||||||||||
Balance - beginning of period | $ | 437.8 |
|
| $ | 29.5 |
|
| $ | 467.3 |
|
| $ | 397.7 |
|
| $ | 28.3 |
|
| $ | 426.0 |
|
Provision for credit losses |
| 39.0 |
|
|
| (0.9 | ) |
|
| 38.1 |
|
|
| 11.1 |
|
|
| 19.0 |
|
|
| 30.1 |
|
Other(1) |
| (1.9 | ) |
|
| (0.1 | ) |
|
| (2.0 | ) |
|
| 4.8 |
|
|
| 0.3 |
|
|
| 5.1 |
|
Gross charge-offs(2) |
| (29.4 | ) |
|
| (1.4 | ) |
|
| (30.8 | ) |
|
| (27.7 | ) |
|
| (20.5 | ) |
|
| (48.2 | ) |
Recoveries |
| 4.7 |
|
|
| 0.1 |
|
|
| 4.8 |
|
|
| 6.0 |
|
|
| 0.5 |
|
|
| 6.5 |
|
Balance - end of period | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2017 |
| ||||||||||||||||||
Balance - beginning of period | $ | 402.2 |
|
| $ | 28.9 |
|
| $ | 431.1 |
|
| $ | 408.4 |
|
| $ | 24.2 |
|
| $ | 432.6 |
|
Provision for credit losses |
| 139.4 |
|
|
| 0.4 |
|
|
| 139.8 |
|
|
| 60.1 |
|
|
| 24.1 |
|
|
| 84.2 |
|
Other(1) |
| (2.2 | ) |
|
| (0.1 | ) |
|
| (2.3 | ) |
|
| (0.5 | ) |
|
| 0.1 |
|
|
| (0.4 | ) |
Gross charge-offs(2) |
| (108.6 | ) |
|
| (2.7 | ) |
|
| (111.3 | ) |
|
| (92.4 | ) |
|
| (22.0 | ) |
|
| (114.4 | ) |
Recoveries |
| 19.4 |
|
|
| 0.7 |
|
|
| 20.1 |
|
|
| 16.3 |
|
|
| 1.2 |
|
|
| 17.5 |
|
Balance - end of period | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
| Allowance balance at September 30, 2018 |
|
| Allowance balance at September 30, 2017 |
| ||||||||||||||||||
Loans individually evaluated for impairment | $ | 43.3 |
|
| $ | 0.4 |
|
| $ | 43.7 |
|
| $ | 35.6 |
|
| $ | - |
|
| $ | 35.6 |
|
Loans collectively evaluated for impairment |
| 397.3 |
|
|
| 19.0 |
|
|
| 416.3 |
|
|
| 347.0 |
|
|
| 16.1 |
|
|
| 363.1 |
|
Loans acquired with deteriorated credit quality(3) |
| 9.6 |
|
|
| 7.8 |
|
|
| 17.4 |
|
|
| 9.3 |
|
|
| 11.5 |
|
|
| 20.8 |
|
Allowance for loan losses | $ | 450.2 |
|
| $ | 27.2 |
|
| $ | 477.4 |
|
| $ | 391.9 |
|
| $ | 27.6 |
|
| $ | 419.5 |
|
Other reserves(1) | $ | 46.8 |
|
| $ | - |
|
| $ | 46.8 |
|
| $ | 44.2 |
|
| $ | - |
|
| $ | 44.2 |
|
| Loans at September 30, 2018 |
|
| Loans at September 30, 2017 |
| ||||||||||||||||||
Loans individually evaluated for impairment | $ | 250.0 |
|
| $ | 0.5 |
|
| $ | 250.5 |
|
| $ | 246.2 |
|
| $ | - |
|
| $ | 246.2 |
|
Loans collectively evaluated for impairment |
| 23,803.6 |
|
|
| 4,682.8 |
|
|
| 28,486.4 |
|
|
| 22,380.6 |
|
|
| 3,832.1 |
|
|
| 26,212.7 |
|
Loans acquired with deteriorated credit quality(3) |
| 42.1 |
|
|
| 1,716.8 |
|
|
| 1,758.9 |
|
|
| 65.8 |
|
|
| 1,980.6 |
|
|
| 2,046.4 |
|
Ending balance | $ | 24,095.7 |
|
| $ | 6,400.1 |
|
| $ | 30,495.8 |
|
| $ | 22,692.6 |
|
| $ | 5,812.7 |
|
| $ | 28,505.3 |
|
Percent of loans to total loans |
| 79.0 | % |
|
| 21.0 | % |
|
| 100.0 | % |
|
| 79.6 | % |
|
| 20.4 | % |
|
| 100.0 | % |
Allowance for Loan Losses and Recorded Investment in Loans (dollars in millions) | |||||||||||
| Commercial Banking | Consumer Banking | Total | |||||||||
| Quarter Ended September 30, 2017 | |||||||||||
| Balance - June 30, 2017 | $ | 397.7 | $ | 28.3 | $ | 426.0 | |||||
| Provision for credit losses | 11.1 | 19.0 | 30.1 | ||||||||
Other(1) | 4.8 | 0.3 | 5.1 | ||||||||
Gross charge-offs(2) | (27.7 | ) | (20.5 | ) | (48.2 | ) | |||||
| Recoveries | 6.0 | 0.5 | 6.5 | ||||||||
| Balance - September 30, 2017 | $ | 391.9 | $ | 27.6 | $ | 419.5 | |||||
| Nine Months Ended September 30, 2017 | |||||||||||
| Balance - December 31, 2016 | $ | 408.4 | $ | 24.2 | $ | 432.6 | |||||
| Provision for credit losses | 60.1 | 24.1 | 84.2 | ||||||||
Other(1) | (0.5 | ) | 0.1 | (0.4 | ) | ||||||
Gross charge-offs(2) | (92.4 | ) | (22.0 | ) | (114.4 | ) | |||||
| Recoveries | 16.3 | 1.2 | 17.5 | ||||||||
| Balance - September 30, 2017 | $ | 391.9 | $ | 27.6 | $ | 419.5 | |||||
| Allowance balance at September 30, 2017 | |||||||||||
| Loans individually evaluated for impairment | $ | 35.6 | $ | — | $ | 35.6 | |||||
| Loans collectively evaluated for impairment | 347.0 | 16.1 | 363.1 | ||||||||
Loans acquired with deteriorated credit quality(3) | 9.3 | 11.5 | 20.8 | ||||||||
| Allowance for loan losses | $ | 391.9 | $ | 27.6 | $ | 419.5 | |||||
Other reserves(1) | $ | 44.2 | $ | — | $ | 44.2 | |||||
| Loans at September 30, 2017 | |||||||||||
| Loans individually evaluated for impairment | $ | 246.2 | $ | — | $ | 246.2 | |||||
| Loans collectively evaluated for impairment | 22,380.6 | 3,832.1 | 26,212.7 | ||||||||
Loans acquired with deteriorated credit quality(3) | 65.8 | 1,980.6 | 2,046.4 | ||||||||
| Ending balance | $ | 22,692.6 | $ | 5,812.7 | $ | 28,505.3 | |||||
| Percent of loans to total loans | 79.6 | % | 20.4 | % | 100 | % | |||||
Allowance for Loan Losses and Recorded Investment in Loans (continued) (dollars in millions) | |||||||||||
Commercial Banking | Consumer Banking | Total | |||||||||
| Quarter Ended September 30, 2016 | |||||||||||
| Balance - June 30, 2016 | $ | 376.9 | $ | 16.2 | $ | 393.1 | |||||
| Provision for credit losses | 43.6 | 1.5 | 45.1 | ||||||||
Other(1) | (1.8 | ) | (0.1 | ) | (1.9 | ) | |||||
Gross charge-offs(2) | (27.7 | ) | (0.7 | ) | (28.4 | ) | |||||
| Recoveries | 6.2 | 0.9 | 7.1 | ||||||||
| Balance - September 30, 2016 | $ | 397.2 | $ | 17.8 | $ | 415.0 | |||||
| Nine Months Ended September 30, 2016 | |||||||||||
| Balance - December 31, 2015 | $ | 336.7 | $ | 10.3 | $ | 347.0 | |||||
| Provision for credit losses | 152.2 | 5.7 | 157.9 | ||||||||
Other(1) | (3.4 | ) | 1.1 | (2.3 | ) | ||||||
Gross charge-offs(2) | (101.8 | ) | (1.9 | ) | (103.7 | ) | |||||
| Recoveries | 13.5 | 2.6 | 16.1 | ||||||||
| Balance - September 30, 2016 | $ | 397.2 | $ | 17.8 | $ | 415.0 | |||||
| Allowance balance at September 30, 2016 | |||||||||||
| Loans individually evaluated for impairment | $ | 33.8 | $ | — | $ | 33.8 | |||||
| Loans collectively evaluated for impairment | 357.7 | 16.3 | 374.0 | ||||||||
Loans acquired with deteriorated credit quality(3) | 5.7 | 1.5 | 7.2 | ||||||||
| Allowance for loan losses | $ | 397.2 | $ | 17.8 | $ | 415.0 | |||||
Other reserves(1) | $ | 47.4 | $ | 0.2 | $ | 47.6 | |||||
| Loans at September 30, 2016 | |||||||||||
| Loans individually evaluated for impairment | $ | 217.6 | $ | — | $ | 217.6 | |||||
| Loans collectively evaluated for impairment | 22,442.2 | 4,816.8 | 27,259.0 | ||||||||
Loans acquired with deteriorated credit quality(3) | 121.1 | 2,299.3 | 2,420.4 | ||||||||
| Ending balance | $ | 22,780.9 | $ | 7,116.1 | $ | 29,897.0 | |||||
| Percentage of loans to total loans | 76.2 | % | 23.8 | % | 100 | % | |||||
(1) | “ |
(2) | Gross charge-offs of amounts specifically reserved in prior periods that were charged directly to the Allowance for loan losses included $4.0 million and $12.0 million for the quarter and nine months ended September 30, 2018, respectively, and $7.7 million and $39.3 million for the quarter and nine months ended September 30, 2017, |
(3) | Represents loans considered impaired as part of the OneWest transaction and are accounted for under the guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality). |
NOTE 5 — INVESTMENT SECURITIES
Investments include debt and equity securities. The Company’s debt securities include U.S. Government Agency securities, U.S. Treasury securities, residential mortgage-backed securities (“MBS”), and supranational securities. Equity securities include common stock and warrants, along with restricted stock
Investment Securities (dollars in the Federal Home Loan Bank (“FHLB”) and FRB.millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Available for sale securities |
|
|
|
|
|
|
|
Debt securities | $ | 6,053.5 |
|
| $ | 6,123.6 |
|
Securities carried at fair value with changes recorded in net income |
|
|
|
|
|
|
|
Debt securities |
| — |
|
|
| 0.4 |
|
Equity securities(1) |
| 44.0 |
|
|
| 44.7 |
|
Non-marketable investments(2) |
| 242.0 |
|
|
| 301.2 |
|
Total investment securities | $ | 6,339.5 |
|
| $ | 6,469.9 |
|
Investment Securities (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Available-for-sale securities | |||||||
| Debt securities | $ | 4,973.6 | $ | 3,674.1 | |||
| Equity securities | 34.7 | 34.1 | |||||
| Held-to-maturity securities | |||||||
Debt securities(1) | 211.3 | 243.0 | |||||
| Securities carried at fair value with changes recorded in net income | |||||||
| Debt securities | 247.7 | 283.5 | |||||
Non-marketable investments(2) | 277.5 | 256.4 | |||||
| Total investment securities | $ | 5,744.8 | $ | 4,491.1 | |||
(1) | Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, these investments were reclassified from available for sale securities category and the presentation of equity securities as of December 31, 2017 is conformed accordingly. For details refer to Note 1 — Business and Summary of Significant Accounting Policies. |
(2) | Non-marketable investments include restricted stock of the FRB and |
23
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Realized investment gains totaled $4.9$4.0 million and $5.1$4.1 million for the quarters ended September 30, 2018 and 2017, respectively, and 2016, and $7.3$12.3 million and $6.6$4.6 million for the nine months ended September 30, 20172018 and 2016,2017, respectively, and exclude losses from OTTI.
In addition, the Company had $2.7$1.2 billion and $5.6$1.4 billion of interest bearing deposits at banks at September 30, 20172018 and
December 31, 2016,2017, respectively, which are cash and cash equivalents and are classified separately on the balance sheet.
The following table presents interest and dividends on interest bearing deposits and investments:
Interest and Dividend Income (dollars in millions)
| Quarters Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Interest income — debt securities(1) | $ | 41.6 |
|
| $ | 35.5 |
|
| $ | 120.9 |
|
| $ | 93.8 |
|
Interest income — interest bearing deposits |
| 11.7 |
|
|
| 12.5 |
|
|
| 34.7 |
|
|
| 48.9 |
|
Dividends — equity securities |
| 2.9 |
|
|
| 2.5 |
|
|
| 9.0 |
|
|
| 8.3 |
|
Total interest and dividends | $ | 56.2 |
|
| $ | 50.5 |
|
| $ | 164.6 |
|
| $ | 151.0 |
|
Interest and Dividend Income (dollars in millions) | |||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest income — investments | $ | 35.5 | $ | 19.8 | $ | 93.8 | $ | 58.7 | |||||||
| Interest income — interest bearing deposits | 12.5 | 8.9 | 48.9 | 25.6 | |||||||||||
| Dividends — investments | 2.5 | 3.2 | 8.3 | 9.6 | |||||||||||
| Total interest and dividends | $ | 50.5 | $ | 31.9 | $ | 151.0 | $ | 93.9 | |||||||
(1) |
Includes interest income on securities purchased under agreement to resell |
TheCIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Amortized Cost and securities held-to-maturity ("HTM").Fair Value (dollars in millions)
September 30, 2018 | Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,300.3 |
|
| $ | 0.3 |
|
| $ | (191.2 | ) |
| $ | 5,109.4 |
|
Non-agency securities |
| 36.6 |
|
|
| 3.4 |
|
|
| — |
|
|
| 40.0 |
|
Commercial agency |
| 158.0 |
|
|
| 0.1 |
|
|
| (0.6 | ) |
|
| 157.5 |
|
U.S. government agency obligations |
| 25.0 |
|
|
| — |
|
|
| (0.7 | ) |
|
| 24.3 |
|
U.S. Treasury securities |
| 603.4 |
|
|
| — |
|
|
| (8.6 | ) |
|
| 594.8 |
|
Supranational securities |
| 50.0 |
|
|
| — |
|
|
| (0.9 | ) |
|
| 49.1 |
|
State & municipal bonds |
| 11.9 |
|
|
| — |
|
|
| (0.6 | ) |
|
| 11.3 |
|
Corporate bonds - foreign |
| 65.8 |
|
|
| 1.3 |
|
|
| — |
|
|
| 67.1 |
|
Total debt securities AFS | $ | 6,251.0 |
|
| $ | 5.1 |
|
| $ | (202.6 | ) |
| $ | 6,053.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,010.2 |
|
| $ | 2.1 |
|
| $ | (62.1 | ) |
| $ | 4,950.2 |
|
Non-agency securities |
| 297.3 |
|
|
| 21.7 |
|
|
| (0.5 | ) |
|
| 318.5 |
|
U.S. government agency obligations |
| 25.0 |
|
|
| — |
|
|
| (0.2 | ) |
|
| 24.8 |
|
U.S. Treasury securities |
| 297.7 |
|
|
| 0.2 |
|
|
| (0.2 | ) |
|
| 297.7 |
|
Supranational securities |
| 449.8 |
|
|
| — |
|
|
| (0.3 | ) |
|
| 449.5 |
|
State & municipal bonds |
| 16.2 |
|
|
| — |
|
|
| (0.4 | ) |
|
| 15.8 |
|
Corporate bonds - foreign |
| 65.7 |
|
|
| 1.4 |
|
|
| — |
|
|
| 67.1 |
|
Total debt securities AFS | $ | 6,161.9 |
|
| $ | 25.4 |
|
| $ | (63.7 | ) |
| $ | 6,123.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Amortized Cost and Fair Value (dollars in millions) | |||||||||||||||
| September 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
| Debt securities AFS | |||||||||||||||
| Mortgage-backed Securities | |||||||||||||||
| U.S. government agency securities | $ | 3,499.9 | $ | 4.2 | $ | (33.2 | ) | $ | 3,470.9 | ||||||
| Non-agency securities | 381.5 | 30.7 | (1.2 | ) | 411.0 | ||||||||||
| U.S. government agency obligations | 574.9 | — | (4.4 | ) | 570.5 | ||||||||||
| U.S. Treasury Securities | 421.5 | 0.1 | (0.2 | ) | 421.4 | ||||||||||
| Supranational securities | 99.8 | — | — | 99.8 | |||||||||||
| Total debt securities AFS | 4,977.6 | 35.0 | (39.0 | ) | 4,973.6 | ||||||||||
| Equity securities AFS | 35.6 | — | (0.9 | ) | 34.7 | ||||||||||
| Total securities AFS | 5,013.2 | 35.0 | (39.9 | ) | 5,008.3 | ||||||||||
| Debt securities HTM | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | 89.2 | 0.4 | (2.4 | ) | 87.2 | ||||||||||
| State and municipal | 16.3 | — | (0.3 | ) | 16.0 | ||||||||||
| Corporate — foreign | 105.8 | 7.1 | — | 112.9 | |||||||||||
| Total debt securities HTM | 211.3 | 7.5 | (2.7 | ) | 216.1 | ||||||||||
| Total | $ | 5,224.5 | $ | 42.5 | $ | (42.6 | ) | $ | 5,224.4 | ||||||
| December 31, 2016 | |||||||||||||||
| Debt Securities AFS | |||||||||||||||
| Mortgage-backed Securities | |||||||||||||||
| U.S. government agency securities | $ | 2,073.6 | $ | 1.6 | $ | (32.3 | ) | $ | 2,042.9 | ||||||
| Non-agency securities | 471.7 | 15.6 | (1.8 | ) | 485.5 | ||||||||||
| U.S. government agency obligations | 649.9 | — | (3.9 | ) | 646.0 | ||||||||||
| U.S. Treasury Securities | 299.9 | — | (0.4 | ) | 299.5 | ||||||||||
| Supranational securities | 200.2 | — | — | 200.2 | |||||||||||
| Total debt securities AFS | 3,695.3 | 17.2 | (38.4 | ) | 3,674.1 | ||||||||||
| Equity securities AFS | 35.0 | — | (0.9 | ) | 34.1 | ||||||||||
| Total securities AFS | 3,730.3 | 17.2 | (39.3 | ) | 3,708.2 | ||||||||||
| Debt securities HTM | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | 110.0 | 0.7 | (3.3 | ) | 107.4 | ||||||||||
| State and municipal | 27.7 | — | (0.5 | ) | 27.2 | ||||||||||
| Foreign government | 2.4 | — | — | 2.4 | |||||||||||
| Corporate — foreign | 102.9 | 6.2 | — | 109.1 | |||||||||||
| Total debt securities HTM | 243.0 | 6.9 | (3.8 | ) | 246.1 | ||||||||||
| Total | $ | 3,973.3 | $ | 24.1 | $ | (43.1 | ) | $ | 3,954.3 | ||||||
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 29
Maturities - Debt Securities AFS (dollars in millions)
| September 30, 2018 |
| |||||||||
| Amortized Cost |
|
| Fair Value |
|
| Weighted Average Yield |
| |||
Mortgage-backed securities — U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years | $ | 222.0 |
|
| $ | 215.2 |
|
|
| 2.23 | % |
Due after 10 years |
| 5,078.3 |
|
|
| 4,894.2 |
|
|
| 2.68 | % |
Total |
| 5,300.3 |
|
|
| 5,109.4 |
|
|
| 2.66 | % |
Mortgage-backed securities — Non-agency securities |
|
|
|
|
|
|
|
|
|
|
|
Due after 10 years |
| 36.6 |
|
|
| 40.0 |
|
|
| 6.99 | % |
Total |
| 36.6 |
|
|
| 40.0 |
|
|
| 6.99 | % |
Mortgage-backed securities — Commercial agency |
|
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years |
| 138.1 |
|
|
| 137.5 |
|
|
| 3.24 | % |
Due after 10 years |
| 19.9 |
|
|
| 20.0 |
|
|
| 2.42 | % |
Total |
| 158.0 |
|
|
| 157.5 |
|
|
| 3.14 | % |
U.S. government agency obligations |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 25.0 |
|
|
| 24.3 |
|
|
| 2.26 | % |
Total |
| 25.0 |
|
|
| 24.3 |
|
|
| 2.26 | % |
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year |
| 403.5 |
|
|
| 403.4 |
|
|
| 1.91 | % |
After 1 but within 5 years |
| 4.0 |
|
|
| 4.0 |
|
|
| 2.53 | % |
After 5 but within 10 years |
| 195.9 |
|
|
| 187.4 |
|
|
| 2.51 | % |
Total |
| 603.4 |
|
|
| 594.8 |
|
|
| 2.11 | % |
Supranational securities |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 50.0 |
|
|
| 49.1 |
|
|
| 2.02 | % |
Total |
| 50.0 |
|
|
| 49.1 |
|
|
| 2.02 | % |
State & municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year |
| 0.1 |
|
|
| 0.1 |
|
|
| 2.55 | % |
After 5 but within 10 years |
| 0.2 |
|
|
| 0.2 |
|
|
| 2.70 | % |
Due after 10 years |
| 11.6 |
|
|
| 11.0 |
|
|
| 2.40 | % |
Total |
| 11.9 |
|
|
| 11.3 |
|
|
| 2.41 | % |
Corporate bonds - foreign |
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
| 65.8 |
|
|
| 67.1 |
|
|
| 6.11 | % |
Total |
| 65.8 |
|
|
| 67.1 |
|
|
| 6.11 | % |
Total debt securities AFS | $ | 6,251.0 |
|
| $ | 6,053.5 |
|
|
| 2.68 | % |
Maturities (dollars in millions) | ||||||||||
| September 30, 2017 | ||||||||||
Amortized Cost | Fair Value | Weighted Average Yield | ||||||||
| Debt securities AFS | ||||||||||
| Mortgage-backed securities — U.S. government agency securities | ||||||||||
| After 5 but within 10 years | $ | 94.7 | $ | 93.9 | 1.79 | % | ||||
| Due after 10 years | 3,405.2 | 3,377.0 | 2.37 | % | ||||||
| Total | 3,499.9 | 3,470.9 | 2.35 | % | ||||||
| Mortgage-backed securities — non-agency securities | ||||||||||
| After 5 but within 10 years | 20.9 | 20.6 | 4.94 | % | ||||||
| Due after 10 years | 360.6 | 390.4 | 6.00 | % | ||||||
| Total | 381.5 | 411.0 | 5.94 | % | ||||||
| U.S. government agency obligations | ||||||||||
| After 1 but within 5 years | 549.9 | 545.5 | 1.22 | % | ||||||
| After 5 but within 10 years | 25.0 | 25.0 | 2.14 | % | ||||||
| Total | 574.9 | 570.5 | 1.26 | % | ||||||
| U.S. Treasury Securities | ||||||||||
| Due within 1 year | 398.6 | 398.6 | 1.06 | % | ||||||
| After 1 but within 5 years | 22.9 | 22.8 | 1.01 | % | ||||||
| Total | 421.5 | 421.4 | 1.06 | % | ||||||
| Supranational securities | ||||||||||
| Due within 1 year | 99.8 | 99.8 | 1.07 | % | ||||||
| Total | 99.8 | 99.8 | 1.07 | % | ||||||
| Total debt securities AFS | $ | 4,977.6 | $ | 4,973.6 | 2.37 | % | ||||
| Debt securities HTM | ||||||||||
| Mortgage-backed securities — U.S. government agency securities | ||||||||||
| Due after 10 years | $ | 89.2 | $ | 87.2 | 2.42 | % | ||||
| Total | 89.2 | 87.2 | 2.42 | % | ||||||
| State and municipal | ||||||||||
| Due within 1 year | 0.1 | 0.1 | 2.36 | % | ||||||
| After 1 but within 5 years | 0.1 | 0.1 | 2.56 | % | ||||||
| After 5 but within 10 years | 0.3 | 0.3 | 2.70 | % | ||||||
| Due after 10 years | 15.8 | 15.5 | 2.35 | % | ||||||
| Total | 16.3 | 16.0 | 2.36 | % | ||||||
| Corporate — Foreign securities | ||||||||||
| After 1 but within 5 years | 105.8 | 112.9 | 4.23 | % | ||||||
| Total | 105.8 | 112.9 | 4.23 | % | ||||||
| Total debt securities HTM | $ | 211.3 | $ | 216.1 | 3.32 | % | ||||
At September 30, CIT GROUP INC.
Gross Unrealized Loss (dollars in millions)
| September 30, 2018 |
| |||||||||||||
| Less than 12 months |
|
| 12 months or greater |
| ||||||||||
| Fair Value |
|
| Gross Unrealized Loss |
|
| Fair Value |
|
| Gross Unrealized Loss |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 3,118.8 |
|
| $ | (88.0 | ) |
| $ | 1,907.7 |
|
| $ | (103.2 | ) |
Commercial agency |
| 114.8 |
|
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
U.S. government agency obligations |
| — |
|
|
| — |
|
|
| 24.3 |
|
|
| (0.7 | ) |
U.S. Treasury securities |
| 594.8 |
|
|
| (8.6 | ) |
|
| — |
|
|
| — |
|
State & municipal bonds |
| 2.1 |
|
|
| — |
|
|
| 9.2 |
|
|
| (0.6 | ) |
Supranational securities |
| 49.0 |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
Total debt securities AFS | $ | 3,879.5 |
|
| $ | (98.1 | ) |
| $ | 1,941.2 |
|
| $ | (104.5 | ) |
25
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Gross Unrealized Losscontinued (dollars in millions)
Gross Unrealized Loss (dollars in millions) | |||||||||||||||
| September 30, 2017 | |||||||||||||||
| Less than 12 months | 12 months or greater | ||||||||||||||
Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | ||||||||||||
| Securities AFS | |||||||||||||||
| Debt securities AFS | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | $ | 2,524.5 | $ | (32.1 | ) | $ | 31.6 | $ | (1.1 | ) | |||||
| Non-agency securities | 17.6 | (0.7 | ) | 0.5 | (0.5 | ) | |||||||||
| U.S. government agency obligations | 397.3 | (2.6 | ) | 148.2 | (1.8 | ) | |||||||||
| U.S. Treasury Securities | 121.8 | (0.2 | ) | — | — | ||||||||||
| Total debt securities AFS | 3,061.2 | (35.6 | ) | 180.3 | (3.4 | ) | |||||||||
| Equity securities AFS | 14.4 | (0.4 | ) | 20.1 | (0.5 | ) | |||||||||
| Total securities available-for-sale | 3,075.6 | (36.0 | ) | 200.4 | (3.9 | ) | |||||||||
| Debt Securities HTM | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | 47.6 | (1.0 | ) | 29.5 | (1.4 | ) | |||||||||
| State and municipal | 0.8 | — | 12.9 | (0.3 | ) | ||||||||||
| Total debt securities held-to-maturity | 48.4 | (1.0 | ) | 42.4 | (1.7 | ) | |||||||||
| Total | $ | 3,124.0 | $ | (37.0 | ) | $ | 242.8 | $ | (5.6 | ) | |||||
| December 31, 2017 |
| |||||||||||||
| Less than 12 months |
|
| 12 months or greater |
| ||||||||||
| Fair Value |
|
| Gross Unrealized Loss |
|
| Fair Value |
|
| Gross Unrealized Loss |
| ||||
Debt securities AFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 3,492.2 |
|
| $ | (30.9 | ) |
| $ | 1,151.4 |
|
| $ | (31.2 | ) |
Non-agency securities |
| 2.1 |
|
|
| — |
|
|
| 0.4 |
|
|
| (0.5 | ) |
U.S. government agency obligations |
| 24.8 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
U.S. Treasury securities |
| 199.1 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
State & municipal bonds |
| — |
|
|
| — |
|
|
| 13.6 |
|
|
| (0.4 | ) |
Supranational securities |
| 349.5 |
|
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
Total debt securities AFS | $ | 4,067.7 |
|
| $ | (31.6 | ) |
| $ | 1,165.4 |
|
| $ | (32.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||||||||||
| Less than 12 months | 12 months or greater | ||||||||||||||
Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | ||||||||||||
| Debt securities AFS | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | $ | 1,589.6 | $ | (31.8 | ) | $ | 13.8 | $ | (0.5 | ) | |||||
| Non-agency securities | 56.5 | (1.4 | ) | 15.8 | (0.4 | ) | |||||||||
| U.S. government agency obligations | 546.1 | (3.9 | ) | — | — | ||||||||||
| U.S. Treasury Securities | 299.5 | (0.4 | ) | — | — | ||||||||||
| Total debt securities AFS | 2,491.7 | (37.5 | ) | 29.6 | (0.9 | ) | |||||||||
| Equity securities AFS | 34.1 | (0.9 | ) | — | — | ||||||||||
| Total securities available-for-sale | 2,525.8 | (38.4 | ) | 29.6 | (0.9 | ) | |||||||||
| Debt securities HTM | |||||||||||||||
| Mortgage-backed securities | |||||||||||||||
| U.S. government agency securities | 68.2 | (1.7 | ) | 26.7 | (1.6 | ) | |||||||||
| State and municipal | 3.8 | (0.1 | ) | 22.4 | (0.4 | ) | |||||||||
| Total securities held-to-maturity | 72.0 | (1.8 | ) | 49.1 | (2.0 | ) | |||||||||
| Total | $ | 2,597.8 | $ | (40.2 | ) | $ | 78.7 | $ | (2.9 | ) | |||||
Purchased Credit-Impaired AFS Securities
Changes in the accretable yield for PCI securities are summarized below for the quartersquarter and nine months ended September 30, 2018 and 2017, and September 30, 2016:respectively:
Changes in Accretable Yield (dollars in millions)
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
Balance, beginning of period | $ | 30.0 |
|
| $ | 101.7 |
|
| $ | 152.0 |
|
| $ | 165.0 |
|
Accretion into interest income |
| (1.1 | ) |
|
| (7.7 | ) |
|
| (6.2 | ) |
|
| (19.1 | ) |
Reclassifications from non-accretable difference due to improving cash flows |
| - |
|
|
| 0.1 |
|
|
| - |
|
|
| 0.5 |
|
Reclassifications to non-accretable difference due to decreasing cash flows |
| - |
|
|
| (1.0 | ) |
|
| (0.2 | ) |
|
| (0.9 | ) |
Disposals |
| (15.4 | ) |
|
| (79.6 | ) |
|
| (9.8 | ) |
|
| (9.7 | ) |
Balance, end of period | $ | 13.5 |
|
| $ | 13.5 |
|
| $ | 135.8 |
|
| $ | 135.8 |
|
Changes in Accretable Yield (dollars in millions) | |||||||
| Quarter Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||
| Balance, beginning of period | $ | 152.0 | $ | 165.0 | |||
| Accretion into interest income | (6.2 | ) | (19.1 | ) | |||
| Reclassifications from non-accretable difference due to improving cash flows | — | 0.5 | |||||
| Reclassifications to non-accretable difference due to decreasing cash flows | (0.2 | ) | (0.9 | ) | |||
| Disposals and other | (9.8 | ) | (9.7 | ) | |||
| Balance at September 30, 2017 | $ | 135.8 | $ | 135.8 | |||
| Quarter Ended September 30, 2016 | Nine Months Ended September 30, 2016 | ||||||
| Balance, beginning of period | $ | 179.2 | $ | 189.0 | |||
| Accretion into interest income | (7.1 | ) | (22.3 | ) | |||
| Reclassifications from non-accretable difference | 0.6 | 6.0 | |||||
| Balance at September 30, 2016 | $ | 172.7 | $ | 172.7 | |||
The estimated fair value of PCI securities was $404.8$40.0 million and $478.9$312.5 million with a par value of $508.6$49.3 million and $615.2$387.6 million as of September 30, 2017,2018 and December 31, 2016,2017, respectively.
Securities Carried at Fair Value with Changes Recorded in Net Income (dollars in millions) | |||||||||||||||
| September 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
| Mortgage-backed Securities — Non-agency | $ | 228.6 | $ | 19.1 | $ | — | $ | 247.7 | |||||||
| Total securities held at fair value with changes recorded in net income | $ | 228.6 | $ | 19.1 | $ | — | $ | 247.7 | |||||||
| December 31, 2016 | |||||||||||||||
| Mortgage-backed Securities — Non-agency | $ | 277.5 | $ | 6.7 | $ | (0.7 | ) | $ | 283.5 | ||||||
| Total securities held at fair value with changes recorded in net income | $ | 277.5 | $ | 6.7 | $ | (0.7 | ) | $ | 283.5 | ||||||
Securities Carried at Fair Value with Changes Recorded in Net Income — Amortized Cost and Fair Value Maturities (dollars in millions) | ||||||||||
| September 30, 2017 | ||||||||||
Amortized Cost | Fair Value | Weighted Average Yield | ||||||||
| Mortgage-backed securities — non-agency securities | ||||||||||
| After 1 but within 5 years | $ | 0.3 | $ | 0.3 | 41.82 | % | ||||
| Due after 10 years | 228.3 | 247.4 | 4.89 | % | ||||||
| Total | $ | 228.6 | $ | 247.7 | 4.94 | % | ||||
Securities Carried at Fair Value with Changes Recorded in Net Income
Upon the adoption of ASU 2016-01- Financial Instruments on January 1, 2018, CIT reclassified eligible equity securities AFS to Securities Carried at Fair Value with Changes Recorded in Net Income. As of September 30, 2018, these equity securities were carried at a fair value of $44.0 million with an amortized cost of $46.7 million. The unrealized losses were $2.7 million as of September 30, 2018.
As of December 31, 2017, the amortized cost and fair value of equity securities AFS was $45.8 million and $44.7 million respectively. The unrealized loss of $1.1 million as of December 31, 2017 was reclassified as a cumulative-effect adjustment to the balance sheet as of the date of adoption. There were no equity Securities Carried at Fair Value with Changes Recorded in Net Income as of December 31, 2017.
Other Than Temporary Impairment (“OTTI”)
The Company conducted and documented its periodic review of all securities with unrealized losses, which it performs to evaluate whether the impairment is other than temporary.
The Company reviewed AFS securities with unrealized losses and determined the unrealized losses were deemed credit-related and recognized OTTI credit-related losses. There was $0.2 millionwere no OTTI credit-related losses recognized for the quarter ended September 30, 2017 and $0.1 million was recognized as permanent write-downs for the quarter ended September 30, 2016, and $0.4 million and $2.2 millioninsignificant losses for the nine months ended September 30, 20172018 respectively and $0.2 million and $0.4 million of OTTI losses were recognized for the quarter and nine months ended September 30, 2016,2017 respectively.
The Company reviewed debt securities classified as AFS and HTM with unrealized losses and determined that the unrealized losses were not OTTI. The unrealized losses were not credit-related and the Company does not have an intent to sell and believes it is not more-likely-than-not that the Company will have to sell prior to the recovery of the amortized cost basis.
There were not credit-related.
There were immaterial unrealized losses on non-marketable investments.
26
The following table presents the carrying value of outstanding borrowings.
Borrowings (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| CIT Group Inc. |
|
| Subsidiaries |
|
| Total |
|
| Total |
| ||||
Senior unsecured | $ | 3,842.3 |
|
| $ | — |
|
| $ | 3,842.3 |
|
| $ | 3,737.5 |
|
Subordinated unsecured debt |
| 395.3 |
|
|
| — |
|
|
| 395.3 |
|
|
| — |
|
Secured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other secured and structured financings |
| — |
|
|
| 1,286.6 |
|
|
| 1,286.6 |
|
|
| 1,541.4 |
|
FHLB advances |
| — |
|
|
| 3,150.0 |
|
|
| 3,150.0 |
|
|
| 3,695.5 |
|
Total Borrowings | $ | 4,237.6 |
|
| $ | 4,436.6 |
|
| $ | 8,674.2 |
|
| $ | 8,974.4 |
|
Borrowings (dollars in millions) | |||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||
| CIT Group Inc. | Subsidiaries | Total | Total | ||||||||||||
| Senior Unsecured | $ | 3,748.0 | $ | — | $ | 3,748.0 | $ | 10,599.0 | |||||||
| Secured borrowings: | |||||||||||||||
| Structured financings | — | 1,637.7 | 1,637.7 | 1,925.7 | |||||||||||
| FHLB advances | — | 3,145.5 | 3,145.5 | 2,410.8 | |||||||||||
| Total Borrowings | $ | 3,748.0 | $ | 4,783.2 | $ | 8,531.2 | $ | 14,935.5 | |||||||
Unsecured Borrowings
Revolving Credit Facility
The Revolving Credit Facility has a total commitment amount of $750$500 million, with $41.7 million maturing on January 25, 2019 and the maturity date of the commitment is January 25, 2019.balance maturing on February 29, 2020. The applicable margin charged under the facility is 2.00% for LIBOR Rate loans and 1.00% for Base Rate loans.
The Revolving Credit Facility was amended in February 20172018 to lower the total commitments from $1.5 billion$750 million to $1.4 billion$500 million and to further extend the final maturity date of the lenders’ commitments. On April 4, 2017, upon consummation of the Commercial Air Sale, the total commitment amount under thecommitments from January 25, 2019 to February 29, 2020, for all but one lender that did not extend. The Revolving Credit Facility was reduced from $1.4 billion to $750 million and the covenant requiring that the Company maintain a minimum $6 billion consolidated net worth was replaced byincludes a covenant requiringthat requires that the Company maintain a minimum Tier 1 capital ratio of 9.0%. Also upon the consummation of the Commercial Air Sale, one of the nine domestic operating subsidiaries of the Company was discharged and released as a guarantor under the Revolving Credit Facility. As of September 30, 2017,2018, the Revolving Credit Facility was unsecured and was guaranteed by eightfour of the Company’s domestic operating subsidiaries. In addition, the applicable required minimum guarantor asset coverage ratio ranged from 1.0:1.0 to 1.5:1.0, and was 1.25:1.01.00 at this date.
There were
no outstanding borrowings at September 30,Senior Unsecured Notes
The following table presents the principal amounts by maturity date.
Senior Unsecured Notes (dollars in millions)
Maturity Date | Rate (%) |
|
| Date of Issuance |
| Par Value |
| |
May 2020 | 5.375% |
|
| May 2012 |
| $ | 430.6 |
|
March 2021 | 4.125% |
|
| March 2018 |
|
| 500.0 |
|
August 2022 | 5.000% |
|
| August 2012 |
|
| 1,150.0 |
|
August 2023 | 5.000% |
|
| August 2013 |
|
| 750.0 |
|
February 2024 | 4.750% |
|
| August 2018 |
|
| 500.0 |
|
March 2025 | 5.250% |
|
| March 2018 |
|
| 500.0 |
|
Weighted average rate and total | 4.928% |
|
|
|
| $ | 3,830.6 |
|
Senior Unsecured Notes (dollars in millions) | |||||||
| Maturity Date | Rate (%) | Date of Issuance | Par Value | ||||
| February 2019 | 5.500% | February 2012 | $ | 383.0 | |||
| February 2019 | 3.875% | February 2014 | 1,000.0 | ||||
| May 2020 | 5.375% | May 2012 | 448.0 | ||||
| August 2022 | 5.000% | August 2012 | 1,150.0 | ||||
| August 2023 | 5.000% | August 2013 | 750.0 | ||||
| Weighted average rate and total | 4.795% | $ | 3,731.0 | ||||
On April 4, 2017,9, 2018, CIT gave notice and redeemed on May 4, 2017, 100% of the$383 million aggregate principal amount (approximately $4.84 billion) of its outstanding (i) $1,725.85.500% senior unsecured notes due February 2019 and $500 million 4.250% Senior Unsecured Notesaggregate principal amount of 3.875% senior unsecured notes due August 2017; (ii) $1,465.0 million, 5.250% Senior Unsecured Notes due March 2018; (iii) $695.0 million, 6.625% Series C Unsecured Notes due April 2018; and (iv) $955.9 million, 5.000% Senior Unsecured Notes due May 2018,February 2019, at an aggregate premium of $98$15.7 million.
In addition to the date of such repurchase.
Subordinated Unsecured Notes
In March 2018, CIT issued $400 million aggregate principal amount of 6.125% subordinated notes with a maturity date of March 9, 2028. The notes are subordinated in right of payment to the payment of CIT’s senior indebtedness and secured indebtedness, to the extent of the value of the collateral.
27
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
At September 30, 2017,2018, the Company had pledged $29.6 billion of assets (including collateral for the FRB discount window) of $13.9window that is currently not drawn). The collateral specifically identified and used to calculate available borrowings was $13.6 billion, which included $12.4$12.3 billion of loans, $1.2$1.0 billion of operating lease assets, $0.2 billion of cash and cash equivalents and $0.1 billion of investment securities.
FHLB advances are collateralized by MBS securities and a variety of consumer and commercial loans, including SFR mortgage loans, multi-family mortgage loans, commercial real estate loans, certain foreclosed properties and certain amounts receivable under a loss sharing agreement with the FDIC.
As of September 30, 2017,2018, the Company had $4.9$5.5 billion of financing availability with the FHLB, of which $1.7$2.3 billion was unused and available, and $65.9$2.3 million was being utilized for issuance of letters of credit related to deposits.lease agreements. FHLB Advances as of September 30, 20172018 have a weighted average rate of 1.44%2.37%. The following table includes the total outstanding FHLB Advances, and respective pledged assets.assets(1).
FHLB Advances with Pledged Assets(1) Summary (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| FHLB Advances |
|
| Pledged Assets |
|
| FHLB Advances |
|
| Pledged Assets |
| ||||
Total | $ | 3,150.0 |
|
| $ | 6,602.5 |
|
| $ | 3,695.5 |
|
| $ | 6,154.1 |
|
(1) | For purposes of this table the term "Pledged Assets" means the assets required under the collateral maintenance requirement in connection with FHLB advances at each of the dates. |
FHLB Advances with Pledged Assets Summary (dollars in millions) | |||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||
FHLB Advances | Pledged Assets | FHLB Advances | Pledged Assets | ||||||||||||
| Total | $ | 3,145.5 | $ | 5,906.5 | $ | 2,410.8 | $ | 6,389.7 | |||||||
Other Secured and Structured Financings
Set forth in the following table are amounts primarilyborrowings and pledged assets related to secured (other than FHLB) and structured financings of CIT-owned subsidiaries and assets owned by consolidated VIEs. Creditors of these VIEs received ownership and/or security interests in the assets. These entities are intended to be bankruptcy remote so that such assets are not available to creditors of CIT or any affiliates of CIT until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings. StructuredThe secured and structured financings as of September 30, 20172018 had a weighted average rate of 3.62%4.31%, which rangedwith rates ranging from 0.55%0.65% to 5.74%5.50%.
Other Secured and Structured Financings and Pledged Assets Summary (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Secured Borrowing |
|
| Pledged Assets |
|
| Secured Borrowing |
|
| Pledged Assets |
| ||||
Business Capital | $ | 697.0 |
|
| $ | 3,070.0 |
|
| $ | 768.8 |
|
| $ | 2,838.6 |
|
Rail(1) (2) |
| 589.6 |
|
|
| 1,059.5 |
|
|
| 772.6 |
|
|
| 1,272.0 |
|
Total | $ | 1,286.6 |
|
| $ | 4,129.5 |
|
| $ | 1,541.4 |
|
| $ | 4,110.6 |
|
Structured Financings and Pledged Assets Summary (dollars in millions) | |||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||
Secured Borrowing | Pledged Assets | Secured Borrowing | Pledged Assets | ||||||||||||
| Business Capital | $ | 796.6 | $ | 3,139.8 | $ | 949.8 | $ | 2,608.0 | |||||||
Rail(1) (2) | 801.0 | 1,292.6 | 860.1 | 1,327.5 | |||||||||||
| Commercial Finance | — | — | — | 0.2 | |||||||||||
| Subtotal — Commercial Banking | 1,597.6 | 4,432.4 | 1,809.9 | 3,935.7 | |||||||||||
| Non-Strategic Portfolios | 40.1 | 40.1 | 115.8 | 212.6 | |||||||||||
| Total | $ | 1,637.7 | $ | 4,472.5 | $ | 1,925.7 | $ | 4,148.3 | |||||||
(1) | At September 30, |
(2) | At September 30, |
Not included in the above table are secured borrowings of discontinued operations of $293.6$213.2 million and $1,571.0$268.2 million at September 30, 2017,2018 and December 31, 2016,2017, respectively. See
FRB
There were no outstanding borrowings with the FRB Discount Window as of September 30, 20172018 and December 31, 2016.2017.
28
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Described below are the results of the Company’s assessment of its variable interests in order to determine its current status with regards to being the VIE primary beneficiary.
Consolidated VIEs
The Company utilizes VIEs in the ordinary course of business to support its own and its customers’ financing needs. Each VIE is a separate legal entity and maintains its own books and records.
Unconsolidated VIEs
Unconsolidated VIEs include government sponsored entity (“GSE”) securitization structures, private-label securitizations and limited partnership interests where the Company’s involvement is limited to an investor interest wherein which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and limited partnership interests.
Although the economic benefit and risk has been transferred to the buyer in connection with the Financial Freedom business sale in the second quarter of 2018, until the OneWest Transaction,required investor consent is obtained from the Company has certain contractual obligations related toGovernment National Mortgage Association (“GNMA”), CIT remains the master servicer for the HECM loans and the GNMA HMBS securitizations, whichsecuritizations. These are VIEs for which CIT is not the primary beneficiary.beneficiary, and which are reported in discontinued operations. The Company, as servicer of these HECM loans, is currently obligated to fund future borrower advances, which include fees paid to taxing authorities for borrowers’ unpaid taxes and insurance, mortgage insurance premiums and payments made to borrowers for line of credit draws on HECM loans. In addition, the Company is required to repurchase the HECM loans once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO, which reduces the secured borrowing balance. Additionally, the Company services $143.8$127.2 million and $160.2$140.3 million of HMBS outstanding principal balance at September 30, 20172018 and December 31, 2016,2017, respectively, for transferred loans securitized by IndyMac for which OneWest Bank prior to the acquisition had purchased the mortgage servicing rights (“MSRs”) in connection with the IndyMac Transaction. The carrying value of the MSRs was not significant at September 30, 20172018 and December 31, 2016.2017. As the HECM loans are federally insured by the FHA and the secured borrowings guaranteed to the investors by GNMA, the Company does not believe maximum loss exposure as a result of its involvement is material.
The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of its interests and any associated collateral declines to zero and assuming no recovery or offset from any economic hedges. The Company believes the possibility is remote under this hypothetical scenario; accordingly, this required disclosure is not an indication of expected loss.
Unconsolidated VIEs Carrying Value (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Securities |
|
| Partnership Investment |
|
| Securities |
|
| Partnership Investment |
| ||||
Agency securities | $ | 5,267.0 |
|
| $ | — |
|
| $ | 4,950.2 |
|
| $ | — |
|
Non agency securities — Other servicer |
| 40.0 |
|
|
| — |
|
|
| 318.8 |
|
|
| — |
|
Tax credit equity investments |
| — |
|
|
| 240.9 |
|
|
| — |
|
|
| 198.8 |
|
Equity investments |
| — |
|
|
| 59.8 |
|
|
| — |
|
|
| 38.6 |
|
Total Assets | $ | 5,307.0 |
|
| $ | 300.7 |
|
| $ | 5,269.0 |
|
| $ | 237.4 |
|
Commitments to tax credit investments | $ | — |
|
| $ | 116.5 |
|
| $ | — |
|
| $ | 66.6 |
|
Total Liabilities | $ | — |
|
| $ | 116.5 |
|
| $ | — |
|
| $ | 66.6 |
|
Maximum loss exposure(1) | $ | 5,307.0 |
|
| $ | 300.7 |
|
| $ | 5,269.0 |
|
| $ | 237.4 |
|
Unconsolidated VIEs (dollars in millions) | |||||||||||||||
Unconsolidated VIEs Carrying Value | Unconsolidated VIEs Carrying Value | ||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||
| Securities | Partnership Investment | Securities | Partnership Investment | ||||||||||||
| Agency securities | $ | 3,560.2 | $ | — | $ | 2,152.9 | $ | — | |||||||
| Non agency securities — Other servicer | 658.7 | — | 769.0 | — | |||||||||||
| Tax credit equity investments | — | 220.2 | — | 167.7 | |||||||||||
| Equity investments | — | 23.8 | — | 11.4 | |||||||||||
| Total Assets | $ | 4,218.9 | $ | 244.0 | $ | 2,921.9 | $ | 179.1 | |||||||
| Commitments to tax credit investments | $ | — | $ | 104.8 | $ | — | $ | 62.3 | |||||||
| Total Liabilities | $ | — | $ | 104.8 | $ | — | $ | 62.3 | |||||||
Maximum loss exposure(1) | $ | 4,218.9 | $ | 244.0 | $ | 2,921.9 | $ | 179.1 | |||||||
(1) | Maximum loss exposure to the unconsolidated VIEs excludes the liability for representations and warranties, corporate guarantees and also excludes servicing advances. |
29
See
Note 1 — Business and Summary of Significant Accounting Policies in the Company’sThe following table presents fair values and notional values of derivative financial instruments:
Fair and Notional Values of Derivative Financial Instruments(1) (dollars in millions) | |||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
| Qualifying Hedges | Notional Amount | Asset Fair Value | Liability Fair Value | Notional Amount | Asset Fair Value | Liability Fair Value | |||||||||||||||||
| Foreign currency forward contracts — net investment hedges | $ | 976.6 | $ | 1.1 | $ | (7.2 | ) | $ | 817.9 | $ | 16.9 | $ | — | ||||||||||
| Total Qualifying Hedges | 976.6 | 1.1 | (7.2 | ) | 817.9 | 16.9 | — | ||||||||||||||||
| Non-Qualifying Hedges | |||||||||||||||||||||||
Interest rate swaps(2) | 6,623.3 | 62.8 | (32.9 | ) | 5,309.2 | 63.0 | (50.1 | ) | |||||||||||||||
| Written options | 2,736.3 | — | (0.6 | ) | 2,626.5 | 0.1 | (1.0 | ) | |||||||||||||||
| Purchased options | 2,545.1 | 0.6 | — | 2,129.6 | 1.0 | (0.1 | ) | ||||||||||||||||
| Foreign currency forward contracts | 1,337.0 | 6.9 | (25.5 | ) | 1,329.8 | 30.2 | (6.0 | ) | |||||||||||||||
| Total Return Swap (TRS) | 174.3 | — | (13.7 | ) | 587.5 | — | (11.3 | ) | |||||||||||||||
| Equity Warrants | 1.0 | — | — | 1.0 | 0.2 | — | |||||||||||||||||
| Interest Rate Lock Commitments | 12.5 | 0.1 | — | 20.7 | 0.1 | (0.1 | ) | ||||||||||||||||
| Forward Sale Commitments on Agency MBS | 7.5 | — | — | 39.0 | 0.1 | — | |||||||||||||||||
| Credit derivatives | 267.5 | — | (0.1 | ) | 267.6 | — | (0.2 | ) | |||||||||||||||
| Total Non-qualifying Hedges | 13,704.5 | 70.4 | (72.8 | ) | 12,310.9 | 94.7 | (68.8 | ) | |||||||||||||||
| Total Hedges | $ | 14,681.1 | $ | 71.5 | $ | (80.0 | ) | $ | 13,128.8 | $ | 111.6 | $ | (68.8 | ) | |||||||||
Fair and Notional Values of Derivative transactions are documented under an International Swaps and Derivatives Association (“ISDA”) agreement.Financial Instruments(1)(dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Notional |
|
| Asset Fair |
|
| Liability |
|
| Notional |
|
| Asset Fair |
|
| Liability |
| ||||||
| Amount |
|
| Value |
|
| Fair Value |
|
| Amount |
|
| Value |
|
| Fair Value |
| ||||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts | $ | 967.7 |
|
| $ | 0.8 |
|
| $ | (11.9 | ) |
| $ | 977.3 |
|
| $ | 0.2 |
|
| $ | (18.7 | ) |
Interest rate swap - fair value hedge (2) |
| 250.0 |
|
|
| — |
|
|
| (1.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Total derivatives designated as hedging instruments |
| 1,217.7 |
|
|
| 0.8 |
|
|
| (13.6 | ) |
|
| 977.3 |
|
|
| 0.2 |
|
|
| (18.7 | ) |
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (2) |
| 15,277.9 |
|
|
| 107.7 |
|
|
| (91.1 | ) |
|
| 12,443.5 |
|
|
| 61.5 |
|
|
| (39.3 | ) |
Foreign exchange contracts |
| 2,614.7 |
|
|
| 20.7 |
|
|
| (11.1 | ) |
|
| 1,375.5 |
|
|
| 6.9 |
|
|
| (14.9 | ) |
Other contracts(3) |
| 607.5 |
|
|
| 0.1 |
|
|
| (13.3 | ) |
|
| 468.3 |
|
|
| 0.1 |
|
|
| (14.1 | ) |
Total derivatives not designated as hedging instruments |
| 18,500.1 |
|
|
| 128.5 |
|
|
| (115.5 | ) |
|
| 14,287.3 |
|
|
| 68.5 |
|
|
| (68.3 | ) |
Gross derivative fair values presented in the Consolidated Balance Sheets | $ | 19,717.8 |
|
| $ | 129.3 |
|
| $ | (129.1 | ) |
| $ | 15,264.6 |
|
| $ | 68.7 |
|
| $ | (87.0 | ) |
Less: Gross amounts offset in the Consolidated Balance Sheets |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
Net Amount Presented in the Consolidated Balance Sheet |
|
|
|
|
| 129.3 |
|
|
| (129.1 | ) |
|
|
|
|
|
| 68.7 |
|
|
| (87.0 | ) |
Derivative Financial Instruments(4) |
|
|
|
|
| (15.8 | ) |
|
| 15.8 |
|
|
|
|
|
|
| (18.7 | ) |
|
| 18.7 |
|
Cash Collateral Pledged/(Received)(4)(5)(6) |
|
|
|
|
| (42.0 | ) |
|
| 11.0 |
|
|
|
|
|
|
| (8.4 | ) |
|
| 23.0 |
|
Total Net Derivative Fair Value |
|
|
|
| $ | 71.5 |
|
| $ | (102.3 | ) |
|
|
|
|
| $ | 41.6 |
|
| $ | (45.3 | ) |
Offsetting of Derivative Assets and Liabilities (dollars in millions)(1) | |||||||||||||||||||||||
| �� | Gross Amounts not offset in the Consolidated Balance Sheet | ||||||||||||||||||||||
Gross Amount of Recognized Assets (Liabilities) | Gross Amount Offset in the Consolidated Balance Sheet | Net Amount Presented in the Consolidated Balance Sheet | Derivative Financial Instruments(2) | Cash Collateral Pledged / (Received)(2)(3) | Net Amount | ||||||||||||||||||
| September 30, 2017 | |||||||||||||||||||||||
| Derivative assets | $ | 71.5 | $ | — | $ | 71.5 | $ | (20.0 | ) | $ | (5.3 | ) | $ | 46.2 | |||||||||
| Derivative liabilities | (80.0 | ) | — | (80.0 | ) | 20.0 | 21.6 | (38.4 | ) | ||||||||||||||
| December 31, 2016 | |||||||||||||||||||||||
| Derivative assets | $ | 111.6 | $ | — | $ | 111.6 | $ | (30.9 | ) | $ | (48.7 | ) | $ | 32.0 | |||||||||
| Derivative liabilities | (68.8 | ) | — | (68.8 | ) | 30.9 | 5.0 | (32.9 | ) | ||||||||||||||
(1) | Presented on a gross basis. |
(2) | Fair value balances include accrued interest |
(3) | Other derivative contracts not designated as hedging instruments include a total return swap and risk participation agreements. See Note 14 – Subsequent Events relating to |
(4) | The Company accounts for swap contracts cleared by the Chicago Mercantile Exchange |
(5) | |
| The Company’s derivative transactions are governed by ISDA agreements that allow for net settlements of certain payments as well as offsetting of all contracts |
(6) | |
| Collateral pledged or received is included in Other assets or Other liabilities, respectively. |
Qualifying Hedges
CIT enters into interest rate swap agreements to manage interest rate exposure on its fixed-rate borrowings. The agreements that qualify for hedge accounting are designated as a fair value hedge. The following table represents the impact of fair value hedges on the condensed consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying Hedges (dollars in millions) |
|
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
|
|
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
| Amounts Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized on derivatives | Interest Expense |
| $ | (0.8 | ) |
| $ | (1.8 | ) |
| $ | — |
|
| $ | — |
|
Recognized on hedged item | Interest Expense |
|
| 0.8 |
|
|
| 1.8 |
|
|
| — |
|
|
| — |
|
Net recognized on fair value hedges (No Ineffectiveness) |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
30
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the impact of derivativesnon-qualifying hedges on the condensed consolidated statements of income.income
Non Qualifying Hedges (dollars in millions) |
|
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||
| Amounts Recognized |
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||
Interest rate contracts | Other non-interest income |
| $ | 4.9 |
|
| $ | 14.4 |
|
| $ | 1.2 |
|
| $ | 3.9 |
|
Foreign currency forward contracts | Other non-interest income |
|
| 22.2 |
|
|
| 25.1 |
|
|
| 5.8 |
|
|
| (22.0 | ) |
Other Contracts | Other non-interest income |
|
| 1.0 |
|
|
| 0.1 |
|
|
| (1.4 | ) |
|
| (2.6 | ) |
Total Non-qualifying Hedges -income statement impact |
|
| $ | 28.1 |
|
| $ | 39.6 |
|
| $ | 5.6 |
|
| $ | (20.7 | ) |
Derivative Instrument Gains and Losses (dollars in millions) | |||||||||||||||||
| Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| Derivative Instruments | Gain / (Loss) Recognized | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Non Qualifying Hedges | |||||||||||||||||
| Interest rate swaps | Other income | $ | 1.2 | $ | 2.3 | $ | 3.9 | $ | (0.3 | ) | |||||||
| Interest rate options | Other income | 0.1 | 0.1 | 0.3 | 0.5 | ||||||||||||
| Foreign currency forward contracts | Other income | 5.8 | 1.4 | (22.0 | ) | (10.9 | ) | ||||||||||
| Equity warrants | Other income | (0.3 | ) | 0.1 | (0.2 | ) | (0.2 | ) | |||||||||
| Total Return Swap (TRS) | Other income | (1.1 | ) | (19.7 | ) | (2.4 | ) | 7.1 | |||||||||
| Interest Rate Lock Commitments | Other income | — | 0.2 | 0.1 | 0.3 | ||||||||||||
| Forward Sale Commitments on Agency MBS | Other income | (0.1 | ) | (0.1 | ) | (0.4 | ) | (0.1 | ) | ||||||||
| Credit Derivatives | Other income | — | 0.2 | — | 1.4 | ||||||||||||
| Total Non-qualifying Hedges | $ | 5.6 | $ | (15.5 | ) | $ | (20.7 | ) | $ | (2.2 | ) | ||||||
| Total derivatives-income statement impact | $ | 5.6 | $ | (15.5 | ) | $ | (20.7 | ) | $ | (2.2 | ) | ||||||
TheCIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Changes in AOCI Relating to Derivatives (dollars in millions)
Contract Type | Derivatives - effective portion reclassified from AOCI to income |
|
| Total income statement impact |
|
| Derivatives - effective portion recorded in OCI |
|
| Total change in OCI for period |
| ||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | (5.6 | ) |
| $ | (5.6 | ) |
Total | $ | — |
|
| $ | — |
|
| $ | (5.6 | ) |
| $ | (5.6 | ) |
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | (33.0 | ) |
| $ | (33.0 | ) |
Total | $ | — |
|
| $ | — |
|
| $ | (33.0 | ) |
| $ | (33.0 | ) |
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | — |
|
| $ | — |
|
| $ | 33.9 |
|
| $ | 33.9 |
|
Total | $ | — |
|
| $ | — |
|
| $ | 33.9 |
|
| $ | 33.9 |
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts — net investment hedges | $ | 13.4 |
|
| $ | 13.4 |
|
| $ | (74.7 | ) |
| $ | (88.1 | ) |
Total | $ | 13.4 |
|
| $ | 13.4 |
|
| $ | (74.7 | ) |
| $ | (88.1 | ) |
Changes in AOCI Relating to Derivatives (dollars in millions) | |||||||||||||||||||
| Contract Type | Derivatives - effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income | Total income statement impact | Derivatives - effective portion recorded in OCI | Total change in OCI for period | ||||||||||||||
| Quarter Ended September 30, 2017 | |||||||||||||||||||
| Foreign currency forward contracts — net investment hedges | $ | — | $ | — | $ | — | $ | (33.0 | ) | $ | (33.0 | ) | |||||||
| Total | $ | — | $ | — | $ | — | $ | (33.0 | ) | $ | (33.0 | ) | |||||||
| Quarter Ended September 30, 2016 | |||||||||||||||||||
| Foreign currency forward contracts — net investment hedges | $ | — | $ | — | $ | — | $ | 4.2 | $ | 4.2 | |||||||||
| Total | $ | — | $ | — | $ | — | $ | 4.2 | $ | 4.2 | |||||||||
| Nine Months Ended September 30, 2017 | |||||||||||||||||||
| Foreign currency forward contracts — net investment hedges | $ | 13.4 | $ | — | $ | 13.4 | $ | (74.7 | ) | $ | (88.1 | ) | |||||||
| Total | $ | 13.4 | $ | — | $ | 13.4 | $ | (74.7 | ) | $ | (88.1 | ) | |||||||
| Nine Months Ended September 30, 2016 | |||||||||||||||||||
| Foreign currency forward contracts — net investment hedges | $ | 1.8 | $ | — | $ | 1.8 | $ | (28.1 | ) | $ | (29.9 | ) | |||||||
| Total | $ | 1.8 | $ | — | $ | 1.8 | $ | (28.1 | ) | $ | (29.9 | ) | |||||||
Dutch TRS Facility
As of September 30, 2018, CIT’s wholly-owned subsidiary, CIT TRS Funding B.V. (“BV”) was party to a financing facility (the “Dutch TRS Facility”) with Goldman Sachs International (“GSI”). The amount available for advances (otherwise known as the unused portion) was accounted for as a derivative (“TRS Derivative”) and recorded at the estimated fair value. The total facility capacity available under the Dutch TRS Facility was $625 million at September 30, 2018, and December 31, 2017. The utilized portion reflects the borrowing.
The aggregate “notional amount” of the TRS Derivative was $209.7 million at September 30, 2018, and $182.4 million at December 31, 2017. The notional amount was calculated as the maximum facility commitment amount, or $625 million, under the Dutch TRS Facility, less the actual adjusted qualifying borrowing base outstanding of $415.3 million at September 30, 2018, and $442.6 million under the facility at December 31, 2017.
Based on the Company’s valuation, a liability of $13.3 million and $14.1 million was recorded at September 30, 2018, and December 31, 2017, respectively. The decrease in liability of $1.4 million and $0.8 million were recognized in other non-interest income for the quarter and nine months ended September 30, 2018, respectively. An increase in liability of $1.1 million and $2.4 million was recognized as a reduction to other non-interest income for the quarter and nine months ended September 30, 2017, respectively.
See Note 14 – Subsequent Events relating to the Company’s termination of the Dutch TRS Facility on November 2, 2018.
Fair Value Hierarchy
The Company measures certain financial assets and liabilities at fair value. Fair value is requireddefined as the price that would be received to reportsell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a fair value measurements for specified classes of assets and liabilities.hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. See
31
Table of the Company’s assetsContents
CIT Group Inc. and liabilities where the measurement objective specifically requires the use of fair value are set forth in the tables below.
Disclosures that follow in this note exclude assets and liabilities classified as discontinued operations.
The following table summarizes the Company’s assets and liabilities measured at estimated fair value on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)
| Total |
|
| Level 1 |
|
|
|
| Level 2 |
|
| Level 3 |
| ||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 5,109.4 |
|
| $ | — |
|
|
|
| $ | 5,109.4 |
|
| $ | — |
|
U.S. treasury securities |
| 594.8 |
|
|
| 403.4 |
|
|
|
|
| 191.4 |
|
|
| — |
|
Other securities |
| 349.3 |
|
|
| — |
|
|
|
|
| 242.2 |
|
|
| 107.1 |
|
Total debt securities AFS |
| 6,053.5 |
|
|
| 403.4 |
|
|
|
|
| 5,543.0 |
|
|
| 107.1 |
|
Securities carried at fair value with changes recorded in net income(1) |
| 44.0 |
|
|
| 0.2 |
|
|
|
|
| 43.8 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 107.7 |
|
|
| — |
|
|
|
|
| 107.6 |
|
|
| 0.1 |
|
Other derivative — non-qualifying hedges |
| 20.8 |
|
|
| — |
|
|
|
|
| 20.7 |
|
|
| 0.1 |
|
Total derivative assets at fair value — non-qualifying hedges(2) |
| 128.5 |
|
|
| — |
|
|
|
|
| 128.3 |
|
|
| 0.2 |
|
Foreign currency forward contracts — net investment qualifying hedges |
| 0.8 |
|
|
| — |
|
|
|
|
| 0.8 |
|
|
| — |
|
Total | $ | 6,226.8 |
|
| $ | 403.6 |
|
|
|
| $ | 5,715.9 |
|
| $ | 107.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts | $ | (91.1 | ) |
| $ | — |
|
|
|
| $ | (91.1 | ) |
| $ | — |
|
Other derivative— non-qualifying hedges |
| (24.4 | ) |
|
| — |
|
|
|
|
| (11.1 | ) |
|
| (13.3 | ) |
Total derivative liabilities at fair value — non-qualifying hedges(2) |
| (115.5 | ) |
|
| — |
|
|
|
|
| (102.2 | ) |
|
| (13.3 | ) |
Interest rate contracts —fair value hedge |
| (1.7 | ) |
|
| — |
|
|
|
|
| (1.7 | ) |
|
| — |
|
Foreign currency forward contracts — net investment qualifying hedges |
| (11.9 | ) |
|
| — |
|
|
|
|
| (11.9 | ) |
|
| — |
|
Total derivative liabilities at fair value — qualifying hedges |
| (13.6 | ) |
|
| — |
|
|
|
|
| (13.6 | ) |
|
| — |
|
FDIC True-up liability |
| (66.4 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (66.4 | ) |
Total | $ | (195.5 | ) |
| $ | — |
|
|
|
| $ | (115.8 | ) |
| $ | (79.7 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities | $ | 4,950.2 |
|
| $ | — |
|
|
|
| $ | 4,950.0 |
|
| $ | 0.2 |
|
U.S. treasury securities |
| 297.7 |
|
|
| 199.0 |
|
|
|
|
| 98.7 |
|
|
| — |
|
Other securities |
| 875.7 |
|
|
| — |
|
|
|
|
| 490.1 |
|
|
| 385.6 |
|
Total debt securities AFS |
| 6,123.6 |
|
|
| 199.0 |
|
|
|
|
| 5,538.8 |
|
|
| 385.8 |
|
Securities carried at fair value with changes recorded in net income(1) |
| 0.4 |
|
|
| — |
|
|
|
|
| — |
|
|
| 0.4 |
|
Equity securities AFS |
| 44.7 |
|
|
| 0.2 |
|
|
|
|
| 44.5 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 61.5 |
|
|
| — |
|
|
|
|
| 61.4 |
|
|
| 0.1 |
|
Other derivative — non-qualifying hedges |
| 7.0 |
|
|
| — |
|
|
|
|
| 7.0 |
|
|
| — |
|
Total derivative assets at fair value — non-qualifying hedges(2) |
| 68.5 |
|
|
| — |
|
|
|
|
| 68.4 |
|
|
| 0.1 |
|
Foreign currency forward contracts — net qualifying investment qualifying hedges |
| 0.2 |
|
|
| — |
|
|
|
|
| 0.2 |
|
|
| — |
|
Total | $ | 6,237.4 |
|
| $ | 199.2 |
|
|
|
| $ | 5,651.9 |
|
| $ | 386.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps | $ | (39.3 | ) |
| $ | — |
|
|
|
| $ | (39.3 | ) |
| $ | — |
|
Other derivative— non-qualifying hedges |
| (29.0 | ) |
|
| — |
|
|
|
|
| (14.9 | ) |
|
| (14.1 | ) |
Total derivative liabilities at fair value — non-qualifying hedges(2) |
| (68.3 | ) |
|
| — |
|
|
|
|
| (54.2 | ) |
|
| (14.1 | ) |
Foreign currency forward contracts — net investment qualifying hedges |
| (18.7 | ) |
|
| — |
|
|
|
|
| (18.7 | ) |
|
| — |
|
Consideration holdback liability |
| (46.0 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (46.0 | ) |
FDIC True-up liability |
| (65.1 | ) |
|
| — |
|
|
|
|
| — |
|
|
| (65.1 | ) |
Total | $ | (198.1 | ) |
| $ | — |
|
|
|
| $ | (72.9 | ) |
| $ | (125.2 | ) |
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions) | |||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| September 30, 2017 | |||||||||||||||
| Assets | |||||||||||||||
| Debt Securities AFS | $ | 4,973.6 | $ | 398.6 | $ | 4,164.0 | $ | 411.0 | |||||||
| Securities carried at fair value with changes recorded in net income | 247.7 | — | — | 247.7 | |||||||||||
| Equity Securities AFS | 34.7 | 0.2 | 34.5 | — | |||||||||||
Derivative assets at fair value — non-qualifying hedges(1) | 70.4 | — | 70.3 | 0.1 | |||||||||||
| Derivative assets at fair value — qualifying hedges | 1.1 | — | 1.1 | — | |||||||||||
| Total | $ | 5,327.5 | $ | 398.8 | $ | 4,269.9 | $ | 658.8 | |||||||
| Liabilities | |||||||||||||||
Derivative liabilities at fair value — non-qualifying hedges(1) | $ | (72.8 | ) | $ | — | $ | (59.0 | ) | $ | (13.8 | ) | ||||
| Derivative liabilities at fair value — qualifying hedges | (7.2 | ) | — | (7.2 | ) | — | |||||||||
| Consideration holdback liability | (46.0 | ) | — | — | (46.0 | ) | |||||||||
| FDIC True-up Liability | (64.6 | ) | — | — | (64.6 | ) | |||||||||
| Total | $ | (190.6 | ) | $ | — | $ | (66.2 | ) | $ | (124.4 | ) | ||||
| December 31, 2016 | |||||||||||||||
| Assets | |||||||||||||||
| Debt Securities AFS | $ | 3,674.1 | $ | 200.1 | $ | 2,988.5 | $ | 485.5 | |||||||
| Securities carried at fair value with changes recorded in net income | 283.5 | — | — | 283.5 | |||||||||||
Equity Securities AFS(2) | 34.1 | 0.3 | 33.8 | — | |||||||||||
Derivative assets at fair value — non-qualifying hedges(1) | 94.7 | — | 94.7 | — | |||||||||||
| Derivative assets at fair value — qualifying hedges | 16.9 | — | 16.9 | — | |||||||||||
| Total | $ | 4,103.3 | $ | 200.4 | $ | 3,133.9 | $ | 769.0 | |||||||
| Liabilities | |||||||||||||||
Derivative liabilities at fair value — non-qualifying hedges(1) | $ | (68.8 | ) | $ | — | $ | (57.3 | ) | $ | (11.5 | ) | ||||
| Consideration holdback liability | (47.2 | ) | — | — | (47.2 | ) | |||||||||
| FDIC True-up Liability | (61.9 | ) | — | — | (61.9 | ) | |||||||||
| Total | $ | (177.9 | ) | $ | — | $ | (57.3 | ) | $ | (120.6 | ) | ||||
(1) | Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, equity securities AFS were reclassified to securities carried at fair value with changes recorded in net income. See Note 1 — Business and Summary of Significant Accounting Policies. |
(2) | Derivative fair values include accrued |
See Fair Value of Financial Instruments later in this note for fair value measurements ofDebt and Equity Securities Classified as AFS, and Securities carried at fair value with changes recorded in net income —and Debt and equity securities classified as AFS are carried at fair value, as determined either by Level 1, Level 2 or Level 3 inputs. Debt securities classified as AFS included investments in U.S. federal government agency, U.S. Treasury Notes and supranational securities and were valued using Level 2 inputs, primarily quoted prices for similar securities. U.S. Treasury Bills and certain equity securities classified as AFS were valued using Level 1 inputs, primarily quoted prices in active markets. For Agency pass-through MBS, which are classified as Level 2, the Company generally determines estimated fair value utilizing prices obtained from independent broker dealers and recent trading activity for similar assets. Debt securities classified as AFS and securities carried at fair value with changes recorded in net income represent non-Agency MBS, the market for such securities is not active and the estimated fair value was determined using a discounted cash flow technique. The significant unobservable assumptions, which are verified to the extent possible using broker dealer quotes, are estimated by type of underlying collateral, including credit loss assumptions, estimated prepayment speeds and appropriate discount rates. Given the lack of observable market data, the estimated fair value of the non-agency MBS is classified as Level 3.
32
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
FDIC True-upConsideration Holdback Liability — In connection with the La Jolla Transaction,OneWest acquisition, the Company recognized a parties negotiated certain holdbacks related to select trailing risks, which totaled $116 million and reduced the cash consideration paid at closing. As of June 30, 2018, all holdback obligations were settled with the former OneWest shareholders. As of December 31, 2017, management’s estimate of the probable amount of holdback to be paid was $46 million. Due to the significant unobservable inputs used, these measurements were classified as Level 3.
FDIC True-up liability due to the FDIC 45 days after the tenth anniversary of the loss share agreement (April 2020) because the actual and estimated cumulative losses on the acquired covered PCI loans are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition.Liability — The FDIC True-up liability was recorded at estimated fair value as of the Acquisition Date and is remeasured tomeasured at fair value at each reporting date until the contingency is resolved. The FDIC True-up liability was valued using the discounted cash flow method based on the terms specified in the loss share agreement with the FDIC, the actual FDIC payments collected and significant unobservable inputs, including a risk-adjusted discount rate (reflecting the Company’s credit risk plus a liquidity premium), prepayment and default rates. Due to the significant unobservable inputs used, to calculate the estimated fair value, these measurements arewere classified as Level 3.
The following tables summarize information about significant unobservable inputs related to the Company’s categories of Level 3 financial assets and liabilities measured on a recurring basis as of September 30, 20172018 and December 31, 2016.
Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions) | |||||||||||
| Financial Instrument | Estimated Fair Value | Valuation Technique(s) | Significant Unobservable Inputs | Range of Inputs | Weighted Average | ||||||
| September 30, 2017 | |||||||||||
| Assets | |||||||||||
| Securities — AFS | $ | 411.0 | Discounted cash flow | Discount Rate | 0.0% - 41.1% | 4.4% | |||||
| Prepayment Rate | 2.3% - 22.6% | 8.9% | |||||||||
| Default Rate | 0.0% - 6.6% | 3.6% | |||||||||
| Loss Severity | 0.6% - 70.6% | 37.6% | |||||||||
| Securities carried at fair value with changes recorded in net income | 247.7 | Discounted cash flow | Discount Rate | 0.8% - 45.1% | 4.2% | ||||||
| Prepayment Rate | 9.3% - 19.4% | 12.3% | |||||||||
| Default Rate | 2.7% - 9.6% | 4.7% | |||||||||
| Loss Severity | 14.3% - 43.2% | 26.7% | |||||||||
| Derivative assets — non qualifying | 0.1 | Internal valuation model | Borrower Rate | 2.8% - 4.7% | 3.7% | ||||||
| Total Assets | $ | 658.8 | |||||||||
| Liabilities | |||||||||||
| FDIC True-up liability | $ | (64.6 | ) | Discounted cash flow | Discount Rate | 2.6% | 2.6% | ||||
| Consideration holdback liability | (46.0 | ) | Discounted cash flow | Payment Probability | 0% - 100% | 40.0% | |||||
| Derivative liabilities — non-qualifying | (13.8 | ) | Market Comparables(1) | ||||||||
| Total Liabilities | $ | (124.4 | ) | ||||||||
| December 31, 2016 | |||||||||||
| Assets | |||||||||||
| Securities — AFS | $ | 485.5 | Discounted cash flow | Discount Rate | 0.0% – 96.4% | 5.5% | |||||
| Prepayment Rate | 3.2% – 21.2% | 8.8% | |||||||||
| Default Rate | 0.0% – 9.0% | 3.9% | |||||||||
| Loss Severity | 1.0% – 79.8% | 36.3% | |||||||||
| Securities carried at fair value with changes recorded in net income | 283.5 | Discounted cash flow | Discount Rate | 0.0% – 34.6% | 5.6% | ||||||
| Prepayment Rate | 6.1% – 16.2% | 11.9% | |||||||||
| Default Rate | 1.9% – 8.1% | 4.6% | |||||||||
| Loss Severity | 22.2% – 44.7% | 25.8% | |||||||||
| Total Assets | $ | 769.0 | |||||||||
| Liabilities | |||||||||||
| FDIC True-up liability | $ | (61.9 | ) | Discounted cash flow | Discount Rate | 3.2% | 3.2% | ||||
| Consideration holdback liability | (47.2 | ) | Discounted cash flow | Payment Probability | 0% – 100% | 40.9% | |||||
| Discount Rate | 1.3% – 4.0% | 2.1% | |||||||||
| Derivative liabilities — non-qualifying | (11.5 | ) | Market Comparables(1) | ||||||||
| Total Liabilities | $ | (120.6 | ) | ||||||||
Quantitative Information about Level 3 assets and liabilities, as presentedFair Value Measurements — Recurring (dollars in the previous tables, are described as follows:millions)
Financial Instrument | Estimated Fair Value |
|
| Valuation Technique(s) |
| Significant Unobservable Inputs |
| Range of Inputs |
|
| Weighted Average |
| |||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — AFS | $ | 107.1 |
|
| Discounted cash flow |
| Discount Rate |
| 3.2% - 6.2% |
|
| 5.6% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 4.7% - 10.7% |
|
| 8.0% |
| ||
|
|
|
|
|
|
| Default Rate |
| 2.2% - 6.9% |
|
| 4.7% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 26.1% - 48.1% |
|
| 33.0% |
| ||
Derivative assets — non qualifying |
| 0.2 |
|
| Internal valuation model |
| Borrower Rate |
| 3.8% - 5.0% |
|
| 4.4% |
| ||
Total Assets | $ | 107.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC True-up liability | $ | (66.4 | ) |
| Discounted cash flow |
| Discount Rate |
| 3.6% |
|
| 3.6% |
| ||
Derivative liabilities — non-qualifying |
| (13.3 | ) |
| Market comparables |
|
|
|
|
|
|
|
|
|
|
Total Liabilities | $ | (79.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities — AFS | $ | 385.8 |
|
| Discounted cash flow |
| Discount Rate |
| 0.0% – 37.1% |
|
| 4.6% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 2.1% – 22.3% |
|
| 8.8% |
| ||
|
|
|
|
|
|
| Default Rate |
| 0.0% – 7.3% |
|
| 3.7% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 0.3% – 72.4% |
|
| 35.3% |
| ||
Securities carried at fair value with changes recorded in net income |
| 0.4 |
|
| Discounted cash flow |
| Discount Rate |
| 31.1% |
|
| 31.1% |
| ||
|
|
|
|
|
|
| Prepayment Rate |
| 10.9% |
|
| 10.9% |
| ||
|
|
|
|
|
|
| Default Rate |
| 2.4% |
|
| 2.4% |
| ||
|
|
|
|
|
|
| Loss Severity |
| 59.2% |
|
| 59.2% |
| ||
Derivative assets — non qualifying |
| 0.1 |
|
| Internal valuation model |
| Borrower Rate |
| 3.0% - 4.4% |
|
| 3.8% |
| ||
Total Assets | $ | 386.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC True-up liability | $ | (65.1 | ) |
| Discounted cash flow |
| Discount Rate |
| 2.9% |
|
| 2.9% |
| ||
Consideration holdback liability |
| (46.0 | ) |
| Discounted cash flow |
| Payment Probability |
| 0% – 100% |
|
| 48.0% |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities — non-qualifying |
| (14.1 | ) |
| Market comparables |
|
|
|
|
|
|
|
|
|
|
Total Liabilities | $ | (125.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
33
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities Measured on a Recurring Basis (dollars in millions)
| Securities- AFS |
|
| Securities Carried at Fair Value with Changes Recorded in Net Income |
|
| Derivative Liabilities- Non- Qualifying(1) |
|
| FDIC True-up Liability |
|
| Consideration Holdback Liability |
| |||||
December 31, 2017 | $ | 385.8 |
|
| $ | 0.4 |
|
| $ | (14.1 | ) |
| $ | (65.1 | ) |
| $ | (46.0 | ) |
Included in earnings |
| 13.5 |
|
|
| — |
|
|
| 0.8 |
|
|
| (1.3 | ) |
|
| 8.0 |
|
Included in comprehensive income |
| (18.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Sales, paydowns, and adjustments |
| (274.2 | ) |
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
| 38.0 |
|
Balance as of September 30, 2018 | $ | 107.1 |
|
| $ | — |
|
| $ | (13.3 | ) |
| $ | (66.4 | ) |
| $ | — |
|
December 31, 2016 | $ | 485.5 |
|
| $ | 283.5 |
|
| $ | (11.5 | ) |
| $ | (61.9 | ) |
| $ | (47.2 | ) |
Included in earnings |
| (1.4 | ) |
|
| 15.0 |
|
|
| (2.3 | ) |
|
| (2.7 | ) |
|
| — |
|
Included in comprehensive income |
| 15.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Impairment |
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Sales, paydowns, and adjustments |
| (88.6 | ) |
|
| (50.8 | ) |
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Balance as of September 30, 2017 | $ | 411.0 |
|
| $ | 247.7 |
|
| $ | (13.8 | ) |
| $ | (64.6 | ) |
| $ | (46.0 | ) |
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities Measured on a Recurring Basis (dollars in millions) | |||||||||||||||||||||||||||
Securities- AFS | Securities carried at fair value with changes recorded in net income | FDIC Receivable | Derivative assets- non- qualifying(1) | Derivative liabilities- non- qualifying(2) | FDIC True-up Liability | Consideration holdback Liability | |||||||||||||||||||||
| December 31, 2016 | $ | 485.5 | $ | 283.5 | $ | 0.6 | $ | — | $ | (11.5 | ) | $ | (61.9 | ) | $ | (47.2 | ) | ||||||||||
| Included in earnings | (1.4 | ) | 15.0 | 0.9 | 0.1 | (2.3 | ) | (2.7 | ) | — | |||||||||||||||||
| Included in comprehensive income | 15.8 | — | — | — | — | — | — | ||||||||||||||||||||
| Impairment | (0.3 | ) | — | — | — | — | — | — | |||||||||||||||||||
| Settlements | (88.6 | ) | (50.8 | ) | (1.1 | ) | — | — | — | 1.2 | |||||||||||||||||
| Balance as of September 30, 2017 | $ | 411.0 | $ | 247.7 | $ | 0.4 | $ | 0.1 | $ | (13.8 | ) | $ | (64.6 | ) | $ | (46.0 | ) | ||||||||||
| December 31, 2015 | $ | 567.1 | $ | 339.7 | $ | 54.8 | $ | — | $ | (55.5 | ) | $ | (56.9 | ) | $ | (60.8 | ) | ||||||||||
| Included in earnings | (4.6 | ) | 11.6 | 4.8 | 0.4 | 7.2 | (4.4 | ) | (0.5 | ) | |||||||||||||||||
| Included in comprehensive income | 22.1 | — | — | — | — | — | — | ||||||||||||||||||||
| Impairment | (2.2 | ) | — | — | — | — | — | — | |||||||||||||||||||
| Settlements | (72.0 | ) | (50.0 | ) | (10.3 | ) | — | — | — | 14.3 | |||||||||||||||||
| Balance as of September 30, 2016 | $ | 510.4 | $ | 301.3 | $ | 49.3 | $ | 0.4 | $ | (48.3 | ) | $ | (61.3 | ) | $ | (47.0 | ) | ||||||||||
(1) |
| Valuation of the |
Assets Measured at Estimated Fair Value on a Non-recurring Basis
Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurringnon-recurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. In determining the estimated fair values, during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. This was determined by examining the changes in market factors relative to instrument specific factors.
The following table presents assets measured at estimated fair value on a non-recurring basis for which a non-recurring change in fair value has been recorded in the current year:
Carrying Value of Assets Measured at Fair Value on a Non-recurring Basis (dollars in millions)
|
|
|
| Fair Value Measurements at Reporting Date Using: |
|
|
|
|
| ||||||||||
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Gains (Losses) |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale | $ | 58.4 |
|
| $ | — |
|
| $ | 9.9 |
|
| $ | 48.5 |
|
| $ | 8.9 |
|
Other real estate owned |
| 3.8 |
|
|
| — |
|
|
| — |
|
|
| 3.8 |
|
|
| (1.0 | ) |
Impaired loans |
| 87.4 |
|
|
| — |
|
|
| — |
|
|
| 87.4 |
|
|
| (38.5 | ) |
Total | $ | 149.6 |
|
| $ | — |
|
| $ | 9.9 |
|
| $ | 139.7 |
|
| $ | (30.6 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale | $ | 177.8 |
|
| $ | — |
|
| $ | — |
|
| $ | 177.8 |
|
| $ | (15.0 | ) |
Other real estate owned |
| 18.8 |
|
|
| — |
|
|
| — |
|
|
| 18.8 |
|
|
| (4.4 | ) |
Impaired loans |
| 89.1 |
|
|
| — |
|
|
| — |
|
|
| 89.1 |
|
|
| (21.9 | ) |
Total | $ | 285.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 285.7 |
|
| $ | (41.3 | ) |
Carrying Value of Assets Measured at Fair Value on a Non-recurring Basis (dollars in millions) | |||||||||||||||||||
| Fair Value Level at Reporting Date | |||||||||||||||||||
Total Carrying Value | Level 1 | Level 2 | Level 3 | Total Gains (Losses) | |||||||||||||||
| Assets | |||||||||||||||||||
| September 30, 2017 | |||||||||||||||||||
| Assets held for sale | $ | 141.7 | $ | — | $ | — | $ | 141.7 | $ | (14.3 | ) | ||||||||
| Other real estate owned | 27.3 | — | — | 27.3 | (6.3 | ) | |||||||||||||
| Impaired loans | 98.3 | — | — | 98.3 | (20.5 | ) | |||||||||||||
| Total | $ | 267.3 | $ | — | $ | — | $ | 267.3 | $ | (41.1 | ) | ||||||||
| December 31, 2016 | |||||||||||||||||||
| Goodwill | $ | 51.8 | $ | — | $ | — | $ | 51.8 | $ | (354.2 | ) | ||||||||
| Assets held for sale | 201.6 | — | — | 201.6 | (14.7 | ) | |||||||||||||
| Other real estate owned | 22.5 | — | — | 22.5 | (3.2 | ) | |||||||||||||
| Impaired loans | 151.9 | — | — | 151.9 | (26.8 | ) | |||||||||||||
| Total | $ | 427.8 | $ | — | $ | — | $ | 427.8 | $ | (398.9 | ) | ||||||||
Assets of continuing operations that are measured at fair value on a non-recurring basis are as follows:
Assets Held for Sale
—Other Real Estate Owned
—Impaired Loans — See Fair Value of Financial Instruments later in this note for fair value measurements of impaired loans. As of the reporting date, the carrying value of impaired loans approximatesapproximated fair value.
34
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 45
The carrying values and estimated fair values of financial instruments presented below exclude leases and certain other assets and liabilities, which arewere not required for disclosure.
Financial Instruments (dollars in millions)
|
|
|
|
| Estimated Fair Value |
|
|
|
|
| |||||||||
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest bearing deposits | $ | 1,367.5 |
|
| $ | 1,367.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,367.5 |
|
Derivative assets at fair value — non-qualifying hedges |
| 128.5 |
|
|
| — |
|
|
| 128.3 |
|
|
| 0.2 |
|
|
| 128.5 |
|
Derivative assets at fair value — qualifying hedges |
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
Assets held for sale (excluding leases) |
| 132.2 |
|
|
| — |
|
|
| 11.9 |
|
|
| 121.2 |
|
|
| 133.1 |
|
Loans (excluding leases) |
| 27,999.0 |
|
|
| — |
|
|
| 858.7 |
|
|
| 27,260.9 |
|
|
| 28,119.6 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| — |
|
|
| 200.0 |
|
|
| — |
|
|
| 200.0 |
|
Investment securities(1) |
| 6,339.5 |
|
|
| 403.6 |
|
|
| 5,586.8 |
|
|
| 349.1 |
|
|
| 6,339.5 |
|
Indemnification assets(2) |
| 27.2 |
|
|
| — |
|
|
| — |
|
|
| 20.0 |
|
|
| 20.0 |
|
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) |
| 538.6 |
|
|
| — |
|
|
| — |
|
|
| 538.6 |
|
|
| 538.6 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(4) |
| (30,847.1 | ) |
|
| — |
|
|
| — |
|
|
| (30,833.1 | ) |
|
| (30,833.1 | ) |
Derivative liabilities at fair value — non-qualifying hedges |
| (115.5 | ) |
|
| — |
|
|
| (102.2 | ) |
|
| (13.3 | ) |
|
| (115.5 | ) |
Derivative liabilities at fair value — qualifying hedges |
| (13.6 | ) |
|
| — |
|
|
| (13.6 | ) |
|
| — |
|
|
| (13.6 | ) |
Borrowings(4) |
| (8,711.6 | ) |
|
| — |
|
|
| (8,017.0 | ) |
|
| (830.7 | ) |
|
| (8,847.7 | ) |
Credit balances of factoring clients |
| 1,672.4 |
|
|
| — |
|
|
| — |
|
|
| 1,672.4 |
|
|
| 1,672.4 |
|
Other liabilities subject to fair value disclosure(5) |
| (689.7 | ) |
|
| — |
|
|
| — |
|
|
| (689.7 | ) |
|
| (689.7 | ) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest bearing deposits | $ | 1,718.7 |
|
| $ | 1,718.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,718.7 |
|
Derivative assets at fair value — non-qualifying hedges |
| 68.5 |
|
|
| — |
|
|
| 68.4 |
|
|
| 0.1 |
|
|
| 68.5 |
|
Derivative assets at fair value — qualifying hedges |
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
Assets held for sale (excluding leases) |
| 1,011.4 |
|
|
| — |
|
|
| 4.7 |
|
|
| 1,044.8 |
|
|
| 1,049.5 |
|
Loans (excluding leases) |
| 26,428.1 |
|
|
| — |
|
|
| 624.3 |
|
|
| 26,220.5 |
|
|
| 26,844.8 |
|
Securities purchased under agreement to resell |
| 150.0 |
|
|
| — |
|
|
| 150.0 |
|
|
| — |
|
|
| 150.0 |
|
Investment securities(1) |
| 6,469.9 |
|
|
| 199.2 |
|
|
| 5,583.3 |
|
|
| 687.4 |
|
|
| 6,469.9 |
|
Indemnification assets(2) |
| 113.5 |
|
|
| — |
|
|
| — |
|
|
| 87.4 |
|
|
| 87.4 |
|
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) |
| 542.2 |
|
|
| — |
|
|
| — |
|
|
| 542.2 |
|
|
| 542.2 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(4) |
| (29,586.5 | ) |
|
| — |
|
|
| — |
|
|
| (29,668.6 | ) |
|
| (29,668.6 | ) |
Derivative liabilities at fair value — non-qualifying hedges |
| (68.3 | ) |
|
| — |
|
|
| (54.2 | ) |
|
| (14.1 | ) |
|
| (68.3 | ) |
Derivative liabilities at fair value — qualifying hedges |
| (18.7 | ) |
|
| — |
|
|
| (18.7 | ) |
|
| — |
|
|
| (18.7 | ) |
Borrowings(4) |
| (9,043.8 | ) |
|
| — |
|
|
| (8,281.7 | ) |
|
| (991.2 | ) |
|
| (9,272.9 | ) |
Credit balances of factoring clients |
| (1,468.6 | ) |
|
| — |
|
|
| — |
|
|
| (1,468.6 | ) |
|
| (1,468.6 | ) |
Other liabilities subject to fair value disclosure(5) |
| (725.2 | ) |
|
| — |
|
|
| — |
|
|
| (725.2 | ) |
|
| (725.2 | ) |
Financial Instruments (dollars in millions) | |||||||||||||||||||
| Estimated Fair Value | |||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| September 30, 2017 | |||||||||||||||||||
| Financial Assets | |||||||||||||||||||
| Cash and interest bearing deposits | $ | 3,112.3 | $ | 3,112.3 | $ | — | $ | — | $ | 3,112.3 | |||||||||
| Derivative assets at fair value — non-qualifying hedges | 70.4 | — | 70.3 | 0.1 | 70.4 | ||||||||||||||
| Derivative assets at fair value — qualifying hedges | 1.1 | — | 1.1 | — | 1.1 | ||||||||||||||
| Assets held for sale (excluding leases) | 946.2 | — | 3.5 | 983.2 | 986.7 | ||||||||||||||
| Loans (excluding leases) | 25,759.3 | — | 459.9 | 25,718.7 | 26,178.6 | ||||||||||||||
Investment securities(1) | 5,744.8 | 398.8 | 4,343.7 | 1,007.1 | 5,749.6 | ||||||||||||||
Indemnification assets(2) | 142.9 | — | — | 102.8 | 102.8 | ||||||||||||||
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) | 553.1 | — | — | 553.1 | 553.1 | ||||||||||||||
| Financial Liabilities | |||||||||||||||||||
Deposits(4) | (29,618.2 | ) | — | — | (29,728.8 | ) | (29,728.8 | ) | |||||||||||
| Derivative liabilities at fair value — non-qualifying hedges | (72.8 | ) | — | (59.0 | ) | (13.8 | ) | (72.8 | ) | ||||||||||
| Derivative liabilities at fair value — qualifying hedges | (7.2 | ) | — | (7.2 | ) | — | (7.2 | ) | |||||||||||
Borrowings(4) | (8,567.5 | ) | — | (7,800.0 | ) | (1,049.5 | ) | (8,849.5 | ) | ||||||||||
| Credit balances of factoring clients | (1,698.5 | ) | — | — | (1,698.5 | ) | (1,698.5 | ) | |||||||||||
Other liabilities subject to fair value disclosure(5) | (695.2 | ) | — | — | (695.2 | ) | (695.2 | ) | |||||||||||
| December 31, 2016 | |||||||||||||||||||
| Financial Assets | |||||||||||||||||||
| Cash and interest bearing deposits | $ | 6,430.6 | $ | 6,430.6 | $ | — | $ | — | $ | 6,430.6 | |||||||||
| Derivative assets at fair value — non-qualifying hedges | 94.7 | — | 94.7 | — | 94.7 | ||||||||||||||
| Derivative assets at fair value — qualifying hedges | 16.9 | — | 16.9 | — | 16.9 | ||||||||||||||
| Assets held for sale (excluding leases) | 428.4 | — | 175.0 | 264.6 | 439.6 | ||||||||||||||
| Loans (excluding leases) | 26,683.0 | — | 390.3 | 26,456.4 | 26,846.7 | ||||||||||||||
Investment securities(1) | 4,491.1 | 200.4 | 3,199.6 | 1,094.2 | 4,494.2 | ||||||||||||||
Indemnification assets(2) | 233.4 | — | — | 201.0 | 201.0 | ||||||||||||||
Other assets subject to fair value disclosure and unsecured counterparty receivables(3) | 712.2 | — | — | 712.2 | 712.2 | ||||||||||||||
| Financial Liabilities | |||||||||||||||||||
Deposits(4) | (32,323.2 | ) | — | — | (32,490.9 | ) | (32,490.9 | ) | |||||||||||
| Derivative liabilities at fair value — non-qualifying hedges | (68.8 | ) | — | (57.3 | ) | (11.5 | ) | (68.8 | ) | ||||||||||
Borrowings(4) | (15,097.8 | ) | — | (14,457.8 | ) | (1,104.9 | ) | (15,562.7 | ) | ||||||||||
| Credit balances of factoring clients | (1,292.0 | ) | — | — | (1,292.0 | ) | (1,292.0 | ) | |||||||||||
Other liabilities subject to fair value disclosure(5) | (1,003.6 | ) | — | — | (1,003.6 | ) | (1,003.6 | ) | |||||||||||
(1) | Level 3 |
(2) | The indemnification assets relating to the SFR loans purchased in the OneWest Bank Transaction were measured on the same basis as the related indemnified item, and the underlying SFR loans. The estimated fair values reflect the present value of expected reimbursements under the indemnification agreements based on the loan performance discounted at an estimated market rate, and were classified as Level 3. The indemnification assets included in the above table do not include Agency claims indemnification |
(3) | Other assets subject to fair value disclosure primarily include unsecured counterparty receivables, accrued interest receivable and miscellaneous receivables. |
(4) | Deposits and borrowings include accrued interest, which is included in “Other liabilities” |
(5) | Other liabilities subject to fair value disclosure include accounts payable, accrued liabilities, customer security and maintenance deposits and miscellaneous liabilities. The fair value of these |
35
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
The methods and assumptions used to estimate the fair value of each class of financial instruments are explained below:
Derivative Assets and interest bearing depositsLiabilities — Cash and cash equivalents and restricted cash approximate estimated—Derivatives were valued using models that incorporate inputs depending on the type of derivative. Besides the fair value and are classified as Level 1.
Investment Securities
—▪ | Debt securities classified as AFS —Investments in U.S. federal government agency securities, U.S. Treasury Notes, agency pass-through and supranational securities were valued using Level 2 inputs. The market for non-Agency MBS is not active; therefore the estimated fair value was determined using a discounted cash flow technique. Given the lack of observable market data, the estimated fair value of the non-agency MBS was classified as Level 3. Non-marketable equity securities utilize Level 3 inputs to estimate fair value and were generally recorded under the cost or equity method of accounting. For investments in limited partnership equity interests, the Company used the net asset value provided by the fund manager as an appropriate measure of fair value. |
▪ | Securities carried at fair value with changes recorded in net income — included equity securities AFS that were reclassified to securities carried at fair value with changes recorded in net income upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018. A majority were valued using Level 2 inputs and the remaining were valued using Level 1 inputs. |
Assets held for sale
—Loans
— Within the Loans category, there are several types of loans as follows:▪ | |
Commercial and Consumer Loans — |
▪ | |
Impaired Loans — The value of impaired loans |
▪ | |
PCI loans — These loans |
Deposits
— The estimated fair value of deposits with no stated maturity, such as demand deposit accounts (including custodial deposits), money market accounts, and savings accountsBorrowings
The Level 2 fair value of borrowings were valued using market inputs and discounted value of the contractual cash flow analysis. Theflows using current estimated market discount raterates for the time deposit accounts is derived from the rate currently offered on alternate funding sourcesborrowings with similar maturities. Discount rates used in the present value calculation are based on the Company’s average current deposit rates for similar terms, which are Level 3 inputs.
▪ | |
Unsecured debt — |
▪ | |
Secured borrowings — Secured borrowings |
The Level 3 fair value of borrowings included:
▪ | Secured borrowings — Market estimates were not available for approximately |
Credit balances of factoring clients — The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances (typically 90 days or less) as of September 30, 2017 and December 31, 2016. Accordingly, credit balances of factoring clients approximate estimated, therefore, the carrying value approximated fair value, and arethe credit balances were classified as Level 3.
36
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
A roll forward of common stock is presented in the following table.
Number of Shares of Common Stock
| Issued |
|
| Less Treasury |
|
| Outstanding |
| |||
Common Stock – December 31, 2017 |
| 207,628,491 |
|
|
| (76,275,567 | ) |
|
| 131,352,924 |
|
Restricted stock issued |
| 1,368,262 |
|
|
| — |
|
|
| 1,368,262 |
|
Repurchase of common stock |
| — |
|
|
| (21,657,560 | ) |
|
| (21,657,560 | ) |
Shares held to cover taxes on vesting restricted shares and other |
| — |
|
|
| (540,244 | ) |
|
| (540,244 | ) |
Employee stock purchase plan participation |
| 42,551 |
|
|
| — |
|
|
| 42,551 |
|
Common Stock – September 30, 2018 |
| 209,039,304 |
|
|
| (98,473,371 | ) |
|
| 110,565,933 |
|
| Number of Shares of Common Stock | |||||||||
| Issued | Less Treasury | Outstanding | |||||||
| Common Stock – December 31, 2016 | 206,182,213 | (4,094,541 | ) | 202,087,672 | |||||
| Restricted stock issued | 1,216,585 | – | 1,216,585 | ||||||
| Repurchase of common stock | – | (71,476,417 | ) | (71,476,417 | ) | ||||
| Shares held to cover taxes on vesting restricted shares and other | – | (498,111 | ) | (498,111 | ) | ||||
| Employee stock purchase plan participation | 41,074 | – | 41,074 | ||||||
| Common Stock – September 30, 2017 | 207,439,872 | (76,069,069 | ) | 131,370,803 | |||||
During the quarter ended September 30, 2018, CIT repurchased a total of $119.3$290.9 million in common shares via open market repurchases of 2,660,8935,497,460 common shares at an average share price of $44.82. We also completedshares.
During the previously announced accelerated share repurchase program (ASR), which had commenced in the prior quarter, for which CIT received an additional 1,452,119 common shares. The overall average price of the entire ASR was $47.82.
Accumulated Other Comprehensive Loss
The following table details the components of AOCI, net of tax:
Components of Accumulated Other Comprehensive Loss net of tax: (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||
| Gross Unrealized |
|
| Income Taxes |
|
| Net Unrealized |
|
| Gross Unrealized |
|
| Income Taxes |
|
| Net Unrealized |
| ||||||
Foreign currency translation adjustments | $ | 8.0 |
|
| $ | (12.0 | ) |
| $ | (4.0 | ) |
| $ | 0.8 |
|
| $ | (8.8 | ) |
| $ | (8.0 | ) |
Changes in benefit plan net gain (loss) and prior service (cost)/credit |
| (48.6 | ) |
|
| (1.8 | ) |
|
| (50.4 | ) |
|
| (53.6 | ) |
|
| (0.9 | ) |
|
| (54.5 | ) |
Unrealized net losses on securities AFS |
| (197.4 | ) |
|
| 52.4 |
|
|
| (145.0 | ) |
|
| (39.5 | ) |
|
| 15.5 |
|
|
| (24.0 | ) |
Total accumulated other comprehensive loss | $ | (238.0 | ) |
| $ | 38.6 |
|
| $ | (199.4 | ) |
| $ | (92.3 | ) |
| $ | 5.8 |
|
| $ | (86.5 | ) |
Components of Accumulated Other Comprehensive Loss (dollars in millions) | |||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Gross Unrealized | Income Taxes | Net Unrealized | Gross Unrealized | Income Taxes | Net Unrealized | ||||||||||||||||||
| Foreign currency translation adjustments | $ | (0.3 | ) | $ | (6.5 | ) | $ | (6.8 | ) | $ | (28.6 | ) | $ | (32.8 | ) | $ | (61.4 | ) | |||||
| Changes in benefit plan net gain (loss) and prior service (cost)/credit | (68.4 | ) | 4.7 | (63.7 | ) | (70.6 | ) | 5.3 | (65.3 | ) | |||||||||||||
| Unrealized net gains on available for sale securities | (4.9 | ) | 2.1 | (2.8 | ) | (22.0 | ) | 8.6 | (13.4 | ) | |||||||||||||
| Total accumulated other comprehensive loss | $ | (73.6 | ) | $ | 0.3 | $ | (73.3 | ) | $ | (121.2 | ) | $ | (18.9 | ) | $ | (140.1 | ) | ||||||
The following table details the changes in the components of AOCI, net of income taxes:
Changes in Accumulated Other Comprehensive Income (Loss), net by Component (dollars in millions)
| Foreign currency translation adjustments |
|
| Changes in benefit plan net gain (loss) and prior service (cost) credit |
|
| Unrealized net gains (losses) on available for sale securities |
|
| Total AOCI |
| ||||
Balance as of December 31, 2017 | $ | (8.0 | ) |
| $ | (54.5 | ) |
| $ | (24.0 | ) |
| $ | (86.5 | ) |
Adoption of ASUs 2016-01 and 2018-02(1) |
| 3.3 |
|
|
| 0.3 |
|
|
| (4.1 | ) |
|
| (0.5 | ) |
AOCI activity before reclassifications |
| 0.7 |
|
|
| 3.3 |
|
|
| (105.3 | ) |
|
| (101.3 | ) |
Amounts reclassified from AOCI |
| — |
|
|
| 0.5 |
|
|
| (11.6 | ) |
|
| (11.1 | ) |
Net current period AOCI |
| 0.7 |
|
|
| 3.8 |
|
|
| (116.9 | ) |
|
| (112.4 | ) |
Balance as of September 30, 2018 | $ | (4.0 | ) |
| $ | (50.4 | ) |
| $ | (145.0 | ) |
| $ | (199.4 | ) |
Balance as of December 31, 2016 | $ | (61.4 | ) |
| $ | (65.3 | ) |
| $ | (13.4 | ) |
| $ | (140.1 | ) |
AOCI activity before reclassifications |
| 28.4 |
|
|
| 0.9 |
|
|
| 12.9 |
|
|
| 42.2 |
|
Amounts reclassified from AOCI |
| 26.2 |
|
|
| 0.7 |
|
|
| (2.3 | ) |
|
| 24.6 |
|
Net current period AOCI |
| 54.6 |
|
|
| 1.6 |
|
|
| 10.6 |
|
|
| 66.8 |
|
Balance as of September 30, 2017 | $ | (6.8 | ) |
| $ | (63.7 | ) |
| $ | (2.8 | ) |
| $ | (73.3 | ) |
(1) | See Note 1 — Business and Summary of Significant Accounting Policies for information on these ASUs. |
37
Table of income taxes:Contents
Changes in Accumulated Other Comprehensive Income (Loss) by Component (dollars in millions) | |||||||||||||||
Foreign currency translation adjustments | Changes in benefit plan net gain (loss) and prior service (cost) credit | Unrealized net gains (losses) on available for sale securities | Total AOCI | ||||||||||||
| Balance as of December 31, 2016 | $ | (61.4 | ) | $ | (65.3 | ) | $ | (13.4 | ) | $ | (140.1 | ) | |||
| AOCI activity before reclassifications | 28.4 | 0.9 | 12.9 | 42.2 | |||||||||||
| Amounts reclassified from AOCI | 26.2 | 0.7 | (2.3 | ) | 24.6 | ||||||||||
| Net current period AOCI | 54.6 | 1.6 | 10.6 | 66.8 | |||||||||||
| Balance as of September 30, 2017 | $ | (6.8 | ) | $ | (63.7 | ) | $ | (2.8 | ) | $ | (73.3 | ) | |||
| Balance as of December 31, 2015 | $ | (65.7 | ) | $ | (69.3 | ) | $ | (7.1 | ) | $ | (142.1 | ) | |||
| AOCI activity before reclassifications | 11.6 | (0.2 | ) | 20.3 | 31.7 | ||||||||||
| Amounts reclassified from AOCI | 4.7 | 1.5 | — | 6.2 | |||||||||||
| Net current period AOCI | 16.3 | 1.3 | 20.3 | 37.9 | |||||||||||
| Balance as of September 30, 2016 | $ | (49.4 | ) | $ | (68.0 | ) | $ | 13.2 | $ | (104.2 | ) | ||||
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 49
The amounts included in the StatementCondensed Consolidated Statements of Comprehensive Income are net of income taxes.
Foreign currency translation reclassification adjustments impacting net income were insignificant for the quartersquarter and the nine months ended September 30, 20172018 were insignificant. Foreign currency translation reclassification adjustments impacting net income for the quarter and 2016, and $26.2 million and $4.7 million for the nine months ended September 30, 2017 were insignificant and 2016,$26.2 million, respectively. Of the year to date 2017 balance, $16.7 million of the reclassification from AOCI during the second quarter of 2017 was a result of the sale of the Commercial Air business and iswas recorded in gain on sale of discontinued operations. The change in income taxes associated with foreign currency translation adjustments was $9.2an increase of $1.8 million and $(1.4)$9.2 million for the quarters ended September 30, 2018 and 2017, respectively, and 2016, and $26.3a decrease of $3.2 million and $13.3an increase of $26.3 million for the nine months ended September 30, 2018 and 2017, and 2016, respectively.
The changes in benefit plans net gain/(loss) and prior service (cost)/credit reclassification adjustments impacting net income were insignificant and $0.1 million for the quarters ended September 30, 2018 and 2017, respectively, and 2016; and were $0.7$0.5 million and $1.5$0.7 million for the nine months ended September 30, 20172018 and September 30, 2016 ,2017, respectively. The change in income taxes associated with changes in benefit plans net gain/(loss) and prior service (cost)/credit was insignificant for the quarters ended September 30, 2018 and 2017, respectively, and 2016, and was $(0.6)a decrease of $0.9 million and insignificanta decrease of $0.6 million for the year to date periodsnine months ended September 30, 2018 and 2017, and September 30, 2016, respectively.
Reclassification adjustments impacting net income for unrealized gainsgains/(losses) on available for sale securities was $(2.1)a decrease of $2.3 million and insignificanta decrease of $2.1 million for the quarters ended September 30, 20172018 and 2016,2017, respectively and was $(2.3)a decrease of $11.6 million and insignificanta decrease of $2.3 million for the nine months ended September 30, 20172018 and 2016,2017, respectively. The change in income taxes associated with net unrealized gainsgains/(losses) on available for sale securities was $(2.3)an increase of $11.4 million and $(3.3)a decrease of $2.3 million for quarters ended September 30, 20172018 and 2016,2017, respectively and was $(6.5)an increase of $36.9 million and $(12.4)a decrease of $6.5 million for the nine months ended September 30, 2018 and 2017, and 2016, respectively.
Reclassifications Out of AOCI (dollars in North America. The functional currency for foreign operations is generally the local currency. The value of assets and liabilities of these operations is translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at the average exchange rates during the year. The resulting foreign currency translation gains and losses, as well as offsetting gains and losses on hedges of net investments in foreign operations, are reflected in AOCI. Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are recorded in Other Income.millions)
Quarters Ended September 30, | 2018 |
|
| 2017 |
|
|
| ||||||||||||||||||
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Income Statement Line Item | ||||||
Foreign currency translation adjustments losses | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| Other non-interest income |
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses |
| 0.1 |
|
|
| (0.1 | ) |
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
| Operating Expenses |
Unrealized net gains on securities AFS |
| (3.1 | ) |
|
| 0.8 |
|
|
| (2.3 | ) |
|
| (3.4 | ) |
|
| 1.3 |
|
|
| (2.1 | ) |
| Other non-interest income |
Total Reclassifications out of AOCI | $ | (3.0 | ) |
| $ | 0.7 |
|
| $ | (2.3 | ) |
| $ | (3.3 | ) |
| $ | 1.3 |
|
| $ | (2.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | 2018 |
|
| 2017 |
|
|
| ||||||||||||||||||
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Gross Amount |
|
| Tax |
|
| Net Amount |
|
| Income Statement Line Item | ||||||
Foreign currency translation adjustment losses(1) | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 24.1 |
|
| $ | 2.1 |
|
| $ | 26.2 |
|
| Other non-interest income |
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses |
| 0.6 |
|
|
| (0.1 | ) |
|
| 0.5 |
|
|
| 0.8 |
|
|
| (0.1 | ) |
|
| 0.7 |
|
| Operating Expenses |
Unrealized net gains on securities AFS |
| (15.8 | ) |
|
| 4.2 |
|
|
| (11.6 | ) |
|
| (3.6 | ) |
|
| 1.3 |
|
|
| (2.3 | ) |
| Other non-interest income |
Total Reclassifications out of AOCI | $ | (15.2 | ) |
| $ | 4.1 |
|
| $ | (11.1 | ) |
| $ | 21.3 |
|
| $ | 3.3 |
|
| $ | 24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) $16.7 million of the reclassification from AOCI during the second quarter of 2017 was a result of the sale of the Commercial Air business and is recorded in gain on sale of discontinued operations. | |||||||||||||||||||||||||
Reclassifications Out of Accumulated Other Comprehensive (Income) Loss (dollars in millions) | |||||||||||||||||||||||||
| Quarters Ended September 30, | |||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||
Gross Amount | Tax | Net Amount | Gross Amount | Tax | Net Amount | Income Statement line item | |||||||||||||||||||
| Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses | $ | 0.1 | $ | — | $ | 0.1 | $ | 0.1 | $ | — | $ | 0.1 | Operating Expenses | ||||||||||||
| Unrealized net gains on available for sale securities | (3.4 | ) | 1.3 | (2.1 | ) | — | — | — | Other Income | ||||||||||||||||
| Total Reclassifications out of AOCI | $ | (3.3 | ) | $ | 1.3 | $ | (2.0 | ) | $ | 0.1 | $ | — | $ | 0.1 | |||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||
Gross Amount | Tax | Net Amount | Gross Amount | Tax | Net Amount | Income Statement line item | |||||||||||||||||||
Foreign currency translation adjustments losses (1) | $ | 24.1 | $ | 2.1 | $ | 26.2 | $ | 3.6 | $ | 1.1 | $ | 4.7 | Other Income | ||||||||||||
| Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses | 0.8 | (0.1 | ) | 0.7 | 1.7 | (0.2 | ) | 1.5 | Operating Expenses | ||||||||||||||||
| Unrealized net gains on available for sale securities | (3.6 | ) | 1.3 | (2.3 | ) | — | — | — | Other Income | ||||||||||||||||
| Total Reclassifications out of AOCI | $ | 21.3 | $ | 3.3 | $ | 24.6 | $ | 5.3 | $ | 0.9 | $ | 6.2 | |||||||||||||
38
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
Capital Components and Ratios (dollars in millions) | |||||||||||||||
| CIT | CIT Bank, N.A. | ||||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||
| Common Equity Tier 1 Capital | $ | 6,370.2 | $ | 9,058.9 | $ | 4,740.0 | $ | 4,623.2 | |||||||
| Tier 1 Capital | $ | 6,640.0 | $ | 9,058.9 | $ | 4,740.0 | $ | 4,623.2 | |||||||
| Total Capital | $ | 7,103.8 | $ | 9,535.2 | $ | 5,166.3 | $ | 5,053.4 | |||||||
Risk-Weighted Assets(1) | $ | 44,672.7 | $ | 64,586.3 | $ | 34,172.1 | $ | 34,410.3 | |||||||
| Capital Ratios: | |||||||||||||||
| Common Equity Tier 1 Capital Ratio: | |||||||||||||||
| Actual | 14.3 | % | 14.0 | % | 13.9 | % | 13.4 | % | |||||||
Effective minimum ratios under Basel III guidelines(2) | 5.750 | % | 5.125 | % | 5.750 | % | 5.125 | % | |||||||
| Tier 1 Capital Ratio: | |||||||||||||||
| Actual | 14.9 | % | 14.0 | % | 13.9 | % | 13.4 | % | |||||||
Effective minimum ratios under Basel III guidelines(2) | 7.250 | % | 6.625 | % | 7.250 | % | 6.625 | % | |||||||
| Total Capital Ratio: | |||||||||||||||
| Actual | 15.9 | % | 14.8 | % | 15.1 | % | 14.7 | % | |||||||
Effective minimum ratios under Basel III guidelines(2) | 9.250 | % | 8.625 | % | 9.250 | % | 8.625 | % | |||||||
| Tier 1 Leverage Ratio: | |||||||||||||||
| Actual | 13.4 | % | 13.9 | % | 11.7 | % | 10.9 | % | |||||||
| Required minimum ratio for capital adequacy purposes | 4.0 | % | 4.0 | % | 4.0 | % | 4.0 | % | |||||||
The Company’s global effective income tax rate from continuing operations including discrete tax items for the third quarter and nine months ended September 30, 2018 was 24.2% and 26.9%, respectively, up from (116.3)% in the prior year quarter and (38.7)% in the nine months ended September 30, 2017 was (116)% and (39)%, respectively, down from 37% in the year-ago quarter and 46% in the year-ago nine months period. The decrease in the global effective tax rate is primarily driven by discrete items that occurred in the current quarter. The effective tax rate in the year-ago nine months period was meaningfully above the U.S. federal statutory tax rate due to the impact of certain unfavorable tax adjustments, including certain international income that was subject to incremental tax in the U.S.
The quarterly income tax expense is based on a projection of the Company’s annual effective tax rate. This annual effective tax rate is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The year-to-date impact of any change in the projected annual effective tax rate from the prior quarter estimate is included in the current quarter income tax expense. The effective tax rate each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted effective tax rate may vary from the actual year-end 20172018 effective tax rate due to the changes in these factors.
2017 U.S. Tax Reform Legislation
The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017. The TCJA required management to make certain adjustments to the Company’s year-end financial statements for the effects of the law relating to the remeasurement of deferred taxes, liabilities for taxes due on mandatory deemed repatriation, liabilities for taxes due on other foreign income, and the reassessment of the Company’s valuation allowance. The SEC staff has afforded registrants a measurement period to record adjustments for the effects of the law, per Staff Accounting Bulletin No. 118 Income Tax Accounting Implications of the Tax Cuts and Jobs Act, similar to the measurement period used when accounting for business combinations. As of September 30, 2018, the Company has reviewed information relating to these tax law changes, and concluded that the procedures and methods utilized in developing assumptions, estimates and judgments for final and provisional amounts recorded in the financial statements are appropriate. The Company anticipates refinements to the amounts resulting from the issuance of future legislative and accounting guidance as well as those in the normal course of business. However, management does not anticipate any adjustments to the provisional amounts arising from further analysis of these tax law changes would be material.
Valuation Allowances
The Company established valuation allowances (“VAs”) against certain U.S. federal, U.S. state, and international deferred tax assets (“DTAs”) that are not expected to be realized in the future. The Company maintained a valuation allowanceVA of $30 million against certain non-U.S. reporting entities’ net deferred tax assets ("DTAs") and $240$208.6 million against U.S. state DTAs on certain state net operating losses and a $28.6 million VA against certain non-U.S. reporting entities' net DTAs as of September 30, 2018.
In 2017, the Company reported a net $177.4 million U.S. income tax benefit comprised of a gross $234.2 million tax benefit on a capital loss of $610.5 million realized on the liquidation of a wholly-owned foreign subsidiary partially offset by a $56.8 million charge to establish a VA against the unused portion of the capital loss. As a result of the change in the U.S. Federal income tax rate from 35 percent to 21 percent beginning in 2018, the VA against the capital loss carryforwards was revalued to $39.6 million as of December 31, 2017. As of the third quarter of 2018, the Company maintained a U.S. Federal and state VA of $15.8 million against certain capital loss carryforwards, down from $39.6 million as of December 31, 2017. The reduction was attributable to changes in expected capital gains and additional net capital gains recognized year to date in the normal course of business as well as a reduction to the DTA on capital loss carryforward and associated VA. The Company will recognize the income tax benefit on the remaining portion of the DTA subject to the VA to the extent of additional capital gains. Capital losses can be carried forward for five years to offset capital gains.
The Company’s ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect its ability to utilize existing DTAs. If events are identified that affect its ability to utilize its DTAs, valuation allowancesVAs may be adjusted accordingly.
Liabilities for Uncertain Tax Positions
The Company’s liability for uncertain tax positions ("UTPs") before interest and penalties was $13.7$13.3 million at September 30, 20172018 and $36.4$13.5 million at December 31, 2016.2017. The Company anticipates changes to its UTP liability upon the resolution of open tax matters and closure of statutes of limitations. The majority of the $22.7 million net reduction in the year-end liability related to a $15.7 million decrease during the second quarter associated with favorable audit resolutions with state taxing authorities on UTPs taken on prior year U.S. state income tax returns. Approximately $4.9 million of the reduction related to UTPs in entities that were transferred with the Commercial Air sale. Management estimates that the total potential liability before interest and penalties may be reduced by up to $5 million within the next twelve months. The Company’s accrued liability for interest and penalties totaled $7.3$7.1 million at September 30, 20172018 and $11.7$6.3 million at December 31, 2016. The change in balance2017. Management believes that it is mainly relatedreasonably possible the total potential liability may be increased or decreased by $5 to interest and penalties associated$10 million within the twelve months following the reporting date because of anticipated settlement with the above mentioned UTPs taken on certain prior-year U.S. state income tax returns and uncertain tax positions related to entities included in the Commercial Air sale.taxing authorities. The Company recognizes accrued interest and penalties on unrecognized tax benefits in income tax expense.
39
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
The accompanying table summarizes credit-related commitments and guarantees, as well as purchase and funding commitments:
Commitments (dollars in millions) | |||||||||||||||
| September 30, 2017 | |||||||||||||||
| Due to Expire | December 31, 2016 | ||||||||||||||
Within One Year | After One Year | Total Outstanding | Total Outstanding | ||||||||||||
| Financing Commitments | |||||||||||||||
| Financing assets | $ | 1,822.7 | $ | 4,462.2 | $ | 6,284.9 | $ | 6,008.1 | |||||||
| Letters of credit | |||||||||||||||
| Standby letters of credit | 34.6 | 178.6 | 213.2 | 232.2 | |||||||||||
| Other letters of credit | 13.9 | — | 13.9 | 14.0 | |||||||||||
| Guarantees | |||||||||||||||
| Deferred purchase agreements | 2,224.5 | — | 2,224.5 | 2,060.5 | |||||||||||
| Guarantees, acceptances and other recourse obligations | 1.5 | — | 1.5 | 1.6 | |||||||||||
| Purchase and Funding Commitments | |||||||||||||||
Aerospace purchase commitments (1) | — | — | — | 8,683.5 | |||||||||||
| Rail and other purchase commitments | 227.4 | — | 227.4 | 300.7 | |||||||||||
Commitments The Aerospace purchase commitments(dollars in the table above are associated with Aerospace discontinued operations which was sold in April 2017.millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Due to Expire |
|
|
|
|
| |||||||||
| Within One Year |
|
| After One Year |
|
| Total Outstanding |
|
| Total Outstanding |
| ||||
Financing Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing assets (1) | $ | 2,421.3 |
|
| $ | 4,061.7 |
|
| $ | 6,483.0 |
|
| $ | 6,351.1 |
|
Letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
| 31.2 |
|
|
| 211.1 |
|
|
| 242.3 |
|
|
| 213.3 |
|
Other letters of credit |
| 11.4 |
|
|
| 0.7 |
|
|
| 12.1 |
|
|
| 16.3 |
|
Guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred purchase agreements |
| 2,082.7 |
|
|
| — |
|
|
| 2,082.7 |
|
|
| 2,068.1 |
|
Purchase and Funding Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail and other purchase commitments (1) |
| 393.2 |
|
|
| 33.8 |
|
|
| 427.0 |
|
|
| 222.9 |
|
(1) | In preparing the quarter-end financial statements as of March 31, 2018, the Company discovered and corrected an immaterial error impacting December 31, 2017 "Financing assets" and "Rail and other purchase commitments", which were understated by $113.4 million ($86.6 million for financing assets and $26.8 million for purchase commitments). The current presentation has been revised to reflect the corrected balances at December 31, 2017. |
Discontinued Operations
Financing commitments include HECM reverse mortgage loan commitments associated with Financial Freedom discontinued operations of $36$24 million at September 30, 20172018 and $42$34 million at December 31, 2016.
Financing Commitments
Commercial
Financing commitments, referred to as loan commitments or lines of credit, primarily reflect CIT’s agreements to lend to its customers, subject to the customers’ compliance with contractual obligations. Included in the table above are commitments that have been extended to and accepted by customers, clients or agents, but on which the criteria for funding have not been completed of $1.2 billion$1,616.3 million at September 30, 20172018 and $572$950.3 million at December 31, 2016.2017. Financing commitments also include credit line agreements to Business Capital clients that are cancellable by us only after a notice period. The notice period is typically 90 days or less. The amount available under these credit lines, net of the amount of receivables assigned to us, was $290.2$135 million at September 30, 20172018 and $335$190 million at December 31, 2016.2017. As financing commitments may not be fully drawn, may expire unused, may be reduced or cancelledcanceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.
At September 30, 2017,2018, substantially all undrawn financing commitments were senior facilities. Most of the Company’s undrawn and available financing commitments are in the Commercial Banking segment.
The table above excludes uncommitted revolving credit facilities extended by Business Capital to itsits’ clients for working capital purposes. In connection with these facilities, Business Capital has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.
Consumer
The Company issold its reverse mortgage portfolio in connection with the Financial Freedom Transaction on May 31, 2018. Prior to the sale, the Company was committed to fund draws on certain reverse mortgages in conjunction with loss sharing agreements with the FDIC.FDIC from the OneWest acquisition. The FDIC agreed to indemnify the Company for losses on the first $200 million of draws that occur subsequent to the purchase date. In addition, the FDIC agreed to fund any other draws in excess of the $200 million.date (post March 2009). As of September 30, 2017 and December 31, 2016, $1352017, $134 million and $145 million, respectively, had been advanced on the reverse mortgage loans post March 2009. The Company’s2009 with exposure for additional draws on loan commitments on these purchased reverse mortgage loans was $65 million at September 30, 2017 and $55 million at December 31, 2016. The aggregate amount advanced and the remaining loan commitments on these purchased loans increase or decrease as the Company funds additional draws or outstanding draws are repaid.of $66 million. See
40
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
Separately, the Company is required to repurchase the loan out of the GNMA HMBS securitization pools once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO. Refer to Note 3 — Loans for further detail regarding the purchased HECM loans due to this servicer obligation.
Letters of Credit
In the normal course of meeting the needs of clients, CIT sometimes enters into agreements to provide financing and letters of credit. Standby letters of credit obligate the issuer of the letter of credit to pay the beneficiary if a client on whose behalf the letter of credit was issued does not meet its obligation. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Condensed Consolidated Balance Sheets. To minimize potential credit risk, CIT generally requires collateral and in some cases additional forms of credit support from the client.
Deferred Purchase Agreements
A Deferred Purchase Agreement (“DPA”) is provided in conjunction with factoring, whereby CIT provides a client with credit protection for trade receivables without purchasing the receivables. The trade receivable terms are generally ninety90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, then CIT purchases the receivable from the client. The outstanding amount in the table above is the maximum potential exposure that CIT would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring CIT to purchase all such receivables from the DPA clients.
The table above includes $2,127$2,020 million and $1,962$1,979 million of DPA credit protection at September 30, 20172018 and December 31, 2016,2017, respectively, related to receivables which have been presented to us for credit protection after shipment of goods has occurred and the customer has been invoiced. The table also includes $98$62 million and $99$89 million available under DPA credit line agreements, net of the amount of DPA credit protection provided at September 30, 20172018 and December 31, 2016,2017, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period. The notice period is typically 90 days or less.
The methodology used to determine the DPA liability is similar to the methodology used to determine the allowance for loan losses associated with the finance loans, which reflects embedded losses based on various factors, including expected losses reflecting the Company’s internal customer and facility credit ratings. The liability recorded in Other Liabilities related to the DPAs totaled $5.8$6.6 million and $6.1$5.3 million at September 30, 20172018 and December 31, 2016,2017, respectively.
Purchase and Funding Commitments
CIT’s purchase commitments relate primarily to purchases of rail equipment.
Other Commitments
The Company has commitments to invest in affordable housing investments, and other investments qualifying for community reinvestment tax credits. These commitments were $105$116 million at September 30, 20172018 and $62$67 million at December 31, 2016.2017. These commitments are payable on demand and are recorded in Otherother liabilities.
Litigation and other Contingencies
CIT is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings relating toas well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies. These matters that arise in connection with the conduct of its business (collectively,CIT’s business. At any given time, CIT may also be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing collectively being referred to as, “Litigation”). While most Litigation relates to individual claims, CIT is also subject to putative class action claims and similar broader claims.
In view of the inherent difficulty of predicting the outcome of Litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, CIT cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, CIT establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can be reasonably estimated. Based on currently available information, CIT believes that the resultsoutcome of Litigation that is currently pending taken together, will not have a material adverse effect on the Company’s financial condition, but may be material to the Company’s operating results or cash flows for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.
41
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)
For certain Litigation matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates the aggregate range of reasonably possible losses as up to $90$65 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters, if any.matters. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of September 30, 2017.2018. The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.
Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure.
The foregoing statements about CIT’s Litigation are based on the Company’s judgments, assumptions, and estimates and are necessarily subjective and uncertain. The Company has several hundred threatened and pending judicial, regulatory and arbitration proceedings at various stages. Several of the Company’s significant Litigation matters are described below.
Brazilian Tax Matter
Banco Commercial Investment Trust do Brasil S.A. (“Banco CIT”), CIT’s Brazilian bank subsidiary, was sold in a stock sale in the fourth quarter of 2015, thereby transferring the legal liabilities of Banco CIT to the buyer. Under the terms of the stock sale, CIT remains liable for indemnification to the buyer for any losses resulting from certain Imposto Sobre Circulaco de Mercadorias e Servicos (“ICMS”) tax appeals relating to disputed local tax assessments on leasing services and importation of equipment (the “ICMS Tax Appeals”).
Notices of infraction were issued to Banco CIT relating to the payment of ICMS taxes charged by Brazilian states in connection with the importation of equipment. The state of São Paulo claims that Banco CIT should have paid it ICMS taxes for tax years 2006 - 2009 because Banco CIT, the purchaser, was located in São Paulo. Instead, the ICMS taxes were paid to the state of Espirito Santo where the imported equipment arrived. A regulation issued by São Paulo in December 2013 reaffirms a 2009 agreement by São Paulo to conditionally recognize ICMS tax payments made to Espirito Santo. An assessment related to taxes paid to Espirito Santo was upheld in a ruling issued by the administrative court in May 2014. That ruling has been appealed. Another assessment related to taxes paid to Espirito Santo remains pending. Petitions seeking São Paulo’s recognition of the taxes paid to Espirito Santo have beenwere also filed in a general amnesty program.
Hawaiian Foreclosure Litigation Claims
Based on recent rulings of the Hawaii Supreme Court, lawsuits have been filed against CIT in Hawaii alleging technical violations in non-judicial foreclosures. Similar cases have been filed against other mortgage lenders in Hawaii. The Hawaii Supreme Court did not establish a clear methodology for calculating alleged damages if a violation is proven and there is substantial dispute in this regard. In many instances the borrower had no equity in the home at the time of foreclosure. Damages sought in these cases include any lost equity, compensation for loss of use of the house and, in some cases, treble or punitive damages under Hawaii's unfair practices law. At this time, the Company does not have sufficient information to make an assessment of the outcome or the impact of these cases.
HUD OIG Investigation
In 2009, OneWest Bank acquired the reverse mortgage loan portfolio and related servicing rights of Financial Freedom Senior Funding Corporation, including HECM loans, from the FDIC as Receiver for IndyMac Federal Bank. HECM loans are insured by the FHA, and administered by HUD. In addition, Financial Freedom is the servicer of HECM loans owned by third party investors. Beginning in the third quarter of 2015, the Office of the Inspector General for HUD (the “HUD OIG”), served a series of subpoenas on the Company regarding HECM loans. The subpoenas requested documents and other information related to Financial Freedom’s HECM loan origination and servicing business, including the curtailment of interest payments on HECM insurance claims. On May 16, 2017, CIT entered into a settlement of approximately $89 million to resolve the servicing related claims. The settlement was within CIT’s existing reserves and included interest to be reimbursed to HUD. CIT has provided information and documents responsive to the subpoena’s request for information relating to the mortgage originations and does not currently expect the outcome of the remaining loan origination matter to have a material adverse effect on CIT’s financial condition or results of operations.
NY Attorney General
In the second quarter of 2017, the Office of the Attorney General of the State of New York (“NYAG”), served a subpoena on the Company regarding HECM loans. The subpoena requested documents and other information related to Financial Freedom’s HECM loan business in the State of New York. The NYAG subsequently withdrew the subpoena and has requested the Company’s continued voluntary cooperation with the inquiry. The Company has cooperated with the NYAG’s office and has produced certain documents. The Company does not have sufficient information to make an assessment of the outcome or the impact of the NYAG’s ongoing inquiry.
42
CIT Group Inc.’s acquisition of OneWest Bank, CIT (as successor and Subsidiaries – Notes to IMB Holdco LLC) is subject to a Consent Order with the FRB related to residential mortgage servicing operations. The original consent order was entered into with IMB Holdco LLC and the Office of Thrift Supervision in April 2011. Following IMB Holdco’s conversion to a bank holding company the Consent Order was amended in March 2014 to name the FRB as the appropriate regulator to administer the Order. A similar Consent Order had been entered into with the OCC, but in July 2015, immediately prior to completion of CIT’s acquisition of OneWest Bank the OCC terminated its Consent Order. However, the FRB continued its Consent Order in place and oversight was transferred to the Federal Reserve Bank New York and CIT succeeded to the Consent Order obligations. The FRB’s Consent Order remains outstanding although improvements required by the Consent Order have been implemented including the completion of an Independent Foreclosure Review in 2014, resulting in approximately $12.7 million of remediation payments being made payable to borrowers.
Segment Profit and Assets
The following table presents segment data related to continuing operations. Refer to
Note 25 — Business Segment Information in ourSegment Pre-tax Income (Loss) (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| NSP |
|
| Corporate and Other |
|
| Total CIT |
| |||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 338.9 |
|
| $ | 79.0 |
|
| $ | 1.4 |
|
| $ | 54.3 |
|
| $ | 473.6 |
|
Interest expense (benefit) |
| 190.3 |
|
|
| (41.6 | ) |
|
| 0.8 |
|
|
| 64.4 |
|
|
| 213.9 |
|
Provision (benefit) for credit losses |
| 39.0 |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
|
| 38.1 |
|
Rental income on operating leases |
| 264.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 264.3 |
|
Other non-interest income |
| 76.4 |
|
|
| (18.1 | ) |
|
| 11.6 |
|
|
| 16.3 |
|
|
| 86.2 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 78.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56.6 |
|
Operating expenses and loss on debt extinguishment and deposit redemption |
| 172.3 |
|
|
| 88.9 |
|
|
| 2.2 |
|
|
| 3.4 |
|
|
| 266.8 |
|
Income from continuing operations before provision for income taxes | $ | 143.4 |
|
| $ | 14.5 |
|
| $ | 10.0 |
|
| $ | 2.8 |
|
| $ | 170.7 |
|
Select Period End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 24,095.7 |
|
| $ | 6,400.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,495.8 |
|
Credit balances of factoring clients |
| (1,672.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,672.4 | ) |
Assets held for sale |
| 1,336.5 |
|
|
| 11.9 |
|
|
| 32.1 |
|
|
| — |
|
|
| 1,380.5 |
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,888.7 |
|
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 309.4 |
|
| $ | 92.2 |
|
| $ | 4.6 |
|
| $ | 47.8 |
|
| $ | 454.0 |
|
Interest expense (benefit) |
| 131.3 |
|
|
| (16.0 | ) |
|
| 3.0 |
|
|
| 58.4 |
|
|
| 176.7 |
|
Provision for credit losses |
| 11.1 |
|
|
| 19.0 |
|
|
| — |
|
|
| — |
|
|
| 30.1 |
|
Rental income on operating leases |
| 252.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 252.3 |
|
Other non-interest income |
| 70.9 |
|
|
| (22.7 | ) |
|
| 4.9 |
|
|
| 10.2 |
|
|
| 63.3 |
|
Depreciation on operating lease equipment |
| 71.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71.1 |
|
Maintenance and other operating lease expenses |
| 57.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57.9 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 168.6 |
|
|
| 106.2 |
|
|
| 9.2 |
|
|
| 46.8 |
|
|
| 330.8 |
|
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 192.6 |
|
| $ | (39.7 | ) |
| $ | (2.7 | ) |
| $ | (47.2 | ) |
| $ | 103.0 |
|
Select Period End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 22,692.6 |
|
| $ | 5,812.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,505.3 |
|
Credit balances of factoring clients |
| (1,698.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,698.5 | ) |
Assets held for sale |
| 1,208.3 |
|
|
| 865.9 |
|
|
| 87.8 |
|
|
| — |
|
|
| 2,162.0 |
|
Operating lease equipment, net |
| 6,724.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,724.2 |
|
Segment Pre-tax Income (Loss) (dollars in millions) | |||||||||||||||||||
Commercial Banking | Consumer Banking | Non-Strategic Portfolios | Corporate and Other | Total CIT | |||||||||||||||
| Quarter Ended September 30, 2017 | |||||||||||||||||||
| Interest income | $ | 309.4 | $ | 92.2 | $ | 4.6 | $ | 47.8 | $ | 454.0 | |||||||||
| Interest (expense) benefit | (131.3 | ) | 16.0 | (3.0 | ) | (58.4 | ) | (176.7 | ) | ||||||||||
| Provision for credit losses | (11.1 | ) | (19.0 | ) | — | — | (30.1 | ) | |||||||||||
| Rental income on operating leases | 252.3 | — | — | — | 252.3 | ||||||||||||||
| Other non-interest income | 70.9 | (22.7 | ) | 4.9 | 10.2 | 63.3 | |||||||||||||
| Depreciation on operating lease equipment | (71.1 | ) | — | — | — | (71.1 | ) | ||||||||||||
| Maintenance and other operating lease expenses | (57.9 | ) | — | — | — | (57.9 | ) | ||||||||||||
| Operating expenses / loss on debt extinguishment and deposit redemption | (168.6 | ) | (106.2 | ) | (9.2 | ) | (46.8 | ) | (330.8 | ) | |||||||||
| Income (loss) from continuing operations before (provision) benefit for income taxes | $ | 192.6 | $ | (39.7 | ) | $ | (2.7 | ) | $ | (47.2 | ) | $ | 103.0 | ||||||
| Quarter Ended September 30, 2016 | |||||||||||||||||||
| Interest income | $ | 318.6 | $ | 105.1 | $ | 22.7 | $ | 29.3 | $ | 475.7 | |||||||||
| Interest expense | (131.8 | ) | (1.0 | ) | (12.7 | ) | (42.7 | ) | (188.2 | ) | |||||||||
| Provision for credit losses | (43.6 | ) | (1.6 | ) | 0.1 | — | (45.1 | ) | |||||||||||
| Rental income on operating leases | 250.4 | — | 3.9 | — | 254.3 | ||||||||||||||
| Other non-interest income | 76.2 | 13.1 | 4.9 | (10.6 | ) | 83.6 | |||||||||||||
| Depreciation on operating lease equipment | (66.9 | ) | — | — | — | (66.9 | ) | ||||||||||||
| Maintenance and other operating lease expenses | (56.6 | ) | — | — | — | (56.6 | ) | ||||||||||||
| Operating expenses / loss on debt extinguishment | (193.0 | ) | (87.1 | ) | (11.2 | ) | (16.8 | ) | (308.1 | ) | |||||||||
| Income (loss) from continuing operations before (provision) benefit for income taxes | $ | 153.3 | $ | 28.5 | $ | 7.7 | $ | (40.8 | ) | $ | 148.7 | ||||||||
43
CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)
Segment Pre-tax Income (Loss) continued (dollars in millions) | |||||||||||||||||||
Commercial Banking | Consumer Banking | Non-Strategic Portfolios | Corporate and Other | Total CIT | |||||||||||||||
| Nine Months Ended September 30, 2017 | |||||||||||||||||||
| Interest income | $ | 933.5 | $ | 293.8 | $ | 17.8 | $ | 142.8 | $ | 1,387.9 | |||||||||
| Interest (expense) benefit | (378.9 | ) | 32.1 | (13.0 | ) | (189.2 | ) | (549.0 | ) | ||||||||||
| Provision for credit losses | (60.1 | ) | (24.1 | ) | — | — | (84.2 | ) | |||||||||||
| Rental income on operating leases | 754.8 | — | — | — | 754.8 | ||||||||||||||
| Other non-interest income | 218.0 | (9.1 | ) | 2.2 | 15.9 | 227.0 | |||||||||||||
| Depreciation on operating lease equipment | (222.0 | ) | — | — | — | (222.0 | ) | ||||||||||||
| Maintenance and other operating lease expenses | (165.0 | ) | — | — | — | (165.0 | ) | ||||||||||||
| Operating expenses / loss on debt extinguishment and deposit redemption | (523.8 | ) | (298.0 | ) | (13.0 | ) | (268.0 | ) | (1,102.8 | ) | |||||||||
| Income (loss) from continuing operations before (provision) benefit for income taxes | $ | 556.5 | $ | (5.3 | ) | $ | (6.0 | ) | $ | (298.5 | ) | $ | 246.7 | ||||||
| Select Period End Balances | |||||||||||||||||||
| Loans | $ | 22,692.6 | $ | 5,812.7 | $ | — | $ | — | $ | 28,505.3 | |||||||||
| Credit balances of factoring clients | 1,698.5 | — | — | — | 1,698.5 | ||||||||||||||
| Assets held for sale | 1,208.3 | 865.9 | 87.8 | — | 2,162.0 | ||||||||||||||
| Operating lease equipment, net | 6,724.2 | — | — | — | 6,724.2 | ||||||||||||||
| Nine Months Ended September 30, 2016 | |||||||||||||||||||
| Interest income | $ | 965.9 | $ | 313.9 | $ | 70.9 | $ | 86.6 | $ | 1,437.3 | |||||||||
| Interest expense | (392.2 | ) | (13.8 | ) | (41.0 | ) | (127.8 | ) | (574.8 | ) | |||||||||
| Provision for credit losses | (152.2 | ) | (5.8 | ) | 0.1 | — | (157.9 | ) | |||||||||||
| Rental income on operating leases | 767.8 | — | 11.6 | — | 779.4 | ||||||||||||||
| Other non-interest income | 202.2 | 33.0 | 26.1 | 6.9 | 268.2 | ||||||||||||||
| Depreciation on operating lease equipment | (191.3 | ) | — | — | — | (191.3 | ) | ||||||||||||
| Maintenance and other operating lease expenses | (156.1 | ) | — | — | — | (156.1 | ) | ||||||||||||
| Operating expenses / loss on debt extinguishment | (578.4 | ) | (258.2 | ) | (35.4 | ) | (79.5 | ) | (951.5 | ) | |||||||||
| Income (loss) from continuing operations before (provision) benefit for income taxes | $ | 465.7 | $ | 69.1 | $ | 32.3 | $ | (113.8 | ) | $ | 453.3 | ||||||||
| Select Period End Balances | |||||||||||||||||||
| Loans | $ | 22,780.9 | $ | 7,116.1 | $ | — | $ | — | $ | 29,897.0 | |||||||||
| Credit balances of factoring clients | 1,228.9 | — | — | — | 1,228.9 | ||||||||||||||
| Assets held for sale | 360.9 | 41.7 | 1,004.1 | — | 1,406.7 | ||||||||||||||
| Operating lease equipment, net | 7,383.1 | — | — | — | 7,383.1 | ||||||||||||||
| Commercial Banking |
|
| Consumer Banking |
|
| NSP |
|
| Corporate and Other |
|
| Total CIT |
| |||||
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 984.2 |
|
| $ | 249.2 |
|
| $ | 5.7 |
|
| $ | 159.3 |
|
| $ | 1,398.4 |
|
Interest expense (benefit) |
| 523.6 |
|
|
| (103.2 | ) |
|
| 4.3 |
|
|
| 174.9 |
|
|
| 599.6 |
|
Provision for credit losses |
| 139.4 |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| 139.8 |
|
Rental income on operating leases |
| 779.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 779.2 |
|
Other non-interest income |
| 227.5 |
|
|
| 30.9 |
|
|
| 13.5 |
|
|
| 54.4 |
|
|
| 326.3 |
|
Depreciation on operating lease equipment |
| 231.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 231.6 |
|
Maintenance and other operating lease expenses |
| 177.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177.5 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 526.8 |
|
|
| 278.6 |
|
|
| 6.6 |
|
|
| 23.0 |
|
|
| 835.0 |
|
Income from continuing operations before provision for income taxes | $ | 392.0 |
|
| $ | 104.3 |
|
| $ | 8.3 |
|
| $ | 15.8 |
|
| $ | 520.4 |
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 933.5 |
|
| $ | 293.8 |
|
| $ | 17.8 |
|
| $ | 142.8 |
|
| $ | 1,387.9 |
|
Interest expense (benefit) |
| 378.9 |
|
|
| (32.1 | ) |
|
| 13.0 |
|
|
| 189.2 |
|
|
| 549.0 |
|
Provision for credit losses |
| 60.1 |
|
|
| 24.1 |
|
|
| — |
|
|
| — |
|
|
| 84.2 |
|
Rental income on operating leases |
| 754.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 754.8 |
|
Other non-interest income |
| 218.0 |
|
|
| (9.1 | ) |
|
| 2.2 |
|
|
| 15.9 |
|
|
| 227.0 |
|
Depreciation on operating lease equipment |
| 222.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 165.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 165.0 |
|
Operating expenses / loss on debt extinguishment and deposit redemption |
| 523.8 |
|
|
| 298.0 |
|
|
| 13.0 |
|
|
| 268.0 |
|
|
| 1,102.8 |
|
Income (loss) from continuing operations before provision (benefit) for income taxes | $ | 556.5 |
|
| $ | (5.3 | ) |
| $ | (6.0 | ) |
| $ | (298.5 | ) |
| $ | 246.7 |
|
| Commercial Banking | Consumer Banking | Total | |||||||
| December 31, 2016 | $ | 642.2 | $ | 43.2 | $ | 685.4 | |||
| Transfers to Held for Sale | (65.1 | ) | — | (65.1 | ) | ||||
| Foreign exchange translation | 5.2 | — | 5.2 | ||||||
| September 30, 2017 | $ | 582.3 | $ | 43.2 | $ | 625.5 | |||
NOTE 14 — SUBSEQUENT EVENTS
Sale of NACCO
On October 4, 2018, CIT sold NACCO, the secondCompany’s European railcar leasing business. With the closing of the NACCO sale, CIT fully divested its interest in NACCO as of October 4, 2018. Railcar loans and leases of approximately $1.2 billion were sold and we expect to recognize a pretax gain of approximately $30-35 million in the fourth quarter. The Company expects to use a portion of the net proceeds received of approximately $1.1 billion to fund the termination of the Dutch TRS Facility (discussed below) and the redemption of a related Railcar Securitization (defined below). The remaining proceeds will be used to return capital to shareholders under the remaining amount of the Company’s common equity capital return, to reduce unsecured debt (discussed below), and for general corporate purposes.
Termination of Dutch TRS Facility
On October 5, 2018, BV issued an Optional Termination Notice (as that term is defined for purposes of that certain Master Agreement) to GSI to terminate the $625 million Dutch TRS Facility between BV and GSI. Pursuant to the Optional Termination Notice, the Dutch TRS Facility was terminated on November 2, 2018 (the “Optional Termination Date”).
The exercise of BV’s option to terminate the Dutch TRS Facility prior to maturity required a payment to GSI on November 2, 2018 of the present value of the remaining facility fee (the “Optional Termination Fee”). The Optional Termination Fee and the reduction of the liability associated with the TRS Derivative are expected to result in net pretax charges for the Company of approximately $70 - $75 million in the fourth quarter of 2017,2018.
Redemption of the Railcar Securitization
On October 25, 2018, CIT repaid approximately $465 million of secured financings of the Company’s railcar asset backed securitization vehicle (the “Railcar Securitization”), which was the reference obligation under the Dutch TRS Facility. In addition, the termination of the Dutch TRS Facility and redemption of the associated reference obligation Railcar Securitization resulted in the unencumbering of approximately $775 million of railcar assets.
On November 1, 2018, the Company sold approximately $350 million of railcar assets in the Railcar Securitization to CIT Bank.
Approximately $300 million of proceeds from the sale of NACCO, net of cash held by the securitization trust and other collateral held by the securitization trustee and the counterparty on the Dutch TRS Facility, was used for the redemption of the Railcar Securitization and the termination of the Dutch TRS Facility, including payment of the Optional Termination Fee.
Debt Redemptions
On October 19 and November 2, 2018, we announced thatour intent to redeem the outstanding 5.375% senior unsecured notes due May 2020, which totaled approximately $431 million at September 30, 2018, which we reached a definitive agreementwill redeem using net proceeds from the NACCO sale and the sale of rail assets to sell Nacco, and therefore transferredCIT Bank. The unsecured debt redemptions are expected to result in debt extinguishment losses of approximately $15 million in the portfolio to held for sale. As a result, approximately $65 million of goodwill within Commercial Banking, including foreign exchange translation adjustments, was transferred to held for sale.
44
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of the Company. These are non-GAAP measures and are not in accordance with, or a substitute for, GAAP. Presented in “
Throughout this MD&A we reference specific "Notes" to our financial statements. These are notes to the Condensed Consolidated Financial Statements
SUMMARY OF 20172018 FINANCIAL RESULTS
The following table summarizes the Company’s results in accordance with GAAP as included in the Condensed Consolidated Statements of Income, for the quarters and nine months ended September 30, 2017 and 2016, and foralong with the quarter ended June 30, 2017. In addition, we2018. We also provide results that are not in accordance with GAAP, and are reconciled to GAAP in the "Non-GAAP Financial Measurements" section. Further detail onsection at the 2017 noteworthy items is presentedend of this MD&A.
Results of Operations (dollars in tabular format further in this section, and prior year noteworthy items are reconciled in the "Non-GAAP Financial Measurements" section.millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
GAAP Results | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Income from continuing operations available to common shareholders | $ | 129.4 |
|
| $ | 137.9 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
| $ | 342.2 |
|
Income (loss) from discontinued operations, net of taxes |
| 2.1 |
|
|
| (20.5 | ) |
|
| (3.2 | ) |
|
| (25.1 | ) |
|
| 214.0 |
|
Net income available to common shareholders | $ | 131.5 |
|
| $ | 117.4 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
| $ | 556.2 |
|
Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 1.13 |
|
| $ | 1.11 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
|
Income (loss) from discontinued operations, net of taxes |
| 0.02 |
|
|
| (0.17 | ) |
|
| (0.03 | ) |
|
| (0.21 | ) |
|
| 1.23 |
|
Diluted income per common share available to common shareholders | $ | 1.15 |
|
| $ | 0.94 |
|
| $ | 1.61 |
|
| $ | 2.80 |
|
| $ | 3.19 |
|
Average number of common shares — diluted (thousands) |
| 114,007 |
|
|
| 124,686 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Results, excluding noteworthy items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 131.0 |
|
| $ | 124.6 |
|
| $ | 138.7 |
|
| $ | 352.5 |
|
| $ | 373.8 |
|
Income (loss) from discontinued operations, net of taxes |
| 2.1 |
|
|
| (6.7 | ) |
|
| (0.9 | ) |
|
| (11.3 | ) |
|
| 56.2 |
|
Net income available to common shareholders | $ | 133.1 |
|
| $ | 117.9 |
|
| $ | 137.8 |
|
| $ | 341.2 |
|
| $ | 430.0 |
|
Diluted income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 1.15 |
|
| $ | 1.00 |
|
| $ | 1.02 |
|
| $ | 2.86 |
|
| $ | 2.15 |
|
Income (loss) from discontinued operations, net of taxes |
| 0.02 |
|
|
| (0.05 | ) |
|
| (0.01 | ) |
|
| (0.09 | ) |
|
| 0.32 |
|
Diluted income per common share available to common shareholders | $ | 1.17 |
|
| $ | 0.95 |
|
| $ | 1.01 |
|
| $ | 2.77 |
|
| $ | 2.47 |
|
Average number of common shares — diluted (thousands) |
| 114,007 |
|
|
| 124,686 |
|
|
| 136,126 |
|
|
| 123,338 |
|
|
| 174,201 |
|
| Results of Operations (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| GAAP Results | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Income from continuing operations | $ | 222.8 | $ | 41.2 | $ | 94.2 | $ | 342.2 | $ | 243.2 | |||||||||
| Income (loss) from discontinued operations, net of taxes | (3.2 | ) | 115.5 | 37.3 | 214.0 | 51.3 | |||||||||||||
| Net income | $ | 219.6 | $ | 156.7 | $ | 131.5 | $ | 556.2 | $ | 294.5 | |||||||||
| Diluted income per common share | |||||||||||||||||||
| Income from continuing operations | $ | 1.64 | $ | 0.22 | $ | 0.47 | $ | 1.96 | $ | 1.21 | |||||||||
| Income (loss) from discontinued operations, net of taxes | (0.03 | ) | 0.63 | 0.18 | 1.23 | 0.25 | |||||||||||||
| Diluted income per common share | $ | 1.61 | $ | 0.85 | $ | 0.65 | $ | 3.19 | $ | 1.46 | |||||||||
| Average number of common shares — diluted (thousands) | 136,126 | 183,796 | 202,755 | 174,201 | 202,388 | ||||||||||||||
| Non-GAAP Results, excluding noteworthy items | |||||||||||||||||||
| Income from continuing operations | $ | 138.7 | $ | 125.7 | $ | 108.6 | $ | 373.8 | $ | 259.3 | |||||||||
| Income (loss) from discontinued operations, net of taxes | (0.9 | ) | 3.4 | 60.7 | 56.2 | 240.3 | |||||||||||||
| Net income | $ | 137.8 | $ | 129.1 | $ | 169.3 | $ | 430.0 | $ | 499.6 | |||||||||
| Diluted income per common share | |||||||||||||||||||
| Income from continuing operations | $ | 1.02 | $ | 0.68 | $ | 0.54 | $ | 2.15 | $ | 1.28 | |||||||||
| Income (loss) from discontinued operations, net of taxes | (0.01 | ) | 0.02 | 0.29 | 0.32 | 1.19 | |||||||||||||
| Diluted income per common share | $ | 1.01 | $ | 0.70 | $ | 0.83 | $ | 2.47 | $ | 2.47 | |||||||||
| Average number of common shares — diluted (thousands) | 136,126 | 183,796 | 202,755 | 174,201 | 202,388 | ||||||||||||||
45
noteworthy items11 was up ondown, as lower operating expenses and a decline in the provision for credit losses, partially offset by a decline in net finance revenue.Loans and leases were down, along with lower purchase accounting accretion, which contributed to the decline in net finance revenue. Compared to the prior quarter, the increase was driven primarily by a decline in operating expenses and a lower effective tax rate, partially offset by a decline in net finance revenue and an increase in the provision for credit losses.
Net income available to common shareholders and net income available to common shareholders excluding noteworthy items2 were down from the year-ago quarter and up from the prior quarter. While the trends reflected the results from continuing operations, the decline from the year-ago nine months was also affected by the loss in discontinued operations in 2018, compared to income in the currentyear-ago period.
The following table reflects the reconciliation of income from continuing operations and prior quarters.net income excluding noteworthy items2 for the quarter and nine months ended September 30, 2018, to our results in accordance with GAAP.
Noteworthy Adjustments to 2018 Results (dollars in millions, except per share amounts)
| Income from Continuing Operations Available to Common Shareholders |
|
| Net Income Available to Common Shareholders |
| ||||||||||||||||||||||||||
| Quarter Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2018 |
|
| Quarter Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2018 |
| ||||||||||||||||||||
GAAP Results | $ | 129.4 |
|
| $ | 1.13 |
|
| $ | 371.0 |
|
| $ | 3.01 |
|
| $ | 131.5 |
|
| $ | 1.15 |
|
| $ | 345.9 |
|
| $ | 2.80 |
|
Third Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
|
| (5.9 | ) |
|
| (0.05 | ) |
Impairment of LCM indemnification asset |
| 15.5 |
|
|
| 0.14 |
|
|
| 15.5 |
|
|
| 0.13 |
|
|
| 15.5 |
|
|
| 0.14 |
|
|
| 15.5 |
|
|
| 0.13 |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
|
| (10.6 | ) |
|
| (0.09 | ) |
Loss on debt redemption |
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP Results | $ | 131.0 |
|
| $ | 1.15 |
|
|
|
|
|
|
|
|
|
| $ | 133.1 |
|
| $ | 1.17 |
|
|
|
|
|
|
|
|
|
Second Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
|
|
|
|
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
|
|
|
|
|
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
Gain and other revenues from sale of reverse mortgage portfolio |
|
|
|
|
|
|
|
|
| (21.6 | ) |
|
| (0.18 | ) |
|
|
|
|
|
|
|
|
|
| (21.6 | ) |
|
| (0.18 | ) |
Loss on debt redemption |
|
|
|
|
|
|
|
|
| 14.3 |
|
|
| 0.12 |
|
|
|
|
|
|
|
|
|
|
| 14.3 |
|
|
| 0.12 |
|
Loss on Financial Freedom servicing operations |
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| 13.8 |
|
|
| 0.11 |
|
First Quarter Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NACCO suspended depreciation |
|
|
|
|
|
|
|
|
| (6.8 | ) |
|
| (0.06 | ) |
|
|
|
|
|
|
|
|
|
| (6.8 | ) |
|
| (0.06 | ) |
Non-GAAP Results (certain EPS balances may not sum due to rounding) |
|
|
|
|
|
|
|
| $ | 352.5 |
|
| $ | 2.86 |
|
|
|
|
|
|
|
|
|
| $ | 341.2 |
|
| $ | 2.77 |
|
SUBSEQUENT EVENTS
In October 2018 we sold NACCO, our European Railcar business. The sale included $1.2 billion of loans and leases that were in AHFS, and we expect to recognize a pretax gain of approximately $30-35 million in the fourth quarter.
We also terminated the Dutch TRS Facility on November 2, 2018, which is expected to result in a net pretax charge of approximately $70-75 million in the fourth quarter that reflects the present value of the facility fee over the remaining term of nearly 10 years, net of the reduction of the liability associated with the TRS Derivative.
In October 2018, we redeemed all of the outstanding notes of the Company’s Railcar Securitization related to the Dutch TRS Facility of approximately $465 million, which resulted in approximately $775 million of rail assets becoming unencumbered.
On November 1, 2018, the Company sold approximately $350 million of the recently unencumbered railcar assets in the Railcar Securitization to CIT Bank, where there is more efficient deposit-based financing.
On October 19 and November 2, 2018, we announced our intent to redeem the outstanding 5.375% senior unsecured notes due May 2020, which totaled approximately $431 million at September 30, 2018, which we will redeem using net proceeds from the NACCO sale and the sale of rail assets to CIT Bank. The unsecured debt redemptions are expected to result in debt extinguishment losses of approximately $15 million in the fourth quarter.
Due to the reduction of borrowings of nearly $1 billion in the fourth quarter, and the termination of the Dutch TRS Facility, we expect to realize the benefit of lower interest expense going forward. SeeNote 14 — Subsequent Events.
1 | |
Income from continuing operations excluding noteworthy items | |
2 | Net income excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
46
At September 30, 2017, to our results in accordance with GAAP.
Noteworthy Adjustments to 2017 Results (dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||
| Income from Continuing Operations | Net Income | ||||||||||||||||||||||||||||||
| Quarter Ended September 30, 2017 | Nine Months Ended September 30, 2017 | Quarter Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||
| GAAP Results | $ | 222.8 | $ | 1.64 | $ | 342.2 | $ | 1.96 | $ | 219.6 | $ | 1.61 | $ | 556.2 | $ | 3.19 | |||||||||||||||
| Third Quarter Items | |||||||||||||||||||||||||||||||
| Strategic tax item - restructuring of an international legal entity | (140.4 | ) | (1.03 | ) | (140.4 | ) | (0.81 | ) | (140.4 | ) | (1.03 | ) | (140.4 | ) | (0.81 | ) | |||||||||||||||
| Debt extinguishment costs related to the tender of $0.8 billion in unsecured debt | 33.2 | 0.24 | 33.2 | 0.19 | 33.2 | 0.24 | 33.2 | 0.19 | |||||||||||||||||||||||
| Financial Freedom Transaction, impairments on reverse mortgage-related assets | 16.4 | 0.12 | 16.4 | 0.09 | 16.4 | 0.12 | 16.4 | 0.09 | |||||||||||||||||||||||
| Financial Freedom Transaction, reverse mortgage charge-offs on loans transferred to HFS | 9.5 | 0.07 | 9.5 | 0.05 | 9.5 | 0.07 | 9.5 | 0.05 | |||||||||||||||||||||||
| Suspended depreciation benefits related to the European Rail business (Nacco) held for sale | (5.2 | ) | (0.04 | ) | (5.2 | ) | (0.03 | ) | (5.2 | ) | (0.04 | ) | (5.2 | ) | (0.03 | ) | |||||||||||||||
| Restructuring charges | 2.4 | 0.02 | 2.4 | 0.01 | 2.4 | 0.02 | 2.4 | 0.01 | |||||||||||||||||||||||
| Financial Freedom discontinued operations | — | — | — | — | 2.3 | 0.02 | 2.3 | 0.01 | |||||||||||||||||||||||
| Non-GAAP Results | $ | 138.7 | $ | 1.02 | $ | 137.8 | $ | 1.01 | |||||||||||||||||||||||
| Second Quarter Items | |||||||||||||||||||||||||||||||
| Debt extinguishment costs related to the reduction of $5.8 billion in unsecured debt | — | — | 99.6 | 0.57 | — | — | 99.6 | 0.57 | |||||||||||||||||||||||
| Net interest cost related to the elevated borrowings and cash balances for the period between the closing of the Commercial Air sale and the completion of liability management and capital actions | |||||||||||||||||||||||||||||||
| Excess interest costs | — | — | 14.5 | 0.08 | — | — | 14.5 | 0.08 | |||||||||||||||||||||||
| Interest on excess cash | — | — | (5.6 | ) | (0.03 | ) | — | — | (5.6 | ) | (0.03 | ) | |||||||||||||||||||
| Benefit from the resolution of legacy tax items | — | — | (19.3 | ) | (0.11 | ) | — | — | (19.3 | ) | (0.11 | ) | |||||||||||||||||||
| Benefit from a deferred tax asset recognition related to Nacco | — | — | (6.9 | ) | (0.04 | ) | — | — | (6.9 | ) | (0.04 | ) | |||||||||||||||||||
| Restructuring charges | — | — | 2.2 | 0.01 | — | — | 2.2 | 0.01 | |||||||||||||||||||||||
| Gain on the sale of Commercial Air | — | — | — | — | — | — | (99.7 | ) | (0.57 | ) | |||||||||||||||||||||
| Net benefit related to Financial Freedom due to a net release of the interest curtailment reserve and a reduction in the FDIC indemnification asset, partially offset by an impairment charge related to mortgage servicing rights | — | — | — | — | — | — | (12.4 | ) | (0.07 | ) | |||||||||||||||||||||
| First Quarter Items | |||||||||||||||||||||||||||||||
| Charge related to a currency translation adjustment relating to international business exits | — | — | 6.8 | 0.04 | — | — | 6.8 | 0.04 | |||||||||||||||||||||||
| Restructuring charges | — | — | 10.4 | 0.06 | — | — | 10.4 | 0.06 | |||||||||||||||||||||||
| Deferred tax expense related to the restructuring of legal entities in preparation for the Commercial Air sale | — | — | 14.0 | 0.08 | — | — | 14.0 | 0.08 | |||||||||||||||||||||||
| Gain on the sale of the TC-CIT joint venture | — | — | — | — | — | — | (13.0 | ) | (0.07 | ) | |||||||||||||||||||||
| Secured debt extinguishment costs | — | — | — | — | — | — | 34.0 | 0.20 | |||||||||||||||||||||||
| Suspended depreciation benefits related to the Commercial Air business | — | — | — | — | — | — | (69.0 | ) | (0.40 | ) | |||||||||||||||||||||
| Non-GAAP Results | $ | 373.8 | $ | 2.15 | $ | 430.0 | $ | 2.47 | |||||||||||||||||||||||
The Financial Freedom business, a former division of CIT Bank that serviced reverse mortgage loans, was sold on May 31, 2018 and included all the operations, mortgage servicing rights and related servicing assets and liabilities as well as reverse mortgage loans and related secured borrowings. The Financial Freedom Transaction also includes approximately $862 millionliabilities. CIT recognized an after tax loss on disposal of reverse mortgage whole loans and $25 million of other real estate owned assets that are within continuing operations. Continuing operations pretax results for the quarter ended September 30, 2017 were impacted by approximately $42 million of charges, mostly impacting the provision for credit losses and other non-interest income, associated with the announced sale of the reverse mortgage portfolio in connection with the Financial Freedom Transaction. At closing, CIT anticipates it will recognize a pre-tax net gainbusiness of $16 million in continuingdiscontinued operations
Income from discontinued operations (after taxes) for the quarter ended September 30, 2017 was $3$2 million primarily driven by an increase in the servicing-related contingent liability in Financial Freedom. Discontinued operations reported an after tax incomecurrent quarter, compared to losses of $37$3 million in the year-ago quarter driven by income from Commercial Air, and income of $116$20 million in the prior quarter. Excluding noteworthy items, of which there were none in the current quarter, reflectingthere was a loss in the gain on saleyear-ago quarter of Commercial Air. We completed the sale$1 million and a loss of our Commercial Air business in April 2017 for $10.4 billion and recorded a pre-tax gain of $146$7 million in the secondprior quarter. Discontinued operations after tax income totaled $214 million and $51 million forFor the nine months ended September 30, 2018 and 2017, net loss from discontinued operations totaled $25 million in 2018, compared to income of $214 million in 2017. Excluding noteworthy items, the current year to date loss was $11 million, compared to income of $56 million in the year-ago period. Noteworthy items are listed in "Non-GAAP Financial Measurements".
Business Air loans and 2016, respectively.
Further details on the business andof discontinued operations, along with condensed balance sheets and income statements
UnlessItem 4. Controls and Procedures for evaluation of disclosure controls regarding theHome Equity Conversion Mortgages (“HECM”) interest curtailment reserve.
NET FINANCE REVENUE
Net Finance Revenue
("NFR")33 | Net finance revenue, net finance margin, net operating lease revenue and average earnings assets, and respective amounts excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of non-GAAP to GAAP financial information. |
47
Net Finance Revenue(1) (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended, | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Interest income | $ | 454.0 | $ | 478.2 | $ | 475.7 | $ | 1,387.9 | $ | 1,437.3 | |||||||||
| Rental income on operating leases | 252.3 | 251.2 | 254.3 | 754.8 | 779.4 | ||||||||||||||
| Finance revenue | 706.3 | 729.4 | 730.0 | 2,142.7 | 2,216.7 | ||||||||||||||
| Interest expense | (176.7 | ) | (209.2 | ) | (188.2 | ) | (549.0 | ) | (574.8 | ) | |||||||||
| Depreciation on operating lease equipment | (71.1 | ) | (77.4 | ) | (66.9 | ) | (222.0 | ) | (191.3 | ) | |||||||||
| Maintenance and other operating lease expenses | (57.9 | ) | (53.3 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) | |||||||||
| Net finance revenue | $ | 400.6 | $ | 389.5 | $ | 418.3 | $ | 1,206.7 | $ | 1,294.5 | |||||||||
Average earning assets ("AEA")(1) | 45,454.2 | 50,675.8 | 47,728.7 | 47,535.7 | 47,900.0 | ||||||||||||||
Net finance margin(1) | 3.53 | % | 3.07 | % | 3.51 | % | 3.38 | % | 3.60 | % | |||||||||
NFR, excluding noteworthy items(1) | $ | 392.8 | $ | 403.8 | $ | 418.3 | $ | 1,213.2 | $ | 1,294.5 | |||||||||
Average earning assets ("AEA"), excluding noteworthy items(1) | $ | 45,454.2 | $ | 46,989.8 | $ | 47,728.7 | $ | 46,291.7 | $ | 47,900.0 | |||||||||
Net finance margin, excluding noteworthy items(1) | 3.46 | % | 3.44 | % | 3.51 | % | 3.49 | % | 3.60 | % | |||||||||
Average Balances and Rates4(1)
| Quarters Ended |
| |||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
| |||||||||
Interest bearing cash deposits | $ | 2,466.4 |
|
| $ | 11.7 |
|
|
| 1.90 | % |
| $ | 3,530.8 |
|
| $ | 16.0 |
|
|
| 1.81 | % |
| $ | 3,873.9 |
|
| $ | 12.5 |
|
|
| 1.29 | % |
Investment securities and securities purchased under agreement to resell |
| 6,415.7 |
|
|
| 44.5 |
|
|
| 2.77 | % |
|
| 6,062.8 |
|
|
| 42.1 |
|
|
| 2.78 | % |
|
| 5,796.3 |
|
|
| 38.0 |
|
|
| 2.62 | % |
Loans and loans held for sale(2)(3) |
| 28,408.7 |
|
|
| 427.6 |
|
|
| 6.02 | % |
|
| 28,553.9 |
|
|
| 428.0 |
|
|
| 6.00 | % |
|
| 27,793.1 |
|
|
| 417.1 |
|
|
| 6.00 | % |
Total interest earning assets(2)(3) |
| 37,290.8 |
|
|
| 483.8 |
|
|
| 5.19 | % |
|
| 38,147.5 |
|
|
| 486.1 |
|
|
| 5.10 | % |
|
| 37,463.3 |
|
|
| 467.6 |
|
|
| 4.99 | % |
Operating lease equipment, net (including held for sale)(4) |
| 8,031.8 |
|
|
| 129.7 |
|
|
| 6.46 | % |
|
| 7,980.3 |
|
|
| 120.6 |
|
|
| 6.04 | % |
|
| 7,797.6 |
|
|
| 123.3 |
|
|
| 6.33 | % |
Indemnification assets |
| 54.5 |
|
|
| (10.2 | ) |
|
| -74.86 | % |
|
| 101.8 |
|
|
| (12.5 | ) |
|
| -49.12 | % |
|
| 193.3 |
|
|
| (13.6 | ) |
|
| -28.14 | % |
Average earning assets ("AEA")(2)(5) |
| 45,377.1 |
|
|
| 603.3 |
|
|
| 5.32 | % |
|
| 46,229.6 |
|
|
| 594.2 |
|
|
| 5.14 | % |
|
| 45,454.2 |
|
|
| 577.3 |
|
|
| 5.08 | % |
Non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| 172.7 |
|
|
|
|
|
|
|
|
|
|
| 215.9 |
|
|
|
|
|
|
|
|
|
|
| 522.5 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (468.9 | ) |
|
|
|
|
|
|
|
|
|
| (449.3 | ) |
|
|
|
|
|
|
|
|
|
| (421.7 | ) |
|
|
|
|
|
|
|
|
All other non-interest bearing assets |
| 2,717.2 |
|
|
|
|
|
|
|
|
|
|
| 2,734.7 |
|
|
|
|
|
|
|
|
|
|
| 2,330.5 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
| 352.9 |
|
|
|
|
|
|
|
|
|
|
| 416.2 |
|
|
|
|
|
|
|
|
|
|
| 591.5 |
|
|
|
|
|
|
|
|
|
Total Assets | $ | 48,151.0 |
|
|
|
|
|
|
|
|
|
| $ | 49,147.1 |
|
|
|
|
|
|
|
|
|
| $ | 48,477.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits and borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits | $ | 29,735.4 |
|
|
| 123.1 |
|
|
| 1.65 | % |
| $ | 29,549.6 |
|
|
| 110.6 |
|
|
| 1.50 | % |
| $ | 28,820.2 |
|
|
| 92.6 |
|
|
| 1.29 | % |
Borrowings |
| 8,692.2 |
|
|
| 90.8 |
|
|
| 4.18 | % |
|
| 9,437.0 |
|
|
| 94.6 |
|
|
| 4.01 | % |
|
| 8,591.6 |
|
|
| 84.1 |
|
|
| 3.92 | % |
Total interest-bearing liabilities |
| 38,427.6 |
|
|
| 213.9 |
|
|
| 2.23 | % |
|
| 38,986.6 |
|
|
| 205.2 |
|
|
| 2.11 | % |
|
| 37,411.8 |
|
|
| 176.7 |
|
|
| 1.89 | % |
Non-interest bearing deposits |
| 1,503.2 |
|
|
|
|
|
|
|
|
|
|
| 1,414.5 |
|
|
|
|
|
|
|
|
|
|
| 1,495.9 |
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities |
| 1,473.6 |
|
|
|
|
|
|
|
|
|
|
| 1,401.4 |
|
|
|
|
|
|
|
|
|
|
| 1,582.3 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
| 327.9 |
|
|
|
|
|
|
|
|
|
|
| 419.0 |
|
|
|
|
|
|
|
|
|
|
| 579.6 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
| 6,418.7 |
|
|
|
|
|
|
|
|
|
|
| 6,925.6 |
|
|
|
|
|
|
|
|
|
|
| 7,407.2 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity | $ | 48,151.0 |
|
|
|
|
|
|
|
|
|
| $ | 49,147.1 |
|
|
|
|
|
|
|
|
|
| $ | 48,477.0 |
|
|
|
|
|
|
|
|
|
Net revenue spread |
|
|
|
|
|
|
|
|
| 3.09 | % |
|
|
|
|
|
|
|
|
|
| 3.03 | % |
|
|
|
|
|
|
|
|
|
| 3.19 | % |
Impact of non-interest bearing sources |
|
|
|
|
|
|
|
|
| 0.34 | % |
|
|
|
|
|
|
|
|
|
| 0.34 | % |
|
|
|
|
|
|
|
|
|
| 0.34 | % |
NFR ($) / NFM (%)(2) |
|
|
|
| $ | 389.4 |
|
|
| 3.43 | % |
|
|
|
|
| $ | 389.0 |
|
|
| 3.37 | % |
|
|
|
|
| $ | 400.6 |
|
|
| 3.53 | % |
Adjusted NFR / NFM (excluding noteworthy items) |
|
|
|
| $ | 380.8 |
|
|
| 3.36 | % |
|
|
|
|
| $ | 380.4 |
|
|
| 3.29 | % |
|
|
|
|
| $ | 392.8 |
|
|
| 3.46 | % |
(1)...(5) See footnotes below table on the investment securities portfolio.
48
Average Balances and Rates(1)(dollars in millions) (continued)
| Nine Months Ended |
| |||||||||||||||||||||
| September 30, 2018 |
|
| September 30, 2017 |
| ||||||||||||||||||
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
|
| Average Balance |
|
| Income / Expense |
|
| Yield / Rate |
| ||||||
Interest bearing cash deposits | $ | 2,645.9 |
|
| $ | 34.7 |
|
|
| 1.75 | % |
| $ | 6,265.5 |
|
| $ | 48.9 |
|
|
| 1.04 | % |
Investment securities and securities purchased under agreement to resell |
| 6,302.8 |
|
|
| 129.9 |
|
|
| 2.75 | % |
|
| 5,105.3 |
|
|
| 102.1 |
|
|
| 2.67 | % |
Loans and loans held for sale(2)(3) |
| 28,535.8 |
|
|
| 1,270.7 |
|
|
| 5.94 | % |
|
| 28,259.6 |
|
|
| 1,268.0 |
|
|
| 5.98 | % |
Total interest earning assets(2)(3) |
| 37,484.5 |
|
|
| 1,435.3 |
|
|
| 5.11 | % |
|
| 39,630.4 |
|
|
| 1,419.0 |
|
|
| 4.77 | % |
Operating lease equipment, net (including held for sale)(4) |
| 7,979.8 |
|
|
| 370.1 |
|
|
| 6.18 | % |
|
| 7,637.1 |
|
|
| 367.8 |
|
|
| 6.42 | % |
Indemnification assets |
| 95.6 |
|
|
| (36.9 | ) |
|
| -51.46 | % |
|
| 268.2 |
|
|
| (31.1 | ) |
|
| -15.46 | % |
Average earning assets ("AEA")(2)(5) |
| 45,559.9 |
|
|
| 1,768.5 |
|
|
| 5.18 | % |
|
| 47,535.7 |
|
|
| 1,755.7 |
|
|
| 4.92 | % |
Non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| 213.2 |
|
|
|
|
|
|
|
|
|
|
| 647.3 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (449.6 | ) |
|
|
|
|
|
|
|
|
|
| (431.6 | ) |
|
|
|
|
|
|
|
|
All other non-interest bearing assets |
| 2,736.8 |
|
|
|
|
|
|
|
|
|
|
| 2,279.9 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
| 415.2 |
|
|
|
|
|
|
|
|
|
|
| 4,837.7 |
|
|
|
|
|
|
|
|
|
Total Assets | $ | 48,475.5 |
|
|
|
|
|
|
|
|
|
| $ | 54,869.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits and borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits | $ | 29,259.6 |
|
| $ | 330.8 |
|
|
| 1.51 | % |
| $ | 29,952.9 |
|
| $ | 281.2 |
|
|
| 1.25 | % |
Borrowings |
| 9,089.1 |
|
|
| 268.8 |
|
|
| 3.94 | % |
|
| 11,351.1 |
|
|
| 267.8 |
|
|
| 3.15 | % |
Total interest-bearing liabilities |
| 38,348.7 |
|
|
| 599.6 |
|
|
| 2.08 | % |
|
| 41,304.0 |
|
|
| 549.0 |
|
|
| 1.77 | % |
Non-interest bearing deposits |
| 1,464.5 |
|
|
|
|
|
|
|
|
|
|
| 1,437.2 |
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities |
| 1,427.8 |
|
|
|
|
|
|
|
|
|
|
| 1,642.7 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
| 412.8 |
|
|
|
|
|
|
|
|
|
|
| 1,560.3 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
| - |
|
|
|
|
|
|
|
|
|
|
| 0.3 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
| 6,821.7 |
|
|
|
|
|
|
|
|
|
|
| 8,924.5 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity | $ | 48,475.5 |
|
|
|
|
|
|
|
|
|
| $ | 54,869.0 |
|
|
|
|
|
|
|
|
|
Net revenue spread |
|
|
|
|
|
|
|
|
| 3.10 | % |
|
|
|
|
|
|
|
|
|
| 3.15 | % |
Impact of non-interest bearing sources |
|
|
|
|
|
|
|
|
| 0.32 | % |
|
|
|
|
|
|
|
|
|
| 0.23 | % |
NFR ($) / NFM (%)(2) |
|
|
|
| $ | 1,168.9 |
|
|
| 3.42 | % |
|
|
|
|
| $ | 1,206.7 |
|
|
| 3.38 | % |
Adjusted NFR / NFM (excluding noteworthy items) |
|
|
|
| $ | 1,142.4 |
|
|
| 3.34 | % |
|
|
|
|
| $ | 1,213.2 |
|
|
| 3.49 | % |
Average Balances and Rates(1) for the Quarters Ended (dollars in millions) | ||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Average Balance | Revenue/ Expense | Average Rate (%) | Average Balance | Revenue/ Expense | Average Rate (%) | Average Balance | Revenue/ Expense | Average Rate (%) | ||||||||||||||||||||||||
Interest bearing deposits(2) | $ | 3,873.9 | $ | 12.5 | 1.29 | % | $ | 9,510.5 | $ | 23.8 | 1.00 | % | $ | 6,368.9 | $ | 8.9 | 0.56 | % | ||||||||||||||
| Investments | 5,796.3 | 38.0 | 2.62 | % | 5,016.1 | 33.1 | 2.64 | % | 3,411.2 | 23.0 | 2.70 | % | ||||||||||||||||||||
| Loans (including held for sale and credit balances of factoring clients) | 27,793.1 | 417.1 | 6.00 | % | 28,257.0 | 431.0 | 6.10 | % | 30,239.3 | 448.1 | 5.93 | % | ||||||||||||||||||||
Operating lease equipment, net (including held for sale)(3) | 7,797.6 | 123.3 | 6.33 | % | 7,612.2 | 120.5 | 6.33 | % | 7,335.1 | 130.8 | 7.13 | % | ||||||||||||||||||||
| Indemnification assets | 193.3 | (13.6 | ) | (28.14 | )% | 280.0 | (9.7 | ) | (13.86 | )% | 374.2 | (4.3 | ) | (4.49 | )% | |||||||||||||||||
Average earning assets(2) | $ | 45,454.2 | 577.3 | 5.08 | % | $ | 50,675.8 | 598.7 | 4.73 | % | $ | 47,728.7 | 606.5 | 5.08 | % | |||||||||||||||||
| Interest-bearing deposits | $ | 28,820.2 | $ | 92.6 | 1.29 | % | $ | 30,222.9 | $ | 94.6 | 1.25 | % | $ | 31,732.9 | $ | 99.4 | 1.25 | % | ||||||||||||||
Borrowings(4) | 8,591.6 | 84.1 | 3.92 | % | 10,702.5 | 114.6 | 4.28 | % | 15,221.7 | 88.8 | 2.33 | % | ||||||||||||||||||||
| Total interest-bearing liabilities | $ | 37,411.8 | 176.7 | 1.89 | % | $ | 40,925.4 | 209.2 | 2.04 | % | $ | 46,954.6 | 188.2 | 1.60 | % | |||||||||||||||||
| NFR and NFM | $ | 400.6 | 3.53 | % | $ | 389.5 | 3.07 | % | $ | 418.3 | 3.51 | % | ||||||||||||||||||||
(1) | The average balances presented are derived based on month end balances during the year. Tax exempt income was not significant in any of the periods presented. Average rates are impacted by |
(2) | The balance and |
(3) | Non-accrual loans and related income are included in the respective categories. |
(4) | Operating lease rental income is a significant source of revenue; therefore we have presented the rental revenues net of depreciation and net of maintenance and other operating lease expenses. |
(5) | |
| AEA is a non-GAAP measure. See |
The following table presents disaggregated quarter-over-quarter changes in net interest revenue and operating lease margins as presented in the preceding tablestable between volume (level of lending or borrowing) and rate (rates charged customers or incurred on borrowings). Volume change is calculated as change in volume times the previous rate, while rate change is change in rate times the previous volume. The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total.
Average Balances and Rates(1)(dollars in millions)
| September 2018 Over June 2018 Comparison |
|
| September 2018 Over September 2017 Comparison |
| ||||||||||||||||||
| Increase (Decrease) Due To Change In: |
|
|
|
|
|
| Increase (Decrease) Due To Change In: |
|
|
|
|
| ||||||||||
| Volume |
|
| Rate |
|
| Net |
|
| Volume |
|
| Rate |
|
| Net |
| ||||||
Interest-bearing cash | $ | (5.0 | ) |
| $ | 0.7 |
|
| $ | (4.3 | ) |
| $ | (5.5 | ) |
| $ | 4.7 |
|
| $ | (0.8 | ) |
Investment securities and securities purchased under agreement to resell |
| 2.4 |
|
|
| — |
|
|
| 2.4 |
|
|
| 4.2 |
|
|
| 2.3 |
|
|
| 6.5 |
|
Loans and loans held for sale(2)(3) |
| (2.2 | ) |
|
| 1.8 |
|
|
| (0.4 | ) |
|
| 9.3 |
|
|
| 1.2 |
|
|
| 10.5 |
|
Operating lease equipment, net (including held for sale)(4) |
| 0.8 |
|
|
| 8.3 |
|
|
| 9.1 |
|
|
| 3.7 |
|
|
| 2.7 |
|
|
| 6.4 |
|
Indemnification assets |
| 7.2 |
|
|
| (4.9 | ) |
|
| 2.3 |
|
|
| 14.7 |
|
|
| (11.3 | ) |
|
| 3.4 |
|
AEA(2)(5) | $ | 3.2 |
|
| $ | 5.9 |
|
| $ | 9.1 |
|
| $ | 26.4 |
|
| $ | (0.4 | ) |
| $ | 26.0 |
|
Interest-bearing deposits | $ | 0.8 |
|
| $ | 11.7 |
|
| $ | 12.5 |
|
| $ | 3.1 |
|
| $ | 27.4 |
|
| $ | 30.5 |
|
Borrowings(4) |
| (7.7 | ) |
|
| 3.9 |
|
|
| (3.8 | ) |
|
| 1.0 |
|
|
| 5.7 |
|
|
| 6.7 |
|
Total interest-bearing liabilities | $ | (6.9 | ) |
| $ | 15.6 |
|
| $ | 8.7 |
|
| $ | 4.1 |
|
| $ | 33.1 |
|
| $ | 37.2 |
|
Average Balances and Rates(1) (dollars in millions) (continued) | |||||||||||||||||||||||
| September 2017 Over June 2017 Comparison | September 2017 Over September 2016 Comparison | ||||||||||||||||||||||
| Increase (Decrease) Due To Change In: | Increase (Decrease) Due To Change In: | ||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||
| Interest-bearing cash | $ | (16.9 | ) | $ | 5.6 | $ | (11.3 | ) | $ | (4.5 | ) | $ | 8.1 | $ | 3.6 | ||||||||
| Investments | 5.1 | (0.2 | ) | 4.9 | 15.7 | (0.7 | ) | 15.0 | |||||||||||||||
Loans (including held for sale and net of credit balances of factoring clients)(2) | (7.0 | ) | (6.9 | ) | (13.9 | ) | (36.6 | ) | 5.6 | (31.0 | ) | ||||||||||||
Operating lease equipment, net (including held for sale)(3) | 2.9 | (0.1 | ) | 2.8 | 7.9 | (15.4 | ) | (7.5 | ) | ||||||||||||||
| Indemnification assets | 3.7 | (7.6 | ) | (3.9 | ) | 2.9 | (12.3 | ) | (9.4 | ) | |||||||||||||
| Total earning assets | $ | (12.2 | ) | $ | (9.2 | ) | $ | (21.4 | ) | $ | (14.6 | ) | $ | (14.7 | ) | $ | (29.3 | ) | |||||
| Interest-bearing deposits | $ | (4.5 | ) | $ | 2.5 | $ | (2.0 | ) | $ | (9.3 | ) | $ | 2.5 | $ | (6.8 | ) | |||||||
Borrowings(4) | (21.2 | ) | (9.3 | ) | (30.5 | ) | (48.9 | ) | 44.2 | (4.7 | ) | ||||||||||||
| Total interest-bearing liabilities | $ | (25.7 | ) | $ | (6.8 | ) | $ | (32.5 | ) | $ | (58.2 | ) | $ | 46.7 | $ | (11.5 | ) | ||||||
(1)...(4)(
49
NFR is driven by revenues on loans and leases and was $389 million in the current quarter, unchanged from the prior quarter and down from $401 million in the year-ago quarter. NFR in both the current and prior quarter included a $9 million benefit from the suspension of depreciation expense related to NACCO, compared to $8 million in the year-ago quarter. When operating lease equipment is in AHFS, depreciation is suspended, resulting in a benefit to NFR. The impact from suspended depreciation is further explained later in this section. Excluding noteworthy items, NFR was $381 million in the current quarter, compared to $380 million in the prior quarter and $393 million in the year-ago quarter. Compared to the prior quarter, NFR excluding noteworthy items was relatively unchanged, as a benefit from an $8.5 million prepayment on a lease (compared to a $4 million prepayment in the prior quarter) and lower maintenance costs in Rail were mostly offset by higher deposit costs. Compared to the year-ago quarter, NFR excluding noteworthy items decreased due to a reduction in PAA, as higher funding costs were mostly offset by higher interest income in the Commercial Banking segment and on investment securities.
Revenues generated on our interest-bearing cash and investments are indicative of the rising interest rate environment. The returns may fluctuate depending on the composition of the investments, interest rates and credit spreads. The year-ago nine month average balance and income was elevated due to the funds received on the sale of Commercial Air.
NFM excluding noteworthy items was 3.36%, compared to 3.29% in the prior quarter and 3.46% in the year-ago quarter. The increase in NFM compared to the prior quarter reflected higher yields on commercial loans, deployment of cash, which was elevated last quarter due to the reverse mortgage portfolio sale, and an increase in net operating lease revenue. These were partially offset by higher deposit costs, reflecting continued upward market trends, and the full quarter impact of the sale of the reverse mortgage portfolio, which were higher-yielding assets. The decline from the year-ago quarter reflected lower PAA, while higher yields on loans and investments were partially offset by higher deposit costs.
For the nine months ended September 30, 2018, NFR was down compared to 2017, reflecting lower PAA and higher deposit costs. Borrowing costs in the current year reflected an increase in FHLB costs, primarily driven by rate increases, and the impact of the subordinated debt issued in March 2018 and other unsecured debt issued in 2018. The year-ago period included $23 million in interest expense on approximately $5.8 billion of unsecured senior debt that previously was allocated to discontinued operations but was recorded in continuing operations following the Commercial Air sale on April 4, 2017, until the redemption of that debt later in the quarter. Partially offsetting this cost was $9 million in interest income related to the elevated cash balances for the period between the closing of the Commercial Air sale and the related liability management and capital actions. NFM was up 4 basis points (“bps”), reflecting mix shift in assets and the noteworthy items in the prior year. Excluding noteworthy items, NFR and NFM were down following similar trends noted above for the quarter.
While we explain in the Risk Management section that our balance sheet has a moderate amount of asset sensitivity, there are factors in addition to rising interest rates that have impacted and may continue to impact our NFR, including PAA, rising deposit betas, spread compression, a mix shift in earning assets and repricing down of railcar renewal rates.
AEA decreased from the prior quarter, reflecting the deployment of interest-bearing cash into certain liability and capital management actions and the full impact of the reverse mortgage portfolio sale in May. AEA for the nine months ended September 30, 2017 included elevated cash balances for the period between the closing of the Commercial Air sale and related liability management and capital actions. Excluding the Commercial Air impact, AEA decreased 2% as the decline in interest-bearing cash deposits and run-off and sales of the noted portfolios, offset growth in Commercial Banking.
The composition of our average funding mix was virtually unchanged from the prior quarter as follows:
Average Funding Mix
Quarters Ended |
| ||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||
Deposits |
| 78 | % |
|
| 77 | % |
|
| 78 | % |
Unsecured borrowings |
| 11 | % |
|
| 11 | % |
|
| 11 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Secured Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
Structured financings |
| 3 | % |
|
| 3 | % |
|
| 4 | % |
FHLB advances |
| 8 | % |
|
| 9 | % |
|
| 7 | % |
| Average Funding Mix | ||||||||
| Quarters Ended | ||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||
| Deposits | 78 | % | 78 | % | 68 | % | ||
| Unsecured | 11 | % | 12 | % | 22 | % | ||
| Secured Borrowings: | ||||||||
| Structured financings | 4 | % | 4 | % | 4 | % | ||
| FHLB Advances | 7 | % | 6 | % | 6 | % | ||
These proportions will fluctuate in the future depending upon our funding activities. The change fromIn October 2018 we repaid approximately $465 million of structured financings related to Rail, the prior periods reflectspurchaser of NACCO assumed approximately $100 million of structured financings, and we announced in October and November 2018 redemptions of $431 million of senior unsecured notes in the completion of the unsecured debt redemptionsfourth quarter. See Funding and tender offer during the 2017 third quarter ($0.8 billion) and second quarter ($5.8 billion).
50
The following table details further the rates of interest bearing liabilities.
Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
| |||||||||
Interest-bearing Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits | $ | 14,126.1 |
|
| $ | 70.0 |
|
|
| 1.98 | % |
| $ | 13,839.9 |
|
| $ | 62.4 |
|
|
| 1.80 | % |
| $ | 14,924.4 |
|
| $ | 62.1 |
|
|
| 1.66 | % |
Interest-bearing checking |
| 1,918.3 |
|
|
| 2.8 |
|
|
| 0.58 | % |
|
| 2,339.4 |
|
|
| 3.6 |
|
|
| 0.62 | % |
|
| 2,775.6 |
|
|
| 3.9 |
|
|
| 0.56 | % |
Savings and Online money market accounts |
| 8,765.4 |
|
|
| 35.4 |
|
|
| 1.62 | % |
|
| 8,411.2 |
|
|
| 31.5 |
|
|
| 1.50 | % |
|
| 5,598.6 |
|
|
| 14.6 |
|
|
| 1.04 | % |
Other money markets / sweeps |
| 4,925.6 |
|
|
| 14.9 |
|
|
| 1.21 | % |
|
| 4,959.1 |
|
|
| 13.1 |
|
|
| 1.06 | % |
|
| 5,521.6 |
|
|
| 12.0 |
|
|
| 0.87 | % |
Total interest-bearing deposits |
| 29,735.4 |
|
|
| 123.1 |
|
|
| 1.65 | % |
|
| 29,549.6 |
|
|
| 110.6 |
|
|
| 1.50 | % |
|
| 28,820.2 |
|
|
| 92.6 |
|
|
| 1.29 | % |
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured notes |
| 4,422.4 |
|
|
| 56.9 |
|
|
| 5.15 | % |
|
| 4,318.4 |
|
|
| 55.4 |
|
|
| 5.13 | % |
|
| 4,346.3 |
|
|
| 57.4 |
|
|
| 5.28 | % |
Secured borrowings |
| 1,517.8 |
|
|
| 16.5 |
|
|
| 4.35 | % |
|
| 1,641.0 |
|
|
| 16.6 |
|
|
| 4.05 | % |
|
| 1,969.7 |
|
|
| 16.7 |
|
|
| 3.39 | % |
FHLB advances |
| 2,967.4 |
|
|
| 17.4 |
|
|
| 2.35 | % |
|
| 3,711.0 |
|
|
| 20.5 |
|
|
| 2.21 | % |
|
| 2,583.0 |
|
|
| 9.5 |
|
|
| 1.47 | % |
Other credit facilities(1) |
| — |
|
|
| 2.5 |
|
|
| — | % |
|
| — |
|
|
| 4.9 |
|
|
| — | % |
|
| — |
|
|
| 4.0 |
|
|
| — | % |
Borrowings |
| 8,907.6 |
|
|
| 93.3 |
|
|
| 4.19 | % |
|
| 9,670.4 |
|
|
| 97.4 |
|
|
| 4.03 | % |
|
| 8,899.0 |
|
|
| 87.6 |
|
|
| 3.94 | % |
Allocated to discontinued operations |
| (215.4 | ) |
|
| (2.5 | ) |
|
|
|
|
|
| (233.4 | ) |
|
| (2.8 | ) |
|
|
|
|
|
| (307.4 | ) |
|
| (3.5 | ) |
|
|
|
|
Total borrowings |
| 8,692.2 |
|
|
| 90.8 |
|
|
| 4.18 | % |
|
| 9,437.0 |
|
|
| 94.6 |
|
|
| 4.01 | % |
|
| 8,591.6 |
|
|
| 84.1 |
|
|
| 3.92 | % |
Total interest-bearing liabilities | $ | 38,427.6 |
|
| $ | 213.9 |
|
|
| 2.23 | % |
| $ | 38,986.6 |
|
| $ | 205.2 |
|
|
| 2.11 | % |
| $ | 37,411.8 |
|
| $ | 176.7 |
|
|
| 1.89 | % |
Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions) | ||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Average Balance | Interest Expense | Rate % | Average Balance | Interest Expense | Rate % | Average Balance | Interest Expense | Rate % | ||||||||||||||||||||||||
| Interest-bearing Deposits | ||||||||||||||||||||||||||||||||
| Time deposits | $ | 14,924.4 | $ | 62.1 | 1.66 | % | $ | 15,787.0 | $ | 63.5 | 1.61 | % | $ | 18,139.3 | $ | 72.5 | 1.60 | % | ||||||||||||||
| Interest-bearing checking | 2,775.6 | 3.9 | 0.56 | % | 2,934.8 | 4.1 | 0.56 | % | 3,103.6 | 4.4 | 0.57 | % | ||||||||||||||||||||
| Savings | 5,598.6 | 14.6 | 1.04 | % | 4,920.4 | 11.9 | 0.97 | % | 4,386.2 | 9.7 | 0.88 | % | ||||||||||||||||||||
| Money markets / sweeps | 5,521.6 | 12.0 | 0.87 | % | 6,580.7 | 15.1 | 0.92 | % | 6,103.8 | 12.8 | 0.84 | % | ||||||||||||||||||||
| Total interest-bearing deposits | 28,820.2 | 92.6 | 1.29 | % | 30,222.9 | 94.6 | 1.25 | % | 31,732.9 | 99.4 | 1.25 | % | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||||||||||||||
Unsecured notes(1) | 4,346.3 | 57.4 | 5.28 | % | 6,591.1 | 85.5 | 5.19 | % | 10,593.1 | 137.0 | 5.17 | % | ||||||||||||||||||||
| Secured borrowings | 1,969.7 | 16.7 | 3.39 | % | 2,037.1 | 16.4 | 3.22 | % | 4,154.6 | 31.1 | 2.99 | % | ||||||||||||||||||||
| FHLB advances | 2,583.0 | 9.5 | 1.47 | % | 2,406.8 | 8.2 | 1.36 | % | 2,765.1 | 6.1 | 0.88 | % | ||||||||||||||||||||
Other credit facilities(2) | — | 4.0 | — | % | — | 4.9 | — | % | — | 8.3 | — | % | ||||||||||||||||||||
| Total borrowings | 8,899.0 | 87.6 | 3.94 | % | 11,035.0 | 115.0 | 4.17 | % | 17,512.8 | 182.5 | 4.17 | % | ||||||||||||||||||||
| Allocated to discontinued operations | (307.4 | ) | (3.5 | ) | (332.5 | ) | (0.4 | ) | (2,291.1 | ) | (93.7 | ) | ||||||||||||||||||||
Total borrowings(3) | 8,591.6 | 84.1 | 3.92 | % | 10,702.5 | 114.6 | 4.28 | % | 15,221.7 | 88.8 | 2.33 | % | ||||||||||||||||||||
| Total interest-bearing liabilities | $ | 37,411.8 | $ | 176.7 | 1.89 | % | $ | 40,925.4 | $ | 209.2 | 2.04 | % | $ | 46,954.6 | $ | 188.2 | 1.60 | % | ||||||||||||||
(1) |
| Balance includes interest expense related to facility fees and amortization of deferred costs on unused portions of credit facilities, including the Revolving Credit Facility and total return swaps. |
We remain focused on optimizing our mix of our deposits reflects our strategydeposits. Compared to reducethe year-ago quarter, we have increased the percentage of timenon-maturity deposits relative to total deposits. Whiledeposits in conjunction with our strategy to optimize deposit costs through the rate cycle, while working within our risk management discipline. Compared to the prior quarter, time deposits were up as we have been increasing non-maturityoffered attractive rates on shorter-term CDs. The table above reflects increased savings and online money market deposits compared to both the decreaseyear-ago and prior quarters. In addition, we reduced sweep accounts and time deposits in the currentbrokered channel. The deposit cost increases from the year-ago and prior quarters also reflected the impact from the increases in the short-term interest rate. See Funding and Liquidity section for tables that reflects period end deposits by type and by channel.
Borrowing costs increased compared to the year-ago quarter in money market and sweep accounts represents awas down from the prior quarter. The reduction in higher cost accounts in our brokered and commercial channels. The overall cost increased modestly from the prior quarter reflecting anwas primarily driven by decreased FHLB advance levels, while the increase from the year-ago quarter was impacted by rising rates. During the 2018 third quarter, we further extended our unsecured maturities and issued $500 million of unsecured notes at 4.750% due in February 2024 and repaid approximately $500 million of 3.875% unsecured notes due in February 2019. In the first quarter of 2018 we issued $1 billion of senior unsecured notes at a weighted average coupon rate of 4.69% and a weighted term of 5 years, and $400 million of unsecured subordinated debt at 6.125% in conjunction with our capital plan that allowed us to return $400 million of common equity. Most of the proceeds of the senior unsecured borrowings issued in the first quarter were used in April to repay $500 million of the 3.875% senior unsecured notes due in February 2019 and $383 million of 5.500% senior unsecured notes due in February 2019. During this period, we extended the weighted average savings account rate offset by a reduction in brokeredmaturity profile of the combined unsecured senior and commercial deposits. See subordinated notes to 4.9 years at September 30, 2018 from 4.1 years at March 31, 2018.Funding and Liquidity section for a table that reflects deposits by channel.
The following table reflects our total deposit base, interest bearing and non-interest bearingnon-interest-bearing deposits, and related rate:
Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
|
| Average Balance |
|
| Interest Expense |
|
| Annualized Rate (%) |
| |||||||||
Interest-bearing deposits | $ | 29,735.4 |
|
| $ | 123.1 |
|
|
| 1.65 | % |
| $ | 29,549.6 |
|
| $ | 110.6 |
|
|
| 1.50 | % |
| $ | 28,820.2 |
|
| $ | 92.6 |
|
|
| 1.29 | % |
Non-interest-bearing deposits |
| 1,503.2 |
|
|
| — |
|
|
| — |
|
|
| 1,414.5 |
|
|
| — |
|
|
| — |
|
|
| 1,495.9 |
|
|
| — |
|
|
| — |
|
Total deposits | $ | 31,238.6 |
|
| $ | 123.1 |
|
|
| 1.58 | % |
| $ | 30,964.1 |
|
| $ | 110.6 |
|
|
| 1.43 | % |
| $ | 30,316.1 |
|
| $ | 92.6 |
|
|
| 1.22 | % |
Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions) | ||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Average Balance | Interest Expense | Average Rate (%) | Average Balance | Interest Expense | Average Rate (%) | Average Balance | Interest Expense | Average | ||||||||||||||||||||||||
| Interest-bearing deposits | $ | 28,820.2 | $ | 92.6 | 1.29 | % | $ | 30,222.9 | $ | 94.6 | 1.25 | % | $ | 31,732.9 | $ | 99.4 | 1.25 | % | ||||||||||||||
| Non-interest-bearing deposits | 1,495.9 | — | — | 1,411.2 | — | — | 1,184.8 | — | — | |||||||||||||||||||||||
| Total deposits | $ | 30,316.1 | $ | 92.6 | 1.22 | % | $ | 31,634.1 | $ | 94.6 | 1.20 | % | $ | 32,917.7 | $ | 99.4 | 1.21 | % | ||||||||||||||
Deposits and borrowings are also discussed in
Funding and Liquidity.51
The following table depicts selected earning asset yields and margin relatedmargin-related data for our segments and divisions within the segments.
Segment Average Yield and Other Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 30,319.4 |
|
| $ | 29,965.1 |
|
| $ | 29,011.1 |
|
| $ | 30,116.1 |
|
| $ | 29,161.9 |
|
NFR |
| 278.3 |
|
|
| 274.0 |
|
|
| 301.4 |
|
|
| 830.7 |
|
|
| 922.4 |
|
Gross yield |
| 7.96 | % |
|
| 7.90 | % |
|
| 7.74 | % |
|
| 7.81 | % |
|
| 7.72 | % |
NFM |
| 3.67 | % |
|
| 3.66 | % |
|
| 4.16 | % |
|
| 3.68 | % |
|
| 4.22 | % |
Average Earning Assets (AEA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 10,230.6 |
|
| $ | 10,068.7 |
|
| $ | 9,541.0 |
|
| $ | 10,153.4 |
|
| $ | 9,876.8 |
|
Rail |
| 7,774.6 |
|
|
| 7,712.5 |
|
|
| 7,542.7 |
|
|
| 7,728.9 |
|
|
| 7,421.2 |
|
Real Estate Finance |
| 5,398.5 |
|
|
| 5,469.2 |
|
|
| 5,599.0 |
|
|
| 5,500.4 |
|
|
| 5,598.5 |
|
Business Capital |
| 6,915.7 |
|
|
| 6,714.7 |
|
|
| 6,328.4 |
|
|
| 6,733.4 |
|
|
| 6,265.4 |
|
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 5.78 | % |
|
| 5.66 | % |
|
| 5.58 | % |
|
| 5.58 | % |
|
| 5.44 | % |
Rail |
| 11.51 | % |
| �� | 11.45 | % |
|
| 11.44 | % |
|
| 11.32 | % |
|
| 11.70 | % |
Real Estate Finance |
| 5.60 | % |
|
| 5.58 | % |
|
| 5.32 | % |
|
| 5.51 | % |
|
| 5.19 | % |
Business Capital |
| 9.04 | % |
|
| 9.05 | % |
|
| 8.75 | % |
|
| 9.01 | % |
|
| 8.85 | % |
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 84.2 |
|
| $ | 83.4 |
|
| $ | 94.8 |
|
| $ | 253.7 |
|
| $ | 293.5 |
|
Rail |
| 77.7 |
|
|
| 71.5 |
|
|
| 80.9 |
|
|
| 219.2 |
|
|
| 240.3 |
|
Real Estate Finance |
| 40.2 |
|
|
| 42.7 |
|
|
| 50.7 |
|
|
| 129.6 |
|
|
| 151.2 |
|
Business Capital |
| 76.2 |
|
|
| 76.4 |
|
|
| 75.0 |
|
|
| 228.2 |
|
|
| 237.4 |
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
| 3.29 | % |
|
| 3.31 | % |
|
| 3.97 | % |
|
| 3.33 | % |
|
| 3.96 | % |
Rail |
| 4.00 | % |
|
| 3.71 | % |
|
| 4.29 | % |
|
| 3.78 | % |
|
| 4.32 | % |
Real Estate Finance |
| 2.98 | % |
|
| 3.12 | % |
|
| 3.62 | % |
|
| 3.14 | % |
|
| 3.60 | % |
Business Capital |
| 4.41 | % |
|
| 4.55 | % |
|
| 4.74 | % |
|
| 4.52 | % |
|
| 5.05 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 6,433.2 |
|
| $ | 6,896.9 |
|
| $ | 6,904.3 |
|
| $ | 6,729.4 |
|
| $ | 7,101.0 |
|
NFR |
| 120.6 |
|
|
| 122.3 |
|
|
| 108.2 |
|
|
| 352.4 |
|
|
| 325.9 |
|
Gross yield |
| 4.91 | % |
|
| 4.93 | % |
|
| 5.34 | % |
|
| 4.94 | % |
|
| 5.52 | % |
NFM |
| 7.50 | % |
|
| 7.09 | % |
|
| 6.27 | % |
|
| 6.98 | % |
|
| 6.12 | % |
AEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking | $ | 3,397.7 |
|
| $ | 3,098.6 |
|
| $ | 2,240.2 |
|
| $ | 3,077.4 |
|
| $ | 2,196.2 |
|
LCM |
| 3,035.5 |
|
|
| 3,798.3 |
|
|
| 4,664.1 |
|
|
| 3,652.0 |
|
|
| 4,904.8 |
|
Gross yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 3.66 | % |
|
| 3.64 | % |
|
| 3.49 | % |
|
| 3.62 | % |
|
| 3.50 | % |
LCM |
| 6.31 | % |
|
| 5.99 | % |
|
| 6.23 | % |
|
| 6.05 | % |
|
| 6.42 | % |
NFR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking | $ | 90.3 |
|
| $ | 87.6 |
|
| $ | 58.4 |
|
| $ | 248.4 |
|
| $ | 157.5 |
|
LCM |
| 30.3 |
|
|
| 34.7 |
|
|
| 49.8 |
|
|
| 104.0 |
|
|
| 168.4 |
|
NFM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 10.63 | % |
|
| 11.31 | % |
|
| 10.43 | % |
|
| 10.77 | % |
|
| 9.56 | % |
LCM |
| 4.01 | % |
|
| 3.65 | % |
|
| 4.27 | % |
|
| 3.80 | % |
|
| 4.58 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Strategic Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEA | $ | 78.6 |
|
| $ | 123.0 |
|
| $ | 226.9 |
|
| $ | 116.8 |
|
| $ | 307.7 |
|
NFR |
| 0.6 |
|
|
| 0.1 |
|
|
| 1.6 |
|
|
| 1.4 |
|
|
| 4.8 |
|
Gross yield |
| 7.12 | % |
|
| 6.18 | % |
|
| 8.11 | % |
|
| 6.51 | % |
|
| 7.71 | % |
NFM |
| 3.05 | % |
|
| 0.33 | % |
|
| 2.82 | % |
|
| 1.60 | % |
|
| 2.08 | % |
Segment Average Yield and Other Data (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended, | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Commercial Banking | |||||||||||||||||||
| AEA | $ | 29,011.1 | $ | 29,158.6 | $ | 29,777.1 | $ | 29,161.9 | $ | 29,844.4 | |||||||||
| Net Finance Revenue | 301.4 | 309.3 | 313.7 | 922.4 | 994.1 | ||||||||||||||
| Gross yield | 7.74 | % | 7.79 | % | 7.64 | % | 7.72 | % | 7.75 | % | |||||||||
| Net Finance Margin | 4.16 | % | 4.24 | % | 4.21 | % | 4.22 | % | 4.44 | % | |||||||||
| AEA | |||||||||||||||||||
| Commercial Finance | $ | 9,541.0 | $ | 9,858.1 | $ | 11,085.4 | $ | 9,876.8 | $ | 11,497.4 | |||||||||
| Rail | 7,542.7 | 7,393.3 | 7,164.1 | 7,421.2 | 7,025.5 | ||||||||||||||
| Real Estate Finance | 5,599.0 | 5,646.0 | 5,506.7 | 5,598.5 | 5,430.9 | ||||||||||||||
| Business Capital | 6,328.4 | 6,261.2 | 6,020.9 | 6,265.4 | 5,890.6 | ||||||||||||||
| Gross yield | |||||||||||||||||||
| Commercial Finance | 5.58 | % | 5.61 | % | 5.35 | % | 5.44 | % | 5.30 | % | |||||||||
| Rail | 11.44 | % | 11.70 | % | 12.38 | % | 11.70 | % | 13.08 | % | |||||||||
| Real Estate Finance | 5.32 | % | 5.34 | % | 5.13 | % | 5.19 | % | 5.25 | % | |||||||||
| Business Capital | 8.75 | % | 8.80 | % | 8.54 | % | 8.85 | % | 8.44 | % | |||||||||
| NFR | |||||||||||||||||||
| Commercial Finance | $ | 94.8 | $ | 100.9 | $ | 108.5 | $ | 293.5 | $ | 337.2 | |||||||||
| Rail | 80.9 | 77.6 | 77.5 | 240.3 | 271.7 | ||||||||||||||
| Real Estate Finance | 50.7 | 52.3 | 51.4 | 151.2 | 157.6 | ||||||||||||||
| Business Capital | 75.0 | 78.5 | 76.3 | 237.4 | 227.6 | ||||||||||||||
| NFM | |||||||||||||||||||
| Commercial Finance | 3.97 | % | 4.09 | % | 3.92 | % | 3.96 | % | 3.91 | % | |||||||||
| Rail | 4.29 | % | 4.20 | % | 4.33 | % | 4.32 | % | 5.16 | % | |||||||||
| Real Estate Finance | 3.62 | % | 3.71 | % | 3.73 | % | 3.60 | % | 3.87 | % | |||||||||
| Business Capital | 4.74 | % | 5.02 | % | 5.07 | % | 5.05 | % | 5.15 | % | |||||||||
| Consumer Banking | |||||||||||||||||||
| AEA | $ | 6,904.3 | $ | 7,092.8 | $ | 7,515.4 | $ | 7,101.0 | $ | 7,554.5 | |||||||||
| Net Finance Revenue | 108.2 | 111.2 | 104.1 | 325.9 | 300.1 | ||||||||||||||
| Gross yield | 5.34 | % | 5.73 | % | 5.59 | % | 5.52 | % | 5.54 | % | |||||||||
| Net Finance Margin | 6.27 | % | 6.27 | % | 5.54 | % | 6.12 | % | 5.30 | % | |||||||||
| AEA | |||||||||||||||||||
| Other Consumer Banking | $ | 2,240.2 | $ | 2,168.0 | $ | 2,034.7 | $ | 2,196.2 | $ | 1,910.4 | |||||||||
| Legacy Consumer Mortgages | 4,664.1 | 4,924.8 | 5,480.7 | 4,904.8 | 5,644.1 | ||||||||||||||
| Gross yield | |||||||||||||||||||
| Other Consumer Banking | 3.49 | % | 3.56 | % | 3.54 | % | 3.50 | % | 3.62 | % | |||||||||
| Legacy Consumer Mortgages | 6.23 | % | 6.68 | % | 6.35 | % | 6.42 | % | 6.19 | % | |||||||||
| NFR | |||||||||||||||||||
| Other Consumer Banking | $ | 58.4 | $ | 52.5 | $ | 40.3 | $ | 157.5 | $ | 111.1 | |||||||||
| Legacy Consumer Mortgages | 49.8 | 58.7 | 63.8 | 168.4 | 189.0 | ||||||||||||||
| NFM | |||||||||||||||||||
| Other Consumer Banking | 10.43 | % | 9.69 | % | 7.92 | % | 9.56 | % | 7.75 | % | |||||||||
| Legacy Consumer Mortgages | 4.27 | % | 4.77 | % | 4.66 | % | 4.58 | % | 4.46 | % | |||||||||
| Non-Strategic Portfolios | |||||||||||||||||||
| AEA | $ | 226.9 | $ | 319.5 | $ | 1,282.7 | $ | 307.7 | $ | 1,397.6 | |||||||||
| Net Finance Revenue | 1.6 | 1.2 | 13.9 | 4.8 | 41.5 | ||||||||||||||
| Gross yield | 8.11 | % | 7.76 | % | 8.30 | % | 7.71 | % | 7.87 | % | |||||||||
| Net Finance Margin | 2.82 | % | 1.50 | % | 4.33 | % | 2.08 | % | 3.96 | % | |||||||||
Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were up from the year-ago quarter in each of the divisions except Rail. The gross yield for all four divisions declined compared to theand prior quarter.quarters. The Commercial Finance increaseincreases in gross yields from the year-ago quarter wasand prior quarters were primarily driven by the benefit of higher short-term interest rates, partially offset by a decline in PAA, whichPAA. Higher interest recoveries also drovecontributed to the division’s decreaseincrease from the prior quarter. Gross yields in Rail were up from the year-ago and prior quarters, benefiting from a $8.5 million lease prepayment (compared to a $4 million prepayment benefit in the prior quarter) and higher utilization, which was partially offset by lease rates that continued to re-price lower on average across the North American portfolio. The Real Estate Finance gross yield improved from the year-ago quarterand prior quarters, driven by the benefit of higher short term interest rates that more than offset lower purchase accounting accretion. The gross yield declined slightly from the prior quarter which includedPAA and prepayment fees on a single transaction.
52
Consumer Banking gross yields were down impacted byfrom the year-ago quarter, reflecting lower purchase accounting accretionPAA, and down slightly from the prior quarter. Although both divisional gross yields were up, impact of the sale of the reverse mortgage portfolio, lower PAA and the dynamics of the AEA weighting for each division caused the segment level gross yield to be down compared to the year-ago and prior quarters. Gross yields in the Other Consumer Banking division reflect the benefit of the higher interest rate environment as that division grows its portfolio. Gross yields in LCM were up, as rising interest rates and lower negative interest income on mortgage loans in LCM. The decline also reflects higher amountsthe indemnification assets offset lower PAA. Each of the periods includes negative interest income associated with amortizing the indemnification asset.asset on single family residential mortgage loans. The negative interest income on the indemnification asset increased to $14was down about $2 million this quarter from $10 million lastthe prior quarter and $4$3 million infrom the year ago quarter,year-ago quarter. The negative amounts reduce interest income and are due to a decline inlower expected reimbursable losses under the loss share agreement, reflecting better than expected credit performance of the covered loans. We expect the negative interest income to increase to around $16 million in the last quarter of 2017. While we expect the yield to remain negative, the level can increase or decrease as the indemnification asset amortizesassets amortize over the remaining contract period, which expires in March 2019.
As of September 30, 2017,2018, the remaining accretable PAApurchase accounting adjustment was approximately $770$653 million, of which approximately $110$68 millionrelated to Commercial Banking and approximately $660$585 million related to Consumer Banking. This compares to approximately $1 billion$733 million of remaining accretable PAApurchase accounting adjustment as of June 30,December 31, 2017, of which approximately $125$97 million related to Commercial Banking and approximately $910$636 million related to Consumer Banking. About half of theThe remaining accretable PAA in Commercial Banking is expected to be realized in the next four quarters, while the remaining accretable PAApurchase accounting adjustment in Consumer Banking is expected to run off at a rate consistent with the run-off of the underlying mortgages. Whenmortgages, which has averaged 10-15% annually and we are expecting accretion of the remaining Commercial Banking purchase accounting adjustment to continue to trend lower. However, amounts may vary quarter to quarter from fluctuations in prepayments, which results in a loan prepays, the loan’sloan's remaining PAA ispurchase accounting adjustments being accelerated into interest income, which could result in fluctuations from quarter to quarter (seeincome. (See footnote 1 to the following table).
The following table displays PAA accretion by segment and division for both interest income and interest expense.
Purchase Accounting Accretion (dollars in millions)
Quarters Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||||
| PAA Recognized in: |
|
| PAA Recognized in: |
|
| PAA Recognized in: |
| |||||||||||||||||||||||||||
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
|
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
|
| Interest Income(1) |
|
| Interest Expense(2) |
|
| NFR |
| |||||||||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 3.0 |
|
| $ | — |
|
| $ | 3.0 |
|
| $ | 4.2 |
|
| $ | — |
|
| $ | 4.2 |
|
| $ | 10.2 |
|
| $ | 0.2 |
|
| $ | 10.4 |
|
Real Estate Finance |
| 4.5 |
|
|
| — |
|
|
| 4.5 |
|
|
| 4.5 |
|
|
| — |
|
|
| 4.5 |
|
|
| 11.4 |
|
|
| — |
|
|
| 11.4 |
|
Total Commercial Banking |
| 7.5 |
|
|
| — |
|
|
| 7.5 |
|
|
| 8.7 |
|
|
| — |
|
|
| 8.7 |
|
|
| 21.6 |
|
|
| 0.2 |
|
|
| 21.8 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consumer Banking |
| 0.3 |
|
|
| 0.6 |
|
|
| 0.9 |
|
|
| 0.3 |
|
|
| 0.7 |
|
|
| 1.0 |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.0 |
|
Legacy Consumer Mortgages(3) |
| 19.2 |
|
|
| — |
|
|
| 19.2 |
|
|
| 20.6 |
|
|
| — |
|
|
| 20.6 |
|
|
| 29.1 |
|
|
| — |
|
|
| 29.1 |
|
Total Consumer Banking |
| 19.5 |
|
|
| 0.6 |
|
|
| 20.1 |
|
|
| 20.9 |
|
|
| 0.7 |
|
|
| 21.6 |
|
|
| 29.1 |
|
|
| 1.0 |
|
|
| 30.1 |
|
Corporate and Other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Total CIT | $ | 27.0 |
|
| $ | 0.6 |
|
| $ | 27.6 |
|
| $ | 29.6 |
|
| $ | 0.7 |
|
| $ | 30.3 |
|
| $ | 50.7 |
|
| $ | 1.3 |
|
| $ | 52.0 |
|
Purchase Accounting Accretion (PAA) (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Quarters Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||||||||||
| PAA Accretion Recognized in: | PAA Accretion Recognized in: | PAA Accretion Recognized in: | |||||||||||||||||||||||||||||||||
Interest Income(1) | Interest Expense(2) | NFR | Interest Income(1) | Interest Expense(2) | NFR | Interest Income(1) | Interest Expense(2) | NFR | |||||||||||||||||||||||||||
| Commercial Banking | |||||||||||||||||||||||||||||||||||
| Commercial Finance | $ | 10.2 | $ | 0.2 | $ | 10.4 | $ | 15.4 | $ | 0.3 | $ | 15.7 | $ | 20.4 | $ | 0.4 | $ | 20.8 | |||||||||||||||||
| Real Estate Finance | 11.4 | — | 11.4 | 10.7 | — | 10.7 | 16.4 | — | 16.4 | ||||||||||||||||||||||||||
| Total Commercial Banking | 21.6 | 0.2 | 21.8 | 26.1 | 0.3 | 26.4 | 36.8 | 0.4 | 37.2 | ||||||||||||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||||||||||||||
| Other Consumer Banking | — | 1.0 | 1.0 | 0.3 | 1.2 | 1.5 | 0.3 | 1.9 | 2.2 | ||||||||||||||||||||||||||
| Legacy Consumer Mortgages | 29.1 | — | 29.1 | 33.0 | — | 33.0 | 30.1 | — | 30.1 | ||||||||||||||||||||||||||
| Total Consumer Banking | 29.1 | 1.0 | 30.1 | 33.3 | 1.2 | 34.5 | 30.4 | 1.9 | 32.3 | ||||||||||||||||||||||||||
| Corporate and Other | — | 0.1 | 0.1 | — | 0.1 | 0.1 | — | 1.2 | 1.2 | ||||||||||||||||||||||||||
| Total CIT | $ | 50.7 | $ | 1.3 | $ | 52.0 | $ | 59.4 | $ | 1.6 | $ | 61.0 | $ | 67.2 | $ | 3.5 | $ | 70.7 | |||||||||||||||||
(1) | Included in the above are accelerated recognition of approximately $6.3 million, $15.3 million |
(2) | Debt and deposits acquired in the OneWest Bank acquisition were recorded at a net premium, therefore the |
(3) | The decline from the year-ago quarter reflects the transfer of the reverse mortgage portfolio to AHFS at the end of the third quarter of 2017. |
The following table sets forth the details on net operating lease revenues.
Net Operating Lease Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||
Rental income on operating leases | $ | 264.3 |
|
|
| 13.16 | % |
| $ | 261.3 |
|
|
| 13.09 | % |
| $ | 252.3 |
|
|
| 12.94 | % |
| $ | 779.2 |
|
|
| 13.02 | % |
| $ | 754.8 |
|
|
| 13.18 | % |
Depreciation on operating lease equipment |
| 78.0 |
|
|
| 3.88 | % |
|
| 77.2 |
|
|
| 3.87 | % |
|
| 71.1 |
|
|
| 3.64 | % |
|
| 231.6 |
|
|
| 3.87 | % |
|
| 222.0 |
|
|
| 3.88 | % |
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 2.82 | % |
|
| 63.5 |
|
|
| 3.18 | % |
|
| 57.9 |
|
|
| 2.97 | % |
|
| 177.5 |
|
|
| 2.97 | % |
|
| 165.0 |
|
|
| 2.88 | % |
Net operating lease revenue and % | $ | 129.7 |
|
|
| 6.46 | % |
| $ | 120.6 |
|
|
| 6.04 | % |
| $ | 123.3 |
|
|
| 6.33 | % |
| $ | 370.1 |
|
|
| 6.18 | % |
| $ | 367.8 |
|
|
| 6.42 | % |
Average operating lease equipment, including amounts held for sale | $ | 8,031.8 |
|
|
|
|
|
| $ | 7,980.3 |
|
|
|
|
|
| $ | 7,797.6 |
|
|
|
|
|
| $ | 7,979.8 |
|
|
|
|
|
| $ | 7,637.1 |
|
|
|
|
|
Net Operating Lease Data (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Quarters Ended | Nine Months Ended, | |||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Rental income on operating leases | $ | 252.3 | 12.94 | % | 251.2 | 13.20 | % | $ | 254.3 | 13.87 | % | $ | 754.8 | 13.18 | % | $ | 779.4 | 14.49 | % | |||||||||||||||
| Depreciation on operating lease equipment | (71.1 | ) | (3.64 | )% | (77.4 | ) | (4.07 | )% | (66.9 | ) | (3.65 | )% | (222.0 | ) | (3.88 | )% | (191.3 | ) | (3.56 | )% | ||||||||||||||
| Maintenance and other operating lease expenses | (57.9 | ) | (2.97 | )% | (53.3 | ) | (2.80 | )% | (56.6 | ) | (3.09 | )% | (165.0 | ) | (2.88 | )% | (156.1 | ) | (2.90 | )% | ||||||||||||||
| Net operating lease revenue and % | $ | 123.3 | 6.33 | % | $ | 120.5 | 6.33 | % | $ | 130.8 | 7.13 | % | $ | 367.8 | 6.42 | % | $ | 432.0 | 8.03 | % | ||||||||||||||
| Average operating lease equipment, including amounts held for sale | $ | 7,797.6 | $ | 7,612.2 | $ | 7,335.1 | $ | 7,637.1 | $ | 7,171.5 | ||||||||||||||||||||||||
Net operating lease revenue, which is generateda component of NFR, is driven principally by the performance of the Rail withportfolio within the remaining amount from Business Capital, both divisions of Commercial Banking.Banking segment. Net operating lease revenue was downup from the year-ago quarter, reflecting continued downward pressuresand prior quarters on renewal rates in Rail. Net operatingstrong utilization, portfolio growth, lower maintenance costs and benefits from a lease revenue increased from the prior quarter due to suspended depreciation of $8prepayment ($8.5 million related to the pending sale of our European Rail business, Nacco. Increasing the depreciation in the current quarter forcompared to a $4 million prepayment benefit in the amount suspended would have decreasedprior quarter). In each of the current quarterquarters, net operating lease revenue benefited from suspended depreciation, $9 million for the current and prior quarters and $8 million in the rateyear-ago quarter, related to the European Rail business, NACCO, which was in AHFS. See Note 14 – Subsequent Events for disclosure of the sale of NACCO in October 2018. If the suspended depreciation were included, the operating lease margins would have been 6.03%, 5.92%. and
53
5.61%, for the current, year-ago and prior quarters, respectively. Suspended depreciation is discussed further below.
North America railcar utilization, including commitments to lease, was steadyremained at approximately 95%, as strength in sand car demand offset continued weakness in coal car utilization, compared to the prior and year-ago quarters. Rail98% unchanged from June 30, 2018. Overall lease rates in the current quarter continued to priceof cars renewing priced down 15% compared to the rates on expiring leases, reflectingwhich, although better than our guidance, continues to reflect excess capacity in the market. We continue to expect downward pressure, withand anticipate re-pricing to be down 20%-30% on average of 20%-30% into 2018,through 2019, reflecting market conditions andcontinued pressure from tank car lease rates.
Depreciation is recognized on railcars and other operating lease equipment. Depreciation was up from the year-ago quarter driven primarily by growth in the non-rail portfolio, which is depreciated over a shorter time span. Depreciation was down compared to the prior quarter due to rail assets transferred to held for sale.asset growth. Once a long-lived asset is classified as assets held for sale,AHFS, depreciation expense is no longer recognized, and the asset is evaluated for impairment with any such charge recorded in other income, of which none wasincome. There were no related impairment charges recorded in the quarter on these assets.periods presented. Consequently, net operating lease revenue includes rental income on operating lease equipment classified as assets held for sale,AHFS, but there is no related depreciation expense. Suspended depreciation on operating lease equipment in assets held for sale totaled $8 million for the current quarter, with none in the prior quarters presented. The 2017 fourth quarter is expected to have suspended depreciation at a similar level. See
Maintenance and other operating lease expenses relatestend to be variable and relate to the railRail portfolio. The decline from the prior quarter was driven by lower freight expenses in the North America portfolio and lower costs in the NACCO portfolio. The increase fromin 2018 for the year-ago and prior quartersnine month comparison reflected increased maintenance, freightvolume from remarketing cars and pulling cars from storage costs in Rail dueand sending into service.
CREDIT METRICS
The following provides information on certain credit metrics, including non-accrual loan and net charge-off levels, as well as the provision for credit losses and allowance for loan losses, that management uses to growth intrack the portfolio.
Non-accrual loans totaled $265$318 million (0.93%(1.04% of loans), compared to $257$292 million (0.88%)(0.99% of loans) at June 30, 2017,2018, and $279$221 million (0.94%)(0.76% of loans) at December 31, 2016.
The provision for credit losses was $30$38 million, up from the prior quarter provision of $4$33 million and downup from a $30 million provision in the prior year quarteryear-ago quarter. The year-ago-quarter provision included a noteworthy item of $45 million. Half of the
Net charge-offs were $42$26 million (0.58%(0.35% of average loans) in the current quarter, up from $28$15 million (0.38%)(0.21% of average loans) in the prior quarter and down from $21$42 million (0.28%)(0.58% of average loans) in the year-ago quarter. The increase from the prior quarter was driven by the Commercial Banking segment. The prior year quarter included $20 million of charge-offs inrelated to the transfer of the reverse mortgage portfolio primarily due to the transfer of that portfolio to held for sale, as part of the Financial Freedom Transaction. Absent this, net charge-offs were essentially flat with the prior quarter. Net charge-offs are presented in a table and discussed later in this section.
The following table presents detail on our allowance for loan losses, including charge-offs and recoveries and provides summarized components of the provision and allowance:
Allowance for Loan Losses (dollars in millions)
Quarters Ended |
|
| Nine Months Ended |
| |||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Allowance — beginning of period | $ | 467.3 |
|
| $ | 447.6 |
|
| $ | 426.0 |
|
| $ | 431.1 |
|
| $ | 432.6 |
|
Provision for credit losses(1) |
| 38.1 |
|
|
| 32.9 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
|
Other(1) |
| (2.0 | ) |
|
| 2.1 |
|
|
| 5.1 |
|
|
| (2.3 | ) |
|
| (0.4 | ) |
Net additions |
| 36.1 |
|
|
| 35.0 |
|
|
| 35.2 |
|
|
| 137.5 |
|
|
| 83.8 |
|
Gross charge-offs |
| (30.8 | ) |
|
| (25.4 | ) |
|
| (48.2 | ) |
|
| (111.3 | ) |
|
| (114.4 | ) |
Recoveries |
| 4.8 |
|
|
| 10.1 |
|
|
| 6.5 |
|
|
| 20.1 |
|
|
| 17.5 |
|
Net Charge-offs |
| (26.0 | ) |
|
| (15.3 | ) |
|
| (41.7 | ) |
|
| (91.2 | ) |
|
| (96.9 | ) |
Allowance — end of period | $ | 477.4 |
|
| $ | 467.3 |
|
| $ | 419.5 |
|
| $ | 477.4 |
|
| $ | 419.5 |
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserves on impaired loans | $ | 6.9 |
|
| $ | 11.5 |
|
| $ | 2.3 |
|
| $ | 17.7 |
|
| $ | 6.3 |
|
Non-specific reserves |
| 31.2 |
|
|
| 21.4 |
|
|
| 27.8 |
|
|
| 122.1 |
|
|
| 77.9 |
|
Total | $ | 38.1 |
|
| $ | 32.9 |
|
| $ | 30.1 |
|
| $ | 139.8 |
|
| $ | 84.2 |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserves on impaired loans | $ | 43.7 |
|
| $ | 36.8 |
|
| $ | 35.6 |
|
|
|
|
|
|
|
|
|
Non-specific reserves |
| 433.7 |
|
|
| 430.5 |
|
|
| 383.9 |
|
|
|
|
|
|
|
|
|
Total | $ | 477.4 |
|
| $ | 467.3 |
|
| $ | 419.5 |
|
|
|
|
|
|
|
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of total loans |
| 1.57 | % |
|
| 1.59 | % |
|
| 1.47 | % |
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of loans/Commercial |
| 1.87 | % |
|
| 1.90 | % |
|
| 1.73 | % |
|
|
|
|
|
|
|
|
Allowance for Loan Losses (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Allowance — beginning of period | $ | 426.0 | $ | 448.6 | $ | 393.1 | $ | 432.6 | $ | 347.0 | |||||||||
Provision for credit losses(1) | 30.1 | 4.4 | 45.1 | 84.2 | 157.9 | ||||||||||||||
Other(1) | 5.1 | 0.7 | (1.9 | ) | (0.4 | ) | (2.3 | ) | |||||||||||
| Net additions | 35.2 | 5.1 | 43.2 | 83.8 | 155.6 | ||||||||||||||
Gross charge-offs(2) | (48.2 | ) | (33.2 | ) | (28.4 | ) | (114.4 | ) | (103.7 | ) | |||||||||
| Recoveries | 6.5 | 5.5 | 7.1 | 17.5 | 16.1 | ||||||||||||||
| Net Charge-offs | (41.7 | ) | (27.7 | ) | (21.3 | ) | (96.9 | ) | (87.6 | ) | |||||||||
| Allowance — end of period | $ | 419.5 | $ | 426.0 | $ | 415.0 | $ | 419.5 | $ | 415.0 | |||||||||
| Provision for credit losses | |||||||||||||||||||
| Specific reserves on impaired loans | $ | 2.3 | $ | (5.6 | ) | $ | 8.5 | $ | 6.3 | $ | 21.7 | ||||||||
| Non-specific reserves | 27.8 | 10.0 | 36.6 | 77.9 | 136.2 | ||||||||||||||
| Total | $ | 30.1 | $ | 4.4 | $ | 45.1 | $ | 84.2 | $ | 157.9 | |||||||||
| Allowance for loan losses | |||||||||||||||||||
| Specific reserves on impaired loans | $ | 35.6 | $ | 33.4 | $ | 33.8 | |||||||||||||
| Non-specific reserves | 383.9 | 392.6 | 381.2 | ||||||||||||||||
| Total | $ | 419.5 | $ | 426.0 | $ | 415.0 | |||||||||||||
| Ratio | |||||||||||||||||||
| Allowance for loan losses as a percentage of total loans | 1.47 | % | 1.47 | % | 1.39 | % | |||||||||||||
| Allowance for loan losses as a percent of loans/Commercial | 1.73 | % | 1.78 | % | 1.74 | % | |||||||||||||
(1) | The provision for credit losses also includes amounts related to reserves on unfunded loan commitments, |
54 |
See Note 3 — Loans for details regarding the unpaid principal balance, carrying value and allowance for loan losses related to PCI loans.
Loan Net Carrying Value (dollars in millions)
Loans |
|
| Allowance for Loan Losses |
|
| Net Carrying Value |
| ||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking | $ | 24,095.7 |
|
| $ | (450.2 | ) |
| $ | 23,645.5 |
|
Consumer Banking |
| 6,400.1 |
|
|
| (27.2 | ) | �� |
| 6,372.9 |
|
Total | $ | 30,495.8 |
|
| $ | (477.4 | ) |
| $ | 30,018.4 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking | $ | 23,159.3 |
|
| $ | (402.2 | ) |
| $ | 22,757.1 |
|
Consumer Banking |
| 5,954.6 |
|
|
| (28.9 | ) |
|
| 5,925.7 |
|
Total | $ | 29,113.9 |
|
| $ | (431.1 | ) |
| $ | 28,682.8 |
|
Loan Net Carrying Value (dollars in millions) | |||||||||||
| Loans | Allowance for Loan Losses | Net Carrying Value | |||||||||
| September 30, 2017 | |||||||||||
| Commercial Banking | $ | 22,692.6 | $ | (391.9 | ) | $ | 22,300.7 | ||||
| Consumer Banking | 5,812.7 | (27.6 | ) | 5,785.1 | |||||||
| Total | $ | 28,505.3 | $ | (419.5 | ) | $ | 28,085.8 | ||||
| December 31, 2016 | |||||||||||
| Commercial Banking | $ | 22,562.3 | $ | (408.4 | ) | $ | 22,153.9 | ||||
| Consumer Banking | 6,973.6 | (24.2 | ) | 6,949.4 | |||||||
| Total | $ | 29,535.9 | $ | (432.6 | ) | $ | 29,103.3 | ||||
The following table presents charge-offs, by class and business segment. See
Results by Business Segment for additional information.Net Charge-offs (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||||||||||||||||||||||
Gross Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 14.6 |
|
|
| 0.58 | % |
| $ | 9.8 |
|
|
| 0.40 | % |
| $ | 5.2 |
|
|
| 0.22 | % |
| $ | 64.4 |
|
|
| 0.86 | % |
| $ | 23.2 |
|
|
| 0.32 | % |
Real Estate Finance |
| 0.2 |
|
|
| 0.01 | % |
|
| — |
|
|
| — | % |
|
| (0.2 | ) |
|
| (0.01 | )% |
|
| 0.2 |
|
|
| 0.00 | % |
|
| 4.1 |
|
|
| 0.10 | % |
Business Capital |
| 14.6 |
|
|
| 0.73 | % |
|
| 14.8 |
|
|
| 0.77 | % |
|
| 22.7 |
|
|
| 1.23 | % |
|
| 44.0 |
|
|
| 0.76 | % |
|
| 65.1 |
|
|
| 1.18 | % |
Commercial Banking |
| 29.4 |
|
|
| 0.50 | % |
|
| 24.6 |
|
|
| 0.43 | % |
|
| 27.7 |
|
|
| 0.49 | % |
|
| 108.6 |
|
|
| 0.62 | % |
|
| 92.4 |
|
|
| 0.54 | % |
Legacy Consumer Mortgages |
| 1.4 |
|
|
| 0.20 | % |
|
| 0.8 |
|
|
| 0.10 | % |
|
| 20.5 |
|
|
| 1.94 | % |
|
| 2.7 |
|
|
| 0.12 | % |
|
| 22.0 |
|
|
| 0.65 | % |
Consumer Banking |
| 1.4 |
|
|
| 0.09 | % |
|
| 0.8 |
|
|
| 0.05 | % |
|
| 20.5 |
|
|
| 1.27 | % |
|
| 2.7 |
|
|
| 0.06 | % |
|
| 22.0 |
|
|
| 0.44 | % |
Total | $ | 30.8 |
|
|
| 0.41 | % |
| $ | 25.4 |
|
|
| 0.35 | % |
| $ | 48.2 |
|
|
| 0.67 | % |
| $ | 111.3 |
|
|
| 0.50 | % |
| $ | 114.4 |
|
|
| 0.52 | % |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 0.2 |
|
|
| 0.01 | % |
| $ | 2.0 |
|
|
| 0.08 | % |
| $ | 0.1 |
|
|
| — | % |
| $ | 2.3 |
|
|
| 0.03 | % |
| $ | 0.8 |
|
|
| 0.01 | % |
Business Capital |
| 4.5 |
|
|
| 0.23 | % |
|
| 7.9 |
|
|
| 0.41 | % |
|
| 5.9 |
|
|
| 0.32 | % |
|
| 17.1 |
|
|
| 0.29 | % |
|
| 15.5 |
|
|
| 0.28 | % |
Commercial Banking |
| 4.7 |
|
|
| 0.08 | % |
|
| 9.9 |
|
|
| 0.18 | % |
|
| 6.0 |
|
|
| 0.10 | % |
|
| 19.4 |
|
|
| 0.11 | % |
|
| 16.3 |
|
|
| 0.09 | % |
Legacy Consumer Mortgages |
| 0.1 |
|
|
| 0.02 | % |
|
| 0.2 |
|
|
| 0.02 | % |
|
| 0.5 |
|
|
| 0.04 | % |
|
| 0.7 |
|
|
| 0.03 | % |
|
| 1.2 |
|
|
| 0.04 | % |
Consumer Banking |
| 0.1 |
|
|
| 0.01 | % |
|
| 0.2 |
|
|
| 0.01 | % |
|
| 0.5 |
|
|
| 0.03 | % |
|
| 0.7 |
|
|
| 0.01 | % |
|
| 1.2 |
|
|
| 0.02 | % |
Total | $ | 4.8 |
|
|
| 0.06 | % |
| $ | 10.1 |
|
|
| 0.14 | % |
| $ | 6.5 |
|
|
| 0.09 | % |
| $ | 20.1 |
|
|
| 0.09 | % |
| $ | 17.5 |
|
|
| 0.08 | % |
Net Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance | $ | 14.4 |
|
|
| 0.57 | % |
| $ | 7.8 |
|
|
| 0.32 | % |
| $ | 5.1 |
|
|
| 0.22 | % |
| $ | 62.1 |
|
|
| 0.83 | % |
| $ | 22.4 |
|
|
| 0.31 | % |
Real Estate Finance |
| 0.2 |
|
|
| 0.01 | % |
|
| — |
|
|
| — | % |
|
| (0.2 | ) |
|
| (0.01 | )% |
|
| 0.2 |
|
|
| 0.00 | % |
|
| 4.1 |
|
|
| 0.10 | % |
Business Capital |
| 10.1 |
|
|
| 0.51 | % |
|
| 6.9 |
|
|
| 0.36 | % |
|
| 16.8 |
|
|
| 0.91 | % |
|
| 26.9 |
|
|
| 0.46 | % |
|
| 49.6 |
|
|
| 0.90 | % |
Commercial Banking |
| 24.7 |
|
|
| 0.42 | % |
|
| 14.7 |
|
|
| 0.25 | % |
|
| 21.7 |
|
|
| 0.39 | % |
|
| 89.2 |
|
|
| 0.51 | % |
|
| 76.1 |
|
|
| 0.45 | % |
Legacy Consumer Mortgages |
| 1.3 |
|
|
| 0.18 | % |
|
| 0.6 |
|
|
| 0.08 | % |
|
| 20.0 |
|
|
| 1.90 | % |
|
| 2.0 |
|
|
| 0.09 | % |
|
| 20.8 |
|
|
| 0.61 | % |
Consumer Banking |
| 1.3 |
|
|
| 0.08 | % |
|
| 0.6 |
|
|
| 0.04 | % |
|
| 20.0 |
|
|
| 1.24 | % |
|
| 2.0 |
|
|
| 0.04 | % |
|
| 20.8 |
|
|
| 0.42 | % |
Total | $ | 26.0 |
|
|
| 0.35 | % |
| $ | 15.3 |
|
|
| 0.21 | % |
| $ | 41.7 |
|
|
| 0.58 | % |
| $ | 91.2 |
|
|
| 0.41 | % |
| $ | 96.9 |
|
|
| 0.44 | % |
Net Charge-offs (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Gross Charge-offs | ||||||||||||||||||||||||||||||||||
| Commercial Finance | $ | 5.2 | 0.22 | % | $ | 7.4 | 0.31 | % | $ | 9.2 | 0.35 | % | $ | 23.2 | 0.32 | % | $ | 44.4 | 0.53 | % | ||||||||||||||
| Real Estate Finance | (0.2 | ) | (0.01 | )% | 0.4 | 0.03 | % | — | — | % | 4.1 | 0.10 | % | 1.6 | 0.04 | % | ||||||||||||||||||
| Business Capital | 22.7 | 1.23 | % | 24.5 | 1.33 | % | 18.5 | 1.10 | % | 65.1 | 1.18 | % | 55.8 | 1.12 | % | |||||||||||||||||||
| Commercial Banking | 27.7 | 0.49 | % | 32.3 | 0.57 | % | 27.7 | 0.48 | % | 92.4 | 0.54 | % | 101.8 | 0.58 | % | |||||||||||||||||||
Legacy Consumer Mortgages(1) | 20.5 | 1.94 | % | 0.9 | 0.07 | % | 0.7 | 0.05 | % | 22.0 | 0.65 | % | 1.9 | 0.05 | % | |||||||||||||||||||
| Consumer Banking | 20.5 | 1.27 | % | 0.9 | 0.05 | % | 0.7 | 0.04 | % | 22.0 | 0.44 | % | 1.9 | 0.04 | % | |||||||||||||||||||
| Total | $ | 48.2 | 0.67 | % | $ | 33.2 | 0.45 | % | $ | 28.4 | 0.38 | % | $ | 114.4 | 0.52 | % | $ | 103.7 | 0.46 | % | ||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||
| Commercial Finance | $ | 0.1 | — | % | $ | 0.6 | 0.02 | % | $ | 0.8 | 0.03 | % | $ | 0.8 | 0.01 | % | $ | 1.3 | 0.01 | % | ||||||||||||||
| Business Capital | 5.9 | 0.32 | % | 4.7 | 0.26 | % | 5.4 | 0.32 | % | 15.5 | 0.28 | % | 12.2 | 0.24 | % | |||||||||||||||||||
| Commercial Banking | 6.0 | 0.10 | % | 5.3 | 0.09 | % | 6.2 | 0.10 | % | 16.3 | 0.09 | % | 13.5 | 0.07 | % | |||||||||||||||||||
| Legacy Consumer Mortgages | 0.5 | 0.04 | % | 0.2 | 0.02 | % | 0.8 | 0.06 | % | 1.2 | 0.04 | % | 2.5 | 0.07 | % | |||||||||||||||||||
| Consumer Banking | 0.5 | 0.03 | % | 0.2 | 0.01 | % | 0.8 | 0.05 | % | 1.2 | 0.02 | % | 2.5 | 0.05 | % | |||||||||||||||||||
| Non-Strategic Portfolios | — | — | % | — | — | % | 0.1 | — | % | — | — | % | 0.1 | — | % | |||||||||||||||||||
| Total | $ | 6.5 | 0.09 | % | $ | 5.5 | 0.07 | % | $ | 7.1 | 0.10 | % | $ | 17.5 | 0.08 | % | $ | 16.1 | 0.08 | % | ||||||||||||||
| Net Charge-offs | ||||||||||||||||||||||||||||||||||
| Commercial Finance | $ | 5.1 | 0.22 | % | $ | 6.8 | 0.29 | % | $ | 8.4 | 0.32 | % | $ | 22.4 | 0.31 | % | $ | 43.1 | 0.52 | % | ||||||||||||||
| Real Estate Finance | (0.2 | ) | (0.01 | )% | 0.4 | 0.03 | % | — | — | % | 4.1 | 0.10 | % | 1.6 | 0.04 | % | ||||||||||||||||||
| Business Capital | 16.8 | 0.91 | % | 19.8 | 1.07 | % | 13.1 | 0.78 | % | 49.6 | 0.90 | % | 43.6 | 0.88 | % | |||||||||||||||||||
| Commercial Banking | 21.7 | 0.39 | % | 27.0 | 0.48 | % | 21.5 | 0.38 | % | 76.1 | 0.45 | % | 88.3 | 0.51 | % | |||||||||||||||||||
| Legacy Consumer Mortgages | 20.0 | 1.90 | % | 0.7 | 0.05 | % | (0.1 | ) | (0.01 | )% | 20.8 | 0.61 | % | (0.6 | ) | (0.02 | )% | |||||||||||||||||
| Consumer Banking | 20.0 | 1.24 | % | 0.7 | 0.04 | % | (0.1 | ) | (0.01 | )% | 20.8 | 0.42 | % | (0.6 | ) | (0.01 | )% | |||||||||||||||||
| Non-Strategic Portfolios | — | — | % | — | — | % | (0.1 | ) | — | % | — | — | % | (0.1 | ) | — | % | |||||||||||||||||
| Total | $ | 41.7 | 0.58 | % | $ | 27.7 | 0.38 | % | $ | 21.3 | 0.28 | % | $ | 96.9 | 0.44 | % | $ | 87.6 | 0.38 | % | ||||||||||||||
The increases in net charge-offs compared to the year-ago and prior quarters resulted primarily from charge-offs of $20 million from the transfer of the reverse mortgage loan portfolio in Consumer Banking to held for sale. In addition, the decline in Commercial Banking year to date was driven by lower charge-offs in the energy portfolio.
55
Non-accrual Loans (dollars in millions)(1)
| September 30, 2018 |
|
| December 31 2017 |
| ||
Non-accrual loans |
|
|
|
|
|
|
|
U.S. | $ | 298.3 |
|
| $ | 211.1 |
|
Foreign |
| 19.8 |
|
|
| 9.8 |
|
Non-accrual loans | $ | 318.1 |
|
| $ | 220.9 |
|
Troubled Debt Restructurings |
|
|
|
|
|
|
|
U.S. | $ | 84.6 |
|
| $ | 103.5 |
|
Restructured loans | $ | 84.6 |
|
| $ | 103.5 |
|
Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
Accruing loans past due 90 days or more | $ | 71.4 |
|
| $ | 31.9 |
|
Non-accrual Loans (dollars in millions)(1) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Non-accrual loans | |||||||
| U.S. | $ | 228.5 | $ | 218.9 | |||
| Foreign | 36.1 | 59.7 | |||||
| Non-accrual loans | $ | 264.6 | $ | 278.6 | |||
Troubled Debt Restructurings(2) | |||||||
| U.S. | $ | 77.4 | $ | 41.7 | |||
| Foreign | 71.8 | 40.6 | |||||
| Restructured loans | $ | 149.2 | $ | 82.3 | |||
| Accruing loans past due 90 days or more | |||||||
| Accruing loans past due 90 days or more | $ | 35.4 | $ | 32.0 | |||
(1) | Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual |
Non-accrual Loans (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Commercial Finance | $ | 229.3 |
|
|
| 2.25 | % |
| $ | 134.8 |
|
|
| 1.36 | % |
Real Estate Finance |
| 2.3 |
|
|
| 0.04 | % |
|
| 2.8 |
|
|
| 0.05 | % |
Business Capital |
| 43.1 |
|
|
| 0.52 | % |
|
| 53.2 |
|
|
| 0.70 | % |
Commercial Banking |
| 274.7 |
|
|
| 1.14 | % |
|
| 190.8 |
|
|
| 0.82 | % |
Legacy Consumer Mortgages |
| 29.4 |
|
|
| 1.01 | % |
|
| 19.9 |
|
|
| 0.60 | % |
Other Consumer Banking |
| 5.7 |
|
|
| 0.16 | % |
|
| 0.4 |
|
|
| 0.02 | % |
Consumer Banking |
| 35.1 |
|
|
| 0.55 | % |
|
| 20.3 |
|
|
| 0.34 | % |
Non-Strategic Portfolios |
| 8.3 |
|
| NM |
|
|
| 9.8 |
|
| NM |
| ||
Total | $ | 318.1 |
|
|
| 1.04 | % |
| $ | 220.9 |
|
|
| 0.76 | % |
Non-accrual Loans (dollars in millions) continued | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Commercial Finance | $ | 192.5 | 2.06 | % | $ | 188.8 | 1.90 | % | |||||
| Real Estate Finance | 2.8 | 0.05 | % | 20.4 | 0.37 | % | |||||||
| Business Capital | 45.2 | 0.59 | % | 41.7 | 0.60 | % | |||||||
| Commercial Banking | 240.5 | 1.06 | % | 250.9 | 1.11 | % | |||||||
| Legacy Consumer Mortgages | 18.9 | 0.54 | % | 17.3 | 0.36 | % | |||||||
| Other Consumer Banking | 0.4 | — | % | 0.1 | — | ||||||||
| Consumer Banking | 19.3 | 0.33 | % | 17.4 | 0.25 | % | |||||||
| Non-Strategic Portfolios | 4.8 | NM | 10.3 | NM | |||||||||
| Total | $ | 264.6 | 0.93 | % | $ | 278.6 | 0.94 | % | |||||
NM — Not meaningful; Non-accrual loans include loans held for sale. All of NSP non-accrual loans reflected loans held for sale; since there waswere no portfolio loans, no % is displayed.
Non-accrual loans were up from the prior quarter and down from December 31, 2016, primarily due to an increase2017, driven by various loans across different industries in Commercial Finance partially offsetFinance. Non-accrual loans in Consumer Banking were up, driven by decreasesnon-PCI loans in Real Estate Finance and Business Capital.
Approximately 61%64% of our non-accrual accounts were paying currently compared to 75%52% at December 31, 2016.2017. Our impaired loan carrying value (including PAA discount and charge-offs) to estimated outstanding unpaid principal balances approximated 94%73% compared to 91%76% at December 31, 2016.2017. For this purpose, impaired loans are comprisedcomprise principally of non-accrual loans over $500,000 and troubled debt restructurings (“TDRs”).
Total delinquency (30 days or more) was 1.2%1.4% of loans at September 30, 2017, essentially unchanged from2018 and 1.3% of loans at December 31, 2016.
Forgone Interest (dollars in millions) | |||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||
| U.S. | Foreign | Total | U.S. | Foreign | Total | ||||||||||||||||||
| Interest revenue that would have been earned at original terms | $ | 18.7 | $ | 3.3 | $ | 22.0 | $ | 20.3 | $ | 4.3 | $ | 24.6 | |||||||||||
| Less: Interest recorded | (4.2 | ) | (1.5 | ) | (5.7 | ) | (3.4 | ) | (0.3 | ) | (3.7 | ) | |||||||||||
| Foregone interest revenue | $ | 14.5 | $ | 1.8 | $ | 16.3 | $ | 16.9 | $ | 4.0 | $ | 20.9 | |||||||||||
The tables that follow reflect loan carrying values of accounts that have been modified, excluding PCI loans.
TDRs and Modifications (dollars in millions)
September 30, 2018 |
|
| December 31 2017 |
| |||||||||||
|
|
|
|
| % Compliant |
|
|
|
|
|
| % Compliant |
| ||
Troubled Debt Restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferral of principal and/or interest | $ | 26.8 |
|
|
| 85 | % |
| $ | 31.8 |
|
|
| 95 | % |
Covenant relief and other |
| 57.8 |
|
|
| 72 | % |
|
| 71.7 |
|
|
| 70 | % |
Total TDRs | $ | 84.6 |
|
|
| 76 | % |
| $ | 103.5 |
|
|
| 78 | % |
Percent non-accrual |
| 62 | % |
|
|
|
|
|
| 63 | % |
|
|
|
|
Modifications(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended maturity | $ | 31.9 |
|
|
| 100 | % |
| $ | 35.7 |
|
|
| 100 | % |
Covenant relief |
| 157.7 |
|
|
| 80 | % |
|
| 260.2 |
|
|
| 100 | % |
Interest rate increase |
| 176.5 |
|
|
| 100 | % |
|
| 102.8 |
|
|
| 100 | % |
Other |
| 396.9 |
|
|
| 97 | % |
|
| 229.5 |
|
|
| 90 | % |
Total Modifications | $ | 763.0 |
|
|
|
|
|
| $ | 628.2 |
|
|
|
|
|
Percent non-accrual |
| 16 | % |
|
|
|
|
|
| 8 | % |
|
|
|
|
TDRs and Modifications (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| % Compliant | % Compliant | ||||||||||||
Troubled Debt Restructurings(1) | |||||||||||||
| Deferral of principal and/or interest | $ | 60.5 | 46 | % | $ | 9.6 | 99 | % | |||||
| Covenant relief and other | 88.7 | 99 | % | 72.7 | 95 | % | |||||||
| Total TDRs | $ | 149.2 | 77 | % | $ | 82.3 | 84 | % | |||||
| Percent non-accrual | 60 | % | 41 | % | |||||||||
Modifications(2) | |||||||||||||
| Extended maturity | $ | 99.6 | 100 | % | $ | 95.0 | 100 | % | |||||
| Covenant relief | 290.1 | 100 | % | 261.1 | 100 | % | |||||||
| Interest rate increase | 72.9 | 100 | % | 138.2 | 100 | % | |||||||
| Other | 188.0 | 91 | % | 216.0 | 92 | % | |||||||
| Total Modifications | $ | 650.6 | 97 | % | $ | 710.3 | 98 | % | |||||
| Percent non-accrual | 12 | % | 23 | % | |||||||||
(1) |
| Table depicts the predominant element of each modification, which may contain several of the characteristics listed. |
PCI loans, TDRs and other credit quality information is included in
Note 3 —56
Certain line-items in the table are changed from the year-ago presentation; all prior periods are conformed.
Non-interest Income (dollars in millions)Item 1. Consolidated Financial Statements.
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Rental income on operating leases | $ | 264.3 |
|
| $ | 261.3 |
|
| $ | 252.3 |
|
| $ | 779.2 |
|
| $ | 754.8 |
|
Other non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenues |
| 28.2 |
|
|
| 26.5 |
|
|
| 26.2 |
|
|
| 81.9 |
|
|
| 83.3 |
|
Factoring commissions |
| 27.2 |
|
|
| 23.5 |
|
|
| 27.0 |
|
|
| 76.3 |
|
|
| 76.2 |
|
Gains on leasing equipment, net of impairments |
| 13.6 |
|
|
| 14.4 |
|
|
| 12.2 |
|
|
| 41.5 |
|
|
| 34.0 |
|
BOLI Income |
| 6.5 |
|
|
| 6.6 |
|
|
| 1.8 |
|
|
| 19.6 |
|
|
| 1.8 |
|
Gains on investment securities, net of impairments |
| 3.6 |
|
|
| 3.7 |
|
|
| 10.4 |
|
|
| 10.6 |
|
|
| 17.5 |
|
Other revenues |
| 7.1 |
|
|
| 60.7 |
|
|
| (14.3 | ) |
|
| 96.4 |
|
|
| 14.2 |
|
Total other non-interest income |
| 86.2 |
|
|
| 135.4 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
|
Total other non-interest income, excluding noteworthy items(1) | $ | 96.8 |
|
| $ | 106.1 |
|
| $ | 90.1 |
|
| $ | 307.6 |
|
| $ | 261.9 |
|
Total non-interest income | $ | 350.5 |
|
| $ | 396.7 |
|
| $ | 315.6 |
|
| $ | 1,105.5 |
|
| $ | 981.8 |
|
Factoring volume | $ | 7,999.0 |
|
| $ | 6,648.9 |
|
| $ | 7,205.9 |
|
| $ | 22,073.9 |
|
| $ | 19,748.8 |
|
(1) |
Total non-interest income, excluding noteworthy itemsare non-GAAP balances, see reconciliations to GAAP balance in Non-GAAP Financial Measurements. |
Rental Income on Operating Leases and Other Non-Interest Income. The following discussion is on a consolidated basis; Non-interest income is also discussed in each of the individual segments in
Non-interest Income (dollars in millions) | |||||||||||||||||||
| Quarter Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Rental income on operating leases | $ | 252.3 | $ | 251.2 | $ | 254.3 | $ | 754.8 | $ | 779.4 | |||||||||
| Other non-interest income: | |||||||||||||||||||
| Fee revenues | 26.2 | 28.2 | 28.9 | 83.3 | 84.8 | ||||||||||||||
| Factoring commissions | 27.0 | 23.1 | 28.8 | 76.2 | 79.3 | ||||||||||||||
| Gains on sales of leasing equipment | 12.2 | 14.0 | 12.5 | 34.7 | 40.6 | ||||||||||||||
| Gains on investments | 10.0 | 4.7 | 10.3 | 18.8 | 12.6 | ||||||||||||||
| Gains on loan and portfolio sales | 3.6 | 7.4 | 3.5 | 15.8 | 11.4 | ||||||||||||||
| Gain (loss) on OREO sales | (3.9 | ) | 2.3 | 3.7 | (0.3 | ) | 8.8 | ||||||||||||
| Net (losses) gains on derivatives and foreign currency exchange | 0.9 | (1.8 | ) | (16.1 | ) | (12.2 | ) | 3.9 | |||||||||||
| Impairment on assets | (21.5 | ) | (1.9 | ) | (3.5 | ) | (25.1 | ) | (36.6 | ) | |||||||||
| Other revenues | 8.8 | 8.6 | 15.5 | 35.8 | 63.4 | ||||||||||||||
| Total other non-interest income | 63.3 | 84.6 | 83.6 | 227.0 | 268.2 | ||||||||||||||
Total other non-interest income, excluding noteworthy items(1) | $ | 90.1 | $ | 84.6 | $ | 78.6 | $ | 261.9 | $ | 254.0 | |||||||||
| Total non-interest income | $ | 315.6 | $ | 335.8 | $ | 337.9 | $ | 981.8 | $ | 1,047.6 | |||||||||
(1) Total non-interest income, excluding noteworthy items are non-GAAP balances, see reconciliations to GAAP balance in Non-GAAP Financial Measurements. | |||||||||||||||||||
Rental income on operating leases
from equipment we lease is generated in the Rail and Business Capital divisions in the Commercial Banking segment and recognized principally on a straight line basis over the lease term. Rental income is discussed in “Net Finance Revenues” and “Results by Business Segment”. See also ourOther Non-Interest Income
Other non-interest income changes reflect the following:
Other non-interest income in the current quarter, excluding noteworthy items, increased from the year-ago quarter, reflecting higher income from bank-owned life insurance (“BOLI”). The year-ago quarter included $27 million in aggregate of noteworthy items, including a $5 million write-down of OREO, a $9 million impairment on reverse mortgage related assets and a $12 million write-down of the reverse mortgage portfolio that was moved to AHFS, all related to the reverse mortgage loan portfolioFinancial Freedom Transaction and included in held for sale. (See
For the nine months ended September 30, 2018, other non-interest income was up compared to 2017. Excluding noteworthy items, that are more episodic in nature, such as gains on work-out related claims, proceeds received in excess of carrying value on non-accrual accounts held for sale, which were repaid or had another workout resolution, insurance proceeds in excess of carrying value on damaged leased equipment, andtotal other non-interest income from joint ventures. Other revenue in the year-ago quarter included a noteworthy item of a $5 million net gain from the sale of loans related to the IndyMac venture.
Non-Interest Expense (dollars in millions) | |||||||||||||||||||
| Quarter Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Depreciation on operating lease equipment | $ | (71.1 | ) | $ | (77.4 | ) | $ | (66.9 | ) | $ | (222.0 | ) | $ | (191.3 | ) | ||||
| Maintenance and other operating lease expenses | (57.9 | ) | (53.3 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) | |||||||||
| Operating expenses: | |||||||||||||||||||
| Compensation and benefits | (139.0 | ) | (145.4 | ) | (147.6 | ) | (427.7 | ) | (452.1 | ) | |||||||||
| Technology | (30.6 | ) | (33.9 | ) | (32.4 | ) | (97.2 | ) | (93.7 | ) | |||||||||
| Professional fees | (32.1 | ) | (31.6 | ) | (42.9 | ) | (103.5 | ) | (117.2 | ) | |||||||||
| Insurance | (18.5 | ) | (24.9 | ) | (23.8 | ) | (69.0 | ) | (77.4 | ) | |||||||||
| Net occupancy expense | (16.1 | ) | (15.1 | ) | (17.4 | ) | (51.1 | ) | (52.4 | ) | |||||||||
| Advertising and marketing | (13.6 | ) | (10.4 | ) | (4.6 | ) | (29.4 | ) | (14.2 | ) | |||||||||
| Other expenses | (18.3 | ) | (24.7 | ) | (25.5 | ) | (66.9 | ) | (83.8 | ) | |||||||||
| Operating expenses, excluding restructuring costs and intangible asset amortization | (268.2 | ) | (286.0 | ) | (294.2 | ) | (844.8 | ) | (890.8 | ) | |||||||||
| Intangible asset amortization | (6.2 | ) | (6.2 | ) | (6.4 | ) | (18.6 | ) | (19.2 | ) | |||||||||
| Restructuring costs | (2.9 | ) | (3.4 | ) | (2.3 | ) | (21.1 | ) | (32.3 | ) | |||||||||
| Total operating expenses | (277.3 | ) | (295.6 | ) | (302.9 | ) | (884.5 | ) | (942.3 | ) | |||||||||
| Loss on debt extinguishment and deposit redemption | (53.5 | ) | (164.8 | ) | (5.2 | ) | (218.3 | ) | (9.2 | ) | |||||||||
| Total non-interest expenses | $ | (459.8 | ) | $ | (591.1 | ) | $ | (431.6 | ) | $ | (1,489.8 | ) | $ | (1,298.9 | ) | ||||
| Headcount | 3,965 | 3,995 | 4,230 | ||||||||||||||||
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA(1) | 2.36 | % | 2.26 | % | 2.47 | % | 2.37 | % | 2.48 | % | |||||||||
Net efficiency ratio(2) | 57.8 | % | 60.3 | % | 58.6 | % | 58.9 | % | 57.0 | % | |||||||||
Operating expenses excluding restructuring costs and intangible asset amortization and other noteworthy items as a % of adjusted AEA(1) | 2.36 | % | 2.43 | % | 2.47 | % | 2.43 | % | 2.48 | % | |||||||||
Net Efficiency Ratio excluding noteworthy items(2) | 55.5 | % | 58.6 | % | 59.2 | % | 57.3 | % | 57.5 | % | |||||||||
4 | Other non-interest income excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
57
Non-Interest Expense (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Depreciation on operating lease equipment | $ | 78.0 |
|
| $ | 77.2 |
|
| $ | 71.1 |
|
| $ | 231.6 |
|
| $ | 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
| 137.3 |
|
|
| 143.2 |
|
|
| 139.0 |
|
|
| 428.3 |
|
|
| 427.7 |
|
Technology |
| 32.3 |
|
|
| 32.7 |
|
|
| 30.6 |
|
|
| 97.4 |
|
|
| 97.2 |
|
Professional fees |
| 16.7 |
|
|
| 20.7 |
|
|
| 32.1 |
|
|
| 63.2 |
|
|
| 103.5 |
|
Insurance |
| 15.9 |
|
|
| 18.5 |
|
|
| 18.5 |
|
|
| 54.3 |
|
|
| 69.0 |
|
Net occupancy expense |
| 16.1 |
|
|
| 16.0 |
|
|
| 16.1 |
|
|
| 48.3 |
|
|
| 51.1 |
|
Advertising and marketing |
| 10.6 |
|
|
| 13.4 |
|
|
| 13.6 |
|
|
| 37.0 |
|
|
| 29.4 |
|
Other expenses |
| 28.4 |
|
|
| 17.0 |
|
|
| 18.3 |
|
|
| 65.6 |
|
|
| 66.9 |
|
Operating expenses, excluding restructuring costs and intangible asset amortization |
| 257.3 |
|
|
| 261.5 |
|
|
| 268.2 |
|
|
| 794.1 |
|
|
| 844.8 |
|
Intangible asset amortization |
| 6.0 |
|
|
| 6.0 |
|
|
| 6.2 |
|
|
| 18.0 |
|
|
| 18.6 |
|
Restructuring costs |
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| — |
|
|
| 21.1 |
|
Total operating expenses |
| 263.3 |
|
|
| 267.5 |
|
|
| 277.3 |
|
|
| 812.1 |
|
|
| 884.5 |
|
Loss on debt extinguishment and deposit redemption |
| 3.5 |
|
|
| 19.3 |
|
|
| 53.5 |
|
|
| 22.9 |
|
|
| 218.3 |
|
Total non-interest expenses | $ | 401.4 |
|
| $ | 427.5 |
|
| $ | 459.8 |
|
| $ | 1,244.1 |
|
| $ | 1,489.8 |
|
Headcount |
| 3,757 |
|
|
| 3,843 |
|
|
| 3,966 |
|
|
| 3,757 |
|
|
| 3,966 |
|
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA(1) |
| 2.27 | % |
|
| 2.26 | % |
|
| 2.36 | % |
|
| 2.32 | % |
|
| 2.43 | % |
Net efficiency ratio(2) |
| 54.1 | % |
|
| 49.9 | % |
|
| 57.8 | % |
|
| 53.1 | % |
|
| 58.9 | % |
Net Efficiency Ratio excluding noteworthy items(2) |
| 53.9 | % |
|
| 53.8 | % |
|
| 55.5 | % |
|
| 54.8 | % |
|
| 57.3 | % |
(1) | Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information. |
(2) | Net efficiency ratio and net efficiency ratio |
Depreciation on Operating Lease Equipment
Depreciation expense is driven by rail equipment and smaller ticket equipment, such as office equipment, in the Rail and Business Capital divisions in Commercial Banking, respectively.Banking. Depreciation expense is also discussed in
Maintenance and Other Operating Lease Expenses
Maintenance and other operating lease expenses relates to equipment ownership and leasing costs associated with the Rail portfolio.portfolio and tend to be variable. Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for railcar maintenance and repair. MaintenanceThe decline from the prior quarter was driven by lower freight expenses on railcarsin the North America portfolio and lower costs in the NACCO portfolio. The increase in 2018 for the nine month comparison reflected increased volume from remarketing cars and pulling cars from storage and sending into service.
Operating Expenses
Operating expenses were down from the year-ago and prior quartersquarters. Operating expenses excluding noteworthy items and intangible assets amortization5 were down from the year-ago quarter on lower professional fees, partially offset by higher other non-income tax expenses. The decline from the growing portfolio, with increasedprior quarter was driven by lower employee costs associated with endand professional fees, and the prior quarter included a benefit of lease railcar returns and higher Railroad Interchange repaira $5 million reversal of a non-income tax-related reserve in other expenses.
Compared to the year-ago nine months, operating expenses excluding restructuring costs and intangible assetassets amortization were down, from the prior quarter, driven primarily byreflecting lower compensationprofessional fees and benefits and lowerFDIC insurance expenses,costs, partially offset by higher advertising and marketing costs, primarily in Consumer Banking. Compared to the year-ago quarter, operating expenses were down, reflecting lower employee costs, professional fees, FDIC insurance costs and other taxes, partially offset by higher advertising and marketing costs, primarily in Consumer Banking.
We remain on track to achievereduce our annual operating expense reductionto our target of $150$1,050 million by(before noteworthy items and intangible amortization) for 2018 as we continue to right-size the end of 2018 through organizational alignment, technology and operations improvements and third party initiatives.
The net efficiency ratio excluding noteworthy items was unchanged from the prior quarter and downimproved from the year-ago quarter, which includedas lower operating expenses and higher costs for strategic initiatives and OWB integration.
5 | Operating expense excluding restructuring costs and intangible assets amortization is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information |
58
In the current quarter, we recognized $3 million in debt extinguishment costs associated with the redemption of approximately $500 million of unsecured senior debt. In the prior quarter, we recognized $19 million in debt extinguishment costs associated with the redemption of $883 million of unsecured senior debt. The $54 million lossin debt extinguishment costs in the currentyear-ago quarter primarily related to the tender forredemption of $800 million of unsecured borrowings, while thesenior debt. The year-ago nine-months also included $165 million loss in debt extinguishment costs associated with the prior quarter related to the tender and early redemptionsreduction of $5.8 billion of unsecured borrowings. Insenior debt from the year-ago quarter, we recognized debt extinguishment costs mostly associated withproceeds of the early redemption of high-cost brokered deposits. See Note 6 — BorrowingsCommercial Air sale.
Income Tax Data (dollars in millions)Item 1. Consolidated Financial Statements.
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Provision for income taxes, before noteworthy and tax discrete items | $ | 49.5 |
|
| $ | 49.6 |
|
| $ | 53.2 |
|
| $ | 136.2 |
|
| $ | 171.5 |
|
Tax on noteworthy items and other tax discrete items |
| (8.2 | ) |
|
| 7.8 |
|
|
| (173.0 | ) |
|
| 3.8 |
|
|
| (267.0 | ) |
Provision (benefit) for income taxes | $ | 41.3 |
|
| $ | 57.4 |
|
| $ | (119.8 | ) |
| $ | 140.0 |
|
| $ | (95.5 | ) |
Effective tax rate |
| 24.2 | % |
|
| 28.0 | % |
|
| (116.3 | )% |
|
| 26.9 | % |
|
| (38.7 | )% |
Effective tax rate, before tax discrete items and noteworthy items(1) |
| 28.2 | % |
|
| 26.7 | % |
|
| 27.4 | % |
|
| 27.4 | % |
|
| 31.6 | % |
Income Tax Data (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Provision for income taxes, before discrete items | $ | 18.6 | $ | 61.5 | $ | 45.5 | $ | 125.0 | $ | 208.5 | |||||||||
| Discrete items | (138.4 | ) | (93.4 | ) | 9.0 | (220.5 | ) | 1.6 | |||||||||||
| Provision (benefit) for income taxes | $ | (119.8 | ) | $ | (31.9 | ) | $ | 54.5 | $ | (95.5 | ) | $ | 210.1 | ||||||
| Effective tax rate | (116.3 | )% | (343.0 | )% | 36.7 | % | (38.7 | )% | 46.3 | % | |||||||||
Effective tax rate, before tax discrete items only(1) | 18.0 | % | 35.2 | % | 30.6 | % | 30.2 | % | 46.0 | % | |||||||||
Effective tax rate, before noteworthy items(1) | 28.4 | % | 34.4 | % | 25.6 | % | 31.2 | % | 45.0 | % | |||||||||
(1) | Effective tax rate excluding discrete items |
The Company’s current quarter with the year-agoincome tax expense before noteworthy and prior quarters. The benefit fordiscrete tax items is $49.5 million. This compares to income taxes in the current quartertax expense of $120$49.6 million included a $140 million deferred tax benefit from a restructuring of an international legal entity. The benefit for income taxes in the prior quarter of $32 million included $26and $53.2 million in net benefits related to the resolution of certain legacy tax items and the agreement to sell Nacco.year-ago quarter. The provision for income taxes in the year-ago quarter of $55 million included a $16 million valuation allowance against the international deferred tax asset related to our operations in China. Excluding the aforementioned tax noteworthy items and all other noteworthy items, the effective tax rate was 28%, compared to 34% in the prior quarter, and 26% in the year-ago quarter.
The effective tax rate each quarter is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances (“VA”), and discrete items. The future period’s effective tax rate may vary from the actual year-end 2018 effective tax rate due to the impact of certain unfavorable tax adjustments, including certain international income that was subject to incremental taxchanges in the U.S.
Included in the nettax on noteworthy and other discrete tax benefititems of $138.4 million and $220.5$3.8 million for the current quarternine months ended September 30, 2018 was:
$9.9 million deferred income tax benefit recorded resulting from the release of a VA on deferred tax assets established on the capital losses generated in the prior year from an equity investment in a wholly-owned foreign subsidiary,
$6.9 million deferred income tax expense related to the increase to the deferred tax liability on the Company’s investment in NACCO, which is classified as “held for sale,”
$4.5 million deferred income tax expense resulting from revaluation of U.S. state deferred tax assets and liabilities as a result of state tax rate changes,
$1.4 million deferred income tax benefit resulting from favorable audit resolutions with state taxing authorities on prior year to dateU.S. state income tax returns, and
$3.7 million income tax expense on other tax discrete items and noteworthy items remaining as listed in the “Non-GAAP Financial Measurements” section.
Included in the tax on noteworthy and other discrete tax items of $(267.0) million for the nine months ended September 30, 2017 was:
$140.4 million deferred income tax benefit recorded in the current quarter related to the recognition of a $235 million deferred tax asset on an equity investment in a wholly-owned foreign subsidiary, partially offset by a $95 million valuation allowance,VA,
$85.5 million deferred income tax benefit on the debt extinguishment costs,
$19.3 million current tax benefit, recorded in the prior quarter, including interest and penalties, related to legacy OneWest Bank matters, including the release of a tax reserve upon the favorable resolution of an uncertain tax position and recognition of expected tax refunds,
$13.9 million in deferred income tax expense recorded in the first quarter related to the restructuring of legal entities in preparation for the Commercial Air sale, and
$2.66.9 million of miscellaneous other year to date netdeferred income tax benefit items.
$13.928.8 million currentincome tax benefit recordedon other tax discrete items and noteworthy items remaining as listed in the prior year first quarter on“Non-GAAP Financial Measurements” section.
Management expects the release of tax reserves, including interest and penalties, upon the resolution of uncertain tax positions in prior year non-U.S. income tax filings with the local tax authorities,
The amount of future cash taxes will depend on the level of taxable income after utilization of the remaining NOLs, including the implications of amounts subject to the aforementionedSection 382 limitation. Cash taxes were a net payment of $24.2 million and $37.9$2.7 million for the current quarter, and nine months ended period, respectively, compared to a net payment of $14.0$15.0 million in the prior quarter, $56.3and $24.2 million net refundpayment in the year-ago quarter,quarter.
59
On July 1, 2018, New Jersey signed legislation which implements a new surtax effective January 1, 2018. Corporations will pay an additional 2.5 percent surtax in 2018 and $49.9 million net refund2019, followed by 1.5 percent surtax in 2020 and 2021 before phasing out entirely in 2022. Additionally, the year-ago nine months period.
See Item 2.Note 10 — Income Taxes Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk 77
CIT manages its business and reports its financial results in three operating segments:segments, Commercial Banking, Consumer Banking, and Non-Strategic Portfolios, (“NSP”), and a non-operating segment, Corporate and Other.
Commercial Banking
Commercial Banking
is comprised of four divisions: Commercial Finance, Rail, Real Estate Finance and Business Capital. Revenue is generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities. A detailed description of the divisions is included at the end of Item 1. Business Overview in ourCommercial Banking: Financial Data and Metrics (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 338.9 |
|
| $ | 330.4 |
|
| $ | 309.4 |
|
| $ | 984.2 |
|
| $ | 933.5 |
|
Rental income on operating leases |
| 264.3 |
|
|
| 261.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
|
Finance revenue |
| 603.2 |
|
|
| 591.7 |
|
|
| 561.7 |
|
|
| 1,763.4 |
|
|
| 1,688.3 |
|
Interest expense |
| 190.3 |
|
|
| 177.0 |
|
|
| 131.3 |
|
|
| 523.6 |
|
|
| 378.9 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net finance revenue (NFR) |
| 278.3 |
|
|
| 274.0 |
|
|
| 301.4 |
|
|
| 830.7 |
|
|
| 922.4 |
|
Provision for credit losses |
| 39.0 |
|
|
| 33.2 |
|
|
| 11.1 |
|
|
| 139.4 |
|
|
| 60.1 |
|
Other non-interest income |
| 76.4 |
|
|
| 73.1 |
|
|
| 70.9 |
|
|
| 227.5 |
|
|
| 218.0 |
|
Operating expenses |
| 172.3 |
|
|
| 171.4 |
|
|
| 168.6 |
|
|
| 526.8 |
|
|
| 523.8 |
|
Income before income taxes | $ | 143.4 |
|
| $ | 142.5 |
|
| $ | 192.6 |
|
| $ | 392.0 |
|
| $ | 556.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases | $ | 32,320.9 |
|
| $ | 31,160.4 |
|
| $ | 30,625.1 |
|
| $ | 32,320.9 |
|
| $ | 30,625.1 |
|
Earning assets (net of credit balances of factoring clients) |
| 30,911.9 |
|
|
| 29,996.9 |
|
|
| 29,163.3 |
|
|
| 30,911.9 |
|
|
| 29,163.3 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans (includes HFS, and net of credit balances) | $ | 22,017.7 |
|
| $ | 21,723.9 |
|
| $ | 20,977.7 |
|
| $ | 21,865.7 |
|
| $ | 21,280.3 |
|
Average operating leases (AOL)* (includes HFS) |
| 8,031.8 |
|
|
| 7,980.3 |
|
|
| 7,797.6 |
|
|
| 7,979.8 |
|
|
| 7,637.1 |
|
Average earning assets (AEA) |
| 30,319.4 |
|
|
| 29,965.1 |
|
|
| 29,011.1 |
|
|
| 30,116.1 |
|
|
| 29,161.9 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin - NFR as a % of AEA |
| 3.67 | % |
|
| 3.66 | % |
|
| 4.16 | % |
|
| 3.68 | % |
|
| 4.22 | % |
Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses* | $ | 129.7 |
|
| $ | 120.6 |
|
| $ | 123.3 |
|
| $ | 370.1 |
|
| $ | 367.8 |
|
Operating lease margin as a % of AOL* |
| 6.46 | % |
|
| 6.04 | % |
|
| 6.33 | % |
|
| 6.18 | % |
|
| 6.42 | % |
Net efficiency ratio |
| 48.2 | % |
|
| 49.0 | % |
|
| 44.9 | % |
|
| 49.4 | % |
|
| 45.5 | % |
Pretax return on AEA |
| 1.89 | % |
|
| 1.90 | % |
|
| 2.66 | % |
|
| 1.74 | % |
|
| 2.54 | % |
New business volume | $ | 2,770.4 |
|
| $ | 2,378.5 |
|
| $ | 2,044.0 |
|
| $ | 7,416.1 |
|
| $ | 5,705.7 |
|
Factoring volume |
| 7,999.0 |
|
|
| 6,648.9 |
|
|
| 7,205.9 |
|
|
| 22,073.9 |
|
|
| 19,748.8 |
|
Commercial Banking: Financial Data and Metrics (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Earnings Summary | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 309.4 | $ | 316.6 | $ | 318.6 | $ | 933.5 | $ | 965.9 | |||||||||
| Rental income on operating leases | 252.3 | 251.2 | 250.4 | 754.8 | 767.8 | ||||||||||||||
| Finance revenue | 561.7 | 567.8 | 569.0 | 1,688.3 | 1,733.7 | ||||||||||||||
| Interest expense | (131.3 | ) | (127.8 | ) | (131.8 | ) | (378.9 | ) | (392.2 | ) | |||||||||
| Depreciation on operating lease equipment | (71.1 | ) | (77.4 | ) | (66.9 | ) | (222.0 | ) | (191.3 | ) | |||||||||
| Maintenance and other operating lease expenses | (57.9 | ) | (53.3 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) | |||||||||
| Net finance revenue (NFR) | 301.4 | 309.3 | 313.7 | 922.4 | 994.1 | ||||||||||||||
| Provision for credit losses | (11.1 | ) | 0.2 | (43.6 | ) | (60.1 | ) | (152.2 | ) | ||||||||||
| Other non-interest income | 70.9 | 74.8 | 76.2 | 218.0 | 202.2 | ||||||||||||||
| Operating expenses | (168.6 | ) | (176.5 | ) | (193.0 | ) | (523.8 | ) | (578.4 | ) | |||||||||
| Income before income taxes | $ | 192.6 | $ | 207.8 | $ | 153.3 | $ | 556.5 | $ | 465.7 | |||||||||
| Select Period End Balance | |||||||||||||||||||
| Loans and leases | $ | 30,625.1 | $ | 30,231.0 | $ | 30,524.9 | $ | 30,625.1 | $ | 30,524.9 | |||||||||
| Earning assets (net of credit balances of factoring clients) | 29,163.3 | 29,062.5 | 29,669.6 | 29,163.3 | 29,669.6 | ||||||||||||||
| Select Average Balances | |||||||||||||||||||
| Average loans (includes HFS, and net of credit balances) | $ | 20,977.7 | $ | 21,304.4 | $ | 22,097.1 | $ | 21,280.3 | $ | 22,284.3 | |||||||||
| Average operating leases (AOL)* (includes HFS) | 7,797.6 | 7,612.2 | 7,283.7 | 7,637.1 | 7,119.5 | ||||||||||||||
| Average earning assets (AEA) | 29,011.1 | 29,158.6 | 29,777.1 | 29,161.9 | 29,844.4 | ||||||||||||||
| Statistical Data | |||||||||||||||||||
| Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses* | $ | 123.3 | $ | 120.5 | $ | 126.9 | $ | 367.8 | $ | 420.4 | |||||||||
| Operating lease margin as a % of AOL* | 6.33 | % | 6.33 | % | 6.97 | % | 6.42 | % | 7.87 | % | |||||||||
| Net efficiency ratio | 44.9 | % | 45.6 | % | 49.1 | % | 45.5 | % | 47.9 | % | |||||||||
| Pretax return on AEA | 2.66 | % | 2.85 | % | 2.06 | % | 2.54 | % | 2.08 | % | |||||||||
| New business volume | $ | 2,044.0 | $ | 2,046.3 | $ | 2,157.5 | $ | 5,705.7 | $ | 6,174.0 | |||||||||
| Factoring volume | $ | 7,205.9 | $ | 5,731.3 | $ | 6,683.9 | $ | 19,748.8 | $ | 18,086.9 | |||||||||
| Select Divisional Data | |||||||||||||||||||
| Net finance revenue: | |||||||||||||||||||
| Commercial Finance | $ | 94.8 | $ | 100.9 | $ | 108.5 | $ | 293.5 | $ | 337.2 | |||||||||
| Rail | 80.9 | 77.6 | 77.5 | 240.3 | 271.7 | ||||||||||||||
| Real Estate Finance | 50.7 | 52.3 | 51.4 | 151.2 | 157.6 | ||||||||||||||
| Business Capital | 75.0 | 78.5 | 76.3 | 237.4 | 227.6 | ||||||||||||||
| Segment total | $ | 301.4 | $ | 309.3 | $ | 313.7 | $ | 922.4 | $ | 994.1 | |||||||||
| Net finance margin — NFR as a % of AEA | |||||||||||||||||||
| Commercial Finance | 3.97 | % | 4.09 | % | 3.92 | % | 3.96 | % | 3.91 | % | |||||||||
| Rail | 4.29 | % | 4.20 | % | 4.33 | % | 4.32 | % | 5.16 | % | |||||||||
| Real Estate Finance | 3.62 | % | 3.71 | % | 3.73 | % | 3.60 | % | 3.87 | % | |||||||||
| Business Capital | 4.74 | % | 5.02 | % | 5.07 | % | 5.05 | % | 5.15 | % | |||||||||
| Segment total | 4.16 | % | 4.24 | % | 4.21 | % | 4.22 | % | 4.44 | % | |||||||||
* See discussion below for the impact of suspended depreciation.
AEA consistsconsisted primarily of loans and leases. AverageAs displayed in the above table, average loans and leases, net of credit balances of
60
factoring clients, was $28.8 billion for the quarter ended September 30, 2017, essentially flatup from the year-ago and prior quarters, mostly reflecting growth in Business Capital and Commercial Finance.
Compared to the year-ago quarter, as a reductionnew lending and leasing volume increased, with strong growth in Commercial Finance was mostly offset by an increaseand equipment financing businesses in Rail and Business Capital and down 2% from the year-ago quarter, reflecting a decline in Commercial Finance, partially offset by increases in all other divisions. The Commercial Finance decline reflects the impact of loan prepayments and sales.
Factored volume of $7.2$8.0 billion was up 26% from the prior quarter due to seasonal trends and up 8%11% compared to the year-ago quarter, driven primarily by increased volume in the technology industry.
Rail AEA of $7.8 billion was up from $7.5 billion in the year-ago quarter and up slightly from the prior quarter. Rail car utilization in North American Rail was relatively flat at 95%. On June 30, 2017,In October 2018, we announcedcompleted the sale of Nacco,NACCO, our European rail leasingrailcar business, which consisted of approximately $1.2 billion of leases and transferred the portfolioloans in AHFS, including approximately 15,000 railcars, and we expect to assets held for sale. Our portfolio includesrecognize a pre-tax gain on sale of approximately 135,000 railcars, of which approximately 14,500 are subject to the definitive sale agreement to sell Nacco, which is subject to regulatory approvals and is currently expected to close$30-35 million in the firstfourth quarter of 2018. AtSee Note 14 – Subsequent Events. Our North America rail portfolio included approximately 117,000 railcars at September 30, 2017, our North America portfolio2018, and we had approximately 1,0002,070 railcars on order from manufacturers withthat had deliveries scheduled through 2018.into 2019. See
Trends included:
Excluding the noteworthy items, NFR was down from the year-ago quarter and nine-months, as pressure on rental income as noted below, higher interest expense and lower PAA offset the growth in earning assets and an increase in interest income from higher interest rates on floating rate earning assets. The increase from the prior quarter reflects a benefit from an lease prepayment of $8.5 million compared to $4 million in the prior quarter.
NFM decreased compared to the year-ago quarter and nine-months from the mentioned decreases in NFR. Pressure on NFM was also driven by continued lower lease renewal rates on our rail portfolio, as discussed below and in the Net Finance Revenue section earlier in the MD&A. NFM was essentially unchanged compared to the prior quarter.
PAA totaled $8 million, $9 million and $22 million in the current, prior and year-ago quarters, respectively. Essentially all accretion benefited interest income. See Purchase Accounting Accretion table in Net Finance Revenue section for amounts of PAA by division. The current quarter, prior and year-ago quarters included $3 million, $3 million and $12 million, respectively, of PAA that was accelerated due to prepayments.
Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were up from the year-ago and prior quarters. See |
Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk 79
Consumer Banking
Consumer Banking includes Retail Banking, Consumer Lending, and SBA Lending, which are grouped together for purposes of discussion as Other Consumer Banking, and Legacy Consumer Mortgages (“LCM”). A detailed description of the divisions is included at the end of
Item 1. Business Overview in our61
Consumer Banking: Financial Data and Metrics (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 79.0 |
|
| $ | 85.0 |
|
| $ | 92.2 |
|
| $ | 249.2 |
|
| $ | 293.8 |
|
Interest (benefit) |
| (41.6 | ) |
|
| (37.3 | ) |
|
| (16.0 | ) |
|
| (103.2 | ) |
|
| (32.1 | ) |
Net finance revenue (NFR) |
| 120.6 |
|
|
| 122.3 |
|
|
| 108.2 |
|
|
| 352.4 |
|
|
| 325.9 |
|
Provision (benefit) for credit losses |
| (0.9 | ) |
|
| (0.3 | ) |
|
| 19.0 |
|
|
| 0.4 |
|
|
| 24.1 |
|
Other non-interest income |
| (18.1 | ) |
|
| 37.5 |
|
|
| (22.7 | ) |
|
| 30.9 |
|
|
| (9.1 | ) |
Operating expenses |
| 88.9 |
|
|
| 93.7 |
|
|
| 106.2 |
|
|
| 278.6 |
|
|
| 298.0 |
|
Income (loss) before income taxes | $ | 14.5 |
|
| $ | 66.4 |
|
| $ | (39.7 | ) |
| $ | 104.3 |
|
| $ | (5.3 | ) |
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (includes HFS) | $ | 6,412.0 |
|
| $ | 6,328.0 |
|
| $ | 6,678.6 |
|
| $ | 6,412.0 |
|
| $ | 6,678.6 |
|
Earning assets |
| 6,447.7 |
|
|
| 6,415.5 |
|
|
| 6,850.4 |
|
|
| 6,447.7 |
|
|
| 6,850.4 |
|
Deposits |
| 26,048.1 |
|
|
| 26,004.5 |
|
|
| 23,247.6 |
|
|
| 26,048.1 |
|
|
| 23,247.6 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans (includes HFS) | $ | 6,363.9 |
|
| $ | 6,786.7 |
|
| $ | 6,711.0 |
|
| $ | 6,626.3 |
|
| $ | 6,832.7 |
|
Average earning assets (AEA) |
| 6,433.2 |
|
|
| 6,896.9 |
|
|
| 6,904.3 |
|
|
| 6,729.4 |
|
|
| 7,101.0 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin - NFR as a % of AEA |
| 7.50 | % |
|
| 7.09 | % |
|
| 6.27 | % |
|
| 6.98 | % |
|
| 6.12 | % |
Net efficiency ratio |
| 82.2 | % |
|
| 55.8 | % |
|
| 118.9 | % |
|
| 69.1 | % |
|
| 89.7 | % |
Pretax return on AEA |
| 0.90 | % |
|
| 3.85 | % |
|
| (2.30 | )% |
|
| 2.07 | % |
|
| (0.10 | )% |
New business volume | $ | 360.0 |
|
| $ | 482.6 |
|
| $ | 223.2 |
|
| $ | 1,231.2 |
|
| $ | 527.5 |
|
Consumer Banking: Financial Data and Metrics (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Earnings Summary | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 92.2 | $ | 101.6 | $ | 105.1 | $ | 293.8 | $ | 313.9 | |||||||||
| Finance revenue | 92.2 | 101.6 | 105.1 | 293.8 | 313.9 | ||||||||||||||
| Interest benefit (expense) | 16.0 | 9.6 | (1.0 | ) | 32.1 | (13.8 | ) | ||||||||||||
| Net finance revenue (NFR) | 108.2 | 111.2 | 104.1 | 325.9 | 300.1 | ||||||||||||||
| Provision for credit losses | (19.0 | ) | (4.6 | ) | (1.6 | ) | (24.1 | ) | (5.8 | ) | |||||||||
| Other non-interest income | (22.7 | ) | 5.7 | 13.1 | (9.1 | ) | 33.0 | ||||||||||||
| Operating expenses | (106.2 | ) | (96.2 | ) | (87.1 | ) | (298.0 | ) | (258.2 | ) | |||||||||
| (Loss) income before income taxes | $ | (39.7 | ) | $ | 16.1 | $ | 28.5 | $ | (5.3 | ) | $ | 69.1 | |||||||
| Select Period End Balance | |||||||||||||||||||
| Loans (includes HFS) | $ | 6,678.6 | $ | 6,746.9 | $ | 7,157.8 | $ | 6,678.6 | $ | 7,157.8 | |||||||||
| Earning assets | 6,850.4 | 6,955.4 | 7,520.2 | 6,850.4 | 7,520.2 | ||||||||||||||
| Deposits | 23,247.6 | 22,935.4 | 22,877.4 | 23,247.6 | 22,877.4 | ||||||||||||||
| Select Average Balances | |||||||||||||||||||
| Average loans (includes HFS) | $ | 6,711.0 | $ | 6,812.8 | $ | 7,141.2 | $ | 6,832.7 | $ | 7,172.8 | |||||||||
| Average earning assets (AEA) | 6,904.3 | 7,092.8 | 7,515.4 | 7,101.0 | 7,554.5 | ||||||||||||||
| Statistical Data | |||||||||||||||||||
| Net efficiency ratio | 118.9 | % | 78.3 | % | 70.4 | % | 89.7 | % | 73.4 | % | |||||||||
| Pretax return on AEA | (2.30 | )% | 0.91 | % | 1.52 | % | (0.10 | )% | 1.22 | % | |||||||||
| New business volume | $ | 223.2 | $ | 149.6 | $ | 286.3 | $ | 527.5 | $ | 762.0 | |||||||||
| Select Divisional Data | |||||||||||||||||||
| Net finance revenue: | |||||||||||||||||||
| Other Consumer Banking | $ | 58.4 | $ | 52.5 | $ | 40.3 | $ | 157.5 | $ | 111.1 | |||||||||
| Legacy Consumer Mortgages | 49.8 | 58.7 | 63.8 | 168.4 | 189.0 | ||||||||||||||
| Segment total | $ | 108.2 | $ | 111.2 | $ | 104.1 | $ | 325.9 | $ | 300.1 | |||||||||
| Net finance margin — NFR as a % of AEA | |||||||||||||||||||
| Other Consumer Banking | 10.43 | % | 9.69 | % | 7.92 | % | 9.56 | % | 7.75 | % | |||||||||
| Legacy Consumer Mortgages | 4.27 | % | 4.77 | % | 4.66 | % | 4.58 | % | 4.46 | % | |||||||||
| Segment total | 6.27 | % | 6.27 | % | 5.54 | % | 6.12 | % | 5.30 | % | |||||||||
Pre-tax earnings in each of the quarters included noteworthy items. The current quarter non-interest income included a $21 million impairment charge to reduce the carrying value of the indemnification asset for the amounts deemed uncollectable within the remaining indemnification period (see Credit Quality section of Note 3 – Loans for discussion of impairment.) The year-ago quarter were impacted by approximatelyincluded $42 million of charges, mostly impactingnoteworthy charges; including $27 million on reverse mortgage related assets that were part of the Financial Freedom Transaction in non-interest income and $15 million of charge-offs related to the reverse mortgage portfolio transfer to AHFS in the provision for credit losses andlosses. The prior quarter included $29 million of other non-interest income associated withrelated to the announcedFinancial Freedom transaction, primarily a gain on the sale of the reverse mortgage portfolioportfolio. Excluding the noteworthy items, pre-tax earnings were $36 million, compared to $37 million in connection with the Financial Freedom Transaction. Interestprior quarter and $3 million in the year-ago quarter, and $96 million and $37 million for the nine months ended 2018 and 2017, respectively. Compared to the year-ago quarter and nine months, pre-tax earnings was up reflecting the increase in the benefit in interest expense has been a benefit as this segment receives creditreceived from the other segments for the value of the excess deposits it generated.
Average loans, including held for sale, totaled $6.7 billion for the quarter and nine-months ended September 30, 2017,2018, were down slightlycompared to the year-ago periods, as run-off of the LCM portfolio and the sale of the reverse mortgage portfolio, comprised of loans and related OREO assets of $884 million, were partially offset by new business volume in the Other Consumer Banking division. Average loan growth in Other Consumer Banking was primarily driven by increases in residential mortgage lending in the retail and correspondent origination channels and closed loan purchases. The decline in average loans, including held for sale, from the prior quarter due primarily to run-offwas driven by the full quarter impact of the reverse mortgage portfolio sold in May 2018 and run-off in LCM, portfolios. Thepartially offset by new business volumes in the Other Consumer Banking division. LCM portfolios made up $4.5$3.0 billion of the current quarter average balance, with a significant portion covered by the loss sharing agreementsagreement with the FDIC. These agreements begin to expireFDIC under IndyMac. The IndyMac loss share agreement expires in March 2019, the benefit of which is recorded within theas an indemnification asset. At September 30, 2017, LCM includes $862 million of reverse mortgage loans held for sale (along with $25 million of OREO)See Note 2 — Discontinued Operations and Note 3 – Loans earlier in connection with the announced Financial Freedom Transaction.this document. See
Deposits, which include deposits from the branch and online channels, increased $312 million from the prior quarter, primarilyand year-ago quarters, driven by an increase in savings and online High Yield Savings Accounts (“HYSA”),money market accounts and in the current quarter, the increase in short term time deposits, partially offset by a decrease in interest-bearing checking accounts and also long term time deposits and interest-bearing checking accounts. Deposits were upcompared to the year-ago quarter.
Trends included:
NFR increased from the year-ago quarter and nine-months, primarily driven bydue to an increase in online HYSA,the benefit in interest expense described above, partially offset by a decreasethe decline in other savingsinterest income due to the sale of the reverse mortgage portfolio, lower PAA as the assets mature and time deposits.
62
NSP consists of businesses and portfolios that we no longer consider strategic. These portfolios include international equipment financing, secured lending
Non-Strategic Portfolios: Financial Data and leasing and advisory servicesMetrics (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 1.4 |
|
| $ | 1.9 |
|
| $ | 4.6 |
|
| $ | 5.7 |
|
| $ | 17.8 |
|
Interest expense |
| 0.8 |
|
|
| 1.8 |
|
|
| 3.0 |
|
|
| 4.3 |
|
|
| 13.0 |
|
Net finance revenue (NFR) |
| 0.6 |
|
|
| 0.1 |
|
|
| 1.6 |
|
|
| 1.4 |
|
|
| 4.8 |
|
Other non-interest income |
| 11.6 |
|
|
| 0.7 |
|
|
| 4.9 |
|
|
| 13.5 |
|
|
| 2.2 |
|
Operating expenses |
| 2.2 |
|
|
| 2.2 |
|
|
| 9.2 |
|
|
| 6.6 |
|
|
| 13.0 |
|
Income (loss) before income taxes | $ | 10.0 |
|
| $ | (1.4 | ) |
| $ | (2.7 | ) |
| $ | 8.3 |
|
| $ | (6.0 | ) |
Select Period End Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases | $ | 32.1 |
|
| $ | 29.7 |
|
| $ | 87.8 |
|
| $ | 32.1 |
|
| $ | 87.8 |
|
Earning assets |
| 85.1 |
|
|
| 81.4 |
|
|
| 228.8 |
|
|
| 85.1 |
|
|
| 228.8 |
|
Select Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets (AEA) | $ | 78.6 |
|
| $ | 123.0 |
|
| $ | 226.9 |
|
| $ | 116.8 |
|
| $ | 307.7 |
|
Statistical Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance margin — NFR as a % of AEA |
| 3.05 | % |
|
| 0.33 | % |
|
| 2.82 | % |
|
| 1.60 | % |
|
| 2.08 | % |
Pretax return on AEA |
| 50.89 | % |
|
| (4.55 | )% |
|
| (4.76 | )% |
|
| 9.47 | % |
|
| (2.60 | )% |
Income before income taxes for the current quarter reflects an $11 million reversal of a valuation reserve in other non-interest income due to small and middle-market businesses.
Non-Strategic Portfolios: Financial Data and Metrics (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Earnings Summary | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 4.6 | $ | 6.2 | $ | 22.7 | $ | 17.8 | $ | 70.9 | |||||||||
| Rental income on operating leases | — | — | 3.9 | — | 11.6 | ||||||||||||||
| Finance revenue | 4.6 | 6.2 | 26.6 | 17.8 | 82.5 | ||||||||||||||
| Interest expense | (3.0 | ) | (5.0 | ) | (12.7 | ) | (13.0 | ) | (41.0 | ) | |||||||||
| Net finance revenue (NFR) | 1.6 | 1.2 | 13.9 | 4.8 | 41.5 | ||||||||||||||
| Other non-interest income | 4.9 | 0.2 | 4.9 | 2.2 | 26.1 | ||||||||||||||
| Provision for credit losses | — | — | 0.1 | — | 0.1 | ||||||||||||||
| Operating expenses | (9.2 | ) | (1.8 | ) | (11.2 | ) | (13.0 | ) | (35.4 | ) | |||||||||
| (Loss) income before income taxes | $ | (2.7 | ) | $ | (0.4 | ) | $ | 7.7 | $ | (6.0 | ) | $ | 32.3 | ||||||
| Select Period End Balance | |||||||||||||||||||
| Loans and leases | $ | 87.8 | $ | 114.6 | $ | 1,004.1 | $ | 87.8 | $ | 1,004.1 | |||||||||
| Earning assets | 228.8 | 230.0 | 1,194.7 | 228.8 | 1,194.7 | ||||||||||||||
| Select Average Balances | |||||||||||||||||||
| Average earning assets (AEA) | 226.9 | 319.5 | 1,282.7 | 307.7 | 1,397.6 | ||||||||||||||
| Statistical Data | |||||||||||||||||||
| Net finance margin — NFR as a % of AEA | 2.82 | % | 1.50 | % | 4.33 | % | 2.08 | % | 3.96 | % | |||||||||
| Pretax return on AEA | (4.76 | )% | (0.50 | )% | 2.40 | % | (2.60 | )% | 3.08 | % | |||||||||
| New business volume | $ | — | $ | — | $ | 45.7 | $ | — | $ | 151.1 | |||||||||
The loans and leases at September 30, 2017 totaled $88 million,2018, were all in China, down from $115 million in the prior quarter and $1.0 billion in the prior year quarter, which also included portfolios in Canada.
Corporate and Other
Certain items are not allocated to operating segments and are included in Corporate and Other. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate liquidity costs, (interest expense), mark-to-market adjustments on non-qualifying derivatives and BOLI (other non-interest income), restructuring charges, for severance and facilities exit activities as well as certain unallocated costs (operating expenses), certainand intangible assets amortization expenses (other(operating expenses) and loss on debt extinguishments.
Corporate and Other: Financial Data and Metrics (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Earnings Summary | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 54.3 |
|
| $ | 56.3 |
|
| $ | 47.8 |
|
| $ | 159.3 |
|
| $ | 142.8 |
|
Interest expense |
| 64.4 |
|
|
| 63.7 |
|
|
| 58.4 |
|
|
| 174.9 |
|
|
| 189.2 |
|
Net finance revenue (NFR) |
| (10.1 | ) |
|
| (7.4 | ) |
|
| (10.6 | ) |
|
| (15.6 | ) |
|
| (46.4 | ) |
Other non-interest income |
| 16.3 |
|
|
| 24.1 |
|
|
| 10.2 |
|
|
| 54.4 |
|
|
| 15.9 |
|
Operating expenses - Including gain/ (loss) on debt extinguishment |
| 3.4 |
|
|
| 19.5 |
|
|
| 46.8 |
|
|
| 23.0 |
|
|
| 268.0 |
|
Income (loss) before benefit for income taxes | $ | 2.8 |
|
| $ | (2.8 | ) |
| $ | (47.2 | ) |
| $ | 15.8 |
|
| $ | (298.5 | ) |
Select Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 8,545.9 |
|
| $ | 9,244.6 |
|
| $ | 9,311.9 |
|
| $ | 8,597.6 |
|
| $ | 10,965.1 |
|
Earning assets (end of period) |
| 7,414.5 |
|
|
| 9,038.7 |
|
|
| 8,026.0 |
|
|
| 7,414.5 |
|
|
| 8,026.0 |
|
Corporate and Other: Financial Data and Metrics (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Earnings Summary | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 47.8 | $ | 53.8 | $ | 29.3 | $ | 142.8 | $ | 86.6 | |||||||||
| Interest expense | (58.4 | ) | (86.0 | ) | (42.7 | ) | (189.2 | ) | (127.8 | ) | |||||||||
| Net finance revenue (NFR) | (10.6 | ) | (32.2 | ) | (13.4 | ) | (46.4 | ) | (41.2 | ) | |||||||||
| Other non-interest income | 10.2 | 3.9 | (10.6 | ) | 15.9 | 6.9 | |||||||||||||
| Operating expenses | 6.7 | (21.1 | ) | (11.6 | ) | (49.7 | ) | (70.3 | ) | ||||||||||
| Loss on debt extinguishment and deposit redemption | (53.5 | ) | (164.8 | ) | (5.2 | ) | (218.3 | ) | (9.2 | ) | |||||||||
| Loss before benefit for income taxes | $ | (47.2 | ) | $ | (214.2 | ) | $ | (40.8 | ) | $ | (298.5 | ) | $ | (113.8 | ) | ||||
| Select Balances | |||||||||||||||||||
| Average earning assets | $ | 9,311.9 | $ | 14,104.9 | $ | 9,153.5 | $ | 10,965.1 | $ | 9,103.5 | |||||||||
| Earning assets (end of period) | $ | 8,026.0 | $ | 9,916.8 | $ | 8,964.2 | $ | 8,026.0 | $ | 8,964.2 | |||||||||
Noteworthy items impacting our strategic initiatives impact this division, which includedecreased pre-tax income by $3 million, $56 million and $19 million for the quarters ended September 30, 2018 and 2017, and June 30, 2018, respectively. Noteworthy items decreased pre-tax income by $22 million and $254 million for the nine months ended September 30, 2018 and 2017, respectively. Noteworthy items included loss on debt extinguishment and deposit redemptions, restructuring costs and net costs associated with liability management and capital actions. In total, these amounts reduced pretax income by $56 millionextinguishments in each of the current quarter, $2 millionperiods. Noteworthy items in the year-ago quarter and $183 million in the prior quarter, and for the nine months ended, $254 million for September 30, 2017included restructuring charges, and $32 million for September 30, 2016.
Excluding noteworthy items, pre-tax income in Corporate represents amounts in excess of expenses allocated to segments and amounts related to excess liquidity. In the prior quarter, $23 million of the increase from the year-ago and prior quarters resulted from the interest expense on approximately $5.8 billion of unsecured borrowings that previously was allocated to the Commercial Air 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 that quarter.
63
The following table presents our period end loans and leases by segment.
Loans and Leases Composition (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Commercial Finance |
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 10,176.4 |
|
| $ | 9,899.9 |
|
| $ | 9,928.8 |
|
Assets held for sale |
| 65.7 |
|
|
| 70.4 |
|
|
| 123.5 |
|
Total Loans and leases |
| 10,242.1 |
|
|
| 9,970.3 |
|
|
| 10,052.3 |
|
Rail |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 89.4 |
|
|
| 80.9 |
|
|
| 82.8 |
|
Operating lease equipment, net |
| 6,378.3 |
|
|
| 6,312.8 |
|
|
| 6,260.9 |
|
Assets held for sale |
| 1,214.5 |
|
|
| 1,206.4 |
|
|
| 1,188.4 |
|
Total Loans and leases |
| 7,682.2 |
|
|
| 7,600.1 |
|
|
| 7,532.1 |
|
Real Estate Finance |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 5,502.8 |
|
|
| 5,309.3 |
|
|
| 5,567.9 |
|
Assets held for sale |
| 44.8 |
|
|
| — |
|
|
| 22.3 |
|
Total Loans and leases |
| 5,547.6 |
|
|
| 5,309.3 |
|
|
| 5,590.2 |
|
Business Capital |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 8,327.1 |
|
|
| 7,749.6 |
|
|
| 7,579.8 |
|
Operating lease equipment, net |
| 510.4 |
|
|
| 521.1 |
|
|
| 478.0 |
|
Assets held for sale |
| 11.5 |
|
|
| 10.0 |
|
|
| — |
|
Total Loans and leases |
| 8,849.0 |
|
|
| 8,280.7 |
|
|
| 8,057.8 |
|
Total Segment - Commercial Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 24,095.7 |
|
|
| 23,039.7 |
|
|
| 23,159.3 |
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,738.9 |
|
Assets held for sale |
| 1,336.5 |
|
|
| 1,286.8 |
|
|
| 1,334.2 |
|
Total loans and leases |
| 32,320.9 |
|
|
| 31,160.4 |
|
|
| 31,232.4 |
|
Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 2,914.3 |
|
|
| 3,054.3 |
|
|
| 3,331.1 |
|
Assets held for sale |
| — |
|
|
| — |
|
|
| 861.0 |
|
Total Loans and leases |
| 2,914.3 |
|
|
| 3,054.3 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 3,485.8 |
|
|
| 3,254.4 |
|
|
| 2,623.5 |
|
Assets held for sale |
| 11.9 |
|
|
| 19.3 |
|
|
| 4.6 |
|
Total Loans and leases |
| 3,497.7 |
|
|
| 3,273.7 |
|
|
| 2,628.1 |
|
Total Segment - Consumer Banking |
|
|
|
|
|
|
|
|
|
|
|
Loans |
| 6,400.1 |
|
|
| 6,308.7 |
|
|
| 5,954.6 |
|
Assets held for sale |
| 11.9 |
|
|
| 19.3 |
|
|
| 865.6 |
|
Total Loans and leases |
| 6,412.0 |
|
|
| 6,328.0 |
|
|
| 6,820.2 |
|
Non-Strategic Portfolios |
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
| 32.1 |
|
|
| 29.7 |
|
|
| 63.3 |
|
Total loans and leases |
| 32.1 |
|
|
| 29.7 |
|
|
| 63.3 |
|
Total Loans | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 29,113.9 |
|
Total operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,738.9 |
|
Total assets held for sale |
| 1,380.5 |
|
|
| 1,335.8 |
|
|
| 2,263.1 |
|
Total loans and leases | $ | 38,765.0 |
|
| $ | 37,518.1 |
|
| $ | 38,115.9 |
|
Loans and Leases Composition (dollars in millions) | |||||||||||
| September 30, 2017 | June 30, 2017 | December 31, 2016 | |||||||||
| Commercial Banking | |||||||||||
| Commercial Finance | |||||||||||
| Loans | $ | 9,316.9 | $ | 9,440.5 | $ | 9,923.9 | |||||
| Assets held for sale | 79.5 | 114.4 | 351.4 | ||||||||
| Total loans and leases | 9,396.4 | 9,554.9 | 10,275.3 | ||||||||
| Rail | |||||||||||
| Loans | 81.9 | 83.5 | 103.7 | ||||||||
| Operating lease equipment, net | 6,267.4 | 6,298.2 | 7,117.1 | ||||||||
| Assets held for sale | 1,128.0 | 1,039.4 | 0.3 | ||||||||
| Total loans and leases | 7,477.3 | 7,421.1 | 7,221.1 | ||||||||
| Real Estate Finance | |||||||||||
| Loans | 5,563.2 | 5,601.2 | 5,566.6 | ||||||||
| Assets held for sale | 0.8 | — | — | ||||||||
| Total loans and leases | 5,564.0 | 5,601.2 | 5,566.6 | ||||||||
| Business Capital | |||||||||||
| Loans | 7,730.6 | 7,216.0 | 6,968.1 | ||||||||
| Operating lease equipment, net | 456.8 | 437.8 | 369.0 | ||||||||
| Assets held for sale | — | — | 6.0 | ||||||||
| Total loans and leases | 8,187.4 | 7,653.8 | 7,343.1 | ||||||||
| Total Segment - Commercial Banking | |||||||||||
| Loans | 22,692.6 | 22,341.2 | 22,562.3 | ||||||||
| Operating lease equipment, net | 6,724.2 | 6,736.0 | 7,486.1 | ||||||||
| Assets held for sale | 1,208.3 | 1,153.8 | 357.7 | ||||||||
| Total loans and leases | 30,625.1 | 30,231.0 | 30,406.1 | ||||||||
| Consumer Banking | |||||||||||
| Legacy Consumer Mortgages | |||||||||||
| Loans | 3,503.1 | 4,503.1 | 4,829.9 | ||||||||
| Assets held for sale | 862.1 | 52.4 | 32.8 | ||||||||
| Total loans | 4,365.2 | 4,555.5 | 4,862.7 | ||||||||
| Other Consumer Banking | |||||||||||
| Loans | 2,309.6 | 2,187.4 | 2,143.7 | ||||||||
| Assets held for sale | 3.8 | 4.0 | 35.4 | ||||||||
| Total loans | 2,313.4 | 2,191.4 | 2,179.1 | ||||||||
| Total Segment - Consumer Banking | |||||||||||
| Loans | 5,812.7 | 6,690.5 | 6,973.6 | ||||||||
| Assets held for sale | 865.9 | 56.4 | 68.2 | ||||||||
| Total loans | 6,678.6 | 6,746.9 | 7,041.8 | ||||||||
| Non-Strategic Portfolios | |||||||||||
| Assets held for sale | 87.8 | 114.6 | 210.1 | ||||||||
| Total loans and leases | 87.8 | 114.6 | 210.1 | ||||||||
| Total Loans | $ | 28,505.3 | $ | 29,031.7 | $ | 29,535.9 | |||||
| Total operating lease equipment, net | 6,724.2 | 6,736.0 | 7,486.1 | ||||||||
| Total assets held for sale | 2,162.0 | 1,324.8 | 636.0 | ||||||||
| Total loans and leases | $ | 37,391.5 | $ | 37,092.5 | $ | 37,658.0 | |||||
Total loans and leases were $37.4 billion at September 30, 2017, up 0.8%3.3% and 1.7% from June 30, 2017 but down 0.7% from2018 and December 31, 2016, primarily driven by2017, respectively. The increase in Commercial Banking reflects higher loans and leases in the equipment finance businesses and seasonally higher factoring receivables partially offset by lower loansin Business Capital and growth in Commercial Finance due to prepayments and the run-off of LCM in Consumer Banking. The changes inFinance. Rail assets held for sale from December 31, 2016 reflect the additions of therelated to NACCO, our European rail assets andbusiness that was sold in October 2018. Consumer Banking was up compared to June 30, 2018, as originations in Other Consumer Banking was partially offset by LCM run-off. The decline in Consumer Banking from year-end reflects the sale of the reverse mortgage loan portfolio in LCM.
Total loans and leases trends are discussed in the respective segment descriptions in the prior section, “
Results by Business Segment.”64
The following table presents the changes to our total loans and leases:
Changes in Loans and Leases (dollars in millions)
| Commercial Banking |
|
| Consumer Banking |
|
| Non- Strategic Portfolios |
|
| Total |
| ||||
Balance as of June 30, 2018 | $ | 31,160.4 |
|
| $ | 6,328.0 |
|
| $ | 29.7 |
|
| $ | 37,518.1 |
|
New business volume |
| 2,770.4 |
|
|
| 360.0 |
|
|
| — |
|
|
| 3,130.4 |
|
Loan and portfolio sales |
| (64.3 | ) |
|
| (31.3 | ) |
|
| — |
|
|
| (95.6 | ) |
Equipment sales |
| (57.8 | ) |
|
| — |
|
|
| — |
|
|
| (57.8 | ) |
Depreciation |
| (78.0 | ) |
|
| — |
|
|
| — |
|
|
| (78.0 | ) |
Gross charge-offs |
| (29.4 | ) |
|
| (1.4 | ) |
|
| — |
|
|
| (30.8 | ) |
Collections and other |
| (1,380.4 | ) |
|
| (243.3 | ) |
|
| 2.4 |
|
|
| (1,621.3 | ) |
Balance as of September 30, 2018 | $ | 32,320.9 |
|
| $ | 6,412.0 |
|
| $ | 32.1 |
|
| $ | 38,765.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017 | $ | 31,232.4 |
|
| $ | 6,820.2 |
|
| $ | 63.3 |
|
| $ | 38,115.9 |
|
New business volume |
| 7,416.1 |
|
|
| 1,231.2 |
|
|
| — |
|
|
| 8,647.3 |
|
Loan and portfolio sales |
| (233.1 | ) |
|
| (938.7 | ) |
|
| — |
|
|
| (1,171.8 | ) |
Equipment sales |
| (167.1 | ) |
|
| — |
|
|
| (5.4 | ) |
|
| (172.5 | ) |
Depreciation |
| (231.6 | ) |
|
| — |
|
|
| — |
|
|
| (231.6 | ) |
Gross charge-offs |
| (108.6 | ) |
|
| (2.7 | ) |
|
| — |
|
|
| (111.3 | ) |
Collections and other |
| (5,587.2 | ) |
|
| (698.0 | ) |
|
| (25.8 | ) |
|
| (6,311.0 | ) |
Balance as of September 30, 2018 | $ | 32,320.9 |
|
| $ | 6,412.0 |
|
| $ | 32.1 |
|
| $ | 38,765.0 |
|
Changes in Loans and Leases (dollars in millions) | |||||||||||||||
Commercial Banking | Consumer Banking | Non- Strategic Portfolios | Total | ||||||||||||
| Balance at June 30, 2017 | $ | 30,231.0 | $ | 6,746.9 | $ | 114.6 | $ | 37,092.5 | |||||||
| New business volume | 2,044.0 | 223.2 | — | 2,267.2 | |||||||||||
| Loan and portfolio sales | (31.9 | ) | (23.8 | ) | — | (55.7 | ) | ||||||||
| Equipment sales | (36.9 | ) | — | (6.4 | ) | (43.3 | ) | ||||||||
| Depreciation | (71.1 | ) | — | — | (71.1 | ) | |||||||||
| Gross charge-offs | (27.7 | ) | (20.5 | ) | — | (48.2 | ) | ||||||||
| Collections and other | (1,482.3 | ) | (247.2 | ) | (20.4 | ) | (1,749.9 | ) | |||||||
| Balance at September 30, 2017 | $ | 30,625.1 | $ | 6,678.6 | $ | 87.8 | $ | 37,391.5 | |||||||
| Balance at December 31, 2016 | $ | 30,406.1 | $ | 7,041.8 | $ | 210.1 | $ | 37,658.0 | |||||||
| New business volume | 5,705.7 | 527.5 | — | 6,233.2 | |||||||||||
| Loan and portfolio sales | (271.4 | ) | (101.5 | ) | (0.6 | ) | (373.5 | ) | |||||||
| Equipment sales | (122.0 | ) | — | (37.5 | ) | (159.5 | ) | ||||||||
| Depreciation | (222.0 | ) | — | — | (222.0 | ) | |||||||||
| Gross charge-offs | (92.4 | ) | (22.0 | ) | — | (114.4 | ) | ||||||||
| Collections and other | (4,778.9 | ) | (767.2 | ) | (84.2 | ) | (5,630.3 | ) | |||||||
| Balance at September 30, 2017 | $ | 30,625.1 | $ | 6,678.6 | $ | 87.8 | $ | 37,391.5 | |||||||
Portfolio activities are discussed in the respective segment descriptions in “
Results by Business Segment”.The following tables present new business and factoring volumes, along with loan and portfolio sales and equipment sales by segment:
New Business and Factoring Volume (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 2,770.4 |
|
| $ | 2,378.5 |
|
| $ | 2,044.0 |
|
| $ | 7,416.1 |
|
| $ | 5,705.7 |
|
Consumer Banking |
| 360.0 |
|
|
| 482.6 |
|
|
| 223.2 |
|
|
| 1,231.2 |
|
|
| 527.5 |
|
Total | $ | 3,130.4 |
|
| $ | 2,861.1 |
|
| $ | 2,267.2 |
|
| $ | 8,647.3 |
|
| $ | 6,233.2 |
|
Factoring volume | $ | 7,999.0 |
|
| $ | 6,648.9 |
|
| $ | 7,205.9 |
|
| $ | 22,073.9 |
|
| $ | 19,748.8 |
|
Loan and Portfolio Sales (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 64.3 |
|
| $ | 89.8 |
|
| $ | 31.9 |
|
| $ | 233.1 |
|
| $ | 271.4 |
|
Consumer Banking |
| 31.3 |
|
|
| 888.4 |
|
|
| 23.8 |
|
|
| 938.7 |
|
|
| 101.5 |
|
Non-Strategic Portfolios |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.6 |
|
Total | $ | 95.6 |
|
| $ | 978.2 |
|
| $ | 55.7 |
|
| $ | 1,171.8 |
|
| $ | 373.5 |
|
Equipment Sales (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Commercial Banking | $ | 57.8 |
|
| $ | 62.8 |
|
| $ | 36.9 |
|
| $ | 167.1 |
|
| $ | 122.0 |
|
Non-Strategic Portfolios |
| — |
|
|
| 5.2 |
|
|
| 6.4 |
|
|
| 5.4 |
|
|
| 37.5 |
|
Total | $ | 57.8 |
|
| $ | 68.0 |
|
| $ | 43.3 |
|
| $ | 172.5 |
|
| $ | 159.5 |
|
New Business and Factoring Volume (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September��30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Commercial Banking | $ | 2,044.0 | $ | 2,046.3 | $ | 2,157.5 | $ | 5,705.7 | $ | 6,174.0 | |||||||||
| Consumer Banking | 223.2 | 149.6 | 286.3 | 527.5 | 762.0 | ||||||||||||||
| Non-Strategic Portfolios | — | — | 45.7 | — | 151.1 | ||||||||||||||
| Total | $ | 2,267.2 | $ | 2,195.9 | $ | 2,489.5 | $ | 6,233.2 | $ | 7,087.1 | |||||||||
| Factoring volume | $ | 7,205.9 | $ | 5,731.3 | $ | 6,683.9 | $ | 19,748.8 | $ | 18,086.9 | |||||||||
Loan and Portfolio Sales (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Commercial Banking | $ | 31.9 | $ | 112.6 | $ | 173.3 | $ | 271.4 | $ | 443.6 | |||||||||
| Consumer Banking | 23.8 | 32.8 | 28.6 | 101.5 | 71.7 | ||||||||||||||
| Non-Strategic Portfolios | — | 0.6 | — | 0.6 | 20.1 | ||||||||||||||
| Total | $ | 55.7 | $ | 146.0 | $ | 201.9 | $ | 373.5 | $ | 535.4 | |||||||||
Equipment Sales (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Commercial Banking | $ | 36.9 | $ | 52.1 | $ | 60.8 | $ | 122.0 | $ | 195.9 | |||||||||
| Non-Strategic Portfolios | 6.4 | 13.2 | 23.5 | 37.5 | 46.4 | ||||||||||||||
| Total | $ | 43.3 | $ | 65.3 | $ | 84.3 | $ | 159.5 | $ | 242.3 | |||||||||
65
Geographic Concentrations
The following table represents CIT’s combined commercial and consumer loans and leases by geographical regions:
Total Loans and Leases by Geographic Region (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
West | $ | 12,155.8 |
|
|
| 31.3 | % |
| $ | 12,009.8 |
|
|
| 31.5 | % |
Northeast |
| 9,139.0 |
|
|
| 23.6 | % |
|
| 9,658.7 |
|
|
| 25.3 | % |
Midwest |
| 5,005.7 |
|
|
| 12.9 | % |
|
| 4,641.1 |
|
|
| 12.2 | % |
Southwest |
| 4,636.6 |
|
|
| 12.0 | % |
|
| 4,063.5 |
|
|
| 10.7 | % |
Southeast |
| 3,634.8 |
|
|
| 9.4 | % |
|
| 3,346.0 |
|
|
| 8.8 | % |
Total U.S. |
| 34,571.9 |
|
|
| 89.2 | % |
|
| 33,719.1 |
|
|
| 88.5 | % |
Canada |
| 1,379.8 |
|
|
| 3.6 | % |
|
| 1,326.4 |
|
|
| 3.4 | % |
Europe |
| 1,358.5 |
|
|
| 3.5 | % |
|
| 1,444.1 |
|
|
| 3.8 | % |
Asia / Pacific |
| 512.9 |
|
|
| 1.3 | % |
|
| 720.8 |
|
|
| 1.9 | % |
All other countries |
| 941.9 |
|
|
| 2.4 | % |
|
| 905.5 |
|
|
| 2.4 | % |
Total | $ | 38,765.0 |
|
|
| 100.0 | % |
| $ | 38,115.9 |
|
|
| 100.0 | % |
Total Loans and Leases by Geographic Region (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| West | $ | 11,734.4 | 31.4 | % | $ | 11,858.7 | 31.5 | % | |||||
| Northeast | 9,163.4 | 24.5 | % | 9,766.0 | 25.9 | % | |||||||
| Midwest | 4,503.5 | 12.0 | % | 4,241.9 | 11.3 | % | |||||||
| Southwest | 4,014.8 | 10.7 | % | 4,112.8 | 10.9 | % | |||||||
| Southeast | 3,421.6 | 9.2 | % | 3,299.5 | 8.8 | % | |||||||
| Total U.S. | 32,837.7 | 87.8 | % | 33,278.9 | 88.4 | % | |||||||
| Canada | 1,383.8 | 3.7 | % | 1,199.8 | 3.2 | % | |||||||
| Europe | 1,335.2 | 3.6 | % | 1,154.5 | 3.1 | % | |||||||
| Asia / Pacific | 878.8 | 2.3 | % | 1,100.1 | 2.9 | % | |||||||
| All other countries | 956.0 | 2.6 | % | 924.7 | 2.4 | % | |||||||
| Total | $ | 37,391.5 | 100.0 | % | $ | 37,658.0 | 100.0 | % | |||||
Ten Largest Accounts
Our ten largest loan and lease accounts, primarily lessors of rail assets and factoring clients, in the aggregate represented 4.8%4.6% of our total loans and leases at September 30, 20172018 (the largest account was less than 1.0%). The ten largest loan and lease accounts were 4.2%4.4% of total loans and leases at December 31, 2016.
Geographic Concentrations
The following table represents the commercial loans and leases by obligor geography:
Commercial Loans and Leases by Obligor - Geographic Region (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Northeast | $ | 8,129.7 | 26.1 | % | $ | 8,643.0 | 27.9 | % | |||||
| West | 7,237.9 | 23.3 | % | 7,168.7 | 23.1 | % | |||||||
| Midwest | 4,304.7 | 13.9 | % | 4,027.8 | 13.0 | % | |||||||
| Southwest | 3,919.2 | 12.6 | % | 4,016.7 | 12.9 | % | |||||||
| Southeast | 2,967.7 | 9.5 | % | 2,789.3 | 9.0 | % | |||||||
| Total U.S. | 26,559.2 | 85.4 | % | 26,645.5 | 85.9 | % | |||||||
| Canada | 1,383.8 | 4.4 | % | 1,199.8 | 3.9 | % | |||||||
| Europe | 1,335.2 | 4.3 | % | 1,154.5 | 3.7 | % | |||||||
| Asia / Pacific | 878.8 | 2.8 | % | 1,100.1 | 3.5 | % | |||||||
| All other countries | 956.0 | 3.1 | % | 924.7 | 3.0 | % | |||||||
| Total | $ | 31,113.0 | 100.0 | % | $ | 31,024.6 | 100.0 | % | |||||
Commercial Loans and Analysis and Leases by Obligor - Geographic Region (dollars in millions)Item 3. Quantitative and Qualitative Disclosures about Market Risk 87
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Northeast | $ | 8,425.5 |
|
|
| 25.6 | % |
| $ | 8,646.1 |
|
|
| 27.3 | % |
West |
| 7,542.3 |
|
|
| 23.0 | % |
|
| 7,349.9 |
|
|
| 23.2 | % |
Midwest |
| 4,842.8 |
|
|
| 14.7 | % |
|
| 4,448.7 |
|
|
| 14.0 | % |
Southwest |
| 4,555.3 |
|
|
| 13.9 | % |
|
| 3,970.2 |
|
|
| 12.5 | % |
Southeast |
| 3,277.8 |
|
|
| 10.0 | % |
|
| 2,902.5 |
|
|
| 9.2 | % |
Total U.S. |
| 28,643.7 |
|
|
| 87.2 | % |
|
| 27,317.4 |
|
|
| 86.2 | % |
Canada |
| 1,379.8 |
|
|
| 4.2 | % |
|
| 1,326.4 |
|
|
| 4.2 | % |
Europe |
| 1,358.5 |
|
|
| 4.1 | % |
|
| 1,444.1 |
|
|
| 4.5 | % |
Asia / Pacific |
| 512.9 |
|
|
| 1.6 | % |
|
| 720.8 |
|
|
| 2.2 | % |
All other countries |
| 941.9 |
|
|
| 2.9 | % |
|
| 905.5 |
|
|
| 2.9 | % |
Total | $ | 32,836.8 |
|
|
| 100.0 | % |
| $ | 31,714.2 |
|
|
| 100.0 | % |
The following table summarizes both state concentrations greater than 5.0% and international country concentrations in excess of 1.0% of our loans and leases:
Commercial Loans and Leases by Obligor - State and Country (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California | $ | 5,583.0 |
|
|
| 17.0 | % |
| $ | 5,430.5 |
|
|
| 17.1 | % |
Texas |
| 3,693.3 |
|
|
| 11.2 | % |
|
| 3,223.7 |
|
|
| 10.2 | % |
New York |
| 3,237.9 |
|
|
| 9.9 | % |
|
| 3,195.7 |
|
|
| 10.1 | % |
All other states |
| 16,129.5 |
|
|
| 49.1 | % |
|
| 15,467.5 |
|
|
| 48.8 | % |
Total U.S. |
| 28,643.7 |
|
|
| 87.2 | % |
|
| 27,317.4 |
|
|
| 86.2 | % |
Country |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| 1,379.8 |
|
|
| 4.2 | % |
|
| 1,326.4 |
|
|
| 4.2 | % |
France |
| 348.1 |
|
|
| 1.1 | % |
|
| 383.8 |
|
|
| 1.2 | % |
Marshall Islands |
| 337.6 |
|
|
| 1.0 | % |
|
| 442.5 |
|
|
| 1.4 | % |
All other countries |
| 2,127.6 |
|
|
| 6.5 | % |
|
| 2,244.1 |
|
|
| 7.0 | % |
Total International | $ | 4,193.1 |
|
|
| 12.8 | % |
| $ | 4,396.8 |
|
|
| 13.8 | % |
Commercial Loans and Leases by Obligor - State and Country (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| State | |||||||||||||
| California | $ | 5,298.6 | 17.0 | % | $ | 5,220.8 | 16.8 | % | |||||
| Texas | 3,146.9 | 10.1 | % | 3,296.3 | 10.6 | % | |||||||
| New York | 2,997.7 | 9.7 | % | 3,084.0 | 10.0 | % | |||||||
| All other states | 15,116.0 | 48.6 | % | 15,044.4 | 48.5 | % | |||||||
| Total U.S. | 26,559.2 | 85.4 | % | 26,645.5 | 85.9 | % | |||||||
| Country | |||||||||||||
| Canada | 1,383.8 | 4.4 | % | 1,199.8 | 3.9 | % | |||||||
| Marshall Islands | 544.1 | 1.7 | % | 632.2 | 2.0 | % | |||||||
| France | 392.7 | 1.3 | % | 268.5 | 0.9 | % | |||||||
| All other countries | 2,233.2 | 7.2 | % | 2,278.6 | 7.3 | % | |||||||
| Total International | $ | 4,553.8 | 14.6 | % | $ | 4,379.1 | 14.1 | % | |||||
The following table represents loans and leases by industry of obligor:
Commercial Loans and Leases by Obligor - Industry (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
Real Estate | $ | 5,222.5 |
|
|
| 15.9 | % |
| $ | 5,224.8 |
|
|
| 16.5 | % |
Manufacturing(1) |
| 5,148.3 |
|
|
| 15.7 | % |
|
| 4,729.8 |
|
|
| 14.9 | % |
Retail(2) |
| 2,736.9 |
|
|
| 8.3 | % |
|
| 2,531.2 |
|
|
| 8.0 | % |
Energy and utilities |
| 2,510.3 |
|
|
| 7.6 | % |
|
| 2,253.3 |
|
|
| 7.1 | % |
Wholesale |
| 2,230.1 |
|
|
| 6.8 | % |
|
| 2,343.7 |
|
|
| 7.4 | % |
Rail |
| 1,713.6 |
|
|
| 5.2 | % |
|
| 1,916.7 |
|
|
| 6.1 | % |
Business Services |
| 1,675.8 |
|
|
| 5.1 | % |
|
| 1,559.0 |
|
|
| 4.9 | % |
Oil and gas extraction / services |
| 1,580.2 |
|
|
| 4.8 | % |
|
| 1,437.6 |
|
|
| 4.5 | % |
Healthcare |
| 1,574.8 |
|
|
| 4.8 | % |
|
| 1,458.0 |
|
|
| 4.6 | % |
Service industries |
| 1,561.6 |
|
|
| 4.8 | % |
|
| 1,464.5 |
|
|
| 4.6 | % |
Finance and insurance |
| 1,328.1 |
|
|
| 4.1 | % |
|
| 1,183.8 |
|
|
| 3.7 | % |
Maritime |
| 1,146.2 |
|
|
| 3.5 | % |
|
| 1,341.8 |
|
|
| 4.2 | % |
Transportation |
| 927.2 |
|
|
| 2.8 | % |
|
| 810.7 |
|
|
| 2.6 | % |
Other (no industry greater than 2%) |
| 3,481.2 |
|
|
| 10.6 | % |
|
| 3,459.3 |
|
|
| 10.9 | % |
Total | $ | 32,836.8 |
|
|
| 100.0 | % |
| $ | 31,714.2 |
|
|
| 100.0 | % |
Commercial Loans and Leases by Obligor - Industry (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Real Estate | $ | 5,148.5 | 16.6 | % | $ | 4,988.5 | 16.1 | % | |||||
Manufacturing(1) | 4,668.0 | 15.0 | % | 4,478.7 | 14.4 | % | |||||||
Retail(2) | 2,589.8 | 8.3 | % | 2,296.3 | 7.4 | % | |||||||
| Wholesale | 2,276.5 | 7.3 | % | 2,178.2 | 7.0 | % | |||||||
| Energy and utilities | 2,156.9 | 6.9 | % | 2,224.4 | 7.2 | % | |||||||
| Rail | 1,849.6 | 5.9 | % | 2,088.5 | 6.7 | % | |||||||
| Maritime | 1,515.2 | 4.9 | % | 1,660.2 | 5.4 | % | |||||||
| Oil and gas extraction / services | 1,410.2 | 4.5 | % | 1,516.7 | 4.9 | % | |||||||
| Service industries | 1,361.2 | 4.4 | % | 1,533.7 | 4.9 | % | |||||||
| Business Services | 1,359.4 | 4.4 | % | 1,424.0 | 4.6 | % | |||||||
| Healthcare | 1,304.9 | 4.2 | % | 1,325.3 | 4.3 | % | |||||||
| Finance and insurance | 1,270.0 | 4.1 | % | 698.6 | 2.3 | % | |||||||
| Transportation | 1,239.6 | 4.0 | % | 1,337.6 | 4.3 | % | |||||||
| Other (no industry greater than 2%) | 2,963.2 | 9.5 | % | 3,273.9 | 10.5 | % | |||||||
| Total | $ | 31,113.0 | 100.0 | % | $ | 31,024.6 | 100.0 | % | |||||
(1) | At September 30, |
(2) | At September 30, |
The following table presents our total outstanding consumer loans, including PCI loans. During the quarter ended September 30, 2017, the reverse mortgage loan portfolio was transferred toloans and loans held for sale and is included in the table below. The consumer PCI loans are included in the total outstanding and displayed separately, net of purchase accounting adjustments.sale. PCI loans are discussed in more detail in Note 3 — Loans.
Consumer Loans (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Net Investment |
|
| % of Total |
|
| Net Investment |
|
| % of Total |
| ||||
Single family residential | $ | 5,825.9 |
|
|
| 98.3 | % |
| $ | 5,390.3 |
|
|
| 84.2 | % |
Home Equity Lines of Credit |
| 101.6 |
|
|
| 1.7 | % |
|
| 149.6 |
|
|
| 2.4 | % |
Reverse mortgage |
| — |
|
|
| — | % |
|
| 861.0 |
|
|
| 13.4 | % |
Other consumer |
| 0.7 |
|
|
| — | % |
|
| 0.8 |
|
|
| — | % |
Total loans | $ | 5,928.2 |
|
|
| 100.0 | % |
| $ | 6,401.7 |
|
|
| 100.0 | % |
See Note 3 — Loans in Item 1. Consolidated Financial Statements.
Consumer Loans (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Net Investment | % of Total | Net Investment | % of Total | ||||||||||
| Single family residential | $ | 5,245.1 | 83.6 | % | $ | 5,501.6 | 82.9 | % | |||||
| Reverse mortgage | 862.1 | 13.7 | % | 891.8 | 13.5 | % | |||||||
| Home Equity Lines of Credit | 170.1 | 2.7 | % | 237.1 | 3.6 | % | |||||||
| Other consumer | 1.2 | – | 2.9 | — | |||||||||
| Total loans | $ | 6,278.5 | 100.0 | % | $ | 6,633.4 | 100.0 | % | |||||
Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes the carrying value of consumer loans, with concentrations in the top five states based upon property address by geographical regions.address.
Consumer Loans Geographic Concentrations (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||||||||||
| Net Investment |
|
| % of Total |
|
| Net Investment |
|
| % of Total |
| ||||
California | $ | 4,224.5 |
|
|
| 71.3 | % |
| $ | 4,230.7 |
|
|
| 66.1 | % |
New York |
| 298.0 |
|
|
| 5.0 | % |
|
| 479.8 |
|
|
| 7.5 | % |
Florida |
| 168.4 |
|
|
| 2.8 | % |
|
| 250.6 |
|
|
| 3.9 | % |
New Jersey |
| 112.7 |
|
|
| 1.9 | % |
|
| 133.0 |
|
|
| 2.1 | % |
Maryland |
| 103.6 |
|
|
| 1.8 | % |
|
| 122.4 |
|
|
| 1.9 | % |
Other States and Territories(1) |
| 1,021.0 |
|
|
| 17.2 | % |
|
| 1,185.2 |
|
|
| 18.5 | % |
| $ | 5,928.2 |
|
|
| 100.0 | % |
| $ | 6,401.7 |
|
|
| 100.0 | % |
Consumer Loans Geographic Concentrations (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Net Investment | % of Total | Net Investment | % of Total | ||||||||||
| California | $ | 4,057.9 | 64.6 | % | $ | 4,217.0 | 63.6 | % | |||||
| New York | 486.6 | 7.7 | % | 524.0 | 7.9 | % | |||||||
| Florida | 254.5 | 4.0 | % | 282.7 | 4.3 | % | |||||||
| New Jersey | 138.4 | 2.2 | % | 159.4 | 2.4 | % | |||||||
| Maryland | 125.6 | 2.0 | % | 137.7 | 2.1 | % | |||||||
Other States and Territories(1) | 1,215.5 | 19.5 | % | 1,312.6 | 19.7 | % | |||||||
| $ | 6,278.5 | 100.0 | % | $ | 6,633.4 | 100.0 | % | ||||||
(1) | No state or territory has a total in excess of 2%. |
The following tables present the components of other assets and other liabilities.
Other Assets (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Tax credit investments and Investments in Unconsolidated Subsidiaries | $ | 308.6 |
|
| $ | 247.6 |
|
Counterparty receivables |
| 202.0 |
|
|
| 241.3 |
|
Current and deferred federal and state tax assets |
| 183.8 |
|
|
| 205.2 |
|
Property, furniture and fixtures |
| 170.8 |
|
|
| 173.9 |
|
Intangible assets |
| 95.0 |
|
|
| 113.0 |
|
Indemnification asset(1) |
| 27.2 |
|
|
| 142.4 |
|
Other(2) |
| 574.6 |
|
|
| 472.1 |
|
Total other assets | $ | 1,562.0 |
|
| $ | 1,595.5 |
|
Other Assets (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Tax credit investments & Investments in Unconsolidated Subsidiaries | 265.6 | 220.2 | |||||
| Counterparty receivables | 263.8 | 437.3 | |||||
| Current and deferred federal and state tax assets | 195.4 | 201.3 | |||||
| Property, furniture and fixtures | 178.9 | 191.1 | |||||
| Indemnification assets | 171.8 | 341.4 | |||||
| Intangible assets, net | 119.1 | 140.7 | |||||
Other(1) | 472.5 | 585.0 | |||||
| Total other assets | $ | 1,667.1 | $ | 2,117.0 | |||
(1) | “Indemnification asset” declined reflecting the reduction in the related estimated contingent liabilities from servicing activities to zero as disclosed in Note 2 – Discontinued Operations and an impairment charge related to covered SFR loans within the remaining indemnification period, as quantified and discussed briefly in Other Non-interest Revenues section and disclosed in Note 3 – Loans in the Credit Quality Information section. |
(2) | “Other” includes executive retirement plan and deferred compensation, prepaid expenses, accrued interest and dividends, servicing advances, OREO and other miscellaneous assets. |
Other Liabilities (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Accrued expenses and accounts payable | $ | 576.4 |
|
| $ | 584.8 |
|
Current and deferred taxes payable |
| 229.5 |
|
|
| 204.3 |
|
Fair value of derivative financial instruments |
| 129.1 |
|
|
| 87.5 |
|
Accrued interest payable |
| 59.4 |
|
|
| 86.6 |
|
Other liabilities(1) |
| 467.5 |
|
|
| 473.9 |
|
Total other liabilities | $ | 1,461.9 |
|
| $ | 1,437.1 |
|
Other Liabilities (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Accrued expenses and accounts payable | $ | 530.9 | $ | 580.4 | |||
| Current and deferred taxes payable | 229.7 | 250.6 | |||||
| Fair value of derivative financial instruments | 80.2 | 69.0 | |||||
| Accrued interest payable | 59.8 | 181.2 | |||||
Other(1) | 595.5 | 816.4 | |||||
| Total other liabilities | $ | 1,496.1 | $ | 1,897.6 | |||
(1) | Other consists of liabilities for taxes other than income, fair value of derivative financial instruments, equipment maintenance reserves, cash collateral deposits and contingent liabilities and other miscellaneous liabilities. |
CIT’s Risk Management Group (“RMG”) has established a Risk Governance Framework that is designed to promote appropriate risk identification, measurement, monitoring, management and control.
Interest Rate Risk (a component of Market Risk)
CIT is exposed to the risk that changes in market conditions may negatively impact earnings. The risk arises from the composition of CIT’s balance sheet and changes in the magnitude or shape of the yield curve. CIT looks to strategically manage this inherent risk based on prescribed guidelines and Board approved limits.
Interest rate risk arisescan arise from many of CIT’s business activities such as: lending, leasing, investments, deposit taking and funding, asfunding. This risk is a result of assets and liabilities repricerepricing at different times as interest rates change. We evaluate and monitor interest rate risk primarily through two metrics.
Net Interest Income Sensitivity (“NII Sensitivity”), which measures the net impact of hypothetical changes in interest rates on forecasted net finance revenue, for our interest rate sensitive assets, liabilities, and off-balance sheet instruments, assuming a static |
Economic Value of EquitySensitivity (“EVE Sensitivity"), which measures the typenet impact of products offered (fixed/floating rate loans and deposits), investments, funding and hedging activities. Our assets are primarily comprised of commercial loans, consumer loans, equipment owned and leased, cash and investments. Our leasing products are level/fixed payment transactions, whereas the paymentsthese hypothetical changes on the majorityvalue of our commercial loan portfolio is variable based on a floating rate index such as LIBOR or Prime. Our commercial portfolio includes approximately $13.5 billionequity by assessing the economic value of fixed-rate (of which $6.7 billion is operating lease equipment)assets, liabilities and $15.1 billion of floating rate assets. Our consumer loan portfolio has hybrid, floating rate and level/fixed payment assets (comprised of 47% of unpaid principal balance). Our interest bearing deposits at banks have generally short durations and reprice frequently. We use a variety of funding sources, including online, branch, commercial, and brokered deposit channels as well as wholesale debt funding, including FHLB advances. With respect to liabilities, time deposits and unsecured debt are fixed-rate, secured debt is a mix of fixed and floating rate, and the rates on savings accounts vary based on the market environment and competition. off-balance sheet instruments.
The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position, concentrated at the shortershort end of the yield curve, mostly related todriven by moves in LIBOR, whereby our assets will reprice faster than our liabilities.
Our funding sources consist mainly of non-maturity deposits and time deposits from the online, branch, brokered and commercial channels, as well as wholesale funding (unsecured and secured debt) and FHLB advances. Our funding mix consists of time deposits and unsecured debt which are fixed-rate, secured debt which is a percentmix of total funding. fixed and floating rate, and other deposits whose rates vary based on the market environment and competition.
68
CIT Bank, N.A. sources deposits primarily through a retail branch network in Southern California, and national direct-to-consumer (via the Internet), as well as commercial and brokered channels. At September 30, 2017,2018, deposits totaled approximately $30$31 billion. Time deposits were approximately $15 billion and represented approximately 50% of the total, most of which were sourced through direct channels. The deposit rates we offer can be influenced by market conditions and competitive factors. Beta represents the correlation between changes in overall market interest rates andrelative to the rates paid by CIT Bank. We model a betaCumulative deposit betas on total deposits is 21% since the Fed started raising rates at the end of 2015 and approximately 45% on our non-maturity deposits for a +100 bps rate increase over the nextlast 12 months. We expect the trailing twelve month betas on total deposits to continue to ramp up to approximately 50% by the year end with continued gradual increases into 2019. Changes in interest rates, as well as actions by competitors, can affect our deposit pricing and potentially impact our ability to attract and retain deposits. In a rising rate environment, we may need to increase rates to renew maturing time deposits and attract new deposits. Rates on our savings account deposits may fluctuate due to pricing competition and may also move with short-term interest rates. In general, retail deposits represent a low-cost source of funds and are less sensitive to interest rate changes than floating rate non-deposit funding sources. We regularly test the effect of deposit rate changes on our margins and seek to achieve optimal alignment between assets and liabilities from an interest rate risk management perspective.
The table below summarizes the results of simulation modeling produced by our asset/liability management system. The simulations run require assumptions about rates, time horizons, balance sheet volumes, prepayment speeds, pricing and deposit behaviors, along with other inputs. The results presented below reflect the percentage changesimulation of dollar changes in the EVE and NII Sensitivity over the next twelve months assumingand in the EVE Sensitivity over the life of the interest rate sensitive assets, liabilities and off-balance sheet items. These simulations assume an immediate 100 basis point parallel increase or decrease and an immediate 200 basis point increase in interest rates from the market-based forward curve. The NII sensitivitySensitivity is presented based on a statican assumption that the balance sheet projection.composition and size remains static over the projection period.
NII Sensitivity and EVE Sensitivity (dollars in millions)
| September 30, 2018 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| |||||||||||||||||||||||||||
| +200 bps |
|
| +100 bps |
|
| -100 bps |
|
| +200 bps |
|
| +100 bps |
|
| -100 bps |
|
| +200 bps |
|
| +100 bps |
|
| -100 bps |
| |||||||||
NII Sensitivity | $ | 114 |
|
| $ | 57 |
|
| $ | (64 | ) |
| $ | 138 |
|
| $ | 69 |
|
| $ | (77 | ) |
| $ | 114 |
|
| $ | 57 |
|
| $ | (56 | ) |
EVE Sensitivity | $ | (535 | ) |
| $ | (268 | ) |
| $ | 204 |
|
| $ | (406 | ) |
| $ | (202 | ) |
| $ | 140 |
|
| $ | (374 | ) |
| $ | (192 | ) |
| $ | 196 |
|
| Change to NII and EVE Sensitivity | |||||||||||
| September 30, 2017 | June 30, 2017 | December 31, 2016 | |||||||||
| +100 bps | –100 bps | +100 bps | –100 bps | +100 bps | –100 bps | ||||||
| NII | 3.6% | (3.6)% | 4.4% | (4.5)% | 3.2% | (2.4)% | |||||
| EVE | (0.9)% | 1.0% | (0.6)% | 0.9% | (2.1)% | 2.3% | |||||
We have modified our presentation in the above table from a percentage of sensitivity in previous periods in order to provide a more transparent view of the simulation’s impact from rate changes on interest sensitive assets, liabilities and off-balance sheet instruments. We have also refined the simulation to remove sensitivity related to rail operating leases as the repricing of these assets do not exhibit a correlation to the movement in interest rates and instead are primarily driven by other factors that impact supply and demand of railcars. While rail assets comprise almost 20% of our average earning assets, this change had a minimal impact on the dollar sensitivity. See the net operating lease revenue discussion in the Net Finance Revenue section of MD&A for additional information on rail operating lease re-pricing. The prior period numbers have been conformed to the current period presentation.
As of September 30, 2017, we ran a range of scenarios, including a 200 basis point parallel increase scenario, which resulted in an2018, the NII Sensitivity changes from June 30, 2018 (see table above) reflect the changes in balance sheet composition from the net deployment of 7.3%cash into liability reduction actions and anloan originations over the quarter.
Changes in EVE of (1.9)%, whileSensitivity reflect a 200 basis point decline scenario was not runmix shift in the current rate environmentcomposition of our deposits as the scenario is less relevant. We have an assumed rate floor of 0% for the decline scenarios.
As detailed above, NII sensitivitySensitivity, is positive with respect to an increase in interest rates. This position is primarily driven by our floating rate loan portfolio, which reprices frequently, and interest-bearing cash. Our floating rate loan portfolio includes approximately $7.4 billion of loans ($2.7 billion of commercial loans and $4.7 billion of consumer loans) that are subject to interest rate floors, of which approximately $0.6 billion are still below their floors. On a net basis, we generally have more floating/repricing interest sensitive assets than liabilities in the near term. As a result, the interest rate risk sensitivity of our current portfolio is more sensitive toimpacted by moves in short-term interest rates in the near term. Therefore, our net finance revenue associated with the interest incomerate sensitive assets, liabilities and off-balance sheet items may increase if short-term interest rates rise, or decrease if short-term interest rates decline. However, changes would also be impacted by factors beyond interest rates, such as changes in balance sheet composition, spread compression and deviations from modelled deposit betas. In addition, repricing of our non interest rate sensitive assets (in particular the rail operating leases) will impact net finance revenue.
Market-implied forward rates over the future twelve months are used to determine a base interest rate scenario for the net interest income projection for the base case. This base projection is compared with those calculated under varying interest rate scenarios such as a 100 basis point parallel rate shift to arrive at NII Sensitivity.
EVE Sensitivity complements net interest income simulation and sensitivity analysis as it estimates risk exposures beyond a twelve month horizon. EVE Sensitivity modeling measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to a fluctuationchange in interest rates. EVE Sensitivity is calculated by subjecting the balance sheet to different rate shocks, measuring the net value of assets, liabilities and off-balance sheet instruments, and comparing those amounts with the EVE sensitivityin base case calculated using a market basedmarket-based forward interest rate curve. The methodology with which the operating lease assets are assessed in the EVE Sensitivity results in the table above reflects the existing contractual rental cash flows and the expected residual value at the end of the existing contract term.
69
The simulation modeling for both NII Sensitivity and EVE Sensitivity assumes we take no action in response to the changes in interest rates.rates and includes only impacts from interest rate related influences. NII Sensitivity generally assumes cash flowflows from portfolio run-off isare reinvested in similar products.
A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. All interest sensitive assets, liabilities and liabilitiesoff-balance sheet instruments are valued using discounted cash flow analysis.analysis for EVE Sensitivity. Rates are shocked up and down via a set of scenarios that include both parallel and non-parallel interest rate movements. Scenarios are also run to capture our sensitivity to changes in the shape of the yield curve. Furthermore, we evaluate the sensitivity of these results to a number of key assumptions, such as credit quality, spreads and prepayments.
NII Sensitivity and EVE Sensitivity limits have been set and are monitored for certain of the key scenarios. We manage the exposure to changes in NII Sensitivity and EVE Sensitivity in accordance with our risk appetite and within Board approved limits.
We use results of our various interest rate risk analyses to formulate asset and liability management (“ALM”) strategies, in coordination with the Asset Liability Committee (“ALCO”), in order to achieve the desired risk profile, while managing our objectives for capital adequacy and liquidity risk exposures. Specifically, we may manage our interest rate risk position through certain pricing strategies for loans and deposits, our investment strategy, issuing term debt with floating or fixed interest rates, and using derivatives such as interest rate swaps, which modify the interest rate characteristics of certain assets or liabilities.
These measurements provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, and prepayment characteristics of our balance sheet.sheet, changes in PAA, or changes in the competition for business in the industries we serve. They also do not account for other business developments that could affect income,net finance revenue, or for management actions that could affect incomenet finance revenue or that could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, the range of such simulations does not represent our current view of the expected range of future interest rate movements.
CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events including unanticipated funding obligations, such as customer line draws, or disruptions to our access to capital markets or other funding sources. Primary sources of liquidity include cash, investment securities and credit facilities as discussed below.
Cash
Cash totaled $3.1$1.4 billion at September 30, 2017,2018, down from $5.3 billion at June 30, 2017, and $6.4$1.7 billion at December 31, 2016.2017, reflecting capital returns during 2018. Cash at September 30, 20172018 consisted of $2.2nearly $1.0 billion at CIT Bank $0.9and $0.4 billion related to the bank holding company and other operating subsidiaries. The lower cash balance reflected the early retirement of unsecured debt, purchases of investment securities, which are an alternative source of liquidity, and an investment in a new bank owned life insurance policy.
Investment Securities
Investment securities consist primarily of High Quality Liquid Asset (“HQLA”) fixed income debt securities
. Investment securitiesLiquidity Regulation
The Basel III Final Rule requires banks and BHCs to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario. Beginning January 1, 2017,Changes in regulatory reporting requirements resulted in CIT no longer being required to disclose its LCR. While CIT is no longer required to disclose certain liquidity measurements, the minimum requirement was 100%. At September 30, 2017, our modified LCR was above 100% at both the BankCompany will continue prudent liquidity management and on a consolidated basis.
Funding Sources
Funding sources consist of deposits and borrowings. As we execute on our strategic initiatives, we plan to continue to increase the proportion of deposits in our funding mix. During the third quarter, we repaid $0.8 billion of unsecured borrowings, bringing the total unsecured borrowings either repaid or redeemed this year to $6.6 billion. See
See
Net Finance Revenue section for a tabular presentation of our average funding mix70
CIT offers its deposits through various channels. The period end balances are as follows:
Deposits by Channel (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Total |
|
| Percent of Total |
|
| Total |
|
| Percent of Total |
| ||||
Online | $ | 14,502.7 |
|
|
| 47 | % |
| $ | 11,756.6 |
|
|
| 40 | % |
Branch |
| 11,545.4 |
|
|
| 37 | % |
|
| 11,665.2 |
|
|
| 39 | % |
Brokered / Other Channel |
| 2,952.8 |
|
|
| 10 | % |
|
| 3,618.3 |
|
|
| 12 | % |
Commercial |
| 1,824.1 |
|
|
| 6 | % |
|
| 2,529.2 |
|
|
| 9 | % |
Total | $ | 30,825.0 |
|
|
| 100 | % |
| $ | 29,569.3 |
|
|
| 100 | % |
Deposits by Channel(1) (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Total | Percent of Total | Total | Percent of Total | ||||||||||
| Branch | $ | 11,721.0 | 40 | % | $ | 12,269.7 | 38 | % | |||||
| Online | 11,526.6 | 38 | % | 10,272.4 | 32 | % | |||||||
| Brokered | 3,797.5 | 13 | % | 5,807.4 | 18 | % | |||||||
| Commercial | 2,549.6 | 9 | % | 3,954.8 | 12 | % | |||||||
| Total | $ | 29,594.7 | 100 | % | $ | 32,304.3 | 100 | % | |||||
The following table details our period end deposit balances by type:
Deposits (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
| Total |
|
| Percent of Total |
|
| Total |
|
| Percent of Total |
| ||||
Checking and Savings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing checking | $ | 1,296.4 |
|
|
| 4 | % |
| $ | 1,352.0 |
|
|
| 5 | % |
Interest bearing checking |
| 1,767.7 |
|
|
| 6 | % |
|
| 2,653.3 |
|
|
| 9 | % |
Other money market / Sweeps |
| 4,794.9 |
|
|
| 15 | % |
|
| 5,075.5 |
|
|
| 17 | % |
Savings and Online money market accounts |
| 8,267.5 |
|
|
| 27 | % |
|
| 5,986.7 |
|
|
| 20 | % |
Time deposits |
| 14,506.8 |
|
|
| 47 | % |
|
| 14,343.8 |
|
|
| 49 | % |
Other |
| 191.7 |
|
|
| 1 | % |
|
| 158.0 |
|
|
| — | % |
Total | $ | 30,825.0 |
|
|
| 100 | % |
| $ | 29,569.3 |
|
|
| 100 | % |
Deposits (dollars in millions) | |||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||
| Total | Percent of Total | Total | Percent of Total | ||||||||||
| Checking and Savings: | |||||||||||||
| Non-interest bearing checking | $ | 1,360.3 | 5 | % | $ | 1,255.6 | 4 | % | |||||
| Interest bearing checking | 2,658.1 | 9 | % | 3,251.8 | 10 | % | |||||||
Money market / Sweeps(1) | 4,927.5 | 17 | % | 6,593.3 | 20 | % | |||||||
| Savings | 5,891.9 | 20 | % | 4,303.0 | 13 | % | |||||||
| Time deposits | 14,584.1 | 49 | % | 16,729.0 | 52 | % | |||||||
| Other | 172.8 | — | % | 171.6 | 1 | % | |||||||
| Total | $ | 29,594.7 | 100 | % | $ | 32,304.3 | 100 | % | |||||
CIT Bank, N.A. offers a full suite of deposit offerings to its commercial and consumer customers through a network of 7069 branches in Southern California and a national online platform. IncreasingDuring 2018, we have executed on our plan to grow the proportion ofonline channel and we have been growing our non-maturity deposits in conjunction with our strategy to optimize deposit funding and lowering costs is a key area of focus for CIT.while working within our risk management discipline. Deposits declined during the quarter,increased, as growth in the online channel was more than offset by declinesthe decline in higher-cost deposits in the brokered channel and higher beta deposits in the commercial channel. Year to date, we have shifted the mix of our deposits, as the decline in longer duration time deposits and higher cost brokered deposits, as well as a reduction of certain commercial deposits was partially offset by an increase in High Yield Savings Accounts. Beginning in late 2016 and through the first half of 2017, there have been increases in the short-term interest rates and a shift in deposit mix. As such, the weighted average rate of deposits was 1.22% for the quarter ended September 30, 2017, compared to 1.20% for the prior quarter. Compared to the year-ago quarter, the weighted average rate on total outstanding deposits increased by 1 basis point from 1.21%, primarily driven by higher interest rates and a shift in deposit mix. See
Borrowings
Borrowings consist of senior unsecured notes, subordinated unsecured notes and secured borrowings (structured financings and FHLB advances), all of which totaled $8.5$8.7 billion in aggregate at September 30, 2017,2018, down from $14.9$9.0 billion at December 31, 2016.2017, reflecting lower FHLB borrowings. The weighted average coupon rate of borrowings at September 30, 20172018, was 3.35%3.97%, downup from 4.20%3.30% at December 31, 2016,2017, reflecting the issuance of subordinated unsecured debt redemptions.
Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and terms of our existing indebtedness, including the Revolving Credit Facility, the Dutch TRS Facility and seniorsecured and unsecured borrowings, we may repay, repurchase, exchange or redeem outstanding senior unsecured borrowings, repay the Revolving Credit Facility, TRS Facilityindebtedness, or otherwise enter into transactions regarding our debt or capital structure. For example, we may periodically evaluate and may engage in liability management transactions, including repurchases of outstanding senior unsecured notes funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to mitigate refinancing risk by actively managing our debt maturity profile and interest cost.
See Note 6 — Borrowings and Note 14 – Subsequent Events.
Unsecured Borrowings
Revolving Credit Facility
There were no borrowings outstanding under the Revolving Credit Facility, which had a total commitment of $750 million at September 30, 2017, and the amount available to draw upon was approximately $675 million, with the remaining amount of approximately $75 million utilized for issuance of letters of credit.
At September 30, 2017,2018, senior unsecured borrowingsnotes outstanding totaled $3.7$3.8 billion and the weighted average coupon rate was 4.81%4.97%, down from $10.6compared to $3.7 billion and 5.03%, respectively, as of4.81% at December 31, 2016.2017. As noted in the following sentences, we redeemed various notes coming due and issued new notes that resulted in extending our maturity profile. During the first quarter, CIT issued $500 million, aggregate principal amount of 4.125% senior unsecured notes due 2021 and $500 million, aggregate principal amount of 5.250% senior unsecured notes due 2025. In April 2018, $883 million of the proceeds were used to repay $500 million of the outstanding 3.875% senior unsecured notes due February 2019 and all of the $383 million outstanding of the 5.500% senior unsecured notes due February 2019. During the third quarter, CIT issued $500 million aggregate principal amount of 4.75% senior unsecured notes due February 2024 and redeemed the remaining approximately $500 million outstanding of the 3.875% senior unsecured notes due February 2019.
On October 19 and November 2, 2018, we announced our intent to redeem the outstanding 5.375% senior unsecured notes due May 2020, which totaled approximately $431 million at September 30, 2018, which we will redeem using net proceeds from the NACCO sale and the sale of rail assets to CIT Bank. The reductionunsecured debt redemptions are expected to result in balance related to the tender and repaymentsdebt extinguishment losses of approximately $0.8 billion$15 million in the fourth quarter.
Subordinated Unsecured Notes
During the first quarter, CIT issued $400 million of 10-year subordinated unsecured notes with a coupon of 6.125%, which allowed us to increase the common equity distribution in accordance with the Amended Capital Plan that ended in June 2018.
The weighted average coupon of our unsecured senior and $5.8 billionsubordinated notes increased to 5.05% from 4.95% at June 30, 2018 and 4.89% at March 31, 2018, the first quarter after the issuance of the subordinated notes. During this period, we extended the weighted average maturity profile of the combined unsecured borrowings during the thirdsenior and second quarters, respectively, as described in detail in Note 6 — Borrowings in Item 1. Consolidated Financial Statements.
Secured Borrowings
We may pledge assets for secured financing transactions, which include borrowings from the FHLB and/or FRB, conduit securitizations, or for other purposes as required or permitted by law. Our secured financing transactions do not meet accounting requirements for sale treatment and are recorded as secured borrowings, with the assets remaining on-balance sheet pursuant to GAAP. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, loans, leases and/or underlying equipment. Certain related cash balances are restricted.
FHLB Advances
CIT Bank is a member of the FHLB of San Francisco and may borrow under a line of credit that is secured by pledged collateral. The Bank makes decisions regarding utilization of advances based upon a number of factors, including available collateral, liquidity needs, cost of funds and alternative sources of funding.
FHLB Balances (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Total borrowing capacity | $ | 5,501.7 |
|
| $ | 5,217.8 |
|
Less: |
|
|
|
|
|
|
|
Advances |
| (3,150.0 | ) |
|
| (3,695.5 | ) |
Letters of credit |
| (2.3 | ) |
|
| (87.8 | ) |
Available capacity | $ | 2,349.4 |
|
| $ | 1,434.5 |
|
Weighted average rate |
| 2.37 | % |
|
| 1.56 | % |
Pledged assets | $ | 6,602.5 |
|
| $ | 6,154.1 |
|
FHLB Balances (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Total borrowing capacity | $ | 4,943.7 | $ | 5,462.4 | |||
| Less: | |||||||
| Advances | (3,145.5 | ) | (2,410.8 | ) | |||
| Letters of credit | (65.9 | ) | (758.3 | ) | |||
| Available capacity | $ | 1,732.3 | $ | 2,293.3 | |||
| Weighted average rate | 1.44 | % | 1.18 | % | |||
| Pledged assets | $ | 5,906.5 | $ | 6,389.7 | |||
FHLB Advances and pledged assets are also discussed in
Note 6 — BorrowingsOther Secured and Structured Financings
Structured financings totaled $1.6$1.3 billion at September 30, 2017,2018, and $1.9$1.5 billion at December 31, 2016.2017. The weighted average coupon rate of structured financings was 3.62%4.31% at September 30, 2017,2018, up from 3.39%3.75% at December 31, 2016,2017, reflecting increases in benchmark rates and repayment of lower coupon debt tranches.
There were no structured financings at CIT Bank, N.A. structured financings totaled $102 million at September 30, 20172018, and $241$74 million at December 31, 2016,2017, which were secured by pledged assets of $177 million and $345 million, respectively.$146 million. Non-CIT Bank, N.A. structured financings were $1.5$1.3 billion and $1.7$1.4 billion at September 30, 20172018 and December 31, 2016,2017, respectively, and were secured by $4.3$4.1 billion of pledged assets at September 30, 20172018, and $3.8$4.0 billion of pledged assets at December 31, 2016.
In October 2018, we redeemed all of the Railcar Securitization related to the Dutch TRS Facility of approximately $465 million, which resulted in approximately $775 million of rail assets becoming unencumbered. In addition, the buyer of NACCO assumed secured borrowings, which were $104 million at September 30, 2018 and
pledged assets of $179 million. The Optional Termination Fee and the reduction of the liability associated with the TRS Derivative are expected to result in net pretax charges for the Company of approximately $70 - $75 million in the fourth quarter of 2018. See Note 7 — Derivative Financial Instruments for discussion of the Dutch TRS Facility and Note 14 — Subsequent Events for discussions related to the termination of the Dutch TRS Facility and redemption of the Railcar Securitization.72
At September 30, 2018, we maintained additional liquidity sources in the form of:
A multi-year committed Revolving Credit Facility that has a total return swap.commitment of $500 million, of which approximately $458 million was available to be drawn; and
Committed securitization facilities and secured bank lines totaled $2.1 billion, of which $936 million was unused at September 30, 2018, provided that eligible assets are available that can be used for short-term, typically overnight, borrowings. The borrowing capacity is determined by the funded through these facilities.
FRB based on the collateral pledged.
There were no outstanding borrowings with the FRB Discount Window as of September 30, 20172018, or December 31, 2016.2017. See
Debt Ratings
Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company’s liquidity and financial condition.
CIT and CIT Bank, N.A. debt ratings, as rated by Standard & Poor’s Ratings Services (“S&P”), Fitch Ratings, Inc. (“Fitch”), Moody’s Investors Service (“Moody’s”) and DBRS Inc. (“DBRS”) are presented in the following table:
Ratings
S&P | Fitch | Moody’s | DBRS | ||||
Last Credit Update | 10/12/ | 1/10/18 | 10/17/18 | 4/4/18 | |||
CIT Group Inc. | |||||||
Issuer | BB+ | BB+ | N/A | BB | |||
Long Term Senior Unsecured Debt | BB+ | BB+ | Ba1 | BB (high) | |||
Short Term Instruments | B | B | N/A | R-4 | |||
Revolving Credit Facility Rating | N/A | BB+ | Ba1 | BBB | |||
Subordinated Debt | BB | BB | Ba1 | BB | |||
Non-Cumulative Perpetual | B+ | B | Ba3 | B(high) | |||
Outlook | Stable | Stable | Positive | Positive | |||
CIT Bank, N.A. | |||||||
Issuer Rating | BBB- | BB+ | Ba1 | BBB (low) | |||
Deposit Rating (LT/ST) | N/A | BBB-/F3 | Baa1/P-2 | BBB | |||
Outlook | Stable | Stable | Positive | ||||
Positive | |||||||
N/A — Not Applicable
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes, including as a result of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Potential changes in rating methodology as well as in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above could impact our liquidity and financial condition.
A debt rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Contractual Commitments
Commitment Expiration for the Twelve Months Ended September 30 (dollars in millions)
| Total |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023+ |
| ||||||
Financing commitments | $ | 6,483.0 |
|
| $ | 2,421.3 |
|
| $ | 890.8 |
|
| $ | 1,236.9 |
|
| $ | 1,064.1 |
|
| $ | 869.9 |
|
Rail and other purchase commitments |
| 427.0 |
|
|
| 393.2 |
|
|
| 33.7 |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Letters of credit |
| 254.4 |
|
|
| 42.6 |
|
|
| 17.1 |
|
|
| 71.7 |
|
|
| 41.2 |
|
|
| 81.8 |
|
Deferred purchase agreements |
| 2,082.7 |
|
|
| 2,082.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Liabilities for unrecognized tax benefits (1) |
| 13.2 |
|
|
| 1.0 |
|
|
| 12.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual commitments | $ | 9,260.3 |
|
| $ | 4,940.8 |
|
| $ | 953.8 |
|
| $ | 1,308.6 |
|
| $ | 1,105.3 |
|
| $ | 951.8 |
|
(1) | The balance for 2020 reflects the remaining balance, which cannot be estimated further. |
73
Commitment Expiration for the Twelve Months Ended September 30 (dollars in millions) | |||||||||||||||||||||||
| Total | 2018 | 2019 | 2020 | 2021 | 2022+ | ||||||||||||||||||
| Financing commitments | $ | 6,284.9 | $ | 1,822.7 | $ | 696.9 | $ | 1,297.9 | $ | 1,139.1 | $ | 1,328.3 | |||||||||||
| Rail and other purchase commitments | 227.4 | 227.4 | — | — | — | — | |||||||||||||||||
| Letters of credit | 227.1 | 48.5 | 56.2 | 20.4 | 60.5 | 41.5 | |||||||||||||||||
| Deferred purchase agreements | 2,224.5 | 2,224.5 | — | — | — | — | |||||||||||||||||
| Guarantees, acceptances and other recourse obligations | 1.5 | 1.5 | — | — | — | — | |||||||||||||||||
Liabilities for unrecognized tax obligations(1) | 13.7 | 5.0 | 8.7 | — | — | — | |||||||||||||||||
| Total contractual commitments | $ | 8,979.1 | $ | 4,329.6 | $ | 761.8 | $ | 1,318.3 | $ | 1,199.6 | $ | 1,369.8 | |||||||||||
See Note 1211 — Commitments in Item 1. Consolidated Financial Statements for further detail.
Capital Management
With the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, CIT manages its capital position to ensure that it is sufficient to: (i) support the risks of its businesses, (ii) maintain a “well-capitalized” status under regulatory requirements, and (iii) provide flexibility to take advantage of future investment opportunities. Capital in excess of these requirements is available to distribute to shareholders,no longer subject to a “non-objection” to our capital plan from the FRB.
While CIT was subject to submit an annual capital plan and demonstrate that it can meet minimum capital requirements over a nine quarter planning horizon under multiple stress scenarios.
On June 28, 2018, CIT announced that the Board of Directors (the “Board”) approved a common equity capital return of up to $750 million (exclusive of the quarterly cash dividend). The Company will determine the timing and amount of any share repurchases, special dividends, or combination of the two that may be authorized based on market conditions and other considerations. Any share repurchases may be effected in the open market, through derivative, accelerated repurchase and other negotiated transactions, and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934.
CIT’s capital management is discussed further in its Annual Report on Form 10-K for the year ended December 31, 20162017 in the “Regulation” section of Item 1. Business Overview with respect to capital and regulatory matters, including “Capital Requirements” and “Stress Test and Capital Plan Requirements”.
Return of Capital
During the third quarter of 2018, CIT repurchased an aggregate of $3.4 billion of5.5 million common shares through a combination of an equity tender offer,via open market repurchases (“OMRs”) for a total of shares ("OMR") and an accelerated share repurchase program ("ASR"). The equity tender resulted in the Company repurchasing approximately 57.3$290.9 million, common shares at a purchase price of $48 per share (total of approximately $2.75 billion). The OMRs resulted in the repurchase of 818,071 common shares at an average price of $46.45 per$52.91. During the nine months ended September 30, 2018, CIT repurchased 21.7 million common shares for a total of $1,165.8 million in common shares, via OMRs and a tender offer, at an average share price of $53.83. The Company has purchased in the second quarter of 2017 and 2,660,893 commonopen market an additional $242.0 million, or 5.0 million shares, at an average purchase price of $44.82 per$48.58 from October 1 through October 31, 2018. There is $217.1 million remaining in the current share during the third quarter of 2017. Under the terms of the ASR, CIT paid to the dealer $512 million in exchange for the initial delivery of approximately 9.25 million common shares. During the 3rd quarter of 2017, the ASR final settlement resulted in CIT receiving 1,452,119 common shares. Total average cost of the ASR was $47.82 per share.
We declared and paid the following common and preferred stock dividends in 2017:
2018 Common Stock Series A (the “Preferred Stock”). The shares pay at a perpetual dividend rate (non-cumulative) per annum equal to 5.80% from the original issue date to, but excluding, June 15, 2022. Thereafter, the shares pay at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 3.972% per annum. Dividends are paid semi-annually in arrears on June 15 and December 15, beginning on December 15, 2017 and ending on June 15, 2022. Thereafter, dividends will be paid quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. The Issuer may redeem the Preferred Stock at its option, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without regard to any undeclared dividends, (i) in whole or in part, from time to time, on any dividend payment date on or after June 15, 2022, or (ii) in whole, but not in part, within 90 days following the occurrence of a “regulatory capital treatment event”. Net proceeds were $318.0 million.
Declaration Date | Payment Date |
| Per Share Dividend |
| |
January 22, 2018 | February 23, 2018 |
| $ | 0.16 |
|
April 16, 2018 | May 25, 2018 |
| $ | 0.16 |
|
July 17, 2018 | August 24, 2018 |
| $ | 0.25 |
|
October 15, 2018 | November 27, 2018 |
| $ | 0.25 |
|
On October 16, 2017,15, 2018, the Board of Directors of the Company declared a semi-annual preferredquarterly cash dividend in the amount of $30.29$0.25 per preferred share on outstanding preferred stock.common share. The preferredcommon stock dividend is payable on December 15, 2017,November 27, 2018 to preferredcommon shareholders of record as of November 13, 2018.
On October 15, 2018, the CIT Board declared a semi-annual dividend in the amount of $29.00 per share on the Series A preferred stock, which is payable on December 17, 2018 to preferred stockholders of record as of November 30, 2017.
Capital Composition and Ratios
The Company is subject to various regulatory capital requirements. We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. The regulatory capital guidelines applicable to the Company were based on the Basel III Final Rule.Rule through September 30, 2018. At September 30, 20172018 and December 31, 2016,2017, the capital ratios of the Company and the Bank exceeded all capital adequacy requirements underrequirements. The December balances in the Basel III Final Rule on a fully phased-in basis.
74
In November 2017, the Federal Reserve Board, together with the OCC and FDIC adopted a final rule effective January 1, 2018 to extend the regulatory capital treatment under 2017 transition provisions for certain items, applicable to banking organizations that are not subject to advanced approaches capital rules (“Transition Final Rule”). These items include regulatory capital deductions, risk weights, and certain minority interest limitations. There were no items that exceeded the deduction threshold at September 30, 2018, for CIT and CIT Bank, therefore balances and ratios were the same for the transition basis and fully-phased-in basis.
Capital Components, Risk-Weighted Assets, and Capital Ratios (dollars in millions)
| September 30, 2018 |
|
| December 31, 2017 |
| ||||||
| Fully Phased-in Basis(5) |
|
| Transition Basis |
|
| Fully Phased-in Basis |
| |||
Common Equity Tier 1 (CET1) Capital |
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders’ equity(1) | $ | 5,995.3 |
|
| $ | 6,995.0 |
|
| $ | 6,995.0 |
|
Effect of certain items in AOCI excluded from CET1 Capital |
| 195.4 |
|
|
| 77.4 |
|
|
| 77.4 |
|
Adjusted total equity |
| 6,190.7 |
|
|
| 7,072.4 |
|
|
| 7,072.4 |
|
Goodwill, net of associated deferred tax liabilities (DTLs)(2) |
| (431.7 | ) |
|
| (436.0 | ) |
|
| (436.0 | ) |
Deferred tax assets (DTAs) arising from net operating loss and tax credit carryforwards |
| (89.8 | ) |
|
| (83.3 | ) |
|
| (104.2 | ) |
Intangible assets, net of associated DTLs(2) |
| (78.6 | ) |
|
| (73.3 | ) |
|
| (91.5 | ) |
Total CET1 Capital |
| 5,590.6 |
|
|
| 6,479.8 |
|
|
| 6,440.7 |
|
Additional Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
| 325.0 |
|
|
| 325.0 |
|
|
| 325.0 |
|
Other Additional Tier 1 Capital deductions(3) |
| (10.9 | ) |
|
| (29.4 | ) |
|
| (8.6 | ) |
Total Additional Tier 1 Capital |
| 314.1 |
|
|
| 295.6 |
|
|
| 316.4 |
|
Total Tier 1 Capital |
| 5,904.7 |
|
|
| 6,775.4 |
|
|
| 6,757.1 |
|
Tier 2 Capital |
|
|
|
|
|
|
|
|
|
|
|
Qualifying Tier 2 Capital Instruments |
| 395.3 |
|
|
| — |
|
|
| — |
|
Qualifying allowance for credit losses and other reserves(4) |
| 524.2 |
|
|
| 475.6 |
|
|
| 475.6 |
|
Total Tier 2 Capital |
| 919.5 |
|
|
| 475.6 |
|
|
| 475.6 |
|
Total Capital | $ | 6,824.2 |
|
| $ | 7,251.0 |
|
| $ | 7,232.7 |
|
Risk-Weighted Assets | $ | 45,193.3 |
|
| $ | 44,537.7 |
|
| $ | 44,687.1 |
|
CIT Ratios |
|
|
|
|
|
|
|
|
|
|
|
CET1 Capital Ratio |
| 12.4 | % |
|
| 14.5 | % |
|
| 14.4 | % |
Tier 1 Capital Ratio |
| 13.1 | % |
|
| 15.2 | % |
|
| 15.1 | % |
Total Capital Ratio |
| 15.1 | % |
|
| 16.3 | % |
|
| 16.2 | % |
Tier 1 Leverage Ratio |
| 12.0 | % |
|
| 13.8 | % |
|
| 13.8 | % |
CIT Bank, N.A. Capital Components and Ratios |
|
|
|
|
|
|
|
|
|
|
|
CET1 Capital | $ | 4,759.4 |
|
| $ | 4,751.6 |
|
| $ | 4,734.2 |
|
Tier 1 Capital |
| 4,759.4 |
|
|
| 4,751.6 |
|
|
| 4,734.2 |
|
Total Capital |
| 5,193.7 |
|
|
| 5,183.3 |
|
|
| 5,165.8 |
|
Risk-Weighted Assets |
| 34,694.1 |
|
|
| 34,527.2 |
|
|
| 34,517.2 |
|
CET1 Capital Ratio |
| 13.7 | % |
|
| 13.8 | % |
|
| 13.7 | % |
Tier 1 Capital Ratio |
| 13.7 | % |
|
| 13.8 | % |
|
| 13.7 | % |
Total Capital Ratio |
| 15.0 | % |
|
| 15.0 | % |
|
| 15.0 | % |
Tier 1 Leverage Ratio |
| 11.6 | % |
|
| 11.8 | % |
|
| 11.8 | % |
Capital Components, Risk-Weighted Assets, and Capital Ratios (dollars in millions, except ratios) | |||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||
| Transition Basis | Fully Phased-in Basis | Transition Basis | Fully Phased-in Basis | ||||||||||||
| Common Equity Tier 1 (CET1) Capital | |||||||||||||||
Total common stockholders’ equity(1) | $ | 7,126.3 | $ | 7,126.3 | $ | 10,002.7 | $ | 10,002.7 | |||||||
| Effect of certain items in accumulated other comprehensive loss excluded from CET1 Capital and qualifying noncontrolling interests | 65.7 | 65.7 | 79.1 | 79.1 | |||||||||||
| Adjusted total equity | 7,192.0 | 7,192.0 | 10,081.8 | 10,081.8 | |||||||||||
Less: Goodwill, net associated deferred tax liabilities (DTLs)(2) | (659.2 | ) | (659.2 | ) | (733.1 | ) | (733.1 | ) | |||||||
| Less: Deferred tax assets (DTAs) arising from net operating loss and tax credit carryforwards | (93.3 | ) | (116.6 | ) | (213.7 | ) | (213.7 | ) | |||||||
Less: Intangible assets, net of associated DTLs(2) | (69.3 | ) | (86.7 | ) | (68.3 | ) | (113.8 | ) | |||||||
Less: Other CET1 Capital deductions (3) | — | — | (7.8 | ) | (17.5 | ) | |||||||||
| Total CET1 Capital | 6,370.2 | 6,329.5 | 9,058.9 | 9,003.7 | |||||||||||
| Additional Tier 1 Capital | |||||||||||||||
| Preferred Stock | 325.0 | 325.0 | — | — | |||||||||||
Less: Other Additional Tier 1 Capital deductions (4) | (55.2 | ) | (31.8 | ) | — | — | |||||||||
| Total Additional Tier 1 Capital | 269.8 | 293.2 | — | — | |||||||||||
| Total Tier 1 Capital | 6,640.0 | 6,622.7 | 9,058.9 | 9,003.7 | |||||||||||
| Tier 2 Capital | |||||||||||||||
Qualifying allowance for credit losses and other reserves(5) | 463.8 | 463.8 | 476.3 | 476.3 | |||||||||||
| Total Capital | $ | 7,103.8 | $ | 7,086.5 | $ | 9,535.2 | $ | 9,480.0 | |||||||
| Risk-Weighted Assets | $ | 44,672.7 | $ | 45,123.5 | $ | 64,586.3 | $ | 65,068.2 | |||||||
| CIT Ratios | |||||||||||||||
| CET1 Capital Ratio | 14.3 | % | 14.0 | % | 14.0 | % | 13.8 | % | |||||||
| Tier 1 Capital Ratio | 14.9 | % | 14.7 | % | 14.0 | % | 13.8 | % | |||||||
| Total Capital Ratio | 15.9 | % | 15.7 | % | 14.8 | % | 14.6 | % | |||||||
| Tier 1 Leverage Ratio | 13.4 | % | 13.4 | % | 13.9 | % | 13.9 | % | |||||||
| CIT Bank, N.A. Ratios | |||||||||||||||
| CET1 Capital Ratio | 13.9 | % | 13.7 | % | 13.4 | % | 13.2 | % | |||||||
| Tier 1 Capital Ratio | 13.9 | % | 13.7 | % | 13.4 | % | 13.2 | % | |||||||
| Total Capital Ratio | 15.1 | % | 15.0 | % | 14.7 | % | 14.4 | % | |||||||
| Tier 1 Leverage Ratio | 11.7 | % | 11.7 | % | 10.9 | % | 10.8 | % | |||||||
(1) | See Condensed Consolidated Balance Sheets for the components of Total common stockholders’ equity. |
(2) | Goodwill and |
(3) | Represents |
(4) | |
| “Other reserves” represents additional credit loss reserves for unfunded lending commitments, letters of credit, and deferred purchase agreements, all of which are recorded in Other Liabilities. |
(5) | At September 30, 2018, the Transition Basis and the Fully Phased-in Basis were the same, as described in the paragraphs preceding this table. |
The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets (dollars in millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Balance sheet assets | $ | 49,262.4 |
|
| $ | 49,278.7 |
|
Risk weighting adjustments to balance sheet assets |
| (9,800.6 | ) |
|
| (10,230.4 | ) |
Off-Balance sheet items |
| 5,731.5 |
| �� |
| 5,489.4 |
|
Risk-Weighted Assets | $ | 45,193.3 |
|
| $ | 44,537.7 |
|
Risk-Weighted Assets (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Balance sheet assets | $ | 49,335.5 | $ | 64,170.2 | |||
| Risk weighting adjustments to balance sheet assets | (10,342.6 | ) | (13,241.6 | ) | |||
| Off-Balance sheet items | 5,679.8 | 13,657.7 | |||||
| Risk-Weighted Assets | $ | 44,672.7 | $ | 64,586.3 | |||
The 20172018 off-balance sheet items primarily reflect $2.8$2.7 billion of unused lines of credit (largely related to the Commercial Finance and Real Estate Finance divisions), $2.2$2.1 billion of deferred purchase agreements (related to the factoring business within the Business Capital division), and $0.7$0.9 billion of other items. The risk-weighted assets for off-balance sheet items as of September 30, 2017 decreased2018 increased slightly from
75
December 31, 20162017 mainly due to the sale of the Commercial Air business, which had
Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Total common stockholders’ equity | $ | 5,995.3 |
|
| $ | 6,995.0 |
|
Less: Goodwill |
| (369.9 | ) |
|
| (369.9 | ) |
Intangible assets |
| (95.0 | ) |
|
| (113.0 | ) |
Tangible book value(1) | $ | 5,530.4 |
|
| $ | 6,512.1 |
|
Book value per share | $ | 54.22 |
|
| $ | 53.25 |
|
Tangible book value per share(1) |
| 50.02 |
|
|
| 49.58 |
|
Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Total common stockholders’ equity | $ | 7,126.3 | $ | 10,002.7 | |||
| Less: Goodwill | (625.5 | ) | (685.4 | ) | |||
| Intangible assets | (119.1 | ) | (140.7 | ) | |||
Tangible book value(1) | $ | 6,381.7 | $ | 9,176.6 | |||
| Book value per share | $ | 54.25 | $ | 49.50 | |||
Tangible book value per share(1) | $ | 48.58 | $ | 45.41 | |||
(1) | Tangible book value and tangible book value per share are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of Non-GAAP to GAAP financial information |
Book value and Tangibletangible book value (“TBV”) decreased from December 31, 2016,2017, primarily reflecting the capital actions completed through September 2017.30, 2018. Book Value and Tangible book value per share increased as a result of approximately 71.5 million common shares being repurchased since December 31, 2016.
CIT Bank reports regulatory capital ratios in accordance with the Basel III Final Rule and determines risk weighted assets under the Standardized Approach.
The following presentstables present condensed financial information for CIT Bank, N.A.
Condensed Balance Sheets (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| ASSETS: | |||||||
| Cash and deposits with banks | $ | 2,230.6 | $ | 4,647.2 | |||
| Investment securities | 5,489.3 | 4,035.6 | |||||
| Assets held for sale | 1,135.0 | 927.3 | |||||
| Loans | 25,524.5 | 27,246.2 | |||||
| Allowance for loan losses | (389.6 | ) | (406.6 | ) | |||
| Operating lease equipment, net | 3,737.5 | 3,575.8 | |||||
| Bank owned life insurance | 651.8 | — | |||||
| Goodwill | 490.9 | 490.9 | |||||
| Other assets | 1,008.2 | 1,266.0 | |||||
| Assets of discontinued operations | 346.7 | 448.1 | |||||
| Total Assets | $ | 40,224.9 | $ | 42,230.5 | |||
| LIABILITIES AND EQUITY: | |||||||
| Deposits, including $196.6 and $15.4 deposits of affiliates at September 30, 2017 and December 31, 2016, respectively | $ | 29,793.9 | $ | 32,324.5 | |||
| FHLB advances | 3,145.5 | 2,410.8 | |||||
| Borrowings | 502.0 | 241.4 | |||||
| Other liabilities | 922.0 | 1,130.2 | |||||
| Liabilities of discontinued operations | 554.4 | 935.8 | |||||
| Total Liabilities | 34,917.8 | 37,042.7 | |||||
| Total Equity | 5,307.1 | 5,187.8 | |||||
| Total Liabilities and Equity | $ | 40,224.9 | $ | 42,230.5 | |||
Capital Ratios* | |||||
| September 30, 2017 | December 31, 2016 | ||||
| Common Equity Tier 1 Capital | 13.7 | % | 13.2 | % | |
| Tier 1 Capital Ratio | 13.7 | % | 13.2 | % | |
| Total Capital Ratio | 15.0 | % | 14.4 | % | |
| Tier 1 Leverage ratio | 11.7 | % | 10.8 | % | |
Condensed Balance Sheets (dollars in Basel III approach.millions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
ASSETS: |
|
|
|
|
|
|
|
Cash and deposits with banks | $ | 944.5 |
|
| $ | 961.8 |
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| — |
|
Investment securities |
| 6,327.2 |
|
|
| 6,455.9 |
|
Assets held for sale |
| 244.5 |
|
|
| 1,170.5 |
|
Loans |
| 27,429.5 |
|
|
| 26,427.9 |
|
Allowance for loan losses |
| (444.0 | ) |
|
| (403.5 | ) |
Operating lease equipment, net |
| 3,897.7 |
|
|
| 3,765.5 |
|
Bank owned life insurance |
| 808.2 |
|
|
| 788.6 |
|
Goodwill |
| 323.1 |
|
|
| 323.1 |
|
Other assets |
| 884.4 |
|
|
| 939.7 |
|
Assets of discontinued operation |
| 216.2 |
|
|
| 317.1 |
|
Total Assets | $ | 40,831.3 |
|
| $ | 40,746.6 |
|
LIABILITIES AND EQUITY: |
|
|
|
|
|
|
|
Deposits, including $565.8 at September 30, 2018 and $475.8 at December 31, 2017 deposits of affiliates | $ | 31,392.0 |
|
| $ | 30,048.8 |
|
FHLB advances |
| 3,150.0 |
|
|
| 3,695.5 |
|
Borrowings |
| — |
|
|
| 73.5 |
|
Other liabilities, including $100.0 at September 30, 2018 and $570.5 at December 31, 2017 payables to affiliates |
| 973.1 |
|
|
| 1,306.8 |
|
Liabilities of discontinued operation |
| 307.2 |
|
|
| 500.5 |
|
Total Liabilities |
| 35,822.3 |
|
|
| 35,625.1 |
|
Total Equity |
| 5,009.0 |
|
|
| 5,121.5 |
|
Total Liabilities and Equity | $ | 40,831.3 |
|
| $ | 40,746.6 |
|
Capital Ratios*
| September 30, 2018 |
|
| December 31, 2017 |
| ||
CET1 Capital Ratio |
| 13.7 | % |
|
| 13.7 | % |
Tier 1 Capital Ratio |
| 13.7 | % |
|
| 13.7 | % |
Total Capital Ratio |
| 15.0 | % |
|
| 15.0 | % |
Tier 1 Leverage Ratio |
| 11.6 | % |
|
| 11.8 | % |
* | The capital ratios presented above are reflective of the fully-phased in Basel III approach. |
Loans and Leases by Segment (dollars in millions) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Commercial Banking | |||||||
| Commercial Finance | $ | 9,576.2 | $ | 10,753.3 | |||
| Real Estate Finance | 5,564.0 | 5,566.6 | |||||
| Business Capital | 5,265.2 | 5,146.9 | |||||
| Rail | 3,313.0 | 3,240.7 | |||||
| Total | 23,718.4 | 24,707.5 | |||||
| Consumer Banking | |||||||
| Legacy Consumer Mortgages | 4,365.2 | 4,862.7 | |||||
| Other Consumer Banking | 2,313.4 | 2,179.1 | |||||
| Total | 6,678.6 | 7,041.8 | |||||
| Total Financing and Leasing Assets | $ | 30,397.0 | $ | 31,749.3 | |||
76
Condensed Statements of Operations (dollars in millions) | ||||||||||||||||||
| Quarters Ended | Nine Months Ended | |||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 427.4 | $ | 453.4 | $ | 445.5 | $ | 1,309.8 | $ | 1,337.1 | ||||||||
| Interest expense | (107.4 | ) | (115.4 | ) | (110.7 | ) | (327.9 | ) | (332.0 | ) | ||||||||
| Net interest revenue | 320.0 | 338.0 | 334.8 | 981.9 | 1,005.1 | |||||||||||||
| Provision for credit losses | (30.6 | ) | (8.7 | ) | (42.4 | ) | (68.0 | ) | (166.4 | ) | ||||||||
| Net interest revenue, after credit provision | 289.4 | 329.3 | 292.4 | 913.9 | 838.7 | |||||||||||||
| Rental income on operating leases | 112.4 | 110.8 | 101.4 | 331.5 | 287.9 | |||||||||||||
| Other non-interest income | 37.9 | 74.8 | 122.2 | 189.8 | 247.3 | |||||||||||||
| Total net revenue, net of interest expense and credit provision | 439.7 | 514.9 | 516.0 | 1,435.2 | 1,373.9 | |||||||||||||
| Operating expenses | (215.5 | ) | (253.2 | ) | (257.3 | ) | (729.4 | ) | (785.5 | ) | ||||||||
| Depreciation on operating lease equipment | (51.3 | ) | (48.8 | ) | (42.6 | ) | (146.5 | ) | (118.2 | ) | ||||||||
| Maintenance and other operating lease expenses | (7.1 | ) | (5.8 | ) | (3.8 | ) | (21.0 | ) | (16.3 | ) | ||||||||
| Loss on debt extinguishment and deposit redemption | (0.7 | ) | (0.5 | ) | (4.9 | ) | (1.2 | ) | (7.3 | ) | ||||||||
| Income before provision for income taxes | 165.1 | 206.6 | 207.4 | 537.1 | 446.6 | |||||||||||||
| Provision for income taxes | (55.8 | ) | (53.3 | ) | (74.1 | ) | (170.0 | ) | (158.7 | ) | ||||||||
| Income from continuing operations | 109.3 | 153.3 | 133.3 | 367.1 | 287.9 | |||||||||||||
| Income (loss) on discontinued operations | (4.4 | ) | 10.4 | (29.9 | ) | (3.2 | ) | (201.1 | ) | |||||||||
| Net income | $ | 104.9 | $ | 163.7 | $ | 103.4 | $ | 363.9 | $ | 86.8 | ||||||||
| New business volume — funded | $ | 2,216.5 | $ | 2,168.7 | $ | 2,403.9 | $ | 6,132.6 | $ | 6,871.5 | ||||||||
Loans and Leases by impairments recorded related to the reverse mortgage portfolio associated with the Financial Freedom Transaction, with chargesSegment (dollars in both other non-interest income and provision for credit losses. The decreasemillions)
September 30, 2018 |
|
| December 31, 2017 |
| |||
Commercial Banking |
|
|
|
|
|
|
|
Commercial Finance | $ | 10,347.1 |
|
| $ | 10,203.5 |
|
Real Estate Finance |
| 5,547.6 |
|
|
| 5,590.2 |
|
Business Capital |
| 5,845.8 |
|
|
| 5,429.9 |
|
Rail |
| 3,419.2 |
|
|
| 3,320.1 |
|
Total |
| 25,159.7 |
|
|
| 24,543.7 |
|
Consumer Banking |
|
|
|
|
|
|
|
Legacy Consumer Mortgages |
| 2,914.3 |
|
|
| 4,192.1 |
|
Other Consumer Banking |
| 3,497.7 |
|
|
| 2,628.1 |
|
Total |
| 6,412.0 |
|
|
| 6,820.2 |
|
Total loans and leases, including assets held for sale | $ | 31,571.7 |
|
| $ | 31,363.9 |
|
Condensed Statements of Operations (dollars in interest income reflects lower PAA. The decline also reflected a reductionmillions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 448.5 |
|
| $ | 449.3 |
|
| $ | 427.4 |
|
| $ | 1,325.8 |
|
| $ | 1,309.8 |
|
Interest expense |
| 143.8 |
|
|
| 139.1 |
|
|
| 107.4 |
|
|
| 403.0 |
|
|
| 327.9 |
|
Net interest revenue |
| 304.7 |
|
|
| 310.2 |
|
|
| 320.0 |
|
|
| 922.8 |
|
|
| 981.9 |
|
Provision for credit losses |
| 32.4 |
|
|
| 35.7 |
|
|
| 30.6 |
|
|
| 135.5 |
|
|
| 68.0 |
|
Net interest revenue, after credit provision |
| 272.3 |
|
|
| 274.5 |
|
|
| 289.4 |
|
|
| 787.3 |
|
|
| 913.9 |
|
Rental income on operating leases |
| 119.8 |
|
|
| 116.9 |
|
|
| 112.4 |
|
|
| 350.7 |
|
|
| 331.5 |
|
Other non-interest income |
| 41.9 |
|
|
| 104.2 |
|
|
| 37.9 |
|
|
| 217.2 |
|
|
| 189.8 |
|
Total net revenue, net of interest expense and credit provision |
| 434.0 |
|
|
| 495.6 |
|
|
| 439.7 |
|
|
| 1,355.2 |
|
|
| 1,435.2 |
|
Operating expenses |
| 222.0 |
|
|
| 238.4 |
|
|
| 215.5 |
|
|
| 699.6 |
|
|
| 729.4 |
|
Depreciation on operating lease equipment |
| 56.9 |
|
|
| 56.4 |
|
|
| 51.3 |
|
|
| 169.2 |
|
|
| 146.5 |
|
Maintenance and other operating lease expenses |
| 13.7 |
|
|
| 11.7 |
|
|
| 7.1 |
|
|
| 29.4 |
|
|
| 21.0 |
|
Loss on debt extinguishment and deposit redemption |
| 0.2 |
|
|
| — |
|
|
| 0.7 |
|
|
| 0.2 |
|
|
| 1.2 |
|
Income before provision for income taxes |
| 141.2 |
|
|
| 189.1 |
|
|
| 165.1 |
|
|
| 456.8 |
|
|
| 537.1 |
|
Provision for income taxes |
| 38.9 |
|
|
| 51.3 |
|
|
| 55.8 |
|
|
| 123.7 |
|
|
| 170.0 |
|
Income from continuing operations |
| 102.3 |
|
|
| 137.8 |
|
|
| 109.3 |
|
|
| 333.1 |
|
|
| 367.1 |
|
Income (loss) on discontinued operations |
| 0.4 |
|
|
| (21.1 | ) |
|
| (4.4 | ) |
|
| (27.7 | ) |
|
| (3.2 | ) |
Net income | $ | 102.7 |
|
| $ | 116.7 |
|
| $ | 104.9 |
|
| $ | 305.4 |
|
| $ | 363.9 |
|
New business volume — funded | $ | 3,113.9 |
|
| $ | 2,825.4 |
|
| $ | 2,216.5 |
|
| $ | 8,564.7 |
|
| $ | 6,132.6 |
|
Net Finance Revenue (dollars in AEA from last quarter from the use of cash proceeds that were on deposit with the Bank related to the Commercial Air sale. Compared to the year-ago quarter, net income was flat although there have been improvements in various areas such as operating expenses and provision for credit losses.millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 448.5 |
|
| $ | 449.3 |
|
| $ | 427.4 |
|
| $ | 1,325.8 |
|
| $ | 1,309.8 |
|
Rental income on operating leases |
| 119.8 |
|
|
| 116.9 |
|
|
| 112.4 |
|
|
| 350.7 |
|
|
| 331.5 |
|
Finance revenue |
| 568.3 |
|
|
| 566.2 |
|
|
| 539.8 |
|
|
| 1,676.5 |
|
|
| 1,641.3 |
|
Interest expense |
| 143.8 |
|
|
| 139.1 |
|
|
| 107.4 |
|
|
| 403.0 |
|
|
| 327.9 |
|
Depreciation on operating lease equipment |
| 56.9 |
|
|
| 56.4 |
|
|
| 51.3 |
|
|
| 169.2 |
|
|
| 146.5 |
|
Maintenance and other operating lease expenses |
| 13.7 |
|
|
| 11.7 |
|
|
| 7.1 |
|
|
| 29.4 |
|
|
| 21.0 |
|
NFR | $ | 353.9 |
|
| $ | 359.0 |
|
| $ | 374.0 |
|
| $ | 1,074.9 |
|
| $ | 1,145.9 |
|
AEA | $ | 39,454.0 |
|
| $ | 40,353.3 |
|
| $ | 39,026.7 |
|
| $ | 39,687.4 |
|
| $ | 41,286.0 |
|
Net charge-offs were 0.65% and 0.27% for the third and second quarter of 2017, respectively. Excluding the impact of the reverse mortgage charge-offs related to the transfer to held for sale, the current quarter net charge-offs would have been 0.35%.Finance Margin
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
As a % of AEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| 4.55 | % |
|
| 4.45 | % |
|
| 4.38 | % |
|
| 4.45 | % |
|
| 4.23 | % |
Rental income on operating leases |
| 1.21 | % |
|
| 1.16 | % |
|
| 1.15 | % |
|
| 1.18 | % |
|
| 1.07 | % |
Finance revenue |
| 5.76 | % |
|
| 5.61 | % |
|
| 5.53 | % |
|
| 5.63 | % |
|
| 5.30 | % |
Interest expense |
| 1.46 | % |
|
| 1.38 | % |
|
| 1.10 | % |
|
| 1.35 | % |
|
| 1.06 | % |
Depreciation on operating lease equipment |
| 0.57 | % |
|
| 0.55 | % |
|
| 0.53 | % |
|
| 0.57 | % |
|
| 0.47 | % |
Maintenance and other operating lease expenses |
| 0.14 | % |
|
| 0.12 | % |
|
| 0.07 | % |
|
| 0.10 | % |
|
| 0.07 | % |
NFM |
| 3.59 | % |
|
| 3.56 | % |
|
| 3.83 | % |
|
| 3.61 | % |
|
| 3.70 | % |
77
| Net Finance Revenue (dollars in millions) | ||||||||||||||||||
| Quarters Ended | Nine Months Ended | |||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| Interest income | $ | 427.4 | $ | 453.4 | $ | 445.5 | $ | 1,309.8 | $ | 1,337.1 | ||||||||
| Rental income on operating leases | 112.4 | 110.8 | 101.4 | 331.5 | 287.9 | |||||||||||||
| Finance revenue | 539.8 | 564.2 | 546.9 | 1,641.3 | 1,625.0 | |||||||||||||
| Interest expense | (107.4 | ) | (115.4 | ) | (110.7 | ) | (327.9 | ) | (332.0 | ) | ||||||||
| Depreciation on operating lease equipment | (51.3 | ) | (48.8 | ) | (42.6 | ) | (146.5 | ) | (118.2 | ) | ||||||||
| Maintenance and other operating lease expenses | (7.1 | ) | (5.8 | ) | (3.8 | ) | (21.0 | ) | (16.3 | ) | ||||||||
| Net finance revenue (“NFR”) | $ | 374.0 | $ | 394.2 | $ | 389.8 | $ | 1,145.9 | $ | 1,158.5 | ||||||||
| Average Earning Assets (“AEA”) | $ | 39,026.7 | $ | 44,542.2 | $ | 41,086.4 | $ | 41,286.0 | $ | 41,319.2 | ||||||||
| Net Finance Revenue (continued) | |||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||
| As a % of AEA: | |||||||||||||
| Interest income | 4.38 | % | 4.07 | % | 4.34 | % | 4.23 | % | 4.31 | % | |||
| Rental income on operating leases | 1.15 | % | 1.00 | % | 0.99 | % | 1.07 | % | 0.93 | % | |||
| Finance revenue | 5.53 | % | 5.07 | % | 5.33 | % | 5.30 | % | 5.24 | % | |||
| Interest expense | (1.10 | )% | (1.04 | )% | (1.08 | )% | (1.06 | )% | (1.07 | )% | |||
| Depreciation on operating lease equipment | (0.53 | )% | (0.44 | )% | (0.41 | )% | (0.47 | )% | (0.38 | )% | |||
| Maintenance and other operating lease expenses | (0.07 | )% | (0.05 | )% | (0.04 | )% | (0.07 | )% | (0.05 | )% | |||
| Net finance margin (“NFM”) | 3.83 | % | 3.54 | % | 3.80 | % | 3.70 | % | 3.74 | % | |||
The preparation of financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect reported amounts of assets and liabilities, reported amounts of income and expense and the disclosure of contingent assets and liabilities. The following estimates, which are based on relevant information available at the end of each period, include inherent risks and uncertainties related to judgments and assumptions made. We consider the estimates to be critical in applying our accounting policies, due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact on the financial statements.
Management believes that the judgments and estimates utilized infor the followingmore critical accounting estimates, such as the allowance for loan losses, loan impairments, lease residual values, realizability of deferred tax assets and goodwill, are reasonable.
We do not believe that different assumptions are more likely than those utilized, although actual events may differ from such assumptions. Consequently, our estimates could prove inaccurate, and we may be exposed to charges to earnings that could be material.
The determination of goodwill impairment requires significant judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments. There is risk that if the Company does not meet forecasted financial results, such as asset volume and returns and deposit growth and rate projections, there could be incremental goodwill impairment. In addition to financial results, other inputs to the valuation, such as the discount rate and market assumptions, including stock prices of comparable companies, could negatively affect the estimated fair value of the reporting units in the future. Refer to Note 26 - Goodwill and Intangible Assets within in Item 8. Financial Statements and Supplementary Data in our Annual Report on2017 Form 10-K for the year ended December 31, 2016 for a detailed description of the key assumptions used to identify and quantify goodwill impairment, if applicable.
There have been no significant changes to the methodologies and processes used in developing estimates relating to these items from those described in our Annual Report on2017 Form 10-K for the year ended December 31, 2016.
78
SELECT DATA AND AVERAGE BALANCE SHEETS
Select Data (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Select Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue | $ | 259.7 |
|
| $ | 268.4 |
|
| $ | 277.3 |
|
| $ | 798.8 |
|
| $ | 838.9 |
|
Provision for credit losses |
| 38.1 |
|
|
| 32.9 |
|
|
| 30.1 |
|
|
| 139.8 |
|
|
| 84.2 |
|
Total non-interest income |
| 350.5 |
|
|
| 396.7 |
|
|
| 315.6 |
|
|
| 1,105.5 |
|
|
| 981.8 |
|
Total non-interest expenses |
| 401.4 |
|
|
| 427.5 |
|
|
| 459.8 |
|
|
| 1,244.1 |
|
|
| 1,489.8 |
|
Income from continuing operations, net of tax |
| 129.4 |
|
|
| 147.3 |
|
|
| 222.8 |
|
|
| 380.4 |
|
|
| 342.2 |
|
Net income |
| 131.5 |
|
|
| 126.8 |
|
|
| 219.6 |
|
|
| 355.3 |
|
|
| 556.2 |
|
Net income available to common shareholders |
| 131.5 |
|
|
| 117.4 |
|
|
| 219.6 |
|
|
| 345.9 |
|
|
| 556.2 |
|
Per Common Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share — continuing operations | $ | 1.13 |
|
| $ | 1.11 |
|
| $ | 1.64 |
|
| $ | 3.01 |
|
| $ | 1.96 |
|
Diluted income per common share |
| 1.15 |
|
|
| 0.94 |
|
|
| 1.61 |
|
|
| 2.80 |
|
|
| 3.19 |
|
Book value per common share |
| 54.22 |
|
|
| 53.47 |
|
|
| 54.25 |
|
|
|
|
|
|
|
|
|
Tangible book value per common share |
| 50.02 |
|
|
| 49.41 |
|
|
| 48.58 |
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
| 0.25 |
|
|
| 0.16 |
|
|
| 0.15 |
|
|
| 0.57 |
|
|
| 0.45 |
|
Dividend payout ratio |
| 21.7 | % |
|
| 17.0 | % |
|
| 9.3 | % |
|
| 20.3 | % |
|
| 14.1 | % |
Performance Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity (available to common shareholders, continuing operations) |
| 8.62 | % |
|
| 8.48 | % |
|
| 12.74 | % |
|
| 7.73 | % |
|
| 6.30 | % |
Return on average tangible common equity, adjusted for estimated capital adjustment |
| 9.66 | % |
|
| 9.44 | % |
|
| 14.58 | % |
|
| 8.64 | % |
|
| 7.34 | % |
Net finance revenue as a percentage of average earning assets |
| 3.43 | % |
|
| 3.37 | % |
|
| 3.53 | % |
|
| 3.42 | % |
|
| 3.38 | % |
Return on average earning assets applicable to common shareholders (ROA) |
| 1.14 | % |
|
| 1.19 | % |
|
| 1.96 | % |
|
| 1.09 | % |
|
| 0.96 | % |
Return (from continuing operations) on average continuing operations total assets |
| 1.08 | % |
|
| 1.21 | % |
|
| 1.86 | % |
|
| 1.06 | % |
|
| 0.91 | % |
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans including receivables pledged | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 28,505.3 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| (477.4 | ) |
|
| (467.3 | ) |
|
| (419.5 | ) |
|
|
|
|
|
|
|
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,724.2 |
|
|
|
|
|
|
|
|
|
Goodwill |
| 369.9 |
|
|
| 369.9 |
|
|
| 625.5 |
|
|
|
|
|
|
|
|
|
Total cash and deposits |
| 1,367.5 |
|
|
| 3,475.6 |
|
|
| 3,112.3 |
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,339.5 |
|
|
| 5,907.4 |
|
|
| 5,744.8 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operation |
| 327.7 |
|
|
| 382.4 |
|
|
| 562.0 |
|
|
|
|
|
|
|
|
|
Total assets |
| 49,262.4 |
|
|
| 49,855.0 |
|
|
| 49,335.5 |
|
|
|
|
|
|
|
|
|
Deposits |
| 30,825.0 |
|
|
| 31,181.2 |
|
|
| 29,594.7 |
|
|
|
|
|
|
|
|
|
Borrowings |
| 8,674.2 |
|
|
| 8,859.6 |
|
|
| 8,531.2 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operation |
| 308.6 |
|
|
| 350.9 |
|
|
| 563.7 |
|
|
|
|
|
|
|
|
|
Total common stockholders’ equity |
| 5,995.3 |
|
|
| 6,200.7 |
|
|
| 7,126.3 |
|
|
|
|
|
|
|
|
|
Credit Quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans as a percentage of loans |
| 1.04 | % |
|
| 0.99 | % |
|
| 0.93 | % |
|
|
|
|
|
|
|
|
Net charge-offs as a percentage of average loans |
| 0.35 | % |
|
| 0.21 | % |
|
| 0.58 | % |
|
| 0.41 | % |
|
| 0.44 | % |
Allowance for loan losses as a percentage of loans |
| 1.57 | % |
|
| 1.59 | % |
|
| 1.47 | % |
|
|
|
|
|
|
|
|
Capital Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending equity to total ending assets |
| 12.8 | % |
|
| 13.1 | % |
|
| 15.1 | % |
|
|
|
|
|
|
|
|
CET1 Capital Ratio (fully phased-in) |
| 12.4 | % |
|
| 13.2 | % |
|
| 14.0 | % |
|
|
|
|
|
|
|
|
Tier 1 Capital Ratio (fully phased-in) |
| 13.1 | % |
|
| 13.9 | % |
|
| 14.7 | % |
|
|
|
|
|
|
|
|
Total Capital Ratio (fully phased-in) |
| 15.1 | % |
|
| 16.0 | % |
|
| 15.7 | % |
|
|
|
|
|
|
|
|
Select Data (dollars in millions) | |||||||||||||||||||
| At or for the Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Select Statement of Operations Data | |||||||||||||||||||
| Net interest revenue | $ | 277.3 | $ | 269.0 | $ | 287.5 | $ | 838.9 | $ | 862.5 | |||||||||
| Provision for credit losses | (30.1 | ) | (4.4 | ) | (45.1 | ) | (84.2 | ) | (157.9 | ) | |||||||||
| Total non-interest income | 315.6 | 335.8 | 337.9 | 981.8 | 1,047.6 | ||||||||||||||
| Total non-interest expenses | (459.8 | ) | (591.1 | ) | (431.6 | ) | (1,489.8 | ) | (1,298.9 | ) | |||||||||
| Income from continuing operations, net of tax | 222.8 | 41.2 | 94.2 | 342.2 | 243.2 | ||||||||||||||
| Income (loss) from discontinued operation, net of tax | (3.2 | ) | 115.5 | 37.3 | 214.0 | 51.3 | |||||||||||||
| Net income | 219.6 | 156.7 | 131.5 | 556.2 | 294.5 | ||||||||||||||
| Per Common Share Data | |||||||||||||||||||
| Diluted income per common share — continuing operations | $ | 1.64 | $ | 0.22 | $ | 0.47 | $ | 1.96 | $ | 1.21 | |||||||||
| Diluted income per common share | $ | 1.61 | $ | 0.85 | $ | 0.65 | $ | 3.19 | $ | 1.46 | |||||||||
| Book value per common share | $ | 54.25 | $ | 51.88 | $ | 55.45 | |||||||||||||
| Tangible book value per common share | $ | 48.58 | $ | 46.34 | $ | 49.56 | |||||||||||||
| Dividends declared per common share | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.45 | $ | 0.45 | |||||||||
| Dividend payout ratio | 9.3 | % | 17.6 | % | 23.1 | % | 14.1 | % | 30.8 | % | |||||||||
| Performance Ratios | |||||||||||||||||||
| Return on average tangible common equity, proforma for estimated capital adjustment | 14.58 | % | 2.84 | % | 7.41 | % | 7.34 | % | 5.94 | % | |||||||||
| Adjusted return on average tangible common equity | 9.20 | % | 8.14 | % | 8.34 | % | 7.99 | % | 6.29 | % | |||||||||
| Net finance revenue as a percentage of average earning assets | 3.53 | % | 3.07 | % | 3.51 | % | 3.38 | % | 3.60 | % | |||||||||
| Return (from continuing operations) on average earning assets | 1.96 | % | 0.33 | % | 0.79 | % | 0.96 | % | 0.68 | % | |||||||||
| Return (from continuing operations) on average continuing operations total assets | 1.86 | % | 0.31 | % | 0.72 | % | 0.91 | % | 0.62 | % | |||||||||
| Balance Sheet Data | |||||||||||||||||||
| Loans including receivables pledged | $ | 28,505.3 | $ | 29,031.7 | $ | 29,897.0 | |||||||||||||
| Allowance for loan losses | (419.5 | ) | (426.0 | ) | (415.0 | ) | |||||||||||||
| Operating lease equipment, net | 6,724.2 | 6,736.0 | 7,383.1 | ||||||||||||||||
| Goodwill | 625.5 | 625.5 | 1,043.7 | ||||||||||||||||
| Total cash and deposits | 3,112.3 | 5,337.9 | 6,752.5 | ||||||||||||||||
| Investment securities | 5,744.8 | 5,530.0 | 3,592.4 | ||||||||||||||||
| Assets of discontinued operation | 562.0 | 630.9 | 12,973.4 | ||||||||||||||||
| Total assets | 49,335.5 | 50,478.9 | 65,981.1 | ||||||||||||||||
| Deposits | 29,594.7 | 30,925.0 | 32,851.7 | ||||||||||||||||
| Borrowings | 8,531.2 | 8,621.4 | 14,684.0 | ||||||||||||||||
| Liabilities of discontinued operation | 563.7 | 607.8 | 4,388.3 | ||||||||||||||||
| Total common stockholders’ equity | 7,126.3 | 7,026.2 | 11,204.4 | ||||||||||||||||
| Credit Quality | |||||||||||||||||||
| Non-accrual loans as a percentage of loans | 0.93 | % | 0.88 | % | 0.95 | % | |||||||||||||
| Net charge-offs as a percentage of average loans | 0.58 | % | 0.38 | % | 0.28 | % | 0.44 | % | 0.38 | % | |||||||||
| Allowance for loan losses as a percentage of loans | 1.47 | % | 1.47 | % | 1.39 | % | |||||||||||||
| Capital Ratios | |||||||||||||||||||
| Total ending equity to total ending assets | 15.1 | % | 14.6 | % | 17.0 | % | |||||||||||||
| Common Equity Tier 1 Capital Ratio (fully phased-in) | 14.0 | % | 14.4 | % | 13.6 | % | |||||||||||||
| Total Tier 1 Capital Ratio (fully phased-in) | 14.7 | % | 15.1 | % | 13.6 | % | |||||||||||||
| Total Capital Ratio (fully phased-in) | 15.7 | % | 16.2 | % | 14.3 | % | |||||||||||||
Average Balances and Rates(1) (dollars in millions) | ||||||||||||||||||||||||||||||||
| Quarters Ended | ||||||||||||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||
| Average Balance | Revenue / Expense | Average Rate (%) | Average Balance | Revenue / Expense | Average Rate (%) | Average Balance | Revenue / Expense | Average Rate (%) | ||||||||||||||||||||||||
| Interest bearing cash deposits | $ | 3,873.9 | $ | 12.5 | 1.29 | % | $ | 9,510.5 | $ | 23.8 | 1.00 | % | $ | 6,368.9 | $ | 8.9 | 0.56 | % | ||||||||||||||
| Investments | 5,796.3 | 38.0 | 2.62 | % | 5,016.1 | 33.1 | 2.64 | % | 3,411.2 | 23.0 | 2.70 | % | ||||||||||||||||||||
Loans and loans held for sale (net of credit balances of factoring clients)(2)(3) | ||||||||||||||||||||||||||||||||
U.S.(2) | 27,613.6 | 411.3 | 5.96 | % | 27,998.0 | 424.1 | 6.06 | % | 29,116.6 | 422.7 | 5.81 | % | ||||||||||||||||||||
| Non-U.S. | 179.5 | 5.8 | 12.92 | % | 259.0 | 6.9 | 10.66 | % | 1,122.7 | 25.4 | 9.05 | % | ||||||||||||||||||||
Total Loans(2) | 27,793.1 | 417.1 | 6.00 | % | 28,257.0 | 431.0 | 6.10 | % | 30,239.3 | 448.1 | 5.93 | % | ||||||||||||||||||||
Total interest earning assets / interest income(2)(3) | 37,463.3 | 467.6 | 4.99 | % | 42,783.6 | 487.9 | 4.56 | % | 40,019.4 | 480.0 | 4.80 | % | ||||||||||||||||||||
Operating lease equipment, net (including held for sale)(4) | ||||||||||||||||||||||||||||||||
U.S.(4) | 6,061.5 | 94.2 | 6.22 | % | 6,026.0 | 97.0 | 6.44 | % | 5,934.2 | 103.5 | 6.98 | % | ||||||||||||||||||||
Non-U.S.(4) | 1,736.1 | 29.1 | 6.70 | % | 1,586.2 | 23.5 | 5.93 | % | 1,400.9 | 27.3 | 7.79 | % | ||||||||||||||||||||
Total operating leases, net(4) | 7,797.6 | 123.3 | 6.33 | % | 7,612.2 | 120.5 | 6.33 | % | 7,335.1 | 130.8 | 7.13 | % | ||||||||||||||||||||
| Indemnification assets | 193.3 | (13.6 | ) | (28.14 | )% | 280.0 | (9.7 | ) | (13.86 | )% | 374.2 | (4.3 | ) | (4.49 | )% | |||||||||||||||||
Average earning assets ("AEA")(2) | 45,454.2 | 577.3 | 5.08 | % | 50,675.8 | 598.7 | 4.73 | % | 47,728.7 | 606.5 | 5.08 | % | ||||||||||||||||||||
| Non-interest earning assets | ||||||||||||||||||||||||||||||||
| Cash and due from banks | 522.5 | 647.2 | 832.7 | |||||||||||||||||||||||||||||
| Allowance for loan losses | (421.7 | ) | (439.9 | ) | (398.1 | ) | ||||||||||||||||||||||||||
| All other non-interest bearing assets | 2,330.5 | 2,124.6 | 4,156.5 | |||||||||||||||||||||||||||||
| Assets of discontinued operation | 591.5 | 1,108.1 | 12,972.8 | |||||||||||||||||||||||||||||
| Total Average Assets | $ | 48,477.0 | $ | 54,115.8 | $ | 65,292.6 | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Interest bearing deposits and borrowings | ||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 28,820.2 | 92.6 | 1.29 | % | $ | 30,222.9 | 94.6 | 1.25 | % | $ | 31,732.9 | 99.4 | 1.25 | % | |||||||||||||||||
Borrowings(5) | 8,591.6 | 84.1 | 3.92 | % | 10,702.5 | 114.6 | 4.28 | % | 15,221.7 | 88.8 | 2.33 | % | ||||||||||||||||||||
| Total interest-bearing liabilities | 37,411.8 | 176.7 | 1.89 | % | 40,925.4 | 209.2 | 2.04 | % | 46,954.6 | 188.2 | 1.60 | % | ||||||||||||||||||||
| Non-interest bearing deposits | 1,495.9 | 1,411.2 | 1,184.8 | |||||||||||||||||||||||||||||
| Other non-interest bearing liabilities | 1,582.3 | 1,609.1 | 1,605.2 | |||||||||||||||||||||||||||||
| Liabilities of discontinued operation | 579.6 | 904.8 | 4,368.8 | |||||||||||||||||||||||||||||
| Noncontrolling interests | 0.2 | 0.3 | 0.5 | |||||||||||||||||||||||||||||
| Stockholders' equity | 7,407.2 | 9,265.0 | 11,178.7 | |||||||||||||||||||||||||||||
| Total Average Liabilities and Shareholders' Equity | $ | 48,477.0 | $ | 54,115.8 | $ | 65,292.6 | ||||||||||||||||||||||||||
| Net revenue spread | 3.19 | % | 2.68 | % | 3.48 | % | ||||||||||||||||||||||||||
| Impact of non-interest bearing sources | 0.34 | % | 0.39 | % | 0.03 | % | ||||||||||||||||||||||||||
Net revenue/yield on earning assets(2) | $ | 400.6 | 3.53 | % | $ | 389.5 | 3.07 | % | $ | 418.3 | 3.51 | % | ||||||||||||||||||||
Average Balances and Rates(1) (dollars in millions) (continued) | |||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | ||||||||||||||||||||
| Average Balance | Revenue / Expense | Average Rate (%) | Average Balance | Revenue / Expense | Average Rate (%) | ||||||||||||||||
| Interest bearing cash deposits | $ | 6,265.5 | $ | 48.9 | 1.04 | % | $ | 6,612.1 | $ | 25.6 | 0.52 | % | |||||||||
| Investments | 5,105.3 | 102.1 | 2.67 | % | 3,173.6 | 68.3 | 2.87 | % | |||||||||||||
Loans and loans held for sale (net of credit balances of factoring clients)(2)(3) | |||||||||||||||||||||
U.S.(2) | 27,960.2 | 1,238.7 | 5.91 | % | 29,361.8 | 1,283.1 | 5.83 | % | |||||||||||||
| Non-U.S. | 299.4 | 29.3 | 13.05 | % | 1,199.3 | 76.2 | 8.47 | % | |||||||||||||
Total Loans(2) | 28,259.6 | 1,268.0 | 5.98 | % | 30,561.1 | 1,359.3 | 5.93 | % | |||||||||||||
Total interest earning assets / interest income(2)(3) | 39,630.4 | 1,419.0 | 4.77 | % | 40,346.8 | 1,453.2 | 4.80 | % | |||||||||||||
Operating lease equipment, net (including held for sale)(4) | |||||||||||||||||||||
U.S.(4) | 6,045.8 | 292.9 | 6.46 | % | 5,804.3 | 347.3 | 7.98 | % | |||||||||||||
Non-U.S.(4) | 1,591.3 | 74.9 | 6.28 | % | 1,367.2 | 84.7 | 8.26 | % | |||||||||||||
Total operating leases, net(4) | 7,637.1 | 367.8 | 6.42 | % | 7,171.5 | 432.0 | 8.03 | % | |||||||||||||
| Indemnification assets | 268.2 | (31.1 | ) | (15.46 | )% | 381.7 | (15.9 | ) | (5.55 | )% | |||||||||||
Average earning assets ("AEA")(2) | 47,535.7 | 1,755.7 | 4.92 | % | 47,900.0 | 1,869.3 | 5.20 | % | |||||||||||||
| Non-interest earning assets | |||||||||||||||||||||
| Cash and due from banks | 647.3 | 905.6 | |||||||||||||||||||
| Allowance for loan losses | (431.6 | ) | (382.2 | ) | |||||||||||||||||
| All other non-interest bearing assets | 2,279.9 | 4,236.9 | |||||||||||||||||||
| Assets of discontinued operation | 4,837.7 | 12,968.7 | |||||||||||||||||||
| Total Average Assets | $ | 54,869.0 | $ | 65,629.0 | |||||||||||||||||
| Liabilities | |||||||||||||||||||||
| Interest bearing deposits and borrowings | |||||||||||||||||||||
| Interest bearing deposits | $ | 29,952.9 | 281.2 | 1.25 | % | $ | 31,725.2 | 298.3 | 1.25 | % | |||||||||||
Borrowings(5) | 11,351.1 | 267.8 | 3.15 | % | 15,725.3 | 276.5 | 2.34 | % | |||||||||||||
| Total interest-bearing liabilities | 41,304.0 | 549.0 | 1.77 | % | 47,450.5 | 574.8 | 1.62 | % | |||||||||||||
| Non-interest bearing deposits | 1,437.2 | 1,125.8 | |||||||||||||||||||
| Other non-interest bearing liabilities | 1,642.7 | 1,629.0 | |||||||||||||||||||
| Liabilities of discontinued operation | 1,560.3 | 4,288.5 | |||||||||||||||||||
| Noncontrolling interests | 0.3 | 0.5 | |||||||||||||||||||
| Stockholders' equity | 8,924.5 | 11,134.7 | |||||||||||||||||||
| Total Average Liabilities and Shareholders' Equity | $ | 54,869.0 | $ | 65,629.0 | |||||||||||||||||
| Net revenue spread | 3.15 | % | 3.58 | % | |||||||||||||||||
| Impact of non-interest bearing sources | 0.23 | % | 0.02 | % | |||||||||||||||||
Net revenue/yield on earning assets(2) | $ | 1,206.7 | 3.38 | % | $ | 1,294.5 | 3.60 | % | |||||||||||||
The SEC adopted regulations that apply to any public disclosure or release of material information that includes a non-GAAP financial measure. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts, or is adjusted in some way to the effect of including or excluding, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements.
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure about Market Risk contain certain non-GAAP financial measures. We intend our non-GAAP financial measures to provide additional information and insight regarding operating results and financial position of the business and in certain cases to provide financial information that is presented to rating agencies and other users of financial information.
79
These non-GAAP measures are not in accordance with, or a substitute for, GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies.
1. | |
Total Net Revenue, Net Finance Revenue, |
Total net revenue is a non-GAAP measure that represents the combination of net finance revenueNFR and other non-interest income and is an aggregation of all sources of revenue for the Company. The source of the data is various statement of income line items, arranged in a different order, and with different subtotals than included in the statement of income, and therefore is considered non-GAAP. Total net revenue is used by management to monitor business performance and is used by management to calculate a net efficiency ratio, as discussed below.
NFR is a non-GAAP measure that represents the level of revenue earned on our loans and leases. NFR is another key performance measure used by management to monitor portfolio performance. NFR is also used to calculate a performance margin, NFM.
Due to the nature of our loans and leases, which include a higher proportion of operating lease equipment than most BHCs, certain financial measures commonly used by other BHCs are not as meaningful for our Company. As such, given our asset composition includes a high level of operating lease equipment, net finance marginNFM as calculated below is used by management, compared to net interest margin (“NIM”) (a common metric used by other bank holding companies), which does not fully reflect the earnings of our portfolio because it includes the impact of debt costs of all our assets but excludes the net operating lease revenue.
Net operating lease revenue is a non-GAAP measure that represents the combination of rental income on operating leases less depreciation on operating lease equipment and maintenance and other operating lease expenses. The net operating lease revenues measurement is used by management to monitor portfolio performance and returns on its purchased equipment.
Total Net Revenue and Net Operating Lease Revenue Management’s Discussion and Analysis and (dollars in millions)Item 3. Quantitative and Qualitative Disclosures about Market Risk 105
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||
| September 30, 2018 |
|
|
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Interest income | $ | 473.6 |
|
|
|
| $ | 473.6 |
|
| $ | 454.0 |
|
| $ | 1,398.4 |
|
| $ | 1,387.9 |
|
Rental income on operating leases |
| 264.3 |
|
|
|
|
| 261.3 |
|
|
| 252.3 |
|
|
| 779.2 |
|
|
| 754.8 |
|
Finance revenue (Non-GAAP) |
| 737.9 |
|
|
|
|
| 734.9 |
|
|
| 706.3 |
|
|
| 2,177.6 |
|
|
| 2,142.7 |
|
Interest expense |
| 213.9 |
|
|
|
|
| 205.2 |
|
|
| 176.7 |
|
|
| 599.6 |
|
|
| 549.0 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net finance revenue (Non-GAAP) |
| 389.4 |
|
|
|
|
| 389.0 |
|
|
| 400.6 |
|
|
| 1,168.9 |
|
|
| 1,206.7 |
|
Other non-interest income |
| 86.2 |
|
|
|
|
| 135.4 |
|
|
| 63.3 |
|
|
| 326.3 |
|
|
| 227.0 |
|
Total net revenue (Non-GAAP) | $ | 475.6 |
|
|
|
| $ | 524.4 |
|
| $ | 463.9 |
|
| $ | 1,495.2 |
|
| $ | 1,433.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFR (Non-GAAP) | $ | 389.4 |
|
|
|
| $ | 389.0 |
|
| $ | 400.6 |
|
| $ | 1,168.9 |
|
| $ | 1,206.7 |
|
Suspended depreciation on assets HFS |
| (8.6 | ) |
|
|
|
| (8.6 | ) |
|
| (7.8 | ) |
|
| (26.5 | ) |
|
| (7.8 | ) |
Excess interest costs over interest income from Commercial Air proceeds usage |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23.4 |
|
Interest on excess cash |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9.1 | ) |
Adjusted NFR (Non-GAAP) | $ | 380.8 |
|
|
|
| $ | 380.4 |
|
| $ | 392.8 |
|
| $ | 1,142.4 |
|
| $ | 1,213.2 |
|
NFR as a % of AEA |
| 3.43 | % |
|
|
|
| 3.37 | % |
|
| 3.53 | % |
|
| 3.42 | % |
|
| 3.38 | % |
NFR as a % of AEA, adjusted for noteworthy items |
| 3.36 | % |
|
|
|
| 3.29 | % |
|
| 3.46 | % |
|
| 3.34 | % |
|
| 3.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Lease Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income on operating leases | $ | 264.3 |
|
|
|
| $ | 261.3 |
|
| $ | 252.3 |
|
| $ | 779.2 |
|
| $ | 754.8 |
|
Depreciation on operating lease equipment |
| 78.0 |
|
|
|
|
| 77.2 |
|
|
| 71.1 |
|
|
| 231.6 |
|
|
| 222.0 |
|
Maintenance and other operating lease expenses |
| 56.6 |
|
|
|
|
| 63.5 |
|
|
| 57.9 |
|
|
| 177.5 |
|
|
| 165.0 |
|
Net operating lease revenue (Non-GAAP) | $ | 129.7 |
|
|
|
| $ | 120.6 |
|
| $ | 123.3 |
|
| $ | 370.1 |
|
| $ | 367.8 |
|
Total Net Revenue and Net Operating Lease Revenue (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Total Net Revenue | |||||||||||||||||||
| Interest income (GAAP) | $ | 454.0 | $ | 478.2 | $ | 475.7 | $ | 1,387.9 | $ | 1,437.3 | |||||||||
| Rental income on operating leases (GAAP) | 252.3 | 251.2 | 254.3 | 754.8 | 779.4 | ||||||||||||||
| Finance revenue (Non-GAAP) | 706.3 | 729.4 | 730.0 | 2,142.7 | 2,216.7 | ||||||||||||||
| Interest expense (GAAP) | (176.7 | ) | (209.2 | ) | (188.2 | ) | (549.0 | ) | (574.8 | ) | |||||||||
| Depreciation on operating lease equipment (GAAP) | (71.1 | ) | (77.4 | ) | (66.9 | ) | (222.0 | ) | (191.3 | ) | |||||||||
| Maintenance and other operating lease expenses (GAAP) | (57.9 | ) | (53.3 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) | |||||||||
| Net finance revenue (Non-GAAP) | 400.6 | 389.5 | 418.3 | 1,206.7 | 1,294.5 | ||||||||||||||
| Other non-interest income (GAAP) | 63.3 | 84.6 | 83.6 | 227.0 | 268.2 | ||||||||||||||
| Total net revenue (Non-GAAP) | $ | 463.9 | $ | 474.1 | $ | 501.9 | $ | 1,433.7 | $ | 1,562.7 | |||||||||
| Average Earning Assets (Non-GAAP) | $ | 45,454.2 | $ | 50,675.8 | $ | 47,728.7 | $ | 47,535.7 | $ | 47,900.0 | |||||||||
| NFM (NFR as a % of AEA) | 3.53 | % | 3.07 | % | 3.51 | % | 3.38 | % | 3.60 | % | |||||||||
| Net Operating Lease Revenue | |||||||||||||||||||
| Rental income on operating leases (GAAP) | $ | 252.3 | $ | 251.2 | $ | 254.3 | $ | 754.8 | $ | 779.4 | |||||||||
| Depreciation on operating lease equipment (GAAP) | (71.1 | ) | (77.4 | ) | (66.9 | ) | (222.0 | ) | (191.3 | ) | |||||||||
| Maintenance and other operating lease expenses (GAAP) | (57.9 | ) | (53.3 | ) | (56.6 | ) | (165.0 | ) | (156.1 | ) | |||||||||
| Net operating lease revenue | $ | 123.3 | $ | 120.5 | $ | 130.8 | $ | 367.8 | $ | 432.0 | |||||||||
| Net finance revenue (Non-GAAP) | $ | 400.6 | $ | 389.5 | $ | 418.3 | $ | 1,206.7 | $ | 1,294.5 | |||||||||
| Noteworthy Items: | |||||||||||||||||||
| Suspended depreciation on assets HFS | (7.8 | ) | — | — | (7.8 | ) | — | ||||||||||||
| Excess interest cost from Commercial Air transaction | — | 23.4 | — | 23.4 | — | ||||||||||||||
| Interest on excess cash from Commercial Air transaction | — | (9.1 | ) | — | (9.1 | ) | — | ||||||||||||
| NFR, excluding noteworthy items (Non-GAAP) | $ | 392.8 | $ | 403.8 | $ | 418.3 | $ | 1,213.2 | $ | 1,294.5 | |||||||||
| Average Earning Assets (Non-GAAP) | $ | 45,454.2 | $ | 50,675.8 | $ | 47,728.7 | $ | 47,535.7 | $ | 47,900.0 | |||||||||
| AEA adjustment for Commercial Air sale | — | (3,686.0 | ) | — | (1,244.0 | ) | — | ||||||||||||
| AEA, excluding Commercial Air adjustment (Non-GAAP) | $ | 45,454.2 | $ | 46,989.8 | $ | 47,728.7 | $ | 46,291.7 | $ | 47,900.0 | |||||||||
| NFM (NFR as a % of AEA) | 3.46 | % | 3.44 | % | 3.51 | % | 3.49 | % | 3.60 | % | |||||||||
2. | |
Operating Expenses and Net Efficiency Ratio, Excluding Certain Costs |
A key performance metric the Company uses to gauge the level of expenses is in comparison to the average earning assets.AEA. A decline in this metric could show improvement, i.e. expenses not going up at the same rate of asset growth, or decreasing at a rate in excess of asset decline. Operating expenses excluding restructuring costs and intangible asset amortization is a non-GAAP measure used by management to compare period over period expenses. Another key performance metric gauges our expense usage via our net efficiency calculation. This calculation compares the level of expenses to the level of net revenues and is calculated by dividing the operating expenses by total net revenue, as presented below. A lower result reflects a more efficient use of our expenses to generate revenue. Net efficiency ratio is a non-GAAP measurement used by management to measure operating expenses (before restructuring costs and intangible amortization) to total net revenues. We exclude the recurring itemsrestructuring costs and intangible amortization from these calculations as they are charges resulting from our strategic initiatives and not our operating activity, and exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of the mentioned items, and in certain instances, other noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.
80
Operating Expenses Excluding Certain Costs (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Operating expenses | $ | 263.3 |
|
| $ | 267.5 |
|
| $ | 277.3 |
|
| $ | 812.1 |
|
| $ | 884.5 |
|
Intangible asset amortization |
| 6.0 |
|
|
| 6.0 |
|
|
| 6.2 |
|
|
| 18.0 |
|
|
| 18.6 |
|
Restructuring costs |
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| — |
|
|
| 21.1 |
|
Operating expenses excluding restructuring costs, intangible assets amortization, and other noteworthy items | $ | 257.3 |
|
| $ | 261.5 |
|
| $ | 268.2 |
|
| $ | 794.1 |
|
| $ | 844.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding restructuring costs and intangible assets amortization) as a % of AEA (excluding noteworthy items) |
| 2.27 | % |
|
| 2.26 | % |
|
| 2.36 | % |
|
| 2.32 | % |
|
| 2.43 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue (Non-GAAP) | $ | 475.6 |
|
| $ | 524.4 |
|
| $ | 463.9 |
|
| $ | 1,495.2 |
|
| $ | 1,433.7 |
|
Suspended depreciation on assets HFS |
| (8.6 | ) |
|
| (8.6 | ) |
|
| (7.8 | ) |
|
| (26.5 | ) |
|
| (7.8 | ) |
Financial Freedom Transaction impairments on reverse mortgage related assets |
| — |
|
|
| — |
|
|
| 26.8 |
|
|
| — |
|
|
| 26.8 |
|
Net costs of excess liquidity |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.3 |
|
CTA charge |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.1 |
|
Gain and other revenues from sale of reverse mortgage portfolio |
| — |
|
|
| (29.3 | ) |
|
| — |
|
|
| (29.3 | ) |
|
| — |
|
Impairment of LCM indemnification asset |
| 21.2 |
|
|
| — |
|
|
| — |
|
|
| 21.2 |
|
|
| — |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| — |
|
|
| — |
|
|
| (10.6 | ) |
|
| — |
|
Total Net Revenue, excluding noteworthy items (Non-GAAP) | $ | 477.6 |
|
| $ | 486.5 |
|
| $ | 482.9 |
|
| $ | 1,450.0 |
|
| $ | 1,475.1 |
|
Net Efficiency Ratio (Non-GAAP) |
| 54.1 | % |
|
| 49.9 | % |
|
| 57.8 | % |
|
| 53.1 | % |
|
| 58.9 | % |
Net Efficiency Ratio excluding noteworthy items (Non-GAAP) |
| 53.9 | % |
|
| 53.8 | % |
|
| 55.5 | % |
|
| 54.8 | % |
|
| 57.3 | % |
Operating Expenses Excluding Certain Costs (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Operating expenses (GAAP) | $ | (277.3 | ) | $ | (295.6 | ) | $ | (302.9 | ) | $ | (884.5 | ) | $ | (942.3 | ) | ||||
| Intangible asset amortization | 6.2 | 6.2 | 6.4 | 18.6 | 19.2 | ||||||||||||||
| Restructuring costs | 2.9 | 3.4 | 2.3 | 21.1 | 32.3 | ||||||||||||||
Operating expenses exclusive of restructuring costs and intangible assets amortization, and other noteworthy items (Non-GAAP) | $ | (268.2 | ) | $ | (286.0 | ) | $ | (294.2 | ) | $ | (844.8 | ) | $ | (890.8 | ) | ||||
| Operating expenses (exclusive of restructuring costs and intangible assets amortization) as a % of AEA | 2.36 | % | 2.26 | % | 2.47 | % | 2.37 | % | 2.48 | % | |||||||||
| Operating expenses excluding restructuring costs and intangible asset amortization and other noteworthy items as a % of AEA | 2.36 | % | 2.43 | % | 2.47 | % | 2.43 | % | 2.48 | % | |||||||||
| Total Net Revenue (Non-GAAP) | $ | 463.9 | $ | 474.1 | $ | 501.9 | $ | 1,433.7 | $ | 1,562.7 | |||||||||
| Suspended depreciation on assets HFS | (7.8 | ) | — | — | (7.8 | ) | — | ||||||||||||
| Financial Freedom Transaction impairments on reverse mortgage related assets | 26.8 | — | — | 26.8 | — | ||||||||||||||
| Net costs of excess liquidity | — | 14.3 | — | 14.3 | — | ||||||||||||||
| CTA Charge | — | — | — | 8.1 | — | ||||||||||||||
| Gain on sale - UK business | — | — | — | — | (23.5 | ) | |||||||||||||
| Asset Impairment | — | — | — | — | 11.0 | ||||||||||||||
| Liquidating Europe CTA | — | — | — | — | 3.3 | ||||||||||||||
| Gain related to IndyMac venture | (5.0 | ) | (5.0 | ) | |||||||||||||||
| Total Net Revenue, excluding noteworthy items (Non-GAAP) | $ | 482.9 | $ | 488.4 | $ | 496.9 | $ | 1,475.1 | $ | 1,548.5 | |||||||||
| Net Efficiency Ratio | 57.8 | % | 60.3 | % | 58.6 | % | 58.9 | % | 57.0 | % | |||||||||
| Net Efficiency Ratio excluding noteworthy items | 55.5 | % | 58.6 | % | 59.2 | % | 57.3 | % | 57.5 | % | |||||||||
3. | |
Other Non-Interest Income |
Other non-interest income serves as a source of revenue for CIT. Management monitors the level absent certain items to assist in comparability with prior period levels. We exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.
Other Non-Interest Income, Excluding Noteworthy Items (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Other non-interest income (GAAP) | $ | 63.3 | $ | 84.6 | $ | 83.6 | $ | 227.0 | $ | 268.2 | |||||||||
| Financial Freedom Transaction impairments on reverse mortgage related assets | 26.8 | — | — | 26.8 | — | ||||||||||||||
| CTA Charge | — | — | — | 8.1 | — | ||||||||||||||
| Gain on sale - UK business | — | — | — | — | (23.5 | ) | |||||||||||||
| Asset Impairment | — | — | — | — | 11.0 | ||||||||||||||
| Liquidating Europe CTA | — | — | — | — | 3.3 | ||||||||||||||
| Gain related to IndyMac venture | — | — | (5.0 | ) | — | (5.0 | ) | ||||||||||||
| Other Non-interest income, excluding noteworthy items (Non-GAAP) | $ | 90.1 | $ | 84.6 | $ | 78.6 | $ | 261.9 | $ | 254.0 | |||||||||
Other Non-Interest Income Management’s Discussion and Analysis and (dollars in millions)Item 3. Quantitative and Qualitative Disclosures about Market Risk 107
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Other non-interest income | $ | 86.2 |
|
| $ | 135.4 |
|
| $ | 63.3 |
|
| $ | 326.3 |
|
| $ | 227.0 |
|
Financial Freedom Transaction impairments on reverse mortgage related assets |
| — |
|
|
| — |
|
|
| 26.8 |
|
|
| — |
|
|
| 26.8 |
|
CTA charge |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.1 |
|
Gain and other revenues from sale of reverse mortgage portfolio |
| — |
|
|
| (29.3 | ) |
|
| — |
|
|
| (29.3 | ) |
|
| — |
|
Impairment of LCM indemnification asset |
| 21.2 |
|
|
| — |
|
|
| — |
|
|
| 21.2 |
|
|
| — |
|
Release of valuation reserve on AHFS |
| (10.6 | ) |
|
| — |
|
|
| — |
|
|
| (10.6 | ) |
|
| — |
|
Total other non-interest income, excluding noteworthy items (Non-GAAP) | $ | 96.8 |
|
| $ | 106.1 |
|
| $ | 90.1 |
|
| $ | 307.6 |
|
| $ | 261.9 |
|
4. | |
Earning Assets, |
Earning asset balances (period end balances) displayed in the table below are directly derived from the respective line items in the balance sheet. These represent revenue generating assets, and the average (AEA) of which provides a basis for management performance calculations, such as NFM and operating expenses as a percentage of AEA. The average is derived using month end balances for the respective period. Because the balances are used in aggregate, as well as the average, there are no direct comparative balances on the balance sheet, therefore these are considered non-GAAP measures.
81
Earning Assets (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Period End Earning Assets | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Loans | $ | 30,495.8 |
|
| $ | 29,348.4 |
|
| $ | 28,505.3 |
|
|
|
|
|
|
|
|
|
Operating lease equipment, net |
| 6,888.7 |
|
|
| 6,833.9 |
|
|
| 6,724.2 |
|
|
|
|
|
|
|
|
|
Assets held for sale |
| 1,380.5 |
|
|
| 1,335.8 |
|
|
| 2,162.0 |
|
|
|
|
|
|
|
|
|
Credit balances of factoring clients |
| (1,672.4 | ) |
|
| (1,430.8 | ) |
|
| (1,698.5 | ) |
|
|
|
|
|
|
|
|
Interest-bearing cash |
| 1,199.9 |
|
|
| 3,267.0 |
|
|
| 2,658.9 |
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,339.5 |
|
|
| 5,907.4 |
|
|
| 5,744.8 |
|
|
|
|
|
|
|
|
|
Securities purchased under agreement to resell |
| 200.0 |
|
|
| 200.0 |
|
|
| — |
|
|
|
|
|
|
|
|
|
Indemnification assets |
| 27.2 |
|
|
| 70.8 |
|
|
| 171.8 |
|
|
|
|
|
|
|
|
|
Total earning assets (Non-GAAP) | $ | 44,859.2 |
|
| $ | 45,532.5 |
|
| $ | 44,268.5 |
|
|
|
|
|
|
|
|
|
Average Earning Assets (for the respective periods) (Non-GAAP) | $ | 45,377.1 |
|
| $ | 46,229.6 |
|
| $ | 45,454.2 |
|
| $ | 45,559.9 |
|
| $ | 47,535.7 |
|
AEA adjustment for Commercial Air sale impacts |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,244.0 | ) |
AEA, excluding noteworthy items (Non-GAAP) | $ | 45,377.1 |
|
| $ | 46,229.6 |
|
| $ | 45,454.2 |
|
| $ | 45,559.9 |
|
| $ | 46,291.7 |
|
Certain portfolios within the segments are being managed but are being either run-off or sold. These include a legacy real estate portfolio, NACCO rail assets in AHFS, the LCM portfolio and NSP. In order to gauge the underlying level of loans and leases, management will exclude these portfolios when comparing to prior periods. By excluding these from the total of loans, operating lease equipment and AHFS balances on the balance sheet, this metric is considered non-GAAP, and is presented only to assist the reader in understanding how management views the underlying change in these asset levels in aggregate. The following table reflects the average balances for the respective periods.
Core Average Loans and Leases (dollars in millions) | Quarters Ended |
| |||||||||
| September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
| |||
Total average loans (incl HFS, net of credit balances) | $ | 28,408.7 |
|
| $ | 28,553.9 |
|
| $ | 27,793.1 |
|
Total average operating lease equipment (incl HFS) |
| 8,031.8 |
|
|
| 7,980.3 |
|
|
| 7,797.6 |
|
Total average loans and leases |
| 36,440.5 |
|
|
| 36,534.2 |
|
|
| 35,590.7 |
|
Non-core average portfolio, LCM |
| 2,981.0 |
|
|
| 3,696.5 |
|
|
| 4,470.8 |
|
Non-core average portfolio, NACCO |
| 1,208.6 |
|
|
| 1,226.1 |
|
|
| 1,093.4 |
|
Non-core average portfolios, NSP |
| 27.2 |
|
|
| 43.2 |
|
|
| 104.4 |
|
Core average loans and leases | $ | 32,223.7 |
|
| $ | 31,568.4 |
|
| $ | 29,922.1 |
|
| Period End Earning Assets and Average Earning Asset Total (dollars in millions) | |||||||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2017 | June 30, 2017 | December 31, 2016 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||||
Loans (GAAP) | $ | 28,505.3 | $ | 29,031.7 | $ | 29,535.9 | $ | 29,897.0 | |||||||||||||||
Operating lease equipment, net (GAAP) | 6,724.2 | 6,736.0 | 7,486.1 | 7,383.1 | |||||||||||||||||||
| Interest bearing cash (GAAP) | 2,658.9 | 4,739.0 | 5,608.5 | 5,936.0 | |||||||||||||||||||
| Investment securities (GAAP) | 5,744.8 | 5,530.0 | 4,491.1 | 3,592.4 | |||||||||||||||||||
Assets held for sale (GAAP) | 2,162.0 | 1,324.8 | 636.0 | 1,406.7 | |||||||||||||||||||
| Indemnification assets (GAAP) | 171.8 | 208.5 | 341.4 | 362.4 | |||||||||||||||||||
| Credit balances of factoring clients (GAAP) | (1,698.5 | ) | (1,405.3 | ) | (1,292.0 | ) | (1,228.9 | ) | |||||||||||||||
| Total earning assets (Non-GAAP) | $ | 44,268.5 | $ | 46,164.7 | $ | 46,807.0 | $ | 47,348.7 | |||||||||||||||
| Average Earning Assets (for the respective periods) (Non-GAAP) | $ | 45,454.2 | $ | 50,675.8 | $ | 46,964.7 | $ | 47,728.7 | $ | 47,535.7 | $ | 47,900.0 | |||||||||||
| AEA adjustment for Commercial Air sale impacts | — | (3,686.0 | ) | — | — | (1,244.0 | ) | — | |||||||||||||||
| AEA, excluding noteworthy items (Non-GAAP) | $ | 45,454.2 | $ | 46,989.8 | $ | 46,964.7 | $ | 47,728.7 | $ | 46,291.7 | $ | 47,900.0 | |||||||||||
5. | |
Tangible Book Value, ROTCE and Tangible Book Value per Share |
Tangible book value (TBV,(“TBV”), also referred to as tangible common equity),equity, return on tangible common equity (ROTCE)(“ROTCE”), and TBV per share are considered key financial performance measures by management, and are used by other financial institutions. TBV, as calculated and used by management, represents CIT’s common stockholders’ equity, less goodwill and intangible assets. ROTCE measures CIT’s net income applicable to common shareholders as a percentage of average tangible common equity. This measure is useful for evaluating the performance of CIT as it calculates the return available to common shareholders without the impact of intangible assets and deferred tax assets. The average adjusted tangible common equity is derived using averages of balances presented, based on month end balances for the period. TBV per share is calculated by dividing TBV by the outstanding number of common shares. TBV, ROTCE and TBV per share are measurements used by management and users of CIT’s financial data in assessing CIT’s use of equity. We believe the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
CIT management believes TBV, ROTCE and TBV per share are important measures for comparative purposes with other institutions, but are not defined under U.S. GAAP, and therefore are considered non-GAAP financial measures.
To provide further information, management included ROTCE calculations, ROTCE calculations excluding noteworthy items and adjusted for the previously disclosed return of capital of common equity to shareholders from the net proceeds of the Commercial Air sale.
82
Tangible Book Value (dollars in millions)
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
Tangible Book Value | September 30, 2018 |
|
|
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
|
|
| September 30, 2017 |
| |||||
Total common shareholders' equity | $ | 5,995.3 |
|
|
|
| $ | 6,200.7 |
|
| $ | 7,126.3 |
|
| $ | 5,995.3 |
|
|
|
| $ | 7,126.3 |
|
Less: Goodwill |
| (369.9 | ) |
|
|
|
| (369.9 | ) |
|
| (625.5 | ) |
|
| (369.9 | ) |
|
|
|
| (625.5 | ) |
Intangible assets |
| (95.0 | ) |
|
|
|
| (101.0 | ) |
|
| (119.1 | ) |
|
| (95.0 | ) |
|
|
|
| (119.1 | ) |
Tangible book value (Non-GAAP) |
| 5,530.4 |
|
|
|
|
| 5,729.8 |
|
|
| 6,381.7 |
|
|
| 5,530.4 |
|
|
|
|
| 6,381.7 |
|
Less: Disallowed deferred tax asset |
| (89.9 | ) |
|
|
|
| (93.7 | ) |
|
| (116.6 | ) |
|
| (89.9 | ) |
|
|
|
| (116.6 | ) |
Tangible common equity (Non-GAAP) | $ | 5,440.5 |
|
|
|
| $ | 5,636.1 |
|
| $ | 6,265.1 |
|
| $ | 5,440.5 |
|
|
|
| $ | 6,265.1 |
|
Average tangible common equity (Non-GAAP) | $ | 5,534.8 |
|
|
|
| $ | 6,030.4 |
|
| $ | 6,249.1 |
|
| $ | 5,925.3 |
|
|
|
| $ | 7,878.3 |
|
Estimated capital adjustment related to Commercial Air sale |
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| (1,424.8 | ) |
Average tangible common equity, excluding noteworthy items (Non-GAAP) | $ | 5,534.8 |
|
|
|
| $ | 6,030.4 |
|
| $ | 6,249.1 |
|
| $ | 5,925.3 |
|
|
|
| $ | 6,453.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders | $ | 131.5 |
|
|
|
| $ | 117.4 |
|
| $ | 219.6 |
|
| $ | 345.9 |
|
|
|
| $ | 556.2 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income - for ROTCE calculation | $ | 135.8 |
|
|
|
| $ | 121.8 |
|
| $ | 224.6 |
|
| $ | 359.0 |
|
|
|
| $ | 569.2 |
|
Return on average tangible common equity |
| 9.81 | % |
|
|
|
| 8.08 | % |
|
| 14.38 | % |
|
| 8.08 | % |
|
|
|
| 9.63 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP income available to common shareholders (from the following non-GAAP noteworthy tables) | $ | 133.1 |
|
|
|
| $ | 117.9 |
|
| $ | 137.8 |
|
| $ | 341.2 |
|
|
|
| $ | 430.0 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income - for ROTCE calculation | $ | 137.4 |
|
|
|
| $ | 122.3 |
|
| $ | 142.8 |
|
| $ | 354.3 |
|
|
|
| $ | 443.0 |
|
Return on average tangible common equity, excluding noteworthy items |
| 9.93 | % |
|
|
|
| 8.11 | % |
|
| 9.14 | % |
|
| 7.97 | % |
|
|
|
| 9.15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders | $ | 129.4 |
|
|
|
| $ | 137.9 |
|
| $ | 222.8 |
|
| $ | 371.0 |
|
|
|
| $ | 342.2 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 133.7 |
|
|
|
| $ | 142.3 |
|
| $ | 227.8 |
|
| $ | 384.1 |
|
|
|
| $ | 355.2 |
|
Return on average tangible common equity, adjusted for estimated capital adjustment |
| 9.66 | % |
|
|
|
| 9.44 | % |
|
| 14.58 | % |
|
| 8.64 | % |
|
|
|
| 7.34 | % |
Non-GAAP income from continuing operations (from next page) | $ | 131.0 |
|
|
|
| $ | 124.6 |
|
| $ | 138.7 |
|
| $ | 352.5 |
|
|
|
| $ | 373.8 |
|
Intangible asset amortization, after tax |
| 4.3 |
|
|
|
|
| 4.4 |
|
|
| 5.0 |
|
|
| 13.1 |
|
|
|
|
| 13.0 |
|
Non-GAAP income from continuing operations - for ROTCE calculation | $ | 135.3 |
|
|
|
| $ | 129.0 |
|
| $ | 143.7 |
|
| $ | 365.6 |
|
|
|
| $ | 386.8 |
|
Return on average tangible common equity, after noteworthy items and proforma for estimated capital adjustment |
| 9.78 | % |
|
|
|
| 8.56 | % |
|
| 9.20 | % |
|
| 8.23 | % |
|
|
|
| 7.99 | % |
Tangible Book Value (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
| Total common shareholders' equity (GAAP) | $ | 7,126.3 | $ | 7,026.2 | $ | 11,204.4 | $ | 7,126.3 | $ | 11,204.4 | |||||||||
| Less: Goodwill | (625.5 | ) | (625.5 | ) | (1,043.7 | ) | (625.5 | ) | (1,043.7 | ) | |||||||||
| Intangible assets | (119.1 | ) | (125.4 | ) | (147.6 | ) | (119.1 | ) | (147.6 | ) | |||||||||
| Tangible book value (Non-GAAP) | 6,381.7 | 6,275.3 | 10,013.1 | 6,381.7 | 10,013.1 | ||||||||||||||
| Less: Disallowed deferred tax asset | (116.6 | ) | (53.5 | ) | (815.7 | ) | (116.6 | ) | (815.7 | ) | |||||||||
| Tangible common equity (Non-GAAP) | $ | 6,265.1 | $ | 6,221.8 | $ | 9,197.4 | $ | 6,265.1 | $ | 9,197.4 | |||||||||
| Average tangible common equity (Non-GAAP) | $ | 6,249.1 | $ | 8,280.4 | $ | 9,152.8 | $ | 7,878.3 | $ | 9,061.9 | |||||||||
| Estimated capital adjustment related to Commercial Air sale | — | (1,903.1 | ) | (2,975.0 | ) | (1,424.8 | ) | (2,975.0 | ) | ||||||||||
| Average tangible common equity, adjusted (Non-GAAP) | $ | 6,249.1 | $ | 6,377.3 | $ | 6,177.8 | $ | 6,453.5 | $ | 6,086.9 | |||||||||
| Net income (GAAP) | $ | 219.6 | $ | 156.7 | $ | 131.5 | $ | 556.2 | $ | 294.5 | |||||||||
| Intangible asset amortization, after tax | 5.0 | 4.0 | 4.5 | 13.0 | 12.2 | ||||||||||||||
| Valuation allowance | — | — | 15.7 | — | 15.7 | ||||||||||||||
| Non-GAAP income - for ROTCE calculation | $ | 224.6 | $ | 160.7 | $ | 151.7 | $ | 569.2 | $ | 322.4 | |||||||||
| Return on average tangible common equity | 14.38 | % | 7.76 | % | 6.63 | % | 9.63 | % | 4.74 | % | |||||||||
| Non-GAAP income, excluding noteworthy items | $ | 137.8 | $ | 129.1 | $ | 169.3 | $ | 430.0 | $ | 499.6 | |||||||||
| Intangible asset amortization, after tax | 5.0 | 4.0 | 4.5 | 13.0 | �� | 12.2 | |||||||||||||
| Valuation allowance | — | — | 15.7 | — | 15.7 | ||||||||||||||
| Non-GAAP income, excluding noteworthy items - for ROTCE calculation | $ | 142.8 | $ | 133.1 | $ | 189.5 | $ | 443.0 | $ | 527.5 | |||||||||
| Return on average tangible common equity, excluding noteworthy items | 9.14 | % | 6.43 | % | 8.28 | % | 7.50 | % | 7.76 | % | |||||||||
| Return on average tangible common equity, after noteworthy items and estimated capital adjustment | 9.14 | % | 8.35 | % | 12.27 | % | 9.15 | % | 11.55 | % | |||||||||
| Income from continuing operations (GAAP) | $ | 222.8 | $ | 41.2 | $ | 94.2 | $ | 342.2 | $ | 243.2 | |||||||||
| Intangible asset amortization, after tax | 5.0 | 4.0 | 4.5 | 13.0 | 12.2 | ||||||||||||||
| Valuation allowance | — | — | 15.7 | — | 15.7 | ||||||||||||||
| Non-GAAP income from continuing operations - for ROTCE calculation | $ | 227.8 | $ | 45.2 | $ | 114.4 | $ | 355.2 | $ | 271.1 | |||||||||
| Return on average tangible common equity, adjusted for estimated capital adjustment | 14.58 | % | 2.84 | % | 7.41 | % | 7.34 | % | 5.94 | % | |||||||||
| Non-GAAP income from continuing operations (from next page) | $ | 138.7 | $ | 125.7 | $ | 108.6 | $ | 373.8 | $ | 259.3 | |||||||||
| Intangible asset amortization, after tax | 5.0 | 4.0 | 4.5 | 13.0 | 12.2 | ||||||||||||||
| Valuation allowance | — | — | 15.7 | — | 15.7 | ||||||||||||||
| Non-GAAP income from continuing operations - for ROTCE calculation | $ | 143.7 | $ | 129.7 | $ | 128.8 | $ | 386.8 | $ | 287.2 | |||||||||
| Return on average tangible common equity, after noteworthy items and estimated capital adjustment | 9.20 | % | 8.14 | % | 8.34 | % | 7.99 | % | 6.29 | % | |||||||||
6. | |
Net income excluding noteworthy items and income from continuing operations excluding noteworthy items |
Net income excluding noteworthy items and income from continuing operations excluding noteworthy items are non-GAAP measures used by management as each excludes items from the respective line item in the GAAP statement of income. Due to the volume and size of noteworthy items, the Company believes that adjusting for these items provides the user of CIT’s financial information a measure of the underlying performance of the Company and of continuing operations specifically. The non-GAAP noteworthy items are summarized in the following categories: significant due to the magnitudesize of the transaction; transactions pertaining to items no longer considered core to CIT’s on-going operations ((e.g.i.e. sales of Non-Strategic Portfolios); legacy OneWest Bank issues prior to CIT’s ownership; and recurringother items consistently noted in other non-GAAP measures,described earlier, such as restructuring costs, even though the respective balance may not have been significant.
83
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data)
| Description | Line Item |
| Pre-tax Balance |
|
| Income Tax(2) |
|
|
|
| After-tax Balance |
|
| Per Share |
| ||||
Quarter Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 131.5 |
|
| $ | 1.15 |
| |||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.7 |
|
|
|
|
| (5.9 | ) |
|
| (0.05 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
|
|
| 15.5 |
|
|
| 0.14 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 3.3 |
|
|
| (0.7 | ) |
|
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 133.1 |
|
| $ | 1.17 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
| $ | 129.4 |
|
| $ | 1.13 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.7 |
|
|
|
|
| (5.9 | ) |
|
| (0.05 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
|
|
| 15.5 |
|
|
| 0.14 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 3.3 |
|
|
| (0.7 | ) |
|
|
|
| 2.6 |
|
|
| 0.02 |
|
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 131.0 |
|
| $ | 1.15 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 117.4 |
|
| $ | 0.94 |
| |||||||||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.6 |
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
|
|
| (21.6 | ) |
|
| (0.17 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 19.1 |
|
|
| (4.8 | ) |
|
|
|
| 14.3 |
|
|
| 0.11 |
|
Discontinuing Operations | Loss on Financial Freedom servicing operations |
|
| 18.7 |
|
|
| (4.9 | ) |
|
|
|
| 13.8 |
|
|
| 0.11 |
| |
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 117.9 |
|
| $ | 0.95 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
| $ | 137.9 |
|
| $ | 1.11 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (8.6 | ) |
| $ | 2.6 |
|
|
|
|
| (6.0 | ) |
|
| (0.05 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
|
|
| (21.6 | ) |
|
| (0.17 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 19.1 |
|
|
| (4.8 | ) |
|
|
|
| 14.3 |
|
|
| 0.11 |
|
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 124.6 |
|
| $ | 1.00 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data) | ||||||||||||||||||
| Description | Line Item | Pre-tax Balance | Income Tax(2) | After-tax Balance | Per Share | |||||||||||||
| Quarter Ended September 30, 2017 | ||||||||||||||||||
| Net income | $ | 219.6 | $ | 1.61 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 53.5 | $ | (20.3 | ) | 33.2 | 0.24 | |||||||||
| Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (140.4 | ) | (140.4 | ) | (1.03 | ) | ||||||||||
| Suspended depreciation on assets HFS (Nacco rail assets) | Depreciation on operating lease equipment | (7.8 | ) | 2.6 | (5.2 | ) | (0.04 | ) | ||||||||||
| Financial Freedom Transaction, reverse mortgage charge-offs on loans transferred to HFS | Provision for credit losses | 15.5 | (6.0 | ) | 9.5 | 0.07 | ||||||||||||
| Financial Freedom Transaction, impairments on reverse mortgage-related assets | Other non-interest income | 26.8 | (10.4 | ) | 16.4 | 0.12 | ||||||||||||
| Restructuring expenses | Operating expenses | 2.9 | (0.5 | ) | 2.4 | 0.02 | ||||||||||||
| Discontinued Operations | Financial Freedom servicing asset-related items | 3.7 | (1.4 | ) | 2.3 | 0.02 | ||||||||||||
Non-GAAP income, excluding noteworthy items(1) | $ | 137.8 | $ | 1.01 | ||||||||||||||
| Income from continuing operations | $ | 222.8 | $ | 1.64 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 53.5 | $ | (20.3 | ) | 33.2 | 0.24 | |||||||||
| Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (140.4 | ) | (140.4 | ) | (1.03 | ) | ||||||||||
| Suspended depreciation on assets HFS (Nacco rail assets) | Depreciation on operating lease equipment | (7.8 | ) | 2.6 | (5.2 | ) | (0.04 | ) | ||||||||||
| Financial Freedom Transaction, reverse mortgage charge-offs on loans transferred to HFS | Provision for credit losses | 15.5 | (6.0 | ) | 9.5 | 0.07 | ||||||||||||
| Financial Freedom Transaction, impairments on reverse mortgage-related assets | Other non-interest income | 26.8 | (10.4 | ) | 16.4 | 0.12 | ||||||||||||
| Restructuring expenses | Operating expenses | 2.9 | (0.5 | ) | 2.4 | 0.02 | ||||||||||||
Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 138.7 | $ | 1.02 | ||||||||||||||
| Quarter Ended June 30, 2017 | ||||||||||||||||||
| Net income | $ | 156.7 | $ | 0.85 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 164.8 | $ | (65.2 | ) | 99.6 | 0.54 | |||||||||
| Excess interest costs | Interest expense | 23.4 | (8.9 | ) | 14.5 | 0.08 | ||||||||||||
| Interest on excess cash | Interest income | (9.1 | ) | 3.5 | (5.6 | ) | (0.03 | ) | ||||||||||
| Resolution of legacy tax items | Benefit / provision for income taxes | — | (19.3 | ) | (19.3 | ) | (0.11 | ) | ||||||||||
| Deferred tax recognition | Benefit / provision for income taxes | — | (6.9 | ) | (6.9 | ) | (0.04 | ) | ||||||||||
| Restructuring Expenses | Operating expenses | 3.4 | (1.2 | ) | 2.2 | 0.01 | ||||||||||||
| Discontinued Operations | Gain on sale - Commercial Air, net of certain expenses | (134.7 | ) | 35.0 | (99.7 | ) | (0.54 | ) | ||||||||||
| Financial Freedom net settlement items & servicing rights impairment | (20.2 | ) | 7.8 | (12.4 | ) | (0.07 | ) | |||||||||||
Non-GAAP income, excluding noteworthy items(1) | $ | 129.1 | $ | 0.70 | ||||||||||||||
| Income from continuing operations | $ | 41.2 | $ | 0.22 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 164.8 | $ | (65.2 | ) | 99.6 | 0.54 | |||||||||
| Excess interest costs | Interest expense | 23.4 | (8.9 | ) | 14.5 | 0.08 | ||||||||||||
| Interest on excess cash | Interest income | (9.1 | ) | 3.5 | (5.6 | ) | (0.03 | ) | ||||||||||
| Resolution of legacy tax items | Benefit / provision for income taxes | — | (19.3 | ) | (19.3 | ) | (0.11 | ) | ||||||||||
| Deferred tax recognition | Benefit / provision for income taxes | — | (6.9 | ) | (6.9 | ) | (0.04 | ) | ||||||||||
| Restructuring Expenses | Operating expenses | 3.4 | (1.2 | ) | 2.2 | 0.01 | ||||||||||||
Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 125.7 | $ | 0.68 | ||||||||||||||
84
Description | Line Item |
| Pre-tax Balance |
|
| Income Tax(2) |
|
|
|
| After-tax Balance |
|
| Per Share |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Quarter Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders |
|
|
|
| $ | 219.6 |
|
| $ | 1.61 |
| |||||||||
Continuing Operations | Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
| $ | 15.5 |
|
| $ | (6.0 | ) |
|
|
| 9.5 |
|
|
| 0.07 |
| |
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
|
|
| 16.4 |
|
|
| 0.12 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
|
|
| (5.2 | ) |
|
| (0.04 | ) |
| Restructuring expenses | Operating expenses |
|
| 2.9 |
|
|
| (0.5 | ) |
|
|
|
| 2.4 |
|
|
| 0.02 |
|
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 53.5 |
|
|
| (20.3 | ) |
|
|
|
| 33.2 |
|
|
| 0.24 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
|
|
| (140.4 | ) |
|
| (1.03 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations | Financial Freedom servicing asset-related items |
|
| 3.7 |
|
| (1.4) |
| 2.3 |
| 0.02 |
| ||||||||
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
| $ | 137.8 |
|
| $ | 1.01 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
| $ | 222.8 |
|
| $ | 1.64 |
| |
Continuing Operations | Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
| $ | 15.5 |
|
| $ | (6.0 | ) |
|
|
| $ | 9.5 |
|
|
| 0.07 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
|
|
| 16.4 |
|
|
| 0.12 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
|
|
| (5.2 | ) |
|
| (0.04 | ) |
| Restructuring expenses | Operating expenses |
|
| 2.9 |
|
|
| (0.5 | ) |
|
|
|
| 2.4 |
|
|
| 0.02 |
|
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 53.5 |
|
|
| (20.3 | ) |
|
|
|
| 33.2 |
|
|
| 0.24 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
|
|
| (140.4 | ) |
|
| (1.03 | ) |
Non-GAAP income from continuing operations, excluding noteworthy items(1) |
|
|
|
| $ | 138.7 |
|
| $ | 1.02 |
| |||||||||
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data) | ||||||||||||||||||
| Description | Line Item | Pre-tax Balance | Income Tax(2) | After-tax Balance | Per Share | |||||||||||||
| Quarter Ended September 30, 2016 | ||||||||||||||||||
| Net income | $ | 131.5 | $ | 0.65 | ||||||||||||||
| Continuing Operations | China valuation allowance | Benefit / provision for income taxes | $ | — | $ | 16.0 | 16.0 | �� | 0.08 | |||||||||
| Gain related to IndyMac venture | Other non-interest income | (5.0 | ) | 2.0 | (3.0 | ) | (0.01 | ) | ||||||||||
| Restructuring expenses | Operating expenses | 2.3 | (0.9 | ) | 1.4 | 0.01 | ||||||||||||
| Discontinued Operations | Financial Freedom servicing rights impairment | 19.0 | (7.0 | ) | 12.0 | 0.06 | ||||||||||||
| Business Air goodwill impairment | 18.4 | (7.0 | ) | 11.4 | 0.05 | |||||||||||||
Non-GAAP income, excluding noteworthy items(1) | $ | 169.3 | $ | 0.83 | ||||||||||||||
| Income from continuing operations | $ | 94.2 | $ | 0.47 | ||||||||||||||
| Continuing Operations | China valuation allowance | Benefit / provision for income taxes | $ | — | $ | 16.0 | 16.0 | 0.08 | ||||||||||
| Gain related to IndyMac venture | Other non-interest income | (5.0 | ) | 2.0 | (3.0 | ) | (0.01 | ) | ||||||||||
| Restructuring expenses | Operating expenses | 2.3 | (0.9 | ) | 1.4 | 0.01 | ||||||||||||
Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 108.6 | $ | 0.54 | ||||||||||||||
| Nine Months Ended September 30, 2017 | ||||||||||||||||||
| Net income | $ | 556.2 | $ | 3.19 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 218.3 | $ | (85.5 | ) | 132.8 | 0.76 | |||||||||
| Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (140.4 | ) | (140.4 | ) | (0.81 | ) | ||||||||||
| Suspended depreciation on assets HFS (Nacco rail assets) | Depreciation on operating lease equipment | (7.8 | ) | 2.6 | (5.2 | ) | (0.03 | ) | ||||||||||
| Financial Freedom Transaction, reverse mortgage charge-offs on loans transferred to HFS | Provision for credit losses | 15.5 | (6.0 | ) | 9.5 | 0.05 | ||||||||||||
| Financial Freedom Transaction, impairments on reverse mortgage-related assets | Other non-interest income | 26.8 | (10.4 | ) | 16.4 | 0.09 | ||||||||||||
| Excess interest costs | Interest expense | 23.4 | (8.9 | ) | 14.5 | 0.08 | ||||||||||||
| CTA Charge | Other non-interest income | 8.1 | (1.3 | ) | 6.8 | 0.04 | ||||||||||||
| Entity Restructuring | Benefit / provision for income taxes | — | 14.0 | 14.0 | 0.08 | |||||||||||||
| Resolution of legacy tax items | Benefit / provision for income taxes | — | (19.3 | ) | (19.3 | ) | (0.11 | ) | ||||||||||
| Deferred tax recognition | Benefit / provision for income taxes | — | (6.9 | ) | (6.9 | ) | (0.04 | ) | ||||||||||
| Interest on excess cash | Interest income | (9.1 | ) | 3.5 | (5.6 | ) | (0.03 | ) | ||||||||||
| Restructuring Expenses | Operating expenses | 21.1 | (6.1 | ) | 15.0 | 0.09 | ||||||||||||
| Discontinued Operations | Financial Freedom servicing asset-related items | 3.7 | (1.4 | ) | 2.3 | 0.01 | ||||||||||||
| Gain on sale - Commercial Air, net of certain expenses | (134.7 | ) | 35.0 | (99.7 | ) | (0.57 | ) | |||||||||||
| Financial Freedom net settlement items and servicing rights impairment | (20.2 | ) | 7.8 | (12.4 | ) | (0.07 | ) | |||||||||||
| Suspended Depreciation | (113.0 | ) | 44.0 | (69.0 | ) | (0.40 | ) | |||||||||||
| Secured Debt Paydown | 39.0 | (5.0 | ) | 34.0 | 0.20 | |||||||||||||
| Gain on sale - TC CIT joint venture | (14.0 | ) | 1.0 | (13.0 | ) | (0.07 | ) | |||||||||||
| Non-GAAP income, excluding noteworthy items(1) | $ | 430.0 | $ | 2.47 | ||||||||||||||
| Income from continuing operations | $ | 342.2 | $ | 1.96 | ||||||||||||||
| Continuing Operations | Debt redemption costs | Loss on debt extinguishment | $ | 218.3 | $ | (85.5 | ) | 132.8 | 0.76 | |||||||||
| Strategic tax item - restructuring of an international legal entity | Benefit / provision for income taxes | — | (140.4 | ) | (140.4 | ) | (0.81 | ) | ||||||||||
| Suspended depreciation on assets HFS (Nacco rail assets) | Depreciation on operating lease equipment | (7.8 | ) | 2.6 | (5.2 | ) | (0.03 | ) | ||||||||||
| Financial Freedom Transaction, reverse mortgage charge-offs on loans transferred to HFS | Provision for credit losses | 15.5 | (6.0 | ) | 9.5 | 0.05 | ||||||||||||
| Financial Freedom Transaction, impairments on reverse mortgage-related assets | Other non-interest income | 26.8 | (10.4 | ) | 16.4 | 0.09 | ||||||||||||
| Excess interest costs | Interest expense | 23.4 | (8.9 | ) | 14.5 | 0.08 | ||||||||||||
| CTA Charge | Other non-interest income | 8.1 | (1.3 | ) | 6.8 | 0.04 | ||||||||||||
| Entity Restructuring | Benefit / provision for income taxes | — | 14.0 | 14.0 | 0.08 | |||||||||||||
| Resolution of legacy tax items | Benefit / provision for income taxes | — | (19.3 | ) | (19.3 | ) | (0.11 | ) | ||||||||||
| Deferred tax recognition | Benefit / provision for income taxes | — | (6.9 | ) | (6.9 | ) | (0.04 | ) | ||||||||||
| Interest on excess cash | Interest income | (9.1 | ) | 3.5 | (5.6 | ) | (0.03 | ) | ||||||||||
| Restructuring Expenses | Operating expenses | 21.1 | (6.1 | ) | 15.0 | 0.09 | ||||||||||||
| Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 373.8 | $ | 2.15 | ||||||||||||||
| Nine Months Ended September 30, 2016 | ||||||||||||||||||
| Net income | $ | 294.5 | $ | 1.46 | ||||||||||||||
| Continuing Operations | Restructuring expenses | Operating expenses | $ | 32.3 | $ | (12.4 | ) | 19.9 | 0.10 | |||||||||
| Gain on sale - UK | Other non-interest income | (23.5 | ) | 8.2 | (15.3 | ) | (0.08 | ) | ||||||||||
| Discrete tax benefit | Benefit for income taxes | — | (13.0 | ) | (13.0 | ) | (0.06 | ) | ||||||||||
| Asset impairment | Other non-interest income | 11.0 | (2.8 | ) | 8.2 | 0.04 | ||||||||||||
| Liquidating Europe CTA | Other non-interest income | 3.3 | — | 3.3 | 0.02 | |||||||||||||
| China valuation allowance | Benefit / provision for income taxes | — | 16.0 | 16.0 | 0.08 | |||||||||||||
| Gain related to IndyMac venture | Other non-interest income | (5.0 | ) | 2.0 | (3.0 | ) | (0.01 | ) | ||||||||||
| Discontinued Operations | Financial Freedom interest curtailment reserve and servicing rights impairment | 249.0 | (74.0 | ) | 175.0 | 0.86 | ||||||||||||
| Business Air goodwill impairment | 22.6 | (8.6 | ) | 14.0 | 0.07 | |||||||||||||
| Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 499.6 | $ | 2.47 | ||||||||||||||
| Income from continuing operations | $ | 243.2 | $ | 1.21 | ||||||||||||||
| Continuing Operations | Restructuring expenses | Operating expenses | $ | 32.3 | $ | (12.4 | ) | 19.9 | 0.10 | |||||||||
| Gain on sale - UK | Other non-interest income | (23.5 | ) | 8.2 | (15.3 | ) | (0.08 | ) | ||||||||||
| Discrete tax benefit | Benefit for income taxes | — | (13.0 | ) | (13.0 | ) | (0.06 | ) | ||||||||||
| Asset impairment | Other non-interest income | 11.0 | (2.8 | ) | 8.2 | 0.04 | ||||||||||||
| Liquidating Europe CTA | Other non-interest income | 3.3 | — | 3.3 | 0.02 | |||||||||||||
| China valuation allowance | Benefit / provision for income taxes | — | 16.0 | 16.0 | 0.08 | |||||||||||||
| Gain related to IndyMac venture | Other non-interest income | (5.0 | ) | 2.0 | (3.0 | ) | (0.01 | ) | ||||||||||
| Non-GAAP income from continuing operations, excluding noteworthy items(1) | $ | 259.3 | $ | 1.28 | ||||||||||||||
(1) | Items may not sum due to rounding. |
(2) | Income tax rates vary depending on the specific item and the entity location in which it is recorded. |
85
|
|
| Pre-Tax |
|
| Income |
|
| After-tax |
|
| Per |
| |||||
| Description | Line Item |
| Balance |
|
| Tax(2) |
|
| Balance |
|
| Share |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 345.9 |
|
| $ | 2.80 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (26.5 | ) |
| $ | 7.8 |
|
|
| (18.7 | ) |
|
| (0.15 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
| (21.6 | ) |
|
| (0.18 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
| 15.5 |
|
|
| 0.13 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 22.4 |
|
|
| (5.5 | ) |
|
| 16.9 |
|
|
| 0.14 |
|
Discontinued Operations | Loss on Financial Freedom servicing operations |
|
|
| 18.7 |
|
|
| (4.9 | ) |
|
| 13.8 |
|
|
| 0.11 |
|
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 341.2 |
|
| $ | 2.77 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 371.0 |
|
| $ | 3.01 |
| ||
Continuing Operations | NACCO suspended depreciation | Depreciation on operating lease equipment |
| $ | (26.5 | ) |
| $ | 7.8 |
|
|
| (18.7 | ) |
|
| (0.15 | ) |
| Gain and other revenues from sale of reverse mortgage portfolio | Other non-interest income |
|
| (29.3 | ) |
|
| 7.7 |
|
|
| (21.6 | ) |
|
| (0.18 | ) |
| Impairment of LCM indemnification asset | Other non-interest income |
|
| 21.2 |
|
|
| (5.7 | ) |
|
| 15.5 |
|
|
| 0.13 |
|
| Release of valuation reserve on AHFS | Other non-interest income |
|
| (10.6 | ) |
|
| - |
|
|
| (10.6 | ) |
|
| (0.09 | ) |
| Loss on debt redemption | Loss on debt extinguishment and deposit redemption |
|
| 22.4 |
|
|
| (5.5 | ) |
|
| 16.9 |
|
|
| 0.14 |
|
Non-GAAP income from continuing operations available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 352.5 |
|
| $ | 2.86 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 556.2 |
|
| $ | 3.19 |
| ||
Continuing Operations | Interest on excess cash | Interest income |
| $ | (9.1 | ) |
| $ | 3.5 |
|
|
| (5.6 | ) |
|
| (0.03 | ) |
| Excess interest costs from Commercial Air proceeds usage | Interest expense |
|
| 23.4 |
|
|
| (8.9 | ) |
|
| 14.5 |
|
|
| 0.08 |
|
| Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
|
| 15.5 |
|
|
| (6.0 | ) |
|
| 9.5 |
|
|
| 0.05 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
| 16.4 |
|
|
| 0.09 |
|
| CTA charge | Other non-interest income |
|
| 8.1 |
|
|
| (1.3 | ) |
|
| 6.8 |
|
|
| 0.04 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
| (5.2 | ) |
|
| (0.03 | ) |
| Restructuring Expenses | Operating expenses |
|
| 21.1 |
|
|
| (6.1 | ) |
|
| 15.0 |
|
|
| 0.09 |
|
| Debt redemption costs | Loss on debt extinguishment and deposit redemption |
|
| 218.3 |
|
|
| (85.5 | ) |
|
| 132.8 |
|
|
| 0.76 |
|
| Resolution of legacy tax items | Benefit (provision) for income taxes |
|
| - |
|
|
| (19.3 | ) |
|
| (19.3 | ) |
|
| (0.11 | ) |
| Deferred tax recognition | Benefit (provision) for income taxes |
|
| - |
|
|
| (6.9 | ) |
|
| (6.9 | ) |
|
| (0.04 | ) |
| Entity restructuring | Benefit (provision) for income taxes |
|
| - |
|
|
| 14.0 |
|
|
| 14.0 |
|
|
| 0.08 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
| (140.4 | ) |
|
| (0.81 | ) |
Discontinued Operations | Gain on sale - Commercial Air, net of certain expenses |
|
|
| (134.7 | ) |
|
| 35.0 |
|
|
| (99.7 | ) |
|
| (0.57 | ) |
| Financial Freedom net settlement items & servicing rights impairment |
|
|
| (20.2 | ) |
|
| 7.8 |
|
|
| (12.4 | ) |
|
| (0.07 | ) |
| Financial Freedom servicing asset-related items |
|
|
| 3.7 |
|
|
| (1.4 | ) |
|
| 2.3 |
|
|
| 0.01 |
|
| Suspended depreciation |
|
|
| (113.0 | ) |
|
| 44.0 |
|
|
| (69.0 | ) |
|
| (0.40 | ) |
| Secured debt paydown |
|
|
| 39.0 |
|
|
| (5.0 | ) |
|
| 34.0 |
|
|
| 0.20 |
|
| Gain on sale - TC CIT joint venture |
|
|
| (14.0 | ) |
|
| 1.0 |
|
|
| (13.0 | ) |
|
| (0.07 | ) |
Non-GAAP income available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 430.0 |
|
| $ | 2.47 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
| Pre-Tax |
|
| Income |
|
| After-tax |
|
| Per |
| |||||
| Description | Line Item |
| Balance |
|
| Tax(2) |
|
| Balance |
|
| Share |
| ||||
Income from continuing operations available to common shareholders |
|
|
|
|
|
|
|
|
| $ | 342.2 |
|
| $ | 1.96 |
| ||
Continuing Operations | Interest on excess cash | Interest income |
| $ | (9.1 | ) |
| $ | 3.5 |
|
|
| (5.6 | ) |
|
| (0.03 | ) |
| Excess interest costs from Commercial Air proceeds usage | Interest expense |
|
| 23.4 |
|
|
| (8.9 | ) |
|
| 14.5 |
|
|
| 0.08 |
|
| Financial Freedom Transaction - reverse mortgage charge-offs on loans transferred to AHFS | Provision for credit losses |
|
| 15.5 |
|
|
| (6.0 | ) |
|
| 9.5 |
|
|
| 0.05 |
|
| Financial Freedom Transaction - impairments on reverse mortgage related assets | Other non-interest income |
|
| 26.8 |
|
|
| (10.4 | ) |
|
| 16.4 |
|
|
| 0.09 |
|
| CTA charge | Other non-interest income |
|
| 8.1 |
|
|
| (1.3 | ) |
|
| 6.8 |
|
|
| 0.04 |
|
| NACCO suspended depreciation | Depreciation on operating lease equipment |
|
| (7.8 | ) |
|
| 2.6 |
|
|
| (5.2 | ) |
|
| (0.03 | ) |
| Restructuring Expenses | Operating expenses |
|
| 21.1 |
|
|
| (6.1 | ) |
|
| 15.0 |
|
|
| 0.09 |
|
| Debt redemption costs | Loss on debt extinguishment and deposit redemption |
|
| 218.3 |
|
|
| (85.5 | ) |
|
| 132.8 |
|
|
| 0.76 |
|
| Resolution of legacy tax items | Benefit (provision) for income taxes |
|
| - |
|
|
| (19.3 | ) |
|
| (19.3 | ) |
|
| (0.11 | ) |
| Deferred tax recognition | Benefit (provision) for income taxes |
|
| - |
|
|
| (6.9 | ) |
|
| (6.9 | ) |
|
| (0.04 | ) |
| Entity restructuring | Benefit (provision) for income taxes |
|
| - |
|
|
| 14.0 |
|
|
| 14.0 |
|
|
| 0.08 |
|
| Strategic tax item - restructuring of an international legal entity | Benefit (provision) for income taxes |
|
| - |
|
|
| (140.4 | ) |
|
| (140.4 | ) |
|
| (0.81 | ) |
Non-GAAP income from continuing operations available to common shareholders, excluding noteworthy items(1) |
|
|
|
|
|
|
|
|
| $ | 373.8 |
|
| $ | 2.15 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Items may not sum due to rounding. |
| |||||||||||||||||
(2) Income tax rates vary depending on the specific item and the entity location in which it is recorded. |
| |||||||||||||||||
7. | Effective Tax Rate Reconciliation |
The provision for income taxes before noteworthy items and separately, tax only discrete items and the respective effective tax rate are non-GAAP measures, which management uses for analytical purposes to understand the Company’s underlying tax rate. Noteworthy items are presented in item 56 above, and discussed in various sections of the MD&A. The tax discrete items are discussed in the Income Tax section.
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
Effective Tax Rate Reconciliation - Noteworthy Items (dollars in millions) | September 30, 2018 |
|
| June 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||||
Provision (benefit) for income taxes - GAAP | $ | 41.3 |
|
| $ | 57.4 |
|
| $ | (119.8 | ) |
| $ | 140.0 |
|
| $ | (95.5 | ) |
Income taxes on noteworthy items |
| 3.7 |
|
|
| (5.5 | ) |
|
| 174.9 |
|
|
| (4.3 | ) |
|
| 264.7 |
|
Provision for income taxes, before noteworthy items - Non-GAAP |
| 45.0 |
|
|
| 51.9 |
|
|
| 55.1 |
|
|
| 135.7 |
|
|
| 169.2 |
|
Income tax - remaining discrete items |
| 4.5 |
|
|
| (2.3 | ) |
|
| (1.9 | ) |
|
| 0.5 |
|
|
| 2.3 |
|
Provision for income taxes, before noteworthy and discrete tax items - Non-GAAP | $ | 49.5 |
|
| $ | 49.6 |
|
| $ | 53.2 |
|
| $ | 136.2 |
|
| $ | 171.5 |
|
Income from continuing operations before provision for income taxes - GAAP | $ | 170.7 |
|
| $ | 204.7 |
|
| $ | 103.0 |
|
| $ | 520.4 |
|
| $ | 246.7 |
|
Noteworthy items before tax |
| 4.9 |
|
|
| (18.8 | ) |
|
| 90.9 |
|
|
| (23.2 | ) |
|
| 296.3 |
|
Adjusted income from continuing operations before provision for income taxes - Non-GAAP | $ | 175.6 |
|
| $ | 185.9 |
|
| $ | 193.9 |
|
| $ | 497.2 |
|
| $ | 543.0 |
|
Effective tax rate - GAAP |
| 24.2 | % |
|
| 28.0 | % |
|
| -116.3 | % |
|
| 26.9 | % |
|
| -38.7 | % |
Effective tax rate, before noteworthy items - Non-GAAP |
| 25.6 | % |
|
| 27.9 | % |
|
| 28.4 | % |
|
| 27.3 | % |
|
| 31.2 | % |
Effective tax rate, before noteworthy and tax discrete items - Non-GAAP |
| 28.2 | % |
|
| 26.7 | % |
|
| 27.4 | % |
|
| 27.4 | % |
|
| 31.6 | % |
Effective Tax Rate Reconciliation (dollars in millions) | |||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Effective Tax Rate Reconciliation - Noteworthy Items | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
| (Provision) benefit for income taxes - GAAP | $ | 119.8 | $ | 31.9 | $ | (54.5 | ) | $ | 95.5 | $ | (210.1 | ) | |||||||
| Income taxes on noteworthy items | (174.9 | ) | (98.0 | ) | 17.1 | (264.7 | ) | (2.0 | ) | ||||||||||
| Provision for income taxes, before noteworthy items - Non-GAAP | $ | (55.1 | ) | $ | (66.1 | ) | $ | (37.4 | ) | $ | (169.2 | ) | $ | (212.1 | ) | ||||
| Income from continuing operations before provision for income taxes - GAAP | $ | 103.0 | $ | 9.3 | $ | 148.7 | $ | 246.7 | $ | 453.3 | |||||||||
| Pretax balances of noteworthy items | 90.9 | 182.6 | (2.7 | ) | 296.3 | 18.1 | |||||||||||||
| Adjusted income from continuing operations before provision for income taxes - Non-GAAP | $ | 193.9 | $ | 191.9 | $ | 146.0 | $ | 543.0 | $ | 471.4 | |||||||||
| Effective tax rate - GAAP | (116.3 | )% | (343.0 | )% | 36.7 | % | (38.7 | )% | 46.3 | % | |||||||||
| Effective tax rate, before noteworthy items - Non-GAAP | 28.4 | % | 34.4 | % | 25.6 | % | 31.2 | % | 45.0 | % | |||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Effective Tax Rate Reconciliation - Tax Discrete Items | September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
(Provision) benefit for income taxes(1) | $ | 119.8 | $ | 31.9 | $ | (54.5 | ) | $ | 95.5 | $ | (210.1 | ) | |||||||
| Income tax discrete items | (138.4 | ) | (93.4 | ) | 9.0 | (220.5 | ) | 1.6 | |||||||||||
| (Provision) benefit for income taxes, before discrete items | $ | (18.6 | ) | $ | (61.5 | ) | $ | (45.5 | ) | $ | (125.0 | ) | $ | (208.5 | ) | ||||
Income (loss) from continuing operations before provision for income taxes(1) | $ | 103.0 | $ | 9.3 | $ | 148.7 | $ | 246.7 | $ | 453.3 | |||||||||
| Adjustments to pretax income for discrete items | 0.3 | 165.4 | — | 167.5 | — | ||||||||||||||
| Adjusted income from continuing operations before provision for income taxes - Non-GAAP | $ | 103.3 | $ | 174.7 | $ | 148.7 | $ | 414.2 | $ | 453.3 | |||||||||
| Effective tax rate | (116.3 | )% | (343.0 | )% | 36.7 | % | (38.7 | )% | 46.3 | % | |||||||||
| Effective tax rate, before discrete items | 18.0 | % | 35.2 | % | 30.6 | % | 30.2 | % | 46.0 | % | |||||||||
8. | |
Regulatory |
Included within this Form 10-Q are risk-weighted assets, (RWA), risk-based capital and leverage ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we report our capital in accordance with Transitional Requirements, but also monitor our capital based on a fully phased-in methodology. Such measures are considered key regulatory capital measures used by banking regulators, investors and analysts to assess the CIT (as a BHC) regulatory capital position and to compare that to other financial institutions. For information on our capital ratios and requirements, see
Certain statements contained in this document are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “could,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to known and unknown risks, uncertainties and contingencies. Forward-looking statements are included, for example, in the discussions about:
our liquidity risk and capital management, including our capital plan, leverage, capital ratios, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, to repay secured and unsecured debt, to issue qualifying capital instruments, including Tier 1 qualifying preferred stock, and for a return of capital,
our plans to change our funding mix, to access new sources of funding, and to broaden our use of deposit taking capabilities, including increasing our level of commercial deposits and expanding our treasury management services,
our pending or potential acquisition and disposition plans, and the integration and restructuring risks inherent in such acquisitions, including our proposedthe sale of our Financial Freedom reverse mortgage servicing business and reverse mortgage loan portfolio,NACCO, our European railcar leasing business, and our proposed sale of our Business Air loan portfolio, and Nacco, our European railcar leasing business,
our credit risk management and credit quality,
our asset/liability risk management,
our funding, borrowing costs and net finance revenue,
our operational risks, including risk of operational errors, failure of operational controls, success of systems enhancements and expansion of risk management and control functions,
our mix of portfolio asset classes, including changes resulting from growth initiatives, new business initiatives, new products, acquisitions and divestitures, new business and customer retention,
our legal risks, including the enforceability of our agreements, the impact of legal proceedings, and the impact of changes in laws and regulations,
our growth rates, and
our commitments to extend credit or purchase equipment.
All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements expressed or implied in these statements. Forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Factors, in addition to those disclosed in
“Risk Factors”, that could cause such differences include, but are not limited to:risks inherent in deposit funding, including reducing reliance on brokered deposits, increasing commercial deposits and savingsretail non-maturity accounts, and expanding treasury management services,
risks inherent in capital markets, including liquidity, changes in market interest rates and quality spreads, and our access to secured and unsecured debt and asset-backed securitization markets,
risks inherent in a return of capital, including risks related to obtaining regulatory approval, the nature and allocation among different methods of returning capital, and the amount and timing of any capital return,
risks of actual or perceived economic slowdown, downturn or recession, including slowdown in customer demand for credit or increases in non-accrual loans or default rates,
industry cycles and trends, including in oil and gas, power and energy, telecommunications, information technology, and commercial and residential real estate.
uncertainties associated with risk management, including evaluating credit, adequacy of reserves for credit losses, prepayment risk, asset/liability risk, and interest rate and currency risks, and cybersecurity risks,
risks of implementing new processes, procedures, and systems, including those required to strengthen internal controls, improve data quality, and reliability, or comply with the additional laws and regulations applicable to systemically important financial institutions, such as the CCAR process, enhanced prudential standards, and Basel III,
risks associated with the value and recoverability of leased equipment and related lease residual values, including railcars, telecommunications towers, technology and office equipment, information technology equipment, including data centers, and large and small industrial, medical, and transportation equipment,
risks of failing to achieve the projected revenue growth from new business initiatives or the projected expense reductions from efficiency improvements,
application of goodwill accounting or fair value accounting in volatile markets,
regulatory changes and developments, including changes in laws or regulations governing our business and operations, or affecting our assets, including our operating lease equipment or changes in the regulatory environment, whether due to events or factors specific to CIT, or other large multi-national or regional banks, or the industry in general,
risks associated with dispositions of businesses or asset portfolios, including how to replace the income associated with such businesses or asset portfolios and the risk of residual liabilities from such businesses or portfolios,
risks associated with acquisitions of businesses or asset portfolios, including integrating and reducing duplication in personnel, policies, internal controls, and systems.
Any or all of our forward-looking statements here or in other publications may turn out to be wrong, and there are no guarantees regarding our performance. We do not assume any obligation to update any forward-looking statement for any reason.
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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). as of September 30, 2018. Based on such evaluation, and in light of the previously identified material weaknesses in our internal control over financial reporting as of December 31, 2016, described in our 2016 Annual Report on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2017.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017, other than what is described above2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CIT is currently involved, and from time to time in the future may be involved, in a number of judicial, regulatory, and arbitration proceedings relating to matters that arise in connection with the conduct of its business (collectively, “Litigation”), certain of which Litigation matters are described in
NoteFor more information about pending legal proceedings, including an estimate of certain reasonably possible losses in excess of reserved amounts, see
NoteRisk factors remain unchanged during the quarter. For a discussion of risk factors, not changed, see
There were approximately 4.15.5 million shares of the Company’s common stock repurchased or acquired through an accelerated repurchase program (ASR) or open market repurchases (OMR) during the quarter ended September 30, 20172018 as shown in the following table:
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||
July 1 - 31, 2018 |
| 2,844,700 |
|
| $ | 52.14 |
|
|
| 2,844,700 |
|
|
| — |
|
August 1 - 31, 2018 |
| 1,384,500 |
|
| $ | 53.91 |
|
|
| 1,384,500 |
|
|
| — |
|
September 1 - 30, 2018 |
| 1,268,260 |
|
| $ | 53.54 |
|
|
| 1,268,260 |
|
|
| — |
|
Total Purchases |
| 5,497,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | |||||
| July 1 - 31, 2017 | — | $ | — | |||||
| August 1 - 15, 2017 | 1,452,119 | n/a | 1,452,119 | |||||
| August 16 - 31, 2017 | 1,460,486 | $ | 44.86 | 1,460,486 | ||||
| September 1 - 30, 2017 | 1,200,407 | $ | 44.76 | 1,200,407 | ||||
| Total Purchases | 4,113,012 | |||||||
On June 28, 2018, CIT announced that the quarter, CIT repurchasedBoard of Directors approved a totalcommon equity capital return of $119.3up to $750 million, beginning July 1, 2018 and to be completed by June 30, 2019. As of September 30, 2018, $459 million remained available for return. See the Capital section for further discussion of share repurchases in common shares via OMR of 2,660,893 common shares at an average share price of $44.82. We also completed the previously announced ASR, which had commenced in the prior quarter, for which CIT acquired an additional 1,452,119 common shares. The overall average price of the entire ASR was $47.82.
Not applicable
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(a) | Exhibits |
2.1 | |
Indenture, dated as of March 15, 2012, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (incorporated by reference to Exhibit 4.1 of Form 8-K filed March 16, 2012). | |||
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10.3* | CIT Group Inc. Supplemental Savings Plan (As Amended and Restated Effective as of January 1, 2008) (incorporated by reference to Exhibit 10.28 to Form 10-Q filed May 12, 2008). | |
10.4* | New Executive Retirement Plan of CIT Group Inc. (As Amended and Restated as of January 1, 2008) (incorporated by reference to Exhibit 10.29 to Form 10-Q filed May 12, 2008). |
32.1*** | ||
32.2*** | ||
101.INS | XBRL Instance Document (Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
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XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
* | |
Indicates a management contract or compensatory plan or arrangement. |
** | Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended. |
*** | This information is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any filing under the Securities Act of 1933. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 2, 2018 | |
CIT GROUP INC. | |
/s/ John Fawcett | |
John Fawcett | |
Executive Vice President and | |
Chief Financial Officer | |
/s/ Edward K. Sperling | |
Edward K. Sperling | |
Executive Vice President and Controller |
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