Our policies and procedures relating to Risk Management are detailed in our Form 10-K for the year ended December 31, 2011.
At September 30, 2012, over 60% of the Company’s loan, lease, and investment portfolio was fixed rate, with the balance floating rate, while just over 70% of our interest-bearing liabilities were fixed rate. As a result, our portfolio is in an asset sensitive position, as our assets will reprice faster than our liabilities. Therefore, our net interest margin may increase if interest rates rise, or decrease should interest rates decline. The following table summarizes the composition of interest rate sensitive assets and liabilities. The increase in fixed rate assets reflects the change in portfolio mix during 2012 including a higher proportion of operating lease assets and a lower proportion of student loans in the first half of 2012.
We evaluate and monitor interest rate risk through two primary metrics.
A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. 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. In addition, we evaluate the sensitivity of these results to a number of key assumptions, such as credit quality, spreads, prepayments and operating lease behavior. NII and EVE limits have been set and are monitored for certain of the key scenarios.
The table below summarizes the results of simulation modeling produced by our asset/liability management system. The results reflect the percentage change in net interest income and economic value of equity over the next twelve months assuming an immediate 100 basis point parallel increase and decrease in interest rates.
The change to the Economic Value of Equity period over period was driven by the refinancing of high cost unsecured debt. The simulation modeling assumes we take no action in response to the assumed changes in interest rates. Net Interest Income remains asset sensitive to parallel shifts in rates at September 30, 2012.
Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality, size, and prepayment characteristics of our balance sheet. They also do not account for other business developments that could affect net income, or for management actions that could affect net income 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, such simulations do not represent our current view of expected future interest rate movements.
Portfolio collections, capital markets, securitizations, various credit facilities, secured borrowings and deposits provide our sources of funding and liquidity. The Company also maintains a portfolio of cash and investment securities and a committed $2 billion Revolving Credit Facility to satisfy funding and other operating obligations, while also providing protection against unforeseen stress events, for instance unanticipated funding obligations, such as customer line draws, or disruptions to capital markets or other funding sources.
Cash and short-term investment securities totaled $7,205.6 million at September 30, 2012 ($6,455.5 million
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of cash and $750.1 million of short-term investments), up from $7,043.1 million at June 30, 2012 and down from $8,372.8 million at December 31, 2011. Cash and short-term investment securities at September 30, 2012 consisted of $1.9 billion related to the bank holding company, $3.6 billion at CIT Bank, $0.6 billion at operating subsidiaries and $1.1 billion in restricted balances.
Our short-term investments include U.S. Treasury bills and Government Agency bonds. All these investments are classified as available for sale and have maturities of 65 days or less as of the investment date. We anticipate continued investment of our cash in various types of liquid, high-grade investments.
In addition to the cash and short-term investment securities, CIT had approximately $1.4 billion of unused and committed liquidity under the Revolving Credit Facility at September 30, 2012. Including the Revolving Credit Facility, secured committed facilities at September 30, 2012, totaled $6.4 billion, of which $3.0 billion was undrawn.
2012 Financings and Liability Management
During 2012, CIT eliminated or refinanced approximately $15 billion of high cost debt as we completed the redemption of approximately $31 billion of high cost debt incurred during our restructuring in 2009. In the third quarter, CIT redeemed the remaining $4.6 billion of 7% Series C Notes at par. This is in addition to the redemption of $4.1 billion at par and repurchase of $140 million at a slight discount of 7% Series C Notes last quarter. During the first quarter of 2012, CIT redeemed approximately $6.5 billion of the Series A Notes, which represented the entire remaining balance of the Series A Notes. In aggregate, these transactions reduced 2012 pre-tax income by over $1.3 billion ($471 million in the 2012 third quarter) due to accelerated FSA accretion and loss on debt extinguishment. The elimination of our remaining Series A Notes in the 2012 first quarter resulted in all of our Series C Notes becoming unsecured. In addition, the Revolving Credit Facility also became unsecured upon our completion of certain administrative requirements as set forth under the Revolving Credit Facility.
In 2012, CIT has raised nearly $10 billion of term unsecured debt with an average maturity of approximately 6 years and a weighted average coupon of approximately 5%, including:
n | | In February 2012, CIT closed a private placement of $3.25 billion aggregate principal amount of Series C Notes (discussed further below in “Series C Notes”), consisting of $1.5 billion principal amount of 4.75% Series C Notes due 2015 and $1.75 billion principal amount of 5.50% Series C Notes due 2019. |
n | | In March 2012, CIT filed a “shelf” registration statement and issued $1.5 billion of 5.25% senior unsecured notes that mature in 2018. |
n | | In May 2012, CIT issued at par $1.25 billion of 5.00% senior unsecured notes that mature in 2017 and $750 million of 5.375% senior unsecured notes that mature in 2020. |
n | | In August 2012, CIT issued at par $1.75 billion of 4.25% senior unsecured notes that mature in 2017 and $1.25 billion of 5.00% senior unsecured notes that mature in 2022. |
CIT has also entered into numerous secured financing transactions during 2012 as described under theSecured Borrowings section below.
Since January 2010, CIT has eliminated or refinanced approximately $31 billion of high cost debt and entered into over $20 billion of new financings and credit facilities.
During the third quarter, CIT Bank placed over $1.9 billion of deposits at an average rate of approximately 1.3% and with an average CD term of over three years. CIT Bank deposits totaled $8.6 billion at September 30, 2012, up from $4.9 billion at September 30, 2011 and $7.1 billion at June 30, 2012. The average interest rate was 1.8% at September 30, 2012, down from 2.7% at September 30, 2011 and 2.0% at June 30, 2012. SeeCIT Bank section.
As a result of our 2012 funding and liability management initiatives, we reduced the weighted average coupon rates on outstanding deposits and long-term borrowings to 3.28% at September 30, 2012 from 3.83% and 4.84% at June 30, 2012 and September 30, 2011, respectively. We also continued to make progress towards our long term targeted funding mix of 35% to 45% deposits, 25% to 35% secured borrowings and 25% to 35% unsecured borrowings, respectively. At September 30, 2012, deposits represented 28% of our funding, with secured and unsecured borrowings comprising 33% and 39% of the funding mix, respectively.
Unsecured Borrowings
As a result of redeeming the remaining Series A Notes during the 2012 first quarter, the Revolving Credit Facility and all of our Series C Notes became unsecured.
Revolving Credit Facility
On August 25, 2011, CIT and certain of its subsidiaries entered into a Revolving Credit and Guaranty Agreement, among CIT Group Inc., certain subsidiaries of CIT Group Inc., as guarantors, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer (the “Revolving Credit Facility”). The total commitment amount under the Revolving Credit Facility is $2 billion consisting of a $1.65 billion revolving loan tranche and a $350 million revolving loan tranche that can also be utilized for issuance of letters of credit. The Revolving Credit Facility matures on August 14, 2015 and will accrue interest at a per annum rate of LIBOR plus a margin of 2.00% to 2.75% (with no floor) or Base Rate plus a margin of 1.00% to 1.75% (with no floor). The applicable margin will be determined by reference to the long-term senior unsecured, non-credit enhanced debt rating of the Company by S&P and Moody’s effective at relevant times during the life of the Revolving Credit Facility. Due to the Company’s credit rating upgrades in early 2012, the applicable margin for LIBOR loans is 2.50% and the applicable margin for Base Rate loans is 1.50% at September 30, 2012.
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The Revolving Credit Facility may be prepaid and re-borrowed from time to time at the option of CIT. The amount available to draw upon at September 30, 2012 was approximately $1.4 billion. The unutilized portion of any commitment under the Revolving Credit Facility may be reduced permanently or terminated by CIT at any time without penalty.
Once the Company redeemed all the remaining Series A Second-Priority Secured Notes (“Series A Notes”) during the 2012 first quarter, all the collateral and subsidiary guarantees under the Revolving Credit Facility were released, except for subsidiary guarantees from eight of the Company’s domestic operating subsidiaries (“Continuing Guarantors”). Once the Revolving Credit Facility became unsecured, the collateral coverage covenant was replaced by an asset coverage covenant (based on the book value of eligible assets of the Continuing Guarantors) of 2.0x the sum of: (i) the committed facility size and (ii) all outstanding indebtedness (including, without duplication, guarantees of such indebtedness) for borrowed money (excluding subordinated intercompany indebtedness) of the Continuing Guarantors, tested monthly and upon certain dispositions or encumbrances of eligible assets of the Continuing Guarantors. At September 30, 2012, the asset coverage ratio was 2.4x.
The Revolving Credit Facility is also subject to a $6 billion minimum consolidated net worth covenant of the Company, tested quarterly, and limits the Company’s ability to create liens, merge or consolidate, sell, transfer, lease or dispose of all or substantially all of its assets, grant a negative pledge or make certain restricted payments during the occurrence and continuance of an event of default.
Senior Unsecured Debt
In March 2012, CIT filed a “shelf” registration statement and issued at par $1.5 billion of senior unsecured notes that mature in 2018 and bear interest at a rate of 5.25%. In May 2012, CIT issued at par $1.25 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 5.00% and $750 million of senior unsecured notes that mature in 2020 and bear interest at a rate of 5.375%. In August 2012, CIT issued at par $1.75 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 4.25% and $1.25 billion of senior unsecured notes that mature in 2022 and bear interest at a rate of 5.00%. The proceeds of these transactions were used, in conjunction with available cash, to redeem 7% Series C Notes in 2012.
These senior unsecured notes rank equal in right of payment with the Series C Notes and the Revolving Credit Facility. The Revolving Credit Facility also benefits from certain subsidiary guarantees as described above.
Series C Notes
In March 2011, the Company issued $2 billion of new Series C Notes, consisting of $1.3 billion of three-year 5.25% fixed rate notes and $700 million of seven-year 6.625% fixed rate notes.
In June 2011, the Company successfully completed an Exchange Offer and Consent Solicitation for outstanding 7% Series A Notes maturing in 2015, 2016 and 2017. As a result, $8.76 billion principal amount of Series C Notes (pre-FSA) with the same interest rate were issued in exchange for the Series A Notes tendered and accepted.
In February 2012, the Company issued at par $3.25 billion aggregate principal amount of Series C Notes, consisting of $1.5 billion principal amount of three-year 4.75% fixed rate notes due 2015 (the “2015 Notes”) and $1.75 billion principal amount of seven-year 5.50% fixed rate notes due 2019 (the “2019 Notes,” together with the 2015 Notes, the “Notes”). The proceeds of the transaction were used, in conjunction with available cash, to redeem the remaining Series A Notes in March 2012.
Once the Company’s remaining Series A Notes were redeemed during the 2012 first quarter, all the collateral and subsidiary guarantees under the Series C Notes were released and the notes became senior unsecured obligations.
The Series C Notes Indentures limit the Company’s ability to create liens, merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of its assets. Upon a Change of Control Triggering Event as defined in the Series C Indentures, holders of the Series C Notes will have the right to require the Company, as applicable, to repurchase all or a portion of the Series C Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of such repurchase.
During 2012, CIT redeemed or repurchased the $8.76 billion of 7% Series C Notes ($4.6 billion in the third quarter of 2012), which resulted in the acceleration of over $1.3 billion of FSA discount accretion ($0.5 billion in the third quarter) that was recorded as additional interest expense and a loss on debt extinguishment of $61 million ($17 million in the third quarter).
Secured – Series A Notes
On December 10, 2009, pursuant to the Plan of Reorganization the Company issued $21.04 billion principal amount of its 7.0% Series A Second-Priority Secured Notes with maturities each year from 2013 to 2017 (the “Series A Notes”).
During the 2012 first quarter, CIT redeemed the remaining $6.5 billion of Series A Notes, which resulted in the acceleration of $597 million of FSA discount accretion that was recorded as additional interest expense and a loss on debt extinguishment of $23 million reflecting a portion of the underwriting fees on the $3.25 billion issuance of Series C Notes in February 2012.
The elimination of our remaining Series A Notes resulted in all of our Series C Notes and Revolving Credit Facility becoming unsecured. In addition, the Cash Sweep requirement was eliminated. See Series C Notes above for discussion on covenants and also Item 1 Consolidated Financial Statements,Note 5 — Long-Term Borrowings.
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Secured Borrowings
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. The debt associated with these transactions is collateralized by receivables, leases and/or equipment. Certain related cash balances are restricted.
Secured borrowings, which include securitizations, totaled $10.6 billion at September 30, 2012, up slightly from December 31, 2011.
In April 2012, CIT closed a $753 million equipment lease securitization, secured by a pool of U.S. equipment leases from CIT’s Vendor Finance business segment. The weighted average fixed coupon was 1.45%, which represented a weighted average credit spread of 0.88% over benchmark rates for the six classes of notes. The securitization had a net advance rate of 92.5%.
In June 2012, we closed a $1 billion committed U.S. Vendor Finance conduit facility that allows the U.S. Vendor Finance business to fund both existing assets and new originations within CIT Bank, renewed a £100 million (approximately $160 million based on the June 30, 2012 exchange rate) UK Vendor Finance conduit facility with improved terms and closed an aircraft financing under our existing European Export Credit Agencies (ECA) facility.
In July 2012, CIT closed a C$515 million ($511 million based on the exchange rate at the time of the transaction) securitization secured by a pool of Canadian equipment receivables from CIT’s Vendor Finance business segment. The weighted average fixed coupon was 2.285%, which represents a weighted average credit spread of 1.31% over benchmark Government of Canada treasury rates for the three classes of notes. The securitization had a net advance rate of 96.75%.
In August and September 2012, we funded 6 Boeing aircraft under a secured facility guaranteed by the Export-Import Bank of the United States for total proceeds of approximately $200 million.
In September 2012, we renewed a $500 million committed facility secured by receivables at a lower cost and with a final maturity in November 2014 and also closed a new RMB2.2 billion (approximately $345 million based on the exchange rate at the time of the transaction) committed facility, which is in addition to an existing facility closed in 2011, that will allow Vendor Finance to fund new originations in China. The committed availability period of the Vendor China facility expires in September 2014 with a three year final maturity for each drawdown under the facility.
GSI Facilities
On October 26, 2011, CIT Group Inc. (“CIT”) amended its existing $2.125 billion total return swap facility between CIT Financial Ltd. (“CFL”) and Goldman Sachs International (“GSI”) in order to provide greater flexibility for certain assets to be funded under the facility. The size of the existing CFL Facility was reduced to $1.5 billion, and the $625 million formerly available under the existing CFL facility was transferred to a new total return swap facility between GSI and CIT TRS Funding B.V. (“BV”), a wholly-owned subsidiary of CIT. The CFL Facility and the BV Facility are together referred to below as the GSI Facilities.
At September 30, 2012, a total of $3,476.8 million, after FSA, of financing and leasing assets, comprised of $267.0 million in Corporate Finance, $1,114.2 million in Consumer and $2,095.6 million in commercial aerospace and rail assets in Transportation Finance, were pledged in conjunction with $2,189.0 million in secured debt issued to investors under the GSI Facilities. After adjustment to the amount of actual qualifying borrowing base under terms of the GSI Facilities, this $2,189.0 million of secured debt provided for usage of $1,943.6 million of the maximum notional amount of the GSI Facilities at September 30, 2012. The remaining $181.4 million of the maximum notional amount represents the unused portion of the GSI Facilities and constitutes the notional amount of derivative financial instruments. Actual terms of the GSI Facilities, including facility usage and collateral coverage, are measured on a pre-FSA basis. Unsecured counterparty receivable of $592.9 million, net of FSA, is owed to CIT from GSI for debt discount, return of collateral posted to GSI and settlements resulting from market value changes to asset-backed securities underlying the structures at September 30, 2012.
The CFL Facility was originally executed on June 6, 2008, and under an October 28, 2009 amendment, the maximum notional amount of the CFL Facility was reduced from $3.0 billion to $2.125 billion. During the first half of 2008, CIT experienced significant constraints on its ability to raise funding through the debt capital markets and access the Company’s historical sources of funding. The CFL Facility provided a swapped rate on qualifying secured funding at a lower cost than available to CIT through other funding sources. The CFL Facility was structured as a TRS to satisfy the specific requirements to obtain this funding commitment from GSI. Pursuant to applicable accounting guidance, only the unutilized portion of the total return swap is accounted for as a derivative and recorded at fair value. Under the terms of the GSI Facilities, CIT raises cash from the issuance of Asset Backed Securities (“ABS”) to investors designated by GSI under the total return swap, equivalent to the face amount of the ABS less an adjustment for any Original Issue Discount (OID) which equals the market price of the ABS. CIT is also required to deposit a portion of the face amount of the ABS with GSI as additional collateral prior to funding ABS through the GSI Facilities.
Amounts deposited with GSI can increase or decrease over time depending on the market value of the ABS and / or changes in the ratings of the ABS. CIT and GSI engage in periodic settlements based on the timing and amount of coupon, principal and any other payments actually made on the ABS. GSI is obligated to return those same amounts to CIT plus a proportionate amount of the initial deposit.
CIT is obligated to pay GSI (1) principal in an amount equal to the initial market price less the initial deposit, in
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each case, as a percentage of the ABS times the principal amount returned by GSI and (2) interest equal to LIBOR times the adjusted qualifying borrowing base of the ABS. On a quarterly basis, CIT pays the fixed facility fee of 2.85% per annum times the maximum facility commitment amount, currently $1.5 billion under the CFL Facility and $625 million under the BV Facility, to GSI.
Valuation of the derivatives related to the GSI Facilities is based on several factors using a discounted cash flow (DCF) methodology, including:
n | | CIT’s funding costs for similar financings based on the current market environment; |
n | | Forecasted usage of the long-dated GSI Facilities through the final maturity date in 2028; and |
n | | Forecasted amortization, including prepayment assumptions, due to principal payments on the underlying ABS, which impacts the amount of the unutilized portion. |
Based on the Company’s valuation, it was determined that the derivatives had no material value at September 30, 2012.
Interest expense related to the GSI Facilities is affected by the following:
n | | A fixed facility fee of 2.85% per annum times the maximum facility commitment amount, currently $1.5 billion under the CFL Facility and $625 million under the BV Facility |
n | | A variable amount based on one-month or three-month USD LIBOR times the “utilized amount” (effectively the “adjusted qualifying borrowing base”) of the total return swap, and |
n | | A reduction in interest expense due to the recognition of the payment of any OID from GSI on the various ABS. |
Debt Ratings
Our debt ratings at September 30, 2012 are presented in the following table and are unchanged from June 30, 2012. Changes since December 31, 2011 include: 1) On February 13, 2012, DBRS increased our debt ratings one notch to an issuer / counterparty credit rating and Series C/senior unsecured debt rating of “BB (Low)” and the Revolving Credit Facility rating was increased to “BB (High)”, 2) On February 16, 2012, Moody’s Investor Service increased our debt ratings one notch to an issuer / counterparty credit rating and Series C/senior unsecured debt rating of “B1” and 3) On March 9, 2012 S&P Ratings Services increased our debt ratings one notch to an issuer / counterparty credit rating and Series C debt rating to “BB-”, lowered its rating one notch on the Revolving Credit Facility to “BB-” and changed the outlook to stable.
Debt Ratings as of September 30, 2012
| | | | S&P Ratings
Services
| | Moody’s
Investors
Service
| | DBRS
|
|---|
| Issuer / Counterparty Credit Rating | | | | BB–
| | B1
| | | BB (Low) | |
| Revolving Credit Facility Rating | | | | BB–
| | Ba3
| | | BB (High) | |
| Series C Notes / Senior Unsecured Debt Rating | | | | BB–
| | B1
| | | BB (Low) | |
| Outlook | | | | Stable
| | Stable
| | | Positive | |
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.
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 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 Dodd-Frank. Potential changes 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.
Tax Implications on Cash in Foreign Subsidiaries
Cash and short term investments held by foreign subsidiaries, including cash available to the BHC and restricted cash, at September 30, 2012 and December 31, 2011 totaled $1.5 billion and $1.6 billion, respectively.
With respect to the Company’s investments in foreign subsidiaries, Management has historically asserted the intent to indefinitely reinvest the unremitted earnings of its foreign subsidiaries with very limited exceptions. However, in 2009, Management determined that it would no longer make this
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assertion because of certain cash flow and funding uncertainties consequent to its recent emergence from bankruptcy and the fact that Management was still in the early stages of developing its long-term strategic and liquidity plans. By 2010, the Company had a new leadership team charged with re-evaluating the Company’s long-term business and strategic plans. Their initial post-bankruptcy plan was to aggressively grow the Company’s international business. Accordingly, in 2010, with very limited exceptions, Management decided to assert indefinite reinvestment of the unremitted earnings of its foreign subsidiaries.
In the quarter ended December 31, 2011, Management decided to no longer assert its intent to indefinitely reinvest its foreign earnings, except for its Chinese subsidiary. This decision was driven by events over the last year that culminated in Management’s conclusion during the quarter that the Company may need to repatriate foreign earnings to address certain long-term investment and funding strategies. Some of the significant events that impacted Management’s decision included the re-evaluation of the Company’s debt and capital structures of its subsidiaries, and the need to pay-down the Company’s high cost debt in the U.S. In addition, certain restrictions on the Company’s first and second lien debt were removed during the 2011 fourth quarter upon the repayment of the remaining 2014 Series A debt. The removal of these restrictions allows the Company to transfer and repatriate cash to repay its high cost debt in the U.S. and recapitalize certain foreign subsidiaries. All these events contributed to Management’s decision to no longer assert indefinite reinvestment of its foreign earnings, with the exception of its Chinese subsidiary. As of the quarter ended September 30, 2012, there has been no change to this decision.
Contractual Payments and Commitments
The following tables summarize significant contractual payments and contractual commitment expirations at September 30, 2012. Certain amounts in the payments table are not the same as the respective balance sheet totals, because this table is before FSA, in order to better reflect projected contractual payments. Likewise, actual cash flows will vary materially from those depicted in the payments table as further explained in the table footnotes.
Payments and Collections for the Twelve Months Ended September 30(1) (dollars in millions)
| | | | Total
| | 2013
| | 2014
| | 2015
| | 2016
| | 2017+
|
|---|
Secured borrowings(2) | | | | $ | 11,047.6 | | | $ | 1,436.8 | | | $ | 1,514.8 | | | $ | 890.2 | | | $ | 862.7 | | | $ | 6,343.1 | |
| Revolving credit facility | | | | | 500.0 | | | | – | | | | – | | | | 500.0 | | | | – | | | | – | |
| Unsecured – Series C Notes | | | | | 5,250.0 | | | | – | | | | 1,300.0 | | | | 1,500.0 | | | | – | | | | 2,450.0 | |
| Senior unsecured | | | | | 6,500.0 | | | | – | | | | – | | | | – | | | | – | | | | 6,500.0 | |
| Other debt | | | | | 132.9 | | | | 1.2 | | | | 0.7 | | | | – | | | | – | | | | 131.0 | |
Total Long-term borrowings | | | | | 23,430.5 | | | | 1,438.0 | | | | 2,815.5 | | | | 2,890.2 | | | | 862.7 | | | | 15,424.1 | |
| Deposits | | | | | 8,704.1 | | | | 2,762.2 | | | | 2,201.2 | | | | 1,441.3 | | | | 1,164.1 | | | | 1,135.3 | |
| Credit balances of factoring clients | | | | | 1,224.9 | | | | 1,224.9 | | | | – | | | | – | | | | – | | | | – | |
| Lease rental expense | | | | | 220.5 | | | | 62.3 | | | | 28.0 | | | | 26.2 | | | | 23.1 | | | | 80.9 | |
Total contractual payments | | | | $ | 33,580.0 | | | $ | 5,487.4 | | | $ | 5,044.7 | | | $ | 4,357.7 | | | $ | 2,049.9 | | | $ | 16,640.3 | |
(1) | | Projected payments of debt interest expense and obligations relating to postretirement programs are excluded. |
(2) | | Includes non-recourse secured borrowings, which are generally repaid in conjunction with the pledged receivable maturities. |
Commitment Expiration by Twelve Month Periods Ended September 30 (dollars in millions)
| | | | Total
| | 2013
| | 2014
| | 2015
| | 2016
| | 2017+
|
|---|
Financing commitments(1) | | | | $ | 2,802.2 | | | $ | 375.5 | | | $ | 146.0 | | | $ | 289.7 | | | $ | 1,037.3 | | | $ | 953.7 | |
Aerospace and other manufacturer purchase commitments(2) | | | | | 9,156.9 | | | | 1,220.3 | | | | 1,382.8 | | | | 1,452.9 | | | | 1,689.3 | | | | 3,411.6 | |
| Letters of credit | | | | | 325.3 | | | | 104.2 | | | | 8.0 | | | | 24.4 | | | | 103.3 | | | | 85.4 | |
| Deferred purchase credit protection agreements | | | | | 1,910.6 | | | | 1,910.6 | | | | – | | | | – | | | | – | | | | – | |
| Guarantees, acceptances and other recourse obligations | | | | | 22.5 | | | | 17.9 | | | | 3.5 | | | | 1.1 | | | | – | | | | – | |
Liabilities for unrecognized tax obligations(3) | | | | | 312.7 | | | | 10.0 | | | | 302.7 | | | | – | | | | – | | | | – | |
| Total contractual commitments | | | | $ | 14,530.2 | | | $ | 3,638.5 | | | $ | 1,843.0 | | | $ | 1,768.1 | | | $ | 2,829.9 | | | $ | 4,450.7 | |
(1) | | Financing commitments do not include certain unused, cancelable lines of credit to customers in connection with third-party vendor programs, which can be reduced or cancelled by CIT at any time without notice. |
(2) | | Aerospace commitments are net of amounts on deposit with manufacturers. |
(3) | | The balance cannot be estimated past 2014; therefore the remaining balance is reflected in 2014. |
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Financing commitments increased 2% from December 31, 2011 to $2.8 billion at September 30, 2012. At September 30, 2012, substantially all financing commitments were senior facilities, with 70% secured by equipment or other assets and the remainder comprised of cash flow or enterprise value facilities. Most of our undrawn and available financing commitments are in Corporate Finance. The top ten undrawn commitments totaled $316 million at September 30, 2012.
The table above includes approximately $0.5 billion of commitments at September 30, 2012 and $0.4 billion at December 31, 2011 that were not available for draw due to requirements for collateral availability or covenant conditions.
Risk Weighted Assets
For a BHC, capital adequacy is based upon risk-weighted asset ratios calculated in accordance with quantitative measures established by the Federal Reserve. Under these guidelines, certain commitments and off-balance sheet transactions are assigned asset equivalent balances, and together with on-balance sheet assets, are divided into risk categories, each of which is assigned a risk weighting ranging from 0% (for example U.S. Treasury Bonds) to 100% (for example commercial loans). The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets (dollars in millions)
| | | | September 30,
2012
| | December 31,
2011
|
|---|
| Balance sheet assets | | | | $ | 43,580.9 | | | $ | 45,226.7 | |
| Risk weighting adjustments to balance sheet assets | | | | | (10,204.3 | ) | | | (12,323.6 | ) |
Off balance sheet items(1) | | | | | 12,553.3 | | | | 11,913.4 | |
| Risk-weighted assets | | | | $ | 45,929.9 | | | $ | 44,816.5 | |
(1) | | Primarily reflects commitments to purchase aircraft, unused lines of credit, letters of credit and deferred purchase agreements. |
Regulatory Capitalization
The Company is subject to various regulatory capital requirements set by the Federal Reserve Board. CIT committed to its regulators to maintain a 13% Total Capital Ratio at the BHC and a 15% Tier 1 Leverage Ratio at CIT Bank. As a result of higher risk weighted assets and losses during the 2012 reporting periods, our capital ratios declined from December 31, 2011, but remain above the levels required for either a bank holding company or an insured depository institution to be considered “well capitalized”
76 CIT GROUP INC
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Tier 1 Capital and Total Capital Components (dollars in millions)
| | | | September 30,
2012
| | December 31,
2011
|
|---|
Tier 1 Capital | | | | | | | | | | |
| Total stockholders’ equity | | | | $ | 8,086.0 | | | $ | 8,888.5 | |
| Effect of certain items in accumulated other comprehensive loss excluded from Tier 1 Capital | | | | | 51.5 | | | | 54.3 | |
| Adjusted total equity | | | | | 8,137.5 | | | | 8,942.8 | |
Less: Goodwill(1) | | | | | (338.0 | ) | | | (338.0 | ) |
Disallowed intangible assets(1) | | | | | (38.6 | ) | | | (63.6 | ) |
| Investment in certain subsidiaries | | | | | (34.7 | ) | | | (36.6 | ) |
Other Tier 1 components(2) | | | | | (63.4 | ) | | | (58.1 | ) |
| Tier 1 Capital | | | | | 7,662.8 | | | | 8,446.5 | |
Tier 2 Capital | | | | | | | | | | |
Qualifying reserve for credit losses and other reserves(3) | | | | | 420.2 | | | | 429.9 | |
| Less: Investment in certain subsidiaries | | | | | (34.7 | ) | | | (36.6 | ) |
Other Tier 2 components(4) | | | | | 0.7 | | | | – | |
| Total qualifying capital | | | | $ | 8,049.0 | | | $ | 8,839.8 | |
| Risk-weighted assets | | | | $ | 45,929.9 | | | $ | 44,816.5 | |
BHC Ratios | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.7 | % | | | 18.8 | % |
| Total Capital Ratio | | | | | 17.5 | % | | | 19.7 | % |
| Tier 1 Leverage Ratio | | | | | 17.4 | % | | | 18.9 | % |
CIT Bank Ratios | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 26.3 | % | | | 36.5 | % |
| Total Capital Ratio | | | | | 27.4 | % | | | 37.5 | % |
| Tier 1 Leverage Ratio | | | | | 21.4 | % | | | 24.7 | % |
(1) | | Goodwill and disallowed intangible assets adjustments also reflect the portion included within assets held for sale. |
(2) | | Includes the portion of net deferred tax assets that does not qualify for inclusion in Tier 1 capital based on the capital guidelines, the Tier 1 capital charge for nonfinancial equity investments and the Tier 1 capital deduction for net unrealized losses on available-for-sale marketable securities (net of tax). |
(3) | | “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. |
(4) | | Banking organizations are permitted to include in Tier 2 Capital up to 45% of net unrealized pre-tax gains on available for sale equity securities with readily determinable fair values. |
On August 12, 2009, CIT entered into a Written Agreement with the Federal Reserve Bank of New York (the “FRBNY”). Among other requirements, the Written Agreement requires prior written approval by the FRBNY for payment of dividends and distributions and the purchase or redemption of stock.
Regulatory capital guidelines are currently based on the 1988 Capital Accord of the Basel Committee on Banking Supervision (Basel I). We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. To meet the requirements for being well capitalized, a BHC generally must maintain Tier 1 and Total Capital Ratios of at least 6% and 10%, respectively. The Federal Reserve Board also has established minimum guidelines. The minimum ratios are: Tier 1 Capital Ratio of 4.0%, Total Capital Ratio of 8.0% and Tier 1 Leverage Ratio of 4.0%. In order to be considered a “well capitalized” depository institution under FDIC guidelines, CIT Bank must maintain a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Tier 1 Leverage Ratio of at least 5%.
In 2004, the Basel Committee published a new capital accord (Basel II) to replace Basel I. We do not meet the thresholds to be a “core bank” and are therefore not required to comply with the advanced approaches of Basel II, as implemented in the U.S.
In December 2010, the Basel Committee on Banking Supervision released its final framework for strengthening international capital and liquidity regulation (“Basel III”). Basel III requirements include higher minimum capital ratios, increased limitations on qualifying capital, minimum liquidity requirements and a more constrained leverage ratio requirement. For more information on the Basel III framework, see“Item 1. Business Overview — Regulation — Banking Supervision and Regulation — Capital Requirements — Basel III Requirements” in our Annual Report on Form 10-K for the year ended December 31, 2011.
In June 2012, the U.S. bank regulatory agencies issued three joint notices of proposed rulemaking (NPR) that, taken together, would implement the capital reforms of the Basel III framework and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 77
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Act (Dodd-Frank). The first NPR, the Basel III NPR, generally follows the final Basel III framework and proposes higher minimum regulatory capital requirements and a more restrictive definition of regulatory capital, as well as introduces limits on dividends and other capital distributions and certain discretionary bonuses if capital conservation buffers are not held. The second NPR, the Standardized Approach NPR, proposes changes to the current, Basel I derived generalized risk-based capital requirements for determining risk-weighted assets that expands the risk-weighting categories from the current four Basel I-derived categories (0%, 20%, 50%, and 100%) to a much larger number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. Lastly, the Advanced Approaches NPR proposes changes to the advanced approaches rules to be consistent with requirements of Basel II in its most current form and with Dodd-Frank. The U.S. bank regulatory agencies have not proposed rules implementing the final liquidity framework of Basel III and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.
Although the Basel III NPR does not specify an effective date or implementation date, it contemplates that implementation will coincide with the international Basel III implementation schedule, which commences on January 1, 2013. The Standardized Approach NPR contemplated an effective date of January 1, 2015, subject to early adoption at the option of subject institutions.
CIT expects to be subject to the Basel III and Standardized Approaches NPRs. CIT does not meet the thresholds to be considered an Advanced Approaches bank and would not be subject to those requirements. In particular, CIT would not be subject to the supplementary leverage ratio or the countercyclical buffer to be implemented at the discretion of regulators during times of excessive credit growth.
Basel III revisions governing capital requirements are subject to a phased-in transition period which begins on January 1, 2013, with full implementation on January 1, 2019. If Basel III is fully implemented in the current form, CIT will be required to maintain risk-based capital ratios at January 1, 2019 as follows:
| | | | Minimum Capital Requirements – January 1, 2019
| |
|---|
| | | | Tier 1 Common
Equity
| | Tier 1 Capital
| | Total Capital
|
|---|
| Stated minimum Ratio | | | | | 4.5 | % | | | 6.0 | % | | | 8.0 | % |
| Capital conservation buffer | | | | | 2.5 | % | | | 2.5 | % | | | 2.5 | % |
| Effective minimum ratio | | | | | 7.0 | % | | | 8.5 | % | | | 10.5 | % |
Management believes that, as of September 30, 2012, CIT and CIT Bank would meet all capital adequacy requirements under the Basel III and Standardized Approach NPRs on a fully phased-in basis if such requirements were currently effective.
There can be no guarantee that the Basel III and the Standardized Approach NPRs will be adopted in their current form, what changes may be made before adoption, or when ultimate adoption will occur.
In October 2012, the Federal Reserve Board issued regulations detailing annual stress test requirements for bank holding companies, savings and loan companies and state member banks with total consolidated assets greater than $10 billion but less than $50 billion.(6)
With assets at September 30, 2012 of $43.6 billion, CIT must conduct annual stress tests using scenarios provided by the Federal Reserve Board. A stress test is defined as a process to assess the potential impact of the scenarios provided by the Federal Reserve Board on the consolidated earnings, losses, and capital of a company over a planning horizon of 9 quarters, taking into account the current condition of the company and the company’s risks, exposures, strategies, and activities. Beginning in 2013, annual stress test will be conducted in the fall with the Federal Reserve Board scenarios issued prior to November 15th of each year. Annual stress test results must be submitted by March 31st of each year. Beginning in June 2015, public disclosure of the prior year stress test results is required annually on a forum easily accessible to the public such as the bank holding company website. Should CIT’s total consolidated assets equal or exceed $50 billion(6) we will be subject to stress tests requirements for covered companies (subpart G of the Federal Reserve Board’s Regulation YY).
Similarly, the FDIC published regulations requiring annual stress tests for FDIC-insured state nonmember banks and FDIC-insured state-chartered savings organizations with total consolidated assets of more than $10 billion but less than $50 billion.(7) CIT Bank is an FDIC-insured state nonmember bank with total assets of $11.6 billion as of September 30, 2012. Currently, CIT Bank meets the noted asset threshold and will be required to conduct its first annual stress test using scenarios provided by the FDIC in the fall of 2014. Annual stress test results must be submitted before March 31st and publicly disclosed between June 15th and June 30th of the following year.
See the“Regulation” section ofItem 1 Business Overview of our 2011 Form 10-K for further detail regarding regulatory matters.
(6) | | Total consolidated assets are determined as the average reported total assets in the FR Y-9C over the most recent four quarters. |
(7) | | Total consolidated assets are determined as the average reported total assets in the Call Report over the most recent four quarters. |
78 CIT GROUP INC
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CIT Bank is a state-chartered bank headquartered in Salt Lake City, Utah and is the Company’s principal bank subsidiary. CIT Bank originates and funds lending activity in the U.S. of various business segments. Asset growth reflected increased commercial lending volume from the year-ago period and sequentially in Corporate Finance, Vendor Finance and Transportation Finance. Committed loan volume totaled $1.7 billion, up 38% from the prior-year quarter and down 6% from the prior quarter. The increase from last year reflected significant increases in Transportation Finance and real estate lending. The sequential quarter decrease reflected lower Corporate Finance and Vendor Finance volumes, partially offset by higher lending volumes in Transportation Finance. Funded volumes reflected similar trends, up significantly over the prior year and down slightly sequentially. Year to date, both committed and funded volumes are up significantly over the 2011 period.
Total assets were $11.6 billion, up from $7.5 billion at September 30, 2011 and $10.0 billion at June 30, 2012. Loans (including held-for-sale) totaled $7.4 billion, up from $6.3 billion at September 30, 2011 and $6.6 billion at June 30, 2012 as commercial asset growth has been offset by the sale and run-off of consumer loans. Commercial financing and leasing assets of $7.3 billion increased from $2.9 billion at September 30, 2011 and $6.3 billion at June 30, 2012. Assets held for sale totaled $0.6 billion at September 30, 2012, which primarily consisted of student loans. Cash was $3.6 billion at September 30, 2012, up from $0.8 billion at September 30, 2011 and $3.0 billion at June 30, 2012. CIT Bank’s capital and leverage ratios remain well above required levels.
CIT Bank deposits totaled $8.6 billion at September 30, 2012, up from $4.9 billion at September 30, 2011 and $7.1 billion at June 30, 2012. The average interest rate was 1.8% at September 30, 2012, down from 2.7% at September 30, 2011 and 2.0% at June 30, 2012. CD terms averaged over three years for those placed during the 2012 third quarter. The primary driver of the higher balances resulted from raising internet deposits. CIT Bank began offering on-line savings accounts in March 2012 to supplement the current range of CD offerings to consumers.
The following presents condensed financial information for CIT Bank.
Condensed Balance Sheets(dollars in millions)
| | | | September 30,
2012
| | December 31,
2011
|
|---|
ASSETS: | | | | | | | | | | |
| Cash and deposits with banks | | | | $ | 3,602.7 | | | $ | 2,462.1 | |
| Investment securities | | | | | 85.2 | | | | 166.7 | |
| Assets held for sale | | | | | 602.5 | | | | 1,627.5 | |
| Commercial loans | | | | | 6,771.1 | | | | 3,912.4 | |
| Consumer loans | | | | | – | | | | 565.5 | |
| Allowance for loan losses | | | | | (86.9 | ) | | | (49.0 | ) |
| Operating lease equipment, net | | | | | 455.5 | | | | 31.3 | |
| Other assets | | | | | 169.0 | | | | 252.2 | |
Total Assets | | | | $ | 11,599.1 | | | $ | 8,968.7 | |
LIABILITIES AND EQUITY: | | | | | | | | | | |
| Deposits | | | | $ | 8,640.2 | | | $ | 6,124.9 | |
| Long-term borrowings | | | | | 487.6 | | | | 576.7 | |
| Other liabilities | | | | | 102.0 | | | | 150.5 | |
Total Liabilities | | | | | 9,229.8 | | | | 6,852.1 | |
Total Equity | | | | | 2,369.3 | | | | 2,116.6 | |
Total Liabilities and Equity | | | | $ | 11,599.1 | | | $ | 8,968.7 | |
Capital Ratios: | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 26.3 | % | | | 36.5 | % |
| Total Capital Ratio | | | | | 27.4 | % | | | 37.5 | % |
| Tier 1 Leverage ratio | | | | | 21.4 | % | | | 24.7 | % |
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 79
Table of Contents
Condensed Statements of Operations(dollars in millions)
| | | | Quarters Ended
| | Nine Months Ended | |
|---|
| | | | September 30, | | June 30, | | September 30, | | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
| Interest income | | | | $ | 98.9 | | | $ | 87.5 | | | $ | 65.5 | | | $ | 270.0 | | | $ | 195.8 | |
| Interest expense | | | | | (39.3 | ) | | | (35.5 | ) | | | (29.7 | ) | | | (112.3 | ) | | | (83.4 | ) |
| Net interest revenue | | | | | 59.6 | | | | 52.0 | | | | 35.8 | | | | 157.7 | | | | 112.4 | |
| Provision for credit losses | | | | | (13.3 | ) | | | (20.6 | ) | | | (13.3 | ) | | | (46.8 | ) | | | (28.0 | ) |
| Net interest revenue, after credit provision | | | | | 46.3 | | | | 31.4 | | | | 22.5 | | | | 110.9 | | | | 84.4 | |
| Rental income on operating leases | | | | | 12.0 | | | | 6.0 | | | | 1.0 | | | | 20.9 | | | | 1.3 | |
| Other income | | | | | 28.0 | | | | 43.6 | | | | 25.0 | | | | 95.9 | | | | 52.6 | |
| Total net revenue, net of interest expense and credit provision | | | | | 86.3 | | | | 81.0 | | | | 48.5 | | | | 227.7 | | | | 138.3 | |
| Operating expenses | | | | | (48.1 | ) | | | (42.8 | ) | | | (17.8 | ) | | | (120.9 | ) | | | (39.0 | ) |
| Depreciation on operating lease equipment | | | | | (5.8 | ) | | | (3.8 | ) | | | (0.9 | ) | | | (12.0 | ) | | | (1.1 | ) |
| Income before provision for income taxes | | | | | 32.4 | | | | 34.4 | | | | 29.8 | | | | 94.8 | | | | 98.2 | |
| Provision for income taxes | | | | | (13.1 | ) | | | (12.1 | ) | | | (11.3 | ) | | | (34.8 | ) | | | (42.2 | ) |
Net income | | | | $ | 19.3 | | | $ | 22.3 | | | $ | 18.5 | | | $ | 60.0 | | | $ | 56.0 | |
New business volume – funded | | | | $ | 1,378.6 | | | $ | 1,462.3 | | | $ | 834.9 | | | $ | 4,001.2 | | | $ | 2,055.3 | |
New business volume – committed | | | | $ | 1,659.5 | | | $ | 1,767.3 | | | $ | 1,200.8 | | | $ | 5,034.4 | | | $ | 3,069.9 | |
The Bank’s provision for credit losses largely reflected commercial loan growth, which was mitigated by a reserve release at the Holding Company corresponding to non-Bank portfolio runoff. The reduced provision from the prior quarter was primarily due to lower charge-offs. For the nine months ended September 30, 2012 and 2011, net charge-offs as a percentage of average finance receivables were 0.23% and 0.16%, respectively. Other income was down sequentially due to a gain on student loans sold during the 2012 second quarter. Operating expenses increased mostly due to the transfer of employees in the first half of 2012 from the bank holding company into the bank with the transfer of the Corporate Finance platform. The increase over the prior-year quarter also reflects costs associated with growing internet deposits.
As detailed in the following table, net finance revenue (NFR) increased primarily on commercial asset growth. Average earning assets increased, as an increase in higher yielding commercial assets offset the decline in lower yielding consumer assets (student loans). Net FSA accretion increased NFR by $4 million during the 2012 third quarter, compared to increases of $16 million in 2011 third quarter and $6 million last quarter, due primarily to lower interest income accretion. Year to date benefits totaled $22 million for 2012 and $70 million in 2011.
80 CIT GROUP INC
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Net Finance Revenue(dollars in millions)
| | | | Quarters Ended
| | Nine Months Ended | |
|---|
| | | | September 30, | | June 30, | | September 30, | | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
| Interest income | | | | $ | 98.9 | | | $ | 87.5 | | | $ | 65.5 | | | $ | 270.0 | | | $ | 195.8 | |
| Rental income on operating leases | | | | | 12.0 | | | | 6.0 | | | | 1.0 | | | | 20.9 | | | | 1.3 | |
| Finance revenue | | | | | 110.9 | | | | 93.5 | | | | 66.5 | | | | 290.9 | | | | 197.1 | |
| Interest expense | | | | | (39.3 | ) | | | (35.5 | ) | | | (29.7 | ) | | | (112.3 | ) | | | (83.4 | ) |
| Depreciation on operating lease equipment | | | | | (5.8 | ) | | | (3.8 | ) | | | (0.9 | ) | | | (12.0 | ) | | | (1.1 | ) |
| Net finance revenue | | | | $ | 65.8 | | | $ | 54.2 | | | $ | 35.9 | | | $ | 166.6 | | | $ | 112.6 | |
| Average Earning Assets (“AEA”) | | | | $ | 7,303.6 | | | $ | 6,653.6 | | | $ | 5,959.1 | | | $ | 6,865.7 | | | $ | 5,517.8 | |
As a % of AEA: | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | 5.42 | % | | | 5.26 | % | | | 4.40 | % | | | 5.24 | % | | | 4.73 | % |
| Rental income on operating leases | | | | | 0.65 | % | | | 0.36 | % | | | 0.06 | % | | | 0.41 | % | | | 0.03 | % |
| Finance revenue | | | | | 6.07 | % | | | 5.62 | % | | | 4.46 | % | | | 5.65 | % | | | 4.76 | % |
| Interest expense | | | | | (2.15 | )% | | | (2.13 | )% | | | (1.99 | )% | | | (2.18 | )% | | | (2.01 | )% |
| Depreciation on operating lease equipment | | | | | (0.32 | )% | | | (0.23 | )% | | | (0.06 | )% | | | (0.23 | )% | | | (0.03 | )% |
| Net finance revenue | | | | | 3.60 | % | | | 3.26 | % | | | 2.41 | % | | | 3.24 | % | | | 2.72 | % |
Net finance revenue is a non-GAAP measure.
NFR as a percentage of average earning assets (“Net Finance Margin”) increased from the prior-year quarter, as the revenue earned from higher-yielding commercial assets offset the decrease in FSA accretion. Excluding the FSA impacts, net finance margin increased, reflecting a shift in weighting as commercial loans grew and became a more significant proportion of the earning assets, while the lower yielding consumer assets, principally student loans, run-off. The margin increase is partially offset by the relatively high proportion of low-yielding assets, student loans and cash.
Adjusted Net Finance Revenue as a % of AEA(dollars in millions)
| | | | Quarters Ended
| |
|---|
| | | | September 30, 2012
| | June 30, 2012
| | September 30, 2011
| |
|---|
| Net finance revenue | | | | $ | 65.8 | | | | 3.60 | % | | $ | 54.2 | | | | 3.26 | % | | $ | 35.9 | | | | 2.41 | % |
| FSA impact on net finance revenue | | | | | (4.1 | ) | | | (0.23 | )% | | | (6.4 | ) | | | (0.41 | )% | | | (15.6 | ) | | | (1.08 | )% |
| Adjusted net finance revenue | | | | $ | 61.7 | | | | 3.37 | % | | $ | 47.8 | | | | 2.85 | % | | $ | 20.3 | | | | 1.33 | % |
| | | | Nine Months Ended September 30,
| | | | | |
|---|
| | | | 2012
| | 2011
| |
|---|
| Net finance revenue | | | | $ | 166.6 | | | | 3.24 | % | | $ | 112.6 | | | | 2.72 | % | | | | | | | | |
| FSA impact on net finance revenue | | | | | (21.6 | ) | | | (0.43 | )% | | | (70.0 | ) | | | (1.72 | )% | | | | | | | | |
| Adjusted net finance revenue | | | | $ | 145.0 | | | | 2.81 | % | | $ | 42.6 | | | | 1.00 | % | | | | | | | | |
Net finance revenue is a non-GAAP measure.
The following table presents the Bank’s pre-tax net income and adjusted pre-tax net income:
Impacts of FSA Accretion on Pre-tax Income (Loss)(dollars in millions)
| | | | Quarters Ended
| | Nine Months Ended | |
|---|
| | | | September 30, | | June 30, | | September 30, | | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
| Pre-tax Income – Reported | | | | $ | 32.4 | | | $ | 34.4 | | | $ | 29.8 | | | $ | 94.8 | | | $ | 98.2 | |
| Net FSA Accretion | | | | | (4.1 | ) | | | (6.4 | ) | | | (15.6 | ) | | | (21.6 | ) | | | (70.0 | ) |
| Pre-tax Income – Excluding FSA Net Accretion | | | | $ | 28.3 | | | $ | 28.0 | | | $ | 14.2 | | | $ | 73.2 | | | $ | 28.2 | |
Pre-tax Income – Excluding FSA Net Accretion is a non-GAAP measure.
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 81
Table of Contents
CIT Group Inc. Select Data(dollars in millions)
| | | | At or for the Quarters Ended
| | Nine Months Ended | |
|---|
| | | | September 30, | | June 30, | | September 30, | | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
Select Statement of Operations Data | | | | | | | | | | | | | | | | | | | | | | |
| Net interest revenue | | | | $ | (438.0 | ) | | $ | (229.9 | ) | | $ | (100.3 | ) | | $ | (1,336.0 | ) | | $ | (366.9 | ) |
| Provision for credit losses | | | | | – | | | | (8.9 | ) | | | (47.4 | ) | | | (51.5 | ) | | | (253.9 | ) |
| Total non-interest income | | | | | 525.6 | | | | 589.5 | | | | 651.8 | | | | 1,803.8 | | | | 1,984.7 | |
| Total other expenses | | | | | (388.8 | ) | | | (392.4 | ) | | | (497.3 | ) | | | (1,164.9 | ) | | | (1,254.1 | ) |
| Income (loss) before provision for income taxes | | | | | (301.2 | ) | | | (41.7 | ) | | | 6.8 | | | | (748.6 | ) | | | 109.8 | |
| Net loss | | | | | (304.9 | ) | | | (70.7 | ) | | | (32.8 | ) | | | (822.1 | ) | | | (16.9 | ) |
Per Common Share Data | | | | | | | | | | | | | | | | | | | | | | |
| Diluted loss per common share | | | | $ | (1.52 | ) | | $ | (0.35 | ) | | $ | (0.16 | ) | | $ | (4.09 | ) | | $ | (0.08 | ) |
| Book value per common share | | | | $ | 40.26 | | | $ | 41.73 | | | $ | 44.32 | | | | | | | | | |
| Tangible book value per common share | | | | $ | 38.43 | | | $ | 39.87 | | | $ | 42.31 | | | | | | | | | |
Performance Ratios | | | | | | | | | | | | | | | | | | | | | | |
| Return on average common stockholders’ equity | | | | | (14.6 | )% | | | (3.4 | )% | | | (1.5 | )% | | | (12.8 | )% | | | (0.3 | )% |
| Net finance revenue as a percentage of average earning assets | | | | | (1.59 | )% | | | 1.05 | % | | | 2.19 | % | | | (1.68 | )% | | | 1.67 | % |
| Return on average total assets | | | | | (2.76 | )% | | | (0.65 | )% | | | (0.28 | )% | | | (2.47 | )% | | | (0.05 | )% |
| Total ending equity to total ending assets | | | | | 18.6 | % | | | 19.6 | % | | | 19.9 | % | | | | | | | | |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | | | |
| Loans including receivables pledged | | | | $ | 20,383.4 | | | $ | 20,100.5 | | | $ | 21,817.4 | | | | | | | | | |
| Allowance for loan losses | | | | | (397.9 | ) | | | (414.2 | ) | | | (414.5 | ) | | | | | | | | |
| Operating lease equipment, net | | | | | 12,072.0 | | | | 11,896.4 | | | | 11,188.8 | | | | | | | | | |
| Goodwill and intangible assets, net | | | | | 368.1 | | | | 373.1 | | | | 404.3 | | | | | | | | | |
| Total cash and short-term investments | | | | | 7,205.6 | | | | 7,043.1 | | | | 7,339.5 | | | | | | | | | |
| Total assets | | | | | 43,580.9 | | | | 42,796.0 | | | | 44,621.5 | | | | | | | | | |
| Total long-term borrowings and deposits | | | | | 31,615.8 | | | | 30,697.9 | | | | 32,008.6 | | | | | | | | | |
| Total common stockholders’ equity | | | | | 8,086.0 | | | | 8,380.9 | | | | 8,892.4 | | | | | | | | | |
Credit Quality | | | | | | | | | | | | | | | | | | | | | | |
| Non-accrual loans as a percentage of finance receivables | | | | | 2.02 | % | | | 2.26 | % | | | 4.19 | % | | | | | | | | |
| Net charge-offs as a percentage of average finance receivables | | | | | 0.36 | % | | | 0.33 | % | | | 0.83 | % | | | 0.37 | % | | | 1.38 | % |
| Allowance for loan losses as a percentage of finance receivables | | | | | 1.95 | % | | | 2.06 | % | | | 1.90 | % | | | | | | | | |
Financial Ratios | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.7 | % | | | 18.0 | % | | | 18.7 | % | | | | | | | | |
| Total Capital Ratio | | | | | 17.5 | % | | | 18.9 | % | | | 19.6 | % | | | | | | | | |
82 CIT GROUP INC
Table of Contents
Quarterly Average Balances(1) and Associated Income (dollars in millions)
| | | | September 30, 2012
| | June 30, 2012
| | September 30, 2011
| |
|---|
| | | | Average
Balance
| | Interest
| | Average
Rate (%)
| | Average
Balance
| | Interest
| | Average
Rate (%)
| | Average
Balance
| | Interest
| | Average
Rate (%)
|
|---|
| Deposits with banks | | | | $ | 6,911.1 | | | $ | 5.8 | | | | 0.34 | % | | $ | 6,456.2 | | | $ | 5.0 | | | | 0.31 | % | | $ | 6,566.7 | | | $ | 6.2 | | | | 0.38 | % |
| Investments | | | | | 1,105.0 | | | | 2.2 | | | | 0.80 | % | | | 1,278.3 | | | | 3.0 | | | | 0.94 | % | | | 2,051.8 | | | | 2.4 | | | | 0.47 | % |
Loans and leases (including held for sale)(2)(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | | | | 17,069.7 | | | | 259.5 | | | | 6.54 | % | | | 16,983.1 | | | | 297.9 | | | | 7.53 | % | | | 19,268.5 | | | | 359.1 | | | | 7.92 | % |
| Non-U.S. | | | | | 3,965.9 | | | | 106.6 | | | | 10.75 | % | | | 4,024.7 | | | | 103.4 | | | | 10.28 | % | | | 4,232.6 | | | | 135.1 | | | | 12.77 | % |
Total loans and leases(2) | | | | | 21,035.6 | | | | 366.1 | | | | 7.38 | % | | | 21,007.8 | | | | 401.3 | | | | 8.09 | % | | | 23,501.1 | | | | 494.2 | | | | 8.84 | % |
Total interest earning assets / interest income(2)(3) | | | | | 29,051.7 | | | | 374.1 | | | | 5.37 | % | | | 28,742.3 | | | | 409.3 | | | | 5.94 | % | | | 32,119.6 | | | | 502.8 | | | | 6.49 | % |
Operating lease equipment, net (including held for sale)(4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(4) | | | | | 6,287.9 | | | | 146.1 | | | | 9.29 | % | | | 6,134.4 | | | | 148.5 | | | | 9.68 | % | | | 5,220.9 | | | | 102.3 | | | | 7.84 | % |
Non-U.S.(4) | | | | | 6,252.1 | | | | 163.8 | | | | 10.48 | % | | | 6,207.0 | | | | 166.3 | | | | 10.72 | % | | | 6,121.3 | | | | 182.4 | | | | 11.92 | % |
Total operating lease equipment, net(4) | | | | | 12,540.0 | | | | 309.9 | | | | 9.89 | % | | | 12,341.4 | | | | 314.8 | | | | 10.20 | % | | | 11,342.2 | | | | 284.7 | | | | 10.04 | % |
Total earning assets(2) | | | | | 41,591.7 | | | $ | 684.0 | | | | 6.77 | % | | | 41,083.7 | | | $ | 724.1 | | | | 7.25 | % | | | 43,461.8 | | | $ | 787.5 | | | | 7.44 | % |
| Non interest earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash due from banks | | | | | 437.4 | | | | | | | | | | | | 441.8 | | | | | | | | | | | | 710.2 | | | | | | | | | |
| Allowance for loan losses | | | | | (406.6 | ) | | | | | | | | | | | (415.1 | ) | | | | | | | | | | | (413.7 | ) | | | | | | | | |
| All other non-interest earning assets | | | | | 2,571.1 | | | | | | | | | | | | 2,696.5 | | | | | | | | | | | | 3,068.2 | | | | | | | | | |
Total Average Assets | | | | $ | 44,193.6 | | | | | | | | | | | $ | 43,806.9 | | | | | | | | | | | $ | 46,826.5 | | | | | | | | | |
Average Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | | $ | 7,977.5 | | | $ | 38.4 | | | | 1.93 | % | | $ | 6,922.6 | | | $ | 35.3 | | | | 2.04 | % | | $ | 4,658.7 | | | $ | 28.4 | | | | 2.44 | % |
Long-term borrowings(5) | | | | | 23,998.6 | | | | 773.7 | | | | 12.90 | % | | | 24,695.8 | | | | 603.9 | | | | 9.78 | % | | | 29,308.6 | | | | 574.7 | | | | 7.84 | % |
| Total interest-bearing liabilities | | | | | 31,976.1 | | | $ | 812.1 | | | | 10.16 | % | | | 31,618.4 | | | $ | 639.2 | | | | 8.09 | % | | | 33,967.3 | | | $ | 603.1 | | | | 7.10 | % |
| Credit balances of factoring clients | | | | | 1,190.7 | | | | | | | | | | | | 1,160.4 | | | | | | | | | | | | 1,130.9 | | | | | | | | | |
| Other non-interest bearing liabilities | | | | | 2,674.9 | | | | | | | | | | | | 2,597.3 | | | | | | | | | | | | 2,770.9 | | | | | | | | | |
| Noncontrolling interests | | | | | 5.7 | | | | | | | | | | | | 4.5 | | | | | | | | | | | | 2.2 | | | | | | | | | |
| Stockholders’ equity | | | | | 8,346.2 | | | | | | | | | | | | 8,426.3 | | | | | | | | | | | | 8,955.2 | | | | | | | | | |
Total Average Liabilities and Stockholders’ Equity | | | | $ | 44,193.6 | | | | | | | | | | | $ | 43,806.9 | | | | | | | | | | | $ | 46,826.5 | | | | | | | | | |
| Net revenue spread | | | | | | | | | | | | | (3.39 | )% | | | | | | | | | | | (0.84 | )% | | | | | | | | | | | 0.34 | % |
| Impact of non-interest bearing sources | | | | | | | | | | | | | 2.12 | % | | | | | | | | | | | 1.69 | % | | | | | | | | | | | 1.40 | % |
Net revenue/yield on earning assets(2) | | | | | | | | | ($128.1 | ) | | | (1.27 | )% | | | | | | $ | 84.9 | | | | 0.85 | % | | | | | | $ | 184.4 | | | | 1.74 | % |
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 83
Table of Contents
Nine Month Average Balances(1) and Associated Income (dollars in millions)
| | | | September 30, 2012
| | September 30, 2011
| |
|---|
| | | | Average
Balance
| | Interest
| | Average
Rate (%)
| | Average
Balance
| | Interest
| | Average
Rate (%)
|
|---|
| Deposits with banks | | | | $ | 6,701.4 | | | $ | 15.7 | | | | 0.31 | % | | $ | 7,157.8 | | | $ | 17.6 | | | | 0.33 | % |
| Investments | | | | | 1,384.6 | | | | 8.1 | | | | 0.78 | % | | | 2,241.7 | | | | 8.0 | | | | 0.48 | % |
Loans and leases (including held for sale)(2)(3) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | | | | 17,265.6 | | | | 864.3 | | | | 7.16 | % | | | 19,619.2 | | | | 1,247.7 | | | | 8.96 | % |
| Non-U.S. | | | | | 3,995.6 | | | | 306.9 | | | | 10.24 | % | | | 4,732.8 | | | | 467.9 | | | | 13.19 | % |
Total loans and leases(2) | | | | | 21,261.2 | | | | 1,171.2 | | | | 7.77 | % | | | 24,352.0 | | | | 1,715.6 | | | | 9.82 | % |
Total interest earning assets / interest income(2)(3) | | | | | 29,347.2 | | | | 1,195.0 | | | | 5.65 | % | | | 33,751.5 | | | | 1,741.2 | | | | 7.10 | % |
Operating lease equipment, net (including held for sale)(4) | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(4) | | | | | 6,089.2 | | | | 432.5 | | | | 9.47 | % | | | 5,047.1 | | | | 303.0 | | | | 8.00 | % |
Non-U.S.(4) | | | | | 6,279.5 | | | | 494.0 | | | | 10.49 | % | | | 6,206.5 | | | | 497.4 | | | | 10.69 | % |
Total operating lease equipment, net(4) | | | | | 12,368.7 | | | | 926.5 | | | | 9.99 | % | | | 11,253.6 | | | | 800.4 | | | | 9.48 | % |
Total earning assets(2) | | | | | 41,715.9 | | | $ | 2,121.5 | | | | 6.98 | % | | | 45,005.1 | | | $ | 2,541.6 | | | | 7.71 | % |
| Non interest earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash due from banks | | | | | 433.1 | | | | | | | | | | | | 1,048.8 | | | | | | | | | |
| Allowance for loan losses | | | | | (409.5 | ) | | | | | | | | | | | (410.3 | ) | | | | | | | | |
| All other non-interest earning assets | | | | | 2,716.1 | | | | | | | | | | | | 3,203.7 | | | | | | | | | |
Total Average Assets | | | | $ | 44,455.6 | | | | | | | | | | | $ | 48,847.3 | | | | | | | | | |
Average Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | | $ | 7,183.2 | | | $ | 110.0 | | | | 2.04 | % | | $ | 4,475.6 | | | $ | 77.9 | | | | 2.32 | % |
Long-term borrowings(5) | | | | | 24,902.1 | | | | 2,421.0 | | | | 12.96 | % | | | 31,433.0 | | | | 2,030.2 | | | | 8.61 | % |
| Total interest-bearing liabilities | | | | | 32,085.3 | | | $ | 2,531.0 | | | | 10.52 | % | | | 35,908.6 | | | $ | 2,108.1 | | | | 7.83 | % |
| Credit balances of factoring clients | | | | | 1,170.4 | | | | | | | | | | | | 1,064.9 | | | | | | | | | |
| Other non-interest bearing liabilities | | | | | 2,657.2 | | | | | | | | | | | | 2,911.2 | | | | | | | | | |
| Noncontrolling interests | | | | | 4.8 | | | | | | | | | | | | 0.8 | | | | | | | | | |
| Stockholders’ equity | | | | | 8,537.9 | | | | | | | | | | | | 8,961.8 | | | | | | | | | |
Total Average Liabilities and Stockholders’ Equity | | | | $ | 44,455.6 | | | | | | | | | | | $ | 48,847.3 | | | | | | | | | |
| Net revenue spread | | | | | | | | | | | | | (3.54 | )% | | | | | | | | | | | (0.12 | )% |
| Impact of non-interest bearing sources | | | | | | | | | | | | | 2.19 | % | | | | | | | | | | | 1.44 | % |
Net revenue/yield on earning assets(2) | | | | | | | | $ | (409.5 | ) | | | (1.35 | )% | | | | | | $ | 433.5 | | | | 1.32 | % |
(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 years presented. Average rates are impacted by FSA accretion and amortization. |
(2) | | The rate presented is calculated net of average credit balances for factoring clients. |
(3) | | Non-accrual loans and related income are included in the respective categories. |
(4) | | Operating lease rental income is a significant source of revenue; therefore, we have presented the rental revenues net of depreciation. |
(5) | | Interest and average rates include FSA accretion, including amounts accelerated due to redemptions or extinguishments, as well as prepayment penalties, on the Series C Notes-(Exchanged), Series A Notes, Series B Notes and First Lien Term Facility. |
The average long-term borrowings balances presented below are derived based on daily balances and the average rates are based on a 30 days per month day count convention. The average rates include FSA amortization and prepayment fees, which due to the annualizing, can distort the derived rate. The debt coupon rates at September 30, 2012, were as follows: Senior Unsecured Notes — 4.90%, Series C Notes (other) — 5.37%, Other Debt — 6.03% (pre-FSA basis), Secured Borrowings — 2.26% (pre-FSA basis), and Revolving Credit Facility — 2.71%. The aggregate portfolio weighted average at September 30, 2012 was 3.78%.
84 CIT GROUP INC
Table of Contents
Average Daily Long-term Borrowings Balances and Rates(dollars in millions)
| | | | Quarters Ended
| |
|---|
| | | | September 30, 2012
| | June 30, 2012
| | September 30, 2011
| |
|---|
| | | | Average
Balance
| | Interest
| | Average
Rate
| | Average
Balance
| | Interest
| | Average
Rate
| | Average
Balance
| | Interest
| | Average
Rate
|
|---|
Unsecured
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving Credit Facility | | | | $ | 354.6 | | | $ | 2.7 | | | | 3.00 | % | | $ | 457.5 | | | $ | 3.4 | | | | 2.95 | % | | $ | – | | | $ | – | | | | – | |
| Senior Unsecured | | | | | 5,435.5 | | | | 68.9 | | | | 5.07 | % | | | 2,766.7 | | | | 36.9 | | | | 5.34 | % | | | – | | | | – | | | | – | |
Series C Notes (Exchanged)(1) | | | | | 2,936.3 | | | | 532.9 | | | | 72.59 | % | | | 5,906.4 | | | | 410.0 | | | | 27.77 | % | | | – | | | | – | | | | – | |
| Series C Notes (other) | | | | | 5,250.0 | | | | 72.3 | | | | 5.51 | % | | | 5,250.0 | | | | 72.3 | | | | 5.51 | % | | | – | | | | – | | | | – | |
| Other debt | | | | | 85.4 | | | | 2.7 | | | | 12.67 | % | | | 86.5 | | | | 2.6 | | | | 12.08 | % | | | – | | | | – | | | | – | |
| Total Unsecured Debt | | | | | 14,061.8 | | | | 679.5 | | | | 19.33 | % | | | 14,467.1 | | | | 525.2 | | | | 14.52 | % | | | – | | | | – | | | | – | |
Secured | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Secured borrowings | | | | | 10,525.5 | | | | 94.2 | | | | 3.58 | % | | | 10,224.0 | | | | 78.7 | | | | 3.08 | % | | | 9,750.6 | | | | 111.8 | | | | 4.59 | % |
First Lien Term Facility(1) | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 1,581.8 | | | | (58.2 | ) | | | (14.72 | )% |
| Revolving Credit Facility | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 614.2 | | | | 4.7 | | | | 3.04 | % |
Series A Notes(1) | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 7,801.2 | | | | 294.5 | | | | 15.10 | % |
| Series C Notes (other) | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 2,000.0 | | | | 30.1 | | | | 6.02 | % |
Series C Notes (Exchanged)(1) | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 7,914.1 | | | | 188.0 | | | | 9.50 | % |
| Other debt | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 119.0 | | | | 3.8 | | | | 12.84 | % |
| Total Secured Debt | | | | | 10,525.5 | | | | 94.2 | | | | 3.58 | % | | | 10,224.0 | | | | 78.7 | | | | 3.08 | % | | | 29,780.9 | | | | 574.7 | | | | 7.72 | % |
Total Long-term Borrowings | | | | $ | 24,587.3 | | | $ | 773.7 | | | | 12.59 | % | | $ | 24,691.1 | | | $ | 603.9 | | | | 9.78 | % | | $ | 29,780.9 | | | $ | 574.7 | | | | 7.72 | % |
| | | | | | | | | | Nine Months Ended September 30,
| |
|---|
| | | | | | | | | | 2012
| | 2011
| |
|---|
Unsecured
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving Credit Facility | | | | | | | | | | | | | | | | $ | 340.9 | | | $ | 7.8 | | | | 3.02 | % | | $ | – | | | $ | – | | | | – | |
| Senior Unsecured | | | | | | | | | | | | | | | | | 2,822.9 | | | | 109.3 | | | | 5.16 | % | | | – | | | | – | | | | – | |
Series C Notes (Exchanged)(1) | | | | | | | | | | | | | | | | | 5,608.4 | | | | 1,132.5 | | | | 26.92 | % | | | – | | | | – | | | | – | |
| Series C Notes (other) | | | | | | | | | | | | | | | | | 4,814.2 | | | | 200.0 | | | | 5.54 | % | | | – | | | | – | | | | – | |
| Other debt | | | | | | | | | | | | | | | | | 86.1 | | | | 8.0 | | | | 12.39 | % | | | – | | | | – | | | | – | |
| Total Unsecured Debt | | | | | | | | | | | | | | | | | 13,672.5 | | | | 1,457.6 | | | | 14.21 | % | | | – | | | | – | | | | – | |
Secured
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Secured borrowings | | | | | | | | | | | | | | | | | 10,359.2 | | | | 279.6 | | | | 3.60 | % | | | 10,181.8 | | | | 359.2 | | | | 4.70 | % |
First Lien Term Facility(1) | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 2,555.0 | | | | 42.9 | | | | 2.24 | % |
| Revolving Credit Facility | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 204.7 | | | | 4.7 | | | | 3.06 | % |
Series A Notes(1) | | | | | | | | | | | | | | | | | 1,141.6 | | | | 683.8 | | | | 79.86 | % | | | 13,973.6 | | | | 1,320.9 | | | | 12.60 | % |
Series B Notes(1) | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 8.4 | | | | 2.1 | | | | 33.47 | % |
| Series C Notes (other) | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 1,340.7 | | | | 61.0 | | | | 6.07 | % |
Series C Notes (Exchanged)(1) | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 3,060.5 | | | | 226.6 | | | | 9.87 | % |
| Other debt | | | | | | | | | | | | | | | | | – | | | | – | | | | – | | | | 141.7 | | | | 12.8 | | | | 12.04 | % |
| Total Secured Debt | | | | | | | | | | | | | | | | | 11,500.8 | | | | 963.4 | | | | 11.17 | % | | | 31,466.4 | | | | 2,030.2 | | | | 8.60 | % |
Total Long-term Borrowings | | | | | | | | | | | | | | | | $ | 25,173.3 | | | $ | 2,421.0 | | | | 12.82 | % | | $ | 31,466.4 | | | $ | 2,030.2 | | | | 8.60 | % |
(1) | | The interest expense for the Series C Notes (Exchanged), Series A Notes, Series B Notes and First Lien Term Facility include the following accelerated FSA accretion (amortization) and prepayment penalties: |
| | | | Quarters Ended
| | Nine Months Ended | |
|---|
| | | | September 30, | | June 30, | | September 30, | | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
| Series C Notes – (Exchanged) – accelerated FSA | | | | $ | 453.9 | | | $ | 264.9 | | | $ | – | | | $ | 718.8 | | | $ | – | |
| Series A Notes – accelerated FSA | | | | | – | | | | – | | | | 87.4 | | | | 596.9 | | | | 225.4 | |
| Series A Notes – prepayment penalty | | | | | – | | | | – | | | | 20.0 | | | | – | | | | 90.0 | |
| Series B Notes – accelerated FSA | | | | | – | | | | – | | | | – | | | | – | | | | (13.5 | ) |
| Series B Notes – prepayment penalty | | | | | – | | | | – | | | | – | | | | – | | | | 15.0 | |
| First Lien Term Facility – accelerated FSA | | | | | – | | | | – | | | | (85.0 | ) | | | – | | | | (85.0 | ) |
| Total accelerated FSA and prepayment penalty | | | | $ | 453.9 | | | $ | 264.9 | | | $ | 22.4 | | | $ | 1,315.7 | | | $ | 231.9 | |
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 85
Table of Contents
CRITICAL ACCOUNTING ESTIMATESThe 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, the reported amounts of income and expense during the reporting period and the disclosure of contingent assets and liabilities at the date of the financial statements. We consider accounting estimates relating to the following to be critical in applying our accounting policies:
n | | Assumptions and estimates recorded upon adoption of fresh start accounting |
n | | Allowance for Loan Losses |
n | | Fair Value Determinations |
n | | Goodwill and Intangible Assets |
n | | Liabilities and Tax Reserves |
There have been no significant changes to the methodologies and processes used in developing estimates relating to these items from those described in our 2011 Annual Report on Form 10-K.
The Internal Controls Working Group (“ICWG”), which reports to the Disclosure Committee, is responsible for monitoring and improving internal controls over financial reporting. The ICWG is chaired by the Controller and is comprised of senior executives in Finance and the Chief Auditor. SeeItem 4. Controls and Procedures for more information.
86 CIT GROUP INC
Table of Contents
NON-GAAP FINANCIAL MEASUREMENTSThe SEC adopted regulations that apply to any public disclosure or release of material information that includes a non-GAAP financial measure. 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. Due to the nature of our financing and leasing assets, which include a higher proportion of operating lease equipment than most bank holding companies, and the impact of fresh start accounting following our 2009 restructuring, certain financial measures commonly used by other bank holding companies are not as meaningful for our Company. Therefore, management uses certain non-GAAP financial measures to evaluate our performance. 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. These 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. See footnotes below the tables for additional explanation of non-GAAP measurements.
Total Net Revenues(1) and Net Operating Lease Revenues(2) (dollars in millions)
| | | | Quarters Ended
| | Nine Months Ended
| |
|---|
| | | | September 30,
| | June 30,
| | September 30,
| | September 30,
| |
|---|
| | | | 2012
| | 2012
| | 2011
| | 2012
| | 2011
|
|---|
Total Net Revenue(1) | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | $ | 374.1 | | | $ | 409.3 | | | $ | 502.8 | | | $ | 1,195.0 | | | $ | 1,741.2 | |
| Rental income on operating leases | | | | | 444.4 | | | | 445.5 | | | | 409.0 | | | | 1,329.2 | | | | 1,238.1 | |
| Finance revenue | | | | | 818.5 | | | | 854.8 | | | | 911.8 | | | | 2,524.2 | | | | 2,979.3 | |
| Interest expense | | | | | (812.1 | ) | | | (639.2 | ) | | | (603.1 | ) | | | (2,531.0 | ) | | | (2,108.1 | ) |
| Depreciation on operating lease equipment | | | | | (134.5 | ) | | | (130.7 | ) | | | (124.3 | ) | | | (402.7 | ) | | | (437.7 | ) |
Net finance revenue | | | | | (128.1 | ) | | | 84.9 | | | | 184.4 | | | | (409.5 | ) | | | 433.5 | |
| Other income | | | | | 81.2 | | | | 144.0 | | | | 242.8 | | | | 474.6 | | | | 746.6 | |
Total net revenues | | | | $ | (46.9 | ) | | $ | 228.9 | | | $ | 427.2 | | | $ | 65.1 | | | $ | 1,180.1 | |
Net Operating Lease Revenue(2) | | | | | | | | | | | | | | | | | | | | | | |
| Rental income on operating leases | | | | $ | 444.4 | | | $ | 445.5 | | | $ | 409.0 | | | $ | 1,329.2 | | | $ | 1,238.1 | |
| Depreciation on operating lease equipment | | | | | (134.5 | ) | | | (130.7 | ) | | | (124.3 | ) | | | (402.7 | ) | | | (437.7 | ) |
Net operating lease revenue | | | | $ | 309.9 | | | $ | 314.8 | | | $ | 284.7 | | | $ | 926.5 | | | $ | 800.4 | |
Adjusted Net Finance Revenue as a % of Average Earning Assets(3) (dollars in millions)
| | | | Quarters Ended
| |
|---|
| | | | September 30,
2012
| | June 30,
2012
| | September 30,
2011
| |
|---|
| Net finance revenue | | | | $ | (128.1 | ) | | | (1.59 | )% | | $ | 84.9 | | | | 1.05 | % | | $ | 184.4 | | | | 2.19 | % |
| FSA impact on net finance revenue | | | | | 390.7 | | | | 4.56 | % | | | 184.1 | | | | 1.97 | % | �� | | (56.2 | ) | | | (0.82 | )% |
| Secured debt prepayment penalties | | | | | – | | | | – | | | | – | | | | – | | | | 20.0 | | | | 0.21 | % |
| Adjusted net finance revenue | | | | $ | 262.6 | | | | 2.97 | % | | $ | 269.0 | | | | 3.02 | % | | $ | 148.2 | | | | 1.58 | % |
| | | | Nine Months Ended
| | | | | |
|---|
| | | | September 30,
2012
| | September 30,
2011
| |
|---|
| Net finance revenue | | | | $ | (409.5 | ) | | | (1.68 | )% | | $ | 433.5 | | | | 1.67 | % | | | | | | | | |
| FSA impact on net finance revenue | | | | | 1,121.1 | | | | 4.33 | % | | | (113.5 | ) | | | (0.57 | )% | | | | | | | | |
| Secured debt prepayment penalties | | | | | – | | | | – | | | | 105.0 | | | | 0.36 | % | | | | | | | | |
| Adjusted net finance revenue | | | | $ | 711.6 | | | | 2.65 | % | | $ | 425.0 | | | | 1.46 | % | | | | | | | | |
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 87
Table of Contents
Impacts of FSA Accretion and Debt Refinancing Costs on Pre-tax Income (Loss) by Segment(dollars in millions)
| | | | Quarter Ended September 30, 2012
| |
|---|
| | | | Corporate
Finance
| | Transportation
Finance
| | Trade
Finance
| | Vendor
Finance
| | Consumer
| | Corporate
& Other
| | Total
|
|---|
| Pre-tax Loss – Reported | | | | $ | (25.3 | ) | | $ | (94.7 | ) | | $ | (3.2 | ) | | $ | (57.0 | ) | | $ | (6.9 | ) | | $ | (114.1 | ) | | $ | (301.2 | ) |
| Accelerated FSA Net Discount/(Premium) on Debt Extinguishments and Repurchases | | | | | 69.8 | | | | 229.1 | | | | 16.1 | | | | 59.1 | | | | 12.1 | | | | 67.7 | | | | 453.9 | |
| Debt Related – Loss on Debt Extinguishments | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 16.8 | | | | 16.8 | |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs | | | | | 44.5 | | | | 134.4 | | | | 12.9 | | | | 2.1 | | | | 5.2 | | | | (29.6 | ) | | | 169.5 | |
| Net FSA Accretion (excluding debt related acceleration) | | | | | (23.1 | ) | | | (33.3 | ) | | | 0.6 | | | | (8.7 | ) | | | (5.2 | ) | | | 3.2 | | | | (66.5 | ) |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs & FSA Net Accretion | | | | $ | 21.4 | | | $ | 101.1 | | | $ | 13.5 | | | $ | (6.6 | ) | | $ | – | | | $ | (26.4 | ) | | $ | 103.0 | |
| |
| | | | Quarter Ended June 30, 2012
| |
|---|
| Pre-tax Income/(Loss) – Reported | | | | $ | 49.5 | | | $ | (0.2 | ) | | $ | 3.1 | | | $ | (12.1 | ) | | $ | 30.3 | | | $ | (112.3 | ) | | $ | (41.7 | ) |
| Accelerated FSA Net Discount/(Premium) on Debt Extinguishments and Repurchases | | | | | 44.0 | | | | 129.5 | | | | 8.8 | | | | 38.9 | | | | 6.5 | | | | 37.2 | | | | 264.9 | |
| Debt Related – Loss on Debt Extinguishments | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 21.5 | | | | 21.5 | |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs | | | | | 93.5 | | | | 129.3 | | | | 11.9 | | | | 26.8 | | | | 36.8 | | | | (53.6 | ) | | | 244.7 | |
| Net FSA Accretion (excluding debt related acceleration) | | | | | (63.8 | ) | | | (36.7 | ) | | | 0.9 | | | | (9.2 | ) | | | (21.2 | ) | | | 4.4 | | | | (125.6 | ) |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs & FSA Net Accretion | | | | $ | 29.7 | | | $ | 92.6 | | | $ | 12.8 | | | $ | 17.6 | | | $ | 15.6 | | | $ | (49.2 | ) | | $ | 119.1 | |
| |
| | | | Quarter Ended September 30, 2011
| |
|---|
| Pre-tax Income/(Loss) – Reported | | | | $ | 29.6 | | | $ | 98.0 | | | $ | 10.6 | | | $ | 85.4 | | | $ | 9.7 | | | $ | (226.5 | ) | | $ | 6.8 | |
| Accelerated FSA Net Discount/(Premium) on Debt Extinguishments and Repurchases | | | | | 0.3 | | | | 1.4 | | | | 0.1 | | | | (1.0 | ) | | | 0.9 | | | | 0.7 | | | | 2.4 | |
| Debt Related – Loss on Debt Extinguishments | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 146.6 | | | | 146.6 | |
| Debt Related – Prepayment Penalties | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 20.0 | | | | 20.0 | |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs | | | | | 29.9 | | | | 99.4 | | | | 10.7 | | | | 84.4 | | | | 10.6 | | | | (59.2 | ) | | | 175.8 | |
| Net FSA Accretion (excluding debt related acceleration) | | | | | (39.5 | ) | | | (23.0 | ) | | | 2.9 | | | | (19.5 | ) | | | (12.1 | ) | | | 6.3 | | | | (84.9 | ) |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs & FSA Net Accretion | | | | $ | (9.6 | ) | | $ | 76.4 | | | $ | 13.6 | | | $ | 64.9 | | | $ | (1.5 | ) | | $ | (52.9 | ) | | $ | 90.9 | |
| |
| | | | Nine Months Ended September 30, 2012
| |
|---|
| | | | Corporate
Finance
| | Transportation
Finance
| | Trade
Finance
| | Vendor
Finance
| | Consumer
| | Corporate
& Other
| | Total
|
|---|
| Pre-tax Income/(Loss) – Reported | | | | $ | 94.5 | | | $ | (293.1 | ) | | $ | (17.1 | ) | | $ | (182.2 | ) | | $ | (0.8 | ) | | $ | (349.9 | ) | | $ | (748.6 | ) |
| Accelerated FSA Net Discount/(Premium) on Debt Extinguishments and Repurchases | | | | | 220.9 | | | | 637.4 | | | | 46.1 | | | | 197.1 | | | | 34.5 | | | | 179.7 | | | | 1,315.7 | |
| Debt Related – Loss on Debt Extinguishments | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 61.2 | | | | 61.2 | |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs | | | | | 315.4 | | | | 344.3 | | | | 29.0 | | | | 14.9 | | | | 33.7 | | | | (109.0 | ) | | | 628.3 | |
| Net FSA Accretion (excluding debt related acceleration) | | | | | (123.9 | ) | | | (97.0 | ) | | | 3.4 | | | | (27.0 | ) | | | (21.7 | ) | | | 14.5 | | | | (251.7 | ) |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs & FSA Net Accretion | | | | $ | 191.5 | | | $ | 247.3 | | | $ | 32.4 | | | $ | (12.1 | ) | | $ | 12.0 | | | $ | (94.5 | ) | | $ | 376.6 | |
88 CIT GROUP INC
Table of Contents
Impacts of FSA Accretion and Debt Refinancing Costs on Pre-tax Income (Loss) by Segment(dollars in millions)
| | | | Nine Months Ended September 30, 2011
| |
|---|
| | | | Corporate
Finance
| | Transportation
Finance
| | Trade
Finance
| | Vendor
Finance
| | Consumer
| | Corporate
& Other
| | Total
|
|---|
| Pre-tax Income/(Loss) – Reported | | | | $ | 200.8 | | | $ | 167.8 | | | $ | 8.3 | | | $ | 124.1 | | | $ | 18.8 | | | $ | (410.0 | ) | | $ | 109.8 | |
| Accelerated FSA Net Discount/(Premium) on Debt Extinguishments and Repurchases | | | | | 29.5 | | | | 50.2 | | | | 5.5 | | | | 25.8 | | | | 3.4 | | | | 12.5 | | | | 126.9 | |
| Debt Related – Loss on Debt Extinguishments | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 146.6 | | | | 146.6 | |
| Debt Related – Prepayment Costs | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 105.0 | | | | 105.0 | |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs | | | | | 230.3 | | | | 218.0 | | | | 13.8 | | | | 149.9 | | | | 22.2 | | | | (145.9 | ) | | | 488.3 | |
| Net FSA Accretion (excluding debt related acceleration) | | | | | (168.8 | ) | | | (72.8 | ) | | | 9.0 | | | | (78.0 | ) | | | (36.0 | ) | | | 19.8 | | | | (326.8 | ) |
| Pre-tax Income (Loss) – Excluding Debt Refinancing Costs & FSA Net Accretion | | | | $ | 61.5 | | | $ | 145.2 | | | $ | 22.8 | | | $ | 71.9 | | | $ | (13.8 | ) | | $ | (126.1 | ) | | $ | 161.5 | |
Earning Assets(3) (dollars in millions)
| | | | September 30,
2012
| | June 30,
2012
| | December 31,
2011
| |
| |
| |
|---|
Earning Assets(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | | | $ | 20,383.4 | | | $ | 20,100.5 | | | $ | 19,885.5 | | | | | | | | | | | | | | | | | |
| Operating lease equipment, net | | | | | 12,072.0 | | | | 11,896.4 | | | | 11,991.6 | | | | | | | | | | | | | | | | | |
| Assets held for sale | | | | | 1,421.1 | | | | 1,434.0 | | | | 2,332.3 | | | | | | | | | | | | | | | | | |
| Credit balances of factoring clients | | | | | (1,224.9 | ) | | | (1,164.1 | ) | | | (1,225.5 | ) | | | | | | | | | | | | | | | | |
| Total earning assets | | | | $ | 32,651.6 | | | $ | 32,266.8 | | | $ | 32,983.9 | | | | | | | | | | | | | | | | | |
| Commercial segments earning assets | | | | $ | 28,355.0 | | | $ | 27,809.4 | | | $ | 26,638.5 | | | | | | | | | | | | | | | | | |
Tangible Book Value(dollars in millions)
| | | | September 30,
2012
| | June 30,
2012
| | December 31,
2011
| |
| |
| |
|---|
Tangible Book Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total common stockholders’ equity | | | | $ | 8,086.0 | | | $ | 8,380.9 | | | $ | 8,888.5 | | | | | | | | | | | | | | | | | |
| Less: Goodwill | | | | | (330.8 | ) | | | (330.8 | ) | | | (330.8 | ) | | | | | | | | | | | | | | | | |
| Intangible assets | | | | | (37.3 | ) | | | (42.3 | ) | | | (63.6 | ) | | | | | | | | | | | | | | | | |
| Tangible book value | | | | $ | 7,717.9 | | | $ | 8,007.8 | | | $ | 8,494.1 | | | | | | | | | | | | | | | | | |
(1) | | Total net revenues are the combination of net finance revenue and other income and is an aggregation of all sources of revenue for the Company. Total net revenues is used by management to monitor business performance. Given our asset composition includes a high level of operating lease equipment (37% of average earning assets), NFM is a more appropriate metric than net interest margin (“NIM”) (a common metric used by other bank holding companies), as NIM 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 revenue (rental revenue less depreciation) from operating leases. |
(2) | | Total net operating lease revenue is the combination of rental income on operating leases less depreciation on operating lease equipment. Total net operating lease revenues is used by management to monitor portfolio performance. |
(3) | | Earning assets are utilized in certain revenue and earnings ratios. Earning assets are net of credit balances of factoring clients. This net amount represents the amounts we fund. |
Item 2: Management’s Discussion and Analysis andItem 3:Quantitative and Qualitative Disclosures about Market Risk 89
Table of Contents
FORWARD-LOOKING STATEMENTSCertain statements contained in this document are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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:
n | | our liquidity risk and capital management, including our capital, leverage, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, |
n | | our plans to change our funding mix and to access new sources of funding to broaden our use of deposit taking capabilities, |
n | | our credit risk management and credit quality, |
n | | our asset/liability risk management, |
n | | accretion and amortization of FSA adjustments, |
n | | our funding, borrowing costs and net finance revenue, |
n | | our operational risks, including success of systems enhancements and expansion of risk management and control functions, |
n | | our mix of portfolio asset classes, including growth initiatives, acquisitions and divestitures, new products, new business and customer retention, |
n | | our commitments to extend credit or purchase equipment, and |
n | | how we may be affected by legal proceedings. |
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. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information.
Therefore, actual results may differ materially from those expressed or implied in those statements. Factors, in addition to those disclosed in “Risk Factors”, that could cause such differences include, but are not limited to:
n | | capital markets liquidity, |
n | | risks of and/or actual economic slowdown, downturn or recession, |
n | | industry cycles and trends, |
n | | uncertainties associated with risk management, including credit, prepayment, asset/liability, interest rate and currency risks, |
n | | estimates and assumptions used to fair value the balance sheet in accordance with FSA and actual variation between the estimated fair values and the realized values, |
n | | adequacy of reserves for credit losses, |
n | | risks inherent in changes in market interest rates and quality spreads, |
n | | funding opportunities, deposit taking capabilities and borrowing costs, |
n | | risks that the restructuring of the Company’s capital structure did not result in sufficient additional capital or improved liquidity, |
n | | risks that the Company will be unable to comply with the terms of the Written Agreement with the Reserve Bank, |
n | | conditions and/or changes in funding markets and our access to such markets, including commercial paper, secured and unsecured term debt and the asset-backed securitization markets, |
n | | risks of implementing new processes, procedures, and systems, |
n | | risks associated with the value and recoverability of leased equipment and lease residual values, |
n | | application of fair value accounting in volatile markets, |
n | | application of goodwill accounting in a recessionary economy, |
n | | changes in laws or regulations governing our business and operations, |
n | | changes in competitive factors, |
n | | customer retention rates, |
n | | future acquisitions and dispositions of businesses or asset portfolios, and |
n | | regulatory changes and/or developments. |
Any or all of our forward-looking statements here or in other publications may turn out to be wrong, and there are no guarantees about our performance. We do not assume the obligation to update any forward-looking statement for any reason.
90 CIT GROUP INC
Table of Contents
Item 4. Controls and Procedures
(a) 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, 2012. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2012.
(b) Changes In Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 4. Controls and Procedures 91
Table of Contents
Part Two — Other Information ITEM 1. Legal Proceedings 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 inNote 12 — Contingencies ofItem 1. Consolidated Financial Statements. 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 may 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 results 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.
For more information about pending legal proceedings, including an estimate of certain reasonably possible losses in excess of reserved amounts, seeNote 12 — Contingencies ofItem 1. Consolidated Financial Statements.
For a discussion of certain risk factors affecting CIT, seePart I, Item 1A: Risk Factors, of CIT’s 2011 Annual Report on Form 10-K, Forward-Looking Statements of this Form 10-Q and an amended and updated risk factor included in our Form 10-Q for the quarter ended June 30, 2012 to provide additional disclosure regarding certain information security breaches.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
No purchases of CIT equity securities were made during the 2012 third quarter and there were no such equity securities that may yet be purchased under any repurchase plans or programs.
ITEM 4. Mine Safety Disclosure
Not applicable.
92 CIT GROUP INC
Table of Contents
| |
| 3.1 | | | | Third Amended and Restated Certificate of Incorporation of the Company, dated December 8, 2009 (incorporated by reference to Exhibit 3.1 to Form 8-K filed December 9, 2009). |
| |
| 3.2 | | | | Amended and Restated By-laws of the Company, as amended through December 8, 2009 (incorporated by reference to Exhibit 3.2 to Form 8-K filed December 9, 2009). |
| |
| 4.1 | | | | Indenture dated as of December 10, 2009 between CIT Group Inc. and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 to Form 8-K filed December 16, 2009). |
| |
| 4.2 | | | | First Supplemental Indenture dated as of December 10, 2009 among CIT Group Inc., certain Guarantors named therein and Deutsche Bank Trust Company Americas for the issuance of series A second-priority secured notes (incorporated by reference to Exhibit 4.2 to Form 8-K filed December 16, 2009). |
| |
| 4.3 | | | | First Amendment to Series A First Supplemental Indenture among CIT, certain Guarantors named therein, and Deutsche Bank Trust Company Americas, dated as of May 31, 2011 (incorporated by reference to Exhibit 4.4 to Form 8-K filed June 20, 2011). |
| |
| 4.4 | | | | Indenture dated as of January 20, 2006 between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) for the issuance of senior debt securities (incorporated by reference to Exhibit 4.3 to Form S-3 filed January 20, 2006). |
| |
| 4.5 | | | | First Supplemental Indenture dated as of February 13, 2007 between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) for the issuance of senior debt securities (incorporated by reference to Exhibit 4.1 to Form 8-K filed on February 13, 2007). |
| |
| 4.6 | | | | Third Supplemental Indenture dated as of October 1, 2009, between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) relating to senior debt securities (incorporated by reference to Exhibit 4.4 to Form 8-K filed on October 7, 2009). |
| |
| 4.7 | | | | Fourth Supplemental Indenture dated as of October 16, 2009 between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) relating to senior debt securities (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 19, 2009). |
| |
| 4.8 | | | | Framework Agreement, dated July 11, 2008, among ABN AMRO Bank N.V., as arranger, Madeleine Leasing Limited, as initial borrower, CIT Aerospace International, as initial head lessee, and CIT Group Inc., as guarantor, as amended by the Deed of Amendment, dated July 19, 2010, among The Royal Bank of Scotland N.V. (f/k/a ABN AMRO Bank N.V.), as arranger, Madeleine Leasing Limited, as initial borrower, CIT Aerospace International, as initial head lessee, and CIT Group Inc., as guarantor, as supplemented by Letter Agreement No. 1 of 2010, dated July 19, 2010, among The Royal Bank of Scotland N.V., as arranger, CIT Aerospace International, as head lessee, and CIT Group Inc., as guarantor, as amended and supplemented by the Accession Deed, dated July 21, 2010, among The Royal Bank of Scotland N.V., as arranger, Madeleine Leasing Limited, as original borrower, and Jessica Leasing Limited, as acceding party, as supplemented by Letter Agreement No. 2 of 2010, dated July 29, 2010, among The Royal Bank of Scotland N.V., as arranger, CIT Aerospace International, as head lessee, and CIT Group Inc., as guarantor, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets (incorporated by reference to Exhibit 4.11 to Form 10-K filed March 10, 2011). |
Item 6: Exhibits 93
Table of Contents
| |
| 4.9 | | | | Form of All Parties Agreement among CIT Aerospace International, as head lessee, Madeleine Leasing Limited, as borrower and lessor, CIT Group Inc., as guarantor, various financial institutions, as original ECA lenders, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, and CIT Aerospace International, as servicing agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.12 to Form 10-K filed March 10, 2011). |
| |
| 4.10 | | | | Form of ECA Loan Agreement among Madeleine Leasing Limited, as borrower, various financial institutions, as original ECA lenders, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, and CIT Aerospace International, as servicing agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.13 to Form 10-K filed March 10, 2011). |
| |
| 4.11 | | | | Form of Aircraft Head Lease between Madeleine Leasing Limited, as lessor, and CIT Aerospace International, as head lessee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.14 to Form 10-K filed March 10, 2011). |
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| 4.12 | | | | Form of Proceeds and Intercreditor Deed among Madeleine Leasing Limited, as borrower and lessor, various financial institutions, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.15 to Form 10-K filed March 10, 2011). |
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| 4.13 | | | | Form of All Parties Agreement among CIT Aerospace International, as head lessee, Jessica Leasing Limited, as borrower and lessor, CIT Group Inc., as guarantor, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, CIT Aerospace International, as servicing agent, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.16 to Form 10-K filed March 10, 2011). |
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| 4.14 | | | | Form of ECA Loan Agreement among Jessica Leasing Limited, as borrower, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.17 to Form 10-K filed March 10, 2011). |
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| 4.15 | | | | Form of Aircraft Head Lease between Jessica Leasing Limited, as lessor, and CIT Aerospace International, as head lessee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.18 to Form 10-K filed March 10, 2011). |
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| 4.16 | | | | Form of Proceeds and Intercreditor Deed among Jessica Leasing Limited, as borrower and lessor, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.19 to Form 10-K filed March 10, 2011). |
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| 4.17 | | | | Indenture, dated as of March 30, 2011, between CIT Group Inc. and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed June 30, 2011). |
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| 4.18 | | | | First Supplemental Indenture, dated as of March 30, 2011, between CIT Group Inc., the Guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (including the Form of 5.250% Note due 2014 and the Form of 6.625% Note due 2018) (incorporated by reference to Exhibit 4.2 to Form 8-K filed June 30, 2011). |
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| 4.19 | | | | Second Supplemental Indenture among CIT, certain Guarantors named therein and Deutsche Bank Trust Company Americas (as trustee, Series C parent collateral agent, and Series C subsidiary collateral agent), dated as of June 15, 2011 (incorporated by reference to Exhibit 4.1 to Form 8-K filed June 20, 2011). |
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| 4.20 | | | | Registration Rights Agreement, dated as of March 30, 2011, among CIT Group Inc., the Guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives for the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 30, 2011). |
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| 4.21 | | | | Registration Rights Agreement, dated as of June 15, 2011, among CIT Group Inc., the Guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as dealer-manager (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 20, 2011). |
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| 4.22 | | | | Third Supplemental Indenture, dated as of February 7, 2012, between CIT Group Inc., the Guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (including the Form of Notes) (incorporated by reference to Exhibit 4.4 of Form 8-K dated February 13, 2012). |
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| 4.23 | | | | Registration Rights Agreement, dated as of February 7, 2012, among CIT Group Inc., the Guarantors named therein, and JP Morgan Securities LLC, as representative for the initial purchasers named therein (incorporated by reference to Exhibit 10.1 of Form 8-K dated February 13, 2012). |
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| 4.24 | | | | Revolving Credit and Guaranty Agreement, dated as of August 25, 2011 among CIT Group Inc., certain subsidiaries of CIT Group Inc., the lenders party thereto from time to time and Bank of America, N.A., as Administrative Agent, Collateral Agent, and L/C Issuer (incorporated by reference to Exhibit 4.1 to Form 8-K filed August 26, 2011). |
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| 4.25 | | | | 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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| 4.26 | | | | First Supplemental 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 (including the Form of 5.25% Senior Unsecured Note due 2018) (incorporated by reference to Exhibit 4.2 of Form 8-K filed March 16, 2012). |
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| 4.27 | | | | Second Supplemental Indenture, dated as of May 4, 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 (including the Form of 5.000% Senior Unsecured Note due 2017 and the Form of 5.375% Senior Unsecured Note due 2020) (incorporated by reference to Exhibit 4.2 of Form 8-K filed May 4, 2012). |
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| 4.28 | | | | Third Supplemental Indenture, dated as of August 3, 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 (including the Form of 4.25% Senior Unsecured Note due 2017 and the Form of 5.00% Senior Unsecured Note due 2022) (incorporated by reference to Exhibit 4.2 to Form 8-K filed August 3, 2012). |
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| 10.1 | | | | Form of Separation Agreement by and between Tyco International Ltd. and CIT (incorporated by reference to Exhibit 10.2 to Amendment No. 3 to the Registration Statement on Form S-1 filed June 26, 2002). |
Item 6: Exhibits 95
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| 10.2 | | | | Form of Financial Services Cooperation Agreement by and between Tyco International Ltd. and CIT (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Registration Statement on Form S-1 filed June 12, 2002). |
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| 10.3* | | | | Amended and Restated CIT Group Inc. Long-Term Incentive Plan (as amended and restated effective December 10, 2009) (incorporated by reference to Exhibit 4.1 to Form S-8 filed January 11, 2010). |
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| 10.4* | | | | CIT Group Inc. Supplemental Retirement Plan (As Amended and Restated Effective as of January 1, 2008) (incorporated by reference to Exhibit 10.27 to Form 10-Q filed May 12, 2008). |
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| 10.5* | | | | 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). |
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| 10.6* | | | | 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). |
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| 10.7* | | | | Letter Agreement, effective February 8, 2010, between CIT Group Inc. and John A. Thain (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 8, 2010). |
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| 10.8* | | | | Form of CIT Group Inc. Three Year Stock Salary Award Agreement, dated February 8, 2010 (incorporated by reference to Exhibit 10.2 to Form 8-K filed February 8, 2010). |
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| 10.9* | | | | Form of CIT Group Inc. One Year Stock Salary Award Agreement, dated February 8, 2010 (incorporated by reference to Exhibit 10.3 to Form 8-K filed February 8, 2010). |
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| 10.10 | | | | Written Agreement, dated August 12, 2009, between CIT Group Inc. and the Federal Reserve Bank of New York (incorporated by reference to Exhibit 10.1 of Form 8-K filed August 13, 2009). |
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| 10.11 | | | | Form of CIT Group Inc. Two Year Restricted Stock Unit Award Agreement, dated July 29, 2010 (incorporated by reference to Exhibit 10.31 to Form 10-Q filed August 9, 2010). |
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| 10.12* | | | | Letter Agreement, dated June 2, 2010, between CIT Group Inc. and Scott T. Parker (incorporated by reference to Exhibit 99.3 to Form 8-K filed July 6, 2010). |
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| 10.13 | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Retention Award Agreement (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 9, 2010). |
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| 10.14 | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.34 to Form 10-Q filed August 9, 2010). |
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| 10.15 | | | | Form of CIT Group Inc. Long-term Incentive Plan Stock Option Award Agreement (One Year Vesting) (incorporated by reference to Exhibit 10.35 to Form 10-Q filed August 9, 2010). |
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| 10.16 | | | | Form of CIT Group Inc. Long-term Incentive Plan Stock Option Award Agreement (Three Year Vesting) (incorporated by reference to Exhibit 10.36 to Form 10-Q filed August 9, 2010). |
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| 10.17 | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Award Agreement (One Year Vesting) (incorporated by reference to Exhibit 10.37 to Form 10-Q filed August 9, 2010). |
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| 10.18 | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Award Agreement (Three Year Vesting) (incorporated by reference to Exhibit 10.38 to Form 10-Q filed August 9, 2010). |
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| 10.19 | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Director Award Agreement (Initial Grant) (incorporated by reference to Exhibit 10.39 to Form 10-Q filed August 9, 2010). |
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| 10.20 | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Director Award Agreement (Annual Grant) (incorporated by reference to Exhibit 10.40 to Form 10-Q filed August 9, 2010). |
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| 10.21 | | | | Form of Tax Agreement by and between Tyco International Ltd. and CIT (incorporated by reference to Exhibit 10.27 to Amendment No. 2 to the Registration Statement on Form S-1 filed June 12, 2002). |
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| 10.22* | | | | Amended and Restated Employment Agreement, dated as of May 7, 2008, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.35 to Form 10-K filed March 2, 2009). |
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| 10.23* | | | | Extension of Term of Employment Agreement, dated as of November 24, 2008, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.36 to Form 10-K filed March 2, 2009). |
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| 10.24* | | | | Amendment to Employment Agreement, dated December 22, 2008, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.37 to Form 10-K filed March 2, 2009). |
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| 10.25* | | | | Extension of Term of Employment Agreement, dated December 21, 2009, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.24 to Form 10-K filed March 16, 2010). |
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| 10.26* | | | | Extension of Term of Employment Agreement, dated March 14, 2011, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.30 of Form 10-Q filed August 9, 2011). |
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| 10.27* | | | | Letter Agreement, dated April 21, 2010, between CIT Group Inc. and Nelson J. Chai (incorporated by reference to Exhibit 10.31 of Form 10-Q filed August 9, 2011). |
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| 10.28* | | | | Letter Agreement, dated April 8, 2010, between CIT Group Inc. and Lisa K. Polsky (incorporated by reference to Exhibit 10.32 of Form 10-Q filed August 9, 2011). |
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| 10.29 | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Good Reason) (incorporated by reference to Exhibit 10.33 of Form 10-Q filed August 9, 2011). |
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| 10.30 | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (without Good Reason) (incorporated by reference to Exhibit 10.34 of Form 10-Q filed August 9, 2011). |
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| 10.31** | | | | Airbus A320 NEO Family Aircraft Purchase Agreement, dated as of July 28, 2011, between Airbus S.A.S. and C.I.T. Leasing Corporation (incorporated by reference to Exhibit 10.35 of Form 10-Q/A filed February 1, 2012). |
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| 10.32** | | | | Amended and Restated Confirmation, dated June 28, 2012, between CIT TRS Funding B.V. and Goldman Sachs International, and Credit Support Annex and ISDA Master Agreement and Schedule, each dated October 26, 2011, between CIT TRS Funding B.V. and Goldman Sachs International, evidencing a $625 billion securities based financing facility. |
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| 10.33** | | | | Third Amended and Restated Confirmation, dated June 28, 2012, between CIT Financial Ltd. and Goldman Sachs International, and Amended and Restated ISDA Master Agreement Schedule, dated October 26, 2011 between CIT Financial Ltd. and Goldman Sachs International, evidencing a $1.5 billion securities based financing facility. |
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| 10.34** | | | | ISDA Master Agreement and Credit Support Annex, each dated June 6, 2008, between CIT Financial Ltd. and Goldman Sachs International related to a $1.5 billion securities based financing facility (incorporated by reference to Exhibit 10.34 to Form 10-Q filed August 11, 2008). |
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| 10.35* | | | | Letter Agreement, dated February 24, 2012, between CIT Group Inc. and Andrew T. Brandman (incorporated by reference to Exhibit 99.2 of Form 8-K dated filed April 12, 2012). |
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| 10.36 | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Stock Unit Award Agreement (with Good Reason) (incorporated by reference to Exhibit 10.36 to Form 10-K filed May 10, 2012). |
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| 10.37 | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Stock Unit Award Agreement (without Good Reason) (incorporated by reference to Exhibit 10.37 to Form 10-K filed May 10, 2012). |
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| 10.38 | | | | Extension of Term of Employment Agreement, dated March 28, 2012, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.38 to Form 10-K filed May 10, 2012). |
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| 12.1 | | | | CIT Group Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges. |
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| 31.1 | | | | Certification of John A. Thain pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Commission, as promulgated pursuant to Section 13(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2 | | | | Certification of Scott T. Parker pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Commission, as promulgated pursuant to Section 13(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1*** | | | | Certification of John A. Thain pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Item 6: Exhibits 97
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| 32.2*** | | | | Certification of Scott T. Parker pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 99.1 | | | | Senior Intercreditor and Subordination Agreement, dated as of December 10, 2009, among Bank of America, N.A., as First Lien Credit Facility Representative and First Lien Agent, Deutsche Bank Trust Company of America, as Series A Representative and Series A Collateral Agent and as Series B Representative and Series B Collateral Agent, CIT Group Funding Company of Delaware, LLC, as CIT Leasing Secured Party, and CIT Group Inc. and certain of its subsidiaries, as obligors (incorporated by reference to Exhibit 99.1 to Form 8-K/A filed May 13, 2010). |
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| 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 September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.) |
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| 101.SCH | | | | XBRL Taxonomy Extension Schema Document. |
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| 101.CAL | | | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.LAB | | | | XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE | | | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 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 9, 2012 | | | | CIT GROUP INC. |
| | | | | /s/ Scott T. Parker |
| | | | | Scott T. Parker |
| | | | | Executive Vice President and Chief Financial Officer |
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| | | | | /s/ E. Carol Hayles |
| | | | | E. Carol Hayles |
| | | | | Executive Vice President and Controller |
Item 6: Exhibits 99
