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.
CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events like unanticipated funding obligations, such as customer line draws, or disruptions to capital markets or other funding sources. In addition to its unrestricted cash, short-term investments and portfolio cash inflows, liquidity sources include:
Asset liquidity is further enhanced by our ability to sell or syndicate portfolio assets in secondary markets, which also enables us to manage credit exposure, and to pledge assets to access secured borrowing facilities through the Federal Home Loan Banks (“FHLB”) and FRB.
Cash and short-term investment securities totaled $8.6 billion at March 31, 2014 ($6.8 billion of cash and $1.8 billion of short-term investments), up from $7.6 billion at December 31, 2013. Cash and short-term investment securities at March 31, 2014 consisted of $3.0 billion related to the bank holding company and $2.4 billion at the Bank with the remainder comprised of cash at operating subsidiaries and in restricted balances, of which $1.3 billion of cash in restricted balances was used to repay maturing unsecured debt on April 1, 2014.
Included in short-term investment securities are U.S. Treasury bills, Government Agency bonds, and other highly-rated securities, which were classified as AFS and most of which had maturity dates of approximately 90 days or less as of the investment date.
The weighted average coupon rates on outstanding deposits and long-term borrowings rose slightly to 3.09% at March 31, 2014 from 3.07% at December 31, 2013 and down from 3.13% at March 31, 2013, reflecting the $1 billion unsecured issuance in February 2014 and a slight increase in the weighted average interest rate on deposits. Transactions in the second quarter will impact the rates and funding mix, such as the repayment of $1.3 billion of 5.25% unsecured notes on April 1, 2014 and the extinguishment of $3.2 billion of secured debt upon the sale of the student lending business on April 25, 2014. Our pro-forma weighted average coupon rate including these items would have been 3.25% at March 31, 2014. The following table reflects our long term targeted funding mix:
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Deposits
We continued to grow deposits during the quarter to fund our bank lending and leasing activities.
Deposits totaled $13.2 billion at March 31, 2014, up from $12.5 billion at December 31, 2013 and $10.7 billion at March 31, 2013. The weighted average interest rate on deposits was 1.67% at March 31, 2014, 1.65% at December 31, 2013 and 1.71% at March 31, 2013.
The following table details our deposits by type:
Deposits (dollars in millions)
| | | | March 31,
2014
| | December 31,
2013
|
|---|
| Online deposits | | | | $ | 6,723.1 | | | $ | 6,117.5 | |
| Brokered CDs / sweeps | | | | | 5,483.6 | | | | 5,365.4 | |
Other(1) | | | | | 982.6 | | | | 1,043.6 | |
| Total | | | | $ | 13,189.3 | | | $ | 12,526.5 | |
(1) | | Other primarily includes a deposit sweep arrangement related to Healthcare Savings Accounts and deposits at our Brazil bank. |
Long-term Borrowings – Unsecured
Revolving Credit Facility
The Revolving Credit Facility was amended in January 2014 to reduce the total commitment amount from $2.0 billion to $1.5 billion and to extend the maturity date of the commitment to January 27, 2017. The total commitment amount now consists of a $1.15 billion revolving loan tranche and a $350 million revolving loan tranche that can also be utilized for issuance of letters of credit. The applicable margin charged under the facility was unchanged; 2.50% for LIBOR loans and 1.50% for Base Rate loans. Further improvement in CIT’s long-term senior unsecured debt ratings to either BB by S&P or Ba2 by Moody’s would result in a reduction in the applicable margin to 2.25% for LIBOR-based loans and to 1.25% for Base Rate loans.
At March 31, 2014, no amounts were drawn under the Revolving Credit Facility. However, there was approximately $0.1 billion utilized for the issuance of letters of credit. Any amounts drawn under the facility will be used for general corporate purposes.
The Revolving Credit Facility is unsecured and is guaranteed by eight of the Company’s domestic operating subsidiaries. The facility was amended to modify the covenant requiring a minimum guarantor asset coverage ratio and the criteria for calculating the ratio. The amended covenant requires a minimum guarantor asset coverage ratio ranging from 1.25:1.0 to the current requirement of 1.5:1.0 depending on the Company’s long-term senior unsecured debt rating. At March 31, 2014, the reported asset coverage ratio was 2.79x.
Senior Unsecured Notes and Series C Unsecured Notes
At March 31, 2014, we had outstanding $13.5 billion of unsecured notes, compared to $12.5 billion at December 31, 2013 and $11.8 billion at March 31, 2013. On February 19, 2014, CIT issued, at par value, $1 billion aggregate principal amount of senior unsecured notes due 2019 that bear interest at a per annum rate of 3.875%. On April 1, 2014, we repaid $1.3 billion of maturing 5.25% unsecured notes.
SeeNote 5 — Long-term Borrowings for further detail.
Long-term Borrowings – Secured
Secured borrowings totaled $9.1 billion at March 31, 2014 and $9.2 billion at December 31, 2013. In April 2014, we sold the student lending business and extinguished $3.2 billion of debt secured by the student loans.
During the quarter CIT renewed a CAD 250 million committed multi-year conduit facility that allows the Canadian Equipment Finance business to fund both existing assets and new originations at attractive terms.
As part of our liquidity management strategy: we may pledge assets to secure financing transactions (which include securitizations), to secure borrowings from the FHLB or for other purposes as required or permitted by law. Our secured financing transactions do not meet accounting requirements for sale treatment and are recorded as secured borrowings, with the assets remaining on-balance sheet for GAAP. The debt associated with these transactions is collateralized by receivables, leases and/or equipment. Certain related cash balances are restricted.
The Bank is a member of the FHLB of Seattle and may borrow under lines of credit with FHLB Seattle that are secured by a blanket lien on the Bank’s assets and collateral pledged to FHLB Seattle. At March 31, 2014, no collateral was pledged and no advances were outstanding with FHLB Seattle. A subsidiary of the Bank is a member of FHLB Des Moines and may borrow under lines of credit with FHLB Des Moines that are secured by a blanket lien on the subsidiary’s assets and collateral pledged to FHLB Des Moines. At March 31, 2014, $43.9 million of collateral was pledged and $36.7 million of advances were outstanding with FHLB Des Moines.
SeeNote 5 — Long-Term Borrowings for a table displaying our secured financings and pledged assets.
GSI Facilities
Two financing facilities between two wholly-owned subsidiaries of CIT and Goldman Sachs International (“GSI”) are structured as total return swaps (“TRS”), under
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which amounts available for advances are accounted for as derivatives. Pursuant to applicable accounting guidance, only the unutilized portion of the TRS is accounted for as a derivative and recorded at its estimated fair value. The size of the CIT Financial Ltd. (“CFL”) facility is $1.5 billion and the CIT TRS Funding B.V. (“BV”) facility is $625 million.
At March 31, 2014, a total of $2,840.2 million of assets and $1,746.8 million of secured debt issued to investors was outstanding under the GSI Facilities. After adjustment to the amount of actual qualifying borrowing base under terms of the GSI Facilities, this secured debt provided for usage of $1,541.0 million of the maximum notional amount of the GSI Facilities. The remaining $584.0 million of the maximum notional amount represents the unused portion of the GSI Facilities and constitutes the notional amount of derivative financial instruments. An unsecured counterparty receivable of $559.5 million 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 March 31, 2014.
Based on the Company’s valuation, we recorded a liability of $11.4 million at March 31, 2014 and $9.7 million at December 31, 2013. We also recognized $1.7 million as a reduction to Other Income in the first quarter associated with the change in liability.
In April 2014, the Company sold its student loan assets and extinguished the debt secured by these loans. Approximately $0.8 billion of the extinguished debt served as reference obligations under the TRS. The extinguishment of this debt increases the unfunded portion of the TRS and thus increases the derivative. Management is structuring additional transactions that will utilize the facility and expects the transactions to close in either the second or third quarter.
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, |
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 asset-backed securities. |
SeeNote 6 — Derivative Financial Instruments for further information.
Debt Ratings
Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company’s liquidity and financial condition.
Our debt ratings at March 31, 2014 as rated by Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Service (“Moody’s”) and Dominion Bond Rating Service (“DBRS”) are presented in the following table and were unchanged from December 31, 2013.
Debt Ratings as of March 31, 2014
| | | | S&P
Ratings
Services
| | Moody’s
Investors
Service
| | DBRS
|
|---|
| Issuer / Counterparty Credit Rating | | | | BB- | | Ba3 | | BB |
| Revolving Credit Facility Rating | | | | BB- | | Ba3 | | BBB (Low) |
| Series C Notes / Senior Unsecured Debt Rating | | | | BB- | | Ba3 | | BB |
| Outlook | | | | Positive | | Stable | | Positive |
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 of Cash in Foreign Subsidiaries
Cash and short term investments held by foreign subsidiaries, including cash available to the BHC and restricted cash, totaled $1.8 billion at March 31, 2014, unchanged from December 31, 2013.
Other than in a limited number of jurisdictions, Management does not intend to indefinitely reinvest foreign earnings.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 67
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Contractual Payments and Commitments
The following tables summarize significant contractual payments and contractual commitment expirations at March 31, 2014. Certain amounts in the payments table are not the same as the respective balance sheet totals, because this table is based on contractual amounts and excludes FSA discounts, in order to better reflect projected contractual payments. Likewise, actual cash flows could vary materially from those depicted in the payments table as further explained in the table footnotes.
Payments for the Twelve Months Ended March 31(1) (dollars in millions)
| | Total
| | 2015
| | 2016
| | 2017
| | 2018
| | 2019+
|
|---|
Secured borrowings – excluding student loan debt(2) | | $ | 6,007.8 | | | $ | 1,192.8 | | | $ | 1,524.9 | | | $ | 833.2 | | | $ | 511.9 | | | $ | 1,945.0 | |
Secured borrowings – student loan debt(2)(3) | | | 3,390.1 | | | | 151.1 | | | | 193.6 | | | | 193.4 | | | | 208.7 | | | | 2,643.3 | |
| Senior unsecured | | | 13,551.8 | | | | 2,800.5 | | | | – | | | | – | | | | 4,500.0 | | | | 6,251.3 | |
Total Long-term borrowings | | | 22,949.7 | | | | 4,144.4 | | | | 1,718.5 | | | | 1,026.6 | | | | 5,220.6 | | | | 10,839.6 | |
| Deposits | | | 13,190.7 | | | | 5,730.9 | | | | 2,287.1 | | | | 821.1 | | | | 2,034.7 | | | | 2,316.9 | |
| Credit balances of factoring clients | | | 1,213.5 | | | | 1,213.5 | | | | – | | | | – | | | | – | | | | – | |
| Lease rental expense | | | 178.9 | | | | 60.1 | | | | 26.1 | | | | 22.8 | | | | 21.9 | | | | 48.0 | |
Total contractual payments | | $ | 37,532.8 | | | $ | 11,148.9 | | | $ | 4,031.7 | | | $ | 1,870.5 | | | $ | 7,277.2 | | | $ | 13,204.5 | |
(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. |
(3) | | In April 2014, the Company sold the student loan business and the debt secured by the loans was extinguished. |
$1.3 billion of unsecured debt with a coupon rate of 5.25% matured and was paid on April 1, 2014, while another $1.5 billion principal balance with a coupon rate of 4.75% comes due in February 2015.
Commitment Expiration by Twelve Month Periods Ended March 31 (dollars in millions)
| | | | Total
| | 2015
| | 2016
| | 2017
| | 2018
| | 2019+
|
|---|
| Financing commitments | | | | $ | 4,536.2 | | | $ | 970.1 | | | $ | 315.6 | | | $ | 1,173.7 | | | $ | 911.5 | | | $ | 1,165.3 | |
Aerospace equipment purchase commitments(1) | | | | | 8,936.6 | | | | 1,211.4 | | | | 941.5 | | | | 735.0 | | | | 1,450.3 | | | | 4,598.4 | |
| Rail and other equipment purchase commitments | | | | | 1,180.5 | | | | 771.0 | | | | 409.5 | | | | – | | | | – | | | | – | |
| Letters of credit | | | | | 384.5 | | | | 66.0 | | | | 5.3 | | | | 93.0 | | | | 60.5 | | | | 159.7 | |
| Deferred purchase agreements | | | | | 1,681.5 | | | | 1,681.5 | | | | – | | | | – | | | | – | | | | – | |
| Guarantees, acceptances and other recourse obligations | | | | | 2.5 | | | | 2.5 | | | | – | | | | – | | | | – | | | | – | |
Liabilities for unrecognized tax obligations(2) | | | | | 320.3 | | | | 5.0 | | | | 315.3 | | | | – | | | | – | | | | – | |
| Total contractual commitments | | | | $ | 17,042.1 | | | $ | 4,707.5 | | | $ | 1,987.2 | | | $ | 2,001.7 | | | $ | 2,422.3 | | | $ | 5,923.4 | |
(1) | | Aerospace commitments are net of amounts on deposit with manufacturers. |
(2) | | The balance cannot be estimated past 2016; therefore the remaining balance is reflected in 2016. |
Financing commitments increased from $4.3 billion at December 31, 2013 to $4.5 billion at March 31, 2014. This includes commitments that have been extended to and accepted by customers or agents, but on which the criteria for funding have not been completed of $804 million at March 31, 2014 and $548 million at December 31, 2013. Also included are Commercial Services credit line agreements with an amount available, net of amount of receivables assigned to us, of $214 million at March 31, 2014 and $157 million at December 31, 2013.
At March 31, 2014, substantially all our undrawn financing commitments were senior facilities, with approximately 80% 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 $389 million at March 31, 2014.
The table above includes approximately $1.0 billion of undrawn financing commitments at March 31, 2014 and $0.9 billion at December 31, 2013 that were not in compliance with contractual obligations, and therefore CIT does not have the contractual obligation to lend.
Capital Management
CIT manages its capital position to ensure capital is adequate to support the risks of its businesses and capital distributions to its shareholders. CIT’s capital management is discussed in its Form 10-K for the year ended December 31, 2013.
Return of Capital
In January 2014, the Board of Directors declared a quarterly cash dividend of $0.10 per share, which was paid on February 28, 2014, and approved the repurchase of up to $307 million of common stock through December 31, 2014, which included the amount that was not used from the 2013 share repurchase. During the 2014 first quarter, we
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repurchased over 2.9 million shares at an average price of $46.66 per share, totaling nearly $136 million. In April 2014, we repurchased nearly 1.6 million shares, bringing the year-to-date amount through April to approximately $210 million. The repurchases were effected via open market purchases and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.
In April 2014, the Board of Directors declared a quarterly cash dividend of $0.10 per share payable on May 30, 2014 and authorized an additional share repurchase of up to $300 million of common stock through December 31, 2014, bringing the total authorization for 2014 to $607 million.
Capital Composition and Ratios
The Company is subject to various regulatory capital requirements. The regulatory capital guidelines currently applicable to the Company are based on the 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 be 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, the 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 the event that management reverses any of our NOL valuation allowance, there will be a benefit to GAAP earnings but minimal impact on our regulatory capital ratios. While total stockholders’ equity in the following table would increase, there would also be an increase in the amount of disallowed deferred taxes in the Other Tier 1 components, which would offset most of the benefit with respect to Tier 1 and Total Capital.
Tier 1 Capital and Total Capital Components (dollars in millions)
Tier 1 Capital
| | | | March 31,
2014
| | December 31,
2013
|
|---|
| Total stockholders’ equity | | | | $ | 8,796.0 | | | $ | 8,838.8 | |
| Effect of certain items in accumulated other comprehensive loss excluded from Tier 1 Capital | | | | | 22.3 | | | | 24.2 | |
| Adjusted total equity | | | | | 8,818.3 | | | | 8,863.0 | |
Less: Goodwill(1) | | | | | (407.2 | ) | | | (338.3 | ) |
| Disallowed intangible assets | | | | | (18.2 | ) | | | (20.3 | ) |
| Investment in certain subsidiaries | | | | | (31.0 | ) | | | (32.3 | ) |
Other Tier 1 components(2) | | | | | (28.5 | ) | | | (32.6 | ) |
| Tier 1 Capital | | | | | 8,333.4 | | | | 8,439.5 | |
Tier 2 Capital | | | | | | | | | | |
Qualifying reserve for credit losses and other reserves(3) | | | | | 383.6 | | | | 383.9 | |
| Less: Investment in certain subsidiaries | | | | | (31.0 | ) | | | (32.3 | ) |
Other Tier 2 components(4) | | | | | 0.2 | | | | 0.1 | |
| Total qualifying capital | | | | $ | 8,686.2 | | | $ | 8,791.2 | |
| Risk-weighted assets | | | | $ | 51,752.3 | | | $ | 50,571.2 | |
BHC Ratios | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.1 | % | | | 16.7 | % |
| Total Capital Ratio | | | | | 16.8 | % | | | 17.4 | % |
| Tier 1 Leverage Ratio | | | | | 17.5 | % | | | 18.1 | % |
CIT Bank Ratios | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.1 | % | | | 16.8 | % |
| Total Capital Ratio | | | | | 17.4 | % | | | 18.1 | % |
| Tier 1 Leverage Ratio | | | | | 15.9 | % | | | 16.9 | % |
(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, qualifying noncontrolling minority interests 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. |
For a BHC, capital adequacy is based upon risk-weighted asset ratios calculated in accordance with quantitative measures established by the Federal Reserve. Under the Basel 1 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).
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Table of Contents
The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets (dollars in millions)
| | | | March 31,
2014
| | December 31,
2013
|
|---|
| Balance sheet assets | | | | $ | 48,578.1 | | | $ | 47,139.0 | |
| Risk weighting adjustments to balance sheet assets | | | | | (10,526.1 | ) | | | (10,328.1 | ) |
Off balance sheet items(1) | | | | | 13,700.3 | | | | 13,760.3 | |
| Risk-weighted assets | | | | $ | 51,752.3 | | | $ | 50,571.2 | |
(1) | | 2014 primarily reflects commitments to purchase aircraft and rail ($9.9 billion), unused lines of credit ($1.7 billion largely related to Corporate Finance division) and deferred purchase agreements ($1.7 billion related to Commercial Services division). |
See the “Regulation” section of Item 1 Business Overview for further detail regarding regulatory matters, including“Capital Requirements” and“Leverage Requirements”.
Future Regulatory Capital Guidelines
On April 15, 2014, the Basel Committee on Banking Supervision (“BCBS”) released the final standard of its “Supervisory Framework for Measuring and Controlling Large Exposures” (“SFLE”), which will take effect on January 1, 2019, and replace the BCBS 1991 standard on measuring and controlling large exposures. SFLE includes a general limit on all of a bank’s exposures to a single counterparty of 25% of a bank’s Tier 1 Capital. This limit also applies to identified groups of connected counterparties, which are interdependent and likely to fail simultaneously. A tighter limit of 15% of Tier 1 Capital will apply to exposures between banks that have been designated as global systematically important banks (GSIBs).
We described in detail in the “Regulation” section of Item 1 Business Overview in our 2013 Form 10-K details regarding Basel III and other regulatory matters. A brief summary follows:
In July 2013, the Board of Governors of the Federal Reserve and the Federal Deposit Insurance Corporation issued a final rule (“Basel III Final Rule”) implementing revised risk-based capital and leverage requirements for banking organizations proposed under Basel III. CIT, as well as the Bank, will be subject to the Basel III Final Rule as of January 1, 2015.
Among other matters, the Basel III Final Rule: (i) introduces a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandates that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expands the scope of the deductions from and adjustments to capital as compared to existing regulations. For most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes, which will be subject to the Basel III Final Rule specific requirements. CIT does not currently have either of these forms of capital outstanding.
The Basel III Final Rule also introduces a new “capital conservation buffer”, composed entirely of CET1, on top of these minimum risk-weighted asset ratios, which excludes the Tier 1 leverage ratio. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.
Per the Basel III final rule, 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
| | Leverage Ratio
|
|---|
| Stated minimum Ratio | | | | | 4.5 | % | | | 6.0 | % | | | 8.0 | % | | | 4.0 | % |
| Capital conservation buffer | | | | | 2.5 | % | | | 2.5 | % | | | 2.5 | % | | | NA | |
| Effective minimum ratio | | | | | 7.0 | % | | | 8.5 | % | | | 10.5 | % | | | 4.0 | % |
With respect to the Bank, the Basel III Final Rule revises the “prompt corrective action” (“PCA”) regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act, by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1
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capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Final Rule does not change the total risk-based capital requirement for any PCA category.
At March 31, 2014, CIT’s and the Bank’s capital ratios and capital composition exceed the post-transition minimum capital requirements at January 2019. CIT’s capital stock is substantially all Tier 1 Common equity and generally does not include non-qualifying capital instruments subject to transitional deductions. Both CIT and the Bank are subject to a minimum Tier 1 Leverage ratio of 4%. We continue to believe that, as of March 31, 2014, CIT and the Bank would meet all capital requirements under the Basel III Final Rule, including the capital conservation buffer, on a fully phased-in basis as if such requirements were currently effective. As non-advanced approaches banking organizations, CIT and the Bank will not be subject to the Countercyclical Buffer or the supplementary leverage ratio.
Tangible Book Value and Tangible Book Value per Share
Tangible book value represents common equity less goodwill and other intangible assets. A reconciliation of CIT’s total common stockholders’ equity to tangible book value, a non-GAAP measure, follows:
Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts)
| | | | March 31,
2014
| | December 31,
2013
|
|---|
| Total common stockholders’ equity | | | | $ | 8,796.0 | | | $ | 8,838.8 | |
| Less: Goodwill | | | | | (403.5 | ) | | | (334.6 | ) |
| Intangible assets | | | | | (18.2 | ) | | | (20.3 | ) |
| Tangible book value | | | | $ | 8,374.3 | | | $ | 8,483.9 | |
| Book value per share | | | | $ | 45.10 | | | $ | 44.78 | |
| Tangible book value per share | | | | $ | 42.94 | | | $ | 42.98 | |
Tangible book value (“TBV”) was down, as the increase in shares repurchased and held in treasury and the goodwill recorded with the Nacco acquisition offset the increase due to net income. TBV per share declined slightly, as the benefits of a decline in outstanding shares and net income were offset by the cost of shares repurchased and the additional goodwill. Book value per share increased as the decline in outstanding shares offset the decrease in common equity.
The Bank is a state-chartered commercial bank headquartered in Salt Lake City, Utah, that is subject to regulation and examination by the FDIC and the UDFI and is our principal bank subsidiary. The Bank originates and funds lending and leasing activity in the U.S. for CIT’s segments. Asset growth during 2014 reflected solid lending and leasing volume. Deposits grew in support of the increased business. The Bank’s capital and leverage ratios are included in the tables that follow and remain well above required levels.
As detailed in the following Consolidated Balance Sheet table, total assets increased to $16.8 billion, up $0.7 billion from December 31, 2013, related to growth in financing and leasing assets. Cash and deposits with banks was $2.4 billion at March 31, 2014, down slightly from December 31, 2013.
Commercial loans totaled $12.6 billion at March 31, 2014, up from $12.0 billion at December 31, 2013. The increase reflects solid new business activity. The Bank funded $1.7 billion of new business volume during 2014, up 10% from the year-ago quarter and down 22% sequentially. Most of the volume, $1.2 billion, related to NACF, which included various divisions, as well as real estate finance. The remaining amount funded aerospace, rail and maritime transactions in TIF. The Bank also expanded its portfolio of operating lease equipment, which totaled $1.5 billion at March 31, 2014 and comprised primarily of railcars, and now includes aircraft.
CIT Bank deposits were $13.1 billion at March 31, 2014, up from $12.5 billion at December 31, 2013. The weighted average interest rate was 1.58% at March 31, 2014, up slightly from December 31, 2013.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 71
Table of Contents
The following presents condensed financial information for CIT Bank.
Condensed Balance Sheets (dollars in millions)
| | | | March 31,
2014
| | December 31,
2013
|
|---|
ASSETS: | | | | | | | | | | |
| Cash and deposits with banks | | | | $ | 2,377.2 | | | $ | 2,528.6 | |
| Investment securities | | | | | 236.4 | | | | 234.6 | |
| Assets held for sale | | | | | 95.0 | | | | 104.5 | |
| Commercial loans | | | | | 12,562.0 | | | | 12,032.6 | |
| Allowance for loan losses | | | | | (223.3 | ) | | | (212.9 | ) |
| Operating lease equipment, net | | | | | 1,530.6 | | | | 1,248.9 | |
| Other assets | | | | | 188.5 | | | | 195.0 | |
Total Assets | | | | $ | 16,766.4 | | | $ | 16,131.3 | |
LIABILITIES AND EQUITY: | | | | | | | | | | |
| Deposits | | | | $ | 13,129.8 | | | $ | 12,496.2 | |
| Long-term borrowings | | | | | 762.5 | | | | 854.6 | |
| Other liabilities | | | | | 244.8 | | | | 183.9 | |
Total Liabilities | | | | | 14,137.1 | | | | 13,534.7 | |
Total Equity | | | | | 2,629.3 | | | | 2,596.6 | |
Total Liabilities and Equity | | | | $ | 16,766.4 | | | $ | 16,131.3 | |
Capital Ratios | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.1 | % | | | 16.8 | % |
| Total Capital Ratio | | | | | 17.4 | % | | | 18.1 | % |
| Tier 1 Leverage ratio | | | | | 15.9 | % | | | 16.9 | % |
Financing and Leasing Assets by Segment (dollars in millions) | | | | | | | | | | |
| North American Commercial Finance | | | | $ | 11,105.6 | | | $ | 10,701.1 | |
| Transportation and International Finance | | | | | 3,006.2 | | | | 2,606.8 | |
| Non-Strategic Portfolios | | | | | 75.8 | | | | 78.1 | |
| Total | | | | $ | 14,187.6 | | | $ | 13,386.0 | |
Condensed Statements of Operations (dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
| Interest income | | | | $ | 157.8 | | | $ | 149.0 | | | $ | 122.8 | |
| Interest expense | | | | | (51.4 | ) | | | (47.4 | ) | | | (39.3 | ) |
| Net interest revenue | | | | | 106.4 | | | | 101.6 | | | | 83.5 | |
| Provision for credit losses | | | | | (24.8 | ) | | | (25.3 | ) | | | (21.0 | ) |
| Net interest revenue, after credit provision | | | | | 81.6 | | | | 76.3 | | | | 62.5 | |
| Rental income on operating leases | | | | | 45.8 | | | | 35.2 | | | | 20.4 | |
| Other income | | | | | 27.0 | | | | 33.7 | | | | 27.4 | |
| Total net revenue, net of interest expense and credit provision | | | | | 154.4 | | | | 145.2 | | | | 110.3 | |
| Operating expenses | | | | | (85.4 | ) | | | (73.2 | ) | | | (67.5 | ) |
| Depreciation on operating lease equipment | | | | | (18.2 | ) | | | (14.7 | ) | | | (7.2 | ) |
| Income before provision for income taxes | | | | | 50.8 | | | | 57.3 | | | | 35.6 | |
| Provision for income taxes | | | | | (17.8 | ) | | | (19.9 | ) | | | (14.6 | ) |
Net income | | | | $ | 33.0 | | | $ | 37.4 | | | $ | 21.0 | |
New business volume – funded | | | | $ | 1,660.4 | | | $ | 2,141.7 | | | $ | 1,513.2 | |
The Bank’s 2014 results benefited from higher earning assets. The Bank’s provision for credit losses reflects continued growth in loans, while credit metrics remain at or near cyclical lows. For the quarter ended March 31, 2014, net charge-offs as a percentage of average finance receivables were 0.47%, up from 0.13% in each of the year-ago quarter and prior quarter.
Other income in 2014 was down from the year-ago and prior quarters reflecting lower fee revenue. Operating expenses increased reflecting increased Bank activities.
72 CIT GROUP INC
Table of Contents
Net Finance Revenue (dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
| Interest income | | | | $ | 157.8 | | | $ | 149.0 | | | $ | 122.8 | |
| Rental income on operating leases | | | | | 45.8 | | | | 35.2 | | | | 20.4 | |
| Finance revenue | | | | | 203.6 | | | | 184.2 | | | | 143.2 | |
| Interest expense | | | | | (51.4 | ) | | | (47.4 | ) | | | (39.3 | ) |
| Depreciation on operating lease equipment | | | | | (18.2 | ) | | | (14.7 | ) | | | (7.2 | ) |
| Maintenance and other operating lease expenses* | | | | | (1.8 | ) | | | (1.1 | ) | | | (0.8 | ) |
| Net finance revenue | | | | $ | 132.2 | | | $ | 121.0 | | | $ | 95.9 | |
| Average Earning Assets (“AEA”) | | | | $ | 13,832.5 | | | $ | 12,540.8 | | | $ | 9,467.5 | |
As a % of AEA: |
| Interest income | | | | | 4.56 | % | | | 4.75 | % | | | 5.19 | % |
| Rental income on operating leases | | | | | 1.33 | % | | | 1.13 | % | | | 0.86 | % |
| Finance revenue | | | | | 5.89 | % | | | 5.88 | % | | | 6.05 | % |
| Interest expense | | | | | (1.49 | )% | | | (1.51 | )% | | | (1.66 | )% |
| Depreciation on operating lease equipment | | | | | (0.52 | )% | | | (0.47 | )% | | | (0.30 | )% |
| Maintenance and other operating lease expenses | | | | | (0.05 | )% | | | (0.04 | )% | | | (0.04 | )% |
| Net finance revenue | | | | | 3.83 | % | | | 3.86 | % | | | 4.05 | % |
* | | Amounts included in CIT Bank operating expenses. |
NFR and NFR as a percentage of AEA (“NFM”) are key metrics used by management to measure the profitability of our lending and leasing assets. NFR includes interest and fee income on our loans and capital leases, interest and dividend income on cash and investments, rental revenue and depreciation from our leased equipment, as well as funding costs. Since our asset composition includes an increasing level of operating lease equipment, NFM is a more appropriate metric for CIT than net interest margin (“NIM”) (a common metric used by other banks), as NIM does not fully reflect the earnings of our portfolio because it includes the impact of debt costs on all our assets but excludes the net revenue (rental income less depreciation and maintenance and other operating lease expenses) from operating leases.
NFR and AEA increased on asset growth. During the first quarter of 2014, the Bank grew its operating lease portfolio, by adding aircraft and railcars which contributed net operating lease revenue of $26 million, up from $12 million in the year-ago quarter and $19 million in the prior quarter.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 73
Table of Contents
SELECT DATA AND AVERAGE BALANCESThe following table sets forth selected consolidated financial information regarding our results of operations, balance sheets and certain ratios.
Select Data (dollars in millions)
| | | | At or for the Quarters Ended
|
|---|
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
Select Statement of Operations Data | | | | | | | | | | | | | | |
| Net interest revenue | | | | $ | 32.4 | | | $ | 52.0 | | | $ | 64.8 | |
| Provision for credit losses | | | | | (36.7 | ) | | | (14.4 | ) | | | (19.5 | ) |
| Total non-interest income | | | | | 566.1 | | | | 591.7 | | | | 546.5 | |
| Total other expenses | | | | | (436.1 | ) | | | (466.0 | ) | | | (411.0 | ) |
| Net income | | | | | 117.2 | | | | 129.9 | | | | 162.6 | |
Per Common Share Data | | | | | | | | | | | | | | |
| Diluted income per common share | | | | $ | 0.59 | | | $ | 0.65 | | | $ | 0.81 | |
| Book value per common share | | | | $ | 45.10 | | | $ | 44.78 | | | $ | 42.21 | |
| Tangible book value per common share | | | | $ | 42.94 | | | $ | 42.98 | | | $ | 40.35 | |
| Dividends declared per common share | | | | $ | 0.10 | | | $ | 0.10 | | | $ | – | |
Performance Ratios | | | | | | | | | | | | | | |
| Return on average common stockholders’ equity | | | | | 5.3 | % | | | 5.9 | % | | | 7.7 | % |
| Net finance revenue as a percentage of average earning assets | | | | | 3.66 | % | | | 3.95 | % | | | 4.43 | % |
| Return on average total assets | | | | | 0.98 | % | | | 1.11 | % | | | 1.47 | % |
| Total ending equity to total ending assets | | | | | 18.1 | % | | | 18.8 | % | | | 19.1 | % |
Balance Sheet Data | | | | | | | | | | | | | | |
| Loans including receivables pledged | | | | $ | 18,571.7 | | | $ | 18,629.2 | | | $ | 22,120.4 | |
| Allowance for loan losses | | | | | (352.6 | ) | | | (356.1 | ) | | | (386.0 | ) |
| Operating lease equipment, net | | | | | 14,182.4 | | | | 13,035.4 | | | | 12,290.6 | |
| Goodwill | | | | | 403.5 | | | | 334.6 | | | | 345.9 | |
| Total cash and short-term investments | | | | | 8,594.3 | | | | 7,600.2 | | | | 6,941.3 | |
| Total assets | | | | | 48,578.1 | | | | 47,139.0 | | | | 44,563.4 | |
| Deposits | | | | | 13,189.3 | | | | 12,526.5 | | | | 10,701.9 | |
| Total long-term borrowings | | | | | 22,669.1 | | | | 21,750.0 | | | | 21,577.0 | |
| Total common stockholders’ equity | | | | | 8,796.0 | | | | 8,838.8 | | | | 8,494.4 | |
Credit Quality | | | | | | | | | | | | | | |
| Non-accrual loans as a percentage of finance receivables | | | | | 1.18 | % | | | 1.29 | % | | | 1.33 | % |
| Net charge-offs as a percentage of average finance receivables | | | | | 0.76 | % | | | 0.27 | % | | | 0.18 | % |
| Allowance for loan losses as a percentage of finance receivables | | | | | 1.90 | % | | | 1.91 | % | | | 1.74 | % |
Financial Ratios | | | | | | | | | | | | | | |
| Tier 1 Capital Ratio | | | | | 16.1 | % | | | 16.7 | % | | | 16.4 | % |
| Total Capital Ratio | | | | | 16.8 | % | | | 17.4 | % | | | 17.1 | % |
74 CIT GROUP INC
Table of Contents
Quarterly Average Balances(1) and Associated Income (dollars in millions)
| | March 31, 2014
| | December 31, 2013
| | March 31, 2013
|
|---|
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
|
|---|
| Interest bearing deposits | | $ | 5,298.1 | | | $ | 4.6 | | | | 0.35 | % | | $ | 5,660.4 | | | $ | 4.8 | | | | 0.34 | % | | $ | 5,866.9 | | | $ | 3.5 | | | | 0.24 | % |
| Investments | | | 2,499.7 | | | | 4.2 | | | | 0.67 | % | | | 2,338.8 | | | | 3.8 | | | | 0.65 | % | | | 1,536.2 | | | | 2.9 | | | | 0.76 | % |
Loans (including held for sale)(2)(3) |
| U.S. | | | 19,145.9 | | | | 235.5 | | | | 5.27 | % | | | 18,738.9 | | | | 242.0 | | | | 5.56 | % | | | 17,435.4 | | | | 254.5 | | | | 6.27 | % |
| Non-U.S. | | | 3,736.7 | | | | 79.0 | | | | 8.45 | % | | | 3,982.0 | | | | 88.1 | | | | 8.85 | % | | | 4,182.5 | | | | 95.8 | | | | 9.16 | % |
Total loans(2) | | | 22,882.6 | | | | 314.5 | | | | 5.82 | % | | | 22,720.9 | | | | 330.1 | | | | 6.18 | % | | | 21,617.9 | | | | 350.3 | | | | 6.86 | % |
Total interest earning assets /
interest income(2)(3) | | | 30,680.4 | | | | 323.3 | | | | 4.40 | % | | | 30,720.1 | | | | 338.7 | | | | 4.61 | % | | | 29,021.0 | | | | 356.7 | | | | 5.13 | % |
Operating lease equipment, net
(including held for sale)(4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(4) | | | 7,349.6 | | | | 156.2 | | | | 8.50 | % | | | 6,885.6 | | | | 160.7 | | | | 9.34 | % | | | 6,391.2 | | | | 147.4 | | | | 9.23 | % |
Non-U.S.(4) | | | 6,551.2 | | | | 135.3 | | | | 8.26 | % | | | 6,033.3 | | | | 124.6 | | | | 8.26 | % | | | 6,343.4 | | | | 153.3 | | | | 9.67 | % |
Total operating lease equipment, net(4) | | | 13,900.8 | | | | 291.5 | | | | 8.39 | % | | | 12,918.9 | | | | 285.3 | | | | 8.83 | % | | | 12,734.6 | | | | 300.7 | | | | 9.45 | % |
Total earning assets(2) | | | 44,581.2 | | | $ | 614.8 | | | | 5.68 | % | | | 43,639.0 | | | $ | 624.0 | | | | 5.90 | % | | | 41,755.6 | | | $ | 657.4 | | | | 6.48 | % |
| Non-interest earning assets |
| Cash due from banks | | | 1,055.0 | | | | | | | | | | | | 730.5 | | | | | | | | | | | | 315.5 | | | | | | | | | |
| Allowance for loan losses | | | (357.8 | ) | | | | | | | | | | | (355.2 | ) | | | | | | | | | | | (378.1 | ) | | | | | | | | |
| All other non-interest earning assets | | | 2,710.8 | | | | | | | | | | | | 2,611.8 | | | | | | | | | | | | 2,597.8 | | | | | | | | | |
Total Average Assets | | $ | 47,989.2 | | | | | | | | | | | $ | 46,626.1 | | | | | | | | | | | $ | 44,290.8 | | | | | | | | | |
| Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | $ | 12,812.2 | | | $ | 51.9 | | | | 1.62 | % | | $ | 12,148.5 | | | $ | 48.5 | | | | 1.60 | % | | $ | 10,199.7 | | | $ | 42.3 | | | | 1.66 | % |
Long-term borrowings(5) | | | 22,252.2 | | | | 239.0 | | | | 4.30 | % | | | 21,558.2 | | | | 238.2 | | | | 4.42 | % | | | 21,794.9 | | | | 249.6 | | | | 4.58 | % |
| Total interest-bearing liabilities | | | 35,064.4 | | | $ | 290.9 | | | | 3.32 | % | | | 33,706.7 | | | $ | 286.7 | | | | 3.40 | % | | | 31,994.6 | | | $ | 291.9 | | | | 3.65 | % |
| Credit balances of factoring clients | | | 1,276.3 | | | | | | | | | | | | 1,346.5 | | | | | | | | | | | | 1,187.3 | | | | | | | | | |
| Other non-interest bearing liabilities | | | 2,829.6 | | | | | | | | | | | | 2,706.7 | | | | | | | | | | | | 2,679.8 | | | | | | | | | |
| Noncontrolling interests | | | 11.1 | | | | | | | | | | | | 10.6 | | | | | | | | | | | | 6.7 | | | | | | | | | |
| Stockholders’ equity | | | 8,807.8 | | | | | | | | | | | | 8,855.6 | | | | | | | | | | | | 8,422.4 | | | | | | | | | |
Total Average Liabilities and
Stockholders’ Equity | | $ | 47,989.2 | | | | | | | | | | | $ | 46,626.1 | | | | | | | | | | | $ | 44,290.8 | | | | | | | | | |
| Net revenue spread | | | | | | | | | | | 2.36 | % | | | | | | | | | | | 2.50 | % | | | | | | | | | | | 2.83 | % |
| Impact of non-interest bearing sources | | | | | | | | | | | 0.63 | % | | | | | | | | | | | 0.69 | % | | | | | | | | | | | 0.77 | % |
Net revenue/yield on earning assets(2) | | | | | | $ | 323.9 | | | | 2.99 | % | | | | | | $ | 337.3 | | | | 3.19 | % | | | | | | $ | 365.5 | | | | 3.60 | % |
(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 and net of Maintenance and other operating lease expenses. |
(5) | | Interest and average rates include FSA accretion, including amounts accelerated due to redemptions or extinguishments, and accelerated original issue discount on debt extinguishment related to the GSI facility. |
Interest income on interest bearing deposits and investment securities was not significant in any of the quarters presented. The decline in average interest bearing deposits reflects the investment of cash in investment securities to earn a higher yield. The vast majority of our investment securities are high quality debt, primarily U.S. Treasury securities, U.S. Government Agency securities, and
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 75
Table of Contents
supranational and foreign government securities that typically mature in 91 days or less.
Average rates on loans and operating lease equipment decreased from the year-ago quarter reflecting compression on portfolio yields across most of our business, sales of higher-yielding portfolios last year, higher suspended depreciation in the prior year, and lower margin-related fees and lower FSA accretion in the first quarter of 2014. The sequential decline was largely driven by suspended FSA income accretion on our student loan business, higher maintenance and operating lease expenses on transportation equipment, and higher interest expense. These items were partially offset by higher revenues on increased earning assets. The consolidated portfolio yield is expected to benefit from the sale in the second quarter of the student loan business, which had a NFM below 1.00%.
Net operating lease revenue was primarily generated from the commercial air and rail portfolios. Net operating lease revenue decreased from the year-ago quarter, as the benefit of increased assets from the growing aerospace and rail portfolios was more than offset by higher depreciation expense and increased maintenance and other operating lease expenses. Rental income increased from the year-ago and prior quarters as did depreciation expense, reflecting the growing portfolio. The increase in maintenance and other operating lease expenses reflects the growing rail portfolio, and aerospace remarketing expenses resulting from the elevated levels of aircraft re-leasing activity in 2014. During the quarter, on average, lease renewal rates in the rail portfolio were re-pricing higher, while the commercial air portfolio has been re-pricing slightly lower, putting pressure on overall rental revenue. These factors are also reflected in the net operating lease revenue as a percent of AOL. The European rail acquisition reduced that portfolio’s yields, as the acquired portfolio’s net yields were lower.
Interest expense was relatively flat compared to the year-ago and prior quarters, but the year-ago quarter included $18 million of accelerated debt FSA accretion and the prior quarter included $5 million of accelerated debt FSA and OID accretion. Interest expense in the 2014 first quarter was up reflecting the February debt issuance in anticipation of the debt repayment on April 1. At March 31, 2014, long-term borrowings included $270 million of remaining FSA discount on secured borrowings (including $226 million secured by student loans, which was extinguished in conjunction with the sale of the student loan business in April 2014).
The weighted average coupon rate of outstanding deposits and long-term borrowings was 3.09% at March 31, 2014, compared to 3.07% at December 31, 2013 and 3.13% at March 31, 2013. We expect this rate to increase upon sale of the student loan business and the extinguishment of the related secured borrowing, which had a weighted average coupon rate of 0.72%, partially offset by the redemption of $1.3 billion of unsecured 5.25% notes. Pro forma for these events, the weighted average coupon rate would have been 3.25% at March 31, 2014. The weighted average coupon rate of long-term borrowings at March 31, 2014 was 3.90%, compared to 3.87% at December 31, 2013 and 3.83% at March 31, 2013.
Deposits represented 37% of the total deposits and long-term borrowing at March 31, 2013, while unsecured debt was 38% and secured debt was 25%. These proportions will change with the repayment of debt related to the student loan business, and will fluctuate in the future depending upon our capital markets activities.
Deposits have increased, both in dollars and proportion of total CIT funding. The weighted average rate of total CIT deposits was 1.67%, 1.65% and 1.71% at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. Deposits and long-term borrowings are discussed in Funding and Liquidity.
The average long-term borrowings balances presented below were 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 accretion, including amounts accelerated due to redemptions or extinguishments and prepayment costs.
Average Daily Long-term Borrowings Balances and Rates (dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31, 2014
| | December 31, 2013
| | March 31, 2013
|
|---|
| | | | Average
Balance
| | Interest
| | Average
Rate
| | Average
Balance
| | Interest
| | Average
Rate
| | Average
Balance
| | Interest
| | Average
Rate
|
|---|
Revolving Credit Facility(1) | | | | $ | – | | | $ | 4.3 | | | | – | | | $ | – | | | $ | 3.8 | | | | – | | | $ | – | | | $ | 3.9 | | | | – | |
| Senior Unsecured Notes | | | | | 12,998.4 | | | | 168.7 | | | | 5.19 | % | | | 12,531.6 | | | | 163.9 | | | | 5.23 | % | | | 11,817.0 | | | | 173.0 | | | | 5.86 | % |
| Secured borrowings | | | | | 9,302.7 | | | | 66.0 | | | | 2.84 | % | | | 9,042.7 | | | | 70.5 | | | | 3.12 | % | | | 9,997.1 | | | | 72.7 | | | | 2.91 | % |
Long-term Borrowings | | | | $ | 22,301.1 | | | $ | 239.0 | | | | 4.29 | % | | $ | 21,574.3 | | | $ | 238.2 | | | | 4.42 | % | | $ | 21,814.1 | | | $ | 249.6 | | | | 4.58 | % |
(1) | | Interest expense and average rate includes Facility commitment fees and amortization of Facility deal costs. |
76 CIT GROUP INC
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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, 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 | | Allowance for Loan Losses |
n | | Fair Value Determination |
n | | Liabilities for Uncertain Tax Positions |
n | | Realizability of Deferred Tax Assets |
There have been no significant changes to the methodologies and processes used in developing estimates relating to these items from those described in our 2013 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.
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 BHCs, and the impact of FSA following our 2009 restructuring, certain financial measures commonly used by other BHCs 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.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 77
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Total Net Revenues(1) and Net Operating Lease Revenues(2)(dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
Total Net Revenue | | | | | | | | | | | | | | |
| Interest income | | | | $ | 323.3 | | | $ | 338.7 | | | $ | 356.7 | |
| Rental income on operating leases | | | | | 491.9 | | | | 463.8 | | | | 476.4 | |
| Finance revenue | | | | | 815.2 | | | | 802.5 | | | | 833.1 | |
| Interest expense | | | | | (290.9 | ) | | | (286.7 | ) | | | (291.9 | ) |
| Depreciation on operating lease equipment | | | | | (148.8 | ) | | | (139.5 | ) | | | (133.3 | ) |
| Maintenance and other operating lease expenses | | | | | (51.6 | ) | | | (39.0 | ) | | | (42.4 | ) |
| Net finance revenue (NFR) | | | | | 323.9 | | | | 337.3 | | | | 365.5 | |
| Other income | | | | | 74.2 | | | | 127.9 | | | | 70.1 | |
Total net revenues | | | | $ | 398.1 | | | $ | 465.2 | | | $ | 435.6 | |
Net Operating Lease Revenue | | | | | | | | | | | | | | |
| Rental income on operating leases | | | | $ | 491.9 | | | $ | 463.8 | | | $ | 476.4 | |
| Depreciation on operating lease equipment | | | | | (148.8 | ) | | | (139.5 | ) | | | (133.3 | ) |
| Maintenance and other operating lease expenses | | | | | (51.6 | ) | | | (39.0 | ) | | | (42.4 | ) |
Net operating lease revenue | | | | $ | 291.5 | | | $ | 285.3 | | | $ | 300.7 | |
Adjusted NFR ($) and Net Finance Margin (NFM) (%) (dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31, 2014
| | December 31, 2013
| | March 31, 2013
|
|---|
| NFR / NFM | | | | $ | 323.9 | | | | 3.66 | % | | $ | 337.3 | | | | 3.95 | % | | $ | 365.5 | | | | 4.43 | % |
| Accelerated FSA net discount/(premium) on debt extinguishments and repurchases | | | | | – | | | | – | | | | 9.8 | | | | 0.11 | % | | | 17.8 | | | | 0.21 | % |
| Accelerated OID on debt extinguishments related to the GSI facility | | | | | – | | | | – | | | | (5.2 | ) | | | (0.06 | )% | | | – | | | | – | |
| Adjusted NFR / NFM | | | | $ | 323.9 | | | | 3.66 | % | | $ | 341.9 | | | | 4.00 | % | | $ | 383.3 | | | | 4.64 | % |
The accelerated debt FSA accretion and accelerated OID on debt extinguishment related to the GSI facility (“accelerated OID accretion”), when discussed in combination, is referred to as “accelerated debt FSA and OID accretion”.
Operating Expenses Excluding Restructuring Costs(3)(dollars in millions)
| | | | Quarters Ended
|
|---|
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
| Operating expenses | | | | $ | (235.7 | ) | | $ | (287.5 | ) | | $ | (235.3 | ) |
| Provision for severance and facilities exiting activities | | | | | 9.9 | | | | 18.5 | | | | 5.7 | |
| Operating expenses excluding restructuring costs | | | | $ | (225.8 | ) | | $ | (269.0 | ) | | $ | (229.6 | ) |
Earning Assets(4)(dollars in millions)
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
| Loans | | | | $ | 18,571.7 | | | $ | 18,629.2 | | | $ | 22,120.4 | |
| Operating lease equipment, net | | | | | 14,182.4 | | | | 13,035.4 | | | | 12,290.6 | |
| Assets held for sale | | | | | 4,403.0 | | | | 4,377.9 | | | | 646.8 | |
| Credit balances of factoring clients | | | | | (1,213.5 | ) | | | (1,336.1 | ) | | | (1,237.7 | ) |
| Total earning assets | | | | $ | 35,943.6 | | | $ | 34,706.4 | | | $ | 33,820.1 | |
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Tangible Book Value(5) (dollars in millions)
| | | | March 31,
2014
| | December 31,
2013
| | March 31,
2013
|
|---|
| Total common stockholder’s equity | | | | $ | 8,796.0 | | | $ | 8.838.8 | | | $ | 8,494.4 | |
| Less: Goodwill | | | | | (403.5 | ) | | | (334.6 | ) | | | (345.9 | ) |
| Intangible assets | | | | | (18.2 | ) | | | (20.3 | ) | | | (27.7 | ) |
| Tangible book value | | | | $ | 8,374.3 | | | $ | 8,483.9 | | | $ | 8,120.8 | |
(1) | | Total net revenues is a non-GAAP measure that represents 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, 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 and maintenance and other operating lease expenses) from operating leases. |
(2) | | Net operating lease revenue is a non-GAAP measure that represents the combination of rental income on operating leases less depreciation on operating lease equipment and maintenance and other operating lease expenses. Net operating lease revenues is used by management to monitor portfolio performance. |
(3) | | Operating expenses excluding restructuring costs is a non-GAAP measure used by management to compare period over period expenses. |
(4) | | Earning assets is a non-GAAP measure and 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. |
(5) | | Tangible book value is a non-GAAP measure, which represents an adjusted common shareholders’ equity balance that has been reduced by goodwill and intangible assets. Tangible book value is used to compute a per common share amount, which is used to evaluate our use of equity. |
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 plan, leverage, capital ratios, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, and for a return of 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 | | 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, new business initiatives, new products, acquisitions and divestitures, 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 | | 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 | | conditions and/or changes in funding markets and our access to such markets, including secured and |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 79
Table of Contents
| | 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 | | risks of achieving the projected revenue growth from new business initiatives or the projected expense reductions from efficiency improvements, |
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.
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 March 31, 2014. Based on such evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective.
(b) Changes In Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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 2013 Annual Report on Form 10-K, and Forward-Looking Statements of this Form 10-Q.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information related to purchases by the Company of its common shares during the quarter ended March 31, 2014:
| | | | Total Number
of Shares
Purchased
| | Average
Price Paid
per Share
| | Total Number of Shares
Purchased as Part of
the Publicly Announced
Program
| | Total Dollar Amount
Purchased Under
the Program
| | Approximate Dollar Value
of Shares that May Yet be
Purchased Under the Program
|
|---|
| | | | | | | | | | (dollars in millions) | | (dollars in millions) |
|---|
December 31, 2013(1) | | | | | | | | | | | | | 4,006,941 | | | $ | 193.4 | | | $ | – | |
| First Quarter Purchases | | | | | | | | | | | | | | | | | | | | | | |
| January 1–31, 2014 | | | | | 550,000 | | | $ | 47.00 | | | | 550,000 | | | $ | 25.9 | | | | | |
| February 1–28, 2014 | | | | | 2,333,133 | | | $ | 46.57 | | | | 2,333,133 | | | | 108.6 | | | | | |
| March 1–31, 2014 | | | | | 22,215 | | | $ | 47.90 | | | | 22,215 | | | | 1.1 | | | | | |
| | | | | | 2,905,348 | | | $ | 46.66 | | | | 2,905,348 | | | $ | 135.6 | | | | | |
March 31, 2014(2) | | | | | | | | | | | | | 2,905,348 | | | $ | 135.6 | | | $ | 171.4 | |
(1) | | Shares repurchases were subject to a $200 million total that expired on December 31, 2013. |
(2) | | Shares repurchases are subject to a $307 million total that expires on December 31, 2014. |
On January 21, 2014, the Board of Directors approved the repurchase of up to $300 million of common stock through December 31, 2014. In addition, the Board also approved the repurchase of an additional $7 million of common stock, which was the amount unused from our 2013 share repurchase authorization. In April 2014, the Board of Directors authorized an additional share repurchase of up to $300 million of common stock through December 31, 2014, bringing the total authorization for 2014 to $607 million. Management will determine the timing and amount of any share repurchases
Item 1. Legal Proceedings 81
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under the share repurchase authorizations based on market conditions and other considerations. The repurchases may be effected in the open market through derivative, accelerated repurchase and other negotiated transactions, and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended. The repurchased common stock is held as treasury shares and may be used for the issuance of shares under CIT’s employee stock plans.
ITEM 4. Mine Safety Disclosure
Not applicable.
| 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 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). |
| |
| 4.2 | | 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). |
| |
| 4.3 | | 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). |
| |
| 4.4 | | 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). |
| | | |
| 4.5 | | 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). |
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| 4.6 | | 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). |
| |
| 4.7 | | 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). |
| |
| 4.8 | | 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). |
| |
| 4.9 | | 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). |
| |
| 4.10 | | 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). |
| |
| 4.11 | | 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). |
Item 6: Exhibits 83
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| 4.12 | | 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). |
| |
| 4.13 | | 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). |
| |
| 4.14 | | 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). |
| |
| 4.15 | | 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). |
| |
| 4.16 | | 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). |
| |
| 4.17 | | 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). |
| |
| 4.18 | | Amended and Restated Revolving Credit and Guaranty Agreement, dated as of January 27, 2014 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 and L/C Issuer (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 28, 2014). |
| |
| 4.19 | | 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). |
| |
| 4.20 | | 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). |
| |
| 4.21 | | 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). |
| |
| 4.22 | | 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). |
| |
| 4.23 | | Fourth Supplemental Indenture, dated as of August 1, 2013, 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 5.00% Senior Unsecured Note due 2023) (incorporated by reference to Exhibit 4.2 to Form 8-K filed August 1, 2013). |
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| 4.24 | | Fifth Supplemental Indenture, dated as of February 19, 2014, 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 3.875% Senior Unsecured Note due 2019) (incorporated by reference to Exhibit 4.2 to Form 8-K filed February 19, 2014). |
| |
| 10.1* | | 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). |
| |
| 10.2* | | 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). |
| |
| 10.3* | | CIT Group Inc. Supplemental Savings Plan (As Amended and Restated Effective as of January 1, 2008) (incorporated by reference to Exhibit 10.28 to Form 10-Q filed May 12, 2008). |
| |
| 10.4* | | New Executive Retirement Plan of CIT Group Inc. (As Amended and Restated as of January 1, 2008) (incorporated by reference to Exhibit 10.29 to Form 10-Q filed May 12, 2008). |
| |
| 10.5* | | 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). |
| |
| 10.6* | | 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). |
| |
| 10.7* | | 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). |
| |
| 10.8* | | 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). |
| |
| 10.9* | | 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). |
| |
| 10.10* | | 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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| 10.11* | | 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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| 10.12* | | 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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| 10.13* | | 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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| 10.14* | | 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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| 10.15* | | 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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| 10.16* | | 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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| 10.17* | | 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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| 10.18* | | 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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| 10.19* | | 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). |
Item 6: Exhibits 85
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| 10.20** | | 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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| 10.21** | | 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 (incorporated by reference to Exhibit 10.32 to Form 10-Q filed August 9, 2012). |
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| 10.22** | | 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 (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 9, 2012). |
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| 10.23** | | 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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| 10.24* | | 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 filed April 12, 2012). |
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| 10.25 | | 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-Q filed May 10, 2012). |
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| 10.26 | | 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-Q filed May 10, 2012). |
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| 10.27* | | Assignment and Extension of Employment Agreement, dated February 6, 2013, by and among CIT Group Inc., C. Jeffrey Knittel and C.I.T. Leasing Corporation (incorporated by reference to Exhibit 10.34 to Form 10-Q filed November 6, 2013). |
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| 10.28* | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement. |
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| 10.29* | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.37 to Form 10-K filed March 1, 2013) (incorporated by reference to Exhibit 10.37 to Form 10-Q filed November 6, 2013). |
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| 10.30* | | CIT Employee Severance Plan (Effective as of November 6, 2013)(incorporated by reference to Exhibit 10.37 in Form 10-Q filed November 6, 2013). |
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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. |
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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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| 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 March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Comprehensive Income (Loss), (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
86 CIT GROUP INC
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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. |
Item 6: Exhibits 87
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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.
| May 9, 2014 | | | | CIT GROUP INC. |
| |
| | | | | /s/ Scott T. Parker |
| | | | | Scott T. Parker |
| | | | | Executive Vice President and Chief Financial Officer |
| |
| | | | | /s/ E. Carol Hayles |
| | | | | E. Carol Hayles |
| | | | | Executive Vice President and Controller |
88 CIT GROUP INC
