Borrowings consist of senior unsecured notes and secured borrowings (structured financings and FHLB advances), which totaled $17.5 billion in aggregate at June 30, 2016, down from $18.4 billion at December 31, 2015. This decline primarily relates to payments on and redemptions of secured financings. The weighted average coupon rate of borrowings at June 30, 2016 was 3.99%, up slightly from 3.91% at December 31, 2015, as the secured borrowings that were repaid were at low rates.
In conjunction with pursuing strategic alternatives for our Commercial Air business, we are exploring as alternatives both a spin-off to CIT shareholders as a separate public entity and a third party sale. It is very likely that either alternative will result in repayment and/or restructuring of some of our secured and unsecured funding facilities, including the Total Return Swap discussed herein (“TRS”), which could result in significant debt-related costs. The TRS allows for termination by CIT upon not less than 10 business days notification to Goldman Sachs International (“GSI”), as counterparty under the TRS. Such termination requires payment to GSI of the present value of the remaining facility fee that would be due under the terms of the agreement.
On February 17, 2016 the Revolving Credit Facility was amended to extend the maturity date of the commitments to January 26, 2018, reduce the required minimum guarantor coverage from 1.50:1.0 to 1.375:1.0, and to include Fitch Ratings as a designated Rating Agency within the facilities terms and conditions.
There were no borrowings outstanding under the Revolving Credit Facility at June 30, 2016 and the amount available to draw upon was approximately $1.4 billion, with the remaining amount of approximately $0.1 billion utilized for issuance of letters of credit.
The Revolving Credit Facility has a $1.5 billion total commitment that 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 is based on our debt ratings. Currently, the applicable margin is 2.25% for LIBOR Rate loans and 1.25% for Base Rate loans. Improvement in CIT’s long-term senior unsecured debt ratings to Ba2 by Moody’s would result in a reduction in the applicable margin to 2.00% for LIBOR Rate loans and to 1.00% for Base Rate loans. A downgrade in CIT’s long-term senior unsecured debt ratings to B+ by S&P or Fitch would result in an increase in the applicable margin for LIBOR Rate and Base Rate loans. In the event of a one notch downgrade by only one of the agencies, no change to the margin charged under the facility would occur.
The Revolving Credit Facility is unsecured and is guaranteed by nine of the Company’s domestic operating subsidiaries. The facility contains a covenant requiring a minimum guarantor asset coverage ratio, including the criteria for calculating the ratio. The required minimum guarantor asset coverage ratio ranges from 1.0:1.0 to 1.50:1.0 depending on the Company’s long-term senior unsecured debt rating. The requirement at June 30, 2016 was 1.375:1.0. As of June 30, 2016, the last reported asset coverage ratio was 2.69x.
At June 30, 2016, senior unsecured borrowings outstanding totaled $10.6 billion, essentially unchanged from December 31, 2015. The weighted average coupon rate at June 30, 2016 was 5.03%, unchanged from December 31,
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2015. As detailed in “Contractual Commitments and Payments” below, there are no scheduled maturities in 2016. SeeNote 8 — Borrowings inItem 1. Consolidated Financial Statements for further detail on maturities.
Secured Borrowings
As part of our liquidity management strategy, we may pledge assets for secured financing transactions (which include securitizations), to borrow 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 pursuant to GAAP. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, leases and/or underlying equipment. Certain related cash balances are restricted.
FHLB Advances
FHLB advances have become a larger source of funding since the OneWest Transaction. CIT Bank, N.A. is a member of the FHLB of San Francisco and may borrow under a line of credit that is secured by collateral pledged. The Bank makes decisions regarding utilization of advances based upon a number of factors including liquidity needs, capital constraints, cost of funds and alternative sources of funding. CIT Bank, N.A. had $3.0 billion outstanding under the line and $6.7 billion of assets were pledged as collateral at June 30, 2016, essentially unchanged from December 31, 2015.
FHLB Advances and pledged assets are also discussed inNote 8 — Borrowings inItem 1. Consolidated Financial Statements.
Structured Financings
Structured financings totaled $3.9 billion at June 30, 2016, down from $4.7 billion at December 31, 2015. The decrease during 2016 reflects net repayments and redemptions. The weighted average coupon rate of structured financings at June 30, 2016 was 3.52%, up from 3.40% at December 31, 2015. The increase in the weighted average rate reflects the repayments on lower coupon financings.
CIT Bank, N.A. structured financings totaled $0.5 billion and $0.8 billion at June 30, 2016 and December 31, 2015, respectively, which were secured by $0.6 billion and $1.1 billion of pledged assets at June 30, 2016 and December 31, 2015, respectively. Non- CIT Bank, N.A. structured financings were $3.4 billion and $3.9 billion at June 30, 2016 and December 31, 2015, respectively, and were secured by $6.9 billion of pledged assets and $7.2 billion, at June 30, 2016 and December 31, 2015, respectively.
SeeNote 8 — Borrowings inItem 1. Consolidated Financial Statements for a table displaying our consolidated secured financings and pledged assets.
FRB
The Company has a borrowing facility with the FRB Discount Window that can be used for short-term, typically overnight, borrowings. The borrowing capacity is determined by the FRB based on the collateral pledged.
There were no outstanding borrowings with the FRB Discount Window as of June 30, 2016 or December 31, 2015. SeeNote 8 — Borrowings inItem 1. Consolidated Financial Statements for total balances pledged, including amounts to the FRB.
Total Return Swap
Two financing facilities between two wholly-owned subsidiaries of CIT and GSI are structured as total return swaps (together , the “TRS”), under 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. financing facility with GSI is $1.5 billion (the “CFL Facility”) and the CIT TRS Funding B.V. financing facility with GSI is $625 million (the “BV Facility”).
At June 30, 2016, a total of $1,736 million of pledged assets, and secured debt totaling $1,104 million issued to investors, was outstanding under the TRS. About half of the pledged assets and debt outstanding under the TRS related to assets originated by Commercial Air assets, a business for which management is pursuing strategic alternatives. After adjustment to the amount of actual qualifying borrowing base under the terms of the TRS, this secured debt provided for usage of $941 million of the maximum notional amount of the TRS. The remaining $1,184 million of the maximum notional amount represents the unused portion of the TRS and constitutes the notional amount of derivative financial instruments. An unsecured counterparty receivable of $570 million is owed to CIT from GSI for debt discount, return of collateral posted to GSI and settlements resulting from market value changes to the asset-backed securities underlying the structures at June 30, 2016.
Based on the Company’s valuation, we recorded a liability of $28 million and $55 million at June 30, 2016 and December 31, 2015, respectively. During the quarters ended June 30, 2016 and 2015, we recognized $9 million as an increase to other income and $6 million as a reduction to other income, respectively, associated with the change in liability. The change in value of $27 million was recognized as a benefit to Other Income for the six months ended June 30, 2016 and as a reduction of $7 million for the six months ended June 30, 2015, respectively.
Details of the TRS have not changed and are disclosed inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A.Quantitative and Qualitative Disclosures about Market Risk of our Annual Report on Form 10-K for the year ended December 31, 2015.
See alsoNote 9 — Derivative Financial Instruments inItem 1. Consolidated Financial Statements for further information.
106 CIT GROUP INC
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Debt Ratings
Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company’s liquidity and financial condition.
CIT and CIT Bank, N.A. debt ratings at June 30, 2016, as rated by Standard & Poor’s Ratings Services (“S&P”), Fitch Ratings, Inc. (“Fitch”), Moody’s Investors Service (“Moody’s”) and DBRS Inc. (“DBRS”) are presented in the following table.
Debt Ratings as of June 30, 2016
| | | | S&P
| | Fitch
| | Moody’s
| | DBRS
|
|---|
CIT Group Inc. |
| Issuer / Counterparty Credit Rating | | | | BB+ | | BB+ | | NR | | BB (High) |
| Revolving Credit Facility Rating | | | | BB+ | | BB+ | | Ba3 | | BBB (Low) |
| Series C Notes / Senior Unsecured Debt Rating | | | | BB+ | | BB+ | | Ba3 | | BB (High) |
| Outlook | | | | Stable | | Stable | | Stable | | Stable |
CIT Bank, N.A. |
| Deposit Rating (LT/ST) | | | | NR | | BBB-/F3 | | Baa3/Prime 3 | | BB (High)/R-4 |
| Long-term Senior Unsecured Debt Rating | | | | BBB- | | BB+ | | Baa3 | | BB (High) |
NR — Not Rated
In June, Moody’s assigned an issuer rating to CIT Group Inc. of Ba3, upgraded the Revolving Credit Facility and unsecured debt ratings to Ba3 and changed its outlook to stable from positive. Moody’s also issued ratings for CIT Bank, NA, which they previously did not rate. In January 2016, S&P assigned a long-term issuer credit rating of BBB- to CIT Bank, N.A.
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes, including as a result of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Potential changes in rating methodology as well as in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above could impact our liquidity and financial condition.
A debt rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Tax Implications of Cash in Foreign Subsidiaries
Cash held by foreign subsidiaries of the Company totaled $1.0 billion, including cash available to the BHC and restricted cash, at June 30, 2016, and December 31, 2015.
Other than in a limited number of jurisdictions, management does not intend to indefinitely reinvest foreign earnings.
Contractual Payments and Commitments
Payments for the Twelve Months Ended June 30(1) (dollars in millions)
| | | | Total
| | 2017
| | 2018
| | 2019
| | 2020
| | 2021+
|
|---|
Structured financings(2) | | | | $ | 3,963.4 | | | $ | 1,168.1 | | | $ | 652.6 | | | $ | 479.8 | | | $ | 332.9 | | | $ | 1,330.0 | |
| FHLB advances | | | | | 2,993.5 | | | | 598.0 | | | | – | | | | 2,145.5 | | | | 250.0 | | | | – | |
| Senior unsecured | | | | | 10,645.9 | | | | 1,208.7 | | | | 3,885.8 | | | | 2,750.0 | | | | 750.0 | | | | 2,051.4 | |
Total Long-term borrowings | | | | | 17,602.8 | | | | 2,974.8 | | | | 4,538.4 | | | | 5,375.3 | | | | 1,332.9 | | | | 3,381.4 | |
| Deposits | | | | | 32,866.3 | | | | 23,196.1 | | | | 2,991.1 | | | | 1,668.5 | | | | 2,227.9 | | | | 2,782.7 | |
| Credit balances of factoring clients | | | | | 1,215.2 | | | | 1,215.2 | | | | – | | | | – | | | | – | | | | – | |
| Lease rental expense | | | | | 312.2 | | | | 53.9 | | | | 48.0 | | | | 47.9 | | | | 41.1 | | | | 121.3 | |
Total contractual payments | | | | $ | 51,996.5 | | | $ | 27,440.0 | | | $ | 7,577.5 | | | $ | 7,091.7 | | | $ | 3,601.9 | | | $ | 6,285.4 | |
(1) | | Projected payments of debt interest expense and obligations relating to post-retirement programs are excluded. |
(2) | | Includes non-recourse secured borrowings, which are generally repaid in conjunction with the pledged receivable maturities. |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 107
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Commitment Expiration by Twelve Months Ended June 30 (dollars in millions)
| | | | Total
| | 2017
| | 2018
| | 2019
| | 2020
| | 2021+
|
|---|
| Financing commitments | | | | $ | 6,856.4 | | | $ | 1,831.4 | | | $ | 935.2 | | | $ | 1,225.1 | | | $ | 1,179.0 | | | $ | 1,685.7 | |
Aerospace purchase commitments(1) | | | | | 9,224.0 | | | | 669.6 | | | | 1,384.6 | | | | 2,442.1 | | | | 3,825.6 | | | | 902.1 | |
| Rail and other purchase commitments | | | | | 627.6 | | | | 575.3 | | | | 24.5 | | | | 27.8 | | | | – | | | | – | |
| Letters of credit | | | | | 263.2 | | | | 52.5 | | | | 28.6 | | | | 84.8 | | | | 30.3 | | | | 67.0 | |
| Deferred purchase agreements | | | | | 1,405.7 | | | | 1,405.7 | | | | – | | | | – | | | | – | | | | – | |
| Guarantees, acceptances and other recourse obligations | | | | | 1.7 | | | | 1.7 | | | | – | | | | – | | | | – | | | | – | |
Liabilities for unrecognized tax obligations(2) | | | | | 38.5 | | | | 5.0 | | | | 33.5 | | | | – | | | | – | | | | – | |
| Total contractual commitments | | | | $ | 18,417.1 | | | $ | 4,541.2 | | | $ | 2,406.4 | | | $ | 3,779.8 | | | $ | 5,034.9 | | | $ | 2,654.8 | |
(1) | | Aerospace commitments are net of amounts on deposit with manufacturers. |
(2) | | The balance cannot be estimated past 2018; therefore the remaining balance is reflected in 2018. |
Financing commitments decreased from $7.4 billion at December 31, 2015 to $6.9 billion at June 30, 2016. Financing commitments include commitments that have been extended to and accepted by customers or agents, but on which the criteria for funding have not been completed of $1.2 billion at June 30, 2015. Also included are Commercial Services credit line agreements, with an amount available of $390 million, net of the amount of receivables assigned to us. These are cancellable by CIT only after a notice period.
At June 30, 2016, substantially all our undrawn financing commitments were senior facilities, with approximately 80% secured by commercial 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 the Commercial Finance division of Commercial Banking. The top ten undrawn commitments totaled $389 million at June 30, 2016. The table above includes approximately $1.5 billion of undrawn financing commitments at June 30, 2016 that were not in compliance with contractual obligations, and therefore CIT does not have a contractual obligation to lend under such financing commitments.
SeeNote 14 — Commitments inItem 1. Consolidated Financial Statements for further detail.
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Capital Management
CIT manages its capital position to ensure that it is sufficient to: (i) support the risks of its businesses, (ii) maintain a “well-capitalized” status under regulatory requirements, and (iii) provide flexibility to take advantage of future investment opportunities. Capital in excess of these requirements is available to distribute to shareholders, subject to a “non-objection” to our capital plan from the FRB.
CIT uses a complement of capital metrics and related thresholds to measure capital adequacy taking into account the existing regulatory capital framework. CIT further evaluates capital adequacy through the enterprise stress testing and economic capital (“ECAP”) approaches, which constitutes our capital adequacy process.
CIT’s capital management is discussed further in the “Regulation” section ofItem 1. Business Overview with respect to regulatory matters, including“Capital Requirements” and“Stress Test and Capital Plan Requirements” in our Annual Report on Form 10-K for the year ended December 31, 2015.
Regulatory Reporting Impact of Exceeding $50 Billion of Assets
As a BHC in excess of $50 billion of assets, CIT is subject to enhanced prudential regulation under the Dodd-Frank Act. Among other requirements, CIT is subject to capital planning and stress testing requirements under the FRB’s Comprehensive Capital Analysis and Review (“CCAR”) process, which requires CIT to submit an annual capital plan and demonstrate that it can meet required adequate capital levels over a nine quarter planning horizon after taking into account the impact of stresses based on both supervisory and company-specific scenarios.
CIT submitted its first CCAR capital plan to the Federal Reserve in April 2016. As this filing was a private submission, the FRB did not publish its findings but informed CIT that we received a qualitative objection to the plan. While we have not yet received the detailed feedback, we have begun our remediation efforts. In providing us with feedback the Federal Reserve did approve the continuation of our dividend and share repurchases of approximately $140 million, consistent with 2015. The capital actions contemplated in the separation of the Commercial Air Leasing Business were not part of the April CCAR submission. In accordance with 12 CFR 225.8(e)(4), CIT has re-submitted its Capital Plan to the Federal Reserve for the capital impacts resulting from the Commercial Air separation, which is considered a material business change and is currently under review. Given the Commercial Air separation is expected to result in a significant capital action, we do not contemplate executing any share buybacks in advance of its completion.
CIT also collects and reports to the FRB certain capital-related data on a quarterly basis, which the FRB will use to track our progress against the capital plan. Upon full implementation of the CCAR process in 2017, the results of our capital plan and stress tests will be made public.
The final Basel III framework requires banks and BHCs to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario, with a phased implementation process starting January 1, 2015 and complete implementation by January 1, 2019. The final rule applies a modified version of the LCR requirements to bank holding companies with total consolidated assets of greater than $50 billion but less than $250 billion. Implementation for Modified LCR banking organizations, which CIT is considered, began on January 1, 2016, with a minimum requirement of 90% coverage. Beginning January 1, 2017, the minimum requirement will increase to 100%. At June 30, 2016, CIT’s modified LCR was above 100%.
Return of Capital
Our year-to-date common stock dividends in 2016 were as follows:
Declaration Date
| | | | Payment Date
| | Per Share
Dividend
|
|---|
| January | | | | February 26, 2016 | | $ | 0.15 | |
| April | | | | May 27, 2016 | | $ | 0.15 | |
| July | | | | August 26, 2016 | | $ | 0.15 | |
Capital Composition and Ratios
The Company is subject to various regulatory capital requirements. We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. The regulatory capital guidelines applicable to the Company were based on the Basel III Final Rule.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 109
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Tier 1 Capital and Total Capital Components (dollars in millions)
| | | | June 30, 2016
| | December 31, 2015
| |
|---|
| | | | Transition
Basis
| | Fully
Phased-in
Basis
| | Transition
Basis
| | Fully
Phased-in
Basis
|
|---|
Tier 1 Capital |
| Total common stockholders’ equity | | | | $ | 11,124.1 | | | $ | 11,124.1 | | | $ | 10,978.1 | | | $ | 10,978.1 | |
Effect of certain items in accumulated other
comprehensive loss excluded from Tier 1
Capital and qualifying noncontrolling
interests | | | | | 61.0 | | | | 61.0 | | | | 76.9 | | | | 76.9 | |
| Adjusted total equity | | | | | 11,185.1 | | | | 11,185.1 | | | | 11,055.0 | | | | 11,055.0 | |
Less: Goodwill(1) | | | | | (1,105.2 | ) | | | (1,105.2 | ) | | | (1,130.8 | ) | | | (1,130.8 | ) |
| Disallowed deferred tax assets | | | | | (842.4 | ) | | | (842.4 | ) | | | (904.5 | ) | | | (904.5 | ) |
Disallowed intangible assets(1) | | | | | (75.8 | ) | | | (126.4 | ) | | | (53.6 | ) | | | (134.0 | ) |
| Other Tier 1 components | | | | | (5.3 | ) | | | (16.8 | ) | | | (0.1 | ) | | | (0.1 | ) |
| CET 1 Capital | | | | | 9,156.4 | | | | 9,094.3 | | | | 8,966.0 | | | | 8,885.6 | |
| Tier 1 Capital | | | | | 9,156.4 | | | | 9,094.3 | | | | 8,966.0 | | | | 8,885.6 | |
Tier 2 Capital |
Qualifying reserve for credit losses
and other reserves(2) | | | | | 444.3 | | | | 444.3 | | | | 403.3 | | | | 403.3 | |
| Other Tier 2 components | | | | | 0.1 | | | | 0.1 | | | | – | | | | – | |
| Total qualifying capital | | | | $ | 9,600.8 | | | $ | 9,538.7 | | | $ | 9,369.3 | | | $ | 9,288.9 | |
| Risk-weighted assets | | | | $ | 67,087.1 | | | $ | 67,815.6 | | | $ | 69,563.6 | | | $ | 70,239.3 | |
BHC Ratios | | | | | | | | | | | | | | | | | | |
| CET 1 Capital Ratio | | | | | 13.6 | % | | | 13.4 | % | | | 12.9 | % | | | 12.7 | % |
| Tier 1 Capital Ratio | | | | | 13.6 | % | | | 13.4 | % | | | 12.9 | % | | | 12.7 | % |
| Total Capital Ratio | | | | | 14.3 | % | | | 14.1 | % | | | 13.5 | % | | | 13.2 | % |
| Tier 1 Leverage Ratio | | | | | 14.0 | % | | | 13.9 | % | | | 13.5 | % | | | 13.4 | % |
CIT Bank, N.A. Ratios |
| CET 1 Capital Ratio | | | | | 12.6 | % | | | 12.5 | % | | | 12.8 | % | | | 12.6 | % |
| Tier 1 Capital Ratio | | | | | 12.6 | % | | | 12.5 | % | | | 12.8 | % | | | 12.6 | % |
| Total Capital Ratio | | | | | 13.8 | % | | | 13.6 | % | | | 13.9 | % | | | 13.6 | % |
| Tier 1 Leverage Ratio | | | | | 10.5 | % | | | 10.4 | % | | | 10.9 | % | | | 10.7 | % |
(1) | | Goodwill and disallowed intangible assets adjustments include the respective portion of deferred tax liability in accordance with guidelines under Basel III. |
(2) | | “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. |
The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets (dollars in millions)
| | | | June 30,
2016
| | December 31,
2015
|
|---|
| Balance sheet assets | | | | $ | 66,700.3 | | | $ | 67,401.5 | |
| Risk weighting adjustments to balance sheet assets | | | | | (13,992.0 | ) | | | (13,728.1 | ) |
| Off balance sheet items | | | | | 14,378.8 | | | | 15,890.2 | |
| Risk-weighted assets | | | | $ | 67,087.1 | | | $ | 69,563.6 | |
The 2016 off balance sheet items primarily reflect commitments to purchase aircraft and railcars ($9.1 billion related to aircraft and $0.7 billion related to railcars), unused lines of credit ($2.8 billion credit equivalent, largely related to the Commercial Finance division), and deferred purchase agreements ($1.4 billion related to the Business Capital division). SeeNote 14 — Commitments inItem 1. Consolidated Financial Statements for further detail on commitments.
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Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts)
| | | | June 30,
2016
| | December 31,
2015
|
|---|
| Total common stockholders’ equity | | | | $ | 11,124.1 | | | $ | 10,978.1 | |
| Less: Goodwill | | | | | (1,169.7 | ) | | | (1,198.3 | ) |
| Intangible assets | | | | | (168.9 | ) | | | (176.3 | ) |
| Tangible book value | | | | $ | 9,785.5 | | | $ | 9,603.5 | |
| Book value per share | | | | $ | 55.07 | | | $ | 54.61 | |
| Tangible book value per share | | | | $ | 48.45 | | | $ | 47.77 | |
(1) | | Tangible book value and tangible book value per share are non-GAAP measures. |
Book value and Tangible book value (“TBV”), along with the respective per share balances increased from December 31, 2015, primarily reflecting net income recorded during 2016.
CIT Bank, N.A. (“CIT Bank” or the “Bank”), a wholly-owned subsidiary, is regulated by the Office of the Comptroller of the Currency, U.S. Department of the Treasury (“OCC”) and is also subject to regulation and examination by the FDIC. The Bank originates and funds lending and leasing activity in the U.S., primarily by raising deposits through its 70 branch network and from retail and institutional customers through commercial channels, as well as its online banking platform and through broker channels. Its existing suite of deposit products includes checking and savings accounts, Individual Retirement Accounts and Certificates of Deposit. The Bank’s primary office is in Pasadena, CA.
Total assets were down slightly compared to December 31, 2015. Financing and leasing assets were down modestly, as growth from new business volumes was offset by portfolio collections and asset sales, along with the run-off of the LCM portfolio. Portfolio loans were down from December 31, 2015, reflecting transfers to assets held for sale, reflecting the business aircraft loan portfolio and loans in Commercial Banking, which were transferred for risk management purposes. Operating lease equipment was up from December 31, 2015, reflecting increased leasing volumes in the Rail portfolio. The portfolio of operating lease equipment, which totaled $3.1 billion, was comprised of railcars and some aircraft.
Total cash and investment securities, including non-earning cash, were $8.5 billion at June 30, 2016. The investment securities are mostly mortgage-backed and federal agency securities. As part of our 2016 business strategy, we are redeploying cash at CIT Bank into higher-yielding “High Quality Liquid Assets.”
CIT Bank deposits at June 30, 2016 were up slightly from December 31, 2015. The weighted average interest rate was 1.25%, down slightly from 1.26% at December 31, 2015.
FHLB advances are a consistent source of funding for the Bank, which is a member of the FHLB of San Francisco. The Bank may borrow under a line of credit that is secured by collateral pledged to the FHLB San Francisco. Other borrowings, consisting of other secured debt instruments, decreased from December 31, 2015 through expected pay-down and run-off activity.
The increase in liabilities of discontinued operations reflects additional reserves recorded related to the HECM interest curtailment reserve, as discussed below. The decline in total equity was driven by the loss from discontinued operation and dividends paid to the BHC.
The Bank’s capital and leverage ratios are included in the tables that follow and remained well above required levels. CIT Bank reports regulatory capital ratios in accordance with the Basel III Final Rule and determines risk weighted assets under the Standardized Approach.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 111
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The following presents condensed financial information for CIT Bank, N.A.
Condensed Balance Sheets (dollars in millions)
| | | | June 30,
2016
| | December 31,
2015
|
|---|
ASSETS: |
| Cash and deposits with banks | | | | $ | 5,596.1 | | | $ | 6,073.5 | |
| Investment securities | | | | | 2,858.2 | | | | 2,577.4 | |
| Assets held for sale | | | | | 1,166.1 | | | | 444.2 | |
| Loans | | | | | 28,185.2 | | | | 29,349.8 | |
| Allowance for loan losses | | | | | (379.7 | ) | | | (337.5 | ) |
| Operating lease equipment, net | | | | | 3,120.2 | | | | 2,777.8 | |
| Indemnification Assets | | | | | 375.5 | | | | 414.8 | |
| Goodwill | | | | | 810.3 | | | | 830.8 | |
| Intangible assets | | | | | 150.5 | | | | 163.2 | |
| Other assets | | | | | 1,058.9 | | | | 1,006.1 | |
| Assets of discontinued operations | | | | | 469.1 | | | | 500.5 | |
Total Assets | | | | $ | 43,410.4 | | | $ | 43,800.6 | |
LIABILITIES AND EQUITY: |
| Deposits | | | | $ | 32,879.1 | | | $ | 32,782.2 | |
| FHLB advances | | | | | 2,995.1 | | | | 3,117.6 | |
| Borrowings | | | | | 451.2 | | | | 798.3 | |
| Other liabilities | | | | | 750.4 | | | | 799.9 | |
| Liabilities of discontinued operations | | | | | 917.1 | | | | 696.2 | |
Total Liabilities | | | | | 37,992.9 | | | | 38,194.2 | |
Total Equity | | | | | 5,417.5 | | | | 5,606.4 | |
Total Liabilities and Equity | | | | $ | 43,410.4 | | | $ | 43,800.6 | |
| |
Capital Ratios* |
| Common Equity Tier 1 Capital | | | | | 12.5 | % | | | 12.6 | % |
| Tier 1 Capital Ratio | | | | | 12.5 | % | | | 12.6 | % |
| Total Capital Ratio | | | | | 13.6 | % | | | 13.6 | % |
| Tier 1 Leverage ratio | | | | | 10.4 | % | | | 10.7 | % |
* The capital ratios presented above are reflective of the fully-phased in BASEL III approach. |
Financing and Leasing Assets by Segment (dollars in millions)
| | | | |
|---|
| | | | June 30,
2016
| | December 31,
2015
|
|---|
Commercial Banking
| | | | |
| Commercial Finance | | | | $ | 8,946.3 | | | $ | 9,381.1 | |
| Commercial Real Estate | | | | | 5,566.1 | | | | 5,357.6 | |
| Business Capital | | | | | 4,854.6 | | | | 4,692.1 | |
Total | | | | | 19,367.0 | | | | 19,430.8 | |
Transportation Finance | | | |
| Aerospace | | | | | 1,798.3 | | | | 2,007.7 | |
| Rail | | | | | 2,503.2 | | | | 2,209.7 | |
| Maritime | | | | | 1,631.2 | | | | 1,678.1 | |
Total | | | | | 5,932.7 | | | | 5,895.5 | |
Consumer and Community | | | |
| Legacy Consumer Mortgages | | | | | 5,191.4 | | | | 5,471.6 | |
| Other Consumer Banking | | | | | 1,980.4 | | | | 1,773.9 | |
Total | | | | | 7,171.8 | | | | 7,245.5 | |
Total Financing and Leasing Assets | | | | $ | 32,471.5 | | | $ | 32,571.8 | |
112 CIT GROUP INC
Table of Contents
Condensed Statements of Operations (dollars in millions)
| | | | Quarters Ended
| | Six Months Ended
|
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
| Interest income | | | | $ | 442.7 | | | $ | 446.3 | | | $ | 203.3 | | | $ | 889.0 | | | $ | 400.8 | |
| Interest expense | | | | | (110.6 | ) | | | (110.8 | ) | | | (78.4 | ) | | | (221.4 | ) | | | (153.8 | ) |
| Net interest revenue | | | | | 332.1 | | | | 335.5 | | | | 124.9 | | | | 667.6 | | | | 247.0 | |
| Provision for credit losses | | | | | (31.5 | ) | | | (92.5 | ) | | | (23.3 | ) | | | (124.0 | ) | | | (57.3 | ) |
| Net interest revenue, after credit provision | | | | | 300.6 | | | | 243.0 | | | | 101.6 | | | | 543.6 | | | | 189.7 | |
| Rental income on operating leases | | | | | 94.3 | | | | 92.2 | | | | 69.1 | | | | 186.5 | | | | 139.2 | |
| Other income | | | | | 80.9 | | | | 44.2 | | | | 23.8 | | | | 125.1 | | | | 52.4 | |
| Total net revenue, net of interest expense and credit provision | | | | | 475.8 | | | | 379.4 | | | | 194.5 | | | | 855.2 | | | | 381.3 | |
| Operating expenses | | | | | (267.7 | ) | | | (245.9 | ) | | | (114.3 | ) | | | (513.6 | ) | | | (211.3 | ) |
| Depreciation on operating lease equipment | | | | | (38.9 | ) | | | (36.7 | ) | | | (29.2 | ) | | | (75.6 | ) | | | (57.7 | ) |
| Maintenance and other operating lease expenses | | | | | (9.9 | ) | | | (2.6 | ) | | | (1.3 | ) | | | (12.5 | ) | | | (2.5 | ) |
| Loss on debt extinguishment and deposit redemption | | | | | (2.4 | ) | | | – | | | | – | | | | (2.4 | ) | | | – | |
| Income before provision for income taxes | | | | | 156.9 | | | | 94.2 | | | | 49.7 | | | | 251.1 | | | | 109.8 | |
| Provision for income taxes | | | | | (58.7 | ) | | | (30.4 | ) | | | (12.1 | ) | | | (89.1 | ) | | | (37.1 | ) |
| Income from continuing operations | | | | | 98.2 | | | | 63.8 | | | | 37.6 | | | | 162.0 | | | | 72.7 | |
| Loss on discontinued operations | | | | | (166.9 | ) | | | (4.8 | ) | | | – | | | | (171.7 | ) | | | – | |
Net (loss) income | | | | $ | (68.7 | ) | | $ | 59.0 | | | $ | 37.6 | | | $ | (9.7 | ) | | $ | 72.7 | |
New business volume — funded | | | | $ | 2,484.0 | | | $ | 1,983.6 | | | $ | 1,995.7 | | | $ | 4,467.6 | | | $ | 3,445.9 | |
Compared to the prior-year quarter, results are significantly changed due to the OneWest Bank acquisition. Compared to the prior quarter, the Bank’s income from continuing operations results benefited from lower credit costs.
The loss for the quarter was due to a $167 million loss, net of tax, from discontinued operations. The loss from discontinued operation during the quarter was due to additional reserves recorded related to the HECM interest curtailment reserve due to a change in estimate, of approximately $230 million, which is net of a corresponding increase in the indemnification receivable from the FDIC. The discontinued operation is described in an earlier section andNote 2 — Acquisition and Disposition Activities inItem 1. Consolidated Financial Statements.
The provision for credit losses in the current quarter included $10 million related to the Maritime portfolio. The provision for credit losses was elevated in the prior quarter due to increases in reserves related to the Energy portfolio, and to a lesser extent, the Maritime portfolio. Net charge-offs as a percentage of average finance receivables were 0.57% and 0.62%, for the second and first quarters of 2016, respectively.
Net Finance Revenue (dollars in millions)
| | | | Quarters Ended
| | Six Months Ended
|
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
| Interest income | | | | $ | 442.7 | | | $ | 446.3 | | | $ | 203.3 | | | $ | 889.0 | | | $ | 400.8 | |
| Rental income on operating leases | | | | | 94.3 | | | | 92.2 | | | | 69.1 | | | | 186.5 | | | | 139.2 | |
| Finance revenue | | | | | 537.0 | | | | 538.5 | | | | 272.4 | | | | 1,075.5 | | | | 540.0 | |
| Interest expense | | | | | (110.6 | ) | | | (110.8 | ) | | | (78.4 | ) | | | (221.4 | ) | | | (153.8 | ) |
| Depreciation on operating lease equipment | | | | | (38.9 | ) | | | (36.7 | ) | | | (29.2 | ) | | | (75.6 | ) | | | (57.7 | ) |
| Maintenance and other operating lease expenses | | | | | (9.9 | ) | | | (2.6 | ) | | | (1.3 | ) | | | (12.5 | ) | | | (2.5 | ) |
| Net finance revenue (“NFR”) | | | | $ | 377.6 | | | $ | 388.4 | | | $ | 163.5 | | | $ | 766.0 | | | $ | 326.0 | |
| Average Earning Assets (“AEA”)* | | | | $ | 41,340.6 | | | $ | 41,555.9 | | | $ | 21,413.7 | | | $ | 41,439.5 | | | $ | 21,308.5 | |
As a % of AEA: |
| Interest income | | | | | 4.29 | % | | | 4.29 | % | | | 3.80 | % | | | 4.29 | % | | | 3.76 | % |
| Rental income on operating leases | | | | | 0.91 | % | | | 0.89 | % | | | 1.29 | % | | | 0.90 | % | | | 1.31 | % |
| Finance revenue | | | | | 5.20 | % | | | 5.18 | % | | | 5.09 | % | | | 5.19 | % | | | 5.07 | % |
| Interest expense | | | | | (1.07 | )% | | | (1.06 | )% | | | (1.47 | )% | | | (1.07 | )% | | | (1.45 | )% |
| Depreciation on operating lease equipment | | | | | (0.38 | )% | | | (0.35 | )% | | | (0.55 | )% | | | (0.36 | )% | | | (0.54 | )% |
| Maintenance and other operating lease expenses | | | | | (0.10 | )% | | | (0.03 | )% | | | (0.02 | )% | | | (0.06 | )% | | | (0.02 | )% |
| Net finance margin (“NFM”) | | | | | 3.65 | % | | | 3.74 | % | | | 3.05 | % | | | 3.70 | % | | | 3.06 | % |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 113
Table of Contents
NFR and 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 from our leased equipment, depreciation and maintenance and other operating lease expenses, as well as funding costs. Since our asset composition includes operating lease equipment (7% of AEA for the quarter ended June 30, 2016), NFM is a more appropriate metric for the Bank 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.
Operating leases contributed $46 million to NFR in the current quarter, compared to $53 million in the previous quarter and $39 million in the second quarter of 2015. The sequential decline was driven by higher maintenance and other operating lease expenses.
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 and the disclosure of contingent assets and liabilities. The following estimates, which are based on relevant information available at the end of each period, include inherent risks and uncertainties related to judgments and assumptions made. We consider the estimates to be critical in applying our accounting policies, due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact on the financial statements.
Management believes that the judgments and estimates utilized in the following critical accounting estimates are reasonable. We do not believe that different assumptions are more likely than those utilized, although actual events may differ from such assumptions. Consequently, our estimates could prove inaccurate, and we may be exposed to charges to earnings that could be material.
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 2015 Annual Report on Form 10-K.
INTERNAL CONTROLS WORKING GROUPThe Internal Controls Working Group (“ICWG”), which reports to the Company’s Disclosure Committee, is responsible for monitoring and improving internal controls over external financial reporting. The ICWG is chaired by the Controller and is comprised of executives in Finance, Risk, Operations, Human Resources, Information Technology and Internal Audit.
SeeItem 4. Controls and Procedures for more information.
114 CIT GROUP INC
Table of Contents
SELECT DATA AND AVERAGE BALANCE SHEETS
Select Data(dollars in millions)
| | | | At or for the Quarters Ended
| | Six Months Ended
| |
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
Select Statement of Operations Data |
| Net interest revenue | | | | $ | 212.8 | | | $ | 209.0 | | | $ | 18.6 | | | $ | 421.8 | | | | 28.3 | |
| Provision for credit losses | | | | | (28.1 | ) | | | (99.3 | ) | | | (18.4 | ) | | | (127.4 | ) | | | (53.0 | ) |
| Total non-interest income | | | | | 673.6 | | | | 676.3 | | | | 595.2 | | | | 1,349.9 | | | | 1,212.2 | |
| Total non-interest expenses | | | | | (582.9 | ) | | | (581.6 | ) | | | (442.3 | ) | | | (1,164.5 | ) | | | (886.8 | ) |
| Income from continuing operations, net of tax | | | | | 181.1 | | | | 151.7 | | | | 115.3 | | | | 332.8 | | | | 219.0 | |
| Loss from discontinued operation, net of tax | | | | | (167.0 | ) | | | (4.8 | ) | | | – | | | | (171.8 | ) | | | – | |
| Net income | | | | | 14.1 | | | | 146.9 | | | | 115.3 | | | | 161.0 | | | | 219.0 | |
Per Common Share Data |
| Diluted income per common share — continuing operations | | | | $ | 0.90 | | | $ | 0.75 | | | $ | 0.66 | | | $ | 1.65 | | | $ | 1.24 | |
| Diluted income per common share | | | | $ | 0.07 | | | $ | 0.73 | | | $ | 0.66 | | | $ | 0.80 | | | $ | 1.24 | |
| Book value per common share | | | | $ | 55.07 | | | $ | 55.16 | | | $ | 50.91 | | | | | | | | | |
| Tangible book value per common share | | | | $ | 48.45 | | | $ | 48.39 | | | $ | 47.51 | | | | | | | | | |
| Dividends declared per common share | | | | $ | 0.15 | | | $ | 0.15 | | | $ | 0.15 | | | $ | 0.30 | | | $ | 0.30 | |
| Dividend payout ratio | | | | | 214.3 | % | | | 20.5 | % | | | 22.7 | % | | | 37.5 | % | | | 24.2 | % |
Performance Ratios |
| Return on average common stockholders’ equity | | | | | 0.50 | % | | | 5.30 | % | | | 5.20 | % | | | 2.89 | % | | | 5.00 | % |
| Return on tangible common equity | | | | | 7.37 | % | | | 6.25 | % | | | 5.62 | % | | | 6.81 | % | | | 5.31 | % |
| Adjusted return on tangible common equity | | | | | 8.27 | % | | | 7.08 | % | | | 5.90 | % | | | 7.68 | % | | | 5.57 | % |
| Net finance revenue as a percentage of average earning assets | | | | | 3.65 | % | | | 3.74 | % | | | 3.33 | % | | | 3.69 | % | | | 3.27 | % |
| Return on average earning assets | | | | | 1.22 | % | | | 1.02 | % | | | 1.12 | % | | | 1.12 | % | | | 1.05 | % |
| Return on average continuing operations total assets | | | | | 1.09 | % | | | 0.91 | % | | | 1.00 | % | | | 1.00 | % | | | 0.94 | % |
Balance Sheet Data |
| Loans including receivables pledged | | | | $ | 30,456.8 | | | $ | 31,408.6 | | | $ | 19,649.3 | | | | | | | | | |
| Allowance for loan losses | | | | | (399.4 | ) | | | (404.6 | ) | | | (350.9 | ) | | | | | | | | |
| Operating lease equipment, net | | | | | 16,864.6 | | | | 16,665.7 | | | | 15,109.6 | | | | | | | �� | | |
| Goodwill | | | | | 1,169.7 | | | | 1,195.1 | | | | 565.9 | | | | | | | | | |
| Total cash and deposits | | | | | 8,103.9 | | | | 8,141.8 | | | | 5,465.3 | | | | | | | | | |
| Investment securities | | | | | 3,229.1 | | | | 2,896.8 | | | | 1,692.9 | | | | | | | | | |
| Assets of discontinued operation | | | | | 469.1 | | | | 489.5 | | | | – | | | | | | | | | |
| Total assets | | | | | 66,700.3 | | | | 67,097.6 | | | | 46,545.1 | | | | | | | | | |
| Deposits | | | | | 32,879.1 | | | | 32,892.7 | | | | 17,267.8 | | | | | | | | | |
| Borrowings | | | | | 17,510.1 | | | | 18,012.6 | | | | 16,329.5 | | | | | | | | | |
| Liabilities of discontinued operation | | | | | 917.1 | | | | 684.8 | | | | – | | | | | | | | | |
| Total common stockholders’ equity | | | | | 11,124.1 | | | | 11,125.8 | | | | 8,807.1 | | | | | | | | | |
Credit Quality |
| Non-accrual loans as a percentage of finance receivables | | | | | 0.93 | % | | | 0.94 | % | | | 1.01 | % | | | | | | | | |
| Net charge-offs as a percentage of average finance receivables | | | | | 0.53 | % | | | 0.65 | % | | | 0.48 | % | | | 0.59 | % | | | 0.46 | % |
| Allowance for loan losses as a percentage of finance receivables | | | | | 1.31 | % | | | 1.29 | % | | | 1.79 | % | | | | | | | | |
Capital Ratios |
| Total ending equity to total ending assets | | | | | 16.7 | % | | | 16.6 | % | | | 18.9 | % | | | | | | | | |
| Common Equity Tier 1 Capital Ratio (fully phased-in) | | | | | 13.4 | % | | | 13.1 | % | | | 14.4 | % | | | | | | | | |
| Total Capital Ratio (fully phased-in) | | | | | 14.1 | % | | | 13.8 | % | | | 15.1 | % | | | | | | | | |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 115
Table of Contents
Average Balances and Rates(1)(dollars in millions)
| | | | Quarters Ended
| |
|---|
| | | | June 30, 2016
| | March 31, 2016
| | June 30, 2015
| |
|---|
| | | | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
|
|---|
| Interest bearing deposits | | | | $ | 7,113.5 | | | $ | 8.9 | | | | 0.50 | % | | $ | 7,114.0 | | | $ | 8.4 | | | | 0.47 | % | | $ | 4,829.4 | | | $ | 3.4 | | | | 0.28 | % |
| Securities purchased under agreements to resell | | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 675.0 | | | | 1.0 | | | | 0.59 | % |
| Investment securities | | | | | 3,130.6 | | | | 22.8 | | | | 2.91 | % | | | 2,923.5 | | | | 22.5 | | | | 3.08 | % | | | 1,510.6 | | | | 4.6 | | | | 1.22 | % |
Loans (including held for sale)(2),(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(2) | | | | | 31,784.4 | | | | 447.8 | | | | 5.87 | % | | | 32,091.5 | | | | 441.2 | | | | 5.74 | % | | | 18,130.4 | | | | 226.1 | | | | 5.41 | % |
| Non-U.S. | | | | | 1,160.2 | | | | 24.4 | | | | 8.41 | % | | | 1,291.0 | | | | 26.4 | | | | 8.18 | % | | | 2,161.3 | | | | 48.7 | | | | 9.01 | % |
Total loans(2) | | | | | 32,944.6 | | | | 472.2 | | | | 5.96 | % | | | 33,382.5 | | | | 467.6 | | | | 5.84 | % | | | 20,291.7 | | | | 274.8 | | | | 5.83 | % |
Total interest earning assets / interest income(2),(3) | | | | | 43,188.7 | | | | 503.9 | | | | 4.81 | % | | | 43,420.0 | | | | 498.5 | | | | 4.74 | % | | | 27,306.7 | | | | 283.8 | | | | 4.39 | % |
Operating lease equipment, net
(including held for sale)(4) |
U.S.(4) | | | | | 8,922.0 | | | | 168.9 | | | | 7.57 | % | | | 8,831.3 | | | | 185.7 | | | | 8.41 | % | | | 7,859.0 | | | | 175.4 | | | | 8.93 | % |
Non-U.S.(4) | | | | | 8,003.5 | | | | 159.1 | | | | 7.95 | % | | | 7,890.0 | | | | 158.2 | | | | 8.02 | % | | | 7,422.2 | | | | 149.1 | | | | 8.04 | % |
Total operating lease equipment, net(4) | | | | | 16,925.5 | | | | 328.0 | | | | 7.75 | % | | | 16,721.3 | | | | 343.9 | | | | 8.23 | % | | | 15,281.2 | | | | 324.5 | | | | 8.49 | % |
| Indemnification assets | | | | | 379.8 | | | | (8.6 | ) | | | (9.06 | )% | | | 401.7 | | | | (3.1 | ) | | | (3.09 | )% | | | – | | | | – | | | | – | |
Total earning assets(2) | | | | | 60,494.0 | | | $ | 823.3 | | | | 5.56 | % | | | 60,543.0 | | | $ | 839.3 | | | | 5.67 | % | | | 42,587.9 | | | $ | 608.3 | | | | 5.91 | % |
| Non interest earning assets |
| Cash due from banks | | | | | 1,051.4 | | | | | | | | | | | | 1,331.4 | | | | | | | | | | | | 952.7 | | | | | | | | | |
| Allowance for loan losses | | | | | (398.9 | ) | | | | | | | | | | | (371.5 | ) | | | | | | | | | | | (358.0 | ) | | | | | | | | |
| All other non-interest earning assets | | | | | 5,278.8 | | | | | | | | | | | | 5,298.4 | | | | | | | | | | | | 3,169.0 | | | | | | | | | |
| Assets of discontinued operation | | | | | 479.9 | | | | | | | | | | | | 495.1 | | | | | | | | | | | | – | | | | | | | | | |
Total Average Assets | | | | $ | 66,905.2 | | | | | | | | | | | $ | 67,296.4 | | | | | | | | | | | $ | 46,351.6 | | | | | | | | | |
Average Liabilities |
| Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | | $ | 31,643.5 | | | $ | 99.4 | | | | 1.26 | % | | $ | 31,829.1 | | | $ | 99.5 | | | | 1.25 | % | | $ | 16,844.6 | | | $ | 72.2 | | | | 1.71 | % |
| Borrowings | | | | | 17,853.7 | | | | 183.1 | | | | 4.10 | % | | | 18,210.4 | | | | 186.9 | | | | 4.11 | % | | | 16,423.8 | | | | 193.0 | | | | 4.70 | % |
| Total interest-bearing liabilities | | | | | 49,497.2 | | | | 282.5 | | | | 2.28 | % | | | 50,039.5 | | | | 286.4 | | | | 2.29 | % | | | 33,268.4 | | | | 265.2 | | | | 3.19 | % |
| Non-interest bearing deposits | | | | | 1,124.9 | | | | | | | | | | | | 1,080.2 | | | | | | | | | | | | 90.3 | | | | | | | | | |
| Credit balances of factoring clients | | | | | 1,264.9 | | | | | | | | | | | | 1,337.5 | | | | | | | | | | | | 1,428.6 | | | | | | | | | |
| Other non-interest bearing liabilities | | | | | 3,093.3 | | | | | | | | | | | | 3,063.7 | | | | | | | | | | | | 2,776.7 | | | | | | | | | |
| Liabilities of discontinued operation | | | | | 738.1 | | | | | | | | | | | | 690.2 | | | | | | | | | | | | – | | | | | | | | | |
| Noncontrolling interests | | | | | 0.5 | | | | | | | | | | | | 0.5 | | | | | | | | | | | | 0.5 | | | | | | | | | |
| Stockholders’ equity | | | | | 11,186.3 | | | | | | | | | | | | 11,084.8 | | | | | | | | | | | | 8,787.1 | | | | | | | | | |
Total Average Liabilities and Stockholders’ Equity | | | | $ | 66,905.2 | | | | | | | | | | | $ | 67,296.4 | | | | | | | | | | | $ | 46,351.6 | | | | | | | | | |
| Net revenue spread | | | | | | | | | | | | | 3.28 | % | | | | | | | | | | | 3.38 | % | | | | | | | | | | | 2.72 | % |
| Impact of non-interest bearing sources | | | | | | | | | | | | | 0.37 | % | | | | | | | | | | | 0.36 | % | | | | | | | | | | | 0.61 | % |
Net revenue/yield on earning assets(2) | | | | | | | | $ | 540.8 | | | | 3.65 | % | | | | | | $ | 552.9 | | | | 3.74 | % | | | | | | $ | 343.1 | | | | 3.33 | % |
116 CIT GROUP INC
Table of Contents
Average Balances and Rates(1)(dollars in millions) (continued)
| | | | Six Months Ended
| |
|---|
| | | | June 30, 2016
| | June 30, 2015
| |
|---|
| | | | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
| | Average
Balance
| | Revenue /
Expense
| | Average
Rate (%)
|
|---|
| Interest bearing deposits | | | | $ | 7,110.7 | | | $ | 17.3 | | | | 0.49 | % | | $ | 5,390.1 | | | $ | 7.4 | | | | 0.27 | % |
| Securities purchased under agreements to resell | | | | | – | | | | – | | | | – | | | | 650.0 | | | | 1.7 | | | | 0.52 | % |
| Investment securities | | | | | 3,045.7 | | | | 45.3 | | | | 2.97 | % | | | 1,526.2 | | | | 8.4 | | | | 1.10 | % |
Loans (including held for sale)(2),(3) | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(2) | | | | | 31,904.4 | | | | 889.0 | | | | 5.81 | % | | | 18,012.5 | | | | 446.1 | | | | 5.39 | % |
| Non-U.S. | | | | | 1,230.6 | | | | 50.8 | | | | 8.26 | % | | | 2,203.2 | | | | 101.1 | | | | 9.18 | % |
Total loans(2) | | | | | 33,135.0 | | | | 939.8 | | | | 5.90 | % | | | 20,215.7 | | | | 547.2 | | | | 5.83 | % |
Total interest earning assets / interest income(2),(3) | | | | | 43,291.4 | | | | 1,002.4 | | | | 4.77 | % | | | 27,782.0 | | | | 564.7 | | | | 4.29 | % |
Operating lease equipment, net (including held for sale)(4) | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S.(4) | | | | | 8,873.5 | | | | 354.6 | | | | 7.99 | % | | | 7,821.1 | | | | 353.2 | | | | 9.03 | % |
Non-U.S.(4) | | | | | 7,951.6 | | | | 317.3 | | | | 7.98 | % | | | 7,424.1 | | | | 299.0 | | | | 8.05 | % |
Total operating lease equipment, net(4) | | | | | 16,825.1 | | | | 671.9 | | | | 7.99 | % | | | 15,245.2 | | | | 652.2 | | | | 8.56 | % |
| Indemnification assets | | | | | 390.9 | | | | (11.7 | ) | | | (5.99 | )% | | | – | | | | – | | | | – | |
Total earning assets(2) | | | | | 60,507.4 | | | $ | 1,662.6 | | | | 5.62 | % | | | 43,027.2 | | | $ | 1,216.9 | | | | 5.85 | % |
| Non interest earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash due from banks | | | | | 1,217.8 | | | | | | | | | | | | 930.3 | | | | | | | | | |
| Allowance for loan losses | | | | | (382.4 | ) | | | | | | | | | | | (352.3 | ) | | | | | | | | |
| All other non-interest earning assets | | | | | 5,271.3 | | | | | | | | | | | | 3,184.2 | | | | | | | | | |
| Assets of discontinued operation | | | | | 487.2 | | | | | | | | | | | | – | | | | | | | | | |
Total Average Assets | | | | $ | 67,101.3 | | | | | | | | | | | $ | 46,789.4 | | | | | | | | | |
Average Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | | $ | 31,727.6 | | | $ | 198.9 | | | | 1.25 | % | | $ | 16,546.2 | | | $ | 141.2 | | | | 1.71 | % |
| Borrowings | | | | | 18,034.8 | | | | 370.0 | | | | 4.10 | % | | | 17,009.7 | | | | 395.3 | | | | 4.65 | % |
| Total interest-bearing liabilities | | | | | 49,762.4 | | | | 568.9 | | | | 2.29 | % | | | 33,555.9 | | | | 536.5 | | | | 3.20 | % |
| Non-interest bearing deposits | | | | | 1,103.6 | | | | | | | | | | | | 98.2 | | | | | | | | | |
| Credit balances of factoring clients | | | | | 1,292.6 | | | | | | | | | | | | 1,459.2 | | | | | | | | | |
| Other non-interest bearing liabilities | | | | | 3,087.0 | | | | | | | | | | | | 2,836.4 | | | | | | | | | |
| Liabilities of discontinued operation | | | | | 718.3 | | | | | | | | | | | | – | | | | | | | | | |
| Noncontrolling interests | | | | | 0.5 | | | | | | | | | | | | (2.0 | ) | | | | | | | | |
| Stockholders’ equity | | | | | 11,136.9 | | | | | | | | | | | | 8,841.7 | | | | | | | | | |
Total Average Liabilities and Stockholders’ Equity | | | | $ | 67,101.3 | | | | | | | | | | | $ | 46,789.4 | | | | | | | | | |
| Net revenue spread | | | | | | | | | | | | | 3.33 | % | | | | | | | | | | | 2.65 | % |
| Impact of non-interest bearing sources | | | | | | | | | | | | | 0.36 | % | | | | | | | | | | | 0.62 | % |
Net revenue/yield on earning assets(2) | | | | | | | | $ | 1,093.7 | | | | 3.69 | % | | | | | | $ | 680.4 | | | | 3.27 | % |
(1) | | Average rates are impacted by PAA accretion and amortization. |
(2) | | The balance and 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. |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 117
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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, certain financial measures commonly used by other BHCs are not as meaningful for our Company. We intend our non-GAAP financial measures to provide additional information and insight regarding operating results and financial position of the business and in certain cases to provide financial information that is presented to rating agencies and other users of financial information. These measures are not in accordance with, or a substitute for, GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies. See footnotes below the tables for additional explanation of non-GAAP measurements.
Total Net Revenue(1) and Net Operating Lease Revenue(2) (dollars in millions)
| | | | Quarters Ended
| | Six Months Ended
| |
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
Total Net Revenue | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | $ | 495.3 | | | $ | 495.4 | | | $ | 283.8 | | | $ | 990.7 | | | $ | 564.8 | |
| Rental income on operating leases | | | | | 569.3 | | | | 575.4 | | | | 531.7 | | | | 1,144.7 | | | | 1,062.3 | |
| Finance revenue | | | | | 1,064.6 | | | | 1,070.8 | | | | 815.5 | | | | 2,135.4 | | | | 1,627.1 | |
| Interest expense | | | | | (282.5 | ) | | | (286.4 | ) | | | (265.2 | ) | | | (568.9 | ) | | | (536.5 | ) |
| Depreciation on operating lease equipment | | | | | (176.4 | ) | | | (175.3 | ) | | | (157.8 | ) | | | (351.7 | ) | | | (314.6 | ) |
| Maintenance and other operating lease expenses | | | | | (64.9 | ) | | | (56.2 | ) | | | (49.4 | ) | | | (121.1 | ) | | | (95.5 | ) |
| Net finance revenue | | | | | 540.8 | | | | 552.9 | | | | 343.1 | | | | 1,093.7 | | | | 680.5 | |
| Other income | | | | | 104.3 | | | | 100.9 | | | | 63.5 | | | | 205.2 | | | | 149.9 | |
Total net revenue | | | | $ | 645.1 | | | $ | 653.8 | | | $ | 406.6 | | | $ | 1,298.9 | | | $ | 830.4 | |
NFR as a % of AEA | | | | | 3.65 | % | | | 3.74 | % | | | 3.33 | % | | | 3.69 | % | | | 3.27 | % |
Net Operating Lease Revenue | | | | | | | | | | | | | | | | | | | | | | |
| Rental income on operating leases | | | | $ | 569.3 | | | $ | 575.4 | | | $ | 531.7 | | | $ | 1,144.7 | | | $ | 1,062.3 | |
| Depreciation on operating lease equipment | | | | | (176.4 | ) | | | (175.3 | ) | | | (157.8 | ) | | | (351.7 | ) | | | (314.6 | ) |
| Maintenance and other operating lease expenses | | | | | (64.9 | ) | | | (56.2 | ) | | | (49.4 | ) | | | (121.1 | ) | | | (95.5 | ) |
Net operating lease revenue | | | | $ | 328.0 | | | $ | 343.9 | | | $ | 324.5 | | | $ | 671.9 | | | $ | 652.2 | |
Operating Expenses Excluding Certain Costs(3) (dollars in millions)
| | | | Quarters Ended
| | Six Months Ended
| |
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
| Operating expenses | | | | $ | (337.5 | ) | | $ | (348.5 | ) | | $ | (235.0 | ) | | $ | (686.0 | ) | | $ | (476.6 | ) |
| Provision for severance and facilities exiting activities | | | | | 9.7 | | | | 20.3 | | | | 1.1 | | | | 30.0 | | | | 0.1 | |
| Intangible asset amortization | | | | | 6.4 | | | | 6.4 | | | | 0.5 | | | | 12.8 | | | | 1.1 | |
| Operating expenses excluding restructuring costs and intangible asset amortization | | | | $ | (321.4 | ) | | $ | (321.8 | ) | | $ | (233.4 | ) | | $ | (643.2 | ) | | $ | (475.4 | ) |
| Operating expenses as a % of AEA | | | | | (2.28 | )% | | | (2.35 | )% | | | (2.28 | )% | | | (2.32 | )% | | | (2.29 | )% |
Operating expenses excluding restructuring costs and intangible amortization(3) | | | | | (2.17 | )% | | | (2.17 | )% | | | (2.27 | )% | | | (2.17 | )% | | | (2.29 | )% |
Total Net Revenue | | | | $ | 645.1 | | | $ | 653.8 | | | $ | 406.6 | | | $ | 1,298.9 | | | $ | 830.4 | |
Net Efficiency Ratio(7) | | | | | 49.8 | % | | | 49.2 | % | | | 57.4 | % | | | 49.5 | % | | | 57.2 | % |
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Earning Assets(5) (dollars in millions)
| | | | June 30,
2016
| | March 31,
2016
| | December 31,
2015
|
|---|
| Loans | | | | $ | 30,456.8 | | | $ | 31,408.6 | | | $ | 31,671.7 | |
| Operating lease equipment, net | | | | | 16,864.6 | | | | 16,665.7 | | | | 16,617.0 | |
| Interest bearing cash | | | | | 7,082.8 | | | | 7,135.0 | | | | 6,820.3 | |
| Investment securities | | | | | 3,229.1 | | | | 2,896.8 | | | | 2,953.8 | |
| Assets held for sale | | | | | 2,403.3 | | | | 2,211.2 | | | | 2,092.4 | |
| Indemnification assets | | | | | 375.5 | | | | 389.4 | | | | 414.8 | |
| Credit balances of factoring clients | | | | | (1,215.2 | ) | | | (1,361.0 | ) | | | (1,344.0 | ) |
| Total earning assets | | | | $ | 59,196.9 | | | $ | 59,345.7 | | | $ | 59,226.0 | |
Average Earning Assets (for the respective quarters) | | | | $ | 59,229.2 | | | $ | 59,206.4 | | | $ | 59,141.5 | |
Tangible Book Value(6) (dollars in millions)
| | | | Quarters Ended
| | Six Months Ended
| |
|---|
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
| | June 30,
2016
| | June 30,
2015
|
|---|
| Total common stockholders’ equity | | | | $ | 11,124.1 | | | $ | 11,125.8 | | | $ | 8,807.1 | | | $ | 11,124.1 | | | $ | 8,807.1 | |
| Less: Goodwill | | | | | (1,169.7 | ) | | | (1,195.1 | ) | | | (565.9 | ) | | | (1,169.7 | ) | | | (565.9 | ) |
| Intangible assets | | | | | (168.9 | ) | | | (170.3 | ) | | | (21.4 | ) | | | (168.9 | ) | | | (21.4 | ) |
| Tangible book value | | | | | 9,785.5 | | | | 9,760.4 | | | | 8,219.8 | | | | 9,785.5 | | | | 8,219.8 | |
| Less: disallowed deferred tax asset | | | | | (842.4 | ) | | | (873.9 | ) | | | (339.7 | ) | | | (842.4 | ) | | | (339.7 | ) |
Adjusted tangible common equity(8) | | | | $ | 8,943.1 | | | $ | 8,886.5 | | | $ | 7,880.1 | | | $ | 8,943.1 | | | $ | 7,880.1 | |
| Income from continuing operations | | | | $ | 181.1 | | | $ | 151.7 | | | $ | 115.3 | | | $ | 332.8 | | | $ | 219.0 | |
| Adjustments: intangible assets amortization, net of tax | | | | | 4.3 | | | | 4.4 | | | | 0.5 | | | | 8.7 | | | | 0.8 | |
| Adjusted net income | | | | $ | 185.4 | | | $ | 156.1 | | | $ | 115.8 | | | $ | 341.5 | | | $ | 219.8 | |
| Average tangible common equity | | | | $ | 9,829.7 | | | $ | 9,714.3 | | | $ | 8,199.5 | | | $ | 9,773.7 | | | $ | 8,252.0 | |
| Less: average disallowed deferred tax asset | | | | | (858.2 | ) | | | (889.2 | ) | | | (349.0 | ) | | | (878.9 | ) | | | (360.8 | ) |
| Average adjusted tangible common equity | | | | $ | 8,971.5 | | | $ | 8,825.1 | | | $ | 7,850.5 | | | $ | 8,894.8 | | | $ | 7,891.2 | |
| Adjusted return on tangible common equity | | | | | 8.27 | % | | | 7.08 | % | | | 5.90 | % | | | 7.68 | % | | | 5.57 | % |
Continuing Operations Total Assets(7) (dollars in millions)
| | | | June 30,
2016
| | March 31,
2016
| | June 30,
2015
|
|---|
| Total assets | | | | $ | 66,700.3 | | | $ | 67,097.6 | | | $ | 46,545.1 | |
| Assets of discontinued operation | | | | | (469.1 | ) | | | (489.5 | ) | | | – | |
| Continuing operations total assets | | | | $ | 66,231.2 | | | $ | 66,608.1 | | | $ | 46,545.1 | |
(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, net finance revenue as a percent of AEA 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 and intangible asset amortization is a non-GAAP measure used by management to compare period over period expenses. |
(4) | | Net efficiency ratio is a non-GAAP measurement used by management to measure operating expenses (before restructuring costs and intangible amortization) to total net revenues. |
(5) | | 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. |
(6) | | 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. |
(7) | | Continuing operations total assets is a non-GAAP measure, which management uses for analytical purposes to compare balance sheet assets on a consistent basis. |
(8) | | Return on average tangible common equity is adjusted to remove the impact of intangible amortization, goodwill impairment and the impact from valuation allowance reversals from income from continuing operations, while the average tangible common equity is reduced for disallowed deferred tax assets. Return on average tangible common equity is another metric used to evaluate our use of equity. |
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 119
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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, as amended. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “could,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to known and unknown risks, uncertainties and contingencies. Forward-looking statements are included, for example, in the discussions about:
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 pending or potential acquisition plans, and the integration risks inherent in such acquisitions, including our August 2015 acquisition of OneWest Bank, |
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 risk of operational errors, failure of operational controls, success of systems enhancements and expansion of risk management and control functions, |
n | | our mix of portfolio asset classes, including changes resulting from growth initiatives, new business initiatives, new products, acquisitions and divestitures, new business and customer retention, |
n | | legal risks, including related to the enforceability of our agreements and to changes in laws and regulations, |
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 the secured and unsecured debt and asset-backed securitization markets, |
n | | risks of implementing new processes, procedures, and systems, including any new processes, procedures, and systems required to comply with the additional laws and regulations applicable to systematically important financial institutions, |
n | | risks associated with the value and recoverability of leased equipment and related lease residual values, |
n | | risks of failing to achieve 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, or affecting our assets, including our operating lease equipment, |
n | | changes in competitive factors, |
n | | customer retention rates, |
n | | risks associated with dispositions of businesses or asset portfolios, including how to replace the income associated with such businesses or asset portfolios and the risk of residual liabilities from such businesses or portfolios, |
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n | | risks associated with acquisitions of businesses or asset portfolios and the risks of integrating such acquisitions, including the integration of OneWest Bank, 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 regarding our performance. We do not assume any obligation to update any forward-looking statement for any reason.
Item 4. Controls and Procedures
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 June 30, 2016. On August 3, 2015, the Company acquired IMB HoldCo LLC in a purchase business combination. Management has excluded the acquired business from its assessment of the effectiveness of disclosure controls and procedures as of June 30, 2016. 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.
MATERIAL WEAKNESS IN THE ACQUIRED BUSINESS’S INTERNAL CONTROL OVER FINANCIAL REPORTING
As discussed above, on August 3, 2015 the Company acquired IMB HoldCo LLC in a purchase business combination and had excluded the acquired entity from the December 31, 2015 evaluation of the effectiveness of internal control over financial reporting and the December 31, 2015 and June 30, 2016 evaluations of disclosure controls and procedures. However, in its 2015 Form 10-K filing, management identified a material weakness in the Financial Freedom reverse mortgage servicing business of IMB HoldCo LLC which is reported in discontinued operations as of June 30, 2016. Such material weakness still exists as of June 30, 2016.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of the Company’s financial statements for the year ended December 31, 2015, the Company identified errors in the estimation process of the HECM Interest Curtailment Reserve that resulted in a measurement period adjustment.
Following the identification of the errors, management determined that a material weakness existed in the acquired business’s internal control over financial reporting related to the HECM Interest Curtailment Reserve. Specifically, controls were not adequately designed and maintained to ensure the key judgments and assumptions developed from loan file reviews or other historical experience are accurately determined, valid and authorized, the data used in the estimation process is complete and accurate, and the assumptions, judgments, and methodology continue to be appropriate. This control deficiency could result in misstatements of the HECM Interest Curtailment Reserve that could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.
This control deficiency resulted in adjustments to the calculation of the HECM Interest Curtailment Reserve. After performing analysis of the underlying data and assumptions, the reserve was adjusted to reflect the results of this analysis. Management concluded that the amounts and disclosures within the Company’s quarterly and annual financial statements since the acquisition of IMB Holdco LLC are not materially misstated.
Subsequent to the acquisition of IMB, management continued to review information relating to events or circumstances existing at the acquisition date, particularly in light of the identification of the material weakness related to the HECM Interest Curtailment Reserve. This review resulted in the Company taking certain charges and making certain adjustments to the acquisition date valuation amounts in our 2015 Form 10-K. During the second quarter of 2016, in connection with the preparation of the Company’s quarterly financial statements, as a result of new information from the ongoing process to remediate the material weakness and taking into consideration the investigation being conducted by the Office of Inspector General (“OIG”) for the Department of Housing and Urban Development, the Company recorded additional reserves, reflecting a change in estimate, of approximately $230 million, which is net of a corresponding increase in the indemnification receivable from the FDIC. This review and the related investigation are ongoing, and, as a result, there could be additional changes to the financial statements in future periods.
In response to the material weakness described above, the Company is redesigning the procedures and controls to remediate the material weakness, with oversight from the Board of Directors. This remediation plan, which management began to implement in Q1 2016, includes the following elements:
| 1) | | Implement a data quality control program. |
| 2) | | Enhance controls over documentation of detailed data sources. |
| 3) | | Simplify the reserve estimation process and improve governance, controls and documentation. |
Though the Company began to implement its remediation plan and improvements have been made in the processes in 2016, management does not expect that this material weakness will be fully remediated as of September 30, 2016. Management believes that the new or enhanced controls, when fully implemented and when tested for a sufficient period of time, will remediate the material weakness However, the Company cannot provide any assurance that these remediation efforts will be successful.
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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk 121
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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 15 —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 15 —Contingencies ofItem 1. Consolidated Financial Statements.
For a discussion of risk factors not changed, seePart I, Item 1A. Risk Factors, of CIT’s 2015 Annual Report on Form 10-K, and Forward-Looking Statements of this Form 10-Q.
| | Unregistered Sales of Equity Securities and Use of Proceeds |
There were no repurchases of the Company’s common stock during the quarter ended June 30, 2016.
Item 4. Mine Safety Disclosure
Not applicable
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| 2.1 | | | | Agreement and Plan of Merger, by and among CIT Group Inc., IMB HoldCo LLC, Carbon Merger Sub LLC and JCF III HoldCo I L.P., dated as of July 21, 2014 (incorporated by reference to Exhibit 2.1 to Form 8-K filed July 25, 2014). |
| 2.2 | | | | Amendment No. 1, dated as of July 21, 2015, to the Agreement and Plan of Merger, by and among CIT Group Inc., IMB HoldCo I L.P., Carbon Merger Sub LLC and JCF III HoldCo I L.P., dated as of July 21, 2014 (incorporated by reference to Exhibit 2.1 to Form 8-K filed July 27, 2015). |
| 3.1 | | | | Fourth Restated Certificate of Incorporation of the Company, as filed with the Office of the Secretary of State of the State of Delaware on May 17, 2016 (incorporated by reference to Exhibit 3.1 to Form 8-K filed May 17, 2016). |
| 3.2 | | | | Amended and Restated By-laws of the Company, as amended through May 10, 2016 (incorporated by reference to Exhibit 3.2 to Form 8-K filed May 17, 2016). |
| 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). |
| 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). |
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| 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). |
| 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). |
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| 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 | | | | 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). |
| 4.19 | | | | 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). |
| 4.20 | | | | 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). |
| 4.21 | | | | 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). |
| 4.22 | | | | 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). |
| 4.23 | | | | 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). |
| 4.24 | | | | Second Amended and Restated Revolving Credit and Guaranty Agreement, dated as of February 17, 2016, 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 February 18, 2016). |
| 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* | | | | 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). |
| 10.6* | | | | 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). |
| 10.7* | | | | 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). |
| 10.8* | | | | 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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| 10.9** | | | | 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). |
| 10.10** | | | | 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 (incorporated by reference to Exhibit 10.32 to Form 10-Q filed August 9, 2012). |
| 10.11** | | | | 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 (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 9, 2012). |
| 10.12** | | | | ISDA Master Agreement and Credit Support Annex, each dated June 6, 2008, between CIT Financial Ltd. and Goldman Sachs International (incorporated by reference to Exhibit 10.34 to Form 10-Q filed August 11, 2008). |
| 10.13* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.36 to Form 10-K filed March 1, 2013). |
| 10.14* | | | | 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). |
| 10.15* | | | | 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). |
| 10.16 | | | | Stockholders Agreement, by and among CIT Group Inc. and the parties listed on the signature pages thereto, dated as of July 21, 2014 (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 25, 2014). |
| 10.17* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013) (incorporated by reference to Exhibit 10.30 to Form 10-K filed February 20, 2015). |
| 10.18* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.31 to Form 10-K filed February 20, 2015). |
| 10.19* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2014) (incorporated by reference to Exhibit 10.32 to Form 10-K filed February 20, 2015). |
| 10.20* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (Executives with Employment Agreements) (2014) (incorporated by reference to Exhibit 10.33 to Form 10-K filed February 20, 2015). |
| 10.21* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2013) (incorporated by reference to Exhibit 10.30 to Form 10-Q filed August 5, 2015). |
| 10.22* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2013) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.31 to Form 10-Q filed August 5, 2015). |
| 10.23* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2014) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.32 to Form 10-Q filed August 5, 2015). |
| 10.24* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2014) (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 5, 2015). |
| 10.25* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit Provision Performance Measures) (incorporated by reference to Exhibit 10.34 to Form 10-Q filed August 5, 2015). |
| 10.26* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit Provision Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.35 to Form 10-Q filed August 5, 2015). |
| 10.27* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per Share and Average Pre-Tax Return on Assets Performance Measures) (incorporated by reference to Exhibit 10.36 to Form 10-Q filed August 5, 2015). |
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| 10.28* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per Share and Average Pre-Tax Return on Assets Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.37 to Form 10-Q filed August 5, 2015). |
| 10.29* | | | | Retention Letter Agreement, dated July 21, 2014, between CIT Group Inc. and Steven T. Mnuchin (incorporated by reference to Exhibit 10.2 to Form 8-K filed July 25, 2014). |
| 10.30* | | | | Offer Letter, dated October 27, 2015, between CIT Group Inc. and Ellen R. Alemany, including Attached Exhibits. (incorporated by reference to Exhibit 10.39 to Form 10-Q filed November 13, 2016). |
| 10.31 | | | | Nomination and Support Agreement dated February 18, 2016 by and between J.C. Flowers & Co. LLC and CIT Group Inc. (incorporated by reference to Exhibit 99.1 to Form 8-K filed February 22, 2016). |
| 10.32* | | | | Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2016) (incorporated by reference to Exhibit 10.37 to Form 10-Q filed May 9, 2016). |
| 10.33* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (Executives with Employment Agreements) (2016) (incorporated by reference to Exhibit 10.38 to Form 10-Q filed May 9, 2016). |
| 10.34* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (with ROTCE and Credit Provision Performance Measures) (2016) (incorporated by reference to Exhibit 10.39 to Form 10-Q filed May 9, 2016). |
| 10.35* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (with ROTCE and Credit Provision Performance Measures) (Executives with Employment Agreements) (2016) (incorporated by reference to Exhibit 10.40 to Form 10-Q filed May 9, 2016). |
| 10.36* | | | | Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2015) (filed herein). |
| 10.37* | | | | Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Director Award Agreement (Stock Settled, One Year or Three Year Vesting) (filed herein). |
| 10.38* | | | | Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Director Award Agreement (Cash and Stock Settled, One Year or Three Year Vesting) (filed herein). |
| 10.39* | | | | Employment Agreement, dated as of July 5, 2016, between CIT Aerospace LLC and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 11, 2016). |
| 12.1 | | | | CIT Group Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (filed herein). |
| 31.1 | | | | Certification of Ellen R. Alemany 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 (filed herein). |
| 31.2 | | | | Certification of E. Carol Hayles 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 (filed herein). |
| 32.1*** | | | | Certification of Ellen R. Alemany pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herein). |
| 32.2*** | | | | Certification of E. Carol Hayles pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herein). |
| 101.INS | | | | XBRL Instance Document (Includes the following financial information included in the Company’s Annual Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.) |
| 101.SCH | | | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.LAB | | | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| 101.DEF | | | | XBRL Taxonomy Extension Definition Linkbase Document. |
* | | Indicates a management contract or compensatory plan or arrangement. |
** | | Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended. |
*** | | This information is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any filing under the Securities Act of 1933. |
Item 6. Exhibits 127
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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.
| | | | | | | |
| August 15, 2016 | | | | CIT GROUP INC. |
| |
| | | | | /s/ E. Carol Hayles |
| | | | | E. Carol Hayles |
| | | | | Executive Vice President and Chief Financial Officer |
| |
| | | | | /s/ Edward K. Sperling |
| | | | | Edward K. Sperling |
| | | | | Executive Vice President and Controller |
128 CIT GROUP INC
