CIT Group Inc. reported net income of $184 million for the second quarter of 2013, compared to a net loss of $73 million for the second quarter of 2012. Net income for the six month period ended June 30, 2013 was $346 million, compared to a net loss of $500 million. Prior year results include significant debt redemption charges.
“Our financial results this quarter demonstrate the progress we have made in building our franchise and meeting our profitability targets,” said John Thain, Chairman and Chief Executive Officer. “We grew CIT Bank assets and deposits and advanced our expense reduction initiatives as we continued to provide financing to our small business, middle market and transportation clients. The termination of the Written Agreement and our announced share repurchase plan were important milestones that enhance our ability to create value for our shareholders.”
Second quarter results reflect growth in earning assets, lower funding costs, and continued strong portfolio performance. In addition to the absence of significant debt redemption charges in the current quarter, the improvement in net income from the year-ago quarter reflected lower funding costs and asset growth, partially offset by reduced gains on asset sales and lower net FSA accretion.
Selected Segment Highlights:
Vendor Finance
Pre-tax earnings for the quarter were $5 million. Excluding the impact of debt redemptions, pre-tax earnings of $6 million decreased from $27 million in the year-ago quarter and $8 million in the prior quarter. The current quarter includes $6 million of costs, primarily losses on asset sales recorded in other income, related to our international platform rationalizations. The decline from the year-ago quarter also reflected higher credit and operating costs. The modest sequential quarter decline primarily reflected lower operating costs that were essentially offset by the previously mentioned charges on exiting certain international operations.
Financing and leasing assets grew to $5.7 billion, representing increases of 11% from a year ago and 2% from March 31, 2013. We funded $843 million of new business volume in the quarter, an increase of 11% from the year-ago quarter and 30% from the prior quarter. Assets held for sale increased to $479 million during the quarter as we continued to make progress on our international rationalization efforts.
Credit metrics remained relatively stable. Non-accrual loans were $90 million (1.82% of finance receivables) compared to $73 million (1.63%) a year ago and $86 million (1.75%) at March 31, 2013. Net charge-offs of $8 million were essentially unchanged from the year-ago and prior quarters.
Transportation Finance
Pre-tax earnings for the quarter were $165 million. Excluding the impact of debt redemptions, pre-tax earnings were $169 million, up from $131 million in the year-ago quarter, reflecting lower funding costs, and up from $152 million in the prior quarter largely due to higher gains on equipment sales, primarily commercial airplanes. Equipment utilization remained strong with all owned commercial airplanes and 98% of rail equipment on lease or under a commitment at quarter-end.
Financing and leasing assets at June 30, 2013 of $14.3 billion increased $0.5 billion from a year ago and $0.1 billion sequentially. During the quarter we took delivery of seven aircraft and approximately 1,100 railcars. Essentially all of the current quarter’s loan and rail leasing volume was originated by CIT Bank.
During the quarter we also placed orders for 30 Boeing 737 MAX 8s, which included the conversion of 20 existing 737 Next-Generation orders, and over 3,300 rail cars, primarily tank cars and covered hoppers. All but three aircraft scheduled for delivery in the next twelve months, and over 70% of all railcars on order, have lease commitments.
Corporate Finance
Pre-tax earnings for the quarter were $41 million. Excluding the impact of debt redemptions, pre-tax earnings were $43 million, down from $90 million in the year-ago quarter, as lower counterparty receivable accretion and gains on asset and investment sales more than offset lower funding costs, and up from $28 million last quarter reflecting higher capital market fees and lower credit and operating costs. Gains on asset and investment sales totaled $2 million in the current quarter, down from $15 million in the prior-year quarter and $8 million in the prior quarter.
Financing and leasing assets grew to $9.4 billion, up $0.2 billion from March 31, 2013 and $1.7 billion from June 30, 2012, reflecting a portfolio purchased during the first quarter of 2013. New funded loan volume totaled $1.3 billion, up from $969 million in the year-ago quarter and $960 million in the prior quarter.
Credit performance remained strong. Non-accrual loans declined to $173 million (1.95% of finance receivables) from $316 million (4.18%) a year ago and $185 million (2.03%) at March 31, 2013. Net charge-offs were $22 million (0.97%) of average finance receivables and were nearly all attributable to loans transferred to held for sale; absent these transfers, net charge-offs approximated 0.08% of average finance receivables.
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