CIT Group reported net income of $163 million, $0.81 per diluted share, for the first quarter of 2013, compared to a net loss of $427 million, ($2.13) per diluted share, for the first quarter of 2012.  The loss in the year-ago quarter was primarily due to $620 million of debt redemption charges, compared to $18 million of debt redemption charges in the current quarter.

Total assets at March 31, 2013 were $44.6 billion, up $0.6 billion from December 31, 2012, and up $0.4 billion from March 31, 2012. Commercial financing and leasing assets increased from prior periods to $31.5 billion. Consumer assets declined by approximately $100 million from December 31, 2012, reflecting the continued run off of student loans, and by over $2.0 billion from a year ago, primarily due to the sale of student loans throughout 2012. Total loans of $22.1 billion increased $1.6 billion from a year ago, and $1.3 billion sequentially including the previously announced purchase of approximately $700 million of loans in Corporate Finance and the purchase of approximately $150 million of Vendor Finance receivables. Operating lease equipment increased $0.4 billion from a year ago to $12.3 billion and declined modestly from December 31, 2012, primarily due to the sale of aircraft. Cash and short-term investments declined to $6.9 billion from $7.6 billion at December 31, 2012.

First Quarter Financial Highlights:

• Commercial Asset Growth – Increased 11% from a year ago; sixth consecutive quarter of sequential growth
• Solid Net Finance Margin – Net Finance Margin of 4.43%;  funding costs further declined as deposits rose to 33% of total funding
• Credit Metrics Remain At Cyclical Lows – Non-Accrual Loans and Net Charge-offs declined
• Growth at CIT Bank – Assets surpassed $13 billion; online deposits increased to over $5.5 billion and now represent over half of total deposits
• Strong Capital – Tier 1 Capital Ratio of 16.3% and Total Capital Ratio of 17.1%
• Increased Tangible Book Value – Tangible book value per share increased to $40.35 

Segment Highlights:

Corporate Finance

Pre-tax earnings for the quarter were $25 million. Excluding the impact of debt redemptions, pre-tax earnings were $28 million, down significantly from $180 million in the year-ago quarter, as lower gains on asset and investment sales more than offset lower funding and credit costs, and down $78 million sequentially reflecting lower benefits from net FSA accretion, lower gains on asset and investment sales, fewer recoveries of loans charged off pre-emergence and a higher provision for credit losses.

Gains on asset and investment sales totaled $8 million in the current quarter, down from $167 million in the prior-year quarter and $23 million in the prior quarter.  The provision for credit losses was $13 million in the current quarter, compared to $23 million in the year-ago quarter and a benefit of $1 million in the prior quarter.

Financing and leasing assets grew to $9.2 billion, up $945 million from December 31, 2012 and $1.8 billion from March 31, 2012, and included the addition of approximately $700 million of loans in the current quarter related to a previously announced portfolio purchase. New funded loan volume totaled $960 million, compared to approximately $1 billion in the year-ago quarter and $1.5 billion in the prior quarter.

Credit performance remained strong. Non-accrual loans declined to $185 million from $212 million at December 31, 2012 and $329 million a year ago. Net charge-offs were under $2 million (0.07% of average finance receivables), improved from $7 million in the year-ago quarter and $14 million in the prior quarter. 

Trade Finance

Pre-tax earnings for the quarter were $9 million.  Excluding the impact of debt redemptions in prior periods, pre-tax earnings improved from $4 million in the year-ago quarter primarily due to lower funding costs, and declined from $22 million in the prior quarter primarily due to a provision for credit losses of $1 million in the current quarter compared to a benefit of $7 million in the prior quarter. Factoring volume was $6.4 billion, up 6% from the year-ago quarter, and down 7% sequentially due to seasonal trends. Factoring commissions of $30 million were down from $32 million in both the year-ago and prior quarters.

Credit metrics remained favorable. Non-accrual balances of $4 million were well below the year ago balance of $44 million, and modestly lower than at December 31, 2012, primarily due to accounts returning to accrual status and reductions in exposures. There was a modest net recovery in the current quarter, similar to the prior quarter, compared to a small net charge-off in the year-ago quarter.

Vendor Finance

Pre-tax earnings for the quarter were $5 million.  Excluding the impact of debt redemptions, pre-tax earnings of $8 million increased from $4 million in the year-ago quarter primarily due to improved funding costs, which were partially offset by higher operating costs, the impact of business and regional mix on finance revenue, and reduced net FSA accretion. The $40 million sequential quarter decrease primarily reflected lower other income and higher operating costs; the prior quarter included a gain of approximately $14 million related to a platform sale.

Financing and leasing assets grew to $5.6 billion, representing increases of 2% from December 31, 2012 and 9% from a year ago. We funded $650 million of new business volume for the first quarter, a decrease of 3% from the year-ago quarter, and down sequentially, reflecting seasonal trends. Asset growth this quarter also benefitted from a portfolio purchase of approximately $150 million.

Credit metrics remained relatively stable.  Non-accrual loans were $86 million (1.75% of finance receivables) compared to $83 million (1.85%) a year ago and $72 million (1.49%) at December 31, 2012. Net charge-offs of $7 million were essentially unchanged from the prior-year quarter and increased modestly from prior quarter due to lower recoveries.

Transportation Finance

Pre-tax earnings for the quarter were $142 million.  Excluding the impact of debt redemptions, pre-tax earnings were $152 million, up significantly from the year-ago quarter, reflecting lower funding and credit costs, but down $19 million sequentially reflecting a decline in the finance margin, as a result of lower rental income and increased depreciation. Equipment utilization remained strong with 100% of commercial air and 97% of rail equipment on lease or under a commitment at quarter-end.

Financing and leasing assets at March 31, 2013 of $14.2 billion increased $0.6 billion, or 5%, from a year ago and were essentially unchanged from December 31, 2012. New business volume of $0.3 billion reflects the delivery of one aircraft and over 1,000 railcars, and approximately $200 million of loans, largely related to the new maritime initiative. Essentially all of the current quarter’s loan and rail volume was originated by CIT Bank. All but one aircraft scheduled for delivery in the next twelve months and all of the railcars on order have lease commitments.

“Our results this quarter reflect our continued progress growing assets and improving profitability,” said John Thain, Chairman and Chief Executive Officer. “CIT Bank experienced solid asset growth and deposits now play a larger role in our diversified funding mix, accounting for a third of our total funding. We continue to maintain a strong balance sheet and capital ratios, and remain focused on improving our operating efficiencies and meeting our profitability targets.”

View the entire earnings release.