CIT Group today reported net income of $109 million for the quarter ended March 31, 2014, compared to net income of $163 million for the first quarter of 2013. First quarter results were primarily impacted by lower levels of interest income, higher maintenance and other operating lease expenses and an increase in the provision for credit losses.
Summary of First Quarter Financial Results
Total assets at March 31, 2014 were $48.6 billion, up from $47.1 billion at December 31, 2013 and from $44.6 billion at March 31, 2013. Financing and leasing assets in North American Commercial Finance and Transportation & International Finance increased to $32.8 billion, an increase of $1.3 billion from the prior quarter and $3.3 billion from the year-ago quarter. The increase was driven by the acquisition of Nacco in the first quarter, which added approximately $0.65 billion of financing and leasing assets, as well as solid origination volumes. The Non-Strategic Portfolio, which includes $3.3 billion of student loans, declined by approximately $200 million from December 31, 2013 to $4.4 billion and by $1.2 billion from a year ago, reflecting portfolio run off and asset sales. The student loan portfolio was subsequently sold in April 2014. Total loans of $18.6 billion declined slightly from December 31, 2013 and by $3.5 billion from a year ago, reflecting the movement of the student loan portfolio into assets held for sale in the fourth quarter of 2013. Operating lease equipment increased $1.1 billion from December 31, 2013 and $1.9 billion from a year ago to $14.2 billion, reflecting the European rail and other equipment purchases. Cash and investments of $9.0 billion were up $0.3 billion from December 31, 2013 and $1.8 billion from March 31, 2013.
Net finance was $324 million compared to $366 million in the year-ago quarter and $337 million in the prior quarter. Average earning assets were $35.4 billion in the current quarter, up from $33.0 billion in the year-ago quarter and $34.2 billion in the prior quarter. Net finance revenue as a percentage of average earning assets (“net finance margin”) was 3.66%, compared to 4.43% in the year-ago quarter and 3.95% in the prior quarter. Excluding the impact of debt redemptions2 in prior periods, net finance margin declined from 4.64% and 4.00% in the year-ago quarter and the prior quarter respectively. The reduction from the year-ago quarter primarily reflects the sale of higher-yielding Dell Europe assets and declines in operating lease margin and net FSA accretion. The reduction from the prior quarter reflects higher maintenance and other operating lease expenses, as well as lower portfolio yields and net FSA accretion related to the student loan portfolio.
Other income of $74 million increased from $70 million in the year-ago quarter and declined from $128 million in the prior quarter. The prior quarter included net benefits from asset sales and a workout related claim.
Transportation & International Finance
Pre-tax earnings for the quarter were $118 million, down from $139 million in the year-ago quarter primarily due to higher credit costs and operating expenses, partially offset by higher net finance revenue. Pre-tax earnings were essentially flat sequentially. Financing and leasing assets grew to $17.6 billion at March 31, 2014, up sequentially from $16.4 billion and from $15.2 billion a year ago. The sequential increase included $0.8 billion of growth in Rail, due in large part to the European rail acquisition that added $0.65 billion in operating lease equipment (~9,500 railcars), $0.2 billion in Aerospace and $0.1 billion in Maritime. New business volume was just over $1.0 billion, which consisted of the delivery of nine aircraft and approximately 1,400 railcars and funding of $0.4 billion of finance receivables.
Net finance revenue was $202 million, up from the year-ago quarter, as the impact from asset growth offset margin compression, and up sequentially. Net finance margin was 4.73% compared to 4.76% in the year ago quarter and 4.83% in the prior quarter. The margin decline reflects higher operating lease and maintenance expense which was partially offset by an increase in the loan portfolio yield due to a prepayment in the current quarter. Other income of $7 million was down from the year-ago quarter, which had higher gains on sales of operating lease equipment, and flat sequentially.
Provision for credit losses was $12 million, up from the year-ago quarter, which benefited from a reserve release in Aerospace, and down slightly sequentially. Charge-offs were concentrated in the International portfolio.
Operating expenses were $80 million, up from a year ago and sequentially and reflect the European rail acquisition and our continued investment in the Maritime platform.
Utilization remained strong with 99% of commercial aircraft and 98% of rail equipment on lease or under a commitment at quarter-end. All aircraft scheduled for delivery in the next 12 months, and approximately 84% of all railcars on order, have lease commitments. Gross yields in Aerospace improved to 12.6%, reflecting a prepayment in the loan portfolio, while gross rental yields in Rail declined slightly to 14.6% due in part to the addition of the European rail portfolio.
To read the full earnings release, click here.