CIT Q1 Volume Up 51%; Reports Loss on Refinancing Charges
CIT Group reported a net loss for the first-quarter 2012 of $447 million compared to net income of $66 million for the first quarter of 2011 and includes debt refinancing charges of $620 million related to the prepayment of $6.5 billion of high cost debt, while the year-ago period included debt refinancing charges of $46 million. Pre-tax income excluding debt refinancing charges was $214 million, up from $178 million in the year ago quarter.
CIT said funded new business volume of $2 billion increased 51% from the prior-year quarter, while committed new business volume of $2.5 billion increased 46%. Corporate Finance and Vendor Finance each reported double-digit percentage increases in both funded and committed volume from the prior year.
Factoring volume was $6 billion, down 2% from the prior-year quarter. Sequential volumes declined reflecting fewer aircraft deliveries in Transportation Finance, and seasonal factors in Vendor Finance and Trade Finance. In addition, CIT Bank purchased a $200 million portfolio of loans secured by aircraft.
CIT noted that its credit metrics further improved, as net charge-offs, non-accrual loans and inflows to non-accruals all declined from the prior-year quarter and sequentially. Net charge-offs were $22 million, down from $140 million in the year-ago quarter and $24 million in the fourth quarter. CIT said the improvement from the prior-year quarter was driven primarily by Corporate Finance.
The first-quarter provision for credit losses was $43 million, compared to $122 million in the year-ago quarter and $16 million in the fourth quarter. The decrease from the prior-year quarter reflects improved portfolio credit quality, including a reduction in specific reserves, and the continued reduction in non-accrual loans.
“We made further progress this quarter positioning CIT for profitability and growth,” said John A. Thain, chairman and chief executive officer. “We grew commercial assets and significantly advanced the transformation of our funding profile as we successfully issued unsecured debt and redeemed legacy high cost debt, which caused the majority of our debt to become unsecured. CIT Bank online deposits surpassed $1.1 billion and we expanded our online deposit product offerings. We will continue to focus on improving our core profitability as we work to meet the financing needs of our small business and middle-market clients.”
The following highlights on Corporate Finance, Trade Finance and CIT Bank were excerpted from the news release:
Excluding accelerated FSA interest expense, pre-tax earnings rose nearly 40% from the prior-year quarter, reflecting significant gains on asset sales, interest recoveries, lower funding costs, and lower credit costs offset in part by lower net FSA accretion. The sequential quarter decline reflects an increase in gains on asset sales and higher finance margin that were offset by credit provisions to establish reserves on asset growth and lower net FSA accretion. Gains on asset sales totaled $150 million in the current quarter, approximately double the amount in each of the two periods of comparison, and reflected the completion of the final phases of a loan portfolio sale.
Financing and leasing assets increased nearly $300 million from year-end to $7.4 billion. New committed loan volume rose 93% from the prior-year first quarter to $1.5 billion, while new funded volume increased 139% to $1.0 billion. Current period volumes, both funded and committed, were above those of the prior quarter. Approximately 82% of U.S. funded volume was originated by CIT Bank.
Non-accrual loans declined 33% from December 31, 2011 to $329 million, primarily reflecting sales and repayments. Net charge-offs of $7 million declined from $116 million in the year-ago quarter and $10 million in the fourth quarter, reflecting declines in gross charge-offs and, in comparison to the prior quarter, higher recoveries.
Excluding accelerated FSA interest expense, the improvement in pre-tax earnings from the loss in the prior-year quarter reflected lower funding costs that were partly offset by higher operating expenses.
Factoring volume was $6.0 billion, down slightly from the prior-year quarter. Factoring commissions of $32 million were down slightly from the prior-year quarter, primarily reflecting lower commission rates, and flat sequentially. Non-accrual balances decreased substantially from a year-ago and December 31, 2011, primarily due to accounts returning to accrual status and reductions in exposures. Net charge-offs of $1 million were well below both the prior-year quarter and prior quarter levels.
CIT Bank continued to expand commercial loans and deposits. Asset origination activity reflected increased volume from the year-ago period in Corporate Finance, Vendor Finance and Transportation Finance. Committed loan volume more than doubled from the year-ago period and rose 18% from the prior quarter to $1.6 billion, of which nearly $1.2 billion was funded. The sequential quarter increase reflected growth in Corporate Finance activity, including volume from Real Estate and Equipment Finance. Additionally, the Bank purchased a $200 million portfolio of loans secured by aircraft.
Total assets were $9.6 billion, up from $6.8 billion at March 31, 2011 and $9.0 billion at December 31, 2011. Loans (including held-for-sale) totaled $6.6 billion, up from $5.2 billion at March 31, 2011 and $6.1 billion at December 31, 2011. Commercial loans of $5.0 billion increased $3.4 billion from a year ago and $1.1 billion during the first quarter. Assets held for sale totaled $1.1 billion, down from $1.6 billion at December 31, 2011 as $0.5 billion of student loans were sold during the first quarter. Cash was $2.6 billion at March 31, 2012 up from $2.5 billion at December 31, 2011. CIT Bank’s preliminary Total Capital ratio was 32.9% and the Tier 1 Leverage ratio was 23.1%.
Total deposits were $6.7 billion at March 31, 2012, up from $6.1 billion at December 31, 2011 and $4.3 billion at March 31, 2011. During the first quarter, CIT Bank placed over $750 million of deposits at an average rate of approximately 1.1% that replaced maturing deposits at higher rates. Deposits originated through online channels exceeded $1.1 billion and, in March 2012, CIT Bank online launched a high yield savings account product to supplement the current range of CD offerings to consumers.
To read the full text of the CIT Group news release, click here.