CIT Reports Loss on Higher Refi Charges; NBV Up 38%
CIT Group reported a net loss for the quarter ended June 30, 2012 of $71 million compared to a net loss of $50 million for the second quarter of 2011. CIT said results included debt refinancing charges of $286 million related to the prepayment of $4.2 billion of high cost debt, while the year-ago period included debt refinancing charges of $163 million related to the prepayment of $2.5 billion of high cost debt.
Pre-tax income excluding debt refinancing charges was $245 million, up from $134 million in the year ago quarter. Net loss for the six months ended June 30, 2012 was $517 million and included debt refinancing charges of $906 million, compared to net income of $16 million in the comparable 2011 period.
CIT said funded new business volume of $2.4 billion increased 38% from the prior-year quarter, while committed new business volume of $2.7 billion increased 31% with meaningful improvements in Corporate Finance, Vendor Finance and Transportation Finance. Volume increased sequentially in Transportation Finance, reflecting both lending and leasing activities, and in Vendor Finance. Trade Finance factoring volume of $5.9 billion declined modestly from the first quarter of 2012 and by approximately 4% from the prior-year quarter.
“We continue to make progress towards our long term targets. Our results this quarter, while impacted by the repayment of high cost debt, reflect our efforts to grow our businesses as we meet the financing needs of our small business and middle market clients,” said John Thain, chairman and chief executive officer. “CIT Bank reached two significant milestones – $2 billion of Internet deposits and $10 billion of assets – and will continue to play an important role in our growth strategy.”
The company said net charge-offs were $17 million, or 0.33% as a percentage of average finance receivables, down from $55 million (0.95%) in the year-ago quarter and $22 million (0.44%) in the prior quarter. Net charge-offs in our commercial segments were 0.42% of average finance receivables in the current quarter, improved from 1.38% in the year-ago quarter and 0.56% in the prior quarter. The reduction from the prior-year quarter reflects improvements in Corporate Finance and Vendor Finance, while the sequential quarter decline was almost entirely attributable to Transportation Finance.
The second-quarter provision for credit losses was $9 million, compared to $84 million in the year-ago quarter and $43 million in the prior quarter. The declines from both periods reflect the lower charge-offs and a reduction in non-specific reserves in the current quarter.
Non-accrual loans were $455 million, or 2.26% of finance receivables at June 30, 2012, down from $1.1 billion (4.77%) at June 30, 2011 and $482 million (2.35%) at March 31, 2012. Non-accrual loans as a percentage of finance receivables in the commercial segments was 2.80% at June 30, 2012, improved from 6.96% at June 30, 2011 and 3.03% at March 31, 2012 reflecting broad-based improvement across the commercial segments. The sequential quarter improvement was largely attributable to improvements in Corporate Finance, reflecting the repayment and sale of loans, and Vendor Finance.
Excluding accelerated FSA interest expense, pre-tax earnings increased from the prior-year quarter, as lower credit provision, higher finance margin and higher net FSA accretion more than offset lower gains on asset sales. The sequential quarter decline reflects lower gains on asset sales, partially offset by a higher finance margin and lower credit provision. Gains on asset sales totaled $17 million in the current quarter, down from approximately $73 million in the prior-year quarter and $170 million last quarter, which included the completion of the final phases of a previously disclosed loan portfolio sale.
Financing and leasing assets increased more than $250 million from March 31, 2012 to $7.7 billion. New committed loan volume rose 29% from the prior-year quarter to $1.3 billion, while new funded volume increased 41% to $1 billion. Current period volumes, both funded and committed, declined sequentially. Approximately 91% of U.S. funded volume this quarter was originated by CIT Bank, improved from 79% in the year-ago quarter.
Credit performance remains strong. Non-accrual loans declined to $316 million from $329 million at March 31, 2012 and net charge-offs were $7 million, down significantly from the prior-year quarter and unchanged from the first quarter of 2012.
Excluding accelerated FSA interest expense, pre-tax earnings increased from the prior-year quarter, primarily due to lower funding costs, and sequentially, due to a net benefit in the provision for credit losses.
Factoring volume was $5.9 billion, down 4% from the prior-year quarter and slightly below last quarter. Factoring commissions of $29 million were down from the prior-year quarter and sequentially. Credit metrics remain strong. Non-accrual balances decreased substantially from a year-ago, primarily due to accounts returning to accrual status and reductions in exposures and rose slightly from March 31, 2012. Net charge-offs remained low at $1.5 million.
To read the CIT Group news release, click here.