Daily News: April 23, 2013

CIT Swings to Q1 Profit, But Misses Estimates


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. Analysts polled by Thomson Reuters had expected EPS of $0.89.

CIT said 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.

CIT said first quarter results reflect growth in earning assets, lower funding costs, and continued positive portfolio performance. The $590 million improvement in net income from the year-ago quarter was primarily due to a decrease of approximately $600 million in debt redemption charges and lower funding costs, offset by reduced gains on asset sales and lower net FSA interest accretion.

“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.”

The following was excerpted from the CIT news release on Corporate Finance and Trade Finance:

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.

The following was excerpted from the news release on overall credit quality trends:

Portfolio credit quality trends remained stable at cyclical lows, as non-accrual loans and net-charge-offs declined both sequentially and from the year-ago quarter. Net charge-offs were $10 million, or 0.18% as a percentage of average finance receivables, versus $22 million (0.44%) in the year-ago quarter. Net charge-offs in the commercial segments were 0.22% of average finance receivables, compared to 0.56% in the year-ago quarter and 0.41% in the prior quarter. Net charge-off comparisons to both prior periods primarily reflected improvements in Corporate Finance, partially offset by modest increases in Vendor Finance.

The provision for credit losses was $20 million in the current quarter, down from $43 million in the year-ago quarter, and reflects lower net-charge-offs and a $10 million increase in reserves related to portfolio growth. The increase from the fourth quarter of 2012, during which no provision was required, corresponded to receivable growth.

Non-accrual loans declined to $294 million, or 1.33% of finance receivables, at March 31, 2013 from $482 million (2.35%) at March 31, 2012 and $332 million (1.59%) at December 31, 2012. Non-accrual loans as a percentage of finance receivables in the commercial segments were 1.59% at March 31, 2013, improved from 3.02% at March 31, 2012 and 1.93% at December 31, 2012. Non-accrual loans improved in all segments except Vendor Finance, both sequentially and from the prior year in both amount and as a percent of finance receivables.

The allowance for loan losses, which relates entirely to the commercial portfolio, was $386 million at March 31, 2013, or 1.74% of total finance receivables, compared to $420 million (2.05%) at March 31, 2012 and $379 million (1.82%) at December 31, 2012. As a percentage of the commercial portfolio, the allowance for loan losses was 2.08% at March 31, 2013, compared to 2.64% at March 31, 2012 and 2.21% at December 31, 2012. While there was a modest increase in the size of the allowance from year-end due to asset growth, the decline in the allowance as a percentage of finance receivables reflects improved portfolio credit quality. Specific reserves were $42 million at March 31, 2013, down from $45 million both a year ago and at December 31, 2012.

To read the CIT Group news release click here.