Daily News: January 29, 2013

CIT Surprises With Q4 Profit Surge

CIT Group reported net income of $207 million, $1.03 per diluted share, for the fourth quarter of 2012, improved from $36 million, $0.18 for the year-ago quarter. Analysts polled by Thomson Reuters expected the company to earn $0.61 per share.

CIT said in a news release there was a net loss for the year ending December 31, 2012 of $592 million, which included $1.5 billion of debt redemption charges, compared to net income of $15 million for the year ended December 31, 2011, which included $528 million of debt redemption charges.

Highlights from the news release included:

  • Grew Commercial Assets – Increased 8% from a year ago; fifth consecutive quarter of sequential growth;

  • Significant New Business Activity – Funded volume of $3.1 billion; rose 41% sequentially and 6% from the year-ago quarter;

  • Finance Margin Improved – Funding cost declines reflect benefit of debt redemption actions; portfolio yields remain stable;

  • Credit Metrics Remain At Cyclical Lows – Non-Accrual balances further declined and net charge-offs remain at low levels;

  • Expanded CIT Bank – Assets surpassed $12 billion; online deposits exceed $4.5 billion; originated over 95% of U.S. loan and lease volume.

    “We made significant progress in advancing our corporate strategy in 2012,” said John Thain, chairman and chief executive officer. “We grew commercial assets, diversified our funding mix, and expanded new business initiatives that further support our small business and middle market clients. We remain focused on positioning CIT for future growth and profitability as we drive operating efficiencies, prudently grow our assets, and expand CIT Bank.”

    The following commentary on the Corporate and Trade Finance segments were excerpted from the news release:

    Corporate Finance

    Excluding accelerated FSA interest expense, pre-tax earnings decreased significantly from the prior-year quarter, primarily due to lower non-spread revenue as the year-ago quarter included significant gains on loan sales. The $60 million sequential quarter increase is attributable to benefits from net FSA accretion, lower funding costs, higher asset and investment sales gains and proceeds from a settlement of a loan charged off prior to emergence. Gains on asset and investment sales totaled $23 million in the current quarter, down from $91 million in the year-ago quarter and up from $12 million in the prior quarter.

    Financing and leasing assets grew $1.1 billion from December 31, 2011, and $0.3 billion from September 30, 2012, to $8.3 billion. New funded loan volume increased approximately 60% from the both the year-ago quarter and prior quarter to $1.5 billion. CIT Bank originated over 90% of U.S. funded volume this quarter, up from 69% in the year-ago quarter.

    Credit performance remains strong. The provision for credit losses was a benefit of $1 million in the current quarter, compared to a benefit of $22 million in the prior quarter and a cost of $10 million in the year-ago quarter. Non-accrual loans declined to $212 million from $256 million at September 30, 2012 and $498 million a year ago, and net charge-offs were $14 million (0.72% of average finance receivables), up from the low levels in both the year-ago and prior quarters.

    As previously announced, at December 31, 2012 CIT Bank agreed to acquire $1.3 billion of commercial loan commitments (of which approximately $800 million was outstanding), the purchase of which should be substantially completed during the first quarter of 2013.

    Trade Finance

    Excluding accelerated FSA interest expense, pre-tax earnings nearly doubled from the year-ago quarter, and rose 67% sequentially primarily due to lower funding and credit costs. Factoring volume was $6.9 billion, essentially unchanged from the year-ago quarter and up 8% sequentially due to seasonal trends. Factoring commissions of $32.2 million were similarly unchanged from the year-ago quarter, but declined slightly from the prior quarter primarily due to business mix.

    Credit metrics remain favorable. Non-accrual balances decreased substantially from a year ago, primarily due to accounts returning to accrual status and reductions in exposures, and also decreased substantially from September 30, 2012. There was a modest net recovery in the current quarter, compared to $6 million of net charge-offs in the year-ago quarter and no net-charge-offs in the prior quarter.

    To see the full CIT Group news release, click here.