CIT Group Inc. reported a net loss for the quarter ended June 30, 2012 of $71 million. This net loss compares to a net loss of $50 million for the second quarter of 2011 and includes 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.
“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.”
Summary of Second Quarter Financial Results
Second quarter operating results reflect increased business activity as well as continued execution of our liability management strategy. While we reported a $42 million pre-tax loss for the quarter, pre-tax income excluding debt refinancing charges was $245 million, improved from $214 million and $134 million in the first quarter of 2012 and the year-ago quarter, respectively. Pre-tax income excluding debt refinancing charges and net FSA accretion/amortization was $119 million, up from $17 million in the year-ago period but down sequentially primarily due to lower gains on asset sales.
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.
Total assets at June 30, 2012 were $42.8 billion, down $1.4 billion from March 31, 2012, and $5.4 billion from June 30, 2011. Commercial financing and leasing assets increased from prior periods, to $29 billion, while we further reduced consumer assets primarily through the sale of $1.1 billion of student loans. Total loans of $20.1 billion declined $2.2 billion from a year ago, and $0.4 billion sequentially, largely due to the sale of student loans. Operating lease equipment increased $1 billion from a year ago to $11.9 billion reflecting aircraft and rail car deliveries, and was essentially unchanged from March 31, 2012. Cash and short-term investments decreased $0.3 billion from March 31, 2012 to $7.0 billion as we paid down high-cost debt and improved the efficiency of our liquidity management.
Segment Highlights:
Vendor Finance
Excluding accelerated FSA interest expense, pre-tax earnings declined from the prior-year quarter primarily due to lower gains on asset sales and lower net FSA accretion partially offset by improved finance margin and lower credit losses. The sequential quarter increase was attributable to improved finance margin, higher other income and lower credit losses. We continued to make progress on various funding initiatives, as previously described in Capital and Funding, which provide low cost sources of funds for Vendor Finance assets.
Financing and leasing assets of $5.1 billion were up slightly from March 31, 2012 and down approximately $100 million from a year ago as asset sales and the run-off from liquidating portfolios exceeded new business volume. Funded new business volume was $762 million, up approximately 20% from the prior-year quarter and 13% sequentially. Essentially all U.S. funded volume in the current quarter was originated by CIT Bank.
Portfolio credit quality improved from the prior-year quarter and sequentially with declines in non-accrual loans and delinquencies. Net charge-offs of approximately $8 million improved from $17 million in the prior-year quarter, but rose modestly sequentially due in part to lower recoveries.
Transportation Finance
Excluding accelerated FSA interest expense, pre-tax earnings rose 82% from the prior-year quarter and 60% sequentially reflecting improved finance revenue on higher portfolio assets, and lower funding and credit costs. Equipment utilization remained strong with over 99% of commercial air and 98% of rail equipment on lease or under a commitment at June 30, 2012.
Financing and leasing assets grew approximately $1.6 billion from June 30, 2011, and $0.3 billion from March 31, 2012, to $13.8 billion. New business volume of $640 million reflects the addition of 6 aircraft and over 2,000 railcars in our operating lease portfolio, and over $100 million of loans. All of the current quarter’s loan volume and over 85% of the rail volume was originated by CIT Bank. All remaining 2012 aircraft deliveries have lease commitments.
Trade Finance
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.
Corporate 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 $1.0 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.
Read the full CIT press release.