CIT Group Inc. today reported net income of $200 million for the third quarter of 2013, compared to a net loss of $299 million for the third quarter of 2012. Net income for the nine month period ended September 30, 2013 was $546 million compared to a net loss of $799 million in the prior year. Prior year results include significant debt redemption charges.
Third quarter results reflect growth in earning assets, aided by higher levels of new business activity, and continued strong credit metrics. In addition to the absence of debt redemption charges in the current quarter, the improvement in net income from the year-ago quarter reflected commercial asset growth, higher fee and other income and lower funding costs partially offset by lower net FSA accretion.
Total assets at September 30, 2013 were $46.2 billion, up $1.6 billion from June 30, 2013 and $2.6 billion from September 30, 2012. Commercial financing and leasing assets increased from prior periods to $32.1 billion driven by growth in Corporate Finance. Consumer assets declined by approximately $70 million from June 30, 2013 to $3.5 billion, reflecting the continued run off of student loans, and by $840 million from a year ago, which also reflects the sale of $0.5 billion of student loans in the fourth quarter of 2012. Total loans of $21.8 billion rose slightly from the prior quarter and increased $1.4 billion from a year ago. Operating lease equipment increased $0.3 billion from June 30, 2013 and $0.5 billion from a year ago to $12.6 billion. Cash and investments of $8.5 billion were up $1.2 billion from June 30, 2013 and $1.0 billion from September 30, 2012.
Selected Segment Highlights
Corporate Finance
Pre-tax earnings for the quarter were $37 million, down from $46 million in the year-ago quarter, due to higher credit provision, and from $43 million in the prior quarter reflecting lower levels of accelerated yield-related fees in the current period and the benefit of a workout-related settlement in the prior quarter.
Financing and leasing assets grew to $9.8 billion, up $0.4 billion from June 30, 2013, reflecting solid new business volumes, and up $1.9 billion from September 30, 2012, which also reflects a portfolio purchased during the first quarter of 2013. Funded loan volume, which includes a balanced mix of asset-secured and cash flow loans, totaled $1.1 billion, up from $0.9 billion in the year-ago quarter and down from $1.3 billion in the prior quarter. During the quarter, approximately $108 million of loans were transferred to assets held for sale, which totaled $490 million at quarter-end. In October, we entered into a definitive agreement to sell our small business lending portfolio, which represented the majority of assets held for sale at quarter-end. The sale is expected to be completed in the first quarter of 2014 subject to approval by the Small Business Administration.
Credit performance remained strong. Non-accrual loans declined to $155 million (1.68% of finance receivables) from $256 million (3.28%) a year ago and $173 million (1.95%) at June 30, 2013. Net charge-offs were $9 million (0.39% of average finance receivables), compared to $5 million (0.26%) in the prior-year quarter and $22 million (0.97%) last quarter, nearly all of which was attributable to loans transferred to assets held for sale.
Vendor Finance
Pre-tax earnings for the quarter were $8 million, which continued to be impacted by CIT's international platform rationalization efforts, compared to $12 million in the year-ago period and $6 million in the prior quarter. The decline from the year-ago quarter reflects higher credit costs and lower net FSA accretion, which more than offset $5 million of net gains in the current quarter. Income related to the Dell Europe portfolio, including a $21 million gain on the sale of the first tranche, was largely offset by impairments on assets transferred to assets held for sale. Other income in the prior quarter included $6 million of costs related to international platform rationalizations. The sequential quarter comparison also reflected a reduction in net finance income related to the Dell Europe asset sale as those assets had high yields and the operating lease component had no associated depreciation expense.
Financing and leasing assets declined modestly from June 30, 2013 to $5.6 billion and rose 7% from a year ago. Approximately $200 million of the Dell Europe portfolio was sold during the third quarter and the remainder, about $300 million, was sold on October 1, 2013. Assets held for sale increased to $555 million, primarily reflecting the transfer of assets in several European countries. We funded $761 million of new business volume in the quarter, an increase of 8% from the year-ago quarter, but down 10% from the prior quarter reflecting seasonality.
Credit metrics were also impacted by the platform rationalization efforts. Net charge-offs of $19 million included $7 million of charge-offs related to loans transferred to assets held for sale as well as lower recoveries. Absent these transfers, net charge-offs were generally stable from both the year-ago and prior quarters. Non-accrual loans were $96 million (1.98% of finance receivables) at quarter-end, compared to $74 million (1.59%) a year ago and $90 million (1.82%) at June 30, 2013.
CIT Bank
Lending and leasing assets grew 8% during the quarter to $12 billion. CIT Bank funded $1.7 billion of new business volume, which represented nearly all of the new U.S. volume for Corporate Finance, Transportation Finance and Vendor Finance. Funded volumes were up 20% from the year-ago quarter and down 10% sequentially due to seasonality.
Total assets were $14.7 billion at September 30, 2013, up $0.8 billion from June 30, 2013 and $3.1 billion from a year ago. Commercial loans totaled $10.9 billion, up from $10.2 billion at June 30, 2013 and $6.8 billion at September 30, 2012. Operating lease equipment of $1.1 billion, primarily railcars, increased from $0.9 billion at June 30, 2013 and $0.5 billion at September 30, 2012. Cash totaled $2.5 billion at September 30, 2013, down slightly from June 30, 2013, and from $3.6 billion at September 30, 2012. Preliminary Total Capital and Tier 1 Leverage ratios were 19.8% and 17.9%, respectively, at September 30, 2013.
Total deposits at quarter-end were $11.8 billion, up from $11.1 billion at June 30, 2013 and $8.6 billion at September 30, 2012. The weighted average rate on outstanding deposits was 1.49% at September 30, 2013.
Transportation Finance
Pre-tax earnings for the quarter were $161 million, up from $135 million in the year-ago quarter reflecting lower interest expense and higher other income, and down from $169 million in the prior quarter due to lower rental income in commercial air partially offset by higher other income. Other income in the current quarter included a $13 million gain on the sale of a workout-related claim. Utilization remained strong with all owned commercial airplanes and 98% of rail equipment on lease or under a commitment at quarter-end.
Financing and leasing assets totaled $14.3 billion at September 30, 2013, up slightly sequentially and $0.3 billion from a year ago. During the quarter CIT sold six aircraft for a gain and took delivery of five new aircraft and approximately 1,500 railcars.
During the quarter CIT agreed to purchase 13 new Airbus aircraft that are conditional upon lease to American Airlines with delivery dates through 2014, and exercised cancellation rights on 13 Embraer aircraft previously scheduled for delivery in 2015. All but two aircraft scheduled for delivery in the next twelve months, and approximately 75% of all railcars on order, have lease commitments. A higher than usual number of aircraft will be subject to lease renewals in 2014, which could put pressure on the finance margin.
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