CIT Group reported a net loss for the quarter ended June 30, 2011 of $48 million, down from net income of $182 million a year ago on reduced fresh start accounting (FSA) benefits and costs associated with the voluntary prepayment of second lien debt. Net income for the six months ended June 30, 2011 was $18 million, down from $326 million for 2010.

CIT said the second quarter loss was driven by the early retirement of $2.5 billion of second lien debt that resulted in $163 million of debt-related costs, comprised of $113 million acceleration of FSA discounts and $50 million of prepayment fees.

Total assets at June 30, 2011 were $48 billion, down $3 billion from March 31, 2011 and $7 billion from a year ago. Cash and short-term investments declined $2 billion sequentially to $10 billion reflecting the previously mentioned debt repayments. Total loans decreased $1 billion during the quarter to $22 billion primarily due to transfers to assets held for sale as portfolio originations largely offset portfolio collections. Operating lease equipment remained stable at $11 billion.

Funded new business volume of $1.7 billion increased 30% sequentially and 67% from the prior year quarter, as Corporate Finance, Transportation Finance and Vendor Finance each reported double-digit percentage increases in lending/leasing volume sequentially and year-over-year. Committed new business volume was $2.1 billion, up from $1.7 billion last quarter and $1.1 billion in the prior year quarter. Factoring volume of $6 billion was essentially unchanged sequentially and down modestly from the prior year period. Growth in U.S. factoring volume was offset by the wind-down of our European operation.

Credit metrics improved in the quarter. Net charge-offs and non-accrual loans were down from recent quarters and inflows to non-accrual also continued to decline. Net charge-offs were $56 million, down from $141 million in the prior quarter and $106 million in the 2010 second quarter. The provision for credit losses was $85 million, down from $123 million last quarter and $247 million in the prior year quarter.

“We made significant progress increasing our new business volume and strengthening our presence in middle market lending and leasing,” said John A. Thain, chairman and chief executive officer. “While our recent efforts to advance our liability restructuring initiatives further reduce our cost of capital and position CIT for long-term success and profitability, they negatively impacted our second quarter results. Looking ahead, we will continue to focus on growth across all of our core commercial businesses both domestically and internationally, refinance and repay debt, and further advance our bank strategy.”

The company said CIT Bank loan origination activity continued to increase. Committed loan volume rose 41% from the prior quarter to $1.1 billion, of which $812 million was funded, nearly double the first quarter amount. Total assets were $6.9 billion, up slightly from $6.8 billion at March 31, 2011, as the increase in funded commercial loans outpaced the run-off of consumer loans and use of cash to pay maturing deposits. Total loans were $5.7 billion, up from $5.2 billion at March 31, 2011. Cash was $0.8 billion at June 30, 2011, down from $1.2 billion at March 31, 2011. Total deposits were $4.4 billion, up slightly from $4.3 billion. During the quarter, the Bank issued approximately $630 million of certificate of deposits (“CDs”) at an average rate of approximately 1.75% while maturing CDs were at higher rates. The preliminary total capital ratio at the bank was 48.3% and the tier 1 leverage ratio was 27.4%.

The following commentary on Vendor Finance and Transportation Finance was excerpted from the news release:

Vendor Finance

Vendor Finance pre-tax earnings were $22 million, improved from $14 million in the prior quarter and a pre-tax loss of $2 million in the prior year quarter, reflecting lower credit costs and the gain from the sale of Dell Canada, partially offset by lower asset levels and reduced FSA accretion income. Total financing and leasing assets declined to $4.7 billion from $5.2 billion at March 31, 2011, due primarily to the sale of Dell Canada assets and were down $2.0 billion from June 30, 2010, as asset sales and net portfolio collections outpaced new business volume. We funded $593 million of new business volume in the second quarter, which was up approximately 10% from the prior quarter and 11% from the prior year quarter. Excluding volume associated with the Australia and New Zealand platforms sold in the 2010 second quarter, volume rose 28% from the 2010 second quarter with contributions from both domestic and international operations. New loans continued to be originated at yields that are double digit though slightly lower than last quarter.

During the second quarter CIT said it obtained the necessary regulatory approvals and transferred our U.S. Vendor Finance platform into CIT Bank in July. As previously disclosed, the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions terminated their Cease and Desist orders on CIT Bank in April.

Transportation Finance

Transportation Finance pre-tax earnings were $37 million, down from $43 million in the prior quarter and improved from $22 million for the prior year quarter. The sequential decline reflects higher interest expense as a result of debt prepayments and lower gains on assets sales, partially offset by higher rental income and a $19 million non-recurring benefit, largely related to a change in the aircraft order book. Comparisons to last year reflect lower interest expense due to changes in segment allocations instituted in 2011. On a comparable basis, pre-tax earnings would have been $67 million in the prior year quarter. Non-accruals and net charge-offs both declined.

Equipment utilization remains strong. All aircraft were leased at June 30, 2011 and rail fleet utilization, including commitments for existing railcars, increased to 96% from 95% at March 31, 2011. Rental income was up during the quarter, primarily benefiting from the higher utilization, as renewal rates were generally stable. New business volume was nearly $400 million, reflecting deliveries of aircraft and railcars as well as new loans originated by CIT Bank. We placed 4 new aircraft in the second quarter and have lease commitments for all aircraft to be delivered during the next 12 months. In June, we signed a Memorandum of Understanding with Airbus for 50 A320neo Family aircraft. Deliveries are scheduled to begin in 2016. During the quarter, we received $150 million of secured aircraft funding through a newly established facility guaranteed by the Export-Import Bank of the United States.

To read the full text of the CIT Group news release: click here.