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 Transportation Finance and Vendor Finance:

Transportation Finance

Pre-tax earnings for the quarter were $142 million. Excluding the impact of debt redemptions, pre-tax earnings were $152 million, up significantly from the year-ago quarter, reflecting lower funding and credit costs, but down $19 million sequentially reflecting a decline in the finance margin, as a result of lower rental income and increased depreciation. Equipment utilization remained strong with 100% of commercial air and 97% of rail equipment on lease or under a commitment at quarter-end.

Financing and leasing assets at March 31, 2013 of $14.2 billion increased $0.6 billion, or 5%, from a year ago and were essentially unchanged from December 31, 2012. New business volume of $0.3 billion reflects the delivery of one aircraft and over 1,000 railcars, and approximately $200 million of loans, largely related to the new maritime initiative. Essentially all of the current quarter’s loan and rail volume was originated by CIT Bank. All but one aircraft scheduled for delivery in the next twelve months and all of the railcars on order have lease commitments.

Vendor Finance

Pre-tax earnings for the quarter were $5 million. Excluding the impact of debt redemptions, pre-tax earnings of $8 million increased from $4 million in the year-ago quarter primarily due to improved funding costs, which were partially offset by higher operating costs, the impact of business and regional mix on finance revenue, and reduced net FSA accretion. The $40 million sequential quarter decrease primarily reflected lower other income and higher operating costs; the prior quarter included a gain of approximately $14 million related to a platform sale.

Financing and leasing assets grew to $5.6 billion, representing increases of 2% from December 31, 2012 and 9% from a year ago. We funded $650 million of new business volume for the first quarter, a decrease of 3% from the year-ago quarter, and down sequentially, reflecting seasonal trends. Asset growth this quarter also benefitted from a portfolio purchase of approximately $150 million.

Credit metrics remained relatively stable. Non-accrual loans were $86 million (1.75% of finance receivables) compared to $83 million (1.85%) a year ago and $72 million (1.49%) at December 31, 2012. Net charge-offs of $7 million were essentially unchanged from the prior-year quarter and increased modestly from prior quarter due to lower recoveries.

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.