CIT reports Q2-’14 net income of $247 million

US lease finance major CIT Group Inc has reported a net income of $247 million ($1.29 per diluted share) for the second quarter of 2014, compared to a net income of $184 million ($0.91 per share), for the year-ago quarter.

Total assets from continuing operations during the quarter ended 30 June 2014 marginally declined to $44.2 billion from $44.9 billion as of 31 March 2014, and up from $40.7 billion at June 30, 2013.

The decline in assets was mainly due to repayment of the $1.3 billion debt that matured on 1 April 2014, CIT said.

Financing and leasing assets in North American commercial finance and transportation and international finance increased to $34.1 billion, an increase of $1.3 billion (4 per cent) from 31 March 2014 and an increase of $4.3 billion (15 per cent) from a year ago.

The sequential quarter increase was driven by solid origination volumes while the increase from the year-ago quarter also included the acquisition of Nacco in the first quarter of 2014, which added approximately $0.65 billion of financing and leasing assets.

Non-strategic portfolios declined by approximately $0.5 billion from the previous quarter, and by $1.3 billion from a year ago, to $0.7 billion, reflecting portfolio run off and asset sales, including the completion of the sale of the small business lending portfolio in June 2014.

Total loans of $18.6 billion increased slightly from 31 March 2014 and by $0.4 billion from a year ago, reflecting new loan originations partially offset by asset sales.

Operating lease equipment increased $0.6 billion from 31 March 2014 and $2.5 billion from a year ago to $14.8 billion, reflecting the Nacco acquisition and other equipment purchases.

Cash and investments of $7.3 billion were down $1.7 billion from 31 March 2014 and were relatively flat from 30 June 2013.

During the quarter, CIT completed the sale of its $3.3 billion student loan portfolio along with certain secured debt and servicing rights, generating income of $52 million net of taxes.

As a result of the sale, the financial results of the student lending business are reported as a discontinued operation for all periods presented.

Income from continuing operations for the second quarter was $195 million, $1.02 per diluted share compared to $176 million, $0.87 per diluted share, for the year-ago quarter.

Net finance revenue was $361 million compared to $367 million in the year-ago quarter and $322 million in the prior quarter.

Average earning assets were $33.2 billion in the current quarter, up from $30.1 billion in the year-ago quarter and $32.1 billion in the prior quarter.

Net finance revenue as a percentage of average earning assets (net finance margin) was 4.35 per cent, compared to 4.87 per cent in the year-ago quarter and 4.01 per cent in the prior quarter.

Excluding the impact of debt redemptions, net finance margin was 4.26 per cent compared to 4.97 per cent in the year-ago quarter and 4.01 per cent in the prior quarter.

CIT said the reduction from the year-ago quarter primarily reflected portfolio re-pricing, the sale of higher-yielding Dell Europe assets, and declines in net FSA accretion. The increase from the prior quarter was due mainly to lower funding costs, a reduction in maintenance and other operating lease expenses, and higher interest recoveries.

Other income of $94 million increased from $79 million in the year-ago quarter and from $71 million in the prior quarter. The current quarter includes an acceleration of counter-party receivable accretion of $9 million related to the aircraft securitisation restructuring as well as a positive mark to market on the TRS derivative of $11 million.

Operating expenses were $225 million compared to $226 million in the year-ago quarter and $234 million in the prior quarter.

Excluding restructuring costs, operating expenses were $219 million, relatively flat to $217 million in the year-ago quarter and down from $224 million in the prior quarter. The decline from the prior quarter is primarily due to lower employee costs while the year-ago quarter also included lower deposit related costs and a benefit in professional fees.

CIT had total employees of approximately 3,170 as of 30 June 2014, down from approximately 3,420 a year ago and about 3,200 at end-March 2014.

The provision for income taxes was $18 million, primarily reflecting the recognition of income tax expense on international earnings, down from $29 million in the year-ago quarter and up from $14 million in the prior quarter. The year-ago quarter included over $20 million related to the establishment of valuation allowances on certain international deferred tax assets.

''We had a solid second quarter and made good progress strengthening our franchise,'' said John Thain, chairman and CEO. ''We grew our commercial assets by 3 per cent, repurchased 9.4 million common shares and announced the acquisition of Direct Capital Corporation while completing the sale of certain non-strategic portfolios. We continue to focus on building long-term value by growing our earning assets, expanding CIT Bank, achieving our profitability targets and returning capital to our shareholders,'' he added.

Net income for the six month period ended 30 June 2014 was $364 million ($1.88 per diluted share), compared to $346 million ($1.71 per diluted share) for the period ended 30 June 2013.

Income from continuing operations for the six-month period ended 30 June 2014 was $310 million ($1.60 per diluted share) compared to $329 million ($1.62 per diluted share) for the period ended 30 June 2013.

''Second quarter results reflect growth in earning assets and a further shift to deposit funding. Additionally, net income reflected benefits from loan prepayments, lower credit costs as well as the restructuring of two aircraft securitizations in our TRS facility that positively impacted interest expense and other income,'' CIT said.