Tyco spinoff CIT reports first quarter 2014 net income of $109 mn

CIT Group Inc, which provides commercial financing, lending, leasing and advisory services to small and middle market businesses and the transportation sector, has reported net income of $109 million ($0.55 per diluted share) for the quarter-ended 31 March 2014, compared to net income of $163 million ($0.81 per diluted share) for the first quarter of 2013.

CIT said its first quarter results were primarily impacted by lower levels of interest income, higher maintenance and other operating lease expenses and an increase in the provision for credit losses.

''We made progress this quarter in growing commercial assets, restructuring the organisation and returning capital to shareholders,'' said John Thain, chairman and CEO.

''However, our financial results were negatively impacted by lower finance margin and fee income. In the year ahead, we will continue to focus on building long-term shareholder value by expanding our businesses, managing expenses and growing CIT Bank.''

CIT Group had total assets of assets of $48.6 billion as of 31 March 2014, up from $47.1 billion as of 31 December 2013 and $44.6 billion as of 31 March 2013.

Financing and leasing assets in North American Commercial Finance and Transportation & International Finance increased to $32.8 billion, an increase of $1.3 billion from the prior quarter and $3.3 billion from the year-ago quarter.

CIT said the increase was driven by the acquisition of Nacco in the first quarter, which added approximately $0.65 billion of financing and leasing assets, as well as solid origination volumes.

The non-strategic portfolio, which includes $3.3 billion of student loans, declined by approximately $200 million from 31 December 2013 to $4.4 billion and by $1.2 billion from a year ago, reflecting portfolio run off and asset sales. The student loan portfolio was subsequently sold in April 2014.

Total loans of $18.6 billion declined slightly from 31 December 2013 and by $3.5 billion from a year ago, reflecting the movement of the student loan portfolio into assets held for sale in the fourth quarter of 2013.

Operating lease equipment increased $1.1 billion from 31 December 2013 and $1.9 billion from a year ago to $14.2 billion, reflecting the European rail and other equipment purchases.

Cash and investments of $9.0 billion were up $0.3 billion from 31 December 2013 and $1.8 billion from 31 March 2013.

Net finance revenue was $324 million compared to $366 million in the year-ago quarter and $337 million in the prior quarter. Average earning assets were $35.4 billion in the January-March 2014 quarter, up from $33 billion in the year-ago quarter and $34.2 billion in the prior quarter.

Net finance revenue as a percentage of average earning assets (net finance margin) was 3.66 per cent, compared to 4.43 per cent in the year-ago quarter and 3.95 per cent in the prior quarter.

Excluding the impact of debt redemptions in prior periods, net finance margin declined from 4.64 per cent and 4.00 per cent in the year-ago quarter and the prior quarter, respectively.

The reduction from the year-ago quarter primarily reflects the sale of higher-yielding Dell Europe assets and declines in operating lease margin and net FSA accretion.

The reduction from the prior quarter reflects higher maintenance and other operating lease expenses, as well as lower portfolio yields and net FSA accretion related to the student loan portfolio, the company stated.

Other income of $74 million increased from $70 million in the year-ago quarter and declined from $128 million in the prior quarter. The prior quarter included net benefits from asset sales and a workout related claim.

Operating expenses were $236 million compared to $235 million in the year-ago quarter and $288 million in the prior quarter. Excluding restructuring costs, operating expenses were $226 million, compared to $230 million in the year-ago quarter and $269 million in the prior quarter.

The latest quarter included costs related to the European rail business, while the prior quarter included a $45-million charge related to the Tyco Tax Agreement settlement and a benefit from the recovery of legal expenses.

As of 31 March 2014 CIT had total employees of approximately 3,200, down from approximately 3,490 a year ago and approximately 3,240 at December 31, 2013.

The provision for income taxes was $14 million, primarily reflecting the recognition of income tax expense on international earnings, down slightly from $15 million in the year-ago quarter and down from $31 million in the prior quarter, which included a $13 million income tax expense related to the sale of a leverage lease.

Non-accrual loans declined to $218 million, or 1.18 per cent of finance receivables, as of 31 March 2014 from $241 million (1.29 per cent) as of 31 December 2013 and $294 million (1.33 percent) as of 31 March 2013.

Net charge-offs were $36 million, or 0.76 per cent as a percentage of average finance receivables, versus $10 million (0.18 per cent) in the year-ago quarter (0.22 per cent excluding the student loan portfolio that was transferred to held for sale in December 2013) and $15 million (0.27 per cent) in the prior quarter.

Recoveries of $9 million were lower than the $15 million recorded in both the year-ago and prior quarters. Net charge-offs in transportation and international finance were up from year-ago levels, but in line with the prior quarter.

The allowance for loan losses was $353 million (1.90 per cent of finance receivables) as of 31 March 2014, compared to $356 million (1.91 per cent) as of 31 December 2013 and $386 million (1.74 per cent) as of 31 March 2013.

CIT's preliminary Tier 1 and total capital ratios as 31 March 2014 were 16.1 per cent and 16.8 per cent, respectively, compared to 16.7 per cent and 17.4 per cent as of 31 December 2013 and 16.4 per cent and 17.1 per cent as of 31 March 2013.

Preliminary risk-weighted assets totaled $51.7 billion as of 31 March 2014, up from $50.6 billion as of 31 December 2013 and from $49.3 billion as of 31 March, 2013, primarily reflecting growth in assets.

Book value per share as of 31 March 2014 grew to $45.06 from $44.78 as of 31 December 2013 and $42.21 as of 31 March 2013.