Press Release:
Earnings per Common Share of $0.49
Common Equity of $8.5 billion, $42.63 Per Share
Tier 1 and Total Capital Ratios in excess of 15%
NEW YORK–(BUSINESS WIRE)–CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, today reported net income for the quarter ended March 31, 2010 of $97 million, $0.49 per share.
“We continue to make progress on advancing our key priorities”
“We continue to make progress on advancing our key priorities,” said John A. Thain, Chairman and Chief Executive Officer. “We remain focused on reducing our cost of funds, improving our operating efficiencies and charting the optimal path for our commercial businesses. Our return to profitability further strengthens our financial position, which includes strong liquidity and a solid capital base. I am encouraged by the resiliency of our customer relationships, the receptivity of the capital markets, and the business opportunities ahead.”
Summary of Financial Results
Total assets declined nearly $2 billion from year-end to $58.1 billion driven by a reduction in finance and leasing assets as cash collections and asset sales were partially offset by a modest level of loan and lease originations.
Assets held for sale increased by $1 billion, largely reflecting our decision to sell certain non-strategic Vendor Finance assets outside the U.S. and student lending receivables.
Our preliminary Tier 1 and Total Capital ratios improved to 15.5% and 15.8% from 14.2% at December 31, 2009, as risk-weighted assets declined and common equity increased.
Net income included pre-tax net accretion and lower depreciation of $421 million resulting from fresh start accounting (“FSA”) balance sheet adjustments recorded in December 2009.
Net finance revenue as a percentage of average earning assets was 4.09%, which includes a 3.55% benefit from the net accretion and lower depreciation.
Non-spread revenue benefitted from gains on loan and asset sales, which were partially offset by losses on unhedged foreign currency positions.
Operating expenses declined from fourth quarter’s core operating expense level. The current quarter includes $12 million for restructuring as we continue to take actions to better align costs with our smaller balance sheet.
Credit
Overall credit performance was within expectations. Non-accrual loans, after FSA, increased from year-end levels reflecting some deterioration in Vendor Finance and Transportation Finance. Net charge-offs were modest at $42 million, as loans had been written down at year-end to estimated fair values. Excluding FSA, charge-offs were $233 million, 2.40% of receivables, significantly lower than recent quarters.
The provision for loan losses reflects the re-establishment of certain reserves eliminated in FSA and some deterioration on loans discounted in FSA. The provision includes $37 million for reserves on new originations (including Trade Finance – $27 million) and $74 million for re-establishing reserves on performing loans. Provisions also were made for reserves of $33 million on impaired loans and $42 million was provided for charge-offs in excess of existing discounts.
At March 31, 2010, the $181 million reserve for credit losses reflects the provisioning above less charge-offs and also includes $40 million of reserves for securitized loans brought on-balance sheet in conjunction with a new accounting pronouncement (no provision or income statement impact).
Operating Highlights
New loan and lease volumes, excluding factoring, declined modestly from the prior quarter to $0.9 billion. Vendor Finance programs began to expand with volume totaling $0.5 billion, and we took delivery of 4 airplanes valued at $0.2 billion.
Corporate Finance credit metrics began to stabilize. Net charge-offs, before the benefit of non-accretable discounts, were 3.55% of finance receivables, improving from 5.96% in the prior quarter. Corporate Finance selectively resumed originating loans in CIT Bank.
Vendor Finance signed new vendor relationships and successfully returned to the capital markets by executing term and conduit asset-backed financings.
Transportation Finance aerospace fleet was fully utilized, as we placed all new aircraft deliveries and re-leased all aircraft upon their lease expiration. Rail fleet utilization was essentially unchanged at 90%.
Trade Finance factoring volume declined from the fourth quarter, reflecting seasonality and some residual impact of prior year client terminations. We resumed factoring for certain clients that had previously withheld business.
Liquidity and Financing
Total cash increased to $10.0 billion, and consisted of $5.5 billion of cash available to repay debt at the bank holding company, $1.5 billion at CIT Bank, $1.5 billion at operating subsidiaries and $1.5 billion in other restricted cash.
During the quarter, the Company prepaid $750 million of high cost first lien debt and $731 million of secured rail financing using available cash resources. We completed a $667 million private placement equipment finance securitization (principally vendor finance assets), and re-established a $1.0 billion vendor finance conduit facility. Weighted average funding costs for these two financings approximates 3.0%.
As a result of our improved liquidity, cash flows from our portfolio and the success of financing initiatives, the Company intends to make an additional $1.5 billion prepayment of first lien debt to lower our cost of capital and increase finance margins.
CIT Bank ended the quarter with very strong capital and liquidity. The total capital ratio was 47.7% with total leverage at 17.7%. Total deposits were $4.9 billion, down from year-end.
See attached tables for financial statements and supplemental financial information.
Conference Call and Web cast
Chairman and Chief Executive Officer John A. Thain and Chief Financial Officer Joseph M. Leone will discuss these results on a conference call and audio Web cast today, April 27, 2010, at 8:00 a.m. (EDT). Interested parties may access the conference call live by dialing 866-831-6272 for U.S. and Canadian callers or 617-213-8859 for international callers and reference access code “CIT Group” or access the audio web cast at the following website: https://ir.cit.com. An audio replay of the call will be available until 11:59 p.m. (EDT) May 11, 2010, by dialing 888-286-8010 for U.S. and Canadian callers or 617-801-6888 for international callers with the access code 43359771, or at the following website: https://ir.cit.com.
About CIT
Founded in 1908 and headquartered in New York City, CIT (NYSE: CIT) is a bank holding company with approximately $45 billion in finance and leasing assets that provides financial products and advisory services to small and middle market businesses. Operating in more than 50 countries across 30 industries, CIT provides an unparalleled combination of relationship, intellectual, and financial capital to its customers worldwide. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and vendor finance. www.cit.com
