CIT Group reported net income for the second quarter of 2010 of $142.1 million, or $0.71 per diluted share, up from $97.3 million and $0.49 per diluted share in the first quarter. Results aren't directly comparable with those before CIT's bankruptcy reorganization.

The company's earnings far exceeded analyst expectations. Thompson/Reuters was forecasting income of $0.33 per share, while the average estimate of five analysts surveyed by Bloomberg was $0.36 cents.

CIT said gains on sales of assets and recoveries of pre-FSA charged-off receivables more than offset a higher provision for credit losses and costs for an employee retention program announced last quarter.

Reported net charge-offs of $106 million were up $64 million from the first quarter. Non-accrual loans of $2.1 billion increased $120 million from the first quarter, driven primarily by Corporate Finance.

The provision for credit losses increased from the first quarter, reflecting the recording of non-specific reserves and some incremental deterioration on loans previously discounted in FSA.

Operating Highlights

The sequential quarter improvement in Corporate Finance earnings was driven by higher gains on asset sales and recoveries on pre-FSA loan balances. Corporate Finance completed sales of a joint venture and other assets totaling approximately $890 million, proceeds of which were used to pay down debt. Corporate Finance new business volume increased from the first quarter.

The improvement in Transportation Finance results reflects higher operating lease margins. The aerospace fleet remained fully utilized. During the quarter, six new aircraft valued at $0.3 billion were delivered. Lease commitments are in place for all 19 aircraft to be delivered over the next 12 months. Rail revenue increased as utilization improved from 90% to 93% on modest increases in activity across most major car types, and rents improved on usage-based contracts. Non-accrual loans declined and no charge-offs were recorded.

Trade Finance narrowed its loss, which is being driven by high cost of funds. At the end of the quarter the business closed a new committed conduit facility, which will reduce the future cost of funds. The existing client base stabilized and the rate of attrition subsided. Factoring volume totaled $6.3 billion, flat with the first quarter, contributing to level factoring commissions. Credit metrics remained comparable with the first quarter as charge-offs and non-accrual loans remain at relatively low levels.

The decline in Vendor Finance earnings from last quarter reflected reserve strengthening related to a liquidating consumer portfolio, lower asset levels and higher allocated interest costs. Vendor Finance completed the sale of its Australia and New Zealand business on June 30, 2010, and established a committed funding facility for UK assets. New business volume was flat with last quarter. Post-FSA, net charge-offs increased from last quarter, but on a pre-FSA basis, net charge-offs declined. Recoveries recorded in other income totaled approximately $15 million in the second quarter and approximately $20 million in the first quarter. On both a pre- and post-FSA basis, non-accrual loans decreased from March 31, 2010.

CIT Bank remains well capitalized and liquid. The preliminary total capital ratio was 59.4% and the leverage ratio was 20.7%. Total deposits were $4.7 billion, down slightly from last quarter. The bank closed several new commercial loans this quarter. New committed loan volume rose to approximately $180 million from approximately $35 million in the first quarter, of which approximately $85 million was funded.

To access CIT Group's Q2/10 financial report in its entirety, click here.