CIT Group reported net income of $207 million for the fourth quarter of 2012, improved from $36 million for the year-ago quarter. The current period includes net charges of $83 million related to the redemption of student loan asset-backed securities and certain senior unsecured notes, while the year-ago period included debt redemption charges of $150 million. Pre-tax income excluding debt redemption charges for the quarter was $334 million, up from $221 million in the year-ago quarter. There was a net loss for the year ending December 31, 2012 of $592 million, which included $1.5 billion of debt redemption charges, compared to net income of $15 million, for the year ended December 31, 2011, which included $528 million of debt redemption charges.

Total assets at December 31, 2012 were $44.0 billion, up $0.3 billion from September 30, 2012, and down $1.3 billion from December 31, 2011. Commercial financing and leasing assets increased from prior periods to $30.2 billion, while consumer assets declined by approximately $600 million from September 30, 2012 and by over $2.6 billion from a year ago primarily due to the sale of student loans. Total loans of $20.8 billion increased nearly $1.0 billion from a year ago, and $0.5 billion sequentially. Operating lease equipment increased $0.4 billion from a year ago and $0.3 billion from September 30, 2012 to $12.4 billion, consisting primarily of aircraft and railcars. Cash and short-term investments increased to $7.6 billion from $7.2 billion at September 30, 2012.

Segment Highlights

Corporate Finance

• Excluding accelerated FSA interest expense, pre-tax earnings decreased significantly from the prior-year quarter, primarily due to lower non-spread revenue as the year-ago quarter included significant gains on loan sales. The $60 million sequential quarter increase is attributable to benefits from net FSA accretion, lower funding costs, higher asset and investment sales gains and proceeds from a settlement of a loan charged off prior to emergence.
• Gains on asset and investment sales totaled $23 million in the current quarter, down from $91 million in the year-ago quarter and up from $12 million in the prior quarter.
• Financing and leasing assets grew $1.1 billion from December 31, 2011, and $0.3 billion from September 30, 2012, to $8.3 billion.
• New funded loan volume increased approximately 60% from the both the year-ago quarter and prior quarter to $1.5 billion.
• CIT Bank originated over 90% of U.S. funded volume this quarter, up from 69% in the year-ago quarter.

Credit performance remains strong. The provision for credit losses was a benefit of $1 million in the current quarter, compared to a benefit of $22 million in the prior quarter and a cost of $10 million in the year-ago quarter. Non-accrual loans declined to $212 million from $256 million at September 30, 2012 and $498 million a year ago, and net charge-offs were $14 million (0.72% of average finance receivables), up from the low levels in both the year-ago and prior quarters.

As previously announced, at December 31, 2012 CIT Bank agreed to acquire $1.3 billion of commercial loan commitments (of which approximately $800 million was outstanding), the purchase of which should be substantially completed during the first quarter of 2013.

Trade Finance

Excluding accelerated FSA interest expense, pre-tax earnings nearly doubled from the year-ago quarter, and rose 67% sequentially primarily due to lower funding and credit costs.

• Factoring volume was $6.9 billion, essentially unchanged from the year-ago quarter and up 8% sequentially due to seasonal trends.
• Factoring commissions of $32.2 million were similarly unchanged from the year-ago quarter, but declined slightly from the prior quarter primarily due to business mix.

Credit metrics remain favorable. Non-accrual balances decreased substantially from a year ago, primarily due to accounts returning to accrual status and reductions in exposures, and also decreased substantially from September 30, 2012. There was a modest net recovery in the current quarter, compared to $6 million of net charge-offs in the year-ago quarter and no net-charge-offs in the prior quarter.

Transportation Finance

Excluding accelerated FSA interest expense and accelerated OID on debt extinguishment related to the TRS facility, pre-tax earnings rose substantially from both the year-ago and prior quarters, primarily reflecting asset growth and lower funding and credit costs.

• Equipment utilization remained strong with over 99% of commercial air and 98% of rail equipment on lease or under a commitment at December 31, 2012.
• Financing and leasing assets grew approximately $0.9 billion from December 31, 2011, and $0.2 billion from September 30, 2012, to $14.2 billion.
• New business volume of $0.7 billion reflects the addition of seven aircraft and over 1,500 railcars to our operating lease portfolio, and over $200 million of new loans. All of the current quarter’s loan volume and substantially all of the rail volume was originated by CIT Bank. All but two of the 15 aircraft scheduled for delivery in 2013 and over 98% of the approximately 7,000 railcars scheduled for delivery in 2013 and 2014 have lease commitments. In December 2012 we ordered ten A350 aircraft from Airbus with deliveries in 2019 and 2020.

Vendor Finance
Excluding accelerated FSA interest expense, pre-tax earnings increased nearly 20% from the year-ago quarter primarily due to higher net finance revenue from improved funding costs and higher other income, which were partially offset by reduced net FSA accretion and higher credit and operating costs. The significant sequential quarter increase reflected higher other income, higher net finance revenue and lower credit and operating costs. The improvement in other income reflected a gain of approximately $14 million related to the previously announced sale of our Dell Europe operating platform to Dell.

• Financing and leasing assets grew to $5.4 billion, representing increases of 4% from September 30, 2012 and 8% from a year ago.
• We funded $0.9 billion of new business volume for the fourth quarter, an increase of 21% from the year-ago quarter and 23% sequentially. Essentially all U.S. funded volume in the current quarter was originated by CIT Bank.
• Non-accrual loans declined modestly from both a year ago and sequentially to $72 million (1.49% of finance receivables). Net charge-offs of $5 million declined from $10 million in the prior quarter but rose from $2 million in the year-ago quarter.

CIT Bank

• Lending and leasing assets grew during the quarter reflecting new business volume from all commercial segments.
• The Bank funded $2 billion of new business volume in the current quarter, which represented nearly all of the new U.S. volumes for Corporate Finance, Transportation Finance and Vendor Finance.
• Funded volumes were up 83% from the year-ago quarter and 47% sequentially.
•  Total assets were $12.2 billion, up from $9.0 billion at December 31, 2011 and $11.6 billion at September 30, 2012.
• Commercial loans totaled $8.0 billion, up from $3.9 billion at December 31, 2011 and $6.8 billion at September 30, 2012.
• Operating lease equipment of $649 million, primarily railcars, increased from $31 million at December 31, 2011 and $456 million at September 30, 2012.
• During the quarter, CIT Bank sold approximately $550 million of its remaining portfolio of student loans, which were held for sale. Proceeds of the sale were used to redeem the associated ABS funding.

“We made significant progress in advancing our corporate strategy in 2012,” said John Thain, chairman and chief executive officer. “We grew commercial assets, diversified our funding mix, and expanded new business initiatives that further support our small business and middle market clients. We remain focused on positioning CIT for future growth and profitability as we drive operating efficiencies, prudently grow our assets, and expand CIT Bank.”

Read the full CIT Group earnings press release.