CIT Group Inc (CIT.N), the business lender led by former Merrill Lynch Chief Executive John Thain, said fourth-quarter net income fell 59 percent, but a decline in problem loans and borrowing costs helped it beat analysts' expectations.
CIT, which in late 2009 emerged from a short bankruptcy, said it had made progress in increasing loan volume across its four business segments and that it had redeemed about $860 million of high-cost debt in the quarter.
Its commercial finance and airplane and railcar leasing assets grew for the first time since the end of 2009, and it continued to sell student loans and other impaired assets.
Thain told analysts on a conference call that CIT's loan growth is expanding, though slowly, in parallel with growth of the U.S. economy.
CIT operates under an agreement subjecting it to close scrutiny from the Federal Reserve Bank of New York. The regulator imposed the agreement on a CIT bank unit after the company amassed heavy home lending losses and was unable to borrow in the capital markets under Thain's predecessor.
CIT's bankruptcy led the U.S. government to lose a $2.3 billion bailout loan it had provided during the financial crisis.
Thain said on Tuesday that CIT has submitted documentation to the New York Fed showing that it had met capital and credit improvement requirements relating to capital and credit improvement.
With the New York Fed's approval, CIT may be allowed to use excess cash for shareholder-friendly actions such as share repurchases or a dividend restoration in 2013, Chief Financial Officer Scott Parker told analysts.
The company has attracted more than $600 million of deposits and certificate of deposit purchases since opening an online bank in October to attract low-cost funding. The deposits pay an average of 1.1 percent and mature on average in 18 months, Thain said.
The New York-based commercial finance company reported fourth-quarter net earnings of $33.9 million, or 17 cents a share, down from $83.2 million, or 41 cents a share, a year earlier. Analysts' average forecast was 2 cents a share, according to Thomson Reuters I/B/E/S.
Pretax income, a metric that excludes costs related to early payment of high-cost debt and bankruptcy-related accounting benefits, was $140 million, compared with a loss of $160 million a year earlier.
CIT shares rose as much as 4.3 percent on Tuesday, and were up 2 percent at $38.75 in late morning on the New York Stock Exchange. The stock price over the past year had a high of $48.77 and a low of $27.68.
CIT set aside $16 million to cover bad loans during the fourth quarter, down from $47 million in the third quarter of 2011 and $182 million in the fourth quarter of 2010. Chargeoffs, or loans it is no longer trying to collect, fell 47 percent from the third quarter and 650 percent from a year earlier to $24 million.
Expenses fell 16 percent from a year earlier and 43 percent from the third quarter to $346.7 million, despite severance and other one-time charges. CIT ended 2011 with 3,526 employees, down 7 percent from a year earlier.
Its finance margin, a measure of profitability that excludes benefits from bankruptcy accounting and costs from debt prepayment, also improved. "Overall, we view the results as positive, as net finance margin, new business volume and credit quality were all better than expected," Mark DeVries, an analyst at Barclays Capital, wrote in a note to clients.
CIT said it was restating financial results for the first three quarters of 2011 and all of 2009 and 2010 due to about $68 million of refunds to retailing and other clients in its trade finance unit. The restatement decreased its tangible book value by 32 cents a share and was reflected in its end-of-year book value of $42.35.
(Reporting by Jed Horowitz in New York and Tanya Agrawal in Bangalore; Editing by Supriya Kurane, John Wallace and Matthew Lewis)