CIT Group (CIT)

Q3 2011 Earnings Call

October 25, 2011 8:00 am ET


John A. Thain - Chairman and Chief Executive Officer

Scott T. Parker - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

Kenneth A. Brause - Executive Vice President of Investor Relations



Good morning, and welcome to CIT's Third Quarter 2011 Earnings Conference Call. My name is Modesta, and I will be your operator today. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ken Brause, Director of Investor Relations. Please proceed, sir.

Kenneth A. Brause

Well, thank you, Modesta, and good morning, everyone. And welcome to CIT's Third Quarter 2011 Earnings Conference Call. Our call today will be hosted by John Thain, our Chairman and CEO; and Scott Parker, our CFO. We will have a question-and-answer session following our prepared remarks. We do ask that you limit yourself to one question and a follow-up and then return to the queue if you have additional questions. We'll do our best to answer as many questions as possible in the time we have this morning.

Elements of this call are forward looking in nature and may involve risks, uncertainties and contingencies that may cause actual results to differ materially from those anticipated. And these forward-looking statements relate only to the time and date of this call. We disclaim any duty to update these statements based on new information, future events or otherwise. For information about risks factors relating to our business, please refer to our 2010 Form 10-K that was filed with the SEC in March. Any references to certain non-GAAP financial measures are meant to provide meaningful insights and are reconciled with GAAP in our press release. And for more information on CIT, please visit the Investor Relations section of our website at

I'd now like to turn the call over to John Thain.

John A. Thain

Thank you, Ken. Good morning, everyone, and thank you for being on the call. Despite a difficult economic environment and volatility in the marketplace, CIT had a good third quarter. Our volume was up sequentially across all of our business segments. We originated $2.3 billion of new loan commitments, of which $1.9 billion was funded. Our credit metrics improved. Our charge-offs, nonaccruals and inflows into nonaccrual all were down. We continue to make progress on restructuring our debt. We repaid $3 billion of the first-lien term loan. We put in place a new $2 billion revolver with a much lower cost. And we redeemed all of the 2014 maturity Series A debt although a piece of that was done in October. But with the reduction of that 2014 debt, most of the restrictive covenants were released.

And we also took advantage of the disruptive market and repurchased about $0.75 billion of our Series A debt in the market at a discount. As you all know, we launched CIT's Internet bank that went off very successfully. It's only been 5 days, but it's been raising deposits. And we originated 80% of our U.S. volume in CIT Bank. Those of you who would like to make a deposit, please go to We're very happy to take your money.

Our operating expenses were in line for the quarter. And if you go across our businesses, Corporate Finance, we originated $1.2 billion of new commitments in the quarter to over 65 borrowers. So we are, in fact, lending to small and middle-market companies. Our Vendor business, which is also mostly just small and middle-market companies, funded over $600 million in new volume.

Our Trade Finance business, which is our factoring business for very small companies, our factoring volume was up in the quarter. And in the Transportation side, our commercial aircraft, 100% of our planes were leased and all of our new deliveries in the next 12 months are leased. On the rail side, our utilization of railcars was 97%. But if you excluded centerbeams, which are the cars that are used for hauling lumber, the utilization rate was over 99%.

So if you look at our businesses -- and our business is, obviously, just a snapshot but it's a mix of businesses on the commercial side, if you look at our businesses, we do not see a double-dip recession in the U.S. We see slow growth in the U.S. but still positive. And then in our businesses outside the U.S., particularly Asia and Latin America, we see faster growth.

We do -- we are continuing to make progress completing the written agreement items. We're continuing to work to complete the vast majority of them by the end of the year, and our -- we're happy with the progress that we made in the quarter.

With that, I'll turn it over to Scott.

Scott T. Parker

Thank you, John, and good morning, everyone. We reported a net loss of $16 million or $0.08 per share on pretax income of $14 million. Pretax income included $169 million of costs associated with our lability restructuring actions. Excluding these costs and the net FSA accretion benefits, pretax earnings were $89 million, up from $70 million in the second quarter on the same basis, with the improvement driven by lower funding and credit costs.

First, I'd like to make sure everyone understands how the costs related to the debt actions impacted that the P&L. We added a table in the last page of the press release in the non-GAAP disclosures that I'd like to walk you through. It starts with reported pretax income.

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