CIT Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

CIT Group (CIT)

Q1 2012 Earnings Call

April 24, 2012 8:00 am ET


Kenneth A. Brause - Executive Vice President of Investor Relations

John A. Thain - Chairman and Chief Executive Officer

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


Bradley G. Ball - Evercore Partners Inc., Research Division

Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

David S. Hochstim - The Buckingham Research Group Incorporated

Mark C. DeVries - Barclays Capital, Research Division

Kenneth Bruce - BofA Merrill Lynch, Research Division

Donald Fandetti - Citigroup Inc, Research Division

John W. Stilmar - SunTrust Robinson Humphrey, Inc., Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Jeff K. Davis - Guggenheim Securities, LLC, Research Division



Good morning, and welcome to CIT First Quarter 2012 Earnings Conference Call. My name is Frances, and I will be your operator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ken Brause, Director of Investor Relations. Please proceed, sir.

Kenneth A. Brause

Thank you, Frances, and good morning, everyone, and welcome to CIT's First Quarter 2012 Earnings Conference Call. Our call today will be hosted by John Thain, our Chairman and CEO; and Scott Parker, our CFO. After their prepared remarks, we will have a question-and-answer session. [Operator Instructions] 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. Any 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 risk factors relating to the business, please refer to our 2011 Form 10-K that was filed with the SEC in February.

Any references to non-GAAP financial measures are meant to provide meaningful insight and are reconciled with GAAP in the press release. 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

Good morning, everyone. Thank you for being on the call. We had a solid first quarter despite the GAAP reported loss. As our press release states, the quarter included $620 million of charges related to the prepayment of $6.5 billion of high-cost debt. If you exclude those prepayment charges, our pretax income was $214 million.

We originated $2 billion of funded volume in the quarter, $2.5 billion on a committed basis. Our Commercial Real Estate and our Equipment Finance businesses, which were new businesses for us or restarted businesses, were both off to a good start in the quarter. And our Corporate Finance business, on a committed basis, originated volumes that were up 23% quarter-over-quarter and up 93% year-over-year.

Our commercial assets grew for the second consecutive quarter, and pricing remained attractive across our business lines. Our credit quality -- the credit quality of our portfolio improved. Non-accruals, charge-offs and additions to non-accruals were all lower, and we made excellent progress on our debt restructuring. We repaid all of the remaining Series A debt, which resulted in most of our debt becoming unsecured. We issued $1.5 billion of unsecured notes in addition to another $3.25 billion that we had issued earlier. We did get upgraded by the rating agencies, although not far enough and where -- we will continue to work on that. And if you include what we've already done or announced in this quarter, we will have repaid or refinanced $24 billion of high-cost debt since the beginning of 2010.

Continuing on our evolution to a more bank-centric model, CIT -- we originated over 80% of our U.S. volume in CIT Bank. CIT Bank's Internet deposit gathering is now over $1.1 billion of deposits. And just to give you an idea, those deposits have an average life of about 1.5 years and have a coupon of about 1.1%.

Our expenses were generally in line. We did have a small restructuring charge in the quarter. Our capital ratios remain very strong, 17.6% on a Tier 1 basis. We continue to be very liquid, $7.3 billion of cash. And on the regulatory front, we believe that we have substantially satisfied the requirements of the written agreement, and the Federal Reserve of New York is in the processing -- the process of verifying our work.

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

Scott T. Parker

Thank you, John, and good morning, everyone. We continue to make good fundamental progress this quarter. As John mentioned, we grew commercial assets, funding cost continued to decline, credit quality further improved and we continued to grow CIT Bank. We reported a $447 million net loss or $2.22 per share and a pretax loss of $406 million. The pretax loss was driven by approximately $620 million of charges associated with our liability restructuring actions. This included $597 million of accelerated FSA debt discount and $23 million loss on debt extinguishment. Excluding these charges, pretax earnings were $214 million, down from $230 million in the fourth quarter. The decrease came as lower FSA accretion, increased provisions for credit losses and charges in Vendor Finance more than offset increased gain on asset sales and lower funding costs.

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