CIT Group Management Discusses Q2 2012 Results - Earnings Call Transcript

CIT Group (CIT)

Q2 2012 Earnings Call

July 30, 2012 8:00 am ET

Executives

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

Analysts

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

Donald Fandetti - Citigroup Inc, Research Division

Mark C. DeVries - Barclays Capital, Research Division

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

Moshe Orenbuch - Crédit Suisse AG, Research Division

Eric E. Wasserstrom - UBS Investment Bank, Research Division

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

David S. Hochstim - The Buckingham Research Group Incorporated

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

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

Kenneth Bruce - BofA Merrill Lynch, Research Division

Presentation

Operator

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

Kenneth A. Brause

Thank you, Frances, and good morning, everybody. And welcome to CIT's Second Quarter 2012 Earnings Conference Call. Our call 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 will 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 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 www.cit.com.

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. We reported a solid second quarter, with $245 million of pretax income before the debt repayment expenses. Our Commercial assets grew $600 million, which is the third consecutive quarterly growth. And we originated $2.4 billion of new funded volume, which was up 19% sequentially. All 4 of our core businesses were profitable on a pretax, pre-debt repayment basis. And we saw a significant improvement in our economic finance margin, which Scott will talk about in more detail later.

We continued our balance sheet liability restructuring, lowering our overall funding costs. We repaid $4.2 billion of higher cost debt, and we issued $2.8 billion of new debt, including $2 billion of unsecured debt.

We continue to expand CIT Bank. Over 90% of our U.S. volume is now being originated by CIT Bank. CIT Bank's assets crossed over the $10 billion mark, and our Internet deposit gathering exceeded $2 billion in total.

Our credit metrics were strong and stable, with charge-offs at or near cyclical lows. On the written agreement with the Fed, we continue to wait for a response from the Fed. We have not heard anything back from them yet.

In terms of the economic environment that we're operating in, it's okay, not great. We see slow growth in the U.S. consistent with the most recent GDP number. We do see a slowdown in Brazil, and we continue to see growth in China.

Going through our different businesses, Corporate Finance. Corporate Finance had the fourth consecutive quarter of over $1 billion of committed volume. We closed over 60 transactions, with 10 lead agency roles. Our Equipment Finance business and our Commercial Real Estate businesses, which are newer businesses for us, continue to see good growth.

On the Transportation side, our commercial aircraft were 99% utilized, and our railcars were 98% utilized. And we grew our order book both in air, where we ordered some new A330s, which were reported in the press. And we will report later today an incremental order of 3,000 tank cars in the Rail sector.

In the Vendor business. Our Vendor business, our volume was up 13% sequentially. And our Trade business, the factored volume was just down slightly. We did continue to sell off our student loans. We sold $1.1 billion of student loans. Our balance sheet is very strong. Our capital ratios, our total capital ratio was about 19%. Our Tier 1 Capital ratio was 18%. We continue to be very liquid, with $7 billion of cash and short-term investments. And our tangible book was right around $39.87.

So with that, I'll turn it over to Scott to give you some more details.

Scott T. Parker

Thank you, John, and good morning, everyone. We continue to make progress towards achieving our profitability targets. Funded volume and Commercial assets grew. Margin has improved as funding costs declined, and we are moving closer to our target funding mix. And portfolio quality remains stable, with quick credit metrics close to cyclical lows.

As John mentioned, we reported $71 million net loss or $0.35 per share. Consistent with last quarter, this was driven by accelerated FSA and other debt-related charges as we continue to execute on our liability management initiatives.

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