CIT Group Inc (DEL) (CIT)

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CIT Group (CIT)

Q3 2012 Earnings Call

October 23, 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

Mark C. DeVries - Barclays Capital, Research Division

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

Moshe Orenbuch - Crédit Suisse AG, Research Division

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

Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division

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

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

David S. Hochstim - The Buckingham Research Group Incorporated

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

Presentation

Operator

Good morning, and welcome to CIT's Third Quarter 2012 Earnings Conference Call. My name is Chanel, and I will be your operator for 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

Thank you, Chanel, and good morning, and welcome to CIT's third quarter 2012 earnings conference call. Our call today is 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 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 www.cit.com.

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

John A. Thain

Thank you, Ken. Good morning, everyone, and thank you all for joining our third quarter earnings call. This quarter, we reached several strategic milestones. Most significantly, we completed the refinancing or repayment of all $31 billion of debt that was originally issued in the restructuring.

We also issued $4 billion of new debt. That debt had around a 4% cost and around a 6-year weighted average life. And very importantly, we celebrated the 1-year anniversary of our Internet Bank, and our Internet deposits as of today are just under $4 billion. So in a little over a year, we raised just under $4 billion of Internet deposits. Bank deposits, overall, now account for 28% of our overall funding mix. CIT Bank exceeded $11 billion of assets at the end of the quarter and it is now funding 96% of our U.S. new originations.

Our commercial assets in the quarter grew for the fourth consecutive quarter and also for the fourth consecutive quarter, we raised over $2 billion of funded volume, so continued growth on the commercial asset side. Our credit metrics remain strong and as we reported, we generated pretax earnings of $170 million before the debt redemption expenses. Our economic finance margin was stable and we are seeing some areas of pricing pressure, which Scott will talk about in his comments.

Our view of the U.S. economy is that it continues to grow but it's growing slowly. And we are seeing slowing in growth in other parts of the world, particularly Europe. We saw a slowdown in Brazil and we are seeing some slowdown in China. We also did see, in some of our businesses, a seasonal effect in the month of August being somewhat slower.

In our Corporate Finance business, we had the sixth consecutive quarter of over $1 billion of committed volume. Our portfolio in Corporate Finance continues to grow, and our Equipment Finance business and our Commercial Real Estate businesses are both doing well. In our Trade Finance business, our factoring volume was up sequentially but it's due to seasonal factors. We did see some weakness in the apparel sector.

In the Transportation businesses, we continued to see strong utilization in our commercial air and in our rail fleet. Our commercial aircraft were 99% utilized and our railcars were 98% utilized. We also put to work over 1,700 new railcars which were delivered, and almost all of those railcars are in CIT Bank.

In our Vendor Finance business, our assets were up 3% sequentially, 7% from a year ago. And in terms of financial condition, our capital remains very strong, 17.5% total capital. We remain very liquid with over $7 billion of cash. On the written agreement, we continue to wait for a response from the Fed.

In terms of our priorities going forward for the rest of this year and into 2013, we will focus on growing our earning assets; we will focus on managing our expenses, which Scott will talk about more; and we'll focus on growing our bank, CIT Bank, both on the asset side and on the deposit side.

And with that, I'll turn it over to Scott.

Scott T. Parker

Thank you, John, and good morning, everyone. As John noted, we achieved several key milestones that are contributing to our operating momentum. Core economic margin continues to improve towards our target range, as funding costs declined with the elimination of the high-cost debt and more assets being funded with deposits.

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