cit Q12006Transcript

The following transcript has been provided by a third
party transcription service for informational purposes
only. CIT has not reviewed or edited the transcript and
expressly disclaims any responsibility for the accuracy
of this transcription.

FINAL TRANSCRIPT

Conference Call Transcript
CIT - Q1 2006 CIT Group Earnings Conference Call

Event Date/Time: Apr. 19. 2006 / 11:00AM ET

Thomson StreetEvents 1
www.streetevents.com Contact Us

© 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the
prior written consent of Thomson Financial.

FINAL TRANSCRIPT
Apr. 19. 2006 / 11:00AM ET, CIT - Q1 2006 CIT Group Earnings Conference Call

CORPORATE PARTICIPANTS
Valerie Gerard
CIT Group - EVP, IR
Jeff Peek
CIT Group - Chairman, CEO
Joe Leone
CIT Group - Vice Chairman, CFO

CONFERENCE CALL PARTICIPANTS
David Hochstim
Bear, Stearns - Analyst
Meredith Whitney
CIBC World Markets - Analyst
Laura Kaster
Sandler O'Neill - Analyst
Jordan Hymowitz
Philadelphia Financial - Analyst
Joel Houck
Wachovia Securities - Analyst
Chris Brendler
Stifel Nicolaus & Co. - Analyst
Eric Wasserstrom
UBS Warburg - Analyst
Craig Maurer
Soleil-Fulcrum Research - Analyst
Bruce Harting
Lehman Brothers - Analyst
Stephen Schulz
Keefe, Bruyette & Woods - Analyst

PRESENTATION

Operator

Good morning. My name is Amber, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the CIT
first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. Thank you.

I would now like to introduce Valerie Gerard, the Executive Vice President of Investor Relations. Ms. Gerard, you may begin your conference.

Valerie Gerard - CIT Group - EVP, IR

Thank you very much Amber, and good morning, everyone. Welcome. We're delighted that you are here with us this morning to talk about our
results for the quarter. After our formal remarks by Jeff Peek, our CEO and Chairman, Joe Leone, our CFO, as well, then will move into our
standard Q&A session.



FINAL TRANSCRIPT

As you know elements of this call are forward-looking in nature, and relate only to the time and date of the call. We expressly 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 SEC reports.

Any references to certain non-GAAP financial measures are meant to provide meaningful insight and are reconciled with GAAP in the Investor
Relations section of our website at www.cit.com.

Now with that, it's my pleasure to introduce our Chairman and CEO, Jeff Peek.

Jeff Peek - CIT Group - Chairman, CEO

Valerie thank you very much, and good morning everyone.

As you have seen from this morning's announcement, we delivered another solid quarter of results, driven by our sharp focus on execution. Our
diluted earning per share increased 14% to $1.12 over the first quarter of 2005. Now for 2005 that's excluding the derivative gains. Return on
equity was 14.1% for the quarter. Adjusted for options expense ROE for this quarter was 14.6%, up from 13.6% a year ago. Origination volume
of 8.7 billion was strong and broad based, increasing 53%, or some $3 billion from the prior year.

Now the key drivers of this success are a 22% increase in the size of our sales force, and a 23% increase in sales rep productivity. Total managed
assets were $65.5 billion, up 11% compared to last year's first quarter. And our new business pipeline remains very solid. Credit performance was
exceptional this quarter with net charge-offs near historic lows. Overall, our first quarter results are consistent with our expectations that
significant investment in our origination personnel, will produce material gains in volume and asset levels.

Last quarter, we announced the realignment of our businesses into five operating groups in an effort to organize our business around clients, build
scale across our businesses, and provide greater transparency and clarity for investors and shareholders. Now with that in mind, let me walk you
through several important business highlights, as well as proof points of our strategy at work.

First let's talk about Corporate Finance. Our ability to attract top talent and our focus on market segments are the forces behind this quarter's
successes in Corporate Finance. First, the buildout of our Healthcare group is near completion, and we are extremely pleased with it's
performance. We are executing on all facets of the healthcare middle market in winning lead mandates. Volume grew almost 500% over the prior
year. We ended the quarter with 1.9 billion in healthcare assets at above-target ROEs. We expect this rate of growth to continue throughout 2006
for healthcare.

Second, our focus on industry specialization is producing solid results in our communications media and entertainment group. This group played
a role in more than 25% of the deals in its sector last quarter. A great example of this momentum is our sports advisory business. We assembled a
team of seasoned executives who are experts in valuing sports franchises. Their resent successes include financing for a new National Hockey
League arena, collaboration on a Formula One racing transaction with our UK team, and providing capital for a well-known regional sports
broadcasting network.

Second, let's talk about Transportation Finance. Transportation finance continues to improve as the return on equity for both rail and air exceed
the corporate hurdle rate of 15%. As many of you know, CIT is a long-standing leader in the rail business, which provides a very predictable
income stream to our portfolio. Rail demand remains strong, and we are prudently lengthening lease terms to take advantage of the peak pricing
environment.

Our Aerospace business has also made significant progress. We are enjoying favorable market conditions, with demand for new aircraft in
growing markets such as China, India, and the Philippines. Returns on these transactions are well above threshold, as we take advantage of both
the desirability of newer aircraft models, and favorable tax treatment through our Dublin operation.

Next, Trade Finance. Trade Finance, our factoring operation, remains our highest returning business segment. International factoring volume is
up on strong sales efforts and now generates over 10% of the group's revenues. We anticipate continued strong growth in International trade
finance business, as we pursue growth opportunities both in Europe and in Asia.

Let's talk about Vendor Finance. By combining all of our various Vendor Finance units into one group, we have significantly enhanced
coordination and best practice across the sales teams. We can now set benchmarks for penetration in each major vendor relationship, develop



FINAL TRANSCRIPT

consistent delivery standards globally, and importantly extend more relationships into multiple geographies. This quarter, we added more than
250 new relationships, both vendor and dealer worldwide. Within this group would names such as Honeywell, Kodak, Oracle, Mitsubishi,
Heidelberg, Agfa, Rubbermaid, and True Value, to name just is few.

Finally our fifth operating group, Consumer Small Business. In this segment we realized record originations in our Home Lending and Student
Loan Xpress units. This is a direct result of our sales force expansion. SLX continues to demonstrate outstanding momentum. The
implementation of a rigorous school calling program and use of market-leading sales tools has resulted in robust growth in the school channel.
Additionally I'm pleased to note that we have officially reached our 2006 target of being a preferred lender to more than 1000 schools, and this
was 9 months ahead of expectation.

In Home Lending, our strategy to grow organically resulted in record broker originations of nearly $1 billion this quarter. We have now
completed the buildout of this sales force. Growing it by 45% to 240 representatives and increasing sales productivity by 12% per salesperson.

In the first quarter, we also expanded our international business with two strategic acquisitions. Today 20% of CIT's portfolio is outside of the
United States. In our factoring business, we acquired a small German factoring company, which now enables us to take advantage of trade flows
from Asia into Europe. With this foothold, we will actively seek a European roll-up strategy, beginning in Germany.

In Asia, we are the #1 foreign-owned vendor finance company, with relationships like China Mobile and Fuji Xerox. We recently bought out our
Chinese joint venture partners, to ensure more control over our growth options here. We continue to actively manage our portfolio, prioritize
investments, and work to improve our return on equity. Our traditional disciplines remain important priorities for us.

In terms of credit, or investing in our risk management capabilities to maintain our competitive edge and our exemplary results. In funding, we
have focused on diversifying our sources of funding, enhanced by growing our deposit base. CIT Bank's expansion has been robust, growing
from $265 million to almost $700 million in deposits this quarter alone. We are squarely on target to reach our goal of $2 billion in deposits by
the end of 2006.

With regard to capital, we remain thoughtful in our decision making, and committed to deploying capital to produce the best returns. Now in
closing, I ask you to keep several points in mind. While we have made tremendous progress to date, CIT is still at a very early and dynamic stage
in it's growth. We continue to invest and build the business for the future.

Nonetheless, I believe that our volume and asset performance this quarter is evidence that our strategy is gaining traction. It was a solid quarter.
Thanks to the hard work of our 6600 employees, and I remain confident of our ability to grow assets and improve shareholder returns, as we
execute against our 2006 plan.

And with that, I'm delighted to turn the discussion of our financial results over to our Vice Chairman and Chief Financial Officer, Joe Leone. Joe?

Joe Leone - CIT Group - Vice Chairman, CFO

Thank you, Jeff. And good morning, everyone. I would like to talk you through some of the financial trends, and also punctuate some of the
strategic items that Jeff covered with some financial or numerical data. We had a very good start to the year.

Operating EPS growth on a consistent basis of accounting was up 18% from a year ago. Let me tell you how I get to this. We reported EPS of
$1.12 this quarter. Adjusting for the restructuring charge and a tax item, EPS was $1.13, and this compares to $0.98 last year, excluding the gain
from derivatives on the FAS-133 mark. In addition, this quarter for the first time, we had options expensing of about $0.03 that we did not have
last year. So a very strong start to the bottom line for the year.

Asset growth was very strong in the quarter, Jeff covered some of the particulars. We were up $2.6 billion, and generally the first quarter is
somewhat weak on a seasonal basis, but the growth was broad-based. Specialty finance businesses grew nicely, about $1.5 billion, and our
Commercial Finance businesses were up about $1 billion, adjusting for the transfer of portfolio from Corporate Finance to Vendor Finance.

Even more importantly, revenue growth year-over-year was very good. We had revenues of over $700 million this quarter, up 9% from about
$650 million a year ago. So overall, profitable quarter and one with very good growth. Driving into some of our particular financial metrics, let's
start with margins.



FINAL TRANSCRIPT

I was very happy with our margin results. Finance margin grew in dollars with the asset growth, and as a percentage of assets, was essentially flat
sequentially. Let me give you some color on the underlying trends. Lease margins in rail and air continue to improve. Jeff said we have been
extending lease terms, so that's very positive as well. Renewals on expiring rail leases are up 20 to 30%, and we are writing these leases out to 5
years or so.

The increase in Aerospace is also very strong. An example we had a lease renew on an A320 at a lease rate 17% higher than when it was written
post-9/11. We have 24 more planes coming off lease this year, all we reprice from post-9/11 lows.

On the other side, pricing in the lending market continues to be very tight. There is a lot of liquidity in the lending market, as we have been telling
you about. We see the impact of that particularly in Corporate Finance. An example, a three-year revolving line of credit on a non-investment
grade borrow, would price around LIBOR plus 220 or so, versus LIBOR plus 300 or so a year ago.

Yield-related fees. We had a very strong first quarter, they were up 5 million sequentially, and that increased our margin by about 4 basis points
this quarter. The largest component of that was an early buyout of an aircraft by [LSE], that exercised their early buyout option. Business mix
also impacts margin. I often talk about the dynamics of our margin.

Business mix impacts margin and this quarter we had very strong student lending growth, which is more leveragable, and that reduces margins
slightly, 2 basis points or so. On the funding front, we have a lot of activity. Funding on related items reduced margins a bit in the quarter. We
had benefits from refinancing debt. But the benefits were offset by rising short-term rates. We extended our liability maturities and we carried a
high level of liquidity.

Overall, I'm very pleased with the business's ability to keep margins relatively flat in such a competitive lending environment. I think it
demonstrates two things. Strong asset origination strength and broad base of businesses.

Let's move to operating expenses. Excluding the restructuring charge we took this quarter, I'll talk about that in a moment, expenses were up $33
million sequentially, and our efficiency ratio increased to about 46% from 42%.

Let me give you some details here. 10 million of the increase, or 1% of the efficiency ratio increase, relates to the options, stock options
expensing. 9 million of the increase, again about 1% on the efficiency ratio, relates to higher FICA expense, due to bonuses paid in the first
quarter and restarts of FICA. I expect that we'll have some ease of that in the second quarter by about $5 million.

4 million or so of the increase in expenses, or about a 50-basis point impact on the efficiency ratio, was increased advertising and marketing. We
are investing in our product expansion particularly student lending, and we're enhancing the overall brand recognition. About $10 million, or 1%
of the increase in efficiency ratio, was people costs related to our growth initiatives. As Jeff said, we substantially completed our buildout in
healthcare, home lending, communications, and student lending, and we had very good results in those units, with record volume in three of them.

Additionally through our Chief Sales Officer, Walter Owens and his team, we have increased our forward visibility in sales areas, and this is
helping us manage performance. You have often heard me say that CIT has historically been good at looking backwards at how we've done, and
need to improve our going forward view.

Not only are we adding good people, I think Jeff mentioned this, we are become much more sales productive. In Healthcare, we doubled the sales
force, but volume per rep is up by 170%. In student lending, we increased the sales force, but volume per rep is up almost 50%. I am very pleased
with the progress we're making in sales management.

Finally on the operating expense trends and efficiency ratio, as mix changes we'll see slight movements in the efficiency ratio, and with the
growth in student lending, with a slightly higher efficiency ratio, but an ability to leverage more on the balance sheet, that added about 50 basis
points to the ratio this quarter. We did have an $11 million restructuring charge in the quarter, as we continue to look at our operations and our
efficiency initiatives. It was broad based. It included opportunities for us to improve operational synergies in Trade Finance. We consolidated
some functions in Aerospace, and we are becoming more efficient in both our U.S. and European vendor operations. We expect some savings
from these initiatives in the second half of the year, and expect a full pay back in about 18 to 24 months.

Income taxes. Our income tax provision for the quarter was about 30%. That's 2% lower than our core rate, as we made a $6.5 million adjustment
or so, net adjustment, to reflect our ability to have a higher prospective utilization of state net operating losses. The improvement in our core
income tax provision to 32% from 34% last year, is due to the increase in international profitability and strategic focus Jeff has had
internationally. In fact we're approaching our goal of generating 25% of our pre-tax earnings overseas. Additionally fully remediated in the



FINAL TRANSCRIPT

quarter the material weakness we had in taxes, and we disclosed that in detail in our 10-K. As I look forward, I expect in 2006 based upon our
current valuation, our core income tax rate to be 32% or slightly better.

Moving to capital markets, we had a very active quarter. Jeff mentioned a couple of our thoughts here, let me give you more detail. We issued
almost $6 billion in unsecured term debt, and that's 35 to 40% of our full year term debt needs, based on our current expectation. So we got ahead
of the curve, so to speak. We continue to finance globally, and we funded in the Australian and Yen markets.

I am particularly proud of the 30-year transaction we executed in March. We announced the deal around 9:00 a.m. in the morning, we had over
$2 billion in orders by noon, and we ended up printing a deal of 500 billion with a 6% coupon for 30 years. $500 million, 30-year money in three
hours, I think that's reflects the market's confidence in CIT, in our performance, and our people.

So we extended maturity again this quarter. New issuances averaged about 7 years, and that's longer than our asset life and longer that our target
of 5 years. The liquidity cost us a bit as I mentioned earlier, but we think that locking into longer term financing is prudent, particularly where the
yield curve was and where credit curves have been. All-in a 30-year deal with a 6% coupon, was slightly more expensive than our 10-year target,
and I think we timed that well and it was very attractive.

Looking forward to the rest of the year, we think we'll do about $10 billion or so of term-debt issuance, including increasing bank deposits along
the lines Jeff mentioned earlier. And we'll look for 20% or so of that to come from non-dollar markets. Securitization will be about $1 billion a
quarter.

But we have done more on the capital market side. Jeff mentioned the progress at CIT Bank, and we still have an objective of $2 billion by year
end. We did more than that. We bolstered our asset syndication team last year, and this capability is increasing our efficiency in bringing assets to
the market for sale.

We syndicated over 750 million of receivables in the quarter, principally in Corporate Finance, we had very good market execution, and I see our
competencies improving in this area, and that will allow us to better leverage the origination infrastructure that we are continuing to build, the
asset generation infrastructure that we are building.

We did have our annual reviews, our regular reviews with three of the rating agencies this quarter. We gave them an in-depth look at our strategy
and our team, and the meetings went very well.

More on capital and reserves, loan loss reserves were essentially flat in dollars, as lower charge-offs in the quarter. Much lower charge-offs as
Jeff described, translated into lower reserve requirements, and that offset some of the requirements for reserves for asset growth. We did charge 3
million of hurricane-related losses against our previously established Katrina reserve.

Adjusting for government guaranteed student loans, reserves were about 1.52%, and that compared to 1.58% at year end. Reserves continue to
exceed non-performing dollars, and we have several years of annualized charge-offs in our reserve coverage. We are very comfortable with our
reserves.

Jeff mentioned the ROE, and that translates into very strong capital generation at almost 14%. And we ended the quarter at 9.7% tangible equity
to assets, much stronger than the bottoms-up 9% that we're looking at. And that equates to about 500 million of excess capital.

Just a little bit of my commentary on some of our businesses, first Equipment Finance. As you know they had a very soft operating environment
in construction several years ago. Took some necessary cost cutting steps last year. And results in the construction vertical improved nicely in this
quarter. Origination volumes were almost 400 million, exceeded our expectations, and credit quality was terrific, less than 10 basis points of
losses. Income more than doubled from a year ago. And the ROE of the unit is in the double-digits. We have more work to do here, and we're
looking at ways to improve the ROE to 15, by getting more out of our long-standing franchise and our origination capabilities.

Jeff mentioned Aerospace, excess of 15% ROE. Higher prepayment fees helped, improving rental rates helped a lot, and our asset selling efforts
have been productive. Our asset selling efforts here have been focused on the 48 older out-of-production aircraft we reserved against in the third
quarter of last year. And the progress is very strong. We sold 27, we have contracts for another 16, and our valuation on the remaining few look
very good. On our order book all of the 2006 deliveries are spoken for, and we had six aircraft on the ground, and all were committed to lessees.
A very good quarter overall in air.



FINAL TRANSCRIPT

Home Lending, Jeff mentioned it's success in the quarter. Asset growth was very strong, and our servicing efficiencies, continue to get even more
efficient, as we now have a servicing book of over $10 billion. Organic volumes, Jeff mentioned were strong, up 70% from a year ago, we did
some asset purchases and sales. We had about net 600 million or so, 630 million, 130 million of net/whole loan purchases, and the premiums we
paid were about 2%. Home lending returns improved, and I see improving profitability there of the remainder of the year, due to our success in
the buildout of our sales and marketing initiatives.

One last word on the Business Vendor Finance, Jeff gave you some of the metrics. Very strong business trend, we are not finished with the build
there, and to get the results in terms of new vendors and volume that we saw, very encouraging, and volumes outside of our major programs are
improving and international vendor volumes are very strong.

So I think very strong start to 2006. Very strong first quarter, all of our segments posted double-digit risk adjusted returns, most are at the hurdle
rate, and with that I will turn it back to the operator. Amber, we're ready for questions.
QUESTION AND ANSWER

Operator

Thank you, sir. We'll pause for just a moment to compile the Q&A roster. Your first question comes from David Hochstim with Bear Stearns.

David Hochstim - Bear, Stearns - Analyst

Hi, I was wondering if you could clarify again what went on in terms of portfolio acquisitions in student lending and mortgage, and could you
just work through again what happened with the aircraft portfolio and the four new deliveries, and then how many were sold? How you get from
the 215 to the 212?


Okay. In terms of the portfolio acquisitions in the quarter, in student lending we had a very attractive opportunity to acquire about $600 million
of portfolio in excess of our targeted ROE, and in home lending, I think that was the other part of your question--


That was the 130 million.


We purchased about 900 million, but we sold over 300 million, so we had a new purchase of about 600 million in the quarter. On the aircraft, I
don't have the exact reconciliation.

We had order deliveries this quarter, and we did have an early termination as I described before, and our net ending plane count is about 212, so
we had a couple of planes come off lease. We had some planes that we sold in conjunction with our initiative we announced in the third quarter,
and we had some EBOs, or early buy outs, as I mentioned earlier, in terms of the prepayment fees, so you know, that's a little of the color, I don't
have the precise numbers of aircraft.


David, I'll get back to you with that answer offline. Could we have the next caller, please?

Operator



FINAL TRANSCRIPT

Yes, your next caller is Meredith Whitney with CIBC World Markets.

Meredith Whitney - CIBC World Markets - Analyst

Good morning. I had a couple of questions on expenses, was your guidance for the rest of the year a 32% tax rate?


Yes. 32% or slightly better.


Okay. And then my next question is, would your comments regarding expenses, particularly compensation expense, I was under the impression
that most of the folks you were hiring, salespeople, advisory bankers, et cetera, were going to be incentive-based compensated, how does that
then drive the ratio then higher this quarter?


Yes. High proportion of the compensation of salespeople is variable based. But not all of it Meredith, that's #1. #2, we had very strong volume
results, across all of our businesses, with particular strength in the ones where the build-outs are more mature or completed as Jeff described.
Home lending, student lending, healthcare, and communications and media.

The other thing that we haven't spoke about, we'll probably start to give you more color on this as the year goes by. The sales team under Walter
and Rick's and Tom's sales teams, are now beginning to measure their productivity, based upon tenure of the sales officer. And clearly, there's an
increase in productivity of the sales officer the longer they are with us, particularly getting over the one-year mark, but we're very focused at
getting the productivity higher in the early stages. You got two questions in there. I got yelled at here, so please.


I can't squeeze in another one? Come on.


No. As Valerie said, we're going to answer one question, and try to get everybody in, if we have more time, we'll get back to you.


Thanks Meredith. Next question please Amber.


Thanks very much.

Operator

Next question is from Laura Caster with Sandler O'Neill.

Laura Kaster - Sandler O'Neill - Analyst



FINAL TRANSCRIPT

Yes, thank you for taking my question. I was hoping to get a little bit more color on credit quality. Obviously, net charge-offs were beneath my
expectations. Reserves did come down a bit, obviously due somewhat to mix shift, but I believe your last guidance was for net charge-offs in '06
to remain below 80 basis points. Could you give us any update on that type of color?


Sure. You know we continue to try and be cautious and prudent about the credit environment, and it continues to get, you know to improve. Our
team did a terrific job. We probably had better recoveries this quarter than we usually have, although if you look at the numbers going back,
you'll see that almost every quarter we have recoveries, so you know, I think we remain somewhat cautious about the credit environment, but
obviously it was terrific in the first quarter, fostered a lot by just great liquidity around all of our markets and our businesses, and I think we have
said that we would anticipate charge-offs being higher in the remaining quarters of the year, but probably not getting to our 80 basis points, which
is kind of, you know, our normalized level for the whole cycle.


Thanks, Laura. Can we have the next question, please, Amber.

Operator

Your next question from Jordan Hymowitz with Philadelphia Financial.

Jordan Hymowitz - Philadelphia Financial - Analyst

Hello.


Yes, Jordan.


My question concerns the rail portfolio. Can you talk a little bit about the pricing up 20 to 30%. What is the volume growth there, and
specifically, can you discuss how many of them are tanker cars, and what percent of the tanker cars could be hauling ethanol, or have been
contracted to haul ethanol, as it seems that rail hauls about 75% of the ethanol in this country.


You have got a lot more detail than I have got, a more detailed question than I have detailed answers, I'll put it that way. But I'll give you some
of the highlights, Jeff mentioned very, very strong business for us, last year continues into this quarter and we have very strong expectations for
the year.

To give you some of the growth metrics the business is up about $700 million or so year-over-year, based upon good organic growth, in terms of
buying cars at the right time with good placements. We did some tank car acquisitions last year.

I don't have the percentage of tank cars in our portfolio. It had been relatively insignificant until our acquisitions of a year ago. So that percentage
is coming higher. We'll get that to you in a follow-up, but continue to see very good pricing, while pricing is not up sequentially like month-to-
month, quarter-to-quarter, the leases are repricing up very nicely, as I mentioned earlier in my script. So that's what I have got there, but the ROE
in this business as we have described, is north of 15% as well.




FINAL TRANSCRIPT

And you have a 6-to-1 leverage on that business? There's about, a little under 3-to-1 ROA at this point?


It's about a 6-to-1 leverage business, yes.


Thanks, Jordan. Can we have the next question?

Operator

The next is from Joel Houck with Wachovia Securities.

Joel Houck - Wachovia Securities - Analyst

Thanks. More of a strategic question, that if credit quality remains as strong as it is, and charge-offs are closer to say 40 or 50, as opposed to 80
bips, that creates a lot of excess earnings for CIT, and is the Company's plan to continue to reinvest that in terms of continuing to bolster the sales
force, or is there some point where it's not practical to continue to do that, and at that point let the dollars fall to the bottom line in terms of EPS
growth and ROE?


Well I think Joel, in each of our businesses as you heard, we set kind of a target where we wanted to get to, in terms of new salespeople and
productivity, and in things like home lending and student lending, healthcare, you know, we're pretty much close to where we wanted to get to, in
terms of number of people and you know, I think at some point obviously, we're going to let that fall through the bottom line, I think the good
news frankly in this quarter, is we're kind of earning our way through this period of investment, we clearly are putting some money into
customer-facing personnel, and productivity tools for the sales force, but we're still able to show pretty respectable quarter-over-quarter increases
in profitability. But obviously we have got a target where we want to be in each of the business teams, and when we reach that you know, we're
going to work on greater profitability within that sector.


Thanks Jeff.


Next question, please, Amber.

Operator

Your next question is from Chris Brendler with Stifel.

Chris Brendler - Stifel Nicolaus & Co. - Analyst

Hi, good morning.




FINAL TRANSCRIPT

Good morning.


I guess a familiar topic for me if I'm forced to choose one topic, on the operating lease margins we're now looking at margins up very
significantly sequentially, and back to levels about 3 or 4 years ago. Can you just talk about, like maybe a little sense on the mix shift? I think
what seems to be helping is the mix shift away from vendor and more into rail, and you talked about some of the fundamentals in rail and air, but
could you give us a little sense on that 660 number, where that falls by product, and then also on the operating lease depreciation side, that also
continues to, it's roughly flat despite the rapid growth in operating leases.

Do you basically get a nice benefit when you extend a lease? You just get to extend the operating lease depreciation considering it's already on
the books, over a longer period of time? Is that the way it works?


You guys are asking complicated questions this quarter. Let's see. We continue to have a mix shift in our operating lease portfolio.

Our operating lease portfolio is close to $10 billion, with the Transportation Finance part of that being 85 to 90% of the portfolio. And if you dial
back even a quarter, it was somewhat lower, but if you dial it back over the years, we have seen a significant increase in our rail portfolio, we
have begun to see growth in the Aerospace portfolio, and we do not see growth in our small ticket operating leases generally. There's been some
trend away in the operating lease side in technology equipment.

In terms of the stronger operating lease margins we're seeing, it's relatively consistent. The 6.6 I think you mentioned earlier, Chris, is the
operating lease margin that we have on the overall portfolio, that's rental income, less maintenance, less depreciation, and that's 6.6%. If we look
at the transportation finance part of that, it's pretty close to the overall CIT average.

Clearly from a weighted dollar it needs to be that way, but there seems to be relative consistency across the portfolio, and as we said we had a
very particularly strong lease rental portfolio return in the first quarter in air, and improving in rail as well. So I think I answered most of your
question, there was another half of it but I can't remember what it was.


If you extend the lease on the rail asset, if it's already on the books you are basically able to depreciate over a longer period of time--


No what we do, is we set our average holding period up front and in airplane it would be in the area of 25 yeara, in railcar it would be somewhat
longer than that . Generally that's our depreciation policy, and if we write a five-year lease the depreciation continues, and then in 5 years hence,
generally the depreciation continues at the same rate.

While I'm on operating leases the percentage of tank cars in the portfolio is now 8%. So clearly it's not a big part of our portfolio, but it's basically
coming from ground zero or nil.


One quick follow-up if I'm allowed Valerie. Basically to go from 6.1 or 6.2 to 6.6 sequentially, what is the new business volume the leases you
are rewriting, how much higher than 6.6 are they?




FINAL TRANSCRIPT

Well, Chris, we had a very strong first quarter and I mentioned that prepayment fee in air. That goes because of the way we structured that many
years ago, the accounting needed to follow the structure, and that prepayment fee as I described earlier, ended up in the margin, so that gave us,
you know, a particularly strong margin here, that we wouldn't expect necessarily for that to repeat itself every quarter, although we have early
buyouts on a constant basis.

So it did pick up because of the rental data I described to you before, with the A320 example and the rail car example, but in the first quarter we
had a particularly strong quarter on prepayment fees, and we picked up some back rents that were past due. You can think of what part of the
world they are from. The U.S. our guys have been working very hard at getting all of the monies owed to us. We had a very particularly strong
first quarter. But I still continue, if you do some averaging, I still continue to see operating lease margins improving. And we'll move on Val.


Fine with me, next question, please.

Operator

Next question with Eric Wasserstrom with UBS.

Eric Wasserstrom - UBS Warburg - Analyst

Thank you. Jeff, can you just go back to what you said about the German factoring acquisition and the platform it gives you to roll up in that
space? Can you just give us a sense of what kind of companies that would be, and what kind of financial criteria you would apply to those kinds
of transactions?


Sure, Eric I think as you know with where we are in the U.S. market in factoring, and the manufacturers, so many of them now moving to China,
we have been trying to figure out how to take this from a U.S. business into more of a global business, and the company we bought was a
subsidiary of the bank of Ireland, it's I think the 10th or 12th largest factoring company in Germany. And we paid a small price for it. It's a very
clean platform, it's a young management team.

You know, as we look at Europe, factoring seems to be a much bigger market over there, than it is in the U.S. it accounts for more short-term
working capital financing, by probably a multiple of 3 than what is in the U.S. So what we were trying to avoid was making a large acquisition
over, there where we would go toe to toe with some entrenched competition.

So from what we can see from the continental market, particularly the German market, it's somewhat fragmented, there's opportunity for other
acquisitions, and so this you know, our first step, you know we would try to apply our same pretty conservative pricing models that we have used
in the U.S. on bolt-ons. We don't have a big platform there to consolidate into, so we may have to be a little bit more strategic, but you know, we
think it's an obvious next step for us in Trade Finance.


Great question Eric thank you. Amber next questioner please.

Operator

Your next question is from Craig Maurer with Soliel.

Craig Maurer - Soleil-Fulcrum Research - Analyst



FINAL TRANSCRIPT

Good afternoon, everybody. Quick question regarding credit quality, just to follow-up. There was an increase in delinquencies in the home
lending business, considering the interest rate environment and the fact that that is a sub-prime focus portfolio, could you just tell us why that
shouldn't be a concern going into the environment that most expect? Thanks.


Sure. Yes. The portfolio is growing. So it's up in dollars. The portfolio is aging a bit. I mean we look at it obviously on a vintage origination
basis. So the delinquency increase is expected in certain parts of our portfolio as it grows, and as it ages.

Now as we look at our forward look at the portfolio, we have a lot of rigor around the credit analysis here for sure. You know, I often say that the
guys that walk around with the statistics here, have their arms way out and carrying, actually have wheels on their bags in terms of the data they
carry now. What we look at is a couple of things. Clearly the portfolio has been very consistent in it's performance, in terms of charge-offs. Look
at the charge-off line, a very good number, under 100 basis points, well under expectation.

Two, FICA has been very consistent over time. Three, we have been in terms of product mix we do not write any negative ARM products, and
we have been very careful I will say, with our IO product, which is 8 to 10% of the portfolio. And then we look at, you know a couple of the
other demographics we look at, is long tenure in the house and the job. 9 or 10 years and that's been a consistent metric.

And last but not least, we looking at valuation and where the homes are. Our average loan size is about $120,000. We do not do a lot of big ticket
lending in the coastal and the resort areas, and when we re-evaluated our LTVs, we originated 80%. And when we reevaluated our LTVs
recently, we were at about 70 or 72%. So based upon collateral, product that we're writing, where the homes are, and the history and the science
we have behind the underwriting, we're very comfortable here.

Craig Maurer - Soleil-Fulcrum Research - Analyst

Are you weighted more toward variable and fixed rate --?


Yes. Although as I said before we don't do negative ARMs, and we underwrite with the variable interest rate reset in mind, so overall I think we
have got very good science here.


Thanks very much Craig.

Operator

Your next question from Bruce Harting with Lehman Brothers.

Bruce Harting - Lehman Brothers - Analyst

Is there anything left to speak of in you know what was formerly known as the liquidating portfolio, is there any part of the old equipment
finance division that is you know looks like it may not, you know, carry it's weight, and you know be up for divestiture at any point? Do you feel
you are pretty much done with any large sales of assets? Thanks?


I think, Bruce, first in terms of what was in liquidating, I think we're down to maybe $150 million, a little bit below 2, between 150 and 200
million, in terms of the manufactured housing portfolio, and you know, at some point these are worth more to us than they are to the Street, and
we may have reached that point, but we made quite a bit of progress in getting that down.



FINAL TRANSCRIPT

I think in terms of the old equipment finance, you know, they continue to do better on improving their returns. Their net income is up, particularly
the construction finance part of [Tempe] had a very strong first quarter. So we're pretty happy with the portfolio, we think it's pretty well
realigned you know, with the economy of the 21st century, so we're really focused on more on growing the businesses we have got now, as
opposed to divestitures.


Thanks, Bruce. Can we have the next question, please.

Operator

Your next question is from Stephen Schulz with KBW.

Stephen Schulz - Keefe, Bruyette & Woods - Analyst

Hi, guys can you hear me?


Yes, Stephen.


If I could have ask a strategic question. Two of the moves that you made in the quarter, you had hired two teams in the corporate finance
business, one to focus on participations and syndicated credits, and another to focus on the middle market sponsored lending.

I was just curious if you could give us some color on kind of the strategy behind those deals, and in particular the timing, given Joe's comments
about the level of liquidity in the corporate finance market, and you know, the competition there.


Sure. You know the first part we did hire a team really, let's just call them the bank loan team or the syndicated loan team, and this was really
just an extension of activities that we already did. There were really two parts to that, one is we wanted to centralize our buying of participations.
At one point in the organization.

Historically, a lot of our work with buying participations from other lenders had occurred within the businesses. We wanted to centralize that. We
wanted to get a better hand on pricing, and we also wanted more of our people out originating their loans, as opposed to participating in others,
just due to the greater profitability. So when this team became available, it fit right into our strategy.

The other part of that was a distressed loan team, and you know at some point we think the credit environment is going to crack, we're not real
good on predicting which month, but we have in the past, in the downturn, you know bought loans at a discount, and the other half of this team
that we acquired had a great track record, you know over a series of years building up a portfolio of loans that they had bought at a discount, so
when that team became available, the PAR team and the distress debt team, we just thought it was a great thing for us to acquire them.

On the sponsor team side, you know we have been lending to financial sponsors, private equity firms, buyout firms, for a long time. That's been
part of our legacy. We have great relations with the small-cap and mid-cap private equity firms. With all the money going into that sector, they
are going to be a growing potential counter party for us, and we just wanted to fill out our team that was facing off with the sponsor market.




FINAL TRANSCRIPT

Great. Thanks.


We appreciate that. Can we have the next question, please, Amber?

Operator

Next question is a follow-up question from Joel Houck with Wachovia Securities.


Thanks, just to kind of come back to the margin. You know it sounds like the kind of leasing margin obviously is going the right way and the
financing margin is going the other way, when you look at those two things, Joe, kind of out the rest of this year, how do you see that playing out
overall for kind of the blended consolidated margin?


Yes. Clearly that's what we saw in the first quarter, leasing margins actually exceeded our expectations. And we continue to see the core
renewals continuing to improve, the core margin in the first quarter as I mentioned in my script, and in response to an earlier question, I guess it
was Chris that asked. We saw some abilities to improve the margin and improve revenues through some early buyouts, that was the lessee's
option not ours, and some hard work on the collection side to receive some prior rent that depressed margin, so we did that.

So I think lease margins will continue to remain strong. . They may not remain as strong as they were in Q1. We'll see what happens in terms of
those extras that we can get. Lending margins will continue to be under pressure, the credit environment looking at our numbers, clearly very
solid, looking at the other financial institutions that have reported, the credit environment still looks like its benign in terms of credit activity.
Given that, I think liquidity will continue to be high and the pricing on loans will continue to be tight.

So I think when we put all that together, we would see some possible erosion from the current levels given that we have been lengthening, and we
continue to think that's prudent for the long terms, in terms of our liquidity and our business model, and we continue to think that we have growth
opportunities in lending transactions that will have somewhat lower margins than our overall growth that we saw in the first quarter.

That's a long winded way of saying we would like to hold it steady. If anything, there continues to be some pressure downward on it. Having said
that, I think the flip side to that, and you can look at your 20-year chart on this, is when margins get tighter losses get lower, and I think you are
seeing that with us in our 37 basis points we reported in credit losses this quarter.


Great. Can we have our next question, please.

Operator

Your next question is from Laura Kaster with Sandler O'Neill.


Just to follow-up on your factoring, Jeff, I think you said this quarter international factoring was about 10% of your business. Can you give us
some color on the relative ROE on international versus domestic. It's my understanding that domestic ROE is higher due to scale, and would we
expect to see returns in that business coming down, given the mix shift towards international.



FINAL TRANSCRIPT


I don't think so I Laura. I would think you should think those returns are comparable.


Okay.


You know when we talk about international we'll talking a lot of Asia to U.S. Some of those you know, some of those clients actually will have
production facilities in the U.S. some of them will with in China, so it's a little hard for us to break it out as you see, but you should not think that
we're going to have a decline in factoring just as we move internationally. It still remains our highest returning business on an ROE basis.


Thank you.


Great question, Laura. Thanks. Next question, please.

Operator

Your next question is from David Hochstim with Bear Stearns.


In the release there was language that suggested Dell volume was down in the U.S. Is that just a function of lower prices on PCs, or is there
something else going on? And then could you just explain what went on with the reserve? Were there reserves associated with some of those
portfolios that kept the balance from declining?


Sure. Let me take the reserve question first. I went through a little bit, you know, the reserve was essentially flat in dollars. We did get reserves
in some of the portfolios that we acquires, we did not provide for growth because we had the great credit performance, and we did charge-off
against the reserve $3 million for Katrina.

So that's sort of the summary, the specific answer to the question was that there were reserves that came along with some of the portfolios we
bought. Not in student lending, but more on the home lending side.


Okay.


And then vendor you know going back to Dell and vendor. Vendor had a very good first quarter. There are some dynamics in Dell that we
actually put in the earnings release, so you had a little more flavor for it.



FINAL TRANSCRIPT

First of all, quarter-to-quarter internationally we had very good progress in our Dell international growth. I think it was up 20% or so year-over-
year, which is great. The non-DELL vendor volume was very, very strong, up double-digits. DELL U.S. volume is down sequentially, and down
from a year ago for a couple of reasons. One, as we previously disclosed DELL has the ability and contractual right to finance some of their
volume, and they are. And they are doing basically in accordance with the contract that we have described over a year ago.

Two, the year end volume if you look at it sequentially, the year end volume because of Christmas promotion holiday promotions et cetera, has a
bit of a spike, in terms of shorter term financing that we do in that program. So that generally falls out, and actually it was a very, very strong
holiday shipment and lending season on that for us in the fourth quarter, so that fell out sequentially, but if you look at year-over-year in terms of
trends, DELL is financing some of the volume along the lines of the contract, this is the U.S. only that I'm talking about, where they have the
right, the contractual right to finance some of the volume.

Summing it up international stronger, non-DELL vendor volume is stronger, and U.S. Dell volume is down because of seasonality versus the
fourth quarter, and because of the contract.


Thank you so much. Could we have the next caller, please.

Operator

Your next question is from Bruce Harting with Lehman Brothers.

Bruce Harting - Lehman Brothers - Analyst

Could you just expound on the healthcare lending a little more, average loan size, geographies, interest rates, type of collateral, and you know,
account receivable financing, or it is mostly real estate based? Thanks.


I would say it's broad based. You know, they are organized across three or four different segments here, outpatient, inpatient, extended care,
device. They have a team for each of those. I would say their backlog remains very strong, and it's a mixture of financings, Bruce, in that some of
it is special, you know, highly technical specialized real estate lending around clinics, nursing centers, extended care facilities. Some of it is asset-
based lending to smaller healthcare providing companies. If you remember that we bought healthcare credit business last July. I would say their
average sized deal is probably someplace between 5 and $10 million.

On the other hand, there's some large corporate finance deals we're doing, where we're talking about 200 to $300 million of debt financing that
we're providing. We won't book all of that, we'll lead it and then syndicate it down. So I think the best thing about that is just how broad-based it
is, they beat their plan significantly, and the backlog continues to be quite heavy.

They actually today are having a research conference here in the city, where they have got about 35 private healthcare companies, that are
presenting to an audience of about 250 investors and private equity investors, so as we have said, you know, that's a good example of where we
went in and invested, attracted close to 175 people and we're pretty much done there, and so you know, now we're trying to reap the rewards of
that investment period. So hopefully that's helpful.


Thanks, Bruce, can we have the next question?

Operator



FINAL TRANSCRIPT

Your next question is from Jordan Hymowitz with Philadelphia Financial.


On education lending, did you guys meet your hurdle rates this quarter? You said the volume was way up and you got a lot more on the preferred
side, but was the hurdle rates of profitability that you outlined met on the quarter? I think it was 50 basis points, ROAs?


Sure. We are tracking, you have got to dial this back a year when we announced the acquisition, and we are tracking very ahead of the plans we
outlined to the market over a year ago. Let me break that down a little bit. There's two ways we look at profitability on that business.

One we look at the core operating profitability from the business unencumbered, unburdened with the premium we paid. We want to make sure
the business model with it's operating expense costs, with it's marketing costs, with it's marketing penetration, has the ability to make the hurdle
rate. It does and one proof of that and one helpful part of that was the portfolio we bought this quarter, which inside 600 million that we were able
to price and win, had a return in excess of the hurdle, so that's one good fact.

Then we have to earn the premium back we're not ignoring that, so as we look out into '06, we would expect as the year builds, in the fourth
quarter reach the hurdle rate clearly on an operating basis, and we are striving to reach it in the fourth quarter, which has some seasonal high to it,
even covering our premium.

We're very much ahead of the plan we outlined. We said it would take over a year to get to our hurdle rate, it will take over a year, but we're
ahead of that game plan, and marginal originations and marginal portfolio acquisitions we have made, are hitting the hurdle rate.

The other thing I would add is we're making very good progress in moving the loan servicing in-house. We think that while it's not a big
efficiency play, it has a lot of advantages, both on the operating expense side and the marketing side, and we're servicing 2 billion of the portfolio
today, and we think we'll be essentially done with that conversion by the end of the year.


You could argue then, that if you are actually above your initial plan, that you are well ahead of the plan, since flow income has disappeared
much more rapidly than anyone would have expected. If you are actually in-line with your original plan, on an ROE basis, you are ahead of the
plan, because of the rapid disappearance of flow income.


We're have happy with the progress of the team. Tom Hallman and his team have done a great job of integrating the company into us, and
building out the marketing and sales force. Thank you for the kudos.


Could I ask one more thing?


No, Jordan that's it. We are actually at the close of our one-hour call. We thank you all for your participation. If there are any questions, please
call Investor Relations, I'm around today, so is Steve, Bob, and Pam, and we would be delighted to help you. Thank you and have a wonderful
day.



FINAL TRANSCRIPT

DISCLAIMER
Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any
person of such changes.

In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a
variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies mayindicate and believe that the assumptions underlying the forward-
looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the
results contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S
CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL
ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES
THOMSON FINANCIAL OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY
INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT
TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE
COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

© 2005, Thomson StreetEvents All Rights Reserved.



cit Q12006Transcript

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (17)

En vedette

En vedette (20)

Similaire à cit Q12006Transcript

Similaire à cit Q12006Transcript (20)

Plus de finance28

Plus de finance28 (20)

Dernier

Dernier (20)

cit Q12006Transcript