First Citizens BancShares, Inc. (FCNCA) Q2 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to CIT's Second Quarter 2013 Earnings Conference Call. My name is Laura, 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.

Thank you, Laura, and good morning. Welcome to CIT's Second Quarter 2013 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 2012 Form 10-K that was filed with the SEC in March. Any references to non-GAAP financial measures are meant to provide meaningful insights 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 like to now turn the call over to John Thain.

Thank you, Ken. Good morning, everyone. Thank you all for being on the call this morning. I'll make some opening comments, and I'll turn the call over to Scott. We had a good quarter. We earned $184 million of net income, $0.91 a share. Our commercial assets grew 9% from a year ago. CIT Bank funded over $1.8 billion of new volume. Virtually all of our U.S. lending and leasing businesses were originated in the bank. The bank's deposits are over $11 billion now. The average rate on those deposits is about 1.5%. And the bank now represents about 35% of our total financing. We're seeing progress on our focus in bringing down our expenses. Our credit metrics remained at economic cycle lows. Our capital and liquidity remained strong. And we began the process of returning capital to our shareholders. Overall, our view of the U.S. economy is that it continues to grow at a modest rate. If you look across our businesses, we see that in our railcar business. 98% of our railcars are on lease. In our Corporate Finance business, we've funded $1.3 billion of volume in the quarter. In our factoring business, our volumes were up from a year ago. And in our vendor, financing and leasing, assets grew 11% from a year ago. When we look globally, our commercial aircraft business, our planes were 100% leased. And in our vendor business internationally, we saw volume growth in China and Mexico. So overall, good, solid quarter. And I'll turn it to Scott for the details.

Thank you, John. Good morning, everyone. We reported another solid quarter, as we continue to make progress on our strategic initiatives, while staying disciplined on our underwriting and portfolio management. And as John mentioned, we began to return capital to our shareholders. Some highlights for the quarter. Net income was $184 million or $0.91 a share. Our commercial portfolio grew 9% from a year ago and 1% sequentially. Net finance margin was stable at well over 4%. Credit metrics remain near cycle lows. Our operating expenses improved and pretax ROA was above 250 basis points. My comments this morning will focus on the business environment, key financial drivers, and capital and funding. Our commercial financing and leasing assets increased about 1% sequentially. This reflected growth of $2.9 billion of new business volume, which was across all our business segments, including about $360 million in scheduled aircraft deliveries. However, our asset growth was muted by normal portfolio collections, higher prepayments and asset sales. We saw an elevated level of loan prepayments in Corporate Finance, mainly from refinancings, where we chose to limit our participation due to price [ph] or structure. We continue to make progress building relationships in the middle-market customers and win our target industries, where the risk-adjusted returns meet our hurdle rates. In addition, we sold almost $500 million of assets, mostly in Transportation Finance. As part of our review of subscale platforms, we moved about $450 million of assets into held for sale. We also expect to close the sale of the $400 million Dell European portfolio, which along with the other assets held for sale, will be some headwind to asset growth in the second half of the year. Turning to margin. The adjusted net finance margin was essentially unchanged from the prior quarter at 4.62%. You can see the trends and components on Page 5 and 6 of the presentation. We had a modest benefit in funding costs as we increased the proportion of deposit funding. And as we've previously discussed, we had lower interest recoveries in Corporate Finance on nonaccrual loans, which reduced yield by about 10 basis points. We expect our margin to drift towards the midpoint of our target range as the Dell European portfolio is sold and pricing pressures continue on certain new volume and lease renewals. Generally, higher interest rates are beneficial to our business over the long term. An increase in short-term rates would positively impact our margin, as we are asset-sensitive, with most of our floating rate assets priced off LIBOR. Therefore, the recent increase in the 10-year rates have not had much impact on CIT. Our core nonspread revenue increased from the first quarter and exceeded 1% of average earning assets, benefiting from higher fees and gain on equipment sales. We had a few lead agency transactions that generated capital market fees this quarter. We are pleased with the progress we are making, but maintaining a higher level of fees will primarily be dependent on a recovery in M&A and capital markets. And as you know, the summer months tend to be slow, so we are not expecting this level to repeat in the third quarter. The gains on equipment sales this quarter primarily related to sale of over $300 million of commercial aircraft as part of our normal portfolio management activities. In addition, other nonspread revenue included losses related to the sale of certain international platforms, most of which was the recognition of foreign currency translations that were previously recorded in other comprehensive income. Turning to operating expense. We continue to make progress on our expense reduction initiatives and are on track to achieve our target quarterly run rate of about $215 million in 2014. This quarter, we reduced headcount by an additional 70, we've sold 2 subscale platforms and we are actively working on several others. As a result of these international platform rationalizations, we recorded a valuation allowance on certain deferred tax assets, which totaled a little over $20 million, an increase to tax provision this quarter. So looking at the second half of the year, we expect the tax provision, excluding discrete items, to be at the levels comparable to the first 6 months. With respect to funding, we continue to enhance our funding profile. We expanded our deposit offerings and extended duration to match our asset profile and we renewed and extended our vendor U.S. and U.K. conduits at more attractive terms. Now turning to capital. During the quarter, we commenced the repurchase of shares under the $200 million plan authorized by the Board of Directors at the end of May. Also, based on our interpretation of the Basel III rules, which will be effective for CIT in 2015, we do not expect much of an impact on the regulatory capital ratios. We will use the standardized approach to calculating risk-weighted assets and we do not currently have many of the items that will be deducted from regulatory capital under Basel III. In summary, we are making good progress on our near-term priorities. Our pretax ROA is within our target range and we continue to focus on prudently growing assets. In our Transportation Finance business, we are investing in new equipment and expanding our lending initiatives, while managing through the repricing of certain renewals. In Trade Finance, we are focused on expanding our client base while maintaining strong credit discipline. In the Vendor Finance business, we are focused on growing platforms where we have scale, to create operating leverage. And in Corporate Finance, the competition for loans has continued to impact spreads and structures. Here we are maintaining our discipline and focusing on building relationships with customers in the middle market, as well as on our new initiatives in Real Estate Finance and Equipment Finance. With that, I'll turn the call back over to Laura, and we will take your questions.

[Operator Instructions] And our first question comes from Brad Ball of Evercore.

Yes. I'm wondering if you can give us some of the moving parts in the net finance margin. How much was from suspended depreciation this quarter? And how do you see the progression to the 4% or the middle of the 3.5% to 4.50% range that you've mentioned?

Yes. The suspended depreciation still is kind of in the 30 basis point range, Brad. And as the portfolio transitions in the second half, I can't give you by-quarter split, but we expect that to go away by the end of the year. And then as we've talked about on the elevated prepayments and interest recoveries, that was about 20 basis points. In the past, we had about 10 basis points in the quarter come down. So I'd expect over the second half that, that would come down. I can't give you exact timing, but we expect that to come down as refinancings slow and interest recoveries kind of go away.

Okay. And so the elevated prepays actually go down to 0 at some point in the future?

It won't be exactly 0, but we won't have -- it will be very episodic based on that activity.

Okay. And then my follow-up, on the OpEx line, you've targeted $60 million to $80 million. You said you're on track get to that level. Do you see an opportunity with some of the subscale international losses to maybe go beyond that as you get into next year, further cost saves beyond the $80 million?

Yes. We continue to look at our operating expenses. And a part of it, as you know, we continue to invest in new growth initiatives and new ways to add assets. And we'll balance that with kind of our operating expense target. So we're trying to get in the range on the operating expense. And if things change, the environment changes, economic growth changes, we will have to continue to revisit our operating expenses. But right now, at least based on what we know today, we feel that we're on target.

And our next question is from Sameer Gokhale of Janney Capital Markets. The next is Moshe Orenbuch of Credit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: I'm wondering, hoping you can kind of flesh out a little bit your plans for kind of growth by segment and maybe talk a little bit the competitive environment. You mentioned Corporate Finance, so talk a little bit on kind of vendor, transportation, things like that.

Yes. I think I'll start with transportation. As you know, we placed the order book and those scheduled deliveries will kind of continue to come through. The railcar stuff is shorter, so it's coming in every quarter. On the aircraft, it's a much longer kind of order book. The ways that we will supplement that is some of the lending initiatives we've had, both in the maritime, as well as in the aircraft space around lending that we're doing out of the bank as opportunities to continue to grow that business. And the way to grow the operating lease business would be in the sale leaseback, where we continue to look at that market. And if they meet our return expectations for assets that we like, those would be other ways to grow the transportation segment. On the vendor business, the U.S. business is doing very well. And we're -- as John mentioned on the call, some of the other international platforms where we have good presence, we're also seeing good growth there. So I think the growth on that one is going to be really kind of CapEx spending on the kind of the products that we finance, as well as overall kind of economic growth. On the trade business, the volume, we continue to focus on new customers, diversifying our portfolio into some nonapparel areas to give us some diversification on that front. And then on the Corporate Finance area, the market overall, as I mentioned in my open statement, is almost half of the market right now that we play in is refinancings. So what we have done is we've passed on certain refinancing, but we've been able to build good customer relationships. And as you saw from the strong volume, that we're finding places to place capital, where we think the risk-return equation makes sense for us. So I think the -- we're staying up with the marketplace, and to get above that would require both economic growth, as well as additional initiatives or other areas to focus on in the Corporate Finance area. Moshe Orenbuch - Crédit Suisse AG, Research Division: Okay, great. Just as a follow-up, you had mentioned kind of last quarter talking about the possibility of looking at some deposit acquisitions of branches and the like. I mean, any further thoughts there?

No. We continue to look at deposits and branches. And if we find some that we can acquire at attractive prices, we would continue to try to do that.

And the next question is from Chris Brendler of Stifel, Nicolaus. Christopher C. Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Can you just talk quickly about the assets you sold this quarter? I think you mentioned transportation, $500 million. I just was surprised to see the loss show up in the income statement on the sale of assets.

Well, there's 2 components, Chris. I mean, if you look at the gain on sale of leasing equipment, which was the transportation side, that was positive. So that's the line that's $33.8 million. So that would be our vendor end-of-term residual realization, as well as the sale of the aircraft. The negative that's in the gain on loan and portfolio sales relates to the platform sales that I mentioned. And that's really the foreign exchange items that were in OCI, so it already -- the negative was hit in OCI. And when we sold those platforms, that's booked through the P&L. So that's really what drove the change in the gain on loan and portfolio sales. Christopher C. Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then on the buyback, just a little bit surprised that the pace was kind of slow. I know it just -- you only had a partial month and you may have run into a quiet period. Is there -- is the outlook that you can accelerate the buyback activity? Or is there anything we should be taking away from the relatively modest pace you've had so far?

I think you pointed out what was the challenge, and given the timing of that and kind of the calendar. So I think that, that -- we'll continue to focus on the buyback over the next couple of quarters.

And next, we have a question from Mark DeVries of Barclays.

Just to follow up on the buyback. At a higher level, could you just talk about how you think about your ability to return capital now that the written agreement has been lifted and technically, you have no limitations, though I guess, presumably, you won't want to do anything that's too aggressive that the Fed becomes concerned? Is there a maximum payout ratio that you'd feel comfortable with?

Well, as you said, I think, given where we have been, we are definitely going to be very prudent on how we approach capital returns. We're very mindful of kind of some of the guidelines that are out there. And I don't think that we're going to be at those levels in the near term. So we kind of look at our capital return both from the stress testing and the activities that we look at. And we will continue to be committed to returning excess capital to our shareholders in a prudent way.

Got it. And just to follow up on that, it looks like the capital that was created this quarter, kind of your earnings net of what you paid out, was kind of effectively deployed in loan commitments. Is a lot of that -- your forward order book in Transportation Finance? Or are they kind of commitments in your Corporate Finance business, where there's kind of -- and if so, is there any kind of visibility on the probability that borrowers will draw on those commitments?

Yes. So the 2 biggest drivers of our kind of commitments are both the rail and aircraft orders, as well as the unfunded commitments on our asset-based lending product. So we haven't seen, Mark, a big change in the utilization rates on our revolvers for the -- since I've been here. So it's been some more -- pretty steady. And with economic growth and people's confidence, that's usually the first indicator of kind of people drawing that down. But right now, we haven't seen a lot of movement there. So that's the unfunded out there on the -- that you're seeing in the financial statements.

And next, we have a question from Chris Kotowski of Oppenheimer. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Yes. I wonder if we could decompose a little bit on the net financing margin. And I guess, my question specifically is, if you look at your average loans, they were up $700 million from $21.6 billion to $22.3 billion. But if you look at the gross interest revenues generated by the loan portfolio, it went down by $5 million from $349 million to $345 million. And I was wondering, is that the effect of the lower recoveries? Or is that the effect of just general spread compression? Could you dissect that for us a bit?

Yes. It's mainly from the lower interest recoveries on that front. So I think the yields right now have held stable. But as the market -- as I mentioned, the amount of new business coming on versus the overall portfolio, you won't see that kind of make a big impact on a quarter-by-quarter basis. It will be something that will be gradual. So the big items are the suspended depreciation and the prepayment and interest recovery items that I've mentioned. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And the recoveries are now virtually 0? Or what were they in the quarter?

We still have some that will come down over the second half, as I mentioned to Brad. Probably about 5, 10 basis points more that will come down as part of the natural portfolio churn. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And then you mentioned that there's $8 million accelerated FSA accretion. So does that mean in the coming quarters, we should expect, all things being equal with that caveat obviously, your interest expense would be $8 million a quarter less?

Yes. So that was just the redemption of the retail notes that we did in the first quarter also. That's related to that, so that would not repeat. So the only change would be is most of the other FSA that we have on the debt side really is related to our student loans and the secured financing we have around those. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And then you look at the period-end loans, $21.7 billion versus the average, $22.3 billion. And that's the $450 million that you moved into AFS, the fact that the period-end loans were down?

Yes. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And then finally, did you -- can you say how much of the deferred tax assets, federal deferred tax assets you used this quarter?

I can't -- as you know, tax is something that we don't do a hard close on a quarterly basis. But as I mentioned last quarter, based on our continued performance, we were tax income-positive. I can't give you the magnitude of that, will be more a year-end type item that we can talk about.

And our next question is from David Hochstim of Buckingham Research.

I wonder, could you just expand a little bit on what you were saying was happening in terms of pricing and competition? You said you passed on some refinancings of Corporate Finance assets. I just wondered -- and commercial assets.

Yes. I think in the Corporate Finance, as we've talked about, the kind of the market we feel hasn't changed much from the first quarter and we're just remaining disciplined on our approach. So I don't know if it's a general trend in the marketplace we're seeing. But every deal that you look at, if it doesn't fit our profile, we will pass on that and we're focused on originating assets that fit our profile. I think that's probably the simple -- I mean, the overall market, as I mentioned, was mainly refinancings, so there's not a lot of new asset growth happening in our core middle market.

Okay. And then could you just clarify what you were saying about the taxes, the provision for taxes going forward of somewhere between the $15 million and $32 million? Is that in the second...

Yes. So what we said is we had a $20 million -- about $20 million discrete item in the quarter. So that $32 million would take you down to, on a core basis, probably more like $12 million. And if you look at the first quarter, it was kind of around $20 million, so that's kind of the 2 kind of pieces. If you look at it on a year-to-date basis, that's probably a better indication of the tax provision going forward, excluding any discrete items.

Okay. And then just to clarify, have you bought any shares in July, since the end of the second...

We're in a quiet period. So our quiet period goes until, I think, another 2 days.

And the next question is from Sameer Gokhale of Janney Capital Markets.

So I had just a couple of questions. The first thing I wanted to ask was, as you think about the use of the NOL and how much taxable income you can generate in the U.S., and you think about that vis-à-vis portfolio acquisitions and maybe making those acquisitions more aggressively, possibly bidding a little bit more for them than your competitors, but then generating the income that will allow you to utilize the NOL, is that something that comes into consideration? Do you take that into account when saying, "It's going to take us a long time to use the NOL on our own. Maybe we can afford to go out and get more aggressive with portfolio acquisitions?" Do you feel you're at that point yet, where we might expect more acquisitions from you on that front?

I think, Sameer, to answer your question, it is definitely a consideration that we take into account. But that's one factor. And the overall factors of one is what the assets that are there, what's the dynamics of those assets and would that help us get over the hurdle? I think it gives us some uplift, but I don't think it's something that, at least in the marketplace and some of the deals that have traded, that, that wouldn't have helped. So the deals that we do, do, we take that into consideration.

Okay, that's helpful. And then the other question I had was when -- you've talked about the middle market and you've talked about the competitive environment. And clearly, it is pretty intense. But we're hearing that, that's more true and has been true probably more of the broadly syndicated market. If you go further down in terms of the types of credits, then it seems like deals are more structured there. There still seem to be attractive pricing opportunities on a relative basis. So do you have an appetite? I mean, I know you said you want to maintain your risk parameters, and it doesn't sound like you really want to go further downstream. But it does also feel like you might be leaving money on the table if there are these pockets. So is that something that you might consider doing at some point in time? Or do you just feel that the market is, overall, so frothy, it's not worth really stretching to get there?

I think, Sameer, your assessment is kind of consistent with what we see. So I think the broadly syndicated market is much more competitive. And as we talk about the plain vanilla ABL is kind of something that, that doesn't meet our risk return. Just to clarify, we did $1.3 billion of funded volume in our core finance -- Corporate Finance business, so we are finding transactions. And your general assessment of the middle market is correct. I think, in general, the discipline has been pretty well, and so our viewpoint is it becomes more of a transaction-by-transaction, where there could be pockets of players that are in that, that are not mainstream in the overall middle market transactions. So we're -- I don't think we're leaving anything on the table. We're trying to manage both kind of the portfolio properly, as well as making sure that we're doing good deals. And if they fit our parameters, then we will do the deal.

Okay. And then just the last question was in your Vendor Finance business, you provided some commentary, but -- and you've been trying to rationalize some of the subscale platforms and the like. But it seems like that's one area that's been an area of strength for CIT in the past. So what should we expect out of that business? Are you planning to announce more partnerships in that area? Are you pursuing additional partnership opportunities more aggressively there? And should we hear -- expect to hear more on that front? I mean, how do we reconcile that with the rationalization of certain platforms that you've been doing?

My sense would be, as John mentioned, that the asset growth year-over-year in the vendor business has been pretty strong. So we, of course, are always out looking for new partnership arrangements and new client relationships through the business. And part of that also is expanding into different collateral, which takes a little bit of time to kind of work through. I wouldn't confuse that with some of the platforms we're talking about because it's really not going to be a big impact on either assets or revenue. It is really kind of a simplification activity, as well as the costs to serve some of those markets in the current environment are just too onerous to maintain. So that's really kind of -- it's not an indication of the business model, it's just kind of doing some selective pruning.

And our next question will come from David Hilder of Drexel Hamilton.

First, any updated thoughts on the timing of potentially reversing the valuation allowance on the DTA?

We never kind of gave out a timing on that aspect. I mean, others have, but I don't see any movement on that during 2013.

Okay. And if I could ask the capital return question, I guess, in a different way. Any guidance you could provide on the timing of when you might be in a position to make additional announcements about capital return?

Look, we look at this continuously. And so you will be -- whatever decisions we make will be public, so you'll kind of get the feel for that. But as we've said, May was just 6 weeks ago, 7 weeks ago, so I think we're going to continue to focus on it and hope to have future conversations with you over time.

And next, we have a question from Bill Carcache of Nomura.

Scott, I was hoping you could share your thoughts on the exposure draft that the FASB and IASB issued a couple of months ago on -- which my understanding is that it basically would require companies to recognize assets and liabilities for leases. And so effectively, operating leases that got off-balance sheet treatment would be brought on balance sheet. Does that -- I guess, more understand that's an accounting change. But would there potentially be any kind of economic impact to the leasing industry in general, to the extent that maybe one of the attractive features of an operating lease to a borrower is off-balance sheet treatment? Just general thoughts on that would be helpful.

Yes. I'll make some general thoughts because it is something that's been in discussion and continue to have comments on the implications of some of the changes on the accounting side. Those proposals are going to take effect kind of -- I think the latest one was somewhere around 2017. So we have a dedicated team. We have a lot of experts in-house, as well as leveraging some of the industry bodies around this of how -- what the implications that will be on our customers, what the implications that will be on the leasing industry, those type of things. My sense would be is that a lot of this information is already disclosed in people's financial statements. And I would say that it's not economic -- it's not an economic decision. I think it really becomes kind of the administration and how to account for this and all the information needed to do that. The larger companies have something that they can put systems in place. I think as you get into the smaller middle market, maybe a bigger kind of burden or cost burden on that. But it's still too early to kind of say how that will change. But we are very focused on it and have a team that's actively working that. So we'll continue to keep you posted on that.

Okay. That's very helpful. On deposits, they're now at about 35% of your funding. You've seen, obviously, some very healthy growth there. Now absent acquisitions, can you talk about what you plan to do to continue to drive -- sustain some of the growth in deposits that we've seen so far?

Yes. We continue to diversify our product offerings, where we spend a lot of time in regards to growing our relationships with our existing customers, measuring how many multiple accounts we have with customers and providing products that support that. So we -- the online banking, retail banking activity has been very successful for us. We see there's still much room to grow on that to support our asset growth. But we also will be supplementing that deposit growth with other forms of funding in the bank as we diversify the bank funding model. So there'll be other forms. As we mentioned, the conduit that I talked about is at the bank and we think that it would be good to have other contingent liquidity and other sources of funding as part of the overall bank funding model.

And next question is from Matthew Schultheis of Boenning and Scattergood.

Actually, it's sort of a follow-up to the deposit question. I think it was a year ago from your Investor Day, you said that '13 looked like the year you were going to roll out business deposit and arguably cash management services. And I wanted to see where you are in that development, understanding that, in my opinion, a self-funded loan book is a wonderful thing. So just where you are with business checking and cash management and the development of those?

Well, since you kind of had that closing piece about that, so as we saw -- and it's one of the things that we've talked about, one of the capabilities that we would like to have. We have been focused on growing the kind of the consumer side, and as I've just mentioned, had been pretty successful. We are looking at the business banking and cash management activity. But I would say that, that's probably not a 2013 item. It's a little bit more -- it's a lot more capabilities and infrastructure than some of the infrastructure we have put in place for the online deposit side. So we are still focused on doing that and think will help us build our customer relationships. But it's not going to be most likely a 2013 item.

And our next question is from Cheryl Pate of Morgan Stanley.

Scott, you spoke to the asset-sensitive nature of the balance sheet, but commented that the recent change in the 10-year hasn't had much impact yet. Can you help us on how we should think about the impact of rising rates on the asset yields over time? Is it 1 quarter or 2 lag that we should be thinking about? And just more generally, the potential offset against some of the headwinds, in terms of lower interest recoveries, et cetera, on the back half the year?

Yes. So Cheryl, most of our portfolio is kind of 1-month LIBOR. Some is -- part is 3-month LIBOR. So as you know, the repricing with our customers, there will be a lag between -- it's short-term rates, so we're very focused -- on short-term rates, LIBOR has to go up, not the long end of the curve. And my sense would be that, that's probably going to be a 30-, 60-day kind of lagging process, depending on the nature of the underlying kind of billing cycle with those customers.

Okay, great. And then just on the deposit side. Deposit growth slowed a little bit on the online channel this quarter and I think you spoke to some of the attractive renewals you're about to do on the conduit business, et cetera. I'm just wondering, was there any change in strategy or change in pricing on the online channel in terms of are you consciously slowing the growth a little bit there or...

Yes. We built the platform. We had some excess cash at the end of the year. We used some of that with Flagstar, so we're at a point now where the bank is fairly mature in our view. And we think we can -- given the liquidity we have, we felt we could try to improve the matching of asset growth with deposit growth. So from that point of view, we're not changing kind of our core strategy, but we also want to see if we can moderate those 2 elements. So in June, we did lower the rates on our high-yield savings account, given the overall market, and some of the competitors also did that. So that was something that didn't impact the deposits going down much. But it will lower the cost and keeps us within the good competitive environment. But there's nothing -- we feel we have pretty good levers on how to moderate our deposit growth consistent with our asset growth so that we can manage our cash balance. So as you saw, our cash balance was about $2.5 billion and we want to continue to make sure we have plenty of liquidity in the bank, but we'd like to optimize that a little bit more.

[Operator Instructions] And our next question will come from Daniel Furtado of Jefferies.

I just had 2, I think, relatively simple questions. The first is approximately what percent of originations in the quarter and the last 12 months were refinances? And then number two, how should investors think about the backup in high yield as it relates to your business?

I'll do an estimate. Remember, most of the refinancing is in the core Corporate Finance business. And I would probably say it was about 40% to 50% refinancing over the last kind of 12 months, if that's what you're looking at. So I guess, your second question was the backup in the high yield. Are kind of talking about it from a perspective of our Corporate Finance customers?

Yes, I'm just kind of thinking that -- I know that some of those Corporate Finance customers aren't quite large enough to access that market. But if that was presenting an opportunity for you guys or if it was more of a risk to refinances in the space.

Well, as I say, I think backup in the high yield would be 2 things. It could slow down the refinancing activity for the marketplace. And number two, it could be beneficial on the pricing side as you kind of look at the alternatives that are out there between kind of our leverage lending versus the high yield.

And next, we have a question from Jordan Hymowitz of Philadelphia Financial.

Can you talk at all about your Rail business, specifically your tank car business? There's been an increasing amount of backlog in the tank car business and increasing talks of compliance costs related to modernizing fleet. I know the tanks are the majority of your fleet. But if you could talk a little bit about the profitability of Rail and specifically tank.

No, it's not true that the tanks are a majority of our fleet.

No, I'm saying they're not a majority of your fleet. No, a small portion.

Yes. Tanks are a relatively small portion of our fleet. But actually tank cars have been in high demand right now. A lot of the frac-ing activity has led to the need to move natural gas liquids. And so if anything, right now, the tank car market is good.

For us. I mean, because, Jordan, we've kind of bought a lot of those in the 2011 through now. And so I think those are kind of the new technology that may be different than some of the older tank cars. In regards to the overall profitability of the Rail business, as we've talked about, it has been one where the overall business has been doing very well, as we kind of came out of the cycle of 2009 with high utilization and also upward trajectory on lease rates, both for the new equipment that we have, but also some of the equipment that was renewing and pricing at higher rates. So the business is performing very well for us.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Well, we thank you all for joining us this morning. And if you have any further questions, please either call me or anybody else in the Investor Relations team. Thank you very much, and have a good day.

Thank you.

And that concludes today's call. Thank you for participating. You may now disconnect your lines.