Good morning, and welcome to CIT's Second Quarter 2017 Earnings Conference Call. My name is Keith, and I will be your operator today. At this time, all participants are in a listen-only mode. There will be question-and-answer session later in the call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Barbara Callahan, Head of Investor Relations. Please proceed, ma'am.

Great, thank you, Keith. Good morning, and welcome to CIT's second quarter 2017 earnings conference call. Our call today will be hosted by Ellen Alemany, Chairwoman and CEO; and John Fawcett, our CFO. After Ellen and John’s prepared remarks, we will have a question-and-answer session. Also, joining us for the Q&A discussion is our Chief Risk Officer, Rob Rowe. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up and then return to the call queue, if you have additional questions. We will do our best to answer as many questions as possible in the time we have this morning. Elements of this call are forward-looking in nature and may involve risks, uncertainties and contingencies that may cause actual results to differ materially from those anticipated. Any forward-looking statements relate only to the time and date of this call. We disclaim any duty to update these statements based on new information, future events or otherwise. For information about risk factors relating to the business, please refer to our 2016 Form 10-K. Any references to non-GAAP financial measures are meant to provide meaningful insights and are reconciled with GAAP in our press release. Also, as part of the call this morning, we will be referencing a presentation that is available in the Investor Relations section of our website at www.cit.com. Now, I'll turn the call over to Ellen Alemany.

Thanks, Barbara. Good morning, everyone, and thank you for joining the call. I want to first start-off by welcoming John Fawcett our new CFO. As you may know, John joined CIT at the end of April and he brings extensive banking experience with him. The transition has been seamless and we are happy to have him here. Now turning to results. The second quarter was another period of tremendous progress as we continue to advance our strategic plans to strengthen and simplify the Company. Let me share some highlights. As you know we completed the sale of Commercial Air in early April and quickly initiated nearly $9.5 billion in capital and liability management actions during the quarter. We reduced our unsecured debt by $5.8 billion thereby decreasing our reliance on the whole sale funding markets. We repurchased 3.3 billion of common stock and we issued 325 million of Tier-1 qualifying preferred stock at a 5.8% dividend, which created a more efficient capital composition. I’m also pleased to report that we received a non-objection on our 2017 capital plan, which included up to 225 million in common stock repurchases over the next four quarters. On a simplification front, we reached an agreement to sell NACCO, our European rail leasing business and our last remaining ongoing overseas business. We expect the deal to close in the fourth quarter and this transaction further supports our shift to a largely deposit funded business model. During the quarter, we also made progress in resolving legacy resource mortgage matters related to the OneWest acquisition. We reached agreements to resolve certain servicing related obligations with the HUD, OAG and DOJ as well as with the FTRC and Fannie May, and we are pleased to have these issues behind us. And we remain on track to achieve our…

Good morning everyone and thank you Ellen. It’s great to be here at CIT. Turning to our results on Page 3 of the presentation, GAAP net income for the quarter was $157 million or $0.85 per common share. Net income from continuing operations was $41 million or $0.22 per common share. On Page 4 you will see the volume and magnitude of noteworthy items primarily related to the successful disposition of Commercial Air had a meaningful impact on our results in both continuing and discontinued operations. Income from continuing operations excluding noteworthy items was $126 million or $0.68 per common share this quarter. Noteworthy items in continuing operations were mostly related to our liability management actions as we reduced unsecured debt by $5.8 billion. We also incurred excess interest expense in net finance revenue from the timing difference between when we received the proceed from the Commercial Air sale in early April and when we completed the liability and capital actions in May and June. The timing difference also impacted continuing operations, interest-bearing deposits as well as average earning assets in the quarter. Most of the impact of noteworthy items in discontinued operations was from the recognition of the gain than Commercial Air sale. I would like to note that the total impact of this sale in the second quarter was a net loss of $9 million, better than our previous estimate of reduction to net income of $140 million mainly due to lower than expected related taxes. Details of the impacts from this sale are laid out on Page 27 of the earnings presentation. Turning to Page 5, income from continuing operations excluding noteworthy items was up from $109 million or $0.54 per common share of last quarter and $94 million or $0.46 per common share in the year-ago…

Thanks John. In closing I want to say that we are encouraged by a significant progress to deliver on what we said we would do. We know there is more work ahead and we have our roadmap to simplify, strengthen and grow the company. We are focused on our top priorities, maximizing the potential of our core businesses, enhancing our operational efficiency, reducing our overall funding cost, optimizing our capital structure and maintaining strong risk management practices. We remain committed delivering on all of these dimensions over the next six quarters. With that, let me turn it back to our operator Keith for Q&A.

Yes, thank you. [Operator Instructions] And this morning’s first question comes from Mark DeVries of Barclays.

Yes, thanks. My question is around the NACCO sale, I think you indicated that should return $50 million of excess capital. Would you anticipate seeking approval from the Fed when that closes to return that capital and also should we expect that more towards the back-end of 4Q than the beginning?

Yes, if you are going to model it, I would probably model it in the beginning, we would like to get it done sooner rather than later, I think what we have got in the box right now is at early November close but obviously its subject to regulatory considerations in Europe. In terms of the capital, I think it's part of the larger overall capital question, and I think we are looking at all of our options that are available to us. So this just becomes a part of a larger problem in terms of how do we get the capital return. So I think it's just going to be part and partial of an issue we are already grappling with.

Okay. But I think in the past a lot of institutions that have sold assets within C-CAR cycle have often seek and gotten approval. Does it go any different for you?

I don't think it would be any different. But I think if we are going to make [DS] (Ph) for 250, I mean it's conceivable lead given where our common equity Tier-1 ratio is 14.5% that we are going to probably look to do more than that. And so that's why I think it's not going to be a necessary a one-off. It conceivably could worked off that it will be a one-off, but I think we are going to probably go for more comprehensive phased solution to get us to where we need to be by the end of 2018.

Okay, got it. Thank you.

Thank you. And our next question comes from Ken Zerbe with Morgan Stanley.

Great, thanks. First I guess question, just a really quick one. There are $150 million expense cut target that you guys have by 2018. Does that include the lower expenses associated with businesses you sale at the European rail business or is that excluding all the sales. Thanks.

It excludes both. The extra divestitures.

Okay. So in essence your expenses go down more than the 150 when you - the European rail.

Correct.

Okay. And then just follow up on the loan comment that would accelerate in the fourth quarter. Can you just explain that a little bit more? Presumably it sounds like third quarter equation what you seeing might be little weaker, but why would it accelerated in the fourth quarter or is there something unusual about that particular quarter? Thanks.

Well. So the pipeline actually is a little bit stronger right now than it was at this time three months ago. So we are seeing some positive activity with market conditions in our commercial finance base. The reasons were for the fourth quarter is that payment activity was fairly high in the second quarter. And so that was a little bit of a simpler than the norm. And so we would expect based on a norm difficult cycle that by the end of the year we would see the upward trends holding strong. We are not seeing that in the third quarter that wouldn't be the case. We are just seeing that over a longer period of time we would have to see that the pipeline is starting show up in the asset growth.

All right, great. Thank you very much.

Thank you. And our next question comes from Moshe Orenbuch with Credit Suisse.

Great, could you talk a little bit about your plan to kind a reduce that I don't know what you call it at the stranded debt that's kind of being moved back to continuing ops and obviously that's going to increase with the sale of NACCO the timing and cost of doing that?

Yes. I think one of the challenges around the interest expense is there is two elements to it. The first one is obviously the timing difference of. When we settle the Air transaction we actually did the debt. And I think the second issue is around the geography differences between continuing and discounting operations. I think to the extent that a lot of these are driven by those geography challenges that will become self curing into the third quarter. So I think the other thing in terms of the excess liquidity of the franchise, obviously there is an opportunity to reduce unsecured debt, but at the same time I think we are also looking to cut and deploy some of the capital in terms of building out the investment portfolio. And so it’s still kind of early days for me here and so I think we are working through all the arithmetic in terms of how to most opportunistically use the liquidity, but we recognized that we have got it.

I guess I’m going to have to come back on this, because the increase in interest expense even if you ignore the piece that’s related to stuff that was kind of self curing during the second quarter, it’s still roughly $100 million on an annual rate or just over $90 million. So I guess that’s what I am trying to understand and you basically just told us that the NACCO would kind of free up another $500 million of corporate debt. So I mean how does that interest expense either get reduced or offset and over what time frame?

Look, as I said it is going to be self curing in the third quarter, I think we are going to look at opportunities to kind of repurchase the debt. The expectation is on the $500 million unsecured debt that in the hold co related to NACCO sale, we would expect that that would go with the transaction or be redeemed or settled as part of the transaction. Separately, as I said in the broader context for liquidity, we are looking to kind of reduce other aspects of the debt structure as well. So I can’t tell you any more than what we are looking and evaluating options around deploying liquidity.

All right. Thanks.

Thank you. And the next question comes from Owen Lau with Oppenheimer.

Thank you. Good morning and thank you for taking my question. So CIT has been serving on core non-U.S. based assets and it is looking more like a regional bank. And in the K you mentioned that CIT stopped funding new maritime constructions. Can you talk about the strategy of this portfolio, are you going to run it off or sell it? Thank you.

Sure Owen. So for us maritime is about 1.3 billion of outstanding right now. We had about 1.7 billion. Because of market conditions in this space, we have not been doing any deals. As you know many of the charter rates and the spot rates in the maritime space have dropped a lot over the last few years. That has not impacted the quality of the credit portfolio, because we have underwrote these at 50% to 60% loan-to-values, but it has impacted the ability to doing new deals. If market conditions improve to our liking, certainly we are ready to finance some more opportunities in maritime. It’s really a reflection of market conditions not necessarily risk appetite. I would add that maritime for us, we have many U.S. borrowers that play in space, the U.S. dollar loans. And so although not typical for a regional bank we find that they are pretty good risk adjusted returns.

Thank you. That’s a good color. If I may, then how should we think about the maybe earnings contribution and capital allocated to this portfolio? Thank you.

Well I don’t think we would want to get into the details of capital assigned to a particular portfolio, but this is consistent with fixed asset lending that we do at the firm in many other asset classes. So we don’t really see any difference in that. The yields are pretty solid compared to the other successful lending that we do. And as I said we have been doing it for five years and have not had any type of office at all in the portfolio in somewhat difficult market conditions.

Thank you.

[Operator Instructions] And the next question comes from Arren Cyganovich with DA Davidson.

Thanks. John just kind of touching on the comments you made on the capital return. You had indicted a comprehensive phase solution by the end of 2018. Does that include kind of a intra C-CAR results asked given that you have the ability to do that with kind of on Mark’s question with the sale of the assets or are you just thinking about that longer term in having to wait because it’s a pretty big delta from 225 million, get approved for this year versus one billion plus you have to return to get to the target level?

Yes, look I probably can’t to give you too many specifics. Again very early days from here, but I think we are going to do everything we can. We understand the challenge we face, we understand the return of capital debt and we are going to press all the buttons and pull all the levers. I have met with the Fed team in New York and haven’t been in Washington. I think it’s important that the right people get the right seats before we even begin to have some of these conversations. So I don’t want to talk on an earnings call before I have event talked to our regulators in terms of what the art of the possible is but and you should probably take in effect we are going to be looking at everything and understand what our obligations are in terms of returning the capital to shareholders or otherwise deploying it.

Fair enough. It’s a high quality problem, so I appreciate that. And then Ellen in terms of the lending pipeline that you mentioned being stronger in the second half. Can we have a little bit more detail in terms of what areas that might be, are they traditional market loans, ABL maybe you know some specifics that will try at our M&A activity et cetera.

Sure, we are cautiously optimistic about the pipeline for the second half of the year. I think commercial finance was really impacted in the first half for the year just because of the market activity. There was just a lot of higher prepayments since portfolio repositioning activity and it was a really issuer friendly environment. In fact covenant like transactions in middle market was at a record high in the first half for the year and we are really trying to keep the discipline here. But you know the good news in commercial finance is that we entered into the JV with Allstate, this is you know we have initiatives that we really want to drive more fee income through the franchise. You know our capital market fees were 58% higher than the same period last year and we have a good pipeline and in some of industry segments like healthcare, energy power and aerospace in commercial finance. In business capital, I think that the confidence level in this market is really at the highest level that have seen it in the long-time especially in segments like franchise, industrial and office imaging. And we are continuing to win vendor programs, where we are leveraging our technology in this space. We built a capital markets team here and we are hiring more service people, we have a lot of the supply chain transactions in the pipeline. So we think the second half of the year will continue to be strong for business capital pretty much in the industrial franchise and technology. And here with rail, there is still be surplus of equipment across the market. That being said though, there was a pickup in the sand market due to increased crude drilling activity. So utilization and renewal rates improved at sand market in the second quarter. But we are really uncertain whether this uptick is going to be sustainable given recent crude crisis. But despite that, our team has successfully maintained utilization around 94%. We continue to be a leader in providing efficient equipment to the market. And portfolio management customer service on equipment quality are key differentiators for us in the rail space.

Thank you.

Thank you. And our last question comes from Vincent Caintic with Stephens.

Hey thanks, good morning. Ellen, I was wondering if you could talk about some of the initiatives you have been taking on the deposit side to improve your deposit quality here, certainly you've seen some of the adds. So how do you, so it's obvious been so far and how do you think about deposit data and your funding mix going forward? Thanks.

Sure. So we have been making a good progress on the deposit side I would say plus a turning the shift. But despite rate hikes in the last 12 months, we were based essentially in our deposit cost flat. We put all the basics in place in the franchise. I like to talk about the different channels, because we have raised deposits and the branches to the new direct bank in the commercial deposits. But we have put in overpricing models and tools. Here we have done our segmentation, we have changed the incentive programs in the franchise. We are also have incentives for cross selling. We have put all new marketing materials we have allocated marketing dollars to the team. And in the branch space, we launched the Lazy Dollar campaign earlier this year. We has good results from that. The Direct Banks, our strategy is there is to Direct Bank showing to be a flexible source of funding. This is national market for us highly scalable. We are doing a lot to invest in our digital experience. And we just recently launched our new high serve account there. And then on the commercial side, we are incentivizing our bankers as from deposits for our customers. We are seeing some progress there, but not having a some of our investment grade rate and there is a little bit of headwind, but we are also in all the channels getting rid of our high cost - our goal is to reduce high cost brokerage deposits overtime. So as I said, we are making good progress, it's slow but it's coming. And we are at a one-to-one project ratio at the bank.

Okay, got it. That's very helpful. And then separately on this joint venture with Allstate, I think that's pretty interesting. I'm wondering if you could maybe talk a little bit about the strategy for that. And so what sort of maybe assets kind a grow within that joint venture versus what goes into your balance sheet and what sort of fees and how large can that grow overtime? Thanks.

Sure. Well we don’t want to share the details of the joint venture. They haven’t been disclosed. But I think the rationale behind the joint venture is really to allow us to leverage our origination capability in ABL space and really capture some of the economics of the fields that are being done in the non-base space. So we will provide revolving term loan commitments to middle market companies across the industries and then we are serving as an investment advisor for this venture and we have received a fee for the service. So the way the JV is built is that we get fee income that will build overtime. It’s not going to move the needle substantially in the first 12 to 18 months. But I think it’s going to provide a good platform for growth and also to play in the space that we normally wouldn’t be able to play.

Okay, great. Thanks Ellen.

Thank you. And as there are no more questions at the present time, I would like to return the call to management for any closing comments.

Thank you Keith and thank you everyone for joining this morning. If you have any follow-up questions, please feel free to contact me or any member of the investor relations team. You can find our contact information along with other information on CIT in the Investor Relations section of our website at www.cit.com. Thanks again for your time this morning and have a great day.

Thank you. This concludes the conference call. Thank you for attending today’s presentation. You may now disconnect.