Good morning, and welcome to CIT’s First Quarter 2018 Earnings Conference Call. My name is Denise and I will be your operator today. At this time, all participants are in listen-only mode. There will be question-and-answer session later in the call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Barbara Callahan, Head of Investor Relations. Please proceed, ma’am.

Thank you, Denise. Good morning, and welcome to CIT’s first quarter 2018 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 2017 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 on the Investor Relations section of our website at www.cit.com. I’ll turn the call now over to Ellen Alemany.

Thank you, Barbara. Good morning, everyone and thank you for joining the call. The first quarter was another period of solid progress for CIT as we advanced our strategic plan. We posted strong growth in our core business, continue to expand the direct bank and further optimize capital. Net income in the quarter was $97 million or $0.74 per common share and income from continuing operations with $104 million or $0.79 per share. While credit performance was generally stable, we did post an increase in provision that was primarily driven by a single commercial exposure and that affected results. Credit reserves remain strong, and John will walk you through more details shortly. On slide two you can see an overview of our progress in the quarter. At the top of our list is to maximize the potential of our core businesses. And I'm pleased to say that in the first quarter our average core portfolios grew 2% quarter-over-quarter. This marks the second consecutive quarter of strong growth. As I previously shared, last year we took a number of steps to build on our core capabilities, by expanding into additional market segments, adding talent and investing in our franchises. We are now beginning to see some early results of those efforts. Our origination volume was up significantly from the first quarter of last year and part of that growth is from our new initiative. Let me spend a minute on each of our business areas. Average loan and leases in the Commercial Finance business were up 4% compared to the prior quarter, fueled mainly by the CNI Energy and Healthcare verticals, as well as the newly formed Aviation Lending Group. The marketplace remains competitive and we continue to be disciplined. But we also have some sustained competitive advantages, namely our deep…

Thank you, Ellen, and good morning, everyone. Turning to our results on page three of the presentation. We've posted GAAP net income for the quarter of $97 million dollars or $0.74 per common share and income from continuing operations of $104 million or $0.79 per common share. Operating performance this quarter reflected strong new business volume in all our core lending businesses and lower prepayments, which resulted in 1.7% total average loan and lease growth and 2.3% growth in our core portfolios compared to the prior quarter. Net income was negatively impacted this quarter from the charge of a single commercial exposure and a higher level of reserves primarily within our Commercial Finance Division. As shown on page four of the presentation, our financial results included a single noteworthy item which was a $7 million after tax benefit from suspended depreciation related to the pending NACCO disposition. With regard to the NACCO disposition, all remaining antitrust approvals were received by the buyer from the European regulators this quarter, which includes a condition to sell approximately 30% of the NACCO cars to other parties. This additional requirement does not impact the overall economics to us and we expect to close the sale in the second half of 2018. Turning to page five, income from continuing operations available to common shareholders, excluding noteworthy items was $97 million or $0.74 per common share this quarter. This is down from $130 million or $0.90 cents per common share last quarter and from %109 million or $0.54 per common share in the year ago quarter. I will now go into further detail on our financial results for the quarter. Please note that in this discussion, I will refer to our result from continuing operations, excluding noteworthy items unless otherwise noted. Turning to page six of…

Thank you, John. In closing, I want to say that we remain committed to achieving an 11% return on tangible common equity at the end of 2019. We are encouraged by the performance of our core businesses and believe CIT has a distinct value proposition in the markets we service. We are focused on continued progress on our plan and have demonstrated that we can consistently deliver on our objective. Now let me turn it back to the operator for question and answer.

Thank you, Ms. Alemany. [Operator Instructions] The first question will come from Moshe Orenbuch of Credit Suisse. Please go ahead. Mr. Orenbuch, your line is open for your question.

Hey, guys. This is James Ulan on for Moshe. I was wondering if you can go into greater detail on growth in the commercial finance segment, as well as in business capital. We kind of see that rail and real estate are roughly flat and are curious what’s your strategy is to grow those other two vertical, commercial finance and business capital?

Sure, James. This is Ellen. Business capital, I would say if you look at our year-over-year growth it's been very strong and it really is reflecting overall confidence and market conditions. I think overall we're seeing positive sentiment from small business customers and that's really driving our growth. We also - just in equipment finance, which are all our vendor programs, we doubled volume in the last 12 months mainly due to our investments in technology and industrial. We're also continuing to expand out our front end integration capabilities with major technology companies and we think this is really unique proprietary technology. And so we're very optimistic and we believe that business capital should be one of our strongest growth areas this year. N commercial finance, we – you know, the fourth quarter ‘17 was really the inflection point for the asset levels in this business. We have a solid pipeline and we're making continued progress against our new business initiatives. Most of the asset growth we saw this quarter was in healthcare, real estate, aviation lending, energy and CNI. And - but that being said, the competition for quality credits is you know, very intense. There is a lot of non-bank lenders out there that are taking market share and you know, as we've mentioned in the past leverage levels - leverage lending levels have moved above the guidance for banks. So I think overall in commercial finance the asset growth is really going to depend on market conditions, especially prepayments. And I would also say that a lot of our volume comes from financial sponsors and M&A was down in the first quarter. But pipeline is strong. And then real estate finance you know, we're just being really selective there. We recently had a reception where we had a lot of our real estate customers were there and - you know the price of real estate just raw land is very, very high - high end in New York is you know we're not doing right now, but prepayment flowed in the first quarter for us. And I would say that you know we're really just focusing on the quarter northeast and southern California.

Okay. That's very helpful. Thank you. And if I could just ask a follow up on credit. Can you go into a little bit of greater detail on - not the specific credit item, but just more of the increase in reserves for the broader portfolio? What's causing that and what are your expectations for those drivers going forward?

So in terms of the increase beyond the discrete event which I would like to mention that - to follow on to what John was saying there were irregularities that were episodic in nature to that event. But in terms of the broader increase that we've had, there's no one industry, no one product types, so there's no correlation that we're seeing across the portfolio. So it was just you know a number of names in our performing book that we decided to build reserves on during the first quarter. And that's why we decided to give guidance beyond just the charge offs, but to give it to the provision as well to make it clear from our perspective and from what we're interpreting that we think credit quality remains stable. And what we think the expectations are for the balance of the year.

Great. Thank you very much.

Well come.

The next question will come from Chris Kotowski of Oppenheimer & Company. Please go ahead.

Yeah. On the capital repurchase plans, I guess I think the $675 million is a lot to do in you know, the remaining time in the quarter. And you know - and previously when you had a large amount of authorization obviously you did this kind of structured solution. And I'm wondering if you can talk a bit more about how you plan to get this done by the end of the quarter?

Yes. So I think we're still working through dynamics. I think there are two imperatives associated with return of capital. The first is that we return to capital and the second is that we return to capital by June 30th. And so both of those things have happened. I think in terms of the tools, we're obviously looking at everything and have been looking at everything. We're looking obviously at the tender. We're looking ASRs. We’ve been doing OMR. So I think the complication with OMRs on a go forward basis is there's not enough average daily trading volume approach to actually get it out. If you look at where our stock is traded – or number of shares that are actually trading on a daily basis we probably need on a good day probably 90 trading days to actually move it. So I think we'll manage around the edges with OMR. And then I would expect that at some point there might be a cash cleanup to the extent that tender and an ASR doesn’t get everything out. But it's obviously something that we're looking at very closely. We understand the times that are on our side. And we have to make some decisions. I would say that also you know, just in the context of timing, our amended capital plan was actually approved in February 1, I think we announced February 2nd. There were some challenges in the markets post February 2nd and it wasn't until March 6 that we're actually able to get this sub debt out the door which was a large component of this. So were - and then we went right into a blackout. So we're pretty mindful of what we have to do and how much time we have to do it.

Okay. That's it for me. Thank you.

The next question will come from Eric Wasserstrom of UBS. Please go ahead.

Thanks. John just a couple of follow ups. What was your deposit beta in the period, because my - I was just doing some quick calculation on the change in average deposit balance. And it looks like on the incremental it might have been about 35 basis points and Fed funds moved about 34. So obviously that would imply a much higher beta than the 20 that you cited. So could you just give some clarity to the beta in the period?

Yeah. So it - on overall basis it's probably around it – its up. But it depends on product, it depends on channel, it depends on what you're looking at brokered or commercial. I mean clearly the betas are much higher associated with the non-maturity deposits. You know, and I think to the extent that you know a lot of the growth that you're seeing is in our non-maturity portfolio, you would expect higher elevated - more elevated betas. You know beyond that, I don't know there's much more that I want to say.

Okay. So just so I understand that 65 to 75 beta of that that you've cited that's on average over the course of a year or how do you…

That's over the entire cycle, so that's from the start of the Fed tightening through the entire cycle. I think the non-maturity deposits you can imagine betas is getting up to probably 75% in the non-maturity portfolio. And you know, look, betas are going to move. It's going to be a function of the competition in the marketplace, it's going to be a function of what happens in the left hand side of the balance sheet and where we need the funding. So it really is a balancing act and so I'm not trying to be evasive, but you know, we're living in real time and it's just kind of hard to project where this is all going to go. But I would say, I think we've been pretty effective thus far in terms of you know when you look at the overall change in deposits. I think, clearly I think last year our overall deposit costs grew 5 basis points and we saw 5 basis points just in the first quarter. So things are starting to move. There's no question about it and we don't have our head in the sand in the sand about it. But it's very fluid in terms of the way we think about the mix of products. I think the other thing too that helps us a little bit is that to the extent that we've been aggressively winding down you know, brokered and to the extent we're underweight commercial where you typically find higher betas, it feels like we're in a good place in those spaces. On the brokered cost to deposits, you know that's money still at 250 and so when you think about rotating out of 250 deposits into NMD which I think our offer rates now like 175. You're still picking up 75 basis points, so there's still potentially opportunity for us to be doing things in the deposit space. So let's a little bit more helpful.

That's very helpful. And if I can just follow up with one question on capital, you know, putting aside the capital actions for the near term, can you just help me understand how the - how you achieve that that longer term target and I guess what I'm really trying to understand is how much capital you're anticipating being consumed by growth versus how much incremental capital you feel you need to return in order to achieve the secular target?

Well, I think it's always - it's a constant trade-off. I mean you know I'm coming up on my first year here I think the first two quarters I was here that was a lot of growth across and in fact when the rest of the market was growing quarter on quarter 1.5%, 2%. We were kind of flattish. I think the fourth quarter was very strong. I think the first quarter was similarly very strong and if you look at originations in the first quarter they were better than just about they were better than every quarter almost across the board except for the fourth quarter of last year. So actually growing into our capital by building out the balance sheet would be a nice problem to have. I think you know I think we've been very clear in terms of you know the glide path down, I think about it in terms of you know at the end of last year we're 14.5% common equity Tier 1. We're going to get them at the end of the first quarter or 14% percent. We're targeting get down to 11.5% to 12% at the end of this year and then at the high end of the range 10% to 11% in the next year. Now a lot of things could happen between now and then we've got to continue to operate within the regulatory framework. But you know being in on SIFI relaxed supervisory expectations all weigh into these things. But until any of that stuff happens, I think we're still on our glide path to get to between 11.5% and 12% at the end of this year and down to you know the high end of 10% to 11% at the end of ‘19. And that still feels right to me.

Thanks very much.

[Operator Instructions] The next question will come from Vincent Caintic of Stephens. Please go ahead.

Thanks. Good morning, guys. Appreciate the color you’ve given so far on the group and those specific segments. But just wondering if you could broadly talk about the competitive environment you're seeing in commercial lending. I think we've heard from a couple of banks about the competitors space, so I'm kind of wondering if you can maybe go through some of your products sets broadly and talk about where you might be seeing competition or where you might have a particular edge. And in terms of competition here maybe seeing it in on a yield pressure or people are taking more credit risk or covenants might be loosening? Thanks.

Sure. Good morning, Vincent. So I think we're seeing the most competition and really the commercial finance and the real estate segments of the market. And it's really from a non-bank space and commercial finance where there's just so much liquidity out in the marketplace. And as I mentioned before where the leverage level - lending levels and really coming in late transactions are being done. But that being said, I think where you know in particular our strategy is really going after certain industry niches and we had most of our growth this quarter in healthcare, real estate and aviation lending, energy and some CNI. In real estate you know, same thing, what are the non-traditional lenders and debt funds are really - there's just a lot of liquidity out there and you know the cap rates we're seeing - we haven't really seen a change in the cap rates since you know, roughly about 5% on the high quality properties, 4% to 7% on others and we're also seeing spreads tightening they are because there's just so much cash in the system that the spreads have tightened a little there. So I think in business capital you know, I think it's basically the same traditional lenders out there in the marketplace and where we're really differentiating ourselves is leading with industry expertise, proprietary technology. And then on the small business direct to capital lending you know, we're one of the few fintech companies that's regulated within a bank. There's a lot of small business confidence out there. And so we have good growth in that segment. Rob or John I don't know if you have anything to add.

So I thought that covered it pretty well. I would just be looking at in terms of commercial real estate the banks including ourselves have been pretty disciplined around the cost of loan value in having skin in the game. And so that's why you see slower growth rates for commercial real estate across the board.

Okay. Thanks. That's helpful. And actually a related question there. As you talked about you know a lot of extra liquidity, particularly in non-banks space in your experience what changes that liquidity – what causes that liquidity to maybe go away and maybe this rising rates have a - give a positive benefit for you in that regard?

Really we have to be - kind of the cycle happening, so if you think about commercial finance and then think about the non-banks, whether it’s the CLSO money that's come on board or the credit funds that actually have money, as well, it would really have to be a deterioration in the credit cycle. Otherwise they're going to be able to provide returns to their investor base that are reasonable. And I would imagine that that would continue on. I don't think it's as much interest rates unless the got really aggressive tightening and then it was just really pulling liquidity out of the system. But overall interest rates are still relatively low.

Thanks so much.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to management for any closing remarks.

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 and have a great day.

Thank you. Ladies and gentlemen black concludes today's conference call. Thank you for your participation. At this time you may disconnect your lines.