Table of Contents




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


|X|    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2017		|  |    Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2018


Commission File Number: 001-31369

CIT GROUP INC.

(Exact name of Registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of incorporation or organization)
   
65-1051192
(IRS Employer Identification Number)
   
11 West 42nd Street New York, New York
(Address of Registrant’s principal executive offices)
 
10036
(Zip Code)
   
(212) 461-5200
(Registrant’s telephone number)
    


  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes |X| No |_|


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’, ‘smaller reporting company’ and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_| (Do not check if a smaller reporting company) Smaller reporting company |_| Emerging growth company |_|


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  |_|


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |_| No |_|


As of April 30, 20172018, there were 202,736,786127,065,926 shares of the registrant’s common stock outstanding.





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CONTENTS
Table of Contents



CONTENTS
Part One — Financial Information:

Item 1.
Condensed Consolidated Financial Statements
2
 
Item 1.
Consolidated Financial Statements
2
Condensed Consolidated Balance Sheets (Unaudited)
2
 
Condensed Consolidated Statements of Income (Unaudited)
3
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
4
 
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
5
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
6
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
53
42
 and
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
53
42
Item 4.

Controls and Procedures
104
81
Part Two — Other Information:
Item 1.

Legal Proceedings
106
82
Item 1A.
Risk Factors
106
82
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
106
82
Item 4.
Mine Safety Disclosures
106
82
Item 6.
Exhibits
Exhibits82
107
Signatures
113
85

Table of Contents1


Table of Contents




Part One — Financial Information

Item 1. Condensed Consolidated Financial Statements

CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data)
    

March 31, 2018 December 31, 2017
Assets 
  
Cash and due from banks, including restricted balances of $34.7 and $42.9 at March 31, 2018 and December 31, 2017(1), respectively (see Note 6 for amounts pledged)
$200.9
 $278.6
Interest bearing deposits, including restricted balances of $82.3 and $81.8 at March 31, 2018 and December 31, 2017(1), respectively (see Note 6 for amounts pledged)
3,895.4
 1,440.1
Securities purchased under agreement to resell250.0
 150.0
Investment securities, including securities carried at fair value with changes recorded in net income of $44.1 at March 31, 2018 and $0.4 at December 31, 2017 (see Note 6 for amounts pledged)5,910.5
 6,469.9
Assets held for sale(1)
2,298.8
 2,263.1
Loans (see Note 6 for amounts pledged)29,453.6
 29,113.9
Allowance for loan losses(447.6) (431.1)
Total loans, net of allowance for loan losses(1)
29,006.0
 28,682.8
Operating lease equipment, net (see Note 6 for amounts pledged)(1)
6,774.9
 6,738.9
Bank-owned life insurance795.1
 788.6
Goodwill369.9
 369.9
Other assets, including $118.7 and $68.7 at March 31, 2018 and December 31, 2017, respectively, at fair value1,577.9
 1,595.5
Assets of discontinued operations(1)
463.1
 501.3
Total Assets$51,542.5
 $49,278.7
Liabilities 
  
Deposits$30,593.9
 $29,569.3
Credit balances of factoring clients1,549.0
 1,468.6
Other liabilities, including $215.4 and $198.1 at March 31, 2018 and December 31, 2017, respectively, at fair value1,338.9
 1,437.1
Borrowings, including $1,875.0 and $1,626.3 contractually due within twelve months at March 31, 2018 and December 31, 2017, respectively10,437.3
 8,974.4
Liabilities of discontinued operations(1)
496.6
 509.3
Total Liabilities44,415.7
 41,958.7
Stockholders’ Equity 
    
    
Preferred Stock: $0.01 par value, 100,000,000 authorized, 325,000 shares issued and outstanding325.0
—
325.0
Common Stock: $0.01 par value, 600,000,000 authorized   
Issued: 208,830,397 and 207,628,491 at March 31, 2018 and December 31, 2017, respectively2.1
 2.1
Outstanding: 128,418,283 and 131,352,924 at March 31, 2018 and December 31, 2017, respectively 
  
Paid-in capital8,811.8
 8,798.1
Retained earnings1,982.7
 1,906.5
Accumulated other comprehensive loss(149.9) (86.5)
Treasury stock: 80,412,114 and 76,275,567 shares at March 31, 2018 and December 31, 2017 at cost, respectively(3,844.9) (3,625.2)
Total Common Stockholders’ Equity6,801.8
 6,995.0
Total Equity7,126.8
 7,320.0
Total Liabilities and Equity$51,542.5
 $49,278.7

CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions — except share data)

     
March 31,
2017
   
December 31,
2016
Assets
                            
Cash and due from banks, including restricted balances of $126.8 and $176.1 at March 31, 2017 and December 31, 2016(1), respectively (see Note 6 for amounts pledged)
           $741.7       $822.1  
Interest bearing deposits, including restricted balances of $100.3 and $102.8 at March 31, 2017 and December 31, 2016(1), respectively (see Note 6 for amounts pledged)
             5,415.2         5,608.5  
Investment securities, including securities carried at fair value with changes recorded in net income of $268.9 and $283.5 at March 31, 2017 and December 31, 2016, respectively (see Note 6 for amounts pledged)             4,476.3         4,491.1  
Assets held for sale(1)
             562.6         636.0  
Loans (see Note 6 for amounts pledged)             29,691.4         29,535.9  
Allowance for loan losses             (448.6)         (432.6)  
Total loans, net of allowance for loan losses(1)
             29,242.8         29,103.3  
Operating lease equipment, net (see Note 6 for amounts pledged)(1)
             7,516.2         7,486.1  
Indemnification assets             313.1         341.4  
Unsecured counterparty receivable             212.0         394.5  
Goodwill             686.1         685.4  
Intangible assets             134.3         140.7  
Other assets, including $75.8 and $111.6 at March 31, 2017 and December 31, 2016, respectively, at fair value             1,075.9         1,240.4  
Assets of discontinued operations             12,718.2         13,220.7  
Total Assets
           $63,094.4       $64,170.2  
Liabilities
                            
Deposits           $32,336.2       $32,304.3  
Credit balances of factoring clients             1,547.1         1,292.0  
Other liabilities, including $163.4 and $177.9 at March 31, 2017 and December 31, 2016, respectively, at fair value             1,577.4         1,897.6  
Borrowings, including $3,693.7 and $2,321.7 contractually due within twelve months at March 31, 2017 and December 31, 2016, respectively             14,736.3         14,935.5  
Liabilities of discontinued operations             2,731.9         3,737.7  
Total Liabilities
             52,928.9         54,167.1  
Stockholders’ Equity
                             
Common stock: $0.01 par value, 600,000,000 authorized                            
Issued: 207,287,457 and 206,182,213 at March 31, 2017 and December 31, 2016, respectively             2.1         2.1  
Outstanding: 202,735,681 and 202,087,672 at March 31, 2017 and December 31, 2016, respectively                            
Paid-in capital             8,782.6         8,765.8  
Retained earnings             1,701.1         1,553.0  
Accumulated other comprehensive loss             (123.7)         (140.1)  
Treasury stock: 4,551,776 and 4,094,541 shares at March 31, 2017 and December 31, 2016 at cost, respectively             (196.9)         (178.1)  
Total Common Stockholders’ Equity
             10,165.2         10,002.7  
Noncontrolling minority interests             0.3         0.4  
Total Equity
             10,165.5         10,003.1  
Total Liabilities and Equity
           $63,094.4       $64,170.2  
(1)
The following table presents information on assets and liabilities related to Variable Interest Entities (VIEs) that are consolidated by the Company. The difference between VIE total assets and total liabilities represents the Company’s interests in those entities, which were eliminated in consolidation. The assets of the consolidated VIEs will be used to settle the liabilities of those entities and, except for the Company’s interest in the VIEs, are not available to the creditors of CIT or any affiliates of CIT.
 
Assets
                            
Cash and interest bearing deposits, restricted           $98.5       $99.9  
Total loans, net of allowance for loan losses             223.8         300.5  
Operating lease equipment, net             770.6         775.8  
Assets of discontinued operations             406.0         2,321.7  
Total Assets
           $ 1,498.9       $3,497.9  
Liabilities
                            
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings)           $696.5       $770.0  
Liabilities of discontinued operations             197.9         1,204.6  
Total Liabilities
           $894.4       $ 1,974.6  

Assets 
  
Cash and interest bearing deposits, restricted$80.5
 $80.4
Total loans, net of allowance for loan losses2.7
 119.1
Operating lease equipment, net771.8
 763.3
Total Assets$855.0
 $962.8
Liabilities 
  
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings)$484.6
 $566.6
Total Liabilities$484.6
 $566.6
The accompanying notes are an integral part of these consolidated financial statements.


2 CIT GROUP INC
Item 1.  Consolidated Financial Statements


Table of Contents




CIT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)                                                  (dollars in millions — except per share data)
 
     

Quarters Ended March 31, 

2018 2017 
Interest income 
  
 
Interest and fees on loans$400.9
 $412.1
 
Other interest and dividends50.3
 43.6
 
Interest income451.2
 455.7
 
Interest expense

 

 
Interest on borrowings83.4
 69.1
 
Interest on deposits97.1
 94.0
 
Interest expense180.5
 163.1
 
Net interest revenue270.7
 292.6
 
Provision for credit losses68.8
 49.7
 
Net interest revenue, after credit provision201.9
 242.9
 
Non-interest income

 

 
Rental income on operating leases253.6
 251.3
 
Other non-interest income104.7
 79.1
 
Total non-interest income358.3
 330.4
 
Total revenue, net of interest expense and credit provision560.2
 573.3
 
Non-interest expenses 
  
 
Depreciation on operating lease equipment76.4
 73.5
 
Maintenance and other operating lease expenses57.4
 53.8
 
Operating expenses281.3
 311.6
 
Loss on debt extinguishment and deposit redemption0.1
 —
 
Total non-interest expenses415.2
 438.9
 
Income from continuing operations before benefit (provision) for income taxes145.0
 134.4
 
Provision for income taxes41.3
 56.2
 
Income from continuing operations103.7
 78.2
 
Discontinued Operations 
  
 
Income (loss) from discontinued operations, net of taxes(6.7) 89.0
 
Gain on sale of discontinued operations, net of taxes—
 12.7
 
Total income (loss) from discontinued operations, net of taxes(6.7) 101.7
 
Net Income$97.0
 $179.9
 
Basic income per common share
  
 
Income from continuing operations$0.79
 $0.39
 
Income (loss) from discontinued operations(0.05) 0.50
 
Basic income per share$0.74
 $0.89
 
Diluted income per common share
  
 
Income from continuing operations$0.79
 $0.38
 
Income (loss) from discontinued operations(0.05) 0.50
 
Diluted income per share$0.74
 $0.88
 
Average number of common shares (thousands)
  
 
Basic130,483
 202,449
 
Diluted131,588
 203,348
 
Dividends declared per common share$0.16
 $0.15
 

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in millions — except per share data)

     Quarters Ended March 31,
   
     2017
   2016
Interest income
                            
Interest and fees on loans           $412.1       $451.9  
Other interest and dividends             43.6         31.0  
Interest income             455.7         482.9  
Interest expense
                            
Interest on borrowings             (69.1)         (95.5)  
Interest on deposits             (94.0)         (99.5)  
Interest expense             (163.1)         (195.0)  
Net interest revenue             292.6         287.9  
Provision for credit losses             (49.7)         (89.5)  
Net interest revenue, after credit provision             242.9         198.4  
Non-interest income
                            
Rental income on operating leases             251.3         264.1  
Other income             79.1         84.8  
Total non-interest income             330.4         348.9  
Total revenue, net of interest expense and credit provision
             573.3         547.3  
Non-interest expenses
                            
Depreciation on operating lease equipment             (73.5)         (61.3)  
Maintenance and other operating lease expenses             (53.8)         (48.9)  
Operating expenses             (311.6)         (330.1)  
Loss on debt extinguishment and deposit redemption             –          (1.6)  
Total non-interest expenses             (438.9)         (441.9)  
Income from continuing operations before provision for income taxes             134.4         105.4  
Provision for income taxes             (56.2)         (44.4)  
Income from continuing operations
             78.2         61.0  
Discontinued Operations
                            
Income from discontinued operations, net of taxes             89.0      ��  85.0  
Gain on sale of discontinued operation, net of taxes             12.7         –   
Total income from discontinued operations, net of taxes             101.7         85.0  
Net Income
           $179.9       $146.0  
Basic income per common share
        
Income from continuing operations           $0.39       $0.30  
Income from discontinued operations             0.50         0.42  
Basic income per share
           $0.89       $0.72  
Diluted income per common share
        
Income from continuing operations           $0.38       $0.30  
Income from discontinued operations             0.50         0.42  
Diluted income per share
           $0.88       $0.72  
Average number of common shares (thousands)
        
Basic             202,449         201,394  
Diluted             203,348         202,136  
Dividends declared per common share
           $0.15       $0.15  

The accompanying notes are an integral part of these consolidated financial statements.


Item 1.  Consolidated Financial StatementsCIT GROUP INC. 3


Table of Contents




CIT GROUP INC. AND SUBSIDIARIES

CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)(dollars in millions)

     Quarters Ended March 31,
   
     2017
   2016
Net Income
           $179.9       $146.0  
Other comprehensive income, net of tax:                              
Foreign currency translation adjustments             12.8         21.2  
Net unrealized gains on available for sale securities             2.7         2.6  
Changes in benefit plans net gain (loss) and prior service (cost)/credit             0.9         0.9  
Other comprehensive income, net of tax             16.4         24.7  
Comprehensive income
           $196.3       $170.7  

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)       (dollars in millions)
 
     
 Quarters Ended March 31, 
 2018 2017 
Net Income$97.0
 $179.9
 
Other comprehensive income (loss), net of tax:        
Foreign currency translation adjustments(2.4) 12.8
 
Net unrealized gains (losses) on available for sale securities(63.9) 2.7
 
Changes in benefit plans net gain (loss) and prior service (cost)/credit3.4
 0.9
 
Other comprehensive income (loss), net of tax(62.9) 16.4
 
Comprehensive income$34.1
 $196.3
 

The accompanying notes are an integral part of these consolidated financial statements.


4 CIT GROUP INC
Item 1.  Consolidated Financial Statements



CIT GROUP INC. AND SUBSIDIARIES

CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions)

     Common
Stock
   Paid-in
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Treasury
Stock
   Noncontrolling
Minority
Interests
   Total
Equity
December 31, 2016 as reported
           $2.1       $8,765.8       $1,553.0       $(140.1)       $(178.1)       $0.4       $10,003.1  
Adoption of Accounting Standard Update 2016-09             –          1.0         (1.0)         –          –          –          –   
Balance December 31, 2016
             2.1         8,766.8         1,552.0         (140.1)         (178.1)         0.4         10,003.1  
Net income             –          –          179.9         –          –          –          179.9  
Other comprehensive income, net of tax             –          –          –          16.4         –          –          16.4  
Dividends paid             –          –          (30.8)         –          –          –          (30.8)  
Amortization of restricted stock, stock option and performance shares expenses             –          15.0         –          –          (18.8)         –          (3.8)  
Employee stock purchase plan             –          0.8         –          –          –          –          0.8  
Other             –          –          –          –          –          (0.1)         (0.1)  
March 31, 2017
           $2.1       $8,782.6       $1,701.1       $(123.7)       $(196.9)       $0.3       $10,165.5  
December 31, 2015
           $2.0       $8,718.1       $2,524.0       $(142.1)       $(157.3)       $0.5       $10,945.2  
Net income             –          –          146.0         –          –          –          146.0  
Other comprehensive income, net of tax             –          –          –          24.7         –          –          24.7  
Dividends paid             –          –          (30.6)         –          –          –          (30.6)  
Amortization of restricted stock, stock option and performance shares expenses             –          20.8         –          –          (14.7)         –          6.1  
Issuance of common stock — acquisition             0.1         –          –          –          –          –          0.1  
Employee stock purchase plan             –          0.5         –          –          –          –          0.5  
Other                                   0.1                                          0.1  
March 31, 2016
           $2.1       $8,739.4       $2,639.5       $(117.4)       $(172.0)       $0.5       $11,092.1  

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions)
                
 Preferred Stock 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Noncontrolling
Minority
Interests
 
Total
Equity
December 31, 2017$325.0
 $2.1
 $8,798.1
 $1,906.5
 $(86.5) $(3,625.2) $—
 $7,320.0
Adoption of Accounting Standard Updates 2016-01, 2016-16, and 2018-02—
 —
 —
 0.7
 (0.5) —
 —
 0.2
Net income—
 —
 —
 97.0
 —
 —
 —
 97.0
Other comprehensive loss, net of tax—
 —
 —
 —
 (62.9) —
 —
 (62.9)
Dividends paid—
 —
 —
 (21.5) —
 —
 —
 (21.5)
Share repurchases—
 —
 —
 —
 —
 (194.9) —
 (194.9)
Amortization of restricted stock, stock option and performance shares expenses—
 —
 13.0
 —
 —
 (24.8) —
 (11.8)
Employee stock purchase plan—
 —
 0.7
 —
 —
 —
 —
 0.7
March 31, 2018$325.0
 $2.1
 $8,811.8
 $1,982.7
 $(149.9) $(3,844.9) $—
 $7,126.8
December 31, 2016$—
 $2.1
 $8,765.8
 $1,553.0
 $(140.1) $(178.1) $0.4
 $10,003.1
Adoption of Accounting Standard Update 2016-09—
 —
 1.0
 (1.0) —
 —
 —
 —
Net income—
 —
 —
 179.9
 —
 —
 —
 179.9
Other comprehensive income, net of tax—
 —
 —
 —
 16.4
 —
 —
 16.4
Dividends paid—
 —
 —
 (30.8) —
 —
 —
 (30.8)
Amortization of restricted stock, stock option and performance shares expenses—
 —
 15.0
 —
 —
 (18.8) —
 (3.8)
Employee stock purchase plan—
 —
 0.8
 —
 —
 —
 —
 0.8
Other—
 —
 —
 —
 —
 —
 (0.1) (0.1)
March 31, 2017$—
 $2.1
 $8,782.6
 $1,701.1
 $(123.7) $(196.9) $0.3
 $10,165.5

The accompanying notes are an integral part of these consolidated financial statements.


Item 1.  Consolidated Financial StatementsCIT GROUP INC. 5



CIT GROUP INC. AND SUBSIDIARIES

CIT GROUP INC. AND SUBSIDIARIES   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions)




 Quarters Ended March 31,
 2018 2017
Cash Flows From Operations 
  
Net income$97.0
 $179.9
Adjustments to reconcile net income to net cash flows from operations:   
Provision for credit losses68.8
 49.7
Depreciation on operating lease equipment76.4
 73.5
Amortization of stock compensation expenses13.0
 15.0
Net gain on asset sales and impairments on assets held for sale(20.9) (35.0)
Loss on debt extinguishment and other deposit redemption0.1
 39.0
Provision for deferred income taxes25.4
 113.5
Decrease in finance receivables held for sale7.6
 53.8
(Increase) decrease in other assets(33.4) 21.2
Decrease in other liabilities(112.7) (220.4)
Other operating activities5.8
 15.5
Net cash flows provided by operations127.1
 305.7
Cash Flows From Investing Activities 
  
Changes in loans, net(412.7) 28.0
Purchases of investment securities(662.4) (1,806.2)
Proceeds from sales and maturities of investment securities1,067.0
 1,827.9
Proceeds from asset and receivable sales175.6
 393.2
Purchases of assets to be leased and other equipment(148.3) (399.5)
Proceeds from sale of OREO, net of repurchases19.9
 28.9
Other investing activities16.1
 25.2
Net cash flows provided by investing activities55.2
 97.5
Cash Flows From Financing Activities 
  
Proceeds from the issuance of term debt and FHLB advances3,061.6
 8.5
Repayments of term debt, FHLB advances, and net settlements(1,636.6) (1,083.3)
Net increase in deposits1,023.3
 35.0
Repurchase of common stock(194.9) —
Dividends paid(21.5) (30.8)
Other financing activities(35.0) 6.5
Net cash flows provided by (used in) financing activities2,196.9
 (1,064.1)
Effect of exchange rate changes on cash and cash equivalents0.5
 3.8
Increase (decrease) in cash, cash equivalents and restricted cash2,379.7
 (657.1)
Cash, cash equivalents, and restricted cash beginning of period1,726.4
 7,195.4
Cash, cash equivalents, and restricted cash end of period$4,106.1
 $6,538.3
    
Supplementary Cash Flow Disclosures 
  
Interest paid$(200.8) $(315.3)
Federal, foreign, state and local income taxes (paid) refunded, net$(3.2) $0.2
Supplementary Non Cash Flow Disclosure   
Transfer of assets from held for investment to held for sale$150.2
 $227.2
Transfer of assets from held for sale to held for investment$20.8
 $26.7
Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment$—
 $91.2
Transfers of assets to OREO$9.6
 $38.9
Capital lease unexercised bargain purchase options$—
 $17.5
Commitments extended during the period on affordable housing investment credits$15.0
 $—


The following tables shows a reconciliation of cash, cash equivalents and restricted cash on the Balance Sheet to that presented in the above Statements of Cash Flow.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(dollars in millions)

     Three Months Ended March 31,
   
     2017
   2016
Cash Flows From Operations
                            
Net income           $179.9       $146.0  
Adjustments to reconcile net income to net cash flows from operations:                            
Provision for credit losses             49.7         99.3  
Net depreciation, amortization and (accretion)             98.8         204.0  
Net gains (losses) on asset sales and impairments on assets held for sale and other             9.5         (4.9)  
Provision for deferred income taxes             113.5         66.7  
Decrease in finance receivables held for sale             53.8         233.4  
Net (payment) reimbursement of expense from FDIC             (2.7)         0.9  
Decrease (increase) in other assets             21.2         (76.8)  
Decrease in other liabilities             (234.2)         (258.5)  
Net cash flows provided by operations             289.5         410.1  
Cash Flows From Investing Activities
                            
Changes in loans, net             283.6         (137.7)  
Purchases of investment securities             (1,806.2)         (494.9)  
Proceeds from maturities of investment securities             1,823.0         541.5  
Proceeds from asset and receivable sales             393.2         422.1  
Purchases of assets to be leased and other equipment             (399.5)         (362.0)  
Net decrease in short-term factoring receivables             (245.5)         (209.9)  
Proceeds from redemption of restricted stock             8.6         2.2  
Payments to the FDIC under loss share agreements             –          (1.1)  
Proceeds from the FDIC under loss share agreements and participation agreements             25.2         27.1  
Proceeds from sale of OREO, net of repurchases             28.9         36.6  
Net change in restricted cash             509.7         7.6  
Net cash flows provided by (used in) investing activities             621.0         (168.5)  
Cash Flows From Financing Activities
                             
Proceeds from the issuance of term debt             8.5         4.1  
Repayments of term debt and net settlements             (1,080.7)         (502.3)  
Proceeds from FHLB advances             –          551.0  
Repayments of FHLB debt             (0.2)         (552.3)  
Net increase in deposits             35.0         114.2  
Collection of security deposits and maintenance funds             63.1         70.1  
Use of security deposits and maintenance funds             (31.5)         (30.8)  
Dividends paid             (30.8)         (30.6)  
Taxes paid through withholding of common stock under employee stock plans             (16.5)         (10.5)  
Payments on affordable housing investment credits             (8.6)         (4.3)  
Net cash flows used in financing activities             (1,061.7)         (391.4)  
Effect of exchange rate changes on cash and cash equivalents             3.8         (2.3)  
Decrease in unrestricted cash and cash equivalents             (147.4)         (152.1)  
Unrestricted cash and cash equivalents, beginning of period             6,375.2         7,470.6  
Unrestricted cash and cash equivalents, end of period
           $6,227.8       $7,318.5  
Supplementary Cash Flow Disclosure
                             
Interest paid           $(315.3)       $(338.0)  
Federal, foreign, state and local income taxes refunded (paid), net           $0.2       $(0.2)  
Supplementary Non Cash Flow Disclosure
                            
Transfer of assets from held for investment to held for sale           $227.2       $833.4  
Transfer of assets from held for sale to held for investment           $26.7       $61.1  
Deposits on flight equipment purchases applied to acquisition of flight equipment purchases, and origination of finance leases, capitalized interest, and buyer furnished equipment           $91.2       $29.4  
Transfers of assets from held for investment to OREO           $38.9       $19.9  
Capital Lease unexercised bargain purchase options           $17.5         –   

 Quarters Ended March 31,
 2018 2017
Cash and due from banks, including restricted balances of $34.7 and $126.8 at March 31, 2018 and March 31, 2017, respectively$200.9
 $741.7
Interest bearing deposits, including restricted balances of $82.3 and $102.8 at March 31, 2018 and March 31, 2017, respectively3,895.4
 5,415.2
Cash included in assets of discontinued operations9.8
 381.4
Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows$4,106.1
 $6,538.3
The accompanying notes are an integral part of these consolidated financial statements.


6 CIT GROUP INC
Item 1.  Consolidated Financial Statements


Table of Contents

CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)


NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


CIT Group Inc., together with its subsidiaries (collectively “we”"we", “our”"our", “CIT”"CIT" or the “Company”"Company"), has providedis a bank holding company ("BHC") and a financial solutions to its clients since its formationholding company ("FHC"). CIT was formed in 1908. The Company1908 and provides financing, leasing and advisory services principally to middle marketmiddle-market companies in a wide variety of industries, primarily in North America, and equipment financing and leasing solutions to the transportation industry worldwide.America. CIT is a bank holding company (“BHC”) and a financial holding company (“FHC”). Through its bank subsidiary, CIT Bank, N.A., CITalso provides a full range of commercial and consumer banking and related services to commercial and individual customers through its banking subsidiary, CIT Bank, N.A. ("CIT Bank" or the "Bank"), which includes 70 branches located in Southern California and its online bank, bankoncit.com.

As previously disclosed, on October 6, 2016, we announced a definitive agreement to sell our commercial aircraft leasing business (“Commercial Air”), to Avolon Holdings Limited (“Avolon”), an international aircraft leasing company and a wholly-owned subsidiary of Bohai Capital Holding Co. Ltd. (“Bohai”) (the “Commercial Air Sale”). On April 4, 2017, CIT completed the Commercial Air sale.

CIT is regulated by the Board of Governors of the Federal Reserve System (“FRB”("FRB") and the Federal Reserve Bank of New York (“FRBNY”("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank N.A. is regulated by the Office of the Comptroller of the Currency of the U.S. Department of the Treasury (“OCC”("OCC").



BASIS OF PRESENTATION


Basis of Financial Information


These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial information and accordingly do not include all information and note disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The financial statements in this Form 10-Q, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of CIT’s financial position, results of operations and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2016.2017.

The accounting and financial reporting policies of CIT Group Inc. conform to GAAP and the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates and assumptions. Some of the more significant estimates include: allowance for loan losses, loan impairment, fair value determination, lease residual values, liabilities for uncertain tax positions, realizability of deferred tax assets, purchase accounting adjustments, indemnification assets, goodwill, intangible assets, and contingent liabilities, including amounts associated with the discontinued operation. Additionally where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.


Principles of Consolidation

The accompanying consolidated financial statements include financial information related to CIT Group Inc. and its majority-owned subsidiaries and those variable interest entities (“VIEs”) where the Company is the primary beneficiary.

In preparing the consolidated financial statements, all significant inter-companyintercompany accounts and transactions have been eliminated. Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.

The current period’s results of operations do not necessarily indicate the results that may be expected for any other interim period or for the full year as a whole.


Discontinued Operations


Discontinued Operations as of March 31, 20172018 and December 31, 20162017 included certain assets and liabilities of the Commercial Air business, the Business Air business, along with(i) the Financial Freedom business that was acquired as part of the OneWest Transaction.Transaction and (ii) the Business Air business. Income from discontinued operations reflects the activities of the Financial Freedom and Business Air businesses for the quarter ended March 31, 2018 and the Financial Freedom and the Aerospace (Commercial Air and Business Air) and Financial Freedom businesses for the quartersquarter ended March 31, 2017. We completed the sale of our Commercial Air business in April 2017.
On October 6, 2017, CIT announced that CIT Bank, N.A. has agreed to sell Financial Freedom, its reverse mortgage servicing business and 2016.

the reverse mortgage portfolio serviced by Financial Freedom (the “Financial Freedom Transaction”). The Financial Freedom Transaction is targeted to close in the second quarter of 2018 and is subject to certain regulatory and investor approvals and other customary closing conditions. See further discussions inNote 2 — Discontinued Operations.Operations.

Revisions of Previously Issued Statements of Cash Flows

The Company has revised the Statement of Cash Flows for the three months ended March 31, 2016 in connection with immaterial errors impacting the classification of certain balances between line items and categories as previously disclosed in its Form 10-K,Note 29 — Selected Quarterly Financial Data, for the year ended December 31, 2016. The misclassifications resulted in an overstatement of net cash flows provided by operations of $166.4 million, an overstatement of net cash flows used in investing activities of $203.9 million, and an understatement of net cash flows used in financing activities of $35.2 million. The Company evaluated the impact of the errors and has concluded that individually and in the aggregate, the errors were not material to any previously issued financial statements.

Cash Flow balances disclosed in the December 31, 2016 Form 10-K have been updated to reflect the adoption of ASU 2016-09:Compensation — Stock Compensation (Topic 718), as discussed later in this Note.

Item 1.  Consolidated Financial Statements  7


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SIGNIFICANT ACCOUNTING POLICIES


Significant accounting policies are included with the current Form 10-K for the year ended December 31, 2016. There were no material changes to these policies during the three months ended March 31, 2017.

Financial Accounting Standards Board (“FASB”) Standards Adopted since January 1, 2017

Accounting Standards Update (“ASU”) 2016-05,Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard was adopted as of January 1, 2017. Historically, CIT has not novated any derivative instrument that was designated as a hedging instrument and as such the adoption of this ASU has no impact on CIT’s Consolidated Financial Statements.

ASU 2016-06,Derivatives and Hedging (Top 815): Contingent Put and Call Options in Debt Instruments clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence in ASC 815, as amended by the ASU. Accordingly, when a call (put) option is contingently exercisable, there is no requirement that an entity must assess whether the event that triggers the ability to exercise a call (put) option is related to interest rate or credit risk. CIT adopted this amendment as of January 1, 2017. The adoption did not result in a significant impact on the Company’s financial statements or disclosures.

ASU 2016-07,Investments — Equity method and joint ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting; eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. For available-for-sale securities that become eligible for the equity method of accounting, any unrealized gain or loss recorded within accumulated other comprehensive income should be recognized in earnings at the date the investment initially qualifies for the use of the equity method. The new standard should be applied prospectively for investments that qualify for the equity method of accounting after the effective date. CIT adopted this amendment as of January 1, 2017. The adoption did not result in a significant impact on the Company’s financial statements or disclosures.

ASU 2016-09:Compensation — Stock Compensation (Topic 718), simplifies several aspects of the accounting for share based payment award transactions to employees. The standard requires that all excess tax benefits and tax deficiencies that pertain to employee stock-based incentive payments be recognized within income tax expense in the consolidated statements of income, rather than within additional paid-in capital. When an employee’s shares are used to satisfy the employers’ statutory income tax withholding obligation, the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdiction. The standard also allows an entity to make a Company-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. CIT adopted this Update as of January 1, 2017. The adoption did not result in a significant impact to CIT’s financial statement disclosures. CIT has changed its accounting policy to account for forfeitures as they occur in order to determine the amount of compensation cost to be recognized in each period. The Company also retrospectively applied the presentation requirements for cash flows related to employee taxes paid for withheld shares, resulting in a reclassification of $10.5 million from operating activities to financing activities for March 31, 2016 in the Company’s consolidated Statements of Cash Flows.

ASU 2017-03,Accounting Changes and Error Corrections (Topic 250) and Investments — Equity Method and Joint Ventures (Topic 323) amends certain SEC paragraphs to incorporate SEC staff announcements made at the September 22, 2016, and November 17, 2016, Emerging Issues Task Force meetings. ASU 2017-03 incorporates these SEC staff views into ASC 250 and adds references to that guidance in the transition paragraphs of each of the three new standards ASU 2014-09,Revenue from Contracts with Customers (Topic 606), ASU 2016-02, Leases (Topic 842), andASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments relating to expanded disclosures under SAB 74, Topic 11.M. The ASU also conforms ASC 323-740-S99-2, which describes the SEC staff’s views on accounting for investments in qualified affordable housing projects, to the guidance issued in ASU 2014-01.

CIT adopted the guidance as it relates to Topic 250, Accounting Changes and Error Corrections, and ASC Topic 323, Investments — Equity Method and Joint Ventures as of January 1, 2017. The adoption did not result in a significant impact on the Company’s financial statements or disclosures. To the extent such corrections impact the three new standards, CIT plans to align the adoption of the update with the relevant adoption dates of these standards.

ASU 2017-04,Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test under current GAAP) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair

8   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


value (i.e., measure the charge based on today’s Step 1). The one-step impairment test will be applied to goodwill for all reporting units, even those with zero or negative carrying amounts. This guidance is required to be applied prospectively to transactions occurring within the period of adoption. CIT early adopted this standard as of January 1, 2017. The adoption did not result in any impact on the Company’s financial statements or disclosures.

Recent Accounting Pronouncements

The following accounting pronouncements were issued by the FASB prior to January 1, 2017, but are not yet effective. Refer to Note 1,Business and Summary of Significant Accounting PoliciesCompany's Annual Report on Form 10-K for the year ended December 31, 20162017 ("2017 Form 10-K"). Effective January 1, 2018, CIT changed its accounting policy for a detailed descriptionrevenue recognition resulting from the adoption of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers and subsequent related Accounting Standards Updates ("ASUs"). There were no other material changes to policies during the pronouncements.quarter ended March 31, 2018. Refer to Newly Adopted Accounting Standards for other ASUs adopted in Q1 2018.

n

Revenue Recognition

On January 1, 2018, CIT adopted ASU 2014-09,
ASU 2014-09, Revenue from Contracts with Customers (Topic 606);
n
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date;
n
ASU 2016-01,Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities;
n
ASU 2016-02,Leases (Topic 842);
n
ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations;
n
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;
n
ASC 2016-11, Rescission of Certain SEC Staff Observer Comments upon Adoption of Topic 606, Revenue from Contracts with Customers;
n
ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients;
n
ASU 2016-13,Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments;
n
ASU 2016-15,Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments;
n
ASU 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory;
n
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force); and
n
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

Revenue Recognition - Revenue from Contracts with Customers (ASC 606)

The revenue recognition guidance (ASU 2014-09, and subsequent related ASUs. ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20)2014-09 establishes the principles to apply to determinein determining the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows.recognition. The core principle is that a company will recognize revenue when it transfers control of goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The guidance introduces a five step, principle-based model, requiring more judgment than under previous GAAP to determine when and how revenue is recognized. The standard also changes the accounting for certain contract costs, including whether they may be offset againstdefers to existing guidance where revenue recognition models are already in theplace.


CIT GROUP INC. 7
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements of Income,(Unaudited)

"Interest Income" and requires additional disclosures about revenue and contract costs.

Companies can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Under the modified approach, financial statements will be prepared for the year of adoption using the new standard, but prior periods will not be adjusted. Instead, companies will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the company and disclose all line items in the year of adoption as if they were prepared under today’s revenue guidance. The required effective date is January 1, 2018.

The review and analysis of CIT’s individual revenue streams is currently underway. “Interest Income” and “Rental"Rental Income on Operating Leases”Leases", CIT’sCIT's two largest revenue items, are scoped out of scope of the new guidance;guidance, as are many other revenues relating to other financial assets and liabilities, including loans, leases, securities, and derivatives. As such,a result, the majorityimplementation of our revenues will not be impacted; however,the new guidance was limited to certain ancillary revenuesrevenue streams within Non-Interest Income, including some immaterial bank related fees and components of “Other income” are being assessed at a contractual level pursuantgains or losses related to the new standard. We expect oursale and disposition of leased equipment and Other Real Estate Owned ("OREO"), which is accounted for under ASC 610-20, Gains and Losses From the Derecognition of Nonfinancial Assets and requires the Company to apply certain recognition and measurement principles of ASC 606.
CIT evaluated its in-scope revenue streams under the five step model and concluded that ASU 2014-09 did not materially impact the current practice of revenue recognition as ASC 606 is consistent with the current accounting policies will notpolicy being applied by the Company for these revenues. Therefore, no change materially.

CIT plans to adopt the standard in the first quartertiming or amount of 2018income recognized was identified. CIT also determined that costs incurred to obtain or fulfill contracts and expectsfinancing components relating to usein-scope revenue streams were immaterial to the Company.
Non-interest revenue, including amounts related to the sale and disposition of leased equipment and OREO, is recognized at an amount reflecting the consideration received, or expected to be received, when control of goods or services is transferred, which generally occurs when services are provided or control of leased equipment or OREO is liquidated.
ASU 2014-09 was adopted using the modified retrospective method (cumulative initial effect recognizedtransition method. CIT elected to apply this guidance only to contracts that were not completed at the date of the initial application. The adoption with additional footnote disclosures). However, we are continuing to evaluate the impact of the standard, and our adoption method is subject to change. CIT doesdid not anticipatehave a significant impact on ourCIT’s financial statements and disclosures upon adoptionor disclosures. No adjustment to the opening balance of retained earnings was necessary.
Interest income on held for investment ("HFI") loans is recognized using the effective interest method or on a basis approximating a level rate of return over the life of the standard. Our evaluationsasset. Interest income includes components of accretion of the fair value discount on loans and lease receivables recorded in connection with Purchase Accounting Adjustments (“PAA”), which are accreted using the effective interest method as a yield adjustment over the remaining contractual term of the loan and recorded in interest income. If the loan is subsequently classified as assets held for sale ("AHFS"), accretion (amortization) of the discount (premium) will cease.

Rental revenue on operating leases is recognized on a straight line basis over the lease term and is included in Non-interest Income. Intangible assets related to acquisitions completed by the Company and Fresh Start Accounting (“FSA”) adjustments that were applied as of December 31, 2009 (the Convenience Date), were recorded to adjust the carrying value of above or below market operating lease contracts to their fair value. The FSA related adjustments (net) are amortized into rental income on a straight line basis over the remaining term of the respective lease.

The recognition of interest income (including accretion) on commercial loans (exclusive of small ticket commercial loans) is suspended and an account is placed on non-accrual status when, in the opinion of management, full collection of all principal and interest due is doubtful. All future interest accruals, as well as amortization of deferred fees, costs, purchase premiums or discounts are suspended. To the extent the estimated cash flows, including fair value of collateral, does not satisfy both the principal and accrued interest outstanding, accrued but uncollected interest at the date an account is placed on non-accrual status is reversed and charged against interest income. Subsequent interest received is applied to the outstanding principal balance until such time as the account is collected, charged-off or returned to accrual status. Loans that are on cash basis nonaccrual do not accrue interest income; however, payments designated by the borrower as interest payments may be recorded as interest income. To qualify for this treatment, the remaining recorded investment in the loan must be deemed fully collectable.

The recognition of interest income (including accretion) on consumer mortgages and small ticket commercial loans and lease receivables is suspended and all previously accrued but uncollected revenue is reversed, when payment of principal and/or interest is contractually delinquent for 90 days or more. Accounts, including accounts that have been modified, are returned to accrual status when, in the opinion of management, collection of remaining principal and interest is reasonably assured, and there is a sustained period of repayment performance for a minimum of six months.

The recognition of interest income on reverse mortgages is suspended upon the latter of the foreclosure sale date or date on which marketable title has been acquired (i.e. property becomes OREO).

The Company periodically modifies the terms of a loan in response to borrowers’ financial difficulties. These modifications may include interest rate changes, principal forgiveness or payment deferments. Loans that are modified, where a concession has been made to the borrower, are accounted for as Troubled Debt Restructurings (“TDRs”). TDRs are generally placed on nonaccrual upon their restructuring and remain on non-accrual until, in the opinion of management, collection of remaining principal and interest is reasonably assured, and upon collection of six consecutive scheduled payments.

Purchased credit impaired ("PCI") loans in pools that the Company may modify as TDRs are not final and we continue to assesswithin the impactscope of the Update on our revenue contracts.accounting guidance for TDRs.


Fair Value Hedging
LeasesAs noted in the Company's 2017 Form 10-K, CIT early adopted ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities in fourth quarter of 2017. In accordance with this new guidance, the Company presents the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness in the same income statement line as the earnings effect of the hedged item. See Note 7 — Derivative Financial Instruments for further details.

Other Newly Adopted Accounting Standards
The following pronouncements were issued by the Financial Accounting Standards Board (“FASB”) and adopted by CIT as of January 1, 2018:


8 Item 1.  Consolidated Financial Statements
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and Technical Corrections and Improvements to Financial Instruments - Overall
ASU 2016-02,Leases was issued in February 2016, is intended2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities includes amendments on recognition, measurement, presentation and disclosure of financial instruments. In addition, this guidance adds a new Topic (ASC 321, Investments - Equity Securities) to increase transparency and comparability ofthe FASB Accounting Standards Codification, which provides guidance on accounting for lease transactions,equity investments. ASU 2018-03, Technical Corrections and will require all leasesImprovements to be recognized onFinancial Instruments—Overall (Subtopic 825-10) clarifies certain aspects of ASU 2016-01.
CIT adopted these standards as of January 1, 2018 with a cumulative-effect adjustment to the balance sheet as lease assets and lease liabilities.

Lessor accounting remains similarof the adoption date. The cumulative-effect adjustment resulted in a decrease in retained earnings due to the current model, but updatedreclassification of $1.1 million of unrealized losses from accumulated other comprehensive loss to align with certain changes toopening retained earnings. The adoption of these standards did not have a material impact on CIT’s consolidated financial statements and disclosures.
Income Taxes (Topic 740): Intra - Entity Transfers of Assets Other Than Inventory
ASU 2016-16, Income Taxes (Topic 740): Intra - Entity Transfers of Assets Other Than Inventory requires that a Company recognize the lessee model (e.g., certain definitions, suchtax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, and any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer even though the pre-tax effects of the transaction are eliminated in consolidation.
CIT adopted this guidance as initial direct costs, have been updated) and the new revenue recognition standard. Lease classifications by lessors are similar, operating, direct financing, or sales-type.

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Lessees will need to recognize all leases longer than twelve months on the Consolidated balance sheets as lease liabilities with corresponding right-of-use assets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit thresholds. The ASU will require both quantitative and qualitative disclosures regarding key information about leasing arrangements.

The standard is effective for the Company on January 1, 2019. Early adoption is permitted. The new standard must be adopted2018 using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented.

Although the new guidance doesapproach. The adoption did not significantly change lessor accounting, CIT will need to determine thehave a material impact to both, where it is a lessee and a lessor:

n
Lessor accounting: Given limited changes to Lessor accounting, we do not expect material changes to recognition or measurement. Current lease administration and/or reporting systems and processes will need to be evaluated and updated as required to ensure appropriate lease-type identification and classification.
n
Lessee accounting: The new standard will result in virtually all leases being reflected on the balance sheet. The impact on lessee accounting also includes identification of any embedded leases included in service contracts that CIT has with vendors.

The Company is currently evaluating the effect of this ASU on itsCIT's consolidated financial statements and disclosures. CIT management has assembled a project committeeThe balance sheet impact was an approximately $0.2 million increase to assess the impact in orderopening retained earnings due to implementthe adjustment recorded.
Statement of Cash Flows - Classification of Certain Cash Receipts and adopt the standard in the first quarter of 2019.Cash Payments and Restricted Cash

Credit Losses

ASU 2016-13,Financial Instruments — Credit Losses2016-15, Statement of Cash Flows (Topic 326)230): MeasurementClassification of Credit Losses on Financial Instruments, introduces a forward-looking “expected loss” model (the “Current Expected Credit Losses” (“CECL”) model) to estimate credit losses onCertain Cash Receipts and Cash Payments clarifies how entities should classify certain typescash receipts and cash payments within the statement of financial instrumentscash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and modifies the impairment model for available-for-sale (“AFS”) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The ASU replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost (including held to maturity (“HTM”) securities), which will reflect management’s estimatecash payments have aspects of credit losses over the full remaining expected life of the financial assets. It eliminates existing guidance for purchase credit impaired (“PCI”) loans, and requires recognition of an allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination. In addition, it amends existing impairmentone class of cash flows.
CIT retrospectively adopted this guidance for AFS securities to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted (modified-retrospective approach). A prospective transition approach is required for debt securities for which an other than temporary impaired (“OTTI”) had been recognized before the effective date. A prospective transition approach should be used for purchased with more than insignificant credit deterioration (“PCD”) assets where upon adoption; the amortized cost basis should be adjusted to reflect the addition of the allowance for credit losses.

The ASU will be effective January 1, 2020. Early2018, to each period presented. The adoption of the guidance will be permitted for all entities for fiscal years beginning January 1, 2019. CIT is currently evaluating the effect of this ASUdid not have a material impact on itsCIT’s consolidated financial statements and disclosures.

The following accounting pronouncements have been issued by
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash requires that the FASBStatement of Cash Flows explain the change during the first quarterperiod in the total of 2017 but arecash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
CIT retrospectively adopted this guidance as of January 1, 2018, to each period presented. The adoption did not yet effective:have a material impact on CIT’s consolidated financial statements and disclosures.

n
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business;
n
ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets;
n
ASU 2017-07,Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; and
n
ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.

In January 2017, the FASB issuedASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This guidance Business
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business narrows the definition of a business. This standardbusiness and provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. This guidance must be applied prospectively to transactions occurring within the period of adoption.
CIT expects to adoptadopted this guidance effective January 1, 2018. The Company is currently evaluating theadoption did not have a material impact of this ASU.

In February 2017, FASB issued ASU 2017-05,Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales

10   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


of Nonfinancial Assets. This guidance clarifies the scope of accounting for derecognition or partial sale of nonfinancial assets to exclude all businesses and non-profit activities. ASU 2017-05 also provides a definition for in substance non-financial assets and additional guidance on partial sales of non-financial assets. The amendments are effective at the same time Topic 606,Revenue from Contracts with Customers, is effective. For public entities, they are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this ASU on itsCIT’s consolidated financial statements and disclosures and plans to adopt in conjunction with the revenue recognition standard described earlier in the first quarter of 2018.disclosures.

In March 2017, FASB issued theASU 2017-07 —Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost to improve the reporting of net periodic benefit cost from defined benefit pension plans and other postretirement benefit plans in the financial statements of all employers. The
ASU amends ASC 715, 2017-07, Compensation —- Retirement Benefits to require(Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost requires employers that present a measure of operating income in their statementStatement of incomeIncome to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non- operating expenses. Employers that do not present a measure of operating income are required to include the service cost component in the same line item as other employee compensation costs. Employers are required to include all other components of net benefit costnon-operating expenses in a separate line item(s). The line item(s) in which the components of net benefit cost other than the service cost are included needs to be identified as such on the income statement or in the disclosures. The ASUThis standard also stipulates that only the service cost component of net benefit cost is eligible for capitalization.

This is applicable for public entities after December 15, 2017, including interim periods within those periods. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued or made available for issuance. The amendments related to presentation of service cost and other components in the income statementsIncome Statements must be applied retrospectively to all periods presented. The amendments related to the capitalization of the service cost component should be applied prospectively, on and after the date of adoption.
CIT adopted this guidance as of January 1, 2018. The Company is currently evaluatingadoption was determined not to be material to the impact of this ASU on its financial statements and disclosures and does not intend to early adopt this standard.disclosures.

Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
The purposeASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope ofASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities is to amend the amortization period for purchased callable debt securities held at a premium by shortening the amortization period Modification Accounting provides guidance about which changes to the earliest call date. Currentterms or conditions of a share-based payment award require an entity to apply modification accounting.
CIT prospectively adopted this guidance does not allow for the recognitionas of an early repayment of principal even if there is a high degree of certainty that the call will be exercised. As a result a loss in earnings must be recognized when the call is exercised at a premium. This accounting change does not impact securities held at a discount. For public business entities the effective date for this ASU is for fiscal years, and the interim periods with in those fiscal years, beginning after December 15,January 1, 2018. The Company is currently evaluating theadoption did not have a material impact of this ASU on itsCIT’s consolidated financial statements and disclosuresdisclosures.
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
ASU 2018-02 Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and doesJobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users.


CIT GROUP INC. 9
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

CIT early adopted this guidance as of January 1, 2018 by applying the aggregate portfolio approach. Adjustment to opening retained earnings due to the reclassification of certain tax effects stranded in accumulated other comprehensive income was a $1.6 million increase. The adoption did not have a material impact on CIT’s consolidated financial statements and disclosures.

Recent Accounting Pronouncements
The following accounting pronouncements were issued by the FASB but are not yet effective for CIT.
StandardSummary of GuidanceEffect on CIT's Financial Statements
ASU 2017-08, Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
Issued March 2017

•
ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date.
•
The new guidance applies to all entities that hold investments in callable debt securities for which the amortized cost basis exceeds the amount repayable by the issuer at the earliest call date (i.e., at a premium).
•
This guidance must be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings.

•
Effective for CIT as of January 1, 2019.
•
CIT is currently evaluating the impact of this standard on its consolidated financial statements and disclosures and does not intend to early adopt this standard.

ASU 2016-02, Leases (Topic 842)
Issued February 2016
•
Lessees will need to recognize all leases longer than twelve months on the consolidated balance sheets as lease liabilities with corresponding right-of-use assets. For Income Statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit thresholds.
•
Lessor accounting remains similar to the current model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated) and the new revenue recognition standard. Lease classifications by lessors are similar, operating, direct financing, or sales-type.
•
The ASU requires both quantitative and qualitative disclosures regarding key information about leasing arrangements. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. Early adoption is permitted.

•
Effective for CIT as of January 1, 2019.
•
CIT will need to determine the impact where it is both a lessee and a lessor:

•
Lessor accounting: CIT is analyzing the impact of changes to the definition of ‘initial direct costs’ under the new guidance. The new standard has a narrower definition of initial direct costs, which will result in CIT recognizing increased upfront expenses offset by higher yield over the lease term. CIT is currently evaluating the bifurcation of certain non-lease components from lease revenue streams. If goods or services are determined to be a non-lease component and accounted for under ASC 606 or other applicable GAAP guidance, the income recognition may differ from current accounting.

•
Lessee accounting: CIT is continuing to evaluate the impact of the amended guidance on its Condensed consolidated financial statements. CIT expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption.

•
CIT management has assembled a project committee to assess the impact of this guidance. Initial scoping and assessment is complete and CIT is continuing to evaluate the impact on its consolidated financial statements and disclosures.


10 Item 1.  Consolidated Financial Statements
Table of Contents
CIT Group Inc. and Subsidiaries – Notes to early adopt this standard.Condensed Consolidated Financial Statements (Unaudited)


ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Issued June 2016

•
Introduces a forward-looking “expected loss” model (the “Current Expected Credit Losses” (“CECL”) model) to estimate credit losses to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current U.S. GAAP, on certain types of financial instruments.
•
It eliminates existing guidance for PCI loans, and requires recognition of an allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination.
•
It amends existing impairment guidance for AFS securities to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves.
•
In addition, it expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the ALLL.
•
Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted (modified-retrospective approach).

•
Effective for CIT as of January 1, 2020.
•
CIT management has established a project team and an oversight committee to assess the impact of this guidance and implement this standard. Initial gap assessment is complete and CIT is continuing to evaluate the impact on its consolidated financial statements and disclosures.
•
While CIT is currently in the process of evaluating the impact of the amended guidance on its Condensed consolidated financial statements, it currently expects the ALLL to increase upon adoption given that the allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of CIT’s loan and lease portfolios at adoption date.


NOTE 2 — DISCONTINUED OPERATIONS


Aerospace


As discussed inNote 2 — Acquisitions and Discontinued Operations in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, the activity associated withfor 2017 in the following tables included Commercial Air, business that is subject to a definitive sales agreement, which was subsequently sold on April 4, 2017 (as discussed inNote 16 — Subsequent Events), and the Business Air business are included in discontinued operations.

2017. The following condensed financial information reflects the combination of our Commercial Air and Business Air businesses.business for the quarter ended March 31, 2018 and as of December 31, 2017.


Condensed Balance Sheet — Aerospace Discontinued Operations (dollars(dollars in millions)

     March 31,
2017
   December 31,
2016
Total cash and deposits, of which $76.0 and $535.5 at March 31, 2017 and December 31, 2016, respectively, is restricted           $374.0       $759.0  
Net Finance Receivables             847.1         1,047.7  
Operating lease equipment, net             9,776.2         9,677.6  
Goodwill             126.8         126.8  
Other assets(1)
             1,172.7         1,161.5  
Assets of discontinued operations           $12,296.8       $12,772.6  
Secured borrowings           $197.9       $1,204.6  
Other liabilities(2)
             1,611.9         1,597.3  
Liabilities of discontinued operations           $1,809.8       $2,801.9  
 March 31, 2018 December 31, 2017
Net Loans$153.0
 $165.8
Operating lease equipment, net11.4
 18.4
Other assets0.1
 —
Assets of discontinued operations$164.5
 $184.2
Other liabilities$20.1
 $8.8
Liabilities of discontinued operations$20.1
 $8.8

(1)
Amount includes Deposits on commercial aerospace equipment of $1,100.6 million and $1,013.7 million at March 31, 2017 and December 31, 2016, respectively.
(2)
Amount includes commercial aerospace maintenance reserves of $1,107.8 million and security deposits of $167.3 million at March 31, 2017, and commercial aerospace maintenance reserves of $1,084.9 million and security deposits of $167.0 million at December 31, 2016.

Item 1.  Consolidated Financial Statements  11


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Condensed Statement of Income — Aerospace Discontinued Operations (dollars(dollars in millions)

    Quarters Ended March 31,
   Quarters Ended March 31,
    2017
   2016
2018 2017
Interest income     $20.2       $16.0  $2.1
 $20.2
Interest expense       (95.9)         (91.4)  1.0
 95.9
Provision for credit losses       –          (9.9)  
Rental income on operating leases       306.7         311.3  0.5
 306.7
Other Income       13.4         16.0  
Depreciation on operating lease equipment(1)
       –          (113.9)  
Other income (losses)(1.0) 13.4
Maintenance and other operating lease expenses       (4.2)         (7.3)  —
 4.2
Operating expenses(2)
       (24.9)         (23.2)  0.3
 24.9
Loss on debt extinguishment(3)(1)
       (39.0)         –   —
 39.0
Income from discontinued operation before provision for income taxes       176.3         97.6  
Income from discontinued operations before provision for income taxes0.3
 176.3
Provision for income taxes(4)
       (78.1)         (7.8)  0.1
 78.1
Gain on sale of discontinued operations, net of taxes       12.7         –   —
 12.7
Income from discontinued operations, net of taxes      $110.9        $89.8  $0.2
 $110.9
(1) 
Depreciation on operating lease equipment is suspended when an operating lease asset is placed in Assets Held for Sale.
(2)
Operating expenses for the quarters ended March 31, 2017 and 2016 include costs related to the commercial air separation initiative of $6 million and $4 million, respectively. Operating expense includes salaries and benefits of $15 million for each of the quarters ended March 31, 2017 and 2016, respectively.
(3)
The Company repaid approximately $1 billion of secured borrowings in the first quarter of 2017 within discontinued operations and recorded a loss of $39 million in relation to the extinguishment of those borrowings.


CIT GROUP INC. 11
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(4)
 For the quarters ended March 31, 2017 and 2016, the Company’s tax rate for discontinued operations was 42% and 8%, respectively. The current quarter tax rate increased from the first quarter of 2016 as all earnings were taxed at the U.S. federal tax rate in the current quarter.

CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Condensed Statement of Cash Flows — Aerospace Discontinued Operations (dollars(dollars in millions)

     Quarters Ended
   
     March 31,
2017
   March 31,
2016
Net cash flows used for operations           $128.1         253.2  
Net cash flows provided by investing activities             558.2         (67.1)  

 Quarters Ended March 31,
 2018 2017
Net cash flows provided by operations$13.6
 $128.1
Net cash flows provided by investing activities20.1
 98.7

Reverse Mortgage Servicing


The Financial Freedom business, a division of CIT Bank that services reverse mortgage loans, was acquired in conjunction with the OneWest Transaction. Pursuant to ASC 205-20, theThe Financial Freedom business is reflected asin discontinued operations. Assets of discontinued operations primarily include Home Equity Conversion Mortgage ("HECM") loans and servicing advances. The liabilities of discontinued operations include reverse mortgage servicing liabilities, which related primarily to loans serviced for third party investors, secured borrowings and contingent liabilities. Continuing operations includes a separate portfolio of reverse mortgage loans of $861 million and other real estate owned assets of $17 million at March 31, 2018, which are recorded in the Consumer Banking segment (refer to Note 3 - Loans) and are serviced by Financial Freedom. On October 6, 2017, CIT entered into a definitive agreement to sell the Financial Freedom business and the reverse mortgage loan portfolio serviced by Financial Freedom (the "Financial Freedom Transaction"). The Financial Freedom Transaction is targeted to close in the second quarter of 2018 and is subject to certain regulatory and investor approvals and other customary closing conditions


As a mortgage servicer of residential reverse mortgage loans, the Company is exposed to contingent liabilities for breaches of servicer obligations as set forth in industry regulations established by the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) and in servicing agreements with the applicable counterparties, such as third party investors. Under these agreements, the servicer may be liable for failure to perform its servicing obligations, which could include fees imposed for failure to comply with foreclosure timeframe requirements established by servicing guides and agreements to which CIT is a party as the servicer of the loans. The Company hashad established reserves for contingent servicing-related liabilities associated with discontinued operations. DuringSeparately, the quarter endedCompany recognized an indemnification receivable from the FDIC of $29 million as of March 31, 2018, and December 31, 2017 CIT recorded an additional net $10 million in incrementalfor covered servicing-related reserves. For servicing-related losses covered byobligations related to reverse mortgage loans pursuant to the FDIC loss share agreement a corresponding indemnification receivable is recognizedbetween CIT Bank and reported in continuing operations.the FDIC related to the acquisition by OneWest Bank from the FDIC of certain assets of IndyMac Federal Bank FSB ("IndyMac") (the "IndyMac Transaction"). See the Company's Report on Form 10-K for the year ended December 31, 2017, Note 5 - Indemnification Assets, for further information.


Condensed Balance Sheet — Financial Freedom Discontinued Operation (dollars in millions)

    March 31,
2017
   December 31,
2016
March 31, 2018 December 31, 2017
Total cash and deposits, all of which is restricted     $7.4       $5.8  $9.8
 $7.7
Net Finance Receivables(1)
       352.8         374.0  
Net Loans(1)
253.7
 272.8
Other assets(2)
       61.2         68.3  35.1
 36.6
Assets of discontinued operations     $421.4       $448.1  
Assets of discontinued operation$298.6
 $317.1
Secured borrowings(1)
     $345.4       $366.4  $247.8
 $268.2
Other liabilities(3)
       576.7         569.4  228.7
 232.3
Liabilities of discontinued operations     $922.1       $935.8  
Liabilities of discontinued operation$476.5
 $500.5
(1) 
Net finance receivablesloans include $344.5$246.8 million and $365.5$267.2 million of securitized balances at March 31, 20172018 and December 31, 2016,2017, respectively, and $8.3$6.9 million and $8.5$5.6 million of additional draws awaiting securitization respectively. Secured borrowings relate to those receivables.
(2) 
Amount includes servicing advances, servicer receivables and property and equipment, net of accumulated depreciation. The loans serviced for others total $13.8 billion and $14.1 billion for reverse mortgage loans as of March 31, 2018 and December 31, 2017, respectively.
(3) 
Other liabilities include $135.3 million and $137.8 million of contingent liabilities, $79.5 million of reverse mortgage servicing liabilities and $13.9 million and $15.0 million of other accrued liabilities.liabilities at March 31, 2018 and December 31, 2017, respectively.

12 CIT GROUP INC
Item 1.  Consolidated Financial Statements


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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

The results from discontinued operations for the quarters ended March 31, 20172018 and 20162017 are presented below.


Condensed Statement of Income — Financial Freedom Discontinued Operation (dollars(dollars in millions)

    Quarters Ended March 31,
   Quarters Ended March 31,
    2017
   2016
2018 2017
Interest income(1)
     $2.8       $3.0  $2.1
 $2.8
Interest expense(1)
       (2.5)         (3.0)  2.1
 2.5
Other income       7.3         8.8  6.7
 7.3
Operating expenses(2)
       (22.7)         (16.2)  16.1
 22.7
Loss from discontinued operation before benefit for income taxes       (15.1)         (7.4)  
Loss from discontinued operations before benefit for income taxes(9.4) (15.1)
Benefit for income taxes(3)
       5.9         2.6  (2.5) (5.9)
Loss from discontinued operation, net of taxes     $(9.2)       $(4.8)  $(6.9) $(9.2)
(1) 
Includes amortization for the premium associated with the HECM loans and related secured borrowings.
(2) 
For the quarter ended March 31, 2018 and March 31, 2017, operating expense is comprised of approximately $4 million and $5 million in salaries and benefits, $1 million and $6 million in professional and legal services, and $11 million and $13 million for other expenses such as data processing, premises and equipment, and miscellaneous charges. For the quarter ended March 31, 2016, operating expense is comprised of approximately $1 million in salaries and benefits, $4 million in professional services and $12 million for other expenses such as data processing, premises and equipment, legal settlement, and miscellaneous charges.charges, respectively.
(3) 
For the quarters ended March 31, 2018 and 2017, and 2016, the Company’sCompany's tax rate for discontinued operations isoperation was 27% and 39% and 35%, respectively.


Condensed Statement of Cash Flows — Financial Freedom Discontinued Operation (dollars(dollars in millions)

     Quarters Ended
   
     March 31,
2017
   March 31,
2016
Net cash flows used for operations           $(10.9)       $(10.2)  
Net cash flows provided by investing activities             23.4         19.8  

 Quarters Ended March 31,
 2018 2017
Net cash flows used for operation$(3.3) $(8.4)
Net cash flows provided by investing activities22.1
 25.0

Combined Results for Discontinued Operations


The following tables reflect the combined results of the discontinued operations. Details of the balances are discussed in prior tables.


Condensed Combined Balance Sheet Discontinued Operations (dollars(dollars in millions)

     March 31,
2017
   December 31,
2016
Total cash and deposits, of which $83.4 and $541.3 at March 31, 2017 and December 31, 2016, respectively, is restricted           $381.4       $764.8  
Net Finance Receivables             1,199.9         1,421.7  
Operating lease equipment, net             9,776.2         9,677.6  
Goodwill             126.8         126.8  
Other assets             1,233.9         1,229.8  
Assets of discontinued operations           $12,718.2       $13,220.7  
Secured borrowings           $543.2       $1,571.0  
Other liabilities             2,188.7         2,166.7  
Liabilities of discontinued operations           $2,731.9       $3,737.7  
 
 March 31, 2018 December 31, 2017
Total cash and deposits$9.8
 $7.7
Net Loans406.7
 438.6
Operating lease equipment, net11.4
 18.4
Other assets35.2
 36.6
Assets of discontinued operations$463.1
 $501.3
Secured borrowings$247.8
 $268.2
Other liabilities248.8
 241.1
Liabilities of discontinued operations$496.6
 $509.3

Condensed Combined Statement of Income of Discontinued Operations (dollars(dollars in millions)

     Quarters Ended March 31,
   
     2017
   2016
Interest income           $22.9       $19.0  
Interest expense             (98.4)         (94.4)  
Provision for credit losses             –          (9.8)  
Rental income on operating leases             306.7         311.3  
Other Income             20.7         24.8  
Depreciation on operating lease equipment             –          (113.9)  
Maintenance and other operating lease expenses             (4.2)         (7.3)  
Operating expenses             (47.6)         (39.5)  
Loss on debt extinguishment             (39.0)         –   
Income from discontinued operation before provision for income taxes             161.1         90.2  
Provision for income taxes             (72.1)         (5.2)  
Gain on sale of discontinued operations, net of taxes             12.7         –   
Income from discontinued operations, net of taxes           $101.7       $85.0  
 
 Quarters Ended March 31,
 2018 2017
Interest income$4.2
 $22.9
Interest expense3.1
 98.4
Rental income on operating leases0.5
 306.7
Other income (losses)5.7
 20.7
Maintenance and other operating lease expenses—
 4.2
Operating expenses16.4
 47.6
Loss on debt extinguishment—
 39.0
Income (loss) from discontinued operations before benefit (provision) for income taxes(9.1) 161.1
(Benefit) provision for income taxes(2.4) 72.1
Gain on sale of discontinued operations, net of taxes—
 12.7
Income (loss) from discontinued operations, net of taxes$(6.7) $101.7


Item 1.CIT GROUP INC. 13
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 13
(Unaudited)


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Condensed Combined Statement of Cash Flows of Discontinued Operations (dollars(dollars in millions)

     Quarters Ended
   
     March 31,
2017
   March 31,
2016
Net cash flows used for operations           $117.2       $243.0  
Net cash flows provided by investing activities             581.6         (47.3)  

 Quarters Ended March 31,
 2018 2017
Net cash flows provided by operations$10.3
 $119.7
Net cash flows provided by investing activities42.2
 123.7


NOTE 3 — LOANS

Finance receivables,
Loans, excluding those reflected as discontinued operations, consist of the following:

Finance Receivables by Product (dollars in millions)

Loans by Product (dollars in millions)
Loans by Product (dollars in millions)
   
    March 31,
2017
   December 31,
2016
March 31,
2018		 December 31,
2017
Commercial loans     $20,429.6       $20,117.8  $21,163.9
 $20,892.1
Direct financing leases and leveraged leases       2,817.5         2,852.9  2,625.2
 2,685.8
Total commercial       23,247.1         22,970.7  23,789.1
 23,577.9
Consumer loans       6,444.3         6,565.2  5,664.5
 5,536.0
Total finance receivables       29,691.4         29,535.9  
Finance receivables held for sale(1)
       562.0         635.8  
Finance receivables and held for sale receivables(1)
     $30,253.4       $30,171.7  
Total loans29,453.6
 29,113.9
Loans held for sale(1)
1,085.9
 1,095.7
Loans and held for sale loans(1)
$30,539.5
 $30,209.6
(1) 
AssetsLoans held for sale includes finance receivables and operating lease equipmentloans primarily related to portfolios in Commercial Banking, Consumer Banking and the China portfolio in NSP.Non-Strategic Portfolios ("NSP"). As discussed in subsequent tables, since the Company manages the credit risk and collections of finance receivablesloans held for sale consistently with its finance receivablesloans held for investment, the aggregate amount is presented in this table.


The following table presents finance receivables,loans, excluding assetsloans held for sale, by segment, based on obligor location:

Finance Receivables (dollars in millions)

Loans (dollars in millions)
Loans (dollars in millions)
   
    March 31, 2017
   December 31, 2016
   March 31, 2018 December 31, 2017
    Domestic
   Foreign
   Total
   Domestic
   Foreign
   Total
Domestic Foreign Total Domestic Foreign Total
Commercial Banking     $20,897.0       $1,981.6       $22,878.6       $20,440.7       $2,121.6       $22,562.3  $21,693.8
 $1,652.1
 $23,345.9
 $21,368.7
 $1,790.6
 $23,159.3
Consumer Banking(1)
       6,812.8         –          6,812.8         6,973.6         –          6,973.6  6,107.7
 —
 6,107.7
 5,954.6
 —
 5,954.6
Total     $27,709.8       $1,981.6       $29,691.4       $27,414.3       $2,121.6       $29,535.9  $27,801.5
 $1,652.1
 $29,453.6
 $27,323.3
 $1,790.6
 $29,113.9
(1) 
The Consumer Banking segment includes certain commercial loans, primarily consisting of a portfolio of Small Business Administration (SBA)("SBA") loans. These loans are excluded from the Consumer loan balance and included in the Commercial loan balances in the tables throughout this note.


The following table presents selected components of the net investment in finance receivables:loans:

Components of Net Investment in Finance Receivables (dollars in millions)

Components of Net Investment in Loans (dollars in millions)
Components of Net Investment in Loans (dollars in millions)
   
    March 31,
2017
   December 31,
2016
March 31,
2018		 December 31,
2017
Unearned income     $(724.4)       $(727.1)  $(726.8) $(727.8)
Unamortized premiums / (discounts)       (29.4)         (31.0)  9.4
 3.7
Accretable yield on Purchased Credit-Impaired (“PCI”) loans       (1,233.7)         (1,261.4)  (1,016.3) (1,063.7)
Net unamortized deferred costs and (fees)(1)
       57.5         55.8  69.6
 68.7
(1) 
Balance relates to the Commercial Banking segment.


Certain of the following tables present credit-related information at the “class” level in accordance with ASC 310-10-50,Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses. A class is generally a disaggregation of a portfolio segment. In determining the classes, CIT considered the finance receivableloan characteristics and methods it applies in monitoring and assessing credit risk and performance.


Credit Quality Information


Commercial obligor risk ratings are reviewed on a regular basis by Credit Risk Management and are adjusted as necessary for updated information affecting the borrowers’ ability to fulfill their obligations.


The following table summarizes commercial finance receivablesloans by the risk ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. The consumer loan risk profiles are different from commercial loans, and use loan-to-value (“LTV”) ratios in rating the credit quality, and therefore are presented separately below.



14 CIT GROUP INC
Item 1.  Consolidated Financial Statements


Table of Contents

CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

Commercial Finance and Held for Sale Receivables — Risk Rating by Class / Segment (dollars in millions)

Grade:     Pass
   Special
Mention
   Classified-
accruing
   Classified-
non-accrual
   PCI Loans
   Total
March 31, 2017
                                                                        
Commercial Banking
                                                                             
Commercial Finance           $7,971.2       $676.2       $1,111.8       $169.4       $41.5       $9,970.1  
Real Estate Finance             5,227.4         242.9         115.1         3.7         66.3         5,655.4  
Business Capital             6,821.7         360.0         241.7         60.8         –          7,484.2  
Rail             89.7         13.5         1.5         –          –          104.7  
Total Commercial Banking             20,110.0         1,292.6         1,470.1         233.9         107.8       �� 23,214.4  
Consumer Banking
                                                                             
Other Consumer Banking             335.6         4.7         25.5         –          2.7         368.5  
Total Consumer Banking             335.6         4.7         25.5         –          2.7         368.5  
Non- Strategic Portfolios
             108.9         27.8         16.7         8.7         –          162.1  
Total
           $20,554.5       $1,325.1       $1,512.3       $242.6       $110.5       $23,745.0  
December 31, 2016
                                                                        
Commercial Banking
                                                                             
Commercial Finance           $8,184.7       $677.6       $1,181.7       $188.8       $42.7       $10,275.5  
Real Estate Finance             5,191.4         168.7         115.6         20.4         70.5         5,566.6  
Business Capital             6,238.7         422.0         271.7         41.7         –          6,974.1  
Rail             88.7         14.1         0.9         –          –          103.7  
Total Commercial Banking             19,703.5         1,282.4         1,569.9         250.9         113.2         22,919.9  
Consumer Banking
                                                                             
Other Consumer Banking             374.9         8.3         22.4         –          2.8         408.4  
Total Consumer Banking             374.9         8.3         22.4         –          2.8         408.4  
Non- Strategic Portfolios
             143.7         36.9         19.1         10.3         –          210.0  
Total
           $20,222.1       $1,327.6       $1,611.4       $261.2       $116.0       $23,538.3  

Commercial Loans and Held for Sale Loans — Risk Rating by Class / Segment (dollars in millions)
Grade:Pass 
Special
Mention
 
Classified-
accruing
 
Classified-
non-accrual
 PCI Loans Total
March 31, 2018 
  
  
  
  
  
Commercial Banking 
                    
Commercial Finance$8,020.5
 $641.1
 $1,189.0
 $153.2
 $10.4
 $10,014.2
Real Estate Finance5,158.3
 241.2
 183.8
 —
 39.2
 5,622.5
Business Capital7,192.3
 246.1
 263.5
 45.6
 —
 7,747.5
Rail120.8
 2.5
 1.8
 —
 —
 125.1
Total Commercial Banking20,491.9
 1,130.9
 1,638.1
 198.8
 49.6
 23,509.3
Consumer Banking 
                    
Other Consumer Banking(1)
398.9
 4.2
 37.9
 —
 2.2
 443.2
Total Consumer Banking398.9
 4.2
 37.9
 —
 2.2
 443.2
Non- Strategic Portfolios31.5
 9.6
 5.2
 12.2
 —
 58.5
Total$20,922.3
 $1,144.7
 $1,681.2
 $211.0
 $51.8
 $24,011.0
December 31, 2017 
  
  
  
  
  
Commercial Banking 
                    
Commercial Finance$8,284.1
 $640.9
 $981.9
 $134.8
 $10.6
 $10,052.3
Real Estate Finance5,228.1
 139.9
 174.3
 2.8
 45.1
 5,590.2
Business Capital7,028.6
 269.2
 228.8
 53.2
 —
 7,579.8
Rail100.6
 2.0
 1.2
 —
 —
 103.8
Total Commercial Banking20,641.4
 1,052.0
 1,386.2
 190.8
 55.7
 23,326.1
Consumer Banking 
                    
Other Consumer Banking(1)
378.5
 5.9
 31.9
 —
 2.2
 418.5
Total Consumer Banking378.5
 5.9
 31.9
 —
 2.2
 418.5
Non- Strategic Portfolios35.7
 7.6
 10.2
 9.8
 —
 63.3
Total$21,055.6
 $1,065.5
 $1,428.3
 $200.6
 $57.9
 $23,807.9
(1) Other Consumer Banking loans consisted of SBA loans.

For consumer loans, the Company monitors credit risk based on indicators such as delinquencies and LTV, which the Company believes are relevant credit quality indicators.


LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.


The following table provides a summary of the consumer portfolio credit quality. The amounts represent the carrying value, which differ from unpaid principal balances, and include the premiums or discounts and the accretable yield and non-accretable difference for PCI loans recorded in purchase accounting. Included in the consumer finance receivablesloans are “covered loans” for which the Company can be reimbursed for a substantial portion of future losses under the terms of loss sharing agreements with the FDIC if losses occur withinFDIC. Covered loans are limited to the indemnification period. As of March 31, 2017 and December 31, 2016, the carrying value of the indemnification asset for covered single family residential and reverse mortgage loans totaled $207 million and $233 million, respectively, under the IndyMac Transaction. No indemnification asset was recognized in connection with the First Federal or La Jolla Transaction. The indemnification asset is measured on the same basis of accounting as the covered loans (e.g., as PCI loans under the effective yield method).Legacy Consumer Mortgage ("LCM") division. Covered loans are further discussed in our Form 10-K for the year ended December 31, 2016,2017, Note 5 — Indemnification Assets.

Covered loans are limited to the Consumer Banking LCM division.

Included in the consumer loan balances as of March 31, 20172018 and December 31, 2016,2017, were loans with terms that permitted negative amortization with an unpaid principal balance of $709$452 million and $761$484 million, respectively.



Item 1.CIT GROUP INC. 15
Table of Contents
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements 15
(Unaudited)


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The table below summarizes the Consumerconsumer loan LTV distribution and the covered loan held for investment balances as of March 31, 20172018 and December 31, 2016.

2017 for single family residential mortgage loans.

Consumer Loan LTV Distribution (dollars in millions)

     Single Family Residential
   Reverse Mortgage
   
                 Total
Single
Family		   Covered
Loans		         Total
Reverse		   Total
Consumer
     Covered Loans
   Non-covered Loans
         Non-covered Loans
         
LTV Range     Non-PCI
   PCI
   Non-PCI
   PCI
   Residential
   Non-PCI
   Non-PCI
   PCI
   Mortgages
   Loans
March 31, 2017
                                                                                                                    
Greater than 125%           $2.1       $235.9       $9.8       $–        $247.8       $0.8       $9.0       $31.1       $40.9       $288.7  
101% – 125%             5.4         398.0         8.3         –          411.7         1.4         12.5         7.5         21.4         433.1  
80% – 100%             180.3         593.5         41.5         –          815.3         23.2         42.4         8.0         73.6         888.9  
Less than 80%             1,487.1         880.0         1,736.3         7.3         4,110.7         405.1         307.4         10.3         722.8         4,833.5  
Not Applicable(1)
             –          –          0.1         –          0.1         –          –          –          –          0.1  
Total           $1,674.9       $2,107.4       $1,796.0       $7.3       $5,585.6       $430.5       $371.3       $56.9       $858.7       $6,444.3  
December 31, 2016
                                                                                                                             
Greater than 125%           $2.2       $261.4       $12.3       $–        $275.9       $0.6       $8.8       $33.8       $43.2       $319.1  
101% – 125%             4.7         443.7         13.6  ��      –          462.0         1.2         12.7         7.9         21.8         483.8  
80% – 100%             226.6         588.1         40.5         –          855.2         24.0         42.3         7.5         73.8         929.0  
Less than 80%             1,515.6         872.4         1,713.1         9.2         4,110.3         405.4         304.9         9.8         720.1         4,830.4  
Not Applicable(1)
             –          –          2.9         –          2.9         –          –          –          –          2.9  
Total           $1,749.1       $2,165.6       $1,782.4       $9.2       $5,706.3       $431.2       $368.7       $59.0       $858.9       $6,565.2  
Consumer Loan LTV Distribution (dollars in millions)
 Single Family Residential   
 Covered Loans Non-covered Loans 
Total
Consumer
Loans
 
LTV RangeNon-PCI PCI Non-PCI PCI  
March 31, 2018 
  
  
  
  
 
Greater than 125%$3.5
 $145.7
 $5.8
 $—
 $155.0
 
101% – 125%6.0
 260.4
 4.8
 —
 271.2
 
80% – 100%58.1
 538.3
 178.9
 —
 775.3
 
Less than 80%1,254.5
 895.0
 2,304.9
 7.8
 4,462.2
 
Not Applicable(1)
—
 —
 0.8
 —
 0.8
 
Total$1,322.1
 $1,839.4
 $2,495.2
 $7.8
 $5,664.5
 
December 31, 2017 
                 
Greater than 125%$2.7
 $160.0
 $7.7
 $—
 $170.4
 
101% – 125%6.4
 291.5
 4.4
 —
 302.3
 
80% – 100%77.4
 566.2
 137.3
 —
 780.9
 
Less than 80%1,306.1
 878.1
 2,089.7
 7.7
 4,281.6
 
Not Applicable(1)
—
 —
 0.8
 —
 0.8
 
Total$1,392.6
 $1,895.8
 $2,239.9
 $7.7
 $5,536.0
 
(1) Certain Consumer Loans do not have LTV's.
          
(1)
Certain Consumer Loans do not have LTV’s, including the Credit Card portfolio.

16   CIT GROUP INC


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Past Due and Non-accrual Loans


The table that follows presents portfolio delinquency status, regardless of accrual/non-accrual classification:

Past Due Finance and Held for Sale Receivables (dollars in millions)

    Past Due
   
    30–59 Days
Past Due
   60–89 Days
Past Due
   90 Days or
Greater
   Total
Past Due
   Current(1)
   PCI Loans(2)
   Total
March 31, 2017
                                                                             
Loans and Held for Sale Loans - Delinquency Status (dollars in millions)
Loans and Held for Sale Loans - Delinquency Status (dollars in millions)
Past Due        
30–59 Days
Past Due
 
60–89 Days
Past Due
 
90 Days or
Greater
 
Total
Past Due
 
Current(1)
 
PCI Loans(2)
 Total
March 31, 2018 
  
  
  
  
  
  
Commercial Banking
                                 
Commercial Finance     $29.9       $–        $34.0       $63.9       $9,864.7       $41.5       $9,970.1  $17.5
 $—
 $43.8
 $61.3
 $9,942.5
 $10.4
 $10,014.2
Real Estate Finance       4.4         –          –          4.4         5,584.7         66.3         5,655.4  10.4
 2.9
 4.1
 17.4
 5,565.9
 39.2
 5,622.5
Business Capital       109.7         47.3         21.1         178.1         7,306.1         –          7,484.2  135.8
 24.3
 18.0
 178.1
 7,569.4
 —
 7,747.5
Rail       9.6         0.6         0.7         10.9         93.8         –          104.7  6.5
 0.9
 0.8
 8.2
 116.9
 —
 125.1
Total Commercial Banking       153.6         47.9         55.8         257.3         22,849.3         107.8         23,214.4  170.2
 28.1
 66.7
 265.0
 23,194.7
 49.6
 23,509.3
Consumer Banking
                  
                        
Legacy Consumer Mortgages       18.6         5.1         35.5         59.2         2,503.5         2,171.5         4,734.2  79.5
 7.3
 38.2
 125.0
 2,091.3
 1,847.2
 4,063.5
Other Consumer Banking       0.7         –          0.7         1.4         2,138.6         2.7         2,142.7  137.5
 4.4
 0.3
 142.2
 2,763.8
 2.2
 2,908.2
Total Consumer Banking       19.3         5.1         36.2         60.6         4,642.1         2,174.2         6,876.9  217.0
 11.7
 38.5
 267.2
 4,855.1
 1,849.4
 6,971.7
Non-Strategic Portfolios
       3.5         1.5         6.5         11.5         150.6         –          162.1  0.7
 —
 12.2
 12.9
 45.6
 —
 58.5
Total     $176.4       $54.5       $98.5       $329.4       $27,642.0       $2,282.0       $30,253.4  $387.9
 $39.8
 $117.4
 $545.1
 $28,095.4
 $1,899.0
 $30,539.5
December 31, 2016
                 
December 31, 2017 
                        
Commercial Banking
                                                                              
  
  
  
  
  
  
Commercial Finance     $21.4       $–        $17.6       $39.0       $10,193.8       $42.7       $10,275.5  $4.5
 $—
 $49.3
 $53.8
 $9,987.9
 $10.6
 $10,052.3
Real Estate Finance       0.1         –          –          0.1         5,496.0         70.5         5,566.6  8.7
 —
 4.1
 12.8
 5,532.3
 45.1
 5,590.2
Business Capital       143.6         42.4         16.3         202.3         6,771.8         –          6,974.1  172.2
 33.4
 19.1
 224.7
 7,355.1
 —
 7,579.8
Rail       5.9         0.6         2.3         8.8         94.9         –          103.7  3.9
 1.4
 0.8
 6.1
 97.7
 —
 103.8
Total Commercial Banking       171.0         43.0         36.2         250.2         22,556.5         113.2         22,919.9  189.3
 34.8
 73.3
 297.4
 22,973.0
 55.7
 23,326.1
Consumer Banking
Consumer Banking
Consumer Banking
Legacy Consumer Mortgages       22.6         6.1         36.6         65.3         2,563.6         2,233.8         4,862.7  26.7
 7.6
 34.8
 69.1
 2,219.5
 1,903.5
 4,192.1
Other Consumer Banking       7.4         4.9         0.6         12.9         2,163.4         2.8         2,179.1  9.6
 0.5
 0.4
 10.5
 2,615.4
 2.2
 2,628.1
Total Consumer Banking       30.0         11.0         37.2         78.2         4,727.0         2,236.6         7,041.8  36.3
 8.1
 35.2
 79.6
 4,834.9
 1,905.7
 6,820.2
Non-Strategic Portfolios
       3.0         1.1         7.0         11.1         198.9         –          210.0  1.8
 7.7
 9.4
 18.9
 44.4
 —
 63.3
Total     $204.0       $55.1       $80.4       $339.5       $27,482.4       $2,349.8       $30,171.7  $227.4
 $50.6
 $117.9
 $395.9
 $27,852.3
 $1,961.4
 $30,209.6
(1) 
Due to their nature, reverse mortgage loans are included in Current, as they do not have contractual payments due at a specified time. During the current quarter, an immaterial error was discovered and corrected relating to the December 31, 2017 Current balance for Legacy Consumer Mortgage; which was understated by $861 million, and the Current balance for Other Consumer Banking, which was overstated by $861 million. The current presentation reflects the revised Current balances at December 31, 2017.
(2) 
PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be collectible. Accordingly, such loans are no longer classified as past due or non-accrual even though they may be contractually past due as we expect to fully collect the new carrying values of these loans.values.

16 Item 1.  Consolidated Financial Statements  17


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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

The following table sets forth non-accrual loans, assets received in satisfaction of loans (OREO and repossessed assets) and loans 90 days or more past due and still accruing.

Finance Receivables on Non-Accrual Status (dollars in millions)(1)

Loans on Non-Accrual Status (dollars in millions)(1)
Loans on Non-Accrual Status (dollars in millions)(1)
   
    March 31, 2017
   December 31, 2016
   March 31, 2018 December 31, 2017
    Held for
Investment
   Held for
Sale
   Total
   Held for
Investment
   Held for
Sale
   Total
Held for
Investment
 
Held for
Sale
 Total 
Held for
Investment
 
Held for
Sale
 Total
Commercial Banking
                                                                   
  
  
  
  
  
Commercial Finance     $158.5       $10.9       $169.4       $156.7       $32.1       $188.8  $153.2
 $—
 $153.2
 $134.8
 $—
 $134.8
Real Estate Finance       3.7         –          3.7         20.4         –          20.4  —
 —
 —
 2.8
 —
 2.8
Business Capital       60.8         –          60.8         41.7         –          41.7  45.6
 —
 45.6
 53.2
 —
 53.2
Total Commercial Banking       223.0         10.9         233.9         218.8         32.1         250.9  198.8
 —
 198.8
 190.8
 —
 190.8
Consumer Banking
                  
                    
Legacy Consumer Mortgages       15.9         –          15.9         17.3         –          17.3  25.2
 —
 25.2
 19.9
 —
 19.9
Other Consumer Banking       0.3         –          0.3         0.1         –          0.1  0.3
 —
 0.3
 0.4
 —
 0.4
Total Consumer Banking       16.2         –          16.2         17.4         –          17.4  25.5
 —
 25.5
 20.3
 —
 20.3
Non-Strategic Portfolios
       –          8.7         8.7         –          10.3         10.3  —
 12.2
 12.2
 —
 9.8
 9.8
Total     $239.2       $19.6       $258.8       $236.2       $42.4       $278.6  $224.3
 $12.2
 $236.5
 $211.1
 $9.8
 $220.9
Repossessed assets and OREO                             79.8                               72.7   
  
 45.6
  
  
 54.6
Total non-performing assets                           $338.6                             $351.3   
  
 $282.1
  
  
 $275.5
Commercial loans past due 90 days or more accruingCommercial loans past due 90 days or more accruing             $4.3                             $7.2  Commercial loans past due 90 days or more accruing  
 $9.9
  
  
 $11.7
Consumer loans past due 90 days or more accruingConsumer loans past due 90 days or more accruing               22.2                               24.8  Consumer loans past due 90 days or more accruing  
 17.1
  
  
 20.2
Total Accruing loans past due 90 days or moreTotal Accruing loans past due 90 days or more             $26.5                             $32.0  Total Accruing loans past due 90 days or more  
 $27.0
  
  
 $31.9
(1) 
Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual loan balances,balances; however factored receivables are considered for credit provisioning purposes.


Payments received on non-accrual financing receivables are generally applied first against outstanding principal, though in certain instances where the remaining recorded investment is deemed fully collectible, interest income is recognized on a cash basis. Reverse mortgages are not included in the non-accrual balances.


The table below summarizes the residential mortgage loans in the process of foreclosure and OREO:

Loans in Process of Foreclosure (dollars in millions)

      March 31,
2017
   December 31,
2016
PCI           $190.8       $201.7  
Non-PCI             107.8         106.3  
Loans in process of foreclosure           $298.6       $308.0  
OREO           $66.3       $69.9  
 

18   CIT GROUP INC
Loans in Process of Foreclosure and OREO (dollars in millions)(1)
    
 March 31,
2018		 December 31,
2017
PCI$134.5
 $133.7
Non-PCI138.2
 140.9
Loans in process of foreclosure$272.7
 $274.6
OREO$43.1
 $52.1
(1)
As of March 31, 2018 and December 31, 2017, the table included $120.4 million and $122.5 million of reverse mortgage loans in the process of foreclosure and $17.2 million and $21.0 million of reverse mortgage OREO, respectively.


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Impaired Loans


The Company’s policy is to review for impairment finance receivablesloans greater than $500,000 that are on non-accrual status, as well as short-term factoring receivables greater than $500,000 when events or circumstances indicate that it is probable that CIT will be unable to collect all amounts due according to the contractual terms of the factoring agreement. Small-ticket loan and lease receivables that have not been modified in a restructuring are included (if appropriate) in the reported non-accrual balances above, but are excluded from the impaired finance receivablesloans disclosure below as charge-offs are typically determined and recorded for such loans when they are more than 90 – 150 days past due.


The following table contains information about impaired finance receivablesloans and the related allowance for loan losses by class, exclusive of finance receivablesclass. Impaired loans exclude PCI loans. Loans that were identified as impaired at the date of the OneWest Transaction (the “Acquisition Date”) for which the Company is applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality), whichare not included in the following table but are disclosed further below in this note. Impaired loans exclude PCI loans.Loans Acquired with Deteriorated Credit Quality.




Impaired Loans (dollars in millions)
CIT GROUP INC. 17

              Average Recorded Investment(3)
   
     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Quarter Ended
March 31, 2017
   Quarter Ended
March 31, 2016
March 31, 2017
                                                             
With no related allowance recorded:
                                                                 
Commercial Banking
                                                             
Commercial Finance           $64.5       $75.8       $–        $59.4       $12.8  
Business Capital             9.4         10.6         –          4.9         7.0  
Real Estate Finance             0.7         0.7         –          0.7         2.2  
With an allowance recorded:
                                                             
Commercial Banking
                                                                 
Commercial Finance             134.8         134.9         23.8         138.9         120.5  
Business Capital             27.7         27.8         15.3         17.2         11.3  
Real Estate Finance             3.0         3.0         0.4         9.8         1.6  
Total Impaired Loans(1)
             240.1         252.8         39.5         230.9         155.4  
Total Loans Impaired at Acquisition Date and Convenience Date(2)
             2,282.0         3,329.3         14.8         2,316.0         2,626.3  
Total           $2,522.1       $3,582.1       $54.3       $2,546.9       $2,781.7  
December 31, 2016
                                                             
With no related allowance recorded:
                                                                 
Commercial Banking
                                                             
Commercial Finance           $54.3       $72.2       $–        $29.5             
Business Capital             0.5         1.8         –          5.1             
Real Estate Finance             0.7         0.7         –          1.3             
With an allowance recorded:
                                                             
Commercial Banking
                                                                 
Commercial Finance             143.0         146.2         25.5         132.1             
Business Capital             6.6         6.6         4.2         8.2             
Real Estate Finance             16.7         16.8         4.0          5.2             
Total Impaired Loans(1)
             221.8         244.3         33.7         181.4             
Total Loans Impaired at Acquisition Date and Convenience Date(2)
             2,349.8         3,440.7         13.6         2,504.4             
Total           $2,571.6       $3,685.0       $47.3       $2,685.8             
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Impaired Loans (dollars in millions)
        
       
Average Recorded Investment(3)
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 Quarter Ended March 31, 2018 Quarter Ended March 31, 2017
March 31, 2018 
  
  
  
  
With no related allowance recorded: 
                
Commercial Banking 
  
  
  
  
Commercial Finance$90.6
 $136.7
 $—
 $71.3
 $59.4
Business Capital10.9
 13.0
 —
 11.3
 4.9
Real Estate Finance—
 —
 —
 —
 0.7
With an allowance recorded: 
  
  
  
  
Commercial Banking 
                
Commercial Finance74.8
 80.3
 21.4
 85.3
 138.9
Business Capital7.9
 7.9
 3.9
 9.2
 17.2
Real Estate Finance—
 —
 —
 1.4
 9.8
Total Impaired Loans(1)
184.2
 237.9
 25.3
 178.5
 230.9
Total Loans Impaired at Acquisition Date(2)
1,899.0
 2,778.5
 19.2
 1,930.2
 2,316.0
Total$2,083.2
 $3,016.4
 $44.5
 $2,108.7
 $2,546.9
          
December 31, 2017 
  
  
  
  
With no related allowance recorded: 
                
Commercial Banking 
  
  
  
  
Commercial Finance$51.9
 $72.7
 $—
 $59.9
  
Business Capital11.7
 13.4
 —
 5.7
  
Real Estate Finance—
 —
 —
 0.4
  
With an allowance recorded: 
  
  
  
  
Commercial Banking 
                
Commercial Finance95.9
 96.1
 21.3
 136.6
  
Business Capital10.5
 10.5
 4.3
 14.2
  
Real Estate Finance2.7
 2.8
 0.4
 5.6
  
Total Impaired Loans(1)
172.7
 195.5
 26.0
 222.4
  
Total Loans Impaired at Acquisition Date(2)
1,961.4
 2,870.2
 19.1
 2,168.8
  
Total$2,134.1
 $3,065.7
 $45.1
 $2,391.2
  
(1) 
There was no interestInterest income recorded for the three monthsquarter ended March 31, 20172018 while the loans were impaired.impaired was $0.3 million of which none was recognized using the cash-basis method of accounting. Interest income recorded for the year ended December 31, 20162017 while the loans were impaired was $1.6$2.4 million, of which $0.6 millionnone was interest recognized using the cash-basis method of accounting, respectively.accounting.
(2) 
Details of finance receivablesloans that were identified as impaired at the Acquisition Date are presented under Loans Acquired with Deteriorated Credit Quality.
(3) 
Average recorded investment for the quarterquarters ended March 31, 2017,2018, and March 31, 20162017 and year ended December 31, 2016.2017.

Item 1.  Consolidated Financial Statements  19


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loans Acquired with Deteriorated Credit Quality


For purposes of this presentation, theThe Company is applyingapplied the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans that were identified as impaired as of the Acquisition Date. PCI loans were initially recorded at estimated fair value with no allowance for loan losses carried over, since the initial fair values reflected credit losses expected to be incurred over the remaining lives of the loans. The acquired loans are subject to the Company’s internal credit review. SeeNote 4 — Allowance for Loan Losses.



Purchased Credit Impaired Loans(1) (dollars in millions)
18 Item 1.  Consolidated Financial Statements

March 31, 2017     Unpaid
Principal
Balance
   Carrying
Value
   Allowance
for Loan
Losses
Commercial Banking
                                       
Commercial Finance           $67.9       $41.5       $1.9  
Real Estate Finance             96.8         66.3         5.8  
Consumer Banking
                                         
Other Consumer Banking             3.6         2.7         –   
Legacy Consumer Mortgages             3,161.0         2,171.5         7.1  
            $3,329.3       $2,282.0       $14.8  
December 31, 2016
                                          
Commercial Banking
                                       
Commercial Finance           $70.0       $42.7       $2.4  
Real Estate Finance             108.1         70.5         4.9  
Consumer Banking
                                         
Other Consumer Banking             3.7         2.8         –   
Legacy Consumer Mortgages             3,258.9         2,233.8         6.3  
            $3,440.7       $2,349.8       $13.6  
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(1)
 PCI loans from prior transactions were not significant and are not included.

CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Purchased Credit Impaired Loans (dollars in millions)
      
March 31, 2018
Unpaid
Principal
Balance
 
Carrying
Value
 
Allowance
for Loan
Losses
Commercial Banking 
  
  
Commercial Finance$16.3
 $10.4
 $0.8
Real Estate Finance49.4
 39.2
 7.0
Consumer Banking 
        
Other Consumer Banking2.8
 2.2
 —
Legacy Consumer Mortgages2,710.0
 1,847.2
 11.4
 $2,778.5
 $1,899.0
 $19.2
December 31, 2017           
Commercial Banking 
  
  
Commercial Finance$16.4
 $10.6
 $0.7
Real Estate Finance60.1
 45.1
 7.0
Consumer Banking 
        
Other Consumer Banking3.0
 2.2
 —
Legacy Consumer Mortgages2,790.7
 1,903.5
 11.4
 $2,870.2
 $1,961.4
 $19.1

The following table summarizes the carrying value of commercial PCI loans within Commercial Banking, which are monitored for credit quality based on internal risk classifications. See previous table Consumer Loan LTV DistributionsDistribution for credit quality metrics on consumer PCI loans.

     March 31, 2017
   December 31, 2016
   
(dollars in millions)     Non-
criticized
   Criticized
   Total
   Non-
criticized
   Criticized
   Total
Commercial Finance           $5.1       $36.4       $41.5       $5.4       $37.3       $42.7  
Real Estate Finance             32.9         33.4         66.3         35.6         34.9         70.5  
Total           $38.0       $69.8       $107.8       $41.0       $72.2       $113.2  

 March 31, 2018 December 31, 2017
(dollars in millions)
Non-
criticized
 Criticized Total 
Non-
criticized
 Criticized Total
Commercial Finance$—
 $10.4
 $10.4
 $—
 $10.6
 $10.6
Real Estate Finance20.4
 18.8
 39.2
 21.8
 23.3
 45.1
Total$20.4
 $29.2
 $49.6
 $21.8
 $33.9
 $55.7

Non-criticized loans generally include loans that are expected to be repaid in accordance with contractual loan terms. Criticized loans are risk rated as special mention or classified.


Accretable Yield


The excess of cash flows expected to be collected over the recorded investment (estimated fair value at acquisition) of the PCI loans represents the accretable yield and is recognized in interest income on an effective yield basis over the remaining life of the loan, or pools of loans. The accretable yield is adjusted for changes in interest rate indices for variable rate PCI loans, changes in prepayment assumptions and changes in expected principal and interest payments and collateral values. Further, if a loan within a pool of loans is modified, the modified loan remains part of the pool of loans. The difference between

See CIT's Annual Report on Form 10-K for the cash flows contractually required to be paid, measured asyear ended December 31, 2017, Note 1 — Business and Summary of the Acquisition Date, over the expected cash flows is referred to as the non-accretable difference.Significant Accounting Policies for further details.

20   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Subsequent to acquisition, we evaluate our estimates of the cash flows expected to be collected on a quarterly basis. Probable and significant decreases in expected cash flows as a result of further credit deterioration result in a charge to the provision for credit losses and a corresponding increase to the allowance for credit losses. Probable and significant increases in expected cash flows due to improved credit quality result in reversal of any previously recorded allowance for loan losses, to the extent applicable, and an increase in the accretable yield applied prospectively for any remaining increase. Changes in expected cash flows caused by changes in market interest rates or by prepayments are recognized as adjustments to the accretable yield on a prospective basis.

Changes in the accretable yield for PCI loans are summarized below for the quarters ended March 31, 2017 and March 31, 2016.below.

(dollars in millions)
Quarter Ended
March 31, 2017
Balance at December 31, 2016Change in Accretable Yield (dollars in millions)
  $1,261.4
Accretion into interest income(52.6)  
Reclassification from non-accretable difference33.4
Disposals and Other(8.5)  
Balance at March 31, 2017
  $1,233.7

Quarter Ended
March 31, 2016
 Quarters Ended March 31,
 2018 2017
Balance, beginning of period$1,063.7
 $1,261.4
Accretion into interest income(44.0) (52.6)
Reclassification from non-accretable difference0.5
 33.4
Disposals and Other(3.9) (8.5)
Balance, end of period$1,016.3
 $1,233.7

Balance at December 31, 2015
  $1,299.1
Accretion into interest income(53.0)  
Reclassification from non-accretable difference54.6
Disposals and Other(19.3)  
Balance at March 31, 2016
  $1,281.4

Troubled Debt RestructuringsRestructuring


The Company periodically modifies the terms of finance receivablesloans in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs).

Modified loans that meet See the definition of a TDR are subject toCompany's Annual Report on Form 10-K for the Company’s standard impaired loan policy, namely that non-accrual loans in excess of $500,000 are individually reviewed for impairment, while non-accrual loans less than $500,000 are considered as part of homogenous pools and are included in the determination of the non-specific allowance.

We may require some consumer borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. The planned modifications for these arrangements predominantly involve interest rate reductions or other interest rate concessions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury’s Making Homes Affordable (“MHA”) programs for real estate 1-4 family first lien (i.e., Home Affordable Modification Program — HAMP) and junior lien (i.e., Second Lien Modification Program — 2MP) mortgage loans. HAMP and other MHA programs expired onyear ended December 31, 2016 (the last day to submit an application).2017 for discussion of policies on TDRs.


At March 31, 2017,2018, the loans in trial modification period were $20.1 million under HAMP, $0.2 million under 2MP and $8.9$7.9 million under proprietary programs. Trial modifications with a recorded investment of $27.4$7.7 million at March 31, 20172018 were accruing loans and $1.8$0.2 million were non-accruing loans. At December 31, 2016,2017, the loans in trial modification period were $36.4$0.3 million under HAMP, $0.1 million under 2MPthe Home Affordable Modification Program ("HAMP") and $3.0$12.2 million under proprietary programs. Trial modifications with a recorded investment of $38.1$12.3 million at

CIT GROUP INC. 19
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

December 31, 20162017, were accruing loans and $1.4$0.2 million were non-accruing loans. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.


The recorded investment of TDRs, excluding those classified as PCI and those within a trial modification period discussed in the preceding paragraph, at March 31, 20172018 and December 31, 20162017 was $114.1$94.4 million and $82.3$103.5 million, of which 53%61% and 41%63%, respectively, were on non-accrual. See the preceding paragraph on discussion related to TDRs in a trial modification period. Commercial Banking and Consumer Banking receivables accounted for 88%81% and 12%19% of the total TDRs, respectively, at March 31, 2017.2018. Commercial Banking and Consumer Banking receivables accounted for 85%83.0% and 15%17.0% of the total TDRs, respectively at December 31, 2016.2017. There were $4.8$15.7 million and $5.4$13.4 million as of March 31, 20172018 and December 31, 2016,2017, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.

Item 1.  Consolidated Financial Statements  21


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The recorded investment related to modifications qualifying as TDRs that occurred during the quarters ended March 31, 2018 and 2017 and 2016 were $34.1$36.5 million and $16.1$34.1 million, respectively. The recorded investment as of March 31, 20172018 and 20162017 of TDRs that experienceexperienced a payment default (payment default is one missed payment), during the quarters ended March 31, 20172018 and 2016,2017, and for which the payment default occurred within one year of the modification totaled $1.2$1.6 million and $5.9$1.2 million, respectively. The defaults that occurred during the current quarter and year to date related to Commercial Banking and Consumer Banking.Banking, 74% and 26%, respectively.


The financial impact of the various modification strategies that the Company employs in response to borrower difficulties is described below. While the discussion focuses on the 2017March 31, 2018 amounts, the overall nature and impact of modification programs were comparable in the prior year.


n
▪The nature of modifications qualifying as TDR’s based upon recorded investment at March 31, 20172018 was comprised of payment deferrals for 38%27% and covenant relief and/or other for 62%73%. December 31, 20162017 TDR recorded investment was comprised of payment deferrals for 12%31% and covenant relief and/or other for 88%69%.
n
▪Payment deferrals result in lower net present value of cash flows, if not accompanied by additional interest or fees, and increased provision for credit losses to the extent applicable. The financial impact of these modifications is not significant given the moderate length of deferral periods.
n
▪Interest rate reductions result in lower amounts of interest being charged to the customer, but are a relatively small part of the Company’s restructuring programs. Additionally, in some instances, modifications improve the Company’s economic return through increased interest rates and fees, but are reported as TDRs due to assessments regarding the borrowers’ ability to independently obtain similar funding in the market and assessments of the relationship between modified rates and terms and comparable market rates and terms. The weighted average change in interest rates for all TDRs occurring during the quarters ended March 31, 20172018 and 20162017 was not significant.
n
▪Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form of higher charge-offs. While these types of modifications have the greatest individual impact on the allowance, the amounts of principal forgiveness for TDRs occurring during quarters ended March 31, 20172018 and 20162017 was not significant, as debt forgiveness is a relatively small component of the Company’s modification programs.
n
▪The other elements of the Company’s modification programs that are not TDRs, do not have a significant impact on financial results given their relative size, or do not have a direct financial impact, as in the case of covenant changes.


Reverse Mortgages

Consumer loans
At March 31, 2018 and December 31, 2017 reverse mortgages of $860.5 million and $861.0 million, respectively, were classified as assets held-for-sale within continuing operations include an outstanding balancerelated to the Financial Freedom Transaction, of $858.7which $716.8 million and $858.9$724.7 million, at March 31, 2017 and December 31, 2016, respectively, related to the uninsured proprietary reverse mortgage portfolio, of which $768.3 millionloans and $769.6 million at March 31, 2017 and December 31, 2016, respectively, was uninsured.the remaining related to FHA-insured HECM loans.


The uninsured proprietary reverse mortgage portfolio consists of approximately 1,7001,500 loans with an average borrowers’ age of 83 years old and an unpaid principal balance of $1,018.4$929.4 million and $944.0 million at March 31, 2017. At December 31, 2016, the uninsured reverse mortgage portfolio consisted of approximately 1,700 loans with an average borrowers’ age of 83 years old and an unpaid principal balance of $1,027.9 million. The realizable collateral value (the lower of the collectible principal and interest or the estimated value of the home) exceeds the outstanding book balance at March 31, 20172018 and December 31, 2016.2017, respectively.

As of March
See CIT's Annual Report on Form 10-K for the year ended December 31, 2017, the Company’s estimated future advances to reverse mortgagors are as follows:Note 1 — Business and Summary of Significant Accounting Policies for further details.

Future Advances (dollars in millions)

Year Ending:     
2017           $11.3  
2018             11.4  
2019             9.4  
2020             7.8  
2021             6.4  
Years 2022 – 2026             17.4  
Years 2027 – 2031             5.3  
Years 2032 – 2036             1.4  
Thereafter             0.3  
Total(1),(2)
           $70.7  
(1)
This table does not take into consideration cash inflows including payments from mortgagors or payoffs based on contractual terms.
(2)
This table includes the reverse mortgages supported by the Company as a result of the IndyMac loss-share agreements with the FDIC. As of March 31, 2017, the Company is responsible for funding up to a remaining $57 million of the total amount.

22   CIT GROUP INC


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Serviced Loans


As a result of the OneWest Transaction, theThe Company services Home Equity Conversion Mortgages (“HECM”)HECM reverse mortgage loans sold to AgenciesGovernment Sponsored Enterprises (Fannie Mae) and securitized intoin GNMA HECM mortgage-backed securities (“HMBS”) pools. HECM loans transferred into the HMBS program have not met all the requirements for sale accounting, and therefore, the Company has accounted for these transfers as a financing transaction with the loans remaining on the Company’s statement of financial position and the proceeds received are recorded as a secured borrowing. The pledged loans and secured borrowings are reported in Assets of discontinued operations and Liabilities of discontinued operations, respectively. SeeNote 2 — Discontinued Operations.


As servicer of HECM loans, the Company is required to repurchase loans out of the HMBS pool upon completion of foreclosure or once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount. Although permitted under the GNMA HMBS program, the Company does not conduct optional repurchases upon the loan reaching a maturity event (i.e., borrower’s death or the property ceases to be the borrower’s principal residence). These HECM loans are repurchased at a price equal to the unpaid principal balance outstanding on the loan plus accrued interest. The repurchase transaction represents extinguishment of debt. As a result,debt classified in discontinued operations. Although permitted under the HECM loan basis and accounting methodology (retrospective effective interest) would carry forward. However, ifGNMA HMBS program, the Company classifies these repurchased loans as assets held for sale (“AHFS”), that classification would resultdoes not conduct optional repurchases upon the loan reaching a maturity event (i.e. borrower's death or the property ceases to be the borrower's principal residence). Upon investor (GNMA) consent to servicing transfer in a new accounting methodology. Loans classified as AHFS are carried at lower of cost or market (“LOCOM”) pending assignment toconnection with the Department of Housing and Urban Development (“HUD”). Loans classified as HFI are not assignable to HUD and are subject to periodic impairment assessment.Financial Freedom Transaction, CIT shall no longer have this obligation. See Note 2 - Discontinued Operations.


In the quarter ended March 31, 2017,2018, the Company repurchased $27.9$23.9 million (unpaid principal balance) of additional HECM loans, all of which $21.8 million were classified as AHFSAHFS. As of March 31, 2018, the Company had an outstanding balance of $143.7 million of

20 Item 1.  Consolidated Financial Statements
Table of Contents
CIT Group Inc. and the remaining $6.1Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

HECM loans, with unpaid principal balance of $189.3 million, all of which were classified as HFI.AHFS. As of MarchDecember 31, 2017, the Company had an outstanding balance of $131.7$136.3 million of HECM loans, of which $41.5 million (unpaidwith unpaid principal balance) is classified as AHFS with a remaining purchase discount of $0.1 million and $65.3 million is classified as HFI accounted for as PCI loans with an associated remaining purchase discount of $8.4 million. Serviced loans also include $33.5 million that are classified as HFI, which are accounted for under the effective yield method, with no remaining purchase discount. As of December 31, 2016, the Company had an outstanding balance of $122.2$177.6 million, of HECM loans,all of which $32.8 million (unpaid principal balance) were classified as AHFS with a remaining purchase discount of $0.1 million, $68.1 million were classified as HFI accounted for as PCI loans with an associated remaining purchase discount of $9.1 million. Serviced loans also included $30.4 million that were classified as HFI, accounted for under the effective yield method and have no remaining purchase discount.AHFS.



NOTE 4 — ALLOWANCE FOR LOAN LOSSES


The Company maintains an allowance for loan losses for estimated credit losses in its HFI loan portfolio. The allowance is adjusted through a provision for credit losses, which is charged against current period earnings, and reduced by any charge-offs for losses, net of recoveries.

The Company maintains a separate reserve for credit losses on off-balance sheet commitments, which is reported in Other Liabilities. Off-balance sheet credit exposures include items such as unfunded loan commitments, issued standby letters of credit and deferred purchase agreements. The Company’s methodology for assessing the appropriateness of this reserve is similar to the allowance process for outstanding loans.

Item 1.  Consolidated Financial Statements  23


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Allowance for Loan Losses and Recorded Investment in Finance Receivables (dollars in millions)
Allowance for Loan Losses and Recorded Investment in Loans (dollars in millions)
            
 Commercial
Banking		 Consumer
Banking		 Total 
Commercial
Banking
 
Consumer
Banking
 Total
 Quarter Ended March 31, 2018 Quarter Ended March 31, 2017
Balance - beginning of period$402.2
 $28.9
 $431.1
 $408.4
 $24.2
 $432.6
Provision for credit losses67.2
 1.6
 68.8
 49.2
 0.5
 49.7
Other(1)
(2.4) —
 (2.4) (6.2) —
 (6.2)
Gross charge-offs(2)
(54.6) (0.5) (55.1) (32.4) (0.6) (33.0)
Recoveries4.8
 0.4
 5.2
 5.0
 0.5
 5.5
Balance - end of period$417.2
 $30.4
 $447.6
 $424.0
 $24.6
 $448.6
 Allowance balance at March 31, 2018 Allowance balance at March 31, 2017
Loans individually evaluated for impairment$25.3
 $—
 $25.3
 $39.5
 $—
 $39.5
Loans collectively evaluated for impairment384.1
 19.0
 403.1
 376.8
 17.5
 394.3
Loans acquired with deteriorated credit quality(3)
7.8
 11.4
 19.2
 7.7
 7.1
 14.8
Allowance for loan losses$417.2
 $30.4
 $447.6
 $424.0
 $24.6
 $448.6
Other reserves(1)
$46.9
 $—
 $46.9
 $49.9
 $—
 $49.9
 Loans at March 31, 2018 Loans at March 31, 2017
Loans individually evaluated for impairment$184.2
 $—
 $184.2
 $240.1
 $—
 $240.1
Loans collectively evaluated for impairment23,112.1
 4,258.3
 27,370.4
 22,530.7
 4,638.6
 27,169.3
Loans acquired with deteriorated credit quality(3)
49.6
 1,849.4
 1,899.0
 107.8
 2,174.2
 2,282.0
Ending balance$23,345.9
 $6,107.7
 $29,453.6
 $22,878.6
 $6,812.8
 $29,691.4
Percent of loans to total loans79.3% 20.7% 100% 77.1% 22.9% 100%

     Commercial
Banking
   Consumer
Banking
   Total
Quarter Ended March 31, 2017
Balance — December 31, 2016           $408.4       $24.2       $432.6  
Provision for credit losses             49.2         0.5         49.7  
Other(1)
             (6.2)         –          (6.2)  
Gross charge-offs(2)
             (32.4)         (0.6)         (33.0)  
Recoveries             5.0         0.5         5.5  
Balance — March 31, 2017           $424.0       $24.6       $448.6  
Allowance balance at March 31, 2017
                                         
Loans individually evaluated for impairment           $39.5       $–        $39.5  
Loans collectively evaluated for impairment             376.8         17.5         394.3  
Loans acquired with deteriorated credit quality(3)
             7.7         7.1         14.8  
Allowance for loan losses           $424.0       $24.6       $448.6  
Other reserves(1)
           $49.9       $–        $49.9  
Finance receivables at March 31, 2017
                                         
Loans individually evaluated for impairment           $240.1       $–        $240.1  
Loans collectively evaluated for impairment             22,530.7         4,638.6         27,169.3  
Loans acquired with deteriorated credit quality(3)
             107.8         2,174.2         2,282.0  
Ending balance           $22,878.6       $6,812.8       $29,691.4  
Percent of loans to total loans             77.1%         22.9%         100%  
     Commercial
Banking
   Consumer
Banking
   Total
Quarter Ended March 31, 2016
Balance — December 31, 2015           $336.7       $10.2       $346.9  
Provision for credit losses             86.4         3.1         89.5  
Other(1)
             (5.0)         1.4         (3.6)  
Gross charge-offs(2)
             (36.1)         (0.7)         (36.8)  
Recoveries             4.0         0.8         4.8  
Balance — March 31, 2016           $386.0       $14.8       $400.8  
Allowance balance at March 31, 2016
Loans individually evaluated for impairment           $40.2       $–        $40.2  
Loans collectively evaluated for impairment             342.8         13.5         356.3  
Loans acquired with deteriorated credit quality(3)
             3.0         1.3         4.3  
Allowance for loan losses           $386.0       $14.8       $400.8  
Other reserves(1)
           $48.1       $0.1       $48.2  
Finance receivables at March 31, 2016
Loans individually evaluated for impairment           $176.7       $–        $176.7  
Loans collectively evaluated for impairment             23,466.1         4,750.0         28,216.1  
Loans acquired with deteriorated credit quality(3)
             136.9         2,419.0         2,555.9  
Ending balance           $23,779.7       $7,169.0       $30,948.7  
Percentage of loans to total loans             76.8%         23.2%         100%  
(1) 
“Other reserves” represents additional credit loss reserves for unfunded lending commitments, letters of credit and for deferred purchase agreements, all of which is recorded in Other liabilities. “Other” also includes changes relating to loans that were charged off and reimbursed by the FDIC under the indemnification provided by the FDIC,allowance for loan losses associated with loan sales and foreign currency translations.
(2) 
Gross charge-offs of amounts specifically reserved in prior periods that were charged directly to the Allowance for loan losses included $14.8$2.6 million and $7.4$14.8 million for the quarterquarters ended March 31, 2018 and 2017, respectively, and March 31, 2016, respectively. The charge-offs related to Commercial Banking for all periods.
(3) 
Represents loans considered impaired as part of the OneWest transaction and are accounted for under the guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality).

24   CIT GROUP INC


CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 5 — INVESTMENT SECURITIES


Investments include debt and equity securities. The Company’s debt
Investment Securities (dollars in millions)
    
 March 31,
2018		 December 31,
2017
Available-for-sale securities 
  
Debt securities$5,564.1
 $6,123.6
Securities carried at fair value with changes recorded in net income 
    
Debt securities—
 0.4
Equity securities(1)
44.1
 44.7
Non-marketable investments(2)
302.3
 301.2
Total investment securities$5,910.5
 $6,469.9
(1) Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, these investments were reclassified from available for sale securities include U.S. Government Agency securities, U.S. Treasury securities, residential mortgage-backed securities (“MBS”),category. For details refer to Note 1 - Business and supranational and foreign government securities. Equity securitiesSummary of Significant Accounting Policies.
(2) Non-marketable investments include common stock and warrants, along with restricted stock inof the FRB and Federal Home Loan Bank (“FHLB”("FHLB") carried at cost of $258.8 million at March 31, 2018, and FRB.$258.9 million at December 31, 2017. The remaining non-marketable investments totaled $43.5 million as of March 31, 2018 and $42.3 million at December 31, 2017. These investments include ownership interests greater than 3% in limited partnership investments including qualified Community Reinvestment Act ("CRA") investments, equity fund holdings and shares issued by customers during loan work out situations or as part of an original loan investments. Investments under the equity method and other equity investments without readily determinable fair values measured under the measurement exception totaled $33.8 million and $9.7 million at March 31, 2018 and $31.6 million and $10.7 million at December 31, 2017 respectively.



Investment Securities (dollars in millions)
CIT GROUP INC. 21

     March 31,
2017
   December 31,
2016
Available-for-sale securities
                            
Debt securities           $3,696.8       $3,674.1  
Equity securities             34.2         34.1  
Held-to-maturity securities
                             
Debt securities(1)
             226.9         243.0  
Securities carried at fair value with changes recorded in net income
                             
Debt securities             268.9         283.5  
Non-marketable investments(2)
             249.5         256.4  
Total investment securities
           $4,476.3       $4,491.1  
Table of Contents
(1)
 Recorded at amortized cost.
(2)
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Non-marketable investments include restricted stock of the FRB and FHLB carried at cost of $231.1 million at March 31, 2017 and $239.7 million at December 31, 2016. The remaining non-marketable investments include ownership interests greater than 3% in limited partnership investments that are accounted for under the equity method, other investments carried at cost, which include qualified Community Reinvestment Act (CRA) investments, equity fund holdings and shares issued by customers during loan work out situations or as part of an original loan investment, totaling $18.4 million and $16.7 million at March 31, 2017 and December 31, 2016, respectively.

Realized investment gains totaled $1.6$6.2 million and $0.7$1.6 million for the quarters ended March 31, 20172018 and 2016,2017 respectively, and exclude losses from OTTI.


In addition, the Company had $5.4$3.9 billion and $5.6$1.4 billion of interest bearing deposits at banks at March 31, 20172018 and December 31, 2016,2017, respectively, which are cash equivalents and are classified separately on the balance sheet.


The following table presents interest and dividends on interest bearing deposits and investments:

Interest and Dividend Income (dollars in millions)

     Quarters Ended March 31,
   
     2017
   2016
Interest income — investments           $27.8       $19.2  
Interest income — interest bearing deposits             12.5         8.4  
Dividends — investments             3.3         3.4  
Total interest and dividends           $43.6       $31.0  
 
Interest and Dividend Income (dollars in millions)
  
 Quarters Ended March 31,
 2018 2017
Interest income — debt securities$40.5
 $27.8
Interest income — interest bearing deposits7.0
 12.5
Dividends — equity securities2.8
 3.3
Total interest and dividends$50.3
 $43.6

Item 1.  Consolidated Financial Statements  25


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Securities Available-for-Sale

The following table presents amortized cost and fair value of securities available for sale (“AFS”).

Amortized Cost and Fair Value (dollars in millions)
 
        
March 31, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Debt securities AFS 
  
  
  
Mortgage-backed securities               
U.S. government agency securities$4,865.4
 $0.4
 $(139.4) $4,726.4
Non-agency securities225.6
 18.4
 —
 244.0
U.S. government agency obligations25.0
 —
 (0.4) 24.6
U.S. Treasury securities443.7
 —
 (4.4) 439.3
Supranational securities49.9
 —
 (0.7) 49.2
State & municipal bonds13.6
 —
 (0.3) 13.3
Corporate bonds - foreign65.7
 1.6
 —
 67.3
Total debt securities AFS$5,688.9
 $20.4
 $(145.2) $5,564.1
        
December 31, 2017       
Debt securities AFS 
  
  
  
Mortgage-backed securities               
U.S. government agency securities$5,010.2
 $2.1
 $(62.1) $4,950.2
Non-agency securities297.3
 21.7
 (0.5) 318.5
U.S. government agency obligations25.0
 —
 (0.2) 24.8
U.S. Treasury securities297.7
 0.2
 (0.2) 297.7
Supranational securities449.8
 —
 (0.3) 449.5
State & municipal bonds16.2
 —
 (0.4) 15.8
Corporate bonds - foreign65.7
 1.4
 —
 67.1
Total debt securities AFS6,161.9
 25.4
 (63.7) 6,123.6
Equity securities AFS45.8
 —
 (1.1) 44.7
Total securities AFS$6,207.7
 $25.4
 $(64.8) $6,168.3


22 Item 1.  Consolidated Financial Statements
Securities AFS — Amortized Cost
Table of Contents
CIT Group Inc. and Fair Value (dollars in millions)
Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2017     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
Debt securities AFS                                                  
Mortgage-backed Securities                                                      
U.S. government agency securities           $2,514.0       $1.9       $(34.7)       $2,481.2  
Non-agency securities             449.8         21.9         (1.2)         470.5  
U.S. government agency obligations             649.9         –          (4.2)         645.7  
U.S. Treasury Securities             99.8         –          (0.4)         99.4  
Total debt securities AFS             3,713.5         23.8         (40.5)         3,696.8  
Equity securities AFS             35.2         –          (1.0)         34.2  
Total securities AFS           $3,748.7       $23.8       $(41.5)       $3,731.0  
December 31, 2016
                                                     
Debt securities AFS                                                  
Mortgage-backed Securities                                                      
U.S. government agency securities           $2,073.6       $1.6       $(32.3)       $2,042.9  
Non-agency securities             471.7         15.6         (1.8)         485.5  
U.S. government agency obligations             649.9         –          (3.9)         646.0  
U.S. Treasury Securities             299.9         –          (0.4)         299.5  
Supranational and foreign government securities             200.2         –          –          200.2  
Total debt securities AFS             3,695.3         17.2         (38.4)         3,674.1  
Equity securities AFS             35.0         –          (0.9)         34.1  
Total securities AFS           $3,730.3       $17.2       $(39.3)       $3,708.2  


The following table presents the debt securities AFS by contractual maturity dates:

Securities
Maturities - Debt Securities AFS (dollars in millions)
  
 March 31, 2018
 
Amortized
Cost
 
Fair
Value
 
Weighted
Average
Yield
Mortgage-backed securities — U.S. government agency securities 
  
  
After 5 but within 10 years$172.3
 $168.6
 2.12%
Due after 10 years4,693.1
 4,557.8
 2.56%
Total4,865.4
 4,726.4
 2.54%
Mortgage-backed securities — non-agency securities 
  
  
After 1 but within 5 years12.0
 12.1
 5.16%
After 5 but within 10 years5.3
 5.7
 4.68%
Due after 10 years208.3
 226.2
 5.83%
Total225.6
 244.0
 5.76%
U.S. government agency obligations 
  
  
After 1 but within 5 years25.0
 24.6
 2.26%
Total25.0
 24.6
 2.26%
U.S. Treasury securities 
        
Due within 1 year248.1
 247.8
 1.53%
After 5 but within 10 years195.6
 191.5
 2.51%
Total443.7
 439.3
 1.96%
Supranational securities     
After 1 but within 5 years49.9
 49.2
 2.02%
Total49.9
 49.2
 2.02%
State & municipal bonds     
Due within 1 year0.1
 0.1
 2.36%
After 1 but within 5 years0.1
 0.1
 2.56%
After 5 but within 10 years0.3
 0.3
 2.70%
Due after 10 years13.1
 12.8
 2.38%
Total13.6
 13.3
 2.39%
Corporate bonds - foreign     
After 1 but within 5 years65.7
 67.3
 6.11%
Total65.7
 67.3
 6.11%
Total debt securities AFS$5,688.9
 $5,564.1
 2.66%

At March 31, 2018 and December 31, 2017, certain securities AFS — Maturities (dollarsare in millions)

     March 31, 2017
     Amortized
Cost
   Fair
Value
   Weighted
Average
Yield
Mortgage-backed securities — U.S. government agency securities
                                       
After 5 but within 10 years           $52.2       $51.4         1.56%  
Due after 10 years             2,461.8         2,429.8         2.49%  
Total
             2,514.0         2,481.2         2.47%  
Mortgage-backed securities — non-agency securities
                                       
After 5 but within 10 years             22.0         21.5         4.93%  
Due after 10 years             427.8         449.0         5.91%  
Total
             449.8         470.5         5.86%  
U.S. government agency obligations
                                       
After 1 but within 5 years             649.9         645.7         1.22%  
Total
             649.9         645.7         1.22%  
U.S. Treasury Securities
                                         
After 1 but within 5 years             99.8         99.4         0.93%  
Total
             99.8         99.4         0.93%  
Total debt securities available-for-sale
           $3,713.5       $3,696.8         2.62%  
 

26   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

unrealized loss positions. The following table summarizes by investment category the gross unrealized losses, and estimatedrespective fair value of AFS securities aggregated by investment category and length of time that thethose securities have been in a continuous unrealized loss position.

Gross Unrealized Loss (dollars in millions)
  
 March 31, 2018
 Less than 12 months 12 months or greater
 
Fair
Value
 
Gross
Unrealized
Loss
 
Fair
Value
 
Gross
Unrealized
Loss
Debt securities AFS 
  
  
  
Mortgage-backed securities               
U.S. government agency securities$3,567.3
 $(82.3) $1,133.7
 $(57.1)
U.S. government agency obligations24.6
 (0.4) —
 —
U.S. Treasury securities439.3
 (4.4) —
 —
State & municipal bonds2.0
 —
 11.1
 (0.3)
Supranational securities49.2
 (0.7) —
 —
Total debt securities AFS$4,082.4
 $(87.8) $1,144.8
 $(57.4)

Securities AFS — Gross Unrealized Loss(dollars in millions)
CIT GROUP INC. 23

     March 31, 2017
   
     Less than 12 months
   12 months or greater
   
     Fair
Value
   Gross
Unrealized
Loss
   Fair
Value
   Gross
Unrealized
Loss
Debt securities AFS                                                  
Mortgage-backed securities                                                      
U.S. government agency securities           $1,883.2       $(34.2)       $13.5       $(0.5)  
Non-agency securities             24.4         (0.9)         4.6         (0.3)  
U.S. government agency obligations             545.8         (4.2)         –          –   
U.S. Treasury Securities             99.4         (0.4)         –          –   
Total debt securities AFS             2,552.8         (39.7)         18.1         (0.8)  
Equity securities AFS             34.0         (0.8)         0.2         (0.2)  
Total securities available-for-sale
           $2,586.8       $(40.5)       $18.3       $(1.0)  
     December 31, 2016
   
     Less than 12 months
   12 months or greater
   
     Fair
Value
   Gross
Unrealized
Loss
   Fair
Value
   Gross
Unrealized
Loss
Debt securities AFS                                                  
Mortgage-backed securities                                                      
U.S. government agency securities           $1,589.6       $(31.8)       $13.8       $(0.5)  
Non-agency securities             56.5         (1.4)         15.8         (0.4)  
U.S. government agency obligations             546.1         (3.9)         –          –   
U.S. Treasury Securities             299.5         (0.4)         –          –   
Total debt securities AFS             2,491.7         (37.5)         29.6         (0.9)  
Equity securities AFS             34.1         (0.9)         –          –   
Total securities available-for-sale
           $2,525.8       $(38.4)       $29.6       $(0.9)  

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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

 December 31, 2017
 Less than 12 months 12 months or greater
 
Fair
Value
 
Gross
Unrealized
Loss
 
Fair
Value
 
Gross
Unrealized
Loss
Debt securities AFS 
  
  
  
Mortgage-backed securities               
U.S. government agency securities$3,492.2
 $(30.9) $1,151.4
 $(31.2)
Non-agency securities2.1
 —
 0.4
 (0.5)
U.S. government agency obligations24.8
 (0.2) —
 —
U.S. Treasury securities199.1
 (0.2) —
 —
State & municipal bonds—
 —
 13.6
 (0.4)
Supranational securities349.5
 (0.3) —
 —
Total debt securities AFS4,067.7
 (31.6) 1,165.4
 (32.1)
Equity securities AFS0.1
 (0.2) 44.5
 (0.9)
Total securities available-for-sale$4,067.8
 $(31.8) $1,209.9
 $(33.0)

Purchased Credit-Impaired AFS Securities


In connection with the OneWest acquisition, the Company classified AFS mortgage-backed securities as PCI due to evidence of credit deterioration since issuance and for which it is probable that the Company will not collect all principal and interest payments contractually required at the time of purchase. Accounting for these adjustments is discussed inNote 1 — Business and Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.


Changes in the accretable yield for PCI securities are summarized below for the quarter ended March 31, 20172018 and March 31, 2016:

2017:

Changes in Accretable Yield (dollars in millions)


Quarter Ended
March 31, 2017
Changes in Accretable Yield (dollars in millions)
  
 Quarters Ended
 March 31, 2018 March 31, 2017
Balance, beginning of period$101.7
 $165.0
Accretion into interest income(3.8) (6.5)
Reclassifications from non-accretable difference due to improving cash flows0.1
 0.1
Reclassifications to non-accretable difference due to decreasing cash flows—
 (0.5)
Disposals and other(22.3) —
Balance, end of period$75.7
 $158.1
Beginning Balance at December 31, 2016
  $165.0
Accretion into interest income(6.5)  
Reclassifications from non-accretable difference due to improving cash flows0.1
Reclassifications to non-accretable difference due to decreasing cash flows(0.5)  
Balance at March 31, 2017
  $158.1

Quarter Ended
March 31, 2016
Beginning Balance at December 31, 2015
  $189.0
Accretion into interest income(7.8)  
Reclassifications from non-accretable difference3.9
Balance at March 31, 2016
  $185.1

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The estimated fair value of PCI securities was $464.0$238.4 million and $478.9$312.5 million with a par value of $591.8$302.9 million and $615.2$387.6 million as of March 31, 2017,2018, and December 31, 2016,2017, respectively.


Securities Carried at Fair Value with Changes Recorded in Net Income

Upon the adoption of ASU 2016-01- Financial Instruments, CIT reclassified eligible equity securities AFS to Securities Carried at Fair Value with Changes Recorded in Net Income (dollarstotaling $46.1 million and $44.1 million of amortized cost and fair value respectively as of March 31, 2018. The unrealized losses were $2 million as of March 31, 2018.

The amortized cost and fair value of debt Securities carried at Fair Value with Changes Recorded in millions)

March 31, 2017     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
Mortgage-backed Securities — Non-agency           $260.4       $9.2       $(0.7)       $268.9  
Total securities held at fair value with changes recorded in net income           $260.4       $9.2       $(0.7)       $268.9  
December 31, 2016
Mortgage-backed Securities — Non-agency
           $277.5       $6.7       $(0.7)       $283.5  
Total securities held at fair value with changes recorded in net income           $277.5       $6.7       $(0.7)       $283.5  
 

Net Income were $0.4 million as of December 31, 2017 with a weighted average yield of 41.8%. There were no equity Securities Carried at Fair Value with changesChanges Recorded in Net Income — Amortized Cost and Fair Value Maturities (dollars in millions)

     March 31, 2017
   
     Amortized
Cost
   Fair
Value
   Weighted
Average
Yield
Mortgage-backed securities — non-agency securities
                                       
After 5 but within 10 years           $0.3       $0.3         41.82%  
Due after 10 years             260.1         268.6         4.90%  
Total
           $260.4       $268.9         4.94%  

Debt Securities Held-to-Maturity

The carrying value and fair valueas of securities held to maturity (“HTM”) at March 31, 2017 and December 31, 2016 were as follows:2017.

Debt Securities HTM — Carrying Value and Fair Value (dollars in millions)

     Carrying
Value
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
March 31, 2017
                                                  
Mortgage-backed securities
                                                     
U.S. government agency securities           $102.4       $0.5       $(3.1)       $99.8  
State and municipal             18.9         –          (0.4)         18.5  
Foreign government             2.4         –          –          2.4  
Corporate — foreign             103.2         6.5         –          109.7  
Total debt securities held-to-maturity           $226.9       $7.0       $(3.5)       $230.4  
December 31, 2016
                                                     
Mortgage-backed securities
                                                  
U.S. government agency securities           $110.0       $0.7       $(3.3)       $107.4  
State and municipal             27.7         –          (0.5)         27.2  
Foreign government             2.4         –          –          2.4  
Corporate — foreign             102.9         6.2         –          109.1  
Total debt securities held-to-maturity           $243.0       $6.9       $(3.8)       $246.1  
 

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The following table presents the debt securities HTM by contractual maturity dates:

Debt Securities HTM — Amortized Cost and Fair Value Maturities (dollars in millions)

     March 31, 2017
   
     Amortized
Cost
   Fair
Value
   Weighted
Average
Yield
Mortgage-backed securities — U.S. government agency securities
                                       
Due after 10 years           $102.4       $99.8         2.49%  
Total
             102.4         99.8         2.49%  
State and municipal
                                       
Due within 1 year             0.4         0.4         2.09%  
After 1 but within 5 years             0.3         0.3         2.46%  
After 5 but within 10 years             0.4         0.4         2.70%  
Due after 10 years             17.8         17.4         2.33%  
Total
             18.9         18.5         2.34%  
Foreign government
                                       
Due within 1 year             2.4         2.4         2.43%  
Total
             2.4         2.4         2.43%  
Corporate — Foreign securities
                                       
After 1 but within 5 years             103.2         109.7         4.25%  
Total
             103.2         109.7         4.25%  
Total debt securities held-to-maturity
           $226.9       $230.4         3.28%  

The following table summarizes the gross unrealized losses and estimated fair value of HTM securities aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position.

Debt Securities HTM — Gross Unrealized Loss (dollars in millions)

     March 31, 2017
   
     Less than 12 months
   12 months or greater
   
     Fair
Value
   Gross
Unrealized
Loss
   Fair
Value
   Gross
Unrealized
Loss
Mortgage-backed securities                                                  
U.S. government agency securities           $63.3       $(1.7)       $25.3       $(1.4)  
State and municipal             2.9         –          14.9         (0.4)  
Total securities held-to-maturity
           $66.2       $(1.7)       $40.2       $(1.8)  
     December 31, 2016
   
     Less than 12 months
   12 months or greater
   
     Fair
Value
   Gross
Unrealized
Loss
   Fair
Value
   Gross
Unrealized
Loss
Mortgage-backed securities                                                  
U.S. government agency securities           $68.2       $(1.7)       $26.7       $(1.6)  
State and municipal             3.8         (0.1)         22.4         (0.4)  
Total securities held-to-maturity
           $72.0       $(1.8)       $49.1       $(2.0)  
 

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Other Than Temporary Impairment (“OTTI”)


The Company conducted and documented its periodic review of all securities with unrealized losses, which it performs to evaluate whether the impairment is other than temporary.

For PCI securities, management determined certain
The Company reviewed PCI securities with unrealized losses and determined the unrealized losses were deemed credit-related and recognized OTTI losses. There was an insignificant amount of OTTI credit-related losses ofrecognized for the quarter ended March 31, 2018 and $0.1 million and $2.0 millionwas recognized as permanent write-downs for the quarter ended March 31, 2017 and March 31, 2016, respectively.2017.


The Company reviewed debt securities AFS and HTM with unrealized losses and determined that the unrealized losses were not OTTI. The unrealized losses were not credit-related and the Company does not have an intent to sell and believes it is not more-likely-than-not that the Company will have to sell prior to the recovery of the amortized cost basis.

The Company reviewed equity securities classified as AFS with unrealized losses and determined that the unrealized losses were neither OTTI nor credit-related, and believes it is not OTTI. Themore-likely-than-not that the Company will have to sell the debt securities classified as AFS with unrealized losses were not credit-related.prior to the recovery of the amortized cost basis.


There were no adjustments related to impairment for securities without readily determinable fair values measured under the measurement exception.

There were immaterial unrealized losses on non-marketable investments.



24 Item 1.  Consolidated Financial Statements
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6 — BORROWINGS


The following table presents the carrying value of outstanding borrowings.

Borrowings (dollars in millions)

     March 31, 2017
   December 31,
2016
   
     CIT Group Inc.
   Subsidiaries
   Total
   Total
Senior Unsecured           $10,600.5       $–        $10,600.5       $10,599.0  
Secured borrowings:                                                   
Structured financings             –          1,725.1         1,725.1         1,925.7  
FHLB advances             –          2,410.7         2,410.7         2,410.8  
Total Borrowings
           $10,600.5       $4,135.8       $14,736.3       $14,935.5  

Borrowings (dollars in millions)
        
 March 31, 2018 December 31, 2017
 CIT Group Inc. Subsidiaries Total Total
Senior Unsecured$4,730.8
 $—
 $4,730.8
 $3,737.5
Subordinated unsecured debt395.9
 —
 395.9
 —
Secured borrowings: 
  
  
    
Structured financings—
 1,416.1
 1,416.1
 1,541.4
FHLB advances—
 3,894.5
 3,894.5
 3,695.5
Total Borrowings$5,126.7
 $5,310.6
 $10,437.3
 $8,974.4

Unsecured Borrowings

Second Amended and Restated
Revolving Credit Facility

There were no outstanding borrowings under the Second Amended and Restated Revolving Credit and Guaranty Agreement (the “Revolving Credit Facility”) at March 31, 2017 and December 31, 2016. The amount available to draw upon at March 31, 2017 was approximately $1.3 billion, with the remaining amount of approximately $0.1 billion being utilized for issuance of letters of credit to customers.

The Revolving Credit Facility has a total commitment amount of $1.4 billion$500 million and the maturity date of the commitment is January 25, 2019. The total commitment amount consists of a $1.07 billion revolving loan tranche and a $326.7 million revolving loan tranche that can also be utilized for issuance of letters of credit to customers.February 29, 2020. The applicable margin charged under the facility is 2.25%2.00% for LIBOR Rate loans and 1.25%1.00% for Base Rate loans.


The facilityRevolving Credit Facility was amended in February 20172018 to lower from $1.5 billion to $1.4 billion the aggregate total commitments thereunderfrom $750 million to $500 million and to further extend the final maturity date of the lenders’ commitments. Such amendment also provided that, upon consummation of the Commercial Air Sale (completed on April 4, 2017, seeNote 16 — Subsequent Events), among other things, (i) the total aggregate commitments thereunder will automatically be reducedfrom January 25, 2019 to $750 million, (ii)February 29, 2020, for all but one of the nine domestic operating subsidiaries of the Company will no longer act as a guarantor thereunder, and (iii) the covenant requiring that the Company maintain a minimum $6 billion minimum consolidated net worth will be replaced bylender. The Revolving Credit Facility includes a covenant requiringthat requires that the Company maintain a minimum Tier 1 capital ratio of 9.0%.

As of March 31, 2017,2018, the Revolving Credit Facility was unsecured and was guaranteed by ninefour of the Company’s domestic operating subsidiaries. In addition, the applicable required minimum guarantor asset coverage ratio ranged from 1.0:1.0 to 1.5:1.0, and was 1.375: 1.25:1.0 and the Revolving Credit Facility was subject to a $6 billion minimum consolidated net worth covenant.at March 31, 2018.


The Revolving Credit Facility may be drawn and prepaid at the option of CIT. The unutilized portion of any commitment under the Revolving Credit Facility may be reduced permanently or terminated by CIT at any time without penalty. There were no outstanding borrowings at March 31, 2018 and December 31, 2017. The amount available to draw upon at March 31, 2018 was approximately $448 million, with the remaining amount of approximately $52 million being utilized for issuance of letters of credit to customers.

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Senior Unsecured Notes


The following tables presenttable presents the principal amounts by maturity date.

Senior Unsecured Notes (dollars in millions)

Maturity Date
     Rate (%)
   Date of
Issuance
   Par Value
May 2017             5.000%     May 2012     $252.8  
August 2017(1)
             4.250%     August 2012       1,725.8  
March 2018(1)
             5.250%     March 2012       1,465.0  
April 2018(1)
             6.625%     March 2011       695.0  
May 2018(1)
             5.000%     December 2016       955.9  
February 2019(2)
             5.500%     February 2012       1,750.0  
February 2019             3.875%     February 2014       1,000.0  
May 2020             5.375%     May 2012       750.0  
August 2022             5.000%     August 2012       1,250.0  
August 2023             5.000%     August 2013       750.0  
Weighted average rate and total             5.022%           $10,594.5  
(1)
Senior Unsecured Notes (dollars in millions)
       
Maturity Date Rate (%) Date of Issuance Par Value
February 2019 5.500% February 2012 $383.0
February 2019 3.875% February 2014 1,000.0
May 2020 5.375% May 2012 435.6
March 2021 4.125% March 2018 500.0
August 2022 5.000% August 2012 1,150.0
August 2023 5.000% August 2013 750.0
March 2025 5.250% March 2018 500.0
Weighted average rate and total 4.771%   $4,718.6
On April 9, 2018, CIT redeemed $383 million aggregate principal amount of our 5.500% senior unsecured notes due February 2019 and $500 million aggregate principal amount of our 3.875% senior unsecured notes due February 2019, at an aggregate premium of $15.7 million. Refer to Note 15 — Subsequent Events for further disclosure.

On May 4, 2017, CIT redeemed 100% of the principal amounts, as disclosed in Note 16 — Subsequent Events.
(2)
The Company accepted for purchase in the Tender Offer $969 million of the principal amount as disclosed in Note 16 — Subsequent Events.

The Indentures for the senior unsecured notes limit the Company’s ability to create liens, merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of its assets. Upon a Change of Control Triggering Event as that term is defined in the Indentures for the senior unsecured notes, holders of the senior unsecured notes will have the right to require the Company, as applicable, to repurchase all or a portion of the senior unsecured notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of such repurchase.


In addition to the above table, there is an unsecured note outstanding with a 6.0% coupon and a carrying value of $39$39.6 million (par value of $51 million) that matures in 2036.




CIT GROUP INC. 25
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Unsecured Notes
In March 2018, CIT issued $400 million aggregate principal amount of 6.125% subordinated notes with the maturity date on March 9, 2028. The notes are subordinated in right of payment to the payment of our senior indebtedness and secured indebtedness, to the extent of the value of the collateral.

Secured Borrowings


At March 31, 20172018, the Company had pledged $28.7 billion of assets (including collateral for the FRB discount window) of $14.1window that is currently not drawn). The collateral specifically identified and used to calculate available borrowings was $12.9 billion, which included $12.5$11.5 billion of loans, (including amounts held for sale), $1.2 billion of operating lease assets, $0.2$0.1 billion of cash and $0.2cash equivalent and $0.1 billion of investment securities. Under the FHLB Facility, CIT Bank may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that CIT Bank is in compliance with the collateral maintenance requirement immediately following such disposition and all other requirements of the facility at the time of such disposition.


FHLB Advances


As a member of the FHLB of San Francisco, CIT Bank, N.A. can access financing based on an evaluation of its creditworthiness, statement of financial position, size and eligibility of collateral. The interest rates charged by the FHLB for advances typically vary depending upon maturity, the cost of funds of the FHLB, and the collateral provided for the borrowing and theborrowing. The advances are secured by certain Bank assets and bear either a fixed or floating interest rate. The FHLB advances are collateralized by mortgage-backed securities (“MBS”) and a variety of consumer and commercial loans, and leases, including SFR mortgage loans, reversesingle family residential ("SFR") mortgage loans, multi-family mortgage loans, commercial real estate loans, certain foreclosed properties and certain amounts receivable under a loss sharing agreement with the FDIC, commercial loans, leases and/or equipment.FDIC.


As of March 31, 2017,2018, the Company had $5.2$5.3 billion of financing availability with the FHLB, of which $2.0$1.4 billion was unused and available, and $865.4$85.8 million was being utilized for issuance of letters of credit related to deposits. FHLB Advances as of March 31, 20172018 have a weighted average rate of 1.33%2.04%. The following table includes the total outstanding FHLB Advances, and respective pledged assets.assets(1).

FHLB Advances with Pledged Assets(1) Summary (dollars in millions)
        
 March 31, 2018 December 31, 2017
 
FHLB
Advances
 
Pledged
Assets (1)
 
FHLB
Advances
 
Pledged
Assets (1)
Total$3,894.5
 $6,338.6
 $3,695.5
 $6,154.1
(1) For purposes of this table the term "Pledged Assets" means the assets required under the collateral maintenance requirement in connection with FHLB Advances with Pledged Assets Summary (dollars in millions)advances at each of the dates.

     March 31, 2017
   December 31, 2016
   
     FHLB
Advances
   Pledged
Assets
   FHLB
Advances
   Pledged
Assets
Total
           $2,410.7       $6,230.1       $2,410.8       $6,389.7  

Structured Financings


Set forth in the following table are amounts primarily related to structured financings of and assets owned by consolidated VIEs. Creditors of these VIEs received ownership and/or security interests in the assets. These entities are intended to be bankruptcy remote so that such assets are not available to creditors of CIT or any affiliates of CIT until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings. Structured financings as of March 31, 20172018 had a weighted average rate of 3.45%4.02%, which rangedwith rates ranging from 0.58%0.59% to 5.74%5.5%.

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Structured Financings and Pledged Assets Summary(dollars in millions)
Structured Financings and Pledged Assets Summary (dollars in millions)
        
 March 31, 2018 December 31, 2017
 
Secured
Borrowing
 
Pledged
Assets
 
Secured
Borrowing
 
Pledged
Assets
Business Capital$695.5
 $2,817.5
 $768.8
 $2,838.6
Rail(1) (2)
720.6
 1,259.9
 772.6
 1,272.0
Total$1,416.1
 $4,077.4
 $1,541.4
 $4,110.6

     March 31, 2017
   December 31, 2016
   
     Secured
Borrowing
   Pledged
Assets
   Secured
Borrowing
   Pledged
Assets
Business Capital           $869.9       $3,035.1       $949.8       $2,608.0  
Rail(1)
             817.7         1,293.6         860.1         1,327.5  
Commercial Finance             –          –          –          0.2  
Subtotal — Commercial Banking             1,687.6         4,328.7         1,809.9         3,935.7  
Non-Strategic Portfolios             37.5         37.5         115.8         212.6  
Total
           $1,725.1       $4,366.2       $1,925.7       $4,148.3  
(1) 
At March 31, 2017,2018, the TRS Transactions related borrowings and pledged assets, respectively, of $520.0$485.0 million and $833.6$854.3 million were included in Commercial Banking.Rail. The TRS Transactions are described in Note 7 — Derivative Financial Instruments.

(2)
AtMarch 31, 2018, secured borrowings and pledged assets, respectively, of $211.5 million and $379.9 million were related to the pending sale of our European Rail business, NACCO, and will be transferred to the buyer upon sale of that business.


Not included in the above table are liabilitiessecured borrowings of discontinued operations of $247.8 million and $268.2 million, at March 31, 2017,2018, and December 31, 2016, of $543.2 million and $1,571.0 million of secured borrowings,2017, respectively. SeeNote 2 — Discontinued Operations.


FRB


The Company has a borrowing facility with the FRB Discount Window that can be used for short-term, typically overnight, borrowings. The borrowing capacity is determined by the FRB based on the collateral pledged.


There were no outstanding borrowings with the FRB Discount Window as of March 31, 20172018 and December 31, 2016.2017.



26 Item 1.  Consolidated Financial Statements
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Variable Interest Entities (“VIEs”)

Below describes
Described below are the results of the Company’s assessment of its variable interests in order to determine its current status with regards to being the VIE primary beneficiary of a VIE.beneficiary.


Consolidated VIEs


The Company utilizes VIEs in the ordinary course of business to support its own and its customers’ financing needs. Each VIE is a separate legal entity and maintains its own books and records.

The most significant types of VIEs that CIT utilizes are ‘on"on balance sheet’sheet" secured financings of pools of leases and loans originated by the Company where the Company is the primary beneficiary. SeeRefer to the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 for further discussion.


Unconsolidated VIEs


Unconsolidated VIEs include government sponsored entity (“GSE”) securitization structures, private-label securitizations and limited partnership interests where the Company’s involvement is limited to an investor interest where the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and limited partnership interests.

As a result of the OneWest Transaction, the
The Company has certain contractual obligations related to the HECM loans and the GNMA HMBS securitizations.securitizations, which are VIEs for which CIT is not the primary beneficiary. The Company, as servicer of these HECM loans, is currently obligated to fund future borrower advances, which include fees paid to taxing authorities for borrowers’ unpaid taxes and insurance, mortgage insurance premiums and payments made to borrowers for line of credit draws on HECM loans. In addition, the Company capitalizes the servicing fees and interest income earned and is obligated to fund guarantee fees associated with the GNMA HMBS. The Company periodically pools and securitizes certain of these funded advances through issuance of HMBS to third-party security holders, which did not qualify for sale accounting and rather, are treated as financing transactions. As a financing transaction, the HECM loans and related proceeds from the issuance of the HMBS recognized as secured borrowings remain on the Company’s Consolidated Balance Sheet. Due to the Company’s planned exit of third party servicing, HECM loans of $352.8 million and $374.0 million were included in Assets of discontinued operations and the associated secured borrowing of $345.4 million and $366.4 million (including an unamortized premium balance of $7.1 million and $8.1 million) were included in Liabilities of discontinued operations at March 31, 2017 and December 31, 2016, respectively.

As servicer, the Company is required to repurchase the HECM loans once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO, which reduces the secured borrowing balance. Additionally the Company services $154.2$136.5 million and $160.2$140.3 million of HMBS outstanding principal balance at March 31, 20172018 and December 31, 2016,2017, respectively, for transferred loans securitized by IndyMac for which OneWest Bank prior to the acquisition had purchased the mortgage servicing rights (“MSRs”) in connection with the IndyMac Transaction. The carrying value of the MSRs was not significant at March 31, 20172018 and December 31, 2016.2017. As the HECM loans are federally insured by the FHA and the secured borrowings guaranteed to the investors by GNMA, the Company does

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


not believe maximum loss exposure as a result of its involvement is material or quantifiable.material.


The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of its interests and any associated collateral declines to zero and at the same time assuming no consideration of recovery or offset from any economic hedges. The Company believes the possibility is remote under this hypothetical scenario; accordingly, this required disclosure is not an indication of expected loss.

Unconsolidated VIEs (dollars in millions)

Unconsolidated VIEs Carrying Value (dollars in millions)
Unconsolidated VIEs Carrying Value (dollars in millions)
       
    Unconsolidated VIEs
Carrying Value
March 31, 2017
   Unconsolidated VIEs
Carrying Value
December 31, 2016
   March 31, 2018 December 31, 2017
    Securities
   Partnership
Investment
   Securities
   Partnership
Investment
Securities 
Partnership
Investment
 Securities 
Partnership
Investment
Agency securities     $2,583.6       $–        $2,152.9       $–   $4,726.4
 $—
 $4,950.2
 $—
Non agency securities — Other servicer       739.3         –          769.0         –   244.0
 —
 318.8
 —
Tax credit equity investments       –          164.4         ���          167.7  —
 207.0
 —
 198.8
Equity investments       –          13.1         –          11.4  —
 46.7
 —
 38.6
Total Assets     $3,322.9       $177.5       $2,921.9       $179.1  $4,970.4
 $253.7
 $5,269.0
 $237.4
Commitments to tax credit investments       $–          $53.6         $–          $62.3  $—
 $79.7
 $—
 $66.6
Total Liabilities     $–        $53.6       $–        $62.3  $—
 $79.7
 $—
 $66.6
Maximum loss exposure(1)
     $3,322.9       $177.5       $2,921.9       $179.1  $4,970.4
 $253.7
 $5,269.0
 $237.4
(1) 
Maximum loss exposure to the unconsolidated VIEs excludes the liability for representations and warranties, corporate guarantees and also excludes servicing advances.


NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS


As part of managing economic risk and exposure to interest rate and foreign currency risk, the Company primarily enters into derivative transactions in over-the-counter markets with other financial institutions. The Company also enters into derivative contracts with customers as part of its Commercial Banking business. The Company does not enter into derivative financial instruments for proprietary trading or speculative purposes.


SeeNote 1 — Business and Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017, for further description of its derivative transaction policies.




CIT GROUP INC. 27
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents fair values and notional values of derivative financial instruments:

Fair and Notional Values of Derivative Financial Instruments(1) (dollars in millions)

Fair and Notional Values of Derivative Financial Instruments(1) (dollars in millions)
Fair and Notional Values of Derivative Financial Instruments(1) (dollars in millions)
           
    March 31, 2017
   December 31, 2016
   March 31, 2018 December 31, 2017
Qualifying Hedges    Notional
Amount
   Asset
Fair Value
   Liability
Fair Value
   Notional
Amount
   Asset
Fair Value
   Liability
Fair Value
Notional
Amount
 
Asset
Fair Value
 
Liability
Fair Value
 
Notional
Amount
 
Asset
Fair Value
 
Liability
Fair Value
Foreign currency forward contracts — net investment hedges     $924.6       $8.3       $(0.8)       $817.9       $16.9       $–   $989.0
 $23.9
 $(7.2) $977.3
 $0.2
 $(18.7)
Interest rate swap - fair value hedge (2)
250.0
 0.6
 —
 —

—

—
Total Qualifying Hedges       924.6         8.3         (0.8)         817.9         16.9         –   1,239.0
 24.5
 (7.2) 977.3
 0.2
 (18.7)
Non-Qualifying Hedges
Non-Qualifying Hedges
           
Interest rate swaps(2)
       5,862.7         58.8         (32.9)         5,309.2         63.0         (50.1)  7,686.3
 82.4
 (65.6) 7,112.0
 60.8
 (38.6)
Written options       2,663.1         –          (0.9)         2,626.5         0.1         (1.0)  2,722.4
 —
 (2.2) 2,744.3
 —
 (0.7)
Purchased options       2,332.5         0.9         –          2,129.6         1.0         (0.1)  2,567.0
 2.2
 —
 2,571.5
 0.7
 —
Foreign currency forward contracts       1,338.5         7.6         (5.9)         1,329.8         30.2         (6.0)  1,505.3
 9.5
 (12.6) 1,375.5
 6.9
 (14.9)
Total Return Swap (TRS)       158.0         –          (12.2)         587.5         –          (11.3)  189.6
 —
 (16.2) 182.4
 —
 (14.1)
Equity Warrants       1.0         0.1         –          1.0         0.2         –   0.8
 —
 —
 0.8
 —
 —
Interest Rate Lock Commitments       8.7         0.1         –          20.7         0.1         (0.1)  14.6
 0.1
 —
 7.7
 0.1
 —
Forward Sale Commitments on Agency MBS       20.0         –          (0.2)         39.0         0.1         –   11.5
 —
 (0.1) 8.0
 —
 —
Credit derivatives       266.6         –          (0.1)         267.6         –          (0.2)  306.3
 —
 —
 285.1
 —
 —
Total Non-qualifying Hedges       12,651.1         67.5         (52.2)         12,310.9         94.7         (68.8)  15,003.8
 94.2
 (96.7) 14,287.3
 68.5
 (68.3)
Total Hedges     $13,575.7       $75.8       $(53.0)       $13,128.8       $111.6       $(68.8)  
Total Derivatives$16,242.8
 $118.7
 $(103.9) $15,264.6
 $68.7
 $(87.0)
(1) 
Presented on a gross basis.
(2) 
Fair value balances include accrued interest.

Item 1.  Consolidated Financial Statements  33


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

TRS Transactions

As of December 31, 2016, CIT was party to two financing facilities between two wholly-owned subsidiaries of CIT, one Canadian (“CFL”) and one Dutch, and Goldman Sachs International (“GSI”), respectively, which were structured as total return swaps (“TRS”). Amounts available for advances (otherwise known as the unused portion) were accounted for as derivatives and recorded at the estimated fair value. On December 7, 2016, CFL entered into a Fourth Amended and Restated Confirmation (the “Termination Agreement”) with GSI to terminate the Canadian TRS and the facility was terminated on January 17, 2017.

The total facility capacity available under the Dutch TRS was $625 million at March 31, 2017 and December 31, 2016. The utilized portion reflects the borrowing.

The aggregate “notional amounts” of the Dutch TRS of $158.0 million at March 31, 2017 and the TRS Transactions of $587.5 million at December 31, 2016 represent the aggregate unused portions and constitute derivative financial instruments. These notional amounts were calculated as the maximum facility commitment amount, $625 million, under the Dutch TRS less the actual adjusted qualifying borrowing base outstanding of $467.0 million under the facility at March 31, 2017, and the maximum aggregate facility commitment amount, $1,062.3 million, under the Canadian TRS and Dutch TRS less the aggregate actual adjusted qualifying borrowing base outstanding of $474.8 million under the facilities at December 31, 2016. The notional amounts of the derivative will increase as the adjusted qualifying borrowing base decreases due to repayment of the underlying ABS to investors. If CIT funds additional ABS under the Dutch TRS, the aggregate adjusted qualifying borrowing base of the total return swaps will increase and the notional amount of the derivatives will decrease accordingly.

Based on the Company’s valuation, a liability of $12.2 million and $11.3 million was recorded at March 31, 2017 and December 31, 2016, respectively. The increase in liability of $0.9 million was recognized as a decrease to Other Income for the quarter ended March 31, 2017. The decrease in the liability of $18.2 million was recognized as an increase to Other Income for the quarter ended March 31, 2016.

Impact of Collateral and Netting Arrangements on the Total Derivative Portfolio


The following tables present a summary of our derivative portfolio, which includes the gross amounts of recognized financial assets and liabilities; the amounts offset in the consolidated balance sheet; the net amounts presented in the consolidated balance sheet; the amounts subject to an enforceable master netting arrangement or similar agreement that were not included in the offset amount above, and the amount of cash collateral received or pledged. Derivative transactions are documented under an International Swaps and Derivatives Association (“ISDA”) agreement.

Offsetting of Derivative Assets and Liabilities (dollars in millions)(1)

             Gross Amounts not offset in the
Consolidated Balance Sheet
    Gross
Amount of
Recognized
Assets
(Liabilities)
   Gross
Amount
Offset in the
Consolidated
Balance Sheet
   Net Amount
Presented
in the
Consolidated
Balance Sheet
   Derivative
Financial
Instruments(2)
   Cash
Collateral
Pledged/
(Received)(2),(3)
   Net
Amount
March 31, 2017
                                                                  
Offsetting of Derivative Assets and Liabilities (dollars in millions)(1)
Offsetting of Derivative Assets and Liabilities (dollars in millions)(1)
           
      
Gross Amounts not offset in the
Consolidated Balance Sheet
  
Gross
Amount of
Recognized
Assets
(Liabilities)
 
Gross
Amount
Offset in the
Consolidated
Balance Sheet
 
Net Amount
Presented
in the
Consolidated
Balance Sheet
 
Derivative
Financial
Instruments(2)
 
Cash
Collateral
Pledged /
(Received)(2)(3)
 
Net
Amount
March 31, 2018 
  
  
  
  
  
Derivative assets     $75.8       $–        $75.8       $(14.3)       $(14.5)       $47.0  $118.7
 $—
 $118.7
 $(24.8) $(33.2) $60.7
Derivative liabilities       (53.0)         –          (53.0)         14.3         2.9         (35.8)  (103.9) —
 (103.9) 24.8
 1.9
 (77.2)
December 31, 2016
              
December 31, 2017 
                    
Derivative assets     $111.6       $–        $111.6       $(30.9)       $(48.7)       $32.0  $68.7
 $—
 $68.7
 $(18.7) $(8.4) $41.6
Derivative liabilities       (68.8)         –          (68.8)         30.9         5.0         (32.9)  (87.0) —
 (87.0) 18.7
 23.0
 (45.3)
(1) 
Due to a change in clearinghouse rules, the Company accounts for swap contracts cleared by the Chicago Mercantile Exchange (“CME”) as “settled-to-market” effective January 2017. As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances. The Company’s swap contracts cleared by LCH Clearnet (“LCH”) continue to be accounted for as “collateralized-to-market” and variation margin balances are characterized as collateral against derivative exposures. At March 31, 2017,2018, gross amountamounts of recognized assets and liabilities were lower by $5.1$9.5 million and $16.7$6.0 million, respectively.
(2) 
The Company’s derivative transactions are governed by ISDA agreements that allow for net settlements of certain payments as well as offsetting of all contracts (“Derivative Financial Instruments”) with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. We believe our ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure. In conjunction with the ISDA agreements, the Company has entered into collateral arrangements with its counterparties which provide for the exchange of cash depending on change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties.
(3) 
Collateral pledged or received is included in Other assets or Other liabilities, respectively.

34Fair Value Hedge

In the first quarter of 2018, CIT GROUP INCentered into a $250 million notional interest rate swap agreement to manage interest rate exposure on half of its three years 4.125% fixed-rate senior notes that were newly issued in March 2018. This agreement is designated as a fair value hedge.

28 Item 1.  Consolidated Financial Statements

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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

Derivative Instruments March 31, 2018
 Amounts RecognizedDerivative Hedged Item Hedge Ineffectiveness
Hedges of interest rate risk on borrowings using interest rate swapsInterest Expense$0.5
 $(0.5) $—
       
Non Qualifying Hedges

The following table presents the impact of derivativesnon-qualifying hedges on the statements of income.income

Derivative Instrument Gains and Losses (dollars in millions)

        Quarters Ended March 31,
Derivative Instruments
     Gain / (Loss)
Recognized
   2017
   2016
Non Qualifying Hedges
                                       
Interest rate swaps         Other income     $2.2       $(2.6)  
Interest rate options         Other income       0.1         0.4  
Foreign currency forward contracts         Other income       (7.0)         (33.9)  
Equity warrants         Other income       (0.1)         (0.3)  
Total Return Swap (TRS)         Other income       (0.9)         18.2  
Interest Rate Lock Commitments         Other income       0.1         –   
Forward Sale Commitments on Agency MBS         Other income       (0.1)         –   
Credit Derivatives         Other income       –          0.9  
Total Non-qualifying Hedges               $(5.7)       $(17.3)  
Total derivatives-income statement impact
               $(5.7)       $(17.3)  

Derivative Instrument Gains and Losses (dollars in millions)
      
   Quarters Ended March 31,
Derivative Instruments
Gain / (Loss)
Recognized
 2018 2017
Non Qualifying Hedges      
  
Interest rate swapsOther income $4.0
 $2.2
Interest rate optionsOther income 0.1
 0.1
Foreign currency forward contractsOther income (29.9) (7.0)
Equity warrantsOther income —
 (0.1)
Total Return Swap (TRS)Other income (2.1) (0.9)
Interest Rate Lock CommitmentsOther income —
 0.1
Forward Sale Commitments on Agency MBSOther income 0.2
 (0.1)
Credit DerivativesOther income (0.2) —
Total Non-qualifying Hedges -income statement impact  $(27.9) $(5.7)
   

 

The following table presents the changes in AOCI relating to derivatives:

Changes
Changes in AOCI Relating to Derivatives (dollars in millions)
        
Contract Type
Derivatives -
effective portion
reclassified from AOCI to income
 
Total
income
statement
impact
 
Derivatives -
effective
portion
recorded
in OCI
 
Total
change
in OCI
for period
Quarter Ended March 31, 2018 
  
  
  
Foreign currency forward contracts — net investment hedges$—
 $—
 $7.2
 $7.2
Total$—
 $—
 $7.2
 $7.2
Quarter Ended March 31, 2017 
            
Foreign currency forward contracts — net investment hedges$6.9
 $6.9
 $(8.9) $(15.8)
Total$6.9
 $6.9
 $(8.9) $(15.8)

TRS Transactions

As of March 31, 2018 , CIT was party to a financing facility between a wholly-owned Dutch subsidiary of CIT and Goldman Sachs International (“GSI”), which was structured as a total return swap (“TRS”). Amounts available for advances (otherwise known as the unused portion) were accounted for as derivatives and recorded at the estimated fair value. The total facility capacity available under the Dutch TRS was $625 million at March 31, 2018, and December 31, 2017. The utilized portion reflects the borrowing.

The aggregate “notional amounts” of the Dutch TRS of $189.6 million at March 31, 2018, and $182.4 million at December 31, 2017, represent the aggregate unused portions and constitute derivative financial instruments. These notional amounts were calculated as the maximum facility commitment amount, $625 million, under the Dutch TRS, less the actual adjusted qualifying borrowing base outstanding of $435.4 million at March 31, 2018, and $442.6 million under the facility at December 31, 2017. The notional amounts of the derivative will increase as the adjusted qualifying borrowing base decreases due to repayment of the underlying asset-backed securities ("ABS") to investors. If CIT funds additional ABS under the Dutch TRS, the aggregate adjusted qualifying borrowing base of the total return swap will increase and the notional amount of the derivative will decrease accordingly.

Based on the Company’s valuation, a liability of $16.2 million and $14.1 million was recorded at March 31, 2018, and December 31, 2017, respectively. The increase in AOCI Relatingliability of $2.1 million was recognized as a reduction to Derivatives (dollarsOther Income for the quarter ended March 31, 2018 and an increase in millions)liability of $0.9 million was recognized as a reduction to Other Income for the quarter ended March 31, 2017.







CIT GROUP INC. 29

Contract Type
     Derivatives -
effective
portion
reclassified
from AOCI
to income
   Hedge
ineffectiveness
recorded
directly in
income
   Total
income
statement
impact
   Derivatives -
effective
portion
recorded
in OCI
   Total
change
in OCI
for period
Quarter Ended March 31, 2017
                                                             
Foreign currency forward contracts — net investment hedges           $6.9       $–        $6.9       $(8.9)       $(15.8)  
Total
           $6.9       $–        $6.9       $(8.9)       $(15.8)  
Quarter Ended March 31, 2016
                                                                 
Foreign currency forward contracts — net investment hedges           $1.8       $–        $1.8       $(38.0)       $(39.8)  
Total
           $1.8       $  –        $1.8       $(38.0)       $(39.8)  

Table of Contents
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8 — FAIR VALUE


Fair Value Hierarchy


The Company is required to report fair value measurements for specified classes of assets and liabilities. SeeNote 1 — “BusinessBusiness and Summary of Significant Accounting Policies”Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for a description of its fair value measurement policy.


The Company characterizes inputs in the determination of fair value according to the fair value hierarchy. The fair value of the Company’s assets and liabilities where the measurement objective specifically requires the use of fair value are set forth in the tables below.


Disclosures that follow in this note exclude assets and liabilities classified as discontinued operations.


Financial Assets and Liabilities Measured at Estimated Fair Value on a Recurring Basis


The following table summarizes the Company’s assets and liabilities measured at estimated fair value on a recurring basis, including those management elected under the fair value option.

basis.

Item 1.  Consolidated Financial Statements  35


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)
        
 Total Level 1 Level 2 Level 3
March 31, 2018 
  
  
  
Assets 
  
  
  
Debt securities AFS$5,564.1
 $247.8
 $5,005.0
 $311.3
Securities carried at fair value with changes recorded in net income(1)
44.1
 0.2
 43.9
 —
Derivative assets at fair value — non-qualifying hedges(2)
94.2
 —
 94.1
 0.1
Derivative assets at fair value — qualifying hedges(2)
24.5
 —
 24.5
 —
Total$5,726.9
 $248.0
 $5,167.5
 $311.4
Liabilities 
  
  
  
Derivative liabilities at fair value — non-qualifying hedges(2)
$(96.7) $—
 $(80.5) $(16.2)
Derivative liabilities at fair value — qualifying hedges(2)
(7.2) —
 (7.2) —
Consideration holdback liability(46.0) —
 —
 (46.0)
FDIC True-up liability(65.5) —
 —
 (65.5)
Total$(215.4) $—
 $(87.7) $(127.7)
December 31, 2017 
  
  
  
Assets 
            
Debt securities AFS$6,123.6
 $199.0
 $5,538.8
 $385.8
Securities carried at fair value with changes recorded in net income0.4
 —
 —
 0.4
Equity securities AFS44.7
 0.2
 44.5
 —
Derivative assets at fair value — non-qualifying hedges(2)
68.5
 —
 68.4
 0.1
Derivative assets at fair value — qualifying hedges0.2
 —
 0.2
 —
Total$6,237.4
 $199.2
 $5,651.9
 $386.3
Liabilities 
  
  
  
Derivative liabilities at fair value — non-qualifying hedges(2)
$(68.3) $—
 $(54.2) $(14.1)
Derivative liabilities at fair value — qualifying hedges(18.7) —
 (18.7) —
Consideration holdback liability(46.0) —
 —
 (46.0)
FDIC True-up liability(65.1) —
 —
 (65.1)
Total$(198.1) $—
 $(72.9) $(125.2)

     Total
   Level 1
   Level 2
   Level 3
March 31, 2017
                                                  
Assets
                                                  
Debt Securities AFS           $3,696.8       $–        $3,226.3       $470.5  
Securities carried at fair value with changes recorded in net income             268.9         –          –          268.9  
Equity Securities AFS             34.2         0.2         34.0         –   
Derivative assets at fair value — non-qualifying hedges(1)
             67.5         –          67.4         0.1  
Derivative assets at fair value — qualifying hedges             8.3         –          8.3         –   
Total           $4,075.7       $0.2       $3,336.0       $739.5  
Liabilities
                                                  
Derivative liabilities at fair value — non-qualifying hedges(1)
           $(52.2)       $–        $(39.9)       $(12.3)  
Derivative liabilities at fair value — qualifying hedges             (0.8)         –          (0.8)         –   
Consideration holdback liability             (47.4)         –          –          (47.4)  
FDIC True-up Liability             (63.0)         –          –          (63.0)  
Total           $(163.4)       $–        $(40.7)       $(122.7)  
December 31, 2016
                                                  
Assets
                                                     
Debt Securities AFS           $3,674.1       $200.1       $2,988.5       $485.5  
Securities carried at fair value with changes recorded in net income             283.5         –          –          283.5  
Equity Securities AFS(2)
             34.1         0.3         33.8         –   
Derivative assets at fair value — non-qualifying hedges(1)
             94.7         –          94.7         –   
Derivative assets at fair value — qualifying hedges             16.9         –          16.9         –   
Total           $4,103.3       $200.4       $3,133.9       $769.0  
Liabilities
                                                  
Derivative liabilities at fair value — non-qualifying hedges(1)
           $(68.8)       $–        $(57.3)       $(11.5)  
Consideration holdback liability             (47.2)         –          –          (47.2)  
FDIC True-up Liability             (61.9)         –          –          (61.9)  
Total           $(177.9)       $–        $(57.3)       $(120.6)  
(1) 
Upon the adoption of ASU 2016-01 - Financial Instruments as of January 1, 2018, equity securities AFS were reclassified to securities carried at fair value with changes recorded in net income. See Note 1 - Business and Summary of Significant Accounting Policies.
(2)
Derivative fair values include accrued interestinterest.


Debt and Equity Securities Classified as AFS and Securities carried at fair value with changes recorded in net income — Debt and equity securities classified as AFS are carried at fair value, as determined either by Level 1, Level 2 or Level 3 inputs. Debt securities classified as AFS included investments in U.S. federal government agency,agencies, U.S. Treasury Notes and supranational securities and were valued using Level 2 inputs, primarily quoted prices for similar securities. U.S. Treasury Bills and certain equity securities classified as AFS were valued using Level 1 inputs, primarily quoted prices in active markets. For Agency pass-through MBS, which are classified as Level 2, the Company generally determines estimated fair value utilizing prices obtained from independent broker dealers and recent trading activity for similar assets. Debt securities classified as AFS and securities carried at fair value with changes recorded in net income represent non-Agency MBS, the market for such securities is not active and the estimated fair value was determined using a discounted cash flow technique. The significant unobservable assumptions, which are verified to the extent possible using broker dealer quotes, are estimated by type of underlying collateral, including credit loss assumptions, estimated prepayment speeds and appropriate discount rates. Given the lack of observable market data, the estimated fair value of the non-agency MBS is classified as Level 3.


Derivative Assets and Liabilities — The Company’s financial derivatives include interest rate swaps, floors, caps, forwards, forward sale commitments on Agency MBS and credit derivatives. These derivatives are valued using models that incorporate inputs depending on the type of derivative, such as interest rate curves, foreign exchange rates and volatility. Readily observable market inputs to models can be validated to external sources, including industry pricing services, or corroborated through recent trades, broker dealer quotes,

36   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


yield curves, or other market-related data. As such, these derivative instruments are valued using a Level 2 methodology. In addition, these derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the

30 Item 1.  Consolidated Financial Statements
Table of Contents
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Company’s evaluation of credit risk. The fair value of the TRS derivative, written options on certain CIT Bank CDs and credit derivatives were estimated using Level 3 inputs.


FDIC True-up Liability — In connection with the La Jolla Transaction, the Company recognized a FDIC True-up liability due to the FDIC 45 days after the tenth anniversary of the loss share agreement (the maturity) because the actual and estimated cumulative losses on the acquired covered PCI loans are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition. The FDIC True-up liability was recorded at estimated fair value as of the Acquisition Date and is remeasured to fair value at each reporting date until the contingency is resolved. The FDIC True-up liability was valued using the discounted cash flow method based on the terms specified in the loss share agreement with the FDIC, the actual FDIC payments collected and significant unobservable inputs, including a risk-adjusted discount rate (reflecting the Company’s credit risk plus a liquidity premium), prepayment and default rates. Due to the significant unobservable inputs used to calculate the estimated fair value, these measurements are classified as Level 3.


Consideration Holdback Liability — In connection with the OneWest acquisition, the parties negotiated 4 separate holdbacks related to selectedselect trailing risks, totaling $116 million, which reduced the cash consideration paid at closing. Any unapplied Holdback funds at the end of the respective holdback periods, which range from 1 – 5 years, are payable to the former OneWest shareholders. Unused funds for any of the four holdbacks cannot be applied against another holdback amount. The range of potential holdback to be paid is from $0 to $116 million. Based on management’s estimate of the probability of each holdback it was determined that the probable amount of holdback to be paid was originally recorded at $62.4 million, and currently is $47.4$46.0 million. The amount expected to be paid was discounted based on CIT’s cost of funds, which approximates a market rate. This contingent consideration was measured at fair value at the Acquisition Date and is re-measured at fair value in subsequent accounting periods, with the changes in fair value recorded in the statement of income, until the related contingent issues are resolved. Gross payments, which are determined based on the Company’s probability assessment, are discounted at a rate approximating the Company’s average coupon rate on deposits and borrowings. Due to the significant unobservable inputs used to calculate the estimated fair value, these measurements are classified as Level 3.


Item 1.  Consolidated Financial Statements  37


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize information about significant unobservable inputs related to the Company’s categories of Level 3 financial assets and liabilities measured on a recurring basis as of March 31, 20172018 and December 31, 2016.

2017.

Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions)

Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions)
Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions)
Financial Instrument    Estimated
Fair Value
   Valuation
Technique(s)
   Significant
Unobservable
Inputs
   Range of
Inputs
   Weighted
Average
Estimated Fair Value Valuation
Technique(s)		 Significant
Unobservable
Inputs		 Range of
Inputs		 Weighted
Average
March 31, 2017
                           
March 31, 2018         
Assets                 
Securities — AFS$311.3
 Discounted cash flow Discount Rate 0.0% - 11.6% 4.7%
    Prepayment Rate 3.8% - 26.7% 8.5%
    Default Rate 0.0% - 6.6% 3.9%
    Loss Severity 0.3% - 76.2% 35.5%
Derivative assets — non qualifying0.1
 Internal valuation model Borrower Rate 3.5% - 4.9% 4.2%
Total Assets$311.4
                
Liabilities         
FDIC True-up liability$(65.5) Discounted cash flow Discount Rate 3.5% 3.5%
Consideration holdback liability(46.0) Discounted cash flow Payment Probability  0% - 100% 48.0%
 
   
Derivative liabilities — non-qualifying(16.2) 
Market Comparables(1)
      
Total Liabilities$(127.7)                
December 31, 2017         
Assets
                                  
Securities — AFS     $470.5     Discounted cash flow   Discount Rate   0.0% – 55.4%   5.2%$385.8
 Discounted cash flow Discount Rate 0.0% – 37.1% 4.6%
                  Prepayment Rate   3.5% – 22.2%   9.1%    Prepayment Rate 2.1% – 22.3% 8.8%
                  Default Rate   0.0% – 9.9%   3.9%    Default Rate 0.0% – 7.3% 3.7%
                  Loss Severity   0.7% – 84.7%   37.7%    Loss Severity 0.3% – 72.4% 35.3%
Securities carried at fair value with changes recorded in net income       268.9     Discounted cash flow   Discount Rate   2.5% – 42.7%   5.4%0.4
 Discounted cash flow Discount Rate 31.1% 31.1%
                  Prepayment Rate   6.0% – 22.8%   12.0%    Prepayment Rate 10.9% 10.9%
                  Default Rate   1.5% – 8.5%   4.4%    Default Rate 2.4% 2.4%
                  Loss Severity   21.4% – 39.5%   26.2%    Loss Severity 59.2% 59.2%
Derivative assets — non qualifying       0.1     Internal valuation model   Borrower Rate   3.1% – 5.0%   3.9%0.1
 Internal valuation model Borrower Rate 3.0% - 4.4% 3.8%
Total Assets
     $739.5        $386.3
        
Liabilities
                                            
FDIC True-up liability     $(63.0)     Discounted cash flow   Discount Rate   2.9%   2.9%$(65.1) Discounted cash flow Discount Rate 2.9% 2.9%
Consideration holdback liability       (47.4)     Discounted cash flow   Payment Probability   28.0% – 100%   40.9%(46.0) Discounted cash flow Payment Probability 0% – 100% 48.0%
                  Discount Rate   1.2% – 4.2%   2.1% 
   
 
 
Derivative liabilities — non-qualifying       (12.3)     
Market Comparables(1)
            (14.1) 
Market Comparables(1)
          
Total Liabilities
     $(122.7)        $(125.2)        
December 31, 2016
                           
Assets
                 
Securities — AFS     $485.5     Discounted cash flow   Discount Rate   0.0% – 96.4%   5.5%
                  Prepayment Rate   3.2% – 21.2%   8.8%
                  Default Rate   0.0% – 9.0%   3.9%
                  Loss Severity   1.0% – 79.8%   36.3%
Securities carried at fair value with changes recorded in net income       283.5     Discounted cash flow   Discount Rate   0.0% – 34.6%   5.6%
                  Prepayment Rate   6.1% – 16.2%   11.9%
                  Default Rate   1.9% – 8.1%   4.6%
                  Loss Severity   22.2% – 44.7%   25.8%
Total Assets
     $769.0                  
Liabilities
                 
FDIC True-up liability     $(61.9)     Discounted cash flow   Discount Rate   3.2%   3.2%
Consideration holdback liability       (47.2)     Discounted cash flow   Payment Probability   0% – 100%   40.9%
                  Discount Rate   1.3% – 4.0%   2.1%
Derivative liabilities — non-qualifying       (11.5)     
Market Comparables(1)
          
Total Liabilities
     $(120.6)                  
(1) 
The valuation of these derivatives is primarily related to the GSI facilities whichand is based on several factors using a discounted cash flow methodology, including a) funding costs for similar financings based on current market conditions; b) forecasted usage of long-dated facilities through the final maturity date in 2028; and c) forecasted amortization, due to principal payments on the underlying ABS, which impacts the amount of the unutilized portion.



CIT GROUP INC. 31
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

The level of aggregation and diversity within the products disclosed in the tables results in certain ranges of inputs being wide and unevenly distributed across asset and liability categories. For instruments backed by residential real estate, diversity in the portfolio is reflected in a wide range for loss severity due to varying levels of default. The lower end of the range represents high performing loans with a low probability of default while the higher end of the range relates to more distressed loans with a greater risk of default.

38   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The valuation techniques used for the Company’s Level 3 assets and liabilities, as presented in the previous tables, are described as follows:


▪
n
Discounted cash flow — Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the estimated fair value amount. The Company utilizes both the direct and indirect valuation methods. Under the direct method, contractual cash flows are adjusted for expected losses. The adjusted cash flows are discounted at a rate which considers other costs and risks, such as market risk and liquidity. Under the indirect method, contractual cash flows are discounted at a rate which reflects the costs and risks associated with the likelihood of generating the contractual cash flows.
▪
n
Market comparables — Market comparable(s) pricing valuation techniques are used to determine the estimated fair value of certain instruments by incorporating known inputs such as recent transaction prices, pending transactions, or prices of other similar investments which require significant adjustment to reflect differences in instrument characteristics.
▪
n
Internal valuation model — The internal model for rate lock valuation uses the spread on borrower mortgage rate and the Fannie Mae pass through rate and applies a conversion factor to assess the derivative value.


Significant unobservable inputs presented in the previous tables are those the Company considers significant to the estimated fair value of the Level 3 asset or liability. The Company considers unobservable inputs to be significant if, by their exclusion, the estimated fair value of the Level 3 asset or liability would be significantly impacted based on qualitative factors such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs on the values relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the tables.


▪
n
Default rate — is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate.
▪
n
Discount rate — is a rate of return used to present value the future expected cash flows to arrive at the estimated fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.
▪
n
Loss severity — is the percentage of contractual cash flows lost in the event of a default.
▪
n
Prepayment rate — is the estimated rate at which forecasted prepayments of principal of the related loan or debt instrument are expected to occur, expressed as a constant prepayment rate (“CPR”).
▪
n
Payment Probability — is an estimate of the likelihood the consideration holdback amount will be required to be paid expressed as a percentage.
▪
n
Borrower rate — Mortgage rate committed to the borrower by CIT Bank. EffectiveBank, effective for up to 90 days.


As reflected above, the Company generally uses discounted cash flow techniques to determine the estimated fair value of Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs and assumptions and as a result, changes in these unobservable inputs (in isolation) may have a significant impact to the estimated fair value. Increases in the probability of default and loss severities will result in lower estimated fair values, as these increases reduce expected cash flows. Increases in the discount rate will result in lower estimated fair values, as these increases reduce the present value of the expected cash flows.


Alternatively a change in one unobservable input may result in a change to another unobservable input due to the interrelationship among inputs, which may counteract or magnify the estimated fair value impact from period to period. Generally, theThe value of the Level 3 assets and liabilities estimated using a discounted cash flow technique would decrease (increase) upon an increase (decrease) in discount rate, default rate, loss severity or weighted average life inputs. Discount rates are influenced by market expectations for the underlying collateral performance, and therefore may directionally move with probability and severity of default; however, discount rates are also impacted by broader market forces, such as competing investment yields, sector liquidity, economic news, and other macroeconomic factors. There is no direct interrelationship between prepayments and discount rate. Prepayment rates generally move in the opposite direction of market interest rates. Increase in the probability of default will generally be accompanied with an increase in loss severity, as both are impacted by underlying collateral values.



32 Item 1.  Consolidated Financial Statements  39


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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):


Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities Measured on a Recurring Basis (dollars in millions)

    Securities-
AFS
   Securities
carried at
fair value
with
changes
recorded in
net income
   FDIC
Receivable
   Derivative
assets-
non-
qualifying(1)
   Derivative
liabilities-
non-
qualifying(2)
   FDIC
True-up
Liability
   Consideration
holdback
Liability
Securities-
AFS
 
Securities
Carried at
Fair Value
with
Changes
Recorded in
Net Income
 
Derivative
Assets-
Non-
qualifying(1)
 
Derivative
Liabilities-
Non-
qualifying(2)
 
FDIC
True-up
Liability
 
Consideration
Holdback
Liability
December 31, 2017$385.8
 $0.4
 $0.1
 $(14.1) $(65.1) $(46.0)
Included in earnings3.5
 —
 —
 (2.1) (0.4) —
Included in comprehensive income(2.7) —
 —
 —
 —
 —
Sales, paydowns, and adjustments(75.3) (0.4) —
 —
 —
 —
Balance as of March 31, 2018$311.3
 $—
 $0.1
 $(16.2) $(65.5) $(46.0)
December 31, 2016
     $485.5       $283.5       $0.6       $–        $(11.5)       $(61.9)       $(47.2)  $485.5
 $283.5
 $—
 $(11.5) $(61.9) $(47.2)
Included in earnings       (1.7)         3.2         0.8         0.1         (0.8)         (1.1)         (0.2)  (1.7) 3.2
 0.1
 (0.8) (1.1) (0.2)
Included in comprehensive income       6.9         –          –          –          –          –          –   6.9
 —
 —
 —
 —
 —
Impairment       (0.1)         –          –          –          –          –          –   (0.1) —
 —
 —
 —
 —
Settlements       (20.1)         (17.8)         –          –          –          –          –   
Sales, paydowns, and adjustments(20.1) (17.8) —
 —
 —
 —
Balance as of March 31, 2017
     $470.5       $268.9       $1.4       $0.1       $(12.3)       $(63.0)       $(47.4)  $470.5
 $268.9
 $0.1
 $(12.3) $(63.0) $(47.4)
December 31, 2015
     $567.1       $339.7       $54.8       $–        $(55.5)       $(56.9)       $(60.8)  
Included in earnings       (1.5)         (1.0)         2.8         0.2         18.5         (1.1)         (0.6)  
Included in comprehensive income       (2.1)         –          –          –          –          –          –   
Impairment       (2.0)         –          –          –          –          –          –   
Settlements       (20.9)         (15.7)         (3.2)         –          –          –          –   
Balance as of March 31, 2016
     $540.6       $323.0       $54.4       $0.2       $(37.0)       $(58.0)       $(61.4)  
(1) 
Valuation of Interest Rate Lock Commitments
(2) 
Valuation of the derivatives related to the TRS Transactions and written options on certain CIT Bank CDs.


The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in the observability of key inputs to a fair value measurement may result in a transfer of assets or liabilities between Level 1, 2 and 3. The Company’s policy is to recognize transfers in and transfers out as of the end of the reporting period. For the quarters ended March 31, 20172018 and 2016,2017, there were no transfers into or out of Level 3.


Assets Measured at Estimated Fair Value on a Non-recurring Basis


Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. This was determined by examining the changes in market factors relative to instrument specific factors.

40   CIT GROUP INC


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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table presents assets measured at estimated fair value on a non-recurring basis for which a non-recurring change in fair value has been recorded in the current year:


Carrying Value of Assets Measured at Fair Value on a Non-recurring Basis (dollars in millions)

        Fair Value Level at Reporting Date
   
     Total
Carrying
Value
   Level 1
   Level 2
   Level 3
   Total
(Losses)
Assets
                                                             
March 31, 2017
                                                                 
Assets held for sale           $162.5       $–        $–        $162.5       $(1.7)  
Other real estate owned             13.6         –          –          13.6         (0.7)  
Impaired loans             65.1         –          –          65.1         (20.7)  
Total           $241.2       $–        $–        $241.2       $(23.1)  
December 31, 2016
                                                             
Goodwill           $51.8       $–        $–        $51.8       $(354.2)  
Assets held for sale             201.6         –          –          201.6         (14.7)  
Other real estate owned             22.5         –          –          22.5         (3.2)  
Impaired loans             151.9         –          –          151.9         (26.8)  
Total           $427.8       $  –        $  –        $427.8       $(398.9)  

   Fair Value Measurements at Reporting Date Using:  
 
Total

 Level 1 Level 2 Level 3 
Total
(Losses)
March 31, 2018 
                
Assets held for sale$153.6
 $—
 $2.5
 $151.1
 $(0.4)
Other real estate owned13.2
 —
 —
 13.2
 (0.5)
Impaired loans(1)
37.6
 —
 —
 37.6
 (35.3)
Total$204.4
 $—
 $2.5
 $201.9
 $(36.2)
December 31, 2017 
  
  
  
  
Assets held for sale177.8
 —
 —
 177.8
 (15.0)
Other real estate owned18.8
 —
 —
 18.8
 (4.4)
Impaired loans89.1
 —
 —
 89.1
 (21.9)
Total$285.7
 $—
 $—
 $285.7
 $(41.3)
(1)
In the current quarter there was a $22 million charge-off of a single Commercial Finance exposure.

Assets of continuing operations that are measured at fair value on a non-recurring basis are as follows:


Assets Held for Sale — Assets held for sale are recorded at the lower of cost or fair value on the balance sheet. As there is no liquid secondary market for the assets held for sale in the Company’s portfolio, the fair value is estimated based on a binding contract, current letter of intent or other third-party valuation, or using internally generated valuations or discounted cash flow technique, all of which are Level 3 inputs. Carrying value of assets held for sale with impairment approximates fair value at March 31, 20172018 and December 31, 2016.2017.



CIT GROUP INC. 33
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CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Real Estate Owned — Other real estate owned represents collateral acquired from the foreclosure of secured real estate loans. Other real estate owned is measured at LOCOM less disposition costs. Estimated fair values of other real estate owned are reviewed on a quarterly basis and any decline in value below cost is recorded as impairment. Estimated fair value approximates carrying value and is generally based uponon market data, if available or broker price opinions or independent appraisals, adjusted for costs to sell. The estimated costs to sell are incremental direct costs to transact a sale, such as broker commissions, legal fees, closing costs and title transfer fees. The costs must be essential to the sale and would not have been incurred if the decision to sell had not been made. The range of inputs used to estimate cost to sell were 5.3% – 11.9%25.1%; which resulted in a weighted average of 6.1% at March 31, 2017. Also2018. Significant unobservable inputs, such as a significant unobservable input is thebinding contract, appraised value or the sales price, and thus is classified asresult in the Level 3. As of the reporting date, OREO carrying value approximates fair value.3 classification.


Impaired Loans — Impaired finance receivables of $500,000 or greater that are placed on non-accrual status are subject to periodic individual review in conjunction with the Company’s ongoing problem loan management (PLM) function. Impairment occurs when, based on current information and events, it is probable that CIT will be unable to collect all amounts due according to contractual terms of the agreement. Impairment is measured as the shortfall between estimated value and recorded investment in the finance receivable,loan, with the estimated value determined using fair value of collateral and other cash flows if the finance receivableloan is collateralized, the present value of expected future cash flows discounted at the contract’scontractual effective interest rate, or observable market prices. The significant unobservable inputs result in the Level 3 classification. As of the reporting date, the carrying value of impaired loans approximates fair value.



34 Item 1.  Consolidated Financial Statements  41


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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

Fair Values of Financial Instruments


The carrying values and estimated fair values of financial instruments presented below exclude leases and certain other assets and liabilities, which are not required for disclosure.


Financial Instruments (dollars in millions)

       Estimated Fair Value
   
    Carrying
Value
   Level 1
   Level 2
   Level 3
   Total
March 31, 2017
                                                       
  Estimated Fair Value  
Carrying
Value
 Level 1 Level 2 Level 3 Total
March 31, 2018 
  
  
  
  
Financial Assets
                                                        
  
  
  
  
Cash and interest bearing deposits     $6,156.9       $6,156.9       $–        $–        $6,156.9  $4,096.3
 $4,096.3
 $—
 $—
 $4,096.3
Derivative assets at fair value — non-qualifying hedges       67.5         –          67.4         0.1         67.5  94.2
 —
 94.1
 0.1
 94.2
Derivative assets at fair value — qualifying hedges       8.3         –          8.3         –          8.3  24.5
 —
 24.5
 —
 24.5
Assets held for sale (excluding leases)       396.1         –          118.2         291.1         409.3  980.2
 —
 3.6
 1,011.5
 1,015.1
Loans (excluding leases)       26,873.9         –          346.6         26,678.1         27,024.7  26,828.4
 

 668.8
 26,495.2
 27,164.0
Securities purchased under agreement to resell250.0
 —
 250.0
 —
 250.0
Investment securities(1)
       4,476.3         0.2         3,421.3         1,058.3         4,479.8  5,910.5
 248.0
 5,048.9
 613.6
 5,910.5
Indemnification assets(2)
       206.7         –          –          169.2         169.2  91.6
 —
 —
 72.2
 72.2
Other assets subject to fair value disclosure and unsecured counterparty receivables(3)
       516.9         –          –          516.9         516.9  476.2
 —
 —
 476.2
 476.2
Financial Liabilities
                                                        
  
  
  
  
Deposits(4)
       (32,360.9)         –          –          (32,500.1)         (32,500.1)  (30,616.7) —
 —
 (30,638.8) (30,638.8)
Derivative liabilities at fair value — non-qualifying hedges       (52.2)         –          (39.9)         (12.3)         (52.2)  (96.7) —
 (80.5) (16.2) (96.7)
Derivative liabilities at fair value — qualifying hedges       (0.8)         –          (0.8)         –          (0.8)  (7.2) —
 (7.2) —
 (7.2)
Borrowings(4)
       (14,841.5)         –          (14,231.1)         (1,050.2)         (15,281.3)  (10,480.9) —
 (9,711.9) (943.1) (10,655.0)
Credit balances of factoring clients       (1,547.1)         –          –          (1,547.1)         (1,547.1)  (1,549.0) —
 —
 (1,549.0) (1,549.0)
Other liabilities subject to fair value disclosure(5)
       (736.9)         –          –          (736.9)         (736.9)  (613.7) —
 —
 (613.7) (613.7)
December 31, 2016
              
December 31, 2017 
                
Financial Assets
                                                        
  
  
  
  
Cash and interest bearing deposits     $6,430.6       $6,430.6       $–        $–        $6,430.6  $1,718.7
 $1,718.7
 $—
 $—
 $1,718.7
Derivative assets at fair value — non-qualifying hedges       94.7         –          94.7         –          94.7  68.5
 —
 68.4
 0.1
 68.5
Derivative assets at fair value — qualifying hedges       16.9         –          16.9         –          16.9  0.2
 —
 0.2
 —
 0.2
Assets held for sale (excluding leases)       428.4         –          175.0         264.6         439.6  1,011.4
 —
 4.7
 1,044.8
 1,049.5
Loans (excluding leases)       26,683.0         –          390.3         26,456.4         26,846.7  26,428.1
 —
 624.3
 26,220.5
 26,844.8
Securities purchased under agreement to resell150.0
 —
 150.0
 —
 150.0
Investment securities(1)
       4,491.1         200.4         3,199.6         1,094.2         4,494.2  6,469.9
 199.2
 5,583.3
 687.4
 6,469.9
Indemnification assets(2)
       233.4         –          –          201.0         201.0  113.5
 —
 —
 87.4
 87.4
Other assets subject to fair value disclosure and unsecured counterparty receivables(3)
       712.2         –          –          712.2         712.2  542.2
 —
 —
 542.2
 542.2
Financial Liabilities
               
                
Deposits(4)
       (32,323.2)         –          –          (32,490.9)         (32,490.9)  (29,586.5) —
 —
 (29,668.6) (29,668.6)
Derivative liabilities at fair value — non-qualifying hedges       (68.8)         –          (57.3)         (11.5)         (68.8)  (68.3) —
 (54.2) (14.1) (68.3)
Derivative liabilities at fair value — qualifying hedges(18.7) —
 (18.7) —
 (18.7)
Borrowings(4)
       (15,097.8)         –          (14,457.8)         (1,104.9)         (15,562.7)  (9,043.8) —
 (8,281.7) (991.2) (9,272.9)
Credit balances of factoring clients       (1,292.0)         –          –          (1,292.0)         (1,292.0)  (1,468.6) —
 —
 (1,468.6) (1,468.6)
Other liabilities subject to fair value disclosure(5)
       (1,003.6)         –          –          (1,003.6)         (1,003.6)  (725.2) —
 —
 (725.2) (725.2)
(1) 
Level 3 estimated fair value at March 31, 2017,2018, includes debt securities AFS ($470.5311.3 million), securities carried at fair value with changes recorded in net income ($268.9 million),and non-marketable investments ($249.5 million), and debt securities HTM ($69.4302.3 million). Level 3 estimated fair value at December 31, 20162017 included debt securities AFS ($485.5385.8 million), debt securities carried at fair value with changes recorded in net income ($283.50.4 million), and non-marketable investments ($256.4301.2 million), and debt securities HTM ($68.8 million).
(2) 
The indemnification assets included in the above table do not include Agency claims indemnification ($106.4 million and $108.028.9 million at both March 31, 20172018 and December 31, 2016,2017, respectively), as they are not considered financial instruments.
(3) 
Other assets subject to fair value disclosure primarily include accrued interest receivable and miscellaneous receivables. These assets have carrying values that approximate fair value generally due to thetheir short-term nature and are classified as Level 3. The unsecured counterparty receivables primarily consist of amounts owed to CIT from GSI for debt discount, return of collateral posted to GSI and settlements resulting from market value changes to asset-backed securities underlying the TRS.
(4) 
Deposits and borrowings include accrued interest, which is included in “Other liabilities” in the Balance Sheet.
(5) 
Other liabilities subject to fair value disclosure include accounts payable, accrued liabilities, customer security and maintenance deposits and miscellaneous liabilities. The fair value of these approximate carrying value and are classified as level 3.

42   CIT GROUP INC


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The methods and assumptions used to estimate the fair value of each class of financial instruments are explained below:


Cash and interest bearing deposits — The carrying values of cash and cash equivalents are at face amount. The impact of the time value of money from the unobservable discount rate for restricted cash is inconsequential as of March 31, 2017 and December 31, 2016. Accordingly cashCash and cash equivalents and restricted cash approximate estimated fair value and are classified as Level 1.



CIT GROUP INC. 35
Table of Contents
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)

Derivatives — The estimated fair values of derivatives were calculated using observable market data and represent the gross amount receivable or payable to terminate, taking into account current market rates, which represent Level 2 inputs, except for the TRS derivative and written options on certain CIT Bank CDs and credit derivatives that utilized Level 3 inputs. SeeNote 7 — Derivative Financial Instruments for notional principal amounts and fair values.


Investment Securities — Debt and equity securities classified as AFS are carried at fair value, as determined either by Level 1, Level 2 or Level 3 inputs. Debt securities classified as AFS included investments in U.S. federal government agency securities, U.S. Treasury Notes and supranational securities and were valued using Level 2 inputs, primarily quoted prices for similar securities. Debt securities carried at fair value with changes recorded in net income include non-agency MBS where the market for such securities is not active; therefore the estimated fair value was determined using a discounted cash flow technique, which is a Level 3 input. U.S. Treasury Bills and certain equity securities classified as AFS were valued using Level 1 inputs, primarily quoted prices in active markets. Debt securities classified as HTM include government agency securities and were valued using Level 2 inputs, primarily quoted prices for similar securities. For debt securities HTM where no market rate was available, Level 3 inputs were utilized. Debt securities HTM are securities that the Company has both the ability and the intent to hold until maturity and are carried at amortized cost and periodically assessed for OTTI, with the cost basis reduced when impairment is deemed to be other-than-temporary. Non-marketable equity investments utilize Level 3 inputs to estimate fair value and are generally recorded under the cost or equity method of accounting and are periodically assessed for OTTI, with the net asset values reduced when impairment is deemed to be other-than-temporary. For investments in limited partnership equity interests, the Company used the net asset value provided by the fund manager as an appropriate measure of fair value.


Assets held for sale — Assets held for sale are recorded at the lower of cost or fair value on the balance sheet. Of the assets held for sale above, $115.4$3.6 million carrying amount at March 31, 20172018 was valued using Level 2 inputs. As there is no liquid secondary market for the other assets held for sale in the Company’s portfolio, the fair value is estimated based on a binding contract, current letter of intent or other third-party valuation, or using internally generated valuations or discounted cash flow technique, all of which are Level 3 inputs. Commercial loans are generally valued individually, while small ticket commercial loans are valued on an aggregate portfolio basis.


Loans — Within the Loans category, there are several types of loans as follows:


▪
n
Commercial and Consumer Loans — Of the loan balance above, $346.6$668.8 million and $390.3$624.3 million at March 31, 20172018 and December 31, 2016,2017, respectively, were valued using Level 2 inputs. As there is no liquid secondary market for the other loans in the Company’s portfolio, the fair value is estimated based on discounted cash flow analyses which use Level 3 inputs at both March 31, 20172018 and December 31, 2016.2017. In addition to the characteristics of the underlying contracts, key inputs to the analysis include interest rates, prepayment rates, To Be Announced ("TBA") prices, and credit spreads. For the commercial loan portfolio, the market based credit spread inputs are derived from instruments with comparable credit risk characteristics obtained from independent third party vendors. As these Level 3 unobservable inputs are specific to individual loans/collateral types, management does not believe that sensitivity analysis of individual inputs is meaningful, but rather that sensitivity is more meaningfully assessed through the evaluation of aggregate carrying values of the loans. The fair value of loans at March 31, 20172018 was $27.0$27.2 billion, which was 100.6%101.3% of carrying value. The fair value of loans at December 31, 20162017 was $26.8 billion, which was 100.6%101.6% of carrying value.
▪
n
Impaired Loans — The value of impaired loans is estimated using the fair value of collateral (on an orderly liquidation basis) if the loan is collateralized, the present value of expected cash flows utilizing the current market rate for such loan, or observable market price. As these Level 3 unobservable inputs are specific to individual loans/collateral types, management does not believe that sensitivity analysis of individual inputs is meaningful, but rather that sensitivity is more meaningfully assessed through the evaluation of aggregate carrying values of impaired loans relative to contractual amounts owed (unpaid principal balance or “UPB”) from customers. As of March 31, 2017,2018, the UPB related to impaired loans totaled $252.8$237.9 million. Including related allowances, these loans are carried at $200.6$158.9 million, or 79.4%66.8% of UPB. Of these amounts, $87.1$149.7 million and $74.6$101.5 million of UPB and carrying value, respectively, relate to loans with no specific allowance. As of December 31, 20162017 the UPB related to impaired loans including loans for which the Company was applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality), totaled $244.3$195.5 million. Including related allowances, these loans were carried at $188.2$146.7 million, or 77.0%75.0% of UPB. Of these amounts, $74.7$86.1 million and $63.6 million of UPB and carrying value, respectively, relate to loans with no specific allowance. The difference between UPB and carrying value reflects cumulative charge-offs on accounts remaining in process of collection, FSA discounts and allowances. See Note 3 — Loans for more information.

Item 1.  Consolidated Financial Statements  43


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

$55.5 million of UPB and carrying value, respectively, relate to loans with no specific allowance. The difference between UPB and carrying value reflects cumulative charge-offs on accounts remaining in process of collection, FSA discounts and allowances. SeeNote 3 — Loans for more information.

▪
n
PCI loans — These loans are valued by grouping the loans into performing and non-performing groups and stratifying the loans based on common risk characteristics such as product type, FICO score and other economic attributes. Due to a lack of observable market data, the estimated fair value of these loan portfolios was based on an internal model using unobservable inputs, including discount rates, prepayment rates, delinquency roll-rates, and loss severities. Due to the significance of the unobservable inputs, these instruments are classified as Level 3.

n
Jumbo Mortgage Loans — The estimated fair value was determined by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Due to the unobservable nature of the inputs used in deriving the estimated fair value of these instruments, these loans are classified as Level 3.

Indemnification Assets — The Company’s indemnification assets relating to the SFR loans purchased in the OneWest Bank Transaction are measured on the same basis as the related indemnified item, and the underlying SFR loans. The estimated fair values reflect the present value of expected reimbursements under the indemnification agreements based on the loan performance discounted at an estimated market rate, and are classified as Level 3.


Deposits — The estimated fair value of deposits with no stated maturity, such as demand deposit accounts (including custodial deposits), money market accounts, and savings accounts is the amount payable on demand at the reporting date.


The estimated fair value of time deposits is determined using a discounted cash flow analysis. The discount rate for the time deposit accounts is derived from the rate currently offered on alternate funding sources with similar maturities. Discount rates used in the present value calculation are based on the Company’s average current deposit ratesmaturities for similar terms, which are Level 3 inputs.









Borrowings


36 Item 1.  Consolidated Financial Statements
Table of Contents
n
 
CIT Group Inc. and Subsidiaries – Notes to Condensed Consolidated Financial Statements (Unaudited)


▪
Unsecured debt — Unsecured debt includes both senior debt and subordinated debt. Approximately $10.6$5.2 billion par value at March 31, 20172018 and $3.8 billion at December 31, 20162017 were valued using market inputs, which are Level 2 inputs.
▪
n
Secured borrowings — Secured borrowings includesinclude both structured financings and FHLB Advances. Approximately $3.1$4.4 billion par value at March 31, 20172018 and $3.3$4.3 billion par value at December 31, 20162017, were valued using market inputs, which are Level 2 inputs. Where market estimates were not available for approximately $1.0 billion and $1.1 billion par value at both March 31, 20172018, and December 31, 2016,2017, respectively, values were estimated using a discounted cash flow analysis with a discount rate approximating current market rates for issuances by CIT of similar debt, which are Level 3 inputs. Included in the above, the estimated fair value of FHLB Advancesadvances, which is based on athe discounted cash flow model that utilizes benchmark interest rates and other observable market inputs.model. The discounted cash flow model usesflows are calculated using the contractual features of the advance features to determine the cash flows with a zero spread to the forward FHLB curve, whichand they are discounted using observable benchmark interest rates. As the model inputs can be observed in a liquid marketfor the calculation are observable and the model does not require significant judgment, FHLB advances are classified as Level 2.

Credit balances of factoring clients — The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances (typically 90 days or less) as of March 31, 20172018 and December 31, 2016.2017. Accordingly, credit balances of factoring clients approximate estimated fair value and are classified as Level 3.



NOTE 9 — STOCKHOLDERS’ EQUITY


A roll forward of common stock is presented in the following table.
Number of Shares of Common Stock      
       
  Issued Less
Treasury		 Outstanding
Common Stock – December 31, 2017 207,628,491
 (76,275,567) 131,352,924
Restricted stock issued 1,188,303
 —
 1,188,303
Repurchase of common stock —
 (3,665,866) (3,665,866)
Shares held to cover taxes on vesting restricted shares and other —
 (470,681) (470,681)
Employee stock purchase plan participation 13,603
 —
 13,603
Common Stock – March 31, 2018 208,830,397
 (80,412,114) 128,418,283
       

During the quarter, CIT repurchased a total of $194.9 million in common shares via open market repurchases of 3,665,866 common shares at an average share price of $53.16.

Accumulated Other Comprehensive LossIncome (Loss) ("AOCI")


The following table details the components of Accumulated Other Comprehensive Loss,AOCI, net of tax:

Components of Accumulated Other Comprehensive Loss (dollars in millions)
            
 March 31, 2018 December 31, 2017
 
Gross
Unrealized
 
Income
Taxes
 
Net
Unrealized
 
Gross
Unrealized
 
Income
Taxes
 
Net
Unrealized
Foreign currency translation adjustments$1.8
 $(8.9) $(7.1) $0.8
 $(8.8) $(8.0)
Changes in benefit plan net gain (loss) and prior service (cost)/credit(49.1) (1.7) (50.8) (53.6) (0.9) (54.5)
Unrealized net gains (losses) on securities AFS
(124.9) 32.9
 (92.0) (39.5) 15.5
 (24.0)
Total accumulated other comprehensive loss$(172.2) $22.3
 $(149.9) $(92.3) $5.8
 $(86.5)

Components of Accumulated Other Comprehensive Loss (dollars in millions)

     March 31, 2017
   December 31, 2016
   
     Gross
Unrealized
   Income
Taxes
   Net
Unrealized
   Gross
Unrealized
   Income
Taxes
   Net
Unrealized
Foreign currency translation adjustments           $(20.2)       $(28.4)       $(48.6)       $(28.6)       $(32.8)       $(61.4)  
Changes in benefit plan net gain (loss) and prior service (cost)/credit             (69.1)         4.7         (64.4)         (70.6)         5.3         (65.3)  
Unrealized net gains (losses) on available for sale securities             (17.7)         7.0         (10.7)         (22.0)         8.6         (13.4)  
Total accumulated other comprehensive loss           $(107.0)       $(16.7)       $(123.7)       $(121.2)       $(18.9)       $(140.1)  
 

44   CIT GROUP INC
INC. 37


Table of Contents

CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

The following table details the changes in the components of Accumulated Other Comprehensive Loss,AOCI, net of income taxes:

Changes in Accumulated
Changes in Accumulated Other Comprehensive Income (Loss) by Component (dollars in millions)
        
 
Foreign
currency
translation
adjustments
 
Changes in
benefit plan
net gain (loss)
and prior service (cost) credit
 
Unrealized net
gains (losses)
on available
for sale
securities
 Total AOCI
Balance as of December 31, 2017$(8.0) $(54.5) $(24.0) $(86.5)
Adoption of ASUs 2016-01 and 2018-02(1)
3.3
 0.3
 (4.1) (0.5)
AOCI activity before reclassifications(2.4) 3.3
 (60.1) (59.2)
Amounts reclassified from AOCI—
 0.1
 (3.8) (3.7)
Net current period AOCI(2.4) 3.4
 (63.9) (62.9)
Balance as of March 31, 2018$(7.1) $(50.8) $(92.0) $(149.9)
Balance as of December 31, 2016$(61.4) $(65.3) $(13.4) $(140.1)
AOCI activity before reclassifications3.3
 0.9
 2.7
 6.9
Amounts reclassified from AOCI9.5
 —
 —
 9.5
Net current period AOCI12.8
 0.9
 2.7
 16.4
Balance as of March 31, 2017$(48.6) $(64.4) $(10.7) $(123.7)
(1) See Note 1 - Business and Summary of Significant Accounting Policies for information on these ASUs.

Other Comprehensive Loss by Component (dollars in millions)

     Foreign
currency
translation
adjustments
   Changes in
benefit plan
net gain (loss)
and prior
service (cost)
credit
   Unrealized net
gains (losses)
on available
for sale
securities
   Total AOCI
Balance as of December 31, 2016
           $(61.4)       $(65.3)       $(13.4)       $(140.1)  
AOCI activity before reclassifications             3.3         0.9         2.7         6.9  
Amounts reclassified from AOCI             9.5         –          –          9.5  
Net current period AOCI             12.8         0.9         2.7         16.4  
Balance as of March 31, 2017
           $(48.6)       $(64.4)       $(10.7)       $(123.7)  
Balance as of December 31, 2015
           $(65.7)       $(69.3)       $(7.1)       $(142.1)  
AOCI activity before reclassifications             16.5         (0.1)         2.6         19.0  
Amounts reclassified from AOCI             4.7         1.0         –          5.7  
Net current period AOCI             21.2         0.9         2.6         24.7  
Balance as of March 31, 2016
           $(44.5)       $(68.4)       $(4.5)       $(117.4)  

Other Comprehensive Income/(Loss)

The amounts included in the Statement of Comprehensive Income are net of income taxes.

Foreign
There were no foreign currency translation reclassification adjustments impacting net income werefor the quarter ended March 31, 2018 and $9.5 million and $4.7 million for the quartersquarter ended March 31, 2017 and 2016, respectively.2017. The change in income taxes associated with foreign currency translation adjustments was $4.4$(0.1) million and $15.6$4.4 million for the quarters ended March 31, 2018 and 2017, and 2016, respectively.


The changes in benefit plans net gain/(loss) and prior service (cost)/credit reclassification adjustments impacting net income waswere $0.1 million and insignificant and $1.0 million for the quarters ended March 31, 20172018 and 2016,2017, respectively. The change in income taxes associated with changes in benefit plans net gain/(loss) and prior service (cost)/credit was $(0.8) million and $(0.6) million for the quarterquarters ended March 31, 2018 and 2017, and was insignificant in the prior year quarter ended March 31, 2016.respectively.

There were no reclassification
Reclassification adjustments impacting net income for unrealized gains gains/(losses) on available for sale securities was $(3.8) million and insignificant for the quarters ended March 31, 2018 and 2017, and 2016.respectively. The change in income taxes associated with net unrealized gainsgains/(losses) on available for sale securities was $17.4 million and $(1.6) million for each quarterquarters ended March 31, 2018 and 2017, and 2016.respectively.


The Company has operations primarily in North America. The functional currency for foreign operations is generally the local currency. The value of assets and liabilities of these operations is translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at the average exchange rates during the year. The resulting foreign currency translation gains and losses, as well as offsetting gains and losses on hedges of net investments in foreign operations, are reflected in AOCI. Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are recorded in Other Income.

Reclassifications Out of Accumulated Other Comprehensive Income (dollars in millions)

     Quarters Ended March 31,
   
     2017
   2016
   
     Gross
Amount
   Tax
   Net
Amount
   Gross
Amount
   Tax
   Net
Amount
   Income
Statement
line item
Foreign currency translation adjustments gains (losses)           $8.1       $1.4       $9.5       $3.6       $1.1       $4.7     Other
Income
Changes in benefit plan net gain/(loss) and prior service (cost)/credit gains (losses)             –          –          –          1.1         (0.1)         1.0         Operating
Expenses		   
Total Reclassifications out of AOCI           $8.1       $1.4       $9.5       $4.7       $1.0       $5.7             
 

Item 1.  Consolidated Financial Statements  45
Reclassifications Out of AOCI (dollars in millions)
              
 Quarters Ended March 31,  
 2018 2017  
 
Gross
Amount
 Tax 
Net
Amount
 
Gross
Amount
 Tax 
Net
Amount
 
Income
Statement
line item
Foreign currency translation adjustments gains$—
 $—
 $—
 $8.1
 $1.4
 $9.5
 Other Income
Changes in benefit plan net gain/(loss) and prior service (cost)/credit losses0.1
 —
 0.1
 —
 —
 —
 
Operating
Expenses
Unrealized net gains (losses) on securities AFS
(5.2) 1.4
 (3.8) —
 —
 —
 Other Income
Total Reclassifications out of AOCI$(5.1) $1.4
 $(3.7) $8.1
 $1.4
 $9.5
  


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


NOTE 10 — REGULATORY CAPITAL


The Company and the Bank are each subject to various regulatory capital requirements administered by the FRB and the OCC. Quantitative measures established by regulation to ensure capital adequacy require that the Company and the Bank each maintain minimum amounts and ratios of Total, Tier 1 and Common Equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. In July 2013 the FRB, OCC and Federal Deposit Insurance Corporation issued a final rule (the “Basel III Final Rule”) establishing risk-based capital guidelines. We compute capital ratios in accordance with Federal Reserve capital guidelines and OCC capital guidelines for assessing adequacy of capital for the Company and CIT Bank, respectively. At March 31, 2017

38 Item 1.  Consolidated Financial Statements
Table of Contents
CIT Group Inc. and December 31, 2016, the regulatory capital guidelines applicableSubsidiaries – Notes to the Company and the Bank were based on the Basel III Final Rule.Condensed Consolidated Financial Statements (Unaudited)

The calculation of the Company’s regulatory capital ratios are subject to review and consultation with the FRB, which may result in refinements to amounts reported at March 31, 2017.


The following table summarizes the actual and minimum required capital ratios:

Capital Components and Ratios (dollars in millions)
        
 CIT CIT Bank, N.A.
 March 31,
2018		 December 31,
2017		 March 31,
2018		 December 31,
2017
Common Equity Tier 1 Capital$6,321.5
 $6,479.8
 $4,730.9
 $4,751.6
Tier 1 Capital$6,637.7
 $6,775.4
 $4,730.9
 $4,751.6
Total Capital$7,528.2
 $7,251.0
 $5,165.5
 $5,183.3
Risk-Weighted Assets$44,777.8
 $44,537.7
 $34,742.2
 $34,527.2
Capital Ratios: 
  
  
  
Common Equity Tier 1 Capital Ratio: 
  
  
  
Actual14.1% 14.5% 13.6% 13.8%
Effective minimum ratios under Basel III guidelines(1)
6.375% 5.750% 6.375% 5.750%
Tier 1 Capital Ratio: 
  
  
  
Actual14.8% 15.2% 13.6% 13.8%
Effective minimum ratios under Basel III guidelines(1)
7.875% 7.250% 7.875% 7.250%
Total Capital Ratio: 
  
  
  
Actual16.8% 16.3% 14.9% 15.0%
Effective minimum ratios under Basel III guidelines(1)
9.875% 9.250% 9.875% 9.250%
Tier 1 Leverage Ratio: 
  
  
  
Actual13.5% 13.8% 11.6% 11.8%
Required minimum ratio for capital adequacy purposes4.0% 4.0% 4.0% 4.0%
Tier 1 Capital and Total Capital Components (dollars(1) Required ratios under Basel III Final Rule in millions)effect as of the reporting date including the partially phased-in capital conservation buffer.


     CIT
   CIT Bank, N.A.
   
     March 31,
2017
   December 31,
2016
   March 31,
2017
   December 31,
2016
Common Equity Tier 1 Capital
           $9,271.6       $9,058.9       $4,695.2       $4,623.2  
Total Capital
           $9,770.1       $9,535.2       $5,123.6       $5,053.4  
Risk-weighted assets
           $64,330.0       $64,586.3       $34,252.0       $34,410.3  
Capital Ratios:
                                                  
Common Equity Tier 1 Capital Ratio:
                                                  
Actual             14.4%         14.0%         13.7%         13.4%  
Effective minimum ratios under Basel III guidelines(1)
             5.750%         5.125%         5.750%         5.125%  
Tier 1 Capital Ratio:
                                                  
Actual             14.4%         14.0%         13.7%         13.4%  
Effective minimum ratios under Basel III guidelines(1)
             7.250%         6.625%         7.250%         6.625%  
Total Capital Ratio:
                                                  
Actual             15.2%         14.8%         15.0%         14.7%  
Effective minimum ratios under Basel III guidelines(1)
             9.250%         8.625%         9.250%         8.625%  
Tier 1 Leverage Ratio:
                                                  
Actual             14.8%         13.9%         11.3%         10.9%  
Required minimum ratio for capital adequacy purposes             4.0%         4.0%         4.0%         4.0%  
(1)
Required ratios under Basel III Final Rule in effect as of the reporting date including the partially phased-in capital conservation buffer.

NOTE 11 — INCOME TAXES


The Company’s global effective income tax rate from continuing operations for the first quarter and year-ago quarter was 42%28.5% and 41.8%, respectively, including discrete tax items.

The net discretedecline in the effective tax expenserate is primarily driven by lower statutory income tax rates from U.S. tax reform, partially offset by the impact of $11.3 millionthe change in accounting method for the current quarter included $13.9 million in deferredlow income housing tax expense related to the restructuringcredit ("LIHTC") investment, disallowance of legal entities in preparation for the Commercial Air sale. The year-ago quarter’s net discrete tax benefit of $11.0 million included a $13.9 million tax benefit, including interestFDIC insurance premiums, and penalties, resulting from favorable resolution of a tax position on an international portfolio previously sold.state income taxes.


The quarterly income tax expense is based on an updateda projection of the Company’s annual effective tax rate. This updated annual effective tax rate is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The impact of any change in the projected annual effective tax rate from the prior quarter is reflected in the quarterly income tax expense. The change in the effective tax rate each period is impacted by a number of factors, including the relative mix of domestic and international earnings, adjustments to the valuation allowances, and discrete items. The near term future periodscurrently forecasted effective tax rate may vary from the actual year-end 20172018 effective tax rate due to the changes in these factors.


Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (or “U.S. Tax Reform legislation”) was enacted on December 22, 2017. The Tax Cuts and Jobs Act required management to make certain adjustments to the Company’s year-end financial statements for the effects of the law relating to the remeasurement of deferred taxes, liabilities for taxes due on mandatory deemed repatriation, liabilities for taxes due on other foreign income, and the reassessment of the Company’s valuation allowance. The SEC staff has afforded registrants a measurement period to record adjustments for the affects of the law, per Staff Accounting Bulletin No. 118 Income Tax Accounting Implications of the Tax Cuts and Jobs Act, similar to the measurement period used when accounting for business combinations. As of March 31, 2018, the Company has reviewed information relating to these tax law changes, and concluded that the procedures and methods utilized in developing assumptions, estimates and judgments for final and provisional amounts recorded in the financial statements are appropriate. The Company anticipates refinements to the amounts resulting from the issuance of future legislative and accounting guidance as well as those in the normal course of business, including true-ups resulting from the tax return to be filed later in 2018. However, Management does not anticipate any adjustments to the provisional amounts arising from further analysis of these tax law changes would be material.

Valuation Allowances

The Company established valuation allowances (“VAs”) against certain U.S. federal, U.S. state, and international deferred tax assets (“DTAs”) that are not expected to be realized in the future. The Company maintained a valuation allowanceVA of $39 million against certain non-U.S. reporting entities’ net DTAs and $240$208.6 million against U.S. state DTAs on certain NOLsstate net operating losses and $32.4 million VA against certain non-U.S. reporting entities' net DTAs as of March 31, 2017.2018. Additionally, as of March 31, 2018, the Company maintained a $21.7 million U.S. federal and state VA on the DTA established on capital loss carryforwards generated in the prior year from an equity investment in a wholly-owned foreign subsidiary. Capital losses can be carried forward for five years to offset capital gains but requires a VA until additional capital gains are identified. The Company’s ability to recognize DTAs will beis evaluated on a quarterly basis to determine if there are any significant events that would affect ourits ability to utilize existing DTAs. If events are identified that affect ourits ability to utilize ourits DTAs, valuation allowancesVAs may be adjusted accordingly.

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CIT GROUP INC. AND SUBSIDIARIESGroup Inc. and Subsidiaries – NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements (Unaudited)

Liabilities for Uncertain Tax Positions

The Company’s potential liability for uncertain tax positions ("UTPs") before interest and penalties totaled $35.5was $13.2 million at March 31, 20172018 and $36.4$13.5 million at December 31, 2016.2017. The Company anticipates changes to its uncertain tax positions fromUTP liability upon the resolution of open tax matters and closure of statutes of limitations. Management estimates that the total potential liability before interest and penalties may be reduced by up to $20$5 million within the next twelve months of which approximately $15 million will impact the income tax provision. On April 13, 2017, the Company received a fully executed Closing Agreement signed by the Executive Officer at the California Franchise Tax Board that will result in a favorable reduction of approximately $15 million in certain tax reserves on an uncertain tax position taken on prior year U.S. state tax returns. A favorable impact on the effective tax rate is expected in the second quarter. Approximately $5 million of the total $20 million expected reduction reside in entities that were included in the Commercial Air sale.months. The Company’s accrued liability for interest and penalties totaled $13.5$6.5 million at March 31, 20172018 and $11.7$6.3 million at December 31, 2016.2017. The Company recognizes accrued interest and penalties on unrecognized tax benefits in income tax expense.



NOTE 12 — COMMITMENTS


The accompanying table summarizes credit-related commitments and guarantees, as well as purchase and funding commitments:

Commitments (dollars
Commitments (dollars in millions)
        
 March 31, 2018  
 Due to Expire December 31,
2017
 
Within
One Year
 
After
One Year
 
Total
Outstanding
 
Total
Outstanding
Financing Commitments 
  
  
  
Financing assets (1) (2)
$2,018.1
 $4,689.7
 $6,707.8
 $6,351.1
Letters of credit 
  
  
  
Standby letters of credit31.8
 212.8
 244.6
 213.3
Other letters of credit14.3
 —
 14.3
 14.2
Guarantees 
            
Deferred purchase agreements1,870.6
 —
 1,870.6
 2,068.1
Guarantees, acceptances and other recourse obligations2.1
 —
 2.1
 2.1
Purchase and Funding Commitments 
  
  
  
Rail and other purchase commitments (1)
252.9
 27.5
 280.4
 222.9
(1) In preparing the quarter-end financial statements as of March 31, 2018, the Company discovered and corrected an immaterial error impacting December 31, 2017 "Financing assets" and "Rail and other purchase commitments", which were understated by $113.4 million ($86.6 million for financing assets and $26.8 million for purchase commitments). The current presentation has been revised to reflect the corrected balances at December 31, 2017.
(2) The amount includes approximately $2.2 billion and $2.3 billion of undrawn financing commitments at March 31, 2018 and December 31, 2017, respectively, for instances where the customer is not in millions)compliance with contractual obligations or does not have adequate collateral to borrow against the unused facility, and therefore CIT does not have the contractual obligation to lend. In preparing the quarter-end financial statements as of March 31, 2018, the Company discovered and corrected an immaterial error relating to the December 31, 2017 balance of certain undrawn financing commitments where the customer was not in compliance with contractual obligations which was understated by $0.7 billion. The current presentation has been revised to reflect the corrected balance at December 31, 2017.

     March 31, 2017
   
     Due to Expire
   December 31,
2016
   
     Within
One Year
   After
One Year
   Total
Outstanding
   Total
Outstanding
Financing Commitments
                                                  
Financing assets           $1.550.9       $4,670.1       $6,221.0       $6,008.1  
Letters of credit
                                                  
Standby letters of credit             45.2         210.8         256.0         232.2  
Other letters of credit             16.3         –          16.3         14.0  
Guarantees
                                                     
Deferred purchase agreements             1,875.6         –          1,875.6         2,060.5  
Guarantees, acceptances and other recourse obligations             1.1         –          1.1         1.6  
Purchase and Funding Commitments
                                                  
Aerospace purchase commitments             951.0         7,580.3         8,531.3         8,683.5  
Rail and other purchase commitments             270.7         43.0         313.7         300.7  

Discontinued Operations

The Aerospace purchase commitments in the table above are associated with Aerospace discontinued operations.
Financing commitments include HECM reverse mortgage loan commitments associated with Financial Freedom discontinued operations of $40$33 million at March 31, 20172018 and $42$34 million at December 31, 2016.2017. In addition, as servicer of HECM loans, the Company is required to repurchase the loan out of the GNMA HMBS securitization pools once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount or when the property forecloses to OREO. In October 2017, the Company announced the sale of the Financial Freedom business and a reverse mortgage loan portfolio in connection with the Financial Freedom Transaction. Upon investor (GNMA) consent to servicing transfer in connection with the sale, CIT shall no longer have this obligation. See Note 2 - Discontinued Operations.


Financing Commitments


Commercial


Financing commitments, referred to as loan commitments or lines of credit, primarily reflect CIT’s agreements to lend to its customers, subject to the customers’ compliance with contractual obligations. Included in the table above are commitments that have been extended to and accepted by customers, clients or agents, but on which the criteria for funding have not been completed of $964$1,464.9 million at March 31, 20172018 and $572$950.3 million at December 31, 2016.2017. Financing commitments also include credit line agreements to Business Capital clients that are cancellable by us only after a notice period. The notice period is typically 90 days or less. The amount available under these credit lines, net of the amount of receivables assigned to us, was $405$105 million at March 31, 20172018 and $335$190 million at December 31, 2016.2017. As financing commitments may not be fully drawn, may expire unused, may be reduced or cancelledcanceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.

The table above includes approximately $1.5 billion of undrawn financing commitments at March 31, 2017 and $1.7 billion at December 31, 2016 for instances where the customer is not in compliance with contractual obligations or does not have adequate collateral to borrow against the unused facility, and therefore CIT does not have the contractual obligation to lend.

At March 31, 2017,2018, substantially all undrawn financing commitments were senior facilities. Most of the Company’s undrawn and available financing commitments are in the Commercial Banking segment.

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The table above excludes uncommitted revolving credit facilities extended by Business Capital to its clients for working capital purposes. In connection with these facilities, Business Capital has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.


Consumer

Consumer

In conjunction with the OneWest Transaction, theThe Company is committed to fund draws on certain reverse mortgages in conjunction with loss sharing agreements with the FDIC. The FDIC agreed to indemnify the Company for losses on the first $200 million of draws that occur subsequent to the purchase date. In addition, the FDIC agreed to fund any other draws in excess of the $200 million. The Company’s net exposure for loan commitmentsAs of March 31, 2018 and December 31, 2017, $132 million and $134 million, respectively, had been advanced on the reverse mortgage loans post March 2009. The Company’s exposure for additional draws on thoseloan commitments on these purchased reverse mortgage loans was $57$68 million at March 31, 20172018 and $55$66 million at December 31, 2016.2017. The aggregate amount advanced and the remaining loan commitments on these purchased loans increase or decrease as the Company funds additional draws or outstanding draws are repaid. SeeNote 5 — Indemnification Assets of the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 for further discussion on the loss sharing agreements with the FDIC. In addition, as servicer of HECM loans, the Company is required to repurchase the loan out of the GNMA HMBS securitization pools once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount.


Also included was the Company’s commitment to fund draws on certain home equity lines of credit (“HELOCs”). Under the HELOC participation and servicing agreement entered into with the FDIC, the FDIC agreed to reimburse the Company for a portion of the draws that the Company made on the purchased HELOCs.


Letters of Credit


In the normal course of meeting the needs of clients, CIT sometimes enters into agreements to provide financing and letters of credit. Standby letters of credit obligate the issuer of the letter of credit to pay the beneficiary if a client on whose behalf the letter of credit was issued does not meet its obligation. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheets. To minimize potential credit risk, CIT generally requires collateral and in some cases additional forms of credit support from the client.


Deferred Purchase Agreements


A Deferred Purchase Agreement (“DPA”) is provided in conjunction with factoring, whereby CIT provides a client with credit protection for trade receivables without purchasing the receivables. The trade receivable terms are generally ninety90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, then CIT purchases the receivable from the client. The outstanding amount in the table above is the maximum potential exposure that CIT would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring CIT to purchase all such receivables from the DPA clients.


The table above includes $1,772$1,774 million and $1,962$1,979 million of DPA credit protection at March 31, 20172018 and December 31, 2016,2017, respectively, related to receivables which have been presented to us for credit protection after shipment of goods has occurred and the customer has been invoiced. The table also includes $104$96 million and $99$89 million available under DPA credit line agreements, net of the amount of DPA credit protection provided at March 31, 20172018 and December 31, 2016,2017, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period. The notice period is typically 90 days or less.


The methodology used to determine the DPA liability is similar to the methodology used to determine the allowance for loan losses associated with the finance receivables,loans, which reflects embedded losses based on various factors, including expected losses reflecting the Company’s internal customer and facility credit ratings. The liability recorded in Other Liabilities related to the DPAs totaled $11.6$5.4 million and $6.1$5.3 million at March 31, 20172018 and December 31, 2016,2017, respectively.


Purchase and Funding Commitments


CIT’s purchase commitments relate primarily to purchases of commercial aircraft and rail equipment.

Commitments to purchase new commercial aircraft are predominantly with Airbus Industries (“Airbus”) and The Boeing Company (“Boeing”). CIT may also commit to purchase an aircraft directly from an airline. Pursuant to existing contractual commitments, 126 aircraft remain to be purchased from Airbus, Boeing and Embraer at March 31, 2017. After the Commercial Air sale, which occurred on April 4, 2017, CIT will no longer have such commitments.

The Company’s rail business entered into commitments to purchase railcars from multiple manufacturers. At March 31, 2017,2018, approximately 2,5202,120 railcars remain to be purchased from manufacturers with deliveries through 2018.2019. Rail equipment purchase commitments are at fixed prices subject to price increases for certain materials.

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Other purchase commitments primarily relate to Equipment Finance.


Other Commitments


The Company has commitments to invest in affordable housing investments, and other investments qualifying for community reinvestment tax credits. These commitments were $54$80 million at March 31, 20172018 and $62$67 million at December 31, 2016.2017. These commitments are payable on demand and are recorded in Other liabilities.

In addition, as servicer of HECM loans, the Company is required to purchase loans out of the GNMA HMBS securitization pools once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount. Refer toNote 3 — Loans for further detail regarding the purchased HECM loans due to this servicer obligation.

NOTE 13 — CONTINGENCIES

Litigation and other Contingencies

CIT is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings relating to matters that arise in connection with the conduct of its business (collectively, “Litigation”). In view of the inherent difficulty of predicting the outcome of Litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, CIT cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, CIT establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can be reasonably estimated. Based on currently available information, CIT believes that the results of Litigation that is currently pending, taken together, will not have a material adverse effect on the Company’s financial condition, but may be material to the Company’s operating results or cash flows for any particular period, depending in part on its operating
results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.

For certain Litigation matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates the aggregate range of reasonably possible losses as up to $60$55 million in excess of established reserves and insurance related to those matters, if any. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, 2017.2018. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.

Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure.

The foregoing statements about CIT’s Litigation are based on the Company’s judgments, assumptions, and estimates and are necessarily subjective and uncertain. The Company has several hundred threatened and pending judicial, regulatory and arbitration proceedings at various stages. Several of the Company’s significant Litigation matters are described below.


Brazilian Tax Matter


Banco Commercial Investment Trust do Brasil S.A. (“Banco CIT”), CIT’s Brazilian bank subsidiary, was sold in a stock sale in the fourth quarter of 2015, thereby transferring the legal liabilities of Banco CIT to the buyer. Under the terms of the stock sale, CIT remains liable for indemnification to the buyer for any losses resulting from certain Imposto Sobre Circulaco de Mercadorias e Servicos (“ICMS”) tax appeals relating to disputed local tax assessments on leasing services and importation of equipment (the “ICMS Tax Appeals”).


Notices of infraction were issued to Banco CIT relating to the payment of Imposto sobre Circulaco de Mercadorias e Servicos (“ICMS”)ICMS taxes charged by Brazilian states in connection with the importation of equipment. The state of São Paulo claims that Banco CIT should have paid it ICMS taxes for tax years 2006 –- 2009 because Banco CIT, the purchaser, was located in São Paulo. Instead, the ICMS taxes were paid to the state of Espirito Santo where the imported equipment arrived. A regulation issued by São Paulo in December 2013 reaffirms a 2009 agreement by São Paulo to conditionally recognize ICMS tax payments made to Espirito Santo. An assessment related to taxes paid to Espirito Santo was upheld in a ruling issued by the administrative court in May 2014. That ruling has been appealed. Another assessment related to taxes paid to Espirito Santo remains pending. Petitions seeking São Paulo’s recognition of the taxes paid to Espirito Santo have beenwere also filed in a general amnesty program. In conjunction with the stock sale,first quarter of 2018, CIT was advised that the larger of the two amnesty petitions had been granted and dismissal of that matter would be considered by the court in the second quarter. The second amnesty petition remains pending.

Hawaiian Foreclosure Litigation Claims
Based on recent rulings of the Hawaii Supreme Court, lawsuits have been filed against CIT in Hawaii alleging technical violations in non-judicial foreclosures.  Similar cases have been filed against other mortgage lenders in Hawaii.  The Hawaii Supreme Court did not establish a clear methodology for calculating alleged damages if a violation is proven and there is substantial dispute in this regard. In many instances the borrower had no equity in the home at the time of foreclosure.  Damages sought in these cases include any lost equity, compensation for loss of use of the house and, in some cases, treble or punitive damages under Hawaii's unfair practices law. At this time, the Company posted a letterdoes not have sufficient information to make an assessment of credit in the amountoutcome or the impact of approximately $71 million Reais (approximately $23 million USD) to secure the indemnity obligation for the ICMS Tax Appeals.these cases.

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

HUD OIG Investigation


In 2009, OneWest Bank acquired the reverse mortgage loan portfolio and related servicing rights of Financial Freedom Senior Funding Corporation, including HECM loans, from the FDIC as Receiver for IndyMac Federal Bank. HECM loans are insured by the FHA, and administered by HUD. Subject to certain requirements, the loans acquired from the FDIC are covered by indemnification agreements. In addition, Financial Freedom is the servicer of HECM loans owned by third party investors. Beginning in the third quarter of 2015, the Office of the Inspector General for HUD (the “HUD OIG”), served a series of subpoenas on the Company regarding HECM loans. The subpoenas requestrequested documents and other information related to Financial Freedom’s HECM loan origination and servicing business, including the curtailment of interest payments on HECM insurance claims. On May 16, 2017 CIT entered into a settlement of approximately $89 million to resolve the servicing related claims. The Company continuessettlement was within CIT’s existing reserves and included interest to cooperate withbe reimbursed to HUD. CIT has provided information and documents responsive to the investigationsubpoena’s request for information relating to the mortgage originations and is engaged in discussions with the HUD-OIG regarding resolution of the matter. We dodoes not currently expect the outcome of the investigationremaining loan origination matter to have a material adverse effect on the Company’sCIT’s financial condition or results of operations in light of existing reserves.operations.


NY Attorney General


In the second quarter of 2017, the Office of the Attorney General of the State of New York (“NYAG”), served a subpoena on the Company regarding HECM loans. The subpoena requestsrequested documents and other information related to Financial Freedom’s HECM loan business in the State of New York. The Company is in the process of evaluating and preparing to respond toNYAG subsequently withdrew the subpoena and has requested the Company’s continued voluntary cooperation with the inquiry. The Company is continuing to cooperate with the NYAG’s office and has produced certain documents. The Company does not have sufficient information to make an assessment of the outcome or the impact of the NYAG subpoena.NYAG’s ongoing inquiry.

HUD

In the first quarter of 2017, HUD accepted a complaint from the California Reinvestment Coalition (“CRC”) alleging that CIT engaged in discriminatory housing lending practices from 2011 until the present, in violation of the Fair Housing Act (“FHA”). The Company has filed a response to the complaint denying the allegations. HUD has not yet determined whether there is “reasonable cause” to pursue or dismiss the complaint.

Forward Mortgage Obligations

As owner and servicer of forward residential mortgage loans, the Company is exposed to contingent obligations for breaches of servicer and other contractual obligations as set forth in industry regulations, in servicing agreements and other agreements with the applicable counterparties, such as the FDIC, Fannie Mae and other third party investors.

The Company has established reserves for contingent liabilities associated with continuing forward mortgage operations. While the Company believes that such accrued liabilities are adequate, management currently estimates the aggregate range of reasonably possible losses as up to $5 million in excess of established reserves and insurance, if any, as of March 31, 2017. This estimate is based on information currently available as of March 31, 2017. The obligations underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.

Indemnification Obligations

In connection with the OneWest acquisition, CIT assumed the obligation to indemnify Ocwen Loan Servicing, LLC (“Ocwen”) against certain claims that may arise from servicing errors, which are deemed attributable to the period prior to June 2013, when OneWest sold its servicing business to Ocwen, such as repurchase demands, non-recoverable servicing advances and compensatory fees imposed by the GSEs for servicer delays in completing the foreclosure process within the prescribed timeframe established by the servicer guides or agreements, exclusive of losses or repurchase obligations and certain agency fees, and which are limited to an aggregate amount of $150 million for claims noticed by February 28, 2017 to CIT. Ocwen is responsible for liabilities arising from servicer obligations following the service transfer date because substantially all risks and rewards of ownership have been transferred; except for certain Agency fees or loan repurchase amounts. As of March 31, 2017, the cumulative indemnification obligation totaled approximately $56 million, which reduced the Company’s $150 million maximum potential indemnity obligation to Ocwen. Because of the uncertainty in the ultimate resolution and estimated amount of the indemnification obligation, it is reasonably possible that the obligation could exceed the Company’s recorded liability by up to approximately $25 million as of March 31, 2017.

In addition, CIT assumed OneWest Bank’s obligations to indemnify Specialized Loan Servicing, LLC (“SLS”) against certain claims that may arise that are attributable to the period prior to September 2013, the servicing transfer date, when OneWest sold a portion of its servicing business to SLS, such as repurchase demands and non-recoverable servicing advances. SLS is responsible for substantially all liabilities arising from servicer obligations following the service transfer date.

Mortgage Servicing Consent Orders

As a result of CIT Group Inc.’s acquisition of OneWest Bank, CIT (as successor to IMB Holdco LLC) is subject to a Consent Order with the FRB related to residential mortgage servicing operations. The original consent order was entered into with IMB Holdco LLC and the Office of Thrift Supervision in April 2011. Following IMB Holdco’s conversion to a bank holding company the Consent Order was amended in March 2014 to name the FRB as the appropriate regulator to administer the Order. A similar Consent Order had been entered into with the OCC, but in July 2015, immediately prior to completion of CIT’s acquisition of OneWest Bank the OCC terminated its Consent Order. However, the FRB continued its Consent

50   CIT GROUP INC


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Order in place and oversight was transferred to the Federal Reserve Board New York and CIT succeeded to the Consent Order obligations. The FRB’s Consent Order remains outstanding although improvements required by the Consent Order have been implemented including the completion of an Independent Foreclosure Review in 2014, resulting in approximately $12.7 million of remediation payments being made payable to borrowers.

NOTE 14 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the third quarter of 2015, Strategic Credit Partners Holdings LLC (the “JV”), a joint venture between CIT Group Inc. (“CIT”) and TPG Special Situations Partners (“TSSP”), was formed. The JV extends credit in senior-secured, middle-market corporate term loans, and, in certain circumstances, is a participantSubsidiaries – Notes to such loans. Participation could be in corporate loans originated by CIT. The JV may acquire other types of loans, such as subordinate corporate loans, second lien loans, revolving loans, asset backed loans and real estate loans. Through March 31, 2017, loans of $220.0 million were sold to the joint venture. CIT also maintains an equity interest of 10% in the JV, and our investment was $7.1 million and $5.4 million at March 31, 2017 and December 31, 2016, respectively.Condensed Consolidated Financial Statements (Unaudited)

The Company was party to two joint ventures (collectively “TC-CIT Aviation”) between CIT Aerospace and Century Tokyo Leasing Corporation (“CTL”). CIT sold TC-CIT Aviation on March 31, 2017 making its minority equity investment $0 and $81 million at March 31, 2017 and December 31, 2016, respectively. During the quarter ended March 31, 2017, CIT recorded servicing fees of $3.4 million and recognized a gain of $13.7 million on the sale of TC-CIT Aviation in discontinued operations.

CIT invests in various trusts, partnerships, and limited liability corporations established in conjunction with structured financing transactions of equipment, power and infrastructure projects. CIT’s interests in these entities were entered into in the ordinary course of business. Other assets included approximately $213 million and $220 million at March 31, 2017 and December 31, 2016, respectively, of investments in non-consolidated entities relating to such transactions that are accounted for under the equity or cost methods.

The combination of investments in and loans to non-consolidated entities represents the Company’s maximum exposure to loss, as the Company does not provide guarantees or other forms of indemnification to non-consolidated entities.

As of March 31, 2017 and December 31, 2016, a wholly-owned subsidiary of the Company subserviced loans for a related party with unpaid principal balances of $7.6 million, respectively.

NOTE 1514 — BUSINESS SEGMENT INFORMATION


Segment Profit and Assets


The following table presents segment data related to continuing operations. Refer toNote 25 — Business Segment Information in our Annual Report on Form 10-K for the year ended December 31, 20162017 for further detailed information.


Segment Pre-tax Income (Loss) (dollars(dollars in millions)

     Commercial
Banking
   Consumer
Banking
   Non-Strategic
Portfolios
   Corporate
and Other
   Total CIT
Quarter Ended March 31, 2017
                                                             
Interest income           $307.5       $100.0       $7.0       $41.2       $455.7  
Interest (expense) benefit             (119.8)         6.5         (5.0)         (44.8)         (163.1)  
Provision for credit losses             (49.2)         (0.5)         –        �� –          (49.7)  
Rental income on operating leases             251.3         –          –          –          251.3  
Other income             72.3         7.9         (2.9)         1.8         79.1  
Depreciation on operating lease equipment             (73.5)         –          –          –          (73.5)  
Maintenance and other operating lease expenses             (53.8)         –          –          –          (53.8)  
Operating expenses / loss on debt extinguishment and deposit redemption             (178.7)         (95.6)         (2.0)         (35.3)         (311.6)  
Income (loss) from continuing operations before (provision) benefit for income taxes           $156.1       $18.3       $(2.9)       $(37.1)       $134.4  
Select Period End Balances
                                                             
Loans           $22,878.6       $6,812.8       $–        $–        $29,691.4  
Credit balances of factoring clients             1,547.1         –          –          –          1,547.1  
Assets held for sale             336.4         64.1         162.1         –          562.6  
Operating lease equipment, net             7,516.2         –          –          –          7,516.2  
 

Item 1.  Consolidated Financial Statements  51
 
Commercial
Banking
 
Consumer
Banking
 
Non-Strategic
Portfolios
 
Corporate
and Other
 Total CIT
Quarter Ended March 31, 2018 
  
  
  
  
Interest income$314.9
 $85.2
 $2.4
 $48.7
 $451.2
Interest expense (benefit)156.3
 (24.3) 1.7
 46.8
 180.5
Provision for credit losses67.2
 1.6
 —
 —
 68.8
Rental income on operating leases253.6
 —
 —
 —
 253.6
Other non-interest income78.0
 11.5
 1.2
 14.0
 104.7
Depreciation on operating lease equipment76.4
 —
 —
 —
 76.4
Maintenance and other operating lease expenses57.4
 —
 —
 —
 57.4
Operating expenses / loss on debt extinguishment and deposit redemption183.1
 96.0
 2.2
 0.1
 281.4
Income (loss) from continuing operations before provision (benefit) for income taxes$106.1
 $23.4
 $(0.3) $15.8
 $145.0
Select Period End Balances 
  
  
  
  
Loans$23,345.9
 $6,107.7
 $—
 $—
 $29,453.6
Credit balances of factoring clients1,549.0
 —
 —
 —
 1,549.0
Assets held for sale1,376.3
 864.0
 58.5
 —
 2,298.8
Operating lease equipment, net6,774.9
 —
 —
 —
 6,774.9
Quarter Ended March 31, 2017 
  
  
  
  
Interest income$307.5
 $100.0
 $7.0
 $41.2
 $455.7
Interest expense (benefit)119.8
 (6.5) 5.0
 44.8
 163.1
Provision for credit losses49.2
 0.5
 —
 —
 49.7
Rental income on operating leases251.3
 —
 —
 —
 251.3
Other non-interest income72.3
 7.9
 (2.9) 1.8
 79.1
Depreciation on operating lease equipment73.5
 —
 —
 —
 73.5
Maintenance and other operating lease expenses53.8
 —
 —
 —
 53.8
Operating expenses / loss on debt extinguishment178.7
 95.6
 2.0
 35.3
 311.6
Income (loss) from continuing operations before provision (benefit) for income taxes$156.1
 $18.3
 $(2.9) $(37.1) $134.4
Select Period End Balances 
  
  
  
  
Loans$22,878.6
 $6,812.8
 $—
 $—
 $29,691.4
Credit balances of factoring clients1,547.1
 —
 —
 —
 1,547.1
Assets held for sale336.4
 64.1
 162.1
 —
 562.6
Operating lease equipment, net7,516.2
 —
 —
 —
 7,516.2


Table of Contents

CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Segment Pre-tax Income (Loss) (dollars in millions) (continued)

     Commercial
Banking
   Consumer
Banking
   Non-Strategic
Portfolios
   Corporate
and Other
   Total CIT
Quarter Ended March 31, 2016
                                                             
Interest income           $324.0       $105.3       $25.0       $28.6       $482.9  
Interest expense             (130.2)         (8.0)         (14.5)         (42.3)         (195.0)  
Provision for credit losses             (86.4)         (3.1)         –          –          (89.5)  
Rental income on operating leases             260.2         –          3.9         –          264.1  
Other income             58.0         8.2         14.4         4.2         84.8  
Depreciation on operating lease equipment             (61.3)         –          –          –          (61.3)  
Maintenance and other operating lease expenses             (48.9)         –          –          –          (48.9)  
Operating expenses / loss on debt extinguishment             (197.4)         (85.1)         (12.2)         (37.0)         (331.7)  
Income (loss) from continuing operations before (provision) benefit for income taxes           $118.0       $17.3       $16.6       $(46.5)       $105.4  
Select Period End Balances
                                                             
Loans           $23,779.7       $7,169.0       $–        $–        $30,948.7  
Credit balances of factoring clients             1,361.0         –          –          –          1,361.0  
Assets held for sale             260.5         50.7         1,176.2         –          1,487.4  
Operating lease equipment, net             7,071.4         –          –          –          7,071.4  

NOTE 1615 — SUBSEQUENT EVENTS

Sale of
Debt Redemption

In April 2018, CIT Commercial Air

On October 6, 2016, CIT announced a definitive agreement to sell Commercial Air to Avolon. On April 4, 2017, CIT completed the Commercial Air Sale. The aggregate purchase price paid by the purchaser and its subsidiaries to CIT and its subsidiaries for the Commercial Air Sale was approximately $10.4 billion in cash, which is equal to (a) the adjusted net asset amountrepaid $500 million of the Commercial Air business as$1.0 billion outstanding 3.875% senior unsecured notes due February 2019 and all of the closingoutstanding $383 million of the Commercial Air Sale plus (b)5.500% senior unsecured notes due February 2019. The debt was repaid at a premium of approximately $627$16 million.

Redemption of Senior Unsecured Debt

Cash Tender Offer for CIT Common Stock

On April 4, 2017, CIT announced that it has given notice of its intention to redeem and on May 4, 2017, CIT redeemed 100% of the aggregate principal amount (approximately $4.84 billion) of its outstanding (i) $1,725.8 million, 4.250% Senior Unsecured Notes due August 2017; (ii) $1,465.0 million, 5.250% Senior Unsecured Notes due March 2018; (iii) $695.0 million, 6.625% Series C Unsecured Notes due April 2018; and (iv) $955.9 million, 5.000% Senior Unsecured Notes due May26, 2018, at an aggregate premium of $98 million.

Senior Unsecured Debt Tender Offer

On April 4, 2017, CIT commenced ana modified "Dutch auction" cash tender offer to purchase for cash (the “Debt Tender Offer”) up to $950$500 million in the aggregate of its (i) 5.500% Series C Unsecured Notes due February 2019; (ii) 5.375% Senior Unsecured Notes due May 2020; and (iii) 5.000% Senior Unsecured Notes due August 2022 (the “2022 Notes” and, together with the 2019 Notes and the 2020 Notes, the “Notes”).

On April 18, 2017, CIT announced that the Debt Tender Offer was oversubscribed, that the Company elected to increase the aggregate maximum principal amount of Notes accepted for purchase in the Tender Offer to $969 million, and that it had elected to early settle the Debt Tender Offer. A total principal amount of $969 million of our 5.500% Series C Unsecured Notes due 2019 have been repurchased for total consideration of $1.04 billion, including accrued interest of $9 million.

Equity Tender Offer

On April 27, 2017, CIT commenced a cash tender offer by means of a “modified” Dutch auction (the “Equity Tender Offer”) for up to $2.75 billion of shares of its common stock, par value $0.01 per share, at a purchase price not greater than $48.00 per share and not less than $43.00 per share, and further pursuant to the terms and conditions set forth in the related Offer to Purchase, dated April 27, 2017, and the accompanying letter of transmittal.share. The offer expireswill expire on May 24, 2017,23, 2018, unless extended or earlier terminated by CIT.

Second Amended and Restated Revolving Credit Facility

On April 4, 2017, upon consummation Under the terms of the Commercial Air Sale,tender offer, CIT stockholders have the total commitment amount underopportunity to tender some or all of their shares at a price within a range of $50.00 to $56.00 per share. The tender offer will be subject to certain conditions described in the Revolving Credit Facility was automatically reduced from $1.4 billionoffer to $750 million and the covenant requiring that the Company maintain a minimum $6 billion minimum consolidated net worth was replaced by a covenant requiring that the Company maintain a minimum Tier 1purchase. This return of capital ratio of 9.0%. Also upon the consummation of the Commercial Air Sale, one of the nine domestic operating subsidiaries of the Company was automatically discharged and released as a guarantor under the Revolving Credit Facility.to stockholders is being made pursuant to CIT's 2017 Amended Capital Plan.

52  


CIT GROUP INC
INC. 41


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 2.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations
BACKGROUND

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

BACKGROUND

CIT Group Inc., together with its subsidiaries (collectively “we”"we", “our”"our", “CIT”"CIT" or the “Company”"Company"), has providedis a bank holding company ("BHC") and a financial solutions to its clients since its formationholding company ("FHC"). Formed in 1908. We provide1908, CIT provides financing, leasing and advisory services principally to middle marketmiddle-market companies in a wide variety of industries primarily in North America. CIT is a bank holding company (“BHC”) and a financial holding company (“FHC”). CIT providesWe also provide a full range of banking and related services to commercial and individual customers through its bankour banking subsidiary, CIT Bank, National Association, a national banking association (“N.A. ("CIT Bank” or “CIT Bank, N.A.”Bank"), which includes 70 branches located in Southern California, and its online bank, bankoncit.com and through other offices in the U.S. and select international locations..


CIT is regulated by the Board of Governors of the Federal Reserve System (“FRB”("FRB") and the Federal Reserve Bank of New York (“FRBNY”("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank N.A. is regulated by the Office of the Comptroller of the Currency of the U.S. Department of the Treasury (“OCC”("OCC").


Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations andQuantitative and Qualitative Disclosures about Market Risk ("MD&A") contain financial terms that are relevant to our business, and aGlossary of key terms has been updated and is included at the end ofItem 1. Business Overview in our Annual Report on Form 10-K for the year ended December 31, 2016. In limited instances, 2017.

Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of the Company. See “"Non-GAAP Financial Measurements”Measurements" for a reconciliation of these financial measures to comparable financial measures based on U.S. GAAP.


2017 KEY TRANSACTIONSThroughout this MD&A we reference "Notes" to our financial statements. These Notes are included in

As disclosed inNote 16 — Subsequent Events inItem 1. Consolidated Financial Information, several key transactions were completed or announced in April 2017:Statements.

n
Completed Commercial Air Sale
n
Completed Redemption of Senior Unsecured Debt
n
Completed Senior Unsecured Debt Tender Offer
n
Commenced Common Equity Tender Offer

SUMMARY OF 2017 FIRST QUARTER2018 FINANCIAL RESULTS

The following excerpt displaystable summarizes the Company’s results in accordance with GAAP as included in the Consolidated Statements of Income, for the quarters ended March 31, 2018 and 2017, and 2016, with equivalent balances for the quarter ended December 31, 2016.

     Quarters Ended
   
(dollars in millions)     March 31,
2017
   December 31,
2016
   March 31,
2016
Income (loss) from continuing operations before (provision) benefit for income taxes           $134.4       $(432.4)       $105.4  
(Provision) benefit for income taxes             (56.2)         6.6         (44.4)  
Income (loss) from continuing operations             78.2         (425.8)         61.0  
Discontinued operation                                          
Income (loss) from discontinued operations, net of taxes             101.7         (716.7)         85.0  
Net income (loss)           $179.9       $(1,142.5)       $146.0  
Diluted income per common share
(Loss) income from continuing operations           $0.38       $(2.10)       $0.30  
(Loss) income from discontinued operations, net of taxes             0.50         (3.55)         0.42  
Diluted (loss) income per common share           $0.88       $(5.65)       $0.72  
Average number of common shares — diluted (thousands)             203,348         202,083         202,136  

Our first quarter2017. In addition, we provide results that are not in accordance with GAAP, and are reconciled to GAAP in the "Non-GAAP Financial Measurements" section at the end of this MD&A. Further detail on the 2017 results from continuing operations reflected solid business activity, which resultednoteworthy items is presented in a slight increasetabular format further in financing and leasing assets over the prior quarter. Finance revenues declined primarily from reduced purchase accounting accretion and prepayment benefits, which were largely offset by lower funding costs.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   53


Table of Contents

Net income was up from the year-agothis section, and prior quarters, while net income excludingyear noteworthy items(1) totaled $163 million, $0.80 per diluted share, compared to $142 million, $0.70 per diluted share, are reconciled in the year-ago quarter and $210 million, $1.04 per diluted share, in the prior quarter."Non-GAAP Financial Measurements" section.

Results of Operations (dollars in millions)
  
 Quarters Ended
GAAP ResultsMarch 31, 2018 December 31, 2017 March 31, 2017
Income (loss) from continuing operations available to common shareholders$103.7
 $(92.6) $78.2
Income (loss) from discontinued operations, net of taxes(6.7) (5.2) 101.7
Net income (loss) available to common shareholders$97.0
 $(97.8) $179.9
Diluted income per common share
 
 
Income (loss) from continuing operations available to common shareholders$0.79
 $(0.70) $0.38
Income (loss) from discontinued operations, net of taxes(0.05) (0.04) 0.50
Diluted income (loss) per common share available to common shareholders$0.74
 $(0.74) $0.88
Average number of common shares — diluted (thousands)131,588
 131,343
 203,348
 
 
 
Non-GAAP Results, excluding noteworthy items
 
 
Income from continuing operations available to common shareholders$96.9
 $130.3
 $109.4
(Loss) income from discontinued operations, net of taxes(6.7) (5.2) 53.7
Net income available to common shareholders$90.2
 $125.1
 $163.1
Diluted income per common share
 
 
Income from continuing operations available to common shareholders$0.74
 $0.99
 $0.54
(Loss) income from discontinued operations, net of taxes(0.05) (0.04) 0.26
Diluted income per common share available to common shareholders$0.69
 $0.95
 $0.80
Average number of common shares — diluted (thousands)131,588
 131,343
 203,348

Income from continuing operations available to common shareholders for the first quarter was up from the year-ago and prior quarters. Compared to the year-ago and prior quarters, whileincome from continuing operations available to common shareholders excluding noteworthy items1 was down, as a decline in net finance revenue and an increase in the provision for credit losses were partially offset by lower operating expenses. The decline was partially offset by higher other non-interest income compared to the year-ago quarter.The increase in income from continuing operations excluding noteworthy items(2) totaled $109 million, $0.54 per diluted common share compared to $57the year-ago quarter reflects the decline in the average number of diluted common shares outstanding due to significant share repurchases over the past four quarters that more than offset the decline in income.
1. Income from continuing operations excluding noteworthy items and other non-interest income excluding noteworthy items are non-GAAP measures; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.


42 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


Net income available to common shareholders of $97 million $0.28was down from the year-ago quarter and up from the prior quarter, while net income available to common shareholders excluding noteworthy items2 of $90 million, or $0.69 per diluted common share, was down from both quarter comparative results. While the trends reflected the results from continuing operations, the decline from the year-ago quarter was also affected by the Commercial Air results in discontinued operations in that quarter, prior to the sale of Commercial Air on April 4, 2017.
The following table reflects the reconciliation of income from continuing operations and net income excluding noteworthy items2 for the quarter ended March 31, 2018, to our results in accordance with GAAP.
Noteworthy Adjustments to 2018 Results (dollars in millions, except per share amounts)
 Income from Continuing Operations Available to Common Shareholders Net Income Available to Common Shareholders
GAAP Results$103.7
 $0.79
  $97.0
 $0.74
 
Suspended depreciation benefits related to the European Rail business (NACCO) held for sale(6.8) (0.05)  (6.8) (0.05) 
Non-GAAP Results$96.9
 $0.74
  $90.2
 $0.69
 

DISCONTINUED OPERATIONS

At March 31, 2018, discontinued operations comprised Business Air and Financial Freedom, our reverse mortgage servicing business as further described in Note 2 - Discontinued Operations.
On October 6, 2017, CIT Bank entered into a definitive agreement to sell the Financial Freedom business, which includes all the operations, mortgage servicing rights and related servicing assets and liabilities, reverse mortgage loans and related secured borrowings, along with a reverse mortgage loan portfolio and certain other real estate owned assets that are reported in continuing operations and serviced by Financial Freedom (the "Financial Freedom Transaction"). The reverse mortgage loan portfolio and other real estate owned assets that are included in the Financial Freedom Transaction totaled $861 million and $17 million at March 31, 2018, respectively.
We continue to target the second quarter of 2018 to close the sale of Financial Freedom, which is subject to certain regulatory approvals and the consent of investors related to the mortgage servicing business, along with other customary closing conditions. We previously projected a pre-tax net gain in continuing operations of $25 million to $35 million, before any incremental indemnification liabilities, associated with the reverse mortgage portfolio sold with the Financial Freedom business. Based on the current timing in obtaining the required regulatory and investor approvals, the Financial Freedom Transaction is targeted to close at the end of the second quarter instead of the previously anticipated April close. Given we now are targeting a close later in the second quarter, the projected gain may be reduced by the income recognized from the continued run off of the portfolio until the sale date.
As discussed in the next section, Net Finance Revenue, the sale of the reverse mortgage whole loans will lower our revenue and margin until the sale proceeds are redeployed. However, the sale of Financial Freedom and this mortgage portfolio is a significant step in simplifying CIT and reducing future risks.
The loss in the current quarter from discontinued operations was $7 million, compared to $5 million in the prior quarter. The year-ago quarter income, excluding noteworthy items, was $54 million, reflecting income from Commercial Air. Noteworthy items in the year-ago quarter, which netted to income of $48 million, related to the then pending Commercial Air sale, including suspended depreciation, a loss on debt repayment and $125the sale of the TC-CIT joint venture.

Business Air loans and leases totaled $164 million $0.62 per diluted share,at March 31, 2018, down from $184 million at December 31, 2017 and $340 million at March 31, 2017. Financial Freedom loans totaled $254 million at March 31, 2018, compared to $273 million at December 31, 2017 and $353 million at March 31, 2017.

Further details of discontinued operations, along with condensed balance sheets and income statements are included in Note 2 — Discontinued Operations. See also Note 13 — Contingencies for discussion related to the prior quarter.Financial Freedom servicing business.

Noteworthy items (after tax) in


Unless specifically noted, the first quarter of 2017 indiscussions and data presented throughout the following sections reflect CIT balances on a continuing operations included:basis.




n2
$7 million ($0.03 per diluted share) charge related to a currency translation adjustment relating to international business exits;
n
$10 million ($0.05 per diluted share) in restructuring expenses; and
n
$14 million ($0.07 per diluted share) in deferred tax expense related to the restructuring of legal entities in preparation for the Commercial Air sale.

Noteworthy items (after tax) in the first quarter of 2017 in discontinued operations included:

n
$13 million ($0.06 per diluted share) gain on the sale of the TC-CIT joint venture;
n
$34 million ($0.17 per diluted share) in secured debt extinguishment costs; and
n
$69 million ($0.34 per diluted share) of suspended depreciation benefits related to the Commercial Air business.

ROTCE(3) for the quarter was 8.08%. ROTCE excluding noteworthy(3) items was 7.34%. ROTCE for continuing operations was 7.40%, excluding noteworthy items and pro forma for the reduction of approximately $3 billion in common equity associated with the Commercial Air sale.

We reconcile our GAAP balances in our non-GAAP reconciliation section at the end of Item 7. Management’s Discussion and Analysis. These non-GAAP measures and others that follow are not in accordance with, or a substitute for, GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies.

(1)
Net income excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.


(2)
Income from continuing operations excluding noteworthy items is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.
(3)
Adjusted Return on Tangible Common Equity, which adjusts tangible common equity for the reversal of the valuation allowance and the amortization of intangibles in the numerator and the disallowed deferred tax asset related to regulatory capital in the denominator, and ROTCE excluding noteworthy items are non-GAAP measures; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.

Income from discontinued operations (after taxes) for 2017 and the prior-year quarter were driven by Aerospace, partially offset by Financial Freedom, our reverse mortgage servicing business. The prior quarter results were driven by noteworthy items. SeeDiscontinued Operations section further below for discussion on results.

Net finance revenue(4) (“NFR”)

NFR was $417 million in the current quarter, compared to $421 million in the prior quarter and $442 million in the year-ago quarter. NFR as a percentage of average earning assets (“net finance margin” or “NFM”) was relatively flat from the prior quarter and decreased 10 basis points from the year-ago quarter. The decline in NFM from the year-ago quarter generally reflected lower purchase accounting accretion and a decline in Rail portfolio gross yields, mostly offset by lower interest expense and maintenance expense. AEA was $46.6 billion in 2017, down from $48.1 billion in the prior-year quarter and from $47.0 billion in the prior quarter.

Provision for credit losses

The provision for credit losses of $50 million was up from the prior quarter, primarily driven by a specific reserve on a single retail account in the factoring business of Commercial Banking. The provision was down from the prior-year quarter, which included an increase in reserves related to the energy and maritime portfolios.

Credit metrics

Net charge-offs were $28 million (0.37% of average finance receivables), compared to $24 million (0.32%) in the prior quarter and $32 million (0.42%) in the year-ago quarter, all related to the Commercial Banking segment. Non-accrual loans of $259 million (0.87% of finance receivables) were down modestly from the prior quarter, driven by lower balances in the Commercial Banking segment.

Other income

Other income was $79 million in the current quarter, compared to a loss of $118 million in the prior quarter and income of $85 million in the year-ago quarter. While fee revenues and factoring commissions remained steady compared to the prior and the year-ago quarters, there were noteworthy items in each period, as discussed in further detail in Non-Interest Income section.

Operating expenses

Operating expenses totaled $312 million in the current quarter, $341 million in the prior quarter and $330 million in the year-ago quarter. Operating expenses excluding restructuring costs and intangible asset amortization(5) was $291 million in the current quarter, $331 million in the prior quarter and $303 million in the year-ago quarter.

(4)
Net finance revenue and average earning assets are non-GAAP measures; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.
(5)
Operating expenses excluding restructuring costs and intangible asset amortization, net efficiency ratio and net efficiency ratio excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” at the end of this press release and starting on page 27 for reconciliation of non-GAAP to GAAP financial information.

54   CIT GROUP INC
INC. 43


Table of Contents

Operating expenses in the current quarter benefited from the timing of technology expenditures, which are expected to be at a higher rate over the remainder of the year, while noteworthy items and other elevated costs in the prior quarter were mostly related to legacy OneWest Bank matters and were the main drivers of the sequential quarter decline in this metric. The decrease from the year-ago quarter predominantly relates to our expense reduction initiatives.

We continue to make progress towards achieving our goal of reducing annual operating expense by $150 million by 2018 through organizational alignment, technology and operations improvements and third party initiatives. As of the end of the current quarter, we have achieved approximately 40% of that goal and remain on track to reach our target.

(Provision) benefit for income taxes

The provision for income taxes in the current quarter of $56 million included $14 million in deferred tax expense related to the restructuring of legal entities in preparation for the Commercial Air sale. The effective tax rate in the current quarter was 42%. Excluding discrete items, the effective tax rate was 33% for the quarter.

Financing and Leasing Assets

Financing and leasing assets (“FLA”) of $37.8 billion were up slightly from December 31, 2016, as an increase in Commercial Banking, driven by higher factoring receivables, offset lower balances in Commercial Finance and run-off in the LCM portfolio in the Consumer Banking segment and NSP.

Cash (cash and due from banks andinterest bearing deposits) and Investment Securities

Cash (cash and due from banks andinterest bearing deposits) totaled $6.2 billion at March 31, 2017, down slightly from $6.4 billion at December 31, 2016.Investment securities totaled $4.5 billion, essentially unchanged from December 31, 2016, as an increase in CIT Bank investments was offset by a reduction at the parent to generate cash to repay debt reported in discontinued operations prior to the Commercial Air sale.

Deposits and Borrowings

Deposits were $32.3 billion, essentially unchanged from December 31, 2016, and represented approximately 69% of CIT’s funding at March 31, 2017, up from 68% in the prior quarter. Borrowings totaled $14.7 billion, down slightly from December 31, 2016. Unsecured and secured borrowings comprised 22% and 9% of the funding mix, respectively, at March 31, 2017. SeeNote 16 — Subsequent Events inItem 1. Financial Information for redemption and tender offer results related to borrowings.

Capital

Common stockholders’ equity and tangible common equity increased from the prior quarter reflecting earnings. Similarly, book value per share and tangible book value per share increased in the quarter mostly due to the higher common stockholders’ equity, while the share count remained relatively stable. The Common Equity Tier 1 and Total capital ratios increased from the prior quarter. Risk-weighted assets decreased, reflecting the decline in balance sheet assets.

DISCONTINUED OPERATIONS

Discontinued operations are comprised of the Commercial Air leasing business, which was sold on April 4, 2017, Business Air, and Financial Freedom, our reverse mortgage servicing business. Income from discontinued operations (after taxes) was $102 million, driven by income from discontinued operations, net of taxes, of $111 million from Aerospace, and partially offset by a loss from Financial Freedom. Discontinued operations after tax income totaled $85 million in the prior-year quarter and a loss of $717 million in the prior quarter. The prior quarter loss reflected an $847 million net tax expense related to the Commercial Air sale.

SeeNote 2 — Discontinued Operations inItem 1. Financial Information for further details and condensed balance sheets and income statements andNote 13 —Contingencies for discussion related to the Financial Freedom servicing business

SeeNote 16 — Subsequent Events for discussion on the Commercial Air sale.

Aerospace

Aerospace pre-tax earnings totaled $190 million, $98 million and $194 million for the quarters ended March 31, 2017 and 2016, and December 31, 2016, respectively. In comparison to the prior-year quarter, both the current and prior quarters benefited from suspended depreciation of $113 million and $106 million, respectively. When a long-lived asset is classified as AHFS, depreciation expense is no longer recognized, and the asset is evaluated for impairment with any such charge recorded in other income.

On March 31, 2017, CIT completed the sale of its 30 percent ownership stake in the commercial aircraft leasing joint ventures TC-CIT Aviation Ireland and TC-CIT Aviation U.S., Inc. to its joint venture partner; Tokyo Century Corporation, which resulted in an approximately $14 million gain.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   55


Table of Contents

Financing and leasing assets totaled $10.6 billion, $10.7 billion and $10.8 billion at March 31, 2017, December 31, 2016 and March 31, 2016, respectively. Of those balances, Commercial Air consisted of $10.3 billion, $10.2 billion and $10.0 billion, respectively, most of which represents operating lease equipment. The remaining amounts reflected loans in the Business Air portfolio.

Reverse Mortgage Servicing

Financial Freedom, a reverse mortgage servicing business, pre-tax loss totaled $15 million in the quarter, compared to pre-tax losses of $7 million in the prior-year quarter and $23 million in the prior quarter.

The prior quarter loss included a higher interest curtailment reserve related to reverse mortgages arising out of servicing errors. As a servicer of reverse mortgage loans, the servicing guides provide that servicers may become liable for curtailed interest for certain delays in completing the foreclosure process with respect to defaulted loans in accordance with servicer guides. See Item 4. Controls and Procedures.

The $421 million of assets of discontinued operations include primarily Home Equity Conversion Mortgages (“HECMs”) and servicing advances. The liabilities of discontinued operations include reverse mortgage servicing liabilities, which relates primarily to loans serviced for third party investors, secured borrowings and contingent liabilities. Continuing operations includes a separate portfolio of reverse mortgages of $859 million at March 31, 2017, which are recorded in the Consumer Banking segment and are serviced by Financial Freedom.

Unless specifically noted, the discussions and data presented throughout the following sections reflect CIT balances on a continuing operations basis.

Results From Continuing Operations:

NET FINANCE REVENUE

The following tables present management’s view of consolidated NFR.

Net Finance Revenue ("NFR")(1)3(dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $455.7       $474.1       $482.9  
Rental income on operating leases             251.3         252.2         264.1  
Finance revenue             707.0         726.3         747.0  
Interest expense             (163.1)         (178.3)         (195.0)  
Depreciation on operating lease equipment             (73.5)         (69.8)         (61.3)  
Maintenance and other operating lease expenses             (53.8)         (57.5)         (48.9)  
Net finance revenue           $416.6       $420.7       $441.8  
Average Earning Assets (“AEA”)(1),(2)
           $46,638.9       $46,964.7       $48,107.1  
Net finance margin             3.57%         3.58%         3.67%  
(1)
NFR and AEA are non-GAAP measures; see “Non-GAAP Financial Measurements” sections for a reconciliation of non-GAAP to GAAP financial information.

NFR and NFMNet Finance Margin ("NFM")3 are key metrics used by management to measure the profitability of our earning assets. NFR includes interest and yield-related fee income on our loans, and capital leases, rental income on our operating lease equipment, and interest and dividend income on interest-bearing cash and investments, less funding costs and depreciation, maintenance and other operating lease expenses from our operating lease equipment. Since our asset composition includes

The consolidated financial statements include the effects of Purchase Accounting Adjustments ("PAA"), primarily related to the OneWest Transaction. Accretion and amortization of certain PAA primarily impact interest income and interest expense, and are summarized in a high level of operating lease equipment (16% of AEA fortable later in this section.

The following table presents the quarter ended March 31, 2017), NFM is a more appropriate metric for CIT than net interest margin (“NIM”) (a common metric used by other BHCs), as NIM does not fully reflectaverage balance sheet and related rates, along with the earnings of our portfolio because it includes the impact of debt costs on all our assets but excludes the net revenue (rental income less depreciationNFR and NFM.
Average Balances and Rates(1) (dollars in millions)
                  
 Quarters Ended
 March 31, 2018 December 31, 2017 March 31, 2017
 Average
Balance		 Revenue / Expense Average
Rate (%)		 Average
Balance		 Revenue / Expense Average
Rate (%)		 Average
Balance		 Revenue / Expense Average
Rate (%)
Interest bearing cash deposits$2,100.8
 $7.0
 1.33 % $2,270.2
 $8.9
 1.57 % $5,652.4
 $12.5
 0.88 %
Investments and securities purchased under agreement to resell6,345.6
 43.3
 2.73 % 6,067.9
 37.6
 2.48 % 4,452.4
 31.1
 2.79 %
Loans and loans held for sale (net of credit balances of factoring clients)(2)(3)
28,753.5
 415.1
 5.77 % 28,225.3
 417.1
 5.91 % 28,705.3
 419.9
 5.85 %
Total interest earning assets / interest income(2)(3)
37,199.9
 465.4
 5.00 % 36,563.4
 463.6
 5.07 % 38,810.1
 463.5
 4.78 %
Operating lease equipment, net (including held for sale)(4)
7,934.6
 119.8
 6.04 % 7,841.0
 120.4
 6.14 % 7,500.9
 124.0
 6.61 %
Indemnification assets130.6
 (14.2) (43.49)% 157.7
 (15.9) (40.33)% 327.9
 (7.8) (9.52)%
Average earning assets ("AEA")(2)
45,265.1
 571.0
 5.05 % 44,562.1
 568.1
 5.10 % 46,638.9
 579.7
 4.97 %
Non-interest earning assets                 
Cash and due from banks246.8
     403.4
     783.6
    
Allowance for loan losses(434.6)     (424.7)     (436.0)    
All other non-interest bearing assets2,683.0
     2,793.5
     2,321.3
    
Assets of discontinued operation480.3
     532.6
     12,969.7
    
Total Average Assets$48,240.6
     $47,866.9
     $62,277.5
    
Liabilities                 
Interest bearing deposits and borrowings                 
Deposits$28,595.2
 97.1
 1.36 % $28,133.7
 92.1
 1.31 % $30,953.0
 94.0
 1.21 %
Borrowings9,045.4
 83.4
 3.69 % 8,630.9
 76.6
 3.55 % 14,815.0
 69.1
 1.87 %
Total interest-bearing liabilities37,640.6
 180.5
 1.92 % 36,764.6
 168.7
 1.84 % 45,768.0
 163.1
 1.43 %
Non-interest bearing deposits1,456.1
     1,501.3
     1,387.3
    
Other non-interest bearing liabilities1,406.0
     1,618.3
     1,778.8
    
Liabilities of discontinued operation496.9
     541.9
     3,223.6
    
Noncontrolling interests—
     —
     0.3
    
Stockholders' equity7,241.0
     7,440.8
     10,119.5
    
Total Average Liabilities and Shareholders' Equity$48,240.6
     $47,866.9
     $62,277.5
    
Net revenue spread    3.13 %     3.26 %     3.55 %
Impact of non-interest bearing sources    0.32 %     0.32 %     0.03 %
Net finance revenue ($) / net finance margin (%)(2)
  $390.5
 3.45 %   $399.4
 3.59 %   $416.6
 3.57 %
Adjusted NFR / NFM (excluding noteworthy items)  $381.2
 3.37 %   $390.6
 3.51 %   $416.6
 3.57 %
(1)
The average balances presented are derived based on month end balances during the year. Tax exempt income was not significant in any of the periods presented. Average rates are impacted by PAA accretion and amortization.
(2)
The balance and rate presented is calculated net of average credit balances for factoring clients.
(3)
Non-accrual loans and related income are included in the respective categories.
(4)
Operating lease rental income is a significant source of revenue; therefore we have presented the rental revenues net of depreciation and net of maintenance and other operating lease expenses.

3 Net finance revenue, net finance margin, net operating lease revenue and average earnings assets, and respective amounts excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of non-GAAP to GAAP financial information.

44 Item 2. Management’s Discussion and other operating lease expenses) from operating leases.Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk

56   CIT GROUP INC



The following table includes average balances from revenue generating assets along with the respective revenues, and average balances of deposits and borrowings along with the respective interest expenses.

Average Balances and Rates(1) for the Quarters Ended (dollars in millions)

  March 31, 2017
  December 31, 2016
  March 31, 2016
  
  Average
Balance
  Revenue /
Expense
  Average
Rate (%)
  Average
Balance
  Revenue /
Expense
  Average
Rate (%)
  Average
Balance
  Revenue /
Expense
  Average
Rate (%)
Interest-bearing cash    $5,652.4      $12.5      0.88%      $5,918.2      $7.5      0.51%      $6,863.2      $8.4      0.49%  
Investment securities    4,452.4      31.0      2.79%      3,962.2      30.4      3.07%      2,923.6      22.5      3.07%  
Loans (including held for sale and credit balances of factoring clients)(2),(3)
    28,705.3      420.0      5.85%      29,298.0      444.5      6.07%      30,935.1      455.1      5.88%  
Operating lease equipment, net (including held for sale)(4)
    7,500.9      124.0      6.61%      7,435.1      124.9      6.72%      6,989.8      153.9      8.80%  
Indemnification assets    327.9      (7.8)      (9.50)%      351.3      (8.3)      (9.42)%      395.5      (3.1)      (3.13)%  
Average earning assets(2)
    $46,638.9      579.7      4.97%      $46,964.8      599.0      5.10%      $48,107.2      636.8      5.29%  
Interest-bearing deposits    $30,953.0      $94.0      1.21%      $31,139.0      $96.4      1.24%      $31,829.1      $99.5      1.25%  
Borrowings(5)
    14,815.0      69.1      1.87%      14,676.5      81.9      2.23%      16,134.0      95.5      2.37%  
Total interest-bearing liabilities    $45,768.0      163.1      1.43%      $45,815.5      178.3      1.56%      $47,963.1      195.0      1.63%  
NFR and NFM           $416.6      3.57%             $420.7      3.58%             $441.8      3.67%  

The table below disaggregates CIT’spresents disaggregated quarter-over-quarter changes in net interest revenue and operating lease margins as presented in the preceding tablestable between volume (level of lending or borrowing) and rate (rates charged customers or incurred on borrowings). Volume change is calculated as change in volume times the previous rate, while rate change is change in rate times the previous volume. The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total.

     March 2017 Over
December 2016 Comparison
   March 2017 Over
March 2016 Comparison
   
     Increase (Decrease)
Due To Change In:
      Increase (Decrease)
Due To Change In:
      
     Volume
   Rate
   Net
   Volume
   Rate
   Net
Interest-bearing cash           $(0.4)       $5.4       $5.0       $(1.7)       $5.8       $4.1  
Investments             3.6         (3.0)         0.6         10.8         (2.3)         8.5  
Loans (including held for sale and net of credit balances of factoring clients)(2),(3)
             (8.9)         (15.6)         (24.5)         (32.6)         (2.5)         (35.1)  
Operating lease equipment, net (including held for sale)(4)
             1.1         (2.0)         (0.9)         10.6         (40.5)         (29.9)  
Indemnification assets             0.6         (0.1)         0.5         0.6         (5.3)         (4.7)  
Total earning assets           $(4.0)       $(15.3)       $(19.3)       $(12.3)       $(44.8)       $(57.1)  
Interest-bearing deposits           $(0.6)       $(1.8)       $(2.4)       $(2.7)       $(2.8)       $(5.5)  
Borrowings(5)
             0.8         (13.6)         (12.8)         (7.3)         (19.1)         (26.4)  
Total interest-bearing liabilities           $0.2       $(15.4)       $(15.2)       $(10.0)       $(21.9)       $(31.9)  
(1)
Average Balances and Rates(1) (dollars in millions) (continued)
 March 2018 Over
December 2017 Comparison		 March 2018 Over
March 2017 Comparison
 Increase (Decrease)
Due To Change In:		   Increase (Decrease)
Due To Change In:		  
 Volume Rate Net Volume Rate Net
Interest-bearing cash$(0.6) $(1.3) $(1.9) $(10.0) $4.5
 $(5.5)
Investments1.8
 3.9
 5.7
 12.9
 (0.7) 12.2
Loans (including held for sale and net of credit balances of factoring clients)(2)
7.7
 (9.7) (2.0) 0.7
 (5.5) (4.8)
Operating lease equipment, net (including held for sale)(3)
1.4
 (2.0) (0.6) 6.9
 (11.1) (4.2)
Indemnification assets2.9
 (1.2) 1.7
 7.1
 (13.5) (6.4)
Total earning assets$13.2
 $(10.3) $2.9
 $17.6
 $(26.3) $(8.7)
Interest-bearing deposits$1.5
 $3.5
 $5.0
 $(7.5) $10.6
 $3.1
Borrowings(4)
3.7
 3.1
 6.8
 (34.4) 48.7
 14.3
Total interest-bearing liabilities$5.2
 $6.6
 $11.8
 $(41.9) $59.3
 $17.4
Average rates are impacted by purchase accounting accretion and amortization.
(2)
The balance and rate presented is calculated net of average credit balances for factoring clients
(3)
Non-accrual loans and related income are included in the respective categories.
(4)
Operating lease rental income is a significant source of revenue; therefore, we have presented the rental revenues net of depreciation and net of maintenance and other operating lease expenses.
(5)
Average borrowings reflects $10.6 billion of total outstanding unsecured borrowings. The average balance includes unsecured debt used to fund the Commercial Air leasing business, which is in discontinued operations. The interest expense presented represents only the interest expense of continuing operations, and excludes interest expense of discontinued operation. Upon completion of the redemption and tender offer for an aggregate of $5.8 billion of unsecured debt in the second quarter of 2017, the average rate will increase, because the average balance will decrease, but the interest expense will remain substantially the same.

Item 2. Management’s Discussion(1)...(4) See footnotes to prior table.
NFR was $391 million compared to $399 million in the prior quarter. NFR in the current and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   57


Table of Contents

Revenues from loans were downprior quarters included a $9 million benefit from the prior year quarter, mainly reflecting lower asset balances and lower purchase accounting accretion resulting from the fair value discount on earningsuspension of depreciation expense related to NACCO because its assets recorded. (The impact of purchase accounting accretion on interest income and interest expense is displayedare included in a table below.) The decline fromassets held for sale. Excluding noteworthy items, NFR was $381 million, compared to $391 million in the prior quarter, was alsoas lower PAA and higher deposit and borrowing costs were partially offset by higher interest income on loans and investments. Higher borrowing costs were driven by lower benefit from loan prepayments. The declinethe unsecured debt issuance and higher deposit rates paid, as discussed further below. NFR in the revenues on the operating lease portfolio was duecurrent quarter included $2 million related to the rail portfolio, as discussed latertiming mismatch between the unsecured debt issuance in March 2018 and the section.

portion of the proceeds used to redeem debt in April 2018. Revenues generated on our interest-bearing cash deposits and investments are indicative of the generally low interest rate environmentenvironment. The average balance and while such revenues increased, they were not a primary driver of earnings. Revenues on investments have grown as we have increased the Bank’s liquidity investment securitiesin investments, reflecting our strategy to grow that portfolio. The returns willmay fluctuate depending on the composition of the investments.investments, interest rates and credit spreads. Interest expense was up in the current quarter, reflecting higher balances.

Average earning assets
NFM4 excluding noteworthy items was 3.37%, a 14 bps decrease from 3.51% in the prior quarter. The decrease in net finance margin reflects the aforementioned drivers of the decline in NFR and asset mix.

Compared to the year-ago quarter, NFR excluding noteworthy items decreased $35 million or 8%, and NFM decreased 20 bps. The decrease in NFR primarily reflected lower purchase accounting accretion, lower gross yields in Rail and higher deposit and borrowing costs, partially offset by higher earnings on investment securities and on loans in the Commercial Banking segment. The decrease in NFM reflected the aforementioned drivers of the decrease in NFR, partially offset by asset mix.

Given the anticipated impact of the pending sale of the reverse mortgage portfolio, continued run-off of the remaining PAA, and lower rail lease renewal rates, we expect net finance margin to remain under pressure, although it is anticipated that these factors will be partially offset by an increase in income on investment securities and benefits from asset sensitivity in a rising rate environment.

AEA increased 2% from the prior quarter, reflecting an increase in average loans in the Commercial Finance division of Commercial Banking, along with an increase in our consumer lending businesses in Other Consumer Banking. These were partially offset by run-off of LCM in Consumer Banking. The decline from the year-ago quarter as we completed sales of Non-Strategic Portfolios during 2016, repositioned certain Commercial Finance portfolios in Commercial Banking, and experienced run-off of the LCM portfolio in Consumer Banking.

The yield on AEA of 4.97% was down from the year-ago and prior quarters, reflecting lower purchase accounting accretion, and lower operating lease yields on our rail portfolio, driven by lower utilization of certain rail car types related to the energy sector and lower renewal rates.

The decrease in average interest bearing liabilities reflects the reduced funding requirements ofreflected the lower asset levels. The overall rate as a percentage of AEA declined due to the higher percentage of AEA being funded by deposits as displayedcash balance in the following table, along with a higher mix of low cost deposits. Interest expense declined slightly in each of the quarters reflecting accretion of purchase accounting adjustments on borrowings and deposits. The interest expense on borrowings decreased during the quarter due to the termination of the CFL TRS in January 2017.Corporate.


The composition of our average funding mix was unchanged from the prior quarter as follows:

Funding Mix

     March 31,
2017
   December 31,
2016
   March 31,
2016
Deposits             69%         68%         67%  
Unsecured             22%         23%         22%  
Secured Borrowings:
Structured financings             4%         4%         5%  
FHLB Advances             5%         5%         6%  

Average Funding Mix
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Deposits77% 77% 69%
Unsecured10% 10% 22%
Secured Borrowings:     
Structured financings4% 4% 4%
FHLB Advances9% 9% 5%

These proportions will fluctuate in the future depending upon our funding activities. Upon completionThe change from the year-ago quarter reflects the reduction of the earlyunsecured debt, including redemptions and tender offer disclosed inNote 16 — Subsequent Events inItem 1. Consolidated Financial Statements in April 2017, the funding mix will change. Pro forma for these liability management actions at March 31, 2017, deposits increase to 78% of total funding, while unsecured and secured debt represent 12% and 10%, respectively.totaling $6.9 billion during 2017.

Due to the timing of the liability management actions, debt tender and redemptions, and the return of capital via the share repurchases, we expect some negative carry of approximately $20-$25 million in the second quarter. In addition, the repayment of the borrowings, which were redeemed and tendered, will have an insignificant impact on interest expense in continuing operations in future periods, as the interest expense allocated to discontinued operations included amounts representative of interest expense associated with these repaid borrowings.

58  
4 Net finance revenue, net finance margin, net operating lease revenue and average earnings assets, and respective amounts excluding noteworthy items are non-GAAP measures. See “Non-GAAP Measurements” for reconciliation of non-GAAP to GAAP financial information.

CIT GROUP INC
INC. 45



The following table details further the rates of interest bearing liabilities.

Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions)

     Quarter Ended March 31, 2017
   Quarter Ended December 31, 2016
   Quarter Ended March 31, 2016
   
     Average
Balance
   Interest
Expense
   Rate %
   Average
Balance
   Interest
Expense
   Rate %
   Average
Balance
   Interest
Expense
   Rate %
Interest-bearing Deposits
CDs           $16,454.2       $64.6         1.57%       $17,250.8       $68.5         1.59%       $18,341.8       $73.6         1.61%  
Interest-bearing checking             3,197.0         4.2         0.53%         3,101.0         4.6         0.59%         3,069.1         4.0         0.52%  
Savings             4,499.7         10.7         0.95%         4,301.9         9.6         0.89%         4,801.1         10.9         0.91%  
Money markets / sweeps             6,802.1         14.5         0.85%         6,485.3         13.7         0.84%         5,617.1         11.0         0.78%  
Total interest-bearing deposits(1)
             30,953.0         94.0         1.21%         31,139.0         96.4         1.24%         31,829.1         99.5         1.25%  
Borrowings
Unsecured notes             10,599.8         137.4         5.19%         10,597.0         140.1         5.29%         10,615.5         138.0         5.20%  
Secured borrowings             2,987.1         23.7         3.17%         3,826.3         34.8         3.64%         4,899.8         47.7         3.89%  
FHLB advances             2,410.7         6.4         1.06%         2,424.5         5.5         0.91%         3,116.9         4.2         0.54%  
Total borrowings             15,997.6         167.5         4.19%         16,847.8         180.4         4.28%         18,632.2         189.9         4.08%  
Allocated to discontinued operations             (1,182.6)         (98.4)                    (2,171.3)         (98.5)                    (2,498.2)         (94.4)              
Total borrowings(2)
             14,815.0         69.1         1.87%         14,676.5         81.9         2.23%         16,134.0         95.5         2.37%  
Total interest-bearing liabilities           $45,768.0       $163.1         1.43%       $45,815.5       $178.3         1.56%       $47,963.1       $195.0         1.63%  

Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions)
Interest-Bearing Deposits and Borrowings — Average Balances and Rates for the Quarters Ended (dollars in millions)
                  
 March 31, 2018 December 31, 2017 March 31, 2017
 Average
Balance		 Interest
Expense		 Rate % Average
Balance		 Interest
Expense		 Rate % Average
Balance		 Interest
Expense		 Rate %
Interest-bearing Deposits                 
Time deposits$14,140.2
 $59.8
 1.69% $14,449.8
 $61.2
 1.69% $16,454.2
 $64.3
 1.56%
Interest-bearing checking2,658.7
 4.1
 0.62% 2,637.8
 3.7
 0.56% 3,197.0
 4.4
 0.55%
Savings6,512.1
 21.1
 1.30% 6,003.6
 16.8
 1.12% 4,499.7
 10.7
 0.95%
Money markets / sweeps5,284.2
 12.1
 0.92% 5,042.5
 10.4
 0.82% 6,802.1
 14.6
 0.86%
Total interest-bearing deposits28,595.2
 97.1
 1.36% 28,133.7
 92.1
 1.31% 30,953.0
 94.0
 1.21%
Borrowings                 
Unsecured notes(1)
4,092.3
 51.0
 4.98% 3,745.9
 46.7
 4.99% 10,599.8
 136.8
 5.16%
Secured borrowings1,756.5
 16.4
 3.73% 1,881.3
 16.3
 3.47% 2,948.9
 27.0
 3.66%
FHLB advances3,454.1
 15.0
 1.74% 3,283.0
 11.9
 1.45% 2,410.7
 6.4
 1.06%
Other credit facilities(2)
—
 4.1
 —% —
 5.0
 —% —
 (2.7) —%
Total borrowings9,302.9
 86.5
 3.72% 8,910.2
 79.9
 3.59% 15,959.4
 167.5
 4.20%
Allocated to discontinued operations(257.5) (3.1)  
 (279.1) (3.3)  
 (1,144.4) (98.4)    
Total borrowings9,045.4
 83.4
 3.69% 8,631.1
 76.6
 3.55% 14,815.0
 69.1
 1.87%
Total interest-bearing liabilities$37,640.6
 $180.5
 1.92% $36,764.8
 $168.7
 1.84% $45,768.0
 $163.1
 1.43%

     March 31, 2017
   December 31, 2016
   March 31, 2016
   
     Average
Balance
   Interest
Expense
   Average
Rate (%)
   Average
Balance
   Interest
Expense
   Average
Rate (%)
   Average
Balance
   Interest
Expense
   Average
Interest-bearing deposits           $30,953.0       $94.0         1.21%       $31,139.0       $96.4         1.24%         31,829.1         99.5         1.25%  
Non-interest-bearing deposits             1,387.3         –          –          1,295.0         –          –          1,062.4         –          –   
Total deposits           $32,340.3       $94.0         1.16%       $32,434.0       $96.4         1.19%         32,891.5         99.5         1.21%  
(1) 
Excludes certain deposits such as escrow accounts, security deposits,The March 31, 2018 quarter includes amounts applicable to $1.0 billion of senior unsecured debt and other similar accounts, therefore, totals may differ from other average balances included in this document.$400 million of unsecured subordinated debt issued during the quarter.
(2) 
Average borrowings reflects $10.6 billion of total outstanding unsecured borrowings. The average balanceBalance includes unsecured debt used to fund the Commercial Air leasing business, which is in discontinued operations. The interest expense presented represents onlyrelated to facility fees and amortization of deferred costs on unused portions of credit facilities, including the Revolving Credit Facility and total return swaps. Amount for the quarter ended March 31, 2017, was reduced by capitalized interest expense of continuing operations,on aircraft pre-delivery deposits and excludes interest expense of discontinued operation. Upon completion of the redemption and tender offer for an aggregate of $5.8 billion of unsecured debtincluded in the second quarter of 2017, the average rate will increase, because the average balance will decrease, but the interest expense will remain substantially the same.amount allocated to discontinued operations.

Item 2. Management’s DiscussionWe remain focused on improving the mix of deposits. The change in mix of our deposits reflects our strategy to increase the percentage of non-maturity deposits relative to total deposits. As a result of our strategy, the table above reflects increased savings deposits compared to both the year-ago and Analysisprior quarters. Compared to the year-ago quarter, we decreased money market andItem 3.Quantitative time deposit accounts in the higher cost commercial channel. In addition, we significantly lessened sweep accounts, and Qualitative Disclosures about Market Risk   59
time deposits in the brokered channel. The deposit cost increases from the year-ago and prior quarters also reflected the impact from the Federal Reserve increases in the short-term interest rate. The Federal Reserve raised rates by 0.25% in March, June and December 2017 and again in March 2018. See Funding and Liquidity section for a table that reflects deposits by channel. Borrowing costs increased compared to the prior quarter as we issued $1 billion of senior unsecured notes at a weighted average coupon rate of 4.69%. In addition, we issued $400 million of unsecured subordinated debt at 6.125% in conjunction with our capital plan that will allow us to return up to $800 million of capital. Most of the proceeds of the senior unsecured borrowings were used to repay $883 million of unsecured notes in April.

The following table reflects our total deposit base, interest bearing and non-interest-bearing deposits, and related rate:
Total Deposits — Average Balances and Rates for the Quarters Ended (dollars in millions)
                  
 March 31, 2018 December 31, 2017 March 31, 2017
 Average
Balance		 Interest
Expense		 Average
Rate (%)		 Average
Balance		 Interest
Expense		 Average
Rate (%)		 Average
Balance		 Interest
Expense		 Average
Interest-bearing deposits$28,595.2
 $97.1
 1.36% $28,133.7
 $92.1
 1.31% $30,953.0
 $94.0
 1.21%
Non-interest-bearing deposits1,456.1
 —
 —
 1,501.3
 —
 —
 1,387.3
 —
 —
Total deposits$30,051.3
 $97.1
 1.29% $29,635.0
 $92.1
 1.24% $32,340.3
 $94.0
 1.16%

Table of Contents

Deposits and borrowings are also discussed inFunding and Liquidity. SeeSelect Financial Data (Average Balances) section for more information on borrowing rates.



46 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


The following table depicts selected earning asset yields and margin relatedmargin-related data for our segments and divisions within the segments.

Segment Average Yield and Other Data (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Commercial Banking
AEA           $29,304.7       $29,504.7       $29,966.6  
NFR             311.7         320.0         343.8  
Gross yield             7.63%         7.78%         7.80%  
NFM             4.25%         4.34%         4.59%  
AEA
                                         
Commercial Finance           $10,216.9       $10,646.6       $11,891.8  
Rail             7,320.0         7,286.7         6,882.4  
Real Estate Finance             5,565.4         5,501.8         5,345.4  
Business Capital             6,202.4         6,069.6         5,847.0  
Gross yield
Commercial Finance             5.16%         5.54%         5.17%  
Rail             11.98%         12.22%         13.73%  
Real Estate Finance             4.90%         5.24%         5.44%  
Business Capital             9.01%         8.71%         8.32%  
NFR
                                         
Commercial Finance           $97.8       $110.4       $113.5  
Rail             81.8         78.1         100.2  
Real Estate Finance             48.2         52.2         54.5  
Business Capital             83.9         79.3         75.6  
NFM
Commercial Finance             3.83%         4.15%         3.82%  
Rail             4.47%         4.29%         5.82%  
Real Estate Finance             3.46%         3.80%         4.08%  
Business Capital             5.41%         5.23%         5.17%  
 

60   CIT GROUP INC
Segment Average Yield and Other Data (dollars in millions)
             
 Quarters Ended  Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017		  March 31,
2018		 December 31,
2017		 March 31,
2017
Commercial Banking      Consumer Banking     
AEA$30,021.7

$29,507.3

$29,304.7
 AEA$7,009.4

$6,885.6

$7,291.8
NFR278.4

296.1

311.7
 NFR109.5

104.0

106.5
Gross yield7.57%
7.69%
7.63% Gross yield4.86%
4.90%
5.49%
NFM3.71%
4.01%
4.25% NFM6.25%
6.04%
5.84%
AEA 
         AEA 
        
Commercial Finance$10,132.5
 $9,748.6
 $10,216.9
 Other Consumer Banking$2,747.0
 $2,452.7
 $2,165.9
Rail7,695.1
 7,583.2
 7,320.0
 LCM4,262.4
 4,432.9
 5,125.9
Real Estate Finance5,616.2
 5,615.0
 5,565.4
 Gross yield     
Business Capital6,577.9
 6,560.5
 6,202.4
 Other Consumer Banking3.53% 3.52% 3.46%
Gross yield      LCM5.73% 5.66% 6.34%
Commercial Finance5.30% 5.61% 5.16% NFR 
        
Rail11.02% 11.25% 11.98% Other Consumer Banking$70.6
 $62.4
 $46.6
Real Estate Finance5.36% 5.18% 4.90% LCM38.9
 41.6
 59.9
Business Capital8.94% 8.79% 9.01% NFM     
NFR      Other Consumer Banking10.28% 10.18% 8.61%
Commercial Finance$86.1
 $96.1
 $97.8
 LCM3.65% 3.75% 4.67%
Rail70.0
 78.5
 81.8
       
Real Estate Finance46.7
 48.2
 48.2
 Non-Strategic Portfolios 
        
Business Capital75.6
 73.3
 83.9
 AEA$148.6

$188.0

$367.5
NFM      NFR0.7

2.9

2.0
Commercial Finance3.40% 3.94% 3.83% Gross yield6.46%
10.85%
7.62%
Rail3.64% 4.14% 4.47% NFM1.88%
6.17%
2.18%
Real Estate Finance3.33% 3.43% 3.46%       
Business Capital4.60% 4.47% 5.41%       


Table of Contents

Segment Average Yield and Other Data (dollars in millions) (continued)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Consumer Banking
AEA           $7,291.8       $7,457.8       $7,588.7  
NFR             106.5         110.5         97.3  
Gross yield             5.49%         5.73%         5.55%  
NFM             5.84%         5.93%         5.13%  
AEA
                                         
Other Consumer Banking           $2,165.9       $2,153.5       $1,782.6  
Legacy Consumer Mortgages             5,125.9         5,304.3         5,806.1  
Gross yield
Other Consumer Banking             3.46%         3.70%         3.69%  
Legacy Consumer Mortgages             6.34%         6.56%         6.12%  
NFR
                                         
Other Consumer Banking           $46.6       $46.6       $33.7  
Legacy Consumer Mortgages             59.9         63.9         63.6  
NFM
Other Consumer Banking             8.61%         8.66%         7.56%  
Legacy Consumer Mortgages             4.67%         4.82%         4.38%  
Non-Strategic Portfolios
                                         
AEA           $367.5       $625.6       $1,515.6  
NFR             2.0         3.7         14.4  
Gross yield             7.62%         6.39%         7.63%  
NFM             2.18%         2.37%         3.80%  

Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were down from boththe year-ago and prior quarters. The Commercial Finance increase in gross yields from the year-ago quarter was primarily driven by the benefit of higher short-term interest rates, partially offset by a decline in PAA, which, in addition to lower prepayment benefits, also drove the division’s decrease from the prior quarter. Gross yields in Rail were lower from the year-ago and prior quarters, reflectingas lease rates continued to re-price lower on average across the North American portfolio. The Real Estate Finance gross yield improved from the year-ago and prior quarters, driven by the benefit of higher short term interest rates that more than offset lower purchase accounting accretion in Commercial Finance and Real Estate Finance and lower prepayment benefits in Commercial Finance, which masked the impact of higher LIBOR rates, as well as lower renewal rates in the Rail division. These offset higheraccretion. Gross yields in Business Capital.Capital were down slightly from the year-ago quarter, and up from the prior quarter due to asset mix and the interest rate increase.


Consumer Banking gross yields were down impactedfrom the year-ago quarter, as the decline in LCM offset a modest increase in Other Consumer Banking. The decline in gross yields in LCM was driven by lower purchase accounting accretion on mortgage loans in LCM, lower LCM portfoliosome of which was due to run-offceasing PAA accretion related to the reverse mortgages that were transferred to assets held for sale (" AHFS") at the end of the third quarter of 2017. The decline also reflects higher amounts of negative interest income associated with amortizing the indemnification asset. The negative interest income on the indemnification asset totaled $14 million this higher-yielding portfolio,quarter, $16 million last quarter and growth$8 million in the year ago quarter. The negative amounts reduce interest income and are due to lower expected reimbursable losses under the loss share agreement, reflecting better than expected credit performance of the covered loans. While we expect the yield to remain negative, the level can increase or decrease as the indemnification assets amortizes over the remaining contract period, which expires in March 2019. NFM in Consumer Banking is higher than gross yields as this segment receives credit from the other mortgage loans, which carry lower yields.segments for the value of the deposits generated.


As of March 31, 2017,2018, the remaining accretable mark is $1.1 billion,PAA was $700 million, of which approximately $150$86 million relatesrelated to Commercial Banking about halfand $614 million related to Consumer Banking. This compares to $733 million of remaining accretable PAA as of December 31, 2017, of which is expected$97 million related to Commercial Banking and $636 million related to Consumer Banking. We are forecasting 40-50% of the remaining accretable PAA in Commercial Banking to be realized in the next year. However, when a loan prepays, the loan’s remaining PAA is accelerated into interest income, which could result in fluctuations from quarter to quarter (see footnote one to the following table).four quarters. The remaining $950 million relates toaccretable PAA in Consumer Banking and is runningexpected to run off at a rate consistent with the run offrun-off of the underlying mortgages.mortgages, which has averaged 10-15% annually. However, amounts may vary quarter to quarter from fluctuations in prepayments, which results in a loan's remaining PAA to be accelerated into interest income. (See footnote 1 to the following table).




Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   61
CIT GROUP INC. 47



The following table displays PAA accretion by segment and division for both interest income and interest expense.

Purchase Accounting Accretion (PAA) (dollars in millions)

Purchase Accounting Accretion (PAA) (dollars in millions)
Purchase Accounting Accretion (PAA) (dollars in millions)
                 
    Quarters Ended
Quarters Ended
    March 31, 2017
   December 31, 2016
   March 31, 2016
March 31, 2018 December 31, 2017 March 31, 2017
    PAA Accretion Recognized in:
   PAA Accretion Recognized in:
   PAA Accretion Recognized in:
PAA Accretion Recognized in: PAA Accretion Recognized in: PAA Accretion Recognized in:
    Interest
Income(1)
   Interest
Expense(2)
   NFR
   Interest
Income(1)
   Interest
Expense(2)
   NFR
   Interest
Income(1)
   Interest
Expense(2)
   NFR
Interest
Income(1)
 
Interest Expense(2)
 NFR 
Interest
Income(1)
 
Interest Expense(2)
 NFR 
Interest
Income(1)
 
Interest Expense(2)
 NFR
Commercial Banking
Commercial Banking

 
 
 
 
 
 
 
 
Commercial Finance     $12.2       $0.3       $12.5       $18.1       $0.3       $18.4       $18.8       $0.9       $19.7  $4.0
 $0.1
 $4.1
 $7.8
 $0.2
 $8.0
 $12.2
 $0.3
 $12.5
Real Estate Finance       11.9         –          11.9         16.7         –          16.7         19.7         –          19.7  6.6
 —
 6.6
 7.9
 —
 7.9
 11.9
 —
 11.9
Total Commercial Banking       24.1         0.3         24.4         34.8         0.3         35.1         38.5         0.9         39.4  10.6
 0.1
 10.7
 15.7
 0.2
 15.9
 24.1
 0.3
 24.4
Consumer Banking
Consumer Banking

 
 
 
 
 
 
 
 
Other Consumer Banking     (0.4)       1.2       0.8       1.7       1.6       3.3       0.6       3.2       3.8  0.1
 0.8
 0.9
 0.1
 0.9
 1.0
 (0.4) 1.2
 0.8
Legacy Consumer Mortgages       30.7         –          30.7         35.0         –          35.0         30.0         –          30.0  
Legacy Consumer Mortgages(3)
21.0
 —
 21.0
 23.0
 —
 23.0
 30.7
 —
 30.7
Total Consumer Banking       30.3         1.2         31.5         36.7         1.6         38.3         30.6         3.2         33.8  21.1
 0.8
 21.9
 23.1
 0.9
 24.0
 30.3
 1.2
 31.5
Corporate and Other
       –          0.2         0.2         –          0.4         0.4         –          1.4         1.4  —
 —
 —
 —
 —
 —
 —
 0.2
 0.2
Total CIT
     $54.4       $1.7       $56.1       $71.5       $2.3       $73.8       $69.1       $5.5       $74.6  $31.7
 $0.9
 $32.6
 $38.8
 $1.1
 $39.9
 $54.4
 $1.7
 $56.1
(1) 
Included in the above are accelerated recognition of approximately $12.3$7.1 million, $16.4$12.1 million and $23.5$14.2 million for the quarters ended March 31, 20172018 and 20162017 and December 31, 2016,2017, respectively.
(2) 
Debt and deposits acquired in the OneWest Bank acquisition were recorded at a net premium, therefore the purchase accounting accretion of that adjustment decreases interest expense.

(3)
The decline from the year-ago quarter reflects the transfer of the reverse mortgage portfolio to AHFS at the end of the third quarter of 2017.

The following table sets forth the details on net operating lease revenues.

Net Operating Lease Data (dollars in millions)

     Quarters Ended
   
     March 31, 2017
   December 31, 2016
   March 31, 2016
   
Rental income on operating leases           $251.3         13.40%       $252.2         13.59%       $264.1         15.22%  
Depreciation on operating lease equipment             (73.5)         (3.92)%         (69.8)         (3.76)%         (61.3)         (3.53)%  
Maintenance and other operating lease expenses             (53.8)         (2.87)%         (57.5)         (3.10)%         (48.9)         (2.82)%  
Net operating lease revenue and %           $124.0         6.61%       $124.9         6.73%       $153.9         8.87%  
Average Operating Lease Equipment (“AOL”)           $7,500.7                  $7,425.6                  $6,940.4             

Net Operating Lease Data (dollars in millions)
            
 Quarters Ended
 March 31, 2018 December 31, 2017 March 31, 2017
Rental income on operating leases$253.6
 12.78% $252.6
 12.89% $251.3
 13.40%
Depreciation on operating lease equipment76.4
 3.85% 74.3
 3.79% 73.5
 3.92%
Maintenance and other operating lease expenses57.4
 2.89% 57.9
 2.95% 53.8
 2.87%
Net operating lease revenue and %$119.8
 6.04% $120.4
 6.14% $124.0
 6.61%
Average operating lease equipment, including amounts held for sale$7,934.6
  
 $7,841.0
  
 $7,500.9
  

Net operating lease revenue, which is generateda component of NFR, is driven principally by the performance of the Rail withportfolio within the remaining amount from Business Capital, both divisions of Commercial Banking.Banking segment. Net operating lease revenue was flat with the prior quarter and down asfrom the benefit from growth in the portfolio was offset byyear-ago quarter, reflecting continued downward pressures on renewal rates in Rail.Rail, partially offset by increased utilization. Net operating lease revenue benefited in the current and prior quarters (none in the year-ago quarter) from suspended depreciation of about $9 million in each period, related to the pending sale of our European Rail business, NACCO. Increasing the depreciation in the current and prior quarters for the amount suspended would have decreased the respective net operating lease revenue in each period, and the rates to 5.57% for the current quarter and 5.69% for the prior quarter, respectively. Suspended depreciation is discussed further below.

Railcar
North America railcar utilization, including commitments to lease, was flatimproved to nearly 97% from 96% at 94% from December 31, 20162017, primarily driven by improvements in tank, mill gondola and prior-yearbox car utilization. Rail lease rates in the current quarter continued to price down compared to the rates on expiring leases, reflecting excess capacity in the market. We continue to expect downward pressure, and anticipate re-pricing to be down 20%-30% on average through the rest of 2018 and into 2019, reflecting continued pressures in demandpressure from tank car lease rates, which are coming due for cars that transport crude, coal and steel. We expect these pressures to continue during 2017, with rental rates to continue to re-price downward as leases renew.renewal at a faster pace.


Depreciation is recognized on railcars and other operating lease equipment. WhileDepreciation was up from the total amount of depreciation is up due to portfolio growth, the increase in rate wasyear-ago and prior quarters driven primarily by theasset growth in the non-rail portfolio, equipment which is depreciated over a shorter time span.timespan. Once a long-lived asset is classified as assets held for sale, depreciation expense is no longer recognized, and the asset is evaluated for impairment with any such charge recorded in other income, of which none was recorded in the quarter on these assets. Consequently, net operating lease revenue includes rental income on operating lease equipment classified as assets held for sale, but there is no related depreciation expense. Suspended depreciation on operating lease equipment in assets held for sale totaled $9 million for the current and prior quarters, with none in the year-ago quarter. The 2018 second quarter is expected to have suspended depreciation at a similar level. See“Expenses — Depreciation on operating lease equipment” and “Concentrations — Operating Leases” for additional information.


Maintenance and other operating lease expenses relates to the railRail portfolio. The increase from the prior-yearyear-ago quarter reflected increased maintenance, freight and storage costs in Rail due to the higher number of railcars off-lease, and growth in the portfolio. The decrease from the prior quarter reflects the impact of higher prior quarter expenses from fleet movement related to lease returns





48 Item 2. Management’s Discussion and year-end deadlines.

Upon emergence from bankruptcy in 2009, CIT applied Fresh Start Accounting (“FSA”) in accordance with GAAP. The most significant remaining discount at March 31, 2017, related to operating lease equipment ($1.2 billion related to rail operating lease equipment). The discount on the operating lease equipment was, in effect, an impairment of the operating lease equipment upon emergence from bankruptcy, as the assets were recorded at their fair value, which was less than their carrying value. The recording of the FSA adjustment reduced the asset balances subject to depreciationAnalysis and thus decreases depreciation expense over the remaining useful life of the operating lease equipment or until it is sold.Item 3. Quantitative and Qualitative Disclosures about Market Risk

62   CIT GROUP INC



CREDIT METRICS

CreditThe following provides information on certain credit metrics, remain stableincluding non-accrual loan and continuenet charge-off levels, as well as the provision for credit losses and allowance for loan losses, that management uses to reflect a favorabletrack the credit environment, with no substantive changes in credit trends.quality of the portfolio.


Non-accrual loans totaled $237 million (0.80% of $259loans), compared to $221 million (0.87% of finance receivables) decreased from $279 million (0.94%(0.76%) at December 31, 2016, driven by lower balances in the Commercial Banking segment related to the maritime, energy2017, and real estate portfolios. Compared to the year-ago quarter, the decrease was driven by the decline in balances in NSP.$259 million (0.87%) at March 31, 2017.


The provision for credit losses reflects loss adjustments related to loans recorded at amortized cost, off-balance sheet commitments and related reimbursements under indemnification agreements. The provision for credit losses was $50$69 million, up from the prior quarter provision of $37$30 million and down from the prior year quarter provision of $90 million. The increase from the prior quarter was$50 million, primarily driven byreflecting a specific reserve on$22 million charge-off of a single retail account incommercial exposure and a higher level of reserves within the Business Capital factoring business. The prior year quarter included an increase in reserves related to energy and maritime portfolios.Commercial Finance division of Commercial Banking.

Net charge-offs were $28$50 million (0.37%(0.68% of average finance receivables (“AFR”))loans) in the current quarter, $24up from $18 million (0.32%(0.26%) in the prior quarter and $32from $28 million (0.42%(0.37%) in the year-ago quarter. RecoveriesThe increase was driven by the $22 million charge-off noted above. Excluding that charge-off, net charge-offs in the current quarter were $28 million (0.39% of $6 million were down from the prior quarter and relatively flat from the year-ago quarter. Net charge-offs are presented in a table and discussed later in this section.average loans).


The following table presents detail on our allowance for loan losses, including charge-offs and recoveries and provides summarized components of the provision and allowance:

Allowance for Loan Losses (dollars in millions)

Allowance for Loan Losses (dollars in millions)
Allowance for Loan Losses (dollars in millions)
     
    Quarters Ended
   Quarters Ended
    March 31,
2017
   December 31,
2016
   March 31,
2016
March 31,
2018		 December 31,
2017		 March 31,
2017
Allowance — beginning of period
     $432.6       $415.0       $346.9  $431.1
 $419.5
 $432.6
Provision for credit losses(1)
       49.7         36.7         89.5  68.8
 30.4
 49.7
Other(1)
       (6.2)         4.6         (3.6)  (2.4) (0.5) (6.2)
Net additions       43.5         41.3         85.9  66.4
 29.9
 43.5
Gross charge-offs       (33.0)         (32.9)         (36.8)  (55.1) (23.3) (33.0)
Recoveries       5.5         9.2         4.8  5.2
 5.0
 5.5
Net Charge-offs       (27.5)         (23.7)         (32.0)  (49.9) (18.3) (27.5)
Allowance — end of period
     $448.6       $432.6       $400.8  $447.6
 $431.1
 $448.6
Provision for credit losses
Provision for credit losses
Provision for credit losses
Specific reserves on impaired loans     $9.6       $11.9       $13.7  $(0.7) $(9.6) $9.6
Non-specific reserves       40.1         24.8         75.8  69.5
 40.0
 40.1
Total     $49.7       $36.7       $89.5  $68.8
 $30.4
 $49.7
Allowance for loan losses
Allowance for loan losses
Allowance for loan losses
Specific reserves on impaired loans     $39.5       $33.7       $40.2  $25.3
 $26.0
 $39.5
Non-specific reserves       409.1         398.9         360.6  422.3
 405.1
 409.1
Total     $448.6       $432.6       $400.8  $447.6
 $431.1
 $448.6
Ratio
Ratio
Ratio
Allowance for loan losses as a percentage of total loans       1.51%         1.46%         1.30%  1.52% 1.48% 1.51%
Allowance for loan losses as a percent of finance receivable/Commercial       1.85%         1.81%         1.62%  
Allowance for loan losses plus principal loss discount as a percent of finance receivables (before the principal loss discount)/Commercial       1.97%         1.97%         1.89%  
Allowance for loan losses plus principal loss discount as a percent of finance receivables (before the principal loss discount)/Consumer       5.72%         6.05%         7.87%  
Allowance for loan losses as a percent of loans/Commercial1.79% 1.74% 1.85%
(1) 
The provision for credit losses includes amounts related to reserves on unfunded loan commitments and letters of credit, and for deferred purchase agreements, which are reflected in Other Liabilities.other liabilities. The items included in other liabilities totaled $50$47 million, $44$45 million and $48$50 million at March 31, 2017,2018, December 31, 20162017 and March 31, 2016,2017, respectively. “Other” also includes allowance for loan losses associated with loan sales and foreign currency translations.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   63


Table of Contents

The allowance for loan losses was $448 million (1.52% of loans, 1.70% excluding loans subject to loss sharing agreements with the FDIC) at March 31, 2018, compared to $431 million (1.48% of loans, 1.67% excluding loans subject to loss sharing agreements with the FDIC) at December 31, 2017 and $449 million (1.51% of finance receivables,loans, 1.76% excluding loans subject to loss sharing agreements with the FDIC) at March 31, 2017, compared to $433 million (1.46% of finance receivables, 1.72% excluding loans subject to loss sharing agreements with the FDIC) at December 31, 2016 and $401 million (1.30% of finance receivables, 1.53% excluding loans subject to loss sharing agreements with the FDIC) at March 31, 2016.2017. The changesincrease in the allowance for loan losses from the prior quarter andreflected a higher level of reserves, primarily within the Commercial Finance division of Commercial Banking. The decrease in the Commercial Banking allowance ratio from the year-ago quarter reflectreflects the itemscharge-off of previously mentioned discussing the provision for credit losses.

Including the impact of the principal loss discountestablished specific reserves on credit impaired loans, which is essentially a reserve for credit losses on the discounted loans, the commercial loan allowance to finance receivables was 1.97%, unchanged from December 31, 2016 and 1.89% at March 31, 2016. The consumer loans ratio was 5.72% at March 31, 2017 compared to 6.05% at December 31, 2016 and 7.87% at March 31, 2016, as most of the consumer loans purchased were credit impaired and are partially covered by loss sharing agreements with the FDIC. The decrease was drivenoffset by the shiftincrease in asset mix as new originations offset the run-offallowance for loan losses for reserve build.

See Note 3 — Loans for details regarding the unpaid principal balance, carrying value and allowance for loan losses related to PCI loans.

CIT GROUP INC. 49

Loan Net Carrying Value (dollars in millions)

     Finance
Receivables
   Allowance
for Loan
Losses
   Net Carrying
Value
March 31, 2017
Commercial Banking           $22,878.6       $(424.0)       $22,454.6  
Consumer Banking             6,812.8         (24.6)         6,788.2  
Total           $29,691.4       $(448.6)       $29,242.8  
December 31, 2016
Commercial Banking           $22,562.3       $(408.4)       $22,153.9  
Consumer Banking             6,973.6         (24.2)         6,949.4  
Total           $29,535.9       $(432.6)       $29,103.3  

Loan Net Carrying Value (dollars in millions)

Loans Allowance
for Loan
Losses		 Net Carrying
Value
March 31, 2018
Commercial Banking$23,345.9
 $(417.2) $22,928.7
Consumer Banking6,107.7
 (30.4) 6,077.3
Total$29,453.6
 $(447.6) $29,006.0
December 31, 2017
Commercial Banking$23,159.3
 $(402.2) $22,757.1
Consumer Banking5,954.6
 (28.9) 5,925.7
Total$29,113.9
 $(431.1) $28,682.8
The following table presents charge-offs, by class and business segment. SeeResults by Business Segment for additional information.

Net Charge-offs (dollars in millions)

     Quarters Ended
     March 31, 2017
   December 31, 2016
   March 31, 2016
Gross Charge-offs
Commercial Finance           $10.6         0.43%       $17.8         0.69%       $16.4         0.57%  
Real Estate Finance             3.9         0.28%         –          –          1.5         0.11%  
Business Capital             17.9         0.99%         14.2         0.82%         18.2         1.11%  
Commercial Banking
             32.4         0.57%         32.0         0.56%         36.1         0.61%  
Legacy Consumer Mortgages             0.6         0.03%         0.9         0.05%         0.7         0.04%  
Consumer Banking
             0.6         0.03%         0.9         0.05%         0.7         0.04%  
Total           $33.0         0.45%       $32.9         0.44%       $36.8         0.48%  
Recoveries
Commercial Finance           $0.1         –        $0.7         0.02%       $0.5         0.02%  
Business Capital             4.9         0.27%         7.9         0.45%         3.5         0.22%  
Commercial Banking
             5.0         0.09%         8.6         0.15%         4.0         0.06%  
Legacy Consumer Mortgages             0.5         0.02%         0.6         0.03%         0.8         0.05%  
Consumer Banking
             0.5         0.02%         0.6         0.03%         0.8         0.05%  
Total           $5.5         0.08%       $9.2         0.12%       $4.8         0.06%  
Net Charge-offs
                                                                             
Commercial Finance           $10.5         0.43%       $17.1         0.67%       $15.9         0.55%  
Real Estate Finance             3.9         0.28%         –          –          1.5         0.28%  
Business Capital             13.0         0.72%         6.3         0.37%         14.7         0.89%  
Commercial Banking
             27.4         0.48%         23.4         0.41%         32.1         0.55%  
Legacy Consumer Mortgages             0.1         0.01%         0.3         0.02%         (0.1)         (0.01)%  
Consumer Banking
             0.1         0.01%         0.3         0.02%         (0.1)         (0.01)%  
Total           $27.5         0.37%       $23.7         0.32%       $32.0         0.42%  
 

64   CIT GROUP INC
Net Charge-offs (dollars in millions)
            
 Quarters Ended

March 31, 2018 December 31, 2017 March 31, 2017
Gross Charge-offs
Commercial Finance$40.0
 1.61% $8.2
 0.34% $10.6
 0.43%
Real Estate Finance—
 —% 0.2
 0.02% 3.9
 0.28%
Business Capital14.6
 0.77% 14.4
 0.76% 17.9
 0.99%
Commercial Banking54.6
 0.94% 22.8
 0.40% 32.4
 0.57%
Legacy Consumer Mortgages0.5
 0.06% 0.5
 0.06% 0.6
 0.03%
Consumer Banking0.5
 0.03% 0.5
 0.03% 0.6
 0.03%
Total$55.1
 0.75% $23.3
 0.32% $33.0
 0.45%
Recoveries
Commercial Finance$0.1
 —% $0.3
 0.01% $0.1
 —%
Business Capital4.7
 0.25% 4.5
 0.24% 4.9
 0.27%
Commercial Banking4.8
 0.08% 4.8
 0.08% 5.0
 0.09%
Legacy Consumer Mortgages0.4
 0.04% 0.2
 0.03% 0.5
 0.02%
Consumer Banking0.4
 0.02% 0.2
 0.01% 0.5
 0.02%
Total$5.2
 0.07% $5.0
 0.06% $5.5
 0.08%
Net Charge-offs
 
  
            
Commercial Finance$39.9
 1.61% $7.9
 0.33% $10.5
 0.43%
Real Estate Finance—
 —% 0.2
 0.02% 3.9
 0.28%
Business Capital9.9
 0.52% 9.9
 0.52% 13.0
 0.72%
Commercial Banking49.8
 0.86% 18.0
 0.32% 27.4
 0.48%
Legacy Consumer Mortgages0.1
 0.02% 0.3
 0.03% 0.1
 0.01%
Consumer Banking0.1
 0.01% 0.3
 0.02% 0.1
 0.01%
Total$49.9
 0.68% $18.3
 0.26% $27.5
 0.37%


Table of Contents

The increaseincreases in net charge-offs fromcompared to the year-ago and prior quarter was driven by higher charge-offs in Business Capital and Real Estate Finance. The declinequarters resulted primarily from a year ago quartercharge-off on a single account of $22 million, most of which was driven by lower charge-offs in the energy portfolio in Commercial Finance.


The tables below present information on non-accruing loans, which includes loans related toin AHFS for each period, and when added to OREO and other repossessed assets, sums to non-performing assets. PCI loans are excluded from these tables as they are written down at acquisition to their fair value using an estimate of cashflows deemed to be collectible. Accordingly, such loans are no longer classified as past due or non-accrual even though they may be contractually past due, because we expect to fully collect the new carrying values of these loans.


Non-accrual Loans (dollars in millions)(1)
50 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk

     March 31,
2017
   December 31,
2016
Non-accrual loans
U.S.           $218.9       $218.9  
Foreign             39.9         59.7  
Non-accrual loans           $258.8       $278.6  
Troubled Debt Restructurings(2)
U.S.           $42.3       $41.7  
Foreign             71.8         40.6  
Restructured loans           $114.1       $82.3  
Accruing loans past due 90 days or more
Accruing loans past due 90 days or more           $26.5       $32.0  

Non-accrual Loans (dollars in millions)(1)
    

March 31,
2018		 December 31,
2017
Non-accrual loans
U.S.$212.8
 $211.1
Foreign23.7
 9.8
Non-accrual loans$236.5
 $220.9
Troubled Debt Restructurings(2)
U.S.$94.4
 $103.5
Restructured loans$94.4
 $103.5
Accruing loans past due 90 days or more
Accruing loans past due 90 days or more$27.0
 $31.9
(1) 
Factored receivables within our Business Capital division do not accrue interest and therefore are not considered within non-accrual loan balances howeverbut are considered for credit provisioning purposes.
(2) 
Excludes TDR loans in a trial modification period of $29.2$7.9 million and $39.5$12.5 million at March 31, 20172018 and December 31, 2016,2017, respectively. Refer toNote 3 — Loans for further details.

     March 31, 2017
   December 31, 2016
Commercial Finance           $169.4         1.76%       $188.8         1.90%  
Real Estate Finance             3.7         0.06%         20.4         0.37%  
Business Capital             60.8         0.81%         41.7         0.60%  
Commercial Banking
             233.9         1.02%         250.9         1.11%  
Legacy Consumer Mortgages             15.9         0.34%         17.3         0.36%  
Other Consumer Banking             0.3         0.01%         0.1         –   
Consumer Banking
             16.2         0.24%         17.4         0.25%  
Non-Strategic Portfolios
             8.7         NM          10.3         NM   
Total
           $258.8         0.87%       $278.6         0.94%  

Non-accrual Loans (dollars in millions)

March 31, 2018 December 31, 2017
Commercial Finance$153.2
 1.54% $134.8
 1.36%
Real Estate Finance—
 —% 2.8
 0.05%
Business Capital45.6
 0.59% 53.2
 0.70%
Commercial Banking198.8
 0.85% 190.8
 0.82%
Legacy Consumer Mortgages25.2
 0.79% 19.9
 0.60%
Other Consumer Banking0.3
 0.01% 0.4
 0.02%
Consumer Banking25.5
 0.42% 20.3
 0.34%
Non-Strategic Portfolios12.2
 NM
 9.8
 NM
Total$236.5
 0.80% $220.9
 0.76%
NM — Not meaningful; Non-accrual loans include loans held for sale. All of NSP non-accrual loans reflected loans held for sale; since there was no portfolio loans, no % is displayed.


Non-accrual loans decreasedwere up from December 31, 20162017, primarily due to decreasesan increase in Commercial Finance and Real Estate Finance partially offset by an increasedecreases in Real Estate Finance and Business Capital.


Approximately 66%48% of our non-accrual accounts were paying currently compared to 75%52% at December 31, 2016.2017. Our impaired loan carrying value (including PAA discount specific reserves and charge-offs) to estimated outstanding unpaid principal balances approximated 95%67% compared to 91%76% at December 31, 2016.2017. For this purpose, impaired loans are comprisedcomprise principally of non-accrual loans over $500,000 and troubled debt restructurings (“TDRs”).


Total delinquency (30 days or more) was 1.1%1.8% of finance receivablesloans at March 31, 2017, essentially unchanged from2018 and 1.3% of loans at December 31, 2016.2017.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   65


Table of Contents

Forgone Interest (dollars in millions)

     Quarters Ended March 31,
     2017
   2016
     U.S.
   Foreign
   Total
   U.S.
   Foreign
   Total
Interest revenue that would have been earned at original terms           $5.9       $0.6       $6.5       $6.3       $2.2       $8.5  
Less: Interest recorded             (0.5)         (0.1)         (0.6)         (0.8)         (0.7)         (1.5)  
Foregone interest revenue           $5.4       $0.5       $5.9       $5.5       $1.5       $7.0  

Forgone Interest (dollars in millions)
            

Quarters Ended March 31,

2018 2017

U.S. Foreign Total U.S. Foreign Total
Interest revenue that would have been earned at original terms$8.0
 $1.3
 $9.3
 $5.9
 $0.6
 $6.5
Less: Interest recorded(0.8) —
 (0.8) (0.5) (0.1) (0.6)
Foregone interest revenue$7.2
 $1.3
 $8.5
 $5.4
 $0.5
 $5.9

The Company periodically modifies the terms of loans/finance receivablesloans in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower, which otherwise would not have been considered, are accounted for as TDRs. For those accounts that were modified but were not considered to be TDRs, it was determined that no concessions had been granted by CIT to the borrower. Borrower compliance with the modified terms is the primary measurement that we use to determine the success of these programs.


CIT GROUP INC. 51

The tables that follow reflect loan carrying values of accounts that have been modified, excluding PCI loans.

TDRs and Modifications (dollars in millions)

TDRs and Modifications (dollars in millions)
TDRs and Modifications (dollars in millions)
       
   March 31, 2017
  December 31, 2016
March 31, 2018 December 31, 2017
      %
Compliant
    %
Compliant
  % Compliant 
 % Compliant
Troubled Debt Restructurings(1)
Troubled Debt Restructurings(1)
Troubled Debt Restructurings(1)
Deferral of principal and/or interest    $43.6      100%      $9.6      99%  $25.5
 81% $31.8
 95%
Covenant relief and other    70.5      97%      72.7      95%  68.9
 78% 71.7
 70%
Total TDRs    $114.1      97%      $82.3      84%  $94.4
 79% $103.5
 78%
Percent non-accrual    53%             41%         61%  
 63%  
Modifications(2)
             
Extended maturity    $143.4      100%      $95.0      100%  $30.0
 100% $35.7
 100%
Covenant relief    210.5      100%      261.1      100%  223.0
 95% 260.2
 100%
Interest rate increase    143.0      89%      138.2      100%  154.3
 100% 102.8
 100%
Other    168.8      100%      216.0      92%  332.2
 98% 229.5
 90%
Total Modifications    $665.7             $710.3         $739.5
 

 $628.2
 

Percent non-accrual    14%             23%    10%  
 8%   
(1) 
Excludes TDR loans in a trial modification period of $29.2$7.9 million and $39.5$12.5 million at March 31, 20172018 and December 31, 2016,2017, respectively. Refer toSee Note 3 — Loans for further details.
(2) 
Table depicts the predominant element of each modification, which may contain several of the characteristics listed.


PCI loans, TDRs and other credit quality information is included inNote 3 — Loans inItem 1. Consolidated Financial Statements.

66   CIT GROUP INC


NON-INTEREST INCOME

As presented in the following table, Non-interest Income includes Rental Income on Operating Leases and Other Non-Interest Income. The following discussion is on a consolidated basis; Non-interestnon-interest income is also discussed in each of the individual segments inResults By Business Segment. Certain line-items in the table have changed from previous disclosures, all prior periods are conformed.

Non-interest Income (dollars in millions)

     Quarters Ended
     March 31,
2017
   December 31,
2016
   March 31,
2016
Rental income on operating leases           $251.3       $252.2       $264.1  
Other Income:                                          
Fee revenues             28.9         26.8         30.3  
Factoring commissions             26.1         25.7         26.4  
Gains on sales of leasing equipment             8.5         10.5         4.8  
Gains on loan and portfolio sales             4.8         22.9         0.3  
Gains (losses) on investments             4.1         22.0         (4.1)  
Gains on OREO sales             1.3         1.5         1.7  
Termination fees on Canadian total return swap             –          (280.8)         –   
Impairment on assets held for sale             (1.7)         –          (20.3)  
Net (losses) gains on derivatives and foreign currency exchange             (11.3)         50.8         9.3  
Other revenues             18.4         3.0         36.4  
Total other income             79.1         (117.6)         84.8  
Total non-interest income           $330.4       $134.6       $348.9  

Non-interest Income (dollars in millions)
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Rental income on operating leases$253.6
 $252.6
 $251.3
Other non-interest income:           
Fee revenues27.2
 30.3
 28.9
Factoring commissions25.6
 26.7
 26.1
Gains on leasing equipment, net of impairments13.5
 7.9
 6.9
BOLI Income6.5
 5.8
 —
Gains on investment securities, net of impairments5.4
 12.4
 4.1
Other revenues26.5
 54.1
 13.1
Total other non-interest income104.7
 137.2
 79.1
Total other non-interest income, excluding noteworthy items(1)
$104.7
 $107.8
 $87.2
Total non-interest income$358.3
 $389.8
 $330.4
      
(1) Total non-interest income, excluding noteworthy items are non-GAAP balances, see reconciliations to GAAP balance in Non-GAAP Financial Measurements.

Rental income on operating leases from equipment we lease is generated in the Rail and Business Capital divisions in the Commercial Banking segment and recognized principally on a straight line basis over the lease term. Rental income is discussed in“Net Finance Revenues” and“Results by Business Segment”. See also our Annual Report on Form 10-K for the year ended December 31, 2016,2017, Note 6 — Operating Lease Equipment inItem 88. Financial Statements and Supplementary Data for information on operating leases.


Other income changes reflect the following:


Fee revenues, which include items generated by our business activities such as fees on lines and letters of credit, capital markets-related fees, agent and advisory fees and servicing fees, remained fairly steady andfees. Fee revenues were down from the prior quarter, primarily due to a decrease in capital markets fees. Fee revenues are mainly driven by our Commercial Banking segment.


Factoring commissions were flat relativedown from the prior quarter, reflecting the seasonal decrease in volume and were down compared to the prior and year-ago quartersquarter, despite increasesan increase in factoring volumevolumes, as a reductionchange in theportfolio mix of higher risk receivables put downward pressure on pricing. Factoring volume was $6.8down 4% from the prior quarter due to seasonality and up 9% from the year-ago quarter, driven by an increase in the technology industry. Factoring volume was $7.4 billion for the current quarter, up from $5.9$6.8 billion in the year-ago quarter, and unchanged from$7.7 billion last quarter.


52 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk



Gains on salesleasing equipment, net of leasing equipment resulted from $51 million of equipment sales in the current quarter, $60 million in the year-ago quarter, and $102 million in the prior quarter. In each of the quarters, while the gainsimpairments were driven by sales of rail equipment the majority of the equipment sold wasand other types of equipment in Business Capital and NSP.Capital. Gains as a percentage of equipment sold which will vary based on the type and age of equipment sold, decreased from last quarter and the year-ago quarter.sold. See table entitledEquipment Sales in theFinancingLoans and Leasing AssetsLeases section that displays amounts sold by segment.


Gains (losses) on loan and portfolio sales resulted from $172 million of sales in the current quarter, $114 million in the year-ago quarter, and $754 million in the prior quarter, reflecting the sale of the Canadian Equipment and Corporate Finance businesses in NSP. Gains and losses will vary based on the underlying loan and market conditions. See table entitledLoan and Portfolio Sales in theFinancing and Leasing Assets section that displays amounts sold by segment.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   67


Table of Contents

Gains (losses) on investments, include net of impairments mostly reflected gains on sales of mortgage-backed securities, changes in value of mortgage-backed securities carried at fair value, and also derived fromto a lesser extent, sales of equity investments that were received as part of a lending transaction, or in some cases, a workout situation. The prior quarter was driven by a single equity sale in Commercial Banking.

Gains on OREO sales reflect sales and adjustments to the carrying value of real estate owned assets. OREO properties pertain to foreclosures in the mortgage portfolios specific to the Consumer Banking segment.

Termination fees on Canadian TRS reflect payment to GSI on December 7, 2016,During 2017, essentially all of the presentMBSs carried at fair value of the remaining facility feewere sold or matured, resulting in an amount equal to approximately $280 million. Although associated with removal of the derivative liability related to the unused portion of the Canadian TRS derivative noted below, the payment was a termination fee, and thus recorded separately and not combined with the derivative liability benefit of $37 million from the reversal of mark-to-market charges.

Impairment on assets held for sale in the year-ago quarter was driven by impairments on the portfolios held for sale in NSP. When an operating lease asset is classified as held for sale, depreciation expense is suspended and the asset is evaluated for impairment with any such charge recorded in other income. (SeeOther Expenses for related discussion on depreciation on operating lease equipment.)

Net (losses)lower gains on derivatives and foreign currency exchange includes valuation of the derivatives within the TRS, which resulted in losses of $1 million in the current quarter and gains of $18 million in the year ago quarter. The TRS derivative loss in the current quarter was primarily duecompared to the narrowing of credit spread inputs toprior quarter.
BOLI income reflects the fairchanges in value model. The prior quarter reflected valuations of the Canadian TRSbank-owned life insurance ("BOLI") policies CIT purchased on certain officers and our Dutch subsidiary’s total return swap facility (the “Dutch TRS”, together withemployees. These policies were purchased during the Canadian TRS, collectively, the “TRS Transactions”) that resulted in a gainsecond half of $37 million, primarily due to the reversal of the mark-to-market charge upon the termination of the Canadian TRS.2017.

Foreign currency movements and other exposures resulted net losses of $3 million and $9 million and a net gain of $16 million for the current quarter, year-ago quarter and prior quarter, respectively. On a gross basis, transactional foreign currency movements resulted in gains of $2 million in the current quarter and $24 million in the year-ago quarter, and losses of $30 million in the prior quarter. Respectively, the impact of these transactional foreign currency movements was offset by losses of $5 million and $33 million, and gains of $46 million, on derivatives that economically hedge foreign currency movements and other exposures.

In addition, there were losses of $8 million in the current quarter and no losses in the year-ago and prior quarters, on the realization of cumulative translation adjustment (“CTA”) amounts from AOCI due to translational adjustments related to liquidating portfolios.

For additional information on the impact of derivatives on the income statement, refer toNote 7 — Derivative Financial Instruments inItem 1. Financial Information.

Other revenues included items that are more episodic in nature, such as gains and losses on loans and portfolios sold, OREO sales, net gains and losses on derivative and foreign currency exchange, gains on work-out related claims, proceeds received in excess of carrying value on non-accrual accounts held for sale, which were repaid or had another workout resolution, insurance proceeds in excess of carrying value on damaged leased equipment, and income from joint ventures. Other revenuesrevenue in the prior quarter included a noteworthy item of $29 million related to the cumulative effect of an accounting policy change for low income housing tax credit ("LIHTC") investments. Other revenue in the year-ago quarter included a gain on salenoteworthy item related to a currency translation charge of the U.K. business of $24 million in NSP.$8 million.

68   CIT GROUP INC


EXPENSES

Non-Interest Expense (dollars in millions)

Non-Interest Expense (dollars in millions)
Non-Interest Expense (dollars in millions)
     
    Quarters Ended
Quarters Ended
    March 31,
2017
   December 31,
2016
   March 31,
2016
March 31,
2018		 December 31,
2017		 March 31,
2017
Depreciation on operating lease equipment     $(73.5)       $(69.8)       $(61.3)  $76.4
 $74.3
 $73.5
Maintenance and other operating lease expenses       (53.8)         (57.5)         (48.9)  57.4
 57.9
 53.8
Operating expenses:
Compensation and benefits       (143.3)         (133.4)         (157.7)  147.8
 138.6
 143.3
Technology32.4
 30.7
 32.7
Professional fees       (39.8)         (58.6)         (37.3)  25.8
 28.8
 39.8
Technology       (32.7)         (40.0)         (30.3)  
Insurance       (25.6)         (19.1)         (24.9)  19.9
 15.7
 25.6
Net occupancy expense       (19.9)         (19.5)         (17.9)  16.2
 16.7
 19.9
Advertising and marketing       (5.4)         (6.3)         (5.2)  13.0
 12.8
 5.4
Other       (23.9)         (54.1)         (30.1)  
Other expenses20.2
 22.7
 23.9
Operating expenses, excluding restructuring costs and intangible asset amortization       (290.6)         (331.0)         (303.4)  275.3
 266.0
 290.6
Intangible assets amortization       (6.2)         (6.4)         (6.4)  
Provision for severance and facilities exiting activities       (14.8)         (3.9)         (20.3)  
Intangible asset amortization6.0
 6.1
 6.2
Restructuring costs—
 31.9
 14.8
Total operating expenses       (311.6)         (341.3)         (330.1)  281.3
 304.0
 311.6
Goodwill impairment       –          (354.2)         –   —
 255.6
 —
Loss on debt extinguishments and deposit redemptions       –          (3.3)         (1.6)  
Loss on debt extinguishment and deposit redemption0.1
 1.7
 —
Total non-interest expenses     $(438.9)       $(826.1)       $(441.9)  $415.2
 $693.5
 $438.9
Headcount       4,060         4,080         4,300  3,898
 3,909
 4,058
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA(1)
       2.49%         2.82%         2.52%  2.43% 2.39% 2.49%
Operating expenses excluding restructuring costs and intangible asset amortization and other noteworthy items as a % of AEA(1)
       2.49%         2.59%         2.52%  
Net efficiency ratio(2)
       58.6%         109.2%         57.6%  55.6% 49.6% 58.6%
Net Efficiency Ratio Adjusted(2)
       57.7%         58.0%         58.7%  
Net Efficiency Ratio excluding noteworthy items(2)
56.7% 53.4% 57.7%
(1) 
Operating expenses excluding restructuring costs and intangible asset amortization as a % of AEA is a non-GAAP measure; see “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.
(2) 
Net efficiency ratio and net efficiency ratio adjusted are non-GAAP measurements used by management to measure operating expenses (before restructuring costs and intangible amortization) to the level of total net revenues. See “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.information and description of the calculation.


Depreciation on Operating Lease Equipment


Depreciation on operating lease equipment is recognized on owned equipment over the lease term or estimated useful life of the asset. Depreciation expense is driven by rail equipment and smaller ticket equipment, such as office equipment, in the Rail and Business Capital divisions in Commercial Banking, respectively. Impairments recorded on equipment held in our portfolio are reported as depreciation expense. Equipment held for sale also impacts the balance, as depreciation expense is suspended on operating lease equipment once it is transferred to AHFS. The increase in depreciation expense reflects portfolio growth and mix, as the equipment other than rail have shorter lives, which increased depreciation in the current quarter. Depreciation expense is also discussed in“Net Finance Revenue,” as it is a component of our asset margin.NFM. See“Non-interestNon-Interest Income” for impairment charges on operating lease equipment classified as held for sale.


Maintenance and Other Operating Lease Expenses


Maintenance and other operating lease expenses relates to equipment ownership and leasing costs associated with the Rail portfolio. Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for

CIT GROUP INC. 53

railcar maintenance and repair. Maintenance expenses on railcars increased from the year-ago quarter on the growing portfolio, with increased costs associated with end of lease railcar returns and higher Railroad Interchange repair expenses. The

Operating Expenses

Operating expenses, excluding restructuring costs and intangible asset amortization, were up from the prior quarter, wasdriven primarily by higher reflecting higher lease returns.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   69


Table of Contents

Operating Expenses

The first quarter is generally higher due to compensation and benefits, increases resulting fromdue to the annual restart of certain benefit costs, at the outset of each year. However, noteworthy items and other elevated costs in the prior quarter relatedhigher FDIC insurance costs. Compared to legacy OneWest Bank matters were the main driver of the sequential quarter decline in this metric. The decrease from the year-ago quarter, reflects results fromoperating expenses were down, reflecting lower professional fees and FDIC insurance costs, partially offset by higher advertising and marketing costs.

Although operating expenses excluding restructuring costs and intangible asset amortization were up sequentially, we remain focused on reducing our expense reduction initiatives.

We continue to make progress on our goal of $150 million in operating expense reductions by 2018 through organizational alignment, technologycosts and operations improvements and third party initiatives. As of the end of the current quarter, we have achieved approximately 40% of that goal and remainare on track to reachachieve the reduction of our target.annual operating expense to our target of $1,050 million (before intangible amortization) for 2018 through reduction of consulting services and other professional fees and continuing to right-size the organization.


Operating Expenses reflect the following changes:


n
Compensation and benefits decreased from the year-ago quarter, primarily reflecting the impact of fewer employees, whereas the sequential increase reflects the restart of certain benefit costs. Throughout 2016, we reduced the number of total employees primarily as a result of business sales and other strategic initiatives.
n
Professional fees included legal and other professional fees, such as tax, audit, and consulting services. Professional fees were down from the prior quarter as lower costs incurred for various strategic initiatives, consulting services related to strategic reviews of our businesses and third-party costs to assist in improving our capital planning and CCAR reporting capabilities offset increased audit fees.
n
Technology costs decreased from the prior quarter due to the timing of anticipated costs. The prior quarter included charges to write-off certain capitalized IT costs.
n
Insurance expenses increased from the prior quarter, mostly reflecting higher FDIC costs.
n
Net Occupancy expenses were up from the year-ago quarter reflecting costs associated with consolidating office space.
n
Advertising and marketing expenses include costs associated with raising deposits and may fluctuate based on timing of marketing programs.
n
Provision for severance and facilities exiting activities primarily reflects strategic initiatives to reduce operating expenses and streamline our operations, which resulted in employee reductions compared to the year-ago period.
n
Amortization of intangible assets primarily results from intangible assets recorded in the OneWest Bank acquisition.
n
Other expenses include items such as travel and entertainment, office equipment and supplies and taxes (other than income taxes, such as state sales tax, etc.), and from time to time includes settlement agreement costs, including OneWest Bank legacy matters. Other expenses increased in the prior quarter reflecting OneWest Bank activity and legacy matters, such as servicing related contingent obligations, items related to the loss share agreements with the FDIC, and other indemnifications that were inherited by CIT from OneWest Bank with the acquisition.

Compensation and benefits increased from the prior quarter mostly reflecting the restart of annual benefit costs. Compared to the year-ago quarter, higher costs were partially offset by the impact of fewer employees.
Technology costs increased from the prior quarter due to higher software expenses.
Professional fees included legal and other professional fees, such as tax, audit, and consulting services. The decline from the year-ago quarter was driven by lower audit fees, while the declines from both the year-ago and prior quarters reflect lower consulting costs for CCAR reporting, partially offset by higher litigation costs.
Insurance expenses, while below the year-ago level on lower FDIC premium assessment, was up from the prior quarter, which benefited from a true-up of the FDIC insurance costs.
Net Occupancy expenses were down from the year-ago quarter, driven by lower rent, building repairs, and relocation costs.
Advertising and marketing expenses include costs associated with raising deposits and may fluctuate based on timing of marketing programs. A consumer promotional marketing campaign started after the 2017 first quarter.
Intangible asset amortization primarily results from intangible assets recorded in the OneWest Bank acquisition.
Restructuring costs were significant in the year-ago and prior quarters, as we continued strategic initiatives to reduce operating expenses and streamline our operations, which resulted in employee reductions compared to the year-ago period.
Otherexpenses include items such as travel and entertainment, office equipment and supplies and taxes (other than income taxes, etc.), and from time to time includes settlement agreement costs, including OneWest Bank legacy matters.
Goodwill Impairment

The Company recorded
During the prior quarter, we recognized $256 million in goodwill impairment of $319.4 million and $34.8 millioncharges, mostly related to Equipment Finance in the Consumer Banking andour Commercial Banking segments, respectively, during the fourth quarter of 2016.segment.


Loss on Debt Extinguishments and Deposit Redemptions

Amounts were minor due to limited activity. See Note 6 — Borrowings in Item 1. Consolidated Financial Statements.

Loss on debt extinguishments and deposit redemptions in the prior-year quarter related to certain secured debt instruments, while the prior quarter mostly resulted from the early repayment of brokered certificates of deposits.

INCOME TAXES

Income Tax Data (dollars in millions)

    Quarters Ended
   
    March 31,
2017
   December 31,
2016
   March 31,
2016
Provision (benefit) for income taxes, before discrete items     $44.9       $(65.1)       $55.4  
Income Tax Data (dollars in millions)
Income Tax Data (dollars in millions)
     
Quarters Ended
March 31, 2018 December 31, 2017 March 31, 2017
Provision for income taxes, before discrete items$39.6
 $45.4
 $44.9
Discrete items       11.3         58.5         (11.0)  1.7
 (17.7) 11.3
Provision (benefit) for income taxes     $56.2        $(6.6)       $44.4  $41.3
 $27.7
 $56.2
Effective tax rate       41.8%         1.5%         42.1%  28.5% (50.3)% 41.8%
Effective tax rate, before discrete items(1)
       33.4%         15.1%         52.6%  
Effective tax rate, before tax discrete items and noteworthy items(1)
27.3% 39.4 % 31.9%
(1) 
Effective tax rate excluding discrete items is aor noteworthy items are non-GAAP measure.measures. See “Non-GAAP Measurements” for reconciliation of non-GAAP financial information.

70   CIT GROUP INC


TableThe Company's current quarter income tax expense from continuing operations is $41.3 million. This compares to an income tax provision of Contents

$27.7 million in the prior year quarter and an income tax provision of $56.2 million in the year-ago quarter. The income tax provision before the impact of tax discrete items was higher in the current quarter,lower this year, as compared to the prior year quarter and year-ago quarter, primarily driven by deferred federallower statutory income tax rates from U.S. tax reform, partially offset by the impact of the change in accounting method for the LIHTC investments, disallowance of FDIC insurance premiums, and state income taxes.


54 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


The effective tax rate each quarter is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The near term future periods effective tax rate may vary from the actual year-end 2018 effective tax rate due to the changes in these factors.

Included in the net discrete tax expense of $1.7 million for the current quarter was:
$4.0 million deferred income tax benefit resulting from the release of a valuation allowance on increased domestic earnings,deferred tax assets established on the capital losses generated in the prior year from an equity investment in a wholly-owned foreign subsidiary,
$3.7 million net deferred income tax expense, which shiftedincludes $5.3 million deferred income tax expense resulting from revaluation of U.S. state deferred tax assets and liabilities as a result of state tax rate changes, partially offset by $1.6 million of net tax benefits from various other U.S. federal, state, and international discrete tax items,
$2.0 million deferred income tax expense related to the geographic mixincrease to the deferred tax liability on the Company’s investment in NACCO, which is categorized as “held for sale.”

Included in the net discrete tax benefit of $17.7 million for the prior quarter was:
$37.1 million deferred income tax benefit resulting from the release of a valuation allowance on deferred tax assets established on the capital losses generated from an equity investment in a wholly-owned foreign subsidiary,
$26.6 million income tax expense related to the cumulative effect adjustment for the Company’s election to change the accounting policy for LIHTC investments from the equity method to the proportional amortization method. The total income tax expense of $38.2 million disclosed within Management’s Discussion and Analysis “Non-GAAP Financial Measurements” section includes an $11.6 million tax effect of the $29 million pretax item recorded in other non-interest income,
$11.6 million net deferred tax benefit was recognized from the effect of the enacted U.S. tax reform legislation which included the following:
$13.6 million deferred income tax benefit related to the reduction of deferred tax liabilities on previously untaxed earnings and certain noteworthy itemsprofits (“E&P”) due to provisions in prior quarter.the U.S. Tax Reform that imposes a one-time “Toll Tax” on unremitted net positive E&P. This tax converts the net positive E&P into “previously taxed income” that can be repatriated without any further tax. The higher year-ago quarterCompany has a net deficit in E&P and, accordingly, has no Toll Tax liability,
$4.9 million expense reported on the income tax provision was primarily driven by certain itemsexpense line for an increase in pretaxamortization expense resulting from revaluation of the LIHTC investments,
$2.9 million deferred income that shiftedtax benefit related to revaluation of the geographic mixU.S. deferred tax assets and liabilities as a result of earnings comparedchange in U.S federal tax rates from 35% to 21% with an effective date of January 1, 2018, and
$1.1 million net deferred tax expense related to the prior periods.recognition of NACCO related items including impact of French tax law changes of an $11.0 million deferred tax benefit and adjustments to deferred taxes on the Company’s investment in NACCO of $12.0 million deferred tax expense, which is now categorized as “held for sale,”

The$3.3 million of miscellaneous net tax expense items.

Included in the net discrete tax expense of $11.3 million for the currentyear-ago quarter included a $13.9was:
$13.9 million in deferred tax expense related to the restructuring of legal entities in preparation for the Commercial Air sale. Includedsale,
$2.9 million in deferred tax benefit related to the prior quarter’s discreterevaluation of deferred taxes from state tax rate changes, and
$0.3 million of miscellaneous net tax expense of $58.5 million wasitems.

Management expects the recognition of approximately $53.5 million tax expense related to establishment of domestic and international deferred tax liabilities due to Management’s decision to no longer assert its intent to indefinitely reinvest its unremitted earnings in Canada. Included in the year-ago quarter’s net discrete tax benefit of $11.0 million included $13.9 million tax benefit, including interest and penalties, resulting from favorable resolution of a tax position on an international portfolio previously sold.

We expect the 20172018 global effective tax rate to be in the mid 30% range, before the impact ofapproximately 26% to 28%, excluding discrete tax items and noteworthy items. However, there will be a minimal impact onFurthermore, cash income taxes paid will remain minimal until the relatedCompany's NOL carry-forward iscarry-forwards are fully utilized. The taxable income expected

As of December 31, 2017, CIT had deferred tax assets ("DTAs") from continuing operations totaling $877.3 million on its global NOLs. This includes: (1) a DTA of $504.0 million relating to its cumulative U.S. federal NOLs of $2.4 billion; (2) DTAs of $322.0 million relating to cumulative state NOLs of $6.1 billion, including amounts of reporting entities that file in multiple jurisdictions, and (3) DTAs of $51.1 million relating to cumulative non-U.S. NOLs of $203.8 million.

Of the Commercial Air transaction will help utilize a significant amount$2.4 billion U.S. federal NOLs, approximately $1.0 billion relate to the pre-emergence bankruptcy period and are subject to the Section 382 limitation. CIT's bankruptcy reorganization in 2009 resulted in an ownership change under Section 382 of the Internal Revenue Code, which placed an annual dollar limit on the use of the remaining pre-bankruptcy NOLs. The Company's annual limitation on use of pre-bankruptcy NOLs in 2017. Additionally,is approximately $265 million per annum. Approximately $1.4 billion of the Company will expect to incur some amount of U.S. federal andNOL is not subject to the limitation. The U.S. federal NOLs will begin to expire beginning in 2028 through 2036. Approximately $188 million of state cash taxes, after applying available tax credits. NOLs will expire in 2018. While most of the non-U.S. NOLs have no expiration date, a small portion will expire over various periods, including an insignificant amount expiring in 2018.

The amount of future cash taxes will depend on the level of taxable income after utilization of the remaining NOLs, including the implications of the Company’s annual limitation on use of the remaining pre-bankruptcy NOLs, which is approximately $265 million per annum.aforementioned limitation. Cash taxes were a net refundpayment of $0.2$3.2 million for the current quarter, compared to a net refund of $11.3$2.5 million in the prior quarter, and $0.2 million net paymentrefund in the year-ago quarter.


SeeNote 11 —- Income Taxes inItem 1. Consolidated Financial Statements for additional information, including deferred tax assets.assets and specific tax discrete items.




CIT GROUP INC. 55

RESULTS BY BUSINESS SEGMENT

CIT manages its business and reports its financial results in three operating segments:segments, Commercial Banking, Consumer Banking, and Non-Strategic Portfolios, (“NSP”), and a non-operating segment, Corporate and Other.

SEGMENTS

Commercial Banking

Commercial Banking

Commercial Banking is comprised of four divisions: Commercial Finance, Rail, Real Estate Finance and Business Capital. Revenue is generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities. A detailed description of the divisions is included at the end ofItem 1. Business Overview in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.


Commercial Banking: Financial Data and Metrics (dollars in millions)

     Quarters Ended
   
Earnings Summary     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $307.5       $322.0       $324.0  
Rental income on operating leases             251.3         252.2         260.2  
Finance revenue             558.8         574.2         584.2  
Interest expense             (119.8)         (126.9)         (130.2)  
Depreciation on operating lease equipment             (73.5)         (69.8)         (61.3)  
Maintenance and other operating lease expenses             (53.8)         (57.5)         (48.9)  
Net finance revenue (NFR)             311.7         320.0         343.8  
Provision for credit losses             (49.2)         (30.8)         (86.4)  
Other income             72.3         91.6         58.0  
Operating expenses             (178.7)         (183.2)         (197.4)  
Goodwill impairment             –          (34.8)         –   
Income before provision for income taxes           $156.1       $162.8       $118.0  
 

 Quarters Ended
Earnings SummaryMarch 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$314.9
 $314.5
 $307.5
Rental income on operating leases253.6
 252.6
 251.3
Finance revenue568.5
 567.1
 558.8
Interest expense156.3
 138.8
 119.8
Depreciation on operating lease equipment76.4
 74.3
 73.5
Maintenance and other operating lease expenses57.4
 57.9
 53.8
Net finance revenue (NFR)278.4
 296.1
 311.7
Provision for credit losses67.2
 28.6
 49.2
Other non-interest income78.0
 73.0
 72.3
Operating expenses183.1
 167.9
 178.7
Goodwill impairment—
 255.6
 —
Income (loss) before income taxes$106.1
 $(83.0) $156.1
Select Period End Balance
Loans and leases$31,497.1
 $31,232.4
 $30,731.2
Earning assets (net of credit balances of factoring clients)30,193.7
 30,039.0
 29,428.8
Select Average Balances
Average loans (includes HFS, and net of credit balances)$21,813.6
 $21,420.2
 $21,549.9
Average operating leases (AOL)* (includes HFS)7,934.6
 7,841.0
 7,500.9
Average earning assets (AEA)30,021.7
 29,507.3
 29,304.7
Statistical Data
Net finance margin - NFR as a % of AEA3.71% 4.01 % 4.25%
Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses*$119.8
 $120.4
 $124.0
Operating lease margin as a % of AOL*6.04% 6.14 % 6.61%
Net efficiency ratio51.0% 45.1 % 46.1%
Pretax return on AEA1.41% (1.13)% 2.13%
New business volume$2,267.2
 $2,902.0
 $1,615.4
Factoring volume$7,426.0
 $7,731.2
 $6,811.6
* See discussion below for the impact of suspended depreciation.

Pre-tax earnings in the current and prior quarters both included a noteworthy item related to the benefit from the suspension of depreciation expense related to NACCO of $9 million. Pre-tax earnings in the prior quarter also included a noteworthy item from goodwill impairment. Excluding noteworthy items, pre-tax earnings of $97 million decreased from the prior quarter of $164 million, primarily driven by an increase in the credit provision, a decrease in net finance revenue and higher operating expenses. Compared to the year-ago quarter, pre-tax earnings excluding noteworthy items decreased from $156 million, primarily driven by a decline in net finance revenue and a higher credit provision.

AEA increased from both the year-ago and prior quarters. AEA consists primarily of loans and leases. Average loans and leases net of credit balances of factoring clients was $29.7 billion for the quarter ended March 31, 2018, up 2% from both the year-ago and prior quarters. Business Capital and Rail (primarily NACCO) drove growth from the year-ago quarter. Growth compared to the prior quarter was driven by the Commercial Finance division, which benefited from lower prepayment rates in the current quarter and strong originations towards the end of the prior quarter.

Compared to the year-ago quarter, new lending and leasing volume increased 40%, with strong growth in Commercial Finance, Real Estate and Business Capital. New lending and leasing volume decreased from the prior quarter, representing a decline in all divisions, due to strong and seasonally high volumes in the prior quarter and typically lower volumes experienced in the first quarter.
Factored volume of $7.4 billion was up 9% compared to the year-ago quarter, driven primarily by increased volume in the technology industry, and down 4% from the prior quarter due to seasonal trends.


56 Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   71


Table of Contents


Commercial Banking: Financial Data and Metrics (dollars in millions) (continued)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Select Period End Balance
Financing and leasing assets           $30,731.2       $30,406.1       $31,111.6  
Earning assets             30,976.0         30,695.2         31,594.8  
Select Average Balances
Average finance receivables (AFR)           $22,749.7       $22,752.2       $23,521.9  
Average operating leases (AOL)             7,500.7         7,425.6         6,940.4  
Average earning assets (AEA)             29,304.7         29,504.7         29,966.6  
Statistical Data
Net operating lease revenue — rental income, net of depreciation and maintenance and other operating lease expenses           $124.0       $124.9       $150.0  
Operating lease margin as a % of AOL             6.61%         6.73%         8.65%  
Net efficiency ratio             46.2%         52.6%         48.7%  
Pretax return on AEA             2.13%         2.21%         1.58%  
New business volume           $1,615.4       $2,042.2       $1,777.0  
Factoring volume           $6,811.6       $6,820.5       $5,873.8  
Select Divisional Data
Net finance revenue:
Commercial Finance           $97.8       $110.4       $113.5  
Rail             81.8         78.1         100.2  
Real Estate Finance             48.2         52.2         54.5  
Business Capital             83.9         79.3         75.6  
Segment total           $311.7       $320.0       $343.8  
Net finance margin — NFR as a % of AEA
Commercial Finance             3.83%         4.15%         3.82%  
Rail             4.47%         4.29%         5.82%  
Real Estate Finance             3.46%         3.80%         4.08%  
Business Capital             5.41%         5.23%         5.17%  
Segment total             4.25%         4.34%         4.59%  

Commercial Banking pre-tax earnings decreased
Rail average earning assets of $7.7 billion were up from the prior quarter driven by lower net finance revenue and higher credit costs, partially offset by lower expenses. The prior quarter included a $35 million goodwill impairment charge partially offset by a gain on an investment related to a loan workout reflected$7.3 billion in other income. Pre-tax earnings increased relative to the year-ago quarter reflecting lower credit costs and operating expenses, partially offset by a decrease in net finance revenue.

Financing and leasing assets (“FLA”), which comprise the vast majority of earning assets, were $30.7 billion at March 31, 2017, up 1% from the prior quarter, driven by higher factoring receivables. The 1% decrease from the year-ago quarter was driven by sales in the Commercial Finance division, which offset increases in each of the other divisions.

New lending and leasing volume of $1.6 billion was down from the prior quarter, reflecting seasonality and market trends, and down from the year-ago quarter primarily due to weak market conditions in middle market lending.

Factored volume of $6.8 billion was flat with the prior quarter and up 16% compared to the year-ago quarter, driven by increased volume across all industries, especially technology.

Rail financing and leasing assets were flatslightly from the prior quarter at $7.2 billion and were up from $6.9$7.6 billion in the prior-yearprior quarter. During 2017, we entered into a definitive sale agreement to sell our European rail business, which consists of approximately $1.2 billion of loans and leases in AHFS, including approximately 15,000 railcars. 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 are targeting to close the sale in the second half of 2018. Our portfolio includes approximately 132,000 railcars, including the railcars of 134,000 railcars is flat to prior quarter and prior year quarter. Absent acquisitions, rail assets are primarily originated through purchase commitments with manufacturers and are also supplemented by spot purchases.the European business. At March 31, 2017,2018, we had approximately 2,5202,120 railcars on order from manufacturers, withof which 1,264 related to our North America business that had deliveries scheduled through 2018.
SeeNote 12 — Commitments inItem 1. Consolidated Financial Statements for further railcar manufacturer commitment data.


Highlights included:


n
▪The netNet finance revenue and net finance margin both("NFR") decreased from both the year-ago and prior quarter, reflecting lower

72   CIT GROUP INC


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quarters. The decreases were primarily driven by higher interest expense, that was more than offset by a declinereflecting increases in interest rates and growth in the portfolio, as well as lower purchase accounting accretion and lower prepayment benefits in the Commercial Finance and Real Estate Finance divisions. and lower net rental income in Rail. The decreases were partially offset by the benefit of higher interest rates on earning assets. Compared to the year-ago quarter, the decrease was partially offset by the suspended depreciation related to NACCO.

▪Net Finance Margin ("NFM") was down compared to the year-ago and prior quarters, reflecting the impact of lower NFR as discussed above and slightly higher average earning assets which were 2% higher compared to both the prior and year-ago quarters.

▪
Purchase accounting accretion totaled $24$11 million, $35$16 million and $39$24 million in the current, prior and year-ago quarters, respectively.respectively, and continues to trend down. Essentially all accretion benefited interest income, with a small amount decreasing interest expense. (Purchase accounting accretion is depicted in tabular form in theNet Finance Revenue section). The current quarter, prior and year-ago quarters included $10$4 million, $18$8 million and $15$10 million, respectively, of PAA that was accelerated due to prepayments. In the Rail division, declining portfolio yields due to lower rates on renewals were offset by lower interest and maintenance expenses.
▪Net finance revenue was down from the year-ago quarter, primarily due to lower earning assets and lower purchase accounting accretion in the Commercial Finance and Real Estate Finance divisions, and lower
Gross yields (interest income plus rental income on operating leases as a % of AEA) in the Rail division.
n
Gross yieldsCommercial Banking were down from both the year-ago and prior quarters. The decrease compared to prior and year-ago quarters reflects lower purchase accounting accretion and lower prepayment benefits in thedeclines reflect continued pressure on rail as discussed below. The Commercial Finance and Real Estate Finance divisions, both of which maskedincrease in gross yields from the impactyear-ago quarter was primarily driven by the benefit of higher LIBORshort-term interest rates, as well as lower renewal ratespartially offset by a decline in PAA, which also drove the Rail division. These offset higher yields in Business Capital.division’s decrease from the prior quarter. See Select Segment and Division Margin Metrics table in Net Finance Revenue section for amounts of purchase accounting accretion and gross yields by division.
n
▪Net operating lease revenue, which is a component of NFR, is driven primarily by the performance of our rail portfolio. Net operating lease revenue was essentially flatRail’s net rental income decline, excluding the suspension of depreciation expense related to NACCO, from both the year-ago and prior quarter and decreased from the prior year quarter,quarters were mainly driven by renewal rates that continue to price lower due to lower renewal lease rates, as well as higher depreciation. Rental rates continued to decline as average leaseexcess capacity in the market. We expect renewal rates re-priced down 20-30%, in many cases from historical highs. We expect this rate to continue to be below expiring rates through 2018 and into 2019. This re-pricing will fluctuate depending on the number and types of cars renewing during any given quarter. Suspended depreciation on operating lease equipment in assets held for sale totaled about $9 million for the current and while there are signs of stabilization in certain car types, such as sand cars, demand for energy-related tank cars remains weak. Given current market conditions, we expect to see continued deterioration in portfolio yields through 2017 and average renewal rates to continue to re-price downprior quarters, with no suspended depreciation in the same 20-30% range.
n
year-ago quarter. Excluding the suspended depreciation, the current and prior quarter operating lease margin would have declined to 5.57% and 5.69%, respectively. Railcar utilization, including commitments to lease, remained flatwas up at 94%97% from prior quarter and from the year-ago quarter.95% at December 31, 2017.
n
▪Other non-interest income increased from the year-ago quarter and decreased from the prior quarter, reflecting the following:
n
▪Factoring commissions of $26 million were flat fromdown compared to the year-ago and prior quartersquarter, despite increasesan increase in factoring volumes, as a reductionchange in the portfolio mix of higher risk receivables put downward pressure on pricing.pricing, and down from the prior quarter, reflecting the seasonal decrease in volume.
n
▪Gains on asset sales (including receivables, equipment and investments), net of impairments, totaled $14$17 million, up from $4compared to $14 million in the year-ago quarter and down from $34$12 million in the prior quarter. The prior quarter gain wasgains for the quarters were primarily driven by a $22 million gain on an investment related to a loan workout in the Commercial Finance division.sales of rail cars.
n
▪Fee revenue is mainly driven by fees on lines of credit and letters of credit, capital markets-related fees, agent and advisory fees and banking related fees, including cash management and account fees. Fee revenue was $27$25 million in the current quarter, consistent withdown from $27 million in the year-ago quarter and $24$28 million in the prior quarter, primarily driven by higheron lower capital market feesfees.
▪The provision for credit losses in the current quarter totaled $67 million, compared to $49 million in the year-ago quarter and $29 million in the prior quarter. The increase in the provision this quarter reflected a $22 million charge-off of a single commercial exposure and a higher level of reserves primarily within the Commercial Finance division.
n
▪The provision for credit losses was $49Net charge-offs were $50 million (0.86% of average loans), $27 million (0.48%) in the currentyear-ago quarter compared to $31and $18.0 million (0.32%) in the prior quarter, and $86 million in the year-ago quarter. The increase in provision from the prior quarter was primarilyincreases were driven by a specific reserve onthe noted charge-off of a single account in the factoring business within the Business Capital division.credit.
▪Non-accrual loans were $199 million (0.85% of loans), compared to $191 million (0.82%) at December 31, 2017, and $234 million (1.02%) at March 31, 2017. The declinedecrease from the year-ago quarter was in the Commercial Finance division and reflected lower provision amounts for the energy and maritime sectors.Business Capital divisions.
▪Net charge-offs were $27 million (0.48% of average finance receivables), compared to $23 million (0.41%) in the prior quarter and $32 million (0.55%) in the year-ago quarter. The increase from the prior quarter was driven by the Business Capital and Real Estate Finance divisions, partially offset by decreases in the Commercial Finance division.
Non-accrual loans were $234 million (1.02% of finance receivables), compared to $251 million (1.11%) at December 31, 2016, and $215 million (0.90%) a year-ago. The decrease from the prior quarter reflected a reduction in the Commercial Finance division, including lower energy and maritime non-accrual loans. The decreaseOperating expenses increased from the year-ago quarter was driven by the declineand prior quarters, both reflecting higher legal fees in the energy portfolio, partially offset by an increase in the maritime business.Rail and higher employee costs.



n
Operating expenses declined $4 million from the prior quarter and $19 million from the year-ago quarter reflecting lower employee related costs. The decrease from the prior quarter also reflects lower sales tax and legal expenses.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   73
CIT GROUP INC. 57



Consumer Banking


Consumer Banking includes Retail Banking, Consumer Lending, and SBA Lending, which are grouped together for purposes of discussion as Other Consumer Banking, and Legacy Consumer Mortgages (“LCM”). A detailed description of the divisions is included at the end ofItem 1. Business Overview in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.


See our Annual Report on Form 10-K for the year ended December 31, 2016,2017, Note 1 —Business and Summary of Significant Accounting Policies andNote 5 —Indemnification Assets inItem 8. Financial Statements and Supplementary Data for accounting and detailed discussions.


Consumer Banking: Financial Data and Metrics (dollars in millions)

     Quarters Ended
   
Earnings Summary     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $100.0       $106.9       $105.3  
Finance revenue             100.0         106.9         105.3  
Interest benefit (expense)             6.5         3.6         (8.0)  
Net finance revenue (NFR)             106.5         110.5         97.3  
Provision for credit losses             (0.5)         (5.9)         (3.1)  
Other income             7.9         7.0         8.2  
Operating expenses             (95.6)         (122.7)         (85.1)  
Goodwill impairment             –          (319.4)         –   
Income (loss) before provision for income taxes           $18.3       $(330.5)       $17.3  
Select Period End Balance
                                         
Financing and leasing assets           $6,876.9       $7,041.8       $7,219.7  
Earning assets             7,190.0         7,383.2         7,601.1  
Deposits             22,584.1         22,542.2         23,257.3  
Select Average Balances
Average finance receivables (AFR)           $6,888.7       $7,052.7       $7,145.9  
Average earning assets (AEA)(1)
             7,291.8         7,457.8         7,588.7  
Statistical Data
                                         
Net efficiency ratio             79.5%         100.5%         76.3%  
Pretax return on AEA             1.00%         (17.73)%         0.91%  
New business volume           $154.7       $198.5       $214.5  
Select Divisional Data
Net finance revenue:                                          
Other Consumer Banking           $46.6       $46.6       $33.7  
Legacy Consumer Mortgages             59.9         63.9         63.6  
Segment total           $106.5       $110.5       $97.3  
Net finance margin — NFR as a % of AEA                                          
Other Consumer Banking             8.61%         8.66%         7.56%  
Legacy Consumer Mortgages             4.67%         4.82%         4.38%  
Segment total             5.84%         5.93%         5.13%  

Pretax results reflected interest on loans, which included PAA accretion, and
 Quarters Ended
Earnings SummaryMarch 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$85.2
 $84.3
 $100.0
Interest benefit(24.3) (19.7) (6.5)
Net finance revenue (NFR)109.5
 104.0
 106.5
Provision for credit losses1.6
 1.8
 0.5
Other non-interest income11.5
 13.2
 7.9
Operating expenses96.0
 103.5
 95.6
Income before income taxes$23.4
 $11.9
 $18.3
Select Period End Balance
Loans (includes HFS)$6,971.7
 $6,820.2
 $6,876.9
Earning assets7,092.2
 6,962.6
 7,190.0
Deposits24,915.4
 23,421.8
 22,584.1
Select Average Balances
Average loans (includes HFS)$6,878.8
 $6,728.0
 $6,963.9
Average earning assets (AEA)7,009.4
 6,885.6
 7,291.8
Statistical Data
Net finance margin - NFR as a % of AEA6.25% 6.04% 5.84%
Net efficiency ratio75.5% 84.4% 79.5%
Pretax return on AEA1.34% 0.69% 1.00%
New business volume$388.6
 $421.9
 $154.7

Compared to the year-ago quarter, pre-tax earnings increased as an increase in the benefit itin interest expense received from the other segments for the value of the excess deposits it generated. Other income mostly included net gains on OREO sales and fee revenue. The operating expenses are proportionally higher thanConsumer Banking generates was partially offset by the decrease in interest income. Compared to the prior quarter, pre-tax results were up primarily driven by an increase in the benefit in interest expense received from the other segments which causesfor the net efficiency ratio to be higher than other segments, reflectingvalue of the branch operations and other items, some of which are described below.

excess deposits Consumer Banking pre-tax earnings weregenerates and lower operating expenses.

Average loans, including held for sale, totaled $6.9 billion for the quarter ended March 31, 2018, up slightly from the prior quarter, as the prior quarter included a $319 million goodwill impairment charge and higher operating expenses related to legacy OneWest Bank matters and other elevated costs. Pre-tax income was up slightly compared to the year-ago quarter as higher net finance revenueoriginations offset an increase in operating expenses.

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Financing and leasing assets totaled $6.9 billion at March 31, 2017, down 2% from December 31, 2016, due to run-off of the LCM portfolios and lower new business volume.portfolios. The LCM portfolios made up $4.7$4.1 billion of the current quarter average balance, with a significant portion covered by loss sharing agreements with the FDIC. These agreements begin to expire in March 2019, the benefit of which is recorded within the indemnification asset.assets. At March 31, 2018, LCM includes $861 million of reverse mortgage loans held for sale (along with $17.2 million of OREO) in connection with the announced Financial Freedom Transaction. SeeNote 5 —Indemnification Assets inItem 1. Consolidated8. Financial Statements and Supplementary Data of CIT’s Annual Report on Form 10-K for the year ended December 31, 20162017 for more detailed discussion on the indemnification assets.assets and Item 1. Consolidated Financial Statements, Note 2 - Discontinued Operations earlier in this document.


Deposits, which include deposits from branchesthe branch and online channels, reported a net increase of $42 millionincreased from the prior quarter,and year-ago quarters, primarily driven by an increase in online High Yield Savings Accounts (“HYSA”), checking and other savingsmoney-market accounts, (approximately $430 million),partially offset by a decrease in CDstime deposits and money market accounts (approximately $388 million). Deposits were down from the prior year quarter primarily due to maturity of consumer CDs.other interest-bearing accounts.


Other highlights include:


▪
n
NFR of $107$110 million decreasedincreased slightly compared to the year-ago quarter, as higher negative income (see Net Finance Revenue MD&A section) related to amortizing the indemnification asset for the covered loans and lower interest income due to suspended purchase accounting accretion from the held for sale reverse mortgage portfolio was offset by an increase in the benefit in interest expense received from the other segments for the value of the excess deposits Consumer Banking generates. NFR increased from the prior quarter primarily due to lower purchase accounting accretion, whilean increase in the increasebenefit in interest expense received from the year-ago quarter reflected lower funding costs.other segments for the value of the excess deposits Consumer Banking generates. Net finance margin reflected similar trends. There was $31approximately $22 million and $38(including $3 million accelerated) of purchase accounting accretionPAA in the current and prior quarters,quarter, compared to $34$32 million (including $2 million accelerated) in the prior-year quarter. The decreaseyear-ago quarter and $24 million (including $4 million accelerated) in purchase accounting accretion as compared to the prior quarter is primarily due to the retrospective adjustment under the interest method for reverse mortgages of $3 million and lower prepayments in the LCM single family residential mortgages of $2 million.quarter.

n
▪Other non-interest income included gains and (losses) on REO properties,asset sales, net of impairments, fee revenue and other miscellaneous income. Other non-interest income was essentially flatincreased $4 million compared to the year-ago quarter due to an increase in gains on asset sales from the reverse mortgage portfolio. Other non-interest income decreased by $2 million compared to the prior and year-ago quarters. Gainsquarter primarily due to a decline in gains on OREO properties totaled approximately $1 million each in the current and prior quarter and $2 million in the prior-year quarter. While fee revenue was fairly consistent across the quarters at approximately $2 million each, other revenue was up in the current quarter reflecting a valuation adjustment gain of approximately $2 million for the FDIC Receivable measured at fair value.asset sales.

n
▪Non-accrual loans were $16$26 million (0.24%(0.42% of finance receivables)loans) at March 31, 2017, down slightly2018, up from $17$20 million (0.25%(0.34%) at December 31, 2016,2017, and up from $7$16 million (0.10%(0.24%) at March 31, 2016,2017, essentially all of which are in the LCM portfolios.LCM.

58 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk



n
▪Operating expenses decreasedare proportionally higher than other segments, which causes the net efficiency ratio to be higher than other segments, reflecting the branch operations and advertising and marketing campaigns for deposits. Operating expenses declined compared to the prior quarter which included charges from legacy OneWest Bank matters, and increased fromprimarily driven by lower servicing-related costs. Compared to the prior year.year-ago quarter, operating expenses were unchanged.


Non-Strategic Portfolios (NSP)


NSP consists of businesses and portfolios that we no longer consider strategic. These portfolios include international equipment financing, secured lending and leasing and advisory services to small and middle-market businesses.


Non-Strategic Portfolios: Financial Data and Metrics (dollars in millions)

     Quarters Ended
   
Earnings Summary     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $7.0       $10.0       $25.0  
Rental income on operating leases             –          –          3.9  
Finance revenue             7.0         10.0         28.9  
Interest expense             (5.0)         (6.3)         (14.5)  
Net finance revenue (NFR)             2.0         3.7         14.4  
Other income             (2.9)         26.0         14.4  
Operating expenses             (2.0)         (6.8)         (12.2)  
Income (loss) before provision for income taxes           $(2.9)       $22.9       $16.6  
Select Period End Balance
Financing and leasing assets           $162.1       $210.1       $1,176.2  
Earning assets             348.2         433.4         1,410.4  
Select Average Balances
                                         
Average earning assets (AEA)             367.5         625.6         1,515.6  
Statistical Data
                                         
Net finance margin — NFR as a % of AEA             2.18%         2.37%         3.80%  
Pretax return on AEA             (3.16)%         14.64%         4.38%  
New business volume           $–        $–        $44.3  
 

Item 2. Management’s Discussion
 Quarters Ended
Earnings SummaryMarch 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$2.4
 $5.1
 $7.0
Finance revenue2.4
 5.1
 7.0
Interest expense1.7
 2.2
 5.0
Net finance revenue (NFR)0.7
 2.9
 2.0
Other non-interest income1.2
 0.9
 (2.9)
Operating expenses2.2
 (0.3) 2.0
(Loss) income before income taxes$(0.3) $4.1
 $(2.9)
Select Period End Balance
Loans and leases$58.5
 $63.3
 $162.1
Earning assets151.3
 145.3
 348.2
Select Average Balances
Average earning assets (AEA)148.6
 188.0
 367.5
Statistical Data
Net finance margin — NFR as a % of AEA1.88 %
6.17%
2.18 %
Pretax return on AEA(0.81)% 8.72% (3.16)%
Pre-tax loss in NSP was less than $1 million, compared to a pre-tax loss of $3 million in the year-ago quarter and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   75


Tablepre-tax income of Contents

The 2017 results reflect primarily activity from$4 million in the business in China. The 2016 results reflect primarily activity from businesses in China and the Canadian Equipment Finance and Corporate Finance businesses, which was sold in October 2016, plus the sale of the U.K. Equipment Finance business, which was sold in January 2016.

Pretax loss for the quarter was mainly dueprior quarter. Interest income continues to the recognition of $8 million of CTA losses previously reflected in stockholder’s equity associated with the liquidation of the former Equipment Finance entities in Europe and Asia. Pretax incomedecline as earning assets continue to run off. Operating expense in the prior quarter benefited from the reversal of a legal provision. In the year-ago quarter, other non-interest income included a noteworthy item, an $8 million currency translation adjustment charge related to the exit of international businesses.

Remaining loans and prior year quarter was driven by gains on the Canadian Equipment Finance and Corporate Finance businesses and U.K. Equipment Finance business, respectively.

Financing and leasing assets at March 31, 2017 totaled $162 million,leases are all in China, and were down from $210$63 million in the prior quarter and $1,176$162 million in the prior year quarter, which also included portfolios in Canada.quarter.

Highlights included:

n
Net finance revenue (“NFR”) was down compared to the prior quarter and the year-ago quarter on lower earning assets.
n
Other income for the current quarter primarily reflects miscellaneous items, such as CTA losses of $8 million. The prior quarter includes a gain of $22 million from the sale of the Canadian Equipment and Corporate Finance businesses. The prior-year quarter included a gain of $24 million from the sale of the U.K. business.
n
Operating expenses were down, primarily reflecting lower cost due to sales of businesses and run-off of assets.

Corporate and Other


Certain items are not allocated to operating segments and are included in Corporate and Other. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate liquidity costs (interest expense), mark-to-market adjustments on non-qualifying derivatives (other non-interest income), restructuring charges for severance and facilities exit activities as well as certain unallocated costs (operating expenses), certain intangible assets amortization expenses (other expenses) and loss on debt extinguishments. Corporate and Other may from time to time reflect significant transactions, such as the net charge resulting from the termination of the Canadian TRS noted below.


Corporate and Other: Financial Data and Metrics (dollars in millions)

     Quarters Ended
   
Earnings Summary     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $41.2       $35.2       $28.6  
Interest expense             (44.8)         (48.7)         (42.3)  
Net finance revenue (NFR)             (3.6)         (13.5)         (13.7)  
Other income             1.8         (242.2)         4.2  
Operating expenses and loss on debt extinguishment and deposit redemption             (35.3)         (31.9)         (37.0)  
Loss before provision for income taxes           $(37.1)       $(287.6)       $(46.5)  
Select Period End Balance
Earning assets           $9,460.7       $9,587.2       $8,764.2  
 Quarters Ended
Earnings SummaryMarch 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$48.7
 $43.8
 $41.2
Interest expense46.8
 47.4
 44.8
Net finance revenue (NFR)1.9
 (3.6) (3.6)
Other non-interest income14.0
 50.1
 1.8
Operating expenses - Including gain/ (loss) on debt extinguishment0.1
 34.6
 35.3
Income (loss) before benefit for income taxes$15.8
 $11.9
 $(37.1)
Select Balances
Average earning assets$8,085.4

$7,981.2

$9,674.9
Earning assets (end of period)$9,717.5
 $7,702.8
 $9,460.7
n
Interest income consists of interest and dividend income, primarily from investment securities and deposits held at other financial institutions. The increase from the prior and year-ago periods reflects additional income from the investment portfolio as we redeployed cash into higher-yielding “High Quality Liquid Assets” at CIT Bank.
n
Interest expense in Corporate represents amounts in excess of expenses allocated to segments and amounts related to excess liquidity.
n
Other income primarily reflects gains and (losses) on derivatives, including the TRS Transactions, and foreign currency exchange.
n
The prior quarter had a significant negative amount driven by the termination change of approximately $280 million related to the Canadian TRS, partially offset by a positive mark-to-market gain for the quarter of $37 million on the TRS primarily due to the Canadian TRS termination. Other income was down compared to the year-ago quarter, as the prior-year quarter included a positive $18 million mark-to-market on the TRS, compared to a current quarter charge of $1 million.
n
Operating expenses reflects salary and general and administrative expenses in excess of amounts allocated to the business segments. Operating expenses were up in the current quarter compared to the prior quarter driven by seasonally higher mandated benefits, FDIC insurance and restructuring costs. The prior quarter included $17 million in consulting spend related to the Federal

76   CIT GROUP INC


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A number of Contents

Reserve Comprehensive Capital Analysisnoteworthy items related to our strategic initiatives impact this division in the year-ago and Review (CCAR) project costsprior quarters, which include an accounting policy change for LIHTC investments and organizational design, compared to $13restructuring costs. In total, these amounts reduced pretax income by $15 million in the current quarter. Operating expenses for theyear-ago quarter included restructuring charges of $15 million, compared to $4and $3 million in the prior quarter.

Interest income consists of interest and dividend income, primarily from investment securities and cash deposited at other financial institutions, and has increased as we shift from cash to securities in the investment portfolio. See the Net Finance Revenue section that displays an average balance sheet and the respective income.


CIT GROUP INC. 59

Interest expense in Corporate represents amounts in excess of expenses allocated to segments and amounts related to excess liquidity.

Other non-interest income primarily reflects BOLI income, gains and (losses) on derivatives and foreign currency exchange, and mark to market adjustments on certain MBS securities carried at fair value. Compared to the year-ago quarter, and $20the increase is driven by BOLI income of $7 million. The prior quarter benefited from $29 million related to the cumulative effect of an accounting policy change for LIHTC investments.
In the current period, the operating expenses were fully allocated to the segments. There were no restructuring costs in the current quarter, compared to $15 million in the year-ago quarter and $32 million in the prior quarter.


FINANCING
LOANS AND LEASING ASSETSLEASES

The following table presents our financingloans and leasing assetsleases by segment.

Financing and Leasing Asset Composition (dollars in millions)

     March 31,
2017
   December 31,
2016
Commercial Banking
Commercial Finance
                              
Loans           $9,638.0       $9,923.9  
Assets held for sale             332.1         351.4  
Financing and leasing assets             9,970.1         10,275.3  
Rail
                              
Loans             104.7         103.7  
Operating lease equipment, net             7,120.5         7,117.1  
Assets held for sale             0.6         0.3  
Financing and leasing assets             7,225.8         7,221.1  
Real Estate Finance
Loans             5,655.4         5,566.6  
Financing and leasing assets             5,655.4         5,566.6  
Business Capital
                              
Loans             7,480.5         6,968.1  
Operating lease equipment, net             395.7         369.0  
Assets held for sale             3.7         6.0  
Financing and leasing assets             7,879.9         7,343.1  
Total Segment
Loans             22,878.6         22,562.3  
Operating lease equipment, net             7,516.2         7,486.1  
Assets held for sale             336.4         357.7  
Financing and leasing assets
             30,731.2         30,406.1  
Consumer Banking
                             
Legacy Consumer Mortgages
Loans             4,692.8         4,829.9  
Assets held for sale             41.4         32.8  
Financing and leasing assets             4,734.2         4,862.7  
Other Consumer Banking
Loans             2,120.0         2,143.7  
Assets held for sale             22.7         35.4  
Financing and leasing assets             2,142.7         2,179.1  
Total Segment
Loans             6,812.8         6,973.6  
Assets held for sale             64.1         68.2  
Financing and leasing assets
             6,876.9         7,041.8  
Non-Strategic Portfolios
Assets held for sale             162.1         210.1  
Financing and leasing assets
             162.1         210.1  
Total Loans
             29,691.4         29,535.9  
Total operating lease equipment, net
             7,516.2         7,486.1  
Total assets held for sale
             562.6         636.0  
Total financing and leasing assets
           $37,770.2       $37,658.0  
 
Loans and Leases Composition (dollars in millions)
    
 March 31, 2018 December 31, 2017
Commercial Banking   
Commercial Finance     
Loans$9,926.1
 $9,928.8
Assets held for sale88.1
 123.5
Total loans and leases10,014.2
 10,052.3
Rail     
Loans81.5
 82.8
Operating lease equipment, net6,268.4
 6,260.9
Assets held for sale1,256.5
 1,188.5
Total loans and leases7,606.4
 7,532.2
Real Estate Finance   
Loans5,594.5
 5,567.9
Assets held for sale28.0
 22.3
Total loans and leases5,622.5
 5,590.2
Business Capital     
Loans7,743.8
 7,579.8
Operating lease equipment, net506.5
 478.0
Assets held for sale3.7
 —
Total loans and leases8,254.0
 8,057.8
Total Segment - Commercial Banking   
Loans23,345.9
 23,159.3
Operating lease equipment, net6,774.9
 6,738.9
Assets held for sale1,376.3
 1,334.2
Total loans and leases31,497.1
 31,232.4
Consumer Banking     
Legacy Consumer Mortgages   
Loans3,203.0
 3,331.1
Assets held for sale860.5
 861.0
Total loans4,063.5
 4,192.1
Other Consumer Banking   
Loans2,904.7
 2,623.5
Assets held for sale3.5
 4.6
Total loans2,908.2
 2,628.1
Total Segment - Consumer Banking   
Loans6,107.7
 5,954.6
Assets held for sale864.0
 865.6
Total loans6,971.7
 6,820.2
Non-Strategic Portfolios   
Assets held for sale58.5
 63.3
Total loans and leases58.5
 63.3
    
Total Loans$29,453.6
 $29,113.9
Total operating lease equipment, net6,774.9
 6,738.9
Total assets held for sale2,298.8
 2,263.1
Total loans and leases$38,527.3
 $38,115.9


60 Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   77



Total loans and leasing assets (“FLA”) of $37.8leases were $38.5 billion wereat March 31, 2018, up slightly1.1% from December 31, 2016,2017, as an increaseincreases in Commercial Banking drivenand in Other Consumer Banking were partially offset by higher factoring receivables, offset the run-off of the LCM portfolios in the Consumer Banking segment and a legacy real estate portfolio in NSP.Real Estate Finance.


FinancingTotal loans and leasing assetleases trends are discussed in the respective segment descriptions in “Results by Business Segment”.Segment.”


The following table presents the changes to our financingtotal loans and leasing assets:leases:

Financing and Leasing Assets Rollforward (dollars in millions)

     Commercial
Banking
   Consumer
Banking
   Non-
Strategic
Portfolios
   Total
Balance at December 31, 2016
           $30,406.1       $7,041.8       $210.1       $37,658.0  
New business volume (includes certain portfolio purchases)             1,615.4         154.7         –          1,770.1  
Loan and portfolio sales             (126.9)         (44.9)         –          (171.8)  
Equipment sales             (33.0)         –          (17.9)         (50.9)  
Depreciation             (73.5)         –          –          (73.5)  
Gross charge-offs             (32.4)         (0.6)         –          (33.0)  
Collections and other             (1,024.5)         (274.1)         (30.1)         (1,328.7)  
Balance at March 31, 2017
           $30,731.2       $6,876.9       $162.1       $37,770.2  

Changes in Loans and Leases (dollars in millions)
        
 
Commercial
Banking
 
Consumer
Banking
 
Non-
Strategic
Portfolios
 Total
Balance at December 31, 2017$31,232.4
 $6,820.2
 $63.3
 $38,115.9
New business volume2,267.2
 388.6
 —
 2,655.8
Loan and portfolio sales(79.1) (19.0) —
 (98.1)
Equipment sales(46.5) —
 (0.2) (46.7)
Depreciation(76.4) —
 —
 (76.4)
Gross charge-offs(54.6) (0.5) —
 (55.1)
Collections and other(1,745.9) (217.6) (4.6) (1,968.1)
Balance at March 31, 2018$31,497.1
 $6,971.7
 $58.5
 $38,527.3

Portfolio activities are discussed in the respective segment descriptions in “Results by Business Segment”.


The following tables present new business and factoring volumes, along with loan and portfolio sales and equipment sales by segment:

New Business Volume (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Commercial Banking           $1,615.4       $2,042.2       $1,777.0  
Consumer Banking             154.7         198.5         214.5  
Non-Strategic Portfolios             –          –          44.3  
Total           $1,770.1       $2,240.7       $2,035.8  
 

New Business and Factoring Volume (dollars in millions)
      
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Commercial Banking$2,267.2
 $2,902.0
 $1,615.4
Consumer Banking388.6
 421.9
 154.7
Total$2,655.8
 $3,323.9
 $1,770.1
Factoring volume$7,426.0
 $7,731.2
 $6,811.6
Loan and Portfolio Sales (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Commercial Banking           $126.9       $40.6       $83.4  
Consumer Banking             44.9         16.0         10.6  
Non-Strategic Portfolios             –          697.2         20.1  
Total           $171.8       $753.8       $114.1  
 

Loan and Portfolio Sales (dollars in millions)
      
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Commercial Banking$79.1
 $38.8
 $126.9
Consumer Banking19.0
 26.8
 44.9
Total$98.1
 $65.6
 $171.8
Equipment Sales (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Commercial Banking           $33.0       $62.6       $49.3  
Non-Strategic Portfolios             17.9         39.2         10.5  
Total           $50.9       $101.8       $59.8  
 
Equipment Sales (dollars in millions)
      
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Commercial Banking$46.5
 $57.3
 $33.0
Non-Strategic Portfolios0.2
 2.3
 17.9
Total$46.7
 $59.6
 $50.9

78  
CIT GROUP INC
INC. 61



CONCENTRATIONS

Geographic Concentrations


The following table represents CIT’s combined commercial and consumer financingloans and leasing assetsleases by geographical regions:

Total Financing and Leasing Assets by Geographic Region (dollars in millions)

     March 31, 2017
   December 31, 2016
   
West           $11,812.0         31.3%       $11,858.7         31.5%  
Northeast             9,205.6         24.4%         9,766.0         25.9%  
Midwest             4,570.0         12.1%         4,241.9         11.3%  
Southwest             4,132.7         10.9%         4,112.8         10.9%  
Southeast             3,604.2         9.5%         3,299.5         8.8%  
Total U.S.             33,324.5         88.2%         33,278.9         88.4%  
Canada             1,351.1         3.6%         1,199.8         3.2%  
Europe             1,143.3         3.0%         1,154.5         3.1%  
Asia / Pacific             1,022.2         2.7%         1,100.1         2.9%  
All other countries             929.1         2.5%         924.7         2.4%  
Total           $37,770.2         100.0%       $37,658.0         100.0%  

Total Loans and Leases by Geographic Region (dollars in millions)
        
 March 31, 2018 December 31, 2017
   West$12,121.2
 31.5% $12,009.8
 31.5%
   Northeast9,671.8
 25.1% 9,658.7
 25.3%
   Midwest4,669.1
 12.1% 4,641.1
 12.2%
   Southwest4,302.5
 11.2% 4,063.5
 10.7%
   Southeast3,469.2
 9.0% 3,346.0
 8.8%
Total U.S.34,233.8
 88.9% 33,719.1
 88.5%
Europe1,491.6
 3.9% 1,444.1
 3.8%
Canada1,231.8
 3.2% 1,326.4
 3.4%
Asia / Pacific631.3
 1.6% 720.8
 1.9%
All other countries938.8
 2.4% 905.5
 2.4%
Total$38,527.3
 100.0% $38,115.9
 100.0%

Ten Largest Accounts


Our ten largest financingloan and leasing assetlease accounts, primarily lessors of rail assets and factoring clients, in the aggregate represented 4.9%4.3% of our total financingloans and leasing assetsleases at March 31, 20172018 (the largest account was less than 1.0%). The ten largest financingloan and leasing assetlease accounts were 4.2%4.4% of total financingloans and leasing assetsleases at December 31, 2016.2017.


COMMERCIAL CONCENTRATIONS

Geographic Concentrations


The following table represents the commercial financingloans and leasing assetsleases by obligor geography:

Commercial Financing and Leasing Assets by Obligor — Geographic Region (dollars in millions)

     March 31, 2017
   December 31, 2016
   
Northeast           $8,099.0         25.9%       $8,643.0         27.9%  
West             7,208.4         23.1%         7,168.7         23.1%  
Midwest             4,362.8         14.0%         4,027.8         13.0%  
Southwest             4,037.7         12.9%         4,016.7         12.9%  
Southeast             3,108.2         9.9%         2,789.3         9.0%  
Total U.S.             26,816.1         85.8%         26,645.5         85.9%  
Canada             1,351.1         4.3%         1,199.8         3.9%  
Europe             1,143.3         3.7%         1,154.5         3.7%  
Asia / Pacific             1,022.2         3.3%         1,100.1         3.5%  
All other countries             929.1         3.0%         924.7         3.0%  
Total           $31,261.8         100.0%       $31,024.6         100.0%  
 

Commercial Loans and Leases by Obligor - Geographic Region (dollars in millions)
    
 March 31, 2018 December 31, 2017
   Northeast$8,675.5
 27.1% $8,646.1
 27.3%
   West7,317.5
 22.9% 7,349.9
 23.2%
   Midwest4,480.2
 14.0% 4,448.7
 14.0%
   Southwest4,207.1
 13.1% 3,970.2
 12.5%
   Southeast3,024.9
 9.5% 2,902.5
 9.2%
Total U.S.27,705.2
 86.6% 27,317.4
 86.2%
Europe1,491.6
 4.7% 1,444.1
 4.5%
Canada1,231.8
 3.8% 1,326.4
 4.2%
Asia / Pacific631.3
 2.0% 720.8
 2.2%
All other countries938.8
 2.9% 905.5
 2.9%
Total$31,998.7
 100.0% $31,714.2
 100.0%
Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   79


Table of Contents

The following table summarizes both state concentrations greater than 5.0% and international country concentrations in excess of 1.0% of our financingloans and leasing assets:

leases:

Commercial Financing and Leasing Assets by Obligor — State and Country (dollars in millions)

     March 31, 2017
   December 31, 2016
   
State
California           $5,327.8         17.1%       $5,220.8         16.8%  
Texas             3,321.0         10.6%         3,296.3         10.6%  
New York             2,969.4         9.5%         3,084.0         10.0%  
All other states             15,197.9         48.6%         15,044.4         48.5%  
Total U.S.           $26,816.1         85.8%       $26,645.5         85.9%  
Country
Canada           $1,351.1         4.3%       $1,199.8         3.9%  
Marshall Islands             598.2         1.9%         632.2         2.0%  
All other countries             2,496.4         8.0%         2,547.1         8.2%  
Total International           $4,445.7         14.2%       $4,379.1         14.1%  

Commercial Loans and Leases by Obligor - State and Country (dollars in millions)
        
 March 31, 2018 December 31, 2017
State       
California$5,490.2
 17.2% $5,430.5
 17.1%
Texas3,439.1
 10.7% 3,223.7
 10.2%
New York3,416.6
 10.7% 3,195.7
 10.1%
All other states15,359.3
 48.0% 15,467.5
 48.8%
Total U.S.27,705.2
 86.6% 27,317.4
 86.2%
Country       
Canada1,231.8
 3.8% 1,326.4
 4.2%
France402.6
 1.3% 383.8
 1.2%
Marshall Islands392.3
 1.2% 442.5
 1.4%
All other countries2,266.8
 7.1% 2,244.1
 7.0%
Total International$4,293.5
 13.4% $4,396.8
 13.8%

Industry Concentrations


The following table represents financingloans and leasing assetsleases by industry of obligor:

Commercial Financing and Leasing Assets by Obligor — Industry (dollars in millions)

Commercial Loans and Leases by Obligor - Industry (dollars in millions)
Commercial Loans and Leases by Obligor - Industry (dollars in millions)
    March 31, 2017
   December 31, 2016
   March 31, 2018 December 31, 2017
Real Estate     $5,068.4         16.2%       $4,988.5         16.1%  $5,243.7
 16.4% $5,224.8
 16.5%
Manufacturing(1)
       4,749.5         15.2%         4,478.7         14.4%  4,739.0
 14.8% 4,729.8
 14.9%
Retail(2)
       2,533.1         8.1%         2,296.3         7.4%  2,564.2
 8.0% 2,531.2
 8.0%
Wholesale       2,240.5         7.2%         2,178.2         7.0%  2,260.6
 7.1% 2,343.7
 7.4%
Energy and utilities       2,240.5         7.2%         2,224.4         7.2%  2,255.3
 7.0% 2,253.3
 7.1%
Rail       1,776.3         5.7%         2,088.5         6.7%  1,903.1
 5.9% 1,916.7
 6.1%
Maritime       1,604.2         5.1%         1,660.2         5.4%  
Oil and gas extraction / services1,550.9
 4.9% 1,437.6
 4.5%
Service industries1,534.9
 4.8% 1,464.5
 4.6%
Business Services       1,514.4         4.8%         1,424.0         4.6%  1,512.9
 4.7% 1,559.0
 4.9%
Service industries       1,447.3         4.6%         1,533.7         4.9%  
Oil and gas extraction / services       1,333.3         4.3%         1,516.7         4.9%  
Healthcare       1,282.3         4.1%         1,325.3         4.3%  1,510.6
 4.7% 1,458.0
 4.6%
Finance and insurance       1,215.0         3.9%         698.6         2.3%  1,328.8
 4.2% 1,183.8
 3.7%
Maritime1,290.8
 4.0% 1,341.8
 4.2%
Transportation       780.5         2.5%         809.5         2.6%  833.3
 2.6% 810.7
 2.6%
Other (no industry greater than 2%)       3,476.5         11.1%         3,802.0         12.2%  3,470.6
 10.9% 3,459.3
 10.9%
Total     $31,261.8         100.0%       $31,024.6         100.0%  $31,998.7
 100.0% $31,714.2
 100.0%
(1) 
At March 31, 2017,2018, includes manufacturers of chemicals, including pharmaceuticals (4.2%(4.5%), petroleum and coal, including refining (2.5%(2.4%), food (1.4%), and food (1.5%stone, clay, glass and concrete (1.3%).
(2) 
At March 31, 20172018 includes retailers of general merchandise (3.0%(3.1%) and food and beverage providers (1.7%).

80   CIT GROUP INC


CONSUMER CONCENTRATIONS

The following table presents our total outstanding consumer financing and leasing assets,loans, including PCI loans. The consumer PCI loans are included in the total outstanding and displayed separately, net of purchase accounting adjustments.loans held for sale. PCI loans are discussed in more detail inNote 3 — Loans inItem 1. Consolidated Financial Statements.

Consumer Financing and Leasing Assets (dollars in millions)

     March 31, 2017
   December 31, 2016
   
     Net
Investment
   % of
Total
   Net
Investment
   % of
Total
Single family residential           $5,388.6         82.8%       $5,501.6         82.9%  
Reverse mortgage             900.0         13.8%         891.8         13.4%  
Home Equity Lines of Credit             219.6         3.4%         237.1         3.6%  
Other consumer             0.2         –          2.9         –   
Total loans           $6,508.4         100.0%       $6,633.4         100.0%  

Consumer Loans (dollars in millions)
        
 March 31, 2018 December 31, 2017
 Net
Investment		 % of
Total		 Net
Investment		 % of
Total
Single family residential$5,534.8
 84.8% $5,390.3
 84.2%
Reverse mortgage860.5
 13.2% 861.0
 13.4%
Home Equity Lines of Credit132.5
 2.0% 149.6
 2.4%
Other consumer0.8
                    –
 0.8
 —
Total loans$6,528.6
 100.0% $6,401.7
 100.0%

For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and loan-to-value (“LTV”). We monitor trending of delinquency/delinquency rates as well asand non-performing trends for home equity loans and residential real estate loans.


LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. We update the property values of real estate collateral if events require current information and calculate current LTV ratios. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.


62 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk



SeeNote 3 — Loans inItem 1. Consolidated Financial Statements for information on LTV ratios.


Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes the carrying value of consumer financing and leasing assets,loans, with concentrations in the top five states based upon property address by geographical regions.

address.

Consumer Financing and Leasing Assets Geographic Concentrations (dollars in millions)

Consumer Loans Geographic Concentrations (dollars in millions)
Consumer Loans Geographic Concentrations (dollars in millions)
       
    March 31, 2017
   December 31, 2016
   March 31, 2018 December 31, 2017
    Net
Investment
   % of
Total
   Net
Investment
   % of
Total
Net
Investment		 % of
Total		 Net
Investment		 % of
Total
California     $4,140.4         63.6%       $4,217.0         63.6%  $4,373.7
 67.0% $4,230.7
 66.1%
New York       521.8         8.0%         524.0         7.9%  467.5
 7.2% 479.8
 7.5%
Florida       275.6         4.2%         282.7         4.3%  250.0
 3.8% 250.6
 3.9%
New Jersey       155.4         2.4%         159.4         2.4%  135.0
 2.1% 133.0
 2.1%
Maryland       133.9         2.1%         137.7         2.1%  120.3
 1.8% 122.4
 1.9%
Other States and Territories(1)
       1,281.3         19.7%         1,312.6         19.7%  1,182.1
 18.1% 1,185.2
 18.5%
     $6,508.4         100.0%       $6,633.4         100.0%  $6,528.6
 100.0% $6,401.7
 100.0%
(1) 
No state or territory has a total in excess of 2%.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   81


Table of Contents

OTHER ASSETS AND OTHER LIABILITIES

The following tables present the components of other assets and other liabilities.

Other Assets (dollars in millions)

     March 31,
2017
   December 31,
2016
Tax credit investments and investments in unconsolidated subsidiaries           $213.4       $220.2  
Property, furniture and fixtures             188.2         191.1  
Current and deferred federal and state tax assets             101.1         201.3  
OREO and repossessed assets             79.8         72.7  
Fair value of derivative financial instruments             75.4         111.2  
Tax receivables, other than income taxes             39.2         50.7  
Other counterparty receivables             31.5         42.8  
Other(1),(2)
             347.3         350.4  
Total other assets           $1,075.9       $1,240.4  
Other Assets (dollars in millions)
    
 March 31,
2018		 December 31,
2017
Tax credit investments and Investments in Unconsolidated Subsidiaries$228.3
 $247.6
Current and deferred federal and state tax assets204.2
 205.2
Counterparty receivables203.6
 241.3
Property, furniture and fixtures178.4
 173.9
Indemnification assets120.5
 142.4
Intangible assets107.0
 113.0
Other
535.9
 472.1
Total other assets$1,577.9
 $1,595.5
(1) 
Other includes executive retirement plan and deferred compensation, prepaid expenses, accrued interest and dividends, servicing advances, OREO and other miscellaneous assets.
Other Liabilities (dollars in millions)
    
 March 31,
2018		 December 31,
2017
Accrued expenses and accounts payable$538.4
 $584.8
Current and deferred taxes payable215.1
 204.3
Fair value of derivative financial instruments104.3
 87.5
Accrued interest payable66.5

86.6
Other liabilities414.6
 473.9
Total other liabilities$1,338.9
 $1,437.1
(2)(1) 
Other also includes servicing advances. In connection with the OneWest Transaction, the Company acquired the servicing obligations for residential mortgage loans. As of March 31, 2017 and December 31, 2016, the loans serviced for others total $15.2 billion and $15.6 billion for reverse mortgage loans and $48.8 million and $55.1 million for single family residential mortgage loans, respectively.

Other Liabilities (dollars in millions)

     March 31,
2017
   December 31,
2016
Accrued expenses and accounts payable           $483.1       $580.4  
Current and deferred taxes payable             265.4         250.6  
Accrued interest payable             130.0         181.2  
Other(1)
             698.9         885.4  
Total other liabilities           $1,577.4       $1,897.6  
(1)
Other consists of liabilities for taxes other than income, fair value of derivative financial instruments, equipment maintenance reserves, cash collateral deposits and contingent liabilities and other miscellaneous liabilities.



RISK MANAGEMENT

CIT is subject to a variety of risks that may arise through the Company’s business activities, including the following principal forms of risk:

n
Strategic Risk
n
Credit Risk
n
Asset Risk
n
Market Risk
n
Liquidity Risk
n
Capital Risk
n
Operational Risk
n
Information Technology Risk
n
Legal and Regulatory Risk
n
Reputational Risk

CIT’s Risk Management Group (“RMG”) has established a Risk Governance Framework that is designed to promote appropriate risk identification, measurement, monitoring, management and control.

Our policies and procedures relating to Risk Management are detailed in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.

82  

CIT GROUP INC
INC. 63



Interest Rate Risk (a component of Market Risk)


CIT is exposed to the risk that adverse changes in market conditions may negatively impact earnings. The risk arises from the composition of our balance sheet and changes in the shape of the yield curve. CIT looks to strategically manage this inherent risk based on prescribed guidelines and Board approved limits.

Interest rate risk arises from lending, leasing, investments, deposit taking and funding, as assets and liabilities reprice at different times and by different amounts as interest rates change. We evaluate and monitor interest rate risk primarily through two metrics.


▪
n
Net Interest Income Sensitivity (“NII Sensitivity”), which measures the net impact of hypothetical changes in interest rates on forecasted net interest revenue and rental income assuming a static balance sheet over a twelve month period; and
▪
n
Economic Value of EquitySensitivity (“EVE”EVE Sensitivity"), which measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and derivatives.

Interest rate risk and sensitivity is influenced primarily by the composition of the balance sheet, driven by the type of products offered (fixed/floating rate loans and deposits), investments, funding and hedging activities. Our assets are primarily comprised of commercial loans, consumer loans, equipment owned and leased, cash and investments. Our leasing products are level/fixed payment transactions, whereas the interest rate on the majority of our commercial loan portfolio is based on a floating rate index such as short-term LIBOR or Prime. Our commercial portfolio, including assets of discontinued operations, includes approximately $23.0 billion of fixed-rate and $16.1 billion of floating rate assets. Our consumer loan portfolio is based on both floating rate and level/fixed payment transactions (comprised of 47% of unpaid principal balance). Our interest bearing deposits at banks have generally short durations and reprice frequently. We use a variety of funding sources, including certificates of deposit (CDs), money market, savings and checking accounts and secured and unsecured debt. With respect to liabilities, CDs and unsecured debt are fixed-rate, secured debt is a mix of fixed and floating rate, and the rates on savings accounts vary based on the market environment and competition.
The composition of our assets and liabilities generally results in a net asset-sensitive position concentrated at the shortershort end of the yield curve, mostly related todriven by moves in LIBOR, whereby our assets will reprice faster than our liabilities. Our assets generally consist of interest-bearing cash, investment securities and commercial and consumer loans and leases. Nearly 45% of our loans and leases are indexed to either LIBOR 1 month, 3 month, or the PRIME rate.


Our funding sources consist mainly of non-maturity deposits and time deposits from the online, branch, brokered and commercial channels, as well as wholesale funding and FHLB advances. The mix utilized consists of time deposits and unsecured debt which are fixed-rate, secured debt which is a mix of fixed and floating rate, and other deposits whose rates vary based on the market environment and competition.

Deposits continued to grow as a percent of total funding. CIT Bank, N.A. sources deposits primarily through a retail branch network in Southern California, direct-to-consumer (via the Internet), as well as commercial and brokered channels. At March 31, 2017, the Bank had over $32 billion in deposits. Certificates of deposit were $16 billion and represented2018, deposits totaled approximately 50% of the total, most of which were sourced through direct channels.$31 billion. The deposit rates we offer can be influenced by market conditions and competitive factors. Beta represents the correlation between overall market interest rates and the rates paid by CIT Bank. Cumulative Deposit betas on total deposits have remained low at approximately 10% since the Fed started raising rates at the end of 2015 and 20% over the last 12 months. We model rate sensitivity to market price changesa beta of approximately 40% - 50% on our non-maturity deposits of approximately 50% for a +100 bps rate increase over the next 12 months. Deposit betas are expected to continue to increase through the cycle for non-maturity deposits, which are currently 54% of our deposit base, and expected to grow over time. Changes in interest rates, as well as actions by competitors, can affect our deposit pricing and potentially impact our ability to gatherattract and retain deposits. Rates offered by competitors also can influence our rates and our ability to attract and hold deposits. In a rising rate environment, the Bankwe may need to increase rates to renew maturing time deposits and attract new deposits. Rates on our savings account deposits may fluctuate due to pricing competition and may also move with short-term interest rates. In general, retail deposits represent a low-cost source of funds and are less sensitive to interest rate changes than manyfloating rate non-deposit funding sources. We regularly stress test the effect of deposit rate changes on our margins and seek to achieve optimal alignment between assets and liabilities from an interest rate risk management perspective.


The table below summarizes the results of simulation modeling produced by our asset/liability management system. The results reflect the percentage change in the EVE over the life of the asset and the NII Sensitivity over the next twelve months assuming an immediate 100 basis point (1.0)% parallel increase or decrease in interest rates from the market-based forward curve. The NII sensitivity is based on a statican assumption that the total balance sheet projection.size remains static over the projection period.

Change to NII Sensitivity and EVE

     March 31, 2017
   December 31, 2016
   
     +100 bps
   –100 bps
   +100 bps
   –100 bps
NII Sensitivity             3.1%         (2.9)%         3.2%         (2.4)%  
EVE             (2.6)%         2.9%         (2.1)%         2.3%  

As of March 31, 2017, we ran a range of scenarios, including a 200 basis point parallel increase scenario, which resulted in an NII Sensitivity of 6.2% and an EVE of (4.4)%, while a
 March 31, 2018 December 31, 2017
 +200 bps +100 bps –100 bps +200 bps +100 bps –100 bps
NII Sensitivity6.8% 3.5% (3.9)% 6.1% 3.0% (3.0)%
EVE Sensitivity(3.4)% (1.7)% 1.4% (4.4)% (2.3)% 2.3%
A 200 basis point decline scenario was not run in the current rate environment as the current low rate environment makes the scenario is less relevant. Regarding the negative scenarios, weWe have an assumed rate floor. Overall lowerfloor of 0% for the decline scenarios.
As of March 2018, the +100 bps NII sensitivity on incomeand EVE sensitivity change from December 31, 2017 (see table above) is primarily driven by the move fromincrease in cash to securities and secondarily from lower loan balances and passage of time on fixed rate liabilities.

During the first quarter the Company implemented new deposit models. These new model resulted in increased NII sensitivity. The impact of this is muted this quarter from the offsetting changes or reductionsissuance of Senior Unsecured and Subordinated notes in sensitivity fromMarch 2018 for us to redeem outstanding debt and return capital to shareholders. We expect this to normalize lower next quarter with the continued redeployment of cash to securities and roll down of fixed rate liabilities.that cash.

Changes in EVE sensitivity were driven primarily by a combination of redeployment of cash into fixed rate securities and maturity roll down of fixed rate debt, which was offset by implementation of new deposit models.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   83


Table of Contents

As of March 31, 2017, the estimated pro forma sensitivity ratios assuming the sale of Commercial Air and the associated liability management and capital actions for a +/–100 bps scenarios for NII and EVE were as follows:

NII post sale estimate
EVE post sale estimate
+100 = 4.0%+100 = 0.4%
–100 = (3.7)%–100 = (0.2)%

As detailed above, NII sensitivity is positive with respect to an increase in interest rates. This position is primarily driven by our floating rate loan portfolio, which repricereprices frequently, and cash and investment securities. Our floating rate loan portfolio includes approximately $8.0 billion of loans ($4.8 billion of commercial loans and $3.2 billion of consumer loans) that are subject to interest rate floors, of which approximately $1.9 billion are still below their floors.interest-bearing cash. On a net basis, we generally have more floating/repricing assets than liabilities in the near term. As a result, our current portfolio is more sensitive to moves in short-term interest rates in the near term. Therefore, our net interest income may increase if short-term interest rates rise, or decrease if short-term interest rates decline. An increase in net interest income from a rise in short-term interest rates may be partially offset by lower benefits from the declining PAA, lower level of interest recoveries and pressure on Rail margins. Market-implied forward rates over the future twelve months are used to determine a base interest rate scenario for the net interest income projection for the base case. This base projection is compared with those calculated under varying interest rate scenarios such as a 100 basis point (1.0)% parallel rate shift to arrive at NII Sensitivity.


EVE complements net interest income simulation and sensitivity analysis as it estimates risk exposures beyond a twelve month horizon. EVE modeling measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to a fluctuation in interest rates. EVE is calculated by subjecting the balance sheet to different rate shocks, measuring the net value of assets, liabilities and off-balance sheet instruments, and comparing those amounts with the EVE sensitivity base case calculated using a market basedmarket-based forward interest rate curve. The methodology with which the operating lease assets are assessed in the results table above reflects the existing contractual rental cash flows and the expected residual value at the end of the existing contract term.



64 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


The simulation modeling for both NII Sensitivity and EVE assumes we take no action in response to the changes in interest rates, whilerates. NII Sensitivity generally assumes cash flowflows from portfolio run-off isare reinvested in similar products.products or cash to keep the balance sheet static.


A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. All interest sensitive assets and liabilities are evaluatedvalued using discounted cash flow analysis. Rates are shocked up and down via a set of scenarios that include both parallel and non-parallel interest rate movements. Scenarios are also run to capture our sensitivity to changes in the shape of the yield curve. Furthermore, we evaluate the sensitivity of these results to a number of key assumptions, such as credit quality, spreads, and prepayments.


Various holding periods of the operating lease assets are also considered. These range from the current existing lease term to longer terms which assume lease renewals consistent with management’s expected holding period of a particular asset. NII Sensitivity and EVE limits have been set and are monitored for certain of the key scenarios. We manage the exposure to changes in NII Sensitivity and EVE in accordance with our risk appetite and within Board approved limits.


We use results of our various interest rate risk analyses to formulate asset and liability management (“ALM”) strategies, in coordination with the Asset Liability Committee (“ALCO”), in order to achieve the desired risk profile, while managing our objectives for capital adequacy and liquidity risk exposures. Specifically, we may manage our interest rate risk position through certain pricing strategies for loans and deposits, our investment strategy, issuing term debt with floating or fixed interest rates, and using derivatives such as interest rate swaps, which modify the interest rate characteristics of certain assets or liabilities.


These measurements provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, and prepayment characteristics of our balance sheet. They also do not account for other business developments that could affect income, or for management actions that could affect income or that could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, the range of such simulations does not represent our current view of the expected range of future interest rate movements.



FUNDING AND LIQUIDITY

CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events including unanticipated funding obligations, such as customer line draws, or disruptions to our access to capital markets or other funding sources. Primary sources of liquidity include cash, investment securities and credit facilities as discussed below.

Cash

Cash totaled $4.1 billion at March 31, 2018, up from $1.7 billion at December 31, 2017. Cash at March 31, 2018 consisted of $3.4 billion at CIT Bank, $0.7 billion related to the bank holding company and other operating subsidiaries. The increase in cash was driven by proceeds from the issuance of unsecured senior and subordinated debt during the quarter and the increase in deposits.

Investment Securities

Investment securities consist primarily of fixed income debt securities. Investment securities decreased by $0.6 billion in the first quarter to $5.9 billion at March 31, 2018, reflecting maturities. In addition, we have $250 million of securities purchased under agreement to resell, up from $150 million at December 31, 2017. See Note 5 — Investment Securities in Item 1. Consolidated Financial Statements for additional information on types of investment securities.

Liquidity Regulation


The Basel III Final Rule requires banks and BHCs to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario. Beginning January 1, 2017, the minimum requirement was 100%. At March 31, 2017,2018, our modified LCR was above 100% at both the Bank and on a consolidated basis.

84   CIT GROUP INC


Table of Contents

FUNDING AND LIQUIDITY

CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events including unanticipated funding obligations, such as customer line draws, or disruptions to our access to capital markets or other funding sources. Primary sources of liquidity include cash, investment securities and credit facilities as discussed below.

Cash

Cash totaled $6.2 billion at March 31, 2017, compared to $6.4 billion at December 31, 2016. Cash at March 31, 2017 consisted of $4.7 billion at CIT Bank and $1.5 billion related to the bank holding company and other operating subsidiaries. Of the total cash at March 31, 2017, $0.3 billion was held by foreign subsidiaries.

Investment Securities

Investment Securities(dollars in millions)

     March 31,
2017
   December 31,
2016
Available-for-sale securities
                            
Debt securities           $3,696.8       $3,674.1  
Equity securities             34.2         34.1  
Held-to-maturity securities
                             
Debt securities             226.9         243.0  
Securities carried at fair value with changes recorded in net income
                             
Debt securities             268.9         283.5  
Non-marketable investments
             249.5         256.4  
Total investment securities
           $4,476.3       $4,491.1  

During the quarter, CIT Bank investments increased by $400 million but was offset by a reduction at the parent to generate cash to repay secured debt related to Commercial Air, which was reported in discontinued operations, prior to the Commercial Air sale. SeeNote 5 — Investment Securities inItem 1. Consolidated Financial Statements for additional information on our investment securities.

Credit Facilities


At March 31, 2017,2018, we maintained additional liquidity sources in the form of:


n
▪A multi-year committed revolving credit facilityRevolving Credit Facility that has a total commitment of $1.4 billion,$500 million, of which $1.3 billionapproximately $448 million was unused. The facility was amended in February 2017available to among other things, extend the maturity date of the facility, reduce total commitments thereunder to $1.4 billion, which was then further reduced to $750 million upon consummation of the sale of our Commercial Air business (seeNote 16 — Subsequent Events inItem 1. Consolidated Financial Statements);be drawn; and
n
▪Committed securitization facilities and secured bank lines totaled $2.4$2.1 billion, of which $1.2 billion$971 million was unused at March 31, 2017,2018, provided that eligible assets are available that can be funded through these facilities.

Asset liquidity is further enhanced by our ability to sell portfolio assets in secondary markets, which also enables us to manage credit exposure, and to pledge assets to access secured borrowing facilities through the FHLB and FRB.

Funding Sources

Funding Sources

Funding sources includeconsist of deposits and borrowings. As we execute on our strategic initiatives, we plan to continue to increase the proportion of depositsSee Note 6 — Borrowings in our funding mix. The following table reflects our funding mix:

Funding Mix

     March 31,
2017
   December 31,
2016
Deposits             69%         68%  
Unsecured             22%         23%  
Secured Borrowings:                            
Structured financings             4%         4%  
FHLB Advances             5%         5%  

See Net Finance Revenue for discussions on the potential impact on the funding mix and interest expense on continuing operations after the debt tenders and redemptions that are disclosed inNote 16 — Subsequent Events inItem 1. Consolidated Financial Statements. The end of period deposits to total funding decreased to 74% at March 31, 2018 from 77% at December 31, 2017. Unsecured borrowings increased to 13% from 10% at December 31, 2017 due to the issuance of unsecured borrowings while redemption of debt did not occur until April as noted below, while secured borrowings totaled 13% in each period.



Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   85
CIT GROUP INC. 65



DepositsSee Net Finance Revenue section for a tabular presentation of our average funding mix for the quarter ended March 31, 2018, which was unchanged from the quarter ended December 31, 2017.



Deposits

CIT offers its deposits through various channels. The period end balances are as follows:

Deposits by Channel (dollars in millions)

     March 31, 2017
   December 31, 2016
   
     Total
   Percent
of Total
   Total
   Percent
of Total
Branch deposits           $11,481.7         35%       $11,797.4         36%  
Online deposits             11,821.5         37%         11,045.1         34%  
Brokered deposits             4,957.0         15%         5,054.7         16%  
Commercial deposits             4,076.0         13%         4,407.1         14%  
Total deposits           $32,336.2         100%       $32,304.3         100%  

Deposits by Channel (dollars in millions)
        
 March 31, 2018 December 31, 2017
 Total Percent
of Total		 Total Percent
of Total
Online$13,227.6
 44% $11,756.6
 40%
Branch11,687.8
 38% 11,665.2
 39%
Brokered3,442.8
 11% 3,618.3
 12%
Commercial2,235.7
 7% 2,529.2
 9%
Total$30,593.9
 100% $29,569.3
 100%


The following table details our endingperiod end deposit balances by type:

Deposits (dollars in millions)

     March 31, 2017
   December 31, 2016
   
     Total
   Percent
of Total
   Total
   Percent
of Total
Checking and Savings:                                                  
Non-interest bearing checking           $1,203.8         3.7%       $1,255.6         3.9%  
Interest bearing checking             3,237.4         10.0%         3,251.8         10.1%  
Money market / Sweeps(1)
             6,903.3         21.3%         6,593.3         20.4%  
Savings             4,682.8         14.5%         4,303.0         13.3%  
Certificates of Deposits             16,131.0         49.9%         16,729.0         51.8%  
Other             177.9         0.6%         171.6         0.5%  
Total           $32,336.2         100.0%       $32,304.3         100.0%  
(1)
Deposits (dollars in millions)
        
 March 31, 2018 December 31, 2017
 Total Percent
of Total		 Total Percent
of Total
Checking and Savings: 
  
  
  
Non-interest bearing checking$1,226.5
 4% $1,352.0
 5%
Interest bearing checking2,618.4
 9% 2,653.3
 9%
Money market / Sweeps6,268.5
 20% 5,075.5
 17%
Savings6,226.7
 20% 5,986.7
 20%
Time deposits14,089.3
 46% 14,343.8
 49%
Other164.5
 1% 158.0
 —%
Total$30,593.9
 100% $29,569.3
 100%

Includes deposit sweep arrangements related to money market and healthcare savings accounts.

CIT Bank, N.A. offers a full suite of deposit offerings to its commercial and consumer customers andthrough a network of 70 branches in Southern California.California and a national online platform. Increasing the proportion of deposit funding and lowerlowering costs relative to the index is a key area of focus for CIT. While total deposits did not change muchDeposits increased during the quarter, there was a shiftas growth in mix, asthe online channel offset the decline in CDs was offset with an increasehigher-cost deposits in money marketthe brokered channel and savings accounts. The weighted average rate of totalhigher beta deposits was 1.21% at March 31, 2017, compared to 1.19% at December 31, 2016. At March 31, 2017, our CDs had a weighted average remaining life of approximately 1.7 years, down slightly from 1.8 years at December 31, 2016.in the commercial channel. SeeNet Finance Revenue section for further discussion on average balances and rates.


Borrowings


Borrowings consist of senior unsecured notes, subordinated unsecured notes and secured borrowings (structured financings and FHLB advances), which totaled $14.7$10.4 billion in aggregate at March 31, 2017, down2018, up from $14.9$9.0 billion at December 31, 2016.2017, reflecting the issuance of unsecured senior and subordinated borrowings, as noted below. The weighted average coupon rate of borrowings at March 31, 20172018 was 4.24%3.71%, up from 4.20%3.30% at December 31, 2016,2017, reflecting an increase in the FHLB interest rates. Pro forma for the debt retirements of $5.8 billion in conjunctionnewly issued unsecured debt.

Periodically, based on market conditions and other factors, and subject to compliance with the April 4, 2017 saleapplicable laws and regulations and terms of our Commercial Air business,existing indebtedness, including the weighted average rate would approximate 3.67%.

SeeNote 16 — Subsequent Events inItem 1. Consolidated Financial Statements.

Unsecured Borrowings

Second Amended and Restated Revolving Credit Facility, the TRS Facility and senior unsecured borrowings, we may repurchase, exchange or redeem outstanding senior unsecured borrowings, repay the Revolving Credit Facility, TRS Facility or otherwise enter into transactions regarding our debt or capital structure. For example, we may periodically evaluate and engage in liability management transactions, including repurchases of outstanding senior unsecured notes funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to mitigate refinancing risk by actively managing our debt maturity profile and interest cost.

Unsecured Borrowings

Revolving Credit Facility


There were no borrowings outstanding under the Revolving Credit Facility, which had a total commitment of $500 million at March 31, 2017,2018, and the amount available to draw upon was approximately $1.3 billion,$448 million, with the remaining amount of approximately $0.1 billion$52 million utilized for issuance of letters of credit.


The applicable margin charged under the facility, along with covenant and guarantor information and amendments made to the facility in connection with the consummation of the Commercial Air Sale is disclosed inNote 6 — Borrowings inItem 1. Consolidated Financial Statements. As of March 31, 2017, the last reported guarantor asset coverage ratio was 3.23x. As of March 31, 2017,2018, the Company was in compliance with the minimum guarantor asset coverage ratio and minimum consolidated net worth.

The facility was amended in February 2017 to lower from $1.5 billion to $1.4 billion the aggregate total commitments thereunder and to further extend the final maturity date of the lenders’ commitments. Such amendment also provided that, upon consummation of the Commercial Air Sale (which occurred on April 4, 2017), among other things, (i) the total aggregate commitments thereunder will automatically be reduced to $750 million, (ii) one of the nine domestic operating subsidiaries of the Company will no longer act as a guarantor thereunder, and (iii) the covenant requiring that the Company maintain a minimum $6 billion consolidated net worth will be replaced by a covenant requiring that the Company maintain a minimum Tier 1 capital ratio of 9.0%.Capital requirement.

86   CIT GROUP INC


66 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk



Senior Unsecured BorrowingsNotes


At March 31, 2017,2018, senior unsecured borrowingsnotes outstanding totaled $10.6$4.7 billion and the weighted average coupon rate was 5.03%4.78%, both essentially unchanged fromcompared to $3.7 billion and 4.81% at December 31, 2016. Pro forma for2017. During the debt retirements noted above,quarter, CIT issued $500 million, 4.125% aggregate principal amount of senior unsecured notes due 2021 and $500 million, 5.25% aggregate principal amount of senior unsecured notes due 2025. In April 2018, $883 million of the weighted average rate would approximate 4.92%.

See “Contractual Commitments and Payments” below for amounts contractually coming due. However, CIT retired approximately $5.8proceeds were used to repay $500 million of the $1.0 billion of outstanding 3.875% senior unsecured borrowings in Aprilnotes due February 2019 and May 2017 as described inall of the outstanding $383 million, 5.500% senior unsecured notes due February 2019. See Note 166 — Borrowings and Note 15 — Subsequent Events inItem 1. Consolidated Financial Statements.


Subordinated Unsecured Notes

During the quarter, CIT issued $400 million of 10-year subordinated unsecured notes with a coupon of 6.125%.

Secured Borrowings

As part of our liquidity management strategy, we
We may pledge assets for secured financing transactions, (whichwhich include structured financings), to borrowborrowings from the FHLB and/or FRB, conduit securitizations, or for other purposes as required or permitted by law. Our secured financing transactions do not meet accounting requirements for sale treatment and are recorded as secured borrowings, with the assets remaining on-balance sheet pursuant to GAAP. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, loans, leases and/or underlying equipment. Certain related cash balances are restricted.


FHLB Advances


CIT Bank is a member of the FHLB of San Francisco and may borrow under a line of credit that is secured by pledged collateral. The Bank makes decisions regarding utilization of advances based upon a number of factors including available collateral, liquidity needs, cost of funds and alternative sources of funding.

FHLB Balances (dollars in millions)

     March 31,
2017
   December 31,
2016
Total borrowing capacity           $5,247.8       $5,462.4  
Less:                              
Advances             (2,410.7)         (2,410.8)  
Letters of credit             (865.4)         (758.3)  
Remaining capacity           $1,971.7       $2,293.3  
Weighted average rate             1.33%         1.18%  
Pledged assets           $6,230.1       $6,389.7  

FHLB Balances (dollars in millions)
    
 March 31,
2018		 December 31,
2017
Total borrowing capacity$5,334.2
 $5,217.8
Less:       
Advances(3,894.5) (3,695.5)
Letters of credit(85.8) (87.8)
Available capacity$1,353.9
 $1,434.5
Weighted average rate2.04% 1.56%
Pledged assets$6,338.6
 $6,154.1

FHLB Advances and pledged assets are also discussed inNote 6 — Borrowings inItem 1. Consolidated Financial Statements.


Structured Financings


Structured financings totaled $1.7$1.4 billion at March 31, 20172018, and $1.9$1.5 billion at December 31, 2016.2017. The weighted average coupon rate of structured financings was 4.02% at March 31, 2017 was 3.45% and 3.39%2018, up from 3.75% at December 31, 2016,2017, reflecting an increaseincreases in benchmark rates.rates and repayment of lower coupon debt tranches.


There were no structured financings at CIT Bank, N.A. structured financings totaled $0.2 billion at both March 31, 20172018 and $74 million at December 31, 2016,2017, which were secured by $0.3 billionpledged assets of pledged assets.$0.7 million and $146 million, respectively. Non-CIT Bank, N.A. structured financings were $1.5$1.4 billion and $1.7$1.4 billion at March 31, 20172018 and December 31, 2016,2017, respectively, and were secured by $4.1 billion of pledged assets and $3.8 billion, at March 31, 20172018 and $4.0 billion of pledged assets at December 31, 2016, respectively.2017.


SeeNote 6 — Borrowings inItem 1. Consolidated Financial Statements for a table displaying our consolidated secured financings and pledged assets and Note 7 — Derivative Financial Instruments for discussion of a total return swap.


FRB


The Company has a borrowing facility with the FRB Discount Window that can be used for short-term, typically overnight, borrowings. The borrowing capacity is determined by the FRB based on the collateral pledged.


There were no outstanding borrowings with the FRB Discount Window as of March 31, 20172018 or December 31, 2016.2017. SeeNote 6 — Borrowings inItem 1. Consolidated Financial Statements for total balances pledged, including amounts to the FRB.


Debt Ratings


Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company’s liquidity and financial condition.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   87


Table of Contents

CIT and CIT Bank, N.A. debt ratings, at April 30, 2017, as rated by Standard & Poor’s Ratings Services (“S&P”), Fitch Ratings, Inc. (“Fitch”), Moody’s Investors Service (“Moody’s”) and DBRS Inc. (“DBRS”) are presented in the following table:


Debt Ratings(1)
CIT GROUP INC. 67


S&P
Fitch
Moody’s
DBRS
Ratings
S&PFitchMoody’sDBRS
Last Credit Update3/14/181/10/184/2/184/4/18
CIT Group Inc.       
Issuer / Counterparty Credit RatingBB+ BB+ N/A BB (High)(high)
Revolving Credit Facility RatingBB+BB+Ba2BBB (Low)
Series C Notes /Long Term Senior Unsecured Debt RatingBB+ BB+ Ba2 BB (High)(high)
Short Term InstrumentsBBNRR-4
Revolving Credit Facility RatingN/ABB+Ba2BBB (low)
Subordinated DebtBBBBBa2BB
Non-Cumulative Perpetual StockB+BB1B(high)
OutlookStable Stable StablePositive StablePositive
CIT Bank, N.A.
       
Issuer RatingBBB-BB+Ba2BBB (low)
Deposit Rating (LT/ST)N/A BBB-/F3 Baa2/P-2 BB (High)BBB (low) /R-4
Issuer Senior Unsecured DebtBBB-BB+Ba2BB (High) R-2 (mid)
OutlookStableStable Stable PositivePositive

N/A — Not Applicable

(1)

The table is updated from March 31, 2017 as follows: In April, Moody’s upgraded CIT Group Inc.’s Revolving Credit Facility Rating, and Series C Notes / Senior Unsecured Debt Rating each to Ba2 from Ba3, with an outlook of stable. Moody’s also upgraded CIT Bank, N.A.’s Deposit Rating (LT/ST) to Baa2/P-2 from Baa3/P-3, and Long-term Issuer Rating to Ba2 from Ba3 with an outlook of stable.

Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes, including as a result of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Potential changes in rating methodology as well as in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above could impact our liquidity and financial condition.


A debt rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.


Contractual Commitments
Commitment Expiration for the Twelve Months Ended March 31 (dollars in millions)
            
 Total 2019 2020 2021 2022 2022+
Financing commitments$6,707.8
 $2,018.1
 $961.3
 $1,182.3
 $1,165.9
 $1,380.2
Rail and other purchase commitments280.4
 252.9
 27.5
 —
 —
 —
Letters of credit258.9
 46.1
 47.9
 33.8
 73.4
 57.7
Deferred purchase agreements1,870.6
 1,870.6
 —
 —
 —
 —
Guarantees, acceptances and other recourse obligations2.1
 2.1
 —
 —
 —
 —
Liabilities for unrecognized tax benefits (1)
13.2
 1.0
 12.2
 —
 —
 —
Total contractual commitments$9,133.0
 $4,190.8
 $1,048.9
 $1,216.1
 $1,239.3
 $1,437.9
Contractual Payments and Commitments(1) The balance for 2020 reflects the remaining balance, which cannot be estimated further.

Payments for the Twelve Months Ended March 31(1) (dollars in millions)

     Total
   2018
   2019
   2020
   2021
   2022+
Structured financings(2)
           $1,736.6       $235.2       $210.9       $761.3       $75.3       $453.9  
FHLB advances             2,410.5         15.0         1,701.0         694.5         –          –   
Senior unsecured             10,645.8         3,443.5         4,400.9         –          750.0         2,051.4  
Total Long-term borrowings
             14,792.9         3,693.7         6,312.8         1,455.8         825.3         2,505.3  
Deposits             32,328.1         24,372.5         2,896.9         2,266.1         1,252.0         1,540.6  
Credit balances of factoring clients             1,547.1         1,547.1         –          –          –          –   
Lease rental expense             279.7         48.5         47.7         43.9         38.5         101.1  
Total contractual payments
           $48,947.8       $29,661.8       $9,257.4       $3,765.8       $2,115.8       $4,147.0  
(1)
Projected payments of debt interest expense and obligations relating to post-retirement programs are excluded.
(2)
Includes non-recourse secured borrowings, which are generally repaid in conjunction with the pledged receivable maturities.

The impact of the $5.8 billion unsecured borrowings repaid in April and May 2017 would reduce the senior unsecured maturities in the above table for the twelve months ended March 31, 2018 by $3.2 billion and March 31, 2019 by $2.6 billion.

88   CIT GROUP INC


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Commitment Expiration by Twelve Months Ended March 31 (dollars in millions)

     Total
   2018
   2019
   2020
   2021
   2022+
Financing commitments           $6,221.0       $1,550.9       $756.7       $1,367.2       $1,047.2       $1,499.0  
Aerospace purchase commitments(1)
             8,531.3         951.0         1,190.3         3,342.9         2,033.3         1,013.8  
Rail and other purchase commitments             313.7         270.7         43.0         –          –          –   
Letters of credit             272.3         61.5         36.0         49.9         38.2         86.7  
Deferred purchase agreements             1,875.6         1,875.6         –          –          –          –   
Guarantees, acceptances and other recourse obligations             1.1         1.1         –          –          –          –   
Liabilities for unrecognized tax obligations(2)
             35.5         20.0         15.5         –          –          –   
Total contractual commitments           $17,250.5       $4,730.8       $2,041.5       $4,760.0       $3,118.7       $2,599.5  
(1)
Aerospace commitments are net of amounts on deposit with manufacturers.
(2)
The balance cannot be estimated past 2018; therefore the remaining balance is reflected in 2018.

Financing commitments increased from $6.0$6.4 billion at December 31, 20162017 to $6.2$6.7 billion at March 31, 2017.2018. Financing commitments include commitments that have been extended to and accepted by customers or agents, but on which the criteria for funding have not been completed of $1.6$1.5 billion at March 31, 2017.2018. Also included are Business Capital credit line agreements, with an amount available of $405$105 million, net of the amount of receivables assigned to us. These are cancellable by CIT only after a notice period.


At March 31, 2017,2018, substantially all our undrawn financing commitments were senior facilities, with approximately 82%84% secured by commercial equipment or other assets, and the remainder comprised of cash flow or enterprise value facilities. Most of our undrawn and available financing commitments are in the Commercial Finance division of Commercial Banking. The top ten undrawn commitments totaled $557.3$581 million at March 31, 2017.2018. The table above includes approximately $1.5$2.2 billion of undrawn financing commitments at March 31, 20172018 for instances where the customer is not in compliance with contractual obligations or does not have the adequate collateral to borrow against the unused facility, and therefore CIT does not have a contractual obligation to lend under such financing commitments.


SeeNote 12 — Commitments inItem 1. Consolidated Financial Statements for further detail.


CAPITAL

Capital Management


CIT manages its capital position to ensure that it is sufficient to: (i) support the risks of its businesses, (ii) maintain a “well-capitalized” status under regulatory requirements, and (iii) provide flexibility to take advantage of future investment opportunities. Capital in excess of these requirements is available to distribute to shareholders, subject to a “non-objection” to our capital plan from the FRB.



68 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


CIT uses a combination of capital metrics and related thresholds to measure capital adequacy and takes into account the existing regulatory capital framework. CIT further evaluates capital adequacy through the enterprise stress testing and economic capital (“ECAP”) approaches, which constitutes our capital adequacy process.approaches.

As a BHC in excess of $50 billion of assets,
CIT is subject to enhanced prudential regulationstandards under the Dodd-Frank Act. Among other requirements, CIT is subject to capital planning and stress testing requirements under the FRB’s Comprehensive Capital AnalysisRegulation Y and Review (“CCAR”) process,Regulation YY, which requires CIT to submit an annual capital plan and demonstrate that it can meet minimum capital requirements over a nine quarter planning horizon after taking into account the impact of stresses based on both supervisory and company-specificunder multiple stress scenarios.


CIT submitted its CCAR capital plan2017 Capital Plan dated April 5, 2017 (“Original Plan”) under the 2017 Comprehensive Capital Analysis and Review (“CCAR”) to the FRB inon April 5, 2017 results from which will be released byand on June 28, 2017, received a non-objection to the endplan. The plan included a quarterly cash dividend of June 2017. Consistent with other first-time filers, our proposed actionsup to $0.16 per share and common stock repurchases of up to $225 million for the four quarters beginningending June 30, 2018, including up to $25 million of common share repurchases to offset dilution from issuances pursuant to CIT's employee stock plans. Entering 2018, CIT had up to $100 million remaining under this plan, inclusive of the third quarter of 2017 provide for$25 million related to employee stock plans. On February 1, 2018, the Company received a payout ratio below 100%“non-objection” from the FRBNY to an amendment to the Original Plan (the "Amended Capital Plan"). The plan defersAmended Capital Plan includes (i) the issuance of up to $400 million in Tier 2 qualifying subordinated debt (which was completed in March 2018); and (ii) an increase in common equity distribution of up to $800 million (as a result of issuing the 2018 cyclesubordinated debt) for the remainder of the four-quarter period that began July 1, 2017 and ends on June 30, 2018.

The Company will determine the timing and amount of any capital returnshare repurchases, special dividends, or combination of the two that may be authorized based on market conditions and other considerations. Any share repurchases may be effected through tender offer, in the open market, through derivative, accelerated repurchase and other negotiated transactions, and through plans designed to bring our ratios closer to our targets, all subject to regulatory approval. As a result, we currently intend to achieve our target return on tangible commoncomply with Rule 10b5-1(c) under the Securities Exchange Act of 1934. See Return of Capital below for shares repurchased during the first quarter and Note 15 - Subsequent Events in Item 1. Consolidated Financial Statements for description of an equity of 10% towards the end oftender announced in April 2018.


CIT’s capital management is discussed further in its Annual Report on Form 10-K for the year ended December 31, 20162017 in the “Regulation” section ofItem 1. Business Overview with respect to capital and regulatory matters, including“Capital Requirements” and“Stress Test and Capital Plan Requirements”.


Return of Capital


InDuring the quarter, CIT repurchased a total of $194.9 million in common shares via open market repurchases of 3,665,866 common shares at an average share price of $53.16. As of March 31, 2018, CIT had up to $705 million of repurchases remaining, including $25 million related to employee stock ownership plans, which can be executed by the end of the first half of 2018 under current authorizations. The Company has purchased in the open market an additional $71 million, or 1.4 million shares, at an average repurchase price of $51.86 through April 2017, CIT announced an equity24. On April 26, 2018, the Company initiated a common stock tender offer to repurchasefor up to $2.75 billion$500 million of its outstanding common shares.stock. SeeNote 16 —15 - Subsequent Events inItem 1. Consolidated Financial Information.Statements for additional information.

Item 2. Management’s Discussion
We declared and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   89


Table of Contents

Our year-to-datepaid the following common stock dividendsdividend in 2017 were as follows:the first quarter of 2018:

2017 Dividends

Declaration Date
Payment Date
Per Share
Dividend
January
2018 Common Stock Dividends
   
Declaration DatePayment Date
Per Share
Dividend
January 22, 2018February 24, 201723, 2018 $0.15
AprilMay 26, 2017$0.150.16

The
On April 16, 2018, the Board of Directors of the Company (the “CIT Board”) declared a quarterly cash dividend in the amount of $0.16 per common share, payable on May 25, 2018 to common shareholders of record on May 11, 2018.

On April 16, 2018, the CIT Board declared a semi-annual dividend in the amount of $29.00 per share is expectedon the Series A preferred stock, payable on June 15, 2018 to be affected bypreferred stockholders of record at the reduction in earnings following the saleclose of our commercial aircraft leasing business and the results of the pending $2.75 billion equity tender offer and any additional capital actions that we may undertake.on May 31, 2018.


Capital Composition and Ratios


The Company is subject to various regulatory capital requirements. We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. The regulatory capital guidelines applicable to the Company were based on the Basel III Final Rule.Rule through December 31, 2017. At March 31, 20172018 and December 31, 2016,2017, the capital ratios of the Company and the Bank exceeded all capital adequacy requirements under the Basel III Final Rule on a fully phased-in basis.


In November 2017, the Federal Reserve Board, together with the OCC and FDIC adopted a final rule effective January 1, 2018 to extend the regulatory capital treatment under 2017 transition provisions for certain items, applicable to banking organizations that are not subject to advanced approaches capital rules (“Transition Final Rule”). These items include regulatory capital deductions, risk weights, and certain minority interest limitations. There were no items that exceeded the deduction threshold at March 31, 2018, for CIT and CIT Bank, therefore balances and ratios were the same for the transition basis and fully-phased-in basis.

At March 31, 2018 and December 31, 2017, the capital ratios of the Company and the Bank exceeded all capital adequacy requirements. The December balances in the following table present amounts in effect as of that period.


Tier 1 Capital and Total Capital Components (dollars in millions)
CIT GROUP INC. 69

     March 31, 2017
   December 31, 2016
   
     Transition
Basis
   Fully
Phased-in
Basis
   Transition
Basis
   Fully
Phased-in
Basis
Tier 1 Capital
                                                  
Total common stockholders’ equity(1)
           $10,165.2       $10,165.2       $10,002.7       $10,002.7  
Effect of certain items in accumulated other comprehensive loss excluded from Tier 1 Capital and qualifying noncontrolling interests             75.3         75.3         79.1         79.1  
Adjusted total equity             10,240.5         10,240.5         10,081.8         10,081.8  
Less: Goodwill(2),(3)
             (733.2)         (733.2)         (733.1)         (733.1)  
Disallowed deferred tax assets             (140.6)         (140.6)         (213.7)         (213.7)  
Disallowed intangible assets(2),(3)
             (87.3)         (109.1)         (68.3)         (113.8)  
Other Tier 1 components(4),(5)
             (7.8)         (19.4)         (7.8)         (17.5)  
CET 1 Capital             9,271.6         9,238.2         9,058.9         9,003.7  
Tier 1 Capital             9,271.6         9,238.2         9,058.9         9,003.7  
Tier 2 Capital
                                                  
Qualifying reserve for credit losses and other reserves(6)
           $498.5       $498.5       $476.3       $476.3  
Total qualifying capital           $9,770.1       $9,736.7       $9,535.2       $9,480.0  
Risk-weighted assets           $64,330.0       $64,645.4       $64,586.3       $65,068.2  
BHC Ratios
                                                  
CET 1 Capital Ratio             14.4%         14.3%         14.0%         13.8%  
Tier 1 Capital Ratio             14.4%         14.3%         14.0%         13.8%  
Total Capital Ratio             15.2%         15.1%         14.8%         14.6%  
Tier 1 Leverage Ratio             14.8%         14.7%         13.9%         13.9%  
CIT Bank, N.A. Ratios
                                                     
CET 1 Capital Ratio             13.7%         13.5%         13.4%         13.2%  
Tier 1 Capital Ratio             13.7%         13.5%         13.4%         13.2%  
Total Capital Ratio             15.0%         14.7%         14.7%         14.4%  
Tier 1 Leverage Ratio             11.3%         11.2%         10.9%         10.8%  

Capital Components, Risk-Weighted Assets, and Capital Ratios (dollars in millions, except ratios)
       
  March 31, 2018 December 31, 2017
  
Fully
Phased-in
Basis(5)
 Transition
Basis		 Fully
Phased-in
Basis
Common Equity Tier 1 (CET1) Capital  
  
  
Total common stockholders’ equity(1)
 $6,801.8
 $6,995.0
 $6,995.0
Effect of certain items in AOCI excluded from CET1 Capital 142.8
 77.4
 77.4
Adjusted total equity 6,944.6
 7,072.4
 7,072.4
Goodwill, net of associated deferred tax liabilities (DTLs)(2)
 (436.9) (436.0) (436.0)
Deferred tax assets (DTAs) arising from net operating loss and tax credit carryforwards (98.9) (83.3) (104.2)
Intangible assets, net of associated DTLs(2)
 (87.3) (73.3) (91.5)
Total CET1 Capital 6,321.5
 6,479.8
 6,440.7
Additional Tier 1 Capital      
Preferred Stock 325.0
 325.0
 325.0
Other Additional Tier 1 Capital deductions(3)
 (8.8) (29.4) (8.6)
Total Additional Tier 1 Capital 316.2
 295.6
 316.4
Total Tier 1 Capital 6,637.7
 6,775.4
 6,757.1
Tier 2 Capital  
  
  
Qualifying Tier 2 Capital Instruments 395.9
 —
 —
Qualifying allowance for credit losses and other reserves(4)
 494.6
 475.6
 475.6
Total Tier 2 Capital 890.5
 475.6
 475.6
Total Capital $7,528.2
 $7,251.0
 $7,232.7
Risk-Weighted Assets $44,777.8
 $44,537.7
 $44,687.1
CIT Ratios  
  
  
CET1 Capital Ratio 14.1% 14.5% 14.4%
Tier 1 Capital Ratio 14.8% 15.2% 15.1%
Total Capital Ratio 16.8% 16.3% 16.2%
Tier 1 Leverage Ratio 13.5% 13.8% 13.8%
CIT Bank, N.A. Ratios            
CET1 Capital Ratio 13.6% 13.8% 13.7%
Tier 1 Capital Ratio 13.6% 13.8% 13.7%
Total Capital Ratio 14.9% 15.0% 15.0%
Tier 1 Leverage Ratio 11.6% 11.8% 11.8%
(1) 
See Consolidated Balance Sheets for the components of Total common stockholders’ equity.
(2) 
Goodwill and disallowed intangible assets adjustmentsdeductions also reflect the portion included within assets held for sale and assets of discontinued operations.
(3) 
GoodwillRepresents covered funds deductions required by the Volcker Rule. The balance as of December 31, 2017 also includes 20% of the deduction on DTAs arising from net operating loss and disallowed intangible assets adjustments include the respective portion of deferred tax liability in accordance with guidelinescredit carryforwards applied to Additional Tier 1 Capital under Basel III.transition basis.
(4) 
The March 31, 2017 and December 31, 2016 amounts represent the Volcker Rule requirement of deducting covered funds from equity.
(5)
Other Tier 1 components include excess cost over fair market value on available-for-sale equity securities with readily determinable fair values.
(6)
“Other reserves” represents additional credit loss reserves for unfunded lending commitments, letters of credit, and deferred purchase agreements, all of which are recorded in Other Liabilities.

(5)
At March 31, 2018, the Transition Basis and the Fully Phased-in Basis were the same, as described in the paragraphs preceding this table.

90   CIT GROUP INC


Table of Contents

The reconciliation of balance sheet assets to risk-weighted assets is presented below:

Risk-Weighted Assets (dollars in millions)

     March 31,
2017
   December 31,
2016
Balance sheet assets           $63,094.4       $64,170.2  
Risk weighting adjustments to balance sheet assets             (12,512.0)         (13,241.6)  
Off balance sheet items             13,747.6         13,657.7  
Risk-weighted assets           $64,330.0       $64,586.3  

Risk-Weighted Assets (dollars in millions)
    
 March 31, 2018 December 31, 2017
Balance sheet assets$51,542.5
 $49,278.7
Risk weighting adjustments to balance sheet assets(12,372.3) (10,230.4)
Off-Balance sheet items5,607.6
 5,489.4
Risk-Weighted Assets$44,777.8
 $44,537.7

The 2017 off balance2018 off-balance sheet items primarily reflect commitments to purchase aircraft ($8.5 billion) and railcars ($0.3 billion),$2.9 billion of unused lines of credit ($2.7 billion, largely(largely related to the Commercial Finance division)and Real Estate Finance divisions), and$1.9 billion of deferred purchase agreements ($1.9 billion related(related to the Business Capital division). Included in the balances in the preceding table are assets of discontinued operations, along with the impact of risk weighting, and the related off balance sheet items. Risk weighted assets of discontinued operations related to Commercial Air include approximately $11.5$0.8 billion of on balance sheetother items. The risk-weighted assets and $8.5 billion of off balancefor off-balance sheet items relatedas of March 31, 2018 increased slightly from December 31, 2017 mainly due to commitments to purchase aircraft.the unused lines of credit. SeeNote 12 — Commitments inItem 1. Consolidated Financial Statements for further detail on commitments.



Tangible Book Value70 Item 2. Management’s Discussion and per Share Amounts (dollars in millions, except per share amounts)Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk

     March 31,
2017
   December 31,
2016
Total common stockholders’ equity           $10,165.2       $10,002.7  
Less: Goodwill             (686.1)         (685.4)  
Intangible assets             (134.3)         (140.7)  
Tangible book value           $9,344.8       $9,176.6  
Book value per share           $50.14       $49.50  
Tangible book value per share           $46.09       $45.41  

Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts)
    
 March 31, 2018 December 31, 2017
Total common stockholders’ equity$6,801.8
 $6,995.0
Less: Goodwill(369.9) (369.9)
Intangible assets(107.0) (113.0)
Tangible book value(1)
$6,324.9
 $6,512.1
Book value per share$52.97
 $53.25
Tangible book value per share(1)
$49.25
 $49.58
(1) 
Tangible book value and tangible book value per share are non-GAAP measures.


Book value and Tangibletangible book value (“TBV”), along with the respective per share balances increased decreased from December 31, 2016,2017, primarily reflecting net income recordedthe capital actions completed through March 31, 2018. Book value and TBV per share decreased, as the 3.7 million common shares repurchased during the first quarter, which were at amounts in excess of 2017.

CIT BANK

Total assetsbook value, and unrealized net losses on available for the Banksale securities were down slightly compared to December 31, 2016. Financing and leasing assets were down (1.6%), as growth from new business volumes was offset by certain portfolio runoff, collections and sales. Loans were down 1.2% from December 31, 2016, reflecting reductions in the legacy consumer mortgage portfolio as well as reductions in Commercial Finance, as we position the portfolio to focus on a strategic customer base.

Total cash and investment securities, of $9.1 billion at March 31, 2017, was up from December 31, 2016, mainly attributable to higher investment securities. Investments increased to $4.4 billion from $4.0 billion at December 31, 2016. The investment securities are mostly mortgage-backed and federal agency securities. As part of our business strategy, CIT Bank continued to redeploy available cash into higher-yielding “High Quality Liquid Assets,” some of which qualify for Community Reinvestment Act (“CRA”) credit.

CIT Bank deposits at March 31, 2017 were up slightly from December 31, 2016. The weighted average interest rate at March 31, 2017 was 1.21%, up from 1.19% at December 31, 2016, reflecting the rising interest rate environment,only partially offset by a mix shift in deposits.

FHLB advances provide a consistent source of both available and contingent fundingnet income for the Bank, which is a member ofquarter and the FHLB of San Francisco. Other secured debt instruments decreased slightly from December 31, 2016, reflecting pay-downs and run-off activity.reduced share count.

The Bank’s capital and leverage ratios are included in the tables that follow and remained well above required levels.
CIT Bank reports regulatory capital ratios in accordance with the Basel III Final Rule and determines risk weighted assets under the Standardized Approach.BANK, N.A.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   91


Table of Contents

The following presents condensed financial information for CIT Bank, N.A. Trends and significant items are discussed in the previous sections of the MD&A.


Condensed Balance Sheets (dollars in millions)

     March 31,
2017
   December 31,
2016
ASSETS:
                            
Cash and deposits with banks           $4,706.9       $4,647.2  
Investment securities             4,419.4         4,035.6  
Assets held for sale             694.7         927.3  
Loans             26,915.3         27,246.2  
Allowance for loan losses             (411.5)         (406.6)  
Operating lease equipment, net             3,630.3         3,575.8  
Indemnification Assets             313.1         341.4  
Goodwill             490.9         490.9  
Intangible assets             136.9         144.0  
Other assets             747.8         780.6  
Assets of discontinued operations             421.4         448.1  
Total Assets
           $42,065.2       $42,230.5  
LIABILITIES AND EQUITY:
                             
Deposits           $32,339.1       $32,309.1  
FHLB advances             2,410.7         2,410.8  
Borrowings             176.5         241.4  
Other liabilities             931.5         1,145.6  
Liabilities of discontinued operations             922.1         935.8  
Total Liabilities
             36,779.9         37,042.7  
Total Equity
             5,285.3         5,187.8  
Total Liabilities and Equity
           $42,065.2       $42,230.5  
 

March 31,
2018		 December 31,
2017
ASSETS: 
  
Cash and deposits with banks$3,395.4
 $961.8
Securities purchased under agreement to resell150.0
 —
Investment securities5,897.4
 6,455.9
Assets held for sale1,138.3
 1,170.5
Loans26,636.2
 26,427.9
Allowance for loan losses(418.9) (403.5)
Operating lease equipment, net3,803.3
 3,765.5
Bank owned life insurance795.1
 788.6
Goodwill323.1
 323.1
Other assets912.4
 939.7
Assets of discontinued operation298.7
 317.1
Total Assets$42,931.0
 $40,746.6
LIABILITIES AND EQUITY: 
    
Deposits, including $1,575.9 and $475.8 deposits of affiliates at March 31, 2018 and December 31, 2017, respectively$32,171.1
 $30,048.8
FHLB advances3,894.5
 3,695.5
Borrowings—
 73.5
Other liabilities, including $695.8 and $570.5 payables to affiliates at March 31, 2018 and December 31, 2017, respectively1,345.3
 1,306.8
Liabilities of discontinued operation476.5
 500.5
Total Liabilities37,887.4
 35,625.1
Total Equity5,043.6
 5,121.5
Total Liabilities and Equity$42,931.0
 $40,746.6

Capital Ratios*


March 31,
2018		 December 31,
2017
Common Equity Tier 1 Capital13.6% 13.7%
Tier 1 Capital Ratio13.6% 13.7%
Total Capital Ratio14.9% 15.0%
Tier 1 Leverage ratio11.6% 11.8%
*  The capital ratios presented above are reflective of the fully-phased in Basel III approach.



Capital Ratios*

     March 31,
2017
   December 31,
2016
Common Equity Tier 1 Capital             13.5%         13.2%  
Tier 1 Capital Ratio             13.5%         13.2%  
Total Capital Ratio             14.7%         14.4%  
Tier 1 Leverage ratio             11.2%         10.8%  
*  
The capital ratios presented above are reflective of the fully-phased in Basel III approach.

Financing and Leasing Assets by Segment (dollars in millions)

     March 31,
2017
   December 31,
2016
Commercial Banking
Commercial Finance           $10,252.5       $10,753.3  
Real Estate Finance             5,655.4         5,566.6  
Business Capital             5,188.1         5,146.9  
Rail             3,267.4         3,240.7  
Total
             24,363.4         24,707.5  
Consumer Banking
Legacy Consumer Mortgages             4,734.2         4,862.7  
Other Consumer Banking             2,142.7         2,179.1  
Total
             6,876.9         7,041.8  
Total Financing and Leasing Assets           $31,240.3       $31,749.3  
 

92   CIT GROUP INC
INC. 71



Loans and Leases by Segment

(dollars in millions)


March 31,
2018		 December 31,
2017
Commercial Banking
Commercial Finance$10,161.0
 $10,203.5
Real Estate Finance5,622.5
 5,590.2
Business Capital5,495.1
 5,429.9
Rail3,327.5
 3,320.1
Total24,606.1
 24,543.7
Consumer Banking
Legacy Consumer Mortgages4,063.5
 4,192.1
Other Consumer Banking2,908.2
 2,628.1
Total6,971.7
 6,820.2
Total loans and leases, including assets held for sale$31,577.8
 $31,363.9

Condensed Statements of Operations (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $429.0       $450.9       $449.7  
Interest expense             (105.1)         (107.2)         (110.8)  
Net interest revenue             323.9         343.7         338.9  
Provision for credit losses             (28.7)         (32.6)         (92.4)  
Net interest revenue, after credit provision             295.2         311.1         246.5  
Rental income on operating leases             108.3         104.0         92.2  
Other income             77.1         62.0         46.3  
Total net revenue, net of interest expense and credit provision             480.6         477.1         385.0  
Operating expenses             (260.7)         (298.1)         (267.4)  
Goodwill impairment             –          (319.4)         –   
Depreciation on operating lease equipment             (46.4)         (42.9)         (36.7)  
Maintenance and other operating lease expenses             (8.1)         (6.0)         (2.6)  
Loss on debt extinguishment and deposit redemption             –          (3.3)         –   
Income (loss) before provision for income taxes             165.4         (192.6)         78.3  
Provision for income taxes             (60.9)         (45.1)         (24.3)  
Income (loss) from continuing operations             104.5         (237.7)         54.0  
Loss on discontinued operations             (9.2)         (9.1)         (4.8)  
Net income (loss)
           $95.3       $(246.8)       $49.2  
New business volume — funded
           $1,747.3       $2,194.0       $1,983.6  

Compared to the prior quarter, the Bank’s results were favorable, as the prior quarter included a $319 million goodwill impairment charge. Income for the current quarter benefited from lower operating expenses, slightly lower credit provisions and higher other income, which offset lower net finance revenue. Compared to the prior year quarter, income for continuing operations improved as a result of lower provisions for credit losses and higher other income, which offset lower net finance revenue.

Quarters Ended

March 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$428.0
 $421.1
 $429.0
Interest expense120.1
 110.2
 105.1
Net interest revenue307.9
 310.9
 323.9
Provision for credit losses67.4
 33.6
 28.7
Net interest revenue, after credit provision240.5
 277.3
 295.2
Rental income on operating leases114.0
 112.0
 108.3
Other non-interest income71.1
 118.5
 77.1
Total net revenue, net of interest expense and credit provision425.6
 507.8
 480.6
Goodwill Impairment—
 167.8
 —
Operating expenses239.2
 269.3
 260.7
Depreciation on operating lease equipment55.9
 54.6
 46.4
Maintenance and other operating lease expenses4.0
 8.0
 8.1
Income before provision for income taxes126.5
 8.1
 165.4
Provision for income taxes33.5
 64.1
 60.9
Income (loss) from continuing operations93.0
 (56.0) 104.5
Loss on discontinued operations(7.0) (4.5) (9.2)
Net income (loss)$86.0
 $(60.5) $95.3
New business volume — funded$2,625.4
 $3,281.4
 $1,747.3

The provision for credit losses in the current quarter decreased from the prior quarter due to a decrease in charge offs specifically in Energy and a decrease in FAS 5 reserves in both Energy and Maritime, reflecting stable credit metrics. The prior year quarter included an increase in reserves related to Energy and Maritime portfolios. Net charge-offs for both the current and prior quarter as a percentage of average finance receivables were 0.34%.

Other income increased from the prior quarter, due to lower impairments and higher fees and gains on assets sales. The increase from the year-ago quarter reflects higher gains on asset sales, lower impairments and higher revenues from non-bank affiliates.

Operating expenses were down from the year-ago quarter and prior quarter, which resulted in an improved efficiency ratio. The decrease was mainly due to legacy OneWest Bank charges in the Consumer Banking segment during the prior quarter. The net efficiency ratio was 56.0%, compared to 59.6% in the year-ago quarter and 63.3% in the prior quarter.

The current quarter loss on discontinued operation was driven by a HECM interest curtailment reserve. Discontinued Operations is discussed in an earlier section inManagement’s Discussion and Analysis of Financial Condition and Results of Operations andNote 2 — Discontinued Operations inItem 1. Consolidated Financial Statements.

Net Finance Revenue (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Interest income           $429.0       $450.9       $449.7  
Rental income on operating leases             108.3         104.0         92.2  
Finance revenue             537.3         554.9         541.9  
Interest expense             (105.1)         (107.2)         (110.8)  
Depreciation on operating lease equipment             (46.4)         (42.9)         (36.7)  
Maintenance and other operating lease expenses             (8.1)         (6.0)         (2.6)  
Net finance revenue (“NFR”)           $377.7       $398.8       $391.8  
 
Average Earning Assets (“AEA”)*           $40,510.9       $40,611.6       $41,546.1  
 

Quarters Ended

March 31,
2018		 December 31,
2017		 March 31,
2017
Interest income$428.0
 $421.1
 $429.0
Rental income on operating leases114.0
 112.0
 108.3
Finance revenue542.0
 533.1
 537.3
Interest expense120.1
 110.2
 105.1
Depreciation on operating lease equipment55.9
 54.6
 46.4
Maintenance and other operating lease expenses4.0
 8.0
 8.1
NFR$362.0
 $360.3
 $377.7
AEA$39,259.0
 $38,466.4
 $40,510.9


72 Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   93



Net Finance Revenue (dollars in millions) (continued)
Margin

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
As a % of AEA:
                                       
Interest income             4.24%         4.44%         4.33%  
Rental income on operating leases             1.07%         1.02%         0.89%  
Finance revenue             5.31%         5.46%         5.22%  
Interest expense             (1.04)%         (1.06)%         (1.07)%  
Depreciation on operating lease equipment             (0.46)%         (0.42)%         (0.35)%  
Maintenance and other operating lease expenses             (0.08)%         (0.05)%         (0.03)%  
Net finance margin (“NFM”)             3.73%         3.93%         3.77%  

NFR and NFM are key metrics used by management to measure the profitability of our lending and leasing assets. NFR includes interest and fee income on our loans and capital leases, interest and dividend income on cash and investments, rental revenue, depreciation and maintenance and other lease expenses associated with our operating lease portfolio, as well as funding costs. Since our asset composition includes operating lease equipment (9% of AEA as of March 31, 2017), the company believes that NFM is a more appropriate metric for the Bank as opposed to net interest margin (“NIM”) (a common metric used by other banks), as NIM does not reflect the net revenue from our portfolio because it includes the impact of debt costs on all our assets but excludes the net revenue (rental income less depreciation and maintenance and other operating lease expenses) from operating leases.

Quarters Ended

March 31,
2018		 December 31,
2017		 March 31,
2017
As a % of AEA: 
  
 

Interest income4.36% 4.38% 4.24%
Rental income on operating leases1.16% 1.16% 1.07%
Finance revenue5.52% 5.54% 5.31%
Interest expense1.22% 1.15% 1.04%
Depreciation on operating lease equipment0.57% 0.57% 0.46%
Maintenance and other operating lease expenses0.04% 0.08% 0.08%
NFM3.69% 3.74% 3.73%

Operating leases contributed $54 million to NFR during the current quarter, compared to $55 million in the prior quarter and $53 million in prior year quarter.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect reported amounts of assets and liabilities, reported amounts of income and expense and the disclosure of contingent assets and liabilities. The following estimates, which are based on relevant information available at the end of each period, include inherent risks and uncertainties related to judgments and assumptions made. We consider the estimates to be critical in applying our accounting policies, due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact on the financial statements.


Management believes that the judgments and estimates utilized in the following critical accounting estimates are reasonable. We do not believe that different assumptions are more likely than those utilized, although actual events may differ from such assumptions. Consequently, our estimates could prove inaccurate, and we may be exposed to charges to earnings that could be material.

n
▪
Allowance for Loan Losses
n
Loan Impairment
▪
n
Fair Value Determination
n
Lease Residual Values
n
Liabilities for Uncertain Tax Positions
▪
nLoan Impairment
▪
Realizability of Deferred Tax Assets
▪
nFair Value Determination
Goodwill Assets
▪
Contingent Liabilities
▪
nLease Residual Values
Contingent Liabilities
▪
Goodwill Assets

The determination of goodwill impairment requires significant judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments. There is risk that if the Company does not meet forecasted financial results, such as asset volume and returns and deposit growth and rate projections, there could be incremental goodwill impairment. In addition to financial results, other inputs to the valuation, such as the discount rate and market assumptions, including stock prices of comparable companies, could negatively affect the estimated fair value of the reporting units in the future. Refer to Note 26 - Goodwill and Intangible Assets in Item 8. Financial Statements and Supplementary Data in our Annual Report on Form 10-K for the year ended December 31, 2017 for a detailed description of the key assumptions used to identify and quantify goodwill impairment, if applicable.

There have been no significant changes to the methodologies and processes used in developing estimates relating to these items from those described in our 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2017.



INTERNAL CONTROLS WORKING GROUP

The Internal Controls Working Group (“ICWG”), which reports to the Company’s Disclosure Committee, is responsible for monitoring and improving internal controls over external financial reporting. The ICWG is chaired by the Controller and is comprised of executives in Finance, Risk, Operations, Human Resources, Information Technology and Internal Audit.

SeeItem 4. Controls and Procedures for more information.

94   CIT GROUP INC
INC. 73



SELECT DATA AND AVERAGE BALANCE SHEETS

Select Data (dollars in millions)
      
 At or for the Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Select Statement of Operations Data 
  
  
Net interest revenue$270.7
 $279.0
 $292.6
Provision for credit losses68.8
 30.4
 49.7
Total non-interest income358.3
 389.8
 330.4
Total non-interest expenses415.2
 693.5
 438.9
Income (loss) from continuing operations, net of tax103.7
 (82.8) 78.2
Net income (loss)97.0
 (88.0) 179.9
Net income (loss) applicable to common shareholders97.0
 (97.8) 179.9
Per Common Share Data 
  
  
Diluted income per common share — continuing operations$0.79
 $(0.70) $0.38
Diluted income per common share$0.74
 $(0.74) $0.88
Book value per common share$52.97
 $53.25
 $50.14
Tangible book value per common share$49.25
 $49.58
 $46.09
Dividends declared per common share$0.16
 $0.16
 $0.15
Dividend payout ratio21.6% NM
 17.0%
Performance Ratios 
        
Return (continuing operations) on average common stockholders' equity (ROATCE)6.83% 8.42 % 5.36%
Return on average common stockholders' equity applicable to Common shareholders (ROE)6.09% (5.29)% 4.49%
Net finance revenue as a percentage of average earning assets3.45% 3.59 % 3.57%
Return on Average Earning Assets applicable to Common Shareholders (ROA)0.92% (0.83)% 0.67%
Return (from continuing operations) on average continuing operations total assets0.87% (0.70)% 0.63%
Balance Sheet Data
Loans including receivables pledged$29,453.6
 $29,113.9
 $29,691.4
Allowance for loan losses(447.6) (431.1) (448.6)
Operating lease equipment, net6,774.9
 6,738.9
 7,516.2
Goodwill369.9
 369.9
 686.1
Total cash and deposits4,096.3
 1,718.7
 6,156.9
Investment securities5,910.5
 6,469.9
 4,476.3
Assets of discontinued operation463.1
 501.3
 12,718.2
Total assets51,542.5
 49,278.7
 63,094.4
Deposits30,593.9
 29,569.3
 32,336.2
Borrowings10,437.3
 8,974.4
 14,736.3
Liabilities of discontinued operation496.6
 509.3
 2,731.9
Total common stockholders’ equity6,801.8
 6,995.0
 10,165.2
Credit Quality 
        
Non-accrual loans as a percentage of loans0.80% 0.76 % 0.87%
Net charge-offs as a percentage of average loans0.68% 0.26 % 0.37%
Allowance for loan losses as a percentage of loans1.52% 1.48 % 1.51%
Capital Ratios 
        
Total ending equity to total ending assets13.8% 14.9 % 16.1%
CET1 Capital Ratio (fully phased-in)14.1% 14.4 % 14.3%
Tier 1 Capital Ratio (fully phased-in)14.8% 15.1 % 14.3%
Total Capital Ratio (fully phased-in)16.8% 16.2 % 15.1%



Select Data (dollars in millions)

     At or for the Quarters Ended
     March 31,
2017
   December 31,
2016
   March 31,
2016
Select Statement of Operations Data
                                       
Net interest revenue           $292.6       $295.8       $287.9  
Provision for credit losses             (49.7)         (36.7)         (89.5)  
Total non-interest income             330.4         134.6         348.9  
Total non-interest expenses             (438.9)         (826.1)         (441.9)  
Income (loss) from continuing operations, net of tax             78.2         (425.8)         61.0  
Income (loss) from discontinued operation, net of tax             101.7         (716.7)         85.0  
Net income (loss)             179.9         (1,142.5)         146.0  
Per Common Share Data
                                       
Diluted (loss) income per common share — continuing operations           $0.38       $(2.10)       $0.30  
Diluted (loss) income per common share           $0.88       $(5.65)       $0.72  
Book value per common share           $50.14       $49.50       $54.99  
Tangible book value per common share           $46.09       $45.41       $48.94  
Dividends declared per common share           $0.15       $0.15       $0.15  
Dividend payout ratio             17.0%         NM          20.8%  
Performance Ratios
                                         
Return (continuing operations) on average common stockholders’ equity             3.09%         (15.51)%         2.21%  
Pre-tax Return (continuing operations) on average tangible common equity             5.31%         (15.75)%         3.81%  
Adjusted return on tangible common equity             7.40%         8.37%         4.03%  
Net finance revenue as a percentage of average earning assets             3.57%         3.58%         3.67%  
Return on average earning assets             0.67%         (3.63)%         0.51%  
Return on average continuing operations total assets             0.62%         (3.26)%         0.45%  
Balance Sheet Data
Loans including receivables pledged           $29,691.4       $29,535.9       $30,948.7  
Allowance for loan losses             (448.6)         (432.6)         (400.8)  
Operating lease equipment, net             7,516.2         7,486.1         7,071.4  
Goodwill             686.1         685.4         1,060.0  
Total cash and deposits             6,156.9         6,430.6         7,489.4  
Investment securities             4,476.3         4,491.1         2,896.8  
Assets of discontinued operation             12,718.2         13,220.7         12,951.7  
Total assets             63,094.4         64,170.2         67,088.6  
Deposits             32,336.2         32,304.3         32,877.8  
Borrowings             14,736.3         14,935.5         15,981.6  
Liabilities of discontinued operation             2,731.9         3,737.7         4,195.1  
Total common stockholders’ equity             10,165.2         10,002.7         11,091.6  
Credit Quality
                                         
Non-accrual loans as a percentage of finance receivables             0.87%         0.94%         0.88%  
Net charge-offs as a percentage of average finance receivables             0.37%         0.32%         0.42%  
Allowance for loan losses as a percentage of finance receivables             1.51%         1.46%         1.30%  
Capital Ratios
                                         
Total ending equity to total ending assets             16.1%         15.6%         16.5%  
Common Equity Tier 1 Capital Ratio (fully phased-in)             14.3%         13.8%         13.1%  
Total Capital Ratio (fully phased-in)             15.1%         14.6%         13.7%  
 

74 Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   95




Average Balances and Rates(1) (dollars in millions)

     Quarters Ended
     March 31, 2017
   December 31, 2016
   March 31, 2016
     Average
Balance
   Revenue /
Expense
   Average
Rate (%)
   Average
Balance
   Revenue /
Expense
   Average
Rate (%)
   Average
Balance
   Revenue /
Expense
   Average
Rate (%)
Interest bearing deposits           $5,652.4       $12.5         0.88%       $5,918.2       $7.5         0.51%       $6,863.2       $8.4         0.49%  
Investment securities             4,452.4         31.0         2.79%         3,962.2         30.4         3.07%         2,923.6         22.5         3.07%  
Loans (including held for sale)(2),(3)
                                                                                                         
U.S.(2)
             29,742.0         403.4         5.71%         29,940.4         425.7         5.94%         30,981.5         428.7         5.78%  
Non-U.S.             463.9         16.6         14.31%         653.9         18.8         11.50%         1,291.0         26.4         8.19%  
Total loans(2)
             30,205.9         420.0         5.85%         30,594.3         444.5         6.07%         32,272.5         455.1         5.88%  
Total interest earning assets / interest income(2),(3)
             40,310.7         463.5         4.78%         40,474.7         482.4         4.93%         42,059.3         486.0         4.77%  
Operating lease equipment, net (including held for sale)(4)
                                                                                                                 
U.S.(4)
             6,044.9         101.6         6.72%         6,052.6         99.8         6.60%         5,659.0         125.4         8.86%  
Non-U.S.(4)
             1,456.0         22.4         6.15%         1,382.5         25.1         7.26%         1,330.8         28.5         8.57%  
Total operating lease equipment, net(4)
             7,500.9         124.0         6.61%         7,435.1         124.9         6.72%         6,989.8         153.9         8.80%  
Indemnification assets             327.9         (7.8)         (9.50)%         351.3         (8.3)         (9.42)%         395.5         (3.1)         (3.13)%  
Total earning assets(2)
             48,139.5       $579.7         4.97%         48,261.1       $599.0         5.10%         49,444.6       $636.8         5.29%  
Non interest earning assets                                                                                                                  
Cash due from banks             783.6                               806.9                               938.6                        
Allowance for loan losses             (436.0)                               (418.5)                               (361.1)                          
All other non-interest earning assets             2,321.3                               3,603.1                               4,285.5                        
Assets of discontinued operation             12,969.7                               13,140.4                               12,979.4                          
Total Average Assets
           $63,778.1                             $65,393.0                             $67,287.0                        
Average Liabilities
                                                                                                                 
Borrowings                                                                                                         
Deposits           $30,953.0       $94.0         1.21%       $31,139.0       $96.4         1.24%       $31,829.1       $99.5         1.25%  
Borrowings(5)
             14,815.0         69.1         1.87%         14,676.5         81.9         2.23%         16,134.0         95.5         2.37%  
Total interest-bearing liabilities             45,768.0         163.1         1.43%         45,815.5         178.3         1.56%         47,963.1         195.0         1.63%  
Non-interest bearing deposits             1,387.3                               1,295.0                               1,062.4                        
Credit balances of factoring clients             1,500.6                               1,296.3                               1,337.5                          
Other non-interest bearing liabilities             1,778.8                               1,822.7                               1,626.1                        
Liabilities of discontinued operation             3,223.6                               4,180.0                               4,246.2                          
Noncontrolling interests             0.3                               0.5                               0.5                        
Stockholders’ equity             10,119.5                               10,983.0                               11,051.2                          
Total Average Liabilities and Stockholders’ Equity
           $63,778.1                             $65,393.0                             $67,287.0                        
Net revenue spread                                   3.54%                               3.54%                               3.67%  
Impact of non-interest bearing sources                                   0.03%                               0.04%                               0.00%  
Net revenue/yield on earning assets(2)
                      $416.6         3.57%                  $420.7         3.58%                  $441.8         3.67%  
(1)
 Average rates are impacted by PAA accretion and amortization.
(2)
The balance and rate presented is calculated net of average credit balances for factoring clients.
(3)
Non-accrual loans and related income are included in the respective categories.
(4)
Operating lease rental income is a significant source of revenue; therefore we have presented the rental revenues net of depreciation and net of maintenance and other operating lease expenses.
(5)
Average borrowings reflects $10.6 billion of total outstanding unsecured borrowings. The average balance includes unsecured debt used to fund the Commercial Air leasing business, which is in discontinued operations. The interest expense presented represents only the interest expense of continuing operations, and excludes interest expense of discontinued operation. Upon completion of the redemption and tender offer for an aggregate of $5.8 billion of unsecured debt in the second quarter of 2017, the average rate will increase, because the average balance will decrease, but the interest expense will remain substantially the same.

96   CIT GROUP INC


Table of Contents

NON-GAAP FINANCIAL MEASUREMENTS

The SEC adopted regulations that apply to any public disclosure or release of material information that includes a non-GAAP financial measure. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts, or is adjusted in some way to the effect of including or excluding, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements.


The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure about Market Risk contain certain non-GAAP financial measures. We intend our non-GAAP financial measures to provide additional information and insight regarding operating results and financial position of the business and in certain cases to provide financial information that is presented to rating agencies and other users of financial information.


These non-GAAP measures are not in accordance with, or a substitute for, GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies.


1.  
1.Total Net Revenue, Net Finance Revenue, Net Financing Margin (“NFM”), and Net Operating Lease Revenue


Total net revenue is a non-GAAP measure that represents the combination of net finance revenue and other non-interest income and is an aggregation of all sources of revenue for the Company. The source of the data is various statement of income line items, arranged in a different order, and with different subtotals than included in the statement of income, and therefore is considered non-GAAP. Total net revenue is used by management to monitor business performance and is used by management to calculate a net efficiency ratio, as discussed below.

Net finance revenue
NFR is a non-GAAP measure that represents the level of revenue earned on our financingloans and leasing assets.leases. NFR is another key performance measure used by management to monitor portfolio performance. NFR is also used to calculate a performance margin, NFM.


Due to the nature of our financingloans and leasing assets,leases, which include a higher proportion of operating lease equipment than most BHCs, certain financial measures commonly used by other BHCs are not as meaningful for our Company. As such, given our asset composition includes a high level of operating lease equipment, net finance marginNFM as calculated below is used by management, compared to net interest margin (“NIM”) (a common metric used by other bank holding companies), which does not fully reflect the earnings of our portfolio because it includes the impact of debt costs of all our assets but excludes the net operating lease revenue.


Net operating lease revenue is a non-GAAP measure that represents the combination of rental income on operating leases less depreciation on operating lease equipment and maintenance and other operating lease expenses. The net operating lease revenues measurement is used by management to monitor portfolio performance and returns on its purchased equipment.

Total Net Revenue and Net Operating Lease Revenue (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Total Net Revenue
                                       
Interest income(1)
           $455.7       $474.1       $482.9  
Rental income on operating leases(1)
             251.3         252.2         264.1  
Finance revenue             707.0         726.3         747.0  
Interest expense(1)
             (163.1)         (178.3)         (195.0)  
Depreciation on operating lease equipment(1)
             (73.5)         (69.8)         (61.3)  
Maintenance and other operating lease expenses(1)
             (53.8)         (57.5)         (48.9)  
Net finance revenue             416.6         420.7         441.8  
Other income(1)
             79.1         (117.6)         84.8  
Total net revenue
           $495.7       $303.1       $526.6  
NFM (NFR as a % of AEA)
             3.57%         3.58%         3.67%  
Net Operating Lease Revenue
                                         
Rental income on operating leases(1)
           $251.3       $252.2       $264.1  
Depreciation on operating lease equipment(1)
             (73.5)         (69.8)         (61.3)  
Maintenance and other operating lease expenses(1)
             (53.8)         (57.5)         (48.9)  
Net operating lease revenue
           $124.0       $124.9       $153.9  
Total Net Revenue and Net Operating Lease Revenue (dollars in millions)
      
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
  
  
  
Interest income$451.2
 $447.7
 $455.7
Rental income on operating leases253.6
 252.6
 251.3
Finance revenue (Non-GAAP)704.8
 700.3
 707.0
Interest expense180.5
 168.7
 163.1
Depreciation on operating lease equipment76.4
 74.3
 73.5
Maintenance and other operating lease expenses57.4
 57.9
 53.8
Net finance revenue (Non-GAAP)390.5
 399.4
 416.6
Other non-interest income104.7
 137.2
 79.1
Total net revenue (Non-GAAP)$495.2
 $536.6
 $495.7
      
NFR (Non-GAAP)$390.5
 $399.4
 $416.6
Suspended depreciation on assets HFS(9.3) (8.8) —
Adjusted NFR (Non-GAAP)$381.2
 $390.6
 $416.6
NFR as a % of AEA (Non-GAAP)3.45% 3.59% 3.57%
NFR as a % of AEA, adjusted for noteworthy items (Non-GAAP)3.37% 3.51% 3.57%
  
        
Net Operating Lease Revenues     
Rental income on operating leases$253.6
 $252.6
 $251.3
Depreciation on operating lease equipment76.4
 74.3
 73.5
Maintenance and other operating lease expenses57.4
 57.9
 53.8
Net operating lease revenue (Non-GAAP)$119.8
 $120.4
 $124.0



(1)
Balances agree directly to the statement of income in Item 1. Consolidated Financial Statements for the quarters ended March 31, 2017 and March 31, 2016.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   97
CIT GROUP INC. 75



2.  
2.Operating Expenses and Net Efficiency Ratio, Excluding Certain Costs

One
A key performance metric the Company uses to gauge the level of expenses is in comparison to the average earning assets.AEA. A decline in this metric could show improvement, i.e. expenses not going up at the same rate of asset growth, or decreasing at a rate in excess of asset decline. Operating expenses excluding restructuring costs and intangible asset amortization is a non-GAAP measure used by management to compare period over period expenses. Another key performance metric gauges our expense usage via our net efficiency calculation. This calculation compares the level of expenses to the level of net revenues.revenues and is calculated by dividing the operating expenses by total net revenue, as presented below. A lower result reflects a more efficient use of our expenses to generate revenue. Net efficiency ratio is a non-GAAP measurement used by management to measure operating expenses (before restructuring costs and intangible amortization) to total net revenues. Due to the exclusions of the mentioned items, and in certain instances, other noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below. We exclude the recurring items from these calculations as they are charges resulting from our strategic initiatives and not our operating activity, and exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of the mentioned items, and in certain instances, other noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.

Operating Expenses Excluding Certain Costs (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Operating expenses(1)
           $(311.6)       $(341.3)       $(330.1)  
Intangible asset amortization             6.2         6.4         6.4  
Provision for severance and facilities exiting activities             14.8         3.9         20.3  
Operating expenses excluding restructuring costs and intangible asset amortization           $(290.6)       $(331.0)       $(303.4)  
OneWest Bank legacy matters             –          27.0         –   
Operating expenses exclusive of restructuring costs and intangible assets amortization, and other noteworthy items             (290.6)         (304.0)         (303.4)  
Operating expenses as a % of AEA             (2.67)%         (2.91)%         (2.74)%  
Operating expenses excluding restructuring costs and intangible amortization             (2.49)%         (2.82)%         (2.52)%  
Operating expenses excluding restructuring costs and intangible amortization and other noteworthy items as a % of AEA             (2.49)%         (2.59)%         (2.52)%  
Total Net Revenue
           $495.7       $303.1       $526.6  
CTA Charge             8.1         –          –   
TRS Termination Charge             –          243.0         –   
Canada Portfolio Sale Gain             –          (22.0)         –   
Gain on sale — UK business             –          –          (24.0)  
Asset Impairment             –          –          11.0  
Liquidating Europe CTA             –          –          3.0  
Total Adjusted Net Revenue
           $503.8       $524.1       $516.6  
Net Efficiency Ratio(2)
             58.6%         109.2%         57.6%  
Net Efficiency Ratio Adjusted(2)
             57.7%         58.0%         58.7%  
Operating Expenses Excluding Certain Costs (dollars in millions)
      
 Quarters Ended
Operating ExpensesMarch 31,
2018		 December 31,
2017		 March 31,
2017
Operating expenses$281.3
 $304.0
 $311.6
Intangible asset amortization6.0
 6.1
 6.2
Restructuring costs—
 31.9
 14.8
Operating expenses excluding restructuring costs, intangible assets amortization, and other noteworthy items (Non-GAAP)$275.3
 $266.0
 $290.6
      
Operating expenses (excluding restructuring costs and intangible assets amortization) as a % of AEA (excluding noteworthy items)2.43% 2.39% 2.49%
      
Total Net Revenue (Non-GAAP)$495.2
 $536.6
 $495.7
Suspended depreciation on assets HFS(9.3) (8.8) —
LIHTC accounting policy change—
 (29.4) —
CTA charge—
 —
 8.1
Total Net Revenue, excluding noteworthy items (Non-GAAP)$485.9
 $498.4
 $503.8
Net Efficiency Ratio55.6% 49.6% 58.6%
Net Efficiency Ratio excluding noteworthy items56.7% 53.4% 57.7%

(1)
3.Balances agree directly to the statement of income in Item 1 Consolidated Financial Statements for the quarters ended March 31, 2017 and March 31, 2016.Other Non-Interest Income
(2)
Net efficiency ratio and net efficiency ratio adjusted are non-GAAP measurements used by management to measure operating expenses (before restructuring costs and intangible amortization) to the level of total net revenues. See “Non-GAAP Financial Measurements” for a reconciliation of non-GAAP to GAAP financial information.

98   CIT GROUP INC

Other non-interest income serves as a source of revenue for CIT. Management monitors the level absent certain items to assist in comparability with prior period levels. We exclude the noteworthy items due to their episodic nature and size. Due to the exclusions of noteworthy items, these are considered non-GAAP measures, as presented in the reconciliation below.
Other Non-Interest Income (dollars in millions)
 Quarters Ended
 March 31,
2018		 December 31,
2017		 March 31,
2017
Other non-interest income$104.7
 $137.2
 $79.1
CTA charge—
 —
 8.1
LIHTC accounting policy change—
 (29.4) —
Total other non-interest income, excluding noteworthy items (Non-GAAP)$104.7
 $107.8
 $87.2



76 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk



3.  
4.Earning Assets and Average Earning Assets (“AEA”)


Earning asset balances displayed in the table below are directly derived from the respective line items in the balance sheet. These represent revenue generating assets, and the average (AEA) of which (AEA) provides a basis for management performance calculations such as NFM and operating expenses as a %percentage of AEA. The average is derived using month end balances for the respective period. Because the balances are used in aggregate, as well the average, there are no direct comparative balances on the balance sheet, therefore these are considered non-GAAP measures.

Earning Assets (dollars in millions)

     March 31,
2017
   December 31,
2016
   March 31,
2016
Loans(1)
           $29,691.4       $29,535.9       $30,948.7  
Operating lease equipment, net(1)
             7,516.2         7,486.1         7,071.4  
Interest bearing cash(1)
             5,415.2         5,608.5         6,584.7  
Investment securities(1)
             4,476.3         4,491.1         2,896.8  
Assets held for sale(1)
             562.6         636.0         1,487.4  
Indemnification assets(1)
             313.1         341.4         381.4  
Credit balances of factoring clients(1)
             (1,547.1)         (1,292.0)         (1,361.0)  
Total earning assets           $46,427.7       $46,807.0       $48,009.4  
Average Earning Assets (for the respective quarters)
           $46,638.9       $46,964.7       $48,107.1  
Earning Assets (dollars in millions)
 Quarters Ended
Period End Earning AssetsMarch 31,
2018		 December 31,
2017		 March 31,
2017
Loans 
$29,453.6
 $29,113.9
 $29,691.4
Operating lease equipment, net 
6,774.9
 6,738.9
 7,516.2
Assets held for sale 
2,298.8
 2,263.1
 562.6
Credit balances of factoring clients(1,549.0) (1,468.6) (1,547.1)
Interest-bearing cash3,895.4
 1,440.1
 5,415.2
Investment securities5,910.5
 6,469.9
 4,476.3
Securities purchased under agreement to resell250.0
 150.0
 —
Indemnification assets120.5
 142.4
 313.1
Total earning assets (Non-GAAP)$47,154.7
 $44,849.7
 $46,427.7
Average Earning Assets (for the respective periods) (Non-GAAP)$45,265.1
 $44,562.1
 $46,638.9
AEA, excluding noteworthy items (Non-GAAP)$45,265.1
 $44,562.1
 $46,638.9


CIT GROUP INC. 77

(1)
Balances agree directly to the balance sheet in Item 1 Consolidated Financial Statements as of March 31, 2017 and December 31, 2016.
4.  5.Tangible Book Value, ROTCE and Tangible Book Value per Share


Tangible book value (TBV, also referred to as tangible common equity), return on tangible common equity (ROTCE), and TBV per share are considered key financial performance measures by management, and are used by other financial institutions. TBV, as calculated and used by management, represents CIT’s common stockholders’ equity, less goodwill and intangible assets. ROTCE measures CIT’s net income applicable to common shareholders as a percentage of average tangible common equity. This measure is useful for evaluating the performance of CIT as it calculates the return available to common shareholders without the impact of intangible assets and deferred tax assets. The average adjusted tangible common equity is derived using averages of balances presented, based on month end balances for the period. TBV per share is calculated dividing TBV by the outstanding number of common shares. TBV, ROTCE and TBV per share are measurements used by management and users of CIT’s financial data in assessing CIT’s use of equity. We believe the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.


CIT management believes TBV, ROTCE and TBV per share are important measures for comparative purposes with other institutions, but are not defined under U.S. GAAP, and therefore considered non-GAAP financial measures.


To provide further information, management included ROTCE calculations, pro formaROTCE calculations excluding noteworthy items and adjusted for the previously disclosed return of capital of $2.975 billion of common equity to shareholders from the net proceeds of the Commercial Air sale.

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   99


Table of Contents

Tangible Book Value (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
Total common stockholders’ equity(1)
           $10,165.2       $10,002.7       $11,091.6  
Less: Goodwill(1)
             (686.1)         (685.4)         (1,060.0)  
Intangible assets(1)
             (134.3)         (140.7)         (160.9)  
Tangible book value             9,344.8         9,176.6         9,870.7  
Less: disallowed deferred tax asset             (140.6)         (213.7)         (878.2)  
Adjusted tangible common equity           $9,204.2       $8,962.9       $8,992.5  
Average adjusted tangible common equity           $9,118.8       $9,220.8       $8,932.3  
Net Income (loss)(2)
           $179.9       $(1,142.5)       $146.0  
Intangible asset amortization, after tax             4.1         5.3         3.0  
Non-GAAP loss from continuing operations, ROTCE calculation           $184.0       $(1,137.2)       $149.0  
Return on average tangible common equity             8.08%         (49.32)%         6.68%  
Non-GAAP income (reconciled below)           $163.2       $209.7       $142.0  
Adjustments: intangible assets amortization, net of tax             4.1         5.3         3.0  
Non-GAAP income — for ROTCE calculation           $167.3       $215.0       $145.0  
Adjusted return on tangible common equity             7.34%         9.33%         6.50%  
Non-GAAP income from continuing operations (reconciled below)           $109.5       $125.4       $57.0  
Intangible asset amortization, after tax             4.1         5.3         3.0  
Non-GAAP income from continuing operations — for ROTCE calculation           $113.6       $130.7       $60.0  
Average adjusted tangible common equity           $9,118.8       $9,220.8       $8,932.3  
Pro forma estimated capital adjustment related to Commercial Air sale             (2,975.0)         (2,975.0)         (2,975.0)  
Average adjusted tangible common equity pro forma for estimated capital adjustment           $6,143.8       $6,245.8       $5,957.3  
Return on average tangible common equity, after noteworthy items and pro forma for estimated capital adjustment             7.40%         8.37%         4.03%  
Tangible Book Value (dollars in millions)
      
 Quarters Ended
Tangible Book ValueMarch 31,
2018		 December 31,
2017		 March 31,
2017
Total common shareholders' equity$6,801.8

$6,995.0

$10,165.2
Less: Goodwill(369.9)
(369.9)
(686.1)
         Intangible assets(107.0)
(113.0)
(134.3)
Tangible book value (Non-GAAP)6,324.9

6,512.1

9,344.8
Less: Disallowed deferred tax asset(98.9)
(104.8)
(140.6)
Tangible common equity (Non-GAAP)$6,226.0

$6,407.3

$9,204.2
Average tangible common equity (Non-GAAP)$6,332.1

$6,327.5

$9,118.8
Estimated capital adjustment related to Commercial Air sale—

—

(2,975.0)
Average tangible common equity, excluding noteworthy items (Non-GAAP)$6,332.1

$6,327.5

$6,143.8
      
Net income (loss) applicable to common shareholders$97.0

$(97.8)
$179.9
Goodwill impairment—
 222.1
 —
Intangible asset amortization, after tax4.4

3.7

4.1
Non-GAAP income - for ROTCE calculation$101.4

$128.0

$184.0
Return on average tangible common equity6.41%
8.09%
8.07%
      
Non-GAAP income applicable to common shareholders (from the following non-GAAP noteworthy tables)$90.2

$125.1

$163.1
Intangible asset amortization, after tax4.4

3.7

4.1
Non-GAAP income - for ROTCE calculation$94.6

$128.8

$167.2
Return on average tangible common equity, excluding noteworthy items5.98% 8.14% 10.89%
      
Income (loss) from continuing operations applicable to common shareholders$103.7

$(92.6)
$78.2
Goodwill impairment—
 222.1
 —
Intangible asset amortization, after tax4.4
 3.7
 4.1
Non-GAAP income from continuing operations - for ROTCE calculation$108.1
 $133.2
 $82.3
Non-GAAP income from continuing operations (from next page)$96.9

$130.3

$109.4
Intangible asset amortization, after tax4.4
 3.7
 4.1
Non-GAAP income from continuing operations - for ROTCE calculation$101.3
 $134.0
 $113.5
Average tangible common equity(7)
$6,332.1
 $6,327.5
 $9,118.8
Estimated capital adjustment related to Commercial Air sale—
 —
 (2,975.0)
Average tangible common equity(7) pro forma for estimated capital adjustment
$6,332.1
 $6,327.5
 $6,143.8
Return on average tangible common equity, proforma for estimated capital adjustment6.83% 8.42% 5.36%
Return on average tangible common equity, after noteworthy items(8) and proforma for estimated capital adjustment
6.40% 8.47% 7.40%


(1)
Balances agree directly to the balance sheet in Item 1. Consolidated Financial Statements as of March 31, 2017 and December 31, 2016.
(2)
Balances agree directly to the statement of income in Item 1. Consolidated Financial Statements for the quarters ended March 31, 2017 and 2016.
5.  6.Net income excluding noteworthy items and income from continuing operations excluding noteworthy items


Net income excluding noteworthy items and income from continuing operations excluding noteworthy items are non-GAAP measures used by management as each excludes items from the respective line item in the GAAP statement of income. Due to volume and size of noteworthy items, in 2016, the Company believes that adjusting for these items provides the user of CIT’s financial information a measure of the underlying performance of the Company and of continuing operations specific.specifically. The non-GAAP noteworthy items are summarized in the following categories: significant due to the magnitude of the transaction; transactions pertaining to items no longer considered core to CIT’s on-going operations (i.e.(i.e. sales of Non-Strategic Portfolios); legacy

78 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


OneWest Bank issues prior to CIT’s ownership; and recurring items consistently noted in other non-GAAP measures, even though balance may not have been significant.

100   CIT GROUP INC


Table of Contents

Noteworthy Items (dollars in millions)

     Description
   Income Statement Line Item
   Pre-tax
Balance
   Income
Tax(2)
   After-tax
Balance
   Per
Share
           Quarter Ended March 31, 2017
Net income
                                         $180       $0.88  
Continuing Operations         CTA Charge   Other income     $8        $(1)         7          0.03  
          Restructuring Expenses   Operating expenses       15          (5)         10          0.05  
          Entity Restructuring   Provision for income taxes       –          14          14          0.07  
Discontinued Operations         Suspended Depreciation           (113)         44          (69)         (0.34)  
          Secured Debt Paydown           34          –          34          0.17  
          TC CIT JV Gain           (14)         1          (13)         (0.06)  
Non-GAAP income, excluding noteworthy items(1)
                           $163        $0.80  
Income from continuing operations
                            $78       $0.38  
Continuing Operations         CTA Charge   Other income     $8        $(1)         7          0.03  
          Restructuring Expenses   Operating expenses       15          (5)         10          0.05  
          Entity Restructuring   Provision for income taxes       –          14          14          0.07  
Non-GAAP income from continuing operations, excluding noteworthy items(1)
                           $109        $0.54  
                  
Quarter Ended December 31, 2016
Net loss
                                         $(1,143)       $(5.65)  
Continuing Operations         TRS Termination Charge   Other income     $243        $(97)         146          0.72  
          Consumer Goodwill Impairment   Goodwill impairment       319          –          319          1.58  
          Commercial Services Goodwill Impairment   Goodwill impairment       35          (7)         28          0.14  
          Canadian Assertion Change   Provision for income taxes       –          54          54          0.27  
          Canada Portfolio Sale Gain   Other income       (22)         6          (16)         (0.08)  
          OneWest Bank Legacy Matters   Operating expenses       27          (10)         17          0.08  
          Restructuring   Operating expenses       4          (1)         3          0.01  
Discontinued Operations         Commercial Air Tax Provision           –          847          847          4.19  
          Commercial Air Suspended Depreciation           (106)         40          (66)         (0.33)  
          Financial Freedom Reserve           27          (11)         16          0.08  
          Business Air Impairment           7          (3)         4          0.02  
Non-GAAP income, excluding noteworthy items(1)
                           $210        $1.04  
Loss from continuing operations
                            $(426)       $(2.10)  
Continuing Operations         TRS Termination Charge   Other income     $243        $(97)         146          0.72  
          Consumer Goodwill Impairment   Goodwill impairment       319          –          319          1.58  
          Commercial Services Goodwill Impairment   Goodwill impairment       35          (7)         28          0.14  
          Canadian Assertion Change   Provision for income taxes       –          54          54          0.27  
          Canada Portfolio Sale Gain   Other income       (22)         6          (16)         (0.08)  
          OneWest Bank Legacy Matters   Operating expenses       27          (10)         17          0.08  
          Restructuring   Operating expenses       4          (1)         3          0.01  
Non-GAAP income from continuing operations, excluding noteworthy items(1)
                           $125        $0.62  
 

Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   101
Net Income and Income from Continuing Operations, Excluding Noteworthy Items (dollars in millions, except per share data)
 DescriptionLine Item Pre-tax Balance 
Income Tax(2)
 After-tax Balance Per Share
Quarter Ended March 31, 2018         
Net income applicable to common shareholders     $97.0

$0.74
Continuing OperationsNACCO suspended depreciationDepreciation on operating lease equipment $(9.3) $2.5
 (6.8) (0.05)
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1)
 $90.2
 $0.69
          
Income from continuing operations applicable to common shareholders     $103.7
 $0.79
Continuing OperationsNACCO suspended depreciationDepreciation on operating lease equipment $(9.3) $2.5
 (6.8) (0.05)
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
 $96.9
 $0.74
           
Quarter Ended December 31, 2017         
Net income applicable to common shareholders $(97.8) $(0.74)
Continuing OperationsLIHTC accounting policy changeOther non-interest income $(29.4) $—
 (29.4) (0.22)
LIHTC accounting policy changeBenefit / provision for income taxes —
 38.2
 38.2
 0.29
NACCO suspended depreciationDepreciation on operating lease equipment (8.8) 2.7
 (6.1) (0.05)
NACCO DTA/DTL rate changeBenefit / provision for income taxes —

(11.0)
(11.0)
(0.08)
NACCO investmentBenefit / provision for income taxes —

12.0

12.0

0.09
Goodwill impairmentGoodwill impairment 255.6
 (33.5) 222.1
 1.69
Strategic tax item - restructuring of an international legal entityBenefit / provision for income taxes —
 (11.3) (11.3) (0.09)
Tax reformBenefit / provision for income taxes
—
 (11.6) (11.6) (0.09)
Restructuring expensesOperating expenses 31.9
 (11.9) 20.0
 0.15
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
 $125.1
 $0.95
           
Income from continuing operations applicable to common shareholders $(92.6) $(0.70)
Continuing OperationsLIHTC accounting policy changeOther non-interest income $(29.4) $—
 (29.4) (0.22)
LIHTC accounting policy changeBenefit / provision for income taxes —
 38.2
 38.2
 0.29
NACCO suspended depreciationDepreciation on operating lease equipment (8.8) 2.7
 (6.1) (0.05)
NACCO DTA/DTL rate changeBenefit / provision for income taxes —
 (11.0) (11.0) (0.08)
NACCO investmentBenefit / provision for income taxes —
 12.0
 12.0
 0.09
Goodwill impairmentGoodwill impairment 255.6
 (33.5) 222.1
 1.69
Strategic tax item - restructuring of an international legal entityBenefit / provision for income taxes —
 (11.3) (11.3) (0.09)
Tax reformBenefit / provision for income taxes —
 (11.6) (11.6) (0.09)
Restructuring expensesOperating expenses 31.9
 (11.9) 20.0
 0.15
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
 $130.3
 $0.99
           
Quarter Ended March 31, 2017         
Net income applicable to common shareholders     $179.9
 $0.88
Continuing OperationsCTA ChargeOther non-interest income $8.1
 $(1.3) 6.8
 0.03
Restructuring expensesOperating expenses 14.8
 (4.4) 10.4
 0.05
Entity RestructuringBenefit / provision for income taxes —
 14.0
 14.0
 0.07
Discontinued OperationsSuspended depreciation  (113.0) 44.0
 (69.0) (0.34)
Secured Debt Paydown  39.0
 (5.0) 34.0
 0.17
Gain on Sale - TC CIT joint venture  (14.0) 1.0
 (13.0) (0.06)
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1)
 $163.1
 $0.80
     
Income from continuing operations applicable to common shareholders $78.2
 $0.38
Continuing OperationsCTA ChargeOther non-interest income $8.1
 $(1.3) 6.8
 0.03
Restructuring expensesOperating expenses 14.8
 (4.4) 10.4
 0.05
Entity RestructuringBenefit / provision for income taxes —
 14.0
 14.0
 0.07
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
 $109.4
 $0.54


Table of Contents

Noteworthy Items (dollars in millions) (continued)

     Description
   Income Statement Line Item
   Pre-tax
Balance
   Income
Tax(2)
   After-tax
Balance
   Per
Share
           Quarter Ended March 31, 2016
   
Net income
                                         $146       $0.72  
Continuing Operations         Gain on Sale — UK business   Other income     $(24)       $9          (15)         (0.07)  
          Restructuring Expenses   Operating expenses       20          (7)         13          0.06  
          Discrete Tax Benefit   Provision for income taxes       –          (13)         (13)         (0.06)  
          Asset Impairment   Other income       11          (3)         8          0.04  
          Liquidating Europe CTA   Other income       3          –          3          0.01  
Non-GAAP income, excluding noteworthy items(1)
                           $142        $0.70  
Income from continuing operations
                            $61       $0.30  
Continuing Operations         Gain on Sale — UK   Other income     $(24)       $9          (15)         (0.07)  
          Restructuring Expenses   Operating expenses       20          (7)         13          0.06  
          Discrete Tax Benefit   Provision for income taxes       –          (13)         (13)         (0.06)  
          Asset Impairment   Other income       11          (3)         8          0.04  
          Liquidating Europe CTA   Other income       3          –          3          0.01  
Non-GAAP income from continuing operations, excluding noteworthy items(1)
                           $57        $0.28  
(1) 
Items may not sum due to rounding.
(2) 
Income tax rates vary depending on the specific item and the entity location in which it is recorded.
6.  Continuing Operations Total Assets

Continuing operations total assets is a non-GAAP measure due to the exclusion



CIT GROUP INC. 79

     March 31,
2017
   December 31,
2016
   March 31,
2016
Total assets(1)
           $63,094.4       $64,170.2       $67,088.6  
Assets of discontinued operation(1)
             (12,718.2)         (13,220.7)         (12,951.7)  
Continuing operations total assets           $50,376.2       $50,949.5       $54,136.9  
(1)

7.    Effective Tax Rate Reconciliation

Balances agree directly to the balance sheet in Item 1. Consolidated Financial Statements as of March 31, 2017 and December 31, 2016.
7.  Effective Tax Rate Reconciliation

The provision for income taxes before noteworthy items and separately, tax only discrete items and the respective effective tax rate are non-GAAP measures, which management uses for analytical purposes to understand the Company’s underlying tax rate. DiscreteNoteworthy items are presented in item 6 above, and discussed in various sections of the MD&A. The tax discrete items are discussed in the Income Tax section.

Effective Tax Rate Reconciliation (dollars in millions)

     Quarters Ended
   
     March 31,
2017
   December 31,
2016
   March 31,
2016
(Provision) benefit for income taxes(1)
           $(56.2)       $6.6       $(44.4)  
Discrete items             11.3         58.5         (11.0)  
(Provision) benefit for income taxes, before discrete items           $(44.9)       $65.1       $(55.4)  
Income (loss) from continuing operations before provision for income taxes(1)
           $134.4       $(432.4)       $105.4  
Effective tax rate             41.8%         1.5%         42.1%  
Effective tax rate, before discrete items             33.4%         15.1%         52.6%  
 Quarters Ended
Effective Tax Rate Reconciliation - Noteworthy ItemsMarch 31, 2018 December 31, 2017 March 31, 2017
Provision for income taxes - GAAP$41.3
 $27.7
 $56.2
Income taxes on noteworthy items2.5
 (26.4) 8.3
Provision for income taxes, before noteworthy items - Non-GAAP38.8
 54.1
 47.9
Income tax - remaining discrete items1.7
 (22.4) (2.3)
Provision for income taxes, before noteworthy and discrete tax items - Non-GAAP$37.1
 $76.5
 $50.2
Income (loss) from continuing operations before provision for income taxes - GAAP$145.0
 $(55.1) $134.4
Noteworthy items before tax(9.3) 249.3
 22.9
Adjusted income from continuing operations before provision for income taxes - Non-GAAP$135.7
 $194.2
 $157.3
Effective tax rate - GAAP28.5% (50.3)% 41.8%
Effective tax rate, before noteworthy items - Non-GAAP28.6% 27.9 % 30.5%
Effective tax rate, before noteworthy and tax discrete items - Non-GAAP27.3% 39.4 % 31.9%

(1)
Balances agree directly to the statement of income in Item 1. Consolidated Financial Statements for the quarters ended March 31, 2017 and 2016.

102   CIT GROUP INC


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8.Regulatory


Included within this Form 10-Q are risk-weighted assets (RWA), risk-based capital and leverage ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we report our capital in accordance with Transitional Requirements, but also monitor our capital based on a fully phased-in methodology. Such measures are considered key regulatory capital measures used by banking regulators, investors and analysts to assess the CIT (as a BHC) regulatory capital position and to compare that to other financial institutions. For information on our capital ratios and requirements, seeNote 10 — Regulatory Capital inItem 1. Consolidated Financial Statements, and theCapital section inItem 2. Management’s Discussion and Analysis.Analysis.


FORWARD-LOOKING STATEMENTS

Certain statements contained in this document are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “could,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to known and unknown risks, uncertainties and contingencies. Forward-looking statements are included, for example, in the discussions about:


our liquidity risk and capital management, including our capital plan, leverage, capital ratios, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, to repay secured and unsecured debt, to issue qualifying capital instruments, including Tier 1 qualifying preferred stock, and for a return of capital,
our plans to change our funding mix, to access new sources of funding, and to broaden our use of deposit taking capabilities, including increasing our level of commercial deposits and expanding our treasury management services,
our pending or potential acquisition and disposition plans, and the integration and restructuring risks inherent in such acquisitions, including our proposed sale of our Financial Freedom reverse mortgage servicing business and reverse mortgage loan portfolio, our Business Air loan portfolio, and NACCO, our European railcar leasing business,
our credit risk management and credit quality,
our asset/liability risk management,
our funding, borrowing costs and net finance revenue,
our operational risks, including risk of operational errors, failure of operational controls, success of systems enhancements and expansion of risk management and control functions,
our mix of portfolio asset classes, including changes resulting from growth initiatives, new business initiatives, new products, acquisitions and divestitures, new business and customer retention,
our legal risks, including the enforceability of our agreements, the impact of legal proceedings, and the impact of changes in laws and regulations,
our growth rates, and

80 Item 2. Management’s Discussion and Analysis and Item 3. Quantitative and Qualitative Disclosures about Market Risk


our commitments to extend credit or purchase equipment.

n
our liquidity risk and capital management, including our capital plan, leverage, capital ratios, and credit ratings, our liquidity plan, and our plans and the potential transactions designed to enhance our liquidity and capital, to repay secured and unsecured debt, to issue qualifying capital instruments, including Tier 1 qualifying preferred stock, and for a return of capital,
n
our plans to change our funding mix and to access new sources of funding to broaden our use of deposit taking capabilities,
n
our pending or potential acquisition and disposition plans, and the integration and restructuring risks inherent in such acquisitions, including our sale of the Commercial Air business in April 2017, and our proposed sale of our Financial Freedom reverse mortgage business and our Business Air loan portfolio,
n
our credit risk management and credit quality,
n
our asset/liability risk management,
n
our funding, borrowing costs and net finance revenue,
n
our operational risks, including risk of operational errors, failure of operational controls, success of systems enhancements and expansion of risk management and control functions,
n
our mix of portfolio asset classes, including changes resulting from growth initiatives, new business initiatives, new products, acquisitions and divestitures, new business and customer retention,
n
legal risks, including related to the enforceability of our agreements and to changes in laws and regulations,
n
our growth rates,
n
our commitments to extend credit or purchase equipment, and
n
how we may be affected by legal proceedings.

All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-lookingachievements expressed or implied in these statements. Forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information.

Therefore, actual results may differ materially from those expressed or implied in those statements. Factors, in addition to those disclosed in“Risk Factors”, that could cause such differences include, but are not limited to:

n
capital markets liquidity,
n
risks inherent in a return of capital, including risks related to obtaining regulatory approval, the nature and allocation among different methods of returning capital, and the amount and timing of any capital return,
n
risks of and/or actual economic slowdown, downturn or recession,
n
industry cycles and trends,
n
uncertainties associated with risk management, including credit, prepayment, asset/liability, interest rate and currency risks,

Item 2. Management’s Discussionrisks inherent in deposit funding, including reducing reliance on brokered deposits, increasing commercial deposits and Analysisretail non-maturity accounts, andItem 3.Quantitative expanding treasury management services,
risks inherent in capital markets, including liquidity, changes in market interest rates and Qualitative Disclosures about Market Risk   103
quality spreads, and our access to secured and unsecured debt and asset-backed securitization markets,


Table

risks inherent in a return of Contents

ncapital, including risks related to obtaining regulatory approval, the nature and allocation among different methods of returning capital, and the amount and timing of any capital return,
risks of actual or perceived economic slowdown, downturn or recession, including slowdown in customer demand for credit or increases in non-accrual loans or default rates,
industry cycles and trends, including in oil and gas, power and energy, telecommunications, information technology, and commercial and residential real estate.
uncertainties associated with risk management, including evaluating credit, adequacy of reserves for credit losses, prepayment risk, asset/liability risk, interest rate and currency risks, and cybersecurity risks,
risks of implementing new processes, procedures, and systems, including those required to strengthen internal controls, improve data quality, and reliability, or comply with the additional laws and regulations applicable to systemically important financial institutions, such as the CCAR process, enhanced prudential standards, and Basel III,
risks associated with the value and recoverability of leased equipment and related lease residual values, including railcars, telecommunications towers, technology and office equipment, information technology equipment, including data centers, and large and small industrial, medical, and transportation equipment,
risks of failing to achieve the projected revenue growth from new business initiatives or the projected expense reductions from efficiency improvements,
application of goodwill accounting or fair value accounting in volatile markets,
regulatory changes and developments, including changes in laws or regulations governing our business and operations, or affecting our assets, including our operating lease equipment or changes in the regulatory environment, whether due to events or factors specific to CIT, or other large multi-national or regional banks, or the industry in general,
risks associated with dispositions of businesses or asset portfolios, including how to replace the income associated with such businesses or asset portfolios and the risk of residual liabilities from such businesses or portfolios,
risks associated with acquisitions of businesses or asset portfolios, including integrating and reducing duplication in personnel, policies, internal controls, and systems.

adequacy of reserves for credit losses,
n
risks inherent in changes in market interest rates and quality spreads,
n
funding opportunities, deposit taking capabilities and borrowing costs,
n
conditions and/or changes in funding markets and our access to such markets, including the secured and unsecured debt and asset-backed securitization markets,
n
risks of implementing new processes, procedures, and systems, including any new processes, procedures, and systems required to comply with the additional laws and regulations applicable to systemically important financial institutions,
n
risks associated with the value and recoverability of leased equipment and related lease residual values,
n
risks of failing to achieve the projected revenue growth from new business initiatives or the projected expense reductions from efficiency improvements,
n
application of fair value accounting in volatile markets,
n
application of goodwill accounting in a recessionary economy,
n
changes in laws or regulations governing our business and operations, or affecting our assets, including our operating lease equipment,
n
changes in competitive factors,
n
demographic trends,
n
customer retention rates,
n
risks associated with dispositions of businesses or asset portfolios, including how to replace the income associated with such businesses or asset portfolios and the risk of residual liabilities from such businesses or portfolios,
n
risks associated with acquisitions of businesses or asset portfolios and the risks of integrating such acquisitions, including the integration of OneWest Bank, and
n
regulatory changes and/or developments.

Any or all of our forward-looking statements here or in other publications may turn out to be wrong, and there are no guarantees regarding our performance. We do not assume any obligation to update any forward-looking statement for any reason.


Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). as of March 31, 2018. Based on such evaluation and in light of the previously identified material weaknesses in our internal control over financial reporting as of December 31, 2016, described in our 2016 Annual Report on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2017.

We have taken and continue to take the necessary steps to remediate the underlying causes of the material weaknesses. These steps include, but are not limited to the following:

1.  Home Equity Conversion Mortgages (“HECM”) Interest Curtailment Reserve:
a.  Enhancing the process used to identify and interpret regulatory changes;
b.  Strengthening controls over the model;
c.  Improving loan data accuracy; and
d.  Simplifying the reserve estimation process and improving governance, controls and documentation over the reserving process.
2.  Information Technology General Controls (“ITGCs”):
a.  Change Management:
i.  Ensuring financially relevant applications and key reports used by management are subject to consistent controls for initiation, testing and approval of change activities; and
ii.  Reducing or eliminating access that allows direct changes to data and programs in the company’s production environment. Where such access is required, enhancing existing monitoring controls to ensure activity is reviewed and appropriately authorized.
b.  Logical Access:
i.  Assessing and enhancing logical access processes, tools and controls.
c.  Computer Operations:
i.  Developing and maintaining a comprehensive inventory of all key financial system interfaces and job schedulers used in the Company, and implementing the requisite controls for each.

104   CIT GROUP INC


Table of Contents

Management believes that these efforts will remediate the material weaknesses. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the new/enhanced controls are fully implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address these control deficiencies or determine to modify the remediation activities described above. Management will test and evaluate the implementation of these new/enhanced controls during 2017 to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.

These actions are subject to ongoing review by our senior management, as well as oversight by the Audit Committee of our Board of Directors. We are placing a high priority on the remediation process and are committed to allocating the necessary resources to the remediation effort. However, we cannot provide any assurance that these efforts will be successful or that they will cause our disclosure controls and procedures or internal control over financial reporting to be effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2017,2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




Item 2. Management’s Discussion and Analysis andItem 3.Quantitative and Qualitative Disclosures about Market Risk   105
CIT GROUP INC. 81



Part Two — Other Information

Item 1.  Legal Proceedings

CIT is currently involved, and from time to time in the future may be involved, in a number of judicial, regulatory, and arbitration proceedings relating to matters that arise in connection with the conduct of its business (collectively, “Litigation”), certain of which Litigation matters are described inNote 13 —Contingencies ofItem 1. Consolidated Financial Statements. In view of the inherent difficulty of predicting the outcome of Litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, CIT cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter may be, if any. In accordance with applicable accounting guidance, CIT establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can be reasonably estimated. Based on currently available information, CIT believes that the results of Litigation that is currently pending, taken together, will not have a material adverse effect on the Company’s financial condition, but may be material to the Company’s operating results or cash flows for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.


For more information about pending legal proceedings, including an estimate of certain reasonably possible losses in excess of reserved amounts, seeNote 13 —Contingencies ofItem 1. Consolidated Financial Statements.



Item 1A.  Risk Factors

Risk factors remain unchanged during the quarter. For a discussion of risk factors, not changed, seePart I, Item 1A. Risk Factors, of CIT’s 2016 Annual Report on Form 10-K for the year ended December 31, 2017, and Forward-Looking Statements of this Form 10-Q.

Item 2.  
 Unregistered Sales of Equity Securities and Use of Proceeds


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchasesapproximately 3.7 million shares of the Company’s common stock repurchased through open market repurchases (OMR) during the quarter ended March 31, 2017.2018 as shown in the following table:


 Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 1 - 31, 201887,600
 $49.62
 87,600
  
February 1 - 28, 20181,653,519
 $52.39
 1,653,519
  
March 1 - 31, 20181,924,747
 $53.98
 1,924,747
  
Total Purchases3,665,866
      

As of March 31, 2018, CIT had up to $705 million of repurchases remaining, including $25 million related to employee stock ownership plans that can be executed by the end of the first half of 2018 under current authorizations. The Company has purchased in the open market an additional $71 million, 1.4 million shares, at an average repurchase price of $51.86 through April 24. On April 26, CIT commenced a modified "Dutch auction" cash tender offer to purchase up to $500 million of its common stock, par value $0.01 per share. See Note 15 - Subsequent Events in Item 1. Consolidated Financial Statements for additional information.

Item 4.  Mine Safety Disclosure

Not applicable

106  





CIT GROUP INC
INC. 82




Item 6.  Exhibits

(a)  
(a)Exhibits
2.1
   
Agreement and Plan of Merger, by and among CIT Group Inc., IMB HoldCo LLC, Carbon Merger Sub LLC and JCF III HoldCo I L.P., dated as of July 21, 2014 (incorporated by reference to Exhibit 2.1 to Form 8-K filed July 25, 2014).


2.2
   
Amendment No. 1, dated as of July 21, 2015, to the Agreement and Plan of Merger, by and among CIT Group Inc., IMB HoldCo I L.P., Carbon Merger Sub LLC and JCF III HoldCo I L.P., dated as of July 21, 2014 (incorporated by reference to Exhibit 2.1 to Form 8-K filed July 27, 2015).


3.1
   
Fourth Restated Certificate of Incorporation of the Company, as filed with the Office of the Secretary of State of the State of Delaware on May 17, 2016 (incorporated by reference to Exhibit 3.1 to Form 8-K filed May 17, 2016).


3.2
   
Amended and Restated By-laws of the Company, as amended through May 15, 2016 (incorporated by reference to Exhibit 3.2 to Form 8-K filed May 17, 2016).


3.3
Certificate of Designation of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A of CIT Group Inc., dated June 6, 2017 (incorporated by reference to Exhibit 3.1 to Form 8-K filed June 7, 2017).

4.1
   
Indenture, dated as of January 20, 2006, between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) for the issuance of senior debt securities (incorporated by reference to Exhibit 4.3 to Form S-3 filed January 20, 2006).


4.2
   First Supplemental Indenture, dated as of February 13, 2007, between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) for the issuance of senior debt securities (incorporated by reference to Exhibit 4.1 to Form 8-K filed on February 13, 2007).
4.3Third Supplemental Indenture, dated as of October 1, 2009, between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) relating to senior debt securities (incorporated by reference to Exhibit 4.4 to Form 8-K filed on October 7, 2009).
4.4Fourth Supplemental Indenture, dated as of October 16, 2009, between CIT Group Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank N.A.) relating to senior debt securities (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 19, 2009).
4.5Framework Agreement, dated July 11, 2008, among ABN AMRO Bank N.V., as arranger, Madeleine Leasing Limited, as initial borrower, CIT Aerospace International, as initial head lessee, and CIT Group Inc., as guarantor, as amended by the Deed of Amendment, dated July 19, 2010, among The Royal Bank of Scotland N.V. (f/k/a ABN AMRO Bank N.V.), as arranger, Madeleine Leasing Limited, as initial borrower, CIT Aerospace International, as initial head lessee, and CIT Group Inc., as guarantor, as supplemented by Letter Agreement No. 1 of 2010, dated July 19, 2010, among The Royal Bank of Scotland N.V., as arranger, CIT Aerospace International, as head lessee, and CIT Group Inc., as guarantor, as amended and supplemented by the Accession Deed, dated July 21, 2010, among The Royal Bank of Scotland N.V., as arranger, Madeleine Leasing Limited, as original borrower, and Jessica Leasing Limited, as acceding party, as supplemented by Letter Agreement No. 2 of 2010, dated July 29, 2010, among The Royal Bank of Scotland N.V., as arranger, CIT Aerospace International, as head lessee, and CIT Group Inc., as guarantor, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets (incorporated by reference to Exhibit 4.11 to Form 10-K filed March 10, 2011).
4.6Form of All Parties Agreement among CIT Aerospace International, as head lessee, Madeleine Leasing Limited, as borrower and lessor, CIT Group Inc., as guarantor, various financial institutions, as original ECA lenders, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, and CIT Aerospace International, as servicing agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.12 to Form 10-K filed March 10, 2011).

Item 6.  Exhibits  107


Table of Contents

4.7Form of ECA Loan Agreement among Madeleine Leasing Limited, as borrower, various financial institutions, as original ECA lenders, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, and CIT Aerospace International, as servicing agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.13 to Form 10-K filed March 10, 2011).
4.8Form of Aircraft Head Lease between Madeleine Leasing Limited, as lessor, and CIT Aerospace International, as head lessee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.14 to Form 10-K filed March 10, 2011).
4.9Form of Proceeds and Intercreditor Deed among Madeleine Leasing Limited, as borrower and lessor, various financial institutions, ABN AMRO Bank N.V., Paris Branch, as French national agent, ABN AMRO Bank N.V., Niederlassung Deutschland, as German national agent, ABN AMRO Bank N.V., London Branch, as British national agent, ABN AMRO Bank N.V., London Branch, as ECA facility agent, ABN AMRO Bank N.V., London Branch, as security trustee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2008 and 2009 fiscal years (incorporated by reference to Exhibit 4.15 to Form 10-K filed March 10, 2011).
4.10Form of All Parties Agreement among CIT Aerospace International, as head lessee, Jessica Leasing Limited, as borrower and lessor, CIT Group Inc., as guarantor, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, CIT Aerospace International, as servicing agent, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.16 to Form 10-K filed March 10, 2011).
4.11Form of ECA Loan Agreement among Jessica Leasing Limited, as borrower, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.17 to Form 10-K filed March 10, 2011).
4.12Form of Aircraft Head Lease between Jessica Leasing Limited, as lessor, and CIT Aerospace International, as head lessee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.18 to Form 10-K filed March 10, 2011).
4.13Form of Aircraft Head Lease between Jessica Leasing Limited, as lessor, and CIT Aerospace International, as head lessee, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.18 to Form 10-K filed March 10, 2011).
4.14Form of Proceeds and Intercreditor Deed among Jessica Leasing Limited, as borrower and lessor, various financial institutions, as original ECA lenders, Citibank International plc, as French national agent, Citibank International plc, as German national agent, Citibank International plc, as British national agent, The Royal Bank of Scotland N.V., London Branch, as ECA facility agent, The Royal Bank of Scotland N.V., London Branch, as security trustee, and Citibank, N.A., as administrative agent, relating to certain Export Credit Agency sponsored secured financings of aircraft and related assets during the 2010 fiscal year (incorporated by reference to Exhibit 4.19 to Form 10-K filed March 10, 2011).
4.15Indenture, dated as of March 30, 2011, between CIT Group Inc. and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed June 30, 2011).
4.16First Supplemental Indenture, dated as of March 30, 2011, between CIT Group Inc., the Guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (including the Form of 5.250% Note due 2014 and the Form of 6.625% Note due 2018) (incorporated by reference to Exhibit 4.2 to Form 8-K filed June 30, 2011).

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4.17Third Supplemental Indenture, dated as of February 7, 2012, between CIT Group Inc., the Guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (including the Form of Notes) (incorporated by reference to Exhibit 4.4 of Form 8-K dated February 13, 2012).
4.18Registration Rights Agreement, dated as of February 7, 2012, among CIT Group Inc., the Guarantors named therein, and JP Morgan Securities LLC, as representative for the initial purchasers named therein (incorporated by reference to Exhibit 10.1 of Form 8-K dated February 13, 2012).
4.19Indenture, dated as of March 15, 2012, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (incorporated by reference to Exhibit 4.1 of Form 8-K filed March 16, 2012).


4.204.3
   First Supplemental Indenture, dated as of March 15, 2012, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 5.25% Senior Unsecured Note due 2018) (incorporated by reference to Exhibit 4.2 of Form 8-K filed March 16, 2012).
4.21
Second Supplemental Indenture, dated as of May 4, 2012, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 5.000% Senior Unsecured Note due 2017 and the Form of 5.375% Senior Unsecured Note due 2020) (incorporated by reference to Exhibit 4.2 of Form 8-K filed May 4, 2012).


4.224.4
   
Third Supplemental Indenture, dated as of August 3, 2012, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 4.25% Senior Unsecured Note due 2017 and the Form of 5.00% Senior Unsecured Note due 2022) (incorporated by reference to Exhibit 4.2 to Form 8-K filed August 3, 2012).
4.234.5
 
Fourth Supplemental Indenture, dated as of August 1, 2013, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 5.00% Senior Unsecured Note due 2023) (incorporated by reference to Exhibit 4.2 to Form 8-K filed August 1, 2013).


4.244.6
 
Fifth Supplemental Indenture, dated as of February 19, 2014, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 3.875% Senior Unsecured Note due 2019) (incorporated by reference to Exhibit 4.1 to Form 8-K filed February 19, 2014.


4.254.7
 Sixth Supplemental Indenture, dated as of December 23, 2016, among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 5.000% Senior Unsecured Note due 2018) (incorporated by reference to Exhibit 4.1 to Form 8-K filed December 23, 2016).
4.26
Second Amended and Restated Revolving Credit and Guaranty Agreement, dated as of February 17, 2016, as amended by Amendment No. 1 on February 27, 2017 and Amendment No. 2 on February 16, 2018, among CIT Group Inc., certain subsidiaries of CIT Group Inc., as Guarantors, the Lenders party thereto from time to time and Bank of America, N.A., as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 27, 2017)21, 2018).


4.8
Seventh Supplemental Indenture, dated as of March 9, 2018, by and among CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 4.125% Senior Unsecured Notes due 2021 and Form of 5.250% Senior Unsecured Notes due 2025) (incorporated by reference to Exhibit 4.2 to Form 8-K filed March 9, 2018).

4.9
Subordinated Indenture, dated as of March 9, 2018, between CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (incorporated by reference to Exhibit 4.3 to Form 8-K filed March 9, 2018).

4.10
First Supplemental Indenture, dated as of March 9, 2018, between CIT Group Inc., Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, security registrar and authenticating agent (including the Form of 6.125% Subordinated Notes due 2028) (incorporated by reference to Exhibit 4.4 to Form 8-K filed March 9, 2018).

10.1*
 
CIT Group Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 4.15.1 to Form S-8 filed September 27, 2016).


10.2*
 
CIT Group Inc. Supplemental Retirement Plan (As Amended and Restated Effective as of January 1, 2008) (incorporated by reference to Exhibit 10.27 to Form 10-Q filed May 12, 2008).


10.3*
 
CIT Group Inc. Supplemental Savings Plan (As Amended and Restated Effective as of January 1, 2008) (incorporated by reference to Exhibit 10.28 to Form 10-Q filed May 12, 2008).


10.4*
 
New Executive Retirement Plan of CIT Group Inc. (As Amended and Restated as of January 1, 2008) (incorporated by reference to Exhibit 10.29 to Form 10-Q filed May 12, 2008).


Item 6.  Exhibits  109


Table of Contents

10.5*
 Form of CIT Group Inc. Long-term Incentive Plan Stock Option Award Agreement (One Year Vesting) (incorporated by reference to Exhibit 10.35 to Form 10-Q filed August 9, 2010).
10.6*Form of CIT Group Inc. Long-term Incentive Plan Stock Option Award Agreement (Three Year Vesting) (incorporated by reference to Exhibit 10.36 to Form 10-Q filed August 9, 2010).
10.7*
Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Director Award Agreement (Initial Grant) (incorporated by reference to Exhibit 10.39 to Form 10-Q filed August 9, 2010).


10.8*10.6*
 
Form of CIT Group Inc. Long-term Incentive Plan Restricted Stock Unit Director Award Agreement (Annual Grant) (incorporated by reference to Exhibit 10.40 to Form 10-Q filed August 9, 2010).


10.9*10.7**
 Amended and Restated Employment Agreement, dated as of May 7, 2008, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.35 to Form 10-K filed March 2, 2009).
10.10*Amendment to Employment Agreement, dated December 22, 2008, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.37 to Form 10-K filed March 2, 2009).
10.11**Airbus A320 NEO Family Aircraft Purchase Agreement, dated as of July 28, 2011, between Airbus S.A.S. and C.I.T. Leasing Corporation (incorporated by reference to Exhibit 10.35 of Form 10-Q/A filed February 1, 2012).
10.12**
Amended and Restated Confirmation, dated June 28, 2012, between CIT TRS Funding B.V. and Goldman Sachs International, and Credit Support Annex and ISDA Master Agreement and Schedule, each dated October 26, 2011, between CIT TRS Funding B.V. and Goldman Sachs International, evidencing a $625 billion securities based financing facility (incorporated by reference to Exhibit 10.32 to Form 10-Q filed August 9, 2012).


10.13**10.8*
 Fourth Amended and Restated Confirmation, dated December 7, 2016, between CIT Financial Ltd. and Goldman Sachs International, and Amended and Restated ISDA Master Agreement Schedule, dated October 26, 2011 between CIT Financial Ltd. and Goldman Sachs International, evidencing a $1.5 billion securities based financing facility (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 9, 2012).
10.14**ISDA Master Agreement and Credit Support Annex, each dated June 6, 2008, between CIT Financial Ltd. and Goldman Sachs International related to a $1.5 billion securities based financing facility (incorporated by reference to Exhibit 10.34 to Form 10-Q filed August 11, 2008).
10.15*Assignment and Extension of Employment Agreement, dated February 6, 2013, by and among CIT Group Inc., C. Jeffrey Knittel and C.I.T. Leasing Corporation (incorporated by reference to Exhibit 10.34 to Form 10-Q filed November 6, 2013).
10.16*
CIT Employee Severance Plan (Effective as of November 6, 2013) (incorporated by reference to Exhibit 10.37 in Form 10-Q filed November 6, 2013).




CIT GROUP INC. 83

10.17
10.9
   
Stockholders Agreement, by and among CIT Group Inc. and the parties listed on the signature pages thereto, dated as of July 21, 2014 (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 25, 2014).


10.18*10.10*
   Extension to Term of Employment Agreement, dated January 2, 2014, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 6, 2014).
10.19*Amendment to Employment Agreement, dated January 16, 2015, between CIT Group Inc. and C. Jeffrey Knittel (incorporated by reference to Exhibit 10.29 to Form 10-K filed February 20, 2015).
10.20*Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013) (incorporated by reference to Exhibit 10.30 to Form 10-K filed February 20, 2015).
10.21*Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.31 to Form 10-K filed February 20, 2015).
10.22*
Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2014) (incorporated by reference to Exhibit 10.32 to Form 10-K filed February 20, 2015).


10.23*10.11*
   Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (Executives with Employment Agreements) (2014) (incorporated by reference to Exhibit 10.33 to Form 10-K filed February 20, 2015).

110   CIT GROUP INC


Table of Contents

10.24*Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2014) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.3210.35 to Form 10-Q filed August 5,May 7, 2015).


10.25*10.12*
   Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2014) (incorporated by reference to Exhibit 10.33 to Form 10-Q filed August 5, 2015).
10.26*
Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit Provision Performance Measures) (incorporated by reference to Exhibit 10.3410.36 to Form 10-Q filed August 5,May 7, 2015).


10.27*10.13*
   Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit Provision Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.35 to Form 10-Q filed August 5, 2015).
10.28*
Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per Share and Average Pre-Tax Return on Assets Performance Measures) (incorporated by reference to Exhibit 10.3610.38 to Form 10-Q filed August 5,May 7, 2015).


10.29*10.14*
   Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per Share and Average Pre-Tax Return on Assets Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.37 to Form 10-Q filed August 5, 2015).
10.30*
Offer Letter, dated October 27, 2015, between CIT Group Inc. and Ellen R. Alemany, including Attached Exhibits. (incorporated by reference to Exhibit 10.39 to Form 10-Q filed November 13, 2015).


10.3110.15
   
Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2016) (with ROTCE and Credit Provision Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10-3610-42 to Form 10-K filed on MayMarch 16, 2017).


10.3210.16
   Form of CIT Group Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (2016) (with ROTCE and Credit Provision Performance Measures) (incorporated by reference to Exhibit 10-37 to Form 10-K filed on May 16, 2017).
10.33
Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (2016) (with Performance Based Vesting) (incorporated by reference to Exhibit 10-3810-43 to Form 10-K filed on MayMarch 16, 2017).


10.3410.17
   Form of CIT Group Inc. Long-Term Incentive Plan Restricted Stock Unit Award Agreement (2016) (with Performance Based Vesting) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10-39 to Form 10-K filed on May 16, 2017).
10.35
Form of CIT Group Inc. Omnibus Incentive Plan Performance Share Unit Award Agreement (2016) (with ROTCE and Credit Provision Performance Measures) (incorporated by reference to Exhibit 10-4010-45 to Form 10-K filed on MayMarch 16, 2017).


10.3610.18
   
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2016) (incorporated by reference to Exhibit 10-4110-46 to Form 10-K filed on MayMarch 16, 2017).


10.3710.19
   
CIT Employee Severance Plan (As Amended and Restated Effective January 1, 2017) (incorporated by reference to Exhibit 10.40 to Form 10-Q filed November 9, 2016).


10.3810.20
   
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Director Award Agreement (Three Year Vesting) (incorporated by reference to Exhibit 10-4310-48 to Form 10-K filed on MayMarch 16, 2017).


10.3910.21
   
Form of CIT Group Inc. Omnibus Incentive Plan Performance Share Unit Award Agreement (2017) (with ROTCE Performance Measure and TSR Modifier) (filed herein)(incorporated by reference to Exhibit 10.39 to Form 10-Q filed May 8, 2017).


10.4010.22
   
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2017) (incorporated by reference to Exhibit 10.40 to Form 10-Q filed May 8, 2017).


10.23
Form of CIT Group Inc. Omnibus Incentive Plan Performance Share Unit Award Agreement (2018) (filed herein).
10.24
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Award Agreement (with performance Based Vesting) (2018) (filed herein).
12.1   
CIT Group Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges.


31.1 
Certification of Ellen R. Alemany pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Commission, as promulgated pursuant to Section 13(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.


31.2 
Certification of E. Carol HaylesJohn Fawcett pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Commission, as promulgated pursuant to Section 13(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.

Item 6.  Exhibits  111


Table of Contents

32.1*** 
Certification of Ellen R. Alemany pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*** 
Certification of E. Carol HaylesJohn Fawcett pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   
XBRL Instance Document (Includes the following financial information included in the Company’s AnnualQuarterly Report on Form 10-Q for the quarter ended March 31, 2017,2018, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.)


101.SCH   
XBRL Taxonomy Extension Schema Document.


101.CAL   
XBRL Taxonomy Extension Calculation Linkbase Document.


101.LAB   
XBRL Taxonomy Extension Label Linkbase Document.


101.PRE   
XBRL Taxonomy Extension Presentation Linkbase Document.


101.DEF   
XBRL Taxonomy Extension Definition Linkbase Document.


*
*
Indicates a management contract or compensatory plan or arrangement.
**
Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.
***
This information is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any filing under the Securities Act of 1933.

112   CIT GROUP INC

84 Item 6.  Exhibits  


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    
May 8, 20174, 2018CIT GROUP INC.
 
 
 /s/ E. Carol HaylesJohn Fawcett
John Fawcett
Executive Vice President and
Chief Financial Officer
  
E. Carol Hayles
Executive Vice President and Chief Financial Officer
 /s/ Edward K. Sperling
 
Edward K. Sperling
 
Executive Vice President and Controller

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85