CIT GROUP INC.
Founded in 1908, CIT (NYSE: CIT) is a financial holding company with approximately $50 billion in assets as of
Dec. 31, 2017. Its principal bank subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has approxi-
mately $30 billion of deposits and more than $40 billion of assets. CIT provides financing, leasing, and advisory
services principally to middle-market companies and small businesses across a wide variety of industries. It also
offers products and services to consumers through its Internet bank franchise and a network of retail branches in
Southern California, operating as OneWest Bank, a division of CIT Bank, N.A. For more information, visit cit.com.
Annual Report 2017
DEAR CIT
SHAREHOLDERS,
I’m pleased to report that in 2017 we made significant progress
on our strategic plan, which transformed CIT and positioned the
company for further growth and enhanced profitability. Today, CIT
is simpler, stronger and focused on delivering for our customers,
shareholders and communities.
SIMPLER AND STRONGER
The CIT team delivered on a number of initiatives in 2017 to simplify
and strengthen the company, so we could focus on further expand-
ing our core strengths in middle market and small business banking
and consumer deposits.
As part of our simplification and strengthening efforts, we sold or
reached agreement to sell more than $12 billion in assets that were
not strategic to our go-forward business model. We resolved a
number of legacy mortgage issues and reduced operating expenses
by about $85 million.
Ellen R. Alemany
Chairwoman and Chief
Executive Officer, CIT Group
“ Today, CIT is simpler, stronger and focused on delivering for our
customers, shareholders and communities.”
Our financial profile was further strengthened as we reduced our
unsecured debt by $6.9 billion and increased our deposit funding
to 77 percent. We also returned $3.4 billion of capital to share-
holders in 2017.
Additionally, in early 2018 we received a non-objection by our
regulators on our amended capital plan, which will allow us to
increase our return of common equity by $800 million in the first
half of this year.
As a result, we are now a simpler company with a stronger financial
profile poised to drive long-term shareholder value.
Continued on next page
3
Annual Report 2017
POWERING BUSINESSES AND PERSONAL SAVINGS
CIT has deep roots as a leader in financing and leasing for the middle market
and small business. Our industry and product expertise along with our ability
to structure innovative, customized solutions adds to the value proposition
for our business customers and we aim to be the bank to power their goals.
Over the past year we have continued to invest in both our commercial and
consumer segments, and we believe these investments will support our
growth strategy.
In our Commercial Banking segment we added to our team of talented
professionals to better serve customers in key industry verticals such as
aviation financing, material handling, franchise finance and technology.
We also enhanced syndication capabilities to increase fee income and
created the CIT Northbridge Credit joint venture to expand our capacity in
asset-backed lending.
We are a trusted partner in the middle market and by repositioning
toward a more customer-centered approach, our Commercial Finance busi-
ness was able to be the sole lead or left lead lender on 42 transactions in
2017, up 27 percent year-over-year. This strategy also increased our capital
markets fee income.
LOAN AND LEASE
COMPOSITION
61%
Commercial
Loans
21%
Operating
Leases
7%
11%
Consumer
Runoff
Residential
Mortgages
“Over the past year we have continued to invest in both our commercial
and consumer segments, and we believe these investments will support
our growth strategy.”
To further broaden our portfolio of digital offerings, CIT launched a new
platform that enables vendors to finance purchases or leases to businesses
at the point-of-sale. We are proud to have deployed this award-winning
platform with a major technology company this year, and we expect to
expand the usage to other business customers.
On the Consumer Banking front, we continued to expand our national direct
bank and welcomed 31,000 new customers and added 76,000 new deposit
accounts to the CIT Bank franchise in 2017. We launched a new Premier High
Yield Savings Account and took a number of steps to enhance the digital
customer experience. Our direct bank offers compelling savings solutions
to a broad range of customers who are looking for value and ease in their
banking experience.
The investments we have made in our businesses are taking hold, and in the
fourth quarter of 2017 we saw the highest level of new business volume in
more than eight quarters.
FUNDING
COMPOSITION
77%
Deposits
14%
Wholesale
Debt
9%
FHLB
4
Annual Report 2017
EMPOWERING COMMUNITIES
Contributing to the communities where we live, work and do business is an
important part of our culture, and I’m pleased to share more detail on our
efforts in this year’s annual report through a dedicated corporate social
responsibility section.
Whether it is volunteering at a community garden, investing in affordable
housing, advancing financial education or financing renewable energy
projects, we are committed to empowering our communities to thrive.
“We demonstrated steady and consistent progress on our plan and are
building momentum as we advance our goals.”
BUILDING MOMENTUM
2017 was a transformational year for CIT, and we know there are more
achievements ahead. We demonstrated steady and consistent progress on
our plan and are building momentum as we advance our goals. Our busi-
nesses are positioned for growth, our consumer banking franchises are
receiving recognition for our leading products and service, we are achieving
operational efficiency, we are accelerating efforts to normalize capital levels,
and we are focused on improving funding costs.
We entered 2018 simpler, stronger and well-positioned to deliver long-term
shareholder value. We are committed to continue to improve profitability
and have raised the bar on our return on tangible common equity (ROTCE)
target to 11 to 12 percent in the medium term.
Our roadmap remains the five pillars of our strategic plan: maximizing the
potential of our core businesses, enhancing operational efficiency, reducing
funding costs, optimizing the capital structure and maintaining strong risk
management.
The expertise and agility of the CIT team is at the center of our success,
and we each continue to hold an enduring commitment to delivering value
to our customers, shareholders and communities. Thank you for your
investment in CIT.
OUR STRATEGIC
PRIORITIES
Maximize Potential
of Core Businesses
Enhance Operational
Efficiency
Reduce
Funding Costs
Optimize Capital
Structure
Maintain Strong
Risk Management
Ellen R. Alemany
Chairwoman and Chief Executive Officer, CIT Group
5
Annual Report 2017
OUR BUSINESS SEGMENTS
COMMERCIAL BANKING
COMMERCIAL FINANCE
CIT’s Commercial Finance division provides lending, leasing and treasury management services to the middle
market nationwide. The company’s core strength is leading complex transactions that require industry knowledge
and customized solutions to deliver successful results.
Deep, diversified industry expertise and strong market presence enable us
to provide tailored financing solutions. Treasury Management products help
clients improve cash flow management, reduce costs and improve produc-
tivity. Industry focus areas include Aerospace & Defense, Aviation Finance,
Corporate Banking, Communications and Technology, Energy, Entertainment
and Media, Healthcare, Maritime, Retail, Restaurants and Sponsor Finance.
BUSINESS CAPITAL
CIT’s Business Capital division provides equipment financing to small, mid- and large-cap businesses via tech-
nology-enabled platforms and superior structuring expertise. Industry segments served by CIT financing and
leasing products include Office Imaging, Technology, Industrial, Construction, Transportation, Material Handling
and Franchise.
The company’s innovative FlexAbility™ digital platform enables middle market vendors and OEMs to manage
their sales, invoicing, marketing and servicing — all from one comprehensive system. The company also recently
launched a point-of-sale digital platform for vendors to offer financing for business customers seeking to pur-
chase equipment and other products. For small businesses, CIT offers simple online financing and leasing through
its CIT Direct Capital division.
CIT’s Commercial Services unit is one of the nation’s leading providers of credit protection, accounts receivable
management and lending services to consumer product companies. Key clients include consumer products
manufacturers, dealers, importers, and resellers in such industry verticals as apparel, footwear, furniture, home
goods and consumer electronics.
REAL ESTATE FINANCE
CIT’s Real Estate Finance division originates and underwrites senior secured commercial real estate transactions
for single properties, property portfolios and loan portfolios. Real Estate Finance specializes in bridge lending to
reposition properties and in construction lending, with a focus on highly experienced and well-capitalized inves-
tors and developers and a concentration in the Northeast and West Coast. CIT also offers cash management and
capital markets products, including loan syndication and interest rate protection.
RAIL
CIT’s Rail division is an industry leader in providing customized leasing and financing solutions to railroads and
shippers throughout North America, serving customer needs across a wide range of industries, commodities
and geographies. Superior asset management enables the Rail business to support clients with the most
high-capacity railcars in the market today — and one of the youngest and most diverse fleets of railcars and
locomotives in the industry.
6
CONSUMER BANKING 1
CIT BANK
CIT Bank is a nationwide direct bank that offers consumers a simple digital experience
and competitive deposit products to advance their savings strategies. These products
include a range of CDs and high-yield savings accounts. CIT Bank is a division of
CIT Bank, N.A. (CITBank.com)
ONEWEST BANK
OneWest Bank is CIT’s branch bank network that serves the Southern California
community. As one of the largest banks headquartered in Southern California, CIT’s
OneWest Bank has a strong local presence and is dedicated to serving customers One
Person at a Time® with a suite of banking products, including checking and savings
products, consumer mortgages and small business products. In both 2016 and 2017,
OneWest was recognized as the Best Bank in California by MONEY Magazine. OneWest
Bank is a division of CIT Bank, N.A.
LENDING
CIT Bank’s loan specialists help homeowners by offering mortgages to either purchase
a new home or refinance their existing mortgages at competitive fixed or adjustable
rates. CIT also originates mortgage loans indirectly, primarily through a network of
correspondent lenders. CIT’s SBA Lending group specializes in small business financing
by offering SBA 7(a), SBA 504 and Owner-Occupied Commercial Real Estate loans.
1 Reported in other Consumer Banking division.
Annual Report 2017
7
Annual Report 2017
CORPORATE SOCIAL RESPONSIBILITY
CIT takes pride in the work it does to invest in communities, support sustainability and create a thriving
workplace with the highest level of integrity.
In 2017 the company established its corporate social responsibility (CSR) framework and it centers on
Empowerment, Environment and Wellness. This inaugural CSR section of the annual report outlines some
of the efforts that demonstrate how CIT Cares.
EMPOWERING COMMUNITIES
CIT aims to enable financial and personal empowerment through education, access and inclusion.
In addition to having financed 100,000+ small businesses nationwide, CIT also supports financial education
and access to affordable housing programs, primarily in Southern California. Access to information,
programs and capital to drive financial empowerment is an important step in building thriving communities.
6,000 Individuals
Launch + Grow
2,000+ Young People
receiving financial
education through a
partnership with the Cecil
Murray Center at USC
is a small business
empowerment series
developed in partnership
with Operation HOPE
supported with financial
education through Junior
Achievement partnership
in Southern California
$87.5 Million
$375,000
$400,000
committed to develop 7,000
affordable housing units
for small business development
and housing through Templo
Calvario partnership
for down payment assistance
program with city of Los Angeles
A diverse culture of integrity and inclusivity is a priority at CIT and it is present at all levels of the company.
CIT is honored to have a diverse board of directors that brings unique perspectives to the governance of
the company. In 2017 the company was recognized for its gender diversity on the board, with more than 38
percent of directors being women. CIT’s Board is also represented by diverse ethnicities. CIT strives to foster
an inclusive workplace, where many perspectives are respected and the highest ethical standards are upheld.
8
Annual Report 2017
SUPPORTING THE ENVIRONMENT
CIT is focused on supporting sustainability through our business investments and social responsibility efforts. In
2017, CIT provided financing for solar and wind power projects that are capable of generating nearly 1,300
megawatts of electricity with zero greenhouse gas emissions.
In addition, the company launched an interactive social responsibility program called Gratitude & Growth,
which led to more than 18,000 trees being planted in California and Florida, two states where CIT has a
significant footprint.
1,300 Megawatts of solar and wind power projects financed in 2017
8,000+ Megawatts of renewable energy investments in total
18,000 Trees planted through Gratitude & Growth effort
FOSTERING WELLNESS
Fostering a culture of wellness is a long-term investment in employees and communities, and CIT supported
several initiatives to drive health and well-being. Whether it was planting gardens for hunger relief agencies,
supporting cycling fundraisers for cancer research or delivering support for natural disaster relief, CIT aimed
to lend a helping hand.
In addition, the company launched its first-ever Balance and Wellness Month with a series of initiatives to
promote a healthy lifestyle for employees.
600,000 Servings
Balance and Wellness
of vegetables planted for
hunger relief
is a month-long employee program
launched to support wellbeing
18 Pallets of Goods
and $200,000 donated
for hurricane relief
VOLUNTEERISM
The spirit of giving back to communities is present across the company and in 2017 CIT employees
volunteered nearly 10,000 hours on projects nationwide. In June, the company launched a month-long
program called CIT Cares Month, where employees are encouraged to get out in the community and
volunteer their time and talents. This is supported through a paid time off program for volunteerism.
CIT CARES MONTH
Completed
160 Projects
Engaged 1,700
Employees
Volunteered
7,500 Hours
Big or small, every project made a positive difference.
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UNITED STATTT ES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2017
or ¨ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 No.)
11 West 42nd Street, New York, New York
(Address of Registrant's principal executive offices)
ff
10036
(Zip Code)
(212) 461-5200
Registrant's telephone number including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
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 þ 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(check one) Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
At February 14, 2018, there were 130,769,978 shares of CIT's common stock, par value $0.01 per share, outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
The aggregate market value of voting common stock held by non-affiliates
of the registrant, based on the New York Stock Exchange Composite
Transaction closing price of Common Stock ($48.70 per share, 135,075,254 shares of common stock outstanding), which occurred on June 30,
2017, was $6,578,164,870. For purposes of this computation, all officers
ff
determination shall not be deemed an admission that such officers
and directors of the registrant are deemed to be affiliates.
and directors are, in fact, affiliates
of the registrant.
Such
ff
ff
ff
ff
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 þ No ¨
DOCUMENTS INCORPORATEDAA
BY REFERENCE
Portions of the registrant's definitive proxy statement relating to the 2018 Annual Meeting of Stockholders are incorporated by reference into Part
III hereof to the extent described herein.
CIT ANNUAL REPORT 2017 1
CONTENTS
Part One
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part Two
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part Three
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part Four
Item 15.
Signatures
Business Overview
Where You Can Find More Information
Risk Factors
Unresolved Staffff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers
ff
and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
2
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30
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34
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Table of Contents
2 CIT ANNUAL REPORT 2017
PART ONE
Item 1: Business Overview
BUSINESS DESCRIPTION
CIT Group Inc., together with its subsidiaries (collectively "we", "our", "CIT" or the "Company"), is a bank holding company
("BHC") and a financial holding company ("FHC") with $44.8 billion of earning assets at December 31, 2017. CIT was formed in
1908 and provides financing, leasing and advisory services principally to middle-market companies and small businesses in a
wide variety of industries, primarily in North America. CIT also provides banking and related services to commercial and
individual customers through our banking subsidiary, CIT Bank, N.A. ("CIT Bank"), which includes 70 branches located in
Southern California and its online bank, bankoncit.com.
CIT is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Federal Reserve Bank of New York
("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank is regulated by the Officeff
Comptroller of the Currency of the U.S. Department of the Treasury ("OCC").
of the
BUSINESS SEGMENTS
As of December 31, 2017, CIT manages its business and reports its financial results in three operating segments: Commercial
Banking, Consumer Banking, and Non-Strategic Portfolios ("NSP"), and a non-operating segment, Corporate and Other as
reflected in the following table:
SEGMENT NAME
Commercial
Banking
DIVISIONS
Commercial Finance
Rail
Real Estate Finance
Business Capital
Consumer
Banking
Other Consumer Banking
Legacy Consumer
Mortgages ("LCM")
Non-Strategic
Portfolios
Corporate and
Other
MARKETS AND SERVICES
RR
•
•
•
•
•
•
•
Commercial Finance, Real Estate Finance, and Business Capital
provide lending, leasing and other financial and advisory services,
primarily to small and middle-market companies across select
industries.
Business Capital also provides factoring, receivables management
products and secured supply chain financing.
Rail provides equipment leasing and secured financing to railroads and
non-rail companies.
Other Consumer Banking includes a full suite of deposit products,
single family residential (“SFR”) loans, and Small Business
Administration ("SBA") loans.
LCM consists of SFR and reverse mortgage loans, certain of which are
covered by loss sharing agreements with the FDIC.
Consists of equipment finance and secured lending portfolios in select
international geographies that we do not consider strategic.
Includes investments and other unallocated items, such as amortization
of certain intangible assets.
We set underwriting standards for each business and employ portfolio risk management models to achieve desired portfolio
demographics. Our collection and servicing operations are organized by business and geography in order to provide efficient
client interfaces and uniform customer experiences.
ff
Financial information about our segments and our geographic areas of operation are described in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary
Data (Note 25 — Business Segment Information).
COMMERCIAL BANKING
Commercial Banking is comprised of four divisions, Commercial Finance, Rail, Real Estate Finance, and Business Capital.
Commercial Banking provides a range of lending, leasing and deposit products, as well as ancillary products and services,
including factoring, cash management and advisory services, primarily to small and medium-sized companies, as well as to the
rail industry. 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. We source our commercial lending business primarily through direct marketing to borrowers,
lessees, manufacturers, vendors and distributors, and through referral sources and other intermediaries. Periodically we buy
participations in syndications of loans and lines of credit and purchase loans on a whole-loan basis.
Description of Divisions
Commercial Finance provides a range of commercial lending and deposit products, as well as ancillary services, including cash
management and advisory services, primarily to small and middle market companies. Loans offered
are primarily senior secured
loans collateralized by accounts receivable, inventory, machinery and equipment, transportation equipment (shipping vessels
ff
and aircraft) and/or intangibles that are often used for working capital, plant expansion, acquisitions or recapitalizations. These
loans include revolving lines of credit and term loans and, depending on the nature and quality of the collateral, may be referred
to as asset-based loans or cash flow loans. Loans are originated through relationships with private equity sponsors, or through
direct relationships, led by originators with significant experience in their respective industries. We partner in joint ventures and
provide asset management services for which we collect management fees. We provide financing, treasury management and
capital markets products to customers in a wide range of industries, including aerospace & defense, aviation, communication,
energy, entertainment, gaming, healthcare, industrials, maritime, restaurants, retail, services and technology.
CIT ANNUAL REPORT 2017 3
customized leasing and financing solutions and a highly efficient
Rail offers
ff
shippers throughout North America and Europe. We serve over 650 customers, including all of the U.S. and Canadian Class I
railroads (i.e., railroads with annual revenues of at least USD $450 million), other railroads and non-rail companies, such as
shippers and power and energy companies. Our owned operating lease fleet consists of approximately 132,000 railcars, of which
approximately 14,800 are subject to a definitive sale agreement to sell our European rail business. The agreement is subject to
regulatory approvals and is expected to close in the second half of 2018.
fleet of railcars and locomotives to railroads and
ff
Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement; tank
cars for energy products and chemicals; gondolas for coal, steel coil and mill service products; open hopper cars for coal and
aggregates; boxcars for paper and auto parts, and centerbeams and flat cars for lumber. The rail portfolio is discussed further in
the Concentrations section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Real Estate Finance provides senior secured commercial real estate loans to developers and other commercial real estate
professionals. We focus on properties with a stable cash flow, provide financing to reposition existing properties, and originate
construction loans to highly experienced and well capitalized developers. The division also includes a portfolio of acquired multi-
family commercial mortgage loans that is being run off.ff
Business Capital provides leasing and equipment financing to small businesses and middle market companies in a wide range of
industries on both a private label and direct basis. In our direct financing and leasing business, we provide financing solutions for
our borrowers and lessees. Additionally, through our digital small business lending platform in Direct Capital, we provide small
business unsecured loans and equipment financing. In our private label business, we assist manufacturers and distributors in
growing sales, profitability and customer loyalty by providing customized, value-added finance solutions to their commercial
clients. Our lending platform allows small businesses to access commercial loans and leases, including both capital and
operating leases, through a highly automated credit approval, documentation and funding process. In addition, we provide
factoring, receivable management, and secured financing to businesses (our clients, who are generally manufacturers or
importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer
electronics. Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of
goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the factor). Although
primarily U.S.-based, we also conduct business with international clients and their customers.
Key Risks
Key risks faced by the divisions are credit, business and asset risk. Credit risks associated with secured financings relate to the
ability of our borrower to repay our loan and the value of the collateral underlying the loan should our borrower default on its
obligations.
ff
by the overall level of economic activity in CIT's target industries. If demand for CIT's products and services
Business risks relate to the demand for services that is broadly affected
specifically affected
declines, then overall new business activity may decline. Likewise, changes in supply and demand of CIT's products and
services also affect
influenced by CIT's ability to maintain and develop relationships with its equity sponsors, clients, vendor partners, distributors
and resellers. With regard to pricing, the divisions are subject to potential threats from competitor activity, which could negatively
affect
CIT's margins. Commercial Banking is also exposed to business risk related to its syndication activity. Under adverse
market circumstances, CIT would be exposed to risk arising from the inability to sell loans to other lenders, resulting in lower fee
income and higher than expected credit exposure to certain borrowers.
the pricing CIT can earn in the market. Additionally, new business volume in Commercial Banking is
by the overall level of economic growth and is more
ff
ff
ff
The products and services provided by Commercial Services (a unit of Business Capital that provides commercial factoring
services) involve two types of credit risk: customer and client. A client is the counterparty to any factoring, financing, or
receivables purchasing agreement that has been entered into with Commercial Services. A customer is the account debtor and
obligor on trade accounts receivable that have been factored with and assigned to the factor.
The most prevalent risk in factoring transactions for Commercial Services is customer credit risk. Customer credit risk relates to
the inability of a customer to pay undisputed factored trade accounts receivable. While less significant than customer credit
exposure, there is also client credit risk in providing cash advances to factoring clients. Client credit risk relates to a decline in the
creditworthiness of a borrowing client, their inability to repay their loan and the possible insufficiency
(including the aforementioned customer accounts receivable) to cover any loan repayment shortfall. At December 31, 2017,
client credit risk accounted for less than 10% of total Commercial Services credit exposure while customer credit risk accounted
for the remainder.
of the underlying collateral
ff
Commercial Services is also subject to a variety of business risks including operational risk, due to the high volume of
transactions, as well as business risks related to competitive pressures from other banks, boutique factors, and credit insurers
and seasonal risks due to retail trends. These pressures create risk of reduced pricing and factoring volume for CIT. In addition,
client de-factoring can occur if retail credit conditions are benign for a long period and clients no longer require factoring services
for credit protection.
The primary risks for Rail are asset risk (resulting from ownership of the railcars and related equipment on operating lease) and
credit risk. Asset risk arises from fluctuations in supply and demand for the underlying rail equipment that is leased. Rail invests
in long-lived equipment, railcars/locomotives, which have economic useful lives of approximately 40-50 years. This equipment is
then leased to commercial end-users with lease terms of approximately three to five years. CIT is exposed to the risk that, at the
4 CIT ANNUAL REPORT 2017
end of the lease term, the value of the asset will be lower than expected, resulting in reduced future lease income over the
remaining life of the asset or a lower sale value.
Asset risk is generally recognized through changes to lease income streams from fluctuations in lease rates and/or utilization.
Changes to lease income occur when the existing lease contract expires, the asset comes offff lease, and the business seeks to
enter a new lease agreement. Asset risk may also change depreciation, resulting from changes in the residual value of the
operating lease asset or through impairment of the asset carrying value, which can occur at any time during the life of the asset.
Asset risk is primarily related to the Rail division, and to a lesser extent, Business Capital.
Credit risk in the leased equipment portfolio results from the potential default of lessees, possibly driven by obligor specific or
industry-wide conditions, and is economically less significant than asset risk for Rail, because in the operating lease business
there is no extension of credit to the obligor. Instead, the lessor deploys a portion of the useful life of the asset. Credit losses
manifest through multiple parts of the income statement including loss of lease/rental income due to missed payments, time offff
lease, or lower rental payments than the existing contract due to either a restructuring with the existing obligor or re-leasing of
the asset to another obligor, as well as higher expenses due to, for example, repossession costs to recover, refurbish, and re-
lease assets.
See "Concentrations" section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
and Note 21 — Commitments of Item 8. Financial Statements and Supplementary Data for further discussion of our rail portfolio.
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 LCM. We source our consumer lending business primarily through our branch
Periodically we purchase loans on a whole-loan basis.
network, industry referrals, as well as direct digital marketing efforts.
ff
ff
consumer mortgage lending and deposit products to its consumer customers. The division offers
Other Consumer Banking offers
conforming and jumbo residential mortgage loans, primarily in Southern California. Mortgage loans are primarily originated
through CIT Bank branch and retail referrals, employee referrals, internet leads and direct marketing. Additionally, loans are
purchased through whole loan and portfolio acquisitions. Consumer Lending includes product specialists, internal sales support
and origination processing, structuring and closing. Retail banking is the primary deposit gathering business of CIT Bank and
operates through a network of 70 retail branches in Southern California and an online direct channel. We offer
deposit and lending products along with payment solutions to meet the needs of our clients (both individuals and small
businesses), including checking, savings, money market, individual retirement accounts, and certificates of deposit.
a broad range of
ff
ff
The Other Consumer Banking division also originates qualified SBA 504 loans and 7(a) loans. SBA 504 loans generally provide
growing small businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. SBA 7(a) loans
generally provide for purchase/refinance of owner occupied commercial real estate, working capital, acquisition of inventory,
machinery, equipment, furniture, and fixtures, the refinance of outstanding debt subject to any program guidelines, and
acquisition of businesses, including partnership buyouts.
LCM includes portfolios of single family residential mortgages and reverse mortgages, certain of which are covered by loss
sharing agreements with the FDIC that expire between March 2019 and February 2020. Covered Loans in this segment were
previously acquired by OneWest Bank, N.A. in connection with the FDIC-assisted lndyMac, FSB, First Federal and La Jolla
transactions. The FDIC indemnified OneWest Bank, N.A. against certain future losses sustained on these loans. During the third
quarter of 2017, CIT transferred the reverse mortgage loan portfolio to held for sale due to management’s decision to sell the
portfolio, which is serviced by Financial Freedom.
Key Risks
Key risks faced are credit, collateral and geographic concentration risk. Similar to our commercial business, credit risks
associated with secured consumer financings relate to the ability of the borrower to repay its loan and the value of the collateral
underlying the loan should the borrower default on its obligations. Our consumer mortgage loans are typically collateralized by
the underlying property, primarily single family homes. Therefore, collateral risk relates to the potential decline in value of the
property securing the loan. Most of the loans are concentrated in Southern California. Therefore, the related geographic
concentration risk relates to a potential downturn in the economic conditions or a potential natural disaster, such as earthquake
or wildfire, in that region. As discussed in Note 5 — Indemnification Assets of Item 8. Financial Statements and Supplementary
Data, certain indemnifications from the FDIC begin to expire in 2019.
NON-STRATEGIC
AA
PORTFOLIOS
NSP includes businesses and portfolios that we no longer consider strategic. The remaining loans at December 31, 2017, were
in China and reported in assets held for sale.
CORPORATEAA
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.
Item 1: Business Overview
CIT BANK, N.A.
CIT Bank is regulated by the OCC.
CIT ANNUAL REPORT 2017 5
CIT Bank raises deposits through its 70 branch network in Southern California, and from retail and institutional customers
through commercial channels, its online bank (www.bankoncit.com
suite of deposit products includes checking, savings, money market, individual retirement accounts and certificates of deposit.
) and, to a lesser extent, broker channels. CIT Bank's existing
ww
CIT Bank provides lending, leasing and other financial and advisory services, primarily to small and middle-market companies
across select industries through its Commercial Finance, Rail, Real Estate Finance, and Business Capital divisions. The Bank
residential mortgage lending and deposits to its customers through its Other Consumer Banking division.
also offers
ff
CIT Bank's loans and leases are primarily commercial loans, consumer loans and operating lease equipment. CIT Bank's
operating lease portfolio consists primarily of leased railcars and related equipment.
At year-end, CIT Bank remained well capitalized, maintaining capital ratios well above required levels.
DISCONTINUED OPERATIONS
AA
Discontinued operations at December 31, 2017 was comprised of Business Air and Financial Freedom, our reverse mortgage
servicing business. In April 2017, we sold Commercial Air and in October 2017, we announced an agreement to sell Financial
Freedom. Discontinued operations are discussed, along with balance sheet and income statement items, in Note 2 —
Discontinued Operations in Item 8. Financial Statements and Supplementary Data. See also Note 22 — Contingencies for
discussion related to the servicing business.
Key Risks
Key risks faced by the discontinued operations are credit risk (Business Air) and operational risk for Financial Freedom.
Credit risk associated with Business Air loans relates to the ability of borrowers to repay their loans and the Company's ability to
realize the value of the collateral underlying the loan should a borrower default on its obligations.
The mortgage servicing business operates in a highly regulated environment, and is thus subject to extensive regulation by
federal, state and local governmental authorities, including the Consumer Financial Protection Bureau ("CFPB"), Department of
Housing and Urban Development ("HUD"), and various state agencies that license, audit and conduct examinations of our
mortgage servicing, and collection activities.
To the extent that we fail to comply with applicable laws, regulations or licensing requirements and taking into account any
ongoing investigations, there could be additional charges to the financial statements in future periods.
EMPLOYEES
CIT employed 4,167 people at December 31, 2017, which included 258 employees in our discontinued operations. Based upon
the location of the Company's legal entities, as of December 31, 2017, 4,055 were employed in U.S. entities and 112 in non-U.S.
entities.
COMPETITION
We operate in competitive markets. Our competitors include global and domestic commercial banks, regional and community
banks, captive finance companies, leasing companies, business development companies, and other non-bank lenders. In most
of our business segments, we have a few large competitors that have significant market share and many smaller niche
competitors. Many of our competitors have substantial financial, technological, and marketing resources.
Our customer value proposition is primarily based on financing terms, structuring solutions, and client service. From time to time,
due to highly competitive markets, we may (i) lose market share if we are unwilling to match product structure, pricing, or terms
of our competitors that do not meet our credit standards or return requirements or (ii) receive lower returns or incur higher credit
losses if we match our competitors’ product structure, pricing, or terms. Our funding structure puts us at a competitive
disadvantage to other commercial banks due to our higher cost of funds, but we continue to shift our funding to lower-cost
sources, such as deposits. We tend not to compete on price, but rather on industry experience, asset and equipment knowledge,
and customer service.
REGULATION
AA
We are regulated by U.S. federal banking laws, regulations and policies. Such laws and regulations are intended primarily for the
protection of depositors, customers and the federal Deposit Insurance Fund (“DIF”), as well as to minimize risk to the banking
system as a whole, and not for the protection of our shareholders or non-depository creditors. Bank regulatory agencies have
broad examination and enforcement power over bank holding companies (“BHCs”) and their subsidiaries, including the power to
6 CIT ANNUAL REPORT 2017
impose substantial fines, limit dividends and other capital distributions, restrict operations and acquisitions, and require
divestitures. BHCs and banks, as well as subsidiaries of both, are prohibited by law from engaging in practices that the relevant
regulatory authority deems unsafe or unsound. CIT is a BHC, and elected to become a FHC. CIT Bank is chartered as a national
bank by the OCC and is a member bank of the FRB. CIT and CIT Bank are subject to certain limitations on our activities,
transactions with affiliates,
incentive compensation, among other matters. The principal regulator of CIT and its non-bank subsidiaries is the FRB and the
principal regulator of CIT Bank and its subsidiaries is the OCC. Both CIT and CIT Bank are subject to the jurisdiction of the
CFPB.
and payment of dividends, and certain standards for capital and liquidity, safety and soundness, and
ff
Certain of our subsidiaries are subject to the jurisdiction of other domestic and foreign governmental agencies. CIT Capital
Securities LLC is a broker-dealer licensed by the Financial Industry Regulatory Authority (“FINRA”), and is subject to the
jurisdiction of FINRA and the Securities and Exchange Commission ("SEC"). CIT also holds a 15% interest in CIT Group
Securities (Canada) Inc., which is licensed and subject to the jurisdiction of the Ontario Securities Commission. Our insurance
operations are primarily conducted through The Equipment Insurance Company and CIT Insurance Agency, Inc. Each company
is licensed to enter into insurance contracts and is subject to regulation and examination by insurance regulators. In connection
with the disposition of our international platforms, we have surrendered all of our banking licenses outside of the United States.
In 2015, we exceeded the $50 billion threshold that subjects BHCs to enhanced prudential supervision requirements under
Sections 165 and 166 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
regulations issued by the FRB thereunder. Although our assets fell below $50 billion at September 30, 2017, we will continue to
be subject to these regulations unless our assets remain below $50 billion for four consecutive quarters, at least through June
30, 2018. We expect to continue devoting significant additional resources in terms of both increased expenditures and
management time in 2018 to complete the implementation of each of these requirements and ongoing costs thereafter to
continue to comply with these enhanced prudential supervision requirements. See “Enhanced Prudential Standards for Large
Bank Holding Companies” below.
The OCC approved the OneWest Transaction subject to two conditions. First, the OCC required CIT Bank to submit a
comprehensive business plan covering a period of at least three years, including a financial forecast, a capital plan that provides
for maintenance of CIT Bank’s capital, a funding plan and a contingency funding plan, the intended types and volumes of lending
activities, and an action plan to accomplish identified strategic goals and objectives. The Bank must report quarterly to the OCC
and explain any material variances. The Board must review the performance of CIT Bank under the business plan at least
annually and CIT Bank must update the business plan annually.
Second, the OCC required CIT Bank to submit a revised Community Reinvestment Act of 1977 (“CRA”) Plan after the merger,
describing the actions it intended to take to help meet the credit needs in low and moderate income (“LMI”) areas within its
assessment areas, the management structure responsible for implementing the CRA Plan, and the Board committee responsible
for overseeing the Bank’s performance under the CRA Plan. In addition, CIT Bank is required to publish on its public website (i) a
copy of its revised CRA Plan and (ii) a CRA Plan summary report that demonstrates the measurable results of the revised CRA
Plan a month prior to the commencement of CIT Bank’s performance evaluation.
The FRB Order approved the OneWest Transaction subject to CIT committing to meet certain levels of CRA-reportable lending
and CRA Qualified Investments in its assessment areas over 4 years, making annual donations to qualified non-profit
organizations that provide services in its assessment areas, locating 15% of its branches and ATMs in LMI census tracts, and
providing 2,100 hours of CRA volunteer service.
CIT Bank filed its CRA Plan with the OCC in December 2015 and its comprehensive business plan in March 2016. We filed
updated business plans with the OCC in December 2016. The CRA Plan and the comprehensive business plan were each
subject to review and received a non-objection by the OCC.
Banking Supervision and Regulation
Permissible Activities
The BHC Act limits the business of BHCs that are not FHCs to banking, managing or controlling banks, performing servicing
activities for subsidiaries, and engaging in activities that the FRB has determined, by order or regulation, are so closely related to
banking as to be a proper incident thereto. An FHC also may engage in, or acquire and retain the shares of a company engaged
in, activities that are financial in nature or incidental or complementary to activities that are financial in nature as long as the FHC
continues to meet the eligibility requirements for FHCs, including that the FHC and each of its U.S. depository institution
subsidiaries remain “well-capitalized” and “well-managed.”
A depository institution subsidiary is considered “well-capitalized” if it satisfies the requirements discussed below under “Prompt
Corrective Action.” A depository institution subsidiary is considered “well-managed” if it received a composite rating and
management rating of at least “satisfactory” in its most recent examination. If an FHC ceases to be well-capitalized and well-
managed, the FHC must enter into a non-public confidential agreement with the FRB to comply with all applicable capital and
management requirements. Until the FHC returns to compliance, the FRB may impose limitations or conditions on the conduct of
its activities, and the company may not commence any new non-banking financial activities permissible for FHCs or acquire a
company engaged in such financial activities without prior approval of the FRB. If the company does not timely return to
compliance, the FRB may require divestiture of the FHCs depository institutions. BHCs and banks must also be well-capitalized
and well-managed in order to acquire banks located outside their home state. An FHC will also be limited in its ability to
commence non-banking financial activities or acquire a company engaged in such financial activities if any of its insured
depository institution subsidiaries fails to maintain a “satisfactory” rating under the CRA, as described below under “Community
Reinvestment Act.”
Activities that are “financial in nature” include securities underwriting, dealing and market making, advising mutual funds and
investment companies, insurance underwriting and agency, merchant banking, and activities that the FRB, in consultation with
the Secretary of the Treasury, determines to be financial in nature or incidental to such financial activity. “Complementary
activities” are activities that the FRB determines upon application to be complementary to a financial activity and that do not pose
a safety and soundness issue. CIT is primarily engaged in activities that are permissible for a BHC, rather than the expanded
activities available to an FHC.
Item 1: Business Overview
Volcker Rule
CIT ANNUAL REPORT 2017 7
ff
from engaging in proprietary trading and investing in or sponsoring certain
The Dodd-Frank Act limits banks and their affiliates
unregistered investment companies (e.g., hedge funds and private equity funds). This statutory provision is commonly called the
“Volcker
Rule”. Under the final rules adopted by the federal banking agencies, the SEC, and the Commodity Futures Trading
VV
Commission (“CFTC”), banking entities are required to implement an extensive compliance program, including an enhanced
compliance program applicable to banking entities with more than $50 billion in total consolidated assets. The FRB extended the
conformance period for CIT through July 2022 for investments in and relationships with so-called legacy covered funds. The
Volcker Rule has not had a material effect
fund investments. CIT has sold most of its private equity fund investments, but may incur additional costs to dispose of its
remaining fund investments, which have a remaining book value of approximately $1.9 million.
on CIT’s business and activities, as we have a limited amount of trading activities and
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Capital Requirements
In July 2013, the FRB, OCC, and FDIC issued a final rule (the “Basel III Final Rule”) establishing risk-based capital guidelines
that are based upon the final framework for strengthening capital and liquidity regulation (“Basel III”) of the Basel Committee on
Banking Supervision (the “Basel Committee”). The Company, as well as the Bank, became subject to the Basel III Final Rule,
applying the Standardized Approach, effective
applicable to CIT were based upon the 1988 Capital Accord (“Basel I”) of the Basel Committee.
January 1, 2015. Prior to January 1, 2015, the risk-based capital guidelines
ff
The Basel III Final Rule retained the previous capital components of Tier 1 capital, Tier 2 capital, and Total capital (the sum of
Tier 1 and Tier 2 capital) and their related regulatory capital ratios, subject to certain changes, and introduced a new capital
measure called “Common Equity Tier 1” (“CET1”) and a related regulatory capital ratio of CET1 to risk-weighted assets. The
Basel III Final Rule also (i) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting
certain revised requirements; (ii) mandates that most deductions/adjustments to regulatory capital measures be made to CET1
and not to the other components of capital; and (iii) expands the scope of the deductions from and adjustments to capital as
compared to previous regulations. The most common form of Additional Tier 1 capital instruments is non-cumulative perpetual
preferred stock and the most common form of Tier 2 capital instruments is subordinated notes, which are subject to the Basel III
Final Rule specific requirements. The Company has non-cumulative perpetual preferred stock outstanding, but not subordinated
notes.
The Basel III Final Rule provides for a number of deductions from and adjustments to CET1. These include, for example,
that arise from net operating loss and tax credit carry-
goodwill, other intangible assets, and deferred tax assets (“DTAs”)
forwards net of any related valuation allowance. Also, mortgage servicing rights, DTAsTT
arising from temporary differences
could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial institutions
must be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate,
exceed 15% of CET1. The non-DTATT related deductions (goodwill, intangibles, etc.) may be reduced by netting with any
associated deferred tax liabilities (“DTLs”). As for the DTATT deductions, the netting of any remaining DTL must be allocated in
proportion to the DTAsTT
differences.
arising from net operating losses and tax credit carry-forward and those arising from temporary
that
TT
ff
ff
of certain components of accumulated other comprehensive income
In addition, under the Basel III Final Rule, the effects
(“AOCI”) included in shareholders’ equity (for example, mark-to-market of securities held in the available-for-sale (“AFS”)
portfolio) under U.S. GAAP are not excluded in determining regulatory capital ratios; however, non-advanced approaches
banking organizations, including the Company and CIT Bank, may make a one-time permanent election to continue to exclude
the AOCI items excluded under Basel I. Both the Company and CIT Bank have elected to exclude AOCI items from regulatory
capital ratios. The Basel III Final Rule also prohibits including certain hybrid securities, such as trust preferred securities, in Tier 1
capital. The Company did not have any hybrid securities outstanding at December 31, 2017.
ff
Under the Basel III Final Rule, assets and certain off-balance
weighted assets against which regulatory capital is measured. The Basel III Final Rule expanded the risk-weighting categories
for BHCs and banks that follow the Standardized approach from the previous four Basel I-derived categories (0%, 20%, 50% and
100%) to a larger and more risk-sensitive number of categories, depending on the nature of the exposure, ranging from 0% for
U.S. government securities, to as high as 1,250% for such exposures as credit-enhancing interest-only strips or unsettled
security/commodity transactions.
sheet commitments and obligations are converted into risk-
ff
Per the Basel III Final Rule, the minimum capital ratios for CET1, Tier 1 capital, and Total capital are 4.5%, 6.0% and 8.0%. The
Basel III Final Rule introduces a new “capital conservation buffer”,
weighted asset ratios. The capital conservation buffer
institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer
constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. This buffer
ff was
implemented beginning January 1, 2016, at 0.625%, and will increase by 0.625% on each subsequent January 1, until it reaches
2.5% on January 1, 2019. Under the previous Basel I capital guidelines, the Company and CIT Bank were required to maintain
Tier 1 and Total capital equal to at least 4.0% and 8.0%, respectively, of total risk-weighted assets to be considered “adequately
capitalized”, or 6.0% and 10.0%, respectively, to be considered “well capitalized.”
is designed to absorb losses during periods of economic stress. Banking
composed entirely of CET1, on top of these minimum risk-
ff will face
ff
ff
CIT will be required to maintain risk-based capital ratios at January 1, 2019 as follows:
Stated minimum ratios
Capital conservation buffer
Effective
Effective
ff
ff
ff
minimum ratios (fully phased-in)
minimum ratios (as of January 1, 2018)
(fully phased-in)
Minimum Capital Requirements — January 1, 2019
CET 1
4.5%
2.5%
7.0%
6.375%
Tier 1
Capital
6.0%
2.5%
8.5%
7.875%
Total
Capital
8.0%
2.5%
10.5%
9.875%
8 CIT ANNUAL REPORT 2017
As non-advanced approaches banking organizations, the Company and CIT Bank are not subject to the Basel III Final Rule's
countercyclical buffer
or the supplementary leverage ratio.
ff
, on a fully phased in basis as if such requirements were currently effective.
The Company and CIT Bank meet all capital requirements under the Basel III Final Rule, including the capital conservation
buffer
The table in Part 2 Item 7. Management's
ff
Discussion and Analysis of Financial Condition and Results of Operations (Regulatory Capital section) presents CIT's and CIT
Bank's capital ratios as of December 31, 2017, calculated under the fully phased-in Basel III Final Rule — Standardized
approach.
ff
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis
regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the
Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital
requirements for certain "unconditionally cancellable commitments," such as unused credit card and home equity lines of credit)
and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will
generally be effective
U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and
not to the Company or CIT Bank. The impact of Basel IV on the Company and CIT Bank will depend on the manner in which it is
implemented by the federal bank regulators.
on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current
ff
Enhanced Prudential Standards for Large Bank Holding Companies
Under Sections 165 and 166 of the Dodd-Frank Act, the FRB has promulgated regulations imposing enhanced prudential
supervision requirements on BHCs with total consolidated assets of $50 billion or more. CIT continues to be subject to certain of
these requirements, including (i) capital planning and company-run and supervisory stress testing requirements, under the FRB’s
Comprehensive Capital Analysis and Review (“CCAR”) process, (ii) enhanced risk management and risk committee
requirements, (iii) company-run liquidity stress testing and the requirement to hold a buffer
projected funding needs for various time horizons, including 30, 60, and 90 days, (iv) the modified liquidity coverage ratio, which
requires that we hold a sufficient
horizon, (v) recovery and resolution planning (also referred to as the “Living Will”), and (vi) enhanced reporting requirements. We
expect to incur ongoing costs to comply with these enhanced prudential supervision requirements.
level of high quality liquid assets to meet our projected net cash outflows over a 30 day stress
of highly liquid assets based on
ff
ff
Stress Test and Capital Plan Requirements
CIT is subject to capital planning and stress testing requirements as applicable under the FRB’s Regulation Y and Regulation YY,YY
which requires BHCs with greater than $50 billion of total consolidated assets to submit an annual capital plan and demonstrate
that they can meet required capital levels over a nine quarter planning horizon, after taking into account the impact of stresses
based on both supervisory and company-specific scenarios. Beginning with the 2017 CCAR cycle, the FRB no longer evaluates
capital plans submitted by BHCs that have total consolidated assets of at least $50 billion but less than $250 billion and nonbank
assets of less than $75 billion (referred to as “large and noncomplex firms”), such as CIT,TT based on qualitative criteria, although
the FRB may still object to capital plans submitted by large and noncomplex firms on the basis of quantitative criteria. In 2017,
the FRB replaced the CCAR qualitative assessment of large and noncomplex firms with a separate, horizontal review of specific
areas of capital planning to assess the strength of each firm’s capital planning processes, referred to as the Horizontal Capital
Review, which is conducted as part of the normal supervisory process. Each of the BHCs participating in the CCAR process is
also required to collect and report certain related data to the FRB on a quarterly basis to allow the FRB to monitor progress
against the approved capital plans.
In addition to other limitations, our ability to make any capital distribution (including dividends and share repurchases) is
contingent upon the FRB’s non-objection of our capital plan. Should the FRB object to a capital plan, a BHC may not make any
capital distributions other than those capital distributions which the FRB has indicated its non-objection in writing. The results of
our quantitative CCAR review are made public by the FRB each year in accordance with their CCAR schedule.
The enhanced prudential standards under the Dodd-Frank Act also require CIT and CIT Bank to conduct enterprise-wide stress
to assess the impact of stress scenarios on their consolidated earnings, losses, and capital over a nine-quarter
tests (“DFAST”)
planning horizon, taking into account their current and forecasted financial condition, risks, exposures, strategies, and activities.
CIT Bank is required to conduct an annual stress test and CIT must conduct both an annual and a mid-cycle stress test.
FF
Liquidity Requirements
The Basel III final framework 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. The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more
medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon.
On September 3, 2014, the banking regulators adopted a joint final rule implementing a comprehensive version of the LCR to
large and internationally active U.S. banking organizations, which include banks with total consolidated assets of $250 billion or
more or total consolidated on-balance sheet foreign exposure of $10 billion or more, or any depository institution with total
consolidated assets of $10 billion or more that is a consolidated subsidiary of either of the foregoing. These institutions are
required to hold high-quality, liquid assets, such as central bank reserves and government and corporate debt that can be
converted easily and quickly into cash, in an amount equal to or greater than its projected net cash outflows minus its projected
cash inflows capped at 75% of projected cash outflows for a 30-day stress period. The firms must calculate their LCR each
business day.
The final rule applies a modified version of the LCR requirements to bank holding companies such as CIT with total consolidated
assets of greater than $50 billion but less than $250 billion. The modified version of the LCR requirement only requires the LCR
calculation to be performed on the last business day of each month and sets the denominator (that is, the calculation of net cash
outflows) for the modified version at 70% of the denominator as calculated under the most comprehensive version of the rule
Item 1: Business Overview
applicable to larger institutions. As of December 31, 2017, CIT’s LCR was above the minimum requirement as of that date. In
December 2016, the FRB issued a final rule that requires BHCs, such as CIT,TT to disclose publicly, on a quarterly basis,
quantitative and qualitative information about certain components of its LCR, beginning on October 1, 2018 for BHCs subject to
the modified version of the LCR requirement.
CIT ANNUAL REPORT 2017 9
In May 2016, the U.S. bank regulatory agencies issued a proposed rule that would implement the NSFR test called for by the
Basel III final framework for large U.S. banking organizations. Under the proposed rule, CIT would be subject to a modified
NSFR standard which would require it to maintain a NSFR of 0.7 on an ongoing basis, calculated by dividing its available stable
funding (“ASF”) by its required stable funding (“RSF”). Under the proposed rule, a banking organization’s ASF would be
calculated by applying standard weightings to its equity and liabilities based on their expected stability over a one-year period
and its RSF would be calculated by applying specified standardized weightings to its assets, derivative exposures and
commitments based on their liquidity characteristics over the same one-year period. The effective
not been determined. We currently expect that the proposed rule will not have a material impact on our liquidity needs.
date of the proposed rule has
ff
In addition to the LCR and NSFR, the final rules issued by the FRB setting forth enhanced prudential supervision requirements
under Sections 165 and 166 of the Dodd-Frank Act also require BHCs with total consolidated assets of greater than $50 billion
but less than $250 billion, to conduct company-run liquidity stress testing, hold a buffer
stressed funding needs for various time horizons and comply with enhanced reporting requirements (such as collateral and
intraday liquidity monitoring).
of highly liquid assets based on projected
ff
Resolution Planning
BHCs with consolidated assets of $50 billion or more are required to report periodically to regulators a resolution plan for their
rapid and orderly resolution in the event of material financial distress or failure. Such a resolution plan must, among other things,
ensure that its depository institution subsidiaries are adequately protected from risks arising from its other subsidiaries. The final
rule sets specific standards for the resolution plans, including requiring a detailed resolution strategy, a description of the range
of specific actions the company proposes to take in resolution, and an analysis of the company's organizational structure,
material entities, interconnections and interdependencies, and management information systems, among other elements. CIT
submitted its initial resolution plan in December 2016. In August 2017, CIT received a one-year extension on the submission of
its next resolution plan, which is now due by December 31, 2018.
Orderly Liquidation Authority
The Dodd-Frank Act created the Orderly Liquidation Authority ("OLA"), a resolution regime for systemically important non-bank
financial companies, including BHCs and their non-bank affiliates,
under which the FDIC may be appointed receiver to liquidate
such a company upon a determination by the Secretary of the Treasury (Treasury), after consultation with the President, with
support by a supermajority recommendation from the FRB and, depending on the type of entity, the approval of the director of
the Federal Insurance Office,
danger of default, that such default presents a systemic risk to U.S. financial stability, and that the company should be subject to
the OLA process. This resolution authority is similar to the FDIC resolution model for depository institutions, with certain
modifications to reflect differences
between the treatment of creditors' claims under the U.S. Bankruptcy Code and in an orderly liquidation authority proceeding
compared to those that would exist under the resolution model for insured depository institutions.
a supermajority vote of the SEC, or a supermajority vote of the FDIC, that the company is in
between depository institutions and non-bank financial companies and to reduce disparities
ff
ff
ff
An Orderly Liquidation Fund will fund OLA liquidation proceedings through borrowings from the Treasury and risk-based
assessments made, first, on entities that received more in the resolution than they would have received in liquidation to the
extent of such excess, and second, if necessary, on BHCs with total consolidated assets of $50 billion or more, any non-bank
financial company supervised by the FRB, and certain other financial companies with total consolidated assets of $50 billion or
more. If an orderly liquidation is triggered, CIT could face assessments for the Orderly Liquidation Fund. We do not yet have an
indication of the level of such assessments. Furthermore, were CIT to become subject to the OLA, the regime may also require
changes to CIT's structure, organization and funding pursuant to the guidelines described above.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended (“FDICIA”), among other things, establishes
five capital categories for FDIC-insured banks: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The Basel III Final Rule revised the prompt corrective action regulations by
adding a CET1 ratio at each capital category (except critically undercapitalized) and increasing the minimum Tier 1 capital ratio
for each capital category. The following table sets forth the required capital ratios to be deemed “well capitalized” or “adequately
capitalized” under regulations in effect
at December 31, 2017.
ff
Prompt Corrective Action Ratios
— December 31, 2017
CET 1
Tier 1 Capital
Total Capital
Tier 1 Leverage(2)
(1) A "well capitalized" institution also must not be subject to any written agreement, order or directive to meeet and maintain a ssppecific capital
4.5%
6.0%
8.0%
4.0%
level for any capital measure.
(2) As a standardized approach banking organization, CIT Bank is not subject to the 3% supplemental leverage ratio requirement, which
becomes effective January 1, 2018.
Adequately
Capitalized
Well
Capitalized(1)
6.5%
8.0%
10.0%
5.0%
10 CIT ANNUAL REPORT 2017
CIT Bank's capital ratios were all in excess of minimum guidelines for well capitalized at December 31, 2017. Neither CIT nor CIT
Bank is subject to any order or written agreement regarding any capital requirements.
FDICIA requires the applicable federal regulatory authorities to implement systems for prompt corrective action for insured
depository institutions that do not meet minimum requirements. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions as the capital category of an institution declines. Undercapitalized, significantly
undercapitalized and critically undercapitalized depository institutions are required to submit a capital restoration plan to their
primary federal regulator. Although prompt corrective action regulations apply only to depository institutions and not to BHCs, the
holding company must guarantee any such capital restoration plan in certain circumstances. The liability of the parent holding
company under any such guarantee is limited to the lesser of five percent of the bank’s assets at the time it became
“undercapitalized” or the amount needed to comply. The parent holding company might also be liable for civil money damages
for failure to fulfill that guarantee. In the event of the bankruptcy of the parent holding company, such guarantee would take
priority over the parent’s general unsecured creditors.
Regulators take into consideration both risk-based capital ratios and other factors that can affect
including (a) concentrations of credit risk, (b) interest rate risk, and (c) risks from non-traditional activities, along with an
institution's ability to manage those risks, when determining capital adequacy. This evaluation is made during the institution's
safety and soundness examination. An institution may be downgraded to, or deemed to be in, a capital category that is lower
than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory
examination rating with respect to certain matters.
a bank's financial condition,
ff
Acquisitions
Federal and state laws impose notice and approval requirements for mergers and acquisitions involving depository institutions or
BHCs. The BHC Act requires the prior approval of the FRB for (1) the acquisition by a BHC of direct or indirect ownership or
control of more than 5% of any class of voting shares of a bank, savings association, or BHC, (2) the acquisition of all or
substantially all of the assets of any bank or savings association by any subsidiary of a BHC other than a bank, or (3) the merger
or consolidation of any BHC with another BHC. Prior regulatory approval is also generally required for mergers, acquisitions and
consolidations involving other insured depository institutions. In reviewing acquisition and merger applications, the bank
regulatory authorities will consider, among other things, the competitive effect
of the transaction, financial and managerial issues,
including the capital position of the combined organization, convenience and needs factors, including the applicant's CRA record,
the effectiveness
stability of the U.S. banking or financial system. In addition, a FHC must obtain prior approval of the FRB before acquiring certain
non-bank financial companies with assets exceeding $10 billion.
of the subject organizations in combating money laundering activities, and the transaction's effect
on the
ff
ff
ff
Dividends
CIT Group Inc. is a legal entity separate and distinct from CIT Bank and CIT’s other subsidiaries. Most of CIT’s cash inflow is
comprised of interest on intercompany loans to its subsidiaries and dividends from its subsidiaries.
We are limited to paying dividends and repurchasing stock in accordance with our capital plan annually submitted to the FRB
under the capital plan rule. The ability of CIT to pay dividends on common stock may be affected
capital requirements, particularly the capital and non-capital standards established for depository institutions under FDICIA,
which may limit the ability of CIT Bank to pay dividends to CIT. The right of CIT,TT its stockholders, and its creditors to participate in
any distribution of the assets or earnings of its subsidiaries is further subject to prior claims of creditors of CIT Bank and CIT’s
other subsidiaries.
by, among other things, various
ff
OCC regulations limit dividends if the total amount of all dividends (common and preferred) declared in any current year,
including the proposed dividend, exceeds the total net income for the current year to date plus any retained net income for the
prior two years, less the sum of any transfers required by the OCC and any transfers required to fund the retirement of any
preferred stock. If the dividend in either of the prior two years exceeded that year’s net income, the excess shall not reduce the
net income for the three year period described above, provided the amount of excess dividends for either of the prior two years
by retained net income in the current year minus three years or the current year minus four years.
can be offset
ff
It is the policy of the FRB that a BHC generally pay dividends on common stock out of net income available to common
shareholders over the past year, only if the prospective rate of earnings retention appears consistent with capital needs, asset
quality, and overall financial condition, and only if the BHC is not in danger of failing to meet its minimum regulatory capital
adequacy ratios. In the current financial and economic environment, the FRB indicated that BHCs should not maintain high
dividend pay-out ratios unless both asset quality and capital are very strong. A BHC should not maintain a dividend level that
places undue pressure on the capital of bank subsidiaries, or that may undermine the BHC’s ability to serve as a source of
strength to its subsidiary bank.
Source of Strength Doctrine and Support for Subsidiary Banks
FRB policy and federal statute require BHCs such as CIT to serve as a source of strength and to commit capital and other
financial resources to subsidiary banks. This support may be required at times when CIT may not be able to provide such
support without adversely affecting
instead require the divestiture of CIT Bank and impose operating restrictions pending the divestiture. Any capital loans by a BHC
to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of the
subsidiary bank. If a BHC commits to a federal bank regulator that it will maintain the capital of its bank subsidiary, whether in
response to the FRB's invoking its source of strength authority or in response to other regulatory measures, that commitment will
be assumed by the bankruptcy trustee and the bank will be entitled to priority payment in respect of that commitment.
its ability to meet other obligations. If CIT is unable to provide such support, the FRB could
ff
Enforcement Powers of Federal Banking Agencies
The FRB and other U.S. banking agencies have broad enforcement powers with respect to an insured depository institution and
its holding company, including the power to (i) impose cease and desist orders, substantial fines and other civil penalties, (ii)
terminate deposit insurance, and (iii) appoint a conservator or receiver. Failure to comply with applicable laws or regulations
Item 1: Business Overview
could subject CIT or CIT Bank, as well as their officers
and criminal penalties.
ff
and directors, to administrative sanctions and potentially substantial civil
FDIC Deposit Insurance
Deposits of CIT Bank are insured by the DIF up to $250,000 for each depositor. The DIF is funded by fees assessed on insured
depository institutions, including CIT Bank.
CIT ANNUAL REPORT 2017 11
The FDIC uses a two scorecard system, one scorecard for most large institutions with more than $10 billion in assets, such as
CIT Bank, and another scorecard for "highly complex" institutions with over $50 billion in assets that are directly or indirectly
controlled by a U.S. parent with over $500 billion in assets. Each scorecard has a performance score and a loss-severity score
that is combined to produce a total score, which is translated into an initial assessment rate. In calculating these scores, the
FDIC utilizes a bank's capital level and CAMELS ratings (a composite regulatory rating based on Capital adequacy, Asset quality,
Management, Earnings, Liquidity, and Sensitivity to market risk) and certain financial measures designed to assess an
institution's ability to withstand asset-related stress and funding-related stress. The FDIC also has the ability to make
discretionary adjustments to the total score, up or down based upon significant risk factors that are not adequately captured in
the scorecard. The total score translates to an initial base assessment rate on a non-linear, sharply increasing scale. As of July
1, 2016, for large institutions, the initial base assessment rate ranges from three to thirty basis points (0.03% – 0.30%) on an
annualized basis. After the effect
half to forty basis points (0.015% – 0.40%) on an annualized basis.
of potential base rate adjustments, the total base assessment rate could range from one and a
ff
In March 2016, the FDIC adopted a final rule increasing the reserve ratio for the DIF to 1.35% of total insured deposits. The rule
imposed a surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10 billion
or more, such as CIT Bank, beginning the third quarter of 2016 and continuing through the earlier of the quarter that the reserve
ratio first reaches or exceeds 1.35% or December 31, 2018. The FDIC will, at least semi-annually, update its income and loss
projections for the DIF and, if necessary, propose rules to further increase assessment rates. Also, an institution must pay an
additional premium (the depository institution debt adjustment) equal to fifty basis points (0.50%) on every dollar above 3% of an
institution's Tier 1 capital of long-term, unsecured debt held that was issued by another insured depository institution (excluding
debt guaranteed under the Temporary Liquidity Guarantee Program). For the year ended December 31, 2017, CIT Bank's FDIC
deposit insurance assessment, including risk-based premium assessments, totaled $69 million.
Under the Federal Deposit Insurance Act ("FDIA"), the FDIC may terminate deposit insurance upon a finding that the institution
has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
Transactions
rr
with Affiliates
Transactions between CIT Bank and its subsidiaries, and CIT and its other subsidiaries and affiliates,
are regulated pursuant to
Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation W. These laws and regulations limit the types and
amounts of transactions (including loans due and credit extensions from CIT Bank or its subsidiaries to CIT and its other
subsidiaries and affiliates)
that may otherwise take place and generally
CIT Bank or its subsidiaries from CIT and its other subsidiaries and affiliates)
require those transactions to be on an arms-length basis and, in the case of extensions of credit, be secured by specified
amounts and types of collateral. These regulations generally do not apply to transactions between CIT Bank and its subsidiaries.
as well as restrict certain other transactions (such as the purchase of existing loans or other assets by
ff
ff
ff
A revolving credit facility that was originally issued to a customer and financed by CIT,TT was refinanced during 2017 by CIT Bank,
and had an outstanding balance of $9 million at December 31, 2017.
During 2017, CIT Bank invested in an asset-based-lending joint venture and holds a 20% equity investment. CIT Asset
Management LLC, a non-bank subsidiary of CIT,TT acts as an investment advisor and servicer of the loan portfolio. At
December 31, 2017 CIT Bank’s investment was $5 million, with the expectation of additional investment as the joint venture
grows. Management fees are earned by CIT Asset Management LLC on loans under management. CIT Bank maintains sufficient
ff
collateral in the form of cash deposits and pledged loans to cover any extensions of credit to its affiliates.
ff
The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate
organization and changed the procedure for seeking exemptions from these restrictions. For example, the Dodd-Frank Act
expanded the definition of a “covered transaction” to include derivatives transactions and securities lending transactions with a
non-bank affiliate
transactions as well as to certain repurchase and reverse repurchase agreements.
under which a bank (or its subsidiary) has credit exposure. Collateral requirements will apply to such
transactions within a banking
ff
ff
Safety and Soundness Standards
FDICIA requires the federal bank regulatory agencies to prescribe safety and soundness standards, by regulations or guidelines,
as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards
relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate
risk exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by an executive officer
, employee, director or
principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit
a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material
respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency
and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt
corrective action” provisions of the FDIA. See “Prompt Corrective Action” above. If an institution fails to comply with such an
order, the agency may seek to enforce such order in judicial proceedings and to impose civil monetary penalties.
ff
12 CIT ANNUAL REPORT 2017
Insolvency of an Insured Depository Institution
If the FDIC is appointed the conservator or receiver of an insured depository institution, upon its insolvency or in certain other
events, the FDIC has the power:
•
•
•
to transfer any of the depository institution's assets and liabilities to a new obligor without the approval of the depository
institution's creditors;
to enforce the terms of the depository institution's contracts pursuant to their terms; or
to repudiate or disaffirmff
determined by the FDIC to be burdensome and the disaffirmance
promote the orderly administration of the depository institution.
any contract or lease to which the depository institution is a party, the performance of which is
or repudiation of which is determined by the FDIC to
ff
In addition, under federal law, the claims of holders of deposit liabilities, including the claims of the FDIC as the guarantor of
insured depositors, and certain claims for administrative expenses against an insured depository institution would be afforded
priority over other general unsecured claims against such an institution, including claims of debt holders of the institution, in the
liquidation or other resolution of such an institution by any receiver. As a result, whether or not the FDIC ever seeks to repudiate
from, and could receive, if anything, substantially
any debt obligations of CIT Bank, the debt holders would be treated differently
less than CIT Bank's depositors.
ff
ff
Consumer Protection Regulation
Retail banking activities are subject to a variety of statutes and regulations designed to protect consumers. Interest and other
charges collected or contracted for by national banks are subject to federal laws concerning interest rates. Loan operations are
also subject to numerous laws applicable to credit transactions, such as:
•
•
•
•
•
•
•
•
the federal Truth-In-Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;
the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the
public and public officials
of the community it serves;
to determine whether a financial institution is fulfilling its obligation to help meet the housing needs
ff
the Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit;
the Fair Credit Reporting Act and Regulation V, governing the use and provision of information to consumer reporting
agencies;
the Fair Debt Collections Practices Act, governing the manner in which consumer debts may be collected by debt collectors;
the Servicemembers Civil Relief Act, applying to all debts incurred prior to commencement of active military service
(including credit card and other open-end debt) and limiting the amount of interest, including service and renewal charges
and any other fees or charges (other than bona fide insurance) that is related to the obligation or liability, as well as affording
other protections, including with respect to foreclosures; and
ff
the Real Estate Settlement Procedures Act and Regulation X, requiring disclosures regarding the nature and costs of the
real estate settlement process and governing transfers of servicing, escrow accounts, force-placed insurance, and general
servicing policies; and
the guidance of the various federal agencies charged with the responsibility of implementing such laws.
Deposit operations also are subject to consumer protection laws and regulation, such as:
•
•
•
•
the Truth in Savings Act and Regulation DD, which require disclosure of deposit terms to consumers;
Regulation CC, which relates to the availability of deposit funds to consumers;
the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of financial records; and
the Electronic Funds Transfer Act and Regulation E, which governs electronic deposits to and withdrawals from deposit
accounts and customer' rights and liabilities arising from the use of automated teller machines and other electronic banking
services, including remittance transfers.
CIT and CIT Bank are also subject to certain other non-preempted state laws and regulations designed to protect consumers.
Additionally, CIT Bank is subject to a variety of regulatory and contractual obligations imposed by credit owners, insurers and
guarantors of the mortgages we originate and service. This includes, but is not limited to, Fannie Mae, Freddie Mac, Ginnie Mae,
the Federal Housing Finance Agency ("FHFA"),
requirements of the Home Affordable
government programs in which we participate.
and the Federal Housing Administration ("FHA"). We are also subject to the
Modification Program ("HAMP"), Home Affordable
Refinance Program ("HARP") and other
FF
ff
ff
Consumer Financial Protection Bureau Supervision ("CFPB")
The CFPB is authorized to interpret and administer, and to issue orders or guidelines pursuant to, any federal consumer financial
laws, as well as to directly examine and enforce compliance with those laws by depository institutions with assets of $10 billion
Item 1: Business Overview
or more, such as CIT Bank. The CFPB has jurisdiction over CIT,TT CIT Bank, and other subsidiaries with respect to matters that
relate to these laws and consumer financial services and products and periodically conducts examinations.
The CFPB has adopted a number of significant rules that require banks to, among other things: (a) develop and implement
procedures to ensure compliance with a new “ability to repay” requirement and identify whether a loan meets a new definition for
a “qualified mortgage”; (b) implement new or revised disclosures, policies and procedures for servicing mortgages including, but
not limited to, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a
borrower’s principal residence; and (c) comply with additional rules and restrictions regarding mortgage loan originator
compensation and the qualification and registration or licensing of loan originators.
CIT ANNUAL REPORT 2017 13
The CFPB and other federal agencies have also jointly finalized rules imposing credit risk retention requirements on lenders
originating certain mortgage loans, which require sponsors of a securitization to retain at least 5 percent of the credit risk of
assets collateralizing asset-backed securities. Residential mortgage-backed securities qualifying as "qualified residential
mortgages" will be exempt from the risk retention requirements. The final rule maintains revisions to the proposed rules that
cover degrees of flexibility for meeting risk retention requirements and the relationship between "qualified mortgages" and
"qualified residential mortgages." These rules and any other new regulatory requirements promulgated by the CFPB could
require changes to the Company's mortgage origination and servicing businesses, result in increased compliance costs and
affect
the streams of revenue of such businesses.
ff
Over the last few years, the reverse mortgage business has been subject to substantial amendments to federal laws, regulations
and administrative guidance. HUD, through the FHA, amended or clarified both origination and servicing requirements related to
Home Equity Conversion Mortgages ("HECMs") through a series of issuances during 2015 and 2014. These program changes
related to advertising, restrictions on loan provisions, limitations on payment methods, new underwriting requirements, revised
principal limits, revised financial assessment and property charge requirements, and the treatment of non-borrowing spouses.
Community Reinvestment Act
The CRA requires depository institutions like CIT Bank to assist in meeting the credit needs of their market areas consistent with
safe and sound banking practice by, among other things, providing credit to low-and moderate-income individuals and
communities. The CRA does not establish specific lending requirements or programs for depository institutions nor does it limit
an institution's discretion to develop the types of products and services that it believes are best suited to its particular community,
consistent with the CRA. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings,
which are made available to the public. In order for a FHC to commence any new activity permitted by the BHC Act, or to acquire
any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the FHC
must have received a rating of at least "satisfactory" in its most recent examination under the CRA. Furthermore, banking
regulators take into account CRA ratings when considering approval of applications to acquire, merge, or consolidate with
another banking institution or its holding company, to establish a new branch officeff
office,
recent CRA examination by the OCC.
that will accept deposits or to relocate an
and such record may be the basis for denying the application. CIT Bank received a rating of "Satisfactory" on its most
ff
Incentive Compensation
In June 2010, the federal banking agencies issued comprehensive final guidance intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and soundness of such organizations by
encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect
profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's
incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's
ff
ability to effectively
supported by strong corporate governance, including active and effective
These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act discussed
below.
identify and manage risks, (ii) be compatible with effective
oversight by the organization's board of directors.
internal controls and risk management, and (iii) be
the risk
ff
ff
ff
During the second quarter of 2016, the federal banking agencies and the SEC proposed rules on incentive-based payment
arrangements at specified regulated entities having at least $1 billion in total assets (including CIT and CIT Bank). The proposed
rules would establish general qualitative requirements applicable to all covered entities, additional specific requirements for
entities with total consolidated assets of at least $50 billion, and further, more stringent requirements for those with total
consolidated assets of at least $250 billion. The general qualitative requirements include (i) prohibiting incentive arrangements
that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage
inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to
appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating
appropriate record-keeping. For larger financial institutions, including CIT,TT the proposed rules would also introduce additional
requirements applicable only to “senior executive officers”
including (i) limits on performance measures and leverage relating to performance targets; (ii) minimum deferral periods; and (iii)
subjecting incentive compensation to possible downward adjustment, forfeiture and clawback. If the rules are adopted in the form
proposed, they may restrict CIT’s flexibility with respect to the manner in which it structures compensation for its executives.
and “significant risk-takers” (as defined in the proposed rules),
ff
Anti-Money Laundering ("AML") and Economic Sanctions
In the U.S., the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, as amended, imposes significant obligations
on financial institutions, including banks, to detect and deter money laundering and terrorist financing, including requirements to
implement AML programs, verify the identity of customers that maintain accounts, file currency transaction reports, and monitor
and report suspicious activity to appropriate law enforcement or regulatory authorities. Anti-money laundering laws outside the
U.S. contain similar requirements to implement AML programs. The Company has implemented policies, procedures, and
internal controls that are designed to comply with all applicable AML laws and regulations. The Company has also implemented
policies, procedures, and internal controls that are designed to comply with the regulations and economic sanctions programs
which administers and enforces economic and
administered by the U.S. Treasury's Officeff
those engaged in
trade sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers,
of Foreign Assets Control ("OFAC"),
FF
ff
14 CIT ANNUAL REPORT 2017
activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or
economy of the U.S., as well as sanctions based on United Nations and other international mandates.
Anti-corruption
The Company is subject to the Foreign Corrupt Practices Act (“FCPA”),PP
others to give anything of value, either directly or indirectly, to a non-U.S. government official
or otherwise gain an unfair business advantage, such as to obtain or retain business. The Company is also subject to applicable
anti-corruption laws in other jurisdictions in which it may do business, which often prohibit commercial bribery, the receipt of a
bribe, and the failure to prevent bribery by an associated person, in addition to prohibiting improper payments to foreign
government officials.
such laws, rules, and regulations.
The Company has implemented policies, procedures, and internal controls that are designed to comply with
promising, giving, or authorizing
in order to influence official
which prohibits offering,
action
ff
ff
ff
ff
Privacy Provisions and Customer and Client Information
Certain aspects of the Company’s business are subject to legal requirements concerning the use and protection of customer
information, including those adopted pursuant to Gramm-Leach-Bliley Act (“GLBA”) and the Fair and Accurate Credit
Transactions Act of 2003 in the U.S., and various laws in other jurisdictions in which it may do business. Federal banking
regulators, as required under the GLBA, have adopted rules limiting the ability of banks and other financial institutions to disclose
nonpublic information about consumers to nonaffiliated
third parties, requiring disclosure of privacy policies to consumers and, in
some circumstances, allowing consumers to prevent disclosure of certain personal information to nonaffiliated
Federal financial regulators have issued regulations under the Fair and Accurate Credit Transactions Act that have the effect
of
increasing the length of the waiting period, after privacy disclosures are provided to new customers, before information can be
shared among different
companies.
companies for the purpose of cross-selling products and services between those affiliated
third parties.
affiliated
ff
ff
ff
ff
ff
ff
Other Regulations
In addition to U.S. banking regulation, our operations are subject to supervision and regulation by other federal, state, and
various foreign governmental authorities. Additionally, our operations may be subject to various laws and judicial and
administrative decisions. This oversight may serve to:
•
•
•
•
•
•
•
•
regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions;
establish maximum interest rates, finance charges and other charges;
regulate customers' insurance coverages;
require disclosures to customers;
govern secured transactions;
set collection, foreclosure, repossession and claims handling procedures and other trade practices;
prohibit discrimination in the extension of credit and administration of loans; and
regulate the use and reporting of information related to a borrower's credit experience and other data collection.
Our Aerospace, Rail, Maritime, and other equipment financing operations are subject to various laws, rules, and regulations
administered by authorities in jurisdictions where we do business. In the U.S., our equipment financing and leasing operations,
including for aircraft, railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations,
maintenance, and mechanical standards promulgated by various federal and state agencies and industry organizations,
including the U.S. Department of Transportation, the Federal Aviation Administration, the Federal Railroad Administration, the
Association of American Railroads, the Maritime Administration, the U.S. Coast Guard, and the U.S. Environmental Protection
Agency. In addition, state agencies regulate some aspects of rail and maritime operations with respect to health and safety
matters not otherwise preempted by federal law.
Each of CIT's insurance subsidiaries is licensed and regulated in the states in which it conducts insurance business. The extent
of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects and business conduct
of insurers. State laws in the U.S. grant insurance regulatory authorities broad administrative powers with respect to, among
other things: licensing companies and agents to transact business; establishing statutory capital and reserve requirements and
the solvency standards that must be met and maintained; regulating certain premium rates; reviewing and approving policy
forms; regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales
practices, distribution arrangements and payment of inducements; approving changes in control of insurance companies;
restricting the payment of dividends and other transactions between affiliates;
investments. Each insurance subsidiary is required to file reports, generally including detailed annual financial statements, with
insurance regulatory authorities in each of the jurisdictions in which it does business, and its operations and accounts are subject
to periodic examination by such authorities.
and regulating the types, amounts and valuation of
ff
Changes to laws of states and countries in which we do business could affect
unpredictable ways. We cannot accurately predict whether such changes will occur or, if they occur, the ultimate effect
would have upon our financial condition or results of operations.
the operating environment in substantial and
they
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ff
WHERE YOU CAN FIND MORE INFORMATION
AA
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports, as well as our annual Proxy Statements, may be read and copied at the SEC's Public Reference Room at 100 F Street,
NE, Washington D.C. 20549. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-
SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov
the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports, as well as our Proxy Statements.
, on which interested parties can electronically access
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Item 1: Business Overview
CIT ANNUAL REPORT 2017 15
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those
as
reports, as well as our annual Proxy Statements, are available free of charge on the Company's Internet site at www.cit.com
soon as reasonably practicable after such materials are electronically filed or furnished with the SEC. Copies of our Corporate
Governance Guidelines, the Charters of the Audit Committee, the Compensation Committee, the Nominating and Governance
Committee, and the Risk Management Committee, and our Code of Business Conduct are available, free of charge, on our
internet site at www.cit.com/about-us/corporate-governance
CIT Drive, Livingston, NJ 07039 or by telephone at (973) 740-5000. Information contained on our website or that can be
accessed through our website is not incorporated by reference into this Form 10-K, unless we have specifically incorporated it by
reference.
, and printed copies are available by contacting Investor Relations, 1
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GLOSSARYRR OF TERMS
Accretable Yield reflects the excess of cash flows expected to be collected (estimated fair value at acquisition date) over the
recorded investment of Purchase Credit Impaired ("PCI") Loans and Investments and is recognized in interest income using an
effective
variable rate PCI loans, changes in prepayment assumptions and changes in expected principal and interest payments and
collateral values.
yield method over the expected remaining life. The accretable yield is affected
by changes in interest rate indices for
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ff
Assets Held for Sale ("AHFS") include loans and operating lease equipment that we no longer have the intent or ability to hold
until maturity. As applicable, AHFS would also include a component of goodwill associated with portfolios or businesses held for
sale.
vv
Available-for
rr
-sale
they are not considered trading securities, securities carried at fair value, or held-to-maturity securities. AFS securities are
included in investment securities in the balance sheet.
("AFS") is a classification that pertains to debt and equity securities. We classify these securities as AFS when
vv
Earning Assets ("AEA") is computed using month end balances and is the average of Earning Assets. We use this
Average
average for certain key profitability ratios, including return on AEA, Net Finance Revenue as a percentage of AEA (Net Finance
Margin or "NFM") and operating expenses as a percentage of AEA for the respective period.
vv
Average
measure the rate of net charge-offsff
for the respective period.
Loans is computed using month end balances and does not include amounts held for sale. We use this average to
vv
Operating Leases ("AOL") is computed using month end balances and is the average of operating lease equipment,
Average
which does not include amounts held for sale. We use this average to measure the rate of return on our operating lease portfolio
for the respective period.
Common Equity Tier 1 ("CET1"), Tier 1 Capital and Total Capital are regulatory capital measures as defined in the capital
adequacy guidelines issued by the Federal Reserve. CET1 is common stockholders' equity reduced by capital deductions such
as goodwill, intangible assets and DTAsTT
elements of other comprehensive income and other items. Tier 1 Capital is Common Tier 1 Capital plus other additional Tier 1
Capital instruments including, among other things, non-cumulative preferred stock. Total Capital consists of Tier 1 Capital and
Tier 2 Capital, which includes for CIT qualifying allowance for credit losses and other reserves.
that arise from net operating loss and tax credit carry-forwards, and adjusted by
Covered Loans are loans that CIT may be reimbursed for a portion of future losses under the terms of Loss Sharing Agreements
with the FDIC. See Indemnification Assets.
Delinquent Loan categorization occurs when payment is not received when contractually due. Delinquent loan trends are used
as a gauge of potential portfolio degradation or improvement.
Derivative Contract is a contract whose value is derived from a specified asset or an index, such as an interest rate or a foreign
currency exchange rate. As the value of that asset or index changes, so does the value of the derivative contract. We use
derivatives to manage interest rate, foreign currency or credit risks. The derivative contracts we use may include interest-rate
swaps, interest rate caps, cross-currency swaps, foreign exchange forward contracts, and credit default swaps.
Earning Assets is the sum of loans (defined below) less the credit balances of factoring clients, operating lease equipment, net,
AHFS, interest-bearing cash, investment securities and securities purchased under agreements to resell, all as of a specific date.
Economic Value of Equity ("EVE") measures the net impact of hypothetical changes in the value of equity by assessing the
economic value of assets, liabilities and derivatives.
FICO Score is a credit bureau-based industry standard score developed by the Fair Isaac Corporation (currently named FICO)
that predicts the likelihood of borrower default. We use FICO scores in underwriting and assessing risk in our consumer lending
portfolio.
Gross Yield is calculated as finance revenue divided by AEA and derives the revenue yield generated over the respective period.
Indemnification Assets relate to asset purchases completed by OneWest Bank, in which the FDIC indemnified OneWest Bank
prior to its acquisition by CIT against certain future losses in accordance with the Loss Sharing Agreements, as defined below.
Interest income includes interest earned on loans, interest-bearing cash balances, debt investments and dividends on
investments.
16 CIT ANNUAL REPORT 2017
Lease — capital is an agreement in which the party who owns the property (lessor), which is CIT as part of our finance business,
permits another party (lessee), which is our customer, to use the property with substantially all of the economic benefits and risks
of asset ownership passed to the lessee.
Lease — operating is a lease in which CIT retains ownership of the asset (operating lease equipment, net), collects rental
payments, recognizes depreciation on the asset, and retains the risks of ownership, including obsolescence.
Loans include loans, capital lease receivables, factoring receivables and rent receivable on operating lease equipment, and does
not include amounts contained within AHFS.
Loans and Leases include Loans, operating lease equipment, net, and AHFS, all measured as of a specific date.
Loan-to-ValueVV
lending portfolio. LTV at any point in time is the result of the total loan obligations secured by collateral divided by the fair value of
the collateral.
is a calculation of a loan's collateral coverage that is used in underwriting and assessing risk in our
Ratio ("LTV")
LL
Loss Sharing Agreements are agreements in which the FDIC indemnifies OneWest Bank against certain future losses. See
Indemnification Assets defined above. The loss sharing agreements generally require CIT,TT through its acquisition of OneWest
Bank, to obtain FDIC approval prior to transferring or selling loans and related indemnification assets. Eligible losses are
submitted to the FDIC for reimbursement when a qualifying loss event occurs (e.g., charge-offff of loan balance or liquidation of
collateral). Reimbursements approved by the FDIC usually are received within 60 days of submission. Receivables related to
these indemnification assets are referred to as Covered Loans.
Lower of Cost or Fair Value relates to the carrying value of an asset. The cost refers to the current book balance of certain
assets, such as held for sale assets, and if that balance is higher than the fair value, an impairment charge is reflected in the
current period statement of income.
Net Efficiency Ratio is a non-GAAP measure that measures the level of operating expenses to our revenue generation over a
period of time. It is calculated by dividing operating expenses, excluding intangible assets amortization, goodwill impairment, and
restructuring charges, by Total Net Revenue. This calculation may differ
inclusion of operating lease revenue and associated expenses, and the exclusion of the noted items.
from to other financial institutions' ratio due to the
ff
Net Finance Revenue ("NFR") is a non-GAAP measurement defined as Net Interest Revenue (defined below) plus net operating
lease revenue (rental income on operating lease equipment less depreciation on operating lease equipment and maintenance
and other operating lease expenses). When divided by AEA, the product is defined as Net Finance Margin ("NFM"). NFM is a
non-GAAP measurement. These are key measures used by management in the evaluation of the financial performance of our
business. Since average operating lease equipment was 16% of AEA for the year ended December 31, 2017, NFM is a more
appropriate metric for CIT than net interest margin ("NIM") (a common metric used by other BHCs defined as interest income
less interest expense), as NIM does not fully reflect 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 depreciation and maintenance and other operating lease
expenses) from operating lease equipment.
Net Interest Income Sensitivity ("NII Sensitivity") measures the net impact of hypothetical changes in interest rates on forecasted
net interest revenue and rental income from specific items, assuming a static balance sheet over a twelve-month period.
Net Interest Revenue reflects interest and fees on loans, interest on interest-bearing cash, and interest/dividends on investments
less interest expense on deposits and borrowings.
Net Operating Loss Carryforward / Carryback ("NOLs") is a tax concept, whereby tax losses in one year can be used to offset
taxable income in other years. For example, U.S. Federal NOLs generated in tax years beginning before January 1, 2018 can
first be carried-back and applied against taxable income recorded in the two preceding years with any remaining amount being
carried-forward for the next twenty years to offset
beginning January 1, 2018, the utilization of these NOLs is limited to 80% of taxable income. Further, these NOLs may not be
carried-back but may be carried forward indefinitely. The rules pertaining to the number of years allowed for the carryback or
carryforward of an NOL varies by jurisdiction.
future taxable income. For U.S. Federal NOLs generated in tax years
ff
ff
New business volume represents the initial cash outlay related to new loan or lease equipment transactions entered into during
the period. The amount includes CIT's portion of a syndicated transaction, whether it acts as the agent or a participant, and in
certain instances, it includes asset purchases from third parties.
Non-accrual Loans include loans greater than or equal to $500,000 that are individually evaluated and determined to be
impaired, as well as loans less than $500,000 that are delinquent (generally for 90 days or more), unless it is both well secured
and in the process of collection. Non-accrual loans also include loans with revenue recognition on a cash basis because of
deterioration in the financial position of the borrower.
Non-performing Assets include Non-accrual Loans combined with OREO (defined below) and repossessed assets.
Other Non-Interest Income includes (1) fee revenues, including fees on lines of credit, letters of credit, capital market related
fees, agent and advisory fees and servicing fees, (2) factoring commissions (3) gains and losses on asset sales, including
leasing equipment, loans and loan portfolios, investment securities, and OREO, (4) net gains and losses on derivatives and
foreign currency exchange, (5) impairment on assets, and (6) other revenues.
Other Real Estate Owned ("OREO") is a term applied to real estate property owned by a financial institution. OREO are
considered non-performing assets.
Item 1: Business Overview
CIT ANNUAL REPORT 2017 17
PP
reflect accretable and non-accretable components of the fair value adjustments to
Purchase Accounting Adjustments ("PAA")
acquired assets and liabilities assumed in a business combination. Accretable adjustments reflect discounts and premiums to the
acquired assets and liabilities. The accretion or amortization of the discounts and premiums are recognized in the income
statement (interest income, interest expense, non-interest income and operating expenses) over the weighted average life for
pool level and contractual for loan level of the assets or liabilities. The accretable adjustments are recognized using an
applicable methodology, such as the effective
interest method. These primarily relate to interest adjustments on loans, as well as
deposits and borrowings. The PAAAA for the intangible assets is amortized over the respective life of the underlying intangible asset
and recorded in Operating expenses. Non-accretable adjustments, for instance credit related write-downs on loans, become
adjustments to the basis of the asset and flow back through the statement of income only upon the occurrence of certain events,
such as, but not limited to repayment or sale.
ff
Purchase Credit Impaired ("PCI") Loans and PCI Investments are loans and investments that at the time of an acquisition are
considered impaired. These are determined to be impaired as there was evidence of credit deterioration since origination of the
loan and investment and for which it was probable that all contractually due amounts (principal and interest) would not be
collected.
Regulatory Credit Classifications used by CIT are as follows:
•
•
•
•
•
Pass — These assets do not meet the criteria for classification in one of the following categories;
Special Mention — These assets exhibit potential weaknesses that deserve management's close attention and if left
uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects;
Substandard — These assets are inadequately protected by the current sound worth and paying capacity of the borrower,
and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected;
Doubtful — These assets have weaknesses that make collection in full unlikely, based on current facts, conditions, and
values; and
Loss — These assets are considered uncollectible and of little or no value and are generally charged off.ff
Classified assets are rated as substandard, doubtful or loss and range from: (1) assets that exhibit a well-defined weakness and
are inadequately protected by the current sound worth and paying capacity of the borrower, and are characterized by the distinct
possibility that some loss will be sustained if the deficiencies are not corrected to (2) assets with weaknesses that make
collection in full unlikely on the basis of current facts, conditions, and values. Assets in this classification can be accruing or on
non-accrual depending on the evaluation of these factors. Classified loans plus special mention loans are considered criticized
loans.
Residual Values represent the estimated value of equipment at the end of its lease term. For operating lease equipment, it is the
value to which the asset is depreciated at the end of its estimated useful life.
Risk Weighted Assets ("RWA") is the denominator to which CET1, Tier 1 Capital and Total Capital is compared to derive the
respective risk based regulatory ratios. RWAWW is comprised of both on-balance sheet assets and certain off-balance
(for example loan commitments, purchase commitments or derivative contracts). RWAWW items are adjusted by certain risk-
weightings as defined by the regulators, which are based upon, among other things, the relative credit risk of the counterparty.
sheet items
ff
Syndication and Sale of Receivables result from originating loans with the intent to sell a portion, or the entire balance, of these
assets to other institutions. We earn and recognize fees and/or gains on sales, which are reflected in other non-interest income,
for acting as arranger or agent in these transactions.
Tangible Book Value ("TBV") excludes goodwill and intangible assets from common stockholders' equity. We use TBV in
measuring tangible book value per common share as of a specific date.
Total Net Revenue is a non-GAAP measurement and is the sum of NFR and other non-interest income.
Total Return Swap ("TRS") is a swap where one party agrees to pay the other the "total return" of a defined underlying asset
(e.g., a loan), usually in return for receiving a stream of LIBOR-based cash flows. The total returns of the asset, including interest
and any default shortfall, are passed through to the counterparty. The counterparty is therefore assuming the risks and rewards
of the underlying asset.
rr
Troubled
related to the borrower's financial difficulties
ff
that it would not otherwise consider.
Debt Restructuring ("TDR") occurs when a lender, for economic or legal reasons, grants a concession to the borrower
Variable Interest Entity ("VIE") is a corporation, partnership, limited liability company, or any other legal structure used to conduct
activities or hold assets. These entities: lack sufficient
equity investment at risk to permit the entity to finance its activities without
additional subordinated financial support from other parties; have equity owners who either do not have voting rights or lack the
ability to make significant decisions affecting
the entity's operations; and/or have equity owners that do not have an obligation to
absorb the entity's losses or the right to receive the entity's returns.
ff
ff
Yield-related Fees are collected in connection with our assumption of underwriting risk in certain transactions in addition to
interest income. We recognize yield-related fees, which include prepayment fees and certain origination fees, in interest income
over the life of the lending transaction.
18 CIT ANNUAL REPORT 2017
Acronyms
The following is a list of certain acronyms we use throughout this document:
Acronym Definition
Acronym
Definition
AEA
AFS
AHFS
ALCO
ALLL
ALM
AML
AOCI
AOL
ARM
ASC
ASR
ASF
ASU
AVA
BHC
BPS
CCAR
CCC
CCO
CDI
CET1
CFP
CFTC
CFPB
CRA
CRO
CTA
TT
DCF
DFAST
FF
DIF
DPA
PP
DTAsTT
DTLs
ECAP
EMC
EPS
ERC
ERM
EVE
FASB
FCPA
PP
FDIA
FDIC
FDICIA
FHA
FHC
FHLB
FICO
FINRA
FNMA
FRB
FRBNY
FV
GAAP
Average Earnings Assets
Available for Sale
Assets Held for Sale
Asset Liability Committee
Allowance for Loan and Lease Losses
Asset and Liability Management
Anti-money Laundering
Accumulated Other Comprehensive Income
Average Operating Leases
Adjustable Rate Mortgage
Accounting Standards Codification
Accelerated Share Repurchase Program
Available Stable Funding
Accounting Standards Update
Actuarial Valuation Allowance
Bank Holding Company
Basis point(s); 1bp=0.01%
Comprehensive Capital Analysis and Review
Corporate Credit Committee
Chief Credit Officer
ff
Core Deposit Intangibles
Common Equity Tier 1 Capital
Contingency Funding Plan
Commodities Futures Trading Commission
Consumer Financial Protection Bureau
Community Reinvestment Act
Chief Risk Officer
C
Discounted Cash Flows
Dodd-Frank Act Stress Test
Deposit Insurance Fund
D
Deferred Tax Assets
Deferred Tax Liabilities
Enterprise Stress Testing and Economic Capital
Executive Management Committee
Earnings Per Share
urrency Translation Adjustment
eferred Purchase Agreement
ff
GLBA
GSEs
HAMP
HARP
HECM
HELOC
HFI
HTM
HUD
IT
LCM
LCR
LGD
LIHTC
LOCOM
LTV
MBS
MSR
NFM
NFR
NII Sensitivity
NIM
NOLs
NSP
NSFR
OCC
OCI
OFACFF
OLA
OMR
OREO
OTTI
AA
PAA
PB
PCI
PD
PHMSA
Enterprise Risk Committee
Enterprise Risk Management
Economic Value of Equity
Financial Accounting Standards Board
F
oreign Corrupt Practices Act
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation Improvement Act of
1991
Federal Housing Administration
Financial Holding Company
Federal Home Loan Bank
Fair, Isaac Corporation
Financial Industry Regulatory Authority
Federal National Mortgage Association
Board of Governors of the Federal Reserve System
Federal Reserve Bank of New York
Fair Value
Accounting Principles Generally Accepted in the U.S.
PLM
RCC
RMC
RMG
ROA
ROTCE
RSF
WW
RWA
SBA
SEC
SFR
SIFI
TBV
TCE
TDR
TRS
UPB
VIE
Modification Program
Refinance Program
Gramm-Leach-Bliley Act
Government-Sponsored Enterprises
Home Affordable
ff
Home Affordable
ff
Home Equity Conversion Mortgage
Home Equity Lines of Credit
Held for Investment
Held to Maturity
U.S. Department of Housing and Urban
Development
of the Comptroller of the Currency
Information Technology
Legacy Consumer Mortgages
Liquidity Coverage Ratio
Loss Given Default
Low Income Housing Tax Credit
Lower of the Cost or Market Value
Loan-to-ValueVV
Mortgage-Backed Securities
Mortgage Servicing Rights
Net Finance Margin
Net Finance Revenue
Net Interest Income Sensitivity
Net Interest Margin
Net Operating Loss Carry-Forwards
Non-Strategic Portfolios
Net Stable Funding Ratio
Officeff
Other Comprehensive Income
Officeff
of Foreign Asset Control
Orderly Liquidation Authority
Open Market Repurchases (of common stock)
Other Real Estate Owned
Other than Temporary Impairment
urchase Accounting Adjustments
P
Primary Beneficiary
Purchased Credit-Impaired Loans/Securities
Probability of Obligor Default
U.S. Pipeline and Hazardous Materials Safety
Administration
Problem Loan Management
Risk Control Committee
Risk Management Committee
Risk Management Group
Return on Average Earning Assets
Return on Tangible Common Stockholders' Equity
Required Stable Funding
R
isk Weighted Assets
Small Business Administration
Securities and Exchange Commission
Single Family Residential
Systemically Important Financial Institution
Tangible Book Value
Tangible Common Stockholders' Equity
Troubled Debt Restructuring
Total Return Swaps
Unpaid Principal Balance
Variable Interest Entity
Item 1: Business Overview
CIT ANNUAL REPORT 2017 19
Item 1A. Risk Factors
The operation of our business, and the economic and regulatory climate in the U.S. and other regions of the world involve
various elements of risk and uncertainty.yy You should carefully consider the risks and uncertainties described below before
making a decision whether to invest in the Company.yy This is a discussion of the risks that we believe are material to our business
and does not include all risks, material or immaterial, that may possibly affect our business. Any of the following risks, and
additional risks that are presently unknown to us or that we currently deem immaterial, could have a material adverse effect on
our business, financial condition, and results of operations.
Strategic Risks
If the assumptions and analyses underlying our strategy and business plan, including with respect to market
conditions, capital and liquidity,yy business strategy,yy and operations are incorrect, we may be unsuccessful in executing
our strategy and business plan.
ff
ff
our business, including how we allocate our capital and liquidity, our business strategy, our
of operations. We developed our strategy and business plan based upon certain
A number of strategic issues affect
funding models, and the quality and efficiency
assumptions, analyses, and financial forecasts, including with respect to our capital levels, funding model, credit ratings, revenue
growth, earnings, interest margins, expense levels, cash flow, credit losses, liquidity and financing sources, lines of business and
geographic scope, acquisitions and divestitures, equipment residual values, capital expenditures, retention of key employees,
and the overall strength and stability of general economic conditions. Financial forecasts are inherently subject to many
uncertainties and are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the
basis of these financial forecasts will not be accurate. Accordingly, our actual financial condition and results of operations may
differ
implement our strategic initiatives effectively
significant ways. If we are unable to fully implement our business plan and strategy, it may have a material adverse effect
business, results of operations and financial condition.
ff materially from what we have forecast and we may not be able to reach our goals and targets. If we are unable to
, we may need to refine, supplement, or modify our business plan and strategy in
on our
ff
ff
We may not be able to achieve the expected benefits from buying or selling a business or assets, which may have an
adverse effect
on our business or results of operations.
ff
ff
As part of our strategy and business plan, we may consider buying or selling a business or assets in order to manage our
business, the products and services we offer
, our asset levels, credit exposures, or liquidity position. There are a number of risks
inherent in purchase and sale transactions, including the risk that we fail to identify or acquire key businesses or assets, that we
fail to complete a pending transaction, that we fail to sell a business or assets that are considered non-strategic or high risk, that
we overpay for an acquisition or receive inadequate consideration for a disposition, or that we fail to properly integrate an
acquired company or to realize the anticipated benefits from the transaction. We acquired IMB HoldCo LLC and its subsidiary,
OneWest Bank N.A., in 2015 and two businesses, NACCO SAS and Capital Direct Group, in 2014. As we have simplified our
business over the last several years, we sold our Commercial Air business in April 2017 and most of our international financing
and leasing businesses and our student lending and small business lending portfolios from 2014 to 2016. In 2017, we executed
agreements to sell our NACCO SAS rail car leasing business, and our Financial Freedom reverse mortgage servicing business,
including our reverse mortgage portfolio, and certain of our financings in Business Air.
In engaging in business acquisitions, CIT may decide to pay a premium over book and market values to complete the
transaction, which may result in dilution of our tangible book value and net income per common share. If CIT uses substantial
cash or other liquid assets or incurs substantial debt to acquire a business or assets, we could become more susceptible to
economic downturns and competitive pressures.
ff
ff
As a result, CIT may not be able to fully achieve its strategic
in an acquisition. CIT and any target company typically will have different
Integrating the operations of an acquired entity can be difficult.
objectives and planned operating efficiencies
procedures, and processes, including accounting, credit and other risk and reporting policies, and will utilize different
technology systems, which will required significant time, cost, and effort
inherent in an acquisition, including the risk of unknown or contingent liabilities, changes in our credit, liquidity, interest rate or
other risk profiles, potential asset quality issues, potential disruption of our existing business and diversion of management’s time
and attention, possible loss of key employees or customers of the acquired business, and the risk that certain items were not
accounted for properly by the seller in accordance with financial accounting and reporting standards. If we fail to realize the
expected revenue increases, cost savings, increases in geographic or product scope, and/or other projected benefits from an
acquisition, or if we are unable to adequately integrate the acquired business, or experience unexpected costs, changes in our
risk profile, or disruption to our business, it could have an adverse effect
operations.
to integrate. CIT may also be exposed to other risks
on our business, financial condition, and results of
policies,
information
ff
ff
ff
ff
When we sell a business or assets, the agreement between the Company and the buyer typically contains representations and
warranties, including with regard to the conduct of the business, the servicing practices, and compliance with laws and
regulations, among others, and the agreement typically contains certain indemnifications to allocate risks among the parties and
may be subject to certain caps and limitations. CIT may also retain certain pre-closing liabilities, including the cost of legacy and
future litigation matters related to pre-closing actions. The terms of any agreement, including any representations and warranties,
indemnifications or retained liabilities, may subject us to ongoing risks after the sale is completed and could have an adverse
effect
on our business, financial condition, and results of operations.
ff
We may incur losses on loans, securities and other acquired assets that are materially greater than reflected in our fair
value adjustments.
When we account for acquisitions under the purchase method of accounting, we record the acquired assets and liabilities at fair
value. All PCI loans are recorded at fair value based on the present value of their expected cash flows. We estimate cash flows
20 CIT ANNUAL REPORT 2017
using internal credit, interest rate and prepayment risk models using assumptions about matters that are inherently uncertain.
We may not realize the estimated cash flows or fair value of these loans. In addition, although the difference
between the pre-
ff
acquisition carrying value of the credit-impaired loans and their expected cash flows - the “non-accretable difference”
available to absorb future charge-offs,
expense because of subsequent additional deterioration in these loans.
ff we may be required to increase our allowance for loan losses and related provision
- is
ff
Competition from both traditional competitors and new market entrants may adversely affect
profitability,yy and returns.
ff
our market share,
Our markets are highly competitive and are characterized by competitive factors that vary based upon product and geographic
region. We have a wide variety of competitors that include captive and independent finance companies, commercial banks and
thrift institutions, industrial banks, community banks, internet banks, leasing companies, hedge funds, business development
companies, insurance companies, mortgage companies, manufacturers and vendors. Some of our non-bank competitors are not
subject to the same extensive regulation we are and, therefore, may have greater flexibility in competing for business. In
particular, the activity and prominence of so-called marketplace lenders and other technological financial service companies
have grown significantly over recent years and is expected to continue growing.
We compete on the basis of pricing (including the interest rates charged on loans or paid on deposits and the pricing for
equipment leases), product terms and structure, the range of products and services offered,
and the quality of customer service
(including convenience and responsiveness to customer needs and concerns). The ability to access and use technology in the
delivery of products and services to our customers is an increasingly important competitive factor in the financial services
industry, and it is a critically important component to customer satisfaction.
ff
If we are unable to address the competitive pressures that we face, we could lose market share, which could result in reduced
net finance revenue and profitability and lower returns. On the other hand, if we meet those competitive pressures, it is possible
that we could incur significant additional expense, experience lower returns due to compressed net finance revenue, or incur
increased losses due to less rigorous risk standards.
Capital and Liquidity Risks
If we fail to maintain sufficient
adverse effect
ff
ff
on our business, results of operations, and financial condition.
capital or adequate liquidity to meet regulatory capital guidelines, there could be an
The Basel III Final Rule issued by the federal banking agencies requires BHCs and insured depository institutions to maintain
more and higher quality capital than in the past. In addition, the federal banking agencies set minimum liquidity requirements for
large banking organizations, which sets minimum levels of unencumbered high-quality liquid assets. See “Item 1. Business
Overview - Regulation - Banking Supervision and Regulation - Liquidity Requirements.” The enhanced prudential supervision
requirements imposed on large BHCs pursuant to the Dodd-Frank Act also require a buffer
projected stressed funding needs. The new capital standards could require CIT to maintain more and higher quality capital than
previously expected and could limit our business activities (including lending) and our ability to expand organically or through
acquisitions, to diversify our capital structure, or to pay dividends or otherwise return capital to shareholders. The new liquidity
standards could also require CIT to hold higher levels of short-term investments, thereby limiting our ability to invest in longer-
term or less liquid assets at higher yields. If we fail to maintain the appropriate capital levels or adequate liquidity, we could
become subject to a variety of formal or informal enforcement actions, which may include restrictions on our business activities,
including limiting lending and leasing activities, limiting the expansion of our business, either organically or through acquisitions,
requiring the raising of additional capital, which may be dilutive to shareholders, or requiring prior regulatory approval before
taking certain actions, such as payment of dividends or otherwise returning capital to shareholders. If we are unable to meet any
of these capital or liquidity standards, it may have a material adverse effect
condition.
on our business, results of operations and financial
of highly liquid assets based on
ff
ff
Our Revolving Credit Facility also includes terms that require us to comply with regulatory capital requirements and maintain a
Tier 1 regulatory capital ratio of at least 9.0%. If we are unable to satisfy these or any of the other relevant terms of the Revolving
Credit Facility, the lenders could elect to terminate the Revolving Credit Facility and require us to repay outstanding borrowings.
In such event, unless we are able to refinance the indebtedness coming due and replace the Revolving Credit Facility, we may
not have sufficient
operations and financial condition.
liquidity for our business needs, which may have a material adverse effect
on our business, results of
ff
ff
If we fail to maintain adequate liquidity or to generate sufficient
whether due to a downgrade in our credit ratings or for any other reasons, it could adversely affect
operations.
ff
ff
cash flow to satisfy our obligations as they come due,
our future business
CIT’s liquidity is essential for the operation of our business. Our liquidity, and our ability to fund our activities through bank
deposits or by issuing debt in the capital markets, could be affected
ff
capital structure and capital levels, our credit ratings, and the performance of our business. An adverse change in any of those
factors, and particularly a downgrade in our credit ratings, could negatively affect
increase our funding costs, or limit our access to the deposit markets or capital markets. Further, an adverse change in the
performance of our business could have a negative impact on our operating cash flow. CIT’s credit ratings are subject to ongoing
review by the rating agencies, which consider a number of factors, including CIT’s own financial strength, performance,
prospects, and operations, as well as factors not within our control, including conditions affecting
the financial services industry
generally. There can be no assurance that we will maintain or improve our current ratings, which are below investment grade at
the holding company level. If we experience a substantial, unexpected, or prolonged change in the level or cost of liquidity, or fail
to generate sufficient
results of operations.
cash flow to satisfy our obligations, it could materially adversely affect
by a number of factors, including market conditions, our
CIT’s liquidity and competitive position,
our business, financial condition, or
ff
ff
ff
ff
Item 1A: Risk Factors
Our business may be adversely affected
amount of deposits decreases.
ff
if we fail to successfully expand our deposits at CIT Bank or if our aggregate
CIT ANNUAL REPORT 2017 21
ff
a variety of deposit products. However, CIT also must
CIT Bank currently has a branch network with 70 branches, which offer
rely on its online bank to raise additional deposits. Our ability to raise deposits and offer
competitive interest rates on deposits is
dependent on CIT Bank's capital levels, the size of its branch network, the quality and scope of its online banking platform, and
its ability to attract lower cost demand deposits. Federal banking law generally prohibits a bank from accepting, renewing or
rolling over brokered deposits, unless the bank is well-capitalized or it is adequately capitalized and obtains a waiver from the
FDIC. There are also restrictions on interest rates that may be paid by banks that are less than well capitalized, under which
such a bank generally may not pay an interest rate on any deposit of more than 75 basis points over the national rate published
by the FDIC, unless the FDIC determines that the bank is operating in a high-rate area. Continued expansion of CIT Bank's retail
online banking platform to diversify the types of deposits that it accepts may require significant time, effort,
implement. We are likely to face significant competition for deposits from larger BHCs who are similarly seeking larger and more
stable pools of funding. If CIT Bank fails to expand and diversify its deposit-taking capability, or if CIT Bank's aggregate amount
of deposits decreases due to economic uncertainty, a migration of deposits to the largest banks, or for other reasons, it could
have an adverse effect
on our business, results of operations, and financial condition.
and expense to
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We may be restricted from paying dividends or repurchasing our common stock.
CIT is a legal entity separate and distinct from its subsidiaries, including CIT Bank, and relies on dividends from its subsidiaries
for a significant portion of its cash flow. Federal banking laws and regulations limit the amount of dividends that CIT Bank can
pay to CIT. In addition, BHCs with assets in excess of $50 billion must develop and submit to the FRB for review an annual
capital plan detailing their plans for the payment of dividends on their common or preferred stock or the repurchase of common
stock. If our capital plan is not approved or if we do not satisfy applicable capital requirements, our ability to pay dividends or
undertake other capital actions may be restricted. We received a non-objection to our capital plan in June 2017, but we had
received a qualitative objection to our previous capital plan in 2016 and had to submit an amended capital plan. We received a
non-objection to our amended capital plan in February 2018. We will submit our next annual capital plan in April 2018. We cannot
determine whether the FRBNY will object to future capital returns.
Regulatory and Legal Risks
We could be adversely affected
banking organizations.
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by the additional enhanced prudential supervision requirements applicable to large
We exceeded $50 billion in assets at September 30, 2015 and became subject to the FRB’s enhanced prudential standards
applicable to BHCs with total consolidated assets of $50 billion or more. There are a number of regulations that are now
applicable to us that are not applicable to smaller banking organizations, including but not limited to enhanced rules on capital
plans and stress testing, enhanced governance standards, liquidity stress testing and enhanced reporting requirements, and a
requirement to develop a resolution plan. Each of these rules required CIT to dedicate significant time, effort,
and expense during
2016 and 2017 to comply with the enhanced standards and requirements, and we expect to continue dedicating significant time,
and expense during 2018 and thereafter. If we fail to develop at a reasonable cost the systems and processes necessary
effort,
on our
to comply with the enhanced standards and requirements imposed by these rules, it could have a material adverse effect
business, financial condition, or results of operations.
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Our business is subject to significant government regulation and supervision and we could be adversely affected
by
banking or other regulations, including new regulations or changes in existing regulations or the application thereof.
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The financial services industry, in general, is heavily regulated. CIT is subject to the comprehensive, consolidated supervision of
the FRB and CIT Bank is subject to supervision by the OCC, in each case including risk-based and leverage capital
requirements and information reporting requirements. Further, CIT Bank is subject to regulation in certain instances by the FDIC,
due to its insured deposits, and the CFPB. This regulatory oversight is established to protect depositors, consumer borrowers,
federal deposit insurance funds and the banking system as a whole, and is not intended to protect debt and equity security
holders. If we fail to satisfy regulatory requirements applicable to BHCs that have elected to be treated as FHCs, including
maintaining our status as well managed and well capitalized and meeting the supervisory standards set by our banking
regulators, our financial condition and results of operations could be adversely affected,
undertake certain capital actions (such as declaring dividends or repurchasing outstanding shares) or to engage in certain
activities or acquisitions.
and we may be restricted in our ability to
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Proposals for legislation to further regulate, restrict, and tax certain financial services activities are continually being introduced in
the United States Congress and in state legislatures. The Dodd-Frank Act, which was adopted in 2010, constitutes the most
wide-ranging overhaul of financial services regulation in decades, including provisions affecting,
corporate governance and executive compensation standards, (ii) FDIC insurance assessments based on asset levels rather
than deposits, (iii) minimum capital levels for BHCs, (iv) derivatives activities, proprietary trading, and private investment funds
by financial institutions, and (v) the regulation of large financial institutions. In addition, the Dodd-Frank Act established
offered
additional regulatory bodies, including the CFPB, which has broad authority to establish a federal regulatory framework for
consumer financial protection. The agencies regulating the financial services industry periodically issue new regulations and
adopt changes to their existing regulations. In recent years, regulators have increased significantly the level and scope of their
supervision and regulation of the financial services industry. We are unable to predict the form or nature of any future changes to
statutes or regulation, including the interpretation or implementation thereof. Such increased supervision and regulation could
significantly affect
we are permitted to engage, or subject us to stricter and more conservative capital, leverage, liquidity, and risk management
standards. Any such action could have a substantial impact on us, significantly increase our costs, limit our growth opportunities,
affect
business, financial condition and results of operations.
our strategies and business operations and increase our capital requirements, and could have an adverse effect
our ability to conduct certain of our businesses in a cost-effective
manner, restrict the type of activities in which
among other things, (i)
on our
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Our Aviation Lending, Rail, Maritime and other equipment financing operations are subject to various laws, rules, and regulations
administered by authorities in jurisdictions where we do business. In the U.S., our equipment leasing operations, including for
22 CIT ANNUAL REPORT 2017
railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations, maintenance, and
mechanical standards promulgated by various federal and state agencies and industry organizations, including the U.S.
Department of Transportation, the Federal Aviation Administration, the Federal Railroad Administration, the Association of
American Railroads, the Maritime Administration, the U.S. Coast Guard, and the U.S. Environmental Protection Agency. Similar
governmental agencies issue similar rules and regulations in other countries in which we do business. In 2015, the U.S. Pipeline
and Hazardous Materials Safety Administration (“PHMSA”) and Transport Canada (“TC”) each released final rules establishing
enhanced design and performance criteria for tank cars loaded with a flammable liquid and requiring retrofitting of existing tank
cars to meet the enhanced standards within a specified time frame. In addition, the U.S. Congress enacted the Fixing America’s
Surface Transportation Act (“FAST
flammable liquids, added additional design and performance criteria for tank cars in flammable service, and required additional
studies of certain criteria established by PHMSA and TC. In addition, state agencies regulate some aspects of rail and maritime
operations with respect to health and safety matters not otherwise preempted by federal law. Our business operations and our
equipment financing and leasing portfolios may be adversely impacted by rules and regulations promulgated by governmental
and industry agencies, which could require substantial modification, maintenance, or refurbishment of our railcars, ships, or other
equipment, or potentially make such equipment inoperable or obsolete. Violations of these rules and regulations can result in
substantial fines and penalties, including potential limitations on operations or forfeitures of assets.
Act”), which, among other things, expanded the scope of tank cars classified as carrying
FF
We are currently involved in a number of legal proceedings, and may from time to time be involved in government
ff
investigations and inquiries, related to the conduct of our business, the results of which could have an adverse effect
on our business, financial condition, or results of operation.
We are currently involved in a number of legal proceedings, and may from time to time be involved in government and regulatory
investigations and inquiries, relating to matters that arise in connection with the conduct of our business (collectively, "Litigation").
We are also at risk when we have agreed to indemnify others for losses related to Litigation they face, such as in connection with
the sale of a business or assets by us. It is inherently difficult
matters are in their early stages or where the claimants seek indeterminate damages. We cannot state with certainty 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. The actual results from resolving Litigation matters
may involve substantially higher costs and expenses than the amounts reserved or amounts estimated to be reasonably
possible, or judgments may be rendered, or fines or penalties assessed in matters for which we have no reserves or have not
estimated reasonably possible losses. Adverse judgments, fines or penalties in one or more Litigation matters could have a
material adverse effect
to predict the outcome of Litigation matters, particularly when such
on our business, financial condition, or results of operations.
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We could be adversely affected
regulations
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by changes in tax laws and regulations or the interpretations of such laws and
We are subject to the income tax laws of the U.S., its states and municipalities and those of the foreign jurisdictions in which we
do business. These tax laws are complex and may be subject to different
interpretations about the application of these inherently complex tax laws when determining our provision for income taxes, our
deferred tax assets and liabilities, and our valuation allowance. Changes to the tax laws, administrative rulings or court decisions
could increase our provision for income taxes and reduce our net income.
interpretations. We must make judgments and
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These changes could affect
impact is dependent upon the effects
versus our net DTA'sTT
ratios), while the latter is included in RWAWW (the denominator). See "Regulation — Banking Supervision and Regulation — Capital
Requirements" section of Item 1. Business Overview for further discussion regarding the impact of DTA'sTT
our regulatory capital ratios as calculated in accordance with the Basel III Final Rule. The exact
as the former is a deduction from capital (the numerator to the
arising from NOL and tax credit carry-forwards,
related to temporary timing differences,
an amendment has on our net DTA'sTT
on regulatory capital.
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Our investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse
impact on our financial results.
We invest in certain tax-advantaged projects promoting affordable
resources. Our investments in these projects are designed to generate a return primarily through the realization of federal and
state income tax credits, and other tax benefits, over specified time periods. We are subject to the risk that previously recorded
tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the
project level, will fail to meet certain government compliance requirements and will not be able to be realized. The risk of not
being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in
the applicable tax code and the ability of the projects to be completed. If we are unable to realize these tax credits and other tax
benefits, it may have a material adverse effect
housing, community development and renewable energy
on our financial results.
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We service reverse mortgages that were previously originated and securitized through our Financial Freedom business,
and we currently own a portfolio of reverse mortgages, which subjects us to substantial business, operational and legal
risks and could have a material adverse effect
on our business, liquidity,yy financial condition, and results of operations.
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We own mortgage servicing rights through our Financial Freedom business, reported as discontinued operations, related to
reverse mortgages previously originated and securitized, and we currently own a portfolio of reverse mortgages, both of which
are in assets held for sale. The reverse mortgage business is subject to substantial risks, including market, credit, interest rate,
liquidity, operational, reputational and legal risks. A reverse mortgage is a loan available to persons aged 62 or older that allows
homeowners to borrow money against the value of their home. Defaults on reverse mortgages leading to foreclosures may occur
if borrowers fail to meet maintenance obligations, such as payment of taxes or home insurance premiums, or fail to meet
requirements to occupy the premises. An increase in foreclosure rates may increase our cost of servicing. We have been subject
on occasion to negative publicity when defaults on reverse mortgages led to foreclosures or evictions of senior homeowners.
Certain of these reverse mortgage loans are insured and guaranteed by the FHA, which is administered by HUD. FHA
regulations provide that servicers must meet a series of event-specific timeframes during the default, foreclosure, conveyance,
and mortgage insurance claim cycles. The penalty HUD applies for failure to meet the foreclosure timeline is curtailment of
interest from the date of failure (e.g. the date to take the first legal action in the foreclosure process is missed) to the claims
settlement date, which might be months or years after the missed deadline. As a servicer of reverse mortgage loans owned by
Item 1A: Risk Factors
the government-sponsored enterprises ("GSEs"), 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. As the servicer, we may be responsible to HUD for debenture interest that is not self-curtailed or for making the credit
owner whole for any interest curtailed due to not meeting the required event-specific timeframes. If we are required to record
incremental charges for interest curtailment obligations, there may be a material adverse effect
on our results of operations or
financial condition.
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CIT ANNUAL REPORT 2017 23
As a reverse mortgage servicer, we are responsible for funding any payments due to borrowers in a timely manner, remitting to
credit owners interest accrued, paying for interest shortfalls, and funding advances such as taxes and home insurance
premiums. If a borrower is not paying real estate taxes and property insurance premiums, we may be required under servicing
agreements to advance our own funds to pay property taxes, insurance premiums, legal expenses and other protective
advances. We also may be required to advance funds to maintain, repair and market real estate properties. In certain situations,
our contractual obligations may require us to make certain advances for which we may not be reimbursed. In addition, if a
mortgage loan serviced by us defaults or becomes delinquent, the repayment to us of the advance may be delayed until the
mortgage loan is repaid or refinanced or liquidation occurs. If there is a delay in collecting advances or if we receive requests for
advances in excess of amounts we are able to fund, it may adversely affect
advances could adversely affect
our business, financial condition or results of operations.
our liquidity, and a failure to be reimbursed for
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The mortgage industry, including both forward mortgages and reverse mortgages, is largely dependent upon the FHA, HUD and
government-sponsored enterprises, like the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac”). There can be no guarantee that any or all of these entities will continue to participate in
the mortgage industry, including forward mortgages and reverse mortgages, or that they will not make material changes to the
laws, regulations, rules or practices applicable to the mortgage industry. The FHA has issued regulations since January 1, 2013,
governing its reverse mortgage program that impact initial mortgage insurance premiums and principal limit factors, impose
restrictions on the amount of funds that senior borrowers may draw down at closing and during the first 12 months after closing,
and require a financial assessment for all borrowers to ensure that they have the capacity and willingness to meet their financial
obligations and the terms of the reverse mortgage. Similarly, the CFPB has issued new rules for mortgage origination and
mortgage servicing. Both the origination and servicing rules create new private rights of action for consumers against lenders
and servicers in the event of certain violations.
Any material changes to the laws, regulations, rules or practices applicable to our residential mortgage business could have a
material adverse effect
on our overall business and our financial position, results of operations and cash flows.
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Credit and Market Risks
We could be adversely affected
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by the actions and commercial soundness of other financial institutions.
CIT’s ability to engage in routine funding transactions could be adversely affected
other financial institutions. Financial institutions are interrelated as a result of syndications, trading, clearing, counterparty, or
other relationships. CIT has exposure to many different
counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual
funds, private equity funds, and hedge funds, and other institutional clients. Defaults by, or even rumors or questions about, one
market liquidity and could lead to losses or
or more financial institutions, or the financial services industry generally, could affect
defaults by us or by other institutions. Many of these transactions could expose CIT to credit risk in the event of default by its
counterparty or client. In addition, CIT’s credit risk may be impacted if the collateral held by it cannot be realized upon or is
liquidated at prices not sufficient
assurance that any such losses would not adversely affect,
to recover the full amount of the financial instrument exposure due to CIT. There is no
industries and counterparties, and it routinely executes transactions with
by the actions and commercial soundness of
possibly materially, CIT.
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Our Rail business is concentrated by industry and our retail banking business is concentrated geographically,yy and any
downturn in the rail industry or in the geographic area of our retail banking business may have a material adverse effect
on our business.
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Most of our business is diversified by customer, industry, and geography. However, although our Rail business is diversified by
customer and geography, it is concentrated in one industry. If there is a significant downturn in shipping by railcar, it could have a
material adverse effect
on our business and results of operations.
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Our retail banking business is primarily concentrated within our retail branch network, which is located in Southern California.
Although our other businesses are national in scope, these other businesses also have a presence within the Southern California
geographic market. Adverse conditions in the Southern California geographic market, such as inflation, unemployment,
recession, natural disasters, or other factors beyond our control, could impact the ability of borrowers in Southern California to
repay their loans, decrease the value of the collateral securing loans in Southern California, or affect
in Southern California to continue conducting business with us, any of which could have a material adverse effect
business and results of operations.
the ability of our customers
on our
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Our allowance for loan losses may prove inadequate.
The quality of our loans and leases depends on the creditworthiness of our customers and their ability to fulfill their obligations to
us. We maintain a consolidated allowance for loan losses on our loans to provide for loan defaults and non-performance. The
amount of our allowance reflects management's judgment of losses inherent in the portfolio. However, the economic environment
is dynamic, and our portfolio credit quality could decline in the future.
Our allowance for loan losses may not keep pace with changes in the credit-worthiness of our customers or in collateral values.
If the credit quality of our customer base declines, if the risk profile of a market, industry, or group of customers changes
significantly, if we are unable to collect the full amount on accounts receivable taken as collateral, or if the value of equipment,
real estate, or other collateral deteriorates significantly, our allowance for loan losses may prove inadequate, which could have a
material adverse effect
on our business, results of operations, and financial condition.
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In addition to customer credit risk associated with loans and leases, we are exposed to other forms of credit risk, including
counterparties to our derivative transactions, loan sales, syndications and equipment purchases. These counterparties include
24 CIT ANNUAL REPORT 2017
other financial institutions, manufacturers, and our customers. If our credit underwriting processes or credit risk judgments fail to
adequately identify or assess such risks, or if the credit quality of our derivative counterparties, customers, manufacturers, or
other parties with which we conduct business materially deteriorates, we may be exposed to credit risk related losses that may
negatively impact our financial condition, results of operations or cash flows.
We may not be able to realize our entire investment in the equipment we lease to our customers.
Our loans and leases include a significant portion of leased equipment, including but not limited to railcars and locomotives,
technology and officeff
equipment, and medical equipment. The realization of equipment values (residual values) during the life
and at the end of the term of a lease is an important element in the profitability of our leasing business. At the inception of each
lease, we record a residual value for the leased equipment based on our estimate of the future value of the equipment at the end
of the lease term or end of the equipment’s estimated useful life.
If the market value of leased equipment decreases at a rate greater than we projected, whether due to rapid technological or
economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment, recession or other adverse
economic conditions, or other factors, it could adversely affect
the current values or the residual values of such equipment. For
the demand for
example, as the price of or demand for crude oil, coal, or other commodities goes up or down, it may affect
railcars used to ship such commodities and the lease rates for such railcars, which could affect
the residual values of such
railcars. Further, if certain commodities cause more wear and tear on railcars, such as increased corrosion, it may increase
maintenance and repair costs, which could affect
the residual values of such railcars.
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Certain equipment residual values, including railcar and ship residuals, are dependent on the manufacturers’ or vendors’
warranties, reputation, and other factors, including demand and market conditions and liquidity. Residual values for certain
equipment, including rail and medical equipment, may also be affected
changes or additional safety features. For example, new regulations issued by the PHMSA in the U.S. and TC in Canada in
2015, and supplemented by the FAST Act in the U.S., will require us to retrofit a significant portion of our tank cars over the next
several years in order to continue leasing those tank cars for the transport of crude oil. In addition, we may not realize the full
market value of equipment if we are required to sell it to meet liquidity needs or for other reasons outside of the ordinary course
of business. Consequently, there can be no assurance that we will realize our estimated residual values for equipment.
by changes in laws or regulations that mandate design
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The degree of residual realization risk varies by transaction type. Capital leases bear the least risk because contractual
payments usually cover approximately 90% of the equipment's cost at the inception of the lease. Operating leases have a higher
degree of risk because a smaller percentage of the equipment's value is covered by contractual cash flows over the term of the
lease. A significant portion of our leasing portfolios are comprised of operating leases, which increase our residual realization
risk.
Investment in and revenues from our foreign operations are subject to various risks and requirements associated with
transacting business in foreign countries.
Although our business operations in foreign jurisdictions are substantially reduced from prior years, we still conduct limited
business operations in certain jurisdictions and we engage in certain cross border lending and leasing transactions. An economic
recession or downturn, increased competition, or business disruption associated with the political or regulatory environments in
the international markets in which we do business could adversely affect
us.
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In addition, our foreign operations generally conduct business in foreign currencies, which subject us to foreign currency
exchange rate fluctuations. These exposures, if not effectively
international operations and the level of international revenues that we generate from international financing and leasing
transactions. Reported results from our operations in foreign countries may fluctuate from period to period due to exchange rate
movements in relation to the U.S. dollar.
hedged could have a material adverse effect
on our investment in
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Foreign countries have various compliance requirements for financial statement audits and tax filings, which are required in order
to obtain and maintain licenses to transact business and may be different
laws and regulations of the U.S. If we are unable to properly complete and file our statutory audit reports or tax filings, regulators
or tax authorities in the applicable jurisdiction may restrict our ability to do business.
in some respects from GAAP in the U.S. or the tax
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Furthermore, both our domestic and international operations could expose us to trade and economic sanctions or other
restrictions imposed by the United States or other governments or organizations. The U.S. Department of Justice (“DOJ”) and
other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against
corporations and individuals for violations of trade sanction laws, anti-bribery rules under the FCPAPP and other federal statutes.
Under trade sanction and anticorruption laws, the government may seek to impose modifications to business practices, including
cessation of business activities with sanctioned parties or in sanctioned countries, and modifications to compliance programs,
which may increase compliance costs, and may subject us to severe criminal and civil fines, penalties and other sanctions. If any
of the risks described above materialize, it could adversely impact our business, operating results and financial condition.
We may be adversely affected
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by significant changes in interest rates.
We rely on borrowed money from deposits, secured debt, and unsecured debt to fund our business. We derive the bulk of our
income from net finance revenue, which is the difference
interest expense on deposits and other borrowings, depreciation on our operating lease equipment and maintenance and other
operating lease expenses. Prevailing economic conditions, the trade, fiscal, and monetary policies of the federal government and
the policies of various regulatory agencies all affect
significantly affects
institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which,
because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than
financial institutions.
our net finance revenue. Volatility in interest rates can also result in the flow of funds away from financial
market rates of interest and the availability and cost of credit, which in turn
between interest and rental income on our loans and leases and
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Although interest rates are currently lower than historical averages, any significant decrease in market interest rates may result
in a change in net interest margin and net finance revenue. A substantial portion of our loans and other financing products, and a
Item 1A: Risk Factors
CIT ANNUAL REPORT 2017 25
portion of our deposits and other borrowings, bear interest at floating interest rates. If interest rates increase, monthly interest
obligations owed by our customers to us will also increase, as will our own interest expense. Demand for our loans or other
financing products may decrease as interest rates rise or if interest rates are expected to rise in the future. In addition, if
prevailing interest rates increase, some of our customers may not be able to make the increased interest payments or refinance
their balloon and bullet payment transactions, resulting in payment defaults and loan impairments. Conversely, if interest rates
remain low, our interest expense may decrease, but our customers may refinance the loans they have with us at lower interest
rates, or with others, leading to lower revenues. As interest rates rise and fall over time, any significant change in market rates
may result in a decrease in net finance revenue, particularly if the interest rates we pay on our deposits and other borrowings
and the interest rates we charge our customers do not change in unison, which may have a material adverse effect
business, operating results, and financial condition.
on our
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We may be adversely affected
industries, products or geographic areas.
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by deterioration in economic conditions that is general in scope or affects
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specific
Weak economic conditions are likely to have a negative impact on our business and results of operations. Prolonged economic
weakness or other adverse economic or financial developments in the U.S. or global economies in general, or affecting
specific
industries, geographic locations and/or products, would likely adversely impact credit quality as borrowers may fail to meet their
debt payment obligations, particularly customers with highly leveraged loans. Adverse economic conditions have in the past and
could in the future result in declines in collateral values, which also decreases our ability to fund against collateral. This would
result in higher levels of nonperforming loans, net charge-offs,
provision for credit losses, and valuation adjustments on loans
held for sale. The value to us of other assets such as investment securities, most of which are debt securities or other financial
instruments supported by loans, similarly would be negatively impacted by widespread decreases in credit quality resulting from
a weakening of the economy. Accordingly, higher credit and collateral related losses and decreases in the value of financial
instruments could impact our financial position or operating results.
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Aside from a general economic downturn, a downturn in certain industries may result in reduced demand for products that we
finance in that industry or negatively impact collection and asset recovery efforts.
manufacturing customers due to recession may adversely affect
decline in railroad shipping volumes may adversely affect
lessees to make lease payments. Further, a decrease in prices or reduced demand for certain raw materials or bulk products,
such as oil, coal, or steel, may result in a significant decrease in gross revenues and profits of our borrowers and lessees or a
decrease in demand for certain types of equipment for the production, processing and transport of such raw materials or bulk
products, including certain specialized railcars, which may adversely affect
the ability of our customers to make payments on
their loans and leases and the value of our rail assets and other leased equipment.
our rail business, the value of our rail assets, and the ability of our
their ability to repay their loans and leases with us. Similarly, a
Decreased demand for the products of various
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by the economic and other policies adopted by various governmental authorities in the U.S. and other
We are also affected
jurisdictions in reaction to economic conditions. Changes in monetary policies of the FRB and non-U.S. central banking
authorities directly impact our cost of funds for lending, capital raising, and investment activities, and may impact the value of
financial instruments we hold. In addition, such changes may affect
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international monetary policies are beyond our control and difficult
the credit quality of our customers. Changes in domestic and
to predict.
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Operational Risks
Revenue growth from new business initiatives and expense reductions from efficiency
achieved.
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improvements may not be
As part of its ongoing business, CIT from time to time enters into new business initiatives. In addition, CIT from time to time has
targeted certain expense reductions in its business. The new business initiatives may not be successful in increasing revenue,
whether due to significant levels of competition, lack of demand for services, lack of name recognition or a record of prior
performance, or otherwise, or may require higher expenditures than anticipated to generate new business volume. The expense
initiatives may not reduce expenses as much as anticipated, whether due to delays in implementation, higher than expected or
unanticipated costs of implementation, increased costs for new regulatory obligations, or for other reasons. If CIT is unable to
achieve the anticipated revenue growth from its new business initiatives or the projected expense reductions from efficiency
improvements, its results of operations and profitability may be adversely affected.
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If we fail to maintain adequate internal control over financial reporting, it could result in a material misstatement of the
Company's annual or interim financial statements.
Management of CIT is responsible for establishing and maintaining adequate internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP. As of December 31, 2016, CIT identified two material weaknesses in our internal
controls related to Information Technology General Controls ("ITGCs") and in the Financial Freedom reverse mortgage servicing
business related to the Home Equity Conversion Mortgages (HECM) Interest Curtailment Reserve. As of December 31, 2017,
the Company remediated each of the material weaknesses as disclosed in Item 9A. Controls and Procedures. However, if we
identify additional material weaknesses or other deficiencies in our internal controls, or if material weaknesses or other
deficiencies exist that we fail to identify, our risk will be increased that a material misstatement to our annual or interim financial
statements will not be prevented or detected on a timely basis. Any such potential material misstatement, if not prevented or
detected, could require us to restate previously released financial statements and could otherwise have a material adverse effect
on our business, results of operations, and financial condition.
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26 CIT ANNUAL REPORT 2017
Changes in accounting standards or interpretations could materially impact our reported earnings and financial
condition.
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842), effective
The FASB, the SEC and other regulatory agencies periodically change the financial accounting and reporting standards that
govern the preparation of CIT's consolidated financial statements. These changes can be hard to predict and can materially
impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply
a new or revised standard retroactively, potentially resulting in changes to previously reported financial results, or a cumulative
charge to retained earnings. For example, we are currently reviewing new guidance on lease accounting (ASU 2016-02 Leases
(Topic
TT
assets, on their balance sheets, and may prompt certain of our leasing customers to reconsider whether to lease equipment for
their business or to purchase it outright using the proceeds of a loan, and may have an adverse effect
on our leasing business.
We are also reviewing new guidance on the measurement of credit losses (ASU 2016-13, Financial Instruments - Credit Losses
(Topic
January 1, 2020), which introduces a forward-
TT
looking “expected loss” model to estimate credit losses to cover the expected life of the portfolio, rather than the incurred loss
model under current U.S. GAAP,P and will likely result in an increase in our allowance for loan and lease losses upon adoption.
January 1, 2019), which will require lessees to recognize lease liabilities, and corresponding right of use
326): Measurement of Credit Losses on Financial Instruments, effective
ff
ff
If the models that we use in our business are poorly designed, our business or results of operations may be adversely
affected.
ff
We rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes
as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market
risks, predicting losses, assessing capital adequacy, and calculating regulatory capital levels, as well as to estimate the value of
financial instruments and balance sheet items. Poorly designed or implemented models present the risk that our business
decisions based on information incorporating models will be adversely affected
information we provide to the public or to our regulators based on poorly designed or implemented models could be inaccurate or
misleading. Some of the decisions that our regulators make, including those related to capital distributions to our shareholders,
could be affected
ff
insufficient.
adversely if their perception is that the quality of the models used to generate the relevant information is
due to the inadequacy of that information. Also,
ff
ff
It could adversely affect
ff
our business if we fail to retain and/or attract skilled employees.
ff
and management, financial, compliance, technical, marketing, sales, and support employees. Competition for
Our business and results of operations will depend in part upon our ability to retain and attract highly skilled and qualified
executive officers
qualified executive officers
and employees can be challenging, and CIT cannot ensure success in attracting or retaining such
individuals. This competition can lead to increased expenses in many areas. If we fail to attract and retain qualified executive
our ability to compete and it could have a material adverse effect
officers
our ability to successfully operate our business or to meet our operations, risk management, compliance, regulatory, funding and
financial reporting requirements.
and employees, it could materially adversely affect
on
ff
ff
ff
ff
In the second quarter of 2016, the FRB, other federal banking agencies and the SEC jointly published proposed rules designed
to implement provisions of the Dodd-Frank Act prohibiting incentive compensation arrangements that would encourage
inappropriate risk taking at covered financial institutions, which include a bank or BHC with $1 billion or more of assets, such as
CIT and CIT Bank. Although the proposed rules include more stringent requirements, particularly for larger institutions, it cannot
be determined at this time whether or when a final rule will be adopted. Compliance with such a final rule may substantially affect
the manner in which we structure compensation for our executives and other employees. Depending on the nature and
application of the final rules, we may not be able to successfully compete with certain financial institutions and other companies
that are not subject to some or all of the rules to retain and attract executives and other high performing employees. If this were
to occur, our business, financial condition and results of operations could be adversely affected.
ff
ff
We and our subsidiaries are party to various financing arrangements, commercial contracts and other arrangements
that under certain circumstances give, or in some cases may give, the counterparty the ability to exercise rights and
remedies under such arrangements which, if exercised, may have material adverse consequences.
We and our subsidiaries are party to various financing arrangements, commercial contracts and other arrangements, such as
securitization transactions, derivatives transactions, funding facilities, and agreements to purchase or sell loans, leases or other
assets, that give, or in some cases may give, the counterparty the ability to exercise rights and remedies upon the occurrence of
certain events. Such events may include a material adverse effect
or material adverse change (or similar event), a breach of
ff
representations or warranties, a failure to disclose material information, a breach of covenants, certain insolvency events, a
default under certain specified other obligations, or a failure to comply with certain financial covenants. The counterparty could
have the ability, depending on the arrangement, to, among other things, require early repayment of amounts owed by us or our
subsidiaries and in some cases payment of penalty amounts, or require the repurchase of assets previously sold to the
counterparty. Additionally, a default under financing arrangements or derivatives transactions that exceed a certain size threshold
in the aggregate may also cause a cross-default under instruments governing our other financing arrangements or derivatives
transactions. If the ability of any counterparty to exercise such rights and remedies is triggered and we are unsuccessful in
avoiding or minimizing the adverse consequences discussed above, such consequences could have a material adverse effect
ff
our business, results of operations, and financial condition.
on
We may be exposed to risk of environmental liability or claims for negligence, property damage, or personal injury
when we take title to properties or lease certain equipment.
In the course of our business, we may foreclose on and take title to real estate that contains or was used in the manufacture or
processing of hazardous materials, or that is subject to other hazardous risks. In addition, we may lease equipment to our
customers that is used to mine, develop, process, or transport hazardous materials. As a result, we could be subject to
environmental liabilities or claims for negligence, property damage, or personal injury with respect to these properties or
equipment. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation,
and clean-up costs incurred by these parties in connection with environmental contamination, accidents or other hazardous risks,
or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs
Item 1A: Risk Factors
associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a
contaminated site or equipment involved in a hazardous incident, we may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination, property damage, personal injury or other hazardous
risks emanating from the property or related to the equipment. If we become subject to significant environmental liabilities or
claims for negligence, property damage, or personal injury, our financial condition and results of operations could be adversely
affected.
ff
CIT ANNUAL REPORT 2017 27
We rely on our systems, employees, and certain third party vendors and service providers in conducting our
operations, and certain failures, including internal or external fraud, operational errors, systems malfunctions,
disasters, or terrorist activities, could materially adversely affect
our operations.
ff
We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and
recordkeeping errors, and computer or telecommunications systems malfunctions. Our businesses depend on our ability to
process a large number of increasingly complex transactions. If any of our operational, accounting, or other data processing
systems fail or have other significant shortcomings (including intrusion into or degradation of systems or technology by cyber
attackers), we could be materially adversely affected.
We are similarly dependent on our employees. We could be materially
adversely affected
if one of our employees causes a significant operational break-down or failure, either as a result of human
error or intentional sabotage or fraudulent manipulation of our operations or systems. Third parties with which we do business,
including vendors that provide internet access, portfolio servicing, deposit products, or security solutions for our operations, could
also be sources of operational and information security risk to us, including from breakdowns, failures, capacity constraints of
their own systems or employees, or cyber security attacks through their systems to our systems. Any of these occurrences could
diminish our ability to operate one or more of our businesses, or cause financial loss, potential liability to clients, inability to
secure insurance, reputational damage, or regulatory intervention, which could have a material adverse effect
on our business.
ff
ff
ff
We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our
control, which may include, for example, electrical or telecommunications outages, natural or man-made disasters, such as fires,
earthquakes, hurricanes, floods, or tornados, disease pandemics, or events arising from local or regional politics, including
terrorist acts or international hostilities. Such disruptions may give rise to losses in service to clients and loss or liability to us. In
addition, there is the risk that our controls and procedures as well as business continuity and data security systems prove to be
inadequate. The computer systems and network systems we and others use could be vulnerable to unforeseen problems. These
problems may arise in both our internally developed systems and the systems of third-party hardware, software, and service
providers. Any such failure could affect
us to expend significant resources to correct the defect, as well as by exposing us to litigation or losses not covered by
insurance. The adverse impact of disasters, terrorist activities, or international hostilities also could be increased to the extent
that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other
organizations and businesses that we deal with, particularly those that we depend upon but have no control over.
our operations and could materially adversely affect
our results of operations by requiring
ff
ff
Our framework for managing risks may not be effective
ff
in mitigating risk and loss.
Our risk management framework seeks to mitigate risk and loss. We have established processes and procedures intended to
identify, measure, monitor, report, analyze, and mitigate the types of risk to which we are subject, including liquidity risk, credit
risk, market risk, interest rate risk, legal and compliance risk, strategic risk, reputational risk, and operational risk related to our
employees, systems and vendors, among others. Any system of control and any system to reduce risk exposure, however well
designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that
the objectives of the system are met. A failure in our internal controls or our systems or strategies to mitigate risk could have a
significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may
have of us. Moreover, whereas negative public opinion once was primarily driven by adverse news coverage in traditional media,
the advent and expansion of social media creates the potential for rapid and widespread dissemination of inaccurate, misleading,
or false information that could damage our reputation and affect
our ability to attract and retain customers.
ff
If our risk management framework proves ineffective,
market environments or against particular types of risk, and we could incur litigation, negative regulatory consequences,
reputational damages among other adverse consequences and we could suffer
condition or results of operations.
unexpected losses that may affect
we may not be able to effectively
mitigate our risk exposures in particular
our financial
ff
ff
ff
ff
We and/or our affiliates
proceedings by various governmental regulatory agencies and law enforcement authorities, as well as self-regulatory
agencies.
are involved from time to time in information-gathering requests, investigations and
ff
ff
are involved from time to time in information-gathering requests, reviews, investigations and proceedings
We and/or our affiliates
(both formal and informal) by governmental regulatory agencies and law enforcement authorities, as well as self-regulatory
agencies, regarding our customers and businesses. Because our businesses are complex and subject to continuing change, and
because they are subject to extensive regulation by federal, state and foreign authorities, the outcome of any of these requests,
reviews, investigations and proceedings and their impact on us can be difficult
regulation by another financial institution may give rise to an inquiry or investigation by regulators or other authorities of the same
or similar practices by us. For example, events of improper sales practices at other financial institutions, including the opening of
fraudulent customer accounts, has prompted close scrutiny of consumer banking practices by regulators and the media.
Moreover, the complexity of the federal and state regulatory and enforcement regimes in the U.S. means that a single event or
topic may give rise to numerous and overlapping investigations and regulatory proceedings. Such matters may result in material
adverse consequences, including without limitation, adverse judgments, settlements, fines, penalties, injunctions or other
actions, amendments and/or restatements of our SEC filings and/or financial statements, as applicable, and/or determinations of
material weaknesses in our disclosure controls and procedures.
to predict. In addition, a violation of law or
ff
There has been a trend of large settlements with governmental agencies that may adversely affect
financial institutions, to the extent they are used as a template for other settlements in the future. In some cases, governmental
authorities have required criminal pleas or other extraordinary terms as part of such settlements with other financial institutions.
the outcomes for other
ff
28 CIT ANNUAL REPORT 2017
The uncertain regulatory enforcement environment makes it difficult
disparities between legal reserves and actual settlements or penalties.
ff
to estimate probable losses, which can lead to substantial
We continually encounter technological change, and if we are unable to implement new or upgraded technology when
required, it may have a material adverse effect
on our business.
ff
The financial services industry is continually undergoing rapid technological change with frequent introduction of new technology-
and enables financial institutions to better
driven products and services. The effective
serve customers and to reduce costs. Our continued success depends, in part, upon our ability to address the needs of our
customers by using technology to provide products and services that satisfy customer demands and create efficiencies
operations. If we are unable to effectively
competitive or be successful in marketing these products and services to our customers, or if we implement technology that is
on our business.
susceptible to information security breaches or cyber security attacks, it may have a material adverse effect
implement new technology-driven products and services that allow us to remain
use of technology increases efficiency
in our
ff
ff
ff
ff
ff
We could be adversely affected
ff
by information security breaches or cyber security attacks.
Information security risks for large financial institutions such as CIT have generally increased in recent years, in part because of
the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial
transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external
parties, some of which may be linked to terrorist organizations or hostile foreign governments. Our operations rely on the secure
processing, transmission and storage of confidential information in our computer systems and networks. Our businesses rely on
our digital technologies, computer and email systems, software, and networks to conduct their operations. Our technologies,
systems, networks, and our customers' devices may become the target of cyber attacks or information security breaches that
could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of CIT's or our customers'
confidential, proprietary and other information, including personally identifiable information of our customers and employees, or
otherwise disrupt CIT's or its customers' or other third parties' business operations.
In recent years, there have been several well-publicized attacks on various companies, including in the retail, financial services,
media and entertainment, social media, and other industries, and personal, proprietary, and public e-mail systems in which the
perpetrators gained unauthorized access to confidential information and customer data, often through the introduction of
computer viruses or malware, cyber attacks, phishing, or other means. There have also been a series of denial of service attacks
on large financial services companies. In a denial of service attack, hackers flood commercial websites with extraordinarily high
volumes of trafficff
unavailable to customers for extended periods of time. Even if not directed at CIT specifically, attacks on other entities with whom
we do business or on whom we otherwise rely or attacks on financial or other institutions important to the overall functioning of
the financial system could adversely affect,
to disrupt the ability of commercial enterprises to process transactions and possibly make their websites
directly or indirectly, aspects of our business.
ff
Since January 1, 2015, we have not experienced any material information security breaches involving either proprietary or
customer information. However, if we experience cyber attacks or other information security breaches in the future, either the
Company or its customers may suffer
among other things, the evolving nature of these threats, the prominent size and scale of CIT and its role in the financial services
industry, our plans to continue to implement our online banking channel strategies and develop additional remote connectivity
solutions to serve our customers when and how they want to be served, our geographic footprint and international presence, the
outsourcing of some of our business operations, and the continued uncertain global economic environment. As cyber threats
continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our
protective measures or to investigate and remediate any information security vulnerabilities.
ff material losses. Our risk and exposure to these matters remains heightened because of,
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber
attacks or security breaches of the networks, systems or devices that our customers use to access our products and services
could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other
compensation costs, and/or additional compliance costs, any of which could materially adversely affect
or financial condition.
our results of operations
ff
Item 1A: Risk Factors
CIT ANNUAL REPORT 2017 29
Item 1B. Unresolved Staffff Comments
There are no unresolved SEC staffff comments.
Item 2. Properties
CIT primarily operates in North America, with additional locations in Europe, and Asia. CIT occupies approximately 1.7 million
square feet of space, which includes officeff
space and branch network, the majority of which is leased.
Item 3. Legal Proceedings
ff
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 in Note 22 — Contingencies of Item 8. Financial Statements and Supplementary Data. 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
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.
on the Company's financial condition, but may be
ff
For more information about pending legal proceedings, including an estimate of certain reasonably possible losses in excess of
reserved amounts, see Note 22 — Contingencies of Item 8. Financial Statements and Supplementary Data.
Item 4. Mine Safety Disclosures
Not applicable.
30 CIT ANNUAL REPORT 2017
PART TWO
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market Information — CIT's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "CIT."
The following tables set forth the high and low reported closing prices for CIT's common stock.
Common Stock
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
2016
g
High
$43.93
$48.72
$50.16
$51.51
Low
$40.21
$42.46
$43.30
$44.69
g
High
$39.70
$34.57
$36.88
$43.85
Low
$25.65
$28.45
$30.66
$35.25
Holders of Common Stock — As of February 9, 2018, there were 45,751 beneficial holders of common stock.
Dividends — We declared the following dividends on our common stock in 2017 and 2016:
Declaration Date
January
April
July
October
Per Share Dividend
2017
$0.15
$0.15
$0.15
$0.16
2016
$0.15
$0.15
$0.15
$0.15
On January 22, 2018, the Board of Directors declared a quarterly cash dividend of $0.16 per share payable on February 23,
2018 to shareholders of record on February 9, 2018.
Shareholder Return — The following graph shows the annual cumulative total shareholder return for common stock during the
period from December 31, 2012 to December 31, 2017. The chart also shows the cumulative returns of the S&P 500 Index and
S&P Banks Index for the same period. The comparison assumes $100 was invested on December 31, 2012. Each of the indices
shown assumes that all dividends paid were reinvested.
CIT STOCK PERFORMANCE DATAAA
$250
$200
$150
$100
$50
$0
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
CIT
S&P 500
S&P Banks
S&P Financials
CIT
S&P 500
S&P Banks
S&P Financials
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
$100.00
$100.00
$100.00
$100.00
$135.19
$132.37
$135.72
$135.59
$125.36
$150.48
$156.77
$156.17
$105.44
$152.54
$158.10
$153.74
$115.48
$170.77
$196.54
$188.71
$135.02
$208.03
$240.86
$230.49
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity
Securities
Securities Authorized for Issuance Under Equity Compensation Plans — Our CIT Group Inc. 2016 Omnibus Incentive Plan
was approved by shareholders in 2016, and replaced the Amended and Restated CIT Group Inc. Long-TermTT
Incentive Plan (the
“Prior Plan”). The Prior Plan was approved by the Bankruptcy Court in 2009 and did not require shareholder approval. No new
equity awards may be granted under the Prior Plan. Equity awards associated with these plans are presented in the following
table.
CIT ANNUAL REPORT 2017 31
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
Weighted-
Average
Exercise Price of
Outstanding
Options
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
Equity compensation plans approved by shareholders or the Court
N/A
N/A
5,405,837*
*
Excludes 2,775,499 shares underlying outstanding awards granted to employees and/or directors that are unvested and/or
unsettled.
During 2017, we had no equity compensation plans that were not approved by shareholders or the Court. For further information
on our equity compensation plans, including the weighted average exercise price, see Item 8. Financial Statements and
Supplementary Data, Note 20 — Retirement, Postretirement and Other Benefit Plans.
Issuer Purchases of Equity Securities — Details of the repurchases of our common stock during the three months ended
December 31, 2017 are included in the following table:
tal 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
October 1 - 31, 2017
November 1 - 30, 2017
December 1 - 31, 2017
Total Purchases
121,596
$
— $
— $
,
121,596
47.23
—
—
121,596
—
—
—
—
—
—
,
During 2017, we repurchased $3.4 billion (inclusive of the amount in the above table) of common stock via an equity tender offer
an accelerated repurchase program ("ASR") and open market repurchases ("OMR").
ff
On February 1, 2018, CIT received a “non-objection” from the Federal Reserve Bank of New York to an amendment (the
“Amended Capital Plan”) to the 2017 Capital Plan dated April 5, 2017 (“Original Plan”) filed by the Company under the 2017
Comprehensive Capital Analysis and Review (“CCAR”). The Amended Capital Plan includes (i) the issuance of up to $400 million
in Tier 2 qualifying subordinated debt; and (ii) an increase in common equity distribution of up to $800 million for the remainder of
the four-quarter period that began July 1, 2017 and ends on June 30, 2018, provided that if the Company does not issue
qualifying subordinated debt, or issues less than $400 million of qualifying subordinated debt, the Company will reduce the total
amount of common equity distributions by a commensurate amount. These actions would be in addition to those which received
a non-objection from the Federal Reserve on June 28, 2017 for the same period. CIT has approximately $100 million of
repurchases remaining that can be executed by the end of the first half of 2018 under the June 2017 non-objection authorization.
The Company’s management, subject to the approval of the Board of Directors, will determine the timing and amount of any
share 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
repurchase and other negotiated transactions, and through plans designed to comply with Rule 10b5-1(c) under the Securities
Exchange Act of 1934.
, in the open market, through derivative, accelerated
through tender offer
ff
ff
Unregistered Sales of Equity Securities — There were no sales of common stock during 2017 and 2016. During the third
quarter of 2015, the Company issued 30.9 million shares of unregistered common stock held in treasury, mostly repurchased
through share buyback plans, as a component of the purchase price paid for the acquisition of OneWest Bank. In addition, there
were issuances of common stock under equity compensation plans and an employee stock purchase plan, both of which are
subject to registration statements.
32 CIT ANNUAL REPORT 2017
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial information regarding our results of operations, balance sheets and
certain ratios.
The data presented below is explained further in, and should be read in conjunction with, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market
Risk and Item 8. Financial Statements and Supplementary Data.
Select Data (dollars in millions, except per share data)
Select Statement of Operations Data
Net interest revenue
Provision for credit losses
Total non-interest income
Total non-interest expenses
Income (loss) from continuing operations
Net income (loss)
Per Common Share Data
Diluted income (loss) per common share — continuing operations
Diluted income (loss) per common share
Book value per common share
Tangible book value per common share
Dividends declared per common share
Dividend payout ratio
Performance Ratios
Pre-tax return from continuing operations on average common
stockholders' equity
Return (continuing operations) on average common stockholders'
equity
Net finance revenue as a percentage of average earning assets (non-
GAAP)
Return on average earning assets
Return on average continuing operations total assets
Balance Sheet Data
Loans, including receivables pledged
Allowance for loan losses
Operating lease equipment, net
Goodwill
Total cash and deposits
Investment securities
Assets of discontinued operations
Total assets
Deposits
Borrowings
Liabilities of discontinued operations
Total common stockholders' equity
Credit Quality
Non-accrual loans as a percentage of finance receivables
Net charge-offsff as a percentage of average finance receivables
Allowance for loan losses as a percentage of finance receivables
Capital Ratios
Total ending equity to total ending assets
Common Equity Tier 1 Capital Ratio (fully phased-in)
Tier 1 Capital Ratio (fully phased-in)
Total Capital Ratio (fully phased-in)
NM — Not meaningful due to the net loss.
At or for the Years Ended December 31,
2017
2016
2015
2014
2013
$
$
$ 1,117.9
114.6
1,371.6
2,183.3
259.4
468.2
$ 1,158.3
194.7
1,182.2
2,124.9
(182.6)
(848.0)
$
$
1.52
2.80
53.25
49.58
0.61
21.8%
(0.90)
(4.20)
49.50
45.41
0.60
NM
2.2%
0.2 %
3.0%
(1.6)%
3.43%
1.00%
0.53%
3.60 %
(1.78)%
(0.34)%
713.8
158.6
1,167.7
1,536.9
724.1
1,034.1
3.89
5.55
54.45
48.33
0.60
10.8%
1.9%
7.5%
3.47%
2.72%
1.68%
$
$
440.5
104.4
1,213.5
1,305.1
675.7
1,119.1
3.57
5.91
50.07
47.59
0.50
$
$
439.2
75.3
1,183.0
1,252.2
238.4
675.7
1.18
3.35
44.78
43.56
0.10
8.5%
3.0%
2.8%
7.7%
3.30%
3.74%
2.01%
3.4%
2.8%
3.37%
2.41%
0.78%
$ 29,113.9
(431.1)
6,738.9
369.9
1,718.7
6,469.9
501.3
49,278.7
29,569.3
8,974.4
509.3
6,995.0
$29,535.9
(432.6)
7,486.1
685.4
6,430.6
4,491.1
13,220.7
64,170.2
32,304.3
14,935.5
3,737.7
10,002.7
$ 30,518.7
(347.0)
6,851.7
1,063.2
7,652.4
2,953.7
13,059.6
67,391.9
32,761.4
16,350.3
4,302.0
10,944.7
$ 18,260.6
(334.2)
5,980.9
432.3
6,155.2
1,550.3
12,493.7
47,755.5
15,838.7
15,969.7
3,818.1
9,057.9
$ 17,745.3
(339.1)
4,765.7
233.7
5,369.0
2,630.2
14,742.1
46,996.8
12,523.3
16,036.5
6,993.7
8,838.8
0.76%
0.39%
1.48%
14.9%
14.4%
15.1%
16.2%
0.94 %
0.37 %
1.46 %
15.6 %
13.8 %
13.8 %
14.6 %
0.83%
0.58%
1.14%
16.2%
12.6%
12.6%
13.2%
0.88%
0.55%
1.83%
19.0%
—
14.5%
15.1%
1.28%
0.47%
1.91%
18.8%
—
16.7%
17.4%
Item 6: Selected Financial Data
CIT ANNUAL REPORT 2017 33
The following revenues and expenses are reflective of continuing operations. See footnote "(5)" below the table for note on
average borrowings balance and the related expense and rate.
Average Balances(1) and Associated Income and Expense for the year ended: (dollars in millions)
Interest bearing cash deposits
$ 5,291.5
$
57.7
1.09 % $ 6,450.6
$
33.1
0.51 % $ 5,486.6
$
17.1
0.31 %
31, 2017
December 31, 2016
December 31, 2015
Average
Balance
Revenue /
Expense(6)
Average
Rate (%)
Average
Balance
Revenue /
Expense(6)
Average
Rate (%)
Average
Balance
Revenue /
Expense(6)
Average
Rate (%)
Securities purchased under agreements to
resell
Investment securities
Loans (including held for sale and credit
balances of factoring clients)(2)(3)
U.S.(2)
Non-U.S.
Total loans(2)
Total interest earning assets / interest
income(2)(3)
Operating lease equipment, net
(including held for sale)(4)
U.S.(4)
Non-U.S.(4)
Total operating lease equipment, net(4)
Indemnification assets
Total earning assets(2)
Non interest earning assets
Cash due from banks
Allowance for loan losses
All other non-interest earning assets
Assets of discontinued operations
Total Average Assets
Average Liabilities
Borrowings
Deposits
Borrowings(5)
Total interest-bearing liabilities
Non-interest bearing deposits
Other non-interest bearing liabilities
Liabilities of discontinued operations
Noncontrolling interests
Stockholders' equity
Total Average Liabilities and
Stockholders' Equity
Net revenue spread
34.6
5,317.7
0.4
139.4
1.16 %
2.62 %
—
3,384.0
—
98.8
— %
411.5
2.92 %
2,239.3
2.3
51.8
0.56 %
2.31 %
28,015.9
1,649.6
5.89 % 29,195.9
1,708.8
5.85 % 21,317.9
1,189.2
265.7
35.5
13.36 %
1,037.1
95.0
9.16 %
2,016.2
185.3
28,281.6
1,685.1
5.96 % 30,233.0
1,803.8
5.97 % 23,334.1
1,374.5
5.58 %
9.19 %
5.89 %
38,925.4
1,882.6
4.84 % 40,067.6
1,935.7
4.83 % 31,471.5
1,445.7
4.59 %
6,053.6
1,631.4
7,685.0
241.7
379.8
108.4
488.2
6.27 %
6.64 %
6.35 %
(47.0)
(19.45)%
5,855.4
1,367.4
7,222.8
373.8
447.1
109.8
556.9
7.64 %
8.03 %
7.71 %
(24.2)
(6.47)%
5,178.9
1,180.7
6,359.6
188.6
491.2
112.6
603.8
(0.5)
46,852.1
$ 2,323.8
4.96 % 47,664.2
$ 2,468.4
5.18 % 38,019.7
$ 2,049.0
9.48 %
9.54 %
9.49 %
(0.27)%
5.39 %
587.1
(430.4)
2,398.0
3,752.0
$53,158.8
$29,538.2
$
10,674.0
40,212.2
1,450.0
1,645.0
1,303.1
0.2
8,548.3
$53,158.8
882.1
(390.8)
4,048.3
13,021.2
$65,225.0
967.6
(333.0)
2,958.3
12,333.1
$53,945.7
373.3
344.4
717.7
1.26 % $31,545.1
$
3.23 % 15,493.6
1.78 % 47,038.7
394.8
358.4
753.2
1.25 % $22,762.7
$
2.31 % 15,519.1
1.60 % 38,281.8
330.1
401.3
731.4
1.45 %
2.59 %
1.91 %
1,177.5
1,689.2
4,236.5
0.5
11,082.6
$65,225.0
503.6
1,541.0
3,975.6
(0.9)
9,644.6
$53,945.7
3.18 %
3.58 %
3.48 %
Impact of non-interest bearing sources
Net revenue / yield on earning assets(2)
3.43 %
(1) The average balances presented are derived based on month end balances during the year. Tax exempt income was not significant in any of
$ 1,715.2
$ 1,606.1
$ 1,317.6
3.60 %
0.25 %
0.02 %
(0.01)%
3.47 %
the years presented. Average rates are impacted by PAAAA and FSA accretion and amortization.
(2) The 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) The interest expense presented pertains only to continuing operations and reflects the allocation of interest expense to discontinued
operations. The average rate for borrowings before the allocation of interest expense to discontinued operations was 4.02% in 2017, 4.15% for
2016 and 4.31% for 2015.
(6) Interest and expense and average rates include PAAA and FSA accretion, including amounts accelerated due to redemptions or
extinguishments, and accelerated original issue discount on debt extinguishment related to the TRS Transactions.
CIT's year-over-year changes (2017 versus 2016 and 2016 versus 2015) in net interest revenue and operating lease margins
are presented in Item 7. Management's Discussion and Analysis - Net Finance Revenue.
34 CIT ANNUAL REPORT 2017
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
BACKGROUND
CIT Group Inc., together with its subsidiaries (collectively "we", "our", "CIT" or the "Company"), is a bank holding company
("BHC") and a financial holding company ("FHC") with $44.8 billion of earning assets at December 31, 2017. Formed in 1908,
CIT provides financing, leasing and advisory services principally to middle-market companies in a wide variety of industries and
primarily in North America. We also provide a full range of banking and related services to commercial and individual customers
through our banking subsidiary, CIT Bank, N.A. ("CIT Bank"), which includes 70 branches located in Southern California, and its
online bank, bankoncit.com.
CIT is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Federal Reserve Bank of New York
("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank is regulated by the Officeff
Comptroller of the Currency of the U.S. Department of the Treasury ("OCC").
of the
Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative
Disclosures about Market Risk ("MD&A") contain financial terms that are relevant to our business, and a Glossary of key terms
has been updated and is included at the end of Item 1. Business Overview in this document. 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" for a reconciliation of these financial measures to comparable financial measures based on U.S.
GAAP.
Throughout this MD&A we reference "Notes" to our financial statements. These Notes are included in Item 8. Financial
Statements and Supplementary Data.
SUMMARYRR OF 2017 FINANCIAL RESULTSLL
The following table summarizes the Company’s results in accordance with GAAP as included in the Consolidated Statements of
Income for 2017, 2016, and 2015. In addition, we provide results that are not in accordance with GAAP,P and are reconciled to
GAAP in the "Non-GAAP Financial Measurements" section.
Results of Operations for the Year Ended December 31, 2017 (dollars in millions)
GAAP Results
Income (loss) from continuing operations available to common shareholders
Income (loss) from discontinued operations, net of taxes
Net income (loss) available to common shareholders
Diluted income per common share
Income (loss) from continuing operations available to common shareholders
Income (loss) from discontinued operations, net of taxes
Diluted income (loss) per common share available to common shareholders
Average number of common shares — diluted (thousands)
Non-GAAP Results, excluding noteworthy items
Income from continuing operations available to common shareholders
Income from discontinued operations, net of taxes
Net income available to common shareholders
Diluted income per common share
Income from continuing operations available to common shareholders
Income from discontinued operations, net of taxes
Diluted income per common share available to common shareholders
Average number of common shares — diluted (thousands)
2017
2016
2015
$
$
$
$
$
$
$
$
249.6
208.8
458.4
1.52
1.28
2.80
163,950
504.1
51.0
555.1
3.07
0.32
3.39
163,950
$
$
$
$
$
$
$
$
(182.6) $
(665.4)
)
(
(848.0) $
724.1
310.0
,
1,034.1
(0.90) $
(3.30)
)
(
(4.20) $
201,850
3.89
1.66
5.55
186,388
384.2
325.2
709.4
1.90
1.61
3.51
201,850
$
$
$
$
265.3
310.0
575.3
1.43
1.66
3.09
186,388
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 35
Income from continuing operations for 2017 was up from 2016. Results from both years were impacted by significant noteworthy
items. The 2017 noteworthy items are described and displayed in a following table, and noteworthy items for all three years are
included in the Non-GAAP Financial Measurements section. Compared to the year-ago, income from continuing operations
excluding noteworthy items1 increased, as lower operating expenses, higher other non-interest income and a decline in the
by a decline in net finance revenue1. The increase in income from continuing
provision for credit losses was partially offset
operations excluding noteworthy items per diluted common share also reflects a decline in the average number of diluted
common shares outstanding due to significant share repurchases in 2017. Loans and leases at December 31, 2017 were up
from 2016, reflecting growth in the Commercial Banking segment.
ff
As presented above, net income available to common shareholders was up from 2016, while down when excluding noteworthy
items2. In the second quarter of 2017, we completed the sale of Commercial Air, which was a key driver of income from
discontinued operations in each of the years.
The following table reflects the reconciliation of income from continuing operations excluding noteworthy items and net income
excluding noteworthy items available to common shareholders for 2017 to our results in accordance with GAAP.
Results of Operations for the Year Ended December 31, 2017 (dollars in millions)
GAAP Results
Net interest cost related to the elevated borrowings and cash balances for the
period between the closing of the Commercial Air sale and the completion of
liability management and capital actions
Interest on excess cash
Excess interest costs
Financial Freedom Transaction, reverse mortgage charge-offsff on loans transferred to
HFS
Cumulative effect
LIHTC investments
of an accounting policy change on other non-interest income for
ff
Financial Freedom Transaction, impairments on reverse mortgage-related assets
CTATT relating to international business exits
Suspended depreciation benefits related to the European Rail business (NACCO) held
for sale
Restructuring costs
Goodwill impairment charge
Debt extinguishment costs
Cumulative effect
ff
LIHTC investments
of an accounting policy change on provision for income taxes for
Deferred tax expense related to the restructuring of legal entities in preparation for the
Commercial Air sale
Net deferred income tax benefit from tax items related to NACCO
Aggregate benefits related to US tax reform
Benefit from the resolution of legacy tax items
Strategic tax item - restructuring of an international legal entity
Secured debt extinguishment costs
Financial Freedom servicing asset-related items
Gain on the sale of the TC-CIT joint venture
Net benefit related to Financial Freedom due to a net release of the interest curtailment
reserve and a reduction in the FDIC indemnification asset, partially offset
impairment charge related to mortgage servicing rights
by an
ff
Suspended depreciation benefits related to the Commercial Air business
Gain on the sale of Commercial Air
Non-GAAP Results(1)
(1) Items may not sum due to rounding.
Income from
Continuing Operations
(available to common
)
shareholders)
249.6
1.52
$
$
Net Income (available
to common
shareholders)
$
458.4
$
2.80
(5.6)
14.5
9.5
(29.4)
16.4
6.8
(11.3)
35.0
222.1
132.8
38.2
14.0
(17.2)
(11.6)
(19.3)
(140.4)
—
—
—
(0.03)
0.09
0.06
(0.18)
0.10
0.04
(0.07)
0.21
1.35
0.81
0.23
0.09
(0.10)
(0.07)
(0.12)
(0.86)
—
—
—
(5.6)
14.5
9.5
(29.4)
16.4
6.8
(11.3)
35.0
222.1
132.8
38.2
14.0
(17.2)
(11.6)
(19.3)
(140.4)
34.0
2.3
(13.0)
—
—
—
504.1
$
$
$
$
—
—
—
3.07
$
$
(12.4)
(69.0)
)
(
(99.7)
555.1
$
$
(0.03)
0.09
0.06
(0.18)
0.10
0.04
(0.07)
0.21
1.35
0.81
0.23
0.09
(0.10)
(0.07)
(0.12)
(0.86)
0.21
0.01
(0.08)
(0.08)
(0.42)
)
(
(0.61)
3.39
continuing operations excluding noteworthy items and net finance revenue arerr non-GAAP measures;
rr
see “Non-GAAP Financial Measurements”
rr
at the end of the
1. Income fromrr
MDA for a reconciliation of non-GAAP to GAAP financial information.
2 Net income excluding noteworthy items is a non-GAAP measure;rr
see “Non-GAAP Financial Measurements”
rr
for a reconciliation of non-GAAP to GAAP financial information.
36 CIT ANNUAL REPORT 2017
In 2017, we executed on our strategies to simplify, strengthen and grow CIT:TT
Strategies
Progress
Maximize Potential of
Core Businesses
- Grow revenues – grow core businesses, enhance
fee revenue, leverage connectivity among
businesses
- Sold Commercial Air, agreements to sell NACCO and
Financial Freedom
- Core portfolios(1) grew 2% Q/Q; flat Y/Y reflecting high
prepayments and portfolio repositioning in Commercial
Finance
- Optimize cash / investment portfolio build out
- Grew average investment securities by 58%
Enhance Operational
fff
ficiency
EfEfficiency
- Reduce / manage operating expenses
- Expanding core competencies - added nearly 20 originators
across 6 business teams
- Annual operating expenses(2) down ~$85 million from 2016
and remain on track to achieve remaining reduction target
in 2018
- Invest in, and enhance technology
- Preserved ~$470 million of NOL through strategic tax
actions
Reduce Funding Costs
- Reduce deposit costs (relative to index)
- Deposits as a percent of funding grew by 9% to 77%
- Increase deposits as a percent of total funding
- Reduced unsecured debt by $6.9 billion with an average
rate of 5.15%
Optimize Capital
Capital
Optimize
Structure
Maintain Strong
Maintain
Strong RiskRisk
Management
- Manage, deploy, and align capital
- Deposit costs increased modestly to 1.24% (fourth quarter
average rate) despite three rate hikes
- Repurchased $3.4 billion of common stock at an average
price of $47.84
- Target CET1 ratio in the 10-11% range
- Issued $325 million of preferred stock at 5.8%
- Increased quarterly dividend 7% to $0.16
- Maintain credit and operating risk discipline /
- Non-accruals at 0.76% of total loans, down from 0.94% in
process
2016
- Regulatory / horizontal capital review
- Net charge-offsff at 0.39% of average loans, compared to
0.37% in 2016
- CET1 ratio of 14.4%(3)
(1) Core portfolios is net of credit balances of factoring clients and excludes NACCO AHFS, Legacy Consumer Mortgages, and NSP.PP Q/Q refers to fourth quarter 2017 compared to
third quarter 2017. Y/Y refers to fourth quarter 2017 compared to fourth quarter 2016.
(2) Operating expenses excluding noteworthy items and amortization of intangibles of $1.194 billion in 2016 and $1.109 billion in 2017.
(3) On a fully phased-in basis.
In 2018, we have updated our strategies to simplify, strength and grow CIT:TT
Maximize Potential of
Core Businesses
- Grow revenues – grow core businesses, enhance fee revenue, and leverage connectivity among businesses
- Optimize cash and investment portfolio build out
Strategies
Enhance Operational
p
Efficiency
ff
- Reduce and manage operating expenses
- Invest in, and enhance technology
Reduce Fundingg
Costs
- Reduce unsecured debt cost
- Improve deposit mix to lower cost (relative to index)
Optimize
p
Capitalp
Structure
- Manage, deploy, and align capital
- Target 10-11% CET1 ratio
Maintain Strong Risk
Management
- Maintain credit and operating risk discipline
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 37
PERFORMANCE MEASUREMENTS
The following chart reflects key performance indicators evaluated by management and used throughout this management
discussion and analysis:
KEY PERFORMANCE INDICATOAA RS
MEASUREMENTS
Asset Generation — originate new business and grow earning assets.
-New business volumes;
-Loans and leases (included in earning assets); and
-Earning asset balances.
Revenue Generation — lend money at rates in excess of borrowing
costs and consistent with risk profile of obligor, earn rentals on the
equipment we lease commensurate with the risk, and generate other
revenue streams.
-Net finance revenue and other non-interest income;
-Net finance margin;
-Operating lease revenue as a percentage of average operating lease
equipment; and
-Asset yields and funding costs.
Credit Risk Management — accurately evaluate credit worthiness of
customers, maintain high-quality assets and balance income potential
with loss expectations.
ff
balances and as a percentage of average loans;
-Net charge-offs,
-Non-accrual loans, balances and as a percentage of loans;
-Classified assets and delinquencies balances; and
-Loan loss reserve, balance and as a percentage of loans.
Equipment and Residual Risk Management — appropriately evaluate
collateral risk in leasing transactions and remarket or sell equipment at
lease termination.
-Equipment utilization;
-Market value of equipment relative to book value; and
-Gains and losses on equipment sales.
Expense Management — maintain efficient
related infrastructure.
ff
operating platforms and
-SG&A expenses and trends;
-SG&A expenses as a percentage of AEA; and
ff
-Net efficiency
ratio.
Profitability — generate income and appropriate returns to
shareholders.
Capital Management — maintain a strong capital position, while
deploying excess capital.
Liquidity Management — maintain access to ample funding at
competitive rates to meet obligations as they come due.
-Net income per common share (EPS);
-Net income and pre-tax income, each as a percentage of average
earning assets (ROA); and
-Net income and pre-tax income as a percentage of average tangible
common stockholders' equity (ROTCE).
-CET1, Tier 1 and Total capital ratios;
-Tier 1 Leverage Ratio; and
-Book value and Tangible book value per share.
-Levels of high quality liquid assets and as a % of total assets;
-Committed and available funding facilities;
-Debt maturity profile and ratings; and
-Funding mix.
Manage Market Risk — measure and manage risk to income
statement and economic value of enterprise due to movements in
interest and foreign currency exchange rates.
-Net Interest Income Sensitivity; and
-Economic Value of Equity (EVE).
DISCONTINUED OPERATIONS
AA
At December 31, 2017, discontinued operations was comprised of Business Air and Financial Freedom, our reverse mortgage
servicing business.
Income from discontinued operations in 2017 of $209 million was driven by a gain on the sale of Commercial Air along with
operations of that business for the first quarter, partially offset
by a loss in Financial Freedom. We completed the sale of our
Commercial Air business in April 2017 for $10.4 billion and recorded a pre-tax gain of $146 million.
ff
The loss from discontinued operations in 2016 was $665 million, which included losses of $455 million from Aerospace
(Commercial Air and Business Air) and $210 million from Financial Freedom. The loss in Aerospace included an $847 million net
tax expense related to the Commercial Air sale, while the loss from Financial Freedom reflected $191 million after tax of
curtailment reserve and other charges.
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 $21
million at December 31, 2017, respectively. Continuing operations pretax results for the year ended December 31, 2017,
reflected $42 million of charges, mostly impacting the provision for credit losses and other non-interest income, associated with
the announced sale of the reverse mortgage portfolio in connection with the Financial Freedom Transaction. At closing, CIT
anticipates it will recognize a pre-tax net gain in continuing operations, currently estimated to be approximately $25 million to $35
million. These amounts are prior to any incremental indemnification liabilities the Company may record. The transaction is
expected to close in the second quarter of 2018, and is subject to certain regulatory approvals and the consent of investors
related to the mortgage servicing business, along with other customary closing conditions as further described in Note 2 —
Discontinued Operations. As discussed in the next section, Net Finance Revenue, the sale of the reverse mortgage whole loans
will lower our revenue and margin as these loans had higher yields. The sale of Financial Freedom and this mortgage portfolio is
a significant step in simplifying CIT and reducing future risks.
Further details of discontinued operations, along with condensed balance sheets and income statements are included in Note 2
— Discontinued Operations. See also Note 22 — Contingencies for discussion related to the Financial Freedom servicing
38 CIT ANNUAL REPORT 2017
business, and Item 9A. Controls and Procedures for remediation of disclosure controls regarding the Home Equity Conversion
Mortgages (“HECM”) interest curtailment reserve.
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
Net Finance Revenue ("NFR")3 and Net 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, 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. NFR and NFM are further
defined in the Glossary of Terms.
The consolidated financial statements include the effects
primarily related to the
OneWest Transaction. Accretion and amortization of certain PAAA are primarily impacting interest income and interest expense.
of Purchase Accounting Adjustments ("PAA"),
PP
ff
The following tables present management's view of consolidated NFR. The 2015 data includes approximately five months of
activity for OneWest Bank, therefore comparison discussions will be limited.
Net Finance Revenue3 (dollars in millions)
Interest income
Rental income on operating leases
Finance revenue
Interest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
NFR3
Average Earning Assets3 ("AEA")
NFM3
NFR, excluding noteworthy items3
AEA, excluding noteworthy items3
NFM, excluding noteworthy items3
Years Ended December 31,
2016
2015
2017
$
$
$
$
$
$
1,835.6
1,007.4
2,843.0
717.7
296.3
222.9
,
1,606.1
46,852.1
3.43%
1,603.8
45,921.6
$
$
$
$
$
$
1,911.5
1,031.6
2,943.1
753.2
261.1
213.6
,
1,715.2
47,664.2
3.60%
1,715.2
47,664.2
$
$
$
$
$
$
1,445.2
1,018.1
2,463.3
731.4
229.2
185.1
,
1,317.6
38,019.8
3.47%
1,317.6
38,019.8
3.49%
3.60%
3.47%
NFR decreased compared to 2016, reflecting lower AEA, lower PAAAA and yield compression on the rail portfolio. In addition,
certain noteworthy items in 2017 impacted different
line items of NFR. The noteworthy items in the 2017 NFR included $17
million benefit from suspended depreciation expense on rail assets held for sale. NFR also included $23 million in interest
expense on approximately $5.8 billion of unsecured borrowings that previously was allocated to discontinued operations but was
recorded in continuing operations following the Commercial Air sale on April 4, 2017, until the redemption of that debt later in the
that cost was $9 million in interest income related to the elevated cash balances for the period
second quarter. Partially offsetting
between the closing of the Commercial Air sale and the related liability management (see Note 10 - Borrowings) and capital
actions (see Capital section).
ff
ff
Compared to 2016, NFR excluding the noteworthy items3 decreased, primarily due to $83 million of lower PAA,AA an increase of
$23 million of negative interest income associated with the indemnification asset (discussed later in this section) and lower net
rental income in Rail, partially offset
by higher earnings on the investment securities portfolio.
ff
NFM excluding noteworthy items3 decreased 11 basis points compared to 2016. The decrease reflects the noted drivers of the
decrease in NFR, lower gross yields in Rail, partially offset
ff
interest-bearing cash balances to investment securities.
by an increase in yields on certain loan portfolios and a shift from
Given the anticipated impact of the Financial Freedom Transaction, as discussed below, continued run-offff of the remaining PAA,AA
and lower rail lease renewal rates, we expect NFM to trend lower in 2018, as these factors are expected to be only partially
offset
management actions.
by net benefits from higher interest rates resulting from our asset sensitivity position and potential benefits from liability
ff
AEA excluding noteworthy items3 declined. The decline reflected a decrease in loans in the Commercial Finance division of
Commercial Banking due to the repositioning of the portfolio, along with run-offff in NSP and the LCM portfolios in Consumer
Banking, partially offset
by growth in the other Commercial Banking divisions.
ff
3 Net finance revenue, net finance margin,
rr
arerr non-GAAP measures.
r
See “Non-GAAP Measurements”
rr
net operating lease revenue and average earnings assets, and respective amounts excluding noteworthy items
for reconciliation of non-GAAP to GAAP financial information.
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 39
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) (dollars in millions)
Interest bearing cash
deposits
Securities purchased under
agreements to resell
Investment securities
Loans (including held for
sale and credit balances of
factoring clients)(2)(3)
,,
Operating lease equipment,
net (including held for sale)(4)
Indemnification assets
December 31, 2017
December 31, 2016
December 31, 2015
Average
Balance
Revenue /
Expense
Average
Rate (%)
Average
Balance
Revenue /
Expense
Average
Rate (%)
Average
Balance
Revenue /
Expense
Average
Rate (%)
$
5,291.5
$
57.7
1.09 % $
6,450.6
$
33.1
0.51 % $
5,486.6
$
17.1
0.31 %
34.6
5,317.7
0.4
139.4
1.16 %
2.62 %
—
3,384.0
—
98.8
— %
411.5
2.92 %
2,239.3
2.3
51.8
0.56 %
2.31 %
28,281.6
1,685.1
5.96 %
30,233.0
1,803.8
5.97 %
23,334.2
1,374.5
5.89 %
7,685.0
241.7
488.2
6.35 %
7,222.8
(47.0)
(19.45)%
373.8
556.9
(24.2)
7.71 %
(6.47)%
6,359.6
188.6
603.8
9.49 %
(0.5)
(0.27)%
Average earning assets(2)
$ 46,852.1 —$
2,323.8
4.96 % $ 47,664.2
Deposits
Borrowings(5)
$ 29,538.2
$
10,674.0
373.3
344.4
1.26 % $ 31,545.1
3.23 %
15,493.6
Total interest-bearing
liabilities
$ 40,212.2
NFR and NFM
(1) - (5) See footnotes on the next table.
$
$
717.7
1,606.1
1.78 % $ 47,038.7
3.43 %
$
$
$
$
2,468.4
5.18 % $ 38,019.8
394.8
358.4
753.2
1,715.2
1.25 % $ 22,762.7
2.31 %
15,519.1
1.60 % $ 38,281.8
3.60 %
$
$
$
$
2,049.0
330.1
401.3
731.4
1,317.6
5.39 %
1.45 %
2.59 %
1.91 %
3.47 %
Revenues generated on our cash and investment securities are indicative of the generally low, interest rate environment. The
average balance and revenues has increased on investment securities, reflecting our strategy to grow that portfolio. Returns may
fluctuate depending on the composition of the investment securities, interest rates and credit spreads. Rates earned on our loan
portfolio were flat from 2016, as the benefit from three 25 basis point increases in the Federal Funds interest rate since
December 2016 was offset
by changes in the mix of loans, lower purchase accounting accretion and prepayment benefits.
ff
Interest expense was down, reflecting lower deposits and changes in deposit mix, and repayments of unsecured borrowings.
The following table presents disaggregated year-over-year changes in net interest revenue and net operating lease revenue as
presented in the preceding tables 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.
2017 Over 2016 Comparison
2016 Over 2015 Comparison
Increase (Decrease)
Due To Change In:
Increase (Decrease)
Due To Change In:
Volume
Rate
Net
Volume
Rate
Net
Interest bearing cash deposits
$
(7.0) $
31.6
$
24.6
$
3.4
$
12.6
$
Securities purchased under agreements to resell
Investment securities
Loans (including held for sale and net of credit balances of
factoring clients)(2)(3)
Operating lease equipment, net (including held for sale)(4)
Indemnification assets
Total
Deposits
Borrowings(5)
0.2
51.6
(116.3)
33.9
11.1
0.2
(11.0)
(2.4)
(102.6)
(33.9)
0.4
40.6
(118.7)
(68.7)
(22.8)
(1.1)
31.1
411.4
75.5
(1.0)
(1.2)
15.9
17.9
(122.4)
(22.7)
$
$
(26.5) $
(25.3) $
(118.1) $
(144.6) $
3.8
$
(21.5) $
(130.7)
116.7
(14.0)
519.3
114.5
$
$
(0.7)
(99.9) $
(49.8) $
(42.2)
16.0
(2.3)
47.0
429.3
(46.9)
(23.7)
419.4
64.7
(42.9)
Total
(1) Interest and average rates include PAAAA accretion, including amounts accelerated due to redemptions or extinguishments, and accelerated original issue discount
(156.0) $
(92.0) $
(35.5) $
113.8
120.5
$
$
$
21.8
on debt extinguishment related to the TRS Transactions in 2016.
(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) The interest expense presented pertains only to continuing operations and reflects allocation of interest expense to discontinued operations. As detailed in a
forthcoming table, the average rate for borrowings before the allocation of interest expense to discontinued operations was 4.02% for 2017, 4.15% for 2016 and
4.31% for 2015.
40 CIT ANNUAL REPORT 2017
The composition of our average funding mix was as follows:
Average Funding Mix
Deposits
Unsecured
Secured Borrowings:
Structured financings
FHLB Advances
Years Ended December 31,
2016
2015
2017
73%
16%
4%
7%
67%
23%
4%
6%
59%
28%
9%
4%
These proportions will fluctuate in the future depending upon our funding activities. The change from the prior periods reflects the
reduction of unsecured borrowings, including completion of the unsecured debt redemptions and tender offer
totaling $6.9 billion.
during 2017
ff
The following table details further the rates of interest bearing liabilities.
Interest-bearing Deposits and Borrowings - Average Balances and Rates (dollars in millions)
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Average
Balance
Interest
Expense
Rate %
Average
Balance
Interest
Expense
Rate %
Average
Balance
Interest
Expense
Rate %
Interest-bearing deposits
Time deposits
$ 15,413.1
$
251.1
1.63% $ 17,981.1
$
291.1
1.62% $ 13,799.9
$
252.4
Interest-bearing checking
Savings
Money markets / sweeps
Total deposits
Borrowings
Unsecured notes
Secured borrowings
FHLB advances
Other credit facilities(1)
Total borrowings
0.56%
1.03%
0.87%
1.26%
5.18%
3.39%
1.38%
—%
2,887.7
5,249.4
5,988.0
16.1
54.0
52.1
29,538.2
373.3
6,302.3
2,230.0
2,675.6
—
11,207.9
326.4
75.5
36.8
11.4
450.1
(105.7)
344.4
2,534.8
4,517.4
6,511.8
15.0
40.0
48.7
31,545.1
394.8
1,308.3
4,301.6
3,352.9
6.8
42.1
28.8
22,762.7
330.1
10,600.5
4,316.4
2,865.3
—
550.8
144.2
24.1
19.3
738.4
(380.0)
358.4
4.02%
17,782.2
(2,288.6)
3.23%
15,493.6
4.15%
17,916.5
(2,397.4)
2.31%
15,519.1
10,855.6
5,686.3
1,374.6
—
561.4
183.9
5.7
21.2
772.2
(370.9)
401.3
0.59%
0.89%
0.75%
1.25%
5.20%
3.34%
0.84%
—%
Allocated to Discontinued Operations
(533.9)
Total Borrowings
10,674.0
Total interest-bearing liabilities
(1)
$ 40,212.2
$
717.7
1.78% $ 47,038.7
$
753.2
1.60% $ 38,281.8
$
731.4
Balance includes interest expense related to facility fees and amortization of deferred costs on unused portions of credit facilities, including the Revolving Credit
Facility and total return swaps. Amounts for 2016 and prior to the sale in 2017, were reduced by capitalized interest on aircraft pre-delivery deposits and
included in the amounts allocated to discontinued operations.
Despite three rate hikes by the Federal Reserve over the past year, the rate on interest-bearing deposits was up 1 bps from
2016, reflecting our strategy to optimize deposit costs and improve the quality of our deposits. The change in mix of our deposits
reflects our strategy to reduce the percentage of time deposits relative to total deposits. We have increased non-maturity
deposits and reduced higher cost money market and sweep accounts in our brokered and commercial channels. See Funding
and Liquidity section for a table that reflects deposits by channel.
Total Deposits - Average Balances and Rates (dollars in millions)
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Average
Balance
Interest
Expense
Average
Rate (%)
Average
Balance
Interest
Expense
Average
Rate (%)
Average
Balance
Interest
Expense
Average
Interest-bearing deposits
Non-interest-bearing deposits
Total deposits
$
$
29,538.2
1,450.0
30,988.2
$
$
373.3
—
373.3
1.26% $
31,545.1
—
1,177.5
1.20% $
32,722.6
$
$
394.8
—
394.8
1.25% $ 22,762.7
—
503.6
1.21% $ 23,266.3
$
$
330.1
—
330.1
1.45%
—
1.42%
Deposits and borrowings are also discussed in Funding and Liquidity. See Select Financial Data (Average
more information on borrowing rates.
AA
Balances) section for
Item 7: Management's Discussion and Analysis
1.83%
0.52%
0.98%
0.86%
1.45%
5.17%
3.23%
0.41%
—%
4.31%
2.59%
1.91%
CIT ANNUAL REPORT 2017 41
The following table depicts selected earning asset yields and margin related data for our segments and divisions within the
segments.
Select Segment and Division Margin Metrics (dollars in millions)
Years Ended December 31,
2017
2016
2015
Years Ended December 31,
2017
2016
2015
Commercial Bankingg
Consumer Bankingg
AEA
NFR
Gross yield
NFM
AEA
$
29,270.1
$
29,762.9
$
25,339.6
1,218.5
1,314.1
1,125.7
AEA
NFR
7.71%
4.16%
7.75%
4.42%
7.93% Gross yield
4.44% NFM
AEA
$
7,054.0
$
7,527.4
$
3,202.4
429.9
5.36%
6.09%
410.6
5.59%
5.45%
151.2
5.50%
4.72%
Commercial Finance
$
9,867.0
$
11,289.3
$
10,047.9
Legacy Consumer Mortgages
$
4,787.9
$
5,558.8
$
2,511.3
7,460.2
5,606.2
6,336.7
7,089.3
5,453.7
5,930.6
6,245.5
All Other Consumer Banking
2,266.1
1,968.6
691.1
3,216.6
Gross yield
5,829.6
Legacy Consumer Mortgages
All Other Consumer Banking
6.24%
3.49%
6.28%
3.65%
6.00%
3.68%
Rail
Real Estate Finance
Business Capital
Gross yield
Commercial Finance
Rail
Real Estate Finance
Business Capital
NFR
Commercial Finance
$
Rail
Real Estate Finance
Business Capital
NFM
Commercial Finance
Rail
Real Estate Finance
Business Capital
$
5.47%
11.59%
5.18%
8.84%
389.6
318.8
199.4
310.7
3.95%
4.27%
3.56%
4.90%
5.36%
12.86%
5.25%
8.52%
447.7
349.9
209.8
306.7
3.97%
4.94%
3.85%
5.17%
4.87% NFR
14.34% Legacy Consumer Mortgages
$
4.80% All Other Consumer Banking
$
210.0
219.9
$
252.9
157.7
109.6
41.6
8.09% NFM
Legacy Consumer Mortgages
All Other Consumer Banking
4.39%
9.70%
4.55%
8.01%
4.36%
6.02%
$
338.2
382.1
109.5
295.9
g
Non-Strategic Portfolios
AEA
NFR
3.37% Gross yield
6.12% NFM
3.40%
5.08%
$
277.0
$
1,175.6
$
2,375.7
7.7
8.27%
2.78%
45.2
7.86%
3.84%
89.2
9.32%
3.75%
Gross yields (interest income plus rental income on operating leases as a % of AEA) in Commercial Banking were down slightly
from 2016, driven mostly by the decline in Rail. The Commercial Finance increase in gross yields was primarily driven by higher
by a decline in PAA.AA The Real Estate Finance gross yield was down, as the benefit of
short-term interest rates, partially offset
higher short-term interest rates was offset
by lower PAA.AA Gross yields in Rail were lower, as lease rates continued to re-price
ff
lower on average across the North American portfolio. Gross yields in Business Capital were up from 2016 due to asset mix.
ff
Consumer Banking gross yields were down, impacted by lower PAAAA on mortgage loans in LCM, some of which is due to ceasing
PAAAA accretion ($213 million) related to the reverse mortgages that were transferred to AHFS at the end of the third quarter of
2017 related to the Financial Freedom Transaction. The reverse mortgages in LCM earn approximately $20 million of interest
income per quarter, approximately $5 million of which is from PAAAA and implying an average yield of 9% to 10%. NFM in this
segment is higher than gross yield as this segment receives credit from the other segments for the value of the deposits it
generated.
The decline in gross yield also reflects higher amounts of negative interest income associated with the indemnification asset. As
presented in an earlier table, the total negative interest income on the indemnification asset increased to $47 million in 2017 from
$24 million in 2016, due to a decline in 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 asset amortizes over the remaining loss share period, which expires in March 2019.
As of December 31, 2017, the remaining accretable PAAAA was $733 million, of which $97 million related to Commercial Banking
and approximately $636 million related to Consumer Banking. About 25% of the remaining accretable PAAAA in Commercial
Banking is expected to be realized in 2018, while the remaining accretable PAAAA in Consumer Banking is expected to run offff at a
rate consistent with the run-offff of the underlying mortgages. When a loan prepays, the loan’s remaining PAAAA is accelerated into
interest income, which could result in fluctuations from quarter to quarter (see footnote 1 to the following table). The accretable
PAAAA was $1.1 billion at December 31, 2016. The decline reflects accretion and the transfer of the accretable balance to AHFS
related to the reverse mortgage portfolio.
Commercial Banking
Commercial Finance
Real Estate Finance
Total Commercial Banking
Consumer Banking
Other Consumer Banking
Legacy Consumer Mortgages
42 CIT ANNUAL REPORT 2017
The following table displays PAAAA accretion by segment and division for both interest income on loans and interest expense.
Purchase Accounting Accretion By Segment / Division (dollars in millions)
Years Ended
December 31, 2017
PAA Accretion Recognized in:
December 31, 2016
PAA Accretion Recognized in:
December 31, 2015
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
$
$
45.6
41.9
87.5
$
0.9
—
0.9
$ 46.5
41.9
88.4
75.8
71.6
147.4
$
$
2.2
—
2.2
$ 78.0
71.6
149.6
$
35.4
27.9
63.3
2.0
—
2.0
$ 37.4
27.9
65.3
0.1
115.7
115.8
—
203.3
4.4
—
4.4
0.4
5.7
4.5
115.7
120.2
0.4
$
$ 209.0
2.8
126.6
129.4
—
276.8
9.0
—
9.0
4.2
15.4
11.8
126.6
138.4
4.2
$
$ 292.2
(0.3)
47.4
47.1
—
110.4
6.2
—
6.2
3.6
11.8
5.9
47.4
53.3
3.6
$
$ 122.2
Total Consumer Banking
Corporate and Other
Total CIT
(1) Loans acquired in the OneWestWW Bank acquisition were recorded at a net discount, therefore the PAA of that adjustment increases interest
$
$
$
$
$
$
$
$
$
$
$
$
income. Included in the above are accelerated recognition of approximately $58.7 million for 2017, $81.2 million for 2016 and $26.0 million for
2015.
(2) Debt and deposits acquired in the OneWestWW Bank acquisition were recorded at a net premium, therefore the PAA of that adjustment decreases
interest expense.
The following table sets forth the details on net operating lease revenues.
Net Operating Lease Revenue as a % of Average Operating Leases (dollars in millions)
Years Ended December 31,
2017
2016
2015
Rental income on operating leases
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net operating lease revenue and %
Average Operating Lease Equipment ("AOL")
(including held for sale)
$
$
$
$
1,007.4
296.3
222.9
488.2
7,685.0
13.11% $
3.86%
2.90%
$
6.35% $
1,031.6
261.1
213.6
556.9
14.28% $
3.61%
2.96%
$
7.71% $
1,018.1
229.2
185.1
603.8
16.01%
3.60%
2.91%
9.49%
$
7,222.8
$
6,359.6
Net operating lease revenue, which is a component of NFR, is driven primarily by the performance of our Rail portfolio, within the
Commercial Banking segment. Net operating lease revenue was down from 2016, reflecting continued downward pressures on
renewal rates in Rail and higher depreciation. Depreciation was up due to portfolio growth, partially offset
depreciation of $17 million due to the pending sale of our European Rail business, NACCO, which we expect to close in the
second half of 2018. Increasing the depreciation for the amount suspended would have decreased the net operating lease
revenue, and decreased the rate to 6.14%. Discussions are provided in Results by Segment - Commercial Banking.
by suspended
ff
Net operating lease revenue reflects trends in equipment utilization with railcar utilization remaining low in 2017, due to
continued weakness in demand for select energy related car types. The decline in the operating lease margin (as a percentage
of average operating lease equipment) reflects these trends primarily driven by the energy sector. Rail renewal rates, on
average, continued to reprice down, reflecting market conditions and the mix of cars renewing. We continue to expect leases to
reprice down an average of 20% to 30% through 2018 and into 2019.
Our railcar portfolio is also discussed in the "Concentrations" section.
Depreciation is recognized on railcars and other operating lease equipment. Depreciation was up from 2016 driven by growth in
the non-rail portfolio, which is depreciated over a shorter time span. 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
non-interest income. No such impairments were recorded in 2017 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 $17 million for 2017, $10 million
for 2016, and $14 million for 2015. See “Expenses - Depreciation on operating lease equipment”tt
for additional information.
Maintenance and other operating lease expenses relates to the Rail portfolio. The increases in 2017 and 2016 reflected
increased maintenance, freight and storage costs in Rail due to growth in the portfolio.
See "Expenses — Depreciation on operating lease equipment" and "Concentrations — Operating Leases" for additional
information.
Upon emergence from bankruptcy in 2009, CIT applied Fresh Start Accounting (“FSA”). The most significant remaining discount
at December 31, 2017 related to Rail operating lease equipment ($1.1 billion). 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
ff
Item 7: Management's Discussion and Analysis
their fair value, which was less than their carrying value. The recording of the FSA adjustment reduced the asset balances
subject to depreciation and thus decreases depreciation expense over the remaining useful life of the operating lease equipment
or until it is sold.
CIT ANNUAL REPORT 2017 43
CREDIT METRICS
Credit metrics remained stable and reflected a favorable credit environment during 2017.
Non-accrual loans were $221 million (0.76% of loans), down from $279 million (0.94%) at December 31, 2016 and $252 million
(0.83%) at December 31, 2015. Non-accruals are presented in tabular form by segment and division, and discussed later in this
section.
The provision for credit losses reflects loss adjustments related to loans recorded at amortized cost, off-balance
commitments and related reimbursements under indemnification agreements. The provision for credit losses was $115 million,
down from $195 million in 2016 and $159 million in 2015. The decline from 2016 reflected current market conditions and net
credit benefits from changes in portfolio mix in Commercial Banking, partially offset
Transaction in 2017. The 2016 increase from 2015 was driven primarily by the maritime portfolio and the energy portfolio. To a
lesser degree, the provision for credit losses reflects the increase in reserve resulting from the recognition of purchase
accounting accretion on loans.
by charges related to the Financial Freedom
sheet
ff
ff
Net charge-offsff were $115 million (0.39% as a percentage of average loans) in 2017, compared to $111 million (0.37%) in 2016
and $137 million (0.58%) in 2015. Net charge-offsff
related to the transfer of receivables to AHFS. Absent charge-offsff on loans transferred to AHFS, net charge-offsff were 0.28%,
0.23% and 0.27% for the years ended December 31, 2017, 2016 and 2015, respectively. Net charge-offsff are presented in a table
and discussed later in this section.
include $34 million in 2017, $41 million in 2016, and $73 million in 2015
The following table presents detail on our allowance for loan losses, including charge-offsff and recoveries and provides
summarized components of the provision and allowance:
Allowance for Loan Losses and Provision for Credit Losses (dollars in millions)
Years ended December 31,
2017
2016
2015
2014
2013
(2)
Allowance — beginning of period
Provision for credit losses(1)
Other(1)
Net additions
Gross charge-offsff
Less: Recoveries
Net Charge-offsff
Allowance — end of period
Provision for credit losses
Specific allowance — impaired loans
Non-specific allowance
Total
Allowance for loan losses
Specific reserves on impaired loans
Non-specific reserves
$
$
$
$
$
$
$
$
$
$
$
$
$
$
432.6
114.6
)
(
(0.9)
113.7
137.7
22.5
115.2
431.1
(3.3)
117.9
114.6
26.0
405.1
431.1
$
$
$
$
$
$
$
347.0
194.7
2.2
196.9
136.6
25.3
111.3
432.6
33.7
161.0
194.7
33.7
398.9
432.6
$
$
$
$
$
$
$
334.2
158.6
)
(
(9.1)
149.5
165.1
28.4
136.7
347.0
18.1
140.5
158.6
27.4
319.6
347.0
$
$
$
$
$
$
$
339.1
104.4
)
(10.7)
(
93.7
126.8
28.2
98.6
334.2
(15.3)
119.7
104.4
12.4
321.8
334.2
353.0
75.3
)
(
(7.3)
68.0
138.6
56.7
81.9
339.1
(3.0)
78.3
75.3
29.8
309.3
339.1
$
$
Total
Ratio
Allowance for loan losses as a percentage of total loans
Allowance for loan losses as a percent of finance receivable /
1.91%
Commercial
(1) The provision for credit losses includes amounts related to reserves on unfunded loan commitments, unused letters of credit, and for deferred
purchase agreements, all of which are reflected in other liabilities. The items included in other liabilities totaled $45 million, $44 million, $43
million, $35 million and $28 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.yy "Other" also includes allowance for loan
losses associated with loan sales and foreign currency translations.
1.44%
1.83%
1.81%
1.74%
1.48%
1.83%
1.46%
1.14%
1.91%
$
$
$
$
$
$
$
$
(2) Gross charge-offs included $34 million, $41 million, $73 million, $43 million, and $39 million of charge-offs related to the transfer of
receivables to assets held for sale for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively.yy
The allowance for loan losses was $431.1 million (1.48% of loans, 1.67% excluding loans subject to loss sharing agreements
with the FDIC) at December 31, 2017, compared to $432.6 million (1.46% / 1.72%) at December 31, 2016 and $347.0 million
(1.14% / 1.36%) at December 31, 2015. The 2017 allowance reflects a greater percentage of Commercial loans in the portfolio,
partially offset
2015 was primarily due to reserve builds across the divisions of Commercial Banking, including $32 million related to maritime
loans within the Commercial Finance division. The decline in the percentage of allowance to loans in 2015 compared to the prior
years reflects the OneWest Transaction, which added $13.6 billion of loans at fair value with no related allowance at the time of
acquisition.
by the improved reserve rate on the Commercial portfolio. The increase in the 2016 allowance for loan losses from
ff
44 CIT ANNUAL REPORT 2017
See Note 1 — Business and Summary of Significant Accounting Policies for discussion on policies relating to the allowance for
loan losses, Note 3 - Loans for details regarding the unpaid principal balance, carrying value and allowance for loan losses
related to PCI loans, and Note 4 — Allowance for Loan Losses for additional segment related data in Item 8 Financial
Statements and Supplementary Data, and Critical Accounting Estimates for further analysis of the allowance for credit losses.
Segment Finance Receivables and Allowance for Loan Losses (dollars in millions)
December 31, 2017
Commercial Banking
Consumer Banking
Total
December 31, 2016
Commercial Banking
Consumer Banking
Total
December 31, 2015
Commercial Banking
Consumer Banking
Total
December 31, 2014
Commercial Banking
Non-Strategic Portfolio
Total
December 31, 2013
Commercial Banking
Non-Strategic Portfolio
Total
Loans
Allowance
for Loan
Losses
Net Carrying
Value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
23,159.3
5,954.6
29,113.9
,
22,562.3
6,973.6
29,535.9
,
23,332.4
7,186.3
30,518.7
,
16,727.8
1,532.8
18,260.6
,
14,556.6
3,188.7
17,745.3
,
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(402.2) $
)
(
(28.9)
) $
(431.1) $
(
(408.4) $
)
(24.2)
(
) $
(432.6) $
(
(336.8) $
)
(10.2)
(
) $
(347.0) $
(
(296.7) $
)
(37.5)
(
) $
(334.2) $
(
(283.1) $
)
(56.0)
(
) $
(339.1) $
(
22,757.1
5,925.7
28,682.8
,
22,153.9
6,949.4
29,103.3
,
22,995.6
7,176.1
30,171.7
,
16,431.1
1,495.3
17,926.4
,
14,273.5
3,132.7
17,406.2
,
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 45
The following table presents charge-offs,
ff
by class. See Results by Business Segment for additional information.
Charge-offs as a Percentage of Average Loans for the Years Ended December 31 (dollars in millions)
Gross Charge-offs
Commercial Finance
$
Real Estate Finance
Business Capital
Commercial Banking(1)
Other Consumer Banking
Legacy Consumer
Mortgages
Consumer Banking(2)
Non-Strategic Portfolio(3)
Total
Less: Recoveries
Commercial Finance
Business Capital
Commercial Banking(1)
Other Consumer Banking
Legacy Consumer
Mortgages
Consumer Banking(2)
Non-Strategic Portfolio(3)
Total
Net Charge-offs
Commercial Finance
Real Estate Finance
Business Capital
Commercial Banking(1)
Other Consumer Banking
Legacy Consumer
Mortgages
$
$
$
$
2017
2016
2015
2014
2013
31.3
4.3
79.6
115.2
0.2
22.3
22.5
—
0.33% $
0.08%
1.07%
0.51%
—%
0.53%
0.35%
—%
62.2
1.6
70.0
133.8
—
2.8
2.8
—
0.57% $
59.5
0.61% $
0.03%
1.05%
0.58%
—%
0.04%
0.04%
—%
—
53.5
113.0
—
1.3
1.3
50.8
—%
0.81%
0.57%
—%
0.04%
0.04%
5.17%
29.7
—
39.6
69.3
—
—
—
0.38% $
21.8
—%
0.67%
0.44%
—%
—%
—%
—
31.9
53.7
—
—
—
57.5
2.35%
84.9
137.7
0.47% $
136.6
0.45% $
165.1
0.70% $
126.8
0.70% $
138.6
1.1
20.0
21.1
0.1
1.3
1.4
—
22.5
30.2
4.3
59.6
94.1
0.1
21.0
0.02% $
0.26%
0.10%
—%
0.04%
0.03%
—%
2.1
20.0
22.1
—
3.1
3.1
0.1
0.02% $
0.30%
0.10%
—%
0.04%
0.04%
—%
3.7
13.9
17.6
—
1.1
1.1
9.7
0.04% $
0.21%
0.09%
—%
0.03%
0.03%
0.98%
0.08% $
25.3
0.08% $
28.4
0.12% $
0.31% $
0.08%
0.81%
0.41%
—%
0.49%
60.1
1.6
50.0
111.7
—
0.55% $
55.8
0.57% $
0.03%
0.75%
0.48%
—%
—
39.6
95.4
—
—%
0.60%
0.48%
—%
(0.3)
—%
0.2
0.01%
0.6
16.9
17.5
—
—
—
10.7
28.2
29.1
—
22.7
51.8
—
—
0.01% $
0.29%
0.11%
—%
—%
—%
7.2
24.0
31.2
—
—
—
0.44%
0.15% $
25.5
56.7
0.37% $
14.6
—%
0.38%
0.33%
—%
—%
—
7.9
22.5
—
—
0.31%
—%
0.59%
0.39%
—%
—%
—%
2.31%
0.80%
0.11%
0.44%
0.23%
—%
—%
—%
0.70%
0.33%
0.20%
—%
0.15%
0.16%
—%
—%
Consumer Banking(2)
Non-Strategic Portfolio(3)
Total
(1) Commercial Banking charge-offs for 2017, 2016, 2015, 2014, and 2013 included approximately $14 million, $41 million, $33 million, $18 million, and $5 million,
0.37% $
0.55% $
0.39% $
0.58% $
0.32%
0.01%
1.91%
4.19%
115.2
136.7
111.3
(0.1)
(0.3)
98.6
81.9
41.1
21.1
59.4
46.8
—%
—%
—%
—%
0.2
—
—
—
$
1.61%
0.47%
—%
respectively,yy related to the transfer of loans to assets held for sale.
(2) Consumer Banking charge-offs for 2017 included approximately $20 million related to the transfer of loans to assets held for sale. There were no Consumer
Banking charge-offs related to the transfer of loans to assets held for sale in the prior periods.
(3) There were no NSP charge-offs related to the transfer of loans to assets held for sale for 2017 and 2016, and approximately $40 million, $24 million, and $34
million for 2015, 2014, and 2013, respectively.yy
The decline in net charge-offsff
in Commercial Banking in 2017 reflected lower charge-offsff on the energy portfolio, whereas this
portfolio accounted for the increase in 2016 compared to 2015. In conjunction with strategic initiatives, transfers of portfolios to
AHFS elevated net charge-offsff beginning in 2013. This trend continued in 2017 with charge-offsff of $34 million related to
transfers to AHFS, of which $20 million related to the reverse mortgage loan portfolio in Consumer Banking. In 2016, charge-offsff
of $41 million related to Commercial Finance loans transferred to AHFS. In 2015, significant charge-offsff were recorded on the
transfers to AHFS of the Canada and China portfolios in NSP,P along with certain asset sales in Commercial Finance. Charge-offsff
associated with loans transferred to AHFS do not generate future recoveries as the loans are generally sold before recoveries
can be realized and any gains on sales are reported in other non-interest income. Excluding assets transferred to held for sale,
net charge-offsff
in 2017 were $81 million, up from $70 million, $64 million, $56 million and $43 million for 2016, 2015, 2014 and
2013, respectively.
The tables below present information on non-accruing loans, which includes loans related to 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 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 because we expect to
fully collect the new carrying values of these loans.
46 CIT ANNUAL REPORT 2017
Non-accrual and Accruing Past Due Loans at December 31 (dollars in millions)
Non-accrual loans
U.S.
Foreign
Non-accrual loans
Troubled Debt Restructurings
U.S.
Foreign
Restructured loans
Accruing loans past due 90 days or more
Accruing loans past due 90 days or more
2017
2016
2015
2014
2013
$
$
$
$
$
211.1
9.8
220.9
103.5
—
103.5
31.9
$
$
$
$
$
218.9
59.7
278.6
41.7
40.6
82.3
32.0
$
$
$
$
$
185.3
67.0
252.3
26.4
4.6
31.0
15.8
$
$
$
$
$
71.8
88.6
160.4
13.5
3.7
17.2
10.3
$
$
$
$
$
176.3
50.1
226.4
216.2
2.9
219.1
9.9
Segment Non-accrual Loans as a Percentage of Finance Receivables at December 31 (dollars in millions)
2017
2016
2015
$
Commercial Finance
Real Estate Finance
Business Capital
Commercial Banking
Legacy Consumer Mortgages
Other Consumer Banking
Consumer Banking
Non-Strategic Portfolio
Total
NM — not meaningful; The December 31, 2017, 2016 and 2015 loan balance was classified as held for sale. Non-accrual loans include loans
held for sale; since there were no portfolio loans, no % is displayed.
1.90% $
0.37%
0.60%
1.11%
0.36%
—%
0.25%
NM
$
0.94% $
1.36% $
0.05%
0.70%
0.82%
0.60%
0.02%
0.34%
NM
$
0.76% $
134.8
2.8
53.2
190.8
19.9
0.4
20.3
9.8
220.9
131.5
3.6
56.0
191.1
4.8
0.4
5.2
56.0
252.3
188.8
20.4
41.7
250.9
17.3
0.1
17.4
10.3
278.6
1.15%
0.07%
0.86%
0.82%
0.09%
0.02%
0.07%
NM
0.83%
$
$
Non-accrual loans decreased in 2017, driven by the resolution of Maritime and Real Estate Finance loans. Non-accrual loans
were up in 2016, driven by a $49 million Maritime account and a few other large accounts in the Commercial Finance division
and a large account in Real Estate Finance (all within the Commercial Banking segment), partially offset
by decreases due to
portfolio sales of the Canadian and U.K. portfolios in the NSP segment.
ff
Approximately 52% of our non-accrual accounts were paying currently compared to 75% at December 31, 2016. Our impaired
loan carrying value (including PAAAA discount, specific reserves and charge-offs)
to estimated outstanding unpaid principal
balances approximated 76%, compared to 77% at December 31, 2016. For this purpose, impaired loans are comprised
principally of non-accrual loans over $500,000 and TDRs.
ff
Total delinquency (30 days or more) was 1.3% of loans at December 31, 2017, up from 1.1% at December 31, 2016.
Foregone Interest on Non-accrual Loans and Troubled Debt Restructurings (dollars in millions)
2017
2016
2015
U.S.
Foreign
Total
U.S.
Foreign
Total
U.S.
Foreign
Total
Interest revenue that would have been
earned at original terms
Less: Interest recorded
Foregone interest revenue
$
$
$
22.7
)
(5.8)
(
16.9
$
$
$
1.8
)
(0.7)
(
1.1
$
$
$
24.5
)
(6.5)
(
18.0
$
$
$
24.5
)
(6.8)
(
17.7
$
$
$
4.0
)
(0.2)
(
3.8
$
$
$
28.5
)
(7.0)
(
21.5
$
$
$
23.7
)
(5.9)
(
17.8
$
$
$
9.4
)
(3.2)
(
6.2
$
$
$
33.1
)
(9.1)
(
24.0
The Company periodically modifies the terms of loans/finance receivables in response to borrowers' difficulties.
that include a financial concession to the borrower, which otherwise would not have been considered, are accounted for as
troubled debt restructurings ("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.
Modifications
ff
Item 7: Management's Discussion and Analysis
The table that follows reflects loan carrying values of accounts that have been modified, excluding PCI loans.
Troubled Debt Restructurings and Modifications at December 31 (dollars in millions)
CIT ANNUAL REPORT 2017 47
Troubled Debt Restructurings(1)
Deferral of principal and/or interest
Covenant relief and other
Total TDRs
Percent non-accrual
Modifications(2)
Extended maturity
Covenant relief
Interest rate increase
Other
Total Modifications
2017
2016
2015
%
Compliant
%
Compliant
%
Compliant
$
$
$
$
31.8
71.7
103.5
63%
35.7
260.2
102.8
229.5
628.2
95% $
70%
78% $
100% $
100%
100%
90%
$
9.6
72.7
82.3
41%
95.0
261.1
138.2
216.0
710.3
99% $
95%
84% $
100% $
100%
100%
92%
$
23.0
8.0
31.0
84%
0.2
65.6
43.0
138.1
246.9
99%
90%
86%
100%
100%
100%
96%
Percent non-accrual
(1) Excludes TDR loans in a trial modification of $12.5 million, $39.5 million and $31.5 million at December 31, 2017, 2016 and 2015, respectively.yy
23%
16%
8%
See Note 3 - Loans for further details.
(2) Table depicts the predominant element of each modification, which may contain several of the characteristics listed.
TDRs were up in 2017, while the increase in 2016 reflected maritime portfolio accounts. Modifications were down in 2017, while
the primary drivers to the increase in 2016 were the maritime and energy portfolios.
TDRs, PCI loans, and other credit quality information is included in Note 3 — Loans in Item 8. Financial Statements and
Supplementary Data. See also Note 1 — Business and Summary of Significant Accounting Policies in Item 8. Financial
Statements and Supplementary Data.
NON-INTEREST INCOME
As presented in the following table, Non-interest Income includes Rental Income on Operating Leases and Other Non-Interest
Income. Non-interest income is also discussed in each of the individual segments in Results By Business Segment.
Comparisons of Other Non-Interest Income were impacted by the inclusion of OneWest Bank activity for five months during
2015, compared to full years thereafter.
Non-interest Income (dollars in millions)
Rental income on operating leases
Other non-interest income:
Fee revenues
Factoring commissions
Gains on sales of leasing equipment
Gain on investments
Gains (losses) on loan and portfolio sales
Gains (losses) on OREO sales
Net gains (losses) on derivatives and foreign currency exchange
Impairment on assets held for sale
Termination fees on Canadian total return swap
Other revenues
Total other non-interest income
Total non-interest income
Total other non-interest income, excluding noteworthy items (Non-GAAP)(1)
(1) See reconciliation of non-GAAP to GAAP in Non-GAAP Financial Measurements section.
Rental Income on Operating Leases
Years Ended December 31,
2017
1,007.4
$
2016
1,031.6
$
$
113.6
102.9
43.8
31.2
22.9
4.3
(5.4)
(32.2)
—
83.1
364.2
,
1,371.6
369.7
$
$
$
111.6
105.0
51.1
34.6
34.2
10.2
55.9
(36.6)
(280.8)
65.4
150.6
,
1,182.2
357.1
$
$
$
$
$
$
2015
1,018.1
105.7
116.5
57.0
0.9
(47.2)
(5.4)
(37.9)
(55.9)
—
15.9
149.6
,
1,167.7
246.4
Rental income on operating leases from equipment we lease is generated in the Rail and, to a lesser extent, the
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 - Commercial Banking". See
48 CIT ANNUAL REPORT 2017
also Note 6 — Operating Lease Equipment in Item 8 Financial Statements and Supplementary Data for additional information on
operating leases.
Other Non-Interest Income
Other non-interest income increased in 2017, reflecting the following:
Fee revenues, which include fees on lines and letters of credit, capital markets-related fees, agent and advisory fees and
servicing fees, are mainly driven by our Commercial Banking segment. Fee revenue was up from both 2016 and 2015, reflecting
the impact of higher capital market fees in Commercial Finance.
Factoring commissions were down slightly despite an increase in factoring volumes, as a reduction in the mix of higher risk
receivables put downward pressure on pricing. Factoring volume was $27.5 billion in 2017, up from $24.9 billion in 2016 and
$25.8 billion in 2015.
Gains on sales of leasing equipment corresponded to sales of $219 million in 2017, $344 million in 2016 and $342 million in
2015. Most of the gains for each of the years reflects sales of rail assets, while a majority of the assets sold relate to equipment
in the Business Capital division.
Gains on investments in 2017 mostly reflected gains on sales of mortgage-backed securities, changes in value of mortgage-
backed securities carried at fair value, and to a lesser extent, sales of equity investments that were received as part of a lending
transaction, or in some cases, a workout situation. During 2017, essentially all of the MBSs carried at fair value were sold or
matured. The 2016 amount was driven by a $22 million equity security sale from a loan workout, along with net gains on
mortgage-backed securities.
Gains (losses) on loan and portfolio sales resulted from $0.4 billion of sales in 2017, $1.3 billion in 2016, and $1.1 billion in 2015.
Gains and losses vary based on the underlying loan and market conditions. Gains in 2017 were driven by sales in Commercial
Banking, mostly in the Commercial Finance division, with the largest component related to energy assets. Gains of $22 million in
2016 related to the sale of the Canadian Equipment and Corporate Finance businesses in NSP and $12 million in the
Commercial Finance division of Commercial Banking. The loss for 2015 was driven by $66 million of losses in NSP,P primarily due
to the realization of currency translation adjustments ("CTA")TT
Mexico and Brazil businesses. Sales in Commercial Banking resulted in $18 million of gains, mostly in the Commercial Finance
division.
losses of approximately $70 million related to the sales of the
Gains (losses) on OREO sales reflect sales and adjustments to the carrying value of Other Real Estate Owned (OREO) assets,
and primarily relate to foreclosures in the mortgage portfolios in the Consumer Banking segment. The decline in 2017 related to
$5 million of impairments recorded on OREO on reverse mortgages to be sold related to the Financial Freedom Transaction.
Net gains (losses) on derivatives and foreign currency exchange includes transactional foreign currency movements, realization
of CTATT amounts from accumulated other comprehensive loss due to translation adjustments related to the liquidating portfolios
and the valuation of the derivatives within the TRS.
Foreign currency movements and other exposures resulted in net gains of $5 million in 2017, $11 million in 2016 and $4 million
in 2015. On a gross basis, transactional foreign currency movements resulted in gains of $30 million in 2017 and losses of $27
million in 2016, and $112 million in 2015. The impact of these transactional foreign currency movements was mitigated by losses
of $25 million in 2017 and gains of $38 million in 2016 and $116 million in 2015 on derivatives that economically hedge foreign
currency movements and other exposures.
The valuation of the derivatives within the TRS resulted in a loss of $3 million in 2017. 2016 activity reflected valuations of the
Canadian TRS and our Dutch subsidiary's total return swap facility (the "Dutch TRS", together with the Canadian TRS,
collectively, the "TRS Transactions") that resulted in gains of $44 million in 2016, primarily due to the termination of the Canadian
TRS in December 2016 which resulted in a $37 million benefit from the reversal of mark-to-market charges related to the
derivative portion of the terminated facility, compared to losses of $30 million in 2015. See Termination fees on Canadian TRS
discussion below.
For additional information on the impact of derivatives on the income statement, refer to Note 11 — Derivative Financial
Instruments in Item 8 Financial Statements and Supplementary Data.
Impairment on assets held for sale in 2017 includes amounts related to the agreement to sell the reverse mortgage portfolio as
part of the Financial Freedom Transaction, including a $9 million impairment on reverse mortgage related assets and $18 million
in write-downs related to the reverse mortgage loan portfolio in held for sale. Impairments in 2016 included $22 million in NSP
relating to the China and Canada portfolios, with the remainder related to Commercial Banking, driven by impairments on rail
equipment. Impairments in 2015 were driven by charges in NSP on the Mexico and Brazil portfolios held for sale, the transfer of
the Canada portfolio to AHFS and impairment of associated goodwill, and on other international portfolios held for sale.
Impairment charges are also recorded on operating lease equipment in AHFS. 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
Impairment on assets held for sale. (See Other Expenses for related discussion on depreciation on operating lease equipment.)
Termination fees on Canadian TRS reflect payment on December 7, 2016, of the present value of the remaining facility fee 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 above, 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.
Other revenues included items that are more episodic in nature, such as gains on work-out related claims, proceeds received in
excess of carrying value on non-accrual accounts held for sale that were repaid or had another workout resolution, insurance
proceeds in excess of carrying value on damaged leased equipment, and income from joint ventures. Other revenues for 2017
included $29 million related to the change in accounting policy for LIHTC from the equity method to the proportional amortization
Item 7: Management's Discussion and Analysis
method. (See Note 1 — Business and Summary of Significant Accounting Policies and Note 8 — Other Assets in Item 8
Financial Statements and Supplementary Data for further details). In the second half of 2017, the Company acquired
approximately $780 million of Bank Owned Life Insurance ("BOLI"), which resulted in income of $9 million. Other revenues for
2016 included a gain on sale of the U.K. business of $24 million in NSP. Other revenue also included certain recoveries not part
of the provision for credit losses, which totaled $9 million in 2017, $12 million in 2016, and $15 million in 2015.
CIT ANNUAL REPORT 2017 49
EXPENSES
As discussed below, comparisons of operating expenses were impacted by the inclusion of OneWest Bank activity for the full
years 2017 and 2016 and five months during 2015.
Non-Interest Expense (dollars in millions)
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Operating expenses:
Compensation and benefits
Professional fees
Technology
Insurance
Net occupancy expense
Advertising and marketing
Other
Operating expenses, excluding restructuring costs and intangible asset amortization
Restructuring costs
Intangible asset amortization
Total operating expenses
Goodwill impairment
Loss on debt extinguishments and deposit redemptions
Total non-interest expenses
Headcount (continuing operations)
Operating expenses excluding restructuring costs, intangible asset amortization, and
other noteworthy items(1)
Years Ended December 31,
2016
2015
2017
$
296.3
222.9
$
261.1
213.6
$
566.3
132.3
127.9
84.7
67.8
42.2
89.6
1,110.8
53.0
24.7
1,188.5
255.6
220.0
,
2,183.3
3,909
1,110.8
$
$
$
585.5
175.8
133.7
96.5
71.9
20.5
137.8
1,221.7
36.2
25.6
1,283.5
354.2
12.5
,
2,124.9
4,080
1,194.4
$
$
$
$
$
$
229.2
185.1
549.6
135.0
109.2
61.6
49.1
30.4
114.6
1,049.5
58.3
13.3
1,121.1
—
1.5
,
1,536.9
4,460
1,025.6
Operating expenses excluding restructuring costs and intangible asset amortization
as a % of AEA(1)
Operating expenses excluding restructuring costs, intangible asset amortization and
other noteworthy items as a % of AEA (excluding noteworthy items)(1)
Net efficiency
ff
Net efficiency
ff
(1) Operating expenses, excluding restructuring costs and intangible amortization, and other noteworthy items, as a % of AEA is a non-GAAP
ratio(2)
ratio excluding noteworthy items(2)
56.4%
56.3%
65.5%
57.6%
2.51%
2.37%
2.42%
2.56%
2.76%
2.70%
71.5%
65.6%
measure; see "Non-GAAP Financial Measurements" for a reconciliation of non-GAAP to GAAP financial information.
(2) Net efficiency ratio is a non-GAAP measurement used by management to measure ooperating expensess (before restructurinngg costs and
intangible amortization, and other noteworthy items) to the level of total net revenuues. See "Non-GAAAPP Financial Measureements" for a
reconciliation of non-GAAP to GAAP financial information.
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 officeff
equipment, in the Rail and
Business Capital divisions in Commercial Banking, respectively. Depreciation expense is discussed in “Net Finance Revenue,”
as it is a component of our NFM. Equipment held for sale also impacts the balance, as depreciation expense is suspended on
operating lease equipment once it is transferred to AHFS. See “Non-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
railcar maintenance and repair. Maintenance expenses on railcars increased from the year-ago and prior quarters on the growing
portfolio, with increased costs associated with end of lease railcar returns and higher Railroad Interchange repair expenses.
50 CIT ANNUAL REPORT 2017
Operating Expenses
Operating expenses, excluding restructuring costs and intangible asset amortization is used by management to compare period
over period expenses. On this basis, operating expenses were down from 2016 in all presented categories except advertising
and marketing costs, primarily in Consumer Banking. Operating expenses increased in 2016, impacted by the inclusion of
OneWest Bank activity for the full year 2016 compared with five months during 2015. Operating expenses in 2016 also reflected
costs to remediate legacy OneWest Bank items, costs related to becoming SIFI compliant, costs associated with implementing
our strategic initiatives, additional integration costs associated with acquiring OneWest Bank, and added technology costs.
We remained focused on reducing our operating costs in 2017 and we are on track to achieve the reduction of our 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:
•
•
•
•
•
•
•
•
•
Compensation and benefits decreased in 2017 reflecting the lower headcount resulting from our strategic initiatives, as we
continued to right-size the organization. Compensation and benefits increased in 2016 compared to 2015, due to the higher
level of employees throughout the year, which included a full year of the additional employee costs from OneWest Bank.
See Note 20 — Retirement, Postretirement and Other Benefit Plans in Item 8. Financial Statements and Supplementary
Data.
Professional fees included legal and other professional fees, such as tax, audit, and consulting services. The elevated
amount in 2016 reflected costs incurred for various strategic initiatives, consulting services related to strategic reviews of our
businesses, and continued OneWest Bank integration costs. We also incurred third-party costs to assist in improving our
capital planning and CCAR reporting capabilities.
Technology costs decreased from 2016 due to the timing of anticipated costs. Technology costs increased in 2016 related to
system upgrades and enhancements incurred to integrate OneWest Bank, charges to write-offff certain capitalized IT costs,
and the additional regulatory reporting requirements of being a SIFI organization.
Insurance expenses decreased from 2016 on lower FDIC costs, reflecting a decline in the insurance assessment base and
improvements in the assessment variables. Insurance expenses increased in 2016, mostly reflecting higher FDIC costs to
insure the increased deposit balances for the entire year compared to a partial year in 2015.
Net Occupancy expenses were down from 2016 as we streamlined our operations, while the increase in 2016, reflected the
locations for the entire
added costs associated with the OneWest Bank acquisition related to the branch network and officeff
year compared to partial year in 2015.
Advertising and marketing expenses include costs associated with raising deposits and marketing programs. The increase
in 2017 reflected additional marketing promotions.
Restructuring costs reflects various organization efficiency
strategic initiatives to reduce operating expenses and streamline our operations. Restructuring costs in 2015 mostly
reflected severance related to streamlining the senior management structure, mainly the result of the OneWest Transaction.
The facility exiting activities were minor in comparison. See Note 27 — Severance and Facility Exiting Liabilities for
additional information in Item 8. Financial Statements and Supplementary Data.
initiatives. Restructuring costs in 2017 and 2016 primarily reflect
ff
Amortization of intangible assets was down slightly in 2017 and increased in 2016, primarily reflecting a full year of
amortization of the intangible assets recorded in the OneWest Transaction. See Note 26 — Goodwill and Intangible Assets
in Item 8. Financial Statements and Supplementary Data, which displays the intangible assets by type and segment, and
describes the accounting methodologies.
Other expenses include items such as travel and entertainment, officeff
taxes, such as state sales tax, etc.), and from time to time includes settlement agreement costs, including OneWest Bank
legacy matters. Other expenses were elevated in 2016 and 2015, which included higher 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.
equipment and supplies and taxes (other than income
Goodwill Impairment
The Company recorded goodwill impairment of $255.6 million, mostly related to Equipment Finance in the Commercial Banking
segment, in 2017 and impairment of $319.4 million and $34.8 million in the Consumer Banking and Commercial Banking
segments, respectively, during the fourth quarter of 2016.
See Note 26 — Goodwill and Intangible Assets in Item 8. Financial Statements and Supplementary Data and Critical Accounting
Estimates further in the MD&A, both of which discuss goodwill impairment testing.
Loss on Debt Extinguishments and Deposit Redemptions
Loss on debt extinguishments and deposit redemptions in 2017 related to the tender and early redemption of unsecured
borrowings. Loss on debt extinguishments and deposit redemptions in 2016 related to certain secured debt instruments and
early redemptions of high-cost brokered deposits. See the Funding and Liquidity and Note 10 — Borrowings sections for further
discussion.
Item 7: Management's Discussion and Analysis
INCOME TAXES
Income Tax Data (dollars in millions)
Provision for income taxes, before discrete tax items
Discrete tax (benefit) expense
(Benefit) provision for income taxes
Effective
ff
tax rate
tax rate, before tax discrete items and noteworthy items(1)
ff
Effective
(1) Effective tax rate excluding discreterr
items or noteworthy items arerr non-GAAP measures.
rr
CIT ANNUAL REPORT 2017 51
Years Ended December 31,
$
$
2017
105.2
(173.0)
)
(67.8)
(
(35.4)%
$
$
See “Non-GAAP Measurements”
33.6 %
rr
$
$
2016
143.5
60.0
203.5
NM
40.2%
2015
79.5
(617.5)
)
(538.0)
(
NM
30.5%
for reconciliation of non-GAAP
financial information.
The Company's 2017 income tax benefit from continuing operations is $67.8 million. This compares to an income tax provision of
$203.5 million in 2016 and an income tax benefit of $538.0 million in 2015. The income tax provision before the impact of tax
discrete items was lower this year, as compared to 2016, primarily driven by the impact of certain items in pretax income that
shifted the geographic mix of earnings, including the impact from noteworthy items. Included in the net discrete tax benefit of
$173.0 million for the current year is:
•
•
•
•
•
•
•
ff
by a $56.8 million valuation allowance,
of the $29 million pretax item recorded in other non-interest income,
$177.4 million deferred income tax benefit related to the recognition of a $234.2 million deferred tax asset related to an
equity investment in a wholly-owned foreign subsidiary, partially offset
$26.6 million income tax expense related to the cumulative effect
ff
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 and Note 1 includes an $11.6 million tax effect
$19.3 million current tax benefit, including interest and penalties, related to legacy OneWest Bank matters, including the
release of a tax reserve upon the favorable resolution of an uncertain tax position and recognition of expected tax refunds,
$13.9 million in deferred tax expense recorded related to the restructuring of legal entities in preparation for the Commercial
Air sale,
$11.6 million net deferred tax benefit was recognized from the effect
included the following:
•
ff
adjustment for the Company’s election to change the
$13.6 million deferred income tax benefit related to the reduction of deferred tax liabilities on previously untaxed
earnings and profits (“E&P”) due to provisions in the U.S. Tax Reform that imposes a one-time “TollTT 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 Company has a net deficit in E&P and, accordingly, has no Toll Tax liability,
$4.9 million expense reported on the income tax expense line for an increase in amortization expense resulting from
revaluation of the LIHTC investments,
$2.9 million deferred income tax benefit related to revaluation of the U.S. deferred tax assets and liabilities as a result of
ff
change in U.S federal tax rates from 35% to 21% with an effective
of the enacted U.S. tax reform legislation which
date of January 1, 2018,
•
•
ff
$5.7 million net deferred tax benefit related to the 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 $5.3 million deferred tax expense, which is now categorized as “held for sale,” and
$0.5 million of miscellaneous other year to date net tax expense items.
The Company's 2016 income tax provision from continuing operations was $203.5 million. This compares to an income tax
benefit of $538.0 million in 2015. The income tax provision before the impact of discrete items was higher in 2016, as compared
to 2015, primarily driven by certain items in pretax income that shifted the geographic mix of earnings. Included in the net
discrete tax expense of $60 million for 2016 was:
•
•
•
•
$54 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,
$15 million tax expense related to the establishment of valuation allowances against certain international net deferred tax
assets due to our international platform rationalizations,
$14 million tax benefit, including interest and penalties, resulting from resolution of certain tax matters by the tax authorities
related to uncertain tax positions taken on certain prior year non-U.S. tax returns, and
$5 million of miscellaneous net tax expense items.
The Company's 2015 income tax provision of $79.5 million, excluding discrete items, reflected federal and state income taxes in
the U.S. as well as taxes on earnings of certain international operations. Included in the net discrete tax benefit of $617.5 million
for 2015 was:
•
•
•
$647 million tax benefit corresponding to a reduction to the U.S. federal DTATT valuation allowance after considering the
impact on earnings of the OneWest acquisition to support the Company's ability to utilize the U.S. federal net operating
losses,
$29 million tax expense including interest and penalties, related to an uncertain tax position taken on certain prior year
international tax returns,
$28 million tax expense related to the 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 China,
52 CIT ANNUAL REPORT 2017
•
•
$18 million tax benefit including interest and penalties, related to changes in uncertain tax positions from resolution of open
tax matters and closure of statutes, and
$9 million tax benefit corresponding to a reduction of certain tax reserves upon the receipt of a favorable tax ruling on an
uncertain tax position taken on prior years' tax returns.
ff
The change in the effective
international earnings, effects
term future periods effective
factors.
ff
ff
tax rate each period is impacted by a number of factors, including the relative mix of domestic and
of changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The near
ff
tax rate may vary from the actual year-end 2017 effective
tax rate due to the changes in these
ff
ff
tax rate before discrete items was significantly impacted by noteworthy items that reduced pretax
The 2017 global effective
income. Excluding noteworthy and tax discrete items highlighted in the non-GAAP table, the Company estimates that the
tax rate would have been approximately 34% in 2017. Management expects the 2018 global effective
effective
approximately 25% to 26%. However, there will be a minimal impact on cash taxes paid, until the related NOL carry-forward is
fully utilized. 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.
tax rate to be
ff
See Note 19 - Income Taxes in Item 8. Financial Statements and Supplementary Data for detailed discussion on the Company's
domestic and foreign reporting entities' net DTAs,TT
entities and their respective VA analysis.
related to the net operating losses ("NOLs") in these
inclusive of the DTAsTT
RESULTSLL
BY BUSINESS SEGMENT
SEGMENT REPORTING UPDATESAA
CIT manages its business and reports its financial results in three operating segments: Commercial Banking, Consumer
Banking, and Non-Strategic Portfolios ("NSP"), and a non-operating segment, Corporate and Other.
See Business Segments in Item 1. Business Overview for more detailed descriptions of each of the business segments and
divisions therein. Also see Item 8. Financial Statements and Supplementary Data, Note 25 — Business Segment Information.
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, banking services, capital markets transactions, and commissions earned on factoring and related activities.
Item 7: Management's Discussion and Analysis
Commercial Banking — Financial Data and Metrics (dollars in millions)
Earnings Summary
Interest income
Rental income on operating leases
Finance revenue
Interest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net finance revenue (NFR)
Provision for credit losses
Other non-interest income
Operating expenses
Goodwill impairment
Income before provision for income taxes
Select Period End Balances
Loans and leases (including held for sale)
Earning assets (net of credit balances)
Select Average Balances
Average earning assets (AEA) (net of credit balances)
Average loans (includes held for sale, and net of credit balances)
Average operating leases (AOL) (includes held for sale)
Statistical Data
Net finance margin — NFR as a % of AEA
Net operating lease revenue — rental income, net of depreciation and maintenance
and other operating lease expenses
ratio
Operating lease margin as a % of AOL
ff
Net efficiency
Pretax return on AEA
New business volume
Factoring volume
CIT ANNUAL REPORT 2017 53
Years Ended December 31,
2017
2016
2015
$
$
$
$
1,248.0
1,007.4
2,255.4
517.7
296.3
222.9
1,218.5
88.7
291.0
691.7
255.6
473.5
31,232.4
30,039.0
29,270.1
21,339.5
7,685.0
$
$
$
$
1,287.9
1,020.0
2,307.9
519.1
261.1
213.6
1,314.1
183.1
293.8
761.6
34.8
628.4
30,406.1
29,403.1
29,762.9
22,165.2
7,193.5
1,029.1
981.4
2,010.5
481.4
218.3
185.1
1,125.7
143.7
302.6
727.4
—
557.2
30,619.2
29,773.3
25,339.6
18,377.0
6,283.4
4.16%
4.42%
488.2
$
545.3
$
6.35%
45.40%
1.62%
7.59%
47.00%
2.11%
4.44%
578.0
9.20%
50.57%
2.20%
8,607.7
27,480.1
$
$
8,216.2
24,907.4
$
$
9,005.1
25,839.4
$
$
$
$
$
$
$
Operating results in 2017 were down from 2016 as the combination of goodwill impairments in the fourth quarter and lower NFR
offset
with OneWest Bank, which was purchased that year. Trends are further discussed below.
lower credit costs and operating expenses. The 2015 results included five months of revenues and expenses associated
ff
AEA primarily consists of loans and leases. Average loans and leases, net of credit balances of factoring clients, was $29.0
billion for 2017, $29.4 billion for 2016 and $24.7 billion for 2015. The modest decrease in 2017 from 2016 was driven by declines
in the Commercial Finance division, which offset
positioning the portfolio to emphasize opportunities that build upon our specialty lending expertise by providing credit and other
bank products and services, and prepayments. See tabular presentation by division in the Loans and Leases section for period
end balances.
increases in the other divisions. The declines in Commercial Finance reflect
ff
Rail AEA was $7.5 billion for the year ended December 31, 2017, as we expanded our owned operating lease portfolio to
approximately 132,000 railcars, mainly from scheduled deliveries in our order book, partially offset
by sales and scrapping of
certain railcars. During 2017, we entered into a definitive sale agreement to sell our European rail business, which consists of
approximately $1.1 billion of loans and leases in AHFS, including approximately 14,800 railcars. The agreement is subject to
European antitrust regulatory approvals and we anticipate the closing to occur in the second half of 2018. Our owned portfolio
approximated 131,000 and 128,000 railcars at December 31, 2016 and 2015, respectively. Rail assets are primarily originated
through purchase commitments with manufacturers and are also supplemented by spot purchases. At December 31, 2017, we
had approximately 1,550 railcars on order from manufacturers, of which about 870 related to our North America business, with
deliveries scheduled through 2019. See Note 21 — Commitments and Concentrations for further railcar manufacturer
commitment data. A table reflecting railcar types is included in the Concentrations section.
ff
By division, new business volume was up from 2016, as increases in Commercial Finance and Real Estate Finance offset
declines in Rail and Business Capital. The Business Capital decline was primarily driven by the Equipment Finance businesses.
New business volume was down in 2016 from 2015, as the declines in Commercial Finance and Rail were partially offset
increases in Real Estate Finance and Business Capital. The Commercial Finance 2016 decline compared to 2015 was mostly
attributed to the maritime portfolio and the positioning of the business to a more strategic customer base. The Rail declines
reflect market conditions.
by
ff
ff
Factoring volume was up from 2016 and 2015, reflecting mix and market conditions.
Highlights from the table above included:
•
NFR decreased from 2016, as the impact of lower AEA and PAAAA offset
floating rate portfolios and $17 million of suspended depreciation on rail assets held for sale. NFM also declined from 2016,
the benefits from interest rate increases on the
ff
54 CIT ANNUAL REPORT 2017
•
•
•
driven by the NFR declines discussed above. NFR increased in 2016 from 2015, primarily from the benefits of higher AEA
and purchase accounting accretion, while NFM was essentially flat.
PAAPP
totaled $88 million in 2017, essentially all of which benefited interest income, with a minor amount decreasing interest
expense, compared to $150 million in 2016 and $65 million in 2015. PAAAA that was accelerated, for instance due to sale or
prepayment, totaled $44.0 million in 2017, $66.2 million in 2016, and $26.0 million in 2015. (PAAPP
by division in the Net Finance Revenue section.)
is presented in tabular form
Gross yields (interest income plus rental income on operating leases as a % of AEA) for the segment were 7.71%, down
slightly from 2016. Improvements in yields in Commercial Finance and Business Capital were offset
by continued pressure
on Rail yields, primarily driven by lower lease renewal rates driven by continued excess capacity in the industry that offset
ff
marginally improved utilization rates. Railcar utilization rates, including commitments to lease, increased about 100bps
during 2017, and ended 2017 at 95%, compared to 94% at the end of 2016 and 96% at December 31, 2015. Gross yields in
ff
2016 were down slightly from 2015, as the decrease in Rail offset
Finance, and Business Capital. Commercial Finance and Real Estate Finance benefited from PAAAA accretion and interest
recoveries on loans previously charged off.ff See Select Segment and Division Margin Metrics table in Net Finance Revenue
section for further discussion of gross yields.
higher yields in Commercial Finance, Real Estate
ff
ff
the benefits from higher earning assets, a slight increase in utilization, and the suspended
Net operating lease revenue, which is a component of NFR, is driven primarily by the performance of our rail portfolio. Net
operating lease revenue decreased from 2016, as lower rental income in the Rail division and higher maintenance and
operating lease expenses offset
depreciation on the European business portfolio. Maintenance and other operating lease expenses were up, reflecting
increased maintenance, freight and storage costs in rail, and growth in the portfolio. Net operating lease revenue also
reflects trends in equipment utilization with railcar utilization in 2017 remaining lower than the peak in prior years, due to
continued weakness in demand for select energy related car types. The decline in the operating lease margin (as a
percentage of average operating lease equipment) reflects these trends primarily driven by the energy sector. Rail renewal
rates, on average, continued to reprice down reflecting market conditions and the mix of cars renewing. We continue to
expect leases to reprice down an average of 20% to 30% through 2018 and into 2019. Net operating lease revenue in 2016
decreased from 2015, as increased rental income from growth in the Rail division was offset
by lower lease rates, as well as
higher depreciation and maintenance and operating lease expenses.
ff
•
Other non-interest income was down slightly from 2016 and 2015, reflecting the following:
•
•
•
Factoring commissions of $103 million were slightly down from 2016 but down $14 million from 2015, as higher
by lower factoring commissions due to changes in the portfolio mix and competition.
factoring volume was offset
ff
Gains on assets sold was down in 2017 due to lower volume sold, and totaled $63 million, compared to $83 million in
2016 and $75 million in 2015. About half of the gains in each of the years were on rail equipment. The decline from
2016 reflects lower asset sales and lower gains on investments.
Fee revenue was $105 million in 2017, up from $99 million in 2016 and $94 million in 2015. Fee revenue was up from
both 2016 and 2015, reflecting the impact of higher capital market fees in Commercial Finance.
The provision for credit losses was down from 2016, and reflected portfolio mix, lower balances and improved credit metrics.
Changes in portfolio mix include lower credit provisions in 2017 on the maritime portfolio and our factoring business. The
increase in 2016 from 2015 reflected additional new business volume and higher reserve rates. Net charge-offsff were $94
million (0.41% of average finance receivables) for 2017, compared to $112 million (0.48%) in 2016 and $95 million (0.48%)
in 2015. Net charge-offsff excluding assets held for sale were $80 million in the current year, compared to $71 million in 2016
and $62 million in 2015. The increase in 2017 primarily reflects higher charge offsff across the Commercial Finance and Real
Estate Finance portfolios. The 2016 increase reflected charge-offsff
$191 million (0.82% of finance receivables), from $251 million (1.11%) at December 31, 2016 and $191 million (0.82%) at
December 31, 2015. The decrease in 2017 was primarily driven by the maritime portfolio and energy portfolios within
Commercial Finance. The increase in 2016 was driven mostly in the maritime portfolio, plus other sectors in Commercial
Finance.
in the energy sector. Non-accrual loans decreased to
Operating expenses were lower in 2017, reflecting management's cost reduction initiatives.
Goodwill impairment is discussed in Non-Operating Expenses, Critical Accounting Estimates and Note 26 — Goodwill and
Intangible Assets.
•
•
•
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").
Revenue is generated from interest earned on residential mortgages, and small business loans, and from fees for banking
services.
Item 7: Management's Discussion and Analysis
The following table presents full year 2017 and 2016 financial data and metrics, while 2015 reflects balances for five months
activity since the OneWest Transaction. Due to the timing of the OneWest Transaction, comparisons with 2015 are not relevant.
Consumer Banking — Financial Data and Metrics (dollars in millions)
CIT ANNUAL REPORT 2017 55
Years Ended December 31,
2016
2015
2017
Earnings Summary
Interest income
Interest (benefit) expense
Net finance revenue (NFR)
Provision for credit losses
Other non-interest income
Operating expenses
Goodwill impairment
Income (loss) before provision (benefit) for income taxes
Select Period End Balances
Earning assets
Loans (including held for sale)
Deposits
Select Average Balances
Average earning assets (AEA)
Average loans (including held for sale)
Statistical Data
Net finance margin — NFR as a % of AEA
ff
Net efficiency
Pretax return on AEA
New business volume
ratio
$
$
$
$
$
378.1
)
(51.8)
(
429.9
25.9
4.1
401.5
—
6.6
$
$
$
420.8
10.2
410.6
11.7
40.0
380.9
319.4
)
(
(261.4)
6,962.6
6,820.2
23,421.8
$ 7,383.2
7,041.8
22,542.2
7,054.0
6,812.3
$ 7,527.4
7,153.5
6.09%
88.3%
0.09%
$
949.4
$
5.45 %
80.4 %
(3.47)%
960.5
$
$
$
$
$
$
176.1
24.9
151.2
8.7
5.4
158.4
—
)
(10.5)
(
7,640.5
7,231.4
22,872.8
3,202.4
3,029.0
4.72 %
96.1 %
(0.33)%
249.9
Pretax results for 2017 were impacted by approximately $42 million of charges, mostly impacting the provision for credit losses
and other non-interest income, associated with the announced sale of the reverse mortgage portfolio in connection with the
Financial Freedom Transaction. Interest expense was a benefit as this segment received credit from the other segments for the
value of the deposits it generated. Pretax results for 2016 reflected interest on loans, which included PAAAA accretion, and the
benefit from low interest expense from deposit funding. Other non-interest income mostly included net gains on asset sales and
fee revenue. The operating expenses are proportionally higher than other segments, reflecting the branch operations and other
items, some of which are described below.
Average loans, including held for sale have declined, due primarily to run-offff of the LCM portfolios. The LCM portfolios made up
$4.5 billion of the 2017 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. At December 31,
2017, LCM includes $861 million of reverse mortgage loans held for sale along with $21 million of OREO in connection with the
announced Financial Freedom Transaction, discussed in Discontinued Operations and Note 2 - Discontinued Operations. See
Note 1 - Business and Summary of Significant Accounting Policies and Note 5 - Indemnification Assets for accounting and
detailed discussions.
Deposits were up from the year-ago period, primarily driven by an increase in online high-yield savings accounts ("HYSAs"),
more than offset
online HYSA and money market accounts offset
by a decrease in time deposits. Deposits at December 31, 2017 were up from 2015 reflecting an increase in in
by a decrease in time deposits, checking and other savings.
ff
ff
Highlights included:
•
•
•
NFR increased from 2016 to 2017 as the larger benefit from the value of the excess deposits generated offset
negative income on the indemnification assets that reduced interest income and the lower PAAAA on loans. Net finance margin
reflected similar trends. Negative income on the indemnification asset is discussed in the Net Finance Revenue section.
There was $120 million of PAAAA in 2017, compared to $138 million in 2016. The decline in part reflects the impact of
transferring the reverse mortgage loans to held for sale. For the reverse mortgage loans subject to the announced Financial
Freedom Transaction sale, PAAAA of approximately $5 million per quarter has ceased because the loans were transferred to
held for sale at the end of the third quarter. Included in the amounts were $14 million of accelerated PAAAA due to
prepayments in the LCM single family residential mortgages in both 2017 and 2016.
the higher
ff
Other non-interest income in 2017 of $4 million was comprised of $8 million of fee income, $4 million of net gains on loan
sales, $4 million net gain on OREO sales, $16 million of other miscellaneous income partially offset
impairment charges on reverse mortgage related assets in connection with the Financial Freedom Transaction. Other non-
interest income in 2016 included net gains on OREO properties of $11 million in 2016, fee revenue of $10 million and other
miscellaneous income. Other non-interest income in 2015 included fee revenue of $5 million and other revenues, partially
offset
by losses on OREO properties of $5 million.
by $27 million of
ff
ff
Non-accrual loans were $20 million (0.34% of loans) at December 31, 2017, up from $17 million (0.25%) at December 31,
2016 and $5 million (0.07%) at December 31, 2015. Non-accrual loans were in the LCM portfolio. Net charge-offsff of $21
million in 2017 included $20 million of net charge offsff
sale in connection with the Financial Freedom Transaction and were insignificant in 2016 and 2015. The increase in the
related to the reverse mortgage loans that were transferred to held for
56 CIT ANNUAL REPORT 2017
provision for credit losses in 2017 was due to a provision of $15 million related to the reverse mortgage loans that were
transferred to held for sale.
•
ff
Operating expenses reflect the inclusion of branch operation expenses, OREO costs and FDIC insurance, which causes the
net efficiency
ratio to be higher than other segments. Compared to 2016, operating expenses increased, primarily driven by
higher advertising and marketing expenses. Operating expenses in 2016 included $27 million from the resolution of legacy
items assumed with the OneWest Transaction (servicing-related contingent reserves and resolution of a pre-acquisition
litigation matter).
•
See Note 26 — Goodwill and Intangible Assets for discussion of the goodwill impairment recorded in 2016.
Non-Strategic Portfolios ("NSP")
NSP consists of businesses and portfolios that we no longer consider strategic. These portfolios include 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)
Earnings Summary
Interest income
Rental income on operating leases
Finance revenue
Interest expense
Depreciation on operating lease equipment
Net finance revenue (NFR)
Provision for credit losses
Other non-interest income
Operating expenses / loss on debt extinguishments
Income (loss) before provision (benefit) for income taxes
Select Period End Balances
Earning assets
Loans (including held for sale)
Select Average Balances
Average earning assets (AEA)
Average loans (including held for sale)
Statistical Data
Net finance margin — NFR as a % of AEA
Pretax return on AEA
New business volume
Years Ended December 31,
2016
2015
2017
22.9
—
22.9
15.2
—
7.7
—
3.1
12.7
)
(1.9)
(
145.3
63.3
277.0
129.8
2.78 %
(0.69)%
—
$
$
$
$
$
$
80.8
11.6
92.4
47.2
—
45.2
(0.1)
52.1
42.2
55.2
433.4
210.1
1,175.6
903.5
$
$
$
$
$
184.8
36.7
221.5
121.4
10.9
89.2
6.2
(96.8)
123.9
)
(137.7)
(
1,849.6
1,577.5
2,375.7
1,937.0
3.84%
4.70%
151.1
$
3.75 %
(5.80)%
768.2
$
$
$
$
$
$
The 2017 results reflect mainly activity from the business in China, while 2016 results also includes the impact from the
Canadian Equipment and Corporate Finance businesses, both sold in 2016, plus the sale of the U.K. Equipment Finance
business. 2015 included activity from other international and domestic businesses and portfolios, such as Mexico and Brazil, that
were sold in 2015. The 2017 pre-tax loss includes the recognition of $8 million of CTATT charges previously reflected in
stockholder’s equity associated with the liquidation of international entities.
The declining amounts of NFR and operating expenses reflects the wind down of the various operations. Other non-interest
income in 2016 was driven by gains on the Canada and U.K. portfolio sales. Other non-interest income in 2015 included
currency translation adjustment losses resulting from the sales of the Brazil and Mexico operations and associated portfolios,
along with continued impairment charges on assets held for sale.
The remaining loans at December 31, 2017 were in China, down from total loans and leases of $210 million and $1.6 billion at
December 31, 2016 and 2015, respectively, reflecting the sale of the Canadian Equipment and Corporate Finance businesses.
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.
Comparisons to 2015 were impacted by the timing of the OneWest Transaction, as 2015 included OneWest Bank for
approximately five months.
Item 7: Management's Discussion and Analysis
Corporate and Other — Financial Data (dollars in millions)
Earnings Summary
Interest income
Interest expense
Net finance revenue (NFR)
Other non-interest income
Operating expenses
Loss on debt extinguishment and deposit redemption
Loss before provision (benefit) for income taxes
Earning assets
Average earning assets (AEA)
$
$
$
$
CIT ANNUAL REPORT 2017 57
Years Ended December 31,
2016
2015
2017
$
186.6
236.6
(50.0)
66.0
83.6
219.0
) $
(
(286.6) $
$
7,702.8
10,251.0
$
122.0
176.7
(54.7)
(235.3)
99.0
12.3
) $
(
(401.3) $
$
9,587.2
9,198.2
55.2
103.7
(48.5)
(61.6)
111.4
1.5
)
(
(223.0)
8,834.9
7,102.1
A number of noteworthy items, some of which are mentioned below, impact this segment. In total, these amounts reduced pretax
income by $256 million in the current year, $279 million in 2016 and $58 million in 2015.
•
•
•
•
•
•
Interest income consists of interest and dividend income, primarily from investment securities and interest-bearing cash. The
increase in 2017 and 2016 reflect additional income from the investment portfolio and 2017 also included cash proceeds
from the sale of Commercial Air on April 4, 2017, of which approximately $9 million related to the amount earned between
the closing of the Commercial Air sale and the related liability management and capital actions.
Interest expense in Corporate represents amounts in excess of expenses allocated to segments and amounts related to
excess liquidity. Approximately $23 million of the increase from the year-ago resulted from the interest expense on
approximately $5.8 billion of unsecured borrowings that previously was allocated to the Commercial Air discontinued
operations but was recorded in continuing operations following the Commercial Air sale on April 4, 2017, until the
redemption of that debt later in the second quarter.
Although interest income and interest expense have increased, NFR has remained fairly flat.
Other non-interest income primarily reflects gains and losses on derivatives, including the TRS Transactions, investments
and foreign currency exchange.
•
In 2017, a change in accounting policy for LIHTC's to the proportional amortization method increased other non-interest
income by $29 million, with an offset
Significant Accounting Policies, Note 19 - Income Taxes and Income Taxes section of the MD&A.
in the provision for income taxes. See Note 1 - Business and Summary of
ff
• Driving the significant 2016 negative amount was a termination charge of approximately $280 million related to the
Canadian TRS, partially offset
the Canadian TRS termination. The TRS Transactions had a negative mark-to-market of $30 million in 2015.
by a positive mark-to-market gain for the year of $44 million on the TRS primarily due to
ff
• Other non-interest income included net gains of $28 million in 2017 and $11 million in 2016, and net losses of $7 million
for 2015, related to the MBS portfolio, which was carried at fair value and a majority of this portfolio was sold in 2017.
In the second half of 2017, the Company acquired approximately $780 million of BOLI, which resulted in income of $9
million.
•
• The 2015 balance included $9 million related to the write-offff of other receivables that was fully offset
ff
with a benefit to
the tax provision.
Operating expenses reflects salary and general and administrative expenses in excess of amounts allocated to the business
segments and litigation-related costs. Operating expenses included $53 million, $36 million and $58 million related to
restructuring activities during 2017, 2016 and 2015, respectively.
The loss on debt extinguishment and deposit redemptions was discussed in Expenses in the MDA.
58 CIT ANNUAL REPORT 2017
LOANS AND LEASES
The following table presents period end balances of loans and leases by segment.
Loans and Leases Composition (dollars in millions)
Commercial Banking
Loans
Operating lease equipment, net
Assets held for sale
Total loans and leases
Commercial Finance
Loans
Assets held for sale
Total loans and leases
Real Estate Finance
Loans
Assets held for sale
Total loans and leases
Business Capital
Loans
Operating lease equipment, net
Assets held for sale
Total loans and leases
Rail
Loans
Operating lease equipment, net
Assets held for sale
Total loans and leases
Consumer Banking
Loans
Assets held for sale
Total loans and leases
Legacy Consumer Mortgages
Loans
Assets held for sale
Total loans and leases
Other Consumer Banking
Loans
Assets held for sale
Total loans and leases
Non-Strategic Portfolios
Assets held for sale
Total loans and leases
Total Loans
Total operating lease equipment, net
Total assets held for sale
Total loans and leases
December 31,
2017
2016
2015
$ Change
2017 vs 2016
$ Change
2016 vs 2015
$
$
23,159.3
6,738.9
1,334.2
31,232.4
9,928.8
123.5
10,052.3
$
22,562.3
7,486.1
357.7
30,406.1
9,923.9
351.4
10,275.3
$
23,332.4
6,851.7
435.1
30,619.2
11,389.9
333.1
11,723.0
5,567.9
22.3
5,590.2
7,579.8
478.0
—
8,057.8
82.8
6,260.9
1,188.5
7,532.2
5,954.6
865.6
6,820.2
3,331.1
861.0
4,192.1
2,623.5
4.6
2,628.1
5,566.6
—
5,566.6
6,968.1
369.0
6.0
7,343.1
103.7
7,117.1
0.3
7,221.1
6,973.6
68.2
7,041.8
4,829.9
32.8
4,862.7
2,143.7
35.4
2,179.1
5,311.5
57.0
5,368.5
6,510.0
259.0
44.3
6,813.3
121.0
6,592.7
0.7
6,714.4
7,186.3
45.1
7,231.4
5,427.2
41.2
5,468.4
1,759.1
3.9
1,763.0
63.3
63.3
29,113.9
6,738.9
2,263.1
38,115.9
,
$
$
210.1
210.1
29,535.9
7,486.1
636.0
,
37,658.0
$
$
1,577.5
1,577.5
30,518.7
6,851.7
2,057.7
39,428.1
,
$
$
$
$
597.0
(747.2)
976.5
826.3
4.9
(227.9)
)
(
)
(
(223.0)
1.3
22.3
23.6
611.7
109.0
)
(
(6.0)
714.7
(20.9)
(856.2)
1,188.2
311.1
(1,019.0)
797.4
)
(221.6)
(
(1,498.8)
828.2
)
(670.6)
(
479.8
)
(30.8)
(
449.0
)
(146.8)
(
)
(
(146.8)
(422.0)
(747.2)
1,627.1
457.9
$
(770.1)
634.4
(77.4)
)
(
)
(
(213.1)
(1,466.0)
18.3
)
(
(1,447.7)
255.1
)
(57.0)
(
198.1
458.1
110.0
)
(38.3)
(
529.8
(17.3)
524.4
)
(
(0.4)
506.7
(212.7)
23.1
)
(189.6)
(
(597.3)
(8.4)
)
(
)
(
(605.7)
384.6
31.5
416.1
(1,367.4)
)
(
)
(
(1,367.4)
(982.8)
634.4
(1,421.7)
)
(
)
( ,
(1,770.1)
$
$
Total loans and leases were up 1.2% in 2017 from the previous year. Growth in Commercial Banking was led by Business
Capital, as factoring receivables were up, as well as the equipment financing portfolios in this division. New originations in
Consumer Banking offset
run-offff of LCM, which includes the reverse mortgage portfolio that was transferred to HFS in the third
quarter of 2017. The increase in assets held for sale from December 31, 2016 reflect the additions of the European rail assets
and the reverse mortgage loan portfolio in LCM.
ff
Total loans and leases levels varied across the divisions within Commercial Banking during 2016. Commercial Finance assets
were down, reflecting sales and prepayments as we positioned the portfolio to focus on a more strategic customer base. Real
Estate Finance was up from 2015, as strong origination volume outpaced prepayments and the run-offff of a legacy non-SFR
portfolio. Business Capital was up, reflecting growth in the equipment leasing business. Consumer Banking loans were down as
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 59
run-offff in LCM, offset
the sale of the U.K. equipment finance business, the sale of our Canadian Equipment Finance and Corporate Finance
businesses and net repayments in our China business.
purchases and originations in Other Consumer Banking. The decline in NSP during 2016 primarily reflected
ff
Total loans and leases trends are also discussed in the respective segment descriptions in "Results by Business Segment".
The following table reflects the contractual maturities of our loans, which excludes certain items such as purchase accounting
adjustments, unearned income and other yield-related fees.
Contractual Maturities of Loans at December 31, 2017 (dollars in millions)
Fixed-rate
1 year or less
Year 2
Year 3
Year 4
Year 5
2-5 years
After 5 years
Total fixed-rate
Adjustable-rate
1 year or less
Year 2
Year 3
Year 4
Year 5
2-5 years
After 5 years
Total adjustable-rate
Total
Commercial
Consumer
U.S.
Foreign
g
U.S.
Total
$
$
$
3,987.1
1,267.1
933.6
598.9
340.9
3,140.5
287.8
7,415.4
2,423.9
2,602.1
2,263.3
2,088.9
2,828.5
9,782.8
2,172.5
14,379.2
21,794.6
,
$
$
$
103.2
65.3
59.2
167.9
22.1
314.5
250.8
668.5
85.0
306.8
265.9
185.3
167.6
925.6
99.5
1,110.1
1,778.6
,
$
$
$
81.1
58.1
60.0
62.3
64.5
244.9
2,544.1
2,870.1
81.9
77.3
81.4
85.8
91.5
336.0
3,232.1
3,650.0
6,520.1
,
$
$
$
4,171.4
1,390.5
1,052.8
829.1
427.5
3,699.9
3,082.7
10,954.0
2,590.8
2,986.2
2,610.6
2,360.0
3,087.6
11,044.4
5,504.1
19,139.3
30,093.3
,
60 CIT ANNUAL REPORT 2017
The following table presents the changes to our total loans and leases:
Total Loans and Leases Rollforward (dollars in millions)
Balance at December 31, 2014
New business volume
Portfolio / business purchases
Loan and portfolio sales
Equipment sales
Depreciation
Gross charge-offsff
Collections and other
Balance at December 31, 2015
New business volume
Portfolio / business purchases
Loan and portfolio sales
Equipment sales
Depreciation
Gross charge-offsff
Collections and other
Balance at December 31, 2016
New business volume
Portfolio / business purchases
Loan and portfolio sales
Equipment sales
Depreciation
Gross charge-offsff
Collections and other
Balance at December 31, 2017
Commercial
Banking
Consumer
Banking
Non-Strategic
Portfolios
Total
$
$
$
22,708.6
9,005.1
6,308.5
(844.7)
(217.2)
(218.3)
(113.0)
)
(
(6,009.8)
30,619.2
8,216.2
64.1
(484.2)
(258.5)
(261.1)
(133.8)
)
(7,355.8)
(
30,406.1
8,607.7
81.6
(310.1)
(179.2)
(296.3)
(115.2)
)
(
(6,962.2)
31,232.4
,
$
— $
249.9
7,372.3
(17.1)
—
—
(1.3)
)
(
(372.4)
7,231.4
960.5
—
(87.7)
—
—
(2.8)
)
(1,059.6)
(
7,041.8
949.4
—
(128.4)
—
—
(22.5)
)
(
(1,020.1)
6,820.2
,
$
$
$
$
2,359.4
768.2
—
(274.8)
(125.1)
(10.9)
(50.8)
)
(
(1,088.5)
1,577.5
151.1
—
(717.3)
(85.6)
—
—
)
(715.6)
(
210.1
—
—
(0.6)
(39.8)
—
—
)
(106.4)
(
63.3
$
$
$
25,068.0
10,023.2
13,680.8
(1,136.6)
(342.3)
(229.2)
(165.1)
)
(
(7,470.7)
39,428.1
9,327.8
64.1
(1,289.2)
(344.1)
(261.1)
(136.6)
)
(9,131.0)
(
37,658.0
9,557.1
81.6
(439.1)
(219.0)
(296.3)
(137.7)
)
(
(8,088.7)
38,115.9
,
Total loans and leases acquired in the OneWest Transaction are reflected in the 2015 "Portfolio/business purchases" line for
Commercial Banking and Consumer Banking as of the acquisition date.
ff
New business volume increased in 2017 driven by Commercial Banking activities, as an increase in Commercial Finance, was
partially offset
commitments in the maritime portfolio within Commercial Finance, which was partially offset
by increases in Real Estate Finance
and Business Capital. During 2016, we positioned Commercial Finance to emphasize opportunities that build upon our specialty
lending expertise by providing credit as well as other bank products and services.
by lower originations in Rail. Commercial Banking decreased in 2016 as we limited originations to existing
ff
Portfolio/business purchases reflected a small portfolio in Commercial Finance in 2017 and railcars in 2016. 2015 included the
OneWest Bank acquisition in Commercial Banking and Consumer Banking and Rail portfolios purchased by Nacco.
Loan and portfolio sales in 2017 mostly related to sales in Commercial Finance. In 2016, NSP reflected the sale of our Canadian
Equipment and Corporate Finance businesses and the sale of the U.K. equipment finance business. Commercial Banking
activity mostly reflected sales to manage risk and position the Commercial Finance portfolio, which began in 2015, as we
rebalanced assets post the OneWest Transaction. NSP sales in 2015 reflect the sale of the Mexico and Brazil businesses.
Equipment sales in 2017, 2016 and 2015 generally reflect sales of small-ticket equipment and rail equipment in Commercial
Banking. Equipment sales in NSP included operating lease equipment in the various international platforms sold during those
years.
Portfolio activities are discussed in the respective segment descriptions in "Results by Business Segment".
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 61
CONCENTRATIONS
AA
Geographic Concentrations
The following table represents CIT's combined commercial and consumer loans and leases by geographical regions:
Total Loans and Leases by Obligor — Geographic Region (dollars in millions)
West
Northeast
Midwest
Southwest
Southeast
Total U.S.
Europe
Canada
Asia / Pacific
All other countries
Total
Ten Largest Accounts
December 31, 2017
12,009.8
9,658.7
4,641.1
4,063.5
3,346.0
33,719.1
1,444.1
1,326.4
720.8
905.5
,
38,115.9
31.5% $
25.3%
12.2%
10.7%
8.8%
88.5%
3.8%
3.4%
1.9%
2.4%
$
100.0% $
December 31, 2016
11,858.7
9,766.0
4,241.9
4,112.8
3,299.5
33,278.9
1,154.5
1,199.8
1,100.1
924.7
,
37,658.0
31.5% $
25.9%
11.3%
10.9%
8.8%
88.4%
3.1%
3.2%
2.9%
2.4%
$
100.0% $
December 31, 2015
11,972.1
9,436.1
4,269.9
4,166.8
3,728.9
33,573.8
1,363.6
1,964.9
1,656.7
869.1
,
39,428.1
30.4%
23.9%
10.8%
10.6%
9.5%
85.2%
3.4%
5.0%
4.2%
2.2%
100.0%
$
$
$
Our ten largest loans and leases accounts, the vast majority of which are lessors of rail assets, in the aggregate represented
4.4% of our total loans and leases at December 31, 2017 (the largest account was less than 1.0%).
The ten largest loans and leases accounts were 4.2% at December 31, 2016 and 3.9% at December 31, 2015.
COMMERCIAL CONCENTRATIONS
AA
Geographic Concentrations
The following table represents the commercial loans and leases by obligor geography:
Commercial Loans and Leases by Obligor — Geographic Region (dollars in millions)
Northeast
West
Midwest
Southwest
Southeast
Total U.S.
Europe
Canada
Asia / Pacific
All other countries
Total
December 31, 2017
December 31, 2016
December 31, 2015
$
$
$
8,646.1
7,349.9
4,448.7
3,970.2
2,902.5
27,317.4
1,444.1
1,326.4
720.8
905.5
,
31,714.2
27.3% $
23.2%
14.0%
12.5%
9.2%
86.2%
4.5%
4.2%
2.2%
2.9%
$
100.0% $
8,643.0
7,168.7
4,027.8
4,016.7
2,789.3
26,645.5
1,154.5
1,199.8
1,100.1
924.7
,
31,024.6
27.9% $
23.1%
13.0%
12.9%
9.0%
85.9%
3.7%
3.9%
3.5%
3.0%
$
100.0% $
8,136.1
7,270.9
4,024.3
4,100.6
3,136.6
26,668.5
1,363.6
1,964.9
1,656.7
869.1
,
32,522.8
25.0%
22.4%
12.4%
12.6%
9.6%
82.0%
4.2%
6.0%
5.1%
2.7%
100.0%
62 CIT ANNUAL REPORT 2017
The following table summarizes both state concentrations greater than 5.0% and international country concentrations in excess
of 1.0% of our loans and leases:
Commercial Loans and Leases by Obligor — State and Country (dollars in millions)
State
California
Texas
New York
Delaware
All other states
Total U.S.
Country
Canada
Marshall Islands
France
All other countries
Total International
Cross-Border Transactions
December 31, 2017
December 31, 2016
December 31, 2015
$
$
$
$
$
$
5,430.5
3,223.7
3,195.7
1,347.6
14,119.9
27,317.4
,
1,326.4
442.5
383.8
2,244.1
4,396.8
,
17.1% $
10.2%
10.1%
4.3%
44.5%
$
86.2% $
4.2% $
1.4%
1.2%
7.0%
$
13.8% $
5,220.8
3,296.3
3,084.0
1,573.8
13,470.6
26,645.5
,
1,199.8
632.2
268.5
2,278.6
4,379.1
,
16.8% $
10.6%
10.0%
5.1%
43.4%
$
85.9% $
3.9% $
2.0%
0.9%
7.3%
$
14.1% $
5,301.0
3,444.6
2,841.8
1,230.6
13,850.5
26,668.5
,
1,964.9
882.0
174.8
2,832.6
5,854.3
,
16.3%
10.6%
8.7%
3.8%
42.6%
82.0%
6.0%
2.7%
0.5%
8.8%
18.0%
Cross-border transactions reflect monetary claims on borrowers domiciled in foreign countries and primarily include cash
deposited with foreign banks and receivables from residents of a foreign country, reduced by amounts funded in the same
currency and recorded in the same jurisdiction. At December 31, 2017, cross-border transactions with borrowers in the Marshall
Islands totaled $502 million, or 1.0% of total assets. No other country had cross border claims. At December 31, 2016, amounts
in excess of 0.75% were in the Marshall Islands ($667 million / 1.0%) and France ($1.1 billion / 1.7%). At December 31, 2015,
amounts in excess of 0.75% were in Canada ($970 million / 1.4%), United Kingdom ($904 million / 1.3%), Marshall Islands ($812
million / 1.2%) and China ($678 million / 1.0%).
Industry Concentrations
The following table represents loans and leases by industry of obligor:
Commercial Loans and Leases by Obligor — Industry (dollars in millions)
December 31, 2017
December 31, 2016
December 31, 2015
$
Real Estate
15.0%
Manufacturing(1)
15.0%
Retail(2)
7.6%
Wholesale
6.7%
Energy and utilities
6.4%
Rail
5.4%
Business Services
5.5%
Service industries
5.0%
Healthcare
3.8%
Oil and gas extraction / services
5.6%
Maritime
5.6%
Finance and insurance
2.9%
Transportation
3.0%
Other (no industry greater than 2%)
12.5%
100.0%
Total
(1) At December 31, 2017, includes manufacturers of chemicals, including pharmaceuticals (4.6%), petroleum and coal, including refining (2.4%),
4,988.5
4,478.7
2,296.3
2,178.2
2,224.4
2,088.5
1,424.0
1,533.7
1,325.3
1,516.7
1,660.2
698.6
809.5
3,802.0
$
100.0% $ 31,024.6
4,895.4
4,889.1
2,470.7
2,181.5
2,084.1
1,742.2
1,794.0
1,609.0
1,219.2
1,825.9
1,832.5
926.6
982.6
4,070.0
$
100.0% $ 32,522.8
5,224.8
4,729.8
2,531.2
2,343.7
2,253.3
1,916.7
1,559.0
1,464.5
1,458.0
1,437.6
1,341.8
1,183.8
810.7
3,459.3
,
$ 31,714.2
$
16.5% $
14.9%
8.0%
7.4%
7.1%
6.1%
4.9%
4.6%
4.6%
4.5%
4.2%
3.7%
2.6%
10.9%
16.1% $
14.4%
7.4%
7.0%
7.2%
6.7%
4.6%
4.9%
4.3%
4.9%
5.4%
2.3%
2.6%
12.2%
,
,
food (1.4%) and stone, clay,yy glass and concrete (1.3%).
(2) At December 31, 2017 includes retailers of general merchandise (2.9%), food and beverage (1.7%) and miscellaneous (1.1%).
Item 7: Management's Discussion and Analysis
Operating Lease Equipment — Rail
At December 31, 2017 our total operating lease fleet consisted of approximately 132,000 railcars, of which about 117,000 relate
to the North American fleet. The following table reflects the proportion of railcars by type. Railcar types include covered hopper
cars used to ship grain and agriculture products, plastic pellets, sand, and cement; tank cars for energy products and chemicals;
gondolas for coal, steel coil and mill service products; open hopper cars for coal and aggregates; boxcars for paper and auto
parts, and centerbeams and flatcars for lumber. Approximately 25,000 leased rail assets are scheduled to expire in 2018. We
also have commitments to purchase approximately 1,550 railcars, primarily freight cars, as disclosed in Item 8. Financial
Statements and Supplementary Data, Note 21 — Commitments.
CIT ANNUAL REPORT 2017 63
Railcar Type
Covered Hoppers
Tank Cars
Mill/Coil Gondolas
Coal
Boxcars
Flatcars
Locomotives
Other
Total
Approximate Percentage of
Railcars to Respective
Portfolios
Total Owned
Fleet (%)
North
American
Fleet (%)
37
29
11
8
6
4
0.3
5
100
100
40
27
10
9
7
1
0.3
6
100
100
The Rail division included approximately 37,000 tank cars. The North American fleet has approximately 24,000 tank cars used in
the transport of crude oil, ethanol and other flammable liquids (collectively, "Flammable Liquids"). Of the 24,000 flammable
liquids tank cars, approximately 15,000 tank cars are leased directly to railroads and other diversified shippers for the
transportation of crude by rail. The North America fleet also contains approximately 9,000 sand cars (covered hoppers) leased to
customers to support crude oil and natural gas production.
On May 1, 2015, the U.S. Pipeline and Hazardous Materials Safety Administration ("PHMSA") and Transport Canada ("TC")
each released their final rules (the "Final Rules"), which were generally aligned in recognition that many railcars are used in both
countries. The Final U.S. Rules applied to all High Hazard Flammable Trains ("HHFT"), which is defined as trains with a
continuous block of 20 or more tank cars loaded with a flammable liquid or 35 or more tank cars loaded with a flammable liquid
dispersed through a train. The Final U.S. Rules (i) established enhanced DOT Specification 117 design and performance criteria
applicable to tank cars constructed after October 1, 2015, for use in an HHFT and (ii) required retrofitting existing tank cars in
accordance with DOT-prescribed
two risk factors, the packing group of the flammable liquid and the differing
U.S. Rules also established new braking standards, requiring HHFTsTT to have in place a functioning two-way end-of-train device
or a distributive power braking system. In addition, the Final U.S. Rules established speed restrictions for HHFTs,TT established
standards for rail routing analysis, required improved information sharing with state and local officials,
accurate classification of unrefined petroleum-based products, including developing and carrying out sampling and testing
programs.
retrofit design or performance standard for use in a HHFT. The retrofit timeline was based on
types of DOT-1T 11 and CPC-1232 tank cars. The Final
and required more
TT
ff
ff
FF
On December 4, 2015, the Fixing America's Surface Transportation Act ("FAST
Act") was signed into law, which, among other
things, modified certain aspects of the Final U.S. Rules for transportation of flammable liquids. The FAST Act requires certain
new tank cars to be equipped with "thermal blankets", mandates all legacy DOT-1TT 11 tank cars in flammable liquids service, not
only those used in an HHFT,TT to be upgraded to the new retrofit standard, and sets minimum requirements for the protection of
certain valves. Further, it requires reporting on the industry-wide progress and capacity to modify DOT-1TT 11 tank cars. Finally, the
FAST Act required an independent evaluation to investigate braking technology requirements for the movement of trains carrying
certain hazardous materials, and it requires the Secretary of Transportation to determine whether electronically-controlled
pneumatic ("ECP") braking system requirements, as imposed by the Final U.S. Rules, are justified. On December 13, 2017 the
Department of Transportation (DOT) announced that after careful review they determined that the Final Rule’s ECP brake
requirements related to HHFT’s are not economically justified. As a result of this determination, PHMSA will initiate a rulemaking
to rescind the necessary regulatory provisions and will no longer require ECP brakes on HHFT’s. The FAST Act provides clarity
on retrofit requirements but will not have a material impact on our original plans to retrofit our fleet.
As noted above, CIT has approximately 24,000 tank cars in its North American fleet used in the transport of Flammable Liquids.
Based on our analysis of the Final U.S. Rules, as modified by the FAST Act, our current flammable liquids tank car fleet will
require modification with the vast majority due by 2020 or later. CIT is currently evaluating how the Final U.S. Rules, as modified
by the Fast Act will impact its business and customers. We continue to believe that we will retrofit most of our impacted cars,
depending on future industry and market conditions, and we will amortize the cost over the remaining asset life of the cars.
64 CIT ANNUAL REPORT 2017
CONSUMER CONCENTRATIONS
AA
The following table presents our total outstanding consumer loans, including PCI loans. PCI loans are discussed in more detail
in Note 3 — Loans in Item 8. Financial Statements and Supplementary Data.
Consumer Loans (dollars in millions)
December 31, 2017
December 31, 2016
December 31, 2015
Single family residential
Reverse mortgage
Home Equity Lines of Credit
Other consumer
Total loans
Net
Investment
5,390.3
$
861.0
149.6
0.8
6,401.7
$
$
,
% of Total
Net
Investment % of Total
Net
84.2% $
13.4%
2.4%
—%
$
100.0% $
5,501.6
891.8
237.1
2.9
6,633.4
,
Investment % of Total
81.9%
13.3%
4.7%
0.1%
100.0%
5,654.4
917.4
325.7
7.8
6,905.3
,
82.9% $
13.5%
3.6%
—%
$
100.0% $
For consumer, the Company monitors credit risk based on indicators such as delinquencies and LTV. We monitor trending of
delinquency rates, as well as 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.
See Note 3 — Loans in Item 8. Financial Statements and Supplementary Data for information on LTV ratios.
Loan concentrations may exist when borrowers could be similarly impacted by economic or other conditions. The following table
summarizes the carrying value of consumer loans, with concentrations in the top five states based upon property address by
geographical regions as of December 31, 2017, December 31, 2016 and December 31, 2015:
Consumer Loans Geographic Concentrations (dollars in millions)
December 31, 2017
December 31, 2016
December 31, 2015
California
New York
Florida
New Jersey
Maryland
Other States and Territories(1)
,
(1) No state or territories have total carrying value in excess of 2%.
$
$
Investment % of Total
$
Net
Investment % of Total
Net
66.1% $
7.5%
3.9%
2.1%
1.9%
18.5%
$
100.0% $
4,217.0
524.0
282.7
159.4
137.7
1,312.6
6,633.4
,
Investment % of Total
61.8%
8.2%
4.6%
2.5%
2.2%
20.7%
100.0%
4,264.7
565.9
318.9
171.4
149.0
1,435.4
6,905.3
,
63.6% $
7.9%
4.3%
2.4%
2.1%
19.7%
$
100.0% $
Net
4,230.7
479.8
250.6
133.0
122.4
1,185.2
6,401.7
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 $1.7 billion at December 31, 2017, compared to $6.4 billion and $7.7 billion at December 31, 2016 and 2015,
respectively. The lower cash balance reflected the early retirement of unsecured debt, repurchases of CIT common stock,
purchases of investment securities, which are an alternative source of liquidity, and purchase of BOLI. The decline in 2016
compared to 2015 reflects our 2016 business strategy, as we redeployed cash at CIT Bank into higher-yielding "High Quality
Liquid Assets." Of the total cash at December 31, 2017, $0.3 billion was held by foreign subsidiaries.
Investment Securities
Investment securities consist primarily of fixed income debt securities. Investment securities increased by $2.0 billion during
2017 to $6.5 billion, as we continue to deploy cash and grow the investment portfolio. In addition, we have an investment of $150
million in securities purchased under agreement to resell ("repo agreements"). See Note 1 — Business and Summary of
Significant Accounting Policies for policies covering investment securities and repo agreements, and Note 7 - Investment
Securities in Item 8. Financial Statements and Supplementary Data.
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
Item 7: Management's Discussion and Analysis
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 December 31, 2017, our modified
LCR was above 100% at both the Bank and on a consolidated basis.
Credit Facilities
CIT ANNUAL REPORT 2017 65
In February 2018, the Company's existing revolving credit facility was amended. See Note 30 — Subsequent Events. The
following information was in effect
at December 31, 2017.
ff
As of December 31, 2017, we maintained additional liquidity sources in the form of:
•
•
A multi-year committed Revolving Credit Facility that has a total commitment of $750 million, of which approximately $695
million was available to be drawn; and
Committed securitization facilities and secured bank lines totaled $2.1 billion, of which $960 million was unused, provided
that eligible assets are available that can be funded through these facilities.
Funding Sources
Funding sources consist of deposits and borrowings. As we execute on our strategic initiatives, we continued to increase the
proportion of deposits in our funding mix. During 2017, we either repaid or redeemed $6.9 billion of unsecured borrowings. See
Note 10 — Borrowings in Item 8. Consolidated Financial Statements. As such, the amount of deposits to total funding increased
to 77% from 68% at December 31, 2016. Unsecured borrowings decreased to 10% from 23% at December 31, 2016, while
secured borrowings totaled 13% and 9%, respectively.
See Net Finance Revenue section for a tabular presentation of our average funding mix.
Deposits
ff
CIT offers
its deposits through various channels. The period end balances are as follows:
Deposits by Channel(1) at December 31 (dollars in millions)
2017
Total
Percent
of Total
of Total
Total
2016
Percent
of Total
of Total
Online
Branch
Brokered
Commercial
Total
(1) The December 31, 2016 presentation
channels.
rr
$
$
$
was updated to conform to the current
rr
11,756.6
11,665.2
3,618.3
2,529.2
29,569.3
rr
period presentation,
,
The following table details our ending deposit balances by type:
Deposits at December 31 (dollars in millions)
40% $
39%
12%
9%
$
100% $
10,272.4
12,269.7
5,807.4
3,954.8
32,304.3
which aligns with our management view of the deposit
32%
38%
18%
12%
100%
,
Checking and Savings:
Non-interest bearing checking
Interest bearing checking
Money market
Savings
Certificates of Deposits
Other
Total
2017
2016
Total
Percent
of Total
Total
Percent
of Total
$
$
$
1,352.0
2,653.3
5,075.5
5,986.7
14,343.8
158.0
,
29,569.3
5% $
9%
17%
20%
49%
—%
$
100.0% $
1,255.6
3,251.8
6,593.3
4,303.0
16,729.0
171.6
,
32,304.3
4%
10%
20%
13%
52%
1%
100%
ff
ff
ff
a full suite of deposit offerings
to its commercial and consumer customers through a network of 70
by declines in higher-cost deposits as we redeemed brokered deposits, and higher beta deposits in the commercial
CIT Bank, N.A. offers
branches in Southern California and a national online platform. Increasing the proportion of deposit funding and improving
deposit mix are key areas of focus for CIT. Deposits declined during the year, as growth in the online channel was more than
offset
channel. During 2017, we shifted the mix of our deposits, as the decline in longer duration time deposits and higher cost
brokered deposits, as well as a reduction of certain commercial deposits was partially offset
Accounts. Beginning in late 2016, there have been increases in the short-term interest rates and a shift in deposit mix. As such,
the weighted average rate of deposits was 1.20% for the year ended December 31, 2017, compared to 1.21% for 2016. See Net
Finance Revenue section for further discussion on average balances and rates. As of December 31, 2017 and 2016, the
weighted average remaining number of days to maturity was 552 days and 641 days, respectively.
by an increase in High Yield Savings
ff
66 CIT ANNUAL REPORT 2017
Borrowings
Borrowings consist of senior unsecured notes and secured borrowings (structured financings and FHLB advances), which had a
carrying value of $9.0 billion in aggregate at December 31, 2017, down from $14.9 billion at December 31, 2016 and $16.4 billion
at December 31, 2015. The decline during 2017 reflects the redemptions of unsecured borrowings. The decline in 2016 primarily
related to payments on and redemptions of structured financings and a reduction in FHLB Advances from 2015 year end. The
weighted average coupon rate of borrowings at December 31, 2017 was 3.30%, compared to 4.20% and 3.93% at
December 31, 2016 and 2015, respectively. The decrease compared to 2016 was due to the unsecured debt redemptions. The
2016 increase in the weighted average coupon rate compared to 2015 reflected the repayment of lower cost secured
borrowings.
Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and
terms of our existing indebtedness, including the 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.
See Note 10 — Borrowings in Item 8. Financial Statements and Supplementary Data for further detail on borrowings.
Unsecured Borrowings
Revolving Credit Facility
In February 2018, the Company's existing revolving credit facility was amended. See Note 30 — Subsequent Events. The
following information was in effect
at December 31, 2017.
ff
There were no borrowings outstanding under the Revolving Credit Facility, which had a total commitment of $750 million at
December 31, 2017, and the amount available to draw upon was $695 million, with the remaining amount of $55 million being
utilized for issuance of letters of credit.
The applicable margin charged under the facility, covenant and guarantor information and amendments made to the facility in
connection with the consummation of the Commercial Air Sale is disclosed in Note 10 — Borrowings in Item 8. Financial
Statements and Supplementary Data. As of December 31, 2017, the Company was in compliance with the minimum guarantor
asset coverage ratio and the minimum Tier 1 Capital requirement.
Senior Unsecured Borrowings
At December 31, 2017, senior unsecured borrowings outstanding totaled $3.7 billion and the weighted average coupon rate was
4.81%, down from $10.6 billion and 5.03%, as of December 31, 2016. The reduction in outstanding balance related to the tender
for and repayment of approximately $6.9 billion of unsecured borrowings in 2017, which had an average coupon rate of 5.15%.
Secured Borrowings
We may pledge assets for secured financing transactions, which include borrowings 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.
CIT 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 at December 31 (dollars in millions)
2017
2016
Total borrowing capacity
Less:
Advances
Letters of credit
Available capacity
Weighted average rate
Pledged assets(1)
(1) For purposes of this table the term “Pledged Assets” means the assets required under the collateral maintenance requirement in connection
(3,695.5)
)
(87.8)
(
1,434.5
(2,410.8)
(758.3)
)
(
,
2,293.3
6,389.7
6,154.1
5,217.8
5,462.4
1.56%
1.18%
$
$
$
$
$
$
$
$
$
$
,
,
,
with FHLB advances at each of the dates.
FHLB Advances and pledged assets are also discussed in Note 10 — Borrowings in Item 8. Financial Statements and
Supplementary Data.
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 67
Structured Financings
Structured Financings totaled approximately $1.5 billion at December 31, 2017, compared to $1.9 billion and $2.6 billion at
December 31, 2016 and 2015, respectively. The decreases reflect net repayments. The weighted average coupon rate of
structured financings at December 31, 2017 was 3.75%, up from 3.39% and 3.11% at December 31, 2016 and 2015,
respectively.
Structured financings in CIT Bank totaled $0.1 billion, $0.2 billion and $0.8 billion at December 31, 2017, 2016 and 2015,
respectively, which were secured by $0.1 billion, $0.3 billion and $1.1 billion of pledged assets at December 31, 2017, 2016 and
2015, respectively. Non-bank structured financings were $1.4 billion, $1.7 billion and $1.8 billion at December 31, 2017, 2016
and 2015, respectively, and were secured by assets of $4.0 billion, $3.8 billion and $3.5 billion, at December 31, 2017, 2016 and
2015, respectively.
See Note 10 — Borrowings in Item 8. Financial Statements and Supplementary Data for a table displaying our consolidated
secured financings and pledged assets.
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 December 31, 2017, 2016 and 2015. See Note 10
— Borrowings in Item 8. Financial Statements and Supplementary Data for 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.
ff
CIT and CIT Bank, N.A. debt ratings, 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:
Ratings
Last Credit Update
CIT Group Inc.
Issuer / Counterparty Credit Rating
Revolving Credit Facility Rating
Series C Notes / Senior Unsecured Debt Rating
Non-Cumulative Perpetual Preferred Stock
Outlook
CIT Bank, N.A.
Deposit Rating (LT/ST)
LL
Issuer Senior Unsecured Debt
Outlook
N/A — Not Applicable
S&P
12/18/17
Fitch
1/10/18
Moody’s
10/25/17
DBRS
12/18/2017
BB+
N/A
BB+
B+
BB+
BB+
BB+
B
N/A
Ba2
Ba2
B1
Stable
Stable
Stable
N/A
BBB-
Stable
BBB-/F3
BB+
Stable
Baa2/P-2
Ba2
Stable
BB (High)
BBB (Low)
BB (High)
B (High)
Stable
BBB (Low)/
R-2 (Mid)
BBB (Low)
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 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.
68 CIT ANNUAL REPORT 2017
Contractual Payments and Commitments
Payments for the Years Ended December 31(1) (dollars in millions)
Structured financings(2)
FHLB advances
Senior unsecured notes
Total Long-term borrowings
Deposits
Credit balances of factoring clients
Lease rental expense
Total contractual payments
Total
2018
2019
2020
2021
2022+
$
1,548.9
3,695.5
3,770.0
9,014.4
29,565.0
1,468.6
249.8
,
$ 40,297.8
$
$
226.3
1,400.0
—
1,626.3
23,053.7
1,468.6
47.5
,
$ 26,196.1
$
$
$
$
770.7
1,145.5
1,383.0
3,299.2
3,069.7
—
46.0
6,414.9
,
$
$
$
70.5
1,150.0
435.6
1,656.1
1,619.8
—
40.1
3,316.0
,
$
$
$
63.4
—
—
63.4
633.2
—
29.6
726.2
$
$
$
418.0
—
1,951.4
2,369.4
1,188.6
—
86.6
3,644.6
,
(1)
(2)
Projected payments of debt interest expense and obligations relating to postretirement programs are excluded.
Includes non-recourse secured borrowings, which are generally repaid in conjunction with the pledged receivable maturities.
Commitment Expiration by Years Ended December 31 (dollars in millions)
Total
2018
2019
2020
2021
2022+
Financing commitments
Rail and other purchase commitments
Letters of credit
Deferred purchase agreements
Guarantees, acceptances and other recourse
obligations
Liabilities for unrecognized tax benefits (1)
$
$
6,264.5
196.1
227.5
2,068.1
$
1,594.9
187.8
35.4
2,068.1
2.1
13.5
2.1
1.0
969.8
8.3
42.7
—
—
12.5
$
$
$
1,275.8
—
21.3
—
1,127.1
—
63.5
—
1,296.9
—
64.6
—
—
—
—
—
—
—
Total contractual commitments
$
8,771.8
$
3,889.3
$
1,033.3
$
1,297.1
$
1,190.6
$
1,361.5
(1)
The balance for 2019 reflects the remaining balance, which cannot be estimated further.rr
Financing commitments increased from $6.0 billion at December 31, 2016, to $6.3 billion at December 31, 2017. 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 $881 million at December 31, 2017. Also included are Business Capital credit line
agreements, with an amount available of $190 million, net of the amount of receivables assigned to us. These are cancellable by
CIT only after a notice period.
At December 31, 2017, substantially all our undrawn financing commitments were senior facilities, with approximately 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 $548 million at December 31, 2017. The table above includes approximately $1.6 billion of
undrawn financing commitments at December 31, 2017 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 under such financing commitments.
See Note 21 — Commitments in Item 8. Financial Statements and Supplementary Data for further detail.
CAPITALTT
Capital Management
CIT manages its capital position to ensure that it is sufficient
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.
to: (i) support the risks of its businesses, (ii) maintain a “well-
ff
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.
CIT is subject to enhanced prudential standards under the Dodd-Frank Act. Among other requirements, CIT is subject to capital
planning and stress testing requirements under the FRB’s Regulation Y and 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 under
multiple stress scenarios.
CIT submitted its capital plan to the FRB on April 5, 2017 and on June 28, 2017, received a non-objection to the plan, which
included a quarterly cash dividend of up to $0.16 per share and common stock repurchases of up to $225 million for the four
Item 7: Management's Discussion and Analysis
quarters ending June 30, 2018, including up to $25 million of common share repurchases to offset
pursuant to CIT's employee stock plans. Further, in February 2018, CIT received a non-objection to its amended capital plan, as
described in Note 30 - Subsequent Events.
dilution from issuances
ff
CIT's capital management is discussed further in the "Regulation" section of Item 1. Business Overview with respect to capital
and regulatory matters, including "Capital Requirements" and "Stress Test and Capital Plan Requirements".
Return of Capital
CIT ANNUAL REPORT 2017 69
In 2017, CIT repurchased an aggregate of $3.4 billion of common shares through a combination of an equity tender offer
market repurchases of shares ("OMR") and an accelerated share repurchase program ("ASR"). The equity tender resulted in the
Company repurchasing approximately 57.3 million common shares at a purchase price of $48.00 per share (total of
approximately $2.75 billion). The OMRs resulted in the repurchase of 3.6 million common shares at an average price of $45.27
per share in 2017. Under the terms of the ASR, CIT paid to the dealer $512 million in exchange for the initial delivery of
approximately 9.3 million common shares and an additional 1.4 million common shares upon settlement at an overall average
price of $47.82 per share.
, open
ff
Remaining repurchases that can be executed by the end of the first half of 2018 under current authorizations is discussed in
Note 30 - Subsequent Events.
CIT paid a total of $113.7 million in dividends on our common and preferred stock. Our 2017 common stock dividends were as
follows:
2017 Dividends
Declaration Date
January
April
July
October
y
Payment Date
February 24, 2017
May 26, 2017
August 25, 2017
November 24, 2017
Per Share Dividend
0.15
0.15
0.15
0.16
$
$
$
$
On October 16, 2017, the Board of Directors declared a semi-annual preferred cash dividend of $30.29 per preferred share on
outstanding preferred stock, which was paid on December 15, 2017. See discussion below under Capital Issuance on preferred
stock issuance in 2017.
Capital returned during the year ended December 31, 2016 totaled $123 million, reflecting dividend payments. Capital returned
during 2015 totaled $647 million, including repurchases of approximately $532 million of our common stock and $115 million in
dividends.
Capital Issuance
On May 31, 2017, CIT Group Inc. issued $325 million of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,
Series A (the “Preferred Stock”). The shares pay at a perpetual dividend rate (non-cumulative) per annum equal to 5.80% from
the original issue date to, but excluding, June 15, 2022. Thereafter, the shares pay at a floating rate per annum equal to three-
month LIBOR on the related dividend determination date plus a spread of 3.972% per annum. Dividends are paid semi-annually
in arrears on June 15 and December 15, beginning on December 15, 2017 and ending on June 15, 2022. Thereafter, dividends
will be paid quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. The Issuer may redeem
the Preferred Stock at its option, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends,
without regard to any undeclared dividends, (i) in whole or in part, from time to time, on any dividend payment date on or after
June 15, 2022, or (ii) in whole, but not in part, within 90 days following the occurrence of a “regulatory capital treatment event”.
Net proceeds were $318.0 million.
In connection with the OneWest Transaction, on August 3, 2015, CIT paid approximately $3.4 billion as consideration, which
included 30.9 million shares of CIT Group common stock that was valued at approximately $1.5 billion at the time of closing.
There were no other common stock issuances in 2017, 2016 or 2015, except for shares issued for compensation plans.
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 are
based on the Basel III Final Rule.
70 CIT ANNUAL REPORT 2017
Capital Components, Risk-Weighted Assets, and Capital Ratios (dollars in millions, except ratios)
Common Equity Tier 1 (CET1) Capital
Total common stockholders’ equity (1)
ff
Effect
excluded from CET1 Capital and qualifying noncontrolling
interests
of certain items in accumulated other comprehensive loss
Adjusted total equity
Less: Goodwill, net associated deferred tax liabilities (DTLs)(2)
Less: Deferred tax assets (DTAs)TT
loss and tax credit carryforwards
Less: Intangible assets, net of associated DTLs(2)
Less: Other CET1 Capital deductions (3)
arising from net operating
December 31, 2017
December 31, 2016
Transition
Basis
Fully Phased-
in Basis
Transition
Basis
Fully
Phased-in
Basis
$
6,995.0
$
6,995.0
$
10,002.7
$
10,002.7
77.4
7,072.4
(436.0)
77.4
7,072.4
(436.0)
79.1
10,081.8
(733.1)
79.1
10,081.8
(733.1)
(83.3)
(104.2)
(213.7)
(213.7)
(73.3)
—
6,479.8
(91.5)
—
6,440.7
(68.3)
)
(
(7.8)
9,058.9
(113.8)
)
(
(17.5)
9,003.7
—
—
—
9,003.7
—
—
—
9,058.9
325.0
)
(
(8.6)
316.4
6,757.1
325.0
)
(29.4)
(
295.6
6,775.4
Total CET1 Capital
Additional Tier 1 Capital
Preferred Stock
Less: Other Additional Tier 1 Capital deductions (4)
Total Additional Tier 1 Capital
Total Tier 1 Capital
Tier 2 Capital
Qualifying allowance for credit losses and other reserves (5)
Total Capital
Risk-Weighted Assets
CIT Ratios
CET1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Tier 1 Leverage Ratio
CIT Bank, N.A. Ratios
CET1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Tier 1 Leverage Ratio
(1) See Consolidated Balance Sheets for the components of Total common stockholders' equity.yy
(2) Goodwill and disallowed intangible assets deductions also reflect the portion included within assets of discontinued operations.
(3) Represents deductions applied to CET1 Capital due to insufficient amount of Additional Tier 1 Capital to cover deductions, including 20% of
arising from net operating loss and tax credit carryforwards applied to Additional Tier 1 Capital under transition basis,
475.6
,
7,232.7
,
44,687.1
476.3
,
9,535.2
,
64,586.3
475.6
,
7,251.0
,
44,537.7
476.3
,
9,480.0
,
65,068.2
14.5%
15.2%
16.3%
13.8%
13.8%
13.8%
15.0%
11.8%
14.0%
14.0%
14.8%
13.9%
13.4%
13.4%
14.7%
10.9%
13.7%
13.7%
15.0%
11.8%
14.4%
15.1%
16.2%
13.8%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.8%
13.8%
14.6%
13.9%
13.2%
13.2%
14.4%
10.8%
the deduction on DTAsTT
and covered funds deduction required by the Volcker Rule.
(4) Represents 20% of the deduction on DTAsTT
arising from net operating loss and tax credit carryforwards applied to Additional Tier 1 Capital
under transition basis, and covered funds deduction required by the Volcker Rule.
(5) "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.
The reconciliation of balance sheet assets to risk-weighted assets is presented below:
Risk-Weighted Assets at December 31 (dollars in millions)
Balance sheet assets
Risk weighting adjustments to balance sheet assets
Off-Balance
Risk-weighted assets
sheet items
ff
2017
2016
2015
$
$
$
49,278.7
(10,230.4)
5,489.4
44,537.7
,
$
$
$
64,170.2
(13,241.6)
13,657.7
64,586.3
,
$
$
$
67,391.9
(13,724.7)
15,885.1
69,552.3
,
sheet items primarily reflect $2.8 billion of unused lines of credit (largely related to the Commercial Finance
ff
The 2017 off-balance
and Real Estate Finance divisions), $2.1 billion of deferred purchase agreements (related to the Business Capital division), and
$0.6 billion of other items. The risk-weighted assets for off-balance
December 31, 2016 mainly due to the sale of the Commercial Air business, which had purchase commitments of $8.7 billion at
December 31, 2016.
sheet items as of December 31, 2017 decreased from
ff
See Note 21 — Commitments in Item 8. Financial Statements and Supplementary Data for further detail on commitments.
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 71
Tangible Book Value and Tangible Book Value per Share(1)
A reconciliation of CIT's total common stockholders' equity to tangible book value, a non-GAAP measure, follows:
Tangible Book Value and per Share Amounts at December 31 (dollars in millions, except per share amounts)
Total common stockholders' equity
Less: Goodwill
Intangible assets
Tangible book value
Book value per share
Tangible book value per share
2017
2016
2015
6,995.0
(369.9)
(113.0)
)
(
,
6,512.1
53.25
49.58
$
$
$
$
$
10,002.7
(685.4)
(140.7)
)
(
,
9,176.6
49.50
45.41
$
$
$
$
$
10,944.7
(1,063.2)
(166.1)
)
(
,
9,715.4
54.45
48.33
$
$
$
$
$
(1) Tangible book value and tangible book value per share are non-GAAP measures.
Book value ("BV") and Tangible book value ("TBV") decreased from December 31, 2016, primarily reflecting the capital actions
completed in 2017. BV and TBV per share increased as a result the repurchases of approximately 71.6 million common shares
being repurchased in 2017.
CIT BANK, N.A.
ff
by portfolio runoff,ff collections and sales. Loans were down 3.0% from December 31, 2016,
Total assets for the Bank were down compared to December 31, 2016. Total loans and leases were down 1.2%, as growth from
new business volume was offset
reflecting reductions in the LCM portfolio as the portfolio continues to run offff and the reverse mortgage portfolio ($861 million)
was classified as AHFS as part of the Financial Freedom Transaction. These reductions were offset
Consumer Lending portfolio as well as a slight increase in the Business Capital Portfolio within Commercial Banking. Operating
lease equipment was up 5.3% from December 31, 2016, attributable to higher balances in Rail and Business Capital. The
portfolio of operating lease equipment of $3.8 billion is comprised mostly of railcars. AHFS increased 26% from December 31,
2016 mainly due to the addition of the reverse mortgage portfolio which was partially offset
by sales in Business Air as well as
other decreases within the Commercial Finance portfolio.
by increases in the
ff
ff
Cash and investment securities totaled $7.4 billion at December 31, 2017, down $1.3 billion from December 31, 2016. The
decrease in cash was primarily used to increase the investment securities ($2.4 billion) and for purchase of BOLI ($0.8 billion).
Investments increased to $6.5 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.”
Goodwill decreased in 2017 as a result of a $168 million impairment in Commercial Banking, while 2016 included a $319 million
impairment in Consumer Banking. Other assets decrease is primarily due to decreases in Indemnification assets to $142.4
million at December 31, 2017 from $341.4 million at December 31, 2016. The decline was primarily due to an agreement
reached with the FDIC during 2017 to release approximately $77 million for covered servicing-related obligations related to
Fannie Mae serviced reverse mortgage loans pursuant to the loss share agreement between CIT Bank and the FDIC related to
the acquisition by OneWest Bank. In addition, the carrying value of the loan indemnification decreased by $110 million from
December 31, 2016 which was comprised of $53 million in claim submissions filed with the FDIC and $56 million in other (yield
and provision for credit losses adjustments).
CIT Bank deposits decreased from December 31, 2016. See discussion of deposits in "Funding and Liquidity" section.
FHLB advances provide a consistent source of both available and contingent funding for the Bank, which is a member of the
FHLB of San Francisco. Borrowings increased from December 31, 2016, reflecting advances of $1.3 billion during the past year.
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.
72 CIT ANNUAL REPORT 2017
The following presents condensed financial information for CIT Bank, N.A.
Condensed Balance Sheets (dollars in millions)
ASSETS:
Cash and deposits with banks
Investment securities
Assets held for sale
Loans
Allowance for loan losses
Operating lease equipment, net
Bank owned life insurance
Goodwill
Other assets
Assets of discontinued operations
Total Assets
LIABILITIES AND EQUITY:
Deposits, including $475.8, $15.4 and $71.8 deposits of affiliates
and 2015, respectively
ff
at December 31, 2017, 2016
FHLB advances
Borrowings
Other liabilities
Liabilities of discontinued operations
Total Liabilities
Total Equity
Total Liabilities and Equity
Capital Ratios*
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
Tier 1 Leverage ratio
*
The capital ratios presented above are reflective of the fully-phased in Basel III approach.
Loans and Leases by Segment (dollars in millions)
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Rail
Total
Consumer Banking
Legacy Consumer Mortgages
Other Consumer Banking
Total
Total loans and leases
2017
At December 31,
2016
2015
961.8
6,455.9
1,170.5
26,427.9
(403.5)
3,765.5
788.6
323.1
939.7
317.1
,
40,746.6
$
$
$
4,647.2
4,035.6
927.3
27,246.2
(406.6)
3,575.8
—
490.9
1,266.0
448.1
,
42,230.5
$
$
$
6,073.5
2,577.4
444.2
29,346.6
(337.5)
2,777.8
—
830.8
1,582.7
500.5
,
43,796.0
30,048.8
$
32,324.5
$
32,854.0
3,695.5
473.5
906.8
500.5
35,625.1
5,121.5
40,746.6
,
$
$
2,410.8
241.4
1,130.2
935.8
37,042.7
5,187.8
42,230.5
,
$
$
3,117.6
798.3
738.9
696.2
38,205.0
5,591.0
43,796.0
,
2017
At December 31,
2016
2015
13.7%
13.7%
15.0%
11.8%
13.2%
13.2%
14.4%
10.8%
12.6%
12.6%
13.6%
10.7%
2017
At December 31,
2016
2015
10,203.5
5,590.2
5,429.9
3,320.1
24,543.7
4,192.1
2,628.1
6,820.2
31,363.9
,
$
$
$
$
10,753.3
5,566.6
5,146.9
3,240.7
24,707.5
4,862.7
2,179.1
7,041.8
31,749.3
,
$
$
$
$
13,067.0
5,368.5
4,692.1
2,209.6
25,337.2
5,468.4
1,763.0
7,231.4
32,568.6
,
$
$
$
$
$
$
$
$
$
Item 7: Management's Discussion and Analysis
Condensed Statements of Operations (dollars in millions)
Interest and fees on loans
Other Interest and dividends
Interest income
Interest on deposits
Interest on borrowings
Interest expense on deposits and debt with affiliated
ff
companies
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue, after credit provision
Rental income on operating leases
Other non-interest income
Total net revenue, net of interest expense and credit provision
Operating expenses
Goodwill impairment
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Loss on debt extinguishment and deposit redemption
Income before provision for income taxes
Provision for income taxes
Income from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
New business volume — funded
CIT ANNUAL REPORT 2017 73
2017
At December 31,
2016
2015
$
$
$
$
$
1,549.1
181.8
1,730.9
373.3
45.6
19.2
438.1
1,292.8
101.6
1,191.2
443.5
308.3
1,943.0
998.7
167.8
201.2
28.9
1.2
545.2
234.1
311.1
)
(7.7)
(
303.4
,
9,414.0
$
$
$
$
$
$
1,666.7
121.2
1,787.9
394.8
39.7
4.8
439.3
1,348.6
199.0
1,149.6
391.9
309.3
1,850.8
1,083.6
319.4
161.1
22.2
10.6
253.9
203.8
50.1
(210.2)
)
(
(160.1) $
$
)
(
$
,
$
9,065.5
1,156.0
58.1
1,214.1
323.5
32.5
2.7
358.7
855.4
164.1
691.3
299.5
125.0
1,115.8
696.8
—
123.3
8.1
—
287.6
87.0
200.6
)
(10.4)
(
190.2
,
9,016.0
The Bank’s results for 2017 reflect our continued effort
include a full year of activity related to the acquisition of OneWest Bank compared to only five months for 2015. Therefore,
comparisons to 2015 are limited. Compared to the prior year, income from continuing operations increased, reflecting lower
credit costs and operating expenses. Results for 2017 and 2016 also included goodwill impairment charges of $168 million and
$319 million respectively. The losses on discontinued operations are discussed below.
to achieve our long term strategy. The Bank’s results for 2017 and 2016
ff
Interest income decreased from the prior year due to lower PAAAA accretion in Commercial Finance, Real Estate Finance and the
LCM portfolios. This decrease was slightly offset
by an increase in income related to the increase in investment securities which
ff
were up $2.4 billion from December 2016. See discussion of Net Finance Revenue below.
Other non-interest income was essentially flat year over year despite $20 million in net charges, comprised of $27 million related
by $7 million
to impairments on the reverse mortgage related assets as part of the Financial Freedom Transaction, partially offset
on net gains on reverse mortgage asset sales and payoffs.
by an increase of $29 million related to the change in
accounting policy for LIHTC investments from the equity method to the proportional amortization method and $9 million of
income related to the purchase of approximately $780 million of BOLI in the second half of 2017. The prior year included a gain
of $51 million related to the sale of aircraft to the Bank Holding Company (which eliminates in consolidation) associated with the
sale of Commercial Air.
This was offset
ff
ff
ff
The provision for credit losses for 2017 reflects both lower net charge-offsff and lower reserves (general and specific). The
decreases in net charge-offsff are mainly in Commercial Finance partially offset
recorded on the
transfer of the reverse mortgage portfolio to held for sale. Reserve decreases were mainly in Commercial Finance and Business
Capital with a slight decrease related to LCM. Net charge-offsff were 0.39% and 0.47% for 2017 and 2016, respectively.
by $20 million in net charge-offsff
ff
Operating expenses were down from the prior year, which resulted in an improved efficiency
decrease in professional fees, data processing expenses and other taxes. As a result of these decreases, the net efficiency
was 53.7%, compared to 56.7% in the prior year. The current year includes a $168 million goodwill impairment associated with
Commercial Banking while the prior year goodwill impairment of $319 million was within the Consumer Banking segment, both of
which were recorded in the fourth quarter of each year.
ratio. The decrease is a result of a
ratio
ff
ff
The current year includes a loss from discontinued operations related to Financial Freedom. This loss is significantly lower than
the prior year as the current year included a net release of the curtailment reserve of $111 million partially offset
by an increase
of $40 million in other servicing-related reserves and a $50 million impairment charge related to the mortgage servicing rights
liability, as compared to the prior year, which included a net increase in servicing-related reserve of $260 million and a $19
million impairment charge related to the mortgage servicing liability. Discontinued Operations is discussed in an earlier section in
the MDA and Note 2 - Discontinued Operations in Item 1. Consolidated Financial Statements.
ff
74 CIT ANNUAL REPORT 2017
Net Finance Revenue (dollars in millions)
Interest income
Rental income on operating leases
Finance revenue
Interest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net finance revenue ("NFR")
Average Earning Assets ("AEA")
As a % of AEA:
Interest income
Rental income on operating leases
Finance revenue
Interest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net finance margin ("NFM")
2017
1,730.9
443.5
2,174.4
438.1
201.2
28.9
1,506.2
40,638.3
,
,
$
$
$
$
$
At December 31,
2016
$
$
$
$
$
1,787.9
391.9
2,179.8
439.3
161.1
22.2
1,557.2
41,137.5
,
,
$
$
$
$
$
2015
1,214.1
299.5
1,513.6
358.7
123.3
8.1
1,023.5
29,627.3
,
,
4.26%
1.09%
5.35%
1.08%
0.50%
0.07%
3.70%
4.35%
0.95%
5.30%
1.07%
0.39%
0.05%
3.79%
4.10%
1.01%
5.11%
1.21%
0.42%
0.03%
3.45%
Since our loans and lease composition includes operating lease equipment (9% of AEA as of December 31, 2017), the Company
believes 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 would not reflect the net revenue from the operating lease portfolio.
Operating leases contributed $213 million to NFR during the current year, compared to $209 million in 2016 and $168 million in
2015.
CRITICAL ACCOUNTING ESTIMATESAA
ff
The preparation of financial statements in conformity with GAAP requires management to use judgment in making estimates and
assumptions that affect
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.
reported amounts of assets and liabilities, reported amounts of income and expense and the disclosure
Management believes that the judgments and estimates utilized in the following critical accounting estimates are reasonable. We
do not believe that different
assumptions. Consequently, our estimates could prove inaccurate, and we may be exposed to charges to earnings that could be
material.
assumptions are more likely than those utilized, although actual events may differ
from such
ff
ff
Allowance for Loan Losses — The allowance for loan losses is reviewed for adequacy based on portfolio collateral values and
credit quality indicators, including charge-offff experience, levels of past due loans and non-performing assets, and evaluation of
portfolio diversification and concentration, as well as economic conditions to determine the need for a qualitative adjustment. We
review loans periodically to determine the probability of loss, and record charge-offsff after considering such factors as
delinquencies, the financial condition of obligors, the value of underlying collateral, as well as third party credit enhancements
such as guarantees and recourse to manufacturers. This information is reviewed on a quarterly basis with senior management,
including the Chief Executive Officer
others, as well as the Audit and Risk Management Committees, in order to set the reserve for credit losses.
, Chief Financial Officer
and Controller, among
, Chief Credit Officer
, Chief Risk Officer
ff
ff
ff
ff
As of December 31, 2017, the allowance was comprised of non-specific reserves of $386.0 million, specific reserves of $26.0
million and reserves related to PCI loans of $19.1 million. The allowance is sensitive to the risk ratings assigned to loans and
leases in our portfolio. Assuming a one level probability of obligor default ("PD") downgrade across the 14 grade internal scale
for all non-impaired loans and leases, the allowance would have increased by $244 million to $675 million at December 31,
2017. Assuming a one level loss given default ("LGD") downgrade across the 11 grade internal scale for all non-impaired loans
and leases, the allowance would have increased by $140 million to $571 million at December 31, 2017. As a percentage of
finance receivables, the allowance would be 2.32% under the hypothetical PD stress scenario and 1.96% under the hypothetical
LGD stress scenario, compared to the reported 1.48%.
These sensitivity analyses do not represent management's expectations of the deterioration in risk ratings, or the increases in
allowance and loss rates, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for loan losses to
changes in key inputs. We believe the risk ratings utilized in the allowance calculations are appropriate and that the probability of
the sensitivity scenarios above occurring within a short period of time is remote. The process of determining the level of the
allowance for loan losses requires a high degree of judgment. Others given the same information could reach different
reasonable conclusions.
ff
See Note 1 — Business and Summary of Significant Accounting Policies for discussion on policies relating to the allowance for
loan losses, and Note 4 — Allowance for Loan Losses for segment related data in Item 8. Financial Statements and
Supplementary Data and Credit Metrics for further information on the allowance for credit losses.
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 75
Loan Impairment — Loan impairment is measured based upon the difference
either the present value of the expected future cash flows discounted at each loan's effective
interest rate adjusted for any deferred fees / costs or discount / premium at the date of origination/acquisition) or if a loan is
collateral dependent, the collateral's fair value. When foreclosure or impairment is determined to be probable, the measurement
will be based on the fair value of the collateral less costs to sell. The determination of impairment involves management's
judgment and the use of market and third party estimates regarding collateral values. Valuations of impaired loans and
corresponding impairment affect
Accounting Policies for discussion on policies relating to the allowance for loan losses, and Note 3 — Loans for further
discussion in Item 8. Financial Statements and Supplementary Data.
between the recorded investment in each loan and
interest rate (the loan's contractual
the level of the reserve for credit losses. See Note 1 — Business and Summary of Significant
ff
ff
ff
Lease Residual Values — Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to
estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Direct financing
leases are recorded at the aggregated future minimum lease payments plus estimated residual values less unearned finance
income. We generally bear greater residual risk in operating lease transactions (versus finance lease transactions) as the
duration of an operating lease is shorter relative to the equipment useful life than a finance lease. Management reviews the
estimated residual value of a leased property at least annually. If the review results in a lower estimate than had been previously
established, we determine whether the decline in estimated residual value is other than temporary. If the decline in estimated
residual value is other than temporary, the resulting reduction in the net investment is recognized as a loss in the period in which
the estimate is changed, as an increase to depreciation expense for operating lease residual impairment, or as an adjustment to
yield for value adjustments on finance leases. Data regarding current equipment values, including appraisals, and historical
residual realization experience are among the factors considered in evaluating estimated residual values. As of December 31,
2017, our direct financing lease residual balance was $0.5 billion and our total operating lease equipment balance totaled $6.7
billion.
Realizability of Deferred Tax Assets — The recognition of certain net deferred tax assets of the Company's reporting entities is
dependent upon, but not limited to, the future profitability of the reporting entity, when the underlying temporary differences
will
reverse, and tax planning strategies. Further, Management's judgment regarding the use of estimates and projections is required
in assessing our ability to realize the deferred tax assets relating to net operating loss carry forwards ("NOLs") as most of these
assets are subject to limited carry-forward periods some of which began to expire in 2016. In addition, the domestic NOLs are
subject to annual use limitations under the Internal Revenue Code and certain state laws. Management utilizes historical and
projected data in evaluating positive and negative evidence regarding recognition of deferred tax assets. See Note 1 — Business
and Summary of Significant Accounting Policies and Note 19 — Income Taxes in Item 8 Financial Statements and
Supplementary Data for additional information regarding income taxes.
ff
ff
Goodwill — The consolidated goodwill balance totaled $369.9 million at December 31, 2017, or approximately 0.75% of total
assets. CIT acquired OneWest Bank on August 3, 2015, which resulted in the recording of $643 million of goodwill, including the
effects
of the measurement period adjustments through the end of the measurement period in the third quarter of 2016, of which
$319.4 million related to the Consumer Banking segment was impaired in 2016. The determination of estimated fair values
requires management to make certain estimates about discount rates, future expected cash flows (that may reflect collateral
values), market conditions and other future events that are highly subjective in nature. During 2014, CIT acquired Paris-based
NACCO, and Direct Capital, resulting in the addition of $77 million and approximately $170 million of goodwill, respectively. The
goodwill associated with NACCO was transferred to held for sale during 2017 ($65 million, including foreign exchange translation
adjustments) and therefore is not reflected in the December 31, 2017 balance. The remaining goodwill represented the excess
reorganization value over the fair value of tangible and identified intangible assets, net of liabilities, recorded in conjunction with
FSA in 2009.
Goodwill is assessed for impairment at least annually, or more often if events or circumstances have changed significantly from
the annual test date that would indicate a potential reduction in the fair value of the reporting unit below its carrying value. We
performed the goodwill impairment test during the fourth quarter of 2017, utilizing data as of September 30, 2017 to perform the
test, at which time CIT's share price was $49.05 and tangible book value ("TBV") per share was $48.58.
Impairment exists when the carrying amount of goodwill exceeds its implied fair value. Companies can also choose to perform
qualitative assessments to conclude on whether it is more likely or not that a company's carrying amount including goodwill is
greater than its fair value, before applying the quantitative approach. Based on our annual assessment, the Company recorded
an impairment in the fourth quarter of 2017 of the Equipment Finance and Commercial Services RUs of $247.0 million and $8.6
million, respectively.
The determination of the impairment charge 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.
ff
See Note 26 — Goodwill and Intangible Assets in Item 8. Financial Statements and Supplementary Data for more detailed
information regarding the goodwill impairment test, including details regarding the fair value methodology employed and
significant assumptions used.
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:
76 CIT ANNUAL REPORT 2017
•
•
Credit risk is the risk of loss when a borrower or series of borrowers do not meet their financial obligations to the Company,
or their performance weakens and increased reserving is required. Credit risk may arise from lending, leasing, the purchase
of accounts receivable in factoring and/or counterparty activities.
Asset risk is the equipment valuation and residual risk of lease equipment owned by the Company that arises from
fluctuations in the supply and demand for the underlying leased equipment. The Company is exposed to the risk that, at the
end of the lease term, the value of the asset will be lower than expected, resulting in either reduced future lease income
over the remaining life of the asset or a lower sale value.
• Market risk includes interest rate and foreign currency risk. Interest rate risk is the risk that fluctuations in interest rates will
have an impact on the Company’s net finance revenue and on the market value of the Company’s assets, liabilities and
derivatives. Foreign exchange risk is the risk that fluctuations in exchange rates between currencies can have an economic
impact on the Company’s non-dollar denominated assets, liabilities and cash flows.
•
•
•
•
•
•
•
Liquidity risk is the risk that the Company has an inability to maintain adequate cash resources and funding capacity to meet
its obligations, including under stress scenarios.
Capital risk is the risk that the Company does not have adequate capital to cover its risks and to support its growth and
strategic objectives.
Strategic risk is the risk of the impact on earnings or capital arising from adverse strategic business decisions, improper
implementation of strategic decisions, or lack of responsiveness to changes in the industry, including changes in the
financial services industry as well as fundamental changes in the businesses in which our customers and our firm engages.
Operational risk is the risk of financial loss, damage to the Company’s reputation, or other adverse impacts resulting from
inadequate or failed internal processes and systems, people or external events.
Information Technology Risk is the risk of financial loss, damage to the Company’s reputation or other adverse impacts
resulting from unauthorized (malicious or accidental) disclosure, modification, or destruction of information, including cyber-
crime, unintentional errors and omissions, Information Technology (“IT”) disruptions due to natural or man-made disasters,
or failure to exercise due care and diligence in the implementation and operation of an IT system.
Compliance Risk is the risk that the Company is not in compliance with applicable laws, regulations, and standards of
conduct, which may result in fines, regulatory criticism or business restrictions, or damage to the Company’s reputation.
Reputational Risk is the potential that negative publicity, whether true or not, will cause a decline in the value of the
Company due to changes in the customer base, costly litigation, foregone opportunities, or other revenue reductions or
expense increases.
GOVERNANCE AND SUPERVISION
RR
CIT’s Risk Management Group (“RMG”) has established a Risk Governance Framework that is designed to promote appropriate
risk identification, as well as measurement, monitoring, management and control limits. The Risk Governance Framework is
focused on:
•
•
•
the major risks inherent to CIT's business activities, as defined above;
the Enterprise Risk Framework, which includes the policies, procedures, practices and resources used to manage and
assess these risks, and the decision-making governance structure that supports it;
the Risk Appetite and Risk Tolerance Framework, which defines the level and type of risk CIT is willing to assume in its
exposures and business activities, given its business objectives, and sets limits, credit authorities, target performance
metrics, underwriting standards and acceptable deal structures used to define and guide the decision-making processes;
and
• management information systems, including data, models, analytics and risk reporting, to enable adequate identification,
monitoring and reporting of risks for proactive management.
The Risk Management Committee ("RMC") of the Board oversees the risk management functions that address the major risks
inherent in CIT's business activities and the control processes with respect to such risks. The Chief Risk Officer
supervises CIT's risk management functions through the RMG, chairs the Enterprise Risk Committee ("ERC"), and reports
regularly to the RMC on the status of CIT's risk management program. The ERC provides a forum for structured, cross-functional
review, assessment and management of CIT's enterprise-wide risks. Within the RMG, officers
supervise and manage groups and departments with specific risk management responsibilities.
with reporting lines to the CRO
("CRO")
ff
ff
ff
The Credit Risk Management group manages and approves all credit risk throughout CIT. This group is led by the Chief Credit
Officer
("CCO"), and includes the heads of credit for each business, the head of Problem Loan Management ("PLM"), and the
head of Credit Administration. The CCO chairs several key governance committees, including the Corporate Credit Committee
(“CCC”).
The Enterprise Risk Management (“ERM”) group is responsible for oversight of asset risk, market risk, liquidity risk, capital risk,
operational risk, model development, and analytics.
The Model Validation Group reports directly to the CRO, and is responsible for model governance, validation and monitoring.
The Information Security Group reports to the CRO and is responsible for IT Risk, Business Continuity Planning and Disaster
Recovery.
Item 7: Management's Discussion and Analysis
The Policy, Governance and Control Group is responsible for overarching governance and controls within the risk organization
with oversight of policy, appraisal and independent enterprise valuations, risk data and reporting.
Credit Review is an independent oversight function that is responsible for performing internal credit-related reviews for the
Company as well as the ongoing monitoring, testing, and measurement of credit quality and credit process risk in enterprise-wide
lending and leasing activities. Credit Review reports to the RMC and administratively to the CRO.
CIT ANNUAL REPORT 2017 77
Compliance is an independent oversight function that is responsible for assisting senior management, the businesses, and the
other control functions in the management of compliance risk and promoting business behavior that is consistent with ethical
conduct. This group is led by the Chief Compliance Officer
of Financial Crimes Compliance, and the Head of Compliance Management Systems. The Chief Compliance Officer
Compliance Committee and reports to the Audit Committee of the Board and administratively to the CRO.
, and includes the heads of compliance for each business, the Head
chairs the
ff
ff
The Audit Committee of the Board oversees financial, legal, compliance, regulatory and audit risk management practices.
CREDIT RISK
Lending and Leasing Risk
The extension of credit through our lending and leasing activities is core to our businesses. As such, CIT’s credit risk
management process is centralized in the RMG, reporting into the CRO through the CCO. This group approves the Company’s
underwriting standards, new business, extensions of credit and material amendments to existing credits, and is responsible to
ensure the portfolio credit grading, and regulatory ratings are correct. Additionally, PLM reports into the CCO. RMG reviews and
monitors credit exposures with the goal of identifying, as early as possible, customers and industries that are experiencing
declining creditworthiness or financial difficulty
and non-performing loans, as well as establishing qualitative reserves to cover potential losses, which may be inherent in the
portfolio. Once a loan or lease is deemed to be Non-Accrual, we evaluate our collateral and test for asset impairment based
upon collateral value and projected cash flows and relevant market data with any impairment in value charged to earnings, via a
specific reserve or charge off.ff
. The CCO and CRO evaluate reserves through our ALLL process for performing
ff
CIT’s portfolio is governed by Risk Tolerance Limits based on individual loan and lease amounts by borrower as well as product,
industry and geography. RMG sets or modifies the Underwriting standards as conditions warrant, based on borrower risk,
collateral, industry risk, portfolio size and concentrations, credit concentrations and risk of substantial credit loss. Using our
underwriting policies, procedures and practices, combined with credit judgment and quantitative tools, we evaluate loans and
leases for credit and collateral risk during the credit decision-making process and after the advancement of funds. We set forth
our underwriting parameters based on: (1) Target Market Definitions, which delineate risk by market, industry, geography and
product, (2) Credit Standards, which detail acceptable structures, credit profiles and risk-adjusted returns, and (3) through our
corporate credit policies. We capture and analyze credit risk based on the probability of obligor default (“PD”) and loss given
default (“LGD”). PD is determined by evaluating borrower creditworthiness, including analyzing credit history, financial condition,
cash flow adequacy, financial performance and management quality. LGD ratings, which estimate loss if an account goes into
default, are predicated on transaction structure, collateral valuation and related guarantees. The PD and LGD of our borrowers is
the framework for our ALLL process.
We execute derivative transactions with our customers in order to help them mitigate their interest rate and currency risks. We
typically enter into offsetting
exposure to these customer related derivative transactions. The counterparty credit exposure related to these transactions is
monitored and evaluated as part of our credit risk management process.
derivative transactions with third parties in order to neutralize CIT’s interest rate and currency
ff
Commercial Lending and Leasing. Commercial credit management begins with the initial evaluation of credit risk and underlying
collateral at the time of origination and continues over the life of the loan or operating lease, including normal collection,
evaluation of the performance, recovery of past due balances and liquidating underlying collateral.
Prior to extending an initial loan or lease, credit personnel review potential borrowers’ financial condition, results of operations,
management, industry, business model, customer base, operations, collateral and other data, such as third party credit reports,
to evaluate the potential customer’s borrowing and repayment ability. Transactions are graded by PD and LGD ratings, as
described above, as well as regulatory ratings. Credit facilities are subject to our overall credit approval process and underwriting
guidelines and are issued commensurate with the credit evaluation performed on each prospective borrower, as well as portfolio
concentrations. Credit personnel continue to review the PD and LGD ratings periodically. Decisions on continued
creditworthiness or impairment of borrowers are determined through these periodic reviews.
Lending and Leasing. For small-ticket lending and leasing transactions, largely in Business Capital, we also employ
TT
Small-Ticket
automated credit scoring models for origination (scorecards) and re-grading (auto re-grade algorithms). These are supplemented
by business rules and expert judgment. The models evaluate, among other things, financial performance metrics, length of time
in business, industry category and geography, and are used to assess a potential borrower’s credit standing and repayment
ability, including the value of collateral. We utilize external credit bureau scoring, when available, and behavioral models, as well
as judgment in the credit adjudication, evaluation and collection processes.
We evaluate the small-ticket leasing portfolio using delinquency vintage curves and other tools to analyze trends and credit
performance by transaction type, including analysis of specific credit characteristics and selected subsets of the portfolios.
Adjustments to credit scorecards, auto re-grading algorithms, business rules and lending programs are made periodically based
on these evaluations. Individual underwriters are assigned credit authority based upon experience, performance and
understanding of underwriting policies of small-ticket leasing operations. A credit approval hierarchy is enforced to ensure that an
underwriter with the appropriate level of authority reviews applications.
Consumer Lending. Consumer lending begins with an evaluation of a consumer’s credit profile against published standards.
Loans could be originated held for investment ("HFI") or held for sale ("HFS"). A loan that is originated as HFS must meet both
the credit criteria of the Bank and the investor. At this time, conventional (Fannie Mae) and FHA loans are originated for sale.
Jumbo loans are considered a HFI product. All loan requests are reviewed by underwriters. Credit decisions are made after
reviewing qualitative factors, including collateral values, and considering the transaction from a judgmental perspective.
78 CIT ANNUAL REPORT 2017
SFR mortgage loans are originated through retail and correspondent originations channels and closed loan purchases.
Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant.
Concentration limits are established by the Board and credit standards follow industry standard documentation requirements.
Performance is largely based on an acceptable pay history along with a quarterly assessment, which incorporates an
assessment using current market conditions. Non-traditional loans are also monitored by way of a quarterly review of the
borrower’s refreshed credit score. When warranted an additional review of the underlying collateral may be conducted.
Counterparty Risk
We enter into interest rate and currency swaps and foreign exchange forward contracts as part of our overall risk management
practices. We establish limits and evaluate and manage the counterparty risk associated with these derivative instruments
through our RMG.
The primary risk of derivative instruments is counterparty credit exposure, which is defined as the ability of a counterparty to
perform financial obligations under the derivative contract. We seek to control credit risk of derivative agreements through
counterparty credit approvals, pre-established exposure limits and monitoring procedures.
The CCC approves each counterparty and establishes exposure limits based on credit analysis of each counterparty. Derivative
agreements entered into for our own risk management purposes are generally entered into with major financial institutions or
clearing exchanges rated investment grade by nationally recognized rating agencies.
We also monitor and manage counterparty credit risk, for example, through the use of exposure limits, related to our cash and
investment portfolio.
ASSET RISK
Asset risk in our leasing business is evaluated and managed in the business units and overseen by RMG. Our business process
consists of: (1) setting residual values at transaction inception, (2) systematic residual value reviews, and (3) monitoring levels of
residual realizations. Residual realizations, by business and product, are reviewed as part of our quarterly financial and asset
quality review. Reviews for impairment are performed at least annually.
The RMG teams review the equipment markets, monitor trafficff
impact of new technology or regulatory requirements on different
types of equipment. Demand for equipment is correlated with
Gross Domestic Product growth trends for the markets the equipment serves as well as the more immediate conditions of those
markets and other modes of transportation. Cyclicality in the economy and shifts in trade flows due to specific events represent
risks to the earnings that can be realized by these businesses. CIT seeks to mitigate these risks by maintaining relatively young
fleets of assets with wide operator bases, which can facilitate attractive lease and utilization rates.
flows, evaluate supply and demand trends, and evaluate the
ff
MARKET RISK
CIT is exposed to interest rate and currency risk as a result of its business activities. CIT does not pro-actively seek out these
risks as a way to make a return, as it does with credit and asset risk, however CIT does look to strategically manage this inherent
risk based on various interest rate outlook scenarios while within the CIT board approved limits. RMG measures, monitors and
sets limits on these exposures, by analyzing the impact of potential interest rate and foreign exchange rate changes on financial
performance. We consider factors such as customer prepayment trends, maturity, and repricing characteristics of assets and
liabilities. Our asset-liability management system provides analytical capabilities to assess and measure the effects
of various
market rate scenarios upon the Company's financial performance.
ff
Interest rate risk
Interest rate risk arises from lending, leasing, investments, deposit taking and funding, as assets and liabilities reprice at different
times as interest rates change. We evaluate and monitor interest rate risk primarily through two metrics.
ff
•
•
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
Economic Value of Equity Sensitivity ("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.
ff
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 typically are
level/fixed payment transactions, whereas the payments on the majority of our commercial loan portfolio are variable based on a
floating rate index such as LIBOR or Prime. Our commercial portfolio includes approximately $13.2 billion of fixed-rate (of which
$6.7 billion is operating lease equipment) and $15.7 billion of floating rate loans and leases. Our consumer loan portfolio includes
approximately $3.8 billion of fixed rate loans and also has hybrid, floating rate and level/fixed payment loans (fixed rate
represents approximately 48% of unpaid principal balance of the total consumer portfolio). Our interest bearing deposits at banks
have generally short durations and reprice frequently. We use a variety of funding sources, including online, branch, commercial,
and brokered deposit channels as well as wholesale debt funding including FHLB advances. With respect to liabilities, time
deposits 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 at the shorter end of the yield curve, mostly related to moves in LIBOR, whereby our assets will reprice
faster than our liabilities.
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
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 79
December 31, 2017, deposits totaled approximately $30 billion. Time deposits were approximately $14 billion and represented
approximately 49% of the total deposits, most of which were sourced through direct channels. The deposit rates we offer
influenced by market conditions and competitive factors. Beta represents the correlation between overall market interest rates
and the rates paid by CIT Bank. We model a beta of approximately 40% - 50% on our non-maturity deposits for a +100 bps rate
increase over the next 12 months. Changes in interest rates, as well as actions by competitors, can affect
potentially impact our ability to attract and retain deposits. In a rising rate environment, we 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 floating rate non-deposit funding sources. We regularly test the effect
changes on our margins and seek to achieve optimal alignment between assets and liabilities from an interest rate risk
management perspective.
our deposit pricing and
of deposit rate
can be
ff
ff
ff
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 and NII Sensitivity over the next twelve months assuming an immediate 100 basis
point parallel increase or decrease in interest rates from the market-based forward curve. NII sensitivity is based on a static
balance sheet projection.
Change to NII and EVE Sensitivity*
31, 2017
December 31, 2016
December 31, 2015
+200 bps
+100 bps
-100 bps
+200 bps
+100 bps
-100 bps
+200 bps
+100 bps
-100 bps
NII Sensitivity
EVE
6.1 %
3.0 %
(3.0)%
6.0 %
3.2 %
(2.4)%
(4.4)%
(2.3)%
2.3 %
(4.0)%
(2.1)%
2.3 %
6.7%
1.0%
3.5%
0.5%
(2.1)%
(0.5)%
* A 200 basis point decline scenario was not run in the current rate environment as the scenario is less relevant. We have an
assumed rate floor of 0% for the decline scenarios.
As of December 2017, the NII sensitivity and EVE sensitivity change from 2016 (see table above) is mainly driven by the
lengthening of asset durations due to the reallocation of cash to mortgage-backed securities as well as the shortening of liability
durations due to the roll down of fixed rate liabilities and the strategic compositional change in the deposit portfolio from time
deposits to non-maturity deposits.
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 reprices frequently, and cash. Our floating rate loan portfolio includes loans that are subject to
interest rate floors, of which approximately $0.5 billion are still below their floors. 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. 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 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
ff
shocks, measuring the net value of assets, liabilities and off-balance
EVE sensitivity base case calculated using a market-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.
sheet instruments, and comparing those amounts with the
rate
ff
ff
The simulation modeling for both NII Sensitivity and EVE assumes we take no action in response to the changes in interest
rates. NII Sensitivity generally assumes cash flow from portfolio run-offff is reinvested in similar products.
A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. All interest
sensitive assets and liabilities are valued 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
risk profile. Accordingly, we can give no assurance that actual results would not differ
income or that could be taken to change our
ff materially from the estimated outcomes of
ff
ff
80 CIT ANNUAL REPORT 2017
our simulations. Further, the range of such simulations does not represent our current view of the expected range of future
interest rate movements.
Foreign Currency Risk
We seek to hedge transactional exposure of our non-dollar denominated activities, which are comprised of foreign currency
loans and leases in foreign entities, through local currency borrowings. To the extent such borrowings were unavailable, we have
utilized derivative instruments (foreign currency exchange forward contracts) to hedge our non-dollar denominated activities.
Additionally, we have utilized derivative instruments to hedge the translation exposure of our net investments in foreign
operations.
Currently, a portion of our non-dollar denominated loans and leases are funded with debt and equity infusions from the parent.
The parent funds the subsidiary by converting U.S. dollar to the local currency debt and equity which, if unhedged, would cause
foreign currency transactional and translational exposures. For the most part, we hedge these exposures through derivative
instruments. RMG sets limits and monitors usage to ensure that currency positions are appropriately hedged, as unhedged
exposures may cause changes in earnings or the equity account.
LIQUIDITY RISK
Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash resources and
funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure ample liquidity to meet
expected and contingent funding needs under both normal and stress environments. Consistent with this strategy, we maintain
significant amounts of cash and highly liquid investments. Additional sources of liquidity include the Second Amended and
Restated Revolving Credit and Guaranty Agreement (the “Revolving Credit Facility”), other committed financing facilities and
cash collections generated by portfolio assets originated in the normal course of business.
We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity
conditions and trends. The primary tool is a cash forecast designed to identify movements in cash flows. Stress scenarios are
applied to measure the resiliency of the liquidity position and to identify stress points requiring remedial action. Also included
among our liquidity measurement tools is an early warning system that monitors key macro-environmental and company specific
metrics that serve as early warning signals of potential impending liquidity stress events. Assessments outside defined
thresholds trigger contingency funding actions, which are detailed in the Company's Contingency Funding Plan ("CFP").
Integral to our liquidity management practices is our CFP,P which outlines actions and protocols under liquidity stress conditions,
whether they are idiosyncratic or systemic in nature and defines the thresholds that trigger contingency funding actions. The
objective of the CFP is to ensure an adequately sustained level of liquidity under certain stress conditions.
Oversight is provided by the RMC, ERC, ALCO and the Risk Control Committee (“RCC”), a sub-committee of the ERC.
AA
STRATEGIC
RISK
Strategic risk management starts with analyzing the short and medium term business and strategic plans established by the
Company. This includes the evaluation of the industry, opportunities and risks, market factors and the competitive environment,
as well as internal constraints, such as CIT’s risk appetite and control environment. The business plan and strategic plan are
linked to the Risk Appetite and Risk Tolerance Frameworks, including the limit structure. RMG is responsible for the New Product
and Strategic Initiative process. This process is intended to enable new activities that are consistent with CIT’s expertise and risk
appetite, and ensure that appropriate due diligence is completed on new opportunities before approval and implementation.
Changes in the business environment and in the industry are evaluated periodically through scenario development and analytics,
and discussed with the business leaders, CEO and RMC.
Strategic risk management includes the effective
Strategic Initiative process requires tracking and review of all approved new initiatives. In the case of acquisitions, integration
planning and management covers the implementation process across affected
important financial institution ("SIFI"). SIFI planning and implementation is a cross functional effort,
with the integration planning processes.
implementation of new products and strategic initiatives. The New Product and
businesses and functions. CIT is a systemically
led by RMG and coordinated
ff
ff
ff
Oversight of strategic risk management is provided by the RMC, the ERC and the RCC.
CAPITALTT RISK
Capital risk is the risk that the Company does not have adequate capital to cover its risks and to support its growth and strategic
objectives. CIT establishes internal capital risk limits and warning thresholds, which utilize Economic, Risk-Based and Leverage-
Based Capital Calculations, internal and external early warning indicators, as well as the Comprehensive Capital Analysis and
Review (“CCAR”) and the Dodd-Frank Act Stress Test (“DFAST”),
of risk in both normal and stressed environments. Capital stress testing is conducted in a manner that is consistent with
,TT as defined by the FRB and OCC. The capital risk framework
regulatory expectations and requirements under CCAR and DFAST
requires contingency plans be defined in the event capital risk limits are breached or a preponderance of warning thresholds are
triggered.
to evaluate the Company's capital adequacy for multiple types
FF
FF
Oversight is provided by the Board of Directors, RMC, ERC, ALCO and the Capital Committee.
AA
OPERATIONAL
RISK
Operational risk is the risk of financial loss or other adverse impacts resulting from inadequate or failed internal processes and
systems, people or external events. Operational risk may result from fraud by employees or persons outside the Company,
transaction processing errors, employment practices and workplace safety issues, unintentional or negligent failure to meet
professional obligations to clients, business interruption due to system failures, or other external events.
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 81
ff
Operational risk is managed within individual business units. The head of each business and functional area is responsible for
maintaining an effective
system of internal controls to mitigate operational risks. The business segments designate operational
risk managers responsible for implementation of the operational risk framework programs. The enterprise operational risk
function provides oversight in managing operational risk, designs and supports the enterprise-wide operational risk framework
programs, and promotes awareness by providing training to employees and operational risk managers within business units and
functional areas. Additionally, enterprise operational risk maintains the loss data collection and risk assessment programs.
Oversight of the operational risk management function is provided by the RMG, the RMC, the ERC and the RCC.
INFORMATION
AA
TECHNOLOGY RISK
IT risks are risks around information security, cyber-security, and business disruption from systems implementation or downtime,
that could adversely impact the organization’s business or business processes. This includes loss or legal liability due to
unauthorized (malicious or accidental) disclosure, modification, or destruction of information, unintentional errors and omissions,
IT disruptions due to natural or man-made disasters, or failure to exercise due care and diligence in the implementation and
operation of an IT system.
The Information Risk function provides oversight and guidance of the Information Security and Business Continuity Management
programs. The Information Risk function ensures proper detection, protection, and response is in place to preserve the
confidentiality, integrity, and availability of CIT information and information systems across the organization. Information Risk
performs ongoing risk assessments of applications, infrastructure systems, and third party vendors, to ensure the Information
Security and Business Continuity Management programs are implemented appropriately. Training for employees and contingent
workers are also provided by the function to create awareness of the program.
Management oversight of the Information Risk function is provided by the RMG, the ERC and the RCC. The RMG reports
periodically to the Board and the RMC on information security issues, including cyber-security.
COMPLIANCE RISK
CIT is subject to a number of laws, regulations, regulatory standards, and guidance in the jurisdictions in which it does business,
some of which are applicable primarily to financial services and others of which are generally applicable to all businesses.
Failure to comply may result in governmental investigations inquiries, and enforcement actions, legal proceedings, monetary
damages, fines, or penalties, restrictions on the way in which we conduct our business, or reputational harm. To reduce these
risks, the Company consults regularly with legal counsel, both internal and external, on significant legal and regulatory issues
and has established a compliance function to facilitate maintaining compliance with applicable laws and regulations.
Compliance is an independent function responsible for maintaining an enterprise-wide compliance risk management program
commensurate with the size, scope and complexity of our businesses, operations, and the countries in which we operate. The
Compliance function (1) oversees programs and processes to evaluate and monitor compliance with laws and regulations
pertaining to our business, (2) tests the adequacy of the compliance control environment in each business, and (3) monitors and
promotes compliance with the Company’s ethical standards as set forth in our Code of Business Conduct and compliance
policies. Compliance, led by the Chief Compliance Officer
, is responsible for setting the overall global compliance framework and
standards, using a risk based approach to identify and manage key compliance obligations and risks. The head of each business
and staffff function is responsible for ensuring compliance within their respective areas of authority. Compliance, through the Chief
Compliance Officer
Directors.
, reports administratively and to the CRO and to the Chairperson of the Audit Committee of the Board of
ff
ff
Compliance has implemented comprehensive compliance policies and procedures and employs Business Compliance Officers
ff
who work with each business to advise business staffff and leadership in the prudent conduct of business within a regulated
environment and within the requirements of law, rule, regulation and the control environment we maintain to reduce the risk of
violations or other adverse outcomes. They advise business leadership and staffff with respect to the implementation of
procedures to operationalize compliance policies and other requirements.
Oversight of compliance, legal and regulatory risk is provided by the Audit Committee of the Board of Directors and the ERC.
REPUTATTT IONAL RISK
Reputational risk is the potential that negative publicity, whether true or not, will cause a decline in the value of the Company due
to changes in the customer base, costly litigation, foregone opportunities, or other revenue reductions or expense increases.
Protecting CIT,TT its shareholders, employees and brand against reputational risk is of paramount importance to the Company. To
address this priority, CIT has established corporate governance standards relating to its Code of Business Conduct and ethics.
The Chief Compliance Officer’s
responsibilities also extend to encompass compliance not only with laws and regulations, but also with CIT’s values and its Code
of Business Conduct.
responsibilities also include the role of Chief Ethics Officer
. In this combined role, his
ff
ff
ff
and employees, which details acceptable behaviors in conducting the Company's business and acting on the Company's
The Company has adopted, and our Board of Directors has approved, a Code of Business Conduct applicable to all directors,
officers
behalf. The Code of Business Conduct covers conflicts of interest, corporate opportunities, confidentiality, fair dealing (with
respect to customers, suppliers, competitors and employees), protection and proper use of Company assets, compliance with
laws, and encourages reporting of unethical or illegal behavior, including through a Company hotline. Annually, each employee is
trained on the Code of Business Conduct's requirements, and provides an attestation as to their understanding of the
requirements and their responsibility to comply.
CIT's Executive Management Committee ("EMC") has established, and approved, the charter of a Global Ethics Committee. The
Global Ethics Committee is chaired by CIT's General Counsel and Corporate Secretary. Its members include the Chief Ethics
and Compliance Officer
Relations. The Global Ethics Committee is charged with (a) oversight of the Code of Business Conduct and Company Values, (b)
seeing that CIT's ethical standards are communicated, upheld and enforced in a consistent manner, and (c) periodic reporting to
the EMC and Audit Committee of the Board of Directors of employee misconduct and related disciplinary action.
, Chief Auditor, Head of Human Resources and the Head of Communications, Marketing & Government
ff
82 CIT ANNUAL REPORT 2017
Oversight of reputational risk management is provided by the Audit Committee of the Board of Directors, the RMC, the ERC,
of
Compliance Committee and the RCC. In addition, CIT's Internal Audit Services monitors and tests the overall effectiveness
internal control and operational systems on an ongoing basis and reports results to senior management and to the Audit
Committee of the Board.
ff
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
or excluding, as compared to the most directly comparable measure calculated and presented in accordance with GAAP
financial statements.
ff
of including
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,rr GAAP and may be different from or
inconsistent with non-GAAP financial measures used by other companies.
1. Total Net Revenue, Net Finance Revenue, 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
considered non-GAAP. Total net revenue is used by management to monitor business performance and is used by management
to calculate a net efficiency
subtotals than included in the statement of income, and therefore is
ratio, as discussed below.
order, and with different
ff
ff
ff
NFR is a non-GAAP measure that represents the level of revenue earned on our loans and 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 loans and 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, NFM 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.
Item 7: Management's Discussion and Analysis
Total Net Revenue and Net Operating Lease Revenue (dollars in millions)
Interest income
Rental income on operating leases
Finance revenue (Non-GAAP)
Interest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net finance revenue (Non-GAAP)
Other non-interest income
Total net revenue (Non-GAAP)
NFR (Non-GAAP)
Noteworthy Items:
Suspended depreciation on assets HFS
Excess interest costs over interest income from Commercial Air proceeds usage
Interest on excess cash
Adjusted NFR (Non-GAAP)
NFR as a % of AEA
NFR as a % of AEA, adjusted for noteworthy items
Net Operating Lease Revenues
Rental income on operating leases
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Net operating lease revenue (Non-GAAP)
2. Operating Expenses and Net Efficiency
ff
Ratio Excluding Certain Costs
CIT ANNUAL REPORT 2017 83
Years Ended December 31,
2017
2016
2015
$
1,835.6
$
1,911.5
$
1,007.4
2,843.0
717.7
296.3
222.9
1,606.1
364.2
1,970.3
1,606.1
(16.6)
23.4
(9.1)
$
$
1,031.6
2,943.1
753.2
261.1
213.6
1,715.2
150.6
1,865.8
1,715.2
—
—
—
$
$
$
$
1,445.2
1,018.1
2,463.3
731.4
229.2
185.1
1,317.6
149.6
1,467.2
1,317.6
—
—
—
$
1,603.8
$
1,715.2
$
1,317.6
3.43%
3.49%
3.60%
3.60%
3.47%
3.47%
$
$
1,007.4
$
1,031.6
$
1,018.1
296.3
222.9
488.2
$
261.1
213.6
556.9
$
229.2
185.1
603.8
ff
A key performance metric the Company uses to gauge the level of expenses is in comparison to the 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
calculation. This calculation compares the level of expenses to the level of net revenues and is calculated by dividing
efficiency
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
(before restructuring costs and intangible amortization) to total net revenues. 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.
ratio is a non-GAAP measurement used by management to measure operating expenses
ff
ff
84 CIT ANNUAL REPORT 2017
Operating Expenses Excluding Certain Costs (dollars in millions)
Operating Expenses
Operating expenses
Intangible asset amortization
Restructuring costs
Operating expenses excluding restructuring costs and intangible assets amortization (Non-GAAP)
Noteworthy Items:
Legacy One West matters
Transaction costs
Years Ended December 31,
2017
2016
2015
$
1,188.5
$
1,283.5
$
1,121.1
24.7
53.0
1,110.8
—
—
25.6
36.2
1,221.7
(27.3)
—
13.3
58.3
1,049.5
—
(23.9)
Operating expenses excluding restructuring costs, intangible assets amortization, and other
noteworthy items (Non-GAAP)
$
1,110.8
$
1,194.4
$
1,025.6
Operating expenses (excluding restructuring costs and intangible assets amortization) as a % of
AEA
Operating expenses (excluding restructuring costs, intangible assets amortization and other
noteworthy items) as a % of AEA (excluding noteworthy items)
Total Net Revenue (Non-GAAP)
Noteworthy Items:
Interest on excess cash
Suspended depreciation on assets HFS
LIHTC accounting policy change
Financial Freedom Transaction impairments on assets
Excess interest costs
CTATT charge on liquidated or sold portfolios
TRS termination charge
Gain on sale - Canada business
Gain on sale - UK business
Asset impairment
Gain related to IndyMac venture
2.37%
2.42%
2.56%
2.51%
2.76%
2.70%
$
1,970.3
$
1,865.8
$
1,467.2
(9.1)
(16.6)
(29.4)
26.8
23.4
8.1
—
—
—
—
—
—
—
3.0
243.3
(22.3)
(23.5)
11.0
(5.0)
—
—
—
—
73.0
—
—
—
23.8
—
Total Net Revenue, excluding noteworthy items (Non-GAAP)
$
1,973.5
$
2,072.3
$
1,564.0
ff
Net efficiency
ratio
ff
Net efficiency
ratio excluding noteworthy items
3. Other Non-Interest Income
56.4%
56.3%
65.5%
57.6%
71.5%
65.6%
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)
Other non-interest income
Noteworthy Items:
CTATT charge on liquidated or sold portfolios
TRS termination charge
Gain on sale - Canada business
Gain on sale - UK business
Asset impairment
Gain related to IndyMac venture
LIHTC accounting policy change
Financial Freedom Transaction impairments on assets
Years Ended December 31,
2017
2016
2015
$
364.2
$
150.6
$
149.6
8.1
—
—
—
—
—
(29.4)
26.8
3.0
243.3
(22.3)
(23.5)
11.0
(5.0)
—
—
73.0
—
—
—
23.8
—
—
—
Total other non-interest income, excluding noteworthy items (Non-GAAP)
$
369.7
$
357.1
$
246.4
Item 7: Management's Discussion and Analysis
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 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 as the average, there are no direct comparative
balances on the balance sheet, therefore these are considered non-GAAP measures.
CIT ANNUAL REPORT 2017 85
Earning Assets (dollars in millions)
Period End Earning Assets
Loans
Operating lease equipment, net
Assets held for sale
Credit balances of factoring clients
Interest-bearing cash
Investment securities
Securities purchased under agreement to resell
Indemnification assets
Total earning assets (Non-GAAP)
Average Earning Assets (for the respective years) (Non-GAAP)
AEA adjustment for Commercial Air sale impacts
AEA, excluding noteworthy items (Non-GAAP)
Years Ended December 31,
2017
2016
2015
$
29,113.9
$
29,535.9
$
30,518.7
6,738.9
2,263.1
(1,468.6)
1,440.1
6,469.9
150.0
142.4
$
$
$
44,849.7
46,852.1
(930.5)
45,921.6
$
$
$
7,486.1
636.0
(1,292.0)
5,608.5
4,491.1
—
341.4
46,807.0
47,664.2
—
47,664.2
$
$
$
6,851.7
2,057.7
(1,344.0)
6,652.0
2,953.7
—
409.1
48,098.9
38,019.8
—
38,019.8
5. Tangible Book Value, ROTCE and Tangible Book Value per Share
Tangible book value (TBV,V 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,V
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,V 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,V ROTCE and TBV per share are important measures for comparative purposes with other
institutions, but are not defined under U.S. GAAP,P and therefore considered non-GAAP financial measures.
To provide further information, management included ROTCE calculations, ROTCE calculations excluding noteworthy items and
adjusted for the previously disclosed return of capital of common equity to shareholders from the net proceeds of the
Commercial Air sale.
86 CIT ANNUAL REPORT 2017
Tangible Book Value (dollars in millions)
Tangible Book Value
Total common shareholders' equity
Less: Goodwill
Intangible assets
Tangible book value (Non-GAAP)
Less: Disallowed deferred tax asset
Tangible common equity (Non-GAAP)
Average tangible common equity (Non-GAAP)
Estimated capital adjustment related to Commercial Air sale
Average tangible common equity, excluding noteworthy items (Non-GAAP)
Net income (loss) applicable to common shareholders
Goodwill impairment
Intangible asset amortization, after tax
Valuation allowance
Non-GAAP income (loss) - for ROTCE calculation
Return on average tangible common equity
Non-GAAP income applicable to common shareholders (from the following non-GAAP noteworthy
tables)
Intangible asset amortization, after tax
Valuation allowance
Non-GAAP income - for ROTCE calculation
Return on average tangible common equity, excluding noteworthy items
Income (loss) from continuing operations applicable to common shareholders
Goodwill impairment
Intangible asset amortization, after tax
Valuation allowance
Non-GAAP income from continuing operations - for ROTCE calculation
Non-GAAP income from continuing operations (from the following non-GAAP noteworthy tables)
Intangible asset amortization, after tax
Valuation allowance
Non-GAAP income from continuing operations - for ROTCE calculation, excluding noteworthy items
Average tangible common equity
Estimated capital adjustment related to Commercial Air sale
Average tangible common equity with estimated capital adjustment
ROTCE, adjusted for estimated capital adjustment
ROTCE, excluding noteworthy items and adjusted for estimated capital adjustment
Years Ended December 31,
2017
2016
2015
$
6,995.0
$
10,002.7
$
10,944.7
(369.9)
(113.0)
6,512.1
(104.8)
6,407.3
7,486.6
(1,166.7)
6,319.9
458.4
222.1
16.4
—
$
$
$
$
(685.4)
(140.7)
9,176.6
(213.7)
8,962.9
9,172.3
(2,975.0)
6,197.3
(848.0)
347.4
15.7
15.7
$
$
$
$
(1,063.2)
(166.1)
9,715.4
(908.3)
8,807.1
8,318.7
(2,975.0)
5,343.7
1,034.1
—
9.8
—
696.9
$
)
(469.2)
(
$
1,043.9
9.31%
(5.12)%
12.55%
555.1
$
16.4
—
571.5
9.04%
249.6
222.1
16.4
—
488.1
504.1
16.4
—
520.5
7,486.6
(1,166.7)
6,319.9
7.72%
8.24%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
709.4
15.7
15.7
740.8
11.95 %
(182.6)
347.4
15.7
15.7
196.2
384.2
15.7
15.7
415.6
9,172.3
(2,975.0)
6,197.3
3.17 %
6.71 %
575.3
9.8
—
585.1
10.95%
724.1
—
9.8
—
733.9
265.3
9.8
—
275.1
8,318.7
(2,975.0)
5,343.7
13.73%
5.15%
$
$
$
$
$
$
$
$
$
$
$
$
$
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, 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 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. sales of Non-Strategic Portfolios); legacy
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.
Item 7: Management's Discussion and Analysis
Description
Line Item
Pre-tax
Balance
Income
Tax(2)
After-tax
Balance
Per Share
CIT ANNUAL REPORT 2017 87
Net income applicable to common shareholders
Year ended December 31, 2017
$
458.4
$
Continuing
Operations
Interest on excess cash
Excess interest costs
Interest income
Interest expense
Financial Freedom Transaction, reverse
mortgage charge-offsff on loans
transferred to HFS
Accounting policy change on LIHTC
investments
Financial Freedom Transaction,
impairments on reverse mortgage-
related assets
CTATT adjustment on international
business exits
Provision for credit losses
Other non-interest income
Other non-interest income
Other non-interest income
Suspended depreciation on assets HFS
(Nacco rail assets)
Depreciation on operating lease
equipment
Restructuring costs
Goodwill impairment charge
Operating expenses
Goodwill impairment
Debt extinguishment costs
Loss on debt extinguishment
Accounting policy change on LIHTC
investments
Benefit / provision for income taxes
Entity restructurings
Benefit / provision for income taxes
Net deferred income tax benefit from tax
items related to NACCO
Benefit / provision for income taxes
Aggregate benefits related to Tax reform Benefit / provision for income taxes
Resolution of legacy tax items
Benefit / provision for income taxes
Strategic tax item - restructuring of an
international legal entity
Benefit / provision for income taxes
Secured debt extinguishment costs
Financial Freedom servicing asset-
related items
Gain on sale - TC CIT joint venture
Discontinued
Operations
Financial Freedom net settlement items
and servicing rights impairment
Suspended depreciation - Commercial
Air
Gain on sale - Commercial Air, net of
certain expenses
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1)
Income from continuing operations applicable to common shareholders
$
(9.1) $
23.4
15.5
(29.4)
26.8
8.1
(16.6)
53.0
255.6
218.3
—
—
—
—
—
—
39.0
3.7
(14.0)
(20.2)
(113.0)
(134.7)
Continuing
Operations
Interest on excess cash
Excess interest costs
Interest income
Interest expense
Financial Freedom Transaction, reverse
mortgage charge-offsff on loans
transferred to HFS
Accounting policy change on LIHTC
investments
Financial Freedom Transaction,
impairments on reverse mortgage-
related assets
CTATT adjustment on international
business exits
Suspended depreciation on assets HFS
(Nacco rail assets)
Provision for credit losses
Other non-interest income
Other non-interest income
Other non-interest income
Depreciation on operating lease
equipment
Restructuring costs
Goodwill impairment charge
Operating expenses
Goodwill impairment
Debt extinguishment costs
Loss on debt extinguishment
Accounting policy change on LIHTC
investments
Benefit / provision for income taxes
Entity restructurings
Benefit / provision for income taxes
Net deferred income tax benefit from tax
items related to NACCO
Aggregate benefits related to Tax reform Benefit / provision for income taxes
Benefit / provision for income taxes
Resolution of legacy tax items
Benefit / provision for income taxes
Strategic tax item - restructuring of an
international legal entity
Benefit / provision for income taxes
$
(9.1) $
23.4
15.5
(29.4)
26.8
8.1
(16.6)
53.0
255.6
218.3
—
—
—
—
—
—
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
(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.
3.5
(8.9)
(6.0)
—
(10.4)
(1.3)
5.3
(18.0)
(33.5)
(85.5)
38.2
14.0
(17.2)
(11.6)
(19.3)
$
$
(5.0)
(1.4)
1.0
7.8
44.0
35.0
3.5
(8.9)
(6.0)
—
(10.4)
(1.3)
5.3
(18.0)
(33.5)
(85.5)
38.2
14.0
(17.2)
(11.6)
(19.3)
(5.6)
14.5
2.80
(0.03)
0.09
9.5
0.06
(29.4)
(0.18)
16.4
6.8
(11.3)
35.0
222.1
132.8
38.2
14.0
(17.2)
(11.6)
(19.3)
34.0
2.3
(13.0)
16.4
6.8
(11.3)
35.0
222.1
132.8
38.2
14.0
(17.2)
(11.6)
(19.3)
(12.4)
(0.08)
(69.0)
(0.42)
(99.7)
(0.61)
$
$
555.1
249.6
(5.6)
14.5
3.39
1.52
(0.03)
0.09
9.5
0.06
(29.4)
(0.18)
0.10
0.04
(0.07)
0.21
1.35
0.81
0.23
0.09
(0.10)
(0.07)
(0.12)
(0.86)
0.21
0.01
(0.08)
0.10
0.04
(0.07)
0.21
1.35
0.81
0.23
0.09
(0.10)
(0.07)
(0.12)
(0.86)
3.07
(140.4)
(140.4)
$
504.1
$
(140.4)
(140.4)
88 CIT ANNUAL REPORT 2017
Description
Line Item
Pre-tax
Balance
Income
Tax(2)
After-tax
Balance
Per Share
Year ended December 31, 2016
Net income applicable to common shareholders
$
(848.0) $
(4.20)
TRS termination charge
Other non-interest income
$
243.3
$
Continuing
Operations
Asset impairment
Other non-interest income
Liquidating Europe CTA
TT
O
ther non-interest income
Gain on sale - UK
Other non-interest income
Gain related to IndyMac venture
Other non-interest income
Canada portfolio sale gain
Other non-interest income
Restructuring costs
Operating expenses
Legacy OneWest Bank matters
Operating expenses
Consumer goodwill impairment
Goodwill impairment
Commercial Services goodwill
impairment
Canadian assertion change
Goodwill impairment
Benefit / provision for income taxes
Discrete tax benefit
Benefit for income taxes
China valuation allowance
Benefit / provision for income taxes
Commercial Air tax provision
Commercial Air suspended
depreciation
Financial Freedom reserve
Business Air impairment
Discontinued
Operations
Financial Freedom interest curtailmennt reserve and servicing rights
impairment
Business Air goodwill impairment
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1)
11.0
3.0
(23.5)
(5.0)
(22.3)
36.2
27.3
319.4
34.8
—
—
—
—
(106.0)
27.0
7.1
249.0
22.5
Income from continuing operations applicable to common shareholders
TRS termination charge
Other non-interest income
$
243.3
$
Continuing
Operations
Asset impairment
Other non-interest income
Liquidating Europe CTA
TT
O
ther non-interest income
Gain on sale - UK
Other non-interest income
Gain related to IndyMac venture
Other non-interest income
Canada portfolio sale gain
Other non-interest income
Restructuring costs
Operating expenses
Legacy OneWest Bank matters
Operating expenses
Consumer goodwill impairment
Goodwill impairment
Commercial Services goodwill
impairment
Canadian assertion change
Goodwill impairment
Benefit / provision for income taxes
Discrete tax benefit
Benefit for income taxes
11.0
3.0
(23.5)
(5.0)
(22.3)
36.2
27.3
319.4
34.8
—
—
China valuation allowance
—
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
(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.
Benefit / provision for income taxes
(96.7)
(2.8)
—
8.2
2.0
5.9
(13.6)
(10.6)
—
(6.8)
54.0
(13.0)
16.0
847.0
40.0
(11.0)
(2.4)
(74.0)
(8.6)
(96.7)
(2.8)
—
8.2
2.0
5.9
(13.6)
(10.6)
—
(6.8)
54.0
(13.0)
16.0
$
$
146.6
8.2
3.0
(15.3)
(3.0)
(16.4)
22.6
16.7
319.4
28.0
54.0
(13.0)
16.0
847.0
(66.0)
16.0
4.7
175.0
13.9
709.4
$
0.73
0.04
0.01
(0.08)
(0.01)
(0.08)
0.11
0.08
1.58
0.14
0.27
(0.06)
0.08
4.20
(0.33)
0.08
0.02
0.87
0.07
3.51
(182.6) $
(0.90)
146.6
8.2
3.0
(15.3)
(3.0)
(16.4)
22.6
16.7
319.4
28.0
54.0
(13.0)
16.0
0.73
0.04
0.01
(0.08)
(0.01)
(0.08)
0.11
0.08
1.58
0.14
0.27
(0.06)
0.08
1.90
$
384.2
$
Item 7: Management's Discussion and Analysis
Description
Line Item
CIT ANNUAL REPORT 2017 89
Pre-tax
Balance
Balance
Income
Tax(2)
Tax
After-tax
Balance
Balance
Per Share
Year ended December 31, 2015
Net income applicable to common shareholders
$
1,034.1
$
CTATT on sold or liquidated portfolios
Other non-interest income
Continuing
Operations
Asset impairment
Transaction costs
Restructuring costs
Discrete tax benefit
Other non-interest income
Operating expenses
Operating expenses
Benefit for income taxes
Non-GAAP income applicable to common shareholders, excluding noteworthy items(1)
Income from continuing operations applicable to common shareholders
CTATT on sold or liquidated portfolios
Other non-interest income
Continuing
Operations
Asset impairment
Transaction costs
Restructuring costs
Other non-interest income
Operating expenses
Operating expenses
$
$
$
$
73.0
23.8
23.9
58.3
—
73.0
23.8
23.9
58.3
Discrete tax benefit
—
Non-GAAP income from continuing operations applicable to common shareholders, excluding noteworthy items(1)
(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.
Benefit for income taxes
0.3
(1.1)
(8.8)
(22.2)
(606.0)
0.3
(1.1)
(8.8)
(22.2)
(606.0)
$
$
73.3
22.7
15.1
36.1
(606.0)
575.3
724.1
73.3
22.7
15.1
36.1
(606.0)
$
$
$
265.3
$
5.55
0.39
0.12
0.08
0.19
(3.25)
3.09
3.89
0.39
0.12
0.08
0.19
(3.25)
1.43
7. Effective
ff
Tax Rate Reconciliation
The provision for income taxes before noteworthy items and separately, tax only discrete items and the respective effective
rate are non-GAAP measures, which management uses for analytical purposes to understand the Company’s underlying tax
rate. Noteworthy items are presented in item 5 above, and discussed in various sections of the MD&A. The tax discrete items are
discussed in the Income Tax section.
tax
ff
Effective Tax Rate Reconciliation (dollars in millions)
Effective Tax Rate Reconciliation
(Benefit) provision for income taxes
Income tax on noteworthy items
Provision for income taxes, before noteworthy items - Non-GAAP
Income tax - remaining discrete items
Provision for income taxes, before noteworthy and discrete tax items - Non-GAAP
Income from continuing operations before provision for income taxes
Noteworthy items before tax
Adjusted income from continuing operations before provision for income taxes - Non-GAAP
Effective
ff
tax rate
Effective
ff
tax rate, before noteworthy items - Non-GAAP
tax rate, before noteworthy and tax discrete items - Non-GAAP
ff
Effective
NM — not meaningful
$
$
$
$
Years Ended December 31,
2017
2016
2015
(67.8)
$
203.5
$
291.1
223.3
24.6
247.9
191.6
545.6
737.2
(35.4)%
30.3 %
33.6 %
$
$
$
57.4
260.9
(1.6)
259.3
20.9
624.2
645.1
NM
40.4%
40.2%
$
$
$
(538.0)
637.8
99.8
11.5
111.3
186.0
179.0
365.0
NM
27.3%
30.5%
8. Regulatory
Included within this Form 10-K 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, see Note 15 —
Regulatory Capital in Item 8. Financial Statements, the Capital section in Item 7. Management's Discussion and Analysis and the
Regulatory section in Item 1. Business.
90 CIT ANNUAL REPORT 2017
FORWARD-LOOKING STATTT EMENTS
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
our commitments to extend credit or purchase equipment.
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
ff materially from anticipated results, performance or achievements 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. Factors, in addition to those disclosed in “Risk Factors”, that could cause such
differences
include, but are not limited to:
ff
•
•
•
•
•
•
•
•
•
•
ff
methods of returning capital, and the amount and timing of any capital return,
risks inherent in deposit funding, including reducing reliance on brokered deposits, increasing commercial deposits and
savings accounts, and expanding treasury management services,
risks inherent in capital markets, including liquidity, changes in market interest rates and quality spreads, and our
access to secured and unsecured debt and asset-backed securitization markets,
risks inherent in a return of capital, including risks related to obtaining regulatory approval, the nature and allocation
among different
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, and interest rate and currency 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 officeff
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
application of goodwill accounting or fair value accounting in volatile markets,
equipment, information technology equipment, including
improvements,
ff
Item 7: Management's Discussion and Analysis
CIT ANNUAL REPORT 2017 91
•
•
•
ff
regulatory changes and developments, including changes in laws or regulations governing our business and operations,
our assets, including our operating lease equipment or changes in the regulatory environment, whether due
or affecting
to events or factors specific to CIT,TT 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.
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.
92 CIT ANNUAL REPORT 2017
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of CIT Group Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CIT Group Inc. and its subsidiaries as of December 31, 2017
and 2016, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
ff
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for Low
Income Housing Tax Credit investments in 2017.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
over financial reporting, and for its assessment of the effectiveness
ff
Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
of internal control over financial reporting, included in
internal control
ff
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective
material respects.
internal control over financial reporting was maintained in all
ff
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
of internal control based on the
ff
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect
on the financial statements.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ff
/s/ PricewaterhouseCoopers LLP
New York, New York
February 23, 2018
We have served as the Company’s auditor since 2001.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 93
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATEDAA
BALANCE SHEETS (dollars in millions — except share data)
Assets
Cash and due from banks, including restricted balances of $42.9 and $176.1 at December 31, 2017 and
2016(1), respectively (see Note 10 for amounts pledged)
Interest bearing deposits, including restricted balances of $81.8 and $102.8 at December 31, 2017 and
2016(1), respectively (see Note 10 for amounts pledged)
Securities purchased under agreement to resell
Investment securities, including $0.4 and $283.5 at December 31, 2017 and 2016 of securities carried at
fair value with changes recorded in net income (see Note 10 for amounts pledged)
Assets held for sale(1)
Loans (see Note 10 for amounts pledged)
Allowance for loan losses
Total loans, net of allowance for loan losses(1)
Operating lease equipment, net (see Note 10 for amounts pledged)(1)
Goodwill
Bank owned life insurance
Other assets, including $68.7 and $111.6 at December 31, 2017 and 2016, respectively, at fair value
Assets of discontinued operations
Total Assets
Liabilities
Deposits
Credit balances of factoring clients
Other liabilities, including $198.1 and $177.9 at December 31, 2017 and 2016, respectively, at fair value
Borrowings, including $1,626.3 and $2,321.7 contractually due within twelve months at
December 31, 2017 and 2016, respectively
Liabilities of discontinued operations
Total Liabilities
Stockholders' Equity
Preferred Stock
Common stock: $0.01 par value, 600,000,000 authorized
December 31,
2017
December 31,
2016
$
278.6
$
822.1
1,440.1
150.0
6,469.9
2,263.1
29,113.9
)
(431.1)
(
28,682.8
6,738.9
369.9
788.6
1,595.5
501.3
,
49,278.7
29,569.3
1,468.6
1,437.1
8,974.4
509.3
41,958.7
$
$
$
5,608.5
—
4,491.1
636.0
29,535.9
)
(432.6)
(
29,103.3
7,486.1
685.4
—
2,117.0
13,220.7
64,170.2
,
32,304.3
1,292.0
1,897.6
14,935.5
3,737.7
54,167.1
325.0
—
$
$
$
Issued: 207,628,491 and 206,182,213 at December 31, 2017 and 2016, respectively
Outstanding: 131,352,924 and 202,087,672 at December 31, 2017 and 2016, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock: 76,275,567 and 4,094,541 shares at December 31, 2017 and 2016 at cost, respectively
Total Common Stockholders' Equity
Noncontrolling minority interests
Total Equity
Total Liabilities and Equity
(1) The following table presents information on assets and liabilities related to Variable Interest Entities (VIEs) that are consolidated by the Company.yy 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 CITTT
8,798.1
1,906.5
(86.5)
)
(
(3,625.2)
6,995.0
—
7,320.0
49,278.7
8,765.8
1,553.0
(140.1)
)
(
(178.1)
10,002.7
0.4
10,003.1
64,170.2
2.1
2.1
$
$
$
$
,
,
Assets
Cash and interest bearing deposits, restricted
Total loans, net of allowance for loan losses
Operating lease equipment, net
Assets of discontinued operations
Total Assets
Liabilities
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings)
Liabilities of discontinued operations
Total Liabilities
$
$
$
$
$
$
80.4
119.1
763.3
—
962.8
566.6
—
566.6
$
$
$
$
$
$
99.9
300.5
775.8
2,321.7
3,497.9
,
770.0
1,204.6
1,974.6
,
The accompanying notes are an integral part of these consolidated financial statements.
94 CIT ANNUAL REPORT 2017
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATEDAA
STATTT EMENTS OF INCOME (dollars in millions — except per share data)
Years Ended December 31,
2017
2016
2015
Interest income
Interest and fees on loans
Other interest and dividends
Interest income
Interest expense
Interest on borrowings
Interest on deposits
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue, after credit provision
Non-interest income
Rental income on operating leases
Other non-interest income
Total non-interest income
Total revenue, net of interest expense and credit provision
Non-interest expenses
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Operating expenses
Goodwill impairment
Loss on debt extinguishment and deposit redemption
Total non-interest expenses
Income from continuing operations before (benefit) provision for income taxes
(Benefit) provision for income taxes
Income (loss) from continuing operations before attribution of noncontrolling interests
Loss attributable to noncontrolling interests, after tax
Income (loss) from continuing operations
Discontinued operations
Income (loss) from discontinued operations, net of taxes
Gain on sale of discontinued operations, net of taxes
Total income (loss) from discontinued operations, net of taxes
Net income (loss)
Preferred dividends
Net income (loss) available to common shareholders
Income (loss) from continuing operations available to common shareholders
Basic income per common share
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of taxes
Basic (loss) income per common share
Diluted income per common share
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of taxes
Diluted (loss) income per common share
Average number of common shares — (thousands)
Basic
Diluted
Dividends declared per common share
$
$
$
$
$
$
$
$
$
$
$
$
1,638.1
197.5
1,835.6
344.4
373.3
717.7
1,117.9
114.6
1,003.3
1,007.4
364.2
1,371.6
2,374.9
296.3
222.9
1,188.5
255.6
220.0
2,183.3
191.6
)
(67.8)
(
259.4
—
259.4
90.2
118.6
208.8
468.2
9.8
458.4
249.6
1.54
1.28
2.82
1.52
1.28
2.80
162,290
163,950
0.61
$
$
$
$
$
$
$
$
$
$
$
$
$
1,374.0
71.2
1,445.2
1,779.6
131.9
1,911.5
358.4
394.8
753.2
1,158.3
194.7
963.6
1,031.6
150.6
1,182.2
2,145.8
261.1
213.6
1,283.5
354.2
12.5
2,124.9
20.9
203.5
(182.6)
—
)
(182.6)
(
(665.4)
—
)
(665.4)
(
(848.0)
—
(848.0) $
) $
(
) $
(
(182.6) $
(0.90) $
(3.30)
)
(
) $
(4.20) $
(
(0.90) $
(3.30)
)
(
) $
(4.20) $
(
401.3
330.1
731.4
713.8
158.6
555.2
1,018.1
149.6
1,167.7
1,722.9
229.2
185.1
1,121.1
—
1.5
1,536.9
186.0
)
(538.0)
(
724.0
0.1
724.1
310.0
—
310.0
1,034.1
—
,
1,034.1
724.1
3.90
1.67
5.57
3.89
1.66
5.55
201,850
201,850
0.60
$
185,500
186,388
0.60
The accompanying notes are an integral part of these consolidated financial statements.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 95
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATEDAA
STATTT EMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in millions)
Net income (loss) before attribution of noncontrolling interests
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Net unrealized gains (losses) on available for sale securities
Changes in benefit plans net gain (loss) and prior service (cost)/credit
Other comprehensive income (loss), net of tax
Comprehensive income (loss) before noncontrolling interests
Comprehensive loss attributable to noncontrolling interests
Comprehensive income (loss)
Years Ended December 31,
2017
2016
2015
$
468.2
$
(
(848.0) $
)
1,034.0
53.4
(10.6)
10.8
53.6
521.8
—
521.8
$
$
4.3
(6.3)
4.0
2.0
(846.0)
—
) $
(846.0) $
(
9.7
(7.1)
(10.8)
)
(
)
(
(8.2)
1,025.8
0.1
1,025.9
,
$
$
The accompanying notes are an integral part of these consolidated financial statements.
96 CIT ANNUAL REPORT 2017
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATEDAA
STATTT EMENTS OF STOCKHOLDERS' EQUITY (dollars in millions)
Preferred
Stock
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Non-
controlling
Minority
Interests
Total
Equity
December 31, 2014
$
— $
2.0
$$
$8,603.6
$ 1,604.8
$
(133.9) $ (1,018.5) $
(5.4) $ 9,052.6
Net income
Other comprehensive loss, net
of tax
Dividends paid
Amortization of restricted stock,
stock option, and performance
share expenses
Repurchase of common stock
Issuance of common stock —
acquisition
Employee stock purchase plan
Distribution of earnings and
capital
1,034.1
(114.9)
(8.2)
(23.4)
(531.8)
1,416.4
93.4
45.6
2.0
(26.5)
December 31, 2015
$
— $
2.0
$8,718.1
$ 2,524.0
$
(142.1) $
(157.3) $
(0.1)
1,034.0
(8.2)
(114.9)
70.0
(531.8)
1,462.0
2.0
6.0
0.5
—
(20.5)
$10,945.2
(848.0)
Net loss
Other comprehensive income,
net of tax
Dividends paid
Amortization of restricted stock,
stock option, and performance
shares and other expenses
Employee stock purchase plan
Other
December 31, 2016 as
reported
Adoption of ASU 2016-09
December 31, 2016
Net income
Other comprehensive income,
net of tax
Dividends paid
Issuance of preferred stock
Share repurchases
Amortization of restricted stock,
stock option, and performance
shares and other expenses
Employee stock purchase plan
Other
(848.0)
(123.0)
2.0
0.1
45.4
2.3
2.0
(123.0)
24.7
2.3
(0.1)
(20.8)
—
(0.1)
$
$
— $
2.1
$$
$8,765.8
$ 1,553.0
$
(140.1) $
(178.1) $
0.4
$$
$10,003.1
1.0
(1.0)
—
— $
2.1
$$
$8,766.8
$ 1,552.0
$
(140.1) $
(178.1) $
0.4
$$
$10,003.1
325.0
(7.0)
(9.6)
45.1
2.8
468.2
(113.7)
53.6
468.2
53.6
(113.7)
318.0
(3,431.9)
20.3
2.8
(0.4)
(0.4)
(3,422.3)
(24.8)
December 31, 2017
$
325.0
$
2.1
$8,798.1
$ 1,906.5
$
(86.5) $ (3,625.2) $
— $ 7,320.0
The accompanying notes are an integral part of these consolidated financial statements.
Item 8: Financial Statements and Supplementary Data
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATEDAA
STATTT EMENTS OF CASH FLOWS (dollars in millions)
CIT ANNUAL REPORT 2017 97
Cash Flows From Operations
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows from operations:
Provision for credit losses
Net depreciation, amortization and (accretion)
Net (gains) losses on asset sales and impairments of assets held for sale and other
Loss on debt extinguishment and deposit redemption
(Benefit) provision for deferred income taxes
(Increase) decrease in loans held for sale
Goodwill and intangible assets impairment
Net (payment) reimbursement of expenses from FDIC
Decrease in other assets
(Decrease) increase in other liabilities
Net cash flows provided by operations
Cash Flows From Investing Activities
Change in loans, net
Purchases of investment securities
Proceeds from sales and maturities of investment securities
Proceeds from asset and receivable sales
Proceeds from sale of commercial air
Purchases of assets to be leased and other equipment
Net (increase) decrease in short-term factoring receivables
Purchases of restricted stock
Proceeds from redemption of restricted stock
Payments to the FDIC under loss share agreements
Proceeds from FDIC under loss share agreements and participation
agreements
Proceeds from the sale of OREO, net of repurchases
Purchase of bank owned life insurance
Acquisition, net of cash received
Net change in restricted cash
Net cash flows provided by (used in) investing activities
Cash Flows From Financing Activities
Proceeds from the issuance of term debt
Repayments of term debt and net settlements
Proceeds from FHLB advances
Repayments of FHLB debt
Net (decrease) increase in deposits
Collection of security deposits and maintenance funds
Use of security deposits and maintenance funds
Repurchase of common stock
Net proceeds from issuance of preferred stock
Dividends paid
Taxes paid through withholding of common stock under employee stock plans
Purchase of noncontrolling interest
Payments on affordable
Net cash flows used in financing activities
Effect
of exchange rate changes on cash and cash equivalents
ff
(Decrease) increase in unrestricted cash and cash equivalents
Unrestricted cash and cash equivalents, beginning of period
Unrestricted cash and cash equivalents, end of period
housing investment credits
ff
Years Ended December 31,
2017
2016
2015
$
468.2
$
(848.0) $
1,034.1
114.6
392.6
(283.4)
259.0
(39.7)
(96.2)
255.6
(5.5)
170.2
)
(715.6)
(
519.8
65.7
(6,990.4)
4,741.9
909.9
10,026.0
(793.3)
(260.5)
(32.4)
10.6
(0.2)
63.8
107.3
(781.0)
—
687.8
7,755.2
15.3
(8,427.3)
2,450.0
(1,165.4)
(2,729.1)
70.9
(37.6)
(3,431.9)
318.0
(113.7)
(21.0)
—
—
)
(13,071.8)
(
15.6
(4,781.2)
6,375.2
1,594.0
,
$
$
$
$
210.3
700.0
152.0
20.8
978.5
336.7
358.4
1.8
230.1
258.6
2,399.2
831.9
(4,939.2)
3,585.5
1,753.9
—
(1,866.8)
(170.6)
(1.7)
25.5
(2.9)
147.8
129.2
—
—
12.1
)
(495.3)
(
781.1
(2,619.0)
1,645.5
(2,352.3)
(459.1)
341.7
(149.3)
—
—
(123.0)
(21.9)
—
(8.4)
)
(
(2,964.7)
)
(
)
(
(34.6)
(1,095.4)
7,470.6
6,375.2
,
$
$
160.5
783.9
5.1
—
(572.9)
(251.3)
15.0
7.2
53.3
)
(45.1)
(
1,189.8
(1,759.2)
(8,316.3)
9,226.6
2,252.4
—
(3,088.7)
124.7
(128.9)
20.3
(18.1)
33.7
60.8
—
2,521.2
156.7
1,085.2
1,626.9
(4,325.3)
5,964.1
(6,070.2)
2,419.2
330.9
(147.5)
(531.8)
—
(114.9)
(22.2)
(20.5)
(4.8)
)
(
(896.1)
)
(
)
(
(63.8)
1,315.1
6,155.5
7,470.6
,
98 CIT ANNUAL REPORT 2017
Supplementary Cash Flow Disclosure
Interest paid
Federal, foreign, state and local income taxes (paid) refunded, net
Supplementary Non Cash Flow Disclosure
Transfer of assets from held for investment to held for sale
Transfer of assets from held for sale to held for investment
Deposits on flight equipment purchases applied to acquisition of flight equipment
purchases, and origination of finance leases, capitalized interest and buyer furnished
equipment
Transfers of assets from held for investment to OREO
Capital lease unexercised bargain purchase options
Unfunded payments on affordable
period
ff
housing investments credits committed during the
Issuance of common stock as consideration
Years Ended December 31,
2017
2016
2015
$
(915.2) $
(40.5)
(1,149.7) $
61.2
(1,112.0)
(9.5)
2,109.6
174.0
2,093.6
124.4
91.2
99.0
17.5
60.1
—
286.6
90.2
7.1
55.0
—
3,039.4
208.7
554.2
65.8
—
—
1,462.0
The accompanying notes are an integral part of these consolidated financial statements.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 99
NOTE 1 — BUSINESS AND SUMMARYRR OF SIGNIFICANT ACCOUNTING POLICIES
CIT Group Inc., together with its subsidiaries (collectively "we", "our", "CIT" or the "Company"), is a bank holding company
("BHC") and a financial holding company ("FHC"). CIT was formed in 1908 and provides financing, leasing and advisory services
principally to middle-market companies in a wide variety of industries, primarily in North America. We also provide banking and
related services to commercial and individual customers through our banking subsidiary, CIT Bank, N.A. ("CIT Bank"), which
includes 70 branches located in Southern California and its online bank, bankoncit.com.
CIT is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Federal Reserve Bank of New York
("FRBNY") under the U.S. Bank Holding Company Act of 1956, as amended. CIT Bank is regulated by the Officeff
Comptroller of the Currency of the U.S. Department of the Treasury ("OCC").
of the
BASIS OF PRESENTATTT ION
Basis of Financial Information
The accounting and financial reporting policies of CIT conform to generally accepted accounting principles ("GAAP") in the
United States and the preparation of the consolidated financial statements is in conformity with GAAP which requires
management to make estimates and assumptions that affect
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. Additionally where
applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.
reported amounts and disclosures. Actual results could differ
ff
ff
Principles of Consolidation
The accompanying consolidated financial statements include financial information related to CIT and its majority-owned
subsidiaries and those variable interest entities ("VIEs") where the Company is the primary beneficiary ("PB").
In preparing the consolidated financial statements, all significant inter-company accounts and transactions have been eliminated.
Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.
ff
as of August 3, 2015, CIT Group Inc. ("CIT") acquired IMB HoldCo LLC ("IMB"), the parent company of OneWest Bank,
Effective
National Association, a national bank ("OneWest Bank"). CIT Bank, then a Utah-state chartered bank and a wholly-owned
subsidiary of CIT,TT merged with and into OneWest Bank (the "OneWest Transaction"), with OneWest Bank surviving as a wholly-
owned subsidiary of CIT with the name CIT Bank, National Association ("CIT Bank, N.A." or "CIT Bank"). As such, the results for
the year ended December 31, 2015 contain activity of OneWest Bank for approximately five months.
Discontinued Operations
Discontinued Operations as of December 31, 2017 included certain assets and liabilities of the business air business, along with
the Financial Freedom business that was acquired as part of the OneWest Transaction. Assets and liabilities as of December 31,
2016 also included the commercial air business. We sold the Commercial Air business, except for certain Commercial Air loans
and investments in CIT Bank, on April 4, 2017.
Income (loss) from discontinued operations reflects the activities of the aerospace (commercial air and business air) businesses
for the years ended December 31, 2017, 2016, and 2015. Income (loss) from discontinued operations also included the activities
of Financial Freedom for the periods since its acquisition date, August 3, 2015.
On October 6, 2017, CIT announced that CIT Bank, N.A. has agreed to sell Financial Freedom, its reverse mortgage servicing
business and the reverse mortgage portfolio serviced by Financial Freedom (the “Financial Freedom Transaction”). The Financial
Freedom Transaction is expected to close in the second quarter of 2018 and is subject to certain regulatory and investor
approvals and other customary closing conditions.
See Note 2 - Discontinued Operations.
Revisions
The Company has revised the Consolidated Statements of Cash Flows for the year ended December 31, 2016 in connection
with immaterial errors impacting the classification of certain balances between line items and categories in the Consolidated
Statements of Cash Flows. The misclassifications resulted in an overstatement of net cash flows provided by operations of $3.6
million (which included an overstatement of the "decrease in other assets" line item of $935.0 million and an overstatement of the
"decrease in accrued liabilities and payables" line item of $936.4 million for prior year errors identified in 2017), and an
understatement of net cash flows used in investing activities of $3.6 million.
SIGNIFICANT ACCOUNTING POLICIES
Loans and Leases
CIT extends credit to commercial customers through a variety of financing arrangements including term loans, revolving credit
facilities, capital (direct finance) leases and operating leases. CIT also extends credit through consumer loans, including
residential mortgages and has a portfolio of reverse mortgages, which is currently recorded in Assets Held for Sale ("AHFS").
100 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The amounts outstanding on term loans, consumer loans, revolving credit facilities and capital leases, along with past due lease
payments on operating lease equipment, are referred to as loans. These loans, when combined with AHFS and Operating lease
equipment, net are referred to as loans and leases.
It is CIT’s expectation that the majority of the loans and leases originated will be held for the foreseeable future or until maturity.
In certain situations, for example to manage concentrations and/or credit risk or where returns no longer meet specified targets,
some or all of certain exposures are sold. Loans for which the Company has the intent and ability to hold for the foreseeable
future or until maturity are classified as held for investment (“HFI”). If the Company no longer has the intent or ability to hold
loans for the foreseeable future, then the loans are transferred to AHFS. Loans originated with the intent to resell are classified
as AHFS.
Loans originated and classified as HFI are recorded at amortized cost. Loan origination fees and certain direct origination costs
are deferred and recognized as adjustments to interest income over the contractual lives of the related loans. Unearned income
on leases and discounts and premiums on loans purchased are amortized to interest income using the effective
interest method.
For loans classified as AHFS, the amortization of discounts and premiums on loans purchased and unearned income ceases.
Direct financing leases originated and classified as HFI are recorded at the aggregate future minimum lease payments plus
estimated residual values less unearned finance income. Management performs periodic reviews of estimated residual values,
with other than temporary impairment (“OTTI”) recognized in current period earnings.
ff
ff
relates to credit quality, otherwise the write-down is recorded as a reduction to other non-interest income, and
If it is determined that a loan should be transferred from HFI to AHFS, then the loan is transferred at the lower of cost or fair
value. At the time of transfer, a write-down of the loan is recorded as a charge-offff when the carrying amount exceeds fair value
and the difference
any allowance for loan loss is reversed. Once classified as AHFS, the amount by which the carrying value exceeds fair value is
recorded as a valuation allowance and is reflected as a reduction to other non-interest income.
If it is determined that a loan should be transferred from AHFS to HFI, the loan is transferred at the lower of cost or fair value on
the transfer date, which coincides with the date of change in management’s intent. The difference
between the carrying value of
the loan and the fair value, if lower, is reflected as a loan discount at the transfer date, which reduces its carrying value.
Subsequent to the transfer, the discount is accreted into earnings as an increase to interest income over the life of the loan using
ff
the effective
interest method.
ff
Operating lease equipment is carried at cost less accumulated depreciation. Operating lease equipment is depreciated to its
estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Where
management’s intention is to sell the operating lease equipment, these are marked to the lower of cost or fair value and
classified as AHFS. Depreciation is no longer recognized and the assets are evaluated for impairment, with any further marks to
lower of cost or fair value recorded in other non-interest income. Equipment held for sale in discontinued operations follows the
same treatment, with impairment charges reflected in discontinued operations - other non-interest income. Equipment received
at the end of the lease is marked to the lower of cost or fair value with the adjustment recorded in other non-interest income.
In the operating lease portfolio in discontinued operations at December 31, 2016, maintenance costs incurred that exceed
maintenance funds collected for commercial aircraft are expensed if they do not provide a future economic benefit and do not
extend the useful life of the aircraft. Such costs may include costs of routine aircraft operation and costs of maintenance and
spare parts incurred in connection with re-leasing an aircraft and during the transition between leases. For such maintenance
costs that are not capitalized, a charge is recorded in expense at the time the costs are incurred. Income recognition related to
maintenance funds collected and not used during the life of the lease is deferred to the extent management estimates costs will
be incurred by subsequent lessees performing scheduled maintenance. Upon the disposition of an aircraft, any excess
maintenance funds that exist are recognized in discontinued operations - other non-interest income.
Loans acquired are initially recorded at their fair value on the acquisition date. For loans that were not considered credit impaired
at the date of acquisition and for which cash flows were evaluated based on contractual terms, a premium or discount was
recorded, representing the difference
between the unpaid principal balance and the fair value. The discount or premium is
accreted or amortized to earnings using the effective
of the loans and is recorded in Interest Income. If the loan is prepaid, the remaining discount or premium will be recognized in
Interest Income. If the loan is sold, the remaining discount will be considered in the resulting gain or loss on sale. If the loan is
subsequently classified as non-accrual, or transferred to AHFS, accretion / amortization of the discount (premium) will cease.
interest method as a yield adjustment over the remaining contractual terms
ff
ff
For loans that were purchased with evidence of credit quality deterioration since origination, the discount recorded includes
accretable and non-accretable components.
For purposes of income recognition, and consistent with valuation models across loan portfolios, the Company has elected to not
take a position on the movement of future interest rates in the model. If interest rates rise, the loans will generate higher income.
If rates fall, the loans will generate lower income.
Purchased Credit-Impaired Loans
Purchased credit-impaired loans (“PCI loans”) are accounted for in accordance with ASC 310-30 Loans and Debt Securities
Acquired with Deteriorated Credit Quality (“ASC 310-30”). PCI loans were determined as of the date of purchase to have
evidence of credit quality deterioration, which make it probable that the Company will be unable to collect all contractually
required payments (principal and interest). Evidence of credit quality deterioration as of the purchase date may include past due
status, recent borrower credit scores, credit rating (probability of obligor default) and recent loan-to-value ratios.
Commercial PCI loans are accounted for as individual loans. Conversely, consumer PCI loans with similar common risk
characteristics are pooled together for accounting purposes (i.e., into one unit of account). Common risk characteristics consist
of similar credit risk (e.g., delinquency status, loan-to-value, or credit risk rating) and at least one other predominant risk
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 101
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
characteristic (e.g., loan type, collateral type, interest rate index, date of origination or term). For pooled loans, each pool is
accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows for the pool.
At acquisition, PCI loans are initially recorded at estimated fair value, which is determined by discounting each commercial loan’s
or consumer pool’s principal and interest cash flows expected to be collected using a discount rate for similar instruments with
adjustments that management believes a market participant would consider. The Company estimates the cash flows expected to
be collected at acquisition using internal credit risk and prepayment risk models that incorporate management’s best estimate of
current key assumptions, such as default rates, loss severity and prepayment speeds of the loan.
For PCI loans, an accretable yield is measured as the excess of the cash flows expected to be collected, estimated at the
acquisition date, over the recorded investment (estimated fair value at acquisition) and is recognized in interest income over the
remaining life of the loan, or pool of loans, on an effective
required to be paid, measured as of the acquisition date, over the cash flows expected to be collected is referred to as the non-
accretable difference.
between the cash flows contractually
yield basis. The difference
ff
ff
ff
Subsequent to acquisition, the estimates of the cash flows expected to be collected are evaluated on a quarterly basis for both
commercial PCI loans (evaluated individually) and consumer PCI loans (evaluated on a pool basis). During each subsequent
reporting period, the cash flows expected to be collected shall be reviewed but will be revised only if it is deemed probable that a
significant change has occurred. 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 loan losses.
Probable increases in cash flows expected to be collected due to improved credit quality result in recovery 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. The accretable yield is affected
cash flows, 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. The Company assumes a flat forward interest curve when
analyzing future cash flows for the mortgage loans. Changes in expected cash flows caused by changes in market interest rates
are recognized as adjustments to the accretable yield on a prospective basis.
by revisions to previous expectations that result in an increase in expected
ff
Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the
collateral. Upon resolution, the Company’s policy is to remove an individual consumer PCI loan from the pool at its carrying
amount. Any difference
affect
the percentage yield calculation used to recognize accretable yield on the pool. This removal method assumes that the
amount received from these resolutions approximates the pool performance expectations of cash flows. The accretable yield
percentage is unaffected
removal of those loans from the pool; instead, the revised terms are reflected in the expected cash flows within the pool of loans.
between the loans carrying amount and the fair value of the collateral or other assets received does not
by the resolution. Modifications or refinancing of loans accounted for within a pool do not result in the
ff
ff
ff
Reverse Mortgages
Reverse mortgage loans are contracts in which a homeowner borrows against the equity in their home and receives cash in one
lump sum payment, a line of credit, fixed monthly payments for either a specific term or for as long as the homeowner lives in the
home or a combination of these options. Reverse mortgages feature no recourse to the borrower, no required repayment during
the borrower’s occupancy of the home (as long as the borrower complies with the terms of the mortgage), and, in the event of
foreclosure, a repayment amount that cannot exceed the lesser of either the unpaid principal balance of the loan or the proceeds
recovered upon sale of the home. The mortgage balance consists of cash advanced, interest compounded over the life of the
loan, capitalized mortgage insurance premiums, and other servicing advances capitalized into the loan.
Revenue Recognition
Interest income on HFI loans is recognized using the effective
over the life of the asset. Interest income includes components of accretion of the fair value discount on loans and lease
receivables recorded in connection with Purchase Accounting Adjustments (“PAA”),
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 AHFS, accretion (amortization) of the discount (premium) will cease. See Purchase Accounting
Adjustments in Note 2 - Discontinued Operations.
interest method or on a basis approximating a level rate of return
which are accreted using the effective
PP
ff
ff
Uninsured reverse mortgages in continuing operations that were determined to be non-PCI are accounted for in accordance with
the instructions provided by the staffff of the Securities and Exchange Commission (“SEC”) entitled “Accounting for Pools of
Uninsured Residential Reverse Mortgage Contracts.” For these uninsured reverse mortgages, the Company has determined
that as a result of the similarities between both the reverse mortgage borrowers’ demographics and the terms of the reverse
mortgage loan contracts, these reverse mortgages are accounted for at the pool level. To determine the effective
yield of the
pool, we project the pool’s cash inflows and outflows including actuarial projections of the life expectancy of the individual
contract holder and changes in the collateral value of the residence are projected. At each reporting date, a new economic
forecast is made of the cash inflows and outflows for the population of reverse mortgages. Projections of cash flows assume the
use of flat forward rate interest curves. The effective
reflect the revised rate of return. Because of this accounting, the recorded value of reverse mortgage loans and interest income
can result in significant volatility associated with the estimates. As a result, income recognition can vary significantly from period
to period. The pool method of accounting results in the establishment of an Actuarial Valuation Allowance (“AVAAA ”) related to the
deferral of net gains from loans exiting the pool. The AVA is a component of the net book value of the portfolio and has the ability
to absorb potential collectability short-falls.
yield of the pool is recomputed and income is adjusted to retrospectively
ff
ff
Insured reverse mortgages included in continuing operations were determined to be PCI, even though these loans are Home
Equity Conversion Mortgages (“HECMs”) insured by the Federal Housing Administration, based on management’s consideration
and its relationship to the loan’s Maximum Claim Amount. As such, based on the guidance in
of the loan’s loan-to-value (“LTV”)
LL
102 CIT ANNUAL REPORT 2017
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FINANCIAL STATTT EMENTS
ASC 310-30, revenue recognition and income measurement for these loans is based on expected rather than contractual cash
flows; and, the fair value adjustment on these loans included both accretable and non-accretable components.
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 were recorded related to acquisitions completed by the Company and Fresh Start Accounting (“FSA”)
adjustments that were applied as of December 31, 2009, (the Convenience Date) 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-offff or returned to accrual status. Loans that are on cash basis non-
accrual 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 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 non-
accrual 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.
ff
PCI loans in pools that the Company may modify as TDRs are not within the scope of the accounting guidance for TDRs.
Allowance for Loan Losses on Loans
The allowance for loan losses ("ALLL") is intended to provide for credit losses inherent in the HFI loan portfolio and is periodically
reviewed for adequacy. The allowance for loan losses is determined based on three key components: (1) specific allowances for
loans that are impaired, based upon the value of underlying collateral or projected cash flows, or observable market price, (2)
non-specific allowances for estimated losses inherent in the non-impaired portfolio based upon the expected loss over the loss
emergence period, and (3) allowances for estimated losses inherent in the portfolio based upon economic risks, industry and
geographic concentrations, and other factors, not in the non-specific allowance. Changes to the Allowance for Loan Losses are
recorded in the Provision for Credit Losses.
Determining an appropriate allowance for loan losses requires significant judgment that may change based on management’s
ongoing process in analyzing the credit quality of the Company’s HFI loan portfolio.
Loans are divided into the following portfolio segments, which correspond to the Company’s business segments: Commercial
Banking, Consumer Banking and Non-Strategic Portfolios (“NSP”). Within each portfolio segment, credit risk is assessed and
monitored in the following classes of loans; within Commercial Banking, Commercial Finance, Real Estate Finance, Business
Capital, and Rail, are collectively referred to as Commercial Loans. Within Consumer Banking, classes include Legacy
Consumer Mortgages (“LCM”) and Other Consumer Lending, collectively referred to as Consumer Loans. The allowance is
estimated based upon the loans in the respective class.
For each portfolio, impairment is generally measured individually for larger non-homogeneous loans ($500 thousand or greater)
and collectively for groups of smaller loans with similar characteristics or for designated pools of PCI loans based on decreases
in cash flows expected to be collected subsequent to acquisition.
Loans acquired were initially recorded at estimated fair value at the time of acquisition. Expected credit losses were included in
the determination of estimated fair value, no allowance was established on the acquisition date.
Allowance Methodology
Commercial Loans
With respect to commercial portfolios, the Company monitors credit quality indicators, including expected and historical losses
and levels of, and trends in, past due loans, non-performing assets and impaired loans, collateral values and economic
conditions. Commercial loans are graded according to the Company’s internal rating system with respect to probability of default
and loss given default (severity) based on various risk factors. The non-specific allowance is determined based on the estimated
probability of default, which reflects the borrower’s financial strength, and the severity of loss in the event of default, considering
the quality of the underlying collateral. The probability of default and severity are derived through historical observations of
default and subsequent losses within each risk grading.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
A specific allowance is also established for impaired commercial loans and commercial loans modified in a TDR. Refer to the
Impairment of Loans section of this Note for details.
CIT ANNUAL REPORT 2017 103
Consumer Loans
For residential mortgages, the Company develops a loss reserve factor by deriving the projected lifetime losses then adjusting
for losses expected to be specifically identified within the loss emergence period. The key drivers of the projected lifetime losses
include the type of loan, type of product, delinquency status of the underlying loans, loan-to-value and/or debt-to-income ratios,
geographic location of the collateral, and any guarantees.
For uninsured reverse mortgage loans in continuing operations, an allowance is established if the Company is likely to
experience losses on the disposition of the property that are not reflected in the recorded investment, including the AVA, as the
source of repayment of the loan is tied to the home’s collateral value alone. A reverse mortgage matures when one of the
following events occur: 1) the property is sold or transferred, 2) the last remaining borrower dies, 3) the property ceases to be
the borrower’s principal residence, 4) the borrower fails to occupy the residence for more than 12 consecutive months or 5) the
borrower defaults under the terms of the mortgage or note. A maturity event other than death is also referred to as a mobility
event. The level of any required allowance for loan losses on reverse mortgage loans is based on the Company’s estimate of the
fair value of the property at the maturity event based on current conditions and trends. The allowance for loan losses
assessment on uninsured reverse mortgage loans is performed on a pool basis and is based on the Company’s estimate of the
future fair value of the properties at the maturity event based on current conditions and trends.
Other Allowance Factors
If commercial or consumer loan losses are reimbursable by the Federal Deposit Insurance Corporation (“FDIC”) under the loss
sharing agreement, the recorded provision is partially offset
indemnification asset subject to management’s assessment of the collectability of the indemnification asset and any contractual
limitations on the indemnified amount. See Indemnification Assets later in this section.
by any benefit expected to be derived from the related
ff
With respect to assets transferred from HFI to AHFS, a charge-offff is recognized to the extent carrying value exceeds the fair
value and the difference
relates to credit quality.
ff
An approach similar to the allowance for loan losses is utilized to calculate a reserve for losses related to unfunded loan
commitments and deferred purchase commitments. A reserve for unfunded loan commitments is maintained to absorb estimated
probable losses related to these facilities. The adequacy of the reserve is determined based on periodic evaluations of the
unfunded credit facilities, including an assessment of the probability of commitment usage, credit risk factors for loans
outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. The reserve for
unfunded loan commitments and deferred purchase commitments are recorded as a liability on the Consolidated Balance Sheet.
Net adjustments to the reserve for unfunded loan commitments and deferred purchase commitments are included in the
provision for credit losses.
The allowance policies described above relate to specific and non-specific allowances, and the impaired loans and charge-offff
policies that follow are applied across the portfolio segments and loan classes therein. Given the nature of the Company’s
business, the specific allowance relates to the Commercial Banking segments. The non-specific allowance, which considers the
Company’s internal system of probability of default and loss severity ratings for commercial loans, among other factors, is
applicable to both commercial and consumer loans. Additionally, divisions in Commercial Banking and Consumer Banking
segments also utilize methodologies under ASC 310-30 for PCI loans, as discussed below.
PCI Loans
See Purchased Credit-Impaired Loans in Loans and Leases for description of allowance factors.
Past Due and Non-Accrual Loans
A loan is considered past due for financial reporting purposes if default of contractual principal or interest exists for a period of 30
days or more. Past due loans consist of loans that are still accruing interest as well as loans on non-accrual status.
Loans are placed on non-accrual status when the financial condition of the borrower has deteriorated and payment in full of
principal or interest is not expected or the scheduled payment of principal and interest has been delinquent for 90 days or more,
unless the loan is both well secured and in the process of collection.
PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be probable of collection.
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. Due to the nature of reverse mortgage loans (i.e.,
these loans do not contain a contractual due date or regularly scheduled payments due from the borrower), they are considered
current for purposes of past due reporting and are excluded from reported non-accrual loan balances.
Impairment of Loans
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 loan, with the estimated value determined using fair value of collateral and other cash flows if the loan
interest rate, or observable
is collateralized, the present value of expected future cash flows discounted at the contract’s effective
market prices.
ff
104 CIT ANNUAL REPORT 2017
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FINANCIAL STATTT EMENTS
Impaired loans of $500 thousand or greater that are placed on non-accrual status, largely in Commercial Finance, Real Estate
Finance, and Business Capital, are subject to periodic individual review by the Company’s problem loan management (“PLM”)
function. The Company excludes certain loan portfolios from its impaired loans disclosures as charge-offsff are typically
determined and recorded for such loans beginning at 90-180 days of contractual delinquency. These include small-ticket loans,
largely in Business Capital and NSP,P and consumer loans, including single family residential mortgages, in Consumer Banking
that have not been modified in a TDR, as well as short-term factoring receivables in Business Capital.
Charge-off of Loans
Charge-offsff on loans are recorded after considering such factors as the borrower’s financial condition, the value of underlying
collateral and guarantees (including recourse to dealers and manufacturers), and the status of collection activities. Such charge-
offsff are deducted from the carrying value of the related loans. This policy is largely applicable in the loan classes within
Commercial Banking. In general, charge-offsff of large ticket commercial loans ($500 thousand or greater) are determined based
on the facts and circumstances related to the specific loan and the underlying borrower and the use of judgment by the
Company. Charge-offsff of small ticket commercial loans are recorded beginning at 90-180 days of contractual delinquency.
Charge-offsff of Consumer loans are recorded beginning at 120 days of delinquency. The value of the underlying collateral will be
considered when determining the charge-offff amount if repossession is assured and in process.
Charge-offsff on loans originated are reflected in the provision for credit losses. Charge-offsff are recognized on consumer loans for
which losses are reimbursable under loss sharing agreements with the FDIC, with a provision benefit recorded to the extent
applicable via an increase to the related indemnification asset. In the event of a partial charge-offff on loans with a PAA,AA the
charge-offff is first allocated to the respective loan’s discount. Then, to the extent the charge-offff amount exceeds such discount, a
provision for credit losses is recorded. Collections on accounts charged offff post- acquisition are recorded as recoveries in the
provision for credit losses. Collections on accounts that exceed the balance recorded at the date of acquisition are recorded as
recoveries in other non-interest income. Collections on accounts previously charged offff prior to transfer to AHFS are recorded as
recoveries in other non-interest income.
Impairment of Long-Lived Assets
A review for impairment of long-lived assets, such as operating lease equipment, is performed at least annually or when events
or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Impairment of assets
is determined by comparing the carrying amount to future undiscounted net cash flows expected to be generated. If an asset is
impaired, the impairment is the amount by which the carrying amount exceeds the fair value of the asset. Fair value is based
upon discounted cash flow analysis and available market data. Current lease rentals, as well as relevant and available market
information (including third party sales for similar equipment and published appraisal data), are considered both in determining
undiscounted future cash flows when testing for the existence of impairment and in determining estimated fair value in
measuring impairment. Depreciation expense is adjusted when the projected fair value at the end of the lease term is below the
projected book value at the end of the lease term. Assets to be disposed of are included in AHFS in the Consolidated Balance
Sheet and are reported at the lower of the cost or fair market value less disposal costs (“LOCOM”).
Investments
Investments in debt securities and equity securities that have readily determinable fair values not classified as trading securities,
investment securities carried at fair value with changes recorded in net income, or as held-to-maturity (“HTM”) securities are
classified as available-for-sale (“AFS”) securities. Debt and equity securities classified as AFS are carried at fair value with
changes in fair value reported in accumulated other comprehensive income (“AOCI”), a component of stockholders’ equity, net of
applicable income taxes. Credit-related declines in fair value that are determined to be OTTI are immediately recorded in
earnings. Realized gains and losses on sales are included in other non-interest income on a specific identification basis, and
interest and dividend income on AFS securities is included in other interest and dividends.
Debt securities classified as HTM represent securities that the Company has both the ability and the intent to hold until maturity,
and are carried at amortized cost. Interest on such securities is included in other interest and dividends.
Debt and marketable equity security purchases and sales are recorded as of the trade date.
Mortgage-backed securities are classified as either AFS or securities carried at fair value with changes recorded in net income.
Debt securities classified as AFS that had evidence of credit deterioration as of the acquisition date and for which it was probable
that the Company would not collect all contractually required principal and interest payments were classified as PCI debt
securities. Subsequently, the accretable yield (based on the cash flows expected to be collected in excess of the recorded
interest method pursuant to ASC 310-30 for PCI
investment or fair value) is accreted to interest income using an effective
securities and securities carried at fair value with changes recorded in net income. The Company uses a flat interest rate forward
curve for purposes of applying the effective
be collected are reviewed and updated. The expected cash flow estimates take into account relevant market and economic data
as of the end of the reporting period including, for example, for securities issued in a securitization, underlying loan-level data,
and structural features of the securitization, such as subordination, excess spread, overcollateralization or other forms of credit
enhancement. OTTI with credit-related losses are recognized as permanent write-downs, while other changes in expected cash
flows (e.g., significant increases and contractual interest rate changes) are recognized through a revised accretable yield in
subsequent periods. The non-accretable discount is recorded as a reduction to the investments and will be reclassified to
accretable discount should expected cash flows improve or used to absorb incurred losses as they occur.
interest method to PCI securities. On a quarterly basis, the cash flows expected to
ff
ff
Equity securities without readily determinable fair values are generally carried at cost or the equity method of accounting and
periodically assessed for OTTI, with the net asset values reduced when impairment is deemed to be other-than-temporary.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 105
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Equity method investments are recorded at cost, adjusted to reflect the Company’s portion of income, loss or dividend of the
investee. All other non-marketable equity investments are carried at cost and periodically assessed for OTTI.
Evaluating Investments for OTTI
An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized
losses that are determined to be temporary in nature are recorded, net of tax, in AOCI for AFS securities, while such losses
related to HTM securities are not recorded, as these investments are carried at their amortized cost. Unrealized losses on
securities carried at fair value would be recorded through earnings as part of the total change in fair value.
The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the
impairment is other than temporary. The Company accounts for investment impairments in accordance with ASC 320-10-35-34,
Investments - Debt and Equity Securities: Recognition of an Other-Than-T
TT
securities, OTTI is recognized in earnings for debt securities that the Company has an intent to sell or that the Company believes
it is more-likely-than-not that it will be required to sell prior to the recovery of the amortized cost basis. For debt securities
classified as HTM that are considered to have OTTI that the Company does not intend to sell and it is more likely than not that
the Company will not be required to sell before recovery, the OTTI is separated into an amount representing the credit loss,
which is recognized in other non-interest income in the Consolidated Statements of Income, and the amount related to all other
factors, which is recognized in OCI. OTTI on debt securities and equity securities classified as AFS and non-marketable equity
investments are recognized in other non-interest income in the Consolidated Statements of Income in the period determined.
Impairment is evaluated and to the extent it is credit related amounts are reclassified out of AOCI to other non-interest income. If
it is not credit related then, the amounts remain in AOCI.
Impairment. Under the guidance for debt
emporary
rr
Amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or
premium. Regardless of the classification of the securities as AFS or HTM, the Company assesses each investment with an
unrealized loss for impairment.
Factors considered in determining whether a loss is temporary include:
·
·
·
·
·
the length of time that fair value has been below cost;
the severity of the impairment or the extent to which fair value has been below cost;
the cause of the impairment and the financial condition and the near-term prospects of the issuer;
activity in the market of the issuer that may indicate adverse credit conditions; and
the Company’s ability and intent to hold the investment for a period of time sufficient
ff
to allow for any anticipated recovery.
The Company’s review for impairment generally includes identification and evaluation of investments that have indications of possible
impairment, in addition to:
·
·
·
analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time
the investment has been in an unrealized loss position and the expected recovery period;
discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify
as having OTTI and those that would not support OTTI; and
documentation of the results of these analyses, as required under business policies.
Investments in Restricted Stock
The Company is a member of, and owns capital stock in, the Federal Home Loan Bank (“FHLB”) of San Francisco and the FRB.
As a condition of membership, the Company is required to own capital stock in the FHLB based upon outstanding FHLB
advances and FRB stock based on a specified ratio relative to the Company’s capital. FHLB and FRB stock may only be sold
back to the member institutions at its carrying value and cannot be sold to other parties. For FHLB stock, cash dividends are
recorded within other interest and dividends when declared by the FHLB. For FRB stock, the Company is legally entitled (without
declaration) to a specified dividend paid semi-annually. Dividends are recorded in other interest and dividends in the
Consolidated Statements of Income.
Due to the restricted ownership requirements, the Company accounts for its investments in FHLB and FRB stock as a
nonmarketable equity stock accounted for under the cost method. Purchases and redemptions of restricted stock are reflected in
the investing section of the Consolidated Statements of Cash Flows. Impairment reviews of the investment are completed at
least annually, or when events or circumstances indicate that their carrying amounts may not be recoverable. The Company’s
impairment evaluation considers the long-term nature of the investment, the liquidity position of the member institutions, its
recent dividend declarations and the intent and ability to hold this investment for a period of time sufficient
the Company’s recorded investment.
to ultimately recover
ff
Indemnification Assets
In connection with the OneWest Transaction, CIT assumed the shared loss agreements with the FDIC related to its acquisitions
of IndyMac Federal Bank, FSB (“IndyMac”), First Federal Bank of California, FSB (“First Federal”) and La Jolla Bank, FSB (“La
Jolla”). The loss sharing agreements are accounted for as indemnification assets and were initially recognized at estimated fair
value as of the acquisition date based on the discounted present value of expected future cash flows under the respective loss
sharing agreements pursuant to ASC 805.
On a subsequent basis, the indemnification asset is measured on the same basis of accounting as the indemnified loans (e.g.,
as PCI loans under the effective
remaining life of the indemnified item. A yield is determined based on the expected cash flows to be collected from the FDIC over
the recorded investment. The expected cash flows on the indemnification asset are reviewed and updated on a quarterly basis.
yield method) subject to the lesser of the contractual term of the loss share agreement and
ff
106 CIT ANNUAL REPORT 2017
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FINANCIAL STATTT EMENTS
ff
ff
yield on a prospective basis in interest income. For PCI loans with an associated indemnification
Changes in expected cash flows caused by changes in market interest rates or by prepayments of principal are recognized as
adjustments to the effective
asset, if the increase in expected cash flows is recognized through a higher yield, a lower and potentially negative yield (i.e. due
to a decline in expected cash flows in excess of the current carrying value) is applied to the related indemnification asset to
mirror an accounting offset
indemnification agreement. Both accretion (positive yield) and amortization (negative yield) from the indemnification asset are
recognized in interest income on loans over the lesser of the contractual term of the indemnification agreement or the remaining
life of the indemnified loans. A decrease in expected cash flows is recorded in the indemnification asset for the portion that
previously was expected to be reimbursed from the FDIC resulting in an increase in the Provision for credit losses that was
previously recorded in the allowance for loan losses. Separate from mirror accounting, the indemnification asset is assessed for
collectability. Management monitors the realizability of the qualifying losses submitted to the FDIC based on the eligibility
requirements pursuant to the terms of the contract. Any amount deemed not collectable from the FDIC is recognized as an
impairment charge within other non-interest income.
for the indemnified loans. Any negative yield is determined based on the remaining term of the
The IndyMac transaction encompassed multiple loss sharing agreements that provided protection from certain losses related to
purchased SFR loans and reverse mortgage proprietary loans. In addition, CIT is party to the FDIC agreement to indemnify
OneWest Bank, subject to certain requirements and limitations, for third party claims from the Government Sponsored
Enterprises (“GSEs” or “Agencies”) related to IndyMac selling representations and warranties, as well as liabilities arising from
the acts or omissions (including, without limitation, breaches of servicer obligations) of IndyMac as servicer.
In addition, the Company recorded a separate FDIC true-up liability for an estimated payment due to the FDIC at the expiry of
the La Jolla loss share agreement, given the estimated cumulative losses of the acquired covered assets are projected to be
lower than the cumulative losses originally estimated by the FDIC at inception of the loss share agreement. There is no FDIC
true-up liability recorded in connection with the First Federal or IndyMac transaction. The true-up liability represents contingent
consideration to the FDIC and is re-measured at estimated fair value on a quarterly basis, with the changes in fair value
recognized in noninterest expense.
For further discussion, see Note 5 - Indemnification Assets.
Goodwill and Intangible Assets
The Company’s goodwill primarily represented the excess of the purchase prices paid for acquired businesses over the
respective fair value of net asset values acquired. The goodwill was assigned to reporting units at the date the goodwill was
initially recorded. Once the goodwill was assigned to the reporting unit level, it no longer retained its association with a particular
transaction, and all of the activities within the reporting unit, whether acquired or internally generated, are available to support the
value of goodwill.
A portion of the Goodwill balance also resulted from the excess of reorganization equity value over the fair value of tangible and
identifiable intangible assets, net of liabilities, in connection with the Company’s emergence from bankruptcy in December 2009.
CIT early adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic
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 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 was applied
prospectively to transactions occurring within the period of adoption. The adoption did not result in any impact on the Company’s
financial statements.
350) as of January 1, 2017. ASU 2017-04 eliminates
TT
Goodwill is not amortized but it is subject to impairment testing at the reporting unit on an annual basis, or more often if events or
circumstances indicate there may be impairment. The Company follows guidance in ASC 350, Intangibles - Goodwill and Other
that includes the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount before
performing the quantitative goodwill impairment test. Examples of qualitative factors to assess include macroeconomic
conditions, industry and market considerations, market changes affecting
performance, and Company specific events affecting
the Company’s products and services, overall financial
operations.
ff
ff
If the Company does not perform the qualitative assessment or upon performing the qualitative assessment concludes that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, CIT would be required to perform the
quantitative goodwill impairment test for that reporting unit. The quantitative goodwill impairment test involves comparing the fair
value of the reporting unit with its carrying value, including goodwill as measured by allocated equity. If the fair value of the
reporting unit exceeds its carrying value, goodwill in that unit is not considered impaired. However, if the carrying value exceeds
its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill
allocated to that reporting unit. Reporting unit fair values are primarily estimated using discounted cash flow models. See Note
26 - Goodwill and Intangible Assets for further details.
Intangible assets relate to acquisitions and the remaining amount from FSA adjustments.
as detailed in Note 26 - Goodwill and Intangible Assets, depending on the component, are amortized on an accelerated or
straight line basis over the estimated useful lives. Amortization expense for the intangible assets is recorded in operating
expenses.
Intangible assets have finite lives and
The Company reviews intangible assets for impairment annually or when events or circumstances indicate that their carrying
amounts may not be recoverable. Impairment is recognized by writing down the asset to the extent that the carrying amount
exceeds the estimated fair value, with any impairment recorded in operating expense.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 107
Other Assets
Tax Credit Investments
The Company has investments in limited liability entities that were formed to operate qualifying affordable
housing projects, and
other entities that make equity investments, provide debt financing or support community-based investments in tax-advantaged
projects. Certain affordable
housing investments qualify for credit under the Community Reinvestment Act (“CRA”), which
requires regulated financial institutions to help meet the credit needs of the local communities in which they are chartered,
particularly in neighborhoods with low or moderate incomes. These tax credit investments provide tax benefits to investors
primarily through the receipt of federal and/or state income tax credits or tax benefits in the form of tax deductible operating
losses or expenses.
ff
ff
The Company invests as a limited partner and its ownership amount in each limited liability entity varies. As a limited partner, the
Company is not the PB as it does not meet the power criterion, i.e., no power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance and has no direct ability to unilaterally remove the general partner.
Accordingly, the Company is not required to consolidate these entities on its financial statements. For further discussion on
VIEs, see Note 10 - Borrowings.
Tax credit investments that were acquired in the OneWest Bank Transaction, including the commitment to contribute additional
capital over the term of the investment, were recorded at fair value at the acquisition date.
ff
in the fourth quarter of 2017, CIT changed its accounting policy for Low Income Housing Tax Credit ("LIHTC")
Effective
investments from the equity method to the proportional amortization method as it was management's determination to be the
preferable method. The proportional amortization method provides an improved presentation for the reporting of these
investments by presenting the investment performance net of taxes as a component of income tax expense (benefit), which
more fairly represents the economics and provides users with a better understanding of the returns from such investments than
the prior equity method. Prior to the accounting change, the existing LIHTC investments represented primarily the acquired
investments from the OneWest acquisition. As the accounting change had an immaterial impact to prior period financial
statements (for the years ended December 31, 2016 and 2015, and the first, second and third quarter of 2017), the effect
change was recognized in the fourth quarter of 2017 with a net income decrease of $8.8 million (increase of $29.4 million in
other non-interest income with a corresponding increase of $38.2 million in provision for income taxes) with a reduction to the tax
credit investments by approximately $10.5 million (within Other Assets) and increase to Deferred tax asset of $1.8 million
recognized in the quarter ended December 31, 2017.
of the
ff
Tax credit investments are evaluated for potential impairment at least annually, or more frequently when events or conditions
indicate that it is probable that the Company will not recover its investment. Potential indicators of impairment might arise when
there is evidence that some or all tax credits previously claimed by the limited liability entities would be recaptured, or that
expected remaining credits would no longer be available to the limited liability entities.
impaired, it is written down to its estimated fair value and the new cost basis of the investment is not adjusted for subsequent
recoveries in value.
If an investment is determined to be
These investments are included within other assets and any impairment loss would be recognized in other non-interest income.
Other Real Estate Owned
Other real estate owned (“OREO”) represents collateral acquired from the foreclosure of secured loans and is being actively
marketed for sale. These assets are initially recorded at the lower of cost or market value less disposition costs. Estimated
market value is generally based upon independent appraisals or broker price opinions, which are then modified based on
assumptions and expectations that are determined by management. Any write-down as a result of differences
and market value on the date of transfer from loan classification is charged to the allowance for credit losses.
ff
between carrying
Subsequently, the assets are recorded at the lower of its carrying value or estimated fair value less disposition costs. If the
property or other collateral has lost value subsequent to foreclosure, a valuation allowance (contra asset) is established, and the
charge is recorded in other non-interest income. OREO values are reviewed on a quarterly basis and subsequent declines in
estimated fair value are recognized in earnings in the current period. Holding costs are expensed as incurred and reflected in
operating expenses. Upon disposition of the property, any difference
booked to gain or loss on disposition recorded in other non-interest income.
between the proceeds received and the carrying value is
ff
Property and Equipment
Property and equipment are included in other assets and are carried at cost less accumulated depreciation and amortization.
Depreciation is expensed using the straight-line method over the estimated service lives of the assets. Estimated service lives
generally range from 3 to 7 years for furniture, fixtures and equipment and 20 to 40 years for buildings. Leasehold improvements
are amortized over the term of the respective lease or the estimated useful life of the improvement, whichever is shorter.
Property and Equipment that are held to be used are assessed for impairment where indications exist that their carrying amounts
are not recoverable. The carrying amount of a fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
Fixed Assets are impaired when their carrying amounts are not recoverable and exceed their fair values. An impairment loss is
measured as the amount by which the carrying amount of a fixed asset exceeds its fair value. The related asset must then be
written down and its depreciation adjusted prospectively over the asset’s remaining useful life.
Where an impairment loss is recognized, the adjusted carrying amount of an asset shall be its new cost basis. For a depreciable
asset, the new cost basis is depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously
recognized impairment loss is prohibited.
108 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Servicing Advances
The Company is required to make servicing advances in the normal course of servicing mortgage loans. These advances
include customary, reasonable and necessary out-of-pocket costs incurred in the performance of its servicing obligation. They
include advances related to mortgage insurance premiums, foreclosure activities, funding of principal and interest with respect to
mortgage loans held in connection with a securitized transaction and taxes and other assessments which are or may become a
lien upon the mortgage property. Servicing advances are generally reimbursed from cash flows collected from the loans.
As the servicer of securitizations of loans or equipment leases, the Company may be required to make servicing advances on
behalf of obligors if the Company determines that any scheduled payment was not received prior to the end of the applicable
collection period. Such advances may be limited by the Company based on its assessment of recoverability of such amounts in
subsequent collection periods. The reimbursement of servicing advances to the Company is generally prioritized over the
distribution of any payments to the investors in the securitizations.
A receivable is recognized for the advances that are expected to be reimbursed, while a loss is recognized in operating
expenses for advances that are not expected to be reimbursed. Advances not collected are generally due to payments made in
excess of the limits established by the investor or as a result of servicing errors. For loans serviced for others, servicing
advances are accrued through liquidation regardless of delinquency status. Any accrued amounts that are deemed uncollectible
at liquidation are written offff against existing reserves. Any amounts outstanding 180 days post liquidation are written offff against
established reserves. Due to the Company’s planned exit of third party servicing operations, the servicing advances for third
party serviced reverse mortgage loans are designated as Assets of discontinued operations held for sale.
Derivative Financial Instruments
The Company manages economic risk and exposure to interest rate and foreign currency risk through derivative transactions in
over-the-counter markets with other financial institutions. The Company also offers
derivative products to its customers in order
for them to manage their interest rate and currency risks. The Company does not enter into derivative financial instruments for
speculative purposes.
ff
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) includes measures to broaden the
scope of derivative instruments subject to regulation by requiring clearing and exchange trading of certain derivatives, and
imposing margin, reporting and registration requirements for certain market participants. Since the Company does not meet the
definition of a Swap Dealer or Major Swap Participant under the Dodd-Frank Act, the reporting and clearing obligations apply to a
limited number of derivative transactions executed with its lending customers in order to manage their interest rate risk.
Derivatives utilized by the Company may include swaps, forward settlement contracts and options contracts. A swap agreement
is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices.
Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency or commodity at
a predetermined future date, and rate or price. An option contract is an agreement that gives the buyer the right, but not the
obligation, to buy or sell an underlying asset from or to another party at a predetermined price or rate over a specific period of
time.
CIT early adopted ASU 2017-12, Derivatives and Hedging (Topic
Activities, in the fourth quarter of 2017, effective
TT
ff
January 01, 2017, under the modified retrospective approach.
TT
815) -Targeted
Improvements to Accounting for Hedging
The new hedging guidance better aligns the Company’s financial reporting for hedging activities with the economic objectives of
those activities and simplifies the application of the hedge accounting model. Among other things, ASU 2017-12: (a) expands the
types of transactions eligible for hedge accounting; (b) eliminates the separate measurement and presentation of hedge
ineffectiveness;
time to finalize hedge documentation; and (e) enhances presentation and disclosure requirements.
(c) simplifies the requirements around the assessment of hedge effectiveness;
(d) provides companies more
ff
ff
As a result of the adoption, in the fourth quarter of 2017, CIT reclassified all of its HTM debt securities to AFS after evaluating
and confirming that these portfolios met the eligibility criteria. There was no impact to the Consolidated Statements of Income.
The Company documents, at inception, all relationships between hedging instruments and hedged items, as well as the risk
management objectives and strategies for undertaking various hedges. Upon executing a derivative contract, the Company
designates the derivative as either a qualifying hedge or non-qualifying hedge. The designation may change based upon
management’s reassessment of circumstances. Upon de-designation or termination of a hedge relationship, changes in fair
value of the derivative is reflected in earnings.
The Company utilizes cross-currency swaps and foreign currency forward contracts to hedge net investments in foreign
operations. These transactions are classified as foreign currency net investment hedges with resulting gains and losses reflected
in AOCI. For hedges of foreign currency net investment positions, the “forward” method is applied whereby effectiveness
assessed and measured based on the amounts and currencies of the individual hedged net investments versus the notional
amounts and underlying currencies of the derivative contract. For those hedging relationships where the critical terms of the
underlying net investment and the derivative are identical, and the credit-worthiness of the counterparty to the hedging
instrument remains sound, there is an expectation of no hedge ineffectiveness
so long as those conditions continue to be met.
is
ff
ff
The Company also enters into foreign currency forward contracts to manage the foreign currency risk associated with its non-
U.S. subsidiaries’ funding activities and designates these as foreign currency cash flow hedges for which certain components are
reflected in AOCI and others recognized in noninterest income when the underlying transaction impacts earnings.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The Company uses foreign currency forward contracts, interest rate swaps, cross currency interest rate swaps, and options to
hedge interest rate and foreign currency risks arising from its asset and liability mix. These are treated as economic hedges.
CIT ANNUAL REPORT 2017 109
The Company also provides interest rate derivative contracts to support the business requirements of its customers (“customer-
related positions”). The derivative contracts include interest rate swap agreements and interest rate cap and floor agreements
wherein the Company acts as a seller of these derivative contracts to its customers. To mitigate the market risk associated with
these customer derivatives, the Company enters into similar offsetting
positions with broker-dealers.
ff
All derivative instruments are recorded at their respective fair value. Derivative instruments that qualify for hedge accounting are
presented in the balance sheet at their fair values in other assets or other liabilities, with changes in fair value (gains and losses)
of cash flow hedges deferred in AOCI, a component of equity. For qualifying derivatives with periodic interest settlements, e.g.
interest rate swaps, interest income or interest expense is reported as a separate line item in the Consolidated Statements of
Income. Derivatives that do not qualify for hedge accounting are also presented in the Balance Sheet in other assets or other
liabilities, but with their resulting gains or losses recognized in other non-interest income. For non-qualifying derivatives with
periodic interest settlements, the Company reports interest income with other changes in fair value in other non-interest income.
Fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the
determination of fair value may require significant management judgment or estimation. The fair value of the derivative is
reported on a gross-by-counterparty basis. Valuations of derivative assets and liabilities reflect the value of the instrument
including the Company’s and counterparty’s credit risk.
CIT is exposed to credit risk to the extent that the counterparty fails to perform under the terms of a derivative. Losses related to
credit risk are reflected in other non-interest income. The Company manages this credit risk by requiring that all derivative
transactions entered into as hedges be conducted with counterparties rated investment grade at the initial transaction by
nationally recognized rating agencies, and by setting limits on the exposure with any individual counterparty. In addition,
pursuant to the terms of the Credit Support Annexes between the Company and its counterparties, CIT may be required to post
collateral or may be entitled to receive collateral in the form of cash or highly liquid securities depending on the valuation of the
derivative instruments as measured on a daily basis.
Fair Value
Fair Value Hierarchy
CIT measures the fair value of its financial assets and liabilities in accordance with ASC 820, Fair Value Measurements, which
defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value
measurements. The Company categorizes its financial instruments, based on the significance of inputs to the valuation
techniques, according to the following three-tier fair value hierarchy:
·
·
·
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the
measurement date. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded
in an active exchange market, as well as certain other securities that are highly liquid and are actively traded in over-the-
counter markets;
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices
that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using
a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by
observable market data. This category generally includes derivative contracts and certain loans held-for-sale;
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using valuation
models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation. This category generally includes highly structured or long-
term derivative contracts and structured finance securities where independent pricing information cannot be obtained for a
significant portion of the underlying assets or liabilities.
Valuation Process
The Company has various processes and controls in place to ensure that fair value is reasonably estimated. The Company
generally determines the estimated fair value of Level 3 assets and liabilities by using internally developed models and, to a
lesser extent, prices obtained from third-party pricing services or broker dealers (collectively, third party vendors).
The Company’s internally developed models primarily consist of discounted cash flow techniques, which require the use of
relevant observable and unobservable inputs. Unobservable inputs are generally derived from actual historical performance of
similar assets or are determined from previous market trades for similar instruments. These unobservable inputs include
discount rates, default rates, loss severity and prepayment rates. Internal valuation models are subject to review prescribed by
the Company’s model validation policy that governs the use and control of valuation models used to estimate fair value. This
policy requires review and approval of significant models by the Company’s model review group, who are independent of the
business units and perform model validation. Model validation assesses the adequacy and appropriateness of the model,
including reviewing its processing components, logic and output results and supporting model documentation. These procedures
are designed to provide reasonable assurance that the model is appropriate for its intended use and performs as expected.
Periodic re-assessments of models are performed to ensure that they are continuing to perform as designed. The Company
updates model inputs and methodologies periodically as a result of the monitoring procedures in place.
110 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Procedures and controls are in place to ensure new and existing models are subject to periodic validations by the Independent
Model Validation Group (“IMV”). Oversight of the IMV is provided by the Model Governance Committee (“MGC”). All internal
valuation models are subject to ongoing review by business unit level management. More complex models, such as those
involved in the fair value analysis, are subject to additional oversight, at least quarterly, by the Company’s Valuation Reserve
Working Group (“VRWG”), which consists of senior management, which reviews the Company’s valuations for complex
instruments.
For valuations involving the use of third party vendors for pricing of the Company’s assets and liabilities, the Company performs
due diligence procedures to ensure information obtained and valuation techniques used are appropriate. The Company monitors
and reviews the results (e.g., non-binding broker quotes and prices) from these third party vendors to ensure the estimated fair
values are reasonable. Although the inputs used by the third party vendors are generally not available for review, the Company
has procedures in place to provide reasonable assurance that the relied upon information is complete and accurate. Such
procedures may include, as available and applicable, comparison with other pricing vendors, corroboration of pricing by
reference to other independent market data and investigation of prices of individual assets and liabilities.
Fair Value Option
Certain MBS securities are carried at fair value with changes recorded in net income. Unrealized gains and losses are reflected
as part of the overall changes in fair value. The Company recognizes interest income on an effective
expected remaining life under the accretable yield method pursuant to ASC 310-30. Unrealized and realized gains or losses are
reflected in other non-interest income. The determination of fair value for these securities is discussed in Note 13 - Fair Value.
yield basis over the
ff
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future taxation of events that have been reflected in the
ff
consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences
values and the tax basis of particular assets and liabilities, using tax rates in effect
for the years in which the differences
expected to reverse. A valuation allowance is provided to reduce the reported amount of any net deferred tax assets of a
reporting entity if, based upon the relevant facts and circumstances, it is more likely than not that some or all of the deferred tax
assets will not be realized. Additionally, in certain situations, it may be appropriate to write-offff the deferred tax asset against the
valuation allowance. This reduces the valuation allowance and the amount of the respective gross deferred tax asset that is
disclosed. A write-offff might be appropriate if there is only a remote likelihood that the reporting entity will ever utilize its
respective deferred tax assets, thereby eliminating the need to disclose the gross amounts.
between the book
ff
are
ff
The Company is subject to the income tax laws of the United States, its states and municipalities and those of the foreign
jurisdictions in which the Company operates. These tax laws are complex, and the manner in which they apply to the taxpayer’s
facts is sometimes open to interpretation. Given these inherent complexities, the Company must make judgments in assessing
the likelihood that a beneficial income tax position will be sustained upon examination by the taxing authorities based on the
technical merits of the tax position. An income tax benefit is recognized only when, based on management’s judgment regarding
the application of income tax laws, it is more likely than not that the tax position will be sustained upon examination. The amount
of benefit recognized for financial reporting purposes is based on management’s best judgment of the most likely outcome
resulting from examination given the facts, circumstances and information available at the reporting date. The Company adjusts
the level of unrecognized tax benefits when there is new information available to assess the likelihood of the outcome. Liabilities
for uncertain income tax positions are included in current taxes payable, which is reflected in accrued liabilities and payables.
Accrued interest and penalties for unrecognized tax positions are recorded in income tax expense.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and is expected to significantly impact CIT's accounting for and
reporting of income taxes, and related processes and controls. CIT will account for the effect
enactment (i.e., 2017).
of this change in the period of
ff
See Note 19 - Income Taxes.
Other Comprehensive Income/Loss
Other Comprehensive Income/Loss includes unrealized gains and losses, unless other than temporarily impaired, on AFS
investments, foreign currency translation adjustments for both net investment in foreign operations and related derivatives
designated as hedges of such investments, changes in fair values of derivative instruments designated as hedges of future cash
flows and certain pension and postretirement benefit obligations, all net of tax.
Foreign Currency Translation
In addition to U.S. operations, the Company has operations in Europe and other jurisdictions. The functional currency for foreign
operations is generally the local currency, other than in the Commercial Air business. In this business, most of which is reported
as discontinued operations, the U.S. dollar is typically the functional currency. The value of assets and liabilities of the foreign
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
gains and losses on hedges of net investments in foreign operations, are reflected in AOCI. Transaction gains and
as offsetting
losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are
included in other non-interest income.
ff
ff
Pension and Other Postretirement Benefits
CIT has both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain U.S. and
non-U.S. employees, each of which is designed in accordance with the practices and regulations in the related countries.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
between plan assets at fair value and the
Recognition of the funded status of a benefit plan, which is measured as the difference
benefit obligation, is included in the Balance Sheet. The Company recognizes as a component of Other Comprehensive Income,
net of tax, the net actuarial gains or losses and prior service cost or credit that arise during the period but are not recognized as
components of net periodic benefit cost in the Consolidated Statements of Income.
ff
CIT ANNUAL REPORT 2017 111
Variable Interest Entities
A VIE is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets.
These entities: lack sufficient
equity investment at risk to permit the entity to finance its activities without additional subordinated
financial support from other parties; have equity owners who either do not have voting rights or lack the ability to make significant
decisions affecting
the entity’s operations; and/or have equity owners that do not have an obligation to absorb the entity’s losses
or the right to receive the entity’s returns.
ff
ff
The Company accounts for its VIEs in accordance with Accounting Standards Update (“ASU”) 2009-16, Transfers
(Topic
TT
Financial Reporting by Enterprises Involved with Variable Interest Entities as updated by ASU 2015-02.
of Financial Assets and ASU 2009-17, Consolidations (Topic
860) - Accounting for Transfers
TT
rr
rr
810) - Improvements to
and Servicing
ASC 810 requires qualified special purpose entities to be evaluated for consolidation and addressed the approach for
determining a VIE’s PB and required companies to more frequently reassess whether they must consolidate VIEs. The PB is the
party that has both (1) the power to direct the activities of an entity that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE
that could potentially be significant to the VIE.
ASU 2015-02 provides guidance on the way reporting enterprises evaluate whether (a) they should consolidate limited
partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a VIE, and (c)
variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the
VIE.
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic
performance, the Company considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights
and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic
performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the
most significant decisions affecting
liquidation rights over the VIE’s assets) or have the right to unilaterally remove those decision-makers are deemed to have the
power to direct the activities of a VIE.
the VIE (such as asset managers, collateral managers, servicers, or owners of call options or
ff
To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that
could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity
investments, servicing fees, and derivative or other arrangements deemed to be variable interests in the VIE. This assessment
requires that the Company apply judgment in determining whether these interests, in the aggregate, are considered potentially
significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization
structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s
capital structure; and the reasons why the interests are held by the Company.
The Company performs on-going reassessments of: (1) whether any entities previously evaluated under the majority voting-
interest framework have become VIEs, based on certain events, and are therefore subject to the VIE consolidation framework;
and (2) whether changes in the facts and circumstances regarding the Company’s involvement with a VIE cause the Company’s
consolidation conclusion regarding the VIE to change.
When in the evaluation of its interest in each VIE it is determined that the Company is considered the PB, the VIE’s assets,
liabilities and non-controlling interests are consolidated and included in the consolidated financial statements. See Note 10 -
Borrowings for further details.
Consolidated VIEs
The most significant types of VIEs that CIT utilizes are 'on balance sheet' secured financings of pools of leases and loans
originated by the Company where the Company is the primary beneficiary.
The main risks inherent in structured financings are deterioration in the credit performance of the vehicle's underlying asset
portfolio and risk associated with the servicing of the underlying assets.
Lenders typically have recourse to the assets in the VIEs and may benefit from other credit enhancements, such as: (1) a
reserve or cash collateral account that requires the Company to deposit cash in an account, which will first be used to cover any
defaulted obligor payments, (2) over-collateralization in the form of excess assets in the VIE, or (3) subordination, whereby the
Company retains a subordinate position in the secured borrowing which would absorb losses due to defaulted obligor payments
before the senior certificate holders. The VIE may also enter into derivative contracts in order to convert the debt issued by the
VIEs to match the underlying assets or to limit or change the risk of the VIE.
With respect to events or circumstances that could expose CIT to a loss as these are accounted for as on balance sheet, the
Company records an allowance for loan losses for the credit risks associated with the underlying leases and loans. The VIE has
an obligation to pay the debt in accordance with the terms of the underlying agreements.
112 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Generally, third-party investors in the obligations of the consolidated VIEs have legal recourse only to the assets of the VIEs and
do not have recourse to the Company beyond certain specific provisions that are customary for secured financing transactions,
such as asset repurchase obligations for breaches of representations and warranties. In addition, the assets are generally
restricted to pay only such liabilities.
Unconsolidated VIE’s’
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.
Non-interest Income
Non-interest income is recognized in accordance with relevant authoritative pronouncements and includes rental income on
operating leases and other non-interest income. Other non-interest income includes (1) factoring commissions, (2) gains and
losses on sales of leasing equipment, (3) fee revenues, including fees on lines of credit, letters of credit, capital markets related
fees, agent and advisory fees, service charges on deposit accounts, and servicing fees on loans CIT services for others, (4)
gains and losses on loan and portfolio sales, (5) gains and losses on OREO sales, (6) gains and losses on investments, (7)
gains and losses on derivatives and foreign currency exchange, (8) impairment on assets held for sale, and (9) other revenues.
Other revenues include items that are more episodic in nature, such as gains on work-out related claims, recoveries on acquired
loans or loans charged offff prior to transfer to AHFS, proceeds received in excess of carrying value on non-accrual accounts held
for sale that were repaid or had another workout resolution, insurance proceeds in excess of carrying value on damaged leased
equipment, and also includes income from joint ventures.
Non-interest Expenses
Non-interest expense is recognized in accordance with relevant authoritative pronouncements and includes deprecation on
operating lease equipment, maintenance and other operating lease expenses, loss on debt extinguishments and deposit
redemptions and operating expenses.
Operating expenses consists of (1) compensation and benefits, (2) technology costs, (3) professional fees, (4) insurance, (5) net
occupancy expenses, (6) restructuring costs, (7) advertising and marketing, (8) intangible assets amortization, and (9) other
expenses.
Prepaid Railcar Certification Costs
The Company incurs certain costs related to rail tank car safety certifications. These certification costs provide a long term
benefit to the Company as they allow the rail tank cars to comply with government standards and as such, secure the use of
these assets over future periods. These costs are accounted for as a prepaid expense and classified within Other Assets and are
amortized over the life cycle of the anticipated benefit of the re-certification (approximately 10 years).
Stock-Based Compensation
Compensation expense associated with equity-based awards is recognized over the vesting period (requisite service period),
generally three years, under the “graded vesting” attribution method, whereby each vesting tranche of the award is amortized
separately as if each were a separate award. The cost of awards granted to directors in lieu of cash is recognized using the
single grant approach with immediate vesting and expense recognition. Expenses related to stock-based compensation are
included in operating expenses (compensation and benefits).
Bank-Owned Life Insurance
CIT purchased life insurance policies on the lives of certain officers
policies. These policies, known as bank-owned life insurance ("BOLI"), offset
records these BOLI policies as a separate line item in the Consolidated Balance Sheets at each policy’s respective cash
surrender value, with changes recorded as other non-interest income in the Consolidated Statements of Income.
and employees and is the owner and beneficiary of the
the cost of providing employee benefits. CIT
ff
ff
Earnings per Share (“EPS”)
Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding increased by the weighted-average potential impact of dilutive
securities. The Company's potential dilutive instruments primarily include restricted unvested stock grants and performance stock
grants. The dilutive effect
is computed using the treasury stock method, which assumes the conversion of these instruments.
However, in periods when there is a net loss, these shares would not be included in the EPS computation as the result would
have an anti-dilutive effect.
ff
ff
Accounting for Costs Associated with Exit or Disposal Activities
A liability for costs associated with exit or disposal activities, other than in a business combination, is recognized when the
liability is incurred. The liability is measured at fair value, with adjustments for changes in estimated cash flows recognized in
earnings.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 113
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Consolidated Statements of Cash Flows
Unrestricted cash and cash equivalents includes cash and interest-bearing deposits, which are primarily overnight money market
investments and short term investments in mutual funds. The Company maintains cash balances principally at financial
institutions located in the U.S. The balances are not insured in all cases. Cash and cash equivalents also include amounts at CIT
Bank, which are only available for the bank’s funding and investment requirements. Cash inflows and outflows from customer
deposits are presented on a net basis. Most factoring receivables are presented on a net basis in the Consolidated Statements
of Cash Flows, as factoring receivables are generally due in less than 90 days.
Cash receipts and cash payments resulting from purchases and sales of loans, securities, and other financing and leasing
assets are classified as operating cash flows in accordance with ASC 230-10-45-21 when these assets are originated/acquired
and designated specifically for resale.
Activity for loans originated or acquired for investment purposes, including those subsequently transferred to AHFS, is classified
in the investing section of the Consolidated Statements of Cash Flows in accordance with ASC 230-10-45-12 and 230-10-45-13.
The vast majority of the Company’s loan originations are for investment purposes. Cash receipts resulting from sales of loans,
beneficial interests and other loans and leases that were not specifically originated and/or acquired and designated for resale are
classified as investing cash inflows regardless of subsequent classification.
The cash flows related to investment securities and loans (excluding loans held for sale) purchased at a premium or discount are
as follows:
·
·
CIT classifies the entire cash flow, including the premium, as investing outflow in the period of acquisition and on a
subsequent basis, the premium amortization is classified in investing as a positive adjustment, similar to the cumulative
earnings approach.
CIT classifies the entire cash flow, net of the discount, as investing outflow in the period of acquisition and on a
subsequent basis, the discount accretion is classified in investing as a negative adjustment.
Restricted cash includes cash on deposit with other banks that are legally restricted as to withdrawal and primarily serve as
collateral for certain servicer obligations of the Company. Because the restricted cash results from a contractual requirement to
invest cash balances as stipulated, CIT’s change in restricted cash balances is classified as cash flows from (used for) investing
activities.
Activity of discontinued operations is included in various line items of the Consolidated Statements of Cash Flows and summary
items are disclosed in Note 2 - Discontinued Operations.
Accounting Pronouncements Adopted
During 2017, the Company adopted the following Accounting Standards Updates (“ASU”) issued by the Financial Accounting
Standards Board (“FASB”):
FF
Derivatives and Hedging
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.
TT
CIT adopted ASU 2016-05, effective
designated as a hedging instrument and as such the adoption of this ASU had no impact on CIT’s consolidated financial
statements or disclosures.
January 1, 2017. Historically, CIT has not novated any derivative instrument that was
ff
ASU 2016-06, Derivatives and Hedging (Topic
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.
815) - Contingent Put and Call Options in Debt Instruments, clarifies that in
TT
CIT adopted ASU 2016-06 as of January 1, 2017. The adoption did not have a material impact on the Company’s consolidated
financial statements or disclosures.
ASU 2017-12, Derivatives and Hedging (Topic
Improvements to Accounting for Hedging Activities, better aligns a
company’s financial reporting for hedging activities with the economic objectives of those activities and simplifies the application
of the hedge accounting model. Among other things, ASU 2017-12: (a) expands the types of transactions eligible for hedge
accounting; (b) eliminates the separate measurement and presentation of hedge ineffectiveness;
around the assessment of hedge effectiveness;
enhances presentation and disclosure requirements.
(d) provides companies more time to finalize hedge documentation; and (e)
(c) simplifies the requirements
TT
815) -Targeted
TT
ff
ff
114 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
ff
CIT early adopted ASU 2017-12 in the fourth quarter of 2017, effective
approach. As a result of the adoption, CIT reclassified its HTM debt securities to AFS after evaluating and confirming that these
portfolios met the eligibility criteria. There was no impact to the Company's Consolidated Statements of Income.
January 1, 2017, under the modified retrospective
Investments - Equity Method and Joint Ventures
ASU 2016-07, Investments - Equity Method and Joint Ventures (Topic
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 to
investments that qualify for the equity method of accounting after the effective
323) - Simplifying the Transition
to the Equity Method of
date.
TT
rr
ff
CIT adopted this amendment as of January 1, 2017. The adoption did not have a material impact on the Company’s consolidated
financial statements or disclosures.
Compensation - Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based
Payment Account. The amendments simplify several aspects of the accounting for employee share-based payment transactions
including the accounting for income taxes, forfeitures, statutory tax withholding requirements, and cash flow statements.
CIT adopted this update as of January 1, 2017. The adoption did not have a material impact on CIT’s financial statements or
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 $21.9 million and $22.2 million
from operating activities to financing activities for December 31, 2016 and December 31, 2015, respectively in the Company’s
Consolidated Statements of Cash Flows and also in the Parent Company Statements of Cash Flows in Note 28.
Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures
323), amends certain SEC paragraphs to incorporate SEC staffff announcements made at the September 22, 2016, and
ASU 2017-03, Accounting Changes and Error Corrections (Topic
(Topic
TT
November 17, 2016, Emerging Issues Task Force meetings. ASU 2017-03 incorporates these SEC staffff 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
TT
Losses (Topic
Topic 11.M. The ASU also conforms with ASC 323-740-S99-2, which describes the SEC staff’sff
investments in qualified affordable
326): Measurement of Credit Losses on Financial Instruments relating to expanded disclosures under SAB 74,
250) and Investments - Equity Method and Joint Ventures
housing projects, to the guidance issued in ASU 2014-01.
842), and ASU 2016-13, Financial Instruments - Credit
606), ASU 2016-02, Leases (Topic
views on accounting for
TT
TT
TT
ff
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 have a material impact on the
Company’s consolidated financial statements or disclosures. CIT plans to align the adoption of the update with the relevant
adoption dates of these standards.
Intangibles - Goodwill and Other
ASU 2017-04, Intangibles - Goodwill and Other (Topic
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 value (i.e.,
measure the charge based on 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.
350), eliminates the requirement to calculate the implied fair value of
TT
CIT early adopted this standard as of January 1, 2017. The adoption did not result in any impact on the Company’s consolidated
financial statements or disclosures.
Item 8: Financial Statements and Supplementary Data
GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
The following accounting pronouncements have been issued by the FASB but are not yet effective:
ff
CIT ANNUAL REPORT 2017 115
Effect on CIT's Financial Statements
•
•
CIT adopted this guidance as of January 1, 2018.
“Interest Income” and “Rental Income on Operating
Leases”, CIT’s two largest revenue items, are out
of scope of the new guidance; as are many other
revenues relating to financial assets and liabilities,
including loans, leases, securities and derivatives.
As such, the majority of our revenues are not
impacted; however, certain ancillary revenues and
components of “Other non-interest income” are
impacted by the new standard.
There was not a material impact on our
consolidated financial statements and disclosures.
Disclosure enhancements are more qualitative in
nature.
CIT adopted the standard using the modified
retrospective method.
CIT adopted this guidance as of January 1, 2018 in
conjunction with the new revenue recognition
standard on a modified retrospective basis.
The adoption of this standard did not have a
material impact on our consolidated financial
statements and disclosures. Disclosure
enhancements are more qualitative in nature.
CIT adopted this guidance as of January 1, 2018.
The adoption of this standard did not have a
material impact on CIT’s consolidated financial
statements and disclosures.
Standard
ASU 2014-09,
Revenue from
Contracts with
Customers (Topic
TT
606), and
subsequent related
ASUs
Issued May 2014,
with Updates
through May 2016
Summary of Guidance
•
•
•
•
•
Establishes the principles to apply in
determining the amount and timing of
revenue recognition.
The guidance specifies the accounting for
certain costs related to revenue, and
requires additional disclosures about the
nature, amount, timing and uncertainty of
revenues and related cash flows.
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 standard defers to existing guidance
where revenue recognitions models are
already in place, which applies to the
majority of CIT's revenue streams; however
certain components of our "Other non-
interest income" required assessment at a
detail level.
Under the modified retrospective adoption
method elected by CIT,TT financial
statements will be prepared for the year of
adoption using the new standard, but prior
periods will not be adjusted. Instead, the
Company 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 current revenue
guidance.
ff
ASU 2017-05,
Other Income-
Gains and Losses
from the
Derecognition of
Nonfinancial Assets
(Subtopic 610-20)
•
•
Issued February
2017
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 nonfinancial assets and
additional guidance on partial sales of
nonfinancial assets.
ASU 2016-01,
Financial
Instruments-Overall
(Subtopic 825-10):
Recognition and
Measurement of
Financial Assets
and Financial
Liabilities
Issued June 2016
•
•
•
•
Includes amendments on recognition,
measurement, presentation and disclosure
of financial instruments.
Adds a new Topic (ASC 321, Investments -
Equity Securities) to the FASB Accounting
Standards Codification, which provides
guidance on accounting for equity
investments.
The amendments related to equity
securities without readily determinable fair
values (including disclosure requirements)
should be applied prospectively to equity
investments that exist as of the date of
adoption of the Update.
Requires adoption by applying a
cumulative-effect
sheet as of the beginning of the fiscal year
of adoption.
adjustment to the balance
ff
•
•
•
•
•
•
116 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
•
•
•
•
•
•
•
•
•
•
CIT adopted this guidance as of January 1, 2018.
The adoption of this standard did not have a
material impact on CIT's consolidated financial
statements and disclosures.
CIT adopted this guidance as of January 1, 2018.
The adoption of this standard did not have a
material impact on CIT’s consolidated financial
statements and disclosures.
CIT adopted this guidance as of January 1, 2018.
The adoption of this standard did not have a
material impact on CIT’s consolidated financial
statements and disclosures.
CIT adopted this guidance as of January 1, 2018.
The adoption of this standard did not have a
material impact on CIT’s consolidated financial
statements and disclosures.
CIT adopted this guidance as of January 1, 2018.
The adoption of this guidance did not have a
material impact on CIT’s consolidated financial
statements and disclosures.
ASUASU 2016-16,
Income Ta sxes
-
Intra-
740):
(T(Topic
TT
740):
yEntity Tr
ofof
rr
AAssets OOther Than
Inventory
Inventory
fansfers
Issued October
October
2016
6
ASU 2016-15,
Statement of Cash
Flows (Topic
230):
TT
Classification of
Certain Cash
Receipts and Cash
Payments
Issued August 2016
ASU 2016-18,
Statement of Cash
Flows (Topic
230):
TT
Restricted Cash
Issued November
2016
ASU 2017-01,
Business
Combinations
(Topic
TT
Clarifying the
Definition of a
Business
805):
Issued January
2017
ASU 2017-07,
Compensation-
Retirement Benefits
(Topic
715):
TT
Improving the
Presentation of Net
Periodic Pension
Cost and Net
Periodic
Postretirement
Benefit Cost
Issued March 2017
•
•
•
•
•
•
•
•
•
•
•
•
Requires that the Company recognize the
tax 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
the transaction are eliminated in
consolidation.
The modified retrospective approach is
required for transition to the new guidance,
ff
with a cumulative-effect
recorded in retained earnings as of the
beginning of the period of adoption.
adjustment
of
ff
Clarifies how entities should classify certain
cash receipts and cash payments on the
Statement of Cash Flows. The new
guidance also clarifies how the
predominance principle should be applied
when cash receipts and cash payments
have aspects of more than one class of
cash flows.
Requires retrospective application to all
periods presented.
Requires that the Statement of Cash Flows
explain the change during the period in the
total of cash, cash equivalents, and
amounts generally described as restricted
cash or restricted cash equivalents.
Requires adoption using a retrospective
transition method for each period
presented.
This guidance narrows the definition of a
business. This standard provides guidance
to assist entities with evaluating when a set
of transferred assets and activities is a
business.
This guidance must be applied
prospectively, on and after the date of
adoption.
ff
are to be included in non-operating
Requires employers that present a
measure of operating income in their
Statement of Income 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,
expenses in a separate line item(s).
Stipulates that only the service cost
component of net benefit cost is eligible for
capitalization.
The amendments related to presentation of
service cost and other components in the
Income 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.
Item 8: Financial Statements and Supplementary Data
GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 117
ASU 2017-09,
Compensation -
Stock
Compensation
(Topic
TT
of Modification
Accounting
718): Scope
Issued May 2017
ASU 2017-08,
Receivables -
Nonrefundable
Fees and Other
Costs (Subtopic
310-20): Premium
Amortization on
Purchased Callable
Debt Securities
Issued March 2017
ASU 2016-02,
Leases (Topic
TT
842)
Issued February
2016
•
•
•
•
•
•
•
•
The amendments in this Update provide
guidance about which changes to the terms
or conditions of a share-based payment
award require an entity to apply
modification accounting.
This guidance must be adopted
prospectively to an award modified on or
after the adoption date.
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
earnings.
adjustment to retained
ff
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.
•
•
•
•
•
•
CIT adopted this guidance as of January 1, 2018.
This standard was adopted prospectively and did
not have a material impact on CIT’s consolidated
financial statements and disclosures.
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.
ff
for CIT as of January 1, 2019.
Effective
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. CIT expects that it
will bifurcate certain maintenance components
relating to our railcar business.
ff
ff
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.
118 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
ASU 2016-13,
Financial
Instruments - Credit
Losses (Topic
326):
TT
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,P 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
retained earnings as of the beginning of the
first reporting period in which the guidance
is adopted (modified-retrospective
approach).
adjustment to
ff
•
•
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
AA
Aerospace
The following condensed balance sheet reflects the Business Air business as of December 31, 2017 and a combination of the
Commercial Air and Business Air businesses as of December 31, 2016. The condensed statements of income include
Commercial Air up to the sale on April 4, 2017, and Business Air for all periods. The Commercial Air sale price was $10.4 billion,
and we recorded a pre-tax gain of $146 million ($106 million after tax), which is included in the Condensed Statement of Income
below for the year ended December 31, 2017.
Business Air offered
loans, leases, pre-delivery financing, fractional share financing and vendor / manufacturer financing.
financing and leasing programs for corporate and private owners of business jets. Products included term
ff
Condensed Balance Sheet — Aerospace Discontinued Operations (dollars in millions)
Total cash and deposits
Net Loans
Operating lease equipment, net
Goodwill
Other assets(1)
Assets of discontinued operations
Secured borrowings
Other liabilities(2)
Liabilities of discontinued operations
December 31, 2017
$
— $
December 31, 2016
759.0
1,047.7
9,677.6
126.8
1,161.5
12,772.6
1,204.6
1,597.3
2,801.9
,
,
165.8
18.4
—
—
184.2
$
$
— $
8.8
8.8
$
$
$
$
$
$
$
(1) Amount includes deposits on commercial aerospace equipment of $1,013.7 million at December 31, 2016.
(2) Amount includes commercial aerospace maintenance reserves of $1,084.9 million and security deposits of $167.0 million at
December 31, 2016.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Condensed Statement of Income — Aerospace Discontinued Operations (dollars in millions)
CIT ANNUAL REPORT 2017 119
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income(1)
Depreciation on operating lease equipment(2)
Maintenance and other operating lease expenses
Operating expenses(3)
Loss on debt extinguishment(4)
Income from discontinued operations before provision for income taxes
Provision for income taxes(5)
Gain on sale of discontinued operations, net of taxes
Income (loss) from discontinued operations, net of taxes
Years Ended December 31,
2016
2015
2017
29.3
99.6
—
312.5
9.0
—
4.2
39.6
39.0
168.4
70.5
118.6
216.5
$
$
$
$
72.8
369.3
15.6
1,236.8
22.5
345.6
32.1
101.9
8.3
459.3
914.6
—
) $
(455.3) $
(
70.2
366.5
1.8
1,134.4
56.5
411.4
45.8
68.2
1.1
366.3
45.9
—
320.4
$
$
$
(1) Other non-interest income includes impairment charges on assets transferred to AHFS of $32 million and $4 million for the years ended
2016 and 2015, respectively.yy
(2)
Depreciation on operating lease equipment is suspended when an operating lease asset is placed in Assets Held for Sale. Pre-tax income
for 2016 benefited from $106 million of suspended depreciation related to operating lease equipment
(3) Operating expenses include salaries and benefits and other operating expenses in prior quarters. Operating expenses included costs
related to the commercial air separation initiative for the years ended December 31, 2017 and 2016.
(4)
(5)
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.
Provision for income taxes for the year ended December 31, 2016 includes $847 million net tax expense related to the Company's decision
to no longer assert that it would indefinitely reinvest the unremitted earnings of Commercial Air.rr For the years ended December 31, 2017,
2016 and 2015, the Company's tax rate for discontinued operations was 42%, 199% and 12%, respectively.yy
Income from the discontinued operations for the years ended December 31, 2017, 2016, and 2015 was driven primarily by
revenues on leased aircraft, while 2017 also reflected the gain on sale of Commercial Air. The interest expense included
amounts allocated to the businesses and on secured debt included in the Condensed Balance Sheet. Operating expenses
included in discontinued operations consisted of direct expenses of the Commercial Air and Business Air businesses that were
separate from ongoing CIT operations.
In connection with the classification of the Aerospace businesses as discontinued operations, certain indirect operating expenses
that previously had been allocated to the businesses have instead been re-allocated as part of continuing operations. The total
incremental pretax amounts of indirect overhead expenses that were previously allocated to the Aerospace businesses and
remain in continuing operations were approximately $19 million and $39 million for the years ended December 31, 2016 and
2015, respectively.
Condensed Statement of Cash Flows — Aerospace Discontinued Operations (dollars in millions)
Net cash flows provided by operations
Net cash flows provided by (used in) investing activities
Years Ended December 31,
2016
2015
2017
$
32.4
10,812.7
$
$
35.7
(655.9)
942.1
(749.6)
120 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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. The Financial Freedom business is reflected as 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 relates 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 $21 million at December 31, 2017, which are recorded on 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 and OREO serviced
by Financial Freedom (the "Financial Freedom Transaction"). The Financial Freedom Transaction is expected to close in the
second quarter of 2018 and is subject to customary closing conditions, including the approval of certain government agencies
and the consent of private investors related to the reverse mortgage servicing business. The agreement between the Company
and the buyer contains representations and warranties, including but not limited to the conduct of the business, the servicing
practices, and compliance with the servicing standards set by HUD and the FHA and by private investors, as well as covenants
regarding the conduct of business both pre-closing and post-closing. The agreement contains certain indemnifications to allocate
risks between the parties, subject to certain caps and limitations, including but not limited to the conduct of the business and
compliance with servicing standards pre-closing. CIT also will retain certain pre-closing liabilities, including the cost of legacy and
future litigation matters related to pre-closing actions.
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 has established reserves for contingent servicing-
related liabilities associated with discontinued operations.
During the year ended December 31, 2017, the Company and the FDIC resolved the selling and servicing-related obligations for
certain reverse mortgage loans with Fannie Mae. In connection with the settlement, the Company released the FDIC from its
indemnification obligation to CIT with respect to the Fannie Mae serviced loans, which reduced the indemnification asset by $77
million. As of December 31, 2017, the indemnification asset from the FDIC was $29 million for covered servicing-related
obligations related to reverse mortgage loans pursuant to the loss share agreement between CIT Bank and the FDIC related to
the acquisition by OneWest Bank from the FDIC of certain assets of IndyMac Federal Bank FSB ("IndyMac") (the "IndyMac
Transaction"). Refer to Note 5 - Indemnification Assets, for further information.
During the year ended December 31, 2017, Financial Freedom results were driven by a net release of the curtailment reserve of
$111 million, partially offset
with Fannie Mae. In addition, during the year ended December 31, 2017, the Company entered into a settlement of
approximately $89 million with the HUD OIG and Department of Justice to resolve servicing related claims. See Note 22 -
Contingencies, for further discussion. Further, the Company recognized an impairment of its mortgage servicing rights liability of
approximately $50 million, included in Other liabilities.
by an increase of $40 million in other servicing-related reserves in connection with the settlement
ff
Condensed Balance Sheet — Financial Freedom Discontinued Operation (dollars in millions)
Total cash and deposits, all of which is restricted
Net Loans(1)
Other assets(2)
Assets of discontinued operations
Secured borrowings(1)
Other liabilities(3)
Liabilities of discontinued operations
December 31, 2017
7.7
$
272.8
36.6
317.1
268.2
232.3
500.5
$
$
$
$
$
December 31, 2016
5.8
$
374.0
68.3
448.1
366.4
569.4
935.8
$
$
$
$
$
(1)
(2)
Net finance receivables include $267.2 million and $365.5 million of securitized balances at December 31, 2017 and December 31, 2016,
respectively,yy and $5.6 million and $8.5 million of additional draws awaiting securitization respectively.yy Secured borrowings relate to those
receivables.
Amount includes servicing advances, servicer receivables and property and equipment, net of accumulated depreciation. The loans
serviced for others total $14.1 billion and $15.6 billion for reverse mortgage loans as of December 31, 2017 and 2016.
(3) Other liabilities include $137.8 million and $518.2 million of contingent liabilities, $79.5 million and $28.8 million of reverse mortgage
servicing liabilities and $15.0 million and $22.3 million of other accrued liabilities at December 31, 2017 and December 31, 2016,
respectively.yy
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 121
The results from discontinued operations for the years ended December 31, 2017, 2016 and 2015, which includes approximately
five months of activity, are presented below.
Condensed Statements of Income — Financial Freedom Discontinued Operation (dollars in millions)
Interest income(1)
Interest expense(1)
Other non-interest income (loss)(2)
Operating expenses (benefit)(3)
Loss from discontinued operations before benefit for income taxes
(Benefit) for income taxes(4)
Loss from discontinued operations, net of taxes
Years Ended December 31,
2016
2015
2017
$
10.2
9.5
(22.9)
)
(9.6)
(
(12.6)
(4.9)
)
(
) $
(7.7) $
(
$
11.6
10.7
15.4
330.1
(313.8)
(103.7)
)
(
) $
(210.1) $
(
4.3
4.4
16.7
33.7
(17.1)
(6.7)
)
(
)
(
(10.4)
$
$
$
(1)
(2)
(3)
Includes amortization for the premium associated with the HECM loans and related secured borrowings.
For the year ended December 31, 2017 and December 31, 2016, other non-interest income (loss) included an impairment charge of
approximately $50 million and $19 million, respectively,yy on the mortgage servicing liability.yy
For the year ended December 31, 2017, 2016 and 2015, operating expense is comprised of approximately $19 million, $16 million and $11
million in salaries and benefits, $11 million, $27 million and $6 million in professional and legal services, and $17 million, $22 million and
$16 million for other expenses such as data processing, premises and equipment, and miscellaneous charges, respectively.yy In addition, for
the year ended December 31, 2017 operating expenses included a net release of the curtailment reserve of $111 million which is net of a
corresponding decrease in the indemnification receivable from the FDIC, partially offset by an increase of $40 million in other servicing-
related reserve. For the year ended December 31, 2016, operating expenses included an increase in servicing-related reserve of
approximately $260 million net of a corresponding increase in the indemnification receivable from the FDIC.
(4)
For the years ended December 31, 2017, 2016 and 2015 the Company's tax rate for discontinued operations is 39%, 33% and 39%,
respectively.yy
Condensed Statements of Cash Flow — Financial Freedom Discontinued Operation (dollars in millions)
Net cash flows (used) in provided by operations
Net cash flows provided by investing activities
Combined Results for Discontinued Operations
Years Ended December 31,
2016
2015
2017
$
(47.0) $
112.6
(40.0) $
88.5
18.5
27.9
The following tables reflect the combined results of discontinued operations. Details of balances are discussed in the prior tables.
Condensed Combined Balance Sheets of Discontinued Operations (dollars in millions)
Total cash and deposits
Net Loans
Operating lease equipment, net
Goodwill
Other assets
Assets of discontinued operations
Secured borrowings
Other liabilities
Liabilities of discontinued operations
December 31, 2017
7.7
$
438.6
18.4
—
36.6
501.3
268.2
241.1
509.3
$
$
$
$
$
December 31, 2016
764.8
$
1,421.7
9,677.6
126.8
1,229.8
13,220.7
1,571.0
2,166.7
3,737.7
$
$
$
$
$
,
,
122 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Condensed Combined Statements of Income of Discontinued Operations (dollars in millions)
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income (loss)
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Operating expenses
Loss on debt extinguishment
Income from discontinued operations before provision for income taxes
Provision for income taxes
Gain on sale of discontinued operations, net of taxes
Income (loss) from discontinued operations, net of taxes
Years Ended December 31,
2016
2015
2017
39.5
109.1
—
312.5
(13.9)
—
4.2
30.0
39.0
155.8
65.6
118.6
208.8
$
$
$
$
84.4
380.0
15.6
1,236.8
37.9
345.6
32.1
432.0
8.3
145.5
810.9
—
) $
(665.4) $
(
74.5
370.9
1.8
1,134.4
73.2
411.4
45.8
101.9
1.1
349.2
39.2
—
310.0
$
$
$
Condensed Combined Statement of Cash Flows of Discontinued Operations (dollars in millions)
Net cash flows (used in) provided by operations
Net cash flows provided by (used in) investing activities
Years Ended December 31,
2016
2015
2017
$
(14.6) $
10,925.3
(4.3) $
(567.4)
960.6
(721.7)
NOTE 3 — LOANS
Loans, excluding those reflected as discontinued operations, consist of the following:
Loans by Product (dollars in millions)
Commercial Loans
Direct financing leases and leveraged leases
Total commercial
Consumer Loans
Total loans
Loans held for sale
Loans held for investment and held for sale(1)
December 31, 2017
20,892.1
$
2,685.8
23,577.9
5,536.0
29,113.9
1,095.7
30,209.6
$
$
,
December 31, 2016
20,117.8
$
2,852.9
22,970.7
6,565.2
29,535.9
635.8
,
30,171.7
$
$
(1)
Assets held for sale on the Balance Sheet as of December 31, 2017 and December 31, 2016 includes loans and operating lease
equipment primarily related to portfolios in Commercial Banking, Consumer Banking and the China portfolio in NSP.PP As discussed in
subsequent tables, since the Company manages the credit risk and collection of loans held for sale consistently with its loans held for
investment, the aggregate amount is presented in this table.
The following table presents loans by segment, based on obligor location:
Loans (dollars in millions)
Commercial Banking
Consumer Banking(1)
Total
Domestic
December 31, 2017
Foreign
g
Total
Domestic
December 31, 2016
Foreign
g
$
$
$
21,368.7
5,954.6
27,323.3
,
$
$
$
1,790.6
—
1,790.6
,
$
$
$
23,159.3
5,954.6
29,113.9
,
$
$
$
20,440.7
6,973.6
27,414.3
,
$
$
$
2,121.6
—
2,121.6
,
$
$
$
Total
22,562.3
6,973.6
29,535.9
,
(1) The Consumer Banking segment includes certain commercial loans, primarily consisting of a portfolio of Small Business Administration
("SBA") loans. These loans are excluded from the Consumer loan balance and included in the Commercial loan balances in the tables
throughout this note.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 123
The following table presents selected components of the net investment in loans:
Components of Net Investment in Loans (dollars in millions)
Unearned income
Equipment residual values
Net unamortized premiums / (discounts)
Accretable yield on PCI loans
Net unamortized deferred costs and (fees)(1)
Leveraged lease third party non-recourse debt payable
(1) Balance relates to the Commercial Banking segment.
December 31, 2017
$
(727.8) $
522.6
3.7
1,063.7
68.7
(97.3)
December 31, 2016
(727.1)
583.4
(31.0)
1,261.4
55.8
(109.7)
Certain of the following tables present credit-related information at the "class" level. A class is generally a disaggregation of a
portfolio segment. In determining the classes, CIT considered the loan 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.
ff
The definitions of the commercial loan ratings are as follows:
•
•
•
Pass — loans in this category do not meet the criteria for classification in one of the categories below.
Special mention — a special mention asset exhibits potential weaknesses that deserve management's close attention. If left
uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects.
Classified — a classified asset ranges from: (1) assets that exhibit a well-defined weakness and are inadequately protected
by the current sound worth and paying capacity of the borrower, and are characterized by the distinct possibility that some
loss will be sustained if the deficiencies are not corrected to (2) assets with weaknesses that make collection or liquidation in
full unlikely on the basis of current facts, conditions, and values. Assets in this classification can be accruing or on non-
accrual depending on the evaluation of these factors.
The following table summarizes commercial loans 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
commercial loans, and use loan-to-value ("LTV")
ratios in rating the credit quality, and therefore are presented separately below.
from
LL
ff
124 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Commercial Loans and Held for Sale Loans — Risk Rating by Class / Segment (dollars in millions)
Grade:
December 31, 2017
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Rail
Total Commercial Banking
Consumer Banking
Other Consumer Banking (1)
Total Consumer Banking
Non-Strategic Portfolios
Total
December 31, 2016
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Rail
Total Commercial Banking
Consumer Banking
Other Consumer Banking (2)
Total Consumer Banking
Non- Strategic Portfolios
Total
Pass
Special
Mention
Classified-
g
accruing
Classified-
non-accrual
PCI Loans
Total
$
$
$
$
$
$
8,284.1
5,228.1
7,028.6
100.6
20,641.4
378.5
378.5
35.7
21,055.6
,
8,184.7
5,191.4
6,238.7
88.7
19,703.5
374.9
374.9
143.7
,
20,222.1
$
$
$
$
$
$
640.9
139.9
269.2
2.0
1,052.0
5.9
5.9
7.6
1,065.5
,
677.6
168.7
422.0
14.1
1,282.4
8.3
8.3
36.9
1,327.6
,
$
$
$
$
$
$
981.9
174.3
228.8
1.2
1,386.2
31.9
31.9
10.2
1,428.3
,
1,181.7
115.6
271.7
0.9
1,569.9
22.4
22.4
19.1
1,611.4
,
$
$
$
$
$
$
134.8
2.8
53.2
—
190.8
—
—
9.8
200.6
188.8
20.4
41.7
—
250.9
—
—
10.3
261.2
$
$
$
$
$
$
10.6
45.1
—
—
55.7
2.2
2.2
—
57.9
42.7
70.5
—
—
113.2
2.8
2.8
—
116.0
$
$
$
$
$
$
10,052.3
5,590.2
7,579.8
103.8
23,326.1
418.5
418.5
63.3
23,807.9
,
10,275.5
5,566.6
6,974.1
103.7
22,919.9
408.4
408.4
210.0
,
23,538.3
(1)
(2)
At December 31, 2017 Other Consumer Banking loans consisted of SBA loans.
At December 31, 2016 Other Consumer Banking loans consisted of SBA loans ($370.1 million) and Private Banking
loans ($38.3 million).
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
ff
difference
ff
Company can be reimbursed for a substantial portion of future losses under the terms of loss sharing agreements with the FDIC.
Covered loans are limited to the Other Consumer Banking and Legacy Consumer Mortgage ("LCM") division. Covered Loans are
discussed further in Note 5 — Indemnification Assets.
for PCI loans recorded in purchase accounting. Included in the consumer loans are "covered loans" for which the
Included in the consumer loan balances as of December 31, 2017 and December 31, 2016 were loans with terms that permitted
negative amortization with an unpaid principal balance of $484 million and $761 million, respectively.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The table below summarizes the Consumer loan LTV distribution and covered loan balances.
Consumer Loan LTV Distributions (dollars in millions)
CIT ANNUAL REPORT 2017 125
Single Family Residential
Covered Loans
Non-covered
Loans
Reverse Mortgage(2)
Non-covered
loans
Non-PCI
PCI
Non-PCI
PCI
Total
Single
Family
Residential
Residential
Covered
Loans
Non-PCI Non-PCI
Total
Reverse
Mortgages
Total
Consumer
Loans
PCI
December 31, 2017
Greater than 125%
101% — 125%
80% — 100%
Less than 80%
Not Applicable(1)
Total
December 31, 2016
Greater than 125%
101% — 125%
80% — 100%
Less than 80%
Not Applicable (1)
Total
$
2.7
6.4
77.4
1,306.1
—
$ ,
$ 1,392.6
$
2.2
4.7
226.6
1,515.6
—
$ ,
$ 1,749.1
$ 160.0
291.5
566.2
878.1
—
$ ,
$ 1,895.8
$ 261.4
443.7
588.1
872.4
—
$ ,
$ 2,165.6
$
7.7
4.4
137.3
2,089.7
0.8
$ ,
$ 2,239.9
$
12.3
13.6
40.5
1,713.1
2.9
$ ,
$ 1,782.4
$ — $
—
—
7.7
—
$
$ 7.7
$
$
$ — $
—
—
9.2
—
$
$ 9.2
$
$
170.4
302.3
780.9
4,281.6
0.8
5,536.0
,
275.9
462.0
855.2
4,110.3
2.9
5,706.3
,
$
$
$
— $
—
—
—
—
$
— $
— $ — $
—
—
—
—
$
— $ — $
—
—
—
—
$
— $
—
—
—
—
$
— $
$
0.6
1.2
24.0
405.4
—
$
$ 431.2
$
8.8
12.7
42.3
304.9
—
$
$ 368.7
$33.8
7.9
7.5
9.8
—
$
$59.0
$
$
$
43.2
21.8
73.8
720.1
—
858.9
$
$
$
170.4
302.3
780.9
4,281.6
0.8
5,536.0
,
319.1
483.8
929.0
4,830.4
2.9
6,565.2
,
(1)
(2)
Certain Consumer Loans do not have LTV's, including the Credit Card portfolio. The Credit Card portfolio was not significant at
December 31, 2017 and 2016.
Reverse mortgage loans transferred to AHFS are excluded from the table above. As of December 31, 2017 these loans had a total
carrying value of $861.0 million, of which $411.0 million were covered loans.
126 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Past Due and Non-accrual Loans
The table that follows presents portfolio delinquency status, regardless of accrual/non-accrual classification:
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
December 31, 2017
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Rail
Total Commercial Banking
Consumer Banking
Legacy Consumer Mortgages
Other Consumer Banking
Total Consumer Banking
Non-Strategic Portfolios
Total
December 31, 2016
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Rail
Total Commercial Banking
Consumer Banking
Legacy Consumer Mortgages
Other Consumer Banking
Total Consumer Banking
Non-Strategic Portfolios
Total
$
$
$
$
$
$
4.5
8.7
172.2
3.9
189.3
26.7
9.6
36.3
1.8
227.4
21.4
0.1
143.6
5.9
171.0
22.6
7.4
30.0
3.0
204.0
$
$
$
$
$
$
— $
—
33.4
1.4
34.8
7.6
0.5
8.1
7.7
50.6
$
$
— $
—
42.4
0.6
43.0
6.1
4.9
11.0
1.1
55.1
$
$
49.3
4.1
19.1
0.8
73.3
34.8
0.4
35.2
9.4
117.9
17.6
—
16.3
2.3
36.2
36.6
0.6
37.2
7.0
80.4
$
$
$
$
$
$
53.8
12.8
224.7
6.1
297.4
69.1
10.5
79.6
18.9
395.9
39.0
0.1
202.3
8.8
250.2
65.3
12.9
78.2
11.1
339.5
$
9,987.9
5,532.3
7,355.1
97.7
22,973.0
1,358.5
3,476.4
4,834.9
44.4
,
$ 27,852.3
$
$ 10,193.8
5,496.0
6,771.8
94.9
22,556.5
2,563.6
2,163.4
4,727.0
198.9
,
$
$ 27,482.4
$
$
$
$
$
$
10.6
45.1
—
—
55.7
$ 10,052.3
5,590.2
7,579.8
103.8
23,326.1
1,903.5
2.2
1,905.7
—
1,961.4
,
3,331.1
3,489.1
6,820.2
63.3
,
$ 30,209.6
$
42.7
70.5
—
—
113.2
$ 10,275.5
5,566.6
6,974.1
103.7
22,919.9
2,233.8
2.8
2,236.6
—
2,349.8
,
4,862.7
2,179.1
7,041.8
210.0
,
$
$ 30,171.7
(1)
(2)
Due to their nature, reverse mortgage loans are included in Current, as they do not have contractual payments due at a specified time.
PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be collectible. Accordingly,yy 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.
Non-accrual loans include loans that are individually evaluated and determined to be impaired (generally loans with
balances $500,000 or greater), as well as other, smaller balance loans placed on non-accrual due to delinquency
(generally 90 days or more).
Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured
and in the process of collection or (2) real estate mortgage loans or consumer loans exempt under regulatory rules from
being classified as nonaccrual until later delinquency, usually 120 days past due.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The following table sets forth non-accrual loans, assets received in satisfaction of loans (repossessed assets and OREO) and
loans 90 days or more past due and still accruing.
Loans on Non-Accrual Status (dollars in millions)
CIT ANNUAL REPORT 2017 127
Commercial Banking
Commercial Finance
Real Estate Finance
Business Capital
Total Commercial Banking
Consumer Banking
Legacy Consumer Mortgages
Other Consumer Banking
Total Consumer Banking
Non-Strategic Portfolios
Total
Repossessed assets and OREO
Total non-performing assets
Commercial loans past due 90 days or more accruing
Consumer loans past due 90 days or more accruing
Total Accruing loans past due 90 days or more
December 31, 2017
December 31, 2016
Held for
Investment
Held for
Sale
Total
Held for
Investment
Held for
Sale
Total
$
$
$
134.8
2.8
53.2
190.8
19.9
0.4
20.3
—
211.1
$
$
$
— $
—
—
—
—
—
—
9.8
9.8
$
$
$
$
$
$
$
$
$
134.8
2.8
53.2
190.8
19.9
0.4
20.3
9.8
220.9
54.6
275.5
11.7
20.2
31.9
156.7
20.4
41.7
218.8
17.3
0.1
17.4
—
236.2
$
$
$
32.1
—
—
32.1
—
—
—
10.3
42.4
$
$
$
$
$
$
$
188.8
20.4
41.7
250.9
17.3
0.1
17.4
10.3
278.6
72.7
351.3
7.2
24.8
32.0
Payments received on non-accrual loans 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 due to the nature of the mortgage product.
Loans in Process of Foreclosure
The table below summarizes the residential mortgage loans in the process of foreclosure and OREO:
(dollars in millions)
PCI
Non-PCI
Loans in process of foreclosure
OREO
December 31, 2017
133.7
$
140.9
274.6
52.1
$
$
$
$
December 31, 2016
201.7
$
106.3
308.0
69.9
$
$
$
$
As of December 31, 2017, the table included $122.5 million of reverse mortgage loans in the process of foreclosure that were
transferred from AHFI to AHFS in September 2017 and $21 million of reverse mortgage OREO.
Impaired Loans
The following table contains information about impaired loans and the related allowance for loan losses by class, exclusive of
loans that were identified as impaired at 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),y which are disclosed
further below in this note. Impaired loans exclude PCI loans.
128 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Impaired Loans (dollars in millions)
December 31, 2017
With no related allowance recorded:
Commercial Banking
Commercial Finance
Business Capital
Real Estate Finance
With an allowance recorded:
Commercial Banking
Commercial Finance
Business Capital
Real Estate Finance
Total Impaired Loans(1)
Total Loans Impaired at Acquisition Date(2)
Total
December 31, 2016
With no related allowance recorded:
Commercial Banking
Commercial Finance
Business Capital
Real Estate Finance
With an allowance recorded:
Commercial Banking
Commercial Finance
Business Capital
Real Estate Finance
Total Impaired Loans(1)
Total Loans Impaired at Acquisition Date(2)
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment(3)
$
$
$
$
$
$
$
51.9
11.7
—
$
72.7
13.4
—
95.9
10.5
2.7
172.7
1,961.4
2,134.1
,
54.3
0.5
0.7
143.0
6.6
16.7
221.8
2,349.8
2,571.6
,
$
$
$
$
$
96.1
10.5
2.8
195.5
2,870.2
3,065.7
,
72.2
1.8
0.7
146.2
6.6
16.8
244.3
3,440.7
3,685.0
,
$
$
$
$
$
— $
—
—
21.3
4.3
0.4
26.0
19.1
45.1
$
$
— $
—
—
25.5
4.2
4.0
33.7
13.6
47.3
$
$
59.9
5.7
0.4
136.6
14.2
5.6
222.4
2,168.8
2,391.2
,
29.5
5.1
1.3
132.1
8.2
5.2
181.4
2,504.4
2,685.8
,
(1)
Interest income recorded for the years ended December 31, 2017 and December 31, 2016 while the loans were impaired were $2.4 million
and $1.6 million, of which $0.0 million and $0.6 million was interest recognized using cash-basis method of accounting for each year,rr
respectively.yy
(2) Details of loans that were identified as impaired at the Acquisition Date are presented under Loans Acquired with Deteriorated Credit Quality.yy
(3) Average
vv
recorded investment for the years ended December 31, 2017 and 2016.
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. For commercial loans, the Company has established review and
monitoring procedures designed to identify, as early as possible, customers that are experiencing financial difficulty
. Credit risk is
captured and analyzed based on the Company's internal probability of obligor default (PD) and loss given default (LGD) ratings.
A PD rating is determined by evaluating borrower credit-worthiness, including analyzing credit history, financial condition, cash
flow adequacy, financial performance and management quality. An LGD rating is predicated on transaction structure, collateral
valuation and related guarantees or recourse. Further, related considerations in determining probability of collection include the
following:
ff
•
•
•
•
•
•
Instances where the primary source of payment is no longer sufficient
document;
ff
to repay the loan in accordance with terms of the loan
Lack of current financial data related to the borrower or guarantor;
Delinquency status of the loan;
Borrowers experiencing problems, such as operating losses, marginal working capital, inadequate cash flow, excessive
financial leverage or business interruptions;
Loans secured by collateral that is not readily marketable or that has experienced or is susceptible to deterioration in
realizable value; and
Loans to borrowers in industries or countries experiencing severe economic instability.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
A shortfall between the estimated value and recorded investment in the loan is reported in the provision for credit losses. In
instances when the Company measures impairment based on the present value of expected future cash flows, the change in
present value is reported in the provision for credit losses.
The following summarizes key elements of the Company's policy regarding the determination of collateral fair value in the
measurement of impairment:
CIT ANNUAL REPORT 2017 129
•
•
•
"Orderly liquidation value" is the basis for collateral valuation;
Appraisals are updated annually or more often as market conditions warrant; and
Appraisal values are discounted in the determination of impairment if the:
•
•
appraisal does not reflect current market conditions; or
collateral consists of inventory, accounts receivable, or other forms of collateral that may become difficult
or collect or may be subject to pilferage in a liquidation.
ff
to locate,
Loans Acquired with Deteriorated Credit Quality
For purposes of this presentation, the Company is applying the income recognition and disclosure guidance in ASC 310-30
(Loans and Debt Securities Acquired with Deteriorated Credit Quality)y to loans that were identified as impaired as of the
acquisition date of OneWest Bank. 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. See Note 4 — Allowance for Loan Losses.
Purchased Credit Impaired Loans (dollars in millions)
Commercial Banking
Commercial Finance
Real Estate Finance
Consumer Banking
Other Consumer Banking
Legacy Consumer Mortgages
December 31, 2017
December 31, 2016
Unpaid
Principal
Balance
Carrying
Value
Allowance
for Loan
Losses
Unpaid
Principal
Balance
Carrying
Value
Allowance
for Loan
Losses
$
$
$
16.4
60.1
3.0
2,790.7
2,870.2
,
$
$
$
10.6
45.1
2.2
1,903.5
1,961.4
,
$
$
$
0.7
7.0
—
11.4
19.1
$
$
$
70.0
108.1
3.7
3,258.9
3,440.7
,
$
$
$
42.7
70.5
2.8
2,233.8
2,349.8
,
$
$
$
2.4
4.9
—
6.3
13.6
The following table summarizes commercial PCI loans, which are monitored for credit quality based on internal risk
classifications. See previous table Consumer Loan LTV Distributions for credit quality metrics on consumer PCI loans.
December 31, 2017
December 31, 2016
(dollars in millions)
Commercial Finance
Real Estate Finance
Total
Accretable Yield
Non-criticized
Criticized
10.6
23.3
33.9
$
$
Total
10.6
45.1
55.7
$
$
$
Non-criticized
5.4
35.6
41.0
$
$
$
Criticized
37.3
$
34.9
72.2
$
$
Total
42.7
70.5
113.2
$
$
$
— $
21.8
21.8
$
$
$
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.
ff
Changes in the Accretable Yield for PCI Loans (dollars in millions)
Years Ended December 31,
2016
2015
2017
Balance at beginning of the year (1)
Accretion into interest income
Reclassification from non-accretable difference
Disposals and Other
Balance at end of the year
(1) For year ended December 31, 2015, the beginning balance is as of August 3, 2015, the acquisition date of OneWestWW Bank.
1,299.1
(208.3)
213.7
)
(43.1)
(
1,261.4
1,261.4
(204.6)
38.5
)
(31.6)
(
1,063.7
$
$
$
$
$
$
,
,
ff
$
$
$
1,254.8
(76.2)
133.2
)
(12.7)
(
1,299.1
,
130 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Troubled Debt Restructurings
The Company periodically modifies the terms of loans in response to borrowers' difficulties.
concession to the borrower are accounted for as troubled debt restructurings (TDRs).
ff
Modifications that include a financial
CIT uses a consistent methodology across all loans to determine if a modification is with a borrower that has been determined to
be in financial difficulty
following examples of indicators used to determine whether the borrower is in financial difficulty:
and was granted a concession. Specifically, the Company's policies on TDR identification include the
ff
ff
•
•
•
•
•
•
•
Borrower is in default with CIT or other material creditor
Borrower has declared bankruptcy
Growing doubt about the borrower's ability to continue as a going concern
Borrower has (or is expected to have) insufficient
cash flow to service debt
Borrower is de-listing securities
Borrower's inability to obtain funds from other sources
Breach of financial covenants by the borrower.
ff
If the borrower is determined to be in financial difficulty
has been granted to the borrower:
ff
, then CIT utilizes the following criteria to determine whether a concession
Assets used to satisfy debt are less than CIT's recorded investment in the loan
•
• Modification of terms — interest rate changed to below market rate
• Maturity date extension at an interest rate less than market rate
•
The borrower does not otherwise have access to funding for debt with similar risk characteristics in the market at the
restructured rate and terms
Capitalization of interest
Increase in interest reserves
Conversion of credit to Payment-In-Kind (PIK)
Delaying principal and/or interest for a period of three months or more
Partial forgiveness of the balance.
•
•
•
•
•
Modified loans that meet the definition of a TDR are subject to 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. 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
Program — HAMP) and junior lien (i.e. Second Lien Modification Program — 2MP) mortgage loans. HAMP expired on
December 31, 2017, which was the last day to submit an application.
programs for real estate 1-4 family first lien (i.e. Home Affordable
Modification
ff
ff
ff
ff
ff
At December 31, 2017, the loans in trial modification period were $0.3 million under HAMP and $12.2 million under proprietary
programs. Trial modifications with a recorded investment of $12.3 million at December 31, 2017 were accruing loans and $0.2
million were non-accruing loans. At December 31, 2016, the loans in trial modification period were $36.4 million under HAMP,P
$0.1 million under 2MP and $3.0 million under proprietary programs. Trial modifications with a recorded investment of $38.1
million at December 31, 2016 were accruing loans and $1.4 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 December 31, 2017 and December 31, 2016, was $103.5 million and $82.3 million, of which 63% and
41%, respectively, were on non-accrual. Commercial Banking and Consumer Banking loans accounted for 83% and 17%,
respectively of the total TDRs at December 31, 2017. At December 31, 2016, Commercial Banking and Consumer banking loans
accounted for 85% and 15%, respectively of total TDRs. There were $13.4 million and $5.4 million, as of December 31, 2017
and 2016, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.
The recorded investment related to modifications qualifying as TDRs that occurred during the years ended December 31, 2017
and 2016 were $92.5 million and $80.5 million, respectively. The recorded investment at the time of default of TDRs that
experienced a payment default (payment default is one missed payment), during the years ended December 31, 2017 and 2016,
and for which the payment default occurred within one year of the modification totaled $47.0 million and $11.3 million,
respectively. The December 31, 2017 defaults related to Commercial Banking and Consumer Banking, were 93% and 7%,
respectively.
The financial impact of the various modification strategies that the Company employs in response to borrower difficulties
described below. While the discussion focuses on the 2017 amounts, the overall nature and impact of modification programs
were comparable in the prior year.
is
ff
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 131
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
•
•
•
•
•
The nature of modifications qualifying as TDR's based upon recorded investment at December 31, 2017 was comprised of
payment deferrals for 31% and covenant relief and/or other for 69%. For December 31, 2016 TDR recorded investment was
comprised of payment deferrals for 12% and covenant relief and/or other for 88%.
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;
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. The weighted average change in interest rates for all TDRs occurring during the
quarters ended December 31, 2017 and 2016 was not significant;
Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form
of higher charge-offs.
ff While these types of modifications have the greatest individual impact on the allowance, the amounts
of principal forgiveness for TDRs occurring during the years ended December 31, 2017 and 2016 was not significant, as
debt forgiveness is a relatively small component of the Company's modification programs; and
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
At December 31, 2017 reverse mortgage loans of $861.0 million were classified as assets held for sale within continuing
operations related to the Financial Freedom Transaction; of which $724.7 million related to uninsured proprietary reverse
mortgage loans and the remaining related to FHA insured HECM loans. At December 31, 2016, the reverse mortgage loans had
an outstanding balance of $859.0 million, of which $769.6 million related to the uninsured proprietary reverse mortgage loans.
The uninsured reverse mortgage portfolio consists of approximately 1,500 loans with an unpaid principal balance of $944.0
million at December 31, 2017. 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 at December 31, 2016. There is currently over
collateralization in the portfolio, as the realizable collateral value (the lower of collectible principal and interest, or estimated value
of the home) exceeds the outstanding book balance at December 31, 2017 and 2016.
From the acquisition date through December 31, 2017, any changes to the portfolio value as a result of re-estimated cash flows
due to changes in actuarial assumptions or actual or expected appreciation or depreciation in property values was immaterial to
the portfolio as a whole.
See Note 1 — Business and Summary of Significant Accounting Policies for further details.
Serviced Loans
In conjunction with the OneWest Transaction, the Company services HECM reverse mortgage loans sold to Agencies (Fannie
Mae) and securitized in GNMA HMBS pools. HECM loans transferred into the HMBS program have not met all of 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. See Note 2 — Acquisition and Disposition Activities.
ff
interest) would carry forward. However, if the Company classifies these repurchased loans as AHFS, that classification
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. 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, the HECM loan basis and accounting methodology (retrospective
effective
would result in a new accounting methodology. Loans classified as AHFS are carried at LOCOM pending assignment to the
Department of Housing and Urban Development ("HUD"). Loans classified as HFI are not assignable to HUD and are subject to
periodic impairment assessment. 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). Upon investor consent to servicing transfer in connection with the Financial Freedom Transaction, CIT shall no
longer have this obligation. Refer to Note 2 - Discontinued Operations.
In the year ended December 31, 2017, the Company repurchased $118.0 million (unpaid principal balance) of additional HECM
loans, all of which were classified as AHFS resulting from the transfer of all reverse mortgage loans to AHFS in connection with
the Financial Freedom Transaction. As of December 31, 2017, the Company had an outstanding balance of $136.3 million of
HECM loans, of which $177.6 million (unpaid principal balance) is classified as AHFS.
As of December 31, 2016, the Company had an outstanding balance of $122.2 million of HECM loans, of which $32.8 million
(unpaid principal balance) were classified as AHFS, $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.
ff
132 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
NOTE 4 — ALLOWANCE
WW
FOR LOAN LOSSES
See Note 1 for the Company's methodology for recording the allowance for loan losses.
Allowance for Loan Losses and Recorded Investment in Loans (dollars in millions)
Commercial
Banking
Consumer Banking
Total
(2)
Year Ended December 31, 2017
Balance — December 31, 2016
Provision for credit losses
Other(1)
Gross charge-offsff
Recoveries
Balance — December 31, 2017
Allowance balance at December 31, 2017
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Loans acquired with deteriorated credit quality(3)
Allowance for loan losses
Other reserves(1)
Finance receivables at December 31, 2017
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Loans acquired with deteriorated credit quality(3)
Ending balance
(2)
Percent of loans to total loans
Year Ended December 31, 2016
Balance — December 31, 2015
Provision for credit losses
Other(1)
Gross charge-offsff
Recoveries
Balance — December 31, 2016
Allowance balance at December 31, 2016
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Loans acquired with deteriorated credit quality(3)
Allowance for loan losses
Other reserves(1)
Finance receivables at December 31, 2016
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Loans acquired with deteriorated credit quality(3)
Ending balance
Percentage of loans to total loans
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
408.4
88.7
(0.8)
(115.2)
21.1
402.2
26.0
368.5
7.7
402.2
44.5
172.7
22,930.9
55.7
23,159.3
79.5%
336.8
183.0
0.2
(133.8)
22.2
408.4
33.7
367.4
7.3
408.4
43.6
221.8
22,227.3
113.2
,
22,562.3
76.4%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.2
25.9
(0.1)
(22.5)
1.4
28.9
$
$
$
— $
17.5
11.4
28.9
$
$
$
— $
— $
4,048.9
1,905.7
5,954.6
20.5%
10.2
11.7
2.0
(2.8)
3.1
24.2
$
$
$
$
— $
17.9
6.3
24.2
0.1
$
$
$
$
— $
4,737.0
2,236.6
6,973.6
,
23.6%
$
$
432.6
114.6
(0.9)
(137.7)
22.5
431.1
26.0
386.0
19.1
431.1
44.5
172.7
26,979.8
1,961.4
29,113.9
100%
347.0
194.7
2.2
(136.6)
25.3
432.6
33.7
385.3
13.6
432.6
43.7
221.8
26,964.3
2,349.8
29,535.9
,
100%
(1)
"Other reserves" represents 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 allowance for loan losses associated with loan sales and foreign currency
translations.
(2) Gross charge-offs of amounts specifically reserved in prior periods included $45.9 million and $35.8 million charged directly to the Allowance
for loan losses for the years ended December 31, 2017 and December 31, 2016, respectively.yy These charge offs related to Commercial
Banking for both years.
(3) Represents loans considered impaired as part of the OneWestWW transaction and are accounted for under the guidance in ASC 310-30 (Loans
and Debt Securities Acquired with Deteriorated Credit Quality).
NOTE 5 - INDEMNIFICATION
AA
ASSETS
The Company acquired the indemnifications provided by the FDIC under the loss sharing agreements from previous transactions
entered into by OneWest Bank. The loss share agreements with the FDIC relates to the FDIC-assisted transactions of IndyMac
in March 2009 (“IndyMac Transaction”), First Federal in December 2009 (“First Federal Transaction”) and La Jolla in February
2010 (“La Jolla Transaction”). The loss sharing agreements generally require CIT Bank, N.A. to obtain FDIC approval prior to
transferring or selling loans and related indemnification assets. Eligible losses are submitted to the FDIC for reimbursement
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 133
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
when a qualifying loss event occurs (e.g., loan modification, charge-offff of loan balance or liquidation of collateral).
Reimbursements approved by the FDIC are received usually within 60 days of submission.
In connection with the lndyMac, First Federal and La Jolla Transactions, the FDIC indemnified the Company against certain
future losses for covered loans. For the IndyMac Transaction, First Federal Transaction and La Jolla Transaction, the loss share
agreement covering SFR mortgage loans is set to expire March 2019, December 2019 and February 2020, respectively. As of
December 31, 2017 and 2016, the recognized indemnification asset is limited to the IndyMac Transaction. No indemnification
asset was recognized in connection with the First Federal Transaction and an insignificant indemnification asset balance was
associated with the La Jolla Transaction.
In addition, in connection with the IndyMac Transaction, the Company recorded an indemnification receivable for estimated
reimbursements due from the FDIC for loss exposure arising from breach in origination and servicing obligations associated with
covered reverse mortgage loans sold to the Agencies prior to March 2009 pursuant to the loss share agreement with the FDIC.
Below provides the carrying value of the recognized indemnification assets and related receivable/payable balance with the
FDIC associated with indemnified losses under the IndyMac Transaction.
Indemnification Assets — IndyMac Transaction (dollars in millions)
Loan indemnification(1)
Reverse mortgage indemnification(2)
Agency claims indemnification(3)
Total
Receivable with the FDIC
Years Ended December 31,
2017
2016
$
$
$
$
$
113.5
—
28.9
142.4
9.2
$
$
$
$
$
223.0
10.4
108.0
341.4
12.7
(1)
(2)
(3)
As of December 31, 2017, the carrying value of the loan indemnification decreased by $109.5 million from December 31, 2016, which
comprised of $53.1 million in claim submissions filed with the FDIC during the period and $56.4 million in other (yield and provision for
credit losses adjustments).
During the year ended December 31, 2017, the reverse mortgage indemnification was impaired by its full value within other non-
interest income in connection with the agreement to sell the reverse mortgage portfolio as part of the Financial Freedom Transaction.
During the year ended December 31, 2017, the Company and the FDIC resolved the selling and servicing-related obligations of
IndyMac for certain reverse mortgage loans with Fannie Mae. In connection with the settlement, the Company released the FDIC from
its indemnification obligation to CIT with respect to the Fannie Mae settled loans, which reduced the indemnification receivable by $77
million.
rr
The amount of net amortization recognized on the indemnification asset from the IndyMac Transaction was $47 million and $22
million for the years ended December 31, 2017 and 2016, respectively. Due to the improving credit quality of the indemnified PCI
loans, the decrease in expected credit losses from the indemnified PCI loans results in a decline in expected reimbursements
from the FDIC for qualifying losses. Consistent with mirror accounting, the declines in expected cash flows from the FDIC result
in a higher negative yield on the indemnification asset applied prospectively over the remaining contract period.
The Company separately recognizes a net receivable (recorded in other assets) for the claim submissions filed with the FDIC
and a net payable (recorded in other liabilities) for the remittances due to the FDIC for previously submitted claims that were later
recovered by investor (e.g., guarantor payments, recoveries).
rr
IndyMac Transaction
There are three components to the Indy Mac indemnification program described below: 1. SFR Mortgages, 2. Reverse
Mortgages, and 3. Certain Servicing Obligations.
Single Family Residential (SFR) Mortgage Loan Indemnification Asset
The FDIC indemnifies the Company against certain credit losses on SFR mortgage loans based on specified thresholds. Prior to
the OneWest acquisition, the cumulative losses of the SFR portfolio exceeded the First Loss Tranche ($2.551 billion) with the
excess losses reimbursed 80% by the FDIC. As of December 31, 2017, the Company projects the cumulative losses will reach
the final loss threshold of "meets or exceeds stated threshold" ($3.826 billion) in May 2018 at which time the excess losses will
be reimbursed 95% by the FDIC.
The following table summarizes the submission of qualifying losses (net of recoveries) for reimbursement from the FDIC since
inception of the loss share agreement as of December 31, 2017 and 2016, respectively:
Submission of Qualifying Losses for Reimbursement (dollars in millions)
Unpaid principal balance
Cumulative losses incurred
Cumulative claims
Cumulative reimbursement
December 31, 2017
3,196.5
$
3,800.6
3,794.7
939.9
December 31, 2016
3,832.1
$
3,727.8
3,722.9
893.7
134 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Reverse Mortgage Indemnification Asset
The FDIC indemnifies the Company against losses on the first $200.0 million of funds advanced post March 2009, and to fund
any advances above $200.0 million.
As of December 31, 2017 and 2016, $134.4 million and $145.2 million, respectively, had been advanced on the reverse
mortgage loans post March 2009. Prior to the OneWest Transaction, the cumulative loss submissions and reimbursements
totaled $1.8 million from the FDIC. From August 3, 2015 (the date of OneWest Transaction) through December 31, 2017, the
Company was reimbursed $2.9 million from the FDIC for the cumulative losses incurred. As of December 31, 2017, the reverse
mortgage indemnification asset was zero.
Indemnification from Certain Servicing Obligations
Subject to certain requirements and limitations, the FDIC agreed to indemnify the Company, among other things, for third party
claims from the Agencies related to the selling representations and warranties of IndyMac as well as liabilities arising from the
acts or omissions, including, without limitation, breaches of servicer obligations of IndyMac for SFR mortgage loans and reverse
mortgage loans as follows:
1) SFR mortgage loans sold to the Agencies
The FDIC indemnification for third party claims by the Agencies for servicer obligations expired as of the acquisition date;
however, for any claims, issues or matters relating to the servicing obligations that are known or identified as of the end of the
expired term, the FDIC indemnification protection continues until resolution of such claims, issues or matters.
Prior to the OneWest acquisition, the cumulative loss submissions and reimbursements totaled $5.7 million from the FDIC to
cover third party claims made by the Agencies for SFR loans. No material claim submission was made post acquisition. During
the year ended December 31, 2017, the Company and the FDIC resolved the selling and servicing-related obligations of
IndyMac for SFR mortgage loans with Fannie Mae and the Company released the FDIC from its indemnification obligation to CIT
with respect to the settled loans. As of December 31, 2017, the indemnification receivable related to pre-March 2009 servicer
obligations for SFR mortgage loans was zero.
2) Reverse mortgage loans sold to the Agencies
The FDIC indemnifies the Company through March 2019 for third party claims made by the Agencies relating to any liabilities or
obligations imposed on the seller of HECM loans acquired by the Agencies from IndyMac resulting from servicing errors or
servicing obligations prior to March 2009.
Prior to the OneWest Transaction, the cumulative loss submissions totaled $11.2 million and reimbursements totaled $10.7
million from the FDIC to cover third party claims made by the Agencies for reverse mortgage loans. No material claim submission
was made post acquisition. During the year ended December 31, 2017, the Company and the FDIC resolved the selling and
servicing-related obligations of IndyMac for certain reverse mortgage loans with Fannie Mae. As of December 31, 2017, the
indemnification receivable from the FDIC was $29 million related to the pre-March 2009 servicer obligations for certain reverse
mortgage loans.
First Federal Transaction
rr
The FDIC agreed to indemnify the Company against certain losses on SFR and commercial HFI loans based on established
thresholds.
As of December 31, 2017, the loss share agreements covering the SFR mortgage loans remain in effect
2019) while the agreement covering commercial loans expired (in December 2014). However, pursuant to the terms of the
shared-loss agreement, the loss recovery provisions for commercial loans extend for three years past the expiration date
(December 2017). The loss thresholds apply to the covered loans collectively. Pursuant to the loss share agreement, the first
$932 million (First Loss Tranche) of cumulative losses are borne by the Company without reimbursement by the FDIC. As the
Company does not project to reach the required threshold for reimbursement, no indemnification asset was recognized in
connection with the First Federal Transaction.
(expiring in December
ff
Separately, as part of the loss sharing agreement, the Company is required to make a true-up payment to the FDIC in the event
that losses do not exceed a specified level by December 2019. As the Company does not project FDIC reimbursement, there is
no indemnification asset and no true-up payment required for the First Federal portfolio.
rr
La Jolla Transaction
The FDIC agreed to indemnify the Company against certain losses on SFR and commercial loans HFI based on established
thresholds.
As of December 31, 2017, the loss share agreement covering the SFR mortgage loans remain in effect
2020) while the agreement covering commercial loans expired (in March 2015). However, pursuant to the terms of the loss share
agreement, the loss recovery provisions for commercial loans extend for three years past the expiration date (March 2018). The
loss thresholds apply to the covered loans collectively. Pursuant to the loss share agreement, the Company's cumulative losses
since the acquisition date by OneWest Bank are reimbursed by the FDIC at 80% until the stated threshold ($1.007 billion) is met.
(expiring in February
ff
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Separately, as part of the loss share agreement with La Jolla, the Company is required to make a true-up payment to the FDIC in
the event that losses do not exceed a specified level by the tenth anniversary of the agreement (February 2020). The Company
currently expects that such payment will be required based upon its forecasted loss estimates for the La Jolla portfolio as the
actual and estimated cumulative losses of the acquired covered assets are projected to be lower than the cumulative losses. As
of December 31, 2017 and 2016, an obligation of $65.1 million and $61.9 million, respectively, has been recorded as a FDIC
true-up liability for the contingent payment measured at estimated fair value. Refer to Note 13 — Fair Value for further
discussion.
CIT ANNUAL REPORT 2017 135
NOTE 6 - OPERATINGAA
LEASE EQUIPMENT
The following table provides the net book value (net of accumulated depreciation of $1.0 billion at December 31, 2017 and $0.9
billion at December 31, 2016) of operating lease equipment, by equipment type.
Operating Lease Equipment (dollars in millions)
December 31,
2017
December 31,
2016
Railcars and locomotives
Other equipment
Total(1)
(1) Includes equipment off-lease of $488.2 million and $823.5 million at December 31, 2017 and 2016, respectively,yy primarily consisting of rail
6,260.5
478.4
,
6,738.9
7,116.5
369.6
,
7,486.1
$
$
$
$
$
$
assets.
The following table presents future minimum lease rentals due on non-cancellable operating leases at December 31, 2017.
Excluded from this table are variable rentals calculated on asset usage levels, re-leasing rentals, and expected sales proceeds
from remarketing equipment at lease expiration, all of which are components of operating lease profitability.
Minimum Lease Rentals Due (dollars in millions)
Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
$
$
$
675.7
487.2
328.8
198.6
107.9
73.1
1,871.3
,
NOTE 7 - INVESTMENT SECURITIES
Investments include debt and equity securities. The Company's debt securities include residential mortgage-backed securities
("MBS"), U.S. Government Agency securities, U.S. Treasury securities, and supranational securities. Equity securities include
common stock and warrants, along with restricted stock in the FHLB and FRB.
Investment Securities (dollars in millions)
December 31,
2017
December 31,
2016
$
6,123.6
44.7
$
3,674.1
34.1
—
243.0
Available-for-sale securities
Debt securities
Equity securities
Held-to-maturity securities
Debt securities(1)
Securities carried at fair value with changes recorded in net income
Debt securities
Non-marketable investments(2)
Total investment securities
(1) Recorded at amortized cost.
(2) Non-marketable investments include securities of the FRB and FHLB carried at cost of $258.9 million at December 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 $42.3 million and $16.7 million at December 31, 2017 and December 31, 2016, respectively.yy
CIT early adopted ASU 2017-12, Derivatives and Hedging (Topic
Activities, in the fourth quarter of 2017, effective
Improvements to Accounting for Hedging
January 01, 2017. As a result of the adoption, CIT reclassified HTM debt
TT
815) -Targeted
TT
ff
0.4
301.2
,
6,469.9
283.5
256.4
,
4,491.1
136 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
securities with an amortized cost of $207 million, as of the date of transfer, to AFS after evaluating and confirming that these debt
securities met the eligibility criteria. For further discussion, see Note 1- Business and Summary of Significant Accounting
Policies.
Realized investment gains totaled $33.9 million, $29.3 million, and $8.1 million for the years ended 2017, 2016, and 2015,
respectively. In addition, the Company maintained $1.4 billion and $5.6 billion of interest bearing deposits at December 31, 2017
and December 31, 2016, 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)
Interest income — investments / reverse repos
Interest income — interest bearing deposits
Dividends — investments
Total interest and dividends
Securities Available-for-Sale
Years Ended December 31,
2016
2015
2017
$
$
$
128.9
57.7
10.9
197.5
$
$
$
82.1
33.1
16.7
131.9
$
$
$
43.7
17.1
10.4
71.2
The following table presents amortized cost and fair value of securities AFS and securities held-to-maturity ("HTM").
Amortized Cost and Fair Value (dollars in millions)
December 31, 2017
Debt securities AFS
Mortgage-backed Securities
U.S. government agency securities
Non-agency securities
U.S. government agency obligations
U.S. Treasury securities
Supranational securities
State & Municipal Bonds
Corporate Bonds - Foreign
Total debt securities AFS
Equity securities AFS
Total securities AFS
December 31, 2016
Debt securities AFS
Mortgage-backed Securities
U.S. government agency securities
Non-agency securities
U.S. government agency obligations
U.S. Treasury securities
Supranational securities
Total debt securities AFS
Equity securities AFS
Total securities AFS
Debt Securities HTM
Mortgage-backed securities
U.S. government agency securities
State and municipal
Foreign government
Corporate — foreign
Total debt securities HTM
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
$
$
$
5,010.2
297.3
25.0
297.7
449.8
16.2
65.7
6,161.9
45.8
6,207.7
,
2,073.6
471.7
649.9
299.9
200.2
3,695.3
35.0
3,730.3
110.0
27.7
2.4
102.9
243.0
,
3,973.3
$
$
$
$
$
$
2.1
21.7
—
0.2
—
—
1.4
25.4
—
25.4
1.6
15.6
—
—
—
17.2
—
17.2
0.7
—
—
6.2
6.9
24.1
$
$
$
$
$
$
(62.1) $
(0.5)
(0.2)
(0.2)
(0.3)
(0.4)
—
)
(
(63.7)
)
(1.1)
(
) $
(64.8) $
(
(32.3) $
(1.8)
(3.9)
(0.4)
—
(38.4)
)
(
(0.9)
)
(
)
(
(39.3)
(3.3)
(0.5)
—
—
)
(
(3.8)
) $
(43.1) $
(
4,950.2
318.5
24.8
297.7
449.5
15.8
67.1
6,123.6
44.7
6,168.3
,
2,042.9
485.5
646.0
299.5
200.2
3,674.1
34.1
3,708.2
107.4
27.2
2.4
109.1
246.1
,
3,954.3
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The following table presents the debt securities AFS by contractual maturity dates:
Maturities (dollars in millions)
CIT ANNUAL REPORT 2017 137
Mortgage-backed securities - U.S. government agency securities
After 5 but within 10 years
Due after 10 years
Total
Mortgage-backed securities - non agency securities
After 1 but within 5 years
After 5 but within 10 years
Due after 10 years
Total
U.S. government agency obligations
After 1 but within 5 years
Total
U.S. Treasury Securities
Due within 1 year
After 5 but within 10 years
Total
Supranational securities
Due within 1 year
After 1 but within 5 years
Total
State and Municipal Bonds
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
Due after 10 years
Total
Corporate Bonds - Foreign
After 1 but within 5 years
Total
Total debt securities available-for-sale
December 31, 2017
Amortized
Cost
Fair
Value
Weighted
Average
Yields
$
$
198.7
4,811.5
5,010.2
196.9
4,753.3
4,950.2
12.5
6.9
277.9
297.3
25.0
25.0
199.3
98.4
297.7
399.8
50.0
449.8
0.1
0.1
0.3
15.7
16.2
12.5
7.4
298.6
318.5
24.8
24.8
199.1
98.6
297.7
399.8
49.7
449.5
0.1
0.1
0.3
15.3
15.8
65.7
65.7
6,161.9
,
$
$
67.1
67.1
6,123.6
,
$
$
2.05%
2.50%
2.48%
5.16%
4.56%
5.72%
5.67%
2.14%
2.14%
1.19%
2.44%
1.60%
1.19%
2.02%
1.28%
2.36%
2.56%
2.70%
2.35%
2.36%
6.12%
6.12%
2.54%
The following table summarizes the gross unrealized losses and estimated fair value of AFS securities and HTM securities
aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position.
Gross Unrealized Losses (dollars in millions)
Debt securities AFS
Mortgage-backed securities
U.S. government agency securities
Non-agency securities
U.S. government agency obligations
U.S. Treasury Securities
State and Municipal Bonds
Supranational securities
Total debt securities AFS
Equity securities AFS
Total securities available-for-sale
December 31, 2017
Less than 12 months
12 months or greater
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
$
$
$
3,492.2
2.1
24.8
199.1
—
349.5
4,067.7
0.1
4,067.8
,
$
$
$
(30.9) $
—
(0.2)
(0.2)
—
)
(
(0.3)
(31.6)
)
(
)
(
(0.2)
) $
(31.8) $
(
1,151.4
0.4
—
—
13.6
—
1,165.4
44.5
1,209.9
,
$
$
$
(31.2)
(0.5)
—
—
(0.4)
—
(32.1)
)
(
(0.9)
)
(
)
(
(33.0)
138 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Debt securities AFS
Mortgage-backed securities
U.S. government agency securities
Non-agency securities
U.S. government agency obligations
U.S. Treasury Securities
Total debt securities AFS
Equity securities AFS
Total securities available-for-sale
Debt securities HTM
Mortgage-backed securities
U.S. government agency securities
State and municipal
Total securities held-to-maturity
Total
December 31, 2016
Less than 12 months
12 months or greater
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
$
$
$
$
1,589.6
56.5
546.1
299.5
2,491.7
34.1
2,525.8
68.2
3.8
72.0
2,597.8
,
$
$
(31.8) $
(1.4)
(3.9)
(0.4)
)
(
(37.5)
)
(
(0.9)
)
(
)
(
(38.4)
(1.7)
(0.1)
)
(
)
(
(1.8)
) $
(40.2) $
(
13.8
15.8
—
—
29.6
—
29.6
26.7
22.4
49.1
78.7
$
$
$
(0.5)
(0.4)
—
—
)
(
(0.9)
—
)
(
(0.9)
(1.6)
)
(
(0.4)
)
(
(2.0)
)
(2.9)
(
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 was probable that the Company will not collect all principal and interest
payments contractually required at the time of purchase. Accounting for these PCI securities is discussed in Note 1 — Business
and Summary of Significant Accounting Policies.
Changes in Accretable Yield for PCI Securities (dollars in millions)
Years Ended December 31,
2016
2017
2015
Beginning Balance(1)
Accretion into interest income
Reclassifications from non-accretable difference
Reclassifications to non-accretable difference
Disposals
Balance at year end
(1) For year ended December 31, 2015, the beginning balance is as of August 3, 2015, the acquisition date of OneWestWW Bank.
165.0
(23.4)
2.4
(2.2)
)
(
(40.1)
101.7
due to decreasing cash flows
due to increasing cash flows
189.0
(29.2)
4.7
0.5
—
165.0
$
$
$
$
$
$
ff
ff
$
$
$
204.4
(13.5)
—
(1.7)
)
(
(0.2)
189.0
The estimated fair value of PCI securities was $312.5 million and $478.9 million with a par value of $387.6 million and $615.2
million as of December 31, 2017 and December 31, 2016, respectively.
Securities Carried at Fair Value with changes Recorded in Net Income
The amortized cost and the fair value of Securities Carried at Fair Value with changes Recorded in Net Income were $0.4 million
as of December 31, 2017 with a weighted average yield of 41.8%. The amortized cost and the fair value were $277.5 million and
$283.5 million as of December 31, 2016, respectively.
The unrealized losses totaled to $0.7 million and unrealized gains to $6.7 million as of December 31, 2016. No unrealized losses
were reported as of December 31, 2017.
Other Than Temporary Impairment
As discussed in Note 1 — Business and Summary of Significant Accounting Policies, 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 PCI securities with unrealized losses were deemed credit-related and
recognized OTTI credit-related losses of $1.1 million, $3.3 million and $2.8 million as other than temporary write-downs for the
years ended December 31, 2017, December 31, 2016 and December 31, 2015, respectively.
The Company reviewed debt securities AFS with unrealized losses and determined that the unrealized losses were not OTTI.
The unrealized losses were not credit-related 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.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The Company reviewed equity securities classified as AFS with unrealized losses and determined that the unrealized losses
were not OTTI. The unrealized losses were not credit-related.
CIT ANNUAL REPORT 2017 139
There were no unrealized losses on non-marketable investments.
NOTE 8 — OTHER ASSETS
The following table presents the components of other assets.
Other Assets (dollars in millions)
Tax credit investments and investments in unconsolidated subsidiaries(1)
Counterparty receivables
Current and deferred federal and state tax assets
Property, furniture and fixtures
Indemnification assets
Intangible assets
Other(2)(3)
Total other assets
December 31, 2017
247.6
$
241.3
205.2
173.9
142.4
113.0
472.1
,
1,595.5
$
$
December 31, 2016
220.2
$
437.3
201.3
191.1
341.4
140.7
585.0
,
2,117.0
$
$
(1)
Included in this balance are LIHTC of $182.8 million and $151.3 million as of December 31, 2017, and December 31, 2016, respectively,yy
that provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. As a limited partner,rr the Company
has no significant influence over the operations. During 2017, the Company recorded a cumulative earnings adjustment due to its
accounting policy change for LIHTC from the equity method to the proportional amortization method as the preferable method. Refer to
Note 1 - Business and Summary of Significant Accounting Policy for additional information. The Company had recognized a pre-tax loss of
$12.1 million and no post-tax amortization expense during 2016. In addition, during 2017 and 2016, the Company recognized total tax
benefits of $29.6 million and $20.6 million, respectively,yy which included tax credits of $22.6 million and $15.9 million recorded in income
taxes. During 2017, the Company recorded $50.8 million in tax provision under the proportional amortization method. The Company is
periodically required to provide additional financial support during the investment period. The Company's liability for these unfunded
commitments was $66.6 million and $62.3 million at December 31, 2017, and December 31, 2016, respectively.yy See Note 10 —
Borrowings.
(2) Other includes executive retirement plan and deferred compensation, other deferred charges, prepaid expenses, accrued interest and
dividends, and other miscellaneous assets.
(3) Other also includes servicing advances. As of December 31, 2017 and December 31, 2016, the loans serviced for others total $34.1 million
and $55.1 million for single family mortgage loans, respectively.yy
140 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
NOTE 9 — DEPOSITS
The following table provides detail on the types, rates and maturities of deposits.
Deposits — Rates and Maturities (dollars in millions)
December 31, 2017
Deposits — no stated maturity
Non-interest-bearing checking
Interest-bearing checking
Money market
Savings
Other
Total checking and savings deposits
Certificates of deposit, remaining contractual maturity:
$
Amount
1,352.0
2,653.3
5,075.5
5,986.7
153.7
15,221.2
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Over five years
7,832.5
3,069.7
1,619.8
633.2
167.1
1,021.5
14,343.8
4.3
29,569.3
NM Not meaningful — includes certain deposits such as escrow accounts, security deposits, and other similar accounts.
Total certificates of deposit
Purchase accounting adjustments
Total Deposits
$
$
,
Rate
—%
0.59%
0.85%
1.12%
NM
1.27%
1.94%
2.23%
2.40%
2.35%
3.32%
1.73%
The following table presents the maturity profile of other time deposits with a denomination of $100,000 or more.
Certificates of Deposit $100,000 or More (dollars in millions)
U.S. certificates of deposits:
Three months or less
After three months through six months
After six months through twelve months
After twelve months
Total
NOTE 10 — BORROWINGS
December 31, 2017
December 31, 2016
$
$
$
1,414.6
1,519.0
2,825.3
5,713.4
11,472.3
,
$
$
$
1,725.4
1,902.6
2,907.7
7,013.4
13,549.1
,
The following table presents the carrying value of outstanding borrowings.
Borrowings (dollars in millions)
Senior Unsecured
Secured borrowings:
Structured financings
FHLB advances
Total Borrowings
CIT Group Inc.
3,737.5
—
—
3,737.5
,
$
$
$
December 31, 2017
Subsidiaries
$
$
$
— $
1,541.4
3,695.5
5,236.9
,
$
$
Total
3,737.5
1,541.4
3,695.5
8,974.4
,
December 31, 2016
Total
10,599.0
$
1,925.7
2,410.8
14,935.5
,
$
$
The following table summarizes contractual maturities of borrowings outstanding, which excludes PAAAA discounts, original issue
discounts, and FSA discounts.
Contractual Maturities — Borrowings as of December 31, 2017 (dollars in millions)
Senior unsecured notes
Structured financings
FHLB advances
2018
— $
226.3
1,400.0
1,626.3
,
$
$
2019
1,383.0
770.7
1,145.5
3,299.2
,
$
$
$
2020
435.6
70.5
1,150.0
1,656.1
,
$
$
$
$
$
$
2021
2022
Thereafter
Contractual
Maturities
— $
63.4
—
63.4
$
$
1,150.0
58.0
—
1,208.0
,
$
$
$
801.4
360.0
—
1,161.4
,
$
$
$
3,770.0
1,548.9
3,695.5
9,014.4
,
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 141
Unsecured Borrowings
Revolving Credit Facility
In February 2018, the Company's existing revolving credit facility was amended. See Note 30 - Subsequent Events. The
following information was in effect
at December 31, 2017.
ff
The Revolving Credit Facility had a total commitment amount of $750 million and the maturity date of the commitment was
January 25, 2019. The applicable margin charged under the facility was 2.00% for LIBOR Rate loans and 1.00% for Base Rate
loans.
The Revolving Credit Facility was amended in February 2017 to lower the total commitments from $1.5 billion to $1.4 billion and
to further extend the final maturity date of the lenders’ commitments. On April 4, 2017, upon consummation of the Commercial Air
Sale, the total commitment amount under the Revolving Credit Facility was reduced from $1.4 billion to $750 million and the
covenant requiring that the Company maintain a minimum $6 billion consolidated net worth was replaced by a covenant requiring
that the Company maintain a minimum Tier 1 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 discharged and released as a guarantor under the Revolving
Credit Facility. As of December 31, 2017, the Revolving Credit Facility was unsecured and was guaranteed by eight 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 1.25:1.0 at this date.
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 December 31, 2017 and 2016. The amount available to draw upon at December 31, 2017 was $695
million, with the remaining amount of approximately $55 million being utilized for issuance of letters of credit to customers.
Senior Unsecured Notes
The following table presents the principal amounts by maturity date.
Maturity Date
February 2019
February 2019
May 2020
August 2022
August 2023
Weighted average rate and total
)
Rate (%)
(
5.500%
3.875%
5.375%
5.000%
5.000%
4.793%
Date of Issuance
Par Value
February 2012
February 2014
May 2012
August 2012
August 2013
$
$
$
383.0
1,000.0
435.6
1,150.0
750.0
,
3,718.6
CIT redeemed on May 4, 2017, 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 May 2018, at an aggregate premium of $98 million.
In addition, on April 4, 2017, CIT commenced an offer
up to $950 million in the
aggregate of its (i) 5.500% Series C Unsecured Notes due February 2019; (the "2019 Notes") (ii) 5.375% Senior Unsecured
Notes due May 2020 (the "2020 Notes"); 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 elected to increase the aggregate
maximum principal amount of Notes accepted for purchase in the Tender Offer
5.500% Series C Unsecured Notes due 2019 were repurchased for total consideration of $1.04 billion, including a premium of
$59 million and accrued interest of $9 million.
to purchase for cash (the “Debt Tender Offer”)
and a total principal amount of $969 million of our
ff
ff
ff
On September 15, 2017, CIT announced an offer
up to $800 million in aggregate of its
outstanding (i) 5.500% Series C Unsecured Notes due February 2019 (the "2019 Notes"), (ii) 5.375% Senior Unsecured Notes
due May 2020 (the "2020 Notes") and (iii) 5.000% Senior Unsecured Notes due August 2022 (the "2022 Notes"). On September
28, 2017, CIT announced that all $800 million of the tender offer
had been subscribed as of the early participation deadline for
total consideration of $861.2 million, including a premium of $50.6 million and accrued interest of $9.3 million. CIT purchased
$398 million of the "2019 Notes", $302 million of the "2020 Notes" and $100 million of the "2022 Notes" that were tendered.
to purchase for cash (the "Tender
Offer")
TT
ff
ff
ff
In addition to the premium payments noted above, included in the loss on debt extinguishment of $220.0 million for the year
ended December 31, 2017 are transaction costs and acceleration of deferred costs.
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 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 $39.6 million
(par value of $51 million) that matures in 2036.
142 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Secured Borrowings
At December 31, 2017 the Company had pledged $28.2 billion of assets (including collateral for the FRB discount window that is
currently not drawn) although the collateral specifically identified and used to calculate available borrowings was $13.1 billion,
which included $11.6 billion of loans (including amounts held for sale), $1.2 billion of operating lease assets, $0.2 billion of cash
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 the advances are
secured by certain Bank assets and bear either a fixed or floating interest rate. The FHLB advances are collateralized by a
variety of consumer and commercial loans, including 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.
As of December 31, 2017, the Company had $5.2 billion of financing availability with the FHLB, of which $1.4 billion was unused
and available, and $87.8 million was being utilized for issuance of letters of credit related to deposits. FHLB Advances as of
December 31, 2017, have a weighted average rate of 1.56%. The following table includes the total carrying value of FHLB
Advances and pledged assets(1).
FHLB Advances with Pledged Assets(1) Summary (dollars in millions)
December 31, 2017
December 31, 2016
FHLB
Advances
Pledged
Assets(1)
FHLB
Advances
Pledged
Assets(1)
Total
(1) For purposes of this table the term “Pledged Assets” means the assets required under the collateral maintenance requirement in connection
6,154.1
2,410.8
3,695.5
6,389.7
$
$
$
$
$
$
$
$
,
,
,
,
with FHLB advances at each of the dates.
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
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 December 31, 2017, had a weighted average rate of 3.75%, which
ranged from 0.55% to 5.5%.
of CIT until and unless the related secured
ff
Structured Financings and Pledged Assets Summary (dollars in millions)
Business Capital
Rail(1)(2)
Commercial Finance
Subtotal — Commercial Banking
Non-Strategic Portfolios
Total
December 31, 2017
December 31, 2016
Secured
Borrowing
Pledged
Assets
Secured
Borrowing
Pledged
Assets
$
$
$
768.8
772.6
—
1,541.4
—
1,541.4
,
$
$
$
2,838.6
1,272.0
—
4,110.6
—
4,110.6
,
$
$
$
949.8
860.1
—
1,809.9
115.8
,
1,925.7
$
$
$
2,608.0
1,327.5
0.2
3,935.7
212.6
,
4,148.3
(1) At December 31, 2017, the TRS Transactions
rr
related borrowings and pledged assets, respectively,yy of $493.0 million and $818.6 million were
included in Rail. The TRS Transactions
rr
are described in Note 11 — Derivative Financial Instruments.
(2) At December 31, 2017, secured borrowings and pledged assets, respectively,yy of $250.3 million and $421.9 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 current borrowings of discontinued operations of $268.2 million and $1,571 million, at
December 31, 2017 and 2016, respectively. See Note 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 December 31, 2017 and 2016.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 143
Variable Interest Entities ("VIEs")
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.
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
balance sheet' secured financings of pools of leases and loans originated by the Company where the Company is the primary
beneficiary. Refer to Note 1 — Business and Summary of Significant Accounting Policies 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.
The Company has certain contractual obligations related to the HECM loans and the GNMA HMBS securitizations, which are
VIEs for which CIT is not the PB. 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 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 $140.3 million and $160.2 million of HMBS outstanding principal balance at
December 31, 2017, and December 31, 2016, 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 December 31, 2017 and December 31, 2016. As the HECM loans are
federally insured by the FHA and the secured borrowings guaranteed to the investors by GNMA, the Company does not believe
maximum loss exposure as a result of its involvement is 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 assuming no 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.
ff
Unconsolidated VIEs Carrying Value (dollars in millions)
December 31, 2017
December 31, 2016
Securities
Partnership
Investment
Securities
Partnership
Investment
Agency securities
Non agency securities — Other servicer
Tax credit equity investments
Equity investments
Total Assets
Commitments to tax credit investments
Total Liabilities
Maximum loss exposure(1)
$
$
$
$
$
$
$
$
$
4,950.2
318.8
—
—
5,269.0
,
$
$
— $
— $
$
$
$
5,269.0
,
— $
—
198.8
38.6
237.4
66.6
66.6
237.4
$
$
$
$
$
$
$
$
2,152.9
769.0
—
—
2,921.9
,
$
$
— $
— $
$
$
$
2,921.9
,
—
—
167.7
11.4
179.1
62.3
62.3
179.1
(1) Maximum loss exposure to the unconsolidated VIEs excludes the liability for representations and warranties, corporate guarantees and also
excludes servicing advances.
NOTE 11 — DERIVATVV IVE FINANCIAL INSTRUMENTS
As part of managing exposure to interest rate and foreign currency risk, the Company enters into derivative transactions 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.
See Note 1 — Business and Summary of Significant Accounting Policies for further description of the Company's derivative
transaction policies.
144 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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)
December 31, 2017
December 31, 2016
Notional
Amount
Asset
Fair Value
Liability
Fair Value
Notional
Amount
Asset
Fair Value
Liability
Fair Value
$
977.3
$
977.3
7,112.0
2,744.3
2,571.5
1,375.5
182.4
0.8
7.7
8.0
285.1
14,287.3
,
$ 15,264.6
$
$
$
0.2
0.2
60.8
—
0.7
6.9
—
—
0.1
—
—
68.5
68.7
$
(18.7) $
817.9
$
)
(18.7)
(
817.9
$
16.9
16.9
5,309.2
(38.6)
2,626.5
(0.7)
2,129.6
—
1,329.8
(14.9)
587.5
(14.1)
1.0
—
20.7
—
39.0
—
267.6
—
)
(68.3)
(
12,310.9
) $
(
(87.0) $ 13,128.8
,
$
$
63.0
0.1
1.0
30.2
—
0.2
0.1
0.1
—
94.7
111.6
$
$
$
$
—
—
(50.1)
(1.0)
(0.1)
(6.0)
(11.3)
—
(0.1)
—
(0.2)
)
(
(68.8)
)
(
)
(
(68.8)
Qualifying Hedges
Foreign currency forward contracts — net
investment hedges
Total Qualifying Hedges
Non-Qualifying Hedges
Interest rate swaps(2)
Written options
Purchased options
Foreign currency forward contracts
Total Return Swap (TRS)
Equity Warrants
Interest Rate Lock Commitments
Forward sale commitments on agency MBS
Credit derivatives
Total Non-qualifying Hedges
Total Hedges
(1)
(2)
Presented on a gross basis.
Fair value balances include accrued interest.
TRS Transactions
As of December 31, 2017, CIT was party to a financing facility between a Dutch wholly-owned 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 December 31, 2017 and 2016. The utilized portion reflects the
borrowing.
The aggregate "notional amounts" of the Dutch TRS of $182.4 million at December 31, 2017, and the Dutch TRS and
Canadian TRS 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 outstanding of $442.6 million under the facility at
December 31, 2017, and the maximum aggregate facility commitment amount, $1,062.3 million at December 31, 2016, under
the Dutch TRS and Canadian TRS less the aggregate actual adjusted qualifying borrowing base outstanding of $474.8 million
at December 31, 2016. The notional amounts of the derivatives 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.
Valuation of the derivatives related to the TRS Transactions is based on several factors using a discounted cash flow (“DCF”)
methodology, including:
•
•
•
Funding costs for similar financings based on current market conditions;
Forecasted amortization, due to principal payments on the underlying ABS, which impacts the amount of the
unutilized portion; and
Specific to the Dutch TRS, forecasted usage of the long-dated facilities through the final maturity date in 2028.
Based on the Company's valuation, a liability of $14.1 million and $11.3 million was recorded at December 31, 2017, and
2016, respectively. The increase in liability of $2.8 million and the decrease in liability of $43.6 million for the years ended
December 31, 2017, and 2016, respectively, were recognized in Other Non-Interest Income.
As of December 31, 2016 CIT was also party to a TRS with its wholly owned Canadian subsidiary ("CFL"). In order to prepare
for the previously announced sale of the Company's commercial aircraft leasing business to Avolon Holdings Limited, CIT
redeemed in December 2016 the commercial aircraft securitization transaction utilized as a reference obligation in the
Canadian TRS, causing the Canadian TRS to become fully unutilized. As a result, the Company and its Board of Directors
decided to terminate the Canadian TRS in order to further simplify the Company's business model and reduce earnings
volatility resulting from the mark-to-market of the Canadian TRS derivative. On December 7, 2016, CFL entered into a Fourth
Amendment and Restated Confirmation (the "Termination
was terminated on January 17, 2017. The Termination agreement required payment by CFL to GSI on December 7, 2016, of
the present value of the remaining facility fee in an amount equal to approximately $280 million. The reduction of liability
associated with the TRS Transaction of approximately $37 million resulted in a net pretax charge for the Company of
approximately $245 million in the fourth quarter of 2016. As a result of the Termination agreement, the unsecured counterparty
receivable held by GSI under the Canadian TRS was also released.
Agreement") with GSI to terminate the Canadian TRS and the facility
TT
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Interest expense related to the TRS Transactions is affected
ff
by the following:
CIT ANNUAL REPORT 2017 145
* A fixed facility fee of 2.85% per annum times the maximum facility commitment amount,
* A variable amount based on one-month or three-month USD LIBOR time the "utilized amount" (effectively
qualifying borrowing base") of the total return swap, and
* A reduction in interest expense due to the recognition of the payment of any original issue discount from GSI on the various
ABS.
the "adjusted
ff
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
balance sheet; the amounts subject to an enforceable master netting arrangement or similar agreement that were not included
in the offset
under an International Swaps and Derivatives Association ("ISDA") agreement.
amount above, and the amount of cash collateral received or pledged. Derivative transactions are documented
in the consolidated balance sheet; the net amounts presented in the consolidated
ff
ff
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
$
$
$
$
68.7
(87.0)
111.6
(68.8)
— $
—
— $
—
$
$
68.7
(87.0)
111.6
(68.8)
(18.7) $
18.7
(30.9) $
30.9
(8.4) $
23.0
(48.7) $
5.0
41.6
(45.3)
32.0
(32.9)
December 31, 2017
Derivative assets
Derivative liabilities
December 31, 2016
Derivative assets
Derivative liabilities
(1)
(2)
(3)
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 December 31, 2017, gross amount of recognized
assets and liabilities were lower by $5.4 million and 10.4 million, respectively.yy
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.
Collateral pledged or received is included in Other assets or Other liabilities, respectively.yy
146 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The following table presents the impact of derivatives on the statements of income.
Derivative Instrument Gains and Losses (dollars in millions)
Derivative Instruments
Non Qualifying Hedges
Interest rate swaps
Interest rate options
Foreign currency forward contracts
Equity warrants
Total Return Swaps (TRS)
Interest Rate Lock Commitments
Forward sale commitments on agency MBS
Risk Participation Agreements
Total Non-qualifying Hedges
Total derivatives-income statement impact
Gain / (Loss)
Recognized
2017
2016
2015
Years Ended December 31,
Other non-interest income
Other non-interest income
Other non-interest income
Other non-interest income
Other non-interest income
Other non-interest income
Other non-interest income
Other non-interest income
$
$
$
$
8.5
0.4
(34.2)
(0.2)
(2.8)
0.1
(0.4)
(0.1)
)
(
(28.7)
)
(
) $
(28.7) $
(
7.9
0.6
26.2
(0.2)
43.6
(0.2)
1.1
1.8
80.8
80.8
$
$
$
4.6
1.6
116.5
0.2
(30.4)
—
—
—
92.5
92.5
The following table presents the changes in AOCI relating to derivatives:
Changes in AOCI Relating to Derivatives (dollars in millions)
Derivatives —
effective portion
reclassified
from AOCI
to income
Total
income
statement
impact
Derivatives —
effective
portion
recorded
in OCI
Total change
in
OCI for
period
$
$
$
$
$
$
$
$
$
13.4
13.4
1.8
1.8
33.8
33.8
$
$
$
$
$
$
$
$
$
13.4
13.4
1.8
1.8
33.8
33.8
$
$
$
$
$
$
$
$
$
(74.7) $
)
(
$
)
(
(74.7) $
(88.1)
)
(
)
(
(88.1)
2.7
2.7
128.4
128.4
$
$
$
$
$
$
0.9
0.9
94.6
94.6
Contract Type
Year Ended December 31, 2017
Foreign currency forward contracts — net investment hedges
Total
Year Ended December 31, 2016
Foreign currency forward contracts — net investment hedges
Total
Year Ended December 31, 2015
Foreign currency forward contracts — net investment hedges
Total
NOTE 12 — OTHER LIABILITIES
The following table presents components of other liabilities:
Accrued expenses and accounts payable
Current and deferred taxes payable
Fair value of derivative financial instruments, and other
Accrued interest payable
Other(1)
Total other liabilities
(1) Other consists of unsettled investment security purchased of $0 million and $201.2 million as of December 31, 2017 and 2016, respectively,yy
$
$
$
$
December 31, 2017
584.8
$
204.3
87.5
86.6
473.9
,
1,437.1
December 31, 2016
580.4
$
250.6
69.0
181.2
816.4
,
1,897.6
contingent performance liability,yy and other miscellaneous liabilities.
NOTE 13 — FAIR VALUE
Fair Value Hierarchy
The Company is required to report fair value measurements for specified classes of assets and liabilities. See Note 1 —
"Business and Summary of Significant Accounting Policies" for 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.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)
CIT ANNUAL REPORT 2017 147
December 31, 2017
Assets
Debt Securities AFS
Securities carried at fair value with changes recorded in net income
Equity Securities AFS
Derivative assets at fair value — non-qualifying hedges(1)
Derivative assets at fair value — qualifying hedges
Total
Liabilities
Derivative liabilities at fair value — non-qualifying hedges(1)
Derivative liabilities at fair value — qualifying hedges
Consideration holdback liability
FDIC True-up Liability
Total
December 31, 2016
Assets
Debt Securities AFS
Securities carried at fair value with changes recorded in net income
Equity Securities AFS
Derivative assets at fair value — non-qualifying hedges(1)
Derivative assets at fair value — qualifying hedges
Total
Liabilities
Derivative liabilities at fair value — non-qualifying hedges(1)
Consideration holdback liability
FDIC True-up Liability
Total
(1)
Derivative fair values include accrued interest.
Total
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
$
$
$
$
$
6,123.6
0.4
44.7
68.5
0.2
6,237.4
,
$
$
$
(68.3) $
(18.7)
(46.0)
)
(
(65.1)
) $
(198.1) $
(
3,674.1
283.5
34.1
94.7
16.9
4,103.3
,
$
$
$
(68.8) $
(47.2)
)
(61.9)
(
) $
(177.9) $
(
199.0
—
0.2
—
—
199.2
$
$
$
— $
—
—
—
$
— $
200.1
—
0.3
—
—
200.4
$
$
$
— $
—
—
$
— $
5,538.8
—
44.5
68.4
0.2
5,651.9
,
$
$
$
(54.2) $
(18.7)
—
—
) $
(72.9) $
(
2,988.5
—
33.8
94.7
16.9
3,133.9
,
$
$
$
(57.3) $
—
—
) $
(57.3) $
(
385.8
0.4
—
0.1
—
386.3
(14.1)
—
(46.0)
(65.1)
)
(
)
(
(125.2)
485.5
283.5
—
—
—
769.0
(11.5)
(47.2)
(61.9)
)
(
)
(
(120.6)
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, 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 — 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,
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
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.
Liability —The FDIC True-up liability was recorded at estimated fair value as of the Acquisition Date and is
FDIC True-up
rr
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.
Financial Instrument
December 31, 2017
Assets
Securities — AFS
148 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Consideration Holdback Liability — In connection with the OneWest acquisition, the parties negotiated 4 separate holdbacks
related to select 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 $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.
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 December 31, 2017 and 2016.
Quantitative Information about Level 3 Fair Value Measurements — Recurring (dollars in millions)
Estimated
Fair Value Valuation Technique(s)
Significant
Unobservable Inputs
Range of
Inputs
Weighted
Average
$
385.8 Discounted cash flow
Discount Rate
Prepayment Rate
Default Rate
Loss Severity
0.0% – 37.1%
2.1% – 22.3%
0.0% – 7.3%
0.3% – 72.4%
Securities carried at fair value with
changes recorded in net income
0.4 Discounted cash flow
Discount Rate
Prepayment Rate
Default Rate
Loss Severity
31.1%
10.9%
2.4%
59.2%
4.6%
8.8%
3.7%
35.3%
31.1%
10.9%
2.4%
59.2%
Derivative assets — non qualifying
Total Assets
Liabilities
FDIC True-up liability
Consideration holdback liability
Derivative liabilities — non qualifying
Total Liabilities
December 31, 2016
Securities — AFS
Securities carried at fair value with
changes recorded in net income
Total Assets
FDIC True-up liability
Consideration holdback liability
Derivative liabilities – non qualifying
Total Liabilities
$
$
$
$
$
$
$
$
$
$
$
Internal valuation model
Borrower Rate
3.0% – 4.4%
3.8%
0.1
386.3
(65.1) Discounted cash flow
(46.0) Discounted cash flow
Discount Rate
Payment Probability
2.9%
0% – 100%
2.9%
48.0%
(14.1) Market Comparables(1)
)
(
)
(125.2)
(
485.5 Discounted cash flow
Discount Rate
Prepayment Rate
y
Default Rate
Severity
y
Loss
283.5 Discounted cash flow
Discount Rate
Prepayment Rate
y
Default Rate
Severity
y
Loss
0.0% – 96.4%
3.2% – 21.2%
0.0% – 9.0%
1.0% – 79.8%
0.0% – 34.6%
6.1% – 16.2%
1.9% – 8.1%
22.2% – 44.7%
769.0
(61.9) Discounted cash flow
(47.2) Discounted cash flow
(11.5) Market Comparables( )(1)
)
(
)
(120.6)
(
Discount Rate
yPayment
Discount Rate
Probability
y
3.2%
0% – 100%
1.3% – 4.0%
5.5%
8.8%
3.9%
36.3%
5.6%
11.9%
4.6%
25.8%
3.2%
40.9%
2.1%
(1)
The valuation of these derivatives is primarily related to the GSI facilities, which is based on several factors using a discounted cash flow
methodology,yy 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.
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
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 149
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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.
The valuation techniques used for the Company's Level 3 assets and liabilities, as presented in the previous tables, are
described as follows:
•
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.
• 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.
ff
•
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.
•
•
•
•
•
•
Default rate — is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default
rate.
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.
Loss severity — is the percentage of contractual cash flows lost in the event of a default.
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").
Payment Probability — is an estimate of the likelihood the consideration holdback amount will be required to be paid
expressed as a percentage.
Borrower rate - Mortgage rate committed to the borrower by CIT Bank, effective
ff
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. The 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.
150 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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
carried at
fair value
with changes
recorded in
net income
Securities-
AFS
FDIC
Receivable
$
485.5
6.6
$
283.5
23.0
— $
0.1
(11.5) $
(2.6)
(61.9) $
(3.2)
(47.2)
1.2
Derivative
assets —
non-
qualifying(1)
$
Derivative
liabilities —
non-
qualifying(1)
FDIC
True-up
Liability
Consideration
holdback
Liability
$
$
$
$
December 31, 2016
Included in earnings
Included in comprehensive
income
Impairment
Transfer from Securities- HTM
Sales, paydowns and
adjustments
December 31, 2017
December 31, 2015
Included in earnings
Included in comprehensive
income
Impairment
Sales, paydowns and
adjustments
7.7
(1.1)
66.8
(179.7)
385.8
567.1
(5.8)
$
$
$
20.6
(3.3)
(93.1)
0.6
0.8
—
—
—
(1.0)
0.4
54.8
10.7
$
$
$
—
—
—
—
—
(306.1)
0.4
339.7
13.0
$
$
$
—
—
(69.2)
(64.9)
—
—
—
—
—
—
—
—
—
—
—
—
$
$
0.1
— $
—
) $
(14.1) $
(
(55.5) $
44.0
) $
(65.1) $
(
(56.9) $
(5.0)
—
—
—
—
—
—
—
—
— —
—
—
—
—
)
(46.0)
(
(60.8)
(0.7)
—
—
14.3
)
(47.2)
(
December 31, 2016
$
$
485.5
$
$
283.5
$
$
0.6
$
$
$
— $
) $
(11.5) $
(
) $
(61.9) $
(
(1)
Valuation of the derivatives related to the TRS Transactions
rr
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 years ended December 31, 2017 and 2016, 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.
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)
Assets
December 31, 2017
Assets held for sale
Other real estate owned
Impaired loans
Total
December 31, 2016
Goodwill
Assets held for sale
Other real estate owned
Impaired loans
Total
Fair Value Measurements
at Reporting Date Using:
Total
Level 1
Level 2
Level 3
$
$
$
$
$
$
177.8
18.8
89.1
285.7
51.8
201.6
22.5
151.9
427.8
$
$
$
$
$
$
— $
—
—
$
— $
— $
—
—
—
$
— $
— $
—
—
$
— $
— $
—
—
—
$
— $
177.8
18.8
89.1
285.7
51.8
201.6
22.5
151.9
427.8
$
$
$
$
$
$
Total
(Losses)
(15.0)
(4.4)
(21.9)
)
(
)
(
(41.3)
(354.2)
(14.7)
(3.2)
(26.8)
)
(
)
(
(398.9)
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 151
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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
December 31, 2017 and December 31, 2016.
Other Real Estate Owned — 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 on
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 5.4% to 52.6%, which resulted in a weighted average of 6.5% at December 31, 2017.
Also a significant unobservable input is the binding contract, appraised value or the sales price and thus is classified as Level 3.
Impaired Loans — 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 loan, with the estimated value determined using fair value of collateral and other
cash flows if the loan is collateralized, the present value of expected future cash flows discounted at the contract's 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.
ff
Goodwill — In accordance with ASC 350, Intangibles - Goodwill and other, goodwill is assessed for impairment at least annually,
or more often if events or circumstances have changed significantly from the annual test date that would indicate a potential
reduction in the fair value of the reporting unit below its carrying value. During the fourth quarter of 2016, the Company
performed its annual goodwill impairment test. Based on our assessments under both Step 1 and Step 2, the Company recorded
an impairment of the Consumer Banking and Commercial Services RUs of $319.4 million and $34.8 million, respectively. See
Note 26 - Goodwill and Intangible Assets for further information.
152 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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)
December 31, 2017
Financial Assets
Cash and interest bearing deposits
Derivative assets at fair value — non-qualifying hedges
Derivative assets at fair value — qualifying hedges
Assets held for sale (excluding leases)
Loans (excluding leases)
Securities purchased under agreement to resell
Investment securities(1)
Indemnification assets(2)
Other assets subject to fair value disclosure and unsecured
counterparty receivables(3)
Financial Liabilities
Deposits(4)
Derivative liabilities at fair value — non-qualifying hedges
Derivative liabilities at fair value — qualifying hedges
Borrowings(4)
Credit balances of factoring clients
Other liabilities subject to fair value disclosure(5)
December 31, 2016
Financial Assets
Cash and interest bearing deposits
Derivative assets at fair value — non-qualifying hedges
Derivative assets at fair value — qualifying hedges
Assets held for sale (excluding leases)
Loans (excluding leases)
Investment securities(1)
Indemnification assets(2)
Other assets subject to fair value disclosure and unsecured
counterparty receivables(3)
Financial Liabilities
Deposits(4)
Derivative liabilities at fair value — non-qualifying hedges
Borrowings(4)
Credit balances of factoring clients
Other liabilities subject to fair value disclosure(5)
$
$
$
$
Carrying
Value
1,718.7
68.5
0.2
1,011.4
26,428.1
150.0
6,469.9
113.5
542.2
(29,586.5)
(68.3)
(18.7)
(9,043.8)
(1,468.6)
(725.2)
6,430.6
94.7
16.9
428.4
26,683.0
4,491.1
233.4
712.2
(32,323.2)
(68.8)
(15,097.8)
(1,292.0)
(1,003.6)
Estimated Fair Value
Level 1
Level 2
Level 3
TT
Total
1,718.7
—
—
—
—
—
199.2
—
—
—
—
—
—
—
—
6,430.6
—
—
—
—
200.4
—
—
—
—
—
—
—
$
— $
68.4
0.2
4.7
624.3
150.0
5,583.3
—
— $
0.1
—
1,044.8
26,220.5
—
687.4
87.4
1,718.7
68.5
0.2
1,049.5
26,844.8
150.0
6,469.9
87.4
—
542.2
542.2
—
(54.2)
(18.7)
(8,281.7)
—
—
(29,668.6)
(14.1)
—
(991.2)
(1,468.6)
(725.2)
(29,668.6)
(68.3)
(18.7)
(9,272.9)
(1,468.6)
(725.2)
$
— $
94.7
16.9
175.0
390.3
3,199.6
—
— $
—
—
264.6
26,456.4
1,094.2
201.0
6,430.6
94.7
16.9
439.6
26,846.7
4,494.2
201.0
—
712.2
712.2
—
(57.3)
(14,457.8)
—
—
(32,490.9)
(11.5)
(1,104.9)
(1,292.0)
(1,003.6)
(32,490.9)
(68.8)
(15,562.7)
(1,292.0)
(1,003.6)
(1)
(2)
Level 3 estimated fair value at December 31, 2017, includes debt securities AFS ($385.8 million), debt securities carried at fair value with
changes recorded in net income ($0.4 million), and non-marketable investments ($301.2 million). Level 3 estimated fair value at
December 31, 2016, included debt securities AFS ($485.5 million), debt securities carried at fair value with changes recorded in net income
($283.5 million), non-marketable investments ($256.4 million), and debt securities HTM ($68.8 million).
The indemnification assets included in the above table do not include Agency claims indemnification ($28.9 million and $108.0 million at
December 31, 2017 and 2016, 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 the 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.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 153
The methods and assumptions used to estimate the fair value of each class of financial instruments are explained below:
Cash and interest bearing deposits — Cash and cash equivalents and restricted cash approximate estimated fair value and are
classified as Level 1.
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. See Note 11
— 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. 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 — Of the assets held for sale above, $4.7 million carrying amount at December 31, 2017 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:
•
•
•
•
Commercial and Consumer Loans — Of the loan balance above, $624.3 million at December 31, 2017 and $390.3 million at
December 31, 2016, 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 December 31, 2017 and December 31, 2016. In addition to the characteristics of the underlying contracts, key
inputs to the analysis include interest rates, prepayment rates, 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
December 31, 2017 was $26.8 billion, which was 101.6% of carrying value. The fair value of loans at December 31, 2016
was $26.8 billion, which was 100.6% of carrying value.
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 December 31, 2017, the UPB related to impaired loans
totaled $195.5 million. Including related allowances, these loans are carried at $146.7 million, or 75.0% of UPB. Of these
amounts, $86.1 million and $63.6 million of UPB and carrying value, respectively, relate to loans with no specific allowance.
As of December 31, 2016 the UPB related to impaired loans, including PCI loans, totaled $244.3 million. Including related
allowances, these loans were carried at $188.2 million, or 77.0% of UPB. Of these amounts, $74.7 million and $55.5 million
of UPB and carrying value, respectively, relate to loans with no specific allowance. The difference
carrying value reflects cumulative charge-offsff on accounts remaining in process of collection, FSA discounts and
allowances. See Note 3 — Loans for more information.
between UPB and
ff
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.
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 classified as Level 3.
154 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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 rates for similar terms, which are
Level 3 inputs.
ff
Borrowings
•
•
Unsecured debt — Approximately $3.8 billion par value at December 31, 2017 and $10.6 billion at December 31, 2016 were
valued using market inputs, which are Level 2 inputs.
Secured borrowings — Secured borrowings include both structured financings and FHLB Advances. Approximately $4.3
billion par value at December 31, 2017 and $3.3 billion par value at December 31, 2016 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 December 31, 2017 and December 31, 2016, 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 is the estimated fair value of FHLB advances, which is based on the discounted cash flow model. The
cash flows are calculated using the contractual features of the advance and they are discounted using observable rates. As
the inputs for 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 ffor credit
balances fof ffactoring clients is inconsequential due to the short term nature fof these balances ((typically 90 days or less) as of
December 31, 2017 and December 31, 2016. Accordingly, credit balances of factoring clients approximate estimated fair value
and are classified as Level 3.
NOTE 14 — STOCKHOLDERS' EQUITY
A roll forward of common stock activity is presented in the following table.
Common Stock — December 31, 2016
Restricted stock issued
Repurchase of common stock
Shares held to cover taxes on vesting restricted shares and other
Employee stock purchase plan participation
Common Stock — December 31, 2017
Issued
206,182,213
1,391,588
—
—
54,690
,
207,628,491
,
Less
Treasury
Outstanding
(4,094,541)
—
(71,598,013)
(583,013)
—
)
(76,275,567)
(
,
,
202,087,672
1,391,588
(71,598,013)
(583,013)
54,690
,
131,352,924
,
, in which we repurchased approximately 57.3 million common shares at a purchase price of $48.00 per share; open market
During 2017, CIT repurchased a total of $3.4 billion in common shares via various capital actions including; an equity tender
offer
ff
repurchases, in which we repurchased 3,600,560 common shares at an average share price of $45.27; and an accelerated
share repurchase program (ASR), in which CIT paid to the dealer $512 million in exchange for the initial delivery of
approximately 9,253,668 common shares and upon settlement CIT received an additional 1,452,119 common shares where the
overall average price of the ASR was $47.82 per share.
We declared and paid dividends on our common and preferred stock totaling $113.7 million during 2017 and $123.0 million on
our common stock during 2016.
Accumulated Other Comprehensive Income/(Loss)
Total comprehensive income was $521.8 million for the year ended December 31, 2017, compared to total comprehensive loss
of $846.0 million for the year ended December 31, 2016 and comprehensive income of $1,025.9 million for the year ended
December 31, 2015, including accumulated other comprehensive loss of $86.5 million and $140.1 million at December 2017 and
2016, respectively.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 155
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The following table details the components of Accumulated Other Comprehensive Loss, net of tax:
Components of Accumulated Other Comprehensive Loss (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 accumulated other comprehensive
loss
December 31, 2017
December 31, 2016
Gross
Unrealized
Income
Taxes
Net
Unrealized
Gross
Unrealized
Income
Taxes
Net
Unrealized
$
0.8
$
(8.8) $
(8.0) $
(28.6) $
(32.8) $
(61.4)
(53.6)
(39.5)
(0.9)
15.5
(54.5)
(24.0)
(70.6)
(22.0)
5.3
8.6
(65.3)
(13.4)
$
(92.3) $
5.8
$
(86.5) $
(121.2) $
(18.9) $
(140.1)
The following table details the changes in the components of Accumulated Other Comprehensive Loss, net of income taxes:
Changes in Accumulated Other Comprehensive Loss by Component (dollars in millions)
Balance as of December 31, 2016
AOCI activity before reclassifications
Amounts reclassified from AOCI
Net current period AOCI
Balance as of December 31, 2017
Balance as of December 31, 2015
AOCI activity before reclassifications
Amounts reclassified from AOCI
Net current period AOCI
Balance as of December 31, 2016
Other Comprehensive Income/(Loss)
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
$
$
$
$
$
$
)
(61.4) $
(
27.2
26.2
53.4
) $
(8.0) $
(
)
(
(65.7) $
(0.4)
4.7
4.3
) $
(61.4) $
(
)
(65.3) $
(
10.1
0.7
10.8
(54.5) $
) $
(
)
(
(69.3) $
2.4
1.6
4.0
) $
(65.3) $
(
)
(13.4) $
(
(6.9)
(3.7)
)
(
(10.6)
)
(
) $
(24.0) $
(
)
(
(7.1) $
(6.3)
—
)
(
(6.3)
) $
(13.4) $
(
)
(140.1)
(
30.4
23.2
53.6
)
(86.5)
(
)
(
(142.1)
(4.3)
6.3
2.0
)
(
(140.1)
The amounts included in the Statement of Comprehensive Income (Loss) are net of income taxes.
Foreign currency translation reclassification adjustments impacting net income were $26.2 million for 2017, $4.7 million for 2016
and $80.5 million for 2015. The change in income taxes associated with foreign currency translation adjustments was $24.0
million for the year ended December 31, 2017, and $3.1 million for the year ended December 31, 2016, and there were $(35.9)
million taxes associated with foreign currency translation adjustments for 2015.
The changes in benefit plans net gain/(loss) and prior service (cost)/credit reclassification adjustments impacting net income was
$0.7 million, $1.6 million and $2.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The change in
income taxes associated with changes in benefit plans net gain/(loss) and prior service (cost)/credit was $(6.2) million, $(1.7)
million and $6.8 million for the years ended December 31, 2017, 2016, and 2015 respectively.
There were $(3.7) million reclassification adjustments impacting net income related to unrealized gains (losses) on available for
sale securities for the year ended December 31, 2017, compared to no reclassification adjustments impacting net income related
to unrealized gains (losses) on available for sale securities for the years ended December 31, 2016 and 2015. The change in
income taxes associated with net unrealized gains on available for sale securities was $6.9 million, $4.3 million and $4.3 million
for the years ended December 31, 2017, 2016 and 2015, 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
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
ff
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 non-interest income.
gains and losses on hedges of net investments in foreign
at
ff
156 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Reclassifications Out of Accumulated Other Comprehensive Loss (dollars in millions)
Years Ended December 31,
2017
Tax
Gross
Amount
Net
Amount
Gross
Amount
2016
Tax
Net
Amount
$
24.1
$
2.1
$
26.2
$
3.5
$
1.2
$
4.7
0.7
(5.9)
—
2.2
4.3
0.7
(3.7)
$
$
23.2
$
$
1.8
—
5.3
$
$
(0.2)
—
1.0
$
$
1.6
—
6.3
Foreign currency translation
adjustments gains (losses)
Changes in benefit plan net gain/
(loss) and prior service (cost)/credit
gains (losses)
Unrealized net gains (losses) on
available for sale securities
Total Reclassifications out of AOCI
$
$
18.9
$
$
NOTE 15 — REGULATOAA RY CAPITALTT
Affected Income
Statement line
item
Other Non-
interest Income
Operating
Expenses
Other Non-
interest Income
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. 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 December 31, 2017 and
December 31, 2016, the regulatory capital guidelines applicable to the Company and Bank were based on the Basel III Final
Rule.
The following table summarizes the actual and effective
ff
minimum required capital ratios:
Capital Components and Ratios (dollars in millions)
ff
minimum ratios under Basel III guidelines (2)
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Risk-Weighted Assets (1)
Common Equity Tier 1 Capital Ratio
Actual
Effective
Tier 1 Capital Ratio:
Actual
Effective
Total Capital Ratio:
Actual
Effective
Tier 1 Leverage Ratio:
Actual
Required minimum ratio for capital adequacy purposes
minimum ratios under Basel III guidelines (2)
minimum ratios under Basel III guidelines (2)
ff
ff
CIT
CIT Bank, N.A.
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
$
$
6,479.8
6,775.4
7,251.0
44,537.7
$
9,058.9
9,058.9
9,535.2
64,586.3
$
4,751.6
4,751.6
5,183.3
34,527.2
4,623.2
4,623.2
5,053.4
34,410.3
14.5%
5.750%
15.2%
7.250%
16.3%
9.250%
13.8%
4.0%
14.0%
5.125%
14.0%
6.625%
14.8%
8.625%
13.9%
4.0%
13.8%
5.750%
13.8%
7.250%
15.0%
9.250%
11.8%
4.0%
13.4%
5.125%
13.4%
6.625%
14.7%
8.625%
10.9%
4.0%
(1)
(2)
The decrease in CIT's Risk-Weighted
business.
WW
Assets from December 31, 2016 to December 31, 2017, reflects the sale of the Commercial Air
Required ratios under Basel III Final Rule in effect as of the reporting date including the partially phased-in capital conservation buffer.rr
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 157
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
NOTE 16 — EARNINGS PER SHARE
The following table sets forth the computation of the Basic and Diluted earnings per share:
(dollars in millions, except per share amounts; shares in thousands)
Earnings / (Loss)
Income (loss) from continuing operations
Preferred stock dividends
Income (loss) from continuing operations available to common shareholders
Income (loss) from discontinued operations net of taxes
Net income (loss) available to common shareholders
Weighted Average Common Shares Outstanding
Basic shares outstanding
Stock-based awards(1)(2)
Diluted shares outstanding
Basic Earnings Per Common Share Data
Income (Loss) from continuing operations
Income (Loss) from discontinued operation
Basic income (loss)per common share
Diluted Earnings Per Common Share Data(2)
Income (Loss) from continuing operations
Income (Loss) from discontinued operation
Diluted Income (loss) per common share
Years Ended December 31,
2016
2015
2017
$
$
$
$
$
$
$
$
$
259.4
9.8
249.6
208.8
458.4
162,290
1,660
,
163,950
1.54
1.28
2.82
1.52
1.28
2.80
$
$
$
$
$
$
$
$
$
(182.6) $
—
(182.6)
(665.4)
)
(
) $
(848.0) $
(
201,850
—
,
201,850
(0.90) $
)
(
(3.30)
) $
(4.20) $
(
(0.90) $
(3.30)
)
(
) $
(4.20) $
(
724.1
—
724.1
310.0
,
1,034.1
185,500
888
,
186,388
3.90
1.67
5.57
3.89
1.66
5.55
(1)
(2)
Represents the incremental shares from non-qualified restricted stock awards, performance shares, and in-the-money stock options.
Weighted average restricted shares, performance shares and options that were either out-of-the money or did not meet performance targets
and therefore excluded from diluted earnings per share totaled 1.3 million, 2.7 million, and 2.0 million for the years ended December 31,
2017, 2016 and 2015, respectively.yy
Due to the net loss for the year ended December 31, 2016, the Diluted Earnings Per Share calculation excluded 0.7 million of weighted
average restricted shares, performance shares, and options as they were anti-dilutive. The Basic weighted average shares outstanding and
net loss for the year ended December 31, 2016 were utilized for the Diluted Earnings Per Share calculation.
NOTE 17 — NON-INTEREST INCOME
The following table sets forth the components of non-interest income:
Non-interest Income (dollars in millions)
Rental income on operating leases
Other non-interest Income:
Fee revenues
Factoring commissions
Gains on sales of leasing equipment
Gains on investments
Gains (losses) on loan and portfolio sales
Gains (losses) on OREO sales
Net gains (losses) on derivatives and foreign currency exchange
Impairment on assets held for sale
Termination fees on Canadian total return swap
Other revenues
Total other non-interest income
Total non-interest income
Years Ended December 31,
2016
2015
2017
$
1,007.4
$
1,031.6
$
1,018.1
113.6
102.9
43.8
31.2
22.9
4.3
(5.4)
(32.2)
—
83.1
364.2
,
1,371.6
$
$
111.6
105.0
51.1
34.6
34.2
10.2
55.9
(36.6)
(280.8)
65.4
150.6
,
1,182.2
$
$
105.7
116.5
57.0
0.9
(47.2)
(5.4)
(37.9)
(55.9)
—
15.9
149.6
,
1,167.7
$
$
158 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
NOTE 18 — NON-INTEREST EXPENSES
The following table sets forth the components of Non-interest expenses:
Non-interest Expense (dollars in millions)
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Operating expenses:
Compensation and benefits
Professional fees
Technology
Insurance
Net occupancy expense
Advertising and marketing
Other
Operating expenses, excluding restructuring costs and
intangible asset amortization
Intangible asset amortization
Restructuring costs
Total operating expenses
Goodwill impairment
Loss on debt extinguishments and deposit redemptions
Total non-interest expenses
NOTE 19 — INCOME TAXES
Years Ended December 31,
2016
2015
2017
$
296.3 $
222.9
261.1 $
213.6
566.3
132.3
127.9
84.7
67.8
42.2
89.6
585.5
175.8
133.7
96.5
71.9
20.5
137.8
1,110.8
24.7
53.0
1,188.5
255.6
220.0
2,183.3 $
2,183.3 $
,
1,221.7
25.6
36.2
1,283.5
354.2
12.5
2,124.9 $
2,124.9 $
,
$
$
229.2
185.1
549.6
135.0
109.2
61.6
49.1
30.4
114.6
1,049.5
13.3
58.3
1,121.1
—
1.5
1,536.9
1,536.9
,
The following table presents the U.S. and non-U.S. components of income/ (loss) before provision (benefit) for income taxes:
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes (dollars in millions)
U.S. operations
Non-U.S. operations
Income from continuing operations before (benefit) / provision for income taxes
The (benefit) provision for income taxes is comprised of the following:
(Benefit) Provision for Income Taxes (dollars in millions)
Current U.S. federal income tax provision
Deferred U.S. federal income tax (benefit) / provision
Total federal income tax (benefit) / provision
Current state and local income tax (benefit) / provision
Deferred state and local income tax (benefit) / provision
Total state and local income tax (benefit) / provision
Total non-U.S. income tax (benefit) / provision
Total provision / (benefit) for income taxes
Continuing operations (benefit) / provision
Discontinued operations (benefit) / provision
Total provision / (benefit) for income taxes
$
$
$
$
$
$
$
$
$
Years Ended December 31,
2016
2015
2017
251.9
)
(60.3)
(
191.6
$
$
$
157.5
)
(136.6)
(
20.9
$
$
$
227.6
)
(41.6)
(
186.0
Years Ended December 31,
2017
2016
2015
$
73.7
24.8
98.5
(0.7)
(27.8)
)
(
(28.5)
)
(
)
(
(31.4)
$
$
38.6
(67.8) $
106.4
38.6
$
$
0.3
906.9
907.2
14.6
1.8
16.4
90.8
,
1,014.4
203.5
810.9
,
1,014.4
$
$
$
$
$
$
0.3
(566.3)
)
(
)
(
(566.0)
5.8
(21.0)
)
(
)
(
(15.2)
82.4
)
(498.8)
(
(538.0)
39.2
)
(498.8)
(
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
A reconciliation from the U.S. Federal statutory rate to the Company's actual effective
ff
income tax rate is as follows:
Percentage of Pretax Income Years Ended December 31 (dollars in millions)
CIT ANNUAL REPORT 2017 159
Effective Tax Rate
2017
Income
tax
expense
(benefit)
Pretax
Income
Percent
of
pretax
income
Pretax
Income
2016
Income
tax
expense
(benefit)
Percent
of
pretax
Income
Pretax
Income
2015
Income
tax
expense
(benefit)
Percent
of pretax
income
$
191.6
$
67.0
35.0 % $
20.9
$
7.3
35.0% $
186.0
$
65.1
35.0 %
Continuing Operations
Federal income tax rate
Increase (decrease) due to:
State and local income taxes,
net of federal income tax benefit
Non-deductible goodwill
Domestic tax credits
Cumulative Method Change —
Tax Advantaged Investments(1)
Effect
of tax law changes
ff
Lower tax rates applicable to
non-U.S. earnings
International income subject to
U.S. tax
Unrecognized tax expense
(benefit)
Deferred income taxes on
international unremitted earnings
International Restructuring
Valuation allowances
International tax settlements
Other
Effective
ff
operations
Tax Rate — Continuing
Discontinued Operation
Federal income tax rate
Increase (decrease) due to:
State and local income taxes,
net of federal income tax benefit
Non-deductible penalties
Lower tax rates applicable to
non-U.S. earnings
International income subject to
U.S. tax
Deferred income taxes on
international unremitted earnings
Other
Effective
ff
Discontinued operation
Tax Rate —
ff
Total Effective
Tax Rate
4.4
58.7
(20.7)
2.3
30.7
(10.8)
26.6
13.9
(22.6)
(11.8)
(1.6)
(0.8)
1.2
0.6
(0.2)
(0.1)
4.6
2.4
(237.9)
60.5
(3.5)
)
(
(4.3)
(124.2)
31.6
(1.8)
)
(
(2.4)
(67.8)
(35.4)%
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
315.2
—
—
—
—
—
—
—
—
—
—
—
—
—
21.0
126.2
(18.1)
101.0
606.6
(87.0)
—
—
—
—
(10.3)
(49.6)
29.2
140.3
(14.4)
(69.3)
41.8
—
14.7
(0.6)
6.7
200.7
—
70.6
(2.7)
32.4
—
—
—
—
—
—
—
—
—
—
—
—
—
(10.8)
8.3
(7.5)
—
—
0.6
(5.9)
4.5
(4.0)
—
—
0.3
42.1
22.6
4.5
2.4
30.2
16.2
—
(693.8)
(3.5)
26.8
—
(373.0)
(1.9)
14.6
110.3
35.0 % $
145.5
$
$
203.5
978.0%
$ (538.0)
(289.2)%
50.9
35.0% $
349.2
$
122.2
35.0 %
—
—
—
—
—
7.2
—
2.3
—
(93.2)
(29.6)
44.2
14.0
39.7
)
(1.8)
(
12.6
)
(0.5)
(
—
—
—
—
—
(9.5)
16.6
(6.5)
11.4
(110.8)
(76.1)
16.7
11.5
847.3
582.1
)
(0.3)
(
)
(0.3)
(
—
—
—
—
—
0.6
—
0.2
—
(89.3)
(25.6)
8.1
2.3
—
)
(2.4)
(
—
)
(0.7)
(
$
$
$
106.4
38.6
33.8 %
7.6 %
$
810.9
$ ,
$ 1,014.4
557.1%
609.7%
$
39.2
11.2 %
)
$ (498.8)
$ (
(
(93.2)%
)
(1) Amount relates to the change in accounting policy for LIHTC. See Note 1 — Business and Summary of Significant Accounting Policies.
160 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The tax effects
ff
of temporary differences
ff
that give rise to deferred income tax assets and liabilities are presented below:
Components of Deferred Income Tax Assets and Liabilities (dollars in millions)
Deferred Tax Assets:
Net operating loss (NOL) carry forwards
Basis difference
in loans
ff
Provision for credit losses
Accrued liabilities and reserves
FSA adjustments — aircraft and rail contracts
Deferred stock-based compensation
Domestic tax credits
Capital Loss Carryforward
Other
Total gross deferred tax assets
Deferred Tax Liabilities:
Operating leases
Loans and direct financing leases
Basis difference
ff
Basis difference
ff
Non-U.S. unremitted earnings
Unrealized foreign exchange gains
Goodwill and intangibles
Other
Total deferred tax liabilities
Total net deferred tax asset before valuation allowances
in mortgage backed securities
in federal home loan bank stock
Less: Valuation allowances
Net deferred tax asset (liability) after valuation allowances
Tax Cuts and Jobs Act
December 31,
2017
2016
$
$
$
$
877.3
181.5
117.8
116.6
—
19.5
87.1
54.0
46.8
1,500.6
(1,066.5)
(38.1)
(24.6)
(17.5)
(61.0)
(12.5)
(23.5)
(16.9)
)
(
)
(
(1,260.6)
240.0
)
(280.6)
(
) $
(40.6) $
(
2,528.3
281.4
185.7
274.9
24.2
34.5
40.5
3.3
75.8
3,448.6
(1,818.5)
(100.3)
(100.0)
(28.1)
(1,032.6)
(27.7)
(116.7)
(21.6)
)
(
)
(
(3,245.5)
203.1
(278.4)
)
(
)
(
(75.3)
The Tax Cuts and Jobs Act (or “U.S. Tax Reform legislation”) was enacted on December 22, 2017. The Tax Cuts and Jobs Act
signed the following key changes to U.S. tax law:
•
•
•
•
•
•
Reduces the corporate federal income tax rate to 21%,
Creates a territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings),
Broadens the tax base,
Allows for immediate capital expensing of certain qualified property,
Creates anti-base erosion rules that require companies to pay global minimum taxes on foreign earnings,
Subjects certain payments from U.S. corporations to foreign related parties to additional taxes.
As a result of the U.S. Tax Reform legislation, the Company recognized a net deferred tax benefit of $11.6 million.
ff
ff
registrants a measurement period, per Staffff Accounting Bulletin No. 118 Income Tax Accounting
of the law relating to the remeasurement of deferred taxes, liabilities for taxes due on mandatory deemed
The Tax Cuts and Jobs Act required management to make certain adjustments to the Company’s year-end financial statements
for the effects
repatriation, liabilities for taxes due on other foreign income, and the reassessment of the Company’s valuation allowance. The
SEC staffff has afforded
Implications of the Tax Cuts and Jobs Act, similar to the measurement period used when accounting for business combinations
to record adjustments for the effects
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.
of the law. As of December 31, 2017, the Company has reviewed information relating to
ff
Net Operating Loss Carry-forwards
CIT's reorganization in 2009 constituted 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. In general, the Company's annual limitation on use of pre-
bankruptcy NOLs is approximately $265 million per annum. NOLs arising in post-emergence years are not subject to this
limitation absent another ownership change as defined by Section 382. The OneWest Transaction created no further annual
dollar limit under Section 382.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 161
from continuing operations totaling $877.3 million on its global
As of December 31, 2017, CIT has deferred tax assets ("DTAs")
NOLs. This includes: (1) a DTATT of $504.0 million relating to its cumulative U.S. federal NOLs of $2.4 billion; (2) DTAsTT
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) DTAsTT
of $51.1 million relating to cumulative non-U.S. NOLs of $203.8 million.
TT
Of the $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 discussed above. Approximately $1.4 billion of the U.S. federal NOL is not subject to the limitation.
The U.S. federal NOLs will start to expire beginning in 2028 through 2036. Approximately $188 million of state 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.
Valuation Allowances
The determination of whether or not to maintain the valuation allowances on certain reporting entities' DTAsTT
requires significant
judgment and an analysis of all positive and negative evidence to determine whether it is more likely than not that these future
benefits will be realized. ASC 740-10-30-18 states that "future realization of the tax benefit of an existing deductible temporary
taxable income within the carryback and carry-
difference
forward periods available under the tax law." As such, the Company considered the following potential sources of taxable income
in its assessment of a reporting entity's ability to recognize its net DTA:TT
or NOL carry-forward ultimately depends on the existence of sufficient
ff
ff
•
•
•
•
income in carryback years,
Taxable
TT
ff
Future reversals of existing taxable temporary differences
Prudent and feasible tax planning strategies, and
Future taxable income forecasts.
(deferred tax liabilities),
During the third quarter of 2015, Management updated the Company's long-term forecast of future U.S. federal taxable income
to include the anticipated impact of the OneWest Bank acquisition. The updated long-term forecast supports the utilization of all
(including those relating to the NOLs prior to their expiration). Accordingly, Management concluded that
of the U.S. federal DTAsTT
it is more likely than not that the Company will generate sufficient
periods to enable the Company to reverse the remaining $690 million of U.S. federal valuation allowance, $647 million of which
was recorded as a discrete item in the third quarter, and the remainder of which was included in determining the annual effective
tax rate as normal course in the third and fourth quarters of 2015 as the Company recognized additional U.S. taxable income
related to the OneWest Bank acquisition.
future taxable income within the applicable carry-forward
ff
ff
The Company also evaluated the impact of the OneWest Bank acquisition on its ability to utilize the NOLs of its state income tax
reporting entities and concluded that no additional reduction to the U.S. state valuation allowance was required in 2015. These
state income tax reporting entities include both combined unitary state income tax reporting entities and separate state income
tax reporting entities in various jurisdictions. The Company analyzed the state net operating loss carry-forwards for each of these
reporting entities to determine the amounts that are expected to expire unused. Based on this analysis, it was determined that
the valuation allowance was still required on U.S. state DTAsTT
retained a valuation allowance of $250 million against the DTATT on the U.S. state NOLs at December 31, 2016.
on certain net operating loss carry-forwards. The Company
During 2017, Management updated the Company's long term forecast of future U.S. federal taxable income incorporating recent
actions including its decision to sell Commercial Air, which closed in the second quarter of 2017. The updated forecasts continue
to support no valuation allowance on the U.S. federal DTAsTT
on NOLs but the valuation allowance of $208.6 million was retained
on U.S. state DTAsTT
on certain NOLs as of December 31, 2017.
Additionally, as of December 31, 2017, the Company maintained a $33.2 million and $6.4 million U.S. federal and state valuation
allowance, respectively, on the deferred tax asset established on capital loss carryforwards mainly generated from the liquidation
of a foreign subsidiary. Capital losses can be carried forward for 5 years to offset
allowance until additional capital gains are identified.
future capital gains but requires a valuation
ff
The Company maintained a valuation allowance of $32.4 million against certain non-U.S. reporting entities' net DTAsTT
at
of the
December 31, 2017, down from $38.9 million at December 31, 2016. In the evaluation process related to the net DTAsTT
Company's other international reporting entities, uncertainties surrounding the future international business operations have
made it challenging to reliably project future taxable income. Management will continue to assess the forecast of future taxable
income as the business plans for these international reporting entities evolve and evaluate potential tax planning strategies to
utilize these net DTAs.TT
The Company's ability to recognize DTAsTT will be evaluated on a quarterly basis to determine if there are any significant events
that would affect
allowances may be adjusted accordingly.
our ability to utilize existing DTAs.TT
If events are identified that affect
our ability to utilize our DTAs,TT
valuation
ff
ff
Indefinite Reinvestment Assertion
The 2017 Tax Cuts and Jobs Act will require a mandatory deemed repatriation of post-1986 undistributed Non-U.S. earnings and
profits (“TollTT Tax”). The rate applied varies depending on whether the earnings and profit ("E&P") is held in liquid or non-liquid
assets, and U.S. Corporations would be subject to a one-time mandatory repatriation toll charge of 15.5% for cash and liquid
assets and 8% for non-liquid assets. The toll charge will be assessed regardless of whether or not the company brings back the
earnings. The Company has a net deficit in E&P and therefore has no liability for the Toll Tax.
162 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
As of December 31, 2017, the Company has a deferred income tax liability of $61 million for U.S. and non-U.S. taxes mainly
related to international withholding taxes. The net reduction of $967 million in the deferred income tax liabilities from 2016 was
comprised of $964 million net reversal of deferred tax liabilities accrued in the current and prior years related to the sale of the
Commercial Air business, $13.6 million deferred income tax benefit related to the reduction of deferred tax liabilities on
previously untaxed E&P due to provisions in the U.S. Tax Reform mentioned above, partially offset
activity in Canada and China pre Tax Reform.
by current year earnings
ff
Liabilities for Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized Tax Benefits (dollars in millions)
Balance at December 31, 2016
Additions for tax positions related to prior years
Reductions for tax positions of prior years
Income Tax Audit Settlements
Other
Balance at December 31, 2017
Liabilities for
Unrecognized
Tax Benefits
Interest /
Penalties
Grand Total
$
$
$
36.4
1.1
(6.4)
(16.6)
)
(
(1.0)
13.5
$
$
$
11.7
1.9
(4.2)
(4.4)
1.3
6.3
$
$
$
48.1
3.0
(10.6)
(21.0)
0.3
19.8
During the year ended December 31, 2017, the Company recorded a net $28.3 million reduction on uncertain tax positions
("UTPs"), including interest and penalties. The majority of the net reduction related to a $21.0 million decrease resulting from
favorable audit resolutions with state taxing authorities on UTPs taken on prior year U.S. state income tax returns, and $6.6
million related to UTPs in entities that were transferred with the Commercial Air sale.
During the year ended December 31, 2017, the Company recognized $5.4 million income tax benefit relating to interest and
penalties on its UTPs. The change in balance is mainly related to the interest and penalties associated with the above mentioned
UTPs taken on certain prior-year U.S. state income tax returns and reduction related to UTPs in entities that were transferred
with the Commercial Air sale. As of December 31, 2017, the accrued liability for interest and penalties is $6.3 million. The
Company recognizes accrued interest and penalties on unrecognized tax benefits in income tax expense.
The entire $19.8 million of unrecognized tax benefits including interest and penalties at December 31, 2017, would lower the
Company's effective
penalties may decrease, in the range of $0 to $5 million, from the resolution of open tax matters, settlements of audits, and the
expiration of various statutes of limitations prior to December 31, 2018.
tax rate, if realized. The Company believes that the total unrecognized tax benefits before interest and
ff
Income Tax Audits
In December 2017, the Company received notification from the IRS of commencement of a new federal income tax exam for the
2015 tax year. There are no material tax issues raised by the IRS at this initial state of the audit.
On January 27, 2016, and June 13, 2016, the Company and the IRS concluded the audit examination of IMB Holdco LLC, the
parent company of OneWest Bank and its subsidiaries, which was acquired on August 3, 2015 by CIT,TT for taxable years ended
December 31, 2012, and December 31, 2013, respectively. The audit settlement resulted in no additional regular or alternative
minimum tax liability but resulted in a significant cash tax refund, which was reflected in the acquisition date balance sheet.
IMB Holdco LLC and its subsidiaries are also under examination by the California Franchise Tax Board ("FTB") for tax years
2009 through 2013. The FTB has completed its audit of the 2009 return and has issued a notice of proposed assessment. The
Company, working with its outside advisors, is currently in negotiations to agree to a final Closing Agreement that would settle all
outstanding issues for 2009 through 2013. The Company expects final resolution and favorable settlement of the issues in 2018.
The issues raised by California were anticipated by the Company, and the Company believes it has provided adequate reserves
in accordance with ASC 740 for any potential adjustments.
The Company and its subsidiaries are under examination in various states, provinces and countries for years ranging from 2005
through 2015. Management does not anticipate that these examination results will have any material financial impact.
NOTE 20 — RETIREMENT,TT POSTRETIREMENT AND OTHER BENEFIT PLANS
CIT provides various benefit programs, including defined benefit retirement and postretirement plans, and defined contribution
savings incentive plans. A summary of major plans is provided below.
Retirement and Postretirement Benefit Plans
Retirement Benefits
CIT maintains a frozen U.S. non-contributory pension plan (the "Plan") qualified under the Internal Revenue Code (IRC).
Benefits under the Plan are based on an employee's age, years of service and qualifying compensation.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 163
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The Company also maintains a frozen U.S. non-contributory supplemental retirement plan (the "Supplemental Plan), and an
Executive Retirement Plan, which has been closed to new members since 2006, and whose participants are all inactive as of
December 31, 2017. In addition, CIT has a frozen non-contributory, non-US retirement plan which covers a small number of
retired participants.
Accumulated balances under the Plan and the Supplemental Plan continue to receive periodic interest, subject to certain
government limits. The interest credit was 2.84%, 2.61%, and 2.55% for the years ended December 31, 2017, 2016, and 2015,
respectively.
Postretirement Benefits
CIT provides healthcare and life insurance benefits to eligible retired employees. For most eligible retirees, healthcare is
contributory and life insurance is non-contributory. All postretirement benefit plans are funded on a pay-as-you-go basis.
ff
retiree medical, dental and life insurance benefits to those who did not meet the eligibility criteria for these benefits by
The Company amended CIT's postretirement benefit plans to discontinue benefits effective
offers
December 31, 2013. Employees who met the eligibility requirements for retiree health insurance by December 31, 2013 will be
offered
eligibility criteria for retiree life insurance by, and must have retired from CIT on or before, December 31, 2013.
retiree medical and dental coverage upon retirement. To receive retiree life insurance, employees must have met the
December 31, 2012. CIT no longer
ff
ff
Obligations and Funded Status
The following tables set forth changes in benefit obligation, plan assets, funded status and net periodic benefit cost of the
retirement plans and postretirement plans:
Obligations and Funded Status (dollars in millions)
Retirement Benefits
2017
2016
Post-Retirement Benefits
2017
2016
$
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments, curtailments, and settlements
Actuarial loss
Benefits paid
Other(1)
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Plan settlements
Benefits paid
Other(1)
Fair value of plan assets at end of period
Funded status at end of year(2)(3)
Information on accumulated benefit obligation in excess of plan assets
Projected benefit obligation(6) / Accumulated benefit obligation (4)(6) $
$
$
Fair value of plan assets
$
$
$
443.6
—
16.0
3.2
9.5
(27.1)
)
(
(5.4)
439.8
355.5
46.0
7.9
(0.6)
(27.1)
)
(
(7.4)
374.3
) $
(65.5) $
(
84.7
$
$
— $
$
445.5
0.1
17.1
(1.8)
4.7
(21.8)
)
(
(0.2)
443.6
337.9
28.2
13.2
(1.8)
(21.8)
)
(
(0.2)
355.5
) $
(88.1) $
(
437.4
349.3
$
35.2
—
1.2
—
0.5
(4.1)
1.7
34.5
—
—
2.5
—
(4.1)
1.6
—
) $
(34.5) $
(
35.1
—
1.4
—
0.2
(3.6)
2.1
35.2
—
—
1.5
—
(3.6)
2.1
—
)
(35.2)
(
(5)
(5)
(1)
(2)
(3)
(4)
(5)
(6)
Consists of the following: special termination benefits, plan participants' contributions and currency translation adjustments, primarily related
to CIT's Germany pension plan.
These amounts were recognized as liabilities in the Consolidated Balance Sheet at December 31, 2017 and 2016.
Company assets of $82.9 million and $86.1 million as of December 31, 2017 and 2016, respectively,yy related to the non-qualified U.S.
executive retirement plan obligation are not included in plan assets but related liabilities are in the benefit obligation.
Since the Plans' benefits are frozen, the rate of compensation increase is no longer an assumption used to calculate the accumulated
benefit obligation. Therefore, the accumulated benefit obligation was the same as the projected benefit obligation at December 31, 2017
and 2016.
Not applicable
As of December 31, 2017, the assets for CIT's qualified pension plan exceeded the projected benefit obligations of the Plan.
164 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
The net periodic benefit cost and other amounts recognized in AOCI consisted of the following:
Net Periodic Benefit Costs and Other Amounts (dollars in millions)
Retirement Benefits
2016
2017
2015
Post-Retirement Benefits
2016
2017
2015
$
— $
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss/(gain)
Net settlement and curtailment (gain)/loss and
special termination benefit(1)
Net periodic benefit cost (credit)
Other Changes in Plan Assets and Benefit
Obligations Recognized in Other Comprehensive
Income
Net loss/(gain)
Amortization, settlement or curtailment recognition of
net (loss)/gain
Amortization, settlement or curtailment recognition of
prior service credit
Total recognized in OCI
$
Total recognized in net periodic benefit cost and OCI $
16.0
(19.3)
—
1.6
4.5
2.8
(17.1)
(1.5)
—
(18.6)
)
(
) $
(15.8) $
(
$
0.1
17.1
(18.5)
—
2.9
—
1.6
(5.0)
(2.9)
—
(7.9)
)
(
) $
(6.3) $
(
0.2
16.9
(20.1)
—
2.6
—
)
(0.4)
(
20.9
(2.6)
—
18.3
17.9
$
$
$
— $
1.2
—
(0.5)
(1.0)
—
)
(0.3)
(
0.5
1.1
0.5
2.1
1.8
$
$
— $
1.4
—
(0.5)
(0.7)
—
0.2
0.9
0.7
0.5
2.1
2.3
$
$
—
1.4
—
(0.5)
(0.3)
—
0.6
(1.5)
0.3
0.5
(0.7)
)
(
)
(
(0.1)
(1)
$4.7 million curtailment and special termination benefit costs were recorded in discontinued operations in the accompanying financial
statements
The estimated net loss for CIT’s retirement benefits that will be amortized from AOCI into net periodic benefit cost over the next
fiscal year is $1.2 million. The estimated prior service credit and net gain for CIT’s post-retirement benefits that will be amortized
from AOCI into net periodic benefit cost over the next fiscal year is $0.5 million and $0.4 million, respectively.
Assumptions
Discount rate assumptions used for pension and post-retirement benefit plan accounting reflect prevailing rates available on
high-quality, fixed-income debt instruments with maturities that match the benefit obligation.
Expected long-term rate of return assumptions on assets are based on projected asset allocation and historical and expected
future returns for each asset class. Independent analysis of historical and projected asset returns, inflation, and interest rates are
provided by the Company's investment consultants and actuaries as part of the Company's assumptions process.
The weighted average assumptions used in the measurement of benefit obligations are as follows:
Weighted Average Assumptions
Discount rate
Rate of compensation increases
Health care cost trend rate
Pre-65
Post-65
Ultimate health care cost trend rate
Year ultimate reached
Retirement Benefits
2017
2016
Post-Retirement Benefits
2017
2016
3.45%
—
3.73%
—
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
3.50%
(1)
6.30%
7.40%
4.50%
2037
3.75%
(1)
6.50%
7.80%
4.50%
2037
The weighted average assumptions used to determine net periodic benefit costs are as follows:
Weighted Average Assumptions
Discount rate
Expected long-term return on plan assets
(1) Not applicable
Retirement Benefits
Post-Retirement Benefits
2017
2016
2017
2016
3.73%
5.69%
3.97%
5.68%
3.75%
(1)
3.99%
(1)
Healthcare rate trends have a significant effect
determine healthcare rate trends. An increase (decrease) of one-percentage point in assumed healthcare rate trends would
on healthcare plan costs. The Company uses both external and historical data to
ff
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
increase (decrease) the postretirement benefit obligation by $0.7 million and ($0.6 million), respectively. The service and interest
cost are not material.
CIT ANNUAL REPORT 2017 165
Plan Assets
CIT maintains a "Statement of Investment Policies and Objectives" which specifies guidelines for the investment, supervision and
monitoring of pension assets in order to manage the Company's objective of ensuring sufficient
funds to finance future retirement
benefits. The asset allocation policy allows assets to be invested between 15% to 35% in Equities, 35% to 65% in Fixed-Income,
15% to 25% in Global Asset Allocation, and 5% to 10% in Alternative Investments. The asset allocation follows a Liability Driven
Investing ("LDI") strategy. The policy provides specific guidance on asset class objectives, fund manager guidelines and
identification of prohibited and restricted transactions. It is reviewed periodically by the Company's Investment Committee and
external investment consultants.
ff
There were no direct investments in equity securities of CIT or its subsidiaries included in pension plan assets in any of the years
presented.
Plan investments are stated at fair value. Common stock traded on security exchanges as well as mutual funds, exchange
traded funds and short term investment funds are valued at closing market prices. Such investments are considered Level 1 per
fair value hierarchy. Investments in Common Collective Trusts and Alternative Investment Funds are carried at fair value based
upon reported net asset values ("NAV").AA
ASU 2015-7 removes the requirements to categorize investments for which fair value is
measured using the NAVAA per share as practical expedient from the fair value hierarchy.
There were no transfers of assets between Levels during 2017 and 2016. The tables below set forth asset fair value
measurements.
Fair Value Measurements (dollars in millions)
Level 1
Level 2
Level 3
Not Classified1
December 31, 2017
Cash
Mutual Fund
Exchange Traded Funds
Common Stock
Short Term Investment Fund, measured at NAV
Common Collective Trust, measured at NAV
Partnership, measured at NAV
AA
AA
Hedge Fund, measured at NAV
AA
AA
December 31, 2016
Cash
Mutual Fund
Exchange Traded Funds
Common Stock
Short Term Investment Fund, measured at NAV
Insurance Contracts, measured at NAV
Common Collective Trust, measured at NAV
AA
Partnership, measured at NAV
AA
Hedge Fund, measured at NAV
AA
AA
AA
$
$
$
$
$
$
8.3
82.5
18.6
21.5
.2
1
—
—
—
132.1
5.8
69.9
26.1
16.0
1
.4
—
—
—
—
119.2
$
$
$
$
$
$
— $
—
—
—
—
—
—
—
$
— $
— $
—
—
—
—
—
—
—
—
$
— $
— $
—
—
—
—
—
—
—
$
— $
— $
—
—
—
—
6.1
—
—
—
6.1
$
$
Total Fair Value
8.3
82.5
18.6
21.5
1.2
206.8
9.9
25.5
374.3
— $
—
—
—
—
206.8
9.9
25.5
242.2
$
$
— $
—
—
—
—
—
195.2
8.6
26.4
230.2
$
$
5.8
69.9
26.1
16.0
1.4
6.1
195.2
8.6
26.4
355.5
(1)
These investments have been measured using the net asset value per share practical expedient and are not required to be classified in the
table above, in accordance with ASU 2015-7.
The table below sets forth changes in the fair value of the Plan's Level 3 assets for the year ended December 31, 2017:
Fair Value of Level 3 Assets (dollars in millions)
December 31, 2016
Realized and Unrealized losses
Purchases, sales, and settlements, net
December 31, 2017
Contributions
Insurance
Contracts
$
$
$
6.1
(0.3)
)
(
(5.8)
—
The Company's policy is to make contributions so that they exceed the minimum required by laws and regulations, are consistent
with the Company's objective of ensuring sufficient
funds to finance future retirement benefits and are tax deductible. CIT
ff
166 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
currently does not expect to have a required minimum contribution to the U.S. Retirement Plan during 2018. For all other plans,
CIT currently expects to contribute $10 million during 2018.
Estimated Future Benefit Payments
The following table depicts benefits projected to be paid from plan assets or from the Company's general assets calculated using
current actuarial assumptions. Actual benefit payments may differ
from projected benefit payments.
ff
Projected Benefits (dollars in millions)
For the years ended December 31,
2018
2019
2020
2021
2022
2023 – 2027
Savings Incentive Plan
Retirement
Benefits
Gross
Postretirement
Benefits
Medicare
Subsidy
Receipts
$
$
28.0
27.2
29.0
29.1
28.0
138.0
$
2.9
2.9
2.8
2.7
2.6
11.4
0.2
0.3
0.3
0.3
0.3
0.5
CIT has a number of defined contribution retirement plans covering certain of its U.S. employees which qualify under section 401
(k) of the Internal Revenue Code. Generally, employees may contribute a portion of their eligible compensation, as defined,
subject to regulatory limits and plan provisions, and the Company matches these contributions up to a threshold. Participants are
also eligible for an additional discretionary company contribution. The cost of these plans totaled $18.7 million, $15.8 million and
$19.0 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Stock-Based Compensation
Incentive Plan (the "Prior Plan"). The number of shares of common stock that may be issued for all
In February 2016, the Company adopted the CIT Group Inc. 2016 Omnibus Incentive Plan (the "2016 Plan"), which provides for
grants of stock-based awards to employees, executive officers
Group Inc. Long-TermTT
purposes under the 2016 Plan is (1) 5 million shares plus (2) the number of authorized Shares remaining available under the
Prior Plan plus (3) the number of Shares relating to awards granted under the Prior Plan that subsequently are forfeited, expire,
terminate or otherwise lapse or are settled for cash, in whole or in part, as provided by the 2016 Plan — 5,405,837 at
December 31, 2017 (excludes 2,775,499 shares underlying outstanding awards granted to employees and/or directors that are
unvested and/or unsettled.) Currently under the 2016 Plan, the issued and unvested awards consist mainly of Restricted Stock
Units ("RSUs") and Performance Stock Units ("PSUs").
and directors, and replaced the Amended and Restated CIT
ff
Compensation expense related to equity-based awards are measured and recorded in accordance with ASC 718, Stock
Compensation. The fair value of RSUs and PSUs are based on the fair market value of CIT's common stock on the date of grant.
Compensation expense is recognized over the vesting period (requisite service period), which is generally three years for
restricted stock/units, under the graded vesting method, whereby each vesting tranche of the award is amortized separately as if
each were a separate award. Compensation expenses for PSUs that cliffff vest are recognized over the vesting period, which is
generally three years, and on a straight-line basis.
Operating expenses includes $41.9 million of compensation expense related to equity-based awards granted to employees or
members of the Board of Directors for the year ended December 31, 2017, including $41.3 million related to restricted and
retention stock and unit awards and the remaining related to stock purchases. Compensation expense related to equity-based
awards included $36.6 million in 2016 and $63.4 million in 2015. Total unrecognized compensation cost related to nonvested
awards was $21.9 million at December 31, 2017. That cost is expected to be recognized over a weighted average period of 1.88
years.
Employee Stock Purchase Plan
In December 2010, the Company adopted the CIT Group Inc. 2011 Employee Stock Purchase Plan (the "ESPP"), which was
approved by shareholders in May 2011. Eligibility for participation in the ESPP includes employees of CIT and its participating
subsidiaries, except that any employees designated as highly compensated are not eligible to participate in the ESPP. The ESPP
is available to employees in the United States and to certain international employees. Under the ESPP,P CIT is authorized to issue
up to 2,000,000 shares of common stock to eligible employees. Eligible employees can choose to have between 1% and 10% of
their base salary withheld to purchase shares quarterly, at a purchase price equal to 85% of the fair market value of CIT common
stock on the last business day of the quarterly offering
period. The amount of common stock that may be purchased by a
participant through the ESPP is generally limited to $25,000 per year. A total of 54,684, 72,325, and 46,770 shares were
purchased under the plan in 2017, 2016 and 2015, respectively.
ff
Restricted Stock Units and Performance Stock Units
Under the 2016 Plan, RSUs and PSUs are awarded at no cost to the recipient upon grant. RSUs are generally granted annually
at the discretion of the Company, but may also be granted during the year to new hires or for retention or other purposes. RSUs
granted to employees and members of the Board during 2017 and 2016 generally were scheduled to vest either one third per
year for three years or 100% after three years. Beginning in 2014, RSUs granted to employees were also subject to
performance-based vesting based on the Company's pre-tax income results or beginning in 2016, for certain employees, a
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 167
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
minimum Tier 1 Capital ratio. A limited number of vested stock awards are scheduled to remain subject to transfer restrictions
through the first anniversary of the grant date for members of the Board who elected to receive stock in lieu of cash
compensation for their retainer. Certain RSUs granted to directors, and in limited instances to employees, are designed to settle
in cash and are accounted for as "liability" awards as prescribed by ASC 718. The values of these cash-settled RSUs are re-
measured at the end of each reporting period until the award is settled.
Certain senior executives receive long-term incentive (LTI)LL
awards, which are generally granted at the discretion of the Company
annually. During 2017 and 2016, LTI has been awarded 50% in the form of Performance Share Units (PSUs) based on after-tax
Return on Tangible Common Stockholder's Equity (ROTCE), and 50% in the form of performance based RSUs (described
above). A total shareholder return (TSR) adjustment factor, described more fully below, was introduced to the 2016 PSUs. During
2015, LTI was awarded by the Company as two forms of PSUs.
The 2017 PSUs may be earned at the end of a three-year performance period (2017 - 2019) based on after-tax ROTCE, which
may be increased or decreased by up to 20% depending on the Company’s 3-year cumulative TSR results relative to the
component companies of the KBW Nasdaq Bank Index for the performance period. No increase is permitted if the Company’s
TSR for the performance period is negative, and the overall payout for the 2017 PSUs, including the TSR adjustment factor, may
range from 0% to a maximum of 150% of target. The 2016 PSUs may be earned at the end of a three-year performance period
(2016 — 2018) from 0% to 150% of target based on after-tax ROTCE. The first form of 2015 PSUs, "2015 PSUs-Return on
Average Earnings Assets (ROA) / Earnings Per Share (EPS)," may also be earned at the end of a three-year performance period
(2015 — 2017) from 0% to 150% of target based on performance against two pre-established performance measures: fully
diluted EPS (weighted 75%) and pre-tax ROA (weighted 25%). The second form of 2015 PSUs, "2015 PSUs-PreTaxTT ROTCE,"
are earned in each year during a three-year performance period (2015 — 2017) from 0% to a maximum of 150% of target based
on pre-tax ROTCE as follows: (1) one-third based on the pre-tax ROTCE for the first year of the performance period; (2) one-
third based on the average pre-tax ROTCE for the first two years of the performance period; and (3) one-third based on the
three-year average ROTCE during the performance period. Performance measures for all PSU awards have a minimum
threshold level of performance that must be achieved to trigger any payout; if the threshold level of performance is not achieved,
then no portion of the PSU target will be payable.
The fair value of RSUs and PSUs that vested and settled in stock during 2017, 2016 and 2015 was $59.0 million, $52.4 million
and $56.2 million, respectively. The fair value of RSUs that vested and settled in cash during 2017, 2016 and 2015 was $0.3
million, $0.2 million and $0.2 million, respectively.
The following tables summarize restricted stock and RSU activity for 2017 and 2016:
Stock and Cash — Settled Awards Outstanding
December 31, 2017
Unvested at beginning of period
Vested / unsettled awards at beginning of period
PSUs - granted to employee
PSUs - adjustments for performance versus targets
RSUs - granted to employees
RSUs - granted to directors
Forfeited / cancelled
Vested / settled awards
Vested / unsettled awards
Unvested at end of period
December 31, 2016
Unvested at beginning of period
Vested / unsettled awards at beginning of period
PSUs - granted to employee
PSUs - incremental for performance above 2012-14 targets
RSUs - granted to employees
RSUs - granted to directors
Forfeited / cancelled
Vested / settled awards
Vested / unsettled awards
Unvested at end of period
Stock-Settled Awards
Cash-Settled Awards
Number of
Shares
Weighted
Average Grant
Date Value
Number of
Shares
Weighted
Average Grant
Date Value
3,043,451
243,335
194,979
(30,758)
826,634
32,623
(144,615)
(1,390,151)
(246,057)
)
(
,
,
2,529,441
3,384,297
39,626
284,640
19,938
1,429,554
38,957
(276,627)
(1,633,599)
(243,335)
)
(
,
,
3,043,451
$
$
$
$
37.70
46.10
41.67
47.76
41.30
46.03
36.41
40.92
45.09
37.55
45.55
40.46
32.80
42.21
30.32
33.37
38.61
45.28
46.10
37.70
12,072
—
—
—
—
8,506
—
(5,507)
—
,
15,071
9,623
—
—
—
—
7,496
—
(5,047)
—
,
12,072
$
$
$
$
37.81
—
—
—
—
46.66
—
39.42
—
42.22
44.97
—
—
—
—
33.35
—
44.83
—
37.81
168 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
NOTE 21 - COMMITMENTS
The accompanying table summarizes credit-related commitments, as well as purchase and funding commitments:
Commitments (dollars in millions)
Financing Commitments
Financing assets
Letters of credit
Standby letters of credit
Other letters of credit
Guarantees
Deferred purchase agreements
Guarantees, acceptances and other recourse obligations
Purchase and Funding Commitments
Aerospace purchase commitments(1)
Rail and other purchase commitments
December 31, 2017
Due to Expire
December 31,
2016
Within One
Year
After One Year
Total
Outstanding
Total
Outstanding
$
1,594.9
$
4,669.6
$
6,264.5
$
6,008.1
21.2
14.2
2,068.1
2.1
—
187.8
192.1
—
—
—
—
8.3
213.3
14.2
2,068.1
2.1
—
196.1
232.2
14.0
2,060.5
1.6
8,683.5
300.7
(1) The Aerospace purchase commitments in the table above are associated with Aerospace discontinued operations, which were transferred
to the purchaser when Aerospace was sold in April 2017.
Discontinued operations
Financing commitments include HECM reverse mortgage loan commitments associated with Financial Freedom discontinued
operations of $34 million at December 31, 2017 and $42 million at December 31, 2016. 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 reverse mortgage loans in connection with the
Financial Freedom Transaction. Upon investor consent to servicing transfer in connection with the sale, CIT shall no longer have
this obligation. Refer to 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 $881.3 million at December 31, 2017 and $572 million at December 31, 2016. 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
$190 million at December 31, 2017 and $335 million at December 31, 2016. As financing commitments may not be fully drawn,
may expire unused, may be reduced or canceled 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 $1.6 billion and $1.7 billion of undrawn financing commitments at December 31, 2017
and December 31, 2016, respectively, 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 December 31, 2017, substantially all undrawn financing commitments were senior facilities. Most of the Company's undrawn
and available financing commitments are in the Commercial Banking segment.
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
The 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. As of December 31, 2017 and
December 31, 2016, $134 million and $145 million, respectively, had been advanced on the reverse mortgage loans post March
2009. The Company's exposure for additional draws on loan commitments on these purchased reverse mortgage loans was $66
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
million at December 31, 2017 and $55 million at December 31, 2016. 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. See Note 5 — Indemnification Assets for further discussion on the loss sharing agreements with the FDIC.
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.
CIT ANNUAL REPORT 2017 169
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")PP
protection for trade receivables without purchasing the receivables. The trade receivable terms are generally ninety 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.PP
described above, thereby requiring CIT to purchase all such receivables from the DPAPP clients.
is provided in conjunction with factoring, whereby CIT provides a client with credit
This maximum amount would only occur if all receivables subject to DPAsPP
default in the manner
The table above includes $1,979 million and $1,962 million of DPAPP credit protection at December 31, 2017 and December 31,
2016, 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 $89 million and $99 million available under DPAPP credit line
agreements, net of the amount of DPAPP credit protection provided at December 31, 2017 and December 31, 2016, respectively.
The DPAPP credit line agreements specify a contractually committed amount of DPAPP 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 DPAPP liability is similar to the methodology used to determine the allowance for loan
losses associated with the finance 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 DPAsPP
totaled $5.3 million and $6.1 million at December 31, 2017 and December 31, 2016, respectively.
Purchase and Funding Commitments
CIT's purchase commitments relate primarily to purchases of rail equipment.
The Company's rail business entered into commitments to purchase railcars from multiple manufacturers. At December 31,
2017, approximately 1,550 railcars remain to be purchased from manufacturers with deliveries through 2019. Rail equipment
purchase commitments are at fixed prices subject to price increases for certain materials.
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 $67 million at December 31, 2017 and $62 million at December 31, 2016.
These commitments are payable on demand and are recorded in Other liabilities.
ff
NOTE 22 — CONTINGENCIES
Litigation and other Contingencies
ff
of predicting the outcome of Litigation matters, particularly when such matters are in their early
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
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
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.
on the Company's financial condition,
ff
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 $90 million in excess of established reserves and
insurance related to those matters, if any. This estimate represents reasonably possible losses (in excess of established
170 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
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 December 31, 2017. 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 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,TT 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
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 been filed in a general amnesty program.
a 2009
ff
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 does not have sufficient
information to make an assessment of the outcome or the
ff
impact of these cases.
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. In addition, Financial Freedom is the servicer of HECM loans owned by third party investors.
Beginning in the third quarter of 2015, the Officeff
subpoenas on the Company regarding HECM loans. The subpoenas requested 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 settlement was within CIT’s existing reserves and included interest to be reimbursed to HUD. CIT has provided
information and documents responsive to the subpoena’s request for information relating to the mortgage originations and does
not currently expect the outcome of the remaining loan origination matter to have a material adverse effect
condition or results of operations.
of the Inspector General for HUD (the "HUD OIG"), served a series of
on CIT’s financial
ff
NY Attorney General
In the second quarter of 2017, the Officeff
Company regarding HECM loans. The subpoena requested documents and other information related to Financial Freedom’s
HECM loan business in the State of New York. The NYAGYY
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
has produced certain documents. The Company does not have sufficient
the impact of the NYAG’s
of the Attorney General of the State of New York (“NYAG”),
information to make an assessment of the outcome or
served a subpoena on the
ongoing inquiry.
officeff
YY
YY
YY
ff
and
Ocwen 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 were transferred; except for certain Agency fees or loan repurchase amounts. As of September 30, 2017,
the cumulative indemnification payments totaled approximately $56 million, which reduced the Company’s $150 million
maximum potential indemnity obligation to Ocwen. On August 12, 2016, Ocwen filed a Demand for Arbitration against CIT
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 171
alleging that CIT failed to meet its contractual obligations to indemnify Ocwen for losses allegedly suffered
sale. Among other things, Ocwen alleged that CIT failed to perform its obligations under the sale agreement and breached its
representations and warranties in the agreement. On November 30, 2017, the Company filed a Form 8-K announcing that CIT
and Ocwen agreed to a settlement of $29.9 million to resolve the claims and that the Company was adequately reserved for the
settlement which would not have a material effect
on the Company’s financial condition or results of operations.
in connection with the
ff
ff
Mortgage Servicing Consent Orders
of Thrift Supervision in April 2011. Following IMB Holdco’s conversion to a bank holding company the
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 Officeff
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 Order in place and oversight
was transferred to the Federal Reserve Bank New York and CIT succeeded to the Consent Order obligations. The improvements
required by the Consent Order had been implemented including the completion of an Independent Foreclosure Review in 2014,
resulting in approximately $12.7 million of remediation payments being made to borrowers. On January 12, 2018, the FRB
announced the termination of enforcement actions related to residential mortgage loan servicing and foreclosure processing
issued in 2011 and 2012 against 10 banks including CIT. The FRB also announced civil money penalties against certain of the
banks that had not yet been fined for their mortgage servicing deficiencies related to those enforcement actions. CIT was
adequately reserved for the penalty which will not have a material effect
on the Company’s financial condition or results of
operations.
ff
NOTE 23 — LEASE COMMITMENTS
Lease Commitments
The following table presents future minimum rental payments under non-cancellable long-term lease agreements for premises
and equipment at December 31, 2017:
Future Minimum Rentals (dollars in millions)
Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
$
$
$
47.5
46.0
40.1
29.6
16.9
69.7
249.8
In addition to fixed lease rentals, leases generally require payment of maintenance expenses and real estate taxes, both of
which are subject to escalation provisions. Minimum payments include $49.2 million ($16.4 million for 2018) which will be
recorded against the facility exiting liability when paid and therefore will not be recorded as rental expense in future periods.
Minimum payments have not been reduced by minimum sublease rentals of $39.9 million due in the future under non-
cancellable subleases which will be recorded against the facility exiting liability when received.
Rental expense for premises and equipment was as follows. The 2015 balances include five months of activity related to
OneWest Bank.
(dollars in millions)
Premises
Equipment
Total
Years Ended December 31,
2017
2016
2015
$
$
34.9
1.7
36.6
$
$
42.1
1.7
43.8
$
$
28.7
1.8
30.5
NOTE 24 — CERTAIN RELATIONSHIPS
AA
AND RELATEDAA
TRANSACTIONS
CIT has an equity interest in Strategic Credit Partners Holdings LLC (the "JV"), a joint venture between CIT Group Inc. ("CIT")
and TPG Special Situations Partners ("TSSP"). The JV extends credit in senior-secured, middle-market corporate term loans,
and, in certain circumstances, is a participant to such loans. The JV may participate in corporate loans originated by CIT or other
third party lenders. 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 the year ended December 31, 2017, loans of $241.1 million were sold
to the joint venture. CIT also maintains an equity interest of 10% in the JV,V and our investment was $7.3 million and $5.4 million
at December 31, 2017 and 2016, respectively.
On July 10, 2017, CIT Northbridge Credit LLC (“Northbridge”) was formed. Northbridge is an asset-based-lending joint venture
between CIT Bank, N.A. (“CIT Bank”) and Allstate Insurance Company and its subsidiary (“Allstate”) that will extend credit in
asset-based lending middle-market loans. CIT holds a 20% equity investment in Northbridge, and CIT Asset Management LLC,
172 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
a non-bank subsidiary of CIT,TT acts as an investment advisor and servicer of the loan portfolio; Allstate is an 80% equity investor.
At December 31, 2017 CIT’s investment was $5 million, with the expectation of additional investment as the joint venture grows.
Management fees were earned by CIT on loans under management. The joint venture is not consolidated and the investment is
being accounted for using the equity method.
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 $248 million and $220 million at December 31, 2017, and 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.
NOTE 25 — BUSINESS SEGMENT INFORMATION
AA
Management's Policy in Identifying Reportable Segments
CIT's reportable segments are primarily based upon industry categories, geography, target markets and customers served, and,
to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing and the
nature of their regulatory environment. This segment reporting is reflective of the Company's internal reporting structure and is
consistent with the presentation of financial information to the chief operating decision maker.
Types of Products and Services
Commercial Banking consists of four divisions. Through its Commercial Finance, Real Estate Finance, and Business Capital
divisions, Commercial Banking provides lending, leasing and other financial and advisory services, primarily to small and middle-
market companies across select industries. Business Capital also provides factoring, receivables management products and
secured financing to the retail supply chain. The fourth division, Rail, provides equipment leasing and secured financing to the
rail industry. Revenue is generated from interest earned on loans, rents on equipment leased, fees and other revenue from
lending and leasing activities, capital markets transactions and banking services, commissions earned on factoring and related
activities, and to a lesser extent, interest and dividends on investments. Revenue is also generated from gains on asset sales.
Consumer Banking includes Other Consumer Banking and Legacy Consumer Mortgages.
ff
mortgage loans, and deposits to its consumer customers. The division offers
Other Consumer Banking offers
mortgage loans and conforming residential mortgage loans, primarily in Southern California. Mortgage loans are originated
directly through leads generated from the retail branch network, the commercial business units, as well as indirectly through
institutional intermediaries. Consumer lending includes product specialists, internal sales support and origination processing,
structuring and closing. Retail banking is the primary deposit gathering business of CIT Bank and operates through 70 retail
branches in Southern California and an online direct channel. We offer
the needs of our customers, including: checking, money market, savings, certificates of deposit, residential mortgage loans, and
fiduciary services. The division also originates qualified Small Business Administration ("SBA") 504 loans (generally, the
financing provides growing small businesses with long-term, fixed-rate financing for major fixed assets, such as land and
building) and 7(a) (generally, for purchase/refinance of owner occupied commercial real estate, working capital, acquisition of
inventory, machinery, equipment, furniture, and fixtures, the refinance of outstanding debt subject to any program guidelines, and
acquisition of businesses, including partnership buyouts).
a broad range of deposit and lending products to meet
jumbo residential
ff
ff
LCM holds the reverse mortgage and SFR mortgage portfolios acquired in the OneWest Transaction. Certain of these assets
and related receivables include loss sharing arrangements with the FDIC, which will continue to reimburse CIT Bank, N.A. for
certain losses realized due to foreclosure, short-sale, charge-offsff or a restructuring of a single family residential mortgage loan
pursuant to an agreed upon loan modification framework.
NSP includes businesses and portfolios that we no longer consider strategic. The China portfolio was predominately the
remaining operation at December 31, 2017.
Corporate and Other
Certain items are not allocated to operating segments and are included in Corporate & Other. Some of the more significant 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 (operating expenses), certain intangible asset amortization expenses (other expenses)
and loss on debt extinguishments.
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Segment Profit and Assets
The following table presents segment data. The 2015 include results of OneWest Bank's operations for approximately five
months compared to a full year in 2016.
Segment Pre-tax Income (Loss) (dollars in millions)
CIT ANNUAL REPORT 2017 173
For the year ended December 31, 2017
Interest income
Interest expense (benefit)
Provision for credit losses
Rental income on operating leases
Other non-interest income
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Goodwill impairment
Operating expenses / loss on debt extinguishment
Income (loss) from continuing operations before
provision (benefit) for income taxes
Select Period End Balances
Loans
Credit balances of factoring clients
Assets held for sale
Operating lease equipment, net
For the year ended December 31, 2016
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Goodwill impairment
Operating expenses / loss on debt extinguishment
Income (loss) from continuing operations before
provision (benefit) for income taxes
Select Period End Balances
Loans
Credit balances of factoring clients
Assets held for sale
Operating lease equipment, net
For the Year Ended December 31, 2015
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income
Depreciation on operating lease equipment
Maintenance and other operating lease costs
Operating expenses / loss on debt extinguishment
Income (loss) from continuing operations before
provision (benefit) for income taxes
Select Period End Balances
Loans
Credit balances of factoring clients
Assets held for sale
Operating lease equipment, net
Commercial
Banking
Consumer
Banking
Non-Strategic
Portfolios
Corporate &
Other
Total CIT
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,248.0
517.7
88.7
1,007.4
291.0
296.3
222.9
255.6
691.7
473.5
23,159.3
(1,468.6)
1,334.2
6,738.9
1,287.9
519.1
183.1
1,020.0
293.8
261.1
213.6
34.8
761.6
628.4
22,562.3
(1,292.0)
357.7
7,486.1
1,029.1
481.4
143.7
981.4
302.6
218.3
185.1
727.4
557.2
23,332.4
(1,344.0)
435.1
6,851.7
$
$
$
$
378.1
(51.8)
25.9
—
4.1
—
—
—
401.5
6.6
5,954.6
—
865.6
—
420.8
10.2
11.7
—
40.0
—
—
319.4
380.9
$
22.9
15.2
—
—
3.1
—
—
—
12.7
$
186.6
236.6
—
—
66.0
—
—
—
302.6
1,835.6
717.7
114.6
1,007.4
364.2
296.3
222.9
255.6
1,408.5
(1.9) $
(286.6) $
191.6
— $
—
63.3
—
$
80.8
47.2
(0.1)
11.6
52.1
—
—
—
42.2
— $
—
—
—
29,113.9
(1,468.6)
2,263.1
6,738.9
$
122.0
176.7
—
—
(235.3)
—
—
—
111.3
1,911.5
753.2
194.7
1,031.6
150.6
261.1
213.6
354.2
1,296.0
(261.4) $
55.2
$
(401.3) $
20.9
$
$
6,973.6
—
68.2
—
176.1
24.9
8.7
—
5.4
—
—
158.4
— $
—
210.1
—
$
184.8
121.4
6.2
36.7
(96.8)
10.9
—
123.9
— $
—
—
—
29,535.9
(1,292.0)
636.0
7,486.1
$
55.2
103.7
—
—
(61.6)
—
—
112.9
1,445.2
731.4
158.6
1,018.1
149.6
229.2
185.1
1,122.6
(10.5) $
(137.7) $
(223.0) $
186.0
$
7,186.3
—
45.1
—
— $
—
1,577.5
—
— $
—
—
—
30,518.7
(1,344.0)
2,057.7
6,851.7
174 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Geographic Information
The following table presents information by major geographic region based upon the location of the Company's legal entities.
Geographic Region (dollars in millions)
U.S.
Europe
Other foreign
Total consolidated
Total Assets(1)
Total Revenue
from continuing
operations
Income (Loss)
from continuing
operations before
provision (benefit)
for income taxes
Income (loss)
from continuing
operations before
attribution of
noncontrolling
interests
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
$
$
46,825.9
53,252.9
55,491.1
1,424.0
8,575.7
8,351.8
1,028.8
2,341.6
3,549.0
49,278.7
64,170.2
67,391.9
$
3,046.1
2,755.6
2,084.5
119.6
139.7
125.0
41.5
198.4
403.4
3,207.2
3,093.7
2,612.9
$
251.9
157.5
227.6
(34.5)
(189.2)
(227.6)
(25.8)
52.6
186.0
191.6
20.9
186.0
287.3
99.3
876.7
(19.8)
(246.8)
(304.6)
(8.1)
(35.1)
151.9
259.4
(182.6)
724.0
(1)
Includes Assets of discontinued operation of $501.3 million at December 31, 2017, $13,220.7 million at December 31, 2016 and $13,059.6
million at December 31, 2015.
NOTE 26 — GOODWILL AND INTANGIBLE
TT
ASSETS
The following table summarizes the goodwill balance by segment.
Goodwill (dollars in millions)
December 31, 2015(1)
Impairment(2)
Other activity(3)
December 31, 2016
Impairment(2)
Transfers to Held for Sale
Foreign exchange translation
December 31, 2017
Commercial
Banking
Consumer
Banking
Total
$
$
$
689.0
(34.8)
)
(
(12.0)
642.2
(255.6)
(65.1)
5.2
326.7
$
$
$
374.2
(319.4)
)
(
(11.6)
43.2
—
—
—
43.2
$
$
$
1,063.2
(354.2)
)
(
(23.6)
685.4
(255.6)
(65.1)
5.2
369.9
(1)
(2)
(3)
In preparing the interim financial statements for the quarter ended June 30, 2016, the Company discovered and corrected an immaterial
error impacting the December 31, 2015 goodwill allocation among Consumer Banking and Commercial Banking in the amount of $23.2
million. The reclassification had no impact on the Company's Balance Sheet and Statements of Income or Cash Flows for any period.
The impairment charges exclude goodwill impairment recorded upon transfer of assets to held for sale of $4 million and $15 million for the
years ended December 31, 2016 and 2015, respectively.yy
Includes measurement period adjustments related to the OneWestWW transaction, as described below,ww and foreign exchange translation.
The December 31, 2015 goodwill included amounts from CIT's emergence from bankruptcy in 2009, and its 2014 acquisitions of
Capital Direct Group and its subsidiaries ("Direct Capital"), and NACCO, an independent full service railcar lessor in Europe. On
January 31, 2014, CIT acquired 100% of the outstanding shares of Paris-based NACCO. The purchase price was approximately
$250 million and the acquired assets and liabilities were recorded at their estimated fair values as of the acquisition date,
resulting in $77 million of goodwill. On August 1, 2014, CIT Bank acquired 100% of Direct Capital, a U.S. based lender providing
equipment financing to small and mid-sized businesses operating across a range of industries. The purchase price was
approximately $230 million and the acquired assets and liabilities were recorded at their estimated fair values as of the
acquisition date resulting in approximately $170 million of goodwill. In addition, intangible assets of approximately $12 million
were recorded relating mainly to the valuation of existing customer relationships and trade names.
On August 3, 2015, CIT acquired 100% of IMB HoldCo LLC, the parent company of OneWest Bank. The purchase price was
approximately $3.4 billion and the acquired assets and liabilities were recorded during the third quarter 2016 at their estimated
fair value as of the acquisition date resulting in $598 million of goodwill recorded in the third quarter of 2016, which was
ultimately adjusted to $642.5 million as a result of measurement period adjustments. The determination of estimated fair values
required management to make certain estimates about discount rates, future expected cash flows (that may reflect collateral
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 175
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
values), market conditions and other future events that are highly subjective in nature and may require adjustments, which can
be updated throughout the year following the acquisition. Subsequent to the acquisition, management continued to review
information relating to events or circumstances existing at the acquisition date. This review resulted in adjustments to the
acquisition date valuation amounts, which decreased the goodwill balance from $663 million as of December 31, 2015, to $642.5
million as of the end of the measurement period in the third quarter of 2016. Prior to the impairment charge of $319.4 million
taken during the fourth quarter of 2016, $362.6 million of the goodwill balance was associated with the Consumer Banking
business segment. The remaining goodwill was allocated to the Commercial Finance and Real Estate Finance reporting units in
Commercial Banking. Additionally, intangible assets of approximately $165 million were recorded relating mainly to the valuation
of core deposit intangibles, trade name and customer relationships, as detailed in the table below.
The table above does not include approximately $136 million of goodwill that was transferred to discontinued operations as a
result of the movement of the Commercial Air and Business Air businesses to discontinued operations during 2016. In addition,
during the second quarter of 2017, we announced that we reached a definitive agreement to sell NACCO, and therefore
transferred the portfolio to held for sale. As a result, approximately $65 million of goodwill within Commercial Banking, including
foreign exchange translation adjustments, was transferred to held for sale.
Once goodwill has been assigned, it no longer retains its association with a particular event or acquisition, and all of the activities
within a reporting unit, whether acquired or internally generated, are available to support the value of goodwill.
In accordance with ASC 350, Intangibles — Goodwill and other, goodwill is assessed for impairment at least annually, or more
often if events or circumstances have changed significantly from the annual test date that would indicate a potential reduction in
the fair value of the reporting unit below its carrying value. CIT defines its reporting units as Commercial Finance, Real Estate
Finance, Equipment Finance, Commercial Services, Rail and Consumer Banking.
The Company performs its annual goodwill impairment test during the fourth quarter of each year or more often if events or
circumstances have changed significantly from the annual test date, utilizing data as of September 30 to perform the test.
Accordingly, during the fourth quarter of 2017, the Company performed its annual goodwill impairment test.
As discussed in Note 1 - Business and Summary of Significant Accounting Policies, the Company adopted ASU 2017-04,
Intangibles - Goodwill and Other (Topic
impairment charge based on the excess of a reporting unit's carrying amount over its fair value (the "quantitative impairment
test"). Companies can also choose to assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, before applying the quantitative approach.
350): Simplifying the Test for Goodwill Impairment which requires entities to record an
TT
For 2017, we performed the quantitative impairment test for all Reporting Units ("RUs"), including Commercial Finance,
Commercial Services, Equipment Finance, Rail, Real Estate Finance and Consumer Banking.
Fair Value
Determining the value of the RUs as part of the quantitative impairment test involves significant judgment. The Company used a
combination of the Income Approach (i.e. discounted cash flow method) and the Market Approach (i.e. Guideline Public
Company ("GPC") and, where applicable, Guideline Merged and Acquired Company ("GMAC") methods) to determine the fair
value.
In the application of the Income Approach, the Company determined the fair value of the RUs using a discounted cash flow
("DCF") analysis. The DCF model uses earnings projections and respective capitalization assumptions based on two-year
financial plans presented to the Board of Directors. Beyond the initial two-year period, the projections converge toward a
constant long-term growth rate of up to 3% based on the projected revenues of the RU, as well as expectations for the
development of gross domestic product and inflation, which are captured in the terminal value. Estimating future earnings and
capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and
regulatory environments.
The cash flows determined based on the process described above are discounted to their present value. The discount rate (cost
of equity) applied is comprised of a risk-free interest rate, an equity risk premium, a size premium and a factor covering the
systematic market risk (RU-specific beta) and, where applicable, a company specific risk premium. The values for the factors
applied are determined primarily using external sources of information. The RU-specific betas are determined based on a group
of peer companies. The discount rates applied to the RUs ranged from 10% to 12.75%.
In our application of the market approach, for the GPC Method, the Company applied market based multiples derived from the
stock prices of companies considered by management to be comparable to each of the RUs, to various financial metrics for each
of the Reporting Units, as determined applicable to those reporting units, including tangible book or book value, earnings and
projected earnings. In addition, the Company applied a 25% control premium based on our review of transactions observable in
the market place that we determined were comparable. The control premium is management's estimate of how much a market
participant would be willing to pay over the fair market value for control of the business.
With respect to the application of the GMAC method, the Company used actual prices paid in merger and acquisition
transactions for similar public and private companies in the banking industry. The multiples were then applied to relevant financial
metrics of the RUs.
A weighting is ascribed to each of the results of the Income and Market approaches to determine the concluded fair value of
each RU. The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology for
each specific RU.
176 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Estimating the fair value of reporting units involves the use of estimates and significant judgments that are based on a number of
factors including actual operating results. If current conditions change from those expected, it is reasonably possible that the
judgments and estimates described above could change in future periods.
Carrying Amount
The carrying amount of the RUs is determined using a capital allocation methodology. The allocation uses the Company's total
equity at the date of valuation, which is allocated to each of the Company's businesses, including the RUs, and to the other
areas of the Company not included in the RUs. The allocation is informed by internal analysis and the current target regulatory
capital of the Company, to determine the allocated capital.
Based on the quantitative analysis, as described above, the Company concluded that the carrying amount of the Equipment
Finance and Commercial Services RUs exceeded their estimated fair value and thus the Company recorded an impairment of
the Equipment Finance and Commercial Services RUs of $247.0 million and $8.6 million, respectively, representing the full
amount of goodwill assigned to the RUs.
As described above, approximately $170 million of Equipment Finance's goodwill was recorded in August of 2014 as a result of
the Direct Capital acquisition. Equipment Finance's remaining goodwill balance of approximately $80 million was attributed to
the RU at the time of emergence from bankruptcy in 2009. The impairment charge in 2017 was primarily the result of forecasted
margin compression on new business due to a limited ability to fully pass on interest rate increases to our higher yielding
customers, a shift in volume to lower yielding, lower risk businesses that are not yet at scale, and lower than expected end-of-
lease activity.
Goodwill for Commercial Services of approximately $43 million was attributed at the time of emergence from bankruptcy in 2009.
During 2016, the Company recorded goodwill impairment of $34.8 million for the RU as the fundamentals of the factoring
business had come under increasing pressure from a challenging retail environment and tighter pricing on factoring
commissions. The remaining goodwill of $8.6 million was impaired during the fourth quarter of 2017.
Intangible Assets
The following table presents the gross carrying value and accumulated amortization for intangible assets, excluding fully
amortized intangible assets.
Intangible Assets (dollars in millions)
Core deposit intangibles
Trade names
Customer relationships
Other
Total intangible assets
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
$
126.3
24.7
23.9
7.4
182.3
$
$
$
(43.6) $
(7.7)
(10.6)
)
(
(7.4)
) $
(69.3) $
(
82.7
17.0
13.3
—
113.0
$
$
$
126.3
27.4
23.9
9.7
187.3
$
$
$
(25.4) $
(6.1)
(7.1)
)
(
(8.0)
) $
(46.6) $
(
100.9
21.3
16.8
1.7
140.7
The following table presents the changes in intangible assets:
Intangible Assets Rollforward (dollars in millions)
December 31, 2015
Additions
Amortization(1)
December 31, 2016
Amortization(1)
Other(2)
December 31, 2017
Customer
Relationships
Core Deposit
Intangibles
Trade Names
Other
$
$
$
20.7
—
)
(3.9)
(
16.8
(3.5)
—
13.3
$
$
$
118.8
—
)
(17.9)
(
100.9
(18.2)
—
82.7
$
$
$
24.4
—
)
(3.1)
(
21.3
(2.8)
)
(
(1.5)
17.0
$
$
$
$
2.2
1.8
)
(2.3)
(
1.7
(0.8)
)
(
(0.9)
$
— $
Total
166.1
1.8
)
(27.2)
(
140.7
(25.3)
)
(
(2.4)
113.0
(1)
(2)
Includes amortization recorded in operating expenses and operating lease rental income.
Includes adjustments as a result of the transfer of NACCO to held for sale.
The intangible asset balances primarily reflect the intangibles recognized as a result of the OneWest Bank Transaction. The
largest component is related to the valuation of core deposits. Core deposit intangibles ("CDIs") represent future benefits arising
from non-contractual customer relationships (e.g., account relationships with the depositors) acquired from the purchase of
demand deposit accounts, including interest and non-interest bearing checking accounts, money market and savings accounts.
The Company's CDI has a finite life and is amortized on a straight line basis over the estimated useful life, with a remaining life of
five years. Amortization expense for the intangible assets is primarily recorded in operating expenses.
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 177
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Intangible assets prior to the OneWest Transaction included the operating lease rental intangible assets comprised of amounts
related to net favorable (above current market rates) operating leases. The intangible assets also include approximately $6.1
million, net, related to the valuation of existing customer relationships and trade names recorded in conjunction with the
acquisition of Direct Capital in 2014.
Accumulated amortization totaled $69.3 million at December 31, 2017. Projected amortization for the years ended December 31,
2018 through December 31, 2022, is approximately $23.8 million, $23.2 million, $22.8 million, $22.0 million, and $13.4 million,
respectively.
NOTE 27 — SEVERANCE AND FACILITY EXITING LIABILITIES
The following table summarizes liabilities (pre-tax) related to closing facilities and employee severance:
Severance and Facility Exiting Liabilities (dollars in millions)
December 31, 2015
Additions and adjustments
Utilization
December 31, 2016
Additions and adjustments
Utilization
December 31, 2017
Severance
Facilities
Number of
Employees
Liability
Number of
Facilities
Liability
Total
Liabilities
53
165
)
(183)
(
35
718
)
(215)
(
538
$
$
$
36.9
28.6
)
(62.3)
(
3.2
41.5
)
(16.4)
(
28.3
8
5
( )
(2)
11
3
( )
(4)
10
$
$
$
19.1
(0.6)
)
(
(3.4)
15.1
4.9
)
(
(5.0)
15.0
$
$
$
56.0
28.0
)
(65.7)
(
18.3
46.4
)
(21.4)
(
43.3
CIT continued to implement various organization efficiency
to employee termination benefits incurred in conjunction with these initiatives. The facility additions primarily relate to location
closings and consolidations in connection with these initiatives. These additions, along with charges related to accelerated
vesting of equity and other benefits, were recorded as part of the $53.0 million and $36.2 million provisions for the years ended
December 31, 2017 and 2016, respectively.
and cost reduction initiatives. The severance additions primarily relate
ff
NOTE 28 — PARENT COMPANYPP
FINANCIAL STATTT EMENTS
The following tables present the Parent Company only financial statements:
Condensed Parent Company Only Balance Sheets (dollars in millions)
Assets:
Cash and deposits
Cash held at bank subsidiary
Securities purchased under agreements to resell
Investment securities
Receivables from nonbank subsidiaries
Receivables from bank subsidiaries
Investment in nonbank subsidiaries
Investment in bank subsidiaries
Goodwill
Other assets
Total Assets
Liabilities and Equity:
Borrowings
Liabilities to nonbank subsidiaries
Liabilities to bank subsidiaries
Other liabilities
Total Liabilities
Total Stockholders' Equity
Total Liabilities and Equity
December 31,
2017
December 31,
2016
$
$
$
$
$
$
311.0
465.8
150.0
—
2,340.3
449.4
2,943.3
5,121.5
46.9
723.6
,
12,551.8
3,737.5
1,148.0
—
346.3
5,231.8
7,320.0
12,551.8
,
$
$
$
$
$
$
1,172.8
15.4
—
400.3
9,172.9
34.7
3,597.4
5,187.9
261.4
2,217.7
22,060.5
,
10,599.0
907.9
4.6
546.3
12,057.8
10,002.7
22,060.5
,
178 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
Condensed Parent Company Only Statements of Income and Comprehensive Income (dollars in millions)
Income
Interest income from nonbank subsidiaries
Interest and dividends on interest bearing deposits and investments
Dividends from nonbank subsidiaries
Dividends from bank subsidiaries
Other non-interest income from subsidiaries
Other non-interest income
Total income
Expenses
Interest expense
Interest expense on liabilities to subsidiaries
Other non-interest expenses
Total expenses
(Loss) income before income taxes and equity in undistributed net income of
subsidiaries
Provision (benefit) for income taxes
(Loss) income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of bank subsidiaries
Equity in undistributed net income of nonbank subsidiaries
Net income (loss)
Other Comprehensive income (loss), net of tax
Comprehensive income (loss)
Years Ended Years Ended December 31,
2017
2016
2015
160.5
7.4
—
359.0
194.0
)
(127.9)
(
593.0
324.7
50.3
499.4
874.4
(281.4)
163.4
(444.8)
(55.6)
968.6
468.2
53.6
521.8
$
$
$
$
488.3
2.7
399.9
223.0
146.3
21.0
1,281.2
548.2
51.1
565.0
1,164.3
116.9
)
(308.5)
(
425.4
(349.8)
)
(
(923.6)
(848.0)
2.0
) $
(846.0) $
(
435.1
3.2
630.3
459.2
(138.8)
128.8
1,517.8
570.7
43.9
267.2
881.8
636.0
)
(827.2)
(
1,463.2
(265.1)
)
(
(164.0)
1,034.1
)
(
(8.2)
1,025.9
,
$
$
$
Condensed Parent Company Only Statements of Cash Flows (dollars in millions)
Cash Flows From Operating Activities:
Net income (loss)
Equity in undistributed earnings of subsidiaries
Other operating activities, net
Net cash flows (used in) provided by operations
Cash Flows From Investing Activities:
Decrease in investments in subsidiaries
Acquisitions
Decrease (increase) in Investment securities and securities purchased under
agreements to resell
Net cash flows provided by investing activities
Cash Flows From Financing Activities:
Repayments of term debt
Net proceeds from issuance of preferred stock
Repurchase of common stock
Dividends paid
Net change in advances from (to) subsidiaries
Other financing activities, net
Net cash flows used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Years Ended Years Ended December 31,
2017
2016
2015
$
$
$
$
468.2
(1,272.0)
621.5
)
(182.3)
(
(848.0) $
650.4
69.0
)
(128.6)
(
2,096.7
—
250.3
2,347.0
(7,087.7)
318.0
(3,431.9)
(113.7)
7,759.9
(20.7)
)
(
)
(
(2,576.1)
(411.4)
1,188.2
776.8
$
$
1,023.1
—
(100.2)
922.9
(359.5)
—
—
(123.0)
(131.5)
(21.9)
)
(
)
(
(635.9)
158.4
1,029.8
1,188.2
,
$
$
1,034.1
429.1
)
(566.4)
(
896.8
620.1
(1,559.5)
1,454.1
514.7
(1,256.7)
—
(531.8)
(114.9)
91.0
(22.2)
)
(
)
(
(1,834.6)
(423.1)
1,452.9
1,029.8
,
Item 8: Financial Statements and Supplementary Data
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
CIT ANNUAL REPORT 2017 179
NOTE 29 — SELECTED QUARTERLYLL FINANCIAL DATAAA
(UNAUDITED)
The following presents quarterly data:
Selected Quarterly Financial Data (dollars in millions)
For the year ended December 31, 2017
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income
Depreciation on operating lease equipment
Goodwill Impairment
Maintenance and other operating lease expenses
Operating expenses
Loss on debt extinguishment and deposit redemption
Provision (benefit) for income taxes
(Loss) income from discontinued operations, net of taxes
Net (loss) income
Net Income (loss) applicable to common shareholders
Income (loss) from continuing operations applicable to common
shareholders
Net (loss) income per diluted share
For the year ended December 31, 2016
Interest income
Interest expense
Provision for credit losses
Rental income on operating leases
Other non-interest income
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Goodwill Impairment
Operating expenses
Loss on debt extinguishment and deposit redemption
Provision (benefit) for income taxes
Income (loss) from discontinued operation, net of taxes
Net income (loss)
Net Income (loss) applicable to common shareholders
Income (loss) from continuing operations applicable to common
shareholders
Net income (loss) per diluted share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
NOTE 30 — SUBSEQUENT EVENTS
Revolving Credit Facility Amendment
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Unaudited
$
447.7
168.7
30.4
252.6
137.2
74.3
255.6
57.9
304.0
1.7
27.7
)
(
(5.2)
(88.0) $
) $
(
) $
(
(97.8) $
(92.6) $
(0.74) $
$
474.1
178.3
36.7
252.2
(117.6)
69.8
57.5
354.2
341.3
3.3
(6.6)
)
(716.7)
(
(1,142.5) $
) $
( ,
) $
( ,
(1,142.5) $
(425.8) $
(5.65) $
454.0
176.7
30.1
252.3
63.3
71.1
—
57.9
277.3
53.5
(119.8)
)
(
(3.2)
219.6
219.6
222.8
1.61
475.7
188.2
45.1
254.3
83.6
66.9
56.6
—
302.9
5.2
54.5
37.3
131.5
131.5
94.2
0.65
$
$
$
$
$
$
$
$
$
$
$
$
$
$
478.2
209.2
4.4
251.2
84.6
77.4
—
53.3
295.6
164.8
(31.9)
115.5
156.7
156.7
41.2
0.85
478.7
191.6
23.3
261.0
99.8
63.1
50.6
—
309.3
2.4
111.2
)
(71.0)
(
17.0
17.0
88.0
0.08
$
$
$
$
$
$
$
$
$
$
$
$
$
$
455.7
163.1
49.7
251.3
79.1
73.5
—
53.8
311.6
—
56.2
101.7
179.9
179.9
78.2
0.88
482.9
195.0
89.5
264.1
84.8
61.3
48.9
—
330.1
1.6
44.4
85.0
146.0
146.0
61.0
0.72
On February 16, 2018, the Revolving Credit Facility was amended. Changes effected
include the extension of the final maturity
date of the commitments of all but one of the lenders to February 29, 2020 and reduction of the lenders’ total commitments from
$750 million to $500 million. The non-extending lender’s commitments of approximately $42 million will terminate on January 25,
2019. The $500 million total commitment amount consisted of an approximately $375 million revolving loan tranche and an
approximately $125 million revolving loan tranche that can also be utilized for issuance of letters of credit. As of February 16,
2018, there were no amounts drawn under the Credit Agreement other than approximately $55 million that was utilized for letters
of credit.
ff
Amended Capital Plan
On February 1, 2018, the Company received a “non-objection” from the Federal Reserve Bank of New York to an amendment
(the “Amended Capital Plan”) to the 2017 Capital Plan dated April 5, 2017 (“Original Plan”) filed by the Company under the 2017
Comprehensive Capital Analysis and Review (“CCAR”). The Amended Capital Plan includes (i) the issuance of up to $400 million
in Tier 2 qualifying subordinated debt; and (ii) an increase in common equity distribution of up to $800 million for the remainder of
the four-quarter period that began July 1, 2017 and ends on June 30, 2018, provided that if the Company does not issue
180 CIT ANNUAL REPORT 2017
CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
qualifying subordinated debt, or issues less than $400 million of qualifying subordinated debt, the Company will reduce the total
amount of common equity distributions by a commensurate amount. These actions would be in addition to those which received
a non-objection from the Federal Reserve on June 28, 2017 for the same period, of which approximately $100 million of
repurchases remained at December 31, 2017.
The Company will determine the timing and amount of any share 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
offer
ff
designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934.
, in the open market, through derivative, accelerated repurchase and other negotiated transactions, and through plans
through tender
ff
Item 8: Financial Statements and Supplementary Data
CIT ANNUAL REPORT 2017 181
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A. Controls and Procedures
AA
EVALUA
VV
TION
OF DISCLOSURE CONTROLS AND PROCEDURES
ff
Our management, with the participation of our principal executive officer
effectiveness
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") as of December 31, 2017. Based on such
evaluation, the principal executive officer
controls and procedures were effective.
of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated
have concluded that the Company's disclosure
and the principal financial officer
and principal financial officer
, evaluated the
ff
ff
ff
ff
ff
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of CIT,TT is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by,
or under the supervision of, our principal executive officer
, or persons performing similar functions,
and effected
by our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the
ff
preparation of financial statements in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect
financial statements.
and principal financial officer
on the
ff
ff
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
to future periods are subject to the risk that controls may become inadequate
ff
ff
Management of CIT,TT including our principal executive officer
effectiveness
the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in "Internal Control - Integrated
Framework" (2013). Management concluded that the Company's internal control over financial reporting was effective
December 31, 2017, based on the criteria established in the "Internal Control - Integrated Framework" (2013).
of the Company's internal control over financial reporting as of December 31, 2017 using the criteria set forth by
, conducted an evaluation of the
and principal financial officer
as of
ff
ff
ff
ff
The effectiveness
PricewaterhouseCoopers LLP,P an independent registered public accounting firm, as stated in their report which appears herein.
of the Company's internal control over financial reporting as of December 31, 2017 has been audited by
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended December 31, 2017, other than what is described below that have materially affected,
are reasonably likely to materially affect,
the Company's internal control over financial reporting.
ff
ff
or
REMEDIATION
AA
AA
OF MATERIAL
WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company had previously reported that, as of December 31, 2016, it had identified the following two material weaknesses in
its internal control over financial reporting:
1.
Home Equity Conversion Mortgages (HECM) Interest Curtailment Reserve:
We did not maintain effective
Interest Curtailment Reserve. Specifically, we did not adequately design and maintain controls to ensure the following:
controls over the design and operating effectiveness
of the estimation process for the HECM
ff
ff
I.
Key judgments and assumptions developed from loan file reviews or other historical experience are reasonably
determined, valid and authorized;
II. Data used in the estimation process is complete and accurate; and
III. Assumptions, judgments, and methodology continue to be appropriate.
182 CIT ANNUAL REPORT 2017
2.
Information Technology General Controls ("ITGCs"):
We did not maintain effective
relevant to the preparation of our financial statements. Specifically we did not maintain the following:
controls over the design and operating effectiveness
ff
ff
of ITGCs for information systems that are
I.
Program change management controls to ensure that information technology program and data changes, or changes to
queries and logic used to generate key reports used by management affecting
applications and underlying accounting records are identified, tested, authorized and implemented appropriately;
II. User access controls to ensure appropriate segregation of duties and access to financial applications and data is
financial Information Technology (“IT”)
ff
adequately restricted to appropriate Company personnel; and
III. Computer operations controls to ensure that privileges are appropriately granted, and data uploads and transfers are
authorized and monitored.
During the year ended December 31, 2017, the Company has placed in operation controls to separately address both of the
material weaknesses described above. Over the course of the year, and concluding in the fourth quarter, management
performed sufficient
the completion of testing, management concluded such controls have been operating effectively
These actions were subject to ongoing review by our senior management, as well as oversight by the Audit Committee of our
Board of Directors.
testing of the design and operating effectiveness
of the controls implemented to ensure sustainability. Upon
over a sufficient
timeframe.
ff
ff
ff
ff
Based on the corrective actions described above, and testing completed for the year ended December 31, 2017, it is
management’s conclusion that both of the material weaknesses that existed as of December 31, 2016 have been remediated.
Item 9B. Other Information
None
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART THREE
CIT ANNUAL REPORT 2017 183
Item 10. Directors, Executive Officers
ff
and Corporate Governance
The information called for by Item 10 is incorporated by reference from the information under the captions "Directors", "Corporate
Governance" and "Executive Officers"
in our Proxy Statement for our 2018 annual meeting of stockholders.
ff
Item 11. Executive Compensation
The information called for by Item 11 is incorporated by reference from the information under the captions "Director
Compensation", "Executive Compensation", including "Compensation Discussion and Analysis" and "2017 Compensation
Committee Report" in our Proxy Statement for our 2018 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information called for by Item 12 is incorporated by reference from the information under the caption "Security Ownership of
Certain Beneficial Owners and Management" in our Proxy Statement for our 2018 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information called for by Item 13 is incorporated by reference from the information under the captions "Corporate
Governance-Director Independence" and "Related Person Transactions Policy" in our Proxy Statement for our 2018 annual
meeting of stockholders.
Item 14. Principal Accountant Fees and Services
The information called for by Item 14 is incorporated by reference from the information under the caption "Proposal 2 —
Ratification of Independent Registered Public Accounting Firm" in our Proxy Statement for our 2018 annual meeting of
stockholders.
184 CIT ANNUAL REPORT 2017
PART FOUR
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed with the Securities and Exchange Commission as part of this report (see Item 8):
1. The following financial statements of CIT and Subsidiaries:
Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2017 and
December 31, 2016.
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015.
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015.
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015.
Notes to Consolidated Financial Statements.
2. All schedules are omitted because they are not applicable or because the required information appears in the
Consolidated Financial Statements or the notes thereto.
(b)
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 Officeff
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).
4.3 Third 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).
4.4 Fourth 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).
4.5
Indenture, 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 March 31, 2011).
4.6 First 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 March 31, 2011).
4.7 Third 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).
4.8
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 (incorporated by reference to Exhibit
4.1 of Form 8-K filed March 16, 2012).
4.9 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).
4.10 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).
4.11 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)
CIT ANNUAL REPORT 2017 185
4.12 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).
4.13 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.
4.14 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).
4.15 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 21, 2018).
10.1* CIT Group Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 5.1 to Form S-8 filed September 27, 2016).
10.2* CIT Group Inc. Supplemental Retirement Plan (As Amended and Restated Effective
ff
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
ff
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).
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).
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).
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).
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).
10.6*
10.7*
10.8*
10.9** 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).
10.10* CIT Employee Severance Plan (Effective
ff
as of November 6, 2013) (incorporated by reference to Exhibit 10.37 in Form 10-Q filed
November 6, 2013).
10.11 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).
10.12*
10.13*
10.14*
10.15*
Form of CIT Group Inc. Long-TermTT
(incorporated by reference to Exhibit 10.30 to Form 10-K filed February 20, 2015).
Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013)
Form of CIT Group Inc. Long-TermTT
(Executives with Employment Agreements) (incorporated by reference to Exhibit 10.31 to Form 10-K filed February 20, 2015).
Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2013)
Form of CIT Group Inc. Long-TermTT
(incorporated by reference to Exhibit 10.32 to Form 10-K filed February 20, 2015).
Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2014)
Form of CIT Group Inc. Long-TermTT
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).
10.16
*
Form of CIT Group Inc. Long-TermTT
Agreements) (incorporated by reference to Exhibit 10.34 to Form 10-Q filed May 7, 2015).
Incentive Plan Performance Share Unit Award Agreement (2014) (Executives with Employment
10.17
*
Form of CIT Group Inc. Long-TermTT
Exhibit 10.35 to Form 10-Q filed May 7, 2015).
Incentive Plan Performance Share Unit Award Agreement (2014) (incorporated by reference to
10.18
*
Form of CIT Group Inc. Long-TermTT
Provision Performance Measures) (incorporated by reference to Exhibit 10.36 to Form 10-Q filed May 7, 2015).
Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit
10.19
*
10.20
*
10.21
*
Form of CIT Group Inc. Long-TermTT
Provision Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10.37 to Form
10-Q filed May 7, 2015).
Incentive Plan Performance Share Unit Award Agreement (2015) (with ROTCE and Credit
Form of CIT Group Inc. Long-TermTT
Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per
Share and Average Pre-TaxTT Return on Assets Performance Measures) (incorporated by reference to Exhibit 10.38 to Form 10-Q
filed May 7, 2015).
Form of CIT Group Inc. Long-TermTT
Share and Average Pre-TaxTT Return on Assets Performance Measures) (Executives with Employment Agreements) (incorporated by
reference to Exhibit 10.39 to Form 10-Q filed May 7, 2015).
Incentive Plan Performance Share Unit Award Agreement (2015) (with Average Earnings per
186 CIT ANNUAL REPORT 2017
10.22*
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
18.1
21.1
23.1
24.1
31.1
31.2
32.1***
32.2***
101.INS
Letter, dated October 27, 2015, between CIT Group Inc. and Ellen R. Alemany, including Attached Exhibits. (incorporated by
Offer
ff
reference to Exhibit 10.39 to Form 10-Q filed November 13, 2015).
Form of CIT Group Inc. Long-TermTT
Provision Performance Measures) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10-41 to Form
10-K filed on March 16, 2017).
Incentive Plan Performance Share Unit Award Agreement (2016) (with ROTCE and Credit
Form of CIT Group Inc. Long-TermTT
Provision Performance Measures) (incorporated by reference to Exhibit 10-42 to Form 10-K filed on March 16, 2017).
Incentive Plan Performance Share Unit Award Agreement (2016) (with ROTCE and Credit
Form of CIT Group Inc. Long-TermTT
Vesting) (incorporated by reference to Exhibit 10-43 to Form 10-K filed on March 16, 2017).
Incentive Plan Restricted Stock Unit Award Agreement (2016) (with Performance Based
Form of CIT Group Inc. Long-TermTT
Vesting) (Executives with Employment Agreements) (incorporated by reference to Exhibit 10-44 to Form 10-K filed on March 16,
2017)
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 10-45 to Form 10-K filed on March 16, 2017).
Incentive Plan Restricted Stock Unit Award Agreement (2016) (with Performance Based
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Award Agreement (with Performance Based Vesting) (2016)
(incorporated by reference to Exhibit 10-46 to Form 10-K filed on March 16, 2017).
CIT Employee Severance Plan (As Amended and Restated Effective
to Form 10-Q filed November 9, 2016).
ff
January 1, 2017) (incorporated by reference to Exhibit 10.40
Form of CIT Group Inc. Omnibus Incentive Plan Restricted Stock Unit Director Award Agreement (Three Year Vesting)
(incorporated by reference to Exhibit 10-48 to Form 10-K filed on March 16, 2017).
Form of CIT Group Inc. Omnibus Incentive Plan Performance Share Unit Award Agreement (2017) (with ROTCE Performance
Measure and TSR Modifier) (incorporated by reference to Exhibit 10.39 to Form 10-Q filed May 8, 2017).
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).
CIT Group Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges.
Preferability Letter of PricewaterhouseCoopers LLP.
Subsidiaries of CIT Group Inc.
Consent of PricewaterhouseCoopers LLP.
Powers of Attorney.
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.
Certification of John 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.
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.
Certification of John Fawcett pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
XBRL Instance Document (Includes the following financial information included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2017, 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
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
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.
Item 15: Exhibits and Financial Statement Schedules
AA
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
CIT ANNUAL REPORT 2017 187
February 23, 2018
CIT GROUP INC.
By: /s/ Ellen R. Alemany
Ellen R. Alemany
Chairwoman and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on February 23, 2018 in the capacities indicated below.
NAME
Ellen R. Alemany
Ellen R. Alemany
Chairwoman and Chief Executive Officer and Director
Michael L. Brosnan*
Michael L. Brosnan
Director
Michael A. Carpenter*
Michael A. Carpenter
Director
Dorene C. Dominquez*
Dorene C. Dominquez
Director
Alan Frank*
Alan Frank
Director
William M. Freeman*
William M. Freeman
Director
R. Brad Oates*
R. Brad Oates
Director
Marianne Miller Parrs*
Marianne Miller Parrs
Director
NAME
Gerald Rosenfeld*
Gerald Rosenfeld
Director
John R. Ryan*
John R. Ryan
Director
Sheila A. Stamps*
Sheila A. Stamps
Director
Khanh T. Tran*
Khanh T. Tran
Director
Laura S. Unger*
Laura S. Unger
Director
/s/ John Fawcett
John Fawcett
Executive Vice President and Chief Financial
Officer
/s/ Edward K. Sperling
Edward K. Sperling
Executive Vice President and Controller
/s/ James P. Shanahan
James P. Shanahan
Senior Vice President,
Chief Regulatory Counsel, Attorney-in-fact
*
Original powers of attorney authorizing Stuart Alderoty,yy Eric S. Mandelbaum, and James P. Shanahan and each of them
to sign on behalf of the above-mentioned directors are held by the Corporation and available for examination by the
Securities and Exchange Commission pursuant to Item 302(b) of Regulation S-TTT
[THIS PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT 12.1
CIT Group Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges (dollars in millions)
Earnings:
Net income (loss)
(Benefit) provision for income taxes -
continuing operations
Loss (income) from discontinued
operation, net of taxes
Income from continuing operations, before
provision for income taxes
Fixed Charges:
Interest and debt expenses on
dnes
indebtedness
dness
indebte
indebted
Interest
factor:
and personal properties
one-third of rentals on real
Total fixed charges for computation of
tioi
ratio
ratra
To
tal
taxes and fixed charges
earnings before provision for income
December 31,
2017
December 31,
2016
Years Ended
December 31,
2015
December 31,
2014
December 31,
2013
$
468.2
$
(848.0)
$
1,034.1
$
1,119.1
$
675.7
(67.8)
(208.8)
191.6
717.7
14.9
732.6
203.5
665.4
20.9
753.2
15.5
768.7
(538.0)
(310.0)
186.1
731.4
11.1
742.5
(432.4)
(443.4)
243.3
715.1
7.2
722.3
50.4
(437.3)
288.8
751.2
7.7
758.9
$
924.2
$
789.6
$
928.6
$
965.6
$
1,047.7
Ratios of earnings to fixed charges
1.83x
1.03x
1.25x
1.34x
1.38x
EXHIBIT 31.1
AA
CERTIFICA
RR
TIONS
I, Ellen R. Alemany,yy certify that:
1.
I have reviewed this Annual Report on Form 10-K of CIT Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer
ff
and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
13a-15(f) and 15d-15(f)) for the registrant and have:
rr
control over financial reporting (as defined in Exchange Act Rules
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effeff ctiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effeff ctiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
ff
affected,
the registrant’s internal control over financial reporting; and
or is reasonably likely to materially affect,
ff
5.
The registrant’s other certifying officer
ff
and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect
information; and
ff
the registrant’s ability to record, process, summarize and report financial
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2018
/s/ Ellen R. Alemany
Ellen R. Alemany
Chairwoman and Chief Executive Officer
CIT Group Inc.
EXHIBIT 31.2
AA
CERTIFICA
RR
TIONS
I, John Fawcett, certify that:
1.
I have reviewed this Annual Report on Form 10-K of CIT Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer
ff
and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
13a-15(f) and 15d-15(f)) for the registrant and have:
rr
control over financial reporting (as defined in Exchange Act Rules
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effeff ctiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effeff ctiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
ff
affected,
the registrant’s internal control over financial reporting; and
or is reasonably likely to materially affect,
ff
5.
The registrant’s other certifying officer
ff
and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect
information; and
ff
the registrant’s ability to record, process, summarize and report financial
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2018
/s/ John Fawcett
John Fawcett
Executive Vice President and Chief Financial Officer
CIT Group Inc.
EXHIBIT 32.1
Certification Pursuant to Section 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of CIT Group Inc. (“CIT”) on Form 10-K for the year ended December 31, 2017, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Ellen R. Alemany,yy the Chief Executive Officer
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that;
ff
of CIT, certify,yy
(i) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934;
and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
CIT.
Dated: February 23, 2018
/s/ Ellen R. Alemany
Ellen R. Alemany
Chairwoman and Chief Executive Officer
CIT Group Inc.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate
disclosure document.
EXHIBIT 32.2
Certification Pursuant to Section 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of CIT Group Inc. (“CIT”) on Form 10-K for the year ended December 31, 2017, as filed
of
ff
with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Fawcett, the Chief Financial Officer
CIT,T certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that;
(i) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act
of 1934; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of CIT.
Dated: February 23, 2018
/s/ John Fawcett
John Fawcett
Executive Vice President and Chief Financial Officer
CIT Group Inc.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or
as a separate disclosure document.
[THIS PAGE INTENTIONALLY LEFT BLANK]
HEADQUARTERS
11 West 42nd Street
New York, NY 10036
Telephone: 212-461-5200
CORPORATE CENTER
One CIT Drive
Livingston, NJ 07039
CIT BANK, N.A. HEADQUARTERS
75 North Fair Oaks Ave.
Pasadena, CA 91103
EXECUTIVE MANAGEMENT
COMMITTEE
Ellen R. Alemany
Chairwoman and CEO
Stuart Alderoty
General Counsel and Secretary
George Cashman 1
President, Rail
James J. Duffy
Chief Human Resources Officer
John Fawcett
Chief Financial Officer
Matthew Galligan
President, Real Estate Finance
James L. Hudak
President, Commercial Finance
Mike Jones
President, Business Capital
Jeff Lytle 2
President, Rail
Kenneth McPhail
Chief Strategy Officer
Denise M. Menelly
Head of Technology and Operations
Gina M. Proia
Chief Marketing and
Communications Officer
Robert C. Rowe
Chief Risk Officer
Steven Solk
President, Consumer Banking
BOARD OF DIRECTORS
INVESTOR INFORMATION
Annual Report 2017
Ellen R. Alemany
Chairwoman and CEO of
CIT Group and Chairwoman,
CEO and President of CIT Bank
Michael L. Brosnan
Former Examiner-in-Charge
for Midsize Bank Supervision
in the Office of the Comptroller
of the Currency
Michael A. Carpenter
Retired CEO of Ally Financial Inc.
Dorene C. Dominguez
Chairwoman and CEO of
Vanir Group of Companies, Inc.
Alan Frank
Retired Partner of Deloitte &
Touche LLP
William M. Freeman
Executive Chairman of
CDF Group Inc.
R. Brad Oates
Chairman and Managing Partner
of Stone Advisors, LP
Marianne Miller Parrs3
Retired Executive Vice President
and Chief Financial Officer of
International Paper Company
Gerald Rosenfeld
Vice Chairman of U.S. Investment
Banking of Lazard Ltd.
Vice Admiral John R. Ryan,
USN (Ret.)
President and CEO of Center
for Creative Leadership and Retired
Vice Admiral of the U.S. Navy
Sheila A. Stamps
Former Executive Vice President,
Dreambuilder Investments, LLC and
Senior Banking Executive
Khanh T. Tran
President and CEO of
Aviation Capital Group
Laura S. Unger
Independent Consultant, Former
Commissioner of the U.S. Securities
and Exchange Commission
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