First Citizens BancShares, Inc. (FCNCA) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to CIT's First Quarter 2016 Earnings Conference Call. My name is Kate, and I will be your operator today. At this time, all participants are on listen-only mode. There will be a question-and-answer session later in this call. [Operator Instructions] As a reminder, this conference call is being recorded. I’d now like to turn the call over to Barbara Callahan, Head of Investor Relations. Please proceed, ma'am.

Great. Thank you, Keith. Good morning and welcome to CIT's first quarter 2016 earnings conference call. Our call today will be hosted by Ellen Alemany, Chairwoman Elect and Chief Executive Officer; and Carol Hayles, our CFO. After Ellen and Carol's prepared remarks, we will have a question-and-answer session. Also joining us for the Q&A discussion is our Chief Risk Officer, Rob Rowe. As a courtesy to others on the call, we ask that you limit yourselves to one question and a follow-up and then return to the call queue, if you have additional questions. We will do our best to answer as many questions as possible in the time we have this morning. Elements of this call are forward-looking in nature and may involve risks, uncertainties and contingencies that may cause actual results to differ materially from those anticipated. Any forward-looking statements relate only to the time and date of this call. We disclaim any duty to update these statements based on new information, future events or otherwise. For information about risk factors relating to the business, please refer to our 2015 10-K. Any references to non-GAAP financial measures are meant to provide meaningful insights and are reconciled with GAAP in our press release. Also, as part of the call this morning, we will be referencing a presentation that is available on the Investor Relations section of our website at www.cit.com. Now, I'll turn the call over to Ellen Alemany.

Thank you, Barbara. Good morning, everyone, and thank you for joining our first quarter 2016 earnings call. As you know, I became CEO on April 1st, and at the end of last month announced our strategy for creating a leading national middle-market bank and improving our returns. I shared with you that we have committed to achieving these goals and embrace a culture of ownership, accountability, and transparency. While it has only been a few weeks since the call, the team is focused on executing the plan and before Carol gets into the quarter I wanted to give you an update on our progress. We said we will focus on our core businesses. Despite the challenges in the market environment in which we lend, commercial banking assets grew 2% while consumer and community banking remained flat as new mortgage lending originations offset the runoff legacy portfolios purchased from OneWest Bank. The first part of this year, overall middle-market business activity was exceptionally weak as lending volume in the industry was down over 43% from last quarter and 25% from the first quarter of last year. That said the market is maintaining its pricing discipline and we saw opportunities particularly in the healthcare and power industries. Capital market piece were solid this quarter considering the market activity. We are transitioning the commercial finance business to become a more full-service commercial bank by offering multiple products to our clients and are migrating the portfolio to clients where we have the opportunity to provide both debt and services. Within business capital, we expanded our capital equipment financing team with additional hires from GE capital. We are seeing good growth opportunities with direct capital, the technology based lending business we purchased almost two years ago. This past quarter we closed the first small business financing through our retail branch network using LendEdge, our online lending platform. We continue to be disciplined in our origination strategy and focused on risk-adjusted returns. In our real business, utilization and lease renewal rates have continued to decline due to weakness in the energy and steel industries. The team is doing a great job proactively managing the portfolio improvement cycle with a team focus on maximizing fleet utilization. The outlook we highlighted last quarter has not changed and although we expect utilization to fall to the low 90s this year, we continue to expect this business to earn double-digit pre-tax returns. We also made progress exiting the non-strategic portfolios. We completed the sale of the U.K. equipment finance platform. We remain on track to complete the sale of the Canada and China platforms by year end and Canada is looking like it could be earlier. The commercial air separation is our number one priority. We continue to speak with a wide variety of parties and are on track to complete the financial statements later this quarter, which will be required for sale or a spin-off. We are committed to a separation strategy that maximizes value for our shareholders and our timing has not changed. We continue to review the balance sheet for portfolios that do not fit our middle-market commercial banking strategy and have decided to exit international business there. This portfolio is about 700 million and is reported in the aerospace division. We announced earlier this week that John Erickson has joined CIT as the President of the Consumer Banking Business and President of California. John's 30-plus years in the banking industry will help us build out our consumer and commercial banking strategy. We are very pleased to attract someone of John's background, knowledge of the California market, client relationships, and leadership. He spends his career at Union Bank where his responsibilities included the management of the commercial banking, real estate, global treasury management and wealth managed businesses, which made up 80% of the banks net income. At CIT, he is responsible for the consumer lending SBA lending, wealth management, and the residential services operation. He is also responsible for advancing our middle-market banking franchise in California. John is located in Pasadena and will be the face to the various businesses and community groups in the California market. His insights will help us foster support for our community reinvestment activities and meet the credit needs of the communities and neighborhoods we serve. I'm looking forward to working with John and welcome him to the team. Our second priority is to improve profitability and return capital to shareholders. We continue to progress on our commitment to reduce the annual operating expense run rate by 125 million by 2018 by realigning the organization, driving efficiencies into technology, operations, and other corporate functions, and concluding the integration. As you may recall last quarter, we announced our management changes and this quarter we took additional action to consolidate teams and reduce head count in certain corporate functions. We established a transformation management office that reports to me and will provide the framework governance to oversee initiatives across the organization to ensure they are aligned with our overall strategic priorities and deliver targeted results. The transformation management office will also oversee the remaining OneWest bank projects are completed by year-end, as well as oversee and monitor cost reduction initiatives. Carol will take you through some of the details, and I want to reiterate that we are committed to achieving this goal as it is one of the main drivers to improving profitability. Finally, we remain committed to strong risk management. We submitted our first CCAR a few weeks ago. This will be a private filing so our results will not be published but we expect to get feedback sometime in June. We remain disciplined in our credit risk management and continue to proactively manage our exposures. We increased our reserve coverage on energy loans to 12% reflecting market conditions in the oil and gas industry and built reserves in maritime finance due to pressures in the dry bulk industry. Outside these areas, we do not see any underlying trends at this time that would lead us to believe, there are other areas of weakness in our loan book. Finally our capital and liquidity levels remain strong. I will continue to provide you updates as we execute on our strategy to strengthen our core franchises and improve profitability. I also want to ensure you that our Management team and Board are committed to continually evaluating a broad range of options to maximize long-term value for our shareholders. With that, I'll turn it over to Carol to provide more details on the quarter.

Thank you, Ellen and good morning everyone. During the first quarter income from continuing operations was $152 million essentially the same as the prior quarter generating an adjusted ROTCE of 7%. The results reflect challenging market conditions as Ellen mentioned, and seasonality as well as some continued variability driven by the execution of our strategic initiatives. Slide five provides details of the notable items in the quarter which all relate to our initiative and in aggregate had minimal impact on the bottom line. Financing and leasing assets remained stable as new originations help offset portfolio sales and run off. Slide three shows the key performance metrics and provides commentary on the near-term outlook. Net finance margin increased by 16 basis points to 3.7%. The improvement was driven by higher net rental income and transportation which was partially offset by lower interest income resulting from the sales of higher yielding loans, mostly in NFC and legacy mortgage portfolio runoffs. Interest expense was unchanged. For the remainder of 2016 we expect net finance margins to trend towards 3.5%. The provision for credit losses was $99 million. Excluding the impact of asset transfer to help sales which had minimal impact on the total provision, approximately 40 million of the provision was the charge off and 60 million related to reserve health. Charge-offs were elevated due to energy and two aerospace loans. Historically, we had very few charge-offs in aerospace and we do not see these losses indicative of underlying trends in the portfolio. With respect to reserve builds, approximately half related to energy and maritime and the remainder reflect portfolio growth and a modest downward credit migration and commercial banking. Including the principal loss discounts on acquired loans, the allowance for loan losses in our commercial books was 187 basis points, up slightly from last quarter. Growth in non-accruals loans of 27 million was primarily related to energy which at $140 million makes up half non-accrual balance. Details on our oil and gas exposure which is $945 million constitutes 3% our total energy loans is provided on slide 15. And line utilization was 65%. The provision for energy including charge-offs and reserve builds was $31 million in the quarter and we now have about a 12% loss coverage against this portfolio taking into account the purchase accounting marks and the allowance. If current market conditions persist we think there could be an additional $100 million of non-accrual loans over the remainder of the year with a corresponding increase to the provision of $30 million to $40 million. Moving to other income on slide eight. Other income of $101 million include several of the notable items mentioned on slide five. As well as an $18 million mark to market benefit from the TRS. Excluding these items other income declined largely due to fewer equipment sales in our leasing business and lower factoring commissions. Turning to slide 10. Operating expenses exclusive of intangible amortization and restructuring charges were $322 million and include approximately $10 million related to the ongoing integration of OneWest and the separation of Commercial Air. First quarter expenses included $50 million from annual benefit restarts and the cost associated with deferred incentive compensation for retirement eligible employees. Most of this is not expected to recur next quarter. We took additional actions on operating expenses and expect the charge of $20 million to have less than a one-year payback once complete. In our strategic update call we outlined three components of the reduction to operating expenses. $80 million related to Commercial Air which will happen post the separation, $50 million related to international business exit, and 125 million in our base expenses. These latter two items aggregate to $175 million and we are on track to take out a-third and 2016 with most of the remainder next year. In the near-term, we expect the base expenses shown on the chart of $312 million in the first quarter to be in the $30 million range next quarter. However, as we said previously, costs associated with the strategic initiative will ramp-up this year and more than offset the expense savings. The income tax provision was $53 million reflecting a discrete tax benefit from our international operations. We continue to expect the effective tax rate in 2016 to be in the low 30% range and a cash tax rate to remain in the mid to high single digits. Turning to our business segments, as you see in our materials, the financial results now reflects the new organization structure with the China and Canada businesses now in NFC. Commercial banking reported pre-tax income of $44 million equivalent to a pre-tax ROA of 0.8% reflecting many increased credit costs as shown on slide 11. While first quarter business activity specifically lower, this quarter also reflects lower market activity and commercial finance and in real estate finance, the competitive environments and deal closings that were pushed into the second quarter. In addition, we are seeing some dislocation in the CMBS market resulting from new regulatory requirements and expect it could be somewhat beneficial to banks in the real estate lending space. Financing and leasing assets grew 2% driven by new business volume and slower prepayment activity that offset runoff in the acquired commercial real estate portfolio. Commercial finance assets grew by 1% and yields were down slightly given the lower proportion of leveraged loans in the portfolio. Business capital asset expended by almost 4%, driven primarily by seasonal activity in commercial services and growth yields grow modestly. Within real estate finance, asset levels were stable as new business volume were offset by runoff in the 1 billion legacy average portfolio. While competition remains strong, we believe spreads have stabilized at lower levels. Turning to slide 12. Transportation finance generated pre-tax income of $173 million and a pre-tax ROA of about 3.4%. Net finance margin of 4.6% and if they did from several discrete items including elevated collections on remarketed aircraft and interim rent in rail. Given these items that are episodic, we expect the net finance margin in transportation to trend closer to 4%. Financing and leasing assets were unchanged with new deliveries in rail offsetting the runoff in aerospace. Commercial air assets were down slightly as we don't typically take many deliveries in the first quarter. Utilization is 100% with leases or lease commitments on all aircraft. The portfolio yield benefited from loan prepayments and elevated collections on remarketed aircraft. Looking ahead, nearly 1 billion of aircraft are scheduled for delivery in the next 12 months. Rail assets grew by almost 3%. As expected rail utilization continues to trend down and is now 94%. However the associated decline in rental revenue of approximately $4 million was offset by higher interim rent which we don't expect to recur. Demand for crude, coal, and steel products continues to be soft and, as Ellen indicated we still expect utilization to move towards the lower end of the 90% range and rental rates to decline as leases renew. But despite the headwinds we expect the business to continue to generate double-digit pre-tax return in 2016. Maritime assets remain at $1.7 billion and, given current market conditions we will not be growing the portfolio at this time. Although, we've had no charge offs to-date, and the loans are current with respect to principle and interest, with increase reserve against the dry bulk exposure. While conditions in the dry bulk market remains soft, the bulk drive index increased during the quarter indicating improved conditions in this space. Consumer and community banking generated pre-tax income of $70 million and a pre-tax ROA of 0.9%. Financing and leasing assets remain flat at $7.2 billion as numerous offset by runoff in the legacy consumer mortgage is. Turning to funding and capital, deposits grew modestly to almost $33 billion and funding costs are stable at 2.3%. We are focused on further transitioning our funding profile and growing core deposits. We bought back a modest amount of our bonds and we've begun to deploy excess liquidity into HQLA securities. And our capital ratios remain strong with the common equity Tier 1 ratio of over 13%. With that, I'll turn the call back over to Keith and we'll take your questions.

[Operator Instructions] And the first question comes from Eric Wasserstrom with Guggenheim.

Thanks very much. Just – maybe just starting on the strategic outlook and the migration to the 10% return target, are you still comfortable with the 50 basis point improvement that's coming from the asset growth and the continuing shift in mix on the balance sheet given where market conditions currently our for some of those asset classes currently?

Yes. This is Carol – I'll take that. I don't think much has really changed since we did the Strategic Update Call. Market conditions aren't great right now, but I don't think much is different from them. So, I don't think there's any reason at this point in time to change the outlook for that. Before I take the next question, I need to clarify a statement I made. Apparently I said in the second quarter, we expect operating expenses to be $30 million range and, of course, that's not true. I should have said 300 million. I just want to make sure everybody understands that I misspoke there. Thanks. Next question.

Thank you. And the next comes from Mark DeVries with Barclays.

Yeah. Thanks. I had a question about the net finance margin. The guidance for post air separation of 3% to 3.5% is pretty wide. Was hoping you could give us a little bit of color around what assumptions you'd have or what kind of scenarios you have under the two ends of the extreme in the 3.5%, do you need to see higher rates and some benefit from your asset sensitivity, and is the 3% range, does that assume, rates flat, no benefit from asset sensitivity and meaningful pressure on kind of your rail renewals?

I think you answered that pretty well. The outlook includes the forward curve. So, if that were to change negatively, that would put pressure on it. And I think it is also a function of the mix. Towards the lower end of the range, if rail had upper headwinds to the higher end of the range the things are looking better there. But I think you actually made the comment. And of course, there is some runoff in some of the acquired portfolios, which would also bring down the yields.

Okay. And just a follow-up on rail. Can you give us some context on were you've seen utilization rates, bottom and past cycles and what renewals look like at that point in the cycle?

Yeah. They actually have gone down to the 90% level, which is kind of where we're talking. Maybe a little bit below that. But that's really what we've seen them. And typically, in the trough of the cycle, the lease rates will be lower than, obviously, at the peak of the cycle. So, we'll write shorter leases at that point in time. And, capture the benefits two to three years down the road after the cycle started to turn again.

Okay. Got it. Thank you.

Thank you. And the next question comes from Eric Beardsley with Goldman Sachs.

Hi, thank you. Appreciate the new disclosures and the supplement. I just wanted to get little bit clarity of the aerospace segment assets you disclose. Can you just help us understand exactly what is it that would be in the entity for sale or be spun off in terms of the operating lease equipment cash and securities, et cetera?

Yes. So I think we talked about $10 billion to $11 billion asset size. That is predominantly the operating lease book with liquidity associated with it. But it is predominantly the lease book. We test this entity division in tact for now because as we go through the process, there could be some movement around that but that's essentially what we're planning on separating, off lease book.

Got it. So the 900 million or so cash and securities that you disclose and then the first quarter, with most of that move within?

That sounds about right.

Okay. And then I guess just on the CCAR request. Did you request any share buybacks this year?

We shared in our strategic outlook, the expectation is asking for 70% to 80% of net income and any realization of BTA. That was consistent with our CCAR submission.

Great. Thank you.

Thank you. And the next question comes from [indiscernible].

Thanks. You had mentioned the business activity was challenging in the first quarter on the commercial side. Have you seen any changes thus far into the second quarter in your outlook for the business going through the year?

This is Ellen. I would say that it was a slow first quarter, but I think that we've got pretty good pipeline. We have basically three businesses in that sector real estate business our business capital and then the commercial banking business. And we're transitioning to becoming more of a full service commercial bank by offering more than one product. And, we incorporated the bankers' scorecard. We're originating more leading with our industry verticals and originating more directly with customers and we could cross our goals with all of the bankers. So we're now offering, for example, business capital to the OneWest banker team in California to sell to our customers. In business capital we have the really solid pipeline right now. It's competitive out there but yields are affirming. And we had – our factoring was a little weak in the first quarter, but we have softer retail market that you usually happened in the first quarter. But we got a lot of new business initiatives going. We have a – for business capital we have what we call the West expansion so we are offering office imaging, restaurant franchise, finance and industrial vendor programs on the West Coast. And then in the real estate, even though our new originations were slow, we actually had a slower runoff. So we really haven't changed our outlook for the year in the commercial finance business.

Thanks. That's helpful. And in terms of the – you'd mentioned that your decision to sell another portfolio of 700 million, could you talk about what's in that portfolio and the decision behind that?

It's Rob. I'll talk about that. That is our business check portfolio. And we, at CIT have a legacy and that as you know but it doesn't really fit with the national middle market strategy, particularly because much of that portfolio is in the international arena. And so we decided since it didn't fit, that something that's going to – it will be attractive to others.

Will there be any financial implications with that, gains, charges, freed of capital, et cetera?

The portfolio – was moved to help for sale this quarter with a very small impairment on it but it was very small. And of course, now the carrying value we expect to realize, it would free up some capital. It will be attractive probably to – that are in that space because the loan to values in the international arena are much lower than in the domestic arena.

Okay. Thank you.

And the next question comes from Moshe Orenbuch with Credit Suisse.

Great. May be just to circle back on rail, having listened to comments from a couple of the big players about lease rates kind of falling pretty sharply during the quarter and kind of leading the quarter and still supply and demand imbalance. I guess, is there any way you can kind of measure this cycle as it appears to be down versus prior cycles?

Moshe, it's Rob. So this cycle is obviously a little different than prior cycles which is broader base in an industrial decline. This decline is more in the energy space in particular, I believe there's a couple other spaces but generally speaking is the energy space. And for us, the railcars that ship oil and they ship sand. And so, I would say, we should expect the decline to continue as we said, our utilization was towards around 90, is our view that North America oil production will continue to drop for a period of time but eventually that will correct, right because the shale price as we have sought, the shale play is kind of the marginal play around the book. So that should probably take another year or so for North America oil production to drop and once that stabilizes than the railcar business will lag that a little bit. Typically that lag is maybe around six months or so. So that's how you should think about it on a go forward basis.

Got it. Thanks. And just if you said this before I apologize, there's been a fair amount of stuff going on this morning. But, did you give any kind of sensitivity given that the comments in your press release said if energy stays around these levels they would be continued, kind of, into migration and what that could mean from a reserving standpoint?

We did provide the comment as it related to the current market conditions, which is really 40 to 45 oil in the rig count – because we exposure both the oil and the rig count and our lending portfolio. If you were to think about it oil drop back to 30 for a long period of time, you should probably increase the [indiscernible] for about 50 million for the balance of the year and a provision will be up another 50 million of what we forecasted. I would say, what we're looking towards also, on the subsite, on the positive side, is, if oil move back to 55 reserve, 50 to 55, we would think then the portfolio would've stabilize and we would actually start to see some upgrades in the portfolio.

Got it. But Rob, you're saying that at current levels you have MP migration but the reserves are okay?

Yes.

I think I said in my talking points that the current levels you can see MPA is up by about another 100 this year, and the provision increase in the 30 to 40 range. There's actually some intimation in the slide back.

You know that's why exactly right, so what I'm saying is, if the current market conditions really are $40 oil and the rig count where it's at today, if oil – mostly you – you're talking about sensitivity, if oil drop back to $30, right, for elongated period of time, you want to take the MPA inflow up from obviously what we have been predicted about, you probably would want to had $50 million to that, okay, if oil was at $30, all right.

Understood.

Hopefully that helps. We're trying to give everybody some clarity around that.

Much appreciated. Thank you.

Thank you. And the next question comes from [indiscernible].

Yeah I'd like to drill in on the maritime portfolio a little bit. You build that portfolio up mainly in 2014 and 2015, a time when the shipping was already in quite some distress globally. I wondered when that portfolio was constructed, what kind of asset coverage and loan to value and other safeguards were put in place to that to control the loss exposure?

Okay. So Chris what I would say is when the portfolio was built much of the shipping phase was actually doing fine. You are right that dry box [ph] actually starting to deteriorate a while ago. We did not play in the dry box space after the calling in the middle of 2014. Prior to that the dry box, which is about $500 million of the portfolio which is what Ellen referenced in our upfront discussion with a pressure is, we're doing loan to values of around 55%. Now the values have come down obviously so the loan to value has moved up on the dry bulk space which is necessitated taking increased provisions this quarter and a little bit last quarter. Having said that we did see over the last six weeks or so as Carol referenced, the dry index which is a proxy, you probably want look at. We didn't see that double over the last six weeks or so. What that effectively means as the shippers can now, they can pay their OpEx. They can pay some of their interest but they're going to still need to come out of pocket for principal and interest for a period of time until rates rise furthermore. We have seen in our particular portfolio most of our dry bulk portfolio, it is vessels that are owned by private equity firms. And so they have been very readily working with us and actually creeping principal for three or four quarters typically because they just want to get that done. And because they know the cycle will probably bounce back in their favor. So we've had pretty good negotiations with all of the owners of our dry bulk vessels, but it's something to be watched.

And do you have guess as to your overall loan to value in that segment?

That segment, because values have dropped so much I would say in that segment in total we're talking around 85% to 90%. Now, of the $500 million I referenced around $150 million of it are deals that are not on spot. So they are long-term time charters and with plenty liquidity, so those deals obviously should work their way through the cycle without a problem. So it's really, the relatively small group but these are decent sized loans, these are typically loans that are $35 million to $50 million, right, of that 350 million portfolio that's really dealing the pressure, right. So that's why we're watching this so closely and we took the reserved build.

Okay, thank you.

Thank you. And the next question comes from Cheryl Pate with Morgan Stanley.

Hi, good morning. I just wanted to touch on the rail business a little bit more. I appreciate the disclosure in the appendix. I just wondered if you can give us a sense on the forward order book, how that shakes out in terms of tank car and sand car exp exposure? And maybe you can speak a little bit to some of the success you may be having in repurposing or sort of shifting the next – the order book?

Well, most of the order books we repositioned where we needed to, to swap out of car types that were related to energy. So we did move back some of the order book in terms of the timing of it, but the more important constructs was that we shifted out of energy-related cars into non-energy related activity. Our exposure is clearly in the existing fleet, not really in the order book as it relates to energy, okay.

Okay. Thanks. That's helpful. And then just secondly as a follow-up, when we think about the operating lease benefit in the quarter, and I think the comments were that it should not necessarily repeat. Can you give us a sense of the air versus rail split there and how to think about the cadence of that over the next couple of quarters?

Yes, a couple of things. I made a couple of observations; one about the net finance margins for the full segment, right, going down to closer to 4%, I think that should help you. Also indicated that with the rail utilization, we would have expected revenue to decline about $4 million associated with utilization, but that's offset by some interim benefit. I think as far as giving you some ways to think about the future, of the two different divisions, that's how you should think about it.

Great, thanks.

Thank you. And the next question comes from David Ho with Deutsche Bank.

Good morning. Thanks for taking my question. As we think about asset growth longer term, and obviously there's a lot of moving pieces depending on the market environment, that's prevalent through your different operating segments, but what do you believe are the areas where you can see better asset growth or acceleration asset growth with some of these near-term headwinds subside.

So I think Ellen talk about the business opportunities in our commercial banking state and everything. But we have this headwind against growth which, why in our strategic call. We didn't talk about a lot on asset growth because we do have some portfolios that we are running off or are just naturally running off whether it is be acquired real estate book from OneWest or the legacy consumer mortgages and now of course we've got our international business there. So there are some things that will dampen our growth but in the main businesses, I think, will expect to see things in line with the comments Ellen made. And I also just want to emphasize that we are really focused on risk adjusted returns and we will sacrifice revenue for returns.

Got it. And separately as we think about your longer-term net finance margin guidance, does that contemplate also deployment of liquidity and anything you can do in terms of deposit growth?

Yes, yes it does. Both reinvestment of our cash into HQLA securities and a bit of mix shift in the deposit to lower cost deposit.

Thanks.

Thank you. And the next question comes from Vincent Caintic with Macquarie.

Thanks. Good morning, guys. I have a question about the aircraft leasing business, not about the sale actually about the operations. As the first of the major aircraft to report, how has demand been for aircraft leasing assets and when I think about 2017, what's the percent of your upcoming deliveries that have already been placed on lease?

So the book today is we said is 100% lease. Our order book, its $1 billion over the next year, and I think all but two of those aircraft are already on lease.

Except for…

And the fundamental traffic growth around the globe for people that want to fly is growing around 6% or so. So that's growing at a nice clip. That's consistent with the supply of new seats coming online. So, that means your margins and how you position your company, profitability will be kind of consistent. Because you've got supplier about 6%, you got traffic growth around 6%.

Right. Make sense. Okay. So, 2017 all about two points. Got it. Your cash position of about $11 million, I'm just wondering if that's the right run-rate cash going forward, if that's something that's going to be taken down and try to also recall what your plans are for debt repayments. Thanks.

So, on our cash and investment securities, think you should kind of, think about that is being a bit of a ratio to the earning assets and everything. So at the moment it's like the right level for today's balance sheet but as a balance sheet come down's the commercial air, it will come down fairly consistently. And, we didn't get into the specifics of the debt but we will of course, the addressing our debt back and everything as we go through the commercial air separation.

Okay, got it. Thanks. Sorry just one quick one. Rob, you mentioned that the international business air was – because it was international portfolio. Are there any other international portfolios still at CET. Thanks.

We have candida and China that [indiscernible] discussion and we have international business jet and then obviously in rail. We do have an ACL, which we repurchased a couple years ago.

Right. Got it. Thanks so much guys.

Thank you.

And the next question comes from Chris Brendler with Stifel.

Hi. Thanks. Good morning. Quick question on the factoring business, another I guess a slight decline there in factoring commissions. Can you just give us an indication of whether that's competitive or market conditions that's causing the continued weakness in that segment and how and what did you are to that business over the long run? Does it provide benefits to other segments or is it doing more of standalone business that could potentially be separated?

Sure. This is Ellen. The factoring business I mentioned we had a soft first quarter but that's usually very seasonal. That business is very seasonal, the coming off the holidays, et cetera, we expect retail to be soft. It's a source of fee income for us, we get really nice returns on the business and as I said it's a source of fee income for us. And the other unique thing there about our commercial services business is that we have a database of 205000 customers in our factoring business. To the extent that we own direct capital, we will begin – we are in the process of data mining a lot of those companies for other opportunities within the companies. So we want to be a lead bank in the small and middle market space nationally, the customer base in our factoring business is a really critical part of that strategy.

Okay, great. Thank you. And my third question would be on new business volume came in a little later than I was looking for. I know it's tough market conditions. Can you give us a quick overview of where you're seeing strength and where you're seeing pockets of weakness within the origination growth?

So I would – as I said before, on commercial banking, I mean, I think that the whole middle market leverage lending space was light in the first quarter but we're seeing pockets of activity in healthcare, power and in the commercial banking space. I think that the pipeline is very strong in all of our listing businesses, small ticket and the large ticket with that finance business.

I guess I ask different way. On a quarter basis the business you're actually focus on growing, you expect new business plan to grow in 2016?

Yes, we're expecting our core business to grow, but you have to realize that within our core businesses for example in our commercial real estate business we have the liquidating portfolio. So we are expecting our commercial banking and business capital business just to grow. And then commercial real estate will need to replace some of the lost volume comes from the liquidity in real estate portfolios.

Great. Thanks so much Ellen.

Thank you. And the next question comes from Chris York, JMP Securities.

Good morning and thanks for taking my questions. We've noticed a couple press releases of new hires at and from CIT lately including the hire of John Erickson. So the question is twofold. Can you update us on the retail branch strategy and will the OneWest branch we rebranded into CIT bank? And then secondly, do you expect to see some additional shakeout of CIT employees to other bank lenders over the remainder of the year or do you think that's one of course?.

Okay. I'll just comment on a couple of things. One is that we are strategically strengthening our team. So, we brought in Steve Solk to run business capital our leasing business. He's a very seasoned leasing professional and we brought Steve in last quarter of last year. We brought in John Erickson. John is going to run, basically, the consumer baking retail branch which is most, probably X – a commercial finance business which is in the commercial bank – in our commercial finance sector, everything else is from OneWest Bank John will run, but John is also there to help execute our commercial banking strategy in California. We also opportunistically hired I think total of about nine equipment finance lenders from GE Capital. So we will be strategically upgrading the team in certain pockets. On the other hand – we are becoming a more efficient company and we will be looking at things like sand, layers, etc. to take out additional heads.

Got it. thanks for that color. And then my follow up here, different item for Carol, can you provide us a little bit more detail on what is in the other income line which was high in the quarter and how are think about the run rate of that going forward?

Yes. So the other income line is elevated for the U.K. gain which is shown in the other revenues line. We just sell a platform business which is why is reflected in that line and then mark to market benefit on the TRS that I talked about. So I said that, although bit light this quarter and do expect to see in the near term the low end of the range that is an area we acknowledge we need to be working on and otherwise, there's nothing really notable in the other income line to kind of call out sense in small items, but nothing notable.

Okay. Thank you.

Thank you.

Thank you. And that was the last question. I would like to return the call to management for any closing comments.

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

That concludes today's call. Thank you for participating