Barbara A. Callahan - Senior Vice President & Head-Investor Relations John A. Thain - Chairman & Chief Executive Officer Carol Hayles - Executive Vice President and Chief Financial Officer Robert C. Rowe - Chief Credit Officer & Executive Vice President.

Eric Wasserstrom - Guggenheim Securities LLC Mark C. DeVries - Barclays Capital, Inc. Eric Beardsley - Goldman Sachs & Co. Henry J. Coffey - Sterne Agee CRT Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker) Arren Cyganovich - D. A. Davidson & Co. Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Bill Carcache - Nomura Securities International, Inc. David Ho - Deutsche Bank Securities, Inc. Chris J. York - JMP Securities LLC.

Good morning and welcome to CIT's Fourth Quarter 2015 Earnings Conference Call. My name is Kate and I will be your operator today. At this time all, participants are in a listen-only mode. There will be a question-and-answer session later in the call. As a reminder, this conference call is being recorded.

I would now like to turn the call over to Barbara Callahan, Head of Investor Relations. Please proceed, ma'am..

Thank you, Kate. Good morning and welcome to CIT's fourth quarter 2015 earnings conference call. Our call today will be hosted by John Thain, our Chairman and CEO; and Carol Hayles, our CFO. After John 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 yourself 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 of – 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 2014 10-K. Any references to non-GAAP financial measures are meant to provide meaningful insights and are reconciled with GAAP in our press release.

Also, as part of the call this morning, we will be referencing a presentation that is available in the Investor Relations section of our website at www.cit.com. I'll now turn the call over to John Thain..

Thank you, Barbara. Good morning, everyone, and thank you all for being on the call. 2015 was a pivotal year in CIT's evolution to a commercial banking model. The acquisition of OneWest expanded and diversified our deposit funding, it lowered our funding costs, and it enhanced our retail banking product offerings.

As we continue our integration of OneWest, we're leveraging the combined capabilities to grow our businesses. We continued the rationalization of our bank holding company with the planned divestitures of our platforms in China and Canada, and the separation of our Commercial Air Business.

We completed the sale of our platform in Brazil in the fourth quarter and the UK sale closed in January. We also streamlined the management structure to improve operational efficiencies. In December Standard & Poor's upgraded our group credit profile to BBB- and last week they rated CIT Bank BBB-.

It has been one of our strategic goals to attain investment grade ratings and I'm very pleased to say we've gotten there. Fitch also published a very comprehensive report on us in January. We had a good fourth quarter despite the weakness in the U.S. economy.

We reported $144 million after-tax income, but adjusted for some specific items that Carol will discuss; we earned $220 million after tax. Funded volume was strong at $4.2 billion. Financing and leasing assets in our Transportation business were up 6%.

And the assets, financing and leasing assets in our North America Banking businesses were down due to the sale of $500 million of leverage loans, prepayments, and lower balances in our commercial services business. The increase in credit reserve was primarily related to our oil and gas loan book and our maritime lending.

Other than those two areas, the credit quality in our portfolio remains stable. Given the recent performance of the equity market and our stock price, the market seems to indicate a recession is imminent. I don't see that. Low energy prices do not cause recessions. While the energy sector itself is weak, the U.S. economy is still growing.

As we've disclosed in the past, we have about $940 million of loans to the energy sector. We've given you some additional information on this portfolio in our investor presentation. As you can see there, we have average loss coverage of 10% of the principal balance, which includes the discount on loans acquired from OneWest and reserves.

Our commercial aircrafts are back to being 100% utilized. Our railcar utilization declined to 96%, and yields on Rail assets declined primarily due to weakness in cars carrying crude, coal and steel. And we expect this weakness to continue.

However, we have alternative uses for some of these cars; for example, tank cars can carry other types of liquids. We have a strong team who has been through many cycles. Part of our business strategy and competitive advantage is to manage our mix of railcars and how they're used.

This business provides attractive returns and new railcars are being funded in our bank. The quarter contained a full three months of OneWest Bank financial results, which were accretive to earnings as we expected.

We continue to be well-capitalized with total capital of 13.3%, and we maintained ample liquidity with $11.3 billion of cash and investment securities. We're making progress on the separation of our Commercial Air Business where we continue to pursue both a spin-off and a sale.

And we're in active discussions with potential buyers of our China and our non-rail Canadian businesses. These actions, when complete, will accomplish our transition to a regional commercial bank with a nationwide middle-market lending and leasing franchise. And I'll now turn the call over to Carol..

Thank you, John, and good morning, everyone. As John mentioned, we completed several strategic initiatives in 2015 that had a meaningful impact on our financial position during the year.

Financing and leasing assets grew 27%, deposits now account for 64% of total funding, funding costs declined by 100 basis points to 2.2%, and 65% of our total assets are now in CIT Bank, up from 44% a year ago.

When we complete the separation of Air and the sales of our China and Canada businesses, we expect more than 80% of our balance sheet to be in the Bank. Turning to the fourth quarter results. Fourth quarter pre-tax income from continuing operations, which included a full quarter of contribution from OneWest, increased sequentially to $141 million.

There were two notable items in the results relating to our strategic initiative; a restructuring charge for the streamlining of the management team, and a currency translation adjustment related to completing the sale of the Brazil platform.

Excluding these items, which aggregated to about $100 million, pre-tax income was $245 million representing a pre-tax ROA (sic) [ROAEA] (08:09) of approximately 1.7%. Earning assets were unchanged from the prior quarter. Transportation & International Finance assets grew as we took deliveries from our order book.

But that was offset by a reduction in North America Banking, which was driven by asset sales, loan pre-payments, and seasonally lower balances in commercial services.

Net finance margin decreased by 10 basis points to approximately 3.6%, driven by several items; in Air, higher operating lease expense, most of which we do not expect to recur and higher depreciation; in Rail where we expect to have additional headwinds, a decline in yield was driven by lower utilization; and we had the benefit of a full quarter of OneWest, including the lower funding costs.

We continue to be asset-sensitive driven by our loan portfolio as well as our sizable cash position, which we expect to shift into HQLA investments and grow over time. In the near term, we expect net finance margin to be around 3.5%, as the benefits of building an investment portfolio partially offset finance and leasing asset yield compression.

Credit quality remains stable with the exception of certain energy-related exposure and to a lesser degree, maritime. In the commercial loan book, charge-offs remain at low levels and non-accruals are approximately 1% of finance receivables. The increase in non-accruals consisted mainly of energy loans.

The credit provision was $50 million, about a quarter of which related to energy exposure. We provided additional information on the energy portfolio on slide 12 of the presentation. You can see that about half of the $940 million of exposure is related to E&P, 30% to energy services, and 20% to midstream.

In aggregate, 27% of the total exposure is criticized. And when combining the purchase accounting mark and the allowance, we have about a 10% loss coverage against this portfolio. Moving to other income.

As you can see on slide seven, lower sales of operating lease equipment drove the decline in other income during the quarter, offsetting an increase in capital markets and bank fees. As John said, we closed the sale of the UK equipment finance platform in January and expect to have a benefit of about $20 million in the first quarter.

Excluding restructuring costs and the amortization of intangibles, operating expenses were quite a bit below the normal run rate due to lower employee costs and adjustments related to FDIC insurance premiums.

The benefit in employee cost was approximately $20 million, largely a function of the reversal of accruals for incentive compensation and benefits, of which approximately half relates to the changes in the management team.

While the first quarter expenses will be elevated due to benefit restarts, we expect a more normalized run rate of approximately $325 million per quarter in the near term.

The tax provision was a benefit of $10 million, reflecting $27 million of discrete items and a true-up to a full year effective tax rate of approximately 23% reflecting the geographic mix of earnings for 2015. We continue to expect the effective tax rate in 2016 to be in the low to mid-30% range, reflecting the shift to more U.S. income.

The tax rate is expected to remain in the mid to high single-digits. Turning to our business segments. Transportation & International Finance generated pre-tax income of $156 million and a pre-tax ROA (sic) [ROAEA] (12:08) of about 3% as growth in finance revenue was offset by higher costs related to the operating lease portfolios.

Financing and leasing assets grew to $20.8 billion, reflecting $1.7 billion of new volume comprised of $1.2 billion of equipment, mostly from the order book deliveries and $500 million of loans.

Our Commercial Air portfolio has grown to nearly $11 billion and utilization has improved with all aircraft and scheduled 2016 deliveries having lease commitments. In addition, lease expirations this year are at a more normal level, around 15%, and we are making good progress on placements.

Fundamentals in this industry remain favorable with growth forecast for global air travel remaining strong at around 6% per year. Rail utilization is trending down from the recent historical high and is now 96%.

While the parts of the portfolio that service the consumer economy have been stable, demand for crude, coal and steel cars is weakening as we anticipated. Therefore, we expect utilization to trend to the low 90% range and rental rates to decline as leases expire.

However, as John mentioned, we have a great team here and expect the business to continue to generate double-digit returns despite the headwinds. Maritime assets grew to $1.7 billion with yields on new business volumes trending above the portfolio yield.

We re-evaluated our exposure in light of current conditions in the dry bulk market and increased our reserves accordingly. Current estimated loan-to-values average around 75% across this portfolio. Moving on to North America Banking. This segment reported pre-tax income of $87 million, equivalent to a pre-tax ROA (sic) [ROAEA] (14:08) of 1.5%.

Similar to last quarter, net finance margin increased, benefiting from the accretion on acquired loans and lower cost of funds. These benefits more than offset lower yields on new originations, which predominately reflected change in mix towards higher credit quality assets.

New business volume grew over 19% sequentially with particularly strong results in commercial real estate and consumer banking. Overall, financing and leasing assets declined due to the seasonal nature of the factoring business and the sale of some leverage loans as part of our ongoing portfolio management.

We expect to further reduce our leverage loan portfolio in the near term but at a slower pace. Legacy Consumer Mortgage is a run-off portfolio, most of which is covered by loss-sharing agreements. Financing and leasing assets declined by roughly 3% to $5.5 billion and pre-tax income totaled $41 million, representing a full quarter of activity.

During 2015, we returned nearly $650 million of capital to shareholders through dividends and the repurchase of almost 12 million shares. Capital remained strong with a CET1 ratio of 12.7%.

And as John mentioned, we are pleased that CIT Bank has received an investment grade rating from S&P, acknowledging the improvements we have made in our underwriting and risk management practices as well as our strong capital and liquidity position.

With regard to future capital returns, as we mentioned previously, we will participate in CCAR this year; however, we will not be included in the public disclosures. Given this, we do not expect to take any new capital actions until we receive feedback from our regulators.

In summary, we are focused on our plan to improve returns and create shareholder value, and Ellen and I look forward to sharing these with you on March 23 when we will host a strategic update call. With that, I'll turn the call back over to Kate and we'll take your questions..

The first question comes from Eric Wasserstrom of Guggenheim. Please go ahead..

Thanks very much. John, if I could just follow up on some of the credit quality issues.

Could you just help us understand what the – sort of what the – maybe if you can on the mark that you took on the acquired assets, what oil price did that assume? And can you give us some sense of what the exposure would be if oil prices, for example, continue to decline or even just stay at this current level? And then, on the maritime, what is the driver of the deterioration there?.

All right. So I'll start and then Rob Rowe can add if he wants. So the marks were done as of August. So they used the price of oil and the market conditions as of August. So that – the deal closed on August 3, so that's when the marks were done.

As we've disclosed, if oil stays at $30 a barrel, we expect the portfolio to experience further credit deterioration, and we're not going to quantify that. But we also believe that this is a very high quality book. And, Rob, you can add to that if you want..

Sure. So, Eric, at the point that we closed on the deal, John is right, we assumed the price at that point in time. We did assume though that these – the conditions that have happened, meaning that this has been going on for a while, we did assume that this would continue to go on for a while in terms of energy prices being low, okay.

And secondarily, what I would say in terms of the overall portfolio is, we would expect non-accruals to increase over the next six months by $50 million to $100 million.

Our non-accruals are mostly current today, but we believe – it's our view that we have to reflect them as non-accruals if we believe we're not going to get back principal and interest. And so we are assuming an elongated period of time where oil prices will remain low..

On your question on maritime, the reason for the incremental reserves there is really a decline in the lease rates on dry bulk ships and the resulting decline in the value of those ships. And so we've seen an increase in the loan-to-values in that portfolio..

Thanks very much..

The next question comes from Mark DeVries of Barclays. Please go ahead..

Yeah, thanks.

Is the spin of the Commercial Air business still your base case scenario? And then, just a related question, I know you've commented on this, but interested to get your updated thoughts on kind of long-term plans for the Rail business, whether that could get spun off as well?.

So when we said that the spin was the base case, the reason for that, which we also explained, is that, that's in our control. So we can ensure that the spin takes place. But we've also said that we are running, what's called, a dual track, so we're also exploring a sale.

So to the extent that there is a purchaser who is interested in purchasing the business, we'll weigh the pros (20:16) and cons of a sale versus a spin. So we'll do both. But the spin is the base case because that's in our control..

And on the Rail..

Sorry. On the Rail, so – we've also gotten this question before. And what we've said is that, the Rail business, as both Carol and I said, is a very attractive return business. It – we're funding our new railcars in the bank, which is an attractive form of funding for us.

And unlike the Air business, which has a large and very long-dated order book that we take capital charges on before the aircraft are delivered, the Rail business has a relatively small, at least compared to its earning assets, and a relatively short, in terms of duration, order book.

So we don't have the regulatory capital negative that we have with the Air business..

Got it. Thank you..

The next question comes from Eric Beardsley of Goldman Sachs. Please go ahead..

Hi. Thank you. Just wanted to clarify the OpEx guidance for $325 million.

I guess, how much of a benefit does that have from the, I guess, sale of the non-strategic portfolios, and also the recent management changes? I think in the past you've said you'd have a $15 million quarterly benefit from the non-strategic and somewhere around a two-year breakeven on those management changes.

So I was thinking it could be somewhat lower than a $325 million level..

Yeah. The benefits from the exit of the non-strategic portfolios have been coming in over time as we have sold each of the portfolios. So you are correct. We would see a little bit still to come from Brazil in the fourth quarter and the UK in the first quarter, but Mexico and some of the other sales have already happened and were in the run rate.

So there's probably a few million dollars there. And we did say the management team changes resulted in – had a two-year payback. So that's approximately $7 million a quarter. As you can imagine, there are a few puts and takes at the moment.

And I think to give you any more clarity on what we'll be running at going forward is something Ellen and I would look to do at the end of March..

Got it.

So I guess how do we go from the fourth quarter level where this is an adjusted $283 million up to that $325 million?.

Well, as I said, there was about – I kind of did an adjusted number of about $300 million to look at that math again. But there was about a $20 million benefit from the reversal of accruals and everything, so that would come back up.

And then there was a benefit, as I said, from FDIC insurance premiums as we work through the combined rate for the new organization and bringing – adjusting to what we expect to be the run rate going forward. And so those items, absent a first quarter uptick, took us to about the $325 million.

And as we continue to go through integration there's a slightly elevated cost in our expense base for that..

The next question comes from Henry Coffey of Sterne Agee. Please go ahead..

Yes. Good morning and thank you for taking my question.

In terms of the spin or the sale of Air, what are some of the logistical steps that need to be taken? Do you have to put together a separate P&L? And are there any specific debt-related issues where there's certain – is there any debt that can't be transferred if you sell Air? Or are there any blockages there?.

Good morning, Henry. So a couple of thoughts. So the two biggest logistical issues in terms of either the sale or the spin of Air is first to create the P&L for the business. So it is – it did not have its own P&L, and so, as we've talked about, we are in the process of creating that P&L. And we need that for either a sale or for a spin.

And so that's in process. The second logistical item that takes time is the aircraft were not in a single legal entity, actually they were in many different legal entities. So we need to collect the aircraft and put them underneath a single holding company. So moving the aircraft or the companies that they're in, takes a certain amount of time.

So those are the two logistical kind of items that take the longest time, is getting the financials and getting all the aircraft in one legal entity..

Yeah. I would just add to that. Creating this legal entity is important whether it's a sale or a spin, because we would anticipate a sale would be of a legal entity and not just the airplanes. We would anticipate it being a platform with people and the assets..

So, Henry, let me follow up on your debt question, because the debt structure is also a complication but that we have to deal with it in any case, because the Air business or this new company will not be levered properly. And so it needs to have debt put on it. The second thing is we have to deal with the debt at our holding company.

And so the exact mechanism of how we put debt on to the new company and how we extinguish debt at our holding company is somewhat complicated and also depends on the ultimate structure of whether it's a sale or a spin..

The fact that some of the air leasing companies are now selling below book value, would that deter you from this process? Or is it full speed ahead at a measured pace?.

Yeah. So the answer is it is full speed ahead. And the reason is it's not necessarily driven solely by where the air lease companies trade – obviously, we're trading below book value as well, but it's more a function of the regulatory capital charges that we were taking on the order book.

And it's particularly true as the order book has gotten so much bigger compared to the earning assets. So as both Airbus and Boeing brought out new generation of aircraft, we, for competitive reasons, wanted to participate in those new generation of aircraft. So our order book got much bigger as a relationship to our earning assets.

And also because we and everyone else are ordering these new aircraft, it got longer. So the aircraft delivery times stretched out. So we're taking capital charges on an order book that we don't get an earning asset for a long period of time.

And that capital charge was beginning to basically hurt the business, because we were restricting its growth because of the capital charges.

So that driver of not wanting to take the capital charges and not restricting its growth, and the fact that the aircraft, for the most part, are not going into the bank, so there's no particular advantage to being part of a bank, is really the driver.

Particularly in the case of a spin, the shareholders will get the benefit of improvements in the valuation of aircraft leasing companies, if that happens, in any case. So the fundamental answer to your question is we're going forward..

Thank you..

The next question comes from Moshe Orenbuch of Credit Suisse. Please go ahead..

Great. I guess just an observation maybe than a question. I guess it seems to me that the size of that order book was probably a lot larger as a percentage of the earning asset of the company before you bought OneWest, but whatever.

I guess, moving on; maybe could you just talk a little bit about how the lease rates on those renewals in aircraft are comparing to what you had on the books? And also maybe just talk a little bit about the size and scope of the weakness in Air – in Rail, excuse me.

Like is it a function of utilization? Is it a function of rates? Is it both? Can you kind of dimension that a little bit?.

All right, Moshe. Let me first go to your observation. So the point wasn't that if the order book isn't compared to our total assets, it's the order book compared to the aircrafts' earning assets. So I'm just going to use round numbers. Today, we have a $10 billion order book and about $10 billion of earning assets, all right.

That relationship has changed a lot over the last five years. And so it's the order book to the earning assets of the aircraft leasing business, not to our total assets.

So when we look at the returns on equity in the aircraft – in the Commercial Air business, we're basically taking double the capital charges now, which wasn't the case five years ago..

Okay..

With respect to yields on new orders, the Air business rates have stabilized; and Rail, the rates, as we said, are coming down. The rates are coming down but utilization is also coming down. So there's a bit of a double headwind there..

Right..

And it's in the specific car types we talked about. So it's in the cars that carry crude, that carry coal and carry steel..

Yeah..

Great. Thanks..

The next question comes from Arren Cyganovich of D. A. Davidson. Please go ahead..

Thank you. In terms of the corporate finance business, we are seeing credit spreads widen out significantly.

Are you seeing origination trends slow down because of higher pricing? Are you seeing pricing improve much? What are your thoughts on your sponsor finance side of the business?.

Well, you are right that the spreads have widened out a little bit. They're still at a level – given that the overall interest rates are low, they're still at a level that allows for deal activity to happen.

So we're seeing pretty good activity, which is one of the reasons why we decided in the fourth quarter to sell some of our broadly syndicated loans, because, as you know, our core focus is in the middle-market. And so we've made that decision in the fourth quarter to sell some of the broadly syndicated. So the activity is still pretty good..

Thanks. And I guess just following up on the Air, there's clearly been a lot of concern on that side of the business, particularly in valuations of wide-body aircraft, I guess some concerns about increases in productions.

Are you seeing anything, it doesn't sound like you are; but are you seeing anything to indicate weakness in terms of valuation of existing aircraft out there?.

No, not really. We don't have the largest aircraft, but we have middle-size aircraft, and we've been successful at placing our middle-size aircraft. And I think as the new middle-size aircraft, the 787s and the A350s start being available, actually they're getting quite attractive lease rates..

Great. Thank you..

The next question comes from Chris Brendler of Stifel. Please go ahead..

Hey. Thanks. Good morning. I wonder, John, if you could expand on your comments about the current macro situation and where you're seeing signs of strength potentially in the U.S.

economy? And I guess a related question, competitive environment; are you seeing any changes in pre-payment speeds or loan demand? I realize the market conditions are relatively new, mostly started in 2016, but I wonder if there's any silver lining in some of the capital markets downturn from a competitive standpoint? Thanks..

Sure. In terms of the U.S. economy, it's not so much of their strength, that's too strong of a word, because I think the U.S. economy is growing 2-ish% GDP growth plus or minus 0.5% probably. And, of course, the fourth quarter was weaker than that, although we'll see if it gets revised or not. But it's not in recession. And that's my point. So if the U.S.

economy continues to grow at 2-ish% GDP growth, our business is going to continue to grow as well. And so the activity level we saw in the fourth quarter, even though the U.S. economy was weak was still pretty good. So I wouldn't say the U.S. economy was strong, I just think that the way the equity market seems to be reacting is overdone..

And in terms of the pre-payment speeds, we are not seeing a significant deviation from where it's been. The only minor change is that there have been less dividend re-financings over the last six months. That's been noticeable..

Okay.

And in any vertical in particular that you're seeing good loan demand or solid loan demand at this point?.

Healthcare, we're seeing pretty good loan demand, because, as you know, the healthcare expenditures have started to pick up again. So that's been bullish for our business..

Great. Thanks guys..

The next question comes from Bill Carcache of Nomura. Please go ahead..

Thank you. Good morning. I wanted to follow up on some of your earlier comments about the need to establish the aircraft business with its own set of financial statements, its own debt, its own employee base. And I was hoping to kind of zero in on the capital base that would be required.

And kind of how you thought about the interplay between, on one hand, the capital relief associated with not having to hold capital against the order book versus, on the other hand, the level of capital that would need to be established for the new entity?.

Sure. So that's still a work-in-progress, but we do want the Air business to have investment grade ratings. So if you look at the publicly-traded companies as a comparable, the equity of the new company will probably have to be in the order of 25% to 30%.

So if it has 25% to 30% equity, then you can figure out how much – the rest can be debt, a portion of which can be secured, primarily ECA or Ex-Im (35:30) and you can kind of construct the capital structure from that..

Okay. And, I guess, from the standpoint of – from a structuring perspective, I would have thought that one potential way to complete – if you went down a sale path to complete the transaction, would have been kind of more of an asset sale versus the sale of kind of a separate company.

It sounds like from your comments that asset sale is not something that you are really thinking about anymore, that you're kind of thinking about it more as a sale of a separate entity.

Maybe could you share some thoughts on that?.

Yeah. You're absolutely right. So we view this as a sale of a business. And so we certainly believe it is much more valuable as a business rather than as simply a collection of aircraft. And so we don't think we would maximize the value we get from selling just the portfolio of aircraft. So we believe the platform is actually very valuable.

And frankly, our Commercial Air team and the business that we have is arguably one of the best in the business. And so I think there is a lot of value to the platform as a whole..

Understood. Thank you for taking my questions..

Sure..

The next question comes from David Ho of Deutsche Bank. Please go ahead..

Good morning. Thanks for taking my question. Can you talk a little bit about the deposit strategy? It seems like you're getting some good non-interest-bearing deposit growth, obviously off smaller base. And just want to touch up on the retail deposit strategy and kind of commercial deposit strategy.

And maybe how much traction do you think you can achieve in the next 12 months, 18 months?.

Yeah. So there is a several-pronged approach to our deposit strategy, as you noted, right. We now have the branch footprint from the OneWest acquisition, which we would work to build out; there's the Internet bank, which we've had for quite a while; and then we have the commercial deposit strategy.

I think there'll be more on this when we talk to you at the end of March. But certainly from a commercial perspective, which – where CIT did not have any real traction in the past, the functionality and systems we acquired with OneWest give us that opportunity. However, that – it does take time to build out and we are working on that..

Okay.

And separately going back to the railcar ROAs and how close are we to normalizing a bit on the gains on leasing equipment relative to your comments about the energy weakness and lower utilization rates going forward?.

I think gains on sale of equipment will vary quarter-to-quarter just by the nature of what we are selling, right, whether it's an individual airplane which tends to – is obviously a bigger asset versus railcars. So I don't think we can really predict what the gains will be quarter-to-quarter on that.

And with respect to the returns on the assets in the Rail business, going back to what we said, we would expect there to be a bit of a headwind there given utilization and rental rates on those cars that we've said we have some headwinds on, coal, tank and steel..

Okay. Thank you..

The next question comes from Chris York of JMP Securities. Please go ahead..

Good morning and thank you for taking my questions. So my question on OpEx guidance was asked, but I'd like to get some more color on the pickup in the maintenance and other operating lease expense line in the quarter.

Was any of that pick up due to weakness in Rail and the operation of some railcars for alternative services?.

Okay. That's actually a good question and I think about that separately to the operating expenses of the business, right. So that's related to the ownership of our planes and our trains. During the quarter there was a pickup in the op lease expense in Air.

We had a couple of planes that came off lease that needed to be kind of refurbished and everything and caused elevated costs in the quarter. That's the item that I said wouldn't – we wouldn't expect to recur at that level. There will be a little bit of uptick in depreciation in Air in 2016, but otherwise wouldn't expect those costs to continue.

And in Rail, again, a little bit of elevated maintenance costs, but that's not going to be the big driver of the headwind in Rail, it's the other points that we've already discussed.

I think also – I do want to go back to the operating expense comment, because it occurred to me – I can't remember who mentioned it, they said that were starting at $287 million and I said my number was around $300 million.

The difference is the increment, the additional one month of OneWest expenses that were not in Q3 if that was the starting point that you were using..

Got it. Thanks for the clarifications..

Thank you..

And next we have a follow-up from Arren Cyganovich of D. A. Davidson. Please go ahead..

Yes. Sorry for the follow-up. But the tax rate, I'm sorry, I think I missed the beginning part of that in your commentary. I think even after adjusting for the $15 million discrete benefit, it was a low single-digit tax rate.

What was driving that relative to the future expectation of in the kind of low to mid-30%s or low 30% range?.

Actually, so in the fourth – each quarter you have to true-up your effective tax rate to your full year rate. And as we closed out the year, the full year rate was in the low 20%s versus where we had expected it to be in the high 20%s earlier in the year. So the fourth quarter includes an adjustment to bring the full year rate to 23%.

And that brought down the effective rate in the quarter. Going to next year, our guidance is still in the mid to low 30% range based on the shift of earnings to the U.S. from being more international in the past. Cash taxes, of course, we expect to stay in the low single-digit – double-digit numbers..

Single-digit..

Got it. Okay. Thank you..

Under 15%. Right. Yeah. Thanks..

There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Barbara Callahan for closing remarks..

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

That concludes today's call. Thank you for participating. You may now disconnect..