Fitch Ratings affirmed the long- and short-term issuer default ratings for CIT Group and CIT Bank at ‘BB+/B’ with a stable rating outlook.

The rating affirmations reflect the company’s strong franchise positions in middle-market lending, equipment leasing and factoring, stable net finance margins, strong capital levels, a supportive regulatory framework, reduced reliance on wholesale funding sources following the CIT Commercial Air sale and the continued expansion of deposit funding sources.

Rating constraints include execution risk related to CIT’s strategic plan to become a national middle-market bank, led by an executive management team the majority of which has been in place for less than one year.

CIT recently engaged Boston Consulting Group to assist it in developing opportunities in key business lines, and the broader strategic plan also involves seeking to improve profitability and return excess capital to shareholders.

Other rating constraints include CIT’s exposure principally to middle market companies, historically a higher risk customer segment, heightened asset risk associated with cyclical leasing businesses such as railcar leasing, a moderate earnings profile and the unproven nature of the company’s internet deposits (as measured by deposit price sensitivity) in a rising interest rate environment.

CIT continues to make enhancements to its risk management framework, while maintaining its focus on asset-backed transactions and reducing leveraged loan exposure. Asset quality has been fairly strong, although this has at least partially been a function of the continued relatively benign credit environment. Industry-wide, Fitch expects asset quality and residual value reversion across many consumer and commercial finance asset classes in 2017 after loosening underwriting standards and increased competition post-crisis.

CIT’s oil and gas loan exposure, the majority of which is secured by traditional reserve-based lending assets, working capital assets or long-lived fixed assets, comprised a manageable 2.4% of total loans as of September 30, 2016. Approximately 39% of these loans were criticized as of September 30, 2016, down from levels earlier this year.

Also of note, CIT’s railcar leasing business is impacted by the volatility in the energy sector; as such, Fitch expects that lower demand for crude, coal and steel cars will challenge railcar utilization and lease rates over the outlook horizon.

Net finance margins have ranged between 3.5% to 3.7% from year-end 2013 through year-to-date ended September 30, 2016 and are expected to trend to the lower end of this range over the outlook horizon due to challenges in the rail business and run-off of certain legacy consumer mortgages.

Following the sale of CIT Commercial Air in Q1/17, deposits will increase to 75% of funding from 66% as of September 30, 2016, as Fitch expects that the company will reduce its unsecured debt by approximately $6 billion. That being said, CIT has a concentrated deposit base in Fitch’s opinion, with meaningful online deposits, a limited branch network, low commercial deposit levels and exposure to non-FDIC covered balances. Durability of deposits, which include CDs, interest-bearing checking, savings and money markets/sweeps, in a rising interest rate environment remains unproven.

Separately, CIT continues to manage the process of remediating a material weakness in the Financial Freedom reverse mortgage servicing business, which was formerly a division of OneWest Bank.