Edgar Filing: CIT GROUP INC

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

FORM 10-Q


\|X\|	Quarterly Report Pursuant to Section 13 or 15(d) or	\|_\|	Transition Report Pursuant to Section 13 or 15(d)
	of the Securities Exchange Act of 1934		of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2011

Commission File Number: 001-31369

CIT GROUP INC.
(Exact name of Registrant as specified in its charter)


Delaware	65-1051192
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

11 West 42nd Street New York, New York	10017
(Address of Registrant’s principal executive offices)	(Zip Code)

(212) 461-5200
(Registrant’s telephone number)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_| Smaller reporting company |_|.

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

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

As of April 29, 2011 there were 200,523,962 shares of the registrant’s common stock outstanding.


CONTENTS
Part One—Financial Information:
ITEM 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operation (Unaudited)	4
	Consolidated Statement of Stockholders’ Equity (Unaudited)	5
	Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	and
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	35
ITEM 4.	Controls and Procedures	71
Part Two—Other Information:
ITEM 1.	Legal Proceedings	73
ITEM 1A	Risk Factors	74
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
ITEM 6.	Exhibits	75
Signatures		80

Part One—Financial Information

ITEM 1. Consolidated Financial Statements

CIT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in millions – except per share data)


	March 31, 2011			December 31, 2010

Assets
Cash and due from banks	$	786.7		$	734.1
Interest bearing deposits, including restricted balances of $1,343.7 at March 31, 2011 and
$2,553.8 at December 31, 2010⁽¹⁾		4,900.1			10,469.9
Investment securities		6,416.9			328.5
Trading assets at fair value - derivatives		13.9			25.7
Assets held for sale⁽¹⁾		1,174.4			1,218.5
Loans (see Note 5 for amounts pledged)		23,736.7			24,500.5
Allowance for loan losses		(402.5	)		(416.2	)

Total loans, net of allowance for loan losses⁽¹⁾		23,334.2			24,084.3
Operating lease equipment, net (see Note 5 for amounts pledged)⁽¹⁾		11,040.2			11,136.7
Unsecured counterparty receivable		516.1			534.5
Goodwill		277.4			277.4
Intangible assets, net		99.1			119.2
Other assets		2,116.2			2,029.4

Total Assets	$	50,675.2		$	50,958.2

Liabilities
Deposits	$	4,294.6		$	4,536.2
Trading liabilities at fair value - derivatives		205.4			126.3
Credit balances of factoring clients		1,110.7			935.3
Other liabilities		2,383.9			2,466.9
Long-term borrowings, including $4,689.8 and $3,686.3 contractually due within twelve months
at March 31, 2011 and December 31, 2010, respectively		33,686.6			33,979.8

Total Liabilities		41,681.2			42,044.5

Stockholders’ Equity
Common stock: $0.01 par value, 600,000,000 authorized
Issued: 200,767,267 at March 31, 2011 and 200,690,938 at December 31, 2010		2.0			2.0
Outstanding: 200,518,457 at March 31, 2011 and 200,463,197 at December 31, 2010
Paid-in capital		8,440.4			8,434.1
Retained earnings		563.9			498.3
Accumulated other comprehensive loss		(4.1	)		(9.6	)
Treasury stock: 248,810 shares at March 31, 2011 and 227,741 at December 31, 2010, at cost		(9.9	)		(8.8	)

Total Common Stockholders' Equity		8,992.3			8,916.0
Noncontrolling minority interests		1.7			(2.3	)

Total Equity		8,994.0			8,913.7

Total Liabilities and Equity	$	50,675.2		$	50,958.2

(1)

The following table presents information on assets and liabilities related to Variable Interest Entities (VIEs) that are consolidated by the Company. The difference between total VIE assets and liabilities represents the Company’s interests in those entities, which were eliminated in consolidation. The assets of the consolidated VIEs will be used to settle the liabilities of those entities and, except for the Company’s interest in the VIEs, are not available to the creditors of CIT or any affiliates of CIT.


Assets
Interest bearing deposits, restricted	$	919.5	$	931.2
Assets held for sale		40.3		100.0
Total loans, net of allowance for loan losses		11,817.7		12,041.5
Operating lease equipment, net		2,870.8		2,900.0

Total Assets	$	15,648.3	$	15,972.7

Liabilities
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings)	$	10,116.4	$	10,764.7

Total Liabilities	$	10,116.4	$	10,764.7

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

CIT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (dollars in millions – except per share data)


	Quarters Ended March 31,

	2011			2010

Interest income				As Restated⁽¹⁾
Interest and fees on loans	$	635.5		$	1,097.4
Interest and dividends on investments		7.7			7.3

Interest income		643.2			1,104.7

Interest expense
Interest on long-term borrowings		(674.5	)		(810.6	)
Interest on deposits		(24.4	)		(20.8	)

Interest expense		(698.9	)		(831.4	)

Net interest revenue		(55.7	)		273.3
Provision for credit losses		(123.4	)		(226.1	)

Net interest revenue, after credit provision		(179.1	)		47.2

Other income
Rental income on operating leases		413.3			425.8
Other		278.2			150.4

Total other income		691.5			576.2

Total revenue, net of interest expense and credit provision		512.4			623.4

Other expenses
Depreciation on operating lease equipment		(160.5	)		(172.7	)
Operating expenses		(216.4	)		(261.7	)

Total other expenses		(376.9	)		(434.4	)

Income before provision for income taxes		135.5			189.0
Provision for income taxes		(65.7	)		(43.4	)

Net income before attribution of noncontrolling interests		69.8			145.6
Net income attributable to noncontrolling interests, after tax		(4.2	)		(1.0	)

Net income	$	65.6		$	144.6


Basic earnings per common share	$	0.33		$	0.72
Diluted earnings per common share	$	0.33		$	0.72

Average number of common shares - basic (thousands)		200,605			200,040
Average number of common shares - diluted (thousands)		200,933			200,076

(1)

These restated balances were disclosed in Note 26 of the Company’s Form 10-K for the year ended December 31, 2010.

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

CIT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (dollars in millions)


	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income / (Loss)			Treasury Stock			Noncontrolling Interest in Subsidiaries			Total Stockholders' Equity

December 31, 2010	$	2.0	$	8,434.1	$	498.3		$	(9.6	)	$	(8.8	)	$	(2.3	)	$	8,913.7

Net income						65.6									4.2			69.8
Foreign currency translation
adjustments									6.8									6.8
Change in fair values of derivatives
qualifying as cash flow hedges									0.9									0.9
Unrealized gain on available for sale
equity investments, net									(2.1	)								(2.1	)
Minimum pension liability adjustment									(0.1	)								(0.1	)

Total comprehensive income																		75.3

Restricted stock and stock option
expenses				6.3								(1.1	)					5.2
Equity distribution															(0.2	)		(0.2	)

March 31, 2011	$	2.0	$	8,440.4	$	563.9		$	(4.1	)	$	(9.9	)	$	1.7		$	8,994.0



December 31, 2009	$	2.0	$	8,398.0	$	–		$	–		$	–		$	1.4		$	8,401.4

Adoption of new accounting
pronouncement						(18.4	)								(8.4	)		(26.8	)

Net income						144.6									1.0			145.6
Foreign currency translation
adjustments									35.6									35.6
Change in fair values of derivatives
qualifying as cash flow hedges									(0.3	)								(0.3	)
Unrealized gain on available for sale
equity investments, net									(0.1	)								(0.1	)

Total comprehensive income																		180.8

Restricted stock and stock option
expenses				5.8								(0.1	)					5.7
Equity distribution															(0.1	)		(0.1	)

March 31, 2010⁽¹⁾	$	2.0	$	8,403.8	$	126.2		$	35.2		$	(0.1	)	$	(6.1	)	$	8,561.0

(1)

These restated balances were disclosed in Note 26 of the Company’s Form 10-K for the year ended December 31, 2010.

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

CIT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in millions)


	Quarters Ended March 31,

	2011			2010

				As Restated⁽¹⁾
Cash Flows From Operations
Net income	$	65.6		$	144.6
Adjustments to reconcile net income to net cash flows from operations:
Provision for credit losses		123.4			226.1
Net depreciation, amortization and (accretion)		111.5			(236.0	)
Net gains on equipment, receivable and investment sales		(134.9	)		(63.5	)
Provision for deferred income taxes		21.3			16.3
(Increase) decrease in finance receivables held for sale		(0.7	)		7.0
Increase in other assets		(44.9	)		(140.2	)
(Decrease) increase in accrued liabilities and payables		(18.1	)		164.3

Net cash flows provided by operations		123.2			118.6

Cash Flows From Investing Activities
Loans extended and purchased		(4,652.2	)		(4,209.5	)
Principal collections of loans and investments		5,371.7			6,627.1
Purchases of investment securities		(6,125.5	)		–
Proceeds from asset and receivable sales		860.6			389.4
Purchases of assets to be leased and other equipment		(328.4	)		(284.7	)
Net (increase) decrease in short-term factoring receivables		(73.3	)		154.8
Change in restricted cash		1,210.1			(528.7	)

Net cash flows (used in) provided by investing activities		(3,737.0	)		2,148.4

Cash Flows From Financing Activities
Proceeds from the issuance of term debt		2,354.5			1,056.2
Repayments of term debt		(2,838.9	)		(3,269.4	)
Net decrease in deposits		(233.6	)		(365.1	)
Net repayments of non-recourse leveraged lease debt		(5.5	)		(8.6	)
Collection of security deposits and maintenance funds		125.8			189.7
Repayment of security deposits and maintenance funds		(95.6	)		(187.8	)

Net cash flows used in financing activities		(693.3	)		(2,585.0	)

Decrease in cash and cash equivalents		(4,307.1	)		(318.0	)
Unrestricted cash and cash equivalents, beginning of period		8,650.2			8,405.2

Unrestricted cash and cash equivalents, end of period	$	4,343.1		$	8,087.2


Supplementary Cash Flow Disclosure
Interest paid	$	524.2		$	732.7
Federal, foreign, state and local income taxes paid (collected), net	$	6.7		$	(6.2	)
Supplementary Non Cash Flow Disclosure
Net transfer of finance receivables from held for investment to held for sale	$	395.2		$	1,058.0

(1)

These restated balances were disclosed in Note 26 of the Company’s Form 10-K for the year ended December 31, 2010.

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

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CIT Group Inc. became a bank holding company (“BHC”) in 2008 and has provided financial solutions to its clients since its formation in 1908. We provide financing and leasing capital principally for small businesses and middle market companies in a wide variety of industries and offer vendor, equipment, commercial and structured financing products, as well as factoring and management advisory services. CIT is the parent of CIT Bank, a state-chartered bank in Utah. We operate primarily in North America, with locations in Europe, Latin America and Asia.

BASIS OF PRESENTATION

Principles of Consolidation

The accompanying consolidated financial statements include financial information related to CIT Group Inc., a Delaware Corporation, and its majority owned subsidiaries, including CIT Bank (collectively, “CIT” or the “Company”), and those variable interest entities (“VIEs”) where the Company is the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.

In preparing the consolidated financial statements, all significant inter-company accounts and transactions have been eliminated. These consolidated financial statements, which have been prepared in accordance with the instructions to Form 10-Q, do not include all information and note disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of CIT’s financial position, results of operations and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with our Form 10-K.

The consolidated financial statements include the effects of adopting Fresh Start Accounting (“FSA”) upon emergence from bankruptcy on December 10, 2009, as required by GAAP. Accretion and amortization of certain FSA adjustments began on January 1, 2010 and are included in the Statements of Operations and Cash Flows. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“Form 10-K”), Notes 1 and 25, for additional FSA and reorganization information.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates and assumptions. Some of the more significant estimates include: fresh start accounting fair values; valuation of deferred tax assets; lease residual values and depreciation of operating lease equipment; and allowance for loan losses. Additionally, where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.

Restatement

The March 31, 2010 amounts have been restated to correct for errors found by the Company subsequent to the filing of its third quarter 2010 report on Form 10-Q related primarily to the application of FSA, the effects of which were disclosed in the Company’s December 31, 2010 Form 10-K. The effect of the restatement increased net income for the quarter ended March 31, 2010 by approximately $47 million to $144.6 million, as compared to the amount originally reported in the March 31, 2010 Form 10-Q. Comparisons to the 2010 first quarter balances are to the restated amounts. See the Company’s December 31, 2010 Form 10-K, Note 26 –Selected Quarterly Financial Data (Unaudited), for further information.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

Investments

Investment securities are classified and accounted for as follows:

Debt and equity securities classified as “available-for-sale” (AFS) are carried at fair value with changes in fair value reported in accumulated other comprehensive income, net of applicable income taxes. Credit- related declines in fair value that are determined to be other than temporary are recorded in earnings immediately. Realized gains and losses on sales are included in Other income on a specific identification cost basis, and interest and dividend income on AFS securities is included in Interest and dividends on investments.
Debt securities classified as “held-to-maturity” represent securities that the Company has both the ability and the intent to hold until maturity, and are carried at amortized cost. For those securities that the Company does not intend to sell or expect to be required to sell, credit-related impairment is recognized in earnings, with the non-credit related impairment recorded in Accumulated Other Comprehensive Income (“AOCI”). Interest on such securities is included in Interest and dividends on investments.

Equity investments without readily determinable fair values are carried at cost and periodically assessed for other-than-temporary impairment, with the cost basis reduced when impairment is deemed to be other-than-temporary.

NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements and Disclosures

In January 2010, FASB issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (Topic 820). This update enhances disclosures about (1) different classes of assets and liabilities measured at fair value, (2) valuation techniques and inputs used, (3) transfers between Levels 1, 2, and 3, and (4) activity in Level 3 fair value measurements. Disclosure of activity in Level 3 fair value measurements is effective for fiscal years and interim periods beginning after December 15, 2010. This guidance was adopted and did not have a material impact on the Company’s financial statement disclosures.

Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses, which provides guidance that requires enhanced disclosures surrounding the credit characteristics of the Company’s loan portfolio. Under the new guidance, the Company is required to disclose its accounting policies, the methods it uses to determine the components of the allowance for credit losses, and qualitative and quantitative information about the credit risk inherent in the loan portfolio, including additional information on certain types of loan modifications.

The Company adopted the required disclosures of this guidance in its Form 10-K, Notes 1, 2 and 3, which included enhanced qualitative accounting policies and quantitative disclosures on segment and class levels as well as credit characteristics. The new disclosures on the roll forward of the allowance for credit losses is effective for the first quarter 2011 Form 10-Q and is disclosed in Note 3. The adoption of this guidance affects CIT’s disclosures of loans and allowance for loan losses, but does not affect its financial condition or results of operations. The new disclosures relating to loan modifications, including troubled debt restructurings in accordance with ASU 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring, were deferred until reporting periods beginning after June 15, 2011.

Goodwill Impairment Test

In December 2010, FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. Under ASC Topic 350, goodwill is tested for impairment at the reporting unit level utilizing a two-step approach. Step 1 compares the fair value of a reporting unit to its carrying value and if there is a shortfall, then Step 2 is completed. Step 2 measures the amount of impairment. This update requires that the Step 2 test be performed if the reporting unit has zero or negative carrying amount and qualitative factors exist indicating that it is more likely than not that a goodwill

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

impairment exists. No additional disclosures are required by this update. This update is effective for public companies beginning after December 15, 2010. At the date of adoption, a cumulative-effect adjustment to beginning retained earnings should be recorded if impairment of any reporting unit exists. The adoption of the guidance did not have a material impact on the Consolidated Balance Sheets or Statements of Operations.

NOTE 2 — LOANS

The following table presents finance receivables by segment, based on obligor location:

(dollars in millions)


	March 31, 2011						December 31, 2010

	Domestic		Foreign		Total		Domestic		Foreign		Total
Corporate Finance	$	5,951.1	$	1,945.0	$	7,896.1	$	6,482.4	$	1,999.8	$	8,482.2
Transportation Finance		1,026.5		256.1		1,282.6		1,098.8		290.1		1,388.9
Trade Finance		2,487.6		135.0		2,622.6		2,207.7		179.7		2,387.4
Vendor Finance		2,470.7		1,565.8		4,036.5		2,582.9		1,583.2		4,166.1
Consumer		7,881.6		17.3		7,898.9		8,058.8		17.1		8,075.9

Total	$	19,817.5	$	3,919.2	$	23,736.7	$	20,430.6	$	4,069.9	$	24,500.5

The following table presents selected information related to components of the net investment in finance leases, which are included in total finance receivables:

(dollars in millions)


	March 31, 2011			December 31, 2010

Unearned income	$	(1,262.1	)	$	(1,356.3	)
Net unamortized deferred fees and costs		25.8			16.0
Total finance leases		4,347.9			4,522.1

Certain of the following tables present credit-related information at the “class” level in accordance with ASU 2010-20, Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses. A class is generally a disaggregation of a portfolio segment. In determining the classes, CIT considered the finance receivable characteristics and methods it applies in monitoring and assessing credit risk and performance.

Credit Quality Information

The following table summarizes finance receivables by the risk ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information affecting borrowers’ ability to fulfill their obligations. Loans rated as substandard and doubtful are considered classified loans. Classified loans plus special mention loans are considered criticized loans.

The definitions of these ratings are as follows:

Pass – finance receivables 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.
Substandard – a substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower, and is characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.
Doubtful – a doubtful asset has weaknesses that make collection or liquidation in full unlikely on the basis of current facts, conditions, and values.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Substantially all of the Doubtful accounts were on non-accrual status at March 31, 2011 and December 31, 2010, and approximately one-quarter and one-third, respectively, of the Substandard accounts were on non-accrual status as of those dates.


(dollars in millions)
	Corporate Finance - Other		Corporate Finance- SBL		Transportation Finance		Trade Finance		Vendor Finance US		Vendor Finance International		Total Commercial		Total Consumer		Totals⁽¹⁾
At March 31, 2011
Grade:
Pass	$	4,705.9	$	343.0	$	617.7	$	2,210.6	$	2,110.2	$	1,857.5	$	11,844.9	$	6,955.5	$	18,800.4
Special mention		1,074.9		172.6		301.2		225.9		140.4		179.6		2,094.6		494.4		2,589.0
Substandard		1,002.1		196.0		351.1		162.5		164.7		131.4		2,007.8		451.0		2,458.8
Doubtful		397.3		172.6		29.8		23.6		51.0		61.1		735.4		1.5		736.9

Total	$	7,180.2	$	884.2	$	1,299.8	$	2,622.6	$	2,466.3	$	2,229.6	$	16,682.7	$	7,902.4	$	24,585.1

Non-accrual loans	$	809.5	$	194.6	$	62.1	$	98.0	$	71.5	$	69.4	$	1,305.1	$	0.9	$	1,306.0


At December 31, 2010

Grade:
Pass	$	4,843.4	$	360.9	$	652.3	$	1,977.9	$	2,198.5	$	1,867.9	$	11,900.9	$	7,348.4	$	19,249.2
Special mention		1,275.6		161.0		540.8		244.3		142.5		193.1		2,557.3		358.2		2,915.6
Substandard		1,205.1		211.8		192.4		123.0		180.7		135.4		2,048.4		614.4		2,662.8
Doubtful		460.0		183.6		3.4		42.2		55.4		60.8		805.4		1.6		807.0

Total	$	7,784.1	$	917.3	$	1,388.9	$	2,387.4	$	2,577.1	$	2,257.2	$	17,312.0	$	8,322.6	$	25,634.6

Non-accrual loans	$	1,025.4	$	214.4	$	63.2	$	164.4	$	80.2	$	67.7	$	1,615.3	$	0.7	$	1,616.0

(1)

Balances include $848.4 million and $1,134.1 million of loans in Assets Held for Sale at March 31, 2011 and December 31, 2010,respectively, which are measured at the lower of cost or fair value. ASU 2010-20 does not require inclusion of these finance receivables in the disclosures above. Until they are disposed of, the Company manages the credit risk and collections of finance receivables held for sale consistently with its finance receivables held for investment, so that Company data are tracked and used for management purposes on an aggregated basis, as presented above.

Past Due and Non-accrual Loans

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

Finance Receivables — Delinquency Status (dollars in millions)


	30–59 Days Past Due		60–89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Finance Receivables⁽¹⁾

At March 31, 2011
Commercial
Corporate Finance - Other	$	15.2	$	9.2	$	112.0	$	136.4	$	7,043.8	$	7,180.2
Corporate Finance - SBL		18.8		6.6		47.3		72.7		811.5		884.2
Transportation Finance		7.9		2.9		2.5		13.3		1,286.5		1,299.8
Trade Finance		27.7		1.4		3.0		32.1		2,590.5		2,622.6
Vendor Finance US		46.9		17.9		18.4		83.2		2,383.1		2,466.3
Vendor Finance International		20.1		8.2		11.2		39.5		2,190.1		2,229.6
Consumer		332.6		160.9		449.5		943.0		6,959.4		7,902.4

Total	$	469.2	$	207.1	$	643.9	$	1,320.2	$	23,264.9	$	24,585.1

At December 31, 2010
Commercial
Corporate Finance - Other	$	43.2	$	33.7	$	149.2	$	226.1	$	7,558.0	$	7,784.1
Corporate Finance -SBL		21.8		8.6		73.0		103.4		813.9		917.3
Transportation Finance		9.0		1.8		0.6		11.4		1,377.5		1,388.9
Trade Finance		35.0		1.8		1.3		38.1		2,349.3		2,387.4
Vendor Finance US		59.4		23.2		20.3		102.9		2,474.2		2,577.1
Vendor Finance International		20.2		11.5		10.6		42.3		2,214.9		2,257.2
Consumer		351.4		175.9		434.1		961.4		7,361.2		8,322.6

Total	$	540.0	$	256.5	$	689.1	$	1,485.6	$	24,149.0	$	25,634.6

(1)

Balances include $848.4 million and $1,134.1 million of loans in Assets Held for Sale at March 31, 2011 and December 30, 2010, respectively.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth non-accrual loans and assets received in satisfaction of loans (repossessed assets). Non-accrual loans include loans greater than $500,000 that are individually evaluated and determined to be impaired, as well as loans less than $500,000 that are delinquent (generally for more than 90 days).

Finance Receivables on Non-accrual Status (dollars in millions)


	March 31, 2011						December 31, 2010

	Held for Investment		Held for Sale		Total		Held for Investment		Held for Sale		Total
Commercial
Corporate Finance - Other	$	701.3	$	108.2	$	809.5	$	969.3	$	56.1	$	1,025.4
Corporate Finance - SBL		170.9		23.7		194.6		214.4		–		214.4
Transportation Finance		62.1		–		62.1		63.2		–		63.2
Trade Finance		98.0		–		98.0		164.4		–		164.4
Vendor Finance - US		71.5		–		71.5		80.2		–		80.2
Vendor Finance - International		36.4		33.0		69.4		40.4		27.3		67.7
Consumer		0.9		–		0.9		0.4		0.3		0 .7

Total non-accrual loans	$	1,141.1	$	164.9	$	1,306.0	$	1,532.3	$	83.7	$	1,616.0

Repossessed assets						17.7						21.1

Total non-performing assets					$	1,323.7					$	1,637.1

Government guaranteed accruing loans past
due 90 days or more					$	449.2					$	433.6
Other accruing loans past due 90 days or more						4.5						1.7

Total accruing loans past due 90 days or more					$	453.7					$	435.3

Payments received on non-accrual financing receivables are generally applied against outstanding principal.

Impaired Loans

The Company’s policy is to review for impairment finance receivables greater than $500,000 that are placed on non-accrual status. Consumer loans and small-ticket loan and lease receivables that have not been modified in a troubled debt restructuring, as well as short-term factoring receivables, are included (if appropriate) in the reported non-accrual balances above, but are excluded from the impaired finance receivables disclosure below as charge-offs are typically determined and recorded for such loans when they are more than 120 – 150 days past due.

The following table contains information about impaired finance receivables, exclusive of finance receivables that were identified as impaired at the Convenience 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) and disclosed further below in this note, and the related reserve for credit losses.

Impaired Loans At or for the Quarter Ended March 31, 2011 (dollars in millions)


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

With no related allowance recorded:
Commercial
Corporate Finance - Other	$	240.4	$	392.4	$	–	$	237.9
Corporate Finance - SBL		32.9		44.7		–		41.8
Transportation Finance		8.6		10.4		–		9.8
Trade Finance		84.4		118.3		–		107.9
Vendor Finance US		16.9		27.1		–		21.7
Vendor Finance International		15.4		33.5		–		15.5
With an allowance recorded:
Commercial
Corporate Finance - Other		115.8		139.4		43.8		132.3
Corporate Finance - SBL		48.2		52.2		13.1		50.1
Transportation Finance		53.4		59.2		11.7		54.9
Trade Finance		19.1		25.1		4.8		23.1

Total Commercial	$	635.1	$	902.3	$	73.4	$	695.0

Impaired Loans for the quarter ended March 31, 2010
Average Recorded Investment $206.4

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


At December 31, 2010⁽¹⁾	Recorded Investment⁽¹⁾		Unpaid Principal Balance⁽¹⁾		Related Allowance

With no related allowance recorded:
Commercial
Corporate Finance – Other	$	235.3	$	377.5	$	–
Corporate Finance – SBL		50.7		72.2		–
Transportation Finance		11.0		12.8		–
Trade Finance		131.5		150.0		–
Vendor Finance US		26.5		51.5		–
Vendor Finance International		15.7		38.6		–
With an allowance recorded:
Commercial
Corporate Finance – Other		148.8		161.8		43.3
Corporate Finance – SBL		51.9		54.5		12.7
Transportation Finance		56.4		57.6		10.0
Trade Finance		27.1		31.1		5.3

Total Commercial	$	754.9	$	1,007.6	$	71.3

(1)

December 31, 2010 balances were adjusted to exclude $81.2 million of recorded net investment and $161.1 million of unpaid principal related to loans classified in Assets Held for Sale.

Impairment occurs when, based on current information and events, it is probable that CIT will be unable to collect all amounts due according to contractual terms of the agreement. Impairment is measured as the shortfall between estimated value and recorded investment in the finance receivable. A specific allowance is recorded for the shortfall. In instances where the estimated value exceeds the recorded investment, no specific allowance is recorded. The estimated value is determined using fair value of collateral and other cash flows if the finance receivable is collateralized, or the present value of expected future cash flows discounted at the contract’s effective interest rate. The following summarizes key elements of the Company’s policy regarding the determination of collateral fair value in the measurement of impairment:

“Orderly liquidation value” is the basis for collateral valuation;
Appraisals are updated annually or more often as market conditions warrant; or
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, which in a liquidation may become difficult to locate, subject to pilferage, or difficult to collect in a liquidation.

The Company periodically modifies the terms of loans / finance receivables in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs). The net investment of TDRs at March 31, 2011 and December 31, 2010 were $404.0 million and $461.7 million, of which 96% and 95% were on non-accrual. Corporate Finance receivables accounted for 71% and 73% of the total TDRs. At March 31, 2011 and December 31, 2010, there were $17.4 million and $19.6 million, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in troubled debt restructurings.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and Debt Securities Acquired with Deteriorated Credit Quality

For purposes of this presentation, finance receivables that were identified as impaired at the Convenience Date are presented separately below. The Company is applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans considered impaired in FSA at the time of emergence. The Company has no other loans reported under this guidance.


	March 31, 2011						December 31, 2010

(dollars in millions)	Carrying Amount		Outstanding balance⁽¹⁾		Related Allowance		Carrying Amount		Outstanding balance⁽¹⁾		Related Allowance
Commercial	$	556.0	$	1,598.4	$	23.5	$	795.6	$	1,914.6	$	54.9
Consumer		1.5		13.1		–		1.5		14.3		–

Totals	$	557.5	$	1,611.5	$	23.5	$	797.1	$	1,928.9	$	54.9


	Quarter Ended March 31, 2011				Quarter Ended March 31, 2010

	Provision for Credit Losses		Net Charge-offs		Provision for Credit Losses		Net Charge-offs
Commercial	$	70.4	$	101.8	$	53.5	$	47.8
Consumer		0.8		0.8		1.7		1.7

Totals	$	71.2	$	102.6	$	55.2	$	49.5

(1)

Represents the sum of contractual principal, interest and fees earned at the reporting date, aggregated as pre-FSA net investment grossed up for inception to date of charge-offs.

The following table presents the changes to the accretable discount related to all loans accounted for under ASC 310-30 (loans acquired with deteriorated credit quality).

Accretable discount activity for loans accounted for under ASC 310-30 at Emergence Date (dollars in millions):


	Quarter Ended March 31, 2011

Accretable discount, beginning of period	$	207.2
Accretion		(12.3	)
Disposals/transfers		(27.4	)

Accretable discount, end of period	$	167.5

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 — ALLOWANCE FOR LOAN LOSSES

The following table presents changes in the allowance for loan losses.

Allowance for Loan Losses and Recorded Investment in Finance Receivables
As of or for the Quarters Ended March 31, (dollars in millions)


	2011																					2010

	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Total Commercial			Consumer			Total			Total

Allowance for loan losses:
Beginning balance	$	303.7		$	23.7		$	29.9		$	58.9		$	416.2		$	–		$	416.2		$	–
Provision for credit losses		74.5			1.8			3.3			42.9			122.5			0.9			123.4			226.1
Change relating to new accounting
pronouncement⁽¹⁾		–			–			–			–			–			–			–			68.6
Changes relating to sales, foreign		2.6			(0.1	)		0.7			0.3			3.5			–			3.5			(3.3	)
currency translation, other
Gross charge-offs⁽²⁾		(125.0	)		(0.7	)		(6.2	)		(26.3	)		(158.2	)		(1.2	)		(159.4	)		(79.7	)
Recoveries		8.0			–			1.9			8.6			18.5			0.3			18.8			2.2

Allowance balance - end of period	$	263.8		$	24.7		$	29.6		$	84.4		$	402.5		$	–		$	402.5		$	213.9

Individually evaluated for impairment	$	56.9		$	11.7		$	4.8		$	–		$	73.4		$	–		$	73.4
Collectively evaluated for impairment		185.4			13.0			24.8			82.4			305.6			–			305.6
Loans acquired with deteriorated credit
quality⁽³⁾		21.5			–			–			2.0			23.5			–			23.5

Allowance balance - end of period	$	263.8		$	24.7		$	29.6		$	84.4		$	402.5		$	–		$	402.5

Reserve for unfunded lending
commitments⁽⁴⁾	$	8.2		$	0.9		$	–		$	–		$	9.1		$	–		$	9.1

Financing receivables:
Individually evaluated for impairment	$	437.3		$	62.0		$	103.5		$	32.3		$	635.1		$	–		$	635.1
Collectively evaluated for impairment		6,945.8			1,220.5			2,519.1			3,961.3			14,646.7			7,897.4			22,544.1
Loans acquired with deteriorated credit
quality⁽³⁾		513.0			0 .1			–			42.9			556.0			1.5			557.5

Ending balance	$	7,896.1		$	1,282.6		$	2,622.6		$	4,036.5		$	15,837.8		$	7,898.9		$	23,736.7


Percent of total loans		33.3	%		5.4	%		11.0	%		17.0	%		66.7	%		33.3	%		100.0	%

(1)	Reflects reserves associated with loans consolidated in accordance with 2010 adoption of accounting guidance on consolidation of variable interest entities.

(2)	Gross charge-offs include $74.9 million that were charged directly to the allowance for loan losses for the March 31, 2011 quarter, of which $69.7 million related to Corporate Finance with the remainder related to Trade Finance.

(3)	Represents loans considered impaired in FSA that are accounted for under the guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality).

(4)	Represents additional loan reserves for unfunded lending commitments and letters of credit recorded in Other Liabilities.

The allowance for loan losses balance prior to emergence was eliminated in FSA. The 2010 balance reflects estimated amounts for loans originated subsequent to the Emergence Date, loans that were held in VIEs that the Company has consolidated, and incremental amounts required on loans that were on the books at the Emergence Date.

NOTE 4 — INVESTMENT SECURITIES

At the end of 2011 first quarter, the Company purchased $6,125.5 million of U.S. Treasury securities. All of the investments in U.S. Treasuries mature in 91 days or less, and the carrying value approximates fair value. The securities were purchased using $4.2 billion of unrestricted cash and $1.9 billion of restricted cash. The restricted cash utilized resided in a Cash Sweep account, for which investments in certain high-grade securities is a permitted use.

Total investment securities include debt and equity securities. Debt instruments primarily consisted of U.S. Treasuries, U.S. agency bonds and foreign government bonds while equity securities include common stock and warrants.


Investment Securities (dollars in millions)	March 31, 2011		December 31, 2010

Debt securities available-for-sale	$	6,125.5	$	–
Equity securities available-for-sale		17.3		37.5
Debt securities held-to-maturity⁽¹⁾		186.4		195.9
Non-marketable equity securities carried at cost⁽²⁾		87.7		95.1

Total investment securities	$	6,416.9	$	328.5

(1)	Recorded at amortized cost less impairment on securities that have credit-related impairment.

(2)	Non-marketable equity securities are carried at cost and primarily consist of shares issued by customers during loan work out situations or as part of an original loan investment.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt securities are recorded on the Consolidated Balance Sheet as of the trade date and classified based on management’s intention on the date of purchase.

Securities Available-for-Sale

The following table presents amortized cost and fair value of securities available-for-sale (AFS): (dollars in millions)


	March 31, 2011

	Amortized Cost		Gross Unrealized Gains			Fair Value

Debt securities AFS
U.S. Treasury	$	6,125.5	$	–	$	6,125.5
Equity securities AFS		17.2		0.1		17.3

Total securities AFS	$	6,142.7	$	0.1	$	6,142.8

The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. Any credit-related impairment on debt securities that the Company does not plan to sell and is not likely to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in other comprehensive income. For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income.

The following table presents interest and dividends on investments:


dollars in millions	Quarter Ended March 31

	2011		2010

Interest	$	7.7	$	5.5
Dividends		–		1.8

Total interest and dividends	$	7.7	$	7.3

Gross realized investment gains for the quarter ended March 31, 2011 were $23.0 million and exclude losses from other-than-temporary impairment.

Debt Securities Held-to-Maturity

The carrying value and fair value of securities held-to-maturity (HTM) at March 31, 2011 and December 31, 2010 were as follows:

dollars in millions


	Carrying value		Gross unrecognized gains		Fair value

March 31, 2011
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations	$	112.0	$	0.6	$	112.6

Total U.S. Treasury and federal agency securities		112.0		0.6		112.6
Mortgage-backed securities
U.S. government and government-sponsored agency guaranteed		54.4		0.2		54.6
State and municipal		0.4		–		0.4
Foreign government		19.6		–		19.6

Total debt securities held-to-maturity	$	186.4	$	0.8	$	187.2

December 31, 2010
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations	$	119.8	$	0.7	$	120.5

Total U.S. Treasury and federal agency securities		119.8		0.7		120.5
Mortgage-backed securities
U.S. government and government-sponsored agency guaranteed		56.9		1.0		57.9
State and municipal		0.4		–		0.4
Foreign government		18.8		–		18.8

Total debt securities held-to-maturity	$	195.9	$	1.7	$	197.6

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amortized cost and fair value of debt securities HTM by contractual maturity dates:


	March 31, 2011				December 31, 2010

dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Mortgage-backed securities⁽¹⁾
After 10 years⁽²⁾	$	54.4	$	54.6	$	56.9	$	57.9

Total		54.4		54.6		56.9		57.9

U.S. Treasury and federal agencies
After 1 but within 5 years		112.0		112.6		119.8		120.5

Total		112.0		112.6		119.8		120.5

State and municipal
After 1 but within 5 years		0.2		0.2		0.2		0.2
After 5 but within 10 years		0.2		0.2		0.2		0.2

Total		0.4		0.4		0.4		0.4

Foreign government
Due within 1 year		17.1		17.1		18.8		18.8
After 1 but within 5 years		2.5		2.5		–		–

Total		19.6		19.6		18.8		18.8

Total debt securities HTM	$	186.4	$	187.2	$	195.9	$	197.6

(1)	Includes mortgage-backed securities of U.S. federal agencies.

(2)	Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.

Other-Than-Temporary Impairments

Recognition and Measurement of Other-Than-Temporary Impairments (OTTI)

OTTI amounts recognized in earnings totaled $6.1 million for the March 31, 2011 quarter, which were credit-related impairments on equity securities. There were no first quarter 2010 impairment charges. Impairment amounts in accumulated other comprehensive income were not significant at March 31, 2011 and December 31, 2010.

Evaluating Investments for OTTI

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-Temporary Impairment. Under the guidance for debt securities, other-than-temporary impairment 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 recovery of the amortized cost basis. For those securities that the Company does not intend to sell or expect to be required to sell, credit-related impairment is recognized in earnings, with the non-credit related impairment recorded in AOCI.

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.

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 has assessed each investment for impairment. Factors considered in determining whether a loss is temporary would include:

the length of time and the extent to which fair value has been below cost;
the severity of the impairment;
the cause of the impairment and the financial condition and 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 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;
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;

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment; and
documentation of the results of these analyses, as required under business policies.

For equity securities, management considers the various factors described above, including its intent and ability to hold the equity security for a period of time sufficient for recovery to cost. Where management lacks that intent or ability, the security’s decline in fair value is deemed to be other than temporary and is recorded in earnings. AFS equity securities deemed other-than-temporarily impaired are written down to fair value, with the full difference between fair value and cost recognized in earnings.

NOTE 5 — LONG-TERM BORROWINGS

The following table presents outstanding long-term borrowings.


(dollars in millions)	March 31, 2011						December 31, 2010

	CIT Group Inc.		Subsidiaries		Total		Total

Secured borrowings	$	–	$	10,347.7	$	10,347.7	$	10,965.8
First lien facility		198.1		2,842.8		3,040.9		3,042.6
Other debt		85.9		69.5		155.4		167.7
Series A Notes		18,142.6		–		18,142.6		19,037.9
Series B Notes		–		–		–		765.8
Series C Notes		2,000.0		–		2,000.0		–

Total debt	$	20,426.6	$	13,260.0	$	33,686.6	$	33,979.8

Secured Borrowings

Set forth below are borrowings and pledged assets primarily owned by consolidated variable interest entities. Creditors of these entities received ownership and/or security interests in the assets. These entities are intended to be bankruptcy remote so that such assets are not available to creditors of CIT or any affiliates of CIT. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings. Except as otherwise noted, pledged assets listed below are not included in the collateral available to lenders under the First Lien Facility or the Series A or C Notes described below.

Secured Borrowings and Pledged Asset Summary (dollars in millions)


	March 31, 2011				December 31, 2010
	Secured Borrowing		Assets Pledged		Secured Borrowing		Assets Pledged
Education loan trusts and conduits (student loans)	$	4,102.2	$	5,440.9	$	4,184.4	$	5,558.8
GSI Facility borrowings ⁽¹⁾		1,300.7		2,089.2		1,624.6		2,349.5
Vendor finance⁽²⁾		773.4		989.4		601.4		808.1
Equipment lease securitizations (Vendor)		610.3		818.5		757.7		949.3
Trade Finance		382.2		1,585.5		504.9		1,479.6
Corporate Finance CLO I		467.4		477.6		467.4		451.2
Canadian equipment receivables financing		264.2		364.9		346.1		434.2
Corporate finance (SBL)⁽²⁾		280.0		304.8		258.0		283.6
Transportation Finance – Aero		61.3		60.6		62.4		61.6

Subtotal – Finance Receivables		8,241.7		12,131.4		8,806.9		12,375.9

Aircraft financing⁽³⁾		1,289.9		1,518.9		1,315.1		1,531.0
Transportation Finance – Rail		147.6		140.4		148.9		146.2
GSI Facility borrowings (Aero)		500.8		1,113.4		519.8		1,119.3
Other structures		92.9		120.9		99.8		126.2

Subtotal – Equipment under operating leases		2,031.2		2,893.6		2,083.6		2,922.7

FHLB borrowings (Consumer)⁽⁴⁾		74.8		112.0		75.3		119.8

Total	$	10,347.7	$	15,137.0	$	10,965.8	$	15,418.4

(1)	At March 31, 2011 borrowing is secured by $1.4 billion of corporate finance receivables, $0.6 billion of student loans, and $0.1 billion of small business lending loans of which $31.4 million were classified in Assets Held for sale at March 31, 2011.

(2)	Includes repurchase of assets previously sold or securitized and the associated secured debt.

(3)	Secured aircraft financing facility for the purchase of specified Airbus aircraft.

(4)	Collateralized with Government Debentures and Certificates of Deposit.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Variable Interest Entities

The Company utilizes VIEs in the ordinary course of business to support its own and its customers’ financing needs.

The most significant types of VIEs that CIT utilizes are securitizations of pools of assets. The Company originates pools of assets and sells these to special purpose entities which, in turn, issue debt securities backed by the asset pools or sell individual interests in the assets to investors. CIT retains the servicing rights and participates in certain cash flows.

First Lien Facility

In August 2010, CIT amended its existing first lien credit facility agreements (the “First Lien Facility”) and refinanced the remaining principal balance. The First Lien Facility has an outstanding balance of $3 billion that matures in August 2015. This facility carries an interest rate of LIBOR + 4.50% with a 1.75% LIBOR floor. The First Lien Facility is generally secured by a first lien on substantially all U.S. assets that are not otherwise pledged to secure the borrowings of special purpose entities as described below under “Other Secured Borrowings”, 65% of the voting shares and 100% of the non-voting shares of certain foreign subsidiaries and between 44% and 65% of the equity interest or capital stock in certain other non-U.S., non-regulated subsidiaries. The First Lien Facility is subject to a collateral coverage covenant (based on CIT’s book value in accordance with GAAP) of 2.5x the outstanding loan balance, tested quarterly and upon certain transfers, dispositions or releases of collateral. The First Lien Facility also contains a number of additional covenants, some of which do not impose restrictions on the Company if CIT continues to maintain a collateral coverage ratio of 2.75x or greater.

Series A and Series C Notes

In March 2011, the Company issued $2 billion of new Series C Second-Priority Secured Notes, consisting of $1.3 billion of three-year 5.25% fixed rate notes and $700 million of seven-year 6.625% fixed rate notes. The covenants in the new Series C Notes are materially less restrictive than those in the outstanding Series A Notes, and more consistent with covenants in investment grade-rated bonds. The proceeds of the transaction were used, in conjunction with available cash, to redeem an additional $2.5 billion of 7% Series A Notes at a redemption price of 102% of the aggregate principal amount on May 2, 2011. This redemption included approximately $1.1 billion principal amount of remaining 2013 Series A Notes and approximately $1.4 billion principal amount of the 2014 Series A Notes. The acceleration of FSA amortization on the 2013 and 2014 maturities will add approximately $65 million and $50 million, respectively, to second quarter interest expense.

During the 2011 first quarter, we redeemed $1.0 billion of the 7% Series A Notes due in 2013 at a redemption price of 102% of the aggregate principal amount redeemed. The acceleration of FSA amortization on the Series A Notes was $25 million and resulted in an increase to interest expense.

The Series A Notes and Series C Notes are generally secured by second-priority security interests in all the assets securing the First Lien Facility. The Series A Notes Indentures limit the ability of the Company and the Company’s restricted subsidiaries to make certain payments or investments, incur indebtedness (including guarantees), issue preferred stock, incur liens, enter into sale and leaseback transactions, pay dividends, sell assets, and enter into transactions with affiliates. The Series C Notes Indentures 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. Under the terms of the Series A Notes, the Company is required to use certain cash collections to repay the First Lien Facility and Series A Notes on an accelerated basis as part of the Cash Sweep; there is no such requirement under the Series C Notes.

The guarantees and collateral for the Series C Notes will be released upon the Series C Notes receiving an investment grade rating from each of Moody's and S&P after giving effect to the release. In addition, the guarantees and/or collateral for the Series C Notes will be automatically released if the same guarantees and/or collateral for the Series A Notes are released at the same time or if the Series A Notes have been paid off in full.

In the event of a Change of Control as defined in the Series A Indentures, holders of the Series A Notes will have the right to require the Company, as applicable, to repurchase all or a portion of the Series A Notes at a

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of such repurchase.

Upon a Change of Control Triggering Event as defined in the Series C Indentures, holders of the Series C Notes will have the right to require the Company, as applicable, to repurchase all or a portion of the Series C Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of such repurchase.

Series B Notes

During the 2011 first quarter, we redeemed the remaining $0.75 billion of 10.25% Series B Notes at a redemption price of 102% of the aggregate principal amount redeemed. The acceleration of FSA accretion on the Series B Notes was $14 million and resulted in a decrease to interest expense.

Summarized Financial Information of Subsidiaries

In accordance with the Series A Notes Indenture, the following tables present two mutually exclusive sets of condensed consolidating financial statements, reflecting the following:

The first set of condensed consolidated financial statements includes entities that are considered guarantors or non-guarantors. Guarantor entities are those that have guaranteed the unregistered debt under the First Lien Facility and Series A Notes. Non-guarantors are all other entities including those which may have pledged assets but did not guarantee the debt.
The second set reflects both restricted and unrestricted subsidiaries. Unrestricted subsidiaries include regulated entities such as CIT Bank, joint ventures, special purpose entities and entities deemed immaterial. Restricted entities include all other subsidiaries.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEETS (dollars in millions)


						Non Guarantor Entities

March 31, 2011	CIT Group Inc.		Guarantor Entities			Pledged Entities		Other Non Guarantor Entities			Eliminations			Consolidated Total

ASSETS:
Net loans	$	–	$	5,071.2		$	2,302.5	$	16,370.4		$	(409.9	)	$	23,334.2
Operating lease equipment, net		–		4,422.2			4,762.3		1,889.8			(34.1	)		11,040.2
Assets held for sale		–		286.4			411.5		476.5			–			1,174.4
Cash and deposits with banks		683.0		888.3			1,229.4		2,946.3			(60.2	)		5,686.8
Investment securities		4,199.9		2,000.6			6.7		392.9			(183.2	)		6,416.9
Other assets		31,762.7		18,958.0			4,721.4		2,904.4			(55,323.8	)		3,022.7

Total Assets	$	36,645.6	$	31,626.7		$	13,433.8	$	24,980.3		$	(56,011.2	)	$	50,675.2

LIABILITIES AND EQUITY:
Long-term borrowings, including deposits	$	20,426.6	$	2,864.6		$	1,291.2	$	13,670.0		$	(271.2	)	$	37,981.2
Credit balances of factoring clients		–		1,310.7			–		3.8			(203.8	)		1,110.7
Other liabilities		7,226.7		(1,453.1	)		4,346.1		(7,281.9	)		(248.5	)		2,589.3

Total Liabilities		27,653.3		2,722.2			5,637.3		6,391.9			(723.5	)		41,681.2

Total Stockholders’ Equity		8,992.3		28,904.5			7,796.2		18,588.0			(55,288.7	)		8,992.3
Noncontrolling minority interests		–		–			0.3		0.4			1.0			1.7

Total Equity		8,992.3		28,904.5			7,796.5		18,588.4			(55,287.7	)		8,994.0

Total Liabilities and Equity	$	36,645.6	$	31,626.7		$	13,433.8	$	24,980.3		$	(56,011.2	)	$	50,675.2


*December 31, 2010()**
ASSETS:
Net loans	$	–	$	5,249.2		$	2,388.5	$	16,762.7		$	(316.1	)	$	24,084.3
Operating lease equipment, net		–		4,421.8			4,847.9		1,904.6			(37.6	)		11,136.7
Assets held for sale		–		340.2			293.5		584.8			–			1,218.5
Cash and deposits with banks		2,725.6		4,404.8			1,176.1		2,936.3			(38.8	)		11,204.0
Investment securities		–		100.8			7.3		403.5			(183.1	)		328.5
Other assets		31,047.4		18,524.6			4,598.1		2,816.1			(54,000.0	)		2,986.2

Total Assets	$	33,773.0	$	33,041.4		$	13,311.4	$	25,408.0		$	(54,575.6	)	$	50,958.2

LIABILITIES AND EQUITY:
Long-term borrowings, including deposits	$	19,322.0	$	2,866.2		$	2,083.0	$	14,497.0		$	(252.2	)	$	38,516.0
Credit balances of factoring clients		–		926.1			–		9.2			–			935.3
Other liabilities		5,535.0		850.9			4,451.1		(7,908.3	)		(335.5	)		2,593.2

Total Liabilities		24,857.0		4,643.2			6,534.1		6,597.9			(587.7	)		42,044.5

Total Stockholders’ Equity		8,916.0		28,398.2			6,776.9		18,809.8			(53,984.9	)		8,916.0
Noncontrolling minority interests		–		–			0.4		0.3			(3.0	)		(2.3	)

Total Equity		8,916.0		28,398.2			6,777.3		18,810.1			(53,987.9	)		8,913.7

Total Liabilities and Equity	$	33,773.0	$	33,041.4		$	13,311.4	$	25,408.0		$	(54,575.6	)	$	50,958.2

(*) 2010 data has been conformed to the current quarter presentation.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATION (dollars in millions)


							Non Guarantor Entities

	CIT Group Inc.			Guarantor Entities			Pledged Entities			Other Non Guarantor Entities			Eliminations			Consolidated Total

Quarter Ended March 31, 2011
Interest income	$	1.1		$	246.6		$	94.8		$	302.6		$	(1.9	)	$	643.2
Interest expense		(451.0	)		(87.6	)		(59.3	)		(104.9	)		3.9			(698.9	)

Net interest revenue		(449.9	)		159.0			35.5			197.7			2.0			(55.7	)
Provision for credit losses		(1.8	)		(22.4	)		(23.0	)		(76.3	)		0.1			(123.4	)

Net interest revenue, after credit provision		(451.7	)		136.6			12.5			121.4			2.1			(179.1	)
Equity in net income of subsidiaries		576.4			290.8			71.5			78.5			(1,017.2	)		–
Other Income
Rental income on operating leases		–			146.2			175.5			91.6			–			413.3
Other		(119.1	)		216.4			49.7			137.7			(6.5	)		278.2

Total other income		(119.1	)		362.6			225.2			229.3			(6.5	)		691.5

Total revenue, net of interest expense
and credit provision		5.6			790.0			309.2			429.2			(1,021.6	)		512.4

Other Expenses
Depreciation on operating lease equipment		–			(48.8	)		(64.3	)		(47.4	)		–			(160.5	)
Operating expenses		(17.9	)		(141.9	)		(13.5	)		(49.5	)		6.4			(216.4	)

Total other expenses		(17.9	)		(190.7	)		(77.8	)		(96.9	)		6.4			(376.9	)

Income (loss) before income taxes		(12.3	)		599.3			231.4			332.3			(1,015.2	)		135.5
Benefit (provision) for income taxes		77.8			(43.9	)		(41.9	)		(57.7	)		–			(65.7	)

Net income (loss) before attribution of
noncontrolling interests		65.5			555.4			189.5			274.6			(1,015.2	)		69.8
Net income attributable to noncontrolling
interests, after tax		–			–			–			(0.1	)		(4.1	)		(4.2	)

Net income (loss)	$	65.5		$	555.4		$	189.5		$	274.5		$	(1,019.3	)	$	65.6



*Quarter Ended March 31, 2010()**
Interest income	$	0.4		$	509.0		$	165.3		$	443.4		$	(13.4	)	$	1,104.7
Interest expense		(462.7	)		(102.0	)		(139.0	)		(135.0	)		7.3			(831.4	)

Net interest revenue		(462.3	)		407.0			26.3			308.4			(6.1	)		273.3
Provision for credit losses		0.4			(154.7	)		(24.8	)		(47.0	)		–			(226.1	)

Net interest revenue, after credit provision		(461.9	)		252.3			1.5			261.4			(6.1	)		47.2
Equity in net income of subsidiaries		442.5			232.2			35.4			120.1			(830.2	)		–
Other Income
Rental income on operating leases		–			129.9			183.2			113.2			(0.5	)		425.8
Other		51.8			84.1			61.7			(44.5	)		(2.7	)		150.4

Total other income		51.8			214.0			244.9			68.7			(3.2	)		576.2

Total revenue, net of interest expense
and credit provision		32.4			698.5			281.8			450.2			(839.5	)		623.4

Other Expenses
Depreciation on operating lease equipment		–			(47.4	)		(72.9	)		(52.6	)		0.2			(172.7	)
Operating expenses		9.0			(169.5	)		(19.7	)		(100.8	)		19.3			(261.7	)

Total other expenses		9.0			(216.9	)		(92.6	)		(153.4	)		19.5			(434.4	)

Income (loss) before income taxes		41.4			481.6			189.2			296.8			(820.0	)		189.0
Benefit (provision) for income taxes		101.9			(77.9	)		(42.0	)		(25.4	)		–			(43.4	)

Net income (loss) before attribution of
noncontrolling interests		143.3			403.7			147.2			271.4			(820.0	)		145.6
Net income attributable to noncontrolling
interests, after tax		–			–			–			0.3			(1.3	)		(1.0	)

Net income (loss)	$	143.3		$	403.7		$	147.2		$	271.7		$	(821.3	)	$	144.6

(*) 2010 data has been conformed to the current quarter presentation.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (dollars in millions)


							Non Guarantor Entities

Quarter Ended March 31, 2011	CIT Group Inc.			Guarantor Entities			Pledged Entities			Other Non Guarantor Entities			Eliminations			Consolidated Total


Cash Flows From Operating
Activities:
Net cash flows provided by
(used for) operations	$	(573.5	)	$	276.2		$	15.0		$	405.5		$	–		$	123.2

Cash Flows From Investing
Activities:
Net decrease in financing and
leasing assets and other
investing activities		(4,195.4	)		(143.2	)		74.2			527.4			–			(3,737.0	)
(Increase) decrease in inter-
company loans and
investments		1,732.9			–			–			–			(1,732.9	)		–

Net cash flows (used for)
provided by investing activities		(2,462.5	)		(143.2	)		74.2			527.4			(1,732.9	)		(3,737.0	)

Cash Flows From Financing
Activities:
Net increase (decrease) in debt
and other financing activities		999.7			5.8			(740.0	)		(958.8	)		–			(693.3	)
Inter-company financing		–			(2,451.8	)		689.0			29.9		1,732.9				–

Net cash flows provided by
(used for) financing activities		999.7			(2,446.0	)		(51.0	)		(928.9	)		1,732.9			(693.3	)

Net (decrease) increase in
unrestricted cash and cash
equivalents		(2,036.3	)		(2,313.0	)		38.2			4.0			–			(4,307.1	)
Unrestricted cash and cash
equivalents, beginning of period		2,703.6			2,946.4			1,021.1			1,979.1			–			8,650.2

Unrestricted cash and cash
equivalents, end of period	$	667.3		$	633.4		$	1,059.3		$	1,983.1		$	–		$	4,343.1




*Quarter Ended March 31, 2010()**

Cash Flows From Operating
Activities:
Net cash flows provided by
(used for) operations	$	75.8		$	381.7		$	51.4		$	(390.3	)	$	–		$	118.6

Cash Flows From Investing
Activities:
Net decrease in financing and
leasing assets and other
investing activities		131.4			(591.4	)		30.9			2,577.5			–			2,148.4
(Increase) decrease in inter-
company loans and investments		278.5			–			–			–			(278.5	)		–

Net cash flows (used for)
provided by investing activities		409.9			(591.4	)		30.9			2,577.5			(278.5	)		2,148.4

Cash Flows From Financing
Activities:
Net increase (decrease) in debt
and other financing activities		(52.1	)		(1,022.1	)		(145.5	)		(1,365.3	)		–			(2,585.0	)
Inter-company financing		–			955.5			(226.1	)		(1,007.9	)		278.5			–

Net cash flows provided by
(used for) financing activities		(52.1	)		(66.6	)		(371.6	)		(2,373.2	)		278.5			(2,585.0	)

Net (decrease) increase in
unrestricted cash and cash
equivalents		433.6			(276.3	)		(289.3	)		(186.0	)		–			(318.0	)
Unrestricted cash and cash
equivalents, beginning of period		609.3			4,420.6			808.1			2,567.2			–			8,405.2

Unrestricted cash and cash
equivalents, end of period	$	1,042.9		$	4,144.3		$	518.8		$	2,381.2		$	–		$	8,087.2

(*) 2010 data has been conformed to the current quarter presentation.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEETS (dollars in millions)


March 31, 2011	CIT Group Inc.		Restricted Entities			Unrestricted Entities			Eliminations			Consolidated Total

ASSETS:
Net loans	$	–	$	7,744.9		$	15,999.2		$	(409.9	)	$	23,334.2
Operating lease equipment, net		–		9,490.4			1,583.9			(34.1	)		11,040.2
Assets held for sale		–		726.0			448.4			–			1,174.4
Cash and deposits with banks		683.0		2,528.9			2,535.1			(60.2	)		5,686.8
Investment securities		4,199.9		2,007.3			392.9			(183.2	)		6,416.9
Other assets		31,762.7		8,527.1			347.2			(37,614.3	)		3,022.7

Total Assets	$	36,645.6	$	31,024.6		$	21,306.7		$	(38,301.7	)	$	50,675.2

LIABILITIES AND EQUITY:
Long-term borrowings, including deposits	$	20,426.6	$	4,155.7		$	13,670.1		$	(271.2	)	$	37,981.2
Credit balances of factoring clients		–		1,310.7			3.8			(203.8	)		1,110.7
Other liabilities		7,226.7		(3,394.4	)		(994.5	)		(248.5	)		2,589.3

Total Liabilities		27,653.3		2,072.0			12,679.4			(723.5	)		41,681.2

Total Stockholders’ Equity		8,992.3		28,952.3			8,626.9			(37,579.2	)		8,992.3
Noncontrolling minority interests		–		0.3			0.4			1.0			1.7

Total Equity		8,992.3		28,952.6			8,627.3			(37,578.2	)		8,994.0

Total Liabilities and Equity	$	36,645.6	$	31,024.6		$	21,306.7		$	(38,301.7	)	$	50,675.2


*December 31, 2010()**
ASSETS:
Net loans	$	–	$	8,041.4		$	16,359.0		$	(316.1	)	$	24,084.3
Operating lease equipment, net		–		9,605.7			1,568.6			(37.6	)		11,136.7
Assets held for sale		–		678.4			540.1			–			1,218.5
Cash and deposits with banks		2,725.6		5,885.6			2,631.6			(38.8	)		11,204.0
Investment securities		–		108.1			403.5			(183.1	)		328.5
Other assets		31,047.4		9,115.0			328.8			(37,505.0	)		2,986.2

Total Assets	$	33,773.0	$	33,434.2		$	21,831.6		$	(38,080.6	)	$	50,958.2

LIABILITIES AND EQUITY:
Long-term borrowings, including deposits	$	19,322.0	$	4,949.2		$	14,497.0		$	(252.2	)	$	38,516.0
Credit balances of factoring clients		–		926.1			9.2			–			935.3
Other liabilities		5,535.0		(888.6	)		(1,717.7	)		(335.5	)		2,593.2

Total Liabilities		24,857.0		4,986.7			12,788.5			(587.7	)		42,044.5

Total Stockholders’ Equity		8,916.0		28,447.1			9,042.8			(37,489.9	)		8,916.0
Noncontrolling minority interests		–		0.4			0.3			(3.0	)		(2.3	)

Total Equity		8,916.0		28,447.5			9,043.1			(37,492.9	)		8,913.7

Total Liabilities and Equity	$	33,773.0	$	33,434.2		$	21,831.6		$	(38,080.6	)	$	50,958.2

(*) 2010 data has been conformed to the current quarter presentation.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATION (dollars in millions)


	CIT Group Inc.			Restricted Entities			Unrestricted Entities			Eliminations			Consolidated Total

Quarter Ended March 31, 2011
Interest income	$	1.1		$	354.3		$	289.7		$	(1.9	)	$	643.2
Interest expense		(451.0	)		(113.2	)		(138.6	)		3.9			(698.9	)

Net interest revenue		(449.9	)		241.1			151.1			2.0			(55.7	)
Provision for credit losses		(1.8	)		(41.4	)		(80.3	)		0.1			(123.4	)

Net interest revenue, after credit provision		(451.7	)		199.7			70.8			2.1			(179.1	)
Equity in net income of subsidiaries		576.4			72.2			–			(648.6	)		–
Other Income
Rental income on operating leases		–			343.3			70.0			–			413.3
Other		(119.1	)		323.0			80.8			(6.5	)		278.2

Total other income		(119.1	)		666.3			150.8			(6.5	)		691.5

Total revenue, net of interest expense
and credit provision		5.6			938.2			221.6			(653.0	)		512.4

Other Expenses
Depreciation on operating lease equipment		–			(128.4	)		(32.1	)		–			(160.5	)
Operating expenses		(17.9	)		(160.1	)		(44.8	)		6.4			(216.4	)

Total other expenses		(17.9	)		(288.5	)		(76.9	)		6.4			(376.9	)

Income (loss) before income taxes		(12.3	)		649.7			144.7			(646.6	)		135.5
Benefit (provision) for income taxes		77.8			(96.1	)		(47.4	)		–			(65.7	)

Net income (loss) before attribution of
noncontrolling interests		65.5			553.6			97.3			(646.6	)		69.8
Net income attributable to noncontrolling interests, after tax		–			–			(0.1	)		(4.1	)		(4.2	)

Net income (loss)	$	65.5		$	553.6		$	97.2		$	(650.7	)	$	65.6





*Quarter Ended March 31, 2010()**

Interest income	$	0.4		$	705.8		$	411.9		$	(13.4	)	$	1,104.7
Interest expense		(462.7	)		(208.3	)		(167.7	)		7.3			(831.4	)

Net interest revenue		(462.3	)		497.5			244.2			(6.1	)		273.3
Provision for credit losses		0.4			(185.8	)		(40.7	)		–			(226.1	)

Net interest revenue, after credit provision		(461.9	)		311.7			203.5			(6.1	)		47.2
Equity in net income of subsidiaries		442.5			135.3			60.9			(638.7	)		–
Other Income
Rental income on operating leases		–			336.8			89.5			(0.5	)		425.8
Other		51.8			113.7			(12.4	)		(2.7	)		150.4

Total other income		51.8			450.5			77.1			(3.2	)		576.2

Total revenue, net of interest expense
and credit provision		32.4			897.5			341.5			(648.0	)		623.4

Other Expenses
Depreciation on operating lease equipment		–			(136.8	)		(36.1	)		0.2			(172.7	)
Operating expenses		9.0			(242.2	)		(47.8	)		19.3			(261.7	)

Total other expenses		9.0			(379.0	)		(83.9	)		19.5			(434.4	)

Income (loss) before income taxes		41.4			518.5			257.6			(628.5	)		189.0

Benefit (provision) for income taxes		101.9			(113.2	)		(32.1	)		–			(43.4	)

Net income (loss) before attribution of
noncontrolling interests		143.3			405.3			225.5			(628.5	)		145.6
Net income attributable to noncontrolling
interests, after tax		–			–			0.3			(1.3	)		(1.0	)

Net income (loss)	$	143.3		$	405.3		$	225.8		$	(629.8	)	$	144.6

(*) 2010 data has been conformed to the current quarter presentation.

NOTE 6 — DERIVATIVE FINANCIAL INSTRUMENTS

As part of managing economic risk and exposure to interest rate, foreign currency and, in limited instances, credit risk, CIT enters into derivative transactions in over-the-counter markets with other financial institutions. CIT does not enter into derivative financial instruments for speculative purposes. Derivative instruments transacted since emergence from bankruptcy are cash collateralized.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company continues to assess hedge requirements and has reestablished counterparty relationships to facilitate hedging where economically appropriate. During 2011 and 2010, the Company’s portfolio was in an asset sensitive position, whereby assets reprice faster than liabilities, and interest margin increases in a rising interest rate environment. Our hedging strategies and qualifying hedges relate primarily to currency risk management of investments in foreign operations. The Company utilizes cross-currency swaps and foreign currency forward contracts to effectively convert U.S. dollar denominated debt to a foreign currency. These transactions are classified as either foreign currency net investment hedges, or foreign currency cash flow hedges, with resulting gains and losses reflected in accumulated other comprehensive income, a separate component of equity. For hedges of foreign currency net investment positions the “forward” method is applied whereby effectiveness is 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 entire debt instrument 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. The net interest differential is recognized on an accrual basis as an adjustment to other income or as interest expense to correspond with the hedged position.

See the Company’s Form 10-K Note 1 for further description of its derivative transaction policies.

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

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


	March 31, 2011							December 31, 2010

Qualifying Hedges	Notional Amount		Asset Fair Value		Liability Fair Value			Notional Amount		Asset Fair Value		Liability Fair Value

Cross currency swaps	$	426.3	$	–	$	(23.0	)	$	414.7	$	0.8	$	(12.1	)
Foreign currency forward exchange – cash
flow hedges		169.7		0.1		(2.4	)		183.6		6.4		(1.4	)
Foreign currency forward exchange – net
investment hedges		1,489.9		0.1		(93.1	)		1,333.4		0.5		(61.0	)

Total Qualifying Hedges	$	2,085.9	$	0.2	$	(118.5	)	$	1,931.7	$	7.7	$	(74.5	)

Non-Qualifying Hedges
Cross currency swaps	$	1,370.7	$	–	$	(80.5	)	$	1,330.3	$	14.2	$	(38.4	)
Interest rate swaps		978.9		4.0		(30.4	)		1,046.8		4.5		(37.7	)
Written options		79.8		–		–			273.8		–		–
Purchased options		979.5		2.5		–			903.0		2.7		–
Foreign currency forward exchange contracts		2,235.9		7.4		(94.5	)		2,210.0		4.3		(50.2	)
TRS		857.1		–		–			609.9		–		–

Total Non-qualifying Hedges	$	6,501.9	$	13.9	$	(205.4	)	$	6,373.8	$	25.7	$	(126.3	)

A financing facility with Goldman Sachs International (GSI) is structured as a total return swap (TRS), under which amounts available for advances are accounted for as a derivative. Estimated fair value of the derivative is based on a hypothetical transfer value, considering current market conditions and other factors.

The following table presents the impact of derivatives on the statements of operations:

Derivative Instrument Gains and Losses (dollars in millions)


		Three Months Ended

	Gain / (Loss) Recognized
Derivative Instruments	Gain / (Loss) Recognized	March 31, 2011			March 31, 2010

Qualifying Hedges
Foreign currency exchange rate fluctuations – cash flow hedges	Other income	$	(9.6	)	$	–

Total Qualifying Hedges			(9.6	)		–
Non Qualifying Hedges
Cross currency swaps	Other income		(41.0	)		9.3
Interest rate swaps	Other income		5.9			(19.4	)
Foreign currency forward exchange contracts	Other income		(53.4	)		70.1

Total Non-qualifying Hedges			(88.5	)		60.0

Total derivatives-income statement impact		$	(98.1	)	$	60.0

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 — FAIR VALUE

Fair Value Hierarchy

The Company is required to report fair value measurements for specified classes of assets and liabilities. See Company’s Form 10-K Note 1 for description of its fair value measurement policy.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in millions)


March 31, 2011	Total			Level 1		Level 2			Level 3

Assets
Debt Securities available for sale	$	6,125.5		$	–	$	6,125.5		$	–
Equity Securities available for sale		17.3			13.9		3.4			–
Trading assets at fair value - derivatives		13.9			–		13.9			–
Derivative counterparty assets at fair value		0.2			–		0.2			–

Total Assets	$	6,156.9		$	13.9	$	6,143.0		$	–

Liabilities
Trading liabilities at fair value - derivatives	$	(205.4	)	$	–	$	(205.1	)	$	(0.3	)
Derivative counterparty liabilities at fair value		(118.5	)		–		(118.5	)		–

Total Liabilities	$	(323.9	)	$	–	$	(323.6	)	$	(0.3	)


December 31, 2010

Assets
Equity Securities available for sale	$	37.5		$	16.2	$	3.4		$	17.9
Trading assets at fair value - derivatives		25.7			–		25.7			–
Derivative counterparty assets at fair value		7.7			–		7.7			–

Total Assets	$	70.9		$	16.2	$	36.8		$	17.9

Liabilities
Trading liabilities at fair value - derivatives	$	(126.3	)	$	–	$	(126.0	)	$	(0.3	)
Derivative counterparty liabilities at fair value		(74.5	)		–		(74.5	)		–

Total Liabilities	$	(200.8	)	$	–	$	(200.5	)	$	(0.3	)

The following table presents financial instruments for which a non-recurring change in fair value has been recorded:

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


			Fair Value Measurements at Reporting Date Using:

March 31, 2011	Total		Level 1		Level 2		Level 3		Total Gains and (Losses)

Assets
Assets Held for Sale	$	341.3	$	–	$	–	$	341.3	$	(10.5	)
Impaired loans		310.2		–		–		310.2		(2.7	)

Total	$	651.5	$	–	$	–	$	651.5	$	(13.2	)

Loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value. At the time of transfer, a write-down of the loan is recorded as a charge-off, if applicable. Once classified as held for sale, the amount by which the carrying value exceeds fair value is recorded as a valuation allowance.

Impaired finance receivables (including loans or capital leases) of $500,000 or greater that are placed on non-accrual status are subject to periodic individual review in conjunction with the Company’s ongoing problem loan management (PLM) function. Impairment occurs when, based on current information and events, it is probable that CIT will be unable to collect all amounts due according to contractual terms of the agreement. Impairment is measured as the shortfall between estimated value and recorded investment in the finance receivable, with the estimated value determined using fair value of collateral and other cash flows if the finance receivable is collateralized, or the present value of expected future cash flows discounted at the contract’s effective interest rate.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 3 Gains and Losses

The tables below set forth a summary of changes in the estimated fair value of the Company’s Level 3 financial assets and liabilities measured on a recurring basis:


	Total			Derivatives			Equity Securities Available for Sale

Assets and Liabilities
December 31, 2010	$	17.6		$	(0.3	)	$	17.9
Gains or losses realized/unrealized
Included in other income		5.4			–			5.4
Other, net (primarily sales proceeds)		(23.3	)		–			(23.3	)

March 31, 2011	$	(0.3	)	$	(0.3	)	$	–

FAIR VALUES OF FINANCIAL INSTRUMENTS

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


	March 31, 2011						December 31, 2010
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value


Assets
Trading assets - derivatives	$	13.9		$	13.9		$	25.7		$	25.7
Derivative counterparty assets at fair value		0.2			0.2			7.7			7.7
Assets held for sale (excluding leases)*		189.0			241.2			466.0			466.0
Loans (excluding leases)		18,522.5			18,591.0			20,680.3			21,356.8
Investment securities		6,416.9			6,417.7			328.5			330.2
Other assets and unsecured counterparty receivable⁽¹⁾		1,630.1			1,630.1			1,507.6			1,507.6
Liabilities
Deposits⁽²⁾		(4,324.6	)		(4,381.0	)		(4,562.7	)		(4,660.0	)
Trading liabilities - derivatives		(205.4	)		(205.4	)		(126.3	)		(126.3	)
Derivative counterparty liabilities at fair value		(118.5	)		(118.5	)		(74.5	)		(74.5	)
Long-term borrowings⁽²⁾		(33,897.1	)	(36,166.3		)		(34,208.1	)	(36,452.0		)
Other liabilities⁽³⁾		(1,648.2	)		(1,648.2	)		(1,769.9	)		(1,769.9	)

()*	Prior period balances have been conformed to current period presentation.
(1)	Other assets subject to fair value disclosure include accrued interest receivable and other receivables, certain investment securities and miscellaneous other assets whose carrying values approximate fair value.

(2)	Deposits and long-term borrowings include accrued interest.

(3)	Other liabilities include accrued liabilities, which have a fair value that approximates carrying value.

Assumptions used to value financial instruments as of March 31, 2011 are unchanged from those disclosed in Note 10 of the 2010 Form 10-K.

Derivatives – the estimated fair values of derivatives were calculated internally using market data and represent the net amount receivable or payable to terminate, taking into account current market rates. See Note 6 — “Derivative Financial Instruments” for notional principal amounts and fair values.

Assets held for sale – Assets held-for-sale are recorded at lower of cost or fair value on the balance sheet. The fair value is generally determined using internally generated valuations, which are considered level 3 methodologies. Commercial loans are generally valued individually, while small-ticket commercial and consumer type loans are valued on an aggregate portfolio basis.

Loans – Since there is no liquid secondary market for most loans in the Company’s portfolio, the fair value is estimated based on discounted cash flow analysis. 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. For the consumer loan portfolio, the discount spread is derived based on the company’s estimate of a market participant’s required return on equity that incorporate credit loss estimates based on expected and current default rates.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deposits – the fair value of deposits was estimated based upon a present value discounted cash flow analysis. Discount rates used in the present value calculation are based on the Company’s current rates.

Long-term borrowings – Most fixed-rate notes were valued based on quoted market estimates. Where market estimates were not available, values were computed using a discounted cash flow analysis with a discount rate approximating current market rates for issuances by CIT of similar term debt. The difference between the carrying values of long-term borrowings reflected in the consolidated balance sheets is accrued interest payable.

NOTE 8 — STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive (Loss) / Income

Total comprehensive income was $75.3 million and $180.8 million for the quarters ended March 31, 2011 and 2010, respectively, including Accumulated Other Comprehensive Income of $5.5 million and $35.2 million, respectively.

The following table details the ending component balances of Accumulated Other Comprehensive Loss, net of tax:


(dollars in millions)	March 31, 2011			December 31, 2010


Changes in fair values of derivatives qualifying as cash flow hedges	$	(0.8	)	$	(1.7	)
Foreign currency translation adjustments		(6.1	)		(12.9	)
Unrealized gain on available for sale investments		0.1			2.2
Changes in benefit plan net gain/(loss) and prior service (cost)/credit		2.7			2.8

Total accumulated other comprehensive loss	$	(4.1	)	$	(9.6	)

NOTE 9 — REGULATORY CAPITAL

The Company and CIT Bank are each subject to various regulatory capital requirements administered by the Federal Reserve Bank (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”).

Quantitative measures established by regulation to ensure capital adequacy require that the Company and CIT Bank each maintain minimum ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, subject to any agreement with regulators to maintain higher capital levels. In connection with becoming a bank holding company in December 2008, the Company committed to maintaining a minimum Total Risk Based Capital Ratio of 13%. In connection with converting to a Utah state bank in December 2008, CIT Bank committed to maintaining for at least three years a Tier 1 Leverage Ratio of at least 15%.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The calculation of the Company’s regulatory capital ratios are subject to review and consultation with the Federal Reserve Bank, which may result in refinements to amounts reported at March 31, 2011.

Tier 1 Capital and Total Capital Components (dollars in millions)


	CIT Group Inc.						CIT Bank

Tier 1 Capital	March 31, 2011			December 31, 2010			March 31, 2011			December 31, 2010

Total stockholders' equity	$	8,992.3		$	8,916.0		$	1,878.5		$	1,832.2
Effect of certain items in accumulated other
comprehensive loss excluded from Tier 1 Capital		(2.0	)		(3.3	)		–			(0.1	)

Adjusted total equity		8,990.3			8,912.7			1,878.5			1,832.1
Less: Goodwill		(277.4	)		(277.4	)		–			–
Disallowed intangible assets		(99.1	)		(119.2	)		–			–
Investment in certain subsidiaries		(34.4	)		(33.4	)		–			–
Other Tier 1 components⁽¹⁾		(59.0	)		(65.2	)		(88.9	)		(97.8	)

Total Tier 1 Capital		8,520.4			8,417.5			1,789.6			1,734.3

Tier 2 Capital
Qualifying reserve for credit losses		415.3			416.2			13.0			10.7
Less: Investment in certain subsidiaries		(34.4	)		(33.4	)		–			–
Other Tier 2 components⁽²⁾		0.2			0.2			–			0.1

Total Tier 2 Capital		381.1			383.0			13.0			10.8

Total Capital (Tier 1 and Tier 2 Capital)	$	8,901.5		$	8,800.5		$	1,802.6		$	1,745.1

Risk-weighted assets	$	42,430.1		$	44,176.7		$	3,189.1		$	3,022.0

Total Capital (to risk-weighted assets):
Actual		21.0	%		19.9	%		56.5	%		57.7	%
Required Ratio for Capital Adequacy Purposes		13.0	%⁽³⁾		13.0	%⁽³⁾		8.0	%		8.0	%
Tier 1 Capital (to risk-weighted assets):
Actual		20.1	%		19.1	%		56.1	%		57.4	%
Required Ratio for Capital Adequacy Purposes		4.0	%		4.0	%		4.0	%		4.0	%
Tier 1 Capital Leverage Ratio:
Actual		17.2	%		16.2	%		25.6	%		24.2	%
Required Ratio for Capital Adequacy Purposes		4.0	%		4.0	%		15.0	%⁽³⁾		15.0	%⁽³⁾

(1)	Includes the portion of net deferred tax assets that does not qualify for inclusion in Tier 1 capital based on the capital guidelines and the Tier 1 capital charge for nonfinancial equity investments.

(2)	Banking organizations are permitted to include in Tier 2 Capital up to 45% of net unrealized pretax gains on available-for-sale equity securities with readily determinable fair values.

(3)	The Company and CIT Bank each committed to maintaining certain capital ratios above regulatory minimum levels.

NOTE 10 – INCOME TAXES

CIT’s tax provision of $65.7 million equated to a 48.5% effective tax rate, compared with a tax provision of $43.4 million and a 23.0% effective tax rate for the quarter ended March 31, 2010. The higher effective tax rate was primarily the result of the relative mix of domestic and international earnings. For the first quarter, the Company recorded income tax expense on the earnings of certain international operations and no income tax benefit on its domestic losses. A tax benefit was not recognized on the domestic losses because management has concluded that it does not currently meet the criteria to recognize these tax benefits considering its recent history of domestic losses.

Included in the tax provision is approximately $9 million of discrete tax expense items, primarily related to a net increase in liabilities for uncertain tax positions and incremental valuation allowances on certain foreign losses. The Company anticipates that it is reasonably possible that the total unrecognized tax benefits will decrease due to the settlement of audits and the expiration of statutes of limitation prior to March 31, 2012 in the range of $0-$10 million.

The tax provision also reflects $7.6 million of discrete tax expense items associated with the correction of certain foreign tax expense calculations relating to prior periods. Management has concluded that the adjustments were not individually or in the aggregate material to the consolidated financial statements, as of and for the period ended March 31, 2011, or to any of the preceding periods as reported.

As of December 31, 2010, CIT had cumulative U.S. Federal net operating loss carry-forwards (NOL’s) of $4.0 billion. During the first quarter, the Company generated a domestic pretax loss of $412 million which, excluding FSA adjustments and certain other book-to-tax adjustments, will increase the post-emergence NOLs. Pursuant to Section 382 of the Internal Revenue Code, the Company is generally subject to a $230 million annual limitation on the use of its $1.9 billion of pre-emergence NOLs. NOLs arising in post-emergence years are not subject to this limitation.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — COMMITMENTS

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

Commitments (dollars in millions)


	March 31, 2011
							December 31,
	Due to Expire						2010

	Within One Year		After One Year		Total Outstanding		Total Outstanding

Financing Commitments
Financing and leasing assets	$	303.4	$	1,977.1	$	2,280.5	$	2,406.5
Letters of credit and acceptances
Standby letters of credit		53.7		208.8		262.5		284.7
Other letters of credit		89.0		32.3		121.3		99.0
Guarantees
Deferred purchase credit protection agreements		1,534.4		–		1,534.4		1,667.9
Guarantees, acceptances and other recourse obligations		9.5		13.0		22.5		25.8
Purchase and Funding Commitments
Aerospace and other manufacturer purchase commitments		861.1		4,929.2		5,790.3		5,701.4
Other
Liabilities for unrecognized tax benefits		10.0		439.1		449.1		451.6

Financing Commitments

Financing commitments, referred to as loan commitments, or lines of credit, are agreements to lend to customers, subject to the customers’ compliance with contractual obligations. The table above excludes approximately $1 billion commitments at March 31, 2011 for instances where the customer is not in compliance with contractual obligations, thereby CIT does not have the contractual obligation to lend. As financing commitments are not typically fully drawn, may expire unused, be reduced or cancelled at the customer’s request and require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.

At March 31, 2011, substantially all financing commitments were senior facilities, with approximately 55% secured by equipment or other assets and the remainder comprised of cash-flow or enterprise value facilities. The vast majority of these commitments are syndicated transactions. CIT is lead agent in approximately 33% of the facilities. Most of our undrawn and available financing commitments are in Corporate Finance. The top ten undrawn commitments totaled $394 million.

The table above excludes unused cancelable lines of credit to customers in connection with select third-party vendor programs, which may be used solely to finance additional product purchases. These uncommitted lines of credit can be reduced or canceled by CIT at any time without notice. Management’s experience indicates that customers related to vendor programs typically exercise their line of credit only when they need to purchase new products from a vendor and do not seek to exercise their entire available line of credit at any point in time.

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.

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Purchase Agreements

A Deferred Purchase Agreement (“DPA”) is provided in conjunction with factoring, whereby CIT provides a client with credit protection for trade receivables without purchasing the receivables. The trade terms are generally sixty 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 of DPAs is the maximum potential exposure that CIT would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring CIT to purchase all such receivables from the DPA clients.

The methodology used to determine the DPA liability is similar to the methodology used to determine the allowance for loan losses associated with the finance receivables, which reflects embedded losses based on various factors, including expected losses reflecting our internal customer and facility credit ratings. CIT had a liability recorded in Other Liabilities related to the DPAs that totaled $3.7 million and $4.2 million at March 31, 2011 and December 31, 2010, respectively.

Purchase and Funding Commitments

CIT’s purchase commitments relate predominantly to purchases of commercial aircraft. Commitments to purchase new commercial aircraft are primarily with Airbus Industries and The Boeing Company. Aerospace equipment purchases are contracted for specific models, using baseline aircraft specifications at fixed prices, which reflect discounts from fair market purchase prices prevailing at the time of commitment. The delivery price of an aircraft may change depending on final specifications. Equipment purchases are recorded at delivery date. Commitment amounts in the preceding table are based on contracted purchase prices less pre-delivery payments to date and exclude buyer furnished equipment selected by the lessee. Pursuant to existing contractual commitments, 106 aircraft remain to be purchased. Aircraft deliveries are scheduled periodically through 2018. Commitments exclude unexercised options to purchase aircraft.

Purchase commitments also include rail equipment. During the first quarter of 2011, the Company’s rail business entered into a commitment to purchase 3,500 railcars to be delivered beginning in the 2011 second quarter through the 2012 second quarter. Rail equipment purchase commitments are at fixed prices subject to price increases for certain materials.

NOTE 12 – CONTINGENCIES

Litigation

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”). 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. In accordance with applicable accounting guidance, CIT establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can be reasonably estimated. Based on currently available information, CIT believes that the results of Litigation that is currently pending, taken together, will not have a material adverse effect on the Company’s financial condition, but may be material to the Company’s operating results or cash flows for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.

For certain Litigation matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of the loss amount accrued. For other matters for which a loss is probable or reasonably possible, such an estimate is not reasonably possible. For Litigation where an estimate is reasonably possible, management currently estimates the aggregate range of reasonably possible losses as up to $85 million in excess of established reserves and insurance related to those matters. This estimate represents possible losses (in excess of established reserves and other amounts referenced above)

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, 2011. 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 Company included specific litigation proceedings in its December 31, 2010 Form 10-K. There have been no significant changes to those proceedings, except as noted below.

Snap-on Arbitration

On January 8, 2010, Snap-On Incorporated (“Snap-On”) and Snap-On Credit LLC filed a Demand for Arbitration alleging that CIT retained certain monies owed to Snap-On in connection with a joint venture with CIT which was terminated on July 16, 2009. Snap-On alleged that CIT underpaid Snap-On during the course of the joint venture, primarily related to the purchase by CIT of receivables originated and serviced by the joint venture, and sought damages of up to $100 million. On January 29, 2010, CIT filed its Answering Statement and Counterclaim. Among other things, CIT claimed that Snap-On wrongfully withheld payment on approximately $108 million due to CIT from the receivables serviced by Snap-On on behalf of CIT.

On May 5, 2011, CIT and Snap-On executed a settlement agreement fully resolving their respective claims, whereby Snap-On retained $18 million and returned the remainder of approximately $108 million to CIT. After taking into consideration applicable reserves, the settlement did not have a material impact on CIT’s financial position or results of operations.

Contractual Contingencies

Tax Agreement

In connection with our separation from Tyco International Ltd (“Tyco”) in 2002, CIT and Tyco entered into a Tax Agreement pursuant to which, among other things, CIT agreed to pay Tyco for cash tax savings actually realized by CIT, if any, as a result of the use of certain tax attributes created while Tyco owned CIT (the “Tyco Tax Attribute”), which savings would not have been realized absent the existence of the Tyco Tax Attribute. During CIT’s bankruptcy, CIT rejected the Tax Agreement, and Tyco and CIT entered into a Standstill Agreement pursuant to which (a) CIT agreed that it would defer bringing its subordination claim against Tyco and (b) Tyco agreed that it would defer bringing its damages claim against CIT while the parties exchanged information about CIT’s tax position, including past usage and retention of the various attributes on its consolidated tax return. The amount of the Federal Tyco Tax Attribute is approximately $794 million and the state Tyco Tax Attribute is approximately $180 million as of the separation date. CIT’s approximate applicable federal and state tax rates are 35% and 6.5% (net of the federal benefit), respectively. CIT has recorded a valuation allowance against a significant portion of its federal and state deferred tax assets, as the Company continues to conclude that it does not currently meet the criteria to recognize these assets.

NOTE 13 — BUSINESS SEGMENT INFORMATION

Management’s Policy in Identifying Reportable Segments

CIT’s reportable segments are comprised of strategic business units that are aggregated into segments primarily based upon industry categories 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 consistent with the presentation of financial information to management.

Types of Products and Services

CIT has five reportable segments: Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance and Consumer. Corporate Finance and Trade Finance offer secured lending and receivables collection as well as other financial products and services to small and midsize companies. These include

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

secured revolving lines of credit and term loans, credit protection, accounts receivable collection, import and export financing and factoring, debtor-in-possession and turnaround financing and management advisory services. Transportation Finance offers secured lending and leasing products to midsize and larger companies across the aerospace, rail and defense industries. Vendor Finance partners with manufacturers and distributors to offer secured lending and leasing products predominantly to small and mid-size companies primarily in information technology, telecommunication and office equipment markets. Consumer includes a liquidating portfolio of predominately government-guaranteed student loans and certain consumer loans of CIT Bank.

Segment Profit and Assets

The Company refined its expense and capital allocation methodologies during the first quarter of 2011. For 2011, Corporate and other includes certain costs that had been previously allocated to the segments, including prepayment penalty fees on high-cost debt payments and certain corporate liquidity costs. In addition, the Company refined the capital and interest allocation methodologies for the segments. These changes had the most impact on Transportation Finance given the capital requirements for their forward-purchase commitments and reduced the interest expense charged to this segment. The refinement was not significant to the other segments, and therefore, 2010 balances were not conformed.

The following table presents reportable segment information and the reconciliation of segment balances to consolidated financial statements:

Business Segments (dollars in millions)


	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Commercial Segments			Consumer			Total Segments			Corporate and Other			Total

For the quarter ended
March 31, 2011
Total interest income	$	298.7		$	42.5		$	17.1		$	208.3		$	566.6		$	70.8		$	637.4		$	5.8		$	643.2
Total interest expense		(196.8	)		(210.5	)		(25.7	)		(133.0	)		(566.0	)		(53.0	)		(619.0	)		(79.9	)		(698.9	)
Provision for credit losses		(74.5	)		(1.8	)		(3.3	)		(42.9	)		(122.5	)		(0.9	)		(123.4	)		–			(123.4	)
Rental income on
operating leases		6.5			324.7			–			82.1			413.3			–			413.3			–			413.3
Other income, excluding
rental income		163.8			24.3			37.1			31.6			256.8			3.1			259.9			18.3			278.2
Depreciation on operating
lease equipment		(2.9	)		(96.7	)		–			(60.9	)		(160.5	)		–			(160.5	)		–			(160.5	)
Other expenses		(58.8	)		(39.8	)		(27.8	)		(71.7	)		(198.1	)		(17.4	)		(215.5	)		(0.9	)		(216.4	)

Income (loss) before
provision (benefit) for
income taxes	$	136.0		$	42.7		$	(2.6	)	$	13.5		$	189.6		$	2.6		$	192.2		$	(56.7	)	$	135.5

Select Period End Balances
Loans including
receivables pledged	$	7,896.1		$	1,282.6		$	2,622.6		$	4,036.5		$	15,837.8		$	7,898.9		$	23,736.7		$	–		$	23,736.7
Credit balances of
factoring clients		–			–			(1,110.7	)		–			(1,110.7	)		–			(1,110.7	)		–			(1,110.7	)
Assets held for sale		171.0			261.3			–			738.6			1,170.9			3.5			1,174.4			–			1,174.4
Operating lease
equipment, net		72.8			10,545.9			–			421.5			11,040.2			–			11,040.2			–			11,040.2

For the quarter ended
March 31, 2010
Total interest income	$	548.0		$	63.7		$	30.5		$	362.0		$	1,004.2		$	95.9		$	1,100.1		$	4.6		$	1,104.7
Total interest expense		(298.8	)		(258.3	)		(41.6	)		(167.9	)		(766.6	)		(66.8	)		(833.4	)		2.0			(831.4	)
Provision for credit losses		(133.9	)		(1.3	)		(33.9	)		(52.5	)		(221.6	)		(4.5	)		(226.1	)		–			(226.1	)
Rental income on
operating leases		8.8			306.8			–			110.8			426.4			–			426.4			(0.6	)		425.8
Other income, excluding
rental income		102.6			22.2			49.2			38.8			212.8			5.8			218.6			(68.2	)		150.4
Depreciation on operating
lease equipment		(3.6	)		(78.6	)		–			(90.7	)		(172.9	)		–			(172.9	)		0.2			(172.7	)
Other expenses		(79.9	)		(39.6	)		(32.0	)		(86.9	)		(238.4	)		(21.5	)		(259.9	)		(1.8	)		(261.7	)

Income (loss) before
provision (benefit) for
income taxes	$	143.2		$	14.9		$	(27.8	)	$	113.6		$	243.9		$	8.9		$	252.8		$	(63.8	)	$	189.0

Select Period End Balances
Loans including
receivables pledged	$	12,145.3		$	1,778.3		$	2,794.1		$	6,795.9		$	23,513.6		$	8,946.0		$	32,459.6		$	–		$	32,459.6
Credit balances of
factoring clients		–			–			(881.1	)		–			(881.1	)		–			(881.1	)		–			(881.1	)
Assets held for sale		287.8			11.6			–			479.8			779.2			589.6			1,368.8			–			1,368.8
Operating lease
equipment, net		135.6			10,177.5			–			620.5			10,933.6			–			10,933.6			–			10,933.6

NOTE 14 — SUBSEQUENT EVENTS

On April 20, 2011, CIT announced that the FDIC and the Utah Department of Financial Institutions terminated their Cease and Desist orders on CIT Bank that were jointly issued on July 16, 2009.

On April 21, 2011 CIT announced that Dell intends to acquire Dell Financial Services Canada Ltd. (“DFS Canada”). In a separate transaction, Dell also intends to buy CIT’s Dell-related assets and sales and servicing functions in Europe (“DFS Europe”). The sale of DFS Canada includes financing and leasing assets of approximately $340 million and the sale of DFS Europe includes financing and leasing assets of approximately $390 million, in each case as of March 31, 2011, subject to normal portfolio activity since that date. The Canadian transaction is anticipated to close by mid-2011, while the European transaction is subject to additional regulatory requirements and is planned to close in 2012. CIT will continue to support Dell in these regions during the transition. The Company anticipates recording a net gain on each transaction in the period in which it closes.

On May 2, 2011, CIT redeemed $2.5 billion of 7% Series A Second Lien Notes at a redemption price of 102% of the aggregate principal amount. This redemption included approximately $1.1 billion principal amount of remaining 2013 Series A Notes and $1.4 billion principal amount of the 2014 Series A Notes. The prepayment fee will add $50 million and the acceleration of FSA amortization on the 2013 and 2014 maturities will add approximately $65 million and $50 million, respectively, to the second quarter interest expense.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

and

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

OVERVIEW

BACKGROUND

Founded in 1908, CIT Group Inc. (“we”, “CIT” or the “Company”), a Delaware Corporation, is a bank holding company that provides commercial financing and leasing products and other financial services to small and middle market businesses across a wide variety of industries. CIT became a bank holding company in December 2008 and CIT Bank, a Utah state-chartered bank, is the Company’s principal bank subsidiary.

CIT operates primarily in North America, with locations in Europe, Latin America and Asia and has four commercial business segments – Corporate Finance, Trade Finance, Transportation Finance and Vendor Finance. We also own and manage a pool of liquidating consumer loans, predominantly government guaranteed student loans, that are reported in our Consumer segment.

As of March 31, 2011 the Company had 3,693 employees and approximately $51 billion in assets.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” contain financial terms that are relevant to our business. You can find a glossary of these terms in Item 1. Business Overview in our Form 10-K for the year ended December 31, 2010.

The March 31, 2010 amounts have been restated to correct for errors found by the Company subsequent to the filing of its third quarter 2010 report on Form 10-Q, related primarily to the application of Fresh Start Accounting (“FSA”), the effects of which were disclosed in the Company’s December 31, 2010 Form 10-K. The effect of the restatement increased net income for the quarter ended March 31, 2010 by approximately $47 million to $144.6 million as compared to the amount originally reported in the March 31, 2010 Form 10-Q. Comparisons to the 2010 first quarter balances are to the restated amounts. See the Company’s December 31, 2010 Form 10-K, Note 26 –Selected Quarterly Financial Data (Unaudited) of Item 8 and “Select 2010 Form 10-Q Restated Sections” of Item 7 for further information.

Financial information contains certain non-GAAP financial measures, see “Non-GAAP Financial Measurements” for reconciliation of these to comparable GAAP measures.

2011 PRIORITIES AND PROGRESS

Our first quarter financial results reflect some initial accomplishments of our 2011 priorities that we described in our December 31, 2010 Form 10-K.

1. Focus on growth in our four core businesses, both domestically and internationally

New lending commitments totaled $1.7 billion, and we funded $1.3 billion of new lending and leasing volume.
Further narrowed the gap between funded volumes and portfolio receipts.
Stabilized the client base in Trade Finance.

2. Improve profitability, including reducing our cost of capital and operating expenses

Further reduced high-cost debt as we redeemed over $1.7 billion of Series A and B debt, accessed the capital markets for cost-efficient funding and closed a $2 billion secured debt offering, which also extended the maturity, and redeemed an additional $2.5 billion of Series A Notes on May 2, 2011.

Renewed a $1 billion committed U.S. Vendor Finance conduit facility with a significantly reduced cost, higher advance rate and longer tenor.
Completed the outsourcing of servicing of the remaining government-guaranteed student loan portfolio.
Reduced employee head count to 3,693 from 3,778 at December 31, 2010, reflecting the outsourcing and other efficiency actions.

3. Expand the role of CIT Bank, both in asset origination and funding capabilities

On April 20, 2011, CIT announced that the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (UDFI) terminated their Cease and Desist orders against CIT Bank that were jointly issued on July 16, 2009.
Obtained the necessary regulatory approvals and moved the Small Business Lending operating platform into the bank in March 2011.
Increased asset origination activity as committed loan volume rose 15% sequentially to $777 million, of which $409 million was funded.

Throughout the year we will continue to advance these priorities, as well as those relating to risk management, compliance and control functions and to substantially satisfy the open items in the Written Agreement with the Federal Reserve Bank of New York that the Company entered into on August 12, 2009.

2011 FIRST QUARTER FINANCIAL OVERVIEW

Net income for the quarter ended March 31, 2011 of $66 million, $0.33 per diluted share, was down from $145 million, $0.72 per diluted share a year ago on reduced benefits from fresh start accounting (“FSA”) accretion. Lower FSA accretion, down $365 million from the 2010 first quarter, resulted from fewer asset prepayments and the accelerated repayment of debt carried at a discount. In addition, the current quarter debt prepayment fees of $35 million were more than double those in the 2010 first quarter. Partially offsetting these changes were higher gains on asset sales, favorable foreign exchange and derivative marks, and benefits related to a secured borrowing facility, the total return swap.

Net finance revenue¹declined due to reduced FSA accretion (down $185 million from the prior quarter and $361 million from the 2010 first quarter) and lower average earning assets¹of $35 billion (down $2 billion from the prior quarter and $10 billion from the 2010 first quarter). Net operating lease revenue increased from the prior quarter reflecting a temporary benefit related to accounting for certain assets classified as held-for-sale in Vendor Finance and improvements in Transportation Finance, and was unchanged from the 2010 first quarter. Net finance revenue as a percentage of average earning assets was 2.24%, down from the prior quarter and the 2010 first quarter as reduced FSA accretion more than offset the benefits from paying off high cost debt and high receipts related to a total return swap, which reduced interest expense. Excluding FSA and the effect of prepayment penalties on high-cost debt in all periods, margin was 1.46%, up from 0.56% in the prior quarter and 0.71% in the 2010 first quarter. The improvements over the prior quarter and the 2010 first quarter were primarily driven by lower funding costs, including benefits from the total return swap, and the increase over the prior quarter also reflected higher portfolio yields.

Provision for credit losses was $123 million, a decrease of 32% from the prior quarter, reflecting reduced charge-offs, lower non-accrual balances and stable credit quality trends. The provision for credit losses declined 45% from the 2010 first quarter, during which loss reserves were re-established.

Other income (excluding operating lease rentals) increased 24% from the prior quarter and 85% from the 2010 first quarter as gains on asset sales nearly doubled from each period and we benefited from favorable foreign exchange and derivative marks. Recoveries of $32 million on receivables charged-off prior to the adoption of FSA were down from both 2010 periods.

Operating expenses were $216 million. Excluding restructuring charges of approximately $7 million, operating expenses declined 4% from the prior quarter and 16% from the 2010 first quarter to $210 million. Operating

¹	Net finance revenue and average earning assets are non-GAAP measures; see reconciliation of non-GAAP to GAAP financial information.

expenses excluding restructuring charges as a percentage of average earning assets were approximately 2.4%, flat with the prior quarter and up from the 2010 first quarter.

Provision for income taxes was $66 million reflecting income tax expense on taxable income generated by international operations and no income tax benefit on our U.S. losses due to a full valuation allowance. The income tax provision is primarily driven by the mix of domestic and international earnings. The provision also includes reserves for uncertain tax positions and incremental valuation allowances on certain foreign losses.

Total assets of $51 billion were essentially unchanged from December 31, 2010 and $8 billion lower than the prior year. Total loans decreased $1 billion from last quarter, reflecting asset sales and moderating net portfolio run-off and declined almost $9 billion from a year ago. Total assets included cash received from the issuance of $2 billion of Series C Notes at the end of the first quarter, but did not reflect the utilization of cash to prepay certain Series A Notes on May 2, 2011.

Funded new business volume was $1.3 billion, a modest decrease from the prior quarter but a 47% increase from the 2010 first quarter driven primarily by increases in the Corporate Finance and Transportation Finance segments.

Credit quality remained stable overall, with declines in both net charge-offs and non-accrual loans. Net charge-offs decreased $39 million sequentially. Lower Vendor Finance losses, which reflected increased losses in the prior quarter due to charges on the transfer of assets to held for sale and refinements to charge-off practices offset increased Corporate Finance charge-offs, reflecting charge-offs of previously established specific reserves. Non-accrual loans were down over $300 million, or 19% sequentially, reflecting further improvements in Corporate Finance due to asset sales and work-outs, and a 40% decline in Trade Finance as we received sizeable payments on a few large accounts. Net inflows into nonaccruals declined for the third consecutive quarter.

FRESH START ACCOUNTING

Upon emergence from bankruptcy in 2009, CIT applied Fresh Start Accounting (FSA) in accordance with generally accepted accounting principles in the United States of America (GAAP). Accretion and amortization of certain FSA adjustments are reflected in operating results and described below.

The following table presents FSA adjustments by balance sheet caption:

Fresh Start Accounting (Discount)/Premium (dollars in millions)


	March 31, 2011						December 31, 2010

	Accretable			Non-accretable			Accretable			Non-accretable

Loans	$	(1,303.0	)	$	(263.9	)	$	(1,555.4	)	$	(372.2	)
Operating lease equipment, net		(2,954.1	)		–			(3,022.0	)		–
Intangible assets / goodwill		99.1			277.4			119.2			277.4
Other assets		(191.6	)		–			(223.4	)		–

Total assets	$	(4,349.6	)	$	13.5		$	(4,681.6	)	$	(94.8	)

Deposits	$	30.5		$	–		$	38.5		$	–
Long-term borrowings		(2,735.3	)		–			(2,948.5	)		–
Other liabilities		–			313.4			–			351.6

Total liabilities	$	(2,704.8	)	$	313.4		$	(2,910.0	)	$	351.6

Interest income is increased by the FSA accretion on loans, which primarily relates to Corporate Finance ($0.6 billion) and Consumer ($0.5 billion). Due to the contractual maturity of the underlying loans, most accretion income will be realized within the next 2 years. In addition to the scheduled accretion on loans recorded, the accretable balance declined primarily as a result of asset sales. The decline in non-accretable balance was primarily due to asset sales and prepayments, and also reflected charge-offs.

Interest expense is increased by the accretion of the long-term borrowings adjustment, which is recognized over the contractual maturity of the underlying debt. Debt maturity terms are: 2013–2017 for the Series A Notes (accretable discount of $1.9 billion), excluding the impact of the $2.5 billion redemption on May 2, 2011, 2015 for the First Lien Facilities (accretable premium of $0.1 billion) and 2011–2040 for the other secured borrowings, of

which over 85% is expected to be recognized by 2021 (accretable discount of $0.9 billion). If the debt is repaid prior to its contractual maturity, and the repayment is accounted for as a debt extinguishment, accretion of the interest expense on the underlying debt would be accelerated.

Depreciation expense is reduced by the accretion of the operating lease equipment discount, which relates primarily to Transportation Finance aircraft and rail operating lease assets. We estimate an economic average life before disposal of these assets of approximately 15 and 30 years, respectively.

In conjunction with FSA, operating lease rentals were adjusted as of the emergence date. As a result, an intangible asset was recorded to adjust these contracts that were, in aggregate, above their market rentals rates. These adjustments (net) will be amortized, thereby lowering rental income (a component of Other Income) over the remaining lives of the lease agreements on a straight line basis. Rental income is reduced by accretion of the intangible assets, which is based on the contractual maturity of the underlying operating lease. The majority of the remaining accretion has a contractual maturity of less than two years.

Goodwill was recorded to reflect the excess of the reorganization equity value over the fair value of tangible and identifiable intangible assets, net of liabilities.

Other assets relates primarily to a discount on a receivable from GSI in conjunction with a secured borrowing facility. The discount is accreted to Other Income over the expected payout of the receivables. Based on current estimates, approximately 75% of the remaining discount will be recognized within the next five years.

Other liabilities relates primarily to a liability recorded to reflect then current fair value of aircraft purchase commitments outstanding at the time. As the aircraft are purchased, through 2018, the cost basis of the assets will be reduced by the associated liability.

The following table summarizes the impact of accretion and amortization of FSA adjustments on the Consolidated Statement of Operations for the quarters ended March 31, 2011 and 2010 and the quarter ended December 31, 2010:

Accretion/(Amortization) of Fresh Start Accounting Adjustments (dollars in millions)


	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Consumer			Corporate and Other			Total CIT
Quarter Ended March 31, 2011
Interest income	$	175.1		$	17.8		$	–		$	34.3		$	22.5		$	–		$	249.7
Interest expense		(117.6	)		(43.5	)		(3.6	)		(18.3	)		(14.4	)		(7.9	)		(205.3	)
Rental income on operating
leases		–			(19.0	)		–			–			–			–			(19.0	)
Other income		24.5			4.9			–			–			2.4			–			31.8
Depreciation expense		1.3			57.3			–			2.7			–			–			61.3

Total	$	83.3		$	17.5		$	(3.6	)	$	18.7		$	10.5		$	(7.9	)	$	118.5

Quarter Ended December 31, 2010
Interest income	$	227.6		$	26.8		$	2.9		$	49.5		$	24.6		$	–		$	331.4
Interest expense		(67.8	)		(25.2	)		(2.1	)		(10.5	)		(1.1	)		0.7			(106.0	)
Rental income on operating
leases		–			(20.5	)		–			–			–			–			(20.5	)
Other income		13.6			2.7			–			–			1.4			–			17.7
Depreciation expense		1.5			57.3			–			7.7			–			–			66.5

Total	$	174.9		$	41.1		$	0.8		$	46.7		$	24.9		$	0.7		$	289.1

Quarter Ended March 31, 2010
Interest income	$	366.5		$	29.0		$	6.7		$	65.5		$	32.8		$	(0.8	)	$	499.7
Interest expense		(46.8	)		(29.0	)		(1.9	)		(11.1	)		(6.3	)		0.4			(94.7	)
Rental income on operating
leases		–			(26.2	)		–			–			–			–			(26.2	)
Other income		27.5			5.5			–			–			2.7			0.1			35.8
Depreciation expense		2.2			57.4			–			8.9			–			–			68.5

Total	$	349.4		$	36.7		$	4.8		$	63.3		$	29.2		$	(0.3	)	$	483.1

NET FINANCE REVENUE²

The following tables present management’s view of consolidated margin and includes the net interest spread we make on loans and on the equipment we lease, in dollars and as a percent of average earning assets².

Net Finance Revenue (dollars in millions)


	Quarters Ended

	March 31, 2011			December 31, 2010			March 31, 2010

Interest income	$	643.2		$	754.0		$	1,104.7
Rental income on operating leases		413.3			398.3			425.8

Finance revenue		1,056.5			1,152.3			1,530.5
Interest expense		(698.9	)		(703.7	)		(831.4	)
Depreciation on operating lease equipment		(160.5	)		(166.6	)		(172.7	)

Net finance revenue	$	197.1		$	282.0		$	526.4

Average Earnings Assets (“AEA”)	$	35,194.1		$	37,051.5		$	45,077.4

As a % of AEA:
Interest income		7.31	%		8.14	%		9.80	%
Rental income on operating leases		4.70	%		4.30	%		3.78	%

Finance revenue		12.01	%		12.44	%		13.58	%
Interest expense		(7.94	%)		(7.60	%)		(7.38	%)
Depreciation on operating lease equipment		(1.83	%)		(1.80	%)		(1.53	%)

Net finance revenue		2.24	%		3.04	%		4.67	%

As a % of AEA by Segment:
Corporate Finance		5.00	%		5.72	%		7.80	%
Transportation Finance		1.99	%		1.15	%		1.12	%
Trade Finance		(2.50	%)		(3.18	%)		(2.39	%)
Vendor Finance		7.32	%		6.96	%		10.03	%
Commercial Segments		3.73	%		3.56	%		5.54	%
Consumer		0.88	%		1.29	%		1.21	%

Average earning assets are less than comparable balances in Average Balance Sheet tables displayed later in this document due to the exclusion of deposits with banks and other investments offset by the inclusion of credit balances of factoring clients.

Net finance revenue declined due to lower average earning assets and reduced FSA accretion. Average earning assets of $35 billion were down $2 billion from the prior quarter and $10 billion from the 2010 first quarter. As a percentage of average earning assets, net finance revenue was 2.24%, down from the prior quarter and the 2010 first quarter as reduced FSA accretion more than offset the benefits from paying off high cost debt and high receipts related to a total return swap, which in turn caused a reduction in interest expense.

New business yields in Vendor Finance remain in low double-digits, Transportation Finance aircraft and rail rents improved, while Corporate Finance lending yields were under modest pressure. Segment portfolio margins are discussed in the individual segment performance commentaries.

Interest expense for the 2011 quarter included prepayment fees of $35 million on the redemption of $1.0 billion of the 7% Series A Notes due in 2013 and the remaining $0.75 billion of 10.25% Series B Notes. The Series A and Series B Note prepayments also resulted in the acceleration of FSA amortization/(accretion) of $25 million and $(14) million, respectively, which resulted in a net increase of $11 million to interest expense. Additional Series A Note prepayments will result in additional prepayment fees and acceleration of FSA amortization of debt discount (if the prepayment is accounted for as a debt extinguishment), although prepayment fees on Series A Notes cease in 2012.

In March 2011, we issued $2 billion of new secured Series C Notes, consisting of $1.3 billion of three year 5.25% fixed rate notes and $700 million of seven year 6.625% fixed rate notes. The proceeds of the transaction were used, in conjunction with available cash, to redeem an additional $2.5 billion of 7% Series A Second Lien Notes at a redemption price of 102% of the aggregate principal amount on May 2, 2011. This redemption included approximately $1.1 billion principal amount of remaining 2013 Series A Notes and $1.4 billion principal amount of

²	Net finance revenue and average earning assets are non-GAAP measures, see reconciliation of non-GAAP to GAAP financial information.

the 2014 Series A Notes. The prepayment fees on these redemptions aggregate to $50 million and the acceleration of FSA amortization on the 2013 and 2014 maturities will add approximately $65 million and $50 million, respectively, to interest expense.

Net Finance Revenue as a % of AEA, excluding FSA and prepayment penalty fees


Quarters Ended	March 31, 2011					December 31, 2010					March 31, 2010

GAAP - net finance revenue	$	197.1		2.24	%	$	282.0		3.04	%	$	526.4		4.67	%
FSA		(86.7	)	(1.13	)%		(271.4	)	(2.94	)%		(447.3	)	(4.07	)%
Secured credit facility prepayment penalty fee		35.0		0.35	%		48.9		0.46	%		15.0		0.11	%

Non-GAAP - adjusted net finance revenue	$	145.4		1.46	%	$	59.5		0.56	%	$	94.1		0.71	%

The March 31, 2010 was our first quarter post-bankruptcy and adjusted net finance revenue included higher portfolio yields on vendor portfolios, which were sold later in 2010, partially off-set by funding costs and lower operating lease margins. The $86 million increase in the adjusted net finance revenue from last quarter generally related to lower funding costs and increased yields on the portfolio.

Lower funding costs accounted for approximately two-thirds of the increase in adjusted net finance revenue from last quarter. Most of the benefit relates to a secured borrowing facility, the total return swap, where collateral prepayments increased swap receipts, which in turn caused a reduction in interest expense. The balance of the sequential funding cost improvement related to debt prepayments and financings, with most of the benefit from the Series B Notes prepayments.
Increased yields on the portfolio accounted for the remaining one-third of the sequential increase with spreads increasing across the businesses. Corporate Finance benefited from lower non-accruals and higher yield-related fees; Vendor Finance had a temporary benefit related to the accounting for certain assets classified as held-for-sale, and Transportation Finance benefited from aircraft redeployment and improvements in Rail.

Portfolio yields have been impacted by our changing business mix, in which cash, liquid investments and student loans have become a larger portion of the overall balance sheet. As we return to growth in each of our core segments and utilize the liquidity and the student loans run-off, the mix will shift and should benefit the margin. In addition, the ability to refinance the 7% Series A debt to a more economical rate and continue to utilize the lower funding costs at CIT Bank should also be beneficial.

Net Operating Lease Revenue as a % of Average Operating Leases (AOL) (dollars in millions)


	Quarters Ended

	March 31, 2011			December 31, 2010			March 31, 2010

Rental income on operating leases		14.84	%		14.46	%		15.56	%
Depreciation on operating lease equipment		(5.76	%)		(6.05	%)		(6.31	%)

Net operating lease revenue %		9.08	%		8.41	%		9.25	%

Net operating lease revenue %, excluding FSA		5.96	%		5.29	%		4.48	%

Net operating lease revenue	$	252.8		$	231.7		$	253.1

Average Operating Lease Equipment (“AOL”)	$	11,139.5		$	11,017.3		$	10,945.2

Net operating lease revenue increased from the prior quarter, reflecting the previously described improvements in Transportation Finance while the Vendor Finance improvement was due to a temporary benefit related to accounting for certain assets classified as held-for-sale, and was flat with the 2010 first quarter. The 2011 quarter benefitted from improved equipment utilization and lease rates. All aircraft were leased at March 31, 2011, including commitments. Rail fleet utilization, including commitments, increased to above 95% from 94% at December 31, 2010. During the quarter, aircraft renewal rates improved modestly, while rentals in rail continued their sequential increase off cyclical lows.

CREDIT METRICS

Management analyzes credit trends both before and after FSA in order to provide comparability with our longer-term credit trends (which included pre-emergence / historical accounting) and credit trends experienced by other market participants.

Non-accrual loans (including assets held for sale) decreased 19% and 32% from December 31 and March 31, 2010 to $1.3 billion, reflecting improvement in Corporate Finance in relation to both periods. The decrease from the 2010 first quarter also included a reduction in Transportation Finance, while Trade Finance contributed to the decline from the prior quarter. New inflows to non-accrual loans were down considerably from the prior quarter and prior year quarters.

Reported net charge-offs were $141 million, versus $180 million in the prior quarter and $78 million in the prior year quarter. Reduction from the prior quarter was driven primarily by Vendor Finance, reflecting credit quality improvements and the impact on the prior quarter of a refinement to delinquency-based charge-off practices. Charge-offs in Corporate Finance increased 17% from last quarter to $117 million. These charge-offs largely reflected the write-off of amounts specifically reserved for as of December 2010, resulting in a $29 million decline in specific allowances from last quarter. Accordingly, the provision for credit losses was $123 million, versus $182 million last quarter. Reported net charge-offs and the provision for credit losses do not reflect $32 million, $69 million and $44 million of recoveries of pre-FSA charge-offs recorded in other income for the 2011 first quarter and the 2010 fourth and first quarters, respectively,

Management also evaluates credit performance using credit metrics that exclude the impact of FSA. On this basis, gross charge-offs were $210 million for the current quarter, down from $306 million for the 2010 fourth quarter and $237 million in the 2010 first quarter. Non-accrual loans of $1.6 billion decreased from $2.0 billion at December 31, 2010 and $3.1 billion at March 31, 2010.

As a result of adopting FSA, the allowance for loan losses at December 31, 2009 was eliminated and effectively recorded as discounts on loans as part of the fair value of finance receivables. A portion of the discount attributable to embedded credit losses was recorded as non-accretable discount and is utilized as such losses occur, primarily on impaired, non-accrual loans. Any incremental deterioration of loans in this group results in incremental provisions or charge-offs. Improvements or increases in forecasted cash flows in excess of the non-accretable discount reduce any allowance on the loan established after emergence from bankruptcy. Once such allowance (if any) has been reduced and the account is returned to accruing status, the non-accretable discount is reclassified to accretable discount and is recorded as finance income over the remaining life of the account. For performing pre-emergence loans, an allowance for loan losses is established to the extent the net carrying value (after FSA discount) is not deemed to be recoverable.

The allowance for loan losses is intended to provide for losses inherent in the portfolio based on estimates of the ultimate outcome of collection efforts, realization of collateral values, and other pertinent factors, such as estimation risk related to performance in prospective periods. We may make adjustments to the allowance depending on general economic conditions and specific industry weakness or trends in our portfolio credit metrics, including non-accrual loans and charge-off levels and realization rates on collateral.

Our allowance for loan losses includes: (1) specific reserves for impaired loans, (2) non-specific reserves for estimated losses inherent in non-impaired loans based on historic loss experience and our estimates of projected loss levels and (3) a qualitative adjustment to the reserve for economic risks, industry and geographic concentrations, and other factors. Our policy is to recognize losses through charge-offs when there is high likelihood of loss after considering the borrower’s financial condition, underlying collateral and guarantees, and the finalization of collection activities.

See Risk Factors in our December 31, 2010 Form 10-K for additional discussion on allowance for loan losses.

The following table presents detail on our allowance for loan losses, including charge-offs and recoveries:

Allowance for Loan Losses and Provision for Credit Losses (dollars in millions)


	Quarters Ended March 31,

	2011			2010

Allowance balance - beginning of period	$	416.2		$	–

Provision for credit losses ⁽¹⁾		123.4			226.1
Change related to new accounting guidance ⁽²⁾		–			68.6
Changes relating to foreign currency translation, other ⁽¹⁾		3.5			(3.3	)

Net additions		126.9			291.4

Gross charge-offs⁽³⁾		(159.4	)		(79.7	)
Recoveries ⁽⁴⁾		18.8			2.2

Net Charge-offs		(140.6	)		(77.5	)

Allowance - end of period	$	402.5		$	213.9


Loans
Commercial Segments loans	$	15,837.8		$	23,513.6
Consumer loans		7,898.9			8,946.0

Total loans	$	23,736.7		$	32,459.6


Allowance
Commercial Segments	$	402.5		$	213.9
Consumer		–			–

Total Allowance for credit losses	$	402.5		$	213.9

(1)	Includes amounts related to reserves on unfunded loan commitments, which are reflected in other liabilities.

(2)	Reflects reserves associated with loans consolidated in accordance with 2010 adoption of accounting guidance on consolidation of variable interest entities.

(3)	Gross charge-offs include $74.9 million that were charged directly to the allowance for loan losses for the March 31, 2011 quarter, of which $69.7 million related to Corporate Finance with the remainder related to Trade Finance.

(4)	Recoveries for the quarter ended March 31, 2011 and 2010, do not include $31.7 million and $44.0 million, respectively, of recoveries on accounts that were charged-off pre-FSA, which are included in Other Income.

In addition to amounts related to pre-emergence loans, the allowance and provision also include amounts related to finance receivables originated subsequent to emergence. The following table summarizes the components of the provision and allowance:


	Provision for Credit Losses								Allowance for Loan Losses

	Quarters Ended
(dollars in millions)	March 31, 2011			December 31, 2010			March 31, 2010		March 31, 2011		December 31, 2010

Specific reserves - impaired loans	$	(28.4	)	$	47.1		$	28.4	$	92.9	$	121.3
Non-specific reserves		11.2			(44.2	)		120.2		309.6		294.9
Net charge-offs		140.6			179.5			77.5		–		–

Totals	$	123.4		$	182.4		$	226.1	$	402.5	$	416.2

The provision for credit losses for the quarter ended March 31, 2011 reflected a reduction in specific reserves corresponding to Corporate Finance charge-offs as discussed previously, while the provision for the prior year quarter included the re-establishment of non-specific reserves following the emergence from bankruptcy, most notably in Trade Finance.

The reported allowance was 1.70%, of finance receivables, unchanged from December 31, 2010. Management also analyzes the amount of coverage on a pre-FSA basis by combining the non-accretable discount balance and the allowance for loan losses. On this basis, a total of $666 million, or 2.63% of pre-FSA finance receivables, is available to cover losses, down from 2.98% at December 31, 2010. For the commercial segments, total reserves on this basis were 3.89% of pre-FSA receivables, versus 4.36% at December 31, 2010. The consumer segment consists primarily of U.S. Government guaranteed loans at March 31, 2011.

FSA discount and allowance balances by segment are presented in the following tables:


	At March 31, 2011
	Finance Receivables Pre-FSA		FSA - Accretable Discount			FSA - Non- accretable Discount⁽¹⁾			Finance Receivables Post-FSA		Allowance for Credit Losses			Net Carrying Value

Corporate Finance	$	8,712.6	$	(586.3	)	$	(230.2	)	$	7,896.1	$	(263.8	)	$	7,632.3
Transportation Finance		1,405.0		(120.7	)		(1.7	)		1,282.6		(24.7	)		1,257.9
Trade Finance		2,622.6		–			–			2,622.6		(29.6	)		2,593.0
Vendor Finance		4,180.1		(120.2	)		(23.4	)		4,036.5		(84.4	)		3,952.1

Commercial Segments		16,920.3		(827.2	)		(255.3	)		15,837.8		(402.5	)		15,435.3

Consumer		8,383.3		(475.8	)		(8.6	)		7,898.9		–			7,898.9

Total	$	25,303.6	$	(1,303.0	)	$	(263.9	)	$	23,736.7	$	(402.5	)	$	23,334.2


	At December 31, 2010

	Finance Receivables Pre-FSA		FSA - Accretable Discount			FSA - Non-accretable Discount⁽¹⁾			Finance Receivables Post-FSA		Allowance for Credit Losses			Net Carrying Value

Corporate Finance	$	9,571.3	$	(763.4	)	$	(325.7	)	$	8,482.2	$	(303.7	)	$	8,178.5
Transportation Finance		1,536.8		(146.1	)		(1.8	)		1,388.9		(23.7	)		1,365.2
Trade Finance		2,387.4		–			–			2,387.4		(29.9	)		2,357.5
Vendor Finance		4,348.0		(147.3	)		(34.6	)		4,166.1		(58.9	)		4,107.2

Commercial Segments		17,843.5		(1,056.8	)		(362.1	)		16,424.6		(416.2	)		16,008.4

Consumer		8,584.6		(498.6	)		(10.1	)		8,075.9		–			8,075.9

Total	$	26,428.1	$	(1,555.4	)	$	(372.2	)	$	24,500.5	$	(416.2	)	$	24,084.3

(1)

Non-accretable discount includes certain accretable discount amounts relating to non-accrual loans for which accretion has been suspended.

The following table presents charge-offs, by business segment. See Results by Business Segment for additional information.

Charge-offs as a Percentage of Average Finance Receivables (dollars in millions)


	Quarters Ended

	March 31, 2011				December 31, 2010				March 31, 2010
Gross Charge-offs
Corporate Finance	$	125.0	6.09	%	$	109.8	4.73	%	$	62.2	1.98	%
Transportation Finance		0.7	0.22	%		4.8	1.28	%		–	–
Trade Finance		6.2	1.05	%		6.8	1.07	%		2.7	0.38	%
Vendor Finance		26.3	2.56	%		79.8	6.60	%		10.3	0.53	%

Commercial Segments		158.2	3.95	%		201.2	4.43	%		75.2	1.20	%
Consumer		1.2	0.06	%		4.2	0.21	%		4.5	0.19	%

Total		159.4	2.66	%		205.4	3.12	%		79.7	0.92	%

Recoveries ⁽¹⁾
Corporate Finance		8.0	0.39	%		9.7	0.42	%		1.4	0.05	%
Transportation Finance		–	–			–	–			–	–
Trade Finance		1.9	0.31	%		0.6	0.09	%		–	–
Vendor Finance		8.6	0.83	%		15.4	1.28	%		0.8	0.04	%

Commercial Segments		18.5	0.46	%		25.7	0.57	%		2.2	0.03	%
Consumer		0.3	0.01	%		0.2	0.01	%		–	–

Total		18.8	0.32	%		25.9	0.39	%		2.2	0.02	%

Net Charge-offs
Corporate Finance		117.0	5.70	%		100.1	4.31	%		60.8	1.93	%
Transportation Finance		0.7	0.20	%		4.8	1.28	%		–	–
Trade Finance		4.3	0.74	%		6.2	0.98	%		2.7	0.38	%
Vendor Finance		17.7	1.73	%		64.4	5.32	%		9.5	0.49	%

Commercial Segments		139.7	3.49	%		175.5	3.86	%		73.0	1.17	%
Consumer		0.9	0.05	%		4.0	0.20	%		4.5	0.19	%

Total	$	140.6	2.34	%	$	179.5	2.73	%	$	77.5	0.90	%

Supplemental Non-U.S. Commercial Disclosure
Gross Charge-offs	$	25.2			$	63.4			$	7.3
Recoveries	$	4.2			$	10.4			$	0.5

(1)

Recoveries do not include $31.7 million, $69.3 million and $44.0 million for the quarters ended March 31, 2011, December 30, 2010 and March 31, 2010, respectively, of recoveries on accounts that were charged-off pre-FSA, which are included in Other Income.

Gross Charge-offs (pre-FSA) as a Percentage of Average Finance Receivables (dollars in millions)


	Quarters Ended
	March 31, 2011				December 31, 2010				March 31, 2010
Gross Charge-offs
Corporate Finance	$	167.7	7.31	%	$	182.9	6.95	%	$	135.9	3.60	%
Transportation Finance		0.7	0.20	%		5.0	1.21	%		–	–
Trade Finance		6.2	1.05	%		6.8	1.07	%		4.7	0.66	%
Vendor Finance		32.4	3.04	%		101.5	8.03	%		67.9	3.23	%

Commercial Segments		207.0	4.79	%		296.2	5.99	%		208.5	2.94	%
Consumer		3.3	0.16	%		9.5	0.44	%		28.6	1.08	%

Total	$	210.3	3.27	%	$	305.7	4.30	%	$	237.1	2.43	%

Corporate Finance charge-offs, which were concentrated in the energy sector, remained high and were comprised largely of amounts reserved for in the prior quarter. Pre-FSA gross charge-offs, which comprised 80% of the consolidated total, were down 8% from last quarter. Transportation Finance had a minimal level of charge-offs in all periods presented, as the majority of assets in this segment are operating leases. Trade Finance net charge-offs, which are unaffected by FSA, were 74 basis points in the first quarter. Vendor Finance pre-FSA gross charge-offs declined 68% from last quarter, reflecting both portfolio improvement and the previously discussed policy refinement in the fourth quarter which accelerated delinquency-based charge-offs to 150 days from the previous 180 days. Consumer charge-offs were down from prior periods, due to reduced charge-offs in the private student loan portfolio, as charge-offs were virtually fully-absorbed by FSA discount through the sale of the portfolio in the fourth quarter. As a result, as of December 31, 2010, the Consumer portfolio consists primarily of student loans that are 97%-98% guaranteed by the U.S. government, thereby mitigating our ultimate credit risk.

The tables below present information on non-performing loans, which includes assets held for sale for each period:

Non-accrual and Past Due Loans (dollars in millions)


	March 31, 2011		December 31, 2010
Non-accrual loans
U.S.	$	1,068.0	$	1,336.1
Foreign		237.1		279.2

Commercial Segments		1,305.1		1,615.3
Consumer		0.9		0.7

Non-accrual loans	$	1,306.0	$	1,616.0

Troubled Debt Restructurings
U.S.	$	367.2	$	412.4
Foreign		36.8		49.3

Restructured loans	$	404.0	$	461.7

Government guaranteed accruing student loans past due 90 days or more	$	449.2	$	433.6
Other accruing loans past due 90 days or more		4.5		1.7

Total accruing loans past due 90 days or more	$	453.7	$	435.3

Non-accrual loans as a Percentage of Finance Receivables at (dollars in millions)


	March 31, 2011										December 31, 2010
	Held for Investment				Held for Sale		Total				Held for Investment				Held for Sale		Total
Corporate Finance	$	872.2	11.05	%	$	131.9	$	1,004.1	12.72	%	$	1,183.7	13.95	%	$	56.1	$	1,239.8	14.62	%
Transportation Finance		62.1	4.84	%		–		62.1	4.84	%		63.2	4.55	%		–		63.2	4.55	%
Trade Finance		98.0	3.74	%		–		98.0	3.74	%		164.4	6.89	%		–		164.4	6.89	%
Vendor Finance		107.9	2.67	%		33.0		140.9	3.49	%		120.6	2.89	%		27.3		147.9	3.55	%

Commercial
Segments		1,140.2	7.20	%		164.9		1,305.1	8.24	%		1,531.9	9.33	%		83.4		1,615.3	9.84	%
Consumer		0.9	0.01	%		–		0.9	0.01	%		0.4	0.01	%		0.3		0.7	0.01	%

Total	$	1,141.1	4.81	%	$	164.9	$	1,306.0	5.50	%	$	1,532.3	6.25	%	$	83.7	$	1,616.0	6.60	%


	March 31, 2011⁽¹⁾				December 31, 2010⁽¹⁾
Corporate Finance	$	1,282.3	14.72	%	$	1,604.0	16.76	%
Transportation Finance		70.2	5.00	%		71.3	4.64	%
Trade Finance		98.0	3.74	%		164.4	6.89	%
Vendor Finance		185.8	4.44	%		174.9	4.02	%

Commercial Segments		1,636.3	9.67	%		2,014.6	11.29	%
Consumer		0.9	0.01	%		1.0	0.01	%

Total	$	1,637.2	6.47	%	$	2,015.6	7.63	%

(1)

Reflects balances pre-FSA, including Finance receivables Held for Investment and Held for Sale.

See Non-GAAP Financial Measurements for reconciliation to GAAP measurement.

Non-accrual loans declined in both amount and as a percentage of finance receivables from the prior quarter, reflecting continued workouts and asset sales. Corporate Finance, though remaining at elevated levels, was the major contributor to the reduction for the quarter. Through sales, payments and charge-offs, non-accrual loans declined 19% from the prior quarter and continued to drive the consolidated trends. Trade Finance also contributed to the decline for the quarter, reflecting payments on a few large accounts. New account additions were down approximately a third and two-thirds from the prior quarter and prior-year quarters. Approximately 80% of our non-accrual accounts were paying currently at March 31, 2011, and our impaired loan carrying value (including FSA discount, specific reserves and charge-offs) to estimated outstanding contractual balances approximated 44%. For this purpose, impaired loans are comprised of non-accrual loans over $500,000 and TDR’s.

Foregone Interest on Non-accrual Loans and Troubled Debt Restructurings (dollars in millions)


	Quarter ended March 31, 2011
	U.S.		Foreign		Total

Interest revenue that would have been earned at original terms	$	44.7	$	8.9	$	53.6
Interest recorded		4.2		2.9		7.1

Foregone interest revenue	$	40.5	$	6.0	$	46.5

The Company periodically modifies the terms of loans / finance receivables in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower that otherwise would not have been considered, are accounted for as Troubled Debt Restructurings (“TDR”). The discussion and tables that follow reflect loan carrying values as of March 31, 2011 of accounts that have been modified. These balances are further detailed in the following table.

Borrower compliance with the modified terms is the primary measurement that we use to determine the success of these programs.

Troubled Debt Restructurings and Modifications (dollars in millions)


	March 31, 2011								December 31, 2010
	Excluding FSA			Including FSA			% Compliant		Excluding FSA			Including FSA			% Compliant

Troubled Debt Restructurings
Deferral of interest and/or
principal	$	282.7		$	211.2		86	%	$	299.9		$	209.0		86	%
Modification of contract terms		186.0			161.1		61	%		215.7			184.0		67	%
Debt forgiveness		44.8			27.0		100	%		66.4			45.8		96	%
Debt exchange		6.6			4.7		–			27.8			22.9		20	%

	$	520.1		$	404.0		76	%	$	609.8		$	461.7		76	%

Percent non-accrual		97	%		96	%				95	%		95	%


	March 31, 2011								December 31, 2010
	Excluding FSA			% Compliant					Excluding FSA			% Compliant

Modifications
Modification of contract terms	$	201.6			92	%			$	249.0			90	%
Extended maturity		37.7			100	%				93.0			100	%
Covenant relief		58.9			100	%				33.5			100	%
Principal deferment		38.5			100	%				19.1			98	%
Debt exchange		–			–					14.2			100	%
Interest rate increase		3.0			100	%				6.7			100	%

	$	339.7			95	%			$	415.5			94	%

Percent non accrual		25	%							37	%

OTHER INCOME

Total Other Income includes Rental Income on Operating Leases and Other. Rental income on operating leases increased from the 2010 fourth quarter reflecting improvements in the aircraft and rail transportation portfolios. See “Net Finance Revenues” and “Financing and Leasing Assets – Results by Business Segment” and “Concentrations – Operating Leases” for additional information.

Other income improved from the 2010 first quarter on benefits from derivative instruments and changes in foreign currency rates and improved from both 2010 quarters on higher loan and equipment gains. The following table presents the “Other” components.

Other Income (dollars in millions)


	Quarters Ended
	March 31, 2011		December 31, 2010			March 31, 2010

Gains on loan and portfolio sales	$	73.9	$	35.3		$	37.0
Gains on sales of leasing equipment		40.0		28.4			27.9
Factoring commissions		33.8		36.6			36.2
Counterparty receivable accretion		31.8		17.7			35.8
Recoveries of pre-FSA charge-offs		31.7		69.3			44.0
Gain (loss) on non-qualifying hedge derivatives and foreign
currency exchange		22.9		8.5			(73.1	)
Fees and other revenue		27.2		28.7			39.4
Net gains (losses) on investment sales		16.9		(0.7	)		3.2

Total other income	$	278.2	$	223.8		$	150.4

Gains on loan and portfolio sales reflect amounts received in excess of current net asset carrying values. During the quarter, we continued to opportunistically sell loans, including non-accrual loans. Loans sold totaled $547 million, consisting of $286 million in Corporate Finance, $240 million in Consumer and $21 million in Transportation. Loans sold last quarter totaled $1,022 million, while 2010 first quarter loans sales were $580 million.

Gains on sales of leasing equipment resulted from sales volume of $196 million in 2011 versus $204 million last quarter and $233 billion in the 2010 first quarter. Equipment sales for 2011 consist of $95 million in Vendor Finance assets, $56 million in Transportation assets and $45 million in Corporate Finance assets.

Factoring commissions declined, primarily due to lower factoring volume.

Counterparty receivable accretion primarily relates to the accretion of a fair value mark on the receivable from GSI related to a secured borrowing facility. See Note 5 — Long-term Borrowings.

Recoveries of pre-FSA charge-offs reflects repayments or other workout resolutions on loans charged off prior to emergence from bankruptcy. These recoveries are recorded as other income, not as a reduction to the provision for loan losses.

Gains and losses on derivatives and foreign currency exchange largely are driven by transactional exposures and economic hedges that do not qualify for hedge accounting, and losses on interest rate swaps that arose from the bankruptcy, when most of our derivative transactions were terminated. The 2011 net gains of $23 million reflect $98 million of losses on non-qualifying hedges and qualifying cash flow hedges, offset by favorable currency movements.

Fees and other revenue are comprised of asset management, agent and advisory fees, and servicing fees, as well as income from joint ventures. Agent and advisory fees and commissions remain challenged due to lower deal activity, and asset management and servicing fees declined on lower asset levels.

Net gains (losses) on investment sales for the current quarter reflect sales of equity investments, primarily in Corporate Finance.

EXPENSES

Depreciation on operating leases is recognized on owned equipment over the lease term or projected economic life of the asset. Depreciation expense totaled $160.5 million for the quarter, down from $166.6 million for last quarter and $172.7 million for the 2010 first quarter. FSA adjustments reduced 2011 depreciation expense by $61 million, slightly below the 2010 quarters. Depreciation declined reflecting the suspension of depreciation on equipment once it is transferred to held for sale. See “Net Finance Revenues” and “Financing and Leasing Assets – Results by Business Segment” and “Concentrations – Operating Leases” for additional information.

Operating expenses declined on efficiency improvements, headcount reductions and facility consolidating activities to better correspond with the lower asset base.

Operating Expenses (dollars in millions)


	Quarters Ended
Salaries and general operating expenses:	March 31, 2011		December 31, 2010		March 31, 2010

Compensation and benefits	$	116.6	$	114.2	$	140.3
Professional fees		29.6		37.4		29.7
Technology		18.7		18.0		19.2
Occupancy expense		10.1		10.8		14.9
Provision for severance and facilities exiting activities		6.6		31.5		11.9
Other expenses		34.8		38.1		45.7

Total operating expenses	$	216.4	$	250.0	$	261.7

Headcount		3,693		3,778		4,089

Compensation and benefits were up slightly from last quarter but down from the 2010 first quarter, driven primarily by reduced employee headcount.
Professional fees reflect legal and other professional fees such as tax, audit, and consulting services.
Provision for severance and facilities exiting activities reflect our continued efforts to streamline operations and improve operating efficiencies. The current quarter primarily reflects the outsourcing of the student loan portfolio, which reduced headcount, while the 2010 fourth quarter reflected office space consolidation as we exited our prior headquarters in New York.
Other expenses decreased in connection with streamlining initiatives, including lower discretionary spending in advertising, marketing, travel and entertainment.

INCOME TAXES

Income Tax Data (dollars in millions)


	Quarters Ended
	March 31, 2011			December 31, 2010			March 31, 2010

Provision (benefit) for income taxes	$	49.1		$	32.6		$	39.6
Discrete Items:
NOL valuation adjustments/changes
in uncertain tax liabilities		16.6			(34.6	)		3.8

Provision (benefit for income taxes)	$	65.7		$	(2.0	)	$	43.4

Effective tax rate – excluding
discrete items		36.2	%		44.5	%		21.0	%
Effective tax rate		48.5	%		(2.73	) %		23.0	%

CIT’s tax provision of $65.7 million equated to a 48.5% effective tax rate, compared with a 23.0% effective tax rate for the quarter ended March 31, 2010. The higher effective tax rate was primarily the result of the relative mix of domestic and international earnings. For the first quarter, the Company recorded income tax expense on the earnings of certain international operations and no income tax benefit on its domestic losses. A tax benefit was not recognized on the domestic losses because Management has concluded that it does not currently meet the criteria to recognize these tax benefits considering its recent history of domestic losses. The year end 2011 effective tax rate may vary from the current rate primarily due to changes in the mix of domestic and international earnings.

The $43.4 million provision for the first quarter 2010 is largely tax on international operations, and valuation allowances recorded against U.S. losses.

See Note 10 — Income Taxes for additional information.

RESULTS BY BUSINESS SEGMENT

We refined our expense and capital allocation methodologies during the first quarter of 2011. For 2011, Corporate and other includes certain costs that had been previously a