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)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2012

| | Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Commission File Number: 001-31369

CIT GROUP INC.

(Exact name of Registrant as specified in its charter)


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

11 West 42nd Street New York, New York (Address of Registrant’s principal executive offices)				10036 (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 October 31, 2012 there were 200,851,859 shares of the registrant’s common stock outstanding.

Table of Contents

CONTENTS


Part One—Financial Information:
ITEM 1.	Consolidated Financial Statements	2
	Consolidated Balance Sheets (Unaudited)	2
	Consolidated Statements of Operations (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Consolidated Statements of Stockholders’ Equity (Unaudited)	5
	Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	and
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4.	Controls and Procedures	91

Part Two—Other Information:
ITEM 1.	Legal Proceedings	92
ITEM 1A	Risk Factors	92
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
ITEM 4.	Mine Safety Disclosures	92
ITEM 6.	Exhibits	93
Signatures		99

Table of Contents 1

Table of Contents

Part One—Financial Information

ITEM 1. Consolidated Financial Statements

CIT GROUP INC. AND SUBSIDIARIES

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

	September 30, 2012			December 31, 2011
Assets
Cash and due from banks	$	367.4		$	433.2
Interest bearing deposits, including restricted balances of $1,083.8 and $869.9 at September 30, 2012 and December 31, 2011⁽¹⁾		6,088.1			7,002.4
Investment securities		1,004.6			1,250.6
Trading assets at fair value – derivatives		29.3			42.8
Assets held for sale⁽¹⁾		1,421.1			2,332.3
Loans (see Note 5 for amounts pledged)		20,383.4			19,885.5
Allowance for loan losses		(397.9	)		(407.8	)
Total loans, net of allowance for loan losses⁽¹⁾		19,985.5			19,477.7
Operating lease equipment, net (see Note 5 for amounts pledged)⁽¹⁾		12,072.0			11,991.6
Unsecured counterparty receivable		592.9			733.5
Goodwill		330.8			330.8
Intangible assets, net		37.3			63.6
Other assets		1,651.9			1,568.2
Total Assets	$	43,580.9		$	45,226.7
Liabilities
Deposits	$	8,709.3		$	6,193.7
Trading liabilities at fair value – derivatives		81.9			66.2
Credit balances of factoring clients		1,224.9			1,225.5
Other liabilities		2,567.4			2,562.2
Long-term borrowings, including $1,438.0 and $3,203.8 contractually due within twelve months at September 30, 2012 and December 31, 2011, respectively		22,906.5			26,288.1
Total Liabilities		35,490.0			36,335.7
Stockholders’ Equity
Common stock: $0.01 par value, 600,000,000 authorized
Issued: 201,263,311 and 200,980,752 at September 30, 2012 and December 31, 2011		2.0			2.0
Outstanding: 200,849,536 and 200,660,314 at September 30, 2012 and December 31, 2011
Paid-in capital		8,491.0			8,459.3
(Accumulated deficit) / Retained earnings		(290.0	)		532.1
Accumulated other comprehensive loss		(100.3	)		(92.1	)
Treasury stock: 413,775 and 320,438 shares at September 30, 2012 and December 31, 2011 at cost		(16.7	)		(12.8	)
Total Common Stockholders’ Equity		8,086.0			8,888.5
Noncontrolling minority interests		4.9			2.5
Total Equity		8,090.9			8,891.0
Total Liabilities and Equity	$	43,580.9		$	45,226.7

⁽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 VIE total assets and total liabilities represents the Company’s interests in those entities, which were eliminated in consolidation. The assets of the consolidated VIEs will be used to settle the liabilities of those entities and, except for the Company’s interest in the VIEs, are not available to the creditors of CIT or any affiliates of CIT. In the following table, certain prior period balances have been conformed to current period presentation.


Assets
Interest bearing deposits, restricted	$	650.9	$	574.2
Assets held for sale		570.5		317.2
Total loans, net of allowance for loan losses		7,610.5		8,523.7
Operating lease equipment, net		4,427.1		4,285.4
Total Assets	$	13,259.0	$	13,700.5
Liabilities
Beneficial interests issued by consolidated VIEs (classified as long-term borrowings)	$	9,760.1	$	9,875.5
Total Liabilities	$	9,760.1	$	9,875.5

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

2 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES

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

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Interest income
Interest and fees on loans	$	366.1		$	494.2		$	1,171.2		$	1,715.6
Interest and dividends on investments		8.0			8.6			23.8			25.6
Interest income		374.1			502.8			1,195.0			1,741.2
Interest expense
Interest on long-term borrowings		(773.7	)		(574.7	)		(2,421.0	)		(2,030.2	)
Interest on deposits		(38.4	)		(28.4	)		(110.0	)		(77.9	)
Interest expense		(812.1	)		(603.1	)		(2,531.0	)		(2,108.1	)
Net interest revenue		(438.0	)		(100.3	)		(1,336.0	)		(366.9	)
Provision for credit losses		–			(47.4	)		(51.5	)		(253.9	)
Net interest revenue, after credit provision		(438.0	)		(147.7	)		(1,387.5	)		(620.8	)
Non-interest income
Rental income on operating leases		444.4			409.0			1,329.2			1,238.1
Other income		81.2			242.8			474.6			746.6
Total non-interest income		525.6			651.8			1,803.8			1,984.7
Total revenue, net of interest expense and credit provision		87.6			504.1			416.3			1,363.9
Other expenses
Depreciation on operating lease equipment		(134.5	)		(124.3	)		(402.7	)		(437.7	)
Operating expenses		(237.5	)		(226.4	)		(701.0	)		(669.8	)
Loss on debt extinguishments		(16.8	)		(146.6	)		(61.2	)		(146.6	)
Total other expenses		(388.8	)		(497.3	)		(1,164.9	)		(1,254.1	)
Income (loss) before provision for income taxes		(301.2	)		6.8			(748.6	)		109.8
Provision for income taxes		(2.9	)		(40.2	)		(70.6	)		(123.8	)
Income (loss) before noncontrolling interests		(304.1	)		(33.4	)		(819.2	)		(14.0	)
Net (income) loss attributable to noncontrolling interests, after tax		(0.8	)		0.6			(2.9	)		(2.9	)
Net loss	$	(304.9	)	$	(32.8	)	$	(822.1	)	$	(16.9	)
Basic loss per common share	$	(1.52	)	$	(0.16	)	$	(4.09	)	$	(0.08	)
Diluted loss per common share	$	(1.52	)	$	(0.16	)	$	(4.09	)	$	(0.08	)
Average number of common shares – basic (thousands)		200,917			200,714			200,877			200,659
Average number of common shares – diluted (thousands)		200,917			200,714			200,877			200,659

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

Item 1: Consolidated Financial Statements 3

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CIT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (dollars in millions)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Loss before noncontrolling interests	$	(304.1	)	$	(33.4	)	$	(819.2	)	$	(14.0	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(0.2	)		(20.2	)		(11.1	)		(29.2	)
Changes in fair values of derivatives qualifying as cash flow hedges		–			0.5			0.7			1.0
Net unrealized gains (losses) on available for sale securities		0.5			(7.4	)		1.0			(1.5	)
Changes in benefit plans net gain/(loss) and prior service (cost)/credit		0.4			–			1.2			(0.1	)
Other comprehensive income (loss), net of tax		0.7			(27.1	)		(8.2	)		(29.8	)
Comprehensive loss before noncontrolling interests		(303.4	)		(60.5	)		(827.4	)		(43.8	)
Comprehensive income (loss) attributable to noncontrolling interests		(0.8	)		0.6			(2.9	)		(2.9	)
Comprehensive loss	$	(304.2	)	$	(59.9	)	$	(830.3	)	$	(46.7	)

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

4 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES

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

	Common Stock		Paid-in Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Minority Interests			Total Equity
December 31, 2011	$	2.0	$	8,459.3	$	532.1		$	(92.1	)	$	(12.8	)	$	2.5		$	8,891.0
Net income (loss)						(822.1	)								2.9			(819.2	)
Other comprehensive loss, net of tax									(8.2	)								(8.2	)
Amortization of restricted stock, stock option and performance shares expenses				30.8								(3.9	)					26.9
Employee stock purchase plan				0.9														0.9
Distribution of earnings and capital															(0.5	)		(0.5	)
September 30, 2012	$	2.0	$	8,491.0	$	(290.0	)	$	(100.3	)	$	(16.7	)	$	4.9		$	8,090.9
December 31, 2010	$	2.0	$	8,434.1	$	505.4		$	(9.6	)	$	(8.8	)	$	(2.3	)	$	8,920.8
Net income (loss)						(16.9	)								2.9			(14.0	)
Other comprehensive loss, net of tax									(29.8	)								(29.8	)
Amortization of restricted stock and stock option expenses				19.4								(3.7	)					15.7
Employee stock purchase plan				0.3														0.3
Distribution of earnings and capital															0.1			0.1
September 30, 2011	$	2.0	$	8,453.8	$	488.5		$	(39.4	)	$	(12.5	)	$	0.7		$	8,893.1

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

Item 1: Consolidated Financial Statements 5

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CIT GROUP INC. AND SUBSIDIARIES

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

	Nine Months Ended September 30,
	2012			2011
Cash Flows From Operations
Net loss	$	(822.1	)	$	(16.9	)
Adjustments to reconcile net loss to net cash flows from operations:
Provision for credit losses		51.5			253.9
Net depreciation, amortization and (accretion)		1,712.8			415.7
Net gains on equipment, receivable and investment sales		(271.0	)		(384.8	)
Loss on debt extinguishments		21.1			121.6
Provision for deferred income taxes		5.9			31.4
(Increase) decrease in finance receivables held for sale		(45.5	)		12.9
(Increase) decrease in other assets		(157.1	)		272.1
Decrease in accrued liabilities and payables		(117.2	)		(305.4	)
Net cash flows provided by operations		378.4			400.5
Cash Flows From Investing Activities
Loans originated and purchased		(13,312.5	)		(15,225.4	)
Principal collections of loans		11,538.2			16,719.8
Purchases of investment securities		(13,961.2	)		(13,928.4	)
Proceeds from maturities of investment securities		14,255.2			13,512.2
Proceeds from asset and receivable sales		3,404.6			2,524.0
Purchases of assets to be leased and other equipment		(1,228.0	)		(1,080.5	)
Net increase in short-term factoring receivables		5.8			(39.2	)
Change in restricted cash		(213.9	)		528.0
Net cash flows provided by investing activities		488.2			3,010.5
Cash Flows From Financing Activities
Proceeds from the issuance of term debt		12,786.6			4,876.1
Repayments of term debt		(17,509.3	)		(12,581.6	)
Net increase in deposits		2,522.9			441.6
Collection of security deposits and maintenance funds		408.9			418.3
Use of security deposits and maintenance funds		(269.7	)		(352.1	)
Net cash flows used in financing activities		(2,060.6	)		(7,197.7	)
Decrease in cash and cash equivalents		(1,194.0	)		(3,786.7	)
Unrestricted cash and cash equivalents, beginning of period		6,565.7			8,650.4
Unrestricted cash and cash equivalents, end of period	$	5,371.7		$	4,863.7
Supplementary Cash Flow Disclosure
Interest paid	$	972.3		$	1,546.7
Federal, foreign, state and local income taxes (paid), net	$	7.1		$	(55.0	)
Supplementary Non Cash Flow Disclosure
Transfer of assets from held for investment to held for sale	$	1,342.9		$	1,778.3
Transfer of assets from held for sale to held for investment	$	0.5		$	133.3

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

6 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CIT Group Inc. 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 became a bank holding company (“BHC”) in 2008 and is the parent of CIT Bank, a state-chartered bank in Utah. We operate primarily in North America, with locations in Europe, South 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 intercompany accounts and transactions have been eliminated. These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial information and accordingly, do not include all information and note disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. 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 current Form 10-K on file.

The consolidated financial statements include the effects of adopting Fresh Start Accounting (“FSA”) upon emergence from bankruptcy on December 10, 2009, based on a convenience date of December 31, 2009 (the “Convenience Date”), as required by GAAP. Accretion and amortization of certain FSA adjustments 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, 2011 (“Form 10-K”), “Note 1 — Business and Summary of Significant Accounting Policies” and “Note 26 — Fresh Start Accounting”, for additional FSA and reorganization information.

The accounting and financial reporting policies of CIT Group Inc. conform to GAAP and the preparation of the consolidated financial statements 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, allowance for loan losses, loan impairment, fair value determinations, lease residual values, goodwill and intangible assets, and deferred tax assets and liabilities. Additionally, where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory authorities.

NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Measurement

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The disclosure requirements also have been enhanced. The most significant change requires entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. New disclosures are required about the use of a nonfinancial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The amendment became effective for fiscal years beginning after December 15, 2011, with early adoption prohibited. The adoption of the guidance during the quarter ended March 31, 2012, did not affect the Company’s financial condition and resulted in additional fair value measurement disclosures.

Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05 to amend the guidance on the presentation of comprehensive income in FASB ASC Topic 220, Comprehensive Income that requires companies to present a single statement of comprehensive income or two consecutive statements. The guidance makes the financial statement presentation of other comprehensive income more prominent by eliminating the alternative to present comprehensive income within the statement of equity. The ASU became effective for annual and interim periods beginning after December 15, 2011. The adoption of the guidance during the quarter ended March 31, 2012 did not affect the Company’s financial condition but added the Consolidated Statements of Comprehensive Income (Loss).

On December 23, 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The ASU defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement, while still requiring companies to adopt the other requirements contained in ASU No. 2011-05, as noted above.

Item 1: Consolidated Financial Statements 7

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Balance Sheet Offsetting Disclosure Requirements

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities which creates new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The new disclosures will enable financial statement users to compare balance sheets prepared under U.S. GAAP and International Financial Reporting Standards (“IFRS”), which are subject to different offsetting models. The disclosures will be limited to financial instruments and derivatives subject to enforceable master netting arrangements or similar agreements and excludes loans unless they are netted in the statement of financial condition. The amendments will affect all entities that have financial instruments and derivatives that are either offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement regardless of whether they are offset in the balance sheet. The ASU will require entities to disclose, separately for financial assets and liabilities, including derivatives, the gross amounts of recognized financial assets and liabilities; the amounts offset under current U.S. GAAP; the net amounts presented in the balance sheet; the amounts subject to an enforceable master netting arrangement or similar agreement that were not included in the offset amount above, and the reconciling amount.

The disclosure requirements are effective for annual and interim reporting periods beginning on or after January 1, 2013, with retrospective application required. The Company is evaluating the impact of this amendment.

Indefinite-Lived Intangible Assets Impairment Test

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment which amends the guidance in ASC Topic 350 on testing indefinite-lived intangible assets other than goodwill for impairment. Under ASC 350-30, entities must test indefinite-lived intangible assets for impairment at least annually by calculating and comparing an asset’s fair value with its carrying amount. An impairment loss would be recorded for an amount equal to the excess of the asset’s carrying amount over its fair value. ASU No. 2012-02 provides the option of performing a qualitative assessment before calculating the fair value of the asset, when testing an indefinite-lived intangible asset for impairment. If an entity determines, on the basis of qualitative factors, that the fair value of an indefinite-lived intangible asset is not more likely than not impaired, they would not need to calculate the fair value of the asset. The ASU does not revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the ASU does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods.

The guidance will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. As the Company has no indefinite-lived intangible assets, adoption of this guidance will have no impact on the consolidated financial statements.

NOTE 2 — LOANS

Finance receivables consist of the following:

Finance Receivables by Product (dollars in millions)

	September 30, 2012		December 31, 2011
Loans	$	15,622.7	$	15,663.6
Direct financing leases and leveraged leases		4,760.7		4,221.9
Finance receivables		20,383.4		19,885.5
Finance receivables held for sale		881.7		2,088.0
Finance receivables and held for sale receivables⁽¹⁾	$	21,265.1	$	21,973.5

⁽¹⁾

Assets held for sale in the balance sheet includes finance receivables and operating lease equipment. As discussed in subsequent tables, since the Company manages the credit risk and collections of finance receivables held for sale consistently with its finance receivables held for investment, the applicable amount is presented.

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

Finance Receivables (dollars in millions)

	September 30, 2012						December 31, 2011
	Domestic		Foreign		Total		Domestic		Foreign		Total
Corporate Finance	$	6,748.5	$	1,051.9	$	7,800.4	$	5,870.0	$	992.7	$	6,862.7
Transportation Finance		1,247.4		543.5		1,790.9		1,063.2		423.8		1,487.0
Trade Finance		2,284.5		123.8		2,408.3		2,299.1		132.3		2,431.4
Vendor Finance		2,379.1		2,248.9		4,628.0		2,365.5		2,056.2		4,421.7
Consumer		3,745.8		10.0		3,755.8		4,670.9		11.8		4,682.7
Total	$	16,405.3	$	3,978.1	$	20,383.4	$	16,268.7	$	3,616.8	$	19,885.5

8 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table presents selected components of the net investment in finance receivables.

Components of Net Investment in Finance Receivables (dollars in millions)

	September 30, 2012			December 31, 2011
Unearned income	$	(986.2	)	$	(1,057.5	)
Unamortized (discounts)		(42.3	)		(42.3	)
Net unamortized deferred costs and (fees)		57.4			39.8

Certain of the following tables present credit-related information at the “class” level in accordance with ASC 310-10-50, 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 basis by Credit Risk Management and are adjusted as necessary for updated information affecting the borrowers’ ability to fulfill their obligations.

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.

Classified – a classified asset ranges from: 1) assets that exhibit a well defined weakness and are inadequately protected by the current sound worth and paying capacity of the borrower, and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected to 2) assets with weaknesses that make collection or liquidation in full unlikely on the basis of current facts, conditions, and values. Assets in this classification can be accruing or on non-accrual depending on the evaluation of these factors.

Finance Receivables⁽¹⁾ — by Risk Rating (dollars in millions)

Grade:	Corporate Finance – Other		Corporate Finance – SBL		Transportation Finance		Trade Finance		Vendor Finance U.S.		Vendor Finance International		Commercial		Consumer		Total
September 30, 2012
Pass	$	5,645.3	$	167.9	$	1,411.7	$	2,001.8	$	1,994.4	$	2,194.1	$	13,415.2	$	3,819.0	$	17,234.2
Special mention		914.6		373.6		180.2		293.6		189.2		184.3		2,135.5		232.1		2,367.6
Classified – accruing		448.9		105.2		143.7		85.7		146.1		76.5		1,006.1		245.2		1,251.3
Classified – non-accrual		181.4		74.2		55.2		27.2		47.0		26.7		411.7		0.3		412.0
Total	$	7,190.2	$	720.9	$	1,790.8	$	2,408.3	$	2,376.7	$	2,481.6	$	16,968.5	$	4,296.6	$	21,265.1
December 31, 2011
Pass	$	4,255.6	$	279.9	$	1,089.3	$	2,019.1	$	2,017.8	$	2,058.8	$	11,720.5	$	5,580.1	$	17,300.6
Special mention		930.9		236.9		136.7		263.8		156.1		123.0		1,847.4		367.5		2,214.9
Classified – accruing		735.6		135.0		216.0		73.2		131.9		67.3		1,359.0		397.0		1,756.0
Classified – non-accrual		356.4		141.5		45.0		75.3		55.3		27.6		701.1		0.9		702.0
Total	$	6,278.5	$	793.3	$	1,487.0	$	2,431.4	$	2,361.1	$	2,276.7	$	15,628.0	$	6,345.5	$	21,973.5

⁽¹⁾

Balances include $881.7 million and $2,088.0 million of loans in Assets Held for Sale at September 30, 2012 and December 31, 2011, respectively, which are measured at the lower of cost or fair value. ASC 310-10-50 does not require inclusion of these finance receivables in the disclosures above. However, 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, and Company data is tracked and used for management purposes on an aggregated basis, as presented above. In addition to finance receivables, the total for Assets Held for Sale on the balance sheet also include operating lease equipment held for sale, which are not included in the above table.

Item 1: Consolidated Financial Statements 9

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Past Due and Non-accrual Loans

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

Finance Receivables⁽¹⁾ — Delinquency Status (dollars in millions)

	30–59 Days Past Due		60–89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Finance Receivables⁽¹⁾
September 30, 2012
Commercial
Corporate Finance – Other	$	1.0	$	0.2	$	32.2	$	33.4	$	7,156.8	$	7,190.2
Corporate Finance – SBL		2.8		6.3		16.2		25.3		695.6		720.9
Transportation Finance		0.5		1.1		2.3		3.9		1,786.9		1,790.8
Trade Finance		29.8		13.1		7.8		50.7		2,357.6		2,408.3
Vendor Finance – U.S.		42.7		13.0		11.7		67.4		2,309.3		2,376.7
Vendor Finance – International		13.9		8.4		9.4		31.7		2,449.9		2,481.6
Total Commercial		90.7		42.1		79.6		212.4		16,756.1		16,968.5
Consumer		147.5		86.5		248.2		482.2		3,814.4		4,296.6
Total	$	238.2	$	128.6	$	327.8	$	694.6	$	20,570.5	$	21,265.1
December 31, 2011
Commercial
Corporate Finance – Other	$	5.9	$	2.5	$	35.6	$	44.0	$	6,234.5	$	6,278.5
Corporate Finance – SBL		7.7		7.2		27.7		42.6		750.7		793.3
Transportation Finance		1.8		3.4		0.7		5.9		1,481.1		1,487.0
Trade Finance		60.8		2.3		1.2		64.3		2,367.1		2,431.4
Vendor Finance – U.S.		47.7		18.9		15.7		82.3		2,278.8		2,361.1
Vendor Finance – International		15.7		6.0		5.6		27.3		2,249.4		2,276.7
Total Commercial		139.6		40.3		86.5		266.4		15,361.6		15,628.0
Consumer		246.0		123.0		395.1		764.1		5,581.4		6,345.5
Total	$	385.6	$	163.3	$	481.6	$	1,030.5	$	20,943.0	$	21,973.5

⁽¹⁾

Balances include $881.7 million and $2,088.0 million of loans in Assets Held for Sale at September 30, 2012 and December 31, 2011, respectively. In addition to finance receivables, Assets Held for Sale on the balance sheet also include operating lease equipment held for sale, which are not included in the above table.

10 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 90 days or more).

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

	September 30, 2012						December 31, 2011
	Held for Investment		Held for Sale		Total		Held for Investment		Held for Sale		Total
Commercial
Corporate Finance – Other	$	181.1	$	0.3	$	181.4	$	225.7	$	130.7	$	356.4
Corporate Finance – SBL		69.1		5.1		74.2		132.0		9.5		141.5
Transportation Finance		55.2		–		55.2		45.0		–		45.0
Trade Finance		27.2		–		27.2		75.3		–		75.3
Vendor Finance – U.S.		47.0		–		47.0		55.3		–		55.3
Vendor Finance – International		24.9		1.8		26.7		25.6		2.0		27.6
Consumer		–		0.3		0.3		0.2		0.7		0.9
Total non-accrual loans	$	404.5	$	7.5	$	412.0	$	559.1	$	142.9	$	702.0
Repossessed assets						15.5						9.7
Total non-performing assets					$	427.5					$	711.7
Accruing loans past due 90 days or more
Government guaranteed – Consumer					$	248.1					$	390.3
Other						10.7						2.2
Total					$	258.8					$	392.5

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

Impaired Loans

The Company’s policy is to review for impairment finance receivables greater than $500,000 that are 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 and the related allowance for loan losses, 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), which are disclosed further below in this note.

Item 1: Consolidated Financial Statements 11

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Impaired Loans (dollars in millions)

							Nine Months Ended September 30,
	September 30, 2012						2012		2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Average Recorded Investment
With no related allowance recorded:
Commercial
Corporate Finance – Other	$	207.6	$	231.5	$	–	$	204.8	$	150.1
Corporate Finance – SBL		38.3		50.7		–		41.1		42.0
Transportation Finance		12.6		30.4		–		6.9		8.3
Trade Finance		8.8		8.8		–		34.6		77.1
Vendor Finance – U.S.		5.9		15.2		–		8.5		18.4
Vendor Finance – International		12.7		29.1		–		10.0		13.9
With an allowance recorded:
Commercial
Corporate Finance – Other		122.4		142.6		40.1		113.1		111.6
Corporate Finance – SBL		1.4		1.6		0.5		12.4		46.9
Transportation Finance		42.2		43.0		9.4		29.0		52.0
Trade Finance		18.4		20.5		4.0		13.8		28.6
Total Commercial Impaired Loans⁽¹⁾		470.3		573.4		54.0		474.2		548.9
Total Loans Impaired at Convenience Date⁽²⁾		114.2		287.6		1.8		157.6		476.2
Total	$	584.5	$	861.0	$	55.8	$	631.8	$	1,025.1

							Year ended
	December 31, 2011						December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Corporate Finance – Other	$	197.0	$	298.7	$	–	$	160.6
Corporate Finance – SBL		38.3		70.7		–		41.3
Transportation Finance		–		–		–		6.6
Trade Finance		60.1		72.2		–		73.7
Vendor Finance – U.S.		10.5		24.6		–		16.9
Vendor Finance – International		8.0		20.7		–		11.6
With an allowance recorded:
Commercial
Corporate Finance – Other		101.0		112.0		31.7		109.5
Corporate Finance – SBL		31.9		34.7		7.4		43.9
Transportation Finance		45.6		58.1		9.0		50.7
Trade Finance		15.1		18.0		5.3		25.9
Total Commercial Impaired Loans		507.5		709.7		53.4		540.7
Total Loans Impaired at Convenience date⁽²⁾		186.7		605.4		5.4		418.3
Total	$	694.2	$	1,315.1	$	58.8	$	959.0

⁽¹⁾

Interest income recorded while the loans were impaired was not material for the quarters and year-to-date periods ended September 30, 2012 and 2011.

⁽²⁾

Details of finance receivables that were identified as impaired at the Convenience Date are presented under Loans and Debt Securities Acquired with Deteriorated Credit Quality.

12 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Impairment occurs when, based on current information and events, it is probable that CIT will be unable to collect all amounts due according to the contractual terms of the agreement. The Company has established review and monitoring procedures designed to identify, as early as possible, customers that are experiencing financial difficulty. Credit risk is captured and analyzed based on the Company’s internal probability of obligor default (PD) and loss given default (LGD) ratings. A PD rating is determined by evaluating borrower credit-worthiness, including analyzing credit history, financial condition, cash flow adequacy, financial performance and management quality. An LGD rating is predicated on transaction structure, collateral valuation and related guarantees or recourse. Further, related considerations in determining probability of collection include the following:

Instances where the primary source of payment is no longer sufficient to repay the loan in accordance with terms of the loan document;

Lack of current financial data related to the borrower or guarantor;

Delinquency status of the loan;

Loans that have been restructured pursuant to a Trouble Debt Restructuring;

Borrowers experiencing problems, such as operating losses, marginal working capital, inadequate cash flow or business interruptions;

Loans secured by collateral that is not readily marketable or that is susceptible to deterioration in realizable value; and

Loans to borrowers in industries or countries experiencing economic instability.

Impairment is measured as the shortfall between estimated value and recorded investment in the finance receivable. A specific allowance or charge-off 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. In instances when the Company measures impairment based on the present value of expected future cash flows, the change in present value is reported in the provision for credit losses.

The following summarizes key elements of the Company’s policy regarding the determination of collateral fair value in the measurement of impairment:

“Orderly liquidation value” is the basis for collateral valuation;

Appraisals are updated annually or more often as market conditions warrant;

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 may become difficult to locate, collect or subject to pilferage in a liquidation.

Loans 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 under FSA at the Convenience Date.

Loans Acquired with Deteriorated Credit Quality (dollars in millions)

	September 30, 2012⁽¹⁾						December 31, 2011⁽¹⁾
	Carrying Amount		Outstanding Balance⁽²⁾		Allowance for Loan Losses		Carrying Amount		Outstanding Balance⁽²⁾		Allowance for Loan Losses
Commercial	$	112.7	$	282.9	$	1.8	$	185.6	$	599.0	$	5.4
Consumer		1.5		4.7		–		1.1		6.4		–
Total loans	$	114.2	$	287.6	$	1.8	$	186.7	$	605.4	$	5.4

⁽¹⁾

The table excludes amounts in Assets Held for Sale with carrying amounts of $2 million and $117 million at September 30, 2012 and December 31, 2011, and outstanding balances of $14 million and $286 million at September 30, 2012 and December 31, 2011.

⁽²⁾

Represents the sum of contractual principal and interest at the reporting date, calculated as pre-FSA net investment plus inception to date charge-offs.

	Quarter Ended September 30, 2012						Quarter Ended September 30, 2011
	Provision for Credit Losses			Net Charge-offs			Provision for Credit Losses			Net Charge-offs (Recoveries)
Commercial	$	(0.4	)	$	(0.1	)	$	(3.2	)	$	4.6
Consumer		–			–			(0.2	)		(0.2	)
Total	$	(0.4	)	$	(0.1	)	$	(3.4	)	$	4.4

Item 1: Consolidated Financial Statements 13

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Nine Months Ended September 30, 2012					Nine Months Ended September 30, 2011
	Provision for Credit Losses			Net Charge-offs		Provision for Credit Losses			Net Charge-offs (Recoveries)
Commercial	$	(3.0	)	$	0.6	$	51.6		$	101.0
Consumer		0.3			0.3		(0.5	)		(0.5	)
Total	$	(2.7	)	$	0.9	$	51.1		$	100.5

The following table presents the changes to the accretable discount related to all loans accounted for under ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality). Amounts include discount relating to non-accrual loans, for which accretion has been suspended.

Accretable Discount Activity for Loans Accounted for Under ASC 310-30 at Emergence Date (dollars in millions):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Accretable discount, beginning of period	$	24.1		$	135.4		$	80.0		$	207.2
Accretion		(1.9	)		(4.9	)		(6.7	)		(30.4	)
Disposals/transfers⁽¹⁾		(2.2	)		(12.2	)		(53.3	)		(58.5	)
Accretable discount, end of period	$	20.0		$	118.3		$	20.0		$	118.3

⁽¹⁾

Amounts include transfers of non-accretable to accretable discounts, which were not material for the quarters and year-to-date periods ended September 30, 2012 and 2011.

Troubled Debt Restructurings

The Company periodically modifies the terms of finance receivables in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs).

CIT uses a consistent methodology across all loans to determine if a modification is with a borrower that has been determined to be in financial difficulty and was granted a concession. Specifically, the Company’s policies on TDR identification include the following examples of indicators used to determine whether the borrower is in financial difficulty:

Borrower is in default

Borrower has declared bankruptcy

Growing doubt about the borrower’s ability to continue as a going concern

Borrower has insufficient cash flow to service debt

Borrower is de-listing securities

Borrower’s inability to obtain funds from other sources

Breach of financial covenants by the borrower

If CIT determines the borrower is in financial difficulty, then CIT utilizes the following criteria to determine whether a concession has been granted to the borrower:

Assets used to satisfy debt are less than CIT’s recorded investment in the receivable

Modification of terms – interest rate changed to below market rate

Maturity date extension at an interest rate less than market rate

The borrower does not otherwise have access to funding for debt with similar risk characteristics in the market at the restructured rate and terms

Capitalization of interest

Increase in interest reserves

Conversion of credit to Payment-In-Kind (PIK)

Delaying principal and/or interest for a period of three months or more

Partial forgiveness of the balance

Modified loans that are classified as TDRs are individually evaluated and measured for impairment. Modified loans that meet the definition of a TDR are subject to the Company’s standard impaired loan policy, namely that non-accrual loans in excess of $500,000 are individually reviewed for impairment, while non-accrual loans less than $500,000 are considered as part of homogenous pools and are included in the determination of the non-specific allowance.

The recorded investment of TDRs at September 30, 2012 and December 31, 2011 was $321.5 million and $445.2 million, of which 35% and 63%, respectively, were on non-accrual. Corporate Finance receivables accounted for 91% of the total TDRs at September 30, 2012 and 88% at December 31, 2011. At September 30, 2012 and December 31, 2011, there were $6.1 million and $27.8 million, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.

14 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The tables that follow present additional information related to modifications qualifying as TDRs that occurred during the quarters and nine month periods ended September 30, 2012 and 2011.

Recorded investment of TDRs that occurred during the periods ended September 30, 2012 and 2011 (dollars in millions)

	Quarters Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Commercial
Corporate Finance – Other	$	22.7	$	34.4	$	31.3	$	70.2
Corporate Finance – SBL		4.6		1.4		11.6		11.9
Transportation Finance		–		–		–		25.3
Trade Finance		–		5.6		–		19.2
Vendor Finance – U.S.		0.2		0.8		2.4		2.8
Vendor Finance – International		0.4		–		1.4		2.8
Total	$	27.9	$	42.2	$	46.7	$	132.2

Recorded investment of TDRs at the time of default that experienced a payment default⁽¹⁾ in the periods presented, and for which the payment default occurred within one year of the modification (dollars in millions)

	Quarters Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Commercial
Corporate Finance – Other	$	–	$	0.1	$	12.0	$	0.1
Corporate Finance – SBL		1.0		4.2		3.7		5.6
Transportation Finance		–		–		–		25.3
Vendor Finance – U.S.		0.1		–		0.5		–
Vendor Finance – International		0.1		–		0.1		0.7
Total	$	1.2	$	4.3	$	16.3	$	31.7

⁽¹⁾

Payment default in the table above is one missed payment.

The financial impact of the various modification strategies that the Company employs in response to borrower difficulties is described below. While the discussion focuses on current quarter amounts, the overall nature and impact of modification programs were comparable in the prior year.

The nature of modifications qualifying as TDR’s, based upon recorded investment at September 30, 2012, was payment deferral of 87%, covenant relief and/or other of 7%, interest rate reductions and debt forgiveness of 6%;

Payment deferrals, the Company’s most common type of modification program, result in lower net present value of cash flows and increased provision for credit losses to the extent applicable. The financial impact of these modifications is not significant given the reduction to recorded investment balances from FSA discount and the moderate length of deferral periods;

Interest rate reductions result in lower amounts of interest being charged to the customer, but are a relatively small part of the Company’s restructuring programs. Additionally, in some instances, modifications improve the Company’s economic return through increased interest rates and fees, but are reported as TDRs due to assessments regarding the borrowers’ ability to independently obtain similar funding in the market and assessments of the relationship between modified rates and terms and comparable market rates and terms. The weighted average change in interest rates for all TDRs occurring during the 2012 third quarter was immaterial;

Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form of higher charge-offs. While these types of modifications have the greatest individual impact on the allowance, the combined financial impact for TDR’s occurring during the quarter and the nine months ended September 30, 2012 and outstanding as of September 30, 2012 approximated $0.9 million and $1.4 million, respectively, as debt forgiveness is a relatively small component of the Company’s modification programs; and

The other elements of the Company’s modification programs do not have a significant impact on financial results given their relative size, or do not have a direct financial impact as in the case of covenant changes.

Item 1: Consolidated Financial Statements 15

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 (dollars in millions)

	Quarter Ended September 30, 2012
	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Total Commercial			Consumer			Total
Beginning balance	$	271.3		$	28.5		$	29.8		$	84.6		$	414.2		$	–		$	414.2
Provision for credit losses		(22.0	)		8.9			4.3			8.8			–			–			–
Other⁽¹⁾		3.4			0.5			(3.2	)		1.0			1.7			–			1.7
Gross charge-offs⁽²⁾		(10.9	)		(2.9	)		(3.2	)		(18.5	)		(35.5	)		–			(35.5	)
Recoveries		5.9			–			3.2			8.4			17.5			–			17.5
Allowance balance – end of period	$	247.7		$	35.0		$	30.9		$	84.3		$	397.9		$	–		$	397.9

	Quarter Ended September 30, 2011
Beginning balance	$	268.6		$	29.1		$	35.3		$	91.0		$	424.0		$	–		$	424.0
Provision for credit losses		37.7			2.2			4.4			2.5			46.8			0.6			47.4
Other⁽¹⁾		(3.8	)		(0.1	)		(3.7	)		(3.1	)		(10.7	)		–			(10.7	)
Gross charge-offs⁽²⁾		(45.6	)		–			(4.3	)		(20.3	)		(70.2	)		(0.9	)		(71.1	)
Recoveries		4.7			–			2.5			17.4			24.6			0.3			24.9
Allowance balance – end of period	$	261.6		$	31.2		$	34.2		$	87.5		$	414.5		$	–		$	414.5

	Nine Months Ended September 30, 2012
	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Total Commercial			Consumer			Total
Beginning balance	$	262.2		$	29.3		$	29.0		$	87.3		$	407.8		$	–		$	407.8
Provision for credit losses		8.4			16.6			5.9			20.1			51.0			0.5			51.5
Other⁽¹⁾		(4.7	)		0.8			(1.4	)		0.7			(4.6	)		–			(4.6	)
Gross charge-offs⁽²⁾		(36.5	)		(11.7	)		(6.6	)		(51.9	)		(106.7	)		(1.0	)		(107.7	)
Recoveries		18.3			–			4.0			28.1			50.4			0.5			50.9
Allowance balance – end of period	$	247.7		$	35.0		$	30.9		$	84.3		$	397.9		$	–		$	397.9

	Nine Months Ended September 30, 2011
Beginning balance	$	304.0		$	23.7		$	29.9		$	58.6		$	416.2		$	–		$	416.2
Provision for credit losses		163.0			8.7			11.7			68.1			251.5			2.4			253.9
Other⁽¹⁾		(9.1	)		(0.6	)		(3.3	)		(1.7	)		(14.7	)		–			(14.7	)
Gross charge-offs⁽²⁾		(220.6	)		(0.7	)		(14.6	)		(79.6	)		(315.5	)		(3.3	)		(318.8	)
Recoveries		24.3			0.1			10.5			42.1			77.0			0.9			77.9
Allowance balance – end of period	$	261.6		$	31.2		$	34.2		$	87.5		$	414.5		$	–		$	414.5

16 CIT GROUP INC

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	Corporate Finance			Transportation Finance			Trade Finance			Vendor Finance			Total Commercial			Consumer			Total
At September 30, 2012
Allowance balance
Loans individually evaluated for impairment	$	40.6		$	9.4		$	4.0		$	–		$	54.0		$	–		$	54.0
Loans collectively evaluated for impairment		205.8			25.6			26.9			83.8			342.1			–			342.1
Loans acquired with deteriorated credit quality⁽³⁾		1.3			–			–			0.5			1.8			–			1.8
Allowance balance – end of period	$	247.7		$	35.0		$	30.9		$	84.3		$	397.9		$	–		$	397.9
Other reserves⁽¹⁾	$	14.4		$	0.5		$	7.4		$	–		$	22.3		$	–		$	22.3
Finance receivables:
Loans individually evaluated for impairment	$	369.7		$	54.8		$	27.2		$	18.6		$	470.3		$	–		$	470.3
Loans collectively evaluated for impairment		7,328.7			1,736.1			2,381.1			4,598.7			16,044.6			3,754.3			19,798.9
Loans acquired with deteriorated credit quality⁽³⁾		102.0			–			–			10.7			112.7			1.5			114.2
Ending balance	$	7,800.4		$	1,790.9		$	2,408.3		$	4,628.0		$	16,627.6		$	3,755.8		$	20,383.4
Percent of loans to total loans		38.3	%		8.8	%		11.8	%		22.7	%		81.6	%		18.4	%		100.0	%
At September 30, 2011
Allowance balance
Loans individually evaluated for impairment	$	34.2		$	12.2		$	10.1		$	–		$	56.5		$	–		$	56.5
Loans collectively evaluated for impairment		223.7			19.0			24.1			85.7			352.5			–			352.5
Loans acquired with deteriorated credit quality⁽³⁾		3.7			–			–			1.8			5.5			–			5.5
Allowance balance – end of period	$	261.6		$	31.2		$	34.2		$	87.5		$	414.5		$	–		$	414.5
Other reserves⁽¹⁾	$	13.8		$	1.2		$	7.6		$	–		$	22.6		$	–		$	22.6
Finance receivables:
Loans individually evaluated for impairment	$	210.3		$	54.8		$	87.6		$	22.2		$	374.9		$	–		$	374.9
Loans collectively evaluated for impairment		6,313.9			1,292.9			2,464.1			4,251.2			14,322.1			6,881.9			21,204.0
Loans acquired with deteriorated credit quality⁽³⁾		210.4			–			–			26.7			237.1			1.4			238.5
Ending balance	$	6,734.6		$	1,347.7		$	2,551.7		$	4,300.1		$	14,934.1		$	6,883.3		$	21,817.4
Percent of loans to total loans		30.9	%		6.2	%		11.7	%		19.7	%		68.5	%		31.5	%		100.0	%

⁽¹⁾

“Other reserves” represents additional credit loss reserves for unfunded lending commitments, letters of credit and for deferred purchase agreements, all of which is recorded in Other Liabilities. “Other” also includes changes relating to sales and foreign currency translations.

⁽²⁾

Gross charge-offs include $11 million that were charged directly to the specific allowance for loan losses for the quarter ended September 30,2012, of which $8 million related to Corporate Finance and $3 million to Transportation Finance. Amounts charged directly to the specific allowance for loan losses for the nine month period were $25 million of which $16 million related to Corporate Finance, $8 million to Transportation Finance and the remainder to Trade Finance. Gross charge-offs include $40 million that were charged directly to the specific allowance for loan losses for the September 30, 2011 quarter, of which $36 million related to Corporate Finance with the remainder primarily related to Trade Finance. Amounts charged directly to the specific allowance for loan losses for the nine month period were $154 million, of which $142 million related to Corporate Finance and the remainder to Trade Finance.

⁽³⁾

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

NOTE 4 — INVESTMENT SECURITIES

Investments include debt and equity securities. The Company primarily invests in U.S. Treasury securities and U.S. Government Agency securities that typically mature in 91 days or less, and the carrying value approximates fair value. Debt securities also include Corporate-Foreign, Foreign Government, and State and municipal securities. Equity securities include common stock and warrants.

Investment Securities (dollars in millions)

	September 30, 2012		December 31, 2011
Debt securities available-for-sale	$	768.0	$	937.2
Equity securities available-for-sale		14.4		16.9
Debt securities held-to-maturity⁽¹⁾		137.5		211.3
Non-marketable equity securities carried at cost⁽²⁾		84.7		85.2
Total investment securities	$	1,004.6	$	1,250.6

⁽¹⁾

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

⁽²⁾

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

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Debt and equity securities are classified based on management’s intention on the date of purchase and assessed at each reporting date. Debt securities classified as held-to-maturity represent securities that the Company has both the ability and intent to hold until maturity, and are carried at amortized cost.

Debt securities and equity securities classified as available-for-sale are carried at fair value with changes in fair value reported in other comprehensive income (“OCI”), net of applicable income taxes.

Non-marketable equity securities are carried at cost and periodically assessed for other-than-temporary impairment (“OTTI”).

The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is OTTI. For debt securities classified as held-to-maturity that are considered to have OTTI that the Company does not intend to sell and it is more likely than not that the Company will not be required to sell before recovery, the OTTI is separated into an amount representing the credit loss, which is recognized in the Consolidated Statement of Operations and the amount related to all other factors, which is recognized in OCI. OTTI on debt securities and equity securities classified as available-for-sale and non-marketable securities are recognized in the Consolidated Statement of Operations in the period determined.

The following table presents interest and dividends on investments:

Interest and Dividend Income (dollars in millions)

	Quarters Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Interest	$	7.4	$	8.4	$	21.8	$	24.4
Dividends		0.6		0.2		2.0		1.2
Total interest and dividends	$	8.0	$	8.6	$	23.8	$	25.6

Realized investment gains totaled $5.0 million and $8.7 million for the quarters ended September 30, 2012 and 2011, respectively, and exclude losses from OTTI. Similarly, year to date gross realized investment gains were $28.7 million in 2012 and $43.3 million in the prior year period. OTTI credit-related impairments on equity securities recognized in earnings were not material for the quarter and nine months ended September 30, 2012 and totaled $0.3 million and $7.7 million for the prior-year quarter and year to date, respectively. Impairment amounts in accumulated other comprehensive income (“AOCI”) were not material at September 30, 2012 or December 31, 2011.

Securities Available-for-Sale

The following table presents amortized cost and fair value of securities available-for-sale (“AFS”) at September 30, 2012 and December 31, 2011.

Securities Available For Sale — Amortized Cost and Fair Value (dollars in millions)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012
Debt securities AFS
U.S. Treasury Securities	$	350.0	$	–	$	–	$	350.0
U.S. Government Agency Obligations		400.0		–		–		400.0
Brazilian Government Treasuries		18.0		–		–		18.0
Total debt securities AFS		768.0		–		–		768.0
Equity securities AFS		12.9		1.5		–		14.4
Total securities AFS	$	780.9	$	1.5	$	–	$	782.4
December 31, 2011
Debt securities AFS
U.S. Treasury Securities	$	166.7	$	–	$	–	$	166.7
U.S. Government Agency Obligations		672.7		–		–		672.7
Canadian Government Treasuries		97.8		–		–		97.8
Total debt securities AFS		937.2		–		–		937.2
Equity securities AFS		15.5		1.4		–		16.9
Total securities AFS	$	952.7	$	1.4	$	–	$	954.1

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Debt Securities Held-to-Maturity

The carrying value and fair value of securities held-to-maturity (“HTM”) at September 30, 2012 and December 31, 2011 were as follows:

Securities Held To Maturity — Carrying Value and Fair Value (dollars in millions)

	Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
September 30, 2012
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	57.0	$	3.6	$	–		$	60.6
State and municipal		3.7		–		–			3.7
Foreign government		26.0		–		–			26.0
Corporate – Foreign		50.8		–		–			50.8
Total debt securities held-to-maturity	$	137.5	$	3.6	$	–		$	141.1
December 31, 2011
U.S. Treasury and federal agency securities
U.S. Government Agency Obligations	$	92.5	$	–	$	(1.1	)	$	91.4
Mortgage-backed securities
U.S. government-sponsored agency guaranteed		49.8		3.2		–			53.0
State and municipal		0.4		–		–			0.4
Foreign government		19.6		–		–			19.6
Corporate – Foreign		49.0		–		–			49.0
Total debt securities held-to-maturity	$	211.3	$	3.2	$	(1.1	)	$	213.4

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

Securities Held To Maturity — Amortized Cost and Fair Value Maturities (dollars in millions)

	September 30, 2012				December 31, 2011
	Carrying Cost		Fair Value		Carrying Cost		Fair Value
Mortgage-backed securities⁽¹⁾
Total – Due after 10 years⁽²⁾	$	57.0	$	60.6	$	49.8	$	53.0
U.S. Treasury and federal agency securities
Total – Due within 1 year		–		–		92.5		91.4
State and municipal
Due after 1 but within 5 years		0.3		0.3		0.3		0.3
Due after 5 but within 10 years		–		–		0.1		0.1
Due after 10 years⁽²⁾		3.4		3.4		–		–
Total		3.7		3.7		0.4		0.4
Foreign government
Due within 1 year		23.0		23.0		16.8		16.8
Due after 1 but within 5 years		3.0		3.0		2.8		2.8
Total		26.0		26.0		19.6		19.6
Corporate – Foreign
Total – Due after 5 but within 10 years		50.8		50.8		49.0		49.0
Total debt securities held-to-maturity	$	137.5	$	141.1	$	211.3	$	213.4

⁽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.

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NOTE 5 — LONG-TERM BORROWINGS

The following table presents outstanding long-term borrowings, net of FSA. The FSA fair value adjustment is amortized as a cost adjustment over the remaining term of the respective debt and is reflected in Interest Expense.

Long-term Borrowings (dollars in millions)

	September 30, 2012						December 31, 2011
	CIT Group Inc.		Subsidiaries		Total		Total
Unsecured⁽¹⁾
Revolving credit facility	$	500.0	$	–	$	500.0	$	–
Series C Notes (other)		5,250.0		–		5,250.0		–
Senior unsecured		6,500.0		–		6,500.0		–
Other debt		83.0		1.9		84.9		–
Total Unsecured Debt		12,333.0		1.9		12,334.9		–
Secured
Secured borrowings		–		10,571.6		10,571.6		10,408.0
Series A Notes – 7%		–		–		–		5,834.8
Series C Notes – 7% (exchanged)		–		–		–		7,959.2
Series C Notes (other)		–		–		–		2,000.0
Other debt		–		–		–		86.1
Total Secured Debt		–		10,571.6		10,571.6		26,288.1
Total Long-term Borrowings	$	12,333.0	$	10,573.5	$	22,906.5	$	26,288.1

⁽¹⁾

The previously secured Revolving Credit Facility, Series C Notes and Other Debt became unsecured upon full redemption of Series A Notes on March 9, 2012.

Unsecured

As a result of redeeming the remaining Series A Notes during the 2012 first quarter, the Revolving Credit Facility and all of our Series C Notes became unsecured.

Revolving Credit Facility

On August 25, 2011, CIT and certain of its subsidiaries entered into a Revolving Credit and Guaranty Agreement, among CIT Group Inc., certain subsidiaries of CIT Group Inc., as guarantors, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer (the “Revolving Credit Facility”). The total commitment amount under the Revolving Credit Facility is $2 billion, consisting of a $1.65 billion revolving loan tranche and a $350 million revolving loan tranche that can also be utilized for issuance of letters of credit. The Revolving Credit Facility matures on August 14, 2015 and will accrue interest at a per annum rate of LIBOR plus a margin of 2.00% to 2.75% (with no floor) or Base Rate plus a margin of 1.00% to 1.75% (with no floor). The applicable margin will be determined by reference to the long-term senior unsecured, non-credit enhanced debt rating of the Company by S&P and Moody’s effective at relevant times during the life of the Revolving Credit Facility. Due to the Company’s credit rating upgrades in early 2012, the applicable margin for LIBOR loans is 2.50% and the applicable margin for Base Rate loans is 1.50% at September 30, 2012.

The Revolving Credit Facility may be prepaid and re-borrowed from time to time at the option of CIT. The amount available to draw upon at September 30, 2012 was approximately $1.4 billion. The unutilized portion of any commitment under the Revolving Credit Facility may be reduced permanently or terminated by CIT at any time without penalty.

Once the Company redeemed all the remaining Series A Second-Priority Secured Notes (“Series A Notes”) during the 2012 first quarter, all the collateral and subsidiary guarantees under the Revolving Credit Facility were released, except for subsidiary guarantees from eight of the Company’s domestic operating subsidiaries (“Continuing Guarantors”). Once the Revolving Credit Facility became unsecured, the collateral coverage covenant was replaced by an asset coverage covenant (based on the book value of eligible assets of the Continuing Guarantors) of 2.0x the sum of: (i) the committed facility size and (ii) all outstanding indebtedness (including, without duplication, guarantees of such indebtedness) for borrowed money (excluding subordinated intercompany indebtedness) of the Continuing Guarantors, tested monthly and upon certain dispositions or encumbrances of eligible assets of the Continuing Guarantors.

The Revolving Credit Facility is also subject to a $6 billion minimum consolidated net worth covenant of the Company, tested quarterly, and limits the Company’s ability to create liens, merge or consolidate, sell, transfer, lease or dispose of all or substantially all of its assets, grant a negative pledge or make

20 CIT GROUP INC

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CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

certain restricted payments during the occurrence and continuance of an event of default.

Series C Notes

In March 2011, the Company issued $2 billion of new 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.

In June 2011, the Company successfully completed an Exchange Offer and Consent Solicitation for outstanding 7% Series A Notes maturing in 2015, 2016, and 2017. As a result, $8.76 billion principal amount of Series C Notes (pre-FSA) with the same interest rate were issued in exchange for the Series A Notes tendered and accepted.

In February 2012, the Company issued at par $3.25 billion aggregate principal amount of Series C Notes, consisting of $1.5 billion principal amount of three-year 4.75% fixed rate notes due 2015 (the “2015 Notes”) and $1.75 billion principal amount of seven-year 5.50% fixed rate notes due 2019 (the “2019 Notes,” together with the 2015 Notes, the “Notes”). The proceeds of the transaction were used, in conjunction with available cash, to redeem the remaining Series A Notes in March 2012.

Once the Company’s remaining Series A Notes were redeemed during the 2012 first quarter, all the collateral and subsidiary guarantees under the Series C Notes were released and the notes became senior unsecured obligations.

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. 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.

During 2012, CIT redeemed or repurchased the $8.76 billion of 7% Series C Notes ($4.6 billion in the third quarter of 2012), which resulted in the acceleration of over $1.3 billion of FSA discount accretion ($0.5 billion in the third quarter of 2012) that was recorded as additional interest expense and also resulted in a loss on debt extinguishment of $61 million ($17 million in the third quarter of 2012).

Senior Unsecured Notes

In March 2012, CIT filed a “shelf” registration statement and issued at par $1.5 billion of senior unsecured notes that mature in 2018 and bear interest at a rate of 5.25%.

In May 2012, CIT issued at par $1.25 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 5.00% and $750 million of senior unsecured notes that mature in 2020 and bear interest at a rate of 5.375%. In August 2012, CIT issued at par $1.75 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 4.25% and $1.25 billion of senior unsecured notes that mature in 2022 and bear interest at a rate of 5.00%. The proceeds of these transactions were used in conjunction with available cash, to redeem the 7% Series C Notes in 2012.

These senior unsecured notes rank equal in right of payment with the Series C Notes and the Revolving Credit Facility. The Revolving Credit Facility also benefits from certain subsidiary guarantees as described above.

Secured

Series A Notes

On December 10, 2009, pursuant to the Plan of Reorganization the Company issued $21.04 billion principal amount of its 7.0% Series A Second-Priority Secured Notes with maturities each year from 2013 to 2017 (the “Series A Notes”).

During the first quarter 2012, CIT redeemed the remaining $6.5 billion of Series A Notes, which resulted in the acceleration of $597 million of FSA discount accretion that was recorded as additional interest expense and also resulted in a loss on debt extinguishments of $23 million reflecting a portion of the underwriting fees on the issuance of $3.25 billion of Series C Notes in February 2012. The elimination of our remaining Series A Notes resulted in all of CIT’s Series C Notes and the Revolving Credit Facility becoming unsecured.

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 until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings. Except as otherwise noted, pledged assets listed in the following table as of December 31, 2011 were not included in the collateral available to lenders under the Revolving Credit Facility or the Series A or C Notes described above. At September 30, 2012, the Revolving Credit Facility and Series C Notes were unsecured and there were no Series A Notes outstanding.

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Secured Borrowings and Pledged Assets Summary (dollars in millions)

	September 30, 2012				December 31, 2011⁽⁴⁾
	Secured Borrowing		Pledged Assets		Secured Borrowing		Pledged Assets
Education trusts and conduits (student loans)	$	3,162.0	$	3,264.4	$	3,445.9	$	3,772.4
GSI Facilities borrowings⁽¹⁾		1,056.2		1,589.4		1,257.7		2,174.8
Trade Finance		411.2		1,615.5		483.1		1,405.6
Corporate Finance (SBL)		251.0		297.6		250.4		300.2
Other equipment secured facilities⁽²⁾		2,409.7		2,704.3		1,772.2		2,204.6
Subtotal – Loans		7,290.1		9,471.2		7,209.3		9,857.6
Transportation Finance – Aircraft⁽³⁾		1,887.0		2,599.1		1,728.9		2,264.8
Transportation Finance – Rail		140.7		146.0		144.5		148.4
GSI Facilities borrowings (Aircraft and Rail)⁽¹⁾		1,132.8		2,095.6		1,151.4		2,084.0
Other structures		69.2		100.2		74.2		102.1
Subtotal – Equipment under operating leases		3,229.7		4,940.9		3,099.0		4,599.3
FHLB borrowings		1.0		4.7		50.7		92.5
CIT Group Holdings		50.8		50.8		49.0		49.0
Total	$	10,571.6	$	14,467.6	$	10,408.0	$	14,598.4

⁽¹⁾

At September 30, 2012 GSI Facilities borrowings were secured by $1.1 billion of student loans, $154.2 million of corporate loans, $112.8 million of small business lending loans, of which $526.7 million were classified as Assets Held for Sale, and $1.2 billion and $912.0 million of aircraft and railcar assets, respectively, on operating leases. The GSI Facilities are described in Note 6 – Derivative Financial Instruments.

⁽²⁾

Includes facilities secured by equipment primarily in Vendor Finance and Corporate Finance and the associated secured debt.

⁽³⁾

Secured financing facilities for the purchase of aircraft.

⁽⁴⁾

Pledged Assets as of December 31, 2011 has been conformed to current presentation, which includes restricted cash and investments.

Variable Interest Entities (“VIEs”)

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 ‘on balance sheet’ secured financings of pools of leases and loans originated by the Company. The Company originates pools of assets and sells these to special purpose entities (“SPE’s”), which, in turn, issue debt instruments backed by the asset pools or sell individual interests in the assets to investors. C