CIT Reports Third Quarter 2010 Net Income of $131 Million, $0.66 Per Diluted Share

CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, today reported net income for the quarter ended September 30, 2010 of $131.5 million, $0.66 per diluted share. CIT also announced that, after a review of fresh start accounting (“FSA”) balances and processes, it has revised its first and second quarter results higher. As a result, second quarter net income was revised from $142.1 million ($0.71 per diluted share) to $171.4 million ($0.85 per diluted share), while first quarter net income was revised from $97.3 million ($0.49 per diluted share) to $115.4 million ($0.58 per diluted share). Additional details on the revisions are provided in the “Prior Period Revisions” section and tables that follow. All comparisons to prior 2010 quarters are to the revised results.

“We continued to make steady progress advancing our key priorities in order to increase shareholder value,” said John A. Thain, Chairman and Chief Executive Officer. “Our balance sheet remains strong and capital ratios rose, as we paid down high-cost debt, further optimized our portfolio and improved our funding flexibility. Our increased business volume provided much needed credit to the small business and middle market companies that remain the backbone of the U.S. economy.”

Summary of Financial Results

Third quarter results reflect increased business activity as funded volume exceeded $1 billion, with increases in three of our four commercial businesses. In addition, credit metrics showed signs of stabilization, and we made continued progress optimizing the portfolio and reducing our funding costs. Net income decreased sequentially as lower interest expense, provision for credit losses and operating expenses were offset by a decline in interest income and fewer recoveries on assets charged-off prior to 2010. In aggregate, pre-tax benefits from FSA-related items of $266 million were down approximately $150 million from the second quarter, primarily due to lower asset levels, slower customer prepayments and the repayment of high cost debt.

Net finance revenue1 (which includes operating lease rentals and depreciation) decreased $110 million from the second quarter as the revenue impact of a $2.7 billion contraction in average earning assets more than offset the interest savings from reducing high-cost debt. Net operating lease revenues were essentially flat. As a percentage of average earning assets, net finance revenue in the third quarter was 3.28%, down from 4.12% in the second quarter, and included a 2.62% benefit from FSA. Excluding FSA and the effect of prepayment penalties on high-cost debt in both quarters, margin was 0.92%, up 23 basis points from the second quarter, as the reduction in funding costs was partially offset by the lower asset yields that resulted from a change in the composition of interest-earning assets and lower yield-related fees.

Other income (excluding operating lease rentals) decreased from the second quarter primarily due to lower recoveries on receivables charged-off prior to the adoption of FSA. Results also reflect slightly higher factoring commissions on seasonal volume build.

Operating expenses decreased from the second quarter reflecting lower employee retention plan and benefit costs. Headcount declined 5% from June 30, 2010 to approximately 3,800. We recorded $6 million of restructuring charges in the third quarter for facility consolidation and severance costs. Improving operating efficiencies and lowering expense levels remains a priority.

The 31% year-to-date effective tax rate results from taxes on international operations and valuation allowances recorded against U.S. losses.

Total assets at September 30, 2010 were $53.0 billion, down $2.0 billion from June 30, 2010, reflecting the sale of $1.5 billion of non-core assets and portfolio run-off in excess of new business activity. Significant asset sales during the quarter included a $0.6 billion liquidating consumer portfolio in Vendor Finance, $0.6 billion of Corporate Finance loans, $0.2 billion of other Vendor assets and approximately $100 million of Transportation equipment. Assets held for sale at September 30, 2010 include essentially the entire private student loan portfolio, some government guaranteed student loans and certain energy-related Corporate Finance assets.

Preliminary Tier 1 and Total Capital ratios improved to 18.7% and 19.6%, respectively, up from 17.5% and 18.2% at June 30, 2010, benefiting from both growth in common equity and a decline in risk-weighted assets. Book value per share at September 30, 2010 was $44.09.

Credit

Credit trends showed signs of stabilization, as the amount of net charge-offs and non-accrual loans each decreased modestly from the second quarter. Though down in amount, the corresponding ratios as a percentage of finance receivables increased from the prior quarter due to continued portfolio contraction. The reduction in non-accrual loans was driven largely by improvement in Corporate Finance, which was partially offset by an increase in Trade Finance. These credit metrics, which are after the application of FSA, include asset marks and other FSA-related items. Reported net charge-offs of $101 million for the third quarter, down from $106 million in the second quarter, do not reflect recoveries of pre-FSA charge-offs recorded in other income, which were $52 million in the third quarter and $113 million in the second quarter.

Management also evaluates credit performance using credit metrics that exclude the impact of FSA. On this basis, gross charge-offs were $233 million, down $19 million from the second quarter, while non-accrual loans of $2.6 billion decreased $447 million from the second quarter, including a decline of $195 million due to student loans that were reclassified as held for sale. New inflows into non-accrual loans decreased significantly on a pre-FSA basis from the preceding two quarters.

The reserve for credit losses increased to $397 million from $328 million at June 30, 2010 reflecting increases to specific reserves on impaired loans and non-specific reserves. Although credit metrics showed signs of stabilizing in the third quarter, we built reserves for incremental deterioration beyond the FSA discount on pre-emergence loans. The provision for credit losses decreased from the second quarter, as the build in non-specific reserves was partially offset by the reversal of reserves related to the liquidating Vendor Finance consumer portfolio that was sold.

Segment Highlights

Corporate Finance

Corporate Finance new business activity continued to improve with increases in both committed and funded loan volume. Funded loan volume increased 29% from the second quarter, which reflected a more than doubling of volume underwritten at CIT Bank. We were awarded agency roles and we continue to build our pipeline for new deals. Earnings declined sequentially, primarily due to lower FSA accretion benefits on slower portfolio prepayments, reduced gains on asset sales and fewer recoveries on loans charged-off prior to the adoption of FSA. Credit metrics improved; non-accrual loans and net charge-offs each declined on both a pre-FSA and reported basis. Operating expenses also improved from the prior quarter as headcount declined 6%. Assets declined by $711 million from June 30, 2010 as new volume was more than offset by asset sales and collections.

Transportation Finance

Transportation Finance continued to perform well, as our commercial air fleet remains effectively fully utilized and our rail fleet utilization improved to 94%. Earnings rose slightly from the second quarter, as the benefits of higher gains on asset sales and lower operating and tax expenses were largely offset by a higher provision for credit losses and the impact of FSA that dampened net operating lease rental income. Non-accrual loans rose, primarily due to the addition of one secured loan to a commercial airline, and there were no charge-offs during the quarter. We took delivery of and placed six new aircraft in the third quarter and have lease commitments for all aircraft to be delivered over the next 12 months.

Trade Finance

Trade Finance results reflected the benefit of the financing conduit that was established at the end of the second quarter and higher commissions. Third quarter factored volume increased to $7 billion, from $6.3 billion in the second quarter, reflecting normal seasonal trends. Factoring commissions improved modestly, as the increased volume was slightly offset by a modest reduction in rates charged. The sequential comparison is also impacted by a lower level of recoveries on accounts charged-off prior to the adoption of FSA. While net charge-offs declined and remain at modest levels, non-accrual loans increased to $199 million.

Vendor Finance

Vendor Finance earnings improved, reflecting the benefits of asset sales as well as lower credit and operating costs. Portfolio yields remained consistent and volume increased despite the impact of the sale of the Australia and New Zealand business at the end of the second quarter. We funded $542 million of new business volume in the quarter with increases across many programs and regions, including sequential growth in 7 of our top 10 vendor programs. We also extended our Lenovo Financial Services program to Western Europe. Total financing and leasing assets declined by approximately $1 billion, reflecting asset sales and collection activity. During the quarter we sold over $800 million of assets, including the liquidating consumer portfolio, the sale of which reduced credit loss reserve needs and lowered the current quarter provision for credit losses. Delinquencies and non-accrual loans each declined on both a reported and pre-FSA basis. Net charge-offs increased from the second quarter, and recoveries on assets charged-off prior to the adoption of FSA declined.

Consumer Finance

Consumer Finance results were negatively impacted by the transfer to assets held for sale of our private student loan portfolio and a pool of government-guaranteed loans, sales of which are anticipated to close during the fourth quarter. This transfer of $400 million of loans ($895 million pre-FSA) resulted in a $195 million decline of the pre-FSA non-accrual loans and a corresponding reduction in FSA discount of $486 million. We continue to manage the remaining $8.4 billion liquidating portfolio of government-guaranteed student loans. Margin was negatively impacted during the quarter due to timing differences on the reset of asset yields and debt costs. Operating expenses declined from the prior quarter as we continue to focus on improving the efficiency of servicing this portfolio.

CIT Bank

CIT Bank continues to actively originate new loans. Committed loan volume increased to $314 million from $180 million in the second quarter, of which $226 million was funded. At September 30, 2010, total assets were $7.4 billion and total deposits were $4.8 billion. During the quarter, $279 million of student loan funding facilities were repaid. The preliminary Total Capital ratio at the Bank was 57.4% and the Tier 1 Leverage ratio was 22.1%.

Liquidity and Financing

Total cash rose to $11.2 billion at September 30, 2010, consisting of $6.5 billion at the bank holding company (BHC), $1.6 billion at CIT Bank, $1.5 billion at operating subsidiaries and $1.6 billion in other restricted cash.

Proceeds from asset sales and net portfolio collections enabled the paydown of over $2.5 billion of debt during the quarter, including $1.5 billion of high-cost first lien debt. We repaid a total of $4.5 billion of first lien debt in 2010 and refinanced the remaining $3 billion at a lower cost with more flexible terms and with a later maturity date. In late September and early October, we announced the redemption of $1.4 billion of the 10.25% Series B Second Lien Notes that mature from 2013 through 2016, which will be completed in the fourth quarter using cash at the BHC.

Prior Period Revisions

In preparing the financial statements for the quarter ended September 30, 2010, the Company discovered and corrected immaterial errors that impacted the 2010 first and second quarter results and had a de minimis impact on the post-emergence December 31, 2009 balance sheet. As a result, pre-tax income was increased by $34.3 million and $22.5 million for the quarters ended June 30 and March 31, 2010, respectively, and goodwill was increased by $3.7 million at December 31, 2009. While the adjustments were primarily related to the complexities of FSA and the accounting for the related activity, some other errors were identified as well. While these errors did not, individually or in the aggregate, result in a material misstatement of the Company's December 31, 2009 balance sheet or the consolidated financial statements for the first or second quarters, correcting these items in the third quarter would have been material to the third quarter results. Accordingly, management has revised in this release and will revise in subsequent quarterly filings on Form 10-Q and its 2010 Form 10-K, its previously reported December 31, 2009 balance sheet and March 31, 2010 and June 30, 2010 financial statements.

Tables reflecting the previously reported balances, required adjustments and revised amounts impacting the income statements and balance sheets, along with descriptions of significant adjustments are included in the accompanying financial tables.

See attached tables for financial statements and supplemental financial information.

Conference Call and Web cast

Chairman and Chief Executive Officer John A. Thain and Chief Financial Officer Scott T. Parker will discuss these results on a conference call and audio Web cast today, October 26, 2010, at 8:00 a.m. (EDT). Interested parties may access the conference call live by dialing 866-831-6272 for U.S. and Canadian callers or 617-213-8859 for international callers and reference access code “CIT Group” or access the audio web cast at the following website: http://ir.cit.com. An audio replay of the call will be available until 11:59 p.m. (EDT) November 9, 2010, by dialing 888-286-8010 for U.S. and Canadian callers or 617-801-6888 for international callers with the access code 10162673, or at the following website: http://ir.cit.com.

Individuals interested in receiving future updates on CIT via e-mail can register at http://newsalerts.cit.com

About CIT

Founded in 1908, CIT (NYSE: CIT) is a bank holding company with more than $35 billion in finance and leasing assets. It provides financing and leasing capital to its more than one million small business and middle market clients and their customers across more than 30 industries. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and global vendor finance. www.cit.com

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of applicable federal securities laws that are based upon our current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “commence,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements contained in this press release, other than statements of historical fact, including without limitation, statements about our plans, strategies, prospects and expectations regarding future events and our financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and our actual results may differ materially. Important factors that could cause our actual results to be materially different from our expectations include, among others, the risk that CIT is unsuccessful in refining and implementing its strategy and business plan, the risk that CIT's changes in its senior management team affects CIT's ability to react to and address key business and regulatory issues, the risk that CIT is delayed in transitioning certain business platforms to CIT Bank and may not succeed in developing a stable, long-term source of funding, and the risk that CIT continues to be subject to liquidity constraints and higher funding costs. We describe these and other risks that could affect our actual results in Item 1A, “Risk Factors”, of our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. Accordingly, you should not place undue reliance on the forward-looking statements contained in this press release. These forward-looking statements speak only as of the date on which the statements were made. CIT undertakes no obligation to update publicly or otherwise revise any forward-looking statements, except where expressly required by law.

Non GAAP Measurements

Net finance revenue is a non-GAAP measurement used by management to gauge portfolio performance. ‘Pre FSA’ is non-GAAP and provides the user with additional data that is more comparable to historical and peer disclosures.

1 Net finance revenue is a non-GAAP measure, see page 18 for reconciliation of non-GAAP to GAAP financial information.