News Column

CIT GROUP INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 6, 2014

and Item 3. Quantitative and Qualitative Disclosures about Market Risk



--------------------------------------------------------------------------------

OVERVIEW

CIT Group Inc., together with its subsidiaries ("we", "our", "CIT" or the "Company") has provided financial solutions to its clients since its formation in 1908. We provide financing, leasing and advisory services principally to middle market companies in a wide variety of industries primarily in North America, and equipment financing and leasing solutions to the transportation industry worldwide. We had approximately $35 billion of financing and leasing assets at June 30, 2014. CIT became a bank holding company ("BHC") in December 2008 and a financial holding company in July 2013. CIT is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Federal Reserve Bank of New York ("FRBNY") under the U.S. Bank Holding Company Act of 1956. CIT Bank (the "Bank"), a wholly-owned subsidiary, is a state chartered bank located in Salt Lake City, Utah, that offers commercial financing and leasing products as well as a suite of savings options and is subject to regulation by the Federal Depository Insurance Corporation ("FDIC") and the Utah Department of Financial Institutions ("UDFI"). On July 22, 2014, CIT announced that it had entered into a definitive agreement and plan of merger to acquire IMB Holdco LLC, the parent company of OneWest Bank N.A. for $3.4 billion in cash and stock. IMB Holdco is regulated by the FRB and OneWest is regulated by the Office of the Comptroller of the Currency, U.S. Department of the Treasury. The transaction is subject to certain customary closing conditions and regulatory approval by the Federal Reserve Board and the Office of the Comptroller of the Currency. Following the closing, based on current definitions and requirements at the time of the announcement, CIT will become subject to the enhanced regulatory mandates applicable to bank holding companies with $50 billion or more in total consolidated assets, commonly referred to as systemically important financial institutions, or SIFIs, including but not limited to submitting an annual capital plan, undergoing an annual supervisory stress test and two company-run stress tests, submitting a resolution plan, implementation of an enhanced compliance program under the Volcker Rule, and payment of additional FRB assessments. The date on which CIT becomes subject to each SIFI requirement will vary depending on the terms of the individual regulation. "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 key financial terms that we use in Part I Item 1. Business Overview in our Form 10-K for the year ended December 31, 2013 (the "2013 Form 10-K"), and any new terms used are defined within this Form 10-Q. Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of the Company. See "Non-GAAP Financial Measurements" for a reconciliation of these to comparable financial measures based on accounting principles generally accepted in the United States of America ("GAAP"). Segment Changes As discussed in our 2014 first quarter Form 10-Q, we announced organization changes that became effective January 1, 2014. Management changed our operating segments to (i) realign and simplify its businesses and organizational structure, (ii) streamline and consolidate certain business processes to achieve greater operating efficiencies, and (iii) leverage CIT's operational capabilities for the benefit of its clients and customers. Effective January 1, 2014, CIT manages its business and reports financial results in three operating segments: (1) Transportation & International Finance ("TIF"); (2) North American Commercial Finance ("NACF"); and (3) Non-Strategic Portfolios ("NSP"). These are discussed further in "Results By Business Segments". The change in segment reporting does not affect CIT's historical consolidated results of operations. The discussions below reflect the new reporting segments; all prior period comparisons have been conformed and are consistent with the presentation of financial information to management.



Discontinued Operation

On April 25, 2014, the Company completed the sale of the $3.3 billion student lending business along with certain secured debt and servicing rights. Income from discontinued operation was $52 million for the quarter ended June 30, 2014, which included a $283 million gain on sale, partially offset by the $231 million loss on discontinued operation. The gain on sale reflected proceeds received in excess of the net carrying value of assets and liabilities sold and amounts received for the sale of servicing rights, while the loss on discontinued operation was driven primarily by the acceleration of fresh start accounting (FSA) accretion of $224 million on extinguishment of the debt.



The business had previously been included in the NSP segment. Approximately $3.2 billion of debt was extinguished, including $0.8 billion that was repaid using a

40 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

portion of the cash proceeds. The student lending business consisted of a portfolio of U.S. Government-guaranteed student loans that was in run-off and had been transferred to assets held for sale ("AHFS") at the end of 2013. The Company had ceased offering private student loans in 2007 and government-guaranteed student loans in 2008. All prior period data has been adjusted to reflect the student lending business as a discontinued operation.



Unless specifically noted, the discussions throughout the following sections reflect CIT results on a continuing operations basis.

2014 FINANCIAL OVERVIEW

We grew commercial financing and leasing assets, new business activity continued to be solid and credit quality remained at cyclical lows.

Net income of $247 million, $1.29 per diluted share, for the second quarter of 2014, compared to net income of $184 million, $0.91 per diluted share, for the year-ago quarter and $117 million, $0.59 per diluted share, in the prior quarter. Income from continuing operations (after taxes) for the second quarter was $195 million, $1.02 per diluted share compared to $176 million, $0.87 per diluted share, for the year-ago quarter and $115 million, $0.58 per diluted share in the prior quarter. Net Income for the six months ended June 30, 2014 was $364 million, $1.88 per diluted share, compared to $346 million, $1.71 per diluted share, for the 2013 period. Income from continuing operations for the six month period ended June 30, 2014 was $310 million, $1.60 per diluted share, compared to $329 million, $1.62 per diluted share for the 2013 period. Income from continuing operations, before income taxes totaled $219 million for the second quarter of 2014, compared to $205 million for the year-ago quarter and $123 million for the prior quarter. Second quarter results reflect growth in earning assets and a further shift to deposit funding. Additionally, income from continuing operations reflected benefits from loan prepayments, lower credit costs as well as the restructuring of an aircraft securitization in our TRS facility that positively impacted interest expense and other income. First quarter results were primarily impacted by lower levels of interest income, higher maintenance and other operating lease expenses, and an increase in the provision for credit losses. Pre-tax income from continuing operations was $342 million for the six months ended June 30, 2014, down from $374 million for the 2013 period. Net finance revenue(1)("NFR") was $361 million compared to $367 million in the year-ago quarter and $322 million in the prior quarter. Average earning assets were $33.2 billion in the current quarter, up from $30.1 billion in the year-ago quarter and $32.1 billion in the prior quarter. NFR as a percentage of average earning assets ("net finance margin") was 4.35%, compared to 4.87% in the year-ago quarter and 4.01% in the prior quarter. Excluding the impact of debt redemptions(2), net finance margin was 4.26% compared to 4.97% in the year-ago quarter and 4.01% in the prior quarter. The reduction from the year-ago quarter primarily reflects portfolio re-pricing, the sale of higher-yielding Dell Europe assets, and declines in net FSA accretion. The increase from the prior quarter reflects lower funding costs, lower maintenance and other operating lease expenses, and higher prepayment benefits. NFR was $683 million for the six months ended June 30, 2014, down from $716 million for the 2013 period. While other financial institutions may use net interest margin ("NIM") to measure earnings on interest bearing assets, defined as interest income less interest expense, we discuss NFR, which includes net operating lease revenue (operating lease rental revenue, depreciation expense and maintenance and other operating lease expenses), due to the significant impact of operating lease equipment on revenue and expense. Net operating lease revenue was up modestly from the year-ago quarter, as increased revenue earned on higher average assets and consistently high aircraft and railcar utilization rates offset higher depreciation expense and maintenance and other operating lease expenses and pressure on revenues from lower remarketing rates. Compared to the prior quarter, the modest increase in net operating lease revenue reflected lower maintenance and other operating lease expenses. Provision for credit losses was $10 million, down from $15 million in the year-ago quarter and $37 million in the prior quarter reflecting lower net charge-offs and lower reserve build due to portfolio composition. The provision for credit losses was $47 million for the six months ended June 30, 2014, up from $34 million for the 2013 period. Other income of $94 million increased from $79 million in the year-ago quarter and from $71 million in the prior quarter. The current quarter includes an acceleration of counterparty receivable accretion of $9 million related to the aircraft securitization restructuring as well as a positive mark to market on the TRS derivative of $11 million. Other income was $165 million for the six months ended June 30, 2014, up from $149 million for the 2013 period. Operating expenses were $225 million compared to $226 million in the year-ago quarter and $234 million in the prior quarter. Excluding restructuring costs(3), operating expenses were $219 million, relatively flat to $217 million in the year-ago quarter and down from $224 million in the prior quarter. The decline from the prior quarter is primarily due to lower employee costs while the year-ago quarter also included lower deposit related costs and a benefit in professional fees. Operating expenses were $459 million for the six months ended June 30, 2014, relatively flat to $457 million for the 2013 period. Headcount at June 30, 2014 was approximately 3,170, down from approximately 3,420 and 3,200 at June 30, 2013 and March 31, 2014, respectively.



--------------------------------------------------------------------------------

(1) Net finance revenue and average earning assets are non-GAAP measures; see

"Non-GAAP Financial Measurements" for reconciliation of non-GAAP to GAAP financial information.



(2) Debt redemption impacts include accelerated FSA net discount/(premium)

accretion and accelerated original issue discount. See "Non-GAAP

Measurements" for reconciliation of non-GAAP to GAAP financial information.

(3) Operating expenses excluding restructuring costs is a non-GAAP measure. See

"Non-GAAP Measurements" for reconciliation of non-GAAP to GAAP financial

information.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 41

--------------------------------------------------------------------------------

Table of Contents

Provision for income taxes was $18 million, primarily reflecting the recognition of income tax expense on international earnings, down from $29 million in the year-ago quarter and up from $14 million in the prior quarter. The year-ago quarter included over $20 million related to the establishment of valuation allowances on certain international deferred tax assets. The provision for income taxes was $32 million for the six months ended June 30, 2014, down from $42 million for the 2013 period. Total assets from continuing operations(4) at June 30, 2014 were $44.2 billion, down from $44.9 billion at March 31, 2014, reflecting the use of cash to repay the $1.3 billion debt maturity on April 1, 2014, and up from $40.7 billion at June 30, 2013. Financing and leasing assets in NACF and TIF increased to $34.1 billion, an increase of $1.3 billion (4%) from March 31, 2014 and $4.3 billion (15%) from a year ago. The sequential quarter increase was driven by solid origination volumes while the increase from the year-ago quarter also included the acquisition of Nacco in the first quarter of 2014, which added approximately $0.65 billion of financing and leasing assets. NSP, declined by approximately $0.5 billion from March 31, 2014, and by $1.3 billion from a year ago, to $0.7 billion, reflecting portfolio run off and asset sales, including the completion of the sale of the Small Business Lending portfolio in June 2014. Total loans of $18.6 billion increased slightly from March 31, 2014 and by $0.4 billion from a year ago, reflecting new loan originations partially offset by asset sales. Operating lease equipment increased $0.6 billion from March 31, 2014 and $2.5 billion from a year ago to $14.8 billion, reflecting the Nacco acquisition and other equipment purchases. Cash and investments of $7.3 billion were down $1.7 billion from March 31, 2014 and were relatively flat from June 30, 2013. Credit metrics remained at or near cycle lows. Non-accrual loans declined to $190 million, or 1.02% of finance receivables, at June 30, 2014 from $218 million (1.18%) at March 31, 2014 and $279 million (1.53%) at June 30, 2013. Net charge-offs were $21 million, or 0.45% of average finance receivables (AFR), versus $29 million (0.63%) in the year-ago quarter and $36 million (0.76%) in the prior quarter. Recoveries of $8 million were lower than the $19 million recorded in the year-ago quarter and essentially flat with the prior quarter.



2014 PRIORITIES

Our priorities continue to be focused on achieving our profitability targets by growing earning assets and managing expenses, growing CIT Bank assets and deposits, and returning capital to our shareholders. Enhancing internal control functions and maintaining relationships with our regulators also remain a priority. 1. Grow Earning Assets



We plan to grow earning assets, organically and through portfolio acquisitions, by focusing on existing products and markets as well as newer initiatives.

Financing and leasing assets ("FLA") totaled $34.7 billion, of which TIF and

NACF totaled $34.1 billion, up $0.8 billion from the prior quarter and $3.1

billion from the year-ago quarter. The sequential increase was driven by solid

second quarter origination volumes in both segments and an acquisition in TIF

in the 2014 first quarter contributed to the increase from the year-ago

quarter. NSP makes up the remaining balance of FLA and is expected to decline

as portfolios are sold or otherwise liquidated.

On August 1, 2014, CIT Bank completed the acquisition of Capital Direct

Group, Inc. and its wholly owned subsidiary Direct Capital Corporation

(together, "Direct Capital"), a provider of financing to small and mid-sized

businesses. Direct Capital has assets of approximately $500 million and

employs 250 individuals. 2. Achieve Profit Targets The 2014 second quarter and six months pre-tax return on AEA were 2.6% and 2.1%, respectively. While these are above our near-term outlook of approximately 2.00%, and were driven by a sequential improvement in credit costs, net finance margin and lower operating expenses, they were also benefited by notable items.



NFM adjusted for accelerated debt costs for the second quarter was at the top

end of our near term target range of 3.75%-4.25%. The quarter benefited from

a sequential decline in funding costs, lower maintenance and other operating

lease expenses, and higher prepayment benefits. The quarter also benefited

from accelerated FSA net discount/(premium) accretion and accelerated

original issue discount ("OID") that impacted funding costs. The benefits to

NFM this quarter were offset by portfolio repricing as the yield on new loans

and leases originated are generally lower than yields on the current portfolio.



Other Income was above our near-term outlook range of 0.75%-1.00% and

included acceleration of counterparty receivable accretion of $9 million

triggered by the restructure of two aircraft securitizations, as well as a

positive mark to market on the TRS derivative of $11 million.

Operating expenses were $225 million, including restructuring charges of $6

million. Excluding restructuring charges, operating expenses were 2.64% of

AEA, above the near-term outlook range of 2.00%-2.50%. Although operating

expenses were down sequentially, the lower employee costs were slightly

offset by increases in deposit related costs and Nacco integration costs, as

we re-invested part of our savings in growth and funding initiatives. We lowered headcount by about 30 persons during the 2014 second quarter to 3,170, a 7% decline from a year-ago.



--------------------------------------------------------------------------------

(4) Total assets from continuing operations is a non-GAAP measure. See "Non-GAAP

Measurements" for reconciliation of non-GAAP to GAAP financial information.

42 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

We continue to make progress reducing NSP, and have exited all the sub-scale

countries in Asia, and several in Latin America and Europe. Our primary focus

is now on exiting Brazil, Mexico and smaller portfolios in Europe. Upon

completion of the exits, we expect to eliminate approximately $15 million from

our quarterly expenses.



3. Expand Bank Assets and Funding

CIT Bank funds most of our U.S. lending and leasing volume and continues to expand on-line deposit offerings. CIT Bank will expand its banking activities upon the closing of its recently announced bank acquisition.

Total assets were $18.3 billion at June 30, 2014, up from $16.8 billion at

March 31, 2014. CIT Bank funded $2.0 billion of new business volume, up 11%

from the year-ago quarter and up 23% sequentially.



Deposits at quarter-end were $13.9 billion, up from $13.1 billion at March

31, 2014. Online retail deposits surpassed $7.0 billion. The weighted average

rate on outstanding deposits was 1.57% at June 30, 2014.



On July 22, 2014, CIT announced that it entered into a definitive agreement

and plan of merger with IMB Holdco LLC, the parent company of OneWest Bank

N.A. ("OneWest Bank"), for $3.4 billion in cash and stock. At June 30, 2014,

OneWest Bank had 73 branches in Southern California, with approximately $23

billion of assets and $15 billion of deposits. 4. Continue to Return Capital



We continue to prudently deploy our capital, as well as return capital to our shareholders through share repurchases and dividends, while maintaining our strong capital ratios.

During the second quarter, we repurchased over 9.4 million shares for an

aggregate purchase price of $416 million, bringing the total repurchases for

2014 to approximately 12.3 million shares at an average price of $44.81, or

an aggregate of approximately $552 million. Approximately $55 million of the

2014 $607 million authorized repurchase capacity remains.

On July 22, 2014, CIT announced that its Board of Directors approved the

repurchase of up to an additional $500 million of common stock through June

30, 2015.



On July 15, 2014, the Board approved an increase to CIT's quarterly cash

dividend from $0.10 per share to $0.15 per share. The dividend is payable on

August 29, 2014 to shareholders of record on August 15, 2014.

--------------------------------------------------------------------------------

NET FINANCE REVENUE

The following tables present management's view of consolidated NFR and NFM:

--------------------------------------------------------------------------------

Net Finance Revenue(1) and Net Finance Margin (dollars in millions) --------------------------------------------------------------------------------

Quarters Ended

----------------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, ---------------------------------- 2014 2014 2013 2014 2013 --------------- --------------- --------------- --------------- --------------- Interest income $ 309.8



$ 302.2$ 319.1$ 612.0$ 641.6 Rental income on operating leases

519.6 491.9 484.3 1,011.5 960.7 Finance revenue 829.4 794.1 803.4 1,623.5 1,602.3 Interest expense (262.2 ) (271.9 ) (262.6 ) (534.1 ) (536.7 ) Depreciation on operating lease equipment (157.3 ) (148.8 ) (133.6 ) (306.1 ) (266.9 ) Maintenance and other operating lease expenses (49.0 ) (51.6 ) (40.3 ) (100.6 ) (82.7 ) Net finance revenue $ 360.9



$ 321.8$ 366.9$ 682.7$ 716.0 Average Earning Assets(1)(2) ("AEA")

$ 33,186.7



$ 32,070.2$ 30,121.4$ 32,669.0$ 29,712.8 As a % of AEA: Interest income

3.74 % 3.77 % 4.24 % 3.75 % 4.32 % Rental income on operating leases 6.26 % 6.13 % 6.43 % 6.19 % 6.47 % Finance revenue 10.00 % 9.90 % 10.67 % 9.94 % 10.79 % Interest expense (3.16 )% (3.39 )% (3.49 )% (3.27 )% (3.61 )% Depreciation on operating lease equipment (1.90 )% (1.86 )% (1.77 )% (1.87 )% (1.80 )% Maintenance and other operating lease expenses (0.59 )% (0.64 )% (0.54 )% (0.62 )% (0.56 )% Net finance margin 4.35 % 4.01 % 4.87 % 4.18 % 4.82 % (1) NFR and AEA are non-GAAP measures; see reconciliation of non-GAAP to GAAP financial information.



(2) AEA balances are less than comparable balances displayed in this document in

'Select Data' (Quarterly Average Balances) due to the exclusion of deposits

with banks and other investments and the inclusion of credit balances of factoring clients.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 43

--------------------------------------------------------------------------------

Table of Contents

NFR and NFM are key metrics used by management to measure the profitability of our lending and leasing assets. NFR includes interest and yield-related fee income on our loans and capital leases, rental income on our operating lease equipment and interest and dividend income on cash and investments, reduced by funding costs, depreciation from our operating lease equipment, and maintenance and other operating lease expenses. Since our asset composition includes a high level of operating lease equipment (44% of AEA for the quarter ended June 30, 2014), NFM is a more appropriate metric for CIT than net interest margin ("NIM") (a common metric used by other financial institutions), as NIM does not fully reflect the earnings of our portfolio, because it includes the impact of debt costs on all our assets, but excludes the net operating lease revenue (rental income less depreciation and maintenance and other operating lease expenses). NFR decreased from the year-ago quarter and year-to-date, as higher earning assets were offset by compression on portfolio yields across many of our businesses, sales of portfolios, higher maintenance and other operating lease expenses, and lower net FSA accretion. The $39 million sequential increase was largely driven by higher revenues on increased earning assets and prepayment benefits, and also included a net benefit of $7 million related to accelerated FSA discount and original issue discount ("OID") related to certain debt transactions.



--------------------------------------------------------------------------------

Adjusted NFR ($) and Net Finance Margin (NFM) (%) (dollars in millions) --------------------------------------------------------------------------------

Quarters Ended



-------------------------------------------------------------------------------------

June 30, 2014 March 31, 2014 June 30, 2013 --------------------------- ------------------------- ------------------------- NFR / NFM $ 360.9



4.35 % $ 321.8 4.01 % $ 366.9 4.87 % Accelerated FSA net discount/(premium) on debt extinguishments and repurchases

34.7 0.42 % - - 7.7 0.10 % Accelerated OID on debt extinguishments related to the GSI facility (42.0 ) (0.51 )% - - - - Adjusted NFR / NFM $ 353.6 4.26 % $ 321.8 4.01 % $ 374.6 4.97 % Six Months Ended June 30,



--------------------------------------------------------

2014 2013 --------------------------- ------------------------- NFR / NFM $ 682.7 4.18 % $ 716.0 4.82 % Accelerated FSA net discount/(premium) on debt extinguishments and repurchases 34.7 0.21 % 24.8 0.17 % Accelerated OID on debt extinguishments related to the GSI facility (42.0 ) (0.26 )% - - Adjusted NFR / NFM $ 675.4 4.13 % $ 740.8 4.99 % The accelerated debt FSA accretion and accelerated OID on debt extinguishment related to the GSI facility ("accelerated OID accretion"), when discussed in combination, is referred to as "accelerated debt FSA and OID accretion". Adjusted NFM increased 25 basis points (bps) to 4.26% from the prior quarter. Improved interest expense from recent debt transactions and a higher proportion of deposit funding were the largest contributors, along with lower operating lease expenses due to timing and end of lease strategies in Aerospace, and to a lesser extent, prepayment benefits, largely in Corporate Finance. These were partially offset by continued portfolio repricing.



Adjusted NFM was down 71 bps from the year-ago quarter.

Finance revenue, though up in 2014 on increased earning assets, reflected

lower yields in most of the TIF and NACF divisions (as detailed in the

following table) and the sale of the Dell Europe portfolio (within NSP) in

the second half of 2013, which contained high-yielding assets.

NFM had a diminished benefit from suspended depreciation on operating lease

equipment held for sale, as depreciation is not recorded while this equipment

is held for sale (detailed further below).



Net FSA benefit on adjusted NFM was down. FSA accretion on loans continues to

have a diminishing impact, as the FSA accretion benefit to interest income in

the second quarter of 2014 was $5 million, down from $18 million in the year-ago quarter. The remaining accretable FSA discount on loans is not significant. See Fresh Start Accountingsection. Higher prepayment benefits in the second quarter of 2014.



The second quarter of 2014 benefited from recent debt actions, which included

the repayment of maturing $1.3 billion 5.25% notes. Weighted average coupon

rate of outstanding deposits and long-term borrowings of 3.20% at June 30,

2014 was down from 3.39% at June 30, 2013, as the portion of our funding

derived from deposits increased to 44% from 39% at June 30, 2013. 44 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

The following table depicts select yields and margin related data for our segments, plus select divisions within TIF and NACF.

--------------------------------------------------------------------------------

Select Segment and Division Margin Metrics (dollars in millions) --------------------------------------------------------------------------------

Six Months Ended June 30, June 30, March 31, June 30, -------------------------------- 2014 2014 2013 2014 2013 -------------- -------------- -------------- -------------- -------------- Transportation & International Finance AEA $ 18,066.2$ 17,119.7$ 15,316.4$ 17,624.8$ 15,188.3 Gross yield 12.34 % 12.53 % 12.70 % 12.41 % 12.65 % NFM 4.91 % 4.73 % 5.12 % 4.81 % 4.95 % Adjusted NFM 4.75 % 4.73 % 5.24 % 4.73 % 5.14 % AEA Aerospace $ 10,260.7$ 9,773.9$ 9,346.6$ 10,038.7$ 9,383.2 Rail $ 5,578.0$ 5,137.9$ 4,254.2$ 5,373.8$ 4,234.0 Maritime Finance $ 576.2$ 473.9$ 305.7$ 524.4$ 238.6 International Finance $ 1,651.3$ 1,734.0$ 1,409.9$ 1,687.9$ 1,332.5 Gross yield Aerospace 12.18 % 12.56 % 12.40 % 12.34 % 12.28 % Rail 14.44 % 14.56 % 14.75 % 14.46 % 14.67 % Maritime Finance 5.58 % 4.88 % 7.12 % 5.27 % 7.81 % International Finance 8.59 % 8.46 % 9.77 % 8.55 % 9.71 % North American Commercial Finance AEA $ 14,132.4$ 13,764.7$ 12,843.2$ 13,962.1$ 12,543.9 Gross yield 6.62 % 6.28 % 7.34 % 6.45 % 7.64 % NFM 4.13 % 3.64 % 4.53 % 3.88 % 4.68 % Adjusted NFM 4.13 % 3.64 % 4.61 % 3.88 % 4.82 % AEA Real Estate Finance $ 1,668.5$ 1,592.9$ 1,069.9$ 1,632.9$ 911.4 Corporate Finance $ 7,220.8$ 6,991.6$ 6,607.4$ 7,113.8$ 6,572.1 Equipment Finance $ 4,269.2$ 4,239.5$ 4,106.8$ 4,258.0$ 3,998.0 Commercial Services $ 973.9$ 940.7$ 1,059.1$ 957.4$ 1,062.4 Gross yield Real Estate Finance 4.10 % 3.99 % 4.08 % 4.04 % 4.22 % Corporate Finance 5.71 % 5.02 % 5.94 % 5.37 % 6.26 % Equipment Finance 9.52 % 9.54 % 10.92 % 9.52 % 11.24 % Commercial Services 4.99 % 4.86 % 5.51 % 4.93 % 5.49 % Non-Strategic Portfolios AEA $ 988.1$ 1,185.8$ 1,961.8$ 1,082.1$ 1,980.6 Gross yield 14.17 % 12.78 % 15.80 % 13.47 % 15.81 % NFM 2.55 % 2.63 % 7.30 % 2.61 % 6.98 % Adjusted NFM 2.55 % 2.63 % 7.36 % 2.61 % 7.06 % Compared to the 2013 quarter and six month periods, gross yields (interest income plus rental income on operating leases as a % of AEA) and NFM in TIF were down, reflecting lower rental rates. NACF gross yields and NFM reflect continued pressures on the portfolios. NSP declines reflect the sales of higher yielding portfolios. Interest expense was relatively flat compared to the 2013 periods, but the year-ago quarter included $8 million of accelerated debt FSA accretion, while the 2014 second quarter had a net benefit of $7 million of debt FSA and OID accretion. At June 30, 2014, the remaining FSA discount on long-term borrowings is not significant, approximately $5 million. The weighted average coupon rate of outstanding deposits and long-term borrowings was 3.20% at June 30, 2014, down from 3.33% at March 31, 2014 and 3.39% at June 30, 2013, benefiting from a higher proportion of deposit funding. The weighted average coupon rate of long-term borrowings at June 30, 2014 was 4.44%, essentially unchanged from March 31, 2014 and down slightly from 4.52% at June 30, 2013.



Deposits represented 44% of the total deposits and long-term borrowing at June 30, 2014, while unsecured debt was 39% and secured debt was 17%. These proportions will fluctuate in the future depending upon our capital markets activities.

Deposits have increased, both in dollars and proportion of total CIT funding. The weighted average rate of total CIT deposits was 1.64%, 1.67% and 1.59% at June 30, 2014, March 31, 2014 and June 30, 2013, respectively. Deposits and long-term borrowings are also discussed in Funding and Liquidity. See Select Data and Average Balances section for more information on Long-term borrowing rates.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 45

--------------------------------------------------------------------------------

Table of Contents

The following table sets forth the details on net operating lease revenue(5). We changed the presentation of net operating lease revenue in the first quarter of 2014 and have revised the prior periods for the new presentation. A new line item reflects maintenance and other operating lease expenses associated with our operating lease equipment. Previously, maintenance costs reduced rental income, while other operating lease expenses were included with depreciation. Total net operating lease revenue did not change with the new presentation.



--------------------------------------------------------------------------------

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

Quarters Ended



--------------------------------------------------------------------------------------------------

June 30, 2014 March 31, 2014 June 30, 2013



------------------------------ ------------------------------ ------------------------------ Rental income on operating leases

$ 519.6



14.33 % $ 491.9 14.32 % $ 484.3 15.76 % Depreciation on operating lease equipment

(157.3 )



(4.34 )% (148.8 ) (4.33 )% (133.6 ) (4.35 )% Maintenance and other operating lease expenses

(49.0 ) (1.35 )% (51.6 ) (1.50 )% (40.3 ) (1.31 )% Net operating lease revenue $ 313.3 8.64 % $ 291.5 8.49 % $ 310.4 10.10 % Average Operating Lease Equipment ("AOL") $ 14,505.9$ 13,735.8$ 12,295.8 Six Months Ended June 30,



----------------------------------------------------------------

2014 2013



------------------------------ ------------------------------ Rental income on operating leases

$



1,011.5 14.31 % $ 960.7 15.57 % Depreciation on operating lease equipment

(306.1 ) (4.33 )% (266.9 ) (4.32 )% Maintenance and other operating lease expenses

(100.6 ) (1.42 )% (82.7 ) (1.34 )% Net operating lease revenue $ 604.8 8.56 % $ 611.1 9.91 % Average Operating Lease Equipment ("AOL") $ 14,137.0$ 12,338.4 Net operating lease revenue was primarily generated from the commercial air and rail portfolios. Net operating lease revenue was essentially flat with the prior-year quarter, as the benefit of increased assets from the growing aerospace and rail portfolios offset lower rental rates, higher depreciation expense and increased maintenance and other operating lease expenses. Rental income increased from the year-ago periods as did depreciation expense, reflecting the growing portfolio. The increase from 2013 in maintenance and other operating lease expenses reflects the growing rail portfolio, and aerospace remarketing expenses resulting from the elevated levels of aircraft re-leasing activity in 2014. During the quarter, on average, lease renewal rates in the rail portfolio were re-pricing slightly higher, while the commercial air portfolio has been re-pricing slightly lower, putting pressure on overall rental revenue, compared to the 2013 periods. These factors are also reflected in the net operating lease revenue as a percent of AOL. The sequential improvement reflects higher AOL and slightly lower maintenance and operating lease expenses. We expect costs related to the remarketing of aircraft, which are reflected in operating lease expenses, to remain at a level in the second half of 2014 that is consistent with the first half. The 2014 first quarter European rail acquisition also impacted net yields, as the acquired portfolio's net yields were lower. Utilization and asset levels remained strong in 2014. All but one of our commercial aircraft was leased, or under a commitment. Including commitments, rail fleet utilization was 98% at June 30, 2014, at about the same level as last quarter and June 30, 2013.



All but one new aircraft delivery scheduled for the next twelve months are placed. We expect delivery of approximately 4,600 railcars from our order book over the next twelve months, essentially all of which are placed.

Depreciation on operating lease equipment increased from the prior-year and prior quarters in amount, reflecting higher asset balances and lower suspended depreciation (compared to the year-ago quarter), but remained relatively flat as a % of AOL. Net operating lease revenue includes rental income on operating lease equipment classified as AHFS, but there is no related depreciation expense. Once a long-lived asset is classified as AHFS, depreciation expense is no longer recognized, but the asset is evaluated periodically for impairment with any such charge recorded in other income. (See "Non-interest Income - Impairment on assets held for sale" for discussion on impairment charges). As such, the year-ago quarter benefited from suspended depreciation, primarily in NSP as a result of certain operating lease equipment being recorded as AHFS. The amount of suspended depreciation on operating lease equipment in AHFS totaled $4 million for the second quarter of 2014, $24 million for the year-ago quarter and $3 million for the prior quarter. Year-to-date, the amount of suspended depreciation totaled $7 million, down from $49 million in 2013. The decreases from 2013 primarily reflect the sale of the Dell Europe portfolio in the second half of 2013.



Operating lease equipment in AHFS totaled $223 million at June 30, 2014, $448 million at June 30, 2013, and $46 million at March 31, 2014.

See "Non-interest Income - Impairment on assets held for sale", "Expenses - Depreciation on operating lease equipment" and "Concentrations - Operating Leases"for additional information.

--------------------------------------------------------------------------------

(5) Net operating lease revenue and average operating lease equipment are non-GAAP measures; see reconciliation of non-GAAP to GAAP financial information. 46 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

CREDIT METRICS

Credit metrics remain at or near cyclical lows, and given current levels, sequential quarterly movements in non-accrual loans and charge-offs are subject to volatility as individual larger accounts migrate in and out of non-accrual status or get resolved. Net charge-offs were $21 million, or 0.45% of average finance receivables (AFR), versus $29 million (0.63%) in the year-ago quarter and $36 million (0.76%) in the prior quarter. Recoveries of $8 million were lower than the $19 million recorded in the year-ago quarter and essentially flat with the prior quarter. Net charge-offs in TIF of $13 million (1.48%) include $9 million related to the transfer of receivables to AHFS. TIF had a net recovery of $1 million (0.12%) a year-ago and net charge-offs of $13 million (1.47%) in the prior quarter. Net charge-offs in NACF were $9 million, (0.23%), up from $4 million (0.12%) a year-ago and below $16 million (0.43%) in the prior quarter. NSP had a net recovery of $1 million, compared to a net charge-off of $26 million in the year-ago quarter and $7 million in the prior quarter, as both prior periods were impacted by the transfer of receivables to AHFS. Non-accrual loans declined to $190 million (1.02% of Finance receivables) from $279 million (1.53%) at June 30, 2013 and $241 million (1.29%) at December 31, 2013. The decrease reflects repayments, charge-offs, as well as returns to accrual status where appropriate, and the sale of the Small Business Lending unit.



The provision for credit losses was $10 million, down from $15 million in the year-ago quarter and $37 million in the prior quarter, reflecting lower net charge-offs and lower reserve build due to portfolio composition.

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, 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 losses inherent in non-impaired loans utilizing the Company's internal probability of default/loss given default ratings system, generally with a two year loss emergence period assumption, to determine estimated loss levels, and (3) a qualitative adjustment to the non-specific reserve for economic risks, industry and geographic concentrations, and other factors not adequately captured in our methodology. Our policy is to recognize losses through charge-offs when there is a high likelihood of loss after considering the borrower's financial condition, underlying collateral and guarantees, and the finalization of collection activities. For all presentation periods, qualitative adjustments largely related to instances where management believed that the Company's current risk ratings in selected portfolios did not yet fully reflect the corresponding inherent risk. The qualitative adjustments did not exceed 10% of the total allowance for any of such periods and are recorded by class and included in the allowance for loan losses.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 47

--------------------------------------------------------------------------------

Table of Contents

The following table presents detail on our allowance for loan losses, including charge-offs and recoveries and provides summarized components of the provision and allowance:



--------------------------------------------------------------------------------

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

Quarters Ended

-------------------------------------------------- Six Months Ended

June 30, June 30, March 31, June 30, -------------------------- 2014 2014 2013 2014 2013 --------------



-------------- -------------- ----------- ----------- Allowance - beginning of period

$ 352.6 $



356.1 $ 386.0$ 356.1$ 379.3 Provision for credit losses(1)

10.2 36.7 14.6 46.9 34.1 Other(1) (0.6 ) (4.6 ) (4.3 ) (5.2 ) (7.6 ) Net additions 9.6 32.1 10.3 41.7 26.5 Gross charge-offs(2) (29.1 ) (44.4 ) (48.1 ) (73.5 ) (72.4 ) Recoveries 7.9 8.8 19.0 16.7 33.8 Net Charge-offs (21.2 ) (35.6 ) (29.1 ) (56.8 ) (38.6 ) Allowance - end of period $ 341.0 $



352.6 $ 367.2$ 341.0$ 367.2 Loans Transportation & International Finance

$ 3,228.3$ 3,553.5$ 3,114.6 North American Commercial Finance 15,376.1 14,902.8 14,049.1 Non-Strategic Portfolios - 115.4 991.6 Total loans $ 18,604.4$ 18,571.7$ 18,155.3 Allowance Transportation & International Finance $ 39.7$ 45.7$ 41.6 North American Commercial Finance 301.3 306.9 307.5 Non-Strategic Portfolios - - 18.1 Total allowance $ 341.0$ 352.6$ 367.2 Provision for Credit Losses



--------------------------------------------------------------------------

Quarters Ended



Allowance for Loan Losses

-------------------------------------------- Six Months Ended

----------------------------------

June 30, June 30, March 31, June 30, -------------------------- June 30, December 31, 2014 2014 2013 2014 2013 2014 2013 ------------



------------ ------------ ----------- ----------- --------------- -------------- Specific reserves on impaired loans

$ (3.5 )$ (4.7 )$ 1.3$ (8.2 )$ (2.3 )$ 22.2$ 30.4 Non-specific reserves (7.5 ) 5.8 (15.8 ) (1.7 ) (2.2 ) 318.8 325.7 Net charge-offs 21.2 35.6 29.1 56.8 38.6 - - Total $ 10.2$ 36.7$ 14.6$ 46.9$ 34.1$ 341.0$ 356.1 Allowance for loan losses as a percentage of total loans 1.83 % 1.91 %



(1) Includes amounts related to reserves on unfunded loan commitments and letters

of credit, and for deferred purchase agreements, which are reflected in other

liabilities, as well as foreign currency translation adjustments. These

related other liabilities totaled $31 million, $28 million and $27 million at

June 30, 2014, December 31, 2013 and June 30, 2013, respectively.



(2) Gross charge-offs included $12 million, $14 million and $21 million related to

the transfer of receivables to assets held for sale for the quarters ended

June 30, 2014, March 31, 2014, and June 30, 2013, respectively. Year to date,

gross charge-offs include $26 million in 2014 and $22 million in 2013 related

to the transfer of receivables to assets held for sale. 48 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

The allowance rate reflects the relatively benign credit environment. Reserves in both TIF and NACF segments have continued to decline, reflective of the current credit environment. NSP currently carries no reserves, as the portfolio consists entirely of AHFS. The decline in specific reserves is consistent with reduced non-accrual inflows and balances.



--------------------------------------------------------------------------------

Segment Finance Receivables and Allowance for Loan Losses (dollars in millions) --------------------------------------------------------------------------------

Allowance Net Finance for Loan Carrying Receivables Losses Value -------------- ------------ -------------- June 30, 2014 Transportation & International Finance $ 3,228.3$ (39.7 )$ 3,188.6 North American Commercial Finance 15,376.1 (301.3 ) 15,074.8 Non-Strategic Portfolios - - - Total $ 18,604.4$ (341.0 )$ 18,263.4 December 31, 2013 Transportation & International Finance $ 3,494.4$ (46.7 )$ 3,447.7 North American Commercial Finance 14,693.1 (303.8 ) 14,389.3 Non-Strategic Portfolios 441.7 (5.6 ) 436.1 Total $ 18,629.2$ (356.1 )$ 18,273.1



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 49

--------------------------------------------------------------------------------

Table of Contents

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

--------------------------------------------------------------------------------

Charge-offs as a Percentage of Average Finance Receivables by Class (dollars in millions) -------------------------------------------------------------------------------- Quarters Ended Six Months Ended June 30,



------------------------------------------------------------------------------------

--------------------------------------------------------

June 30, 2014 March 31, 2014 June 30, 2013 2014 2013 -------------------------- ------------------------ -------------------------- -------------------------- -------------------------- Gross Charge-offs(1) Transportation Finance $ - - $ - - $ - - $ - - $ - - International Finance 15.9 4.23 % 14.3 3.35 % 1.3 0.37 % 30.2 3.78 % 5.5 0.83 % Transportation & International Finance 15.9 1.79 % 14.3 1.61 % 1.3 0.17 % 30.2 1.70 % 5.5 0.38 % Corporate Finance 4.0 0.22 % 10.4 0.60 % 8.1 0.49 % 14.4 0.41 % 12.7 0.39 % Equipment Finance 8.3 0.83 % 9.2 0.91 % 8.5 0.86 % 17.5 0.88 % 17.3 0.90 % Commercial Services 0.9 0.15 % 3.0 0.53 % 0.7 0.13 % 3.9 0.34 % 1.5 0.13 % North American Commercial Finance 13.2 0.35 % 22.6 0.61 % 17.3 0.50 % 35.8 0.48 % 31.5 0.46 % Non-Strategic Portfolios - - 7.5 9.94 % 29.5 8.17 % 7.5 5.29 % 35.4 4.84 % Total $ 29.1 0.62 % $ 44.4 0.95 % $ 48.1 1.04 % $ 73.5 0.78 % $ 72.4 0.80 % Recoveries Transportation Finance $ 0.2 0.05 % $ - - $ 0.1 0.04 % $ 0.2 0.03 % $ 0.1 0.02 % International Finance 2.6 0.69 % 1.3 0.28 % 2.1 0.60 % 3.9 0.48 % 5.2 0.79 % Transportation & International Finance 2.8 0.31 % 1.3 0.14 % 2.2 0.29 % 4.1 0.23 % 5.3 0.37 % Corporate Finance 0.4 0.02 % 0.1 0.01 % 0.9 0.06 % 0.5 0.02 % 1.5 0.05 % Equipment Finance 3.5 0.36 % 5.2 0.51 % 10.9 1.11 % 8.7 0.44 % 16.1 0.84 % Commercial Services 0.5 0.07 % 1.3 0.23 % 1.2 0.21 % 1.8 0.15 % 3.8 0.32 % North American Commercial Finance 4.4 0.12 % 6.6 0.18 % 13.0 0.38 % 11.0 0.15 % 21.4 0.31 % Non-Strategic Portfolios 0.7 3.16 % 0.9 1.17 % 3.8 1.04 % 1.6 1.07 % 7.1 0.97 % Total $ 7.9 0.17 % $ 8.8 0.19 % $ 19.0 0.41 % $ 16.7 0.18 % $ 33.8 0.37 % Net Charge-offs(1) Transportation Finance $ (0.2 ) (0.05 )% $ - - $ (0.1 ) (0.04 )% $ (0.2 ) (0.03 )% $ (0.1 ) (0.02 )% International Finance 13.3 3.54 % 13.0 3.07 % (0.8 ) (0.23 )% 26.3 3.30 % 0.3 0.04 % Transportation & International Finance 13.1 1.48 % 13.0 1.47 % (0.9 ) (0.12 )% 26.1 1.47 % 0.2 0.01 % Corporate Finance 3.6 0.20 % 10.3 0.59 % 7.2 0.43 % 13.9 0.39 % 11.2 0.34 % Equipment Finance 4.8 0.47 % 4.0 0.40 % (2.4 ) (0.25 )% 8.8 0.44 % 1.2 0.06 % Commercial Services 0.4 0.08 % 1.7 0.30 % (0.5 ) (0.08 )% 2.1 0.19 % (2.3 ) (0.19 )% North American Commercial Finance 8.8 0.23 % 16.0 0.43 % 4.3 0.12 % 24.8 0.33 % 10.1 0.15 % Non-Strategic Portfolios (0.7 ) (3.16 )% 6.6 8.77 % 25.7 7.13 % 5.9 4.22 % 28.3 3.87 % Total $ 21.2 0.45 % $ 35.6 0.76 % $ 29.1 0.63 % $ 56.8 0.60 % $ 38.6 0.43 %



(1) TIF charge-offs included $9 million and $3 million related to the transfer of

receivables to assets held for sale for the quarters ended June 30, 2014 and

March 31, 2014, respectively, and none for the year-ago quarter or six month

period. NACF charge-offs included $3 million and $4 million related to the

transfer of receivables to assets held for sale for the quarters ended June

30, 2014 and March 31, 2014, respectively, and $2 million for the six months

ended June 30, 2013. NSP charge-offs included approximately $7 million and $21

million, respectively, related to the transfer of receivables to assets held

for sale for the quarters ended March 31, 2014 and June 30, 2013 and $7

million and $21 million for the six months ended June 30, 2014 and 2013.

Charge-offs remain at relatively low levels absent the amount related to assets transferred to AHFS. While current quarter charge-offs are consistent with longer term trends, the higher charge-offs in the first quarter of 2014 are reflective of the episodic volatility that is to be expected with credit metrics at such low levels and does not represent a change in the credit quality of the portfolio. Recoveries are down in amount from prior periods and are expected to continue to decline as the low level of more recent charge-offs afford fewer opportunities for recoveries. Additionally, charge-offs associated with AHFS do not generate future recoveries as the loans are generally sold before recoveries can be realized. 50 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

The tables below present information on non-performing loans, which includes non-performing loans related to AHFS for each period:

--------------------------------------------------------------------------------

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

June 30, December 31, 2014 2013 ----------- -------------- Non-accrual loans U.S. $ 120.7$ 176.3 Foreign 69.7 64.4 Non-accrual loans $ 190.4$ 240.7 Troubled Debt Restructurings U.S. $ 158.1$ 218.0 Foreign 4.7 2.9 Restructured loans $ 162.8$ 220.9 Accruing loans past due 90 days or more Total accruing loans past due 90 days or more $ 10.6$ 9.9



--------------------------------------------------------------------------------

Non-accrual Loans as a Percentage of Finance Receivables by Class (dollars in millions) -------------------------------------------------------------------------------- June 30, 2014 December 31, 2013 ------------------------- -------------------------- Transportation Finance $ 15.1 0.71 % $ 14.3 0.81 % International Finance 25.7 2.32 % 21.0 1.21 % Transportation & International Finance 40.8 1.26 % 35.3 1.01 % Corporate Finance 58.9 0.81 % 83.8 1.23 % Equipment Finance 73.4 1.79 % 59.4 1.47 % Commercial Services - - 4.2 0.19 % North American Commercial Finance 132.3 0.86 % 147.4 1.00 % Non-Strategic Portfolios 17.3 (1 ) 58.0 13.14 % Total $ 190.4 1.02 % $ 240.7 1.29 %



(1) Non-accrual loans include loans held for sale. The June 2014 NSP amount

reflected non-accrual loans held for sale; there were no portfolio loans,

therefore no % is displayed.

Non-accrual loans declined from the prior period, both in amount and as a percentage of finance receivables. The improvements reflect the sale of the Small Business Lending unit in NSP, as well as repayments, charge-offs, and returns to accrual status.

Approximately 55% of our non-accrual accounts were paying currently at June 30, 2014, and our impaired loan carrying value (including specific reserves and charge-offs) to estimated outstanding contractual balances approximated 85%. For this purpose, impaired loans are comprised principally of non-accrual loans over $500,000 and TDRs. Total delinquency (30 days or more) increased to 1.75% of finance receivables compared to 1.68% last quarter, but remains below the recent high of 1.95% at December 2013 when non-credit (administrative) delinquencies in the Equipment Finance portfolio resulted in an increase from prior periods.



--------------------------------------------------------------------------------

Foregone Interest on Non-accrual Loans and Troubled Debt Restructurings (dollars in millions) -------------------------------------------------------------------------------- Six Months Ended June 30, 2014 Six Months Ended June 30, 2013 ---------------------------------------- ---------------------------------------- U.S. Foreign Total U.S. Foreign Total ------------ ---------- ---------- ------------ ---------- ---------- Interest revenue that would have been earned at original terms $ 17.0$ 6.3$ 23.3$ 41.0$ 6.4$ 47.4 Less: Interest recorded (5.9 ) (0.6 ) (6.5 ) (8.1 ) (1.2 ) (9.3 ) Foregone interest revenue $ 11.1$ 5.7$ 16.8$ 32.9$ 5.2$ 38.1 The Company periodically modifies the terms of loans/finance receivables in response to borrowers' difficulties. Modifications that include a financial concession to the borrower, which otherwise would not have been considered, are accounted for as troubled debt restructurings ("TDRs"). For those accounts that were modified but were not considered to be TDRs, it was determined that no concessions had been granted by CIT to the borrower. Borrower compliance with the modified terms is the primary measurement that we use to determine the success of these programs.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 51

--------------------------------------------------------------------------------

Table of Contents

The tables that follow reflect loan carrying values as of June 30, 2014 and December 31, 2013 of accounts that have been modified.

--------------------------------------------------------------------------------

Troubled Debt Restructurings and Modifications (dollars in millions) --------------------------------------------------------------------------------

June 30, 2014 December 31, 2013 -------------------------- -------------------------- % % Compliant Compliant ----------- ----------- Troubled Debt Restructurings(1) Deferral of principal and/or interest $ 150.5 100 % $ 194.6 99 % Debt forgiveness - - 2.4 77 % Covenant relief and other 12.3 80 % 23.9 74 % Total TDRs $ 162.8 98 % $ 220.9 96 % Percent non-accrual 22% 33% % % Compliant Compliant ----------- ----------- Modifications(1) Extended maturity $ 0.1 100 % $ 14.9 37 % Covenant relief 114.1 100 % 50.6 100 % Interest rate increase/additional collateral 10.9 100 % 21.8 100 % Other 65.5 100 % 62.6 87 % Total Modifications $ 190.6 100 % $ 149.9 91 % Percent non-accrual 7% 23%



(1) Table depicts the predominant element of each modification, which may contain

several of the characteristics listed.

See Note 3 - Loans for additional information regarding TDRs and other credit quality information.

--------------------------------------------------------------------------------

NON-INTEREST INCOME

--------------------------------------------------------------------------------

Non-interest Income (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

----------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, ------------------------------ 2014 2014 2013 2014 2013 ----------- ----------- ----------- ------------- ------------- Rental income on operating leases $ 519.6$ 491.9$ 484.3$ 1,011.5$ 960.7 Other Income: Factoring commissions $ 28.3$ 28.6$ 29.0$ 56.9$ 59.0 Fee revenues 21.8 21.6 27.4 43.4 47.8 Gains on sales of leasing equipment 16.0 8.4 33.8 24.4 56.1 Counterparty receivable accretion 8.7 2.0 1.9 10.7 4.8 Recoveries of loans charged off pre-emergence and loans charged off prior to transfer to held for sale 5.0 5.2 6.3 10.2 10.5 Gain on investments 5.6 3.5 1.2 9.1 3.6 Gains (losses) on loan and portfolio sales 4.5 3.5 (4.5 ) 8.0 1.0 Gains (losses) on derivatives and foreign currency exchange 8.3 (7.1 ) 2.4 1.2 1.8 Impairment on assets held for sale (14.3 ) (1.1 ) (22.1 ) (15.4 ) (44.7 ) Other revenues 9.8 6.5 3.8 16.3 9.3 Total other income 93.7 71.1 79.2 164.8 149.2 Total non-interest income $ 613.3$ 563.0$ 563.5$ 1,176.3$ 1,109.9



Non-interest Income includes Rental Income on Operating Leases and Other Income.

Rental income on operating leases from equipment we lease is recognized on a straight line basis over the lease term. Rental income is discussed in "Net Finance Revenues" and "Results by Business Segment". See also "Concentrations - Operating Leases" for additional information on operating leases.



Other income increased from the prior quarter and the year-ago quarter reflecting the following:

Factoring commissions were down slightly from both the year-ago and prior quarters, and down modestly year-to-date as changes in the underlying portfolio mix offset increased year-to-date factoring volume. Factoring volume was $6.3 billion for the current and prior quarter and $6.0 billion for the year-ago quarter.



52 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

Fee revenues include fees on lines of credit and letters of credit, capital markets-related fees, agent and advisory fees, and servicing fees for the loans we sell but retain servicing. Fee revenues are mainly driven by our NACF segment. The prior year quarter included modestly higher fees from capital markets activities. NSP segment fee revenues generated for servicing the small business lending ("SBL") portfolio totaled approximately $2 million each in the current and prior quarters and $3 million for the year-ago quarter. These fees will no longer be earned as the sale of the SBL portfolio was completed in June 2014. Gains on sales of leasing equipment resulted from approximately $125 million of equipment sales in the second quarter of 2014, $255 million in the prior quarter and $420 million in the year-ago quarter. Gains as a percentage of equipment sold increased from last quarter and the year-ago quarter and will vary based on the type and age of equipment sold. The carrying amount of equipment sold for the second quarter 2014 included approximately $80 million in NACF and $35 million in TIF (which generated 50% of the gains). The carrying amount of equipment sold for the prior quarter consisted of approximately $185 million in TIF (which generated 50% of the gains) and $70 million in NACF. The carrying amount of equipment sold for the year-ago quarter consisted of approximately $340 million in TIF (which generated 80% of the gains in the quarter), $75 million in NACF and $5 million in NSP. Counterparty receivable accretion relates to the FSA accretion of a fair value discount on the receivable from Goldman Sachs International ("GSI") related to the GSI Facilities, which are total return swaps (as discussed in Funding and Liquidity and Note 6 - Long-term Borrowings and Note 7 - Derivative Financial Instruments). The discount is accreted into income over the expected term of the payout of the associated receivables. The current quarter includes acceleration of accretion of the remaining balance of FSA counterparty receivable, reflecting the restructuring of two aircraft securitization facilities. There was no remaining FSA on the counterparty receivable at June 30, 2014. Recoveries of loans charged off pre-emergence and loans charged off prior to transfer to held for sale reflects repayments or other workout resolutions on loans charged off prior to emergence from bankruptcy and loans charged off prior to classification as held for sale. These recoveries are recorded as other income, unlike recoveries on loans charged off after our restructuring, which are recorded as a reduction to the provision for loan losses.



Gains on investments reflected sales of equity investments, primarily in NACF.

Gains on loan and portfolio sales in the second quarter of 2014 reflected approximately $440 million of sales, with approximately $300 million in NSP, primarily as a result of the SBL sale (gains on which were minimal), $95 million in NACF, and $45 million in TIF. The prior quarter sales totaled approximately $150 million of sales, which included approximately $70 million in NACF, $65 million in NSP, and $15 million in TIF. The year-ago quarter sales included approximately $55 million, which consisted of approximately $35 million in NSP and $15 million in NACF. NSP incurred a loss on portfolio sales in the year-ago quarter related to international platform rationalization which resulted in a $5 million loss primarily due to the recognition of foreign currency translations that were previously recorded in OCI. Gains (losses) on derivatives and foreign currency exchange in the current quarter include gains of $11 million related to the valuation of the derivatives within the GSI facility, as compared to a loss of $(2) million last quarter and a loss of $(5) million in the year-ago quarter. Activity also includes the impact of transactional foreign currency movements, which resulted in gains of $41 million in the second quarter of 2014, as the US dollar weakened against other currency exposures, and losses of $(41) million and $(26) million in the prior and year-ago quarters, respectively. The impact of these transactional foreign currency movements were partially offset by losses of $(44) million in the second quarter of 2014 and gains of $37 million and $33 million in the prior and year-ago quarters, respectively, on derivatives that economically hedge foreign currency movements and other exposures. Gains and losses from realization of cumulative translation adjustment (CTA) were not significant for the current quarter or year-ago and prior quarters. For additional information on the impact of derivatives on the income statement, please refer to Note 7 - Derivative Financial Instruments. Impairment on assets held for sale in the second quarter of 2014 of $14 million reflects $10 million from TIF, with $5 million related to commercial aircraft operating leases and the remainder related to the transfer of an international portfolio to AHFS. The prior quarter impairment of $1 million reflects minor amounts in TIF and NSP impairment charges. The prior year quarter included $22 million of charges related to NSP including $21 million related to NSP Europe assets, essentially all of which related to operating lease equipment for which there was a similar offsetting benefit in depreciation expense. When a long-lived asset is classified as held for sale, depreciation expense is suspended and the asset is evaluated periodically for impairment, with any such charge recorded in other income. (See Expenses for related discussion of Depreciation on operating lease equipment.) Other revenues include items that are more episodic in nature, such as proceeds received in excess of carrying value on non-accrual accounts held for sale, which were repaid or had another workout resolution, and insurance proceeds in excess of carrying value on damaged leased equipment, and also includes income from joint ventures.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 53

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

EXPENSES

--------------------------------------------------------------------------------

Other Expenses (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

-------------------------------------------- Six Months Ended

June 30, June 30, March 31, June 30, ---------------------------- 2014 2014 2013 2014 2013 ------------



------------ ------------ ------------ ------------ Depreciation on operating lease equipment

$ (157.3 )$ (148.8 )$ (133.6 )$ (306.1 )$ (266.9 ) Maintenance and other operating lease expenses (49.0 ) (51.6 ) (40.3 ) (100.6 ) (82.7 ) Operating expenses: Compensation and benefits $ (125.7 )$ (138.9 )$ (135.8 )$ (264.6 )$ (272.6 ) Technology (20.8 ) (21.1 ) (20.1 ) (41.9 ) (39.9 ) Professional fees (16.9 ) (18.0 ) (12.1 ) (34.9 ) (30.5 ) Net occupancy expense (8.5 ) (8.9 ) (8.6 ) (17.4 ) (18.0 ) Advertising and marketing (8.3 ) (7.9 ) (6.3 ) (16.2 ) (14.0 ) Provision for severance and facilities exiting activities (5.6 ) (9.9 ) (9.5 ) (15.5 ) (15.2 ) Other expenses (39.2 ) (28.8 ) (33.7 ) (68.0 ) (66.8 ) Total operating expenses (225.0 ) (233.5 ) (226.1 ) (458.5 ) (457.0 ) Loss on debt extinguishments (0.4 ) - - (0.4 ) - Total other expenses $ (431.7 )$ (433.9 )$ (400.0 )$ (865.6 )$ (806.6 ) Headcount 3,170 3,200 3,420 Depreciation on operating lease equipment is recognized on owned equipment over the lease term or estimated useful life of the asset. Depreciation expense is primarily driven by the TIF operating lease equipment portfolio, which includes long-lived assets such as aircraft and railcars. To a lesser extent, depreciation expense includes amounts on smaller ticket equipment, such as office equipment. Impairments recorded on equipment held in portfolio are reported as depreciation expense. AHFS also impacts the balance (as depreciation expense is suspended on operating lease equipment once it is transferred to AHFS). Depreciation expense is discussed further in "Net Finance Revenues," as it is a component of our asset margin. See "Non-interest Income" for impairment charges on operating lease equipment classified as held for sale. Maintenance and other operating lease expenses primarily relate to the TIF operating lease portfolio. Prior to 2014 these maintenance expenses were included as a reduction to rental income on operating leases, while other operating lease expenses were recorded as an increase to depreciation expense on operating lease equipment. The majority of the maintenance expenses are railcar fleet related. CIT Rail provides railcars primarily pursuant to full-service lease contracts under which CIT Rail as lessor is responsible for railcar maintenance and repair. Under our aircraft leases, the lessee is generally responsible for normal maintenance and repairs, airframe and engine overhauls, compliance with airworthiness directives, and compliance with return conditions of aircraft on lease. As a result, aircraft operating lease expenses primarily relate to transition costs incurred in connection with re-leasing an aircraft.



The increase in maintenance and other operating lease expenses from the prior year reflects the growing rail portfolio and aerospace remarketing expenses resulting from the elevated levels of aircraft re-leasing activity in 2014.

Operating expenses were essentially flat as compared to the year-ago periods and down 4% sequentially, as the decline in compensation and benefits was offset by higher Bank deposit-raising costs and 2014 included amounts related to the European rail business that was acquired during the first quarter. Operating expenses include Bank deposit-raising costs, which totaled $14 million in the second quarter of 2014, compared to $8 million for the year-ago quarter and $13 million for the prior quarter. These are reflected across various expense categories, but mostly within advertising and marketing and in other expenses, reflecting deposit insurance costs. Year-to-date, the deposit-raising costs were $27 million for 2014 and $17 million in 2013. Operating expenses reflect the following changes:



Compensation and benefits decreased from the 2013 quarter and six months, as

we made progress on various expense initiatives and reduced headcount by

approximately 250 from June 30, 2013. The sequential decline also includes

normalization of employee benefit costs that restart at the beginning of each

year.



Professional fees include legal and other professional fees such as tax,

audit, and consulting services and were flat compared to the prior quarters

and six month periods. The year-ago quarter benefited from a workout-related

settlement.



Advertising and marketing expenses include CIT Bank advertising and marketing

costs associated with raising deposits, which totaled $5 million in the

second quarter of 2014, $4 million in the year-ago quarter, and $6 million in

the prior quarter. Year-to-date, CIT Bank advertising and marketing costs

totaled $11 million in 2014 and $9 million in 2013.



Provision for severance and facilities exiting activitiesreflects employee

termination charges and other costs associated with various organization

efficiency initiatives. 54 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

Other expenses include items such as travel and entertainment, insurance,

FDIC costs, office equipment and supply costs and taxes (other than income

taxes). About half of the sequential increase was due to higher miscellaneous

taxes and FDIC costs.

We continue to make progress reducing non-strategic portfolios, and have exited all the sub-scale countries in Asia, and several in Latin America and Europe. In April 2014 we sold the remaining student lending business, and in June closed the sale of the remaining SBL portfolio. During the 2014 second quarter we moved an international portfolio in TIF to AHFS. Our primary focus is on exiting Brazil, Mexico and smaller portfolios in Europe. The primary driver for our cost reductions will be the exit of our non-strategic portfolios, which will eliminate about $15 million from our quarterly expenses.



--------------------------------------------------------------------------------

FRESH START ACCOUNTING

Upon emergence from bankruptcy in 2009, CIT applied Fresh Start Accounting (FSA) in accordance with GAAP. FSA had a significant impact on our operating results in prior years but the impact has significantly lessened. NFR includes the accretion of the FSA adjustments to the loans, leases and debt, as well as to depreciation and, to a lesser extent rental income related to operating lease equipment. The most significant remaining discount at June 30, 2014, related to operating lease equipment ($1.4 billion related to rail operating lease equipment and $0.8 billion to aircraft operating lease equipment). The discount on the operating lease equipment was, in effect, an impairment of the operating lease equipment upon emergence from bankruptcy, as the assets were recorded at their fair value, which was less than their carrying value. The recording of the FSA adjustment reduced the asset balances subject to depreciation and thus decreases depreciation expense over the remaining useful life of the operating lease equipment or until it is sold. At June 30, 2014 the remaining accretable balance on loans was $27 million, and is expected to accrete into income within the next 2 years. The remaining FSA discount on borrowings at June 30, 2014 was $5 million, down from $44 million at March 31, 2014. The decline resulted from the redemption of borrowings secured by aircraft during the second quarter, which resulted in the acceleration of FSA discount of $35 million. Also, the $9 million FSA discount on the counterparty receivable at March 31, 2014 was accelerated in conjunction with the debt redemptions and recorded in other income. At June 30, 2014 there was no remaining FSA discount on the counterparty receivable.



--------------------------------------------------------------------------------

INCOME TAXES

--------------------------------------------------------------------------------

Income Tax Data (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

--------------------------------------- Six Months Ended

June 30, June 30, March 31, June 30, ------------------------ 2014 2014 2013 2014 2013 ---------- ----------- ---------- ---------- ---------- Provision for income taxes, before discrete items $ 15.4$ 10.2$ 7.6$ 25.6$ 25.7 Discrete items 2.7 3.3 21.7 6.0 16.4 Provision for income taxes $ 18.1$ 13.5$ 29.3$ 31.6$ 42.1 Effective tax rate 8.3 % 11.0 % 14.3 % 9.2 % 11.3 % The Company's second quarter and six months ended June 30, 2014 income tax provision from continuing operations was $18.1 million and $31.6 million, respectively. This compares to $29.3 million in the year-ago second quarter, $42.1 million in the year-ago six months period, and $13.5 million last quarter. Excluding discrete items, the income tax provisions primarily reflected income tax expense on the earnings of certain international operations and state income tax expense in the U.S. The higher year-ago second quarter income tax provision was primarily driven by net discrete tax items of $22 million, of which approximately $24 million related to the establishment of valuation allowances on certain international deferred tax assets due to our international platform rationalizations. Included in the year-ago six months period income tax provision was approximately $16 million of net discrete tax expense that primarily related to the establishment of aforementioned valuation allowances partially offset by incremental tax benefits associated with favorable settlements of prior year international tax audits. The change in the effective tax rate each period is impacted by a number of factors, including the relative mix of domestic and foreign earnings, adjustments to the valuation allowances, and discrete items. The actual year-end 2014 effective tax rate may vary from the currently projected tax rate due to changes in these factors.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 55

--------------------------------------------------------------------------------

Table of Contents

The Company has not recognized any tax benefit on its prior year domestic losses and certain prior year foreign losses due to uncertainties related to its ability to realize its net deferred tax assets in the future. Due to these uncertainties, combined with the recent three years of cumulative losses by certain domestic and foreign reporting entities, the Company has concluded that it does not currently meet the criteria to recognize its net deferred tax assets, inclusive of the deferred tax assets related to NOLs in these entities. Accordingly, the Company maintained a valuation allowance of $1.5 billion against its net deferred tax assets at December 31, 2013. Of the $1.5 billion valuation allowance, approximately $1.3 billion relates to domestic reporting entities and $211 million relates to foreign reporting entities. Management's decision to maintain the valuation allowances on certain reporting entities' net deferred tax assets requires significant judgment and an analysis of all the positive and negative evidence regarding the likelihood that these future benefits will be realized. ASC 740-10-30-18 states that "future realization of the tax benefit of an existing deductible temporary difference or NOL carry-forward ultimately depends on the existence of sufficient taxable income within the carryback and carry-forward periods available under the tax law." As such, the Company has considered the following potential sources of taxable income in its assessment of a reporting entity's ability to recognize its net deferred tax asset:



Taxable income in carryback years,

Future reversals of existing taxable temporary differences (deferred tax

liabilities),



Prudent and feasible tax planning strategies, and

Future taxable income forecasts.

The above types of positive evidence are weighed against other negative evidence, including a recent history of losses, in determining the need for a valuation allowance. Specifically, Management considers a reporting entity's most recent three years of cumulative losses, adjusted for any non-recurring items, as significant objective and verifiable negative evidence. Such evidence is heavily weighted and difficult to overcome and supports the need for a valuation allowance. At the point in time when any of these reporting entities transition into a cumulative three year income position, Management will take this trend into consideration along with the other aforementioned factors in its evaluation of the valuation allowances. The domestic reporting entities with net operating loss carry-forwards have been profitable in some of the most recent periods but remain in a cumulative three year loss position. In the U.S., the Company files a U.S. consolidated federal tax return and combined unitary state tax returns in various jurisdictions. Thus, the tax reporting entity for U.S. GAAP reporting purposes is the "U.S. Affiliated Group". As the loss from 2011 rolls off the three year rolling analysis and is replaced by expected profitability in 2014, Management anticipates that the "U.S. Affiliated Group" will achieve three year income position later in 2014. However, as of June 30, 2014, sustained profitability was not demonstrated and the Company did not have sufficient objective and verifiable positive evidence on which to place a significant weight on forecasts of future taxable income. Furthermore, the Company has yet to demonstrate the ability to consistently generate sufficient taxable income to utilize the NOLs and has not concluded on any prudent and feasible tax planning strategies to ensure the utilization of the U.S. NOLs before they expire. Thus, the negative evidence continues to outweigh the positive evidence, and the Company continues to maintain a full valuation allowance on these entities' net deferred tax assets. In the evaluation process related to the net deferred tax assets of the Company's foreign reporting entities, uncertainties surrounding the international business plans, the recent international platform rationalizations, and the "cumulative losses in recent years" have made it challenging to reliably project future taxable income. The primary inputs for the forecast of future taxable income will continue to be identified as the business plans for the international operations evolve, and potential tax planning strategies are identified. Thus, as of this reporting period, the negative evidence continues to outweigh the positive evidence, and the Company continues to maintain a full valuation allowance on these entities' net deferred tax assets. At the point a determination is made that it is "more likely than not" that a reporting entity will generate sufficient future taxable income to realize its respective net deferred tax assets, the Company will reduce the entity's respective valuation allowance (in full or in part), resulting in an income tax benefit in the period such a determination is made. Subsequently, income tax expense will be reported on future earnings; however there will be a minimal impact on cash taxes paid until the related NOL carry-forward is fully utilized. In addition, while GAAP equity will increase as a result of a valuation allowance reversal and recognition of the net deferred tax asset, we expect minimal benefit, if any, on regulatory capital.



See Note 10 - Income Taxes for additional information, including deferred tax assets.

--------------------------------------------------------------------------------

RESULTS BY BUSINESS SEGMENT

As discussed in our 2014 first quarter Form 10-Q, we announced organization changes that became effective January 1, 2014. Management changed our operating segments to (i) realign and simplify its businesses and organizational structure, (ii) streamline and consolidate certain business processes to achieve greater operating efficiencies, and (iii) leverage CIT's operational capabilities for the benefit of its clients and customers. Effective January 1, 2014, CIT manages its business and reports financial results in three operating segments: (1) TIF; (2) NACF; and (3) NSP.



56 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

The change in segment reporting does not affect CIT's historical consolidated results of operations. The discussions below reflect the new reporting segments, and all prior period comparisons have been conformed and are consistent with the presentation of financial information to management.



On April 25, 2014, the Company completed the sale of the student lending business. The business had previously been included in the NSP segment. All prior period data has been adjusted to reflect the student lending business as a discontinued operation.

See Note 14 - Business Segment Information for additional details.

Transportation & International Finance

TIF includes several divisions: aerospace (commercial aircraft and business aircraft), rail, and maritime finance, as well as international finance, which includes corporate lending and equipment financing businesses in China and the U.K. Revenues generated by TIF include rents collected on leased assets, interest on loans, fees, and gains from assets sold. Aerospace-Commercial Air provides leasing and financing solutions - including operating leases, capital leases, loans and structuring and advisory services - for commercial airlines worldwide. We own and finance a fleet of more than 300 commercial aircraft and have about 100 customers in approximately 50 countries. Aerospace-Business Air provides financing solutions to business jet operators. Serving clients around the globe, we provide financing that is tailored to our clients' unique business requirements. Products include term loans, leases, predelivery financing, fractional share financing and vendor/manufacturer financing. Rail offers customized leasing and financing solutions and a highly efficient, diversified fleet of railcar assets to freight shippers and carriers throughout North America and Europe. We expanded our operations to Europe through a 2014 acquisition. See "Concentrations - Leased Railcars" section.



Maritime Finance offers senior secured loans, sale-leasebacks and bareboat charters to owners and operators of oceangoing cargo vessels, including tankers, bulkers, container ships, car carriers, and offshore vessels and drilling rigs.

International Finance offers corporate lending and advisory services as well as equipment financing and leasing to small and middle market businesses in China and the U.K.



--------------------------------------------------------------------------------

Transportation & International Finance - Financial Data and Metrics (dollars in millions) --------------------------------------------------------------------------------



Quarters Ended

-------------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, -------------------------------- 2014 2014 2013 2014 2013 -------------- -------------- -------------- -------------- -------------- Earnings Summary Interest income $ 72.2$ 76.7$ 62.6$ 148.9$ 119.2 Interest expense (155.1 ) (160.7 ) (143.9 ) (315.8 ) (288.0 ) Provision for credit losses (8.3 ) (12.4 ) (3.7 ) (20.7 ) 1.9 Rental income on operating leases 485.1 459.6 423.8 944.7 841.2 Other income 10.4 7.2 26.9 17.6 43.7 Depreciation on operating lease equipment (131.6 )



(121.7 ) (106.2 ) (253.3 ) (214.2 ) Maintenance and other operating lease expenses

(49.0 ) (51.6 ) (40.2 ) (100.6 ) (82.6 ) Operating expenses (75.5 ) (79.5 ) (61.5 ) (155.0 ) (124.9 ) Income before provision for income taxes $ 148.2 $



117.6 $ 157.8$ 265.8$ 296.3 Select Average Balances Average finance receivables (AFR)

$ 3,547.0 $



3,555.0 $ 3,040.9$ 3,550.8$ 2,880.9 Average operating leases (AOL)

$ 14,234.7 $



13,457.5 $ 12,022.1$ 13,863.4$ 12,079.0 Average earning assets (AEA)

$ 18,066.2$ 17,119.7$ 15,316.4$ 17,624.8$ 15,188.3 Statistical Data Net finance margin - net finance revenue (interest and rental income, net of interest and depreciation and maintenance and other operating lease expenses) as a % of AEA 4.91 % 4.73 % 5.12 % 4.81 % 4.95 % Operating lease margin (rental income less depreciation and maintenance and other operating lease expenses) as a % of AOL 8.56 % 8.51 % 9.23 % 8.52 % 9.01 % New business volume $ 1,404.7$ 1,054.6$ 907.3$ 2,459.3$ 1,330.3 Pre-tax earnings for the quarter and year-to-date periods were down from the year-ago periods mostly due to higher operating expenses and lower gains on asset sales, partially offset by higher net finance revenue. Pre-tax earnings this quarter included a $5 million impairment upon the transfer to AHFS of an international loan portfolio of approximately $0.5 billion and a net benefit to interest expense of $7 million due to the refinancing of secured debt within the



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 57

--------------------------------------------------------------------------------

Table of Contents

TRS, while the prior year quarter included a $5 million FSA charge on debt refinancing.

Financing and leasing assets grew to $18.4 billion at June 30, 2014, up sequentially from $17.6 billion and from $15.4 billion a year ago. The sequential increase reflected growth in all divisions except International Finance with Aerospace accounting for approximately 80% of the growth. The $3.0 billion, or 19% increase from June 2013 included $1.4 billion of growth in Rail, including the European rail acquisition in the 2014 first quarter, $1.2 billion in Aerospace, and $0.3 billion in Maritime. We entered the European rail leasing market with the January 31, 2014 acquisition of Nacco, an independent full service railcar lessor in Europe, which included more than 9,500 railcars, consisting of tank cars, flat cars, gondolas and hopper cars. New business volume remained strong and asset utilization remained high. New business volume outpaced the year-ago and prior quarters and consisted of $0.9 billion of lease equipment, including the delivery of 13 aircraft and approximately 2,500 railcars and the funding of $0.5 billion of finance receivables.



Other highlights included:

Net finance revenue was $222 million, up from $196 million in the year-ago

quarter and from $202 million sequentially, primarily due to asset growth.

NFM was 4.91% compared to 5.12% in the year-ago quarter and 4.73% in the

prior quarter. Excluding the accelerated FSA and OID accretion, NFM was

4.75%, down from the prior year reflecting lower net rental yields in air,

and flat sequentially, as lower maintenance and operating lease expense

offset reduced loan prepayment benefits. Net operating lease revenue (rental income on operating leases less



depreciation on operating lease equipment and maintenance and other operating

lease expenses), which is a component of NFR, was $305 million, up from $277

million from the year-ago quarter and $286 million in the prior quarter.

Increased rent from growth in the Aerospace and Rail portfolios and combined

strong utilization offset an increase in depreciation and maintenance and

operating lease expense compared to the year-ago quarter. Net operating lease

revenue was $591 million year-to-date in 2014, up from $544 million in 2013.

The declines from 2013 in the net operating lease margin (as a % of average

operating lease equipment) reflected pressure on renewal rents on certain

aircraft, higher maintenance costs and operating lease expenses and higher

depreciation rates. We entered 2014 with approximately 50 aircraft to

remarket due to lease expirations, a level that was higher than in recent

years, and have made good progress placing these aircraft. Lease commitments

have been renewed or entered into for approximately 80% of those aircraft.

Most of these have been renewed with the existing carrier, which lowers the

remarketing costs.



At June 30, 2014, TIF had 284 commercial aircraft, and approximately 119,000

railcars and 350 locomotives on operating lease.

Utilization remained strong with all but one commercial aircraft and over 98%

of rail equipment on lease or under a commitment at June 30, 2014.

At June 30, 2014, we had 130 aircraft on order from manufacturers (down from

147 at December 31, 2013), with deliveries scheduled through 2020. We had

future purchase commitments for approximately 7,400 railcars, with scheduled

deliveries through 2016. All but one aircraft scheduled for delivery in the

next 12 months, and approximately 87% of all railcars on order, have lease

commitments. See Item 1. Consolidated Financial Statements, Note 12 -

Commitments.

In July, CIT signed memorandums of understanding with Airbus for the purchase

of 15 A330-900neo (new engine option) aircraft and five A321-200ceo (current

engine option) aircraft. Deliveries of the A330-900neo are scheduled to begin

in 2018 and deliveries of the A321-200ceo are scheduled to begin in 2015. CIT

also placed an order with Boeing for the purchase of 10 787-9 Dreamliner

aircraft, with deliveries beginning in 2018.



Other income primarily includes gains on equipment and receivable sales,

partially offset by impairment charges. For the second quarter of 2014, gains

totaled $11 million on $81 million of equipment and receivable sales,

compared to $27 million of gains on $339 million of sales in the year-ago

quarter and $4 million of gains on $199 million of sales last quarter.

Year-to-date, gains totaled $15 million on $280 million of sales in 2014 and

$42 million of gains on $474 million of sales in 2013. Gains can vary

significantly quarter to quarter, depending on various factors, including

types of equipment sold. Impairment charges totaled $10 million in the second

quarter of 2014, primarily reflecting aircraft equipment held for sale and

transfers of international assets to assets held for sale, compared to an

insignificant amount in the year-ago quarter and less than $1 million last

quarter. Year-to-date, impairment charges were $11 million in 2014 and $2

million in 2013.



Provision for credit losses was $8 million, compared to $4 million in the

year-ago quarter and $12 million in the prior quarter, reflecting

fluctuations in the international portfolio charge-offs. Non-accrual loans

were $41 million (1.26% of finance receivables) at June 30, 2014, up from 36

million (1.01%) at March 31, 2014 and $28 million (0.91%) at June 30, 2013.

Net charge-offs were $13 million (1.48% of average finance receivables) in

the second quarter of 2014, up from a net recovery in the year-ago quarter

and unchanged from the prior quarter. Charge-offs for the quarters ended June

30 and March 31, 2014, included approximately $9 million and $3 million,

respectively, related to the transfer of receivables to AHFS. The year-ago

quarter and six month balances were not significant. Net charge-offs

year-to-date were $26 million in 2014, compared to less than $1 million in

2013. Charge-offs were concentrated in the International portfolio. 58 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

Operating expenses were $76 million and $155 million for the quarter and

year-to-date 2014, up from the 2013 periods reflecting the European rail

acquisition and our continued investment in growth initiatives. Operating

expenses were down from the prior quarter, reflecting lower legal and employee costs.



North American Commercial Finance

The NACF segment is comprised of four divisions: Corporate Finance, Equipment Finance, Real Estate Finance and Commercial Services. Revenue is generated from interest earned on loans, rents on leases, fees and other revenue from lending activities and capital markets transactions, and commissions earned on factoring and related activities. Corporate Finance provides a range of financing options and offers advisory services to small and medium size companies. Its core products include both loan and fee-based products. Loans offered are primarily senior secured loans collateralized by accounts receivable, inventory, machinery & equipment and/or intangibles that are often used for working capital, plant expansion, acquisitions or recapitalizations. These loans include revolving lines of credit and term loans and, depending on the nature and quality of the collateral, may be referred to as asset-based loans or cash flow loans. We provide financing to customers in a wide range of industries, including Commercial & Industrial, Communications, Media & Entertainment, Energy and Healthcare. Equipment Finance provides leasing and equipment loan solutions to small businesses and middle market companies in a wide range of industries. We provide financing solutions for our borrowers and lessees, and assist manufacturers and distributors in growing sales, profitability and customer loyalty by providing customized, value-added finance solutions to their commercial clients. We offer both capital and operating leases. Real Estate Finance provides senior secured commercial real estate loans to developers and other commercial real estate professionals. We focus on stable, cash flowing properties and originate construction loans to highly experienced and well capitalized developers. Commercial Services provides factoring, receivable management products, and secured financing to businesses (our clients, generally manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics. Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e. sold or assigned to the factor). Although primarily U.S.-based, Commercial Services also conducts business with clients and their customers internationally.



--------------------------------------------------------------------------------

North American Commercial Finance - Financial Data and Metrics (dollars in millions) --------------------------------------------------------------------------------

Quarters Ended

-------------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, -------------------------------- 2014 2014 2013 2014 2013 -------------- -------------- -------------- -------------- -------------- Earnings Summary Interest income $ 208.8$ 193.4$ 210.0$ 402.2$ 429.3 Interest expense (68.1 ) (68.9 ) (71.6 ) (137.0 ) (150.2 ) Provision for credit losses (2.6 ) (23.2 ) (4.8 ) (25.8 ) (29.7 ) Rental income on operating leases 25.1 22.8 25.8 47.9 49.6 Other income 69.7 61.8 64.8 131.5 128.5 Depreciation on operating lease equipment (20.0 ) (21.9 ) (18.6 ) (41.9 ) (34.9 ) Operating expenses (120.2 )



(121.5 ) (118.4 ) (241.7 ) (246.5 ) Income before provision for income taxes

$ 92.7 $



42.5 $ 87.2$ 135.2$ 146.1 Select Average Balances Average finance receivables (AFR)

$ 15,181.0 $



14,800.1 $ 13,963.9$ 14,952.2$ 13,651.1 Average earning assets (AEA)

$ 14,132.4 $



13,764.7 $ 12,843.2$ 13,962.1$ 12,543.9 Statistical Data Net finance revenue as a % of AEA

4.13 % 3.64 % 4.53 % 3.88 % 4.68 % New business volume $ 1,600.1 $



1,372.9 $ 1,709.4$ 2,973.0$ 3,042.4 Factoring volume

$ 6,282.8$ 6,271.1$ 5,955.6$ 12,553.9$ 12,310.1



AEA is lower than AFR as it is reduced by the average credit balances for factoring clients.

Pre-tax earnings were up from both the year-ago and prior quarters. The increase from the year-ago quarter reflected higher assets partially offset by lower interest income that resulted from lower yields in certain portfolios. The sequential quarter increase reflected lower credit costs and a prepayment benefit. For the period ending June 30, 2014, the decline in pre-tax earnings reflected yield compression that offset asset growth and lower funding costs.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 59

--------------------------------------------------------------------------------

Table of Contents

Financing and leasing assets grew 10% from a year ago, and 3% sequentially, to $15.7 billion, reflecting strong growth in our corporate finance and real estate finance divisions. Funded new business volume for the quarter was down 6% from the year-ago quarter, and up 17% from the prior quarter, in line with typical seasonal trends. The decrease in new business volume from the year-ago quarter reflected modest declines in Corporate Finance and Real Estate Finance partially offset by an increase in Equipment Finance. The sequential quarterly improvement in volume was across all divisions. CIT Bank originated the vast majority of the U.S. funded volume in each of the presented quarters. At June 30, 2014, approximately 75% of financing and leasing assets were in CIT Bank. Other highlights included:



Net finance revenue was $146 million, unchanged from the year-ago quarter and

up from $125 million in the prior quarter. Net finance margin was 4.13% for

the quarter and 3.88% year-to-date. The declines from the respective 2013

periods reflect the reduction of benefits from prepayment benefits, lower

portfolio yields in Corporate Finance and Equipment Finance, as well as a

lower benefit from net FSA accretion. The sequential quarterly increase was

largely due to the benefits of a prepayment in the current quarter.



Other income was up from the year-ago quarter and prior quarter and included

benefits from both investment gains and counterparty receivable accretion.

Factoring commissions were $28 million, down slightly from the year-ago and

prior quarters. For the six months ended June 30, 2014, factoring commissions were $57 million, down modestly from $59 million in the comparable period in 2013.



Fee revenue was $18 million, down from $23 million in the year-ago quarter,

and flat with the prior quarter. The decline from the prior year reflected

lower syndication and arranger fees. For the year-to-date period, fee revenue totaled $35 million, down from $38 million in 2013.



Gains on equipment, receivables and investments totaled $13 million, up from

$4 million in the year-ago quarter and $10 million in the prior quarter.

Equipment and receivables sold totaled $175 million, compared to $92 million

in the year-ago quarter and $138 million in the prior quarter. For the six

months ended June 30, 2014, gains totaled $23 million, up from $16 million

in 2013.



Credit metrics remained at or near cycle lows. Non-accrual loans were $132

million (0.86% of finance receivables), essentially unchanged from March 31,

2014 and down from $178 million (1.27%) a year ago. The provision for credit

losses was $3 million, modestly lower than the year-ago quarter, and

significantly lower than the prior quarter. The current quarter provision for

credit losses primarily reflects sequentially lower charge-offs, primarily in

Corporate Finance, and improvements related to portfolio mix. Net charge-offs

were $9 million (0.23% of average finance receivables), compared to $4

million (0.12%) in the year-ago quarter and $16 million (0.43%) last quarter.

For the year-to-date period, net charge-offs were $25 million (0.33%)

compared to $10 million (0.15%) in 2013, reflecting a lower level of

recoveries and a higher level of charged-off accounts that had specific

reserves in Corporate Finance. Charge-offs for the quarters ended June 30 and

March 31, 2014, included approximately $3 million and $4 million,

respectively, related to the transfer of receivables to assets held for sale.

The respective amounts for the six months ended June 30, 2014 and 2013 were

$7 million and $2 million.

Operating expenses were up slightly from year-ago quarter, which benefited

from a litigation settlement, and improved slightly from the prior quarter.

The decline in operating expenses for the year-to-date period largely reflected lower employee costs related to reduced headcount.



Non-Strategic Portfolios

NSP consists of portfolios that we no longer consider strategic. Included in NSP at June 30, 2014 are several international equipment finance portfolios, including Brazil, Mexico and smaller portfolios in Europe that we identified as subscale platforms during our international rationalization. On April 25, 2014, we completed the sale of the student lending business. In our March 31, 2014 Form 10-Q, that business was included in NSP. Upon sale, the business was classified as a discontinued operation, and all prior period data has been adjusted.



60 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

Non-Strategic Portfolios-Financial Data and Metrics (dollars in millions) --------------------------------------------------------------------------------

Quarters



Ended

--------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, ------------------------------ 2014 2014 2013 2014 2013 ----------- ------------- ------------- ------------- ------------- Earnings Summary Interest income $ 25.6$ 28.4$ 42.8$ 54.0$ 86.7 Interest expense (23.0 ) (24.9



) (32.8 ) (47.9 ) (69.6 ) Provision for credit losses

0.7 (1.0 ) (6.1 ) (0.3 ) (6.4 ) Rental income on operating leases 9.4 9.5 34.7 18.9 69.9 Other income 3.9 4.4 (16.0 ) 8.3 (25.9 ) Depreciation on operating lease equipment (5.7 ) (5.2 ) (8.8 ) (10.9 ) (17.8 ) Maintenance and other operating lease expenses - - (0.1 ) - (0.1 ) Operating expenses (20.5 ) (19.2



) (34.2 ) (39.7 ) (72.7 ) Loss before provision for income taxes

$ (9.6 ) $ (8.0



) $ (20.5 )$ (17.6 )$ (35.9 ) Select Average Balances Average finance receivables (AFR)

$ 83.9$ 300.0$ 1,443.0$ 280.7$ 1,464.0 Average earning assets (AEA) $ 988.1$ 1,185.8$ 1,961.8$ 1,082.1$ 1,980.6 Statistical Data Net finance revenue as a % of AEA 2.55 % 2.63 % 7.30 % 2.61 % 6.98 % New business volume $ 64.1$ 51.8$ 259.9$ 115.9$ 445.3 Pre-tax losses for the quarter were $10 million, compared to pre-tax losses of $21 million in the year-ago quarter, as lower operating expenses offset a decline in net revenues from lower asset levels. The higher sequential pre-tax loss reflects higher costs associated with exiting activities. Financing and leasing assets at June 30, 2014 totaled $0.7 billion, primarily related to international small ticket platforms identified as subscale platforms during our international rationalization, with the majority of the assets in AHFS. The financing and leasing assets were down from $1.1 billion at March 31, 2014, primarily due to the sale of the remaining small business loan portfolio and from $2.0 billion at June 30, 2013, primarily due to loan sales and runoff.



We have exited all the sub-scale countries in Asia, and several countries in Latin America and Europe and continue to market the remaining non-strategic portfolios in Europe and Latin America.

Corporate and Other

Certain items are not allocated to operating segments and are included in Corporate and Other, including unallocated interest expense, primarily related to corporate liquidity costs (Interest Expense), mark-to-market adjustments on non-qualifying derivatives (Other Income), restructuring charges for severance and facilities exit activities and certain legal costs (Operating Expenses).



--------------------------------------------------------------------------------

Corporate and Other - Financial Data (dollars in millions) --------------------------------------------------------------------------------

Quarters



Ended

----------------------------------------- Six Months Ended

June 30, June 30, March 31, June 30, -------------------------- 2014 2014 2013 2014 2013 ----------- ----------- ----------- ----------- ----------- Earnings Summary Interest income $ 3.2$ 3.7$ 3.7$ 6.9$ 6.4 Interest expense (16.0 ) (17.4 ) (14.3 ) (33.4 ) (28.9 ) Provision for credit losses - (0.1 ) - (0.1 ) 0.1 Other income 9.7 (2.3 ) 3.5 7.4 2.9 Operating expenses, including loss on debt extinguishments (9.2 ) (13.3 ) (12.0 ) (22.5 ) (12.9 ) Loss before provision for income taxes $ (12.3 )$ (29.4 )



$ (19.1 )$ (41.7 )$ (32.4 )

Interest income consists of interest and dividend income, primarily from

deposits held at other depository institutions and U.S. Treasury Securities.

Other income primarily reflects gains and (losses) on derivatives and foreign

currency exchange.



Operating expenses reflects salary and general and administrative expenses in

excess of amounts allocated to the business segments, litigation-related

costs and provision for severance and facilities exiting activities.

Restructuring charges totaled $6 million in the second quarter of 2014,

compared to $10 million in each of the year-ago quarter and prior quarter.

Year-to-date, restructuring charges totaled $16 million, up slightly from

2013.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 61

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

FINANCING AND LEASING ASSETS

The following table presents our financing and leasing assets by segment and divisions within these segments.

--------------------------------------------------------------------------------

Financing and Leasing Asset Composition (dollars in millions) --------------------------------------------------------------------------------

June 30, December 31, 2014 2013 % Change -------------- -------------- ------------- Transportation & International Finance Segment Total Loans $ 3,228.3$ 3,494.4 (7.6 )% Operating lease equipment, net 14,512.9 12,778.5 13.6 % Assets held for sale 671.7 158.5 323.8 % Financing and leasing assets 18,412.9 16,431.4 12.1 % Aerospace Loans 1,432.2 1,247.7 14.8 % Operating lease equipment, net 8,912.8 8,267.9 7.8 % Assets held for sale 191.8 148.8 28.9 % Financing and leasing assets 10,536.8 9,664.4 9.0 % Rail Loans 121.4 107.2 13.2 % Operating lease equipment, net 5,593.4 4,503.9 24.2 % Assets held for sale 0.7 3.3 (78.8 )% Financing and leasing assets 5,715.5 4,614.4 23.9 % Maritime Finance Loans 566.4 412.6 37.3 % Assets held for sale 21.2 - - Financing and leasing assets 587.6 412.6 42.4 % International Finance Loans 1,108.3 1,726.9 (35.8 )% Operating lease equipment, net 6.7 6.7 - Assets held for sale 458.0 6.4 >100 % Financing and leasing assets 1,573.0 1,740.0 (9.6 )% North American Commercial Finance Segment Total Loans 15,376.1 14,693.1 4.6 % Operating lease equipment, net 240.2 240.5 (0.1 )% Assets held for sale 33.7 38.2 (11.8 )% Financing and leasing assets 15,650.0 14,971.8 4.5 % Real Estate Finance Loans 1,737.6 1,554.8 11.8 % Financing and leasing assets 1,737.6 1,554.8 11.8 % Corporate Finance Loans 7,295.3 6,831.8 6.8 % Operating lease equipment, net 10.0 6.2 61.3 % Assets held for sale 33.7 38.2 (11.8 )% Financing and leasing assets 7,339.0 6,876.2 6.7 % Equipment Finance Loans 4,094.7 4,044.1 1.3 % Operating lease equipment, net 230.2 234.3 (1.7 )% Financing and leasing assets 4,324.9 4,278.4 1.1 % Commercial Services Loans and factoring receivables 2,248.5 2,262.4 (0.6 )% Financing and leasing assets 2,248.5 2,262.4 (0.6 )% Non-Strategic Portfolios Loans - 441.7 (100.0 )% Operating lease equipment, net 35.2 16.4 >100 % Assets held for sale 623.5 806.7 (22.7 )% Financing and leasing assets 658.7 1,264.8 (47.9 )% Consolidated Totals: Loans $ 18,604.4$ 18,629.2 (0.1 )% Operating lease equipment, net 14,788.3 13,035.4 13.4 % Assets held for sale 1,328.9 1,003.4 32.4 % Total financing and leasing assets $ 34,721.6$ 32,668.0 6.3 % 62 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

Growth in TIF financing and leasing assets reflects solid new business volume, which included the delivery of 22 aircraft and approximately 3,900 railcars and funding of $0.9 billion of loans, and supplemented with the acquisition of a European railcar lessor of approximately $650 million of assets (operating lease equipment). NACF growth was led by its Corporate Finance division, which included solid commercial and industrial and energy activity, while Real Estate Finance had double-digit growth year-to-date. Loans were down slightly from December 31, 2013, reflecting transfers to AHFS of a TIF international portfolio of approximately $0.5 billion in the second quarter, and an international portfolio of approximately $0.3 billion in NSP in the first quarter. AHFS totaled $1.3 billion at June 30, 2014. AHFS in TIF were mainly comprised of loans in the international portfolio and aircraft and related equipment in the aerospace division. Most of the remaining AHFS at June 30, 2014 were in NSP and included various equipment financing portfolios primarily in Latin America.



Financing and leasing asset trends are also discussed in the respective segment descriptions in "Results by Business Segment".

The following table presents the changes to our financing and leasing assets:

--------------------------------------------------------------------------------

Financing and Leasing Assets Roll forward (dollars in millions) --------------------------------------------------------------------------------

Transportation & North American International Commercial Non-Strategic Finance Finance Portfolios Total ------------------- ------------------ ----------------- ---------------- Balance at March 31, 2014 $ 17,573.0$ 15,179.9$ 1,120.6$ 33,873.5 New business volume 1,404.7 1,600.1 64.1 3,068.9 Loan and portfolio sales (45.9 ) (92.9 ) (299.9 ) (438.7 ) Equipment sales (35.2 ) (82.0 ) (7.5 ) (124.7 ) Depreciation (131.6 ) (20.0 ) (5.7 ) (157.3 ) Gross charge-offs (15.9 ) (13.2 ) - (29.1 ) Collections and other (336.2 ) (921.9 ) (212.9 ) (1,471.0 ) Balance at June 30, 2014 $ 18,412.9$ 15,650.0$ 658.7$ 34,721.6 Balance at December 31, 2013 $ 16,431.4$ 14,971.8$ 1,264.8$ 32,668.0 New business volume 2,459.3 2,973.0 115.9 5,548.2 Portfolio / business acquisitions 649.2 - - 649.2 Loan and portfolio sales (60.1 ) (162.7 ) (363.5 ) (586.3 ) Equipment sales (219.5 ) (150.4 ) (11.3 ) (381.2 ) Depreciation (253.3 ) (41.9 ) (10.9 ) (306.1 ) Gross charge-offs (30.2 ) (35.8 ) (7.5 ) (73.5 ) Collections and other (563.9 ) (1,904.0 ) (328.8 ) (2,796.7 ) Balance at June 30, 2014 $ 18,412.9$ 15,650.0$ 658.7$ 34,721.6



The following tables present our segment volumes and loan and equipment sales:

--------------------------------------------------------------------------------

Total Business Volumes (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

----------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, -------------------------------- 2014 2014 2013 2014 2013 -------------



------------- ------------- -------------- -------------- Transportation & International Finance

$ 1,404.7$ 1,054.6



$ 907.3$ 2,459.3$ 1,330.3 North American Commercial Finance

1,600.1 1,372.9 1,709.4 2,973.0 3,042.4 Non-Strategic Portfolios 64.1 51.8 259.9 115.9 445.3 Total $ 3,068.9$ 2,479.3$ 2,876.6$ 5,548.2$ 4,818.0 Factored Volume $ 6,282.8$ 6,271.1$ 5,955.6$ 12,553.9$ 12,310.1



Funded new business volume increased nearly 7% from the year-ago quarter as an increase in TIF offset a decline in NACF activity. Sequentially, the 24% increase reflects solid activity and some normal seasonality in NACF and additional equipment deliveries in TIF.

Factoring volume was up from the year-ago quarter, and increased slightly from the prior quarter.

Business volumes are discussed in the respective segment descriptions in "Results by Business Segment".

Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 63

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

Loan and Portfolio Sales (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

----------------------------------------- Six Months Ended

June 30, June 30, March 31, June 30, -------------------------- 2014 2014 2013 2014 2013 -----------



------------ ---------- ----------- ----------- Transportation & International Finance

$ 45.9$ 14.2 $ - $ 60.1 $ - North American Commercial Finance 92.9 69.8 16.9 162.7 83.7 Non-Strategic Portfolios 299.9 63.6 36.5 363.5 36.5 Total $ 438.7$ 147.6$ 53.4$ 586.3$ 120.2



The current quarter sales in NSP primarily consisted of small business portfolio loans, along with some international portfolios.

--------------------------------------------------------------------------------

Equipment Sales (dollars in millions) -------------------------------------------------------------------------------- Quarters



Ended

------------------------------------------ Six Months Ended

June 30, June 30, March 31, June 30, -------------------------- 2014 2014 2013 2014 2013 -----------



------------ ----------- ----------- ----------- Transportation & International Finance

$ 35.2$ 184.3$ 339.2$ 219.5$ 474.5 North American Commercial Finance 82.0 68.4 75.5 150.4 152.9 Non-Strategic Portfolios 7.5 3.8 7.7 11.3 15.7 Total $ 124.7$ 256.5$ 422.4$ 381.2$ 643.1



Asset sales in Transportation Finance primarily reflect aerospace and rail assets. Asset and loan and portfolio sales are discussed in Non-interest Income section, along with the related gains and losses.

--------------------------------------------------------------------------------

CONCENTRATIONS

Ten Largest Accounts

Our ten largest financing and leasing asset accounts in the aggregate represented 10.6% of our total financing and leasing assets at June 30, 2014 (the largest account was less than 2.0%). The largest accounts represent aerospace and rail assets.

The ten largest financing and leasing asset accounts were 9.8% at December 31, 2013.

Geographic Concentrations



The following table represents the financing and leasing assets by obligor geography:

--------------------------------------------------------------------------------

Financing and Leasing Assets by Obligor - Geographic Region (dollars in millions) --------------------------------------------------------------------------------

June 30, 2014 December



31, 2013

----------------------------



----------------------------

Northeast $ 6,078.2 17.5 % $ 5,933.1 18.2 % Southwest 3,901.7 11.2 % 3,606.9 11.1 % Midwest 3,845.8 11.1 % 3,762.5 11.5 % West 3,209.0 9.2 % 3,238.6 9.9 % Southeast 3,156.5 9.1 % 2,690.2 8.2 % Total U.S. 20,191.2 58.1 % 19,231.3 58.9 % Asia / Pacific 4,226.3 12.2 % 4,017.9 12.3 % Europe 4,030.6 11.6 % 3,692.4 11.3 % Canada 2,537.6 7.3 % 2,287.0 7.0 % Latin America 1,837.6 5.3 % 1,743.1 5.3 % All other countries 1,898.3 5.5 % 1,696.3 5.2 % Total $ 34,721.6 100.0 % $ 32,668.0 100.0 % 64 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

The following table summarizes both state concentrations greater than 5.0% and international country concentrations in excess of 1.0% of our financing and leasing assets:

--------------------------------------------------------------------------------

Financing and Leasing Assets by Obligor - State and Country (dollars in millions) --------------------------------------------------------------------------------

June 30, 2014 December



31, 2013

----------------------------



----------------------------

State Texas $ 3,287.6 9.5 % $ 3,022.4 9.3 % New York 2,266.8 6.5 % 2,323.3 7.1 % All other states 14,636.8 42.1 % 13,885.6 42.5 % Total U.S. $ 20,191.2 58.1 % $ 19,231.3 58.9 % Country Canada $ 2,537.6 7.3 % $ 2,287.0 7.0 % England 1,180.5 3.4 % 1,166.5 3.6 % China 958.5 2.8 % 969.1 2.9 % Australia 954.1 2.8 % 974.4 3.0 % Mexico 769.4 2.2 % 819.9 2.5 % Brazil 721.1 2.1 % 710.3 2.2 % France 478.4 1.4 % 294.6 0.9 % Korea 448.4 1.3 % 460.1 1.4 % Spain 389.8 1.1 % 450.7 1.4 % Russia 388.8 1.1 % 355.9 1.1 % Germany 383.3 1.1 % 250.9 0.8 % Philippines 354.6 1.0 % 255.9 0.8 % All other countries 4,965.9 14.3 % 4,441.4 13.5 % Total International $ 14,530.4 41.9 % $ 13,436.7 41.1 % Industry Concentrations



The following table represents financing and leasing assets by industry of obligor:

--------------------------------------------------------------------------------

Financing and Leasing Assets by Obligor - Industry (dollars in millions) --------------------------------------------------------------------------------

June 30, 2014 December 31, 2013 ----------------------------- ----------------------------- Commercial airlines (including regional airlines)(1) $ 9,875.2 28.4 % $ 8,972.4 27.5 % Manufacturing(2) 6,099.6 17.6 % 5,542.1 17.0 % Service industries 2,914.7 8.4 % 3,144.3 9.6 % Retail(3) 2,867.1 8.2 % 3,063.1 9.4 % Transportation(4) 2,838.9 8.2 % 2,404.2 7.4 % Real Estate 1,448.4 4.2 % 1,351.4 4.1 % Energy and utilities 1,405.5 4.0 % 1,256.7 3.8 % Oil and gas extraction / services 1,284.2 3.7 % 1,018.7 3.1 % Healthcare 1,274.6 3.7 % 1,393.1 4.3 % Wholesaling 730.8 2.1 % 685.7 2.1 % Finance and insurance 688.0 2.0 % 760.1 2.3 % Other (no industry greater than 2%) 3,294.6 9.5 % 3,076.2 9.4 % Total $ 34,721.6 100.0 % $ 32,668.0 100.0 % (1) Includes the Commercial Aerospace Portfolio and additional financing and leasing assets that are not commercial aircraft. (2) At June 30, 2014, includes manufacturers of chemicals, including



pharmaceuticals (3.6%), petroleum and coal, including refining (3.2%), and

food (2.0%).



(3) At June 30, 2014, includes retailers of apparel (3.7%) and general merchandise

(1.6%). (4) At June 30, 2014, included rail (4.2%), maritime (1.8%) and trucking and shipping (1.4%).



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 65

--------------------------------------------------------------------------------

Table of Contents

Commercial Aerospace

The following tables present details on our commercial and regional aerospace portfolio concentrations, which we call our Commercial Aerospace portfolio. The net investment in regional aerospace financing and leasing assets was $50.1 million and $52.1 million at June 30, 2014 and December 31, 2013, respectively, and was substantially comprised of loans and capital leases.



--------------------------------------------------------------------------------

Commercial Aerospace Portfolio (dollars in millions) --------------------------------------------------------------------------------

June 30, 2014 December



31, 2013

-----------------------------



-----------------------------

Net Investment Number Net



Investment Number

---------------- --------- ---------------- --------- By Product: Operating lease(1) $ 9,070.9 284 $ 8,379.3 270 Loan(2) 529.4 51 505.3 39 Capital lease 197.4 15 31.7 8 Total $ 9,797.7 350 $ 8,916.3 317



The information presented below by region, manufacturer, and body type, is based on our operating lease aircraft portfolio, which comprises 93% of our total commercial aerospace portfolio and substantially all of our owned fleet of leased aircraft at June 30, 2014.

--------------------------------------------------------------------------------

Commercial Aerospace Operating Lease Portfolio (dollars in millions)(1) --------------------------------------------------------------------------------

June 30, 2014December 31, 2013



----------------------------- -----------------------------

Net Investment Number Net Investment Number ---------------- --------- ---------------- --------- By Region: Asia / Pacific $ 3,322.6 87 $ 3,065.1 81 Europe 2,298.7 87 2,408.8 91 U.S. and Canada 1,761.9 54 1,276.5 43 Latin America 1,050.6 40 940.3 38 Africa / Middle East 637.1 16 688.6 17 Total $ 9,070.9 284 $ 8,379.3 270 By Manufacturer: Airbus $ 6,115.6 169 $ 5,899.1 167 Boeing 2,427.8 96 2,038.7 87 Embraer 527.5 19 441.5 16 Total $ 9,070.9 284 $ 8,379.3 270 By Body Type(3): Narrow body $ 6,638.8 242 $ 6,080.6 230 Intermediate 2,430.7 41 2,297.3 39 Regional and other 1.4 1 1.4 1 Total $ 9,070.9 284 $ 8,379.3 270 Number of customers 101 98 Weighted average age of fleet (years) 6 5 (1) Includes operating lease equipment held for sale. (2) Plane count excludes aircraft in which our net investment consists of



syndicated financings against multiple aircraft. The net investment associated

with such financings was $42.5 million at June 30, 2014 and $45 million at

December 31, 2013.



(3) Narrow body are single aisle design and consist primarily of Boeing 737 and

757 series, Airbus A320 series, and Embraer E170 and E190 aircraft.

Intermediate body are smaller twin aisle design and consist primarily of

Boeing 767 series and Airbus A330 series aircraft. Regional and Other includes

aircraft and related equipment, such as engines.

Our top five commercial aerospace outstanding exposures totaled $2,254.2 million at June 30, 2014. The largest individual outstanding exposure totaled $619.3 million at June 30, 2014. The largest individual outstanding exposure to a U.S. carrier totaled $538.1 million at June 30, 2014. See Note 12 - Commitments for additional information regarding commitments to purchase additional aircraft.



66 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

Leased Railcars

TIF's Rail business has a fleet of approximately 119,000 railcars, including approximately 30,000 tank cars, of which approximately 19,000 are used in the transport of crude oil, ethanol and other flammable liquids (collectively, "Flammable Liquids") in North America. TIF's fleet of tank cars in Flammable Liquids service is comprised of legacy tank cars used to transport Flammable Liquids, and tank cars meeting the CPC-1232 design standards, which standards were voluntarily adopted by the rail industry in 2011 and include design enhancements intended to improve tank car safety. Of the approximately 19,000 tank cars in our North American fleet currently in Flammable Liquids service, approximately 10,500 were manufactured prior to adoption of the CPC-1232 standard. Following several highly-publicized derailments of tank cars since mid-2013, U.S. and Canadian government agencies and industry groups agreed to implement a number of operational changes, including requiring multiple crew members on all trains carrying hazardous materials, prohibiting unattended trains on main lines, increasing track inspections, reducing speeds in populated areas, redirecting trains around high-risk areas, and mandating the testing and classification of crude oil prior to shipment. In addition, in April, 2014, Transport Canada ("TC") issued an order prohibiting the use of certain older tank cars in dangerous goods service in Canada effective immediately. We do not expect these operational changes and restrictions will have a material impact on our business or financial results. On June 27, 2014, TC announced proposed amendments under the Transportation of Dangerous Goods Act, the Railway Safety Management System Regulations, and the Transportation Information Regulations that will, among other safety requirements for railways, formalize new DOT-111 tank car standards. On July 23, 2014, the U.S. Pipeline and Hazardous Materials Safety Administration ("PHMSA") issued a Notice of Proposed Rulemaking ("NPRM") on Enhanced Tank Car Standards and Operational Controls for High Hazard Flammable Trains seeking public comment on tank cars standards, braking systems, speed restrictions, rail routing and notifications to state emergency responders. The NPRM also requested comment on retrofit standards and schedule for existing tank cars in high-hazard flammable trains. The NPRM is complex and will require extensive review. In addition, the PHMSA proposed three different options for new tank car standards in the NPRM and raised questions to which public comment and discussion is requested. Until PHMSA and TC release their proposed rules, we will be unable to assess how any final regulations may impact CIT and what changes may be required with respect to our tank cars in Flammable Liquids service, including the scope and cost to CIT of any retrofit program and the timing of required implementation of any retrofitting requirements.



--------------------------------------------------------------------------------

OTHER ASSETS / OTHER LIABILITIES

The following tables present components of other assets and other liabilities.

--------------------------------------------------------------------------------

Other Assets (dollars in millions) -------------------------------------------------------------------------------- June



30, 2014 December 31, 2013

------------------ --------------------- Deposits on commercial aerospace equipment $ 667.2$ 831.3 Deferred debt costs and other deferred charges 153.4 158.5 Tax receivables, other than income taxes 118.7 132.2 Executive retirement plan and deferred compensation 98.8 101.3 Other(1) 513.4 470.8 Total other assets $ 1,551.5$ 1,694.1



(1) Other includes items such as: accrued interest/dividends, fixed assets,

prepaid expenses, investments in and receivables from non-consolidated

entities, deferred federal and state tax assets, and other miscellaneous

assets, none of which are individually in excess of $100 million.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 67

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

Other Liabilities (dollars in millions) -------------------------------------------------------------------------------- June



30, 2014 December 31, 2013

------------------ --------------------- Equipment maintenance reserves $ 942.3$ 904.2 Accrued expenses and accounts payable 379.3 478.1 Current taxes payable and deferred taxes 320.0 179.8 Accrued interest payable 249.7 247.1 Security and other deposits 228.0 227.4 Valuation adjustment relating to aerospace commitments 121.9 137.5 Other(1) 500.3 490.2 Total other liabilities $ 2,741.5$ 2,664.3



(1) Other consist of other taxes, property tax liabilities and other miscellaneous

liabilities.



--------------------------------------------------------------------------------

RISK MANAGEMENT

CIT is subject to a variety of risks that may arise through the Company's business activities, including the following principal forms of risk:

Credit risk, which is the risk of loss (including the incurrence of

additional expenses) when a borrower does not meet its financial obligations

to the Company. Credit risk may arise from lending, leasing, and/or counterparty activities.



Asset risk, which is the equipment valuation and residual risk of lease

equipment owned by the Company that arises from fluctuations in the supply

and demand for the underlying leased equipment. The Company is exposed to the

risk that, at the end of the lease term, the value of the asset will be lower

than expected, resulting in either reduced future lease income over the remaining life of the asset or a lower sale value.



Market risk, which includes interest rate and foreign currency risk. Interest

rate risk refers to the impact that fluctuations in interest rates will have

on the Company's NFR and on the market value of the Company's assets,

liabilities and derivatives. Foreign exchange risk refers to the economic

impact that fluctuations in exchange rates between currencies will have on

the Company's non-dollar denominated assets and liabilities.

Liquidity risk, which is the risk that the Company has an inability to

maintain adequate cash resources and funding capacity to meet its obligations, including under liquidity stress scenarios.



Legal, regulatory and compliance risk, which is the risk that the Company is

not in compliance with applicable laws and regulations, which may result in

fines, regulatory criticism or business restrictions, or damage to the Company's reputation. Operational risk, which is the risk of financial loss, damage to the



Company's reputation, or other adverse impacts resulting from inadequate or

failed internal processes and systems, people or external events.

In order to effectively manage risk, the Company has established a governance and oversight structure that includes defining the Company's risk appetite, setting limits, underwriting standards and target performance metrics that are aligned with the risk appetite, and establishing credit approval authorities. The Company ensures effective risk governance and oversight through the establishment and enforcement of policies and procedures, risk governance committees, management information systems, models and analytics, staffing and training to ensure appropriate expertise, and the identification, monitoring and reporting of risks so that they are proactively managed.



Our policies and procedures relating to Risk Management are detailed in our Form 10-K for the year ended December 31, 2013.

Interest Rate Risk

Interest rate risk arises from lending, leasing, investments, deposit taking and funding, as assets and liabilities reprice at different times and by different amounts as interest rates change. We evaluate and monitor interest rate risk through two primary metrics.



Net Interest Income Sensitivity ("NII Sensitivity"), which measures the

impact of hypothetical changes in interest rates on net finance revenue; and

Economic Value of Equity ("EVE"), which measures the net economic value of

equity impact by assessing the market value of assets, liabilities and derivatives. Interest rate risk and sensitivity is influenced primarily by the composition of the balance sheet, driven by the type of products offered (fixed/floating rate loans and deposits), investments, funding and hedging activities. Our assets are primarily comprised of commercial loans, operating leases, cash and investments. We use a variety of funding sources, including retail and brokered CDs, savings accounts, secured and unsecured debt, and equity. Our leasing products are level/fixed payment transactions, whereas the interest rate on a majority of our commercial loan portfolio 68 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

is based off of a floating rate index such as short-term Libor or Prime. Our investment portfolio and interest bearing deposits (cash) have short duration and reprice frequently. With respect to liabilities, CDs and unsecured debt are fixed rate, secured debt is a mix of fixed and floating rate, and the rates on savings accounts are established based on the market environment and competition. The composition of our assets and liabilities results in a slight net asset-sensitive position at the shorter end of the curve, mostly to moves in LIBOR, whereby our assets will reprice faster than our liabilities. Deposits continued to grow as a percent of total funding. CIT Bank sources deposits primarily through direct-to-consumer (via the internet) and brokered channels. At June 30, 2014, the Bank had nearly $14 billion in deposits, more than half of which were obtained through our direct channel while approximately 40% were sourced through brokers with the remainder from institutional and other sources. Fixed rate, term deposits represented over 60% of our deposit portfolio. The deposit rates we offer can be influenced by market conditions and competitive factors. Changes in interest rates can affect our pricing and potentially impact our ability to gather and retain deposits. Rates offered by competitors also can influence our rates and our ability to attract and hold deposits. The majority of the Bank's deposits are fixed-rate. In a rising rate environment, the Bank may need to increase rates to renew maturing deposits and attract new deposits. Rates on our savings account deposits may fluctuate due to pricing competition and may also move with short-term interest rates, on a lagging basis. In general, retail deposits represent a low-cost source of funds and are less sensitive to interest rate changes than many non-deposit funding sources. Our ability to gather brokered deposits may be more sensitive to rate changes than other types of deposits. We manage this risk by limiting maturity concentration and emphasizing new issuance in long-dated maturities of up to ten years. We regularly stress test the effect of deposit rate changes on our margins and seek to achieve optimal alignment between assets and liabilities from an interest rate risk management perspective. The table below summarizes the results of simulation modeling produced by our asset/liability management system. The results reflect the percentage change in the EVE and NII Sensitivity over the next twelve months assuming an immediate 100 basis point parallel increase or decrease in interest rates. NII sensitivity is based on a static balance sheet projection.



--------------------------------------------------------------------------------

Change to NII Sensitivity and EVE -------------------------------------------------------------------------------- June 30, 2014December 31, 2013 -------------------------



-------------------------

+100 bps -100 bps +100 bps -100 bps ---------- ----------- ---------- ----------- NII Sensitivity 6.6 % (1.1 )% 6.1 % (0.9 )% EVE 2.0 % (1.9 )% 1.8 % (2.0 )% A primary driver of the change in NII Sensitivity was the sale in April 2014 of the student lending business, which had as of December 31, 2013, a portfolio of $3.4 billion of government-guaranteed student loans and associated $3.3 billion of floating rate debt that was extinguished upon sale. The December 31, 2013 amounts reflect the simulation results on our portfolio at that time, which included the student lending business. As detailed in the above table, NII sensitivity is positive to an increase in interest rates. This is primarily driven by our cash and short-term investments position, and commercial floating rate loan portfolio, which reprices frequently. On a net basis, we have more floating/repricing assets than liabilities in the near term. As a result, our current portfolio is more sensitive to moves in short-term interest rates in the near term. Therefore, our Net Finance Revenue (NFR) may increase if short-term interest rates rise, or decrease if short-term interest rates decline. Market implied forward rates over the subsequent future twelve months are used to determine a base interest rate scenario for the net interest income projection for the base case. This base projection is compared with those calculated under varying interest rate scenarios such as 100 bps parallel rate shift to arrive at NII Sensitivity. EVE complements net interest income simulation and sensitivity analysis as it estimates risk exposures beyond twelve month horizon. EVE modeling measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. EVE is calculated by subjecting the balance sheet to different rate shocks, measuring the net value of assets, liabilities and off-balance sheet instruments, and comparing those amounts with the base case of an unchanged interest rate environment. The duration of our liabilities is greater than that of our assets, in that we have more fixed rate liabilities than assets in the longer term, causing EVE to increase under increasing rates and decrease under decreasing rates. The methodology with which the operating lease assets are assessed in the results table above reflects the existing contractual rental cash flows and the expected residual value at the end of the existing contract term. The simulation modeling for both NII Sensitivity and EVE assumes we take no action in response to the changes in interest rates. A wide variety of potential interest rate scenarios are simulated within our asset/liability management system. All interest sensitive assets and liabilities are evaluated using discounted cash flow analysis. Rates are shocked up and down via a set of scenarios that include both parallel and non-parallel interest rate movements. Scenarios are also run to capture our sensitivity to changes in the shape of the yield curve. Furthermore, we evaluate the sensitivity of these results to a number of key assumptions, such as credit quality, spreads, and prepayments. Various holding periods of the operating lease assets are also considered. These range from the current existing lease term to longer terms which



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 69

--------------------------------------------------------------------------------

Table of Contents

assume lease renewals consistent with management's expected holding period of a particular asset. NII Sensitivity and EVE limits have been set and are monitored for certain of the key scenarios. We manage the exposure to changes in NII Sensitivity and EVE in accordance with our risk appetite and within Board approved policy limits. We use results of our various interest rate risk analyses to formulate asset and liability management ("ALM") strategies in order to achieve the desired risk profile, while managing our objectives for capital adequacy and liquidity risk exposures. Specifically, we manage our interest rate risk position through certain pricing strategies for loans and deposits, our investment strategy, issuing term debt with floating or fixed interest rates, and using derivatives such as interest rate swaps, which modify the interest rate characteristics of certain assets or liabilities. Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality, size, and prepayment characteristics of our balance sheet. They also do not account for other business developments that could affect net income, or for management actions that could affect net income or that could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, such simulations do not represent our current view of expected future interest rate movements.



--------------------------------------------------------------------------------

FUNDING AND LIQUIDITY

CIT actively manages and monitors its funding and liquidity sources against relevant limits and targets. These sources satisfy funding and other operating obligations, while also providing protection against unforeseen stress events like unanticipated funding obligations, such as customer line draws, or disruptions to capital markets or other funding sources. In addition to its unrestricted cash, short-term investments and portfolio cash inflows, liquidity sources include:



a $1.5 billion multi-year committed revolving credit facility, of which $1.4

billion was available at June 30, 2014; and



committed securitization facilities and secured bank lines aggregating $4.5

billion, of which $3.0 billion was available at June 30, 2014, provided that

eligible assets are available that can be funded through these facilities.

Asset liquidity is further enhanced by our ability to sell or syndicate portfolio assets in secondary markets, which also enables us to manage credit exposure, and to pledge assets to access secured borrowing facilities through the Federal Home Loan Banks ("FHLB") and FRB. Cash and short-term investment securities totaled $6.8 billion at June 30, 2014 ($6.4 billion of cash and $0.4 billion of short-term investments), down from $8.5 billion at March 31, 2014, reflecting a $1.3 billion repayment of unsecured debt at maturity, and $7.5 billion at December 31, 2013. Cash and short-term investment securities at June 30, 2014 consisted of $1.8 billion related to the bank holding company and $2.8 billion at the Bank with the remainder comprised of cash at operating subsidiaries and in restricted balances. Included in short-term investment securities are U.S. Treasury bills, Government Agency bonds, and other highly-rated securities, which were classified as AFS and most of which had maturity dates of approximately 180 days or less as of the investment date.



The weighted average coupon rates on outstanding deposits and long-term borrowings was 3.20% at June 30, 2014 compared to 3.33% at December 31, 2013 and 3.39% at June 30, 2013. The following table reflects our long term targeted funding mix:

--------------------------------------------------------------------------------

Funding Mix (dollars in millions) -------------------------------------------------------------------------------- June 30, December 31, 2014 2013 ---------- -------------- Deposits 44 % 40 % Secured 17 % 19 % Unsecured 39 % 41 % The low percentage of secured funding at both June 30, 2014 and December 31, 2013 reflect debt related to the student lending business being reported in discontinued operation (i.e. not part of the funding mix), and extinguishment of this debt in April 2014. In addition, in the second quarter the Company restructured two aircraft securitization facilities, which resulted in the extinguishment of $300 million in secured debt. Management issued a new $640 million aerospace securitization in July 2014, and has other transactions planned, which will cause secured funding to become a greater portion of the total. 70 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

Deposits

We continued to grow deposits during 2014 to fund our bank lending and leasing activities. Deposits totaled $13.9 billion at June 30, 2014, up from $12.5 billion at December 31, 2013 and $11.2 billion at June 30, 2013. The weighted average interest rate on deposits was 1.64% at June 30, 2014, 1.65% at December 31, 2013 and 1.59% at June 30, 2013.



The following table details our deposits by type:

--------------------------------------------------------------------------------

Deposits (dollars in millions) -------------------------------------------------------------------------------- June 30, December 31, 2014 2013 ------------- -------------- Online deposits $ 7,486.6$ 6,117.5 Brokered CDs / sweeps 5,468.4 5,365.4 Other(1) 984.0 1,043.6 Total $ 13,939.0$ 12,526.5



(1) Other primarily includes a deposit sweep arrangement related to Healthcare

Savings Accounts and deposits at our Brazil bank.

Long-term Borrowings - Unsecured

Revolving Credit Facility

The Revolving Credit Facility has a total commitment amount of $1.5 billion and the maturity date of the commitment is January 27, 2017. The total commitment amount consists of a $1.15 billion revolving loan tranche and a $350 million revolving loan tranche that can also be utilized for issuance of letters of credit. The applicable margin charged under the facility is 2.50% for LIBOR-based loans and 1.50% for Base Rate loans. Improvement in CIT's long-term senior unsecured debt ratings to either BB by S&P or Ba2 by Moody's would result in a reduction in the applicable margin to 2.25% for LIBOR-based loans and to 1.25% for Base Rate loans. A downgrade in CIT's long-term senior unsecured debt ratings to B+ by S&P and B1 by Moody's would result in an increase in the applicable margin to 2.75% for LIBOR-based loans and to 1.75% for Base Rate loans. In the event of a one notch downgrade by only one of the agencies, no change to the margin charged under the facility would occur. There were no outstanding borrowings under the Revolving Credit Facility at June 30, 2014 and December 31, 2013. The amount available to draw upon at June 30, 2014 was approximately $1.4 billion, with the remaining amount of approximately $0.1 billion utilized for issuance of letters of credit. The Revolving Credit Facility is unsecured and is guaranteed by eight of the Company's domestic operating subsidiaries. The facility was amended to modify the covenant requiring a minimum guarantor asset coverage ratio and the criteria for calculating the ratio. The amended covenant requires a minimum guarantor asset coverage ratio ranging from 1.25:1.0 to the current requirement of 1.5:1.0 depending on the Company's long-term senior unsecured debt rating. At June 30, 2014, the last reported asset coverage ratio was 2.73x.



Senior Unsecured Notes and Series C Unsecured Notes

At June 30, 2014, we had outstanding $12.2 billion of unsecured notes, compared to $12.5 billion at December 31, 2013. On February 19, 2014, CIT issued, at par value, $1 billion aggregate principal amount of senior unsecured notes due 2019 that bear interest at a per annum rate of 3.875%. On April 1, 2014, we repaid $1.3 billion of maturing 5.25% unsecured notes.



See Note 6 - Long-term Borrowings for further detail.

Long-term Borrowings - Secured

Secured borrowings totaled $5.3 billion at June 30, 2014 and $6.0 billion at December 31, 2013, which are secured by $8.8 billion and $9.7 billion at June 30, 2014 and December 31, 2013, respectively. The June 30, 2014 borrowings include $0.8 billion in CIT Bank, which are secured by $1.1 billion of assets, relatively unchanged from the respective December 31, 2013 balances. Non-bank secured borrowings were $4.5 billion and $5.1 billion at June 30, 2014 and December 31, 2013, respectively, and secured by assets of $7.7 billion and $8.6 billion, respectively. As part of our liquidity management strategy, we may pledge assets to secure financing transactions (which include securitizations), to secure borrowings from the FHLB or for other purposes as required or permitted by law. Our secured financing transactions do not meet accounting requirements for sale treatment and are recorded as secured borrowings, with the assets remaining on-balance sheet for GAAP. The debt associated with these transactions is collateralized by receivables, leases and/or equipment. Certain related cash balances are restricted. During the 2014 first quarter CIT renewed a CAD 250 million committed multi-year conduit facility that allows the Canadian Equipment Finance business to fund both existing assets and new originations at attractive terms. In the second quarter, CIT Bank renewed and extended to 2016 an existing $1 billion committed multi-year equipment finance conduit facility. The Bank is a member of the FHLB of Seattle and may borrow under a line of credit that is secured by collateral pledged to FHLB Seattle. During the second quarter, CIT Bank drew $125 million under the line and approximately $180 million of commercial real estate assets were pledged as collateral. A subsidiary of the Bank is a member of FHLB Des Moines and may borrow under lines of credit that are secured by a blanket lien on the subsidiary's assets



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 71

--------------------------------------------------------------------------------

Table of Contents

and collateral pledged to FHLB Des Moines. At June 30, 2014, $136 million of collateral was pledged and $69 million of advances were outstanding with FHLB Des Moines.



See Note 6 - Long-Term Borrowings for a table displaying our secured financings and pledged assets.

GSI Facilities Two financing facilities between two wholly-owned subsidiaries of CIT and Goldman Sachs International ("GSI") are structured as total return swaps ("TRS"), under which amounts available for advances are accounted for as derivatives. Pursuant to applicable accounting guidance, only the unutilized portion of the TRS is accounted for as a derivative and recorded at its estimated fair value. The size of the CIT Financial Ltd. ("CFL") facility is $1.5 billion and the CIT TRS Funding B.V. ("BV") facility is $625 million. During the second quarter, notable transactions were completed related to the TRS. In April 2014, the Company sold its student loan assets and extinguished the debt secured by these loans. Approximately $0.8 billion of the extinguished debt served as reference obligations under the TRS. Also, two aircraft securitizations financed through the TRS were extinguished during the second quarter, which accelerated FSA accretion, as discussed in Net Finance Revenue. Approximately $300 million of the extinguished debt served as reference obligations under the TRS. The extinguishment of debt increased the unfunded portion of the TRS and increased the notional amount of the derivative. Management is structuring additional transactions that will utilize the facility and closed a new Aerospace securitization in July 2014 of which $0.5 billion serve as reference obligation under the TRS. At June 30, 2014, a total of $874.5 million of pledged assets and $613.7 million of secured debt issued to investors were outstanding under the GSI Facilities. After adjustment to the amount of actual qualifying borrowing base under terms of the GSI Facilities, this secured debt provided for usage of $548.4 million of the maximum notional amount of the GSI Facilities. The remaining $1,576.6 million of the maximum notional amount represents the unused portion of the GSI Facilities and constitutes the notional amount of derivative financial instruments. An unsecured counterparty receivable of $565.8 million is owed to CIT from GSI for debt discount, return of collateral posted to GSI and settlements resulting from market value changes to asset- backed securities underlying the structures at June 30, 2014. The counterparty receivable was up from $301.6 million at December 31, 2013 as the proportionate amount of the balance was allocated to discontinued operation, i.e. the former student lending business. Upon sale of the secured assets and repayment of the secured debt, the full capacity of the facility from a presentation perspective, reverted back to the continuing operations. Based on the Company's valuation, the liability related to the GSI facilities was reduced to zero at June 30, 2014 from $11.4 million at March 31, 2014 and $9.7 million at December 31, 2013. The change in value of $11.4 million was recognized as a benefit in Other Income in the second quarter, while the six month amount was a benefit of $9.7 million.



Interest expense related to the GSI Facilities is affected by the following:

A fixed facility fee of 2.85% per annum times the maximum facility commitment

amount, A variable amount based on one-month or three-month USD LIBOR times the



"utilized amount" (effectively the "adjusted qualifying borrowing base") of

the total return swap, and



A reduction in interest expense due to the recognition of the payment of any

OID from GSI on the various asset-backed securities.

See Note 7 - Derivative Financial Instruments for further information.

Debt Ratings

Debt ratings can influence the cost and availability of short-and long-term funding, the terms and conditions on which such funding may be available, the collateral requirements, if any, for borrowings and certain derivative instruments, the acceptability of our letters of credit, and the number of investors and counterparties willing to lend to the Company. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect the Company's liquidity and financial condition. Our debt ratings at June 30, 2014 as rated by Standard & Poor's Ratings Services ("S&P"), Moody's Investors Service ("Moody's") and Dominion Bond Rating Service ("DBRS") are presented in the following table and were unchanged from December 31, 2013.



--------------------------------------------------------------------------------

Debt Ratings as of June 30, 2014 -------------------------------------------------------------------------------- Moody's S&P Ratings Investors Services Service DBRS -------------- ----------- --------------- Issuer / Counterparty Credit Rating BB- Ba3 BB Revolving Credit Facility Rating BB- Ba3 BBB (Low) Series C Notes / Senior Unsecured Debt Rating BB- Ba3 BB Outlook Positive Stable Positive 72 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

After the July 22, 2014 announcement of our definitive agreement to acquire OneWest Bank, Moody's affirmed its Ba3 corporate family rating and placed our Ba3 senior unsecured rating on review for possible downgrade; S&P affirmed its BB- rating and retained its positive outlook; and DBRS placed its BB rating under review with positive implications. Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes, including as a result of provisions in Dodd-Frank. Potential changes in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above could impact our liquidity and financial condition.



A debt rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Tax Implications of Cash in Foreign Subsidiaries

Cash and short term investments held by foreign subsidiaries, including cash available to the BHC and restricted cash, totaled $1.7 billion at June 30, 2014, down slightly from $1.8 billion at December 31, 2013.



Other than in a limited number of jurisdictions, Management does not intend to indefinitely reinvest foreign earnings.

Contractual Payments and Commitments

The following tables summarize significant contractual payments and contractual commitment expirations at June 30, 2014. Certain amounts in the payments table are not the same as the respective balance sheet totals, because this table is based on contractual amounts and excludes FSA discounts, in order to better reflect projected contractual payments. Likewise, actual cash flows could vary materially from those depicted in the payments table as further explained in the table footnotes.



--------------------------------------------------------------------------------

Payments for the Twelve Months Ended June 30(1) (dollars in millions) --------------------------------------------------------------------------------

Total 2015 2016 2017 2018 2019+ -------------- -------------- ------------- ------------- ------------- -------------- Secured borrowings(2) $ 5,304.3$ 1,070.7$ 1,301.6$ 776.3$ 509.8$ 1,645.9 Senior unsecured borrowings 12,251.8 1,500.4 - 1,250.0 3,950.0 5,551.4 Total Long-term borrowings 17,556.1 2,571.1 1,301.6 2,026.3 4,459.8 7,197.3 Deposits 13,940.6 6,524.6 1,736.5 872.2 2,046.7 2,760.6 Credit balances of factoring clients 1,296.5 1,296.5 - - - - Lease rental expense 172.2 30.7 28.9 25.6 22.8 64.2 Total contractual payments $ 32,965.4$ 10,422.9$ 3,067.0$ 2,924.1$ 6,529.3$ 10,022.1 (1) Projected payments of debt interest expense and obligations relating to postretirement programs are excluded. (2) Includes non-recourse secured borrowings, which are generally repaid in conjunction with the pledged receivable maturities.



The unsecured $1.5 billion principal balance with a coupon rate of 4.75% comes due in February 2015.

--------------------------------------------------------------------------------

Commitment Expiration by Twelve Month Periods Ended June 30 (dollars in millions) --------------------------------------------------------------------------------

Total 2015 2016 2017 2018 2019+ --------------



------------- ------------- ------------- ------------- ------------- Financing commitments

$ 4,405.9 $



658.2 $ 594.6$ 954.6$ 853.7$ 1,344.8 Aerospace equipment purchase commitments(1)

8,429.2 830.1 771.3 904.4 1,252.4 4,671.0 Rail and other equipment purchase commitments 1,060.8 635.4 425.4 - - - Letters of credit 406.9 64.4 32.5 72.0 55.4 182.6 Deferred purchase agreements 1,508.5 1,508.5 - - - - Guarantees, acceptances and other recourse obligations 3.1 3.1 - - - - Liabilities for unrecognized tax obligations(2) 320.5 275.0 45.5 - - - Total contractual commitments $ 16,134.9$ 3,974.7$ 1,869.3$ 1,931.0$ 2,161.5$ 6,198.4



(1) Aerospace commitments are net of amounts on deposit with manufacturers. The

Company entered into purchase commitments for 30 commercial aircraft in July

2014, which are not included in the above table.



(2) The balance cannot be estimated past 2016; therefore the remaining balance is

reflected in 2016. Financing commitments increased from $4.3 billion at December 31, 2013 to $4.4 billion at June 30, 2014. This includes commitments that have been extended to and accepted by customers or agents, but on which the criteria for funding have not been completed of $435 million at June 30, 2014 and $548 million at December 31, 2013. Also included are credit line agreements to Commercial Services clients that are cancellable by us only after a notice



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 73

--------------------------------------------------------------------------------

Table of Contents

period. The notice period is typically 90 days or less. The amount available under these credit lines, net of amount of receivables assigned to us, were $231 million at June 30, 2014 and $157 million at December 31, 2013. At June 30, 2014, substantially all our undrawn financing commitments were senior facilities, with approximately 80% secured by equipment or other assets and the remainder comprised of cash flow or enterprise value facilities. Most of our undrawn and available financing commitments are in Corporate Finance. The top ten undrawn commitments totaled $353 million at June 30, 2014. The table above includes approximately $1.3 billion of undrawn financing commitments at June 30, 2014 and $0.9 billion at December 31, 2013 that were not in compliance with contractual obligations, and therefore CIT does not have the contractual obligation to lend.



--------------------------------------------------------------------------------

CAPITAL

Capital Management

CIT manages its capital position to ensure capital is adequate to support the risks of its businesses and capital distributions to its shareholders. CIT's capital management is discussed in its Form 10-K for the year ended December 31, 2013. Return of Capital In January 2014, the Board of Directors approved the repurchase of up to $307 million of common stock through December 31, 2014, which included the amount that was not used from the 2013 share repurchase. In April 2014, the Board of Directors authorized an additional share repurchase of up to $300 million of common stock through December 31, 2014. Approximately $55 million of the $607 million authorized repurchase capacity remained at June 30, 2014. On July 22, 2014, CIT announced that its Board of Directors approved an additional repurchase of up to $500 million of common stock through June 30, 2015. During the 2014 first quarter, we repurchased over 2.9 million shares at an average price of $46.66 per share, totaling nearly $136 million. During the second quarter, we repurchased over 9.4 million shares for an aggregate purchase price of $416 million, bringing the total repurchases for 2014 to approximately 12.3 million shares at an average price of $44.81, or an aggregate of approximately $552 million. The repurchases were effected via open market purchases and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended. In January 2014, the Board of Directors declared a quarterly cash dividend of $0.10 per share, which was paid on February 28, 2014. In April 2014, the Board of Directors declared a quarterly cash dividend of $0.10 per share, which was paid on May 30, 2014. On July 15, 2014, the Board approved an increase to CIT's quarterly cash dividend from $0.10 per share to $0.15 per share. The dividend is payable on August 29, 2014.



Capital Composition and Ratios

The Company is subject to various regulatory capital requirements. The regulatory capital guidelines currently applicable to the Company are based on the Capital Accord of the Basel Committee on Banking Supervision (Basel I). We compute capital ratios in accordance with Federal Reserve capital guidelines for assessing adequacy of capital. To be well capitalized, a BHC generally must maintain Tier 1 and Total Capital Ratios of at least 6% and 10%, respectively. The Federal Reserve Board also has established minimum guidelines. The minimum ratios are: Tier 1 Capital Ratio of 4.0%, Total Capital Ratio of 8.0% and Tier 1 Leverage Ratio of 4.0%. In order to be considered a "well capitalized" depository institution under FDIC guidelines, the Bank must maintain a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Tier 1 Leverage Ratio of at least 5%. In the event that management reverses any of our NOL valuation allowance, there will be a benefit to GAAP earnings but minimal impact on our regulatory capital ratios. While total stockholders' equity in the following table would increase, there would also be an increase in the amount of disallowed deferred taxes in the Other Tier 1 components, which would offset most of the benefit with respect to Tier 1 and Total Capital. 74 CIT GROUP INC



--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

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

June 30, December 31, 2014 2013 Tier 1 Capital ---------------- ---------------- Total stockholders' equity $ 8,617.6$ 8,838.8 Effect of certain items in accumulated other comprehensive loss excluded from Tier 1 Capital 32.5 24.2 Adjusted total equity 8,650.1 8,863.0 Less: Goodwill (406.8 ) (338.3 ) Disallowed intangible assets (16.6 ) (20.3 ) Investment in certain subsidiaries (32.2 ) (32.3 ) Other Tier 1 components(1) (32.8 ) (32.6 ) Tier 1 Capital 8,161.7 8,439.5 Tier 2 Capital Qualifying reserve for credit losses and other reserves(2) 372.4 383.9 Less: Investment in certain subsidiaries (32.2 ) (32.3 ) Other Tier 2 components(3) 0.3 0.1 Total qualifying capital $ 8,502.2$ 8,791.2 Risk-weighted assets $ 51,001.8$ 50,571.2 BHC Ratios Tier 1 Capital Ratio 16.0 % 16.7 % Total Capital Ratio 16.7 % 17.4 % Tier 1 Leverage Ratio 18.3 % 18.1 % CIT Bank Ratios Tier 1 Capital Ratio 15.2 % 16.8 % Total Capital Ratio 16.5 % 18.1 % Tier 1 Leverage Ratio 15.4 % 16.9 %



(1) Includes the portion of net deferred tax assets that does not qualify for

inclusion in Tier 1 capital based on the capital guidelines, the Tier 1

capital charge for nonfinancial equity investments and the Tier 1 capital

deduction for net unrealized losses on available-for-sale marketable securities (net of tax).



(2) "Other reserves" represents additional credit loss reserves for unfunded

lending commitments, letters of credit, and deferred purchase agreements, all

of which are recorded in Other Liabilities.



(3) Banking organizations are permitted to include in Tier 2 Capital up to 45% of

net unrealized pre-tax gains on available for sale equity securities with

readily determinable fair values.

For a BHC, capital adequacy is based upon risk-weighted asset ratios calculated in accordance with quantitative measures established by the Federal Reserve. Under the Basel 1 guidelines, certain commitments and off-balance sheet transactions are assigned asset equivalent balances, and together with on-balance sheet assets, are divided into risk categories, each of which is assigned a risk weighting ranging from 0% (for example U.S. Treasury Bonds) to 100% (for example commercial loans).



The reconciliation of balance sheet assets to risk-weighted assets is presented below:

--------------------------------------------------------------------------------

Risk-Weighted Assets (dollars in millions) -------------------------------------------------------------------------------- June 30, December 31, 2014 2013 ---------------- ----------------- Balance sheet assets $ 44,152.7$ 47,139.0 Risk weighting adjustments to balance sheet assets (6,280.9 ) (10,328.1 ) Off balance sheet items 13,130.0 13,760.3 Risk-weighted assets $ 51,001.8$ 50,571.2 The decline in the balance sheet assets primarily reflects the sale of the student loan assets during the 2014 second quarter and the decline in the risk weighted adjustments to balance sheet assets reflect the low risk weighting of the student loan assets. The off balance sheet items for the current period primarily reflects commitments to purchase aircraft and railcars ($9.3 billion), unused lines of credit ($1.7 billion, largely related to Corporate Finance division) and deferred purchase agreements ($1.5 billion related to Commercial Services division).



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 75

--------------------------------------------------------------------------------

Table of Contents

Future Regulatory Capital Guidelines

On April 15, 2014, the Basel Committee on Banking Supervision ("BCBS") released the final standard of its "Supervisory Framework for Measuring and Controlling Large Exposures" ("SFLE"), which will take effect on January 1, 2019, and replace the BCBS 1991 standard on measuring and controlling large exposures. SFLE includes a general limit on all of a bank's exposures to a single counterparty of 25% of a bank's Tier 1 Capital. This limit also applies to identified groups of connected counterparties, which are interdependent and likely to fail simultaneously. A tighter limit of 15% of Tier 1 Capital will apply to exposures between banks that have been designated as global systematically important banks (GSIBs). We described in detail in the "Regulation" section of Item 1 Business Overview in our 2013 Form 10-K details regarding Basel III and other regulatory matters. A brief summary follows:



In July 2013, the Board of Governors of the Federal Reserve and the Federal Deposit Insurance Corporation issued a final rule ("Basel III Final Rule") implementing revised risk-based capital and leverage requirements for banking organizations proposed under Basel III. CIT, as well as the Bank, will be subject to the Basel III Final Rule as of January 1, 2015.

Among other matters, the Basel III Final Rule: (i) introduces a new capital measure called "Common Equity Tier 1" ("CET1") and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specifies that Tier 1 capital consists of CET1 and "Additional Tier 1 capital" instruments meeting certain revised requirements; (iii) mandates that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expands the scope of the deductions from and adjustments to capital as compared to existing regulations. For most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes, which will be subject to the Basel III Final Rule specific requirements. CIT does not currently have either of these forms of capital outstanding. The Basel III Final Rule also introduces a new "capital conservation buffer", composed entirely of CET1, on top of these minimum risk-weighted asset ratios apart from the Tier 1 leverage ratio. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.



Per the Basel III final rule, CIT will be required to maintain risk-based capital ratios at January 1, 2019 as follows:

Minimum Capital Requirements - January 1, 2019

-----------------------------------------------------------------------------

Tier 1 Common Equity Tier 1 Capital Total Capital Leverage Ratio ---------------



---------------- ---------------- ---------------- Stated minimum Ratio

4.5 % 6.0 % 8.0 % 4.0 % Capital conservation buffer 2.5 % 2.5 % 2.5 % NA Effective minimum ratio 7.0 % 8.5 % 10.5 % 4.0 % With respect to the Bank, the Basel III Final Rule revises the "prompt corrective action" ("PCA") regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act, by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Final Rule does not change the total risk-based capital requirement for any PCA category. At June 30, 2014, CIT's and the Bank's capital ratios and capital composition exceed the post-transition minimum capital requirements at January 2019. CIT's capital stock is substantially all Tier 1 Common equity and generally does not include non-qualifying capital instruments subject to transitional deductions. CIT and the Bank are subject to a minimum Tier 1 Leverage ratio of 4% and 5%, respectively. We continue to believe that, as of June 30, 2014, CIT and the Bank would meet all capital requirements under the Basel III Final Rule, including the capital conservation buffer, on a fully phased-in basis as if such requirements were currently effective. As non-advanced approaches banking organizations, CIT and the Bank will not be subject to the Countercyclical Buffer or the supplementary leverage ratio.



76 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

Tangible Book Value and Tangible Book Value per Share

Tangible book value represents common equity less goodwill and other intangible assets. A reconciliation of CIT's total common stockholders' equity to tangible book value, a non-GAAP measure, follows:



--------------------------------------------------------------------------------

Tangible Book Value and per Share Amounts (dollars in millions, except per share amounts) -------------------------------------------------------------------------------- June 30, December 31, 2014 2013 ------------- -------------- Total common stockholders' equity $ 8,617.6$ 8,838.8 Less: Goodwill (403.1 ) (334.6 ) Intangible assets (16.6 ) (20.3 ) Tangible book value $ 8,197.9$ 8,483.9 Book value per share $ 46.42$ 44.78 Tangible book value per share $ 44.16$ 42.98 Book value was down as the increase in shares repurchased and held in treasury offset the increase due to net income, while the decline in Tangible book value ("TBV") also reflected the goodwill recorded with the Nacco acquisition. Book value per share and TBV per share increased as the decline in outstanding shares offset the decrease in common equity.



--------------------------------------------------------------------------------

CIT BANK

The Bank is a state-chartered commercial bank headquartered in Salt Lake City, Utah, that is subject to regulation and examination by the FDIC and the UDFI and is our principal bank subsidiary. The Bank originates and funds lending and leasing activity in the U.S. for CIT's segments. Asset growth during 2014 reflected solid lending and leasing volume. Deposits grew in support of the increased business. The Bank's capital and leverage ratios are included in the tables that follow and remain well above required levels. As detailed in the following Consolidated Balance Sheet table, total assets increased to $18.3 billion, up $2.1 billion from December 31, 2013, related to growth in financing and leasing assets. Cash and deposits with banks was $2.8 billion at June 30, 2014, up from December 31, 2013, reflecting increased deposits. Commercial loans totaled $13.4 billion at June 30, 2014, up from $12.0 billion at December 31, 2013. The increase reflects solid new business activity. The Bank funded $2.0 billion of new business volume during 2014, up 11% from the year-ago quarter and 23% sequentially. Most of the 2014 second quarter volume, $1.4 billion, related to NACF, which included various divisions, as well as Real Estate Finance. The remaining amount funded aerospace, rail and maritime transactions in TIF. Year-to-date, volumes are up 11%. The Bank also expanded its portfolio of operating lease equipment, which totaled $1.8 billion at June 30, 2014 and comprised primarily of railcars, and aircraft.



CIT Bank deposits were $13.9 billion at June 30, 2014, up from $12.5 billion at December 31, 2013. The weighted average interest rate was 1.57% at June 30, 2014, up slightly from December 31, 2013.

Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 77

--------------------------------------------------------------------------------

Table of Contents

The following presents condensed financial information for CIT Bank.

--------------------------------------------------------------------------------

Condensed Balance Sheets (dollars in millions) -------------------------------------------------------------------------------- June 30, December 31, 2014 2013 -------------- -------------- ASSETS: Cash and deposits with banks $ 2,804.5$ 2,528.6 Investment securities 268.7 234.6 Assets held for sale 54.2 104.5 Commercial loans 13,416.3 12,032.6 Allowance for loan losses (231.1 ) (212.9 ) Operating lease equipment, net 1,806.4 1,248.9 Other assets 150.7 195.0 Total Assets $ 18,269.7$ 16,131.3 LIABILITIES AND EQUITY: Deposits $ 13,867.5$ 12,496.2 Long-term borrowings 821.0 854.6 Other borrowings 700.0 - Other liabilities 211.4 183.9 Total Liabilities 15,599.9 13,534.7 Total Equity 2,669.8 2,596.6 Total Liabilities and Equity $ 18,269.7$ 16,131.3 Capital Ratios Tier 1 Capital Ratio 15.2 % 16.8 % Total Capital Ratio 16.5 % 18.1 % Tier 1 Leverage ratio 15.4 %



16.9 % Financing and Leasing Assets by Segment (dollars in millions) North American Commercial Finance

$ 11,767.5 $



10,701.1

Transportation & International Finance 3,509.4 2,606.8 Non-Strategic Portfolios - 78.1 Total $ 15,276.9$ 13,386.0



--------------------------------------------------------------------------------

Condensed Statements of Operations (dollars in millions) --------------------------------------------------------------------------------

Quarters



Ended

----------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, ------------------------------ 2014 2014 2013 2014 2013 ------------- ------------- ------------- ------------- ------------- Interest income $ 169.8$ 157.8$ 135.8$ 327.6$ 258.6 Interest expense (55.1 ) (51.4 ) (42.8 ) (106.5 ) (82.1 ) Net interest revenue 114.7 106.4 93.0 221.1 176.5 Provision for credit losses (14.6 )



(24.8 ) (17.1 ) (39.4 ) (38.1 ) Net interest revenue, after credit provision

100.1 81.6 75.9 181.7 138.4 Rental income on operating leases 53.9 45.8 25.5 99.7 45.9 Other income 23.0 27.0 29.8 50.0 57.2 Total net revenue, net of interest expense and credit provision 177.0 154.4 131.2 331.4 241.5 Operating expenses (82.5 )



(85.4 ) (77.2 ) (167.9 ) (144.7 ) Depreciation on operating lease equipment

(22.7 )



(18.2 ) (10.6 ) (40.9 ) (17.8 ) Income before provision for income taxes

71.8 50.8 43.4 122.6 79.0 Provision for income taxes (30.4 )



(17.8 ) (18.4 ) (48.2 ) (33.0 ) Net income

$ 41.4 $



33.0 $ 25.0$ 74.4$ 46.0 New business volume - funded

$ 2,049.3$ 1,660.4$ 1,841.6$ 3,709.7$ 3,354.8 The Bank's 2014 results benefited from higher earning assets. The Bank's provision for credit losses for the quarter ended June 30, 2014 reflects lower reserve build due to portfolio composition, while credit metrics remain at or near cyclical lows. For the quarter ended June 30, 2014, net charge-offs as a percentage of average finance receivables were 0.21%, compared to 0.14% in the year-ago quarter and 0.47% last quarter.



78 CIT GROUP INC

--------------------------------------------------------------------------------

Table of Contents

Other income in 2014 was down from the 2013 periods and sequentially reflecting lower fee revenue. Operating expenses increased from the 2013 periods reflecting increased Bank activities, while down slightly from the prior quarter.



--------------------------------------------------------------------------------

Net Finance Revenue (dollars in millions) --------------------------------------------------------------------------------



Quarters Ended

----------------------------------------------------- Six Months Ended June 30, June 30, March 31, June 30, ---------------------------------- 2014 2014 2013 2014 2013 --------------- --------------- --------------- --------------- --------------- Interest income $ 169.8



$ 157.8$ 135.8$ 327.6$ 258.6 Rental income on operating leases

53.9 45.8 25.5 99.7 45.9 Finance revenue 223.7 203.6 161.3 427.3 304.5 Interest expense (55.1 ) (51.4 ) (42.8 ) (106.5 ) (82.1 ) Depreciation on operating lease equipment (22.7 ) (18.2 ) (10.6 ) (40.9 ) (17.8 ) Maintenance and other operating lease expenses* (1.8 ) (1.8 ) (0.5 ) (3.6 ) (1.3 ) Net finance revenue $ 144.1



$ 132.2$ 107.4$ 276.3$ 203.3 Average Earning Assets ("AEA")

$ 14,792.4



$ 13,832.5$ 10,697.9$ 14,329.9$ 10,040.0 As a % of AEA: Interest income

4.59 % 4.56 % 5.08 % 4.57 % 5.15 % Rental income on operating leases 1.46 % 1.33 % 0.95 % 1.39 % 0.92 % Finance revenue 6.05 % 5.89 % 6.03 % 5.96 % 6.07 % Interest expense (1.49 )% (1.49 )% (1.60 )% (1.49 )% (1.64 )% Depreciation on operating lease equipment (0.61 )% (0.52 )% (0.39 )% (0.57 )% (0.35 )% Maintenance and other operating lease expenses* (0.05 )% (0.05 )% (0.02 )% (0.05 )% (0.03 )% Net finance revenue 3.90 % 3.83 % 4.02 % 3.85 % 4.05 % * Amounts included in CIT Bank operating expenses. NFR and NFR as a percentage of AEA ("NFM") are key metrics used by management to measure the profitability of our lending and leasing assets. NFR includes interest and fee income on our loans and capital leases, interest and dividend income on cash and investments, rental revenue from our leased equipment, depreciation and maintenance and other operating lease expenses, as well as funding costs. Since our asset composition includes an increasing level of operating lease equipment (11% of AEA for the quarter ended June 30, 2014), NFM is a more appropriate metric for CIT than net interest margin ("NIM") (a common metric used by other banks), as NIM does not fully reflect the earnings of our portfolio because it includes the impact of debt costs on all our assets but excludes the net revenue (rental income less depreciation and maintenance and other operating lease expenses) from operating leases. NFR and AEA increased on asset growth. NFM is down from the prior year periods reflecting some pressure on loan yields, which offset lower funding costs. During the 2014, the Bank grew its operating lease portfolio, by adding aircraft and railcars which contributed net operating lease revenue of $29 million, up from $14 million in the year-ago quarter and $26 million in the prior quarter. Year-to-date, net operating lease revenue totaled $55 million, up from $27 million in 2013.



Item 2. Management's Discussion and Analysis and Item 3. Quantitative and

Qualitative Disclosures about Market



Risk 79

--------------------------------------------------------------------------------

Table of Contents

--------------------------------------------------------------------------------

SELECT DATA AND AVERAGE BALANCES

The following table sets forth selected consolidated financial information regarding our results of operations, balance sheets and certain ratios.

--------------------------------------------------------------------------------


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters