Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

As of June 30, 2012 the Company had 3,566 employees and over $42 billion in assets.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" contain financial terms that are relevant to our business. You can find a glossary of key terms used in Part I Item 1. Business Section in our Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K").

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 accounting principles generally accepted in the United States of America ("GAAP") measures.

2012 PRIORITIES AND PROGRESS

Our 2012 priorities were developed to further advance our broader strategic initiatives centered on improving our financial condition, enhancing our business model, and further improving our approach to risk management and control functions. The following highlights some of our accomplishments:

1. Accelerate Growth and Business Development Initiatives

† Increased new business activity. Second quarter 2012 committed new business volume was $2.7 billion, up 31% from the prior-year quarter and 9% sequentially. For the six months ended June 30, 2012, committed volume rose 38% to $5.2 billion. Funded new business volume of $2.4 billion in the second quarter increased 38% from the prior-year quarter and 19% sequentially. For the six months ended June 30, 2012 funded volume rose 43% to $4.4 billion. Both committed and funded volume increased from the prior-year period in all commercial segments, most notably Corporate Finance.

† Increased commercial assets. Commercial financing and leasing assets increased $556 million from March 31, 2012, reflecting increases across most of the commercial segments. Commercial financing and leasing assets increased 4% since December 31, 2011 and are up 6% from a year ago.

2. Improve Profitability While Maintaining Financial Strength

† We reported a pre-tax loss for the 2012 second quarter of $42 million, compared to pre-tax losses of $29 million for the year ago quarter and $406 million last quarter. We had pre-tax income excluding debt refinancing charges(1) of $245 million, improved from $134 million in the prior-year quarter and $214 million in the first quarter 2012, driven by lower funding and credit costs.

† While we reported a pre-tax loss of $447 million for the six months ended June 30, 2012, compared to pre-tax income of $103 million for the prior-year period, pre-tax income excluding debt refinancing charges(1) was $459 million, improved from $312 million in 2011.

† The weighted average coupon rates of outstanding deposits and long-term borrowings declined to 3.83% at June 30, 2012 from 4.24% at March 31, 2012 and 5.11% at June 30 2011. Including $3.9 billion of Series C redemptions announced during the third quarter, and the issuance of $3.0 billion of unsecured debt in August 2012, the weighted average coupon rates on outstanding deposits and long-term borrowings would have been 3.50% at June 30, 2012.

38 CIT GROUP INC

† Tier 1 and Total Capital ratios at June 30, 2012 were 18.0% and 18.9%, respectively, improved from March 31, 2012, but down from December 31, 2011, and remain well above regulatory requirements.

3. Expand Bank Assets and Funding

† Total assets at CIT Bank increased to $10.0 billion from $6.9 billion at June 30, 2011 and $9.6 billion at March 31, 2012. Commercial loans and leases of $6.3 billion increased from $2.2 billion at June 30, 2011 and $5.1 billion at March 31, 2012.

† Second quarter committed loan volume at CIT Bank rose 62% from the year-ago period and increased 10% sequentially to $1.8 billion, of which nearly $1.5 billion was funded.

† Deposits increased, both in dollars and as a percentage of total CIT funding. As of June 30, 2012, deposits were $7.2 billion and comprised 23% of total CIT funding, compared to 21% and 13% at March 31, 2012 and June 30, 2011, respectively.

† During the second quarter, CIT Bank placed over $1.1 billion of deposits at an average rate of approximately 1.4% and an average CD term of over three years that replaced maturing deposits at higher rates.

During the remainder of 2012 we will continue to advance these business priorities, as well as enhance internal control functions and our relationships with our regulators.

2012 FINANCIAL OVERVIEW

2012 operating results reflected increased commercial business activity, further progress advancing our liability restructuring and ongoing portfolio optimization efforts.

Net loss for the quarter and six months ended June 30, 2012 totaled $71 million and $517 million, $0.35 and $2.57 per diluted share, largely influenced by accelerated FSA net discount/(premium) on debt extinguishments and repurchases, loss on debt extinguishments and prepayment costs ("debt refinancing charges"). These net losses compare to a net loss of $50 million for the 2011 second quarter, $0.25 per diluted share, and net income for the six months ended June 20, 2011 of $16 million, $0.08 per diluted share. The 2012 amounts included debt refinancing charges of $286 million in the second quarter and $906 million year to date related to the redemption of high cost debt, while the year-ago periods included debt refinancing charges of $163 million for the quarter and $210 million for the year to date.

Pre-tax loss totaled $42 million for the 2012 second quarter and $447 million year to date, compared to a pre-tax loss of $29 million for the second quarter of 2011 and pre-tax income of $103 million for the six months. Excluding debt refinancing charges, pre-tax income was $245 million for the quarter and $459 million for the six months, respectively, improved from $134 million in the 2011 second quarter and $313 million for the prior-year six months. Pre-tax income excluding debt refinancing charges and net FSA accretion/amortization(2) for the 2012 second quarter was $119 million and $274 million year to date, driven by lower funding costs and lower credit costs, up from $17 million in the 2011 second quarter and $71 million for the prior-year six months. The 2012 quarter and year to date included net FSA costs of $139 million and $677 million, primarily due to the acceleration of interest expense related to the redemption of high cost debt, while the 2011 second quarter and year to date included net FSA benefits of $4 million and $117 million.

The following table presents the pre-tax results, and adjusts for debt related transaction costs and FSA accretion. This is a non-GAAP measurement.

--------------------------------------------------------------------------------
                                                                  Quarters Ended
                                                   --------------------------------------------          Six Months Ended
                                                                                                             June 30,
                                                     June 30,       March 31,        June 30,      ----------------------------
                                                       2012            2012            2011            2012            2011
                                                   ------------    ------------    ------------    ------------    ------------
Pre-tax income/(loss) - reported                    $  (41.7 )      $ (405.7 )      $  (29.0 )      $ (447.4 )      $  103.0
Accelerated FSA net discount/(premium) on
debt extinguishments and repurchases                   264.9           596.9           113.3           861.8           124.5
Debt related - loss on debt
extinguishments                                         21.5            22.9               -            44.4               -
Debt related - prepayment costs                            -               -            50.0               -            85.0
Pre-tax income/(loss) - excluding
accelerated net FSA net
discount/(premium) on debt
extinguishments and repurchases and loss
on debt extinguishments                                244.7           214.1           134.3           458.8           312.5
Net FSA accretion (excluding debt related
acceleration)                                         (125.6 )         (59.6 )        (117.5 )        (185.2 )        (241.9 )
Pre-tax income (loss) - excluding FSA net
accretion & debt refinancing costs                  $  119.1        $  154.5        $   16.8        $  273.6        $   70.6

Item 2: Management's Discussion and Analysis and Item 3: Quantitative and Qualitative Disclosures about Market Risk 39

Net finance revenue(3) ("NFR") was $85 million in the second quarter, up from $60 million in the 2011 second quarter and a negative $(366) million in the 2012 first quarter. For the six months, NFR was negative due to a significant increase in FSA discount accretion resulting from repayments of approximately $10.6 billion of high cost debt, compared to NFR of $249 million for the 2011 six months. Average earning assets ("AEA") were $32.3 billion in the 2012 second quarter, down $2.2 billion from the year-ago quarter due primarily to asset sales and down $0.8 billion from the 2012 first quarter due primarily to student loan asset sales. NFR as a percentage of AEA ("net finance margin" or "NFM") was 1.05% in the 2012 second quarter, compared to 0.70% in the prior-year quarter and a negative amount last quarter. Excluding net FSA accretion and debt prepayment costs, net finance margin was 3.02%, improved from 1.40% in the prior-year quarter and 1.97% last quarter. The increase from the year-ago quarter was driven primarily by lower funding costs, reduction of low yielding assets, interest recoveries and other yield-related fees and the benefit from the suspension of depreciation on operating lease equipment held for sale, as discussed further in the next section, "Net Finance Revenue". The sequential quarter improvement was due primarily to improved funding costs, higher loan prepayment and interest recoveries and other yield-related fees, and the shift to higher yielding assets. Operating lease rental income increased from prior periods, benefitting from higher asset levels and improved railcar utilization. For the six months ended June 30, 2012, finance margin excluding net FSA accretion and debt prepayment costs was 2.49%, up from 1.41% last year. While other institutions may use net interest margin ("NIM"), which equates to interest income less interest expense, we discuss NFR, which includes operating lease results due to their significant impact on revenue and expense, including depreciation and interest expense associated with funds used to purchase equipment.

Provision for credit losses for the quarter ended June 30, 2012 was $9 million, compared to $84 million in the year-ago quarter and $43 million last quarter. The declines from both periods reflect lower charge-offs and a reduction in non-specific reserves in the current quarter. For the six months ended June 30, 2012, the provision for credit losses was $52 million, down from $207 million last year driven by lower charge-offs.

Other income (excluding operating lease rentals) of $144 million decreased $89 million from the prior-year quarter and $105 million sequentially, largely due to reduced gains on assets sold and higher impairment on assets held for sale. These items more than offset an increase in counterparty receivable accretion in the current period. Factoring commissions of $29 million were down slightly from the prior-year quarter and also sequentially, reflecting lower factoring volume. Year to date, other income totaled $393 million, down from $504 million last year.

Operating expenses were $240 million, up slightly from the prior-year quarter and up $17 million sequentially. The current quarter included approximately $14 million for the establishment of an indemnification reserve related to pre-emergence asset sales that should have been recorded in prior periods largely offset by benefits related to favorable resolutions of tax and legal matters. The increase from prior periods is also attributable to higher employee-related costs. Headcount at June 30, 2012 was 3,566, compared to 3,480 a year ago and 3,526 at March 31, 2012. Year to date, operating expenses totaled $464 million, compared to $443 million last year.

Provision for income taxes in the second quarter was $28 million and predominantly reflects income generated by our international operations. The tax provision increased from the year-ago quarter, primarily driven by an increase in discrete items. Included in the current period is a $16 million reduction to the provision for income taxes associated with the correction of certain foreign tax accruals relating to prior periods, which caused the sequential quarter decline. For the six months ended June 30, 2012, the provision for income taxes was $68 million, down from $84 million a year ago driven by a reduction in foreign tax expense as a result of lower international earnings and the previously mentioned correction of foreign tax accruals.

Total assets at June 30, 2012 were $42.8 billion, down $1.4 billion from March 31, 2012, and $5.4 billion from June 30, 2011. Commercial financing and leasing assets increased from prior periods, to $29.0 billion, while we further reduced consumer assets primarily through the sale of $1.1 billion of student loans. Total loans of $20.1 billion declined $2.2 billion from a year ago, and $0.4 billion sequentially, largely due to the sale of student loans. Operating lease equipment increased $1 billion from a year ago to $11.9 billion reflecting aircraft and rail car deliveries, and was essentially unchanged from March 31, 2012. Cash and short-term investments decreased $0.3 billion from March 31, 2012 to $7.0 billion as we paid down high-cost debt, reduced our contingent liquidity requirements and improved the efficiency of our sources of contingent liquidity, such as utilization of a revolving credit facility.

Funded new business volume of $2.4 billion increased 38% over the prior-year quarter and 19% sequentially, and was up 43% to $4.4 billion for the six months ended June 30, 2012 compared to last year. Committed new business volume of $2.7 billion was up 31% from the prior-year quarter and 9% sequentially, and was up 38% to $5.2 billion for the six months ended June 30, 2012 compared to last year as there were meaningful improvements in Corporate Finance, Vendor Finance and Transportation Finance. Volume increased sequentially in Transportation Finance, reflecting both lending and leasing activities, and in Vendor Finance. Trade Finance factoring volume of $5.9 billion declined modestly from the first quarter of 2012 and by approximately 4% from the prior-year quarter. Factoring volume of $11.9 billion for the six months ended June 30, 2012, was down 3% from the 2011 period.

(3) Net finance revenue, average earning assets and net operating lease revenue are non-GAAP measures; see "Non-GAAP Financial Measurements" for a reconciliation of non-GAAP to GAAP financial information.

40 CIT GROUP INC

Credit metrics trends continued to be favorable, as net charge-offs and non-accrual loans declined from the prior-year quarter and sequentially. Net charge-offs were $17 million, or 0.33% as a percentage of average finance receivables, down from $55 million (0.95%) in the year-ago quarter and $22 million (0.44%) in the prior quarter. Net charge-offs in our commercial segments were 0.42% of average finance receivables in the current quarter, improved from 1.38% in the year-ago quarter and 0.56% in the prior quarter. The reduction from the prior-year quarter reflects improvements in Corporate Finance and Vendor Finance, while the sequential quarter decline was almost entirely attributable to Transportation Finance. Non-accrual loans were $455 million, or 2.26% of finance receivables at June 30, 2012, down from $1.1 billion (4.77%) at June 30, 2011 and $482 million (2.35%) at March 31, 2012. Non-accrual loans as a percentage of finance receivables in the commercial segments was 2.80% at June 30, 2012, improved from 6.96% at June 30, 2011 and 3.03% at March 31, 2012, reflecting broad-based improvement across the commercial segments. The sequential quarter improvement was largely attributable to improvements in Corporate Finance, reflecting the repayment and sale of loans, and in Vendor Finance.

The following tables present management's view of consolidated margin and include the net interest spread we make on loans and leased equipment, in dollars and as a percent of average earning assets.

Net Finance Revenue (dollars in millions)
--------------------------------------------------------------------------------
                                                                            Quarters Ended
                                                         -----------------------------------------------------             Six Months Ended
                                                                                                                               June 30,
                                                            June 30,           March 31,          June 30,        ----------------------------------
                                                              2012               2012               2011               2012               2011
                                                         ---------------    ---------------    ---------------    ---------------    ---------------
Interest income                                           $    409.3         $    411.6         $    599.6         $    820.9         $  1,238.4
Rental income on operating leases                              445.5              439.3              420.2              884.8              829.1
Finance revenue                                                854.8              850.9            1,019.8            1,705.7            2,067.5
Interest expense                                              (639.2 )         (1,079.7 )           (806.4 )         (1,718.9 )         (1,505.0 )
Depreciation on operating lease equipment                     (130.7 )           (137.5 )           (153.2 )           (268.2 )           (313.4 )
Net finance revenue                                       $     84.9         $   (366.3 )       $     60.2         $   (281.4 )       $    249.1
Average Earning Assets ("AEA")                            $ 32,307.7         $ 33,060.9         $ 34,500.9         $ 32,672.8         $ 34,918.3
As a % of AEA:
Interest income                                                 5.07 %             4.98 %             6.95 %             5.02 %             7.09 %
Rental income on operating leases                               5.51 %             5.31 %             4.87 %             5.42 %             4.75 %
Finance revenue                                                10.58 %            10.29 %            11.82 %            10.44 %            11.84 %
Interest expense                                               (7.91 )%          (13.06 )%           (9.35 )%          (10.52 )%           (8.62 )%
Depreciation on operating lease equipment                      (1.62 )%           (1.66 )%           (1.77 )%           (1.64 )%           (1.79 )%
Net finance revenue                                             1.05 %            (4.43 )%            0.70 %            (1.72 )%            1.43 %
As a % of AEA by Segment:
Corporate Finance                                               2.21 %            (2.25 )%            3.00 %             0.02 %             3.72 %
Transportation Finance                                          0.82 %            (4.72 )%            1.30 %            (1.92 )%            1.66 %
Trade Finance                                                  (1.31 )%           (5.98 )%           (3.26 )%           (3.74 )%           (2.90 )%
Vendor Finance                                                  4.56 %            (1.61 )%            5.02 %             1.49 %             6.13 %
Commercial Segments                                             1.81 %            (3.53 )%            2.31 %            (0.84 )%            2.96 %
Consumer                                                        1.76 %            (0.99 )%            1.03 %             0.24 %             0.96 %

Average earning assets are less than comparable balances displayed later in this document in 'Select Quarterly Financial Data' (Quarterly Average Balances) due to the exclusion of deposits with banks and other investments and the inclusion of credit balances of factoring clients.

Net finance revenue (NFR) of $85 million for the quarter ended June 30, 2012 improved over the prior-year quarter, driven by lower funding costs. NFR continues to be significantly impacted by FSA accretion. Net FSA accretion decreased NFR by $184 million during the current quarter, compared to a decrease of $76 million (including $50 million of prepayment costs) in the prior-year quarter and a $546 million decrease in the prior quarter, which included higher debt FSA discount accretion resulting from repayments of high cost debt ("accelerated debt FSA discount accretion"). Other than debt-related FSA accretion,

Item 2: Management's Discussion and Analysis and Item 3: Quantitative and Qualitative Disclosures about Market Risk 41

FSA accretion has declined significantly from the prior year. See Fresh Start Accounting section for FSA accretion details.

Interest income was down from the prior-year quarter and slightly below the prior quarter reflecting lower FSA accretion and declines in average earning assets. FSA accretion was $77 million in the current quarter, down from $221 million in the prior-year quarter and $91 million in the prior quarter. See "Fresh Start Accounting" later in this document. The 2012 year-to date benefit of $168 million was well below the prior year benefit of $467 million. The remaining accretable FSA discount on loans was $453 million at June 30, 2012, down from $977 million at June 30, 2011 and $544 million at March 31, 2012. Quarter and year-to date average earning asset balances were down from 2011 largely due to asset sales and repayments, and down sequentially reflecting student loan sales and collections.

Interest expense for 2012 included accelerated debt FSA discount accretion resulting from repayments of approximately $10.6 billion in high cost debt, including $4.2 billion in the second quarter, as management continued to reduce CIT's cost of capital via the repayment of high cost debt. Interest expense in the second quarter of 2012 included $265 million of accelerated FSA debt accretion, while the prior-year quarter had $163 million, including $50 million of prepayment penalties. Year to date, accelerated FSA debt accretion totaled $862 million compared to $210 million (including $85 million of prepayment penalties) last year. Interest expense in the third quarter will reflect the redemption of $3.9 billion of Series C Notes in August and September 2012, which will increase interest expense by up to $370 million for the acceleration of FSA discount amortization.

Second quarter senior unsecured debt issuances, the proceeds of which were used to redeem high cost debt, included the May 4, 2012 issuance at par of $1.25 billion of notes that mature in 2017 and bear interest at a rate of 5.00% and $750 million of notes that mature in 2020 and bear interest at a rate of 5.375%. First quarter Series C Notes and other unsecured note transactions, as well as secured financing transactions, are discussed in Funding, Liquidity and Capital. On August 3, 2012, CIT issued at par $1.75 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 4.25% and $1.25 billion of senior unsecured notes that mature in 2022 and bear interest at a rate of 5.00%.

Deposits have increased, both in dollars and proportion of total CIT funding (23% at June 30, 2012 compared to 21% and 13% at March 31, 2012 and June 30, 2011, respectively). The weighted average rate of deposits at June 30, 2012 was 2.15%, compared to 2.45% and 3.14% at March 31, 2012 and June 30, 2011, respectively. During the 2012 second quarter, CIT Bank issued over $1.1 billion of deposits at a weighted average rate of 1.4% with an average CD term of over three years. In the 2012 first quarter, approximately $750 million of deposits were issued at a weighted average rate of 1.12%.

As a result of our 2012 debt restructurings and the increased proportion of deposits to our total funding, we reduced weighted average coupon rates of outstanding deposits and long-term borrowings to 3.83% at June 30, 2012 from 4.24% and 5.11% at March 31, 2012 and June 30, 2011, respectively. Including the unsecured debt issued on August 3, 2012 and the July 20 and August 6, 2012 announced redemptions of Series C Notes, the weighted average coupon rates on outstanding deposits and long-term borrowings would have been 3.50% at June 30, 2012. See Select Financial Data section for more information on debt rates.

As detailed in the following table, NFR as a percentage of AEA included significant impact from net FSA accretion and debt prepayment penalties.