NOTE 7 — FAIR VALUE

Fair Value Hierarchy

The Company is required to report fair value measurements for specified classes of assets and liabilities. See the Company's Form 10-K, "Note 1 – Business and Summary of Significant Accounting Policies" for description of its fair value measurement policy.

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

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

June 30, 2011	Total	Level 1	Level 2	Level 3
Assets
Debt Securities available for sale	$ 2,700.1	$ 0	$ 2,700.1	$ 0
Equity Securities available for sale	22.7	19.3	3.4	0
Trading assets at fair value - derivatives	12.6	0	12.6	0
Derivative counterparty assets at fair value	0.7	0	0.7	0
Total Assets	$ 2,736.1	$ 19.3	$ 2,716.8	$ 0
Liabilities
Trading liabilities at fair value - derivatives	$ (230.6)	$ 0	$ (230.6)	$ 0
Derivative counterparty liabilities at fair value	(136.6)	0	(136.6)	0
Total Liabilities	$ (367.2)	$ 0	$ (367.2)	$ 0

December 31, 2010	Total	Level 1	Level 2	Level 3
Assets
Equity Securities available for sale	$ 37.5	$ 16.2	$ 3.4	$ 17.9
Trading assets at fair value - derivatives	25.7	0	25.7	0
Derivative counterparty assets at fair value	7.7	0	7.7	0
Total Assets	$ 70.9	$ 16.2	$ 36.8	$ 17.9
Liabilities
Trading liabilities at fair value - derivatives	$ (126.3)	$ 0	$ (126.0)	$ (0.3)
Derivative counterparty liabilities at fair value	(74.5)	0	(74.5)	0
Total Liabilities	$ (200.8)	$ 0	$ (200.5)	$ (0.3)

The following table presents the current carrying value of the financial instruments for which a non-recurring change in fair value has been recorded, and the associated pre-tax impact:

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


		Fair Value Measurements at Reporting Date Using:
June 30, 2011	Total	Level 1	Level 2	Level 3	Total Losses
Assets
Assets Held for Sale	$ 30.0	$ 0	$ 0	$ 30.0	$ (4.0)
Impaired loans	141.3	0	0	141.3	(29.7)
Total	$ 171.3	$ 0	$ 0	$ 171.3	$ (33.7)

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

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

Level 3 Gains and Losses

The tables below set forth a summary of changes in the estimated fair value of the Company's Level 3 financial assets and liabilities measured on a recurring basis. At June 30, 2011 the Company's Level 3 financial assets measured on a recurring basis were zero as a result of sales and maturities.

	Total	Derivatives	Equity Securities available for sale
Assets and Liabilities
March 31, 2011	$ (0.3)	$ (0.3)	$ 0
Gains or losses realized/unrealized
Included in other income	0.3	0.3	0
Quarter Ended June 30, 2011	$ 0	$ 0	$ 0
December 31, 2010	$ 17.6	$ (0.3)	$ 17.9
Gains or losses realized/unrealized
Included in other income	5.7	0.3	5.4
Other net, (primarily sales proceeds)	(23.3)	0	(23.3)
Six Months Ended June 30, 2011	$ 0	$ 0	$ 0

FAIR VALUES OF FINANCIAL INSTRUMENTS

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


	June 30, 2011		December 31, 2010
	Carrying	Estimated	Carrying	Estimated
	Value	Fair Value	Value	Fair Value

Assets
Trading assets - derivatives	$ 12.6	$ 12.6	$ 25.7	$ 25.7
Derivative counterparty assets at fair value	0.7	0.7	7.7	7.7
Assets held for sale (excluding leases) ⁽¹⁾	1,058.1	1,208.4	466.0	466.0
Loans (excluding leases)	17,181.5	17,116.2	20,680.3	21,356.8
Investment Securities	2,983.3	2,986.0	328.5	330.2
Other assets and unsecured counterparty receivable ⁽²⁾	1,486.7	1,486.7	1,507.6	1,507.6
Liabilities
Deposits ⁽³⁾	(4,453.0)	(4,507.6)	(4,562.7)	(4,660.0)
Trading liabilities - derivatives	(230.6)	(230.6)	(126.3)	(126.3)
Derivative counterparty liabilities at fair value	(136.6)	(136.6)	(74.5)	(74.5)
Long-term borrowings ⁽³⁾	(31,051.1)	(32,897.6)	(34,208.1)	(36,452.0)
Other liabilities ⁽⁴⁾	(1,652.5)	(1,652.5)	(1,769.9)	(1,769.9)

(1)	Prior period balances have been conformed to current period presentation to exclude finance leases.
(2)	Other assets subject to fair value disclosure include accrued interest receivable and other receivables, certain investment securities and miscellaneous other assets whose carrying values approximate fair value.
(3)	Deposits and long-term borrowings include accrued interest.
(4)	Other liabilities include accrued liabilities, which have a fair value that approximates carrying value.

Assumptions used to value financial instruments as of June 30, 2011 are unchanged from those disclosed in "Note 10 – Fair Value" of the 2010 Form 10-K.

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

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

Loans – Since there is no liquid secondary market for most loans in the Company's portfolio, the fair value is estimated based on discounted cash flow analysis. In addition to the characteristics of the underlying contracts, key inputs to the analysis include interest rates, prepayment rates, and credit spreads. For the commercial loan portfolio, the market based credit spread inputs are derived from instruments with comparable credit risk characteristics obtained from independent third party vendors. For the consumer loan portfolio, the discount spread is derived based on the company's estimate of a market participant's required return on equity that incorporate credit loss estimates based on expected and current default rates.

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

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