UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2005

OR

Commission File Number: 001-31369

CIT Group Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number including area code: (212) 536-1211

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |X| No|_|.

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No|X|.         

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No|_|.

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_|

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.|_|

        The aggregate market value of voting common stock held by non-affiliates of the registrant, based on the New York Stock Exchange Composite Transaction closing price of Common Stock ($42.97 per share, 209,890,252 shares of common stock outstanding), which occurred on June 30, 2005, was $9,018,984,128. For purposes of this computation, all officers and directors of the registrant are deemed to be affiliates. Such determination shall not be deemed an admission that such officers and directors are, in fact, affiliates of the registrant. At February 15, 2006, 199,429,586 shares of CIT’s common stock, par value $0.01 per share, were outstanding.

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes|_| No |X|.

DOCUMENTS INCORPORATED BY REFERENCE

        List here under the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424 (b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

        Portions of the registrant’s definitive proxy statement relating to the 2006 Annual Meeting of Stockholders are incorporated by reference into Part III hereof to the extent described herein.

See pages 103 to 105 for the exhibit index.

ITEM 1. Business

BUSINESS DESCRIPTION

CIT Group Inc., a Delaware corporation (“we,” “CIT” or the “Company”), is a leading global commercial and consumer finance company with a focus on middle-market companies. Founded in 1908, we provide financing and leasing capital for consumers and companies in a wide variety of industries. We offer vendor, equipment and commercial finance products, factoring, home lending, small business lending, student lending, structured financing products, and commercial real estate financing, as well as mergers and acquisitions and management advisory services. We manage $62.9 billion in assets, including $7.3 billion in securitized assets. Our owned financing and leasing assets were $55.6 billion and common stockholders’ equity was $6.5 billion at December 31, 2005.

We have broad access to customers and markets through our diverse businesses. Each business has industry alignment and focuses on specific sectors, products, and markets, with portfolios diversified by client and geography. The majority of our businesses focus on commercial clients ranging from small to larger companies with particular emphasis on the middle-market. We serve a wide variety of industries, including manufacturing, transportation, retailing, wholesaling, construction, healthcare, communications and various service-related industries. We also provide financing to consumers in the home and student loan markets.

Our commercial products include direct loans and leases, operating leases, leveraged and single investor leases, secured revolving lines of credit and term loans, credit protection, accounts receivable collection, import and export financing, debtor-in-possession and turnaround financing, acquisition and expansion financing and U.S. government-backed small business loans. Consumer products are primarily first mortgage loans and government-backed student loans. Our commercial and consumer offerings include both fixed and floating-interest rate products.

We also offer a wide variety of services to our commercial and consumer clients, including capital markets structuring and syndication, finance-based insurance, and advisory services in asset finance, balance sheet restructuring, merger and acquisition and commercial real estate analysis.

We generate transactions through direct calling efforts with borrowers, lessees, equipment end-users, vendors, manufacturers and distributors, and through referral sources and other intermediaries. In addition, our business units work together both in referring transactions among units (i.e. cross-selling) and by combining various products and structures to meet our customers’ overall financing needs. We also buy and sell participations in and syndications of finance receivables and lines of credit. From time to time, in the normal course of business, we purchase finance receivables on a wholesale basis (commonly called bulk portfolio purchases).

We generate revenue by earning interest income on the loans we hold on our balance sheet, collecting rentals on the equipment we lease and generating fee and other income from our service-based operations. We also sell certain finance receivables and equipment to reduce our concentration risk, manage our balance sheet or improve profitability.

We fund our businesses in the capital markets. The primary funding sources are term debt (U.S., European, and other), commercial paper (U.S., Canada and Australia), and asset-backed securities (U.S. and Canada).

SEGMENT AND CONCENTRATION DATA

See the “Results by Business Segments” and “Concentrations” sections of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk, and Notes 5 and 20 of Item 8. Financial Statements and Supplementary Data, for additional information. See page 9 for a glossary of key terms used by management in our business.

CIT meets customers’ financing needs through six business segments organized into two groups.

Specialty Finance Group

We deliver significant value to vendor and consumer markets through our core strengths in relationship management, risk and behavior scoring capabilities, and global servicing reach.

Commercial Finance Group

We use our product acumen, industry expertise, structuring capabilities and rapid decision making to build enduring relationships by offering clients a full suite of products and services through business cycles.

SPECIALTY FINANCE GROUP

Specialty Finance – Commercial

Our Specialty Finance – Commercial segment includes financing and leasing assets in our vendor programs, small business lending operation and the remaining assets of our liquidating portfolios (principally manufactured housing).

Through our global relationships with industry-leading equipment vendors, including manufacturers, dealers, and distributors, we deliver customized financing solutions to both commercial and consumer customers of our vendor partners in a wide array of programs. These alliances allow our vendor partners to focus on their core competencies, reduce capital needs, manage credit risk and drive incremental sales volume. As a part of these programs, we offer (1) credit financing to the commercial and consumer end users for the purchase or lease of products, and (2) enhanced sales tools, such as asset management services, efficient loan processing, and real-time credit adjudication.

Certain of these partnership programs provide integration with the vendor’s business planning process and product offering systems to improve execution and reduce cycle times. We have significant vendor programs in information technology, telecommunications equipment, and healthcare, and we serve many other industries through our global network.

Our vendor alliances feature traditional vendor finance programs, joint ventures, profit sharing, and other transaction structures with large, sales-oriented vendor partners. In the case of joint ventures, we and the vendor combine financing activities through a distinct legal entity that is jointly owned. Generally, we account for these arrangements on an equity basis, with profits and losses distributed according to the joint venture agreement, and we purchase qualified finance receivables originated by the joint venture. We also use “virtual joint ventures,” by which the assets are originated on our balance sheet, while profits and losses are shared with the vendor. These strategic alliances are a key source of business for us.

Vendor finance also includes a small and mid-ticket commercial business which focuses on leasing office products, computers, and other technology products primarily in the United States and Canada. We originate products through relationships with manufacturers, dealers, distributors, and other intermediaries as well as through direct calling.

Our small business lending unit is primarily focused on originating and servicing loans under the U.S. government’s Small Business Administration’s 7(a) loan program. Loans are granted to qualifying clients in the retail, wholesale, manufacturing, and service sectors. CIT is an SBA preferred lender and has been recognized as the nation’s #1 SBA Lender (based on volume) in each of the last six years.

Specialty Finance – Commercial also houses our Global Insurance Services unit, through which we offer insurance products to existing CIT clients. We offer various collateral protection and credit insurance products that are underwritten by third parties. Revenue from this operation is allocated to the unit with the underlying financing relationship.

Specialty Finance – Consumer

Specialty Finance – Consumer includes our home lending and student loan operations and CIT Bank, a Utah-based industrial bank with deposit-taking capabilities.

The home lending unit primarily originates, purchases and services loans secured by first or second liens on detached, single-family, residential properties. Products include both fixed and variable-rate, closed-end loans, and variable-rate lines of credit. Customers borrow to finance a home purchase, consolidate debts, refinance an existing mortgage, pay education expenses, or for other purposes.

Loans are originated through brokers and correspondents with a high proportion of home lending applications processed electronically over the Internet via BrokerEdge^SM , a proprietary system. Through experienced lending professionals and automation, we provide rapid turnaround time from application to loan funding, which is critical to broker relationships. We also buy/sell individual loans and portfolios of loans from/to banks, thrifts, and other originators of consumer loans to maximize the value of our origination network, to manage risk and to improve overall profitability.

Our centralized consumer asset service center services and collects substantially all of our consumer receivables, other than student loans, including loans retained in our portfolio and loans subsequently securitized or sold with servicing retained. We also service portfolios of loans owned by third parties for a fee on a “contract” basis. These third-party portfolios totaled $3.0 billion at December 31, 2005.

In 2005, we broadened our consumer product offerings with the acquisition of Education Lending Group. Our student lending unit, which markets under the name Student Loan Xpress, offers student loan products, services, and solutions to students, parents, schools, and alumni associations. Our business is focused on originating and purchasing government-guaranteed student loans made under the Federal Family Education Loan Program, known as FFELP, which includes consolidation loans, Stafford loans and Parent Loans for Undergraduate Students (PLUS). We also offer and purchase alternative supplemental loans that may be guaranteed by a third-party guarantor.

To date, the majority of the loans we have originated are consolidation loans. We generally hold these loans on our balance sheet. Currently, we sell most of Stafford and PLUS loans we originate in the secondary market. The majority of our outstanding student loans are currently serviced by third parties, but we are shifting servicing in-house to Student Loan Xpress.

CIT Bank, with assets of $368 million and deposits of $273 million, is located in Salt Lake City, Utah and provides a benefit to us in the form of favorable funding rates for various

consumer and small business financing programs in both the local and national marketplace. CIT Bank also originates certain loans generated by bank affiliation programs with manufacturers and distributors of consumer products. The Bank is chartered by the state of Utah as an industrial bank and is subject to regulation and examination by the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions.

COMMERCIAL FINANCE GROUP

Commercial Services

Our Commercial Services segment provides factoring, receivable and collection management products, and secured financing to companies in apparel, textile, furniture, home furnishings, and other industries.

We offer a full range of domestic and international customized credit protection, lending, and outsourcing services that include working capital and term loans, factoring, receivable management outsourcing, bulk purchases of accounts receivable, import and export financing, and letter of credit programs.

We provide financing to clients through the purchase of accounts receivable owed to clients by their customers, as well as by guaranteeing amounts due under letters of credit issued to the clients’ suppliers, which are collateralized by accounts receivable and other assets. The purchase of accounts receivable is traditionally known as “factoring” and results in the payment by the client of a factoring fee that is commensurate with the underlying degree of credit risk and recourse, and which is generally a percentage of the factored receivables or sales volume. When we “factor” (i.e., purchase) a customer invoice from a client, we record the customer receivable as an asset and also establish a liability for the funds due to the client (“credit balances of factoring clients”). We also may advance funds to our clients before collecting the receivables, typically in an amount up to 80% of eligible accounts receivable (as defined for that transaction), charging interest on advances (in addition to any factoring fees), and satisfying advances by the collection of receivables. We integrate our clients’ operating systems with ours to facilitate the factoring relationship.

Clients use our products and services for various purposes, including improving cash flow, mitigating or reducing credit risk, increasing sales, and improving management information. Further, with our TotalSource^SM product, our clients can out-source their bookkeeping, collection, and other receivable processing to us. These services are attractive to industries outside the traditional factoring markets. We generate business regionally from a variety of sources, including direct calling efforts and referrals from existing clients and other referral sources. We have centralized our accounts receivable, operations, and other administrative functions.

Corporate Finance

Our Corporate Finance segment provides secured financing, including term and revolving loans based on asset values, as well as cash flow and enterprise value, to a full range of borrowers from small to larger-sized companies, with emphasis on the middle market. We service clients in a broad array of industries with focused industry specialized groups serving communications, media and entertainment, energy and infrastructure, healthcare, commercial real estate and sponsor finance sectors in the U.S. and abroad.

We offer loan structures ranging from asset-based revolving and term loans secured by accounts receivable, inventories, and fixed assets to loans based on earnings performance and enterprise valuations to mid- and larger-sized companies. Our clients use these loans primarily for working capital, asset growth, acquisitions, debtor-in-possession financing, and debt restructurings. We sell and purchase participation interests in these loans to and from other lenders.

We meet our customer financing needs through our variable rate, senior revolving and term loan products. We primarily structure financings on a secured basis, although we will periodically extend loans based on the sustainability of a customer’s operating cash flow and ongoing enterprise valuations. We make revolving and term loans on a variable interest-rate basis based on published indices such as LIBOR or the prime rate of interest.

We also offer clients an array of financial and advisory services through an investment banking unit. The unit offers capital markets structuring and syndication capabilities as well as merger and acquisition, commercial real estate and balance sheet restructuring advisory services.

Capital Finance

Our Capital Finance segment specializes in providing customized leasing and secured financing primarily to end-users of aircraft, locomotives, and railcars. Our services include operating leases, single investor leases, equity portions of leveraged leases, and sale and leaseback arrangements, as well as loans secured by equipment. Our typical customers are major and regional, domestic and international airlines, North American railroad companies, and middle-market to larger-sized companies. We generate new business through direct calling, supplemented with transactions introduced by intermediaries and other referrals.

We have provided financing to commercial airlines for over 30 years, and our commercial aerospace portfolio includes most of the leading U.S. and foreign commercial airlines. As of December 31, 2005, our commercial aerospace financing and leasing portfolio was $6.0 billion, consisting of 93 accounts and 215 aircraft with a weighted average age of approximately 6 years. We have developed strong relationships with most

major airlines and major aircraft and aircraft engine manufacturers. These relationships provide us with access to technical information, which enhances our customer service and provides opportunities to finance new business. We have entered into purchase commitments with aircraft manufacturers for 66 aircraft to be delivered through 2013 at a current price of $3.3 billion. In 2005, we opened our international aerospace servicing center, located in Dublin, Ireland, following the American Jobs Creation Act of 2004, which provides favorable tax treatment for certain aircraft leasing operations conducted offshore. See “Concentrations” section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16 – Commitments and Contingencies of Item 8. Financial Statements and Supplementary Date for further discussion of our aerospace portfolio.

We have been financing the rail industry for over 25 years. Our dedicated rail equipment group maintains relationships with several leading railcar manufacturers and calls directly on railroads and rail shippers in North America. Our rail portfolio, which totaled $3.5 billion at December 31, 2005, includes leases to all of the U.S. and Canadian Class I railroads (which are railroads with annual revenues of at least $250 million) and other non-rail companies, such as shippers and power and energy companies. The operating lease fleet primarily includes: covered hopper cars used to ship grain and agricultural products, plastic pellets and cement; gondola cars for coal, steel coil and mill service; open hopper cars for coal and aggregates; center beam flat cars for lumber; boxcars for paper and auto parts; and tank cars. Our railcar operating lease fleet is relatively young, with an average age of approximately 7 years and approximately 87% (based on net investment) built in 1996 or later. The rail owned and serviced fleet totals in excess of 80,000 railcars and over 500 locomotives.

Our Capital Finance segment has a global presence with operations in the United States, Canada, and Europe. We have extensive experience in managing equipment over its full life cycle, including purchasing new equipment, maintaining equipment, estimating residual values, and re-marketing by releasing or selling equipment. We manage the equipment, the residual value, and the risk of equipment remaining idle for extended periods of time, and, where appropriate, we locate alternative equipment users or purchasers.

Equipment Finance

Our Equipment Finance segment is a middle-market secured equipment lender with a strong market presence throughout North America. We provide customized financial solutions for our customers, which include manufacturers, dealers, distributors, intermediaries, and end-users of equipment. Our financing and leasing assets reflect a diverse mix of customers, industries, equipment types, and geographic areas.

Our primary products in Equipment Finance include loans, leases, wholesale and retail financing packages, operating leases, sale-leaseback arrangements, and revolving lines of credit. A core competency for us is assisting customers with the total life-cycle management of their capital assets including acquisition, maintenance, refinancing, and the eventual liquidation of their equipment. We originate our products through direct relationships with manufacturers, dealers, distributors and intermediaries, and through an extensive network of direct sales representatives and business partners located throughout the United States and Canada.

We build competitive advantage through an experienced staff that is both familiar with local market factors and knowledgeable about the industries they serve. We achieve operating efficiencies through our two servicing centers located in Tempe, Arizona and Burlington, Ontario. These offices centrally service and collect loans and leases originated throughout the United States and Canada.

Our Equipment Finance segment is organized in three primary operating units: Construction, Diversified Industries, and Canadian Operations. Our Construction unit has provided financing to the construction industry in the United States for over fifty years. Products include equipment loans and leases, collateral and cash flow loans, revolving lines of credit, and other products that are designed to meet the special requirements of contractors, distributors, and dealers. Our Diversified Industries unit offers a wide range of financial products and services to customers in specialized industries such as food and beverage, defense and security, mining and energy, and regulated industries. Our Canadian Operation has leadership positions in the construction, healthcare, printing, plastics, and machine tool industries.

Effective January 1, 2006, we realigned select business operations to better serve our clients. Following is a summary of the changes from the reporting contained herein.

•	The Small Business Lending unit ($1.3 billion in owned assets at December 31, 2005) was transferred from Specialty Finance – Commercial to Specialty Finance – Consumer, reflecting commonalities with our home lending and student loan businesses.

•

Consistent with our strategic focus on industry alignment, the Equipment Finance segment has been consolidated into our Corporate Finance segment. This combination will allow us to provide clients in the construction and selected other industries access to the full complement of CIT’s products and services.

•	We have also made name changes to clarify the market focus of our segments.

(a)

Specialty Finance – Commercial has been renamed Vendor Finance

(b)

Specialty Finance – Consumer has been renamed Consumer / Small Business Lending

(c)

Commercial Services has been renamed Trade Finance

(d)

Capital Finance has been renamed Transportation Finance

CIT employed approximately 6,340 people at December 31, 2005, of which approximately 4,865 were employed in the United States and approximately 1,475 were outside the United States.

Our markets are highly competitive, based on factors that vary depending upon product, customer, and geographic region. Our competitors include captive and independent finance companies, commercial banks and thrift institutions, industrial banks, leasing companies, insurance companies, hedge funds, manufacturers, and vendors. Many bank holding, leasing, finance, and insurance companies that compete with us have formed substantial financial services operations with global reach. On a local level, community banks and smaller independent finance and mortgage companies are competitive with substantial local market positions. Many of our competitors are large companies that have substantial capital, technological, and marketing resources. Some of these competitors are larger than we are and may have access to capital at a lower cost than we do. The markets for most of our products have a large number of competitors, although the number of competitors has fallen in recent years because of continued consolidation in the industry.

We compete primarily on the basis of financing terms, structure, client service, and price. From time to time, our competitors seek to compete aggressively on the basis of these factors and we may lose market share to the extent we are unwilling to match competitor pricing and terms in order to maintain interest margins or credit standards, or both.

Other primary competitive factors include industry experience, equipment knowledge, and relationships. In addition, demand for an industry’s services and products and industry regulations will affect demand for our products in some industries.

In some instances, our operations are subject to supervision and regulation by federal, state, and various foreign governmental authorities. Additionally, our operations may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions. This oversight may serve to:

In addition, CIT Bank, a Utah industrial bank wholly owned by CIT, is subject to regulation and examination by the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions. CIT Small Business Lending Corporation, a Delaware corporation, is licensed by and subject to regulation and examination by the U.S. Small Business Administration. CIT Capital Securities L.L.C., a Delaware limited liability company, is a broker-dealer licensed by the National Association of Securities Dealers, and is subject to regulation by the NASD and the Securities and Exchange Commission. CIT Bank Limited, an English corporation, is licensed as a bank and subject to regulation and examination by the Financial Service Authority of the United Kingdom.

Our insurance operations are conducted through the Equipment Insurance Company, a Vermont corporation, and Highlands Insurance Company Limited, a Barbados company. Each company is licensed to enter into insurance contracts. They are regulated by the local regulators in Vermont and Barbados. In addition, we have various banking corporations in France, Italy, Belgium, Sweden, and the Netherlands and broker-dealer entities in Canada and the United Kingdom, each of which is subject to regulation and examination by banking regulators and securities regulators in their home country.

Average Earning Assets (AEA) is the average during the reporting period of finance receivables, operating lease equipment, financing and leasing assets held for sale, and some investments, less the credit balances of factoring clients. We use this average for certain key profitability ratios, including return on AEA and margins as a percentage of AEA.

Average Finance Receivables (AFR) is the average during the reporting period of finance receivables and includes loans and finance leases. It excludes operating lease equipment. We use this average to measure the rate of net charge-offs on an owned basis for the period.

Average Managed Assets (AMA) is the average earning assets plus the average of finance receivables previously securitized and still managed by us. We use this average to measure the rate of net charge-offs on a managed basis for the period, to monitor overall credit performance, and to monitor expense control.

Capital is the sum of common equity, preferred stock, and preferred capital securities.

Derivative Contract is a contract whose value is derived from a specified asset or an index, such as interest rates or foreign currency exchange rates. As the value of that asset or index changes, so does the value of the derivative contract. We use derivatives to reduce interest rate, foreign currency or credit risks. The derivative contracts we use include interest-rate swaps, cross-currency swaps, foreign exchange forward contracts, and credit default swaps.

Efficiency Ratio is the percentage of salaries and general operating expenses (including provision for restructuring) to operating margin, excluding the provision for credit losses. We use the efficiency ratio to measure the level of expenses in relation to revenue earned.

Finance Income includes both interest income on finance receivables and rental income on operating leases.

Financing and Leasing Assets include loans, capital and finance leases, leveraged leases, operating leases, assets held for sale, and other investments.

Lease – capital and finance is an agreement in which the party who owns the property (lessor) permits another party (lessee) to use the property with substantially all of the economic benefits and risks of ownership passed to the lessee.

Lease – leveraged is a lease in which a third party, a long-term creditor, provides non-recourse debt financing. We are party to these lease types as creditor or as lessor.

Lease – tax-optimized leveraged lease is a lease in which we are the lessor and a third-party creditor has a priority claim to the leased equipment. We have an increased risk of loss in the event of default in comparison to other leveraged leases, because they typically feature higher leverage to increase tax benefits.

Lease – operating is a lease in which we retain beneficial ownership of the asset, collect rental payments, recognize depreciation on the asset, and retain the risks of ownership, including obsolescence.

Managed Assets are comprised of finance receivables, operating lease equipment, finance receivables held for sale, some investments, and receivables securitized and still managed by us. The change in managed assets during a reporting period is one of our measurements of asset growth.

Net Revenue is the sum of net finance margin and other revenue.

Non-GAAP Financial Measures are balances, amounts or ratios that do not readily agree to balances disclosed in financial statements presented in accordance with accounting principles generally accepted in the U.S. We use non-GAAP measures to provide additional information and insight into how current operating results and financial position of the business compare to historical operating results and the financial position of the business and trends, after adjusting for certain nonrecurring, or unusual, transactions.

Non-performing Assets include loans placed on non-accrual status, due to doubt of collectibility of principal and interest, and repossessed assets.

Non-spread Revenue includes syndication fees, gains from dispositions of receivables and equipment, factoring commissions, loan servicing and other fees and is reported in Other Revenue.

Operating Margin is the total of net finance margin after provision for credit losses (risk adjusted margin) and other revenue.

Retained Interest is the portion of the interest in assets we retain when we sell assets in a securitization transaction.

Residual Values represent the estimated value of equipment at the end of the lease term. For operating leases, it is the value to which the asset is depreciated at the end of its useful economic life (i.e., “salvage” or “scrap value”).

Return on Equity or Tangible Equity is net income expressed as a percentage of average common equity or average common tangible equity. These are key measurements of profitability.

Risk Adjusted Margin is net finance margin after provision for credit losses.

Special Purpose Entity (SPE) is a distinct legal entity created for a specific purpose in order to isolate the risks and rewards of owning its assets and incurring its liabilities. We typically use SPEs in securitization transactions, joint venture relationships, and certain structured leasing transactions.

Tangible Metrics exclude goodwill, other intangible assets, and some comprehensive income items. We use tangible metrics in measuring capitalization and returns.

Yield-related Fees In addition to interest income, in certain transactions we collect yield-related fees in connection with our assumption of underwriting risk. We report yield-related fees, which include prepayment fees and certain origination fees and are recognized over the life of the lending transaction, in Finance Income.

ITEM 1A. RISK FACTORS

You should carefully consider the following discussion of risks, and the other information provided in this Annual Report on Form 10-K. The risks described below are not the only ones facing us. Additional risks that are presently unknown to us or that we currently deem immaterial may also impact our business.

WE MAY BE ADVERSELY AFFECTED BY A GENERAL DETERIORATION IN ECONOMIC CONDITIONS.

A general recession or downturn in the economy could make it difficult for us to originate new business, given the resultant reduced demand for consumer or commercial credit. In addition, a downturn in certain industries may result in a reduced demand for the products we finance in that industry.

Credit quality may also be impacted during an economic slowdown or recession as borrowers may fail to meet their debt payment obligations. While we maintain a reserve for potential credit losses, this allowance could be insufficient depending upon the severity of the economic downturn. Adverse economic conditions may also result in declines in collateral values. As a result, higher credit and collateral related losses could impact our financial position or operating results.

OUR LIQUIDITY OR ABILITY TO RAISE CAPITAL MAY BE LIMITED.

We rely upon access to the capital markets to fund asset growth and to provide sources of liquidity. We actively manage and mitigate liquidity risk by: 1) maintaining diversified sources of funding; 2) maintaining committed alternate sources of funding; 3) maintaining a contingency funding plan to be implemented in the event of market disruption; and 4) issuing debt with maturity schedules designed to mitigate refinancing risk. Although we believe that we will maintain sufficient access to the capital markets, adverse changes in the economy, deterioration in our business performance or changes in our credit ratings could limit our access to these markets.

WE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT CHANGES IN INTEREST RATES.

Although we generally employ a matched funding approach to managing our interest rate risk, including matching the repricing characteristics of our assets with our liabilities, significant increases in market interest rates, or the perception that an increase may occur, could adversely affect both our ability to originate new finance receivables and our ability to grow. Conversely, a decrease in interest rates could result in accelerated prepayments of owned and managed finance receivables.

WE MAY NOT BE ABLE TO REALIZE OUR ENTIRE INVESTMENT IN THE EQUIPMENT WE LEASE.

The realization of equipment values (residual values) at the end of the term of a lease is an important element in the leasing business. At the inception of each lease, we record a residual value for the leased equipment based on our estimate of the future value of the equipment at the expected disposition date. Residual values are determined by experienced internal equipment management specialists, as well as external consultants.

A decrease in the market value of leased equipment at a rate greater than the rate we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on, or use of, the equipment or other factors, would adversely affect the residual values of such equipment. Consequently, there can be no assurance that our estimated residual values for equipment will be realized.

The degree of residual realization risk varies by transaction type. Capital leases bear the least risk because contractual payments cover approximately 90% of the equipment’s cost at the inception of the lease. Operating leases have a higher degree of risk because a smaller percentage of the equipment’s value is covered by contractual cashflows at lease inception. We record periodic depreciation expense on operating lease equipment based upon estimates of the equipment’s useful life and the estimated future value of the equipment at the end of its useful life. Leveraged leases bear the highest level of risk as third parties have a priority claim on equipment cashflows.

OUR RESERVE FOR CREDIT LOSSES MAY PROVE INADEQUATE.

Our business depends on the creditworthiness of our customers. We believe that our credit risk management systems are adequate to limit our credit losses to a manageable level. We attempt to mitigate credit risks through the use of a corporate credit risk management group, formal credit management processes implemented by each business unit and automated credit scoring capabilities for small ticket business.

We maintain a consolidated reserve for credit losses on finance receivables that reflects management’s judgment of losses inherent in the portfolio. We periodically review our consolidated reserve for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and non-performing assets. We cannot be certain that our consolidated reserve for credit losses will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy or events adversely affecting specific customers, industries or markets. If the credit quality of our customer base materially decreases, or if our reserves for credit losses are not adequate, our business, financial condition and results of operations may suffer.

WE MAY BE ADVERSELY AFFECTED BY THE REGULATED ENVIRONMENT IN WHICH WE OPERATE.

Our domestic operations are subject, in certain instances, to supervision and regulation by state and federal authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any license or registration at issue, as well as the imposition of civil fines and criminal penalties.

The financial services industry is heavily regulated in many jurisdictions outside the United States. As a result, growing our international operations may be challenged by the varying requirements of these jurisdictions. Given the evolving nature of regulations in many of these jurisdictions, it may be difficult for us to meet these requirements even after we establish operations and receive regulatory approvals. Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market and on our reputation generally.

WE COMPETE WITH A VARIETY OF FINANCING SOURCES FOR OUR CUSTOMERS.

Our markets are highly competitive and are characterized by competitive factors that vary based upon product and geographic region. Our competitors are varied and include captive and independent finance companies, commercial banks and thrift institutions, industrial banks, community banks, leasing companies, insurance companies, mortgage companies, manufacturers and vendors.

Competition from both traditional competitors and new market entrants has intensified in recent years due to a strong economy, growing marketplace liquidity and increasing recognition of the attractiveness of the commercial finance markets. In addition, the rapid expansion of the securitization markets is dramatically reducing the difficulty in obtaining access to capital, which is the principal barrier to entry into these markets.

We compete primarily on the basis of pricing, terms and structure. To the extent that our competitors compete aggressively on any combination of those factors, we could lose market share. Should we match competitors’ terms, it is possible that we could experience some margin compression and/or increased losses.

OUR ACQUISITION OR DISPOSITION OF BUSINESSES OR ASSET PORTFOLIOS MAY ADVERSELY AFFECT OUR BUSINESS.

As part of our long-term business strategy, we may pursue acquisitions of other companies or asset portfolios as well as dispose of non-strategic businesses or asset portfolios. Future acquisitions may result in potentially dilutive issuances of equity securities and the incurrence of additional debt, which could have a material adverse effect on our business, financial condition and results of operations. Such acquisitions may involve numerous other risks, including: difficulties in integrating the operations, services, products and personnel of the acquired company; the diversion of management’s attention from other business concerns; entering markets in which we have little or no direct prior experience; and the potential loss of key employees of the acquired company. In addition, acquired businesses and asset portfolios may have credit-related risks arising from substantially different underwriting standards associated with those businesses or assets.

In the event of future dispositions of our businesses or asset portfolios, there can be no assurance that we will receive adequate consideration for those businesses or assets at the time of their disposition or will be able to adequately replace the volume associated with the businesses or asset portfolios that we dispose of with higher-yielding businesses or asset portfolios having acceptable risk characteristics. As a result, our future disposition of businesses or asset portfolios could have a material adverse effect on our business, financial condition and results of operations.

INVESTMENT IN AND REVENUES FROM OUR FOREIGN OPERATIONS ARE SUBJECT TO THE RISKS ASSOCIATED WITH TRANSACTIONS INVOLVING FOREIGN CURRENCIES.

While we do attempt to hedge our translation and transaction exposures, foreign currency exchange rate fluctuations can have a material adverse effect on the investment in international operations and the level of international revenues that we generate from international asset based financing and leasing. Reported results from our operations in foreign countries may fluctuate from period to period due to exchange rate movements in relation to the U.S. dollar, particularly exchange rate movements in the Canadian dollar, which is our largest non-U.S. exposure. In addition, an economic recession or downturn or increased competition in the international markets in which we operate could adversely affect us.

OUR BUSINESS INITIATIVES HAVE POTENTIAL EXECUTION RISK.

Our ability to improve our levels of asset and revenue generation depends on our initiatives to align our businesses around customers and industry sectors, and to expand our sales and marketing platforms. These initiatives involve asset transfers, changes in management accountabilities, as well as the streamlining and realignment of related infrastructure, including information technology and personnel. Our failure to implement these initiatives successfully, or the failure of such initiatives to result in increased asset and revenue levels, could adversely affect our financial position and results of operations.

ITEM 1B. Unresolved Staff Comments

There are no unresolved SEC staff comments.

CIT operates in the United States, Canada, Europe, Latin America, Australia and the Asia-Pacific region. CIT occupies approximately 2.2 million square feet of office space, substantially all of which is leased. Such office space is suitable and adequate for our needs and we utilize, or plan to utilize, substantially all of our leased office space.

NORVERGENCE RELATED LITIGATION

On September 9, 2004, Exquisite Caterers Inc., et al. v. Popular Leasing Inc., et al. (“Exquisite Caterers”), a putative national class action, was filed in the Superior Court of New Jersey against 13 financial institutions, including CIT, which had acquired equipment leases (“NorVergence Leases”) from NorVergence, Inc., a reseller of telecommunications and Internet services to businesses. The complaint alleged that NorVergence misrepresented the capabilities of, and overcharged for, the equipment leased to its customers and that the NorVergence Leases are unenforceable. Plaintiffs seek rescission, punitive damages, treble damages and attorneys’ fees. In addition, putative class action suits in Illinois and Texas, all based upon the same core allegations and seeking the same relief, were filed by NorVergence customers against CIT and other financial institutions. The Court in Exquisite Caterers certified a New Jersey-only class, and a motion for decertification is pending.

On July 14, 2004, the U.S. Bankruptcy Court ordered the liquidation of NorVergence under Chapter 7 of the Bankruptcy Code. Thereafter, the Attorneys General of several states commenced investigations of NorVergence and the financial institutions, including CIT, that purchased NorVergence Leases. CIT has entered into settlement agreements with the Attorneys General in each of these states, except for Texas. Under those settlements, lessees in those states have had an opportunity to resolve all claims by and against CIT by paying a percentage of the remaining balance on their leases. CIT has also produced documents for transactions related to NorVergence at the request of the Federal Trade Commission (“FTC”) and pursuant to a subpoena in a grand jury proceeding being conducted by the U.S. Attorney for the Southern District of New York in connection with an investigation of transactions related to NorVergence. CIT has entered into a settlement agreement with respect to the Exquisite Catering case and the Texas putative class action. Such settlement is subject to court approval and is not expected to have a material adverse financial effect on CIT.

OTHER LITIGATION

In addition, there are various proceedings that have been brought against CIT in the ordinary course of business. While the outcomes of the ordinary course legal proceedings, and the related activities, are not certain, based on present assessments, management does not believe that they will have a material adverse financial effect on CIT.

We did not submit any matters to a vote of security holders during the three months ended December 31, 2005.

Our common stock is listed on the New York Stock Exchange. The following table sets forth the high and low reported closing prices for CIT’s common stock for each of the quarterly periods in the two years ended December 31, 2005.

During the year ended December 31, 2005, we paid a dividend of $0.13 per common share for the first quarter and $0.16 for each of the following three quarters for a total of $0.61 per share. During the year ended December 31, 2004, for each of the four quarters, we paid a dividend of $0.13 per share for a total of $0.52 per share. On January 17, 2006, the Board of Directors approved a $0.04 per share increase to the quarterly dividend to $0.20 per share.

Our dividend practice is to pay a dividend while retaining a strong capital base. The declaration and payment of future dividends are subject to the discretion of our Board of Directors. Any determination as to the payment of dividends, including the level of dividends, will depend on, among other things, general economic and business conditions, our strategic and operational plans, our financial results and condition, contractual, legal and regulatory restrictions on the payment of dividends by us, and such other factors as the Board of Directors may consider to be relevant.

As of February 15, 2006, there were 96,761 beneficial owners of CIT common stock.

All equity compensation plans in effect during 2005 were approved by our shareholders, and are summarized in the following table.

The following table details the repurchase activity of CIT common stock during the quarter ended December 31, 2005.

On January 17, 2006, our Board of Directors approved a continuation of the common stock repurchase program to acquire up to an additional 5 million shares of our outstanding common stock in conjunction with employee equity compensation programs. These are in addition to the 1,010,497 shares remaining from the previous program that was approved on October 20, 2004. The program authorizes the company to purchase shares on the open market from time to time over a two-year period beginning January 18, 2006. The repurchased common stock is held as treasury shares and may be used for the issuance of shares under CIT’s employee stock plans. Acquisitions under the share repurchase program will be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors. The program may be discontinued at any time and is not expected to have a significant impact on our capitalization.

The following tables set forth selected consolidated financial information regarding our results of operations and balance sheets. The data presented below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8. Financial Statements and Supplementary Data.

In the following discussion we use financial terms that are relevant to our business. You can find a glossary of other key terms used in our business in Part I Item 1. Business section.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure about Market Risk contains certain non-GAAP financial measures. See “ Non-GAAP Financial Measurements” for additional information. In the sections that follow, we analyze our results.

Diluted earnings per share and net income growth approximated 25% in 2005 and 30% in 2004. The improved earnings reflect strong operating fundamentals, asset growth and improved capital discipline. 2005 EPS growth also benefitted from a reduction in share count resulting from capital initiatives.

Return on assets and return on equity improved in both 2005 and 2004 reflecting improved earnings in all segments.

Average earning assets grew 23% and 9%, and ending managed assets grew 18% and 8% during 2005 and 2004. Our focus during both 2005 and 2004 was on prudent growth, as we continued to supplement organic growth with strategic acquisitions, offset by the liquidation of non-strategic portfolios.

Earnings for 2005 reflected strong non-spread revenue, the continuation of low charge-offs, and reduced tax expense, in part due to the offshore relocation of certain aircraft leasing operations. Net finance margin, while stable during 2005, declined from 2004 due to growth in the lower risk and lower margin – U.S. government guaranteed – student lending business, longer-term debt financing and competitive market pricing. We also made investments in sales and marketing initiatives in 2005, which increased operating expenses.

The earnings improvement in 2004 from 2003 was driven primarily by improved finance margin and a considerable reduction in charge-offs.

Other significant items in the 2005 and 2004 trends are discussed further in the segment results discussion that follows.

We measure segment performance using risk-adjusted capital, applying different leverage ratios to each business to allocate capital based on market criteria and inherent differences in risk levels. The capital allocations reflect the relative risk of individual asset classes within the segments and range from approximately 2% of managed assets for U.S. government guaranteed education loans to approximately 15% of managed assets for longer-term assets such as aerospace. The targeted risk-adjusted capital allocations by segment (as a percentage of average managed assets) are as follows: Specialty Finance – Commercial, 9%, Specialty Finance –Consumer, 5%, Commercial Services, Corporate Finance and Equipment Finance, 10% and Capital Finance, 14%. See Note 20– Business Segment Information of Item 8. Financial Statements and Supplementary Data for details on our 2005 realignment initiatives and measuring segment performance using risk-adjusted capital.

Results by segment were as follows:

2005 versus 2004

2004 versus 2003

Corporate included after tax amounts as shown in the table below:

The increase in unallocated corporate operating expense in both years was due primarily to increased performance-based compensation, professional services, and other compliance-related costs as well as higher unallocated funding costs.

The trend in our revenues (total net revenues) from 2003 to 2005 reflects both asset growth and a focus on non-spread revenue growth. Non-spread revenue accounted for 41% of net revenue in 2005, up from 37% in 2004 and 40% in 2003. Increasing non-spread revenue continues to be a strategic focus.

The amount of net finance income increased during 2005 and 2004, reflecting the higher asset levels. As a percentage of average earning assets, net finance income declined in both years due to: 1) the blending of the lower rate, U.S. government guaranteed student lending portfolio in 2005 (net finance income as a percentage of AEA excluding student lending was 5.84% in 2005); 2) pricing pressure, reflecting liquidity in many of our lending businesses; and 3) an increasingly more conservative liquidity profile during the periods, including higher cash balances, the continued maturity extension of the debt portfolio and other increased alternative liquidity facilities. Yield related fees also declined in 2005. Market interest rates increased in both 2005 and 2004. Though we continuously manage our interest rate sensitivity with essentially a matched asset/liability position, we do fund a modest amount of fixed-rate assets with variable rate debt. As a result, the rising market interest rate environment also put modest pressure on our margins.

In both 2005 and 2004, the proportion of longer-lived aerospace and rail assets in Capital Finance increased from the preceding year. These longer-lived assets have lower rental rates and lower annual depreciation rates as a percentage of the operating lease assets than small to mid-ticket leasing assets in Specialty Finance – Commercial and Equipment Finance. As a result operating lease rentals and depreciation expense declined as a percentage of operating lease assets during both years. The increase in net operating lease margin as a percentage of operating lease assets reflected strengthening rental rates in both aerospace and rail, including the impact of higher interest rates. See “Concentrations – Operating Leases” for additional information regarding our operating lease assets.

The growth in risk adjusted margin from 2003 to 2005 largely reflects the variances in net finance margin as discussed previously, as well as a benefit from lower charge-offs, which we discuss further in “Credit Metrics”.

During 2005, we recorded a $34.6 million provision for credit losses related to estimated hurricane losses, which is discussed further in “Reserve for Credit Losses”. Excluding this item, adjusted margin as a percentage of AEA was 3.02% for 2005. During 2004, we reduced previously established specific reserves by $43.3 million relating to telecommunications assets. Excluding this provision reduction, risk adjusted margin as a percentage of AEA was 3.28%.

We continue to emphasize growth and diversification of other revenues to improve our overall profitability.

Fees and other income include securitization-related servicing fees and accretion, syndication fees, miscellaneous fees, and gains from asset sales. Securitization-related fees (net of impairment charges) were essentially flat in 2005 due to reduced impairment charges, following a decline in 2004, corresponding to a 14% decline in securitized assets. Our emphasis on funding home lending receivables on-balance sheet resulted in a reduction in securitization-related revenues and an increase in both interest margin and provision for credit losses in both years. Strong fees and other income in Capital Finance and Corporate Finance more than offset this factor. Gains on sales of receivables were up from 2005 due to sales of student lending receivables.

Higher factoring commissions reflect strong volumes, including incremental volume from acquisitions, though commission rates were down modestly from 2004. The increased commissions in 2004 reflected two large acquisitions completed during the latter part of 2003.

Gains on sales of equipment remained strong in 2005, but were down from 2004, largely in Capital Finance. The increase in 2004 resulted from firming of equipment prices and higher gains across virtually all leasing businesses, most notably in Equipment Finance and in the international unit of Specialty Finance-Commercial.

Securitization gains decreased in 2005 and 2004 from the preceding years, due to both a lower volume of receivables securitized and reduced gains on the amounts securitized. In 2005 and 2004, we funded home lending growth entirely on-balance sheet, versus $489 million of home lending assets that were securitized in 2003. The lower gains as a percentage of volume in both 2005 and 2004 were primarily due to a higher proportion of, and tighter spreads on, vendor receivables sold. Securitization gains were 2.8% of pretax income in 2005, down from 4.8% and 10.8% in the preceding two years.

The following items of note, the majority of which were the result of capital allocation activities, also impacted other revenue. Excluding these amounts and venture capital investment gains and losses, other revenue was 2.09%, 2.32% and 2.65% of AEA and 38.0%, 37.1% and 42.1% of net revenues for 2005, 2004 and 2003.

Gain on real estate investment resulted from the sale of an interest in Waterside Plaza, a residential complex in New York City.

Charge related to aircraft held for sale resulted from management’s strategic decision to actively market certain older, out of production commercial, regional and business aircraft in the third quarter of 2005 with a carrying value of approximately $190 million. As of December 31, 2005, approximately $15.0 million have been sold at amounts approximating the writtendown values. The remainder of the portfolio remains classified as assets held for sale.

Gain on sale of micro-ticket leasing business is the fourth quarter 2005 sale of the micro-ticket leasing point-of-sale unit in Specialty Finance –Commercial.

Gain on sale of business aircraft reflects the strategic sale of the majority of the Equipment Finance business aircraft portfolio (approximately $900 million). The remainder of this portfolio (approximately $600 million) was transferred to Capital Finance following the completion of the sale in the second half of 2005.

Gain on derivatives relates to the mark-to-market of certain compound cross-currency swaps that did not qualify for hedge accounting treatment. All of the swaps were either terminated or had matured as of December 31, 2005. See Item 9A. Controls and Prodecures for a discussion of internal controls relating to derivative hedge accounting.

Charges related to the sales of manufactured housing loans reflect the accelerated liquidation of approximately $125 million and $300 million in manufactured housing loans in 2005 and 2004. These assets were reclassified as held for sale on the financial statements and marked to estimated fair value, resulting in the above charges.

The lower level of reserve for credit losses in the years presented above reflects the improvements in our credit metrics, specifically the decline in charge-offs over the same periods. This credit quality improvement, along with the addition of $5.1 billion of U.S. government guaranteed student lending receivables, drove the decline in the percentage of reserve to finance receivables over the periods shown. Corporate and Other includes specific amounts provided for estimated hurricane losses in 2005 and the reversal of previously established specific telecommunications reserves in 2004. See Credit Metrics for further discussion.

We determine the reserve for credit losses using three key components: (1) specific reserves for collateral and cash flow dependent loans that are impaired under SFAS 114, (2) reserves for estimated losses inherent in the portfolio based upon historical and projected credit risk, and (3) reserves for economic environment risk and other factors.

The reserve included specific reserves, excluding telecommunication accounts, relating to impaired loans of $61.7 million, $87.1 million and $66.4 million at December 31, 2005, 2004 and 2003. The 2005 balance includes amounts for a power generation facility subject to bankruptcy proceedings and Hurricanes Katrina and Rita, while the 2004 balance includes amounts related to U.S. commercial airline hub carriers. The portion of the reserve related to inherent estimated loss and estimation risk reflects our evaluation of trends in our key credit metrics, as well as our assessment of risk in specific industry sectors.

In managing the consolidated reserve for credit losses to provide for losses inherent in the portfolio, we estimate the ultimate outcome of collection efforts and realization of collateral values, among other things. Therefore, we may make additions or reductions to the consolidated reserve for credit losses depending on changes in economic conditions or credit metrics, including past due and non-performing accounts, or other events affecting specific obligors or industries. We continue to believe that the credit risk characteristics of the portfolio are well diversified by geography, industry, borrower, and collateral type. See “Concentrations” for more information.

During the third quarter of 2005, we established a $34.6 million reserve for credit losses related to Hurricanes Katrina and Rita. This amount reflects management’s best estimate of loss based on available, relevant information. Total business segment owned and securitized receivables in the three most impacted states (Louisiana, Alabama and Mississippi) were approximately $925 million and $200 million. Of these amounts, exposure to commercial and consumer customers located in the Federal Emergency Management Agency (“FEMA”) designated disaster areas and other areas that management determined were significantly impacted were approximately $600 million and $50 million respectively, including approximately $250 million in the FEMA designated disaster areas relating principally to equipment and vendor finance assets and home mortgages. For commercial loans, management performed a loan-by-loan assessment of estimated loss. For equipment and vendor assets and home mortgages in the FEMA designated disaster areas, management performed an analysis of exposure by zip code, including flood versus nonflood designated locations, supplemented with a range of corresponding estimated damage assessments. This estimate of loss involves considerable judgment and assumptions about uncertain matters, including the existence of insurance in force with respect to damages incurred, insurance claims and proceeds and the extent of property damage. Our current expectation is for related charge-offs to be realized in the latter part of 2006 and into 2007. Management will continue to assess the financial impact of the hurricanes as more information becomes available.

While the Hurricane reserves were provisioned through Corporate, a summary of the estimated incurred hurricane charges by segment is as follows:

Based on currently available information and our portfolio risk assessment, we believe that our total reserve for credit losses is adequate.

CREDIT METRICS

NET CHARGE-OFFS

The trends in the tables above are positive, as charge-offs on an owned and managed basis, both in amount and as a percentage of assets, declined in 2005 and 2004 across virtually every segment. Capital Finance was the only notable exception, as 2005 amounts included $48.5 million in airline receivable charge-offs on two bankrupt U.S. hub carriers. The improvement in charge-offs was largely in the owned portfolio, as the decline in securitized portfolio charge-offs during the two years was more modest, particularly as a percentage of securitized assets given our emphasis on balance sheet funding during 2005 and 2004. Total securitized portfolio charge-offs were 1.12%, 1.28% and 1.58% as a percentage of securitized assets in 2005, 2004 and 2003, reflecting the higher proportion of vendor assets sold (for which CIT has loss recourse) and improvement in the Equipment Finance portfolios. Consumer home lending securitization-related charge-offs increased approximately

$8 million or 139 basis points as a percentage of securitized assets from 2004, due to seasoning in these portfolios and the switch to on-balance sheet funding in this business.

Specialty Finance - Commercial charge-offs improved in 2005 due to improved credit in the vendor programs, the international unit and small business lending. Charge-offs in 2003 included a $101.0 million write-off of owned assets in Argentina, which reflected the substantial progress of collection and work out efforts in the Argentine portfolio. Excluding Argentina and liquidating portfolios, Specialty Finance - Commercial charge-offs were 1.56% as a percentage of average finance receivables for 2003.

Specialty Finance - Consumer charge-offs in 2005 were up in amount from the prior year, but were down as a percentage of average finance receivables, reflecting portfolio growth, improved credit performance and the addition of the student lending assets.

Corporate Finance trends between 2003 and 2005 were driven largely by charge-offs in the telecommunications portfolio that were taken against a specific reserve established in 2002. Approximately $40 million of these telecommunication charge-offs were taken in both 2003 and 2004, versus negligile amounts in 2005, as the current period benefited from recoveries in this portfolio.

Capital Finance 2005 charge-offs included the above-mentioned charge-offs on two bankrupt U.S. hub carriers.

Equipment Finance charge-off reductions in both 2005 and 2004 were across product lines in both the U.S. and Canada, reflecting improved underwriting standards, lower non-performing assets and strengthening collateral values.

PAST DUE LOANS AND NON-PERFORMING ASSETS

Like charge-off trends, the trend in our delinquency and non-performing metrics were favorable for the three-year period and ended 2005 at levels that are low in relation to our historical measures. Non-performing assets declined in both 2005 and 2004 from the preceding years, both in amount and as a percentage of assets, with broad-based improvement, particularly in the commercial businesses. Delinquencies increased in 2005, primarily due to the student lending acquisition, as delinquency in this business is high in relation to our other portfolios, yet is not indicative of ultimate loss due to the U.S. government guarantee. Excluding these assets, owned delinquency was $625.5 million (1.59%) at December 31, 2005.