(Reuters) - CIT Group Inc (CIT.N), a small-business lender operating under Federal Reserve supervision since emerging from bankruptcy, reported a lower-than-expected quarterly profit on Tuesday due to rising expenses.
CIT, led by former Goldman Sachs and Merrill Lynch executive John Thain, said noninterest expenses were $378.6 million, down 1.6 percent from a year earlier but up 4.5 percent from the fourth quarter of 2012.
“Expenses are above our long-term targets,” Thain said on a conference call with investors. “It is clear to us we need to focus on expenses and bring them down.”
Chief Financial Officer Scott Parker said CIT expects to reduce annual costs by $20 million by closing small businesses in Latin America and Asia and is considering cutting some “platforms” in Europe.
First-quarter net income was $162.6 million, or 81 cents per share, compared with a loss of $427 million, or $2.13 per share, a year earlier, when the company spent more on servicing its long-term debt.
Analysts on average expected earnings of 88 cents per share, according to Thomson Reuters I/B/E/S.
Thain, who has been negotiating with the Federal Reserve to end an agreement that restricts CIT’s autonomy and its ability to pay dividends and buy back stock, said he had “nothing new” to report on the agreement, which has been in place since August 2009. CIT emerged from bankruptcy in December 2009.
Most of CIT’s lending businesses are growing in tandem with “modest growth” that the company sees in the U.S. economy, Thain said. CIT lends to small and medium-sized businesses that do not qualify for traditional bank credit.
Interest income in the first quarter fell 7 percent to $355.8 million but is within CIT’s targets, Thain said. Assets in its core commercial finance areas grew for the sixth consecutive quarter.
Credit metrics improved, with net chargeoffs, delinquent loans and net loss provisions all falling. The New York-based company set aside $19.5 million for bad loans in the quarter, down from $42.6 million a year earlier.
Total deposits at CIT Bank grew to $10.6 billion in the quarter from $6.7 billion a year earlier. CIT has been focusing on growing deposits since they are a less expensive source of funding for lending. Deposits now represent 33 percent of its funding mix, with online deposits making up half of the total.
Thain, who has been CEO since February 2010, has been aggressively cutting the company’s high-cost debt as part of his turnaround strategy.
CIT has eliminated or refinanced more than $30 billion of expensive debt since emerging from bankruptcy and has created an online retail bank to gather inexpensive deposits.
The company still has about $22 billion in long-term debt - close to three times its market capitalization of $8.38 billion.
CIT shares were down 1.9 percent to $40.67 in early trading on the New York Stock Exchange. Through Monday the stock had risen 7.3 percent this year.
Reporting by Tanya Agrawal in Bangalore and Jed Horowitz in New York; Editing by Supriya Kurane, Sriraj Kalluvila and John Wallace