CIT's deposit costs soar, but acquisition will bring relief, CEO says
CIT Group’s deal to acquire in Mutual of Omaha Bank is coming at a good time, as the New York company’s third-quarter profit growth was dinged by a big jump in deposit costs.
The $51.4 billion-asset company’s net income rose 9% compared with the same period last year, to $142.8 million. Earnings per share of $1.51 were 31 cents higher than the mean estimate of analysts compiled by FactSet Research Systems.
The profit growth could have been greater were it not for higher deposit costs. CIT’s interest on deposits jumped 41% to $173.8 million.
The company’s pending acquisition of the $8.5 billion-asset Mutual of Omaha Bank should help, Ellen Alemany, CEO and chairwoman, said during an earnings call with analysts Tuesday. Mutual of Omaha Bank has a steady source of low-cost deposits through its homeowners association banking business, Alemany said.
“Part of the value of the Mutual of Omaha Bank transaction is obviously the lower-cost deposits,” Alemany said during the call. “That provides us an instantaneous benefit of 20 basis points in terms of deposit funding.”
The Mutual of Omaha deal, scheduled to close in the first quarter, may also increase the value of CIT if the company puts itself up for sale, Alemany said.
“This management team has time and time again said that we're always open to opportunities that are going to help accelerate or create more value for the shareholders,” she said.
Net finance revenue, which includes income from loans and leases, dropped 9% to $353.3 million, on higher deposit costs and a decline in operating lease revenue.
Fee growth helped offset the decline in net finance revenue. Noninterest income rose 17% to $101 million, on higher gains on leasing equipment and higher property tax income.
The overall profit growth was also fueled by a $26 million benefit for income taxes recorded in the third quarter. A year earlier, CIT recorded a $41.3 provision for income taxes. CIT also recorded a lower provision for credit losses in the quarter of $26.6 million, a 30% year-over-year decline.
Noninterest expense rose 17% to $310.9 million, driven by a $22 million impairment taken from the sale of an office building in Livingston, N.J., and an $11 million charge tied to restructuring.