CIT Group has hit several milestones on its road to becoming a more traditional commercial bank, including divesting its $10 billion-asset aircraft financing unit and, last week, completing a long-awaited capital return.

But the onetime commercial finance company is still missing a key, banklike attribute: loan growth.

A year since CIT launched its turnaround plan, and nearly two years since its high-profile purchase of OneWest Bank, business loans have declined steadily. They hit $24.4 billion at March 31, down 4% from a year earlier.

Such a slump would raise red flags at most regional banks — but analysts are quick to note that CIT is a special case. After coming off the board to become CEO last year, Ellen Alemany shuffled her leadership team and said it would take the company several years to reach its goals as it exited reverse mortgages, aircraft financing and other businesses deemed noncore. CIT has also scaled back on riskier lines such as leveraged lending and energy loans.

Yet soon enough the company will need to demonstrate its growth power as a deposit-funded, middle-market lender, according to industry analysts.

“As the company executes, the story gets cleaner,” said Christopher York, an analyst with JMP Securities. “Investors are focusing on the core businesses.”

York noted that CIT’s small-business and commercial real estate lending have increased. Overall commercial loan growth, however, has been lackluster.

Under the turnaround plan laid out by Alemany last year, CIT set a target of 10% return on equity by 2018. That figure stood at 7.4% as of March 31.

The company assumed a modest level of core asset growth, but generating it from commercial lending could be an uphill battle. Industrywide lenders are running up against a dwindling demand for credit from middle-market borrowers, many of whom are waiting for more clarity on potential tax and health care reforms in Washington.

CIT’s ability to build up deposits and reduce funding costs will be critical, analysts said.

During the first quarter, deposits slid 2% to $32.3 billion. CIT, though, has been actively cross-selling its commercial clients on deposit products, said Alemany, who was CEO of Citizens Financial Group before joining CIT.

“We’ve made tremendous progress getting deposits from our commercial customers,” she said during CIT’s first-quarter earnings call. “We are optimistic about the second half of the year in commercial banking.”

CIT did not initially comment for this story, but a spokeswoman said later that the company had made "tremendous progress" on its strategic plan and that its priorities will include business growth and deepening of customer relationships.

In some ways, the sharpening focus on CIT’s loans and deposits shows just how far the company has come in its ambitious — and at times tumultuous — overhaul.

After taking the helm last April, Alemany focused primarily on slashing costs and selling the struggling commercial aircraft leasing division. CIT — which had $63.1 billion in assets as of March 31 — agreed to sell the aircraft unit to HNA Group in China. The deal closed in April.

Completing aircraft sale was a prerequisite to CIT’s plan to return about $3 billion in capital to shareholders. The company made good on that pledge Thursday, repurchasing about $2.8 billion of its common shares.

Of course, there have been a slew of headaches along the way, including a settlement with the Department of Justice over the operation of Financial Freedom, the company’s reverse-mortgage servicing business. CIT acquired the business with its August 2015 purchase of OneWest in Pasadena, Calif.

But the company is said to be making solid progress overall.

“I would characterize it as the sixth of nine innings,” York said in describing where CIT is in its turnaround.

Whether CIT can make enough progress to meet its goal of 10% return on tangible common equity by 2018 remains an open question.

A major issue standing in the way is the fact that CIT is sitting on roughly $1 billion in excess capital — and has few options at hand to deploy it, according to York.

It would be unlikely for the Federal Reserve to approve such a large capital return to shareholders, given the relative size and recent volatility of CIT’s earnings, York said.

Other options could include making an acquisition, though York noted that the company may not be in a position anytime soon to handle a big M&A integration.

If CIT misses the 2018 target, Alemany will likely face increasing calls from investors to sell the company, either as a whole or in pieces, analysts said.

Hudson Executive Capital notably made headlines last year in calling for the breakup of the company. The hedge fund currently owns about 1.2 million shares, according to Bloomberg.

“I think of this company as having two paths,” said Vincent Caintic, an analyst with Stephens. “They can either turn it around organically, meaning improve their expenses and funding base. ... On the other hand, there’s this open market of M&A that has happened in the equipment finance space.”

Caintic pointed to the acquisition this month of Northpoint Commercial Finance in Alpharetta, Ga., by Laurentian Bank in Montreal, noting that similar businesses have been selling at a premium.

For CIT, which operates sizable rail-car leasing and equipment financing divisions, the market opportunity may not stick around forever, Caintic said.

“Ellen wants to have a shot at fixing a bank, and she has made progress in CIT, and there’s a lot more to do,” Caintic said. “I’m not sure how long much time investors will give until they push for something more concrete.”

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Corrected May 31, 2017 at 12:17PM: This story has been updated to say CIT has exited the reverse-mortgage business, not all mortgage products.

Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.