By Andrew R. Johnson 

Business lender CIT Group Inc. said profit declined 37% in the fourth quarter on a tax-related charge, though Chief Executive John Thain noted signs of economic improvement that could help spur loan demand this year.

The Livingston, N.J.-based company provides financing to businesses for mergers and acquisitions, office equipment, transportation services and numerous other needs. It often competes against larger banks, which have expressed renewed optimism that loan demand will increase this year as improving economic conditions help boost business confidence.

"As we look out over 2014, we see gradual improvement in both the U.S. and European economies," Mr. Thain said on a conference call with analysts Tuesday. However, he cautioned that competition for business among lenders will result in "continued pricing pressure" on loans.

CIT said it earned $129.9 million, or 65 cents a share, down from $206.8 million, or $1.03 a share, a year earlier.

Analysts polled by Thomson Reuters were expecting the company to earn 81 cents per share, on average. This miss was partially due to the tax charge which some analysts didn't factor into estimates.

The results "were something of a mixed bag but nevertheless reflected the company's steady progress," Mark Palmer, an analyst with BTIG, wrote in a research note.

Shares of CIT were down 0.6% at $46.93 in recent trading. The shares are up more than 15% over the last year.

In December, CIT said it reached a deal to pay former parent, Tyco International Ltd., $60 million to resolve issues surrounding a tax agreement the companies entered into when Tyco spun the business lender off in 2002. The settlement resulted in a $45 million charge in the quarter.

CIT has clawed its way back to profitability since emerging from Chapter 11 bankruptcy in late 2009 by paying down or refinancing more than $31 billion of high-cost debt, selling troubled loan portfolios and increasing its reliance on deposits to fund its loans, which has helped to lower its costs. Mr. Thain, a Wall Street veteran who previously led Merrill Lynch, has helped focus the company's efforts on regaining market share it lost in the wake of its bankruptcy, and re-entering businesses that the lender had exited, such as commercial real estate finance.

CIT's outstanding loan portfolio fell to $18.6 billion in the quarter, down $2.2 billion from a year earlier as it classified a portfolio of student loans as held for sale. The company funded $3.14 billion of new business volume during the quarter, up from $2.58 billion in the previous quarter and $3.06 billion a year earlier.

While lenders have struggled to boost revenue amid persistently low interest rates and cautious borrowing activity by businesses, banks such as J.P. Morgan Chase & Co., BB&T Corp. and KeyCorp have recently said that improved economic conditions could lead to an increase in activity this year. Zions Bancorp., a Salt Lake City-based regional lender, said Monday that it has noted an uptick in sentiment by small businesses, which may translate to higher loan originations this year.

"As the economy improves, that will provide ... a greater degree of confidence on the part of middle-market companies," Mr. Thain said, adding that a rise in M&A activity could also help boost lending activity.

The company saw improvement in its net finance margin--a key measure of lending profitability--which increased to 3.95% from 3.86% a year earlier.

The company has been working to fund more of its loans through CIT Bank, its Utah-based bank. In the fourth quarter, the bank funded nearly all of the U.S. loan volume originated in the company's corporate, transportation and vendor finance units.

CIT launched a consumer online bank in fall 2011 that offers savings accounts, certificates of deposit and other products in an effort to boost its deposit base. CIT Bank's deposits totaled $12.5 billion in the quarter, up from $9.6 billion a year earlier.

Mr. Thain has previously said that the company may try to acquire a small bank to establish a branch presence. Chief Financial Officer Scott Parker said CIT is "constantly looking" at acquisition opportunities but "at this point we haven't found something that meets the criteria we're looking at."

Last year the company said it planned to open a branch in Salt Lake City that could serve as a prototype for other branches. A spokesman said Tuesday the company expects to open that branch this year.

In May, CIT marked a key milestone when the Federal Reserve Bank of New York lifted limits the regulator placed on the lender in 2009 that curbed the company's ability to return capital to shareholders.

Last week CIT announced a $300 million share repurchase program for 2014, and said its board approved the purchase of $7 million of shares remaining under an existing $200 million buyback program announced in May.

The lifting of the regulatory limits and CIT's improved performance have fanned speculation a larger bank will try to acquire the company.

Write to Andrew R. Johnson at andrewr.johnson@wsj.com

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