Q4 2024 Earnings Summary
- The bank could experience an upside if interest rates remain higher for longer, given that net interest income is over 80% of net revenues.
- The focus on improving operational efficiency aims to reduce the adjusted efficiency ratio to the mid-50% over time, enhancing profitability.
- Plans to continue the share repurchase program, with potential for another repurchase plan in the second half of the year, could enhance shareholder value.
- First Citizens anticipates ongoing expenses related to regulatory compliance as it approaches Category 3 status, which may continue to pressure profitability. Management states they are investing in risk and technology capabilities to meet regulatory expectations for Category 3 status, and these expenses are reflected in their run rate.
- Net interest income is highly sensitive to interest rate cuts, and further reductions could negatively impact earnings. The bank's net interest income guidance ranges from $6.6 billion to $7 billion, depending on the magnitude and timing of rate cuts, with lower rates leading to lower net interest income.
- An economic slowdown could negatively impact loan and deposit growth, representing a downside risk to the bank's performance. Management acknowledges that if the economy slows, it could adversely affect both loan and deposit growth, negatively impacting their financial results.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Q4 2024 revenue of $13,651M vs. prior quarter’s $2,446M | Extraordinary revenue event or adjustment drove the massive increase in Q4 2024 revenue. In previous periods (Q3 2023 and Q3 2024), revenue growth was mainly due to organic drivers such as strong net interest income and acquisition contributions (e.g., the SVB acquisition), whereas the Q4 spike suggests a non‐recurring adjustment that distinguishes it sharply from prior period trends. |
Operating Income (EBIT) | Fell 15% from $873M in Q3 2024 to $736M in Q4 2024 | The decline in EBIT reflects increased core expenses such as higher noninterest costs (including acquisition-related expenses and intangible asset amortization) that were not as pressing in previous periods. While earlier periods (e.g., Q3 2023) benefited from efficient expense management and cost reductions, Q4 2024 saw pressures that eroded core earnings. |
Net Income | Plunged from $639M in Q3 2024 (and $752M in Q3 2023) to $7M in Q4 2024 | The near 99% drop in net income in Q4 2024 was driven by significant non‐recurring and expense-related impacts. Prior periods showed a balance between slightly higher net interest income and cost savings that buoyed net income, but in Q4 2024, increased noninterest expense (including acquisition costs of $46M and intangible amortization of $15M), along with adjustments in the credit loss provisions, led to a drastic deterioration in profitability. |
Net Change in Cash | Q4 2024 saw a net decrease of $48M compared to prior strong inflows | In contrast to earlier quarters – where robust operating performance combined with favorable loan and deposit dynamics led to net cash growth – Q4 2024 experienced large outflows mainly from investing activities (notably, purchases of investment securities of –$13,339M) and working capital adjustments. These financing pressures reversed prior cash inflow trends and resulted in a net decline in liquidity. |
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Net Interest Income Outlook
Q: What are the assumptions behind the 2025 NII range?
A: The bank's baseline forecast assumes two rate cuts in 2025, but the net interest income range of $6.6 billion to $7 billion contemplates anywhere between zero and four rate cuts. The exact net interest income and margin will depend on the magnitude and timing of those rate cuts. For the first quarter of 2025 compared to the fourth quarter of 2024, they expect net interest income to be anywhere from up to down 1% sequentially. By the fourth quarter of 2025, anchoring two rate cuts, headline net interest income is expected to be up low single digits, and net interest margin (NIM) in the low 3.20s, with ex accretion NIM in the low 3.10s. -
Share Buyback Plans
Q: What are the plans regarding share buybacks in 2025?
A: Managing to a capital ratio range of 10.5% to 11%, the bank contemplates instituting another share repurchase plan in the second half of this year. The current plan is expected to be completed over the next two to three quarters. Depending on projected earnings trajectories and stress testing results, they would consider another plan in the second half of 2025. The impact of the loss share agreement is expected to shrink to around 10 basis points, down from 66 basis points this quarter, reducing its impact on capital throughout the remainder of the year. -
Credit Quality Trends
Q: Are there any general trends on criticized and classified loans?
A: There are no material trends in criticized and classified loans beyond the information provided about SVB. Credit is considered well contained, with perhaps a slight uptick but nothing of concern. -
Risks to Guidance
Q: What are the biggest upside potentials and downside risks to the guidance?
A: The biggest upside would be if interest rates are higher for longer, especially on the zero rate cuts end of the range, as net interest income constitutes over 80% of net revenues. Additional upside could come if net charge-offs fall to the lower end of the range, implying less provisioning next year. The biggest downside risk is if the economy slows, negatively impacting both loan and deposit growth. -
M&A Outlook
Q: What are your latest thoughts on future M&A activity?
A: The bank is not projecting any material M&A activity in 2025, though they remain an opportunistic crowd but are not making any projections in that area. -
SVB Client Funds Growth
Q: Can you provide more color on SVB's total client fund growth?
A: In the fourth quarter, the $75 billion invested included a significant portion from very large deals; roughly one-third of that total came from three very large financings, and almost half were rounds of over $1 billion. Early-stage investment (sub-$1 billion) was roughly flat quarter-over-quarter. The bank is pleased with the growth, signaling continued execution despite a mixed environment for investments and higher interest rates. They are cautious about growth expectations for SVB in 2025, expecting potential improvement in the second half of the year. -
Expense Outlook and Regulatory Readiness
Q: Will potential regulatory changes affect investment plans over the next few years?
A: The bank recognizes that regulatory policy priorities could change, but they remain steadfast in their goal to meet regulatory expectations for Category 3 standards. They do not anticipate significant regulatory changes in the near term and are focused on this going into 2025 and 2026. Expenses associated with Category 3 readiness are reflected in the run rate. , -
Sustainable ROTCE Outlook
Q: How are you thinking about sustainable ROTCE over the medium term?
A: Having quadrupled in size over the last three years, the bank is investing significantly in technology and risk management. Their goal is to improve and simplify processes to better meet regulatory expectations and enhance customer experience. While improvements won't happen immediately, over the long term, they aim to operate with an adjusted efficiency ratio in the mid-50% range, down from the upper 50% range currently. Interest rates will also impact operating efficiency, with improvements expected over time. -
Additional SVB Acquisition Synergies
Q: Are there additional acquisition-related synergies from SVB in the 2025 guidance?
A: The bank does not anticipate any material or significant cost or revenue synergies from SVB beyond what has already been achieved. They have achieved the cost synergies estimate laid out at the beginning of the acquisition and do not expect further impact on expenses in the guidance.
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