Q4 2024 Earnings Summary
- Management expects strong loan growth in 2025, anticipating it to be "more or less consistent throughout" the year. They are "bullish on loan growth," particularly in private credit, lender finance, and build finance businesses, which offer "good risk-adjusted returns".
- Confidence in achieving high teens Return on Tangible Common Equity (ROTCE) levels by the end of 2025, with expectations to "get over $15" and potentially reach "north of $16" to "no higher than $19," indicating strong profitability and earnings growth.
- Net interest margin (NIM) is expected to improve, with adjusted margin increasing 4 basis points from the third to the fourth quarter. Management believes the "core margin itself...is also going to look okay," and anticipates margins for the full year to be in the "high 3.50s" range, leading to net interest income growth.
- Mortgage banking revenue is expected to remain flat in 2025, despite the Mortgage Bankers Association's more optimistic forecasts, suggesting potential headwinds in this segment.
- Operating expenses are increasing due to hiring and regulatory preparations, including investments in AmeriHome and preparations for Large Financial Institution (LFI) readiness, which could impact profitability.
- The company is prioritizing balance sheet growth over capital returns to shareholders, indicating that excess capital will be used to support loan growth rather than activities like share buybacks.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3% | Total Revenue grew by 3% YoY largely by continuing trends seen in prior periods—strong non‐interest income growth (e.g., in Q3 2023 non‐interest income rose by $67.4 million ) combined with improved net interest income in Q3 2024 (an increase of $109.9 million from Q3 2023 ), even as higher deposit costs constrained margins. |
U.S. Business Segment | +1% | The U.S. Business Segment posted modest 1% YoY growth driven by enhancements in net interest income from higher average earning asset balances, notable loan growth (with HFI loans up by $3.9 billion YoY and C&I loans contributing significantly ), and deposit increases, although rising expenses moderated overall gains. |
International Revenue | +8% | International Revenue advanced 8% YoY, reflecting comparatively stronger performance relative to domestic segments; however, the documents do not detail the underlying factors beyond the favorable reported figure. |
Digital/Online Services | +15% | Digital/Online Services expanded by 15% YoY, which likely reflects increased adoption of digital channels and higher fee-based revenue services, though specific comparisons with previous periods were not provided in the documents. |
APAC Region Revenue | -7% | The APAC Region Revenue contracted by 7% YoY, indicating significant regional headwinds that may stem from challenging macroeconomic conditions and competitive pressures, with no additional numerical breakdown available in the documents. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Loan Growth | Q4 2024 | no prior guidance | $1.25 billion | no prior guidance |
Deposits | Q4 2024 | no prior guidance | temporarily decline by $2 billion | no prior guidance |
Net Interest Income (NII) | Q4 2024 | no prior guidance | expected to decline by ~3% | no prior guidance |
Net Interest Margin (NIM) | Q4 2024 | no prior guidance | bottomed in Q3 2024; expansion ahead | no prior guidance |
ECR-Related Deposit Costs | Q4 2024 | no prior guidance | ~25% QoQ decline | no prior guidance |
Noninterest Income | Q4 2024 | no prior guidance | +8% to +12% | no prior guidance |
Noninterest Expense | Q4 2024 | no prior guidance | –5% to –9% | no prior guidance |
Net Charge-Offs | Q4 2024 | no prior guidance | ~20 basis points | no prior guidance |
Effective Tax Rate | Q4 2024 | no prior guidance | 20% to 22% (full year 2024) | no prior guidance |
CET1 Ratio | Q4 2024 | no prior guidance | ~11% | no prior guidance |
Net Interest Income (NII) | FY 2025 | no prior guidance | +6% to +8% | no prior guidance |
Noninterest Income | FY 2025 | no prior guidance | +6% to +8% | no prior guidance |
Noninterest Expense | FY 2025 | no prior guidance | –1% to –6% | no prior guidance |
ECR-Related Deposit Costs | FY 2025 | no prior guidance | $475–$525 million | no prior guidance |
Loan Growth | FY 2025 | no prior guidance | ~$5 billion | no prior guidance |
Deposit Growth | FY 2025 | no prior guidance | ~$8 billion | no prior guidance |
Loan-to-Deposit Ratio | FY 2025 | no prior guidance | ~80 basis points | no prior guidance |
Efficiency Ratio | FY 2025 | no prior guidance | below 50% by year-end | no prior guidance |
Charge-offs | FY 2025 | no prior guidance | ~20 basis points | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | ~21% | no prior guidance |
CET1 Ratio | FY 2025 | no prior guidance | ~11.3% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Growth & Pipeline Development | Q1 saw aggressive targets with a $1B per quarter growth strategy supported by a strong weekly-reviewed pipeline ( , ). Q2 focused on a revised full‐year forecast of $4.5B and emphasized strategic diversification into C&I and other low-risk segments ( , ). Q3 reported robust growth of $916M driven by regional banking and highlighted a continued strong pipeline ( , , ). | Q4 achieved a more muted loan growth of $330M despite progress in diversifying into C&I loans; executives remain optimistic about a filling pipeline for 2025 with broad-based opportunities ( , , , ). | Steady pipeline strength continues, though near-term loan growth has moderated while long-term growth prospects remain positive. |
Net Interest Margin & Income Trends | In Q1, NIM compressed by 5 bps with modest NII gains due to shifts in asset mix ( , , ). In Q2, modest expansion in NIM (up 3 bps) and stable margins were noted with improved deposit yields ( , ). In Q3, a slight 2 bp compression in NIM coincided with rising NII, although future headwinds were acknowledged ( , , ). | Q4 saw a sharper NIM compression of 13 bps, though adjusted NIM improved by 4 bps; NII declined by $30M, with management expecting margins to stabilize as deposit repricing continues ( , , , ). | Margins remain sensitive to yield changes; while Q4 experienced heavier nominal compression, improved adjusted measures suggest ongoing management of earnings amid a dynamic rate environment. |
Profitability & Efficiency Metrics | Q1 discussions focused on targeting an upper teens ROTCE with an efficiency ratio around 54%, with a plan to lower expenses gradually ( , ). Q3 reiterated the upper teens ROTCE outlook even as lower leverage constrained extremely high returns ( , ). Q2 did not include specific data on these metrics. | Q4 executives expressed confidence in achieving a high-teens ROTCE and aim to drive the efficiency ratio below 50% by the end of 2025 ( , , ). | A consistent focus on improving profitability and operational efficiency is evident, with mid-term targets remaining optimistic. |
Deposit Growth & Consumer Digital Deposits | Q1 exhibited exceptional deposit expansion with $6.9B growth and strong contributions from digital channels ( , ). Q2 highlighted core deposit growth of $4B and revised guidance upward with significant digital deposits (e.g. $673M) ( , , ). Q3 reported healthy deposit growth of $1.8B with a notable $1.3B contribution from its consumer digital channel ( , ). | Q4 continued to achieve diversified deposit growth with contributions from regional, escrow, and digital channels, including a $111M increase in consumer digital deposits; this partly offset a large outflow in mortgage warehouse deposits ( ). | Deposit growth remains robust and diversified, with an increasing contribution from digital channels reinforcing a positive funding base. |
Mortgage Banking Performance & Challenges | Q1 highlighted resilient noninterest income from mortgage banking along with a rebound in mortgage-related deposits ( , , ). Q2 noted increased mortgage loan production but compressed gain-on-sale margins due to higher rates ( , , ). Q3 saw a production increase with margin pressure from accelerated prepayments and MSR valuation challenges ( , , ). | Q4 reported a $34M increase in mortgage banking revenue driven by higher production and improved sale margins, yet the outlook remains conservative with expectations of flat revenue in 2025 amid ongoing MSR challenges and rate sensitivities ( , , , ). | While production remains strong, margin pressures from rate-related challenges persist, leading to a cautious outlook on mortgage banking revenue despite yearly growth. |
Asset Quality, Credit Risk & Charge-Offs | Q1 discussions emphasized steady asset quality with low charge-offs and proactive risk monitoring ( , ). Q2 indicated normalization of asset quality, low charge-offs, and robust credit risk management practices with manageable allowances ( , , ). Q3 further underscored stable asset quality with controlled net charge-offs and increased allowance ratios, reflecting a prudent approach ( , , ). | Q4 maintained resilient asset quality with a slight uptick in nonperforming assets and an increase in ACL, while overall charge-offs remained controlled; management remains confident in its proactive credit risk strategy ( ). | Asset quality remains stable with consistent, proactive credit risk management and disciplined controls on charge-offs throughout the periods. |
Operating Expenses & Regulatory Preparations | Q1 noted modest anticipated increases in noninterest expenses and efforts to improve the efficiency ratio, alongside early phases of regulatory readiness ( , ). Q2 reported higher noninterest expenses due to funding growth but maintained efficiency improvements and solid liquidity metrics ( , , ). Q3 observed a stable core expense run rate with expectations to further reduce the adjusted efficiency ratio and embedded plans for regulatory buildout ( ). | Q4 featured mixed operating expense results – overall deposit cost declines offset higher bonus accruals – while emphasizing preparations for LFI status and strategic hires to support regulatory initiatives ( , , ). | Focus on cost management and efficiency is consistent, with ongoing investments in regulatory preparations that support future growth and compliance. |
Capital Allocation: Balance Sheet Growth vs. Shareholder Returns | Q1 centered on organic growth and maintaining a balanced loan-to-deposit ratio of 80%-85%, with excess liquidity targeted for deleveraging rather than buybacks ( , , ). Q2 emphasized deploying earnings into growth initiatives and maintaining a CET1 target of 11% while forgoing immediate buybacks ( ). Q3 reiterated prioritizing balance sheet strength with a focus on sustaining a strong capital ratio ( ). | Q4 reinforced the strategy of channeling capital into balance sheet and loan growth (targeting a $5B growth outlook for 2025) rather than pursuing shareholder returns through buybacks; the focus remains on long-term strategic expansion ( , , ). | The strategic emphasis on organic balance sheet growth over immediate shareholder returns remains unwavering across periods. |
Earnings Sustainability & Non-Recurring Items | Q1 disclosed sustainable earnings with adjustments for a significant FDIC special assessment, indicating strong underlying performance ( , ). Q2 detailed robust earnings sustainability driven by strong NII growth and adjustments for one-off credit events like a specific San Diego office property charge-off ( , , ). Q3 acknowledged non-recurring items (like MSR valuation declines) but expected these to balance out for sustainable EPS ( ). | Q4 did not highlight specific non-recurring items but emphasized ongoing earnings growth through net interest income expansion and margin improvements, implying a focus on long-term sustainability ( , ). | Earnings remain fundamentally sustainable despite periodic non-recurring adjustments; earlier quarters detailed specific items while Q4 discussion leaned toward stable, recurring performance metrics. |
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Capital Deployment and Buybacks
Q: Will you consider buybacks given excess capital?
A: We are generating enough capital to support our $5 billion loan growth outlook, and deploying capital to support balance sheet growth is our highest priority. While we might consider buybacks if market conditions warrant, it's not our first order of business. -
Loan Growth Outlook
Q: How should we think about loan growth in 2025?
A: We're looking for consistent loan growth throughout 2025, aiming to grow loans by $5 billion. Our pipeline is filling up, our team is actively making sales calls, and we're bullish on loan growth this year. -
Credit Outlook and Net Charge-offs
Q: What is your outlook on credit and C&I charge-offs?
A: Outside of CRE office, we're not seeing any negative trends in any segment. Our C&I portfolio has been stable with no changes in underwriting. For CRE office, we're bridge lenders with floating-rate portfolios underwritten on a path to stabilization, and we've stepped up our reserves to provide flexibility. -
Margin Outlook
Q: Should we expect a rebound in margins in Q1?
A: Yes, we expect margins to improve. Adjusted margin was up 4 basis points from Q3 to Q4 , and we believe both the adjusted margin and the core margin will look favorable. -
Fee Income Growth Sources
Q: Where is fee income growth coming from in 2025?
A: Fee income growth is coming from our regional banking operations, where we've implemented service charge fee increases. Additionally, growth in our digital payment space, including digital disbursements and settlement services, is generating payment revenue. -
ECR Costs and Deposit Growth
Q: What is your outlook on ECR costs and deposits?
A: We're expecting broader growth in our deposit base in 2025, with less expansion in the mortgage side and growth in other categories. ECR deposits might be flat, but the economics will be better due to less pricing competition, potentially improving funding costs beyond changes in Fed funds rates. -
Passing on Deposit Insurance Costs
Q: Will increased deposit insurance expenses continue, or can you pass them on?
A: We don't expect these costs to increase further. We've started charging clients a 40 basis point surcharge for fully insured deposits. Many clients choose to keep the fully insured option, allowing us to pass that cost back to them. -
Expense Range Drivers Excluding ECRs
Q: What factors affect your core expense range?
A: Achieving better growth and maintaining our 80% loan-to-deposit ratio could lead to higher expenses due to incentive compensation and other factors. -
Interest Rate Impact on Earnings
Q: What is the ideal rate environment for the bank?
A: Rate declines work best for us. A slowly declining rate environment would ease credit concerns and boost mortgage activity. However, we're prepared for any rate scenario; most of our loan growth is variable rate, but we can swap to fixed if needed. -
ECR Deposits’ Contribution to Growth
Q: Is a significant portion of deposit growth from ECR deposits?
A: Less than one-third of our expected $8 billion deposit growth is from ECR deposits.