Thank you. Welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB reported fourth quarter operating net income available to common shareholders of $136.7 million or $0.38 per diluted common share.
This brings our full-year 2024 operating EPS to $1.39 reflecting the successful execution of our strategic objectives. In 2024, FNB generated year-over-year loan growth of 5% and robust deposit growth of 6.9%.
These results occurred throughout our diverse geographic footprint, materially outpacing the industry as we continue to leverage the strength of our technology, balance sheet and capital base, as well as our team of frontline bankers.
Non-interest income continues to grow, achieving yet another record level of $350 million, highlighting our diversified business model and robust suite of products and services. We further strengthened our balance sheet and achieved a record CET1 ratio of 10.6% and increased tangible book value per share 11% to a record of $10.49.
FNB remains focused on optimizing our balance sheet to drive shareholder value and best position the company for future success. As part of that commitment, we recently completed the sale of approximately $231 million of available for sale securities yielding 1.41%, and reinvested the proceeds into securities yielding 4.78%, a 337 basis point improvement with a similar duration and convexity profile.
FNB also issued $500 million of senior debt in December and received favorable execution relative to similar issuances by peers signifying the confidence that fixed income markets have an FNB sustained profitability, credit quality and overall balance sheet strength. FNB has demonstrated tremendous success building a valuable deposit franchise with superior market share throughout our footprint and robust physical and digital tools.
We now hold the top five deposit share in 50% of our markets and TOP10 deposit share in over 80%. Deposits ended the year at $37.1 billion, an increase of $2.4 billion from the prior year. We continue our focus on growing deposits while managing the overall cost of funds. In the fourth quarter, deposits increased $336 million link quarter with total deposit costs at 2.2%, which is expected to meaningfully out perform piers.
We continue to build out our technology to assist consumers. FNB recently invested in a fintech, which provides technology that will be embedded into the eStore to enable our customers to instantaneously move their direct deposit and reoccurring transactions to FNB.
We expect an improved onboarding process with fewer obstacles to drive greater success at becoming our customer's primary bank. FNB strong loan and deposit growth in 2024 outpaced the industry based on the [H8] data, more than doubling the large banks and more than tripling small banks full year growth.
The strategic investments in our delivery channel have created the opportunity to deepen customer relationships, gain market share and further outperform our competitors. December marked the one year anniversary of introducing deposits into the eStore common application. Allowing customers to apply for up to 30 consumer loan and deposit products simultaneously.
We are seeing impressive adoption, for example, since the launch of the eStore common app and when comparing volume to pre-launch levels over the same period. Average monthly consumer loan application volume is up 41%, and average monthly consumer deposit application volume is up nearly 30%.
In addition to the functionality gained from our fintech partner, additional enhancements to the eStore are scheduled for '25 including features for insurance, small business and middle market commercial banking, providing new growth opportunities, and continuing our momentum and non-interest income, which reached an all-time high of $350 million in 2024.
We recognize the benefit of having diverse revenue streams and we will continue to invest in products and services to increase non-interest income as well as relationship based deposits.
Our team has had great success identifying and introducing new high value business units that complement our existing products and services. During the last 10 years, our wholesale and consumer banking groups have established or significantly expanded eight business lines that are now multimillion dollar revenue generators providing us with high returns on investment and additional granularity in our fee income composition.
In the face of continuously reducing consumer banking fees, these new products and offerings have contributed to a 10-year compounded annual growth rate of more than 9% for non-interest income while creating additional value for our clients.
Looking forward to this year, FNB is expanding our capital markets offerings to include commodities hedging, public finance and commercial investment banking services with plans to further enhance fee based business products for treasury management, merchant services, and payment capabilities.
As we continue to grow and expand FNB, it is vital that we maintain a durable and scalable infrastructure that can be leveraged both as a competitive advantage and to meet regulatory requirements. Our comprehensive risk framework is a key consideration in executing our business strategies.
This year, FNB has taken steps to strengthen internal processes, risk management, and government practices as well as introduce automation to increase efficiency, reduce fraud and create cost savings. We are leveraging our data infrastructure and technology investments to build out automation and dynamic scorecard reporting for a variety of our operational units that will enable us to drive productivity enhancements in real time.
We believe this step is necessary to fully engage software automation, as we move into the future and continue to drive efficiency. FNB's approach to credit risk, a component of overall risk management has provided strong and stable asset quality that has outperformed peers through various economic cycles. Our credit performance was solid in what has been a shifting economic environment.
I will now turn the call over to Gary, who will provide a review of overall credit performance. Gary?
Thank you Vince, and good morning everyone. We ended the quarter and year end period with our asset quality metrics remaining at stable levels. Total delinquency ended the quarter at 83 basis points, up four bps from the prior quarter with NPLs and OREO at 48 basis points, up 9 bps.
Net charge offs totaled 24 basis points and 19 basis points for the year, reflecting solid performance in the current economic environment. Criticized loans were down 27 bps on a linked quarter basis, reflecting continued improvement across the portfolio. Total funded provision expense for the quarter stood at $23.2 million supporting loan growth and covering charge offs.
Our ending funded reserve stands at $423 million, an increase of $2.6 million ending at 1.25% unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.34%, and our NPL coverage position remains strong at 285% inclusive of the discounts.
The non owner CRE portfolio credit metrics continue to remain at satisfactory levels with delinquency and NPLs at 99 and 84 basis points respectively. Throughout 2024, we reviewed approximately $1.8 billion of the non-owner CRE portfolio that had matured or was in the process of maturing with approximately $600 million completed in the current quarter.
Additionally, approximately $2 billion of the non-owner CRE portfolio was reviewed in the quarter through our ongoing loan risk rating assessment process. We are pleased with the outcome of the reviews with a slight reduction in criticized loans.
We also took aggressive action certain credits that should position the portfolio well going into the year. As part of this proactive approach to managing credit risk, we reduced the non-owner CRE portfolio exposure by approximately $300 million in the quarter ending the year at 220% of total risk based capital.
We continue to perform targeted reviews of other portfolios each quarter along with a full portfolio stress test. Our stress testing results for this quarter have been consistent with prior quarters with our current ACL covering over 90% of our projected charge offs in a severe economic downturn, including in the recent quarter where we applied an additional shock on non-owner occupied CRE.
In closing, our credit metrics ended the year at solid levels. With our loan portfolio continuing to perform as expected in the current economic environment. Our ongoing investments in credit risk management systems, analytics, and staff allow us to quickly identify risk and take proactive actions.
We look forward to achieving prudent loan growth in the year ahead while remaining consistent in our core underwriting and credit philosophy.
I will now turn the call over to Vince Calabrese, our Chief Financial Officer for his remarks.
Vincent Calabrese
Thanks Gary. Good morning. Today, I will focus on the fourth quarter's financial results including details on the investment securities restructuring completed in November, the debt issuance in the renewable energy investment tax credit financing transaction, as well as walking through our guidance for the first quarter and full year of 2025.
Fourth quarter operating net income totaled $136.7 million or $0.38 per share when excluding the $34 million pretax loss on the investment securities restructure. As part of our ongoing balance sheet management strategies, $231 million of lower yielding securities were sold during the fourth quarter.
Proceeds were reinvested in securities with an average yield of 4.78%, with similar duration and convexity profile. Because the sold investment securities were inavailable for sale with the unrealized loss already reflected in AOCI, the realized loss did not incrementally impact tangible book value which increased 10.8% on a year-over-year basis to a record at $10.49 per share.
In December, FNB further enhanced its balance sheet flexibility and liquidity position by issuing $500 million of senior notes maturing in December 2030. The new debt will serve as a replacement $450 million of senior and sub known maturities occurring in the latter half of 2025.
The fourth quarter's performance also includes contributions from our commercial leasing team, who originate renewable energy financing transactions as part of their business model. In the fourth quarter, the company recognized renewable energy investment tax credits of $28.4 million as a benefit to income taxes from a solar project financing transaction.
This was partially offset by related $10.4 million pretax non-credit valuation impairment on the financing receivable which is included in other non-interest expense. While we continue to have an active pipeline in the renewable energy sector, closings can be difficult to predict given long construction lead times.
Total assets at yearend 2024 were $48.6 billion, up 5.3% for the year. Fourth quarter total loans and leases increased $222 million or 0.7% linked quarter ending the year $33.9 billion.
The tumor loan growth of $240 million was led by residential mortgage which remained strong despite rising interest rates. Commercial loans and leases were essentially flat, reflecting reduced line of credit utilization, scheduled reductions in CRE to the permanent market and lower capital investment levels somewhat offset by strong production and equipment finance and renewable energy project financing.
Full-year 2024 spot loan growth was $1.6 billion or 5%, reflecting the $431 million auto loan sale in the third quarter. Commercial loans and leases growth of $667 million or 3.3% benefited from both our geographic footprint and diverse lines of business.
For example, the Carolina markets generated over half of the total commercial loan growth for 2024, further down shedding the value of our investments in higher growth markets.
Consumer loans grew $949 million or 8% on a spot basis in 2024 with residential mortgage growth driving the increase. Total deposits ended December at $37.1 billion, an increase of $336 million or nearly 1% linked quarter. Spot interest bearing demand balances grew 4.2% linked quarter driven by strength in interest bearing checking and money market balances.
Time deposits declined 2.2% (inaudible) quarter to $7.5 billion driven by reduced levels of brokered CDs, given the overall continued strength in deposit generation. Average non-interest bearing deposits were essentially flat linked quarter in the midst of non-interest bearing to total deposits at quarter end was 26.3% compared to 26.8% last quarter, reflecting the strong interest bearing deposit growth and stable non-interest bearing demand deposits.
Success of our ongoing balance sheet management and deposit gathering initiatives led to a loan to deposit ratio of 91.5% at year end, a more than 160 basis point improvement from year end 2023 and over 500 basis point improvement from peak levels in mid-2024. Fourth quarter, net interest income totaled $322.2 million, a slight decrease of $1.1 million from the prior quarter.
Average earning assets were up $360 million linked quarter on higher investment securities and liquidity balances. Average loans rose only slightly linked quarter given the impact on consumer loans from the auto loan sale completed in the third quarter.
Earning asset yields decreased 17 basis points to 5.34%, as the federal reserve interest rate cuts to begin in September impacted variable rate loan resets. Offsetting this impact was a 21 basis point increase in the securities portfolio yield to 3.38% driven by the portfolio restructuring. Interest bearing deposit costs decreased eight basis points linked quarter to 3% and cost on borrowings declined 37 basis points to [$479]
Our total cumulative spot deposit beta since the fed interest rate cuts began in September 2024 equals 16% at yearend 2024 versus our 15% expectation provided on the third quarter call. The resulting fourth quarter net interest margin was 3.04%, down four basis points linked quarter. Average rates paid on time and money market balances declined throughout the quarter, bringing the December net interest margin one basis point higher than the margin for the full quarter.
We continue to strategically lower deposit pricing in step with the downward trend in the fed funds rate and we expect a relatively stable net interest margin in the first quarter of 2025, dependent on federal reserve actions.
Turning to non-interest income and expense. Non-interest income was $50.9 million or $84.9 million on an operating basis, when excluding the impact of the securities restructure. Mortgage banking income rose $1.4 million linked quarter which included a mortgage servicing rights valuation recovery partially offset by lower gain on sale margins given the sharp increase in mortgage rates during the fourth quarter.
Capital markets income benefited from higher syndication and swap fees as well as strong debt capital markets and international banking revenue. Noninterest expense totaled $248.2 million, a $14 million increase from the prior quarter on an operating basis.
Approximately $10.4 million of the linked quarter increase was driven by expenses related to the renewable energy tax credit transaction mentioned earlier. Salaries and employee benefits expenses were up $1.9 million linked quarter, reflecting higher than expected employer paid health care costs that were $6 million higher due to an increased volume of high cost claims which was partially offset by lower production and performance related variable compensation.
Strategic hiring associated with our focus to grow market share and continued investments in our risk management infrastructure also continued this quarter. The efficiency ratio remains solid at 56.9% for the fourth quarter, and we continue to manage our expense base in a disciplined manner which is expensive to result in a significantly improved operating leverage performance in the second half of 2025.
FMBs capital levels reached all-time highs, the CET1 ratio at 10.6% and tangible common equity ratio at 8.2%, providing flexibility to deploy capital to increase shareholder value. On a year over year basis, tangible book value per common share increased $1.2 or 10.8%, $10.49, demonstrating our commitment to strong internal capital generation.
Let's now look at the guidance for the first quarter and full-year 2025 starting with the balance sheet. For full-year 2025, period and loans and deposits are expected to grow mid-single digits versus year-end 2024, as we continue to increase our market share across our diverse geographic footprint.
Full-year net interest income is expected to be between $1.345 billion and $1.385 billion. With the first quarter expected between $315 million and $325 million. Our guidance assumes a 25 basis point rate cut in March and another 25 basis point rate cut in June.
Non-interest income for the year is expected to be between $350 million and $370 million. With the first quarter expected in the range of $85 million to $90 million.
This is inclusive of the new capital markets and treasury management product offerings, Vince mentioned earlier. Full-year guidance for noninterest expense is expected to be between $965 million to $985 million, representing a 4.6% increase at the midpoint, when excluding the tax credit related expenses in the fourth quarter of 2024.
First quarter, non-interest expenses are expected in a range of $245 million to $255 million. This compensation expense is seasonally higher in the first quarter, due to normal long term stock compensation and higher payroll taxes. The 2025 provision expense is expected to be between $85 million and $105 million, dependent on net loan growth and charge off activity.
Lastly, the full year effective tax rate should be between 21% and 22%, which does not include any investment tax credit activity that may occur. Before I turn the call over, I would like to congratulate Vince Delie, as he moves into his 20th year of service at FNB.
During his tenure, he has successfully led FNB through multiple economic cycles and some of the most challenging times our industry has faced. Its visionary leadership, guided FNB to grow from $5 billion assets to nearly $50 billion. Catapulted FNB as an industry leader in digital banking tools and data analytics and developed a culture that values teamwork in doing what is right for all stakeholders.
This was recently named the 2024 CEO of the year by the CEO magazine, a well-deserved award. This recognition builds on the multitude of awards FNB has achieved under Vince' leadership.
Among the long list of honors, we are especially proud to have been named a list of the best, most trusted and most admired companies in the US and around the globe by prominent organizations such as Forbes, Time and Newsweek.
We have received more than 100 Greenwich Excellence and best brand awards in just over a decade. Our President's E award for export service and gained consistent national and regional recognition as a top workplace. Now, having earned more than 70 awards is a leading workplace based on employee feedback.
And in addition to our highly rated mobile banking app, we have garnered both international and national acclaim for omnichannel banking platform led by our innovative eStore and clicks to bridge strategy.
On behalf of the FNB team and our Board of Directors, thank you, Vince for your dedication in leading FNB.
Vincent Delie
Thanks for the kind words, Vince. My 20 years at FNB have been some of the best of my professional career and is largely due to the dedication of my executive team and all of our employees. Every organization has a leader, but very few have the quality people that we have at FNB which makes all of this possible. So, thank you.
Reflecting back on 2024, we achieved new milestones and set new records all while bringing value to all of our stakeholders. FNB celebrated its 160th anniversary, moved into a new 26 story state of the art headquarters in Pittsburgh's lower Hill district neighborhood and expanded our digital capabilities in our mobile application and the proprietary eStore in common application where we continue to lead the industry in customer engagement.
We generated quality loans throughout our footprint while upholding our conservative and consistent underwriting standards. Deposit growth was pure leading and led to a 500 basis point improvement in our loan to deposit ratio from the peak during the year.
We also diversified revenue streams to achieve record non-interest income, strengthened our balance sheet with a record CET1 ratio of 10.6%, through tangible book value 11% year over year. Achieved an operating return on tangible common equity of 14.5% and continued our conservative risk management practices across all lines of business.
I want to thank our teams for their contributions and our shareholders for their continued support as we celebrate our 2024 milestones and build on our momentum in 2025.
Thank you, and we will now turn the call over to the operator for questions.
Operator
(Operator Instructions) Daniel Tamayo, Raymond James.
Daniel Tamayo
Thank you. Good morning, everyone (multiple speakers) To be first -- and maybe first on the fee income initiatives that you mentioned, Vince to how they factor into to the guidance this year, just curious timing on those investments and initiatives and kind of your thoughts around, what may be ultimate growth prospects for those new businesses and investments?
Vincent Delie
Sure, a portion of the investment's already been recognized from an expense run rate perspective because we brought some people online and reflected in the expenses reflected in the guidance as well. We've had pretty good success starting several of these businesses, particularly in the capital markets line.
And, I think with the -- we began the debt capital markets group and we immediately began generating revenues. So that became pretty much neutral in year one, enough revenue to offset the expense that we brought on. I would expect the same to be true of several of the business units that were starting out public finance, for example, we're starting to build out that team.
I would expect that to begin to generate revenue in '25. And the break-even point is fairly quick for us. And then we shift over in '26 into some pretty attractive terms in that business, in particular, in the investment banking and advisory business, the same is true. That's a little bit different.
But, we've identified a group that we're going to bring on and I would expect that to begin to generate revenue immediately because there's an ongoing business stream and clients associated with what we're doing there. So all in, I don't see it being, incredibly accretive to earnings year one, but in '26, I would expect it to be meaningfully impactful.
So we're pretty excited about those two areas in particular. And then in terms of just building out the existing businesses, we -- we've added commodities hedging to our derivatives program. We have actually built out our syndications capability.
So that's starting to move even further in the right direction, and we did pretty well just for record level of left the syndications for us. So as our scale has increased and our balance sheet has increased, it's given us the ability to pursue larger transactions with bigger fees associated with it.
So that's been a positive for us and really benefited from the build out of that syndications team. That's -- our strategy was to create a number of areas to support our clients, but also to provide the company with a very diverse set of the income sources.
And I think it's played out pretty well for us. I mean, you can see it over time and we've grown that, as I said, 9% on a compounded annual basis, and I would expect us to continue to do well in '25 and into '26 in a number of categories. So, we're pretty excited about that and.
Vincent Calabrese
I would just add to the incremental cost to start, these is very small. And as we talked about in Vince's comments, we have eight businesses that we've started and expanded and quickly, even the ones from scratch become million dollar plus revenue businesses quickly.
And bringing everybody together in our new facility, we have a trading floor, we have capital markets area. It's really exciting. It makes it easier to recruit people, as we bring them in, they could see our full capabilities on display, if you ever get a chance, I'd encourage you to come and visit. So it's, it's pretty impressive.
Daniel Tamayo
(technical difficulty) Appreciate all that color. I guess maybe a follow-up, you talked about the costs associated with those and how some of them have been incurred already, and maybe some of them are not as meaningful as we think. But the guidance for '25, you talked about (inaudible) for a little less than 5% growth on the expense side. Just curious the primary drivers of that?
And then think you talked about some cost savings initiatives on the call last quarter. Just curious if there's still a plan or an outlook for some initiatives that might drive that expense growth rate down into '26.
Vincent Calabrese
Yeah, I would just -- let me just start with the fourth quarter, right. So we came in at $248 was above our range, which was $225 million to $235 million. And really two items that drove that, the $10.4 million valuation impairment charge that we mentioned related to the investment tax credit offset a piece of the $28.4 million tax credit.
And then we had a $6 million increase in health care costs that came in just an increased number 50% increase in kind of the high-cost claims above $100,000. So those two things have affected the fourth quarter.
So as far as kind of a run rate going into next year, you won't have the $10.4 million and the $6 million. I think the claims will still be a little bit higher than what we expected for '24, when we started the year, but it will definitely be down quite close to 10%, kind of actual 24% to 25%. So that's kind of baked into the guidance. Things like as we approach $50 billion, there's [height] standard requirements that are out there. So we've been working on that for a couple of years.
And there's probably a couple of million dollars of expense that was in there in '24. We'll have probably a similar increase in '25. Again, this is all baked into the guidance. And then it stabilizes as you get into '26. So as we just kind of build out some of the kind of first and second lines of defense.
Vincent Delie
Yes. And I'd say you're seeing that. That's why the expenses are elevated. You're seeing the build-out of the risk management area to comply with heightened standards. That has been happening.
Otherwise, our efficiency ratio would have been in a much better position, and I would expect as we move through [2000] there's more spend coming, it's reflected in the guide, which is why we're guiding, I think, on a core basis, 4%, (multiple speakers)
So that's reflected it would have been better. I mean there are a number of expense initiatives that we're pursuing to offset that expense build, which keeps it under 5%, 4%. So as we move into '26, we would expect to be at least have the operating expenses, the salary expense reflected in the run rate for those compliance issues.
Vincent Calabrese
And I would just remind everybody, first quarter, we have a seasonal increase from restarting the year payroll taxes and restricted stock that happens every year in the first quarter. That's $12 million to $15 million of expenses that you'll see fourth quarter to first quarter.
Again, that's all baked into the guidance. And then the cost saving initiatives every year, as you know, for I don't know how many five, six, seven years, we've had a meaningful cost saving target comes out of a variety of which areas under negotiation, space optimization and facility optimization and just continuous process improvements, leveraging AI and other automation tools that we have with the company.
So -- and we hit that every single year. So that's part of kind of how we fund some of these additional expenses and new initiatives.
Daniel Tamayo
Okay, great. Well, thank you for taking my questions.
Hey, good morning guys. (multiple speakers) I wanted to start on the margin and just get a sense for how you're thinking about deposit cost progression over the course of the year. It looks like the guide as you matching loan growth and deposit growth.
So just trying to get a sense for what the competitive pressures on the deposit cost will be? And if you could just kind of tie that into the net new margin or spread touching on where your new commercial loan yields are coming in?
Vincent Calabrese
Yeah. I would say slide 15 does a good job kind of looking at the different levers that we have as far as balance sheet pricing. Just kind of as a reminder, in our cumulative up data, we finished at 39.8% (technical difficulty) We outperformed the peers on the way up by 8 percentage points for total deposits and interest-bearing deposit data basis. Our team, I think, did a very good job managing deposit costs on the way up, kind of customer by customer, established a good plan as pivoted to start going down.
So our goal would be to outperform again on the way down. The timing of it, right, it matters, obviously. But from an overall beta perspective, we're still comfortable with kind of a cumulative down data in the mid-30s. By the end of this year, kind of in the low to mid-20s is kind of what we're forecasting. To date, we've lowered our best rates on CDs and money marketing account by 100 to 125 basis points.
So the Fed's move to 100. We've moved those kind of lock up for a little bit more. Our guys every day are working on kind of optimizing the deposit cost. But keep in mind, too, we're still growing deposits. So that's been a focus for us to bring our loan-to-deposit ratio down.
So the balancing act is still growing deposits and bringing down the deposit rates will continue, and our guys are monitoring the competitors, monitoring the elasticity with our customers and just kind of continue to work it down. So that's all baked into the guidance. We have two Fed cuts in there kind of March and June as our guidance slide says. So it's just a very active process. And again, the goal will be to outperform on the way down.
Russell Gunther
I appreciate the color, Vince. Thank you. And then just last one for me. I appreciate the market share stats you shared earlier, TOP5 and 50%, TOP10 and 80%. Maybe just touch on specific markets you'd like to increase that share and how you plan to go about it touching on M&A, if that is something you'd look to do in '25? Thanks, guys.
Vincent Delie
Well, I'm going to go on the record of saying I would want to be an investment banker today. So I said I wouldn't want to be an investment banker a couple of years ago. I think that's all changed. I think that we're headed into an environment that permits M&A to occur naturally. And I think it's a healthy thing in the industry as smaller banks try to achieve and it helps all the way around the board -- helps the shareholder helps clients, right, obtain capital, creates efficiency.
I think we're back to more M&A activity. Having said that, FNB is still going to focus on the same strategy, which is the optimal deployment of capital. So we're going to look at a variety of ways to deploy capital, not just M&A. I think we've broadened our footprint.
You asked about what markets we're most interested in. We're going to continue to build out our presence in the Carolinas and in the Southeast. We have tons of potential to continue to grow. Deposits, particularly in Charlotte and Raleigh and the Piedmont Triad. I think we've only scratched the surface.
As we build out our product set in TM in particular, there's a tremendous amount of upside for us because we're established we've had bankers in the market for five-plus years, and our brand awareness has improved dramatically.
So there's significant upside there. I think in the Mid-Atlantic region, particularly in Washington, D.C. and Northern Virginia, there are opportunities for us. We continue to expand from a de novo perspective in those markets and build out our delivery channel.
I think there's upside in those markets from a deposit perspective. And then moving into our more traditional markets, we've done a really good job in Pittsburgh, and we're worth [$1billion] in total deposits were number two in true retail deposit market share, excluding global custody of banks that have large broker portfolios.
So I think we'll continue to focus on the areas that are more mature for us to drive deposit growth. Again, there's plenty of opportunities. So there are some very large players that control big chunks of market share that are much larger than us, and we have an opportunity to grow our deposit base in Cleveland, and Pittsburgh and Baltimore.
(multiple speakers) Yes. And the digital investment, the -- on the consumer side, flipping over to the consumer side, we've invested pretty heavily in the eStore in the platform. Most of our focus has been strategically placed client acquisition, ease acquisition of clients. So the eStore concept itself where you can purchase up to 30 consumer products simultaneously, loan of deposit products, by filling out one application as an example. We are continuing to add to that platform.
We will have capabilities this year that will permit us to move repetitive payments that occur ACH transactions that occur in checking accounts, direct deposit will be moved instantaneously. So when a customer comes in, opens an account with us through the eStore through an investment we're making with a fintech company partner that we picked up along the way, we're going to be able to move those things immediately.
That's going to have a meaningful impact on our ability to maintain our client primacy as we call it, which helps grow noninterest-bearing deposits and improve the margin over time. And also gross fee income, positive good fee income in the consumer bank. So those are the things that we're doing to drive share.
I think geographically, we're in a pretty good spot, and certainly, the focus will be on the areas that I mentioned. And Virginia, the Washington, D.C. area, contingent growth in the Carolinas and taking advantage of the more mature markets where we have increased brand recognition. Anyway, that's the strategy.
I think we're sitting in a very good position to continue to achieve our objectives moving into '25 and '26.
Hi. Thank you. Thank you so much for the question. I guess it's kind of just stepping back and thinking through, operating leverage. I believe your prepared remarks said, you expect positive operating leverage to emerge in the back half of this year.
Just wondering if you kind of look ahead. How should we be thinking about the overall efficiency of the bank and what, your balance between longer term of the investments you continue to make and continue to reap benefits for you versus getting to that operating leverage of that just wondering how you guys from a management perspective approach that?
Vincent Calabrese
Yeah. I can comment. The efficiency ratio, we've talked about the investments that we've been making and that we have continued to make. And even with that, we continue to have an efficiency ratio that's in the top quartile. So I think that's a focus for us. And we've consistently -- in the quarter last year, we were in the top quartile, if not the TOP2 or 3.
So that's kind of an underpinning to it. And then positive operating leverage as we move forward, I mean as we get into this year, I mean, we've made the statement about the full year and really on both the dollar and a percentage basis and definitely getting there by the second half of the year.
Some of that will be dependent on what happens with interest rates, obviously. But what's baked into our guidance and what we're shooting for would be having that positive operating leverage for the full year with it really kind of starting to ramp up in the second half of the year.
So we're disciplined managers of expenses we've always been. So while we're investing, we're taking out anywhere from $10 million to $20 million in cost savings through the initiatives that I mentioned earlier. And it's -- again, it's a balancing act. But a lot of the (inaudible) charge is always, we're investing where we can grow revenue.
So we're not very mindful of the types of things that we're investing in. So it's clearly a focus for us, and it will be nice to return to positive operating leverage this year for sure.
Vincent Delie
Yeah. Kelly, as you know, we are still pretty dependent on net interest income. So that changes the interest rate as the slope of the curve changes and the interest rate environment changes. What we need to stay focused on is being as efficient as possible and getting the highest possible returns we can capital and investment and that's been our focus. I think from a strategic perspective, what's the catalyst to keep us sufficient moving into the future, irrespective of the changes in rates.
I'm very excited about automation the use of AI, our ability to track on an automated way, the activities that are going on in operations. And we have a project underway as well to optimize the reporting within the operating units that we have, which should produce pretty significant results as we move forward from an efficiency perspective.
So being able to monitor thousands of actions that occur every day in our operations area. That's going to help us in the future develop tools from an AI perspective that will help us drive efficiency. So there's quite a bit of technology that's coming that should help us from an expense perspective as we move into the future, not here today, but it's coming, and we're preparing for.
So you ask kind of long term strategically, that would be my answer. I think there's a tremendous opportunity in the industry, not just with FNB to take expense out of the operations area.
Kelly Motta
(multiple speakers) that is incredibly helpful and I apologize if you've touched on this one, earlier in the call. But, given the change in administration, have you seen any greater optimism among your commercial clients and willingness to make investments and perhaps drawn on lines of credit or undertake new investments that would necessitate, new loans or is it still just too early to see any kind of change there?
Vincent Delie
No, I think based on the conversations I've had with clients, I think they're more optimistic about the conditions for business as we move forward. Obviously, there seems to be euphoria about it. I think that we're starting to see the beginning of planning for capital investment, which leads to increased demand. And particularly, again, I'm excited, I think the things that I spoke about for us also applies to other industries.
And because of those gains in efficiency, there should be increased profitability and the ability to deploy capital and receive higher returns, right on investment. So I think over time, we're going to see a building of demand for particularly C&I opportunities.
And customers pursuing M&A transactions. That's the other side of it. We have everything kind of just died, right? Everything just stopped. And I think we'll see more M&A activity within our customer base and in the markets that we serve, which will lead to opportunities for us because that creates opportunities for us to participate in the credit facilities and provide capital market services.
I think the investment banking platform that we're launching for middle market companies is also the perfect time because I think you'll see more activity even in the lower end of the spectrum. And that will create opportunities for us to benefit from the advisory fees, but also to roll the proceeds of the sale into our wealth platform. So I think the investments we're making, given the time that we're in and where we are in the cycle, I think, are pretty smart. So I hope it all pays off and works out the way we expect it to (multiple speakers) I think there is demand.
Kelly Motta
I appreciate all the color on all front. Thanks guys. I'll step back.
Vincent Calabrese
One other thing I could comment on to Kelly was just the -- we've talked about the swaps that are rolling off, and that's a positive to this year. That's been about a $10 million a quarter drag to net interest income, and those have began to roll off. $250 -- there's $1 billion in total, $250 million a quarter. The first one rolled off on January 1, and the rest of them May, July and October.
So that $10 million a quarter drag will be going away as you go through the year. So that's also additive to the net interest income as we get into the second, third, fourth quarters.
Hey, good morning. You might have touched on a little bit of this but can you kind of talk about the cadence or the pace of NII and NIM across '25 stable nim in the first quarter? You have the cut in March in June. Where would it go from there across the year?
Vincent Calabrese
Yeah. I would just say, I mean, the fourth quarter feels like it's up here for us. So as you look to the first quarter, we would expect it to go up, I don't know, a few basis points, 2 to 3 basis points or so. And then really just gradually build as you go through the year with the March and June [cost take] in there. And with the [site] going a little bit slower, another key point, we're still cash-sensitive overall.
We continue to organically move back to neutral from an interest rate risk standpoint. The delay slowdown in the Fed cuts is helpful in the short run for us because it helps you kind of catch up and manage the deposit costs down, as I mentioned earlier.
So -- and we have -- because again, that slide 15 does a good job with kind of talking about the different moving parts. But we have -- just to give you a few data points, and we have $10 billion of liabilities that are repricing today. They have another [$5.2 billion] in CDs that mature in the next six months, [$3.2 billion] in the next three months at [43%]
We've been putting on CDs in the kind of 350 to 360 net barriers. So that's positive there, too. And then we have billion (inaudible) annual cash flows from investment portfolio that's rolling off in around 3% or 4%. And we're currently reinvesting in the or 480 to 490 kind of area. So those are some of the similar levers going on.
And then you have the loans, you have the $16 billion that are variable rate loans that are tied to SOFR (inaudible) And with the Fed moving slower, we get the benefit of that in our net interest income and our guide. Our guide has that the two (inaudible) in there.
Manuel Navas
What's the sensitivity? Would you go towards the high end of your guide with less cuts? Is that the way to think about it?
Vincent Calabrese
We have fewer cuts for sure. In the short run, it's additive, it's -- you still want those cuts the short end come down as you get into '26 and beyond. But in the short run, it's additive to one less cut.
Manuel Navas
Okay. How does I heard the response on business optimism maybe not yet translating into loan growth. How are pipelines looking right now? And should we expect a little bit slower first start of the year in loan growth or will it come in pretty strong from the, from the start giving the optimism is doing is, is up and what's the regional tilt of that growth still towards the Carolinas?
Vincent Calabrese
Yeah. I mean that -- those are great questions. Last quarter, when I was asking a similar question. I said that pipelines were down, which they are, continue to be. We went through the holiday season, the slower seasonal period for commercial banking at the end of the year.
So pipelines still remain lower, probably 10% to 15% in a variety of markets pretty much across the board. But I expect that -- that's in the short term, I look at the 90-day pipeline more than I look at the long-term pipeline because that's what's more likely to come in, right?
As you look at those pipelines, there are starting to build, I would expect momentum to build throughout the year, as I said on the last call, and we're expecting demand to pick up fairly briskly towards the second half of the year. And that kind of aligns with the normal seasonal cycle for C&I and C&I lending, in particular, commercial banking. So that would be my expectation.
This is typically a lower period. I would say from a geographic perspective, we're seeing -- we've seen continued growth in Pittsburgh because we're mature. We see opportunities here. So we continue to get those. In the Carolinas, we've had great traction.
The pipelines are actually slightly better in the Carolinas continue to trend in the right direction. So I would expect us to do well there. And then I think Mid-Atlantic's trailing a little bit as we move through the year, I think there's upside in those markets. So that's pretty much how we see the world. But it's still led by the Carolinas and our core Pittsburgh operation or specific drivers for our pipeline moving forward.
Manuel Navas
What would be the potential upside, if the curve continues to steepen in the back half of the year? And how much is that already in the guidance? And I'll step back after this question.
Vincent Delie
I don't think -- I'll let Vince answer that question, but I don't think that we have upside baked into the guidance. And we look at the yield curve as it slowed when we look at the forecast, and we model out our guide based upon what we think is going to happen with rates. And as we sit today, the yield curve still slightly inverted, right? I expect that to correct over time. And the more correction we have, the more impactful that is for banks in general.
So I would look at it that way. I think in the short run, as Vince mentioned, there's also a lag associated with pricing on the liability side, right, when things shift. So if there are fewer rate cuts, that's going to help you in the short run, but in the long run, you're going to be stuck in a longer cycle with an inverted or flat yield curve. So it's kind of a tricky question, right? And there's quite a bit that goes into the modeling. I don't know if you want to add to that.
Vincent Calabrese
I would just add going back to betas, right? So the better job we do managing the deposit costs down, obviously, that can put you into the higher end of the range. And that's clearly focus daily briefly, every weekly price may we have. So that's something that better we do, the better we do that outperform peers that's additive to the net interest income, but it will be higher.
Vincent Delie
But we're not taking -- we don't shift to take bets on interest rates. We're managing the book to neutral. And we're just doing whatever we can, right, from a pricing perspective, a client perspective deposit mix. We do everything we can to try to optimize or maximize profitability in the environment that we're in. So that's how we operate.
And I think you've got the guide and the guide is based on what we know today. We'll see how the year plays out.
Vincent Calabrese
Yeah. We've done a nice job as we've been growing deposits, bringing in new relationships. And as you broaden those relationships. Again, that's very additive from a profitability standpoint and broadening the relationships as you get into this year and into next year. And the steeper yield curve, clearly, as you exit '25 to '26 is very much a positive for us.
Good morning, just a couple on first for Gary on credit, just curious your thoughts on, do we see continued normalization here in credit? And your reserve has been very stable over the last few quarters, just curious if your thoughts on 2025. And maybe if that could be a potential tailwind, some reserve releases and any assumption on continued reductions in non-owner occupied commercial real estate.
Gary Guerrieri
Yeah, Frank, in reference to where we sit today with the reserve, it has been extremely stable. And I think that's a reflection of the stability in the portfolio as to where we sit going into 2025 and the position of each individual portfolio within the total of all the assets.
So in terms of looking ahead, I mean, we've guided to a fairly stable type of provision expenses. We are extremely aggressive in managing the book of business, and we feel good as to where it sits today. We were aggressive in Q4 around the position of the book.
So we feel good about where we have been positioned at the moment and we'll continue to work through the existing environment that the industry is facing. In terms of CRE, during the year, just from a total nonowner occupied CRE standpoint, the quarter, I mentioned in my remarks, we were down $300 million just in that quarter.
For the full year, it was in excess of $500 million, and that was really centered around construction being down $370 million and office being down about $350 million. We're continuing to focus on moving the non-owner exposure as a percentage of capital down.
So, I would expect to see that continue as we move forward. The secondary markets have opened up quite a bit. We saw some assets move there, which is what we expect them to do. So that surely is a positive event as well. And we do see that continuing as we move through the year ahead.
Frank Schiraldi
Okay. I appreciate that. And then just lastly, Vince just curious, your, your broad thoughts looking at the regulatory framework, the idea, being maybe a little bit of a lighter regulatory touch in the new administration.
I just curious your thoughts is that just me, maybe a more streamlined, M&A process for the industry and maybe a pick up there or do you see any specific potential benefits to reduce your expense burden here? You mentioned the heightened standards, questions whether some of those thresholds may move higher. So just curious, your broad thoughts there?
Vincent Delie
Yeah, I'm not sure that the impact of banks our size will be immediate in terms of expense reduction. I think that given the bank failures that occurred several years ago, the demeanor of the regulators shouldn't change materially in the short run.
I think in the long run, as the administration carries on, I think we'll see some relief. I think that relief is mainly -- I just -- I believe that the previous administration was anti-M&A kind of across the board. So a lot of the policies that were imposed and the regulators were enforcing rules that prevented banks from doing M&A.
I'm convinced of that. I think that will ease up. So I think it will permit not just in the banking sector, but across the Board, permit more M&A to occur, which is why I would want to be an investment banker today, not a few years ago.
But I think generally, the risks associated with operating a large institution aren't changing and the rigor in which the regulators pursue enforcement of regulations that are on the books isn't going to change materially. I think that will be pretty steady, particularly with the OCC and the regulatory bodies that have been more consistent in the application of the rules.
I think what's going to go away are the enforcement actions in some of the things that happen kind of outside of the normal risk management, safety and soundness regime. I think there seems to be a different appetite for those types of moves by the regulators under this administration.
So I think for the large banks, they'll see some relief. They've talked about Basel III changes to capital requirements and liquidity requirements. Obviously, those changes trickle down to us but the immediate impacts for larger institutions.
That's kind of my view. I think we'll see some relief, but it's not going to result in material reduction in expense. I don't see that happening.
(multiple speakers) Yeah. Thank you.
(Operator Instructions) Brian Martin, Janney Montgomery.
Brian Martin
Hey, good morning guys. (multiple speakers) Okay. Hey, just one question the one kind of current. I think you talked about the deposits, Vince, but just on the loan yields, just kind of competition, kind of what you're seeing there in terms of, yields today. So can you give a little color on how those are trending?
Vincent Calabrese
Sure. I mean if you look at the new loans that we made during the fourth quarter, came on around 6.5%. (inaudible) that's kind of where we've been putting loans on the books the last couple of months of November and December. So it's down from the prior quarter at 30 basis points or so. But at a 6.5% rate, it's still 66 basis points greater than the overall portfolio yield.
So it's clearly still additive to that. But that's kind of where we're putting kind of with the blend of loans that we're putting on the blended rate right around that 6.5% level.
Brian Martin
Got you. Okay. And then just in terms of the opportunities on the capital side, I guess, can you talk about, weighing the share buybacks versus kind of the potential, I guess on the M&A side, just in terms of, if we do think about M&A or there are opportunities this year, can you just remind us on that front if it's more a it's just kind of the earn back that you guys would be looking for.
And then just in terms of, with any potential deals, be more, smaller and additive to an existing market or is it more you're looking to get to a new market? I mean, the markets you're in, are pretty dynamic, just wondering if your expectation would be to be looking somewhere new or just kind of filling in kind of, like maybe some of the more recent ones on that front so?
Vincent Delie
Sure. We -- as I've said before, we haven't really changed our position from an M&A perspective. We would entertain opportunities. We're not looking for transformational transactions. I think the company is pretty well positioned in some fairly dynamic markets, and we have some work to do internally, right, to ensure that we generate the returns that we can achieve in those markets and manage risk.
So I think from our perspective, we're focusing -- still focusing internally. We think we can get some pretty significant growth out of the existing footprint and some very -- grow some very profitable businesses that will help us from a return perspective.
And then in terms of earn back in the event that we were to find an opportunity that was appealing to us, we would expect a very quick return on tangible book value dilution. So I'd say, continue to look within three years, right, returns have to be substantial.
We look for internal rates of return in the high-teens to the twenties, the ability to (inaudible) cost out fairly effectively, efficiently. And then looking at the deposit franchises, we would not want to dilute. I've said this before. We've built a pretty strong deposit franchise with a healthy demand deposit mix, and we're not looking to dilute that. We're also trying to manage our efficiency ratio.
So if we did something, we would want to make sure that we could take a substantial amount of cost out. I mentioned that from a credit perspective in terms of the portfolio, we're not looking to grow CRE exposure, right.
We've been reducing that over time. I think we're better than peers right, when you look at it relative to Tier 1 capital, right, Gary? Concentration perspective, we're looking to continue to improve that, focusing on more and larger C&I opportunities, which produce a high return for us because of the capital markets fees and lower risk profile.
From a loan-to-deposit perspective, as I mentioned, we brought that down fairly significantly. We would like to continue to do that. So as we move into the more robust part of the year from an economic expansion perspective or loan demand perspective, we have the liquidity and the capital to be a player. I think we're moving in the right direction to position us to really take advantage of the changes that are occurring economically. And I feel really good about where we are.
And that's kind of the strategy. So I'm not fixated on M&A. I don't think that's the only answer. And then again, we do look at share buybacks if it makes sense, if the earn-back is reasonable and it provides us with the EPS accretion. We're looking at the dividend every quarter.
We examine what's happening, what are our capital needs. We're not going to sit here with excess capital either. So depending on how things play out, we're going to look at that as well. So we kind of look at each area and we look for optimal deployment of capital for the shareholders. That's been our mantra and we're going to continue to do that.
Vincent Calabrese
Yes, CET1 ratio at 10.6%. And, the expectation of higher levels of earnings, higher level of internal capital generation, it gives us more flexibility to pursue the things events mentioned with our stock valuation still very attractive, share repurchase is definitely part of the consideration.
Vincent Delie
But that's not -- that capital is not already in a hole in our pocket, right? We're not running out to deploy the capital. We want to make sure we make really smart decisions that position us to take advantage of opportunities in the marketplace that provide the shareholders with the absolute best returns.
We're not looking to change the risk profile of the company or change -- I think we're operating very effectively and have proven over a long period of time that we can produce result better than peers. So that's going to be the focus. Hope that's helpful.
Operator
Ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Vince Delie for any closing remarks.
Vincent Delie
Well, thank you very much. I appreciate all the questions and the interest in FNB. We continue to be very optimistic about the momentum that we've created. We had a pretty solid year in a choppy environment. So kudos to the management team and to the employees for all the work that they've done and I can't think of a better place to be for the last 20 years than here. So it's been very exciting.
You've thrown a lot at us, a pandemic, a financial crisis, a liquidity crisis, bond crash. But we're here, we're surviving. We're doing really well and I appreciate my team. I, they've done tremendous things, no matter what the circumstances are, we rally together and we get things done and I couldn't ask for a better career or group of people to work with. So, thank you very much.
Operator
Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your line.