John F. Woods
Vice Chair and Chief Financial Officer at Citizens Financial Group
Thanks, Bruce. Good morning, everyone. As Bruce indicated, we delivered results in 2024 that were broadly in-line with our expectations at the beginning of the year. 3Q was our trough quarter. 4Q was a nice bounce back and we are well-positioned for growth in 2025.
On Slide 6, you can see that we delivered underlying EPS of $3.24 for 2024, which includes a $0.45 drag from non-core and a net $0.05 investment in the Private bank. Full year ROTCE was 10.5%, which was 12% excluding these items. Despite loan volumes being lower-than-expected, given market dynamics, net interest income came in broadly in-line with our expectations for the year, down 9.7% as we delivered a full-year margin of 2.85%.
Fees were up a strong 9%, led by a pickup in capital markets, card and wealth fees, while expenses were managed tightly, up only 1.5%, notwithstanding meaningful investments to support the build-out of the private bank and private wealth. We also managed well through an uncertain credit environment, maintaining strong reserve coverage levels with credit losses coming right in line with our expectations at the start of the year.
The transformation of our deposit franchise since our IPO became clear in 2024 as we managed through a very competitive environment against the backdrop of rapidly rising rates. Our deposit cost performance was better than the peer average, a meaningful improvement compared with prior rate cycles. And with the latest Fed rate cuts, we have aggressively lowered deposit costs in 4Q.
Importantly, our financial strength has allowed us to execute well against our strategic initiatives, providing momentum as we head into 2025. We have opportunistically built-out the private bank, which has raised $7 billion of deposits through the end-of-the year, and as expected, became profitable in the fourth quarter.
We also continued to make solid progress building out our New York City metro franchise. We are investing in our payments platform and we are solidifying our commercial middle-market coverage with investments in key expansion markets that complement our private bank success.
I'll start with some of the highlights of the fourth quarter financial results referencing Slides 5 and 7 before we get into the details. We generated underlying net income of $412 million, EPS of $0.85 and ROTCE of 10.7%. This includes a negative $0.10 impact from the non-core portfolio, which will continue to steadily run-off, creating a tailwind for overall performance going-forward.
As I mentioned, the Private Bank contributed to earnings in the fourth quarter, adding about $0.01 to EPS. Importantly, we've returned to positive sequential operating leverage in the fourth quarter with a nice lift in NII and fees, even as we made important investments in the Private Bank and Private Wealth and added commercial middle-market bankers in key expansion markets.
We ended the year in a very strong balance sheet position with CET1 at 10.8% or 9.1% adjusted for the AOCI opt-out removal, a pro-forma Category-1 LCR of 119% and an ACL coverage ratio of 1.62%, up from 1.61% in the prior quarter. This includes a robust 12.4% coverage for general office, up from 12.1% in the prior quarter. We also executed $225 million in-stock buybacks during the quarter.
Next, I'll talk through the fourth quarter results in more detail, starting with net interest income on Slide 8. NII was up 3.1% linked-quarter, reflecting a higher net interest margin and slightly lower interest earning assets. As you can see from the NIM walk at the bottom of the slide, our margin was up 10 basis points to 2.87%, reflecting the benefit of non-core runoff, fixed-rate asset repricing and better deposit and loan betas, partially offset by our net asset-sensitive position as rates declined.
With the Fed cutting rates through the end-of-the year, we executed our downgrade playbook, reducing rates ahead of the cuts and bringing down higher-cost deposit balances. Our cumulative interest-bearing deposit down beta was about 50%, better than our initial expectation.
Moving to Slide 9. Fees were up 5.6% linked-quarter, primarily driven by an improvement in capital markets. Capital markets saw strong loan syndication activity and a pickup in M&A, which benefited from seasonality and a general improvement in the environment. Debt underwriting was lower coming off a strong third-quarter.
Mortgage banking fees reflect higher MSR valuation with overall operating results remaining stable. The Wealth business delivered a solid quarter with good momentum in AUM growth from the private bank, but that was offset by lower transactional sales activity.
On Slide 10, expenses were up 3.5% linked-quarter, primarily reflecting hiring for the private bank and private wealth build-out and commercial middle-market bankers to complement our private bank footprint in Southern California and Florida.
Our top nine program achieved a $150 million pretax run-rate benefit exiting the year, which is above our original target of $135 million. And we have launched our Top-10 program, which is targeting $100 million in run-rate efficiencies by the end of 2025.
On Slide 11, average loans were down slightly and period-end loans were down 1.7% linked-quarter. This reflects the non-core portfolio runoff of approximately $900 million, a decline in commercial loans given paydowns in C&I and CRE against a backdrop of low client demand and lower line utilization.
The Private Bank continues to make nice progress with period-end loans up about $1.1 billion to $3.1 billion at the end-of-the year. Next, on Slides 12 and 13, we continued to do a good job on deposits in a very competitive and dynamic environment. Period-end deposits were broadly stable linked-quarter with attractive growth in retail in the private bank, offset by the continued paydown of higher-cost treasury and commercial deposits.
This was primarily tied to non-core loan rundown and a proactive effort to optimize the liquidity value of deposits. The Private Bank continues to add customers and grow nicely with period-end deposits up about $1.4 billion to $7 billion at the end-of-the year.
Our retail franchise did a nice job raising deposits this quarter in low-cost categories and importantly, we've seen strong retention as the CD portfolio turns over at lower rates. We also grew non-interest-bearing deposits by about $940 million linked-quarter, driven by the private bank and seasonal flows in commercial.
Combined, our non-interest-bearing and low-cost deposits increased to 42% of total deposits in the fourth quarter. Overall, our deposit franchise continues to perform well in a very competitive environment. Our interest-bearing deposit costs are down 31 basis-points linked-quarter, which translates to a 50% cumulative down beta.
Moving to credit on Slide 14. As expected, net charge-offs were broadly stable at 53 basis-points compared with 54 basis-points in the prior quarter. A decline in C&I charge-offs was offset by an increase in commercial real-estate, primarily coming from the general office portfolio. Retail charge-offs were stable. Of note, non-accrual loans were down slightly, reflecting a decline in commercial given the resolution of a number of general office loans.
Criticized loans were meaningfully lower in the fourth quarter, following relative stability over the past few quarters. We continue to make consistent progress in working out the general office portfolio with limited new inflows into workout. Turning to the allowance for credit losses on Slide 15. Our overall coverage ratio increased slightly linked-quarter to 1.62%, primarily reflecting the denominator effect of lower portfolio balances. While we maintain strong reserve coverage for certain portfolios such as general office.
Our overall reserve declined slightly in light of a broadly stable macroeconomic outlook and improving loan mix given the runoff of non-core auto portfolio and originations in retail real-estate secured and commercial categories that have a lower loss content profile. The reserve for the $2.9 billion general office portfolio is $364 million, which represents a coverage of 12.4%, up from 12.1% in the 3rd-quarter as the portfolio continues to reduce.
Note that the cumulative charge-offs plus the current reserve translates to an expected loss rate of about 20% against the March 2023 loan balance when industry losses commenced.
Moving to Slide 16, we have maintained excellent balance sheet strength. Our CET1 ratio strengthened to 10.8%, which compares with 10.6% in the prior quarter. Adjusting for the AOCI opt-out removal, our CET1 ratio was relatively steady at 9.1% despite the impact of higher long-term interest rates on AOCI in the quarter.
Given our strong capital position, we repurchased $225 million in common shares and including dividends, we've returned a total of $413 million to shareholders in the fourth-quarter. Over the full-year, we repurchased $1.05 billion in common shares, representing $28.1 million or about 6% of our beginning of year outstanding shares at an average price of $37.35 per share.
Turning to Slide 17, we view our overall strategy in three parts a transformed consumer bank, the best-positioned commercial bank amongst our regional peers and our aspiration to build the premier bank-owned private bank and private wealth franchise.
Slides 18 to 20 provides some updates on our positioning and progress, which you can read at your convenience. Note on Slide 20, we've updated our private bank targets for 2025 given the success we've had to date. We bumped deposits from $11 billion to $12 billion and AUM from $10 billion to $11 billion.
We adjusted loans to $7 billion given the impact of higher rates on borrowing demand. We are tracking well to meet or exceed our 5% accretion estimate to Citizen's bottom-line in 2025 on Slide 21, we provide an update on some of the tremendous progress in New York since we made a play there about three years ago with HSBC's East Coast Branches and Investors Bank.
Moving to Slide 22, I will take you through our full-year 2025 outlook, which contemplates a forward curve with two Fed cuts, one in 2Q and the other in 4Q, ending the year with a Fed fund -- Fed funds rate of 4% and a 10-year treasury rate of 4.5% to 4.75%. We expect NII to be up 3% to 5%, driven primarily by an increase in NIM to about 3% for the year. We project spot loan growth in the low-single digits overall and mid-single digits excluding non-core.
Loan growth will be impacted by non-core runoff, paydowns and more selective originations in CRE and muted commercial loan demand early in 2025. We expect C&I to pick-up in the second-half of the year as new money gets put to work. Private banks should see consistent loan growth throughout the year.
We expect loans will be down roughly 2% to 3% and overall earning assets to be down about 1%, which reflects the extent of the 2H '24 drop and continuing non-core runoff. Non-interest income is expected to be up in the 8% to 10% range, led by Capital Markets and wealth.
We are projecting expenses to be up about 4% as we are confident in our revenue outlook and want to step-up our investments in growth initiatives after a constrained 2024. Excluding the Private Bank and Private wealth, the increase in expenses will be about 2.6%. We have provided a walk showing the key components of our 2025 expense outlook on Slide 23. When you put the revenue and expense outlook together, we expect to deliver positive operating leverage for 2025 of roughly 150 basis-points.
Our outlook for net charge-offs is to trend down to approximately $650 million to $700 million or high 40s in basis point terms. We will continue to work-through the general office portfolio and given macro trends, the remixing of the balance sheet and expectations for modest spot portfolio growth, we will likely see ACL releases over the course of the year.
And finally, we expect to-end the year with a strong CET1 ratio in the 10.5% to 10.75% range, which is above our medium-term operating range of 10% to 10.5%, given the continued uncertainty in the macro-environment. As we monitor the market environment and loan growth levels, we will opportunistically engage in share repurchases.
It's worth noting that loan growth was below expectations in 2024 and we were able to offset the impact through share repurchases and less pressure on deposit costs. We would use the same playbook in 2025 if needed.
On Slide 25, we provide the guide for the first quarter. Note that the first quarter has seasonal impacts on revenue, namely capital markets fees, lower day count reducing net interest income and taxes on FICA reset and compensation payouts impacting expenses.
Credit trends are expected to improve and we should end the first quarter with CET1 in the range of 10.5% to 10.75% with a good amount of share repurchases.
Moving to Slides 27 to 28, as we look out over the medium-term, we have a clear path to achieving our 16% to 18% ROTCE target. Expanding our net interest margin is an important part of improving our ROTCE which we project to be in the 3.25% to 3.5% range in 2027. However, given our balance sheet position -- positioning and our asset sensitivity, if the Fed maintains an elevated Fed funds rate at or above 4%, this will help to deliver a NIM level at the upper-end of our range or higher.
On Slide 28, we provide a walk to our target 16% to 18% ROTCE. We have significant NII tailwind driven by non-rate dependent terminated swaps amortization and non-core runoff, which will generate about 300 to 400 basis points of ROTCE through 2027. We had roughly another 100 basis points with the net impact of other dynamics such as positive fixed asset repricing, the runoff of legacy active swaps and the offsetting impact of our naturally asset-sensitive balance sheet. That puts you into the 15% to 16% range.
We expect to generate solid returns from our legacy core business, plus the successful execution of the private bank and other key initiatives I talked about earlier, which should drive meaningful revenue growth, generate positive annual operating leverage and improving our efficiency ratio, which will add another 200 basis-points to 300 basis points to ROTCE.
We should see some benefit from credit where we have been over providing today versus a more normal environment with charge-offs improving to the low-to-mid 30s basis-points, reflective of the improved mix of the portfolio with less auto and more private bank loans in C&I.
KOCI impacts are providing a ROTCE benefit today, which should normalize with time. This impact will partially offset with share repurchases. In short, we feel very confident in our ability to achieve the 16% to 18% medium-term target.
To wrap-up, we delivered a solid performance in 2024, broadly in-line with expectations. Importantly, we turned the quarter on-net interest margin, delivered improving capital markets results and remained disciplined on expenses, returning to positive operating leverage in the fourth quarter.
We ended the year with a strong capital, liquidity and credit position that puts us in an excellent position to drive forward with our strategic priorities. We are well-positioned for 2025, and we remain confident in our ability to deliver our medium-term 16% to 18% return target.
With that, I'll hand it over to Bruce.
