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Clark Khayat

Thanks, Chris. Starting on slide 4. We reported a fourth quarter EPS loss of $0.28 or on an adjusted basis, a positive $0.38 per share. Late December, we sold securities with a market value of roughly $3 billion with a weighted average yield of about 1.5% and an average duration of a little over eight years. We fully reinvested the proceeds prior to year-end in primarily three- to five-year duration MBS at a yield pickup of about 400 basis points. These new securities will provide liquidity and capital benefits relative to what was previously owned.
Consistent with our expectations when we announced the transaction with Scotiabank back in August, we utilized roughly half their capital injection to complete two securities portfolio repositionings, one each in the third and fourth quarter. We sold in total approximately $10 billion in market value securities or almost 30% of our AFS portfolio and over 50% of the long-dated securities that were yielding less than 2%. Together, these actions added $54 million to 2024 net interest income and will add about another $270 million in 2025 net interest income.
Revenue trends were impacted by the losses from the securities sales just described. On an adjusted basis, revenue was up 11% sequentially and up 16% year-over-year, with strength in both NII and fees. Expenses of $1.2 billion were up on an operating basis, reflecting the strong fee quarter and some charges we took to enable us to hit the ground running in 2025. I'll go into these in more detail later.
On an adjusted basis, we achieved roughly 400 basis points of positive operating leverage year-over-year. Credit costs of $39 million included $114 million of net charge-offs offset by a $75 million loan loss reserve release. The release was primarily a function of lower loans and decline in criticized loans and $25 million specifically allocated to charge-offs we took in the quarter. Our CET1 ratio increased to 12% and tangible book value per share increased roughly 17% year-over-year.
Turning to slide 5. Full year 2024 EPS was impacted by the securities portfolio repositioning, adjusted for these actions and FDIC special assessment costs, EPS was about $1.16. Net interest income was down about 3.5% or the middle of the target range we provided last January. Scotiabank investment-related benefits added about 150 basis points to growth, offset by an $8 billion decline in loan balances over the course of 2024 and near-term impact from rate cuts late in the year. Our fourth quarter exit rate NII hit the $1 billion-plus target that we had set at the beginning of the year, even after adjusting for Scotiabank impacts.
Adjusted fees were up 7% and meaningfully better than the 5% plus guide we provided at the start of the year as Investment Banking had its second best year ever. Commercial Mortgage Servicing, Wealth, and Commercial Payments also posted strong results.
Expenses were up almost 3% compared to our original guidance of flat to up 2%, primarily due to the strong fee environment and the additional expenses we noted. Credit costs improved, reflecting allowance releases this year versus builds in 2023 and net charge-offs were 41 basis points at the high end of our original range of 30 basis points to 40 basis points, due in part to the lower loan denominator.
Moving to the balance sheet on slide 6. Average loans declined 1.4% sequentially and ended the quarter just north of $104 billion. Decline reflects tepid client demand, active capital markets, our disciplined approach as to what we're willing to put on the balance sheet, and the intentional runoff of low-yielding consumer loans as they pay down and mature.
As we've mentioned before, our business model provides clients with the best execution capabilities, whether it's on or off our balance sheet. This quarter, we raised $54 billion of capital for our clients. And as Chris mentioned, had a very strong quarter of investment banking fees. Only 12% of the capital we raised in the quarter went to our balance sheet.
On slide 7. Average deposits increased 1.3% sequentially to nearly $150 billion reflecting growth across both consumer and commercial deposits. Client deposits were up 4% year-over-year. On a reported basis, noninterest-bearing deposits remained at 19% of total deposits. Similarly, what adjusted for the noninterest-bearing deposits in our hybrid accounts, that percentage remained stable at approximately 23%.
Deposit costs declined by 21 basis points with interest-bearing costs decreasing by 25 basis points during the quarter. Deposit betas have been stronger than expected, reaching 40% through the fourth quarter and closer to 45% through the month of December.
Slide 8 provides drivers of net interest income in the NIM this quarter. Taxable equivalent net interest income was up 10% and the net interest margin increased 24 basis points from the prior quarter. While the increase was driven largely by the Scotiabank investment and related securities repositioning, we were able to mitigate near-term impact from Fed rate cuts and lower loans with continued client deposit growth momentum, higher deposit beta, and other funding optimization initiatives. Overall, interest-bearing liabilities declined by 35 basis points this quarter.
Turning to slide 9. Reported noninterest income was negative due to securities losses. Adjusting for this, noninterest income was up 18% year-over-year. Investment banking and debt placement fees increased $85 million, up over 60% from the prior year. Indications that M&A fees drove most of the increase, while DCM, ECM, and commercial mortgage activity augur nicely as well. Elsewhere, Commercial Mortgage Servicing fees grew over 40% year-on-year and wealth management fees grew 8%, reflecting strong business momentum in these areas. As of December 31, we serviced over $700 billion of loans in our Commercial Mortgage Servicing business and our Wealth business, assets under management grew to another record level of $61.4 billion.
On slide 10, fourth quarter noninterest expenses were $1.2 billion, up 12%, both sequentially and year-over-year, adjusting for selected items in the year ago quarter. Versus the year ago quarter, growth was driven by higher incentive and stock-based compensation, reflecting the strong capital markets activity, a higher level of investment spend this year, and some unusually elevated other expenses this quarter. Sequentially, the increase was driven by higher compensation related to strong fee environment, investment spend, market and employee benefits cost, and some seasonal and miscellaneous other expenses.
The bottom right of the page, we provide the primary drivers of the roughly $50 million of unusually elevated expenses in the quarter that Chris referenced earlier. We would not expect those elevated expenses in 2025 and therefore, I would not use the fourth quarter noninterest expense run rate as a guide for the year. I'll cover this in more detail and guidance shortly, but as we've said, we will remain very disciplined on expense management efforts throughout 2025.
As shown on slide 11, credit quality is stable to improving. Net charge-offs were $114 million, down 26% sequentially or an annualized 43 basis points on average loans. Nonperforming assets were up a modest 4% sequentially and remained low at 74 basis points of loans. We believe NPAs are peaking and expect them to decline by mid-2025, and assuming no material adverse changes in the macro environment.
Criticized loans declined by 7% in 4Q with broad-based improvements across C&I and commercial real estate. Credit migration across the entire portfolio improved for a fourth consecutive quarter and is back to the levels of two years ago. We expect criticized loans will continue to decline from here as tailwinds from recent rate cuts are not yet reflected in clients' financial statements.
Turning to slide 12. Our CET1 ratio reached 12% as of December 31, and our March CET1 ratio, which includes unrealized AFS and pension losses improved to 9.8%, both of which we believe are at or near the top of our peer group. Our tangible common equity ratio also improved to north of 7%.
Slide 13 provides our outlook for full year 2025 and relative to 2024, ranges are shown on an operating basis. We expect average loans to be down 2% to 5% with year-end 2025 balances flat to where they ended 2024. Just a reminder that the down 2% to 5% is a measure of full year average loans, not a reduction from the end of 2024. Embedded within this guide, we expect consumer loans to decline by approximately $3 billion over the course of 2025 offset by growth in commercial loans.
Net interest income is expected to be up roughly 20% and for a second straight year to be up north of 10% on a fourth quarter to fourth quarter exit rate basis. We expect NIM to be 2.7% or better by Q4. We expect noninterest income to be up at least 5% with upside of capital markets conditions remain constructive.
We expect expenses to be up 3% to 5% of this year's $4.5 billion depending on the fee environment, and we remain committed to achieving fee-based operating leverage this year, meaning on a percentage basis, fee income should grow faster than expenses.
We expect the full year net charge-off ratio to be in the 40 to 45 basis point range or stable to fourth quarter levels with NPAs and criticized loans improving over the course of the year.
Finally, we expect the tax rate to be 21% to 22% or 23% to 24% on a taxable equivalent basis, reflecting the expected higher level of earnings and some uptick in state tax rates.
Finally, on slide 14, we lay out the drivers behind our 20% growth expectations for net interest income in 2025 and 10% plus growth expectations from fourth quarter to fourth quarter. Our assumptions are conservative relative to this past Friday's forward curve and that we have assumed two rate cuts in 2025, one in May and one in December.
You can see over half of the growth comes from the Scotiabank related actions and amortization from swaps we terminated in late 2023, and another good chunk comes from ongoing fixed rate assets and swaps repricing. Given the structural nature of much of this, we have a high degree of confidence it will materialize.
Primary swing factors relate to the degree to which we can drive quality, commercial loan growth this year, and continue to manage deposit betas as well as the shape of the yield curve. And if our clients continue to view the capital markets as a better option to fund their growth and bank debt, we're fortunate to have strong debt placement capabilities at Key, and we would monetize these relationships through fees not net interest income this year as we did this past year.
With that, I'll now turn the call back to the operator to provide instructions for the Q&A portion of our call.

Question and Answer Session

Operator

(Operator Instructions) John Pancari, Evercore ISI.

John Pancari

Good morning. Just wanted to get a little more color on the 20% NII outlook, you maintained it despite completing the bank in Novoscotia stake earlier plus the steeper curve. So -- and I appreciate the walk that you gave, but can you give a little bit more color around the rationale in keeping that 20%? I know you alluded to that your assumptions, at least around the Fed could be conservative. Is there any other conservativeness built into this -- and where could there be upside to this expectation as you look out? Thanks.

Clark Khayat

Sure. Thanks, John. So let me -- just for the benefit of everybody, maybe go through the walk one more time, just so we're all on the same page, which would be slide 14.
If you just go kind of bucket by bucket in the waterfall, you have a big chunk that's just the full year incremental pickup from the securities repositioning of Scotiabank investment. Similarly, on the cash flow swaps, we terminated back in October '23, you get the full year increment there as well. And then in the fixed asset repricing and swap bucket, you have the full year incremental impact of the US treasuries that matured last year. You have about $5 billion plus of cash flows, swaps that will mature this year at about 1.8%. We put some other forward starters on that come in later this year throughout the year at about 3.8%. And then you have the reinvestments on cash flows off the investment portfolio, which you referenced will come in potentially at a higher rate. All of that, we feel like it's not fully baked, but it's pretty well understood with some plus or minus in there.
The last two pieces really are the business activity component. So as we mentioned, we'll continue to remix the loan portfolio into quality commercial loans away from consumer fixed rate loans. We'll continue to grow quality customer deposits and manage those betas and deposit costs. And then we've got some ability to optimize other liability costs as we move through the year. And just as a reminder on that, fourth quarter deposit costs in total, down 21 basis points; interest-bearing deposits down 25; and interest-bearing liabilities in total down 35. So we've continued to pull that lever where we can. And then the last piece there is just the full year impact of the size of the balance sheet on average relative to 2024 and the rate associated with rate impacts with that.
So as we noted, really the factors here are going to be around loan growth and the business activity between loans, loan balances, deposit, and pricing on deposits. As I've said, we've worked really hard to get our balance sheet to a more resilient place here. We believe today, we're fairly neutral on rates, and we can effectively manage through a variety of rate environments.
That said, the good question there of why not more than 20. If we go back to September, when we did the first repositioning and through the Q3 call, we have had some things lean to the positive, as you noted, namely fewer cuts or conversely higher reinvestment rates and having closed that second tranche a bit earlier than we planned, meaning we get the second portfolio trade done in '24 and coming into 2025 clean. The counter to that really is starting loan balances. So we're down about $1.5 billion in average loans from Q3. We would have expected that to be close to flat. So that pulls through the full year.
As I mentioned, though, I think we're in very good shape to manage through a range of rate scenarios, and we're looking to support client loan demand. If we can grow commercial loans as planned, we will be in good shape relative to that 20%, and our NIM should get close to that 2.8% level by year-end. If we see stronger loan demand, and we can obviously support that there could be some upside. But the reality is the industry has been waiting for that loan demand to manifest now for several quarters. And if it doesn't, we'll have other levers to pull to make sure we can hit the 20%.
Lastly, the environment right now is still a bit uncertain despite improving client optimism, which I'm sure Chris will touch on. And we've got a new administration take seat here in the last 24 hours that administration appears to be getting to work very quickly. So I think we'll all need a little bit of time to understand the moves and let the market digest them. But I'd say the short story is we're very confident in this guide, and we think we're well situated to take advantage of the market as it evolves.

John Pancari

Thanks, Clark. I appreciate the color. I guess, just related to that, maybe you can elaborate a little bit more on your loan growth assumptions. I believe you had indicated it implies about flat on an EOP basis. Correct me if I'm wrong there. But -- and you're not the first to take a more conservative approach in guiding given the uncertain loan demand backdrop. I wanted to see if you can give a little bit more color on what you're seeing in terms of commercial borrowing activity and where the levers are there. Thanks.

Clark Khayat

Yeah. So I'll hit a couple of probably numbers here, and then I'll let Chris provide some kind of qualitative client feedback. So we did see commercial loans stabilize and actually even pick up a bit at the end of the fourth quarter. You're right on an end of period loan kind of flattish through the year. Just remember, underneath that, $3 billion of consumer loan runoff and about a 2% to 4% increase in the commercial loan portfolio. So I think relative to others, that's fairly consistent on the commercial loan side.
And again, Chris will touch on this. I'm sure the pipelines continue to be very robust. And it's really just a question of pull through at this point.

Christopher Gorman

Sure. Thanks for the question, John. So it's interesting. We're out talking to our clients all the time. Most recently, we did a survey of about 700 of our middle market clients. 80% of them said that they were very confident in their growth prospects. So that's all good.
What we haven't seen yet is people really making investments in property, plant, and equipment. And I think they're on the front edge of that right now, as you know, there's about an 18-month lag when you make investments like that. And I think people wanted to see what the tax policy was going to be which administration was going where, which administration was going to be in power and what their policies were going to be.
The other thing that I think gives us some opportunity for loan growth as utilization has been, in my mind, artificially flat at about 31%. Our typical utilization would be 35%, 36%. Every percent of utilization is worth about $700 million of outstandings for us.
My personal view is that the economy is actually starting to accelerate a bit. My personal view is also that inflation isn't necessarily under complete control yet. It's also apparent that if we do have tariff policy, there'll be people kind of buying ahead on that from an inventory perspective.
I'll give you a couple of other data points. Our M&A backlog right now is about as large as it's ever been, and there's still a whole bunch of capital on the sidelines. So for all those reasons, we think we will see loan growth. You know, John, that here at Key, we've outgrown the H8 data on commercial loans. Every year with the notable exception of '23 where we were actually shrinking our RWAs. So the opportunity isn't there yet, but the fact that we have more clients than ever and we're having more discussion with more clients than ever, I'm confident that when it's there to be had, we'll get it.

John Pancari

Thanks. Chris. Appreciate the detail.

Operator

Ebrahim Poonawala, Bank of America Merrill Lynch.

Ebrahim Poonawala

Morning. I just wanted to follow up, Chris. I think regarding this -- as we think about pickup in M&A, we are seeing some large transactions being announced despite whatever the policy uncertainty is still prevailing.
Given kind of your look at both these businesses and understand them extremely well. Give us any historical correlation where you should think about? Can M&A pick up without a pickup in lending demand customers taking on more leverage understanding that it may or may not come on bank balance sheets go towards capital markets. But I'm just wondering if we get a pickup in M&A when we hear your statement around the pipelines being as strong as they've ever been, should that imply that if M&A picks up loan demand has to pick up?

Christopher Gorman

It does, Ebrahim, to some degree. And obviously, there's a lot of stock for stock deals. No question about that.
But keep in mind, what a huge force the private equity market is and how delayed they are actually participating with $1 trillion on the sideline. Yes, there'll be less leverage but there will still be leverage. And so the -- there's no question that a robust M&A market is good for lending because usually, there's large deals and out of those large deals on smaller deals and so it's very good for the lending ecosystem to have a robust M&A environment.

Ebrahim Poonawala

Got it. And maybe one for you, Clarke. Sorry if I missed it, if you gave a specific guidance in terms of deposit growth. Give us a sense of what you're doing on the funding side on deposits? Is there still some remix that we should think about? And how should we think about just the average size of the balance sheet in terms of average earning assets relative to what you reported for fourth quarter? Thank you.

Clark Khayat

Sure. So we continue to, I think, do a very good job with customers on the deposit side, both balances and pricing. We'd expect as we go through the year for that to be stable to slightly up with continued client deposit growth.
So we'll continue to remix out of brokered where it makes sense, which we've been doing, as you know, now for several quarters. Some of that also will depend on where the loan book goes and just the overall size of the balance sheet. So again, continue to feel really good about our primary focus and how that's translating to engagement with clients, balances and again, overall pricing on those deposits.

Ebrahim Poonawala

Got it. If you don't mind clarifying just average earning assets, how we should think about that trending from here?

Clark Khayat

I'd expect it to be relatively flat throughout the year.

Ebrahim Poonawala

Thanks for taking my questions.

Operator

Bill Carcache, Wolfe Research.

Bill Carcache

Thank you. Good morning, Chris and Clark. Chris, you've talked in the past about an operating environment where you envision key balance sheeting less risk and focusing more on generating fee income in your role as sort of a credit facilitator for your clients? Is that a fair characterization?
And maybe if you could just update us on how you're thinking about the impact of a more pro-growth administration, just trying to think high level about how to think about the trajectory of your fee income mix over time given the investments that you're making in payments, Wealth Management, Investment Banking, and over time, do those investments sort of affect that sort of, I guess, remixing?

Christopher Gorman

Sure. Well, first of all, thanks for the question, Bill. We're about 60% net interest income, 40% noninterest income. And I actually like that mix. What I want to make sure we do is grow both sides of that equation. There's no question though that depending on where we are in the cycle, you'll see us leaning in one direction or the other.
Right now, with all these markets being sort of flashing green and wide open, we can do a better job of serving our good clients by actually raising capital elsewhere. When the markets get a little choppy is where I think you'll see us really serve our clients and our prospects by growing our balance sheet disproportionately.
To the larger part of your question, I think as I travel around and talk to our customers and our clients, I think people are feeling really good about a new administration. I think people think that the regulatory environment is going to improve. Specifically, as it relates to our business, the regulatory environment around M&A.
As you know, it's been very challenging to get deals approved, and I'm not speaking of the banking sector. I'm speaking of our M&A business. And I think that will -- I think there'll be a pretty significant unlock there. So I think people are optimistic on the regulatory front that we'll be able to not only do more but do more in a way that's faster.

Bill Carcache

That's really helpful, Chris. Thank you. And if I may follow up, Clark, on your comments around being able to generate greater fee income growth to the extent your clients continue to take advantage of tight credit spreads and fund themselves via capital markets. Do you think we'll need to see -- I guess, to what extent do you think we'll need to see credit spreads widen before banks broadly and are key more specifically see a notable uptick in loan growth, given as you mentioned, we've been waiting for a long time sort of yet to manifest?

Clark Khayat

Yeah. So look, one, maybe just one clarification there, which I know you know, but I think it's just worth stating. Our goal when we serve clients is to find the best landing spot for them, whether it's our balance sheet or the capital markets. When the capital markets get moving like they were in the fourth quarter, where we only put 12% of that capital we raised on the balance sheet. We'll put them into the capital markets, and we're happy to continue to serve them. I think importantly, and this is why you hear us talk about so much deposits and payments. we continue to get that business even if we're not getting the loan.
The other thing I would say is, in my time here at Key, which is going on kind of 12, 13 years, the one thing. As Chris noted earlier, that I've seen us do consistently with the noted exception we already raised is to grow quality commercial loans when they're available. So if the bank market is out there, and it's the right thing for clients. I have confidence we will build the loan book. But if in the near term, the capital markets are the most advantageous place for clients, that's what our business model is, and that's what we'll continue to do.

Christopher Gorman

And Bill, the only thing I would add, where banks, I believe, always will have an advantage, whether it's the private capital markets or the public debt markets is banks are a lot more flexible. And when things get choppy and when spreads start to blow out and structures change, that's when I think clients and prospects really go to their banks. And I think that's when we, as an industry, have an opportunity to really serve our customers.

Bill Carcache

Thanks, Chris and Clark. Very helpful. Appreciate you taking my questions.

Operator

Manan Gosalia, Morgan Stanley.

Manan Gosalia

Hi. Good morning. Can you talk about your ability? And can you talk about your ability and willingness to do more securities repositioning here? given that CET1, including AOCI is close to 10%, you're not -- you're going to be accreting more capital from here AOCI impacts are coming down, loan growth is going to be flat. Why not do more on the securities repositioning front?

Christopher Gorman

It's Chris. So we're constantly looking at what's out there in the marketplace and what we can do around the edges. And we've done a bunch of those things, and we'll probably continue to look at those. But in terms of major securities repositioning, you're not going to see us do something of the order of magnitude that we did either in the third quarter or the fourth quarter.

Manan Gosalia

Got it. Is there a CET1 ratio, including AOCI that you're targeting that you don't want to go below?

Christopher Gorman

There's not -- not yet. And the reason I say that is, as you know, the capital rules are not finalized. Obviously, we have a lot of capital right now, and we'll be constantly looking at what we think the optimal level of capital is. But we'll come out with new targets after the rules -- the capital rules are finalized.

Manan Gosalia

Got it. And maybe if I can just follow up on the securities question. I think you mentioned about 50% of long-dated securities are currently yielding. Well, you've already sold about 30% of long-dated securities yielding less than 2%. Is there a large chunk of that remaining 50% that matures in more than two years from here?

Clark Khayat

Yeah. I don't have the exact percentage in front of me, but there is some component of that, that it's going to still take some time to work through.

Manan Gosalia

Got it. Thank you.

Operator

Matthew O'Connor, Deutsche Bank.

Matthew O'Connor

Good morning. First, just a quick clarification. Clark, I think I heard you mention the NIM could reach 2.8% in the fourth quarter if loan growth tracks what you're expecting. But I think you [hinting] 2.7 in the deck. Maybe I misheard, but just clarify that. Thanks.

Clark Khayat

Yeah. Clarification is, I said I believe I said or intended to say we'll approach the 2.8, which is consistent with the 2.7 plus. I think if we get more loan growth than planned, we have the opportunity, obviously, to get closer.

Matthew O'Connor

Okay. That's helpful. And then just separately, kind of bigger picture. I know a lot of focus on the capital and the loan growth. But just conceptually, Key went from a bank that didn't have as much capital as you wanted, had the RWA diet, had to pull back on lending and that impacted some of your fee categories. Like how do you get the company kind of more front-footed like, hey, we've got all this capital. We've got more than peers. Let's kind of restart some of these relationships that maybe have been on pause. How do you just mobilize the people internally? How do you communicate that to customers now that you're so strongly positioned in such a competitive environment? Thanks.

Clark Khayat

Sure, Matt. So that process is well underway. As you know, even when we were going through our shrinking of we were investing heavily in the business, investing heavily in front-end people, focusing on what we call our asset-light businesses, which were deposits and payments, our Wealth business, and our Investment Banking business.
The RWAs that we were able to shed some of them actually was just recategorization. So those didn't impact anyone. And the other RWA that we were able to free up. Actually, were non-relationship clients. So we've been out there for some time, sending the message to the troops. They're out there aggressively in the market. We hired a team in Chicago. We hired a team in Southern California. They're off and running.
So it's a great question, and it's one I've obviously been very focused on because when you make changes like that, you've got to make sure that you communicate them. And we've spent a ton of time out in the field, making sure our team is engaged and out there doing what we're capable of.

Matthew O'Connor

Okay. And then just when you put that all together, how do you think about your commercial loan growth versus the age eight? Obviously, it could fluctuate quarter-to-quarter. But as you think out over the next four, six, eight quarters? How would you peg your growth to Hakos.

Clark Khayat

Sure. Over the many years, and you know this, Matt, because you've been following us for all these years, we've been -- on commercial loan growth. We've been an outperformer to the HA. I think every single year with the notable exception of 2023, which was specifically a focus on shrinking the RWAs. We expect our team to outperform the HA from a commercial loan perspective, and that's what we talk to them about.

Matthew O'Connor

Okay. Thank you very much.

Operator

Mike Mayo, Wells Fargo.

Mike Mayo

Hi. I think I asked this every call. I mean I get the -- you guys don't care if it's your -- you serve your clients through capital market or through lending, whatever the client wants is what you'll do. And so maybe if NII does a little bit worse and capital markets do better, you're just completely fine with that. Is that a fair statement?

Clark Khayat

Yeah, Mike, you're spot on. I mean, our -- we feel really fortunate that we have a platform that we can serve our clients wherever they can be best served and we feel really strongly that, that's what we do.

Mike Mayo

So what percent of your middle market client base has access to capital market? And how much do you think that impacts your loan growth?

Clark Khayat

I don't have that number off the top of my head, but our middle -- I talked about the 700 middle market customers that we surveyed. I can tell you that they are all called on by our capital markets people because they're all in our industry verticals the number of middle market companies that actually access the capital markets is probably a number that's closer in any given year, it's probably closer to 20% to 25%.

Mike Mayo

Okay. And if you only had one rate cut instead of two, your guide for up 20% in NII would go to what roughly?

Clark Khayat

Yes, it's not going to move a ton, Mike, because that second cup was in December. So that's not going to carry a huge impact to the full year.

Mike Mayo

And Clark, just correct me if I'm wrong, I think on this call, you said about 20% higher for 2025 for NII, and I think your guide was 20% with the plus time. Did I see that wrong? And it just -- and I know there's a lot of attention on one line item and the one-line item might be a little bit weaker in investment banking might be a lot stronger, but just to clarify that.

Clark Khayat

Yes. So lots of confidence in 20% above full year '24. But plus, I think maybe Mike you might be confusing came in, we think 10% plus fourth quarter to fourth quarter. So we'd expect 2025 Q4 NII to be in excess of 10% higher than 2024 4th quarter.

Mike Mayo

Great. And then separately, Chris, the Board December 30 of the Compensation Committee, granted a special performance award to the named executive officers to increase stock ownership, help retention and help you drive value from Scotiabank.
And I'm just wondering with the Board besides this, consider to be valuable. I mean you're the third bank in a series of a few months along with Goldman Sachs, just last week or so and then Truist a few months ago, doing the -- what I call the double bonus, maybe that there's another name for that. I just wonder why -- what is this competition? What does the Board see in terms of competition and the need for Key to retain the talent? What's happening there?

Clark Khayat

So first of all, just to state the obvious, obviously, I have zero impact on any of my compensation. That's exclusively handled by our C&O committee made up of independent directors in consultation with the rest of the independent directors. So I would refer you to the 8-K, but that was mentioned in the 8-K, which I think is important is this notion of retention, and you touched on it.
And I think the Board recognizes that we Key have worked really hard to put ourselves in a position where we've got a great runway in front of us, '25, '26 we talked about it throughout this call. And I think the Board wanted to make sure that the team was on the field, so to speak.
Having said that, as you know, our proxy will come out in the not-too-distant future. And I'd be happy to have our team walk you through it when it comes out. Thanks for the question.

Mike Mayo

That'd be great. Thank you.

Operator

Erika Najarian, UBS.

Erika Najarian

Thank you. First question is just a clarification question. What Clark deposit beta are you assuming in that up 20% NII guide?

Clark Khayat

Yeah. So -- Erika, nice to hear from you. We finished the year fourth quarter, 40% beta, got closer to 45% at the end of the quarter, and we would expect to see mid-40s to high 40s throughout the year. So approaching a 50 data as we go through the year.

Erika Najarian

Got it. And the next question is for Chris. And I guess I'm just going to take a step back. I feel like now you have a 12% CET1, maybe I feel like the questions are a little misdirected. I feel like a larger company won't give you capital just for you guys to fix balance sheet decisions that were made in the past by a previous management team and buy back stock, right? And so the environment is what it is, and the consumer book is doing what it's doing.
But I guess I'm just wondering, is there an appetite for more aggressively adding talent. I think in your prepared remarks, you talked about adding wealth managers. But given that you have all this capital and given that there's so much on your balance sheet, that's a natural cure to your net interest income, I'm wondering if there's an appetite, again, I'm not going to ask you the deal question, but if there's an appetite to be more aggressive at adding commercial bankers and using this capital for really like forward thinking on growth?

Christopher Gorman

Sure. Well, first of all, thank you for the question. And I'm really proud of the fact that we invested all the way through sort of the turbulence of '22 and '23. But we are going to absolutely, Erika, continue to invest. I mentioned in my opening remarks, we had hired many, many wealth advisers during that period of time. We're going to continue to grow that business. That's one of our businesses.
I also mentioned we're going to grow our investment banking platform by 10%. We also have invested heavily in our technology platform. I mentioned the migration to the cloud, we basically -- every year, we've replaced two core systems to the point now where we only have a couple.
So yes, we will continue to invest in the business. We'll continue to hire groups of people. We'll also continue to look at what I call bolt-on acquisitions. When you're basically set up by industry vertical, it gives you opportunities to really focus on adjacencies to those verticals, and you'll see us work on that as well. Does that answer your question?

Erika Najarian

It does. Thank you so much.

Operator

Brian Foran, Truist.

Brian Foran

Hey. Just a quick one, a couple of quick ones. When you kind of talked about 2.7%, maybe even 2.8% on NIM, can you just remind us where you see that in terms of a longer-term normalized range? Is that at the bottom of the range? Or I think in the past, you've talked about up to 3% or I forget the exact wording, but as we think about '26 and '27, what we do deem as a kind of normalized NIM range?

Clark Khayat

Yes. Good question. Look, I think as we get into '26 and beyond, there's no reason why we wouldn't be at 3% or maybe even better as the balance sheet continues to turn over a little bit.

Brian Foran

3% or better even in '26?

Clark Khayat

Yeah, I think we -- yes, we should get to something 3% or better at some time in '26. I'm not sure exactly when during that time. But obviously, it depends on where the market goes, shape of the yield curve and other macro factors. But all other things equal, I think as we progress through '25 and get into '26, we should see hitting 3% NIM at some point in that time frame.

Brian Foran

Okay. And then just as we model out loan growth, is the runoff of consumer over in '25? Or should we think about some more in '26 and beyond?

Clark Khayat

Yeah. I mean, look, the vast portion of that consumer book is first lien mortgage. There's some student lending in there. It's all rate sensitive. So as rates come down, you can see that refinance. At that point, we'll continue to support clients in refinancing them. But you'd continue to see that, I think, come off structurally in the near term.
Now I do think over time, consumer lending is an important element to the balance sheet. We're not at the moment leaning into that, but I would expect that we will do so over time, whether it's other products like personal lending or things like that. But we're continuing to focus on relationship lending particularly in that space. There's just not a lot of that happening at the moment.

Brian Foran

Okay. Thank you so much.

Operator

Gerard Cassidy, RBC.

Thomas Leddy

Hi. Good morning, everyone. This is Thomas Leddy standing in for Gerard. Can you have a reserve release in '24 and 2025 guidance for NCOs just 40 to 45 bps or relatively flat from current levels. With this in mind, should we expect to see further releasing in 2025?

Clark Khayat

Hey, Tom. This is Clark. Yes. Look, I think we expect this to be the peak on some of the credit metrics we'd expect, again, given a constructive macro economy to see improvement throughout the year. I don't think I'd expect to see massive reserve releases. But I think as we go through the year, you could certainly see kind of plus or minus some things based on, again, how the portfolio shakes out. But everything we're looking at now makes us feel like the book is stable to improving throughout '25.

Thomas Leddy

Okay. That's helpful. And then just quickly on C&I loans. It looks like period end loans ended this quarter a little bit higher than last. Can you give us some color on what you're seeing in the C&I book?

Clark Khayat

Yes. As I said, we did see a little bit stabilization and a slight pickup through the end of the year. I mean, the tough part, Thomas, is we are seeing great pipelines. We are having great conversations with clients. That has been true now for a couple of quarters. So we just need to see that activity hit.
And as Chris mentioned, we continue to see things like utilization sort of sit at relatively historic low levels. So everything we're hearing and seeing would tell us to expect it to grow, but until it really starts to happen consistently, it's hard to call.

Thomas Leddy

Understood. Okay. Thank you. That's helpful. And thank you for taking my questions.

Operator

Those are all the questions we have for today. So I'll turn the call back to CEO, Chris Gorman, for closing remarks.

Christopher Gorman

Well, thank you, Emily, and thank you all for participating in our conference call. If anyone has any follow-up questions, please feel free to reach out to our IR team. Thank you so much. Have a good day all. Goodbye.

Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.