Curtis Anderson
Thank you, Malcolm, and good morning all. We continue to realize positive momentum in credit, [ we ] are focused on early identification of risk and balancing expediency with productive outcomes on problem loans. During the quarter, we foreclosed on an office property, which increased our NPAs from $67.3 million at third quarter end to $79.2 million at year-end. The property has significant interest from various potential buyers, and it is currently under an LOI. Closing is expected in early second quarter with no loss.
Charge-offs for the year are below previously provided guidance. Fourth quarter charge-offs are predominantly driven by a C&I relationship and a special-purpose CRE property. In general, our 2024 full year charge-offs reflect the impact of final resolutions on a number of loans in our drive to address velocity and throughput in managing credit risk. Past dues were generally in line with prior quarters. The increase in 30 to 59 days past due category largely reflects relationships for which payments were slightly delayed and are now current and without underlying credit concerns.
Moving to Slide 6. We are pleased with the continued progress in managing and reducing our criticized loans with strong end-to-end focus by our frontline special assets, credit officer and loan servicing teammates. Criticized loans are down $100 million or nearly 20% year-over-year and down $78.5 million from the third quarter due to improved borrower performance, refinancings and payoffs. Total CRE criticized loans are $228.5 million, down 35% from year-end 2023. Please note that the breakdown of CRE criticized by property type as now presented is accurate.
This information is posted on our website. Finally, with respect to criticized loans, as Malcolm mentioned, certain closings and payoffs that we expected at year-end shifted to early January. These payoffs have further reduced criticized loans by approximately $50 million to $365.6 million. The related charge-offs for these resolutions are $1 million. There is significant risk management activity under the surface of these numbers.
The portfolio is dynamic and the routines in place to properly identify grade and manage risk are robust. We continue to execute our credit improvement initiatives with much more work to be done, but our focus is there. I'll now turn the call over to Terry Earley, our Chief Financial Officer, to discuss our financial highlights.
Terry Earley
Thank you, Curtis. Starting on Page 7. When I look at the results for 2024, I'm encouraged. The balance sheet is in a good place, liquidity is strong, reliance on wholesale funding is down 20% in the last year, capital and reserves are up and pre-concentration levels are within the regulatory guidelines. Moving to Page 8.
The CET1 ratio expanded by 23 basis points during the quarter and by 80 basis points year-over-year and now stands at 11.09%. Over the last two years, a significant contributor to the expansion in the capital ratios is attributed to approximately $750 million decline in risk-weighted assets. Tangible book value per share is at $21.61, down slightly from the third quarter of 2024 as the increase in AOCI and our quarterly dividend were offset by earnings that a 10.9% increase on a year-over-year basis, including the shareholder dividends. It's worth noting that since Veritex went public in 2014, its compounded tangible book value per share at a rate of 11.1%, including the dividends we've been paid to shareholders. Finally, Veritex did not purchase any shares during the quarter.
We have 93% of the authorized stock buyback program remaining and intend to be opportunistic and [ obtuse ]. On to Page 9. The allowance now sits at 118 basis points, up significantly in the last 8 quarters as we've increased the reserve by almost 25% or $22 million. Additionally, when you exclude the mortgage warehouse, the ACL coverage rises to 125 basis points. Our general reserves comprise 97% of the total allowance.
We continue to use conservative economic assumptions in our credit loss modeling with 65% of the weighting on downside scenarios and per quarter, it was 75% on the downside. This change seems appropriate [ in ] the change of administration, business optimism, strength in GDP, et cetera. The quarter-over-quarter decline in the absolute dollar amount of reserves makes sense when you look at the decline in loan outstandings, the improvement in our credit risk profile and the level of business optimism. Moving to Page 10. Total loans declined 1.2% during Q4 and 0.7% on a year-over-year basis.
We made significant progress in reducing our CRE and ADC concentrations and ended the quarter at [ $2.99 and 87% ], respectively. The significant decline in ADC can be seen in the top right graph and has been largely offset with growth in multifamily and mortgage warehouse. The Cree maturity profile is shown in the bottom right graphs, we have just under $400 million in fixed rate maturities at an average rate of 5.48% over the next 4 quarters. As shown on the bottom left, loan production increased 44% from 2023 to 2024, but loan payoffs remain elevated at almost [ $1.4 million ]. We're projecting payoffs to be even higher in 2025.
This payoff activity reflects the vibrant economic activity in the Texas market, but it does make organic loan growth balance. Slide 11 provides the detail of the Term Korean ADC portfolios by asset class, including what is out of state. It also shows a breakdown of our upstate loan portfolio, including the significant impact of our national businesses and mortgage. The true percentage of the out-of-state portfolio is only 11%. This is predominantly where we have followed Texas real estate clients to other geographies.
On Page 12. Our strong deposit growth and low loan growth has allowed Veritex to reduce its loan-to-deposit ratio from 104% to 89% over the past two years. We intend to remain below 90% going forward. Please note the loan-to-deposit ratio would be just under 83% if you exclude mortgage warehouse. This seems to be a more relevant metric when you consider the short amount of time mortgages stay on the warehouse lines.
The deposit growth also allowed us to reduce our wholesale funding reliance to 16.6% and 24% over the same 2-year period. As you can see in the bottom left graph, we've kept the time deposit portfolio short and have $2.3 billion in CD maturities over the next two quarters with an average rate of 4.95%. Glad to have this maturity profile given the bit cuts that have occurred and the potential for more in 2025. On the bottom right, we showed the monthly cost of total deposits. Note the 39 basis point decline since the month of June.
Veritex has done a good job in preparing for and executing on deposit pricing in a falling rate environment. The Fed cut rates by 100 basis points in the last two quarters of the year and our interest-bearing transaction accounts declined by 80 basis points from June 30 to December 31, and 80% beta. Similarly, total interest-bearing deposit accounts declined by 66 basis points from the end of Q2 to the end of Q4. 2024 was a successful year in deposits with all our growth coming from our core lines of business. These deposits carrying an interest cost is approximately 170 basis points below our other more expensive funding options.
In Q4, this allowed us to reduce brokered CDs by $254 million, public funds by $233 million and 2x a decline with over $100 million in deposits which carries the highest rate in the entire bank. The remixing of deposits is a key strategic priority as we go through 2025 and beyond. On Slide 13, net interest income decreased by $4 million in Q4, positively impacting the results with lower deposit yields, improved deposit mix and higher debt securities volumes and yields. These were offset by lower floating rate asset yields lower average loan volume and interest reversals on problem loans. The net interest margin decreased 10 basis points from Q3 to 3.20%.
As you look at our interest rate sensitivity, note that our down 100 basis point rate shock is at 2.55%, down from 4.16% over the last year, a 39% improvement as we work to make the Veritex balance sheet more rate neutral. We believe the NIM has dropped in Q4 and should be in the range of $3.25 to $3.30 in Q1, assuming no Fed cuts during the quarter. Keep in mind the following three things: one, the repayment of the $75 million in sub debt in February of 2025, which is accruing in SOFR plus 347 basis points. We filed an 8-K, but should have also called it out in the earnings release. Restructuring of the investment portfolio in Q4 and the time lag on the repricing of the time deposits.
Slide 14 shows certain metrics on our investment portfolio. The key takeaways: It's only 11.6% of assets, the duration is 3.6 years and 88% of the portfolio is held in AFS. Finally on this slide, you see a snapshot of our securities loss trade completed in the fourth quarter. The yield pickup on $189 million of traded volume is 178 basis points, and the earn back of the loss will be just under 1.4 years. Slide 15.
Operating noninterest income increased $1.3 million to $14.5 million. The increase was driven by the best quarter of the year in our government-guaranteed loan business, partially offset by lower loan fees and lower OREO rental income. The $1 million increase in operating expenses for the quarter was a function of higher professional and regulatory fees and data processing and software. Recognizing the need to improve our operating leverage and efficiency, Veritex in the second quarter engaged with a national consulting firm with extensive banking expertise to look at all aspects of the company. This review is consisted of staffing, operational processes and technology.
We've already realized a 19% rate reduction in certain technology vendor contracts, other key contracts are in scope for renewal in 2025 and beyond. Two other areas where we benchmark poorly include treasury management and commercial banking. We've engaged the firm to help us review our treasury management product line and pricing structure and to help us complete the total commercial lending business model review. To wrap up my comments, I see a lot of positives. The balance sheet is in a much stronger position with excess liquidity, lower CRE and ADC concentrations, higher capital and improved credit metrics.
We have reduced reliance on unattractively priced deposits. Our teams are stronger in almost every area of the bank, and we're in great markets. [indiscernible] and Houston, it's hard to do better than that. Also, there's still things we need to work on, though. Continuing the trend in improving the credit risk profile, remixing the deposit portfolio and disciplined loan growth and continuing to build out our fee businesses with growth expected in deposit fees, card revenue, customer swaps and government guaranteed income.
It's our expectation that 2025 will produce positive operating leverage. This will be driven by an improved NIM, positive loan growth and stronger fee revenues partially offset by moderate expense growth. Operator, we'll now take questions.
Operator
(Operator Instructions)
Stephen Scouten, Piper Sandler.
Stephen Scouten
Hey, thank you. Good morning everyone. Malcolm, I think you said in the release, obviously, that 2025 will be more about back to growing profitability. I think you said earlier here, the target being 1% ROA. I think I heard you say in 2025 and beyond. So just kind of wanted to confirm how you're thinking about reaching that 1% ROA and kind of the potential timing there? And then what you think the biggest driver of that profitability improvement will be in the year ahead or biggest drivers if there's multiple.
C. Malcolm Holland
Yes. You heard me correct. We do believe it's 2025. Q3 is probably a good quarter to hit that number. the drivers of that's going to be loan growth and repricing on the deposit side.
We continue to see some good movement there. The headwind that Terry and I both mentioned, was just the payoff number. If you recall, we had such strong growth back in '21, '22 that now those are coming mature and those payoffs are coming. We're not going to go back to the [320] range in CRE. And so there's going to be more reliance on the C&I side.
But the staff we have and what [Don's] doing on that side of the business, we feel really, really good about where we're headed. It is -- if your opening comment was right. I mean Veritex has been a growth story for most of its career. Obviously, we spent two years remixing this -- redoing the balance sheet. We feel like that work is done, and we can really focus on what we do best.
And so I do -- I'm very encouraged and think that we can get there. But Q3 is probably the first quarter you're going to see it and hope to be high enough to where the year average will be around [1].
Terry Earley
Yes, Stephen, Terry, let me jump in. Fees are going to be more important to us this year than they've ever been. That's why you heard me say as I was wrapping up my comments is we're going to continue to build out our fee businesses, whether it's deposit fees, treasury management fees, card revenue, customer swaps, government guaranteed, it's going to be a significant contributor for us. And so I agree with everything Malcolm said, I just didn't want you to lose sight of how important the fee businesses are for us in 2025.
C. Malcolm Holland
Which has actually gotten off to a pretty good start with two really nice relationships on the fee side that we've already [already float]. So I hope that helps answer the question.
Stephen Scouten
It does for sure. And then kind of on the loan growth front, I mean, obviously, as you said, you're facing pretty big headwinds still from some payoffs and that's understandable, probably beneficial to the balance sheet. But what are you seeing so far in terms of any inflections from your customers in terms of pipeline growth ex the CRE book or kind of what gives you confidence, whether it's mortgage warehouse or other that you can see that inflection kind of towards the back half of the year?
C. Malcolm Holland
I mean, actually, the production side of our business has been really strong. The pipelines are as strong as they've ever been. I had a director ask me about, well, how much real estate activity is really going on. Well, I can tell you, in the state of Texas, it's pretty strong. And the underwriting is continued to be pretty stringent on the bank side.
I mean, we're seeing deals with 45% equity in them, pretty regular, as most things go, competitive juices get flowing, you're going to see that 45% go to 40% and probably get to 35%. Now we're not going to dumb down our credit underwriting. But the activity is still very, very stout I mean we have to do, call it, [$1.4 billion] in new loans on the real estate side this year just to stay even. And we feel pretty confident we'll be able to do that.
Terry Earley
Yeah, I'm sorry. Again there's a lot of strength, Stephen, in the fourth quarter on the production side. If you annualize Q4 loan production, it's 50% bigger than the full year. But some of that's been in the ADC side, which does start to fund up for 6 months, 9 months. So we can see that it's coming but we are still going to have that. So that's -- we're seeing it because the Q4 production was way stronger than the first three quarters of the year and so -- and pipelines continue to build, so anyway.
Stephen Scouten
Yeah. No, that's great color. And then just last thing for me. On the $1.5 billion in maturing CDs in the first quarter, I think they were a little over 5.02% on the average. What do you think you'll be able to put those back on the books at? And what would you think is like a viable retention rate of those customers as you lower those rates?
Terry Earley
I'm going to let Will take that question.
Will Holford
Hi, Stephen. Thanks, terry. Yes. So far, in Q1, 2025, we've been playing on new CDs at [ 424 ] rate. And we've seen -- we've experienced really good retention.
Some of that -- we're seeing some migration out of CDs into money market and other products, but in terms of overall retention that we need.
Stephen Scouten
Great, extremely helpful. I will jump back in the queue. Thanks so much.
Terry Earley
Thank you listening.
Operator
Matt Olney, Stephens.
Matt Olney
Hey, thanks. Good morning. On the comment about positive operating leverage for 2025, I think you mentioned to expect moderate expense growth, just any more color about expenses for 2025.
Terry Earley
Low to mid-single digits, okay?
Matt Olney
And then going back to the loan growth comment.
Terry Earley
I'm just going to say so if you get so you get some disciplined loan growth, some NIM expansion and good fee execution, we feel good about the opportunity to really get to positive operating leverage with that type of expense growth.
Matt Olney
Got it. Okay. And then on the -- going back to the loan growth discussion, I think you mentioned the paydowns obviously severe in 2024. It sounds like that will continue for at least for a portion of 2025. Just any more color on when you think that could inflect or at least slow down to allow the net loan balance to start to grow throughout the year?
C. Malcolm Holland
Our projections or our forecast right now look like the heaviest piece of those payoffs come in the back half of the year. But again, those are [paths] are a little bit harder to predict. But actually, we've done a pretty good job at that. I see the first quarter it's going to be pretty stable at best. And then with these pipelines that Terry just discussed, I do see some of that to start to fund up.
I see our commercial business is starting to get stronger on the pipeline side. So I expect that we're going to start seeing some growth in the second quarter. But overall, Matt, I think it's probably going to be a low to single middle digits probably for the year. But again, hard to predict where all those payoffs are coming, but they're coming.
Terry Earley
And that's assuming nothing really -- if anything were to really happen significant with the Fed and rates, especially long-term rates failed, it could accelerate that.
C. Malcolm Holland
It could.
Terry Earley
But we don't expect that. I'm just saying that's the wildcard really.
C. Malcolm Holland
Yes.
Terry Earley
You don't know.
Matt Olney
All right guys. Thanks for your help.
Terry Earley
Thanks, Matt.
Operator
Mark Shutley, KBW.
Mark Shutley
Hey, good morning. So on the deposit side, like you said, there is some good funding remix kind of out of CDs, but there's also a noninterest-bearing decline in the quarter. And I was wondering if you could kind of talk about the dynamics at play there and where you think that noninterest-bearing kind of settles after the quarter?
Will Holford
Sure. Yes, this is Will. Thanks for the question. Look, this quarter, we had some seasonal fluctuations of tax and insurance payments for mortgage escrow accounts. We also exited an expensive ECR deposit relationship that was paying around Fed funds which that was intentional.
So when you look at our noninterest bearing on some of those escrow accounts, we do pay an ECR that should definitely flow through the deposit costs line item. And so this was planned, this is anticipated in and several facets that actually improves our earnings. And so seasonality, where do I expect it? It will build back up and range between 21% and 23% for the rest of the year.
Mark Shutley
Okay, thanks. That's helpful. And then maybe switching over to the government guaranteed side. Obviously, that was really strong this quarter. I know that business is kind of lumpy and can be difficult to project, but is there any additional color you can give to sort of help us model that in 2025?
Terry Earley
I would just make two comments. One, well -- three, We're off to a good start in '25; two, premiums are holding in very, very well; and three, our pipelines and business production is strongest they've ever been. Especially in the SBA space. He talked about how we're trying to rebalance and almost preadvance that the USDA business. But overall, we're really encouraged by what we're seeing.
The team is doing a great job. And so we're pretty bullish.
Mark Shutley
Great Well, that's it for me. Thanks for taking my question.
Operator
Tim Mitchell, Raymond James.
Tim Mitchell
Hey, good morning guys. I want to start on credit. It's nice to see the continued improvement in criticized and special mention, but it looks like there was some migration into NPAs. Just how are you thinking about credit moving forward? And what should we kind of expect for a net charge-off ratio in 2025?
C. Malcolm Holland
Yes. I mean, listen, I think we did a decent job in managing a bunch of stuff out and took a charge here or there to help assist in that. We did, I think, 21 basis points in charge-offs for '24. Can we expect to probably be in that range for '25. It could be a little better, it could be a little bit worse, but that's a pretty good range, about 20 bps going forward.
But overall, I mean, you brought up the credit piece and just what Curtis and his teams have done at moving this stuff out has been incredible. And there's still some more movement to do. Recall, we only got this job back in March of last year. So in a fairly short order, we've moved into a good [flex]. So the good news is we've kind of gotten rid of the surprises, and we know it's coming down the pipe, and we're managing it much earlier than we've ever had before.
So again, we're very confident that it continues to get better going forward.
Tim Mitchell
Awesome. And then back to the margin. I think you said 325 to 330 here in the first quarter. I understand the bulk of that CD maturity is in the first quarter, but there's still some opportunity past it. I mean assuming rates are relatively stable, is it fair to assume the margin can continue to grind a little higher kind of through the rest of the year?
Will Holford
Yes. I think given no more rate changes, I think we will see continued expansion. We do have a hedge that matures at the end of Q1. That's on $250 million of our money market accounts at 42 basis points. So there will be a little bit of a headwind from that, but we expect the things that Terry mentioned with sub debt rolling off with what we've done on the securities portfolio and continued improvement on the deposit side to see -- to drive positive NIM for the whole year.
Tim Mitchell
Awesome. Alright. Well, thanks for taking my questions.
Operator
Ahmad Hasan, D.A. Davidson.
Unidentified Participant
Hey, good morning guys, [Mahaan] on for [Gary Tenner]. Appreciate the December deposit cost detail, can you provide a spot rate as of 12/31?
Terry Earley
Yes. Spot rates for deposits as of 12/31 is interest-bearing [$399] and for total [$319].
Unidentified Participant
And on the slide 11, how much of the $820 million out of [Fed] balance is ADC versus CRE? And any geographic concentration there?
Terry Earley
The [out of] states up there, it's the $820 million of the [ $1.61 billion ]. So it's 80% of it, give or take. No particular state concentration that I'm aware of. And we've not been -- we're not aware of any issues with respect to California or it's [correct].
C. Malcolm Holland
That's correct.
Unidentified Participant
And great to see the SBA and USDA loan pick up the gain on sales takeup there. Any thoughts around that business line heading into 2025?
Terry Earley
Nothing better than what I've already said.
C. Malcolm Holland
Very positive, lots of momentum going forward. We've combined the two businesses, so they're feeding off of each other. Again, premiums are holding in there. Pipelines are super strong. So we're pretty bullish on 2025 on those government guaranteed business.
Terry Earley
But to the extent it's USDA, it will be lumpy, so -- but for the year -- and that's the way we tend to think about this business is the full year. Don't get frustrated with lumpiness when it's a USDA trade.
Unidentified Participant
Right. That makes sense. Thank you for taking my questions.
Operator
Thank you. And that does conclude today's Q&A session. I would like to go ahead and turn the call over to Malcolm for closing remarks.
C. Malcolm Holland
Yes, ma'am. Thank you. So I want to close today with a management update. Six years ago, we closed the Green Bank transaction. And at the time, we're blessed to have Terry Earley become our Chief Financial Officer.
Terry has been the ultimate team player and partner to me and the entire Veritex family. His knowledge, expertise, counsel and with them to our company cannot be measured. [Beith] he just made us a better bank. Terry Sherry will be retiring this summer on June 30, but he will not be leaving us entirely. He will become a part of our bank board as well as entering in a consulting agreement assisting in the finance area and assisting in the transition.
Our new CFO will be Will Holford, who many of you who already know, Will has been with Veritex for 13 years, serving in all areas of finance. We are very excited for both Terry and Will in their new roles. Thanks for your time today, and we look forward to speaking to you soon.
Operator
Thank you all for joining today's conference call. This does conclude today's meeting. You all may disconnect.
