Robert Q. Reilly
Executive Vice President and Chief Financial Officer at The PNC Financial Services Group
Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 3 and we're presenting on an average basis and comparing to the first quarter. loans were stable at $325 billion. Investment securities declined $2 billion or 2%. Cash balances at the Federal Reserve were $31 billion and decreased $3 billion. Deposits of $426 billion declined $10 billion or 2%. Borrowed funds increased $3 billion. As an aside since 2021, we've then delivered in issuing TLAC compliant debt. So we're confident we'll meet the upcoming TLAC requirements through our normal course of funding.
At quarter end, AOCI was a negative $9.5 billion and tangible book value was $77.80 per common share, an increase of 5% compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 9.5% as of June 30, 2023, which increased 30 basis points linked quarter. We returned approximately $700 million of capital to shareholders in the quarter, which included $600 million of common dividends and approximately $100 million of share repurchases for 1.1 million shares.
And as Bill just mentioned, our Board recently approved a $0.05 increase to our quarterly cash dividend on common stock, raising the dividend to $1.55 per share. Our recent CCAR results underscore the strength of our balance sheet. And as previously announced, our current stress capital buffer of 2.9% will improve to the regulatory minimum of 2.5% for the fourth quarter period beginning in October 2023. Due to the expected issuance by the federal banking agencies of proposed rules to adjust the Basel III capital framework, share repurchase activity in the third quarter is expected to remain modest. We will continue to monitor this and may adjust share repurchase activity as appropriate.
Slide 4 shows our loans in more detail. Second quarter loans averaged $325 billion and increased to $20 billion, or 6% compared to the same period a year ago. This growth reflected strong loan demand during the back half of 2022 and our ability to capitalize on opportunities in our expanded franchise. Average loan balances were stable linked quarter as growth in consumer was offset by a decline in commercial, with commercial balances reflecting generally weaker demand. Consumer loans grew $400 million compared to the first quarter, reflecting higher residential mortgage, credit card and auto balances. Commercial loans average $223 billion in the second quarter, a decline of of $1 billion as limited new production was more than offset by paydowns. Loan yields increased 28 basis points to 5.57% in the second quarter, predominantly driven by the higher rate environment.
Slide 5 covers our deposits in more detail. Deposits declined 2% on both a spot and average basis linked quarter, reflecting the continuing pressure of quantitative tightening and increased spending activity as well as consumer tax payments. Deposits continue to move from noninterest-bearing to interest-bearing accounts. As expected, the mix shift is being driven by commercial deposits. In the second quarter, commercial noninterest-bearing deposits represented 45% of total commercial deposits compared to 47% in the first quarter. Our consumer deposit non-interest-bearing mix has been stable, remaining at 10%. On a consolidated basis, our level of noninterest-bearing deposits was 27% in the second quarter, down slightly from 28% in the first quarter, consistent with our expectations. And we still expect the noninterest-bearing portion of our deposits to stabilize in the mid 20% range.
Our paid on interest-bearing deposits increased to 1.96% during the second quarter, up from 1.66% in the prior quarter. And as of June 30th, our cumulative deposit beta was 39%. Looking forward, we expect a Federal Reserve to raise the benchmark rate by 25 basis points in July. We believe this will put additional pressure on betas and as a result, we expect our third quarter and year end cumulative betas to be 42% and 44% respectively.
Slide 6 details are investment securities and swap portfolios. Average investment securities of $141 billion decreased $2.4 billion or 2%, as limited purchase activity during the quarter was more than offset by portfolio paydowns and maturities. The securities portfolio yield increased 3 basis points to 2.52%, reflecting the run off of lower yield in securities. And as of June 30th, the duration of the investment securities portfolio was 4.2 years. Our received fixed swaps pointed to the commercial loan book totaled $40 billion at the end of the second quarter. The weighted average received fixed rate of our swap portfolio increased 25 basis points linked quarter to 1.73%, and the portfolio duration was 2.3 years as at June 30th.
During the second quarter, our accumulated other comprehensive loss increased by $400 million. Paydowns and maturities were in line with our expectations, but were more than offset by the negative impact from higher-than-expected rate throughout the quarter. Notwithstanding this AOCI impact, our tangible book-value increased 1% to $77.80 compared to March 31st. Importantly, as lower rate securities and swaps roll off, we expect our securities yields to continue to increase, resulting in a meaningful improvement to tangible book value from AOCI accretion.
Turning to the income statement on Slide 7. For the first half of 2023, revenue grew 11% compared to the same period a year-ago, reflecting higher interest rates and overall business growth. Noninterest expense grew 4% and was well controlled despite a higher FDIC assessment rate and inflationary pressures. As a result, PPNR grew 24%.
For the second quarter, net income was $1.5 billion or $3.36 per share. Total revenue of $5.3 billion decreased $310 million or 6% compared to the first quarter of 2023. Net interest income declined $75 million or 2%. And our net interest margin was 2.79%, a decline of 5 basis points. Noninterest income declined $235 million or a 12%, driven by both lower fee income and other noninterest income, which included Visa fair value adjustments of a negative $83 million that I will discuss in a moment. Second quarter expenses increased $51 million or 2% linked quarter. Provision was $146 million in the second quarter, reflecting portfolio activity and changes in macroeconomic variables. And our effective tax rate was 15.5%, which included the favorable impact of certain tax matters in the second quarter.
Turning to Slide eight, we'll highlight our revenue trends. Second quarter revenue was down $310 million or 6% compared with the first quarter. Net interest income of $3.5 billion decreased to $75 million or 2%, with higher yields on interest-earning assets were more than offset by increased funding costs and lower loan and security balances. Fee income was $1.7 billion and decreased $106 million or 6% linked quarter.
The primary driver of the decline in fee income was residential and commercial mortgage revenue, which was down $79 million. Inside of that, $58 million was related to lower net valuation of mortgage servicing rights. Beyond that, capital markets and advisory revenue decreased $49 million or 19%, driven by lower merger and acquisition advisory fees and loan syndication revenue. Going forward, we expect this activity to meaningfully increase in the second half of the year, which is included in our guidance that I will cover in a few minutes. Partially offsetting these declines was a $38 million or 6% increase in card and cash management fees, reflecting seasonally higher consumer transaction volumes and increased treasury management product revenue. Other noninterest income of $129 million declined 50% linked quarter, driven by lower private equity revenue and included negative Visa fair value adjustments related to litigation escrow funding and other valuation changes totaling $83 million.
Turning to Slide 9, our second quarter expenses were up $51 million or 2% linked quarter and remain well controlled. The growth was primarily due to a $35 million increase in marketing expense reflecting seasonality. Personnel expense increased by $20 million or 1%, which included the full quarter impact of annual employee merit increases. Every other expense category remained stable or declined compared to the first quarter of 2023. As Bill mentioned, we remain diligent in our expense management efforts, particularly when considering the current revenue environment.
At the beginning of the year, we set a continuous improvement program goal of $400 million. Recently, we have identified initiatives that support increasing our CIP by an additional $50 million, raising our full-year target to $450 million. Further, we will continue to look for additional efficiencies during the remainder of 2023, and importantly, as we begin to plan for 2024.
Our credit metrics are presented on Slide 10. Our credit quality remained strong and notably the leading indicators for credit quality continue to perform well. Nonperforming loans were down $97 million or 5% and continue to represent less than 1% of total loans. And total delinquencies of $1.2 billion decreased $114 million or 9% linked quarter. Net charge-offs of $194 million were stable linked quarter. Our annualized net charge-offs to average loans ratio was 24 basis points in the second quarter. And our allowance for credit losses totaled $5.4 billion, or 1.7% of total loans on June 30th, essentially stable with March 31st.
While overall credit quality remained strong across our portfolio, the office category within commercial real estate continues to be a key area of concern. As expected, we saw increases in-charge offs related to office during the quarter. However, the portfolio metrics remain largely similar to those presented in our comprehensive view last quarter. Naturally, we'll continue to monitor and review our assumptions to ensure they reflect real-time market conditions, and a full update is included in the appendix slide.
In summary, PNC reported a solid second quarter 2023. In regard to our view of the overall economy, we're expecting a mild recession starting in early 2024, with a contraction in real GDP of less than 1%. Our rate path assumption includes a 25 basis point increase in the Fed funds rate in July. Following that, we expect the Fed to pause rate actions until March 2024 when we expect the Fed to begin to cut rates.
Looking ahead, our outlook for the third quarter of 2023 compared to the second quarter of 2023 is as follows. We expect average loans to decline approximately 1%. Net interest income to be down 3% to 4%. Noninterest income to be up 10% to 11%. Taking the component pieces, we expect total revenue to be up approximately 1%. We expect total noninterest expense to be stable, and we expect second quarter net charge-offs to be between $200 million and $250 million.
Considering our reported operating results for the first half of 2023, third quarter expectations and current economic forecasts for the full year 2023 compared to full year 2022, we expect spot loans to be relatively stable, which equates average loan growth of 5% to 6%. Total revenue growth to be approximately 2% to 2.5%. Inside of that, our expectation is for net interest income to be in the range about 5% to 6%. This is a move to the lower end of our previous guidance, largely driven by anticipated deposit costs moving a bit faster than we expected and slightly lower loan growth expectations.
We expect noninterest income declined 2% to 4%, which is down from our earlier expectations of stable. This change is resulting from softer-than-expected capital markets revenue in the second quarter and $127 million of Visa related charges that have been incurred year-to-date. Expenses are expected to be up approximately 2%. Credit quality is trending better-than-expected. And we expect our effective tax rate to be approximately 18%.
And with that, Bill and I are ready to take your questions.
