Robert Q. Reilly
Chief Financial Officer at The PNC Financial Services Group
Thanks, Bill, and good morning, everyone. Our balance sheet is on slide 3 and is presented on an average basis and compared to the third quarter. Loans were up 2% and averaged $325 billion, which includes the acquired Signature capital commitment loans. Investment securities declined $2 billion or 2%. Cash balances at the Federal Reserve increased $4 billion to $42 billion, and deposits increased $1.4 billion and averaged $424 billion. Borrowed funds increased $5 billion to $73 billion, driven by higher FHLB borrowings and parent company senior debt issuances. At year-end, PNC was fully compliant with the proposed holding company long-term debt requirements, and we expect to reach compliance with the bank level metrics through our normal course of funding well in advance of the phased-in period.
AOCI improved $2.6 billion to negative $7.7 billion at quarter-end, primarily reflecting the impact of favorable interest rate movements during the quarter. Accordingly, tangible book value increased to $85.08 per common share, up 9% linked quarter and 18% compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 9.9% as of December 31, which increased 10 basis points linked quarter. Our estimated fully phased-in expanded risk-based CET1 ratio based on the new proposed capital rules would be approximately 8.2% at year-end, which is well above our current requirement of 7%. We continue to be well positioned with capital flexibility. During the quarter, we resumed modest share repurchase activity of approximately $100 million, or roughly 0.5 million shares, and when combined with $600 million of common dividends, we returned a total of $700 million of capital to shareholders.
Slide 4 shows our loans in more detail. Compared to the third quarter, average loan balances increased 2%, driven by higher commercial loan balances and modest growth in consumer. Commercial loans were $223 billion, an increase of $5 billion, driven by the acquisition of the Signature capital commitment portfolio. Excluding the $8 billion full quarter average impact from the Signature loan portfolio, commercial loans declined $3 billion, or 1%, driven by lower utilization and soft loan demand. Consumer loans grew approximately $130 million, driven by higher residential mortgage balances partially offset by lower home equity and credit card balances, and loan yields increased 19 basis points to 5.94% in the fourth quarter.
Slide 5 covers our deposits in more detail. Average deposits grew $1.4 billion to $424 billion during the quarter, as seasonal growth in commercial deposits was partially offset by a decline in consumer deposits. In regard to mix, consolidated noninterest bearing deposits were 25% in the fourth quarter, down slightly from 26% in the third quarter and consistent with our expectations. We continue to expect the noninterest bearing portion of our deposits to stabilize near current levels. Our current rate paid on interest-bearing deposits increased to 2.48% during the fourth quarter, up from 2.26% in the prior quarter. As of December 31, our cumulative deposit beta was 44% and in line with our expectation for the quarter. As we've stated previously, we expect betas to drift modestly higher while interest rates remain at current levels and our current forecast calls for the first rate cut to occur in mid-2024, at which point we believe the rate paid on deposits will begin to decline.
Slide 6 details our investment security and swap portfolios. Average investment securities of $137 billion decreased 2% as curtailed purchase activity was more than offset by portfolio paydowns and maturities. The securities portfolio yield increased 2 basis points to 2.59%, reflecting the runoff of lower yielding securities. As of December 31, the duration of the investment securities portfolio was 4.1 years. Our receive-fixed swaps pointing [Phonetic] to the commercial loan book totaled $33 billion on December 31. The weighted average received fixed rate of our swap portfolio increased 3 basis points to 2.1% and the duration of the portfolio was 2.3 years. AOCI improved by $2.6 billion in the fourth quarter, reflecting lower interest rates. Importantly, as lower rate securities and swaps roll off, we expect a continued meaningful improvement to tangible book value from AOCI accretion.
Turning to the income statement on slide 7. Fourth quarter net income was $883 million, or $1.85 per share, which included pretax noncore expenses of $665 million, or $525 million after tax related to the FDIC special assessment and the workforce reduction charges incurred in the fourth quarter. Excluding non-core expenses, adjusted EPS was $3.16. Total revenue of $5.4 billion increased $128 million, or 2%, compared to the third quarter of 2023. Net interest income declined modestly by $15 million and our net interest margin was 2.66%, a decline of 5 basis points. Noninterest income increased $143 million, or 8%. Noninterest expense of $4.1 billion increased $829 million, or 26%, and included $665 million of noncore expenses. Core noninterest expense was $3.4 billion and increased $164 million, or 5%. Provision was $232 million in the fourth quarter, and our effective tax rate was 16.3%. Full year 2023 revenue grew 2% compared to 2022. Core noninterest expense was well controlled and grew 1%. Importantly, our disciplined expense management and CIP savings allowed us to deliver modest positive operating leverage and PPNR growth of 2% on an adjusted basis.
Turning to slide 8, we highlight our revenue trends. Fourth quarter revenue was up $128 million, or 2%, compared with the third quarter, driven by strong fee income as net interest income of $3.4 billion was down modestly. Fee income was $1.8 billion and increased $99 million, or 6% linked quarter. Looking at the detail, capital markets and advisory fees rebounded as expected and increased $141 million, or 84%, driven by higher M&A advisory fees. Asset management and brokerage revenue grew $12 million, or 3%, reflecting favorable market conditions, and residential and commercial mortgage revenue declined $52 million, or 26%, primarily due to a decrease in the valuation of net mortgage servicing rights. Other noninterest income of $138 million increased $44 million, or 47%, and included favorable valuation adjustments and gains on sales. The fourth quarter also included a $100 million negative Visa fair value adjustment compared to a $51 million negative adjustment in the third quarter. As a reminder, at December 31, PNC owned 3.5 million Visa Class B shares with an unrecognized gain of approximately $1.5 billion.
Turning to slide 9, our fourth quarter noninterest expense of $4.1 billion was up $829 million and included $665 million of noncore charges. Core noninterest expense of $3.4 billion increased $164 million, or 5% linked quarter, reflecting higher business activity, seasonality, and asset impairments. During the quarter, we incurred $42 million of impairment charges, which were largely related to building write-offs. Notably, in 2023, we reduced our non-branch footprint by 2 million square feet, approximately, 17%. For the full year, core noninterest expense of $13.3 billion increased $177 million, or 1%. Expense growth was well controlled, due in part to the $50 million midyear increase in our CIP goal to $450 million, which we exceeded. As a result, we generated 41 basis points of adjusted positive operating leverage for the full year.
Looking forward to 2024, our annual CIP target is $425 million. This program funds a significant portion of our ongoing business and technology investments, and as of year-end, we completed actions related to the workforce reduction that will drive $325 million of cost savings in 2024. Taken together, we're implementing $750 million of expense management actions, all of which are reflected in our 2024 guidance that I will cover in a few minutes.
Our credit metrics are presented on slide 10. While overall credit quality remains strong across our portfolio, we did see a slight uptick in NPLs and delinquencies. Nonperforming loans increased $57 million, or a 3% linked quarter, and included a $12 million increase in CRE. Total delinquencies of $1.4 billion increased $97 million, or 8% linked quarter. The increase included seasonally higher consumer delinquencies, the majority of which have already been resolved. Net loan charge-offs were $200 million in the fourth quarter and came in at the low end of our expectations. Our annualized net charge-offs to average loans ratio was 24 basis points. and our allowance for credit losses totaled $5.5 billion, or 1.7% of total loans on December 31, stable with September 30.
The CRE office portfolio is where we continue to see the most stress and fourth quarter net loan charge-offs were $56 million. We continue to expect future losses on this portfolio. However, we believe we've adequately reserved for those potential losses. As of December 31, our reserves on the office portfolio were 8.7% of total office loans, and inside of that, 12.9% on the multitenant portfolio. Importantly, our overall CRE office portfolio declined 6%, or approximately $550 million linked quarter, reflecting a higher level of payoffs. Criticized office loans were flat and non-performing loans increased 2% linked quarter. Naturally, we'll continue to monitor and review our assumptions to ensure they reflect current market conditions, and a full update of this portfolio is included in the appendix slides.
In summary, PNC reported a solid fourth quarter and full year 2023. In regard to our view of the overall economy, we're expecting a mild recession starting in mid-2024, with a contraction in real GDP of less than 1%. We expect the federal funds rate to remain unchanged between 5.25% and 5.5% through mid-2024, when we expect the Fed to begin to cut rates. We expect a reduction of 75 basis points in 2024, with a 25 basis point decrease in July, November, and December.
Looking ahead, our outlook for full year 2024 compared to 2023 results is as follows. We expect spot loan growth of 3% to 4%, which equates to average loan growth of approximately 1%. Total revenue to be stable to down 2%. Inside of that, our expectation is for net interest income to be down in the range of 4% to 5% and noninterest income to be up 4% to 6%, core noninterest expenses to be stable, and we expect our effective tax rate to be approximately 18.5%.
Our outlook for the first quarter of 2024 compared to the fourth quarter of 2023 is as follows. We expect average loans to be stable, net interest income to be down 2% to 3%, fee income to be down 6% to 8% due to seasonally lower first quarter client activity as well as elevated fourth quarter capital markets and advisory levels, other noninterest income to be in the range of $150 million and $200 million, excluding Visa activity. Taking the component pieces of revenue together, we expect total revenue to be down 3% to 4%. We expect total core noninterest expense to be down 3% to 4%. We expect first quarter net charge-offs to be between $200 million and $250 million.
And with that, Bill and I are ready to take your questions.
