Robert Q. Reilly
Chief Financial Officer at The PNC Financial Services Group
Thanks, Bill, and good morning, everyone.
Our balance sheet is on Slide 4 and is presented on an average basis. For the linked quarter, loans of $319 billion were stable, investment securities increased by $2 billion, and our cash balances at the Federal Reserve were $38 billion, a decrease of $7 billion or 16%. Deposit balances grew $3 billion and averaged $425 billion. Borrowed funds decreased $9 billion or 12%, primarily due to the maturity of FHLB advances.
At quarter end, AOCI was negative $6.6 billion compared to negative $5.1 billion as of September 30th, reflecting the impact of higher rates. Our tangible book value was $95.33 per common share, which was a slight decline linked quarter due to the decrease in AOCI but a 12% increase compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.5% as of December 31st. And we estimate our revised standardized ratio, which includes AOCI, to be 9.2% at quarter end. We continue to be well positioned with capital flexibility. We returned approximately $900 million of capital to shareholders during the quarter through both common dividends and share repurchases.
Slide 5 shows our loans in more detail. Average loan balances of $319 billion were stable compared to the third quarter. And the yield on total loans decreased 26 basis points to 5.87% in the fourth quarter, primarily driven by lower short-term rates. Consumer loans averaged $100 billion and were essentially flat linked quarter as growth in auto was offset by a decline in residential real estate.
Commercial loans of $219 billion were stable as growth in C&IB and leasing balances was offset by a $1 billion decline in commercial real estate loans. On a period-end basis, commercial loans declined roughly $5 billion, reflecting both lower CRE balances and utilization rates.
Slide 6 details our investment security and swap portfolios. Overall, we continue to be relatively neutral to changes in interest rates in 2025, and we continue to manage our fixed and floating rate assets to reduce interest rate sensitivity in future years. Average investment securities of $144 billion increased $2 billion as purchases more than offset runoff in maturities. During the quarter, we continued to add floating rate securities and our total portfolio is now 20% floating compared to 6% a year ago. The majority of our floating rate securities are designated as available for sale and as a result, comprise approximately 40% of our AFS portfolio.
Also, floating rate securities are a higher-yielding alternative to excess cash at the Federal Reserve. The yield on our securities portfolio increased 9 basis points to 3.17%, driven by higher rates on new purchases and the runoff of lower-yielding securities. And as of December 31st, the duration of our securities portfolio was approximately 3.4 years. Our received fixed rate swaps pointed to the commercial loan book totaled $50 billion on December 31st comprised of $37 billion of active swaps and $13 billion of forward starting swaps. The weighted average received rate on the active swaps increased 14 basis points linked quarter to 3.22%.
Looking forward, we expect considerable runoff in our short-term duration securities and swap portfolios, which will allow us to continue to reinvest into higher-yielding assets. Accordingly, AOCI will accrete back with maturities, resulting in continued growth to tangible book value. A full update on the expected maturities and AOCI burn-down is provided in the Appendix.
Slide 7 covers our deposit balances in more detail. Average deposits increased $3 billion or 1%, reflecting continued growth in interest-bearing commercial balances, partially offset by lower consumer brokered CD balances. Regarding mix, noninterest-bearing deposits were stable at $96 billion, and remained at 23% of total average deposits. Our rate paid on interest-bearing deposits declined 29 basis points during the fourth quarter to 2.43%, reflecting pricing actions commensurate with the Fed rate cuts. Our cumulative deposit beta through December was 47%, and going forward, we expect our beta to be in the high 40% range during the anticipated rate cutting cycle.
Turning to Slide 8, we highlight our income statement trends and a few notable items this quarter. Fourth quarter net income was $1.6 billion or $3.77 per share. Comparing the fourth quarter to the third quarter, total revenue of $5.6 billion increased $135 million or 2%. Net interest income grew by $113 million or 3%, and our net interest margin was 2.75%, an increase of 11 basis points.
Noninterest income of $2 billion increased 1%. Noninterest expense of $3.5 billion increased $179 million or 5%. The increase included noncore items netting to $79 million pretax or $62 million after tax, which I'll provide more detail on in a few moments. Provision was $156 million, reflecting improved macroeconomic factors and portfolio activity. And our effective tax rate was 14.6%, which included $60 million of income tax benefits related to the resolution of certain tax matters.
Turning to Slide 9, we highlight our revenue trends. On a full year basis, we generated record revenue of $21.6 billion, as lower net interest income was more than offset by 6% growth in noninterest income. Looking at the linked quarter comparison, revenue increased $135 million, driven by higher net interest income. Net interest income of $3.5 billion increased $113 million or 3%, driven by lower funding costs and the continued benefit of fixed rate asset repricing. Fee income was $1.9 billion and decreased $84 million or 4% linked quarter.
Looking at the detail, asset management and brokerage income declined $9 million or 2%, reflecting lower annuity sales, partially offset by the benefit of higher average equity markets. Capital markets and advisory fees decreased $23 million or 6%, reflecting elevated third quarter activity. Card and cash management fees were stable as higher treasury management revenue was offset by credit card origination incentives.
Lending and deposit services revenue grew $10 million or 3%, due to increased customer activity. Mortgage revenue declined $59 million linked quarter, primarily due to elevated RMSR hedge gains in the third quarter. And our other noninterest income increased $106 million, reflecting a less negative impact from Visa derivative activity.
Turning to Slide 10. Full year noninterest expense decreased by $488 million or 3%. Core noninterest expense was down $152 million or 1% compared to 2023. As a result, we generated positive operating leverage on a reported basis as well as adjusted for noncore expenses. Fourth quarter noninterest expense of $3.5 billion increased $179 million or 5%. As I mentioned, the quarter included $79 million of noncore expenses, which reflected $97 million of asset impairments, partially offset by an $18 million reduction to the FDIC special assessment. The asset impairments included a number of items and were primarily related to various technology investments.
Core noninterest expense increased $100 million or 3% linked quarter, largely due to seasonality and higher marketing spend. As you know, we had a 2024 goal of $450 million in cost savings through our continuous improvement program, which we exceeded. Looking forward to 2025, our annual CIP target is $350 million, and this program will continue to fund a significant portion of our ongoing business and technology investments.
Our credit metrics are presented on Slide 11. Nonperforming loans decreased $252 million or 10% linked quarter, driven by lower C&I and CRE NPLs. Total delinquencies of $1.4 billion were up $107 million or 8% compared with September 30th. The increase was primarily driven by commercial loan delinquencies, the majority of which have already been or are in the process of being resolved.
Net loan charge-offs were $250 million. The $36 million linked quarter decrease was driven by lower office CRE charge-offs and higher commercial recoveries. And our annualized net charge-offs to average loans ratio was 31 basis points. Our allowance for credit losses totaled $5.2 billion or 1.64% of total loans on December 31st, down 1 basis point from September 30th.
Slide 12 provides more detail on our CRE office portfolio. Our office CRE balances declined 7% or approximately $500 million linked quarter, as we continue to manage our exposure down. Criticized loans and nonperforming balances also declined as paydowns and charge-offs outpaced new inflows during the quarter. Net loan charge-offs within the CRE office portfolio were $62 million, down from $95 million in the third quarter.
Despite this decline, we continue to see stress in the office portfolio, given the challenges inherent in this book and the lack of demand for office properties. As a result, we expect additional charge-offs, the size of which will vary quarter-to-quarter, given the nature of the loans. Our reserves on the office portfolio increased to 13% as of December 31st, up from 11% the prior quarter. The increases in reserves reflects the continued valuation adjustments across the portfolio. Accordingly, we believe we are adequately reserved.
In summary, PNC reported a solid fourth quarter, which contributed to an overall successful 2024 and we're well positioned for 2025. Regarding our view of the overall economy, we're expecting continued economic growth over the course of 2025, resulting in approximately 2% real GDP growth and unemployment to remain slightly above 4% through year-end. We expect the Fed to cut rates two times in 2025 with a 25 basis point decrease in March and another in June.
Looking ahead, our outlook for full year 2025 compared to 2024 results is as follows. In regard to loan growth, while a lot of indications point to accelerated growth, we've not built that into our guidance. As a result, our guidance reflects spot loan growth of 2% to 3%, which equates to stable average full year loans. We expect total revenue to be up approximately 6%. Inside of that, our expectation is for net interest income to be up 6% to 7%, and noninterest income to be up approximately 5%. Noninterest expense to be up approximately 1%, and we expect our effective tax rate to be approximately 19%. Based on this guidance, we expect we will generate substantial positive operating leverage in 2025.
Our outlook for the first quarter of 2025 compared to the fourth quarter of 2024 is as follows. We expect average loans to be down approximately 1%; net interest income to be down 2% to 3%, which includes the impact of two fewer days in the quarter; fee income to be stable; other noninterest income to be in the range of $150 million to $200 million, excluding Visa activity. Taking the component pieces of revenue together, we expect total revenue to be down 1% to 2%. We expect total noninterest expense to be down 2% to 3%, and we expect first quarter net charge-offs to be approximately $300 million.
And with that, Bill and I are ready to take your questions.
