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 linked quarter basis. Loans of $320 billion were stable, investment securities increased $6 billion or 4%, and our cash balances at the Federal Reserve were $41 billion, a decrease of $7 billion or 15%, primarily reflecting the deployment of cash into higher yielding securities.
Deposit balances averaged $417 billion, a decline of $3 billion or less than 1% due to a seasonal decline in corporate balances. Borrowed funds increased $2 billion or 2% and were 15% of total liabilities. At quarter end, AOCI was negative $7.4 billion and improved $600 million compared with March 31. Our tangible book value increased $89.12 per common share, a 4% increase linked quarter and a 15% increase compared to the same period a year ago. We remain well capitalized and our estimated CET1 ratio increased to 10.2% as of June 30.
Regarding the Basel III Endgame, we expect the inclusion of AOCI in the final rule and our CET1 ratio with the impact of AOCI would be 8.7%. And while we recognize the likelihood of changes to certain other aspects of the Basel III Endgame NPR, under the currently proposed capital rules, our estimated fully phased-in expanded risk-based CET1 ratio would be approximately 8.4%.
We continue to be well positioned with capital flexibility. We returned roughly $700 million of capital to shareholders during the quarter, which included $600 million in common dividends and $100 million of share repurchases. And as Bill just mentioned, our Board recently approved $0.05 increase to our quarterly cash dividend on common stock, raising the dividend to $1.60 per share. Our recent CCAR results underscore the strength of our balance sheet and, as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5% for the four-quarter period beginning in October 2024.
Slide 5 shows our loans in more detail. Compared to the first quarter, average loan balances were stable. Commercial loans were essentially flat as utilization remains well below both the pre-pandemic historical average of roughly 55% and the second quarter 2023 level of 52.5%. Importantly, we continue to grow customer relationships and C&IB loan commitments increased during the second quarter.
Although the direction of the near-term economy remains uncertain, capex to sales levels and inventory growth rates remain below historical averages, both of which are typically leading indicators of eventual commercial loan growth. Average consumer loans declined approximately $600 million or less than 1%, driven by lower residential real estate and home equity loan balances, and the yield on total loans increased 4 basis points to 6.05% in the second quarter.
Slide 6 details our investment security and swap portfolios. Average investment securities of $141 billion increased $6 billion or 4%, reflecting the deployment of excess liquidity into higher-yielding securities, primarily U.S. Treasuries. The securities portfolio yield increased 22 basis points to 2.84%, driven by higher rates on new purchases. As of June 30, the securities portfolio duration was 3.5 years.
During the second quarter, our forward starting swaps increased to $18 billion. With the addition of these swaps, we've locked in a portion of our fixed rate asset repricing through 2025 at a level that is approximately 300 basis points higher than maturities. The total weighted average received fixed rate of our swap portfolio, including the forward starters, increased 83 basis points to 3.13%, and the duration of the portfolio is 2.2 years.
Slide 7 highlights the securities repositioning we executed during the second quarter. We sold securities with a book value of $4.3 billion and a market value of $3.8 billion. We recognized a $497 million loss on the sale and reinvested the $3.8 billion of proceeds into securities with yields approximately 400 basis points higher than the securities sold. The repositioning is expected to benefit our net interest income by $80 million in 2024 with roughly $10 million of that being realized in the second quarter and the estimated earn back period for this transaction is less than four years.
Turning to Slide 8. We expect considerable runoff of low-yielding securities and swaps through the end of 2026, which will allow us to continue to reinvest into higher-yielding assets, providing a meaningful benefit to net interest income. Accumulated other comprehensive income improved to negative $7.4 billion on June 30 compared to negative $8 billion on March 31. The improvement was primarily due to the securities repositioning. AOCI will continue to accrete back as our securities and swaps mature, resulting in further growth to tangible book value.
Slide 9 covers our deposits in more detail. Average deposits declined $3 billion or 1%, reflecting seasonally lower corporate balances. Regarding mix, consolidated noninterest-bearing deposits were 23% of total deposits in the second quarter, down less than 1 percentage point from the first quarter. Additionally, average noninterest-bearing deposits had the smallest dollar decline in the second quarter of 2024 since the Fed began raising rates in 2022, which gives us confidence that the noninterest-bearing portion of our deposits has largely stabilized. And our rate paid on interest-bearing deposits increased by only 1 basis point during the second quarter to 2.61%. We believe our rate paid on deposits is approaching its peak level, but we do expect some potential to drift higher as interest rates remain elevated.
Turning to the income statement, and as Bill mentioned, there were several significant items in the quarter and I want to provide a bit more detail. Taken together, these significant items have a minimal impact to our earnings per share, totaling to a net EPS benefit of $0.09. As we previously disclosed, we participated in the Visa exchange program, allowing us to monetize 50% of our Visa Class B-1 shares and convert our remaining holdings to 1.8 million Visa Class B-2 shares. Through the exchange, we recognized a $754 million pre-tax gain.
In addition, we had significant items that occurred in the second quarter that largely offset the gain, and they are as follows: First, as I mentioned earlier, we repositioned a portion of our securities portfolio and, through the sale of certain low-yielding securities, recognized a $497 million loss. Second, we recorded a negative $116 million Visa derivative fair value adjustment associated with Visa Class B-2 shares primarily related to the extension of anticipated litigation resolution. And lastly, we recognize the $120 million PNC Foundation contribution expense. The Foundation supports our communities in early childhood education.
Turning to Slide 11, we highlight our income statement trends. Second quarter net income was $1.5 billion or $3.39 per share. Total revenue of $5.4 billion increased $266 million or 5% compared to the first quarter of 2024. Net interest income grew by $38 million or 1% in the second quarter. Notably, this is the first time NII has increased in six quarters, marking the beginning of an expected upward trajectory. And our net interest margin was 2.6%, an increase of 3 basis points.
Non-interest income increased $228 million or 12%, and included $141 million of the significant items I previously detailed. Non-interest expense of $3.4 billion increased $23 million or 1% and included the $120 million Foundation contribution expense. Notably, we generated positive operating leverage in both the linked quarter and year-over-year comparisons. Provision was $235 million in the second quarter, reflecting portfolio activity, and our effective tax rate was 18.8%.
Turning to Slide 12, we highlight our revenue trends. Second quarter revenue was up $266 million or 5%, driven by higher non-interest income and net interest income. Net interest income of $3.3 billion increased $38 million or 1%, driven by higher yields on interest-earning assets. Fee income was $1.8 billion and increased $31 million or 2% linked quarter. Looking at the detail, asset management and brokerage non-interest income was stable linked quarter and, as the benefit of higher average equity markets, was offset by lower annuity sales due to elevated first quarter activity.
Capital markets and advisory fees increased $13 million or 5%, driven by higher M&A advisory activity and loan syndications, partially offset by lower underwriting fees. Card and cash management increased $35 million or 5%, reflecting seasonally higher consumer transaction volumes and higher treasury management fees. Mortgage revenue declined $16 million or 11%, primarily due to lower residential mortgage activity. Other non-interest income of $332 million increased $197 million and included $141 million related to this quarter's significant items.
Turning to Slide 13. Our non-interest expense of $3.4 billion was well controlled, increasing by only $23 million or 1%. Expenses for the second quarter included the $120 million contribution to the PNC Foundation, while the first quarter of 2024 included $130 million FDIC special assessment. Importantly, non-interest expense excluding the Foundation contribution declined $135 million or 4% compared with the second quarter of 2023. Notably, personnel declined as a result of the workforce reduction actions we took last year.
As Bill mentioned, we remain diligent in our continuous improvement efforts. At the beginning of the year, we set a continuous improvement program goal of $425 million. Recently, we have identified initiatives that support increasing our CIP by an additional $25 million, raising our full year target to $450 million. As you know, this program funds a significant portion of our ongoing business and technology investments.
Our credit metrics are presented on Slide 14. Non-performing loans increased $123 million or 5% linked quarter, primarily driven by an individual secured loan within our asset-based lending business. Total delinquencies of $1.3 billion were stable with March 31. Net loan charge-offs were $262 million in the second quarter and included $106 million of net charge-offs related to our CRE office portfolio and our annualized net charge-off to average loans ratio was 33 basis points. Our allowance for credit losses totaled $5.4 billion or 1.7% of total loans on June 30, stable with March 31.
Slide 15 provides more detail on our CRE office credit metrics. CRE office NPLs were stable in the second quarter as charge-offs and pay-downs offset inflows to non-performing loans. And the migration of criticized loans to non-performing status is an expected outcome as we work to resolve the challenges inherent to this portfolio. As expected, net loan charge-offs within the CRE office portfolio increased and totaled $106 million in the second quarter.
Ultimately, we expect additional charge-offs on this portfolio, the size of which will vary quarter to quarter given the nature of the loans. As of June 30, our reserves on the office portfolio were 10.3% of total office loans and, inside of that, 15.5% on the multi-tenant portfolio. Accordingly, we believe we're adequately reserved. Importantly, we continue to manage our exposure down and, as a result, our balance has declined 4% or approximately $300 million linked quarter.
In summary, PNC posted a solid second quarter 2024 and we're well positioned for the second half of the year. Regarding our view of the overall economy, we are expecting continued economic growth in the second half of the year, resulting in real GDP growth of approximately 2% in 2024 and unemployment to increase modestly to slightly above 4% by year end. We expect the fed to cut rates 2 times in 2024, with a 25 basis point decrease in September and another in December.
Looking at the third quarter of 2024 compared to the second quarter of 2024, we expect average loans to be stable, net interest income to be up 1% to 2%, fee income to be up 1% to 2%, other non-interest income to be in the range of $150 million and $200 million excluding Visa and securities activity. We expect core non-interest expense to be up 3% to 4%. We expect third quarter net charge-offs to be between $250 million and $300 million.
Regarding our full year guidance, for ease of comparability to prior guidance, we exclude the first quarter FDIC special assessment as well as the second quarter Visa gain and other significant items. Considering our reported first half operating results, third quarter expectations and current economic forecasts, our full year 2024 guidance is as follows. For the full year 2024 compared to full year 2023, we expect average loans to be down less than 1%, which equates to nominal loan growth in the second half of 2024. We recognize the potential for greater loan growth and should that occur, it will be accretive to our full year average. Despite lower expected loan volumes, we expect full year NII to be at the better end of our previous expectations. We are down approximately 4%.
We expect our securities repositioning and better-than-expected deposit dynamics to offset the impact of the lower-than-expected loan volumes. We expect non-interest income to be up 3% to 5%, slightly lower than our previous guidance due to continued softness in mortgage activity and, to a lesser extent, loan-related capital markets fees. As a result, total revenue is expected to be down 1% to 2% and inside the range of our previous guidance. We now expect core non-interest expense to be down approximately 1% versus our previous guidance of stable, in part due to our increased CIP target. And we expect our effective tax rate to be approximately 18.5%.
With that, Bill and I are ready to take your questions.
