Robert Q. Reilly
Chief Financial Officer at The PNC Financial Services Group
Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 5 and is presented on an average basis. Overall, year-over-year balance sheet growth was primarily driven by the acquisition of BBVA USA. Loans grew 18%, investment securities increased 49%, and deposits grew 26%. Looking at the linked quarter changes, loans for the fourth quarter were $289 billion, a decline of $2.4 billion or 1%. Excluding $4.7 billion of PPP forgiveness activity, loans grew $2.3 billion or 1%, and I'll cover the drivers in more detail over the next few slides. Investment securities increased $7 billion or 6%, as we maintained higher purchasing activity throughout much of the quarter. Accordingly, cash balances at the Federal Reserve declined by $5 billion. On the liability side, deposit balances declined $1.6 billion, as higher commercial and consumer deposits were offset by run-off deposits related to the strategic repricing of certain BBVA USA portfolios during the third quarter and that negatively impacted fourth quarter average balances.
However on a spot basis, total deposits as of December 31st increased $8 billion or 2%, reflecting the continued strong liquidity positions of our customers. At year-end, our tangible book value was $94.11 per common share, and our CET1 ratio was estimated to be 10.2%, which are both substantially above the pro forma levels we anticipated when we announced the deal. During the quarter, we returned approximately $1.1 billion of capital to shareholders via common dividends of $500 million and share repurchases of $600 million. Given our strong capital ratios, we continue to be well positioned with significant capital flexibility going forward.
Slide 6 shows our average loans and deposits in more detail. In the fourth quarter, loans declined $2.4 billion, as growth in commercial and consumer loans was more than offset by a decline in PPP loans of $4.7 billion. Excluding the impact of PPP, commercial loans grew by $2.2 billion or 1%, driven by growth in corporate banking and asset-based lending. During the fourth quarter, we continue to see a slow and steady increase in utilization rates within our Corporate & Institutional Banking business and along with that expanded pipelines. Taken together, these factors are driving our expectations for higher loan growth in 2022. Consumer loans increased modestly linked quarter, as higher residential real estate balances were mostly offset by lower home equity and auto loans.
Finally, as I mentioned, PPP loans continue to decline due to forgiveness activity, and as of December 31st, $3.4 billion of PPP loans remained on our balance sheet. Average deposits of $453 billion declined by $1.6 billion linked quarter for the reasons I previously mentioned. Overall, our rate paid on interest-bearing deposits remained stable at four basis points. Slide 7 details the change in our average securities and Federal Reserve balances. As rates increased at the end of the third quarter and throughout the fourth quarter, we continue to opportunistically add securities to our portfolio, primarily U.S. Treasuries. As a result, securities balances averaged $128 billion in the fourth quarter, an increase of $7.2 billion or 6% compared to the third quarter 2021 and now represent 26% of interest earning assets. We continue to have substantial excess liquidity with Fed cash balances averaging $75 billion during the fourth quarter, which we believe positions us well for rising rate environment.
As you can see on Slide 8, fourth quarter 2021 reported EPS was $2.86, which included pre-tax integration costs of $438 million. Excluding integration costs, adjusted EPS was $3.68. As expected during the fourth quarter, we incurred essentially half of our total anticipated deal integration costs, which reduced revenue by $47 million and increased expenses by $391 million. Since the announcement of the acquisition, we've now incurred approximately 95% of the total $980 million expected integration costs, including $120 million of write-offs for capitalized items. Excluding the impact of integration costs, linked quarter revenue was down $31 million or 1%, expenses increased $48 million or 1%, and pre-tax pre-provision earnings declined $79 million or 4%. The fourth quarter provision recapture was $327 million, reflecting continued improvements in the economic environment. Net income excluding pre-tax integration costs of $438 million was $1.6 billion in the fourth quarter.
Now let's discuss the key drivers of this performance in more detail. Turning to Slide 9, these charts illustrate our diversified business mix. Total revenue for the fourth quarter of $5.1 billion decreased $70 million linked quarter, reflecting lower non-interest income. Net interest income of $2.9 billion was up slightly, primarily a result of higher securities balances. Net interest margin was stable at 2.27%. As I mentioned, integration costs reduced non-interest income by $47 million, which included $19 million of lease exit costs, $17 million of treasury management fee waivers, and $11 million of overdraft waivers. Fourth quarter fee income excluding integration costs was $1.9 billion and declined $39 million or 2% linked quarter.
Looking at the detail, asset management fees increased $3 million or 1%, primarily related to higher average equity markets. Consumer services grew $12 million or 2% due to higher brokerage and credit card revenue. Corporate service fees increased $14 million or 2%, reflecting higher loan syndications activity, as well as continued elevated corporate advisory activity. Residential mortgage non-interest income declined $46 million, driven by lower RMSR valuation adjustments and loan sales revenue.
Service charges on deposits decreased $22 million, primarily a result of converting BBVA USA customers to PNC's product and overdraft pricing structure. Other non-interest income excluding integration costs was stable linked quarter, as the impact of $1 million positive Visa derivative fair value adjustment in the fourth quarter compared to a negative adjustment of $169 million in the third quarter was offset by lower private equity revenue.
Turning to Slide 10, our fourth quarter expenses were up by $204 million or 6% linked quarter. The growth was primarily driven by a $156 million increase in integration expenses. Excluding the impact of integration expenses of $391 million, non-interest expense increased $48 million or 1%. The growth was largely within personnel costs, driven by higher employee benefits expense, an increase in our minimum hourly rate of pay, as well as elevated incentive compensation related to strong fee activity. We had a 2021 goal of $300 million in cost savings through our continuous improvement program and we successfully completed actions to achieve that goal.
Looking forward to 2022, our annual CIP goal will once again be $300 million. Importantly, as of year-end 2021, we completed all of the actions that will drive $900 million of savings related to the BBVA USA acquisition, which we expect to be fully realized in 2022 and is reflected in our expense guidance that I will provide in a few minutes. Our credit metrics are presented on Slide 11. Non-performing loans of $2.5 billion decreased $48 million or 2% compared to September 30, and continue to represent less than 1% of total loans.
Total delinquencies of $2 billion on December 31st increased $516 million or 35%. Obviously, this was a large increase, but it was primarily driven by BBVA USA conversion related administrative and operational delays, which we expect will largely be resolved within the first half of 2022. Net charge-offs for loans and leases were $124 million, an increase of $43 million linked quarter. Commercial net charge-offs declined $5 million offset by an increase of $48 million in consumer. Inside of the higher consumer net charge-offs, auto grew $28 million and other consumer increased $13 million, reflecting conversion related impacts, as well as seasonality.
Our annualized net charge-offs to average loans continues to be low and in the fourth quarter was 17 basis points. And during the fourth quarter, our allowance for credit losses declined $471 million, reflecting continued improvements in the economic environment. At quarter end, our reserves were $5.5 billion representing 1.92% of loans. In summary, PNC reported a strong fourth quarter, which concluded a successful 2021 and we're well positioned for 2022 as we continue to realize the potential of our coast-to-coast franchise. In regard to our view of the overall economy, we expect strong growth over the course of 2022 resulting in 3.5% GDP growth. We also expect four 25 [Phonetic] basis point increases in the Fed funds rate in 2022 beginning in May followed by additional increases in June, September and December.
Looking ahead, our full-year guidance for 2022 includes the impact of 12 months of BBVA USA results compared to only seven months in 2021. Taking that into account, our outlook for full-year 2022 compared to 2021 results is as follows. We expect average loan growth of approximately 10% and 5% on a spot basis. We expect total revenue growth to be 8% to 10%. We expect expenses excluding integration expense to be up 4% to 6%. And to be clear here, this includes five additional months of BBVA USA operating expenses, which equates to a full-year increase of approximately $500 million. And we expect our effective tax rate to be approximately 18%.
Based on this guidance, we expect we will generate solid positive operating leverage in 2022. Looking ahead at the first quarter of 2022 compared to the recent fourth quarter 2021 results, we expect average loan balances excluding PPP to be up approximately 1% to 2%. We expect NII to be down approximately 1% to 2%, reflecting two fewer days in the quarter and a decline of approximately $75 million in PPP related interest income. We expect fee income to be down 4% to 6% due to seasonally lower first quarter client activity, as well as elevated fourth quarter fees in certain categories. We expect other non-interest income to be between $375 million and $425 million excluding integration costs, as well as net securities and Visa activity.
Taking our guidance for all components of revenue into consideration, we expect total revenue to decline approximately 3% to 5%. We expect total non-interest expense excluding integration costs to be down approximately 4% to 6%, and during the quarter, we expect to incur $30 million of integration expense. Finally, we expect first quarter net charge-offs to be between $100 million and $150 million.
And with that, Bill and I are ready to take your questions.
