Paul E. Burdiss
Chief Financial Officer at Zions Bancorporation, National Association
Thank you, Scott, and good evening, everyone, and thanks for joining us. More than three quarters of our revenue is in the form of net interest income, which is significantly influenced by loan and deposit growth and associated interest rates. As such, I'll begin my comments on slide 14 with a review of these results. Although the average total loans were down in the third quarter by 3.7% when compared to the second quarter, we experienced average loan growth when excluding PPP loans. And on a period end basis, that growth was $661 million or 1.4%. The strongest linked quarter growth was in commercial construction at nearly $270 million.
This is a result of increased construction activity on previously established lines of credit. We reported strength in commercial and industrial loans, which increased more than $280 million or 2%. We ran promotions during the quarter on owner occupied and home equity loans, which increased $250 million and $107 million respectively. Declines were reported in PPP loans, down $1.4 billion, as Scott previously noted and term commercial real estate which declined more than $220 million. In the third quarter, we reported a more modest decline in residential mortgage balances than we have in recent quarters, down nearly $130 million.
With a strong held-for-investment pipeline of mortgages, we may see some further stabilization or possibly growth in residential mortgages in the near term. One final note on loan growth. Relative to periods prior to the pandemic, revolving line of credit utilization has declined several percentage points. Using the third quarter of 2019 as the benchmark quarter, our revolving line utilization rate was 39.5% as compared to 33.7% in the third quarter of 2021, which was essentially from the prior quarter. Although revolving loan balances did increase from the prior quarter of about $200 million, the lending commitments increased about $700 million. As I've noted in the past, deposits have been and remain the driver of balance sheet growth over the past several quarters and in the third quarter.
On the right side of this page, average deposits increased 3.7% from the prior quarter relative to the year ago period. Average deposits increased 16%. Average noninterest-bearing deposits increased 4.9% over the prior quarter and 24% compared to the prior-year period. Our noninterest-bearing deposits make up one-half of average total deposit. The yield on average total loans increased slightly from the prior quarter, which is attributable to the 6.7% yield in the PPP loan portfolio. Excluding PPP loans, the yield declined 8 basis points to 3.59% from 3.67%. Deposit costs remain low. Our cost of total deposits fell to 3 basis points in the third quarter.
Moving to slide 15, we show our securities and money market investment portfolios over the last five quarters. The size of the period end securities portfolio increased by $6 billion over the past year to $21 billion, while money market investments increased more than $7.5 billion to $11.9 billion. The combination of securities and money market investments has risen to nearly 40% of total earning assets at period end, which compares to an average level in 2019 prior to the pandemic of 26%. We continue to exercise caution regarding duration extension risk by purchasing bonds with relatively short duration both in the current and in an upward shock rate shock scenario.
The $3.6 billion of security purchases from the quarter had an average yield of 1.53%. Slide 16 is an overview of net interest income and the net interest margin. The chart on the left shows the recent five quarter trend for both. The net interest margin in the white boxes has declined over the past year, reflecting the rise in excess liquidity as described on the prior page. For the third quarter, this growth in excess liquidity is referenced in the chart on the right as the strong growth in deposits has impacted the composition of earning assets to a larger concentration and lower yielding money market and securities investments. The weighted average yield of our securities and money market investments is just 1.07% and with that concentration increasing by 4 percentage points in the quarter, it weighed on the net interest margin.
In fact, I estimate that the increase in money market investments has accounted for 33 basis points of the 45 basis point net interest margin compression over the past year. Slide 17 shows information about our interest rate sensitivity. Focusing on the upper left quadrant as a general statement, our asset sensitivity has increased as deposits have been invested in short term money market assets. This increase in estimated rate sensitivity assumes that the incremental deposits have modestly shorter duration characteristics when compared to deposits on our balance sheet prior to the recent deposit surge.
We are continuing to deploy deposit driven cash into securities which helps to moderate the natural the natural asset sensitivity. However, with continued strong deposit growth and higher prepayment rates on mortgage loans and securities, our estimated interest rate sensitivity was similar to the second quarter level, such that in an interest rate environment that has shocked immediately 100 basis points higher than the current level, our net interest income at the 12 month horizon is estimated to be higher by 12%. As previously noted, we may continue to add interest rate swaps, including forward starting swaps, which would help to temper our natural asset sensitivity.
On slide 18, building on a good second quarter, customer related fees increased an additional 9% in the third quarter to $151 million. Notably, activity based fees such as card fees, merchant services and retail and business banking fees remain strong and have grown to the level of two years ago prior to the pandemic. This improvement added to continued strength in loan related, capital markets, and wealth management revenues. Non-interest expenses on slide 19 were essentially unchanged from the prior quarter at $429 million. Adjusted no-interest expense increased 3% or $13 million to $432 million.
The linked quarter increase in adjusted non-interest expense is primarily due to employee compensation. The increase was associated with higher base salaries and profitability driven long- and short-term compensation. Other noninterest expense includes a $4 million success fee reversal associated with the mark-to-market loss in our SBIC as compared to the $9 million success fee accrual recognized in the second quarter. Slide 20 details our long term credit losses or ACL. In the upper left we showed the recent declining trend in the ACL to $529 million at the end of the third quarter or 1.11% of non-PPP loans.
The chart on the lower right side of this page shows the three broad categories that resulted in a decline of $45 million. More than 60% of the change was attributable to changes in the portfolio mix and composition. Our updated outlook is found on slide 21. And as a reminder, this is our outlook for financial performance in the third quarter of 2022 as compared to the actual results reported for the third quarter of 2021. The quarters in between are subject to normal seasonality and my comments are subject to our earlier reference to forward-looking statements found on slide 2.
Due to the degree of uncertainty on the timing of customers submitting requests and the SBA approving those requests, our outlook for loan growth excludes PPP loans. We are more optimistic about loan growth now than we were in July, and as such, we are increasing our outlook to moderately increasing from slightly to moderately increasing led by core C&I including our promotional owner occupied loan products. We expect net interest income also excluding PPP loan revenue to increase over the next year as compression of loan and securities yields will be more than offset by continued deployment of cash into term securities and our more favorable outlook for growth in non-PPP loans.
The current quarter's customer related fees are the highest we have reported. Building on such a strong third quarter, we are reducing our outlook for customer related fee one year from now to be stable to slightly increasing from moderately increasing. We are adjusting our expectation for adjusted noninterest expense to be moderately increasing from slightly increasing. We remain disciplined on expense control. However, increased business activity, emerging inflationary trends, and continued investment in enabling technologies will place upward pressure on noninterest expense over the near term.
And finally, with respect to capital management, we remain comfortable that our philosophy of lower-than-average risk, combined with stronger-than-median capital, is the right formula for creating long-term shareholder value. Our capital, measured by common equity Tier 1 relative to risk-weighted assets, remains well above the peer median. As we consider the balance between capital ratios and our risk profile, we believe that we have capacity for continued active capital management in the near to medium term, so long as the current macroeconomic and credit trends continue to be favorable.
This concludes our prepared remarks. Towanda, please open the line for questions.