William H. Rogers
Chairman & Chief Executive Officer at Truist Financial
Thanks, Ankur. Good morning, everybody, and thank you for joining our call today. We delivered solid first quarter results representing the diversity and flexibility of Truist in a more volatile market and business environment. Net interest income declined sequentially due to lower day count, lower PPP revenue, and purchase accounting. Net interest margin slightly exceeded our expectations and more importantly, both NII and NIM appear to have bottomed and have good upside from here. Fee income was below expectations primarily due to investment banking and mortgage, both which were negatively impacted by the market environment. These effects were partially offset by higher insurance income, which underscores the advantages of our diverse business mix. Expenses were lower than expected reflecting strong expense discipline and lower incentive compensation associated with softer fee income.
We experienced continued solid loan growth albeit with headwinds in certain areas. Credit quality remains excellent contributing to another provision benefit. We also completed our largest conversion event in February. There was a palpable level of excitement from our teammates to go to market as One Truist with an expanded toolkit to better fulfill our purpose. We'll share more details on these topics during the presentation. First and foremost we are guided by our purpose, which is to inspire and build better lives and communities. We are convinced that our purpose-driven culture is the foundation for our success as a company. Our purpose defines how we do business every day and it provides a framework for how we make decisions. On Slide 5, we highlight some of the ways we're bringing purpose to life. A key area of focus for Truist is financial inclusion.
We are wholly committed to removing barriers and improving access to the financial system for all communities, which is why I'm pleased that the Truist Foundation is supporting non-profits that serve women and minority owned small businesses in advancing digital equity among historically underserved communities. We know people want to work for companies that stand for something meaningful and the combination of our purpose-driven culture with our industry-leading compensation and benefits, training, development, and flexible approach to work is highly effective in attracting and in retaining top talent. We plan to further strengthen our benefits programs by launching an employee stock purchase program later this year subject to shareholder approval. We also implemented our Truist work model with a focus on intentional flexibility as our teammates return to onsite work throughout March.
Firstly, it was just incredibly energizing to have so much in-person engagement over the last two months whether with teammates, clients, community members, or shareholders. Hybrid and more flexible work is here to stay, but I'm pleased at how our teammates have embraced this new model. We're also doing our part to conform to climate change and in late January announced our plans to achieve net zero greenhouse gas emissions by 2050. We're externalizing our own net zero aspirations and furthering the transition to a low carbon economy by adding new teammates in our CIB and commercial community bank to help our clients make their own transition. Lastly, we completed our largest core bank conversion event in February. This was an enormous undertaking that involved transitioning nearly 7 million clients to the Truist ecosystem and unveiling roughly 6,000 Truist signs across our footprint, which will further build our brand.
The integration was successful overall especially when you consider the scale and complexity involved. This was the largest bank technology integration in over 15 years. I want to personally thank our teammates for their hard work and preparation as well as the many personal sacrifices they've made to ensure the integration was successful. Because of you, we now have millions of Truist clients who are absolutely pleased with their experience. At the same time, it's also impossible to execute an integration of this magnitude perfectly and acknowledge there were some opportunities to improve along the way. Our teams did an incredible job in resolving client challenges with urgency and a view towards long-term client and teammate experience improvements. My commitment though is that we will not rest until every client is satisfied.
Turning to Slide 7. Our adjusted results exclude $166 million of after-tax merger related and restructuring charges and $155 million of after-tax incremental operating expenses related to the merger. We also generated a $57 million after-tax gain on the redemption of a non-controlling equity interest related to the acquisition of certain merchant service relationships, which will provide Truist a larger share of the economics and more control over the end-to-end client experience. Finally, we incurred a $53 million after-tax loss to reposition approximately $3 billion of securities to enhance our yield by approximately 100 basis points. The total EPS impact from these items was $0.24 per share. Daryl will provide more details on these items later in the presentation. Turning to our first quarter performance highlights on Slide 8. We earned $1.3 billion or $0.99 a share on a reported basis.
Excluding the selected items on Slide 7, adjusted earnings totaled 1.6 billion or $1.23 per share, up 4.2% compared to a year-ago primarily driven by lower loan loss provision. Compared to the fourth quarter, adjusted EPS declined 11% driven primarily by a 4% decrease in adjusted revenue attributed to more challenging market conditions and fee businesses such as investment banking and residential mortgage in addition to some normal seasonal patterns. Adjusted ROTCE was a strong 22.6%, unchanged from the prior two quarters. Even excluding the reserve release, adjusted ROTCE was still a strong 19.9%. Adjusted expenses decreased slightly as seasonal headwinds were offset by lower incentive compensation due to softer fee income in addition to our ongoing merger related cost save efforts. Our operating leverage was a negative 240 basis points year-over-year. We are still targeting positive operating leverage for the full-year 2022.
Asset quality continues to be excellent and net charge-offs remained low contributing to provision benefit during the quarter. Capital deployment remained healthy in the first quarter as we completed the acquisition of Kensington Vanguard and certain merchant services relationships and funded solid organic loan growth. I'll provide more details about loan growth shortly. Overall, we're off to a slower start in 2022 than we would like, but I believe our performance can improve throughout the year. In addition to the core bank conversion, we completed the migration of our retail business and wealth clients to the new Truist digital experience and now have sunset all heritage digital experiences. As you recall, early in the merger we made the decision to build a completely new digital experience rather than relying on existing systems and third parties given the increasing importance of digital channels to our clients.
We built this new platform based directly on clients' feedback and we've introduced it in waves learning from each release and continually improving. With a more modern and agile platform and approach, we're able to introduce a number of new features to both sets of heritage clients in advance of the core bank conversion and our speed of client experience improvements will only accelerate in the coming months and quarters as our digital and technology team shift their efforts from integration. A great example of this will be Truist Assist, which will be our new cloud based self-service digital assistant that we'll introduce in the second quarter and will be accessible to all our clients 24/7 via various digital channels. Truist Assist will help clients execute basic tasks, schedule appointments, and provide insights and recommendations so they can have more control and confidence in their financial well-being.
In addition, we're executing and investing in a number of other areas over the coming quarters to improve our clients and teammates' digital experience, including but not limited to digital payments, digital onboarding, enhance our authentication technology, and expanding LightStream to include a new deposit product on a real-time cloud-based core. Turning to loans and leases on Slide 10. Average loan balances grew 0.8% sequentially and rose 1.2% excluding PPP loans. Sequential loan growth was driven primarily by C&I, which increased 5.1% excluding PPP and mortgage warehouse lending where balances have declined rapidly due to declines in refinance volumes. Loans grew across all CIB industry practice groups and growth was particularly strong within our asset finance group. Commercial community bank C&I loans grew 2.4% excluding PPP fairly broad-based across many of our regions.
Revolver utilization and revolver exposure both grew in the quarter. CRE continues to be a headwind given a very competitive market and we're optimistic that we're approaching stabilization. Excluding mortgage, consumer and card balances decreased 2% driven primarily by a 3% decline in auto that was attributable to ongoing supply chain issues and a highly competitive environment. We also experienced continued declines in our home equity and student loan portfolios. These pressures were partly offset by service finance, which is performing well and off to a great start. This quarter we were also excited to announce the new alliance with State Farm whereby their agents will be able to offer consumer lending products through LightStream. We'll pilot this program later in the year and loan volumes will build over time. This alliance reflects Truist's increasing size, scale, and relevance in addition to the superior digital capabilities and client experience that LightStream provides.
In summary, we continue to be positive about the prospects for further loan growth in light of current economic conditions in our pipelines, our increased capacity as a company to focus on clients post integration, and our differentiated set of consumer businesses. At the same time though we've got acknowledge the increased uncertainty presented by a range of geopolitical and economic risk, which could cause loan growth to deviate from our outlook. Now turning to deposits on Slide 11. Average deposit balances increased 1% during the first quarter reflecting some moderation from the 2% pace observed in the fourth quarter. Total deposit costs were stable at 3 basis points. As the interest rate environment evolves, we'll take a balanced approach to managing deposits being attentive to client needs and client relationships while maximizing value outside of rate paid.
Guided by our purpose and our desire to be responsive to the needs of our clients as previously announced, we'll discontinue a host of overdraft related fees at the end of this month. We also remain on track to launch our new Truist One checking account experience this summer, which will have zero overdraft fees, the capability to provide qualifying clients the liquidity they need via a simple $100 negative balance buffer and a deposit based credit line limit up to $750. We're mindful of the impacts that inflation and reduced stimulus may have on certain segments of our clients, particularly the least advantaged, and Truist One is one of the many examples of where we're advancing financial inclusion. Despite the financial impacts we've discussed previously, this is a long-term win for our stakeholders as we endeavor to improve retention, increase acquisition, and enhance the overall client experience.
And with that, let me now turn it over to Daryl to review our financial performance in greater detail.