William H. Rogers Jr.
Chairman and Chief Executive Officer at Truist Financial
Thanks, Ankur, and good morning, everyone, and thank you for joining our call today. Our third quarter reflected strong progress in many areas overall. However, financial performance was mixed, reflecting continued challenging market conditions. Strong spread income resulted from significant margin expansion that exceeded our guidance and strong broad-based loan growth. Credit quality remains excellent. At the same time, capital markets revenue did not rebound as anticipated, and in fact, declined linked-quarter.
Strategically, we continue to realize the benefits of shifting from integrating to operating, which I'll share more on later. I acknowledge that operating losses continue to be too high, however, other expense growth reflects targeted investments in talent and technology in key areas of long-term sustainable growth. Merger costs diminished again, and our remaining decommissioning activities are mostly complete and will be finalized by year-end. We showed -- share details on each of these themes throughout the call.
Now turning to our purpose on Slide 4. Truist is a purpose-driven company that's dedicated to inspire and build better lives and communities. This commitment to purpose and our value of care could not have been more apparent and how our teammates responded to each other and their clients in the aftermath of Hurricane Ian. I experienced this firsthand when I visited with our teams in Southwest Florida soon after the storm subsided.
Clients expressed their significant appreciation that we opened our branches to care for them during this time of loss. The many truckloads of food, water supplies, and other critical items that we sent to the region made a real difference, and the $1.25 million donation from the Truist Foundation, we'll continue to provide support to affected areas in Florida and South Carolina. The rebuilding process has only begun and Truist is committed to supporting these communities in the short term but also helping them be more resilient in the long term. And this is one of the many ways we are living our purpose as you can see on Slide 5.
In order to inspire, it's often necessary to be bold and to be first, and that's exactly what we did on October 1st, we made a significant investment in our teammates by raising our minimum wage to $22 per hour. The new minimum wage benefits approximately 14,000 teammates, about 80% of whom are in client-facing roles. We strongly believe this action will drive purposeful growth and offset the estimated $200 million increase in annual personnel expense through improved teammate recruitment and retention, lower turnover expense, better execution, and an all-around better client experience. In fact, we're already starting to see the benefits of the higher minimum wage. Teller turnover in August and September was down about 25% compared to the first seven months of the year, and our branch vacancy rates has been cut in half since July.
We also advanced our commitment to inspire with the launch of Truist One Banking in July. Truist One is our differentiated suite of checking solutions that reimagine everyday banking, including two new accounts that eliminate overdraft fees and provide greater access to credit. The flagship, Truist One Checking account has zero overdraft fees and the capability to provide qualifying clients the liquidity they need through a simple $100 negative balance buffer.
We also introduced the Truist Confidence account, which provides consumers access to mainstream banking services and no overdraft fees. These accounts meaningfully advance financial inclusion in our communities and have been embraced by new and existing clients. Since their launch, overall branch deposit production has increased 13% in August and September compared to the prior year despite having 16% fewer branches. We're also in the process of rolling out our cash reserve deposit-based credit line up to $750. We began a pilot earlier this month and expect the cash reserve feature to be available across our footprint later this quarter.
Now turning to Slide 7. Merger costs totaled $152 million, down 36% sequentially and 58% year-over-year as our integration activities wind down. The final merger cost expected in the fourth quarter are primarily related to our decommissioning efforts, which as I mentioned, will conclude by year-end. The completion of merger activity is a monumental move forward that will reflect a seamless client experience, simplify our narrative, enhance our earnings quality, improve capital, and help us realize industry-leading returns.
Turning to our third quarter performance highlights on Slide 8. We earned $1.5 billion or $1.15 per share on a reported basis. Adjusted earnings totaled $1.7 billion or $1.24 per share, up 3% sequentially as 5% adjusted PPNR growth was partially offset by higher provision as a result of our higher consumer net charge-offs. Net interest income grew 10% to a post-merger high, benefiting from higher short-term rates and well-controlled deposit costs, all of which drove significant margin expansion as well as strong broad-based loan growth.
Despite solid forward progress, the pace of PPNR growth was weaker than we had anticipated, primarily due to ongoing pressure on investment banking as well as unfavorable valuation marks taken a quarter end. Adjusted expenses increased 2.6% linked-quarter, mostly as expected, however operational losses remain elevated. While we made a purposeful decision to proactively refund our clients for fraud losses, our overall goal is to reduce them significantly to improve our results in the client experience. This is an industry-wide phenomenon, part of our technology spend is directly related to this effort. These investments include efforts to enhance identity, authentication and fraud detection, among others.
Adjusted operating leverage was a strong 260 basis points compared to the third quarter of last year, reflecting strong net interest income growth combined with modest expense growth. This momentum has helped us close the gap towards our goal of positive operating leverage for the full year of 2022. Asset quality remains excellent, notwithstanding normalizing trends on a seasonal uptick and net charge-offs within our consumer portfolios. We deployed 10 basis points of capital to support strong loan growth and complete the BenefitMall acquisition, which expands our capabilities and fills a strategic gap in our wholesale insurance business. Our capital position remains strong relative to our risk and profitability profile and we're confident in our ability to withstand and outperform in a range of economic scenarios.
Now turning to Slide 9. Digital activity continues to increase from the first quarter levels, reflecting strong momentum post-integration. This progress reflects our significantly improved agility and responsiveness from being on one digital platform. Year-to-date, we've delivered three times more production releases across business, retail, and wealth than in all of 2021. Client satisfaction with their digital experience has also improved rapidly each quarter.
Consistent with our pivot from integrating to operating, our technology and digital teams are allocating more of their time, energy and resources to transformation and innovation. To that end, we recently launched Truist Assist to our retail and wealth clients through our mobile and online banking platforms. Truist Assist is our AI-enhanced virtual assistant that leverages natural language processing and natural language understanding to interact and respond to client questions. Through September 30th, Truist Assist had been deployed to our personal banking clients and had been utilized by 114,000 unique clients to handle 147,000 interactions that otherwise might have occurred in a branch or contact center. We're also expanding LightStream, both by enhancing the sophistication of its underwriting models through artificial intelligence and by piloting a new savings product to broaden its capability set.
In addition, the recent acquisition of the Arena platform from software startup Zaloni will help accelerate our data journey through the development of a stronger integrated data infrastructure solution deployed in a hybrid cloud environment. As a result, our data quality, analytics and speed-to-market will all significantly improve. Overall, I'm highly optimistic about the potential of our increased investments and capabilities to enhance performance and client experience.
Now turning to loans and leases on Slide 10. Loan growth was strong and broad-based for the second consecutive quarter. Average balances grew $13 billion or 4.3% sequentially, in part due to our shift from integrated operated. C&I remains strong, as average balances grew $7 billion or 4.5%. C&I loans grew across most CIB industry verticals and product groups, reflecting higher revolver utilization, the current shift to banks from the bond market, and our increased competitiveness for new and existing clients.
Revolver utilization increased just over 100 basis points to approximately 31%, the highest level since the second quarter of 2020. In our Commercial Community Bank, C&I balances excluding PPP and dealer floor plan increased 1.3%, the seventh consecutive quarter of growth. We achieved growth across almost all of our CCB regions.
Residential mortgage balances increased $4 billion or 8.2%, reflecting previous correspondent mortgage production and slower repayment speeds. Excluding mortgage, consumer and card balances increased 3.1%, a strong growth in prime auto, Service Finance, LightStream, recreational lending, and Sheffield, more than offset run-off in our partnership and student portfolios. Production in our consumer finance business is up 20% year-over-year, reflecting good business development momentum with Service Finance, abating inventory shortages within Sheffield and rec, and improved automated decision and capabilities across the board, which ultimately improves consistency, efficiency, and creates better client experiences.
Near-term, our loan growth outlook remains healthy, as our pipelines are relatively strong and teammates continue to shift their capacity from integration to operating and take advantage of new tools and their toolkit. Over the medium term, loan growth may moderate as clients absorb and digest the impact of higher rates, higher inflation, and slowing growth. We also expect growth in residential mortgage and prime auto to slow going forward as we shift our capital towards higher return opportunities. Truist continues to remain well-positioned to advise clients across a broad range of economic scenarios given our capabilities, talented teammates, and increased capacity post-integration.
Now turning to deposits on Slide 11. Average deposits decreased $3.7 billion or just under 1% in the third quarter, driven by tightening monetary policy, reduced savings and in response to higher inflation and seasonal patterns. Deposit costs were very well-controlled, reflecting Truist's strong retail and commercial franchise and our enviable market share position.
In addition, our lines of business and corporate treasury teams continue to deliver excellent execution against our thoughtful strategy to be attentive to client needs and client relationships, while maximizing value outside of rate paid. As a result, interest-bearing cumulative deposit betas have been 21% thus far, well below our modeled assumptions. As the interest rate environment evolves, we'll continue to take a balanced approach to managing deposit growth and rate paid, particularly given our broad access to other forms of funding.
Before I turn it over to, Mike, I'd like to acknowledge and thank Daryl Bible. He has built a best-in-class finance function, he played a key essential role in the success of our merger, and he's really been incredibly supportive in helping Mike transition into the CFO role. Many of you in the investment community know Daryl well, and appreciate his knowledge and transparency which will continue to be hallmarks of Truist going forward.
I'm also excited to introduce Mike Maguire as our new CFO. Most recently, Mike led Truist consumer finance and payments businesses, including LightStream, Service Finance, Sheffield, and auto finance. He was well also responsible for our enterprise payment strategy group and wholesale payments businesses, including treasury solutions, merchant services, and commercial card. Mike is a strategic banker, a purpose-driven leader with an exceptional depth of experience across our enterprise and a deep understanding of how technology is shaping our operating environment. He is truly an industry thought leader in the FinTech space. We will certainly draw on this experience as Mike assumes his new role during this time of exciting transformation.
So Mike, with that, I'm going to turn over to you.
