Mike Maguire
Chief Financial Officer at Truist Financial
Great. Thank you, Bill, and good morning, everyone. I'm going to begin with net interest income on slide 11. For the quarter taxable equivalent, net interest income decreased 1.6% linked quarter, primarily due to lower average earning assets and higher deposit costs. Although net interest income was down linked quarter, we are encouraged that the decline was slower than the 6.1% decrease observed in the second quarter, as deposit betas increased at a more moderate pace.
Reported net interest margin increased 4 basis points after declining for two consecutive quarters. NIM stabilization reflected our ongoing balance sheet optimization initiatives, including focusing on our core clients, improving spreads on new and renewed loans, reducing lower yielding loan portfolios, and paying down higher cost wholesale borrowings, including FHLB advances, which were down about $20 billion on average, compared to the second quarter.
Turning to noninterest income on slide 12. Fee income decreased $185 million or 8.1% relative to the second quarter. The decline was primarily attributable to lower insurance income, which decreased $142 million sequentially due to seasonality. Insurance production is typically lowest in the third quarter and highest in the second.
Insurance fundamentals remain strong, driven by new business growth, improved retention and favorable pricing, all of which contributed to 6.3% organic revenue growth on a like quarter basis. Service charges on deposits were down $88 million in the third quarter, due primarily to $87 million of client refund accruals that were driven by changes we made to our deposit fee protocols. Investment banking and trading income was lower by $26 million, while other income increased $38 million, primarily due to higher income from other investments.
Fee income was flat on a like quarter basis as higher insurance income and higher other income were offset by lower service charges and lower investment banking and trading income.
Next, I'll cover noninterest expense on slide 13. Quarter noninterest expense was flat sequentially as lower adjusted expense was offset by a $21 million increase in merger related and restructuring expense, driven mostly by severance and facilities rationalization. Adjusted noninterest expense decreased 50 basis points sequentially, in line with our July guidance range of flat to down 1%. The decrease in adjusted expenses was driven by lower personnel expense and reduced professional fees and outside processing expense, partially offset by higher other expense.
The increase in other expense included $70 million of costs arising from the previously mentioned client deposit service charge refund accruals, as well as the settlement of certain litigation matters, including a settlement and patent licensing agreement which resolved the USAA patent infringement lawsuit. If you excluded these items, adjusted expenses declined by 2.5% linked quarter. The work associated with our gross cost saves program is well underway, as we will discuss on slide 14.
In September, we announced a $750 million gross cost saves plan that will be achieved over the next 12 to 18 months. The cost saves will include $300 million from reductions in Force, $250 million from organizational realignment and simplification, and $200 million from technology expense reductions. Since these initiatives were announced in mid-September, we have already realigned significant elements of our organizational and operational structure to improve efficiency and to drive revenue opportunities.
The work we're doing includes optimizing spans and layers to improve organizational design health, consolidating redundant functions, restructuring select businesses, and geographic simplification, all of which will result in reductions in Force over the next couple of quarters.
In addition, we are aggressively managing third party spend, reducing our corporate real estate footprint and rationalizing technology spend. Based on the latest information available, we still expect one-time costs associated with the cost saves program to range from 25% to 30% of gross cost saves.
We also continue to project the cost saves program will help us manage adjusted expense growth to zero to 1% in 2024, which is net of natural expense growth driven by inflation and other factors.
Moving to asset quality on slide 15. Asset quality metrics continued to normalize in the third quarter, but overall remain manageable. Nonperforming assets were unchanged linked quarter, while early-stage delinquencies increased 4 basis points sequentially as increases in our consumer portfolios were partially offset by declines in commercial. Included in our appendix is updated data on our office portfolio, which represents 1.7% of total loans.
We're pleased that nonperforming and criticized and classified office loans increased only modestly linked quarter, while we increased the reserve on this portfolio from 6.2% at June 30 up to 8.3% at September 30.
Our net charge off ratio decreased 3 basis points to 51 basis points, reflecting the prior quarter impact of the student loan sale partially offset by increases in our CRE and consumer lending portfolios. [Technical Issues] reserves as provision expense exceeded net charge-offs by $92 million. Our ALLL ratio increased to 1.49%, up 6 basis points sequentially and 15 basis points year-over-year due to ongoing credit normalization and greater economic uncertainty.
Consistent with our commentary last quarter, we have tightened our risk appetite in select areas, though we maintain our through the cycle supportive approach for high quality, long-term clients.
Turning to capital now on Slide 16. Based on our assessment of the proposed capital rules, we feel confident in our ability to meet the requirements under the proposed phased-in periods. Truist added 29 basis points of CET1 capital in the third quarter through a combination of organic capital generation and disciplined RWA management. With a CET1 ratio of 9.9%, Truist remains well capitalized relative to our new minimum regulatory requirement of 7.4%, which took place on October 1.
As a company, we are strongly committed to building capital and achieving a CET1 ratio of approximately 10% by the end of the year. The projected trajectory for our CET1 ratio does incorporate headwinds from the pending FDIC assessment, which is now expected to be recognized in the fourth quarter.
Our primary capital priorities are supporting the organic growth needs of new and existing core clients and the payment of our $0.52 per share common dividend. We have no plans to repurchase shares over the near term, and we will continue to allow previous acquisitions to mature.
RWA Management continues to be disciplined as we allocate less capital to certain businesses, though we have been very clear that our balance sheet is open to core clients. In addition, we continue to believe that Truist Capital flexibility with Truist Insurance Holdings is a distinctive advantage. We estimate that our residual 80% ownership stake provides greater than 200 basis points of additional capital flexibility.
The table in the center of the slide provides an updated analysis of our AOCI. Based on estimated cash flows in today's forward curve, we would expect the component of AOCI attributable to securities to decline from $13.5 billion at the end of the third quarter to $9.7 billion by the end of 2026 or a decline of 28%.
Finally, as it relates to the proposed rules for a long-term debt requirement, we estimate the Truist binding constraint is at the bank level and that the shortfall is approximately $13 billion. We are confident that we will meet the proposed requirements at both the bank and holding company level through normal debt issuance during the phase-in period.
Now I will review our updated guidance on Slide 17. Looking into the fourth quarter of 2023, we expect revenues to be flat or to decline 1% from 3Q '23 GAAP revenue of $5.7 billion. We expect linked quarter improvement in noninterest income due to higher insurance service charges on deposit income and investment banking and trading income partially offset by lower mortgage and other income. Net interest income is likely to remain under some pressure due to our smaller balance sheet and modest NIM compression.
Adjusted expenses of 3.5 billion are expected to decline 3.5% due to lower personnel and other expenses. In April, we stated that our 2023 expense guidance excluded expenses associated with TIH independence readiness. Previously, we've not called out these costs because they totaled only $20 million through the first nine months of 2023, including $9 million in the second quarter and $11 million in the third quarter. In the fourth quarter, we expect these expenses to approximate $35 million, which are excluded from our 4Q '23 expense guidance. For the full year 2023, we expect revenues to increase by approximately 1.5%, which is at the midpoint of our previous revenue guidance of up 1% to 2%. Our guidance includes the $87 million client refund accrual that negatively impacted fees in the third quarter.
Full year 2023 adjusted expenses are still on track to increase 7%. This includes $70 million related to the legal settlements and client deposit service charge refunds, but excludes the $55 million of TIH independence readiness costs for 2023.
In terms of asset quality, we have tightened our guidance from a range of 40 to 50 basis points to approximately 50 basis points for the full year, which includes the impact of the student loan sale. Finally, we expect our tax rate -- effective tax rate to approximate 18% or 20% on a taxable equivalent basis, compared to 19% and 21% previously.
Now I'll hand it back to Bill for some final remarks.
