Mike Maguire
Chief Financial Officer at Truist Financial
Thank you, Bill, and good morning, everyone.
Before I begin discussing our second quarter results, I'd like to spend a few moments recapping the strategic actions that significantly impacted our second quarter results. First, on May 6, we completed the divestiture of our remaining ownership stake in Truist Insurance Holdings at an implied value of $15.5 billion. At closing, we received after-cash or after-tax cash proceeds of approximately $10.1 billion and recorded an after-tax gain of $4.8 billion. The sale of TIH created $9.5 billion of capital, which generated 230 basis points of CET1 under current capital rules and 250 basis -- 254 basis points of capital under proposed fully phased in Basel III rules.
Our tangible -- tangible book value per share also increased by 33%. On the same day, we executed a strategic balance sheet repositioning of a portion of our available-for-sale investment securities portfolio. We sold approximately $27.7 billion of market value lower-yielding investment securities, which resulted in an after-tax loss of $5.1 billion. The investment securities that we sold had a book value of $34.4 billion and a weighted-average book yield of 2.80% for the remainder of 2024, including the impact of hedges and based on the federal funds curve at that time. Including the tax benefit, the sale of investment securities generated $29.3 billion of proceeds available for reinvestment.
When coupled with the proceeds from the sale of TIH, there were $39.4 billion of proceeds available for reinvestment. Of that, we invested approximately $18.7 billion in Investment Securities yielding 5.27% with the remaining $20.7 billion held in cash. At the time we invested the proceeds, the blended reinvestment rate on the new investment securities purchased and the cash was 5.22% for the remainder of 2024, including the impact of hedges. As Bill mentioned, the reinvestment of the proceeds from the sale of TIH and the balance sheet repositioning completed during the quarter are expected to replace TIH's earnings contributions. These actions completed during the second quarter significantly accelerate our ability to meet increasing standards for capital and liquidity in the industry and importantly, create capacity for Truist to grow its core banking franchise and to return capital to shareholders via our strong dividend and share repurchases.
Now turning to our second quarter key performance highlights on Slide 9. We reported second quarter 2024 GAAP net income available to common shareholders of $826 million or $0.62 per share. This included a net loss of $4 billion from continuing operations or $2.98 per share and net income from discontinued operations of $4.8 billion or $3.60 per share. The net loss available to common shareholders from continuing operations of $4 billion or $2.98 per share was impacted by the following items, a $6.7 billion pre-tax or $3.80 per share after-tax loss on the sale of certain available-for-sale investment securities, a $150 million pre-tax or $0.09 per share charitable contribution to the Truist Foundation, a $13 million pre-tax or $0.01 per share after tax expense related to FDIC special assessment adjustment.
Net income available to common shareholders from discontinued operations of $4.8 billion or $3.60 per share was impacted by the following items, a $6.9 billion pre-tax or $3.60 per share after-tax gain on the sale of Truist Insurance Holdings, a $10 million pre-tax or $0.01 per share after-tax expense due to the accelerated recognition of TIH equity-based compensation, so on an adjusted basis, we reported net income available to common shareholders of $1.2 billion or $0.91 per share. In addition to the items I just noted, we also had pre-tax restructuring charges totaling $96 million in the quarter, which negatively impacted adjusted EPS to common shareholders by $0.05 per share. Approximately $33 million of these pre-tax charges or $0.02 per share after tax negatively impacted net income from continuing operations and were primarily related to severance and real estate rationalization. The remaining restructuring charges were recorded in discontinued operations and were related to legal and other expenses associated with closing the divestiture of TIH.
Total revenue adjusted for the losses on the available-for-sale investment securities increased 3% linked-quarter due to a 4.5% increase in net interest income and relatively stable non-interest income. Adjusted expenses increased 2.6% linked-quarter, but were down approximately 3% on a like-quarter basis. Our CET1 ratio increased by 150 basis points linked-quarter to 11.6%, primarily reflecting the sale of TIH and the balance sheet repositioning I discussed earlier. In addition, net charge-offs declined 6 basis points on a linked-quarter basis and our non-performing loans remained relatively stable both on a like and linked-quarter basis.
Moving to Slide 10. Average loans decreased 0.7% on a sequential basis, reflecting overall weaker client demand. Average commercial loans decreased $1.3 billion or 0.7%, primarily due to a 0.8% decline in C&I balances, driven at least in part by capital markets activity. In our consumer portfolio, average loans decreased $1 billion or 0.9% due to runoff in our residential mortgage portfolio and a decline in indirect auto. Other consumer balances, which include our specialty lending units, experienced modest growth and benefited from seasonal strength at Sheffield and increased demand at Service Finance. Overall, we expect client loan demand to remain relatively muted in the third quarter.
Moving to deposit trends on Slide 11. Average deposits decreased 0.3% sequentially as growth in money market and savings was offset by declines in non-interest-bearing time and brokered balances. Average non-interest-bearing deposits decreased 1.2% and represented 28% of total deposits, which is unchanged compared to 28% during the first quarter of 2024. During the quarter, we experienced an increase in deposit costs, albeit at a slower pace than the first quarter. Specifically, total deposit costs increased 6 basis points sequentially, 2.09%, which resulted in a 1% increase in our cumulative total deposit beta to 39%. Interest-bearing deposit costs increased 7 basis points sequentially to 2.89%, which also resulted in a 1% increase to our cumulative total interest-bearing deposit beta cost, up 54%.
Moving to net interest income and net interest margin on Slide 12. For the quarter, taxable equivalent net interest income increased 4.5% linked-quarter or $155 million, primarily due to the strategic balance sheet repositioning completed during the quarter. Excluding the impact of this repositioning, our net interest income would have been relatively stable on a linked-quarter basis due primarily to our focus on average client deposits, which declined less than we expected. Reported net interest margin increased 14 basis points on a linked-quarter basis to 3.03%. This was due primarily to the impact of the balance sheet repositioning. The partial quarter impact of the balance sheet repositioning helped to drive a 31 basis point improvement in the average yield on our investment securities portfolio to 2.77%. We estimate that our balance sheet remains positioned as relatively neutral from an interest-rate perspective comparable to Q1.
Turning to non-interest income on Slide 13. Adjusted non-interest income, which excludes the losses associated with the balance sheet repositioning decreased $8 million or 0.6% relative to the first quarter. The linked-quarter decrease was primarily attributable to lower investment banking and trading income, which declined $37 million from our strong first quarter performance due to lower M&A fees, equity originations, and trading income, partially offset by higher loan syndication fees. This decline was partially offset by higher mortgage banking and other income. Adjusted non-interest income increased 4.2% on a like-quarter basis as higher investment banking and trading and wealth management income were partially offset by lower service charge on deposit and other income. On a year-to-date basis, investment banking and trading income is up nearly 30% over the same period in 2023.
Now I'll cover non-interest expense on Slide 14. GAAP expenses of $3.1 billion increased $141 million linked-quarter, primarily due to higher other expense-related to $150 million charitable donation, higher personnel costs reflecting merit increases, and higher professional fees. These increases were offset by lower restructuring charges and a reduction in FDIC expense due to a larger special assessment recorded in the first quarter. Excluding these items and the impact of intangible amortization, adjusted non-interest expense increased 2.6% sequentially due to higher personnel expense and professional fees. On a like-quarter basis, adjusted expenses declined $86 million or 3%, reflecting lower headcount and our continued expense discipline.
Moving to asset quality on Slide 15. Asset quality remained stable on both a like and linked-quarter basis, reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. During the quarter, our net charge-off ratio decreased 6 basis points to 58 basis points. The decrease in net charge-offs for the quarter reflects lower consumer losses due to normal second quarter seasonal declines and certain derisking initiatives put in place in the second half of 2022. Our loan loss provision declined $49 million linked-quarter, reflecting our stable credit performance, but it still exceeded net charge-offs for the quarter, resulting in a slight build to our overall loan loss allowance.
Our ALLL ratio increased to 1.57%, up 1 basis point sequentially and 14 basis points year over year, which reflects ongoing credit normalization and stress in the office sector. Despite the normalization, non-performing loans remained relatively stable for the fifth consecutive quarter, while total delinquencies increased just 2 basis points on a linked-quarter basis. Wholesale criticized loans declined $1 billion linked-quarter to $10.8 billion. Included in our appendix is an updated -- is updated data on our office portfolio, which is virtually unchanged at 1.6% of total loans. However, we did increase our reserve on this portfolio from 9.3% to 9.7% during the quarter to reflect continued stress in the sector. Approximately 6.3% of our office portfolio is currently classified as non-performing compared with 5.5% at March 31. Approximately, 90% of these loan balances are paying in accordance with the original terms of the loan. Notably, approximately 22% of our office portfolio is housed within our Community Banking and Wealth segments, where loan sizes tend to be more granular, guarantor support more prevalent, and overall loss is lower. We expect stress to remain in the office sector and believe that the size of our portfolio is manageable and well-reserved, but our position is to be very proactive in identifying and resolving issues in this portfolio.
Turning now to capital on Slide 16. Truist CET1 ratio increased from 10.1% at March 31 to 11.6% at June 30. The increase was driven by the gain on the sale of Truist Insurance Holdings and organic capital generation, which was partially offset by the loss on the sale of certain available-for-sale investment securities during the quarter, which I addressed earlier. Importantly, the sale of TIH creates capacity for Truist to pursue growth opportunities in our Consumer and Wholesale Banking businesses and to return significant capital to shareholders as evidenced by our share buyback program. Truist is well positioned to weather a wide variety of economic scenarios, which was evident in our most recent CCAR stress test results released in late June.
Specifically, Truist had the second-lowest C&I loan loss rate and the third-lowest CET1 erosion rate versus our peers. Our stress capital buffer will improve by 10 basis points to 2.8% effective October 1. At June 30, our CET1 ratio was 430 basis points higher than our new regulatory minimum of 7.3%, leaving us well positioned to both grow our balance sheet and return capital to shareholders. Our increased level of capital accelerates our ability to meet increasing standards for capital and liquidity in the industry as our estimated CET1 capital ratio under proposed Basel III endgame rules improved 20 basis points to 9.1% at June 30, which is 180 basis points above our new regulatory minimum.
And now I will review updated guidance or updated guidance on Slide 17. Looking into the third quarter of 2024, we expect revenue to increase 1% to 2% from second quarter 2024 adjusted revenue of $5 billion. We expect net interest income to increase 2% to 3% in the third quarter, primarily driven by a full quarter impact of the balance sheet repositioning completed on May 6. We expect non-interest income to remain relatively stable on a linked-quarter basis. Adjusted expenses of $2.8 billion in the second quarter are expected to increase by 3% in the third quarter due to higher professional fees, software costs, and higher marketing costs. For the full year 2024, we previously expected revenues to be down 0.5% to 1.5%. We now expect total revenues to decline by approximately 0.5% to 1% in 2024.
Our updated outlook is based on slightly better client deposit balance performance, partially offset by lower client loan demand and our updated view of interest rates, which now assumes just one reduction in the federal funds rate in November of this year. Consistent with our previous expense outlook, we expect full year 2024 adjusted expenses to remain approximately flat over '23 adjusted expenses of $11.4 billion. In terms of asset quality, we continue to expect net charge-offs of about 65 basis points in 2024. As Bill previously mentioned, we are targeting approximately $500 million of share repurchases per quarter for the remainder of the year as part of our share repurchase authorization announced in late June. Finally, we expect our effective tax-rate to approximate 16% or 19% on a taxable equivalent basis in both the third and fourth quarters of 2024.
Now, I'll hand it back to Bill for some final remarks.
