William H. Rogers
Chief Executive Officer at Truist Financial
Thanks, Ankur. Good morning and thank you for joining our call. Hope everyone's well and safe.
I'm very pleased by Truist's continued progress and our solid third quarter performance. Our quarterly results reflect the diversity of our business mix, which drove strong fee income and helped overcome continued softness in net interest income. Credit quality was outstanding, resulting in another provision benefit. Loan growth was modest, excluding PPP, generally in line with our expectations. We also achieved a major integration milestones this past weekend and we'll share more details on these topics during the presentation.
If I move you to Slide 4, I'd like to begin with our purpose, which is to inspire and build better lives and communities. We believe our purpose-driven culture is the primary factor behind our success as a company. Our purpose defines how we do business every day and it serves as a framework for how we make decisions. A recent example of this was our decision to remain open during our conversion last Saturday so we could care for our clients and address any questions. To my knowledge, that's a first for a major systems conversion such as ours. I've said in our culture, purpose, performance, teamwork and a client-first mindset all coexist and there is no better evidence of that than the extraordinary success our teammates delivered this past weekend in our most significant merger milestone to date; details of which I'll cover shortly.
Slide 5 describes how we are living out our purpose and highlights some of the notable progress we've made during the quarter. During the pandemic, philanthropic giving was a natural way to put our purpose into action due to the effects of the coronavirus on our clients, teammates and communities. For purposes much broader than philanthropy, we developed this slide around major themes contained in our CSR and ESG report because they are the topics that are most important to all of our stakeholders, including our shareholders. I won't cover every point on the slide. Let me just highlight a few.
We continue to make strong progress against our $60 billion Community Benefits Plan currently at 112% of target including the ongoing impact that Truist Community Capital provides our communities with regards to affordable housing, access to healthy food and education and investments in job creation and small business.
Truist and EVERFI announced that all elementary school students nationwide will soon have access to WORDForce Universe, a digital early literacy program. I'll talk more about this shortly, but we migrated 7 million clients to the new Truist digital banking experience, which includes enhanced digital investment, money management capabilities, personalized insights and a holistic personal financial management tool.
We committed to increase diversity in our senior leadership roles to at least 15% by 2023. We're currently at almost 14% and clearly on track. Importantly, long term, the way we create a more diverse senior leadership organization is by recruiting diverse early talent and then developing, retaining and promoting over time. And for early career program hiring in 202, 64% of the seats at Truist were filled by diverse candidates.
All of this progress, combined with enhanced disclosures, has resulted in solid improvements in our ESG scores. Lastly, in a few weeks, we'll release our inaugural Truist TCFD report. Our teammates and I are very proud of Truist and all the ways we deliver on our purpose.
So turning to the third quarter performance highlights on Slide 7. We earned $1.6 billion or $1.20 earnings per share for the quarter on a reported basis. On an adjusted basis, we earned $1.9 billion or $1.42 per share. Adjusted EPS increased 46% versus the same quarter last year and is largely driven by the provision benefit. Sequentially, EPS declined 8% as we had a greater benefit from the provision last quarter and seasonally stronger revenues last quarter. We had strong returns including a 22.6% adjusted ROTCE. Excluding the reserve release, adjusted ROTCE was still very good, north of 19%.
Revenues totaled $5.6 billion, fairly stable compared to last quarter. On an adjusted basis year-over-year, revenue growth was 2% as much stronger fee income offsets an almost 30 basis point decline in margin and an 8% decline in loans; a reflection of this unique environment that we're all in. The stronger adjusted fee income, which grew 12% compared to a year ago, did drive slightly higher expenses than expected, but our PPNR is broadly in line with our expectations.
Asset quality continues to be an excellent story as we outperformed our net charge-off guidance with lower charge-offs across C&I combined with strong recoveries. During the quarter, we were pleased to increase the dividend 7% and we completed the Constellation acquisition, which had a very good first quarter with Truist Insurance. Also, we announced the strategic acquisition of Service Finance, which will close later this year. Daryl will share some additional information on Service Finance, but it's probably a reflection of Truist skating to where the puck is going and partnering with a leader in home improvement point-of-sale lending. We also completed a retail mortgage origination conversion from benefits, which Daryl will also highlight later.
Last but certainly not least, I'm very excited to report, this past weekend, we completed a major phase of our core bank conversion. After a lot of intense, deliberate, thoughtful and purposeful preparation by our team, we were able to stand up the Truist technology ecosystem and migrate all heritage BB&T retail, wealth and business clients to it. The event went extremely well and there are a number of notable positive impacts for clients and teammates. Starting this past Tuesday, over 2,500 heritage BB&T teammates were able to log on to the new Truist commercial lending ecosystem for the first time. Because of the conversion, the sales force, client management and sales pipeline system is now directly connected to the nCino lending origination system, which allows for better communication and workflow across the deal team and visibility of progress of the loan all in one place. These upgrades also lay the foundation for future digital innovation.
We're now able to offer Truist products to new clients and the heritage BB&T clients through our branches and digitally through Truist.com including our new Truist Ready Now loan, a small dollar lending solution for existing clients to cover emergency financing needs between $100 and $1000 consistent with our belief on the importance of emergency savings. We upgraded our ATM, contact center and digital payment capabilities across a number of dimensions, including more client self-service, improved authentication and operational simplification. While this was not a physical branding event, the conversion places us on excellent footing for the final conversion in the first quarter of 2022 when heritage SunTrust clients will transition to the Truist ecosystem and all branches will become Truist. Again, I want to congratulate our teammates on a job well done. They prepared with intensity and purpose for multiple quarters, they learned and applied lessons from previous conversion work, they worked non-stop this past weekend and delivered a seamless conversion. I really could not be more proud.
Now let's go into Slide 8. We had three significant items that negatively affected earnings during the quarter. First, merger charges totaled $132 million after tax, lower than last quarter because higher voluntary separation and retirement program cost were reflected in the second quarter. This VSRP program is one of the many components of our overall cost saving goal. Approximately half of our 2,000 teammates who elected to participate left on September 30 and I cannot thank them enough for their longstanding efforts to build the foundation of Truist by helping create two amazing companies in BB&T and SunTrust and then helping bring Truist to life during our almost first two years of existence.
Incremental operating expenses related to the merger were $147 million after tax. As a reminder, these are merger-related expenses, but don't meet the technical definition of a merger-related and restructuring charges and will not be part of our run rate in 2023 and beyond.
Also, we had a one-time professional fee accrual that met our disclosure and adjustment threshold totaling $23 million after tax. This fee was incurred to develop an ongoing program to identify, prioritize and roadmap teammate-generated revenue growth and expense saving opportunities as part of the merger and beyond. This helps ensure that we'll achieve our 2022 cost save targets. It's also fuel for creating more capacity for investments in the future and will also improve the client experience, simplify our processes and creating more engaged and energized workforce. Our teammates generated more than 55,000 initial ideas, which we consolidated and narrowed down to approximately 1,000 and we're building the execution plan. Ultimately, our goal is for this to be an ongoing way of how we do business at Truist, empowering our teammates to identify and execute on ideas to improve our company. The total impact on these three items was $0.22 per share.
Moving to Slide 9. As we've noted, Truist is the first large merger in the digital age. So, we're highly focused on ensuring a smooth transition for our digitally active clients. Our new Truist digital experience reflects two of our core digital and technology principles: co-creation with our clients and failing fast to learn fast. We've built this new platform based directly on clients feedback and we're introducing it in waves, learning from each release and getting better every time. We made great progress in the third quarter, inviting approximately 7 million retail, wealth and small business clients to migrate to the Truist digital experience through September. About half of those clients have started and use the platform in lieu of their heritage app. By the end of this quarter, our goal is to migrate all digital clients to the Truist digital platforms.
We've received ongoing feedback from our clients and incorporated opportunities for improvement iteratively over the course of the migration, which has resulted in improved client experience over time. This de-risks our core bank conversion and makes Truist the first to delink the front-end conversion from the back-end; a patent approach we can leverage for future back-end innovation.
As you can see on Slide 10, we continue to experience healthy demand for digital banking services as our clients look for more convenient and effective ways to transact and manage their finances. The pace of digital adoption has been especially rapid in mobile. Active mobile users and Zelle transactions are up 11% and 58%, respectively year-over-year. Last quarter, I highlighted that we are creating a common core digital architecture and platform for retail, wealth and small business clients, which creates agility and seamless client experiences, yet, ones that are tailored and designed for the unique needs of each client segment.
For our wealth clients, we provide a differentiated digital client experience that reflects their relationship with Truist. An integrated platform will provide a one-stop shop for their holistic financial picture, including a unified investment portfolio experience that is agnostic to whether the account is a trust or brokerage account, holistic financial planning with external account aggregation and the ability to secure, store and exchange documents with their advisor, and the same access to low-cost, digital and automated investing that we now offer retail clients.
Turning to Slide 11. On an absolute basis, loans declined $2.4 billion sequentially. However, if you exclude the impact of PPP forgiveness, average loans increased $1.6 billion or 2.3% annualized consistent with our outlook. When you peel back the onion, there are some good trends where we also have headwinds. PPP declined $4 billion on average in the quarter and dealer floor plan declined an additional $1 billion. We expect PPP to decline an additional $2 billion or so on average in the fourth quarter. Dealer utilization is about 25% well below historical averages. We've been somewhat cautious in CRE, although we're beginning to see opportunities in that space that meet our risk appetite and portfolio diversity objectives. Even so, that portfolio declined $1.2 billion sequentially. Excluding these items, commercial loans increased $1.1 billion or 0.9% sequentially.
So we're seeing some improved momentum. More banking regions are experiencing core C&I growth. Pipelines in the commercial community bank and CRE businesses continue to grow and our revolver exposure also grew 2% sequentially; evidence of our relevance that our clients are building capacity for investments and expansion. Big picture, our corporate and commercial clients remain optimistic but labor shortages and supply chain issues are affecting their businesses no different than Truist. Net-net, we believe there is meaningful upside to the C&I growth story as the economy continues to improve, pandemic-related disruptions subside, and the liquidity-related distortions from ongoing government stimulus abate. But the timing of all this is difficult to predict.
On the consumer slide [Phonetic], mortgage has shifted from a shrinking to a growing portfolio, reflecting increased operational capacity, slower prepaid speeds and our tactical decision to balance sheet correspondent production. We're also seeing good performance with indirect auto, LightStream, Sheffield and credit card, all of which are growing versus last quarter.
So turning to Slide 12. We added this slide this quarter to provide a little more color on growth and headwinds on average loans since there are several significant moving pieces. Long-term, loan growth is an output and highly correlated to economic growth, which we believe is on firm footing, particularly in our markets. We also continue to pursue tactics and strategies to capture more than our fair share of loan growth within our risk appetite diversification objectives, including deepening our lending relationships with our wealth clients, increasing our digital and point-of-sale lending capabilities, and expanding our wallet share within certain corporate and commercial clients.
Turning to Slide 13. Average deposits increased $6.5 billion or 1.6% compared to the second quarter, largely due to the continuing effects of recent government stimulus. More importantly, Truist continues to resonate with clients. We continue to make solid progress with quality account growth. Year-to-date, our net new personal DDA accounts grew almost 50,000; significantly higher than last year. Net new business DDA is up 11% year-over-year. In addition, client attrition from closed branches continues to be very low. This performance reflects excellent execution by our retail community bank teammates.
And with that, let me turn it over to Daryl to review our financial performance in greater detail.
