David J. Turner
Senior Executive Vice President, Chief Financial Officer at Regions Financial
Thank you, John. Let's start with the balance sheet. Average loans remain stable while ending loans declined slightly on a sequential quarter basis. Within the business portfolio, average loans remained stable quarter over quarter. As John mentioned, pipelines are likely to remain soft as customers continue to seek more certainty on a handful of fronts. In addition, customers continue to carry excess liquidity and utilization rates remain below historic levels. Average consumer loans also remained stable as modest growth in credit card was offset by declines in other categories. We continue to expect 2024 average loans to be stable to down modestly compared to 2023.
From a deposit standpoint, deposit balances followed expectations this quarter. Ending levels were stable and averages were down about 1%, largely due to normal summer spending among consumers. Competitive rates declined in advance of the Fed rate cut and, consequently, customer demand for CDs softened, further slowing the rate seeking behavior we experienced throughout the cycle. As a result, the percentage of noninterest-bearing deposits remained stable in the low-30% range.
Let's shift to net interest income. Net interest income increased 3% linked quarter, outperforming our expectations. The increase reflects stability and deposit trends together with asset yield expansion. Year to date, we have repositioned $3.6 billion of securities, realizing $175 million of pre-tax losses, resulting in an estimated 2.5-year payback. This includes the incremental sale and reinvestment of approximately $1.3 billion of securities in the third quarter at a $75 million pre-tax loss.
Importantly, the strategy of selling shorter duration and buying longer duration securities has been helpful in maintaining our duration target and has benefited the unrealized loss on the portfolio as interest rates moved lower in the third quarter. Going forward, we will continue to evaluate further repositioning with respect to risk management and capital goals. However, near-term opportunities with attractive payback periods are limited given current market dynamics.
Similar to the second quarter transaction, the proceeds of $1 billion September debt issuance were used to purchase a like amount of securities in order to maintain a relatively neutral balance sheet position and bolster liquidity. As expected, interest-bearing deposit costs have peaked, remaining flat with the second quarter level at 2.34%. This completes the full rising rate cycle with our interest-bearing deposit beta finishing at 43%, while also maintaining 30% more deposit balances than held prior to the pandemic, once again highlighting the funding advantage of Regions' industry-leading deposit franchise.
Now, as we transition to a falling rate environment, hedging and the ability to reduce deposit expense result in a well-protected profile. Following the initial Fed funds decline, we've experienced a reduction in interest-bearing deposit rates and our exit rate for the quarter amounted to 2.2%, consistent with a roughly 30% beta.
In the fourth quarter, we would expect further benefit from deposits as term products begin to mature and price lower, equating to a mid-30s beta and neutral sensitivity position in the quarter. Over time, we believe falling rate deposit betas have the ability to drift higher toward those experienced in the rising rate cycle. When coupled with fixed rate asset turnover at higher market yields, this provides the support to grow net interest income in the fourth quarter and beyond.
Let's take a look at fee revenue performance during the quarter. Adjusted noninterest income increased 9%, driven by improvement in almost every category, most notably service charges, capital markets and wealth management. Service charges increased 5%, driven primarily by treasury management semiannual fees, as well as the benefit of one additional business day in the quarter. Capital markets increased 35% due to the increase in M&A advisory fees, as well as an increased securities, underwriting and placement fees driven by market stabilization.
Over time and in a more favorable interest rate environment, we expect our capital markets business can consistently generate quarterly revenue of approximately $100 million, but we expect it will run around $80 million to $90 million in the fourth quarter. Wealth management increased 5% to a new quarterly record, reflecting increased sales activity and stronger markets. Based on year-to-date results, we now expect full year 2024 adjusted non-interest income to be in the $2.45 billion to $2.5 billion range.
Let's move on to non-interest expense. Adjusted non-interest expense increased 4% compared to the prior quarter, driven primarily by a 6% increase in salaries and benefits resulting from one additional day in the quarter, increased performance-based incentives and the impact of HR-related asset valuations. The company also recognized $14 million of expense during the quarter associated with Visa's ongoing litigation escrow related to their Class B shares.
We remain committed to prudently managing expenses to fund investments in our business. We will continue focusing on our largest expense categories, which include salaries and benefits, occupancy and vendor spend. Based on year-to-date results, including outperformance in revenue and elevated HR asset valuations, we now expect full year 2024 adjusted non-interest expenses to be approximately $4.25 billion.
Regarding asset quality, as John indicated, overall credit performance continued to stabilize during the quarter and, importantly, our results include the impact of the recently completed SNC exam. Provision expense was $4 million less than net charge-offs at $113 million and the resulting allowance for credit loss ratio increased 1 basis point to 1.79%. As expected, net charge-offs as a percentage of average loans increased 6 basis points to 48 basis points, driven primarily by a large information credit and one office credit.
Non-performing loans as a percentage of total loans declined 2 basis points to 85 basis points and business services criticized loans declined $171 million. We continue to expect full year 2024 net charge-offs to be towards the upper end of our 40 basis point to 50 basis point range, attributable to a few large credits within our previously identified portfolios of interest. However, those losses are substantially reserved for.
Let's turn to capital and liquidity. We ended the quarter with an estimated common equity tier one ratio of 10.6% while executing $101 million in share repurchases and $229 million in common dividends during the quarter. When adjusted to include AOCI, common equity tier one increased meaningfully from 8.2% to an estimated 9.1% from the second to the third quarter. The improvement reflects the benefit to AOCI from lower interest rates and our active management of the duration of the securities portfolio.
Additionally, near the end of the third quarter, we transferred $2.5 billion of available-for-sale securities to held to maturity as an initial step to reduce the volatility of AOCI as we transition towards new regulatory expectations in the future. We expect to maintain our reported common equity tier one ratio consistent with current levels over the near term. This level will provide meaningful capital flexibility going forward to meet proposed and evolving regulatory changes along with the implementation timeline while supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings.
With that, we'll move to the Q&A portion of the call.
