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ET by MarketWatch Automation. Regions Financial upgraded to outperform from neutral at Wedbush Oct. ET by Tomi Kilgore. No Headlines Available. Thank you, Shelby. John and David will provide high-level commentary regarding our earnings documents, which include our forward-looking statement disclaimer are available in the Investor Relations section of our website. Thank you, Dana, and good morning everyone.
We appreciate you joining our call today. And we generated year-to-date positive operating leverage. Our ability to keep the momentum going and deliver solid third quarter results comes from three primary factors. First, we continue to benefit from our growing footprint. Unemployment levels are improving. And most of our markets are well below the national level. People and businesses are continuing to move into our 15 state footprint and that bodes well for our growth prospects for the remainder of the year and into We'll continue to make strategic investments in core and growth markets where we can grow new customers and deepen existing relationships.
On that note, we're also pleased to share that year-to-date net account growth has exceeded account growth for the preceding three years combined. Second, credit quality has demonstrated incredible resiliency and continues to exceed our expectations. Businesses across all industries have found ways to adapt and prosper despite ongoing supply chain and labor issues.
And consumers continue to cautiously manage their finances. Overall, we feel very good about the health of our business and consumer customers. Third, we continue to take advantage of opportunities to invest in talent, technology and capabilities to support growth.
For instance, earlier this month, we closed on our acquisition of EnerBank, a leading home improvement point-of-sale lender, a key part of our strategy to serve as a premier lender to homeowners.
We also entered into an agreement to acquire Sabal Capital Partners. Sabal has a strong reputation and proprietary technology platform that will expand our real estate capital markets' capabilities.
Once the transition is complete, we expect to be a Top 5 bank agency producer. The EnerBank and Sabal acquisitions complemented our existing portfolio of products and capabilities in the consumer and corporate bank. This new product has all the benefits of a traditional checking account without the concern of overdraft fees. And finally, our investments in digital and data are positioning us for growth.
Through a technology-enabled seamless experience in branches and across all platforms, customers are responding to the personalized service, advice and guidance they receive from Regions.
Today, more than two-thirds of our customer transactions are digital. We feel really good about our progress and momentum.
We operate in some of the best markets in the country, have a solid strategic plan, an outstanding team, and the experience to compete effectively. We focus everyday on delivering products and services that are valued by our customers, while continuing to support our communities and provide an appropriate return to our shareholders.
David J. Thank you, John. Let's start with the balance sheet. Although business loans continue to be impacted by low utilization rates and excess liquidity, pipelines have surpassed pre-pandemic levels. Consumer loans reflected another strong quarter of mortgage production, accompanied by modest growth in credit card.
However, consumer loans remain negatively impacted by exit portfolios and further paydowns in home equity. Overall, we continue to expect full-year adjusted average loan balances to be down by low-single-digits compared to , although we expect adjusted ending loans to grow by low-single-digits.
So let's turn to deposits. Although the pace of deposit growth has slowed, balances continue to increase this quarter to new record levels. The increase is primarily due to higher account balances. However, as John mentioned, we are also producing strong new account growth.
We are continuing to analyze probable future deposit behavior. Additional portions of the deposit increases could persist on the balance sheet, but are likely to be more rate sensitive.
Let's shift to net interest income and margin. Pandemic-related items continue to impact net interest income and margin. Excluding excess cash and PPP, net interest income grew almost 1. This reflects strengthening loan growth as well as active balance sheet management efforts despite a near zero short-term rate environment. Similar to prior quarters, the impact on NII from historically low long-term interest rates was completely offset by balance sheet management strategies, lower deposit costs and higher hedging income.
We shortened the maturities from to late The repositioning locked in the associated gains that will be amortized over the remaining life of the interest rate swaps and will allow for more NII expansion when rates are projected to increase.
Further, with the inclusion of EnerBank's fixed-rate loan portfolio, less hedges will be needed to protect NII and the net interest margin profile from falling rates. Excluding EnerBank and PPP, adjusted net interest income should be relatively stable in the fourth quarter, after excluding the non-recurring interest recovery in the third quarter.
As illustrated on the slide, over a longer horizon, a strengthening economy, the ability to benefit from higher rates, and organic and strategic balance sheet growth are expected to ultimately drive net interest income growth. Now, let's take a look at fee revenue and expense. We will provide more specificity regarding expectations in January.
Other non-interest income also increased during the quarter, due to an increase in the value of certain equity investments as well as increased gains associated with the sale of certain small dollar equipment loans and leases. Mortgage income decreased quarter-over-quarter, primarily due to mortgage servicing rights, valuation adjustments, partially offset by improved secondary market gains.
Service charges remained relatively stable, compared to the prior quarter. We attribute the decline to changes in customer behavior as well as customer benefits from enhancements to our overdraft practices, including transaction posting order. Card and ATM fees remained stable compared to the second quarter.
Debit and credit card spend remain above pre-pandemic levels as we continue to benefit from elevated account growth and increased economic activity in our footprint.
Given the timing of interest rate declines in and excluding the fourth quarter benefit from our EnerBank acquisition, we expect adjusted total revenue to be up modestly compared to the prior year, but this will ultimately be dependent on the timing and amount of PPP loan forgiveness. Let's move onto non-interest expense. Associate headcount also increased by positions during the quarter with the vast majority of those within revenue producing businesses.
Further, exceptional performance, particularly in credit, is also contributing to higher incentive compensation. We will continue to prudently manage expenses, while investing in technology, products and people to grow our business. From an asset quality standpoint, we delivered an exceptionally strong quarter as overall credit continues to perform better than expected, reflecting continued broad-based improvement across virtually all portfolios and continued recoveries associated with strong collateral asset values.
Annualized net charge-offs decreased 9 basis points during the quarter to 14 basis points, representing the company's lowest level on record post our merger of equals. In addition to lower charge-offs, non-performing loans and business services criticized loans also improved, while total delinquencies remain unchanged during the quarter.
Our allowance for credit losses declined 20 basis points to 1. Excluding PPP loans, our allowance for credit losses was 1. The decline in the allowance reflects better-than-expected credit trends and the continued constructive outlook on the economy.
Future levels of the allowance will depend on the timing of charge-offs, greater certainty with respect to the resolution of remaining risk to credit losses as well as the integration of EnerBank.
Year-to-date net charge-offs are 25 basis points, and we expect full-year net charge-offs to approximate at same level, which includes the impact of EnerBank and excludes the benefit of any future recoveries that may occur. With respect to capital, our common equity Tier 1 ratio increased approximately 40 basis points to an estimated As previously noted, we continue to prioritize the utilization of our capital for organic growth and non-bank acquisitions like the EnerBank and Sabal that propel future growth.
Beyond that, we use share repurchases to manage our capital levels. We anticipate being back in the repurchase market this quarter and expect to manage common equity Tier 1 to the midpoint of our 9.
So wrapping up on the next slide, our expectations, which we've already addressed. In summary, we are very pleased with our third quarter results and are poised for growth as the economic recovery continues.
Pre-tax, pre-provision income remain strong; expenses are well controlled; credit quality is outperforming expectations; capital and liquidity are solid; and we are optimistic about the pace of the economic recovery in our markets. Thank you. I wanted to ask about the loan growth. And I was wondering, if you could just talk about where the loan growth is coming from on the commercial side.
And is it more a function of the new account growth that you're seeing? So I'd say a couple of things. First of all, we are beginning to see a little improvement in line utilization. Line utilization was up 30 basis points in the quarter and that trend is continuing through the first couple of weeks of the fourth quarter. Production is up to levels consistent with pre-pandemic levels and essentially two times what we are experiencing about a year ago. Growth is occurring, and some of our specialized industry businesses, transportation, healthcare, financial services, technology and defense are all generating and finding new opportunities and our pipelines are again back at pre-pandemic levels and two times essentially what they were about a year ago.
So good activity despite labor shortages, supply chain issues, constraining the economy a bit. Our markets are doing well. Our customers have a positive outlook on the economy and the future. And as a result, we are beginning to experience some loan growth and feel good about prospects for Great, that's helpful. Can I -- let me ask about deposit betas.
In your asset sensitivity model, can you just talk about what you're assuming for deposit betas today versus how that compares to last time the Fed was raising rates?
Well, Peter, this is David. Hey, thanks, good morning guys. David, I wanted to ask you to expand a little bit more on your -- just how you're thinking about that long-term repositioning. And so, this is always a back and forth here between keeping that income and positioning for higher rates. So as you think forward and as we get closer to hopeful rates going up, what do you -- where do you want to be positioned at that point in terms of the asset sensitivity profile?
So our goal is never really to take a lot of interest rate risk and try to win because we've taken big bets. We're trying to gauge where we think rates are going to be. Obviously in , we anticipated rates declining.
We put on our forward starting swaps to protect us in the down rate. In particular, we have some others -- some floors, but for the most part, they're in swap form. And that protection goes through where we start gauging the fact that there is a little bit more probability of rates starting to rise toward the end of '22, and we want to participate in that rate environment.
We locked in that gain, and we'll enjoy that benefit through the remainder of the swap period. That was good -- that is a good new slide, and just on EnerBank to that point about it, can you just help us understand like what you think the originations could be as you look forward and to next couple of years like what the pace of origination could look like?
I know it's going to depend on the environment, but it seems like you can definitely continue to take share as you build that book up. So it's a -- there is a great opportunity for us to really leverage their technology. So we don't get the fee that is paid by the dealer, which is deferred and amortized as a yield adjustment over time.
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