If you turn on Slide 7, I'll start with a balance sheet review followed by a discussion of third quarter earnings trends. Average loans increased 0.8% compared with the second quarter driven by growth in other retail loans, primarily installment loans as well as growth in credit card and residential mortgages. This growth was partially offset by lower commercial loan balances which were impacted by lower levels of PPP loans. At September 30th, PPP loan balances totaled $2.4 billion, compared to $4.9 billion at June 30.
Excluding PPP loans, third quarter average loans grew by 1.8% on a linked quarter basis.
Turning to Slide 8, average deposits increased to 0.5% compared with the second quarter and 6.4% compared with a year ago, on both a linked quarter and year-over-year basis, we continue to benefit from favorable mix shift, as average noninterest bearing deposits increased while higher cost time deposits declined. Slide 9 shows credit quality trends; nonperforming assets declined on both a linked quarter and year-over-year basis, and our net charge-off ratio hit a record low of 20 basis points.
Our reserve release was $310 million this quarter, primarily reflecting strong credit quality metrics.
Our allowance for credit losses as of September 30th totaled $6.3 billion or 2.1% of loans. The allowance level reflected our best estimate of the economic outlook and trajectory of credit quality within the portfolios. Slide 10 provides an earnings summary. In the third quarter of 2021, we earned $1.30 per diluted share. These results include a reserve release of $310 million.
Turning to Slide 11, net interest income on a fully taxable equivalent basis of $3.2 billion increased by 1% compared with the second quarter, the growth was primarily driven by higher loan fees associated with the Paycheck Protection Program.
Excluding PPP related fees, net interest income would have been stable, reflecting lower loan yields, and the impact of changing loan mix offset by the beneficial impact of core loan growth, lower premium amortization and an additional day in the quarter.
Our net interest margin was stable compared with the second quarter. Slide 12 highlights trends in noninterest income, compared with a year ago noninterest income declined 0.7% as decreases in mortgage revenue and commercial products revenue more than offset strong growth in payments revenue, trust and investment management fees, deposit service charges and treasury management fees. On a linked quarter basis, noninterest income increased 2.8% reflected higher than expected payments revenue and a 20% increase in mortgage revenue driven by growth in production volume and related gain on sale margins, as well as higher loan sales. Slide 13 provides information on our payment services business.
Our payments business continues to benefit from improving economic conditions and spend activity. In the third quarter, sales volumes for both our credit card and our merchant processing businesses exceeded the pandemic compared period in 2019, while CPS volume was about in line.
As expected, prepaid card volume declined in the third quarter as the impact of government related stimulus continues to diminish. The reduced prepaid volume resulted in a slight decline in credit and debit card revenue on a linked quarter basis.
However, corporate payment revenues increased by 13%, which was better than expected driven by improving business spend activity. Merchant processing revenue increased by 4.8% due to higher merchant and equipment fees as well as higher sales volumes.
Turning to slide 14, noninterest expense increased 1.2% compared to the second quarter. This increase primarily reflected higher revenue related compensation and performance based incentives. Slide 15 highlights our capital position.
Our common equity Tier 1 capital ratio at September 30 was 10.2%, which increased slightly compared to June 30. At the beginning of the third quarter, we suspended our share buyback program due to our recent announcement that we have agreed to acquire MUFG Union Bank, we expect that our share repurchase program will be deferred until the second quarter of 2022. After the closing of the acquisition, we expect to operate at a CET1 capital ratio between our target ratio and 9.0%. I will now provide some forward looking guidance.
As PPP winds down and we approach the end of the forgiveness period, we expect PPP fees to decline $60 million to $70 million in the fourth quarter compared with the third quarter.
Excluding the impact of PPP fees, we expect fully taxable equivalent net interest income to be relatively stable on a linked quarter basis.
We expect PPP to be immaterial to both net interest income and the net interest margin in 2022. In the fourth quarter, we expect total payments revenue trends to continue to strengthen driven by improving sales volumes.
However, the fourth quarter is typically seasonally lower than the third quarter, which affects lead quarter comparisons. In the fourth quarter, we expect to see a seasonal increase in amortization of tax advantaged investments of approximately $60 million, as well as some seasonal impacts in marketing and business investments. Credit quality remains strong.
Over the next few quarters, we expect the net charge-off ratio to remain lower than normal.
For the full year of 2021, we expect our taxable equivalent tax rate to be approximately 22%. I'll hand it back to Andy for closing remarks.