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 grew 1.5% while ending loans grew 2% during the quarter. Average business loans increased 3% reflecting broad-based growth in corporate, middle market and real estate lending across our diversified and specialized portfolios. While still below pre-pandemic levels, commercial loan line utilization levels ended the quarter at approximately 43.9%, increasing 160 basis points over the prior quarter. Loan production also remains strong, linked-quarter commitments up approximately $1.6 billion. Average consumer loans declined 1% as increases in mortgage and other consumer were offset by declines in other categories. Within other consumer, InterBank loans grew approximately 2% compared to the fourth quarter. Looking forward, we expect full year 2022 average loan balances to grow 4% to 5% compared to 2021, and excluding PPP loans and consumer exit portfolios, we expect full year average loan balances to grow 9% to 10%.
So let's turn to deposits. Although, the pace of deposit growth has slowed, balances continue to increase seasonally this quarter to new record levels. Average consumer and wealth management deposits increased compared to the fourth quarter, our corporate deposits remained relatively stable. We are continuing to analyze our deposit base and pandemic related deposit increases. Approximately 35% of the increase or $15 billion is expected to be more stable with behavior similar to our core consumer deposit book. This segment is historically quite granular and generally rate insensitive and therefore can be relied upon to support longer term asset growth through the rate cycle. The remaining 65% of the deposit increases is a mixture of commercial and other customer types that are expected to be more rate sensitive or that we are less certain about their long-term behavior. We assume this segment may have all in beta of roughly 70%. This elevated beta assumption includes relationship repricing and some balances shifting from non-interest to interest bearing categories. It also reflects a range of $5 billion to $10 billion of balance reduction attributable to tightening monetary policy. The combination of these segments and our legacy deposit base represents significant upside for us as rates increase.
So let's shift to net interest income and margin. Net interest income was stable quarter-over-quarter. Excluding reduced contributions from PPP, net interest income grew 2% benefiting from solid loan growth and rising interest rates. Net interest income from PPP loans decreased $27 million from the prior quarter and will be less of a contributor going forward. Approximately 93% of estimated PPP fees have been recognized. Cash averaged $27 billion during the quarter and when combined with PPP reduced first quarter's reported margin by 58 basis points. Our adjusted margin was 3.43%, higher by 9 basis points versus the fourth quarter. The path for net interest income enters the second quarter with strong momentum from both balance sheet growth and higher interest rates. Excluding PPP, average loan balances grew 2% in the first quarter and a similar amount of growth is expected next quarter. Roughly $1.5 billion of securities were also added late in the quarter, further benefiting future periods. The recent run up in rates has certainly validated our decision to wait to deploy into securities and while not included in our current outlook, additional securities would provide incremental benefit. Higher short and long-term interest rates provided additional lift to net interest income in the first quarter and these benefits are expected to expand in the coming quarters.
Total net interest income is projected to increase 5% to 7% in the second quarter and is expected to accelerate throughout the year such that the fourth quarter net interest income is expected to be approximately 15% higher than our first quarter. Regions balance sheet is positioned to benefit meaningfully from higher interest rates. Over the first 100 basis points of rate tightening, each 25 basis point increase in the federal funds rate is projected to add between $60 million and $80 million over a full 12-month period. This benefit is supported by a large proportion of stable deposit funding and a significant amount of earning assets held in cash, which compares favorably to the industry overall.
Over a longer horizon, a more normal interest rate environment or roughly a 2.5% Fed funds rate will support our net interest margin goal of approximately 3.75%. While we have purposely retained leverage to higher interest rates during the period of low rates, we will attempt to manage a more normal interest rate risk profile as interest rate environment normalizes. The Fed's aggressive path for interest rates, gives us the opportunity to protect NII at attractive levels. We have begun this process by adding $4.7 billion year-to-date of forward starting received fixed swaps and a $1.5 billion of spot starting securities. This represents approximately 30% of the total hedging amount needed this cycle.
Now let's take a look at fee revenue and expense. Adjusted non-interest income decreased 5% from the prior quarter, primarily due to reduced HR asset valuations as well as lower capital markets and card and ATM fees. Within capital markets, M&A advisory activity was muted by seasonality as well as the timing of transactions. Pipelines remain robust but some deals have been pushed to later in the year. Additionally, debt and real estate capital markets were impacted by uncertainty surrounding rates, geopolitical tensions and volatility in credit spreads. However, we are seeing some stabilization in the loan and fixed income markets and anticipate conditions will improve in coming quarters. Further, the reduction in real estate capital markets activity was offset by the addition of Sabal Capital Partners for the full quarter. Similar to the corporate fixed income market refinance demand has been softer than expected in our agency multifamily finance business as investors assess a significant move in interest rates. We continue to expect capital markets to generate quarterly revenue of $90 million to $110 million excluding the impact of CVA and DVA. While we expect to be near the lower end of the range, next quarter we expect activity to pick up in the second half of the year.
Card and ATM fees reflect seasonally lower interchange on both debit and credit cards, in addition debit card fees were further impacted by fewer days in the quarter. Mortgage income remained relatively stable and included approximately $12 million in gains associated with previously repurchased Ginnie Mae loans sold during the quarter, while mortgage is anticipated to decline relative to 2021, it is still expected to remain a key contributor to fee revenue. Wealth management income also remained stable this quarter despite elevated market volatility. Service charges were also stable during the quarter, despite seasonal declines in NSF and overdraft related fees. The first phase of previously announced NSF and overdraft policy changes were effective at the end of the first quarter and the remaining changes will be implemented over the second and third quarters. These changes when combined with the previously implemented changes are expected to result in full year 2022 service charges of approximately $600 million and full year 2023 service charges of approximately $575 million. We expect 2022 adjusted total revenue to be up 4.5% to 5.5% compared to the prior year, driven primarily by growth in net interest income. This growth includes the impact of lower PPP related revenue and the anticipated impact of NSF and overdraft changes.
So let's move on to non-interest expense. Adjusted non-interest expenses decreased 4% in the quarter, driven by lower salaries and benefits expense and professional and legal fees. Salaries and benefits decreased 5% primarily due to lower incentive compensation, despite higher payroll taxes and 401(k) expense. Salaries and benefits also included the favorable impact of lower HR asset valuations. Professional and legal fees decreased significantly as elevated fees associated with our bolt-on M&A activity in the fourth quarter did not repeat. We will continue to prudently manage expenses while investing in technology, products and people to grow our business. As a result, our core expense base will grow. We expect 2022 adjusted non-interest expenses to be up 3% to 4% compared to 2021. Importantly, this includes the full year impact of recent acquisitions as well as anticipated inflationary impacts. We remain committed to generating positive operating leverage in 2022. Overall credit performance remained strong. Annualized net charge-offs increased 1 basis point to 21 basis points. Nonperforming loans continue to improve during the quarter and remain below pre-pandemic levels at just 37 basis points of total loans.
Our allowance for credit losses decreased 12 basis points to 1.67% of total loans, while the allowance as a percentage of nonperforming loans increased 97 percentage points to 446%. The decline in the allowance reflects ongoing improvement asset quality and continued resolution of pandemic issues, partially offset by loan growth and general economic volatility associated primarily with inflation and geopolitical unrest. The allowance reduction resulted in a net $36 million benefit to the provision. We expect credit losses to slowly begin to normalize in the back half of 2022 and currently expect full year net charge-offs to be in the 20 basis point to 30 basis point range. With respect to capital. We ended the quarter with our common equity Tier 1 ratio modestly lower at an estimated 9.4%, and we expect to maintain it near the midpoint of our 9.25% to 9.75% operating range.
So wrapping up on the next slide, our updated 2022 expectations, which we've already addressed. I do want to point out that these expectations do not include any additional security purchases, so that certainly provides the opportunity for incremental benefit. In closing, as John mentioned, we began 2022 with great momentum and despite geopolitical tensions and market uncertainty, we remain well positioned for growth as the economic recovery continues. Pre-tax pre-provision income remained strong. Expenses are well controlled. Credit risk is relatively benign. Capital and liquidity are solid, and we are optimistic about the pace of the economic recovery in our markets.
With that, we're happy to take your questions.