David J. Turner
Senior Executive Vice President and Chief Financial Officer at Regions Financial
Thank you, John. Let's start with the balance sheet. Average loans increased 1% sequentially or 9% year-over-year. Average business loans increased 2% compared to the prior quarter, reflecting high-quality broad-based growth. Average consumer loans declined 1% as growth in mortgage, interbank and credit card was offset by the strategic sale of consumer loans late in the third quarter and continued runoff of exit portfolios.
Looking forward, we expect 2023 ending loan growth of approximately 4%. From a deposit standpoint, as expected, deposits continued to normalize during the quarter, consistent with the rapidly rising rate environment. Average total consumer balances were modestly lower, primarily driven by higher balance customers seeking marginal investment alternatives. Meanwhile, the median consumer balance remains relatively stable, still about 50% above pre-pandemic levels.
Normalization was more pronounced than average corporate and commercial deposits, which were down 2% during the quarter. As anticipated, our business clients continue to optimize the level and structure of their liquidity position. We experienced remixing away from noninterest-bearing deposits to other options both on and off-balance sheet, including those offered through our treasury management platform. Ending deposit balances have declined approximately $7 billion year-over-year, in line with our previously provided 2022 expectations.
Looking forward, we do anticipate further deposit declines of approximately $3 billion to $5 billion in the first half of 2023, reflecting continued Federal Reserve balance sheet normalization, seasonal trends and late-cycle rate-seeking behavior. We expect to experience stabilization of deposit balances midyear with the potential for modest growth in the second half of the year. Our deliberate approach to managing liquidity allows for deposit normalization and growth in the balance sheet without the need for material wholesale borrowings in the near term.
So let's shift to net interest income and margin. Reflecting our asset-sensitive profile, net interest income grew to a record $1.4 billion this quarter, representing an 11% increase, while reported net interest margin increased 46 basis points to 3.99%, its highest level in the last 15 years. While deposit repricing continues to accelerate, the cycle to beta remains low at 14%. Importantly, our guidance for 2023 assumes a 35% full-cycle beta by year-end. There is uncertainty regarding full cycle deposit betas for the industry. However, we remain confident that our deposit composition will provide a meaningful competitive advantage.
Growth in net interest income is expected to continue until the Federal Reserve reaches the end of its tightening cycle. Once the Fed pauses, we would expect deposit costs to continue increasing for a couple more quarters. This equates to 1% to 3% net interest income growth in the first quarter and 13% to 15% growth in 2023, assuming the December 31 forward rate curve.
Earlier in 2022, we added a meaningful amount of hedges focused on protecting 2024 and 2025. The swaps become effective in the latter half of 2023 and 2024 and generally have a term of three years. Activity in the fourth quarter focused on extending that protection beyond 2025. We will look for attractive opportunities to continue to expand this protection. We have constructed the balance sheet to support a net interest margin range of 3.6% to 4% over the coming years, even if interest rates move back towards 1%. If rates remain elevated, our reported net interest margin is projected to surpass the high end of the range until deposits fully reprice.
So let's take a look at fee revenue and expense. Reported noninterest income includes $50 million of insurance proceeds related to a third quarter regulatory settlement. Excluding that, adjusted noninterest income declined 9% from the prior quarter as stability in wealth management income and a modest increase in card and ATM fees were offset by declines in other categories, mainly mortgage and capital markets.
Service charges declined 3%, due primarily to three fewer days in the fourth quarter versus the third. We expect to offer a grace period feature to cover overdrafts around midyear 2023 and when combined with our previously implemented enhancements will result in full year service charges of approximately $550 million. Within capital markets, increases in M&A fees were offset by declines in all other categories, including a negative $11 million CVA and DVA adjustment, despite an increase in servicing income, elevated interest rates and seasonally lower production drove total mortgage income lower during the quarter. With respect to outlook, we expect full year 2023 adjusted total revenue to be up 8% to 10% compared to 2022.
Let's move on to noninterest expense. Reported professional and legal expenses declined significantly driven by charges related to the settlement of a regulatory matter in the third quarter. Excluding this and other adjusted items, adjusted noninterest expenses increased 2% compared to the prior quarter. Salaries and benefits increased 2%, primarily due to an increase in associate head count during the fourth quarter and higher benefits expense. Equipment and software expenses increased 4%, reflecting increased technology investments. The fourth quarter level does provide a reasonable quarterly run rate for 2023. We expect full year 2023 adjusted noninterest expenses to be up 4.5% to 5.5%, and we expect to generate positive adjusted operating leverage of approximately 4%.
From an asset quality standpoint, overall credit performance remains broadly stable while experiencing expected normalization. Net charge-offs were 29 basis points in the quarter. Excluding the impact of the third quarter consumer loan sales, adjusted full year net charge-offs were 22 basis points. Nonperforming loans remained relatively stable quarter-over-quarter and were below pre-pandemic levels. Provision expense was $112 million this quarter, while the allowance for credit loss ratio remained unchanged at 1.63%. The increase to the allowance was due primarily to economic conditions, normalizing credit from historically low levels and loan growth. These increases were partially offset by the elimination of the hurricane-related reserves established last quarter.
Just to remind you, we believe our normalized charge-offs based on our current book of business should range from 35 to 45 basis points on an annual basis. However, due to the strength of the consumer and businesses, we expect our full year 2023 net charge-off ratio to be in the range of 25 to 35 basis points. From a capital standpoint, we ended the quarter with a common equity Tier 1 ratio at an estimated 9.6%, reflecting solid capital generation through earnings, partially offset by continued loan growth. Given the uncertain economic outlook, we plan to manage capital levels near the upper end of our 9.25% to 9.75% operating range over the near term.
So in closing, we delivered strong results in 2022 despite volatile economic conditions. We are in some of the strongest markets in the country. And while we remain vigilant to indicators of potential market contraction, we will continue to be a source of stability to our customers. Pre-tax pre-provision income remained strong. Expenses are well controlled. Credit remains broadly stable, and capital and liquidity are solid.
And with that, we'll move to the Q&A portion of the call.
