David J. Turner
Senior Executive Vice President, Chief Financial Officer at Regions Financial
Thank you, John.
Let's start with the balance sheet. Average and ending loans decreased modestly on a sequential quarter basis. Within the business portfolio, average loans declined 1%, as modest increases associated with funding previously approved in investor real estate construction loans were offset by declines in C&I lending. Approximately $870 million of C&I loans were refinanced off balance sheet through the debt capital markets during the quarter. Average consumer loans remained relatively stable, as growth in residential mortgage, EnerBank and consumer credit, card were offset by declines in home equity and run-off portfolios. We expect 2024 average loans to be stable to down modestly compared to 2023.
From a deposit standpoint, deposits increased on average and ending basis, which is typical for the first quarter tax refund season. In the second quarter, we expect to see declines in overall balances, reflecting the impact of tax payments. The mix of deposits continue to shift from non-interest-bearing to interest-bearing products, though, the pace of remixing has continued to slow. Our analysis of the trends and overall customer spending behavior gives us confidence that by mid-year, we will have a non-interest-bearing mix in the low-30% area, which corresponds to approximately $1 billion to $2 billion of potential further decline in low interest savings and checking balances.
So, let's shift to net interest income. As expected, net interest income declined by approximately 4% linked quarter and the net interest margin declined 5 basis points. Deposit remixing and cost increases continue to pressure net interest income. The full rising rate cycle interest-bearing deposit beta is now 43%, and we continue to expect the peak in the mid-40% range. Offsetting this pressure, asset yields continue to benefit from higher rates through the maturity and replacement of lower yielding fixed rate loans and securities. We expect net interest income to reach a bottom in the second quarter, followed by growth over the second half of the year, as deposit trends continue to improve and the benefits of fixed rate asset turnover persist.
The narrow 2024 net interest income range between $4.7 billion and $4.8 billion portrays a well protected profile under a wide array of possible economic outcomes. Performance in the range will be driven mostly by our ability to reprice deposits. A relatively small portion of interest-bearing deposit balances is responsible for the majority of the deposit cost increase this cycle, mostly index deposits and CDs. We have taken steps to increase flexibility, such as shortening promotional CD maturities and reducing promotional rates. If the Fed remains on hold, net interest income likely falls in the lower half of the range, assuming modest incremental funding cost pressure.
So, let's take a look at fee revenue, which experienced strong performance this quarter. Adjusted non-interest income increased 6% during the quarter, as most categories experienced growth, particularly capital markets. Improvement in capital markets was driven by increased real estate, debt capital markets, and M&A activity. A portion of both real estate and M&A activities were pushed into the first quarter from year-end, as clients delayed transactions. Late in the first quarter, we also closed on the bulk purchase of the rights to service $8 billion of residential mortgage loans. We have a low-cost servicing model, so you'll see us continue to look for additional opportunities. We continue to expect full year 2024 adjusted non-interest income to be between $2.3 billion and $2.4 billion.
Let's move on to non-interest expense. Adjusted non-interest expense increased 6% compared to the prior quarter, driven primarily by seasonal HR-related expenses and production-based incentive payments. Operational losses also ticked up during the quarter. The increase is attributable to check-related warranty claims from deposits that occurred last year. Despite this increase, current activity has normalized to expected levels, and we continue to expect full year 2024 operational losses to be approximately $100 million. 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 vendors spend. We continue to expect full year 2024 adjusted non-interest expenses to be approximately $4.1 billion, with first quarter representing the high-water mark for the year.
From an asset quality standpoint, overall credit performance continues to normalize as expected. Adjusted net charge-offs increased 11 basis points, driven primarily by a large legacy restaurant credit and one commercial manufacturing credit. As a reminder, we exited our fast casual restaurant vertical in 2019, and the remaining portfolio is relatively small.
Total non-performing loans and business services criticized loans increased during the quarter and continued to normalize towards historical averages, while total delinquencies improved 11%. Non-performing loans as a percentage of total loans increased to 94 basis points, due primarily to downgrades within industries previously identified as under stress. We expect NPLs to continue to normalize towards historical averages.
Provision expense was $152 million or $31 million in excessive net charge-offs, resulting in a 6 basis-point increase in the allowance for credit loss ratio to 1.79%. The increase to our allowance was primarily due to adverse risk migration and continued credit quality normalization, and incrementally higher qualitative adjustments for risk in certain portfolios previously identified as under stress. We continued to expect our full year 2024 net charge-off ratio to be between 40 basis points and 50 basis points.
Let's turn to capital and liquidity. We expect to maintain our Common Equity Tier 1 ratio consistent with current levels over the near term. This level will provide sufficient flexibility to meet proposed changes along with the implementation timeline, while supporting strategic growth objectives and allowing us to continue to increase the dividend, commensurate with earnings. We ended the quarter with an estimated Common Equity Tier 1 ratio of 10.3%, while executing $102 million in share repurchases and $220 million in common dividends during the quarter.
With that, we'll move to the Q&A portion of the call.
