James J. Herzog
Executive Vice President and Chief Financial Officer at Comerica
Thanks, Curt, and good morning, everyone. Turning to slide 5, as Curt just mentioned, we had solid broad-based loan growth, which was partly offset by an $852 million decline in Mortgage Banker and a $354 million decrease in PPP loans. Loan commitments increased in most businesses and the line utilization rate held steady at about 46%. Positive trends continued in general Middle Market and Corporate Banking, which both grew over $400 million. Excluding PPP, general Middle Market loans increased $562 million or 5%.
Higher commodity prices and growing inventory levels are in part resulting in increasing working capital needs. M&A and capex are also drivers. We continue to have great success in our equity fund services business, where we provide capital call and subscription lines to venture capital and private equity firms. The pipeline is strong and the activity remains high. The increase in National Dealer Services loans included a small increase in floor plan loans, which totaled a little over $600 million and remains extraordinarily low relative to the typical historical run rate of about $4 billion. We expect it will take some time for inventory levels to rebuild as supply issues are resolved and pent-up demand is satisfied.
Environmental Services continued to build on the strong growth we've seen over the past year. Opportunities are abundant, and we continue to attract new relationships, resulting in record loans and strong syndication activity. Mortgage Banker declined significantly as refi activity slowed with higher rates and home sales fell to seasonal levels. However, we expect to see an increase in purchase activity as we enter the spring selling season. Also, housing supply is expected to grow as we progress through the year. We believe we are well-positioned as 71% of our mix is purchase related.
Loan yields decreased 4 basis points as the benefit from higher rates was more than offset by lower PPP revenue. As the bulk of our portfolio is floating rate and largely reprices at the end of the month, the full benefit of the recent rate increase is expected to be reflected in the second quarter. As shown on slide 6, average deposits declined in the first quarter, mostly due to seasonality. This follows record deposit growth in the fourth quarter when we had the highest quarter-over-quarter growth rate amongst our peers. Deposits were up 11% year-over-year, and we believe deposits will remain elevated, but slowly declined as the Fed increases interest rates and significantly shrinks its balance sheet.
The average cost of interest-bearing deposits remained at an all-time low of 5 basis points. With the loan-to-deposit ratio for us and our peers at low levels, we expect deposit rates to adjust slowly as rates rise. Slide 7 provides details on our securities portfolio. Our goal is to prudently reduce our asset sensitivity as rates rise. In part, this can be achieved through deploying excess liquidity by opportunistically growing the securities book. Through the first quarter, we purchased $3.6 billion worth of securities with average yields of about 250 basis points, with recent purchases exceeding 300 basis points.
The larger portfolio, and, to a lesser extent, favorable new purchase yields, resulted in a $6 million increase in securities income. Holding balances from rate steady at the March 31 level, second quarter securities revenue would increase to about $90 million. We will continue to assess relative value between MBS and swaps as we execute our balance sheet hedging, potentially leading to some incremental growth in the portfolio although likely at a reduced pace. The rising rates resulted in a mark-to-market impact of $965 million, which runs through OCI and affects our book value, but not our regulatory capital ratios.
This accounting treatment does not capture the significant economic value created by higher rates on other parts of our balance sheet that are not marked such as deposits. Of note, we typically hold these securities to maturity, in which case, the unrealized losses should be recouped. Turning to slide 8, net interest income decreased $5 million, including a $10 million decline in PPP income. The net interest margin increased 15 basis points mainly due to a decrease in excess liquidity. As far as the details, the decline in PPP income, two fewer days in the quarter and lower nonaccrual activity together had a $19 million impact.
This was partly offset by growth in non-PPP loans, which added $5 million. The benefit from higher rates was $4 million and included a partial offset from lower rates on floors. With the average rate on floors now at 59 basis points, floors become less relevant as rates rise. As I mentioned, the increase in the size of the securities portfolio at higher yields added $6 million. The decrease in balances of the Fed reduced net interest income by $1 million and added 17 basis points to the margin. Fed deposits remained high at over $17 billion and weighed heavily on the margin with an impact of 52 basis points. As far as credit, which is outlined on slide 9, our metrics remain excellent, including net charge-offs of only 6 basis points. Gross charge-offs declined while recoveries decreased from elevated levels of recent quarters. Criticized and non-accrual loans remain low.
Our provision was a credit of $11 million. Sustained strong credit metrics and a continuing favorable economic forecast, albeit with elements of uncertainty, resulted in a modest reduction in the allowance for credit losses to 1.21% of loans. Through the cycles, our credit performance relative to the industry has been a key differentiator. With our consistent disciplined approach to credit, we believe we could continue to outperform in the event we encounter a recessionary environment. We are closely monitoring the portfolio, looking for potential signs of stress from supply chain disruptions, labor constraints and inflation.
Overall, our customers have been able to manage through these challenges, performing well and maintaining their strong balance sheets. Non-interest income, as outlined on slide 10; warrant-related income decreased $14 million following elevated gains on monetizations in the fourth quarter. In addition, deferred comp, which is offset in expenses, decreased $12 million to a negative $7 million. Derivative income declined $5 million due to a $6 million change to the credit valuation adjustment, mostly related to higher energy prices impacting our customers' positions.
Several customer-related categories, which reached record levels in the fourth quarter were challenged by seasonal factors, market performance and the slower economic environment in January attributed to Omicron. This included a decline in commercial lending fees, particularly syndications, fiduciary income and card. As Curt mentioned, we believe activity will improve as we progress through the year. We continue to maintain our expense discipline as we position for the future growth, as shown on slide 11. Total expenses decreased $13 million in the quarter.
Salaries and benefits decreased $3 million, including the $12 million decrease in deferred comp, which is offset in non-interest income. Performance-based incentives were lower as we reset targets to normal levels. Seasonal factors included annual stock comp, higher payroll taxes and lower staff insurance. Of note, our staff levels increased slightly as we are successfully retaining and attracting talent in a very competitive market. Occupancy and advertising were seasonally lower. Also, legal expenses declined following the elevated year-end activity.
Lower outside processing is partly related to slower card activity, and operational losses and FDIC expenses, which are difficult to predict, were at elevated levels. We kicked off certain initiatives related to modernization, as Curt described, which increased expenses by $6 million specifically related to consulting, severance and asset impairment. This is a journey, which includes transformation of our retail banking delivery model, alignment of corporate facilities and technology optimization. We look forward to providing more information as these initiatives form.
The cost savings generated are expected to be reinvested as we continue to evolve. As always, our goal is to prudently manage expenses, while enhancing our customers' and colleagues' experiences. Slide 12 provides details on capital management. Loan and securities portfolio growth, the impact from customer derivatives, combined with share repurchases resulted in a decrease in our CET1 ratio to an estimated 9.93%. We continue to closely monitor loan trends and capital generation as we focus on our 10% target.
As always, our priority is to use our capital to support our capital -- customers and drive growth while providing an attractive return to shareholders. Slide 13 provides an overview of our interest rate sensitivity and the benefit of the rising rate environment. Our standard model assumes a non-parallel rise in rates with a dynamic balance sheet. Based on the balance sheet as of March 31, we estimate a $160 million increase in annual net interest income over 12 months as rates gradually rise 100 basis points and the benefit would be slightly greater again in year two. We've also provided various alternative scenarios.
For the purpose of providing an outlook, for 2022 net interest income, we added the expected 50 basis point rise in May using swaps and securities at March 31 levels and our outlook for loan and deposit activity for the remainder of the year. In this scenario, we expect net interest income to increase by more than 13% relative to 2021 and increase 15% in the second quarter relative to the first quarter. Our outlook for 2022 is on slide 14, and assumes the economy remains strong with gradual improvement of supply chain and labor challenges. Aside from the significant upside from rates, our outlook for the full year is unchanged from our January earnings call.
There is no change in our expectation for broad-based average loan growth on a year-over-year basis in the mid-single-digit range, excluding the decline in PPP loans. This includes a decline in Mortgage Banker from the continued normalization of refi volumes and lower national dealer due to a slow rebound as a result of supply chain issues. Including PPP, average loans year-over-year are expected to be stable. This outlook reflects our robust pipeline and positive momentum in many businesses. Relative to the first quarter, we expect average loans to grow 1% to 2% each quarter, with a seasonal pickup in Mortgage Banker along with growth in nearly every business line.
Post the seasonal decline in the first quarter, our base assumption is that deposits are expected to modestly decline for the remainder of the year, with modest growth in wealth management and retail more than offset by a moderate decline in commercial deposits. However, the magnitude may be impacted by the pace of Fed tightening and economic trends as these are major drivers for deposits. I already reviewed our net interest income expectations, but note that rate increases beyond May and the growth of our securities and swap portfolios present additional upside.
Credit quality is expected to remain strong with net charge-offs continuing to trend to the lower end of our normal 20 basis points to 40 basis points. Assuming sustained economic strength and the impacts from supply chain issues, labor constraints and inflation remain manageable, we expect criticized and non-accrual loans to remain low. As far as non-interest income, there is no change to our outlook. 2021 was the highest on record and the level of some categories are unlikely to repeat in 2022, such as warrant-related activity, derivative income, including favorable CBA, stimulus-related card fees and deferred compensation.
For the remainder of the year, we expect significant broad-based growth in customer-driven fee categories as activity picks up. This includes card, deposit service charges, commercial lending fees, warrants as well as fiduciary, which benefits from tax filings in the second quarter. In addition, deferred comp and securities gains and losses are difficult to predict, therefore, we assume will not repeat. We continue to expect low single digits increase in 2022 expenses. Second quarter expenses are expected to be relatively stable relative to the first quarter.
Salary and benefits are expected to decrease modestly as the first quarter annual stock comp and lower payroll taxes are mostly offset by merit, staff insurance and added staff as well as deferred comp. Outside of salaries and benefits, we expect higher advertising due to seasonality, outside processing tied to revenue and technology expense to be mostly offset by lower operating losses. We expect the tax rate to be 22% to 23%, excluding discrete items. And finally, as I indicated on the previous slide, we are focused on our CET1 target of 10% as we monitor loan growth trends.
Now I'll turn the call back to Curt.