Vice Chairman and CFO at U.S. Bancorp
Thanks, Andy. If you turn to slide 8, I'll start with the balance sheet review followed by a discussion of second-quarter earnings trend. Average loans increased 3.6% compared to the first quarter, driven by 6.9% growth in commercial loans, 4.1% growth in credit card, and 3.6% growth in mortgage loans. Commercial loan growth reflected increased business activity and higher utilization rates across both large corporate and middle market portfolios. Pipelines are strong going into the third quarter and working capital needs remain elevated. In the retail portfolio we saw good growth in credit card balances reflecting strong spending activity and typical seasonal trends. Purchase mortgage market share gains and lower prepayment activity continue to support residential mortgage balance growth.
Turning to Slide 9. Total average deposits increased by 0.5% compared with the first quarter. Growth in interest bearing deposits more than offset the impact of lower balances of non-interest bearing deposits reflecting the rising interest rate environment. Total average deposits increased by 6.4% compared with a year ago. Slide 10 shows credit quality trends, which continued to be strong across our loan portfolios. The ratio of nonperforming assets to loans and other real estate was 0.23% at June 30 compared to -- with 0.25% at March 31 and 0.36% a year ago. Our second quarter net charge-off ratio of 0.20% improved slightly versus the first quarter level 0.21% and was lower compared with the second quarter of 2021 level of 0.25%.
Credit performance across our commercial and retail portfolios continues to be strong. On a linked-quarter basis both early and late stage delinquencies decreased for the total portfolio. Our allowance for credit losses as of June 30 totaled $6.3 billion or 1.88% of period end loans. Slide 11 provides an earnings summary. In the second quarter, we reported $1.09[phonetic] per diluted share excluding $0.10 per share of merger and integration charges related to the planned acquisition of MUFG Union Bank.
Turning to slide 12 net interest income on a fully taxable equivalent basis totaled $3.5 billion, representing an 8.3% increase compared with the first quarter and a 9.5% increase from a year ago. Linked quarter growth was driven by strong earning asset growth and a 15 basis point increase in the net interest margin. Slide 13 highlights trends in non-interest income. Non-interest income grew 6.3% on a linked quarter basis, but declined by 2.7% from a year ago as lower mortgage banking revenue more than offset strong performance and other fee businesses. The decline in mortgage banking revenue primarily reflected lower refinancing activity in the market, which continues to pressure total application volumes and related gain on sale margins.
In the second quarter, total payment fee revenue increased by 9.7% compared with the year earlier, reflecting strong underlying business trends supported by investments we are making. Slide 14 provides linked quarter and year-over-year revenue growth trends for our three payments businesses. Because of the cyclical nature of our payments businesses we believe year over year trends are a better indicator of underlying business performance in a normal environment. Credit and debit card revenue increased 0.8% on a year-over-year basis as the impact of higher credit and debit card volume was offset by lower prepaid card activity.
Excluding prepaid card revenue, credit and debit card revenue, fee revenue would have increased 10.1% compared with the second quarter of 2021. Year-over-year credit and debit card revenue growth rates continued to be negatively impacted by the decline in prepaid card revenue as the benefit of government stimulus has dissipated. We provide detail on prepaid card revenue over the past five quarters in the upper right hand quadrant. While prepaid card revenue is approaching a run rate on a linked quarter basis, it will impact year-over-year credit and debit card revenue comparisons, through the end of 2022.
The bottom half of the slide illustrates the strong year-over-year growth rates in both merchant processing and corporate payment fee revenue over the past last several quarters. While we expect the year-over-year growth rates to moderate from current levels, we continue to believe that both merchant processing and credit and corporate payment fee revenue can grow at a high single-digit pace on a year-over-year basis in a post-pandemic environment. Slide 15 provides some additional information on our payment services businesses. On the right side of the slide, you can see that the strong momentum we are seeing in tech led revenue growth within our merchant acquiring business.
In the second quarter tech led merchant revenue which accounted for 27% of the total merchant acquiring revenue was 13% higher than a year ago and 43% higher with then the comparable 2019 period. A key to that trajectory is the strong growth we have seen and new tech led partnerships. In the second quarter new tech led partnerships totaled 1.6x the number of new partnerships, we acquired for the entire year of 2019 and we continue to add to that customer distribution baseline. Turning to slide 16, non-interest expense increased by 0.7% on a linked quarter basis excluding merger and integration costs associated with the pending acquisition of Union Bank.
The change in expense was driven by higher compensation expense, marketing and business development expense, and other non-interest expenses, partially offset by lower employee benefit expense and other expense categories. The higher compensation expense was driven by the impact of seasonal merit increases and one additional day in the quarter as well as variable compensation tied to revenue growth. Slide 17 highlights our capital position. Our common equity Tier 1 capital ratio at June 30 was 9.7%. As a reminder, at the beginning of the third quarter of 2021, we suspended our share buyback program due to the pending acquisition of Union Bank.
After the closing of the acquisition, we expect to operate at a CET1 capital ratio of approximately 8.5%. We continue to expect that our share repurchase program will be deferred until our CET1 ratio reaches 9.0% following the pending deal close. On slide 18. I'll now provide some forward-looking guidance for US Bank on a standalone basis. This guidance does not include any potential impact from Union Bank. Let me start with the full year 2022 guidance. We have updated our interest rate expectations to be consistent with the market expectations. We continue to expect total net revenue to increased 5.6% compared with 2021 given our revised interest rate assumptions we now expect low to mid teen growth -- low to mid teen growth in taxable equivalent net interest income compared with our previous estimate of 8% to 11%.
We expect higher rates to pressure mortgage application volumes more -- more than previously anticipated, which will negatively impact our mortgage banking revenue. We now expect fee income to be slightly lower for the full year of 2022 compared with our previous expectation that fee revenue would be stable. We continue to expect positive operating leverage of at least 200 basis points in 2022 excluding the impact of merger and integration-related costs associated with the Union Bank transaction. For the full year of 2022, we expect our taxable equivalent tax rate to be approximately 22%.
Now, I'll provide guidance for the third quarter. We expect total revenue to grow 3% to 5% on a linked quarter basis. In the third quarter we expect linked quarter, non-interest expense growth of 2.3% excluding merger and integration-related costs as we prepare for the Union Bank transaction. Credit quality remains strong. Over the next few quarters, we expect the net charge off ratio to remain lower than historical levels, but will continue to normalize over time. Adjustments to our loan loss reserve in the near-term will primarily reflect loan growth and changes in the economic outlook. If you turn to slide 19. I'll provide an update on our previously announced pending acquisition of Union Bank.
In September of 2021, we announced that we had entered into a definitive agreement to acquire the core regional banking franchise of MUFG Union Bank. We continued to make significant progress in planning for closing the deal in the second half of 2022 while we await regulatory approval. As you know, regulatory approvals are not within the company's control and may impact the timing of the closing of the deal. As a reminder we expect to close on the deal approximately 45 days after being granted US regulatory approval. Because this timing would likely indicate a late third quarter or early fourth quarter close, we believe it is prudent to shift the system conversion date to the first half of 2023.
The financial merits of the deal remain intact. Our original EPS accretion estimates are unchanged and we continue to estimate the acquisition will generate an internal rate of return of approximately 20%, which is well above our cost of capital. I'll hand it back to Andy for closing remarks.