Jim Herzog
Executive Vice President and Chief Financial Officer at Comerica
Thanks Curt, and good morning, everyone. Turning to Slide 5. As Curt mentioned, we continue to have broad-based loan growth with balances increasing $1.1 billion. Favorable environmental factors and demonstrated expertise across a number of our specialty businesses drove our outstandings higher. Also loan commitment reduction was very strong, which can be a good indicator of future loan growth. As of quarter end, loan commitments increased almost $2.8 billion, or 5%, which outpaced loan draws resulting in a small decline in line utilization to about 45%.
Loans in our commercial real estate business increased over $350 million, as we funded construction of projects. Nearly all of the growth was in Class A multifamily or industrial projects, built by large developers that we know well, providing significant equity contributions. Credit quality in this business is excellent, criticized loans remained extremely low and we see no meaningful signs of negative migration.
National Dealer Services loans continued a slow rebound and grew over $200 million. This includes a $140 million increase in floor plan loans to $980 million. However, inventory levels remain low and these balances are well below our pre-COVID run rate. We have been benefiting from acquisition activity in this space. We still believe it will take some time for inventory levels to rebuild as supply issues are resolved and pent-up demand is satisfied.
Growth in Environmental Services and Corporate Banking resulted from a combination of new customers, M&A, as well as investment in working capital and capex. Wealth Management had a strong quarter with 3% loan growth in part due to customers' tax-related activities, such as 1031 exchanges. Average loans in both Equity Fund Services and Mortgage Banker Finance were down. In Equity Fund Services, following very strong growth in the past couple of quarters, we saw it moderate early in the quarter, the momentum resumed and period-end loans and total commitments were up.
Mortgage Banker average loans decreased $62 million and $657 million at quarter end, significantly muting our total period-end balances. Volumes in that business remain depressed due to higher interest rates and lack of housing inventory. Loan yields increased 100 basis points to 4.64% primarily reflecting the benefit from higher rates.
In line with expectations, Slide 6 shows our average deposits continue to decline. Customers put their excess liquidity to work and we prudently manage pricing related to non-relationship based deposits and highly rate-sensitive segments. We continue to see largest decreases in our interest bearing deposits, particularly in financial services, financial institutions and corporate banking businesses. Our strategy through this cycle has been the balance deposit pricing with our liquidity needs, while most importantly retaining our customer relationships. We have taken an agile and customized approach to finding that right balance. Our mix remains favorable at 57% non-interest bearing, reflecting the relationship and operational nature of our deposits.
Our overall liquidity position is strong with a loan-to-deposit ratio at 71% which is well below our historical average. We have significant capacity to support loan growth, including efficient borrowing channels available such as brokered deposits or Federal Home Loan Bank lines, which we began utilizing at the end of the quarter.
Interest-bearing deposit costs remained low at 20 basis points. With the year-to-date beta of only 7%, we do not expect to achieve a cumulative beta of 25% until sometime next year. Of course, the ultimate cumulative beta will depend on FOMC monetary actions in addition to loan and deposit activity.
Our securities portfolio continues to play an important role in achieving our asset sensitivity objectives. Slide 7 demonstrates the significant growth in balances and yield over the past year. Quarter-over quarter, average balances increased $1.5 billion, reflecting the full benefit of our second quarter purchases net of mark-to-market adjustments. Higher rates resulted in a mark-to-market of almost $1.2 billion at period end and this impact runs through OCI and affects our book value, but not our regulatory capital ratios. While we maintain the portfolios available for sale, mostly for liquidity purposes, we typically hold these securities to maturity, in which case the unrealized losses should not impact income.
As another avenue to provide liquidity for loan growth, we see securities purchases partway through the quarter, which contributed to period-end balances declining to $19.5 billion. As the portfolio shrinks, we plan to manage our asset sensitivity through additional swaps as needed. Over the past year, we have concentrated our purchases in agency CMBS with the goal of delivering more consistent cash flows with an average duration of slightly over five years. The larger average portfolio along with the favorable new purchase yields resulted in a $19 million increase in securities income.
Turning to Slide 8, net interest income increased to $146 million to a record $707 million and the net interest margin increased 80 basis points. The benefit from higher rates lifted [Phonetic] loan income $128 million and added 64 basis points to the margin. Although the rate environment has increased the cost of borrowing for our customers, we have not seen a meaningful increase in competitive pressure on spreads. Loan growth added $13 million and 2 basis points, one additional day in the quarter provided $4 million, as I mentioned, the increase in the size of the securities portfolio at higher yields added $19 million. As far as deposits at the Fed, higher rates combined with lower balances added $11 million and 26 basis points to the margin. Higher rates on our floating rate wholesale debt in addition to our subordinated debt offering, had a $15 million impact. Altogether, the rising rates provided a net benefit of $151 million to net interest income.
Credit quality remained excellent as outlined on Slide 9. Net charge-offs were only 10 basis points, well below historical averages. Criticized and non-accrual loans also stayed low. With the heightened economic uncertainty, our allowance for credit losses increased modestly to 1.21% of loans. Our provision increased to $28 million. As always, we are closely monitoring the portfolio for signs of stress and are proactive in our credit management. We have begun to see some signs of normalization in certain portfolios. With our consistent disciplined approach, as well as our relationship model and diverse customer base, we believe we are well positioned to manage through a recessionary environment.
Noninterest income increased $10 million or 4% as outlined on Slide 10. Deferred comp, which is offset in expenses increased $11 million and was still a headwind in absolute terms with a $3 million negative return for the quarter. Overall, fee generation remained strong, led by growth in derivative income of $6 million due to energy and interest rate-related activity, which included a $2 million increase in favorable CVA adjustments.
Brokered service fees grew as a result of increased money market funds revenue. This growth was partially offset by reductions in fiduciary income and card fees. Annual tax fees received in the second quarter and market activity impacted fiduciary income and a decline in volumes affected card fees.
Turning to expenses on Slide 11, our efficiency ratio improved 7 percentage points to 51% as we continue to maintain our expense discipline while revenue generation accelerates and we position for future growth. Salaries and benefits increased $13 million, primarily due to the $11 million change in deferred compensation, which is offset in noninterest income. Beyond deferred compensation, we saw an increase in performance-based incentives tied to our strong financial results. Of note, our staff levels were stable as we successfully retain and attract talent in this competitive market.
Occupancy expense increased $4 million, driven by seasonality and a new lease in our Farmington Hills location. Outside processing for our card programs, largely driven by rate-related pricing, increased $2 million. We made progress on certain modernization initiatives and incurred $7 million in costs, consistent with the second quarter expense. As previously discussed, this is a journey which includes transformation of our retail banking delivery model, alignment of corporate facilities and technology optimization. The cost savings generated are expected to be reinvested as we continue to evolve.
Slide 12 provides details on capital management. With record earnings, our strong capital generation outpaced capital needed to support loan and commitment growth. Thus, our CET1 ratio increased to an estimated 9.92%. As always, our priority is to use our capital to support our customers and drive growth, while providing an attractive return to our shareholders. We closely monitor loan and profitability trends as we balance maintaining our CET1 target of approximately 10% with our dividend and share repurchase strategy.
Our common equity declined in the third quarter as a result of the impact of OCI losses from our securities and swap portfolios. Excluding the AOCI losses, our common equity per share increased to $1.98 or over 3%. Also note that our tangible common equity was 4.82%, however, excluding AOCI, it increased to 9.12%.
Slide 13 provides an update on our interest rate sensitivity. Over the past year, we have been working to fulfill our strategy to lock in higher rates and achieve a strong and more predictable earnings stream through the rate cycle by reducing volatility to net interest income. Based on our standard model with a 100 basis point decrease in rates over 12 months, we have achieved our target for a low-single digit percent impact to net interest income and yet maintain some upside should rates continue to rise. We are now focused on smoothing the periods further out to maintain our target level of sensitivity, mainly through the purchase of forward-dated swaps.
Considering expected loan and deposit activity, including some acceleration of our deposit pricing, along with the September 30th forward curve, we forecast net interest income to grow by 4% to 5% in the fourth quarter relative to the third quarter. Full-year 2022 is expected to exceed 2021 by more than 33%. We utilized our model to provide scenarios, including a 100 basis point gradual increase in rates over a 12-month period, which resulted in an approximate $35 million increase in net interest income.
In addition, we modeled a catch-up of a 25% cumulative beta since -- when rates began to rise in March on top of the 100 basis point up scenario, which resulted in an estimated $35 million headwind to net interest income. Of course, there are many dynamics which may cause modeled results to differ from actual outcomes. Overall, we believe our predictability of earnings provides us the ability to more consistently invest in our business and thereby grow customers and revenue and provides a more compelling investment thesis for our shareholders.
Our outlook for the fourth quarter and full-year 2022 is on Slide 14 and assumes a continuation of the current economic environment. We are working on our 2023 financial plan and expect to provide our customary full-year guidance during our fourth quarter conference call, but I will offer some color as we go through each line item.
Loan growth has been robust so far this year, and we expect 2022 full-year loan growth to exceed 7%, excluding PPP loans. This includes our expectation for average loan growth of approximately 1% in the fourth quarter. Positive trends are expected in most of our businesses in the fourth quarter, however, at a more moderate pace given the slowdown in economic activity. Mortgage Banker is expected to continue to be a headwind. Assuming economic conditions do not change materially, we expect continued solid growth into next year.
We expect deposit trends to continue as customers draw down on deposits to support their businesses and in some cases seek higher yielding options. Looking into next year, the timing and the scale of deposit activity is expected to be highly influenced by Fed tightening actions and the economic environment.
As discussed in the previous slide, we project strong fourth quarter net interest income, up 4% to 5% over a record third quarter. As we think about 2023, we expect to benefit from higher rates and loan volume. On the other hand, deposit balances and pricing could put pressure on 2023 net interest income relative to the fourth quarter run rate. Regardless, we expect net interest income to be at another all-time high next year.
Credit quality has been excellent and we expect it to remain strong in the fourth quarter. Therefore, we forecast net charge-offs at the lower end of our normal range of 20 basis points to 40 basis points. We believe, we will begin to see gradual normalization, assuming the macroeconomic challenges remain manageable. We expect fourth quarter noninterest income to decline approximately 3% from strong third quarter levels. We expect pressures on derivatives given recent elevated levels, deposit service charges from higher ECA rates, a softening syndication market and equity trends may impact fiduciary revenue. This is expected to be partly offset by positive seasonal trends in areas such as card.
As we look into 2023, we expect noninterest income to grow as we start to see the benefit of our investments. We expect fourth quarter expenses to grow approximately 2% to 3%, including expenses tied to revenue generating related activity, such as outside processing for card. In addition, we expect seasonally higher occupancy, advertising, staff insurance as well as travel and entertainment expenses. This outlook excludes up to $25 million of modernization initiatives that we anticipate in the fourth quarter. We believe these strategic investments in our business will deliver value over time and are essential in meeting the evolving needs of our customers and colleagues.
In 2023, we expect moderately higher staffing levels as the tight labor market exists and we continue to make progress in implementing our revenue strategies. Given the market's performance, pension expenses likely to move significantly higher. We also anticipate inflationary factors to impact many areas such as salaries and benefits, along with higher FDIC expense.
In summary, based on our expectations for the fourth quarter and our performance to date, we believe we will produce very strong and record revenue results this year. We have driven robust loan growth and strong fee generation. In addition, we've benefited from higher rates while executing our hedging strategy and careful management of credit and expenses. We expect to carry our momentum into the fourth quarter and finish the year strong.
Now, I'll turn the call back to Curt.