James J. Herzog
Executive Vice President and Chief Financial Officer at Comerica
Thanks, Curt, and good morning, everyone. Turning to Slide 6. Broad-based loan growth continued and exceeded expectations with average balances increasing $1.3 billion or 2.5%. Commitments, which can be a good indicator of future loan growth increased 5% with contributions from most businesses. Utilization remained stable at 45% and remained below historical averages, as commitment growth outperformed the increase in borrowings.
Loans in our Commercial Real Estate business increased nearly $880 million, as the pace of payoffs slowed, and we fund the construction projects already in the pipeline. Consistent with our selective strategy, 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 typically averaging between 35% and 40% of costs. Credit quality in this portfolio continues to be excellent.
Criticized loans remain extremely low, and we see no meaningful signs of negative migration. With our bankers that average 20 years of experience, a proven operational process, stringent underwriting and consistent credit monitoring, we believe our approach results in a conservative portfolio appropriately positioned to navigate the current environment. National Dealer Services loans grew over $300 million as a result of new relationships and continued M&A activity by our customers. We continue to see a slow rebound in inventory levels, and with consumer auto demand dampening and supply chain improving, the industry anticipates inventory levels to continue increasing throughout 2023.
Corporate Banking, Wealth Management and Entertainment also contributed significantly to our strong loan growth. Elevated interest rates, lack of housing inventory and normal seasonality continue to pressure Mortgage Banker as average loans declined $329 million for the quarter. MBA forecast show volumes remaining at depressed levels through the first quarter before potentially increasing. Loan yields increased 81 basis points to 5.45%, primarily reflecting the benefit from higher rates.
On Slide 7, average deposits declined as customers continue to utilize funds in their business and seek higher yield. However, balances ended the quarter better than we expected as we adjusted pricing in conjunction with aggressive Fed rate hikes. The strategy worked as period-end interest-bearing deposits increased to $31.5 billion. While we did see a modest uptick in non-interest-bearing deposits late in the year, we attributed largely to traditional seasonality with elevated business activities such as customers preparing to make tax payments and distributions in the first quarter.
We continue to believe future FOMC monetary actions are key to the timing of deposit stabilization. Our overall mix remained favorable with 56% of average non-interest-bearing deposits, largely in operational accounts reflecting our commercial orientation. Our liquidity position was strong with a loan-to-deposit ratio of 75% below our historical average. Beyond deposits, we have significant capacity to support loan growth, including repayments in our securities portfolio and efficient borrowing channels such as broker deposits and Federal Home Loan Bank lines.
Interest-bearing deposit costs averaged 97 basis points and reflected the pricing actions taken in the fourth quarter. Our dynamic pricing strategy will continue to balance our funding needs with customers' objectives and the rate environment. Average balances in our securities portfolio on Slide 8 declined $1.4 billion, primarily reflecting the full quarter effect of the third quarter's mark-to-market adjustments. In addition, we are not reinvesting paydowns and are instead repurposing those funds for loan growth. Relatively stable long-term rates resulted in a positive mark-to-market adjustment of $73 million at period end.
Our total net unrealized pretax loss of $3.0 billion affects our book value but not our regulatory capital ratios. While we maintain the portfolio as available-for-sale, mostly for liquidity purposes, we typically hold these securities to maturity, in which case the unrealized losses should not impact income. Despite a reduction in the overall portfolio size, securities income remained relatively stable due to higher-yielding MBS purchases in the third quarter, replacing the paydown of lower-yielding securities.
Turning to Slide 9. Net interest income increased $35 million to a record $742 million and the net interest margin increased 24 basis points. The benefit from higher rates lifted loan income of $102 million and added 52 basis points to the margin. Loan growth added $19 million and three basis points. Other portfolio dynamics added $1 million [Phonetic] or one basis point. And while the market remains competitive, we have successfully maintained our pricing discipline. As I mentioned, securities income was relatively stable. As far as deposits of the Fed, higher rates, partly offset by lower balances, added $5 million and 11 basis points to the margin.
Adjustments to deposit pricing reduced income by $63 million, while lower balances added one basis point. Higher rates on our floating rate wholesale debt in addition to our August subordinated debt offering had a $29 million impact. Altogether, the rise in rates provided a net benefit of $53 million in net interest income. Credit quality remained excellent, as outlined on Slide 10, with $4 million in net recoveries, along with a reduction in our already low criticized and non-accrual loans. In fact, inflows to non-accrual loans were only $16 million, one of the lowest levels in recent history.
Loan growth and the weakening economic forecast drove the provision expense up to $33 million, and the allowance for credit losses increased modestly to 1.24%. 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. Non-interest income on Slide 11 was robust at $278 million and was impacted by volatility in the rate environment and equity markets. Deferred comp, which is offset in expenses, increased $9 million, generating a $6 million return for the quarter. Higher rates earned on funds associated with settling our internal derivative portfolio drove risk management income of $8 million. The quarterly variance in the Visa Class B Total Return Swap, along with the increase in card and brokerage, all contributed positively to the quarter. As expected, customer derivative volumes slowed from recent strong activity, and there was a $1 million favorable CVA adjustment, which is a $4 million reduction from the third quarter.
Deposit service charges reflected positive momentum in treasury management, but they were more than offset by higher earnings credit and lower fees associated with deposit balances. Fiduciary income was negatively impacted by fees related to equity returns and BOLI had a seasonal decline of $2 million. Despite this quarter's fluctuations, we have a solid core product set delivering a strong level of non-capital consuming fee income with promising growth potential.
Turning to expenses on Slide 12. We've made significant progress towards our modernization objectives, consolidating banking centers, enhancing corporate facilities and achieving an important milestone in migrating our technology. In all, we incurred $18 million in expenses for the quarter, which slowed the estimate we previously provided due to better-than-expected severance and asset write-downs. Excluding modernization and deferred compensation, which is fully offset, non-interest expenses increased $19 million.
In support of our growth initiatives, we successfully attracted talent and continue to invest in products, further elevating our customer experience. Increases in T&E, legal and marketing were correlated with the strong business activity in the fourth quarter and driving future revenue with initiatives such as Retail Reimagined. Foundational investments in our infrastructure enhanced controls and compliance in this evolving landscape as well as making us more nimble with regards to technology development. We have some inflationary pressures, including salaries for new staff and recent merit increases and saw seasonal increases in occupancy, marketing and other related expenses. Overall, we successfully balanced investments and other pressures with accelerated revenue growth, resulting in a solid efficiency ratio of 53%.
Slide 13 provides details on capital management. With record earnings, our strong capital generation outpaced capital needed for loan growth, increasing our CET1 ratio to an estimated 10.02%. 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 growth, profitability and credit trends as we balance maintaining our CET1 target of approximately 10% with our dividend and share repurchase strategy. Our common equity increased 2%, benefiting from strong profitability and the impact from OCI losses was minor. Excluding the AOCI losses, our common equity per share increased over 3%.
Also, note that our tangible common equity ratio was 4.89%. However, excluding AOCI, it increased to 9.30%. Our outlook for 2023 is on Slide 14 and assumes no significant change in the economic environment. We expect loan momentum to continue and produce another year of strong growth across all of our business lines, resulting in average loans increasing 7% to 8%. The pace of growth should be relatively consistent at 1% to 2% each quarter. We expect average deposits to decline 7% to 8% as customers continue deploying operational deposits or seek higher-yielding options.
We anticipate a seasonal decline in the first quarter followed by a partial rebound and then stabilization as we move through the year. Comparing fourth quarter year-over-year, deposits are projected to be down only 1% to 2%. As previously mentioned, we continue to believe the timing and scale of deposit activity will be influenced by FOMC monetary policy and economic activity. With this uncertainty, forecasting deposit levels is very challenging. As we look at mix, we project interest-bearing growth driven by strategic pricing actions.
By year-end, we expect to be closer to our historical 50-50 deposit mix still very favorable. As far as pricing, we expect the first quarter to reflect the full quarter impact from rate actions we took in the fourth quarter. And after that, the adjustment should be more modest as we continue to focus on customer relationships, competitive dynamics and our funding needs. We project strong net interest income, up 17% to 20% over our record 2022 level, which reflects the full year benefit from higher rates, and we are assuming rates follow the 12/31 forward curve.
First quarter will be impacted by two fewer days, seasonal deposit outflows and continued deposit pricing actions. We expect net interest income to increase through the year as we continue to benefit from rising rates and loan growth in conjunction with expanding relationships and acquiring new customers. Credit quality has been excellent and we expect it to remain strong. Therefore, we forecast net charge-offs at the lower end of our normal range of 20 basis points to 40 basis points. Assuming the economy performs in line with our expectations, we expect a gradual normalization in credit metrics and our reserve level.
We expect non-interest income to grow 5%. Customer-related income is projected to increase, particularly in card due to our payment strategy and fiduciary income, which benefits from investments in our wealth management platform. Also, we forecast an increase in risk management income related to our internal hedging position. Note, this income will vary over time as rates move.
Deferred comp was an $18 million drag in 2022, which we assume will not repeat. On the other hand, elevated volumes of customer derivatives that we saw in 2022 are not expected to continue. However, we believe they have stabilized at a strong level and are poised to grow over time. A reduction in our deposit service charges is expected due to an increase in commercial account ECA rates and adjustments to our retail NSF fees. We also assume BOLI returns to a historical run rate of approximately $9 million to $10 million a quarter and the $7 million CVA benefit does not repeat.
First quarter is expected to be impacted by seasonality and syndication fees, and we assume deferred comp of $6 million in the fourth quarter will not repeat. The second half of the year is expected to be stronger than the first as loan syndication activity, card fees, derivatives and other products trend up. Our 2023 expenses are expected to grow 7% or 4% on an adjusted basis, excluding the $64 million increase in pension, a $19 million reduction in modernization charges and assuming the $18 million in deferred comp benefit does not repeat.
Drivers of the 4% include the annual merit increase and other inflationary pressures as well as additional growth in costs tied to revenue-generating activity such as higher staff levels and outside processing related to card. Further, we estimate a $15 million increase in FDIC expenses and higher software costs. We expect these headwinds to be partly offset by resetting performance comp to normal levels. First quarter expenses are expected to be lower with the decline in performance comp, seasonal declines in advertising and staff insurance as well as other items that are expected to decline from an elevated fourth quarter level such as modernization expenses, deferred comp and legal costs. Annual stock compensation is expected to partly offset these reductions. Remaining modernization expenses are expected to be weighted more towards the second half of '23. We remain committed to prudent expense management, including investments we are making to increase revenue and enhance efficiency evidenced by an efficiency ratio forecasted below 55% for 2023.
In summary, we drove robust loan growth and fee generation in 2022. In addition, we benefited from higher rates while executing our hedging strategy and managed deposits, credit and expenses. We generated record revenue and EPS, reduced our efficiency ratio and delivered strong returns. Our fourth quarter has positioned us well for a strong 2023.
Now I'll turn the call back to Curt.
