Don Kimble
Chief Financial Officer and Chief Administrative Officer at KeyCorp
Thanks, Chris. I'm now on Slide 5. For the first quarter, net income from continuing operations was $0.45 per common share, down $0.16 from last year. Our results in the current quarter reflect the benefit of strong core operating performance, combined with the challenge of the current market conditions. Our strong loan growth, up 4.4% from last quarter, resulted in better than expected net interest income and positions us well for the future growth.
The challenging market conditions at the end of the quarter were reflected in a few areas, including investment banking fees and market-related adjustments and other income. Finally, the increase in our allowance this quarter reflected a qualitative adjustment to reflect the economic uncertainty, given the current events with Russia and Ukraine. Absent the qualitative adjustment, our provision would have approximated our net charge-offs level. I'll cover the other items on this Slide later in my presentation.
Turning to Slide 6. Average loans for the quarter were $103.8 billion, up 3% from a year ago period and up 4% from the prior quarter. Strong loan growth continued through the first quarter. Commercial loans increased 4% from last quarter. Line utilization rates improved this quarter, increasing 200 basis points. PPP loan balances were $1.2 billion on average this quarter compared to $7 billion last year and $2.3 billion last quarter.
Our consumer business continued its strong performance, as we saw residential real estate originations of $2.6 billion, resulting in an increase in balances of 8.6% from last quarter. We achieved record Laurel Road originations of $820 million this quarter, despite the ongoing federal student loan payment holiday. Year-over-year comparisons were impacted by the sale of our indirect loan portfolio late in 2021.
If we adjust for the sale of the indirect auto portfolio last year, as well as the impact of PPP, our core loans were up year-over-year by approximately $14 billion or 15%. Our outlook for 2022 now reflects an increase for loan growth for the year of mid single digits on a reported basis or mid teens growth on a basis adjusted for both PPP and the sale of the indirect auto portfolio.
Continuing on to Slide 7, average deposits totaled $150 billion for the first quarter of 2022, up $12 billion or 9% compared to the year ago period and down $1 billion or 1% from the prior quarter. The current quarter change was consistent with previous seasonal trends. Compared to the previous year, we have experienced nice growth in both commercial and consumer deposits. Our cost of interest-bearing deposits remained unchanged at six basis points. We continue to have a strong, stable core deposit base with consumer deposits accounting for approximately 60% of our total deposit mix.
Turning to Slide 8. Taxable equivalent net interest income was $1.02 billion for the first quarter compared to $1.012 billion a year ago and $1.038 billion for the prior quarter. Our net interest margin was 2.46% for the first quarter compared to 2.61% for the same period last year and 2.44% for the prior quarter. Year-over-year and quarter-over-quarter, both net interest income and net interest margin reflect the PPP forgiveness.
The current quarter reflected $21 million of net interest income from PPP, down $30 million from the prior quarter and $38 million from the prior year. This negatively impacted net interest margin by six basis points compared to the last quarter.
PPP is impacting KEY disproportionately compared to peers, given the success we achieved in delivering this product to our customers. Offsetting this impact was the benefit from deploying some of the excess liquidity through strong loan growth.
We have increased our 2022 outlook to reflect the strength of our loan growth, as well as the impact of higher interest rates. Our current rate outlook follows the forward curve and a beta assumption beginning in the high single digits in the second quarter and trading towards the 30% level later in 2022. This outlook results in a high single digit increase in net interest income from 2021 or between 6% and 9%. Adjusting this for the impact of PPP, our growth would have been 11% to 14%. Also included in the appendix is additional detail on our investment portfolio and asset liability positioning.
Moving on to Slide 9. As mentioned before, our noninterest income was negatively impacted by changing market conditions late in the quarter, which impacted several line items. Noninterest income was $676 million for the first quarter of 2022 compared to $738 million for the year ago period and $909 million for the fourth quarter.
Compared to the year ago period, the decrease was primarily driven by market-related adjustments included in other income, representing about $50 million of the year-over-year variance. This included both changes in write-downs of certain holdings and reversals of derivative reserves last year. The reductions in cards and payment fees are related to the lower level of prepaid card activity from the state supported programs, which is offset by a corresponding reduction to the related expense.
Additionally, during the quarter, our consumer mortgage fees were lower, reflecting higher balance sheet retention and lower gain-on-sale margins. These declines were partially offset by stronger corporate services income, resulting from customer derivative activities.
Compared to the fourth quarter, noninterest income decreased $233 million, primarily driven by lower investment banking and debt placement fees coming off the record level in the fourth quarter of last year. Market-related adjustments negatively impacted the quarter-over-quarter variance by $55, as last quarter included market-related gains and this quarter experienced losses.
I'm now on Slide 10. Total noninterest expense for the quarter was $1.07 billion compared to $1.07 billion last year and $1.17 billion in the prior quarter. Compared to the year ago quarter, our expenses reflect lower production-related incentive compensation offset by higher salaries, including the impact of our direct investments into the businesses. On the non-personnel side, our other expense category reflects lower prepaid card-related expenses, offset by higher travel and entertainment expense and FDIC assessments.
Now moving to Slide 11. Overall, credit quality continues to perform well. For the first quarter, net charge-offs remained low and were $33 million or 13 basis points of average loans. Nonperforming loans, delinquency and criticized classified levels, all remained relatively stable.
Based on this performance, the quantitative level of our allowance remained flat with last quarter. However, we did add a qualitative adjustment to our allowance to reflect the economic uncertainty given the current events with Russia and Ukraine, as well as potential impact of higher rates. The qualitative adjustment is driven by the impact from changes in the overall economy and their potential impact on our customers. As a result, our provision expense exceeded our net charge-offs by about $50 million. We have no direct exposure to Russia or Ukraine.
Now on to Slide 12. We ended the first quarter with a common equity Tier 1 ratio of 9.4%, within our targeted range of 9% to 9.5%. This provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders. Importantly, we continue to return capital to our shareholders in accordance with our capital priorities.
On Slide 13 is our full year 2022 outlook. The guidance is relative to our full year 2021 results and ranges are shown at the bottom of the slide. Importantly, using the midpoints of our guidance range, I would [Phonetic] support Chris' comments about delivering another year of positive operating leverage in 2022.
Average loans will be up mid single digits on a reported basis, excluding PPP and the impact of the sale of our indirect auto loan business, average loans will be up mid teens. We expect average deposits to be up low single digits. Net income is expected to be up high single digits, reflecting growth in average loan balances and higher interest rates, offset by lower fees from PPP forgiveness.
Our guidance is based on the forward curve with eight additional expected rate increases. This would assume a Fed funds rate of 2.25% by the end of 2022. On a reported basis, noninterest income will be down mid single digits, reflecting the lower prepaid card revenue related to our support of government programs and our first quarter actual results. We expect noninterest expense to be down low single digits, once again, adjusting for the expected reduction in expenses related to prepaid cards, expenses will be relatively stable.
For the year, we expect net charge-offs to be in the range of 15 basis points to 25 basis points. Given our strong credit trends, we would expect loss rates to remain below the targeted range early in the year and move to modestly higher levels later in the year. And our guidance for the GAAP tax rate is approximately 19%.
Finally shown at the bottom of the Slide are our long-term targets, which remain unchanged. We expect to continue to make progress on these targets by maintaining our moderate risk profile and improving our productivity and efficiency, which will drive returns. Overall, it was a solid quarter, and we remain confident in our ability to grow and deliver on our commitments to all of our stakeholders.
With that, I will now turn the call back over to the operator for instructions on the Q& A portion of the call. Operator?
