Comerica Incorporated (CMA) Q1 2022 Earnings Call Transcript

Comerica Incorporated (NYSE: CMA) Q1 2022 earnings call dated Apr. 20, 2022

Corporate Participants:

Darlene P. Persons — Director of Investor Relations

Curtis C. Farmer — Chairman, President and Chief Executive Officer

James J. Herzog — Executive Vice President and Chief Financial Officer

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

Analysts:

Bill Carcache — Wolfe Research LLC — Analyst

Jon Arfstrom — RBC Capital Markets LLC — Analyst

John Pancari — Evercore ISI — Analyst

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Scott Siefers — Piper Sandler & Co. — Analyst

Steven Alexopoulos — J.P. Morgan Securities LLC — Analyst

Ken Usdin — Jefferies & Co. — Analyst

Jennifer Demba — Truist Securities — Analyst

Peter Winter — Wedbush Securities, Inc. — Analyst

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Gary Tenner — D.A. Davidson & Co. — Analyst

Brian Foran — Autonomous Research U.S. LP — Analyst

Steve Moss — B. Riley Securities, Inc. — Analyst

Michael Rose — Raymond James Financial Inc. — Analyst

Ryan Nash — Goldman Sachs — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Comerica Bank First Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Darlene Persons, Director of Investor Relations. Please go ahead.

Darlene P. Persons — Director of Investor Relations

Thank you, Mary. Good morning, and welcome to Comerica’s first quarter 2022 earnings conference call. Participating on this call will be our President, Chairman and CEO, Curt Farmer; Chief Financial Officer, Jim Herzog; Chief Credit Officer, Melinda Chausse; and Executive Director of our Commercial Bank, Peter Sefzik. During this presentation, we will be referring to slides, which provide additional details. The presentation slides and our press release are available on the SEC’s website as well as in the Investor Relations section of our website, comerica.com.

This conference call contains forward-looking statements. In that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today’s earnings release on slide 2, which is incorporated into this call as well as our SEC filings for factors that can cause actual results to differ.

Now, I’ll turn the call over to Curt, who will begin on slide 3.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning, everyone, and thank you for joining our call. The economy in the first quarter was relatively strong despite the surge of COVID cases in January and the war in Ukraine. On the whole, our customers are in good shape, and they remain cautiously optimistic about the future. Loan growth in the first quarter was solid, and exceeded our expectations in several businesses. Compared to the first quarter last year, general middle market average loans were up 16%, excluding PPP loans, and large corporate loans were up 20%.

Credit quality remained very strong and expenses were well controlled. We are actively managing our balance sheet and remain well-positioned for the rising rate environment. Overall, the year is off to a good start. Highlighted on the slide are recent accomplishments associated with our corporate responsibility platform. We are pleased with the progress we are making. Related to environmental sustainability, climate risk is an emerging priority for all regulators. And last month, the SEC released a notice of proposed rulemaking for climate-related disclosures.

For the past 13 years, we have disclosed our progress in reducing our Scope 1 and 2 greenhouse gas emissions, discussing our goals in our Annual Corporate Responsibility reports and providing annual responses to CDP’s Climate Change Questionnaire. We will be publishing our Corporate Responsibility Report in June. Through our membership and the Partnership for Carbon Accounting Financials, or PCAF, we have begun to develop estimates of our commercial lending portfolio’s finance emissions. We expect to continue on this path and meet any reporting or regulatory requirements. We look forward to keeping you apprised of our progress.

In light of the evolving post-COVID environment, we are taking a fresh look at our retail banking approach, corporate facilities and technology platform. These are areas that we are constantly evaluating, but with the pace of change accelerating we are acting with even more urgency. For example, within our retail bank, we continue to focus on transforming the delivery of our services, aligning resources to best serve our customers and enhancing our small business focus. Also, we are developing additional initiatives around optimizing our facilities for our employees. The goal is to better accommodate flexible work arrangements, reduce our footprint and improve efficiency while maximizing locations that best serve our customers.

As far as technology, we are increasingly focused on ways to meet customers and colleagues rapidly increasing desire to utilize digital channels. We believe these initiatives are essential and foundational to continuing to effectively execute our relationship banking strategy as we have for the past 173 years. Turning to our first quarter results, which are outlined on slide 4; we generated earnings of $1.37 per share. Solid broad-based loan growth momentum was partly offset by large decrease in Mortgage Banker due to lower refi volumes and typical first quarter slower purchase volume as well as the continued wind down of PPP loans.

Deposits in the first quarter are typically impacted by seasonality, and this year was no exception, following record activity in the fourth quarter. Net interest income benefited from loan growth as well as our larger securities portfolio as we work to deploy excess liquidity and lock-in higher yields. These benefits were offset by a $10 million decline in PPP income. Strong credit quality resulted in a small reserve release. As expected, maintaining the record levels of fee income we generated last year was challenging.

The first quarter was impacted by a large decline in warrant-related income and negative returns on deferred compensation assets. In addition, we saw a seasonal decline in customer activity intensified by Omicron in January. We believe activity should be more robust as we move through the year. Expenses declined $13 million and included the decrease in deferred comp and seasonality in several categories such as annual stock compensation.

Overall, companies are working on growing their businesses, rebuilding inventory levels and increasing capital expenditures despite higher cost and labor shortages. In general, customers have been able to pass on price increases and their balance sheets are strong with excess liquidity. Despite some uncertainty, customer sentiment remains positive, which is reflected in our pipeline and growing loan commitment levels.

And now I’ll turn the call over to Jim, who will review the quarter in more detail.

James J. Herzog — Executive Vice President and Chief Financial Officer

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.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Thank you, Jim. As I said in my opening remarks, many business lines are showing good momentum, with increases in loans, commitments and pipeline. Our credit culture continues to produce strong results, and our expense discipline was evident as we continue to invest in products and services and make progress on our ongoing digital journey. The nature of our business results in a balance sheet structure that quickly produces benefits from rising rates.

In the current rate environment, we expect to continue to appropriately grow our securities and swap portfolios, with the goal of providing more consistent earnings performance through the cycles. Our unique expertise in many areas as well as our geographic footprint offers significant growth opportunities. I am honored to work along with such a talented and committed team. We are well positioned as we move forward in 2022.

Thank you for your time, and now we’d be happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Bill Carcache from Wolfe Research. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Thank you. Good morning Bill.

Bill Carcache — Wolfe Research LLC — Analyst

Good morning. Good morning. Curt, you said that you expect fee income to be more robust as we move through the year. Can you discuss a little bit more on what gives you confidence in that? And then maybe just a little bit more color more broadly on the optimism that you’re hearing from your customers and what your sense is that, that optimism is going to be enough to translate into continued loan growth?

Curtis C. Farmer — Chairman, President and Chief Executive Officer

I’ll ask maybe Jim to talk about fee income and then maybe Peter talk about optimism overall.

James J. Herzog — Executive Vice President and Chief Financial Officer

Great. Yeah, and good morning, Bill. Yeah, there are a couple of factors in play here. First, it’s important to remember that we are always seasonally lower in Q1. It typically gets off to a lower start, fewer days and just overall a little bit lower seasonal activity. Beyond that, we had the added burden, as I mentioned, of Omicron that we don’t expect to repeat. And of course, we had a significant impact from market-related fees. I think it was about $32 million just from market impacts on things like CBA, deferred comp, warrant valuation. So we had a lot of anomalous things going on in the first quarter. We do expect all of those to be removed as we move through the last 3 quarters of the year and get the normal seasonal pickup. And you layer that on top of just some customer cautious optimism, and we do think we’ll see more activity in non-interest income as the year goes on. Maybe I’ll flip it over to Peter for other comments.

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Yeah, Bill, I would just add to Jim’s comments. Probably even a little more than cautious optimism, I think our customer base continues to perform really well. We’ve communicated to you guys that our pipelines are still above pre-COVID levels, and we’re seeing that. And really across our footprint in just about every business line, the outlook is pretty good. I don’t know that I can say that it’s maybe robust as it was middle of last year, but it’s still really strong. And obviously, there’s a number of things going on in the economy that customers are being cautious about or prepared for, but I don’t know that I would say they’re pulling back at all. I think moving forward, and we feel really good about where we sit and our ability to capture that.

Bill Carcache — Wolfe Research LLC — Analyst

That’s very helpful. Thank you. And if I may follow up with just one additional question. Your peers are assuming more rate hikes than the 75 basis points that you have in your outlook. Was the objective there just to be conservative? And then sort of along those lines on your interest rate sensitivity assumptions on slide 13, it looks like your asset sensitivity came down a bit. You’ve talked about reducing some of your asset sensitivity as rates rise. Is that something that like this is indicating you started doing already or do you expect to wait a bit before more aggressively lowering your asset sensitivity? Thanks.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, Bill, we very purposefully took down our asset sensitivity to a certain degree this quarter. Certainly, deposits were a piece of that. I had mentioned in the January earnings call that we did have some seasonal deposits that were inflating our asset sensitivity. And so that piece was not a surprise. But beyond that, we did enter into a very significant level of fixed receive contracts, $6.3 billion worth of received contracts made up of $3.5 billion of off-balance sheet swaps, $2.8 billion of net securities once you account for the paydowns. And so that was a pretty significant move. It brings a lot of those rate hikes forward.

We are essentially taking 250 basis points worth of received fixed instruments, making that a certainty by pulling it forward into the run rate for the time value of money. And in exchange for that, we did give up about $23 million of asset sensitivity, most of the rest of that was deposits. So it has been a goal of ours to stabilize our net interest income, take advantage of higher rates as they increase, and that’s exactly what we’re doing. We feel really good about the progress we made this quarter, and we continue to — we expect to continue to do that as the quarters go on throughout the year.

Bill Carcache — Wolfe Research LLC — Analyst

Understood. Thank you for taking my questions.

Operator

Our next question comes from the line of Jon Arfstrom from RBC Capital Markets. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Jon. Jon?

Jon Arfstrom — RBC Capital Markets LLC — Analyst

I’m here. Sorry about that. Just one follow-up on that last question on hedging, Jim. What is the longer-term goal or philosophy of the hedging? What are you really trying to accomplish there?

James J. Herzog — Executive Vice President and Chief Financial Officer

The ultimate goal is to smooth out our net interest income and asset sensitivity. We don’t like the feast or famine cycle that Comerica had been in for really a number of cycles. So our goal is to take advantage of the higher rates as they exist today to lock those in so that we’re protected from a risk standpoint when rates drop. And the good news is we’re always going to leave a little bit of asset sensitivity on the table. So the goal is to protect ourselves from a drop in rates, take advantage of the rates that we see out there today, lock them in bring them forward and still leave a little bit of asset sensitivity on the table.

We will likely have asset sensitivity in the low single-digit percentage area. So I think we’re always going to benefit from rates rising, but it’s important to us to lock in opportunistic rates like we’re seeing today and take advantage of putting — take advantage of putting those really in income stream for the next several years. So it’s a very balanced approach, and we will do this gradually over the next several quarters. Certainly made a lot of progress this quarter and expect to make a lot of progress over the next several quarters.

Jon Arfstrom — RBC Capital Markets LLC — Analyst

Okay, good. Thank you on that. And then on the deposit beta question, last quarter, you asked a little bit about the likelihood of being closer to 10% versus 30% in your standard model. Have you seen anything in terms of deposit, pricing pressure or requests from your clients after this first hike and just curious on your thinking that we could be closer to 10% deposit beta at least early on the 30% standard model?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, I’m going to offer some general comments then maybe I’ll flip it to Peter for some customer color on that. We still feel with all the liquidity in the economy that the first several hikes will be below 10%. We’ll get closer to the 10% as the subsequent hikes happen. But we still feel pretty good about following the pattern of the last cycle. The Fed has got more hawkish since we talked in January on the earnings call. So there’s probably a little bit more pressure on that beta than I might have thought but it doesn’t take us above 10% for the first few. So we still feel pretty good about a manageable beta in short- to medium-term. But in terms of color from customer side, I’ll flip it to Peter.

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Yeah, Jon. And I think the other thing I would say is everything that we do, it’s very much relationship focused. And so far, that hasn’t been a major point of conversation. I suspect as we get further into the year, it will be. In your larger businesses that are moving bigger deposits, there might be a little more sensitivity to it just because of their access to other rates across the country. But so far, it hasn’t been something that we’ve really faced as a big challenge. But we’re prepared to talk about it, and we know that it will be something as the year goes on we’ll need to be out front with our customers on.

Jon Arfstrom — RBC Capital Markets LLC — Analyst

Okay, thank you.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of John Pancari from Evercore ISI. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning John.

John Pancari — Evercore ISI — Analyst

Good morning. Appreciate all the guidance detail, particularly around the fee trends and NII. I guess, putting it all together, how should we think about the level of total revenue growth expectation for 2022? I know you gave some detail around NII of around up 13%. And there’s a lot of puts and takes there, particularly on the fee side, as you were talking about. So is it reasonable to assume perhaps a 5% to 6% revenue growth expectation for the year or could it be better than that? Thanks.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, John. Number one, starting with net interest income, and maybe I’ll circle back to part of Bill’s question that I’m not sure I answered fully. We did offer some guidance. We assume the 25 bps from March in our guidance. We assume the 50 bps in May. And I think the question Bill had was, are we being conservative? Do we not think those future rate hikes are going to happen? That is absolutely not the case. The rationale for our guidance being set for the way it was is there is a wide range of opinions out there in terms of where Fed hikes are going to go.

I think even amongst the estimates on the sell-side analyst side, there’s a wide range of estimates. So rather than try to pick one, we thought it would be more helpful to give the hikes that we know are happening for certain and then give you the model, and you have the $160 million for average 50 bps hike or a point to point 100. You have the model for that, that you can plug in. You can apply the sensitivities that we have on deposit betas that are on the slide. So it’s a little bit of a plug and play.

So we’re trying to be helpful there in terms of giving you the certainty aspect of the bay hike, and then you can put in as many hikes as you want in prorated by that model that we provided. In terms of revenue growth for the year, I would bifurcate it between what’s going to happen with net interest income. And again, there’s a wide range of outcomes there in terms of Fed hikes as well as what we might add on in terms of additional swaps and security so just some tremendous upside there.

We know that non-interest income is going to be lower than 2021. We tried to make that as clear as possible. If you look at some of the anomalous income we had in 2021, which I think is in the earnings materials, whether it’d be stimulus-related card fees, CBA and the derivative portfolio, warrants, we have about $70 million of anomalous income that occurred in 2021 that will not occur in 2022. So we will have a negative percentage for ’22 relative to non-interest income. That’s not new news at all. I think we’ve been real clear on that.

Net interest income, though, has some tremendous capacity to create a very significant growth rate. So just apply the modeling that we provided, add as many swaps and securities as you think might make sense. We’re certainly going to keep up a pace somewhat similar to what we had in the second — in the first quarter. We feel really good about revenue growth in 2022. But there’s going to be a range of outcomes there depending on how many heights you have.

John Pancari — Evercore ISI — Analyst

Okay. All right. Thanks for that. I guess another way to that I maybe can go about asking is, I guess, also I wanted to get your thoughts on the magnitude of positive operating leverage that you think you can achieve for 2022, given your low-single-digit growth and expense expectation, so fair to assume that you’re going to achieve possibly 200 basis points to 300 basis points of positive operating leverage or if you can help us think about that? Thanks.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. I would probably go back to the previous answer, again, a wide range of outcomes depending on hikes, but it’s going to be a substantially favorable number. So again, we feel really good about it, and it just depends how the interest rate environment goes throughout the year.

John Pancari — Evercore ISI — Analyst

Okay, got it. Thank you for that. And one very quick last one. I know you mentioned the floor plan portfolio increased from $3.9 billion to $4.1 billion, I think, on average. Just your expectation, do you think you can continue to see modest increases from here?

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

John, it’s Peter. I think the short answer to that is probably yes, but very modest. I mean we’re not expecting a huge recovery in floor plan. We do feel like you’re starting to see car assembly pick up. You’re starting to see some progress, I think, in the auto supply chain, but I don’t think that’s going to translate to floor plan balances just because the demand for cars is still so high, and what we hear from our customers is they’re pretty much sold at the moment they’re rolled off the truck.

And I think that’s probably going to continue, for sure, the rest of this year, maybe through the rest of next year quite candidly, on some of the things that we’re hearing. So we think we’ll see a little bit. If you look at a lot of the balance growth that we saw, it was mostly financing real estate. We’re financing some M&A activity because our customers are going to be on the winning side, if you will, of buying other dealerships. And so that’s where we’re really staying focused right now.

John Pancari — Evercore ISI — Analyst

Great. Thanks for taking all of my questions.

Operator

Our next question comes from the line of Ebrahim Poonawala from Bank of America. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Ebrahim, good morning.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Good morning. I guess just the first question around line utilization. I was wondering if you can elaborate why we didn’t see a pick up? We’ve heard from some of your peers who’s observed a pickup or during the quarter driven by capital markets being tighter, demand picking up, capex, etc. Would love any sort of thoughts around what you think needs to happen to see a meaningful pickup in line utilization from your — and then just an outlook on the Mortgage Banker business as well?

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Yeah, Ebrahim, it’s Peter. I think a little bit of its portfolio mix. Our overall corporate line utilization, as we communicated, was about flat. But when you look at sort of our general middle market and our general businesses, business banking, U.S. banking and so forth, we did see a good increase there, quarter-over-quarter. So we’re starting to see some utilization. I wouldn’t say it’s back to historic levels, but we did see a little bit of utilization. So I think the difference you might be seeing there is mostly portfolio mix. It’s a good segue to your question on mortgage. Mortgage saw a big drop in utilization in the quarter.

And I think our outlook there is still positive. There’s not anything per se that isn’t normal seasonality that we’ve seen. We still feel really good about the Mortgage business. And I think, as the year unfolds, you’ll continue to see — I’ve tried to communicate to you all that on — if you look at that quarterly chart in the appendix, it’s up and to the right over a long period of time, and we’re focused on adding new customers and increasing that overall warehouse lines that we have out, and we think we’ll be able to continue to do that. So we do think, though, year-over-year, we will be down as we’ve communicated in Mortgage Banker.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

And do you also expect the Mortgage Banker spreads to narrow as well? So even though it’s a LIBOR-based book, given the market backdrop, you see spreads coming down so that’s going to impact how that reprices?

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Ebrahim, I think you’re asking me about pricing in mortgage in general. And I guess, my answer to that question is we do think it’s getting — it’s more competitive in Mortgage Banker than it was kind of right when the pandemic started. So there’s probably a little bit of pricing pressure there, but nothing that we’re not used to in all of our businesses.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Got it. And just one quick one. Sorry for going back to this. I understand there’re like a wide option around [Indecipherable], but do you have a number in terms of what NII would look like if you just assume that forward curve plays out as expected and where NII would land in that backdrop?

James J. Herzog — Executive Vice President and Chief Financial Officer

Ebrahim, yeah, we have played with a number of scenarios. But at this point, again, there are so many potential permeations, that I think, for now, we’re going to hold to the 75 bps guidance that we’ve offered and just offer the model and let people plug that in.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Got it. Thanks for taking my questions.

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Thank you.

Operator

Our next question comes from the line of Scott Siefers from Piper Sander. Your line is open.

Scott Siefers — Piper Sandler & Co. — Analyst

Good morning guys. Hey, just wanted to ask a question on deposit balances. Is your feeling — I know you expect modest declines through the remainder of the year vis-a-vis the first quarter. But will the first quarter have been sort of the worst of the deposit contraction in your view?

James J. Herzog — Executive Vice President and Chief Financial Officer

Oh, it absolutely will be the worst, Scott. Yeah, we had a lot of seasonality that occurred as we mentioned. Some of the structural things, cyclical things related to Fed movements has not really kicked in yet, and that will pressure us probably with our business model and our heavy dependence on commercial deposits. We will be impacted probably a little bit more than other banks. But we don’t expect for any one quarter, that impact to be nearly as impactful as the seasonal runoff that we saw in the first quarter.

Scott Siefers — Piper Sandler & Co. — Analyst

Perfect. Alright, thank you. And then

Curtis C. Farmer — Chairman, President and Chief Executive Officer

In the fourth quarter have been the record.

Scott Siefers — Piper Sandler & Co. — Analyst

Yeah. Yeah, understood. And maybe a follow-up just regarding rate sensitivity. Can you speak qualitatively to your preference for adding securities versus swaps in moderating your rate sensitivity?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. We are always looking at relative value between the two. That’s certainly a factor. We also look at capital implications, some securities come with capital that you have to hold against them. So that’s a factor, and that factors into the overall pricing comparison and relative value between the two of them. And then, of course, liquidity levels. Our cash levels are coming down, and that will probably make us a little more cautious about adding securities going forward. So we have been adding an abundant amount of both over the last couple of quarters. And certainly, we stepped it up a lot in the first quarter. I do think, as the quarters go on, you’ll see fewer and fewer securities added and more and more swaps in terms of the proportion, but they both have their advantages on a relative value basis, one can look better than the other at times. And so we’ll utilize both going forward, but I think you’ll see us continue to pivot a little bit more towards off-balance sheet swaps as opposed to on-balance sheet securities.

Scott Siefers — Piper Sandler & Co. — Analyst

Yeah, okay. Perfect. Thank you very much.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Thanks Scott.

Operator

Our next question comes from the line of Steven Alexopoulos from J.P. Morgan. Your line is open.

Steven Alexopoulos — J.P. Morgan Securities LLC — Analyst

Good morning everyone. Good morning. I wanted to start on the rate sensitivity. I know you’ve been very clear, you have a goal to reduce asset sensitivity. But what’s the thought on adding all of the swaps here? Why not wait until rates go up before trimming the asset sensitivity because it just feels like you’re leaving a lot of economic benefit on the table by doing so much right now.

James J. Herzog — Executive Vice President and Chief Financial Officer

Hey, good morning, Steve. Yeah, we do not want to pick our point where we think rates are going to peak. We saw a little bit of that in the last cycle, and that’s not something we’re interested in doing again. I think it’s really important to mention that we are just getting started. We have a lot of swaps, a lot of interest sensitivity still on the table. We will be taking advantage of these rates over the next several quarters. We have quite a ways to go. So I wouldn’t necessarily think about it in terms of we put our stake in the sand in the first quarter of 2022. That’s by no means the case.

We are going to try to avoid picking where we think rates are going to peak. We’re going to stay methodical, as I’ve said in the past, and we have a long ways to go. And by the way, even when we’re done, we’re going to leave some asset sensitivity on the table, and we’ll still benefit from higher rates. So we’d like to have our cake and eat it too to a certain extent, we’re adding significant amounts of income to the run rate now, but we have a lot further to go in terms of adding swaps and as rates go up. If we’re fortunate enough, they do go up continuously over the next year we will certainly be in a position to take advantage of that.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Jim, I might just add a little color — this is little core commentary and sort of our thinking here. So we live through close to an 8- or 10-year cycle of near zero interest rates, beginning with the financial crisis, which was really challenging for us on the revenue side of the house. And so when we saw rates increasing in 2017 and ’18, we were a little bit more probably focused on picking a higher point in terms of where the rate cycle might go, and we made some progress on hedging, but not nearly enough. And we saw the dramatic decrease in rates going to zero as the COVID crisis began. So we lived through one of those cycles, and we’re just trying to be prudent.

There’s going to be no change to our model. We are primarily a commercial bank. And no matter what is we add more loans and customer relationships, we’re always going to be asset sensitive as an organization and probably highly asset since it did relative to some in our peer group, but we want to make sure we’re dollar cost averaging here if you think about your stock portfolio and that we’re adding appropriately hedges to the portfolio throughout the cycle. We’re all assuming continued rate increases. But we also weren’t assuming COVID. We weren’t assuming the Ukrainian war, there’s a lot that — no matter what could be real a scenario. And so we’re just trying to be prudent in sort of solidifying our revenue stream on a go-forward basis, not just for a short-term cycle but over several years going forward.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. And I might add to that, there are really two components of leveling out the asset sensitivity. There’s a risk control aspect and there’s a profit maximization aspect. And, Steve, I think you’re thinking of the profit maximization aspect as many equity analysts would. There is a risk control aspect to this and that we want to make sure that if things do go south that we can be as confident as we can be in protecting that common dividend, which was not a sure thing back when rates were zero and we were having credit pressures.

We want to make sure that from a credit rating agency standpoint, we’re always in good stead. With the customer base we have, we think our credit rating is extremely important. Our customers value that. So I feel like a lot of the wood that we’ve chopped so far is really taking care of that risk control aspect that, to some extent, we’ve secured the dividend. We’ve done those things to make sure that we can withstand a downturn if rates were to go the other direction. And as rates continue to go higher, I think we start transitioning from the risk control aspect to more of the profit maximization. So really a couple of objectives there that we’re trying to check the box on.

Steven Alexopoulos — J.P. Morgan Securities LLC — Analyst

Okay. That’s very helpful color, actually. So for Curt, in your prepared comments, when you talked about modernization efforts and you indicated a greater sense of urgency, is the message to the market that there could be more spend coming from the company at some point or are you simply saying that you recognize that to be competitive and improve the client experience, you need to take modernization to the next level?

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Steve, it’s a little bit of both. I just think over the last 24 months, the whole world, the whole corporate America has learned a lot. And I really think as the CEO of a company, whether you’re a bank or a nonbank, you’ve got to be thinking about sort of the operating model in a post-COVID world. And so the way I think you should think about this is that it’s really a continuation of a path that we’ve been on for some time, and we’re finding ways to accelerate our progress in terms of our retail branch delivery and sort of the customer experience there, continued investment in digital and in our real estate footprint.

And I can go into detail on all of those, but on the retail side, we’ve been a very good steward of, over time, trimming our network there. We operate a fairly thin branch franchise today. But we think we’ve got some opportunities to continue to look selectively at locations. And those would sort of bleed out over future quarters as we have opportunities there. And we’re just looking at sort of our model around branch delivery to make sure it’s as efficient as it possibly can be. It would really the goal of always doing a good job of the customer experience, but also enabling our colleagues with digital delivery, etc.

But on the real estate side, we’ve done a very good job there. We’ve reduced our real estate footprint in the last — really since 2015 about 20% to 25%. But with all these flexible work arrangements, being more accommodative to the new world of balancing work from home and work from the office, we think there’s opportunities there to continue to rationalize some of our real estate, but also create space that we think is very attractive to our employees and accommodate some more collaborative sort of open floor plan, and technology is an ongoing journey.

A lot of the savings that we realized through those two initiatives, which are sort of heavy real estate focused and we’re going to continue to invest in digital. The reason we’re pointing this out to you is we did have some charges in the quarter that we called out they were fairly modest. We anticipate, as we think about these things, we haven’t yet decided all of them that we may in subsequent quarters have some additional charges, and I might let Jim add some additional color there.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. I think of this in a couple of aspects. We’re going to have what I call some exit and transitional charges, of which you saw $6 million in the first quarter. And you’ll see some additional charges in subsequent quarters. Some will be smaller than the $6 million, some will be larger. Those would not be in our outlook since they’re not even formed yet. But I would — I do think of those as exit and transitional charges. We talked about asset impairments and severance in this most recent $6 million. To the extent we actually have investment in our applications, in our core product suite those are not the types of things that I think is something we would call out.

We try to self-fund those as much as we can. I think about those in terms of our normal investment portfolio that we do each year on the technology side as well as just any normal ever-greening of facilities and banking centers. And so we’ll manage it really from two aspects, and we’ll probably report it as such. We certainly will call out the exit transitional costs that occur, but we will attempt to self-fund many of the investments in this on the pure product side as we can. But more to come, and of course, these are still forming.

Steven Alexopoulos — J.P. Morgan Securities LLC — Analyst

Okay. Appreciate all the color. Thanks for taking my questions.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Ken Usdin from Jefferies. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Ken.

Ken Usdin — Jefferies & Co. — Analyst

Hi, thanks. Good morning all. I want to go back to page 13 in the deck and the projected swap benefit. It’s as of 3/1/22. So can you just help us understand like, is that marked at a certain LIBOR rate or — and then that will change as LIBOR goes up that slide or are you just locked in knowing that, that chart and the expected contribution is sticky and will carry with you through this period that you show on the lower right chart? Thanks.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, good morning, Ken. Yeah, those benefits are based on LIBOR rates and BSBY rates as of the end of March. And so to the extent you get a rise in those rates, you will bring in less income or recognize less income on the swaps. Of course, you more than make that up many times over on the loan side. And the impact of both of those are already folded into the modeling that we have on the bottom left side of that page. So it is all accounted for.

Ken Usdin — Jefferies & Co. — Analyst

Right. Okay, got it. And so moving to that then, can you remind us then — can you just walk us through just the percentage of the book that’s tied to the various LIBOR rates, whether one month, three months, six months prime, etc, if there’s a general way that you can help us with that? Thanks.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. Well, if you turn to slide 17, of course, we do split out the 60-day rates versus the 30-day rates, 60-day plus as well as the 30-day. The vast majority of our book is still on LIBOR because we didn’t start making BSBY and SOFR loans until January 1. So we started really the momentum, right, as the year was ending in 2021. But at this point, the vast majority is still LIBOR. We do turn our book over every two to three years, so you can kind of prorate that to get a feel for the rate at which BSBY and SOFR would start to replace the LIBOR loans.

Ken Usdin — Jefferies & Co. — Analyst

Got it. Yes, forgot about that chart. Thank you for the reminder. And then last one just on the — your comments about your belief that a low beta, you said 10%-ish or so for the first couple of hikes. What’s your line of sight on how long the betas could stay that low? And how are you — how do you look at that? Just — was that in — is that in the second quarter guidance? How far out do you have a line of sight on the beta staying that low? Thanks guys.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, Ken, we — I mentioned that in the first few hikes of the last cycle, it was really the first five, we stayed below a 10% beta for each of those. And so that’s still our kind of base case at this point that we will stay below 10% for the first five. And the guidance that we offered in the outlook that takes that into account that does have a somewhat moderate beta in it. So that is accounted for.

Ken Usdin — Jefferies & Co. — Analyst

Okay. Thanks guys.

Operator

Our next question comes from the line of Jennifer Demba from Truist Securities. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Jennifer.

Jennifer Demba — Truist Securities — Analyst

Good morning. Question on asset quality. It remains excellent. You had another negative provision in the quarter. How much longer can we see negative provisions in this environment where it’s a bit more uncertain as rates are going up so fast, and we have obviously more geopolitical risk?

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

Good morning Jennifer. This is Melinda. It’s really difficult to predict under the CECL methodology exactly what’s going to happen with provision. But suffice it to say, as was already mentioned, I mean, we feel really good about the underlying quality of the portfolio. assuming that the economic environment stays relatively positive and stable, it is possible, given that CECL is still new, we don’t really know where the bottom as it is possible that we could have very modest levels of provision — negative provision and then stabilizing. We expect charge-offs, as Jim and Curt mentioned, to sort of stabilize to the low end of our normal range.

Although asset quality, again, is excellent right now, it is not sustainable in the long run. I mean we are a commercial bank, we lend money, and customers have challenges. And there’s a lot of economic uncertainty right now just given all the inflationary pressure. So we saw just a little bit of migration in the first quarter in terms of our criticized assets, nothing that would lead us to be concerned about any particular portfolio, but we continue to watch those portfolios that are more sensitive to just the general economic challenges. So possible to have a negative provision, small negative provision for a couple of quarters, but very, very difficult to predict specifically.

Jennifer Demba — Truist Securities — Analyst

Which portfolios do you feel are most vulnerable with a rising rate environment at Comerica?

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

Certainly, our leverage portfolio. I mean, obviously, given the amount of leverage that they have, they are very sensitive to interest rate increases. We do sensitize that portfolio when we underwrite initially. And again, our leverage portfolio is really part of our middle market kind of core C&I relationship strategy. So we underwrite strong companies and management teams and have a lot of confidence that they’ll be able to manage through that. But that book is kind of the tip of the spear for credit quality concerns, and we continue to watch that one closely.

Automotive, the supplier base has obviously been challenged given the chip shortage, plus you add on to that, all the other uncertainty around the inflationary pressures. But it’s a relatively small book compared to the total, and we have many, many decades of experience in that automotive supplier base, and they have managed through many, many cycles successfully. So those are the two portfolios, I’d say that we are watching most closely. And then small business, obviously, they have less pricing capability in terms of just all the inflationary pressures, less ability to pass that on. So that book has held up incredibly well. It has good liquidity, but we have less visibility into a small customer versus some of our larger customers. So we’re watching that one as well.

Jennifer Demba — Truist Securities — Analyst

Thanks so much.

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

You’re welcome.

Operator

Our next question comes from the line of Peter Winter from Wedbush Securities. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Peter.

Peter Winter — Wedbush Securities, Inc. — Analyst

Thanks. Good morning Curt. I was just curious about if there are any plans to manage the available for sale securities portfolio in a rising rate environment? And any thoughts on maybe moving into held to maturity or hedging it, especially since, I think, Jim, you said that you hold the available for sale to maturity anyway?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. Good morning Peter. We have absolutely no plans to move any of that to HTM. And really, we discount the entire OCI discussion. I know it does have an impact on tangible book, book value per share. I know that’s a bit of an uptick. But I think when you look through the true economics, which I think everyone should, you look at other parts of our balance sheet that are not marked in particular, deposits, as I mentioned, we benefit so much economically from an economic value of the franchise from rising rates that we are not concerned about a single line item being marked down and what that does to tangible book. We think the real economic value needs to be looked at, and we think it’s just a bit of window dressing to put it in the hold to maturity. So certainly no plans there.

Peter Winter — Wedbush Securities, Inc. — Analyst

Okay. And then just on energy, it’s under, I guess, 3% of the loans now. Is there an interest in growing this portfolio? Just I feel like underwriting standards are much stronger, loan spreads are better just due to less competition?

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Peter, it’s — this is Peter. I think the — we are focused on continuing to be an energy bank. We feel really good about our energy portfolio that we have today. I don’t know that we’re going to return to the levels that you saw five or six years ago as far as the percentage of the portfolio. We did see a little increase this quarter, but not a lot. So it’s a business that we’ve been in for a long, long time. We plan to stay in it, but I don’t think it will get to the size that it was, like I said, probably five or six years ago. We feel real good about the level that we’re at and plan to maintain that.

Peter Winter — Wedbush Securities, Inc. — Analyst

Got it. Thanks for taking my questions.

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Thank you.

Operator

Our next question comes from the line of Chris McGratty from KBW. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Chris.

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Hey, good morning. Just wanted to revisit the size of the balance sheet for a moment, combining the comments you made on the tempering of the securities growth, the cash normalization process and deposit growth. Just taking a step back, how do we think about near-term earning assets relative to the 83%, 83.5% this quarter? How do we think about the cadence of that in the next couple of quarters?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah, good morning Chris. We do think that, to some extent, we will see temp investments go down and loans will eat into some of that. But the bottom line is, deposits are also going to decrease, and that will probably be what really moves the balance sheet. So we will see a very modest reduction in earning assets to the extent deposits go down, that shrinks the overall size of the balance sheet. But there will be some moving parts there, definitely go in both directions.

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Okay. But just to reiterate, the drop that we saw this quarter, we’re talking much more manageable declines in earning assets?

James J. Herzog — Executive Vice President and Chief Financial Officer

Much more manageable, yes.

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Okay, okay. And then from there later in the year, is there — as you kind of look to next year, would you expect this trend to reverse as deposit growth resets with the Fed’s doing everything they’ve got?

James J. Herzog — Executive Vice President and Chief Financial Officer

The Fed is going to stay active probably for a couple of years. We don’t expect their balance sheet to return to the level of the Fed’s likely to target until about 2024. Rate increases will probably go through at least part of ’23. And of course, sometimes customers react on a bit of a lag. So I think you’ll see deposits kind of languish just slightly down from where they’re at now, probably over the next couple of years is our best guess. But very — there’s no exact equation for this. There are so many moving parts in the economy with money supply that it’s hard to say. But certainly, the Fed actions will cast a shadow over deposit growth, and those will continue over the next couple of years, most likely.

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Okay, great. And then if I could just squeeze one more in. The buyback is seemingly reaching the end as you’ve achieved your capital target. Is there anything to speak of in terms of inorganic capital use M&A?

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Yeah. No new information there, Chris. We continue to be very focused on organic growth and are having a lot of good success, both in our legacy franchise, but also in examples like our expansion into the Southeast and to North Carolina as we set up commercial loan offices there and have now added wealth management capabilities. We envision eventually adding a retail bank there as well down the road. We’ve added some staff in our Denver office as well on the middle market side. And so we’ve got really good opportunities in our existing franchise, still in some of the best markets in the United States in terms of major metro markets, especially in Texas and California, but Michigan is doing well also. And then we’ve been able to parlay that into expansion into other markets as well.

Chris McGratty — Keefe, Bruyette & Woods, Inc. — Analyst

Great. Thanks for taking the questions.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Gary Tenner from D.A. Davidson. Your line is open.

Gary Tenner — D.A. Davidson & Co. — Analyst

Thanks, good morning. I just had a follow-up on the ACL question. I’m just wondering, as you work through the first quarter and your CECL model, have you made any active changes to your probability weightings in terms of kind of recession risks, GDP growth, etc? And any detail you could provide on that?

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

Yeah, Gary, this is Melinda. The economic forecast that we selected in the first quarter was relatively consistent with the economic forecast in the fourth quarter. And the way we approach that economic uncertainty is to look at certain portfolios and then stress them to a higher recessionary scenario, which we did. And so we used a more severe recessionary forecast for a portion of the portfolio to add to the qualitative reserves to come up with, again, that kind of small release number that we had this quarter.

Gary Tenner — D.A. Davidson & Co. — Analyst

Okay, thank you for that. And just one more follow-up just on the AOCI question that Peter had asked. Your point is well taken in terms of it being kind of a timing issue and temporary. But in terms of — we’ve still seen obviously the belly of the curve rates move higher here over the first month of the second quarter. Can you give any color in terms of the sensitivity of AOCI to additional moves for peer? Obviously, the base that they’re moving up from is higher than it was from year-end 2021.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. Gary, in our modeling, it’s not a lot different from what we’ve seen. We saw kind of that medium part of the curve where our securities were move about 100 bps over the last couple of quarters. And we took that close to $1 billion hit to AOCI. It’s about the same sensitivity. So 100 bps would generate about $1 billion of hit or $250 million for every 25 bps and it’s somewhat linear so kind of in that ballpark.

Gary Tenner — D.A. Davidson & Co. — Analyst

Yeah, thank you.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Brian Foran from Autonomous. Your line is open.

Brian Foran — Autonomous Research U.S. LP — Analyst

Hi. I definitely appreciate the comments that everyone’s making different assumptions on rates and you guys don’t want to be creating point estimates. But just coming back to your plug-and-play comment, I mean, if I’m trying to work back to what it seems like the central case of the market that maybe the Fed has to go to 3% or 3.5% this year, I mean is the plug and play as simple as your guidance implies $2.1 billion of NII this year? There’s no rate benefit really in the first quarter, so that’s more like $2.2 billion on a run rate?

And then if I throw in $310 million, that gets me close to $3 billion on Fed funds and maybe throwing a little bit more than that if the Fed goes to 3.25% or 3.50%. So it’s like if I’m working back to that central case of the market, of the fixed income market at least, of 3% to 3.5% Fed funds rate is like a $2.5 billion NII at least using your plug-and-play correctly? Or I guess, it’s hard for you to bless that, I guess, but maybe like the Fed, you can issue a non-objection to make sure the reading wrong?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. The model is pretty linear, and it’s not going to change a lot as rates continue to move higher from an exact modeling standpoint, I’d just remind you, as I mentioned in the script that most of our floating rate loans reset at the end of the month following the rate hike. So you want to get that right in terms of your quarterly impact assumptions. But it is pretty linear along the lines of what you’re describing and what the graph shows.

Brian Foran — Autonomous Research U.S. LP — Analyst

And then the added challenges, again, if I believe the fixed income market, I’m supposed to be maybe modeling some cuts in 2024. So I think you said by the time this process is done, you’d like asset sensitivity to be in the low-single-digit range. So is the just logical implication that next time around if and when the Fed cuts we’re talking like a $100 million adjustment to NII, not like the much bigger numbers we would have seen historically?

James J. Herzog — Executive Vice President and Chief Financial Officer

That is exactly the goal.

Brian Foran — Autonomous Research U.S. LP — Analyst

Okay. And then maybe if I could squeeze the last one, I mean just trying to translate all this to like a normalized earnings power, if you want to just give me normalized EPS that would be great. But credit is the other big swing factor. Can you just remind us — what do you think is a reasonable either point estimate or charge-offs or range? I know it’s tricky because you’re always — commercial books are rarely at normalized charge-offs, they’re either — they’re a trough for a long time and then they’re briefly at a peak. But as you think about through the cycle credit costs, what kind of range of charge-offs do you plug in?

Melinda A. Chausse — Executive Vice President and Chief Credit Officer

Yeah. This is Melinda. I think as Curt or Jim already mentioned, I mean, we do expect these extremely low levels of charge-offs to continue to normalize. And we would guide towards the low end of our kind of normal range of 20 basis points to 40 basis points would be what we would expect.

Brian Foran — Autonomous Research U.S. LP — Analyst

Great. I appreciate it. Thank you.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Thank you Brian.

Operator

Our next question comes from the line of Steve Moss from B. Riley Securities. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Steve.

Steve Moss — B. Riley Securities, Inc. — Analyst

I just want to ask a little further on balance sheet positioning here with higher rates. Obviously, a pretty big mark down on the securities book. Just kind of curious, is there an AOCI mark that could cause you to stop securities purchases? And then the other part here, just kind of thinking about what is the percentage of cash to assets maybe think of it as a ratio that you guys want to hold going forward?

James J. Herzog — Executive Vice President and Chief Financial Officer

All right, good morning, Steve. Thanks for the question. Yeah, to your first question, we are not concerned about the AOCI impact. So there is no level that would cause us to not buy securities or do something different. We’re very focused on the economics just as we think everybody else should be. I’m sorry, what was the second question?

Steve Moss — B. Riley Securities, Inc. — Analyst

Just thinking of — you said you’re going to focus more on probably more swaps less securities going forward. Just kind of curious what the percent of cash do you seek to hold?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. We’ve always targeted because we do have a commercial base, it’s a little bit lumpy, and we can see some larger ins and outs out of our cash position, perhaps relative to some pure banks. We typically like to hold $3 billion to $4 billion worth of cash, used to be our own benchmark. Of course, we’ll look at the changes in the environment as we come into the next cycle and the options were tapped into funding in a very expedient basis. Sometimes, we’ll move that number up or down just depending on our access to funding. But kind of in that $3 billion, maybe $3 billion to $4 billion range is kind of the level of cash we like to hold.

Steve Moss — B. Riley Securities, Inc. — Analyst

Okay, great. Thank you very much. Appreciate all the color.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thanks for the questions.

Operator

Our next question comes from the line of Michael Rose from Raymond James. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Michael.

Michael Rose — Raymond James Financial Inc. — Analyst

Hey, good morning. Thanks for taking my questions. Just wanted to hit on the Technology and Life Sciences business. It looks like the average loans sit in an inflection point this quarter. So I just wanted to get the outlook there. And then on the equity fund services, obviously good Q-on-Q growth and the outlook, I think, for the Venture Capital Association is still pretty robust. So just any sort of color there on outlook would be great. Thanks.

Peter L. Sefzik — Executive Vice President, Executive Director, Commercial Bank

Yeah, Michael, it’s Peter. Both of those are businesses that we want to continue to invest in, that we’re wanting to add resources to. The TLS business is one that you’re right, it did feel like an inflection point maybe this quarter, and we’re seeing really good volume there and feel like we’ve got an opportunity to continue to grow that. On the EFS side, I would say the same thing. Both of those businesses, the outlook feels really good. And the pipeline activity is really good. And across the country, we’re finding opportunities to add people or pick up people. It is extremely competitive in the TLS business, I would tell you. A number of banks, I think, are wanting to get into it. We’ve been in it for a long, long time, and I think we’re in a great position to capture what feels like a growth business. So thanks for asking about both of those. We feel real good about the outlook on each.

Michael Rose — Raymond James Financial Inc. — Analyst

Great. Thanks for taking my questions.

Operator

Our next question comes from the line of from Ryan Nash from Goldman Sachs. Your line is open.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Good morning Ryan.

Ryan Nash — Goldman Sachs — Analyst

Hey, good morning Curt, good morning Jim. Jim, maybe just a couple of follow-ups on the asset sensitivity on the back of Ken and Brian’s question. So on Slide 13, can you maybe just talk about what the receive rate was on the swaps that you added? And Jim, maybe more just philosophy, can you maybe just talk about what you’re looking at to trigger additions to the swaps? Is there a minimum received fixed level that you’re looking at based on your view of the rate environment?

Is there a set notional amount we should expect you to be adding on a quarterly basis to reduce the sensitivity? I’m just trying to think about mechanically how you’re going to do this given that I think, on our math you need to add another $25 billion to $30 billion of swaps. So I’m just curious on the receive rate and how you think about adding over the next couple of quarters?

James J. Herzog — Executive Vice President and Chief Financial Officer

Hey, good morning, Ryan. The ones we added in the first quarter, the gross receive rate was just a tad over 2%, very close to 2%. And of course, we paid BSBY, which is actually running below LIBOR at this point. So that would be — give you a perspective for the rates. In terms of the volume, I would go back to my more global comments that we’re looking at this holistically in terms of what are the securities options on the balance sheet, what are the swap options off the balance sheet?

And as I mentioned, we will likely start pivoting more towards the swaps. If you look at what we did with securities and swaps in the first quarter, it was $6.3 billion on a net basis. And that was a pretty stepped up pace. I don’t know if we’ll run quite at that pace every quarter. It will depend on market conditions. But we’ll certainly be running close to that for the next couple of quarters, and you will see more of a pivot towards swaps, I suspect, over the next couple of quarters.

Ryan Nash — Goldman Sachs — Analyst

Got it. And then just on your follow-up for the modest decline in deposits. Just given the pace of rate hikes that we’re expecting over the next couple of quarters, how are you thinking about the mix of deposits? You’re currently in the mid-50s on non-interest-bearing? I think last cycle as we got to 150 basis points or so, we started to see deposits look for a little bit more rate on what they were receiving. So I’m just curious, what are you assuming for mix shift over the course of the next couple of quarters?

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. I think to the extent we lose deposits, it will be disproportionately to non-interest-bearing. I think even beyond that, we will likely see a modest shift, each rate hike from non-interest-bearing to interest-bearing. That’s just natural. We saw it go the other direction as rates were going down. Customers just became less rate sensitive. So we will see a gradual remix of that portfolio towards interest-bearing over time.

Ryan Nash — Goldman Sachs — Analyst

Got it. Appreciate the call.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Having just said that — just having just said that our portfolio is so heavy on the commercial banking side in our deposit mix. And so much of that is operating funds for businesses and companies that we work with. We’re always going to have a high non-interest-bearing component probably relative to our peer group even though we see some mix shift occurring.

James J. Herzog — Executive Vice President and Chief Financial Officer

Yeah. Yeah, that’s actually part of the value of the business model here at Comerica, heaving treasury management services and there’s certainly a foundational piece in terms of operational deposits.

Ryan Nash — Goldman Sachs — Analyst

Got it. Thanks again.

James J. Herzog — Executive Vice President and Chief Financial Officer

Thank you, Ryan.

Operator

I will now turn the call back over to Curt Farmer, President, Chairman and CEO. Please go ahead.

Curtis C. Farmer — Chairman, President and Chief Executive Officer

Well, as always, thank you for your interest in Comerica, and hope you have a good day. Thank you.

Operator

[Operator Closing Remarks]