Huntington Bancshares Inc (HBAN) 2021 Q4 法說會逐字稿

Greetings, and welcome to the Huntington Bancshares Fourth Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Tim Sedabres, Director of Investor Relations.

Thank you, operator. Welcome, everyone, and good morning. Copies of the slides we will be reviewing today can be found on the Investor Relations section of our website, www.huntington.com. As a reminder, this call is being recorded, and a replay will be available starting about 1 hour from the close of the call. Our presenters today are Steve Steinour, Chairman, President and CEO; and Zach Wasserman, Chief Financial Officer. Rich Pohle, Chief Credit Officer, will join us for the Q&A.

As noted on Slide 2, today's discussion, including the Q&A period, will contain forward-looking statements. Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, please refer to this slide and material filed with the SEC, including our most recent forms 10-K, 10-Q and 8-K filings.

Let me now turn it over to Steve.

Thanks, Tim. Good morning, everyone, and thank you for joining the call today. Let me begin on Slide 3. 2021 was a transformational year for Huntington. We continue to live our purpose and remain focused on our vision to become the country's leading people-first, digitally powered bank. We executed on our organic growth initiatives, along with the timely closing of the TCF acquisition.

In the fourth quarter, we began by successfully completing conversion activities. And by the time we exited the quarter, we'd refocused our teams on driving growth. We delivered record new loan production and continued to build on revenue initiatives. We entered '22 with added scale, density, new markets and specialty businesses. We are intently focused on driving growth and delivering top-tier financial performance.

On Slide 4, we're pleased to report our excellent fourth quarter results centered on 4 key areas. First, we finished '21 with record full year revenue growth and broad-based loan production. We delivered strong performance across the board in our commercial businesses. Second, our targeted cost savings are on track for full realization. This includes both the synergies resulting from TCF as well as the additional expense actions we announced last quarter. Third, we are executing on key initiatives to deliver sustainable growth. Pipelines are robust entering '22, and our teams are focused on driving revenue growth, including the revenue synergy initiatives related to our new markets and capabilities. Finally, we are very confident in our outlook for 2022 and beyond.

Slide 5 recaps our year-end review. Our financial results reflect the hard work of our teams over the course of '21. Return on tangible common equity came in at 19%, excluding notable items. Credit performed very well, and we returned significant capital to our shareholders. We delivered robust organic growth in both consumer and business checking households with year-over-year growth of 4.5% and 7%, respectively.

We continue to invest in revenue-producing colleagues and initiatives, including new and expanded commercial banking verticals, capital markets, cards and payments and wealth management. In the commercial bank, we launched EDGE, an innovative analytics tool that supports our bankers' deepening efforts incorporating advanced data and insights tailored to each customer.

In consumer banking, we built upon our fair play approach and launched new and compelling products and services such as Standby Cash and Early Pay. We expanded our leading SBA lending program to new states as well as added to our practice finance capabilities. We were honored to be recognized for our expertise, evidenced by being ranked #1 by J.D. Power for both customer satisfaction within our region as well as the top consumer mobile app amongst regional banks for the third consecutive year. Impressively, this was all achieved while our team successfully completed the closing and conversion of TCF. On the capital front, we were pleased to accelerate our share repurchase program as well as increase the common stock dividend.

In closing, our teams accomplished a tremendous amount of work over the course of the year, and I want to thank all of our colleagues and our management team who supported these efforts. I am increasingly bullish on the year ahead. The level of excitement is building across the organization, and our colleagues are energized and focused. We look forward to sharing our successes with all of you as we move throughout the year.

Zach, over to you to provide more detail on our financial performance.

Thanks, Steve, and good morning, everyone. Slide 6 provides highlights of our fourth quarter results. We reported GAAP earnings per common share of $0.26. Adjusted for notable items, earnings per common share were $0.36. Return on tangible common equity, or ROTCE, came in at 13.2% for the quarter. Adjusted for notable items, ROTCE was 18.2%. We were pleased to see loan balances rebound substantially during the quarter driven by robust new production activity as total loans increased by $1.4 billion. And including PPP runoff, loans increased by $2.4 million.

Consistent with our plan, we reduced core expenses, excluding notable items, by $21 million from last quarter, driven by the realization of cost synergies and ongoing highly disciplined expense management. We managed absolute core expense dollars lower while continuing to grow investments in strategic areas across the bank, such as digital capabilities, marketing to drive new customer acquisition and relationship-deepening and select new personnel additions to support our revenue growth initiatives.

Within fee income categories, we saw continued momentum in our capital markets as well as wealth and investment businesses. Strong credit performance continued to be a hallmark with net charge-offs of 12 basis points, and nonperforming assets declining by 16% from the prior quarter. We actively managed our capital base, repurchasing $150 million of common stock in the fourth quarter. To date, we have completed $650 million of our $800 million share repurchase program.

Turning to Slide 7. Period-end loan balances increased by 1.2% quarter-over-quarter totaling $111.9 billion. Total loan balances, excluding PPP, increased $2.4 billion or 2.2% during the quarter driven by commercial loans. Within commercial, excluding PPP, loans increased by $2.5 billion or 4.4% compared to the prior quarter. This growth was broad-based across all major portfolios and was driven by record new commercial loan production. Growth was led by middle market, corporate and specialty banking, which increased by $1 billion and represented 40% of total commercial loan growth this quarter.

Inventory finance increased by $597 million. Auto dealer floorplan increased by $276 million, asset finance increased by $160 million and commercial real estate increased by $267 million. Within corporate and specialty banking, each of our commercial verticals contributed to growth this quarter, including corporate banking, tech and telecom, healthcare and franchise. Inventory finance growth was driven by a combination of seasonally higher balances due to inventory shipments in the quarter as well as expansion of existing customer programs. Higher utilization levels drove approximately 2/3 of the increased balances.

In auto floorplan, we are continuing to add new dealer relationships and growing our overall commitment levels. In addition, balances benefited from improved utilization rates, which increased from the mid-20s to approximately 30% in the quarter. Even as we delivered record loan production, calling activities across the business continued at a rapid pace. We ended the quarter with commercial loan pipelines 34% higher versus the prior quarter and 49% higher than prior year, supporting our outlook for continued loan growth ex PPP throughout 2022. On the consumer side, residential mortgage increased by $334 million and auto increased by $129 million. This was offset by home equity, which declined by $369 million.

Turning to Slide 8. Deposit balances increased by $1.4 billion as we continue to experience elevated customer liquidity and optimize our funding, reducing CD balances by over $700 million. Consumer deposit balances increased by $1.6 billion from the prior quarter. Commercial balances increased by $300 million from the prior quarter.

On Slide 9, Reported net interest income declined modestly from the prior quarter as a result of lower PPP revenue. Core net interest income excluding PPP and purchase accounting accretion, was stable at $1.085 billion. With ending loan balances well above average balances for the quarter, we entered the first quarter of 2022 with a solid launch point from which to grow core net interest income going forward. Additionally, we continue to manage excess liquidity by funding loan growth and adding to the securities portfolio, reducing excess cash at the Fed to $3.7 billion from $8.1 million at prior quarter end. On an average basis for the quarter, excess liquidity represented a drag on margin of approximately 14 basis points.

Turning to Slide 10, we are dynamically managing the balance sheet to increase asset sensitivity and provide downside protection. During the fourth quarter, we added $2.8 billion of securities, and we continue to optimize our hedging program. We terminated $3.9 billion of received fixed swaps and floors, and we entered into new pay-fixed swaps in order to bolster our asset sensitivity. As rates move higher, we opportunistically added $5 billion of received fixed swaps in order to manage downside risks.

At year-end, our modeled net interest income asset sensitivity in an up 100 basis point scenario was 4.6%. We have steadily increased this metric over the past 18 months, supporting our ability to continue to capture upside opportunity as interest rates increase.

Moving to Slide 11. Noninterest income was $515 million, up $106 million year-over-year and down $20 million from last quarter. Lower fee revenues in the fourth quarter were driven by a decline in mortgage banking primarily as a result of lower saleable spreads. Our targeted focus on growing strategic fee revenue streams continue to bear fruit with capital market fees up $7 million or 18% from the prior quarter. Wealth and investments and insurance also performed quite well.

Card and payments revenues, which are typically seasonally flat from Q3 to Q4, declined slightly from the prior quarter, impacted at the margin by ATM volumes and the debit card conversion for TCF customers during the month of October. The underlying core business activity in cards and payments continues to be very solid, and we saw a restoration of ongoing growth in that business as the quarter progressed after conversion.

Deposit service charges declined $13 million compared to the prior quarter as a result of TCF customers transitioning onto the Huntington Fair Play product set.

Moving on to Slide 12. Noninterest expense declined $68 million from the prior quarter. And excluding notable items, core expenses declined by $21 million to $1.034 billion, as we captured cost savings from the acquisition and exercise disciplined expense management.

As we shared previously, we expect our core expenses to trend down in the first and second quarters, fairly ratably over that period to approximately $1 billion by the second quarter. Even as we work to bring down expense levels, we're continuing to invest in initiatives that will drive sustainable revenue growth while being disciplined in managing our overall expense base.

As you saw last quarter, we took additional actions in order to free up capacity to support these investments while remaining committed to the absolute core expense declines in the near term. Over the longer term, we expect expense growth to be a function of revenue growth as we manage within our commitment to positive operating leverage.

Slide 13 highlights our capital position. Common equity Tier 1 ended the quarter at 9.3% consistent with our prior guidance to operate within the lower half of our 9% to 10% operating guideline. We have $150 million remaining of our current share repurchase program.

As you can see on Slide 14, credit quality continues to perform well. Net charge-offs declined for the fourth consecutive quarter. Our nonperforming assets declined 16% from the previous quarter. Our ending allowance for credit losses represented 1.88% of total loans, down from 1.99% at prior quarter end. The improving economic outlook and our stable credit quality resulted in a reserve release of $98 million in the fourth quarter.

Slide 15 covers our medium-term financial goals. We are focused on driving sustained revenue growth while managing expenses within our long-term commitment to positive operating leverage and achieving a 17%-plus return on tangible common equity. We expect to begin seeing this performance in the second half of 2022.

Finally, turning to Slide 16. Let me share a couple of thoughts on our expectations for 2022. Our outlook is based on the starting point of our most recent quarterly results with expectations for year-over-year comparisons for the fourth quarter of 2022. It also assumes continued economic expansion aligned to market consensus as well as interest rate yield curve expectations as of early January. We expect average loan growth, ex PPP, to be up high single digits based on our starting point of $107.9 billion.

As a result of loan growth and modestly higher net interest margin, we expect core net interest income on a dollar basis, excluding PPP and purchase accounting accretion, to grow in the high single digit to low double digits range. Fee revenues are expected to be up low single digits driven by robust growth in key categories aligned to our strategies, including capital markets, our card and treasury management payments businesses and wealth and advisory with offsetting impact from lower year-over-year revenues in mortgage banking and the continued evolution of our Fair Play products.

As mentioned, we expect to continue to drive sequential reduction in core expenses for the next several quarters as we fully realize the TCF cost synergies and benefit from broader expense management. At the same time, we are continuing to invest in our strategic growth initiatives and new revenue synergy opportunities. We expect the quarterly run rate of core expenses to be approximately $1 billion by the second quarter and then remaining relatively stable over the second half of the year from that level.

In closing, we're keenly focused on the revenue opportunities ahead of us. We have the teams directed toward these key initiatives, and we're confident in our 2022 outlook to deliver on this plan. We believe these drivers of our outlook are aligned with our goals for sustained revenue growth, a 17%-plus return on tangible common equity and our commitment to annual positive operating leverage.

Now let me pass it back to Steve for a couple of closing comments before we open up for Q&A.

Thank you, Zach. Slide 17 summarizes what we believe is a compelling opportunity. Huntington stands as a powerful top 10 regional bank with scale and leading market density as well as a compelling set of capabilities, both in footprint and nationally. We are focused on driving sustainable revenue growth, which is bolstered by new markets and new businesses. This growth opportunity augments our underlying businesses, in many cases where we have top 10 market positions.

As a result of these factors, we've demonstrated robust financial performance that we expect to further improve as we move throughout '22. We believe our return on capital will be in the top tier versus peers, which results in substantial value creation for shareholders.

Tim, let's open up the call for Q&A.

Thanks, Steve. Operator, we'll now take questions. (Operator Instructions)

(Operator Instructions) And our first question today is from the line of Ebrahim Poonawala with Bank of America.

I guess maybe I just wanted to follow up around the expense guidance, Zach. You mentioned about $1 billion flatlining in the back half. But just give us a little bit of puts and takes in terms of where the savings are coming right now. I'm sure much like everyone else, you're investing in the franchise. So if you don't mind giving us a lens of like how we should think about a little bit of a medium-term expense growth outlook or are there savings opportunities at the bank where expenses could be around these levels for more than just 2022?

Yes. Thanks for the question. I think it's an area of important focus for us as well. And just taking a step back, we're really pleased with the trajectory that we're on here. As we've talked about for a while, we committed to take our expenses from the high watermark in Q3 of '21 at $1.055 billion down to that $1 billion over a 3-quarter period. And we saw the first stepdown in Q4 of $21 million, and we expect to see the remaining fairly ratably in Q1 and Q2 and then fairly steady for the balance of '22.

I think as you get beyond '22 and out into the future, the way we're looking at it is to manage within the confines of our commitment to positive operating leverage, just as we have for the 8 of the last 9 years. Given our revenue growth trajectory and what we expect to be pretty solid and sustained revenue growth, that will provide the capacity to maintain expenses within that level and still invest back in the business. And clearly, there will be plenty of opportunities as we go forward to continue to drive, to scale efficiencies, process improvement, automation and lots of ways to drive efficiencies that will allow us to plow back investments into the key initiatives while still achieving that positive operating leverage.

Got it. And just as a follow-up. As part of the loan growth guidance, if you could remind us, it means TCF obviously had a bunch of businesses that are levered towards CapEx and inventory rebuilds both in auto dealer and outside of that. How much of that is baked into this loan growth guidance? And what's the potential for loan growth actually exceeding expectations that you outlined?

Yes. So the guidance, as we talked about, was high single digits for loan growth. Overall, it will be driven by production. I think it will look pretty similar to what we saw in Q4. That is commercial-led, driven by production and really supported by what we're seeing from our customers and just really robust pipeline and calling activities at this point. And it's across all the commercial sectors, including those that we've now incorporated from TCF, middle market, corporate banking, our specialty verticals but also really important contributors from the inventory finance business, the vendor and asset finance business that we picked up from TCF as well.

In addition, I would point out continued contribution from the consumer side as well. We are expecting sustained growth in resi on sheet, auto, RV and marine and also likely benefiting there from lower prepays as we go forward. We have assumed a modest contribution from utilization improvement during the year, and that will contribute to some degree. But I would note that, that $5 billion of line utilization below pre-pandemic levels is just a massive coiled spring that will enable us to fuel growth. It'll likely be some in the back half of '22, much more as we go out to the future into '23 and beyond.

Our next question is coming from the line of Scott Siefers with Piper Sandler.

I wanted to start by maybe drilling down a little into the margins. Zach, maybe sort of your best thoughts on how you see the margin trajecting throughout the year? I guess maybe the best starting point is probably the adjusted 2.78% margin. And to the extent that you're comfortable, any thoughts on sort of your best estimate for how much benefit you would get from each Fed rate hike?

Yes. It's a great question. The guidance implies stable to slightly higher, and that's my expectation to continue to kind of trend ratably higher here as we go forward. And I think the dynamic that we'll see is very similar to what we've been talking about for a while. We'll see a slow roll-off of our previous preexisting hedging program, but that will be offset by benefits and reductions in the level of excess liquidity and the drag on margin that, that represents. We talked about a 14 basis point drag in Q4.

We said we do expect a lot of that to run off, not all of it to run off during 2022, which will be a benefit. And then the rate environment, which to the point of your question, is somewhat uncertain just given where the expectations for rate hikes are at this point in the forward yield curve, but I do expect that to be a positive contributor as we go forward here.

Okay. Perfect. And just sort of to be clear, I think in your prepared remarks, you noted that the NII guide was based on early January market expectations. So does that embed then 3 Fed rate hikes into the guidance?

Yes, correct. So the planning and budgeting that we completed was based on the early January rate curve that had 3 rate hikes in it over the last few weeks. Clearly, the curve has moved and sort of roughly pulled about a month forward, had previously been the trajectory around the forward yield curve such that gathers, I think a fourth hike now forecasted in the very last period in the year. That should be helpful for our Q4 guidance. But I would point you back to the guidance as slightly being the key range there inclusive of that.

Our next question is coming from the line of Steven Alexopoulos of JPMorgan.

I wanted to start -- so the net interest income outlook for 2022 has a pretty wide range, low -- high single digit to low double digit. Can you walk through -- because you're basing it on the forward curve. So what is the swing factor that will take you either to the low end of that range or high end of that range?

Yes. I would say it's mainly driven by where we end on asset growth. The more asset growth we have, the more kind of incremental NII lift we'll have on a growth basis, just given the fact that the yield will be stable to up. And so that's the big driver there. I think as well, just further to the last question, where the rate curve ends up going throughout the course of the year, it's clearly been somewhat volatile here over the last several months. Where it is now, I think our guidance stands and -- but those are the dynamics that drive the range within it. We're comfortable with the range somewhat.

Got it. So if average loans come out up high single digits, you'd be somewhere on the midpoint. Is that safe to assume if the NII guide?

Correct.

Okay. And then on expenses, you guys seem to be one of the few banks not lifting the expense outlook given all this talk on inflation. Are you just not seeing as much wage pressure and inflation in your footprint? Or are you just finding more offsets that others aren't finding?

Yes. Look, I think we're clearly seeing some indicators of inflation within the business. I would -- most notably, hiring new talent and starting the compensation expectations from our top talent. And I would note, when we talk about clients, particularly those within commodity-intensive businesses or labor-intensive businesses, they're feeling it, having to adjust to manage it.

At this point, the direct impacts on our expense base have been relatively limited. And we anticipated some wage inflation as we're going into the year trying to get ahead of it. We took a series of actions around compensation. We announced an increase to our minimum wage across the company to $19 an hour from what had previously been $17. We made a number of other priority adjustments. And so we think we've got it boxed now in the 2022 plan and included in our guidance.

Lastly, I guess I would close -- I think there's a unique point in time that we have, that perhaps some others don't, where we've got the benefits of scale coming from the TCF acquisition. Both the cost synergies that we've already defined and are executing against with, over the long term, we see more opportunities to continue to refine and get scale efficiency. So that also, I think, contributes to helping us to maintain that really solid expense growth less revenue.

Steve, just to add on, we took some actions in the third quarter, and that includes 62 branch consolidations that will happen in early February. And we took some other management we've stylized as organization issues as well. So we anticipated some level of inflation coming into the year. We try to get ahead of it with those actions taken to the third quarter.

Next question is coming from the line of Ken Usdin with Jefferies.

I was wondering, Zach, in the outlook for NII, you talked about the loan growth side. I'm just wondering if you could fill that in and tell us how you're thinking about both the growth and mix on the deposit side.

Yes. I do expect to see deposit growth begin to accelerate here. And I think it will be a pretty balanced mix between consumer and commercial as we go forward. For the last several quarters, we've been putting a sort of smaller emphasis on that, just came out strong. Liquidity has been throughout the system and the teams are repivoting back to drive that growth. And so that will be a good balance to fund what we expect to be, as I noted, accelerated loan growth throughout the year.

Right. That's why I was just wondering, are you expecting earning assets to still grow? Or is it more about remixing the left side of the balance sheet?

Look, I think we'll see a bit of incremental growth in the securities portfolio. We're watching the elevated liquidity situation pretty closely. And same playbook we've been operating with the last several quarters, just taking an incremental view month by month, looking at where that trend is and optimizing to see if there's -- if it's appropriate to have additional securities. But I do think there's some remixing as we see loan growth start to accelerate to hit the high single-digit guidance that we've given.

Right. Okay. And the -- just can you tell us in your fee guide, what you're using in terms of the Fair Play impact and outlook on overdrafts and related fees?

Sure. Yes. Let's talk about that.

Okay. Let me start. We introduced Fair Play 12 years ago, brought out 24-Hour Grace and Asterisk-Free Checking. We've been doing, I think, almost every year. In 2014, we noted all-day deposits. But more recently, in '20, we put the safety zone in $50 minimum. And we took 24-Hour Grace to our business customers because of the pandemic and the impact on small businesses and we felt that was the right time and thing to do to help those businesses at that point in time. And last year, we came forward with Standby Cash and Early Pay. And obviously, we've rolled all that out effective with the conversion to the TCF customers. So we pointed out an expected drag off that.

Now we also -- we've backed ourselves into a leadership position, I think, for more than the last decade in this area. It's added to our brand value, our customer, household growth, our relationship retention and expansion and significant deepening across products. So that has added to our brand and our loyalty. And I think as we go forward, we'll still retain this leadership role. There are plans we have in place going back now a number of months to do some more looking out for our customers with Fair Play.

Obviously, with what the industry is doing and pivot in the last month or so, we're watching that closely, and we would expect to react to that, and we'll communicate more going forward. But Zach's guidance range includes what we're contemplating as we move forward this year in Fair Play and other fees. Maybe, Zach, you could embellish the guidance if you will?

Yes, let me tack on to what the comments Steve just made. When we construct these product changes, we think about the economics holistically. There are fees that we see on a gross basis, like overdraft, but there are also a lot of other levers in the consumer checking product economics, like other related account fees, other product features and over time, really importantly, the impact that, that market leadership position has on elevated acquisition, the kind of retention and the relationship-deepening that we can drive.

And so to be clear, included in my guidance on the overall fee line is the assumption of a net fee reduction of approximately $16 million in Q4 from these changes. I would expect them to be in place by the middle of the year. I would highlight that, notwithstanding that impact, we do expect to see continued growth on the overall fee line as indicated by our guidance in low single digits driven by those strategic categories, cap markets payments, wealth and advisory.

In addition to the fee impacts from the changes we're anticipating in our consumer products, we also expect to see a reduction of between $3 million and $5 million per quarter in charge-offs as the lower overdraft fees that we charge on a gross basis create just fewer incidences of uncollectible fees and it has lower charge-offs.

Just taking a step back, maybe concluding on this discussion, we really believe that the positioning of our products is critical. And as we maintain that market leadership, this is a play we've run many times before. And the benefits we see in acquisition and retention and deepening as we maintain that leadership, we would expect to earn back that run rate fee loss in approximately 18 to 24 months, very much consistent with what we've seen in the past.

Our next question comes from the line of Jon Arfstrom with RBC Capital.

Question for you guys. Obviously, the expense guidance and the revenue guidance looks pretty good. There's one piece of it we haven't tackled, and that's provisions. And just curious how you feel about credit and risk. You still have fairly high reserves relative to peers. I know some of that's accounting but with the lower loss expectations and, Zach, what you just said as well on charge-offs. Can you help us think through the provision expectations?

Yes. I mean this is Rich Pohle. Let me take that. We feel very good about the condition of the portfolio right now, the charge-offs for the year and the reduction in the NPAs, both notable and both very positive. As it relates to the provision and the allowance, we have always been on the conservative side of the allowance. We started CECL day 1 on the high end, and we've been very conservative on the way up and I think very prudent on the way down, and we'll continue that way.

And there's things that we're looking at in the economy as it relates to supply chain and labor, that type of thing and just the continuing impacts of COVID that are just giving us pause as it relates to where we set the allowance, but it's a very disciplined process that we go through. Every quarter, we've had 5 consecutive reductions in the ACL ratio since we peaked in the third quarter of 2020. And we'll look at it every quarter, as we always do, with a very disciplined approach. And if the supply chain ease, conditions ease and labor conditions start to improve, I would expect that we'll have continued reductions over time.

John, our outlook is for reductions during '22 and charge-offs below the historic range. And we ended the year with very good credit quality and very pleased with the performance of the portfolio that came up with TCF. So the loads have been regraded. So there's consistency now as of end of year. And the economic outlook, plus what we see in the customer bases, gives us a lot of optimism as we go forward on the provision line.

Okay. That helps. And then just as a follow-up, Steve, maybe more of a medium-term view on credit. It seems like you obviously have strong growth, and I know you're a risk person by nature but the entire industry has strong growth expectations as well. Curious how long you think this all lasts without any real concerns on credit.

My current belief, Jon, is that we're going to go through 24 with a fairly robust GDP growth and performance on credit. And there's just an enormous amount of stimulus that's been enacted thus far, and some of it is multiyear. We're -- the economy has performed well, but it's been labor constrained. As that sorts out, I think that puts longer legs into the growth. The supply chain issues that we face that are constraining -- production did constrain in '21, will do so for much of '22, if not all the year, will get abated over time. We think things will get better a bit in the second half. But in some of these industries, '23 will become a more normal year.

So those factors and others give us confidence that we've got a multiyear positive slope on loan growth, GDP and underlying credit quality. Now risk will remain disciplined. We published the quarterly results for consumer, and there's literally no variance over the last decade-plus. So we're quite confident of our capabilities to manage the risks at these levels. We're very pleased with the additional talent we gathered from TCF, both on the origination side and in the credit areas as we think about the future. So '25 or beyond would be where we're a little more concerned that we will be over the next few years.

Our next question comes from the line of Peter Winter with Wedbush. .

Zach, I wanted to follow up on Ken's questions just with regards to the outlook for service charges on deposit with the Fair Play. It was down $13 million this quarter. Can you just go through what the outlook is from fourth quarter levels just with the puts and takes that you talked about, again?

Sure. Absolutely. Good question. We converted the TCF customers on the second week of October. So we had almost the entire quarter's worth of run rate of the TCF customers on to the Fair Play product in Q4. There might be a very marginal incremental impact into Q1. But for the most part, we're kind of at the new level trending. And as we said, we're continuing to roll out new product changes, frankly, of the same kind of nature that we've been doing across the last 10 years, but we do expect to respond to what's happening and to do that by the middle of this year. And that will drive the roughly $16 million incremental quarterly run rate reduction in fees on a net basis by Q4, just to be clear, in the guidance. So those are the kind of puts and takes here at kind of a relatively flat level and then we'll see those new changes come into place midyear with that roughly $16 million quarterly reduction in Q4.

Got it. Got it. And that's helpful. And then just -- I was wondering, could you just give an update on revenue synergies from TCF, where you're seeing the biggest opportunities and what's happening in some of the newer markets? And if I think back to the FirstMerit deal, I think it was about $100 million in revenue synergies. I'm just wondering if maybe you could quantify what the impact could be with TCF.

Yes. We're really, really pleased with where they're going. And we talked about this a little bit in multiple conferences, but there are 4 or 5 big buckets of them, the -- expanding our corporate business in the middle market, the corporate base and specialty businesses into the major commercial hubs within the formerly TCF geographic footprint like expanding in Chicago, expanding in Detroit. Denver is brand new. Minneapolis and St. Paul, brand-new to Huntington. And so that's a big one. Bringing the consumer product set to the TCF customers, we're seeing the second major bucket, and we're seeing terrific early signs of engagement and how folks are reacting to not only the product set but the digital channels and capabilities.

Third, expanding our business banking and market-leading SBA production into the TCF geographies, and we're well underway hiring out those teams and beginning to get early traction. Wealth management and private banking is an enormous fourth opportunity for us, and we've already begun to build out very significant teams, for example, in Minneapolis, Twin Cities and in Denver.

And then lastly, just leveraging the really now quite sizable scale equipment and inventory finance business, combining what we had before and then the great businesses that we brought over from TCF. So those are the 5 big buckets, and we're seeing good traction and wins already. We haven't given a precise guidance on that in the past, I'm not ready to do that today, but it's already contributing to the growth outlook and helping us to drive the kind of acceleration that we expect to see in both fees and loans in 2022. And as we go forward, we'll continue to provide more and more color on that as those continue to develop.

Zach, if I could add, the capital markets fee income lift in the fourth quarter was at least in part related to the combination of TCF. So middle market banking didn't exist in Chicago or the Twin Cities or Denver for TCF. The broker-dealer was outsourced. And we talked about wealth. It's just that there are a number of product categories and capabilities that we have that we'll be bringing into these expanded markets.

And then in the context of the things that TCF did incredibly well, asset finance, inventory finance, et cetera, we have now the ability to cross-sell into that customer base, which historically was not done. So on the consumer side, 1.5 million consumers that we've a much more robust product venue set that we'll be offering, and we're a multiple on home equity and again, which was not offered in a branch delivery system by TCF as well as mortgage. So excited across the board. We think we have a lot of consumer and business opportunities on the cross-sell side.

Our next question is from the line of Erika Najarian with UBS.

I just had a few cleanup questions on NII sensitivity. But Steve, I thought it was very interesting when a large bank kicked off earnings saying 24-Hour Grace and something you kicked off 12 years ago. My first question is for Zach. Zach, can you tell us in the 4.6% NII sensitivity what you're assuming for deposit repricing in that analysis? And what do you expect to actually happen as you think about the first few rate hikes?

Yes. That's a great question, Erika. Thank you. As it relates to deposit betas, I think it's a little too early to tell. We're expecting similar dynamics to the last major rate cycle. We do think there'll be competing forces here, some -- at the extremely low level of starting rates we're at right now would tend to indicate a higher beta. With that being said, the level of -- extraordinary levels of excess liquidity across the system would tend to mute that and indicate a lower beta. So I say we're watching the situation very carefully on liquidity and the pace of loan growth. And we will be disciplined and dynamic as we go forward.

In the actual modeling of the asset sensitivity, those models are intended to be stable on average over time and irrespective of the current level of interest rates to model the ramp. And so the assumptions in that are around 25% to 30% beta, which has been sort of the long-term average we've seen. I would tell you, I believe there's an opportunity that will be lower than that in the initial rate moves. And that's my general expectation. But again, I think we'll have to be dynamic, and we're watching it really carefully.

And my follow-up question to that is yesterday, and this kind of follows up to what Ken Usdin was asking about earlier. A few regional banks were now expecting negative deposit growth. To your earlier point, Zach, the system is awash with liquidity, and a few big banks kicked off earnings season saying that deposit growth won't be negative. And a few regional banks mentioned yesterday that they expect deposit growth to be negative. And I'm wondering, Huntington has always been known for its core operational deposit base plus you added TCF. I'm wondering how you're thinking about deposit growth. You mentioned it's going to be positive this year. But as we have more maturity in the rate cycle, how do you expect deposit growth to behave on an overall basis?

Yes. I do think our current expectation and the trends we're seeing in the business would indicate we'll continue to see deposit growth in 2022. I think there's sort of 2 factors we've been watching that are slightly offsetting each other. On one hand, we do -- we are observing particularly in the consumer space, some degree of normalization of the elevated liquidity we saw build up at the tail end of 2020 and certainly into 2021, largely influenced by stimulus and other factors like that and the savings behavior around COVID. So that is sort of the gradual normalization.

With that being said, our customer acquisition and the ongoing work we're doing to deepen relationships certainly augmented by the TCF synergy opportunities are offsetting that. And we expect to drive net growth in consumer offsetting that kind of pandemic deposit normalization trend that I noted.

On the commercial side, we're seeing just continued robust liquidity in our clients, and that's driving solid deposit growth. And as we focus on that even more going forward to continue to fund this accelerating loan growth, we'll see that contribute as well. So overall, I'm expecting pretty balanced deposit growth between the 2. And I think those are the kind of underlying drivers of it.

Zach, if I to add to Erika's question, we put a liquidity portal in play for our commercial customers about 1.5 years ago to try and take excess deposits and move them off-balance sheet, Erika. So we're not sitting with a cumulative super jumbo set of commercial depositors in the portfolio. We just didn't want that risk profile, plus we felt we could do a better job looking at for the customers by putting them into this. So that will help cushion us as whatever normalization if there is any of the customer base curves.

Secondly, we've introduced a digital tool, an analytics tool that has great promise for us. We've got roughly 500,000 business customers. And we're now able to get at the data in a much more real-time way in terms of product needs based on usage and other characteristics. So we expect that will drive our TM business in a significant way in the years ahead.

Next question is coming from the line of Matt O'Connor with Deutsche Bank.

You guys are the #1 SBA lender. And I was wondering if you could talk about what you're seeing in terms of demand there now that PPP is kind of mostly done or winding down. I would imagine when PPP was going on, there is kind of little to no demand and wondering how that's been trending more recently.

Matt, we had cumulative with TCF, over $12 billion of PPP lending. And notwithstanding that, we had robust SBA lending almost in parallel through the last 2 years. As we entered the fourth quarter, we continue to see demand for that product, and we expect it will actually increase this year in part because of the new markets that we're going to be able to expose our capabilities to. Twin Cities, a great business market. Denver, on fire, really terrific. Colorado is a terrific state to be doing business in. And now we're at roughly at scale in Chicago with 150-plus points of distribution versus 30. That will help those 3 regions drive our lending activity overall, including SBA.

Interesting. And then separately, credit quality question. You're a very big auto underwriter on the consumer side and commercial, but I'm focused on the consumer side. We've had this massive increase in used car prices. Any thoughts in terms of tightening standards as we think about LTVs? You've had a little bit of a trend down there with your disclosure in the appendix. But just how do you think about underwriting to these used cars that have increased 40%, 45% versus a year ago?

Yes, Matt, it's Rich. I'll take that. And as you noted in the slides, the LTVs have come down. We peaked in 2019 at 90% and we ended 2021 at 85%. So we have reacted to the increase in auto prices by bringing the LTVs down. But first and foremost, for us, the auto business is really based on client selection. We are a super prime lender, and we've developed a custom scorecard over many, many years in this business that very effectively predicts those customers that are not going to have a payment issue.

And so for us, it's really avoiding the situation where you have to get the car back in the first place. And we've done a phenomenal job of doing that over time. We also feel that we've been in this business a long time, and we have to be a consistent provider of capital to our dealers. And so we've, over the course of many cycles, worked through high prices, low prices, high demand, low demand. And we've had learnings from all of that as we've been one of the leading auto deal or auto financers in the country going back in time.

So I feel that we've got a good handle on the risk here, notwithstanding the increase in car prices. We've adjusted our custom scorecards appropriately and feel that we're going to come through this in really good shape as we always have.

We haven't had a delinquency on the floorplan side of this business in, I'm going to say, decades, certainly more than a decade since I've been around. And we really like the underlying credit quality performance that the dealers have been able to generate in the last couple of years. So the fundamentals of the business with a low expected default rate in the indirect side and an incredibly low risk on the dealer side, keep us -- continue to keep us very bullish on the business.

Next question comes from the line of John Pancari with Evercore. .

I guess back to that auto question, I know in the -- in your loan growth outlook for high single digits for 2022, you do mention auto growth as a driver. I mean on the growth side, can you just talk about what -- how you're thinking about the portfolio growth as you look at the year, particularly if we get some moderation in used auto demand as the, let's call it, a reopening continues and everything? So I wanted to get your updated thoughts on that portfolio specifically in terms of growth.

So John, we would expect that portfolio will continue to grow. We're going to open up in another 5 or so states this year. We've had this gradual rollout now for a number of years. and that will complete us. Eventually, we'll be in the lower 48 with this business. But we have a fundamental expectation that the new car market is going to come back off of last year's production probably by 1.5 million, 2 million cars to get 15, 15.5. total on the new side. So that will pick up a bit. The mix will slightly shift again back to where it has historically or closer to that on the mix side of the equation.

We -- as you know, we like the business. We think of it as low risk. It's a 2.25 year average rated asset. So -- and we're highly now automated. We have almost half of our apps coming through on a digital basis, and it's end-to-end digital for us. So we're very, very efficient with it.

Okay. Great. And then also related to that, I believe the utilization comment you gave earlier in terms of increasing from the mid-20s to the 30%. That's for the floorplan business, I believe, if you can just correct me if I'm wrong. And then if it is, what is your utilization trend for the nonfloorplan commercial revolvers?

Yes. This is Zach. I'll take that. We saw nice upticks, modest upticks in utilization in every one of our 3 major line utilization categories. Auto, just to your point, it rose from 23% to 30% in the quarter. Inventory finance rose from 25% to 32% seasonally. That's typical in the fourth quarter for that business. And then the general middle market revolvers went from 40 to 41 in the quarter. So we saw good early signs here, encouraging signs of that utilization recovery that we saw, as I said in my earlier remarks, of $5 billion of additional line utilization what we expect to recover back to pre-pandemic levels over the longer term.

Got it. Got it. If I could ask just one more high-level one. Just some news this morning about Intel looking to build a pretty sizable chip facility there near Columbus. And I just wanted to get your thoughts on the implications of something like that. Do you think there's follow-on benefits to loan demand there in your markets? And do you think there's a start of something where more of these tech companies could be building operations there in your markets?

John, for -- what you're referencing is Intel's announcing a large chip plant, the CEO of Intel, call it, the largest chip plant in the world. It will be about 1 million square feet. It was initially a land set aside of 1,000 acres to accommodate this. It's expected that there will be follow-ons and that there'll be other businesses, large businesses, suppliers to that plant that will co-locate as part of that 1,000 acre site. And this will be enormously impactful.

I think the CEO, Pat Gelsinger, referenced this as Silicon Heartland because typically, these plants with the supplier base create some level of colocation that we would -- that you've seen in Arizona and certain other markets. So this is incredibly impactful. It's a great move by the DeWine administration. I think it will benefit certainly all of Ohio and much of the Midwest and I think it's a bit of a game changer for us.

We'll -- we're going to have more than 10,000 construction jobs on that site and the roadway and water expansion. And then ultimately, there'll be 3,000 very high-paying jobs in the plant itself just with Intel. Again, there's an expectation of other businesses coming in for colocation, significant other businesses. All of that will feed and fuel, I think what's already a very robust real estate market. There's going to be housing needs. There will be additional transportation needs. The small business around the -- small businesses around these areas will do very, very well. So it's a huge moment for us here in all of Ohio, certainly Central Ohio, but I think this has the potential to be enormous.

If I reflect back in 2009 when I joined Huntington, this was term the Rust Belt, and that term has receded significantly over the years. And I think Intel is going to be a game changer in terms of technology in the region, and I'm very excited about what's going on. So again, kudos to Governor DeWine and his administration. Lt. Governor Jon Husted was enormously important here as well. But this came together in an incredibly efficient and quick fashion. And there's insight about it on both the local paper, Columbus Dispatch, as well as I think TIME has a lead article feature that. We're really, really pleased, and I believe this is, again, a huge moment for us and a game-changing moment for Ohio.

Our final question today is from the line of Terry McEvoy with Stephens.

I was hoping to get your thoughts on capital management and just appetite for share repurchase in the first half of 2022 with capital at about 9.3% at the end of the year.

Yes. Great question. Thanks, and I appreciate the chance to take a close on this one. We are really pleased with what we've done so far in the $800 million share repurchase authorization that we had, as we noted, and consistent with our guidance, front-loaded $650 million of that through the end of 2021. I think as we go forward, our capital priorities have not changed. We're still very much focused on funding asset growth first, supporting our dividend and that's sort of all other uses, including this. So as we see loan growth accelerating, we're pleased to be able to put the capital back towards that.

Now to the share repurchases -- sorry for the background noise there -- we intend to be dynamic here. And also to think about it in the context of our ongoing workaround, our next capital budget submission, which is -- which will reset the balance of 2022 as well with the submission in early April. So dynamic to see the opportunities here in the next couple of quarters I think it's what we're going to know.

Thank you all for joining us today. We're very proud of our colleagues' efforts to deliver a successful finish to '21, and we look forward to building on that as we enter the new year. I have a great deal of confidence in our teams and what Huntington can deliver for our colleagues, customers and shareholders over the course of '22. We have a deeply embedded stock ownership mentality, which aligns the interest of our Board, management and colleagues with our shareholders as you know. And thank you very much for your support and interest in Huntington. Have a great day, everybody.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.