Horizon Bancorp Inc (HBNC) 2021 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Horizon Bancorp conference call to discuss financial results for the 3 months ended December 31, 2021. (Operator Instructions) Please note, today's event is being recorded.

Before turning the call over to management, please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in Horizon's current 10-K and later filings. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press release and supplemental presentation issued by Horizon today, you can access it at the company's website, www.horizonbank.com.

We have with us at Horizon today our Chairman and CEO, Craig Dwight; Treasurer, Jim Neff; Executive Vice President and CFO Mark Secor; Senior Vice President, Retail Lending, Noe Najera; Executive Vice President and Chief Commercial Banking Officer, Dennis Kuhn; and Executive Vice President and Senior Commercial Credit Officer Lynn Kerber.

At this time, I'd like to turn the call over to Mr. Dwight. You may go ahead, sir.

Thank you, Rocco, and good morning, and thank you for participating in Horizon Bancorp's Fourth Quarter Earnings Conference Call. Our comments today will follow the investor presentation and the press releases that we published yesterday, January 26. Horizon is pleased to report record earnings for 2021, and a solid fourth quarter that continues our momentum into 2022 and 2023, with strong commercial and consumer loan growth, the successful integration of our fall branch acquisition, efficiencies gained from our late summer consolidation of 10 offices and continuation of our excellent asset quality. We're very proud of what our associates have accomplished this past year and their incredible work ethic, as we continue to build for the future.

The momentum taking us into 2022 and '23 is due in part to the new associates and customers we welcomed from the 14 Michigan branches acquired on September 17. This logical extension of our franchise includes adding approximately 50,000 new households, 3 commercial lenders and low cost and stable core deposits. Horizon has already proven that mass and scale work to drive shareholder value, and our recent branch acquisition only contributes to that momentum. In addition, the 10 branches we closed on August 27 is a continuation of our ongoing effort to maximize the efficiency of our retail franchise. Excluding acquisition-related and nonrecurring costs, our fourth quarter expense to average asset ratio was 195%, support of our 2022 full year goal to be below 2%.

Now I'd like to discuss our promotions and retirement of a senior officer, which was announced yesterday. Jim Neff, President of Horizon Bancorp and Horizon Bank, on Monday, shared his decision to retire at the end of the first quarter. Jim has been an integral part of our company's growth during his 22 years with Horizon as we grew from approximately $370 million in total assets to our current footings of over $7 billion. We thank Jim for his contributions to our success, and we wish him and his family good health and happiness in his retirement years.

The consumer and commercial banking promotions and appointments we announced yesterday are all possible because of the depth of talent we have cultivated in our organization. We are promoting EVP, Lynn Kerber, to Chief Business Banking Officer; and Noe Najera to EVP and Senior Retail and Mortgage Lending Officer. Both Lynn and Noe are familiar with their expanded areas of responsibility, which makes this transition seamless from a cultural standpoint and to maintain our growth momentum.

In addition, Dennis Kuhn will move into the role as Regional Market President for Southwest Michigan and return to his hometown of Kalamazoo, where he has a long banking history, deep roots in the community and established our original office in 2010. Dennis' primary focus in his new role will be to grow commercial loans.

Starting on Slide 4 of our presentation. Horizon completed the fourth quarter, reporting solid quarterly earnings at $0.49 per share or $0.54 per share in adjusted earnings, which compares favorably to the $0.52 per share adjusted earnings for the third quarter. Driving the quarterly results were net interest income growth, organic commercial and consumer loan growth, additional revenue from the acquired offices and the cost saves achieved in 10 branch closures. Given the size of our balance sheet, highly efficient operations and talented workforce, we believe Horizon is well-positioned to capitalize on significant organic and strategic opportunities within our attractive Midwestern markets.

So why invest in Horizon? Well, our investment thesis is simple. We are a high-performing company located in attractive Midwest growth markets. We are on the right side of Chicago. We are a company that continues to look for opportunities to improve our operating model, as evidenced by the enhancements to our retail network and market area in 2021. We have a consistent history of strong ROA and ROE. We have a positive earnings growth outlook for 2022, which we believe provides us another opportunity to favorably distinguish Horizon from its peers.

To further support that we are a growth company, Horizon's compounded annual growth rate from 2002 through 2021 was 13% for total assets and 20% for net income. Horizon's ability to grow earnings faster than total assets illustrates the company's ability to efficiently increase the bottom line.

Moving on to digital transformation. Horizon's average monthly transactions continue to shift away from branches to our digital virtual channels. As of last month, 75% of all transactions took place through our digital channels compared to 44% in 2018. The good news is throughout this pandemic, Horizon's online activity has stayed relatively constant even with the reopening and closing of offices. Horizon embraced this shift before the pandemic, which of course, accelerated the trend, and it was a key consideration in our annual branch performance review and the consolidation of 10 branches in August.

Excellent examples of our technology investments that are paying off are trends in the online chat, online deposit account opening and ability to support the branch network from our 3 independent call center locations. In 2021, Horizon is able to answer 86% of all online chats through our AI bots, and total chats increased in excess of 300% over the prior year. In addition, Horizon opened 12% of all new checking accounts online during the year, and we expect substantial increase in this effort in 2022. As part of our annual branch rationalization and due to our investments in technology, we see additional opportunities in reducing the number of branches in 2022.

Now, to talk about capital. Horizon manages and deploys capital well. As evidenced by our recent acquisition, stock buybacks for the year and 25% increase in our quarterly dividend during the year with a 2.9% yield as of December 31, 2021, Horizon has reported in excess of 30 years of uninterrupted quarterly cash dividends. In the fourth quarter of 2021, Horizon Bancorp, Inc. did inject $60 million of cash into the bank to maintain strong bank capital ratios and to lower our FDIC insurance premium in 2022 by $400,000 to $500,000. This is part of our original plan when we announced the TCF acquisition. After this capital injection into the bank, the holding company still has cash on hand to cover more than 6 quarters of fixed costs and dividends.

Now, for our financial update, let me -- it's my privilege to introduce to you Horizon Bank's Executive Vice President and Chief Financial Officer, Mark Secor. Mark?

Thank you, Craig. Horizon had its fourth consecutive quarter of record-adjusted net income with new records for net interest income and adjusted diluted earnings per share. We are very pleased with these results and the continued positive core trends demonstrated in the fourth quarter. Starting with Slide 15. The company's fourth quarter results were impacted by a pair of onetime events, the first $884,000 of additional transaction costs from the recent branch acquisition, and the second is a $1.9 million mediation settlement for a Department of Labor dispute related to the ESOPs, where Horizon acted as a trustee. Horizon is no longer in the ESOP trustee business, and as we reported in the fall, we sold all ESOP accounts to another service provider for a $2.3 million gain in the third quarter.

The record net interest income for the quarter was primarily due to a higher level of interest-earning assets, with cash continuing to move to the investment portfolio along with growth in commercial and consumer lending and the runoff of lower-yielding PPP loans as they are forgiven. Continued growth in net interest income dollars through 2022 remains one of our goals for the year. We had a $2.1 million release for credit loss compared to $1.1 million provision expense in the linked quarter. We see continued strong credit performance, reductions in nonperforming loans and improving econometrics and believe we are appropriately reserved given the current state of our portfolio, the recovery in economy and our CECL modeling.

Slide 16. As we continue to focus on increasing net interest income and an expectation of a rising rate environment, we wanted to provide a few details on our balance sheet. It's currently in an asset-sensitive position with approximately $1.8 billion of adjustable-rate assets, of which approximately $925 million would move immediately with a rate change to their index. Shocking our balance sheet with a 100 basis point increase, using 2021's net interest income, we would generate an increase in net interest income of approximately 5.61% or $10.2 million.

Contributing to the increase are the expected deposit betas for rising rates, which currently range from 4% for consumer deposits to 45% on money market and public funds. Our internal forecast assumes 325 basis point rate hikes during 2022, with the first in March. And in this scenario, we expect our asset-sensitive position to enable our net interest income and earnings to benefit from increases in short-term rates starting this year.

Slide 17. The adjusted margin decline of 26 basis points during the quarter was positively impacted by 10 basis points from PPP income, as net deferred fees were recognized for loan forgiveness. This was offset by 32 basis points of margin compression from the high average cash balances held during the quarter. This decrease in the margin was expected as a result of the branch acquisition that closed on September 17, which resulted in the average balances for Fed funds sold to be $334 million higher in the fourth quarter compared to the third quarter, along with average balance of investments being $459 million higher for the same period. However, even with this drop in the margin, the growth of earning assets in the fourth quarter increased net interest income by $3.4 million.

Slide 18. The loan yield decreased 4 basis points in the fourth quarter, primarily due to the decreasing amount of PPPC income recognized. Excluding PPPC, the fourth quarter yield would have increased 1 basis point from the third quarter. The steady loan yield is a result of the growth in commercial and consumer loans, changing the portfolio mix to higher-yielding assets, helping to offset the lower rates for new loans being originated in the current portfolio rates. As the majority of PPP fees have been recognized, additional downward pressure on the loan yield is expected going into 2022.

Slide 19. The investment portfolio was $2.7 billion at quarter end and has increased $1.4 billion since the end of 2020. $630 million of this growth is directly related to the low-cost liquidity onboarded with our September branch acquisition, with $593 million of cash on the balance sheet at the end of the fourth quarter. Additional purchase of investments during the first quarter are expected to increase the investment portfolio to approximately $3 billion as we continue to focus on increasing net interest income.

Also, during the quarter, we increased held-to-maturity investments to 57% of the investment portfolio. To help manage tangible capital in a rising rate environment, a select group of investments with higher interest rate risk were transferred to held-to-maturity, along with all investments currently being purchased. Management will continue to monitor the liquidity required from the investment portfolio to determine the appropriate level of investments in this classification.

Slide 20. Margin compression was slightly tempered by our continued improvement in funding costs, which reflected the low-cost funding acquired in the branch acquisition in September, which added to Horizon's valuable core deposit franchise. The CD portfolio's 23 basis point decrease in pricing, reduced total funding costs as higher cost term deposits matured during the quarter, $479 million of CDs with an average cost of 49 basis points will mature during 2022 and will continue to reduce our cost of funds. Further improvement in our long-standing low-cost funding model also reflected noninterest-bearing deposits growing by 16% in the fourth quarter.

Slide 21. Setting aside the onetime acquisition and mediation costs, our fourth quarter operating expenses underscored our long-standing ability to manage expenses, while continuing to invest in growth opportunities in the business. Even with our first full quarter of costs for the acquired Michigan operation added in late September and higher FDIC insurance premium, our fourth quarter core operating expenses of $36.6 million represented an increase of only 9% from the third quarter and 0.4% from the same period last year. Core operating expenses continued to be leveraged, as we saw noninterest expense to total average assets decline 10 basis points to 1.95% annualized, fully supporting our 2022 goal of less than 2%.

Now Noe Najera will provide an update on mortgage and consumer lending.

Thank you, Mark. Good morning, everyone. I would like to provide additional insights into our 2022 strategies on how we are going to achieve growth in retail lending. On to Slide 23. Our expansion into the Northern Michigan market has had an immediate impact on our consumer production. We achieved record consumer loan production in 2021 in excess of $397 million, finishing with a strong fourth quarter. The mix of home equity lines and indirect lending was equally balanced during this period. We expect similar results during the first quarter of 2022 as we launch a new home equity product to further build on the momentum of the fourth quarter.

To date, we have 34 new dealer partners, which have embraced our program and will continue to perform during this auto inventory short period. We have recently hired a highly experienced indirect representative for the Indianapolis market, which has a growth potential. She has been well received by our partners in the market. Additionally, we have refreshed our indirect lending program to focus on higher-yielding loans, all this without compromising credit standards. This will be achieved with limited risk while increasing yield. We expect our charge-off levels to remain consistent with market trends. We anticipate these changes to have a positive impact on the yield and the growth of our existing consumer portfolios.

With the expected mortgage rate increases in 2022, we will showcase our existing no-fee HELOC product, with quick approval process. We believe it is more economical for borrowers to draw on their new existing HELOC than getting cash out refinances, as has been the case during the past several years. This will result in higher line usage, allowing portfolio balances to grow at a much higher rate than in previous years. We are confident that our consumer products will remain competitive in all markets.

Now on to Slide 24. Our expansion into the Michigan market provided significant to overall production we experienced in '21. The market provides a great opportunity for second home and jumbo financing, which were strong portfolio of products we offer. We recently made a policy adjustment expanding our geographic footprint to over 20 states for sellable products. This will provide opportunity for growth while at the same time, limiting Horizon's risk. Since these loans will be sold on the secondary market, this geographic expansion is being marketed by our mortgage loan officers to their contact centers of influence and through online channels.

MBA forecasts total mortgage originations in 2022 to decline by 35% compared to '21. We expect to beat MBA's forecast and anticipate a reduction between 15% and 18% for the year. With a return to normal seasonality typical of pre-pandemic levels, we are positioned well with experienced loan officers who have long-term relationships with local contractors, real estate agents, builders in all markets. One of the drivers of the forecasted reduction in mortgage originations for 2022 is lack of housing inventory, thus creating a strong demand for new construction throughout our footprint. Horizon has long been in the construction loan business and is positioned well to take advantage of this growth segment. Additionally, our experienced loan officers and back-office support have proven proficient in handling these products while leveraging long-tenured relationships. We feel we can beat the market estimates in the coming year, regardless of the rate increases expected. We expect to finish the year well north of $500 million and total mortgage production.

And now I'd like to introduce Dennis Kuhn.

Thank you, Noe, and good morning. Please refer to Slide 25, accelerating commercial loan growth. Horizon has continued to gain momentum in core commercial loan activity during the fourth quarter with $51 million net loan growth or 10% annualized. This was driven by a 38% increase in net funded new commercial loans against the prior quarter. The addition of new experienced commercial lenders in our growth markets is fueling this growth, which we expect to continue into 2022. This is supported by our $120 million pipeline entering the new year which we expect to grow throughout the quarter.

We also continue to see an uptick in revolving line of credit usage, which increased for the second consecutive quarter, up by over $5 million during the fourth quarter. We have the capacity within our lending groups to continue this established growth trajectory, which is expected to be in the range of 10% in 2022.

And now Lynn Kerber will comment on asset quality. Lynn?

Thank you very much, Dennis, and good morning. Referring to Slide #26 regarding asset quality. I'd like to highlight several items for the group. Firstly, our credit quality metrics for the fourth quarter remained very strong with low delinquency and improving trends in nonperforming loans. Our total bank past dues for December were 0.24% compared to 0.20% at December 2020. Our commercial delinquency for December was 0.17% compared to 0.15% a year ago. Our nonperforming loans decreased from $29.4 million at September 30, '21 to $19 million at 12/31, resulting in a ratio of nonperforming loans of 53 basis points, an improvement from 69 basis points the previous year.

Our commercial loan, nonperforming loans decreased $8.6 million in the fourth quarter. This was principally due to the upgrade and payoff of several loans, resulting in a commercial loan, nonperforming loan ratio of just 36 basis points. Our net charge-offs for 2021 were $1.6 million. This reflects a charge-off rate of 5 basis points for the year. In the fourth quarter, the bank recognized 2 commercial charge-offs totaling $926,000, which were anticipated and previously reserved for.

Regarding the allowance for credit loss, as Mark previously discussed, we provided a release of allowance and $2.07 million in the fourth quarter. This results in an ACL ratio of 1.51% and is reflective of our continuing strong credit metrics.

With this, I will turn the presentation back to Craig to cover key franchise highlights.

Thank you, Lynn. To summarize Horizon Bancorp's key franchise highlights, Horizon is positioned well for earnings growth going into 2022 and 2023 as a result of our recent acquisition of 14 new branches, low operating cost discipline, a pickup in loan demand, an increase in number of commercial loan officers, an expansion of our consumer loan dealer network and leveraging excess capital.

Excluding PPP loans, we expect core commercial loans to increase by approximately 10%. We expect solid consumer loan growth in the range of 5% to 9%. We expect a reduction in mortgage loan production of 15% to 18%, which is well below the Mortgage Bankers Association forecast that calls for a 35% reduction. We are seeing the management team with depth as exhibited by our recent promotions. Horizon has maintained a solid historical compounded annual earnings growth rate of 20% over the past 19 years, and the company has paid 30 years of uninterrupted cash dividends on common shares, and raised the dividend two times last year for a total of 25% increase.

This concludes our remarks for today. And now, I'll ask our operator to please open the line for questions. Thank you.

(Operator Instructions) Today's first question comes from Terry McEvoy with Stephens.

Maybe, first question, the future initiatives, you talked about 2022 branch optimization starting in the second quarter. Should we expect additional branch consolidation and closures? Is that what you're hinting at? And then I guess, the follow-up question there is will the cost savings be reinvested into kind of the digital channels or other parts of the bank? Or would those savings fall to the bottom line?

Yes, Terry. This is Craig. Thank you for the question. We do anticipate there will be additional branch closures late in 2022. We complete the rationalization in the second quarter. And then, once we announce the closures, it's end of the third quarter. So it's not going to have much of an impact on the bottom line this year. But most of the cost reduction will go to reinvestment in technology.

And then, as my follow-up question, in the press release, I think you mentioned, I'm trying to track it down, about an 8% decline in the acquired deposits from TCF. And if I remember correctly, the original forecast last summer was about a 30% runoff. So maybe, just maybe talk about -- it sounds like the runoff is better than expected. And maybe what's the financial kind of benefit from holding on to more of those deposits?

Yes, Terry, thank you. This is Mark. Yes, we have seen about an 8% decline in the deposits. Some of that seasonality, as we've seen in our own deposits, in the municipal arena. The -- we did announce or we did model in a 10% initial runoff after the acquisition. But we also -- and we updated it in our Investor Day, another 10% after that from surge deposits. So we are well below that and we have seen that stabilize around that 8% runoff for a period of time here.

Great. I forgot to say, Jim, congrats on your retirement announcement. I should have said that right from the beginning. Congrats.

Thank you, Terry.

And ladies and gentlemen, our next question comes from David Long of Raymond James.

Good morning, everyone. And Jim, congratulations to you as well. Wanted to talk a little bit about operating expenses. The -- very well controlled in the quarter, given all the moving parts and the investments that you've been making. As we look into 2022, what should we expect on the pace of growth? And how does wage inflation impact your expenses as we look at 2022?

Thank you, David. This is Mark. We did see -- we typically see in the fourth quarter some true-up for bonus expense. So we did have a little more expense for bonus, even though our employee -- or our benefits costs are pretty well managed. The other area that we saw an increase, and we touched on a little bit with the FDIC insurance expense due to lower capital ratios and the high growth rate that we've had in assets that insurance costs have come up. But we do expect by capitalizing the bank more and by absorbing these asset growths, we do anticipate that $400,000 to $500,000 savings the next year in the FDIC from what the current run rate is.

Sorry, what was the second part of your question?

Wage inflation.

Wage inflation. Like everyone, we're seeing that. What's offsetting it is open positions. So as you continue to try to fill positions, we did budget in an amount for that. We have planned next year that we would be able to deal with some of the wage inflation. So we are planning on that. It hasn't shown significantly on the financial statement, but we do anticipate that we will see some -- besides normal wage increase, we will see some pressure on wage inflation.

Just to add to that, we anticipate a 4%, 4.5% wage increase. However, bonuses will be accrued at substantially less than they were last year. We had a special fourth quarter bonus for the TCF acquisition, which was extremely challenging from our backroom and the frontline people. So we did have a special accrual for that as well. So you will see the bonus accrual come down.

Got it. Okay. And then the other thing I want to ask about was on the credit side. I don't know, Lynn, maybe this is your -- a question for you. But the day 1 CECL level that you guys talked about, pre-pandemic, was about 98 basis points on the reserve, obviously, well above that here. Can you get back to that level? Or has the mix of the loan portfolio changed or your outlook forever changed given the pandemic hit on what the right CECL reserve level is? So I guess, the question is, where can that go? Where can we go from here? And can we get close to that 98 basis points that you talked about a couple of years ago?

David, this is Mark. We did see the release this quarter, and that is because of improving trends and improving historical loss rates. We still want to be cautious. We're not -- this pandemic thing continues. We have specific allocations to sectors of our loan portfolios. The ones that would be a higher risk that we've talked about for many quarters here are hotel restaurants. And until we know what the outcome is, we want to try to maintain those to the best we can until we can clearly see what the risks are in those areas. So will we ever get back to that level? I think there are too many factors to say. I would anticipate there wouldn't be much credit loss reserve through the year, just based on what the trends are. But to get back to that level, I think it would take quite a while.

(Operator Instructions) Today's next question comes from Damon DelMonte with KBW.

First question, I just wanted to circle back, Mark, on your commentary about the securities portfolio. I think you referenced that the securities would get up to $3 billion in '22 and remain there for most of the year. Is that how you characterize it?

Yes, that's what we're planning. We -- unless there's some liquidity needs that we aren't foreseeing as we could use some runoff, but yes, we're targeting around that $3 billion figure for the year.

And do you expect to get there like, in the first quarter? Or is that going to be kind of legged into over the next couple of quarters?

Yes. We have started purchasing and hope to have that year averaged in through the first quarter.

Okay. Great. And then as we kind of think of the dynamic of the margin here, you did a good job illustrating the asset sensitivity. So I guess, first, what was the PPP impact on the margin this quarter? I may have missed that.

10 basis points would have been the impact. And we only have -- we stated we only have about $560,000 of fees yet to be recognized on what's remaining.

So do you feel that your core margin has kind of bottomed here as you -- you're kind of rotating into security, which presumably will be higher yielding than the cash that it's sitting in and that you're being positioned for a rising rate environment. Is it fair to assume that the core has kind of troughed at this point and should be looking upward?

Yes. At this point, I mean, the excess cash had a significant impact on the margin, as we talked about 32 basis points. So as we use that cash, that mix was going to help get the margin up from that point.

Got it. Okay. And then, just as my second question and my follow-up question, kind of going back to the -- on the expense side, are you guys providing kind of like a range going forward, like an overall growth range for the year, kind of based off of fourth quarter numbers?

Yes. I mean, we've targeted that sub-2% and we're at 195%. Obviously, average assets play into what that ratio is. But yes, I think the run rate from the fourth quarter, as we said, we had some bonus expense offsetting the growth in salary expense going forward. We had some -- the FDIC expense was higher than what we would have anticipated just to try to catch up from the calculation. So I think it's a pretty good place to start for looking into the next year.

And our next question today comes from Brian Martin at Janney Montgomery.

Mark, I just wanted to see if you could touch a little bit on the investments you're making on the securities. Just kind of what are the -- what were the new rates you're getting on that? Just kind of how you're thinking about that? And I think, you also talked about the margin, maybe just -- maybe, you can give a little insight on how first quarter shakes out on -- I think, you have a little bit more crystal -- on your crystal ball on that quarter. I know the rate increases probably begin to occur after that. But just -- how we should be thinking about the margin percentage as you go into 1Q and then make some adjustments based on your comments on sensitivity?

Yes. The investment portfolio, we're buying a mix of munis of a few corporates, looking at some sub-debt as it comes available. And then, your typical mortgage products. Nothing outside of what our policy would have allowed in the past, not looking to stretch. The portfolio put off a 2.17% tax-equivalent yield for the quarter. That's pretty close to the range that we're putting it on. So I think, there's only the ability to upside. And when we look at the cash flow rolling off, there's not a lot of high-yielding investments rolling off. So with some potential rate movement, I think I feel pretty comfortable that what we would reinvest in would help maintain that as we go forward.

The margin, as we -- just to answer the last question from Damon, that cash balance was a huge impact to the margin decline. So if you net out the PPP that is slowing down and that would have been a 22 basis point decline. So we should be able to see some of that comeback. The pressure is on the potential on the loan portfolio, not significantly, but in the loans that are going on currently are under portfolio rates. So there's a little bit of pressure on the new product coming on. But -- so I think the margins would come up here from where it is, currently. And again, as we continue to do and continue to say, our focus is on growing net interest income because the balance sheet continues to fluctuate the margin as the asset mix changes.

Yes. I got you. Understood. And just maybe a follow-up, just the line of credit utilization. I guess, has there been any -- have you guys seen any change with that? And I guess, maybe are you starting to see any changes there?

This is Dennis. And yes, over the last 2 quarters, we did see growth inline usage. They are really at -- continue to be at lower level, certainly. So for the full year, we saw a $21 million reduction inline usage. But again, over the last 2 quarters, we have started to see an uptick and we would expect, into 2022, to see additional growth inline usage.

And Brian, I wanted to follow up, and I know -- I don't know for sure what your plans of -- you're going to be modeling rate increases. But as we've stated, we are asset sensitive, so those rate increases will help improve the margin, going forward. And again, a follow-up to Dennis, both on the consumer and commercial, we're low on our line usage. Just a quick estimate of what we would have been, maybe on an average basis, between the consumer and commercial lines, we still are about 100 million lower than what average line usage would be in -- historically.

Got you. Okay. And Mark, you said -- you gave the amount. I think -- I don't recall what you said, but as far as what moves immediately. But are there -- the TCF floors, I mean, you have floors in the portfolio? Or can you just comment on where those stand today?

Yes. We do have floors. There is a portion, and that's factored into that -- the modeling. We do have a portion that will -- we'll have to see more than a 25 basis point increase to get above, but not a significant amount. And by the time we get to 50 and on up above, we will be out of those. So there's not much difference, if you noticed, between -- on the slide between 100 and 200 basis point increase because of that.

And our next question today comes from Nathan Race at Piper Sandler.

Mark, maybe a question just on the overall balance sheet dynamics, just given that the TCF deposit runoff or attrition has been less than you guys modeled, is there any thoughts around potentially deleveraging the balance sheet to the extent possible to support margin? Or are you guys maybe more focused on kind of maintaining the balance sheet levels as it exists today to just kind of grow spread revenue going forward?

Yes. I think in this environment currently, we're wanting to maintain the balance sheet to the best we can and would not look for a deleverage opportunity and instead, growing earning assets. We've talked about, in the past -- just as an example, we've talked about, in the past, that we had got this borrowing last year that was a $225 million advance from the FHLB, 1 basis point with a 3-month puttable, and they put that in January.

So we had to pay that down, but they came back with some more specials. And it's a little different, but we did another special, not quite at that level, around the $200 million range to maintain the balance sheet. And it's at a 6-month puttable at 10 basis points. So still, extremely good opportunity to maintain that. Just anticipating some of the seasonality of some of our deposits so that we don't have to borrow in a rising rate environment.

Nathan, we are looking at possibly redeeming some sub-debt that's expensive, but it's not significant.

Okay. Understood. Okay. And just maybe 1 housekeeping question. The wealth management revenue was down somewhat noticeably in the fourth quarter compared to 3Q. Was there any specific driver there? Was it just kind of market volatility, kind of, towards the year-end? And just kind of the outlook for wealth management revenue growth in 2022?

Yes, Nate, that's primarily directly related to the sale of the ESOP trustees' accounts that we did in the third quarter, and not having that revenue going forward.

Okay. Understood. Great. And then, if I could just ask one more, just on kind of updated capital, deployment priorities. TCE has already started to, I think, rebuild at pretty healthy clips, post the dilution with the TCF deal from last quarter. So maybe, Craig, just any updated thoughts on kind of what you're seeing from an acquisition opportunity perspective. I believe there's an interest in some leasing and kind of asset-generating companies from what you guys discussed in early December at the Investor Day. And just within that context, any updated thoughts around the payout and share buybacks as well into 2022?

Yes, Nathan, thanks for the question. We do not see an acquisition taking place for the first 6 months of this year, primarily because we do want to build up TCE throughout this year unless it's in a leasing company or an asset generator. However, after the first 6 months, I think discussions will pick up again as you're probably already cheering. And we're looking at either end market or market extensions in Indiana, Michigan or Ohio to complement our current footprint. Typical size, $500 million to $2 billion is the sweet spot for us from the target size.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Okay. Thank you for participating in today's call, and we look forward to talking with you in the near future. If you have questions, feel free to give Mark or myself a call. Thank you, and have a good day.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.