Q4 2021 Huntington Bancshares Inc Earnings Call
Greetings and welcome to the Huntington Bancshares first quarter earnings call. At this time, all participants flaring listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Mr. Dovish director of Investor Relations.
Thank you operator, welcome everyone and good morning copies of the slides, we'll be reviewing today can be found on the Investor Relations section of our website Www Dot Huntington dotcom.
As a reminder, this call is being recorded and a replay will be available starting about one hour from the close of the call.
Our presenters today are Steve Stein, our chairman, President and CEO , Zach Wasserman, Chief Financial Officer Rich.
Rich Pohle, Chief Credit Officer will join us for the Q&A as noted on slide two 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.
It 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 three 2021 was a transformational year for Huntington, We continued 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 success.
Fully 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 'twenty two with added scale density new markets and specialty businesses.
We are intently focused on driving growth and delivering top tier financial performance on slide four we're pleased to report our excellent fourth quarter results centered on four 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 T. C F as well as the additional expense actions we announced.
Ounce last quarter.
Third we are executing on key initiatives to deliver sustainable growth.
Pipelines are robust entering 'twenty, two 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.
Five recaps, our year and review our financial results reflect the hard work of our teams over the course of 'twenty. One 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 four and a half 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 and innovative analytics tool that supports our bankers deepening efforts incorporating advanced data and insights tailored to each customer.
In consumer banking, we build upon our fair play approach and launch 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 number one 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.
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.
Back over to you to provide more detail on our financial performance. Thanks, Steve and good morning, everyone. Slide six provides highlights of our fourth quarter results. We reported GAAP earnings per common share of 26 cents.
Adjusted for notable items earnings per common share were 36 cents.
Return on tangible common equity or are a P. C. He came in at 13, 2% for the quarter adjusted for notable items R. O T. C. He was 18, 2%.
We were pleased to see loan balances rebound substantially during the quarter driven by robust new production activity.
Total loans increased by $1 $4 billion, and excluding PPP run off loans increased by $2.4 million <unk>.
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 manage 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 asset.
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.
Turning to slide seven.
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 four 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 floor plan increased by $276 million.
Asset finance increased by $160 million.
In 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.
Utilization levels drove approximately two thirds of the increased violence is in.
In auto floor plan, 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 twenty's 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, and 34% higher versus the prior quarter and 49% higher than prior year supporting our outlook for continued loan growth ex D. P. T 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 eight deposit balances increased by 1.4 billion as we continued to experience elevated customer liquidity and optimized 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.
On slide nine reported net interest income declined modestly from the prior quarter as a result of lower P. P. P revenue.
Core net interest income, excluding Pvp and purchase accounting accretion was stable at $1.085 billion.
With ending loan balances well above average balances for the quarter, we enter 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.
<unk> $3.7 billion from $8 $1 million at prior quarter end.
On an average basis for the quarter excellent 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.
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 receive 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 receive fixed swaps in order to manage downside risks at.
At year end, our modeled net interest income asset sensitivity in an up 100 basis points scenario was four 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 now.
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.
Cards 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 and 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 Fairplay product set.
Moving onto 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've 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 one 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% the prior quarter and the.
The improving economic outlook and our stable credit quality resulted in a reserve release of $98 million in the fourth quarter slide.
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 <unk>.
Finally, turning to slide 16, let me share a couple 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 P. P. P in 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 impacts from lower year over year revenues and 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.
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 of 17% plus return on tangible common equity and our commitment to annual positive operating leverage now.
Now, let me pass 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're 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 'twenty two.
We believe our return on capital will be in the top tier versus peers, which result in substantial value creation for shareholders, Tim Let's open up the call for Q&A. Thanks.
Thanks, Steve Operator, we'll now take questions, we ask that as a courtesy to your peers. Each person ask only one question and one related follow up and then if that person has additional questions he or she can add themselves back into the queue. Thank you.
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We ask you. Please ask one question and one follow up.
Thank you and our first question today is from the line of Abraham for a wallet with Bank of America. Please proceed with your question.
Hey, good morning.
Sure.
So maybe just wanted to follow up on R&D expense.
[noise] guidance that you mentioned about.
<unk> billion dollars flatlining in the back half, but just give us a little bit of puts and takes in terms of.
Where the savings are coming on right now I'm sure much like everyone else that 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.
Are they are saving opportunities at the bank.
<unk> could be around these levels for more than just 2020.
Yeah. Thanks for the question.
Portfolios for us as well.
We're really pleased with the trajectory that we're on here.
We've talked about for a while have committed to take our expenses from the high watermark in Q3 of 21 $1.055 billion down to that $1 billion over a three quarter period solid first step jockey for $21 million of these legacy.
Remaining fairly rapidly in Q1 and Q2 of them.
The study for the balance of 'twenty, two I think as you get beyond 'twenty two it out into the future the way we're looking at.
Two to manage within the confines of argument with positive operating leverage just as we have for them.
Eight of the last nine years, given our revenue growth trajectory and what we expect to be pretty solid and sustained revenue growth that will provide the capacity to to.
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 scale efficiencies process improvements automation and lots of ways to drive efficiencies that will allow us to clawback expense investments into the key initiatives worldwide.
And that positive operating leverage.
And just as a follow up.
As part of the loan growth guidance, if you could remind us means tcf, obviously had a bunch of businesses that are levered to what's capex and inventory rebuilds, Boston auto dealer and outside of that.
How much of that is baked into this loan growth guidance and what's the potential for a loan growth actually exceeding expectations that you outlined.
Yeah. So the guidance as we as we talked about was high single digits for loan growth overall, it was really driven by production I think we will look pretty similar to what we saw in Q4 that is commercial led driven by production.
And it will be supported by what we're seeing from our customers and just really robust pipeline, calling activities at this point and it's across all the commercial sectors, including those from <unk>.
That algorithm Tcf middle market corporate banking, our specialty verticals, but also really important contributors from the inventory finance business, the vendor or an asset.
So we picked up from from Tcf as well in addition.
Went out.
Contribution from the consumer side as well.
We are expecting sustained growth in Razee, Archie auto RV 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.
And that will that will contribute to some degree.
But I would note that that $5 billion of line utilization below pre pandemic levels.
As a coiled spring that will enable us to fuel growth likely some in the back half of 'twenty to much more as we go out in the future.
Into 'twenty three and beyond.
Thank you for taking my questions.
Thank you our next.
Question is coming from the line of Scott Cyphers with Piper Sandler. Please proceed with your question.
Good morning, guys. Thanks for taking the question.
Wanted to Hey, I wanted to start by maybe drilling down a little into that that margin Zach maybe sort of your best thoughts on and how you see the margin trajectory.
Trajectory dropped here I guess, maybe the best starting point is probably the adjusted to 78 margin.
And to the extent that you.
Are you comfortable any thoughts on sort of your best estimate for how much benefit you would get from each fed rate hike.
Yeah, It's a great question.
The guidance implies stable to slightly higher.
That's my expectation to continue to kind of trend.
The higher as we go forward and I think the dynamic that we will see is very similar to what we've been talking about for a while we'll see a slow roll off of our previous pre existing hedging program, but that'll be offset by benefits and reductions in the level of excess liquidity and the drag on margin that that represents.
As we talked about a 14 basis point drag in Q4, you said that you expect a lot of that to run off not all of it to roll off during during 'twenty, 'twenty, two which will 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 of rate hikes are at this point.
Excuse me and in the forward yield curve, but I do expect that to be a positive contributor.
As we go forward here.
Okay, perfect and just started to be clearer I think in your prepared remarks, you noted that the NII guide was based on early January market expectations. So too does that embed them three.
Fed rate hikes into until their guidance, yes, correct. So the planning and budgeting version that we completed was based on the early January rate curve that had three rate hikes in it.
Over the last few weeks clearly the curve has moved sort of roughly pulled about a month forward who had previously been the trajectory around the forward yield curve such that the others I think a fourth hike now forecasted is the very last period in the year.
It should be helpful for our Q4 guidance, but what I would point you back to the guidance is slightly because of the key range there.
Inclusive of that.
Perfect Alright. Thank you thanks Scott.
Our next question is coming from the line of Steven Alexopoulos with Jpmorgan. Please proceed with your questions.
Hey, good morning, everybody.
Thank you.
I wanted to start so net interest income outlook for 2022 is 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.
Yeah, I would say, mainly driven by where we end on asset.
The more asset growth, we have the more kind of incremental NII lift will have on growth basis, just given the fact that the.
The yoga videos.
Stable to up.
The big driver, there I think as well.
Further to the last question, where the rate curve.
Going throughout the course of the year, it's clearly been somewhat volatile here over the last several months.
At the at where it is now I think our our guidance stands.
But those are the dynamics that drive the range of it.
Okay.
Somewhat.
So if average loans come out up high single digits you'd be somewhere around the midpoint is that safe to assume the NII guide.
Correct Okay.
Thanks, and then on expenses you guys seem to be one of the few banks that lifting the expense outlook given all of this talk on inflation are you just not seeing as much wage pressure inflation to your footprint or are you just finding more offsets that others arent finding thanks.
Yes.
Thank you.
We're clearly seeing some indicators of inflation within the business.
Most notably hiring new talent in.
And as I read the compensation expectations from our top talent.
And I would know when we talked to clients, particularly those that are commodity intensive businesses are labor intensive businesses, they're feeling it having to adjust to manage it at this point the direct impacts on our expense base of the relatively limited.
We anticipate some wage inflation as we're going into the year trying to get ahead of it.
We took a series of actions of our compensation, we announced an increased our minimum wage across the company to $19 an hour from a $17.
Another priority adjustments and so we think we've got a box now in the toy told you plan and included in our guidance.
Lastly, I guess I would close with I think there is a unique point in time that we have that perhaps some others do where we've got the benefits of scale coming from the <unk> acquisition.
Cost synergies that we've already defined and are executing against that over the long term, we see more opportunities to continue.
Refine it and get scale efficiencies. So that also I think because you're just helping us to maintain that.
That really solid expense growth must revenue, Steve I'd, just add one we took some actions in the third quarter.
That includes 62 branch consolidations that will happen in early February and we took some other management.
Dialysis organization.
Issues as well so we anticipated some level of inflation coming into the year, we try to get ahead of it.
Actions taken.
The third quarter.
Okay very good thanks for taking my questions. Thank you.
The next question is coming from the line of Ken <unk> with Jefferies. Please proceed with your questions.
Hey, Thanks, Good morning, guys good morning.
I was wondering zac.
The outlook for NII, you talked about the loan growth side I was 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.
Yeah, I do expect to see deposit growth begin to accelerate here and I think it'll be.
A pretty balanced mix between consumer and commercial as we go forward.
For the last.
Several quarters, we've been putting a smaller emphasis on that just given our strong liquidity has been throughout the system.
Seem to be pivoting back to <unk> to drive that growth and so that will be.
A good balance to <unk>.
Other than what we expected to.
Accelerating loan growth throughout the year.
Right. That's why I was just wondering are you expecting earning asset Cisco 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 our securities portfolio were watching the elevated liquidity situation pretty pretty closely.
Same playbook, we've been operating with the last several quarters, just taking incremental view month by month was awarded that that trend is and optimizing Caesars if it's appropriate that initial securities, but I do think there's some remixing SBC.
Loan growth start to accelerate.
High single digit guidance that we'd given.
Right, Okay, and just can you tell us in your fee guide what you're using in terms of.
Fair play impact and an outlook on on overdrafts and related fees. Thanks.
Let's talk about that.
Let me start we introduced fair play 12 years ago.
<unk> brought out 24 hour Grace.
Astor suite checking with they're doing things.
It's almost every year.
The 2014, we noted all the deposits, but more recently.
In play we put the safety zone is $50 a little.
In a moment, 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 things to do to help those businesses at that point in time last year.
Forward with standby cash in early day.
And obviously, we roll all that out effective with the conversion to the Tcf customers. So we've pointed out is expected drag of that we also.
We've gotten ourselves into a leadership position I think more than the last decade. In this area has added to our brand value our customer.
Household growth of our relationship retention and expansion.
Significant GKN across pilots.
That has added to our brand and our loyalty it and I think as we go forward, we'll still retain this leadership role there are plans we have in place.
Going back a number of number of us to do some more.
Looking out for our customers with their play obviously with what the industry is doing it in the last month or so.
We're watching that closely and we would expect to.
To react to that and we'll communicate more.
Going forward the Zacks guidance range includes what we're contemplating as we move forward this year and fair play.
In other fees maybe zac.
Embellish the guidance if you will allow me to attack answer.
Seriously 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.
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 elevated acquisition account retention and our relationship deepening that we can 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'd highlight that notwithstanding that impact we do expect to see continued growth on the overall fee line.
Our guidance is low single digits, driven by those strategic categories cap markets payments wealth and advisory.
In addition to the fee impacts from the changes we are anticipating in our consumer products. We also expect to see a reduction of between three and $5 million per quarter and charge offs as the lower overdraft fees that we charge on a gross basis create just fewer incidences of uncollectable fees. It has lower charge offs.
Just take a step back and really kind of concluding on this discussion.
We really believe that the positioning of our products is critical as we maintain that market leadership.
This is a play we ran many times before and the benefits, we see an acquisition retention and deepening as we maintain that leadership, we would expect to earn back that run rate fee losses in approximately 18 to 24 months very much consistent with what we've seen in the past.
Thank you.
Thanks, Ken.
Our next question comes from the line of Jon <unk> with RBC capital. Please proceed with your question.
Hey, Thanks, Good morning, guys Hey.
John .
Question for you guys.
You know that the obviously the expense guidance and the revenue guidance looks pretty good there's one piece of it we haven't tackled enough provisions.
And I'm just curious how you feel about credit and rescue still have fairly high reserves relative to peers I know some of that's accounting, but with a lower loss expectations. In fact, what you. Just said is willing to charge offs can you help us think through the provision expectations.
Yes, I mean this is rich let me take that we feel very good about the.
Additionally, the portfolio right now the charge offs for the year.
<unk>.
<unk>.
Both notable in both very positive as it relates to the provision.
Allowance, we have always been on the conservative side.
The allowance we started seasonal they want on the high end.
We've been very conservative on the way up and I think very prudent on the way down and we will continue that way.
There's things that we're looking at it.
Economy as it relates to supply chain labor that type of thing and.
The continuing impacts of Covid that.
Just giving us pause as it relates to.
Where we set the allowance, but its a very disciplined process that we go through every quarter, we've had five consecutive reductions.
The ACL ratio since we peaked in the third quarter of 2020.
We will look at it every quarter as we always do with a very disciplined approach.
If the supply chain is.
Ease and labor.
Conditions start to improve I would expect continued reductions.
John our outlook is for reductions during 'twenty two.
Charge offs below the below the historic range.
We ended the year with very very good credit quality.
And very pleased with the performance of the portfolio that came over with Tcf. So.
Loans have been re rated.
So there's consistency now.
As of end of the year.
The economic outlook versus what we've seen the customer basis is.
It gives us a lot of optimism as we go forward.
Your 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 your risk person by nature, but the.
The entire industry has strong growth expectations as well curious how long you think this all laugh without.
Any real concerns on credit.
My current belief Jonathan.
To go through 'twenty four.
With a fairly robust GDP growth.
Performance on credit.
There's just an enormous amount of stimulus that's been.
Enacted thus far.
Some of it is multiyear.
Sure.
<unk> performed well, but has been labor constraints.
It sorts out I think that flips longer legs into the growth.
The supply chain issues that we face that are constraining production did constraint in 'twenty, what we'll do so for much of 'twenty two if not all of the year. We will we will get abated over time, we think things will get better a bit in the second half.
Some of these industries 23 will become.
Normal year, so all of those factors to the others give us confidence that we've got a multi year.
A positive slope on the.
On loan growth and GDP and underlying credit quality in a ritual that remain disciplined.
We published the quarterly results for consumer in this literally out the areas 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.
In credit areas.
As we think about future so.
No.
25, or beyond would be where we are we're a little more concerned that we that we will be over the next few years.
Thanks, a lot Steve.
Thanks, Jeff.
Our next question comes from the line of Peter Winter with Wedbush. Please proceed with your questions.
Good morning, Sam.
I wanted to follow up on Ken's question, 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 it's a good question.
We converted the Tcf customers of.
The second week of October So we had almost the entire quarters worth of run rate of the Tcf customers onto the fair play product in Q4 that might be a very marginal incremental impact into Q1, but for.
For the most part we're kind of at the new level of trending.
And as we said, we're continuing to rollout new product changes frankly are of the same.
Kind of nature that we've been doing.
Los Angeles will believe will you expect to respond to what's happening and to do that by the middle of this year and that will drive roughly $16 billion incremental quarterly run rate reduction in fees on a net basis by Q4 just to be clear in the guidance. So those are the puts and takes you a kind of a relatively flat.
And then we'll see.
Those changes come into place mid year with that roughly $60 million quarterly reduction in Q4.
Got it got it.
That's helpful and then just.
I was wondering could you just give an update on revenue synergies.
<unk> from Tcf, where youre seeing the biggest opportunities and what's happening in some of the newer markets.
I think back to the Firstmerit deal I think it was about $100 million in revenue synergies. So I'm just wondering if maybe you could quantify what the impact could be with Tcf.
Yeah, we're really really pleased with where they're going and you talked about a little bit in multiple conferences, but there are four or five big buckets of them.
Expanding our corporate business in the middle market corporate space, our specialty businesses into the major commercial hubs within the.
We will formally Tcf geographic footprint like.
Expanding a chicago spending in Detroit.
<unk> is brand new in Minneapolis, and St. Paul two brand new to teach to Huntington's. So that's a big one.
Bringing the consumer.
<unk> set to the Tcf customers, we're seeing second major bucket and received terrific early signs of engagement and how folks are reacting to the product set but the digital channels and capabilities.
Third expanding our business banking.
And market, leading SBA production into the Tcf geographies and were well underway hiring out those teams and beginning to get early traction.
Wealth management private banking is an enormous opportunity for us and we've already begun to build out a very significant teams for example.
Apples to visa.
And in Denver, and then lastly, just leveraging the really know quite sizable scale equipment and inventory finance business, providing what we had for them.
Right businesses that we brought over from Gcs. So those are the five big buckets, and where we're seeing traction and wins already we haven't given 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, but could you provide more and more color on that as those continue to develop Jack if I could add.
Capital markets fee income lift in the fourth quarter was at least in part related to the combination with Tcf, So middle market banking didn't exist in Chicago or the twin cities or Denver.
<unk> Tcf the broker dealer was outsourced we're talking about well. This is just that there are a number of product categories and capabilities that we have that we'll be bringing into the.
These expanded.
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 a million and half consumers.
We have a much more robust product.
That will be offering and we're.
Multiple.
On home equity.
And.
Again, which was not offered.
In the branch delivery system, it by Tcs 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.
That's great. Thanks, Steve Thank.
Thank you.
Our next question is from the line of Erika Najarian with UBS. Please proceed with your question.
Hi, Good morning, I, just had a few cleanup questions on NII sensitivity that Steve.
I thought it was very interesting when a large bank kicked off earning <unk> 24 hour grain and something you kicked off 12 years ago.
My first question is for what.
And the four 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.
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.
We do believe there'll be competing forces here some degree the extremely low level of starting rates, where 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, we tend to some utah and indicate a lower beta so.
So I'd say, we're watching the situation very carefully on liquidity and the pace of loan growth.
We will be disciplined and dynamic as we go forward in.
Indeed in the actual modeling of the asset sensitivity that those models are intended to be stable on average over time irrespective of the current level of interest rates to model the ramp.
The assumptions in that are around 25% to 30%, which is eventually the long term average we have seen I would tell you I believe there is an opportunity that will be lower than that in the initial rate moves.
And that's my general expectation, but again I think it will be we will have to be dynamic and we watch it very carefully.
And my follow up question to that is.
Yesterday.
Kind of follows up to what Ken you've been with asking about earlier.
A few regional bank.
Now expecting negative deposit growth.
Yeah to your earlier point, Jack and the system is in Washington, with liquidity and a few big banks kicked off earning season, saying that deposit growth might be negative and a few regional banks mentioned yesterday that they expect deposit growth to be negative.
And I'm wondering you know Huntington has always been known for its core operational deposit base plus you added Tcs 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.
Behave on an overall basis.
I do think.
Our current expectation and the trends, we're seeing the business would indicate what do you see deposit growth in 2022.
I think there's sort of two factors, we've been watching that or slightly offset each other on one hand, we are observing particularly in the consumer space. Some degree of normalization of the elevated liquidity we saw buildup.
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-19 .
So that is a sort of a gradual normalization with that being said our customer acquisition and the <unk>.
The ongoing work, we're doing to deepen relationships.
Augmented by the Tcf synergy opportunities are offsetting that and we expect to drive net growth in consumer offsetting that.
Pandemic.
The normalization trends that I noted on the commercial side.
Seeing just continued robust liquidity and our clients and thats driving.
Solid deposit growth and as we focus on even more going forward to continue to fund this accelerating loan growth, we'll see that contribute as well. So overall are expecting pretty balanced deposit growth between the two.
And I think those are the kind of underlying drivers Zack I'd like to add to that Eric good question.
<unk> put a liquidity quarterly play for our commercial customers.
A year and a half ago to try and take excess deposits and move them off balance sheet, Eric So we're not sitting with a cumulative super jumbo.
Set of commercial depositors in the portfolio, we just didnt want that risk profile, plus we felt we could do a better job looking at the customers, but putting images world. So so that will help.
Pushing offsets.
Whatever normalization if there is anything out of the customer base occurs.
Secondly, we've introduced with digital tools and analytics tool that has great promise for us.
Roughly 500000.
Business customers and we're now able to get at that data in a much more real time way in terms of product needs.
Needs based on usage.
And other characteristics. So we expect that will drive our <unk> business.
In the years ahead.
Very helpful. Thank you. Thanks.
Thanks for your question.
The next question is coming from the line of Matt O'connor with Deutsche Bank. Please proceed with your question.
Hi, Good morning, you guys have the number one.
SBA lender and wondering if you could talk about what youre seeing in terms of demand. There now that PPP is kind of mostly done or are winding down.
I would imagine one PPP, what's going on there.
With little to no demand in.
Wondering how thats been trending more recently.
And that we had a cumulative with Tcf 12 over $12 billion of.
Lindsay.
And.
Notwithstanding that we had robust SBA lending almost in parallel through through the <unk>.
Last two years as we enter 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, great business market of Denver on fire really terrific.
Colorado has a terrific state to be doing business in and now we're at roughly at scale in Chicago, the 150 basis points of distribution versus 30 that will help those three.
Regions drive our lending activity overall, including SBA.
Interesting and then separately.
Credit quality question.
A very big auto underwriter on the consumer side and commercial but I'll focus on the consumer side.
<unk> had a massive increase in used car prices.
Any thoughts in terms of tightening standards as we think about our Tvs, you've had a little bit of.
Trend down there.
Which are the appendix, but just.
How do you think about underwriting.
With cars that have increased 40% to 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%.
2021 at eight 5%. So we have reacted to the increase in auto prices by ignoring the LTV is down, but first and foremost for us.
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 gonna have a payment issue and so for us it's really avoiding the situations, where you have to get the car back in the first place.
We've done a phenomenal job of doing that over time.
We also feel that we've been in this business a long time.
We have to be a consistent provider of capital to our dealers and so.
Over the course of many cycles work through high prices low prices high demand low demand.
And we've had learnings from all of that as we.
And one of the leading.
Oh, Dear auto Financers in the country.
Going back in time, so I feel that we've got a good handle on the riskier notwithstanding.
The increase in car prices, we've adjusted our our custom scorecards are appropriately and feel that.
We're going to come through this in really good shape as we always have.
Okay. We have that we haven't had a delinquency on the floor plan side of this business.
I'm going to say decades, certainly more than a decade since I've been around.
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 incredibly low risk on the dealer side.
Keep us continue to keep us very bullish on the business.
Thank you thank.
Thank you.
Our next question comes from the line of Jonathan <unk> with Evercore. Please proceed with your question.
Good morning, Hey.
Hi, Jeff.
I guess back to that auto question.
I know in the in your loan growth outlook for high single digits for 2022, you do mentioned auto growth has that as a driver I mean on.
On the growth side can you just talk about what.
How youre thinking about the portfolio growth that you look at your particularly if we get some moderation in and used auto demand as.
Is that what's called a reopening continues and everything so 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 and open up in another.
Or so states. This year, we've had this gradual rollout now for a number of years and that'll that'll complete. This eventually will be in the lower 48 with this business, but we have a fundamental expectation of that.
The new car market is going to come back off of last year's production, probably by a $1 2 million cars to get <unk> 15 of that.
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.
This side of the equation.
We as you know we like the business, we think of it as low risk as to our four year average traded asset so.
And we're highly now automated we have.
Almost half of our or 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.
Leave the utilization comment you gave earlier in terms of increasing from the mid 20% to 30% that's for the floor plan business I believe correct.
Correct me, if I'm wrong and then if it is what is your utilization trend for the non Floorplan commercial.
Yes.
Zach I'll take that that's what we saw.
Nice upticks modest upticks in utilization in every one of our three major.
Line utilization.
Categories Auto just to to your point grows from 23% to 30% in the quarter inventory finance rose from 25% to 32% sundries seasonally but that's typical of the fourth quarter of that business and then the general Middle market revolver has went from 40 to 41 in the quarter. So we saw.
Good early signs are encouraging signs of that utilization.
Recovery.
We saw that as I said in my earlier remarks, a $5 billion.
Of additional line utilization as one would 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 saw some news. This morning about Intel looking to build a pretty sizable chip facility. They are dear Columbus.
Speaker 1: 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 the 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 market?
I just wanted to get your thoughts on the implications of something like that do you think there is follow on benefits to the to loan demand there in your markets and do you think there is a start of something where more of these high tech companies could be building.
The operations there in your markets.
Speaker 2: John , for the benefit of everybody, what you're referencing is Intel's announcing a...
John just for our benefit very but what you're referencing is intel's announcing the.
Speaker 2: a large chip plant, the CEO of Intel called it the largest chip plant in the world, it will be about a million square feet.
A large chip plant the CEO of until call. It the largest chip plant in the world that will be about 1 billion square feet is initially a land set aside a 1000 acres to accommodate this as expected that there'll be follow ons and there'll be.
Speaker 2: It is initially a land set aside of 1,000 acres to accommodate this. It's expected that there will be follow-ons and that there will be other businesses, large businesses suppliers to that plant that will co-locate as part of that 1,000 acre site. Now this will be enormously impactful.
Other businesses large businesses suppliers too so that plant that will co locate.
As part of that 1000 acre site and this will be enormously impactful.
Speaker 2: I think the CEO Pat Geisinger referenced this as silicon heartland because typically these plants with the supplier base.
Thank you.
The CEO pet geisinger references.
Silicon Heartland VITAS.
Typically these plants.
With the supplier base creates some level of co location.
Speaker 2: create some level of co-location.
Speaker 2: that you've seen in Arizona and certain other markets. This is incredibly impactful. It's a great move by the Hawaii administration. I think it will benefit certainly all of Ohio and much of the Midwest.
That we would that <unk> seen in Arizona and certain other markets.
This is incredibly impactful is the right move.
Thats why administration I think it will benefit.
All of Ohio, and much of the Midwest and I think it's a bit of a game changer for us.
Speaker 2: and I think is a bit of a game changer for us. We'll uh...
Speaker 2: We're going to have more than 10,000 construction jobs on that site and 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 co-location.
We're going to have more than 10000 construction jobs.
On that site.
Roadway and water expansion.
Then ultimately there'll be three thousands of very high paying jobs in the plant itself just with itself.
There is an expectation of businesses coming to for co location.
Speaker 2: 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
A significant other businesses all of that will feed feed and fuel I think the.
Whats already a very robust real estate market.
Housing needs that the additional transportation needs the small business around small businesses around these areas. We will do very very well. So it's a huge moment for us here.
Speaker 2: transportation needs, 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 on 2009 when I joined Huntington, this was the term the Rust Belt.
All of Ohio, certainly central Ohio.
This has the potential to be enormous.
I reflect back on 2009, when I joined Huntington. This was turned the rustbelt.
Speaker 2: And that term has receded significantly over the years.
And that term has receded significantly over the years.
Speaker 2: And I think Intel is going to be a game changer in terms of technology.
In sales can be a game changer in terms of technology in the region.
Speaker 2: very excited about what's going on. So, again, kudos to Governor DeWine and his administration, Lieutenant Governor John Houston, who is 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 any time has a lead article featuring it.
Very excited about what what's going on at so again kudos to the Governor Dewine and.
His administration Lieutenant Governor John used it was enormously important here as well.
This came together incredibly efficient and quick fashion and others insight about it on both the local paper Columbus dispatch as well as the time as are we.
The article featuring.
Speaker 2: We're really, really pleased, and I believe this is, again, a huge moment for us, a game-changing moment for Ohio.
We're really really.
Oh, I'm pleased and I believe this is.
Again, a huge moment for us a game changing moment for <unk>.
Hi.
Very helpful. Thanks, Steve Thanks, Scott.
Speaker 3: Thank you. Our final question today is from the line of Terry McAvoy with Stevens. Please proceed with your question.
Thank you. Our final question today is from the line of Terry Mcevoy with Stephens. Please proceed with your question.
Speaker 4: Hi, thanks. 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.
Hi, Thanks, I was hoping to get your thoughts on capital management, and just appetite for share repurchase in the first half of 2022.
Capital at about nine 3% at the end of the year.
Speaker 5: Yeah, a great question. Thanks and I appreciate the chance to 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, consistent with our guidance, front-loaded.
Yeah, Great question, Thanks, and appreciate the chance to close obviously, we are really pleased with what we've done so far.
$800 million share repurchase authorization that we had.
As we noted consistent with our guidance frontloaded $650 million of that through to the end of 2021 I think as we as we go forward our capital priorities have not changed we're still very much focused on funding asset growth first supporting our dividend sort of all other uses including this so.
Speaker 5: $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 then 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 toward that. As we just share purchases, sorry for the background noise there, will we intend to be dynamic here?
As we see loan growth accelerating where please feel to put the capital back towards that as long as the share repurchases.
Background noise, there, we intend to be dynamic here.
Speaker 5: and also to think about it in the context of our ongoing work around our next capital by submission which is
And also too secret in the context of our ongoing work around our necks capitalized submission, which is which will reset the balance of 2022 as well with this mission in early April so.
Speaker 5: which will reset the balance of 2022 as well with this mission early.
Speaker 5: dynamic, seizing opportunities here in the next couple of quarters.
Dynamic seizing opportunities here in the next couple of quarters.
Okay.
Speaker 4: I'll end it there and let everybody get on with their day. Thanks, Zach, and thanks, Steve. Have a good day.
Great I'll end, it there and let everybody get on with their day, Thanks, Zack and thanks, Steve have a good day.
Speaker 2: Thanks, Jerry. 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 interests 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.
Thanks, Jerry Thank you all for joining US today, we're very proud of our colleagues' efforts to deliver a successful finish to 'twenty, one and we look forward to building on that as we entered the new year have a.
A great deal of confidence in our teams and what how do you think can deliver for our colleagues customers and shareholders over the course of 'twenty. Two we have a deeply embedded soft ownership mentality, which aligns the interest of our board management and colleagues with our shareholders. As you would know and thank you very much for your support and interest in Huntington have a great day everybody.
Speaker 3: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.