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

Thank you, operator. Welcome, everyone and good morning. Copies of the slides we'll be reviewing today can be found on the Investor Relations section of our website, www.huntington.com. As a reminder, this call is being recorded and a replay will be available starting about one hour from the close of the call. Our presenters today are Steve Steinour, Chairman, President and CEO; and Zach Wasserman, Chief Financial Officer. Rich Pohle, Chief Credit Officer, will join us for the Q&A. As noted on Slide 2, today's discussion, including the Q&A period, will contain forward-looking statements. Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, please refer to this Slide and material filed with the SEC, including our most recent Forms 10-K, 10-Q and 8-K filings. Let me now turn it over to Steve.

Thanks, Tim. Good morning, everyone and thank you for joining the call today. Let me begin on Slide 3. 2021 was a transformational year for Huntington. We continue to live our purpose and remain focused on our vision to become the country's leading people-first digitally powered bank. We executed on our organic growth initiatives along with a timely closing of the TCF acquisition. In the fourth quarter, we began by successfully completing conversion activities. And by the time we exited the quarter, we'd refocused our teams on driving growth. We delivered record new loan production and continued to build on revenue initiatives. We entered '22 with added scale, density, new markets and specialty businesses. We are intently focused on driving growth and delivering top-tier financial performance. On Slide 4, we're pleased to report our excellent fourth quarter results centered on 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 TCF as well as the additional expense actions we announced last quarter. Third, we are executing on key initiatives to deliver sustainable growth. Pipelines are robust entering '22 and our teams are focused on driving revenue growth, including the revenue synergy initiatives related to our new markets and capabilities. Finally, we are very confident in our outlook for 2022 and beyond. Slide 5 recaps our year-end review. Our financial results reflect the hard work of our teams over the course of '21. Return on tangible common equity came in at 19% excluding notable items. Credit performed very well, and we returned significant capital to our shareholders. We delivered robust organic growth in both consumer and business checking households with year-over-year growth of 4.5% and 7%, respectively. We continue to invest in revenue-producing colleagues and initiatives, including new and expanded commercial banking verticals, capital markets, cards and payments and wealth management. In the commercial bank, we launched EDGE, an innovative analytics tool that supports our bankers' deepening efforts incorporating advanced data and insights tailored to each customer. In consumer banking, we built upon our Fair Play approach and launched new and compelling products and services, such as Standby Cash and Early Pay. We expanded our leading SBA lending program to new states as well as added to our practice finance capabilities. We were honored to be recognized for our expertise evidenced by being ranked 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 of TCF. On the capital front, we were pleased to accelerate our share repurchase program as well as increase the common stock dividend. In closing, our teams accomplished a tremendous amount of work over the course of the year, and I want to thank all of our colleagues and our management team who supported these efforts. I am increasingly bullish on the year ahead. The level of excitement is building across the organization, and our colleagues are energized and focused. We look forward to sharing our successes with all of you as we move throughout the year. Zach, over to you to provide more detail on our financial performance.

Thanks, Steve, and good morning, everyone. Slide 6 provides highlights of our fourth quarter results. We reported GAAP earnings per common share of $0.26. Adjusted for notable items, earnings per common share were $0.36. Return on tangible common equity or ROTCE came in at 13.2% for the quarter. Adjusted for notable items, ROTCE was 18.2%. We were pleased to see loan balances rebound substantially during the quarter driven by robust new production activity, as total loans increased by $1.4 billion and including PPP runoff loans increased by $2.4 million. Consistent with our plan, we reduced core expenses excluding notable items by $21 million from last quarter, driven by the realization of cost synergies and ongoing highly disciplined expense management. We 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, 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 non-performing assets declining by 16% from the prior quarter. We actively managed our capital base, repurchasing $150 million of common stock in the fourth quarter. To date, we have completed $650 million of our $800 million share repurchase program. Turning to Slide 7. Period end loan balances increased by 1.2% quarter-over-quarter, totaling $111.9 billion. Total loan balances excluding PPP increased $2.4 billion or 2.2% during the quarter, driven by commercial loans. Within commercial, excluding PPP, loans increased by $2.5 billion or 4.4% compared to the prior quarter. This growth was broad-based across all major portfolios and was driven by record new commercial loan production. Growth was led by middle market, corporate and specialty banking, which increased by $1 billion and represented 40% of total commercial loan growth this quarter. Inventory finance increased by $597 million; auto dealer floorplan increased by $276 million; asset finance increased by $160 million; and commercial real estate increased by $267 million. Within corporate and specialty banking, each of our commercial verticals contributed to growth this quarter, including corporate banking, tech and telecom, health care, and franchise. Inventory finance growth was driven by a combination of seasonally higher balances due to inventory shipments in the quarter as well as expansion of existing customer programs. Higher utilization levels drove approximately two-thirds of the increased balances. In auto floorplan, we are continuing to add new dealer relationships and growing our overall commitment levels. In addition, balance has benefited from improved utilization rates, which increased from the mid-20s to approximately 30% in the quarter. Even as we delivered record loan production, calling activities across the business continued at a rapid pace. We ended the quarter with commercial loan pipelines 34% higher versus the prior quarter and 49% higher than prior year, supporting our outlook for continued loan growth ex PPP throughout 2022. On the consumer side, residential mortgage increased by $334 million and auto increased by $129 million. This was offset by home equity, which declined by $369 million. Turning to Slide 8, deposit balances increased by $1.4 billion as we continue to experience elevated customer liquidity and optimize our funding, reducing CD balances by over $700 million. Consumer deposit balances increased by $1.6 billion from the prior quarter. Commercial balances increased by $300 million from the prior quarter. On Slide 9, reported net interest income declined modestly from the prior quarter as a result of lower PPP revenue. Core net interest income excluding PPP and purchase accounting accretion was stable at $1.085 billion. With ending loan balances well above average balances for the quarter, we 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 with the Fed to $3.7 billion from $8.1 billion at prior quarter end. On an average basis for the quarter, excess liquidity represented a drag on margin of approximately 14 basis points. Turning to Slide 10, we are dynamically managing the balance sheet to increase asset sensitivity and provide downside protection. During the fourth quarter, we added $2.8 billion of securities, and we continue to optimize our hedging program. We terminated $3.9 billion of received fixed swaps and floors and we entered into new pay fixed swaps in order to bolster our asset sensitivity. As rates move higher, we opportunistically added $5 billion of received fixed swaps in order to manage downside risks. At year-end, our modeled net interest income asset sensitivity in an up 100 basis points scenario was 4.6%. We have steadily increased this metric over the past 18 months, supporting our ability to continue to capture upside opportunity as interest rates increase. Moving to Slide 11, non-interest 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 continues to bear fruit with capital market fees up $7 million or 18% from the prior quarter. Wealth, investments, and insurance also performed quite well. Card and payments revenues, which are typically seasonally flat from Q3 to Q4, declined slightly from the prior quarter impacted at the margin by ATM volumes and the debit card conversion for TCF customers during the month of October. The underlying core business activity in cards and payments continues to be very solid. We saw a restoration of ongoing growth in that business as the quarter progressed after conversion. Deposit service charges declined $13 million compared to the prior quarter as a result of TCF customers transitioning onto the Huntington Fair Play product set. Moving on to Slide 12, non-interest 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 exercised disciplined expense management. As we shared previously, we expect our core expenses to trend down in the first and second quarters, fairly ratably over that period to approximately $1 billion on 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 and managing our overall expense base. As you saw last quarter, we took additional actions to free up capacity to support these investments while remaining committed to the absolute core expense declines in the near term. Over the longer term, we expect expense growth to be a function of revenue growth as we manage within our commitment to positive operating leverage. Slide 13 highlights our capital position. Common equity Tier 1 ended the quarter at 9.3%, consistent with our prior guidance to operate within the lower half of our 9% to 10% operating guideline. We have $150 million remaining of our current share repurchase program. As you can see on Slide 14, credit quality continues to perform well. Net charge-offs declined for the fourth consecutive quarter. Our non-performing assets declined 16% from the previous quarter. Our ending allowance for credit losses represented 1.88% of total loans down from 1.99% at prior quarter end. The improving economic outlook and our stable credit quality resulted in a reserve release of $98 million in the fourth quarter. Slide 15 covers our medium-term financial goals. We are focused on driving sustained revenue growth while managing expenses within our long-term commitment to positive operating leverage and achieving a 17% plus return on tangible common equity. We expect to begin seeing this performance in the second half of 2022. Finally, turning to Slide 16, let me share a couple of thoughts on our expectations for 2022. Our outlook is based on the starting point of our most recent quarterly results with expectations for year-over-year comparisons for the fourth quarter of 2022. It also assumes continued economic expansion aligned to market consensus as well as interest rate yield curve expectations as of early January. We expect average loan growth, ex PPP, to be up high single digits based on our starting point of $107.9 billion. As a result of loan growth and modestly higher net interest margin, we expect core net interest income on a dollar basis, excluding PPP and purchase accounting accretion to grow in the high single-digit to low double digits range. Fee revenues are expected to be up low single digits, driven by robust growth in key categories aligned to our strategies, including capital markets, our card and treasury management payments businesses, and wealth and advisory with offsetting impact from lower year-over-year revenues in mortgage banking, and the continued evolution of our Fair Play products. As mentioned, we expect to continue to drive sequential reduction in core expenses for the next several quarters as we fully realize the TCF cost synergies and benefit from broader expense management. At the same time, we are continuing to invest in our strategic growth initiatives and new revenue synergy opportunities. We expect the quarterly run rate of core expenses to be approximately $1 billion by the second quarter, and then remaining relatively stable over the second half of the year from that level. In closing, we're keenly focused on the revenue opportunities ahead of us. We have the teams directed toward these key initiatives, and we're confident in our 2022 outlook to deliver on this plan. We believe these drivers of our outlook are aligned with our goals for sustained revenue growth, a 17% plus return on tangible common equity, and our commitment to annual positive operating leverage. Now, let me pass it back to Steve for a couple of closing comments before we open up for Q&A.

Thank you, Zach. Slide 17 summarizes what we believe is a compelling opportunity. Huntington stands as a powerful top 10 regional bank with scale and leading market density as well as a compelling set of capabilities, both in footprint and nationally. We'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 '22. We believe our return on capital will be in the top tier versus peers, which results in substantial value creation for shareholders. Tim, let's open up the call for Q&A.

Thanks, Steve. Operator, we will 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.

Thank you. And our first question today is from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

Hey, good morning.

Good morning, Ebrahim.

Good morning.

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

Yes, thanks for the question. I think it’s an area of important focus for us as well. Just taking a step back, really pleased with the trajectory that we're on here. As we've talked about for a while, we're committed to take our expenses from the high watermark in Q3 of '21 at $1.055 billion down to that $1 billion over a three-quarter period. We saw the first step guide in Q4 of $21 million. We expect to see the remaining fairly ratably in Q1 and Q2 and then fairly steady for the balance of '22. I think as you get beyond '22 and out into the future, the way we're looking at it is to manage within the confines of our commitment to positive operating leverage, just as we have for 8 of the last 9 years. Given our revenue growth trajectory and what we expect to be pretty solid and sustained revenue growth, that'll provide the capacity to maintain expenses within that level and still invest back in the business. Clearly, there will be plenty of opportunities as we go forward to continue to drive scale, efficiencies, and process improvement, automation in lots of ways to drive efficiencies that will allow us to plow back investments into the key initiatives, while still achieving that positive operating leverage.

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

Yes, so the guidance as we talked about was high single digits for loan growth. Overall, it will be driven by production. I think it will look pretty similar to what we saw in Q4. That is commercial-led, driven by production and really supported by what we are seeing from our customers and just really robust pipeline and calling activities at this point. And it's across all the commercial sectors, including those that we've now incorporated in TCF middle market corporate banking, especially verticals, but also really important contributors from the inventory finance business, the vendor, and asset finance business that we had picked up from TCF as well. In addition, I would point out continued contribution from the consumer side as well. We do expect sustained growth in resi on sheet. Auto, RV/Marine and also likely benefiting there from your lower prepays as we go forward. We have assumed a modest contribution from utilization improvement during the year and that will contribute to some degree. But I would note that $5 billion of line utilization below pre-pandemic levels is just a massive coiled spring that will enable us to fuel growth. It will likely some in the back half of '22, much more as we go out into the future into '23 and beyond.

Helpful. Thank you for taking my questions.

Thank you. Our next question is coming from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

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

Yes, it’s a great question. The guidance implies stable to slightly higher. That's my expectation to continue to kind of trend ratably higher as we go forward. I think the dynamic that we'll see is very similar to what we've been talking about for a while. We'll see a slow roll off of our previous preexisting hedging program. But that'll be offset by benefits in reductions in the level of excess liquidity and the drag on margin that represents; we talked about a 14 basis point drag in Q4. We said we do expect a lot of that to run off, not all of it to run off during 2022, which will be a benefit. And then in the rate environment, which to the point of your question is somewhat uncertain, just given where the expectations for rate hikes are at this point. But I do expect that to be a positive contributor as we go forward here.

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

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

Perfect. All right, 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.

Good morning, Steven.

I wanted to start by noting that the net interest income outlook for 2022 has a broad range, from low single-digit to low double-digit. Could you explain the factors that might push you to either end of that range, considering you are basing it on the forward curve?

I believe the primary factor influencing our net interest income is our asset growth. The higher our asset growth, the more we can expect an increase in net interest income, given that yields are likely to remain stable or increase. Additionally, the trajectory of the interest rate curve throughout the year has shown some volatility recently. However, based on the current state, I believe our guidance remains intact and these are the factors that influence our projected range.

We’re within the range somewhat.

Okay. Guys, so if average loans come out up high single digits, you'd be somewhere on the midpoint? Is that safe to assume of the NII guide?

Correct.

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

Yes. We are definitely noticing some signs of inflation in our business, particularly related to hiring new talent and the compensation expectations for our top performers. Conversations with clients, especially those in commodity and labor-intensive industries, reveal that they are feeling the pressure and having to make adjustments. So far, the direct effects on our expenses have been fairly limited. We do expect some wage inflation as we enter the year and are proactively addressing it. We have taken steps regarding compensation, including raising the minimum wage across the company to $19 an hour from $17. We have also made several other health-related adjustments. We believe we have managed this within our 2022 plan outlined in our guidance. Lastly, I want to emphasize that we have a unique opportunity right now, benefiting from the scale gained through the TCF acquisition. We are already defining and executing cost synergies, and over the long term, we anticipate further opportunities to refine this and improve efficiency, which will help us maintain strong expense growth relative to revenue.

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

Okay. Very good. Thanks for taking my questions.

Thank you.

Thank you.

The next question is coming from the line of Ken Usdin with Jefferies. Please proceed with your questions.

Hi, Ken.

Hey, thanks. Good morning, guys.

Good morning.

I was wondering, Zack, in 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?

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

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

I believe we will see some gradual growth in the securities portfolio. We are closely monitoring the current liquidity situation. We'll continue with our established approach, taking it month by month and assessing the trends to determine if it's suitable to add more securities. I do anticipate some adjustments as we prepare for loan growth to pick up and achieve the high single-digit guidance we have provided.

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

Sure. Yes, let's talk about that.

Yes, let me begin. We launched Fair Play 12 years ago, along with 24-hour Grace and Asterisk-Free Checking. We have made updates almost every year. In 2014, we saw an increase in deposits, and more recently in 2020, we introduced the safety zone and a $50 minimum for our business customers due to the pandemic's impact on small businesses, which we believed was the right action to support them during that time. Last year, we introduced Standby Cash and Early Pay, which we rolled out alongside the conversion of TCF customers. This has created an anticipated challenge for us. We have established a strong leadership position in this area for over a decade, which has enhanced our brand value, customer growth, relationship retention, and diversification across our products. This has built loyalty to our brand, and we expect to maintain this leadership moving forward. We have strategies in place from several months back to better serve our customers with Fair Play, particularly as we observe recent industry changes. We intend to respond to those changes and will provide more updates as we progress. Zack's guidance range incorporates our plans for Fair Play and other fees for this year. Maybe Zach can elaborate further on the guidance.

Yes, let me tack on to what the comments Steve just made. When we construct these product changes, we think about the economics holistically. There are fees that we see on a gross basis, like overdraft. But there are also a lot of other levers in the consumer checking product economics, like other related account fees, other product features. And over time, really importantly, the impact of that market leadership position has on elevated acquisition, that kind of retention and the relationship deepening that we can drive. And so, to be clear, included in my guidance on the overall fee line is the assumption of a net fee reduction of approximately $16 million in Q4 from these changes. I would expect them to be in place by the middle of the year. I would highlight that notwithstanding that impact, we do expect to see continued growth on the overall fee line as indicated by my guidance and low single digits driven by those strategic categories, cap markets payments, wealth, and advisory. In addition to the fee impacts from the changes we're anticipating in our consumer products, we also expect to see a reduction of between $3 million and $5 million per quarter in charge-offs as the lower overdraft fees that we charge on a gross basis create just fewer incidences of uncollectible fees and it has lower charge-offs. Just taking a step back, maybe kind of concluding on this discussion, we really believe that the positioning of our products is critical. And as we maintain that market leadership, this is a play we've run many times before. The benefits we see in acquisition, retention, and deepening as we maintain that leadership, we would expect to earn back that run rate fee loss in approximately 18 to 24 months, very much consistent with what we've seen in the past.

Thank you.

Thanks, Ken.

Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your questions.

Great. Thanks. Good morning, guys.

Hey, Jon.

Good morning.

Question for you guys, obviously the expense gains and the revenue gains look pretty good. There's one piece of it we haven't tackled and that's provisions. And just curious how you feel about credit and risk you still have fairly high reserves relative to peers. I know some of that's accounting, but with the lower loss expectations, and Zack, what you just said as well in 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 condition of the portfolio right now. The charge-offs for the year and the reduction in the NPA is both notable and both very positive. As it relates to the provision and the allowance, we have always been on the conservative side of the allowance. We started CECL day one on the high end, and we've been very conservative on the way up, and I think very prudent on the way down. We'll continue that way. There are things that we're looking at in the economy as it relates to supply chain and labor, that type of thing. The continuing impacts of COVID that are giving us pause as it relates to where we set the allowance, but it's a very disciplined process that we go through every quarter. We've had five consecutive reductions in the ACL ratio since we peaked in the third quarter of 2020. We'll look at it every quarter as we always do with a very disciplined approach. If this supply chain ease, conditions ease and labor conditions start to improve, I would expect that we will have continued reductions over time.

Jon, our outlook is for reductions during '22 and charge-offs 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 up with TCF. So, loans have been regraded. There’s consistency now as of end of year. The economic outlook + what we see in the customer base gives us a lot of optimism as we go forward on the provision line.

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

My current belief, Jon, is that we are going to go through '24 with a fairly robust GDP growth and performance on credit. There's just an enormous amount of stimulus that's been enacted thus far. Some of it is multiyear, where the economy has performed well, but it's been labor constrained. As that sorts out, I think that puts longer legs into the growth. The supply chain issues that we face that are constraining production did constrain us in '21, we will do so for much of '22, if not all the year, we'll get updated over time. We think things will get better a bit in the second half. In some of these industries, '23 will become a more normal year. Those factors and others give us confidence that we've got a multiyear positive slope on loan growth and GDP and underlying credit quality. Now Rich will remain disciplined. We published the quarterly results for consumer, and there's literally no variance over the last decade plus. So, we're quite confident of our capabilities to manage the risks at these levels. We're very pleased with the additional talent we gathered from TCF both in the origination side and in credit areas as we think about the future. So, '25 or beyond would be where we're a little more concerned that we will be over the next few years.

Thanks a lot, Steve.

Thanks, Jon.

The next question comes from the line of Peter Winter with Wedbush. Please proceed with your questions.

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

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

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

Yes, we are very pleased with our progress. We have discussed this in various conferences, focusing on several key areas. First is the growth of our corporate business in the middle market, corporate base, and specialty offerings in major commercial hubs that were previously part of the TCF geographic area, such as expansions in Chicago and Detroit, and the introduction of services in Denver as well as Minneapolis and St. Paul. Another significant aspect is integrating our consumer product offerings for TCF customers, where we are already seeing positive engagement and responses to both the product range and our digital capabilities. The third area includes growing our business banking and leading SBA production in the TCF regions, where we are actively hiring teams and starting to gain traction. Wealth management and private banking is a substantial fourth opportunity, and we are in the process of building strong teams in areas like Minneapolis and Denver. Lastly, we are leveraging our expanded scale in equipment and inventory finance by integrating existing capabilities with those acquired from TCF. We have identified these key opportunities and are experiencing positive early results. While we haven't provided specific guidance on this in the past, it is contributing to our growth outlook and aiding in the acceleration of both fees and loans for 2022. We will continue to share more updates as these initiatives progress.

Zach, if I could add, the capital markets fee income lift in the fourth quarter was at least in part related to the combination of TCF. So middle market banking didn't exist in Chicago or the Twin Cities or Denver for TCF. The broker-dealer was outsourced. And we talked about wealth. It's just that there are a number of product categories and capabilities that we have that we will be bringing into these expanded markets. And then in the context of the things that TCF did incredibly well, asset finance, inventory finance, et cetera, we have now the ability to cross-sell into that customer base, which historically was not done. So, on the consumer side, 1.5 million consumers that we've a much more robust product venue set that we will be offering, and we are multiple on home equity, again, which was not offered in a branch delivery system by TCF as well as mortgage. So, excited across the board. We think we have a lot of consumer and business opportunities on the cross-sell side.

That's great. Thanks, Steve.

Thank you.

Our next question is from the line of Erika Najarian with UBS. Please proceed with your questions.

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

Yes, that's a great question, Erika. Thank you. Regarding deposit betas, I think it's still a bit early to determine. We anticipate similar trends to the last major rate cycle. We believe there will be competing factors, and given the very low starting rates we currently have, that would typically suggest a higher beta. However, the levels of excess liquidity throughout the system might offset that and suggest a lower beta. Therefore, we are closely monitoring the situation concerning liquidity and the speed of loan growth. We will approach this with discipline and adaptability as we move forward. When it comes to modeling asset sensitivity, those models are designed to remain stable on average over time, regardless of the current interest rates. The assumptions in that analysis are around a 25% to 30% beta, which is the long-term average we've experienced. I believe there's a chance it will be lower than that during the initial rate changes, and that's my general expectation. We will need to be adaptable, and we are observing it very carefully.

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

Yes, I believe our current expectations and the trends we're observing indicate that we will experience deposit growth in 2022. There are two factors at play that are somewhat counterbalancing each other. On one side, we are noticing a normalization in the elevated liquidity levels that accumulated towards the end of 2020 and into 2021, mainly due to stimulus and savings behaviors related to COVID. This represents a gradual normalization. However, our efforts in customer acquisition and strengthening relationships, bolstered by TCF synergy opportunities, are helping to offset this trend. We anticipate net growth in consumer deposits, which will counterbalance the pandemic-related normalization I mentioned. On the commercial front, we continue to see strong liquidity among our clients, which is fueling solid deposit growth. As we concentrate on this to support our increasing loan growth, it will also contribute positively. Overall, I expect a balanced deposit growth between the consumer and commercial segments, driven by these fundamental factors.

Zach, if I could add to Erika's question, we put a liquidity portal in play for our commercial customers about a year and a half ago to try and take excess deposits and move them off-balance sheet, Erika. So, we're not sitting with a cumulative super jumbo set of commercial depositors in the portfolio. We just didn't want that risk profile, plus we felt we could do a better job looking out for the customers by putting them into this. So, that will help cushion us as whatever normalization, if there is any of the customer base curves. Secondly, we've introduced a digital tool, an analytics tool that has great promise for us. We've got roughly 500,000 business customers. And we're now able to get at the data in a much more real-time way in terms of product needs based on usage and other characteristics. So, we expect that will drive our TM business in a significant way in the years ahead.

Very helpful. Thank you.

Thanks for your questions.

The next question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

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

Matt, we had cumulative with TCF $12 billion of PPP lending. And notwithstanding that, we had robust SBA lending almost in parallel through the last 2 years. As we entered the fourth quarter, we continue to see demand for that product and we expect it will actually increase this year in part because of the new markets that we're going to be able to expose our capabilities to Twin Cities, a great business market. Denver, on fire, really terrific. Colorado is a terrific state to be doing business in. We're roughly at scale in Chicago with 150-plus 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. You're a very big auto underwriter on the consumer side and commercial, but I'm focused on the consumer side. We've had this massive increase in used car prices. Any thoughts in terms of tightening standards as we think about LTVs? You've had a little bit of a trend down there with your disclosure in the appendix. But just how do you think about underwriting to these used cars that have increased 40%, 45% versus a year ago?

Yes, Matt. It's Rich. I will take that. And as you noted in the slides, the LTVs have come down. We peaked in 2019 at 90% and we ended 2021 at 85%. So, we have reacted to the increase in auto prices by bringing the LTVs down. But first and foremost, for us, the auto business is really based on client selection. We are a super prime lender and we've developed a custom scorecard over many, many years in this business that very effectively predicts those customers that are not going to have a payment issue. And so, for us, it's really avoiding the situation where you have to get the car back in the first place. We've done a phenomenal job of doing that over time. We also feel that we've been in this business a long time and we have to be a consistent provider of capital to our dealers. We've, over the course of many cycles, worked through high prices, low prices, high demand, low demand. We've had learnings from all of that as we've been one of the leading auto dealers in the country going back in time. I feel that we've got a good handle on the risk here, notwithstanding the increase in car prices. We've adjusted our custom scorecards appropriately and feel that we're going to come through this in really good shape as we always have.

We haven't experienced any delinquencies on the floorplan side of this business for decades, definitely more than a decade since I've been involved. I'm very pleased with the credit quality performance that the dealers have produced over the last few years. The fundamental aspects of the business, with a low expected default rate on the indirect side and minimal risk on the dealer side, keep us very optimistic about the business.

Okay.

Thank you.

The next question comes from the line of John Pancari with Evercore. Please proceed with your questions.

Good morning.

Hey, John.

Good morning, John.

I want to return to the auto question. In your loan growth outlook for 2022, you indicate that auto growth will be a significant driver, projecting high single-digit growth. Could you elaborate on your expectations for portfolio growth this year, especially if we see a decline in used auto demand as the reopening progresses? I would appreciate your insights on that aspect of growth in the portfolio. Thank you.

So, John, we expect that our portfolio will continue to expand. We plan to open in about five more states this year. This gradual rollout has been ongoing for several years, and once we complete this, we will be fully operational in the continental United States. We also anticipate that the new car market will rebound from last year's production by around 1.5 to 2 million cars, reaching a total of 15 to 15.5 million on the new side. This will lead to a slight shift in the mix back toward historical patterns. As you know, we have confidence in this business, viewing it as low risk with an average asset rating of two and a quarter years. Our processes are highly automated, with nearly half of our applications being processed digitally, allowing us to operate very efficiently.

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

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

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

John, what you're referring to is Intel's announcement of a large chip plant, which the CEO described as the largest in the world, covering about 1 million square feet. Initially, this will be on a 1,000-acre site to support the operation. It's anticipated that this will lead to other businesses and suppliers co-locating in that area, making it incredibly impactful. The CEO, Pat Gelsinger, mentioned it as Silicon Heartland, similar to how other plants and suppliers have established themselves in Arizona and other regions. This development is a significant move by the DeWine administration, benefiting all of Ohio and much of the Midwest, and represents a potential turning point for us. There will be over 10,000 construction jobs created for the site, including roadway and water infrastructure, with 3,000 high-paying jobs directly at the Intel plant. Additionally, we expect other businesses to come in for co-location, which will further enhance the already robust real estate market. This will create housing demands and transportation needs, supporting small businesses in the area. It's a pivotal moment for all of Ohio, especially Central Ohio, and I believe it holds enormous potential. Reflecting back to when I joined Huntington in 2009, the region was known as the Rust Belt, a label that has diminished over the years. I am confident that Intel will transform technology in the region, and I'm excited about the progress. Kudos to Governor DeWine and his administration for making this happen in such an efficient manner. We are very pleased, and I believe this marks a major moment for us and a transformative moment for Ohio.

Very helpful. Thanks, Steve.

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

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