Horizon Bancorp Inc /In/ Q4 FY2021 Earnings Call

Good morning, everyone. And welcome to the Horizon Bancorp conference call to discuss financial results for the three months ended December 31st, 2021. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. We do ask that you limit yourself to one question and a single follow-up. You may rejoin the queue if you have additional questions. Please note, today's event is being recorded. Before turning the call over to management, please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in Horizon's current 10-K and later filings. In addition, management may refer to certain Non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. There’s no obligation to update any forward-looking statements related to Horizon's Earnings call. If anyone does not already have a copy of the press release and supplemental presentation issued by Horizon today, you can access it at the company's website, www.horizonbank.com. Representing Horizon today, our Chairman and CEO Craig Dwight, President Jim Neff, Executive Vice President and CFO Mark E. Secor, Senior Vice President for Retail Lending Noe S. Najera, Executive Vice President and Chief Commercial Banking Officer Dennis J. Kuhn, and Executive Vice President and Senior Commercial Credit Officer Lynn M. Kerber. At this time, I'd like to turn this over to Mr. Dwight. You may go ahead, sir.

Thank you, Rocco, and good morning. And thank you for participating in Horizon Bancorp's Fourth Quarter Earnings Conference Call. Our comments today will follow the investor presentation and press releases that we published yesterday, January 26. Horizon is pleased to report record earnings for 2021, in the solid fourth quarter that continues our momentum into 2022 and 2023, with strong commercial consumer loan growth, the successful integration of our fall branch acquisition, efficiencies gained from our late summer consolidation of 10 offices, and the continuation of our excellent asset quality. We're very proud of what our associates have accomplished this past year, and their incredible effort as we continue to build for the future. The momentum taking us into 2022 and '23 is due in part to the new associates and customers we welcomed from the 14 Michigan branches acquired on September 17th. This logical extension of our franchise includes adding approximately 50,000 new households, three commercial lenders, and low-cost and stable core deposits. Horizon has already proven that mass and scale work to drive shareholder value, and our recent branch acquisition only contributes to that momentum. In addition, the ten branches we closed on August 27th is a continuation of our ongoing effort to maximize the efficiency of our retail franchise, excluding acquisition-related and non-recurring costs. Our fourth-quarter expense to average asset ratio was 19.5% supportive of our 2022 full-year goal to be below 22%. Now, I would like to discuss our promotions and retirement of a senior officer, which was announced yesterday. Jim Neff, President of Horizon Bancorp and Horizon Bank on Monday, shared his decision to retire at the end of the first quarter. Jim has been an integral part of our company's growth during 22 years with Horizon. As we grew from approximately $370 million in total assets to our current footings of over $7 billion, we thank Jim for his contributions to our success, and we wish him and his family good health and happiness in his retirement years. The consumer and commercial banking promotions and appointments we announced yesterday are all possible because of the depth of talent we have cultivated in our organization. We are promoting EVP Lynn M. Kerber to Chief Business Banking Officer and Noe S. Najera to EVP and Senior Retail and Mortgage Lending Officer. Both Lynn and Noe are familiar with their expanded areas of responsibility, which makes this transition seamless from a cultural standpoint and maintains our growth momentum. In addition, Dennis J. Kuhn will move into the role as Regional Market President for Southwest Michigan. In return to his hometown of Kalamazoo, where he has a long banking history, deep roots in the community, and established our original office in 2010. Dennis's primary focus in his new role will be to grow commercial loans. Starting on Slide 4 of our presentation, Horizon completed the fourth-quarter reporting solid quarterly earnings at $0.49 per share, or $0.54 per share in adjusted earnings, which compares favorably to the $0.52 per share adjusted earnings for the third quarter. Driving the quarterly results were net interest income growth, organic commercial and consumer loan growth, additional revenue from the acquired offices, and cost savings achieved from the 10 branch closures. Given the size of our balance sheet, highly efficient operations, and talented workforce, we believe Horizon is well-positioned to capitalize on significant, organic, and strategic opportunities within our attractive Midwestern markets. Why invest in Horizon? Well, our investment thesis is simple. We are a high-performing company located in attractive Midwest growth markets. We are on the right side of Chicago. We are a company that continues to look for opportunities to improve our operating model, as evidenced by the enhancements to our retail network and market area in 2021. We have a consistent history of strong ROA and ROE. We have a positive earnings growth outlook for 2022, which we believe provides us another opportunity to favorably distinguish Horizon from its peers. To further support that we are a growth company, Horizon's compounded annual growth rate from 2002 through 2021 was 13% for total assets and 20% for net income. Horizon's ability to grow earnings faster than total assets illustrates the company's ability to efficiently increase the bottom line. Moving onto digital transformation. Horizon's average monthly transactions continue to shift away from branches toward digital virtual channels. As of last month, 75% of all transactions took place through our digital channels compared to 44% in 2018. The good news is throughout this pandemic, Horizon's online activity has stayed relatively constant, even with the reopening and closing of offices. Horizon embraced this shift before the pandemic, which, of course, accelerated the trend. It was a key consideration in our annual branch performance review and the consolidation of ten branches in August. Excellent examples of our technology investments that are paying off are trends in the online chat, online deposit account opening, and the ability to support the branch network from our three independent call center locations. In 2021, Horizon was able to answer 86% of all online chats through our AI bots. Total chats increased in excess of 300% over the prior year. In addition, Horizon opened 12% of all new checking accounts online during the year, and we expect a substantial increase in this effort in 2022. As part of our annual branch rationalization and due to our investments in technology, we see additional opportunities to reduce the number of branches in 2022. Now to talk about capital, Horizon manages and deploys capital well, as evidenced by our recent acquisition, stock buybacks for the year, and a 25% increase in our quarterly dividend during the year, with a 2.9% yield as of December 31st, 2021. Horizon has reported over 30 years of uninterrupted quarterly cash dividends. In the fourth quarter of 2021, Horizon Bancorp, Inc. injected $60 million of cash into the bank to maintain strong bank capital ratios and to lower our FDIC insurance premium in 2022 by $400,000 to $500,000. This was part of our original plan when we announced the TCF acquisition. After this capital injection into the bank, the holding company still has cash on hand to cover more than six quarters of fixed costs and dividends. Now for our financial update, let me hand it over to Horizon Bank's Executive Vice President and Chief Financial Officer, Mark E. Secor. Mark.

Thank you, Craig. Horizon had its fourth consecutive quarter of record adjusted net income, with new records for net interest income and adjusted diluted earnings per share. We're very pleased with these results and the continued positive core trends demonstrated in the fourth quarter. Starting with Slide 15, the company's fourth quarter results were impacted by a pair of one-time events. The first $884,000 of additional transaction costs from the recent branch acquisition, and the second is the $1.9 million mediation settlement for a Department of Labor dispute related to the ESOP where Horizon acted as trustee. Horizon is no longer in the ESOP trustee business, and as we reported in the fall, we sold all ESOP accounts to another service provider for a $2.3 million gain in the third quarter. The record net interest income for the quarter was primarily due to a higher level of interest-earning assets, with cash continuing to move to the investment portfolio, along with growth in commercial and consumer lending and the run-off of lower-yielding PPP loans as they are forgiven. Continued growth in net interest income dollars through 2022 remains one of our goals for the year. We had a $2.1 million release for credit loss compared to $1.1 million provision expense in the linked quarter. We see continued strong credit performance, reductions in non-performing loans, and improving economic metrics, and believe we are appropriately reserved given the current state of our portfolio, the recovering economy, and our CECL modeling. Slide 16. As we continue to focus on increasing net interest income and in anticipation of a rising rate environment, we wanted to provide a few details on our balance sheet. It's currently in an asset-sensitive position with approximately $1.8 billion of adjustable-rate assets, of which approximately $925 million would move immediately with a rate change to their index. Shocking our balance sheet with a 100 basis points increase, using 2021 net interest income, we would generate an increase in net interest income of approximately 5.61% or $10.2 million. Contributing to the increase are the expected deposit data's for rising rates, which currently range from 4% for consumer deposits to 45% on money market and public funds. Our internal forecast assumes 325 basis points of rate hikes during 2022, with the first in March. In this scenario, we expect our asset-sensitive position to enable our net interest income and earnings to benefit from increases in short-term rates starting this year. Slide 17, the adjusted margin decline of 26 basis points during the quarter was positively impacted by 10 basis points from PPP income, as net different fees were recognized for loan forgiveness. This was offset by 32 basis points of margin compression from the high average cash balances held during the quarter. This decrease in the margin was expected as the result of the branch acquisition that closed on September 17th, which resulted in the average balances for Fed funds sold to be $334 million higher in the fourth quarter compared to the third quarter, along with an average balance of investment being $459 million higher for the same period. However, even with this drop in the margin, the growth of earning assets in the fourth quarter increased net interest income by $3.4 million. Slide 18, the loan yield decreased four basis points in the fourth quarter, primarily due to the decrease in the amount of PPP fee income recognized. Excluding PPP fees, the fourth-quarter yield would have increased one basis point from the third quarter. The steady loan yield is a result of the growth in commercial and consumer loans, changing the portfolio mix to higher-yielding assets, helping to offset the lower rates for new loans being originated in the current portfolio rates. As the majority of PPP fees have been recognized, additional downward pressure on the loan yield is expected going into 2022. Slide 19. The investment portfolio was $2.7 billion at quarter-end and has increased $1.4 billion since the end of 2020. $630 million of this growth is directly related to the low-cost liquidity onboarded with our September branch acquisition. With $593 million of cash on the balance sheet at the end of the fourth quarter, additional purchases of investment during the first quarter are expected to increase the investment portfolio to approximately $3 billion as we continue to focus on increasing net interest income. Also, during the quarter, we increased held-to-maturity investments to 57% of the investment portfolio. To help manage tangible capital in a rising rate environment, a select group of investments with higher interest rate risk were transferred to held-to-maturity, along with all investments currently being purchased. Management will continue to monitor the liquidity required from the investment portfolio to determine the appropriate level of investments in this classification. Slide 20. Margin compression was slightly tempered by our continued improvement in funding costs, which reflected the low-cost funding acquired in the branch acquisition in September, which added to Horizon's valuable core deposit franchise. The CD portfolio's 23 basis point decrease in pricing reduced total funding costs, as higher-cost term deposits matured during the quarter. $439 million of CDs with an average cost of 49 basis points will mature during 2022 and will continue to reduce our cost of funds. Further improvement in our long-standing low-cost funding model also reflected non-interest-bearing deposits growing by 16% in the fourth quarter. Slide 21. Setting aside the one-time acquisition and mediation costs, our fourth-quarter operating expenses underscored our long-standing ability to manage expenses while continuing to invest in growth opportunities in the business. Even with our first full quarter of costs for the acquired Michigan operation added in late September and higher FDIC insurance premiums, our fourth-quarter core operating expenses of $36.6 million represented an increase of only 9% from the third quarter and 0.4% from the same period last year. Core operating expenses continued to be leveraged, as we saw non-interest expense to total average assets decline 10 basis points to 1.95% annualized, fully supporting our 2022 goal of less than 2%. Now, Noe S. Najera will provide an update on mortgage and consumer lending.

Thank you, Mark. Good morning, everyone. I would like to provide additional insights into our 2022 strategies on how we are going to achieve growth in retail lending. Onto Slide 23, our expansion into the northern Michigan market has had an immediate impact on our consumer production. We achieved record consumer loan production in 2021 in excess of $397 million, finishing with a strong fourth-quarter. The mix of home equity lines and indirect lending was equally balanced during this period. We expect similar results during the first quarter of 2022 as we launch a new home equity product to further build on the momentum of the fourth quarter. To date, we have 34 new dealer partners, who have embraced our program and will continue to perform during this auto inventory shortage period. We have recently hired a highly experienced indirect representative for the Indianapolis market, which has growth potential. She has been well received by our partners in the market. Additionally, we have refreshed our indirect lending program to focus on higher yielding loans, all of this without compromising credit standards. This will be achieved with limited risk while increasing yield, and we expect our charge-off levels to remain consistent with market trends. We anticipate these changes to have a positive impact on the yield and the growth of our existing consumer portfolios. With expected mortgage rate increases in 2022, we will showcase our existing no-fee HELOC product with a quick approval process. We believe it is more economical for borrowers to draw on their existing HELOC than to get cash-out refinances, as has been the case during the past several years. This will result in higher line usage, allowing portfolio balances to grow at a much higher rate than in previous years. We are confident that our consumer products will remain competitive in all markets. Now onto Slide 24. Our expansion into the Michigan market provided a significant boost to overall production we experienced in '21. The market provides a great opportunity for second-home and jumbo financing, which are strong portfolio products we offer. We recently made a policy adjustment expanding our geographic footprint to over 20 states for sellable products. This will provide opportunities for growth while at the same time limiting Horizon's risk. Since these loans will be sold on the secondary market, this geographic expansion is being marketed by our mortgage loan officers to their centers of influence and through online channels. MBA forecast total mortgage originations in 2022 to decline by 35% compared to '21. We expect to be ahead of MBA's forecast and anticipate a reduction between 15% and 18% for the year. With a return to normal seasonality, typical pre-pandemic levels, we are positioned well with experienced loan officers who have long-term relationships with local contractors, real estate agents, builders, and all markets. One of the drivers of the forecasted reduction in mortgage originations for 2022 is the lack of housing inventory, thus creating strong demand for new construction throughout our footprint. Horizon has long been in the construction loan business and is positioned well to take advantage of this growth segment. Additionally, our experienced loan officers and back-office support have proven proficient in handling these products while leveraging long-tenured relationships. We feel we can exceed market estimates in the coming year, regardless of the expected rate increases. We expect to finish the year well over $500 million in total mortgage production. And now I'd like to introduce Dennis J. Kuhn.

Thank you, Noe, and good morning. Please refer to Slide 25, accelerating commercial loan growth. Horizon continued to gain momentum in core commercial loan activity during the fourth quarter with $51 million net loan growth or 10% annualized. This was driven by a 38% increase in net funded new commercial loans against the prior quarter. The addition of new experienced commercial lenders in our growth markets is fueling this growth, which we expect to continue into 2022. This is supported by our $120 million pipeline entering the New Year, which we expect to grow throughout the quarter. We also continue to see an uptick in revolving line of credit usage, which increased for the second consecutive quarter, up by over $5 million during the fourth quarter. We have the capacity within our lending groups to continue this established growth trajectory, which is expected to be in the range of 10% in 2022. And now, Lynn M. Kerber will comment on asset quality.

Thank you very much, Dennis, and good morning. Referring to Slide Number 26 regarding asset quality, I would like to highlight several items for the group. Firstly, our credit quality metrics for the fourth quarter remained very strong with low delinquency and improving trends in non-performing loans. Our total bank past dues for December were 0.24% compared to 0.20% at December 2020, and our commercial delinquency for December was 0.17% compared to 0.15% a year ago. Our non-performing loans decreased from $29.4 million at September 30th, '21 to $19 million at December 31, resulting in a ratio of non-performing loans of 53 basis points, an improvement from 69 basis points the previous year. Our commercial loan non-performing loans decreased by $8.6 million in the fourth quarter. This was principally due to the upgrade and payoff of several loans, resulting in the commercial loan non-performing loan ratio of just 36 basis points. Our net charge-offs for 2021 were $1.6 million, reflecting a charge-off rate of five basis points for the year. In the fourth quarter, the bank recognized two commercial charge-offs totaling $926,000, which were anticipated and previously reserved for. Regarding the allowance for credit loss, as Mark previously discussed, we provided a release of allowance of $2.07 million in the fourth quarter. This results in our ACL ratio of 1.51% and is reflective of our continuing strong credit metrics. With this, I will turn the presentation back to Craig, to cover key franchise highlights.

Thank you, Lynn. To summarize Horizon Bancorp's key franchise highlights, Horizon is positioned well for earnings growth going into 2022 and 2023. As a result of our recent acquisition of 14 new branches, low operating cost discipline, a pickup in loan demand, an increase in our number of commercial loan officers, and expansion of our consumer loan dealer network while leveraging excess capital. Excluding PPP loans, we expect core commercial loans to increase by approximately 10%. We expect solid consumer loan growth in a range of 5% to 9%. We expect a reduction in mortgage loan production of 15% to 18%, which is well below the Mortgage Bankers Association forecast that calls for a 35% reduction. We are a seasoned management team with depth as exhibited by our recent promotions. Horizon has maintained a solid historical compounded annual earnings growth rate of 20% over the past 19 years, and the company has paid 30 years of uninterrupted cash dividends on common shares, and raised the dividend two times last year for a total of 25% increase. This concludes our remarks for today. And now, I will ask our Operator to please open the line for questions. Thank you.

Thank you, sir. We will now begin the question-and-answer session. To ask a question, remember to follow the instructions provided earlier. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please follow the instructions provided. As a reminder, we do ask you to limit yourself to one question and a single follow-up. Today's first question comes from Terry McEvoy with Stephens. Please go ahead.

Hi. Good morning, everyone.

Good morning.

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

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

For my follow-up question, in the press release, you mentioned an 8% decline in the acquired deposits from TCF. If I remember correctly, the original forecast last summer projected a 30% runoff. Can you discuss how it appears the runoff is better than expected and what the financial advantages are of retaining more of those deposits?

Yeah. Terry, thank you. This is Mark. We've seen about an 8% decline in the deposits. Some of that is seasonality, as we've seen on our own deposits in the municipal arena. We didn't announce or model an initial 10% runoff after the acquisition, but we updated in our Investor Day another 10% after that from surge deposits. So we are well below that and have seen that stabilize around that 8% runoff for a period of time here.

Great. Thanks, Mark, thanks for clearing that up. And I forgot to say, Jim, congrats on your retirement announcement. I should have said that right from the beginning. Congrats.

Thank you, Terry.

Ladies and gentlemen, our next question comes from David Long in Raymond James. Please go ahead.

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

Thank you, David, this is Mark. We usually notice a true-up for bonus expenses in the fourth quarter, and this time we did incur slightly higher bonus expenses despite managing our employee benefits costs well. We also experienced an increase in FDIC insurance expenses, which is attributed to lower capital ratios and our significant asset growth. We anticipate that by increasing our bank's capital and managing asset growth, we could save $450,000 next year in FDIC expenses compared to the current rate. Could you remind me of the second part of your question?

Wage inflation.

Wage inflation. We, like everyone, are seeing that. What's offsetting it is employment decisions. As you continue to try to fill positions, we did budget an amount for that to have a plan next year that we would be able to deal with some of the wage inflation. So we are planning on that. It hasn't shown significantly on the financial statement, but we do anticipate that we will see some pressure from wage inflation.

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

Got it. Okay. And then the other thing I want to ask about was on the credit side, I know, Lynn, maybe this is your area, but the day one CECL level that you guys talked about pre-pandemic was about 98 basis points on the reserve. Obviously, it’s well above that here. Can you get back to that level or has the mix of the loan portfolio changed, or does your outlook forever change given the pandemic hit on what the right CECL reserve level is? So I guess the question is, where can that go? Where can we go from here and can we get close to that 98 basis points that you talked about a couple of years ago?

Yes David, this is Mark. We did see the release this quarter, and that is because of improving trends and improving historical loss rates. We want to be cautious. The pandemic continues, and we have specific allocations to sectors of our loan portfolios that have higher risks that we talked about for many quarters here, such as hotels and restaurants. Until we know what the outcome is, we want to try to maintain those to the best we can until we can clearly see what the risks are in those areas. Will we ever get back to that level? I think there's too many factors to say; I would anticipate there wouldn't be much credit loss reserves through the year just based on what the trends are. But to get back to that level, I think it would take quite a while.

Got it. Thanks for taking my questions. I appreciate it.

Thank you, David.

Today's next question comes from Damon DelMonte with KBW. Please go ahead.

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

Yes. That's what we're planning. Unless there are some liquidity needs that we aren't foreseeing, we could see some runoff, but yeah, we're targeting around that $3 billion figure for the year.

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

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

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

10 basis points would have been the impact. And we stated, we only have about $516,000 of fees yet to be recognized on the remaining loans.

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

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

Okay. And then, just as a follow-up, are you guys providing a range going forward for your overall growth for the year based on fourth quarter numbers?

Yeah. I mean, we've targeted that for some 2% and we're at 1.95%. Obviously, average assets play into what that ratio is. But yes, I think the run rate from the fourth quarter, as we said, we had some bonus expense offsetting the growth in salary expense going forward. We had higher FDIC expense than we would have anticipated just to try to catch up from the calculation. So I think it's a pretty good place to start for looking into the next year.

Great. Thank you very much. Appreciate the insight today.

Thanks, Damon.

Question comes from Brian Martin, Janney Montgomery. Please go ahead.

Hey, good morning. Mark, I just want to see if you could touch a little bit on the investments you're making on the securities. What are the new rates you're getting on that? Just kind of how you're thinking about that. You also talked about the margin; can you give a little insight on how the first quarter shakes out on if you had a little bit more on your crystal ball on that core margin? Another rate increase will probably begin to occur after that. How should we be thinking about the margin percentage as you go into Q1 and then make some adjustments based on your comments on sensitivity?

For the investment portfolio, we acquired a mix of new needs, a few corporate bonds, and some subordinated debt as it has become available, along with typical mortgage products. We have not deviated from past policies and are not looking to take additional risks. The portfolio yielded a 2.17% tax equivalent for the quarter, which is in line with our expectations. There might be an upside as we analyze the cash flow, although there aren't many high-yielding investments maturing soon. With some potential interest rate changes, I am confident that our reinvestments will help maintain this yield moving forward. Regarding the margin, the cash balance has significantly affected the decline. Accounting for the slowdown in PPP would have resulted in a 22 basis point drop, but we expect some recovery from that. The pressure comes from the current loan portfolio, as new loans are being issued at lower rates than the existing ones. However, I believe margins will improve from their current levels. Our ongoing focus remains on growing net interest income as the balance sheet continues to fluctuate with changes in asset sensitivity.

Thanks, Mark. I have a follow-up regarding the utilization of the line of credit. Have you noticed any changes in that area, and are you beginning to see any adjustments?

This is Dennis. Over the last two quarters, we did see growth in line usage, although it remains at lower levels. For the full year, we experienced a reduction of $21 million in line usage. However, we have observed an uptick in the last two quarters and expect further growth in line usage into 2022. Brian, I want to follow up on your modeling plans; as we mentioned, we are asset sensitive, so the recent rate increases will help improve margins going forward.

Again, a follow-up to Dennis. Both on the consumer and commercial, we're low on our line usages. Just a quick estimate of where we would have been, maybe on an average basis between the consumer and commercial lines. We still are about $100 million lower than what average line usage would be historically.

Got you. Okay. Mark, you said you gave the amount, I don't recall. You said, but as far as what moves immediately, are there the PCS floors? I mean, can you have floors in the portfolio? Can you comment on where those stand today?

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

Got you. Okay. Well, thank you so much.

Our next question today comes from Nathan Race from Piper Sandler. Please go ahead.

Yes. Hi, everyone. Good morning.

Morning, Nathan.

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

In the current environment, we aim to keep our balance sheet as stable as possible and are focused on growing earning assets rather than seeking deleveraging opportunities. For context, last year we secured a $225 million borrowing advance from the FHLB at a minimal rate, which we had to pay down when it matured in January. Recently, they offered us additional options, and we took another special loan in the $200 million range to support our balance sheet. This new loan has a six-month puttable feature at ten basis points. It's still an excellent chance for us to uphold our position, especially in light of the anticipated seasonal changes in our deposits, which helps us avoid borrowing in a rising interest rate scenario.

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

Okay. One housekeeping question: the Wealth Management revenue was down so much noticeably in the fourth quarter compared to 3Q. Was there any specific driver there? There was just kind of market volatility towards the year-end, and what is the outlook for Wealth Management revenue growth in 2022?

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

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

Nathan, thanks for the question. We do not see an acquisition taking place for the first six months of this year permanently, but we do want to build up TCE throughout this year, unless it's in a leasing company or an asset generator. However, after the first six months, I think discussions will pick up again as you've probably already been hearing. We're looking at either in-market or market extensions in Indiana, Michigan, or Ohio. It's a conflict in our current footprint. The typical size of $500 million to $2 billion is our sweet spot for a target size.

Okay, great. I appreciate all the color. Thank you, everyone.

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

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

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