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FNB Corp
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Hello, and welcome to the F.N.B. Corporation Fourth Quarter 2021 Earnings Call. All participants will be in listen-only mode. Should you need assistance [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Lisa Constantine, Investor Relations. Ms. Constantine, please go ahead.
Thank you. Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reported files with the Securities and Exchange Commission often contain forward-looking statements and Non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to Non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these Non-GAAP and forward-looking statements disclosure contained in our related materials, reports, and registration statements filed with the Securities and Exchange Commission and available on our website. A replay of this call will be available until Thursday, January 27, and the webcast link will be posted to the About Us Investor Relations section of our corporate website. I will now turn the call over to Vince Delie, Chairman, President and CEO.
Thank you. Welcome to our Fourth Quarter Earnings Call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. FNB's fourth quarter earnings per share was $0.30, bringing our full year earnings to a $1.23; the highest earnings per share since the restructuring of the Company in 2004. In addition to the solid EPS number, the fourth quarter was highlighted by robust loan growth, as well as the launch of the mobile eStore and the digital rollout of our enhanced Physicians First program. This full service offering is dedicated to the personal and commercial needs of physician, dentists, and veterinarian. Let's walk through each of these accomplishment starting with loan growth. Spot loan growth, excluding the impacts of PPP [Indiscernible] increased $610 million or 10% annualized from the third quarter of 2021. Strong loan growth supported our 13% annualized sequential growth in net interest income, excluding PPP, purchase accounting accretion and provide significant momentum to the 2022 earnings.
In addition to achieving our initial full-year loan growth guidance given last January, we've achieved 3 consecutive quarters of strong loan growth which led to a year-over-year increase of $1.3 billion or 6% excluding PPP from the December 31, 2021 balance.
Commercial quarterly loan growth of 10.6% annual loans was due to strong production across our footprint, demonstrating the benefit of our geographic diversification strategy. This organic loan growth drove total assets to $40 billion year-end with pro forma balance sheet of approximately $42 billion, once the Howard Bank acquisition closes in a couple of days. At the beginning of November, we integrated our e-Store shopping tool into the FMV mobile app as part of a series of innovative enhancements, that build on our customers ' ability to Bank digitally. FNB also successfully upgraded our mobile banking experience, adding new features and expanding our suite of online loan applications, including 1. FNB credit cards, 2. mortgage products, 3. home equity lines of credit, 4. home equity installment loans and 5. small business loans. This platform creates a fully digital bank, where customers can 1. conduct routine transactions, 2. purchase products and services and 3. Schedule time with our bankers virtually.
Our comprehensive mobile offering was recently recognized by S&P Global Market Intelligence, which call FNB Direct, 1 of the most competitive mobile banking apps in the industry. And their analysis indicates that our mobile app had more features than any of our peers, and is commensurate with JPMorgan and Bank of America. In addition, we were also recognized for our best in class digital strategy clicks-to-bricks, and received a prestigious national award for our mobile banking experience. In addition to integrating the eStore, our mobile app was upgraded to incorporate a new modern look, streamline navigation, and direct access features customers are most likely to use, such as enhanced payment capability, shopping and account openings tool, and mobile chat. This upgrade was received well by our customers, as evidenced by an industry-leading app store rating of 4.8 stars. We continue to integrate additional products and services into our digital platform to better serve our customers and increase our market share through customer acquisition in a scalable and efficient manner.
Few weeks ago, we rolled out a fully digital and enhanced version of our Physicians First Program on our e-Store. This holistic suite of digitally accessible products and services dedicated to meeting the unique needs of Physician s, Dentists, Veterinarians and other healthcare professionals, includes 1. commercial loans, 2. deposit products, 3. consumer loans, and 4. wealth management services. With over 250,000 physicians, dentists and veterinarians in our footprint, and over $4 billion of new medical student debt created each year are opportunity to improve financial outcomes for members of the healthcare industry is tremendous. We've grown our physician loans 68% in the last 12 months because we've invested in personnel and products. Given the momentum with our current program combined with the investment in our digital capabilities, there is a significant opportunity to deepen existing relationships and acquire new customers within the healthcare industry. Lastly, I wanted to touch on the Howard Bank acquisition.
We are in the final days before our close on January 22nd with the system's integration on February 5th. We have worked closely with Howard team and expect the transition to be smooth. We're very impressed with Howard's talented employees and are retaining more frontline employees than originally expected. In fact, our overall retention across our footprint has been strong. And we're excited for them to join F.N.B. in this dynamic market. The acquisition is progressing well, as we are on track to achieve the expense saves laid out in the July announcement. Asset quality has improved more than we originally expected. And similar to past acquisition, we will introduce our expanded product suite to our new clients to drive additional non-interest income growth in Baltimore and Washington, DC. Both the one-time costs and the credit mark, including day two, are expected to come in better than originally planned. With that, I will now turn the call over to Gary to comment on our overall credit quality. Gary?
Thank you, Vince. And good morning, everyone. We ended the year with continued positive performance across all of our portfolios as we closed out another successful year, and entered 2022 in a position of strength. During the quarter, we saw further improvement in credit quality as delinquency and NPLs declined, as did our level of rated credits. Additionally, our fourth quarter and full-year net charge-offs, that both reached historic new low levels. Let's now review some of the highlights followed by a brief update on the upcoming Howard Bank acquisition and some closing remarks on our outlook for 2022. The level of delinquency excluding PPP balances ended December at a very solid 62 basis points, an improvement of 9 bips on a linked-quarter basis. NPLs and OREO also improved during the period to end December at 39 basis points, representing a 10 basis point reduction from the prior quarter with reduced non-accrual levels of $22 million driving the improvement.
On a year-over-year basis, our non-accruals are down nearly 50% compared to December 2020, representing an $82 million reduction. This largely reflects the actions we took late in 2020, to better position our loan portfolio for the year ahead at which time we proactively took risk off the table during a challenging macroeconomic environment. Net charge-offs for the quarter were very low at $1.4 million or two basis points annualized, while full-year net charge-offs for 2021 totaled $14 million and stood at a solid six basis points at historically low level. We recognized a $2.3 million net benefit in the provision during the quarter, following the continued improvement in our credit quality position and the prior actions taken in 2020 to position the portfolio, as well as a general improvement in economic factors that favorably impacted our forecast models. This resulted in a GAAP reserve position that was down 3 basis points, to stand at 1.38% with the extra PPP reserve decreasing five bits to stand at 1.4%, which remains directionally consistent with our credit results.
Our NPL coverage position further improved ending December at a very solid level of 392% following the noted reductions in NPLs and rated credits during the quarter. Our total ending reserve position, inclusive of acquired unamortized discounts stands at 1.5%. I'd now like to share with you some brief updates around the upcoming Howard acquisition. Our credit teams have been carefully tracking and monitoring the Howard portfolio since announcement, as is our standard practice. At this point, we remain pleased with the credit performance and the anticipated Day 1 positioning of this book, which is tracking better than originally expected. Post-close, we do not expect our loan risk profile or credit quality performance to be impacted as the Howard Bank remains well diversified and will have minimal impact to our concentrations of credit.
As we close out another successful year marked by continued positive credit trends, we are very pleased with the position of our portfolio moving into 2022. With the global challenges and uncertain economic conditions faced during 2020, our proactive approach to risk management and ongoing review of our credit portfolio, allowed us to strategically position ourselves entering 2021, a proof-point of the attentive and disciplined approach we take in managing our credit book. We remain vigilant and attentive to any emerging risks in both the broader economy and within the markets in which we and our customers operate. As macro factors continue to change, including economic conditions, inflationary pressures, and the evolving nature of the virus, we will continue to manage our book through this highly competitive environment, with our core credit philosophies front and center.
This foundation of sound and consistent underwriting, a tenant management of risk and careful selection of high-quality lending opportunities continues to support our growth objectives as we look forward to more business opportunities ahead in 2022. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Thanks, Gary, as we looked at our financial results, we have delivered an exceptional performance is past year and exceeded our full-year expectations on both the bottom line and pre -provision net revenue basis. We produced mid single-digit loan growth, excluding PPP, was 5.7% year-over-year growth on a spot basis. We surpassed our full-year revenue expectations with a record $1.23 billion driven by a continued strategic focus on diversified fee income contribution. Operating expenses were well controlled and operating pre -provision net revenue, or PPNR, ended the year at $508 million. Because of our strong credit quality trends and improved economic conditions, our provision for loan losses was essentially 0 at $0.6 million for the full year. Through this successful execution of our strategies, we were able to increase our operating net income available to common stockholders by 27% to $400 million or a $1.24 per share.
Let's walk through the fourth quarter financials, starting with the highlights on Slide 5. Fourth quarter operating EPS totaled $0.30, an increase of $0.02 from the year ago quarter. Tangible book value per share increased 9% year-over-year to $8.59. When excluding PPP which is more reflective of underlying loan growth, period end total loans increased 610 million or 10.1% annualized on a quarter basis, including growth of $421 million in commercial loans and a $188 million in consumer loans. Commercial loan production was a record $1.5 billion diversified across our geographic footprint. Line of credit utilization increased for the third consecutive quarter to 35.8% still below the pre -pandemic level of 40% to 45%.
Consumer lending has the second highest production quarter. We also had record linked-quarter growth for small business loans. Let's continue with the balance sheet on Slide 7. Average earning assets are now over $35 billion as securities increased 4.8% linked -quarter due to pre -investment for the upcoming Howard acquisition and utilizing excess cash with spot cash balances down 15%. Reported average loans and leases remained flat at $24.7 billion with loan growth offset by $620 million reduction in average PPP balances. Average deposits totaled $31.7 billion, an increase of 2.7% from the quarter with year-over-year growth in all eight of our primary MSA markets. The growth continues to lead to a favorable funding mix given customers ' preferences for low cost savings accounts and maintaining higher checking account balances. We expect organic growth to continue and as rates rise, expect the balance growth and lower Beta deposit products to shift to higher beta products.
Turning to Slide 8. Net interest income totaled $223.3 million, a decrease of $9.1 million or 3.9% in the prior quarter total of $232.4 million, reflecting a $15.4 million decreased contribution from PPP given forgiveness activity, which was partially offset by an increase in average earning assets, a more favorable funding mix and lower deposit costs. Reported net interest margin decreased 17 basis points to 255. The total yield on earning assets declined 19 basis points to 280, reflecting the reduced PPP contributions and a 498 million or 15.6% increase in average cash balances. Total impact of PPP, purchase accounting accretion, and higher cash balances on net interest margin was a decrease of 14 basis points for the fourth quarter compared to a benefit of 2 basis points in the prior quarter.
But excluding these factors, net interest margin remains stable, reflecting a three basis point reduction in the cost of funds, offsetting the lower yields on variable rate loans. Now let's look at non-interest income and expense. Non-interest income totaled $79 million. While this total decreased $9.9 million or 11.1% in the record level last quarter, we continued to achieve broad contributions from our fee-based businesses. Capital markets income totaled $9.5 million; solid contribution from swap activity, loans indications, debt capital markets, and international banking. We are very impressed with the performance of our capital markets team with international banking and loans indications increasing 117% and 42% respectively. The recent expansion of our debt capital markets capabilities has tripled revenue in the fourth quarter, quickly becoming another $1 million plus revenue business for us.
Service charges increased $0.7 million, reflecting seasonally higher customer activity. Mortgage banking operations income decreased $2.3 million or 27.8% due to a seasonal reduction in held-for-sale pipeline and lower secondary market revenue. SBA volumes and average transaction sizes continue to be strong with $2.1 million in premium income included in other non-interest income. The third consecutive quarter exceeding $2 million. Reported non-interest expense was well managed and declined $2.6 million or 1.4% linked quarter to a $181.6 million. This reduction was driven by salaries and employee benefits, earning $0.8 million or 0.8% primarily related to higher production and performance-related commissions and incentives in the prior quarter. Bank shares and franchise taxes decreased $1.9 million or 52.8% due to recognition of state tax credits in the fourth quarter, 2021.
Efficiency ratio equal 58.1% compared to 55.4% reflecting lower PPP income, and the previously mentioned non-interest income decrease from record levels last quarter. Overall, this was a strong quarter to close out 2021, positioning us very well for 2022, Now let's turn to 2022 guidance on Page 12. We expect the momentum in 2021 loan growth to continue. We expect loans to increase in low double digits to low teens including the benefit of the Howard Bank acquisition with underlying organic growth in the mid-to-high single digits on a year-over-year spot basis. Deposits this year have benefited from the PPP program and other government stimulus which we expect will begin to run off in 2022. With that runoff included in our assumptions, deposits are projected to grow mid-to-high single digits on a spot basis, inclusive of Howard.
Let's now look at the income statement, which includes Howard Bank in all assumptions. We expect net interest income to end the year between $965 million and $1.005 billion with the first quarter between $226 million to $230 million. Our base guidance currently assumes two rate hikes, with the first being in June and the other in September. Although, we have our [Indiscernible] analysis, given the recent volatility in the interest rate futures. Full-year non-interest income is expected to be between $320 and $340 million with the first quarter in the high 70s to $80 million dollar range. We expect non-interest expense on an operating basis to be between $760 to $780 million for the full year, and $190 to $195 million for the first quarter given normal seasonality and the addition of Howard.
These do not include the onetime expenses associated with the Howard Bank acquisition were expected to be better than originally modeled. Positive credit quality is expected to continue throughout 2022 with provision guided to $20 million to $40 million. This does not include the day to CSO provision for Howard in low $20 millions in the first quarter and is dependent on the net loan growth experienced throughout the year. Lastly, the effective tax rate should be between 17.5% to 18.5% for the full year. With that I will turn the call back to Vince.
Thanks Vince. 2021 has been a great year for FNB with many accomplishments to celebrate. I'd like to summarize several significant achievements. FNB achieved record revenue leading to strong earnings with EPS at the highest level since the Company's restructuring in 2004. We grew loans excluding PPP by $1.3 billion year-over-year to drive total assets to an all-time high at $40 billion. Generated record fee income of over $330 million or 12% year-over-year growth which now comprises 27% of total revenue. Our team achieved more than $20 million in run rate cost savings accomplishing our 3-year total cost savings goal of $60 million. Banks and credit quality liquidity and the capital position putting our Company in a strong position to execute our 2022 operating.
Enhanced our digital technologies to better serve our customers, putting us at the top of the industry, and supporting our communities during the pandemic through the facilitation of $3.6 billion PPP loans. We also continued our efforts to provide loans and investments to low-to-moderate-income communities, and received an outstanding CRA rating. Through our exceptional financial performance, we were able to create value for our shareholders with a 9% year-over-year increase to tangible book value and a 15% operating return on tangible common equity. In addition, our Company returned approximately $200 million in capital through dividends and the share repurchase program. All of this would not be possible without the dedication of our FNB employees, who focus on serving their clients and driving shareholder value every day.
This past year was a difficult environment to navigate though our employees continuously delivering exceptional performance. As we look to 2022, we are well-positioned given our continued loan growth momentum, investments in differentiated technology, asset sensitive balance sheet, solid asset quality, and improving capital flexibility. I look forward to working alongside our employees in 2022, driving performance and superior return. With that, I will turn the call over to the operator for questions.
Very good. Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions]. At this time, we will pause momentarily to assemble the roster. And the first question comes from Michael Young with Truist Securities.
Good morning.
Good morning, Michael.
Good morning, Michael.
Actually, I wanted to start with more of a strategic question for Vince with the roll out of the digital banking both app and online marketplace, what will that shift for you all strategically? Are you going to spend more marketing dollars and try to grab market share there or should we just see more efficient operations in the retail bank? And how do you think about that, maybe both strategically and financially moving forward?
Well, I think it adds -- it really adds an elements of both. I think we're able to operate more efficiently as we stand up the digital work streams within the Company, because that's part of it as well. The external -- the customer facing piece of it is important because I think it really helps us scale significantly in markets that have potential where we may not have top market share or deep penetration. So having the digital channels were -- I think since we launched our eStore, or we basically reformatted it and relaunched it and then added loan products. We started last year and then we phased-in various loan products. So consumer loans came online in August and September, and credit card rolled out in January. But mortgages were rolled out and the mortgage product itself was rolled out in May. We've done pretty well with applications.
During that period we were able to originate almost 3000 applications online for those loan products. And we haven't even started. We've done no digital advertising. We've done very little with media content or commercials but that's going to gear up. So our plan was to build the interface, to continuously work to improve it. Because the next phase of this is to create an omni-channel application, I've been talking about it for a long time, where customers can go in and fill out one application for five or six products simultaneously. That's coming -- by the end of this year, we should have that pretty much in place. We've been working on the development of it for some time. In the meantime, we started standing up the various loan products. We had a full suite of depository products that we offer. And by the way, the deposits we've been doing for a long time, a couple of years. We took 20,000 applications in the deposit space last year. If you look at what happened -- if you look at what's going on across the -- actually I have to restate that.
We had 20,000 hits on our website and they weren't necessarily applications, but people who started to engage with the solution center. And once we mobile optimize that particular e-Store product or platform, we should call it, that jumped 56%, So in December, for the full month of December, we had 31,400 interactions with the e-Store. Not all of them led to applications but they started the process to review the content on products and services. What we're doing is we're grabbing that data, those interactions and where we can identify a customer or they've identified themselves, we can create a lead and then push that back through our retail delivery channel and the commercial bank and have them follow up with it. So that's kind of the strategy, but it's really started to take off.
And I think it's going to add to our ability to grow loans. I think it has added. I think it's helped us this year in certain categories, particularly mortgage with 60% plus of the applications, in the year coming through that channel. So anyway, that's what we're excited about. And I think it will provide us with a great opportunity to eke out efficiency, as we streamline the process to bring these customers onboard and work out the digital work streams within the Company, eliminating a lot of manual processes. And then on the flip side, it will help us scale. And we have not advertised or spent a lot of money on promoting it. We will this year. We have a plan to do that, and it's included in the expense guidance you got from Vince.
Another element too is the non-banking businesses running their operations through the digital bank to wealth, insurance, private banking so there's opportunities there to leverage the investments that we've made for really across the businesses.
Okay. Thank you and appreciate you're tying it back into the financial guide. Maybe as a follow-up on the financial guidance for 2022 for A - Vince Calabrese, just as we think about rate hikes, you've got 2 built into the estimate for the year. But if we were to get a third, have you looked at the sensitivity on either a dollars or NIM basis to what an incremental rate hike would be in addition to what you have baked in?
Yes. Yeah, we did. With things moving so quickly, we've done some sensitivity analysis around different options. So we did quantify that. Basically, the ranges that we have for 2022 would go up by about 3% if we get a rate hike in March. So adding 1 March to the June and September that we already have in the guidance is a 3% lift to the range, it's either 965 to 1005.
Okay, great. Really helpful. And one last one if I could sneak it in. Just on Howard, you guys are so close to closing it. Are there any pro forma balance sheet actions that you expect to take or things that have already been done? Whether that would be shrinking it and increasing kind of a net benefit or anything like that that we should be incorporating as we model that.
I think as we sit here today, Michael, the main item would be their borrowings of about $200 million and about a $100 million or so of wholesale deposits that we would -- borrowings we would pay off, and then wholesale deposits wean down over the course of the year. And then overall, that's the main first step and there's nothing else from like an exit portfolio on the loan side that we've had in the past some transactions. We've been very happy with credit quality there. So really it's just those two items as we sit here today.
Okay, perfect. Thank you.
Thank you.
And that's included in our -- Michael, I should comment too. That's included in our guide. Those actions that I just mentioned.
Okay, thanks.
Thank you. And the next question comes from Frank Schiraldi with Piper Sandler.
Good morning. I wanted to start actually there, I guess with a follow-up on the rate hike question. I don't believe you guys provide -- quantify the deposit bit as you use, but just wondered if you could give any color on how you model it out in terms of the first few, I would expect very minimal change in deposits pricing and then maybe pick up after there. But do you guys straight-line it, can you say or do you take that approach?
So it's more of a dynamic filing process, I would say. I think our expectation as we sit here today would be try and get a couple of the Fed moves in, and then start to see some impact on the deposit rates, and I guess the way to characterize it would say, by the end of the year, maybe 20% or so of the Fed move would be captured in the deposit rates. And then over time, move more towards a historical 40% to 50%. But for '22 more in that 20% level.
And that's what you model in terms of the guidance you've given. And then just on the expenses for next year, just wondering if you can speak to how significant inflation plays into that. And then I may have missed it. Apologies if I did, I know Vince spoke of the $20 million in cost saves you've done over the last three years, just wondering if there was something similar for this year and if [Indiscernible]
I would say a couple of comments there. The expenses for Q4, as you know, came in consistent with our expectations. At 180 was what we guided to. Every line item on the non-cash income [Indiscernible] you can see is basically unchanged from the third quarter. As we move forward into 2022, we do have a kind of inflation component baked into our non-interest expense level for the year. It's in the mid-single digits, so I would say from a millions dollars standpoint But that is baked into the guidance that we have. Then the second part Frank, what was the second part again?
Cost saves the 20 million [Indiscernible]
The cost save number, we had, as you commented, $20 million a year for three years. We got a lot of consolidation with the branches over those 3 years. So that -- the buoy we have for this year is $10 million in total for cost saves. And that's also baked into the guidance. And importantly, I should say too that when you look at the -- from an operating leverage standpoint, PPP as we know, is rolling through, and there's a little bit of a tail left, in the first half of the year. But if you look at the underlying oparations of the Company, and we have positive operating leverage ex-PPP in the fourth quarter. And as we move into 2022, we have positive operating leverage each quarter, and expect that to build. And as the rate moves come in, obviously that gives that even more of a lift. But as we've guided to here, there's positive operating leverage in each quarter and building throughout the year, so I just want to comment on that too.
Great. Thank you.
Thanks, Frank.
Thank you. And the next question comes from Jared Shaw with Wells Fargo Securities.
Hi, good morning. This is Timur Braziler filling in for Jared. How are you?
Good. How are you?
Good. So loan growth again, very impressive. Third consecutive quarter. I think last time we spoke, you guys are very pleased with how December was going. I guess given the strong December, given the strong production, was any of that pulled forward from the first quarter? And then I guess as you look out at your '22 guidance, the mid-to-high single-digits, could that prove conservative if the current level of momentum continues or do you see something else occurring in '22 that may bring that loan growth rate down some?
I think we -- the guide that we gave is fairly consistent. If you look back historically at our growth trajectory, it's fairly consistent to where we've grown historically. So in our assessment of what the potential is in the marketplace, obviously, we don't know. We rely on pipeline economic data and its input from the field to determine what we think we can produce. I would say historically, we've been in the mid to upper single-digit range skewing towards the upper single-digit range. With everything that's gone on economically with stimulus,still, the economy -- still feeling the effects of stimulus. There is potential for us to outperform, but we can't. We have to rely on what we know today and our pipelines are good.
We don't really comment on the details of the pipeline but now I would say it's pretty good across the board, particularly in the South East and in the Mid-Atlantic region. So we have been doing pretty well down there and it's really paid off for us. That expansion has helped us. The investment in technology, sure, if that starts to really take off and the adoption picks up, we could see some significant growth in certain categories like consumer loan category pick up some growth in small business potentially. So that is -- that could be additive. But our guide I think is -- that's rooted in historical growth for the Company. And I think it's reasonable to apply that guide. I also think that you asked about the first quarter, I don't know if you meant the first quarter of this year, where we were softer. And then we had three strong quarters in the second half of the year or do you mean moving into next year, this quarter?
Yeah. I meant the fourth quarter production, if any of that was pulled forward from the first quarter of '22?
No. We can't time -- having been a commercial banker, I tell A - Vince Calabrese all the time. Usually, why can't these people forecast? When they're going to close the deal? We don't control when transactions close. There are so many factors. Obviously, the bankers want to get paid, and our incentive compensation plans are geared towards they get paid on what they close each quarter. So there's a tug of war between the client and the corporate banker. But at the end of the day, the client wins and [Indiscernible] transaction gets delayed, there are all kinds of things that can happen. They decided to defer capex spend into the next year. And there goes your incentive comp, right? You got to -- you get pushed in the -- to March, so we don't really control that. I don't think anybody, there's no reason for people to stand back in our plans the way they are structured. So I would suspect that the flow of production is real and normal and it's not impacted by our people or behaviors of our people.
Okay. That's good color. Thank you for that. And then maybe a question for Gary. Looking at the provision outlook for '22 relative to your comments on asset quality, expectations when the Howard deal was announced today. Could that prove to be conservative as well as maybe some of that Day 2 allowances as reversed out throughout the year? I guess, just maybe talk through the puts and takes of further reserve releases, better Howard performance, and then providing for incremental growth, and how that plays through the provision in '22?
Yeah. I guess the important pieces there Timur, are the continuance of the solid performance across the book of business that we manage, and we do expect that to continue to track very nicely. But also the important -- the other important factor is the loan growth that we're able to put up. And that loan growth is really going to drive that provision expense around -- around that guide. So depending upon how strong that growth is from that mid to high single-digit level, it could push it up as we move forward. Referencing Howard, we're very pleased with the performance of that portfolio. And the day 1 credit mark and the day 2 provision on that book are going to be better than expected as was mentioned earlier. So all told, everything is moving in a good direction there. It's going to be driven by those factors as we work our way through the year.
Thank you. And then one more, if I could. Just looking at the balance sheet, it looks like some of the repositioning out of cash and into securities occurred in the backend of the quarter. And I think Vince, you referenced that the margin is a bit spring-loaded going into the first quarter of '22. Maybe just talk through that dynamic and what was being purchased in the quarter on the securities book and how you expect that to flow through the margin.
Sure. Yeah, the slide references the average cash balance building from 3.2 to 3.7 during the fourth quarter. On a spot basis, it actually came down a 0.5 billion. So we ended the year at 3 billion for that excess cash. And as we think about what's baked into our '22 guidance, that number comes down about half between now and the end of the year is what we're projecting. As far as the investment portfolio, during the fourth quarter, we invested a little over $900 million into the portfolio. About double the portfolio cash flows. A good portion of that being pre -investing in anticipation of the Howard acquisition. So on a net basis, the portfolio grew $479 million.
During the fourth quarter, we're investing around $134 million. In the third quarter for reference, it was $113 million. So a good 21 basis points higher than where we were investing in the third quarter. We run that forward to so far this year in the first quarter in January, we've invested $300 million we've put to work so far in January, at 154. So another 21 basis points higher than where we were in the fourth quarter. And that's a pretty low duration too, 3 to 3.7. So as we look to the end of the quarter, there's a lot of moving parts with Howard coming in. We've looked at the end of the quarter with securities at about $7 billion to $7.1 billion at the end of March from $6.8 billion to $6.9 billion at least to end of this year.
Okay. Great. Thank you. I appreciate the color. Thank you for the questions and nice quarter.
Okay. Thank you.
Thank you. And the next question comes from Daniel Tamayo with Raymond James.
Good morning, everyone.
Hi, Dan.
So just hopefully to close the loop here on the NII guide. You've talked about the impact of excess cash, and you've talked about the impact of deposit repricing. Just was curious on the timing in terms of any floors or anything like that, in terms of the incremental benefit of additional hikes as we work our way through the year and into next year. How's the balance sheet position for the first hike relative to future hikes?
I would say the floors that we have are really pretty low. We have $12.5 billion of loans that are indexed to short term LIBOR order time [Indiscernible] than $400 million, $250 million or so, have floors on them at a current benefit of 63 basis points. Basically, you'd have two fed moves before that 356 for the move. That's a small portion of the overall portfolio. Just to remind you that as far as the total portfolio, we have $9.9 billion in total loans at the end of the year tied to one month LIBOR, and then another $2.5 billion tied to prime. So between the two, it's 50% of the home portfolio that is tied to those short term entities. In the four levels, we didn't have the benefit of it on the way down. So part of why there's not that large of a balance there that have to work back through.
Okay, great. And then on the non-interest income side, obviously mortgage banking will be impacted by the [Indiscernible] cycle coming to an end to you, but wondering how you think about the rest of the base of non-interest income and what impact that could have on any of those line items from a rising rate environment?
I would say as we've talked about in the past, the investments we've made over the last couple of strategic planning cycles to invest in these fee-based businesses, is paid well for us, particularly in an environment when rates came down. If you look at the different components, I mean, sure charges just driven by customer activity and wealth management business up 16% year-over-year, trust and securities commission. So we look for that to continue to have a nice growth. This year, the insurance business has been growing nicely. Cap markets, while we're down from lights-out record of $12.5 million in the third quarter, $9.5 million is a very solid number.
We will look for that growth as we go forward. And then with [Indiscernible] too is, with Howard coming onboard, the depth of the part and services that we have, they do not have. So we have the opportunity there, for their client base to offer, a much broader set of products and services including capital markets, banking, Wealth. So we're very much looking forward to having them become part of the Company and working with those customers. It's all baked in. The interest rate environment, we described we baked into our guidance, so all in there.
From a practical perspective, we would expect mortgage banking fee income to be down, right? Because margins have come in versus the peak of that cycle. But offsetting that on the flip side in a rising rate environment, SBA gain on sale becomes better. That business is starting to pick up for us. Our debt capital markets platform that Vince mentioned, that we launched this past year, it's already in $1 million in revenue. So that'll help moving into next year. And there are some transactions that will be a part of this year. I say next year, but I meant 2022. There are transactions that were already part of, so we'll get some benefit from a fee income perspective there. It's indication the pipeline is still pretty strong in syndications and that business has been moved pretty nicely across the footprint.
And we're now starting to see larger opportunities in the Southeast and Mid-Atlantic region as well as Pittsburgh and Cleveland and our traditional markets. And then as we look at other opportunities to grow fee income, particularly, in treasury management or the deployment of products and services and the Howard acquisition. We feel there's enough other businesses in our diversified model to offset the declines that occur to economic cycles. That's how we designed it. We're hoping that that holds true for us, and we'll achieve the guidance that we're giving it. There's a lot of moving parts I -- sorry, Vince, I just wanted to [Indiscernible] quite a bit to make sure that we have that diversification.
And on the mortgage side, I would just add that as we look into what's in our guidance for 2022, I would expect the fourth quarter level around $6 million probably to see a bottom. Part of why I am saying that is if you look at the expectation in the market for mortgage applications, it's down 25% to 30%. But 75% of our business is purchase, and the purchase side is actually -- expectations from Fannie May were up 8% to 10%. So that bodes well, given the business model that we run on the mortgage side and with us having 75% on the purchase side. So I would expect that number, all things being equal, to build from here as we go through 2022. And that's baked into our guidance too.
That's great color. I appreciate all that, and that's all I had. Thanks.
All right. Thank you.
Thank you. And the next question comes from Michael Perito with KBW.
Hey, good morning. Most of my questions have been asked and answered, but just 2 quick ones. 1. Just on the loan growth. Obviously, over the last few quarters it's easy to see the benefit of having the diversified platform, but the CRE growth has been a little slower. Sorry if I missed any comments here on this. But I was curious as you look at the diversity of the pipeline heading into next year. Any thoughts about where you're expecting to see that mid to high single-digit core growth come from. Is the mix going to look similar to the back half of this year or do you think there's room for maybe some other buckets to contribute some more based on the pipeline?
I think there's been a lot of activity in CRE. I've been involved in discussions with some of the borrowers, so there are still some projects that we're looking at that are fairly sizable, and some projects that we close d that fund up over the course of the next year or so. So I would expect that business unit to contribute a little more next year, but I think overall when we looked at our pipelines, the Carolina still have very strong pipelines. I think Charleston has been terrific for us. We had good growth in Raleigh, Charlotte. There's a building pipeline in Charlotte for this year. And then the Mid-Atlantic region with the Howard acquisition, positioning, the bank, we'll be number six in deposit share and have a pretty substantial lending team in that market and in Washington DC you see so -- I'm pretty optimistic that we'll be able to achieve these growth objectives.
And as I said it before, I think it's really attributable to our expansion strategy. And the fact that we were able to secure substantial market share positions and the fairly dynamic MSAs more across the Southeast and the Mid-Atlantic and really helps us. So we're in a good position as the economy continue -- hopefully, the economy continues to hold together and give us some upside in this year.
Michael, one of the things that affected Q4 a bit there on the CRE side we had 6 multi-family projects as we've talked in the past as being lumpy. Six projects for a $150 million move in to the secondary market, that was a bit of a challenge from a footings standpoint in that particular book of business. And we're going to continue to have that as -- that's an important part of what we do especially in the Southeast as Vince mentioned. So we will continue to see some lumpiness there with those exits.
Got it. Helpful. And then just lastly, for me, obviously, it's good to see there were some regulatory uncertainty headlines in the markets about deals closing. So it's good to see Howard closing shortly and as expected. Just curious if you can provide an updated outlook on 2022 and where M&A is from an appetite perspective and just where -- how you view the market overall. And if you think there'll be more opportunities or if the pipeline isn't as robust today?
Well, we -- as I've said before, we're really focused on the best deployment of capital possible. So Howard kind of met the criteria, was in market, [Indiscernible] take cost out, there was a good team, it was a decent size, it wasn't too big, it'd be easily digested. Yeah, it really gave us the ability to position the Company from an expense perspective, moving into an environment where everyone's concerned about inflation and wage pressure. So it really, it really worked out well, the timing of pressure coming off of PPP. So we were to pick up those balances and the timing also was good with the launch of our eStore and the upgrades to our digital offerings, so we could offer those consumers those products. I think that's an example of an M&A opportunity that we thought was good and we looked at it. We were approved by the [Indiscernible] OCC, I think, within 32 days of application.
We did not experience delays like maybe the relative size of the transaction plus our outstanding rating and that we had just concluded our outstanding CRA rating and that we just concluded some exams that maybe got the regulators a little more comfortable but we were able to do that and I'm very proud of that. I think our relationship with the regulators is strong. And we listen, and we respond. And I think that that's why we were able to get our deal approved. And we're very conservative in terms of underwriting, re-underwriting the credits, estimating the provision for the reserves in those portfolios. And there is a great deal of comfort there.
Having said that, I'd keep telling everybody what we're most excited about, is the investment that we've made in our digital technology, what's going on inside the Company that you can't see from an automation and AI perspective, our Data Analytics team, the Data Hub that we've created, the infrastructure we've built out internally, has really been helping us not just with securing customers and gathering information to help our customers with products and services, but also to gain efficiency within the Company, to monitor more and more metrics to help us drive performance. So all of that's very, very exciting to me. And I think given the positioning of the Company.
We did our big expansion and moved into 2 very dynamic areas of the country, which should provide us with significant opportunities for years to come. So our focus is going to be on driving market share gains in those markets. And if something comes along from an M&A perspective that made sense and fits into that strategy, sure, we're going to look at it. But it has to be shareholder-friendly. It can't be something that harms us as shareholders.
Helpful.
So anyways, that's it. So thank you, I appreciate your question.
Thank you. I appreciate it.
Thank you. And the next question comes from Russell Gunther with D. A. Davidson.
Hey, good morning, guys. Just a follow-up on the growth commentary. Curious if you could provide some additional color on what you think needs to happen to hit the high-end of the range. So it can take you from the mid to the high single-digit. Is that C&I utilization continuing to improve, portfolio in single-family at the current clip? Just curious as to what you think the drivers of that Delta will be?
Well, I think it'll be a combination of -- we're going to have to execute in all of those areas. And I think we grew 10% with very little help from expansion and working capital facilities. I know I've read other earnings reports and -- other companies have seen growth in line utilization. We haven't really. We were up 1%. It's a de minimis amount that contributed. So while that is a factor, I think the more activity you see around working capital utilization, that means there is opportunities to finance other things too. So obviously, those two go hand-in-hand. But we have great opportunities in the middle market across the footprint with the roll out of the e-Store and now being able to digitally onboard small business customers, we have a great opportunity there to do it much more efficiently, cost-effectively across our footprint. So there's upside there. There's upside in consumer. There's upside in mortgage with our Physicians First program that we rolled out that I mentioned. So yeah, I think we've got a lot of channels to drive that growth. So I think -- and that -- our, our pipeline is looking pretty solid going into the year. So we're feeling pretty good.
That's great then. Thank you. And then just last one for me is a follow-up on the expense savings you mentioned, the $10 million. Is that from continued branch rationalization or any other drivers there?
Just from all the normal.
We have an expense team. We call the guy the ones that are real CEO, because he's the expense driver. So he's the Chief Expense Office. So we have somebody that reports events and Adam does a terrific job. We look at every single line item and then we look at every single large contract that we have. We've looked at a number of statistics around the branch network and we spend a lot of time as a whole team of really data analytics, people that look at transaction counts and the likes. And then we also have an effort within our operations area under [Indiscernible] app to review automation, and the utilization of intelligent software to help automate and eliminate redundant process and manually process. So all of that ties in to the expense reduction. And then we also have a team that looks at occupancy expense.
Just constantly, they're constantly reviewing that. We don't let any FTEs -- we review every single add to staff, every replacement position at the Company, and we require people to do an analysis based upon transaction volumes or something [Indiscernible] ratio to justify even replacement the Company has run. We've been very fortunate in that given the turnover at many companies. Our vacancy rate has been within historical norms. We've not seen a mass exodus. We've -- no, people leave here and there, but it's been pretty solid. We've not had any trouble recruiting people. So I think those are all the things we do to manage expenses, so there's a whole process around it. And I think we've done a very good job, and Vince and Adam, and that team blue, they worked for blue, have done a terrific job keeping us in line.
The Best workplace Accolade helped too, with the team?
Yeah. We won best workplace for a number of years. We just won for the 10th year in one publication in Pittsburgh and just about every market in the last decade. We won awards and the award -- the employees feel like they're part of the process. And there is a tremendous amount of engagement. We had off the charts engagements for us when we hired a third-party to survey the employee base. So I think the culture here is very strong. This collaborative culture. People genuinely liked each other. It comes back in the results that we get. Even though some of us are crazy, I think that the rest of the Company is [Indiscernible] they -- they enjoy coming to work and working hard and winning. And I think that when you have a cultural like that, sure, you're not impenetrable but it's a good -- good place to be anyway. That's what leads to our performance in our results, all of those things come into play.
Thank you for your thoughts there, I appreciate it. Great color.
Thanks, Russell.
Thank you. And the next question comes from Samuel Varga with Stephens, Inc.
Good morning.
Evening.
Morning.
I wanted to ask a couple of questions on securities. But quick, could you give us the percentage of floating rate securities.
I have to get that figure. I don't know if we have much, if any. Again, I can get an answer while we're talking if you want to go to your next question.
Okay. [Indiscernible].
Had much of any, you don't have any.
Okay. And then a follow-up on that. Could you give the duration of the available for sale portion of the securities book?
[Indiscernible] Scott, if you want to [Indiscernible] just text me. How's that? Find it.
I can ask another question, maybe until that number comes up. Did you --
3% -- 3% [Indiscernible]. 3 -- 3%
The duration?
Duration is 3, yes. On the available [Indiscernible]
Thank you. Along the lines of kind of market share gains, do you have any sort of initiative for hiring, whether it's team lift outs or anything like that, that you can just tell us about?
Yeah, we've hired quite a few people over the last 12 months. We generally hire people from larger institutions in the commercial banks. We just hired somebody from JPMorgan here in Pittsburgh, who's leading the teams in Pittsburgh. We've hired a number of bankers from other companies in the Southeast, so good bit of our bankers have come from either at one point in their career, they were at either Wells or B of A in the Southeast. The entire Charleston team, I think, at different times we can do a lift out, but we've hired a number of people from Wells and BB&T and other places. And I think that's part of our culture too where -- that's why we're able to replace positions. I think people view our product set as deep. If your corporate banker, the incentive compensation plans are fair and provide upside.
And you've got a good solid set of products from debt capital markets all the way across to most of the commercial treasury management products which we've won -- we won [Indiscernible] awards in the treasury management national award. So coming here as the commercial banker, you've got it made. You're coming in and many of these markets, we have a high deposit share, but a low relative commercial share. so the entire market is open to you. If there's anybody out there listening on the call that wants to work here, please call me. But I think of all the places I have worked, I've never worked for a company, where the management of the wholesale bank, there's such a collaborative, spirited culture, I just, I can't even describe it. Other large companies, people are fighting within various product areas here.
The incentive compensation plans are designed to have people work together, and they do work together to win. They just want to win in the marketplace and do the best they can for their clients and for our shareholders. So it's a great culture and like I said, we've not had an issue bringing people in from any -- from the largest bank in the United States all the way down. So the smaller institutions.
Understood. Thank you. And if I could just sneak in the last one. Do you have any sort of overdraft reduction plans moving forward?
We actually were ahead of the curve there. We rolled out a product last year. There was a press release that was put out, you can find it. We have a total leap, we have an electronic checking product that we put out part of our digital offering and you cannot overdraft in that. Again, you are not charged any overdraft fees and that's the third I think behind -- it used to be the second most sought-after product or sold product within the Company over the last 8 months or 9 months. It may have dropped a 1/3 because our student check-in campaign -- student check-in pushes it up but it's in the top 3 of our offerings. And that's why in our guidance on non-interest income it includes a flattening of fees in the consumer segment even though we're seeing a rise in other areas. So there will be an impact, it's already been baked into our guidance. But that's one thing we've done and we've made a number of other changes and are planning on changing other elements of the fee structure within the consumer bank.
And we're studying the competitive environment in that.
We can't be a market leader there. We have to step back and watch what's happening. But we were on that one product. And it's received very positive reviews and it's Bank on certified and it's been great.
Also, if I could clarify the duration. So the AFS duration is 3.4 at 1231. The total is 36, so the HTM is that 3.7. They're pretty similar, but just to correct what I had said earlier at 3, it's 3.4 the AFS portfolio.
Thank you very much. And that will be all for me. Thanks for taking my questions.
Thank you.
Thank you. And the next question comes from Brian Martin with Janney Montgomery.
Hey, guys, good morning. Sorry to -- last question here for you. Just on capital, just any changes in your outlook on deployment of capital and you already talked a little bit about the M&A outlook, which was share repurchases. How you're thinking about that, given the flexibility?
Sure, Brian. CET1 at 99, you can see in the slide deck, it's been very stable, 99 last quarter, 98 a year ago. So we have talked about 10% target there. So we're pleased with the level there. And even with the strong loan growth we had of 10% that Vince mentioned, holding the CET1 flat tells you about the earnings generation that we're creating and entertaining. As we look forward to what's baked into our guidance for the capital ratio to slowly build from here, we're still swapping normal loans for PPP loans that have a 0-risk weighting.
But I still expect, given our guidance for the CET1 ratio, to rebuild, like I said, gradually to get from here to the end of the year. And then we'll just be opportunistic on share repurchases. Our first goal is to deploy it for loan growth. So to extent, the loan growth is stronger on the higher end and we want to use the capital to support that loan growth. But we will be opportunistic on share purchases as we move forward in 2022. We didn't do any during the fourth quarter with the timing of Howard and regulatory approval and those types of things. But we will continue to monitor it, and just manage capital in a way that's more fully aligned with shareholder interest. But loan growth will be our first lever that we'll look to deploy for.
Got you. Okay. And then just baked into the guidance, Vince. What on the -- maybe you said this and I missed it. I joined a little bit late, but the excess liquidity. I think if you talk about where the core margin is in 1Q given. And the outlook, what you have baked in for that drag of 26 basis points in excess liquidity as you go throughout the year, given the loan growth outlook?
Yes. So the excess cashed for the quarter was $3.7 billion on average in the fourth quarter. So that generated the drag that you see on the slide there. As our expectation for 2022 is that number kind of comes down at half, so it gets to around a million -- billion-and-a-half by the end of the year. Similarly, we have PPP related deposits that are also in our guide. We have projecting to come down about a billion 3 year selling. And those have been stickier than what we've been estimating as we've been going through the process, but that is based into our guidance. So basically, the cash level will go from an average of $3.7 and then evolve to a billion-and-a-half by the end of the year. So I can't do that math in my head that quickly. But that's what's underneath there so that -- that impact will lessen as we go through the year.
Yeah. Okay. And then just one clarification on the guide, the impact of Howard, given the timing of the close. I mean, the impact to NII and not NII, but, just the fees and expenses and whatnot, that assumes the close here next week. Or was that baked in at year-end close? Just want to make sure I clarify what you've got here on the guides.
No. It's in there for 11 months.
I got you. That's what I thought. I certainly just wanted to clarify. Thanks, Vince. I appreciate you taking the questions.
All right. Thanks, Brian
Thank you.
And this concludes question and answer session, and I'd like to return the call to Vince Delie for any closing comments.
Okay. Thank you, everybody. Thank you for the questions. Great questions, very detailed and glad we were able to answer. Hopefully we answered everybody's question. I just want to commend our leadership team and the employees; I've spent a lot of time, when I could, meeting with people in the field and interacting with different markets. And the morale throughout these entire last 2 years has been terrific and the leadership has been very strong. And really that's what leads to our success. So mostly commend everybody for all the hard work and the dedication and the drive to be successful. So please keep it up and thank you. And thank you for the questions and thank you to our shareholders for your continued support.
Thank you.
That's all I have. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.