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

Thank you, Luthania. Welcome, everyone and good morning. Copies of the slides we'll be reviewing can be found on the Investor Relations section of our website, www.huntington.com. As a reminder, this call is being recorded and replay will be available starting about one hour from the close of the call.

Our presenters today are Steve Steinour, Chairman, President and CEO; and Zach Wasserman, Chief Financial Officer. Rich Pohle, Chief Credit Officer, will join us for the Q&A. As noted on Slide 2, today's discussion, including the Q&A portion will contain forward-looking statements.

Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements.

For a complete discussion of risks and uncertainties, please refer to this Slide and material filed with the SEC, including our most recent Forms 10-K, 10-Q and 8-K filings. Let me now turn it over to Steve..

Thanks Tim. Good morning, everyone. I'm very pleased with our third quarter, we deliver good core performance and made enormous progress with the TCF integration. Let me begin on Slide 3. Thanks to the hard work of our colleagues, we're on track to complete the TCF integration as planned, and deliver the resulting deal economics.

This combination at scale, density, new markets and new specialty businesses. At the core of Huntington, we are a purpose driven company with a vision to build the leading people first digitally powered bank in the nation. We remain focused on our core objectives to drive organic growth and to deliver sustainable top quartile financial performance.

On Slide 4, our third quarter performances included a full quarter benefit from TCF and record total revenue. We delivered good growth in fee income, that low growth excluding PPP and improving credit metrics. Just over a week ago, we successfully completed the conversion of TCF to Huntington systems.

And we now offer an integrated set of products capabilities and experiences to our customers. As a result of the great efforts of our colleagues, we were able to complete the conversion in just 10 months since the announcement of the transaction.

We've completed most of the actions to drive our targeted cost synergies, and are on track to deliver all of the announced cost reductions. With the conversion behind us, we're now able to focus 1000s of colleagues on new business development activities to close up year strong and carry that momentum into '22.

We are investing in these revenue producing colleagues as well as new capabilities in the expanded markets. We're seeing substantial momentum in many of our initiatives, including targeted areas of deep revenue generation like wealth and capital markets as well as cards and payments.

Both consumer and commercial loan productions continue to be robust, and commercial pipelines are up over 30% from a year ago, and new production activity has nearly doubled.

Additionally, we were pleased to be ranked number one nationally for the SBA 7(a) seven eight lending by volume, marking the fourth consecutive year we've been recognized in the past five. As the recovery continues, we will dynamically manage our overall expense base and look for ways to drive incremental efficiencies across the bank.

We intend to self fund the investment capacity necessary for strategic initiatives that will drive additional revenue growth in the years ahead. Our strategy is centered on supporting customers banking where and when they want and meeting them to their preferred channel.

As part of that strategy, we are continually optimizing our distribution network; we will be consolidating 62 branches in the first quarter of '22 equal to 6% of the combined branch network. And these are in addition to the 180 branch closures announced as part of the TCF transaction.

Importantly, we will continue to retain the number one share of branches in both Ohio and Michigan. In addition to branch consolidations, we are continuing to diligently optimize roles and resources within the bank. We're committed to delivering positive operating leverage as we did annually for a decade leading up to '21.

Finally on the capital front, we accelerated our sharing repurchase in the quarter as well as announced an increase to the quarterly dividend. These actions demonstrate our confidence in the performance and outlook for Huntington as well as our commitment to our shareholders to actively manage our capital levels.

Slide 5 provides an update on the TCF integration. When we announced the transaction, we saw strong potential for expense synergies, as we leverage the benefits of scale, but to also drive additional organic growth. And today, I can say that we're even more excited about the revenue opportunities in front of us.

The combination of new growth markets, and increased density, the addition of more than one and a half million customers, and expanded specialty capabilities collectively set up our future revenue growth. Let me share a couple of the most compelling aspects.

In middle market and mid corporate banking, we're now bringing greater scale in Chicago, Milwaukee, in addition to new capabilities in the Twin Cities and Denver, with expanded coverage and product offerings; we're already gaining traction with early wins, including capital markets and treasury management fees.

In Consumer and Business Banking, we're deploying Huntington's capabilities, products and services across the entire customer base following conversion.

Combined with our fair play philosophy, this will greatly enhance the customer experience, and as we've demonstrated previously, will accelerate customer acquisition and improve retention, and with Huntington's digital and competitive product set we will deepen our customer relationships.

Additionally, we are bringing award winning SBA lending platform and growing our wealth and private banking customer base in our newly expanded markets. Our investments are well timed, as we're seeing continued robust economic recovery in our footprint.

Our regions have seen economic activity expand year-to-date faster than the national average, as well as higher labor force participation. We see a unique moment in time to capitalize on these revenue opportunities as our local economies continue to perform very well.

We are entering a new era at Huntington with momentum we look forward to growth in the years ahead. Zach, over to you to provide more detail on our financial performance..

Thanks Steve, and good morning, everyone. Turning to Slide 6, we reported GAAP earnings per common share of $0.22 for the third quarter, which included acquisition expenses of $234 million.

Earnings per common share adjusted for these notable items were $0.35, return on tangible common equity or ROTC came in at 11.5% for the quarter, adjusted for the acquisition related notable items, ROTC was 17.9%.

As we expected and consistent with guidance we provided in September, we were pleased to see loan balances ex-PPP grow in the third quarter driven by robust new production. With continued strong liquidity, we're actively managing the balance sheet and have grown the securities portfolio by $3.7 billion from the end of the second quarter.

Deposit balances were reduced by $847 million as a result of the branch divestiture. Excluding the divestiture, deposit balance has remained relatively stable on a period end basis. Loans associated with the divestiture totaled $209 million.

Fee income was another bright spot where we continued -- where we saw continued momentum in our capital markets, cards and payments, treasury management and wealth and investment businesses. As Steve noted, we've been actively managing our capital and we're pleased to complete $500 million of share repurchases in the third quarter.

We also announced $0.05 increase to the common stock dividend in the fourth quarter, which takes us to an annualized dividend rate of $0.62 per share. Finally, credit quality continued to improve with net charge-offs of 20 basis points, while nonperforming assets decreased to 12% from the prior quarter.

Turning to Slide 7, period and loan balances totaled $110.6 billion, excluding PPP, loan balances increased by $367 million during the quarter with underlying growth in C&I, Mortgage, Auto and RV Marine portfolios.

On the commercial side, while PPP and auto dealer floor plan balances were lower, all other C&I loans increased by net $466 million during the quarter, driven by growth in asset finance and core C&I. We're seeing very encouraging trends from new commercial loan production and pipelines that continues to grow both year-over-year and sequentially.

Consumer growth was somewhat offset by marginal pressure from the continued run off of the home equity portfolio. Additionally, we continue to observe solid activity levels in our consumer portfolios with Residential Mortgage, RV Marine and Automobile, all continuing to post sequential quarter balance growth.

Auto saw strongest third quarter for production activity to date with, while mortgage continued to see robust origination activity in the quarter. Excluding PPP, we believe the trough for underlying loan balances is behind us. And we expect continued modest growth from these levels in the fourth quarter.

With respect to commercial portfolio specifically, we expect to see momentum accelerate as we move through the fourth quarter and throughout 2022. Moving on to Slide 8, as noted previously, total deposit balances excluding the divestiture were relatively stable.

We continue to optimize funding given our strong liquidity levels and reduced higher cost CDs by $395 million. Overall, we continue to see much of the excess liquidity remained fairly sticky as core commercial deposit balances increased during the quarter.

Turn to Slide 9, FTE net interest income increased, primarily driven by the full quarter benefit of TCF.

Net interest income increased by $323 million, while net interest margin was 2.9%, both driven by the acquired TCF assets, excess liquidity moderate slightly during the quarter, with $8.1 billion of cash at the Fed at quarter end, on an average basis for the quarter, excess liquidity represented the drag on margin of approximately 23 basis points.

Core net interest income excluding PPP and accretion was $1,085 million. We expect core net interest income to grow from these levels on absolute dollar basis in the fourth quarter and throughout 2022. We're positioned to be asset sensitive today.

And we are dynamically managing the balance sheet to become increasingly asset sensitive to capture the benefit from expected future higher interest rates. This includes the hedge rollouts, as well as the addition of pay fixed swaps.

On June 30, our model net interest income assets sensitivity and up 100 basis points scenario was 2.9% based on the deliberate actions we took during the quarter, we increased our asset sensitivity to 4.0%. And we continue to dynamically manage the balance sheet going forward.

Over the course of the quarter, we terminated select downside rate protection hedges and added $6 billion of forward pay fixed swaps. Turning to Slide 10, noninterest income increased, primarily driven by the addition of TCF fee income.

Several of our businesses performed quite well in the quarter, cards and payments benefited from higher customer transaction volumes. Mortgage banking performed well due to higher production and relatively higher saleable spreads, and wealth and investments continue to be driven by positive net asset flows.

Capital Markets income also grew driven by solid performance and interest rate derivatives, foreign exchange and syndications. Turned to Slide 11, total noninterest expense came in at approximately $1.3 billion for the quarter, including the $234 million of notable items.

Excluding these items, noninterest expense totaled $1.05 million, primarily driven by the full quarter TCF expenses. Our overall outlook for the magnitude of expense reductions is unchanged from prior guidance. The timing to realize these benefits, however, has accelerated due to our actions to drive realization of cost savings.

As a result, we continue to expect that while Q3 was the high watermark for core expenses, they should benefit earlier than we previously thought as they stepped down into the fourth and first quarters. Core expenses on an absolute dollar basis should trail down throughout 2022.

As we recognize the benefits of the TCF cost synergies while continuing to invest in the initiative to drive top line revenue growth. Slide 12 highlights our well capitalized balance sheet, as well as a few highlights from the recent capital return actions.

Common equity Tier 1 ended the quarter of 9.6%, well within our medium term 9% to 10% operating guidelines. Over the past quarter we focused on returning capital to our shareholders in alignment with our capital priorities.

We executed over half of the $800 million share repurchase program following the authorization at the moment and we were pleased to have recently announced an increase to the common stock dividends. As you can see on Slide 13, our quarter ending allowance for credit losses represented 1.99% of total loans down from 2.08% at prior quarter end.

The improved economic outlook and our stable credit quality resulted in a reserve release of $117 million for the third quarter. Additional key credit quality metrics are shown on Slide 14, further reflecting our improving credit profile, net charge-offs represented an annualized 20 basis points of average loans and leases.

Most of the lowest levels in recent history, well below our target range of 35 to 55 basis points on average through the cycle. Consumer charge-offs remained low in this quarter at seven basis points.

With net recoveries in Auto, Home Equity, RV and Marine, our NPA ratio declined 12% as portfolio has continued to perform as expected, and the ACL coverage of NPA increased to 247%. Finally, turning to our outlook on Slide 15. As we operate in a dynamic macro environment, we're focused on managing what we can control.

We remain committed to investing in our people first digitally powered strategy, driving sustained revenue growth, while managing expenses within our long-term commitment to positive operating leverage and achieving a 70% return on tangible common equity.

We expect a peer group leading efficiency ratio and a normalized effective tax rate of 18% to 19%. We believe these key metrics, revenue growth, return on capital and annual positive operating leverage are a compelling set of financial performance indicators and closely aligned with value creation for our shareholders.

Now, let me turn it back over to Tim so we can get to your questions..

Thank you, Zack. We will now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow up. And then if that person has additional questions, they can add themselves back into the queue. Thank you. Operator, let's open up for questions..

Our first question comes from Scott Siefers with Piper Sandler. .

Good morning, guys. Hey, thanks for taking the question.

Zack I was hoping maybe there might be a way to put sort of a finer point on the degree to which you might expect costs to come down in future quarters from this quarter's roughly $1.05 million core basics, of course y you mentioned the acceleration just trying to get a sense for sort of the core investment spending minus the cost saves.

And then along the lines of acceleration, so when do we think that cost savings will be 100% baked into the results?.

Yes, thanks, Scott. Great question. Overall, as I noted in my prepared remarks, just really, really pleased with our delivery of the cost synergies and the trajectory. And I'm not going to give you specific guidance.

But I would say that we do expect sequential reduction each quarter and for the next couple of quarters for that to be a larger amount, in the double digit millions is likely the level you could think about.

But in the end, what I'd point you to is the overall expense guidance that I've given, which is net of the cost synergies and the investments that we're making to self fund those revenue synergy investments into generally drive revenue growth across the business.

So slightly more front loaded driving sequential growth throughout the balance of the next five quarters..

Perfect. Thank you and then maybe switching gears just a bit. And it's pretty constructive on overall lending momentum. I was curious if you could maybe, let us know sort of how that translates into aggregate, the sort of an aggregate outlook for ex-PPP loan growth.

I think previously, you guys have been saying underlying loans kind of flattish through the remainder of the year, and then they grow thereafter.

Does the more constructive tone suggest maybe we get a little more growth sooner?.

Yes, it's a great question. Let me elaborate a bit more. I think as we talked at the Barclays Investor Conference in September, I noted, I expect to see some modest growth between then and the end of Q3. And that's ultimately what we deliver and really pleased with that. I would characterize the growth we're expecting for Q4 as well to be modest.

So we do expect growth, likely modest, I think, it's really driven by the continuation of the factors we've seen for the last several quarters.

And we noted a bit in the prepared remarks, that is really strong calling activity and pipelines driving continued robustly production and commercial and, quite a bit of momentum in business banking, and then in the consumer space, continued strength in residential mortgage, and auto and RV marine continued to perform pretty well also.

The other thing I would say is, now that we have the conversion behind us, that we've gotten, we're able to now focus 1000s of colleagues on growth. And so we do expect the modest growth as we go into Q4 and then continuing and frankly accelerating as we go on throughout the course of next year as well..

Our next question comes from Ebrahim Poonawala with Bank of America..

Good morning. First wanted to follow up on Zack on the expense question. So we talked about the core in terms of the, I guess, merger related or the notable items that you call out.

When do you think those completely go away? Or does some of that stick around as we think about just the overall expense on that?.

Yes, great question, Ebrahim. I think Q4 should be remained relatively elevated. Similar to the levels we've seen, overall, taking a step back overall, our outlook for the merger related costs will be guided back in December at the time of the announcement was $890 million. And we continued to expect it to be relatively near that level.

So I think the timing of that we've seen more than $500 million at this point through this quarter. And so we'll see a bit more come in Q4, and then likely a last bit in Q1, perhaps a tiny bit trailing into Q2, and then by the end of Q2, essentially it should be done..

Got it.

And I guess just shifting to the to TCF integration sort of nearing an end, Steve, strategically, when you win an acquisitive bank, we are hearing some concerns around just the regulatory stance around deal making getting tough, just give us a sense of what your priorities are from capital deployment, is M&A still a piece of the puzzle in terms of how you think about growing the bank?.

Ebrahim, we've done two larger bank combinations in 12 years, so I not really think we're like the characterization is apt but beyond that, as we've said before, our focus is on driving the core performance. We think we have tremendous revenue upside here.

We've got Greenfield opportunities for a number of businesses in Denver, and certainly the Twin Cities, we've got a scale that we've never had in Chicago. Frankly, we've got density in Michigan, that's significant to us. So we're very focused on driving revenue and getting the benefits of that part of the combination equation.

We've done a few non bank things in the past, I'd say more likely over the next years, possibly to do some of that. But our focus, our entire focus is on driving the core..

Our next question comes from Bill Carcache with Wolfe Research..

Thank you. Good morning.

Can you remind us how much relative gearing you have to the short versus long end of the curve? And how you think about performance in an environment where the short end rises perhaps a bit faster than the long end?.

Yes, we're most sensitive to the, first of all, thanks for your question, Bill, this is Zack, we are most sensitive to the two to four arrange within -- two to four year range within the yield curve to give you a sense.

And, look, I think we're going to benefit here as rates move up, irrespective of the steepening but certainly we do, we'd appreciate it if that two to four range continue to move up, as it has been doing and as in our continued expectation, and we're positioning to benefit from that, as I noted in some of my preferred remarks, by driving incremental asset sensitivity, and to give you a sense that the average duration of our current delta hedging portfolio was one and a half years versus the almost five years for the duration of our pay fix swaps little bit of benefit as we start to rise.

So I think we're positioned now in the quarter by more than a point of asset sensitivity, as I noted and we'll look to be dynamic to improve that even as we go forward..

Thanks Zack, that's super helpful.

And following up on that, as you look ahead to higher short rates and better loan growth as utilization rates normalize, how comfortable are you with the rate at which you've been reducing the amount of liquidity that you have parked at the Fed? And then as we look ahead over the next few quarters, I guess, should we expect you to continue to grow the securities portfolio from your, just curious about the extent to which you consider preserving liquidity, through the rest of this year, based on -- just based on the outlook?.

Yes, it's a terrific question, and certainly something that we watch very, very carefully. I would say full stop, we feel great about our liquidity levels, and we think we're managing exceptionally well. But the cash -- the Fed is a key area that we watch very, very carefully.

And so we're, I would say I would characterize our approaches is intentionally incremental, watching the behaviors in our clients and deposit holding activities and seeking to kind of optimize incrementally period by period as more information comes out, as we've guided for a couple of quarters now, we expected to add to the securities portfolio and I think in the last quarter, we mentioned a number $4 billion we completed that during the third quarter, we'll see where it goes from here.

I do if liquidity trends continue, as we expect, I also expect that we will add some additional securities in the fourth quarter. We're currently at about 22% securities as a percentage of assets.

And we'd be comfortable that rose modestly over time here, given the acceptable returns we're seeing and the fact that the accretive to NIM versus holding on cash, but as you noted that the priority is funding growth. And so we'll take a very much incremental approach watching both trends. .

Our next question comes from Ken Zerbe with Morgan Stanley..

Hi, guys. Thanks. Good morning. In terms the core NIM, I know there is a bit of confusion around why your clients was or wasn't. If we did our math right, I think your core NIM just ex-PPP sorry, the PAA is about 2.81%, which is a fair bit lower than the 2.90%, though, that I think we were sort of shooting for.

Can you just talk about two, I guess two things. So one, what drove sort of the weaker NIM ex the PAA, but also how do you think about that core NIM on a go forward basis? Thanks..

Sure. Yes, thanks for the question, Ken. So fully reported NIM came into 2.90%. And excluding PAA as you know it was to 2.81%. So it was a few basis points lower than we expected, my prior guidance had been sort of just a few basis points lower than 2.90%. And it came in ultimately 2.81% so a bit lower than that.

The two biggest drivers of that were the things we've just talked about in the last question actually interestingly, elevated Fed cash contributed several basis points additional drag in the quarter than we had previously expected.

And we did accelerate the purchase of our securities, which also impacted the mix and drove yields lower generally, spreads was spot on our expectation overall, at a core loan level.

Look, I think what I would tell you is going forward, I'm expecting stable from these levels, it'll be a function of what happens with the elevated liquidity and Fed cash and the rate environment, but generally stable from these levels is a fair assumption.

And our key focus at this point is trying to drive net interest income dollars, that $1,085 million of net interest income, excluding DAA excluding PPP, given the sequential loan growth that we're projecting, given that rate stability my expectation is we're going to grow those dollars into Q4 and grow them throughout 2022..

Got it, okay, perfect. And then, just in terms of the 62 branch closures that you talked about, in first quarter, that's all wrapped up into your expense guidance. I just want to make sure that we're not -- we shouldn't take the expense guidance plus anything else? Because that's just part of the outlook, correct..

You're spot on, Ken. So as Steve noted in his prepared remarks, we'll continue to optimize the network, dynamically manage expenses, ensure that we can invest to capture those really powerful revenue synergies, and overall, the guidance I gave on expenses is net of all those things.

And ultimately, we're, what this is all driving toward is achieving our moderate term financial targets that we talked about over time the 17% return on capital, the revenue growth, accelerating positive operating leverage, needed to drive to that in the second half of '22..

Our next question comes from Steven Alexopoulos with JPMorgan..

Hey, good morning, everyone. I wanted to follow up on Scott's initial question on loan growth. In your response, you guys sound pretty bullish on loan momentum, right? Steve, you talked about how much the commercial pipeline is up, Zack you talked about how momentum is building.

Why are you not looking for stronger loan growth here in the fourth quarter?.

Steve, a great question. This is Steve. This is a funny quarter because of the holidays interrupting so we'll have very good asset finance origination, but we've had a substantial effort around the conversion. We've had 800 ambassadors out in our different business lines for a couple of weeks.

We pulled in at sort of peak production moments, a lot of the talents of focus on making sure we got a great conversion, and we think we did. So it's harder to do new business between Thanksgiving and yearend, if it's not already in the pipeline. So we're talking about another three, three and a half, four weeks max, for the pipeline.

Now the pipelines are up. As we indicated, they're up year-over-year; they're up quarter-over-quarter sequentially. So that's contributing to the bullishness. But it's an odd quarter to be driving it. We're very optimistic about what, how this will translate then for full year '22 as we go forward.

We have some great capabilities that have come to us with TCF and we've already put in place, much of the management and a number of the RMs and other revenue producers that we are looking to do in the Twin Cities in Denver, and increasingly in Chicago.

So the pieces are coming together very nicely and I have scheduled and that's also contributing to the optimism..

Okay, that's helpful. And, Steve, for my follow up. We all know Huntington scores really well, from a client satisfaction view. Did the brand's consolidations have a notable negative impact on satisfaction levels? And how long do you think it'll take to move TCF below peer client satisfaction up to Huntington's level? Thanks..

Just the sheer amount of activity has required substantial efforts and resources during the course of the year. So we would expect to see a very modest decline in customer set. And frankly, it could -- we could be flat, but we wouldn't expect to see an increase.

With respect to the TCF, the new branches from TCF and our colleagues who are new from TCF they are embracing fair play and the products that, what we saw during the conversion was just outstanding efforts with our customers.

And so we're very encouraged, it will take maybe a couple of quarters, but it won't take a couple of years in order to get that customer service level added equivalency in those newer branches. We're very, very pleased. We got a great group of colleagues who have joined us from TCF..

Our next question comes from John Pancari with Evercore..

Good morning. I know you've -- and given your expectations here you've indicated your expectation for continued positive operating leverage.

How do you think about that for '2022? Maybe you can help us with a magnitude? I know you're not specifically guiding on the top line or the expense growth expectation, but maybe if you can help us with the magnitude of positive operating leverage on a core basis that you think are reasonable for next year. Thanks..

Yes, John. Thanks for the question. And I think you noted in your question, and I will repeat to that, I'm not going to give you the specific guidance, but I will try to characterize to answer your question.

I think next year's financials are going to be challenging to look at from a year-over-year growth perspective and to some degree to calculate that metric just given the continued two quarters of grow over impact of adding the TCF business but we do expect full year positive operating leverage in total.

And the big thing that we're very focused on is driving to the point where the momentum coming into the second half of the year, and then certainly exiting the year is on the levels that we've targeted for those moderate on targets. And so at that point, as we sort of get into a clean year-over-year growth period to be able to see it better.

And, look, it won't be dynamic, as we always have been to ensure that we can modulate the expenses, given where revenue is trending, while continue to invest in, my expectation is we'll see solid positive operating leverage, but not going to characterize the level specifically at this point..

Okay, all right. That's helpful. And then I guess sort of related question is on the medium term efficiency goal of 56%. Currently on an adjusted basis, you're 61 spot two and curious on how you're thinking about that glide path down to the 56%.

What type of timing do you think is reasonable, updated, based upon updated trends in the business that you're seeing? When do you think you can hit the 56%? Thanks..

Yes. Significantly, we are going to drive toward that I would note that the efficiency ratio is sort of an outcome, frankly. And the most important metrics are revenue growth, return on capital positive operating numbers that we're driving to. But efficiency is a key metric. And so we are watching it carefully.

My expectation at this point is sort of during the second half of the year, we will see those emerge. We're still doing some of the budgeting to modulate the precision with respect to quarters, but certainly, I think by the second half of the year, and the exit run rate of Q4 is my expectation..

Second half of '22?.

Correct. -- '21, I misspoke..

Our next question comes from Terry McEvoy with Stephens..

Hi, thanks. Good morning. TCF had about a two plus billion dollar inventory finance portfolio. I'm curious, where is that portfolio today. And then the auto dealer floor plan balances at Huntington kind of pre COVID versus today.

And what I'm getting at is what's the upside of the balance sheet when inventories in both of those portfolios hypothetically normalize?.

Yes, I think as we've talked about a bit over time. Interestingly, each of the three major kinds of line businesses that we've got auto inventory and general motor market, each of them represented roughly $2 billion opportunities, when those utilization rates return to normalize pre-COVID levels.

So that sort of gives you an order of magnitude, the trends we're seeing at this point in auto, we're down a couple more percentage points of three to be precise between the end of Q2, and the end of Q3 to 25%.

At this point, I'm seeing relative stability in the auto floor plan business, to some degree, some of the chip issues and other supply change issues produce some incremental pressure, we're also getting some defined and no new commitments and some term debt into those businesses such that my expectation is relatively flat in that space.

And interestingly, inventory finance has similar opportunities or creating some very known plan uses of those lines, so expects stability, perhaps even a modest uptick, actually into Q4 and that the general rental market should continue to be flat here for the time being, however, I am going to answer your question, but I would pulling back a second, I would just highlight that it's our planning expectation at this point, that the totality of these lines will be relatively flat throughout the course of '22.

There could well be an opportunity to get to that. But at this point, for planning purposes, we're trying to zero that out. But we still expect pretty good loan growth. And I think that's really just pointing back to the robust new production activity that we're seeing.

So this could be ultimately the tailwind and we do expect over time it will be and the headwind nature, as largely moderated that's why we expected general to flat..

Thank you. And then as a follow up the $140 million of service charges on the TCF part. Were the fee adjustments made right after the conversion? I remember there were some revisions that we're going to made that would result in lower fees. And I'm just looking at that run rate and asking if that's sustainable going forward..

Yes, it's a great question. And upon conversion that we completed over the Columbus Day weekend all the TCF customers are now on to the Huntington products, the platform and all of our fair play product dynamics. And so we will expect to see a modestly lower trajectory for that line into Q4.

Overall, over the longer term, we feel great about the conversion to the fair play business as we've talked about a lot. And this is a play we have run many times and we're very confident in the returns that are generated.

Typically, the dynamic is sort of a higher degree of fee, income reduction in the early periods, offset over time by incremental deepening and incremental acquisition in the market from those products, generally about an 18 month payback.

And so sort of the dynamic we're expecting to see a bit lower into Q4 and then climb back and paying back over that kind of roughly a year and a half period..

Our next question comes from Jon Arfstrom with RBC Capital Markets..

Hey, thanks. Good morning. Just back on a loan growth topic you highlighted the late stage, middle market up 36%. And just curious what you think is behind that and how much things have changed over the last couple of quarters. And then, Steve or Rich, any feedback on the supply chain loosening up from your borrowers..

John, I'll start this, this is Steve, Rich and Zack may choose to add but the supply chain issues continue to be a challenge, you're seeing some OEMs ship and deliver without chips. Even some of the autos are doing that. But we've got auto dealers with no new inventory allot. It's shocking. To illustrate the challenges here.

And as I think you saw with the Ford and GM earnings announcements, expectations that are going to go deepen in the next year before it gets normalized. So that's why Zach's earlier comment is we're not counting on utilization, normalization in inventory, finance or auto to be a tailwind next year. If it happens, that's great.

Now, we do see supply chain issues getting resolved or getting to a resolution over time. And would expect that to continue, again through next year, maybe even a little bit beyond depending on the industry.

But there's a lot of activity and footprint about fueling and additional manufacturing capabilities with adjacency in North America, including in the footprint states that we're in.

So we like how this sets up over time in terms of additional opportunity for us and we're bullish, but we clearly have both a supply chain and a labor issue in virtually every business that's out there today..

Hi, Steve, this is Rich, rich, maybe just to piggyback on that, I think, as it relates to middle market low demand, we're seeing that a couple places that Steve mentioned, increased CapEx given the labor issues, I think there is a bigger push to automate production to garner that productivity that will offset some of the labor issues.

The other thing that we're seeing is just a heightened level of M&A.

I think as we're coming out of kind of the COVID fog here with respect to EBITDA levels and things, there's just a greater sense of certainty around cash flows, and I think buyers are aggressively looking to expand if they can, and sellers, I think some of them have just gotten a little tired, kind of going through a COVID environment and when their cash flows are picking back up a position where maybe they want to sell.

And so we are seeing increased M&A in the middle market space as well. There's also, Jon, a dynamic in the Twin Cities in Denver, TCF did not have their market banking. There were a series of things they just didn't do. So these are Greenfield every customer's net new.

And that's the teams are in places, as earlier mentioned, and we'll be building them out further, but we've got four in place, we're seeing success, and that's translating into additional cross sell revenue as well. And that's contributing to this optimism..

I'm guessing SBA falls in that as well.

Is that fair?.

Yes, it does..

Okay and then can you just touch on your repurchase appetite from here?.

Yes. This is Zack. I'll take that one, Jon. I think we're being pretty dynamic on it. We had a very intentional plan going into the third quarter, as we noted in the July call to accelerate in front load.

And we felt great about the $500 million; I think we're going to likely continue to be somewhat front loaded with a balance of that here in Q4 and as we go into Q1, but still working through it. And I think, looking to be dynamic as we do that..

Our next question comes from Ken Usdin with Jefferies..

Thanks. Good morning.

Zack, I was just wondering, in the third quarter, did you have some gross savings in there? Or and can you tell us what they were? I know you're only kind of telling us we're going to decline from here, but just wondering what you might have already captured?.

Yes, I would say they were quite modest in the third quarter. I think if you think about the cost savings, they came largely from ultimately branch rationalization, employee level of reductions, technology, synergies importing the TCF business essentially onto the Huntington tech stack.

And that's sort of a long tail of other savings, including a number of vendor and sourcing related opportunities that come with some increased scale and for the most part, most of those really were beginning to be executed on during the third quarter with sort of effect more into the fourth.

And as we go into the first quarter, the decisions around them and the planning and actions necessary to achieve them have essentially all been completed. And now we're in the execution mode of just realizing them.

So not much, I guess is the long winded answer in the third quarter, more substantively, the fourth quarter, which is partially why we're talking about sort of a larger step down in the fourth quarter than we thought before.

And then if we go into the first quarter, so yet again, a similar level of step down is my current expectation, then a bit of a more of an asymptotic function, as you get into Q3, and Q4, but still stepping down..

And a follow up on that. Do you have any change to your view of the original 490 in total that you expect? I know you're telling us to maybe we see a little bit more of a pull forward from a timing perspective.

But what about the absolute amount?.

No, I mean the absolute amount is solid at that level. And we're kind of within rounding errors higher than that. So nothing overly substantive that I would call out, I pointed to for nine years. That's the number Huntington achieve and it's got --.

Okay. And last cleanup one, just PPP in the deck, you show that you have $54 million of the fees left.

How do you expect the NII related to PPP to traject from here fourth quarter and beyond on the 40 something?.

It's kind of like a half life function; I would tell you over the next three quarters, we're expecting roughly 50% of the PPP to reduce into the fourth quarter. And then roughly 50% of that reducing into the first and then yet again into the second. These are planning assumptions I've given you, you should -- we should note that it's pretty dynamic.

And the SBA to their credit has been accelerating forgiveness quite substantively recently. And so these numbers move around from a planning perspective, that's essentially the kind of outlook function that we've got..

Our next question comes from David Long with Raymond James..

Good morning, everyone. Just I wanted to drill down on the service charge and deposits here and a good quarter for my think expectations.

And when, Steve, when you look at the press the headlines that it gets talked about a lot, that there's going to be some restrictions on overdraft and just curious how you're thinking about that, and how that may impact your fees going forward.

And then secondly, when I think of the overdraft side of things, fair play banking, something that you guys have, I think your overdraft fees would be a smaller portion of revenue to peers, but yes your screen a little bit higher there. Just curious as to why you think that may be the case as well. Thanks..

David, great questions, we put 24 hour more than a decade ago. And that continues to this day, we opened it up last year for small business. And we're continuing to do certain things to help our customers stand by cash is a classic example of that.

There's no limit to the use of that, those funds with our customers, we put up a minimum of $50 in last year for an overdraft, and we call that safety zone. So we have been continuously over time working to benefit our customers as part of this fair play banking philosophy.

We tend to be very strong on a relative basis in terms of customer acquisition as a constant quench of the different features and functions on our checking products. And that's ameliorated both the revenue give up over the last decade or so, very, very substantially.

As Zack pointed out, they'll be a bit of a step down in the fourth quarter and for a couple of quarters thereafter for the TCF customers, but they're going to get the same advantage of products and services that all of our previously existing customers have as well.

So and it will accompany our expectation around both customer retention and customer acquisition. It's hard to, it's -- I can't speculate unlike regulators they do. But we've, again, we've been trying to do things help consumers and businesses for quite some time.

Not just with overdraft fees, but other types of fee elimination reductions, those requirements, we've put a new alert system in that regard, a year and a half ago. So there are a lot of tools available to help customer manage their money, budget, et cetera and avoid overdraft fees..

Thank you, ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back over to Mr. Steve Steinour for closing remarks..

So thank you for joining us today. We've completed the majority of the actions leading to achievement of TCF cost synergies and expect to achieve all of the planned reductions. We're coming off the diversion with significant momentum across the bank and I'm confident that our disciplined execution will create substantial value for our shareholders.

We have a deeply embedded stock ownership mentality which aligns the interests of our board, management and colleagues, with our shareholders. So appreciate your support and interest in Huntington. Have a great day..

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