Zachary Wasserman
Senior Executive Vice President & Chief Financial Officer at Huntington Bancshares
Thanks, Steve, and good morning, everyone.
Slide 6 provides highlights of our fourth-quarter results. We reported GAAP earnings per common share of $0.26. Adjusted for Notable Items, earnings per common share were $0.36. Return on tangible common equity or ROTCE came in at 13.2% for the quarter. Adjusted for Notable Items, ROTCE was 18.2%.
We were pleased to see loan balances rebound substantially during the quarter, driven by robust new production activity as total loans increased by $1.4 billion and excluding PPP runoff, loans increased by $2.4 billion. Consistent with our plan, we reduced core expenses excluding Notable Items by $21 million from last quarter, driven by the realization of cost synergies and ongoing highly disciplined expense management.
We managed absolute core expense dollars lower while continuing to grow investments in strategic areas across the bank such as digital capabilities, marketing to drive new customer acquisition and relationship deepening and select new personnel additions to support our revenue growth initiatives.
Within fee income categories, we saw continued momentum in our capital markets as well as wealth and investment businesses. Strong credit performance continued to be a hallmark with net charge-offs of 12 basis points and non-performing assets declining by 16% from the prior quarter. We actively managed our capital base, repurchasing $150 million of common stock in the fourth quarter. To date, we have completed $650 million of our $800 million share repurchase program.
Turning to Slide 7, period-end loan balances increased by 1.2% quarter-over-quarter totaling $111.9 billion. Total loan balances excluding PPP increased $2.4 billion or 2.2% during the quarter driven by commercial loans. Within commercial, excluding PPP, loans increased by $2.5 billion or 4.4% compared to the prior quarter. This growth was broad-based across all major portfolios and was driven by record new commercial loan production. Growth was led by middle market, corporate, and specialty banking, which increased by $1 billion and represented 40% of total commercial loan growth this quarter. Inventory finance increased by $597 million, auto dealer floorplan increased by $276 million, asset finance increased by $160 million, and commercial real estate increased by $267 million.
Within corporate and specialty banking, each of our commercial verticals contributed to growth this quarter, including Corporate Banking, Tech & Telecom, Healthcare, and Franchise. Inventory Finance growth was driven by a combination of seasonally higher balances due to inventory shipments in the quarter as well as expansion of existing customer programs. Higher utilization levels drove approximately two-thirds of the increased balances.
In auto floorplan, we are continuing to add new dealer relationships and growing our overall commitment levels. In addition, balance has benefited from improved utilization rates, which increased from the mid '20s to approximately 30% in the quarter. Even as we delivered record loan production, calling activities across the business continued at a rapid pace. We ended the quarter with commercial loan pipelines 34% higher versus the prior quarter and 49% higher than prior year, supporting our outlook for continued loan growth ex-PPP throughout 2022.
On the consumer side, residential mortgage increased by $334 million and auto increased by $129 million. This was offset by home equity, which declined by $369 million.
Turning to Slide 8, deposit balances increased by $1.4 billion. As we continued to experience elevated customer liquidity and optimized our funding reducing CD balances by over $700 million. Consumer deposit balances increased by $1.6 billion from the prior quarter. Commercial balances increased by $300 million from the prior quarter.
On Slide 9, reported net interest income declined modestly from the prior quarter as a result of lower PPP revenue. Core net interest income excluding PPP and purchase accounting accretion was stable at $1.085 billion. With ending loan balances well above average balances for the quarter, we entered the first quarter of 2022 with a solid launch point from which to grow core net interest income going forward. Additionally, we continued to manage excess liquidity by funding loan growth and adding to the securities portfolio, reducing excess cash at the Fed to $3.7 billion from $8.1 billion of prior quarter-end. On an average basis for the quarter, access liquidity represented a drag on a margin of approximately 14 basis points.
Turning to Slide 10, we are dynamically managing the balance sheet to increase asset sensitivity and provide downside protection. During the fourth quarter, we added $2.8 billion of securities, and we continued to optimize our hedging program. We terminated $3.9 billion of received fixed swaps and floors, and we entered into new pay fixed swaps in order to bolster our asset sensitivity.
As rates moved higher, we opportunistically added $5 billion of received fixed swaps in order to manage downside risks. At year-end, our modeled net interest income asset sensitivity in an up 100 basis point scenario was 4.6%. We have steadily increased this metric over the past 18 months, supporting our ability to continue to capture upside opportunity as interest rates increased.
Moving to Slide 11, noninterest income was $515 million, up a $106 million year-over-year and down $20 million from last quarter. Lower fee revenues in the fourth quarter were driven by a decline in mortgage banking, primarily as a result of lower salable spreads. Our targeted focus on growing strategic fee revenue streams continued to bear fruit with capital market fees up $7 million or 18% from the prior quarter.
Wealth and investments and insurance also performed quite well. Card and payments revenues, which are typically seasonally flat from Q3 to Q4, declined slightly from the prior quarter. In fact, it up the margin by ATM volumes and the debit card conversion for TCF customers during the month of October. The underlying core business activity in cards and payments continues to be very solid, and we saw a restoration of ongoing growth in that business as the quarter progressed after conversion. Deposit service charges declined $13 million compared to the prior quarter as a result of TCF customers transitioning onto the Huntington Fair Play product set.
Moving on to Slide 12, noninterest expense declined $68 million from the prior quarter. And excluding Notable Items, core expenses declined by $21 million to $1.034 billion, as we captured cost savings from the acquisition and exercised disciplined expense management. As we shared previously, we expect our core expenses to trend down in the first and second quarters fairly ratably over that period to approximately $1 billion for the second quarter.
Even as we work to bring down expense levels, we are continuing to invest in initiatives that will drive sustainable revenue growth while being disciplined in managing our overall expense base. As you saw last quarter, we took additional actions in order to free up capacity to support these investments, while remaining committed to the absolute core expense declines in the near term.
Over the longer term, we expect expense growth to be a function of revenue growth, as we manage within our commitment to positive operating leverage.
Slide 13 highlights our capital position. Common equity Tier 1 ended the quarter at 9.3%, consistent with our prior guidance to operate within the lower half of our 9% to 10% operating guideline. We have $150 million remaining of our current share repurchase program.
As you can see on Slide 14, credit quality continues to perform well. Net charge-offs declined for the fourth consecutive quarter. Our nonperforming assets declined 16% from the previous quarter. Our ending allowance for credit losses represented 1.88% of total loans, down from 1.99% the prior quarter-end. The improving economic outlook and our stable credit quality resulted in a reserve release of $98 million in the fourth quarter.
Slide 15 covers our medium-term financial goals. We are focused on driving sustained revenue growth while managing expenses within our long-term commitment to positive operating leverage and achieving a 17% plus return on tangible common equity. We expect to begin seeing this performance in the second half of 2022.
Finally turning to Slide 16, let me share a couple of thoughts on our expectations for 2022. Our outlook is based on the starting point of our most recent quarterly results with expectations for year-over-year comparisons for the fourth quarter of 2022. It also assumes continued economic expansion, aligned to market consensus as well as interest rate yield curve expectations as of early January. We expect average loan growth ex-PPP to be up high single digits based on our starting point of $107.9 dollars.
As a result of loan growth and modestly higher net interest margin, we expect core net interest income on a dollar basis excluding PPP and purchase accounting accretion to grow in the high single digit to low double digits range. Fee revenues are expected to be up low single digits, driven by robust growth in key categories aligned to our strategies, including capital markets, our card, and treasury management payments businesses, and wealth and advisory with offsetting impact from lower year-over-year revenues in mortgage banking and the continued evolution of our Fair Play products.
As mentioned, we expect to continue to drive the sequential reduction in core expenses for the next several quarters, as we fully realize the TCF cost synergies and benefit from broader expense management. At the same time, we are continuing to invest in our strategic growth initiatives and new revenue synergy opportunities. We expect the quarterly run rate of core expenses to be approximately $1 billion by the second quarter and then remain relatively stable over the second half of the year from that level.
In closing, we've keenly focused on the revenue opportunities ahead of us. We have the teams directed towards these key initiatives, and we're confident in our 2022 outlook to deliver on this plan. We believe these drivers of our outlook are aligned with our goals for sustained revenue growth of 17% plus return on tangible common equity and our commitment to annual positive operating leverage.
Now, let me pass it back to Steve for a couple of closing comments before we open up for Q&A.
