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Huntington Bancshares Inc (NASDAQ:HBAN)
Q1 2021 Earnings Call
Apr 22, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Huntington Bancshares First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mark Muth, Director of Investor Relations.

Mark Muth -- Director of Investor Relations

Thanks, Gerald. Welcome. I'm Mark Muth, Director of Investor Relations for Huntington. Copies of the slides we'll be reviewing can be found on the Investor Relations section of our website www.huntington.com. This call is being recorded and will be available as a rebroadcast 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 session.

As noted on Slide 2, today's discussion including the Q&A period will contain forward-looking statements. Such statements are based on information and assumptions available at this time and 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 the material filed with the SEC including our most recent Form 10-K and 8-K filings.

Let me now turn it over to Steve.

Steve Steinour -- Chairman, President & Chief Executive Officer

Thanks, Mark. Good morning, everyone. Slide 3 provides an overview of Huntington's strategy to build the leading people-first digitally powered bank in the nation. We continued to execute against this strategic vision and are pleased with the progress to-date. We see significant opportunities ahead of us as we position our businesses for the recovery at hand.

Over the past year we updated our multi-year strategic plan with a focus on driving long-term revenue growth, continuing to build our brand based on best-in-class products, and increasing our industry leading customer satisfaction across our businesses. We also announced the planned acquisition of TCF Financial, which will provide us powerful opportunities to grow revenue, expand our market presence, and provide scale to our businesses while increasing our investments in digital and other areas. This combination will increase our capacity to invest and we will become more efficient with the significant expected expense take-outs. We accelerated our digital investments as part of our strategic vision and are encouraged by the digital adoption trends. Due to the investments we've already made, for the first time over half of new customer deposit accounts were originated digitally in the last quarter. The double-digit growth in active digital and mobile engagement is similarly encouraging.

As we look ahead, we are optimistic about a strong economic recovery. Unemployment has decreased significantly across our footprint. We are again hearing a crescendo of commentary from our customers regarding labor constraints and wage inflation. Consumer confidence has meaningfully improved while average consumers are less leveraged and more liquid. Our debit card trends have consistently posted double-digit year-over-year growth rates over the past several quarters. Consumer spending and service industries is expected to broadly accelerate this year as demand returns. Consumer loan production also continues to be strong. On the commercial side, sentiment is encouraging. Our pipelines are up across the board increasing our confidence and recovery in commercial loan demand later this year. While supply chain constraints such as the semiconductor shortages will likely challenge some manufacturers in the near term, progress of a recovery and visibility into growing customer orders are causing outlooks to strengthen.

Let me also share some high level remarks on our first quarter results, which provided a strong start to the year and included solid core performance with our momentum going. Commercial loan originations were in line with expectations. However, overall growth was constrained by both forgiveness of PPP loans and continued headwinds in dealer floor plan and commercial line utilization, both of which are temporary challenges. Residential mortgage, auto, and RV marine produced seasonally strong originations in face of tight inventory. Growth in consumer loan balances was obscured by unprecedented levels of paydowns following the two recent rounds of stimulus. Deposit growth continues to consistently exceed expectations.

Finally on Slide 4, I'd like to give an update on the pending TCF acquisition. We believe the timing could not be better as the strengthening recovery dovetails with the growth and scale opportunities presented by this combination. We continue to make good progress toward our anticipated closing late in the second quarter and to complete the majority of system conversions late in the third quarter. In March, Huntington and TCF shareholders approved the transaction and our integration plan is on track. We completed the selection of key management and anticipate receiving the outstanding regulatory approvals, including the required branch divestitures in the coming weeks. We've begun major components of the cost reduction plan, including the closure of 44 Meijer branches later this quarter.

Now, let me turn it over to Zach for more detail on our financial performance.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Thanks, Steve, and good morning, everyone. Slide 5 provides the financial highlights for the first quarter.

Reported earnings per common share of $0.48, return on average assets was 1.76%, and return on average tangible common equity was 23.7%. Bottom line results were augmented by two notable items. The first was a $144 million mark-to-market benefit on our interest rate caps driven by the steepening yield curve and increased market volatility. The second was a $125 million or 7% reserve release resulting from the improving economic outlook and credit metrics. Partially offsetting these were $21 million of TCF acquisition related expenses, which are broken out as a significant item in the earnings release with granularity provided on table 8.

Now, let's turn to Slide 6 to review our results in more detail. We continue to be pleased with our sustained growth of pre-tax pre-provision earnings, which increased 15% year-over-year in the first quarter.

Total revenue increased 19% versus the year-ago quarter. Net interest income grew 23% driven by solid underlying loan growth and a 34 basis point increase in NIM, which were positively impacted by the substantial mark-to-market gain that I mentioned in our interest rate cap derivatives and the $44 million of accelerated PPP loan fee accretion. Fee income growth of 9% was aided by a record first quarter for mortgage banking income as salable mortgage originations set its own record with 89% year-over-year growth and secondary marketing spreads remained elevated. Similarly, our wealth and investment management businesses experienced its best quarter ever with respect to net asset flows and also benefited from positive equity market performance over the prior 12 months. Cards and payments continued to post strong consistent growth. Deposit service charges remained below the year-ago level as elevated consumer deposit account balances continued to moderate the recovery of this line.

Total expenses were higher by $141 million or 22% from the year-ago quarter. 3 percentage points of this growth can be attributed to the approximately $21 million of significant items related to the TCF acquisition. There were also approximately $45 million of expenses in the quarter or approximately 7 percentage points of growth resulting from the pull forward of these three expenses that otherwise would have been incurred in the future. The first of which was a $25 million contribution to The Columbus Foundation. Second, we moved our annual long-term incentive grants to March from the historical timing of May. Third, we retimed some expense related to our colleagues health savings accounts, which would otherwise have been incurred in the balance of 2021. These two compensation related items together totaled approximately $20 million. The remaining approximately 11.5% underlying expense growth rate was driven primarily by the accelerated investment in strategic growth initiatives, which we have been communicating for the past several quarters.

Turning to Slide 7. FTE net interest income increased 23% as earning asset growth was coupled with year-over-year NIM expansion. On a linked quarter basis, net interest margin increased 54 basis points to 3.48%. As shown in the reconciliation on the right side of the slide, the linked quarter increase primarily reflected the 49 basis point net change in the interest rate caps. As we've discussed previously, we're taking actions on both sides of the balance sheet to offset the inherent margin pressure caused by the prolonged low interest rate environment, managing the underlying core net interest margin near current levels.

Given the significant impact on NIM on the interest rate caps, Slide 8 provides additional information on this aspect of our comprehensive hedging strategy. As we disclosed in December, we purchased $5 billion of interest rate caps with an average tenure of seven years to reduce the impact on capital from rising rates. This hedging action performed very well this quarter. In March, we subsequently sold $3 billion of new interest rate caps at a higher strike price to create a collar-like position. This is expected to dampen further mark-to-market impacts and recover approximately half of the premium paid on the initial caps while maintaining the majority of the capital protection from the position.

Turning to Slide 9; average earning assets increased $12 billion or 12% compared to the year-ago quarter driven by the $6 billion of PPP loans and the $5 billion increase in deposits at the Fed. Average commercial and industrial loans increased 11% from the year-ago quarter primarily reflecting the PPP loans. On a linked quarter basis, C&I loans decreased 1% primarily reflecting the forgiveness of PPP loans and a decline in dealer floor plan utilization. As we indicated at the RBC Conference in March, commercial loan pipelines remain up significantly from a year-ago and we're seeing that manifest in new commercial loan production. Residential mortgage, RV, and marine; all posted year-over-year growth in new production. Average consumer loan balances declined sequentially as stimulus related paydowns more than offset strong new production in the quarter.

On a linked quarter basis, average earning asset growth primarily reflected the $2 billion or 9% increase in average securities as we executed our previous announced plans to deploy excess liquidity through the purchase of securities during the quarter.

Turning to Slide 10, we will review deposit growth and funding. Average core deposits increased 20% year-over-year and 4% sequentially driven by increased consumer liquidity levels related to the downturn, consumer growth largely related to stimulus, increased account production, and reduced attrition.

Slide 11 provides an update on PPP forgiveness and expectations for the current program. In total, Huntington approved $6.6 billion of PPP loans in the original program and has approved an additional $1.8 billion of loans in the current program. In light of the recent congressional extension of the program and our current application activity, we now anticipate the total amount for the current round to reach approximately $2 billion. We continue to expect approximately 85% of those balances from the original program and the new program ultimately to be forgiven. Through the end of March, $2.4 billion of loans from the original tranche have been forgiven and we anticipate approximately $2.3 billion to be forgiven during the second quarter. For the current program, we expect the majority of the forgiveness to occur this year, particularly in the second half of the year.

Slide 12 illustrates the continued strength of our capital and liquidity ratios. The tangible common equity ratio or TCE ended the quarter at 7.11%, down 5 basis points sequentially. The common equity Tier 1 ratio or CET1 ended the quarter at 10.33%, up 33 basis points from the last quarter. The CET1 ratio was modestly above our 9% to 10% operating guideline and we feel it's prudent to maintain strong capital levels going into the TCF acquisition. It also positions as well to execute on our growth initiatives and investment opportunities going forward. As we have previously communicated, we paused share repurchases until we have substantially completed the TCF acquisition and integration.

Slide 13 provides our allowance for credit losses. The first quarter included a $125 million reserve release, primarily from consumer while the quarter-end ACL represents 2.17% of loans and 2.33% loans excluding PPP. We believe this is a prudent level to address remaining economic uncertainty while reflecting the improved overall credit metrics and economic outlook.

Slide 14 provides a snapshot of key credit quality metrics for the quarter. Our overall credit performance continued to strengthen. Net charge-offs represented an annualized 32 basis points of average loans and leases, slightly below the low end of our average through the cycle target range of 35 basis points to 55 basis points. Our criticized asset and NPA ratios were both relatively stable. As always, we have provided additional granularity by portfolio in the analyst package in the slides. I want to spend a minute on our ongoing investments and progress on digital engagement and origination.

Looking at Slide 15, we continue to invest in a focused set of strategic initiatives to drive revenue acceleration and competitive differentiation. In addition to a variety of digital and product investments, we are adding personnel in core revenue generating roles to support strategic growth in our capital markets, specialty banking, small business administration, and vehicle finance businesses. We have also increased marketing spend back to pre-pandemic levels and to promote new launches related to Fair Play banking.

Slide 16 illustrate several key digital engagement and origination trends showing some of the benefits of our ongoing tech investments. On the left side of the slide, you can see continued growth in monthly digital engagement and usage levels in consumer and business banking. The digital origination trends on the right side of the slide are particularly encouraging as they show strong customer uptake of the new consumer business digital origination capabilities we introduced over the course of last year. We are executing robust technology roadmaps across our business lines that will drive sustainable revenue momentum via improved customer acquisition, retention, and deepening.

Finally, Slide 17 provides our updated expectations for the full-year 2021 on a Huntington stand-alone basis. We now expect full-year average loan growth of 1% to 3%, down slightly from prior expectations as a result of the elevated level of paydowns and a delayed recovery of commercial and vehicle floor plan line utilization. These expectations reflect flat to modestly higher commercial loans inclusive of PPP and low single-digit growth in consumer loans. Excluding PPP, we would expect to see low single-digit growth in both. For deposits, we now expect full-year average balance growth of 9% to 11%, higher than previous expectations given the stronger than anticipated deposit inflows in the first quarter and the overall elevated levels of core deposits, which we expect to persist for several more quarters. We are also adjusting our expectations for full-year total revenue growth higher to a range of 3.5%. We expect net interest income growth to be in the mid-single digits while non-interest income is expected to be modestly lower for the full year. Full-year growth expectations for non-interest expense are now between 7% and 9%.

On a non-GAAP basis, excluding $21 million of significant items I discussed previously, we expect non-interest expense to increase between 6% and 8%. This increase relative to our prior expectations is driven by the foundation donation in the first quarter and increases in compensation expenses related to the higher revenue expectation for the year. The large majority of the underlying expense growth continues to be driven by investments in our strategic growth initiatives as we've discussed previously. While expense growth is expected to outstrip revenue growth over the near term, our commitment to positive operating leverage remains over the long term. Our expectation and plan is to bring the expense growth rate back to more normalized levels during the second half of 2021.

Finally, credit remains fundamentally sound. We now expect full-year 2021 net charge-offs to be between 30 basis points to 40 basis points reflecting improving economic conditions and stable charge-offs in both commercial and consumer portfolios. Further reserve releases remain dependent on the economic recovery and related credit performance. As a reminder, all expectations are stand-alone for Huntington and do not include consideration made for the pending acquisition of TCF.

Now, let me turn it back to Mark so we can get to your questions.`

Mark Muth -- Director of Investor Relations

Thank you, Zach. Gerald, we'll now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up. And then if that person has additional questions, he or she can add themselves back into the queue. Thank you.

Questions and Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.

Ken Zerbe -- Morgan Stanley -- Analyst

Alright, great. Thank you. Good morning.

Steve Steinour -- Chairman, President & Chief Executive Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

Why don't we start then just in terms of the interest rate caps. I probably may not be the only one who didn't appreciate how meaningful this could be on a mark-to-market basis for NII. I get that you added the short cap position, but it still seems that you also have a fair amount of long exposure outstanding. Can you just talk about the volatility that we should expect? Sort of how long does this volatility last over time and is it right to assume that we could be looking at maybe not $100 plus million swings, but $50 million, $60 million swings in NII in any given quarter up or down?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Hey, Ken. This is Zach. I'll take that question. And look, I would start by saying the priority of our -- the goal for this position in our strategy was to look around the corner to manage risk, to protect capital, and to be dynamic and proactive to do that. And we thought it was a really smart move and as you saw, I think it benefited us substantially. And so, that also underlines our decision to continue to maintain this position albeit somewhat collared as we discussed for the foreseeable future. And so, we'll have to see what happens. These get marked-to-market every day and ultimately we post the results at the very last day of the quarter. But we believe it's the right position as we go forward here. So, we'll have to see. We'll keep you posted. But over the long term, we think it's a really smart position for us to protect our capital.

Steve Steinour -- Chairman, President & Chief Executive Officer

Ken, I'll just add when we executed these in the fourth quarter, remember the outlook was reasonably flat through '20 -- well into '23. So, we thought the bulk of this capital protection would be in the out years; four, five, six plus and obviously the interest rate outlook changed very rapidly after the election. But it wasn't our intent to sort of view this as some kind of short-term position when we originated it. It was this protection of capital over time.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. No, it actually worked out incredibly well this quarter no doubt about that. My second sort of related follow-up question is a little more in the NIM, Zach. I think I'm missing something, but would love your clarification on this. If we look at just the change in net interest income from last quarter to this quarter and we back out only the change -- the way I understand it, the change in the caps of call it $140 million to positive and then we back out another $40 million change in PPP income, it implies that net interest income actually went down by $32 million sort of on an all else equal basis. Am I missing something in that calculation?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

I think you've got it right. I think you saw, as we noted in the commentary, a bit of pressure on underlying loans in the quarter just from headwinds we're seeing in line utilization, but that was offset by really strong fee income growth during the quarter. The NIM if you were to strip out that calculation was 2.97% to give you a sense of net interest margin.

Steve Steinour -- Chairman, President & Chief Executive Officer

And Ken, you also had the impact of day count if you're looking at the dollars.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

On a sequential basis, correct.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it, OK. All right, perfect. Thank you very much.

Operator

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

Matt O'Connor -- Deutsche Bank -- Analyst

Good morning, I know you've talked about it in the past here and there. But as we think about the increased investment spend this year, specifically on technology and digital, I was just wondering if you could summarize what a couple of the kind of bigger initiatives, bigger spend is that's driving that higher investment spend this year.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. This is Zach, I'll take that and Steve may want to tack on as well here. But what we really like about our strategic plan is it's incredibly focused and it's driven by key initiatives across each of our business lines. So within our consumer business line, which we've talked about for a while, much of the increased investment is around digital with three major focus areas as we talked about over the last several years and certainly last year, improving our digital point of sale or product origination capabilities. We largely completed that last year and now the teams are working through how to best optimize and incorporate that within the omnichannel client engagement process we have for client origination. Also a lot of focus around engagement and deepening through personalization and ease of use client account servicing.

In the commercial business, significant amount of digital investment as well around new client onboarding, relationship manager, digital tool sets, as well as focused investment in new people for example in specialty banking and in our capital markets business. We're also really pleased with the investments we're putting into our wealth and investment management business, which again is a mixture of both technology to improve the client advisor interaction experience and relationship management tool as well as select people hires as we bring on new relationship managers, which is like I mentioned in my script, really driving substantial sales growth and performance. And lastly, I would highlight vehicle finance. For the last several years, we've been working to digitize the customer experience as well as continue to expand the geographic footprint of that business in a way that's really constructive. I don't know, Steve, if you want to tack on to that.

Matt O'Connor -- Deutsche Bank -- Analyst

That's a very helpful summary. As we think past the cost save associated with the TCF deal, you mentioned long-term expense growth. Like what is a good call it three to five-year outlook on expense growth and I just think it might be somewhat revenue dependent. But if you think about most revenue growth coming from loans, NIM expansion hopefully, things that aren't super high on the efficiency ratio; what would a good range for underlying expense growth be?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. It's a great question and I would note that for the next several years based on our forecast for the integration of the TCF acquisition, overall reported revenue and expense growth levels will be substantially impacted by that and you'll see quite high levels of growth in both as we incorporate that business and measure the year-over-year growth. But kind of on an underlying basis, which I know was the basis of your question, my expectation and goal is that we're growing the topline at or above nominal GDP with revenue lower than that and driving positive operating leverage. I think over the long term something like 1.5% to 3.5% of inflationary growth is logical and if revenue is stronger, then perhaps expenses are stronger than that. But generally, that's my broad expectation.

Steve Steinour -- Chairman, President & Chief Executive Officer

Ken, just want to reiterate. The commitment to positive operating leverage after nine years, we've led to this year to make investments coming off the strategic plan in particular because of the economic volatility that we saw last year with the virus and the expected recovery. We think we are playing this is in terms of timing exactly right. We've got a series of near-term revenue growth initiatives that we're executing and that will position us for the long term, but we will be back to positive operating leverage.

Matt O'Connor -- Deutsche Bank -- Analyst

Thank you.

Steve Steinour -- Chairman, President & Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Ken Usdin with Jefferies. Please proceed with your question.

Kenneth Usdin -- Jefferies -- Analyst

Hey, thanks. Good morning. I had just one follow-up on the expense side. So, clearly you have the access revenues helped by the swaps and then a higher expected growth rate this year on the expenses, which makes sense that you're continuing to accelerate. But just, Zach, you mentioned last quarter a different cadence between first half expense growth and second half expense growth. I just want to try to understand is the increment that's embedded in the new expense growth rate also going to show all in the first half in part due to the items in the first. Just kind of if you can walk us through how things traject from here would be helpful. Thank you.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Thanks for the question. I appreciate the chance to clarify. I would say approximately three quarters of the incremental expenses were what we saw come through in Q1. So there's a small lift in the balance of the year, but most of it was what we saw come through in Q4 and Q1. And the key thing with our plan is as we're front-loading these investments into the first half of 2021 and so the expectation is really the same as it was before. Elevated expense growth on a kind of core run rate basis in the first half coming down to more normal levels in the second half of the year. And of that 60% underlying core expense, approximately 5 percentage points of that is our long-term strategic investments and the other 1% to 3% is really sort of a natural expense inflation that you might expect and some normalization of Companywide programs like [indecipherable] T&E and medical cost and things of this nature and some additional expenses to support the additional revenue as I noted in my prepared remarks. So front-end loaded, back-end back to historical levels, and really no change other than those [Phonetic].

Kenneth Usdin -- Jefferies -- Analyst

Helpful. And then the same kind of just thought process on the NII side. Obviously NII outlook helped by the $144 million. Just underneath that, can you just talk about just the underlying changes to your prior views on how NII versus the fees look as well? Thanks.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. Overall I expect mid-single digits in net interest income for the full year I think driven in part by our modest growth in assets that we've indicated in the guidance between 1% and 3%. And spread -- NIM spread overall will be roughly flat for the full year. I think just touching on NIM for a second. Next couple of quarters will likely be in the mid 2.80% in terms of NIM. The biggest impact just changing our expectations somewhat is continued elevated levels of Fed cash driven by the elevated level of liquidity across the system that many folks have commented on here in the earnings cycle and to some degree the beginning of the roll off of our hedges, which will be down about 7 basis points into Q2. So, Q2 will be a trough to mid-2.80%s for the next several quarters. But pulling up, FY '20 still looks at like a NIM of 2.90% better and long-term still forecasting to maintain those levels and stable to rising over the longer term.

Kenneth Usdin -- Jefferies -- Analyst

Got it. Thank you, Zach.

Operator

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

Scott Siefers -- Piper Sandler -- Analyst

Good morning, guys. Thank you for taking the question. Just wanted to ask you guys a follow-up on the rate cap. So between the -- what you had sort of captured in the first quarter and then the sale of the $3 billion of new caps in March. So, does this do anything to your sort of your forward rate sensitivity? I think Zach, I've sort of thought about the hedges as more balance sheet protection than really adjusting your rate sensitivity. Is there any change to that dynamic?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

So, I think you got it right. The position was around protecting capital and I think you saw in the slide, 52% offset of the OCI mark on securities was protected by this. So, it's really good. We've got our Treasurer, Derek Meyer, in the room. Why don't -- Derek, you want to comment a little bit on asset sensitivity and your outlook for that over the long term?

Derek Meyer -- Treasurer

Yes. Thank you. So, we have continue to look at that. Obviously we always stated this is primary thinking of a capital play. There is a knock-on effect because it comes to earnings on our margin. Most of our decisioning has been to retain as much downside protection while capturing the upside. As these rates have gone up and that is these caps have obviously made us even more sensitive in that respect, we are evaluating our next hedging moves to protect that downside without giving up that upside opportunity. So, it does change the posture. That's also a big part of what we're thinking about as we evaluate our positioning with TCF, which is a separate set of decisions, but that is another set of levers that we have to incorporate into our forward view.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. Broadly speaking just pulling back a second, I really like where the asset sensitivity kind of strategy and trend is going in that over time as our existing hedge position slowly rolls off, we will become more and more exposed to what will be likely a gradually increasing interest rate environment as well. So, I think it's sort of well-timed for us to be exposed in that way as rates begin to rise over the next several years.

Scott Siefers -- Piper Sandler -- Analyst

Got it. That's helpful. Thank you. And then I guess as a follow-up. I think, Zach, at a point you'd mentioned the sale of the new rate caps the $3 billion. That should sort of dampen the new mark-to-market impacts. Is there a way to sort of speak to how much protection you have against future volatility like we saw this quarter both up and down?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. It's a good question. We estimated between 15% and 30% impact on dampening. So importantly, we wanted to maintain kind of a net long exposure there because we do think to the extent that there is a probability of moves substantially off the forward curve, it's likely to be higher. But that dampening is sort of between 15% and 30% as we go forward.

Scott Siefers -- Piper Sandler -- Analyst

Got it. All right. Thank you, guys. Very much appreciate it.

Operator

Thank you. Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your questions.

Peter Winter -- Wedbush Securities -- Analyst

Good morning. I was wondering could you talk about -- you mentioned the loan pipelines are very strong. I'm just wondering can you talk about what you're hearing from your customers about making investments and versus kind of the appetite to drawdown on lines of credit versus using that excess liquidity and maybe delaying line drawdowns?

Steve Steinour -- Chairman, President & Chief Executive Officer

Peter, this is Steve. So in the last four or five weeks, I've had about 50 CEOs in small meeting virtual conversations and the outlook by them is virtually all very positive about this year pipelines. Their backlogs are very encouraging and their overall economic outlook for the next couple of years also very positive. They have -- in a number of situations have supply chain constraints. Some of it from mundane items. Some of it for chips. But there is a curtailment that I think is being experienced at least in part by these companies on the supply chain. Universally they talk about inability to get adequate labor, very high turnover, and clear wage inflation at the low end. A consequence of that will be more investment by many of them into automation all the way through including packaging.

So, we expect there'll be a fair amount of equipment finance activity this year and when we combine with TCF, we'll have a largest equipment finance company in the country. That should position us very well. We have a very good technology finance team that will play well with automation on the factory side. But even in the healthcare product side, we're seeing a strong uptick of healthcare systems are doing better and been able to reopen and sustain activity that was diminished during the peak of the virus. So the people we're talking to, the CEOs in that arena, generally very, very confident going forward. So we think the strong pipelines we're seeing, we're up about 40% of the commercial pipeline year-over-year, is reflective of what will be demand as we go through the year probably more in the second half than first.

But in part because many of them had very good years, had liquidity, and they're using that liquidity as opposed to line utilizations and other things. Inventories are low in many of these companies and some of it's supply chain, but some of it's significant demand, inflation on the commodity side or lumber, just a whole host of areas where there's cost push. And I think that will engender further borrowing as their liquidity gets soaked up. So we are -- from these conversations, we're optimistic about the continuing improvement especially seen in the second half.

Peter Winter -- Wedbush Securities -- Analyst

Okay. Thanks, Steve., And then if I could ask just a follow-up on the PPP, you gave some pretty good disclosure on Slide 11. But what's the outlook, Zach, for the rest of the year to net interest income from PPP?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. I think as we said, the expectation is that we'll see a very substantial amount of additional forgiveness in the second quarter, I think to give you a sense, Q1 revenue in total from PPP was around $76 million, of which $45 million was the accelerated and $31 million was the underlying yield. My expectation for Q2 is around $50 million total revenue, of which 20 -- it's basically half and half between yield and the acceleration and that will represent the preponderance of the PPP revenues for the first program. We'll see a little bit of a tail as we go into the balance of the year, around -- I mentioned there's about $2 billion, about 85%. We think we've forgiven much of it in '21 that will add around $1.3 billion of EDB and $60 million of revenue we estimate to the year. I know we have a analyst modeling call after this and we'll probably double click into more of the details during that, but this was the right high level commentary now.

Peter Winter -- Wedbush Securities -- Analyst

Got it. Thanks for taking my questions.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Welcome. Thanks.

Operator

Thank you. Our next questions come from the line of Bill Carcache with Wolfe Research. Please proceed with your questions.

Bill Carcache -- Wolfe Research -- Analyst

Thanks. Good morning, Steve and Zach. Some investors have expressed concern around the risks that internal combustion engine vehicles will lose value compared to electronic vehicles as they take over and obviously there's debate around when that's going to happen. But can you speak to how HBAN is thinking about this risk? What you guys are doing about it and the extent to which you expect to play a role in helping consumers fund future EV purchases? As well as like from the standpoint of risk of declining collateral values for your existing book, if you could comment on that as well.

Steve Steinour -- Chairman, President & Chief Executive Officer

So Bill, it's Steve. A good question. Thank you. We think there's going to be an extended transition here and I believe the industry is of that belief as well. EV is building in the country, but it's building at a very slow rate. Now that may accelerate with the climate posture of the Biden administration and for other reasons including consumer awareness around environmental and changes of it. But combustion engines we think are going to be here through the decade in terms of demand and substantially there if not fully through production. Having said that, in terms of the impact on us, we're a super-prime lender. So whether it's a combustion engine or a hybrid or EV, we work with a view of very low default rates and so marginal loss rates might increase a bit and probably would anyway because we're at record highs in terms of global values for used so -- but we don't see this as a big event. In terms of opportunity for us, it's one of the areas of environmentally sensitive financing that we're looking at. There are a series of other areas where we're actively engaged and extending credit over time as we look back in the billions of dollars and there may be an opportunity for us to do something unique with hybrids or EVs as we go forward.

Bill Carcache -- Wolfe Research -- Analyst

That's very helpful. And as a follow-up. Steve, can you give a bit more color on some of the things you're doing ahead of the TCF closing just to make sure you hit the ground running next year? Is most of the initial focus that we have ensuring smooth integration versus maybe is it just too early to be thinking about the revenue synergy opportunity that is down the road or is that in the mix as well? Any color around that would be helpful.

Steve Steinour -- Chairman, President & Chief Executive Officer

So when we announced, we talked about expense synergies and were fairly definitive, but we also alluded to revenue synergies. To start with, our offerings both consumer and business are much more extensive than TCF so it sets up a cross-sell, something we've been working on and we currently refer to it as optimal customer relationships. So, we've been doing this for a decade. We have very good experience with cross-sell into the FirstMerit customer base and we expected to do as well or even better based on the learnings and experiences and the relative position. TCF also outsources a number of businesses or products, which we manage directly and so we will expect lift out of those. So, there is a variety of revenue initiatives which we are pursuing and in some cases, we've already activated such as SBA Lender in Minneapolis, an activity that TCF didn't have. And so as we go forward we expect these revenue initiatives, and we'll share them at the future point, will be significant upside to what we've presented in a summary level. So, we'll detail where we expect to get them as we proceed. But first order of business is to execute the committed expense takeout and to get the synergies on that front that we expected with the closing expected later this quarter and a conversion later in the third quarter.

Bill Carcache -- Wolfe Research -- Analyst

Got it. Thank you for taking my questions.

Steve Steinour -- Chairman, President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Steve Alexopoulos of JPMorgan. Please proceed with your questions.

Janet Lee -- JPMorgan -- Analyst

Good morning. This is Janet Lee on for Steve Alexopoulos. just digging deeper into your commercial loan growth guidance. I understand that in your guidance of commercial loans being flat to modestly higher for 2021. What is your assumption around the level of commercial utilization for your C&I customers as compared to the current level? And could you also provide more color around like how that compares to pre-pandemic levels?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Sure. Thanks, Janet, for the questions. This is Zach, I'll take it. Overall as I mentioned in the comments, the expectation is excluding PPP low single-digit growth in commercial loans and approximately 1.5 percentage of that is from some modest line utilization. Overall, the expectation for line utilization has been reset. But I'll come back in a minute and just speak more specifically about the pre-pandemic comparison as you asked, which is generally characterizing the expectation. What we've seen is relatively flat in generally middle market lines, but based on expectation is a modest improvement. Likewise what we've seen on the vehicle floor plan side is actually some retrenchment from the end of last year to where we stand now. As we go forward, we're expecting some modest improvement in both of those. Together, those represent just under 1% asset growth expectation with my total asset growth.

But even if you generalize it, I think the level of strong production we've got across both consumer and commercial, we do expect to drive accelerated loan growth overall on that basis as we go forward. Just double clicking into the line utilization expectations. Pre-pandemic we were running in the middle market line utilizations of low 40% and right now we're in the high 30% to give you a sense. It's been roughly flat now for several months in a row and I would expect it will be flat for a time before it starts to rise later in the year. I think as has been well publicized, elevated levels of liquidity across the system are contributing to our clients just not needing those lines at this point. But everything we're hearing from them is that ultimately they expect to go back to a more typical financing posture and those will start to slowly normalize probably more in the back half of 2021 and continuing into 2022. On the vehicle floor plan side, historical levels are just around 80% line utilization.

By the end of the year, we had gotten to almost 61% to be precise in December. By the end of this quarter, we were 51% to give you a sense. So, it continues to tick down and has ticked down even a little bit more into April. So, we'll have to see. That one is really driven by the point specific auto manufacturer issues that have been very well-documented in the popular press around microchip shortages and other component shortages. Everything we're hearing though is that slowly but surely they are chipping away at that issue at the manufacturers and that vehicles will begin flow at a faster rate in the back half of the year. My general expectations are relatively flat in that for the next several months before it starts to normalize and rise more again toward the late part of 2021 with the longer-term expectation is our client discussions. But they'll go back to historical levels of utilizing that financing probably well into the middle of 2022 based on supply.

Janet Lee -- JPMorgan -- Analyst

That's very helpful. Thank you. And just turning to -- I want to talk through the new money yield. At what yields new purchase securities are being put out to versus what's rolling off and same for new loan production and also what's your plan around deploying excess cash and how much would -- how much of that could be deployed into securities over the next several quarters? Thanks.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes, I'll take the first crack at it. And then Derek Meyer, our Treasurer, who's in the room as well maybe tack on as we go. On the security side, we feel really good actually about where the yields are and what we were able to deploy with a roughly $2 billion of net add during the quarter. Came on sort of around the 160 basis point level. As we think about other new money yields, generally some modest pressure but not overly so. I think in the commercial business around a 0.25 point lower as we went into Q1 from Q4. CRE likewise around 30 basis points to 35 basis points lower. Auto roughly stable. So, we're seeing some modest downdrafts on new money, but not overly material. I would say at this point, most of the carbon tax have been brought into the pricing. As we double back and think about the posture around elevated liquidity, I would say that as we've continue to update our forecast, we've ratcheted higher the expectation for elevated levels of liquidity and deposits as is indicated by our deposit guidance.

And likewise ratcheted out in time the duration that this phenomenon will last until it begins to normalize. So, likely will take several more quarters for that to slowly start to wane and it will go all the way into 2022. So, that gives us the cause to really look at the best ways to deploy that. Over time you've seen us optimize our funding structure and we'll continue to look for opportunity to do that to bring down funding costs using that, but I think as well looking at whether it's appropriate over time to invest in VAU securities is also part of the discussion. To be clear, liquidity is the primary objective and making sure that we're managing that well, I mean so we'll leg into and step into on kind of period basis [Phonetic] any incremental moves on that and still working through it. Nothing for us specifically to talk about there, but we'll continue to be dynamic in looking at it and just watching those trends and optimizing. Anything Derek, you can tack on to what I said?

Derek Meyer -- Treasurer

No, I think you've covered it. We have reached a point with our VAU security strategy where the new money yields sort of equal to our runoff yields plus or minus 0.5%. So, a lot is going to happen with repayment speeds and then what the yield curve shape is. I don't see a big change in trajectory.

Janet Lee -- JPMorgan -- Analyst

Right. Thank you.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Thank you for your question.

Operator

Thank you. Our next questions come from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your questions.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Hey, thanks. Good morning, everyone.

Steve Steinour -- Chairman, President & Chief Executive Officer

Good morning, John.

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Good morning, John.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Most of it's been handled. But can you -- Steve, can you talk a little bit about me retention and synergies that you saw on the FirstMerit? And also touch on like you've got the 44 branches that you're closing, what kind of retention you get from those and how you're thinking about TCF in terms of retention as well?

Steve Steinour -- Chairman, President & Chief Executive Officer

We have a set of opportunities -- thanks, Jon. Good morning. I'm sorry. We have a set of opportunities with TCF that are substantial in terms of retaining customers. If we think about Michigan for example even after our consolidations of branches and in aggregate there'll be more than 200 branches affected by consolidation and divestiture, we will still have Number 1 branch here in Michigan by a factor of about 50%. So, it will be quite a bit larger than the next bank with physical distribution. So, that provides an enormous set of opportunities for us in terms of retention and we have had very high retention coming out of FirstMerit and other in-store branch consolidations. Remember, we consolidate about 4% of the franchise every year on average.

And so our retention efforts where we decide to drop remaining ATMs, outreach; we have a process we call white-glove treatment that's been well defined over the years and developed. A combination of those activities, the uniqueness of the product set, all day deposit, 24-hour grace, safety zone, things like that also give us a distinct retention advantage. So, we expect to have very high retention on the TCF side of the consumer and on the business side again better products, more capabilities as we go forward. But it starts with winning minds and hearts of our soon to be new colleagues and we're actively working on that. We would expect that would be successful as it was with FirstMerit. That will set up then this retention of customers through the conversion and beyond.

And the product menu just being substantially different, much more -- much bigger and better in many respects, will be to the benefit of the customer base; both consumer, small, and medium size businesses. So, we're very, very optimistic. On the specialty finance side, their equipment finance and ours is almost hand in glove. The combination will be extraordinarily effective and they have a great team. We think we do as well and this hand in glove will give us opportunities to further grow that business. We're excited about their inventory finance business. We have some great people in these business lines as well as in the Company generally and we're going to be a stronger Company as a consequence of the combination. So, very bullish about the expectations both on retention and revenue synergies as we go forward and we'll get the expense synergies largely complete this year.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. Thank you. That's very helpful. Zach, can you touch on mortgage expectations for the second quarter? I know it's kind of a mixed bag, but it looks like originations were pretty flat. What kind of thoughts you have for the next quarter?

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Yes. I don't have Q2 right in front of me, just broadly [Phonetic] margins and continues to meet expectations frankly and be very robust. I think overall for the full year expecting revenues to be down between 15% and 20% on a year-over-year basis just off of the torrid pace that 2020 represented. But most of that challenge really occurs in the second half of the year. Volumes continue to be very, very robust and I think just at an industry level, you've probably seen even Mortgage Banker Association sort of ratcheting higher its volume expectations for the year. I think if there is something that we're watching carefully it's the salable spread and that continues to be elevated above historical levels, but it can move quickly. So, we'll see. But so far it seems to be holding up relatively well also. So, that's the expectations that we've got.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, good Thank you, guys. Appreciate it.

Steve Steinour -- Chairman, President & Chief Executive Officer

Thanks, Jon.

Operator

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

Steve Steinour -- Chairman, President & Chief Executive Officer

Thank you for your questions and interest in Huntington. I'm pleased with our strong start to what will be an important year for Huntington as we execute on our strategic initiatives as well as close and integrate the TCF acquisition. I'm increasingly optimistic about the opportunities I see in 2021 and beyond and I'm confident of our ability to capitalize on the accelerating economic recovery. The disciplined execution of our strategies coupled with the pending acquisition set us up to grow revenue from a larger customer base from which we will deepen existing and acquired customer relationships resulting in top quartile financial performance. We have a strong foundation of enterprise risk management and deeply embedded stock ownership mentality, which aligns our Board, management, and colleagues. Again thank you for your support and interest. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Mark Muth -- Director of Investor Relations

Steve Steinour -- Chairman, President & Chief Executive Officer

Zach Wasserman -- Senior Executive Vice President & Chief Financial Officer

Derek Meyer -- Treasurer

Ken Zerbe -- Morgan Stanley -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Kenneth Usdin -- Jefferies -- Analyst

Scott Siefers -- Piper Sandler -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Bill Carcache -- Wolfe Research -- Analyst

Janet Lee -- JPMorgan -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

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