DBRS Morningstar Confirms Huntington Bancshares Inc. at ‘A’, Trend Revised to Negative

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Huntington Bancshares Inc. (Huntington or the Company), including the Company’s Long-Term Issuer Rating of ‘A’. At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Huntington National Bank (the Bank). The trend for all long-term ratings at the Company and all ratings at the Bank were revised to Negative from Stable. The Intrinsic Assessment (IA) for the Bank is A (high), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The Negative trend reflects the wide and growing scale of the economic disruption resulting from the Coronavirus Disease (COVID-19) pandemic, which is expected to pressure Huntington’s earnings and asset quality. DBRS Morningstar notes that Huntington’s loan portfolio remains highly granular and diversified, although with exposure to small businesses and other industries that may be adversely impacted during the downturn. Nevertheless, unprecedented support measures have been put in place through monetary and fiscal stimulus, as well as relaxed criteria from regulators, which in our view, could help mitigate some of the negative impact of the crisis. However, should the crisis be prolonged, or if the recovery is muted, additional ratings pressure is likely.

The confirmation of the ratings reflects Huntington’s solid regional bank franchise and strong levels of pre-provision earnings. The ratings also consider Huntington’s strong liquidity position, core deposit funding and sound capital position.

RATING DRIVERS
Given the Negative trend, an upgrade of the ratings is not currently anticipated. However, DBRS Morningstar would revise the trend back to Stable if the economic fallout from the coronavirus pandemic is not prolonged and the Company’s performance is aligned with similarly-rated peers. Over the longer term, increased scale of operations and further revenue diversity would likely lead to an upgrade of ratings.

Conversely, a downgrade of ratings would arise from a sustained decline in profitability levels or significant deterioration in asset quality.

RATING RATIONALE
Huntington’s ratings are supported by its firmly entrenched regional banking franchise with a branch footprint in seven contiguous Midwestern states. Huntington has a particularly strong position in its home state of Ohio, where it ranks first in branch count and third in deposit market share, holding 15% of the state’s total deposits. Huntington offers a diverse set of commercial and consumer products and services, some of which are offered beyond its footprint. This is highlighted by an extensive and long-tenured auto finance and dealer services business, which currently serves 23 states, spanning the Midwest, Northeast and South regions.

Huntington is entering into the economic downturn from a position of strength, including sound levels of pre-provision earnings, as well as capital. Huntington generated positive operating leverage for the seventh consecutive year in 2019, with profitability metrics outperforming most peers (1.31% return on assets (ROA) in 2019). Despite the already challenging environment in 1Q20, the Company was still able to grow pre-provision earnings 2% year-over-year aided by holding expenses flat. However, DBRS Morningstar expects revenues to be lower in future quarters, as the net interest margin is pressured, fees are waived economic activity slows and credit costs rise.

Huntington maintains a very granular and well-diversified loan portfolio that is split evenly between commercial and consumer lending. Credit performance going into the current downturn has been strong. Notably, Huntington has consistently performed well in the Federal Reserve’s annual stress tests, reflecting in part the de-risking of the loan portfolio post financial crisis. However, Huntington has identified $8.3 billion (or 10.6% of total loans) of commercial loans, including oil & gas exposures, that may be more adversely impacted in the current environment. The Company has built reserves, reflecting the economic outlook, as well as the adoption of CECL. Huntington’s allowance for credit losses represented 2.05% of loans and leases at March 31, 2020, above the peer median. Huntington’s capital levels remain sound, including its 9.5% CET1 ratio at the end of 1Q20, which stands in the middle of the Company’s targeted range of 9% to 10%.

Huntington, a bank holding company headquartered in Columbus, Ohio, reported approximately $114 billion in assets at March 31, 2020.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for Huntington are as follows: Franchise Strength –Strong; Earnings Power – Strong/Good; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Strong/Good.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 11, 2019): https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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