DBRS Morningstar Revises Huntington’s Trend to Stable; Confirms at ‘A’

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 Stable from Negative. 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 ratings confirmation and revision of the trend back to Stable reflects the solid performance of the Company through the pandemic, with a highly manageable asset quality impact. The ratings also consider Huntington’s strong funding and liquidity and sound capital position. Additionally, the TCF Financial Corporation (TCF) acquisition was completed in June 2021 and the integration is going as planned. DBRS Morningstar views TCF as a sound strategic fit that enhances Huntington’s regional banking franchise, while improving profitability metrics. The mostly in-market acquisition offers significant cost saves, which are expected to be fully realized in 2022, with revenue enhancement likely, as Huntington overlays its broader product set to the expanded customer base. The ratings also consider our expectation that asset quality will likely worsen from their current unsustainably low levels.

RATING DRIVERS
Over the longer term, if Huntington continues to build its franchise, showing increased revenue diversification, including higher levels of non-interest income, without increasing its risk appetite, the ratings would be upgraded. Conversely, a downgrade of ratings would arise from a sustained decline in core profitability levels, a significant deterioration in asset quality, or more aggressive capital management.

RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Strong/Good
The Company has a strong Midwestern focused banking franchise with significant regional density and scale of operations offering a diverse product set, including commercial, small business, consumer, and mortgage banking services, as well as automobile financing, equipment leasing, investment management, trust and brokerage services. HBAN ranks as the 15th largest U.S. bank by deposits.

Earnings Combined Building Block (BB) Assessment: Strong/Good
The underlying earnings power remains solid, supported by a well-contained expense base. However, earnings are more reliant on spread income than some regional bank peers. Recent results have been affected by the acquisition of TCF, however underlying results have been strong and are expected to improve, as the Company realizes the full cost savings associated with the acquisition in 2022. For 3Q21, Huntington reported a strong adjusted ROTCE of nearly 18% and an efficiency ratio of 61%.

Risk Combined Building Block (BB) Assessment: Strong/Good
Huntington has a sound risk profile, reflecting, in part, its post financial crisis de-risking, including a lower level of CRE in the loan portfolio, consistent with its moderate to low risk profile target. Additionally, the Company has historically performed well in Federal Reserve stress tests. Recent results, which are similar across the industry, include low and declining levels of non-performing assets and a low level of net charge-offs. Despite some reserve releases, reserve coverage to total loans remains sound at approximately 2%.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
The Company has strong funding and liquidity, supported by an ample core deposit base and sizable level of high-quality investment securities. The Company’s loan to deposit ratio stood at 78% at September 30, 2021.

Capitalization Combined Building Block (BB) Assessment: Strong/Good
Capitalization remains sound, including a CET1 ratio of 9.6% at September 30, 2021, providing solid loss absorption capacity. The Company has a targeted CET1 capital range of 9.0% to 9.5% and expects to manage to the low end of that range over the near term. Post-acquisition, the Company has resumed stock buybacks and has raised the common stock dividend.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/389509.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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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