DBRS Morningstar Confirms Huntington Bancshares Inc. Long-Term Issuer Rating at ‘A’; Stable Trend

DBRS, Inc. (DBRS Morningstar) confirmed the credit 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 credit ratings of its primary banking subsidiary, Huntington National Bank (the Bank). The trend for all credit ratings at the Company and the Bank remain 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 CREDIT RATING CONSIDERATIONS
Huntington’s credit ratings and Stable trend reflect its diversified and strong banking franchise, which includes a retail banking presence in 11 states, a successful vehicle finance business, a growing payments business, and a commercial banking presence targeting specific industry verticals. Overall, the business mix results in strong pre-provision profitability, including a growing level of non-interest income. The credit ratings are also supported by Huntington’s strong balance sheet, including ample core deposit funding and liquidity, as well as sound capital levels.

The credit ratings also consider the current operating environment and the expectation that asset quality metrics will likely worsen from their current low levels. However, we expect previous steps to de-risk the loan portfolio and enhance the risk management process will serve Huntington well in a more challenging economic environment.

CREDIT RATING DRIVERS
If Huntington continues to successfully build its franchise, showing top tier financial performance and increased revenue diversification, including higher levels of non-interest income, without increasing its risk appetite, the credit ratings would be upgraded. Conversely, a downgrade of credit ratings would arise from a sustained decline in core profitability levels or a significant deterioration in asset quality.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Strong/Good
Huntington operates 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 17th largest U.S. bank by deposits and is the leading SBA lender nationally.

Earnings Combined Building Block (BB) Assessment: Strong/Good
The Company’s earnings power remains solid, supported by a well-contained expense base. However, earnings are somewhat more reliant on spread income than some regional bank peers. Recent results have reflected continued net interest income growth although the net interest margin has begun contracting from recent highs. For 3Q23, Huntington reported a strong adjusted ROTCE approaching 20% and an efficiency ratio of 57%.

Risk Combined Building Block (BB) Assessment: Strong
Huntington’s risk profile is considered Strong reflecting de-risking post financial crisis, including a lower level of CRE in the loan portfolio as the Company targets a moderate to low risk profile. Additionally, the Company has historically performed well, and better than peers, in Federal Reserve stress tests. Recent results include some expected normalization of asset quality trends from still very low levels of net charge-offs. Reserve coverage to total loans remains sound at approximately 1.96%. We do expect asset quality metrics to continue to normalize from their current low levels.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Strong funding and liquidity is supported by an ample core deposit base and sizable level of high-quality investment securities. The Company’s loan to deposit ratio stood at 81% at September 30, 2023 anchoring the strong funding profile. Despite the more difficult environment, Huntington has been able to continue to grow deposits while keeping deposit betas roughly in-line with the industry.

Capitalization Combined Building Block (BB) Assessment: Strong/Good
Capitalization remains sound, including a CET1 ratio of 10.10% at September 30, 2023, providing solid loss absorption capacity. The Company has a targeted a medium term CET1 capital range of 9.0% to 10.0%. The Company has been building CET1 capital levels in anticipation of heightened regulatory capital requirements.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/423486/huntington-bancshares-inc-intrinsic-assessment-framework.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (July 4, 2023)

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

The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 23, 2023): https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors (July 4, 2023).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar did have access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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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