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

DBRS, Inc. (Morningstar DBRS) 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, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, Huntington National Bank (the Bank), including its Long-Term Issuer Rating of A (high). The trend for all credit ratings is 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 across 11 states throughout the Midwest, with top five deposit market share in nearly 70% of the MSAs in its footprint. In addition, recent geographic expansion initiatives into the Carolinas and Texas are showing early promise, though are still nascent at this stage. Huntington has a highly diversified commercial lending franchise, which includes leading positions in several national specialty verticals including franchise and equipment finance, and the Company is also a leading SBA lender. Huntington also has a full suite of fee income businesses, including Wealth, Payments, and Capital Markets, which have become a more meaningful source of revenue, although current levels of non-interest income still lag some peers. 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 somewhat uncertain near-term economic outlook, including some modest weakening in some economic indicators, and the changing interest rate environment given the recent Fed pivot from tightening to loosening. An inability of the Fed to achieve the "soft landing" scenario may lead to weakening asset quality and profitability from current levels. However, Huntington's diverse business mix, high quality loan book with limited exposure to some of the most problematic credits (i.e. Office CRE), and strong core relationship deposit generation capabilities position the Company well to manage through the current environment.

CREDIT RATING DRIVERS
If Huntington continues to demonstrate strong organic growth, improved profitability and increased revenue diversification, without increasing risk appetite, the credit ratings would be upgraded. Conversely, a downgrade of the 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 has a strong and defensible franchise, with top five market share in nearly 70% of the MSAs across its 11 state footprint throughout the Midwest. The Company offers a diverse product set across commercial, small business, consumer, and mortgage banking services, as well as leading asset finance business with national scale. Recent geographic expansion initiatives in the Carolinas and Texas are showing solid initial progress.

Earnings Combined Building Block (BB) Assessment: Strong / Good
Huntington's underlying earnings power remains solid, supported by a diverse set of revenue streams and well-contained expense base. Strategic steps have been taken to bolster fee income, particularly across Payments, Wealth and Capital Markets, though the Company's earnings remain more reliant on spread income than many peers. The Company's Q3 2024 results included a ROA of 1.04% and ROACE of 10.8%, placing them in the middle of the pack for similarly-sized peers.

Risk Combined Building Block (BB) Assessment: Strong
Huntington's risk profile remains sound, reflecting de-risking post financial crisis. The Company has less exposure than most peers to Investor CRE with CRE representing just 9.1% of total loans and only 1.3% of total loans secured by office properties. Huntington has built reserve levels and the Company's asset quality metrics have been consistently among the best in its peer group. Additionally, Huntington performs well in the Federal Reserve's CCAR stress testing, with loan losses as a percentage of average total loans remaining at the low-end of peers.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Huntington has differentiated itself through the recent rate hiking cycle by achieving solid core relationship deposit growth, while peer deposit growth has been stagnant. Liquidity levels are strong; however, the Company does have a relatively low proportion of noninterest bearing deposits when compared to peers.

Capitalisation Combined Building Block (BB) Assessment: Strong / Good
Morningstar DBRS views Huntington's capitalization levels as solid. The Company generates significant capital and has stayed out of the buyback market, choosing to keep dry powder for organic growth. Regulatory capital ratios, including the CET1 ratio of 10.4% as of September 30, 2024, are being maintained at slightly above long-term target levels in anticipation of the start of the phase-in of Basel III rules, which will likely require inclusion of AOCI in capital, in addition to some other minor RWA impacts. Huntington has indicated that if AOCI was included in its regulatory capital as of September 30, 2024, that its CET1 ratio would have been 8.9%. Performance in the latest round of Fed stress tests was strong, with Huntington's Stress Capital Buffer improving to the 2.5% regulatory minimum.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/442874.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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 04, 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

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

The primary sources of information used for these credit ratings include Morningstar Inc. and company documents Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings 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.

Morningstar DBRS had 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. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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