DBRS Confirms Huntington Bancshares Inc. at A (low); Trend Revised to Positive from Stable

DBRS, Inc. (DBRS) confirmed the ratings of Huntington Bancshares Inc. (Huntington or the Company), including the Company’s Long-Term Issuer Rating of A (low) and Short-Term Issuer Rating of R-1 (low). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, Huntington National Bank (the Bank). With the exception of the Company’s short-term ratings, the trend on all other ratings have been revised to Positive from Stable. The Intrinsic Assessment (IA) for the Bank is ‘A’, 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 confirmation and Positive trend reflects Huntington’s successful execution of its post-crisis strategy, having consistently achieved all its long-term financial goals, including positive operating leverage and top-tier returns, while maintaining a sound credit profile and building its franchise, which DBRS expects to continue. The ratings also consider an eventual shift in the current credit cycle and accompanying normalizing asset quality trends within the Company’s loan portfolio.

RATING DRIVERS
If Huntington continues to generate positive operating leverage, while maintaining sound balance sheet fundamentals, the ratings would likely be upgraded. DBRS does not see any near-term negative rating pressure, but a sustained weakening of balance sheet fundamentals and/or core earnings generation could lead to negative ratings actions.

RATING RATIONALE
Huntington’s ratings are supported by its well-established Midwestern banking franchise, particularly in Ohio, where it ranks second in deposit market share, holding 15% of the state’s total deposits, as well as ranking sixth in Michigan. Notably, the Company has dominant market share positions in Columbus (34% share), Akron (29%), Toledo (24%), and ranks second in Cleveland (14%), providing an ample source of deposit funding for its loan portfolio.

Overall, Huntington offers a diverse set of commercial and consumer products and services that 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. DBRS notes that the Company’s revenues are nicely diversified, with fee income sources typically contributing around 30% to 35% of total revenue.

For 2017, Huntington generated positive operating leverage for the fifth consecutive year, with profitability metrics outperforming most peers. Results benefited from solid loan growth, net interest margin expansion, improved fee income, with expenses remaining well-contained even with ongoing investments in the franchise. More recently, Huntington reported another strong quarterly performance with a return on average assets of 1.27% in 1Q18. Highlights from the quarter included strong, broad-based loan growth (up 2.2% from 4Q17) and good expense management (57% efficiency ratio), with the impact from a lower tax rate bolstering the bottom line.

Huntington’s balance sheet fundamentals remain strong, providing key support to the ratings. Specifically, the Company’s non-performing assets and net charge-offs remain at historically low levels, reflecting the favorable operating environment, disciplined underwriting and a very granular loan portfolio. Additionally, Huntington’s funding and liquidity profile remains strong, underpinned by a defensible and low-cost deposit base. During 1Q18, Huntington converted $363 million of 8.5% Series A preferred stock into common equity, and subsequently issued $500 million of Series E preferred stock. These actions boosted the Company’s capital metrics, including its CET1 ratio, which improved more than 40 basis points to 10.5%, above its operating range of 9.0% to 10.0%.

Huntington Bancshares Inc., a bank holding company headquartered in Columbus, Ohio, reported approximately $104 billion in assets at March 31, 2018.

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 applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Michael McTamney, CFA, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG – Global FIG
Initial Rating Date: 13 December 2006
Most Recent Rating Update: 2 August 2017

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

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