DBRS Upgrades Huntington Bancshares Inc. to A; Trend Now Stable

DBRS, Inc. (DBRS) upgraded most of the ratings of Huntington Bancshares Inc. (Huntington or the Company), including the Company’s Long-Term Issuer Rating to ‘A’ from A (low). The trend on all ratings is now Stable. The Intrinsic Assessment (IA) for the Bank was raised one notch, to A (high) from ‘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 upgrade reflects Huntington’s sustained top-tier financial performance, while maintaining a sound credit profile and strengthening its franchise. DBRS sees Huntington as well positioned to achieve similar results going forward. The ratings also consider the Company’s less diversified revenue mix that is more reliant on spread income than similarly rated peers, as well as a slowing U.S. economy and expected normalizing credit quality trends within the Company’s loan portfolio over time.

RATING DRIVERS
Given the recent rating action, DBRS views additional positive rating action over the intermediate term as unlikely. Over the longer term, increased scale of operations and further revenue diversity could lead to positive rating pressure. Conversely, sustained weakening of credit fundamentals and/or core earnings generation could lead to negative ratings actions.

RATING RATIONALE
Huntington’s ratings are supported by its firmly entrenched Midwestern banking franchise, particularly in Ohio, where it ranks second in deposit market share, holding 16% of the state’s total deposits, as well as ranking sixth in Michigan. Of note, the Company has dominant deposit market share positions in Columbus (39% share) and Akron (28%) and ranks second in Cleveland (14%), providing an ample, low-cost source of funding for the loan portfolio.

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 sufficiently diversified, with fee income sources typically contributing around 30% of total revenue.

Huntington maintains a very granular and well-diversified loan portfolio that is split evenly between commercial and consumer lending. Credit performance continues to be strong, with net charge-off rates remaining within or below the Company’s through-the-cycle target range. Notably, Huntington has consistently performed well in the Federal Reserve’s annual stress tests. In the 2018 exercise, the Company’s cumulative losses were third best among traditional commercial banks. Huntington’s capital levels remain sound, including its 9.8% CET1 ratio at the end of 1Q19, which stands well within its targeted range of 9% to 10%.

Huntington generated positive operating leverage for the sixth consecutive year in 2018, with profitability metrics outperforming most peers (1.33% return on assets (ROA) in 2018). Results benefited from solid loan growth, net interest margin expansion, stable fee income, with expenses remaining well-contained even with ongoing investments in the franchise.

Having achieved all five of its long-term financial goals on a reported basis in 2018, which was two years ahead of schedule, management implemented new long-term targets, including improving its efficiency ratio by 300 basis points (to 53% to 56%) and return on tangible common equity (ROTCE) by 300 basis points (to 17% to 20%).

Huntington Bancshares Inc., a bank holding company headquartered in Columbus, Ohio, reported approximately $108 billion in assets at March 31, 2019.

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 (July 2018), 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.

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

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

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