DBRS Confirms Huntington Bancshares, Inc. at A (low); Trend Placed on Negative

DBRS has today confirmed the ratings of Huntington Bancshares Inc. (Huntington or the Company) and its operating bank subsidiary, Huntington National Bank, including Huntington’s Issuer and Senior Debt rating at A (low) and Short-Term Instruments at R-1 (low). At the same time, DBRS has placed all of Huntington ratings on Negative Ratings trend. This action removes the ratings from Under Review with Negative Implications, where they were placed November 16, 2007.

DBRS commented that Huntington’s recent issuance of $569 million in convertible preferred stock and its decision to reduce its common dividend by 50% was the catalyst for resolving the Under Review with Negative Implications. DBRS commented that the additional capital raised, which will boost capital metrics by approximately 100 bps, should substantially offset the potential loss content of Huntington’s stressed Franklin Credit Management (Franklin) exposure.

The Negative Ratings trend indicates the potential for future negative rating actions, which could be triggered by the erosion of core portfolio (non-Franklin) asset quality, lack of consistent and sustainable revenue generation or the piercing of DBRS’s one-year threshold of income before provisions and taxes, and subsequent invasion of capital. The Negative trend also reflects DBRS’s concern over Huntington’s performance metrics, which have migrated to the bottom of its rated peer group over the past two years. Conversely, the restoration of Huntington’s asset quality and an improvement in core profitability could result in the restoration of a Stable trend. The confirmation of Huntington’s ratings reflects its strained asset quality, solid Midwest commercial and consumer banking franchise, deeply entrenched deposit base and acceptable capital and liquidity positions.

DBRS notes that Huntington’s high level of non-performing assets evidences the substantial overhang of potential future credit costs associated with its Franklin relationship. DBRS anticipates that this exposure contains substantial potential loss content, as the servicing of the Franklin exposure is dependent on the health of Franklin’s earning assets, which consists substantially of second and first lien scratch-and-dent loans. That said, DBRS notes that the Franklin exposure is currently performing and accruing interest. Further, although the company’s core loan portfolio remains relatively sound, DBRS comments that Huntington’s core asset quality could potentially suffer heightened levels of deterioration, especially within its residential construction and development portfolio, due to the continued downturn in the housing markets, a national economy leaning towards a recession and a geographic footprint that resides within the economically challenged Midwest.

On March 31, 2008, Huntington’s capital was acceptable and capital ratios were above regulatory well-capitalized levels. However, DBRS notes that the Company’s tangible common equity-to-tangible asset ratio continues to reflect in the bottom quartile of its rated peers. DBRS notes that this ratio did not benefit from the capital raise. Huntington’s liquidity remains adequate, as core deposits account for roughly 76% of net loans, combined with ample unused secured borrowing capacity from the Federal Home Loan Bank.

Huntington Bancshares, Inc, a bank holding company with headquarters in Columbus, Ohio, reported $56 billion in assets at March 31, 2008.

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