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HU3 - Huntington Bancshares Inc News Story

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Sector
Financials
Size
Large Cap
Market Cap £7.29bn
Enterprise Value £15.15bn
Revenue £3.56bn
Position in Universe 117th / 1040

Fitch Affirms Huntington Bancshares at 'A-'; Outlook Stable

Mon 9th December, 2019 8:38pm
(The following statement was released by the rating agency)


Fitch Ratings-Chicago-December 09: 

Fitch Ratings has affirmed the Long-Term and Short-Term Issuer Default Ratings 
(IDRs) of Huntington Bancshares, Inc. (HBAN) at 'A-'/'F1' with a Stable Outlook. 
The affirmation reflects HBAN's consistent earnings performance, stable 
liquidity and solid asset quality. 

Huntington Bancshares Incorporated; Long Term Issuer Default Rating; Affirmed; 
A-; RO:Sta

; Short Term Issuer Default Rating; Affirmed; F1

; Viability Rating; Affirmed; a-

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

----senior unsecured; Long Term Rating; Affirmed; A-

----subordinated; Long Term Rating; Affirmed; BBB+

----preferred; Long Term Rating; Affirmed; BB

Huntington National Bank, The; Long Term Issuer Default Rating; Affirmed; A-; 
RO:Sta

; Short Term Issuer Default Rating; Affirmed; F1

; Viability Rating; Affirmed; a-

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

----senior unsecured; Long Term Rating; Affirmed; A-

----long-term deposits; Long Term Rating; Affirmed; A

----short-term deposits; Short Term Rating; Affirmed; F1

Huntington Capital I

----preferred; Long Term Rating; Affirmed; BB+

Huntington Capital II

----preferred; Long Term Rating; Affirmed; BB+

Sky Financial Capital Trust III

----preferred; Long Term Rating; Affirmed; BB+

Sky Financial Capital Trust IV

----preferred; Long Term Rating; Affirmed; BB+

Key Rating Drivers

IDRS, SENIOR DEBT  VR

HBAN's ratings affirmation is supported by the company's solid financial 
profile, including consistent earnings performance, a stable funding profile and 
sound asset quality, in-line with 'A-' rated large regional peers. 

HBAN's earnings performance has improved over the past two years, driven by loan 
growth, low credit costs, net interest margin (NIM) expansion during the rate 
hike cycle and expense take outs, largely associated with the FirstMerit (FMER) 
acquisition. Pre-provision net revenue increased to 1.92% in third-quarter 2019 
(3Q19) from 1.63% of average assets in 3Q17. NIM peaked at the end of 2018 at 
344 bps, but has experienced some contraction as the Federal Reserve began 
cutting interest rates.

HBAN's liquidity and funding profile remains stable. At the end of 3Q19, the 
bank's loan to deposit ratio held steady at approximately 92%. Likewise, the 
usage of wholesale funding to total funding remains in line with historical 
usage and below the peer group average. HBAN's cost of funds, which had been 
steadily increasing since interest rates began rising in 2015, stabilized in 
mid-2019 and has remained below the peer group median. The portion of funds in 
non-interest bearing accounts has decreased over this same time period from 
approximately 30% to just over 25%, where it has been stable for the past six 
quarters. Additionally, the company has access to multiple sources of liquidity, 
including the capital markets, if necessary.

Loan growth at HBAN has moderated from the past several years. As of Sept. 30, 
2019, yoy organic loan growth was 2.1%. Growth continues to be focused on 1-4 
family residential lending and recreational/marine vehicle lending at 7.5% and 
12.7% year over year growth, respectively. In line with the peer group, credit 
costs have begun to increase over the past year, but remain well below long-term 
averages. The bank has noted that it is targeting a through-the-cycle range of 
35 to 55 bps, of which it is currently at the low end. Nonperforming assets 
remain near cyclical lows. While indirect auto remains a significant portion of 
HBAN's portfolio, growth has been limited over the past year. Fitch views HBAN's 
expertise in indirect auto favorably, as the focus on strong borrowers has led 
to better credit quality than generally observed in indirect auto and HBAN has a 
proven record of securitizations in this space, given the company access to an 
additional source of liquidity if necessary. 

Fitch considers HBAN's capital levels to be adequate given the bank's risk 
profile. The CET1 ratio of 10.02% is in line with the peer group median. 
Additionally, HBAN has historically demonstrated both the willingness and 
ability to internally generate capital, such as after the FMER acquisition drove 
CET1 down to approximately 9%.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

HBAN's subordinated debt is notched one level below its VR for loss severity. 
HBAN's preferred stock is notched five levels below its VR, two times for loss 
severity and three times for non-performance. HBAN's trust preferred securities 
are notched two times from the VR for loss severity and two times for 
non-performance.

These ratings are in accordance with Fitch's criteria and assessment of the 
instruments non-performance and loss severity risk profiles and have been 
affirmed due to the affirmation of the VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

HBAN's uninsured deposit ratings are rated one notch higher than the bank's IDR 
and senior unsecured debt because U.S. uninsured deposits benefit from depositor 
preference. U.S. depositor preference gives deposit liabilities superior 
recovery prospects in the event of default.

HOLDING COMPANY 

HBAN's VR is equalized with those of its operating companies and banks, 
reflecting its role as the bank holding company, which is mandated in the U.S. 
to act as a source of strength for its bank subsidiaries. Ratings are also 
equalized reflecting the very close correlation between holding company and 
subsidiary failure and default probabilities.

SUPPORT RATING AND SUPPORT RATING FLOOR 

HBAN has a Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF'. In 
Fitch's view, the probability of support is unlikely. IDRs and VRs do not 
incorporate any support.

RATING SENSITIVITIES

IDRS, SENIOR DEBT  VR

If Fitch's view, HBAN's ratings are well situated and have limited upside 
potential over the near- to intermediate-term given performance in-line with 
similarly rated peers and the bank's forecasted capital position.

Upwards rating action could occur if HBAN were to demonstrate consistent and 
sustainable earnings performance in-line with higher rated peers, as well as 
increase revenue diversification, all while strengthening the capital position 
above the current target ranges and maintaining a high level of asset quality 
and a solid liquidity profile. Should HBAN prove to be a positive outlier in the 
next credit downturn, it would be supportive of this view.

Capital management, either through acquisitions or pay-outs, that result in 
sustained capital levels below that of similarly rated peers could create 
downward rating pressure. Additionally, HBAN's current rating incorporates 
Fitch's view that asset quality metrics will experience some deterioration as 
credit conditions begin to normalize. But, if HBAN's credit quality were to 
deteriorate more rapidly than similarly rated peers, downward rating action 
could occur.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for HBAN's and its operating companies' subordinated debt, trust 
preferred securities and preferred stock are sensitive to any change to the VR.

The ratings for HBAN's subordinated debt and preferred stock are sensitive to 
any change to the VR. In addition, ratings would also be sensitive to Fitch's 
recently published 'Exposure Draft: Bank Rating Criteria' (Nov. 15, 2019), which 
contemplates potential changes to the notching of hybrid issuances.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The Long- and Short-Term Deposit ratings are sensitive to any change to HBAN's 
Long- and Short-Term IDR. The Short-Term Deposit rating would also be sensitive 
to a decrease in the bank's Funding and Liquidity Factor score.

HOLDING COMPANY 

Should HBAN's holding company begin to exhibit signs of weakness, demonstrate 
trouble accessing the capital markets, or have inadequate cash flow coverage to 
meet near-term obligations, there is potential that Fitch could notch the 
holding company VR from the ratings of the operating companies.

Ratings would also be sensitive to Fitch's recently published Exposure Draft: 
Bank Rating Criteria (15 November 2019), which contemplates potential changes to 
the notching approach of the Long-Term IDRs and Senior Debt of banks and related 
subsidiaries.

SUPPORT RATING AND SUPPORT RATING FLOOR

Since HBAN's Support and Support Rating Floors are '5' and 'NF', respectively, 
there is limited likelihood that these ratings will change over the foreseeable 
future.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit 
relevance is a score of 3. ESG issues are credit neutral or have only a minimal 
credit impact on the entity, either due to their nature or the way in which they 
are being managed by the entity.

For more information on Fitch's ESG Relevance Scores, visit 
www.fitchratings.com/esg.

Contacts: 

Primary Rating Analyst

Brian Thies, 

Associate Director

+1 312 606 2316

Fitch Ratings, Inc.

One North Wacker Drive 

Chicago 60602

Secondary Rating Analyst

Julie Solar, 

Senior Director

+1 312 368 5472

Committee Chairperson

Christopher Wolfe, 

Managing Director

+1 212 908 0771

 

Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email: 
hannah.james@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Bank Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044408

Exposure Draft: Bank Rating Criteria (pub. 15 Nov 2019)

https://www.fitchratings.com/site/re/10101980

Short-Term Ratings Criteria (pub. 02 May 2019)

https://www.fitchratings.com/site/re/10073011

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10104566

Solicitation Status 

https://www.fitchratings.com/site/pr/10104566#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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