HUNTINGTON BANCSHARES INCORPORATED
Fitch Ratings has affirmed the Long- and Short-Term Issuer Default Ratings (IDR) of
The Rating Outlook remains Stable. The Viability Rating (VR) was also affirmed at 'a-'.
Fitch has withdrawn
Key Rating Drivers
Affirmation Reflects Strengths: The affirmation of HBAN's rating and Stable Outlook reflects HBAN's resilient core performance, diverse business model and growing franchise following the acquisition of
Diverse Business Model; Deepening Franchise in Footprint: HBAN benefits from a high degree of diversity in its business model with lending evenly split between commercial and consumer, the latter including significant positions in indirect auto and RV/marine vehicle lending. Additionally, the bank provides wealth management, private banking and asset management services. HBAN continues to improve its franchise in its Midwestern footprint, most recently through the acquisition of
Risk Profile Appropriate for Rating: Fitch views HBAN's underwriting standards and risk controls as appropriate and commensurate with the size and complexity of the institution. The bank has continually tightened credit standards over the last decade and worked to de-risk volatile portions of the loan portfolio, such as oil and gas. Organic loan growth has been modest and is expected to remain controlled over the rating horizon.
Benign Asset Quality; Normalization Expected: HBAN's credit performance remains solid through 1H22, with impaired loans to gross loans falling below the bank's four-year average and credit costs well below historical levels. However, Fitch expects normalization in credit metrics driven by rising interest rates and inflationary pressures, which could lead to an economic downturn over the rating horizon.
Earnings Stabilized; Improved NIM Expected: HBAN's operating profitability to risk weighted assets (RWA) stabilized in 2021 and, in 1H22, returned to pre-pandemic levels. With further interest rate hikes expected, HBAN stands to see strong gains in net interest income (NII) through 2H22 and into 2023. HBAN continues to build on its revenue diversity, with investments in capital markets and payments capabilities.
Capital Lower; Expected to Build Back Following Acquisition: HBAN's capital profile remains solid given the bank's risk profile. However, common equity Tier 1 (CET1) ratio declined, following the acquisition of TCF in 2021, to the lower quartile of its stated operating range. Given HBAN's strong capacity for capital accretion, Fitch expects the bank will rebuild CET1 toward the middle of said range by YE22.
Deposit Growth Moderate on Rising Interest Rates: HBAN's liquidity remains solid, with deposit levels remaining elevated from pre-pandemic levels. The bank experienced modest deposit growth in 1H22 and deposit betas were held low despite rising interest rates. Fitch expects deposit betas and thus deposit costs to increase over the rate cycle, but anticipates these funding cost increases will be manageable for HBAN.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative pressure could be placed on HBAN's rating should there be evidence of outsized deterioration in the level or volatility of earnings, relative to peers. Likewise, a significant deterioration in asset quality could drive negative rating action. A rapid increase in impaired loans to gross loans in the portfolio or an outsized level of credit losses in consumer lending would create pressure on the bank's ratings.
Fitch expects HBAN to manage CET1 within its target range of 9%-10%. If CET1 were to drop outside of this range, absent a credible plan to build levels back into this range, the bank's rating would likely be adversely affected.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
In Fitch's view, HBAN's ratings are well situated and have limited upside over the rating horizon, given performance in line with similarly rated peers and the bank's forecast capital position. Over time, upward rating action could occur if HBAN were to demonstrate consistent and sustained earnings performance in line with higher rated peers, reflecting in both quantity and quality of earnings through improvement in revenue diversity over time. Additionally, this would require HBAN to strengthen its capital position above current target ranges and maintain its prudent risk appetite and solid asset quality.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long- and Short-Term Deposit Ratings:
HBAN's preferred stock rating of 'BB+' is notched four levels below HBAN's VR, two times for loss severity and two times for non-performance. HBAN's trust preferred securities are notched four levels below its VR, two times 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.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings of HBAN's subordinated debt, preferred securities and trust preferred securities are sensitive to any negative change to its VR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings of HBAN's subordinated debt, preferred securities and trust preferred securities are sensitive to any positive change to its VR.
VR ADJUSTMENTS
The Viability Rating (VR) has been assigned in line with the implied VR.
The Capitalization and Leverage score of 'a-' has been assigned higher than the implied score of 'bbb' due to a positive adjustment for internal capital generation and growth.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means 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 Score, visit www.fitchratings.com/esg.
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