Fitch Affirms Huntington Bancshares L/T IDR at 'BBB+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Huntington Bancshares, Inc. (HBAN) and its bank subsidiary, Huntington National Bank (HNB) ratings at 'BBB+'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.

Fitch's affirmation of HBAN's IDR and Stable Outlook is supported by the company's improved capital and liquidity position, good core profitability, favorable asset quality performance and the view that operating trends are sustainable.

Operating performance has benefited from improved credit trends, which has reduced provisioning needs. Non-performing assets (NPAs; which includes restructured loans) were down by 20% to $1.46 billion compared to the third quarter of 2010 (3Q'10) and the net chargeoffs (NCOs) ratio also declined to 0.92% for 3Q'11 compared to 1.98% for 3Q'10. Although NCOs have exceeded provisions for the last five quarters, reserve coverage is solid at 2.61% of total loans for 3Q'11. That said, NPA ratio remains elevated when compared to historical standards at 3.75% for 3Q'11.

Nonetheless, HBAN's loan portfolio may experience some pressure should economic weakness persist, particularly in its home equity portfolio, which represents 21% of total loans and stood at $8.1 billion for 3Q'11. Fitch considers HBAN's home equity portfolio to be more challenged given Fitch's view that updated loan to values (LTVs) would likely reflect a large portion of loans with LTVs over 100% due to the impact of declining home prices. Moreover, Fitch expects home prices to decline by an additional 13% (nationally). Given expected continued depreciation in real estate values and economic uncertainties, Fitch believes this portfolio may experience greater losses than recent performance indicates. In Fitch's view, mitigants are certain characteristics of the home equity book such as the considerable percentage of high quality borrowers, mainly retail originated loans with broker channel accounting for less than 8% of outstandings, and its an exclusively footprint portfolio.

HBAN's capital position is considered a relative rating strength as tangible common equity (TCE) ratio stood at 8.22% and Tier 1 common risk-based capital ratio was 10.17%. Additionally, the company has improved the equity component of its capital structure over the last two years.

Holding company liquidity position is ample with $679 million in cash and liquid securities as of Sept. 30, 2011 compared to about $202 million (annually) of common and preferred dividends, and interest expense on trust preferred securities, with a debt service coverage ratio of roughly 3 times (x). Incorporated in Fitch's affirmation is the view that HBAN will continue to manage liquidity at the parent company prudently.

The Stable Outlook reflects Fitch's view that profitability will be sustainable at current levels. Although HBAN may experience further credit quality deterioration in the loan portfolio, particularly if economic weakness in its footprint persists, HBAN is operating with solid reserve coverage and capital that would support potential losses.

Fitch recognizes that HBAN has implemented strategies with a focus on growing its core revenues. Fitch would view positively material impact from these initiatives demonstrated by continued growth in pre-provision net revenues (PPNR) and improved operating metrics that would be considered sustainable. Currently, HBAN's financial measures are in-line with the average for large regional peers. Further, Fitch would view favorably improvements to the company's efficiency ratio and net interest margin (NIM).

Offsetting, Fitch would review its Outlook and/or ratings should the company's operating performance trend negatively in comparison to most recent periods. Further, Fitch will also focus on the performance of the home equity book. To the extent that delinquencies and/or NCOs trend higher and above the average run-rate for this book, this could negatively affect HBAN's ratings or Outlook. Additionally, Fitch would view negatively a decline in HBAN's capital position and/or weakened holding company liquidity position.

Simultaneously, Fitch announced in a separate release that it expects to assign a 'BB-' rating to HBAN's new issuance of preferred stock under its exchange offer for certain trust preferred securities.

Fitch notes that the preferred issuance is being rated under the proposed criteria discussed in Fitch's exposure draft, 'Rating Bank Regulatory Capital Securities' released July 28, 2011. Current ratings of HBAN's existing regulatory capital instruments such as preferred stock and trust preferred securities (listed below) are unaffected at this time, however these issues, along with hybrid issuances from all other banks rated by Fitch globally, would be addressed upon finalization of this criteria expected in December 2011.

Fitch has affirmed the following ratings with a Stable Outlook.

Huntington Bancshares, Incorporated

--Long-term Issuer Default Rating (IDR) at 'BBB+';

--Short-term IDR at 'F2';

--Individual rating at 'B/C';

--Viability rating at 'bbb+';

--Subordinated debt at 'BBB';

--Preferred stock at 'BBB-';

--Support at '5';

--Support Floor at 'NF'.

Huntington National Bank

--Long-term deposits at 'A-';

--Long-term IDR at 'BBB+';

--Individual rating at 'B/C'

--Viability rating at 'bbb+';

--Senior unsecured at 'BBB+';

--Subordinated debt at 'BBB';

--Short-term IDR at 'F2';

--Short-term deposits at 'F1';

--Senior unsecured debt FDIC gtd under TLGP at 'AAA';

--Short-term debt FDIC gtd under TLGP at 'F1+';

--Support at '5';

--Support Floor at 'NF'.

Huntington Capital I-III

--Preferred stock at 'BBB-'.

Sky Financial Capital Trust I-IV

--Preferred stock at 'BBB-'.

Sky Bank

--Subordinated debt at 'BBB'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);

--'Bank Holding Companies' (Aug. 16, 2011);

--'Treatment of Hybrids in Bank Capital Analysis' (July 11, 2011);

--'Rating Hybrid Securities' (Dec. 29, 2009);

--'Exposure Draft: Rating Bank Regulatory Capital Securities' (July 28, 2011);

--'U.S. Banks: M&A Activity and Risks on the Rise' (Jan. 26, 2011);

--'U.S. RMBS 2Q2011 Sustainable Home Price Projection' (Nov. 15, 2011);

--'U.S. Banks European Exposure' (Nov. 16, 2011).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Bank Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612

Treatment of Hybrids in Bank Capital Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269

Rating Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647091

Rating Bank Regulatory Capital Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647469

U.S. Banks: M&A Activity and Risks On the Rise

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=599786

U.S. RMBS 2Q 2011 Sustainable Home Price Projection

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656030

U.S. Banks ￢ﾀﾓ European Exposure (Direct Exposures to GIIPS Manageable, Contagion Risk Chief Concern)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656776

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