In the third quarter, Huntington Bancshares earned $160 million, or $0.19 per diluted share. Compared with the prior quarter, net income jumped by 10%, largely thanks to a nonrecurring tax benefit of $20 million ($0.02 per share). The Ohio lender’s results were in line with our most recent revisions and we are leaving our $7.50 per share fair value estimate unchanged.

As we have seen across the board, despite some loan growth, Huntington’s net interest income did not surprise to the upside. Prices for loans are still very low due to competitive pressure and the low rate environment. Furthermore, liabilities’ yields have fallen at a much slower pace and are close to the bottom. Thus, in the near term, we anticipate interest margins falling or remaining stable at best. Third-quarter net interest margin was 3.38%, down from 3.42% in the second quarter.

In terms of credit quality, we saw the improving trend continue at Huntington. While the fall in nonperforming assets was much smaller than before (3% sequentially), loan losses, while somewhat uneven, very likely will not spike unexpectedly. Excluding a charge due to new regulatory guidelines, net charge-offs were actually down a bit.

Even including these extra charges, in our view, net charge-offs were manageable at 1.05% of loans (0.72% without the charges, by our calculations), up from 0.82% in June. To be sure, the bank has more than enough loan-loss reserves to cover its charge-offs without a jump in provisions since allowances cover nonperforming loans by a ratio of 1.8 times.

Analysts like that Huntington’s profitability has increased in the last few quarters. Between July and September, return on equity was 11.9% (vs. 11.1% in the second quarter). Going forward, many think that ROEs will stabilize between 11% and 12%. This should allow the bank to comfortably pay its $0.04 quarterly dividend and continue with its share buybacks without placing any stress on Huntington’s its capital position. At quarter-end, Huntington’s tangible common equity was 8.7% as we calculate it (up from 8.3% in June), which is adequate.


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