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Huntington (HBAN) Q3 Earnings Top Estimates, Expenses Up

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Huntington Bancshares’ (HBAN - Free Report) third-quarter 2020 earnings per share of 27 cents outpaced the Zacks Consensus Estimate of 25 cents on impressive top-line strength. The bottom-line figure, however, comes in 21% lower than the prior-year quarter reported tally.

Increase in revenues aided by high net interest and non-interest income drove the results. Notably, a rise in mortgage banking revenues and an increase in average earnings assets acted as driving factors. Further, improvement in loans and deposits was another positive.

However, results were adversely impacted by higher credit provisioning due to the bleak economic conditions. Moreover, elevated expenses were an undermining factor. Also, pressure on margin, due to low rates, was a major drag.

The company reported net income of $303 million for the quarter, which slipped 19% year over year.

Revenues Up, Expenses Escalate, Loans & Deposits Inch Up

Total revenues climbed 5% year over year to $1.25 billion in the third quarter. Additionally, the top-line figure surpassed the Zacks Consensus Estimate of $1.23 billion.

Net interest income (FTE basis) was $822 million, up 2% from the prior-year quarter. This upside resulted from an increase in average earnings assets, partly offset by a lower net interest margin (NIM). Further, net interest margin (NIM) contracted 24 basis points to 2.96%.

Non-interest income climbed 11% year over year to $430 million. This upswing mainly stemmed from an increase in almost all components of income, partly muted by lower capital market fees, service charges on deposit account, bank owned life insurance income and other non-interest income. Notably, mortgage banking income more than doubled.

Non-interest expenses rose 7% on a year-over-year basis to $712 million. This was chiefly due to higher personnel costs, outside data processing and other service costs, occupancy and equipment expenses, partly negated by lower professional services, amortization of intangibles, marketing, deposit and other insurance expense along with other costs.

Efficiency ratio was 56.1%, up from the prior-year quarter’s 54.7%. A rise in ratio indicates a fall in profitability.

As of Sep 30, 2020, average loans and leases at Huntington increased marginally on a sequential basis to $80.5 billion. Moreover, average total deposits increased 2% from the prior quarter to $95.1 billion.

Credit Quality Disappoints

Net charge-offs were $113 million or an annualized 0.56% of average total loans in the reported quarter, up from the $73 million or an annualized 0.39% recorded in the prior year. Furthermore, the quarter-end allowance for credit losses more than doubled to $1.88 billion.

Provision for credit losses went up significantly on a year-over year basis to $177 million on the coronavirus crisis. In addition, total non-performing assets totaled $602 million as of Sep 30, 2020, up 24.9%.

Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.89% and 12.37%, respectively, compared with the 10.02% and 11.41% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.27%, down from 8% as of Sep 30, 2019. Return on average assets and average common equity was 1.01% and 10.2%, respectively, compared with the 1.37% and 13.4% recorded in the prior-year quarter.

Outlook for 2020

Revenues are expected to increase about 3-3.5% from 2019. Non-interest expenses are anticipated to be up 2-2.5% year over year.

Management expects average loans and leases to climb rise about 6% year over year.  Average total deposits are expected to jump around 10%.

A challenging economic environment is likely to unfavorably impact asset quality.  Net charge???offs are expected to be 50-55 bps, affected by the oil & gas portfolio.

Our Viewpoint

Huntington put up a decent performance during the July-September period. Though the company displayed continued efforts in increasing loan and deposit balances, margin pressure and elevated expenses remain concerns. Apart from this, deteriorating credit metrics on higher provisions due to the coronavirus crisis is another headwind.

Nevertheless, the company, which has a solid franchise in the Midwest, is focused on capitalizing on its growth opportunities. Additionally, higher net interest income and mortgage banking income will likely continue being driving factors.

Currently, Huntington carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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First Republic Bank (FRC - Free Report) delivered a positive earnings surprise of 16.7% in the third quarter on solid top-line strength. Earnings per share of $1.61 outpaced the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter. Results were supported by an increase in NII and fee income. Yet, higher expenses and elevated provisions were offsetting factors.

Regions Financial (RF - Free Report) reported third-quarter 2020 adjusted earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, results compared favorably with the prior-year period earnings of 39 cents. Results were driven by higher revenues on increases in both NII and fee income. Furthermore, rise in deposit balances provided some respite. Notably, mortgage income and capital markets income were on an upswing. Nevertheless, higher provisions for credit losses and rise in expenses were undermining factors.

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