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Huntington Bancshares

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Thursday reported third-quarter net income applicable to common shareholders of $71.5 million, or 10 cents a share, beating the consensus of 7 cents among analysts polled by Thomson Reuters.

Earnings applicable to common shareholders exclude $29.5 million in dividends on preferred shares, including $1.4 billion held by the Treasury for bailout assistance through the Troubled Assets Relief Program.

In comparison, net income applicable to common shareholders was $19.3 million, or 3 cents a share, the previous quarter. A year earlier, Huntington reported a net loss to common shareholders of $166.2 million, or 33 cents.

A major factor in the earnings improvement has been a reduction in the provision for loan loss reserves, which was $119.2 million in the third quarter, declining from $193.4 million the previous quarter and $475.2 million in the third quarter of 2009.

Third-quarter net charge-offs -- loan losses less recoveries -- totaled $184.5 million and exceeded net charge-offs by $65.30 million. This "release" of loan loss reserves provided the bulk of Huntington's bottom-line third-quarter profit and followed the trend of many large banks that continued releasing reserves during the third quarter, including


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, which released $1.8 billion from loan loss reserves;

Bank of America

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, which also released $1.8 billion from reserves;

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Wells Fargo

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, which released $650 million from reserves; and

JPMorgan Chase

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, which released $1.7 billion from reserves.

Huntington's credit quality continued to improve, with an annualized ratio of net charge-offs to average loans of 1.98% for the third quarter, declining from 3.01% during the second quarter and 3.76% a year earlier. During the second quarter, the bank transferred to held-for-sale $398 million in subprime loans inherited from Franklin Credit Management, which the company acquired as part of its acquisition of Sky Financial in 2007. That transfer resulted in $75.5 million in second-quarter charge-offs.

The sale of the transferred Franklin loans was completed in July, and helped lower the company's ratio of nonperforming assets -- including nonaccrual loans and repossessed real estate -- to total assets to 2.94% as of Sept. 30, from 4.24% in June and 6.26% a year earlier.

By the end of the third quarter, the only remaining Franklin assets on Huntington's balance sheet were $15.3 million in repossessed real estate that already had been written down to fair value.

Loan loss reserves covered 3.56% of total loans as of Sept. 30, staying "well ahead of the pace" of charge-offs, despite the reserve release, the bank said.

Lending highlights included strong mortgage banking income of $52 million during the third quarter, increasing from $21.4 million a year earlier, with originations increasing 62% year over year.

Noninterest expenses increased to $427.3 million during the third quarter from $413.8 million the previous quarter, primarily because of an addition of about 200 staff members, as part of the company's expansion strategy, which includes its 15-year deal to

open over 100 branches in Giant Eagle supermarkets


The company's third-quarter net interest margin -- essentially the difference between its average yield on loans and securities investments and its average cost of deposits and borrowings -- was 3.45% down from 3.46% the previous quarter but up from 3.20% a year earlier.

Huntington's capital position was strong at the end of September, with a regulatory total risk-based capital ratio of 15.02%, far exceeding the 10% required for most banks to be considered


. The tangible common equity ratio was 6.20%, increasing from 6.12% the previous quarter.

CEO Stephen Steinour told


that Huntington's thinking on the timing of TARP repayment and dividend increases was unchanged, and that the Giant Eagle deal was "at the core of the strategy of growing our business." When discussing the supermarket branch strategy, Steinour said "we love the venue," adding "it is great for customer acquisition" and that Giant Eagle is "one of the best retailers in the country."

Huntington's shares closed at $5.60 Wednesday, up 54% year to date. Out of 17 analysts covering the company, seven have buy ratings, seven have hold ratings and three recommend investors sell the shares.


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.