Huntington Bancshares' Q3 Earnings Outperformance and Strategic Momentum in NII and Fee Income Growth

Huntington Bancshares' Q3 2023 earnings report has ignited renewed optimism about the resilience of regional banks in a high-rate environment. The company's adjusted earnings per share (EPS) of $0.36, exceeding estimates, was driven by an 11.6% year-over-year increase in net interest income (NII) to $1.52 billion and a 20.1% surge in non-interest income to $628 million, according to a Zacks report. This performance outpaces broader industry trends, where U.S. banks collectively saw NII grow by 14.5% YoY but faced a 22.7% decline in overdraft fee income, per an S&P Global analysis. Huntington's strategic focus on asset repricing, deposit growth, and fee-based revenue diversification appears to position it as a bellwether for regional banks navigating the challenges of rising costs and shifting customer expectations.

NII Growth: A Structural Advantage in a High-Rate Environment

Huntington's NII expansion was fueled by a 15-basis-point increase in its net interest margin (NIM) to 3.13%, driven by higher average earning assets and loan yields, the Zacks report noted. This outperformed the U.S. banking industry's average NIM of 3.30% in Q3 2023, which itself reflected a modest 3-basis-point quarterly improvement, according to KBRA Analytics. The bank's ability to widen its NIM despite rising deposit costs-average deposits grew 1.8% YoY-suggests disciplined balance sheet management.

Regional peers like Regions Financial Corporation also reported NII gains, with a 3.2% YoY increase to $1.26 billion and a NIM of 3.59%, as highlighted in the Zacks coverage. However, smaller regional banks with assets between $10 billion and $100 billion experienced a 4-basis-point NIM contraction to 3.20%, underscoring the uneven impact of rate hikes noted by KBRA Analytics. Huntington's performance highlights the importance of scale and liquidity in mitigating NIM pressure, as larger institutions with diversified funding sources can better absorb deposit cost increases.

Fee Income Diversification: Countering Industry-Wide Declines

While the industry grappled with a 22.7% YoY drop in overdraft fee income-a reflection of regulatory pressures and customer dissatisfaction-Huntington's non-interest income grew by 20.1%, according to the S&P Global analysis. This divergence stems from the bank's emphasis on fee-based businesses such as wealth management, capital markets, and treasury services, which offset declines in traditional fee streams, the Zacks report shows.

Regions Financial similarly leveraged fee income diversification, with non-interest income rising 15.2% YoY to $659 million, driven by its wealth management and capital markets segments, per Zacks. These strategies contrast sharply with the industry's reliance on overdraft fees, which fell to $1.37 billion in Q3 2023, as S&P Global reports. Huntington's ability to pivot toward higher-margin, customer-centric fee streams suggests a sustainable model for regional banks to reduce vulnerability to regulatory or behavioral shifts.

A Turning Point for Regional Banks?

Huntington's Q3 results raise the question: Is this a turning point for regional banks in a high-rate environment? The data suggests a nuanced answer. While the bank's NII and fee income growth reflect proactive management, broader industry trends reveal structural headwinds. For instance, community banks saw their NIM decline by four basis points in Q3 2023, as deposit costs rose 27 basis points faster than loan yields, KBRA Analytics found. This highlights the fragility of smaller institutions with less pricing power.

However, Huntington's performance-and similar gains at peers like Regions-demonstrates that regional banks with robust balance sheets and diversified revenue models can thrive. The key lies in leveraging asset-liability management to capitalize on higher rates while innovating in fee-based services. As noted by KBRA Analytics, the net interest margin for U.S. banks has plateaued since Q4 2022 due to weak new lending activity. Huntington's ability to grow NII despite these constraints signals operational agility that could serve as a blueprint for others.

Conclusion

Huntington Bancshares' Q3 2023 earnings underscore the potential for regional banks to outperform in a high-rate environment through strategic NII expansion and fee income diversification. While the industry faces challenges from rising deposit costs and declining traditional fee streams, Huntington's disciplined approach-coupled with its 1.8% deposit growth and 3.13% NIM-positions it as a leader in adapting to the new normal. For investors, the question is no longer whether regional banks can survive in this environment, but whether they can replicate Huntington's playbook to secure long-term profitability.