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Huntington Puts Brakes on Home Loans Following Fed Rules

  • Third-quarter EPS of 19 cents, beating the consensus estimate of 17 cents.
  • Deferred tax valuation benefit of $19.5 million.
  • Net interest margin narrows slightly, to 3.38%, expects continued "downward NIM pressure."
  • While overall loans declined, "C&I sales pipeline remains robust."
  • $4.5 million in additional quarterly expenses from Federal Reserve stress tests.

Updated with afternoon market action, and comment from Stifel Nicolaus analyst Christopher Mutascio.

NEW YORK ( TheStreet) -- Huntington Bancshares (HBAN - Get Report) CEO Stephen Steinour says that following the Federal Reserve's proposal of rules to implement the Basel III capital standards, "we decided to slow down on the mortgage lending side, until we see what the new rules are," when they are finalized.

The new rules "are possibly very impactful on home lending. They changed the weightings of assets and they have additional capital requirements... applicable for loans made in prior periods. It's like changing the rules in the middle of the game."

Steinour is "optimistic that there will be adjustments," to the Fed's proposed capital requirements, "but you never know in this environment."

Huntington on Thursday reported a 10% sequential earnings increase, mainly from a third-quarter deferred tax valuation (DTA) benefit of $19.5 million.

The Columbus, Ohio, lender reported third-quarter net income of $167.8 million, or 19 cents a share, beating the 17-cent consensus estimate among analysts polled by Thomson Reuters, with earnings increasing from $152.7, or 17 cents a share, during the second quarter, and $143.4 million, or 16 cents a share, during the third quarter of 2011.

The company's shares were down 4% in afternoon trading, to $6.72.

Huntington's third quarter net interest income was $430.3 million, increasing from $429.0 million the previous quarter, and $406.5 million a year earlier. The company's tax-adjusted net interest margin (NIM) -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- was 3.38%, narrowing slightly from 3.42% the previous quarter, and 3.34% a year earlier.

Most banks are facing pressure on their net interest margins, with the Fed keeping its target federal funds rate in a range of zero to 0.25% since the end of 2008, while the central bank in September significantly increased its purchases of long-term mortgage-backed securities, in an effort to keep long-term rates at historically low levels.

Huntington said that "For the next several quarters, average net interest income is expected to be relatively stable from the third quarter's level," because of continued loan growth, however, "benefits to net interest income are expected to be mostly offset, however, by downward NIM pressure due to the anticipated competitive pressures on loan pricing, as well as lower rate securities through reinvestment, and declining positive impacts from deposit repricing."
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