Regional bank Huntington Bancshares reported its third-quarter earnings today and highlighted a number of troubling trends. The Columbus, Ohio-based lender beat the top-line consensus estimate of $0.17 per share by reporting earnings per share of $0.19 on revenue of $697 million.

According to its chief executive officer Stephen Steinour: "We are pleased with the quarter's financial results which reflect steady growth in a number of key strategic areas including loans, deposits, and customer relationships. This demonstrates the continued benefits from successfully executing our strategic plan."

Troubling signs
Despite Steinour's stated satisfaction with Huntington's results -- not to mention my previous take on the bank, which you can read here -- there were a number of troubling topics that popped up.


In the first case, he noted the bank's decision "to slow down on the mortgage lending side until we see what the new [capital] rules are." The Federal Reserve is expected to articulate heightened capital requirements under the so-called Basel III framework either later this year, or early next year. The anticipated rules are potentially "very impactful on home lending" because they change the weighting of assets and increase capital requirements. "It's like changing the rules in the middle of the game," Steinour said.

Huntington's decision to dial back on mortgage lending stands in marked contrast to the performance at the nation's largest banks. On a year-over-year basis, Wells Fargo increased its mortgage origination volume by 56%, and JPMorgan Chase increased its by 29%. Indeed, even Bank of America reported an improvement.

Additionally, its provisions for credit losses increased to $37 million on a sequential basis from $36.5 million in the second quarter. As we've seen with the other banks, though, this was largely caused by new regulatory guidance requiring consumer loans discharged under Chapter 7 bankruptcy to be charged down to collateral value.

Good news
On a more positive note, Huntington took a number of steps in the right direction. Its core deposits increased by $1 billion, or 9%, on a year-over-year basis. Total revenue improved by 5%. Loans at the end of the quarter were 3% higher than at the same time last year. And its Tier 1 common capital ratio came in at 10.28% up from 10.08% at the end of the second quarter.

Moreover, while other banks are dialing back on expansion plans, Huntington is filling the void. According to The Wall Street Journal, the regional lender has added 50 branches this year and 500 employees. This translated into an additional 250,000 households in the last two years. Steinour estimates that this puts the bank "at a rate to double in roughly eight years without acquisitions."

Finally, Huntington notched gains in both book value and profitability. With respect to the former, its book value now stands at $6.34 per share. With respect to the latter, its return on average common shareholders' equity for the quarter was 11.9% -- in terms of context, anything in the double digits is respectable.

Foolish bottom line
Shares in Huntington are down sharply by 5% following its earnings release, as traders appear concerned with the bank's warnings on the capital and mortgage fronts. All things considered, however, as I've discussed before, Huntington is a solid operation with seemingly significant upside potential going forward.

To learn about another bank with absolutely massive upside potential, check out our new in-depth report on Bank of America. In it, our senior banking analyst, Anand Chokkavelu covers both the opportunities and risks associated with holding its stocks as well as the three areas that every investor needs to watch. He concludes by noting that B of A's stock could easily "double or triple" over the next five years. To see why he thinks this, simply click here now.

The article Huntington Bancshares Reports Solid Earnings Despite Warnings originally appeared on Fool.com.

John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America, Huntington Bancshares, JPMorgan Chase, and Wells Fargo. Motley Fool newsletter services recommend Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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