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Huntington estimates up to 50% increase in credit allowance due to CECL

Huntington Bancshares Inc. estimated that it will have to increase its allowance for credit losses by 40% to 50% on Jan. 1, 2020, under the current expected credit loss accounting standard.

That figure is on the high side relative to some other banks that provided CECL estimates prior to third-quarter reports. The Columbus, Ohio-based bank said its allowance for consumer loans would increase by 160% to 180%, and that its allowance for commercial loans would increase by 0% to 5%. The bank's loan portfolio is split about evenly between consumer and commercial loans, and Huntington said the estimate for the consumer portfolio reflects its longer duration.

Changes in loss allowances under the new standard, which goes into effect for large, publicly traded companies at the beginning of 2020, will vary among banks depending on factors including the economic assumptions and models they use.

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During a conference call on third-quarter results, CFO Howell McCullough III said the new accounting will increase Huntington's preference for deep client relationships in its mortgage business.

"We will be cautious about [residential mortgage] growth on the balance sheet," he said. "Just given some of the changes in CECL, we're looking for that to be more of a relationship product, from a relationship pricing perspective."

McCullough added that Huntington "still like[s] the asset class."

Home loans have been a major driver of growth in Huntington's loan portfolio, with average residential mortgage balances increasing 2% from the previous quarter and 10% from a year prior to $11.2 billion in the third quarter.

Huntington said it reduced share repurchases and built up its capital ratios ahead of CECL implementation. The bank's Tier 1 common equity ratio increased one-tenth of a percentage point from the previous quarter to 10% in the third quarter.

McCullough said the bank might continue to curtail share repurchases as it seeks to regain its 10% CET1 target after CECL goes into effect, and that it may not use up all of its 2019 stress-test buyback authorization, depending on balance sheet growth.