Slow and steady wins the race when it comes to mortgage underwriting. Earnings reports from smaller regional banks Tuesday mostly tell the same troubled tale of writedowns and declines that their larger brethren have recounted. The future for the banking industry continues to look grim after lending standards tightened this summer, spreading delinquency and defaults to higher quality loans. At the extremes, the carnage at more aggressive underwriter KeyCorp ( KEY) was a sharp contrast to U.S. Bancorp's ( USB) conservative underwriting standards, which now serves to make the Minneapolis-based bank a safe haven stock. Worst in show, KeyCorp fell to a fresh 52-week low after the bank reported that profit plummeted 33% from a year earlier to $210 million, or 57 cents a share. The culprits were credit losses in residential real estate and writedowns in its trading business. The stock dropped $1.85, or 6%, to $30.50. Cleveland-based Key's nonperforming assets jumped 75%, and its total loans charged off were $59 million, up 37% from the year-ago quarter. The bank also ended up booking $77 million in net losses due to writedowns and losses related to commercial real estate loans held for sale, dealer trading and derivatives and other investments, it said. U.S. Bancorp, on the other hand, beat analysts' earnings estimates by a penny, reporting earnings of 67 cents a share on $1.17 billion. Its nonperforming assets rose just 14% to $641 million from "stress" in residential mortgage lending and other real estate assets, such as foreclosed properties, it said. It had writedowns totaling $21 million -- about 1 cent a share.
U.S. Bancorp's third quarter 2007 "reinforced the 'safe haven' nature of the shares with little in credit deterioration reported in the period, along with immaterial revenue impact from credit market dislocations in the period," writes Lori Appelbaum, an analyst at Goldman Sachs. She rates the bank a buy, adding that the bank sits on "very strong unallocated reserves of $600 million." Birmingham, Ala.-based Regions Financial ( RF) posted a promising 12% profit rise, but earnings per share dropped 27% to 56 cents. Regions took a $90 million provision for loan losses in the quarter, higher than the $63 million of consumer-related loans it charged off. "It's obviously an understatement to talk about the very challenging operating environments that we and financial services find ourselves in," Region's president and CEO Dowd Ritter said during a conference call, as reported by newswires. "There is no doubt that economic conditions are limiting industry revenue growth, and pressuring more borrowers' ability to repay their loans." The future doesn't look bright for Regions, as its loans that register at least 90 days past due increased 62% from second-quarter levels, writes Christopher Mutascio, an analyst at Stifel Nicolaus, in a note. Among the larger banks with similar problems, Wells Fargo ( WFC)and Citigroup ( CFC) posted huge credit losses from mortgage loans gone bad.