Updated from 12:53 p.m. EST

Large regional banks across the U.S. plunged on Thursday after reporting earnings hit by the ever-expanding mortgage and credit market deterioration.

The KBW Bank Index, which tracks the largest banking companies, dropped 3.9% to 79.53, while the KBW Regional Banking Index fell 3.1% to 66.80.

"Most of our clients are sitting on the sidelines waiting for these earnings numbers to come out and then reacting accordingly," says Matt Shields, a senior trader at FIG Partners in Atlanta, which focuses on regional bank stocks. "Nonperforming assets continue to rise and credit issues continue to be at the forefront of our clients' eyes. The construction loans are certainly the riskiest ... New construction has seen a massive halt and there are plenty of houses on the market."

Stocks also were taking a beating due to Federal Reserve Chairman Ben Bernanke's grim assessment of the economy in Capitol Hill testimony.

Consumer mortgage losses aside, many banks are also reaping losses from problem loans made to residential homebuilders and developers -- yet another sign that the housing decline is spreading past just subprime borrowers.

PNC Financial Services

PNC Financial Services ( PNC), one of the more conservative consumer lenders of the bunch, posted a 53% drop in profit, related to previously announced charges taken as a result of credit problems on loans made to homebuilders.

In the final three months of the year, the Pittsburgh-based bank reported profit of $178 million, or 52 cents a share, compared to $376 million, or $1.27 a share, in the fourth quarter of 2006. PNC's revenue of $1.63 billion rose just 6% from a year earlier, but fell 7% from the third quarter to $1.63 billion.

"PNC had a good year in 2007, given the operating environment," said Chairman and CEO Jim Rohr. "However our fourth quarter performance did not meet our expectations due to challenges that included unprecedented market volatility and credit deterioration in our residential real estate development portfolio."

PNC, on an adjusted basis, earned $365 million, or $1.07 a share, down 7% from a year earlier. Analysts expected the bank would make $1.07 a share. Results exclude a charge related to the settlement by Visa and member banks with American Express ( AXP), which claimed they were conspiring to keep it out of the bank-issued credit card business, as well as certain issues related to its BlackRock ( BLK) investment.

PNC warned last month of $26 million of writedowns on about $1.5 billion worth of commercial mortgage loans held for sale, lower trading results, an increase to the provision due to credit losses related to residential real estate development -- primarily loans in Maryland and Northern Virginia -- as well as certain expenses related to its stake in BlackRock.

The bank said that its total exposure to residential real estate is approximately $2.1 billion.

PNC had to set aside an additional $188 million in the fourth quarter, more than four times its provision for the year-earlier period, partially from the residential real estate exposure, but also from "growth in total credit exposure," the company said. In the past year, PNC has completed several bank acquisitions including Mercantile BankShares of Baltimore and Yardville National Bank of New Jersey.

"Charged-off" loans totaled $83 million, or 0.49% of its average loan balance, the company said. Shares were losing 5.2% to $57.80 Thursday afternoon.

Huntington Bancshares

Huntington Bancshares ( HBAN) posted a net loss of $239 million, or 65 cents a share, mostly related to its exposure to one subprime lender commercial customer, but also warned of increasing weakness in the Michigan and Ohio commercial real estate markets. That compares to a profit of $87.7 million, or 37 cents a share, in the year-earlier period.

The Columbus, Ohio-based company had previously warned of charges against the loans made by Franklin Credit Management ( FCMC), over concerns that the loans had deteriorated much faster than expected. The commercial relationship was grandfathered in as a result of Huntington's purchase of Sky Financial last year.

Huntington's charges totaled $1 per share. That included a $512 million provision for credit losses -- $406 million of which was for loan losses expected in the Franklin loans. It also had market-related losses and a $25 million pretax charge for the Visa settlement, among other things.

"We are disappointed with these results," said Chairman and CEO Thomas Hoaglin. "Clearly the biggest setback was the significant negative impact associated with the previously announced restructuring of the Franklin relationship acquired in the Sky Financial merger. However, we firmly believe that the specific reserves we have established and the positive cash flow coverage resulting from the restructuring address fully the current and anticipated financial performance issues associated with this relationship. As such, we do not anticipate any further negative impact from this relationship.

"Also negatively impacting performance was the need to build non-Franklin-related loan loss reserves in view of the continued weakness in the residential real estate development market," he added.

Huntington attributed the remaining provision to continued weakness in Michigan and Ohio.

Shares were falling 7.2% to $11.54 on late Thursday.

Comerica

Elsewhere, Comerica's ( CMA) shares tanked more than 10% after reporting profits fell 60% to $119 million or 79 cents a share, missing analysts' estimates by 26 cents.

The fourth quarter of 2006 included a one-time gain of $47 million from a lawsuit settlement and an after-tax gain of $108 million on the sale of Comerica's stake in Munder Capital Management, which was sold to a private equity firm and Munder's management in 2006.

The Dallas-based regional bank primarily attributed the lower earnings to its loan loss provision of $108 million and a lower net interest margin -- the profit that a bank makes by taking in deposits and lending them out again. Comerica's net interest margin fell 32 basis points from a year earlier and by 23 basis points from the third quarter to 3.43.

Last year "was a challenging year for the banking industry, including Comerica," said Chairman and CEO Ralph Babb Jr. "While we continued to execute our strategy, reflected by strong loan growth, particularly in our high growth markets, challenges in the residential real estate development portfolio affected our performance. Our fourth quarter earnings were largely impacted by an increase in the provision for loan losses and a decline in the net interest margin, driven in part by a decision to increase the securities portfolio and a competitive funding environment."

The stock dipped $4.38 to $37.89.

First Horizon

Memphis-based First Horizon ( FHN), meanwhile, swung to a huge continuing-operations loss of $252.8 million, or $2 a share, compared with a year-ago profit of 17 cents a share. That, furthermore, widens from a third-quarter shortfall of just 11 cents a share as the pretax loss from its mortgage segment vaulted nearly sixfold, sequentially, to $262.8 million.

First Horizon also set aside $156.6 million to cover bad loans, up from a third-quarter loan-loss provision of $43.3 million. It said the provision would cover "inherent losses" in residential construction portfolios related to discontinued product structures and "higher-risk national markets," including Florida, California, Virginia, Georgia and Nevada. The bank's share of the Visa settlement, totaling $55.7 million, factored in losses as well.

The bank also said it would cut its dividend by more than half to 20 cents, from 45 cents. Standard & Poor's cut its rating to BBB+ from A-, with a negative rating.

Shares were plummeting 15.4% to $15.99.

BB&T

Meanwhile, BB&T ( BBT), a regional bank based in Winston-Salem, N.C., also said fourth-quarter continuing operations earnings dipped as it girded up its reserve to cover credit losses.

The bank said nonperforming assets increased to 0.52% of total assets in the fourth quarter, vs. 0.29% at the end of the same quarter in 2006. It said annualized net charge-offs were 0.48% of average loans and leases for the fourth quarter, compared to 0.33% in the same period last year.

The bank more than doubled its provision for credit losses to $184 million, from $73 million in the year-ago period. For the year, the banks increased its provision to $448 million, from $240 million a year ago.

BB&T's operating income fell 6.1% year-over-year to $415 million, or 75 cents a share, excluding such items as BB&T's share of the Visa settlement. The Street was looking for 78 cents a share.

"While it is difficult to know the full extent of the economic downturn and the resulting impact on BB&T's credit quality, given our current outlook, we do expect further increases in nonperforming assets and net charge-offs into 2008, but we believe the increases will be manageable," Chairman and CEO John Allison said in a statement.

If last year's hefty merger and restructuring charges are taken into account, BB&T's earnings soared 63.7% year-over-year.

The stock recently added 98 cents, or 3.5% to $29.17.