In the current credit environment, what's normally a horrible quarter could be perceived as an average quarter. Although KeyCorp (NYSE:KEY) didn't increase earnings per share like Wells Fargo (NYSE:WFC) or Income Investor recommendationUS Bancorp (NYSE:USB), it also didn't get pounded like Bear Stearns (NYSE:BSC) or Merrill Lynch (NYSE:MER). In that light, KeyCorp's quarter was kind of like Goldilock's porridge -- not too hot, but not too cold.

For the third quarter, earnings from continuing operations fell from $0.74 to $0.57 per share. Like virtually every other bank out there, earnings were hurt by increasing credit losses from the severe housing market slump.

However, KeyCorp was fortunate, in that it's been reducing exposure to Florida and California for a while now, which has helped shore up credit quality. For the quarter, the loan loss provision increased to $69 million, versus $53 million last quarter and $35 million last year.

Non-performing loans as a percentage of total loans was 72 basis points, up from 41 basis points last quarter and 34 basis points a year ago. The reserve for loan losses came in at 1.38% of total loans. Both of those numbers are reasonable and shouldn't raise too many red flags, considering the current environment.

KeyCorp also made some interesting comments regarding its exposure to homebuilders. It believes that its discipline in underwriting loans at 65%-75% of its estimated final worth helps mitigate some of the losses from defaults, even as housing prices continue to fall. However, prolonged pricing pressure could lead to additional write-offs.

All in all, it was a rather mediocre quarter in an extremely difficult environment. At 10 times trailing earnings, a 4.8% dividend yield, and at its 52-week low, shares might be worth a closer look.

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