Two smaller, regional banking outfits warned Wednesday of writedowns due to the effects of the ongoing credit crunch, illustrating the far-reaching effects the mortgage mess is now having outside of the nation’s large lenders and financial institutions. Spokane, Wash.-based Sterling Financial Corporation (NASDAQ:STSA) said that it expects to report approximately $13.0 million in loan loss provisions for the fourth quarter on its residential construction lending portfolio, reducing earnings to the range of $0.31 to $0.34 per diluted share for the quarter. The bank will also prepay a $24.0 million trust preferred securities issue, resulting in a charge of approximately $2.1 million that was not previously budgeted for the fourth quarter, Sterling said. “Along with other financial institutions across the country, Sterling is dealing with challenging market conditions, which we expect will continue into the next few quarters,” said Harold Gilkey, chairman and CEO. “Although we believe that these credit conditions will work themselves out over time, our seasoned management team, based on their experience with similar downturns before, is taking an aggressive stance on asset quality and being proactive in working with our customers to find solutions.” Raleigh, North Carolina-based Capital Bank Corporation (NASDAQ:CBKN), a statewide bank with $1.5 billion in assets, also said Wednesday that it would absorb a write-down of between $2.6 and $2.8 million as the bank adjusts to what it called the “current economic environment.” The bank did not specify the exact nature of the loans that were tied to the write-down. “While Capital Bank has no subprime mortgage exposure, the current housing market is soft throughout the franchise, thereby causing difficulty in the liquidation process of certain nonperforming loans on our balance sheet,” said Mark Redmond, executive vice president and chief credit officer. “Capital Bank’s loan portfolio has not experienced any significant new problems during the most recent quarter; however, we feel that given the current market conditions we would be better served to strengthen our reserve position.” This is a small bank, writing off the value of non-subprime loans — my guess here would be residential construction or commercial. Capital Bank also said it would recognize reorganization charges of approximately $1.3 million to $1.4 million “related to multiple projects that the company has undertaken in an effort to refocus to its core markets.” (Although it wasn’t said in the press statement, I’d also guess the restructuring charges have something to do with the write-downs as well.) As we move into 2008 and nearly every financial institution comes to terms with the extended slump in real estate finance, I think more write-offs like this will become much more common and a growing number of regional banks will opt to “refocus on core operations.” Disclosure: The author holds no positions in STSA or CBKN.