In the nation's industrial heartland, belt-tightening is not quite ready to give way to growth.

Huntington Bancshares (HBAN), KeyCorp (KEY) and Fifth Third Bancorp (FITB) reported second-quarter earnings Thursday, and on conference calls all were cautious in their growth predictions for the second half of the year and hinted at more expense cuts if revenue growth remains sluggish.

At Huntington, Chairman and Chief Executive Stephen Steinour has previously promised investors that revenues will grow faster than expenses in 2013. On Thursday he told analysts that "if the revenue doesn't materialize, we will deliver offsetting expense saves."

KeyCorp has long been focused on cutting expenses, and that remained a top priority on Thursday's conference call with analysts. The company closed 33 branches in the second quarter and said that it has identified 14 more for closure in the second half of the year.

Fifth Third saw its mortgage refinancing revenue plummet in the second quarter, as interest rates rose. The $123 billion-asset company will be looking to cut mortgage-related expenses, according to Chief Executive Officer Kevin Kabat.

"We'll be aggressive in managing our business," he said on a conference c all with analysts.

Below is a deeper look at each company's outlook for the last six months of the year

Fifth Third

The Cincinnati company is dialing back expectations.

Three months ago, Fifth Third projected that in 2013 its fee income and net revenue would both improve from the previous year. But on Thursday, the company stated that those numbers would end up being consistent with 2012.

Fifth Third also projected that its net interest margin in 2013 will be slightly lower than it previously believed.

The bank's executives blamed the impact of rising interest rates on its mortgage business. The company now projects that mortgage revenues will fall by 20% to 25% in the third quarter, as the refinancing business dries up.

"Obviously the change in the rate environment this quarter has resulted in changes to our expectations for mortgage revenue," Chief Financial Officer Daniel Poston said during a conference call with analysts.

Fifth Third expects that it can reduce its mortgage expenses enough to compensate for about two-thirds of the lost revenue.

Fifth Third will also be looking to other parts of the company, including commercial lending, credit cards and its investment advisory business, to pick up the slack. "Corporate banking results in the third quarter should be quite strong," Poston said.

For the second quarter, Fifth Third reported net income of $594 million, or 66 cents per share. Excluding unusual items, earnings were largely in line with the expectations of analysts surveyed by Bloomberg.


Broad economic factors are making commercial clients, especially small business owners, more guarded, KeyCorp executives said.

"Loan growth continues to be impacted by cautious client behavior, a competitive environment and … the attractiveness of capital market alternatives…," Don Kimble, KeyCorp's chief financial officer, said during a call Thursday morning with analysts.

Small-businesses owners continue to be concerned about lingering effects from cuts in federal spending earlier this year and the implementation of the Affordable Care Act. Uncertainty around interest rates and slow gross domestic product growth are also worrying customers, executives said.

This cautious attitude can be seen in stagnant credit utilization rates and the continued inflow of deposits, Christopher Gorman, the president of Key Corporate Bank, said during the call.

KeyCorp's average loans, which totaled $52.7 billion, remained flat from the first quarter while its net interest margin declined 11 basis points to 3.13%.

A research note from Oppenheimer called KeyCorp's loan growth for the quarter and its continuing net interest margin compression a "disappointment." Both of these results fell short of the firm's expectations.

However, KeyCorp's expense cuts were "encouraging," the research note said. So far the company has cut roughly $171 million of a targeted $200 million in expenses in an efficiency plan that was announced last year.

Overall, the Cleveland company is expected to cut about 7% of its branches, which is up from the 5% it originally planned.

During the call, executives pledged to continue to look for ways to reduce costs. This will include a "cultural change in terms of how we drive not only our cost structure but our productivity," Beth Mooney, chairman and chief executive, said. "Those are the sorts of things that will drive further improvement."

The $90.6 billion-asset company recorded $37 million charge tied to its branch closings and other efficiency efforts. Its second-quarter earnings fell roughly 14%, to $198 million, from a year earlier.

Earnings per share of 22 cents beat analysts' estimates by 2 cents.

Huntington Bancshares

While rising rates are having the most impact on mortgage, analysts who follow Huntington are wondering how they might affect the bank's deposit growth.

Huntington has added more than 300,000 new household accounts over the last three years — "the equivalent of the entire population of Cincinnati," Steinour says -but with rates on the rise, Brian Foran at Autonomous Research, asked if the growth would in noninterest bearing accounts might slow as consumers shop for accounts that offer higher yields.

Steinour, though, says that while adding more households is an ongoing goal, the company is equally focused on selling more products to those households. It recently upped its goal from four products to six and at June 30, nearly 47% of its households used six or more of its products, up from roughly 43% three months earlier.

He added that its cross-sell ratios could further improve when the $56 billion-asset Huntington launches a new consumer credit card in September. The bank has not issued its own credit card since 1999, when it sold its card portfolio to the old Chase Manhattan Bank.

"We think we're going to get a fairly sticky consumer deposit base here and expect that to be sustaining through a change in rates," Steinour said on the call.

For the quarter that ended June 30, Huntington reported a profit of $150.7 million, down 1% from the same period in 2012. Its earnings per share of 17 cents were a penny better than the estimates of analysts polled by Bloomberg.

Though total loans were relatively unchanged year over year, the bank's net interest income fell 1% due to declining yields on consumer loans. Noninterest income also fell slightly, as gains in trust, brokerage and deposit fees were offset by a 12% dip in mortgage banking income.

Looking ahead, Steinour says the commercial loan pipeline is expanding and his expectation is that growth in business lending in the second half will help offset a likely drop in mortgage lending. The bank also continues to build its automobile lending portfolio — it recently started offering car loans in Connecticut — and it remains one of the nation's top originators of Small Business Administration loans.

Still, expense growth has outpaced revenue growth in each of the first two quarters and if the trend continues, Steinour says the bank will not hesitate to trim overhead. Just this week its board authorized changes to the bank's employee pension plan, which should yield "modest" cost savings, and Steinour said it remains committed to finding additional savings as part of its commitment to achieve "positive operating leverage" this year.

Don't expect the bank to trim its marketing budget much, however. Its number of household accounts has grown by 34% in the last three years largely because it has been aggressive in building in-store branches and marketing its free-checking products, and Steinour remains convinced that acquiring customers is still key to the bank's success.

"We do not want to do anything that impairs our long-term objectives," he said.

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