Shares of two Cleveland-based banks, National City ( NCC) and KeyCorp ( KEY), diverged Friday even though both reported higher than expected second-quarter earnings and raised future estimates.

Even though earnings fell 11% at National City to $519 million, or 83 cents a share, the bank exceeded the Thomson First Call consensus estimate by 13 cents. Several weeks ago, the bank said its second quarter would be hurt by a decline in its mortgage banking business, which has been impacted by rising interest rates.

National City said Friday that its earnings in the second-half of the year "should be somewhat better than previously forecast." The bank says the rosier outlook stems from an expected improvement in its mortgage business and continuing gains on the bad loan front.

"Based upon the six-month results and our forecast for the second half, our expectations for full year 2004 earnings have improve relative to our prior guidance," said National City Chairman and Chief Executive Officer David Daberko.

The bank now predicts its National City Mortgage business will contribute between 50 cents and 80 cents a share to earnings the rest of the year. Earnings from the rest of the bank's operations will total between $2.60 and $2.75 a share. Current full-year estimates for the bank have it earning between $3.10 and $3.50 a share, according to First Call.

In early trading, share of National City were up 61 cents, or 1.8% percent, to $35.01 a share.

Investors were less kind to KeyCorp, which posted a 6% gain in profits and slightly upped its full-year estimates. The bank earned $239 million, or 58 cents a share, compared $225 million, or 53 cents a share, a year ago. First Call had the bank earning 56 cents a share.

The bank benefited in the quarter from continued improvement on the bad loan front and an uptick in investment banking business. The bank also said it saw a "modest, but encouraging" increase in commercial borrowing, something that has been lagging throughout the banking sector this year.

The stock was down 23 cents, or 0.8%, to $29.22.

Key now expects to earn between 57 cents and 61 cents a share in the third quarter, and $2.35 and $2.45 a share for the full year. The current full-year estimates for the bank are between $2.30 and $2.43 a share.

Total revenue at the bank in the quarter came in at $1.1 billion, matching analyst expectations.

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