WRAPUP 2-PNC, other US regional banks face more loan losses

* Reserves, net charge-offs increase

* Uncertainty over length of economic downturn

* Fifth Third shares rise; PNC, Huntington shares fall (Adds PNC CEO and analyst comments; updates shares)

By Jonathan Stempel

NEW YORK, July 23 (Reuters) - Three U.S. regional banks with large operations in the Midwest said rising loan losses weighed on second-quarter earnings, and expressed uncertainty about how long the economic downturn will last.

PNC Financial Services Group Inc (PNC.N) and Huntington Bancshares Inc (HBAN.O) reported earnings below Wall Street forecasts, and their shares fell. Fifth Third Bancorp (FITB.O) posted a smaller loss than expected and indicated that credit deterioration is moderating, causing its shares to rise.

The results mirror struggles that other major lenders face in capping loan losses as home prices fall, unemployment rises, capital spending remains subdued, and risk-averse loan officers resist extending credit. Midwestern lenders may also be more heavily exposed to the auto industry's travails.

Pittsburgh-based PNC, the seventh-largest U.S. bank by assets, said net income applicable to shareholders fell 87 percent to $65 million, or 14 cents per share.

Excluding merger costs, profit was 34 cents per share, below the 44 cents that analysts on average expected, according to Reuters Estimates. [ID:nN23368122]

"Loan demand continues to be soft across the country," PNC Chief Executive James Rohr said on a conference call. "The economy is going to be tough" all year, he added.

Net interest margin fell to 3.60 percent from 3.81 percent in the first quarter as PNC shed some higher-risk loans. It set aside $1.09 billion for bad loans, and net charge-offs rose 84 percent from the first quarter to $795 million.

"We expect net charge-off pressures to continue gaining momentum as commercial credit comes under greater pressure," wrote Paul Miller, an analyst at FBR Capital Markets.

PNC in December bought Cleveland-based National City Corp, a lender troubled by subprime mortgages. Most of PNC's other operations are in mid-Atlantic states. It has 2,606 branches, and took $7.6 billion from the federal bank bailout program.

Fifth Third, based in Cincinnati, posted net income available to shareholders of $856 million, or $1.15 per share. [ID:nN23372871]

Excluding items, such as a $1.06 billion gain from selling a majority stake in a payment processing unit, the loss was 27 cents per share, smaller than the 32 cents analysts expected.

While Fifth Third set aside $1.04 billion for credit losses and increased net charge-offs 82 percent to $626 million, the company said credit weakness is stabilizing. Nonperforming assets, where borrowers are not making payments, rose 7 percent in the quarter after jumping 32 percent from January to March.

"Although the environment remains difficult and signals are mixed, 'mixed' is better than 'deteriorating everywhere,'" Fifth Third Chief Executive Kevin Kabat said on a conference call. The bank took $3.4 billion of federal bailout money.

Huntington, based in Columbus, Ohio, said its loss attributable to shareholders was $182.5 million, or 40 cents per share. Excluding items, the loss was 37 cents per share, while analysts forecast a loss of 18 cents. [ID:nN23495737]

The lender tripled its provision for loan losses to $413.7 million, and net charge-offs quintupled to $334.4 million.

Unlike PNC and Fifth Third, Huntington was not subject to government "stress tests" to gauge capital needs, but has taken several steps to build capital.

Chief Executive Stephen Steinour said it is premature for the bank to repay its $1.4 billion of federal bailout money, "given the economic uncertainty in our Midwest region."

In afternoon trading, PNC shares were down 3.6 percent, Fifth Third rose 16.7 percent and Huntington fell 4.3 percent. (Reporting by Jonathan Stempel; Additional reporting by Sweta Singh; editing by John Wallace and Tim Dobbyn)