Signs are beginning to emerge that Cleveland-based KeyCorp's (NYSE:KEY) shift to core commercial and relationship banking is paying dividends, but there are still indications that it remains stuck in the middle compared to certain better-capitalized peers.

Regarding those positive signs, KeyCorp posted unexpectedly high second-quarter earnings as strength in its fee-based business contributed to a 19% increase in noninterest income. A couple of investing and other gains also bolstered results enough to offset a fall in net interest income that contracted as the net interest margin dropped to 3.46%. Management also touted "effective expense control" for contributing to a near-15% jump in continuing earnings per share.

However, top-line and other trends remain murky as KeyCorp sold off its McDonalds Investment branches in February and also recently jettisoned the Champion Mortgage loan origination business. As a result, total reported loan and deposit growth is coming in negative, even though net loan charge-offs and nonperforming loans remain low. Community banking revenue also fell more than 7% year over year, even as national banking posted nearly 6% growth.

Overall, I still can't find a compelling reason to go with KeyCorp over national banking franchises like Wachovia (NYSE:WB), US Bancorp (NYSE:USB), Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), or Wells Fargo (NYSE:WFC). Economies of scale matter in banking, helping drive cost efficiencies and spread credit risk across many different geographic areas and product platforms. Plus, a number of the bigger banks pay higher dividend yields and also trade with lower P/E multiples.

I could see going with a smaller bank to reach for higher revenue growth, but KeyCorp's Midwestern roots hinder it as baby boomers and other consumers migrate to warmer Sun Belt states. Until further signs emerge that its re-emphasis on commercial banking is paying off, I'll remain on the sidelines.

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Fool contributor Ryan Fuhrmann is long shares of Wells Fargo, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.