BB&T Eager to Deploy Capital; SunTrust, First Horizon Still Repairing

SunTrust Banks Inc. can do better. First Horizon National Corp. is doing better. BB&T Corp.: It's doing great.

That's essentially how the chief executives of these regional banks described yearend results on Friday. It is also an apt description of their competitive prospects in the Southeast, experts said.

The differences in tone in the CEOs' conversations with analysts on Friday illustrated the widening gap between banks that have moved past the industry's deepest problems — from owing bailout funds to coping with massive loan losses — and those that have not.

BB&T's Kelly King was optimistic, saying he was "very pleased" with the Winston-Salem, N.C., company's revenue gains. First Horizon's D. Bryan Jordan said "we still have work to do" after the company finally returned its federal aid. SunTrust's James M. Wells 3rd, meanwhile, said profits were "still not to the level that we or our shareholders desire" while maintaining that "our patience has been appropriate" when it comes to repaying the $4.85 billion it took under the Treasury's Troubled Asset Relief Program.

That patience has been costly: SunTrust paid $67 million in dividends on the securities it issued to the government, funds that experts say it could have spent investing more heavily in new people, products and services to stave off aggressive market share grabs from BB&T and other resurgent players in the Southeast.

"If nothing else, that's capital they can't spend somewhere else," said Jim Sinegal, an equity analyst at Morningstar Inc. "Companies that have already paid back Tarp, they are a bit freer to deploy capital."

BB&T, which never lost money during the downturn and returned its federal aid in 2009, isn't just free to deploy capital. It's eager, too.

King said it plans on "adding several hundred revenue producers" in 2011. It's also "meaningfully aggressive with regard to looking at merger opportunities."

Having made substantial market share gains in the intensely competitive Southeast, BB&T wouldn't rule out expanding into another famously cutthroat market.

"I wouldn't be opposed for example to have exposure in the Midwest," King said. "I think the Midwest is a market that has been in a state of decline, but probably found its bottom."

BB&T doesn't necessarily need to look elsewhere for growth.

It earned $208 million in the fourth quarter, which was down less than 1% from the prior quarter but up 12% from a year earlier.

First Horizon lost $49 million, after earning $15.9 million in the prior quarter and losing $70.6 million a year earlier. It would have earned about $13 million excluding a large charge related to the repayment of its $867 million in federal aid.

SunTrust earned $114 million, up 35.7% from the prior quarter. It lost $248 million a year earlier.

BB&T has more than 1,800 branches in 12 states. SunTrust has nearly 1,700 branches in 11 states. First Horizon, of Memphis, Tenn., has more than 180 branches, almost all of them in Tennessee.

All three are among the few regional banks with sizable trust and investment banking operations. They're all trying to win more commercial and industrial lending business too.

BB&T's trust income was up 5% from the prior quarter and 10.5% from a year earlier. SunTrust's was up 4.8% quarter-to-quarter but down 3.7% from a year earlier. First Horizon was up 3% from the prior quarter and down 4% from a year earlier.

Investment banking and C&I was a similar story. Quarter to quarter, BB&T collected 14.1% more investment banking fees, while average C&I balances rose 6.9%. SunTrust's gained 7% in investment banking and 1.8% in C&I. First Horizon's capital markets fees were down 17%; its C&I loans rose 3%.

For its part, SunTrust says it is aware of the increasing competition. Its top priorities for 2011 include returning its federal aid and raising its dividend.

Ken Usdin, senior bank analyst at Jefferies & Co. Inc., said he doesn't expect SunTrust's federal aid to be "an eliminator" with respect to investment decisions. However, it is positioned less well than BB&T when it comes to boosting its return on assets.

"I think SunTrust, coming out of the cycle, has a different philosophy on the future of their business," Usdin said.

"I feel like they realize that there were things that they could do better post-cycle. I think that's the message they've been sending pretty consistently."

First Horizon, meanwhile, is trying to move ahead. It sees opportunities to make acquisitions and make more C&I and commercial real estate loans in 2011 with home mortgage losses stabilizing and its balance sheet finally free of Tarp money.

"We believe we're right on track. It is a marathon, it is not a sprint," Jordan said.

"We see very good, very strong momentum as we head into 2011."