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SunTrust Banks Inc. (STI) cemented its return to profitability with rising revenue in the fourth quarter, but earnings for two other Southern banks indicate that overcoming the financial crisis remains a painfully slow process.
The results show that the South is struggling longer to leave the mortgage meltdown behind than even the Midwest, a region that was considered less attractive before the financial crisis because the economy there was less robust.
The Southern economy was fueled by population growth and the services industry, which resulted in a residential and commercial real estate boom. "The mortgage problems are largely rooted in the South," as were commercial real estate and construction loan losses, said Kenneth Usdin, an analyst with Jefferies & Co. "The Midwest emerged earlier" from the crisis.
Not only had the Southeastern banks more delinquent loans, "but, more importantly, they were slower in addressing those issues than financial institutions in the Midwest," said Frank Barkocy, the director of research at Mendon Capital Advisors.
However, like in other parts of the U.S., Southern lenders said loan demand is returning, particularly from businesses, adding to the optimism about the banking industry's improving revenue outlook for this year.
SunTrust stood out, analysts said. Revenue at the Atlanta bank, the largest bank that solely operates in Southern states, rose almost 20% from a year earlier, and was flat from the third quarter. (Revenue at several banks fell from the third quarter.) SunTrust reported a $185 million profit, its third consecutive profitable quarter, and the results beat analysts' expectations. A year earlier, it lost $248 million.
BB&T Corp. (BBT) of Winston-Salem, N.C., one of the first banks to have repaid TARP last year, reported a 12% rise in fourth-quarter profit from a year earlier, to $217 million. Revenue was flat, at $2.3 billion. The bank put away more money for delinquent loans than several analysts had expected.
First Horizon National (FHN) reported a loss of $48.7 million, compared with a prior-year loss of $70.6 million. The latest period included $63 million in costs related to its TARP repayment. The bank had aggressively expanded its mortgage business, until the board of directors changed course in 2007 and forced management changes. Fourth-quarter revenue fell 10%. to $393 million, following an 18% decline a year earlier.
Shares of SunTrust and BB&T rose on Friday, partly because short sellers covered their positions, analysts said. But "there was some real buying," particularly in BB&T's stock, Usdin said.
SunTrust shares closed up 5.9%, BB&T rose 4.8%, First Horizon fell 1.7% and Bank of America fell 2%.
BB&T, which had surprised investors last year with a sharp increase in losses from loans that aren't paid back, set aside $643 million for future loan losses, 11% less than a year earlier, and Chief Risk Officer Clark Starnes told analysts during a conference call he expects the provision to decline further now that the economy improved. (BB&T had bought Colonial BancGroup Inc., which collapsed under the weight of soured real estate loans.)
First Horizon Chief Financial Officer BJ Losch said in an interview, "We've turned a corner on our road to recovery, but it will still take a few years to get to the level of profitability and returns we want to be at."
--Tess Stynes and Corrie Driebusch contributed to this article.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; firstname.lastname@example.org