Several regional banking companies making comeback bids have the odds stacked against them.

Analysts listed five that have fallen behind the pack and may need to reinvent themselves to survive: Huntington Bancshares Inc., KeyCorp, Marshall & Ilsley Corp., Regions Financial Corp. and Synovus Financial Corp.

The same attributes that are distinguishing leaders among the nation's regionals are on display at the laggards. The warning signs are high levels of commercial real estate loans and shrinking loan books. Capital levels for most of the five seem adequate, but analysts wonder if more will be needed as CRE losses continue. A concern is that the laggards keep falling behind and face temptation to get aggressive, perhaps introducing new risk to balance sheets already roughed up by the recession. A major misstep could even force one of these banks to sell itself.

"For many banks, it is like stopping to tie your shoelaces in the middle of the race," said William Phelan, the chief executive of PayNet Inc., a Skokie, Ill., company that collects and analyzes payment history data. "Playing defense will make it even tougher for them to catch up."

Huntington, Key, M&I, Regions and Synovus all remain participants in the Troubled Asset Relief Program, making them susceptible to intervention from Washington and requiring them to pay hefty dividends to the government. Collectively, the five banking companies lost more than $8.35 billion last year. Along the way, several sold or closed business units to cut costs, reduce risk or raise capital.

The chief executives of several companies, including Huntington and Synovus, have expressed confidence about returning to profitability this year. "It's very clear to us that 2009 was our watershed year," Stephen Steinour, Huntington's chairman and CEO, said during a conference call last month.

Analysts are cautious, expecting no favors in the short term from the economy and forecasting continued pressure from the industry's stronger regionals.

Jason Goldberg, an analyst at Barclays Capital, predicted "a tough, long slog" for many banking companies. "It is going to be challenging for a bit longer until the economy pulls them out," he said. "You will likely see a continual divergence between the haves and the have-nots."

Commercial real estate exposure remains a top concern. Such loans made up more than 38% of the loan portfolios at M&I, Regions and Synovus at yearend. The average for 15 major regional banking companies was 29%.

"There is no question that M&I went into some areas that they weren't familiar with," said William Fitzpatrick, an analyst at Optique Capital Management. "There are still enormous risks embedded in that business."

Albert Savastano, an analyst at Macquarie Capital, took a similar view of Regions, which next month will promote O.B. Grayson Hall to succeed C. Dowd Ritter as CEO. "Regions will have a few more quarters of elevated credit costs," Savastano said.

Hall, who was front and center during Regions' quarterly call last month, said he expected few changes, though he outlined a three-part approach for getting the Birmingham, Ala., company back to profitability: addressing continued credit issues, controlling costs and adding "discipline around loan and deposit pricing."

From a capital perspective, all five regional banking companies seem to be fine for now, with Huntington, Key, and Regions having Tier 1 capital levels that are above the regionals' average of 11.5%, and M&I and Synovus hovering close to it. There is still concern that each company may need to raise more capital, either to absorb future losses or in preparation for exiting the Tarp.

"Everyone right now, from investors to regulators, is looking closely at banks' capital ratios," said Walter Todd 3rd, a portfolio manager at Greenwood Capital Associates LLC.

Though Huntington and Key have maintained relatively low concentrations of CRE on their books, analysts are concerned about those companies' ability to jump-start loan growth after slimming down in recent quarters. Key, which has been shedding loans in areas such as home building, commercial lease finance and marine and RV lending, saw its loan book shrink 5.5% during the fourth quarter.

Key isn't alone. The other banking companies also pared down their loan portfolios anywhere from 0.5% to 3.6% during the last three months of 2009. Analysts, meanwhile, believe that the best loans at the best terms are going to those companies that are out to expand their loan books.

"The problem for some of these banks is a lack of capacity" for making loans, Goldberg said.

Analysts are also concerned about banks that have scaled back or eliminated business lines in the past 12 months. Last year Key shut down its education-lending business and pared back a unit that specializes in managing hedge fund investments for institutional clients. Synovus said last month that it was in talks to sell its merchant services unit.

"Because they have been shedding so many businesses, there is a need to come out with some line of business that can excel," said Nancy Bush at NAB Research LLC.

"There is a need for business differentiation," Bush added. "Deleveraging continues and consumer demand continues to be very modest."

Huntington, which posted a loss of more than $3 billion last year, is putting its best foot forward, announcing an effort last week to hire 150 business bankers under a three-year, $4 billion commitment to small-business lending. The Columbus, Ohio, company already lured eight commercial bankers in Michigan from Comerica Inc.

Henry Meyer 3rd, KeyCorp's chairman and CEO, gave far fewer details during the Cleveland company's quarterly call on Jan. 21, though he said Key would like to become an acquirer at some point. But for now it is "in effect running to stay even," he said. Over time, "we don't think we're limited in terms of where those growth opportunities are."

PayNet's Phelan said struggling banks could face severe consequences if they prematurely rev up growth initiatives. A recent PayNet study found that banking companies that post higher-than-expected loan-loss provisions quickly see their stock prices punished by investors. Shareholder reaction could be even worse if a banking company sees credit costs rise after management projects a peak.

"We're not out of the woods yet," Phelan warned. "With high unemployment, we will still see [an] elevated default rate, and we will still see some negative surprises with credit quality."