Atlanta and Cleveland are far from Wall Street, but regional banks in those and other U.S. cities are mimicking their bigger competitors by plunging into capital markets.

SunTrust Banks, KeyCorp and Citizens Financial Group are among large regional lenders that have been building out their investment-banking capabilities as stubbornly low interest rates have crimped profits. Now they're reaping the benefit, reporting record fee income from the units in the first half of the year.

Investment-banking revenues at seven of the 11 largest regional banks that break out results for the business climbed a combined $339 million in the first half of the year. The lenders are offering merger advice, debt underwriting and help raising capital to the same types of middle-market companies that they've long provided with routine banking services. That segment of the market has been eager to grow in recent years, with 31% of executives in a recent SunTrust survey saying they'd like to make a major capital investment over the next five years and 17% interested in acquiring another company.

To be sure, the regionals' operations are still dwarfed by those of Wall Street behemoths like JPMorgan Chase, which generated $1.8 billion in second-quarter investment-banking fees. But the fact that smaller firms are posting revenue gains in that business in a quarter where Goldman Sachs Group reported a 3.2% drop from a year earlier speaks to the appeal of their offerings.

“It's been a very distinctive part of our business model,” KeyCorp CEO Beth Mooney said in a telephone interview. “Wall Street is much heavier into trading and market-making activities than core relationship investment banking and advisory for middle-market companies. This is reflective of our relationship strategy, this business only generates revenue from our core customer base.”

SunTrust has been especially active in augmenting its capabilities, saying last year it planned to hire 200 people as part of a push to increase mergers-and-acquisition advice to mid-size companies. The lender also has expanded beyond its home base in the U.S. Southeast, opening offices in San Francisco, Chicago and Dallas among other cities. Revenue from investment banking rose 17% last quarter from a year earlier to $147 million, due to stronger deal flows in syndicated finance and M&A advisory, the company said last Friday.

KeyCorp's investment-banking and debt placement fees climbed 38% to $135 million in the quarter, as more of its clients turned to capital markets over loan products, the company said last Thursday. The Cleveland-based lender also has been adding employees, including strengthening its equities sales and trading team.

At Providence, R.I.-based Citizens Financial, capital-markets fees climbed 34% to $51 million, a move CEO Bruce Van Saun attributed to its strong loan syndication business. In May, the bank acquired Western Reserve Partners, a Cleveland-based merger-and-acquisition advisory firm, adding about 30 bankers to its capital-markets unit.

“We've always been punching a little bit above our weight” in capital markets, Van Saun said last Friday in a telephone interview. “We've added to the overall heft and quality of what we have in terms of the capital markets effort, so it's the combination of a growing customer base and expanded capabilities that allows us to see that traction.”

Bloomberg News

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Regionals Take on Wall Street in Investment-Banking Push

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