SunTrust Q2 earnings fall 21%

SunTrust Banks Inc.'s profit fell 21 percent in the second quarter due to high credit costs, even after it sold a big stake in The Coca-Cola Co.

The Atlanta-based bank holding company had net income of $535.3 million and earnings of $1.53 a share, compared with net income of $673.9 million and earnings of $1.89 a share in the second quarter of 2007. Second-quarter revenue rose 2.6 percent to $2.6 billion.

In June, SunTrust (NYSE: STI) sold 10 million shares of Coke (NYSE: KO) stock, which strengthened its estimated Tier 1 capital position by 20 basis points, it said. In July, the company completed a Tier 1 transaction involving 30 million shares of Coke stock. The company also contributed 3.6 million shares of Coke common stock to its charitable foundation, which will reduce ongoing charitable contribution expense and increase Tier 1 capital by 4 basis points.

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The sale of Coke stock boosted net earnings by 75 cents a share in the second quarter. But items that negatively impacted results included mark-to-market losses on the company's debt, which reduced earnings by 17 cents a share; impairment of an intangible asset, which cut earnings by 8 cents a share; Coke stock transaction costs, which had a negative impact of 2 cents share; and costs of 2 cents a share for the company's E2 Efficiency and Productivity Program.

"Our capital position solidified during the quarter as a result of the Coke stock-related transactions, which make SunTrust even better prepared to address the challenges of the current environment, as well as strengthen our position for the long-term," said James M. Wells III, chairman, president and CEO, in a prepared statement. "Against a backdrop of economic weakness, deteriorating market conditions, and industry-wide volatility, our second quarter results reflect the company's intense focus on managing our core business, balance sheet, and credit risk through this difficult cycle."

Wells noted the high costs of credit continued to take a toll on earnings, though at a slower pace than the earlier this year. Wells reiterated company does not plan to modify its dividend or issue additional shares of common stock.

Net charge-offs increased 8.6 percent from the first quarter, which equated to an annualized 104 basis points of average loans.

Provision for loan losses jumped to $448 million, compared with $104.7 million in the second quarter of 2007. The allowance for loan losses increased to $1.8 billion, or 1.46 percent of total loans outstanding, which is up 41 basis points from the end of 2007 and 21 basis points from the first quarter of 2008.

Average loans for the second quarter were $125.2 billion, up 5.9 percent from the second quarter of 2007. Nonperforming loans were $2.8 billion, or 2.22 percent, of total loans, compared with $765 million, or 0.64 percent, of total loans at the end of the second quarter of 2007.

Average consumer and commercial deposits for the second quarter of 2008 were $101.7 billion -- a 3.9 percent increase from the second quarter of 2007.

SunTrust is the largest financial institution in the Orlando area with nearly $5.92 billion in deposits, 73 offices and a market share of 18.78 percent as of June 30, according to the latest report from the Federal Deposit Insurance Corp.