SunTrust Gets Profit Pop From Coke Sale

SunTrust Banks(STI - Cramer's Take - Stockpickr) outpaced Wall Street's profit expectations in the second quarter, thanks to the sale of its remaining holdings in Coca-Cola(KO - Cramer's Take - Stockpickr).

SunTrust reported second-quarter net income of $540 million, or $1.53 per average diluted common share, coming in way ahead of analysts' consensus estimate of just 64 cents per share. The Atlanta holding company's results compare with a profit of $291 million last quarter and $681 million for the second quarter of 2007.

The company booked a total of $550 million in securities gains for the quarter. The sale of Coke stock was completed on July 15.

Shares were climbing 4.9% to $35.80 in recent trading, after dipping earlier as the overall market reacted to several weak earnings reports, including a second-quarter net loss of nearly $10 billion for Wachovia(WB - Cramer's Take - Stockpickr).

A lower provision for loan losses also contributed to the improved earnings over last quarter. The provision was $448 million, compared with $560 million last quarter and $105 million in the second quarter of 2007.

SunTrust emphasized the effect of the sale of Coke's shares on its capital ratios. Here's a comparison of the company's capital ratios and loan-loss reserve coverage from last quarter and year over year:

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Here's a summary of SunTrust's overall asset quality. While many holding companies exclude accruing loans past due 90 days from the "nonperforming loans" category, they are included here and in the ratio calculations above.

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The main factor in the continuing deterioration in asset quality was a 29% increase in nonaccrual loans and leases from the previous quarter. Following the trend for many large regional banks, most of the increases were in construction loans and commercial real estate loans.

Net charge-offs for the quarter totaled $356 million, or an annualized 1.04% of average loans. While that is up from last quarter, it's not the worst we've seen for the regional banks. SunTrust's ratio of loan-loss reserves to total loans was 1.45% as of June 30. This was up from 1.18% the previous quarter and shows the company has been making large enough provisions for loan losses to keep ahead of charge-offs.

CEO James Wells III stated that in light of its improved capital position and careful balance sheet management, SunTrust had no plans to raise additional capital or cut its $3.08 dividend on common shares. That dividend translates to a yield of 8.90%.