April 22 (Bloomberg) -- SunTrust Banks Inc., the largest bank based in Georgia, said first-quarter profit fell 45 percent after the company set aside more money to cover bad loans to homeowners and builders.

Net income declined to $283.6 million, or 81 cents a share, from $513.9 million, or $1.44, in the same period a year earlier, the Atlanta-based company said today in a statement. The figures include expenses from preferred dividends. That's lower than the average estimate of $1.03 a share from 21 analysts surveyed by Bloomberg.

Chief Executive Officer James Wells, who reported three quarterly profit declines last year, has targeted job cuts of 2,400 employees, or about 7 percent of the workforce, as property values slump and homeowners in Florida fall behind on payments. SunTrust expects to build reserves in future quarters against ``significant'' losses in home-equity loans, it said in a slide presentation.

``It's kind of a shame that the positive impact of some of the things they are working on aren't going to show up in earnings'' as credit losses rise, Jefferson Harralson, an analyst with KBW Inc., said today in an interview. The first-quarter results were, ``creditwise, worse than expected.''

SunTrust gained 30 cents to $52.60 at 4:15 p.m. in New York Stock Exchange composite trading. The stock fell 16 percent this year to date. That's more than the 10 percent decline in the 24- member KBW Bank Index.

Loss Provisions

The bank raised its provisions for loan losses 10-fold to $560 million because of expected borrower defaults on mortgages, home equity credit lines and residential construction.

``We obviously are not pleased with our credit performance and the impact on near-term earnings,'' Wells said in a conference call. The company expects its construction loan portfolio to decline this year, according to the slides.

SunTrust's Tier 1 capital ratio fell 0.35 percentage point to 7.25 percent at the end of the quarter from March 31, 2007, the company said. Tier 1 is a measure of a bank's ability to withstand loan losses. SunTrust's ratio is lower than the 8.3 percent average of the top 30 U.S. banks, according to Bob Patten, an analyst with Morgan Keegan & Co. in New York.

``They're behind the market here,'' Patten said in an interview yesterday.

Coca-Cola

SunTrust reiterated it expects to complete a ``transaction'' with its stake in Coca-Cola Co. in the second quarter that will generate about $1 billion of Tier 1 capital.

``The preferred approach does not reflect a simple, outright sale of the stock,'' Wells said on the call. ``We believe Coke is performing well and will continue to do so.''

SunTrust owns 43.6 million shares of Atlanta-based Coca- Cola. Ties between the world's largest soft-drink company and the bank date to 1919, when a predecessor bank, Trust Company of Georgia, took stock instead of cash when it helped manage Coca- Cola's public offering. The bank keeps a copy of the original formula for Coca-Cola in a vault.

The net interest margin, the difference between interest paid on deposits and received from loans, widened to 3.07 percent from 3.02 percent in the previous-year period. Net interest income declined 1.7 percent to $1.17 billion.

Homeowners in Florida fell behind on payments at the nation's fastest rate in the first quarter, according to Moody's Economy.com, and one in every 282 Florida households received a foreclosure filing during March, which is 1.9 times the national average. SunTrust is the third-biggest bank in Florida by deposits, behind Bank of America Corp. and Wachovia Corp., according to Patten.

Job Cuts

The lender expects savings of $500 million this year through cost reductions including job cuts, Wells said. That estimate is higher than the $350 million in savings the company forecast in July.

``The real issues on SunTrust are credit and capital,'' said Morgan Keegan's Patten. ``Housing has got to bottom out and it's not going to happen right away.'' He has a ``hold'' rating on the stock.

SunTrust operates 1,682 retail branches throughout the Southeast and had assets of $179.6 billion at the end of the year, according to its Web site.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

Last Updated: April 22, 2008 17:02 EDT