July 22 (Bloomberg) -- SunTrust Banks Inc., the largest bank based in Georgia, said earnings dropped 21 percent as more real estate loans went sour. The stock gained 16 percent after SunTrust said it won't need to sell shares or cut the dividend.

Second-quarter net income available to common shareholders fell to $535.3 million, or $1.53 a share, from $673.9 million, or $1.89, in the year-earlier period, SunTrust said in a statement today. Earnings at the Atlanta-based bank excluding gains from selling stock in Coca-Cola Co. were 78 cents a share, exceeding the average analyst estimate of 66 cents.

Investors have shunned lenders including SunTrust on concern that builders in once-booming warm-weather states won't be able to pay debts amid the worst housing slump since the Great Depression. SunTrust recorded a second-quarter gain on the sale of 10 million shares of Coca-Cola, which helped lift Tier 1 capital by 68 basis points. The company has the least cash set aside for possible loan losses among large U.S. banks, JPMorgan Chase & Co. analyst Vivek Juneja wrote in a June 20 report.

``Our capital position solidified during the quarter,'' Chairman James M. Wells said in the statement. Higher credit costs continued to hurt earnings, ``though at a slower pace than the previous quarter,'' he said.

SunTrust said nonperforming loans were 2.2 percent of the total as of June 30, up from 1.7 percent on March 31. The rise was due mainly to late payments on mortgage and construction loans as the housing market and economy weakened, the company said.

Market Value

The bank's stock added $5.52 to $39.66 in 4:15 p.m. New York Stock Exchange composite trading. SunTrust had lost more than a third of its market value this year.

Paul Miller at Friedman Billings, Ramsey Group Inc., the top performer in Bloomberg's survey of analysts, had predicted SunTrust would cut its dividend and raise capital. The bank's 77-cent quarterly payout yields about 7.7 percent annually at today's close. The average yield in the 24-stock KBW Bank Index was 6.2 percent.

While SunTrust doesn't need to raise capital, the bank may do so during the second half if market conditions improve, Chief Financial Officer Mark Chancy said during a conference call.

SunTrust said it boosted Tier 1 capital by selling 10 million Coca-Cola shares and contributing an additional 3.6 million shares in the soft-drink company to the bank's charitable foundation. The company also completed a transaction involving the remaining 30 million Coke shares to help bolster capital; that stock will eventually be sold, the company said.

Last year included a $145.6 million gain from selling part of the bank's stake in Coca-Cola.

SunTrust ranks among the largest holders of Coca-Cola, whose stock dropped almost 7 percent in the past 12 months.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: July 22, 2008 16:24 EDT