SunTrust Banks Inc posted its second straight quarterly loss, though results topped forecasts as deposit growth and higher mortgage lending offset charges tied to the collapsing real estate market.

The U.S. Southeast regional bank said its net loss applicable to common shareholders was $875.4 million, or $2.49 per share, compared with a profit of $281.6 million, or 81 cents, a year earlier.

Excluding a goodwill charge, Atlanta-based SunTrust said the loss was $160.6 million, or 46 cents per share. On that basis, analysts expected a loss of 64 cents per share, Reuters Estimates said.

Chief Executive James Wells said SunTrust saw preliminary signs of improvement in several key areas, including a drop in early-stage loan delinquencies and higher core deposits. Mortgage banking revenue tripled from a year earlier.

Nevertheless, Wells said the economy is not out of the woods. The operating environment remains difficult, he said. While we know recovery will be forthcoming, we are not looking for things to turn around quickly.

Barclays Capital analyst Jason Goldberg wrote that SunTrust's core earnings appeared to be lower than forecast, after discounting some one-time gains. But he said trends may be viewed as better than some expected.

Results included a $714.8 million goodwill charge, which SunTrust said reflected deteriorating real estate and economic conditions that reduced the value of mortgage and commercial real estate assets.

Shares of SunTrust rose 89 cents, or 5.8 percent, to $16.29 in morning trading on the New York Stock Exchange.

BAD LOANS INCREASE

The bank set aside $994.1 million for bad loans, up 78 percent from a year earlier, while net chargeoffs more than doubled to $610.1 million.

Loans that are not performing, or otherwise not accruing interest, increased by $701 million during the quarter to $4.64 billion, or 3.75 percent of total loans. Nonperforming assets totaled $5.25 billion.

Residential mortgages and home equity lines of credit accounted for 54 percent of nonperforming loans, with a large portion of the weakness in Florida, SunTrust said.

The bank posted a net loss of $815.2 million before accounting for payment of preferred stock dividends. Analysts expect the bank to lose money in every quarter this year.

SunTrust has taken $4.9 billion from the government's Troubled Asset Relief Program. The bank is one of 19 undergoing government stress tests to measure its need for capital in a deep recession. Test results are due May 4. Wells said he would like to return the TARP money as soon as practical.

The bank's ratio of tangible common equity to tangible assets ended March at 5.82 percent, better than the 5 percent that some analysts prefer.

SunTrust ended March with $179.1 billion of assets. It operates 1,694 branches in 11 states and Washington, D.C.

Through Wednesday, the bank's shares had fallen 48 percent this year, compared with a 27 percent drop in the KBW Bank Index <.BKX>.

(Reporting by Jonathan Stempel; Editing by Lisa Von Ahn, Derek Caney and John Wallace)

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