Regional bank profits fall as loan losses rise

By Jonathan Stempel

NEW YORK (Reuters) - U.S. regional banks SunTrust Banks Inc (STI.N), BB&T Corp (BBT.N) and First Horizon National Corp (FHN.N) on Thursday posted earnings below analysts' forecasts, as a slowing economy and housing market caused increases in bad loans.

Profit fell 23 percent at SunTrust and rose 6 percent at BB&T, while First Horizon posted a loss. All three operate mainly in the U.S. southeast.

Operating profit rose 23 percent at PNC Financial Services Group Inc (PNC.N), which operates in the mid-Atlantic, though net income fell 73 percent because of a large one-time gain a year earlier. Earnings fell 12 percent at Ohio's Huntington Bancshares Inc (HBAN.O). Results at both topped forecasts.

"We're in the midst of a worsening credit cycle," said Chris Hagedorn, who helps invest $22.4 billion at Fifth Third Asset Management in Cincinnati. "Banks will need to keep building reserves, which hinders earnings."

Regional banks are struggling along with larger rivals. Bank of America Corp (BAC.N), the No. 2 U.S. bank, on Thursday posted a 32 percent drop in quarterly profit, three days after No. 1 Citigroup Inc (C.N) said profit slid 57 percent. Earnings slumped 72 percent at Washington Mutual Inc (WM.N), the nation's largest thrift said on Wednesday.

Atlanta-based SunTrust said third-quarter profit totaled $412.6 million, or $1.18 per share. Excluding items, profit was $1.26 per share, 2 cents below the average analyst forecast, according to Reuters Estimates.

Results included $161 million of writedowns for loan and trading assets. The amount set aside for loan losses more than doubled to $147 million. SunTrust said it may pursue more restructuring after in August setting 2,400 job cuts.

BB&T, based in Winston-Salem, North Carolina, said profit totaled $444 million, or 80 cents per share. Excluding items, profit was 81 cents per share, 3 cents below the average forecast. Credit losses rose 69 percent to $109 million.

Memphis, Tennessee-based First Horizon lost $14.2 million, or 11 cents per share. Friedman, Billings, Ramsey & Co analysts estimated operating profit at 7 cents per share, excluding a cost-cutting program. Analysts on average expected profit of 27 cents per share. Bad loans rose 83 percent.

Operating profit at Pittsburgh-based PNC was $469 million, or $1.37 per share, two cents per share ahead of forecasts. Fees rose 24 percent, helped by brokerage and asset management gains and the purchase of Baltimore's Mercantile Bankshares Corp.

Columbus, Ohio-based Huntington said profit fell to $138.2 million, or 38 cents per share, reflecting costs to buy Sky Financial Group Inc. Excluding items, profit was 47 cents per share, four cents ahead of forecasts.

In afternoon trading, SunTrust shares rose $1.89 to $73.64; BB&T fell $1.07 to $37.49; First Horizon fell $1.14 to $23.90; PNC surged $3.30 to $70.57, and Huntington rose 12 cents to $17.08. The Philadelphia KBW Bank Index .BKX and KBW Regional Bank Index .KRX fell a respective 1 percent and 1.6 percent.

(Additional reporting by Anupreeta Das, Joseph A. Giannone, Tim McLaughlin, Christian Plumb, Euan Rocha, Dan Wilchins and Lilla Zuill in New York, and Ratul Ray Chaudhuri in Bangalore)