SunTrust Banks Inc., the largest bank based in Georgia, and First Horizon National Corp., Tennessee's biggest bank, led a decline of Southern lenders on Monday as investors feared that bad loans to builders will make a rebound in the banks unlikely this year.

"Problems are just beginning to emerge in the commercial real estate portfolio," S&P analysts Charles Rauch and Daniel Teclaw said in a report on SunTrust. S&P has a negative outlook on SunTrust and may reduce the lender's "A+" credit rating if the number of loans for which the bank isn't receiving interest exceeds expectations.

Investors are shunning bank stocks on concern that builders will default on loans as they are unable to complete projects amid the worst U.S. housing slump since the Great Depression. Marshall & Ilsley Corp., Wisconsin's largest bank, said July 3 that it had an unexpected second-quarter loss as developers in warm-weather states failed to pay debts.

"It seems that these bank stocks keep defying expectations by going lower," Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners, said in an interview. "People are looking deeper into the loan books and applying increasingly higher loss assumptions."

SunTrust shares declined $3.18 to $31.74. Earlier, the shares hit $30.92, their lowest value since September 1995.

First Horizon declined 80 cents to $6.27. It fell to $5.88 earlier, its lowest point since September 1991.

SunTrust will probably have to cut its dividend and raise capital mainly because of rising losses on its $7.8 billion of residential construction loans, Friedman Billings, Ramsey & Co. analyst Paul Miller said in a report Monday.

SunTrust said June 20 that it doesn't plan to modify its 77-cents-pershare quarterly dividend or issue additional common shares.

The bank's dividend yield is 9.8 percent.

Bank stocks Monday also suffered because of Zions Bancorporation's announcement last week that it raised $45.7 million in proceeds from preferred stock after offering $150 million in shares, Fitzsimmons said. Zions is the largest bank based in Utah.

"More investors are trading on that news and looking at the Southeast, where construction is a big part of the economy and likely to be the source of more pain," Fitzsimmons said.

SunTrust spokesman Barry Koling declined to comment.