Unlike some large banks with billions of dollars in losses from the mortgage meltdown, SunTrust Banks Tuesday reported $535 million in second-quarter profits.

But much of the gains that helped SunTrust's results for the quarter ending in June came from moves resembling selling the family silver —- the disposal of much of its 89-year-old stake in another Atlanta icon, Coca-Cola.

Without the series of complicated transactions involving its 43.6 million Coke shares, SunTrust's profits for the three months would have been half as big. As it was, they were 20 percent lower than a year earlier.

Yet with Wall Street starving for good news about the financial sector, the Atlanta bank's profits were greeted warmly. Its shares jumped more than 16 percent after it announced its results, rising $5.52 to $39.66.

Other bank stocks shot up as well amid Wall Street's relief over signs that the industry's problems could be bottoming out. A string of better-than-expected results have been helping to reverse banks' plunging stock prices.

Even banking giant Wachovia saw its stock rebound 27 percent Tuesday after reporting a second-quarter loss of $8.9 billion and announcing plans to cut thousands of jobs. Charlotte-based Wachovia is SunTrust's biggest rival in Atlanta, in terms of deposits.

SunTrust's and other banks' stocks have been hammered recently by worries of mounting losses from bad loans stemming from the meltdown in the housing market and the slowdown in the economy.

Even with Tuesday's gain, SunTrust's shares are still down almost 37 percent this year. Investors have feared that the downturn could force SunTrust to cut or suspend its dividend and issue stock or other securities to boost its capital.

SunTrust had announced months ago that it planned to shed the Coke stake as part of its efforts to beef up certain capital levels monitored by banking regulators. The Coke stake, which SunTrust got in 1919 when it helped take the soft drink company public, was recently worth almost $2 billion.

Investors had pressured executives to sell the stock in years past, but the company resisted, saying it feared huge tax consequences. The transactions announced Tuesday were structured to minimize that tax bill.

SunTrust said it was able to boost its so-called Tier 1 capital, which indicates financial strength, by more than $700 million through the sale of 10 million Coca-Cola shares in June.

The company said the Federal Reserve cleared another transaction in July in which SunTrust agreed to sell 30 million Coke shares over the next seven years while simultaneously giving a $1 billion-plus IOU to an unidentified counterparty. With that transaction, SunTrust boosted Tier 1 capital and hopes to minimize its tax hit from capital gains that would be triggered by an outright sale of those Coke shares.

SunTrust expects to continue collecting dividends and sharing in future appreciation of the Coke stock under the terms of the deal.

"They're saying it's not a taxable event. Do they get challenged [by the Internal Revenue Service]? I don't know," said bank industry analyst Christopher Marinac, with Atlanta-based firm FIG Partners.

A spokesman for SunTrust said the bank has reviewed the transaction and is "comfortable" that it will pass tax authorities' scrutiny.

In a third move aimed at avoiding a big tax bill, SunTrust contributed another 3.6 million Coca-Cola shares to its charitable foundation.

As a result of the transactions, SunTrust said it was able to boost its Tier 1 capital level to 7.95 percent, exceeding the regulators' benchmark of 6 percent for a "well capitalized" bank.

The nearly $350 million in gains from part of the Coke stock transactions helped offset declining profits or outright losses at most of SunTrust's business units. SunTrust said its mortgage business lost $91.1 million during the quarter.

These days, that's still an accomplishment, said Marinac.

"The bottom line is they have earnings," said Marinac, although "they're barely covering their dividend."

In a conference call, SunTrust executives said they expect to maintain the dividend. "We do not anticipate modifying our dividend at this current time," said James M. Wells III, SunTrust's chairman and chief executive.

Marinac, who believes SunTrust should cut or suspend its dividend to save cash in case the economy worsens, said he still sees some worrying signs.

He noted that several measures of the health of SunTrust's loan portfolio worsened in the second quarter, and aren't expected to improve in coming months.

"When is the last time SunTrust had a 2.5 percent [level of] problem assets? It's a big number," said Marinac. SunTrust, which has roughly $126 billion in total loans, said its "non-performings assets" —- loans with payments over three months late —- totaled $3.14 billion at the end of the quarter, up from $2.32 billion at the end of the first quarter.

"They can manage," he said. "It's just uncomfortably high," he said.

Marinac also expects SunTrust's bottom line to be "a little better" in the third quarter because it won't have to re-adjust the value of part of its debt under new accounting rules that recently went into effect.

Value of Coke stock owned by SunTrust:

$110,000: In 1919

$2.3 billion: End of 2006

$0: Once transactions announced today are complete

BALANCE SHEET

Profits from SunTrust's Coke transactions helped offset declines in its core businesses in the second quarter

Business unit ........Net income........Change from '07

Mortgage ..........—-$91.1 million ....[down] 320%

Retail, commercial

banking..............$110.7 million ....[down] 45%

Wholesale banking*....$74.8 million ....[down] 37%

Wealth, investment

management............$43.7 million ....[down] 19%

Corporate,

other treasury** ....$402.3 million ....[up] 50%

* Large corporate clients, real estate and investment banking

**Includes Coke transactions and other hedging and trading

Source: SunTrust