U.S. Bancorp, SunTrust Banks Inc. and KeyCorp have, by at least one important measure, the healthiest loan portfolios among the country's largest banks. But even they have not been immune to the negative credit-quality trends sweeping through the industry.

All three banks on Wednesday reported higher net chargeoffs in the second quarter compared with the first, and boosted their allowances for loan losses as a percentage of total loans.

But it was not for nothing that these three companies ranked strongest among their peers in the portion of the government stress tests that examined expected loan losses under worst-case conditions. Compared with the first quarter, provision for loan losses shrank at SunTrust and Key. U.S. Bancorp increased its reserve, but at a relatively modest 5.8% clip.

"We're continuing to enjoy the benefits of the many years of not stretching to make too many loans to C&I and commercial real estate customers," U.S. Bancorp Chairman and Chief Executive Richard K. Davis told analysts on a conference call.

On SunTrust's call, Chief Credit Officer Thomas Freeman sought to assure investors that the company has less exposure to businesses than other big banks, saying that about half the properties in SunTrust's nonresidential commercial real estate book were occupied by the borrower and that commercial and industrial lending, while suffering some "minor weakness," was mostly stable and "doing okay."

Freeman said losses for the first half of this year were $1.4 billion, making it unlikely that SunTrust would reach the $11.8 billion in cumulative losses for 2009 and 2010 that were projected under the worst-case conditions considered in the government's stress test. Under that scenario, SunTrust's losses were estimated at 8.3% of total loans, or the second-lowest percentage of the major financial institutions tested.

U.S. Bancorp fared best, with an estimated loss rate of 7.8%, while Key came in third at 8.5%.

However, Freeman projected that chargeoffs would continue to rise this quarter. That could mean more pain for SunTrust, which has lost money for three straight quarters.

SunTrust reported a second-quarter loss of $164.4 million, or 41 cents a share, compared with a year-earlier profit of $530 million, or $1.52 a share, reflecting the steep run-up in credit costs since mid-2008.

SunTrust, of Atlanta, more than doubled its loan-loss provision from last year's second quarter, to $962.2 million, though the reserve was 3.2% smaller than in the first quarter. Including the impact of a new policy in which fraud-related hits were reclassified as chargeoffs, net chargeoffs climbed to $801.2 million, up 31% from the first quarter.

Freeman said residential mortgages would "drive elevated losses over the near term," but he said early-stage delinquencies are starting to fall for most types of loans.

In many ways, SunTrust sought to distance itself from rivals such as Regions Financial Corp., which a day earlier reported that nonperforming assets rose 47% from the first quarter.

Despite encouragement from the government to lend capital issued under the Troubled Asset Relief Program, SunTrust, which accepted $4.9 billion in Tarp money last fall, reported that total loans fell 0.8% from the first quarter and 2.4% from a year earlier, to $122.8 billion.

Chief Financial Officer Mark Chancy said the decline was due largely to "sluggish demand from creditworthy" borrowers, particularly midsize and corporate clients that can again tap capital markets.

Corporate borrowing also has been sluggish at U.S. Bancorp, which credited retail loan growth as the main driver of its 12.8% increase in total loan growth over last year's second quarter.

An analyst on U.S. Bancorp's conference call asked whether the slump in commercial loan demand was good news reflecting the paydown of debt, or bad news implying further cuts in output and employment.

"Can it be both? Because it feels like both," Davis said. While "the demand is still there for the right customers," many borrowers "have really restructured the way they run their businesses and they're simply not drawing on those open-to-buy loans and lines," he said.

Second-quarter earnings at U.S. Bancorp fell by half to $471 million, or 12 cents a share. The Minneapolis company's costs in the quarter included the special assessment charged by the Federal Deposit Insurance Corp., the amortization of the discount tied to the Tarp preferred stock redeemed last month and the increased provision for credit losses.

Key narrowed its loss to $236 million, or 69 cents, from last year's second-quarter loss of $1.1 billion, or $2.71 a share.

While the company's $850 million loan-loss provision was smaller than the $875 million set aside in the previous quarter, it was 31% higher than in last year's second quarter. Key also fell short of analyst earnings forecasts on a pre-provision basis, as capital markets activity failed to produce the expected growth in core fees.

"Our results continue to reflect the weak economic environment and the aggressive steps we've taken to address credit quality, strengthen our capital position and control costs as we manage through this difficult credit cycle," Chief Executive Officer Henry L. Meyer 3rd said in a news release.

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