Good loan growth helped boost second-quarter earnings at SunTrust Banks Inc. to $140.9 million, up 7% from a year earlier. But a shrinking net interest margin and sluggish fee income demonstrated how SunTrust, like many of its peers, is struggling with higher deposit costs.

"Loan growth is still pretty good in the Southeast, yet the banks have exhausted their supply of core deposits," said George Bicher, an analyst with Alex. Brown & Sons. "Now they're having to turn to increasing rates on certificates of deposit and go to the wholesale market for funding."

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